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, 2001 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, 2001: 419,104 - -------------------------------------------------------------------------------- Common Stock Outstanding as of April 30, 2001: 16,267,628 - --------------------------------------------------------------------------------
OSHKOSH TRUCK CORPORATION FORM 10-Q INDEX FOR THE QUARTER ENDED MARCH 31, 2001 Page Part I. Financial Information Item 1. Financial Statements (Unaudited) Condensed Consolidated Statements of Income - Three Months Ended March 31, 2001 and 2000; Six Months Ended March 31, 2001 and 2000.............. 3 Condensed Consolidated Balance Sheets - March 31, 2001 and September 30, 2000................. 4 Condensed Consolidated Statement of Shareholders' Equity - Six Months Ended March 31, 2001....................... 5 Condensed Consolidated Statements of Cash Flows - Six Months Ended March 31, 2001 and 2000.............. 6 Notes to Condensed Consolidated Financial Statements - March 31, 2001........................................ 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......28 Part II. Other Information Item 1. Legal Proceedings...........................................29 Item 4. Submission of Matters to Vote of Security Holders...........29 Item 6. Exhibits and Reports on Form 8-K............................30 Signatures...................................................................31 2
<TABLE> PART I. ITEM 1. FINANCIAL INFORMATION OSHKOSH TRUCK CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) <CAPTION> Three Months Ended Six Months Ended March 31, March 31, --------- --------- 2001 2000 2001 2000 ---- ---- ---- ---- (In thousands, except per share amounts) <S> <C> <C> <C> <C> Net sales $ 341,970 $ 330,524 $ 623,487 $ 574,391 Cost of sales 291,466 280,763 529,716 484,653 ------------ ------------ ------------ ------------ Gross income 50,504 49,761 93,771 89,738 Operating expenses: Selling, general and administrative 26,526 22,334 49,145 42,912 Amortization of goodwill and other intangibles 2,946 2,772 5,810 5,544 ------------ ------------ ------------ ------------ Total operating expenses 29,472 25,106 54,955 48,456 ------------ ------------ ------------ ------------ Operating income 21,032 24,655 38,816 41,282 Other income (expense): Interest expense (5,160) (5,412) (9,818) (11,198) Interest income 310 188 479 354 Miscellaneous, net 5 171 5 285 ------------ ------------ ------------ ------------ (4,845) (5,053) (9,334) (10,559) ------------ ------------ ------------ ------------ Income before items noted below 16,187 19,602 29,482 30,723 Provision for income taxes 5,292 7,964 10,667 12,704 ------------ ------------ ------------ ------------ 10,895 11,638 18,815 18,019 Equity in earnings of unconsolidated partnership, net of income taxes 389 275 692 590 ------------ ------------ ------------ ------------ Income from continuing operations 11,284 11,913 19,507 18,609 Gain from discontinued operations, net of income taxes of $1,235 -- 2,015 -- 2,015 Extraordinary charge for early retirement of debt, net of income tax benefit of $356 -- -- -- (581) ------------ ------------ ------------ ------------ Net income $ 11,284 $ 13,928 $ 19,507 $ 20,043 ============ ============ ============ ============ Earnings (loss) per share: Continuing operations $ 0.68 $ 0.72 $ 1.17 $ 1.20 Discontinued operations -- 0.12 -- 0.13 Extraordinary charge -- -- -- (0.04) ------------ ------------ ------------ ------------ Net income $ 0.68 $ 0.84 $ 1.17 $ 1.29 ============ ============ ============ ============ Earnings (loss) per share assuming dilution: Continuing operations $ 0.66 $ 0.70 $ 1.14 $ 1.18 Discontinued operations -- 0.12 -- 0.13 Extraordinary charge -- -- -- (0.04) ------------ ------------ ------------ ------------ Net income $ 0.66 $ 0.82 $ 1.14 $ 1.27 ============ ============ ============ ============ Cash dividends: Class A Common Stock $ 0.07500 $ 0.07500 $ 0.15000 $ 0.15000 Common Stock $ 0.08625 $ 0.08625 $ 0.17250 $ 0.17250 The accompanying notes are an integral part of these condensed consolidated financial statements. </TABLE> 3
<TABLE> OSHKOSH TRUCK CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS <CAPTION> March 31, September 30, 2001 2000 ---- ---- (Unaudited) (In thousands) ASSETS <S> <C> <C> Current assets: Cash and cash equivalents $ 4,979 $ 13,569 Receivables, net 141,385 106,805 Inventories 289,725 201,210 Prepaid expenses 5,207 5,424 Deferred income taxes 11,503 14,708 ---------------- ----------------- Total current assets 452,799 341,716 Investment in unconsolidated partnership 17,268 15,179 Other long-term assets 14,046 9,995 Property, plant and equipment 219,499 206,507 Less accumulated depreciation (94,221) (87,748) ---------------- ----------------- Net property, plant and equipment 125,278 118,759 Goodwill and other intangible assets, net 323,259 310,731 ---------------- ----------------- Total assets $ 932,650 $ 796,380 ================ ================= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 107,154 $ 84,215 Floor plan notes payable 40,297 23,925 Customer advances 81,807 58,493 Payroll-related obligations 18,884 23,465 Accrued warranty 15,626 15,519 Other current liabilities 61,867 52,310 Revolving credit facility and current maturities of long-term debt 64,439 8,544 ---------------- ----------------- Total current liabilities 390,074 266,471 Long-term debt 148,833 154,238 Deferred income taxes 41,429 46,414 Other long-term liabilities 34,129 28,200 Commitments and contingencies Shareholders' equity 318,185 301,057 ---------------- ----------------- Total liabilities and shareholders' equity $ 932,650 $ 796,380 ================ ================= </TABLE> The accompanying notes are an integral part of these condensed consolidated financial statements. 4
<TABLE> OSHKOSH TRUCK CORPORATION CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY SIX MONTHS ENDED MARCH 31, 2001 (Unaudited) <CAPTION> Common Stock Other Common Paid-in Retained in Treasury Comprehensive Stock Capital Earnings at Cost Income Total ----- ------- -------- ------- ------ ----- (In thousands) Balance at <S> <C> <C> <C> <C> <C> <C> September 30, 2000 $ 178 $ 109,740 $ 201,791 $ (10,652) $ ---- $301,057 Comprehensive income: Net income ---- ---- 19,507 ---- ---- 19,507 Gain on derivative instruments, net ---- ---- ---- ---- 44 44 -------- Comprehensive income 19,551 Cash dividends: Class A Common Stock ---- ---- (63) ---- ---- (63) Common Stock ---- ---- (2,805) ---- ---- (2,805) Other ---- 265 ---- 180 445 ----- ---------- ---------- ----------- -------- -------- Balance at March 31, 2001 $ 178 $ 110,005 $ 218,430 $ (10,472) $ 44 $318,185 ===== ========== ========== =========== ========= ======== The accompanying notes are an integral part of these condensed consolidated financial statements. </TABLE> 5
<TABLE> OSHKOSH TRUCK CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) <CAPTION> Six Months Ended March 31, 2001 2000 ---- ---- (In thousands) Operating activities: <S> <C> <C> Income from continuing operations $ 19,507 $ 18,609 Non-cash adjustments 11,714 10,500 Changes in operating assets and liabilities (47,324) (45,425) ----------------- ----------------- Net cash used for operating activities (16,103) (16,316) Investing activities: Acquisition of businesses, net of cash acquired (26,423) (5,625) Additions to property, plant and equipment (9,311) (9,469) Proceeds from sale of property, plant and equipment 25 46 Increase in other long-term assets (4,598) (1,489) ----------------- ----------------- Net cash used for investing activities (40,307) (16,537) Net cash provided from discontinued operations -- 2,015 Financing activities: Net borrowings under revolving credit facility 54,800 33,200 Repayment of long-term debt (4,310) (93,742) Proceeds from Common Stock offering -- 93,736 Costs of Common Stock offering -- (334) Dividends paid (2,866) (2,531) Other 196 31 ----------------- ----------------- Net cash provided from financing activities 47,820 30,360 ----------------- ----------------- Decrease in cash and cash equivalents (8,590) (478) Cash and cash equivalents at beginning of period 13,569 5,137 ----------------- ----------------- Cash and cash equivalents at end of period $ 4,979 $ 4,659 ================= ================= Supplementary disclosures: Depreciation and amortization $ 13,441 $ 11,515 Cash paid for interest 8,921 12,014 Cash paid for income taxes 11,291 9,258 </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 - ------------------------ General - 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 2000 annual report to shareholders. Reclassifications - Certain reclassifications have been made to the fiscal 2000 financial statements to conform to the fiscal 2001 presentation. Derivative Financial Instruments - On October 1, 2000, the Company adopted Financial Accounting Standard No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"). This statement requires companies to record derivatives on the balance sheet as assets or liabilities, measured at fair value. Any changes in fair value of these instruments are recorded in the income statement or other comprehensive income. The impact of adopting FAS 133 on accumulated other comprehensive income resulted in a loss of $0.1 million. During the first six months of fiscal 2001, the Company did not reclassify any derivative gains or losses to the income statement. The cumulative effect of adopting FAS 133 on the results of operations was immaterial. Shipping and Handling Fees and Costs - In September 2000, the Emerging Issues Task Force ("EITF") issued EITF Abstract No. 00-10 "Accounting for Shipping and Handling Fees and Costs". EITF No. 00-10 prescribes guidance regarding the income statement classification of costs incurred for shipping and handling fees and costs. This guidance requires shipping fees to be recognized in revenue and shipping costs to be recognized in cost of sales. This statement is to be effective during the fourth quarter of fiscal 2001. The Company will reclassify shipping fee revenue out of cost of sales, where it currently is classified as a reduction of shipping costs, and into revenue. 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: 7
<TABLE> <CAPTION> Three Months Ended Six Months Ended March 31, March 31, --------- --------- 2001 2000 2001 2000 ---- ---- ---- ---- <S> <C> <C> <C> <C> Denominator for basic earnings per share 16,677,864 16,628,316 16,673,340 15,507,527 Effect of dilutive options and incentive compensation awards 442,367 314,625 423,556 312,581 -------------- -------------- -------------- -------------- Denominator for dilutive earnings per share 17,120,231 16,942,941 17,096,896 15,820,108 ============== ============== ============== ============== </TABLE> 3. INVENTORIES - -------------- Inventories consist of the following: March 31, September 30, 2001 2000 ---- ---- (In thousands) Finished products $ 69,494 $ 53,068 Partially finished products 132,257 75,667 Raw materials 110,445 95,776 ------------- ------------ Inventories at FIFO cost 312,196 224,511 Less: Progress payments on U.S. government contracts (10,179) (12,313) Excess of FIFO cost over LIFO cost (12,292) (10,988) ------------- ------------ $ 289,725 $ 201,210 ============= ============ Title to all inventories related to government contracts, which provide for progress payments, vests with the government to the extent of unliquidated progress payments. 4. ACQUISITIONS/DISPOSITIONS/OTHER - ---------------------------------- On March 6, 2001, the Company purchased machinery and equipment, parts inventory and certain intangible assets from TEMCO, a division of Dallas-based Trinity Industries, Inc. TEMCO, a manufacturer of concrete mixers, batch plants and concrete mixer parts is discontinuing production. Consideration for the purchase was valued at $19.5 million and included cash of $12.0 million and credits to the seller for future purchases of certain concrete placement products from the Company over the next six years. These credits were valued at $7.5 million. The purchase price consideration will be adjusted in the third quarter following a final accounting of inventory received. On October 30,2000, the Company acquired all of the issued and outstanding capital stock of Medtec Ambulance Corporation ("Medtec") for $14.4 million in cash, including acquisition costs and net of cash acquired. Medtec is a U.S. manufacturer of custom ambulances and rescue vehicles. The acquisition was financed from available cash and borrowings under the Company's revolving credit facility. The acquisition was accounted for using the purchase method of accounting, and, accordingly the operating results of Medtec are included in the Company's consolidated statements of income beginning October 30, 2000. The purchase price, including acquisition costs, exceeded the estimated fair value of the identified assets acquired and liabilities assumed as of the acquisition date by approximately $7.1 million, which has been recorded as goodwill and which is being amortized over a 25 year period. 8
The purchase price allocations for the purchase of TEMCO assets and Medtec are preliminary, and further adjustments are likely based on final valuations and finalization of integration plans. Final adjustments are not expected to have a material impact on the Company's financial statements. Had these transactions occurred on October 1, 2000 or 1999, there would have been no material pro forma impact on the Company's consolidated net sales, net income or earnings per share in fiscal 2001 or 2000. In January 2000, the Company entered into a technology transfer agreement and collected certain previously written-off receivables from a foreign affiliate, as a part of the disposition of a business that the Company exited in 1995. Gross proceeds of $3.2 million, less taxes of $1.2 million, or net proceeds of $2.0 million, have been recorded as a gain from discontinued operations. 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 $170.0 million revolving credit facility ("Revolving Credit Facility") which had $54.8 million outstanding as of March 31, 2001 and a term loan ($56.0 million outstanding at March 31, 2001), both of which mature in January 2006. At March 31, 2001, outstanding borrowings of $54.8 million and $14.4 million of outstanding letters of credit reduced available capacity under the Revolving Credit Facility to $100.8 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. 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. 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, are summarized below: 9
Six Months Ended March 31, 2000 -------------- Earnings per share from continuing operations Basic $ 1.16 Assuming dilution 1.14 Weighted average shares Basic 16,627,364 Assuming dilution 16,939,945 7. COMMITMENTS AND CONTINGENCIES - -------------------------------- 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"), a subsidiary of the Company, 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 March 31, 2001. Actual liability could vary based on results of the study, the resources of other PRPs, and the Company's final share of liability. The Company is addressing a regional trichloroethylene ("TCE") groundwater plume on the south side of Oshkosh, Wisconsin. The Company believes there may be multiple sources in the area. TCE was detected at the Company's North Plant facility with 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 March 31, 2001. 10
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 $1.0 million at March 31, 2001. The Company is also contingently liable under bid, performance and specialty bonds totaling approximately $149.5 million and open letters of credit issued by the Company's bank in favor of third parties totaling approximately $14.6 million at March 31, 2001. 8. BUSINESS SEGMENT INFORMATION - ------------------------------- <TABLE> <CAPTION> Three Months Ended Six Months Ended March 31, March 31, --------- --------- 2001 2000 2001 2000 ---- ---- ---- ---- (In thousands) Net sales to unaffiliated customers: <S> <C> <C> <C> <C> Commercial $ 145,946 $ 181,873 $ 251,972 $ 297,267 Fire and emergency 116,007 102,804 209,753 178,381 Defense 80,327 45,847 162,072 98,743 Corporate and other (310) -- (310) -- --------------- -------------- --------------- --------------- Consolidated net sales $ 341,970 $ 330,524 $ 623,487 $ 574,391 =============== ============== =============== =============== Operating income (loss): Commercial $ 7,640 $ 17,809 $ 13,812 $ 26,863 Fire and emergency 10,850 9,478 18,205 13,393 Defense 6,779 2,163 15,325 9,658 Corporate and other (4,237) (4,795) (8,526) (8,632) --------------- -------------- --------------- --------------- Consolidated operating income 21,032 24,655 38,816 41,282 Net interest expense (4,850) (5,224) (9,339) (10,844) Miscellaneous other 5 171 5 285 --------------- -------------- --------------- --------------- Income from continuing operations before income taxes, equity in earnings of unconsolidated partnership and extraordinary charge $ 16,187 $ 19,602 $ 29,482 $ 30,723 =============== ============== =============== =============== <CAPTION> March 31, September 30, 2001 2000 ---- ---- (In thousands) Identifiable assets: <S> <C> <C> Commercial $ 495,929 $ 385,622 Fire and emergency 320,076 288,904 Defense 113,709 108,528 Corporate and other 2,936 13,326 -------------- ---------------- Consolidated identifiable assets $ 932,650 $ 796,380 ============== ================ </TABLE> 11
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") except for McNeilus Financial Services, Inc. and Oshkosh/McNeilus Financial Services, Inc. ("OMFSI") through December 31, 2000, and only OMFSI beginning January 1, 2001, 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. 12
<TABLE> OSHKOSH TRUCK CORPORATION Condensed Consolidating Statements of Income For the Three Months Ended March 31, 2001 (Unaudited) <CAPTION> Subsidiary Non-Guarantor Company Guarantors Subsidiary Eliminations Consolidated ------- ---------- ---------- ------------ ------------ (In thousands) <S> <C> <C> <C> <C> <C> Net sales $ 126,826 $ 225,213 $ -- $ (10,069) $ 341,970 Cost of sales 110,203 191,254 -- (9,991) 291,466 ---------- ---------- ----------- ---------- ----------- Gross income 16,623 33,959 -- (78) 50,504 Operating expenses: Selling, general and administrative 10,942 15,584 -- -- 26,526 Amortization of goodwill and other intangibles -- 2,946 -- -- 2,946 ---------- ---------- ----------- ---------- ----------- Total operating expenses 10,942 18,530 -- -- 29,472 ---------- ---------- ----------- ---------- ----------- Operating income (loss) 5,681 15,429 -- (78) 21,032 Other income (expense): Interest expense (5,621) (6,114) -- 6,575 (5,160) Interest income 5,075 1,810 -- (6,575) 310 Miscellaneous, net 2,180 (2,175) -- -- 5 ---------- ---------- ----------- ---------- ----------- 1,634 (6,479) -- -- (4,845) ---------- ---------- ----------- ---------- ----------- Income (loss) before income taxes and equity in earnings of subsidiaries and unconsolidated partnership 7,315 8,950 -- (78) 16,187 Provision (credit) for income taxes 1,483 3,839 -- (30) 5,292 ---------- ---------- ----------- ---------- ----------- 5,832 5,111 -- (48) 10,895 Equity in earnings of subsidiaries and unconsolidated partnership, net of income taxes 5,452 -- 389 (5,452) 389 ---------- ---------- ----------- ---------- ----------- Net income $ 11,284 $ 5,111 $ 389 $ (5,500) $ 11,284 ========== ========== =========== ========== =========== </TABLE> 13
<TABLE> OSHKOSH TRUCK CORPORATION Condensed Consolidating Statements of Income For the Three Months Ended March 31, 2000 (Unaudited) <CAPTION> Subsidiary Non-Guarantor Company Guarantors Subsidiaries Eliminations Consolidated ------- ---------- ------------ ------------ ------------ (In thousands) <S> <C> <C> <C> <C> <C> Net sales $ 109,843 $ 225,691 $ -- $ (5,010) $ 330,524 Cost of sales 97,941 187,832 -- (5,010) 280,763 ---------- ---------- ----------- ----------- ----------- Gross income 11,902 37,859 -- -- 49,761 Operating expenses: Selling, general and administrative 10,333 11,899 102 -- 22,334 Amortization of goodwill and other intangibles -- 2,772 -- -- 2,772 ---------- ---------- ----------- ---------- ----------- Total operating expenses 10,333 14,671 102 -- 25,106 ---------- ---------- ----------- ---------- ----------- Operating income (loss) 1,569 23,188 (102) -- 24,655 Other income (expense): Interest expense (4,717) (2,270) -- 1,575 (5,412) Interest income 56 1,706 1 (1,575) 188 Miscellaneous, net (60) 100 131 -- 171 ---------- ---------- ----------- ---------- ----------- (4,721) (464) 132 -- (5,053) ----------- ----------- ----------- ---------- ------------ Income (loss) from continuing operations before income taxes and equity in earnings of subsidiaries and unconsolidated partnership (3,152) 22,724 30 -- 19,602 Provision (credit) for income taxes (1,198) 9,150 12 -- 7,964 ----------- ---------- ----------- ---------- ----------- (1,954) 13,574 18 -- 11,638 Equity in earnings of subsidiaries and unconsolidated partnership, net of income taxes 13,867 -- 275 (13,867) 275 ---------- ---------- ----------- ----------- ----------- Income from continuing operations 11,913 13,574 293 (13,867) 11,913 Discontinued operations, net 2,015 -- -- -- 2,015 ---------- ---------- ----------- ---------- ----------- Net income $ 13,928 $ 13,574 $ 293 $ (13,867) $ 13,928 ========== ========== =========== =========== =========== </TABLE> 14
<TABLE> OSHKOSH TRUCK CORPORATION Condensed Consolidating Statements of Income For the Six Months Ended March 31, 2001 (Unaudited) <CAPTION> Subsidiary Non-Guarantor Company Guarantors Subsidiaries Eliminations Consolidated ------- ---------- ------------ ------------ ------------ (In thousands) <S> <C> <C> <C> <C> <C> Net sales $ 234,865 $ 401,451 $ -- $ (12,829) $ 623,487 Cost of sales 203,415 339,204 -- (12,903) 529,716 ---------- ---------- ----------- ---------- ----------- Gross income 31,450 62,247 -- 74 93,771 Operating expenses: Selling, general and administrative 20,311 28,903 (69) -- 49,145 Amortization of goodwill and other intangibles -- 5,810 -- -- 5,810 ---------- ---------- ----------- ---------- ----------- Total operating expenses 20,311 34,713 (69) -- 54,955 ---------- ---------- ------------ ---------- ----------- Operating income 11,139 27,534 69 74 38,816 Other income (expense): Interest expense (11,132) (11,836) -- 13,150 (9,818) Interest income 10,110 3,519 -- (13,150) 479 Miscellaneous, net 4,908 (4,903) -- -- 5 ---------- ---------- ----------- ---------- ----------- 3,886 (13,220) -- -- (9,334) ---------- ---------- ----------- ---------- ----------- Income before income taxes and equity in earnings of subsidiaries and unconsolidated partnership 15,025 14,314 69 74 29,482 Provision for income taxes 4,249 6,365 26 27 10,667 ---------- ---------- ----------- ---------- ----------- 10,776 7,949 43 47 18,815 Equity in earnings of subsidiaries and unconsolidated partnership, net of income taxes 8,731 -- 692 (8,731) 692 ---------- ---------- ----------- ---------- ----------- Net income $ 19,507 $ 7,949 $ 735 $ (8,684) $ 19,507 ========== ========== =========== ==========- =========== </TABLE> 15
<TABLE> OSHKOSH TRUCK CORPORATION Condensed Consolidating Statements of Income For the Six Months Ended March 31, 2000 (Unaudited) <CAPTION> Subsidiary Non-Guarantor Company Guarantors Subsidiaries Eliminations Consolidated ------- ---------- ------------ ------------ ------------ (In thousands) <S> <C> <C> <C> <C> <C> Net sales $ 190,637 $ 393,405 $ -- $ (9,651) $ 574,391 Cost of sales 165,934 328,370 -- (9,651) 484,653 ---------- ---------- ----------- ---------- ----------- Gross income 24,703 65,035 -- -- 89,738 Operating expenses: Selling, general and administrative 18,731 23,995 186 -- 42,912 Amortization of goodwill and other intangibles -- 5,544 -- -- 5,544 ---------- ---------- ----------- ---------- ----------- Total operating expenses 18,731 29,539 186 -- 48,456 ---------- ---------- ----------- ---------- ----------- Operating income (loss) 5,972 35,496 (186) -- 41,282 Other income (expense): Interest expense (10,123) (4,225) -- 3,150 (11,198) Interest income 88 3,374 42 (3,150) 354 Miscellaneous, net (52) 88 249 -- 285 ---------- ---------- ----------- ---------- ----------- (10,087) (763) 291 -- (10,559) ----------- ----------- ----------- ---------- ------------ Income (loss) from continuing operations before income taxes, equity in earnings of subsidiaries and unconsolidated partnership and extraordinary charge (4,115) 34,733 105 -- 30,723 Provision (credit) for income taxes (1,564) 14,228 40 -- 12,704 ----------- ---------- ----------- ---------- ----------- (2,551) 20,505 65 -- 18,019 Equity in earnings of subsidiaries and unconsolidated partnership, net of income taxes 21,160 -- 590 (21,160) 590 ---------- ---------- ----------- ----------- ----------- Income from continuing operations 18,609 20,505 655 (21,160) 18,609 Discontinued operations, net 2,015 -- -- -- 2,015 Extraordinary charge, net (581) -- -- -- (581) ---------- ---------- ----------- ---------- ------------ Net income $ 20,043 $ 20,505 $ 655 $ (21,160) $ 20,043 ========== ========== =========== =========== =========== </TABLE> 16
<TABLE> OSHKOSH TRUCK CORPORATION Condensed Consolidating Balance Sheets March 31, 2001 (Unaudited) <CAPTION> Subsidiary Non-Guarantor Company Guarantors Subsidiary Eliminations Consolidated ------- ---------- ---------- ------------ ------------ (In thousands) ASSETS Current assets: <S> <C> <C> <C> <C> <C> Cash and cash equivalents $ 3,351 $ 1,628 $ -- $ -- $ 4,979 Receivables, net 65,462 82,661 -- (6,738) 141,385 Inventories 97,953 191,907 -- (135) 289,725 Prepaid expenses and other 7,644 9,066 -- -- 16,710 ---------- ---------- --------- ------------ ------------ Total current assets 174,410 285,262 -- (6,873) 452,799 Investment in and advances to: Subsidiaries 417,285 17,268 -- (434,553) -- Unconsolidated partnership -- -- 17,268 -- 17,268 Other long-term assets 7,774 6,272 -- -- 14,046 Net property, plant and equipment 35,416 89,862 -- -- 125,278 Goodwill and other intangible assets, net 25 323,234 -- -- 323,259 ---------- ---------- --------- ------------ ------------ Total assets $ 634,910 $ 721,898 $ 17,268 $ (441,426) $ 932,650 ========== ========== ========= ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 40,314 $ 73,578 $ -- $ (6,738) $ 107,154 Floor plan notes payable -- 40,297 -- -- 40,297 Customer advances 5,871 75,936 -- -- 81,807 Payroll-related obligations 7,911 10,973 -- -- 18,884 Accrued warranty 7,618 8,008 -- -- 15,626 Other current liabilities 29,307 32,560 -- -- 61,867 Revolving credit facility and current maturities of long-term debt 63,800 639 -- -- 64,439 ---------- ---------- --------- ------------ ------------ Total current liabilities 154,821 241,991 -- (6,738) 390,074 Long-term debt 147,000 1,833 -- -- 148,833 Deferred income taxes (4,343) 45,772 -- -- 41,429 Other long-term liabilities 19,247 14,882 -- -- 34,129 Commitments and contingencies Investments by and advances from (to) parent -- 417,420 17,268 (434,688) -- Shareholders' equity 318,185 -- -- -- 318,185 ---------- ----------- --------- ------------ ------------ Total liabilities and shareholders' equity $ 634,910 $ 721,898 $ 17,268 $ (441,426) $ 932,650 ========== ========== ========= ============ ============ </TABLE> 17
<TABLE> OSHKOSH TRUCK CORPORATION Condensed Consolidating Balance Sheets September 30, 2000 (Unaudited) <CAPTION> Subsidiary Non-Guarantor Company Guarantors Subsidiaries Eliminations Consolidated ------- ---------- ------------ ------------ ------------ (In thousands) ASSETS Current assets: <S> <C> <C> <C> <C> <C> Cash and cash equivalents $ 13,034 $ 499 $ 36 $ ---- $ 13,569 Receivables, net 61,156 47,473 272 (2,096) 106,805 Inventories 59,552 141,867 ---- (209) 201,210 Prepaid expenses and other 12,153 7,836 143 ---- 20,132 ---------- ---------- --------- ------------- ------------ Total current assets 145,895 197,675 451 (2,305) 341,716 Investment in and advances to: Subsidiaries 382,723 4,308 ---- (387,031) ---- Unconsolidated partnership ---- ---- 15,179 ---- 15,179 Other long-term assets 7,731 1,980 284 ---- 9,995 Net property, plant and equipment 30,196 88,563 ---- ---- 118,759 Goodwill and other intangible assets, net ---- 310,731 ---- ---- 310,731 ---------- ---------- --------- ------------- ------------ Total assets $ 566,545 $ 603,257 $ 15,914 $ (389,336) $ 796,380 ========== ========== ========= ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 39,602 $ 46,704 $ 5 $ (2,096) $ 84,215 Floor plan notes payable ---- 23,925 ---- ---- 23,925 Customer advances 3,114 55,353 26 ---- 58,493 Payroll-related obligations 10,642 12,792 31 ---- 23,465 Accrued warranty 6,867 8,652 ---- ---- 15,519 Other current liabilities 27,234 24,912 164 ---- 52,310 Revolving credit facility and current maturities of long-term debt 8,000 237 307 ---- 8,544 ---------- ---------- --------- ------------ ------------ Total current liabilities 95,459 172,575 533 (2,096) 266,471 Long-term debt 152,000 2,052 186 ---- 154,238 Deferred income taxes (905) 36,432 10,887 ---- 46,414 Other long-term liabilities 18,934 9,266 ---- ---- 28,200 Commitments and contingencies Investments by and advances from (to) parent ---- 382,932 4,308 (387,240) ---- Shareholders' equity 301,057 ---- ---- ---- 301,057 ---------- ---------- --------- ------------ ------------ Total liabilities and shareholders' equity $ 566,545 $ 603,257 $ 15,914 $ (389,336) $ 796,380 ========== ========== ========= ============ ============ </TABLE> 18
<TABLE> OSHKOSH TRUCK CORPORATION Condensed Consolidating Statements of Cash Flows For the Six Months Ended March 31, 2001 (Unaudited) <CAPTION> Subsidiary Non-Guarantor Company Guarantors Subsidiaries Eliminations Consolidated ------- ---------- ------------ ------------ ------------ (In thousands) Operating activities: <S> <C> <C> <C> <C> <C> Net income $ 19,507 $ 7,949 $ 735 $ (8,684) $ 19,507 Non-cash adjustments 3,991 9,514 (1,791) -- 11,714 Changes in operating assets and liabilities (33,910) (13,455) 115 (74) (47,324) -------- - --------- ---------- ---------- ---------- Net cash provided from (used for) operating activities (10,412) 4,008 (941) (8,758) (16,103) Investing activities: Acquisition of businesses, net of cash acquired (4,583) (21,840) -- -- (26,423) Investments in and advances to subsidiaries (34,607) 23,957 1,892 8,758 -- Additions to property, plant and equipment (7,794) (1,517) -- -- (9,311) Other (417) (3,225) (931) -- (4,573) --------- --------- ---------- ---------- ----------- Net cash provided from (used for) investing activities (47,401) (2,625) 961 8,758 (40,307) Financing activities: Net borrowings under revolving credit facility 54,800 -- -- -- 54,800 Repayment of long term debt (4,000) (254) (56) -- (4,310) Dividends paid (2,866) -- -- -- (2,866) Other 196 -- -- -- 196 --------- --------- ---------- ---------- ---------- Net cash provided from (used for) financing activities 48,130 (254) (56) -- 47,820 --------- --------- ---------- ---------- ---------- Increase (decrease) in cash and cash equivalents (9,683) 1,129 (36) -- (8,590) Cash and cash equivalents at beginning of period 13,034 499 36 -- 13,569 --------- --------- ---------- ---------- ---------- Cash and cash equivalents at end of period $ 3,351 $ 1,628 $ -- $ -- $ 4,979 ========= ========= ========== ========== ========== </TABLE> 19
<TABLE> OSHKOSH TRUCK CORPORATION Condensed Consolidating Statements of Cash Flows For the Six Months Ended March 31, 2000 (Unaudited) <CAPTION> Subsidiary Non-Guarantor Company Guarantors Subsidiaries Eliminations Consolidated ------- ---------- ------------ ------------ ------------ (In thousands) Operating activities: <S> <C> <C> <C> <C> <C> Income from continuing operations $ 18,609 $ 20,505 $ 655 $ (21,160) $ 18,609 Non-cash adjustments 266 12,122 (1,888) -- 10,500 Changes in operating assets and liabilities (15,320) (27,602) (2,503) -- (45,425) --------- --------- ---------- ---------- ----------- Net cash provided from (used for) operating activities 3,555 5,025 (3,736) (21,160) (16,316) Investing activities: Acquisition of business (5,625) -- -- -- (5,625) Investments in and advances to subsidiaries (27,501) 2,111 4,230 21,160 -- Additions to property, plant and equipment (2,828) (6,641) -- -- (9,469) Other (366) (491) (586) -- (1,443) --------- --------- ---------- ---------- ---------- Net cash provided from (used for) investing activities (36,320) (5,021) 3,644 21,160 (16,537) Net cash provided from discontinued operations 2,015 -- -- -- 2,015 Financing activities: Net borrowings under revolving credit facility 33,200 -- -- -- 33,200 Repayment of long-term debt (93,500) (242) -- -- (93,742) Proceeds from Common Stock offering 93,736 -- -- -- 93,736 Costs of Common Stock offering (334) -- -- -- (334) Dividends paid (2,531) -- -- -- (2,531) Other 31 -- -- -- 31 --------- --------- ---------- ---------- ---------- Net cash provided from (used for) financing activities 30,602 (242) -- -- 30,360 --------- --------- ---------- ---------- ---------- Decrease in cash and cash equivalents (148) (238) (92) -- (478) Cash and cash equivalents at beginning of period 3,698 1,337 102 -- 5,137 --------- --------- ---------- ---------- ---------- Cash and cash equivalents at end of period $ 3,550 $ 1,099 $ 10 $ -- $ 4,659 ========= ========= ========== ========== ========== </TABLE> 20
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, targets, projected sales, costs, earnings, capital spending and debt levels, and plans and objectives of management for future operations are forward-looking statements. When used in this Form 10-Q, words such as the Company "expects", "intends", "estimates", "anticipates", "believes", and similar expressions are generally intended to identify forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, assumptions and other factors, some of which are beyond the Company's control, that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. These factors include the cyclical nature of the concrete placement industry, risks related to reductions in government expenditures, the uncertainty of government contracts and the challenges of identifying, completing and integrating future acquisitions. In addition, the Company's'expectations for fiscal 2001 are based in part on certain assumptions made by the Company, including those relating to achieving targeted cost reductions, production and margin levels under the Medium Tactical Vehicle Replacement ("MTVR") contract, fiscal 2001 concrete placement activity, capital expenditures of large commercial waste haulers, the performance of the U.S. economy generally and targets for improvements in refuse margins. The inaccuracy of these or other assumptions could have a material adverse effect on the Company's ability to achieve the Company's expectations. 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 Current Report on Form 8-K filed with the SEC on April 26, 2001. 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, ambulances and other emergency 21
vehicles primarily sold to fire departments, airports and other governmental units in the U.S. and abroad. 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: <TABLE> <CAPTION> Second Quarter Fiscal First Six Months Fiscal --------------------- ----------------------- 2001 2000 2001 2000 ---- ---- ---- ---- (In thousands) Net sales to unaffiliated customers: <S> <C> <C> <C> <C> Commercial $ 145,946 $ 181,873 $ 251,972 $ 297,267 Fire and emergency 116,007 102,804 209,753 178,381 Defense 80,327 45,847 162,072 98,743 Corporate and other (310) -- (310) -- ------------- ------------- ------------- ------------- Consolidated net $ 341,970 $ 330,524 $ 623,487 $ 574,391 sales ============= ============= ============= ============= </TABLE> Second Quarter Fiscal 2001 Compared to 2000 Consolidated net sales increased 3.5% to $342.0 million for the second quarter of fiscal 2001 compared to the second quarter of fiscal 2000. Excluding the impact of the October 2000 acquisition of Medtec Ambulance Corporation ("Medtec"), consolidated net sales increased 1.8% in the quarter. Commercial segment net sales decreased 19.8% to $145.9 million for the second quarter of fiscal 2001 compared to the second quarter of fiscal 2000. Concrete placement sales were down 27.8% while refuse product sales were up 9.0%, respectively, from second quarter 2000 results. Prior year concrete placement sales were favorably impacted by strong economic conditions. This year, concrete placement sales have declined, largely due to customer concerns regarding general economic conditions. Refuse packer sales increased due to an increased mix of package chassis and body sales, while body-only unit sales declined. Fire and emergency segment net sales increased 12.8% to $116.0 million for the second quarter of fiscal 2001 compared to the second quarter of fiscal 2000. Sales were strong across all product lines in the segment. Excluding the impact of the Medtec acquisition, segment sales increased 7.5% for the quarter. Fiscal 2000 sales included shipments which slipped from the first to the second quarter due to production delays arising from an enterprise resource planning ("ERP") installation. Defense segment net sales increased 75.2% to $80.3 million for the second quarter of fiscal 2001 compared to the second quarter of fiscal 2000 due to increased parts and international vehicle sales and the continued ramp-up of production under the Company's contract to supply medium-payload trucks to the U.S. Marines under the MTVR contract. Production under the MTVR 22
contract began in the second quarter of fiscal 2000. The Company expects sales under this contract to increase throughout fiscal 2001 as the Company ramps up from low-rate initial production to full-rate production by the fourth quarter of fiscal 2001. In April 2001, authorization for full-rate production was received when the Company achieved "Milestone III" approval and the next program year was called up by the U.S. military. First Six Months of Fiscal 2001 Compared to 2000 Consolidated net sales increased 8.5% to $623.5 million for the first six months of fiscal 2001 compared to the first six months of fiscal 2000. Excluding the impact of the Medtec acquisition, consolidated net sales increased 7.0%. Commercial segment net sales decreased 15.2% to $252.0 million for the first six months of fiscal 2001 compared to the first six months of fiscal 2000. Concrete placement sales were down 21.4% while refuse sales were up 1.4%. Fiscal 2000 results were impacted by unusually strong end-markets. In fiscal 2001, economic uncertainties have caused the Company's concrete placement customers to scale back or delay their equipment purchases. Domestic refuse product sales increased 8.3% in the period compared to 2000 levels. Prior year refuse sales benefited from a higher level of international sales. Fire and emergency segment net sales increased 17.6% to $209.8 million for the first six months of fiscal 2001 compared to the first six months of fiscal 2000. Excluding the results of the Medtec acquisition, sales increased 12.5% over the prior year period, with increases reported across all product offerings. Defense segment net sales increased 64.1% to $162.1 million for the first six months of fiscal 2001 compared to the first six months of fiscal 2000, with approximately one-half of the increase due to increased MTVR sales and the other one-half due to increased vehicle sales for delivery to the Middle East. Analysis of Consolidated Operating Income The following table presents operating income by business segment: <TABLE> <CAPTION> Second Quarter Fiscal First Six Months Fiscal --------------------- ----------------------- 2001 2000 2001 2000 ---- ---- ---- ---- (In thousands) Operating income (loss): <S> <C> <C> <C> <C> Commercial $ 7,640 $ 17,809 $ 13,812 $ 26,863 Fire and emergency 10,850 9,478 18,205 13,393 Defense 6,779 2,163 15,325 9,658 Corporate and other (4,237) (4,795) (8,526) (8,632) ------------ ------------ ------------ ------------ Consolidated operating income $ 21,032 $ 24,655 $ 38,816 $ 41,282 ============ ============ ============ ============ </TABLE> 23
Second Quarter Fiscal 2001 Compared to 2000 Consolidated operating income decreased 14.7% to $21.0 million for the second quarter of fiscal 2001 compared to the second quarter of fiscal 2000. Excluding the October 2000 acquisition of Medtec, consolidated operating income would have decreased 17.5%. Commercial segment operating income decreased 57.1% to $7.6 million for the second quarter of fiscal 2001 compared to the second quarter of fiscal 2000. Operating income as a percent of segment sales ("operating income margin") decreased to 5.2% of commercial segment sales for the second quarter of fiscal 2001 compared to 9.8% of commercial segment sales for the second quarter of fiscal 2000. Significant reductions in concrete placement sales volumes and the related impact on fixed overhead absorption, and operating expenses of Viking Truck and Equipment, Inc. ("Viking") acquired in the third quarter of fiscal 2000 contributed to the decline in operating income margin. Fire and emergency segment operating income increased 14.5% to $10.9 million for the second quarter of fiscal 2001 compared to the second quarter of fiscal 2000. The fire and emergency segment operating income margin increased from 9.2% to 9.4% during this same time period. Excluding the impact of the Medtec acquisition, operating income increased 7.2% and operating income margins were flat between periods at 9.2%. Defense segment operating income increased 213.4% to $6.8 million for the second quarter of fiscal 2001 compared to the second quarter of fiscal 2000. The defense operating income margin increased to 8.4% of defense segment sales for the second quarter of fiscal 2001 compared to 4.7% of defense segment sales for the second quarter of fiscal 2000. Operating income margins benefited from absorption of fixed overhead and operating expenses over higher sales volume, partially offset by increased spending on the Family of Medium Tactical Vehicles ("FMTV") prototype contract proposal submitted during the second quarter of fiscal 2001. During the second quarter of fiscal 2001, the Company increased the estimated gross income margin (gross margin as a percent of sales) on its MTVR production contract by two percentage points as the final truck configuration was established following Milestone III approval. Because the Company utilizes the contract method of accounting for MTVR sales and records a cumulative adjustment to record life-to-date sales at the estimated margin to be realized over the entire contract, operating income was favorably impacted during the quarter by approximately $0.7 million related to prior quarter shipments. Corporate and other expenses decreased $0.6 million to $4.2 million, or 1.2% of consolidated net sales, for the second quarter of fiscal 2001 from $4.8 million, or 1.5% of consolidated net sales, for the second quarter of fiscal 2000. Lower expenses resulted from cost reduction initiatives and variable compensation adjustments. First Six Months of Fiscal 2001 Compared to 2000 Consolidated operating income decreased 6.0% to $38.8 million for the first six months of fiscal 2001 compared to the first six months of fiscal 2000. Excluding the impact of the November 1999 acquisition of Kewaunee Engineering Corporation 24
("Kewaunee") and the October 2000 acquisition of Medtec, consolidated operating income would have decreased 9.5%. Commercial segment operating income decreased 48.6% to $13.8 million for the first six months of fiscal 2001 compared to the first six months of fiscal 2000. Operating income declined due to significantly lower concrete placement sales volume and the negative impact of lower volume on the absorption of fixed overhead costs. Fire and emergency operating income increased 35.9% to $18.2 million for the first six months of fiscal 2001 compared to the first six months of fiscal 2000. Operating income margin increased to 8.7% of fire and emergency segment sales from 7.5% of segment sales. Excluding the impact of the Medtec acquisition, segment operating income margins increased to 8.5% for the first six months of fiscal 2001. Prior year results were affected by inefficiencies following an ERP installation. Defense segment operating income increased 58.7% to $15.3 million for the first six months of fiscal 2001 compared to the first six months of fiscal 2000. Operating income margins declined from 9.8% of segment sales for the first six months of fiscal 2000 to 9.5% of segment sales for the first six months of fiscal 2001. The Company expects overall segment operating income margins to continue to decline as the Company ramps-up production on its lower-margin MTVR contract. Analysis of Non-Operating Income Statement Items Second Quarter of Fiscal 2001 Compared to 2000 Net interest expense decreased 7.2% to $4.9 million in the second quarter of fiscal 2001 compared to the second quarter of fiscal 2000. Interest costs on increased borrowings to fund the acquisitions of Medtec in October 2000 and Viking in April 2000 were offset by lower interest rates and prior year debt reductions. The effective tax rate for combined federal and state income taxes for the second quarter of fiscal 2001 was 32.7% compared to 40.6% in the second quarter of fiscal 2000. The Company recorded a nonrecurring reduction in tax expense of $1.3 million for the second quarter of fiscal 2001 related to the settlement of certain income tax audits during the quarter. The settlement includes payment in April 2001 of $4.0 million of deferred taxes. Excluding the impact of the $1.3 million tax settlement in fiscal 2001 and $1.4 million of nondeductible goodwill in the second quarter of fiscal 2001 and 2000, the Company's effective income tax rate was 37.3% in 2001 and 38.0% in 2000. Equity in earnings of an unconsolidated partnership of $0.4 million in the second quarter of fiscal 2001 and $0.3 million in the second quarter of fiscal 2000 represents the Company's equity interest in its lease financing partnership. In January 2000, the Company entered into a technology transfer agreement and collected certain previously written-off receivables from a foreign affiliate, which was part of a business that the Company exited in 1995. Gross proceeds of $3.2 million, less taxes of $1.2 million, or net proceeds 25
of $2.0 million, have been recorded as a gain from discontinued operations in the second quarter of fiscal 2000. First Six Months of Fiscal 2001 Compared to 2000 Net interest expense decreased 13.9% to $9.3 million in the first six months of fiscal 2001 compared to the first six months of fiscal 2000 largely as a result of the effect on interest of prior year debt repayment from proceeds of the Company's November 1999 equity offering and interest rate reductions on the Company's variable-rate debt. These reductions were partially offset by interest on increased working capital borrowings to fund the Medtec and Viking acquisitions and to support overall sales growth. The effective tax rate for combined federal and state income taxes for the first six months of fiscal 2001 was 36.2% compared to 41.4% for the first six months of fiscal 2000. Excluding the $1.3 million reduction in tax expense related to the settlement of tax audits in 2001 and the impact of $2.7 million of nondeductible goodwill in the first six months of fiscal 2001 and fiscal 2000, the Company's effective income tax rate was 37.0% in 2001 and 38.0% in 2000. Equity in earnings of an unconsolidated partnership of $0.7 million in the first six months of fiscal 2001 and $0.6 million in the first six months of fiscal 2000 represents the Company's equity in earnings of its lease financing partnership. In November 1999 the Company completed a secondary offering of Common Stock. The Company recorded a $0.6 million charge (net of income taxes of $0.4 million) for early retirement of debt utilizing proceeds from the Company's equity offering. Financial Condition First Six Months of Fiscal 2001 During the first six months of fiscal 2001, cash decreased by $8.6 million to $5.0 million at March 31, 2001. Seasonal working capital increases related to the Company's commercial segment contributed to the $16.1 million in cash used for operating activities for the period. Operating cash requirements, capital expenditures of $9.3 million, an increase in other long-term assets of $4.6 million, scheduled term debt reductions of $4.3 million, payment of $2.9 million in cash dividends and the cash portion of the acquisitions of Medtec common stock ($14.4 million) and TEMCO assets ($12.0 million) were funded through the use of $8.6 million of available cash and $54.8 million in borrowings under the Company's revolving credit facility. During the period, inventories increased $88.5 million, including $56.2 million in the commercial segment as a result of seasonal build requirements and TEMCO purchased inventory ($3.5 million). Fire and emergency inventories increased $17.9 million, with $10.6 million of the increase related to the Medtec acquisition. Defense inventories increased $10.9 million during the period as a result of inventory associated with an international order and due to costs associated with the MTVR contract. Overall increases in inventory were partially offset by a $22.9 million increase in trade payables, a $16.4 million increase in floor 26
plan notes payable and a $23.3 million increase in customer advances. Accounts receivable increased $34.6 million during the period, largely due to the seasonal sales growth of the commercial segment and increased refuse product sales to major national waste haulers and municipalities that enjoy extended payment terms. Other long-term liabilities increased by $5.9 million during the period as the Company recorded the long-term portion of the discounted value of a product credit liability issued to the seller as part of the purchase of the TEMCO assets in March 2001. First Six Months of Fiscal 2000 During the first six months of fiscal 2000, cash decreased by $0.5 million to $4.7 million at March 31, 2000. Cash used in operating activities of $16.3 million, capital expenditures of $9.5 million, an increase in long-term assets of $1.5 million, dividend payments of $2.5 million and the acquisition of Kewaunee for $5.6 million were funded by net borrowings of $33.2 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. During the period, inventory increased $52.9 million, including $36.6 million in the commercial segment as a result of seasonal build requirements. Fire and emergency inventories increased $17.1 million during the period, generally as a result of earlier commercial chassis and systems-related production inefficiencies at Pierce Manufacturing Inc. Defense segment inventories were down slightly due to timing of inventory purchases. Increases in inventory were partially offset by increased trade payables of $15.6 million and an $11.2 million increase in floor plan notes payable related to commercial segment chassis purchases. Liquidity and Capital Resources The Company had $100.8 million of unused availability under the terms of its revolving credit facility as of March 31, 2001. 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. The acquisitions of Medtec common stock and TEMCO assets were financed through borrowings under the Company's revolving credit facility. The senior credit facility requires quarterly debt reduction of $2.0 million. 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 2001, including the working capital requirements associated with the ramp-up of production under the MTVR contract and the acquisition of Medtec. 27
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 $17 to 18 million in fiscal 2001. Fiscal 2001 capital expenditures incurred to date include the remaining $4 million of an $8 million expansion of the Company's production facilities in Oshkosh which was begun in fiscal 2000 and completed early in fiscal 2001. Customers and Backlog Sales to the U.S. Department of Defense comprised approximately 26% of the Company's net sales in the first six months of fiscal 2001. 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 March 31, 2001 increased 0.2% to $741.6 million compared to $739.9 million at March 31, 2000. The commercial segment backlog decreased 25.8% to $124.9 million at March 31, 2001 compared to March 31, 2000. The fire and emergency segment backlog increased 13.1% to $258.7 million at March 31, 2001 compared to March 31, 2000. The defense segment backlog increased 4.4% to $358.0 million at March 31, 2001 compared to March 31, 2000. Approximately 21% of the consolidated backlog at March 31, 2001 is not expected to be filled in fiscal 2001. 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 of Heavy Tactical Vehicles 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. 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, 2000 and have not materially changed since that report was filed. 28
OSHKOSH TRUCK CORPORATION PART II. OTHER INFORMATION FORM 10-Q MARCH 31, 2001 ITEM 1 LEGAL PROCEEDINGS - ------------------------ None. ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS - ------------------------------------------------------------- At the annual meeting of shareholders held on February 5, 2001, 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 Common Stock Nominees - ----------------------------- J.W. Andersen 409,500 0 12,443 R.G. Bohn 409,500 0 12,443 F.M. Franks, Jr. 409,500 0 12,443 M.W. Grebe 409,500 0 12,443 K.J. Hempel 409,500 0 12,443 S.P. Mosling 409,500 0 12,443 J.P. Mosling, Jr. 409,500 0 12,443 Common Stock Nominees --------------------- D.T. Carroll 14,118,529 85,779 2,045,906 D.V. Fites 14,119,697 84,611 2,045,906 R.G. Sim 14,120,866 83,442 2,045,906 Also at the annual meeting, Class A shareholders approved a proposal to amend the Company's 1990 incentive stock plan. The following table sets forth certain information with respect to such vote. Abstentions and Shares Shares Broker Voted For Voted Against Non-Votes --------- ------------- --------- Class A Common Stock 393,237 1,351 27,355 29
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K - ---------------------------------------- (a) Exhibits - --------------- None. (b) Reports on Form 8-K - -------------------------- Current Report on Form 8-K dated January 25, 2001, reporting the announcement of the Company's earnings for the first quarter of fiscal year ending September 30, 2001. Current Report on Form 8-K dated February 5, 2001, reporting the script of the management presentation portion of the Annual Meeting of Shareholders. Current Report on Form 8-K dated March 16, 2001, reporting an announcement concerning management's earnings expectations for the quarter ending March 31, 2001 and the year ending September 30, 2001. 30
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 11, 2001 /S/ R. G. Bohn ------------------------------------------- R. G. Bohn Chairman, President and Chief Executive Officer (Principal Executive Officer) May 11, 2001 /S/ C. L. Szews ------------------------------------------- C. L. Szews Executive Vice President and Chief Financial Officer (Principal Financial Officer) May 11, 2001 /S/ T. J. Polnaszek ------------------------------------------- T. J. Polnaszek Vice President and Controller (Principal Accounting Officer) 31