SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) (x) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 1999 or ( ) Transaction Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Transition period from_____________ to___________ Commission File Number 0-13886 Oshkosh Truck Corporation [Exact name of registrant as specified in its charter] Wisconsin 39-0520270 [State or other jurisdiction of [I.R.S. Employer incorporation or organization] Identification No.] 2307 Oregon Street, P.O. Box 2566, Oshkosh, Wisconsin 54903 [Address of principal executive offices] [Zip Code] Registrant's telephone number, including area code (920) 235-9151 None [Former name, former address and former fiscal year, if changed since last report] Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class A Common Stock Outstanding as of April 30, 1999: 284,773 - ------------------------------------------------------------------------------ Common Stock Outstanding as of April 30, 1999: 8,213,260 - ------------------------------------------------------------------------------
OSHKOSH TRUCK CORPORATION FORM 10-Q INDEX FOR THE QUARTER ENDED MARCH 31, 1999 Page Part I. Financial Information Item 1. Financial Statements (Unaudited) Condensed Consolidated Statements of Income - Three Months Ended March 31, 1999 and 1998; Six Months Ended March 31, 1999 and 1998 ......3 Condensed Consolidated Balance Sheets - March 31, 1999 and September 30, 1998.............4 Condensed Consolidated Statement of Shareholders' Equity - Six Months Ended March 31, 1999 ..................5 Condensed Consolidated Statements of Cash Flows - Six Months Ended March 31, 1999 and 1998 .........6 Notes to Condensed Consolidated Financial Statements - March 31, 1999 ...................................7 Item 2. Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations ......21 Item 3. Quantitative and Qualitative Disclosure of Market Risk ......27 Part II. Other Information Item 1. Legal Proceedings ...........................................28 Item 4. Submission of Matters to a Vote of Security Holders..........28 Item 6. Exhibits and Reports on Form 8-K ............................29 Signatures ...................................................................30 2
PART I. ITEM 1. FINANCIAL INFORMATION OSHKOSH TRUCK CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) <TABLE> <CAPTION> Three Months Ended Six Months Ended March 31, March 31, --------- --------- 1999 1998 1999 1998 ---- ---- ---- ---- (In thousands, except per share amounts) <S> <C> <C> <C> <C> Net sales $ 298,534 $ 217,836 $ 521,227 $ 369,637 Cost of sales 254,014 190,302 444,599 322,105 ------------ ------------ ------------ ------------ Gross income 44,520 27,534 76,628 47,532 Operating expenses: Selling, general and administrative 24,754 14,649 41,299 26,159 Amortization of goodwill and other intangibles 2,890 1,669 5,625 2,795 ------------ ------------ ------------ ------------ Total operating expenses 27,644 16,318 46,924 28,954 ------------ ------------ ------------ ------------ Operating income 16,876 11,216 29,704 18,578 Other income (expense): Interest expense (6,645) (4,687) (13,226) (7,191) Interest income 241 369 427 534 Miscellaneous, net 198 (235) 340 (163) ------------ ------------ ------------ ------------ (6,206) (4,553) (12,459) (6,820) ------------ ------------ ------------ ------------ Income from operations before income taxes, equity in earnings of unconsolidated partnership and extraordinary item 10,670 6,663 17,245 11,758 Provision for income taxes 4,501 2,784 7,501 4,739 ------------ ------------ ------------ ------------ 6,169 3,879 9,744 7,019 Equity in earnings of unconsolidated partnership, net of income taxes 380 (718) 717 (718) ------------ ------------ ------------ ------------ Income from operations 6,549 3,161 10,461 6,301 Extraordinary charge for early retirement of debt, net of income tax benefit -- (735) -- (735) ------------ ------------ ------------ ------------ Net income $ 6,549 $ 2,426 $ 10,461 $ 5,566 ============ ============ ============ ============ Earnings per share: Income from operations $ 0.77 $ 0.38 $ 1.24 $ 0.75 Extraordinary item -- (0.09) -- (0.09) ------------ ------------ ------------ ------------ Net income $ 0.77 $ 0.29 $ 1.24 $ 0.66 ============ ============ ============ ============ Earnings per share assuming dilution: Income from operations $ 0.76 $ 0.37 $ 1.21 $ 0.74 Extraordinary item -- (0.09) -- (0.09) ------------ ------------ ------------ ------------ Net income $ 0.76 $ 0.28 $ 1.21 $ 0.65 ============ ============ ============ ============ Cash dividends: Class A Common Stock $ 0.10875 $ 0.10875 $ 0.21750 $ 0.21750 Common Stock $ 0.12500 $ 0.12500 $ 0.25000 $ 0.25000 The accompanying notes are an integral part of these condensed consolidated financial statements. </TABLE> 3
OSHKOSH TRUCK CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS <TABLE> <CAPTION> March, 31, September 30, 1999 1998 ---- ---- (Unaudited) (In thousands) ASSETS <S> <C> <C> Current assets: Cash and cash equivalents $ 4,386 $ 3,622 Receivables, net 118,674 80,982 Inventories 210,374 149,191 Prepaid expenses 4,311 3,768 Deferred income taxes 21,583 12,281 ---------------- ----------------- Total current assets 359,328 249,844 Investment in unconsolidated partnership 14,461 13,496 Other long-term assets 16,066 14,198 Property, plant and equipment 161,394 156,783 Less accumulated depreciation (80,369) (75,947) ---------------- ----------------- Net property, plant and equipment 81,025 80,836 Goodwill and other intangible assets, net 327,166 326,665 ---------------- ----------------- Total assets $ 798,046 $ 685,039 ================ ================= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 88,484 $ 65,171 Floor plan notes payable 47,639 11,645 Customer advances 64,780 44,915 Payroll-related obligations 21,704 24,124 Accrued warranty 15,119 15,887 Other current liabilities 57,597 43,498 Current maturities of long-term debt and revolving credit facility 23,198 3,467 ---------------- ----------------- Total current liabilities 318,521 208,707 Long-term debt 270,665 277,337 Deferred income taxes 47,861 47,832 Other long-term liabilities 19,817 19,867 Shareholders' equity 141,182 131,296 ---------------- ----------------- Total liabilities and shareholders' equity $ 798,046 $ 685,039 ================ ================= The accompanying notes are an integral part of these condensed consolidated financial statements. </TABLE> 4
OSHKOSH TRUCK CORPORATION CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY SIX MONTHS ENDED MARCH 31, 1999 (Unaudited) <TABLE> <CAPTION> Accumulated Other Comprehensive Income (Loss) - Minimum Pension Common Paid-in Retained Common Stock in Liability Stock Capital Earnings Treasury Adjustment Total ----- ------- -------- -------- ---------- ----- (In thousands) <S> <C> <C> <C> <C> <C> <C> Balance at September 30, 1998 $ 93 $ 14,712 $ 130,959 $ (12,664) $ (1,804) $ 131,296 Comprehensive income: Net income ---- ---- 10,461 ---- ---- 10,461 Other ---- ---- ---- ---- ---- ---- ----------- 10,461 Cash dividends: Class A Common Stock ---- ---- (62) ---- ---- (62) Common Stock ---- ---- (2,050) ---- ---- (2,050) Other ---- 732 ---- 805 ---- 1,537 ----- --------- ----------- ------------ ---------- ----------- Balance at March, 31, 1999 $ 93 $ 15,444 $ 139,308 $ (11,859) $ (1,804) $ 141,182 ===== ========= =========== ============ ========== =========== The accompanying notes are an integral part of these condensed consolidated financial statements. </TABLE> 5
OSHKOSH TRUCK CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) <TABLE> <CAPTION> Six Months Ended March 31, 1999 1998 ---- ---- (In thousands) Operating activities: <S> <C> <C> Income from operations $ 10,461 $ 6,301 Non-cash adjustments 4,252 12,422 Changes in operating assets and liabilities (18,560) 10,327 ------------- ------------ Net cash provided from (used for) operating activities (3,847) 29,050 Investing activities: Acquisition of businesses, net of cash acquired -- (217,954) Additions to property, plant and equipment (4,712) (4,355) Proceeds from sale of property, plant and equipment 30 119 (Increase) decrease in other long-term assets (2,482) 1,868 ------------- ------------ Net cash used for investing activities (7,164) (220,322) Net cash used for discontinued operations -- (811) Financing activities: Net borrowings under revolving credit facility 13,300 -- Proceeds from issuance of long-term debt -- 325,000 Repayments of long-term debt (241) (135,037) Debt issuance costs -- (8,479) Dividends paid (2,103) (2,083) Other 819 18 ------------- ------------ Net cash provided from financing activities 11,775 179,419 ------------- ------------ Increase (decrease) in cash and cash equivalents 764 (12,664) Cash and cash equivalents at beginning of period 3,622 23,219 ------------- ------------ Cash and cash equivalents at end of period $ 4,386 $ 10,555 ============= ============ Supplementary disclosures: Depreciation and amortization $ 11,085 $ 7,398 Cash paid for interest 12,986 5,171 Cash paid for income taxes 14,028 6,601 The accompanying notes are an integral part of these condensed consolidated financial statements. </TABLE> 6
OSHKOSH TRUCK CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. BASIS OF PRESENTATION The condensed consolidated financial statements included herein have been prepared by Oshkosh Truck Corporation (the "Company") without audit. However, the foregoing financial statements contain all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of Company management, necessary to present fairly the condensed consolidated financial statements. Certain reclassifications have been made to the 1998 condensed consolidated financial statements to conform to the 1999 presentation. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 1998 annual report to shareholders. In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes the standards for reporting and displaying comprehensive income and its components (revenues, expenses, gains, and losses) as part of a full set of financial statements. This statement requires that all elements of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. The statement is effective for fiscal years beginning after December 15, 1997. The Company adopted SFAS No. 130 during the three month period ended December 31, 1998. Comprehensive income has been included in the Company's Consolidated Statement of Shareholders' Equity and prior period amounts have been reclassified to conform to SFAS No. 130 requirements. 2. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted weighted average shares used in the denominator of the per share calculations: <TABLE> <CAPTION> Three Months Ended Six Months Ended March 31, March 31, --------- --------- 1999 1998 1999 1998 ---- ---- ---- ---- <S> <C> <C> <C> <C> Denominator for basic earnings per share 8,466,912 8,413,774 8,445,171 8,376,914 Effect of dilutive options and incentive compensation awards 203,295 83,051 193,055 90,705 -------------- ------------ -------------- ------------ Denominator for dilutive earnings per share 8,670,207 8,496,825 8,638,226 8,467,619 ============== ============ ============== ============ </TABLE> 7
3. INVENTORIES Inventories consist of the following: <TABLE> <CAPTION> March 31, September 30, 1999 1998 ---- ---- (In thousands) <S> <C> <C> Finished products $ 52,774 $ 27,916 Partially finished products 89,312 52,700 Raw materials, purchased chassis, and parts 78,376 77,675 -------------------- --------------------- Inventories at FIFO cost 220,462 158,291 Excess of FIFO cost over LIFO cost (10,088) (9,100) -------------------- --------------------- $ 210,374 $ 149,191 ==================== ===================== </TABLE> Title to all inventories related to government contracts which provide for progress payments vests in the government to the extent of unliquidated progress payments. 4. ACQUISITIONS On February 26, 1998, the Company acquired for cash all of the issued and outstanding capital stock of McNeilus Companies, Inc. ("McNeilus") and entered into related non-compete and ancillary agreements for a net acquisition price of $217.6 million, including acquisition costs (includes certain costs paid subsequent to March 31, 1998) and net of cash acquired. The acquisition was financed from borrowings under a Senior Credit Facility and the issuance of Senior Subordinated Notes. McNeilus is a leading manufacturer and marketer of rear-discharge concrete mixers for the construction industry and refuse truck bodies for the waste services industry in the United States. The acquisition was accounted for using the purchase method of accounting, and accordingly, the operating results of McNeilus are included in the Company's consolidated statements of income since the date of acquisition. The purchase price, including acquisition costs, was allocated based on the estimated fair values of the assets acquired and liabilities assumed at the date of the acquisition. Approximately $61.0 million of the purchase price was allocated to the distribution network and other intangible assets, including non-competition agreements. The excess of the purchase price over the estimated fair value of net assets acquired amounted to approximately $114.6 million and has been accounted for as goodwill. Pro forma unaudited condensed consolidated operating results of the Company, assuming McNeilus had been acquired as of October 1, 1997, are summarized below: 8
Six Months Ended March 31, 1998 -------------- (In thousands, except per share amounts) Net sales $ 507,831 Income before extraordinary item 8,636 Net income 7,901 Earnings per share: Before extraordinary item $ 1.03 Net income 0.94 Earnings per share assuming dilution: Before extraordinary item 1.02 Net income 0.93 5. LONG-TERM DEBT The Company has outstanding a Senior Credit Facility and $100.0 million of 8.75% Senior Subordinated Notes due March 1, 2008. The Senior Credit Facility consists of a six year $100.0 million revolving credit facility ("Revolving Credit Facility") and three term loan facilities ("Term Loan A", "Term Loan B", and "Term Loan C"). The outstanding balances as of March 31, 1999 on the Revolving Credit Facility, Term Loan A, Term Loan B, and Term Loan C are $19.3 million, $87.0 million, $42.5 million, and $42.5 million, respectively. At March 31, 1999, outstanding borrowings of $19.3 million and $11.1 million of outstanding letters of credit reduced available capacity under the Revolving Credit Facility to $69.6 million. Substantially all the tangible and intangible assets of the Company and its subsidiaries (including the stock of certain subsidiaries) are pledged as collateral under the Senior Credit Facility. The Senior Credit Facility includes customary affirmative and negative covenants and requires mandatory prepayments to the extent of "excess cash flows" as defined in the Senior Credit Facility. The Senior Subordinated Notes were issued pursuant to an Indenture dated February 26, 1998 (the "Indenture"), between the Company, the Subsidiary Guarantors (as defined below) and Firstar Trust Company, as trustee. The Indenture contains customary affirmative and negative covenants. In addition to the Company, certain of the Company's subsidiaries, fully, unconditionally, jointly and severally guarantee the Company's obligations under the Senior Subordinated Notes. 6. SHAREHOLDER RIGHTS PLAN On February 1, 1999, the Board of Directors of the Company adopted a shareholder rights plan and declared a rights dividend of one Preferred Share Purchase Right ("Right") for each share of Common Stock and 20/23 of one Right for each share of Class A Common Stock outstanding on February 8, 1999, and provided that one Right and one 20/23 Right would be issued with each share of Common Stock and Class A Common Stock, respectively, thereafter issued. The Rights are exercisable only if a person or group acquires 15% or more of the Common Stock and Class A Common Stock or 9
announces a tender offer for 15% or more of the Common Stock and Class A Common Stock. Each Right entitles the holder thereof to purchase from the Company one one-hundredth share of the Company's Series A Junior Participating Preferred Stock at an initial exercise price of $145 per one one-hundredth of a share (subject to adjustment), or, upon the occurrence of certain events, Common Stock or common stock of an acquiring company having a market value equivalent to two times the exercise price. Subject to certain conditions, the Rights are redeemable by the Board of Directors for $.01 per Right and are exchangeable for shares of Common Stock. The Board of Directors is also authorized to reduce the 15% threshold referred to above to not less than 10%. The Rights have no voting power and initially expire on February 1, 2009. 7. COMMITMENTS AND CONTINGENCIES The Company is engaged in litigation against Super Steel Products Corp. ("SSPC"), the Company's former supplier of mixer systems for forward-discharge concrete mixer trucks under a long-term supply contract. SSPC sued the Company in state court claiming the Company breached the contract. The Company counterclaimed for repudiation of the contract. On July 26, 1996, a jury returned a verdict for SSPC awarding damages totaling $4.5 million. On October 10, 1996, the state court judge overturned the verdict against the Company, granted judgment for the Company on its counterclaim, and ordered a new trial for damages on the Company's counterclaim. Both SSPC and the Company appealed the state court judge's decision to the Wisconsin Court of Appeals. On December 8, 1998, the Wisconsin Court of Appeals ordered the state court judge to reinstate the jury verdict against the Company awarding damages totaling $4.5 million plus interest to SSPC. On April 6, 1999, the Company's petition for review of this decision by the Wisconsin Supreme Court was denied. On April 12, 1999, the Company petitioned the state court judge to act on the Company's previous motion for a retrial. The Company expects a decision on the retrial motion shortly. The ultimate outcome of this matter cannot be predicted at the present time. During the quarter ended March 31, 1999, the Company increased its reserve relating to this matter. As part of its routine business operations, the Company disposes of and recycles or reclaims certain industrial waste materials, chemicals and solvents at third party disposal and recycling facilities which are licensed by appropriate governmental agencies. In some instances, these facilities have been and may be designated by the United States Environmental Protection Agency ("EPA") or a state environmental agency for remediation. Under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA") and similar state laws, each potentially responsible party ("PRP") that contributed hazardous substances may be jointly and severally liable for the costs associated with cleaning up the site. Typically, PRPs negotiate a resolution with the EPA and/or the state environmental agencies. PRPs also negotiate with each other regarding allocation of the cleanup cost. As to one such Superfund site, Pierce is one of 431 PRPs participating in the costs of addressing the site and has been assigned an allocation share of approximately 0.04%. A remedial investigation/ feasibility study was completed in September 1998. A feasibility study and modeling report were submitted on April 30, 1999 to the state environmental agency. A final 10
acceptance of the remedial investigation/feasibility study will not be available until mid-1999 with the remedial design/remedial action phase commencing after early 2000. As such, an estimate for the total cost of the remediation of this site has not been made to date. However, based on estimates and the assigned allocations, the Company believes its liability at the site will not be material and its share is adequately covered through reserves established by the Company at March 31, 1999. Actual liability could vary based on completion of the study, the resources of other PRPs and the Company's final share of liability. As to another such Superfund site, Oshkosh Truck Corporation and its former Trailer Division and Pierce are three of approximately 1,450 customers of one of the PRPs that have received notification of identification as such a PRP. No further evidence concerning the site, its environmental issues or any other information has been furnished. The Company believes that it will be a de minimis level PRP, if any liability is established, so that any such liability will not be material. Actual liability could vary based upon subsequently available information. The Company is addressing a regional trichloroethylene ("TCE") groundwater plume on the south side of Oshkosh, Wisconsin. The Company believes there may be multiple sources in the area. TCE was detected in the groundwater at the Company's North Plant facility with recent testing showing the highest concentrations in a monitoring well located on the upgradient property line. Because the investigation process is still ongoing, it is not possible for the Company to estimate its long-term total liability associated with this issue at this time. Also, as part of the regional TCE groundwater investigation, the Company conducted a groundwater investigation of a former landfill located on Company property. The landfill, acquired by the Company in 1972, is approximately 2.0 acres in size and is believed to have been used for the disposal of household waste. Based on the investigation, the Company does not believe the landfill is one of the sources of the TCE contamination. Based upon current knowledge, the Company believes its liability associated with the TCE issue will not be material and believes that it is adequately covered at March 31, 1999 through reserves established by the Company. However, this may change as investigations proceed by the Company, other unrelated property owners, and the government. The Company is subject to other environmental matters and legal proceedings and claims, including patent, antitrust, product liability and state dealership regulation compliance proceedings, that arise in the ordinary course of business. Although the final results of all such matters and claims cannot be predicted with certainty, management believes that the ultimate resolution of all such matters and claims, after taking into account the liabilities accrued with respect to such matters and claims, will not have a material adverse effect on the Company's financial condition or results of operations. Actual results could vary, among other things, due to the uncertainties involved in litigation. The Company has guaranteed certain customers' obligations under deferred payment contracts and lease purchase agreements totaling approximately $1 million at March 31, 1999. The Company is also contingently liable under bid, performance and specialty bonds totaling approximately $106.6 million 11
and open standby letters of credit issued by the Company's bank in favor of third parties totaling approximately $11.1 million at March 31, 1999. 8. CONDENSED CONSOLIDATING FINANCIAL INFORMATION The following tables present condensed consolidating financial information for: (a) the Company; (b) on a combined basis, the guarantors of the Senior Subordinated Notes (which include all of the wholly-owned subsidiaries of the Company ("Subsidiary Guarantors") other than McNeilus Financial Services, Inc., Oshkosh/McNeilus Financial Services, Inc., and Nation's Casualty Insurance, Inc., which are the only non-guarantor subsidiaries of the Company ("Non-Guarantor Subsidiaries"), and (c) on a combined basis, the Non-Guarantor Subsidiaries. Separate financial statements of the Subsidiary Guarantors are not presented because the guarantors are jointly, severally, and unconditionally liable under the guarantees, and the Company believes separate financial statements and other disclosures regarding the Subsidiary Guarantors are not material to investors. The Company is comprised of Wisconsin and Florida manufacturing operations and certain corporate management, information services and finance functions. Borrowings and related interest expense under the Senior Credit Facility and the Senior Subordinated Notes are charged to the Company. The Company has allocated a portion of this interest expense to Pierce Manufacturing, Inc. through a formal lending arrangement. The Company is charged interest by its wholly-owned subsidiary, McNeilus Companies, Inc. under a formal lending arrangement. There are presently no management fee arrangements between the Company and its Non-Guarantor Subsidiaries. 12
OSHKOSH TRUCK CORPORATION Condensed Consolidating Statements of Income For the Three Months Ended March 31, 1999 (Unaudited) <TABLE> <CAPTION> Subsidiary Non-Guarantor Company Guarantors Subsidiaries Eliminations Consolidated ------- ---------- ------------ ------------ ------------- (In thousands) <S> <C> <C> <C> <C> <C> Net sales $ 101,360 $ 198,635 $ -- $ (1,461) $ 298,534 Cost of sales 89,187 166,288 -- (1,461) 254,014 ---------- ---------- ----------- ---------- ---------- Gross income 12,173 32,347 -- -- 44,520 Operating expenses: Selling, general and administrative 12,458 12,196 100 -- 24,754 Amortization of goodwill and other intangibles -- 2,890 -- -- 2,890 ---------- ---------- ----------- ---------- ---------- Total operating expenses 12,458 15,086 100 -- 27,644 ---------- ---------- ----------- ---------- ---------- Operating income (loss) (285) 17,261 (100) -- 16,876 Other income (expense): Interest expense (6,158) (2,062) -- 1,575 (6,645) Interest income 123 1,671 22 (1,575) 241 Miscellaneous, net 39 35 124 -- 198 ---------- ---------- ----------- ---------- ---------- (5,996) (356) 146 -- (6,206) ---------- ---------- ----------- ---------- ---------- Income (loss) from operations before income taxes, and equity in earnings of subsidiaries and unconsolidated partnership (6,281) 16,905 46 -- 10,670 Provision (credit) for income taxes (2,499) 6,982 18 -- 4,501 ---------- ---------- ----------- ---------- ---------- (3,782) 9,923 28 -- 6,169 Equity in earnings of subsidiaries and unconsolidated partnership, net of income taxes 10,331 ---- 380 (10,331) 380 ---------- ---------- ----------- ---------- ---------- Net income $ 6,549 $ 9,923 $ 408 $ (10,331) $ 6,549 ========== ========== =========== ========== ========== </TABLE> 13
OSHKOSH TRUCK CORPORATION Condensed Consolidating Statements of Income For the Six Months Ended March 31, 1999 (Unaudited) <TABLE> <CAPTION> Subsidiary Non-Guarantor Company Guarantors Subsidiaries Eliminations Consolidated ------- ---------- ------------ ------------ ------------ (In thousands) <S> <C> <C> <C> <C> <C> Net sales $ 178,094 $ 345,574 $ -- $ (2,441) $ 521,227 Cost of sales 155,529 291,511 -- (2,441) 444,599 ---------- ---------- ----------- ---------- ----------- Gross income 22,565 54,063 -- -- 76,628 Operating expenses: Selling, general and administrative 19,756 21,400 143 -- 41,299 Amortization of goodwill and other intangibles -- 5,625 -- -- 5,625 ---------- ---------- ----------- ---------- ----------- Total operating expenses 19,756 27,025 143 -- 46,924 ---------- ---------- ----------- ---------- ----------- Operating income (loss) 2,809 27,038 (143) -- 29,704 Other income (expense): Interest expense (12,342) (4,034) -- 3,150 (13,226) Interest income 197 3,346 34 (3,150) 427 Miscellaneous, net 111 73 156 -- 340 ---------- ---------- ----------- ---------- ----------- (12,034) (615) 190 -- (12,459) ---------- ---------- ----------- ---------- ----------- Income (loss) from operations before income taxes, and equity in earnings of subsidiaries and unconsolidated partnership (9,225) 26,423 47 -- 17,245 Provision (credit) for income taxes (3,618) 11,101 18 -- 7,501 ---------- ---------- ----------- ---------- ----------- (5,607) 15,322 29 -- 9,744 Equity in earnings of subsidiaries and unconsolidated partnership, net of income taxes 16,068 -- 717 (16,068) 717 ---------- ---------- ----------- ---------- ----------- Net income $ 10,461 $ 15,322 $ 746 $ (16,068) $ 10,461 ========== ========== =========== ========== =========== </TABLE> 14
OSHKOSH TRUCK CORPORATION Condensed Consolidating Statements of Income For the Three Months Ended March 31, 1998 (Unaudited) <TABLE> <CAPTION> Subsidiary Non-Guarantor Company Guarantors Subsidiaries Eliminations Consolidated ------- ---------- ------------ ------------ ------------- (In thousands) <S> <C> <C> <C> <C> <C> Net sales $ 114,291 $ 103,545 $ -- $ -- $ 217,836 Cost of sales 102,204 88,098 -- -- 190,302 ---------- ---------- ----------- ---------- ----------- Gross income 12,087 15,447 -- -- 27,534 Operating expenses: Selling, general and administrative 8,811 5,741 97 -- 14,649 Amortization of goodwill and other intangibles -- 1,669 -- -- 1,669 ---------- ---------- ----------- ---------- ----------- Total operating expenses 8,811 7,410 97 -- 16,318 ---------- ---------- ----------- ---------- ----------- Operating income (loss) 3,276 8,037 (97) -- 11,216 Other income (expense): Interest expense (2,734) (1,773) (180) -- (4,687) Interest income 58 91 220 -- 369 Miscellaneous, net (155) (224) 144 -- (235) ---------- ---------- ----------- ---------- ----------- (2,831) (1,906) 184 -- (4,553) ---------- ---------- ----------- ---------- ----------- Income from operations before income taxes, equity in earnings of subsidiaries and unconsolidated partnership and extraordinary item 445 6,131 87 -- 6,663 Provision for income taxes 9 2,741 34 -- 2,784 ---------- ---------- ----------- ---------- ----------- 436 3,390 53 -- 3,879 Equity in earnings (loss) of subsidiaries and unconsolidated partnership, net of income taxes 2,725 -- (718) (2,725) (718) ---------- ---------- ----------- ---------- ----------- Income from operations 3,161 3,390 (665) (2,725) 3,161 Extraordinary charge for early retirement of debt, net of income tax benefit (735) -- -- -- (735) ---------- ---------- ----------- ---------- ----------- Net income $ 2,426 $ 3,390 $ (665) $ (2,725) $ 2,426 ========== ========== =========== ========== =========== </TABLE> 15
OSHKOSH TRUCK CORPORATION Condensed Consolidating Statements of Income For the Six Months Ended March 31, 1998 (Unaudited) <TABLE> <CAPTION> Subsidiary Non-Guarantor Company Guarantors Subsidiaries Eliminations Consolidated ------- ---------- ------------ ------------ ------------ (In thousands) <S> <C> <C> <C> <C> <C> Net sales $ 205,226 $ 164,411 $ -- $ -- $ 369,637 Cost of sales 182,509 139,596 -- -- 322,105 ---------- ---------- ----------- ---------- ----------- Gross income 22,717 24,815 -- -- 47,532 Operating expenses: Selling, general and administrative 17,135 8,927 97 -- 26,159 Amortization of goodwill and other intangibles -- 2,795 -- -- 2,795 ---------- ---------- ----------- ---------- ----------- Total operating expenses 17,135 11,722 97 -- 28,954 ---------- ---------- ----------- ---------- ----------- Operating income (loss) 5,582 13,093 (97) -- 18,578 Other income (expense): Interest expense (3,723) (3,288) (180) -- (7,191) Interest income 154 160 220 -- 534 Miscellaneous, net (133) (174) 144 -- (163) ---------- ---------- ----------- ---------- ----------- (3,702) (3,302) 184 -- (6,820) ---------- ---------- ----------- ---------- ----------- Income from operations before income taxes, equity in earnings of subsidiaries and unconsolidated partnership and extraordinary item 1,880 9,791 87 -- 11,758 Provision for income taxes 583 4,122 34 -- 4,739 ---------- ---------- ----------- ---------- ----------- 1,297 5,669 53 -- 7,019 Equity in earnings (loss) of subsidiaries and unconsolidated partnership, net of income taxes 5,004 -- (718) (5,004) (718) ---------- ---------- ----------- ---------- ----------- Income from operations 6,301 5,669 (665) (5,004) 6,301 Extraordinary charge for early retirement of debt, net of income tax benefit (735) -- -- ---- (735) ---------- ---------- ----------- ---------- ----------- Net income $ 5,566 $ 5,669 $ (665) $ (5,004) $ 5,566 ========== ========== =========== ========== =========== </TABLE>
OSHKOSH TRUCK CORPORATION Condensed Consolidating Balance Sheets March 31, 1999 (Unaudited) <TABLE> <CAPTION> Subsidiary Non-Guarantor Company Guarantors Subsidiaries Eliminations Consolidated ------- ---------- ------------ ------------ ------------ (In thousands) ASSETS Current assets: <S> <C> <C> <C> <C> <C> Cash and cash equivalents $ 975 $ 1,678 $ 1,733 $ -- $ 4,386 Receivables, net 60,569 58,025 80 -- 118,674 Inventories 59,477 150,897 -- -- 210,374 Prepaid expenses and other 3,422 889 -- -- 4,311 Deferred income taxes 9,423 7,227 4,933 -- 21,583 --------- ---------- --------- ------------ ------------ Total current assets 133,866 218,716 6,746 -- 359,328 Investment in and advances to: Subsidiaries 361,321 (4,788) -- (356,533) -- Unconsolidated partnership -- -- 14,461 -- 14,461 Other long-term assets 9,328 6,655 83 -- 16,066 Net property, plant and equipment 23,734 57,291 -- -- 81,025 Goodwill and other intangible assets, net 1,108 326,058 -- -- 327,166 --------- ---------- --------- ------------ ------------ Total assets $ 529,357 $ 603,932 $ 21,290 $ (356,533) $ 798,046 ========= ========== ========= ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 38,779 $ 49,682 $ 23 $ -- $ 88,484 Floor plan notes payable -- 47,639 -- -- 47,639 Customer advances 1,714 63,066 -- -- 64,780 Payroll-related obligations 8,237 13,443 24 -- 21,704 Accrued warranty 5,599 9,520 -- -- 15,119 Other current liabilities 26,532 19,504 11,561 -- 57,597 Current maturities of long-term debt and revolving credit facility 22,947 251 -- -- 23,198 --------- ---------- --------- ------------ ------------ Total current liabilities 103,808 203,105 11,608 -- 318,521 Long-term debt 268,353 2,312 -- -- 270,665 Deferred income taxes (2,444) 35,835 14,470 -- 47,861 Other long-term liabilities 18,458 1,359 -- -- 19,817 Investments by and advances from (to) parent -- 361,321 (4,788) (356,533) -- Shareholders' equity 141,182 -- ---- -- 141,182 --------- ----------- --------- ------------ ------------ Total liabilities and shareholders' equity $ 529,357 $ 603,932 $ 21,290 $ (356,533) $ 798,046 ========= ========== ========= ============ ============ </TABLE> 17
OSHKOSH TRUCK CORPORATION Condensed Consolidating Balance Sheets September 30, 1998 (Unaudited) <TABLE> <CAPTION> Subsidiary Non-Guarantor Company Guarantors Subsidiaries Eliminations Consolidated ------- ---------- ------------ ------------ ------------ (In thousands) ASSETS Current assets: <S> <C> <C> <C> <C> <C> Cash and cash equivalents $ 1,065 $ 979 $ 1,578 $ -- $ 3,622 Receivables, net 41,009 39,863 110 -- 80,982 Inventories 47,191 102,000 -- -- 149,191 Prepaid expenses and other 3,298 470 -- -- 3,768 Deferred income taxes 5,761 4,629 1,891 -- 12,281 --------- ---------- --------- ------------ ------------ Total current assets 98,324 147,941 3,579 -- 249,844 Investment in and advances to: Subsidiaries 363,189 (4,585) -- (358,604) -- Unconsolidated partnership -- -- 13,496 -- 13,496 Other long-term assets 9,276 4,960 (38) -- 14,198 Net property, plant and equipment 23,789 57,047 -- -- 80,836 Goodwill and other intangible assets, net 1,108 325,557 -- -- 326,665 --------- ---------- --------- ------------ ------------ Total assets $ 495,686 $ 530,920 $ 17,037 $ (358,604) $ 685,039 ========= ========== ========= ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 30,843 $ 34,294 $ 34 $ -- $ 65,171 Floor plan notes payable -- 11,645 -- -- 11,645 Customer advances 1,689 43,226 -- -- 44,915 Payroll-related obligations 8,749 15,348 27 -- 24,124 Accrued warranty 5,689 10,198 -- -- 15,887 Other current liabilities 23,710 15,037 4,751 -- 43,498 Current maturities of long-term debt and revolving credit facility 3,216 251 -- --- 3,467 --------- ---------- --------- ------------ ------------ Total current liabilities 73,896 129,999 4,812 -- 208,707 Long-term debt 274,784 2,553 -- -- 277,337 Deferred income taxes (2,394) 33,416 16,810 -- 47,832 Other long-term liabilities 18,104 1,763 -- -- 19,867 Investments by and advances from (to) parent -- 363,189 (4,585) (358,604) -- Shareholders' equity 131,296 -- -- -- 131,296 --------- ---------- --------- ------------ ------------ Total liabilities and shareholders' equity $ 495,686 $ 530,920 $ 17,037 $ (358,604) $ 685,039 ========= ========== ========= ============= ============ </TABLE> 18
OSHKOSH TRUCK CORPORATION Condensed Consolidating Statements of Cash Flows For the Six Months Ended March 31, 1999 (Unaudited) <TABLE> <CAPTION> Subsidiary Non-Guarantor Company Guarantors Subsidiaries Eliminations Consolidated ------- ---------- ------------ ------------ ------------ (In thousands) Operating activities: <S> <C> <C> <C> <C> <C> Income from operations $ 10,461 $ 15,322 $ 746 $ (16,068) $ 10,461 Non-cash adjustments (1,048) 8,816 (3,516) -- 4,252 Changes in operating assets and liabilities (21,210) 3,624 (974) -- (18,560) --------- --------- ---------- ---------- ----------- Net cash provided from (used for) operating activities (11,797) 27,762 (3,744) (16,068) (3,847) Investing activities: Investments in and advances to subsidiaries 1,868 (21,745) 3,809 16,068 -- Additions to property, plant and equipment (1,867) (2,845) -- -- (4,712) Other (310) (2,232) 90 -- (2,452) --------- --------- ---------- ---------- ---------- Net cash provided from (used for) investing activities (309) (26,822) 3,899 16,068 (7,164) Financing activities: Net borrowings under revolving credit facility 13,300 ---- -- -- 13,300 Repayments of long term debt -- (241) -- -- (241) Dividends paid (2,103) -- -- -- (2,103) Other 819 -- -- -- 819 --------- --------- ---------- ---------- ---------- Net cash provided from (used for) financing activities 12,016 (241) -- -- 11,775 --------- --------- ---------- ---------- ---------- Increase (decrease) in cash and cash equivalents (90) 699 155 -- 764 Cash and cash equivalents at beginning of period 1,065 979 1,578 -- 3,622 --------- --------- ---------- ---------- ---------- Cash and cash equivalents at end of period $ 975 $ 1,678 $ 1,733 $ -- $ 4,386 ========= ========= ========== ========== ========== </TABLE> 19
OSHKOSH TRUCK CORPORATION Condensed Consolidating Statements of Cash Flows For the Six Months Ended March 31, 1998 (Unaudited) <TABLE> <CAPTION> Subsidiary Non-Guarantor Company Guarantors Subsidiaries Eliminations Consolidated ------- ---------- ------------ ------------ ------------ (In thousands) Operating activities: <S> <C> <C> <C> <C> <C> Income (loss) from operations $ 6,301 $ 5,669 $ (665) $ (5,004) $ 6,301 Non-cash adjustments 4,109 7,429 884 -- 12,422 Changes in operating assets and liabilities 8,503 3,251 (1,427) -- 10,327 --------- --------- ---------- -------- ---------- Net cash provided from (used for) operating activities 18,913 16,349 (1,208) (5,004) 29,050 Investing activities: Acquisition of businesses, net of cash acquired (225,524) (3,535) 11,105 -- (217,954) Investments in and advances to subsidiaries 6,859 (11,918) 55 5,004 -- Additions to property, plant and equipment (1,206) (3,149) -- -- (4,355) Other (328) 2,513 (198) -- 1,987 --------- --------- ---------- -------- ---------- Net cash provided from (used for) investing activities (220,199) (16,089) 10,962 5,004 (220,322) Net cash used for discontinued operations (811) -- -- -- (811) Financing activities: Proceeds from issuance of long term debt 325,000 -- -- -- 325,000 Repayments of long-term debt (135,000) (37) -- -- (135,037) Debt issuance costs (8,479) -- -- -- (8,479) Dividends paid (2,083) -- -- -- (2,083) Other 18 -- -- -- 18 --------- --------- ---------- -------- ---------- Net cash provided from (used for) financing activities 179,456 (37) -- -- 179,419 --------- --------- ---------- -------- ---------- Increase (decrease) in cash and cash equivalents (22,641) 223 9,754 -- (12,664) Cash and cash equivalents at beginning of period 23,210 9 -- -- 23,219 --------- --------- ---------- -------- ---------- Cash and cash equivalents at end of period $ 569 $ 232 $ 9,754 $ -- $ 10,555 ========= ========= ========== ======== ========== </TABLE> 20
Item 2. Oshkosh Truck Corporation Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations FORWARD-LOOKING STATEMENTS This Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations and other sections of this report contain statements that management believes are "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements other than statements of historical fact included in this report, including, without limitation, statements regarding Oshkosh Truck Corporation's (the "Company" or "Oshkosh") future financial position, business strategy, budgets, projected costs and plans and objectives of management for future operations, are considered forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as "may", "will", "expect", "intend", "estimates", "anticipate", "believe", "should", "plans", or "continue", or the negative thereof or variations thereon or similar terminology. Although the Company believes the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from the Company's expectations include, without limitation, the following: (1) the consequences of financial leverage; (2) the cyclical nature of the construction industry; (3) the risks related to reductions or changes in government expenditures; (4) the uncertainty inherent in government contracts; (5) the challenges of identifying acquisition candidates and integrating acquired businesses; (6) competition; (7) disruptions in the supply of parts or components from sole source suppliers and subcontractors; (8) product liability and warranty claims; (9) labor relations and market conditions; (10) unanticipated events relating to the resolution of Year 2000 issues; (11) competitive pricing pressures for the Company's products; and (12) opportunities that may be presented to and pursued by the Company. All subsequent written and oral forward-looking statements attributable to the Company, or persons acting on its behalf, are expressly qualified in their entirety by these cautionary statements. Results of Operations Second Quarter 1999 Compared to 1998 The Company reported net income of $6.5 million, or $0.76 per share, on sales of $298.5 million for the second quarter of fiscal 1999, compared to net income of $2.4 million, or $0.28 per share, on sales of $217.8 million for the second quarter of fiscal 1998. Sales of commercial and fire and emergency products increased in the second quarter of fiscal 1999 compared to the second quarter of fiscal 1998 while sales of defense products decreased. Commercial and fire and emergency sales in the second quarter of fiscal 1999 increased $97.7 million, or 62.5%, from the second quarter of fiscal 1998 to $254.1 million. An increase of $81.2 million in sales of construction and refuse vehicles and 21
a $16.5 million increase in sales of fire and emergency apparatus accounted for the increase. Sales of construction and refuse vehicles increased largely due to the acquisition of McNeilus Companies, Inc. ("McNeilus") on February 26, 1998. Sales of fire and emergency vehicles rose due to strong market-demand and improved product mix. Sales of defense products totaled $44.4 million in the second quarter of fiscal 1999, a decrease of $17.0 million, or 27.7%, compared to the second quarter of fiscal 1998. Defense sales declined due to the trend in lower heavy military truck spending in the federal budget and the completion of the ISO-Compatible Palletized Flatrack contract in July 1998. Vehicle sales under the recently awarded U.S. Marine Corps Medium Tactical Truck Replacement ("MTTR") contract will not begin until fiscal 2000. Gross income in the second quarter of fiscal 1999 totaled $44.5 million, or 14.9% of sales, compared to $27.5 million, or 12.6% of sales, in the second quarter of fiscal 1998. McNeilus contributed $21.5 million of gross income in the second quarter of fiscal 1999 compared to $4.8 million in the second quarter of fiscal 1998. Operating expenses increased $11.3 million to $27.6 million, or 9.3% of sales, in the second quarter of fiscal 1999 compared to $16.3 million, or 7.5% of sales, in the second quarter of fiscal 1998. The Company recorded a non-recurring charge for litigation of $3.8 million, or 1.3% of sales, during the second quarter of fiscal 1999. Excluding the $3.8 million charge, all the remaining increase in operating expenses in the second quarter of fiscal 1999 related to the operations of McNeilus, including $1.2 million of amortization of goodwill and other intangibles, or 0.4% of sales. Interest expense increased to $6.6 million in the second quarter of fiscal 1999 compared to $4.7 million in the second quarter of fiscal 1998. The increase in interest expense is due to additional borrowings to finance the acquisition of McNeilus, net of debt repayment. The effective income tax rate for combined federal and state income taxes for the second quarter of fiscal 1999 was 42.2% compared to 41.8% for the second quarter of fiscal 1998. The effective income tax rate for the second quarter of fiscal 1999 was impacted by non-deductible goodwill amortization of $1.5 million. The effective income tax rate for the second quarter of fiscal 1998 was impacted by non-deductible goodwill amortization of $0.9 million and the reversal of $0.2 million of income tax provisions recognized in earlier periods. Equity in earnings of unconsolidated partnership increased to $0.4 million in the second quarter of fiscal 1999 compared to a loss of $0.7 million in the second quarter of fiscal 1998. The second quarter of fiscal 1998 results included only one month of operations following the formation of the partnership on February 26, 1998 and also includes a $0.9 million after-tax charge as a result of early-adoption of a new accounting standard related to start-up activities of the partnership. The extraordinary charge of $0.8 million in the second quarter of fiscal 1998 relates to the write-off of debt issuance costs as a result of early retirement of debt. First Six Months of 1999 Compared to 1998 The Company reported net income of $10.5 million, or $1.21 per share, on sales of $521.2 million for the first six months of fiscal 1999, compared to net income of $5.6 million, or $0.65 per share, on sales of $369.6 million for the first six months of fiscal 1998. Sales of commercial and fire and emergency products increased in the first six months of fiscal 1999 compared to the first six months of fiscal 1998 while sales of defense products decreased. Commercial and fire and emergency sales for the first six months of fiscal 1999 increased $187.3 million, or 78.8%, from the first six months of fiscal 1998 to $424.8 22
million. An increase of $163.8 million in sales of construction and refuse vehicles and a $23.5 million increase in sales of fire and emergency apparatus accounted for the increase. Sales by McNeilus accounted for all of the increase in sales of construction and refuse vehicles. Sales of fire and emergency vehicles rose due to strong market demand and improved product mix. Sales of defense products totaled $96.4 million for the first six months of fiscal 1999, a decrease of $35.7 million, or 27.0%, compared to the first six months of fiscal 1998. Defense sales declined due to the trend in lower heavy military truck spending in the federal budget and the completion of the ISO-Compatible Palletized Flatrack contract in July 1998. Gross income in the first six months of fiscal 1999 totaled $76.6 million, or 14.7% of sales, compared to $47.5 million, or 12.9% of sales, in the first six months of fiscal 1998. McNeilus contributed $34.9 million of gross income for the first six months of fiscal 1999 compared to $6.0 million for the first six months of fiscal 1998. Operating expenses increased $17.9 million to $46.9 million, or 9.0% of sales, in the first six months of fiscal 1999 compared to $29.0 million, or 7.8% of sales, in the first six months of fiscal 1998. Operating expenses for the first six months of fiscal 1999 include a $3.8 million non-recurring charge for litigation, or 0.7% of sales. Excluding the $3.8 million charge, all of the remaining increase in operating expenses related to the operations of McNeilus, including a $2.8 million increase in amortization of goodwill and other intangibles, or 0.5% of sales. Interest expense increased to $13.2 million in the first six months of fiscal 1999 compared to $7.2 million in the first six months of fiscal 1998. The increase in interest expense is due to additional borrowings to finance the acquisition of McNeilus, net of debt repayment. The effective tax rate for combined federal and state income taxes for the first six months of fiscal 1999 was 43.5% compared to 40.3% for the first six months of fiscal 1998. The effective income tax rate for the first six months of fiscal 1999 was impacted by non-deductible goodwill amortization of $2.8 million. The effective income tax rate for the first six months of fiscal 1998 was impacted by non-deductible goodwill amortization of $1.5 million and the reversal of $0.5 million of income tax provisions recognized in earlier periods. Equity in earnings of unconsolidated partnership increased to $0.7 million for the first six months of fiscal 1999 compared to a loss of $0.7 million for the first six months of fiscal 1998. The first six months of fiscal 1998 includes a $0.9 million after-tax charge due to the early-adoption of a new accounting standard related to start-up activities of the partnership. Also, results for the first six months of fiscal 1998 include only one month of operations of the partnership following its formation on February 26, 1998. The extraordinary charge of $0.8 million in the first six months of fiscal 1998 is due to the previously discussed early retirement of debt. Financial Condition First Six Months of 1999 During the first six months of fiscal 1999, cash increased by $0.8 million. Cash used in operations during the period of $3.8 million, equipment and software purchases of $7.2 million and dividend and scheduled debt payments of $2.1 million and $0.2 million, respectively, were funded by a $13.3 million increase in borrowings under the Company's revolving credit facility and $0.8 million of proceeds from exercise of Common Stock options under the Company's Incentive Stock Plan. First Six Months of 1998 23
During the first six months of fiscal 1998, cash decreased $12.7 million. Cash available at the beginning of the period of $23.2 million, cash provided from operations during the period of $29.0 million and a $1.8 million reduction in other long-term assets, or a total of $54.0 million were used primarily to fund $43.0 million of debt repayments, the acquisition of Nova Quintech for $3.5 million, capital additions of $4.4 million and the payment of dividends of $2.1 million. The Company borrowed approximately $344.0 million in February 1998 ($225.0 million under a multi-tranche senior term loan facility, $100.0 million of senior subordinated notes and $19.0 million under a new $100.0 million revolving credit facility). Such borrowings were utilized to close the McNeilus acquisition ($249.5 million purchase price and non-competition payments plus $2.8 million in acquisition costs less cash acquired of $37.9 million, or $214.4 million, plus restricted cash of $11.1 million), refinance $110.0 million of outstanding indebtedness under the Company's previous credit facility and to pay $8.5 million in debt issuance costs. In March 1998, the Company realized approximately $5.5 million from the disposition of certain McNeilus assets. Liquidity and Capital Resources The Company's primary cash requirements are expected to include working capital, interest and principal payments on indebtedness, capital expenditures, dividends and, potentially, future acquisitions. The primary sources of cash are expected to be cash flow from operations and borrowings under the Company's Senior Credit Facility. Based upon current and anticipated future operations, the Company believes that capital resources will be adequate to meet future working capital, debt service and other capital requirements for fiscal 1999, including the effect of the recently awarded MTTR contract. Backlog The Company's backlog as of March 31, 1999 was $572.2 million, compared to $476.9 million at March 31, 1998. The backlog at March 31, 1999 includes $185.4 million with respect to U.S. Government contracts (including $45.0 million for the funded portion of the MTTR contract), $177.1 million related to Pierce Manufacturing Inc. ("Pierce"), $122.2 million with respect to McNeilus and the remainder relates to other commercial and fire and emergency products. The backlog excludes the unfunded portion of the MTTR contract ($739 million at March 31, 1999). Approximately 18% of the Company's backlog orders will not be filled within fiscal 1999. Most of the Company's revenues are derived from customer orders prior to commencing production. Reported backlog excludes purchase options and announced orders for which definitive contracts have not been executed. Additionally, backlog excludes unfunded portions of U.S. Department of Defense ("DoD") long-term family contracts. Backlog information and comparisons thereof as of different dates may not be accurate indicators of future sales or the ratio of the Company's future sales to the DoD versus its sales to other customers. 24
Year 2000 General The Company commenced a corporate-wide Year 2000 project ("Project 2000") in 1997 to address issues with respect to the ability of computer programs and embedded computer chips to distinguish between the years 1900 and 2000. Project 2000 is on schedule in all material respects. As of May 4, 1999, all of the Company's principal enterprise resource planning systems are Year 2000 ready. Other information systems that are believed to pose lesser risks in the event of Year 2000 failure are scheduled to be upgraded or replaced by mid-1999. Issues with respect to embedded computer chips will continue to be addressed throughout 1999 based on a prioritization of risks. Tests have been and will continue to be conducted with respect to information systems, telephone systems, manufacturing equipment, Company-produced trucks and equipment and other systems and equipment which might exhibit Year 2000 issues in order to determine the extent of any continuing corrective action required. Project 2000 Project 2000 is addressing four principal areas--Infrastructure and Applications Software; Company-produced trucks and equipment; Process Controls and Instrumentation ("PC&I"); and third-party suppliers and customers ("External Parties"). The project phases common to each area include: (1) development of an inventory of Year 2000 risks; (2) assignment of priorities to identified risks; (3) assessment of Year 2000 compliance and impact of noncompliance; (4) tests to determine whether any upgrade or replacement is required; (5) upgrade or replacement of items that are determined not to be Year 2000 compliant if the impact of noncompliance is material; (6) testing of any upgrades or replacements; and (7) design and implementation of contingency and business continuation plans for each organization and facility. As of March 31, 1999, the initial four phases for each of the four areas of Project 2000 and remediation of all principal enterprise resource planning systems have been completed. Material items are those believed by the Company to have a risk involving the safety of individuals, or that may cause damage to property or affect revenues and expenses. Infrastructure and Applications Software--As the Company addresses its infrastructure and applications software, it tests and then upgrades or replaces the affected hardware and systems software, as necessary. The Company maintains two enterprise resource planning ("ERP") computer systems at its Oshkosh operations and one system each at its Pierce and McNeilus and operations. In May 1999, the Company consolidated its Florida computer operations into Oshkosh's Year 2000 ready computer operations. The Company installed an upgraded release of software (which is certified by the software vendor as being Year 2000 ready) to its ERP system for truck operations in Oshkosh in July 1998. Programming to upgrade the remaining Oshkosh ERP system for its parts operations was completed in December 1998. In April 1999, Pierce replaced all of its hardware and business systems with a new, vendor-certified Year 2000 ready, ERP system and related hardware. McNeilus installed an upgraded release to its ERP systems in August and September 1998. Validation testing at McNeilus to assure that 25
the upgrade is Year 2000 ready is scheduled for completion by July 31, 1999. Other infrastructure and applications software, including engineering systems, are believed to pose lesser risks in the event of Year 2000 noncompliance due to a wider range of less disruptive commercial options available to cure noncompliance. The Company plans to upgrade or replace all such non-compliant systems by June 30, 1999. Company-Produced Trucks and Equipment--The Company has communicated with suppliers that are critical to the manufacture of its products to verify whether computer chips embedded in its trucks and equipment are Year 2000 ready, and has issued Service Bulletins to customers with respect to the findings. While the Company has not identified any material issues with respect to computer chips embedded into its products, investigations as to such issues, if any, will continue. Nevertheless, there can be no assurance at this time that its investigation is complete or that material warranty and product liability issues will not develop with respect to this matter. To the extent that suppliers of the Company experience Year 2000 problems (or are unable to certify that their products are Year 2000 compliant) and the Company is unable to source alternate suppliers, changes to the Company's products may be necessary to avoid warranty and liability, both as to products already in use, and as to products to be shipped in the future. PC&I--Certain systems, such as telephone systems, have been upgraded to be Year 2000 ready, or are planned to be upgraded by June 30, 1999. Current indications are that the Company's critical equipment and systems will not require material upgrades or replacements. The testing and necessary improvements of PC&I equipment will continue throughout 1999. External Parties--The Company has surveyed critical parts and all chassis suppliers to assess the Year 2000 readiness of their products and business systems. The Company's largest suppliers are large public companies and, as such, generally have significant projects completed or underway similar to Project 2000. There can be no assurance that these suppliers or the Company's smaller suppliers will not have Year 2000 issues with their processes or business systems that ultimately could have a material effect on the Company in spite of such projects. Where suppliers are deemed to pose significant risk to the Company, alternate suppliers or contingency plans are being developed. The Company does not maintain significant computer interfaces with its customers, except with the DoD, where invoices and remittances are sent by electronic data interchange. The DoD is an extremely large organization. Certain departments within the DoD, which interface with the Company, have communicated that they were Year 2000 compliant as of March 31, 1999. However, the DoD has not provided the Company with any assurances that its systems will be Year 2000 compliant, or whether DoD computer interfaces with other U.S. government entities will be Year 2000 ready. Should the DoD encounter Year 2000 difficulties, the Company's sales and cash flows could be materially adversely affected. There also can be no assurance that the Company's other customers will not lose business or otherwise encounter Year 2000 issues that could ultimately affect the sales and earnings of the Company. 26
Costs Based on the Company's activities to date and considering known items, the Company does not expect the total cost associated with required hardware, equipment and software modifications to become Year 2000 ready to be material to the Company's financial position. The total estimated capital costs (which would have been incurred regardless of Year 2000 issues and which have the incidental consequence of Year 2000 readiness) and period expenses of Project 2000 are $8.8 million and $0.7 million, respectively, of which $8.1 million and $0.6 million, respectively, have been expended as of March 31, 1999. Approximately $7.6 million of the estimated capital costs relate to the replacement of all the hardware and business systems at Pierce, which was completed in April 1999. To date, none of the Company's other information systems projects have been delayed due to Project 2000. Risks Under Project 2000 (as in any project of this magnitude and scope), there is risk of underestimating the tasks and difficulties to be encountered, or in obtaining necessary personnel. Risk also exists in that the failure to correct a material Year 2000 problem could result in an interruption in, or a failure of, certain normal business activities or operations. Such failures could materially and adversely affect the Company's results of operations, cash flows and financial condition. Due to the general uncertainty inherent in the Year 2000 problem, resulting in part from the uncertainty of the Year 2000 readiness of third-party suppliers and customers, the Company is unable to determine at this time whether the consequences of Year 2000 failures will have a material impact on the Company's results of operations, cash flows or financial condition. Project 2000 is expected to significantly reduce the Company's level of uncertainty about the Year 2000 problem and, in particular, about the Year 2000 compliance and readiness of its material External Parties. The Company believes that, with the installation of new or upgraded ERP business systems and assuming completion of Project 2000 as scheduled, the possibility of significant interruptions of normal operations should be reduced. The Company is in the process of establishing contingency plans in the event that any unexpected issues arise when the Year 2000 arrives. The Company expects contingency planning to be complete by August 1, 1999. Item 3. Quantitative and Qualitative Disclosure of Market Risk The Company has not experienced any material changes in its market risk exposures since September 30, 1998. 27
PART II. OTHER INFORMATION ITEM 1 LEGAL PROCEEDINGS The Company is engaged in litigation against Super Steel Products Corp. ("SSPC"), the Company's former supplier of mixer systems for forward-discharge concrete mixer trucks under a long-term supply contract. SSPC sued the Company in state court claiming the Company breached the contract. The Company counterclaimed for repudiation of the contract. On July 26, 1996, a jury returned a verdict for SSPC awarding damages totaling $4.5 million. On October 10, 1996, the state court judge overturned the verdict against the Company, granted judgment for the Company on its counterclaim, and ordered a new trial for damages on the Company's counterclaim. Both SSPC and the Company appealed the state court judge's decision to the Wisconsin Court of Appeals. On December 8, 1998, the Wisconsin Court of Appeals ordered the state court judge to reinstate the jury verdict against the Company awarding damages totaling $4.5 million plus interest to SSPC. On April 6, 1999, the Company's petition for review of this decision by the Wisconsin Supreme Court was denied. On April 12, 1999, the Company petitioned the state court judge to act on the Company's previous motion for a retrial. The Company expects a decision on the retrial motion shortly. The ultimate outcome of this matter cannot be predicted at the present time. During the quarter ended March 31, 1999, the Company increased its reserve relating to this matter. ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS At the annual meeting of shareholders held on February 1, 1999, all of the persons nominated as directors were elected. The following table sets forth certain information with respect to such election. Shares Shares Withholding Other Shares Name of Nominee Voted For Authority Not Voted --------------- --------- --------- --------- Class A Nominees ---------------- J.W. Andersen 273,087 0 23,669 R.G. Bohn 272,412 675 23,669 F.M. Franks 273,087 0 23,669 M.W. Grebe 273,087 0 23,669 K.J. Hempel 273,087 0 23,669 S.P. Mosling 273,087 0 23,669 J.P. Mosling, Jr. 273,087 0 23,669 Common Stock Nominees D.T. Carroll 6,719,450 4,408 1,400,887 R.G. Sim 6,720,000 3,858 1,400,887 In addition, Class A Shareholders approved the Oshkosh Truck Corporation 1990 Incentive Stock Plan, as amended, by a vote of 260,739 in favor, 787 against or witheld, and 11,561 abstentions and broker non-votes. 28
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K - On February 2, 1999, the Company filed a Current Report on Form 8-K, dated February 1, 1999, to report the adoption of a shareholder rights plan pursuant to Item 5. 29
SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. OSHKOSH TRUCK CORPORATION May 14, 1999 /S/ R. G. Bohn -------------------------------------------- R. G. Bohn President and Chief Executive Officer (Principal Executive Officer) May 14, 1999 /S/ C. L. Szews -------------------------------------------- C. L. Szews Executive Vice President and Chief Financial Officer (Principal Financial Officer) May 14, 1999 /S/ T. J. Polnaszek -------------------------------------------- T. J. Polnaszek Vice President and Controller (Principal Accounting Officer) 30
EXHIBIT INDEX Exhibit No. Description 27 Financial Data Schedule 31