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 June 30, 2002.
or
( ) Transaction Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
for the Transition period from to
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Commission File Number 1-31371
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Oshkosh Truck Corporation
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[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
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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 July 31, 2002: 417,294
Common Stock Outstanding as of July 31, 2002: 16,466,739
OSHKOSH TRUCK CORPORATION
FORM 10-Q INDEX
FOR THE QUARTER ENDED JUNE 30, 2002
Page
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Income
- Three Months and Nine Months Ended
June 30, 2002 and 2001 ..............................3
Condensed Consolidated Balance Sheets
- June 30, 2002 and September 30, 2001...................4
Condensed Consolidated Statement of Shareholders' Equity
- Nine Months Ended June 30, 2002 .......................5
Condensed Consolidated Statements of Cash Flows
- Nine Months Ended June 30, 2002 and 2001 ..............6
Notes to Condensed Consolidated Financial Statements
- June 30, 2002 .........................................7
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations ...........25
Item 3. Quantitative and Qualitative Disclosure of Market Risk .....42
Part II. Other Information
Item 1. Legal Proceedings ..........................................43
Item 6. Exhibits and Reports on Form 8-K ...........................43
Signatures ..................................................................44
2
PART I. ITEM 1. FINANCIAL INFORMATION
OSHKOSH TRUCK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
2002 2001 2002 2001
---- ---- ---- ----
(In thousands, except per share amounts)
Net sales $ 489,532 $ 405,790 $1,266,630 $1,031,685
Cost of sales 410,272 349,471 1,077,850 881,595
------------ ------------ ---------- ----------
Gross income 79,260 56,319 188,780 150,090
Operating expenses:
Selling, general and administrative 39,392 25,681 104,636 74,826
Amortization of goodwill and purchased
intangibles 1,506 3,137 4,421 8,947
------------ ------------ ---------- ----------
Total operating expenses 40,898 28,818 109,057 83,773
------------ ------------ ---------- ----------
Operating income 38,362 27,501 79,723 66,317
Other income (expense):
Interest expense (5,209) (5,610) (17,248) (15,428)
Interest income 344 228 900 707
Miscellaneous, net (174) (81) (373) (76)
------------ ------------ ---------- ----------
(5,039) (5,463) (16,721) (14,797)
------------ ------------ ---------- ----------
Income before income taxes and equity in earnings
of unconsolidated partnership 33,323 22,038 63,002 51,520
Provision for income taxes 12,276 8,677 22,286 19,344
------------ ------------ ---------- ----------
21,047 13,361 40,716 32,176
Equity in earnings of unconsolidated
partnership, net of income taxes 527 348 1,633 1,040
------------ ------------ ---------- ----------
Net income $ 21,574 $ 13,709 $ 42,349 $ 33,216
============ ============ ========== ==========
Earnings per share $ 1.28 $ 0.82 $ 2.52 $ 1.99
=========== =========== ========== ==========
Earnings per share assuming dilution $ 1.24 $ 0.80 $ 2.45 $ 1.94
=========== =========== ========== ==========
Cash dividends:
Class A Common Stock $ 0.07500 $ 0.07500 $ 0.22500 $ 0.22500
Common Stock $ 0.08625 $ 0.08625 $ 0.25875 $ 0.25875
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
OSHKOSH TRUCK CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, September 30,
2002 2001
---- ----
(Unaudited)
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 19,042 $ 11,312
Receivables, net 155,015 211,405
Inventories 233,828 258,038
Prepaid expenses 7,678 6,673
Deferred income taxes 25,572 15,722
------------- -----------
Total current assets 441,135 503,150
Investment in unconsolidated partnership 20,298 18,637
Other long-term assets 8,572 8,626
Property, plant and equipment 251,429 244,166
Less accumulated depreciation (115,032) (102,238)
------------- -----------
Net property, plant and equipment 136,397 141,928
Purchased intangible assets, net 105,898 124,787
Goodwill 315,969 292,140
------------- -----------
Total assets $ 1,028,269 $ 1,089,268
============= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 112,626 $ 107,864
Floor plan notes payable 22,229 19,271
Customer advances 94,703 58,070
Payroll-related obligations 30,945 27,084
Income taxes 16,743 25,221
Accrued warranty 22,996 18,338
Other current liabilities 49,860 46,322
Revolving credit facility and current
maturities of long-term debt 3,443 77,031
------------- -----------
Total current liabilities 353,545 379,201
Long-term debt 196,795 282,249
Deferred income taxes 33,386 40,334
Other long-term liabilities 41,350 40,458
Commitments and contingencies - Note 10
Shareholders' equity 403,193 347,026
------------- -----------
Total liabilities and shareholders' equity $ 1,028,269 $ 1,089,268
============== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
OSHKOSH TRUCK CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
NINE MONTHS ENDED JUNE 30, 2002
(Unaudited)
Accumulated
Common Stock Other
Common Paid-In Retained in Treasury Comprehensive
Stock Capital Earnings at Cost Income (Loss) Total
----- ------- -------- ------- ------------- -----
(In thousands)
Balance at
September 30, 2001 $178 $110,330 $246,915 $(10,195) $ (202) $347,026
Net income -- -- 42,349 -- -- 42,349
Gain on derivative
instruments (net of
income taxes of $37) -- -- -- -- 63 63
Currency
translation
adjustments -- -- -- -- 13,537 13,537
Cash dividends:
Class A Common
Stock -- -- (94) -- -- (94)
Common Stock -- -- (4,246) -- -- (4,246)
Exercise of stock
options -- 334 -- 1,627 -- 1,961
Tax benefit related to
stock options
exercised -- 2,597 -- -- -- 2,597
------ -------- -------- ------- ------- --------
Balance at
June 30, 2002 $178 $113,261 $284,924 $(8,568) $13,398 $403,193
====== ======== ======== ======= ======= ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
OSHKOSH TRUCK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
June 30,
2002 2001
---- ----
(In thousands)
Operating activities:
Net income $ 42,349 $ 33,216
Non-cash adjustments 8,550 14,059
Changes in operating assets and liabilities 124,271 (79,030)
-------- --------
Net cash provided from (used for) operating activities 175,170 (31,755)
Investing activities:
Acquisition of businesses, net of cash acquired -- (26,423)
Additions to property, plant and equipment (6,883) (12,748)
Other 314 (5,401)
-------- --------
Net cash used for investing activities (6,569) (44,572)
Financing activities:
Net borrowings (repayments) under revolving credit
facility (65,200) 77,900
Repayment of long-term debt (93,855) (6,475)
Dividends paid (4,326) (4,300)
Other 1,961 196
-------- --------
Net cash provided from (used for) financing activities (161,420) 67,321
Effect of exchange rate changes on cash 549 --
-------- --------
Increase (decrease) in cash and cash equivalents 7,730 (9,006)
Cash and cash equivalents at beginning of period 11,312 13,569
-------- --------
Cash and cash equivalents at end of period $ 19,042 $ 4,563
======== ========
Supplementary disclosures:
Depreciation and amortization $ 18,720 $ 20,756
Cash paid for interest 14,517 12,193
Cash paid for income taxes 35,925 16,537
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
OSHKOSH TRUCK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have been
prepared by Oshkosh Truck Corporation (the "Company") without audit. However,
the foregoing financial statements contain all adjustments (which include normal
recurring adjustments except as disclosed herein) that are, in the opinion of
Company management, necessary to present fairly the condensed consolidated
financial statements. Operating results for the periods presented may not be
indicative of the annual results.
Certain reclassifications have been made to the fiscal 2001 financial statements
to conform to the fiscal 2002 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 condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's 2001 annual report to
shareholders.
2. NEW ACCOUNTING STANDARDS
In August 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"). SFAS No. 144
establishes a single accounting model, based on the framework established in
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets To Be Disposed Of" ("SFAS No. 121"), for long-lived assets to
be disposed of by sale, and resolves significant implementation issues related
to SFAS No. 121. The Company adopted SFAS No. 144 on October 1, 2001. The
adoption of SFAS No. 144 did not have a material effect on the consolidated
financial statements.
3. COMPREHENSIVE INCOME
Total comprehensive income is as follows (in thousands):
Three Months Ended Nine Months Ended
June 30, June 30,
2002 2001 2002 2001
---- ---- ---- ----
Net income $21,574 $13,709 $42,349 $33,216
Currency translation adjustments 19,618 -- 13,537 --
Gains on derivative instruments,
net of income taxes 78 16 63 60
------- ------- ------- -------
Comprehensive income $41,270 $13,725 $55,949 $33,276
======= ======= ======= =======
7
The components of Accumulated Other Comprehensive Income (Loss) are as follows
(in thousands):
June 30, September 30,
2002 2001
---- ----
Cumulative translation adjustments $17,812 $4,275
Minimum pension liability adjustments,
net of income taxes (4,490) (4,490)
Gains on derivative instruments,
net of income taxes 76 13
------- ------
Accumulated other comprehensive income (loss) $13,398 $ (202)
======= ======
4. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted weighted
average shares used in the denominator of the per share calculations:
Three Months Ended Nine Months Ended
June 30, June 30,
-------- --------
2002 2001 2002 2001
---- ---- ---- ----
Denominator for basic earnings per share 16,883,214 16,686,732 16,795,522 16,677,804
Effect of dilutive options and incentive
compensation awards 471,488 392,088 466,369 405,218
---------- ---------- ---------- ----------
Denominator for dilutive earnings
per share 17,354,702 17,078,820 17,261,891 17,083,022
========== ========== ========== ==========
5. INVENTORIES
Inventories consist of the following:
June 30, September 30,
2002 2001
---- ----
(In thousands)
Finished products $ 60,518 $ 64,049
Partially finished products 99,742 104,955
Raw materials 119,540 122,484
-------- -------
Inventories at FIFO cost 279,800 291,488
Less: Progress/performance-based payments on
U.S. government contracts (31,338) (20,831)
Excess of FIFO cost over LIFO cost (14,634) (12,619)
-------- --------
$233,828 $258,038
======== ========
Title to all inventories related to government contracts, which provide for
progress or performance-based payments, vests with the government to the extent
of unliquidated progress/performance-based payments.
6. INVESTMENTS IN UNCONSOLIDATED PARTNERSHIP
The Company and an unaffiliated third party are general partners in
Oshkosh/McNeilus Financial Services Partnership ("OMFSP"), a general
partnership. OMFSP was formed in 1998 when each partner contributed existing
lease assets (and in the case of the Company, related notes payable to third
party lenders that were secured by such leases) to capitalize the partnership.
OMFSP manages the contributed assets and liabilities and engages in new vendor
lease business providing financing to customers of the Company. OMFSP purchases
trucks, truck bodies and
8
concrete batch plants from the Company and the Company's affiliates for lease to
end customers. Banks and other third party financial institutions lend to OMFSP
a portion of the purchase price, with recourse solely to OMFSP, secured by a
pledge of lease payments due from the user lessees. Each partner funds one-half
of the equity portion of the cost of new truck and batch plant purchases, and
each partner is allocated its proportionate share of OMFSP cash flow and taxable
income as determined by the partnership agreement. Indebtedness of OMFSP is
secured by the underlying leases and assets of, and is recourse to, OMFSP.
However, such debt is nonrecourse to the Company. Each of the two general
partners have identical participating and protective rights and
responsibilities, and accordingly, the Company accounts for its equity interest
in OMFSP of 52% at June 30, 2002 and September 30, 2001, under the equity
method.
Summarized financial information of OMFSP is as follows (dollars in thousands):
June 30, September 30,
2002 2001
---- ----
Cash and cash equivalents $ 1,761 $ 2,973
Investments in sales-type leases, net 208,508 204,772
Other assets 585 869
-------- --------
$210,854 $208,614
======== ========
Notes payable $167,530 $166,635
Other liabilities 4,515 6,211
Partners' equity 38,809 35,768
-------- --------
$210,854 $208,614
======== ========
Nine Months Ended
June 30,
2002 2001
---- ----
Interest income $12,290 $11,412
Net interest income 3,278 2,969
Excess of revenues over expenses 3,233 2,914
7. GOODWILL AND PURCHASED INTANGIBLE ASSETS
In June 2001, the FASB issued SFAS No. 141, "Business Combinations" and SFAS No.
142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires that all
business combinations be accounted for using the purchase method of accounting
and that certain intangible assets acquired in a business combination be
recognized as assets apart from goodwill. SFAS No. 141 was effective for all
business combinations initiated after June 30, 2001. SFAS No. 142 requires
goodwill to be tested for impairment under certain circumstances, and written
down when impaired, rather than being amortized as previous standards required.
Furthermore, SFAS No. 142 requires purchased intangible assets other than
goodwill to be amortized over their useful lives unless these lives are
determined to be indefinite. Purchased intangible assets are carried at cost
less accumulated amortization. Amortization is computed over the useful lives of
the respective assets.
SFAS No. 142 is effective for fiscal years beginning after December 15, 2001;
however, the Company elected to adopt early the standard effective
9
the beginning of fiscal 2002. In accordance with SFAS No. 142, the Company
ceased amortizing goodwill totaling $301.5 million as of the beginning of fiscal
2002, which includes $9.4 million of purchased intangible assets that were
subsumed into goodwill (net of related deferred income tax liabilities of $6.0
million) as follows: $2.9 million of assembled workforce intangible assets, $2.7
million of going concern/immediate use intangible assets and $9.8 million of
internal sales force intangible assets. Due to indefinite lives, the Company
also ceased amortizing trade names totaling $5.4 million as of the beginning of
fiscal 2002. As a result, the Company did not recognize amortization of goodwill
and trade names during the three and nine month periods ended June 30, 2002
totaling $1.7 million and $4.9 million, respectively, net-of-tax, that would
have been recognized had the previous standards been in effect. The following
table presents the impact of SFAS No. 142 on net income and net income per share
had the standard been in effect for the three and nine month periods ended June
30, 2001 (in thousands, except per share amounts):
Three Months Ended Nine Months Ended
June 30, June 30,
2002 2001 2002 2001
---- ---- ---- ----
Reported net income $21,574 $13,709 $42,349 $33,216
Adjustments:
Amortization of goodwill -- 1,506 -- 4,439
Amortization of assets previously classified
as purchased intangible assets:
Assembled workforce -- 163 -- 490
Internal sales force -- 68 -- 202
Going concern/immediate use -- 19 -- 56
Trade names -- 10 -- 30
Income tax effect -- (115) -- (324)
------ ------- ------ -------
Net adjustments -- 1,651 -- 4,893
------- ------- ------- -------
Adjusted net income $21,574 $15,360 $42,349 $38,109
======= ======= ======= =======
Reported net income per share $1.28 $ 0.82 $2.52 $ 1.99
Adjusted net income per share 1.28 0.92 2.52 2.28
Reported net income per share assuming dilution 1.24 0.80 2.45 1.94
Adjusted net income per share assuming dilution 1.24 0.90 2.45 2.23
There was no impairment of goodwill upon adoption of SFAS No. 142. The Company
is required to perform goodwill impairment tests on an annual basis and between
annual tests in certain circumstances. There can be no assurance that future
goodwill impairment tests will not result in a charge to earnings.
10
The following tables present details of the Company's total purchased intangible
assets (dollars in thousands):
Weighted
Average Accumulated
June 30, 2002 Life Gross Amortization Net
- ------------- ---- ----- ------------ ---
(years)
Amortizable:
Distribution network 40.0 $ 53,000 $ (7,657) $ 45,343
Non-compete 14.5 40,122 (11,590) 28,532
Technology-related 17.8 20,601 (3,764) 16,837
Other 10.0 10,205 (783) 9,422
--------- --------- --------
25.5 123,928 (23,794) 100,134
Non-amortizable-Trade names 5,965 (201) 5,764
--------- --------- --------
Total $ 129,893 $ (23,995) $105,898
========= ========= ========
Weighted
Average Accumulated
September 30, 2001 Life Gross Amortization Net
- ------------------ ---- ----- ------------ ---
(years)
Amortizable:
Distribution network 40.0 $ 53,000 $ (6,664) $ 46,336
Non-compete 14.5 40,106 (9,400) 30,706
Technology-related 17.9 20,247 (2,867) 17,380
Assembled workforce 11.3 5,600 (2,678) 2,922
Internal sales force 40.0 10,800 (968) 9,832
Going concern/immediate use 40.0 3,000 (320) 2,680
Trade names 22.1 5,603 (201) 5,402
Other 10.3 9,944 (415) 9,529
--------- --------- ---------
Total 26.3 $ 148,300 $ (23,513) $ 124,787
========= ========== =========
The Company engaged third-party business valuation appraisers to determine the
fair value of the intangible assets in connection with the Company's larger
acquisitions--specifically the acquisitions of Pierce Manufacturing Inc.
("Pierce") in fiscal 1996, McNeilus Companies, Inc. ("McNeilus") in fiscal 1998
and the Geesink Norba Group in fiscal 2001.
The estimated future amortization expense of purchased intangible assets is as
follows (in thousands):
Fiscal year Amount
- ----------- ------
2002 (remaining three months) $1,648
2003 6,306
2004 6,306
2005 6,260
2006 6,040
11
The following table presents the changes in goodwill during the first nine
months of fiscal 2002 allocated to the reportable segments (in thousands):
Balance at Balance at
September 30, June 30,
Segment 2001 Acquired Adjustments 2002
------- ---- -------- ----------- ----
Commercial $ 194,963 $ -- $ 21,664 $ 216,627
Fire and emergency 97,177 -- 2,165 99,342
Defense -- -- -- --
---------- ---------- --------- ----------
Total $ 292,140 $ -- $ 23,829 $ 315,969
========== ========== ========= ==========
The adjustments during the first nine months of fiscal 2002 included an increase
of $8.8 million resulting from currency translation adjustments, a $0.3 million
reduction due to income tax recoveries and a reclassification of the net book
value of recorded purchased intangible assets subsumed into goodwill upon
adoption of SFAS No. 142, including: assembled workforce intangible assets of
$2.9 million, going-concern/immediate use intangible assets of $2.7 million and
internal sales force intangible assets of $9.8 million, net of related deferred
tax liabilities of $6.0 million. The internal sales force intangible assets
subsumed into goodwill neither arose from contractual or other legal rights nor
was it separable. In June 2002, the Company also recorded certain adjustments to
goodwill to reflect the finalization of appraisals and of certain restructuring
plans relating to the Geesink Norba Group acquisition. Adjustments recorded
during the period net of related tax benefits aggregated $5.9 million and were
recorded as an increase in goodwill.
8. BUSINESS COMBINATIONS
On July 25, 2001, the Company acquired all the outstanding capital stock of the
Geesink Norba Group. The cash purchase price of the acquisition of 156.4 million
euros, including acquisition costs of 4.0 million euros and net of cash
acquired, or $137.6 million was financed under a new Term B Loan under the
Company's senior credit facility. The Geesink Norba Group is a leading European
manufacturer of refuse collection truck bodies, mobile and stationary compactors
and transfer stations under the Geesink and Norba brands. The Geesink Norba
Group is included in the Company's commercial segment.
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. Medtec is included in the Company's fire and
emergency segment.
These acquisitions were accounted for using the purchase method of accounting
and, accordingly, the operating results of the Geesink Norba Group and Medtec
are included in the Company's consolidated statements of income beginning July
25, 2001 and October 30, 2000, respectively.
Proforma unaudited consolidated operating results of the Company for the nine
months ended June 30, 2001, assuming the Geesink Norba Group and
12
Medtec had been acquired as of October 1, 2000, is summarized below (in
thousands, except per share amounts):
Net sales $1,123,995
Net income 34,202
Earnings per share $ 2.05
Earnings per share assuming dilution $ 2.00
9. LONG-TERM DEBT
The Company has outstanding a senior credit facility consisting of a $170.0
million revolving credit facility ("Revolving Credit Facility") with no
borrowings outstanding at June 30, 2002, a Term Loan A with $36.0 million
outstanding at June 30, 2002 and a Term Loan B with $62.2 million outstanding at
June 30, 2002. The Revolving Credit Facility and the Term Loan A mature in
January 2006 and the Term Loan B matures in January 2007.
At June 30, 2002, $23.7 million of outstanding letters of credit reduced
available capacity under the Revolving Credit Facility to $146.3 million.
Substantially all the domestic 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 Company has outstanding $100.0 million of 8.75% senior subordinated notes.
The Indenture governing the terms of the senior subordinated notes contains
customary affirmative and negative covenants. The Subsidiary Guarantors (as
defined below in Note 12) fully, unconditionally, jointly and severally
guarantee the Company's obligations under the senior subordinated notes.
Certain of the Company's subsidiaries have outstanding debt to third parties
totaling $2.0 million as of June 30, 2002.
10. 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.
13
As to one such Superfund site, Pierce is one of 382 PRPs participating in the
costs of addressing the site and has been assigned an allocation share of
approximately 0.04%. Currently, the state environmental agency in charge is
reviewing a draft remedial investigation/feasibility study prepared by the lead
PRP group, 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 June 30, 2002. 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 liability, if
any, 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 the ultimate
liability associated with the TCE issue will not be materially different than
the amount of reserves established for the matter as of June 30, 2002. 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, which 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
June 30, 2002. The Company is also contingently liable under bid, performance
and specialty bonds totaling approximately $152.8 million and open standby
letters of credit issued by the Company's bank in favor of third parties
totaling approximately $23.7 million at June 30, 2002.
14
11. BUSINESS SEGMENT INFORMATION
Three Months Ended Nine Months Ended
June 30, June 30,
2002 2001 2002 2001
---- ---- ---- ----
(In thousands) (In thousands)
Net sales to unaffiliated customers:
Commercial $204,535 $166,370 $ 503,942 $ 420,750
Fire and emergency 123,956 128,850 339,504 338,603
Defense 162,774 111,284 426,475 273,356
Intersegment eliminations (1,733) (714) (3,291) (1,024)
-------- -------- ---------- ----------
Consolidated $489,532 $405,790 $1,266,630 $1,031,685
======== ======== ========== ==========
Operating income (loss):
Commercial $ 17,747 $ 8,898 $ 37,204 $ 22,710
Fire and emergency 14,461 14,281 33,824 32,486
Defense 14,965 8,730 28,094 24,055
Corporate and other (8,811) (4,408) (19,399) (12,934)
-------- -------- ---------- ----------
Consolidated operating income 38,362 27,501 79,723 66,317
Net interest expense (4,865) (5,382) (16,348) (14,721)
Miscellaneous other (174) (81) (373) (76)
-------- -------- ---------- ----------
Income before income taxes and equity in
earnings of unconsolidated partnership $ 33,323 $ 22,038 $ 63,002 $ 51,520
======== ======== ========== ==========
June 30, September 30,
2002 2001
---- ----
(In thousands)
Identifiable assets:
Commercial $ 594,305 $ 594,845
Fire and emergency 319,889 315,565
Defense 104,792 168,400
Corporate and other 9,283 10,458
---------- ----------
Consolidated $1,028,269 $1,089,268
=========== ==========
Net sales by geographic region based on product shipment destination were as
follows:
Three Months Ended Nine Months Ended
June 30, June 30,
2002 2001 2002 2001
---- ---- ---- ----
(In thousands) (In thousands)
United States $433,064 $386,352 $1,121,270 $ 954,991
Other North America 582 1,928 6,174 4,835
Europe and Middle East 48,996 10,278 118,376 47,480
Other 6,890 7,232 20,810 24,379
-------- -------- ---------- ----------
Consolidated $489,532 $405,790 $1,266,630 $1,031,685
======== ======== ========== ==========
12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The following tables present condensed consolidating financial information for:
(a) the Company; (b) on a combined basis, the guarantors of the senior
subordinated notes, which include all wholly-owned subsidiaries of the Company
("Subsidiary Guarantors") other than Geesink Norba Group, McNeilus Financial
Services, Inc., Oshkosh/McNeilus Financial Services, Inc., and Oshkosh Equipment
Finance, LLC 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
15
statements of the Subsidiary Guarantors are not presented because the Subsidiary
Guarantors are jointly, severally and unconditionally liable under the
guarantees, and the Company believes separate financial statements and other
disclosures regarding the Subsidiary Guarantors are not material to investors.
The Company is comprised of Wisconsin and Florida manufacturing operations and
certain corporate management, information services and finance functions.
Borrowings and related interest expense under the senior credit facility and the
senior subordinated notes are charged to the Company. The Company has allocated
a portion of this interest expense to certain Subsidiary Guarantors through
formal lending arrangements. There are no management fee arrangements between
the Company and its Non-Guarantor Subsidiaries.
16
OSHKOSH TRUCK CORPORATION
Condensed Consolidating Statements of Income
For the Three Months Ended June 30, 2002
(Unaudited)
Subsidiary Non-Guarantor
Company Guarantors Subsidiaries Eliminations Consolidated
------- ---------- ------------ ------------ ------------
(In thousands)
Net sales $210,339 $249,942 $ 39,081 $ (9,830) $489,532
Cost of sales 180,345 208,313 31,488 (9,874) 410,272
-------- -------- -------- -------- --------
Gross income 29,994 41,629 7,593 44 79,260
Operating expenses:
Selling, general and
administrative 17,315 16,973 5,104 -- 39,392
Amortization of purchased
intangibles -- 1,441 65 -- 1,506
-------- -------- -------- -------- --------
Total operating expenses 17,315 18,414 5,169 -- 40,898
------ -------- -------- -------- --------
Operating income 12,679 23,215 2,424 44 38,362
Other income (expense):
Interest expense (5,910) (5,823) (51) 6,575 (5,209)
Interest income 5,136 1,783 -- (6,575) 344
Miscellaneous, net 4,091 (4,213) (52) -- (174)
-------- -------- -------- -------- --------
3,317 (8,253) (103) -- (5,039)
-------- -------- -------- -------- --------
Income before items noted below 15,996 14,962 2,321 44 33,323
Provision for income taxes 5,919 5,529 812 16 12,276
-------- -------- -------- -------- --------
10,077 9,433 1,509 28 21,047
Equity in earnings of subsidiaries
and unconsolidated partnership,
net of income taxes 11,497 550 527 (12,047) 527
-------- -------- -------- -------- --------
Net income $ 21,574 $ 9,983 $ 2,036 $(12,019) $ 21,574
======== ======== ======== ========= =========
17
OSHKOSH TRUCK CORPORATION
Condensed Consolidating Statements of Income
For the Three Months Ended June 30, 2001
(Unaudited)
Subsidiary Non-Guarantor
Company Guarantors Subsidiaries Eliminations Consolidated
------- ---------- ------------ ------------ ------------
(In thousands)
Net sales $ 170,547 $245,175 $ -- $(9,932) $405,790
Cost of sales 151,710 207,756 -- (9,995) 349,471
---------- -------- ------------ -------- --------
Gross income 18,837 37,419 -- 63 56,319
Operating expenses:
Selling, general and
administrative 10,759 14,922 -- -- 25,681
Amortization of goodwill and
purchased intangibles -- 3,137 -- -- 3,137
---------- -------- ----------- -------- --------
Total operating expenses 10,759 18,059 -- -- 28,818
---------- -------- ----------- -------- --------
Operating income 8,078 19,360 -- 63 27,501
Other income (expense):
Interest expense (6,149) (6,036) -- 6,575 (5,610)
Interest income 5,025 1,778 -- (6,575) 228
Miscellaneous, net 2,672 (2,753) -- -- (81)
---------- -------- ----------- -------- --------
1,548 (7,011) -- -- (5,463)
---------- -------- ----------- -------- --------
Income before items noted below 9,626 12,349 -- 63 22,038
Provision for income taxes 3,572 5,082 -- 23 8,677
---------- -------- ----------- -------- --------
6,054 7,267 -- 40 13,361
Equity in earnings of subsidiaries
and unconsolidated partnership,
net of income taxes 7,655 -- 348 (7,655) 348
---------- -------- ----------- --------- --------
Net income $ 13,709 $ 7,267 $ 348 $(7,615) $ 13,709
========== ======== =========== ========= ========
18
OSHKOSH TRUCK CORPORATION
Condensed Consolidating Statements of Income
For the Nine Months Ended June 30, 2002
(Unaudited)
Subsidiary Non-Guarantor
Company Guarantors Subsidiaries Eliminations Consolidated
------- ---------- ------------ ------------ ------------
(In thousands)
Net sales $ 542,230 $ 643,944 $ 100,821 $ (20,365) $ 1,266,630
Cost of sales 475,626 543,752 78,726 (20,254) 1,077,850
---------- ---------- ----------- ---------- -----------
Gross income 66,604 100,192 22,095 (111) 188,780
Operating expenses:
Selling, general and
administrative 43,696 45,905 15,035 -- 104,636
Amortization of purchased
intangibles 1 4,228 192 -- 4,421
---------- ---------- ----------- ---------- -----------
Total operating expenses 43,697 50,133 15,227 -- 109,057
---------- ---------- ----------- ---------- -----------
Operating income 22,907 50,059 6,868 (111) 79,723
Other income (expense):
Interest expense (19,217) (17,685) (71) 19,725 (17,248)
Interest income 15,310 5,315 -- (19,725) 900
Miscellaneous, net 10,344 (10,564) (153) -- (373)
---------- ---------- ----------- ---------- -----------
6,437 (22,934) (224) -- (16,721)
---------- ---------- ----------- ---------- -----------
Income before items noted below 29,344 27,125 6,644 (111) 63,002
Provision for income taxes 9,987 10,014 2,326 (41) 22,286
---------- ---------- ----------- ---------- -----------
19,357 17,111 4,318 (70) 40,716
Equity in earnings of subsidiaries
and unconsolidated partnership,
net of income taxes 22,992 1,698 1,633 (24,690) 1,633
---------- ---------- ----------- ---------- -----------
Net income $ 42,349 $ 18,809 $ 5,951 $ (24,760) $ 42,349
========== ========== =========== ========== ===========
19
OSHKOSH TRUCK CORPORATION
Condensed Consolidating Statements of Income
For the Nine Months Ended June 30, 2001
(Unaudited)
Subsidiary Non-Guarantor
Company Guarantors Subsidiaries Eliminations Consolidated
------- ---------- ------------ ------------ ------------
(In thousands)
Net sales $ 405,665 $ 648,781 $ -- $ (22,761) $1,031,685
Cost of sales 355,378 549,115 -- (22,898) 881,595
---------- ---------- -------- ---------- ----------
Gross income 50,287 99,666 -- 137 150,090
Operating expenses:
Selling, general and
administrative 31,070 43,825 (69) -- 74,826
Amortization of goodwill and
purchased intangibles -- 8,947 -- -- 8,947
---------- ---------- -------- ---------- ----------
Total operating expenses 31,070 52,772 (69) -- 83,773
---------- ---------- -------- ---------- ----------
Operating income 19,217 46,894 69 137 66,317
Other income (expense):
Interest expense (17,281) (17,872) -- 19,725 (15,428)
Interest income 15,135 5,297 -- (19,725) 707
Miscellaneous, net 7,580 (7,656) -- -- (76)
---------- ---------- -------- ---------- ----------
5,434 (20,231) -- -- (14,797)
---------- ---------- -------- ---------- ----------
Income before items noted below 24,651 26,663 69 137 51,520
Provision for income taxes 7,821 11,447 26 50 19,344
---------- ---------- -------- ---------- ----------
16,830 15,216 43 87 32,176
Equity in earnings of subsidiaries
and unconsolidated partnership,
net of income taxes 16,386 -- 1,040 (16,386) 1,040
---------- ---------- -------- ---------- ----------
Net income $ 33,216 $ 15,216 $ 1,083 $ (16,299) $ 33,216
========== ========== ======== ========== ==========
20
OSHKOSH TRUCK CORPORATION
Condensed Consolidating Balance Sheets
June 30, 2002
(Unaudited)
Subsidiary Non-Guarantor
Company Guarantors Subsidiaries Eliminations Consolidated
------- ---------- ------------ ------------ ------------
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 12,561 $ 1,913 $ 4,568 $ -- $ 19,042
Receivables, net 56,560 62,131 41,441 (5,117) 155,015
Inventories 58,909 148,740 26,321 (142) 233,828
Prepaid expenses and other 20,129 9,663 3,458 -- 33,250
--------- ---------- --------- ------------ ------------
Total current assets 148,159 222,447 75,788 (5,259) 441,135
Investment in and advances to:
Subsidiaries 550,052 11,619 -- (561,671) --
Unconsolidated partnership -- -- 20,298 -- 20,298
Other long-term assets 5,937 2,391 244 -- 8,572
Net property, plant and equipment 33,621 83,514 19,262 -- 136,397
Goodwill and purchased intangible
assets, net 23 309,479 112,365 -- 421,867
--------- ---------- --------- ------------ ------------
Total assets $ 737,792 $ 629,450 $ 227,957 $ (566,930) $ 1,028,269
========= ========== ========= ============ ============
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 44,134 $ 43,128 $ 30,481 $ (5,117) $ 112,626
Floor plan notes payable -- 22,229 -- -- 22,229
Customer advances 16,406 78,297 -- -- 94,703
Payroll-related obligations 14,121 14,137 2,687 -- 30,945
Income taxes 14,000 -- 2,743 -- 16,743
Accrued warranty 10,890 7,402 4,704 -- 22,996
Other current liabilities 18,171 28,924 2,765 -- 49,860
Revolving credit facility and
current maturities of long-term
debt 3,158 236 49 -- 3,443
--------- ---------- --------- ------------ ------------
Total current liabilities 120,880 194,353 43,429 (5,117) 353,545
Long-term debt 195,092 1,586 117 -- 196,795
Deferred income taxes (6,441) 28,361 11,466 -- 33,386
Other long-term liabilities 25,068 13,836 2,446 -- 41,350
Commitments and contingencies
Investments by and advances from
(to) parent -- 391,314 170,499 (561,813) --
Shareholders' equity 403,193 -- -- -- 403,193
--------- ---------- --------- ------------ ------------
Total liabilities and shareholders'
equity $ 737,792 $ 629,450 $ 227,957 $ (566,930) $ 1,028,269
========= ========== ========= ============ ============
21
OSHKOSH TRUCK CORPORATION
Condensed Consolidating Balance Sheets
September 30, 2001
(Unaudited)
Subsidiary Non-Guarantor
Company Guarantors Subsidiaries Eliminations Consolidated
------- ---------- ------------ ------------ ------------
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 4,726 $ 3,394 $ 3,192 $ -- $ 11,312
Receivables, net 104,662 74,814 33,633 (1,704) 211,405
Inventories 82,873 145,635 29,561 (31) 258,038
Prepaid expenses and other 11,525 9,644 1,226 -- 22,395
--------- ---------- --------- ---------- ------------
Total current assets 203,786 233,487 67,612 (1,735) 503,150
Investment in and advances to:
Subsidiaries 575,807 8,591 -- (584,398) --
Unconsolidated partnership -- -- 18,637 -- 18,637
Other long-term assets 6,940 1,585 101 -- 8,626
Net property, plant and equipment 36,286 88,783 16,859 -- 141,928
Goodwill and purchased intangible
assets, net 24 319,779 97,124 -- 416,927
--------- ---------- --------- ---------- ------------
Total assets $ 822,843 $ 652,225 $ 200,333 $ (586,133) $ 1,089,268
========= ========== ========= ========== ============
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 41,703 $ 42,143 $ 25,722 $ (1,704) $ 107,864
Floor plan notes payable -- 19,271 -- -- 19,271
Customer advances 3,568 54,502 -- -- 58,070
Payroll-related obligations 8,881 12,483 5,720 -- 27,084
Income taxes 24,013 -- 1,208 -- 25,221
Accrued warranty 8,813 7,799 1,726 -- 18,338
Other current liabilities 18,624 27,567 131 -- 46,322
Revolving credit facility and
current maturities of long-term
debt 76,600 426 5 -- 77,031
--------- ---------- --------- ---------- ------------
Total current liabilities 182,202 164,191 34,512 (1,704) 379,201
Long-term debt 280,250 1,812 187 -- 282,249
Deferred income taxes (5,764) 35,119 10,979 -- 40,334
Other long-term liabilities 23,791 16,667 -- -- 40,458
Commitments and contingencies
Investments by and advances from
(to) parent -- 434,436 154,655 (589,091) --
Shareholders' equity 342,364 -- -- 4,662 347,026
--------- ---------- --------- ---------- ------------
Total liabilities and shareholders'
equity $ 822,843 $ 652,225 $ 200,333 $ (586,133) $ 1,089,268
========= ========== ========= ========== ============
22
OHKOSH TRUCK CORPORATION
Condensed Consolidating Statements of Cash Flows
For the Nine Months Ended June 30, 2002
(Unaudited)
Subsidiary Non-Guarantor
Company Guarantors Subsidiaries Eliminations Consolidated
------- ---------- ------------ ------------ ------------
(In thousands)
Operating activities:
Net income $ 42,349 $ 18,809 $ 5,951 $(24,760) $ 42,349
Non-cash adjustments (2,445) 10,833 162 -- 8,550
Changes in operating assets and
liabilities 87,862 37,186 (888) 111 124,271
--------- --------- ------- ------- --------
Net cash provided from operating
activities 127,766 66,828 5,225 (24,649) 175,170
Investing activities:
Investments in and advances to
subsidiaries 42,745 (64,959) (2,159) 24,373 --
Additions to property, plant and
equipment (1,631) (2,515) (2,737) -- (6,883)
Other (80) (419) 813 -- 314
--------- -------- ------- ------- --------
Net cash provided from (used for)
investing activities 41,034 (67,893) (4,083) 24,373 (6,569)
Financing activities:
Net repayments under
revolving credit facility (65,200) -- -- -- (65,200)
Repayment of long-term debt (93,400) (416) (39) -- (93,855)
Dividends paid (4,326) -- -- -- (4,326)
Other 1,961 -- -- -- 1,961
--------- --------- ------- ------- --------
Net cash used for financing
activities (160,965) (416) (39) -- (161,420)
Effect of exchange rate changes on
cash -- -- 273 276 549
--------- --------- ------- ------- --------
Increase (decrease) in cash and cash
equivalents 7,835 (1,481) 1,376 -- 7,730
Cash and cash equivalents at
beginning of period 4,726 3,394 3,192 -- 11,312
--------- --------- ------- ------- --------
Cash and cash equivalents at
end of period $ 12,561 $ 1,913 $ 4,568 $ -- $ 19,042
========= ========= ======= ======= ========
23
OSHKOSH TRUCK CORPORATION
Condensed Consolidating Statements of Cash Flows
For the Nine Months Ended June 30, 2001
(Unaudited)
Subsidiary Non-Guarantor
Company Guarantors Subsidiaries Eliminations Consolidated
------- ---------- ------------ ------------ ------------
(In thousands)
Operating activities:
Net income $ 33,216 $ 15,216 $ 1,083 $(16,299) $ 33,216
Non-cash adjustments 1,687 14,706 (2,334) -- 14,059
Changes in operating assets and
liabilities (42,961) (36,047) 115 (137) (79,030)
---------- --------- ---------- -------- --------
Net cash used for
operating activities (8,058) (6,125) (1,136) (16,436) (31,755)
Investing activities:
Acquisition of businesses, net of
cash acquired (4,583) (21,840) -- -- (26,423)
Investments in and advances to
subsidiaries (54,446) 35,806 2,204 16,436 --
Additions to property, plant and
equipment (10,320) (2,428) -- -- (12,748)
Other (1,222) (3,131) (1,048) -- (5,401)
---------- --------- ---------- ---------- --------
Net cash provided from (used for)
investing activities (70,571) 8,407 1,156 16,436 (44,572)
Financing activities:
Net borrowings under revolving
credit facility 77,900 -- -- -- 77,900
Repayment of long-term debt (6,000) (419) (56) -- (6,475)
Dividends paid (4,300) -- -- -- (4,300)
Other 196 -- -- -- 196
---------- --------- ---------- -------- --------
Net cash provided from (used for)
financing activities 67,796 (419) (56) -- 67,321
---------- --------- ---------- -------- --------
Increase (decrease) in cash and cash
equivalents (10,833) 1,863 (36) -- (9,006)
Cash and cash equivalents at
beginning of period 13,034 499 36 -- 13,569
---------- --------- ---------- -------- --------
Cash and cash equivalents at
end of period $ 2,201 $ 2,362 $ -- $ -- $ 4,563
========== ========= ========== ======== ========
24
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 Oshkosh Truck Corporation (the "Company" or
"Oshkosh") believes 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 the Company's future financial position, business strategy,
budgets, targets, projected sales, costs, earnings, capital spending and debt
levels, and plans and objectives of management for future operations, including
those under the caption "Fiscal 2002 Outlook" and "Fiscal 2003 Outlook," are
forward-looking statements. When used in this Form 10-Q, words such as the
Company "may," "will," "expects," "intends," "estimates," "anticipates,"
"believes," "should" or "plans" or the negative thereof or variations thereon or
similar terminology 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
Company's markets, risks related to reductions in government expenditures, the
uncertainty of government contracts, the challenges of identifying, completing
and integrating future acquisitions, the ultimate outcome of pending or
threatened claims and litigation, disruptions in the supply of parts or
components, competition and risks associated with international operations and
sales, including foreign currency fluctuations. 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 July 25, 2002. 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.
All forward-looking statements speak only as of the date the Company files this
Quarterly Report on Form 10-Q with the SEC. The Company has adopted a policy
that if the Company makes a determination that it expects earnings for future
periods for which projections are contained in this Quarterly Report on Form
10-Q to be lower than those projections, then the Company will publicly announce
that fact. The Company's policy also provides that the Company does not intend
to make such a public announcement if the Company makes a determination that it
expects earnings for future periods to be at or above the projections contained
in this Quarterly Report on Form 10-Q. Except as set forth above, the Company
assumes no obligation, and disclaims any obligation, to update information
contained in this Quarterly Report on Form 10-Q. Investors should be aware that
the Company may not update such information until the Company's next quarterly
conference call, if at all.
25
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, mobile and stationary
refuse compactors, refuse transfer stations, 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 -- custom and commercial fire trucks, aircraft rescue and
firefighting trucks, snow removal trucks, ambulances and other emergency
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(in thousands):
Third Quarter First Nine Months
Fiscal Fiscal
2002 2001 2002 2001
---- ---- ---- ----
Net sales to unaffiliated customers:
Commercial $204,535 $166,370 $ 503,942 $ 420,750
Fire and emergency 123,956 128,850 339,504 338,603
Defense 162,774 111,284 426,475 273,356
Intersegment eliminations (1,733) (714) (3,291) (1,024)
-------- -------- ---------- ----------
Consolidated $489,532 $405,790 $1,266,630 $1,031,685
======== ======== ========== ==========
Third Quarter Fiscal 2002 Compared to 2001
Consolidated net sales increased 20.6% to $489.5 million for the third quarter
of fiscal 2002 compared to the third quarter of fiscal 2001. The Company's
fiscal 2002 third quarter included the results of the Geesink Norba Group, which
the Company acquired in July 2001. During the third quarter of fiscal 2002, the
Company recorded a cumulative adjustment of revenues of $12.7 million as a
result of a contract modification during the quarter on its multi-year Medium
Tactical Vehicle Replacement ("MTVR") contract. Excluding the impact of the
Geesink Norba Group acquisition and the MTVR contract modification, net sales
would have increased 7.9%, largely as a result of full-rate of production in
fiscal 2002 on the MTVR contract and increased defense parts sales.
Commercial segment net sales increased 22.9% to $204.5 million for the third
quarter of fiscal 2002 compared to the third quarter of fiscal 2001. Excluding
the impact of the Geesink Norba Group acquisition, commercial sales would have
decreased 0.6%. Concrete placement product sales were up 1.8% in 2002 compared
to 2001, following several quarters of declines due to the U.S. economic
recession. U.S. refuse truck body and parts sales
26
decreased 6.4% for the quarter, primarily because prior year results included
higher package sales involving both a refuse body and truck chassis. Refuse body
unit sales were down only slightly.
Fire and emergency segment net sales decreased 3.8% to $124.0 million for the
third quarter of fiscal 2002 compared to the third quarter of fiscal 2001. These
results were due to lower U.S. municipal spending for fire apparatus in the
first nine months of fiscal 2002 and the Company's plan to increase backlog at
Pierce Manufacturing Inc.("Pierce")in order to improve manufacturing
efficiencies in fiscal 2003.
Defense segment net sales increased 46.3% to $162.8 million for the third
quarter of fiscal 2002 compared to the third quarter of fiscal 2001 largely as a
result of a full quarter of full-rate production under the MTVR contract to
supply medium-payload trucks to the U.S. Marines, the previously-mentioned MTVR
contract modification and parts sales accelerated from the fourth quarter to the
third quarter to meet customer requirements. During the third quarter ended June
30, 2001, the Company was in the process of ramping-up to full-rate production.
First Nine Months Fiscal 2002 Compared to 2001
Consolidated net sales increased 22.8% to $1,266.6 million for the nine months
ended June 30, 2002 compared to the nine months ended June 30, 2001. Excluding
the impact of the Geesink Norba Group acquisition and the previously-mentioned
MTVR contract modification, net sales were up 11.8%, largely as a result of
increased production of MTVR vehicles and increased defense parts sales, offset
by a decline in concrete placement product sales.
Commercial segment net sales increased 19.8% to $503.9 million for the nine
months ended June 30, 2002 compared to the same period in the prior year.
Excluding the impact of the Geesink Norba Group acquisition, commercial segment
sales would have decreased 4.2%. Concrete placement sales were down 9.3% for the
period compared to the same period in the prior year as the Company was impacted
by the U.S. economic recession. U.S. refuse truck body and parts sales increased
7.2% for the period compared to the same period in the prior year and were
favorably impacted by increased "body only" sales to the three largest U.S.
waste haulers.
Fire and emergency segment net sales increased 0.3% to $339.5 million for the
first nine months of fiscal 2002 compared to the first nine months of fiscal
2001. Strong sales of ambulances, aircraft rescue and firefighting vehicles and
snow vehicles were offset in part by lower U.S. municipal spending for fire
apparatus.
Defense segment net sales increased 56.0% to $426.5 million for the nine months
ended June 30, 2002 compared to the nine months ended June 30, 2001. Increased
production and sales of MTVR trucks and increased parts sales were the major
factors contributing to the defense segment sales increase. The Company produced
at full-rate production under its MTVR contract for the entire nine months ended
June 30, 2002. During the nine month period ended June 30, 2001 the Company was
in the process of ramping-up to full-rate production.
27
Analysis of Consolidated Operating Income
The following table presents operating income by business segment (in
thousands):
Third Quarter First Nine Months
Fiscal Fiscal
2002 2001 2002 2001
---- ---- ---- ----
Operating income (expense):
Commercial $ 17,747 $ 8,898 $ 37,204 $ 22,710
Fire and emergency 14,461 14,281 33,824 32,486
Defense 14,965 8,730 28,094 24,055
Corporate and other (8,811) (4,408) (19,399) (12,934)
------------ ------------ ------------ --------
Consolidated operating
income $ 38,362 $ 27,501 $ 79,723 $ 66,317
============ ============ ============ ========
Third Quarter Fiscal 2002 Compared to 2001
Consolidated operating income increased 39.5% to $38.4 million, or 7.8% of
sales, in the third quarter of fiscal 2002, compared to $27.5 million, or 6.8%
of sales, in the third quarter of fiscal 2001. During the third quarter of
fiscal 2002, the Company recorded a cumulative catch-up adjustment to increase
its margins on its multi-year MTVR production contract by one percentage point
to 4.3%. This increase was a result of events in the third quarter, including
the completion of a retrofit program to bring low-rate production vehicles to
final configuration, sustained positive cost performance and negotiation of a
modification to the MTVR contract to include "dump and wrecker body" variants.
The impact of this adjustment increased operating income for the quarter by $4.5
million, including $3.6 million related to shipments in prior quarters.
Excluding the impact of the Geesink Norba Group acquisition, the MTVR margin
adjustment and adjusting for the elimination of $1.8 million of amortization of
goodwill and other indefinite-lived intangible assets as a result of the
adoption of a new accounting standard, operating income would have been up 7.6%
compared to the third quarter of fiscal 2001.
Commercial segment operating income increased 99.4% to $17.7 million, or 8.7% of
sales, in the quarter compared to $8.9 million, or 5.3% of sales, in the prior
year quarter. Excluding the impact of the Geesink Norba Group acquisition and
adjusting for the adoption of the new accounting standard on goodwill and
indefinite-lived assets, operating income would have been up 55.6% in the third
quarter of fiscal 2002 compared to the prior year third quarter. This
improvement was largely due to increased sales of higher-margin concrete
placement products, sales of used trucks and favorable manufacturing cost and
workers compensation cost experience.
Fire and emergency operating income increased 1.3% to $14.5 million, or 11.7% of
sales, in the quarter compared to $14.3 million, or 11.1% of sales, in the prior
year third quarter. Excluding the impact of the adoption of the new accounting
standard on accounting for goodwill and indefinite-lived intangible assets,
operating income would have been down 4.2% compared to the prior year quarter on
lower sales volume, but operating income margins would have been consistent at
11.7% of sales in both the current and prior year quarters.
28
Defense operating income increased 71.4% to $15.0 million, or 9.2% of sales,
compared to $8.7 million, or 7.8% of sales, in the prior year third quarter.
Results for the current year quarter reflect operating income improvements due
to increased volume related to a full quarter of full-rate production under the
Company's lower-margin MTVR contract and increased parts sales. The Company was
in the process of ramping up to full-rate production in the third quarter of
fiscal 2001. The Company increased recorded margins on the multi-year MTVR
production contract during the quarter one percentage point to 4.3%. Excluding
the impact of the increase in MTVR margins during the quarter, operating income
as a percent of sales would have been 7.0%. Operating income and margins for the
third quarter of fiscal 2002 were negatively impacted by the relatively low
margins on the higher volume of MTVR sales and by increases in spending for bid
and proposal activities in connection with multi-year truck procurement
competitions for U.S. Army and U.K. Ministry of Defence business.
Consolidated selling, general and administrative expenses increased to 8.0% of
sales in the third quarter of fiscal 2002 compared to 6.3% of sales in the third
quarter of fiscal 2001. Excluding such expenses of the Geesink Norba Group,
selling, general and administrative expenses would have been 7.6% of sales in
the third quarter of fiscal 2002. The Geesink Norba Group was acquired in the
fourth quarter of fiscal 2001 and generally has higher gross margins and higher
selling, general and administrative expenses than the Company's other
businesses. The remaining increase in selling, general and administrative
expenses related to higher corporate expenses and increased bid and proposal
costs related to long-term truck procurement competitions in the Company's
defense segment. Corporate operating expenses and inter-segment profit
elimination increased $4.4 million to $8.8 million, or 1.8% of consolidated
sales, for the third quarter of fiscal 2002 from $4.4 million, or 1.1% of
consolidated sales, for the third quarter of 2001. The increase was largely due
to increased variable compensation, higher legal defense costs and expenses
incurred related to acquisition investigations terminated during the quarter.
First Nine Months of Fiscal 2002 Compared to 2001
Consolidated operating income increased 20.2% to $79.7 million, or 6.3% of
sales, for the first nine months of fiscal 2002 compared to $66.3 million, or
6.4% of sales, for the first nine months of fiscal 2001. Excluding the impact of
the increase in margins on the MTVR contract, the impact of the Geesink Norba
Group acquisition and adjusting for the elimination of $5.2 million of
amortization of goodwill and indefinite-lived intangible assets, operating
income would have decreased 4.4% compared to the prior year period. This
decrease was largely due to increased corporate expenses, increased sales of
lower-margin MTVR defense vehicles, increased bid and proposal spending on U.S.
and U.K. multi-year defense truck procurement competitions and lower sales of
higher-margin concrete placement products.
Commercial segment operating income increased 63.8% to $37.2 million, or 7.4% of
sales, for the first nine months of fiscal 2002 compared to $22.7 million, or
5.4% of sales, in the prior year period. Excluding the impact of the Geesink
Norba Group acquisition and adjusting for the adoption of the new accounting
standard on goodwill and indefinite-lived assets, operating income would have
been up 19.0% in the first nine months of
29
fiscal 2002 compared to the prior year period. This improvement was largely due
to sales of used trucks and favorable manufacturing cost and workers
compensation cost experience.
Fire and emergency operating income increased 4.1% to $33.8 million, or 10.0% of
sales, for the first nine months of fiscal 2002 compared to $32.5 million, or
9.6% of sales, in the prior year period. Excluding the impact of the adoption of
the new accounting standard on accounting for goodwill and indefinite-lived
intangible assets, operating income would have been down 3.1% on a 0.3% increase
in net sales compared to the prior year period, reflecting a less favorable
product mix in fiscal 2002.
Defense operating income increased 16.8%, to $28.1 million, or 6.6% of sales, in
the first nine months of fiscal 2002, compared to $24.1 million, or 8.8% of
sales, in the prior year period. Fiscal 2002 results include increased volume
related to full-rate production under the Company's lower-margin MTVR contract
and higher parts sales. The Company was in the process of ramping up to
full-rate production in the first nine months of fiscal 2001. The Company
cumulatively adjusted margins on the multi-year MTVR production contract from
3.3% of sales to 4.3% of sales ($4.5 million increase) during the first nine
months of fiscal 2002. Excluding the impact of the MTVR cumulative margin
adjustment, segment operating income margins declined to 5.7% of sales from 8.8%
in the prior year. Operating income and margins for the first nine months of
fiscal 2002 were negatively impacted by increases in spending for bid and
proposal activities in connection with multi-year truck procurement competitions
for U.S. Army and U.K. Ministry of Defence business and by lower international
truck sales.
Consolidated selling, general and administrative expenses increased to 8.3% of
sales for the first nine months of fiscal 2002 compared to 7.3% of sales for the
first nine months of fiscal 2001. Excluding the impact of the Geesink Norba
Group acquisition, selling and administrative expenses would have been 7.7% of
sales for the first nine months of fiscal 2002. The Geesink Norba Group was
acquired in the fourth quarter of fiscal 2001 and generally carries higher gross
margins and higher selling, general and administrative expenses than the
Company's other businesses. The remaining increase in selling, general and
administrative expenses related to higher corporate expenses and increased bid
and proposal costs related to long-term truck procurement competitions in the
Company's defense segment. Corporate operating expenses and inter-segment profit
elimination increased $6.5 million to $19.4 million, or 1.5% of consolidated
sales, for the first nine months of fiscal 2002 from $12.9 million, or 1.3% of
consolidated sales, for the prior year period. The increase was largely due to
higher variable compensation costs, legal defense costs and acquisition
investigation costs.
Analysis of Non-Operating Income Statement Items
Third Quarter Fiscal 2002 Compared to 2001
Net interest expense decreased $0.5 million to $4.9 million in the third quarter
of fiscal 2002 compared to the third quarter of fiscal 2001. Interest costs on
increased borrowings to fund the acquisition of the Geesink Norba Group were
more than offset by lower interest rates.
30
The effective income tax rate for the third quarter of fiscal 2002 was 36.8%
compared to 39.4% for the third quarter of fiscal 2001. Excluding the impact of
$1.5 million of nondeductible goodwill in the third quarter of fiscal 2001, the
Company's effective income tax rate was 36.9% in 2001.
Equity in earnings of an unconsolidated partnership of $0.5 million in the third
quarter of fiscal 2002 and $0.3 million in the third quarter of fiscal 2001
represent the Company's equity interest in a lease financing partnership.
First Nine Months of Fiscal 2002 Compared to 2001
Net interest expense increased $1.6 million to $16.3 million in the first nine
months of fiscal 2002 compared to the first nine months of fiscal 2001. Interest
costs on increased borrowings to fund the acquisition of the Geesink Norba Group
were largely offset by lower interest rates.
The effective income tax rate for the first nine months of fiscal 2002 was 35.4%
compared to 37.5% for the first nine months of fiscal 2001. In December 2001,
the Company concluded an audit settlement of a research and development tax
credit claim resulting in a $0.9 million credit to income tax expense in the
first nine months of fiscal 2002. Excluding the impact of the $0.9 million tax
settlement in the first nine months of fiscal 2002, and the impact of a $1.3
million tax settlement and $4.5 million of nondeductible goodwill in the first
nine months of fiscal 2001, the Company's effective income tax rate was 36.8% in
2002 and 36.9% in 2001.
Equity in earnings of an unconsolidated partnership of $1.6 million in the first
nine months of fiscal 2002 and $1.0 million in the first nine months of fiscal
2001 represent the Company's equity interest in a lease financing partnership.
Financial Condition
First Nine Months of Fiscal 2002
During the first nine months of fiscal 2002, cash increased by $7.7 million to
$19.0 million at June 30, 2002. Cash provided from operating activities of
$175.2 million was used to fund capital expenditures of $6.9 million, pay
dividends of $4.3 million and reduce short- and long-term debt by $159.1
million.
In the first nine months ending June 30, 2002, net cash provided from operating
activities of $175.2 million was significantly different than the $31.8 million
of net cash used in operating activities in the first nine months of fiscal
2001. This variance between periods is primarily due to cash flows associated
with changes in operating assets and liabilities. The following table presents
cash flows associated with changes in operating assets and liabilities:
31
First Nine Months
Fiscal
2002 2001
---- ----
Receivables, net $ 59,886 $(45,362)
Inventories 25,755 (59,913)
Accounts payable 2,205 (984)
Floor plan notes payable 2,958 4,655
Customer advances 36,633 8,344
Income taxes (4,934) 8,508
Other 1,768 5,722
-------- --------
Source (use) of cash $124,271 $(79,030)
======== ========
The change from a $79.0 million use of cash in the first nine months of fiscal
2001 to a $124.3 million source of cash in the first nine months of fiscal 2002,
primarily resulted from working capital invested in fiscal 2001 in the ramp-up
to full-rate production on the MTVR contract and, in fiscal 2002, the Company's
planned actions to reduce cash invested in working capital, principally
receivables and inventories, in light of the recession in the U.S. economy,
whereas the Company was building such assets in the first half of fiscal 2001
until it became evident that the Company was operating in a recessionary
economy. Cash provided from customer advances also increased $28.3 million more
in the first nine months of fiscal 2002 than in the first nine months of fiscal
2001 commensurate with the increase in fire and emergency backlog and as a
higher percentage of customers took advantage of prepayment programs. Fiscal
2002 results also include an increase of $8.5 million in performance-based
payments on the Company's Family of Heavy Tactical Vehicle ("FHTV") program, all
of which was incremental over fiscal 2001. Income tax payments increased to
$35.9 million in the first nine months of fiscal 2002 compared to $16.5 million
in the first nine months of fiscal 2001. Fiscal 2002 payments include $17.7
million in fourth quarter fiscal 2001 estimated tax payments made in the first
quarter of fiscal 2002, consistent with recent U.S. tax legislation which
provided for this one-time deferral. Adjusting for this one-time item, income
taxes payable would have increased $12.8 million in the period compared to
increasing $8.5 million for the nine months ended June 30, 2001, with the change
from the prior year period due to higher taxable income in the third quarter of
fiscal 2002.
The Company's debt-to-total capital ratio at June 30, 2002 was 33.2% compared to
50.9% at September 30, 2001.
First Nine Months of Fiscal 2001
During the first nine months of fiscal 2001, cash decreased by $9.0 million to
$4.6 million at June 30, 2001. Seasonal working capital increases related to the
Company's commercial segment contributed to the $31.8 million in cash used for
operating activities for the period. Operating cash requirements, capital
expenditures of $12.7 million, an increase in other long-term assets of $5.4
million, scheduled term debt reductions of $6.5 million, payment of $4.3 million
in cash dividends and the cash portion of the acquisitions of Medtec Ambulance
Corporation common stock ($14.4 million) and TEMCO assets ($12.0 million) were
funded through the use of $9.0 million of available cash and $77.9 million in
borrowings under the Company's revolving credit facility. During the period,
accounts
32
receivable increased $45.4 million, largely due to the seasonal sales growth of
the commercial segment and increased refuse product sales to major national
waste haulers and municipalities that typically carry longer payment terms.
Inventories increased $59.9 million during the period, including $18.8 million
in the commercial segment as a result of seasonal build requirements. Fire and
emergency inventories increased $4.8 million. Defense inventories increased
$36.3 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 $4.7 million increase in floor
plan notes payable, an $8.3 million increase in customer advances, and an $8.5
million increase in income taxes payable.
Liquidity and Capital Resources
The Company had $146.3 million of unused availability under the terms of its
revolving credit facility as of June 30, 2002. 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 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 requirements arising principally from seasonal fluctuations in sales and
due to the timing of receipt of individually large progress and
performance-based payments from the U.S. Department of Defense ("DoD").
The Company's senior credit facility and senior subordinated notes contain
various restrictions and covenants, including (1) limits on payments of
dividends and repurchases of the Company's stock; (2) requirements that the
Company maintain certain financial ratios at prescribed levels; (3) restrictions
on the ability of the Company to make additional borrowings, or to consolidate,
merge or otherwise fundamentally change the ownership of the Company; and (4)
limitations on investments, dispositions of assets and guarantees of
indebtedness. These restrictions and covenants could limit the Company's ability
to respond to market conditions, to provide for unanticipated capital
investments, to raise additional debt or equity capital, to pay dividends or to
take advantage of business opportunities, including future acquisitions.
Interest rates on borrowings under the Company's senior credit facility are
variable and are equal to the "Base Rate" (which is equal to the higher of a
bank's reference rate and the federal funds rate plus 0.5%) or the "IBOR Rate"
(which is a bank's inter-bank offered rate for U.S. dollars in off-shore
markets) plus a margin of 1.375%, 1.375% and 2.500% for IBOR Rate loans under
the Company's revolving credit facility, Term Loan A and Term Loan B,
respectively, as of June 30, 2002. The margins are subject to adjustment, up or
down, based on whether certain financial criteria are met. The weighted average
interest rates on borrowings outstanding at June 30, 2002 were 3.205% and 4.330%
for Term Loans A and B, respectively. The Company presently has no plans to
enter into interest rate swap arrangements to limit exposure to future increases
in interest rates.
33
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 2002 and fiscal 2003. See "Fiscal 2002
Outlook" and "Fiscal 2003 Outlook." Capital resource requirements may change,
however, because the Company maintains an active acquisitions strategy and the
capital requirements of this strategy cannot be reasonably estimated. In
addition, the Company could face significant working capital requirements in the
event of an award of major new business arising from current truck procurement
competitions for new defense contracts in the U.S. and the U.K.
Critical Accounting Policies
The Company prepares its consolidated financial statements in conformity with
generally accepted accounting principles in the United States of America ("U.S.
GAAP"). This requires management to make estimates and judgments that affect
reported amounts and related disclosures. Actual results could differ from those
estimates. The Company considers the following policies to be the most critical
in understanding the judgments that are involved in the preparation of the
Company's consolidated financial statements and the uncertainties that could
impact the Company's results of operations, financial condition and cash flows.
Revenue Recognition: The Company generally recognizes and earns revenue when all
of the following circumstances are satisfied: persuasive evidence of an
arrangement exists, the price is fixed or determinable, collectibility is
reasonably assured and delivery has occurred or services have been rendered. The
Company generally records revenues under long-term, fixed-price defense
contracts using the percentage-of-completion method of accounting. The Company
records revenues and anticipated profits under the MTVR multi-year, fixed-price
production contract on a percentage-of-completion basis, generally using units
accepted as the measurement basis for effort accomplished. The Company records
estimated contract profits in earnings in proportion to recorded revenues based
on the estimated average cost determined using total contract units under order
(including exercised options). The Company records revenues under certain
long-term, fixed price defense contracts which, among other things, provide for
delivery of minimal quantities or require a significant amount of development
effort in relation to total contract value, using the percentage-of-completion
method upon achievement of performance milestones, or using the cost-to-cost
method of accounting where sales and profits are recorded based on the ratio of
costs incurred to estimated total costs at completion. The Company includes
amounts representing contract change orders, claims or other items in sales only
when they can be reliably estimated and realization is probable. The Company
reflects adjustments in contract value or estimated costs on contracts accounted
for using the percentage-of-completion method in earnings in the current period
as a cumulative catch-up adjustment. The Company charges anticipated losses on
contracts or programs in progress to earnings when identified.
Goodwill and Other Intangible Assets: The Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets"
effective October 1, 2001. Under SFAS No. 142, goodwill is no longer amortized;
however, it must be tested for impairment at least annually. The Company
continues to record amortization for other
34
intangible assets with definite lives. The Company is subject to financial
statement risk to the extent that goodwill and indefinite-lived assets become
impaired. Any impairment review is, by its nature, highly judgmental as
estimates of future sales, earnings and cash flows are required to be
established.
Product Liability: Due to the nature of the Company's products, the Company is
subject to product liability claims and lawsuits in the normal course of
business. A substantial portion of these claims and lawsuits involve the
Company's concrete placement and domestic refuse businesses, while such lawsuits
in the Company's defense business have historically been rare. To the extent
permitted under applicable law, the Company maintains insurance to reduce or
eliminate risk to the Company. Most insurance coverage includes self-insured
retentions that vary by business segment and by year. Such self-insured
retentions were increased sharply following the terrorist acts of September 11,
2001. As of July 31, 2002, the Company maintained self-insured retentions of
$1.0 million for each of its businesses.
The Company establishes product liability reserves for its self-insured
retention portion of any known outstanding matters based on the likelihood of
loss and the Company's ability to reasonably estimate such loss. There is
inherent uncertainty as to the eventual resolution of unsettled matters due to
the unpredictable nature of litigation. The Company makes estimates based on
available information and the Company's best judgment after consultation with
appropriate experts. The Company periodically revises estimates based upon
changes to facts or circumstances. The Company also utilizes actuarial
methodologies to calculate reserves required for estimated incurred but not
reported ("IBNR") claims as well as to estimate the effect of the adverse
development of claims over time.
Warranty: Sales of the Company's products generally carry typical explicit
manufacturer's warranties based on terms that are generally accepted in the
Company's marketplaces. The Company records provisions for estimated warranty
and other related costs at the time of sale based on historical warranty loss
experience and periodically adjusts these provisions to reflect actual
experience. Certain warranty and other related claims involve matters of dispute
that ultimately are resolved by negotiation, arbitration or litigation.
Infrequently, a material warranty issue can arise which is beyond the scope of
the Company's historical experience. The Company provides for any such warranty
issues as they become known and estimable. It is reasonably possible that from
time to time additional warranty and other related claims could arise from
disputes or other matters beyond the scope of the Company's historical
experience.
New Accounting Standards
Special Purpose Entities: In June 2002, the Financial Accounting Standards Board
("FASB") issued Exposure Draft "Consolidation of Certain Special-Purpose
Entities - an Interpretation of ARB No. 51" ("Proposed Interpretation"). The
Proposed Interpretation is intended to provide consolidation accounting guidance
for special purpose entities, recognizing that existing consolidation accounting
guidance involving a control-based approach contained in Accounting Research
Board ("ARB") Statement No. 51 and FASB Statement No. 94 does not adequately
consider the uniqueness of special purpose entities in which controlling rights
may not be
35
substantive. The Proposed Interpretation would explain how to identify a special
purpose entity that is not subject to control through voting ownership interests
and would require each enterprise involved with a special purpose entity to
determine whether it provides financial support to the special purpose entity
through a variable interest. Variable interests may arise from financial
instruments, service contracts, minority ownership interests or other
arrangements. If an entity holds a majority of the variable interests, or a
significant variable interest that is significantly more than any other party's
variable interest, that entity would be the primary beneficiary. The primary
beneficiary would be required to include the assets, liabilities and results of
activities of the special purpose entity in its consolidated financial
statements.
A special purpose entity would be evaluated for consolidation based on voting
interests, rather than provisions of this Proposed Interpretation, if one or
more parties hold equity investments that meet certain conditions. An equity
investment that fails to meet these conditions would consider the investment to
be a variable interest to be assessed under the provisions of the Proposed
Interpretation. An equity investment would be presumed to be insufficient to
allow the special purpose entity to finance its own activities without relying
on support by the variable interest holders (i.e., presumed to lack sufficient
independent economic substance) unless the investment is equal to at least 10%
of the special purpose entity's total assets.
The Proposed Interpretation would require existing unconsolidated special
purpose entities that lack sufficient independent economic substance to be
consolidated by primary beneficiaries if they do not effectively disperse risks
among parties involved. Special purpose entities that effectively disperse risks
would not be consolidated unless a single party holds an interest or combination
of interests that effectively recombines risks that were previously dispersed.
The Proposed Interpretation would be applied immediately to special purpose
entities created after the issuance date of the final interpretation. For
special purpose entities created before that date, the provisions of the
Proposed Interpretation would be applied to those special purpose entities still
existing as of the beginning of the first fiscal year or interim period
beginning after March 15, 2003.
The Company is in the process of assessing the impact of this Proposed
Interpretation on its interest in Oshkosh/McNeilus Financial Services
Partnership ("OMFSP" -- see Note 6 to Notes to Unaudited Condensed Consolidated
Financial Statements). A final interpretation may result in the Company
including the assets and liabilities (or some portion thereof) of OMFSP in its
consolidated financial statements. Alternatively, the Company may sell or
restructure its interest in OMFSP.
Guarantee Obligations: In May 2002, the FASB issued a proposed interpretation
that would clarify and expand on existing disclosure requirements for
guarantees, including loan guarantees. It also would require that, at the
inception of a guarantee, the Company must recognize a liability for the fair
value, or market value, of its obligations under that guarantee. The proposed
interpretation does not address the subsequent measurement of the guarantor's
recognized liability over the
36
term of the guarantee. The proposed interpretation also would incorporate,
without change, the guidance in FASB Interpretation No. 34, "Disclosure of
Indirect Guarantees of Indebtedness of Others," which is being superseded.
The provisions related to recognizing a liability at inception for the fair
value of the guarantor's obligations would not apply to product warranties or to
guarantees accounted for as derivatives.
It is currently proposed that the new recognition and initial measurement
provisions of the proposed interpretation would be applied to all previously
issued guarantees in the first fiscal year beginning after September 15, 2002.
The cumulative effect of initially applying those provisions would be reported
as a change in accounting principle in the first interim period of the year of
adoption. The disclosure requirements would be effective for financial
statements of interim or annual periods ending after October 15, 2002.
The Company is assessing the potential impact of this proposed interpretation on
the Company's financial statements. The Company may be required to estimate the
fair value of its contingent obligations and record such value in its balance
sheet with a corresponding charge to earnings upon implementation of the
proposed accounting standard. Because the proposed interpretation does not
provide guidance regarding appropriate methodologies to value such contingent
obligations, the Company is unable to estimate the impact of this proposed
interpretation.
Customers and Backlog
Sales to the DoD comprised approximately 33% of the Company's sales in the first
nine months of fiscal 2002. 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 June 30, 2002 increased 28.8% to $1,065.1 million
compared to $826.7 million at June 30, 2001. Commercial segment backlog
increased 108.2% to $160.5 million at June 30, 2002 compared to June 30, 2001.
Excluding backlog related to the Geesink Norba Group acquisition, commercial and
total Company backlog would have increased 55.7% and 23.9%, respectively, at
June 30, 2002 compared to June 30, 2001. The commercial segment backlog was up
as a result of increased orders of concrete mixers and lower orders for domestic
refuse packers. After several quarters of weak orders, concrete placement orders
rose sharply in the third quarter of fiscal 2002, while domestic refuse orders
continued to be soft relative to the prior year. Fire and emergency segment
backlog increased 27.4% to $290.7 million at June 30, 2002 compared to June 30,
2001 due to a decision to increase Pierce's backlog in an effort to improve
manufacturing efficiencies, and due to a multi-unit award of aircraft rescue and
firefighting vehicles. The defense segment backlog increased 17.7% to $614.0
million at June 30, 2002 compared to June 30, 2001. During the nine month period
ended June 30, 2002, the Company recorded $76 million in orders for heavy
equipment transport trucks and trailers for the U.K. Ministry of Defence. This
award resulted from completion of a multi-year effort and final contract
negotiations that were concluded in December 2001. Also, prior year defense
backlog reflected the planned low-rate of
37
initial production under the MTVR contract. Defense backlog at June 30, 2002
includes higher, "full-rate" production requirements called for and funded under
the MTVR multi-year contract. Approximately 61% of the June 30, 2002 backlog is
not expected to be filled in fiscal 2002.
Reported backlog excludes purchase options and announced orders for which
definitive contracts have not been executed. Additionally, backlog excludes
unfunded portions of the DoD FHTV 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 DoD versus its
sales to other customers.
Fiscal 2002 Outlook
The Company believes that fiscal 2002 net sales will approximate $1,700.0
million, up approximately 17.6% from fiscal 2001. The Company expects that
consolidated net sales will be approximately $433.4 million in the fourth
quarter of fiscal 2002.
The Company expects that commercial segment sales will increase approximately
16.1% in fiscal 2002 to approximately $650.0 million, or $26.0 million higher
than previous estimates due to increased concrete placement sales in the third
quarter. All previous estimates referred to in this Report on Form 10-Q reflect
those estimates included in the Form 8-K the Company filed on April 25, 2002.
The Company estimates that the Geesink Norba Group will contribute all of the
segment's sales increase. Fiscal 2001 results included two months of operations
of the Geesink Norba Group following its July 25, 2001 acquisition. The Company
estimates annual Geesink Norba Group sales in fiscal 2002 to be approximately
$130.0 million.
The Company expects that the fire and emergency segment sales will be up 2.4%
from prior year at $475.0 million in fiscal 2002. There is no change in the
Company's estimate of fire and emergency sales from previous estimates.
The Company believes that defense segment net sales will increase from previous
estimates by approximately $15.0 million to approximately $580.0 million in
fiscal 2002, largely due to the impact on sales of the contract modification
signed in the third quarter on the Company's MTVR contract which added a "dump
body" variant to this long-term contract. This new estimate reflects an
estimated 37.1% increase in defense sales in fiscal 2002, primarily due to a
full year of full-rate production under the Company's MTVR contract.
The Company estimates that its consolidated operating income will approximate
$109.0 million in fiscal 2002, or 6.4% of sales. The Company expects commercial
segment operating income to approximate $46.0 million, or 7.1% of sales, for
fiscal 2002. This estimate is up by $6.0 million from previous estimates. The
Company realized approximately $4.0 million of this increase in the third
quarter and the Company anticipates that another $2.0 million of operating
income will result from increased concrete placement sales and solid cost
performance in the fourth quarter. The Company believes that fire and emergency
segment operating income will approximate $48.0 million in fiscal 2002, or about
10.1% of sales. This is
38
down about $2.0 million from previous estimates due to an estimated unfavorable
product mix in the fourth quarter of fiscal 2002. The Company estimates that
defense segment operating income should approximate $40.0 million, or 6.9% of
sales, which is up $5.0 million from the Company's previous estimates. This
change reflects the $5.3 million annual impact of the one percentage point
increase in margins on the Company's MTVR contract to 4.3%.
The Company expects corporate expenses to approximate $25.0 million in fiscal
2002, up from $17.0 million for fiscal 2001. This increase largely reflects
higher variable compensation, legal defense costs, insurance costs, and
acquisition integration and investigation costs. The Company is also projecting
$22.0 million in net interest costs in fiscal 2002, which is down by $2.5
million from previous estimates as a result of lower borrowings.
The Company estimates net income of approximately $15.5 million in the fourth
quarter and $58.0 million for fiscal 2002. The Company estimates earnings per
share to be $0.90 and $3.35 for the fourth quarter and for fiscal 2002,
respectively.
In mid-June 2002, the Company negotiated "performance-based" payments under the
MTVR contract. The Company expects this award to result in a substantial
acceleration of cash flow under the contract in the fourth quarter of fiscal
2002 and for the duration of the contract, based on attaining certain
pre-determined milestones. Because of this contract modification and the
Company's expectation that it will build working capital in the fourth quarter
of fiscal 2002, the Company expects that its debt will decline to approximately
$150.0 million by September 30, 2002. The Company estimates total capital
spending for fiscal 2002 at $15.0 million.
Fiscal 2003 Outlook
The Company estimates that consolidated net sales will approximate $1,775.0
million, up 4.4% from estimated fiscal 2002 net sales. No acquisitions are
assumed in any of the Company's fiscal 2003 estimates.
The Company estimates that commercial sales will increase about 2.3% to $665.0
million in fiscal 2003. The Company is projecting a modest increase in concrete
placement sales of 3.0% in fiscal 2003 as recent financial market news has
caused the Company to be cautious about the timing and strength of the U.S.
economic recovery. The Company is projecting domestic refuse sales to decline
10.0% in the first half of fiscal 2003 before firming in the second half. For
the year, the Company expects domestic refuse sales to decline approximately 3%.
The Company expects that Geesink Norba Group refuse product sales will grow
approximately 8.0% in fiscal 2003 based on a recovering European economy and new
product introductions.
The Company expects that fire and emergency sales will be up 6.3% to $505.0
million. The Company expects Pierce sales to be strong based on the current
backlog of open orders, which extends into February 2003. However, the Company
expects that another year of little snow and reduced airport funding will limit
snow blower and plow sales in the fire and emergency segment.
39
The Company is projecting defense sales to increase 5.2% to $610.0 million. The
Company expects MTVR sales to decline about $16.0 million in fiscal 2003,
consistent with contract requirements, while the Company expects to realize
approximately $46.0 million in sales as the Company initiates shipments in
fiscal 2003 under the Company's contract to provide tank transporter systems to
the United Kingdom Ministry of Defence.
By quarter, the Company estimates that fiscal 2003 sales will approximate $387.0
million in quarter one, $426.0 million in quarter two, $497.0 million in quarter
three and $465.0 million in quarter four.
The Company is projecting consolidated operating income to be up 10.1% to about
$120.0 million in fiscal 2003. In the commercial segment, the Company projects
operating income to increase 10.9% to $51.0 million. In this segment, concrete
placement results are projected to be flat in fiscal 2003. The Company will ramp
up the sale of its new "Revolution" composite mixer drum slowly in fiscal 2003,
and the Company expects no appreciable benefit until fiscal 2004. The Company
expects domestic refuse results to be up slightly due to cost reduction plans in
place. The Company expects that most of the growth in commercial segment
operating income will result from recovery of European refuse product operating
results following the restructuring of that business in fiscal 2002.
The Company is projecting fire and emergency segment operating income to
increase 8.3% to $52.0 million in fiscal 2003, largely consistent with the
estimated sales increase in the segment.
The Company is projecting defense operating income to increase 10.0% to $44.0
million in fiscal 2003. This estimate assumes significant bid and proposal
spending with respect to several United Kingdom defense truck procurement
programs and significant pre-contract costs. The Company has identified
additional opportunities to bid, plus certain U.K. competitions are being
extended, thereby increasing the Company's competition costs. Further, the
Company may need to incur pre-contract costs, which are expensed as incurred, to
meet contract requirements in the event of a positive award of certain of these
contracts to the Company. Defense operating income estimates assume no further
margin improvement on the multi-year MTVR contract in fiscal 2003. The Company's
margin on this contract is currently at 4.3%. Subject to attaining certain
milestones and cost performance, the Company continues to target margins of 6.0%
to 6.5% over the contract life. A one percentage point change in MTVR margins in
fiscal 2003 would impact the Company's operating income by $7.6 million, or
$0.27 per share, after tax. The Company reviews its estimated costs to complete
the MTVR long-term production contract periodically or as events change, based
on factors such as the cost performance achieved to date and the durability of
fielded trucks. In June 2002, the Company negotiated a modification of the MTVR
contract to replace bare chassis with requirements for vehicles with a dump or a
wrecker variant. The wrecker variants are complex vehicles that will undergo
significant testing. The U.S. Marine Corps has until January 2004 to fund the
wrecker requirements under the contract. How these wreckers perform in testing,
the timing and number of wreckers actually funded by the U.S. Marine Corps under
the contract and cost performance on these trucks will be important factors in
the Company's
40
ability to achieve its targeted MTVR margins of 6.0% to 6.5% over the life of
the contract.
The Company expects corporate expenses to approximate $27.0 million in fiscal
2003, up from $25.0 million estimated for fiscal 2002. This increase reflects
investments planned to build the Company's management team in preparation for
additional acquisitions and/or defense contract awards. The Company is
projecting net interest costs to decline $2.0 million to $20.0 million in fiscal
2003. The Company expects debt to be lower in fiscal 2003 than in fiscal 2002
and interest rates to increase modestly. Also, the Company is estimating a
working capital build and related use of cash/increase in debt associated with
potential major defense contract awards.
By quarter, the Company expects that net income will approximate $8.0 million in
quarter one, $14.5 million in quarter two, $21.0 million in quarter three and
$21.5 million in quarter four. Based on an estimated 17.65 million average
diluted shares outstanding for the year, these net income estimates result in
earnings per share estimates of $0.45 in quarter one, $0.83 in quarter two,
$1.19 in quarter three, and $1.21 in quarter four. First quarter estimates
include heavy defense bid and proposal spending.
Assuming no acquisitions, the Company estimates that debt will rise in the first
half of fiscal 2003 compared to forecasted September 30, 2002 levels due to
seasonal working capital demands of the concrete placement business and then
remain relatively high for the remainder of the year even as such demands
subside due to working capital requirements associated with production under the
U.K. tank transporter contract in the second half of fiscal 2003. Specific debt
estimates are $175.0 million at December 31, 2002, $200.0 million at March 31,
2003, $210.0 million at June 30, 2003 and $150.0 million at September 30, 2003.
If the Company were to win a major defense contract, then debt levels would rise
in the start-up phases of the contracts. The Company expects capital spending to
increase to approximately $30.0 million in fiscal 2003 due to the planned
start-up of a U.S. production facility for the Revolution composite mixer drum.
The Company believes that the impact of the terrorist acts on September 11, 2001
on the Company will include increases in the costs of insurance for all global
businesses, including the Company, principally beginning in fiscal 2003. The
Company has estimated the impact of such insurance cost increases and reflected
such expectations in its estimates of fiscal 2003 earnings per share.
The expectations with respect to projected sales, costs, earnings and debt
levels in this "Fiscal 2002 Outlook" and "Fiscal 2003 Outlook" are
forward-looking statements and are based in part on certain assumptions made by
the Company, some of which are referred to in, or as part of, the
forward-looking statements. These assumptions include, without limitation,
anticipation of a modest economic recovery in U.S. and European economies in
fiscal 2003; the Company's expectations as to timing of receipt of sales orders
and payments and execution and funding of defense contracts; the Company's
ability to achieve cost reductions; the Company's anticipated level of sales and
margins associated with international defense truck sales and the MTVR program;
the Company's estimates for capital
41
expenditures of municipalities for fire and emergency and refuse products, of
airports for fire and rescue products and of commercial waste haulers; the
Company's estimates of concrete placement activity, housing starts and mortgage
rates; the Company's expected level of sales and operating income of the Geesink
Norba Group; the Company's ability to sustain market share gains by its fire and
emergency and refuse products businesses; the Company's planned spending on bid
and proposal activities for U.S. and U.K. defense truck procurement
competitions; the Company's anticipated level of sales of, and capital
expenditures associated with, the Revolution(TM) composite mixer; the Company's
estimates for steel and insurance costs; the Company's estimates for debt
levels, interest costs and working capital needs; and that the Company does not
complete any acquisitions. The Company cannot provide any assurance that the
assumptions referred to in the forward-looking statements or otherwise are
accurate or will prove to have been correct. Any assumptions that are inaccurate
or do not prove to be correct could have a material adverse effect on the
Company's ability to achieve the forward-looking statements.
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, 2001 and have not materially changed since that report was
filed.
42
OSHKOSH TRUCK CORPORATION
PART II. OTHER INFORMATION
FORM 10-Q
JUNE 30, 2002
ITEM 1 LEGAL PROCEEDINGS
None.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(10.1) Oshkosh Truck Corporation Deferred Compensation Plan for
Directors and Executive Officers.
(10.2) Form of Key Executive Employment and Severance Agreement between
Oshkosh Truck Corporation and Bryan J. Blankfield (incorporated
by reference to Exhibit 10.1 to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 2000 (File No.
0-13886)).
(99.1) Written Statement of the Chairman, President and Chief Executive
Officer, pursuant to 18 U.S.C.ss.1350, dated August 8, 2002.
(99.2) Written Statement of the Executive Vice President and Chief
Financial Officer, pursuant to 18 U.S.C.ss.1350, dated August 8,
2002.
(b) Reports on Form 8-K
Current Report on Form 8-K dated April 25, 2002 reporting the
announcement of the Company's earnings for the second quarter ended
March 31, 2002.
Current Report on Form 8-K dated June 14, 2002 reporting the appointment
of Deloitte & Touche LLP as independent auditors for the Company for the
year ended September 30, 2002.
43
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
August 8, 2002 /S/ R. G. Bohn
------------------------------------
R. G. Bohn
Chairman, President and
Chief Executive Officer
(Principal Executive Officer)
August 8, 2002 /S/ C. L. Szews
------------------------------------
C. L. Szews
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
August 8, 2002 /S/ T. J. Polnaszek
------------------------------------
T. J. Polnaszek
Vice President and Controller
(Principal Accounting Officer)
44
EXHIBIT INDEX
Exhibit No. Description
(10.1) Oshkosh Truck Corporation Deferred Compensation Plan for Directors
and Executive Officers.
(10.2) Form of Key Executive Employment and Severance Agreement between
Oshkosh Truck Corporation and Bryan J. Blankfield (incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 2000 (File No. 0-13886)).
(99.1) Written Statement of the Chairman, President and Chief Executive
Officer, pursuant to 18 U.S.C ss.1350, dated August 8, 2002.
(99.2) Written Statement of the Executive Vice President and Chief
Financial Officer, pursuant to 18 U.S.C.ss.1350, dated August 8,
2002.
45