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, 2003.
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
for the Transition period from ______________ to ___________________
Commission File Number 1-31371
Oshkosh Truck Corporation
------------------------------------------------------
[Exact name of registrant as specified in its charter]
Wisconsin 39-0520270
- ------------------------------- --------------------
[State or other jurisdiction of [I.R.S. Employer
incorporation or organization] Identification No.]
2307 Oregon Street, P.O. Box 2566, Oshkosh, Wisconsin 54903
- ----------------------------------------------------- -----
[Address of principal executive offices] [Zip Code]
Registrant's telephone number, including area code (920) 235-9151
--------------
None
---------------------------------------------------------------
[Former name, former address and former fiscal year, if changed
since last report]
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). 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 25, 2003: 407,914
- -------------------------------------------------------------------
Common Stock Outstanding as of July 25, 2003: 16,703,370
- -------------------------------------------------------------------
OSHKOSH TRUCK CORPORATION
FORM 10-Q INDEX
FOR THE QUARTER ENDED JUNE 30, 2003
Page
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Income
- Three Months and Nine Months Ended
June 30, 2003 and 2002....................................................3
Condensed Consolidated Balance Sheets
- June 30, 2003 and September 30, 2002.......................................4
Condensed Consolidated Statement of Shareholders' Equity
- Nine Months Ended June 30, 2003............................................5
Condensed Consolidated Statements of Cash Flows
- Nine Months Ended June 30, 2003 and 2002...................................6
Notes to Condensed Consolidated Financial Statements
- June 30, 2003..............................................................7
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations...............................29
Item 3. Quantitative and Qualitative Disclosures about
Market Risk.................................................................44
Item 4. Controls and Procedures..........................................................45
Part II. Other Information
Item 1. Legal Proceedings................................................................46
Item 6. Exhibits and Reports on Form 8-K.................................................46
Signatures.........................................................................................47
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,
2003 2002 2003 2002
---- ---- ---- ----
(In thousands, except per share amounts)
Net sales $ 538,183 $ 489,532 $1,417,896 $1,266,630
Cost of sales 456,571 410,272 1,212,853 1,077,850
---------- ---------- ---------- ----------
Gross income 81,612 79,260 205,043 188,780
Operating expenses:
Selling, general and administrative 39,100 39,392 114,573 104,636
Amortization of purchased intangibles 1,621 1,506 4,830 4,421
---------- ---------- ---------- ----------
Total operating expenses 40,721 40,898 119,403 109,057
---------- ---------- ---------- ----------
Operating income 40,891 38,362 85,640 79,723
Other income (expense):
Interest expense (3,273) (5,209) (10,179) (17,248)
Interest income 306 344 800 900
Miscellaneous, net (465) (174) (140) (373)
---------- ---------- ---------- ----------
(3,432) (5,039) (9,519) (16,721)
---------- ---------- ---------- ----------
Income before provision for income taxes and
equity in earnings of unconsolidated
partnership 37,459 33,323 76,121 63,002
Provision for income taxes 13,796 12,276 28,178 22,286
---------- ---------- ---------- ----------
Income before equity in earnings
of unconsolidated partnership 23,663 21,047 47,943 40,716
Equity in earnings of unconsolidated
partnership, net of income taxes 546 527 1,672 1,633
---------- ---------- ---------- ----------
Net income $ 24,209 $ 21,574 $ 49,615 $ 42,349
========== ========== ========== ==========
Earnings per share $ 1.42 $ 1.28 $ 2.92 $ 2.52
Earnings per share assuming dilution $ 1.39 $ 1.24 $ 2.85 $ 2.45
Cash dividends:
Class A Common Stock $ 0.10000 $ 0.07500 $ 0.25000 $ 0.22500
Common Stock $ 0.11500 $ 0.08625 $ 0.28750 $ 0.25875
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
OSHKOSH TRUCK CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, September 30,
2003 2002
---- ----
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 39,718 $ 40,039
Receivables, net 170,236 142,709
Inventories 228,319 210,866
Prepaid expenses 8,800 7,414
Deferred income taxes 34,019 26,008
---------- ----------
Total current assets 481,092 427,036
Investment in unconsolidated partnership 23,434 22,274
Other long-term assets 21,147 11,625
Property, plant and equipment 275,439 261,045
Less accumulated depreciation (131,734) (120,684)
---------- ----------
Net property, plant and equipment 143,705 140,361
Purchased intangible assets, net 100,953 104,316
Goodwill 336,408 318,717
---------- ----------
Total assets $1,106,739 $1,024,329
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 106,039 $ 116,422
Floor plan notes payable 24,861 23,801
Customer advances 159,829 119,764
Payroll-related obligations 32,881 34,474
Income taxes 21,520 8,597
Accrued warranty 28,001 24,015
Other current liabilities 56,517 47,754
Revolving credit facility and current maturities
of long-term debt 225 18,245
---------- ----------
Total current liabilities 429,873 393,072
Long-term debt 101,514 131,713
Deferred income taxes 41,088 39,303
Other long-term liabilities 51,318 50,481
Commitments and contingencies - Note 11
Shareholders' equity 482,946 409,760
---------- ----------
Total liabilities and shareholders' equity $1,106,739 $1,024,329
========== ==========
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, 2003
(Unaudited)
Accumulated
Common Stock Other
Common Paid-In Retained in Treasury Unearned Comprehensive
Stock Capital Earnings at Cost Compensation Income Total
----- ------- -------- ------- ------------ ------ -----
(In thousands)
Balance at
September 30, 2002 $ 178 $ 117,179 $ 300,713 $ (7,636) $ (4,086) $ 3,412 $ 409,760
Net income - - 49,615 - - - 49,615
Loss on derivative
instruments (net of
income tax benefit of $2,074) - - - - - (3,531) (3,531)
Currency translation
adjustments - - - - - 26,903 26,903
Cash dividends:
Class A Common Stock - - (93) - - - (93)
Common Stock - - (4,312) - - - (4,312)
Amortization of unearned
compensation - - - - 514 - 514
Exercise of stock options - 897 - 1,168 - - 2,065
Tax benefit related to
stock options exercised - 2,025 - - - - 2,025
------ --------- --------- -------- -------- -------- ---------
Balance at June 30, 2003 $ 178 $ 120,101 $ 345,923 $ (6,468) $ (3,572) $ 26,784 $ 482,946
====== ========= ========= ======== ======== ======== =========
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,
2003 2002
---- ----
(In thousands)
Operating activities:
Net income $ 49,615 $ 42,349
Non-cash adjustments 10,043 8,550
Changes in operating assets and liabilities 10,540 124,271
---------- ----------
Net cash provided from operating activities 70,198 175,170
Investing activities:
Additions to property, plant and equipment (16,753) (6,883)
Proceeds from sale of assets 3,770 5
Decrease (increase) in other long-term assets (7,910) 309
---------- ----------
Net cash used for investing activities (20,893) (6,569)
Financing activities:
Net repayments under revolving credit facility - (65,200)
Repayment of long-term debt (48,241) (93,855)
Dividends paid (4,395) (4,326)
Other 2,065 1,961
---------- ----------
Net cash used for financing activities (50,571) (161,420)
Effect of exchange rate changes on cash 945 549
---------- ----------
Increase (decrease) in cash and cash equivalents (321) 7,730
Cash and cash equivalents at beginning of period 40,039 11,312
---------- ----------
Cash and cash equivalents at end of period $ 39,718 $ 19,042
========== ==========
Supplementary disclosures:
Depreciation and amortization $ 18,943 $ 18,720
Cash paid for interest 8,151 14,517
Cash paid for income taxes 18,198 35,925
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
OSHKOSH TRUCK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003
(In thousands, except share and per share amounts)
(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 2002 financial statements
to conform to the fiscal 2003 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 Annual Report on Form
10-K for the year ended September 30, 2002.
2. NEW ACCOUNTING STANDARDS
- -----------------------------
In November 2002, the Financial Accounting Standards Board ("FASB") issued
Financial Interpretation No. ("FIN") 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others." FIN 45 requires certain guarantees to be recorded at fair value and
requires a guarantor to make significant new disclosures, even when the
likelihood of making any payments under the guarantee is remote. Generally, FIN
45 applies to certain types of financial guarantees that contingently require
the guarantor to make payments to the guaranteed party based on changes in an
underlying that is related to an asset, liability, or an equity security of the
guaranteed party; performance guarantees involving contracts which require the
guarantor to make payments to the guaranteed party based on another entity's
failure to perform under an obligating agreement; indemnification agreements
that contingently require the guarantor to make payments to an indemnified party
based on changes in an underlying that is related to an asset, liability, or an
equity security of the indemnified party; or indirect guarantees of the
indebtedness of others. The initial recognition and initial measurement
provisions of FIN 45 are applicable on a prospective basis to guarantees issued
or modified after December 31, 2002. Disclosure requirements under FIN 45 are
effective for financial statements ending after December 15, 2002 and are
applicable to all
7
guarantees issued by the guarantor subject to FIN 45's scope, including
guarantees issued prior to FIN 45. The adoption of FIN 45 did not have a
material effect on the Company's financial condition, results of operations or
cash flows (see Note 12).
In December 2002, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 148, "Accounting for Stock-Based Compensation--Transition and
Disclosure." SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based
Compensation," to provide alternative methods of transition to SFAS No. 123's
fair value method for accounting for stock-based employee compensation. SFAS No.
148 also amends the disclosure provisions of SFAS No. 123 and Accounting
Principles Board ("APB") Opinion No. 28, "Interim Financial Reporting," to
require disclosure in the summary of significant accounting policies of the
effects of an entity's accounting policy with respect to stock-based employee
compensation on reported net income and earnings per share in annual and interim
financial statements. The Company adopted early the disclosure provisions of
SFAS No. 148 as of October 1, 2002 and has included the required disclosures in
Note 10.
In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest
Entities" ("FIN 46"). The interpretation provides consolidation accounting
guidance for variable interest entities. Variable interests arise from financial
instruments, service contracts, minority ownership interests or other
arrangements. If an entity holds a majority of the variable interests, then that
entity is the primary beneficiary. The primary beneficiary is required to
include the assets, liabilities and results of activities of the variable
interest entity in its consolidated financial statements. The consolidation
requirements of FIN 46 apply immediately to variable interest entities created
after January 31, 2003. The consolidation requirements of FIN 46 apply to
existing entities in the first fiscal year or interim period beginning after
June 15, 2003. Also, certain disclosure requirements apply to all financial
statements issued after January 31, 2003, regardless of when the variable
interest entity was established.
The Company has conducted an assessment of the activities of Oshkosh/McNeilus
Financial Services Partnership, an unconsolidated general partnership ("OMFSP"),
and determined that OMFSP is a voting interest entity (rather than a variable
interest entity) based on the material participation of each partner in OMFSP's
activities and the equal voting, participating and protective rights of each
partner. As such, FIN 46 does not apply to the Company's investment in OMFSP.
Accordingly, the Company does not expect its adoption of FIN 46 on July 1, 2003,
to have any impact on its accounting for its interest in OMFSP.
8
3. COMPREHENSIVE INCOME
- -----------------------
Total comprehensive income is as follows:
Three Months Ended Nine Months Ended
June 30, June 30,
2003 2002 2003 2002
---- ---- ---- ----
(In thousands)
Net income $ 24,209 $ 21,574 $ 49,615 $ 42,349
Currency translation adjustments 10,913 19,618 26,903 13,537
Derivative instruments,
net of income taxes (3,498) 78 (3,531) 63
--------- --------- --------- ---------
Comprehensive income $ 31,624 $ 41,270 $ 72,987 $ 55,949
========= ========= ========= =========
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,
2003 2002 2003 2002
---- ---- ---- ----
Denominator for basic earnings per share 17,014,692 16,883,214 16,981,247 16,795,522
Effect of dilutive options and incentive
compensation awards 424,241 471,488 442,966 466,369
---------- ---------- ---------- ----------
Denominator for dilutive earnings
per share 17,438,933 17,354,702 17,424,213 17,261,891
========== ========== ========== ==========
In fiscal 2003, options granted on February 4, 2003 to purchase 27,000 shares at
$62.47 per share and, in fiscal 2002, options granted on February 8, 2002 to
purchase 30,000 shares at $55.00 per share and options granted on June 3, 2002
to purchase 5,000 shares at $58.56 per share were outstanding, but were not
included in the computation of diluted earnings per share because the exercise
price of the options was greater than the average market price of the Common
Stock, and therefore, the effect would have been anti-dilutive.
9
5. INVENTORIES
- ----------------
Inventories consist of the following:
June 30, September 30,
2003 2002
---- ----
(In thousands)
Finished products $ 73,560 $ 67,147
Partially finished products 111,638 89,742
Raw materials 117,807 121,596
-------- --------
Inventories at FIFO cost 303,005 278,485
Less: Performance-based payments on
U.S. government contracts (58,725) (54,368)
Excess of FIFO cost over LIFO cost (15,961) (13,251)
-------- --------
$228,319 $210,866
======== ========
Title to all inventories related to government contracts, which provide for
performance-based payments, vests with the government to the extent of
unliquidated performance-based payments.
6. INVESTMENT IN UNCONSOLIDATED PARTNERSHIP
- ---------------------------------------------
The Company and an unaffiliated third party are general partners in OMFSP. 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, primarily to customers of the Company. OMFSP purchases
trucks, truck bodies and concrete batch plants from the Company, the Company's
affiliates and, occasionally, unrelated third parties for lease to user-lessees.
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
approximate 8.0% equity portion of the cost of new equipment purchases.
Customers typically provide a 2.0% down payment. Each partner is allocated its
proportionate share of OMFSP's cash flow and taxable income in accordance with
the partnership agreement. Indebtedness of OMFSP is secured by the underlying
leases and assets of, and is recourse to, OMFSP. However, all such OMFSP
indebtedness is non-recourse to the Company and its partner. Each of the two
general partners has identical voting, participating and protective rights and
responsibilities, and each general partner materially participates in the
activities of OMFSP. For these and other reasons, the Company has determined
that OMFSP is a voting interest entity for purposes of FIN 46. Accordingly, the
Company accounts for its equity interest in OMFSP under the equity method.
The Company's investment in OMFSP of $23.4 million at June 30, 2003 included in
the Company's Condensed Consolidated Balance Sheet represents
10
the Company's maximum exposure to loss as a result of the Company's ownership
interest in OMFSP. This exposure is a non-cash exposure. Further, the Company
has recorded deferred income tax liabilities related to its investment in OMFSP
of $21.4 million at June 30, 2003 that were included in long-term deferred
income tax liabilities in the Company's Condensed Consolidated Balance Sheet.
Should the Company's investment in OMFSP be liquidated for any reason, this
deferred income tax liability would reverse and result in an increase in current
income taxes payable by the Company.
Summarized financial information of OMFSP is as follows:
June 30, September 30,
2003 2002
---- ----
(In thousands)
Cash and cash equivalents $ 3,086 $ 2,037
Investments in sales-type leases, net 208,055 209,440
Other assets 682 553
-------- --------
$211,823 $212,030
======== ========
Notes payable $165,896 $166,442
Other liabilities 2,218 4,146
Partners' equity 43,709 41,442
-------- --------
$211,823 $212,030
======== ========
Nine Months Ended
June 30,
2003 2002
---- ----
(In thousands)
Interest income $ 11,542 $ 12,290
Net interest income 3,259 3,278
Excess of revenues over expenses 3,378 3,233
11
7. PURCHASED INTANGIBLE ASSETS AND GOODWILL
- ---------------------------------------------
The following tables present details of the Company's purchased intangible
assets:
June 30, 2003
------------------------------------------------
Weighted-
Average Accumulated
Life Gross Amortization Net
---- ----- ------------ ---
(Years) (In thousands)
Amortizable:
Distribution network 40.0 $ 53,000 $ (8,982) $ 44,018
Non-compete 14.5 40,140 (14,653) 25,487
Technology-related 17.7 21,254 (5,098) 16,156
Other 9.8 10,423 (1,564) 8,859
--------- --------- ---------
25.5 124,817 (30,297) 94,520
Non-amortizable tradenames 6,433 - 6,433
--------- --------- ---------
Total $ 131,250 $ (30,297) $ 100,953
========= ========= =========
September 30, 2002
------------------------------------------------
Weighted-
Average Accumulated
Life Gross Amortization Net
---- ----- ------------ ---
(Years) (In thousands)
Amortizable:
Distribution network 40.0 $ 53,000 $ (7,988) $ 45,012
Non-compete 14.5 40,120 (12,350) 27,770
Technology-related 17.8 20,554 (4,070) 16,484
Other 9.9 10,313 (979) 9,334
--------- --------- ---------
25.5 123,987 (25,387) 98,600
Non-amortizable tradenames 5,716 - 5,716
--------- --------- ---------
Total $ 129,703 $ (25,387) $ 104,316
========= ========= =========
Amortization expense recorded for the nine months ended June 30, 2003 and 2002
was $4.8 million and $4.4 million, respectively. The estimated future
amortization expense of purchased intangible assets as of June 30, 2003 is as
follows (in thousands):
12
Fiscal Year Ending September 30, Amount
- -------------------------------- ------
2003 (remaining three months) $ 1,540
2004 6,266
2005 6,221
2006 6,000
2007 5,866
2008 5,866
Future 62,761
-------
$94,520
=======
The following table presents the changes in goodwill during the nine months
ended June 30, 2003:
Balance at Foreign Currency Balance at
September 30, Translation June 30,
Segment 2002 Adjustment 2003
------- ---- ---------- ----
(In thousands)
Commercial $ 219,375 $ 17,691 $ 237,066
Fire and emergency 99,342 - 99,342
--------- -------- ---------
Total $ 318,717 $ 17,691 $ 336,408
========= ======== =========
8. FINANCIAL INSTRUMENTS
- --------------------------
Historically, the Company has used forward foreign exchange contracts to reduce
the exchange rate risk of specific foreign currency transactions. These
contracts require the exchange of a foreign currency for U.S. dollars at a fixed
rate at a future date.
To protect against a reduction in value of certain forecasted foreign currency
cash receipts from export sales from April 2004 through December 2006 that will
be denominated in British Pounds Sterling and to protect against increases in
costs of purchases of certain components from December 2003 through October 2006
that are payable in euros, each in connection with the Company's contract to
provide certain tactical military truck systems to the United Kingdom Ministry
of Defence ("MoD"), the Company has instituted a foreign currency cash flow
hedging program. The Company has hedged a significant portion of its estimated
foreign currency cash flows in connection with this contract.
At June 30, 2003, outstanding foreign exchange forward contracts totaled $314.1
million in notional amounts, including $229.2 million in contracts to sell
British Pounds Sterling, $0.8 million in contracts to purchase British Pounds
Sterling, $80.5 million in contracts to purchase euros and $3.6 million in
contracts to sell Canadian dollars. Net unrealized losses (net of related tax
effect of $2.1 million) on outstanding foreign
13
exchange forward contracts at June 30, 2003 totaled $3.5 million and have been
included in Accumulated Other Comprehensive Income.
As of June 30, 2003, the Company expects to reclassify $0.2 million of net
losses on derivative instruments from Accumulated Other Comprehensive Income to
earnings during the next twelve months due to actual export sales and purchases
denominated in foreign currencies.
9. LONG-TERM DEBT
- -------------------
The Company has outstanding a $170.0 million revolving credit facility
("Revolving Credit Facility") with no borrowings outstanding at June 30, 2003.
In June 2003, the Company prepaid the remaining balance of $36.0 million then
outstanding under its Term Loan A that was scheduled to mature in January 2006.
At June 30, 2003, $21.6 million of outstanding letters of credit reduced
available capacity under the Revolving Credit Facility to $148.4 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 Revolving Credit Facility. The Revolving 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 15) 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 $1.7 million as of June 30, 2003.
10. STOCK-BASED EMPLOYEE COMPENSATION PLANS
- --------------------------------------------
At June 30, 2003, the Company had one stock-based employee compensation plan,
which is described more fully in Note 10 to the Notes to Consolidated Financial
Statements in the Company's Annual Report on Form 10-K for the year ended
September 30, 2002. The Company accounts for this stock-based plan under the
recognition and measurement principles of APB Opinion No. 25, "Accounting for
Stock Issued to Employees," and related Interpretations. Except for restricted
stock awards granted in September 2002, no stock-based employee compensation
cost was reflected in previously reported results for any period, as all options
granted under this plan had an exercise price equal to the market value of the
underlying Common Stock on the measurement date.
The following table illustrates the effect on net income and earnings per share
if the Company had applied the fair value recognition provisions
14
of SFAS No. 123, "Accounting for Stock-Based Compensation," to stock-based
employee compensation:
Three Months Ended Nine Months Ended
June 30, June 30,
2003 2002 2003 2002
---- ---- ---- ----
(In thousands, except per share amounts)
Net income, as reported $ 24,209 $ 21,574 $ 49,615 $ 42,349
Add: Stock-based employee
compensation expense recorded
for restricted stock awards,
net of related tax effects 172 - 514 -
Deduct: Total stock-based
employee compensation expense
determined under fair value
based method for all awards,
net of related tax effects (902) (566) (2,700) (1,659)
-------- -------- -------- --------
(730) (566) (2,186) (1,659)
-------- -------- -------- --------
Pro forma net income $ 23,479 $ 21,008 $ 47,429 $ 40,690
======== ======== ======== ========
Earnings per share:
As reported $ 1.42 $ 1.28 $ 2.92 $ 2.52
Pro forma 1.38 1.24 2.79 2.42
Earnings per share assuming dilution:
As reported $ 1.39 $ 1.24 $ 2.85 $ 2.45
Pro forma 1.34 1.21 2.71 2.35
11. 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 for the
costs associated with cleaning up the site. Typically, PRPs negotiate a
resolution with the EPA and/or the state environmental agencies. PRPs also
negotiate with each other regarding allocation of the cleanup cost.
As to one such Superfund site, the Company's Pierce Manufacturing Inc.
("Pierce")subsidiary is one of 380 PRPs participating in the costs of addressing
the site and has been assigned an allocation share of approximately 0.04%.
15
Currently, a report of the remedial investigation/feasibility study is being
completed, and as such, an estimate for the total cost of the remediation of
this site has not been made to date. However, based on estimates and the
assigned allocations, the Company believes its liability at the site will not be
material and its share is adequately covered through reserves established by the
Company at June 30, 2003. Actual liability could vary based on results of the
study, the resources of other PRPs, and the Company's final share of liability.
In 2003, the Company and Pierce, along with approximately 72 other companies,
received notice from the EPA that each were being designated as a PRP for the
Amber Oil site in Milwaukee, Wisconsin. The Company's records show that in the
early-to mid 1990s, the Company and Pierce sent to the site, for trans-shipment,
small volumes (less than 15,000 total gallons)of non-hazardous waste waters. In
May 2003, the Company entered into a PRP agreement with approximately 50 other
companies to jointly defend and respond to PRP claims asserted by the EPA and to
allocate among PRP members the costs incurred in connection with this matter.
The Company believes that its liability at this site will not be material and
its share is adequately covered through reserves established by the Company at
June 30, 2003. Actual liability could vary based on the actual remediation cost,
the resources of other PRPs, and the Company's final share of any 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, 2003. However,
this may change as investigations proceed by the Company, other unrelated
property owners, and the government.
In connection with the acquisition of the Geesink Norba Group, the Company
identified potential soil and groundwater contamination impacts from solvents
and metals at one of its manufacturing sites. The Company is conducting a study
to identify the source of the contamination. Based on current estimates, the
Company believes its liability at this site will not be material and any
responsibility of the Company is adequately covered through reserves established
by the Company at June 30, 2003.
16
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, results of operations or cash flows.
Actual results could vary, among other things, due to the uncertainties involved
in litigation.
The Company is also contingently liable under bid, performance and specialty
bonds totaling approximately $131.1 million and open standby letters of credit
issued by the Company's bank in favor of third parties totaling approximately
$21.6 million at June 30, 2003.
12. WARRANTY AND GUARANTEE ARRANGEMENTS
- ----------------------------------------
The Company's products generally carry explicit warranties that extend from six
months to two years, based on terms that are generally accepted in the
marketplace. Selected components (such as engines, transmissions, tires, etc.)
included in the Company's end products may include manufacturers' warranties.
These manufacturers' warranties are generally passed on to the end customer of
the Company's products, and the customer would generally deal directly with the
component manufacturer.
The Company's policy is to record a provision for the expected cost of
warranty-related claims at the time of the sale, and periodically adjust the
provision to reflect actual experience. The amount of warranty liability accrued
reflects management's best estimate of the expected future cost of honoring
Company obligations under the warranty plans. Historically, the cost of
fulfilling the Company's warranty obligations has principally involved
replacement parts, labor and sometimes travel for any field retrofit campaigns.
The Company's estimates are based on historical experience, the extent of
pre-production testing, the number of units involved and the extent of
features/components included in product models. Also, each quarter, the Company
reviews actual warranty claims experience to determine if there are systemic
defects that would require a field campaign.
17
Changes in the Company's warranty liability during the nine months ended June
30, 2003 were as follows (in thousands):
Balance at September 30, 2002 $ 24,015
Warranty provisions for the period 15,026
Settlements made during the period (15,632)
Changes in liability for pre-existing warranties
during the period, including expirations 4,166
Foreign currency translation adjustment 426
--------
Balance at June 30, 2003 $ 28,001
========
In the fire and emergency segment, the Company provides guarantees of lease
payments by customer-lessees to a third-party lessor of equipment purchased from
the Company. The guarantee is limited to $1.0 million per year in total and is
supported by the residual value of the related equipment. The Company's actual
losses under these guarantees over the last ten years have been negligible. In
accordance with FIN 45, no liabilities for pre-January 1, 2003 guarantees have
been recorded. For all such guarantees issued after January 1, 2003, the Company
has recorded the fair value of the guarantee as a liability and a reduction of
the initial revenue recognized on the sale of equipment. Amounts recorded since
January 1, 2003 were not significant.
18
13. BUSINESS SEGMENT INFORMATION
- ---------------------------------
Three Months Ended Nine Months Ended
June 30, June 30,
2003 2002 2003 2002
---- ---- ---- ----
(In thousands)
Net sales to unaffiliated customers:
Commercial $ 213,585 $ 204,535 $ 562,734 $ 503,942
Fire and emergency 148,345 123,956 402,887 339,504
Defense 178,779 162,774 457,939 426,475
Intersegment eliminations (2,526) (1,733) (5,664) (3,291)
--------- --------- ---------- ----------
Consolidated $ 538,183 $ 489,532 $1,417,896 $1,266,630
========= ========= ========== ==========
Operating income (loss):
Commercial $ 15,011 $ 17,747 $ 34,047 $ 37,204
Fire and emergency 16,113 14,461 40,453 33,824
Defense 16,913 14,965 33,239 28,094
Corporate and other (7,146) (8,811) (22,099) (19,399)
--------- --------- ---------- ----------
Consolidated operating income 40,891 38,362 85,640 79,723
Net interest expense (2,967) (4,865) (9,379) (16,348)
Miscellaneous other (465) (174) (140) (373)
--------- --------- ---------- ----------
Income before provision for income
taxes and equity in earnings of
unconsolidated partnership $ 37,459 $ 33,323 $ 76,121 $ 63,002
========= ========= ========== ==========
June 30, September 30,
2003 2002
---- ----
(In thousands)
Identifiable assets:
Commercial $ 651,550 $ 593,489
Fire and emergency 341,651 325,585
Defense 87,332 75,392
Corporate and other 26,206 29,863
---------- ----------
Consolidated $1,106,739 $1,024,329
========== ==========
Net sales by geographic region based on product shipment destination were as
follows:
Nine Months Ended
June 30,
2003 2002
---- ----
(In thousands)
United States $1,230,843 $1,121,270
Other North America 6,943 6,174
Europe and Middle East 157,816 118,376
Other 22,294 20,810
---------- ----------
Consolidated $1,417,896 $1,266,630
========== ==========
19
14. SUBSEQUENT EVENTS
- ----------------------
Following the close of business on July 17, 2003, the Company's Board of
Directors declared a two-for-one split of both classes of Company common stock
to be effected in the form of a 100 percent stock dividend payable August 13,
2003 to shareholders of record on August 6, 2003. Per share and weighted average
share amounts have not been restated in the accompanying financial statements
and related notes to reflect this split. As a part of its action to declare this
stock dividend, the Rights under the Shareholder Rights Plan were proportionally
adjusted, as were authorizations, outstanding options and option exercise prices
under the 1990 Incentive Stock Plan of the Company.
Also on July 17, 2003, the Company's Board of Directors declared, on a pre-split
basis, dividends of $0.10 per share for Class A Common Stock and $0.115 per
share for Common Stock payable August 13, 2003 to shareholders of record as of
August 6, 2003. These dividends represent a 33-1/3 percent increase over prior
quarter dividends.
15. 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 the 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 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.
20
OSHKOSH TRUCK CORPORATION
Condensed Consolidating Statement of Income
For the Three Months Ended June 30, 2003
(Unaudited)
Subsidiary Non-Guarantor
Company Guarantors Subsidiaries Eliminations Consolidated
------- ---------- ------------ ------------ ------------
(In thousands)
Net sales $ 244,834 $ 257,402 $ 47,185 $ (11,238) $ 538,183
Cost of sales 212,270 216,707 38,861 (11,267) 456,571
--------- ----------- ------------- ------------- ------------
Gross income 32,564 40,695 8,324 29 81,612
Operating expenses:
Selling, general and
administrative 17,169 16,779 5,152 - 39,100
Amortization of purchased
intangibles 1 1,505 115 - 1,621
--------- ----------- ------------- ------------- ------------
Total operating expenses 17,170 18,284 5,267 - 40,721
--------- ----------- ------------- ------------- ------------
Operating income 15,394 22,411 3,057 29 40,891
Other income (expense):
Interest expense (5,510) (637) 16 2,858 (3,273)
Interest income 143 3,021 - (2,858) 306
Miscellaneous, net 3,189 (3,595) (59) - (465)
--------- ----------- ------------- ------------- ------------
(2,178) (1,211) (43) - (3,432)
--------- ----------- ------------- ------------- ------------
Income before items noted below 13,216 21,200 3,014 29 37,459
Provision for income taxes 4,890 7,839 1,056 11 13,796
--------- ----------- ------------- ------------- ------------
8,326 13,361 1,958 18 23,663
Equity in earnings of subsidiaries
and unconsolidated partnership,
net of income taxes 15,883 - 546 (15,883) 546
--------- ----------- ------------- ------------- ------------
Net income $ 24,209 $ 13,361 $ 2,504 $ (15,865) $ 24,209
========= =========== ============= ============= ============
21
OSHKOSH TRUCK CORPORATION
Condensed Consolidating Statement 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
========= =========== ============= ============= ============
22
OSHKOSH TRUCK CORPORATION
Condensed Consolidating Statement of Income
For the Nine Months Ended June 30, 2003
(Unaudited)
Subsidiary Non-Guarantor
Company Guarantors Subsidiaries Eliminations Consolidated
------- ---------- ------------ ------------ ------------
(In thousands)
Net sales $ 623,837 $ 698,953 $ 128,679 $ (33,573) $ 1,417,896
Cost of sales 546,633 596,420 103,313 (33,513) 1,212,853
--------- ----------- ------------- ------------- ------------
Gross income 77,204 102,533 25,366 (60) 205,043
Operating expenses:
Selling, general and
administrative 49,769 48,632 16,172 - 114,573
Amortization of purchased
intangibles 1 4,507 322 - 4,830
--------- ----------- ------------- ------------- ------------
Total operating expenses 49,770 53,139 16,494 - 119,403
--------- ----------- ------------- ------------- ------------
Operating income 27,434 49,394 8,872 (60) 85,640
Other income (expense):
Interest expense (16,698) (2,016) (40) 8,575 (10,179)
Interest income 328 9,047 - (8,575) 800
Miscellaneous, net 10,516 (10,196) (460) - (140)
--------- ----------- ------------- ------------- ------------
(5,854) (3,165) (500) - (9,519)
--------- ----------- ------------- ------------- ------------
Income before items noted below 21,580 46,229 8,372 (60) 76,121
Provision for income taxes 8,185 17,084 2,931 (22) 28,178
--------- ----------- ------------- ------------- ------------
13,395 29,145 5,441 (38) 47,943
Equity in earnings of subsidiaries
and unconsolidated partnership,
net of income taxes 36,220 - 1,672 (36,220) 1,672
--------- ----------- ------------- ------------- ------------
Net income $ 49,615 $ 29,145 $ 7,113 $ (36,258) $ 49,615
========= =========== ============= ============= ============
23
OSHKOSH TRUCK CORPORATION
Condensed Consolidating Statement 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
========= =========== ============= ============= ============
24
OSHKOSH TRUCK CORPORATION
Condensed Consolidating Balance Sheet
June 30, 2003
(Unaudited)
Subsidiary Non-Guarantor
Company Guarantors Subsidiaries Eliminations Consolidated
------- ---------- ------------ ------------ ------------
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 30,840 $ 1,598 $ 7,280 $ - $ 39,718
Receivables, net 65,627 65,193 43,382 (3,966) 170,236
Inventories 22,876 171,147 34,476 (180) 228,319
Prepaid expenses and other 30,021 11,365 1,433 - 42,819
--------- ----------- ------------- ------------- ------------
Total current assets 149,364 249,303 86,571 (4,146) 481,092
Investment in and advances to:
Subsidiaries 609,331 4,549 - (613,880) -
Unconsolidated partnership - - 23,434 - 23,434
Other long-term assets 14,730 6,417 - - 21,147
Net property, plant and equipment 32,647 90,774 20,284 - 143,705
Purchased intangible assets, net 21 91,597 9,335 - 100,953
Goodwill - 212,095 124,313 - 336,408
--------- ----------- ------------- ------------- ------------
Total assets $ 806,093 $ 654,735 $ 263,937 $ (618,026) $ 1,106,739
========= =========== ============= ============= ============
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 46,555 $ 40,921 $ 22,465 $ (3,902) $ 106,039
Floor plan notes payable - 24,861 - - 24,861
Customer advances 75,485 83,890 454 - 159,829
Payroll-related obligations 13,056 13,563 6,262 - 32,881
Income taxes 18,571 - 2,949 - 21,520
Accrued warranty 14,362 10,590 3,049 - 28,001
Other current liabilities 23,979 27,755 4,847 (64) 56,517
Revolving credit facility and
current maturities of long-term
debt - 202 23 - 225
--------- ----------- ------------- ------------- ------------
Total current liabilities 192,008 201,782 40,049 (3,966) 429,873
Long-term debt 100,000 1,384 130 - 101,514
Deferred income taxes (13,012) 29,009 25,091 - 41,088
Other long-term liabilities 44,151 4,347 2,820 - 51,318
Commitments and contingencies
Investments by and advances from
(to) parent - 418,213 195,847 (614,060) -
Shareholders' equity 482,946 - - - 482,946
--------- ----------- ------------- ------------- ------------
Total liabilities and shareholders'
equity $ 806,093 $ 654,735 $ 263,937 $ (618,026) $ 1,106,739
========= =========== ============= ============= ============
25
OSHKOSH TRUCK CORPORATION
Condensed Consolidating Balance Sheet
September 30, 2002
Subsidiary Non-Guarantor
Company Guarantors Subsidiaries Eliminations Consolidated
------- ---------- ------------ ------------ ------------
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 32,571 $ 2,060 $ 5,408 $ - $ 40,039
Receivables, net 50,520 62,311 33,655 (3,777) 142,709
Inventories 31,060 150,042 29,884 (120) 210,866
Prepaid expenses and other 25,505 6,773 1,144 - 33,422
--------- ----------- ------------- ------------- ------------
Total current assets 139,656 221,186 70,091 (3,897) 427,036
Investment in and advances to:
Subsidiaries 558,410 6,259 - (564,669) -
Unconsolidated partnership - - 22,274 - 22,274
Other long-term assets 7,296 4,329 - - 11,625
Net property, plant and equipment 33,852 87,666 18,843 - 140,361
Purchased intangible assets, net 22 95,994 8,300 - 104,316
Goodwill - 212,095 106,622 - 318,717
--------- ----------- ------------- ------------- ------------
Total assets $ 739,236 $ 627,529 $ 226,130 $ (568,566) $ 1,024,329
========= =========== ============= ============= ============
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 49,707 $ 48,432 $ 22,027 $ (3,744) $ 116,422
Floor plan notes payable - 23,801 - - 23,801
Customer advances 53,947 65,817 - - 119,764
Payroll-related obligations 13,518 14,848 6,108 - 34,474
Income taxes 8,064 - 533 - 8,597
Accrued warranty 11,755 9,148 3,112 - 24,015
Other current liabilities 18,148 25,457 4,182 (33) 47,754
Revolving credit facility and
current maturities of long-term
debt 18,000 226 19 - 18,245
--------- ----------- ------------- ------------- ------------
Total current liabilities 173,139 187,729 35,981 (3,777) 393,072
Long-term debt 130,000 1,586 127 - 131,713
Deferred income taxes (10,071) 27,445 21,929 - 39,303
Other long-term liabilities 36,408 11,654 2,419 - 50,481
Commitments and contingencies
Investments by and advances from
(to) parent - 399,115 165,674 (564,789) -
Shareholders' equity 409,760 - - - 409,760
--------- ----------- ------------- ------------- ------------
Total liabilities and shareholders'
equity $ 739,236 $ 627,529 $ 226,130 $ (568,566) $ 1,024,329
========= =========== ============= ============= ============
26
OSHKOSH TRUCK CORPORATION
Condensed Consolidating Statement of Cash Flows
For the Nine Months Ended June 30, 2003
(Unaudited)
Subsidiary Non-Guarantor
Company Guarantors Subsidiaries Eliminations Consolidated
------- ---------- ------------ ------------ ------------
(In thousands)
Operating activities:
Net income $ 49,615 $ 29,145 $ 7,113 $ (36,258) $ 49,615
Non-cash adjustments (2,152) 8,918 3,277 - 10,043
Changes in operating assets and
liabilities 34,094 (17,619) (5,995) 60 10,540
--------- ----------- ------------- ------------- ------------
Net cash provided from (used for)
operating activities 81,557 20,444 4,395 (36,198) 70,198
Investing activities:
Investments in and advances to
subsidiaries (24,025) (8,337) (3,836) 36,198 -
Additions to property, plant and
equipment (3,311) (12,331) (1,111) - (16,753)
Other (5,622) (12) 1,494 - (4,140)
--------- ----------- ------------- ------------- ------------
Net cash provided from (used for)
investing activities (32,958) (20,680) (3,453) 36,198 (20,893)
Financing activities:
Repayment of long-term debt (48,000) (226) (15) - (48,241)
Dividends paid (4,395) - - - (4,395)
Other 2,065 - - - 2,065
--------- ----------- ------------- ------------- ------------
Net cash used for financing
activities (50,330) (226) (15) - (50,571)
Effect of exchange rate changes on
cash - - 945 - 945
--------- ----------- ------------- ------------- ------------
Increase (decrease) in cash and
cash equivalents (1,731) (462) 1,872 - (321)
Cash and cash equivalents at
beginning of period 32,571 2,060 5,408 - 40,039
--------- ----------- ------------- ------------- ------------
Cash and cash equivalents at
end of period $ 30,840 $ 1,598 $ 7,280 $ - $ 39,718
========= =========== ============= ============= ============
27
OSHKOSH TRUCK CORPORATION
Condensed Consolidating Statement 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 (used for)
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
========= =========== ============= ============= ============
28
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
statements that Oshkosh Truck Corporation (the "Company" or "Oshkosh") believes
to be "forward-looking statements" 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,
targets, projected sales, costs, earnings, capital spending and debt levels, and
plans and objectives of management for future operations, including those under
the captions "Fiscal 2003 Outlook" and "Fiscal 2004 Outlook" are forward-looking
statements. When used in this Form 10-Q, words such as "may," "will," "expect,"
"intend," "estimates," "anticipate," "believe," "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 commercial and fire and emergency
markets, the outcome of defense truck procurement competitions, risks related to
reductions in government expenditures, the uncertainty of government contracts,
the challenges of identifying acquisition candidates and integrating acquired
businesses, disruptions in the supply of parts or components from sole source
suppliers and subcontractors, 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 24, 2003.
All forward-looking statements, including those under the captions "Fiscal 2003
Outlook" and "Fiscal 2004 Outlook," 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 the Company's
earnings per share 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 disseminate that fact. The Company's policy also provides
that if the Company makes a determination that it expects earnings per share for
future periods to be at or above the projections contained in this Quarterly
Report on Form 10-Q, then the Company does not intend to publicly disseminate
that fact. Except as set forth above, the Company
29
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.
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 and waste transfer stations, portable concrete batch plants
and truck components sold to ready-mix companies and commercial and municipal
waste haulers in the U.S., Europe and other international markets.
Fire and emergency - commercial and custom 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.
Stock Dividend
Following the close of business on July 17, 2003, the Company's Board of
Directors declared a two-for-one stock split of both classes of Company common
stock to be effected in the form of a 100 percent stock dividend payable August
13, 2003 to shareholders of record on August 6, 2003. Unless specifically
described otherwise, per share amounts presented in Management's Discussion and
Analysis of Consolidated Financial Condition and Results of Operations have not
been restated to reflect this stock split.
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
2003 2002 2003 2002
---- ---- ---- ----
Net sales to unaffiliated customers:
Commercial $213,585 $204,535 $ 562,734 $ 503,942
Fire and emergency 148,345 123,956 402,887 339,504
Defense 178,779 162,774 457,939 426,475
Intersegment eliminations (2,526) (1,733) (5,664) (3,291)
-------- -------- ---------- ----------
Consolidated $538,183 $489,532 $1,417,896 $1,266,630
======== ======== ========== ==========
30
Third Quarter Fiscal 2003 Compared to 2002
Consolidated net sales increased 9.9% to $538.2 million for the third quarter of
fiscal 2003 compared to the third quarter of fiscal 2002. Net sales increases
were recorded in all segments.
Commercial segment net sales increased 4.4% to $213.6 million for the third
quarter of fiscal 2003 compared to the third quarter of fiscal 2002. Concrete
placement product sales were up 5.0% in 2003 compared to 2002, largely as a
result of increased front-discharge concrete mixer unit sales volume.
Rear-discharge concrete mixer sales unit volume declined during the quarter;
however, sales value remained flat due to higher "package" sales of
rear-discharge concrete mixers and purchased chassis. Package sales include both
the truck body and a purchased chassis. Refuse product sales were up 3.6%
compared to 2002. U.S. refuse truck body sales declined 9.0% for the quarter,
primarily due to lower unit sales, especially to large, U.S. commercial
waste-haulers. The decline in sales value was partially offset by higher
"package" sales versus "body-only" sales. Although unit sales declined, European
refuse product sales were up 20.7% compared to 2002, generally as a result of
increased "package" sales, which the Company is now emphasizing, and because of
favorable currency translation adjustments as a result of the increased strength
of the euro compared to the U.S. dollar.
Fire and emergency segment net sales increased 19.7% to $148.3 million for the
third quarter of fiscal 2003 compared to the third quarter of fiscal 2002. All
business units in this segment realized increased sales volume for the quarter
compared to the prior year, due to strong order rates in fiscal 2002.
Defense segment net sales increased 9.8% to $178.8 million for the third quarter
of fiscal 2003 compared to the third quarter of fiscal 2002 due primarily to
heavy truck sales under a contract with the U.K. Ministry of Defence and to
increased parts sales.
First Nine Months of Fiscal 2003 Compared to 2002
Consolidated net sales increased 11.9% to $1,417.9 million for the nine months
ended June 30, 2003 compared to the nine months ended June 30, 2002.
Commercial segment net sales increased 11.7% to $562.7 million for the nine
months ended June 30, 2003 compared to the same period in the prior year.
Concrete placement sales were up 18.0%, primarily due to increased
front-discharge mixer sales and a higher proportion of rear-discharge mixer
"package" sales compared to the prior year. Domestic refuse sales were 10.6%
lower due to lower unit sales, especially to large, U.S. commercial waste
haulers, offset in part by a higher proportion of "package" sales compared to
the prior year. European refuse sales
31
increased 27.6% due to increased "package" sales and favorable foreign currency
translation gains that offset unit sales declines.
Fire and emergency segment net sales increased 18.7% to $402.9 million for the
nine months ended June 30, 2003 compared to the first nine months of fiscal
2002. Sales increases were largely due to increased unit volumes and an improved
product sales mix of domestic fire apparatus at the Company's Pierce
Manufacturing Inc. ("Pierce") subsidiary, as well as increased volume and a
favorable product sales mix in airport products.
Defense segment net sales increased 7.4% to $457.9 million for the nine months
ended June 30, 2003 compared to the same period in the prior year due to
increased sales under the Company's Family of Heavy Tactical Vehicle ("FHTV")
contract and higher parts sales.
Analysis of Consolidated Operating Income
The following table presents operating income by business segment (in
thousands):
Third Quarter First Nine Months
Fiscal Fiscal
2003 2002 2003 2002
---- ---- ---- ----
Operating income (expense):
Commercial $15,011 $17,747 $34,047 $37,204
Fire and emergency 16,113 14,461 40,453 33,824
Defense 16,913 14,965 33,239 28,094
Corporate and other (7,146) (8,811) (22,099) (19,399)
------- ------- ------- -------
Consolidated operating income $40,891 $38,362 $85,640 $79,723
======= ======= ======= =======
Third Quarter Fiscal 2003 Compared to 2002
Consolidated operating income increased 6.6% to $40.9 million, or 7.6% of sales,
in the third quarter of fiscal 2003 compared to $38.4 million, or 7.8% of sales,
in the third quarter of fiscal 2002. Results in the third quarter of fiscal 2002
benefited from a cumulative catch-up adjustment to margins on the Company's
Medium Tactical Vehicle Replacement ("MTVR") contract as described below.
Commercial segment operating income decreased 15.4% to $15.0 million, or 7.0% of
sales, in the quarter compared to $17.7 million, or 8.7% of sales, in the prior
year quarter. Operating income margins fell in the third quarter of fiscal 2003
compared to the prior year quarter due to lower margins on "package" sales of
concrete mixers and refuse bodies. The Company earns a lower overall operating
income margin on "package" sales which include purchased commercial chassis.
Fire and emergency segment operating income increased 11.4% to $16.1 million, or
10.9% of sales, in the quarter compared to $14.5 million, or 11.7% of sales, in
the prior year quarter. An increase in lower-margin
32
international fire apparatus sales in the current year quarter resulted in lower
operating income margins compared with the prior year quarter.
Defense segment operating income increased 13.0% to $16.9 million, or 9.5% of
sales, in the quarter compared to $15.0 million, or 9.2% of sales, in the prior
year quarter. Operating income increased as a result of higher parts sales,
higher international truck sales and lower bid and proposal spending. The
Company had recorded a cumulative catch-up adjustment to increase the
life-to-date margins recognized on its MTVR contract to 4.3% in the third
quarter of fiscal 2002, contributing approximately $4.0 million of operating
income in the third quarter of fiscal 2002 that related to sales from prior
quarters.
Corporate operating expenses and inter-segment profit elimination decreased $1.7
million to $7.1 million in the third quarter of fiscal 2003 compared to the
third quarter of fiscal 2002. Prior year results included significant expenses
related to acquisition investigations and higher variable compensation. Current
quarter results include costs and expenses to implement requirements of the
Sarbanes-Oxley Act and expenses related to the Company's previously reported
plan to increase investments in people and services.
Consolidated operating expenses remained flat at $40.7 million, or 7.6% of
sales, in the third quarter of fiscal 2003 compared to $40.9 million, or 8.4% of
sales, in the third quarter of fiscal 2002. Decreased corporate operating
expenses, lower bid and proposal costs and increased package sales versus
"body-only" sales contributed to the lower spending as a percent of sales in the
third quarter of fiscal 2003.
First Nine Months of Fiscal 2003 Compared to 2002
Consolidated operating income increased 7.4% to $85.6 million, or 6.0% of sales,
in the first nine months of fiscal 2003, compared to $79.7 million, or 6.3% of
sales, in the first nine months of fiscal 2002.
Commercial segment operating income decreased 8.5% to $34.0 million, or 6.1% of
sales, in the first nine months compared to $37.2 million, or 7.4% of sales, in
the prior year period. Operating income margins were generally lower due to a
higher percentage of "package" sales versus body-only sales in the current year
compared to the previous year. Results for the first nine months of fiscal 2003
benefited from a $0.5 million gain on the sale of certain operating equipment.
Fire and emergency segment operating income increased 19.6% to $40.5 million, or
10.0% of sales, in the first nine months of fiscal 2003 compared to $33.8
million, or 10.0% of sales, in the prior year period. Increased sales volume and
a strong product mix in the current year were partially offset by an increase in
lower-margin international sales in the current year resulting in flat operating
income margins compared to the prior year.
33
Defense segment operating income increased 18.3% to $33.2 million, or 7.3% of
sales, compared to $28.1 million, or 6.6% of sales, in the prior year period.
The increase in operating income margins for the first nine months of fiscal
2003 resulted from higher sales of FHTV trucks, international defense trucks and
defense parts, and lower bid and proposal spending compared to the same period
in fiscal 2002.
Corporate operating expenses and inter-segment profit elimination increased $2.7
million to $22.1 million for the nine months ended June 30, 2003 compared to the
same period in the prior year. Increases in variable compensation, costs to
implement the requirements of the Sarbanes-Oxley Act and investments in people
and services contributed to the increase.
Consolidated operating expenses increased 9.5% during the period to $119.4
million, or 8.4% of sales, compared to $109.1 million, or 8.6% of sales, in the
prior year period. Higher "package" sales in the commercial segment contributed
to the lower spending as a percent of sales in the nine months ended June 30,
2003.
Analysis of Non-Operating Income Statement Items
Third Quarter Fiscal 2003 Compared to 2002
Net interest expense decreased $1.9 million to $3.0 million in the third quarter
of fiscal 2003 compared to the third quarter of fiscal 2002, largely as a result
of debt reduction in the fourth quarter of fiscal 2002 resulting from
performance-based payments on the MTVR and FHTV contracts and cash flow from
operations and, to a lesser extent, due to lower interest rates.
The effective income tax rate for both the third quarter of fiscal 2003 and the
third quarter of fiscal 2002 was 36.8%.
Equity in earnings of an unconsolidated partnership of $0.5 million in the third
quarter of fiscal 2003 and $0.5 million in the third quarter of fiscal 2002
represents the Company's equity interest in a lease financing partnership.
First Nine Months of Fiscal 2003 Compared to 2002
Net interest expense decreased $7.0 million to $9.4 million in the first nine
months of fiscal 2003 compared to fiscal 2002, largely as a result of debt
reduction in the fourth quarter of fiscal 2002 related to performance-based
payments on the MTVR and FHTV contracts and cash flow from operations and, to a
lesser extent, due to lower interest rates.
The effective income tax rate for the first nine months of fiscal 2003 was 37.0%
compared to 35.4% for the comparable period in the prior year. In December 2001,
the Company concluded an audit settlement of a research and development tax
credit claim resulting in a $0.9 million reduction in
34
income tax expense in the first nine months of fiscal 2002, which reduced the
Company's effective income tax rate by 1.4 percentage points.
Equity in earnings of an unconsolidated partnership of $1.7 million in the first
nine months of fiscal 2003 and $1.6 million in the first nine months of fiscal
2002 represent the Company's equity interest in a lease financing partnership.
Financial Condition
First Nine Months of Fiscal 2003
During the first nine months of fiscal 2003, cash decreased by $0.3 million to
$39.7 million at June 30, 2003. The reduction in cash during the period was
largely due to repayments of long-term debt of $48.2 million, capital
expenditures of $16.8 million, increases in other long-term assets of $7.9
million, and dividends of $4.4 million, substantially offset by cash flow from
operating activities of $70.2 million and proceeds from sale of assets of $3.8
million. The increase in other long-term assets arose principally from a $12.0
million contribution to the Company's defined benefit pension plans during the
second quarter of fiscal 2003.
In the first nine months of fiscal 2003, net cash provided from operating
activities of $70.2 million was significantly lower than the $175.2 million of
net cash provided from operating activities in the first nine months of fiscal
2002. This variance between periods was 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 (in
thousands).
Nine Months Ended
June 30,
2003 2002
---- ----
Receivables, net $ (21,674) $ 59,886
Inventories (12,517) 25,755
Accounts payable (13,830) 2,205
Floor plan notes payable 1,060 2,958
Customer advances 40,036 36,633
Income taxes 14,709 (4,934)
Other 2,756 1,768
--------- --------
Source of cash $ 10,540 $124,271
========= ========
During the first nine months of fiscal 2003, the Company was building
inventories in anticipation of an expected increase in sales in the fourth
quarter of fiscal 2003. During the first nine months of fiscal 2002, the Company
was liquidating significant receivables from a large commercial waste-hauler
related to a higher concentration of sales in the previous quarter. In addition,
during the first nine months of fiscal 2002 the
35
Company was liquidating significant receivables and inventories associated with
a large foreign military sale.
The Company's debt-to-total capital ratio at June 30, 2003 was 17.4% compared to
26.8% at September 30, 2002.
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 impacted by cash flows associated
with changes in operating assets and liabilities. In fiscal 2002, the Company
had initiated planned actions to reduce cash invested in working capital,
principally receivables and inventories, in light of the recession in the U.S.
economy. Cash was provided from increases in customer advances as a higher
percentage of customers took advantage of prepayment programs. Income taxes
payable decreased in the first nine months of fiscal 2002 due to increases in
income tax payments made during the period. Income tax payments were $35.9
million in the first nine months of fiscal 2002 and were impacted by a delay in
estimated tax payments from the fourth quarter of fiscal 2001 to the first
quarter of 2002 resulting from a one-time benefit from U.S. tax legislation.
Liquidity and Capital Resources
The Company had $148.4 million of unused availability under the terms of its
Revolving Credit Facility as of June 30, 2003. The Company's primary cash
requirements include working capital, interest 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 Revolving 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,
the start-up or conclusion of large defense contracts and the timing of receipt
of individually large performance-based payments from the U.S. Department of
Defense ("DoD").
In June 2003, the Company prepaid the remaining balance of $36.0 million then
outstanding under its Term Loan A that was scheduled to mature in January 2006.
36
The Company's Revolving 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 Revolving 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 0.50%) or the "IBOR Rate"
(which is the bank's inter-bank offered rate for U.S. dollars in off-shore
markets) plus a margin of 1.00% for IBOR Rate loans under the Company's
Revolving Credit Facility as of June 30, 2003. The margin is subject to
adjustment, up or down, based on whether certain financial criteria are met. The
Company presently has no plans to enter into interest rate swap arrangements to
limit exposure to future increases in interest rates.
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 2003. See "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.K.
Contractual Obligations and Commercial Commitments
The Company's contractual obligations and commercial commitments disclosures in
its Annual Report on Form 10-K for the year ended September 30, 2002 have not
materially changed since that report was filed, except for the Wheeled Tanker
cash flow hedging program discussed below, the addition of operating leases in
connection with a manufacturing facility and in connection with certain
equipment with combined total minimum rentals of $13.1 million; with payments
due of $0.3 million for the remainder of fiscal 2003, $1.2 million annually in
fiscal 2004 through fiscal 2007 and $8.0 million thereafter.
The Company's export sales have historically been denominated in the Company's
functional currency, the U.S. dollar. In March 2003, the Company entered into a
multi-year contract to provide Wheeled Tanker systems to the U.K. Ministry of
Defence. This contract, which is included in the Company's backlog at June 30,
2003 and which calls for deliveries
37
in fiscal 2005 through fiscal 2007, is denominated in British Pounds Sterling.
Additionally, in connection with this Wheeled Tanker contract, the Company has
entered into requirements subcontracts with various third parties. Certain of
these subcontracts call for payments in euros. The Company has hedged a
significant portion of the forecasted cash flows related to this contract by
entering into forward foreign exchange contracts. Any portion of these
contractual cash flows that remain unhedged will subject the Company to foreign
currency transaction risk and related financial volatility. See Note 8 to the
Condensed Consolidated Financial Statements for details regarding the Company's
use of forward foreign exchange contracts in connection with the Wheeled Tanker
contract and other forecasted purchases and sales denominated in foreign
currency.
Application of Critical Accounting Policies
The Company's application of critical accounting policies disclosures in its
Annual Report on Form 10-K for the year ended September 30, 2002 have not
materially changed since that report was filed.
Critical Accounting Estimates
The Company's disclosures of critical accounting estimates in its Annual Report
on Form 10-K for the year ended September 30, 2002 have not materially changed
since that report was filed.
New Accounting Standards
Refer to Note 2 to the Condensed Consolidated Financial Statements for a
discussion of the impact on the Company's financial statements of new accounting
standards.
Customers and Backlog
Sales to the DoD comprised approximately 34% of the Company's sales in the first
nine months of fiscal 2003. 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, 2003 increased 13.6% to $1,209.8 million
compared to $1,065.1 million at June 30, 2002. Commercial segment backlog
decreased 18.3% to $131.1 million at June 30, 2003 compared to June 30, 2002.
Backlog for front-discharge concrete mixers was down 59.5% while backlog for
rear-discharge concrete mixers was down 39.8%. Backlog for refuse packers was up
49.2% domestically and up 9.0% in Europe. Concrete mixer backlogs decreased due
principally to high backlogs at June 30, 2002 due to a pre-buy by customers in
advance of engine emissions standards changes effective October 1, 2002, and
also due to lower orders in fiscal 2003. Although higher, the domestic refuse
backlog remained relatively low due to weak orders from large, U.S. commercial
waste-haulers. European refuse backlog in U.S. dollars increased largely as a
result of a
38
stronger euro compared to the U.S. dollar and a higher proportion of package
sales, as unit backlogs declined due to weak order rates. Fire and emergency
segment backlog decreased 8.4% to $266.3 million at June 30, 2003 compared to
June 30, 2002, continuing a trend of lower industry orders, due to state and
municipal budget constraints. The defense segment backlog increased 32.3% to
$812.4 million at June 30, 2003 compared to June 30, 2002, principally due to
the award of a U. K. Wheeled Tanker contract with shipments commencing in fiscal
2005 and due to funding received under the Company's FHTV and MTVR contracts.
Approximately 64.9% of the June 30, 2003 backlog is not expected to be filled in
fiscal 2003.
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 2003 Outlook
The Company estimates that consolidated net sales will grow approximately 9.0%
in fiscal 2003 to $1.9 billion. The Company expects consolidated operating
income to increase 8.0% to approximately $120.0 million in fiscal 2003, or
approximately 6.3% of sales. The Company expects earnings per share from
continuing operations assuming dilution to increase 15.9% to $4.00 per share in
fiscal 2003. No acquisitions are assumed in any fiscal 2003 estimates.
The Company estimates that commercial segment sales will increase 8.1% in fiscal
2003 to $733.0 million. The Company expects a 6.7% increase in U.S. concrete
placement sales in fiscal 2003, attributable to higher "package" sales. The
Company expects its U.S. refuse sales to be down 4.6% in fiscal 2003, reflecting
an estimated 10.0% decline in industry volume offset in part by a higher mix of
"package" sales and higher prices. The Company estimates that the Geesink Norba
Group sales will increase approximately 29.2% in fiscal 2003 based on an
increase in "package" sales and foreign currency translation gains resulting
from a stronger euro, offset in part by a weak European economy.
The Company estimates that commercial segment operating income will decrease
approximately 4.6% in fiscal 2003 to $45.0 million. The Company expects concrete
placement operating income to decline 7.1% reflecting weak customer orders and
planned development spending and start-up costs associated with the
Revolution(TM) composite concrete mixer drum. The Company plans to sell less
than one hundred Revolution drums in fiscal 2003, largely utilizing the
production facilities of the Company's partner in Australia. Freight costs from
Australia will limit any profit opportunity from drums produced in Australia.
The Company plans to have a U.S. production facility for the Revolution drum
operational by the end of fiscal 2003, and to reach high rate of production for
sales in fiscal 2004. In fiscal 2005 and fiscal 2006, the Company plans to
acquire the
39
rights to this technology for Europe, Asia, Australia and perhaps Africa/Middle
East. The Company expects domestic refuse operating income to decrease about
19.5% in fiscal 2003 due to lower unit volumes resulting from weak market
conditions. Internationally, the Company expects that the strong euro and
benefits from the cost reduction efforts in fiscal 2002 at the Geesink Norba
Group will more than offset weaker end markets throughout Europe, resulting in a
30.0% improvement in operating income in fiscal 2003.
The Company expects that fire and emergency segment sales will be up 12.4% to
$535.0 million in fiscal 2003. During the first quarter of fiscal 2003, the
Company believes that municipal orders for fire apparatus began to slow, and
expects this weakening to impact fiscal 2004 results. The Company estimates fire
and emergency operating income to increase 8.2% to approximately $53.0 million
in fiscal 2003, largely due to strong orders received in fiscal 2002.
The Company estimates defense segment sales to increase 7.6% to $640.0 million
in fiscal 2003. The Company estimates defense segment operating income will
increase 27.7% to approximately $52.0 million in fiscal 2003, up $4.5 million
from previous estimates. This estimate assumes that MTVR contract margins remain
at 4.3% in fiscal 2003. The Company continues to target margins of 6.0% to 6.5%
over the contract life. 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 a 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, if at all, to
fund the wrecker requirements under the contract. The Company will account for
funding of the wrecker variant by recognizing such wrecker sales as a separate
contract from the base MTVR contract. The practical effect of this change is
that the Company will not recognize a cumulative catch-up adjustment to earnings
when such wreckers are funded, but rather it will record higher earnings as each
wrecker is shipped in fiscal 2004 and 2005. The Company expects to ship more
than one-half of the anticipated wreckers in fiscal 2005. How the wreckers
perform in testing, the timing and number of wreckers actually funded by the
U.S. Marine Corps under the separate contract and the cost performance on those
trucks will be important factors in the Company's ability to achieve its
targeted MTVR margins of 6.0% to 6.5% over the lives of the base contract and
the wrecker variant contract.
The Company expects corporate expenses to increase from $25.8 million in fiscal
2002 to $30.0 million in fiscal 2003. The increase reflects investments planned
to build the Company's management team, higher variable incentive compensation
costs and higher costs to implement the requirements of the Sarbanes-Oxley Act.
40
The Company expects net interest expense to approximate $13.0 million in fiscal
2003. The Company projects debt to remain at $101.7 million at September 30,
2003. This debt level reflects increased working capital requirements associated
with the start-up of the U.K. Tank Transporter and U. K. Wheeled Tanker
contracts. The Company estimates capital spending at no more than $30.0 million
in fiscal 2003, including amounts for equipment and improvements in conjunction
with a leased U.S. facility to manufacture the Revolution(TM) composite concrete
mixer drum.
Fiscal 2004 Outlook
The Company estimates that fiscal 2004 consolidated net sales will approximate
$1.87 billion, down 1.6% from estimated fiscal 2003 net sales. If the U.S.
Marine Corps fund the wrecker under the MTVR contract, then the Company's
consolidated sales estimate would increase by $30.0 million to be about flat
compared with fiscal 2003 estimated sales. No acquisitions are assumed in any of
the Company's fiscal 2004 estimates. Also, all comparisons are to fiscal 2003
estimates.
The Company estimates that commercial sales will increase about 9.1% to
approximately $800.0 million in fiscal 2004. The Company is projecting an
increase in concrete placement sales of 12.3% in fiscal 2004, reflecting a
modest economic recovery and the launch of the Revolution(TM) composite mixer
drum. The Company expects to sell 1,000 Revolution(TM) composite concrete mixer
drums in fiscal 2004. The Company is projecting domestic refuse sales to
increase 10.5% in fiscal 2004, largely due to projected volume increases with
the largest U.S. waste haulers, with municipal refuse spending remaining soft.
The Company expects that Geesink Norba Group refuse product sales will grow
approximately 0.8% in fiscal 2004 with no recovery in the European market and an
expected weakening of the euro to the U.S. dollar.
The Company expects that fire and emergency sales will be down about 2.8% to
approximately $520.0 million. The Company expects Pierce sales to be down 5.0%
based on the current backlog of open orders, which extends into February 2004.
The Company believes that industry fire apparatus market volumes may be down
10.0% in fiscal 2004 due to municipal and state budget constraints. The Company
expects strong snow removal and aircraft rescue and firefighting vehicle sales
to offset some of the weakness in fire apparatus sales.
The Company is projecting defense sales to decrease 12.5% to $560.0 million. The
Company believes this estimate could increase by $30.0 million if the U.S.
Marine Corps funds the MTVR wrecker requirement. Before consideration of any
potential MTVR wrecker call-up, the Company expects MTVR sales to decline about
$126.0 million in fiscal 2004, consistent with contract requirements. The
Company estimates that some of that decrease will be offset by higher estimated
international sales and higher sales under the Company's FHTV contract.
41
By quarter, the Company estimates that fiscal 2004 sales will approximate $423.0
million in quarter one, $473.0 million in quarter two, $517.0 million in quarter
three and $457.0 million in quarter four.
The Company is projecting consolidated operating income to be up about 10.0% to
approximately $132.0 million in fiscal 2004. In the commercial segment, the
Company projects operating income to increase 24.4% to $56.0 million. In this
segment, the Company is projecting concrete placement operating income to be up
21.0% in fiscal 2004 based on a modest economic recovery and expected sales of
its new Revolution(TM) composite mixer drum in fiscal 2004. The Company expects
domestic refuse results to be up 41.0% in fiscal 2004, off a low base in fiscal
2003, due to higher estimated volume with the largest U.S. waste-haulers in
spite of lower estimated industry volumes and cost reduction plans in place. The
Company expects European refuse product operating results to be up 10.5% as a
result of the restructuring of that business in fiscal 2002 and 2003.
The Company is projecting fire and emergency segment operating income to
decrease 4.7% to $50.5 million in fiscal 2004, consistent with the estimated
sales decrease in this segment.
The Company is projecting defense operating income to increase 3.8% to $54.0
million in fiscal 2004. This estimate assumes lower bid and proposal spending,
substantially lower sales of relatively lower-margin MTVR trucks, but increased
sales of relatively higher-margin FHTV and international defense trucks. This
estimate also assumes the MTVR contract margins remain at 4.3%. The Company
continues to target 6.0% to 6.5% margins over the contract life. A one
percentage point increase in MTVR margins in fiscal 2004 would amount to $9.0
million in operating income, or $0.32 per share. Quarterly, the Company monitors
manufacturing cost performance and the durability of fielded trucks, among other
factors, and adjusts margins on the contract based on revised estimates to
complete this contract. Another important factor impacting defense segment
earnings in fiscal 2004 will be the status of a U.S. Marine Corps contract
modification to the base MTVR contract to fund wreckers on an MTVR chassis. If
funded, the Company believes the modification would add approximately $30.0
million in sales at higher margins than earned under the base MTVR contract, as
variant development costs are amortized over the base MTVR contract.
The Company expects corporate expenses to approximate $28.5 million in fiscal
2004, down from $30.0 million estimated for fiscal 2003. This decrease reflects
lower estimated costs to implement requirements of the Sarbanes-Oxley Act. The
Company is projecting net interest costs to increase $1.0 million in fiscal 2004
to $14.0 million. The Company expects debt to be lower on average in fiscal
2004, but has assumed that interest rates will rise in fiscal 2004.
The Company estimates that in fiscal 2004 its effective tax rate will
approximate 36.8% and that equity in earnings of its leasing unconsolidated
partnership will approximate $2.7 million after taxes.
42
These estimates result in the Company's estimate of fiscal 2004 net income of
$77.3 million.
By quarter, the Company expects that net income will approximate $13.4 million
in quarter one, $18.1 million in quarter two, $25.1 million in quarter three and
$20.7 million in quarter four. Based on an estimated 17.75 million average
diluted shares outstanding for the year, these net income estimates result in
earnings per share estimates of $0.76 in quarter one, $1.02 in quarter two,
$1.41 in quarter three, and $1.16 in quarter four. These quarterly earnings
estimates reflect substantially higher earnings per share in the first half of
fiscal 2004 and relatively flat earnings per share in the second half of fiscal
2004, in comparison to comparable periods in fiscal 2003. In the first half of
fiscal 2004, the Company expects a strong mix of FHTV contract and international
defense truck sales to contribute to higher earnings. In the second half of
fiscal 2004, quarterly earnings comparisons are tougher, and MTVR sales will be
lower. If the U.S. Marine Corps funds the wrecker modification, or if there is a
stronger than expected economic recovery, that could contribute to earnings
growth in the second half of fiscal 2004.
Beginning with the quarter ended September 30, 2003, the Company will be
reporting earnings per share after giving effect to the two-for-one stock split
effective August 6, 2003. The Company's actual and projected earnings per share,
after giving effect to the stock split, for fiscal 2003 and fiscal 2004 are as
follows:
Fiscal Fiscal
2003 2004
---- ----
First quarter $0.32 $0.38 P
Second quarter 0.40 0.51 P
Third quarter 0.69 0.70 P
Fourth quarter 0.58 P 0.58 P
Fiscal year 2.00 P 2.18 P
P = Projected
Assuming no acquisitions, the Company estimates that debt will remain flat at
September 30, 2004 compared to estimated September 30, 2003 levels, but cash
will fluctuate with seasonal working capital demands. The Company intends to
hold excess cash in furtherance of its acquisition strategy. The Company
anticipates capital spending to approximate $30.0 million in fiscal 2004, much
of which the Company expects will support the continued worldwide rollout of the
Revolution(TM) composite mixer drum.
Looking forward to fiscal 2005, the Company expects declining defense sales as
the MTVR contract concludes. By then, the Company hopes that other defense truck
sales opportunities, an economic recovery, the rollout of the Revolution(TM)
composite mixer drum and, potentially, acquisitions would offset MTVR sales
declines and foster earnings growth.
43
The expectations set forth in "Fiscal 2003 Outlook" and "Fiscal 2004 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, a
modest economic recovery in the U.S. and no economic recovery in Europe; the
sale of 1,000 Revolution(TM) composite mixer drums in the U.S. in fiscal 2004 at
favorable pricing and costs; the Company's estimates for concrete placement
activity, housing starts and mortgage rates; 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
anticipated level of margins associated with the MTVR contract and a related
MTVR variant contract; the anticipated level of sales associated with defense
parts, international defense truck contracts, and the FHTV contract; the
Company's planned spending on product development and bid and proposal
activities with respect to defense truck procurement competitions and the
outcome of such competitions; the expected level of commercial "package" body
and purchased chassis sales compared to "body only" sales; the Company's
estimates for capital expenditures of municipalities for fire and emergency and
refuse products, of airports for rescue and snow removal products and of large
commercial waste haulers; the Company's ability to sustain market share gains by
its fire and emergency and refuse products businesses; the Company's estimates
for costs relating to insurance, steel, litigation and the Sarbanes-Oxley Act
and related items; anticipated levels of capital expenditures, especially with
respect to the rollout of the Revolution composite mixer drum; the Company's
estimates for debt levels, interest rates 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 results that the forward-looking
statements contemplate.
Item 3. Quantitative and Qualitative Disclosures about 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, 2002 and have not materially changed since that report was
filed, except as disclosed in Note 8 to the Condensed Consolidated Financial
Statements and "Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations, Contractual Obligations and Commercial
Commitments" herein.
44
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures. In accordance with Rule
13a-15(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), the
Company's management evaluated, with the participation of the Company's Chairman
of the Board, President and Chief Executive Officer and Executive Vice President
and Chief Financial Officer, the effectiveness of the design and operation of
the Company's disclosure controls and procedures (as defined in Rule 13a-15(e)
under the Exchange Act) as of the end of the quarter ended June 30, 2003. Based
upon their evaluation of these disclosure controls and procedures, the Chairman
of the Board, President and Chief Executive Officer and the Executive Vice
President and Chief Financial Officer concluded that the disclosure controls and
procedures were effective as of the end of the quarter ended June 30, 2003 to
ensure that material information relating to the Company, including its
consolidated subsidiaries, was made known to them by others within those
entities, particularly during the period in which this Quarterly Report on Form
10-Q was being prepared.
Changes in internal control. There was no change in the Company's internal
control over financial reporting that occurred during the quarter ended June 30,
2003 that has materially affected, or is reasonably likely to materially affect,
the Company's internal control over financial reporting.
45
OSHKOSH TRUCK CORPORATION
PART II. OTHER INFORMATION
FORM 10-Q
June 30, 2003
Item 1. Legal Proceedings
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
- -------------
3.2 By-Laws of Oshkosh Truck Corporation, as amended May 16, 2003.
4.1 Third Supplemental Indenture, dated as of September 30, 2002, among Oshkosh
Logistics Corporation, Total Mixer Technologies, L.L.C., Summit Performance
Systems, L.L.C., Oshkosh Truck Corporation, the Subsidiary Guarantors and
U.S. Bank, National Association.
31.1 Certification by the Chairman, President and Chief Executive Officer,
pursuant to Section 302 of the Sarbanes-Oxley Act, dated July 31, 2003.
31.2 Certification by the Executive Vice President and Chief Financial Officer,
pursuant to Section 302 of the Sarbanes-Oxley Act, dated July 31, 2003.
32.1 Written Statement of the Chairman, President and Chief Executive Officer,
pursuant to 18 U.S.C.ss.1350, dated July 31, 2003.
32.2 Written Statement of the Executive Vice President and Chief Financial
Officer, pursuant to 18 U.S.C. ss.1350, dated July 31, 2003.
(b) Reports on Form 8-K
- ------------------------
Current Report on Form 8-K dated April 24, 2003 reporting the announcement
of the Company's earnings for the second quarter ended March 31, 2003, a
conference call in connection with such announcement and risk factors for
the Company.
46
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
July 31, 2003 /S/ R. G. Bohn
-------------------------------------------
R. G. Bohn
Chairman, President and
Chief Executive Officer
(Principal Executive Officer)
July 31, 2003 /S/ C. L. Szews
-------------------------------------------
C. L. Szews
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
July 31, 2003 /S/ T. J. Polnaszek
-------------------------------------------
T. J. Polnaszek
Vice President and Controller
(Principal Accounting Officer)
47
EXHIBIT INDEX
- -------------
Exhibit No. Description
- ----------- -----------
3.2 By-Laws of Oshkosh Truck Corporation, as amended May 16, 2003.
4.1 Third Supplemental Indenture, dated as of September 30, 2002, among Oshkosh
Logistics Corporation, Total Mixer Technologies, L.L.C., Summit Performance
Systems, L.L.C., Oshkosh Truck Corporation, the Subsidiary Guarantors and
U.S. Bank, National Association.
31.1 Certification by the Chairman, President and Chief Executive Officer,
pursuant to Section 302 of the Sarbanes-Oxley Act, dated July 31, 2003.
31.2 Certification by the Executive Vice President and Chief Financial Officer,
pursuant to Section 302 of the Sarbanes-Oxley Act, dated July 31, 2003.
32.1 Written Statement of the Chairman, President and Chief Executive Officer,
pursuant to 18 U.S.C.ss.1350, dated July 31, 2003.
32.2 Written Statement of the Executive Vice President and Chief Financial
Officer, pursuant to 18 U.S.C. ss.1350, dated July 31, 2003.
48