Attached files

file filename
EXCEL - IDEA: XBRL DOCUMENT - OSHKOSH CORPFinancial_Report.xls
EX-32.1 - EXHIBIT 32.1 - OSHKOSH CORPexhibit32133115.htm
EX-31.1 - EXHIBIT 31.1 - OSHKOSH CORPexhibit31133115.htm
EX-31.2 - EXHIBIT 31.2 - OSHKOSH CORPexhibit31233115.htm
EX-32.2 - EXHIBIT 32.2 - OSHKOSH CORPexhibit32233115.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2015
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 1-31371
Oshkosh Corporation
(Exact name of registrant as specified in its charter)
Wisconsin
 
39-0520270
(State or other jurisdiction
of incorporation or organization)
 
(I.R.S. Employer
Identification No.)
P.O. Box 2566
Oshkosh, Wisconsin
 
54903-2566
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (920) 235-9151
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.    ý Yes    o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).            ý Yes    o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý
 
Accelerated filer o
Non-accelerated filer o
 
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    o Yes     ý No
As of April 21, 2015, 78,210,299 shares of the registrant’s Common Stock were outstanding.




OSHKOSH CORPORATION
FORM 10-Q INDEX
FOR THE QUARTER ENDED MARCH 31, 2015

 
 
Page
 
 
 
 
 
 
 
 
Three Months and Six Months Ended March 31, 2015 and 2014
 
 
 
 
 
 
Three Months and Six Months Ended March 31, 2015 and 2014
 
 
 
 
 
 
March 31, 2015 and September 30, 2014
 
 
 
 
 
 
Six Months Ended March 31, 2015 and 2014
 
 
 
 
 
 
Six Months Ended March 31, 2015 and 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



PART I - FINANCIAL INFORMATION
1
ITEM 1. FINANCIAL STATEMENTS
1
OSHKOSH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts; unaudited)

 
Three Months Ended 
 March 31,
 
Six Months Ended 
 March 31,
 
2015
 
2014
 
2015
 
2014
Net sales
$
1,554.2

 
$
1,677.9

 
$
2,907.5

 
$
3,208.1

Cost of sales
1,278.4

 
1,386.7

 
2,402.0

 
2,661.8

Gross income
275.8

 
291.2

 
505.5

 
546.3

 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
Selling, general and administrative
152.8

 
158.0

 
303.3

 
302.7

Amortization of purchased intangibles
13.3

 
13.8

 
26.8

 
27.7

Total operating expenses
166.1

 
171.8

 
330.1

 
330.4

Operating income
109.7

 
119.4

 
175.4

 
215.9

 
 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
 
Interest expense
(28.8
)
 
(27.0
)
 
(43.2
)
 
(43.2
)
Interest income
0.6

 
0.5

 
1.4

 
1.0

Miscellaneous, net
1.3

 
0.5

 

 
(1.2
)
Income before income taxes and equity in earnings of unconsolidated affiliates
82.8

 
93.4

 
133.6

 
172.5

Provision for income taxes
29.5

 
22.9

 
45.7

 
47.6

Income before equity in earnings of unconsolidated affiliates
53.3

 
70.5

 
87.9

 
124.9

Equity in earnings of unconsolidated affiliates
1.3

 
1.0

 
1.4

 
1.5

Net income
$
54.6

 
$
71.5

 
$
89.3

 
$
126.4

 
 
 
 
 
 
 
 
Earnings per share attributable to common shareholders:
 
 
 
 
 
 
 
Basic
$
0.70

 
$
0.84

 
$
1.14

 
$
1.49

Diluted
0.69

 
0.83

 
1.12

 
1.47

 
 
 
 
 
 
 
 
Cash dividends declared per share on Common Stock
$
0.17

 
$
0.15

 
$
0.34

 
$
0.30


The accompanying notes are an integral part of these financial statements

1


OSHKOSH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions; unaudited)

 
Three Months Ended 
 March 31,
 
Six Months Ended 
 March 31,
 
2015
 
2014
 
2015
 
2014
Net income
$
54.6

 
$
71.5

 
$
89.3

 
$
126.4

Other comprehensive income (loss), net of tax:
 
 
 
 


 
 
Employee pension and postretirement benefits
0.5

 
0.3

 
0.3

 
0.5

Currency translation adjustments
(53.1
)
 
2.5

 
(76.0
)
 
6.2

Total other comprehensive income (loss), net of tax
(52.6
)
 
2.8

 
(75.7
)
 
6.7

Comprehensive income
$
2.0

 
$
74.3

 
$
13.6

 
$
133.1


The accompanying notes are an integral part of these financial statements
1

2


OSHKOSH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share and per share amounts; unaudited)

 
March 31,
 
September 30,
 
2015
 
2014
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
53.4

 
$
313.8

Receivables, net
993.8

 
974.9

Inventories, net
1,196.5

 
960.9

Deferred income taxes, net
66.8

 
66.3

Prepaid income taxes
22.0

 
22.7

Other current assets
43.9

 
45.7

Total current assets
2,376.4

 
2,384.3

Investment in unconsolidated affiliates
18.2

 
21.1

Property, plant and equipment, net
444.9

 
405.5

Goodwill
993.0

 
1,025.5

Purchased intangible assets, net
628.5

 
657.9

Other long-term assets
94.9

 
92.4

Total assets
$
4,555.9

 
$
4,586.7

 
 
 
 
Liabilities and Shareholders' Equity
 
 
 
Current liabilities:
 
 
 
Revolving credit facility and current maturities of long-term debt
$
33.7

 
$
20.0

Accounts payable
601.8

 
586.7

Customer advances
342.5

 
310.1

Payroll-related obligations
120.3

 
147.2

Accrued warranty
81.4

 
91.2

Other current liabilities
202.0

 
156.4

Total current liabilities
1,381.7

 
1,311.6

Long-term debt, less current maturities
865.0

 
875.0

Deferred income taxes, net
119.6

 
125.0

Other long-term liabilities
291.6

 
290.1

Commitments and contingencies


 


Shareholders' equity:
 
 
 
Preferred Stock ($.01 par value; 2,000,000 shares authorized; none issued and outstanding)

 

Common Stock ($.01 par value; 300,000,000 shares authorized; 92,101,465 shares issued)
0.9

 
0.9

Additional paid-in capital
765.3

 
758.0

Retained earnings
1,902.7

 
1,840.1

Accumulated other comprehensive loss
(144.9
)
 
(69.2
)
Common Stock in treasury, at cost (13,905,733 and 12,256,103 shares, respectively)
(626.0
)
 
(544.8
)
Total shareholders’ equity
1,898.0

 
1,985.0

Total liabilities and shareholders' equity
$
4,555.9

 
$
4,586.7


The accompanying notes are an integral part of these financial statements

3


OSHKOSH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In millions, except per share amounts; unaudited)

 
Common
Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Common
Stock in
Treasury
at Cost
 
Total
Balance at September 30, 2013
$
0.9

 
$
725.6

 
$
1,581.5

 
$
(14.6
)
 
$
(185.6
)
 
$
2,107.8

Net income

 

 
126.4

 

 

 
126.4

Employee pension and postretirement benefits, net of tax of $0.3

 

 

 
0.5

 

 
0.5

Currency translation adjustments, net

 

 

 
6.2

 

 
6.2

Cash dividends ($0.30 per share)

 

 
(25.4
)
 

 

 
(25.4
)
Repurchases of common stock

 

 

 

 
(152.8
)
 
(152.8
)
Exercise of stock options

 
(0.3
)
 

 

 
33.9

 
33.6

Stock-based compensation expense

 
11.0

 

 

 

 
11.0

Excess tax benefit from stock-based compensation

 
6.7

 

 

 

 
6.7

Payment of earned performance shares

 
(1.9
)
 

 

 
1.9

 

Shares tendered for taxes on stock-based compensation

 

 

 

 
(1.5
)
 
(1.5
)
Other

 
(0.3
)
 

 

 
0.6

 
0.3

Balance at March 31, 2014
$
0.9

 
$
740.8

 
$
1,682.5

 
$
(7.9
)
 
$
(303.5
)
 
$
2,112.8

 
 
 
 
 
 
 
 
 
 
 
 
 
Common
Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Common
Stock in
Treasury
at Cost
 
Total
Balance at September 30, 2014
$
0.9

 
$
758.0

 
$
1,840.1

 
$
(69.2
)
 
$
(544.8
)
 
$
1,985.0

Net income

 

 
89.3

 

 

 
89.3

Employee pension and postretirement benefits, net of tax of $0.2

 

 

 
0.3

 

 
0.3

Currency translation adjustments, net

 

 

 
(76.0
)
 

 
(76.0
)
Cash dividends ($.34 per share)

 

 
(26.7
)
 

 

 
(26.7
)
Repurchases of common stock

 

 

 

 
(88.1
)
 
(88.1
)
Exercise of stock options

 
(0.3
)
 

 

 
3.7

 
3.4

Stock-based compensation expense

 
11.4

 

 

 

 
11.4

Excess tax benefit from stock-based compensation

 
4.0

 

 

 

 
4.0

Payment of earned performance shares

 
(7.4
)
 

 

 
7.4

 

Shares tendered for taxes on stock-based compensation

 

 

 

 
(4.8
)
 
(4.8
)
Other

 
(0.4
)
 

 

 
0.6

 
0.2

Balance at March 31, 2015
$
0.9

 
$
765.3

 
$
1,902.7

 
$
(144.9
)
 
$
(626.0
)
 
$
1,898.0


The accompanying notes are an integral part of these financial statements

4


OSHKOSH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions; unaudited)

 
Six Months Ended 
 March 31,
 
2015
 
2014
Operating activities:


 


Net income
$
89.3

 
$
126.4

Depreciation and amortization
64.0

 
63.5

Stock-based compensation expense
11.4

 
11.0

Deferred income taxes
(4.7
)
 
(22.2
)
Foreign currency transaction (gains) losses
10.7

 
(2.5
)
Other non-cash adjustments
7.8

 
6.6

Changes in operating assets and liabilities
(249.2
)
 
(237.1
)
Net cash used by operating activities
(70.7
)
 
(54.3
)
 
 
 
 
Investing activities:
 
 
 
Additions to property, plant and equipment
(69.8
)
 
(36.4
)
Additions to equipment held for rental
(15.5
)
 
(11.0
)
Contribution to rabbi trust

 
(1.9
)
Proceeds from sale of equipment held for rental
13.4

 
2.7

Other investing activities
(1.5
)
 
(0.4
)
Net cash used by investing activities
(73.4
)
 
(47.0
)
 
 
 
 
Financing activities:


 


Repayment of long-term debt
(260.0
)
 
(705.0
)
Proceeds from issuance of long-term debt
250.0

 
650.0

Proceeds under revolving credit facility
13.7

 

Repurchases of Common Stock
(88.1
)
 
(152.8
)
Debt issuance costs
(15.4
)
 
(18.8
)
Proceeds from exercise of stock options
3.4

 
33.6

Dividends paid
(26.7
)
 
(25.4
)
Excess tax benefit from stock-based compensation
4.1

 
6.5

Net cash used by financing activities
(119.0
)
 
(211.9
)
 
 
 
 
Effect of exchange rate changes on cash
2.7

 
(0.3
)
Decrease in cash and cash equivalents
(260.4
)

(313.5
)
Cash and cash equivalents at beginning of period
313.8

 
733.5

Cash and cash equivalents at end of period
$
53.4

 
$
420.0

 
 
 
 
Supplemental disclosures:
 
 
 
Cash paid for interest
$
27.0

 
$
29.8

Cash paid for income taxes
23.5

 
14.6


The accompanying notes are an integral part of these financial statements

5

OSHKOSH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



1.    Basis of Presentation

In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements contain all adjustments (which include normal recurring adjustments, unless otherwise noted) necessary to present fairly the financial position, results of operations and cash flows for the periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States have been condensed or omitted pursuant to the rules and regulations of the U.S. Securities and Exchange Commission. These Condensed Consolidated Financial Statements should be read in conjunction with the audited financial statements and notes thereto included in the Annual Report on Form 10-K of Oshkosh Corporation for the year ended September 30, 2014. The interim results are not necessarily indicative of results for the full year. "Oshkosh" refers to Oshkosh Corporation not including its subsidiaries and "the Company" refers to Oshkosh Corporation and its subsidiaries. Certain reclassifications have been made to the fiscal 2014 financial statements to conform to the fiscal 2015 presentation.


2.    New Accounting Standards

In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360), Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. This update revises the required criteria for reporting disposals as discontinued operations, whereby discontinued operations are limited to disposals that represent strategic shifts that had (or will have) a major effect on an entity's operations and financial results. The Company will be required to adopt ASU No. 2014-08 as of October 1, 2015. The Company does not expect the adoption of ASU 2014-08 to have a material impact on its financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which clarifies the principles for recognizing revenue. This guidance requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company will be required to adopt ASU No. 2014-09 as of October 1, 2017. The Company is currently evaluating the impact of ASU No. 2014-09 on the Company’s financial condition, results of operations and cash flows.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements (Topic 205) Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The guidance requires management to perform an evaluation each annual and interim reporting period of whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within the one year period after the date that the financial statements are issued. If such conditions are identified, the guidance requires an entity to provide certain disclosures about the principal conditions or events that gave rise to the substantial doubt about the entity’s ability to continue as a going concern, management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations and management’s plans to alleviate or mitigate substantial doubt about the entity’s ability to continue as a going concern. The Company will be required to adopt ASU No. 2014-15 as of October 1, 2016. The Company does not expect the adoption of ASU 2014-15 to have a material impact on its financial statements.

In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810), Amendments to the Consolidation Analysis, which amends the guidance that reporting entities apply when evaluating whether certain legal entities should be consolidated. The Company will be required to adopt ASU No. 2015-02 as of October 1, 2016. The Company does not expect the adoption of ASU 2015-02 to have a material impact on the Company's financial statements.

In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Topic 835-30), Simplifying the Presentation of Debt Issuance Costs. ASU No. 2015-03 is part of the FASB’s initiative to reduce complexity in accounting standards. The guidance requires an entity to recognize debt issuance costs related to a debt liability as a direct deduction from the carrying amount of the debt liability in the balance sheet, thereby increasing the effective rate of interest, as opposed to a deferred cost. The Company will be required to adopt ASU No. 2015-03 as of October 1, 2016. The Company is currently evaluating the impact of ASU No. 2015-03 on the Company’s financial statements.


6

OSHKOSH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



3.    Receivables

Receivables consisted of the following (in millions):
 
March 31,
 
September 30,
 
2015
 
2014
U.S. government:
 
 
 
Amounts billed
$
28.6

 
$
80.4

Costs and profits not billed
20.1

 
21.3

 
48.7

 
101.7

Other trade receivables
902.2

 
848.9

Finance receivables
1.8

 
2.0

Notes receivable
28.0

 
25.6

Other receivables
53.5

 
34.0

 
1,034.2

 
1,012.2

Less allowance for doubtful accounts
(21.2
)
 
(21.8
)
 
$
1,013.0

 
$
990.4


Costs and profits not billed include undefinitized change orders on existing long-term contracts and “not-to-exceed” undefinitized contracts whereby the Company cannot invoice the customer the full price under the contract or contract change order until such contract or change order is definitized and agreed to with the customer following a review of costs under such contract or change order, even though the contract deliverables may have been met. Definitization of a change order on an existing long-term contract or a sole source contract begins when the U.S. government customer undertakes a detailed review of the Company’s submitted costs and proposed margin related to the contract and concludes with a final change order. The Company recognizes revenue on undefinitized contracts to the extent that it can reasonably and reliably estimate the expected final contract price and when collectability is reasonably assured. To the extent that contract definitization results in changes to previously estimated or incurred costs or revenues, the Company records those adjustments as a change in estimate. During the six months ended March 31, 2014, the Company recorded revenue of $7.5 million related to changes in estimates on undefinitized contracts. The change increased net income by $4.7 million, or $0.05 per share, for the six months ended March 31, 2014.

Classification of receivables in the Condensed Consolidated Balance Sheets consisted of the following (in millions):
 
March 31,
 
September 30,
 
2015
 
2014
Current receivables
$
993.8

 
$
974.9

Long-term receivables
19.2

 
15.5

 
$
1,013.0

 
$
990.4



7

OSHKOSH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Finance and notes receivable aging and accrual status consisted of the following (in millions):
 
Finance Receivables
 
Notes Receivable
 
March 31, 2015
 
September 30, 2014
 
March 31, 2015
 
September 30, 2014
Aging of receivables that are past due:
 

 
 

 
 

 
 

Greater than 30 days and less than 60 days
$

 
$

 
$

 
$

Greater than 60 days and less than 90 days

 

 

 

Greater than 90 days

 

 

 
2.2

 
 
 
 
 
 
 
 
Receivables on nonaccrual status
1.3

 
1.3

 
18.6

 
18.3

Receivables past due 90 days or more and still accruing

 

 

 

 
 
 
 
 
 
 
 
Receivables subject to general reserves
0.5

 
0.7

 

 

Allowance for doubtful accounts

 

 

 

Receivables subject to specific reserves
1.3

 
1.3

 
28.0

 
25.6

Allowance for doubtful accounts

 

 
(12.1
)
 
(13.6
)

Finance Receivables: Finance receivables represent sales-type leases resulting from the sale of the Company's products and the purchase of finance receivables from lenders pursuant to customer defaults under program agreements with finance companies. Finance receivables originated by the Company generally include a residual value component. Residual values are determined based on the expectation that the underlying equipment will have a minimum fair market value at the end of the lease term. This residual value accrues to the Company at the end of the lease. The Company uses its experience and knowledge as an original equipment manufacturer and participant in end markets for the related products along with third-party studies to estimate residual values. The Company monitors these values for impairment on a periodic basis and reflects any resulting reductions in value in current earnings. Finance receivables are written down if management determines that the specific borrower does not have the ability to repay the loan amounts due in full.

Delinquency is the primary indicator of credit quality of finance receivables. The Company maintains a general allowance for finance receivables considered doubtful of future collection based upon historical experience. Additional allowances are established based upon the Company’s perception of the quality of the finance receivables, including the length of time the receivables are past due, past experience of collectability and underlying economic conditions. In circumstances where the Company believes collectability is no longer reasonably assured, a specific allowance is recorded to reduce the net recognized receivable to the amount reasonably expected to be collected. The terms of the finance agreements generally give the Company the ability to take possession of the underlying collateral. The Company may incur losses in excess of recorded allowances if the financial condition of its customers were to deteriorate or the full amount of any anticipated proceeds from the sale of the collateral supporting its customers’ financial obligations is not realized.

Notes Receivable: Notes receivable include amounts related to refinancing of trade accounts and finance receivables. As of March 31, 2015, approximately 73% of the notes receivable balance outstanding was due from two parties. The Company routinely evaluates the creditworthiness of its customers and establishes reserves where the Company believes collectability is no longer reasonably assured. Notes receivable are written down if management determines that the specific borrower does not have the ability to repay the loan in full. Certain notes receivable are collateralized by a security interest in the underlying assets and/or other assets owned by the debtor. The Company may incur losses in excess of recorded allowances if the financial condition of its customers were to deteriorate or the full amount of any anticipated proceeds from the sale of the collateral supporting its customers' financial obligations is not realized.

Quality of Finance and Notes Receivable: The Company does not accrue interest income on finance and notes receivable in circumstances where the Company believes collectability is no longer reasonably assured. Any cash payments received on nonaccrual finance and notes receivable are applied first to the principal balances. The Company does not resume accrual of interest income until the customer has shown that it is capable of meeting its financial obligations by making timely payments over a sustained period of time. The Company determines past due or delinquency status based upon the due date of the receivable.


8

OSHKOSH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Receivables subject to specific reserves also include loans that the Company has modified in troubled debt restructurings as a concession to customers experiencing financial difficulty. To minimize the economic loss, the Company may modify certain finance and notes receivable. Modifications generally consist of restructured payment terms and time frames in which no payments are required. At March 31, 2015, restructured finance and notes receivables were $0.6 million and $15.5 million, respectively. Losses on troubled debt restructurings were not significant during the three and six months ended March 31, 2015 and 2014, respectively. The Company agreed to restructure a note receivable with a customer in December 2014. Under the terms of the restructured note, the maturity date was changed from June 30, 2017 to December 31, 2019. The restructured note requires the customer to make semi-annual payments of principal and interest with a balloon payment due at maturity, consistent with the previous note. At March 31, 2015, the outstanding balance of the restructured note, net of reserves, was $3.4 million.

Changes in the Company’s allowance for doubtful accounts by type of receivable were as follows (in millions):
 
Three Months Ended March 31, 2015
 
Three Months Ended March 31, 2014
 
Finance
 
Notes
 
Trade and Other
 
Total
 
Finance
 
Notes
 
Trade and Other
 
Total
Allowance for doubtful accounts at beginning of period
$

 
$
13.1

 
$
8.1

 
$
21.2

 
$
0.1

 
$
11.0

 
$
9.4

 
$
20.5

Provision for doubtful accounts, net of recoveries

 
0.1

 
1.4

 
1.5

 
0.1

 
2.8

 
1.1

 
4.0

Charge-off of accounts

 

 
(0.3
)
 
(0.3
)
 

 
(0.1
)
 
(0.1
)
 
(0.2
)
Foreign currency translation

 
(1.1
)
 
(0.1
)
 
(1.2
)
 

 
0.1

 
(0.4
)
 
(0.3
)
Allowance for doubtful accounts at end of period
$

 
$
12.1

 
$
9.1

 
$
21.2

 
$
0.2

 
$
13.8

 
$
10.0

 
$
24.0

 
Six Months Ended March 31, 2015
 
Six Months Ended March 31, 2014
 
Finance
 
Notes
 
Trade and Other
 
Total
 
Finance
 
Notes
 
Trade and Other
 
Total
Allowance for doubtful accounts at beginning of period
$

 
$
13.6

 
$
8.2

 
$
21.8

 
$

 
$
11.0

 
$
9.4

 
$
20.4

Provision for doubtful accounts, net of recoveries

 
0.1

 
1.2

 
1.3

 
0.2

 
2.8

 
1.1

 
4.1

Charge-off of accounts

 

 
(0.2
)
 
(0.2
)
 

 
(0.1
)
 
(0.1
)
 
(0.2
)
Foreign currency translation

 
(1.6
)
 
(0.1
)
 
(1.7
)
 

 
0.1

 
(0.4
)
 
(0.3
)
Allowance for doubtful accounts at end of period
$

 
$
12.1

 
$
9.1

 
$
21.2

 
$
0.2

 
$
13.8

 
$
10.0

 
$
24.0



4.    Inventories

Inventories consisted of the following (in millions):
 
March 31,
 
September 30,
 
2015
 
2014
Raw materials
$
528.2

 
$
519.4

Partially finished products
288.4

 
230.5

Finished products
498.6

 
336.4

Inventories at FIFO cost
1,315.2

 
1,086.3

Less:
 
 
 
Progress/performance-based payments on U.S. government contracts
(37.0
)
 
(42.5
)
   Excess of FIFO cost over LIFO cost
(81.7
)
 
(82.9
)
 
$
1,196.5

 
$
960.9


Title to all inventories related to U.S. government contracts, which provide for progress or performance-based payments, vests with the U.S. government to the extent of unliquidated progress or performance-based payments.


9

OSHKOSH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



5.    Investments in Unconsolidated Affiliates

Investments in unconsolidated affiliates are accounted for under the equity method and consisted of the following (in millions):
 
March 31,
 
September 30,
 
2015
 
2014
Mezcladoras (Mexico)
$
10.8

 
$
9.9

RiRent (The Netherlands)
7.4

 
11.2

 
$
18.2

 
$
21.1


Recorded investments generally represent the Company’s maximum exposure to loss as a result of the Company’s ownership interest. Earnings or losses are reflected in “Equity in earnings of unconsolidated affiliates” in the Condensed Consolidated Statements of Income.

The Company and an unaffiliated third party are joint venture partners in Mezcladoras Y Trailers de Mexico, S.A. de C.V. ("Mezcladoras"). Mezcladoras is a manufacturer and distributor of industrial and commercial machinery with primary operations in Mexico. The Company recognized sales to Mezcladoras of $6.3 million and $3.6 million during the six months ended March 31, 2015 and 2014, respectively. The Company recognizes income on sales to Mezcladoras at the time of shipment in proportion to the outside third-party interest in Mezcladoras and recognizes the remaining income upon the joint venture's sale of inventory to an unaffiliated customer. The Company earns a service fee for certain operational support services provided to Mezcladoras. For the six months ended March 31, 2015 and 2014, the Company recognized service fees of $0.6 million and $0.4 million, respectively.

The Company and an unaffiliated third party are joint venture partners in RiRent Europe BV ("RiRent"). RiRent maintains a fleet of access equipment for short-term lease to rental companies throughout most of Europe. The re-rental fleet provides rental companies with equipment to support requirements on short notice. RiRent does not provide services directly to end users. The Company and its joint venture partner are in the process of winding down RiRent. The last sale of new equipment to RiRent by the Company was in October 2013. To the extent that RiRent has existing outstanding contracts, those contracts will continue to be maintained. The Company received a dividend of €2.25 million ($2.8 million)from RiRent in December 2014. Indebtedness of RiRent is secured by the underlying leases and assets of RiRent. All such RiRent indebtedness is non-recourse to the Company and its partner. Under RiRent’s €2.0 million bank credit facility, the partners of RiRent have committed that RiRent will maintain an overall equity to asset ratio of at least 30.0% (RiRent's equity to asset ratio was 98.7% as of March 31, 2015).


6.    Property, Plant and Equipment

Property, plant and equipment consisted of the following (in millions):
 
March 31,
 
September 30,
 
2015
 
2014
Land and land improvements
$
57.5

 
$
48.6

Buildings
252.8

 
252.0

Machinery and equipment
645.7

 
624.8

Equipment on operating lease to others
44.4

 
41.0

Construction in progress
49.0

 
21.9

 
1,049.4

 
988.3

Less accumulated depreciation
(604.5
)
 
(582.8
)
 
$
444.9

 
$
405.5


Depreciation expense was $16.2 million and $15.5 million for the three months ended March 31, 2015 and 2014, respectively. Depreciation expense was $32.3 million and $31.2 million for the six months ended March 31, 2015 and 2014, respectively. Capitalized interest was insignificant for all reported periods.

10

OSHKOSH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



Equipment on operating lease to others represents the cost of equipment shipped to customers for whom the Company has guaranteed the residual value and equipment on short-term leases. These transactions are accounted for as operating leases with the related assets capitalized and depreciated over their estimated economic lives of five to ten years. Cost less accumulated depreciation for equipment on operating lease at March 31, 2015 and September 30, 2014 was $35.4 million and $32.6 million, respectively.


7.    Goodwill and Purchased Intangible Assets

Goodwill and other indefinite-lived intangible assets are not amortized, but are reviewed for impairment annually or more frequently if potential interim indicators exist that could result in impairment. The Company performs its annual impairment test in the fourth quarter of its fiscal year.

The following table presents changes in goodwill during the six months ended March 31, 2015 (in millions):
 
Access
Equipment
 
Fire &
Emergency
 
Commercial
 
Total
Net goodwill at September 30, 2014
$
898.2

 
$
106.1

 
$
21.2

 
$
1,025.5

Foreign currency translation
(32.2
)
 

 
(0.3
)
 
(32.5
)
Net goodwill at March 31, 2015
$
866.0

 
$
106.1

 
$
20.9

 
$
993.0


The following table presents details of the Company’s goodwill allocated to the reportable segments (in millions):
 
March 31, 2015
 
September 30, 2014
 
Gross
 
Accumulated
Impairment
 
Net
 
Gross
 
Accumulated
Impairment
 
Net
Access equipment
$
1,798.1

 
$
(932.1
)
 
$
866.0

 
$
1,830.3

 
$
(932.1
)
 
$
898.2

Fire & emergency
108.1

 
(2.0
)
 
106.1

 
108.1

 
(2.0
)
 
106.1

Commercial
196.8

 
(175.9
)
 
20.9

 
197.1

 
(175.9
)
 
21.2

 
$
2,103.0

 
$
(1,110.0
)
 
$
993.0

 
$
2,135.5

 
$
(1,110.0
)
 
$
1,025.5


Details of the Company’s total purchased intangible assets were as follows (in millions):
 
March 31, 2015
 
Weighted-
Average
Life
 
Gross
 
Accumulated
Amortization
 
Net
Amortizable intangible assets:
 
 
 
 
 
 
 
Distribution network
39.1
 
$
55.4

 
$
(25.8
)
 
$
29.6

Non-compete
10.5
 
56.4

 
(56.3
)
 
0.1

Technology-related
11.9
 
103.9

 
(79.2
)
 
24.7

Customer relationships
12.8
 
545.1

 
(360.5
)
 
184.6

Other
16.6
 
16.6

 
(14.1
)
 
2.5

 
14.5
 
777.4

 
(535.9
)
 
241.5

Non-amortizable trade names
 
 
387.0

 

 
387.0

 
 
 
$
1,164.4

 
$
(535.9
)
 
$
628.5



11

OSHKOSH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


 
September 30, 2014
 
Weighted-
Average
Life
 
Gross
 
Accumulated
Amortization
 
Net
Amortizable intangible assets:
 
 
 
 
 
 
 
Distribution network
39.1
 
$
55.4

 
$
(25.1
)
 
$
30.3

Non-compete
10.5
 
56.4

 
(56.2
)
 
0.2

Technology-related
11.9
 
103.9

 
(75.1
)
 
28.8

Customer relationships
12.7
 
559.4

 
(350.8
)
 
208.6

Other
16.6
 
16.6

 
(13.8
)
 
2.8

 
14.4
 
791.7

 
(521.0
)
 
270.7

Non-amortizable trade names
 
 
387.2

 

 
387.2

 
 
 
$
1,178.9

 
$
(521.0
)
 
$
657.9


The estimated future amortization expense of purchased intangible assets for the remainder of fiscal 2015 and the five years succeeding September 30, 2015 are as follows: 2015 (remaining six months) - $25.8 million; 2016 - $52.1 million; 2017 - $46.0 million; 2018 - $38.1 million; 2019 - $36.7 million and 2020 - $10.9 million.


8.    Credit Agreements

The Company was obligated under the following debt instruments (in millions):
 
March 31,
 
September 30,
 
2015
 
2014
Senior Secured Term Loan
$
385.0

 
$
395.0

8½% Senior notes due March 2020

 
250.0

5.375% Senior notes due March 2022
250.0

 
250.0

5.375% Senior notes due March 2025
250.0

 

 
885.0

 
895.0

Less current maturities
(20.0
)
 
(20.0
)
 
$
865.0

 
$
875.0

 
 
 
 
Revolving Credit Facility
$
13.7

 
$

Current maturities of long-term debt
20.0

 
20.0

 
$
33.7

 
$
20.0


On March 21, 2014, the Company entered into an Amended and Restated Credit Agreement with various lenders (the “Credit Agreement”). The Credit Agreement provides for (i) a revolving credit facility (“Revolving Credit Facility”) that matures in March 2019 with an initial maximum aggregate amount of availability of $600 million and (ii) a $400 million term loan (“Term Loan”) due in quarterly principal installments of $5.0 million with a balloon payment of $310.0 million due at maturity in March 2019. On January 22, 2015, the Company entered into an agreement with lenders under the Credit Agreement that increased the Revolving Credit Facility to an aggregate maximum amount of $850 million effective January 26, 2015. At March 31, 2015, borrowings under the Revolving Credit Facility of $13.7 million and outstanding letters of credit of $75.9 million reduced available capacity under the Revolving Credit Facility to $760.4 million.

The Company’s obligations under the Credit Agreement are guaranteed by certain of its domestic subsidiaries, and the Company will guarantee the obligations of certain of its subsidiaries under the Credit Agreement. Subject to certain exceptions, the Credit Agreement is collateralized by (i) a first-priority perfected lien and security interests in substantially all of the personal property of the Company, each material subsidiary of the Company and each subsidiary guarantor, (ii) mortgages upon certain real property of the Company and certain of its domestic subsidiaries and (iii) a pledge of the equity of each material subsidiary of the Company.

12

OSHKOSH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Under the Credit Agreement, the Company must pay (i) an unused commitment fee ranging from 0.225% to 0.35% per annum of the average daily unused portion of the aggregate revolving credit commitments under the Credit Agreement and (ii) a fee ranging from 0.625% to 2.00% per annum of the maximum amount available to be drawn for each letter of credit issued and outstanding under the Credit Agreement.

Borrowings under the Credit Agreement bear interest at a variable rate equal to (i) LIBOR plus a specified margin, which may be adjusted upward or downward depending on whether certain criteria are satisfied, or (ii) for dollar-denominated loans only, the base rate (which is the highest of (a) the administrative agent’s prime rate, (b) the federal funds rate plus 0.50% or (c) the sum of 1% plus one-month LIBOR) plus a specified margin, which may be adjusted upward or downward depending on whether certain criteria are satisfied. At March 31, 2015, the interest spread on the Revolving Credit Facility and Term Loan was 150 basis points. The interest rate on the borrowings outstanding under the Revolving Credit Facility at March 31, 2015 was 1.68%. The weighted-average interest rate on borrowings outstanding under the Term Loan at March 31, 2015 was 1.67%.

The Credit Agreement contains various restrictions and covenants, including requirements that the Company maintain certain financial ratios at prescribed levels and restrictions, subject to certain exceptions, on the ability of the Company and certain of its subsidiaries to consolidate or merge, create liens, incur additional indebtedness, dispose of assets, consummate acquisitions and make investments in joint ventures and foreign subsidiaries.

The Credit Agreement contains the following financial covenants:
Leverage Ratio: A maximum leverage ratio (defined as, with certain adjustments, the ratio of the Company’s consolidated indebtedness to consolidated net income before interest, taxes, depreciation, amortization, non-cash charges and certain other items (“EBITDA”)) as of the last day of any fiscal quarter of 4.50 to 1.00.
Interest Coverage Ratio: A minimum interest coverage ratio (defined as, with certain adjustments, the ratio of the Company’s consolidated EBITDA to the Company’s consolidated cash interest expense) as of the last day of any fiscal quarter of 2.50 to 1.00.
Senior Secured Leverage Ratio: A maximum senior secured leverage ratio (defined as, with certain adjustments, the ratio of the Company’s consolidated secured indebtedness to the Company’s consolidated EBITDA) of 3.00 to 1.00.

With certain exceptions, the Company may elect to have the collateral pledged in connection with the Credit Agreement released during any period that the Company maintains an investment grade corporate family rating from either Standard & Poor’s Ratings Group or Moody’s Investor Service Inc. During any such period when the collateral has been released, the Company’s leverage ratio as of the last day of any fiscal quarter must not be greater than 3.75 to 1.00, and the Company would not be subject to any additional requirement to limit its senior secured leverage ratio.

The Company was in compliance with the financial covenants contained in the Credit Agreement as of March 31, 2015.

Additionally, with certain exceptions, the Credit Agreement limits the ability of the Company to pay dividends and other distributions, including repurchases of shares of its Common Stock. However, so long as no event of default exists under the Credit Agreement or would result from such payment, the Company may pay dividends and other distributions after March 3, 2010 in an aggregate amount not exceeding the sum of:
i.
50% of the consolidated net income of the Company and its subsidiaries (or if such consolidated net income is a deficit, minus 100% of such deficit), accrued on a cumulative basis during the period beginning on January 1, 2010 and ending on the last day of the fiscal quarter immediately preceding the date of the applicable proposed dividend or distribution; and
ii.
100% of the aggregate net proceeds received by the Company subsequent to March 3, 2010 either as a contribution to its common equity capital or from the issuance and sale of its Common Stock.

In March 2010, the Company issued $250.0 million of 8¼% unsecured senior notes due March 1, 2017 (the “2017 Senior Notes”) and $250.0 million of 8½% unsecured senior notes due March 1, 2020 (the “2020 Senior Notes”). On February 21, 2014, the Company issued $250.0 million of 5.375% unsecured senior notes due March 1, 2022 (the “2022 Senior Notes”). The Company used the net proceeds from the sale of the 2022 Senior Notes, together with available cash, to redeem all of the outstanding 2017 Senior Notes at a price of 104.125%. On March 2, 2015, the Company issued $250.0 million of 5.375% unsecured senior notes due March 1, 2025 (the “2025 Senior Notes”). The Company used the net proceeds from the sale of the

13

OSHKOSH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


2025 Senior Notes, together with available cash, to redeem all of the outstanding 2020 Senior Notes at a price of 104.250%. The Company recognized approximately $14.7 million of expense associated with the 2025 Senior Notes transaction, comprised of unamortized debt issuance costs, call premium and third-party costs. Expenses related to the transaction are included in interest expense. Additionally, approximately $3.5 million of debt issuance costs were capitalized to prepaid assets in connection with the transaction. The Company has the option to redeem the 2022 Senior Notes and the 2025 Senior Notes for a premium after March 1, 2017 and March 1, 2020, respectively.

The 2022 Senior Notes and the 2025 Senior Notes were issued pursuant to separate indentures (the “Indentures”) among the Company, the subsidiary guarantors named therein and a trustee. The Indentures contain customary affirmative and negative covenants. Certain of the Company’s subsidiaries jointly, severally, fully and unconditionally guarantee the Company’s obligations under the 2022 Senior Notes and 2025 Senior Notes. See Note 21 of the Notes to Condensed Consolidated Financial Statements for separate financial information of the subsidiary guarantors.

The fair value of the long-term debt is estimated based upon Level 2 inputs to reflect market rate of the Company’s debt. At March 31, 2015, the fair value of the 2022 Senior Notes and the 2025 Senior Notes was estimated to be $259 million and $258 million, respectively, and the fair value of the Term Loan approximated book value. See Note 13 of the Notes to Condensed Consolidated Financial Statements for the definition of a Level 2 input.


9.    Warranties

The Company’s products generally carry explicit warranties that extend from six months to five 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.

Changes in the Company’s warranty liability were as follows (in millions):
 
Six Months Ended 
 March 31,
 
2015
 
2014
Balance at beginning of period
$
91.2

 
$
101.3

Warranty provisions
19.5

 
20.1

Settlements made
(24.5
)
 
(28.2
)
Changes in liability for pre-existing warranties, net
(3.2
)
 
0.9

Foreign currency translation
(1.6
)
 
0.2

Balance at end of period
$
81.4

 
$
94.3


Provisions for estimated warranty and other related costs are recorded at the time of sale and are periodically adjusted to reflect actual experience. Certain warranty and other related claims involve matters of dispute that ultimately are resolved by negotiation, arbitration or litigation. At times, warranty issues arise that are beyond the scope of the Company's historical experience. It is reasonably possible that additional warranty and other related claims could arise from disputes or other matters in excess of amounts accrued; however, the Company does not expect that any such amounts, while not determinable, would have a material adverse effect on the Company's consolidated financial condition, result of operations or cash flows. Accrued warranty expense as a percent of prior 12 months sales declined slightly from 1.32% at September 30, 2013 to 1.25% at March 31, 2015, generally due to favorable claims experience in the Company's non-defense segments.


10.    Guarantee Arrangements

The Company is party to multiple agreements whereby at March 31, 2015 it guaranteed an aggregate of $469.6 million in indebtedness of customers. The Company estimated that its maximum loss exposure under these agreements at March 31, 2015 was $123.2 million. Under the terms of these and various related agreements and upon the occurrence of certain events, the Company generally has the ability to, among other things, take possession of the underlying collateral. If the financial condition of the customers were to deteriorate and result in their inability to make payments, then additional accruals may be required.

14

OSHKOSH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


While the Company does not expect to experience losses under these agreements that are materially in excess of the amounts reserved, it cannot provide any assurance that the financial condition of the customers will not deteriorate resulting in the customers' inability to meet their obligations. In the event that this occurs, the Company cannot guarantee that the collateral underlying the agreements will be sufficient to avoid losses materially in excess of the amounts reserved. Any losses under these guarantees would generally be mitigated by the value of any underlying collateral, including financed equipment, and are generally subject to the finance company's ability to provide the Company clear title to foreclosed equipment and other conditions. During periods of economic weakness, collateral values generally decline and can contribute to higher exposure to losses.

Changes in the Company’s credit guarantee liability were as follows (in millions):
 
Three Months Ended 
 March 31,
 
Six Months Ended 
 March 31,
 
2015
 
2014
 
2015
 
2014
Balance at beginning of period
$
4.8

 
$
4.4

 
$
4.6

 
$
4.3

Provision for new credit guarantees
0.9

 
0.4

 
1.5

 
0.7

Settlements made

 

 

 
(0.1
)
Changes for pre-existing guarantees, net
(0.5
)
 

 
(0.4
)
 

Amortization of previous guarantees
(0.9
)
 
(0.4
)
 
(1.3
)
 
(0.5
)
Foreign currency translation

 

 
(0.1
)
 

Balance at end of period
$
4.3

 
$
4.4

 
$
4.3

 
$
4.4



11.    Shareholders' Equity

On February 4, 2014, the Company's Board of Directors increased the Company's Common Stock repurchase authorization from the balance then remaining from prior authorizations of 1,787,199 shares to 10.0 million shares. Between February 4, 2014 and March 31, 2015, the Company repurchased 7,101,079 shares under this authorization at a cost of $338.6 million. As a result, the Company had 2,898,921 shares of Common Stock remaining under this repurchase authorization as of March 31, 2015. The Company is restricted by its Credit Agreement from repurchasing shares in certain situations. See Note 8 of the Notes to Condensed Consolidated Financial Statements for information regarding these restrictions.


12.    Derivative Financial Instruments and Hedging Activities

The Company has used forward foreign currency exchange contracts (“derivatives”) to reduce the exchange rate risk of specific foreign currency denominated transactions. These derivatives typically require the exchange of a foreign currency for U.S. dollars at a fixed rate at a future date. At times, the Company has designated these hedges as either cash flow hedges or fair value hedges under FASB Accounting Standards Codification ("ASC") Topic 815, Derivatives and Hedging. At March 31, 2015, the total notional U.S. dollar equivalent of outstanding forward foreign exchange contracts designated as hedges in accordance with ASC Topic 815 was $0.6 million. Net gains or losses related to hedge ineffectiveness were insignificant for the six month periods ended March 31, 2015 and 2014. Ineffectiveness is included in "Miscellaneous, net" in the Condensed Consolidated Statements of Income along with mark-to-market adjustments on outstanding non-designated derivatives.

The Company has entered into forward foreign currency exchange contracts to create an economic hedge to manage foreign exchange risk exposure associated with non-functional currency denominated payables resulting from global sourcing activities. The Company has not designated these derivative contracts as hedge transactions under FASB ASC Topic 815, and accordingly, the mark-to-market impact of these derivatives is recorded each period in current earnings. The fair value of foreign currency related derivatives is included in the Condensed Consolidated Balance Sheets in “Other current assets” and “Other current liabilities.” At March 31, 2015, the U.S. dollar equivalent of these outstanding forward foreign exchange contracts totaled $101.7 million in notional amounts, including $25.1 million in contracts to sell euro, $42.5 million in contracts to sell Australian dollars, $17.1 million in contracts to buy U.K. pound sterling, $8.1 million in contracts to buy Swedish krona and sell euro and $6.2 million in contracts to buy euro and sell Canadian dollars, with the remaining contracts covering a variety of foreign currencies.


15

OSHKOSH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Fair Market Value of Financial Instruments — The fair values of all open derivative instruments in the Condensed Consolidated Balance Sheets were as follows (in millions):
 
March 31, 2015
 
September 30, 2014
 
Other
Current
Assets
 
Other
Current
Liabilities
 
Other
Current
Assets
 
Other
Current
Liabilities
Not designated as hedging instruments:
 
 
 
 
 

 
 

Foreign exchange contracts
$
0.6

 
$
0.5

 
$
3.4

 
$
0.4


The pre-tax effects of derivative instruments on the Condensed Consolidated Statements of Income consisted of the following (in millions):
 
Classification of
Gains (Losses)
 
Three Months Ended 
 March 31,
 
Six Months Ended 
 March 31,
 
 
2015
 
2014
 
2015
 
2014
Not designated as hedging instruments:
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
Miscellaneous, net
 
$
5.4

 
$
(1.4
)
 
$
8.8

 
$
(0.9
)


13.    Fair Value Measurement

FASB ASC Topic 820, Fair Value Measurements and Disclosures, defines fair value as the price that would be received to sell an asset or paid to transfer a liability (i.e., exit price) in an orderly transaction between market participants at the measurement date. FASB ASC Topic 820 requires disclosures that categorize assets and liabilities measured at fair value into one of three different levels depending on the assumptions (i.e., inputs) used in the valuation. Level 1 provides the most reliable measure of fair value, while Level 3 generally requires significant management judgment.

The three levels are defined as follows:
Level 1:
Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2:
Observable inputs other than quoted prices in active markets for identical assets or liabilities, such as quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.
Level 3:
Unobservable inputs reflecting management's own assumptions about the inputs used in pricing the asset or liability.

There were no transfers of assets between levels during the three and six months ended March 31, 2015.

As of March 31, 2015, the fair values of the Company’s financial assets and liabilities were as follows (in millions):
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
SERP plan assets (a)
$
22.9

 
$

 
$

 
$
22.9

Foreign currency exchange derivatives (b)

 
0.6

 

 
0.6

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Foreign currency exchange derivatives (b)
$

 
$
0.5

 
$

 
$
0.5

_________________________
(a) 
Represents investments in a rabbi trust for the Company's non-qualified supplemental executive retirement plans ("SERP"). The fair values of these investments are estimated using a market approach. Investments include mutual funds for which quoted prices in active markets are available. The Company records changes in the fair value of investments in the Condensed Consolidated Statements of Income.
(b) 
Based on observable market transactions of forward currency prices.

16

OSHKOSH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



14.    Stock-Based Compensation

In February 2009, the Company’s shareholders approved the 2009 Incentive Stock and Awards Plan (as amended, the “2009 Stock Plan”). The 2009 Stock Plan replaced the 2004 Incentive Stock and Awards Plan (as amended, the “2004 Stock Plan”). While no new awards will be granted under the 2004 Stock Plan, awards previously made under the 2004 Stock Plan that were outstanding as of the initial approval date of the 2009 Stock Plan will remain outstanding and continue to be governed by the provisions of the 2004 Stock Plan. At March 31, 2015, the Company had reserved 6,947,590 shares of Common Stock available for issuance under the 2009 Stock Plan to provide for the exercise of outstanding stock options and the issuance of Common Stock under incentive compensation awards, including awards issued prior to the effective date of the 2009 Stock Plan.

The Company recognizes stock-based compensation expense over the requisite service period for vesting of an award, or to an employee's eligible retirement date, if earlier and applicable. Total stock-based compensation expense, including cash-based liability awards, included in the Condensed Consolidated Statements of Income for the three and six months ended March 31, 2015 was $6.8 million ($4.3 million net of tax) and $13.3 million ($8.4 million net of tax), respectively. Total stock-based compensation expense, including cash-based liability awards, included in the Condensed Consolidated Statements of Income for the three and six months ended March 31, 2014 was $10.1 million ($6.4 million net of tax) and $16.0 million ($10.1 million net of tax), respectively.


15.    Employee Benefit Plans

Components of net periodic pension benefit cost were as follows (in millions):
 
Three Months Ended 
 March 31,
 
Six Months Ended 
 March 31,
 
2015
 
2014
 
2015
 
2014
Components of net periodic benefit cost
 
 
 
 
 
 
 
Service cost
$
3.0

 
$
2.8

 
$
6.0

 
$
5.6

Interest cost
4.5

 
4.4

 
9.0

 
8.8

Expected return on plan assets
(4.5
)
 
(4.8
)
 
(9.1
)
 
(9.3
)
Amortization of prior service cost
0.4

 
0.6

 
0.8

 
1.0

Curtailment

 
4.1

 

 
4.1

Amortization of net actuarial loss
0.6

 
0.3

 
1.3

 
0.5

Net periodic benefit cost
$
4.0

 
$
7.4

 
$
8.0

 
$
10.7


Components of net periodic other post-employment benefit cost (income) were as follows (in millions):
 
Three Months Ended 
 March 31,
 
Six Months Ended 
 March 31,
 
2015
 
2014
 
2015
 
2014
Components of net periodic benefit cost (income)
 
 
 
 
 
 
 
Service cost
$
0.5

 
$
0.6

 
$
0.9

 
$
1.2

Interest cost
0.4

 
0.5

 
0.8

 
1.0

Amortization of prior service cost
(0.3
)
 
(0.4
)
 
(0.5
)
 
(0.8
)
Curtailment

 

 
(3.4
)
 

Amortization of net actuarial loss
0.1

 

 
0.1

 
0.1

Net periodic benefit cost (income)
$
0.7

 
$
0.7

 
$
(2.1
)
 
$
1.5


The Company made contributions to fund benefit payments of $1.0 million and $1.0 million for the six months ended March 31, 2015 and 2014, respectively, under its other post-employment benefit plans. The Company estimates that it will make additional contributions of approximately $1.0 million under these other post-employment benefit plans prior to the end of fiscal 2015.

17

OSHKOSH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



16.    Income Taxes

The Company's effective income tax rate was 35.7% and 24.6% of pre-tax income for the three months ended March 31, 2015 and 2014, respectively. Tax expense included net discrete tax benefits of 50 basis points and 1,120 basis points for the three months ended March 31, 2015 and 2014, respectively. Discrete tax benefits recorded in the three months ended March 31, 2014 included a reduction of a valuation allowance on net operating loss and deferred interest carryforwards following receipt of a favorable tax ruling from tax authorities in March 2014 totaling 1,300 basis points, partially offset by a provision for a state tax audit settlement totaling 180 basis points.

The Company's effective income tax rate was 34.2% and 27.6% of pre-tax income for the six months ended March 31, 2015 and 2014, respectively. Tax expense included net discrete tax benefits of 80 basis points and 710 basis points for the six months ended March 31, 2015 and 2014, respectively. Discrete tax benefits recorded in the six months ended March 31, 2015 included a 160 basis point benefit resulting from the December 2014 reinstatement of the U.S. research and development tax credit and net other discrete charges aggregating 80 basis points. Discrete tax benefits recorded in the six months ended March 31, 2014 included the benefit of a reduction of a valuation allowance on net operating loss and deferred interest carryforwards noted above totaling 700 basis points. Discrete tax charges related to a provision for a state tax audit settlement totaling 100 basis points were offset by net other discrete tax benefits aggregating 100 basis points.

The Company’s liability for gross unrecognized tax benefits, excluding related interest and penalties, was $41.4 million and $32.8 million as of March 31, 2015 and September 30, 2014, respectively. As of March 31, 2015, net unrecognized tax benefits, excluding interest and penalties, of $23.7 million would affect the Company’s net income if recognized.

The Company recognizes accrued interest and penalties, if any, related to unrecognized tax benefits in the “Provision for income taxes” in the Condensed Consolidated Statements of Income. During the six months ended March 31, 2015 and 2014, the Company recognized charges of $1.5 million and $1.7 million, respectively, related to interest and penalties. At March 31, 2015, the Company had accruals for the payment of interest and penalties of $19.0 million. During the next twelve months, it is reasonably possible that federal, state and foreign tax audit resolutions could reduce net unrecognized tax benefits by approximately $15.5 million because the Company’s tax positions are sustained on audit, the Company agrees to their disallowance or the applicable statutes of limitations expire.

The Company files federal income tax returns as well as multiple state, local and non-U.S. jurisdiction tax returns. The Company is regularly audited by federal, state and foreign tax authorities.


17.    Accumulated Other Comprehensive Income (Loss)

Changes in accumulated other comprehensive income (loss) by component were as follows (in millions):
 
Three Months Ended March 31, 2015
 
Three Months Ended March 31, 2014
 
Employee Pension and Postretirement Benefits, Net of Tax
 
Cumulative Translation Adjustments
 
Accumulated Other Comprehensive Income (Loss)
 
Employee Pension and Postretirement Benefits, Net of Tax
 
Cumulative Translation Adjustments
 
Accumulated Other Comprehensive Income (Loss)
Balance at beginning of period
$
(44.4
)
 
$
(47.9
)
 
$
(92.3
)
 
$
(22.8
)
 
$
12.1

 
$
(10.7
)
Other comprehensive income (loss) before reclassifications

 
(53.1
)
 
(53.1
)
 

 
2.5

 
2.5

Amounts reclassified from accumulated other comprehensive income (loss)
0.5

 

 
0.5

 
0.3

 

 
0.3

Net current period other comprehensive income (loss)
0.5

 
(53.1
)
 
(52.6
)
 
0.3

 
2.5

 
2.8

Balance at end of period
$
(43.9
)
 
$
(101.0
)
 
$
(144.9
)
 
$
(22.5
)
 
$
14.6

 
$
(7.9
)

18

OSHKOSH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


 
Six Months Ended March 31, 2015
 
Six Months Ended March 31, 2014
 
Employee Pension and Postretirement Benefits, Net of Tax
 
Cumulative Translation Adjustments
 
Accumulated Other Comprehensive Income (Loss)
 
Employee Pension and Postretirement Benefits, Net of Tax
 
Cumulative Translation Adjustments
 
Accumulated Other Comprehensive Income (Loss)
Balance at beginning of period
$
(44.2
)
 
$
(25.0
)
 
$
(69.2
)
 
$
(23.0
)
 
$
8.4

 
$
(14.6
)
Other comprehensive income (loss) before reclassifications

 
(76.0
)
 
(76.0
)
 

 
6.2

 
6.2

Amounts reclassified from accumulated other comprehensive income (loss)
0.3

 

 
0.3

 
0.5

 

 
0.5

Net current period other comprehensive income (loss)
0.3

 
(76.0
)
 
(75.7
)
 
0.5

 
6.2

 
6.7

Balance at end of period
$
(43.9
)
 
$
(101.0
)
 
$
(144.9
)
 
$
(22.5
)
 
$
14.6

 
$
(7.9
)

Reclassifications out of accumulated other comprehensive income (loss) included in the computation of net periodic pension cost (refer to Note 15 of the Notes to Condensed Consolidated Financial Statements for additional details regarding employee benefit plans) were as follows (in millions):
 
Three Months Ended 
 March 31,
 
Six Months Ended 
 March 31,
 
2015
 
2014
 
2015
 
2014
Amortization of employee pension and postretirement benefits items
 
 
 
 
 
 
 
Prior service costs
$
(0.1
)
 
$
(0.2
)
 
$
(0.3
)
 
$
(0.2
)
Actuarial losses
(0.7
)
 
(0.3
)
 
(1.4
)
 
(0.6
)
Curtailment

 

 
1.2

 

Total before tax
(0.8
)
 
(0.5
)
 
(0.5
)
 
(0.8
)
Tax benefit
0.3

 
0.2

 
0.2

 
0.3

Net of tax
$
(0.5
)
 
$
(0.3
)
 
$
(0.3
)
 
$
(0.5
)


18.    Earnings Per Share

Prior to September 1, 2013, the Company granted awards of nonvested stock that contained a nonforfeitable right to dividends, if declared. In accordance with FASB ASC Topic 260, Earnings Per Share, these awards are considered to be participating securities, and as a result, earnings per share is calculated using the two-class method. The two-class method is an earnings allocation method that determines earnings per share for common shares and participating securities. The undistributed earnings are allocated between common shares and participating securities as if all earnings had been distributed during the period. Participating securities and common shares have equal rights to undistributed earnings.

Effective September 1, 2013, new grants of awards of nonvested stock do not contain a nonforfeitable right to dividends during the vesting period. As a result, an employee will forfeit the right to dividends accrued on unvested awards if such awards do not ultimately vest. As such, these awards are not treated as participating securities in the earnings per share calculation as the employees do not have equivalent dividend rights as common shareholders.


19

OSHKOSH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


The calculation of basic and diluted earnings per common share was as follows (in millions, except number of share amounts):
 
Three Months Ended 
 March 31,
 
Six Months Ended 
 March 31,
 
2015
 
2014
 
2015
 
2014
Net income
$
54.6

 
$
71.5

 
$
89.3

 
$
126.4

Earnings allocated to participating securities
(0.1
)
 
(0.3
)
 
(0.2
)
 
(0.5
)
Earnings available to common shareholders
$
54.5

 
$
71.2

 
$
89.1

 
$
125.9

 
 
 
 
 
 
 
 
Basic Earnings Per Share:
 
 
 
 
 
 
 
Weighted-average common shares outstanding
78,007,479

 
84,036,403
 
78,433,035

 
84,681,375
 
 
 
 
 
 
 
 
Diluted Earnings Per Share:
 
 
 
 
 
 
 
Basic weighted-average common shares outstanding
78,007,479

 
84,036,403

 
78,433,035

 
84,681,375

Dilutive stock options and other equity-based compensation awards
1,102,424

 
1,679,070

 
1,103,796

 
1,591,580

Participating restricted stock
(115,163
)
 
(208,409
)
 
(112,237
)
 
(201,872
)
Diluted weighted-average common shares outstanding
78,994,740