-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GH5n+Snj4umUzW/UG1B1geOBd61bMQssg2c08o9xKm3iuoiPfdfE091hdaEMpLCA bIGklizsbJ7L95SWKgGRjA== 0000897069-99-000610.txt : 19991228 0000897069-99-000610.hdr.sgml : 19991228 ACCESSION NUMBER: 0000897069-99-000610 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991227 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OSHKOSH TRUCK CORP CENTRAL INDEX KEY: 0000775158 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLES & PASSENGER CAR BODIES [3711] IRS NUMBER: 390520270 STATE OF INCORPORATION: WI FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-13886 FILM NUMBER: 99780887 BUSINESS ADDRESS: STREET 1: 2307 OREGON ST STREET 2: P O BOX 2566 CITY: OSHKOSH STATE: WI ZIP: 54903 BUSINESS PHONE: 4142359151 MAIL ADDRESS: STREET 2: 2307 OREGON ST P O BOX 2566 CITY: OSHKOSH STATE: WI ZIP: 54903 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K (Mark One) (X) Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended September 30, 1999, 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: 0-13886 Oshkosh Truck Corporation - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Wisconsin 39-0520270 - -------------------------------- ---------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification) incorporation or organization) P. O. Box 2566, Oshkosh, WI 54903-2566 - -------------------------------------------------------------------------------- (Address of principal executive offices) (zip code) Registrant's telephone number, including area code: (920) 235-9151 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock Preferred Share Purchase Rights - -------------------------------------------------------------------------------- (Title of Class) 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Aggregate market value of the voting and nonvoting common equity held by non-affiliates of the registrant as of November 30, 1999: Class A Common Stock, $.01 par value - No Established Market Value Common Stock, $.01 par value - $420,020,000 Number of shares outstanding of each of the registrant's classes of common stock as of November 30, 1999: Class A Common Stock, $.01 par value - 425,982 shares Common Stock, $.01 par value - 16,201,173 shares DOCUMENTS INCORPORATED BY REFERENCE Parts I, II and IV incorporate, by reference, portions of the Annual Report to Shareholders for the year ended September 30, 1999. Part III incorporates, by reference, portions of the Proxy Statement dated December 29, 1999. - -------------------------------------------------------------------------------- OSHKOSH TRUCK CORPORATION ------------------------- Index to Annual Report on Form 10-K Fiscal year ended September 30, 1999 Page ---- PART I. ITEM 1. BUSINESS ..........................................................3 ITEM 2. PROPERTIES .......................................................13 ITEM 3. LEGAL PROCEEDINGS.................................................13 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................................................14 EXECUTIVE OFFICERS OF THE REGISTRANT .............................14 PART II. ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS ................................15 ITEM 6. SELECTED FINANCIAL DATA...........................................15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS.....................................................15 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...............................................15 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.......................15 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE..........................16 PART III. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ..............................................16 ITEM 11. EXECUTIVE COMPENSATION ...........................................16 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ..........................................16 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................................................16 PART IV. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K ........................................16 INDEX TO EXHIBITS.................................................21 2 As used herein, the "Company" refers to Oshkosh Truck Corporation, including Pierce Manufacturing Inc. ("Pierce"), McNeilus Companies, Inc. ("McNeilus") and its other wholly-owned subsidiaries, and "Oshkosh" refers to Oshkosh Truck Corporation, not including Pierce or McNeilus or their wholly-owned subsidiaries. The "Oshkosh," "McNeilus" and "Pierce" trademarks and related logos are registered trademarks of the Company. All other product and service names referenced in this document are the trademarks or registered trademarks of their respective owners. All information in this document has been adjusted to reflect the three-for-two split of the Company's common stock effected on August 19, 1999 in the form of a 50% stock dividend. Forward-Looking Statements This Annual Report on Form 10-K contains "forward looking statements" which are believed to be within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact included in this report, including, without limitation, statements regarding the Company's future financial position, business strategy, budgets, targets, projected costs, and plans and objectives of management for future operations are forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "will," "expect," "intend," "estimates," "anticipate," "believe," "should," "plans," or "continue," or the negative thereof or variations thereon or similar terminology. Although the Company believes the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from the Company's expectations include, without limitation, the following: (1) the cyclical nature of the concrete placement industry; (2) the risks related to reductions or changes in U.S. government expenditures; (3) the potential for actual costs to exceed projected costs with fixed-price U.S. government contracts; (4) the risks related to suspension, termination or audit of U.S. government contracts; (5) the challenges of identifying, completing and integrating future acquisitions; (6) competition; (7) disruptions in the supply of parts or components from sole source suppliers and subcontractors; (8) product liability and warranty claims; (9) labor relations and market conditions; and (10) unanticipated events relating to Year 2000 issues. 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 prospectus dated November 18, 1999 included in the Registration Statement on Form S-3 No. 333-87149. All subsequent written and oral forward-looking statements attributable to the Company, or persons acting on its behalf, are expressly qualified in their entirety by these cautionary statements. PART I Item 1. BUSINESS -------- The Company The Company is a leading designer, manufacturer and marketer of a broad range of specialty commercial, fire and emergency apparatus and military trucks under the "Oshkosh," "Pierce," "McNeilus" and "MTM" trademarks. The Company began business in 1917 and was among the early pioneers of four-wheel drive technology. In 1981, the Company was awarded the first Heavy Expanded Mobility Tactical Truck contract for the U.S. Department of Defense ("DoD"), and quickly developed into the DoD's leading supplier of severe-duty heavy tactical trucks. In 1996, the Company began a strategic initiative to shed under performing assets and to diversify its business by making selective acquisitions in attractive specialty segments of the commercial truck and truck body markets to complement its defense truck business. The result of this initiative was an increase in sales from $413 million in fiscal 1996 to $1,165 million in fiscal 1999, with earnings from continuing operations increasing from a loss of $.02 per share for fiscal 1996 to earnings of $2.39 per share for fiscal 1999. As part of the Company's strategy, the Company has completed the following acquisitions: o Pierce, a leading manufacturer and marketer of fire trucks and other fire apparatus in the United States, in September 1996.; o Nova Quintech, a manufacturer of aerial devices for fire trucks, in December 1997; o McNeilus, a leading manufacturer and marketer of commercial specialty truck bodies, including rear-discharge concrete mixers and portable concrete batch plants for the concrete ready-mix industry and refuse truck bodies for the waste services industry, in February 1998; and o Kewaunee Engineering Corporation, a fabricator of heavy-steel components such as cranes and aerial devices, in November 1999. 3 The Company believes it has developed a reputation for excellent product quality, performance and reliability in each of the segments in which it participates. The Company has strong brand recognition in its segments and has demonstrated design and engineering capabilities through the introduction of several highly engineered proprietary components that increase the Company's products' operating performance. The Company has developed comprehensive product portfolios for each of its markets in an effort to become a single-source supplier for its customers. The Company's commercial truck lines include refuse truck bodies and rear- and front-discharge concrete mixers. The Company's custom and commercial fire apparatus and emergency vehicles include pumpers, aerial and ladder trucks, tankers, heavy-duty rescue vehicles, wildland rough terrain response vehicles, aircraft rescue and firefighting ("ARFF") and snow removal vehicles. As the leading manufacturer of severe-duty heavy tactical trucks for the DoD, the Company manufactures vehicles that perform a variety of demanding tasks such as hauling tanks, missile systems, ammunition, fuel and cargo for combat units. In December 1998, the DoD awarded Oshkosh the Medium Tactical Vehicle Replacement ("MTVR") contract for the U.S. Marine Corps., from which the Company expects to generate total sales of $1.2 billion from fiscal 2000 through fiscal 2005, assuming the DoD exercises all the options under the contract as currently anticipated. Fiscal 2000 sales under this contract are expected to be about $26 million, increasing to peak sales of about $300 million in fiscal 2002. This contract represents the Company's first production contract for medium tactical trucks for the U.S. military. McNeilus has an equity interest in Oshkosh/McNeilus Financial Services Partnership ("OMFSP"), which provides lease financing to the Company's customers. Competitive Strengths The following competitive strengths support the Company's business strategy: Strong Market Positions. The Company has developed leading market positions and brand recognition in each of its core businesses, which the Company attributes to its reputation for quality products, advanced engineering, innovation, vehicle performance, reliability and customer service. Extensive Distribution Capabilities. With the addition of the commercial and municipal distribution capabilities of Pierce and McNeilus, the Company has established an extensive domestic and international distribution system for specialty trucks and truck bodies. In addition to its network of dealers and distributors, the Company employs over 100 in-house sales and service representatives. Flexible and Efficient Manufacturing. The Company believes it has competitive advantages over larger truck manufacturers in its specialty truck markets due to its manufacturing flexibility and custom fabrication capabilities. Over the past seven years, the Company has significantly increased manufacturing efficiencies. In addition, the Company believes it has competitive advantages over smaller truck and truck body manufacturers, which comprise the majority of the competition in its markets, due to the Company's relatively higher volumes that permit the use of moving assembly lines and provide purchasing power opportunities across product lines. Diversified Product Offering and Customer Base. The Company's broad product offerings and target markets serve to diversify its revenues, mitigate the impact of economic cycles and provide multiple platforms for both internal growth and acquisitions. For each of the Company's target markets, it has developed or acquired a broad product line in order to become a single-source provider to the Company's customers. Strong Management Team. The present management team has successfully executed a strategic repositioning of the Company's business while significantly improving its financial and operating performance. With each of the recent acquisitions, the Company assimilated the management and culture of the acquired company, introduced new strategies to significantly increase sales and used the Company's expertise in purchasing and manufacturing to reduce costs. Quality Products and Customer Service. Oshkosh, Pierce and McNeilus have each developed strong brand recognition based on their commitments to meet the stringent product quality and reliability requirements of their customers and the specialty truck markets they serve. The Company's commitment to product quality is exemplified by the ISO 9001 certification of Oshkosh and Pierce. The Company also achieves high quality customer service through its extensive service and parts support program, which is available to domestic customers 365 days a year in all product lines throughout the Company's distribution systems. Proprietary Components. The Company's advanced design and engineering capabilities have contributed to the development of proprietary, severe-duty components that enhance truck performance, reduce manufacturing costs and strengthen customer relationships. These proprietary components include front drive and steer axles, transfer cases, cabs, the ALL-STEER electronic all-wheel steering system, independent suspension, the Sky-Arm articulating aerial ladder, the Hercules compressed air foam systems, the Command Zone multiplexing technology and the McNeilus Auto Reach Arm, an automated side-loading refuse body. The Company believes these proprietary components provide the Company a competitive advantage by increasing its vehicles' durability, operating 4 efficiency and effectiveness. The integration of many of these components across various product lines also reduces the Company's costs to manufacture its products compared to manufacturers who simply assemble purchased components. Business Strategy The Company is focused on increasing its net sales, profitability and cash flow by capitalizing on its competitive strengths and pursuing a comprehensive, integrated business strategy. Key elements of the Company's business strategy include: Focusing on Specialized Truck Markets. The Company plans to continue its focus on those specialized truck and truck body markets where it has strong market positions and where the Company can leverage synergies in purchasing, manufacturing, technology and distribution to increase sales and profitability. The Company believes the higher sales volumes associated with market leadership will allow the Company to continue to enhance productivity in manufacturing operations, fund innovative product development and invest in further expansion. In addition to the Company's strategies to increase market share and profitability, each of the Company's specialized truck and truck body markets is exhibiting opportunities for further market growth. Pursuing Strategic Acquisitions. The Company's present management team has successfully negotiated and integrated three acquisitions since September 1996 (and completed a fourth acquisition (Kewaunee) in November 1999) that have significantly increased the Company's sales and earnings. The Company intends to selectively pursue additional strategic acquisitions, both domestically and internationally, to enhance its product offerings and expand its international presence in specialized truck markets. The Company will focus its acquisition strategy on specialty truck and truck body markets that are growing, and where the Company can enhance its strong market positions and achieve significant acquisition synergies. Expanding Distribution and International Sales. In fiscal 2000, the Company plans to add new distribution capabilities for the municipal segment of the refuse truck body market and in targeted geographic areas in the domestic fire apparatus market. For example, in fiscal 1999, the Company added two refuse service facilities and one fire apparatus service facility and began providing refuse service at three existing mixer distribution facilities to attract additional municipal sales. The Company plans to open additional service facilities in fiscal 2000. The Company is developing strategies to increase international sales. The Company is actively recruiting new representatives and dealers in targeted international commercial markets to expand the international sales of McNeilus' refuse truck bodies and rear-discharge concrete mixers. In the summer of 1999, the Company began offering the new Contender line of custom and commercial fire trucks to Pierce's extensive international dealer network. This line of fire trucks is more appropriately priced for international sales than Pierce's historically premium-priced product line. In fiscal 2000, the Company plans to begin marketing its new medium tactical military truck to approved foreign armies when the DoD concludes testing of the initial production units. Because there have been limited sales of medium tactical trucks to foreign armies over the last ten years under the U.S. Foreign Military Sales Program and because the Company's truck has significant off-road capability at an attractive price, the Company believes that the international market for this truck will be significant. Introducing New Products. The Company has increased its emphasis on new product development in recent years, and seeks to expand sales by leading its core markets in the introduction of new or improved products, either through internal development or strategic acquisitions. For example, in fiscal 1998, the Company purchased the aerial fire apparatus product line of Nova Quintech. This acquisition broadened Pierce's aerial product line and provided Pierce with three new products in fiscal 1998. In addition, Pierce introduced seven other new products in fiscal 1998 and 1997, including the Dash 2000 and Lance 2000 chassis with Pierce's proprietary Command Zone multiplexing technology and a new Hercules compressed air foam system. In January 1999, Pierce introduced its Contender series of limited option fire apparatus produced at the Company's Bradenton, Florida facility and mounted on a commercially available or custom chassis, to compete in price segments Pierce did not previously serve. In the commercial market, the Company introduced a substantially upgraded front-discharge concrete mixer in fiscal 1999 to combine a new cab engineered and produced by Oshkosh and a new mixer package produced in part by McNeilus. For refuse customers, McNeilus introduced a new lightweight front-end loader in August 1999 targeted for the large West Coast market where McNeilus did not have a suitable product offering. In the defense market, Oshkosh recently received its first medium tactical truck contract with the award of the MTVR contract, and it continues to expand its heavy tactical truck offerings. Reducing Costs While Maintaining Quality. The Company actively benchmarks its competitors' costs and best industry practices, and continuously seeks to implement process improvements to increase profitability and cash flow. With each of its acquisitions, the Company has established cost reduction targets. At Pierce, the Company exceeded its two-year cost reduction target of $6.5 million as a result of consolidating facilities, reengineering the manufacturing process and leveraging increased purchasing power. The Company is planning for additional cost savings at Pierce in fiscal 2000. Similarly, the Company is taking advantage of its greater purchasing power and manufacturing capabilities in connection with its February 1998 acquisition of McNeilus, for which the Company established a $5 to $7 million two-year cost reduction target. In the first sixteen months following the McNeilus acquisition, the Company realized approximately $7 million of cost reductions, and believes that it ultimately could save another $3 million. In July 1999, the Company announced plans for McNeilus to invest more than $8.3 million to expand its Dodge Center, Minnesota 5 manufacturing facility. The primary purpose of the expansion is to construct two moving assembly lines with robotic welders to significantly reduce the manufacturing costs of refuse bodies. The expansion will also double the paint and refuse body manufacturing capacity of this facility. For historic product lines, the Company also establishes annual labor productivity improvement targets and, for many product lines, the Company establishes materials cost reduction targets. Products The Company is focused on the following core specialty truck and truck body markets: Commercial Segment. The Company is a leading domestic manufacturer of refuse truck bodies for the waste services industry and of rear- and front-discharge concrete mixers and portable concrete batch plants for the concrete ready-mix industry. McNeilus manufactures a wide range of automated rear, front, side and top loading refuse truck bodies, which are mounted on commercial chassis. With more than half of all mixers in the field bearing the McNeilus nameplate, McNeilus is the U.S. market share leader in rear-discharge concrete mixers. McNeilus sells its refuse vehicles primarily to commercial waste management companies, but it is building a presence with municipal customers such as the cities of Los Angeles and Philadelphia and in international markets such as England. The Company believes its refuse vehicles have a reputation for efficient, cost-effective, dependable, low maintenance operation that supports the Company's continued expansion into municipal and international markets. The Company sells rear- and front-discharge concrete mixers and portable concrete batch plants to concrete ready-mix companies throughout the United States and internationally. The Company believes it is one of the only domestic concrete mixer manufacturers that markets both rear- and front-discharge concrete mixers and portable concrete batch plants. Mixers and batch plants are marketed on the basis of their quality, dependability, efficiency, low maintenance and cost-effectiveness. The Company offers four- to seven-year tax advantaged lease financing to mixer and portable concrete batch plant customers and to commercial waste hauler customers in the United States through OMFSP, an affiliated partnership. Offerings include competitive lease financing rates and the ease of one-stop shopping for customers' equipment and financing. Fire and Emergency Segment. Through Pierce, the Company is the leading domestic manufacturer of fire apparatus assembled on a custom chassis, which is designed and manufactured by Pierce to meet the special needs of firefighters. Pierce also manufactures fire apparatus assembled on a commercially available chassis, which is produced for multiple end-customer applications. Pierce primarily serves domestic governmental markets, but also sells fire apparatus to airports, universities and large industrial companies, and in international markets. Pierce's history of innovation and research and development in consultation with firefighters has resulted in a broad product line that features a wide range of innovative, high-quality custom and commercial firefighting equipment with advanced fire suppression capabilities. Pierce's engineering expertise also allows it to design its vehicles to meet stringent government regulations for safety and effectiveness. The Company is among the leaders in the sale of aircraft rescue and firefighting vehicles to domestic and international airports. These highly specialized vehicles are required to be in-service at most airports worldwide to support commercial airlines in the event of an emergency. Many of the largest airports in the world, including LaGuardia International Airport, O'Hare International Airport and Los Angeles International Airport in the United States and airports in the People's Republic of China and Montreal and Toronto, Canada, are served by the Company's aircraft rescue and firefighting vehicles. The Company believes that the reliability of its aircraft rescue and firefighting vehicles contributes to the Company's strong market position. The Company remains the leader in airport snow removal in the United States. The Company's specially designed airport snow removal vehicles can cast up to 4,000 tons of snow per hour and are used by some of the largest airports in the United States, including Denver International Airport, LaGuardia International Airport, Minneapolis-St. Paul International Airport and O'Hare International Airport. The Company believes that the reliability of its high performance snow removal vehicles and the speed with which they clear airport runways contributes to its leading market position. In fiscal 1999, the Company introduced a downsized all-wheel drive snow removal vehicle for municipal markets to take advantage of the Company's strong brand name and meet the needs of heavy snow regions of the United States. Through an independent third party finance company, the Company offers two- to ten-year municipal lease financing programs to its fire and emergency customers in the United States. Programs include competitive lease financing rates, creative and flexible finance arrangements and the ease of one-stop shopping for Pierce's customers' equipment and financing. Defense Truck Segment. The Company has sold products to the DoD for over 70 years. The Company's proprietary military all-wheel drive product line includes the Heavy Expanded Mobility Tactical Truck ("HEMTT"), the Heavy Equipment Transporter ("HET"), the Palletized Load System ("PLS") and the Logistic Vehicle System ("LVS"). The Company also exports severe-duty heavy tactical trucks to approved foreign customers. 6 The Company has developed a strong relationship with the DoD over the years that has resulted in the Company operating under "family contracts" with the DoD for the HEMTT, HET, PLS and LVS and for DoD vehicle parts. "Family contracts" is the term given to contracts that group similar models together to simplify the acquisition process. Under the vehicle family contracts, the DoD orders a specified range of volume of either HET and PLS trucks or HEMTT and LVS trucks at fixed prices, which allows the Company to predict and plan its long-term production and delivery schedules for vehicles. Current family contracts expire in fiscal years 2000 and 2001. With the award of the MTVR contract, the Company will become a major manufacturer of medium tactical trucks for the U.S. Marine Corps. The Goal of the U.S. Marine Corps is to upgrade the current configuration to carry a much greater payload with substantially increased cross-country mobility. These trucks are equipped with the Company's patented independent suspension and transfer cases, and central tire inflation to enhance off-road performance. This program is currently expected to include the production of 5,666 trucks with options for up to 2,502 additional trucks. The total value of this contract could reach $1.2 billion, including the options, or $850 million, exclusive of options, over the fiscal years 2000 through 2005. Testing of the initial ten trucks begins in December 1999. In early 2000, production is scheduled to be one truck per day, ultimately increasing to eight trucks per day in August 2001. The U.S. Army has commenced a competition to add a second supplier to build Family of Medium Tactical Vehicles ("FMTV"). The Company received a $1.9 million contract in November 1998 to compete with one other truck manufacturer to qualify as a second source to produce three trucks for testing by the DoD under Phase I of its second source supplier qualification plan. The three Oshkosh FMTVs produced under this contract have successfully completed Phase I testing. A new law embodied in the fiscal year 2000 Defense Authorization Act cancelled the above mentioned second source program, however, it directed the Army to go forward with a competition for 100% of the next procurement, which is expected to involve production for the winner in 2003. The Company's objective is to continue to diversify into other areas of the U.S. defense truck market by expanding applications, uses and body styles of its current heavy and medium tactical truck lines and by competing for the next generation of light tactical trucks, which is expected to be opened for competition early in the next decade. As the Company enters the medium tactical truck and seeks to enter the light tactical truck areas of the defense market, management believes that the Company has multiple competitive advantages, including: o Proprietary components. The Company's patented independent suspension and transfer cases enhance its trucks' off-road performance. In addition, because these are two of the highest cost components in a truck, the Company has a competitive cost-advantage from in-house manufacturing of these two truck components. o Past performance. The Company has been building trucks for the DoD for 70 years. The Company believes that its past success in delivering reliable, high quality trucks on time, within budget and meeting specifications, is a competitive advantage in future defense truck procurement programs. The Company understands the special contract procedures in use by the DoD and has developed substantial expertise in contract management and accounting. o Flexible manufacturing. The Company's ability to produce a variety of truck models on the same moving assembly line permits it to avoid facilitation costs on most new contracts and maintain competitive manufacturing efficiencies. o Logistics. The Company has gained significant experience in the development of operators' manuals and training and in the delivery of parts and services worldwide in accordance with the DoD's expectations, which differ materially from commercial practices. o Truck engineering and testing. DoD truck contract competitions require significant defense truck engineering expertise to ensure that a company's truck excels under demanding testing conditions. The Company has a team of 48 engineers and draftsmen to support current business and truck contract competitions. These personnel have significant expertise designing new trucks, using sophisticated computer aided tools, supporting grueling testing programs at DoD test sites and submitting detailed, comprehensive, successful contract proposals. Marketing, Sales and Distribution The Company believes it differentiates itself from many of its larger competitors by tailoring its distribution to the needs of its specialized truck markets and from its smaller competitors with its national and global sales and service capabilities. Distribution personnel use demonstration trucks to show customers how to use the Company's trucks and truck bodies properly. In addition, the Company's flexible distribution is focused on meeting customers on their terms, whether on a jobsite, an evening public meeting or a municipality's offices, compared to the showroom sales approach of the typical dealers of large truck manufacturers. The Company backs all products by same-day parts shipment, and its service technicians are available in person or by telephone to domestic customers 365 days a year. The Company believes its dedication to keeping its trucks in-service in demanding conditions worldwide has contributed to customer loyalty. 7 The Company provides its salespeople, representatives and distributors with product and sales training on the operation and specifications of its products. The Company's engineers, along with its product managers, develop operating manuals and provide field support at truck delivery for some markets. Dealers and representatives, where used, enter into agreements with the Company that allows for termination by either party generally upon 90 days' notice. Dealers and representatives are not permitted to market and sell competitive products. Commercial Segment. The Company operates 15 distribution centers with 95 in-house sales and service representatives in the U.S. to sell and service the refuse truck bodies, rear- and front-discharge concrete mixers and concrete batch plants. The Company also uses one independent distributor for front-discharge concrete mixers. Eleven of the Company's distribution centers provide sales, service and parts distribution to customers in their geographic regions. Four of the distribution centers also have paint facilities and provide significant additional paint and mounting services during peak demand periods. Two of the centers also manufacture concrete mixer replacement barrels. The Company believes this network represents one of the largest refuse truck body and concrete mixer distribution networks in the United States. In fiscal 2000, the Company plans on adding one additional distribution center and to begin manufacturing concrete mixer replacement barrels at a third center. The Company believes its direct distribution to customers is a competitive advantage in commercial markets, particularly in the waste services industry where principal competitors distribute through dealers and to a lesser extent in the ready-mix concrete industry, where several competitors in part use dealers. In addition to the avoidance of dealer commissions, the Company believes direct distribution permits a more focused sales force in refuse body markets whereas dealers frequently offer a very broad product line, and accordingly, the time dealers tend to devote to refuse body sales activities is limited. With respect to commercial market distribution efforts, the Company has begun to apply Oshkosh's and Pierce's sales and marketing expertise in municipal markets to increase sales of McNeilus refuse truck bodies to municipal customers. Prior to the Company's acquisition of McNeilus, virtually all McNeilus refuse truck body sales were to commercial customers. While the Company believes commercial customers represent a majority of the refuse truck body market, many municipalities purchase their own refuse trucks. The Company believes it is positioned to create an effective municipal distribution system in the refuse truck body market by leveraging its existing commercial distribution capabilities and by opening service centers in major metropolitan markets. The Company opened two centers in fiscal 1999. Following its acquisition and new focus in municipal markets, McNeilus has been awarded new business for the cities of Philadelphia, PA and Los Angeles, CA and has targeted other major metropolitan areas. The Company also has begun to offer McNeilus refuse truck bodies, rear-discharge concrete mixers and concrete batch plants to Oshkosh's international representatives and dealers for sales and service worldwide. McNeilus' international sales have historically been limited because McNeilus had focused on the domestic market. However, the Company believes that refuse body exports are a significant percentage of some competitors' sales and represent a meaningful opportunity for McNeilus. The Company is training its international Oshkosh and Pierce representatives and dealers to sell and service the McNeilus product line and has commenced sales of McNeilus products through these representatives and dealers in the first nineteen months following the acquisition. The Company has also been actively recruiting new refuse and rear discharge concrete mixer representatives and dealers worldwide. Fire and Emergency Segment. The Company believes the geographical breadth, size and quality of its fire apparatus sales and service organization are competitive advantages in a market characterized by a few large manufacturers and numerous small, regional competitors. Pierce's fire apparatus are sold through 37 sales and service organizations with more than 240 sales representatives nationwide, which combine broad geographical reach with frequency of contact with fire departments and municipal government officials. These sales and service organizations are supported by 65 product and marketing support professionals and contract administrators at Pierce. The Company believes frequency of contact and local presence are important to cultivate major, and typically infrequent, purchases involving the city or town council and fire department, purchasing, finance, and mayoral offices, among others, that may participate in a fire truck bid and selection. After the sale, Pierce's nationwide local parts and service capability is available to help municipalities maintain peak readiness for this vital municipal service. Pierce primarily focused its sales efforts in rural and small suburban domestic markets prior to its acquisition by Oshkosh. Due to the Company's expertise and long-standing relationships in numerous large urban markets, the Company has extended Pierce's sales focus into several key metropolitan areas. As a result of this focus and since its acquisition, Pierce has been awarded new business in the cities of Los Angeles, California; Richmond, Virginia; Tampa and Miami, Florida; and Honolulu, Hawaii; among other major cities, and continues to target other urban markets. Prior to its acquisition by Oshkosh, Pierce had targeted premium-priced markets where it could use its innovative technology, quality and advanced customization capabilities. In January 1999, Pierce also began targeting price sensitive domestic and international markets through the introduction of its Contender series of lower-priced commercial and custom pumpers. These 8 limited-option vehicles are being produced in the Company's Bradenton, Florida facility for lower cost delivery to international customers. Pierce substantially strengthened its competitive position overseas in fiscal 1998 and 1999. Pierce's worldwide distribution network was expanded from one to 25 international representatives and dealers. This network has delivered several new orders in fiscal 1998 and 1999 from government agencies and private companies in Egypt, the Philippines, Latin America and South Africa, among other countries. The Company has invested in the development of sales tools for its representatives that it believes create a competitive advantage in the sale of fire apparatus. For example, Pierce's Pride 2000 PC-based sales tool can be used by its sales representatives to develop the detail specifications, price the base truck and options and draw the configured truck on the customer's premises. The quote, if accepted, is directly interfaced into Pierce's sales order systems. The Company's aircraft rescue and firefighting vehicles are marketed through a combination of three direct sales representatives domestically and 53 representatives and dealers in international markets. In addition, the Company maintains 23 full-time sales and service representative and dealer organizations which have over 100 sales people focused on the sale of snow removal vehicles, principally to airports, but also to municipalities, counties and other governmental entities. Defense Segment. Substantially all domestic defense products are sold directly to principal branches of the DoD. The Company maintains a liaison office in Washington, D.C. to represent its interests with the Pentagon, Congress and the offices of the Executive Branch. The Company also sells and services defense products to foreign governments directly through four international sales offices, through dealers, consultants and representatives, and through the United States Foreign Military Sales ("FMS") program. The DoD has begun to rely on industry for support and sustainability of its vehicles which has opened up new opportunities for maintenance, service and contract support to the U.S. Army and U.S. Marine Corps. The Company maintains a marketing staff of four individuals that regularly meets with all branches of the Armed Services, Reserves and National Guard and with representatives of key military bases to determine their vehicle requirements and identify specialty truck variants and apparatus required to fulfill their missions. In addition to marketing its current truck offerings and competing for new contracts in the medium- and light-payload segments, the Company actively works with the Armed Services to develop new applications for its vehicles and expand its services. Manufacturing The Company manufactures trucks and truck bodies at twelve manufacturing facilities. Employee involvement is encouraged to improve production processes and product quality. In order to reduce production costs, the Company maintains a continuing emphasis on the development of proprietary components, self-sufficiency in fabrication, just-in-time inventory management, improvement in production flows, interchangeability and simplification of components among product lines, creation of jigs and fixtures to ensure repeatability of quality processes, utilization of robotics, and performance measurement to assure progress toward cost reduction targets. The Company also employs a team of industrial engineers that travel to all plants to study and streamline workflows. The Company intends to continue to upgrade its manufacturing capabilities by adopting best practices across its manufacturing facilities, relocating manufacturing activities to the most efficient facility, investing in further fixturing and robotics, re-engineering manufacturing processes and adopting lean manufacturing management practices across all facilities. The Company is drawing upon its recent experience with the Pierce acquisition in integrating the McNeilus manufacturing facilities. Within the first year following the Pierce acquisition, the Company consolidated three Pierce manufacturing facilities down to two while increasing Pierce's capacity by improving product flow. In addition, among other things, the Company reduced the number of operating shifts at the Pierce paint plant from three to one to substantially reduce utility costs, implemented indexing of production lines and relocated chassis frame build-up to Oshkosh to improve production efficiencies, and eliminated storage rooms to relocate inventory to point of use thereby eliminating duplicate material handling. Likewise, at McNeilus, the Company has installed seven additional robots and re-arranged weld and mount activities. In the summer of 1999, the Company began construction of a 100,000 square foot, $8.3 million expansion at its Dodge Center, Minnesota facility, which expands paint capacity and doubles refuse body manufacturing capacity. The primary purpose of the expansion is to construct two moving assembly lines with robotic welders to significantly reduce the manufacturing costs of refuse bodies. In 1994, Oshkosh commenced a program to educate and train all employees at its Oshkosh facilities in quality principles and to seek ISO 9001 certification to improve the Company's competitiveness in its global markets. ISO 9001 is a set of internationally accepted quality requirements established by the International Organization for Standardization, which indicates that a company has 9 established and follows a rigorous set of requirements aimed at achieving customer satisfaction by preventing nonconformity in design, development, production, installation and servicing of products. Employees at all levels of the Company are encouraged to understand customer and supplier requirements, measure performance, develop systems and procedures to prevent nonconformance with requirements and produce continuous improvement in all work processes. Oshkosh achieved ISO 9001 certification in 1995 and Pierce achieved ISO 9001 certification in 1998. The Company is evaluating whether to pursue ISO 9001 certification for McNeilus. Although management does not consider such certification essential for McNeilus' domestic markets, the Company may conclude it is valuable in marketing to certain international customers. Engineering, Research and Development The Company's extensive engineering, research and development capabilities have been key drivers of the Company's marketplace success. The Company maintains three facilities for new product development and testing with a staff of 51 engineers and technicians who are responsible for improving existing products and development and testing of new trucks, truck bodies and components. The Company prepares annual new product development and improvement plans for each of its markets and measures progress against those plans each month. Virtually all of the Company's sales of fire apparatus require some custom engineering to meet the customer's specifications and changing industry standards. Engineering is also a critical factor in defense truck markets due to the severe operating conditions under which the Company's trucks are utilized, new customer requirements and stringent government documentation requirements. In the commercial markets, product innovation is highly important to meet customers' changing requirements. Accordingly, the Company maintains a permanent staff of over 300 engineers and engineering technicians, and it regularly outsources significant engineering activities in connection with major DoD bids and proposals. For fiscal years 1999, 1998 and 1997, the Company incurred engineering, research and development expenditures of $10.9 million, $9.7 million and $7.8 million, respectively, portions of which were recoverable from customers, principally the U.S. government. Competition The Company operates in highly competitive industries. The Company competes in the fire apparatus and defense truck markets principally on the basis of lowest qualified bid. To submit a qualified bid, the bidder must demonstrate that the fire apparatus or defense truck meets stringent specifications and, for most defense truck contracts, passes extensive testing. In addition, decreases in the DoD budget have resulted in a reduction in the number and size of contracts, which has intensified the competition for remaining available contracts. The Company and its competitors continually undertake substantial marketing, technical and legislative actions in order to maintain existing levels of defense business. In the refuse truck body and concrete mixer markets, the Company also faces intense competition on the basis of price, innovation, quality, service and product performance. As the Company seeks to expand its sales of refuse truck bodies to municipal customers, management believes the principal basis of competition for such business will be lowest qualified bid. In all of the Company's markets, competitors include smaller, specialized manufacturers as well as large, mass producers. The Company believes that, in its specialized truck markets, it has been able to effectively compete against large, mass producers due to product quality, flexible manufacturing and specialized distribution systems. The Company believes that its competitive cost structure, engineering expertise, product quality and global distribution systems have enabled it to compete effectively with other specialized manufacturers. Principal competitors of McNeilus in the refuse truck body market include The Heil Company (a subsidiary of Dover Corporation), Leach Company and McClain E-Z Pack, Inc. Principal competitors of McNeilus and Oshkosh in concrete mixer markets include Advance Mixer, Inc., London Machinery, Inc. and T.L. Smith Machine Co., Inc. Oshkosh's principal competitor in the airport snow removal market is Stewart & Stevenson Services, Inc. Pierce's principal competitors in the fire apparatus market include Emergency One, Inc. (a subsidiary of Federal Signal Corporation), Kovatch Mobile Equipment Corp., and numerous small, regional manufacturers. Oshkosh's principal competitor for aircraft rescue and firefighting sales is Emergency One, Inc. Oshkosh's principal competitors for DoD contracts include AM General Corporation and Stewart & Stevenson Services, Inc. The Company also faces competition from its competitors for acquisition opportunities. Several of the Company's competitors have greater financial, marketing, manufacturing and distribution resources than the Company. There can be no assurance that the Company's products will continue to compete successfully with the products of competitors or that the Company will be able to retain its customer base or to improve or maintain its profit margins on sales to its customers, all of which could materially adversely affect the Company's financial condition, profitability and cash flows. 10 Customers and Backlog Sales to the DoD comprised approximately 19% of the Company's net sales for fiscal 1999. 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 September 30, 1999 was $486.5 million compared to $377.5 million at September 30, 1998. Commercial backlogs increased by $39.0 million to $122.3 million at September 30, 1999 compared to the prior year. Fire and emergency backlogs increased by $16.6 million to $200.3 million at September 30, 1999 compared to the prior year. Backlog related to DoD contracts decreased by $53.4 million to $163.9 million at September 30, 1999 compared to September 30, 1998 with approximately $46.6 million due to the multi-year MTVR contract awarded in December 1998. Approximately 6% of the September 30, 1999 backlog is not expected to be filled in fiscal 2000. Reported backlog excludes purchase options and announced orders for which definitive contracts have not been executed. Additionally, backlog excludes unfunded portions of DoD long-term family 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. Government Contracts Approximately 19% of the Company's net sales for fiscal 1999 were made to the U.S. government under long-term contracts and programs, the majority of which were in the defense truck market. Accordingly, a significant portion of the Company's sales are subject to risks specific to doing business with the U.S. government, including uncertainty of economic conditions, changes in government policies and requirements that may reflect rapidly changing military and political developments and the availability of funds. The Company's sales into defense truck markets are substantially dependent upon periodic awards of new contracts and the purchase of base vehicle quantities and the exercise of options under existing contracts. The Company's existing contracts with the DoD may be terminated at any time for the convenience of the government. Upon such termination, the Company would generally be entitled to reimbursement of its incurred costs and, in general, to payment of a reasonable profit for work actually performed. Contractually under the Company's MTVR contract, the Company is entitled to $11 million in program year two and $5 million in program year three if the contract is terminated for the convenience of the government. Under firm fixed-price contracts with the government, the price paid to the Company is generally not subject to adjustment to reflect the Company's actual costs, except costs incurred as a result of contract changes ordered by the government. The Company generally attempts to negotiate with the government the amount of increased compensation to which the Company is entitled for government-ordered changes that result in higher costs. If the Company is unable to negotiate a satisfactory agreement to provide such increased compensation, then the Company may file an appeal with the Armed Services Board of Contract Appeals or the U.S. Claims Court. The Company has no such appeals pending. The Company seeks to mitigate risks with respect to fixed price contracts by executing firm fixed price contracts with qualified suppliers for the duration of the Company's contracts. The Company, as a U.S. government contractor, is subject to financial audits and other reviews by the U.S. government of performance of, and the accounting and general practices relating to, U.S. government contracts, and like most large government contractors, the Company is audited and reviewed on a continual basis. Costs and prices under such contracts may be subject to adjustment based upon the results of such audits and reviews. Additionally, such audits and reviews can and have led to civil, criminal or administrative proceedings. Such proceedings could involve claims by the government for fines, penalties, compensatory and treble damages, restitution and/or forfeitures. Under government regulations, a company or one or more of its subsidiaries can also be suspended or debarred from government contracts, or lose its export privileges based on the results of such proceedings. The Company believes, based on all available information, that the outcome of all such audits, reviews and proceedings will not have a material adverse effect on its consolidated financial condition or results of operations. Suppliers The Company is highly dependent on its suppliers and subcontractors in order to meet commitments to its customers, and many major components are procured or subcontracted on a sole-source basis with a number of domestic and foreign companies. Through its reliance on this supply network for the purchase of certain components, the Company is able to avoid many of the preproduction and fixed costs associated with the manufacture of those components. The Company maintains an extensive qualification, on-site inspection and assistance and performance measurement system to control risks associated with such reliance on suppliers. The 11 Company occasionally experiences problems with supplier and subcontractor performance and must identify alternate sources of supply and/or address related warranty claims from customers. While the Company purchases many costly components such as engines, transmissions and axles, it manufactures certain proprietary components that are deemed material to each of the Company's segments. These components include front drive and steer axles, transfer cases, cabs, the ALL-STEER electronic all-wheel steering system, independent suspension, the Sky-Arm articulating aerial ladder, the McNeilus Auto Reach Arm, the Hercules compressed air foam systems, the Command Zone proprietary multiplexing system, body structures and many smaller parts which add uniqueness and value to the Company's products. Internal production of these components provides a significant competitive advantage and also serves to reduce the manufacturing costs of the Company's products. Intellectual Property Patents and licenses are important in the operation of the Company's business, as one of management's key objectives is developing proprietary components to provide the Company's customers with advanced technological solutions at attractive prices. The Company holds in excess of 80 active domestic and 50 foreign patents. The Company believes patents for all-wheel steer and independent suspension systems, which have remaining lives of 9 to 14 years, provide the Company with a competitive advantage in the fire and emergency segment. In the defense segment, the independent suspension system was added to the U.S. Marine Corps' MTVR program, which the Company believes provided a performance and cost advantage in the successful competition for the Phase II production contract. To a lesser extent, other proprietary components provide the Company a competitive advantage in the Company's other segments. See Legal Proceedings. The Company holds trademarks for "Oshkosh," "Pierce" and "McNeilus." These trademarks are considered to be important to the future success of the Company's business. Employees As of November 30, 1999, the Company had approximately 4,100 employees, of which approximately 1,300, 1,400, 1,100, 100 and 200 employees are located at its principal facilities in Oshkosh, Wisconsin, Appleton, Wisconsin, Dodge Center, Minnesota, Bradenton, Florida and Kewaunee, Wisconsin, respectively. Production workers totaling approximately 800 employees at the Company's Oshkosh facilities are represented by the United Auto Workers union. The Company's five-year contract with the United Auto Workers union extends through September 30, 2001. The Company believes its relationship with employees is satisfactory. Industry Segments Financial information concerning the Company's industry segments is included in Note 13 to the Consolidated Financial Statements contained in the Company's Annual Report to Shareholders for the fiscal year ended September 30, 1999 and such information is incorporated herein by reference. Foreign and Domestic Operations and Export Sales Financial information concerning the Company's foreign and domestic operations and export sales is included in Note 13 to the Consolidated Financial Statements contained in the Company's Annual Report to Shareholders for the fiscal year ended September 30, 1999 and such information is incorporated herein by reference. 12 Item 2. PROPERTIES ---------- Management believes the Company's equipment and buildings are modern, well maintained and adequate for its present and anticipated needs. As of November 30, 1999, the Company operated in twelve manufacturing facilities and owned another facility that was not in use. The location, size and focus of the Company's facilities is provided in the table below:
Approximate Square Footage Principal Location (# of facilities) Owned Leased Products Manufactured ----------------------------- ----------------- -------------- -------------------------------------------- Oshkosh, Wisconsin(3)....... 688,000 Defense Trucks; Front-Discharge Mixers; Snow Removal Vehicles; ARFF Vehicles Appleton, Wisconsin(2)...... 589,000 19,000 Fire Apparatus Dodge Center, Minnesota(1).. 612,000 Rear-Discharge Mixers; Refuse Truck Bodies Portable Batch Plants Bradenton, Florida(1)....... 287,000 Fire Apparatus; Defense Trucks and Truck Bodies Kewaunee, Wisconsin(1)...... 175,000 Aerial Devices and Heavy Steel Fabrication Riceville, Iowa(1).......... 108,000 Components for Rear-Discharge Mixers and Refuse Truck Bodies Kensett, Iowa(1)............ 65,000 Not currently in use McIntire, Iowa(1)........... 28,000 Components for Rear-Discharge Mixers and Refuse Truck Bodies Weyauwega, Wisconsin(1)..... 28,000 Refurbished Fire Apparatus Ontario, California(1)...... 23,000 Refurbished Fire Apparatus
The Company's manufacturing facilities generally operate five days per week on one shift, except for one-week shutdowns in July and December. Management believes the Company's manufacturing capacity could be significantly increased with limited capital spending by working an additional shift at each facility. In addition to sales and service activities at the Company's manufacturing facilities, the Company maintains fifteen sales and service centers in the United States. The Company owns such facilities in Colton, California; Commerce City, Colorado; Villa Rica, Georgia; Lithia Springs, Georgia; Hutchins, Texas; Morgantown, Pennsylvania; Gahanna, Ohio; Dodge Center, Minnesota; Bradenton, Florida; and Oshkosh, Wisconsin. The Company leases such facilities in Milpitas, California; Tacoma, Washington; Salt Lake City, Utah; Aurora, Illinois; and East Granby, Connecticut. These facilities range in size from approximately 3,000 square feet to approximately 46,000 square feet and are used primarily for sales and service of concrete mixers and refuse bodies. The Company's facilities are pledged as collateral under the terms of the Company's Senior Credit Facility. Item 3. LEGAL PROCEEDINGS ----------------- The Company was engaged in litigation against Super Steel Products Corporation ("SSPC"), the Company's former supplier of mixer systems for forward-discharge concrete mixer trucks under a long-term supply contract. SSPC sued the Company in state court claiming the Company breached the contract. On July 26, 1996, a jury returned a verdict for SSPC awarding damages totaling $4.5 million. On October 10, 1996, the state court judge overturned the verdict against the Company, granted judgment for the Company on its counterclaim, and ordered a new trial for damages on the Company's counterclaim. Both SSPC and the Company appealed the state court judge's decision. On December 8, 1998, the Wisconsin Court of Appeals ordered a state court judge to reinstate the jury verdict against the Company awarding damages totaling approximately $4.5 million plus interest to SSPC. On April 6, 1999, the Company's petition for review of this decision by the Wisconsin Supreme Court was denied. On April 12, 1999, the Company petitioned the state court judge to act on the Company's previous motion for a retrial. The petition was denied on June 18, 1999 and the state court directed that judgment be entered. In lieu of further appeals, the Company paid $5.75 million on July 27, 1999 in final settlement of the matter. McNeilus is a defendant in litigation, which was commenced in 1993 prior to the acquisition of McNeilus by the Company, in the U.S. District Court for the Northern District of Alabama. The litigation, which was brought by The Heil Co. ("Heil"), a McNeilus competitor, seeks damages and claims that McNeilus infringed certain aspects of its patent for refuse packer design. The patent referenced in the matter was allowed by Heil to lapse in 1995. The Company has denied infringement and asserted that the patent is invalid, both on the basis of prior art and on a defective application. A trial is scheduled in early calendar 2000. The Company is vigorously contesting the claims and has established a reserve for litigation and defense costs. The Company is subject to federal, state and local environmental laws and regulations that impose limitations on the discharge of pollutants into the environment and establish standards for the treatment, storage and disposal of toxic and hazardous wastes. As part of its routine business operations, the Company disposes of and recycles or reclaims certain industrial waste materials, chemicals and 13 solvents at third party disposal and recycling facilities that 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 Comprehensive Environmental Response, Compensation, and Liability Act (the "Superfund" law) and similar state laws, each potentially responsible party ("PRP") that contributed hazardous substances may be jointly and severally liable for the costs associated with cleaning up the site. Typically, PRPs negotiate a resolution with the EPA and/or the state environmental agencies. PRPs also negotiate with each other regarding allocation of the cleanup cost. As to one such Superfund site, Pierce is one of 431 PRPs participating in the costs of addressing the site and has been assigned an allocation share of approximately 0.04%. Currently, a report of the remedial investigation/feasibility study is being completed, and as such, an estimate for the total cost of the remediation of this site has not been made to date. However, based on estimates and the assigned allocations, the Company believes its liability at the site will not be material and its share is adequately covered through reserves established by the Company at September 30, 1999. Actual liability could vary based on results of the study, the resources of other PRPs and the Company's final share of liability. The Company is addressing a regional trichloroethylene ("TCE") groundwater plume on the south side of Oshkosh, Wisconsin. The Company believes there may be multiple sources in the area. TCE was detected at the Company's North Plant facility with testing showing the highest concentrations in a monitoring well located on the upgradient property line. Because the investigation process is still ongoing, it is not possible for the Company to estimate its long-term total liability associated with this issue at this time. Also, as part of the regional TCE groundwater investigation, the Company conducted a groundwater investigation of a former landfill located on Company property. The landfill, acquired by the Company in 1972, is approximately 2.0 acres in size and is believed to have been used for the disposal of household waste. Based on the investigation, the Company does not believe the landfill is one of the sources of the TCE contamination. Based upon current knowledge, the Company believes its liability associated with the TCE issue will not be material and is adequately covered through reserves established by the Company at September 30, 1999. However, this may change as investigations proceed by the Company, other unrelated property owners, and government entities. The Company is subject to other environmental matters and legal proceedings and claims, including patent, antitrust, product liability and state dealership regulation compliance proceedings. Although the final results of all such claims cannot be predicted with certainty, management believes that the ultimate resolution of all such matters and claims, after taking into account the liabilities accrued with respect to such matters and claims, will not have a material adverse effect on the Company's financial condition or results of operations. Actual results could vary, among other things, due to the uncertainties involved in litigation. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. --------------------------------------------------- No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended September 30, 1999. EXECUTIVE OFFICERS OF THE REGISTRANT - ------------------------------------ The following table sets forth certain information as of November 30, 1999 concerning the Company's executive officers. All of the Company's officers serve terms of one year and until their successors are elected and qualified. Name Age Title ---------------------- --- ------------------------------------------------ Robert G. Bohn........ 46 President and Chief Executive Officer Timothy M. Dempsey.... 59 Executive Vice President, General Counsel and Secretary Paul C. Hollowell..... 58 Executive Vice President and President, Defense Business Daniel J. Lanzdorf.... 51 Executive Vice President and President, McNeilus Companies, Inc. John W. Randjelovic... 55 Executive Vice President and President, Pierce Manufacturing Inc. Charles L. Szews...... 43 Executive Vice President and Chief Financial Officer Matthew J. Zolnowski.. 46 Executive Vice President, Corporate Administration Robert G. Bohn. Mr. Bohn joined the Company in 1992 as Vice President-Operations. He was appointed President and Chief Operating Officer in 1994. He was appointed President and Chief Executive Officer in October 1997. Prior to joining the Company, Mr. Bohn was Director-European Operations for Johnson Controls, Inc., Milwaukee, Wisconsin, which manufactures, among other things, automotive products. He worked for Johnson Controls from 1984 until 1992. He was elected a Director of the Company in June 1995. He is a director of Graco, Inc. Timothy M. Dempsey. Mr. Dempsey joined the Company in October 1995 as Vice President, General Counsel and Secretary. Mr. Dempsey has been and continues to be a partner in the law firm of Dempsey, Magnusen, Williamson and Lampe in Oshkosh, Wisconsin. 14 Paul C. Hollowell. Mr. Hollowell joined the Company in April 1989 as Vice President-Defense Products and assumed his present position in February 1994. Daniel J. Lanzdorf. Mr. Lanzdorf joined the Company in 1973 as a design engineer and has served in various assignments including Chief Engineer -- Defense, Director of Defense Engineering, Director of the Defense Business unit, and Vice President of Manufacturing prior to assuming his current position in September 1998. John W. Randjelovic. Mr. Randjelovic joined the Company in October 1992 as Vice President and General Manager in charge of the Bradenton, Florida Division. In September 1996, he was appointed Vice President of Manufacturing, Purchasing, and Materials for Pierce and assumed his present position in October 1997. Charles L. Szews. Mr. Szews joined the Company in March 1996 as Vice President and Chief Financial Officer and assumed his present position in October 1997. Mr. Szews was previously employed by Fort Howard Corporation, a manufacturer of tissue products, from June 1988 until March 1996 in various positions, including Vice President and Controller from September 1994 until March 1996. Matthew J. Zolnowski. Mr. Zolnowski joined the Company as Vice President-Human Resources in January 1992 and assumed his present position in September 1998. PART II Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS. -------------------------------------------------------------------- The information under the captions "Financial Highlights" and "Dividends and Common Stock Price" and Notes 7 and 11 to the Consolidated Financial Statements contained in the Company's Annual Report to Shareholders for the fiscal year ended September 30, 1999, is hereby incorporated by reference in answer to this item. In July 1995, the Company's board of directors authorized the repurchase of up to 1,500,000 shares of Common Stock. As of December 23, 1999, the Company has repurchased 692,302 shares under this program at a cost of $6.6 million. Item 6. SELECTED FINANCIAL DATA. ----------------------- The information under the caption "Financial Highlights" contained in the Company's Annual Report to Shareholders for the fiscal year ended September 30, 1999, is hereby incorporated by reference in answer to this item. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL ------------------------------------------------------------------ CONDITION AND RESULTS OF OPERATIONS. ----------------------------------- The information under the caption "Management's Discussion and Analysis" contained in the Company's Annual Report to Shareholders for the fiscal year ended September 30, 1999, is hereby incorporated by reference in answer to this item. Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ---------------------------------------------------------- The information under the caption "Management's Discussion and Analysis - Financial Market Risk" contained in the Company's Annual Report to Shareholders for the fiscal year ended September 30, 1999, is hereby incorporated by reference in answer to this item. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. ------------------------------------------- The financial statements set forth in the Company's Annual Report to Shareholders for the fiscal year ended September 30, 1999, are hereby incorporated by reference in answer to this item. Data regarding quarterly results of operations included in Note 11 to the Consolidated Financial Statements contained in the Company's Annual Report to Shareholders for the fiscal year ended September 30, 1999, is hereby incorporated by reference. 15 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND --------------------------------------------------------------- FINANCIAL DISCLOSURES. --------------------- None. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. -------------------------------------------------- The information under the captions "Governance of the Company - the Board of Directors" and "Stock Ownership - Compliance with Section 16(a) Beneficial Ownership Reporting" of the Company's definitive proxy statement for the annual meeting of shareholders on January 31, 2000, as filed with the Securities and Exchange Commission, is hereby incorporated by reference in answer to this item. Reference is also made to the information under the heading "Executive Officers of the Registrant" included under Part I of this report. Item 11. EXECUTIVE COMPENSATION. ---------------------- The information under the captions "Governance of the Company - Compensation of Directors," "Stock Price Performance Graph" and "Executive Compensation" contained in the Company's definitive proxy statement for the annual meeting of shareholders on January 31, 2000, as filed with the Securities and Exchange Commission, is hereby incorporated by reference in answer to this item. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. -------------------------------------------------------------- The information under the caption "Stock Ownership - Stock Ownership of Directors, Executive Officers and Other Large Shareholders" contained in the Company's definitive proxy statement for the annual meeting of shareholders on January 31, 2000, as filed with the Securities and Exchange Commission, is hereby incorporated by reference in answer to this item. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. ---------------------------------------------- None. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. --------------------------------------------------------------- (a) 1. Financial Statements: The following consolidated financial statements of the company and the report of independent auditors included in the Annual Report to Shareholders for the fiscal year ended September 30, 1999, are incorporated by reference in Item 8: Report of Ernst & Young LLP, Independent Auditors Consolidated Statements of Income for the years ended September 30, 1999, 1998 and 1997 Consolidated Balance Sheets at September 30, 1999 and 1998 Consolidated Statements of Shareholders' Equity for the years ended September 30, 1999, 1998 and 1997. Consolidated Statements of Cash Flows for the years ended September 30, 1999, 1998 and 1997 Notes to Consolidated Financial Statements 2. Financial Statement Schedules: Schedule II - Valuation & Qualifying Accounts All other schedules are omitted because they are not applicable, or the required information is included in the consolidated financial statements or notes thereto. 16 3. Exhibits: 3.1 Restated Articles of Incorporation of Oshkosh Truck Corporation (incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K for the year ended September 30, 1997 (File No. 0-13886)). 3.2 By-Laws of Oshkosh Truck Corporation, as amended (incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-4 (Reg. No. 333-47931)). 4.1 Credit Agreement dated February 26, 1998, among Oshkosh Truck Corporation, Bank of America National Trust and Savings Association, as Agent and as Swing Line Lender, and certain other financial institutions (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated February 26, 1998 (File No. 0-13886)). 4.2 Indenture dated February 26, 1998, among Oshkosh Truck Corporation, the Subsidiary Guarantors and Firstar Trust Company (incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K dated February 26, 1998 (File No. 0-13886)). 4.3 Form of 8 3/4% Senior Subordinated Note due 2008 (incorporated by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-4 (Reg. No. 333-47931)). 4.4 Form of Note Guarantee (incorporated by reference to Exhibit 4.4 to the Company's Registration Statement on Form S-4 (Reg. No. 333-47931)). 4.5 Rights Agreement, dated as of February 1, 1999, between Oshkosh Truck Corporation and Firstar Bank, N.A. (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form 8-A, dated as of February 1, 1999 (File No. 013886)). 10.1 1990 Incentive Stock Plan for Key Employees, as amended (incorporated by reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K for the year ended September 30, 1998 (File No. 0-13886)).* 10.2 1994 Long-Term Incentive Compensation Plan, dated March 29, 1994 (incorporated by reference to Exhibit 10.12 to the Company's Annual Report on Form 10-K for the year ended September 30, 1994) (File No. 0-13886)).* 10.3 Form of Key Employees Employment and Severance Agreement with Messrs. R.G. Bohn, T.M. Dempsey, P.C. Hollowell, C.L. Szews, and M.J. Zolnowski (incorporated by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K for the year ended September 30, 1994 (File No. 0-13886)).* 10.4 Form of Oshkosh Truck Corporation 1990 Incentive Stock Plan, as amended, Nonqualified Stock Option Agreement (incorporated by reference to Exhibit 4.2 to the Company's Registration Statement on Form S-8 (Reg. No. 33-6287)).* 10.5 Form of Oshkosh Truck Corporation 1990 Incentive Stock Plan, as amended, Nonqualified Director Stock Option Agreement (incorporated by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-8 (Reg. No. 33-6287)).* 10.6 Form of 1994 Long-Term Incentive Compensation Plan Award Agreement (incorporated by reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K for the year ended September 30, 1995 (File No. 0-13886)).* 10.7 Stock Purchase Agreement, dated April 26, 1996, among Oshkosh Truck Corporation, J. Peter Mosling, Jr. and Stephen P. Mosling (incorporated by reference to Exhibit 10.17 to the Company's Annual Report on Form 10-K for the year ended September 30, 1996 (File No. 0-13886)). 10.8 Employment Agreement, dated as of October 15, 1998, between Oshkosh Truck Corporation and Robert G. Bohn (incorporated by reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the year ended September 30, 1998 (File No. 0-13886)).* 10.9 Employment Agreement, dated April 24, 1998, between McNeilus Companies, Inc. and Daniel J. Lanzdorf.* 17 11. Computation of per share earnings (contained in Note 1 of "Notes to Consolidated Financial Statements" of the Company's Annual Report to Shareholders for the fiscal year ended September 30, 1999). 13. 1999 Annual Report to Shareholders, to the extent incorporated herein by reference. 21. Subsidiaries of Registrant. 23. Consent of Ernst & Young LLP 27. Financial Data Schedule *Denotes a management contract or compensatory plan or arrangement. (b) The Company was not required to file a report on Form 8-K during the quarter ended September 30, 1999. 18 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities 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 December 27, 1999 By /S/ Robert G. Bohn --------------------------------------------------- Robert G. Bohn, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities on the dates indicated. December 27, 1999 /S/ R.G. Bohn ----------------------------------------------------- R.G. Bohn, President and Chief Executive Officer (Principal Executive Officer) December 27, 1999 /S/ C.L. Szews ----------------------------------------------------- C.L. Szews, Executive Vice President and Chief Financial Officer (Principal Financial Officer) December 27, 1999 /S/ T.J. Polnaszek ----------------------------------------------------- T.J. Polnaszek, Vice President and Controller (Principal Accounting Officer) December 27, 1999 /S/ J.W. Andersen ----------------------------------------------------- J.W. Andersen, Director December 27, 1999 /S/ D.T. Carroll ----------------------------------------------------- D.T. Carroll, Chairman December 27, 1999 /S/ General F.M. Franks, Jr. ----------------------------------------------------- General F.M. Franks, Jr., Director December 27, 1999 /S/ M.W. Grebe ----------------------------------------------------- M.W. Grebe, Director December 27, 1999 /S/ K.J. Hempel ----------------------------------------------------- K.J. Hempel, Director December 27, 1999 /S/ S.P. Mosling ----------------------------------------------------- S.P. Mosling, Director December 27, 1999 /S/ J.P. Mosling, Jr. ----------------------------------------------------- J.P. Mosling, Jr., Director December 27, 1999 /S/ R.G. Sim ----------------------------------------------------- R.G. Sim, Director 19 SCHEDULE II OSHKOSH TRUCK CORPORATION VALUATION AND QUALIFYING ACCOUNTS Years Ended September 30, 1999, 1998 and 1997 (In Thousands)
Balance at Additions Beginning of Purchase of Charged to Balance at Classification Year McNeilus Expense Reductions* End of Year -------------- ---- -------- ------- ---------- ----------- Receivables - Allowance for doubtful accounts: 1997 $1,066 --- $881 $23 $1,970 ====== === ==== ==== ====== 1998 $1,970 $173 $124 $(199) $2,068 ====== ==== ==== ====== ====== 1999 $2,068 --- $201 $(65) $2,204 ====== === ==== ===== ======
* Represents amounts written off to the reserve, net of recoveries. 20 INDEX TO EXHIBITS - ----------------- 3. Exhibits: 3.1 Restated Articles of Incorporation of Oshkosh Truck Corporation (incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K for the year ended September 30, 1997 (File No. 0-13886)). 3.2 By-Laws of Oshkosh Truck Corporation, as amended (incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-4 (Reg. No. 333-47931)). 4.1 Credit Agreement dated February 26, 1998, among Oshkosh Truck Corporation, Bank of America National Trust and Savings Association, as Agent and as Swing Line Lender, and certain other financial institutions (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated February 26, 1998 (File No. 0-13886)). 4.2 Indenture dated February 26, 1998, among Oshkosh Truck Corporation, the Subsidiary Guarantors and Firstar Trust Company (incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K dated February 26, 1998 (File No. 0-13886)). 4.3 Form of 8 3/4% Senior Subordinated Note due 2008 (incorporated by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-4 (Reg. No. 333-47931)). 4.4 Form of Note Guarantee (incorporated by reference to Exhibit 4.4 to the Company's Registration Statement on Form S-4 (Reg. No. 333-47931)). 4.5 Rights Agreement, dated as of February 1, 1999, between Oshkosh Truck Corporation and Firstar Bank, N.A. (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form 8-A, dated as of February 1, 1999 (File No. 013886)). 10.1 1990 Incentive Stock Plan for Key Employees, as amended (incorporated by reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K for the year ended September 30, 1998 (File No. 0-13886)).* 10.2 1994 Long-Term Incentive Compensation Plan, dated March 29, 1994 (incorporated by reference to Exhibit 10.12 to the Company's Annual Report on Form 10-K for the year ended September 30, 1994) (File No. 0-13886)).* 10.3 Form of Key Employees Employment and Severance Agreement with Messrs. R.G. Bohn, T.M. Dempsey, P.C. Hollowell, C.L. Szews, and M.J. Zolnowski (incorporated by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K for the year ended September 30, 1994 (File No. 0-13886)).* 10.4 Form of Oshkosh Truck Corporation 1990 Incentive Stock Plan, as amended, Nonqualified Stock Option Agreement (incorporated by reference to Exhibit 4.2 to the Company's Registration Statement on Form S-8 (Reg. No. 33-6287)).* 10.5 Form of Oshkosh Truck Corporation 1990 Incentive Stock Plan, as amended, Nonqualified Director Stock Option Agreement (incorporated by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-8 (Reg. No. 33-6287)).* 10.6 Form of 1994 Long-Term Incentive Compensation Plan Award Agreement (incorporated by reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K for the year ended September 30, 1995 (File No. 0-13886)).* 10.7 Stock Purchase Agreement, dated April 26, 1996, among Oshkosh Truck Corporation, J. Peter Mosling, Jr. and Stephen P. Mosling (incorporated by reference to Exhibit 10.17 to the Company's Annual Report on Form 10-K for the year ended September 30, 1996 (File No. 0-13886)). 10.8 Employment Agreement, dated as of October 15, 1998, between Oshkosh Truck Corporation and Robert G. Bohn (incorporated by reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the year ended September 30, 1998 (File No. 0-13886)).* 21 10.9 Employment Agreement, dated April 24, 1998, between McNeilus Companies, Inc. and Daniel J. Lanzdorf.* 11. Computation of per share earnings (contained in Note 1 of "Notes to Consolidated Financial Statements" of the Company's Annual Report to Shareholders for the fiscal year ended September 30, 1999). 13. 1999 Annual Report to Shareholders, to the extent incorporated herein by reference. 21. Subsidiaries of Registrant. 23. Consent of Ernst & Young LLP 27. Financial Data Schedule *Denotes a management contract or compensatory plan or arrangement. 22 EX-10.9 2 EXHIBIT 10.9 EMPLOYMENT AGREEMENT THIS AGREEMENT by and between McNeilus Companies, Inc., a Minnesota corporation (the "Company"), and Dan J. Lanzdorf, (the "Executive"), dated as of the 24th day of April 1998. WITNESSETH THAT WHEREAS, the parties wish to provide for the employment by the Company of the Executive, and the Executive wishes to serve the Company, its affiliates, McNeilus Truck and Manufacturing, Inc., Iowa Contract Fabricators, Inc., McIntire Fabricators, Inc., and Kensett Fabricators, Inc., and its parent Oshkosh Truck Corporation, in the capacities and on the terms and conditions set forth in this agreement. NOW THEREFORE, it is hereby agreed as follows: 1. Employment Period. The Company shall employ the Executive, and the Executive shall serve the Company, on the terms and conditions set forth in this agreement, for an initial period (the "Initial Period") commencing at the date of this Agreement and ending on September 31, 1998. This Agreement thereafter will renew automatically for successive terms of one (1) year each, unless either party has given at least forty-five (45) days' advance written notice of it or his intent to allow this Agreement to expire as of the end of such Initial Period or renewal term. The term during which the Executive is employed by the Company hereunder (including without limitation the Initial Period) is hereafter referred to as the "Employment Period." In the event that for any reason, the Executive's employment continues with the Company following the expiration of the Employment Period, as set forth above, then for so long as the Executive is so employed by the Company, the provisions of Sections 8 and 9 shall survive the expiration of the Employment Period of this Agreement. 2. Position and Duties. (a) The Executive shall serve as President of McNeilus Companies, Inc., and of its said affiliates with such duties and responsibilities as are customarily assigned to such position, and such other duties and responsibilities not inconsistent therewith as may from time to time be assigned to him by the President and CEO (the "CEO") of Oshkosh Truck Corporation. (b) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive shall devote his full attention and time during normal business hours to the business and affairs of the Company and its said affiliates and, to the extent necessary to discharge the responsibilities assigned to the Executive under this Agreement, use the Executive's reasonable best efforts to carry out such responsibilities faithfully and efficiently. It shall not be considered a violation of the foregoing for the Executive to serve on industry, civic, or charitable boards or committees, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company and its affiliate in accordance with this Agreement. - 1 - 3. Compensation. (a) Base Salary. The Executive's compensation during the Employment Period shall be determined by the CEO, subject to the next sentence and paragraph (b) of Section 3. During the Initial Period, the Executive shall receive an annual base salary ("Annual Base Salary") of not less than his aggregate annual base salary from Company as in effect immediately before the date of this Agreement. The Annual Base Salary shall be payable in accordance with the Company's regular payroll practice for its executives, as in effect from time to time. During the Employment Period, the Annual Base Salary shall be reviewed for possible adjustment at least annually. Any adjustment in the Annual Base Salary shall not limit or reduce any other obligation of the Company under this Agreement. The term "Annual Base Salary" shall thereafter refer to the Annual Base Salary as so adjusted. (b) Incentive Compensation. During the Employment Period, the Executive shall be provided the opportunity to participate in short-term incentive compensation plans and long-term incentive compensation plans which shall be developed and offered by the Company to executives employed in the business. (c) Vacations and Holidays. The Executive shall be entitled to receive twenty (20) days of paid vacation per year together with the paid holidays available to all other management personnel. (d) Fringe Benefits. The Executive shall be entitled to participate in fringe benefit plans and programs in effect from time to time for employees of the company, and on a basis appropriate to the position, including medical and dental insurance, expense reimbursements, pension and retirement benefits and other similar benefits. (e) Reimbursements. The Company shall reimburse the Executive for actual out-of-pocket costs incurred by him in the course of carrying out his duties hereunder, such reimbursements to be made in accordance with the policies and procedures of the Company in effect from time to time. (f) Withholding. All payments under this Agreement shall be subject to withholding or deduction by reason of the Federal Insurance Contributions Act, the federal income tax and state or local income tax and similar laws, to the extent such laws apply to such payments. 4. Termination of Employment. (a) Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. The Company shall be entitled to terminate the Executive's employment because of the Executive's Disability during the Employment Period. "Disability" means that (i) the Executive has been unable, for a period of one hundred eight (180) consecutive days, to perform the Executive's duties under this Agreement, as a result of physical or mental illness or injury, and (ii) a physician selected by the Company or its insurers, and acceptable to the Executive or the Executive's legal representative, has determined that the Executive's incapacity will continue. A termination of the Executive's employment by the Company for Disability shall be communicated to the Executive by written notice, and shall be effective on the thirtieth day after receipt of such notice by the Executive (the "Disability - 2 - Effective date"), unless the Executive returns to full-time performance of the Executive's duties before the Disability Effective Date. (b) By the Company. (i) The Company may terminate the Executive's employment during the Employment Period for Cause or without Cause. "Cause" means: A. The willful and continued failure of the Executive to substantially perform the Executive's duties under this Agreement (other than as a result of physical or mental illness or injury), after the CEO delivers to the Executive a written demand for substantial performance that specifically identifies the manner in which the CEO believes that the Executive has not substantially performed the Executive's duties; or B. Illegal conduct or gross misconduct by the Executive, in either case that is willful and results in material and demonstrable damage to the business or reputation of the Company. C. Violation of any of the covenants set forth under Sections 8 and 9 of this Agreement. No act or failure to act on the part of the Executive shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. (ii) A termination of the Executive's employment for Cause shall be effected by the CEO following written notice to the Executive and an opportunity for the Executive to be heard by the Chairman of Oshkosh Truck Corporation. (iii)A termination of the Executive's employment without Cause shall be effected by the CEO following written notice to the Executive and an opportunity for the Executive to be heard by the Chairman of Oshkosh Truck Corporation. (c) Good Reason. (i) The Executive may terminate employment for Good Reason or without Good Reason. "Good Reason" means: A. The assignment to the Executive of any duties inconsistent in any respect with paragraph (a) of Section 2 of this Agreement, or any other action by the Company that results in a diminution in the Executive's position, including base salary, authority, duties or responsibilities, other than an isolated, insubstantial and inadvertent action that is not taken in bad faith and is remedied by the Company promptly after receipt of notice thereof from the Executive. B. Any failure by the Company to comply with any provision of Section 3 of this Agreement, other than an isolated, insubstantial and inadvertent failure that is not taken in bad faith and is - 3 - remedied by the Company promptly after receipt of notice thereof from the Executive; C. Any purported termination of the Executive's employment by the Company for a reason or in a manner not expressly permitted by this Agreement; or D. Any other substantial breach of this agreement by the Company that either is not taken in good faith or is not remedied by the Company promptly after receipt of notice thereof from the Executive. (ii) A termination of employment by the Executive for Good Reason shall be effected by giving the Company written notice ("Notice of Termination for Good Reason") of the termination within three (3) months of the event constituting Good Reason, setting forth in reasonable detail the specific conduct of the Company that constitutes Good Reason and the specific provision(s) of this Agreement on which the Executive relies. A termination of employment by the Executive for Good Reason shall be effective on the fifth business day following the date when the Notice of Termination for Good Reason is given, unless the notice sets forth a later date (which date shall in no event be later than thirty (30) days after the notice is given). (iii)A termination of the Executive's employment by the Executive without Good Reason shall be effected by giving the Company written notice of the termination. (d) Date of Termination. The "Date of Termination" means the date of the Executive's death, the Disability Effective Date, the date on which the termination of the Executive's employment by the Company for Cause or without Cause or by the Executive for Good Reason is effective, or the date on which the Executive gives the Company notice of a termination of employment without good Reason, as the case may be. 5. Obligations of the Company upon Termination. (a) By the Company other than for Cause, Death or Disability; by the Executive for Good Reason. If, during the Employment Period, the Company terminates the Executive's employment, other than for Cause, Death, or Disability, or the Executive terminates employment for Good Reason the Company shall continue to provide the Executive with the compensation and fringe benefits as set forth in paragraphs (a) and (d) of Section 3 as if he had remained employed by the Company pursuant to this Agreement through the end of the Employment Period, but, in no event for fewer than twelve (12) months. The payments provided pursuant to this paragraph (a) of Section 5 are intended as liquidated damages for a termination of the Executive's employment by the Company other than for Cause or Disability or for the actions of the Company leading to a termination of the Executive's employment by the Executive for Good Reason, and shall be the sole and exclusive remedy therefor. (b) Death and Disability. If the Executive's employment is terminated by reason of the Executive's death or disability during the Employment Period, the Company shall pay to the Executive or, in the case of the Executive's death, to the Executive's designated beneficiaries (or, if there is no such beneficiary, to the - 4 - Executive's estate or legal representative), in a lump sum in cash within thirty (30) days after the Date of Termination, the sum of the following amounts (the "Accrued Obligations"): (1) any portion of the Executive's Annual Base Salary through the Date of Termination that has not yet been paid; (2) an amount representing Incentive Compensation due for the period through the Date of Termination; and (3) any accrued but unpaid vacation pay. (c) By the Company for Cause; By the Executive Other than for Good Reason. If the Executive's employment is terminated by the Company for Cause during the Employment Period the Company shall pay the Executive the Annual Base Salary through the Date of Termination and the Company shall have no further obligations under this Agreement, except as specified in Section 6 below. If the Executive voluntarily terminates employment during the Employment Period, other than for Good Reason, the Company shall pay to the Executive: (1) any portion of the Executive's Annual Base Salary through the Date of Termination that has not yet been paid and (2) any accrued vacation pay, both payable in a lump sum in cash within thirty (30) days of the date of Termination, and the Company shall have no further obligations under this agreement, except as specified in Section 6 below. 6. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing of future participation in any plan, program, policy or practice provided by the Company or any of its affiliates for which the Executive may qualify, nor shall anything in this Agreement limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliates relating to subject matter other than that specifically addressed herein. Vested benefits and other amounts that the Executive is otherwise entitled to receive under the Company's Compensation program or any other plan, policy, practice or program of or any contract or agreement with, the Company or any of its affiliates on or after the Date of Termination shall be payable in accordance with the terms of each such plan, policy, practice, program, contract or agreement, as the case may be, except as explicitly modified by this Agreement. 7. Full Settlement. The Company's obligation to make the payments provided for in, and otherwise to perform its obligations under, this Agreement shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action that the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement. 8. Confidential Information. (a) Defined. "Confidential Information" shall mean ideas, information, knowledge and discoveries, whether or not patentable, that are not generally known in the trade or industry and about which the Executive has knowledge as a result of his employment with the Company, including without limitation refuse, mixer, construction, fire, or defense products engineering information, marketing, sales, distribution, pricing, and bid process information, product specifications, manufacturing procedures, methods, business plans, strategic plans, marketing plans, internal memoranda, formulae, trade secrets, know-how, research and development and other confidential technical or business information and data. For the purposes of this definition "products" is intended to include, but not limited by way of enumeration, completed motor vehicles, incomplete vehicle chassis, bodies for installation on incomplete vehicle chassis, and parts and accessories for motor vehicles and vehicle components. Confidential - 5 - Information shall not include any information that the Executive can demonstrate is in the public domain by means other than disclosure by the Executive. (b) Nondisclosure. For a period of two (2) years after the termination of the Executive's active employment with the Company (whether such termination occurs before or after the expiration of the term of this Agreement) and indefinitely thereafter in respect of any Confidential Information that constitutes a trade secret or other information protected by law, the Executive will keep confidential and protect all Confidential Information to any other person and will not use any Confidential Information, except for use or disclosure of Confidential Information for the exclusive benefit of the Company as it may direct or as necessary to fulfill the Executive's continuing duties as an employee of the Company. (c) Return of Property. All memoranda, notes, records, papers, tapes, disks, programs or other documents or forms of documents and all copies thereof relating to the operations or business of the Company or any of its subsidiaries that contain Confidential Information, some of which may be prepared by the Executive, and all objects associated therewith in any way obtained by him shall be the property of the Company. The Executive shall not, except for the use of the Company or any of its subsidiaries, use or duplicate any such documents or objects, nor remove them from facilities and premises of the Company or any subsidiary, nor use any information concerning them except for the benefit of the Company or any subsidiary, at any time. The Executive will deliver all of the aforementioned documents and objects, if any, that may be in his possession to the Company at any time at the request of the Company. 9. Restrictive Covenants. (a) The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or Confidential Information, knowledge or data relating to the Company or any of its affiliated companies and their respective businesses that the Executive obtains during the Executive's employment by the Company or any of its affiliated companies and that is not public knowledge (other than as a result of the Executive's violation of this Section 9). The Executive shall not communicate, divulge or disseminate Confidential Information at any time during the Executive's employment with the Company and for the two (2) year period thereafter, except with the prior written consent of the Company or as otherwise required by law or legal process. In no event shall any asserted violation of the provisions of this Section 9 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under the Agreement. (b) The Executive shall not, during the Employment Period and for one (1) year following the end of the Employment Period, without the prior written consent of the CEO of the Company, be employed directly or indirectly by, be a sole proprietor or partner of, or act as a consultant to, any business in any capacity where confidential information concerning the Company and/or its subsidiaries or affiliates which was acquired by the Executive during his employment with the same would reasonably be considered to be useful in such employment; neither will the Executive, directly or indirectly during such period of time, make sales solicitations to any person, corporation, partnership or other business entity which is, at the time of such sales solicitation, a customer or known to him to be a prospective customer of the Company and/or its subsidiaries or affiliates, if the effect of such action would be likely to cause such customer to substantially - 6 - reduce existing or future business relationships with or purchases from the Company and/or its subsidiaries or affiliates. (c) The Executive agrees that the Company will suffer irreparable damage in the event the provisions of paragraphs (b) and (c) of Section 8 and paragraphs (a) and (b) of Section 9 are breached and his acceptance of the provisions of Sections 8 and 9 is a material factor in his decision to enter into this Agreement. The Executive further agrees that the Company shall be entitled as a matter of right to injunctive relief to prevent a breach by the Executive of the provisions of Sections 8 and 9. Resort to such equitable relief, however, shall not constitute a waiver of any other rights or remedies the Company may have. Nothing in this Agreement modifies or reduces the Executive's obligation to comply with applicable laws relating to trade secrets, confidential information, or unfair competition. 10. Successors. (a) This Agreement is personal to the Executive and, without the prior written consent of the Company, shall not be assignable by the Executive. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. 11. Miscellaneous. (a) This Agreement shall be governed by, and construed in accordance with the laws of the State of Wisconsin, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified except by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications under this agreement shall be in writing and shall be given by hand delivery to the other party or by registered for certified mail, return receipt requested, postage prepaid, addressed as follows: (i) If to the Executive; Dan J. Landorf 1670 Rivermill Road Oshkosh, WI 54901 (ii) If to the Company: McNeilus Companies Inc. Highway 14 East Post Office Box 70 Dodge Center, MN 55927 Or to such other address as either party furnishes to the other in writing in accordance with this paragraph (b) of Section 11. Notices and communications shall be effective when actually received by the addressee. - 7 - (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. If any provision of this Agreement shall be held invalid or unenforceable in part, the remaining portion of such provision, together with all other provisions of this agreement, shall remain valid and enforceable and continue in full force and effect to the fullest extent consistent with law. (d) Notwithstanding any other provisions of this agreement, the Company may withhold from amounts payable under this agreement all federal, state, local and foreign taxes that are required to be withheld by applicable laws or regulations. (e) The Executive's or the Company's failure to insist upon strict compliance with any provisions of, or to assert any right under, this Agreement (including, without limitation, the right of Executive to terminate employment for Good Reason pursuant to paragraph ( c ) of Section 4 of this Agreement) shall not be deemed to be a waiver of such provision or right or of any other provision of or right under this Agreement. (f) The rights and benefits of the Executive under this Agreement may not be anticipated, assigned, alienated or subject to attachment, garnishment, levy, execution or other legal or equitable process except as required by law. Any attempt by the Executive to anticipate, alienate, assign, sell, transfer, pledge, encumber or charge the same shall be void. Payments hereunder shall not be considered assets of the Executive in the event of insolvency or bankruptcy. (g) This Agreement may be executed in several counterparts, each of which shall be deemed an original, and said counterparts shall constitute but one and the same instrument. IN WITNESS WHEREOF, the parties have caused this agreement to be duly executed as of the day and year first above written. OSHKOSH TRUCK CORPORATION By: _______________________________ Title: _______________________________ Date: _______________________________ Attest: _______________________________ AGREED TO: By: _______________________________ Title: _______________________________ Date: _______________________________ Attest: _______________________________ - 8 - EX-13 3 ANNUAL REPORT MANAGEMENT'S DISCUSSION AND ANALYSIS Oshkosh Truck Corporation and Subsidiaries Forward-Looking Statements This Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations and other sections of this annual report contain "forward-looking statements" which are believed to be within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact included in this report, including, without limitation, statements regarding the Oshkosh Truck Corporation's (the "Company" or "Oshkosh") future financial position, business strategy, budgets, targets, projected costs and plans and objectives of management for future operations are forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as "may", "will", "expect", "intend", "estimates", "anticipate", "believe", "should", "plans", or "continue", or the negative thereof or variations thereon or similar terminology. Although the Company believes the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from the Company's expectations include, without limitation, the following: (1) the cyclical nature of the concrete placement industry; (2) the risks related to reductions or changes in U.S. government expenditures; (3) the potential for actual costs to exceed projected costs with fixed-price U.S. government contracts; (4) the risks related to suspension, termination or audit of U.S. government contracts; (5) the challenges of identifying, completing and integrating future acquisitions; (6) competition; (7) disruptions in the supply of parts or components from sole source suppliers and subcontractors; (8) product liability and warranty claims; (9) labor relations and market conditions; and (10) unanticipated events relating to Year 2000 issues. 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 prospectus dated November 18, 1999 included in the Registration Statement on Form S-3 No. 333-87149. All subsequent written and oral forward-looking statements attributable to the Company, or persons acting on its behalf, are expressly qualified in their entirety by these cautionary statements. General The Company is a leading designer, manufacturer and marketer of a wide range of specialty trucks and truck bodies including concrete mixers, refuse bodies, fire and emergency vehicles and defense trucks. Under the "McNeilus" and "Oshkosh" brand names, the Company manufactures rear- and front-discharge concrete mixers and a wide range of automated rear, front, side and top loading refuse truck bodies. Under the "Pierce" brand name, the Company is among the leading domestic manufacturers of fire apparatus assembled on both custom and commercial chassis. The Company manufactures aircraft rescue and firefighting and airport snow removal vehicles under the "Oshkosh" brand name. The Company also manufactures defense trucks under the "Oshkosh" brand name and is the leading manufacturer of severe-duty heavy tactical trucks for the Department of Defense. The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of an Enterprise and Related Information," in the fourth quarter of fiscal 1999. In accordance with this pronouncement, this management's discussion and analysis has been organized to report about the results of the three segments identified by management: commercial, fire and emergency and defense. Prior year information has been reclassified to the current year basis of presentation. The major products manufactured and marketed by each of the Company's business segments are as follows: Commercial--concrete mixer systems, refuse truck bodies, portable concrete batch plants and truck components sold to ready-mix companies and commercial and municipal waste haulers in the U. S. and abroad. Fire and emergency--commercial and custom fire trucks, aircraft rescue and firefighting trucks, snow removal trucks 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. Recent Developments On November 24, 1999, the Company completed the offer and sale of 3,795,000 shares of its Common Stock at $26.00 per share. The Company used proceeds, net of underwriters' discounts and commissions, from the offering to prepay $93.5 million in outstanding indebtedness of the Company under its Senior Credit Facility. On November 1, 1999, the Company acquired the manufacturing assets of Kewaunee Engineering Corporation ("Kewaunee") for approximately $6.2 million in cash plus assumption of certain liabilities aggregating $2.3 million. Kewaunee is a fabricator of heavy-steel components such as cranes and aerial devices. Kewaunee manufactures all of the Company's current requirements for aerial devices in its fire and emergency segment. The acquisition of Kewaunee will be accounted for using the purchase method of accounting and, accordingly, the operating results of Kewaunee will be included in the Company's consolidated statements of income beginning November 1, 1999 as part of the Company's fire and emergency segment. The acquisition was financed from borrowings under the Company's Senior Credit Facility. Acquisition History Since 1996, the Company has selectively pursued strategic acquisitions in order to enhance its product offerings and diversify its business. The Company has focused its acquisition strategy in specialty truck and truck body markets that are growing and where it can develop strong market positions and achieve acquisition synergies. Identified below is information with respect to these acquisitions, all of which have been accounted for using the purchase method of accounting and have been included in the Company's results of operations from the date of acquisition. On September 18, 1996, the Company acquired for cash all of the issued and outstanding capital stock of Pierce Manufacturing Inc. ("Pierce"), a leading manufacturer and marketer of fire trucks and other emergency apparatus for $156.9 million, including acquisition costs and net of cash acquired. The acquisition was financed from borrowings under a subsequently retired bank credit facility. On December 19, 1997, Pierce acquired certain inventory, machinery and equipment, and intangible assets of Nova Quintech, a division of Nova Bus Corporation, for $3.6 million. Nova Quintech was engaged in the manufacture and sale of aerial devices for fire trucks. On February 26, 1998, the Company acquired for cash all of the issued and outstanding capital stock of McNeilus Companies, Inc. ("McNeilus") and entered into related non-compete and ancillary agreements for $217.6 million, including acquisition costs and net of cash acquired. McNeilus is a leading manufacturer and marketer of rear-discharge concrete mixers and portable concrete batch plants for the concrete placement industry and refuse truck bodies for the waste services industry in the United States. The acquisition was financed from borrowings under a Senior Credit Facility and the issuance of Senior Subordinated Notes. As indicated above, on November 1, 1999, the Company acquired certain assets and assumed certain liabilities of Kewaunee. Results of Operations Analysis of Consolidated Net Sales--Three Years Ended September 30, 1999 The following table presents net sales by business segment (in thousands): Fiscal Year Ended September 30, 1999 1998 1997 ---- ---- ---- Net sales to unaffiliated customers: Commercial............................ $ 607,678 $ 354,165 $ 107,944 Fire and emergency.................... 336,241 301,181 292,382 Defense............................... 222,535 247,956 282,826 Corporate and other................... (1,500) (510) 82 ----------- --------- --------- Consolidated...................... $ 1,164,954 $ 902,792 $ 683,234 =========== ========= ========= The following table presents net sales by geographic region based on product shipment destination (in thousands): Fiscal Year Ended September 30, 1999 1998 1997 ---- ---- ---- Net sales: United States......................... $ 1,113,214 $ 857,310 $ 628,265 Other North America................... 7,822 4,678 688 Middle East........................... 21,713 16,889 22,836 Other................................. 22,205 23,915 $ 31,445 ----------- --------- --------- Consolidated...................... $ 1,164,954 $ 902,792 $ 683,234 =========== ========= ========= FISCAL 1999 COMPARED TO FISCAL 1998 Consolidated net sales increased $262.2 million, or 29.0%, to $1,165.0 million in fiscal 1999 compared to fiscal 1998. Fiscal 1998 results included seven months of operations of McNeilus, which was acquired in February 1998, while fiscal 1999 results included a full twelve months of McNeilus operations. On a pro forma basis, assuming McNeilus had been acquired at the beginning of fiscal 1998, net sales increased $124.0 million, or 11.9%, in fiscal 1999 compared to fiscal 1998. Commercial segment net sales increased $253.5 million, or 71.6%, in fiscal 1999 compared to fiscal 1998. Strong end markets in the concrete placement industry, the introduction of a new cab and mixer package for Oshkosh's front-discharge concrete mixer, and sales, marketing and distribution synergies created through the acquisition of McNeilus contributed to a 24% increase in concrete mixer sales compared to prior year pro forma sales. Refuse truck and truck body sales increased 36% compared to pro forma 1998 sales, generally as a result of commercial waste haulers accelerating the replacement of refuse packers in their fleets and as a result of McNeilus increasing sales penetration with both commercial and municipal accounts. Fire and emergency segment net sales increased $35.1 million, or 11.6%, in fiscal 1999 compared to fiscal 1998. Pierce comprises the largest share of this segment and has increased its sales at a compound annual growth rate of 11% since 1980. Pierce's sales increased 10.9% in fiscal 1999 compared to fiscal 1998, generally as a result of strong market demand, expanding international sales and new product introductions. Defense segment net sales decreased $25.4 million, or 10.2%, in fiscal 1999 compared to fiscal 1998. Defense sales declined due to the trend of lower heavy military truck spending in the federal budget and the completion of the ISO-Compatible Palletized Flatrack ("IPF") contract in fiscal 1998, which had fiscal 1998 sales of $32.0 million. Vehicle sales under the Company's Medium Tactical Vehicle Replacement ("MTVR") contract awarded to Oshkosh in December 1998 will not begin until the first quarter of fiscal 2000. Reversal of the trend toward lower heavy military truck spending combined with initial sales of the MTVR vehicle will result in increased defense sales in fiscal 2000 compared to fiscal 1999. FISCAL 1998 COMPARED TO FISCAL 1997 Consolidated net sales increased $219.6 million, or 32.1%, to $902.8 million in fiscal 1998 compared to fiscal 1997, generally as a result of the acquisition of McNeilus, which was partially offset by lower defense sales. Fiscal 1998 results included seven months of operations of McNeilus. Commercial segment net sales increased $246.2 million, or 228.1%, in fiscal 1998 compared to fiscal 1997. The inclusion of the McNeilus operations for seven months of fiscal 1998 accounted for $239.6 million of the increase. Fire and emergency segment sales increased $8.8 million, or 3.0%, in fiscal 1998 compared to fiscal 1997. Pierce fire apparatus sales increased 10.9% following the introduction of Pierce products to Oshkosh's international dealer network. However, aircraft rescue and firefighting truck sales declined due to significant world-wide price discounting by competitors. Defense segment sales decreased $34.9 million, or 12.3%, in fiscal 1998 compared to fiscal 1997. The previously-mentioned trend in lower heavy military truck spending in the federal budget and, to a lesser extent, the completion of the multi-year IPF contract in July 1998 ($9.4 million lower sales in fiscal 1998 compared to fiscal 1997) were primary factors for the decrease in defense segment sales. Analysis of Consolidated Operating Income--Three Years Ended September 30, 1999 The following table presents operating income by business segment (in thousands): Fiscal Year Ended September 30, 1999 1998 1997 ---- ---- ---- Operating income (loss): Commercial............................ $ 48,995 $ 19,317 $ (3,742) Fire and emergency.................... 26,758 25,581 28,480 Defense............................... 22,878 22,680 20,155 Corporate and other................... (22,418) (18,858) (16,108) -------- -------- -------- Consolidated...................... $ 76,213 $ 48,720 $ 28,785 ======== ======== ======== FISCAL 1999 COMPARED TO FISCAL 1998 Consolidated operating income increased $27.5 million, or 56.4%, in fiscal 1999 compared to fiscal 1998. Fiscal 1998 results included seven months of operations of McNeilus, while fiscal 1999 results included a full twelve months of McNeilus operations. Fiscal 1999 consolidated operating income increased $18.1 million, or 31.2% over pro forma fiscal 1998 consolidated operating income, assuming McNeilus had been acquired at the beginning of fiscal 1998. Commercial segment operating income increased $29.7 million, or 153.6%, in fiscal 1999 compared to fiscal 1998. On a pro forma basis, assuming McNeilus had been acquired at the beginning of fiscal 1998, operating income increased $20.3 million, or 70.7%, in fiscal 1999 compared to fiscal 1998. Operating income as a percent of segment sales ("operating income margin") increased to 8.1% of commercial segment sales in fiscal 1999 compared to 5.5% of commercial segment sales in fiscal 1998. Increased concrete mixer unit volume and manufacturing, purchasing and distribution synergies generated as a result of the acquisition of McNeilus contributed to the improvement in the operating income margin. Also, fiscal 1998 results included a $1.9 million charge related to an impairment loss on previously-acquired concrete mixer technology. Fire and emergency segment operating income increased $1.2 million, or 4.6%, in fiscal 1999 compared to fiscal 1998. The operating income margin decreased from 8.5% in fiscal 1998 to 8.0% in fiscal 1999. Benefits of increased sales volume were offset by short-term production inefficiencies following the installation at Pierce of the final modules of a new enterprise-wide resource planning system during the third quarter of fiscal 1999. By the end of September 1999, Pierce had significantly reduced those production inefficiencies. Management believes any lingering effects from the system conversion will be substantially resolved by the end of the first quarter of fiscal 2000. Defense segment operating income was comparable in fiscal 1999 and fiscal 1998 ($0.2 million increase in fiscal 1999). However, the operating income margin increased from 9.1% in fiscal 1998 to 10.3% in fiscal 1999. Fiscal 1998 results included the low margin IPF contract and bid-and-proposal costs on the MTVR contract. Corporate and other expenses increased $3.6 million to $22.4 million, or 1.9% of consolidated net sales, from $18.9 million, or 2.1% of consolidated net sales, in fiscal 1998. Fiscal 1999 results included a $3.5 million charge in connection with the settlement of litigation. FISCAL 1998 COMPARED TO FISCAL 1997 Consolidated operating income increased $19.9 million, or 69.6%, in fiscal 1998 compared to fiscal 1997. Fiscal 1998 results included seven months of operations of McNeilus compared to none in fiscal 1997. The inclusion of operations of McNeilus for seven months in fiscal 1998 contributed $22.5 million of the operating income increase. Commercial segment operating income increased $23.1 million in fiscal 1998 compared to fiscal 1997, with McNeilus contributing $22.5 million of the increase. Increased operating income due to higher sales volume was partially offset by a $1.9 million impairment charge related to previously-acquired mixer technology. The operating income margin increased from a negative 3.5% of commercial segment sales in fiscal 1997 to a positive 5.5% of commercial segment sales in fiscal 1998. Fire and emergency segment operating income decreased $2.9 million in fiscal 1998 compared to fiscal 1997 due to lower gross income on reduced sales of the Company's aircraft rescue and firefighting trucks caused by significant world-wide price discounting by competitors. This increased competition was largely responsible for the reduction in operating income margins to 8.5% in fiscal 1998 compared to 9.7% in fiscal 1997. Operating income at Pierce grew 7.1%, just slightly lower than the rate of increase in sales, as a result of increased costs related to new product introductions. Defense segment operating income increased $2.5 million in fiscal 1998 compared to fiscal 1997, principally due to an improved mix of heavy tactical truck sales. This improved mix also contributed to the increase in operating income margin from 7.1% in fiscal 1997 to 9.1% in fiscal 1998. Corporate and other expenses increased $2.8 million to $18.9 million, or 2.1% of consolidated net sales, in fiscal 1998 compared to $16.1 million, or 2.4% of consolidated net sales, in fiscal 1997. Analysis of Non-operating Income Statement Items--Three Years Ended September 30, 1999 FISCAL 1999 COMPARED TO FISCAL 1998 Interest expense increased $5.3 million, or 24.4%, in fiscal 1999 compared to fiscal 1998. Increased interest expense generally relates to indebtedness incurred in connection with the McNeilus acquisition being outstanding for a full twelve months in fiscal 1999 compared to only seven months in fiscal 1998. Interest expense as a percent of net sales dropped to 2.3% in fiscal 1999 compared to 2.4% in fiscal 1998 as the Company paid down debt during fiscal 1999. The provision for income taxes in fiscal 1999 was $21.3 million, or 41.8% of pre-tax income, compared to $12.7 million, or 44.2% of pre-tax income, in fiscal 1998. The effective tax rate was adversely impacted by nondeductible goodwill amortization of $5.5 million in fiscal 1999 and $4.2 million in fiscal 1998 related to the acquisitions of McNeilus and Pierce. Equity in earnings of an unconsolidated lease financing partnership of $1.5 million in fiscal 1999 included a full twelve months of the Company's share of the after-tax income of the lease financing partnership. Fiscal 1998 equity in earnings of $0.3 million included seven months of operations of the lease financing partnership since its formation in February 1998, which was offset by the Company's share of the write-off of organization costs ($1.5 million pre-tax, $0.9 million after-tax) in accordance with the issuance of a new accounting standard. The $0.1 million extraordinary charge in fiscal 1999 and the $1.2 million extraordinary charge in fiscal 1998 related to the write-off of deferred financing costs for that portion of debt prepaid during the respective fiscal year. FISCAL 1998 COMPARED TO FISCAL 1997 Interest expense increased $8.8 million to $21.5 million in fiscal 1998 compared to $12.7 million in fiscal 1997 as a result of financing the McNeilus acquisition. The provision for income taxes in fiscal 1998 was $12.7 million, or 44.2% of pre-tax income, compared to $6.5 million, or 39.4% of pre-tax income, in fiscal 1997. The effective income tax rate in fiscal 1998 was adversely affected by non-deductible goodwill of $4.2 million related to the acquisitions of Pierce in September 1996 and McNeilus in February 1998. The effective income tax rate in fiscal 1997 was adversely impacted by non-deductible goodwill of $2.6 million related to the acquisition of Pierce in fiscal 1996 and benefited from the reversal of $0.9 million of prior years' provisions for income taxes. Equity in earnings of an unconsolidated lease financing partnership of $0.3 million in fiscal 1998 represented the Company's after-tax share of income of the lease financing partnership since its formation in February 1998. These results included the Company's share of the write-off of organization costs ($1.5 million pre-tax, $0.9 million after-tax) incurred by the partnership in fiscal 1998. The $1.2 million after-tax extraordinary charge recorded in fiscal 1998 related to the write-off of deferred financing costs for that portion of debt prepaid during the year. Financial Condition Fiscal Year Ended September 30, 1999 During fiscal 1999, cash increased by $1.5 million to $5.1 million at September 30, 1999. Cash provided from operating activities of $39.0 million was used to fund capital expenditures of $13.1 million, reduce indebtedness by $20.3 million (including $15.8 million of debt prepayments) and pay dividends of $4.2 million. Cash provided from operating activities in fiscal 1999 was impacted by a $49.3 million increase in inventory. The increase in inventory is primarily the result of the timing of truck chassis purchases at McNeilus. The Company's debt-to-total-capital ratio at September 30, 1999 was 61.5%. In November 1999, the Company completed a secondary offering of 3,795,000 shares of Common Stock at $26.00 per share, before commissions and expenses. Proceeds to the Company from the offering, net of underwriting discounts and commissions, were used to prepay $93.5 million of term debt under the Company's Senior Credit Facility. The Company's pro forma debt-to-total-capital ratio at September 30, 1999, after giving effect to the debt prepayment from proceeds of the Company's November 1999 equity offering, was 39.6%. Fiscal Year Ended September 30, 1998 During fiscal 1998, cash decreased by $19.6 million to $3.6 million at September 30, 1998. Cash available at the beginning of the year of $23.2 million, $11.1 million of cash equivalents acquired from McNeilus and cash provided from operating activities of $79.9 million were used primarily to fund $78.0 million of debt repayments (including $25.0 million prior to the acquisition of McNeilus), a $16.3 million reduction of the Company's Revolving Credit Facility, the acquisition of Nova Quintech for $3.6 million, property, plant and equipment additions of $8.6 million and dividends of $4.2 million. The Company borrowed $347.3 million in February 1998, including $225.0 million under a multi-tranche Senior Credit Facility, $100.0 million of Senior Subordinated Notes and $22.3 million under a new $100 million Revolving Credit Facility. The Company used borrowings to refinance outstanding indebtedness of $110.0 million under a previous credit facility and to pay $8.6 million of debt issuance costs. The Company also used borrowings to close the McNeilus transaction for $249.5 million consideration plus $6.0 million in acquisition costs less cash acquired of $37.9 million, $11.1 million of which was temporarily invested at the acquisition date. Liquidity and Capital Resources The Company had approximately $87.0 million of unused availability under the terms of its Revolving Credit Facility as of September 30, 1999. The Company's primary cash requirements include working capital, interest and principal payments on indebtedness, capital expenditures, dividends and, potentially, future acquisitions. The primary sources of cash are expected to be cash flow from operations and borrowings under the Company's Senior Credit Facility. As indicated above, in November 1999 the Company completed the sale of 3,795,000 shares of its Common Stock. Proceeds to the Company from the offering, net of underwriting discounts and commissions, were used to repay $93.5 million of term indebtedness under the Company's Senior Credit Facility. In addition, in November 1999 the Company purchased the manufacturing assets of Kewaunee for approximately $6.2 million in cash plus the assumption of certain liabilities aggregating approximately $2.3 million. See Note 15 to the Notes to Consolidated Financial Statements. The Kewaunee acquisition was financed through borrowings under the Company's Revolving Credit Facility. The effects of the recent transactions are to increase annual dividend requirements (based on the fourth quarter dividend rate and the additional shares outstanding) to $5.7 million. The Senior Credit Facility requires prepayment of indebtedness to the extent of "excess cash flows" as defined in the Senior Credit Agreement. Based upon current and anticipated future operations, management believes that capital resources will be adequate to meet future working capital, debt service and other capital requirements for fiscal 2000, including the working capital requirements associated with the start-up of production under the MTVR contract and the acquisition of Kewaunee. 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 Company's Senior Credit Facility and Senior Subordinated Notes contain various restrictions and covenants that could potentially limit the Company's ability to respond to market conditions, to provide for unanticipated capital investments, to raise additional debt or equity capital or to take advantage of business opportunities. See Note 4 to the Notes to Consolidated Financial Statements. The Company's Senior Credit Facility accrues interest at variable rates. The Company presently has no plans to enter into interest rate swap arrangements to limit exposure to future increases in interest rates. Capital expenditures are expected to approximate $15 to $17 million annually through fiscal 2001. Year 2000 General. The Company commenced a corporate-wide Year 2000 project in 1997 to address issues with respect to the ability of computer programs and embedded computer chips to distinguish between the years 1900 and 2000. The Year 2000 project is complete in all material respects. Material items are those management believes to have a risk involving the safety of individuals, or that may cause damage to property or affect revenues and expenses. Management believes all of the Company's principal enterprise resource planning systems and all other significant information systems are Year 2000 ready. Year 2000 Project. The Company's Year 2000 project addressed four principal areas: infrastructure and applications software; company-produced trucks and equipment; process controls and instrumentation; and third-party suppliers and customers. The project phases common to each area included: o development of an inventory of Year 2000 risks; o assignment of priorities to identified risks; o assessment of Year 2000 compliance and impact of noncompliance; o tests to determine whether any upgrade or replacement is required; o upgrade or replacement of items that are determined not to be Year 2000 compliant if the impact of noncompliance is material; and o design and implementation of contingency and business continuation plans for each organization and facility. Infrastructure and Applications Software. As the Company addresses its infrastructure and applications software, it tests and then upgrades or replaces the affected hardware and systems software, as necessary. The Company maintains two enterprise resource planning computer systems at its Oshkosh operations and one system each at its Pierce and McNeilus operations. In May 1999, the Company consolidated its Florida computer operations into Oshkosh's computer operations. The Company installed an upgraded release of software, which is certified by the software vendor as being Year 2000 ready, to its enterprise resource planning system for truck operations in Oshkosh in July 1998. Programming to upgrade the remaining Oshkosh enterprise resource planning system for the parts operations was completed in December 1998. In April 1999, Pierce completed the replacement of all of its hardware and business systems with a new, enterprise resource planning system and related hardware, which are certified by the vendors as being Year 2000 ready. McNeilus installed upgraded releases to its enterprise resource planning systems in August and September 1998 and August 1999. Validation testing of all enterprise resource planning systems to assure that the systems are Year 2000 ready was completed in October 1999. Management believes other infrastructure and applications software, including engineering systems, pose lesser risks in the event of Year 2000 noncompliance due to a wider range of less disruptive commercial options available to cure noncompliance. The Company has upgraded or replaced all such significant non-compliant systems. Company-Produced Trucks and Equipment. The Company has communicated with suppliers that are critical to the manufacture of our products to verify whether computer chips embedded in our trucks and equipment are Year 2000 ready and has issued service bulletins to customers with respect to the findings. The Company has not identified any material issues with respect to computer chips embedded into our products. Nevertheless, there can be no assurance at this time that our investigation was complete or that material warranty and product liability issues will not develop with respect to this matter. To the extent that the Company's suppliers experience Year 2000 problems and the Company is unable to source alternate suppliers, changes to its products may be necessary to avoid warranty and liability, both as to products already in use and as to products to be shipped in the future. Process Controls and Instrumentation. To the Company's knowledge, all of its process controls and instrumentation have been upgraded to be Year 2000 ready, if necessary. It is possible that testing and investigation of process controls and instrumentation was incomplete given the magnitude of this task, but the Company believes that all material equipment and systems will function properly in the year 2000. External Parties. The Company has surveyed critical parts and all chassis suppliers to assess the Year 2000 readiness of their products and business systems. The Company's largest suppliers are large public companies and, as such, generally have significant projects completed or underway similar to the Company's Year 2000 project. However, the Company cannot give any assurance that these suppliers or its smaller suppliers will not have Year 2000 issues with their processes or business systems that ultimately could have a material effect on the Company in spite of those projects. Where suppliers were deemed to pose significant risk to the Company's operations, the Company developed alternate suppliers or contingency plans. The Company does not maintain significant computer interfaces with its customers, except with the Department of Defense, where invoices and remittances are sent by electronic data interchange. The Department of Defense is an extremely large organization. Some departments within the Department of Defense that interface with the Company have communicated that they were Year 2000 compliant as of March 31, 1999. However, the Department of Defense has not provided the Company with any assurances that all of its systems will be Year 2000 compliant, or whether Department of Defense computer interfaces with other U.S. government entities will be Year 2000 ready. Should the Department of Defense encounter Year 2000 difficulties, the Company's financial condition, profitability and cash flows could be materially adversely affected. Additionally, the Company's other customers could lose business or otherwise encounter Year 2000 issues that could ultimately affect our financial condition, profitability and cash flows. Costs. The total estimated capital costs of the Year 2000 project, which would have been incurred regardless of Year 2000 issues and which have the incidental consequence of Year 2000 readiness, are $9.7 million. Period expenses of the Year 2000 project are $1.0 million. As of September 30, 1999, the Company had expended $9.6 million of these capital costs and $0.9 million of these period expenses. Approximately $9.0 million of the estimated capital costs relate to the replacement of hardware and business systems at Pierce, which was completed in April 1999. None of the Company's other information systems projects have been delayed due to the Year 2000 project. Risks. Under the Year 2000 project, as in any project of this magnitude and scope, the risk of underestimating the tasks and difficulties to be encountered exists. Risk also exists in that the failure to correct a material Year 2000 problem could result in an interruption in, or a failure of, normal business activities or operations. In part due to the uncertainty of the Year 2000 readiness of third-party suppliers, service providers and customers, the Company is unable to determine at this time whether the consequences of Year 2000 failures will have a material impact on the Company's financial condition, profitability and cash flows. The Year 2000 project is expected to significantly reduce the Company's level of uncertainty about the Year 2000 problem and, in particular, about the Year 2000 compliance and readiness of the Company's material third-party suppliers, service providers and customers. The Company believes that, with the installation of new or upgraded enterprise resource planning systems and completion of the Year 2000 project as scheduled, the possibility of significant interruptions of normal operations should be reduced. In fact, many of the Company's business systems, including sales order, materials planning and purchasing systems, have been properly processing year 2000 transactions for several months. The Company has established contingency plans in the event that any unexpected issues arise when the Year 2000 arrives. New Accounting Standards The Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which was amended by SFAS No. 137. Provisions of these standards are required to be adopted in years beginning after June 15, 2000. Because of the Company's minimal use of derivatives, management does not anticipate that the adoption of the new statement will have a significant effect on the Company's financial condition, profitability or cash flows. Customers and Backlog Sales to the U. S. Department of Defense comprised approximately 19% of the Company's net sales in fiscal 1999. 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 September 30, 1999 was $486.5 million compared to $377.5 million at September 30, 1998. Backlog related to the U. S. Department of Defense increased by $53.4 million to $163.9 million in 1999 compared to 1998, with approximately $46.6 million due to the multi-year MTVR contract awarded in December 1998. Fire and emergency and commercial backlogs increased by $16.6 million to $200.3 million and $39.0 million to $122.3 million, respectively, at September 30, 1999 compared to amounts at the same date in the prior year. Approximately 94% of the September 30, 1999 backlog is expected to be filled in fiscal 2000. Reported backlog excludes purchase options and announced orders for which definitive contracts have not been executed. Additionally, backlog excludes unfunded portions of the U. S. Department of Defense long-term family and MTVR contracts. Backlog information and comparisons thereof as of different dates may not be accurate indicators of future sales or the ratio of the Company's future sales to the U. S. Department of Defense versus its sales to other customers. Financial Market Risk The Company's primary financial market risk exposures consist of interest rate risk from its fixed and variable rate long-term debt and foreign currency risk resulting from multi-unit sales contracts denominated in foreign currencies. The Company's interest expense is sensitive to changes in the interest rates in the U.S. and off-shore markets. In this regard, changes in U.S. and off-shore interest rates affect interest payable on the Company's long-term borrowing under its Senior Credit Facility. The Company has not historically utilized derivative securities to fix variable rate interest obligations or to make fixed-rate interest obligations variable. After consideration of the November 1999 prepayment of long-term debt from proceeds of the Company's offering of Common Stock, if short-term interest rates averaged two percent more in fiscal 2000 than in fiscal 1999, the Company's interest expense would increase, and pre-tax income would decrease by approximately $3.3 million. Similarly, if interest rates increased by two percent, the fair value of the Company's $100 million fixed rate, long-term notes at September 30, 1999 would decrease by approximately $12 million. These amounts are determined by considering the impact of the hypothetical interest rates on the Company's borrowing cost, but do not consider the effects of the reduced level of overall economic activity that could exist in such an environment. Further, in the event of a change of such magnitude, management would likely take actions to mitigate the Company's exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the foregoing sensitivity analysis assumes no changes in the Company's financial structure other than as noted. The Company's operations consist of manufacturing in the U. S. and sales activities in the U. S. and in various foreign jurisdictions. Export sales were less than five percent of overall net sales in fiscal 1999. Generally, the Company attempts to seek payment in U. S. dollars for large multi-unit sales contracts which span several months or years. From time to time, the Company has entered into foreign exchange forward contracts to minimize foreign currency risk in sales contracts denominated in currency other than U. S. dollars. Foreign currency denominated transactions are immaterial to the Company's operations. REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS Board of Directors Oshkosh Truck Corporation We have audited the accompanying consolidated balance sheets of Oshkosh Truck Corporation (the "Company") as of September 30, 1999 and 1998, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended September 30, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at September 30, 1999 and 1998, and the consolidated results of its operations and its cash flows for each of the three years in the period ended September 30, 1999, in conformity with generally accepted accounting principles. Milwaukee, Wisconsin ERNST & YOUNG LLP October 23, 1999, except for Notes 4 and 15, as to which the date is November 24, 1999 OSHKOSH TRUCK CORPORATION Consolidated Statements of Income
Fiscal Year Ended September 30, ------------------------------ 1999 1998 1997 ---- ---- ---- (In thousands, except per share amounts) Net sales................................................. $1,164,954 $902,792 $683,234 Cost of sales............................................ 991,573 776,756 602,237 ---------- -------- -------- Gross income......................................... 173,381 126,036 80,997 Operating expenses: Selling, general and administrative.................. 85,996 69,001 47,742 Amortization of goodwill and other intangibles....... 11,172 8,315 4,470 ---------- -------- -------- Total operating expenses...................... 97,168 77,316 52,212 ---------- -------- -------- Operating income.......................................... 76,213 48,720 28,785 Other income (expense): Interest expense...................................... (26,744) (21,490) (12,722) Interest income....................................... 760 1,326 717 Miscellaneous, net.................................... 730 92 (278) ---------- -------- -------- (25,254) (20,072) (12,283) ---------- -------- -------- Income before income taxes, equity in earnings of unconsolidated partnership and extraordinary item...... 50,959 28,648 16,502 Provision for income taxes................................ 21,313 12,655 6,496 ---------- -------- -------- 29,646 15,993 10,006 Equity in earnings of unconsolidated partnership, net of income taxes of $948 and $167.......................... 1,545 260 -- ---------- -------- -------- Income before extraordinary item.......................... 31,191 16,253 10,006 Extraordinary charge for early retirement of debt, net of income tax benefit of $37 and $757..................... (60) (1,185) -- ---------- -------- -------- Net income................................................ $ 31,131 $ 15,068 $ 10,006 ========== ======== ======== Earnings (loss) per share: Income before extraordinary item...................... $ 2.45 $ 1.29 $ 0.78 Extraordinary item.................................... -- (0.09) -- ---------- -------- -------- Net income............................................ $ 2.45 $ 1.20 $ 0.78 ========== ======== ======== Earnings (loss) per share assuming dilution: Income before extraordinary item...................... $ 2.39 $ 1.27 $ 0.78 Extraordinary item.................................... -- (0.09) -- ---------- -------- -------- Net income............................................ $ 2.39 $ 1.18 $ 0.78 ========== ======== ======== See accompanying notes.
OSHKOSH TRUCK CORPORATION Consolidated Balance Sheets
September 30, ------------ 1999 1998 ---- ---- (In thousands, except share Assets and per share amounts) Current assets: Cash and cash equivalents........................................... $ 5,137 $ 3,622 Receivables, net.................................................... 93,186 80,982 Inventories......................................................... 198,446 149,191 Prepaid expenses.................................................... 4,963 3,768 Deferred income taxes............................................... 14,558 12,281 -------- -------- Total current assets............................................. 316,290 249,844 Investment in unconsolidated partnership................................ 12,335 13,496 Other long-term assets.................................................. 20,853 14,198 Property, plant and equipment: Land................................................................ 8,070 7,574 Buildings........................................................... 66,097 64,566 Machinery and equipment............................................. 80,430 84,643 -------- -------- 154,597 156,783 Less accumulated depreciation....................................... (70,606) (75,947) -------- -------- Net property, plant and equipment................................ 83,991 80,836 Goodwill and other intangible assets, net............................... 319,821 326,665 -------- -------- Total assets............................................................ $753,290 $685,039 ======== ======== Liabilities and Shareholders' Equity Current liabilities: Accounts payable.................................................... $ 84,727 $ 65,171 Floor plan notes payable............................................ 26,616 11,645 Customer advances................................................... 68,364 44,915 Payroll-related obligations......................................... 24,734 24,124 Accrued warranty.................................................... 14,623 15,887 Other current liabilities........................................... 48,462 43,498 Revolving credit facility and current maturities of long-term debt.. 5,259 3,467 -------- -------- Total current liabilities...................................... 272,785 208,707 Long-term debt.......................................................... 255,289 277,337 Deferred income taxes................................................... 44,265 47,832 Other long-term liabilities............................................. 18,071 19,867 Commitments and contingencies.......................................... -- -- Shareholders' equity: Preferred Stock, $.01 par value; authorized - 2,000,000 shares; none issued and outstanding..................................... -- -- Class A Common Stock, $.01 par value; authorized - 1,000,000 shares; issued - 425,985 in 1999 and 445,332 in 1998.................... 4 4 Common Stock, $.01 par value; authorized 18,000,000 shares; issued - 13,611,044 in 1999 and 13,591,916 in 1998.............. 136 136 Paid-in capital..................................................... 15,997 14,665 Retained earnings................................................... 157,810 130,959 Common Stock in treasury, at cost: 1,206,874 shares in 1999 and 1,406,496 shares in 1998........................................ (11,067) (12,664) Minimum pension liability adjustment................................ -- (1,804) -------- -------- Total shareholders' equity...................................... 162,880 131,296 -------- -------- Total liabilities and shareholders' equity.............................. $753,290 $685,039 ======== ========
See accompanying notes. OSHKOSH TRUCK CORPORATION Consolidated Statements of Shareholders' Equity
Cost of Minimum Common Pension Common Paid-In Retained Stock in Liability Stock Capital Earnings Treasury Adjustment Total --------- --------- --------- --------- ---------- --------- (In thousands, except share and per share amounts) Balance at September 30, 1996 as previously reported....................... $ 93 $ 16,059 $ 114,246 $ (8,796) $ -- $ 121,602 Three-for-two stock split effective August 19, 1999.................... 47 (47) -- -- -- -- ---- -------- --------- --------- ------- --------- Balance at September 30, 1996.................... 140 16,012 114,246 (8,796) -- 121,602 Net income and comprehensive income.............. -- -- 10,006 -- -- 10,006 Cash dividends: Class A Common Stock ($.29000 per share)...................... -- -- (177) -- -- (177) Common Stock ($.33333 per share)............. -- -- (3,990) -- -- (3,990) Purchase of Common Stock for treasury............ -- -- -- (4,246) -- (4,246) Purchase of 1,875,000 stock warrants............. -- (2,504) -- -- -- (2,504) Exercise of stock options........................ -- 36 -- 173 -- 209 ---- -------- --------- --------- ------- --------- Balance at September 30, 1997.................... 140 13,544 120,085 (12,869) -- 120,900 Comprehensive income: Net income................................... -- -- 15,068 -- -- 15,068 Minimum pension liability adjustment......... -- -- -- -- (1,804) (1,804) --------- Comprehensive income..................... 13,264 Cash dividends: Class A Common Stock ($.29000 per share)...................... -- -- (153) -- -- (153) Common Stock ($.33333 per share)............. -- -- (4,041) -- -- (4,041) Exercise of stock options........................ -- 255 -- (217) -- 38 Tax benefit related to stock options exercised... -- 468 -- -- -- 468 Issuance of Common Stock under incentive compensation plan............................ -- 398 -- 422 -- 820 ---- -------- --------- --------- ------- --------- Balance at September 30, 1998.................... 140 14,665 130,959 (12,664) (1,804) 131,296 Comprehensive income: Net income................................... -- -- 31,131 -- -- 31,131 Minimum pension liability adjustment......... -- -- -- -- 1,804 1,804 ------- Comprehensive income..................... 32,935 Cash dividends: Class A Common Stock ($.29250 per share)...................... -- -- (125) -- -- (125) Common Stock ($.33625 per share)............. -- -- (4,155) -- -- (4,155) Exercise of stock options........................ -- (156) -- 1,597 -- 1,441 Tax benefit related to stock options exercised... -- 1,496 -- -- -- 1,496 Other............................................ -- (8) -- -- -- (8) ---- -------- --------- --------- ------- --------- Balance at September 30, 1999.................... $140 $ 15,997 $ 157,810 $ (11,067) $ -- $ 162,880 ==== ======== ========= ========= ======= =========
See accompanying notes. OSHKOSH TRUCK CORPORATION Consolidated Statements of Cash Flows
Fiscal Year Ended September 30, 1999 1998 1997 -------- -------- -------- (In thousands) Operating activities: Income before extraordinary item............................... $ 31,191 $ 16,253 $ 10,006 Provision for impairment of assets............................. -- 5,800 -- Depreciation and amortization.................................. 23,157 18,698 14,070 Write-off (gain from sale) of investments...................... -- (3,375) 200 Deferred income taxes.......................................... (3,370) 26 (3,980) Equity in earnings of unconsolidated partnership............... (2,493) (427) -- (Gain) loss on disposal of property, plant and equipment................................................ 59 122 (43) Changes in operating assets and liabilities: Receivables, net........................................... (12,204) 20,900 (4,611) Inventories................................................ (49,255) 9,958 29,792 Prepaid expenses........................................... (1,195) (260) 214 Other...................................................... (2,017) 725 1,578 Accounts payable........................................... 19,556 956 (958) Floor plan notes payable................................... 14,971 (11,377) -- Customer advances.......................................... 23,449 10,718 2,331 Payroll-related obligations................................ 510 3,480 2,314 Accrued warranty........................................... (2,264) (1,883) 3,378 Other current liabilities.................................. (1,803) 6,750 10,893 Other long-term liabilities................................ 756 2,877 598 -------- -------- -------- Net cash provided from operating activities............ 39,048 79,941 65,782 Investing activities: Acquisitions of businesses, net of cash acquired............... -- (221,144) -- Additions to property, plant and equipment..................... (13,139) (8,555) (6,263) Proceeds from sale of investments.............................. -- 3,375 -- Proceeds from sale of property, plant and equipment............ 158 1,524 395 Increase in other long-term assets............................. (1,503) (3,817) (1,532) -------- --------- -------- Net cash used for investing activities................... (14,484) (228,617) (7,400) Net cash used for discontinued operations...................... -- (1,093) (1,658) Financing activities: Net borrowings (repayments) under revolving credit facility.... (1,000) 6,000 (7,882) Proceeds from issuance of long-term debt....................... -- 325,000 -- Repayment of long-term debt.................................... (19,256) (188,049) (15,000) Debt issuance costs............................................ -- (8,641) -- Purchase of Common Stock, Common Stock warrants and proceeds from exercise of stock options, net............... 1,433 38 (6,541) Dividends paid................................................. (4,226) (4,176) (4,209) -------- -------- -------- Net cash provided from (used for) financing activities............................................. (23,049) 130,172 (33,632) -------- -------- -------- Increase (decrease) in cash and cash equivalents............... 1,515 (19,597) 23,092 Cash and cash equivalents at beginning of year................. 3,622 23,219 127 -------- -------- -------- Cash and cash equivalents at end of year....................... $ 5,137 $ 3,622 $ 23,219 ======== ======== ======== Supplemental disclosures: Cash paid for interest..................................... $ 26,142 $ 17,240 $ 12,974 Cash paid for income taxes................................. 26,859 11,097 2,998
See accompanying notes. OSHKOSH TRUCK CORPORATION Notes to Consolidated Financial Statements September 30, 1999 (In thousands, except share and per share amounts) 1. Summary of Significant Accounting Policies Operations -- Oshkosh Truck Corporation and its wholly-owned subsidiaries (the "Company" or "Oshkosh") is a leading manufacturer of a wide variety of heavy duty specialized trucks and truck bodies predominately for the U.S. market. The Company sells its products into three principal truck markets -- commercial, fire and emergency, and defense. The Company's commercial truck business is principally conducted through its wholly-owned subsidiary, McNeilus Companies, Inc. ("McNeilus"). The Company's fire and emergency business is principally conducted through its wholly-owned subsidiary, Pierce Manufacturing Inc. ("Pierce"). The defense business and certain fire and emergency and commercial truck businesses are conducted through the operations of the parent company. McNeilus is one of two general partners in Oshkosh/McNeilus Financial Services Partnership ("OMFSP"), which provides lease financing to the Company's customers. Each of the two general partners have identical participating and protective rights and responsibilities and, accordingly, the Company accounts for its equity interest in OMFSP of 57% at September 30, 1999 and 68% at September 30, 1998, under the equity method. Principles of Consolidation and Presentation -- The consolidated financial statements include the accounts of Oshkosh Truck Corporation and all of its wholly-owned subsidiaries and are prepared in conformity with U.S. generally accepted accounting principles. The Company records its interest in OMFSP under the equity method. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. All significant intercompany accounts and transactions have been eliminated. Cash and Cash Equivalents -- The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash equivalents, consisting principally of commercial paper, totaled $2,150 and $785 at September 30, 1999 and 1998, respectively. The cost of these securities, which are considered "available for sale" for financial reporting purposes, approximates fair value at September 30, 1999 and 1998. Receivables -- Receivables consist of amounts billed and currently due from customers and unbilled costs and accrued profits related to revenues on long-term contracts that have been recognized for accounting purposes but not yet billed to customers. Inventories -- The Company values the majority of its inventories at the lower of cost, computed on the last-in, first-out ("LIFO") method, or market. The remaining inventories are valued at the lower of cost, computed on the first-in, first-out ("FIFO") method, or market. Property, Plant and Equipment -- Property, plant and equipment are recorded at cost. Depreciation is provided over the estimated useful lives of the respective assets using accelerated and straight-line methods. The estimated useful lives range from 10 to 40 years for buildings and improvements and from 4 to 25 years for machinery and equipment. Other Long-Term Assets -- Other long-term assets include capitalized software and related costs, which are amortized on a straight-line method over a three-to-ten year period, deferred financing costs, which are amortized using the interest method over the term of the debt, prepaid funding of pension costs, certain investments and deferred charges. Deferred charges include certain engineering and technical support costs incurred in connection with multi-year government contracts. These costs are charged to cost of sales when the related project is billable to the government, or are amortized to cost of sales as base units are delivered under the related contracts. Goodwill and Other Intangible Assets -- The cost of goodwill and other intangible assets is amortized on a straight-line basis over the estimated periods benefited ranging from 5 to 40 years. Impairment of Long-Lived Assets -- Property, plant and equipment, other long-term assets and goodwill and other intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected undiscounted cash flows is less than the carrying value of the related asset or group of assets, a loss is recognized for the difference between the fair value and carrying value of the asset or group of assets. Such analyses necessarily involve significant judgment. See Note 12. Floor Plan Notes Payable -- Floor plan notes payable represent liabilities related to the purchase of commercial truck chassis upon which the Company mounts its manufactured refuse bodies and rear-discharge cement mixers and certain fire apparatus. Floor plan notes payable are non-interest bearing for terms ranging from 75 to 150 days and must be repaid upon the sale of the vehicle to a customer. The Company's practice is to repay all floor plan notes for which the non-interest bearing period has expired without sale of the vehicle to a customer. Customer Advances -- Customer advances principally represent amounts received in advance of the completion of fire and emergency and commercial vehicles. Most of these advances bear interest at variable rates approximating the prime rate. Revenue Recognition -- Sales to commercial and fire and emergency customers are recorded when the goods or services are billable at time of shipment or delivery of the trucks. Sales under fixed-price defense contracts generally are recorded as units are accepted by the U.S. government. Sales and anticipated profits under the Company's Medium Tactical Vehicle Replacement ("MTVR") long-term, fixed-price production contract are recorded on a percentage-of-completion basis, generally using units accepted as the measurement basis for effort accomplished. Estimated contract profits are taken into earnings in proportion to recorded sales. Sales under certain long-term, fixed price defense contracts which, among other things, provide for delivery of minimal quantities or require a significant amount of development effort in relation to total contract value, are recorded upon achievement of performance milestones, or using cost-to-cost method of accounting where sales and profits are recorded based on the ratio of costs incurred to estimated total costs at completion. Amounts representing contract change orders, claims or other items are included in sales only when they can be reliably estimated and realization is probable. When adjustments in contract value or estimated costs are determined, any changes from prior estimates are reflected in earnings in the current period. Anticipated losses on contracts or programs in progress are charged to earnings when identified. Research and Development and Similar Costs -- Except for certain arrangements described below, research and development costs are generally expensed as incurred and included as part of cost of sales. Research and development costs charged to expense amounted to approximately $10,868, $9,681 and $7,847 during fiscal 1999, 1998 and 1997, respectively. Customer-sponsored research and development costs incurred pursuant to contracts are accounted for as contract costs. Warranty -- Provisions for estimated warranty and other related costs are recorded at the time of sale and are periodically adjusted to reflect actual experience. Amounts expensed in fiscal 1999, 1998 and 1997 were $10,508, $9,403 and $9,658, respectively. Income Taxes -- Deferred income taxes are provided to recognize temporary differences between the financial reporting basis and the income tax basis of the Company's assets and liabilities using currently enacted tax rates and laws. Financial Instruments -- The carrying amounts of cash equivalents, receivables, accounts payable and debt approximated fair value as of September 30, 1999 and 1998. Concentration of Credit Risk -- Financial instruments which potentially subject the Company to significant concentrations of credit risk consist principally of cash equivalents, trade accounts receivable and leases receivable of OMFSP. The Company maintains cash and cash equivalents, and certain other financial instruments, with various major financial institutions. The Company performs periodic evaluations of the relative credit standing of these financial institutions and limits the amount of credit exposure with any institution. Concentration of credit risk with respect to trade accounts and leases receivable is limited due to the large number of customers and their dispersion across many geographic areas. However, a significant amount of trade receivables are with the U.S. government, with companies in the ready-mix concrete industry and with several large waste haulers in the United States. The Company does not currently foresee a significant credit risk associated with these receivables. Derivative Financial Instruments -- The Company may use derivative financial instruments to manage its exposure to fluctuations in interest rates and foreign exchange rates. Forward exchange contracts are designated as qualifying hedges of firm commitments. Gains and losses on these contracts are recognized in income when the hedged transactions occur. At September 30, 1999, the amounts of forward exchange contracts outstanding, as well as the amounts of gains and losses recorded during the year, were not material. The Company does not hold or issue derivative financial instruments for trading purposes. Stock-Based Compensation -- The Company measures compensation cost for stock-based compensation plans using the intrinsic value method of accounting as prescribed in Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. The Company has adopted those provisions of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," which require disclosure of the pro forma effect on net earnings and earnings per share as if compensation cost had been recognized based upon the estimated fair value at the date of grant for options awarded. Environmental Remediation Costs -- The Company accrues for losses associated with environmental remediation obligations when such losses are probable and reasonably estimable. Costs of future expenditures for environmental remediation obligations are not discounted to their present value. Recoveries of environmental remediation costs from other parties are recorded as assets when their receipt is deemed probable. The accruals are adjusted as further information develops or circumstances change. Earnings Per Share -- The following table sets forth the computation of basic and diluted weighted average shares used in the per share calculations: Fiscal Year Ended September 30, 1999 1998 1997 ---------- ---------- ---------- Denominator for basic earnings per share.......................... 12,727,141 12,597,598 12,753,249 Effect of dilutive options and incentive compensation awards.. 324,713 161,901 65,874 ---------- ---------- ---------- Denominator for dilutive earnings per share...................... 13,051,854 12,759,499 12,819,123 ========== ========== ========== New Accounting Standards -- Effective October 1, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes the standards for reporting and displaying comprehensive income and its components (revenues, expenses, gains, and losses) as part of a full set of financial statements. This statement requires that all elements of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. The adoption of SFAS No. 130 had no impact on the Company's net earnings. Comprehensive income has been included in the Company's Consolidated Statement of Shareholders' Equity and prior period amounts have been reclassified to conform to SFAS No. 130 requirements. Effective September 30, 1999, the Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 establishes the standards for public enterprises to report financial and descriptive information about their operating segments in financial statements for both interim and annual periods and provide disclosures with respect to products and services, geographic areas of operations and major customers. The adoption of SFAS No. 131 did not affect the Company's results of operations, financial position or cash flows, but did increase the level of disclosure. See Note 13. Effective September 30, 1999, the Company adopted SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." The provisions of SFAS No. 132 revise employers' disclosures about pension and other postretirement benefit plans. This statement does not change the measurement or recognition of costs associated with these plans. In addition, SFAS No. 132 standardizes the disclosure requirements for pensions and other postretirement benefits to the extent practicable. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which was amended by SFAS No. 137. Provisions of these standards are required to be adopted in years beginning after June 15, 2000. Because of the Company's minimal use of derivatives, management does not anticipate that the adoption of SFAS No. 133 will have a significant effect on the results of operations or on the financial position of the Company. Reclassifications -- Certain reclassifications have been made to the fiscal 1998 and 1997 financial statements to conform to the 1999 presentation. Common Stock Split -- On July 23, 1999, the Board of Directors of the Company authorized a three-for-two split of the Company's common stock in the form of a 50% stock dividend. The stock split was effected on August 19, 1999 for shareholders of record at the close of business on August 5, 1999. All references in the Consolidated Financial Statements and the Notes to Consolidated Financial Statements to number of shares, per share amounts, stock option data and market prices of the Company's stock have been restated to reflect the stock split. In addition, an amount equal to the par value of the shares distributed to effect the stock split has been transferred from paid-in-capital to common stock. 2. Balance Sheet Information September 30, Receivables 1999 1998 --------------------------------------- --------- --------- U.S. government: Amounts billed..................... $ 25,573 $ 22,197 Amounts unbilled................... 243 -- --------- -------- 25,816 22,197 Commercial customers................... 66,999 58,776 Other.................................. 2,575 2,077 --------- --------- 95,390 83,050 Less allowance for doubtful accounts... (2,204) (2,068) --------- --------- $ 93,186 $ 80,982 ========= ========= The unbilled amounts represent estimated claims for government-ordered changes which will be invoiced upon completion of negotiations and price adjustment provisions which will be invoiced when they are agreed upon by the government. September 30, Inventories 1999 1998 ----------------------------------------- --------- --------- Finished products........................ $ 59,649 $ 27,916 Partially finished products.............. 62,047 52,700 Raw materials............................ 89,417 77,675 --------- --------- Inventories at FIFO cost................. 211,113 158,291 Less: Progress payments on U.S. government contracts............. (2,951) -- Excess of FIFO cost over LIFO cost. (9,716) (9,100) --------- --------- $ 198,446 $ 149,191 ========= ========= Title to all inventories related to government contracts, which provide for progress payments, vests with the government to the extent of unliquidated progress payments. Inventory at September 30, 1999 includes $2,417 of tooling under the Company's MTVR contract. September 30, Goodwill and Other Intangible Assets 1999 1998 ------------------------------------------ ---------- ----------- Useful Lives ---------------- Goodwill 40 Years........ $ 218,614 $ 212,746 Distribution network 40 Years........ 63,800 63,800 Non-compete agreements 15 Years........ 38,000 38,000 Other 5-40 Years...... 23,320 24,860 --------- --------- 343,734 339,406 Less accumulated amortization............. (23,913) (12,741) --------- --------- $ 319,821 $ 326,665 ========= ========= The Company engaged third party business valuation appraisers to determine the fair value of the distribution network in connection with its acquisition of Pierce. The Company believes Pierce maintains the largest North American fire apparatus distribution network and has exclusive contracts with each distributor related to the fire apparatus product offerings manufactured by Pierce. The useful life of the distribution network is based on a historical turnover analysis. On February 26, 1998, concurrent with the Company's acquisition of McNeilus (see Note 3), the Company and BA Leasing & Capital Corporation ("BALCAP") formed OMFSP, a general partnership, for the purpose of offering lease financing to customers of the Company. Each partner contributed existing lease assets (and in the case of the Company, related notes payable to third party lenders which were secured by such leases) to capitalize the partnership. Leases and related notes payable contributed by the Company were originally acquired in connection with the McNeilus acquisition. OMFSP manages the contributed assets and liabilities and engages in new vendor lease business providing financing to customers of the Company. OMFSP purchases trucks and concrete batch plants for lease to user-customers. Banks and other financial institutions lend to OMFSP a portion of the purchase price, with recourse solely to OMFSP, secured by a pledge of lease payments due from the user-lessees. Each partner funds one-half of the equity portion of the cost of the new truck and batch plant purchases, and each partner is allocated its proportionate share of OMFSP cash flow and taxable income. Indebtedness of OMFSP is secured by the underlying leases and assets of, and is with recourse to, OMFSP. However, such indebtedness is non-recourse to the Company. Summarized financial information of OMFSP as of September 30, 1999 and 1998, the fiscal year ended September 30, 1999 and for the period February 26, 1998 (the date OMFSP was formed) to September 30, 1998, is as follows: September 30, 1999 1998 ---- ---- Cash and cash equivalents............ $ 1,383 $ 4,584 Investment in sales type leases, net. 140,912 123,473 Other assets......................... 278 267 ----------- ----------- $ 142,573 $ 128,324 =========== =========== Notes payable........................ $ 119,156 $ 105,473 Other liabilities.................... 1,799 2,944 Partners' equity..................... 21,618 19,907 ----------- ----------- $ 142,573 $ 128,324 =========== =========== Period From Fiscal Year Ended February 26, 1998 to September 30, 1999 September 30, 1998 ------------------ ------------------ Interest income...................... $ 11,624 $ 6,605 Net interest income.................. 3,499 1,622 Excess of revenues over expenses..... 3,854 644 Excess of revenues over expenses in fiscal 1998 includes a $1,466 nonrecurring charge to write off start-up expenses incurred in fiscal 1998 to establish OMFSP (see Note 11). 3. Acquisitions On February 26, 1998, the Company acquired for cash all of the issued and outstanding capital stock of McNeilus and entered into related non-compete and ancillary agreements for $217,581, including acquisition costs and net of cash acquired. McNeilus is a leading manufacturer and marketer of rear-discharge concrete mixers for the construction industry and refuse truck bodies for the waste services industry in the United States. The acquisition was financed from borrowings under a Senior Credit Facility and the issuance of Senior Subordinated Notes (see Note 4). The acquisition was accounted for using the purchase method of accounting and, accordingly, the operating results of McNeilus are included in the Company's consolidated statements of income since the date of acquisition. The purchase price, including acquisition costs, was allocated based on the estimated fair values of the assets acquired and liabilities assumed at the date of the acquisition and was subsequently adjusted during fiscal 1999. Approximately $60,985 of the purchase price was allocated to intangible assets, including non-competition agreements. The excess of the purchase price over the estimated fair value of net assets acquired amounted to $114,727, which has been accounted for as goodwill. Pro forma unaudited consolidated operating results of the Company for the fiscal year ended September 30, 1998, assuming McNeilus had been acquired as of October 1, 1997 is summarized below: Net sales...................................... $1,040,986 Income before extraordinary item............... 18,590 Net income..................................... 17,405 Earnings per share: Before extraordinary item................. 1.47 Net income................................ 1.38 Earnings per share assuming dilution: Before extraordinary item................. 1.46 Net income................................ 1.36 These pro forma results have been prepared for informational purposes only and include certain adjustments to depreciation expense related to acquired plant and equipment, amortization expense arising from goodwill and other intangible assets, interest expense on acquisition debt, elimination of certain non-recurring expenses directly attributable to the transaction (including elimination of the write-off of the Company's share of start-up expenses), and the estimated related income tax effects of all such adjustments. These pro forma results do not purport to be indicative of the results of operations which would have resulted had the combination been in effect as of October 1, 1997. On December 19, 1997, the Company, through Pierce, acquired certain inventory, machinery and equipment, and intangible assets of Nova Quintech, a division of Nova Bus Corporation ("Nova Quintech") using available cash for $3,563. Nova Quintech was engaged in the manufacture and sale of aerial devices for fire trucks. Approximately $1,849 of the purchase price has been allocated to intangible assets, principally aerial device designs and technology. The Nova Quintech products have been integrated into Pierce's product line and are being manufactured at Pierce. The acquisition was accounted for using the purchase method of accounting, and accordingly, the operating results of Nova Quintech are included in the Company's statements of income since the date of the acquisition. Had the acquisition occurred as of October 1, 1997, there would have been no material pro forma effect on net sales, net income, or earnings per share in fiscal 1998. 4. Revolving Credit Facility and Long-Term Debt On February 26, 1998, the Company entered into the Senior Credit Facility and issued $100,000 of 8 3/4% Senior Subordinated Notes due March 1, 2008 to finance the acquisition of McNeilus (see Note 3) and to refinance a previous credit facility. The Senior Credit Facility consists of a six year $100,000 revolving credit facility ("Revolving Credit Facility") and three term loan facilities ("Term Loan A," "Term Loan B," and "Term Loan C"--collectively, the "Term Loan Facility"). Term Loan A was for $100,000 and matures on March 31, 2004. Term Loans B and C each were for $62,500 and mature on March 31, 2005 and March 31, 2006, respectively. In fiscal 1999 and from February 26, 1998 through September 30, 1998, the Company paid from available cash $19,000 and $53,000, respectively, on the Term Loan Facility, including scheduled payments of $3,216 and $5,625 and prepayments of $15,784 and $47,375, respectively. All prepayments are first applied to the next twelve months mandatory principal payments and then on a pro rata basis to the principal payments due over the remainder of the loans. The outstanding balances as of September 30, 1999 on Term Loan A, Term Loan B, and Term Loan C were $84,000, $34,500, and $34,500, respectively. On November 24, 1999, the Company prepaid $93,500 of term debt from proceeds of an offering of Common Stock (see Note 15) resulting in remaining outstanding balances of $32,500, $13,500 and $13,500 under Term Loan A, Term Loan B and Term Loan C, respectively. Current maturities of Term Loan A of $13,500 at September 30, 1999 have been included in long-term debt at September 30, 1999 because this obligation was prepaid in connection with the Common Stock offering. After adjustment for prepayments, Term Loan A requires principal payments of $6,915 in fiscal 2001, $8,989 in fiscal 2002, $11,064 in fiscal 2003 and $5,532 in fiscal 2004. Term Loans B and C each require principal payments of $35 per quarter through March 31, 2004 (for Term Loan B) and through March 31, 2005 (for Term Loan C). Any remaining outstanding principal balances on Term Loans B and C are due in quarterly installments through March 31, 2005 and March 31, 2006, respectively. At September 30, 1999, borrowings of $5,000 and letters of credit of $7,973 reduced available capacity under the Company's Revolving Credit Facility to $87,027. Interest rates on borrowings under the Revolving Credit and Term Loan Facilities are variable and are equal to the "Base Rate" (which is equal to the higher of a bank's reference rate and the federal funds rate plus 0.5%) or the "IBOR Rate" (which is a bank's inter-bank offered rate for U.S. dollars in off-shore markets) plus a margin of 0.50%, 0.50%, 1.00% and 1.25% for Base Rate loans and a margin of 1.75%, 1.75%, 2.25% and 2.50% for IBOR Rate loans under the Revolving Credit Facility, Term Loan A, Term Loan B and Term Loan C, respectively, as of September 30, 1999. The margins are subject to adjustment, up or down, based on whether certain financial criteria are met. The weighted average interest rates on borrowings outstanding at September 30, 1999 were 7.392% on the Revolving Credit Facility and 6.874%, 7.637% and 7.887% for Term Loans A, B and C, respectively. The Company is charged a 0.30% annual fee with respect to any unused balance under its Revolving Credit Facility, and a 1.75% annual fee with respect to any letters of credit issued under the Revolving Credit Facility. These fees are subject to adjustment if certain financial criteria are met. Substantially all the tangible and intangible assets of the Company and its subsidiaries (including the stock of certain subsidiaries) are pledged as collateral under the Senior Credit Facility. Among other restrictions, the Senior Credit Facility: (1) limits payments of dividends, purchases of the Company's stock, and capital expenditures; (2) requires that certain financial ratios be maintained at prescribed levels; (3) restricts the ability of the Company to make additional borrowings, or to consolidate, merge or otherwise fundamentally change the ownership of the Company; (4) requires mandatory prepayments to the extent of "excess cash flows"; and (5) limits investments, dispositions of assets and guarantees of indebtedness. The Company believes that such limitations should not impair its future operating activities. The Senior Subordinated Notes were issued pursuant to an Indenture dated February 26, 1998 (the "Indenture"), between the Company, the Subsidiary Guarantors (as defined below) and Firstar Trust Company, as trustee. The Indenture contains customary affirmative and negative covenants. The Senior Subordinated Notes are due March 1, 2008 and can be redeemed by the Company for a premium after March 1, 2003. In addition to the Company, certain of the Company's subsidiaries, including Pierce Manufacturing Inc., Summit Performance Systems, Inc., McNeilus Companies, Inc., McNeilus Truck & Manufacturing, Inc., Iowa Contract Fabricators, Inc., McIntire Fabricators, Inc., Kensett Fabricators, Inc. and McNeilus Financial, Inc. (collectively, the "Subsidiary Guarantors") fully, unconditionally, jointly and severally guarantee the Company's obligations under the Senior Subordinated Notes (see Note 14). McNeilus has unsecured notes payable to several of its former shareholders aggregating $2,548 at September 30, 1999 and $2,804 at September 30, 1998. Interest rates on these notes range from 5.7% to 8.0% with annual principal and interest payments ranging from $20 to $155 with maturities through October 2033. The aggregate annual maturities of long-term debt for the five years succeeding September 30, 1999, as adjusted to reflect the prepayment of debt from proceeds of the Common Stock offering are as follows: 2000 -- $259; 2001 -- $7,429; 2002 -- $9,507; 2003 -- $11,567; and 2004 -- $12,448. 5. Income Taxes Fiscal Year Ended September 30, 1999 1998 1997 -------- -------- -------- Income Tax Provision (Credit) Current: Federal.............................. $ 22,654 $ 10,555 $ 8,610 State................................ 2,029 2,074 1,866 -------- -------- -------- Total current..................... 24,683 12,629 10,476 Deferred: Federal.............................. (2,882) 35 (3,645) State................................ (488) (9) (335) -------- -------- -------- Total deferred.................... (3,370) 26 (3,980) -------- -------- -------- $ 21,313 $ 12,655 $ 6,496 ======== ======== ======== Fiscal Year Ended September 30, 1999 1998 1997 -------- -------- -------- Effective Rate Reconciliation U.S. federal tax rate................... 35.0% 35.0% 35.0% State income taxes, net................. 2.9 4.9 6.0 Reduction of prior years' excess tax provisions.............................. -- -- (5.5) Foreign sales corporation............... (0.5) (1.5) (1.5) Goodwill amortization................... 3.8 5.1 5.4 Other, net.............................. 0.6 0.7 -- ------ ------ ------ 41.8% 44.2% 39.4% ====== ====== ====== September 30, 1999 1998 --------- --------- Deferred Tax Assets and Liabilities Deferred tax assets: Other current liabilities..................... $ 10,946 $ 6,284 Postretirement benefit obligations............ 7,990 4,219 Accrued warranty.............................. 6,597 8,625 Payroll-related obligations................... 2,700 3,177 Other......................................... 1,820 1,355 --------- --------- Total deferred tax assets................. 30,053 23,660 Deferred tax liabilities: Intangible assets............................. 31,061 31,498 Investment in unconsolidated partnership...... 13,301 16,496 Property, plant and equipment................. 7,974 7,288 Inventories................................... 6,211 3,038 Other......................................... 1,213 891 --------- --------- Total deferred tax liabilities............ 59,760 59,211 --------- --------- Net deferred tax liability................ $ (29,707) $ (35,551) ========= ========= The Company has not recorded a valuation allowance with respect to any deferred tax assets. 6. Employee Benefit Plans The Company and certain of its subsidiaries sponsor multiple defined benefit pension plans and a postretirement benefit plan covering certain Oshkosh and Pierce employees and certain Oshkosh retirees and their spouses, respectively. The pension plans provide benefits based on compensation, years of service and date of birth. The postretirement benefit plan provides health benefits based on years of service and date of birth. The Company's policy is to fund the pension plans in amounts that comply with contribution limits imposed by law. Requirements of the Company's postretirement benefit plan are funded as benefit payments are made.
Pension Benefits Postretirement Benefits 1999 1998 1999 1998 --------- --------- --------- --------- Change in benefit obligation Benefit obligation at October 1.......................... $ 41,860 $ 34,787 $ 10,071 $ 8,997 Service cost............................................. 1,828 1,744 461 397 Interest cost............................................ 2,853 2,751 708 676 Actuarial losses (gains)................................. (3,402) 3,755 (2,207) 273 Benefits paid by the Company............................. -- -- (289) (272) - Benefits paid from plan assets........................... (1,323) (1,177) -- -- --------- ---------- --------- --------- Benefit obligation at September 30....................... $ 41,816 $ 41,860 $ 8,744 $ 10,071 ========= ========= ========= ========= Change in plan assets Fair value of plan assets at October 1................... $ 37,769 $ 34,787 $ -- $ -- Actual return on plan assets............................. 8,231 3,122 -- -- Company contributions.................................... 1,276 1,037 289 272 Benefits paid from plan assets........................... (1,323) (1,177) -- -- Benefits paid by the Company............................. -- -- (289) (272) --------- --------- --------- --------- Fair value of plan assets at September 30................ $ 45,953 $ 37,769 $ -- $ -- ========= ========= ========= ========= Funded status of plan - over (under) funded.............. $ 4,137 $ (4,091) $ (8,744) $ (10,071) Unrecognized net actuarial losses (gains)................ (2,299) 6,040 (3,071) (864) Unrecognized transition asset............................ (459) (527) -- -- Unamortized prior service cost........................... 1,783 1,914 -- -- Adjustment to recognize minimum pension liability........ -- (4,835) -- -- --------- --------- --------- --------- 3,162 (1,499) (11,815) (10,935) Prepaid benefit cost..................................... 3,162 1,107 -- -- --------- --------- --------- --------- Accrued benefit cost..................................... $ -- $ (2,606) $ (11,815) $ (10,935) ========= ========= ========= ========= Weighted-average assumptions as of September 30 Discount rate............................................ 7.75% 7.25% 7.75% 7.25% Expected return on plan assets........................... 9.25 9.25 n/a n/a Rate of compensation increase............................ 4.50 4.50 n/a n/a Pension Benefits Postretirement Benefits Fiscal Year Ended September 30, Fiscal Year Ended September 30, 1999 1998 1997 1999 1998 1997 --------- --------- --------- --------- --------- --------- Components of net periodic benefit cost Service cost............................ $ 1,828 $ 1,744 $ 1,387 $ 461 $ 397 $ 366 Interest cost........................... 2,853 2,751 2,439 708 676 613 Expected return on plan assets.......... (3,450) (3,185) (2,807) -- -- -- Amortization of prior service cost...... 131 131 86 -- -- -- Amortization of transition asset........ (67) (67) (67) -- -- -- Amortization of net actuarial (gains)/losses........................ 155 193 122 -- (13) (32) --------- --------- --------- --------- ---------- --------- Net periodic benefit cost............... $ 1,450 $ 1,567 $ 1,160 $ 1,169 $ 1,060 $ 947 ========= ========= ========= ========= ========= =========
Generally accepted accounting principles require the recognition of a minimum pension liability for each defined benefit plan for which the accumulated benefit obligation exceeds plan assets ($2,606 at September 30, 1998) and recognition of an intangible asset to the extent of unrecognized past service cost ($1,878 at September 30, 1998). These amounts are included in other long-term liabilities and intangible assets, respectively, at September 30, 1998. An adjustment of $1,804 has been recorded as a charge to other comprehensive income in fiscal 1998 to recognize the minimum liability of $4,835, net of both the intangible asset recorded of $1,878 and the related income tax benefit of $1,153. The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation was 9.4% in fiscal 1999, declining to 5.5% in fiscal 2008. If the health care cost trend rate was increased by 1%, the postretirement benefit obligation at September 30, 1999 would increase by $659 and net periodic postretirement benefit cost for fiscal 1999 would increase by $136. The Company has defined contribution 401(k) plans covering substantially all employees. The plans allow employees to defer 2% to 19% of their income on a pre-tax basis. Each employee who elects to participate is eligible to receive Company matching contributions. Amounts expensed for Company matching contributions were $1,684, $1,345 and $825, in fiscal 1999, 1998 and 1997, respectively. 7. Shareholders' Equity On February 1, 1999, the Board of Directors of the Company adopted a shareholder rights plan and declared a rights dividend of two-thirds of one Preferred Share Purchase Right ("Right") for each share of Common Stock and 40/69 of one Right for each share of Class A Common Stock outstanding on February 8, 1999, and provided that two-thirds of one Right and 40/69 of one Right would be issued with each share of Common Stock and Class A Common Stock, respectively, thereafter issued. The Rights are exercisable only if a person or group acquires 15% or more of the Common Stock and Class A Common Stock or announces a tender offer for 15% or more of the Common Stock and Class A Common Stock. Each Right entitles the holder thereof to purchase from the Company one one-hundredth share of the Company's Series A Junior Participating Preferred Stock at an initial exercise price of $145 per one one-hundredth of a share (subject to adjustment), or, upon the occurrence of certain events, Common Stock or common stock of an acquiring company having a market value equivalent to two times the exercise price. Subject to certain conditions, the Rights are redeemable by the Board of Directors for $.01 per Right and are exchangeable for shares of Common Stock. The Board of Directors is also authorized to reduce the 15% thresholds referred to above to not less than 10%. The Rights have no voting power and initially expire on February 1, 2009. On May 2, 1997, the Company and Freightliner Corporation ("Freightliner") formally terminated a strategic alliance formed on June 2, 1995. The Company repurchased from Freightliner 525,000 shares of its Common Stock and 1,875,000 warrants for the purchase of additional shares of Common Stock for a total of $6,750. The Company has a stock restriction agreement with two shareholders owning the majority of the Company's Class A Common Stock. The agreement is intended to allow for an orderly transition of Class A Common Stock into Common Stock. The agreement provides that at the time of death or incapacity of the survivor of them, the two shareholders will exchange all of their Class A Common Stock for Common Stock. At that time, or at such earlier time as there are no more than 225,000 shares of Class A Common Stock issued and outstanding, the Company's Articles of Incorporation provide for a mandatory conversion of all Class A Common Stock into Common Stock. Each share of Class A Common Stock is convertible into Common Stock on a one-for-one basis. During fiscal 1999, 19,347 shares of Class A Common Stock were converted into Common Stock. As of September 30, 1999, 425,985 shares of Common Stock are reserved for the conversion of Class A Common Stock. In July 1995, the Company authorized the buyback of up to 1,500,000 shares of the Company's Common Stock. As of September 30, 1999 and 1998, the Company had purchased 692,302 shares of its Common Stock at an aggregate cost of $6,551. Dividends are required to be paid on both the Class A Common Stock and Common Stock at any time that dividends are paid on either. Each share of Common Stock is entitled to receive 115% of any dividend paid on each share of Class A Common Stock, rounded up or down to the nearest $0.0025 per share. Agreements governing the Company's Senior Credit Facility and Senior Subordinated Notes restrict the Company's ability to pay dividends. Under these agreements, the Company generally may pay dividends in an amount not to exceed $5,000 plus 5% of net income. Holders of the Common Stock have the right to elect or remove as a class 25% of the entire Board of Directors of the Company rounded to the nearest whole number of directors, but not less than one. Holders of Common Stock are not entitled to vote on any other Company matters, except as may be required by law in connection with certain significant actions such as certain mergers and amendments to the Company's Articles of Incorporation, and are entitled to one vote per share on all matters upon which they are entitled to vote. Holders of Class A Common Stock are entitled to elect the remaining directors (subject to any rights granted to any series of Preferred Stock) and are entitled to one vote per share for the election of directors and on all matters presented to the shareholders for vote. The Common Stock shareholders are entitled to receive a liquidation preference of $5.00 per share before any payment or distribution to holders of the Class A Common Stock. Thereafter, holders of the Class A Common Stock are entitled to receive $5.00 per share before any further payment or distribution to holders of the Common Stock. Thereafter, holders of the Class A Common Stock and Common Stock share on a pro rata basis in all payments or distributions upon liquidation, dissolution or winding up of the Company. 8. Stock Option Plan The Company has reserved 1,288,630 shares of Common Stock at September 30, 1999 to provide for the exercise of outstanding stock options and the issuance of Common Stock under incentive compensation awards and 425,985 shares of Common Stock at September 30, 1999 to provide for conversion of Class A Common Stock to Common Stock. Under the 1990 Incentive Stock Plan for Key Employees (the "Plan"), officers, other key employees and directors may be granted options to purchase up to an aggregate of 1,875,000 shares of the Company's Common Stock at not less than the fair market value of such shares on the date of grant. Participants may also be awarded grants of restricted stock under the Plan. The Plan expires on September 21, 2008. Options become exercisable ratably on the first, second, and third anniversary of the date of grant. Options to purchase shares expire not later than ten years and one month after the grant of the option. The following table summarizes the transactions under the Plan for the three-year period ended September 30, 1999. Number of Weighted-Average Options Exercise Price Unexercised options outstanding September 30, 1996....................... 691,203 $ 7.42 Options granted........................ 7,500 8.00 Options exercised...................... (30,496) 6.89 Options forfeited...................... (11,355) 8.64 --------- Unexercised options outstanding September 30, 1997....................... 656,852 7.43 Options granted........................ 621,000 13.57 Options exercised...................... (208,800) 7.00 Options forfeited...................... (1,500) 9.25 --------- Unexercised options outstanding September 30, 1998....................... 1,067,552 11.08 Options granted........................ 210,500 29.89 Options exercised...................... (199,622) 7.22 Options forfeited...................... (1,875) 10.43 --------- Unexercised options outstanding September 30, 1999....................... 1,076,555 $ 15.47 ========= ======= Price range $5.25-- $11.17 (weighted-average contractual life of 6.3 years)............... 402,555 $ 9.20 Price range $12.75-- $15.75 (weighted-average contractual life of 8.8 years)................ 463,500 14.38 Price range $25.17-- $30.50 (weighted-average contractual life of 10.0 years)............... 210,500 29.89 Exercisable options at September 30, 1999....... 452,169 10.53 Shares available for grant at September 30, 1999............................ 212,075 As allowed by SFAS No. 123, "Accounting for Stock-Based Compensation," the Company has elected to continue to follow Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees" in accounting for the Plan. Under APB No. 25, the Company does not recognize compensation expense on the issuance of its stock options because the option terms are fixed and the exercise price equals the market price of the underlying stock on the grant date. As required by SFAS No. 123, the Company has determined the pro forma information as if the Company had accounted for stock options granted since September 30, 1995 under the fair value method of SFAS No. 123. The Black-Scholes option pricing model was used with the following weighted-average assumptions: risk-free interest rates of 4.70% and 5.96% in 1999, 5.87%, 5.44% and 4.62% in 1998, and 6.27% in 1997; dividend yield of 1.34% and 1.10% in 1999, 2.99%, 2.61% and 2.12% in 1998, and 4.17% in 1997; expected common stock market price volatility factor of .335 in 1999, .308 in 1998 and .305 in 1997; and a weighted-average expected life of the options of six years. The weighted-average fair value of options granted in 1999, 1998 and 1997 was $11.57, $4.07 and $2.05 per share, respectively. The pro forma effect of these options on net earnings and earnings per share was not material. These pro forma calculations only include the effects of 1999, 1998 and 1997 grants. As such, the impacts are not necessarily indicative of the effects on reported net income of future years. 9. Operating Leases and Related Party Transactions Total rental expense for plant and equipment charged to operations under noncancelable operating leases was $937, $1,114 and $886 in fiscal 1999, 1998 and 1997, respectively. Minimum rental payments due under operating leases for subsequent fiscal years are: 2000 -- $1,045; 2001 -- $748; 2002 -- $500; 2003 -- $313; and 2004 -- $223. Included in rental expense are charges of $128 in both fiscal 1998 and 1997, relating to a building lease between the Company and certain shareholders. In September 1998, the Company purchased the building, which had been leased from such shareholders, for $773. The purchase price was based on the average of two independent appraisals. 10. Contingencies, Significant Estimates and Concentrations The Company was engaged in litigation against Super Steel Products Corporation ("SSPC"), the Company's former supplier of mixer systems for front discharge concrete mixer trucks under a long-term supply contract. SSPC sued the Company in state court claiming that the Company breached the contract. The Company counterclaimed for repudiation of contract. On July 26, 1996, a jury returned a verdict for SSPC awarding damages totaling $4,485. On October 10, 1996, the state court judge overturned the verdict against the Company, granted judgment for the Company on its counterclaim, and ordered a new trial for damages on the Company's counterclaim. Both SSPC and the Company appealed the state court judge's decision. On December 8, 1998, the Wisconsin Court of Appeals ordered a state court judge to reinstate the jury verdict against the Company awarding damages totaling $4,485 plus interest to SSPC. On April 6, 1999, the Company's petition for review of this decision by the Wisconsin Supreme Court was denied. On April 12, 1999, the Company petitioned the state court judge to act on the Company's previous motion for a retrial. This petition was denied on June 18, 1999 and the state court judge directed that judgment be entered. In lieu of further appeals, the Company paid $5.75 million on July 27, 1999 in final settlement of the matter. McNeilus is a defendant in litigation, which was commenced in 1993 prior to the acquisition of McNeilus by the Company, in the U.S. District Court for the Northern District of Alabama. The litigation, which was brought by The Heil Co. ("Heil"), a McNeilus competitor, seeks damages and claims that McNeilus infringed certain aspects of its patent for refuse packer design. The patent referenced in the matter was allowed by Heil to lapse in 1995. The Company has denied infringement and asserted that the patent is invalid, both on the basis of prior art and on a defective application. A trial is scheduled in early calendar 2000. The Company is vigorously contesting the claims and has established a reserve for litigation and defense costs. The Company was engaged in the arbitration of certain disputes between the Oshkosh Florida Division and O.V. Containers, Inc., ("OV") which arose out of the performance of a contract to deliver 690 trailers. The Company contested warranty and other claims made against it, and reached a settlement in June 1998, which included payment by the Company of $1,000 to OV. As part of its routine business operations, the Company disposes of and recycles or reclaims certain industrial waste materials, chemicals and solvents at third party disposal and recycling facilities, which are licensed by appropriate governmental agencies. In some instances, these facilities have been and may be designated by the United States Environmental Protection Agency ("EPA") or a state environmental agency for remediation. Under the Comprehensive Environmental Response, Compensation, and Liability Act (the "Superfund" law) and similar state laws, each potentially responsible party ("PRP") that contributed hazardous substances may be jointly and severally liable for the costs associated with cleaning up the site. Typically, PRPs negotiate a resolution with the EPA and/or the state environmental agencies. PRPs also negotiate with each other regarding allocation of the cleanup cost. As to one such Superfund site, Pierce is one of 431 PRPs participating in the costs of addressing the site and has been assigned an allocation share of approximately 0.04%. Currently, a report of the remedial investigation/feasibility study is being completed, and as such, an estimate for the total cost of the remediation of this site has not been made to date. However, based on estimates and the assigned allocations, the Company believes its liability at the site will not be material and its share is adequately covered through reserves established by the Company at September 30, 1999. Actual liability could vary based on results of the study, the resources of other PRPs, and the Company's final share of liability. The Company is addressing a regional trichloroethylene ("TCE") groundwater plume on the south side of Oshkosh, Wisconsin. The Company believes there may be multiple sources in the area. TCE was detected at the Company's North Plant facility with testing showing the highest concentrations in a monitoring well located on the upgradient property line. Because the investigation process is still ongoing, it is not possible for the Company to estimate its long-term total liability associated with this issue at this time. Also, as part of the regional TCE groundwater investigation, the Company conducted a groundwater investigation of a former landfill located on Company property. The landfill, acquired by the Company in 1972, is approximately 2.0 acres in size and is believed to have been used for the disposal of household waste. Based on the investigation, the Company does not believe the landfill is one of the sources of the TCE contamination. Based upon current knowledge, the Company believes its liability associated with the TCE issue will not be material and is adequately covered through reserves established by the Company at September 30, 1999. However, this may change as investigations proceed by the Company, other unrelated property owners, and the government. The Company is subject to other environmental matters and legal proceedings and claims, including patent, antitrust, product liability and state dealership regulation compliance proceedings, that arise in the ordinary course of business. Although the final results of all such matters and claims cannot be predicted with certainty, management believes that the ultimate resolution of all such matters and claims, after taking into account the liabilities accrued with respect to such matters and claims, will not have a material adverse effect on the Company's financial condition or results of operations. Actual results could vary, among other things, due to the uncertainties involved in litigation. The Company has guaranteed certain customers' obligations under deferred payment contracts and lease purchase agreements totaling approximately $1,000 at September 30, 1999. The Company is also contingently liable under bid, performance and specialty bonds totaling approximately $118,238 and open standby letters of credit issued by the Company's bank in favor of third parties totaling $7,973 at September 30, 1999. Provisions for estimated warranty and other related costs are recorded at the time of sale and are periodically adjusted to reflect actual experience. As of September 30, 1999 and 1998, the Company has accrued $14,623 and $15,887 for warranty claims. Certain warranty and other related claims involve matters of dispute that ultimately are resolved by negotiation, arbitration or litigation. Infrequently, a material warranty issue can arise which is beyond the scope of the Company's historical experience. During fiscal 1998 and 1997, the Company recorded warranty and other related costs for matters beyond the Company's historical experience totaling $3,200 and $3,770, respectively. The additional charges in fiscal 1998 and 1997 principally related to a dispute with or involving the Company's former trailer manufacturing operations, which was settled in fiscal 1998 (see above), and secondarily to repair certain matters related to refuse and front-discharge chassis. It is reasonably possible that additional warranty and other related claims could arise from disputes or other matters beyond the scope of the Company's historical experience. The Company subcontracted production under an $85,000 ISO-Compatible Palletized Flatracks ("IPF") contract for the U.S. Army to Steeltech Manufacturing, Inc. ("Steeltech"), a minority-owned firm, pursuant to Department of Defense regulations under the IPF contract. Due to financial difficulties encountered by Steeltech, the Company advanced working capital requirements to Steeltech. As a result of delays in the start-up of full-scale production under the IPF contract, the Company wrote off certain of its advances and an investment in Steeltech totaling $3,300 in prior years. Such charges were determined based on the amount of advances that were deemed to be unrealizable based on a projection of Steeltech's cash flows through completion of the IPF contract. Steeltech's IPF production was completed in July 1998. The Company also wrote off an investment of $900 in a joint venture, which leases equipment to Steeltech, and accrued $1,084 for the satisfaction of a guarantee of 50% of the outstanding indebtedness of the joint venture which was paid in full in fiscal 1999. Such charges were based on a projection of Steeltech's cash flows, which indicated that Steeltech could not sustain its lease payments to the joint venture, and because the Company believed that there was not a market for the sale of the leased equipment. Given the completion of the IPF contract, and Steeltech's filing for bankruptcy under Chapter 7 of the U.S. Bankruptcy code in October 1999, the Company is attempting to dispose of its investment in the joint venture. The Company believes that it is adequately reserved at September 30, 1999, for any matters relating to the disposition of such investment. The Company derives a significant portion of its revenue from the U.S. Department of Defense, as follows: Fiscal Year Ended September 30, 1999 1998 1997 ---------- --------- --------- Defense: U.S. Department of Defense.... $ 218,017 $ 248,577 $ 272,042 Export........................ 4,518 452 16,584 ---------- --------- --------- 222,535 249,029 288,626 Commercial and Fire and Emergency: Domestic...................... 895,377 619,170 373,946 Export........................ 47,042 34,593 20,662 ---------- --------- --------- 942,419 653,763 394,608 ---------- --------- --------- Net sales.......................... $1,164,954 $ 902,792 $ 683,234 ========== ========= ========= U.S. Department of Defense sales include $180, $10,437 and $17,723 in fiscal 1999, 1998 and 1997, respectively, for products sold internationally under the Foreign Military Sales ("FMS") Program. Inherent in doing business with the U.S. Department of Defense are certain risks, including technological changes and changes in levels of defense spending. All U.S. Department of Defense contracts contain a provision that they may be terminated at any time at the convenience of the government. In such an event, the Company is entitled to recover allowable costs plus a reasonable profit earned to the date of termination. 11. Unaudited Quarterly Results
Fiscal Year Ended September 30, 1999 Fiscal Year Ended September 30, 1998 -------------------------------------------------- -------------------------------------------------- 4th Quarter 3rd Quarter 2nd Quarter 1st Quarter 4th Quarter 3rd Quarter 2nd Quarter 1st Quarter ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net sales................ $ 313,906 $ 329,821 $ 298,534 $ 222,693 $ 243,051 $ 290,104 $ 217,836 $ 151,801 Gross income............. 48,461 48,292 44,520 32,108 38,925 39,579 27,534 19,998 Income before extraordinary item..... 10,185 10,545 6,549 3,912 4,952 5,000 3,161 3,140 Extraordinary item....... (60) -- -- -- -- (450) (735) -- Net income............... 10,125 10,545 6,549 3,912 4,952 4,550 2,426 3,140 Earnings per share: Income before extraordinary item. $ .79 $ .83 $ .51 $ .31 $ .39 $ .39 $ .25 $ .25 Extraordinary item.... -- -- -- -- -- (.03) (.06) -- Net income............ .79 .83 .51 .31 .39 .36 .19 .25 Earnings per share assuming dilution: Income before extraordinary item .77 .81 .50 .30 .39 .38 .25 .25 Extraordinary item.. -- -- -- -- -- (.03) (.06) -- Net income.......... .77 .81 .50 .30 .39 .35 .19 .25 Dividends per share: Class A Common Stock.. $ 0.07500 $ 0.07250 $0.07250 $ 0.07250 $ 0.07250 $ 0.07250 $ 0.07250 $ 0.07250 Common Stock.......... 0.08625 0.08333 0.08333 0.08333 0.08333 0.08333 0.08333 0.08333
For the fourth quarter of fiscal 1998, continuing operations includes, on a pre-tax basis, a $3,865 non-cash charge related to an impairment loss for the Company's Florida manufacturing facilities, a $1,935 non-cash charge related to an impairment loss on the Company's Summit brand mixer system technology intangible asset, and a $3,375 cash gain from the sale of an interest in a Mexican bus manufacturer (see Note 12). In the second quarter of fiscal 1998, OMFSP, which the Company accounts for using the equity method, incurred and expensed approximately $1,466 of costs ($895 net of income taxes) related to the organization of the partnership. The charge has been included in the consolidated statements of income under the caption "Equity in earnings of unconsolidated partnership, net of income taxes." 12. Impairment Losses and Gain on Sale of Affiliate Following the acquisition of McNeilus and after conducting an internal study to determine how to integrate the concrete mixer businesses of the Company and McNeilus, the Company revised its plans regarding the use of the Company's Florida manufacturing facility and of previously acquired concrete mixer technology. The Florida manufacturing facility was originally acquired in connection with the Company's acquisition of assets and the business of a manufacturer of truck trailers in fiscal 1991. In 1996, the Company exited the manufacture of truck trailers but retained the Florida facility to manufacture products for the U.S. military and the Company's Summit brand of rear-discharge cement mixers. During the fourth quarter of fiscal 1998, following the completion of the internal study, management determined that all of the Company's U.S. requirements for rear-discharge concrete mixers would be sourced through the McNeilus manufacturing facilities due to the quality of the McNeilus brand and the efficient manufacturing processes at its facilities. In the fourth quarter of fiscal 1998, the Company further decided to begin to consolidate all its U.S. defense-related manufacturing in its Oshkosh, Wisconsin facility due to available capacity in Oshkosh and the ability to improve management of defense programs from this facility. As a result, management determined that Oshkosh's Florida facility and the Summit intangible asset may be impaired. Management estimated the projected undiscounted future cash flows from the Florida facility and the acquired concrete mixer technology and determined that such cash flows were less than the carrying value of the assets. Accordingly, pre-tax impairment losses of $3,865 and $1,935 included in selling, general and administrative expenses of corporate and the commerical segment, respectively, were recognized in fiscal 1998 based on the excess of their carrying values over the fair values of the assets. The fair value of the Florida facility was based on a third party appraisal. The fair value of the mixer intangible asset was determined based on the absence of future cash flows. In previous years, the Company wrote off (as a charge to selling, general and administrative expense) its $3,025 equity investment in a Mexican bus manufacturer due to prolonged weakness in the Mexican economy and continuing high losses and high leverage reported by the Mexican affiliate. Also, in previous years, the Company wrote off a $200 equity investment in Steeltech and a $900 investment in a joint venture which leases equipment to Steeltech (see Note 10). In September 1998, the Company sold its 5.0% ownership interest in the Mexican bus manufacturer and recorded a pre-tax gain of $3,375. This gain was recorded as a reduction of selling, general and administrative expense in fiscal 1998. 13. Business Segment Information The Company is organized into three reportable segments based on the internal organization used by management for making operating decisions and measuring performance. The Company's six operating units have been aggregated into the three reportable segments of commercial, fire and emergency, and defense based on similar customers served and similar economic results attained. Commercial: This segment consists of two operating units--McNeilus and the commercial division of Oshkosh. These units manufacture, market and distribute concrete mixer systems, refuse truck bodies, portable concrete batch plants and truck components. Sales are made to commercial and municipal customers in the U.S. and abroad. Fire and emergency: This segment consists of three operating units--Pierce and the aircraft, rescue and firefighting ("ARFF") and snow removal divisions of Oshkosh. These units manufacture and market commercial and custom fire trucks and emergency vehicles primarily for fire departments, airports and other governmental units in the U.S. and abroad. Defense: This segment consists of one operating unit (a division of Oshkosh), which manufactures heavy- and medium-payload tactical trucks and supply parts for the U.S. military and to other militaries around the world. The Company evaluates performance and allocates resources based on profit or loss from segment operations before interest income and expense, income taxes and non-recurring items. Intersegment sales are not significant. The accounting policies of the reportable segments are the same as those described in Note 1 of the Notes to Consolidated Financial Statements. Summarized financial information concerning the Company's reportable segments is shown in the following table. The caption "Corporate and other" includes corporate related items, results of insignificant operations, intersegment eliminations and income and expense not allocated to reportable segments. Selected financial data by business segment is as follows:
Fiscal Year Ended September 30, 1999 1998 1997 ---- ---- ---- Net sales to unaffiliated customers: Commercial....................................... $ 607,678 $ 354,165 $ 107,944 Fire and emergency............................... 336,241 301,181 292,382 Defense.......................................... 222,535 247,956 282,826 Corporate and other.............................. (1,500) (510) 82 ------------ ------------ ------------ Consolidated................................. $ 1,164,954 $ 902,792 $ 683,234 ============ ============ ============ Operating income (loss): Commercial....................................... $ 48,995 $ 19,317 $ (3,742) Fire and emergency............................... 26,758 25,581 28,480 Defense.......................................... 22,878 22,680 20,155 Corporate and other.............................. (22,418) (18,858) (16,108) ------------ ------------ ------------ Consolidated operating income................ 76,213 48,720 28,785 Net interest expense............................. (25,984) (20,164) (12,005) Miscellaneous other.............................. 730 92 (278) ------------ ------------ ------------- Income before income taxes, equity in earnings of unconsolidated partnership and extraordinary item......................................... $ 50,959 $ 28,648 $ 16,502 ============ ============ ============
Fiscal Year Ended September 30, 1999 1998 1997 ---- ---- ---- Depreciation and amortization: Commercial....................................... $ 10,949 $ 7,273 $ 2,612 Fire and emergency............................... 8,156 7,286 7,030 Defense.......................................... 2,810 3,271 4,210 Corporate and other.............................. 1,242 868 218 ---------- ---------- ----------- Consolidated................................. $ 23,157 $ 18,698 $ 14,070 ========== ========== =========== Capital expenditures: Commercial....................................... $ 8,119 $ 2,082 $ 963 Fire and emergency............................... 2,931 4,923 3,747 Defense.......................................... 2,089 1,550 1,553 ---------- ---------- ----------- Consolidated................................. $ 13,139 $ 8,555 $ 6,263 ========== ========== =========== September 30, 1999 1998 1997 ---- ---- ---- Identifiable assets(a): Commercial (b)................................... $ 381,199 $ 329,036 $ 38,536 Fire and emergency............................... 276,692 273,188 252,167 Defense.......................................... 85,796 73,917 105,188 Corporate and other.............................. 9,603 8,898 24,503 ---------- ---------- ----------- Consolidated................................. $ 753,290 $ 685,039 $ 420,394 ========== ========== =========== (a)The Company has no significant long-lived assets in foreign countries. (b)Includes investment in unconsolidated partnership.
The following table presents net sales by geographic region based on product shipment destination.
Fiscal Year Ended September 30, 1999 1998 1997 ---- ---- ---- Net sales: United States........................................ $1,113,214 $857,310 $628,265 Other North America.................................. 7,822 4,678 688 Middle East.......................................... 21,713 16,889 22,836 Other................................................ 22,205 23,915 31,445 ----------- --------- --------- Consolidated..................................... $1,164,954 $902,792 $683,234 ========== ======== ========
14. Subsidiary Guarantors The following tables present condensed consolidating financial information for fiscal 1999 and 1998 for: (a) the Company; (b) on a combined basis, the guarantors of the Senior Subordinated Notes, which include all of the wholly-owned subsidiaries of the Company ("Subsidiary Guarantors") other than McNeilus Financial Services, Inc., Oshkosh/McNeilus Financial Services, Inc., Pierce Western Refurbishment Center, Inc. and Nation's Casualty Insurance, Inc., which are the only non-guarantor subsidiaries of the Company ("Non-Guarantor Subsidiaries"); and (c) on a combined basis, the Non-Guarantor Subsidiaries. Condensed consolidating financial information has not been presented for any period prior to fiscal 1998 because no Non-Guarantor Subsidiaries existed prior to the issuance of the Senior Subordinated Notes on February 26, 1998. Separate financial statements of the Subsidiary Guarantors are not presented because the guarantors are jointly, severally, and unconditionally liable under the guarantees, and the Company believes separate financial statements and other disclosures regarding the Subsidiary Guarantors are not material to investors. The Company is comprised of Wisconsin and Florida manufacturing operations and certain corporate management, information services and finance functions. Borrowings and related interest expense under the Senior Credit Facility and the Senior Subordinated Notes are charged to the Company. The Company has allocated a portion of this interest expense to certain Subsidiary Guarantors through a formal lending arrangement. There are presently no management fee arrangements between the Company and its Non-Guarantor Subsidiaries. OSHKOSH TRUCK CORPORATION Condensed Consolidating Statement of Income Fiscal Year Ended September 30, 1999
Subsidiary Non-Guarantor Company Guarantors Subsidiaries Eliminations Consolidated (In thousands) Net sales................................ $ 410,197 $ 767,441 $ -- $ (12,684) $ 1,164,954 Cost of sales............................ 359,299 644,958 -- (12,684) 991,573 ---------- ---------- ----------- ----------- ----------- Gross income............................. 50,898 122,483 -- -- 173,381 Operating expenses: Selling, general and administrative.. 41,100 44,567 329 -- 85,996 Amortization of goodwill and other intangibles.................... -- 11,172 -- -- 11,172 ---------- ---------- ----------- ---------- ----------- Total operating expenses................. 41,100 55,739 329 -- 97,168 ---------- ---------- ----------- ---------- ----------- Operating income (loss).................. 9,798 66,744 (329) -- 76,213 Other income (expense): Interest expense..................... (24,817) (8,227) -- 6,300 (26,744) Interest income...................... 282 6,725 53 (6,300) 760 Miscellaneous, net................... 95 205 430 -- 730 ---------- ---------- ----------- ---------- ----------- (24,440) (1,297) 483 -- (25,254) ---------- ---------- ----------- ---------- ----------- Income (loss) before income taxes, equity in earnings of subsidiaries and unconsolidated partnership and extraordinary item................... (14,642) 65,447 154 -- 50,959 Provision (credit) for income taxes...... (5,706) 26,961 58 -- 21,313 ---------- ---------- ----------- ---------- ----------- (8,936) 38,486 96 -- 29,646 Equity in earnings of subsidiaries and unconsolidated partnership, net of income taxes......................... 40,127 -- 1,545 (40,127) 1,545 ---------- ---------- ----------- ---------- ----------- Income before extraordinary item......... 31,191 38,486 1,641 (40,127) 31,191 Extraordinary charge for early retirement of debt, net of income tax benefit... (60) -- -- -- (60) ---------- ---------- ----------- ---------- ----------- Net income............................... $ 31,131 $ 38,486 $ 1,641 $ (40,127) $ 31,131 ========== ========== =========== ========== ===========
OSHKOSH TRUCK CORPORATION Condensed Consolidating Statement of Income Fiscal Year Ended September 30, 1998
Subsidiary Non-Guarantor Company Guarantors Subsidiaries Eliminations Consolidated (In thousands) Net sales................................ $ 393,720 $ 509,072 $ -- $ -- $ 902,792 Cost of sales............................ 350,139 426,617 -- -- 776,756 ---------- ---------- ----------- ---------- ----------- Gross income............................. 43,581 82,455 -- -- 126,036 Operating expenses: Selling, general and administrative.. 37,861 31,117 23 -- 69,001 Amortization of goodwill and other intangibles.................... -- 8,315 -- -- 8,315 ---------- ---------- ----------- ---------- ----------- Total operating expenses................. 37,861 39,432 23 -- 77,316 ---------- ---------- ----------- ---------- ----------- Operating income (loss).................. 5,720 43,023 (23) -- 48,720 Other income (expense): Interest expense..................... (16,878) (7,195) (180) 2,763 (21,490) Interest income...................... 418 3,248 423 (2,763) 1,326 Miscellaneous, net................... (96) 18 170 -- 92 ---------- ---------- ----------- ---------- ----------- (16,556) (3,929) 413 -- (20,072) ---------- ---------- ----------- ---------- ----------- Income (loss) before income taxes, equity in earnings of subsidiaries and unconsolidated partnership and extraordinary item................... (10,836) 39,094 390 -- 28,648 Provision (credit) for income taxes...... (4,075) 16,578 152 -- 12,655 ---------- ---------- ----------- ---------- ----------- (6,761) 22,516 238 -- 15,993 Equity in earnings of subsidiaries and unconsolidated partnership, net of income taxes......................... 23,014 -- 260 (23,014) 260 ---------- ---------- ----------- ---------- ----------- Income before extraordinary item......... 16,253 22,516 498 (23,014) 16,253 Extraordinary charge for early retirement of debt, net of income tax benefit... (1,185) -- -- -- (1,185) ---------- ---------- ----------- ---------- ----------- Net income............................... $ 15,068 $ 22,516 $ 498 $ (23,014) $ 15,068 ========== ========== =========== ========== ===========
OSHKOSH TRUCK CORPORATION Condensed Consolidating Balance Sheet September 30, 1999
Subsidiary Non-Guarantor Company Guarantors Subsidiaries Eliminations Consolidated (In thousands) Assets Current assets: Cash and cash equivalents.............. $ 3,698 $ 1,337 $ 102 $ -- $ 5,137 Receivables, net....................... 49,311 43,837 38 -- 93,186 Inventories............................ 49,988 148,458 -- -- 198,446 Prepaid expenses and other............. 7,609 7,695 4,217 -- 19,521 --------- ---------- --------- ------------ ------------ Total current assets................ 110,606 201,327 4,357 -- 316,290 Investment in and advances to: Subsidiaries........................... 357,575 (7,590) -- (349,985) -- Unconsolidated partnership............. -- -- 12,335 -- 12,335 Other long-term assets..................... 11,902 8,899 52 -- 20,853 Net property, plant and equipment.......... 22,803 61,188 -- -- 83,991 Goodwill and other intangible assets, net.. -- 319,821 -- -- 319,821 --------- ---------- --------- ------------ ------------ Total assets............................... $ 502,886 $ 583,645 $ 16,744 $ (349,985) $ 753,290 ========= ========== ========= ============= ============ Liabilities and Shareholders' Equity Current liabilities: Accounts payable....................... $ 34,261 $ 50,234 $ 232 $ -- $ 84,727 Floor plan notes payable............... -- 26,616 -- -- 26,616 Customer advances...................... 1,669 66,695 -- -- 68,364 Payroll-related obligations............ 9,172 15,532 30 -- 24,734 Accrued warranty....................... 6,785 7,838 -- -- 14,623 Other current liabilities.............. 17,940 19,894 10,628 -- 48,462 Revolving credit facility and current maturities of long-term debt....... 5,000 259 -- -- 5,259 --------- ---------- --------- ------------ ------------ Total current liabilities....... 74,827 187,068 10,890 -- 272,785 Long-term debt............................. 253,000 2,289 -- -- 255,289 Deferred income taxes...................... (5,407) 36,228 13,444 -- 44,265 Other long-term liabilities ............... 17,586 485 -- -- 18,071 Investment by and advances from (to) Parent................................. -- 357,575 (7,590) (349,985) -- Shareholders' equity....................... 162,880 -- -- -- 162,880 --------- ---------- --------- ------------ ------------ Total liabilities and shareholders' equity. $ 502,886 $ 583,645 $ 16,744 $ (349,985) $ 753,290 ========= ========== ========= ============= ============
OSHKOSH TRUCK CORPORATION Condensed Consolidating Balance Sheet September 30, 1998
Subsidiary Non-Guarantor Company Guarantors Subsidiaries Eliminations Consolidated (In thousands) Assets Current assets: Cash and cash equivalents.............. $ 1,065 $ 979 $ 1,578 $ -- $ 3,622 Receivables, net....................... 41,009 39,863 110 -- 80,982 Inventories............................ 47,191 102,000 -- -- 149,191 Prepaid expenses and other............. 9,059 5,099 1,891 -- 16,049 --------- ---------- --------- ------------ ------------ Total current assets................ 98,324 147,941 3,579 -- 249,844 Investment in and advances to: Subsidiaries........................... 363,189 (4,585) -- (358,604) -- Unconsolidated partnership............. -- -- 13,496 -- 13,496 Other long-term assets..................... 9,276 4,960 (38) -- 14,198 Net property, plant and equipment.......... 23,789 57,047 -- -- 80,836 Goodwill and other intangible assets, net.. 1,108 325,557 -- -- 326,665 --------- ---------- --------- ------------ ------------ Total assets............................... $ 495,686 $ 530,920 $ 17,037 $ (358,604) $ 685,039 ========= ========== ========= ============= ============ Liabilities and Shareholders' Equity Current liabilities: Accounts payable....................... $ 30,843 $ 34,294 $ 34 $ -- $ 65,171 Floor plan notes payable............... -- 11,645 -- -- 11,645 Customer advances...................... 1,689 43,226 -- -- 44,915 Payroll-related obligations............ 8,749 15,348 27 -- 24,124 Accrued warranty....................... 5,689 10,198 -- -- 15,887 Other current liabilities.............. 23,710 15,037 4,751 -- 43,498 Revolving credit facility and current maturities of long-term debt....... 3,216 251 -- -- 3,467 --------- ---------- --------- ------------ ------------ Total current liabilities....... 73,896 129,999 4,812 -- 208,707 Long-term debt............................. 274,784 2,553 -- -- 277,337 Deferred income taxes...................... (2,394) 33,416 16,810 -- 47,832 Other long-term liabilities ............... 18,104 1,763 -- -- 19,867 Investment by and advances from (to) Parent................................. -- 363,189 (4,585) (358,604) -- Shareholders' equity....................... 131,296 -- -- -- 131,296 --------- ---------- --------- ------------ ------------ Total liabilities and shareholders' equity. $ 495,686 $ 530,920 $ 17,037 $ (358,604) $ 685,039 ========= ========== ========= ============= ============
OSHKOSH TRUCK CORPORATION Condensed Consolidating Statement of Cash Flows Fiscal Year Ended September 30, 1999
Subsidiary Non-Guarantor Company Guarantors Subsidiaries Eliminations Consolidated (In thousands) Operating activities: Income before extraordinary item........ $ 31,191 $ 38,486 $ 1,641 $(40,127) $ 31,191 Non-cash adjustments.................... 4,005 18,491 (5,143) -- 17,353 Changes in operating assets and liabilities......................... (11,739) 3,893 (1,650) -- (9,496) ---------- --------- ----------- -------- ----------- Net cash provided from (used for) operating activities................ 23,457 60,870 (5,152) (40,127) 39,048 Investing activities: Investments in and advances to subsidiaries........................ 5,992 (46,231) 112 40,127 -- Additions to property, plant and equipment........................... (3,481) (9,658) -- -- (13,139) Other................................... (542) (4,367) 3,564 -- (1,345) ---------- --------- ---------- -------- ----------- Net cash provided from (used for) investing activities................ 1,969 (60,256) 3,676 40,127 (14,484) Financing activities: Net repayments under revolving credit facility........... (1,000) -- -- -- (1,000) Repayments of long-term debt............ (19,000) (256) -- -- (19,256) Dividends paid.......................... (4,226) -- -- -- (4,226) Other................................... 1,433 -- -- -- 1,433 --------- --------- ---------- -------- ---------- Net cash used for financing activities. (22,793) (256) -- -- (23,049) ---------- ---------- ---------- -------- ----------- Increase (decrease) in cash and cash equivalents............................. 2,633 358 (1,476) -- 1,515 Cash and cash equivalents at beginning of year.................................... 1,065 979 1,578 -- 3,622 --------- --------- ---------- -------- ---------- Cash and cash equivalents at end of year.... $ 3,698 $ 1,337 $ 102 $ -- $ 5,137 ========= ========= ========== ======== ==========
OSHKOSH TRUCK CORPORATION Condensed Consolidating Statement of Cash Flows Fiscal Year Ended September 30, 1998
Subsidiary Non-Guarantor Company Guarantors Subsidiaries Eliminations Consolidated (In thousands) Operating activities: Income before extraordinary item........ $ 16,253 $ 22,516 $ 498 $(23,014) $ 16,253 Non-cash adjustments.................... 9,707 14,293 (3,156) -- 20,844 Changes in operating assets and liabilities......................... 40,800 4,533 (2,489) -- 42,844 --------- --------- ----------- -------- ---------- Net cash provided from (used for) operating activities................ 66,760 41,342 (5,147) (23,014) 79,941 Investing activities: Acquisitions of businesses, net of cash acquired....................... (229,876) (3,563) 12,295 -- (221,144) Investments in and advances to subsidiaries........................ 10,250 (28,181) (5,083) 23,014 -- Additions to property, plant and equipment........................... (2,583) (5,972) -- -- (8,555) Other................................... 4,176 (2,607) (487) -- 1,082 --------- --------- ----------- -------- ---------- Net cash provided from (used for) investing activities................ (218,033) (40,323) 6,725 23,014 (228,617) Net cash used for discontinued operations.............................. (1,093) -- -- -- (1,093) Financing activities: Net borrowings under revolving credit facility............................ 6,000 -- -- -- 6,000 Proceeds from issuance of long-term debt................................ 325,000 -- -- -- 325,000 Repayments of long-term debt............ (188,000) (49) -- -- (188,049) Debt issuance costs..................... (8,641) -- -- -- (8,641) Dividends paid.......................... (4,176) -- -- -- (4,176) Other................................... 38 -- -- -- 38 --------- --------- ---------- -------- ---------- Net cash provided from (used for) financing activities................ 130,221 (49) -- -- 130,172 --------- ---------- ---------- -------- ---------- Increase (decrease) in cash and cash equivalents............................. (22,145) 970 1,578 -- (19,597) Cash and cash equivalents at beginning of year.................................... 23,210 9 -- -- 23,219 --------- --------- ---------- -------- ---------- Cash and cash equivalents at end of year.... $ 1,065 $ 979 $ 1,578 $ -- $ 3,622 ========= ========= ========== ======== ==========
15. Subsequent Events On November 1, 1999, the Company acquired the manufacturing assets of Kewaunee Engineering Corporation ("Kewaunee") for approximately $6,250 in cash plus the assumption of certain liabilities aggregating $2,300. Kewaunee is a fabricator of heavy-steel components such as cranes and aerial devices. The acquisition was financed from borrowings under the Company's Senior Credit Facility. The acquisition will be accounted for using the purchase method of accounting and, accordingly, the operating results of Kewaunee will be included in the Company's consolidated statements of income beginning November 1, 1999. The purchase price, including acquisition costs, approximated the estimated fair value of the assets acquired and liabilities assumed as of the acquisition date. Had the acquisition occurred on October 1, 1998 or 1997, there would have been no material pro forma impact on the Company's consolidated net sales, net income or earnings per share in fiscal 1999 or 1998. On November 24, 1999, the Company completed the offer and sale of 3,795,000 shares of its Common Stock at $26.00 per share. Proceeds from the offering, net of underwriting discounts and commissions, totaled $93,736 with $93,500 used to repay indebtedness under the Company's Senior Credit Facility (see Note 4). Assuming that the net proceeds to the Company from the offering were used to repay term debt as of October 1, 1998, earnings per share before extraordinary item and earnings per share before extraordinary item assuming dilution for fiscal 1999 would have been $2.15 and $2.11, respectively, and the corresponding weighted average shares outstanding for the purposes of these computations would have been 16,522,141 and 16,846,854, respectively. FINANCIAL HIGHLIGHTS Selected Historical Consolidated Financial Data Fiscal years ended September 30, (Dollars in thousands, except per share amounts)
1999 1998(4) 1997 1996(5) 1995 ---- ---- ---- ---- ---- Net sales....................................... $1,164,954 $902,792 $683,234 $413,455 $438,557 Operating income (loss)......................... 76,213 48,720 28,785 (3,601) 19,293 Income (loss) from continuing operations........ 31,191 16,253 10,006 (241) 11,637 Per share assuming dilution................ 2.39 1.27 0.78 (0.02) 0.87 Discontinued operations(1)...................... --- --- --- (2,859) (2,421) Per share assuming dilution(1)............. --- --- --- (0.21) (0.18) Net income (loss) (2)........................... 31,131 15,068 10,006 (3,100) 9,216 Per share assuming dilution (2)............ 2.39 1.18 0.78 (0.23) 0.69 Dividends per share: Class A Common Stock....................... .292 .290 .290 .290 .290 Common Stock............................... .336 .333 .333 .333 .333 Total assets.................................... 753,290 685,039 420,394 435,161 200,916 Expenditures for property, plant and equipment.. 13,139 8,555 6,263 5,355 5,347 Depreciation.................................... 11,985 10,383 9,600 8,627 8,409 Amortization of goodwill and other intangible assets.................................... 11,172 8,315 4,470 171 --- Net working capital............................. 43,505 41,137 50,113 67,469 91,777 Long-term debt (including current maturities)(3) 260,548 280,804 135,000 157,882 --- Shareholders' equity(3)......................... 162,880 131,296 120,900 121,602 113,413 Book value per share(3)......................... 12.70 10.39 9.70 9.39 9.88 Backlog......................................... 487,000 377,000 361,000 433,000 350,000 (1)On June 2, 1995, the Company sold certain assets of its motor home, bus and van chassis business for consideration which included cash of $23,815 and the assumption of certain liabilities by the purchaser. This disposition has been accounted for as a discontinued operation and, accordingly, income statement data reflects the business sold as a discontinued operation in fiscal 1995. In fiscal 1996, the Company incurred after-tax charges of $1,600 arising from the write-off of receivables and other obligations related to the Company's former chassis joint venture in Mexico and incurred additional warranty and other related costs of $1,259 with respect to the Company's former U.S. chassis business. (2)Includes an after-tax extraordinary charge of $60 ($0.00 per share) in 1999 and $1,185 ($0.09 per share) in 1998 related to early retirement of debt. (3)On November 24, 1999, the Company prepaid $93,500 of term debt under its Senior Credit Facility from proceeds of the sale of 3,795,000 shares of Common Stock. See Notes 4 and 15 to Notes to Consolidated Financial Statements. Long-term debt, shareholders' equity and book value per share at September 30, 1999 on a pro forma basis adjusted for the issuance of additional shares of Common Stock, the write-off of deferred financing costs of $937 net of income tax benefit of $356, or $581 and the prepayment of debt were $167,048, $255,610 and $15.37, respectively. (4)On February 26, 1998, the Company acquired for cash all of the issued and outstanding capital stock of McNeilus Companies, Inc. and entered into related non-compete and ancillary agreements for $217,851. See Note 3 to Notes to Consolidated Financial Statements. (5)On September 18, 1996, the Company acquired for cash all of the issued and outstanding capital stock of Pierce Manufacturing Inc. for $156,926.
Dividends and Common Stock Price* It is the Company's intention to declare and pay dividends on a regular basis. However, the payment of future dividends is at the discretion of the Company's Board of Directors and will depend upon, among other things, future earnings, capital requirements, the Company's general financial condition, general business conditions and other factors. When the Company pays dividends, it pays a dividend on each share of Common Stock equal to 115% of the amount paid on each share of Class A Common Stock. The agreements governing the Company's subordinated debt and bank debt restrict its ability to pay dividends on Common Stock and Class A Common Stock. For fiscal 2000, the terms of its Senior Credit Facility generally limit the aggregate amount of all dividends the Company may pay on its common equity during that period to an amount equal to $5 million plus 5% of consolidated net income. The Company's Common Stock is quoted on the Nasdaq National Market. As of September 30, 1999, there were 864 holders of record of the Company's Common Stock and 108 holders of record of the Company's Class A Common Stock. The following table sets forth prices reflecting actual sales as reported on the Nasdaq National Market, as adjusted to reflect the three-for-two split of the Company's Common Stock effected on August 19, 1999. Fiscal 1999 Fiscal 1998 Quarter Ended High Low High Low September...................... $38.50 $22.75 $18.83 $12.33 June........................... 33.58 19.33 17.42 12.67 March.......................... 25.50 20.83 13.33 11.58 December....................... 23.33 14.50 14.17 9.92 *There is no established public trading market for Class A Common Stock. EX-21 4 EXHIBIT 21 Exhibit 21 ---------- Subsidiaries of the Company The Company owns all of the stock of the following corporations: State or Other Jurisdiction Name of Incorporation or Organization ---- -------------------------------- Pierce Manufacturing Inc. Wisconsin McNeilus Companies, Inc. Minnesota Summit Performance Systems, Inc. Wisconsin Kewaunee Fabrications, L.L.C. Wisconsin Pierce Manufacturing Inc. owns all of the stock of the following corporations: State or Other Jurisdiction Name of Incorporation or Organization ---- -------------------------------- Dover Technologies Inc. Wisconsin Pierce Manufacturing International Inc. Barbados Pierce Western Region Refurbishment Center, Inc. California McNeilus Companies, Inc. owns all of the stock of the following corporations: State or Other Jurisdiction Name of Incorporation or Organization ---- -------------------------------- McNeilus Truck & Manufacturing, Inc. Minnesota Iowa Contract Fabricators, Inc. Iowa McIntire Fabricators, Inc. Iowa Kensett Fabricators, Inc. Iowa McNeilus Financial Services, Inc. Minnesota McNeilus Truck & Manufacturing, Inc. owns all of the stock of McNeilus Financial, Inc., a Texas corporation. McNeilus Financial Services, Inc. owns all of the stock of Oshkosh/McNeilus Financial Services, Inc., a Minnesota corporation. EX-23 5 CONSENT CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report on Form 10-K of Oshkosh Truck Corporation of our report dated October 23, 1999, except for Notes 4 and 15, as to which the date is November 24, 1999, included in the 1999 Annual Report to Shareholders of Oshkosh Truck Corporation. Our audits also included the financial statement schedule of Oshkosh Truck Corporation listed in Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. We also consent to the incorporation by reference in the Registration Statements (Form S-8 No. 333-81681, No. 33-38822 and No. 33-62687) pertaining to the Oshkosh Truck Corporation 1990 Incentive Stock Plan of our report dated October 23, 1999, except for Notes 4 and 15, as to which the date is November 24, 1999, with respect to the consolidated financial statements and schedule of Oshkosh Truck Corporation included in or incorporated by reference in the Annual Report (Form 10-K) for the year ended September 30, 1999. /s/ Ernst & Young LLP Ernst & Young LLP Milwaukee, Wisconsin December 23, 1999 EX-27 6 FINANCIAL DATA SCHEDULE
5 THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF OSHKOSH TRUCK CORPORATION AS OF AND FOR THE YEAR ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 YEAR SEP-30-1999 OCT-01-1998 SEP-30-1999 5,137 0 95,390 2,204 198,446 316,290 154,597 70,606 753,290 272,785 255,289 0 0 140 162,740 753,290 1,164,954 1,164,954 991,573 991,573 0 201 26,744 50,959 21,313 31,191 0 60 0 31,131 2.45 2.39
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