The following table presents net sales by geographic region based on product shipment destination (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2022 | |
| | Access Equipment | | | Defense | | | Fire & Emergency | | | Commercial | | | Eliminations | | | Total | |
Net sales: | | | | | | | | | | | | | | | | | | |
North America | | $ | 841.8 | | | $ | 521.5 | | | $ | 264.4 | | | $ | 270.5 | | | $ | (2.2 | ) | | $ | 1,896.0 | |
Europe, Africa and Middle East | | | 67.1 | | | | 17.4 | | | | 5.9 | | | | 0.7 | | | | — | | | | 91.1 | |
Rest of the World | | | 68.2 | | | | 0.4 | | | | 6.2 | | | | 4.1 | | | | — | | | | 78.9 | |
Consolidated | | $ | 977.1 | | | $ | 539.3 | | | $ | 276.5 | | | $ | 275.3 | | | $ | (2.2 | ) | | $ | 2,066.0 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2021 | |
| | Access Equipment | | | Defense | | | Fire & Emergency | | | Commercial | | | Eliminations | | | Total | |
Net sales: | | | | | | | | | | | | | | | | | | |
North America | | $ | 719.9 | | | $ | 682.4 | | | $ | 287.4 | | | $ | 275.6 | | | $ | (6.5 | ) | | $ | 1,958.8 | |
Europe, Africa and Middle East | | | 75.7 | | | | 25.4 | | | | 9.8 | | | | 0.5 | | | | — | | | | 111.4 | |
Rest of the World | | | 128.7 | | | | 2.6 | | | | 5.3 | | | | 2.0 | | | | — | | | | 138.6 | |
Consolidated | | $ | 924.3 | | | $ | 710.4 | | | $ | 302.5 | | | $ | 278.1 | | | $ | (6.5 | ) | | $ | 2,208.8 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2022 | |
| | Access Equipment | | | Defense | | | Fire & Emergency | | | Commercial | | | Eliminations | | | Total | |
Net sales: | | | | | | | | | | | | | | | | | | |
North America | | $ | 1,574.7 | | | $ | 1,045.8 | | | $ | 539.8 | | | $ | 509.8 | | | $ | (4.5 | ) | | $ | 3,665.6 | |
Europe, Africa and Middle East | | | 148.1 | | | | 28.4 | | | | 5.9 | | | | 1.6 | | | | — | | | | 184.0 | |
Rest of the World | | | 137.4 | | | | 0.7 | | | | 18.7 | | | | 5.3 | | | | — | | | | 162.1 | |
Consolidated | | $ | 1,860.2 | | | $ | 1,074.9 | | | $ | 564.4 | | | $ | 516.7 | | | $ | (4.5 | ) | | $ | 4,011.7 | |
| | Three Months Ended March 31, 2021 | |
| | Access Equipment | | | Defense | | | Fire & Emergency | | | Commercial | | | Eliminations | | | Total | |
Net sales: | | | | | | | | | | | | | | | | | | | | | | | | |
North America | | $ | 555.4 | | | $ | 551.2 | | | $ | 296.8 | | | $ | 228.0 | | | $ | (6.4 | ) | | $ | 1,625.0 | |
Europe, Africa and Middle East | | | 82.8 | | | | 63.0 | | | | 13.3 | | | | 0.5 | | | | — | | | | 159.6 | |
Rest of the World | | | 100.0 | | | | 0.5 | | | | 2.4 | | | | 1.5 | | | | — | | | | 104.4 | |
Consolidated | | $ | 738.2 | | | $ | 614.7 | | | $ | 312.5 | | | $ | 230.0 | | | $ | (6.4 | ) | | $ | 1,889.0 | |
| | Three Months Ended March 31, 2020 | |
| | Access Equipment | | | Defense (a) | | | Fire & Emergency (a) | | | Commercial | | | Eliminations (a) | | | Total | |
Net sales: | | | | | | | | | | | | | | | | | | | | | | | | |
North America | | $ | 553.9 | | | $ | 612.0 | | | $ | 234.3 | | | $ | 234.0 | | | $ | (6.3 | ) | | $ | 1,627.9 | |
Europe, Africa and Middle East | | | 84.7 | | | | 17.7 | | | | 0.3 | | | | 0.6 | | | | — | | | | 103.3 | |
Rest of the World | | | 54.4 | | | | 1.3 | | | | 7.7 | | | | 2.1 | | | | — | | | | 65.5 | |
Consolidated | | $ | 693.0 | | | $ | 631.0 | | | $ | 242.3 | | | $ | 236.7 | | | $ | (6.3 | ) | | $ | 1,796.7 | |
| | Six Months Ended March 31, 2021 | |
| | Access Equipment | | | Defense | | | Fire & Emergency | | | Commercial | | | Eliminations | | | Total | |
Net sales: | | | | | | | | | | | | | | | | | | | | | | | | |
North America | | $ | 960.7 | | | $ | 1,045.4 | | | $ | 549.8 | | | $ | 422.5 | | | $ | (13.5 | ) | | $ | 2,964.9 | |
Europe, Africa and Middle East | | | 157.2 | | | | 118.3 | | | | 26.3 | | | | 0.7 | | | | — | | | | 302.5 | |
Rest of the World | | | 184.0 | | | | 1.3 | | | | 10.3 | | | | 2.5 | | | | — | | | | 198.1 | |
Consolidated | | $ | 1,301.9 | | | $ | 1,165.0 | | | $ | 586.4 | | | $ | 425.7 | | | $ | (13.5 | ) | | $ | 3,465.5 | |
| | Six Months Ended March 31, 2020 | |
| | Access Equipment | | | Defense (a) | | | Fire & Emergency (a) | | | Commercial | | | Eliminations (a) | | | Total | |
Net sales: | | | | | | | | | | | | | | | | | | | | | | | | |
North America | | $ | 1,101.0 | | | $ | 1,104.8 | | | $ | 472.7 | | | $ | 452.8 | | | $ | (10.6 | ) | | $ | 3,120.7 | |
Europe, Africa and Middle East | | | 158.9 | | | | 23.8 | | | | 0.7 | | | | 0.9 | | | | — | | | | 184.3 | |
Rest of the World | | | 151.0 | | | | 2.8 | | | | 25.8 | | | | 7.2 | | | | — | | | | 186.8 | |
Consolidated | | $ | 1,410.9 | | | $ | 1,131.4 | | | $ | 499.2 | | | $ | 460.9 | | | $ | (10.6 | ) | | $ | 3,491.8 | |
(a)27
| Results have been reclassified to reflect the move of the airport snow removal vehicle business from the Fire & Emergency segment to the Defense segment.
|
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OSHKOSH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | Six Months Ended June 30, 2021 | | | | Access Equipment | | | Defense | | | Fire & Emergency | | | Commercial | | | Eliminations | | | Total | | Net sales: | | | | | | | | | | | | | | | | | | | North America | | $ | 1,275.3 | | | $ | 1,233.6 | | | $ | 584.2 | | | $ | 503.6 | | | $ | (12.9 | ) | | $ | 3,583.8 | | Europe, Africa and Middle East | | | 158.5 | | | | 88.4 | | | | 23.1 | | | | 1.0 | | | | — | | | | 271.0 | | Rest of the World | | | 228.7 | | | | 3.1 | | | | 7.7 | | | | 3.5 | | | | — | | | | 243.0 | | Consolidated | | $ | 1,662.5 | | | $ | 1,325.1 | | | $ | 615.0 | | | $ | 508.1 | | | $ | (12.9 | ) | | $ | 4,097.8 | |
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS In October 2021, Oshkosh Corporation and its subsidiaries (the Company) changed its fiscal year from a year beginning on October 1 and ending September 30 to a year beginning on January 1 and ending December 31. The Company’s current fiscal year runs from January 1, 2022 through December 31, 2022 (fiscal 2022). | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
Cautionary Statement About Forward-Looking Statements
This Management’sManagement's Discussion and Analysis of Financial Condition and Results of Operations and other sections of this Quarterly Report on Form 10-Q contain statements that Oshkosh Corporation (the “Company”)the Company believes to be “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q, including, without limitation, statements regarding the Company’s future financial position, business strategy, targets, projected sales, costs, earnings, capital expenditures, debt levels and cash flows, and plans and objectives of management for future operations, including those under the caption “Executive Overview”“Overview” are forward-looking statements. When used in this Quarterly Report on Form 10-Q, words such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “should,” “project” or “plan” or the negative thereof or variations thereon or similar terminology are generally intended to identify forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, assumptions and other factors, some of which are beyond the Company’s control, which could cause actual results to differ materially from those expressed or implied by such forward-looking statements. These factors include the overall impactextent of the COVID-19 pandemic onsupply chain and logistics disruptions; the Company’s business, results of operationsability to increase prices or impose surcharges to raise margins or to offset higher input costs, including increased raw material, labor and financial condition; the duration and severity of the COVID-19 pandemic; the negative impacts of the COVID-19 pandemic on global economies andfreight costs; the Company’s customers, suppliersability to attract and employees;retain production labor in a timely manner; the cyclical nature of the Company’s access equipment, commercial and fire & emergency markets, which are particularly impacted by the strength of U.S. and European economies and construction seasons; the Company’s ability to increase prices or impose surcharges to raise margins or to offset higher input costs, including increased commodity, raw material, labor and freight costs; the Company’s estimates of access equipment demand which, among other factors, is influenced by historical customer historical buying patterns and rental company fleet replacement strategies; the strength of the U.S. dollar and its impact on Company exports, translation of foreign sales and the cost of purchased materials; the expected level and timing of U.S. Department of Defense (DoD) and international defense customer procurement of products and services and acceptance of and funding or payments for such products and services; the Company’s ability to predict the level and timing of orders for indefinite delivery/indefinite quantity contracts with the U.S. federal government; risks related to reductions in government expenditures in light of U.S. defense budget pressures and an uncertain DoD tactical wheeled vehicle strategy; the impact of any DoDU.S. Department of Defense (DoD) solicitation for competition for future contracts to produce military vehicles; potentialthe impacts of budget constraints facing the U.S. Postal Service (USPS) and continuously changing demands for postal services; risks related to facilities expansion, consolidation and alignment, including the amounts of related costs and charges and that anticipated cost savings may not be achieved; projected adoption rates of work at height machinery in emerging markets; the impact of severe weather, war, natural disasters or pandemics that may affect the Company, its suppliers or its customers; performance issues with suppliers or subcontractors, particularly as demand rebounds from the COVID-19 pandemic; risks related to the collectability of receivables, particularly for those businesses with exposure to construction markets; the cost of any warranty campaigns related to the Company’s products; risks associated with international operations and sales, including compliance with the Foreign Corrupt Practices Act; risks that a trade war and related tariffs could reduce the competitiveness of the Company’s products; the Company’s ability to comply with complex laws and regulations applicable to U.S. government contractors; cybersecurity risks and costs of defending against, mitigating and responding to data security threats and breaches;breaches impacting the Company; the Company’s ability to successfully identify, complete and integrate acquisitions and to realize the anticipated benefits associated with the same; and risks related to the Company’s ability to successfully execute on its strategic road map and meet its long-term financial goals. Additional information concerning these and other 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 U.S. Securities and Exchange Commission (SEC) filings, including, but not limited to, the Company’s Current Report on Form 8-K filed with the SEC on AprilJuly 28, 20212022 and Item 1A. of Part II of this Quarterly Report on Form 10-Q.
All forward-looking statements, including those under the caption “Executive Overview,“Overview,” speak only as of the date the Company files this Quarterly Report on Form 10-Q with the SEC. The Company assumes no obligation, and disclaims any obligation, to update information contained in this Quarterly Report on Form 10-Q. Investors should be aware that the Company may not update such information until the Company’s next quarterly earnings conference call, if at all.
All references herein to earnings per share refer to earningearnings per share assuming dilution.
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General
Major products manufactured and marketed by each of the Company’s business segments are as follows:
Access Equipment — aerial work platforms and telehandlers used in a wide variety of construction, industrial, institutional and general maintenance applications to position workers and materials at elevated heights, as well as carriers and wreckers. Access Equipment customers include equipment rental companies, construction contractors, manufacturing companies, home improvement centers and towing companies.
Defense — tactical trucks,vehicles, trailers, supplyweapons system integration and parts and services sold to the U.S. military and to other militaries around the world, other specialtydelivery vehicles for the U.S. government, as well asUSPS, and snow removal vehicles for military and civilian airports.
Fire & Emergency — custom and commercial firefighting vehicles and equipment, Aircraft Rescueaircraft rescue and Firefightingfirefighting (ARFF) vehicles, simulators, mobile command and control vehicles and other emergency vehicles primarily sold to fire departments, airports and other governmental units, as well as broadcast vehicles sold to broadcasters and TV stations.
Commercial —refuse— refuse collection vehicles sold to commercial and municipal waste haulers, concrete mixers sold to ready-mix companies and field service vehicles and truck-mounted cranes sold to mining, construction and other companies.
Executive Overview
The Company reported earnings per share of $1.44 in$0.41 for the second quarter of fiscal 2021, which significantly exceeded earnings2022, down from $3.07 per share for the three months ended June 30, 2021. Results for the three months ended June 30, 2021 included a $69.9 million, or $1.00 per share, tax benefit associated with the carryback of $0.99 in the second quarter of fiscal 2020.a U.S. net operating loss to prior years with higher federal statutory rates. Results for the second quarter of fiscal 2021 included after-tax charges2022 were below the Company’s expectations as supply chain challenges and inflation were greater than anticipated. The Company remains focused on mitigating these impacts and are confident that these headwinds will subside. While the Company has priced for inflation in its non-Defense segments, short-term results have been impacted by the timing between when the price increases can be implemented and the cost increases. The Company started to see the benefit of $2.5 million, or $0.04 per share, associated with restructuringits previous pricing actions in the Access Equipment segment. Results forsecond quarter and believes that the impact of higher pricing will become even more impactful in the second quarterhalf of fiscal 2020 included an after-tax charge of $6.5 million, or $0.10 per share, associated with the refinancing of the Company’s senior notes and a valuation allowance on deferred tax assets in Europe of $11.4 million, or $0.16 per share.2022.
Consolidated net sales in the second quarter of fiscal 2021 increased $92.3 million, or 5.1%, to $1.89 billion2022 decreased 6.5 percent compared to the second quarter of fiscal 2020. The COVID-19 pandemic negatively impacted sales in both the Access Equipment and Fire & Emergency segments in the second quarter of fiscal 2020. As a result of positive vaccination progress and the confidence that bringsthree months ended June 30, 2021 to the marketplace, demand across the Company, and particularly in the Access Equipment segment, has come back stronger and faster than the Company expected. In the quarter, the Company’s production rates returned to pre COVID-19 pandemic levels. As the economy rebounds the Company is facing significant supply chain challenges, including global semiconductor and resin shortages. The Company’s supply chain team members and third-party suppliers have worked hard to maintain production, but supply chain disruptions will likely remain a risk the Company will continue to manage for the duration of fiscal 2021.
Consolidated operating income increased $7.2 million to $140.8 million, or 7.5% of sales, in the second quarter of fiscal 2021 compared to $133.6 million, or 7.4% of sales, in the second quarter of fiscal 2020. The increase in consolidated operating income was primarily due to improved product mix, the impact of higher gross margin associated with higher sales volume and lower spending resulting from the COVID-19 pandemic, offset in part by higher incentive compensation accruals and a decrease in cumulative catch-up adjustments on contract margins in the Defense segment. Results for the second quarter of fiscal 2021 included a $0.04 per share charge for cumulative catch-up adjustments on contract margins in the Defense segment compared to a $0.11 per share gain in the second quarter of fiscal 2020.
On January 19, 2021, the Company acquired Pratt Miller, which specializes in advanced engineering, technology and innovation across the motorsports and multiple ground vehicle markets, for $116.1 million. Pratt Miller results are included in the Defense segment from the date of acquisition.
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On February 23, 2021, the Company was notified that the USPS selected the Company to build its Next Generation Delivery Vehicle (NGDV). The indefinite delivery, indefinite quantity (IDIQ) contract allows the USPS to purchase between 50,000 to 165,000 units over 10 years. The NGDV provides the USPS the ability to significantly modernize its delivery fleet with improved safety, reliability, sustainability and cost-efficiency as well as a much better working experience for the nation’s postal carriers. The Company’s offering provides the USPS with both zero-emission battery electric vehicles (BEV) and fuel efficient, low emission internal combustion engine (ICE) vehicles. The vehicle design also provides the USPS with the flexibility of converting ICE units to BEV in the future. The initial $482 million contract provides for engineering to finalize the production vehicle design, and for tooling and factory build-out activities that are necessary prior to vehicle production. The Company expects to begin delivering production vehicles in the second half of calendar 2023. The USPS production will be included with the Company’s Defense segment.
Orders in the Access Equipment segment were strong in the second quarter of fiscal 2021, leading to a solid backlog of $1.5$2.07 billion for this segment at March 31, 2021, up 80% compared to March 31, 2020. Since most third-party forecasts project non-residential construction to be down in calendar 2021, the Company believes replacement demand is driving access equipment sales growth. Fleet ages are elevated throughout the North American access equipment market and the Company believes the need to replace these aged fleets will be a driver for new equipment sales in the coming quarters. The Company is further encouraged that demand has returned across a broad cross section of its customers, which the Company believes signals a healthy and robust market. Steel prices remain at record highs and the Access Equipment segment initiated price increases for new units ordered beginning in early March 2021. Much like the Company experienced in fiscal 2018, when steel costs increased significantly, there will be a lag in the benefit until orders that were in backlog prior to the price increase are delivered.
During the second quarter of fiscal 2021, the Defense segment reorganized production lines in Oshkosh, Wisconsin. The new production line incorporates industry leading technology to further optimize the manufacturing process. The Defense segment experienced higher costs and inefficiencies in the second quarter of fiscal 2021 as part of the move.
The Fire & Emergency segment finished the second quarter of fiscal 2021 with a solid backlog of $1.3 billion. Orders in this segment in the quarter were lower year over year as expected, largely due to COVID-19 pandemic-related impacts on municipal budgets. The Company continues to monitor municipal budgets and believes that the North American fire truck market will decline modestly over the next few quarters as a result of the pandemic.
The Company’s simplification and innovation strategyan anticipated decline in the Commercial segment is working, and the Company believes that margins will continue to improve in the segment over the long-term. The Company is seeing solid recovery in quote and order activity for concrete mixers and refuse collection vehicles as the Company believes business is improving as customers move beyond the COVID-19 pandemic. The Company believes the reopening of the U.S. is driving increased refuse collection and construction is picking up again, as evidenced by the Commercial segment’s higher year over year backlog.
Solid performance in the first half of fiscal 2021 as well as the improved visibility for the second half of the year have positioned the Company to reinstate quantitative expectations. The Company has solid backlogs in all segments and has seen a significant reduction in COVID-19 related absenteeism from the first quarter of fiscal 2021. While the Company’s supply chain teams have kept its manufacturing lines running, the Company still faces supply chain risks for the remainder of fiscal 2021 and it is possible that supplier shortages could interrupt production in the back half of fiscal 2021. The Company’s expectations assume no major production interruptions as a result of supply chain shortages.
The Company estimates consolidated sales will be $7.75 billion to $7.95 billion in fiscal 2021, compared to $6.86 billion in fiscal 2020. The Company expects consolidated operating income will be in the range of $592.5 million to $637.5 million, resulting in earnings per share of $6.10 to $6.60. The fiscal 2021 estimates include $16.5 million, or $0.24 per share, of restructuring-related costs in the Access Equipment segment and $1.0 million, or $0.01 per share, of business acquisition costs in the Defense segment. The fiscal 2021 estimates assume an average share count of 69.3 million.
The Company believes Access Equipment segment sales will be between $3.15 billion and $3.35 billion in fiscal 2021, a 25.2% to 33.2% increase compared to fiscal 2020 sales. The Company’s estimates reflect expectations of sales growth in most regions as the world comes out of the COVID-19 pandemic. The Company expects operating income margin in the Access Equipment segment in fiscal 2021 will be in the range of 10.00% to 10.75%. The Access Equipment operating income estimate included $16.5 million, or 50 basis points, of restructuring-related costs. The Company expects an approximately $30 million net headwind in the Access Equipment segment from elevated steel prices, primarily impact the fourth quarter of fiscal 2021.
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The Company expects Defense segment sales will be approximately $2.5 billion in fiscal 2021, an increase of 8.2% compared to fiscal 2020. The fiscal 2021 estimate reflects additional Joint Light Tactical Vehicle (JLTV) production, higher aftermarket sales, the benefit of Pratt Miller sales and lower Family of Heavy Tactical Vehicle (FHTV) sales. The Company expects Defense segment operating income margin will be approximately 8.0% in fiscal 2021, reflecting expected higher new product development spending, manufacturing inefficiencies associated with the start of a new production line and lower cumulative catch-up adjustments compared to fiscal 2020.
The Company expects Fire & Emergency segment sales will be approximately $1.2 billion in fiscal 2021, approximately $90 million higher than fiscal 2020. The increase in expected Fire & Emergency segment sales is primarily due to a return to more normal production and customer deliveries, as interruptions due to COVID-19 have declined. The Company expects operating marginsupply chain disruptions in the Fire & Emergency segment, to increase to approximately 14% in fiscal 2021 as a result of the increased sales volume.
The Company estimates Commercial segment sales will be approximately $925 million in fiscal 2021, down slightly from fiscal 2020 as a result of the sale of the concrete batch plant business in July 2020. The Company expects Commercial segment operating income margins to be approximately 7% in fiscal 2021. The Company expects margins will be impacted in the second half of the year as a result of the rapid increase in steel costs as well as inefficiencies associated with the unbalanced supply of third-party chassis.
The Company estimates corporate expenses in fiscal 2021 will be between $150 million and $155 million, an increase of $25 million to $30 million from fiscal 2020 primarily as a result of higher incentive compensation expense levels. The Company estimates its effective tax rate for 2021 will be approximately 22%.
The Company expects consolidated sales in the third quarter of fiscal 2021 to be up approximately 40% compared to the third quarter of fiscal 2020, with the Access Equipment and Defense segments up most significantly. The Company expects Commercial segment sales to be up a high single digit percentage in the third quarter of fiscal 2021 compared to the third quarter of fiscal 2020 as its markets rebound. The Company expects Fire & Emergency segment sales to be approximately flat in the third quarter of fiscal 2021 compared to the third quarter of fiscal 2020. The Company benefited from approximately $60 million of temporary cost reductions in the third quarter of fiscal 2020. The Company expects this to be a headwind to incremental margins in the third quarter of fiscal 2021 as the Company’s spending will begin to return to more typical levels in the third quarter of fiscal 2021 with increased business activity.
Results of Operations
Analysis of Consolidated Net Sales
The following table presents net sales by business segment (in millions):
| | Second Quarter Fiscal | | | First Six Months Fiscal | |
| | 2021 | | | 2020 | | | 2021 | | | 2020 | |
Net sales: | | | | | | | | | | | | | | | | |
Access Equipment | | $ | 738.2 | | | $ | 693.0 | | | $ | 1,301.9 | | | $ | 1,410.9 | |
Defense | | | 614.7 | | | | 631.0 | | | | 1,165.0 | | | | 1,131.4 | |
Fire & Emergency | | | 312.5 | | | | 242.3 | | | | 586.4 | | | | 499.2 | |
Commercial | | | 230.0 | | | | 236.7 | | | | 425.7 | | | | 460.9 | |
Intersegment eliminations and other | | | (6.4 | ) | | | (6.3 | ) | | | (13.5 | ) | | | (10.6 | ) |
| | $ | 1,889.0 | | | $ | 1,796.7 | | | $ | 3,465.5 | | | $ | 3,491.8 | |
SecondQuarter Fiscal 2021 Compared to 2020
Consolidated net sales in the second quarter of fiscal 2021 increased $92.3 million, or 5.1%, compared to the second quarter of fiscal 2020 as a result of higher Fire & Emergency and Access Equipment segment sales, offset in part by lower sales in the Defense segment.
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Access Equipment segment net sales in the second quarter of fiscal 2021 increased $45.2 million, or 6.5%, compared to the second quarter of fiscal 2020 as a result of improved market demand in Asia and North America. The second quarter of fiscal 2020 was impacted by low market demand, due in large part to the global economic shutdown as a result of the COVID-19 pandemic.
Defense segment net sales in the second quarter of fiscal 2021 decreased $16.3 million, or 2.6%, compared to the second quarter of fiscal 2020 due to lower Family of Medium Tactical Vehicle (FMTV) sales volume and an $18.7 million decrease in cumulative catch-up adjustments on contracts, offset in part by higher FHTV sales volume and sales of Pratt Miller ($18 million) after its acquisition on January 19, 2021. Changes in estimates on contracts accounted for under the cost-to-cost method resulted in unfavorable cumulative catch-up adjustments on contract revenues of $3.1 million in the second quarter of fiscal 2021 primarily a result of higher cost estimates. Changes in estimates on contracts accounted for under the cost-to-cost method resulted in favorable adjustments of $15.6 million in the second quarter of fiscal 2020 primarily a result of adding new orders received during the quarter to the estimate at completion calculations.
Fire & Emergency segment net sales in the second quarter of fiscal 2021 increased $70.2 million, or 29.0%, compared to the second quarter of fiscal 2020. Sales in the second quarter of fiscal 2020 were negatively impacted due to delayed deliveries resulting from a supplier quality issue and travel restrictions related to the COVID-19 pandemic that prevented customers from inspecting and accepting vehicles. In addition, Aircraft Rescue and Firefighting (ARFF) vehicle volume was higher in the second quarter of fiscal 2021 as two multi-unit awards were recognized in the quarter.
Commercial segment net sales in the second quarter of fiscal 2021 decreased $6.7 million, or 2.8%, compared to the second quarter of fiscal 2020 due to lower refuse collection vehicle demand caused by the COVID-19 pandemic and the impact of the sale of the concrete batch plant business in the fourth quarter of fiscal 2020, offset in part by the an increase in concrete mixer volume. Front-discharge concrete mixer volume was low in the prior year second quarter as a result of the ramp-up of production to a new model. Concrete batch plant sales were $6.8 million in the second quarter of fiscal 2020.
First Six Months of Fiscal 2021 Compared to 2020
Consolidated net sales decreased $26.3 million, or 0.8%, to $3.47 billion in the first six months of fiscal 2021 compared to the first six months of fiscal 2020 as a result of a decrease in sales in the Access Equipment and Commercial segment, offset in part by higher Fire & Emergency and Defense segment sales.
Access Equipment segment net sales decreased $109.0 million, or 7.7%, to $1.30 billion in the first six months of fiscal 2021 compared to the first six months of fiscal 2020. The decrease in sales was due to lower market demand through the first quarter of fiscal 2021 resulting from the economic downturn caused by the COVID-19 pandemic.
Defense segment net sales increased $33.6 million, or 3.0%, to $1.17 billion in the first six months of fiscal 2021 compared to the first six months of fiscal 2020 due to sales of Pratt Miller ($18 million) after its acquisition on January 19, 2021 and higher aftermarket parts & service sales, offset in part by a $12.1 million decrease in cumulative catch-up adjustments on contracts.
Fire & Emergency segment net sales increased $87.2 million, or 17.5%, to $586.4 million in the first six months of fiscal 2021 compared to the first six months of fiscal 2020 due to higher ARFF vehicle volume as a number of multi-unit awards were recognized in the first half of fiscal 2021 and higher firefighting vehicle sales. Sales of firefighting vehicles in the second quarter of fiscal 2020 were negatively impacted due to delayed deliveries resulting from a supplier quality issue and travel restrictions related to the COVID-19 pandemic that prevented customers from inspecting and accepting vehicles.
Commercial segment net sales decreased $35.2 million, or 7.6%, to $425.7 million in the first six months of fiscal 2021 compared to the first six months of 2020 on lower refuse collection vehicle demand caused by the COVID-19 pandemic and the impact of the sale of the concrete batch plant business in the fourth quarter of fiscal 2020. Concrete batch plant sales were $17.1 million in the first six months of fiscal 2020.
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Analysis of Consolidated Cost of Sales
The following table presents cost of sales by business segment (in millions):
| | Second Quarter Fiscal | | | First Six Months Fiscal | |
| | 2021 | | | 2020 | | | 2021 | | | 2020 | |
Cost of sales: | | | | | | | | | | | | | | | | |
Access Equipment | | $ | 603.3 | | | $ | 563.6 | | | $ | 1,089.8 | | | $ | 1,146.3 | |
Defense | | | 545.3 | | | | 543.2 | | | | 1,016.1 | | | | 985.3 | |
Fire & Emergency | | | 242.5 | | | | 201.1 | | | | 460.7 | | | | 403.3 | |
Commercial | | | 190.3 | | | | 202.2 | | | | 355.5 | | | | 384.5 | |
Intersegment eliminations and other | | | (7.5 | ) | | | (5.8 | ) | | | (14.3 | ) | | | (9.5 | ) |
| | $ | 1,573.9 | | | $ | 1,504.3 | | | $ | 2,907.8 | | | $ | 2,909.9 | |
Second Quarter Fiscal 2021 Compared to 2020
Consolidated cost of sales in the second quarter of fiscal 2021 was $1.57 billion, or 83.3% of sales, compared to $1.50 billion, or 83.7% of sales, in the second quarter of fiscal 2020. The 40 basis point decrease in cost of sales as a percentage of sales was primarily due to favorable product mix (120 basis points), improved manufacturing efficiencies (20 basis points), relatively flat engineering costs on higher sales (20 basis points) and lower product liability costs (20 basis points), offset in part by higher material costs (60 basis points), lower cumulative catch-up adjustments on contract margins in the Defense segment in the second quarter of fiscal 2021 (50 basis points) and higher incentive compensation accruals (50 basis points).
Access Equipment segment cost of sales in the second quarter of fiscal 2021 was $603.3 million, or 81.7% of sales, compared to $563.6 million, or 81.3% of sales, in the second quarter of fiscal 2020. The 40 basis point increase in cost of sales as a percentage of sales was largely due to unfavorable price/cost dynamics (130 basis points) and higher incentive compensation accruals (80 basis points), offset in part by improved product mix (70 basis points), improved manufacturing efficiencies (50 basis points) and relatively flat engineering costs on higher sales (30 basis points).
Defense segment cost of sales in the second quarter of fiscal 2021 was $545.3 million, or 88.7% of sales, compared to $543.2 million, or 86.1% of sales, in the second quarter of fiscal 2020. The 260 basis point increase in cost of sales as a percentage of sales was the result of lower cumulative catch-up adjustments on contract margins in the second quarter of fiscal 2021 (180 basis points) and production inefficiencies (130 basis points), offset in part by improved product mix (80 basis points).
Fire & Emergency segment cost of sales in the second quarter of fiscal 2021 was $242.5 million, or 77.6% of sales, compared to $201.1 million, or 83.0% of sales, in the second quarter of fiscal 2020. The 540 basis point decrease in cost of sales as a percentage of sales was primarily attributable to the absence of manufacturing inefficiencies experienced in the second quarter of the prior year (160 basis points), favorable product mix (140 basis points), improved pricing (120 basis points) and relatively flat engineering costs on higher sales (90 basis points).
Commercial segment cost of sales in the second quarter of fiscal 2021 was $190.3 million, or 82.7% of sales, compared to $202.2 million, or 85.4% of sales, in the second quarter of fiscal 2020. The 270 basis point decrease in cost of sales as a percentage of sales was primarily attributable to favorable mix (220 basis points), lower product liability costs (210 basis points) and lower warranty costs (80 basis points), offset in part by higher material costs (170 basis points) and unfavorable fixed manufacturing absorption (80 basis points).
First Six Months of Fiscal 2021 Compared to 2020
Consolidated cost of sales was $2.91 billion, or 83.9% of sales, in the first six months of fiscal 2021 compared to $2.91 billion, or 83.3% of sales, in the first six months of fiscal 2020. The 60 basis point increase in cost of sales as a percentage of sales was due to unfavorable price/cost dynamics (60 basis points), costs associated with restructuring actions in the Access Equipment segment (50 basis points), unfavorable fixed manufacturing absorption as a result of lower production volume (40 basis points) and higher incentive compensation (20 basis points), offset in part by favorable product mix (110 basis points).
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Access Equipment segment cost of sales was $1.09 billion, or 83.7% of sales, in the first six months of fiscal 2021 compared to $1.15 billion, or 81.2% of sales, in the first six months of fiscal 2020. The 250 basis point increase in cost of sales as a percentage of sales was due to unfavorable price/cost dynamics (110 basis points), unfavorable fixed manufacturing absorption as a result of lower production volume (90 basis points), costs associated with restructuring actions (80 basis points) and higher incentive compensation accruals (60 basis points), offset in part by improved product mix (80 basis points).
Defense segment cost of sales was $1,016.1 million, or 87.2% of sales, in the first six months of fiscal 2021 compared to $985.3 million, or 87.1% of sales, in the first six months of fiscal 2020. Production inefficiencies (80 basis points) and higher engineering and product development costs (50 basis points) were offset by improved product mix (130 basis points).
Fire & Emergency segment cost of sales was $460.7 million, or 78.6% of sales, in the first six months of fiscal 2021 compared to $403.3 million, or 80.8% of sales, in the first six months of fiscal 2020. The 220 basis point decrease in cost of sales as a percentage of sales was primarily attributable to improved pricing (110 basis points), relatively flat engineering costs on higher sales (60 basis points) and favorable product mix (50 basis points).
Commercial segment cost of sales was $355.5 million, or 83.5% of sales, in the first six months of fiscal 2021 compared to $384.5 million, or 83.4% of sales, in the first six months of fiscal 2020. Unfavorable fixed manufacturing absorption as a result of lower production volume (180 basis points) and higher material costs (110 basis points) was essentially offset by favorable product mix (150 basis points), lower product liability costs (110 basis points) and lower warranty costs (40 basis points).
Analysis of Consolidated Operating Income (Loss)
The following table presents operating income (loss) by business segment (in millions):
| | Second Quarter Fiscal | | | First Six Months Fiscal | |
| | 2021 | | | 2020 | | | 2021 | | | 2020 | |
Operating income (loss): | | | | | | | | | | | | | | | | |
Access Equipment | | $ | 80.5 | | | $ | 70.8 | | | $ | 105.4 | | | $ | 139.8 | |
Defense | | | 35.5 | | | | 59.7 | | | | 88.3 | | | | 90.7 | |
Fire & Emergency | | | 47.4 | | | | 19.0 | | | | 82.5 | | | | 49.9 | |
Commercial | | | 18.8 | | | | 8.1 | | | | 30.7 | | | | 25.9 | |
Corporate | | | (41.4 | ) | | | (24.0 | ) | | | (70.2 | ) | | | (63.6 | ) |
| | $ | 140.8 | | | $ | 133.6 | | | $ | 236.7 | | | $ | 242.7 | |
Second Quarter Fiscal 2021 Compared to 2020
Consolidated operating income in the second quarter of fiscal 2021 increased 5.4%2022 decreased 65.9 percent to $140.8$69.4 million, or 7.5%3.4 percent of sales, compared to $133.6$203.8 million, or 7.4%9.2 percent of sales, for the three months ended June 30, 2021. The decrease was primarily due to the impact of the lower sales volume, unfavorable price/cost dynamics, manufacturing inefficiencies, largely associated with supply chain disruptions, and unfavorable cumulative catch-up adjustments on contracts in the Defense segment, offset in part by lower incentive compensation costs. The Company recorded unfavorable cumulative catch-up adjustments on contracts in the Defense segment as a result of cost projections that indicated more persistent inflation.
The lower operating income and an unrealized loss on the Company’s investment in a stock contributed to the decrease in earnings per share in the second quarter of fiscal 2020. 2022 compared to the three months ended June 30, 2021.
The increaseCompany’s most recent prior earnings guidance required inflation to moderate and supply chain constraints to improve. These have not occurred. While the Company continues to realize the benefit of pricing, inflation has been more persistent than prior expectations. Significant supply chain disruptions also continue, despite relentless engagement with the Company’s supply base, which is reducing sales volume and increasing manufacturing inefficiencies. As a result of these factors, the Company does not expect to achieve its most recent fiscal 2022 earnings per share guidance range of $4.75 to $5.75. The Company now believes that earnings per share in fiscal 2022 will be in the range of $3.25, including the impact of a $0.25 charge related to taxes on income generated in prior periods for foreign anti-hybrid taxes recorded in the first quarter of fiscal 2022. Current supply chain and inflationary conditions make it difficult to provide an accurate updated earnings per share guidance range. The Company’s earnings per share expectation assumes the current supply chain and inflationary conditions will continue through the remainder of the year; if they deteriorate or improve, actual results could differ.
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RESULTS OF OPERATIONS
CONSOLIDATED RESULTS
The following table presents consolidated results (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | | Six Months Ended June 30, | |
| | 2022 | | | 2021 | | | Change | | | % Change | | | 2022 | | | 2021 | | | Change | | | % Change | |
Net sales | | $ | 2,066.0 | | | $ | 2,208.8 | | | $ | (142.8 | ) | | | -6.5 | % | | $ | 4,011.7 | | | $ | 4,097.8 | | | $ | (86.1 | ) | | | -2.1 | % |
Cost of sales | | | 1,825.9 | | | | 1,824.2 | | | | 1.7 | | | | 0.1 | % | | | 3,570.3 | | | | 3,398.1 | | | | 172.2 | | | | 5.1 | % |
Gross income | | | 240.1 | | | | 384.6 | | | | (144.5 | ) | | | -37.6 | % | | | 441.4 | | | | 699.7 | | | | (258.3 | ) | | | -36.9 | % |
% of sales | | | 11.6 | % | | | 17.4 | % | | | -580 bps | | | | | | | 11.0 | % | | | 17.1 | % | | | -610 bps | | | | |
SG&A expenses | | | 167.9 | | | | 177.6 | | | | (9.7 | ) | | | -5.5 | % | | | 337.1 | | | | 349.6 | | | | (12.5 | ) | | | -3.6 | % |
Amortization | | | 2.8 | | | | 3.2 | | | | (0.4 | ) | | | -12.5 | % | | | 5.6 | | | | 5.5 | | | | 0.1 | | | | 1.8 | % |
Operating income | | | 69.4 | | | | 203.8 | | | | (134.4 | ) | | | -65.9 | % | | | 98.7 | | | | 344.6 | | | | (245.9 | ) | | | -71.4 | % |
% of sales | | | 3.4 | % | | | 9.2 | % | | | | | | | | | 2.5 | % | | | 8.4 | % | | | | | | |
The following table presents net sales by geographic region based on product shipment destination (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | | Six Months Ended June 30, | |
| | 2022 | | | 2021 | | | Change | | | % Change | | | 2022 | | | 2021 | | | Change | | | % Change | |
North America | | $ | 1,896.0 | | | $ | 1,958.8 | | | $ | (62.8 | ) | | | -3.2 | % | | $ | 3,665.6 | | | $ | 3,583.8 | | | $ | 81.8 | | | | 2.3 | % |
Europe, Africa and Middle East | | | 91.1 | | | | 111.4 | | | | (20.3 | ) | | | -18.2 | % | | | 184.0 | | | | 271.0 | | | | (87.0 | ) | | | -32.1 | % |
Rest of the World | | | 78.9 | | | | 138.6 | | | | (59.7 | ) | | | -43.1 | % | | | 162.1 | | | | 243.0 | | | | (80.9 | ) | | | -33.3 | % |
| | $ | 2,066.0 | | | $ | 2,208.8 | | | $ | (142.8 | ) | | | -6.5 | % | | $ | 4,011.7 | | | $ | 4,097.8 | | | $ | (86.1 | ) | | | -2.1 | % |
Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021
Consolidated net sales decreased as a result of an anticipated decline in Defense segment sales and lower sales volume in the Fire & Emergency segment largely as a result of supply chain disruptions, offset in part by improved pricing ($114 million).
The decrease in consolidated gross margin was due to higher material & logistics costs (780 basis points), manufacturing inefficiencies (160 basis points) largely as a result of supply chain disruptions and unfavorable cumulative catch-up adjustments on contracts in the Defense segment (110 basis points), offset in part by improved pricing (420 basis points).
The decrease in consolidated selling, general and administrative expenses was generally due to lower incentive compensation costs ($17 million), offset in part by increased travel costs ($2 million) and higher software implementation costs ($2 million).
The decrease in consolidated operating income was primarily due to higher material & logistics costs ($159 million), the impact of lower gross margin associated with lower sales volume ($54 million), manufacturing inefficiencies ($30 million) and unfavorable cumulative catch-up adjustments on contracts in the Defense segment ($23 million), offset in part by improved productpricing ($114 million) and lower incentive compensation costs ($25 million).
Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021
Consolidated net sales decreased as a result of lower sales volumes ($235 million) offset in part by improved pricing ($163 million).
The decrease in consolidated gross margin was due to higher material & logistics costs (780 basis points) and manufacturing inefficiencies (120 basis points) largely as a result of supply chain disruptions, offset in part by improved pricing (310 basis points).
The decrease in consolidated selling, general and administrative expenses was generally due to lower incentive compensation costs ($30 million), offset in part by higher reserves for bad debts ($4 million) and higher spending.
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The decrease in consolidated operating income was primarily due to unfavorable material & logistics costs ($312 million), the impact of lower gross margin associated with lower sales volume ($55 million), manufacturing inefficiencies ($48 million) and unfavorable cumulative catch-up adjustments on contracts in the Defense segment ($30 million), offset in part by improved pricing ($163 million) and lower incentive compensation costs ($39 million).
The following table presents consolidated non-operating changes (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | | Six Months Ended June 30, | |
| | 2022 | | | 2021 | | | Change | | | 2022 | | | 2021 | | | Change | |
Interest expense, net of interest income | | $ | (11.9 | ) | | $ | (11.7 | ) | | $ | (0.2 | ) | | $ | (23.5 | ) | | $ | (22.9 | ) | | $ | (0.6 | ) |
Miscellaneous income (expense) | | | (15.1 | ) | | | 0.4 | | | | (15.5 | ) | | | (14.0 | ) | | | 3.5 | | | | (17.5 | ) |
| | | | | | | | | | | | | | | | | | |
Provision for (benefit of) income taxes | | | 13.7 | | | | (21.9 | ) | | | 35.6 | | | | 33.9 | | | | 11.3 | | | | 22.6 | |
Effective tax rate | | | 32.3 | % | | | -11.4 | % | | | | | | 55.4 | % | | | 3.5 | % | | | |
| | | | | | | | | | | | | | | | | | |
Gains (losses) of unconsolidated affiliates | | $ | (1.8 | ) | | $ | (0.5 | ) | | $ | (1.3 | ) | | $ | (2.5 | ) | | $ | (0.4 | ) | | $ | (2.1 | ) |
Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021
Other miscellaneous expense primarily related to gains and losses on investments, foreign currency transaction gains and losses, and non-service costs of the Company’s pension plans. Results for the three months ended June 30, 2022 include an unrealized loss of $11.2 million on a stock.
During the three months ended June 30, 2021, the Company elected certain tax accounting method changes and changed the timing of certain deductible payments, which generated a significant net operating loss, which the Company was able to carryback to prior years with higher federal statutory rates. The Company’s effective tax rate for the three months ended June 30, 2021 reflects a net discrete tax benefit of $69.9 million related to this carryback.
Gains and losses of unconsolidated affiliates primarily represented changes in the Company’s equity method investments.
Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021
Other miscellaneous expense primarily related to gains and losses on investments, foreign currency transaction gains and losses, and non-service costs of the Company’s pension plans. Results for the six months ended June 30, 2022 include an unrealized loss of $8.6 million on a stock.
The provision for income taxes for the six months ended June 30, 2022 included a charge of $18.1 million related to taxes on income generated in prior periods as the Company revised its interpretation of certain foreign anti-hybrid tax legislation based upon comments from the corresponding taxing authorities in the first quarter of fiscal 2022. Results for the six months ended June 30, 2021 included discrete tax benefits of $67.3 million, primarily related to the carryback of a net operating loss to previous tax years with higher federal statutory tax rates.
Gains and losses of unconsolidated affiliates primarily represented changes in the Company’s equity method investments.
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SEGMENT RESULTS
Access Equipment
The following table presents the Access Equipment segment results (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | | Six Months Ended June 30, | |
| | 2022 | | | 2021 | | | Change | | | % Change | | | 2022 | | | 2021 | | | Change | | | % Change | |
Net sales | | $ | 977.1 | | | $ | 924.3 | | | $ | 52.8 | | | | 5.7 | % | | $ | 1,860.2 | | | $ | 1,662.5 | | | $ | 197.7 | | | | 11.9 | % |
Cost of sales | | | 852.2 | | | | 754.3 | | | | 97.9 | | | | 13.0 | % | | | 1,669.5 | | | | 1,357.6 | | | | 311.9 | | | | 23.0 | % |
Gross income | | | 124.9 | | | | 170.0 | | | | (45.1 | ) | | | -26.5 | % | | | 190.7 | | | | 304.9 | | | | (114.2 | ) | | | -37.5 | % |
% of sales | | | 12.8 | % | | | 18.4 | % | | | -560 bps | | | | | | | 10.3 | % | | | 18.3 | % | | | -810 bps | | | | |
SG&A expenses | | | 55.4 | | | | 56.9 | | | | (1.5 | ) | | | -2.6 | % | | | 113.6 | | | | 111.2 | | | | 2.4 | | | | 2.2 | % |
Amortization | | | 0.1 | | | | 0.1 | | | | — | | | | 0.0 | % | | | 0.2 | | | | 0.2 | | | | — | | | | 0.0 | % |
Operating income | | | 69.4 | | | | 113.0 | | | | (43.6 | ) | | | -38.6 | % | | | 76.9 | | | | 193.5 | | | | (116.6 | ) | | | -60.3 | % |
% of sales | | | 7.1 | % | | | 12.2 | % | | | | | | | | | 4.1 | % | | | 11.6 | % | | | | | | |
Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021
Access Equipment segment net sales increased as a result of higher pricing ($86 million) in response to higher input costs, offset in part by lower sales volume in China and Europe.
The decrease in gross margin in the Access Equipment segment was due to unfavorable material & logistics costs (1340 basis points), offset in part by improved pricing (660 basis points) and favorable mix (90 basis points).
The decrease in operating income in the Access Equipment segment was primarily due to unfavorable material & logistics costs ($22128 million) and manufacturing inefficiencies ($15 million), largely associated with supply chain challenges, offset in part by improved pricing ($86 million) and lower incentive compensation costs ($10 million).
Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021
Access Equipment segment net sales increased as a result of improved pricing ($114 million) and increased volume ($94 million). Volume increases in North America outpaced the sales decline outside of North America.
The decrease in gross margin in the Access Equipment segment was due to unfavorable material & logistics costs (1360 basis points), offset in part by improved pricing (450 basis points) and favorable mix (120 basis points).
The decrease in operating income in the Access Equipment segment was primarily due to unfavorable material & logistics costs ($251 million) and manufacturing inefficiencies ($30 million), largely associated with supply chain challenges, offset in part by improved pricing ($114 million), the impact of higher gross margin associated with higher sales volume ($1924 million) and lower spending resulting from the COVID-19 pandemicfavorable mix ($722 million), offset in part by higher incentive compensation accruals ($30 million) and a decrease in cumulative catch-up adjustments on contract margins in.
Defense
The following table presents the Defense segment ($14 million).results (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | | Six Months Ended June 30, | |
| | 2022 | | | 2021 | | | Change | | | % Change | | | 2022 | | | 2021 | | | Change | | | % Change | |
Net sales | | $ | 539.3 | | | $ | 710.4 | | | $ | (171.1 | ) | | | -24.1 | % | | $ | 1,074.9 | | | $ | 1,325.1 | | | $ | (250.2 | ) | | | -18.9 | % |
Cost of sales | | | 501.9 | | | | 615.6 | | | | (113.7 | ) | | | -18.5 | % | | | 985.0 | | | | 1,160.9 | | | | (175.9 | ) | | | -15.2 | % |
Gross income | | | 37.4 | | | | 94.8 | | | | (57.4 | ) | | | -60.5 | % | | | 89.9 | | | | 164.2 | | | | (74.3 | ) | | | -45.2 | % |
% of sales | | | 6.9 | % | | | 13.3 | % | | | -640 bps | | | | | | | 8.4 | % | | | 12.4 | % | | | -400 bps | | | | |
SG&A expenses | | | 33.8 | | | | 33.1 | | | | 0.7 | | | | 2.1 | % | | | 65.3 | | | | 66.1 | | | | (0.8 | ) | | | -1.2 | % |
Amortization | | | 1.5 | | | | 1.9 | | | | (0.4 | ) | | | -21.1 | % | | | 3.1 | | | | 2.8 | | | | 0.3 | | | | 10.7 | % |
Operating income | | | 2.1 | | | | 59.8 | | | | (57.7 | ) | | | -96.5 | % | | | 21.5 | | | | 95.3 | | | | (73.8 | ) | | | -77.4 | % |
% of sales | | | 0.4 | % | | | 8.4 | % | | | | | | | | | 2.0 | % | | | 7.2 | % | | | | | | |
Access Equipment segment operating income in the second quarter of fiscal 2021 increased 13.7% to $80.5 million, or 10.9% of sales, compared to $70.8 million, or 10.2% of sales, in the second quarter of fiscal 2020. The increase in operating income was primarily due to the impact of higher gross margin associated with higher sales volume ($10 million), lower spending resulting from the COVID-19 pandemic ($9 million) and improved product mix ($5 million), offset in part by higher incentive compensation accruals ($16 million).
Defense segment operating income in the second quarter of fiscal 2021 decreased 40.5% to $35.5 million, or 5.8% of sales, compared to $59.7 million, or 9.5% of sales, in the second quarter of fiscal 2020. The decrease in operating income was due to a decrease in cumulative catch-up adjustments on contract margins ($14 million) as well as costs and inefficiencies associated with the reorganization of production lines ($8 million). Changes in estimates on contracts accounted for under the cost-to-cost method resulted in unfavorable cumulative catch-up adjustments on contract margins of $3.6 million in the second quarter of fiscal 2021 primarily a result of higher cost estimates. Changes in estimates on contracts accounted for under the cost-to-cost
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method resultedThree Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021
Defense segment net sales decreased as a result of lower volume ($147 million) as U.S. Government funding for the Company’s tactical wheeled vehicle programs has decreased in favorablerecent years and unfavorable cumulative catch-up adjustments of $10.6 millionon contracts due to higher anticipated material costs ($24 million).
The decrease in gross margin in the second quarter of fiscal 2020Defense segment was due to unfavorable cumulative catch-up adjustments on contracts due to higher anticipated material costs (430 basis points), unfavorable product mix (160 basis points) and higher engineering and new product development spending on lower sales volume (80 basis points).
The decrease in operating income in the Defense segment was primarily a result of adding new orders received during the quarterunfavorable cumulative catch-up adjustments on contracts due to the estimate at completion calculations.
Fire & Emergency segment operating income in the second quarter of fiscal 2021 increased 149.5% to $47.4 million, or 15.2% of sales, compared to $19.0 million, or 7.8% of sales, in the second quarter of fiscal 2020. The increase in operating income was largely due tohigher anticipated material costs ($23 million) and the impact of higherlower gross margin associated with higherlower sales volume ($1625 million), favorable price/cost dynamics ($5 million), improved product mix ($4 million) and.
Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021
Defense segment net sales decreased as U.S. Government funding for the absence of manufacturing inefficiencies experiencedCompany’s tactical wheeled vehicle programs has decreased in recent years.
The decrease in gross margin in the second quarter of the prior year ($4 million).
CommercialDefense segment operating income in the second quarter of fiscal 2021 increased 132.1% to $18.8 million, or 8.2% of sales, compared to $8.1 million, or 3.4% of sales, in the second quarter of fiscal 2020. The increase in operating income was primarily due to lower product liability costs ($5 million), lower spending resulting from the COVID-19 pandemic ($4 million) and lower warranty costs ($2 million).
Corporate operating costs increased $17.4 million to $41.4 million in the second quarter of fiscal 2021 compared to $24.0 million in the second quarter of fiscal 2020, primarilyunfavorable cumulative catch-up adjustments on contracts due to higher incentive compensation accruals ($10 million), higher healthcareanticipated material costs ($4 million)(260 basis points) and higher share-based compensation expense as a result of the increase in the Company’s stock price ($2 million).
Consolidated selling, general and administrative expenses decreased 9.3% to $172.0 million, or 9.1% of sales, in the second quarter of fiscal 2021 compared to $157.4 million, or 8.8% of sales, in the second quarter of fiscal 2020. The increase in consolidated selling, general and administrative expenses was primarily due to higher incentive compensation expense ($19 million)unfavorable product mix (190 basis points), offset in part by lower reserves for bad debts ($4 million)warranty costs (70 basis points).
First Six Months of Fiscal 2021 Compared to 2020
Consolidated operating income in the first six months of fiscal 2021 decreased 2.5% to $236.7 million, or 6.8% of sales, compared to $242.7 million, or 7.0% of sales, in the first six months of 2020. The decrease in operating income in the Defense segment was primarily a result of the impact of lower gross margin associated with lower sales volume ($37 million), unfavorable cumulative catch-up adjustments on contracts due to higher incentive compensation accrualsanticipated material costs ($3130 million) and unfavorable product mix ($20 million), adverse absorptionpartially offset by lower warranty costs ($11 million).
Fire & Emergency
The following table presents the Fire & Emergency segment results (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | | Six Months Ended June 30, | |
| | 2022 | | | 2021 | | | Change | | | % Change | | | 2022 | | | 2021 | | | Change | | | % Change | |
Net sales | | $ | 276.5 | | | $ | 302.5 | | | $ | (26.0 | ) | | | -8.6 | % | | $ | 564.4 | | | $ | 615.0 | | | $ | (50.6 | ) | | | -8.2 | % |
Cost of sales | | | 233.4 | | | | 234.4 | | | | (1.0 | ) | | | -0.4 | % | | | 474.4 | | | | 476.9 | | | | (2.5 | ) | | | -0.5 | % |
Gross income | | | 43.1 | | | | 68.1 | | | | (25.0 | ) | | | -36.7 | % | | | 90.0 | | | | 138.1 | | | | (48.1 | ) | | | -34.8 | % |
% of sales | | | 15.6 | % | | | 22.5 | % | | | -690 bps | | | | | | | 15.9 | % | | | 22.5 | % | | | -650 bps | | | | |
SG&A expenses | | | 20.0 | | | | 23.3 | | | | (3.3 | ) | | | -14.2 | % | | | 44.2 | | | | 45.5 | | | | (1.3 | ) | | | -2.9 | % |
Amortization | | | 0.3 | | | | 0.3 | | | | — | | | | 0.0 | % | | | 0.6 | | | | 0.7 | | | | (0.1 | ) | | | -14.3 | % |
Operating income | | | 22.8 | | | | 44.5 | | | | (21.7 | ) | | | -48.8 | % | | | 45.2 | | | | 91.9 | | | | (46.7 | ) | | | -50.8 | % |
% of sales | | | 8.2 | % | | | 14.7 | % | | | | | | | | | 8.0 | % | | | 14.9 | % | | | | | | |
Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021
Fire & Emergency segment net sales decreased due to lower fire truck deliveries as parts shortages have limited the segment’s ability to complete units.
The decrease in gross margin in the Fire & Emergency segment was primarily attributable to higher material & logistics costs (440 basis points) and manufacturing inefficiencies (350 basis points), largely associated with parts shortages and labor availability, offset in part by improved pricing (160 basis points).
The decrease in operating income in the Fire & Emergency segment was largely a result of lower productionhigher material & logistics costs ($1512 million), manufacturing inefficiencies ($10 million), the impact of lower gross margin associated with lower sales volume ($11 million), restructuring-related charges in the Access Equipment segment ($10 million) and higher material costs ($109 million), offset in part by lower spending as a result of the COVID-19 pandemicimproved pricing ($336 million) and favorablelower incentive compensation costs ($4 million).
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Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021
Fire & Emergency segment net sales decreased due to lower fire truck deliveries ($40 million) and lower ARFF vehicle volume ($22 million), partially offset by improved pricing ($13 million).
The decrease in gross margin in the Fire & Emergency segment was primarily attributable to higher material & logistics costs (370 basis points), manufacturing inefficiencies (320 basis points), largely associated with parts shortages and labor availability, and unfavorable product mix ($34 million)(80 basis points), offset in part by improved pricing (150 basis points).
Access Equipment segment operating income in the first six months of fiscal 2021 decreased 24.6% to $105.4 million, or 8.1% of sales, compared to $139.8 million, or 9.9% of sales, in the first six months of fiscal 2020. The decrease in operating income in the Fire & Emergency segment was primarily due tolargely a result of higher material & logistics costs ($21 million), manufacturing inefficiencies ($18 million) and the impact of lower gross margin associated with lower sales volume ($31 million), unfavorable price/cost dynamics ($20 million), higher incentive compensation accruals ($17 million) and charges related to restructuring actions ($1018 million), offset in part by lower spendingimproved pricing ($13 million).
Commercial
The following table presents the Commercial segment results (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | | Six Months Ended June 30, | |
| | 2022 | | | 2021 | | | Change | | | % Change | | | 2022 | | | 2021 | | | Change | | | % Change | |
Net sales | | $ | 275.3 | | | $ | 278.1 | | | $ | (2.8 | ) | | | -1.0 | % | | $ | 516.7 | | | $ | 508.1 | | | $ | 8.6 | | | | 1.7 | % |
Cost of sales | | | 237.1 | | | | 225.5 | | | | 11.6 | | | | 5.1 | % | | | 439.6 | | | | 415.8 | | | | 23.8 | | | | 5.7 | % |
Gross income | | | 38.2 | | | | 52.6 | | | | (14.4 | ) | | | -27.4 | % | | | 77.1 | | | | 92.3 | | | | (15.2 | ) | | | -16.5 | % |
% of sales | | | 13.9 | % | | | 18.9 | % | | | -500 bps | | | | | | | 14.9 | % | | | 18.2 | % | | | -320 bps | | | | |
SG&A expenses | | | 22.2 | | | | 22.1 | | | | 0.1 | | | | 0.5 | % | | | 46.0 | | | | 42.1 | | | | 3.9 | | | | 9.3 | % |
Amortization | | | 0.9 | | | | 0.9 | | | | — | | | | 0.0 | % | | | 1.7 | | | | 1.8 | | | | (0.1 | ) | | | -5.6 | % |
Operating income | | | 15.1 | | | | 29.6 | | | | (14.5 | ) | | | -49.0 | % | | | 29.4 | | | | 48.4 | | | | (19.0 | ) | | | -39.3 | % |
% of sales | | | 5.5 | % | | | 10.6 | % | | | | | | | | | 5.7 | % | | | 9.5 | % | | | | | | |
Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021
Commercial segment net sales decreased as a result of the COVID-19 pandemiclower sales volume ($1733 million), primarily refuse collection vehicles and front discharge concrete mixers, partially offset by higher pricing ($22 million) in response to higher input costs and favorable product mix due to a greater percentage of sales that included a third-party chassis ($10 million), lower bad debts expense ($7 million) and lower intangible asset amortization ($69 million).
Defense segment operating incomeThe decrease in gross margin in the first six months of fiscal 2021 decreased 2.6%Commercial segment was primarily attributable to $88.3 million, or 7.6% of sales, compared to $90.7 million, or 8.0% of sales,unfavorable material & logistics costs (670 basis points) and manufacturing inefficiencies (420 basis points), largely associated with parts shortages, offset in the first six months of fiscal 2020. part by improved pricing (580 basis points).
The decrease in operating income in the Commercial segment was primarily a result of productiondue to higher material & logistics costs ($18 million), manufacturing inefficiencies ($1012 million) and higher new product development spendingthe impact of lower gross margin associated with lower sales volume ($69 million), offset in part by improved pricing ($22 million).
Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021
Commercial segment net sales increased as a result of higher pricing ($36 million) in response to higher input costs and favorable product mix primarily due to a greater percentage of sales that included a third-party chassis ($1523 million). Changes, partially offset by lower sales volume ($49 million), primarily of front discharge concrete mixers.
The decrease in estimates on contracts accounted for under the cost-to-cost method increased Defense segment operating income by $11.0 million and $14.6 milliongross margin in the first six months of fiscal 2021Commercial segment was primarily attributable to unfavorable material & logistics costs (780 basis points) and 2020, respectively.manufacturing inefficiencies (320 basis points), largely associated with parts shortages, offset in part by improved pricing (510 basis points) and favorable product mix (240 basis points).
Fire & Emergency segmentThe decrease in operating income in the first six monthsCommercial segment was primarily due to higher material & logistics costs ($40 million), manufacturing inefficiencies ($17 million) and the impact of fiscal 2021 increased 65.3% to $82.5 million, or 14.1% of sales, compared to $49.9 million, or 10.0% of sales, in the first six months of fiscal 2020. The increase in operating income was largely a result of higherlower gross margin associated with higherlower sales volume ($2113 million), favorable price/cost dynamicsoffset in part by improved pricing ($936 million) and lower spending as a result of the COVID- 19 pandemicfavorable product mix ($418 million).
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Corporate and Intersegment Eliminations
Commercial segment operating income inThe following table presents the first six months of fiscalcorporate costs and intersegment eliminations (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | | Six Months Ended June 30, | |
| | 2022 | | | 2021 | | | Change | | | % Change | | | 2022 | | | 2021 | | | Change | | | % Change | |
Net sales | | $ | (2.2 | ) | | $ | (6.5 | ) | | $ | 4.3 | | | | -66.2 | % | | $ | (4.5 | ) | | $ | (12.9 | ) | | $ | 8.4 | | | | -65.1 | % |
Cost of sales | | | 1.3 | | | | (5.6 | ) | | | 6.9 | | | | -123.2 | % | | | 1.8 | | | | (13.1 | ) | | | 14.9 | | | | -113.7 | % |
Gross income | | | (3.5 | ) | | | (0.9 | ) | | | (2.6 | ) | | | 288.9 | % | | | (6.3 | ) | | | 0.2 | | | | (6.5 | ) | | | -3250.0 | % |
Operating expenses | | | 36.5 | | | | 42.2 | | | | (5.7 | ) | | | -13.5 | % | | | 68.0 | | | | 84.7 | | | | (16.7 | ) | | | -19.7 | % |
Operating income | | | (40.0 | ) | | | (43.1 | ) | | | 3.1 | | | | -7.2 | % | | | (74.3 | ) | | | (84.5 | ) | | | 10.2 | | | | -12.1 | % |
Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021 increased 18.5% to $30.7 million, or 7.2% of sales, compared to $25.9 million, or 5.6% of sales, in the first six months of fiscal 2020. The increase in operating income was primarily due to lower spending resulting from the COVID-19 pandemic ($8 million), lower product liability costs ($5 million), lower engineering costs ($3 million) and lower warranty costs ($2 million), offset in part by lower margin associated with lower sales volume ($8 million) and higher material costs ($5 million).
Corporate operating costs in the first six months of fiscal 2021 increased $6.6 million to $70.2 million compared to the first six months of fiscal 2020,expenses decreased primarily as a result of higherlower incentive compensation accrualscosts ($106 million), offset in part by lower spending.
Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021
Corporate operating expenses decreased primarily as a result of lower incentive compensation costs ($11 million) and the COVID-19 pandemic.
Consolidated selling, general and administrative expenses decreasedtiming of healthcare charges to $317.4 million, or 9.2% of sales, in the first six months of fiscal 2021 compared to $330.8 million, or 9.5% of sales, in the first six months of fiscal 2020. The decrease in consolidated selling, general and administrative expenses was generally a result of lower spending as a result of the COVID-19 pandemic and lower reserves for bad debtssegments ($9 million), offset in part by higher incentive compensation accruals ($22 million).
Analysis of Non-Operating Income Statement Items
Second Quarter Fiscal 2021 Compared to 2020
Interest expense net of interest income decreased $9.5 million to $11.2 millioncosts associated with the change in the second quarter ofCompany’s fiscal 2021 compared to $20.7 million in the second quarter of fiscal 2020. The second quarter of fiscal 2020 included $8.5 million of debt extinguishment costs incurred in connection with the refinancing of the Company’s senior notes.
Other miscellaneous income of $3.1 million in the second quarter of fiscal 2021 and other miscellaneous expense of $5.8 million in the second quarter of fiscal 2020 primarily related to gains and losses on investments held in a rabbi trust, net foreign currency transaction gains and losses, and non-service costs of the Company’s pension plans.
The Company recorded income tax expense in the second quarter of fiscal 2021 of $33.2 million, or 25.0% of pre-tax income, compared to $38.3 million, or 35.8% of pre-tax income, in the second quarter of fiscal 2020. Results for the second quarter of fiscal 2020 were adversely impacted by tax valuation reserves of $11.4 million recorded against certain foreign net deferred tax assets in Europe.
Earnings of unconsolidated affiliates of $0.1 million in the second quarter of fiscal 2021 and losses in unconsolidated affiliates of $0.2 million in the second quarter of fiscal 2020 primarily represented the Company’s equity interest in a commercial entity in Mexico.
First Six Months of Fiscal 2021 Compared to 2020
Interest expense net of interest income decreased $9.9 million to $22.6 million in the first six months of fiscal 2021 compared to the first six months of fiscal 2020. The first six months of fiscal 2020 included $8.5 million of debt extinguishment costs incurred in connection with the refinancing of the Company’s senior notes.
Other miscellaneous income of $1.6 million in the first six months of fiscal 2021 and other miscellaneous expense of $6.2 million in the first six months of fiscal 2020 primarily related to gains and losses on investments held in a rabbi trust, net foreign currency transaction gains and losses, and non-service costs of the Company’s pension plans.
The Company recorded income tax expense in the first six months of fiscal 2021 of $46.4 million, or 21.5% of pre-tax income, compared to $59.0 million, or 28.9% of pre-tax income, in the first six months of fiscal 2020. Income tax expense in the first six months of fiscal 2021 included discrete tax benefits of $5.3 million, primarily related to the resolution of certain tax matters upon conclusion of an audit. Results for the first six months of fiscal 2020 were adversely impacted by tax valuation reserves of $11.4 million recorded against certain foreign net deferred tax assets in Europe.
Losses of unconsolidated affiliates of $0.2 million and $0.7 million in the first six months of fiscal 2021 and fiscal 2020, respectively, primarily represented the Company’s equity interest in a commercial entity in Mexico.
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Table of Contentsyear end ($2 million).
Liquidity and Capital Resources
The Company generates significant capital resources from operating activities, which is the expected primary source of funding for the Company. In addition to cash generated from operations, the Company had other sources of liquidity available at March 31, 2021,June 30, 2022, including $1.09 billion$397.4 million of cash and cash equivalents and $829.5$1,088.4 million of unused available capacity under the Revolving Credit Facility (as defined in “Liquidity”). Borrowings under the Revolving Credit Facility could, as discussed below, be limited by thea financial covenantscovenant contained in the Credit Agreement (as defined in “Liquidity”). These sources of liquidity are neededThe Company was in compliance with the financial covenant at June 30, 2022 and expects to fundremain in compliance with the Company’s working capital requirements, capital expenditures, dividends, share repurchases, debt service requirements and acquisitions. financial covenant contained in the Credit Agreement for the foreseeable future.
The Company continues to expectactively monitor its liquidity position and working capital needs and prioritizes capital expenditures related to have sufficientcapacity and strategic investments. The Company remains in a stable overall capital resources and liquidity position that the Company believes is adequate to financemeet its operations overprojected needs. During the next twelve months.six months ended June 30, 2022, the Company repurchased $155 million in shares of its Common Stock. The Company’s Board of Directors increased the Company’s repurchase authorization to 12 million shares on May 3, 2022. As of June 30, 2022, the Company had approximately 11.6 million shares of Common Stock remaining under its repurchase authorization.
Financial Condition at March 31, 2021June 30, 2022
The Company’s capitalization was as follows (in millions):
| | | March 31, 2021 | | | September 30, 2020 | | | June 30, 2022 | | | December 31, 2021 | |
Cash and cash equivalents | | $ | 1,093.2 | | | $ | 582.9 | | | $ | 397.4 | | | $ | 995.7 | |
Total debt | | | 818.3 | | | | 823.1 | | | | 604.6 | | | | 819.0 | |
Total shareholders’ equity | | | 3,018.2 | | | | 2,850.7 | | | | 2,877.0 | | | | 3,076.4 | |
Total capitalization (debt plus equity) | | | 3,836.5 | | | | 3,673.8 | | | | 3,481.6 | | | | 3,895.4 | |
Debt to total capitalization | | | 21.3 | % | | | 22.4 | % | | | 17.4 | % | | | 21.0 | % |
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The Company’s ratio of debt to total capitalization of 21.3%17.4% at March 31, 2021June 30, 2022 remained within its targeted range. The Company’s goal is to maintain an investment-grade credit rating. The rating agencies periodically update the Company’s credit ratings as events or changes in economic conditions occur. At June 30, 2022, the long-term credit ratings assigned to the Company’s senior debt securities by the credit rating agencies engaged by the Company were as follows:
| | |
Rating Agency |
| Rating |
Fitch Ratings |
| BBB- |
Moody’s Investor Services, Inc. |
| Baa3 |
Standards & Poor’s |
| BBB |
Consolidated days sales outstanding (defined as “Trade Receivables” at quarter end divided by “Net Sales” for the most recent quarter multiplied by 90 days) decreasedincreased from 4146 days at September 30, 2020December 31, 2021 to 3950 days at March 31, 2021.June 30, 2022 as a result of an increase in Defense segment days sales outstanding due to a delay in the customer accepting units during the second quarter of fiscal 2022. Days sales outstanding for segments other than the Defense segment decreased from 5053 days at September 30, 2020December 31, 2021 to 4551 days at March 31, 2021. Accounts receivable collections have remained strong throughout the COVID-19 pandemic.June 30, 2022. Consolidated inventory turns (defined as “Cost of Sales” on an annualized basis, divided by the average “Inventory” at the past five quarter end periods) was 3.8increased from 4.9 times at both MarchDecember 31, 2021 and Septemberto 5.0 times at June 30, 2020.2022.
Cash Flows
Operating Cash Flows
Operating activities provided $694.9used $22.9 million of cash in the first six months of fiscal 20212022 compared to the usegeneration of $64.8$448.7 million of cash during the six months ended June 30, 2021. Lower net income during the first six months of fiscal 2022 and a significant increase in inventory due to global supply chain challenges that have delayed the Company’s ability to complete units was offset in part by higher customer advances.
Investing Cash Flows
Investing activities used cash of $139.2 million in the first six months of fiscal 2020. The improvement in cash provided by operating activities in2022 compared to $153.7 million during the first six months of fiscal 2021 as compared to the first six months of fiscal 2021 was primarily due to improved inventory management in the Access Equipment segment. The Company expects to generate approximately $770 million of cash flows from operations in fiscal 2021.
Investing Cash Flows
Investing activities used cash of $145.6 million in the first six months of fiscal 2021 compared to $37.1 million in the first six months of fiscal 2020. The Company used available cash to fund the acquisition of Pratt Miller in the second quarter of fiscalended June 30, 2021. Through March 31, 2021,June 30, 2022, the Company utilized $38.3$110.3 million for capital expenditures. The Company anticipates that it will spend $120$345 million on capital expenditures in fiscal 2021.2022. The expected increase in capital spending in fiscal 2022 reflects the set-up of the manufacturing plant in Spartanburg, SC, to produce Next Generation Delivery Vehicles (NGDV) for the USPS for which the Company will largely receive customer advances.
Financing Cash Flows
Financing activities used cash of $38.0$425.4 million in the first six months of fiscal 20212022 compared to $73.1$25.0 million induring the first six months ended June 30, 2021. The increase in cash utilized for financing activities was due to the repayment of fiscal 2020. In the first six months of fiscal 2021, the Company did not repurchase any shares of its Common Stock. In the first six months of fiscal 2020, the Company repurchased 550,853 shares of itsCompany’s $225 million term loan and an increase in Common Stock repurchases under the authorizationauthorizations approved by the Company’s Board of DirectorsDirectors. In the six months ended June 30, 2022, the Company repurchased 1,508,467 shares of its Common Stock at an aggregate cost of $40.8$155.0 million.
36
Table In the six months ended June 30, 2021, the Company repurchased 107,138 shares of Contentsits Common Stock at an aggregate cost of $13.0 million.
Liquidity
Senior Credit Agreement
In April 2018,On March 23, 2022, the Company entered into a SecondThird Amended and Restated Credit Agreement with various lenders (the “Credit Agreement”). The Credit Agreement provides for (i) an unsecured revolving credit facility (the “Revolving Credit Facility”) that matures in April 2023March 2027 with an initial maximum aggregate amount of availability of $850 million and (ii) an unsecured $325 million term loan (the “Term Loan”) due in quarterly principal installments of $4.1 million commencing as of September 30, 2019 with a balloon payment of $264.1 million due at maturity in April 2023. As of March 31, 2021, the Company has prepaid all required quarterly principal installments and $39.1 million of the balloon payment on the Term Loan. At March 31, 2021, outstanding letters of credit of $20.5 million reduced available capacity under the Revolving Credit Facility to $829.5 million.$1.1 billion.
Under the Credit Agreement, the Company is obligated to pay (i) an unused commitment fee ranging from 0.125%0.080% to 0.275%0.225% per annum of the average daily unused portion of the aggregate revolving credit commitments under the Credit Agreement and
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(ii) a fee ranging from 0.563%0.4375% to 1.75%1.500% per annum of the maximum amount available to be drawn for each letter of credit issued and outstanding under the Credit Agreement.
Borrowings under the Credit Agreement bear interest at a variable rate equal to (i) LIBOR plus a specified margin, which may be adjusted upward or downward depending on whether certain criteria are satisfied, or (ii) for dollar-denominated loans only, the base rate (which is the highest of (a) the administrative agent’s prime rate, (b) the federal funds rate plus 0.50% or (c) the sum of 1% plus one-month LIBOR) plus a specified margin, which may be adjusted upward or downward depending on whether certain criteria are satisfied.
Covenant Compliance
The Credit Agreement contains various restrictions and covenants, including requirementsa requirement that the Company maintain a leverage ratio at certain financial ratios at prescribed levels, and restrictions, subject to certain exceptions, restrictions on the ability of the Company and certain of its subsidiaries to consolidate or merge, create liens, incur additional subsidiary indebtedness and disposeconsummate acquisitions and a restriction on the disposition of all or substantially all assets.
The Credit Agreement containsof the following financial covenants:
| •
| Leverage Ratio: A maximum leverage ratio (defined as, with certain adjustments, the ratio of the Company’s consolidated indebtedness to consolidated net income for the previous four quarters before interest, taxes, depreciation, amortization, non-cash charges and certain other items (EBITDA)) as of the last day of any fiscal quarter of 3.75 to 1.00.
|
| •
| Interest Coverage Ratio: A minimum interest coverage ratio (defined as, with certain adjustments, the ratio of the Company’s consolidated EBITDA to the Company’s consolidated cash interest expense for the previous four quarters) as of the last day of any fiscal quarter of 2.50 to 1.00.
|
assets of the Company and its subsidiaries taken as a whole. The Company was in compliance with the financial covenantscovenant contained in the Credit Agreement as of March 31, 2021June 30, 2022 and expects to be able to meet the financial covenantscovenant contained in the Credit Agreement over the next twelve months.
Senior Notes
In May 2018, the Company issued $300.0 million of 4.600% unsecured senior notes due May 15, 2028 (the “2028 Senior Notes”). In February 2020, the Company issued $300.0 million of 3.100% unsecured senior notes due March 1, 2030 (the “2030 Senior Notes”) at a discount of $1.2 million. The 2028 Senior Notes and the 2030 Senior Notes were issued pursuant to an indenture (the “Indenture”) between the Company and a trustee. The Indenture contains customary affirmative and negative covenants. The Company has the option to redeem the 2028 Senior Notes and 2030 Senior Notes at any time for a premium.
Refer to Note 1211 to Condensed Consolidated Financial Statements for additional information regarding the Company’s debt as of March 31, 2021.
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Table of ContentsJune 30, 2022.
Application of Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires the Company to make judgments, assumptions and estimates that affect the amounts reported in the Condensed Consolidated Financial Statements and accompanying notes. The accounting policies that the Company believes are most critical to the portrayal of its financial condition and results of operations are reported in Item 7 of the Company’s Annual Report on Form 10-K for the year ended September 30, 2020.2021.
Critical Accounting Estimates
The Company’s disclosures of critical accounting estimates in its Annual Report on Form 10-K for the year ended September 30, 20202021 have not materially changed since that report was filed.
New Accounting Standards
See Note 2There are no significant impacts of the Notes to Condensed Consolidated Financial Statements for a discussion of the impactnew accounting standards on the Company’s Condensed Consolidated Financial Statements of new accounting standards.Statements.
Customers and Backlog
Sales to the U.S. government comprised approximately 35%26% of the Company’s net sales in the first six months of fiscal 2021.ended June 30, 2022. 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 the fulfillment of customer orders that are received prior to commencing production.
The Company’s backlog at March 31, 2021June 30, 2022 increased 12.6%89.8% to $6.74$13.03 billion compared to $5.98$6.86 billion at March 31, 2020.June 30, 2021. Access Equipment segment backlog increased 80.0%127.2% to $1.52$3.97 billion at March 31, 2021June 30, 2022 compared to $844.4 million$1.75 billion at March 31, 2020June 30, 2021 as replacement demand has come back following positive vaccination progressthe re-opening of economies coming out of the pandemic and the confidence that progress is bringing to the marketplace, particularly in North America.elevated customer fleet ages drove higher demand. Defense segment backlog increased 1.6%84.4% to $3.50$6.27 billion at March 31, 2021June 30, 2022 compared to $3.45$3.40 billion at March 31, 2020June 30, 2021 primarily due to the initial vehicle order from the USPS for the NGDV program, offset in part by shipments under the FHTV and FMTV contracts.program. Fire & Emergency segment backlog decreased 1.8%increased 82.4% to $1.27$2.22 billion at March 31, 2021June 30, 2022 compared to $1.29$1.22 billion at March 31, 2020.June 30, 2021 due to strong demand for fire trucks coming out of the COVID-19 pandemic. Although Fire & Emergency segment backlog remains strong, the Company has seenis at a record level, orders softensoftened for ARFF vehicles due to
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the adverse impact of the COVID 19COVID-19 pandemic on airport budgets. Commercial segment backlog increased 12.4%14.1% to $449.7$568.3 million at March 31, 2021June 30, 2022 compared to $400.2$498.1 million at March 31, 2020June 30, 2021 due to improved market demand for refuse collection vehicles and concrete mixers as demand has come backrebounded following positive vaccination progressthe re-opening of economies. Global supply chain challenges and the confidence that progress is bringingassociated delays in production are also leading to the marketplace. Commercial segment backlog at March 31, 2020 included concrete batch plant backlog of $17.2 million. The Company sold the concrete batch plant businesshigher backlogs in the fourth quarterAccess Equipment, Fire & Emergency and Commercial segments.
Backlog represents the dollar amount of fiscal 2020.
revenues that the Company anticipates from customer contracts that have been awarded and/or in progress. Reported backlog includes the original contract amount and any contract modifications that have been agreed upon. Reported backlog excludes purchase options, and announced orders for which definitive contracts have not been executed.executed and any potential future contract modifications. Backlog is comprised of fixed and variable priced contracts that may be canceled, modified or otherwise changed in the future. As a result, backlog may not be indicative of future operating results. 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. Approximately 47%65% of the Company’s March 31, 2021June 30, 2022 backlog is not expected to be filled in fiscal 2021.2022.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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ITEM 3.
| QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
The Company’s quantitative and qualitative disclosures about market risk for changes in interest rates and commodity risk, which are incorporated by reference to Item 7A of the Company’s Annual Report on Form 10-K for the year ended September 30, 2020,2021, have not materially changed since that report was filed.
ITEM 4. CONTROLS AND PROCEDURES
ITEM 4.
| CONTROLS AND PROCEDURES
|
Evaluation of Disclosure Controls and Procedures. In accordance with Rule 13a-15(b) of the Exchange Act, the Company’s management evaluated, with the participation of the Company’s President and Chief Executive Officer and Executive Vice President and Chief Financial Officer, the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the quarter ended March 31, 2021.June 30, 2022. Based upon their evaluation of these disclosure controls and procedures, the President and Chief Executive Officer and the Executive Vice President and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of the end of the quarter ended March 31, 2021June 30, 2022 to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the Securities and Exchange Commission rules and forms, and to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting. There were no changes in the Company’s internal control over financial reporting, with the exception of those changes related to the implementation of the Company's new consolidation software, that occurred during the quarterthree months ended March 31, 2021June 30, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II - OTHEROTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS None. ITEM 1A. RISK FACTORS ITEM 1.
| LEGAL PROCEEDINGS
|
None.
The Company’s financial position, results of operations and cash flows are subject to various risks, many of which are not exclusively within the Company’s control, which may cause actual performance to differ materially from historical or projected future performance. In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Item 1A. of our Annual Report on Form 10-K for the year ended September 30, 2020,2021, which have not materially changed except as set forth below.
The U.S. Postal Service (USPS) may not purchase quantities from us that we expect.
On February 23, 2021, the USPS notified us that it selected us to build its Next Generation Delivery Vehicle (NGDV). The indefinite delivery, indefinite quantity (IDIQ) contract allows for the purchase of between 50,000 to 165,000 units over 10 years. To date, we have received an order for $482 million for engineering to finalize the production vehicle design and for tooling and factory build-out activities that are necessary prior to vehicle production. The USPS awards that we currently anticipate receiving from the USPS and our performance under the contract are subject to the following risks, among others, that could have a material adverse effect on our operating performance:
| •changed.
| Budget constraints facing the USPS and continuously changing demands for postal services may result in the USPS ordering fewer units than we expect the USPS to award to us under the contract.
|
| •
| Although we believe the USPS awarded the NGDV contract to us as a result of a robust and thorough process, a competitor may challenge/protest our winning proposal, which if successful could result in the USPS canceling part or all of our NGDV contract. This would harm our ability to recover investments we have made in anticipation of initiating production under the contract.
|
| •
| Although we believe the USPS awarded the NGDV contract to us as a result of a robust and thorough process, Congress could interfere with the contract, which could result in the USPS altering the quantities that we currently anticipate receiving from the USPS under our NGDV contract. This would also harm our ability to recover investments we have made in anticipation of initiating production under the contract.
|
| •
| Engineering time to finalize the production vehicle design may be greater than we anticipate.
|
| •
| Tooling and factory build-out activities that we must complete may be greater than we anticipate.
|
| •
| We anticipate using a new manufacturing facility to perform under the contract, and the costs and other challenges associated with training a new workforce may be greater than we anticipate.
|
| •
| The USPS’ obligation to order the minimum order quantity under the contract (50,000 units) is contingent upon our satisfactory completion of the National Environmental Policy Act (NEPA) Environmental Impact Statement (EIS) process. Our failure to complete this process in a satisfactory manner could result in a loss of the minimum quantity and prevent additional awards under the NGDV contract.
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We may not realize all of the anticipated benefits of our acquisitions.ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
We are continuously evaluating potential acquisitions to support our business strategy. As part of this evaluation process, we perform due diligence to identify potential risks associated with the potential transaction. We also make assumptions regarding future performance of the acquired business. We cannot provide any assurance we will be able to successfully achieve the benefits of any business acquisition due to a variety of risks, including the following:
| •
| Our failure to achieve the acquisition’s assumed future financial performance or realize assumed efficiencies or assumed cost reductions;
|
| •
| There may be a cultural mismatch that exists between us and the acquired business;
|
| •
| We may incur unforeseen expenses or liabilities or may be subject to other unanticipated regulatory or government actions relating to the acquired business; and
|
| •
| We may incur higher transaction costs than expected.
|
ITEM 2.
| UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
Common Stock Repurchases
The following table sets forth information with respect to purchases of Common Stock made by the Company or on the Company’s behalf during the second quarterthree months ended June 30, 2022:
| | | | | | | | | | | | | | | | |
Period | | Total Number of Shares Purchased | | | Average Price Paid per Share | | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) | | | Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs (1) | |
April 1 - April 30 | | | 307,835 | | | $ | 97.47 | | | | 307,835 | | | | 4,109,419 | |
May 1 - May 31 | | | 449,323 | | | $ | 89.04 | | | | 449,323 | | | | 11,550,677 | |
June 1 - June 30 | | | — | | | $ | — | | | | — | | | | 11,550,677 | |
Total | | | 757,158 | | | | | | | 757,158 | | | | 11,550,677 | |
(1)In May 2019, the Company’s Board of
fiscal 2021:Period
| | Total Number of Shares
Purchased
| | | Average Price
Paid per Share
| | | Total Number of Shares
Purchased as
Part of Publicly
Announced Plans or
Programs (1)
| | | Maximum Number of
Shares That May Yet Be Purchased
Under the Plans or
Programs (1)
| |
January 1 - January 31
| | | —
| | | $
| —
| | | | —
| | | | 7,459,328
| |
February 1 - February 28
| | | —
| | | $
| —
| | | | —
| | | | 7,459,328
| |
March 1 - March 31
| | | —
| | | $
| —
| | | | —
| | | | 7,459,328
| |
Total
| | | —
| | | | | | | | —
| | | | 7,459,328
| |
Directors approved a Common Stock repurchase authorization for which there was remaining authority to repurchase 4,109,419 shares of Common Stock as of May 3, 2022. On May 3, 2022, the Board of Directors increased the Common Stock repurchase authorization by 7,890,581 shares to 12,000,000 shares as of that date. The Company repurchased 1,508,467 shares of Common Stock under these authorizations during the six months ended June 30, 2022 at a cost of $155.0 million. As of June 30, 2022, the Company had remaining authority to repurchase 11,550,677 shares of Common Stock. The Company can use the current authorization at any time as there is no expiration date associated with the authorization. From time to time, the Company may enter into a Rule 10b5-1 trading plan for the purpose of repurchasing shares under this authorization. (1)
| In May 2019, the Board of Directors approved a stock repurchase authorization of 10,000,000 shares. At March 31, 2021, the Company had repurchased 2,540,672 shares under this authorization. As a result, 7,459,328 shares of Common Stock remained available for repurchase under the repurchase authorization at March 31, 2021. The Company can use this authorization at any time as there is no expiration date associated with the authorization. From time to time, the Company may enter into a Rule 10b5-1 trading plan for the purpose of repurchasing shares under this authorization.
|
The Company intends 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 and cash flows, capital requirements, the Company’s general financial condition, general business conditions and other factors.
ITEM 4.MINE SAFETY DISCLOSURES ITEM 4.
| MINE SAFETY DISCLOSURES
|
Not applicable.
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ITEM 6. EXHIBITS
| Description | | | Exhibit No.
| Description
| | | 31.1 | Certification by the President and Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act, dated AprilJuly 28, 2021.2022. | | | 31.2 | Certification by the Executive Vice President and Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act, dated AprilJuly 28, 2021.2022. | | | 32.1 | Written Statement of the President and Chief Executive Officer, pursuant to 18 U.S.C. §1350, dated AprilJuly 28, 2021.2022. | | | 32.2 | Written Statement of the Executive Vice President and Chief Financial Officer, pursuant to 18 U.S.C. §1350, dated AprilJuly 28, 2021.2022. | | | 101.INS | The instance document does not appear in the interactive data file because its XBRL (Extensible Business Reporting Language) tags are embedded within the Inline XBRL document. | | | 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | | | 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | | | 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | | | 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | | | 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | | | 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). | | | | | | |
42* Denotes a management contract or compensatory plan or arrangement.
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Table of Contents SIGNATURES SIGNATURES
Pursuant to the requirements 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 CORPORATION | | | | | | | AprilJuly 28, 20212022
| By | /s/ John C. Pfeifer | | | John C. Pfeifer, President and Chief Executive Officer (Principal Executive Officer) | | | | | | | AprilJuly 28, 20212022
| By | /s/ Michael E. Pack | | | Michael E. Pack, Executive Vice President and Chief Financial Officer (Principal Financial Officer) | | | | | | | AprilJuly 28, 20212022
| By | /s/ James C. Freeders | | | James C. Freeders, Senior Vice President Finance and Controller (Principal Accounting Officer) |
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