SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) (x) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 2000 or ( ) Transaction Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Transition period from to ------------- ----------------------- Commission File Number 0-13886 ------------- Oshkosh Truck Corporation ------------------------------------------ [Exact name of registrant as specified in its charter] Wisconsin 39-0520270 ------------------------------- -------------------- [State or other jurisdiction of [I.R.S. Employer incorporation or organization] Identification No.] 2307 Oregon Street, P.O. Box 2566, Oshkosh, Wisconsin 54903 - ----------------------------------------------------- --------- [Address of principal executive offices] [Zip Code] Registrant's telephone number, including area code (920) 235-9151 -------------- None --------------------------------------------------------------- [Former name, former address and former fiscal year, if changed since last report] Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class A Common Stock Outstanding as of July 21, 2000: 422,542 - ------------------------------------------------------------------- Common Stock Outstanding as of July 21, 2000: 16,218,490 - ------------------------------------------------------------------- OSHKOSH TRUCK CORPORATION FORM 10-Q INDEX FOR THE QUARTER ENDED JUNE 30, 2000 Page ---- Part I. Financial Information Item 1. Financial Statements (Unaudited) Condensed Consolidated Statements of Income - Three Months Ended June 30, 2000 and 1999; Nine Months Ended June 30, 2000 and 1999................. 3 Condensed Consolidated Balance Sheets - June 30, 2000 and September 30, 1999..................... 4 Condensed Consolidated Statement of Shareholders' Equity - Nine Months Ended June 30, 2000.......................... 5 Condensed Consolidated Statements of Cash Flows - Nine Months Ended June 30, 2000 and 1999................. 6 Notes to Condensed Consolidated Financial Statements - June 30, 2000............................................ 7 Item 2. Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations............. 20 Item 3. Quantitative and Qualitative Disclosure of Market Risk....... 27 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K............................. 28 Signatures................................................................... 29 2 PART I. ITEM 1. FINANCIAL INFORMATION OSHKOSH TRUCK CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended Nine Months Ended June 30, June 30, -------- -------- 2000 1999 2000 1999 ---- ---- ---- ---- (In thousands, except per share amounts) Net sales $391,667 $329,821 $966,058 $851,048 Cost of sales 332,865 281,529 817,518 726,128 -------- -------- -------- -------- Gross income 58,802 48,292 148,540 124,920 Operating expenses: Selling, general and administrative 27,213 22,023 70,125 63,322 Amortization of goodwill and other intangibles 2,780 2,775 8,324 8,400 -------- -------- -------- -------- Total operating expenses 29,993 24,798 78,449 71,722 -------- -------- -------- -------- Operating income 28,809 23,494 70,091 53,198 Other income (expense): Interest expense (5,116) (6,613) (16,314) (19,839) Interest income 286 187 640 614 Miscellaneous, net 244 224 529 564 -------- -------- -------- -------- (4,586) (6,202) (15,145) (18,661) -------- -------- -------- -------- Income from continuing operations before income taxes, equity in earnings of unconsolidated partnership and extraordinary item 24,223 17,292 54,946 34,537 Provision for income taxes 9,253 7,199 21,957 14,700 -------- -------- -------- -------- 14,970 10,093 32,989 19,837 Equity in earnings of unconsolidated partnership, net of income taxes 304 452 894 1,169 -------- -------- -------- -------- Income from continuing operations before extraordinary item 15,274 10,545 33,883 21,006 Gain from discontinued operations, net of income taxes of $1,235 -- -- 2,015 -- Extraordinary charge for early retirement of debt, net of income tax benefit of $356 -- -- (581) -- -------- -------- -------- -------- Net income $ 15,274 $ 10,545 $ 35,317 $ 21,006 ======== ======== ======== ======== Earnings per share: Income from continuing operations before extraordinary item $ 0.92 $ 0.83 $ 2.13 $ 1.65 Discontinued operations -- -- 0.13 -- Extraordinary item -- -- (0.04) -- -------- -------- -------- -------- Net income $ 0.92 $ 0.83 $ 2.22 $ 1.65 ======== ======== ======== ======== Earnings per share assuming dilution: Income from continuing operations before extraordinary item $ 0.90 $ 0.81 $ 2.10 $ 1.62 Discontinued operations -- -- 0.12 -- Extraordinary item -- -- (0.04) -- -------- -------- -------- -------- Net income $ 0.90 $ 0.81 $ 2.18 $ 1.62 ======== ======== ======== ======== Cash dividends: Class A Common Stock $0.07500 $0.07250 $0.22500 $0.21750 Common Stock $0.08625 $0.08333 $0.25875 $0.25000 The accompanying notes are an integral part of these condensed consolidated financial statements. 3 OSHKOSH TRUCK CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS June 30, September 30, 2000 1999 -------- ------------- (Unaudited) (In thousands) ASSETS Current assets: Cash and cash equivalents $ 4,698 $ 5,137 Receivables, net 108,712 93,186 Inventories 214,895 198,446 Prepaid expenses 5,743 4,963 Deferred income taxes 12,498 14,558 ---------- ---------- Total current assets 346,546 316,290 Investment in unconsolidated partnership 16,099 12,335 Other long-term assets 24,593 20,853 Property, plant and equipment 181,641 154,597 Less accumulated depreciation (78,127) (70,606) ----------- ---------- Net property, plant and equipment 103,514 83,991 Goodwill and other intangible assets, net 313,138 319,821 ---------- ---------- Total assets $ 803,890 $ 753,290 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 85,625 $ 84,727 Floor plan notes payable 25,208 26,616 Customer advances 59,913 68,364 Payroll-related obligations 25,263 24,734 Accrued warranty 15,222 14,623 Other current liabilities 55,074 48,462 Revolving credit facility and current maturities of long-term debt 23,774 5,259 ---------- ---------- Total current liabilities 290,079 272,785 Long-term debt 156,648 255,289 Deferred income taxes 39,745 44,265 Other long-term liabilities 29,815 18,071 Commitments and contingencies -- -- Shareholders' equity 287,603 162,880 ---------- ---------- Total liabilities and shareholders' equity $ 803,890 $ 753,290 ========== ========== The accompanying notes are an integral part of these condensed consolidated financial statements. 4 OSHKOSH TRUCK CORPORATION CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY NINE MONTHS ENDED JUNE 30, 2000 (Unaudited) Cost of Common Common Paid-in Retained Stock in Stock Capital Earnings Treasury Total ------ ------- -------- -------- ----- (In thousands) Balance at September 30, 1999 $ 140 $ 15,997 $157,810 $(11,067) $162,880 Net income and comprehensive income ---- ---- 35,317 ---- 35,317 Proceeds from Common Stock offering, net of expenses 38 93,364 ---- ---- 93,402 Cash dividends: Class A Common Stock ---- ---- (95) ---- (95) Common Stock ---- ---- (4,194) ---- (4,194) Other ---- 140 ---- 153 293 ----- -------- -------- -------- -------- Balance at June 30, 2000 $ 178 $109,501 $188,838 $(10,914) $287,603 ===== ======== ======== ======== ======== The accompanying notes are an integral part of these condensed consolidated financial statements. 5 OSHKOSH TRUCK CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended June 30, 2000 1999 ---- ---- (In thousands) Operating activities: Income from continuing operations before extraordinary item $ 33,883 $ 21,006 Non-cash adjustments 13,998 6,165 Changes in operating assets and liabilities (34,203) (26,102) -------- -------- Net cash provided from operating activities 13,678 1,069 Investing activities: Acquisition of businesses, net of cash acquired (7,287) -- Additions to property, plant and equipment (11,783) (6,900) Proceeds from sale of property, plant and equipment 46 58 Increase in other long-term assets (5,663) (4,356) -------- -------- Net cash used for investing activities (24,687) (11,198) Net cash provided from discontinued operations 2,015 -- Financing activities: Net borrowings under revolving credit facility 12,800 14,300 Repayments of long-term debt (93,842) (248) Proceeds from Common Stock offering 93,736 -- Costs of Common Stock offering (334) -- Dividends paid (3,961) (3,163) Other 156 1,059 -------- -------- Net cash provided from financing activities 8,555 11,948 -------- -------- Increase (decrease) in cash and cash equivalents (439) 1,819 Cash and cash equivalents at beginning of period 5,137 3,622 -------- -------- Cash and cash equivalents at end of period $ 4,698 $ 5,441 ======== ======== Supplementary disclosures: Depreciation and amortization $ 17,640 $ 17,018 Cash paid for interest 14,396 16,987 Cash paid for income taxes 14,084 20,342 The accompanying notes are an integral part of these condensed consolidated financial statements. 6 OSHKOSH TRUCK CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. BASIS OF PRESENTATION The condensed consolidated financial statements included herein have been prepared by Oshkosh Truck Corporation (the "Company") without audit. However, the foregoing financial statements contain all adjustments (consisting only of normal recurring adjustments) that are, in the opinion of Company management, necessary to present fairly the condensed consolidated financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 1999 annual report to shareholders. 2. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted weighted average shares used in the denominator of the per share calculations: Three Months Ended Nine Months Ended June 30, June 30, ------------------ ----------------- 2000 1999 2000 1999 ---- ---- ---- ---- Denominator for basic earnings per share 16,632,665 12,763,241 15,881,205 12,699,587 Effect of dilutive options and incentive compensation awards 338,625 310,386 319,629 300,174 ---------- ---------- ---------- ---------- Denominator for dilutive earnings per share 16,971,290 13,073,627 16,200,834 12,999,761 ========== ========== ========== ========== 3. INVENTORIES Inventories consist of the following: June 30, September 30, 2000 1999 -------- ------------- (In thousands) Finished products $ 67,497 $ 59,649 Partially finished products 80,811 62,047 Raw materials 87,613 89,417 --------- --------- Inventories at FIFO cost 235,921 211,113 Less: Progress payments on U.S. government contracts (9,467) (2,951) Excess of FIFO cost over LIFO cost (11,559) (9,716) --------- --------- $ 214,895 $ 198,446 ========= ========= Title to all inventories related to government contracts, which provide for progress payments, vests with the government to the extent of unliquidated progress payments. 7 4. ACQUISITIONS/DISPOSITIONS In January 2000, the Company entered into a technology transfer agreement and collected certain previously written-off receivables from a foreign affiliate, as a part of the disposition of a business that the Company exited in 1995. Gross proceeds of $3.2 million, less taxes of $1.2 million, or net proceeds of $2.0 million, have been recorded as a gain from discontinued operations. In November 1999, the Company acquired the manufacturing assets of Kewaunee Engineering Corporation ("Kewaunee") for $5.6 million in cash plus the assumption of certain liabilities aggregating approximately $2.2 million. Kewaunee is a fabricator of heavy-steel components for cranes, aerial devices and other equipment. In April 2000, the Company acquired all of the common stock of Viking Truck & Equipment, Inc. and its affiliates (collectively "Viking") for $2.3 million in cash, less cash acquired of $0.6 million, or $1.7 million net. Viking is a dealer of new and used equipment primarily in the Company's commercial products segment. The acquisitions were financed from borrowings under the Company's senior credit facility. The acquisitions were accounted for using the purchase method of accounting and, accordingly, the operating results of Kewaunee and Viking were included in the Company's consolidated statements of income since the respective dates of their acquisitions. In each case, the fair value of the net assets acquired was based on preliminary estimates and may be revised at a later date. For the Kewaunee acquisition, the purchase price, including acquisition costs, approximated the estimated fair value of the assets acquired and liabilities assumed as of the acquisition date. For the Viking acquisition, the Company recorded $1.6 million of cost in excess of net assets acquired. Had the acquisitions occurred on October 1, 1999 or 1998, there would have been no material pro forma impact on the Company's consolidated net sales, net income or earnings per share in fiscal 2000 or 1999. 5. LONG-TERM DEBT The Company has outstanding a senior credit facility and $100.0 million of 8.75% senior subordinated notes due March 1, 2008. The senior credit facility consists of a six year $100.0 million revolving credit facility ("Revolving Credit Facility") and three term loan facilities ("Term Loan A", "Term Loan B", and "Term Loan C"). The outstanding balances as of June 30, 2000 on the Revolving Credit Facility, Term Loan A, Term Loan B, and Term Loan C are $17.8 million, $32.5 million, $13.5 million, and $13.5 million, respectively. At June 30, 2000, outstanding borrowings of $17.8 million and outstanding letters of credit of $12.5 million reduced available capacity under the Revolving Credit Facility to $69.7 million. Substantially all the tangible and intangible assets of the Company and its subsidiaries (including the stock of certain subsidiaries) are pledged as collateral under the senior credit facility. The senior credit facility includes customary affirmative and negative covenants and requires 8 mandatory prepayments to the extent of "excess cash flows" as defined in the senior credit facility. The senior subordinated notes were issued pursuant to an Indenture dated February 26, 1998 (the "Indenture"), between the Company, the Subsidiary Guarantors (as defined below) and Firstar Trust Company, as trustee. The Indenture contains customary affirmative and negative covenants. The Subsidiary Guarantors fully, unconditionally, jointly and severally guarantee the Company's obligations under the senior subordinated notes. 6. COMMON STOCK OFFERING On November 24, 1999, the Company sold 3,795,000 shares of its Common Stock at $26.00 per share. Proceeds from the offering, net of underwriting discounts and commissions, totaled $93.7 million with $93.5 million used to repay indebtedness under the Company's senior credit facility. Pro forma unaudited earnings per share of the Company, assuming that the net proceeds to the Company from the offering were used to repay term debt as of October 1, 1999 and 1998, are summarized below: Nine Months Ended June 30, ----------------- 2000 1999 ---- ---- Earnings per share from continuing operations before extraordinary item Basic $ 2.08 $ 1.47 Assuming dilution 2.04 1.45 Weighted average shares Basic 16,629,125 16,494,587 Assuming dilution 16,948,754 16,794,761 7. COMMITMENTS AND CONTINGENCIES McNeilus Companies, Inc. ("McNeilus") was a defendant in litigation commenced in 1993 prior to the acquisition of McNeilus by the Company, which was brought by The Heil Co. ("Heil"), a McNeilus competitor. This litigation sought damages and made claims that McNeilus infringed certain aspects of one of its patents. A settlement of the matter was reached in January 2000. As part of its routine business operations, the Company disposes of and recycles or reclaims certain industrial waste materials, chemicals and solvents at third party disposal and recycling facilities, which are licensed by appropriate governmental agencies. In some instances, these facilities have been and may be designated by the United States Environmental Protection Agency ("EPA") or a state environmental agency for remediation. Under the Comprehensive Environmental Response, Compensation, and Liability Act (the "Superfund" law) and similar state laws, each potentially responsible party ("PRP") that contributed hazardous substances may be jointly and severally liable for the costs associated with cleaning up the site. Typically, PRPs negotiate a resolution with the EPA and/or the state environmental agencies. PRPs also negotiate with each other regarding allocation of the cleanup cost. 9 As to one such Superfund site, Pierce Manufacturing Inc. ("Pierce") is one of 431 PRPs participating in the costs of addressing the site and has been assigned an allocation share of approximately 0.04%. Currently, a report of the remedial investigation/ feasibility study is being completed, and as such, an estimate for the total cost of the remediation of this site has not been made to date. However, based on estimates and the assigned allocations, the Company believes its liability at the site will not be material and its share is adequately covered through reserves established by the Company at June 30, 2000. Actual liability could vary based on results of the study, the resources of other PRPs, and the Company's final share of liability. The Company is addressing a regional trichloroethylene ("TCE") groundwater plume on the south side of Oshkosh, Wisconsin. The Company believes there may be multiple sources in the area. TCE was detected at the Company's North Plant facility with testing showing the highest concentrations in a monitoring well located on the upgradient property line. Because the investigation process is still ongoing, it is not possible for the Company to estimate its long-term total liability associated with this issue at this time. Also, as part of the regional TCE groundwater investigation, the Company conducted a groundwater investigation of a former landfill located on Company property. The landfill, acquired by the Company in 1972, is approximately 2.0 acres in size and is believed to have been used for the disposal of household waste. Based on the investigation, the Company does not believe the landfill is one of the sources of the TCE contamination. Based upon current knowledge, the Company believes its liability associated with the TCE issue will not be material and that it has established adequate reserves for the matter as of June 30, 2000. However, this may change as investigations proceed by the Company, other unrelated property owners, and the government. The Company is subject to other environmental matters and legal proceedings and claims, including patent, antitrust, product liability and state dealership regulation compliance proceedings, that arise in the ordinary course of business. Although the final results of all such matters and claims cannot be predicted with certainty, management believes that the ultimate resolution of all such matters and claims, after taking into account the liabilities accrued with respect to such matters and claims, will not have a material adverse effect on the Company's financial condition or results of operations. Actual results could vary, among other things, due to the uncertainties involved in litigation. The Company has guaranteed certain customers' obligations under deferred payment contracts and lease purchase agreements totaling approximately $1.0 million at June 30, 2000. The Company is also contingently liable under bid, performance and specialty bonds totaling approximately $113.4 million and open standby letters of credit issued by the Company's bank in favor of third parties totaling approximately $12.5 million at June 30, 2000. 10 8. BUSINESS SEGMENT INFORMATION Three Months Ended Nine Months Ended June 30, June 30, ------------------ ----------------- 2000 1999 2000 1999 ---- ---- ---- ---- (In thousands) Net sales to unaffiliated customers: Commercial $219,217 $196,294 $516,484 $461,961 Fire and emergency 103,482 83,465 281,863 243,095 Defense 69,368 50,562 168,111 146,992 Corporate and other (400) (500) (400) (1,000) -------- -------- -------- -------- Consolidated net sales $391,667 $329,821 $966,058 $851,048 ======== ======== ======== ======== Operating income (expense): Commercial $ 18,351 $ 16,609 $ 45,214 $ 35,027 Fire and emergency 9,523 8,147 22,916 19,844 Defense 7,305 4,188 16,963 14,957 Corporate and other (6,370) (5,450) (15,002) (16,630) -------- -------- -------- -------- Consolidated operating income 28,809 23,494 70,091 53,198 Net interest expense (4,830) (6,426) (15,674) (19,225) Miscellaneous other 244 224 529 564 -------- -------- -------- ------- Income from continuing operations before income taxes, equity in earnings of unconsolidated partnership and extraordinary item $ 24,223 $ 17,292 $ 54,946 $ 34,537 ======== ======== ======== ======== June 30, September 30, 2000 1999 -------- ------------- (In thousands) Identifiable assets: Commercial $ 402,853 $ 381,199 Fire and emergency 285,483 276,692 Defense 108,021 85,796 Corporate and other 7,533 9,603 --------- --------- Consolidated identifiable assets $ 803,890 $ 753,290 ========= ========= 9. CONDENSED CONSOLIDATING FINANCIAL INFORMATION The following tables present condensed consolidating financial information for: (a) the Company; (b) on a combined basis, the guarantors of the senior subordinated notes, which include all wholly-owned subsidiaries of the Company ("Subsidiary Guarantors") other than McNeilus Financial Services, Inc. and Oshkosh/McNeilus Financial Services, Inc., which are the only non-guarantor subsidiaries of the Company ("Non-Guarantor Subsidiaries"), and (c) on a combined basis, the Non-Guarantor Subsidiaries. Separate financial statements of the Subsidiary Guarantors are not presented because the Subsidiary Guarantors are jointly, severally and unconditionally liable under the guarantees, and the Company believes separate financial statements and other disclosures regarding the Subsidiary Guarantors are not material to investors. The Company is comprised of Wisconsin and Florida manufacturing operations and certain corporate management, information services and finance functions. Borrowings and related interest expense under the senior credit facility and the senior subordinated notes are charged to the Company. The Company has allocated a portion of this interest expense to certain Subsidiary Guarantors through formal lending arrangements. There are no management fee arrangements between the Company and its Non-Guarantor Subsidiaries. 11 OSHKOSH TRUCK CORPORATION Condensed Consolidating Statements of Income For the Three Months Ended June 30, 2000 (Unaudited) Subsidiary Non-Guarantor Company Guarantors Subsidiaries Eliminations Consolidated ------- ---------- ------------- ------------ ------------ (In thousands) Net sales $ 148,363 $ 256,957 $ -- $ (13,653) $ 391,667 Cost of sales 128,039 218,413 -- (13,587) 332,865 --------- --------- ------- --------- --------- Gross income 20,324 38,544 -- (66) 58,802 Operating expenses: Selling, general and administrative 11,463 15,658 92 -- 27,213 Amortization of goodwill and other intangibles -- 2,780 -- -- 2,780 --------- --------- ------- --------- --------- Total operating expenses 11,463 18,438 92 -- 29,993 --------- --------- ------- --------- --------- Operating income (loss) 8,861 20,106 (92) (66) 28,809 Other income (expense): Interest expense (4,654) (2,022) (15) 1,575 (5,116) Interest income 104 1,748 9 (1,575) 286 Miscellaneous, net 6 36 202 -- 244 --------- --------- ------- --------- --------- (4,544) (238) 196 -- (4,586) --------- --------- ------- --------- --------- Income (loss) before income taxes and equity in earnings of subsidiaries and unconsolidated partnership 4,317 19,868 104 (66) 24,223 Provision (credit) for income taxes 1,174 8,065 39 (25) 9,253 --------- --------- ------- ---------- --------- 3,143 11,803 65 (41) 14,970 Equity in earnings of subsidiaries and unconsolidated partnership, net of income taxes 12,131 -- 304 (12,131) 304 --------- --------- ------- --------- --------- Net income $ 15,274 $ 11,803 $ 369 $ (12,172) $ 15,274 ========= ========= ======= ========= ========= 12 OSHKOSH TRUCK CORPORATION Condensed Consolidating Statements of Income For the Three Months Ended June 30, 1999 (Unaudited) Subsidiary Non-Guarantor Company Guarantors Subsidiaries Eliminations Consolidated ------- ---------- ------------- ------------ ------------ (In thousands) Net sales $ 117,247 $ 213,720 $ -- $ (1,146) $ 329,821 Cost of sales 103,831 178,844 -- (1,146) 281,529 --------- --------- ------- --------- --------- Gross income 13,416 34,876 -- -- 48,292 Operating expenses: Selling, general and administrative 10,399 11,519 105 -- 22,023 Amortization of goodwill and other intangibles -- 2,775 -- -- 2,775 --------- --------- ------- --------- --------- Total operating expenses 10,399 14,294 105 -- 24,798 --------- --------- ------- --------- --------- Operating income (loss) 3,017 20,582 (105) -- 23,494 Other income (expense): Interest expense (6,151) (2,037) -- 1,575 (6,613) Interest income 48 1,701 13 (1,575) 187 Miscellaneous, net 19 57 148 -- 224 --------- --------- ------- --------- --------- (6,084) (279) 161 -- (6,202) --------- --------- ------- --------- --------- Income (loss) before income taxes and equity in earnings of subsidiaries and unconsolidated partnership (3,067) 20,303 56 -- 17,292 Provision (credit) for income taxes (1,053) 8,231 21 -- 7,199 --------- --------- ------- --------- --------- (2,014) 12,072 35 -- 10,093 Equity in earnings of subsidiaries and unconsolidated partnership, net of income taxes 12,559 -- 452 (12,559) 452 --------- --------- ------- --------- --------- Net income $ 10,545 $ 12,072 $ 487 $ (12,559) $ 10,545 ========= ========= ======= ========= ========= 13 OSHKOSH TRUCK CORPORATION Condensed Consolidating Statements of Income For the Nine Months Ended June 30, 2000 (Unaudited) Subsidiary Non-Guarantor Company Guarantors Subsidiaries Eliminations Consolidated ------- ---------- ------------- ------------ ------------ (In thousands) Net sales $ 339,000 $ 650,362 $ -- $ (23,304) $ 966,058 Cost of sales 293,973 546,783 -- (23,238) 817,518 --------- --------- ------- --------- --------- Gross income 45,027 103,579 -- (66) 148,540 Operating expenses: Selling, general and administrative 30,194 39,653 278 -- 70,125 Amortization of goodwill and other intangibles -- 8,324 -- -- 8,324 --------- --------- ------- --------- --------- Total operating expenses 30,194 47,977 278 -- 78,449 --------- --------- ------- --------- --------- Operating income (loss) 14,833 55,602 (278) (66) 70,091 Other income (expense): Interest expense (14,777) (6,247) (15) 4,725 (16,314) Interest income 192 5,122 51 (4,725) 640 Miscellaneous, net (46) 124 451 -- 529 --------- --------- ------- --------- --------- (14,631) (1,001) 487 -- (15,145) --------- --------- ------- --------- --------- Income (loss) from continuing operations before income taxes, equity in earnings of subsidiaries and unconsolidated partnership and extraordinary item 202 54,601 209 (66) 54,946 Provision (credit) for income taxes (390) 22,293 79 (25) 21,957 --------- --------- ------- --------- --------- 592 32,308 130 (41) 32,989 Equity in earnings of subsidiaries and unconsolidated partnership, net of income taxes 33,291 -- 894 (33,291) 894 --------- --------- ------- --------- --------- Income from continuing operations before extraordinary item 33,883 32,308 1,024 (33,332) 33,883 Discontinued operations, net 2,015 -- -- -- 2,015 Extraordinary item, net (581) -- -- -- (581) --------- --------- ------- --------- --------- Net income $ 35,317 $ 32,308 $ 1,024 $ (33,332) $ 35,317 ========= ========= ======= ========= ========= 14 OSHKOSH TRUCK CORPORATION Condensed Consolidating Statements of Income For the Nine Months Ended June 30, 1999 (Unaudited) Subsidiary Non-Guarantor Company Guarantors Subsidiaries Eliminations Consolidated ------- ---------- ------------- ------------ ------------ (In thousands) Net sales $ 295,341 $ 559,294 $ -- $ (3,587) $ 851,048 Cost of sales 259,360 470,355 -- (3,587) 726,128 --------- --------- ------- ---------- --------- Gross income 35,981 88,939 -- -- 124,920 Operating expenses: Selling, general and administrative 30,155 32,919 248 -- 63,322 Amortization of goodwill and other intangibles -- 8,400 -- -- 8,400 --------- --------- ------- --------- --------- Total operating expenses 30,155 41,319 248 -- 71,722 --------- --------- ------- --------- --------- Operating income (loss) 5,826 47,620 (248) -- 53,198 Other income (expense): Interest expense (18,493) (6,071) -- 4,725 (19,839) Interest income 245 5,047 47 (4,725) 614 Miscellaneous, net 130 130 304 -- 564 --------- --------- ------- --------- --------- (18,118) (894) 351 -- (18,661) --------- --------- ------- --------- --------- Income (loss) before income taxes and equity in earnings of subsidiaries and unconsolidated partnership (12,292) 46,726 103 -- 34,537 Provision (credit) for income taxes (4,671) 19,332 39 -- 14,700 --------- --------- ------- --------- --------- (7,621) 27,394 64 -- 19,837 Equity in earnings of subsidiaries and unconsolidated partnership, net of income taxes 28,627 -- 1,169 (28,627) 1,169 --------- --------- ------- --------- --------- Net income $ 21,006 $ 27,394 $ 1,233 $ (28,627) $ 21,006 ========= ========= ======= ========= ========= 15 OSHKOSH TRUCK CORPORATION Condensed Consolidating Balance Sheets June 30, 2000 (Unaudited) Subsidiary Non-Guarantor Company Guarantors Subsidiaries Eliminations Consolidated ------- ---------- ------------- ------------ ------------ (In thousands) ASSETS Current assets: Cash and cash equivalents $ 3,336 $ 1,231 $ 131 $ -- $ 4,698 Receivables, net 69,993 44,698 443 (6,422) 108,712 Inventories 59,464 155,497 -- (66) 214,895 Prepaid expenses 4,470 1,273 -- -- 5,743 Deferred income taxes 5,844 3,919 2,735 -- 12,498 --------- --------- ------- --------- --------- Total current assets 143,107 206,618 3,309 (6,488) 346,546 Investment in and advances to: Subsidiaries 390,902 1,245 -- (392,147) -- Unconsolidated partnership -- -- 16,099 -- 16,099 Other long-term assets 14,522 9,548 523 -- 24,593 Net property, plant and equipment 23,285 80,229 -- -- 103,514 Goodwill and other intangible assets, net -- 313,138 -- -- 313,138 --------- --------- ------- --------- --------- Total assets $ 571,816 $ 610,778 $19,931 $(398,635) $ 803,890 ========= ========= ======= =========- ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 39,821 $ 45,767 $ 37 $ -- $ 85,625 Floor plan notes payable -- 31,630 -- (6,422) 25,208 Customer advances 3,316 56,503 94 -- 59,913 Payroll-related obligations 10,001 15,231 31 -- 25,263 Accrued warranty 8,046 7,176 -- -- 15,222 Other current liabilities 34,585 13,651 6,838 -- 55,074 Revolving credit facility and current maturities of long-term debt 23,194 235 345 -- 23,774 --------- --------- ------- --------- --------- Total current liabilities 118,963 170,193 7,345 (6,422) 290,079 Long-term debt 154,106 2,063 479 -- 156,648 Deferred income taxes (7,520) 36,403 10,862 -- 39,745 Other long-term liabilities 18,664 11,151 -- -- 29,815 Commitments and contingencies -- -- -- -- -- Investments by and advances from (to) parent -- 390,968 1,245 (392,213) -- Shareholders' equity 287,603 -- -- -- 287,603 --------- --------- ------- --------- --------- Total liabilities and shareholders' equity $ 571,816 $ 610,778 $19,931 $(398,635) $ 803,890 ========= ========= ======= ========= ========= 16 OSHKOSH TRUCK CORPORATION Condensed Consolidating Balance Sheets September 30, 1999 (Unaudited) Subsidiary Non-Guarantor Company Guarantors Subsidiaries Eliminations Consolidated ------- ---------- ------------- ------------ ------------ (In thousands) ASSETS Current assets: Cash and cash equivalents $ 3,698 $ 1,337 $ 102 $ ---- $ 5,137 Receivables, net 49,311 43,837 38 ---- 93,186 Inventories 49,988 148,458 ---- ---- 198,446 Prepaid expenses 3,791 1,172 ---- ---- 4,963 Deferred income taxes 3,818 6,523 4,217 ---- 14,558 --------- --------- ------- --------- --------- Total current assets 110,606 201,327 4,357 ---- 316,290 Investment in and advances to: Subsidiaries 357,575 (7,590) ---- (349,985) ---- Unconsolidated partnership ---- ---- 12,335 ---- 12,335 Other long-term assets 11,902 8,899 52 ---- 20,853 Net property, plant and equipment 22,803 61,188 ---- ---- 83,991 Goodwill and other intangible assets, net ---- 319,821 ---- ---- 319,821 --------- --------- ------- --------- --------- Total assets $ 502,886 $ 583,645 $16,744 $(349,985) $ 753,290 ========= ========= ======= ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 34,261 $ 50,234 $ 232 $ ---- $ 84,727 Floor plan notes payable ---- 26,616 ---- ---- 26,616 Customer advances 1,669 66,695 ---- ---- 68,364 Payroll-related obligations 9,172 15,532 30 ---- 24,734 Accrued warranty 6,785 7,838 ---- ---- 14,623 Other current liabilities 17,940 19,894 10,628 ---- 48,462 Revolving credit facility and current maturities of long-term debt 5,000 259 ---- ---- 5,259 --------- --------- ------- --------- --------- Total current liabilities 74,827 187,068 10,890 ---- 272,785 Long-term debt 253,000 2,289 ---- ---- 255,289 Deferred income taxes (5,407) 36,228 13,444 ---- 44,265 Other long-term liabilities 17,586 485 ---- ---- 18,071 Commitments and contingencies ---- ---- ---- ---- ---- Investments by and advances from (to) parent ---- 357,575 (7,590) (349,985) ---- Shareholders' equity 162,880 ---- ---- ---- 162,880 --------- --------- ------- --------- --------- Total liabilities and shareholders' equity $ 502,886 $ 583,645 $16,744 $(349,985) $ 753,290 ========= ========= ======= ========= ========= 17 OSHKOSH TRUCK CORPORATION Condensed Consolidating Statements of Cash Flows For the Nine Months Ended June 30, 2000 (Unaudited) Subsidiary Non-Guarantor Company Guarantors Subsidiaries Eliminations Consolidated ------- ---------- ------------- ------------ ------------ (In thousands) Operating activities: Income from continuing operations before extraordinary item $ 33,883 $ 32,308 $ 1,024 $ (33,332) $ 33,883 Non-cash adjustments (96) 16,637 (2,543) -- 13,998 Changes in operating assets and liabilities (6,253) (24,106) (3,910) 66 (34,203) --------- --------- ------- --------- --------- Net cash provided from (used for) operating activities 27,534 24,839 (5,429) (33,266) 13,678 Investing activities: Acquisition of businesses, net of cash acquired (5,625) (1,662) -- -- (7,287) Investments in and advances to subsidiaries (27,702) (13,447) 7,883 33,266 -- Additions to property, plant and equipment (3,522) (8,261) -- -- (11,783) Other (1,959) (1,325) (2,333) -- (5,617) --------- --------- ------- --------- --------- Net cash provided from (used for) investing activities (38,808) (24,695) 5,550 33,266 (24,687) Net cash provided from discontinued operations 2,015 -- -- -- 2,015 Financing activities: Net borrowings under revolving credit facility 12,800 -- -- -- 12,800 Repayments of long-term debt (93,500) (250) (92) -- (93,842) Proceeds from Common Stock offering 93,736 -- -- -- 93,736 Costs of Common Stock offering (334) -- -- -- (334) Dividends paid (3,961) -- -- -- (3,961) Other 156 -- -- -- 156 --------- --------- ------- --------- --------- Net cash provided from (used for) financing activities 8,897 (250) (92) -- 8,555 --------- --------- ------- --------- --------- Increase (decrease) in cash and cash equivalents (362) (106) 29 (439) Cash and cash equivalents at beginning of period 3,698 1,337 102 -- 5,137 --------- --------- ------- --------- --------- Cash and cash equivalents at end of period $ 3,336 $ 1,231 $ 131 $ -- $ 4,698 ========= ========= ======= ========= ========= 18 OSHKOSH TRUCK CORPORATION Condensed Consolidating Statements of Cash Flows For the Nine Months Ended June 30, 1999 (Unaudited) Subsidiary Non-Guarantor Company Guarantors Subsidiaries Eliminations Consolidated ------- ---------- ------------- ------------ ------------ (In thousands) perating activities: Net income $ 21,006 $ 27,394 $ 1,233 $ (28,627) $ 21,006 Non-cash adjustments (806) 11,614 (4,643) -- 6,165 Changes in operating assets and liabilities (7,508) (17,003) (1,591) -- (26,102) --------- --------- -------- --------- --------- Net cash provided from (used for) operating activities 12,692 22,005 (5,001) (28,627) 1,069 Investing activities: Investments in and advances to subsidiaries (18,952) (14,842) 5,167 28,627 -- Additions to property, plant and equipment (2,589) (4,311) -- -- (6,900) Other (302) (2,679) (1,317) -- (4,298) --------- --------- -------- --------- --------- Net cash provided from (used for) investing activities (21,843) (21,832) 3,850 28,627 (11,198) Financing activities: Net borrowings under revolving credit facility 14,300 -- -- -- 14,300 Repayments of long term debt -- (248) -- -- (248) Dividends paid (3,163) -- -- -- (3,163) Other 1,059 -- -- -- 1,059 --------- --------- ------- --------- --------- Net cash provided from (used for) financing activities 12,196 (248) -- -- 11,948 --------- --------- ------- --------- --------- Increase (decrease) in cash and cash equivalents 3,045 (75) (1,151) -- 1,819 Cash and cash equivalents at beginning of period 1,065 979 1,578 -- 3,622 --------- --------- ------- --------- --------- Cash and cash equivalents at end of period $ 4,110 $ 904 $ 427 $ -- $ 5,441 ========= ========= ======= ========= ========= 19 Item 2. Oshkosh Truck Corporation Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations FORWARD-LOOKING STATEMENTS This Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations and other sections of this Form 10-Q contain "forward-looking statements" that are believed to be within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact included in this report, including, without limitation, statements regarding Oshkosh Truck Corporation's (the "Company" or "Oshkosh") future financial position, business strategy, targets, projected sales, costs, earnings, capital spending and debt levels, and plans and objectives of management for future operations are forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as "may", "will", "expect", "intend", "estimates", "anticipate", "believe", "should", "plans", or "continue", or the negative thereof or variations thereon or similar terminology. Although the Company believes the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from the Company's expectations include, without limitation, the following: (1) the cyclical nature of the concrete placement industry; (2) the risks related to reductions or changes in government expenditures; (3) the potential for actual costs to exceed projected costs under long-term, fixed-price government contracts; (4) the uncertainty inherent in government contracts; (5) the challenges of identifying, completing and integrating future acquisitions; (6) competition; (7) disruptions in the supply of parts or components from sole source suppliers and subcontractors; (8) product liability and warranty claims; and (9) labor relations and market conditions. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained from time to time in the Company's SEC filings, including, but not limited to, the Company's Current Report on Form 8-K filed with the SEC on July 25, 2000. All subsequent written and oral forward-looking statements attributable to the Company, or persons acting on its behalf, are expressly qualified in their entirety by these cautionary statements. General The major products manufactured and marketed by each of the Company's business segments are as follows: Commercial-- concrete mixer systems, refuse truck bodies, portable concrete batch plants and truck components sold to commercial ready-mix companies and commercial and municipal waste haulers in the U. S. and abroad. Fire and emergency -- commercial and custom fire trucks, aircraft rescue and firefighting trucks, snow removal trucks and other emergency vehicles primarily sold to fire departments, airports and other governmental units in the U. S. and abroad. 20 Defense-- heavy-and medium-payload tactical trucks and supply parts sold to the U. S. military and to other militaries around the world. Results of Operations Analysis of Consolidated Net Sales The following table presents net sales by business segment: Third Quarter Fiscal First Nine Months Fiscal -------------------- ------------------------ 2000 1999 2000 1999 ---- ---- ---- ---- (In thousands) Net sales to unaffiliated customers: Commercial $219,217 $196,294 $516,484 $461,961 Fire and emergency 103,482 83,465 281,863 243,095 Defense 69,368 50,562 168,111 146,992 Corporate and other (400) (500) (400) (1,000) -------- -------- -------- -------- Consolidated net sales $391,667 $329,821 $966,058 $851,048 ======== ======== ======== ======== Third Quarter Fiscal 2000 Compared to 1999 Consolidated net sales increased $61.8 million, or 18.8%, to $391.7 million for the third quarter of fiscal 2000 compared to the third quarter of fiscal 1999. Commercial segment net sales increased $22.9 million, or 11.7%, to $219.2 million for the third quarter of fiscal 2000 compared to the third quarter of fiscal 1999. The Company believes that continued strong end-markets in the concrete placement industry, and some early buying relative to the prior year as customers sought to avoid chassis and mixer shortages during the peak of the concrete placement season, contributed to a 12.9% increase in concrete mixer unit volume in the quarter. Refuse packer unit sales grew 5.7% in the third quarter as growing municipal sales offset softness in shipments to the U.S.'s largest waste haulers. Fire and emergency segment net sales increased $20.0 million, or 24.0%, to $103.5 million for the third quarter of fiscal 2000 compared to the third quarter of fiscal 1999, due to a 14.9% increase in sales at Pierce Manufacturing Inc. ("Pierce"), the Company's fire apparatus manufacturer, and a $6.1 million increase in sales of aircraft rescue and firefighting vehicles due primarily to a large international sale. Defense segment net sales increased $18.8 million, or 37.2%, to $69.4 million for the third quarter of fiscal 2000 compared to the third quarter of fiscal 1999. This increase was the result of vehicle sales under the Medium Tactical Vehicle Replacement ("MTVR") contract awarded to Oshkosh in December 1998, which began in the second quarter of fiscal 2000. The Company expects sales under this contract to increase throughout fiscal 2000. 21 First Nine Months of Fiscal 2000 Compared to 1999 Consolidated net sales increased $115.0 million, or 13.5%, to $966.1 million for the first nine months of fiscal 2000 compared to the first nine months of fiscal 1999. Commercial segment net sales increased $54.5 million, or 11.8%, to $516.5 million for the first nine months of fiscal 2000 compared to the first nine months of fiscal 1999. The Company believes that continued strong end-markets in the concrete placement industry, and some early buying relative to the prior year as customers sought to avoid chassis and mixer shortages during the peak of the concrete placement season, contributed to a 14.4% increase in concrete mixer unit volume in the first nine months. Refuse packer unit sales increased 11.3% for the first nine months of fiscal 2000 compared to the first nine months of fiscal 1999, generally as a result of increases in sales to municipal and international customers. Fire and emergency segment net sales increased $38.8 million, or 15.9%, to $281.9 million for the first nine months of fiscal 2000 compared to the first nine months of fiscal 1999 due to increased unit shipments at Pierce and increased aircraft rescue and firefighting international sales. Pierce comprises a substantial majority of the revenue of this segment. Pierce's sales increased 13.5% during the period, which is in line with Pierce's long-term sales growth rate of 11% per annum since 1980. Defense segment net sales increased $21.1 million, or 14.4%, to $168.1 million for the first nine months of fiscal 2000 compared to the first nine months of fiscal 1999. This increase was primarily the result of vehicle sales under the MTVR contract, which began in the second quarter of fiscal 2000. Analysis of Consolidated Operating Income The following table presents operating income by business segment: Third Quarter Fiscal First Nine Months Fiscal -------------------- ------------------------ 2000 1999 2000 1999 ---- ---- ---- ---- (In thousands) Operating income (expense): Commercial $18,351 $16,609 $ 45,214 $ 35,027 Fire and emergency 9,523 8,147 22,916 19,844 Defense 7,305 4,188 16,963 14,957 Corporate and other (6,370) (5,450) (15,002) (16,630) ------- ------- -------- -------- Consolidated operating income $28,809 $23,494 $ 70,091 $ 53,198 ======= ======= ======== ======== Third Quarter Fiscal 2000 Compared to 1999 Consolidated operating income increased $5.3 million, or 22.6%, for the third quarter of fiscal 2000 compared to the third quarter of fiscal 1999. Commercial segment operating income increased $1.7 million, or 10.5%, for the third quarter of fiscal 2000 compared to the third quarter of fiscal 1999. Operating income as a percent of segment sales ("operating income 22 margin") decreased slightly to 8.4% of commercial segment sales for the third quarter of fiscal 2000 compared to 8.5% of commercial segment sales for the third quarter of fiscal 1999. Fire and emergency segment operating income increased $1.4 million, or 16.9%, for the third quarter of fiscal 2000 compared to the third quarter of fiscal 1999. The operating income margin decreased from 9.8% to 9.2% during this same time period. Decreased operating income margins were primarily attributable to the sales mix at Pierce and the increased sales volume of the lower-margin aircraft rescue and firefighting vehicles. Defense segment operating income increased $3.1 million, or 74.4%, for the third quarter of fiscal 2000 compared to the third quarter of fiscal 1999. The defense operating income margin increased to 10.5% of defense segment sales for the third quarter of fiscal 2000 compared to 8.3% of defense segment sales for the third quarter of fiscal 1999. Third quarter 2000 operating income was positively impacted by a favorable truck sales mix and lower bid and proposal spending compared to the third quarter of fiscal 1999. Corporate and other expenses increased $0.9 million to $6.4 million, or 1.6% of consolidated net sales, for the third quarter of fiscal 2000 from $5.5 million, or 1.7% of consolidated net sales, for the third quarter of fiscal 1999, generally as a result of a provision for certain large health-related claims arising in the quarter and the provision of certain management incentives. First Nine Months of Fiscal 2000 Compared to 1999 Consolidated operating income increased $16.9 million, or 31.8%, for the first nine months of fiscal 2000 compared to the first nine months of fiscal 1999. Commercial segment operating income increased $10.2 million, or 29.1%, for the first nine months of fiscal 2000 compared to the first nine months of fiscal 1999. The commercial operating income margin increased to 8.8% of commercial segment sales for the first nine months of fiscal 2000 compared to 7.6% of commercial segment sales for the first nine months of fiscal 1999. Increased concrete mixer unit volume and continued cost reduction activities contributed to the improvement in the operating income margin. Fire and emergency segment operating income increased $3.1 million, or 15.5%, for the first nine months of fiscal 2000 compared to the first nine months of fiscal 1999. The fire and emergency operating income margin decreased from 8.2% to 8.1% during this same time period. Decreased operating income margins were attributable to faster revenue growth of the Company's aircraft rescue and firefighting products which carry significantly lower margins. Defense segment operating income increased $2.0 million, or 13.4%, for the first nine months of fiscal 2000 compared to the first nine months of fiscal 1999. The defense operating income margin decreased to 10.1% of defense segment sales for the first nine months of fiscal 2000 compared to 10.2% of defense segment sales for the first nine months of fiscal 1999. Increases in MTVR sales with lower margins contributed to the decreased 23 operating income margins for the first nine months of fiscal 2000 compared to the first nine months of fiscal 1999. Corporate and other expenses decreased $1.6 million to $15.0 million, or 1.6% of consolidated net sales, for the first nine months of fiscal 2000 from $16.6 million, or 2.0% of consolidated net sales, for the first nine months of fiscal 1999. Results for the first nine months of fiscal 1999 included a $3.8 million pre-tax charge for litigation. Excluding that charge, corporate expenses increased $2.2 million generally due to previously-mentioned health claims and increased staffing to support the higher level of sales. Analysis of Non-Operating Income Statement Items Third Quarter of Fiscal 2000 Compared to 1999 Net interest expense decreased $1.6 million, or 24.8%, in the third quarter of fiscal 2000 compared to the third quarter of fiscal 1999. Prepayment of $93.5 million of term debt from proceeds of the Company's November 24, 1999 public offering of Common Stock resulted in a $2.0 million reduction in interest expense for the quarter. Increased borrowings to fund the acquisitions of Kewaunee Engineering Corporation ("Kewaunee") and Viking Truck & Equipment, Inc. and its affiliates ("Viking")and to support the seasonal working capital requirements of the commercial segment contributed to the increase in interest expense after consideration of the debt prepayment. The effective tax rate for combined federal and state income taxes for the third quarter of fiscal 2000 was 38.2% compared to 41.6% in the third quarter of fiscal 1999. Excluding the impact of $1.4 million of nondeductible goodwill in the third quarter of fiscal 2000 and fiscal 1999, the Company's effective income tax rate was 36.2% in the third quarter of fiscal 2000 compared to 38.6% in the prior year. The lower rate in fiscal 2000 relates to favorable state tax audit refunds. Equity in earnings of an unconsolidated partnership of $0.3 million in the third quarter of fiscal 2000 and $0.5 million in the third quarter of fiscal 1999 represents the Company's equity interest in its lease financing partnership. First Nine Months of Fiscal 2000 Compared to 1999 Net interest expense decreased $3.6 million, or 18.5%, in the first nine months of fiscal 2000 compared to the first nine months of fiscal 1999. Prepayment of $93.5 million of term debt from proceeds of the Company's November 24, 1999 public offering of Common Stock resulted in a $4.8 million reduction in interest expense for the period. Increased working capital borrowings to fund the Kewaunee and Viking acquisitions and to support overall sales growth partially offset reduced interest expense resulting from debt prepayment. The effective tax rate for combined federal and state income taxes for the first nine months of fiscal 2000 was 40.0% compared to 42.6% for the first nine months of fiscal 1999. Excluding the impact of $4.1 million of 24 nondeductible goodwill in both the first nine months of fiscal 2000 and fiscal 1999, the Company's effective income tax rate was 37.2% in fiscal 2000 compared to 38.0% in fiscal 1999. The lower fiscal 2000 rates are due to previously mentioned state tax audit refunds. Equity in earnings of an unconsolidated partnership of $0.9 million in the first nine months of fiscal 2000 and $1.2 million in the first nine months of fiscal 1999 represents the Company's equity in earnings of its lease financing partnership. In January 2000, the Company entered into a technology transfer agreement and collected certain previously written-off receivables from a foreign affiliate, which was part of a business that the Company exited in 1995. Gross proceeds of $3.2 million, less taxes of $1.2 million, or net proceeds of $2.0 million, have been recorded as a gain from discontinued operations in fiscal 2000. Financial Condition First Nine Months of Fiscal 2000 During the first nine months of fiscal 2000, cash decreased by $0.4 million to $4.7 million at June 30, 2000. Capital expenditures of $11.8 million, an increase in long-term assets of $5.7 million, dividend payments of $4.0 million and the acquisitions of Kewaunee for $5.6 million and Viking for $1.7 million were funded by net borrowings of $12.8 million and cash provided from operations of $13.7 million. In November 1999, the Company completed a public offering of 3,795,000 shares of Common Stock at $26.00 per share, before commissions and expenses. Proceeds to the Company, net of underwriting discounts and commissions, were used to prepay $93.5 million of term debt under the Company's senior credit facility. First Nine Months of Fiscal 1999 During the first nine months of fiscal 1999, cash increased by $1.8 million. Equipment and software purchases of $6.9 million and dividend and scheduled debt payments of $3.2 million and $0.2 million, respectively, were funded by a $14.3 million increase in borrowings under the Company's revolving credit facility, $1.1 million of cash provided from operations and $1.1 million of proceeds from the exercise of Common Stock options under the Company's Incentive Stock Plan. Liquidity and Capital Resources The Company had $69.7 million of unused availability under the terms of its revolving credit facility as of June 30, 2000. The Company's primary cash requirements include working capital, interest and principal payments on indebtedness, capital expenditures, dividends, and, potentially, future acquisitions. The primary sources of cash are expected to be cash flow from operations and borrowings under the Company's senior credit facility. As indicated above, in November 1999, the Company completed the sale of 3,795,000 shares of Common Stock. Proceeds to the Company, net of underwriting discounts and commissions, were used to prepay $93.5 million 25 of term indebtedness under the Company's senior credit facility. In addition, the Company purchased the manufacturing assets of Kewaunee and common stock of Viking. The Kewaunee and Viking acquisitions were financed through borrowings under the Company's revolving credit facility. The senior credit facility requires prepayment of indebtedness to the extent of "excess cash flows" as defined in the senior credit agreement. Based upon current and anticipated future operations, management believes that capital resources will be adequate to meet future working capital, debt service and other capital requirements for fiscal 2000. The Company's cash flow from operations has fluctuated, and will likely continue to fluctuate, significantly from quarter to quarter due to changes in working capital arising principally from seasonal fluctuations in sales. Capital expenditures are expected to approximate $20 million in fiscal 2000 and $20 million in fiscal 2001. Fiscal 2000 capital expenditures include approximately $4 million of an $8 million expansion of the Company's production facilities in Oshkosh. The remaining $4 million of the expansion will occur early in fiscal 2001. New Accounting Standards The Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," which was amended by SFAS No. 137. Provisions of these standards are required to be adopted in years beginning after June 15, 2000. Because of the Company's minimal use of derivatives, management does not anticipate that the adoption of the new statement will have a significant effect on the Company's financial condition, profitability or cash flows. Customers and Backlog Sales to the U. S. Department of Defense comprised approximately 17% of the Company's net sales in the first nine months of fiscal 2000. No other single customer accounted for more than 10% of the Company's net sales for this period. A substantial majority of the Company's net sales are derived from customer orders prior to commencing production. The Company's backlog at June 30, 2000 increased 27.8% to $644.9 million compared to $504.6 million at June 30, 1999. The commercial segment backlog decreased by $42.9 million, or 34.3%, to $82.4 million at June 30, 2000 compared to June 30, 1999. Lower commercial backlogs are believed to be due in part to early season customer buying relative to the prior year due to customer concerns about mixer and chassis shortages that existed in the prior year. The fire and emergency segment backlog increased $9.3 million, or 4.6%, to $209.6 million at June 30, 2000 compared to June 30, 1999. The defense segment backlog increased by $174.0 million, or 97.2%, to $352.9 million at June 30, 2000 compared to June 30, 1999, reflecting the funding of the third year of the MTVR contract. Approximately 57% of the aggregate June 30, 2000 backlog is not expected to be filled in fiscal 2000. 26 Reported backlog excludes purchase options and announced orders for which definitive contracts have not been executed. Additionally, backlog excludes unfunded portions of the U. S. Department of Defense long-term family and MTVR contracts. Backlog information and comparisons thereof as of different dates may not be accurate indicators of future sales or the ratio of the Company's future sales to the U. S. Department of Defense versus its sales to other customers. Item 3. Quantitative and Qualitative Disclosure of Market Risk The Company's quantitative and qualitative disclosures about market risk for changes in interest rates and foreign exchange risk are incorporated by reference in Item 7A of the Company's Annual Report on Form 10-K for the year ended September 30, 1999 and have not materially changed since that report was filed. 27 OSHKOSH TRUCK CORPORATION PART II. OTHER INFORMATION FORM 10-Q JUNE 30, 2000 ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits The following exhibits are filed herewith: 10.1 Form of Key Executive Employment and Severance Agreement between Oshkosh Truck Corporation and each of Timothy M. Dempsey, Paul C. Hollowell, Daniel J. Lanzdorf, John W. Randjelovic, Charles L. Szews and Matthew J. Zolnowski. 27 Financial Data Schedule (b) Reports on Form 8-K On May 12, 2000, the Company filed a Current Report on Form 8-K, dated May 9, 2000, reporting a change in the Company's certifying accountant. 28 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. OSHKOSH TRUCK CORPORATION July 27, 2000 /S/ R. G. Bohn -------------------------------------- R. G. Bohn Chairman, President and Chief Executive Officer (Principal Executive Officer) July 27, 2000 /S/ C. L. Szews -------------------------------------- C. L. Szews Executive Vice President and Chief Financial Officer (Principal Financial Officer) July 27, 2000 /S/ T. J. Polnaszek -------------------------------------- T. J. Polnaszek Vice President and Controller (Principal Accounting Officer) 29 EXHIBIT INDEX Exhibit No. Description 10.1 Form of Key Executive Employment and Severance Agreement between Oshkosh Truck Corporation and each of Timothy M. Dempsey, Paul C. Hollowell, Daniel J. Lanzdorf, John W. Randjelovic, Charles L. Szews and Matthew J. Zolnowski. 27 Financial Data Schedule 30