Consolidated Financial Statements
Oshkosh Truck Corporation
Three years ended September 30, 1997
FINANCIAL HIGHLIGHTS
Years ended September 30,
(In thousands, except per share amounts)
1997 1996 1995 1994 1993
Net Sales $683,234 $413,455 $438,557 $581,275 $537,065
Income (Loss) From Continuing
Operations 10,006 (241) 11,637 13,558 1,596(1)
Per Share 1.18 (.03) 1.32 1.56 .18(1)
Discontinued Operations --- (2,859) (2,421) (504) (533)
Per Share --- (.32) (.28) (.06) (.06)
Net Income (Loss) 10,006 (3,100) 9,216 13,054 1,063(1)
Per Share 1.18 (.35) 1.04 1.50 .12(1)
Dividends Per Share
Class A Common Stock .435 .435 .435 .435 .435
Common Stock .500 .500 .500 .500 .500
Total Assets 420,394 435,161 200,916 198,678 235,386
Expenditures for Property,
Plant and Equipment 6,263 5,355 5,347 5,178 7,697
Depreciation 9,382 8,621 8,409 9,278 8,292
Amortization of Goodwill and Other
Intangible Assets 4,470 171 --- --- ---
Net Working Capital 50,113 67,469 91,777 82,010 100,967
Long-Term Debt
(Including Current Maturities) 135,000 157,882 --- 610 40,338
Shareholders' Equity 120,900 121,602 113,413 121,558 112,004
Book Value Per Share 14.55 14.08 14.82 13.96 12.89
Backlog 361,000 433,000 350,000 498,000 437,000
(1) After a charge of $4.1 million, or $.47 per share, to reflect the
cumulative effect of change in method of accounting for postretirement
benefits.
FINANCIAL STATISTICS
Cash Dividends
Quarterly (Payable February, May, August, November)
(In thousands, except per share amounts)
Fiscal 1997 Fiscal 1996
4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
Class A Common Stock
Declared $ 44 $ 44 $ 45 $ 44 $ 45 $ 45 $ 44 $ 43
Per Share .10875 .10875 .10875 .10875 .10875 .10875 .10875 .10875
Common Stock
Declared $ 988 $ 943 $1,029 $1,030 $1,019 $1,040 $1,054 $1,061
Per Share .125 .125 .125 .125 .125 .125 .125 .125
Oshkosh Truck Corporation Common Stock Price*
The company's Common Stock is quoted on the National Association of
Securities Dealers Automated Quotation System (NASDAQ) National Market
System. The following table sets forth prices reflecting actual sales as
reported on the NASDAQ National Market System.
Quarter
Ended Fiscal 1997 Fiscal 1996
High Low High Low
September $17-1/2 $13-1/4 $14-1/2 $11-1/4
June 15-7/8 10-5/8 15-3/8 13-7/8
March 12-7/8 10-1/8 15-3/4 13-3/8
December 12-1/4 10-1/8 15-3/4 14-1/4
Quarterly Financial Data (Unaudited)
(In thousands, except per share amounts)
Fiscal 1997 Fiscal 1996
4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
Net Sales $185,853 $176,596 $170,465 $150,320 $117,983 $111,950 $103,139 $80,383
Gross Income 24,496 21,897 22,868 19,583 4,256 7,647 12,725 10,451
Income (Loss) From
Continuing
Operations 3,116 2,792 2,474 1,624 (1,645) (2,398) 2,230 1,572
Per Share .38 .33 .28 .19 (.19) (.27) .25 .18
Discontinued
Operations --- --- --- --- (648) (2,211) --- ---
Per Share --- --- --- --- (.07) (.25) --- ---
Net Income (Loss) 3,116 2,792 2,474 1,624 (2,293) (4,609) 2,230 1,572
Per Share .38 .33 .28 .19 (.26) (.52) .25 .18
For the fourth quarter of 1996, continuing operations includes, on an
after-tax basis, approximately $2.4 million related to the IPF subcontract
and additional warranty provisions partially offset by reversal of $2.0
million of income tax provisions and related accrued interest.
Discontinued operations for the fourth quarter of 1996 includes $0.6
million of after-tax charges related to adjustments of estimated warranty
expenses.
OSHKOSH TRUCK CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Fiscal Year 1997 Compared to Fiscal Year 1996
Oshkosh Truck Corporation (the company) reported net income of $10.0
million, or $1.18 per share, on sales of $683.2 million for the year ended
September 30, 1997, compared to a net loss of $3.1 million, or $0.35 per
share, on sales of $413.5 million for the year ended September 30, 1996.
The fiscal 1997 results include a full year of sales and earnings of
Pierce Manufacturing Inc. (Pierce), a leading manufacturer and marketer of
fire trucks and other fire apparatus in the U.S., which was acquired on
September 18, 1996 (see Acquisitions). The fiscal 1996 results were
adversely affected by after-tax charges of $11.3 million, including $3.2
million related to a defense subcontract to Steeltech Manufacturing, Inc.
(Steeltech), $3.4 million associated with the company's Mexican bus
affiliates, and warranty and other related costs of $4.7 million. In
fiscal 1996, the company also recognized after-tax benefits of $2.0
million on the reversal of income tax provisions and related accrued
interest.
Sales of both commercial and defense products increased in fiscal 1997
compared to fiscal 1996. Commercial sales in fiscal 1997 were $394.6
million, an increase of $232.6 million, or 143.6% from 1996, principally
due to inclusion of a full year of Pierce sales in fiscal 1997.
Commercial export sales totaled $20.7 million and $20.4 million,
respectively, in fiscal 1997 and fiscal 1996. Sales of defense products
totaled $288.6 million in fiscal 1997, an increase of $37.2 million, or
14.8%, compared to fiscal 1996. The increase in defense sales is
primarily due to an increase in sales of ISO-Compatible Palletized
Flatracks (IPF), which are being produced by Steeltech, from $8.7 million
in fiscal 1996 to $41.4 million in fiscal 1997. Defense export sales also
increased to $16.6 million in fiscal 1997 compared to $2.1 million in
fiscal 1996.
Gross income in fiscal 1997 totaled $88.8 million, or 13.0% of sales,
compared to $35.1 million, or 8.5% of sales, in fiscal 1996. The increase
in gross income in fiscal 1997 was principally due to increased sales
volume as a result of the acquisition of Pierce. In addition, fiscal 1996
gross income was reduced by pre-tax charges of $5.1 million related to
production delays and cost overruns associated with the IPF subcontract to
Steeltech and increased warranty and other related costs of $5.5 million
(pre-tax).
Operating expenses totaled $60.1 million, or 8.8% of sales, in fiscal 1997
compared to $38.7 million, or 9.4% of sales, in fiscal 1996. The increase
in operating expenses in fiscal 1997 related principally to the operating
expenses of Pierce and amortization of goodwill and other intangible
assets associated with the acquisition of Pierce. The company recognized
pre-tax charges of $3.2 million in fiscal 1996 to write off its investment
in Steeltech and to write off its remaining investments and advances
associated with its Mexican bus affiliates due to prolonged weakness in
the Mexican economy and continuing high losses and high leverage reported
by the Mexican affiliates.
Interest expense increased to $12.7 million in fiscal 1997 compared to
$0.9 million in fiscal 1996 as a result of the financing for the Pierce
acquisition (see Liquidity and Capital Resources).
Miscellaneous expense was $0.3 million in fiscal 1997 compared to
miscellaneous income of $1.5 million in fiscal 1996. The miscellaneous
income in fiscal 1996 arose primarily from the reversal of accrued
interest related to income taxes.
The provision for income taxes in fiscal 1997 was $6.5 million, or 39.4%
of pre-tax income, compared to a credit for income taxes of $1.7 million
in fiscal 1996. Fiscal 1997 and fiscal 1996 benefited from the reversal
of $0.9 million and $1.0 million, respectively, of income tax provisions
recognized in earlier periods. In addition, the effective income tax rate
in fiscal 1997 was adversely affected by non-deductible goodwill of $2.6
million arising from the Pierce acquisition.
The $2.9 million after-tax loss from discontinued operations ($4.7 million
pre-tax) in fiscal 1996 resulted from the write-off of receivables of $2.6
million (pre-tax) related to the company's Mexican bus affiliates and from
a $2.1 million pre-tax charge for additional warranty and other related
costs with respect to the company's former U.S. chassis business which was
sold in June 1995.
Fiscal Year 1996 Compared to Fiscal Year 1995
The company reported a net loss of $3.1 million, or $0.35 per share, on
sales of $413.5 million for the year ended September 30, 1996, compared to
net income of $9.2 million, or $1.04 per share, on sales of $438.6 million
for the year ended September 30, 1995. The fiscal 1996 results were
adversely affected by after-tax charges of $11.3 million, including $3.2
million related to Steeltech, $3.4 million associated with the company's
Mexican bus affiliates, and warranty and other related costs of $4.7
million. The company also recognized after-tax benefits of $2.0 million
on the reversal of income tax provisions and related accrued interest in
fiscal 1996. During the third quarter of fiscal 1995, the company sold
its chassis manufacturing business in the U.S. and its interest in a joint
venture in Mexico producing chassis for the Mexican market to Freightliner
Corporation (Freightliner). The activities of these businesses are
reported as discontinued operations and resulted in a charge to income in
fiscal 1995. In fiscal 1996, further after-tax charges of $1.2 million
were reported with respect to warranty and other related costs of the
discontinued operations. The results of Pierce from the date of
acquisition to September 30, 1996, which were not material, have been
included in the consolidated results of the company.
Sales of both commercial and defense products declined in fiscal 1996
compared to fiscal 1995. Commercial sales in fiscal 1996 decreased $14.8
million, or 8.4%, from fiscal 1995 to $162.0 million, primarily due to a
decline in sales of commercial van trailers of $31.7 million. Sales of
all other commercial product lines increased in fiscal 1996. Commercial
export sales totaled $20.4 million and $17.5 million, respectively, in
fiscal 1996 and fiscal 1995. Sales of defense products totaled $251.5
million in fiscal 1996, a decrease of $10.3 million, or 3.9%, compared to
fiscal 1995. The decrease in defense sales was a result of delays in
production of IPF's. Defense export sales were $2.1 million in fiscal
1996 compared to $1.6 million in fiscal 1995.
Gross income in fiscal 1996 totaled $35.1 million, or 8.5% of sales,
compared to $54.0 million, or 12.3%, of sales in fiscal 1995. Fiscal 1996
margins were reduced by pre-tax charges of $5.1 million related to
production delays and cost overruns associated with the IPF subcontract to
Steeltech, increased warranty and other related costs of $5.5 million
(pre-tax), and lower volume.
Operating expenses totaled $38.7 million, or 9.4% of sales, in fiscal 1996
compared to $34.7 million, or 7.9% of sales, in fiscal 1995. The company
recognized pre-tax charges of $3.2 million in fiscal 1996 to write off its
investment in Steeltech and to write off its remaining investments and
advances associated with its Mexican bus affiliates.
Miscellaneous income increased to $1.5 million in fiscal 1996 compared to
miscellaneous expense of $0.5 million in fiscal 1995 as a result of the
reversal of accrued interest related to income taxes in fiscal 1996.
The credit for income taxes totaled $1.7 million in fiscal 1996,
benefiting from the reversal of $1.0 million in income tax provisions
recognized in earlier periods, compared to a provision for income taxes of
$7.3 million in fiscal 1995.
The $2.9 million after-tax loss from discontinued operations ($4.7 million
pre-tax) in fiscal 1996 resulted from the write-off of receivables of $2.6
million (pre-tax) related to the company's Mexican bus affiliates and from
a $2.1 million pre-tax charge for additional warranty and other related
costs with respect to the company's former U.S. chassis business which was
sold in June 1995. The $2.4 million after-tax loss from discontinued
operations in fiscal 1995 reflects losses on the sale of the company's
former U.S. chassis business and from the sale of an interest in a former
Mexican bus affiliate.
Acquisitions
On September 18, 1996, the company acquired for cash all of the issued and
outstanding stock of Pierce, a leading manufacturer and marketer of fire
trucks and other fire apparatus in the U.S. The acquisition price of
$156.9 million, including acquisition costs and net of cash acquired, was
financed from borrowings under a bank credit facility. On November 9,
1995, the company through its wholly-owned subsidiary, Summit Performance
Systems, Inc. (Summit), acquired the inventory, land, buildings, machinery
and equipment, and technology of Friesz Manufacturing Company (Friesz), a
manufacturer of concrete mixer systems and related aftermarket replacement
parts, from available cash for $3.9 million (see Subsequent Event).
Financial Condition
Year Ended September 30, 1997
During fiscal 1997, cash increased $23.1 million. Cash provided from
operating activities of $65.8 million was used primarily to fund $6.3
million of capital additions, $1.7 million of payments related to
discontinued operations, $22.9 million of long-term debt payments, $6.5
million of purchases of common stock and common stock warrants (net of
stock option exercise proceeds), and $4.2 million of dividends.
Year Ended September 30, 1996
During fiscal 1996, cash decreased $29.6 million. The acquisitions of
Pierce and Friesz for $160.8 million, cash used for operating activities
of $16.2 million, capital additions of $5.4 million, stock repurchases of
$5.4 million and dividends of $4.4 million, were funded principally from
long-term borrowings of $157.9 million, from available cash and from cash
provided from discontinued operations of $4.7 million. Cash was used for
operating activities in fiscal 1996 due to higher working capital
requirements associated with sales in the fourth quarter of fiscal 1996
and first quarter of fiscal 1997.
Liquidity and Capital Resources
The following contains forward looking statements, including statements
that include the words "believes" and "expects" or words of similar import
with reference to the company. These statements are subject to risks,
uncertainties and other factors that could cause actual results to differ
materially from those described in any such statement.
The company's principal uses of cash for the next several years will be
interest and principal payments on acquisition indebtedness, capital
expenditures, dividends, and potentially further acquisitions.
On September 18, 1996, the company entered into a bank credit agreement
(the Bank Credit Agreement) to finance the acquisition of Pierce and to
refinance a previous revolving credit facility. The Bank Credit Agreement
consists of a $150 million term loan which requires annual principal
payments of $15 million through fiscal 2002 and a final payment of $60
million on September 30, 2003, and a $50 million revolving credit facility
for working capital purposes which expires on September 30, 1999. Through
December 8, 1997, the company has made the $15 million principal payments
due in September 1997 and 1998, and paid another $25 million which will be
prorated against the principal payments required in fiscal 1999 through
fiscal 2003. At September 30, 1997, $3.0 million of standby letters of
credit reduced available capacity under the revolving credit facility to
$47.0 million. The total of all term loan and revolving credit facility
borrowings, excluding letters of credit, must be reduced to or below
$145.0 million and $130.0 million for 60 consecutive days in fiscal 1998
and 1999, respectively.
The Bank Credit Agreement limits capital expenditures to $15 million
annually. Capital expenditures are projected to approximate $8 to $10
million annually for the next several years. The Bank Credit Agreement
also restricts other corporate activities as described in Note 4 to the
audited consolidated financial statements. The company believes that such
limitations should not impair its future operating activities.
The company believes its internally generated cash flow, supplemented by
U.S. Government progress payments when applicable and borrowings available
under the Bank Credit Agreement will be adequate to meet working capital
and other operating and capital requirements of the company during fiscal
1998. Substantial additional borrowings beyond those available under the
Bank Credit Agreement would be required to complete the acquisition
described under Subsequent Event.
The company is dependent on its sales of defense products to the U.S.
Government, which represented $288.6 million (42.2%) and $251.5 million
(60.8%) of total sales during fiscal 1997 and fiscal 1996, respectively.
Substantial decreases in the company's level of defense business from the
current level could have an adverse effect on the company's profitability.
The company expects fiscal 1998 sales to the U.S. Government to decrease
$20 to $30 million from fiscal 1997 levels, although actual sales could
vary based on changes in the federal budget, international sales, and
other factors. Accordingly, it will be necessary for the company to
reduce its fixed costs to maintain the profitability of its defense
business at fiscal 1997 levels.
On May 2, 1997, the company and Freightliner formally terminated a
strategic alliance formed on June 2, 1995. The company repurchased from
Freightliner 350,000 shares of its Common Stock and 1,250,000 warrants for
the purchase of additional shares of Common Stock for a total of $6.8
million. The company and Freightliner will continue to supply each other
with parts and components.
Backlog
The company's backlog at fiscal year-end 1997 was $361 million, compared
to $433 million at year-end 1996. The backlog at fiscal year-end 1997
includes $205 million with respect to U.S. Government contracts, $120
million related to Pierce and the remainder relates to other commercial
products. The $72 million decrease in the backlog from year-end 1996 to
year-end 1997 is primarily due to a $67 million decrease in the backlog
related to U.S. Government contracts. Approximately 99% of the company's
backlog pertains to fiscal 1998 business. Virtually all the company's
revenues are derived from customer orders prior to commencing production.
Stock Buyback
In July 1995, the company's board of directors authorized the repurchase
of up to 1,000,000 shares of Common Stock. As of September 30, 1997 and
1996, the company had purchased 461,535 shares under this program at a
cost of $6.6 million.
New Accounting Standards
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share," which is required to be adopted
effective for both interim and annual financial statements for periods
ending after December 15, 1997. Among other provisions, the dilutive
effect of stock options must be excluded under the new requirements for
calculating basic earnings per share, which will replace primary earnings
per share. This change is not expected to materially impact the company's
earnings per share calculations.
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 establishes the
standards for reporting and displaying comprehensive income and its
components (revenues, expenses, gains, and losses) as part of a full set
of financial statements. This statement requires that all elements of
comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. The
statement is effective for fiscal years beginning after December 15, 1997.
Since this statement applies only to the presentation of comprehensive
income, it will not have any impact on the company's results of
operations, financial position or cash flows.
In June 1997, the Financial Accounting Standards Board also issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 131 establishes the standards for the manner in
which public enterprises are required to report financial and descriptive
information about their operating segments. The statement defines
operating segments as components of an enterprise for which separate
financial information is available and evaluated regularly as a means for
assessing segment performance and allocating resources to segments. A
measure of profit or loss, total assets, and other related information are
required to be disclosed for each operating segment. In addition, this
statement requires the annual disclosure of information concerning
revenues derived from the enterprise's products or services, countries in
which it earns revenue or holds assets, and major customers. The
statement is also effective for fiscal years beginning after December 15,
1997. The adoption of SFAS No. 131 will not affect the company's results
of operations or financial position, but will affect the disclosure of
segment information.
Subsequent Event
On December 8, 1997, the company announced that it had agreed to acquire
McNeilus Companies, Inc. (McNeilus), a $300-million manufacturer and
marketer of refuse and recycling truck bodies, rear-discharge concrete
mixers, and ready-mix batch plants. The total purchase cost for all
McNeilus stock and related non-compete and ancillary agreements is $250
million in cash. The transaction is subject to the approval of the
appropriate governmental authorities and is expected to close in the first
quarter of calendar 1998.
Under certain conditions, if the acquisition is not consummated, the
company may be required to pay McNeilus a fee of $10 million, and
conversely, McNeilus may be required to pay a $10 million fee to the
company.
Oshkosh Truck Corporation
Consolidated Statements of Income (Loss)
Years ended September 30,
(In thousands, except per share amounts)
1997 1996 1995
Continuing operations:
Net sales $683,234 $413,455 $438,557
Cost of sales 594,390 378,376 384,579
-------- -------- --------
Gross income 88,844 35,079 53,978
Operating expenses:
Selling, general and
administrative 47,742 32,205 29,242
Engineering, research and
development 7,847 6,304 5,443
Amortization of goodwill and
other intangibles 4,470 171 ---
-------- -------- --------
Total operating expenses 60,059 38,680 34,685
-------- -------- --------
Income (loss) from operations 28,785 (3,601) 19,293
Other income (expense):
Interest expense (12,722) (929) (679)
Interest income 717 1,040 774
Miscellaneous, net (278) 1,508 (466)
-------- -------- --------
(12,283) 1,619 (371)
-------- -------- --------
Income (loss) from continuing
operations before income taxes 16,502 (1,982) 18,922
Provision (credit) for income
taxes 6,496 (1,741) 7,285
-------- -------- --------
Income (loss) from continuing
operations 10,006 (241) 11,637
Discontinued operations:
Loss from discontinued
operations, net of income
tax benefit of $1,623 --- --- (3,137)
Gain (loss) on disposal of
operations, net of
income tax benefit of $1,827
in 1996 and $357 in 1995 --- (2,859) 716
-------- -------- --------
--- (2,859) (2,421)
-------- -------- --------
Net income (loss) $10,006 $(3,100) $9,216
======== ======== ========
Earnings (loss) per common share:
Continuing operations $1.18 $(.03) $1.32
Discontinued operations --- (.32) (.28)
-------- -------- --------
Net income (loss) $1.18 $(.35) $1.04
======== ======== ========
See accompanying notes.
Oshkosh Truck Corporation
Consolidated Balance Sheets
September 30,
(In thousands)
1997 1996
Assets
Current assets:
Cash and cash equivalents $23,219 $ 127
Receivables, net 81,235 76,624
Inventories 76,497 106,289
Prepaid expenses 3,405 3,619
Refundable income taxes --- 6,483
Deferred income taxes 9,479 7,055
------- --------
Total current assets 193,835 200,197
Deferred charges 1,067 2,645
Other long-term assets 6,660 7,834
Property, plant and equipment:
Land 7,172 7,131
Buildings 42,220 40,421
Machinery and equipment 78,270 77,485
------- -------
127,662 125,037
Less accumulated depreciation (72,174) (67,002)
------- --------
Net property, plant and
equipment 55,488 58,035
Goodwill and other intangible assets,
net 163,344 166,450
------- -------
Total assets $420,394 $435,161
======= =======
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $48,220 $ 49,178
Customer advances 30,124 27,793
Payroll-related obligations 15,157 12,843
Accrued warranty 12,320 8,942
Other current liabilities 21,365 16,997
Net current liabilities of
discontinued operations 1,536 1,975
Current maturities of long-term debt 15,000 15,000
------- -------
Total current liabilities 143,722 132,728
Long-term debt 120,000 142,882
Postretirement benefit obligations 10,147 9,517
Other long-term liabilities 1,811 1,843
Net long-term liabilities of
discontinued operations 1,362 2,581
Deferred income taxes 22,452 24,008
Shareholders' equity:
Class A Common Stock 4 4
Common Stock 89 89
Paid-in capital 13,591 16,059
Retained earnings 120,085 114,246
------- -------
133,769 130,398
Cost of Common Stock in treasury (12,869) (8,796)
------- --------
Total shareholders' equity 120,900 121,602
------- -------
Total liabilities and shareholders'
equity $420,394 $435,161
======= =======
See accompanying notes.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended September 30,
(In thousands, except share and per share amounts)
Pension
Common Paid-In Retained Treasury Liability
Stock Capital Earnings Stock Adjustment Total
Balance at September 30, 1994 $90 $7,623 $116,890 $(2,591) $(454) $121,558
Net income --- --- 9,216 --- --- 9,216
Cash dividends:
Class A Common Stock
($.435 per share) --- --- (191) --- --- (191)
Common Stock
($.500 per share) --- --- (4,218) --- --- (4,218)
Sale of 350,000 shares of
Common Stock 3 5,247 --- --- --- 5,250
Sale of 1,250,000 stock
warrants --- 4,187 --- --- --- 4,187
Common Stock issuance costs
and cost of stock
restriction agreement --- (863) --- --- --- (863)
Purchase of Common Stock for
treasury --- --- --- (933) --- (933)
Exercise of stock options --- 12 --- 121 --- 133
Incentive compensation awards --- 327 --- --- --- 32
Pension liability adjustment --- --- --- --- (1,053) (1,053)
------ ------ ------- ------- ------- -------
Balance at September 30, 1995 93 16,533 121,697 (3,403) (1,507) 133,413
Net loss --- --- (3,100) --- --- (3,100)
Cash dividends:
Class A Common Stock
($.435 per share) --- --- (177) --- --- (177)
Common Stock
($.500 per share) --- --- (4,174) --- --- (4,174)
Purchase of Common Stock for
treasury --- --- --- (5,618) --- (5,618)
Exercise of stock options --- 43 --- 225 --- 268
Termination of incentive
compensation awards --- (517) --- --- --- (517)
Pension liability adjustment --- --- --- --- 1,507 1,507
------ ------ ------- ------- ------- -------
Balance at September 30, 1996 93 16,059 114,246 (8,796) --- 121,602
Net income --- --- 10,006 --- --- 10,006
Cash dividends:
Class A Common Stock
($.435 per share) --- --- (177) --- --- (177)
Common Stock
($.500 per share) --- --- (3,990) --- --- (3,990)
Purchase of Common Stock for
treasury --- --- --- (4,246) --- (4,246)
Purchase of 1,250,000 stock
warrants --- (2,504) --- --- --- (2,504)
Exercise of stock options --- 36 --- 173 --- 209
------ ------ ------- ------- ------- -------
Balance at September 30, 1997 $93 $13,591 $120,085 $(12,869) $ --- $120,900
====== ====== ======= ======= ======= =======
See accompanying notes.
Oshkosh Truck Corporation
Consolidated Statements of Cash Flows
Years ended September 30,
(In thousands)
1997 1996 1995
Operating activities:
Net income (loss) from continuing
operations $10,006 $(241) $11,637
Depreciation and amortization 14,070 8,798 8,409
Write-off of investments 200 4,125 ---
Deferred income taxes (3,980) (1,381) 2,577
(Gain) loss on disposal of
property, plant and equipment (43) 77 (21)
Changes in operating assets and
liabilities:
Receivables (4,611) (10,648) (4,349)
Inventories 29,792 (25,071) (809)
Prepaid expenses 214 469 (540)
Deferred charges 1,578 333 (94)
Accounts payable (958) 13,314 (4,314)
Customer advances 2,331 930 (1,887)
Income taxes 7,446 (5,268) 636
Payroll-related obligations 2,314 213 313
Accrued warranty 3,378 2,094 (639)
Other current liabilities 3,447 (4,646) 11
Other long-term liabilities 598 665 (4,764)
------- ------- -------
Net cash provided from
(used for) operating
activities 65,782 (16,237) 6,166
Investing activities:
Acquisitions of businesses, net of
cash acquired --- (160,838) ---
Additions to property, plant and
equipment (6,263) (5,355) (5,347)
Proceeds from sale of property,
plant and equipment 395 2,086 114
Increase in other long-term assets (1,532) (2,124) (937)
------- ------- --------
Net cash used for investing
activities (7,400) (166,231) (6,170)
Net cash provided from (used for)
discontinued operations (1,658) 4,743 10,482
Financing activities:
Net borrowings (repayments) of
long-term debt (22,882) 157,882 ---
Sale of Common Stock and Common
Stock warrants, net of issuance
costs --- --- 8,574
Purchase of Common Stock, Common
Stock warrants and proceeds from
exercise of stock options, net (6,541) (5,350) (800)
Dividends paid (4,209) (4,396) (4,372)
------- ------- -------
Net cash provided from (used
for) financing
activities (33,632) 148,136 3,402
------- ------- -------
Increase (decrease) in cash and
cash equivalents 23,092 (29,589) 13,880
Cash and cash equivalents at
beginning of year 127 29,716 15,836
------- ------- -------
Cash and cash equivalents at end of
year $23,219 $127 $29,716
======= ======= =======
Supplemental disclosures:
Cash paid for interest:
Continuing operations $12,974 $538 $759
Discontinued operations --- --- 709
Cash paid for income taxes 2,998 3,116 2,114
See accompanying notes.
Oshkosh Truck Corporation
Notes to Consolidated Financial Statements
September 30, 1997
(In thousands, except share and per share amounts)
1. Summary of Significant Accounting Policies
Operations - Oshkosh Truck Corporation and its wholly-owned subsidiaries
(the company) is a leading manufacturer of a wide variety of heavy-duty
specialized trucks. The company sells its products into three principal
markets - fire and emergency support, defense, and other commercial truck
markets. The company's fire and emergency support business is principally
conducted through its wholly-owned subsidiary, Pierce Manufacturing Inc.
(Pierce).
Principles of Consolidation and Presentation - The consolidated financial
statements include the accounts of Oshkosh Truck Corporation and all its
wholly-owned subsidiaries and are prepared in conformity with U.S.
generally accepted accounting principles. The preparation of financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. All significant
intercompany accounts and transactions have been eliminated.
Cash and Cash Equivalents - The company considers all highly liquid
investments with a maturity of three months or less when purchased to be
cash equivalents. Cash equivalents, consisting principally of commercial
paper, totaled $23,022 at September 30, 1997. The cost of these
securities, which are considered "available for sale" for financial
reporting purposes, approximates fair value at September 30, 1997.
Inventories - The company values its inventories at the lower of cost,
computed principally on the last-in, first-out (LIFO) method, or market.
Property, Plant and Equipment - Property, plant and equipment are recorded
at cost. Depreciation is provided over the estimated useful lives of the
respective assets principally on accelerated methods.
Deferred Charges - Deferred charges include certain engineering and
technical support costs incurred in connection with multi-year government
contracts. These costs are charged to cost of sales when the related
project is billable to the government, or are amortized to cost of sales
as base units are delivered under the related contracts.
Other Long-Term Assets - Other long-term assets include capitalized
software and related costs which are amortized on a straight-line method
over a three to five-year period, deferred financing costs which are
amortized to interest expense over the term of the debt, prepaid funding
of pension costs and certain investments. During fiscal 1996, the company
wrote off its $3,025 investment in a Mexican bus manufacturer, a $200
investment in Steeltech Manufacturing, Inc. (Steeltech) and a $900
investment in a joint venture which leases equipment to Steeltech (see
Note 11).
Goodwill and Other Intangible Assets - The cost of goodwill and other
intangible assets is amortized on a straight-line basis over the estimated
periods benefited ranging from 13 to 40 years. The realizability of
goodwill and other intangibles is evaluated periodically as events or
circumstances indicate a possible impairment. Such evaluations are based
on various analyses, including cash flow and profitability projections, to
determine the ability of the company to recover their carrying amounts.
The analyses necessarily involve significant judgment to evaluate the
capacity of acquired businesses to perform within projections.
Customer Advances - Customer advances principally represent amounts
received in advance of the completion of a fire apparatus vehicle.
Certain of these advances bear interest at variable rates approximating
the prime rate.
Revenue Recognition - Sales under fixed-price defense contracts are
recorded as units are accepted by the government. Change orders are not
invoiced until agreed upon by the government. Recognition of profit on
change orders and on contracts which do not involve fixed prices is based
upon estimates which may be revised during the terms of the contracts.
Sales to commercial customers are recorded when the goods or services are
billable at time of shipment or delivery of the trucks.
Research and Development- Research and development costs are charged to
expense as incurred and amounted to approximately $7,847, $6,304, and
$5,443 for continuing operations during fiscal 1997, 1996, and 1995,
respectively.
Warranty - Provisions for estimated warranty and other related costs are
recorded at the time of sale and are periodically adjusted to reflect
actual experience. Amounts expensed with respect to continuing operations
in fiscal 1997, 1996, and 1995 were $9,658, $7,741, and $4,518,
respectively.
Income Taxes - Deferred income taxes are provided to recognize temporary
differences between the financial reporting basis and the income tax basis
of the company's assets and liabilities using currently enacted tax rates
and laws.
Fair Values - The carrying amounts of accounts receivable and payable and
long-term debt approximated fair value as of September 30, 1997 and 1996.
Environmental Remediation Costs - Statement of Position 96-1
"Environmental Remediation Liabilities" (SOP 96-1) became effective for
the company in fiscal 1997. In accordance with SOP 96-1, the company
accrues for losses associated with environmental remediation obligations
when such losses are probable and reasonably estimable. Costs of future
expenditures for environmental remediation obligations are not discounted
to their present value. Recoveries of environmental remediation costs
from other parties are recorded as assets when their receipt is deemed
probable. The accruals are adjusted as further information develops or
circumstances change.
New Accounting Standards - In February 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards (SFAS)
No. 128, "Earnings Per Share," which is required to be adopted effective
for both interim and annual financial statements for periods ending after
December 15, 1997. Among other provisions, the dilutive effect of stock
options must be excluded under the new requirements for calculating basic
earnings per share, which will replace primary earnings per share. This
change is not expected to materially impact the company's earnings per
share calculations.
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 establishes the
standards for reporting and displaying comprehensive income and its
components (revenues, expenses, gains, and losses) as part of a full set
of financial statements. This statement requires that all elements of
comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. The
statement is effective for fiscal years beginning after December 15, 1997.
Since this statement applies only to the presentation of comprehensive
income, it will not have any impact on the company's results of
operations, financial position or cash flows.
In June 1997, the Financial Accounting Standards Board also issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 131 establishes the standards for the manner in
which public enterprises are required to report financial and descriptive
information about their operating segments. The statement defines
operating segments as components of an enterprise for which separate
financial information is available and evaluated regularly as a means for
assessing segment performance and allocating resources to segments. A
measure of profit or loss, total assets, and other related information are
required to be disclosed for each operating segment. In addition, this
statement requires the annual disclosure of information concerning
revenues derived from the enterprise's products or services, countries in
which it earns revenue or holds assets, and major customers. The
statement is also effective for fiscal years beginning after December 15,
1997. The adoption of SFAS No. 131 will not affect the company's results
of operations or financial position, but will affect the disclosure of
segment information.
Earnings (Loss) Per Share - Earnings (loss) per share is computed on the
basis of the weighted average number of shares of common stock outstanding
(8,502,166; 8,828,224; and 8,823,766 in fiscal 1997, 1996, and 1995,
respectively). Stock options, warrants and stock issuable under incentive
compensation awards were not dilutive in any of the years presented.
Reclassifications - Certain reclassifications have been made to the fiscal
1996 and 1995 financial statements to conform to the 1997 presentation.
2. Balance Sheet Information
1997 1996
Receivables
U.S. Government:
Amounts billed $34,399 $27,353
Amounts unbilled 1,782 4,918
------- -------
36,181 32,271
Commercial customers 45,603 41,510
Other 1,421 3,909
------- -------
83,205 77,690
Less allowance for doubtful accounts (1,970) (1,066)
------- -------
$81,235 $76,624
======= =======
The unbilled amounts represent estimated claims for government-ordered
changes which will be invoiced upon completion of negotiations and price
adjustment provisions which will be invoiced when they are agreed upon by
the government.
1997 1996
Inventories
Finished products $ 6,430 $ 15,208
Partially finished products 36,661 51,533
Raw materials 44,455 47,580
------- -------
Inventories at FIFO cost 87,546 114,321
Less: Progress payments on U.S.
Government contracts (2,988) --
Excess of FIFO cost over LIFO
cost (8,061) (8,032)
------- --------
$76,497 $106,289
======= ========
Title to all inventories related to government contracts which provide for
progress payments vests in the government to the extent of unliquidated
progress payments.
Goodwill and Other Intangible
Assets
Useful Lives 1997 1996
Goodwill 40 Years $103,887 $102,523
Distribution network 40 Years 53,000 53,000
Other 13-40 Years 11,098 11,098
------- -------
167,985 166,621
Less accumulated amortization (4,641) (171)
------- -------
$163,344 $166,450
======= =======
The increase in goodwill from 1996 to 1997 is due to finalization of
purchase accounting related to the Pierce acquisition.
3. Acquisitions
On September 18, 1996, the company acquired for cash all of the issued and
outstanding stock of Pierce, a leading manufacturer and marketer of fire
trucks and other fire apparatus in the U.S. The acquisition price of
$156,926, including acquisition costs and net of cash acquired, was
financed from borrowings under a bank credit facility (see Note 4).
The acquisition was accounted for using the purchase method of accounting
and, accordingly, the operating results of Pierce are included in the
company's consolidated statements of income (loss) since the date of
acquisition. The purchase price, including acquisition costs, was
allocated based on the estimated fair values of the assets acquired and
liabilities assumed at the date of the acquisition and was subsequently
adjusted during fiscal 1997. Approximately $62,000 of the purchase price
was allocated to the distribution network and other intangible assets. The
excess of the purchase price over the estimated fair value of net assets
acquired amounted to $103,887 which has been accounted for as goodwill.
Pro forma unaudited consolidated operating results of the company,
assuming Pierce had been acquired as of October 1, 1995 and 1994, are
summarized below:
1996 1995
Net sales $605,439 $618,555
Income (loss) from continuing (1,262) 7,699
Net income (loss) (4,121) 4,901
Earnings (loss) per share:
Continuing operations $ (0.14) $ 0.87
Net income (loss) (0.47) 0.56
These pro forma results have been prepared for informational purposes only
and include certain adjustments to depreciation expense related to
acquired plant and equipment, amortization expense arising from goodwill
and other intangible assets, interest expense on acquisition debt,
elimination of certain non-recurring expenses incurred by Pierce prior to
the acquisition, and the estimated related income tax effects of all such
adjustments. Anticipated efficiencies from the consolidation of Pierce's
manufacturing facilities and from the synergies related to the
consolidation of certain functions among Pierce and the company were not
fully determinable and therefore have been excluded from the amounts
included in the pro forma operating results. These pro forma results do
not purport to be indicative of the results of operations which would have
resulted had the combination been in effect as of October 1, 1995 and 1994
or of the future results of operations of the consolidated entities.
On November 9, 1995, the company through its wholly-owned subsidiary,
Summit Performance Systems, Inc. (Summit), acquired the land, buildings,
machinery and equipment, and technology of Friesz Manufacturing Company
(Friesz) from available cash for $3,912. Friesz was engaged in the
manufacture and sale of concrete mixer systems and related aftermarket
replacement parts. Approximately $2,150 of the purchase price has been
allocated to intangible assets, principally designs and related
technology. The acquisition was accounted for using the purchase method
of accounting and, accordingly, the operating results of Friesz are
included in the company's consolidated statements of income (loss) since
the date of acquisition. Had the acquisition occurred as of October 1,
1995 or 1994, there would have been no material pro forma effects on the
net sales, net income (loss) or earnings (loss) per share of the company
in fiscal 1996 or 1995.
4. Long-Term Debt
On September 18, 1996, the company entered into a bank credit agreement
(the Bank Credit Agreement) to finance the acquisition of Pierce (see Note
3) and to refinance a previous revolving credit facility. The Bank Credit
Agreement consists of a $150,000 term loan which requires annual principal
payments of $15,000 through fiscal 2002 and a final payment of $60,000 on
September 30, 2003, and a $50,000 revolving credit facility for working
capital purposes which expires on September 30, 1999. The total of all
term loan and revolving credit facility borrowings, excluding letters of
credit, must be reduced to or below $145,000, and $130,000 for 60
consecutive days in fiscal 1998, and 1999, respectively.
Interest on the term loan and the revolving credit facility is payable at
prime or at the applicable Eurodollar rate plus 2.25% and 1.875%,
respectively, subject to adjustment if certain financial criteria are met
(weighted average rate of 7.98% and zero, respectively, at September 30,
1997, and 8.25% and 8.25%, respectively, at September 30, 1996).
The company is charged a 0.25% fee with respect to any unused balance
under its revolving credit facility, and a 1.875% fee with respect to any
letters of credit issued under the revolving credit facility. These fees
are subject to adjustment if certain financial criteria are met. At
September 30, 1997, $2,962 of standby letters of credit reduced available
capacity under the revolving credit facility to $47,038.
At September 30, 1997, substantially all the tangible and intangible
assets of the company are pledged as collateral under the Bank Credit
Agreement. Among other restrictions, the Bank Credit Agreement: (1)
limits payments of dividends, purchases of the company's stock, and
capital expenditures; (2) requires that certain financial ratios be
maintained at prescribed levels; (3) restricts the ability of the company
to make additional borrowings, or to consolidate, merge or otherwise
fundamentally change the ownership of the company; and (4) limits
investments, dispositions of assets and guarantees of indebtedness. The
company believes that such limitations should not impair its future
operating activities.
The aggregate annual maturities of long-term debt for the five years
succeeding September 30, 1997, are as follows: 1998 - $15,000; 1999 -
$15,000; 2000 - $15,000; 2001 - $15,000; and 2002 - $15,000. From October
1, 1997 through December 8, 1997, the company has paid from available cash
the $15,000 mandatory principal payment due September 30, 1998 and paid an
additional $25,000 on the term loan which will be applied on a pro rata
basis to the principal payments due in the fiscal years of 1999 to 2003.
5. Income Taxes
Income Tax Provision
1997 1996 1995
Current:
Federal $8,236 $2,988 $5,572
State 1,866 368 873
------ ------ ------
Total current 10,102 3,356 6,445
Deferred:
Federal (3,271) (4,630) 763
State (335) (467) 77
Total deferred (3,606) (5,097) 840
------ ------- -------
$6,496 $(1,741) $7,285
====== ======= =======
Effective Rate Reconciliation
1997 1996 1995
U.S. federal tax rate 35.0% (34.0)% 35.0%
State income taxes, net 6.0 (5.0) 3.5
Reduction of prior years' excess (5.5) (50.5) --
tax provisions
Foreign sales corporation (1.5) (5.2) (0.6)
Goodwill amortization 5.4 -- --
Other, net -- 6.9 0.6
----- ----- -----
39.4% (87.8)% 38.5%
===== ===== =====
Deferred Tax Assets and Liabilities
1997 1996
Deferred tax assets:
Other current liabilities $5,277 $6,625
Accrued warranty 4,439 3,194
Postretirement benefit obligations 3,916 3,674
Investments 1,887 1,801
Payroll-related obligations 1,846 818
Other 729 419
------- -------
Total deferred tax assets 18,094 16,531
Deferred tax liabilities:
Intangible assets 23,402 24,150
Property, plant and equipment 4,175 5,972
Inventories 2,341 1,922
Deferred charges 1,091 1,091
Other 58 349
------- -------
Total deferred tax liabilities 31,067 33,484
-------- --------
Net deferred tax liability $(12,973) $(16,953)
======== ========
The company has not recorded a valuation allowance with respect to any
deferred tax assets.
6. Employee Benefit Plans
The company has defined benefit pension plans covering substantially all
employees. The plans provide benefits based on compensation, years of
service and date of birth. The company's policy is to fund the plans in
amounts which comply with contribution limits imposed by law.
Components of net periodic pension cost for these plans for fiscal 1997,
1996, and 1995, including costs of discontinued operations which are not
significant in any year presented but excluding Pierce pension costs for
1996 due to the proximity of its acquisition to the company's fiscal year
end, are as follows:
1997 1996 1995
Service cost benefits earned during
year $1,387 $1,149 $1,140
Interest cost on projected benefit
obligations 2,439 1,979 1,862
Actual return on plan assets (8,789) (3,347) (2,505)
Net amortization and deferral 6,123 1,232 438
------ ------ ------
Net periodic pension cost $1,160 $1,013 $935
====== ====== ======
The following table summarizes the funded status of the pension plans and
the amounts recognized in the company's consolidated balance sheets at
September 30, 1997 and 1996:
1997 1996
Actuarial present value of benefit
obligations:
Vested $29,334 $26,009
Nonvested 694 602
------- -------
Accumulated benefit obligations 30,028 26,611
Adjustment for projected benefit
obligations 4,759 4,731
------- --------
Projected benefit obligations 34,787 31,342
Plan assets at fair value 39,556 31,089
------- --------
Plan assets in excess of (less than)
projected benefit obligations 4,769 (253)
Unrecognized net transition asset (594) (661)
Unrecognized net (gain) loss (1,538) 4,811
Unrecognized prior service cost 1,229 345
------ ------
Prepaid pension asset $3,866 $4,242
====== ======
The plans' assets are comprised of investments in commingled equity and
fixed income funds and individually managed equity portfolios.
Actuarial assumptions are as follows:
1997 1996 1995
Discount rate 7.75% 7.75% 7.50%
Rate of increase in compensation 4.50 4.50 4.50
Expected long-term rate of return
on plan assets 9.25 9.25 9.25
In addition to providing pension benefits for the majority of its
employees, the company provides health benefits to certain of its retirees
and their eligible spouses. Approximately 50% of the company's employees
become eligible for these benefits if they reach normal retirement age
while working for the company.
The following table summarizes the status of the postretirement benefit
plan and the amounts recognized in the company's consolidated balance
sheets at September 30, 1997 and 1996:
1997 1996
Postretirement benefit obligations:
Retirees $2,828 $2,929
Fully eligible active participants 522 397
Other active participants 5,647 4,865
------- -------
8,997 8,191
Unrecognized net gain 1,150 1,326
------- -------
Postretirement benefit obligations $10,147 $9,517
======= =======
Net periodic postretirement benefit cost for fiscal 1997, 1996, and 1995,
including discontinued operations which is not significant in any year
presented, includes the following components:
1997 1996 1995
Service cost $366 $353 $372
Interest cost on the accumulated
postretirement benefit obligation 613 580 610
Amortization of unrecognized net gain (32) -- --
----- ----- -----
Net periodic postretirement benefit cost $947 $933 $982
===== ===== =====
Net change in postretirement benefit obligations includes the following:
1997 1996
Balance at beginning of year $9,517 $8,839
Benefits paid (317) (255)
Net periodic postretirement benefit cost 947 933
------- -------
Balance at end of year $10,147 $9,517
======= =======
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 10.2% in fiscal 1997, declining to
6.5% in fiscal 2006. The weighted average discount rate used in
determining the postretirement benefit obligation was 7.75% in fiscal 1997
and 1996. If the health care cost trend rate was increased by 1%, the
postretirement benefit obligation at September 30, 1997 would increase by
$799 and net periodic postretirement benefit cost for fiscal 1997 would
increase by $107.
The company has defined contribution 401(k) plans covering substantially
all employees. The plans allow employees to defer 2% to 19% of their
income on a pre-tax basis. Each employee who elects to participate is
eligible to receive company matching contributions. Amounts expensed for
company matching contributions for continuing operations were $825, $401,
and $407 in fiscal 1997, 1996, and 1995, respectively.
7. Shareholders' Equity
The company is authorized to issue 1,000,000 shares of $.01 par value
Class A Common Stock of which 406,878 shares and 409,258 shares were
issued and outstanding at September 30, 1997 and 1996, respectively. The
company is authorized to issue 18,000,000 shares of $.01 par value Common
Stock. At September 30, 1997, 8,951,287 and 7,900,481 shares of Common
Stock were issued and outstanding, respectively. At September 30, 1996,
8,948,907 and 8,227,770 shares of Common Stock were issued and
outstanding, respectively. The company is also authorized to issue up to
2,000,000 shares of $.01 par value Preferred Stock, none of which were
issued or outstanding at September 30, 1997 or 1996.
On May 2, 1997, the company and Freightliner Corporation (Freightliner)
formally terminated a strategic alliance formed on June 2, 1995. The
company repurchased from Freightliner 350,000 shares of its Common Stock
and 1,250,000 warrants for the purchase of additional shares of Common
Stock for a total of $6,750. The company and Freightliner will continue
to supply each other with parts and components.
The company has a stock restriction agreement with two shareholders owning
the majority of the company's Class A Common Stock. The agreement is
intended to allow for an orderly transition of Class A Common Stock into
Common Stock. The agreement provides that at the time of death or
incapacity of the survivor of them, the two shareholders will exchange all
of their Class A Common Stock for Common Stock, and at that time, if not
earlier, will support an amendment to the Articles of Incorporation which
will provide for a mandatory conversion of all Class A Common Stock into
Common Stock.
Each share of Class A Common Stock is convertible into Common Stock on a
one-for-one basis. As of September 30, 1997, 406,878 shares of Common
Stock are reserved for the conversion of Class A Common Stock. In July
1995, the company authorized the buy back of up to one million shares of
the company's Common Stock. As of September 30, 1997 and 1996, the
company had purchased 461,535 shares of its Common Stock at an aggregate
cost of $6,551.
Dividends are required to be paid on both the Class A Common Stock and
Common Stock at any time that dividends are paid on either. Each share of
Common Stock is entitled to receive 115% of any dividend paid on each
share of Class A Common Stock, rounded up or down to the nearest $0.0025
per share.
Holders of the Common Stock have the right to elect or remove as a class
25% of the entire Board of Directors of the company rounded to the nearest
whole number of directors, but not less than one. Holders of Common Stock
are not entitled to vote on any other company matters, except as may be
required by law in connection with certain significant actions such as
certain mergers and amendments to the company's Articles of Incorporation,
and are entitled to one vote per share on all matters upon which they are
entitled to vote. Holders of Class A Common Stock are entitled to elect
the remaining directors (subject to any rights granted to any series of
Preferred Stock) and are entitled to one vote per share for the election
of directors and on all matters presented to the shareholders for vote.
The Common Stock shareholders are entitled to receive a liquidation
preference of $7.50 per share before any payment or distribution to
holders of the Class A Common Stock. Thereafter, holders of the Class A
Common Stock are entitled to receive $7.50 per share before any further
payment or distribution to holders of the Common Stock. Thereafter,
holders of the Class A Common Stock and Common Stock share on a pro rata
basis in all payments or distributions upon liquidation, dissolution or
winding up of the company.
8. Stock Option and Performance Share Award Plans
The company has reserved 756,071 shares of Common Stock at September 30,
1997 to provide for the exercise of outstanding stock options and
warrants, and the issuance of Common Stock under incentive compensation
awards. Under the 1990 Incentive Stock Plan for Key Employees (the Plan),
officers, other key employees and directors may be granted options to
purchase up to an aggregate of 825,000 shares of the company's Common
Stock at not less than the fair market value of such shares on the date of
grant. Participants may also be awarded grants of restricted stock under
the Plan. The Plan expires on April 9, 2000. Options become exercisable
ratably on the first, second and third anniversary of the date of grant.
Options to purchase shares expire not later than ten years and one month
after the grant of the option.
The following table summarizes the transactions of the Plan for the three
year period ended September 30, 1997:
Weighted
Number Average
of Exercise
Options Price
Unexercised options outstanding - 400,649 $10.22
Options granted 100,500 13.84
Options exercised (14,250) 9.31
Options forfeited or expired (9,831) 12.24
Unexercised options outstanding - 477,068 10.96
Options granted 14,500 14.68
Options exercised (24,515) 9.72
Options forfeited or expired (6,251) 12.58
Unexercised options outstanding - 460,802 11.12
Options granted 5,000 12.00
Options exercised (20,331) 10.34
Options forfeited or expired (7,570) 12.97
Unexercised options outstanding - 437,901 11.14
Price range $7.88 - $11.25
(weighted-average contractual 303,151 9.78
Price range $12.00 - $15.25
(weighted-average contractual 134,750 14.19
Exercisable options at September 30, 391,403 10.82
Shares available for grant at 318,170
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123), became effective for the company in
fiscal 1997. As allowed by SFAS 123, the company has elected to continue
to follow Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB 25) in accounting for the Plan. Under
APB 25, the company does not recognize compensation expense on the
issuance of its stock options because the option terms are fixed and the
exercise price equals the market price of the underlying stock on the
grant date.
As required by SFAS 123, the company has determined the pro forma
information as if the company had accounted for stock options granted
since September 30, 1995, under the fair value method of SFAS 123. The
Black-Scholes option pricing model was used with the following weighted-
average assumptions: risk-free interest rates of 6.27% in 1997 and 5.39%
and 6.38% in 1996; dividend yield of 4.17% in 1997 and 3.60% and 3.28% in
1996; expected common stock market price volatility factor of .305; and a
weighted-average expected life of the options of six years. The weighted-
average fair value of options granted in 1997 and 1996 were $3.07 and
$4.08 per share, respectively. The pro forma effect of these options on
net earnings and earnings per share was not material. These pro forma
calculations only include the effects of 1996 and 1997 grants. As such,
the impacts are not necessarily indicative of the effects on reported net
income of future years.
9. Operating Leases
Total rental expense for plant and equipment charged to continuing
operations under noncancellable operating leases was $886, $797, and
$1,004 in fiscal 1997, 1996, and 1995, respectively. Minimum rental
payments due under operating leases for subsequent fiscal years are: 1998-
$937; 1999-$545; 2000-$212; 2001-$123; and 2002-$71.
Included in rental expense are charges of $128, $128, and $215 in fiscal
1997, 1996, and 1995, respectively, relating to leases between the company
and certain shareholders.
10. Discontinued Operations
On June 2, 1995, Freightliner acquired certain assets of the company's
motor home, bus and van chassis business. The consideration included cash
of $23,815 and the assumption by Freightliner of certain liabilities. The
assets sold to Freightliner consisted of inventories, property, plant and
equipment and the company's ownership interest in a Mexican chassis
manufacturer. The liabilities assumed by Freightliner included warranty
obligations related to previously produced chassis and industrial revenue
bonds that were secured by the underlying real estate. The disposition of
the chassis business has been accounted for as a discontinued operation.
Revenues of the chassis business for fiscal 1995 (through the date of
sale) were $55,804.
The net liabilities of the discontinued operations have been segregated in
the consolidated balance sheets. Details of such amounts at September 30,
1997 and 1996, are as follows:
1997 1996
Accrued warranty $1,352 $1,862
Other, net 184 113
------ -------
Net current liabilities of discontinued
operations $1,536 $1,975
====== =======
Accrued warranty $1,235 $2,181
Other, net 127 400
------ ------
Net long-term liabilities of discontinued
operations $1,362 $2,581
====== ======
In fiscal 1996, the company incurred charges totaling $2,623 arising from
the write-off of receivables and other obligations related to the
company's former joint venture in Mexico. In addition, in fiscal 1996,
the company recognized additional warranty and other related costs
totaling $2,063 with respect to the company's former U.S. chassis
business.
The company has allocated interest on the debt which was assumed by
Freightliner to discontinued operations. Interest expense included in
discontinued operations totaled $685 in fiscal 1995.
11. Contingencies, Significant Estimates and Concentrations
The company is engaged in litigation against Super Steel Products
Corporation (SSPC), the company's former supplier of mixer systems for
front-discharge concrete mixer trucks under a long-term supply contract .
SSPC sued the company in state court claiming the company breached the
contract. The company counterclaimed for repudiation of contract. On July
26, 1996, a jury returned a verdict for SSPC awarding damages totaling
$4,485. On October 10, 1996, the state court judge overturned the verdict
against the company, granted judgment for the company on its counterclaim,
and ordered a new trial for damages on the company's counterclaim. Both
SSPC and the company have appealed the state court judge's decision. The
Wisconsin Court of Appeals has agreed to hear the case and both the
company and SSPC have filed briefs in this matter.
The company currently is engaged in the arbitration of certain disputes
between the Oshkosh Florida Division and O.V. Containers, Inc., which
arose out of the performance of a contract to deliver 690 skeletal
container chassis. The arbitration is being conducted before a three-
member panel under the commercial dispute rules of the American
Arbitration Association, and is not expected to conclude before April,
1998. The company is vigorously contesting warranty and other claims made
against it, and has asserted substantial claims against O.V. Containers,
Inc. The outcome of these matters cannot be predicted at the present
time.
As part of its routine business operations, the company disposes of and
recycles or reclaims certain industrial waste materials, chemicals and
solvents at third party disposal and recycling facilities which are
licensed by appropriate governmental agencies. In some instances, these
facilities have been and may be designated by the United States
Environmental Protection Agency (EPA) or a state environmental agency for
remediation. Under the Comprehensive Environmental Response,
Compensation, and Liability Act (the Superfund law) and similar state
laws, each potentially responsible party (PRP) that contributed hazardous
substances may be jointly and severally liable for the costs associated
with cleaning up the site. Typically, PRPs negotiate a resolution with
the EPA and/or the state environmental agencies. PRPs also negotiate with
each other regarding allocation of the cleanup cost.
As to one such Superfund site, Pierce is one of 414 PRPs participating in
the costs of addressing the site and has been assigned an allocation share
of approximately 0.04%. Currently a remedial investigation/ feasibility
study is being completed, and as such, an estimate for the total cost of
the remediation of this site has not been made to date. However, based on
estimates and the assigned allocations, the company believes its liability
at the site will not be material and its share is adequately covered
through reserves established by the company at September 30, 1997. 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 recent testing showing the highest
concentrations in a monitoring well located on the upgradient property
line. Because the investigation process is still ongoing, it is not
possible for the company to estimate its long-term total liability
associated with this issue at this time. Also, as part of the regional
TCE groundwater investigation, the company conducted a groundwater
investigation of a former landfill located on company property. The
landfill, acquired by the company in 1972, is approximately 2.0 acres in
size and is believed to have been used for the disposal of household
waste. Based on the investigation, the company does not believe the
landfill is one of the sources of the TCE contamination. Based upon
current knowledge, the company believes its liability associated with the
TCE issue will not be material and is adequately covered through reserves
established by the company at September 30, 1997. However, this may
change as investigations proceed by the company, other unrelated property
owners, and government entities .
The company is subject to other environmental matters and legal
proceedings and claims which arise in the ordinary course of business.
Although the final results of all such matters and claims cannot be
predicted with certainty, management believes that the ultimate resolution
of all such matters and claims, after taking into account the liabilities
accrued with respect to such matters and claims, will not have a material
adverse effect on the company's financial condition 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
$4,178 at September 30, 1997. The company is also contingently liable
under bid, performance and specialty bonds totaling approximately $94,101
at September 30, 1997.
Provisions for estimated warranty and other related costs are recorded at
the time of sale and are periodically adjusted to reflect actual
experience. As of September 30, 1997 and 1996, the company has accrued
$12,320 and $8,942 for warranty claims. Certain warranty and other
related claims involve matters of dispute that ultimately are resolved by
negotiation, arbitration or litigation. Infrequently, a material warranty
issue can arise which is beyond the scope of the company's historical
experience. During fiscal 1997 and 1996, the company recorded warranty
and other related costs for matters beyond the company's historical
experience totaling $3,770 and $5,602, respectively, with respect to
continuing operations and $2,063 with respect to discontinued operations
in fiscal 1996 (see Note 10). It is reasonably possible that additional
warranty and other related claims could arise from disputes or other
matters beyond the scope of the company's historical experience.
The company subcontracted production under an $85,000 ISO-Compatible
Palletized Flatracks (IPF) contract for the U.S. Army to Steeltech, a
minority-owned firm, pursuant to Department of Defense regulations under
the IPF contract. Due to financial difficulties encountered by Steeltech,
the company advanced working capital requirements to Steeltech in fiscal
1995 and 1996. As a result of delays in the start-up of full-scale
production under the IPF contract, the company wrote off certain of its
advances and an investment in Steeltech totaling $3,300 in fiscal 1996.
Steeltech's IPF production passed first article testing in July 1996 and
production is expected to be completed in fiscal 1998. As of September
30, 1997 and 1996, the company had outstanding advances due from Steeltech
of $162 and $2,855, respectively. In fiscal 1996, the company also wrote
off an investment of $900 in a joint venture which leases equipment to
Steeltech and accrued $1,084 for the potential satisfaction of a guarantee
of 50% of the outstanding indebtedness of the joint venture. The company
is further contingently liable for Department of Defense progress payments
that have been advanced to Steeltech totaling $3,352 at September 30, 1997
($5,380 at September 30, 1996) in the event of incomplete performance
under the IPF contract. While management currently expects the company to
realize its remaining advances to Steeltech as of September 30, 1997 and
to avoid liability for progress payments advanced to Steeltech, it is
reasonably possible that the company could become liable for a portion of
such progress payments.
The company derives a significant portion of its revenue from the U.S.
Department of Defense, as follows:
1997 1996 1995
Defense:
U.S. Department of $272,042 $249,413 $260,112
Export 16,584 2,059 1,623
------- ------- -------
288,626 251,472 261,735
Commercial:
Domestic 373,946 141,540 159,326
Export 20,662 20,443 17,496
------- ------- -------
394,608 161,983 176,822
------- ------- -------
Net sales $683,234 $413,455 $438,557
======= ======= =======
U.S. Department of Defense sales include $17,723 and $58,855 in fiscal
1997 and 1996, respectively, for products sold internationally under the
Foreign Military Sales (FMS) Program. There were no sales under the FMS
Program in 1995.
Inherent in doing business with the U.S. Department of Defense are certain
risks, including technological changes and changes in levels of defense
spending. All U.S. Department of Defense contracts contain a provision
that they may be terminated at any time at the convenience of the
government. In such an event, the company is entitled to recover
allowable costs plus a reasonable profit earned to the date of
termination.
Various actions or claims have been asserted or may be asserted in the
future by the government against the company. A potential action by the
government against the company in connection with a grand jury
investigation was commenced in 1989. In 1996, the government discontinued
this investigation without any action against the company or its
employees, although a civil investigation is possible.
12. Subsequent Event
On December 8, 1997, the company announced that it had agreed to acquire
McNeilus Companies, Inc. (McNeilus), a $300-million manufacturer and
marketer of refuse and recycling truck bodies, rear-discharge concrete
mixers, and ready-mix batch plants. The total purchase cost for all
McNeilus stock and related non-compete and ancillary agreements is $250
million in cash. The transaction is subject to the approval of the
appropriate governmental authorities and is expected to close in the first
quarter of calendar 1998.
Under certain conditions, if the acquisition is not consummated, the
company may be required to pay McNeilus a fee of $10 million, and
conversely, McNeilus may be required to pay a $10 million fee to the
company.
Report of Ernst & Young LLP, Independent Auditors
Board of Directors
Oshkosh Truck Corporation
We have audited the accompanying consolidated balance sheets of Oshkosh
Truck Corporation (the company) as of September 30, 1997 and 1996, and the
related consolidated statements of income (loss), shareholders' equity and
cash flows for each of the three years in the period ended September 30,
1997. These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the
company at September 30, 1997 and 1996, and the consolidated results of
its operations and its cash flows for each of the three years in the
period ended September 30, 1997, in conformity with generally accepted
accounting principles.
Milwaukee, Wisconsin
October 31, 1997, except for
Notes 4 and 12, as to which
the date is December 8, 1997