Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

 

For the quarterly period ended March 31, 2012

 

or

 

 

Commission File Number: 1-31371

 

Oshkosh Corporation

(Exact name of registrant as specified in its charter)

 

Wisconsin		39-0520270
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

 

 

Registrant’s telephone number, including area code: (920) 235-9151

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. x  Yes  o  No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months.  x  Yes  o  No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). o  Yes  x  No

 

As of April 20, 2012, 91,641,354 shares of the registrant’s Common Stock were outstanding.

 

 

Table of Contents

 

OSHKOSH CORPORATION

 

FORM 10-Q IND EX

 

FOR THE QUARTER ENDED MARCH 31, 2012

 

		Page
PART I — FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS (UNAUDITED)
	Condensed Consolidated Statements of Income for the Three Months and Six Months Ended March 31, 2012 and 2011	3
	Condensed Consolidated Balance Sheets at March 31, 2012 and September 30, 2011	4
	Condensed Consolidated Statements of Equity for the Six Months Ended March 31, 2012 and 2011	5
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2012 and 2011	6
	Notes to Condensed Consolidated Financial Statements	7
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	30
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	40
ITEM 4.	CONTROLS AND PROCEDURES	41
PART II — OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	42
ITEM 1A.	RISK FACTORS	42
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	44
ITEM 6.	EXHIBITS	44
SIGNATURES		45
EXHIBIT INDEX		46

 

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PART I — FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

OSHKOSH CORPORATION

Condensed Consolidated Statements of Income

(In millions, except per share amounts; unaudited)

 

		Three Months Ended						Six Months Ended
		March 31,						March 31,
		2012			2011			2012			2011
Net sales		$	2,075.3		$	1,745.6		$	3,953.9		$	3,446.4
Cost of sales		1,835.9			1,464.5			3,492.0			2,856.3
Gross income		239.4			281.1			461.9			590.1
Operating expenses:
Selling, general and administrative		148.7			133.7			281.0			258.7
Amortization of purchased intangibles		14.8			15.0			29.7			30.3
Total operating expenses		163.5			148.7			310.7			289.0
Operating income		75.9			132.4			151.2			301.1
Other income (expense):
Interest expense		(18.2		)	(21.7		)	(38.8		)	(48.2		)
Interest income		0.6			1.0			1.2			1.8
Miscellaneous, net		1.3			0.4			(4.3		)	0.1
Income from operations before income taxes and equity in earnings (losses) of unconsolidated affiliates		59.6			112.1			109.3			254.8
Provision for income taxes		21.6			44.2			32.7			88.2
Income from operations before equity in earnings (losses) of unconsolidated affiliates		38.0			67.9			76.6			166.6
Equity in earnings (losses) of unconsolidated affiliates		—			(0.2		)	0.7			0.2
Net income		38.0			67.7			77.3			166.8
Net (income) loss attributable to the noncontrolling interest		(0.7		)	0.2			(1.1		)	0.7
Net income attributable to Oshkosh Corporation		$	37.3		$	67.9		$	76.2		$	167.5
Earnings per share attributable to Oshkosh Corporation common shareholders:
Basic		$	0.41		$	0.75		$	0.84		$	1.85
Diluted		0.41			0.74			0.83			1.83

 

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

 

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OSHKOSH CORPORATION

Condensed Consolidated Balance Sheets

(In millions, except share and per share amounts; unaudited)

 

		March 31,			September 30,
		2012			2011
Assets
Current assets:
Cash and cash equivalents		$	388.4		$	428.5
Receivables, net		1,115.3			1,089.1
Inventories, net		849.3			786.8
Deferred income taxes		67.0			72.9
Other current assets		60.4			77.3
Total current assets		2,480.4			2,454.6
Investment in unconsolidated affiliates		32.7			31.8
Property, plant and equipment, net		365.9			388.7
Goodwill		1,042.9			1,041.5
Purchased intangible assets, net		809.9			838.7
Other long-term assets		61.4			71.6
Total assets		$	4,793.2		$	4,826.9
Liabilities and Equity
Current liabilities:
Revolving credit facility and current maturities of long-term debt		$	0.1		$	40.1
Accounts payable		757.4			768.9
Customer advances		420.3			468.6
Payroll-related obligations		102.2			110.7
Income taxes payable		5.5			5.3
Accrued warranty		80.9			75.0
Deferred revenue		55.3			38.4
Other current liabilities		166.5			184.8
Total current liabilities		1,588.2			1,691.8
Long-term debt, less current maturities		987.7			1,020.0
Deferred income taxes		156.2			171.3
Other long-term liabilities		369.8			347.2
Commitments and contingencies
Equity:
Preferred Stock ($.01 par value; 2,000,000 shares authorized; none issued and outstanding)		—			—
Common Stock ($.01 par value; 300,000,000 shares authorized; 91,636,354 and 91,330,019 shares issued, respectively)		0.9			0.9
Additional paid-in capital		694.8			685.6
Retained earnings		1,108.9			1,032.7
Accumulated other comprehensive loss		(114.5		)	(122.6		)
Common Stock in treasury, at cost (6,956 shares at September 30, 2011)		—			(0.1		)
Total Oshkosh Corporation shareholders’ equity		1,690.1			1,596.5
Noncontrolling interest		1.2			0.1
Total equity		1,691.3			1,596.6
Total liabilities and equity		$	4,793.2		$	4,826.9

 

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

 

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OSHKOSH CORPORATION

Condensed Consolidated Statements of Equity

(In millions; unaudited)

 

		Oshkosh Corporation’s Shareholders
											Accumulated			Common
					Additional						Other			Stock in			Non-
		Common			Paid-In			Retained			Comprehensive			Treasury			Controlling			Comprehensive
		Stock			Capital			Earnings			Income (Loss)			at Cost			Interest			Income
Balance at September 30, 2010		$	0.9		$	659.7		$	759.2		$	(93.2	)	$	—		$	0.2
Comprehensive income:
Net income		—			—			167.5			—			—			(0.7		)	$	166.8
Change in fair value of derivative instruments, net of tax of $3.1		—			—			—			5.4			—			—			5.4
Employee pension and postretirement benefits, net of tax of $1.7		—			—			—			2.9			—			—			2.9
Currency translation adjustments		—			—			—			22.7			—			—			22.7
Total comprehensive income																				$	197.8
Exercise of stock options		—			7.0			—			—			—			—
Stock-based compensation and award of nonvested shares		—			8.4			—			—			—			—
Tax benefit related to stock-based compensation		—			2.1			—			—			—			—
Other		—			0.1			—			—			—			—
Balance at March 31, 2011		$	0.9		$	677.3		$	926.7		$	(62.2	)	$	—		$	(0.5	)

 

		Oshkosh Corporation’s Shareholders
											Accumulated			Common
					Additional						Other			Stock in			Non-
		Common			Paid-In			Retained			Comprehensive			Treasury			Controlling			Comprehensive
		Stock			Capital			Earnings			Income (Loss)			at Cost			Interest			Income
Balance at September 30, 2011		$	0.9		$	685.6		$	1,032.7		$	(122.6	)	$	(0.1	)	$	0.1
Comprehensive income:
Net income		—			—			76.2			—			—			1.1			$	77.3
Change in fair value of derivative instruments, net of tax of $0.8		—			—			—			1.4			—			—			1.4
Employee pension and postretirement benefits, net of tax of $1.8		—			—			—			3.0			—			—			3.0
Currency translation adjustments		—			—			—			3.7			—			—			3.7
Total comprehensive income																				$	85.4
Exercise of stock options		—			2.2			—			—			0.7			—
Stock-based compensation and award of nonvested shares		—			6.6			—			—			—			—
Other		—			0.4			—			—			(0.6		)	—
Balance at March 31, 2012		$	0.9		$	694.8		$	1,108.9		$	(114.5	)	$	—		$	1.2

 

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

 

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OSHKOSH CORPORATION

Condensed Consolidated Statements of Cash Flows

(In millions; unaudited)

 

		Six Months Ended
		March 31,
		2012			2011
Operating activities:
Net income		$	77.3		$	166.8
Depreciation and amortization		64.3			69.9
Deferred income taxes		(11.8		)	2.7
Other non-cash adjustments		4.4			4.7
Changes in operating assets and liabilities		(87.3		)	12.5
Net cash provided by operating activities		46.9			256.6
Investing activities:
Additions to property, plant and equipment		(24.1		)	(31.0		)
Additions to equipment held for rental		(3.1		)	(3.1		)
Proceeds from sale of property, plant and equipment		6.1			0.7
Proceeds from sale of equipment held for rental		2.4			7.8
Other investing activities		(0.7		)	(1.1		)
Net cash used by investing activities		(19.4		)	(26.7		)
Financing activities:
Repayment of long-term debt		(72.5		)	(65.3		)
Repayments under revolving credit facility		—			(100.0		)
Proceeds from exercise of stock options		2.9			7.0
Other financing activities		(0.2		)	1.8
Net cash used by financing activities		(69.8		)	(156.5		)
Effect of exchange rate changes on cash		2.2			4.3
Increase (decrease) in cash and cash equivalents		(40.1		)	77.7
Cash and cash equivalents at beginning of period		428.5			339.0
Cash and cash equivalents at end of period		$	388.4		$	416.7
Supplemental disclosures:
Cash paid for interest		$	37.0		$	45.5
Cash paid for income taxes		31.6			79.8

 

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

 

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OSHKOSH CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

1.     Basis of Presentation

 

In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements contain all adjustments (which include normal recurring adjustments, unless otherwise noted) necessary to present fairly the financial position, results of operations and cash flows for the periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). These Condensed Consolidated Financial Statements should be read in conjunction with the audited financial statements and notes thereto included in Oshkosh Corporation’s (the “Company”) Annual Report on Form 10-K for the year ended September 30, 2011. The interim results are not necessarily indicative of results for the full year.

 

2.     New Accounting Standards

 

In June 2011, the Financial Accounting Standards Board (“FASB”) amended Accounting Standards Codification (“ASC”) Topic 220, Comprehensive Income , to require all non-owner changes in shareholders’ equity to be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. Under this amendment, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. An entity will no longer be permitted to present the components of other comprehensive income as part of the statement of equity. The Company will be required to adopt the new presentation requirements as of October 1, 2012. The adoption of the new presentation will not have a material impact on the Company’s financial condition, results of operations or cash flows.

 

3.     Receivables

 

Receivables consisted of the following (in millions):

 

		March 31,			September 30,
		2012			2011
U.S. government:
Amounts billed		$	232.4		$	318.8
Costs and profits not billed		220.5			172.3
		452.9			491.1
Other trade receivables		634.4			568.8
Finance receivables		6.9			23.6
Notes receivable		28.0			33.7
Other receivables		33.2			27.4
		1,155.4			1,144.6
Less allowance for doubtful accounts		(21.8		)	(29.5		)
		$	1,133.6		$	1,115.1

 

Costs and profits not billed generally result from undefinitized change orders on existing long-term contracts and “not-to-exceed” undefinitized contracts whereby the Company cannot invoice the customer the full price under the contract or contract change order until such contract or change order is definitized and agreed to with the customer following a review of costs under such a contract award even though the contract deliverables may have been met. Definitization of a change order on an existing long-term contract or a sole source contract begins when the U.S. government customer undertakes a detailed review of the Company’s submitted costs related to the contract, with the final change order or contract price subject to review. The Company recognizes revenue on undefinitized contracts to the extent that it can reasonably and reliably estimate the expected final contract price and when collectability is reasonably assured. Through March 31, 2012, the Company has recorded $621.1 million in revenue on contracts which remain undefinitized as of that date. To the extent that contract definitization results in changes to previously estimated or incurred costs or revenues, the Company records those adjustments as a change in estimate.

 

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OSHKOSH CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Classification of receivables in the Condensed Consolidated Balance Sheets consisted of the following (in millions):

 

		March 31,			September 30,
		2012			2011
Current receivables		$	1,115.3		$	1,089.1
Long-term receivables		18.3			26.0
		$	1,133.6		$	1,115.1

 

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

 

Finance receivables consisted of the following (in millions):

 

		March 31,			September 30,
		2012			2011
Finance receivables		$	7.9		$	27.9
Less unearned income		(1.0		)	(4.3		)
Net finance receivables		6.9			23.6
Less allowance for doubtful accounts		(3.1		)	(11.5		)
		$	3.8		$	12.1

 

Contractual maturities of the Company’s finance receivables at March 31, 2012 were as follows: 2012 (remaining six months) - $3.5 million; 2013 - $1.4 million; 2014 - $1.4 million; 2015 - $0.8 million; 2016 - $0.4 million; 2017 - $0.1 million; and thereafter - $0.3 million. Historically, obligors have paid off finance receivables prior to their contractual due dates, although actual repayment timing is impacted by a number of factors, including the economic environment at the time. As a result, contractual maturities are not to be regarded as a forecast of future cash flows.

 

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

 

Notes Receivable: Notes receivable include refinancing of trade accounts and finance receivables. As of March 31, 2012, approximately 92% of the notes receivable balance outstanding was due from three parties. The Company routinely evaluates the creditworthiness of its customers and establishes reserves where the Company believes collectability is no longer reasonably assured. Notes receivable are written down once management determines that the specific borrower does not have the ability to repay the loan in full. Certain notes receivable are collateralized by a security interest in the underlying assets and/or other assets owned by the debtor. The Company may incur losses in excess of recorded allowances if the financial

 

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OSHKOSH CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

condition of its customers were to deteriorate or the full amount of any anticipated proceeds from the sale of the collateral supporting its customers’ financial obligations is not realized.

 

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

 

Finance and notes receivable aging and accrual status consisted of the following (in millions):

 

		Finance Receivables						Notes Receivable
		March 31,			September 30,			March 31,			September 30,
		2012			2011			2012			2011
Aging of receivables that are past due:
Greater than 30 days and less than 60 days		$	0.1		$	0.5		$	—		$	—
Greater than 60 days and less than 90 days		—			0.1			—			—
Greater than 90 days		1.7			6.5			0.3			0.5
Receivables on nonaccrual status		4.2			17.6			20.6			20.8
Receivables past due 90 days or more and still accruing		—			—			—			—
Receivables subject to general reserves		0.8			0.4			3.3			8.6
Allowance for doubtful accounts		—			—			(0.1		)	(0.1		)
Receivables subject to specific reserves		6.1			23.2			24.7			25.1
Allowance for doubtful accounts		(3.1		)	(11.5		)	(8.4		)	(8.8		)

 

Receivables subject to specific reserves also include loans that the Company has modified in troubled debt restructurings as a concession to customers experiencing financial difficulty. To minimize the economic loss, the Company may modify certain finance and notes receivable. Modifications generally consist of restructured payment terms and time frames in which no payments are required. Troubled debt restructurings were not significant during the three and six months ended March 31, 2012.

 

Changes in the Company’s allowance for doubtful accounts were as follows (in millions):

 

		Three Months Ended March 31, 2012												Three Months Ended March 31, 2011
								Trade and												Trade and
		Finance			Notes			Other			Total			Finance			Notes			Other			Total
Beginning balance		$	3.7		$	8.7		$	8.7		$	21.1		$	14.8		$	12.7		$	10.7		$	38.2
Provision, net of recoveries		(0.6		)	(0.2		)	1.7			0.9			2.3			(0.6		)	0.5			2.2
Charge-offs		—			—			(0.2		)	(0.2		)	(0.8		)	(2.1		)	(1.9		)	(4.8		)
Foreign currency translation		—			—			—			—			—			0.2			0.1			0.3
Ending balance		$	3.1		$	8.5		$	10.2		$	21.8		$	16.3		$	10.2		$	9.4		$	35.9

 

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OSHKOSH CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

		Six Months Ended March 31, 2012												Six Months Ended March 31, 2011
								Trade and												Trade and
		Finance			Notes			Other			Total			Finance			Notes			Other			Total
Beginning balance		$	11.5		$	8.9		$	9.1		$	29.5		$	20.9		$	9.4		$	11.7		$	42.0
Provision, net of recoveries		(3.1		)	(0.2		)	2.3			(1.0		)	0.9			2.8			0.3			4.0
Charge-offs		(5.3		)	(0.2		)	(1.2		)	(6.7		)	(5.5		)	(2.1		)	(2.7		)	(10.3		)
Foreign currency translation		—			—			—			—			—			0.1			0.1			0.2
Ending balance		$	3.1		$	8.5		$	10.2		$	21.8		$	16.3		$	10.2		$	9.4		$	35.9

 

4.     Inventories

 

Inventories consisted of the following (in millions):

 

			March 31,			September 30,
			2012			2011
Raw materials			$	550.1		$	587.4
Partially finished products			344.8			377.7
Finished products			462.5			237.8
Inventories at FIFO cost			1,357.4			1,202.9
Less:	Progress/performance-based payments on U.S. government contracts		(429.5		)	(341.7		)
	Excess of FIFO cost over LIFO cost		(78.6		)	(74.4		)
			$	849.3		$	786.8

 

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

 

5.     Investments in Unconsolidated Affiliates

 

Investments in unconsolidated affiliates are accounted for under the equity method and consisted of the following (in millions):

 

		Percent-		March 31,			September 30,
		owned		2012			2011
OMFSP (U.S.)		50%		$	14.4		$	13.4
RiRent (The Netherlands)		50%		10.9			10.9
Other				7.4			7.5
				$	32.7		$	31.8

 

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

 

The Company and an unaffiliated third-party are partners in Oshkosh/McNeilus Financial Services Partnership (“OMFSP”), a general partnership formed for the purpose of offering lease financing to certain customers of the Company. OMFSP has historically engaged in providing vendor lease financing to certain customers of the Company. OMFSP has not actively solicited new leases in the past twelve months.

 

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