UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ | ANNUAL REPORT PURSUANT TO SECTION13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended September 30, 2018
or
☐ | TRANSITION REPORT PURSUANT TO SECTION13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number:
1-31371Oshkosh 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.) |
1917 Four Wheel Drive Oshkosh, Wisconsin | 54902 | |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code:
(920)Securities registered pursuant to Section 12(b) of the Act:
Titleofeachclass | Trading Symbol(s) | Nameofeachexchangeonwhichregistered | |||
Common Stock ($.01 par value) | OSK | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. | |||||
☒ | Yes | ☐ | No | ||
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the | |||||
☐ | Yes | ☒ | No | ||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. | |||||
☒ | Yes | ☐ | No | ||
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). | |||||
☒ | Yes | ☐ | No |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☒ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant ishas filed a shell company (as defined in Rule 12b-2report on and attestation to its management’s assessment of the Act).
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). | ||||
☐ | Yes | ☒ | No |
At March 31, 2018,2020, the aggregate market value of the registrant’s Common Stock held by non-affiliates was $5,711,502,765$4,378,988,453 (based on the closing price of $77.27$64.33 per share on the New York Stock Exchange as of such date).
As of November 13, 2018, 71,894,11011, 2020, 68,189,776 shares of the registrant’s Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Proxy Statement for the 20192020 Annual Meeting of Shareholders (to be filed with the Commission under Regulation 14A within 120 days after the end of the registrant’s fiscal year and, upon such filing, to be incorporated by reference into Part III).
OSHKOSH CORPORATION
FISCAL 20182020 ANNUAL REPORT ON FORM
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PART I | ||||
ITEM 1. | 1 | |||
ITEM 1A. | 13 | |||
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ITEM 2. | 23 | |||
3. | 24 | |||
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PART II | ||||
26 | ||||
28 | ||||
29 | ||||
44 | ||||
45 | ||||
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99 | ||||
ITEM 9B. | 99 | |||
PART III | ||||
100 | ||||
ITEM 11. | 100 | |||
100 | ||||
101 | ||||
101 | ||||
102 | ||||
105 | ||||
106 |
As used herein, the “Company,” “we,” “us” and “our” refers to Oshkosh Corporation and its consolidated subsidiaries. “Oshkosh” refers to Oshkosh Corporation, not including JLG Industries, Inc. and its wholly-owned subsidiaries (JLG), Oshkosh Defense, LLC and its wholly-owned subsidiary (Oshkosh Defense), Pierce Manufacturing Inc. (Pierce), McNeilus Companies, Inc. (McNeilus) and its wholly-owned subsidiaries, Oshkosh Airport Products, LLC (Airport Products), Kewaunee Fabrications, LLC (Kewaunee), Oshkosh Commercial Products, LLC (Oshkosh Commercial), Concrete Equipment Company, Inc. and its wholly-owned subsidiary (CON-E-CO), London Machinery Inc. and its wholly-owned subsidiary (London) and Iowa Mold Tooling Co., Inc. (IMT) or any other subsidiaries.
The “Oshkosh
®,” “JLG®,” “Oshkosh Defense®,” “Pierce®,” “McNeilus®,” “Jerr-Dan®,” “Frontline™,”All references herein to earnings per share refer to earnings per share assuming dilution, unless noted otherwise.
For ease of understanding, the Company refers to types of specialty vehicles for particular applications as “markets.” When the Company refers to “market” positions, these comments are based on information available to the Company concerning units sold by those companies currently manufacturing the same types of specialty vehicles and vehicle bodies as the Company and are therefore only estimates. Unless otherwise noted, these market positions are based on sales in the United States of America. There can be no assurance that the Company will maintain such market positions in the future.
Cautionary Statement About Forward-Looking Statements
The Company believes that certain statements in “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other statements located elsewhere in this Annual Report on Form 10-K are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact included in this report, including, without limitation, statements regarding the Company’s future financial position, business strategy, targets, projected sales, costs, earnings, capital expenditures, debt levels and cash flows, and plans and objectives of management for future operations, including those under the captionscaption “Executive Overview” and “Fiscal 2019 Outlook”Overview in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” are forward-looking statements. When used in this Annual Report on Form 10-K, words such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “should,” “project” or “plan” or the negative thereof or variations thereon or similar terminology are generally intended to identify forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, assumptions and other factors, some of which are beyond the Company’s control, which could cause actual results to differ materially from those expressed or implied by such forward-looking statements. These factors include the overall impact of the COVID-19 pandemic on the Company’s business, results of operations and financial condition; the duration and severity of the COVID-19 pandemic; actions that may be taken by government authorities and others to address or otherwise mitigate the impact of the COVID-19 pandemic; the negative impacts of the COVID-19 pandemic on global economies and the Company’s customers, suppliers and employees; the cyclical nature of the Company’s access equipment, commercial and fire & emergency markets, which are particularly impacted by the strength of U.S., European and EuropeanAsian economies and construction seasons; the Company’s ability to increase prices or impose surcharges to raise margins or to offset higher input costs, including increased commodity, raw material, labor and freights costs; the Company’s estimates of access equipment demand which, among other factors, is influenced by customer historical buying patterns and rental company fleet replacement strategies; the strength of the U.S. dollar and its impact on Company exports, translation of foreign sales and the cost of purchased materials; the expected level and timing of U.S. Department of Defense (DoD) and international defense customer procurement of products and services and acceptance of and funding or payments for such products and services; the Company’s ability to predict the level and timing of orders for indefinite delivery/indefinite quantity contracts with the U.S. federal government; risks related to reductions in government expenditures in light of U.S. defense budget pressures, sequestration and an uncertain DoD tactical wheeled vehicle strategy; the impact of any DoD solicitation for competition for future contracts to produce military vehicles; risks related to facilities expansion, consolidation and alignment, including the amounts of related costs and charges and that anticipated cost savings may not be achieved; projected adoption rates of work at height machinery in emerging markets; the impact of severe weather, or natural disasters or pandemics that may affect the Company, its suppliers or its customers; performance issues with key suppliers or subcontractors; risks related to the collectability of receivables, particularly for those businesses with exposure to construction markets; the cost of any warranty campaigns related to the Company’s products; risks associated with international operations and sales, including compliance with the Foreign Corrupt Practices Act; risks that an escalating trade war and related tariffs could reduce the competitiveness of the Company’s products; the Company’s ability to comply with complex laws and regulations applicable to U.S. government contractors; cybersecurity risks and costs of defending against, mitigating and responding to data security threats and breaches; the Company’s ability to successfully identify, complete and integrate acquisitions and to realize the anticipated benefits associated with the same; and risks related to the Company’s ability to successfully execute on its strategic road map and meet its long-term financial goals. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in Item 1A of Part I of this report.
All forward-looking statements, including those under the captionscaption “Executive Overview” and “Fiscal 2019 Outlook” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” speak only as of November 20, 2018.18, 2020. The Company assumes no obligation, and disclaims any obligation, to update information contained in this Annual Report on Form 10-K. Investors should be aware that the Company may not update such information until the Company’s next quarterly earnings conference call, if at all.
PART
IITEM 1. BUSINESS
The Company
Oshkosh Corporation is a leading designer, manufacturer and marketer of a broad range of engineeredaccess equipment, specialty vehicles and vehicle bodies. truck bodies for the primary markets of access equipment, defense, fire & emergency, refuse hauling, concrete placement as well as airport services. Oshkosh engineers vehicles and equipment that move industries forward. Each of our products and technologies is designed with customers and end-users in mind, from the four-wheel drive system that the Company patented in 1917 to advances in electrification, autonomy & active safety and intelligent products.
The Company partners with customers to deliver superior solutions that safelycomprises 10 brands and efficiently move people and materials at work, around the globe, and around the clock. The Company began business in 1917 as an early pioneer of four wheel drive technology and, after more than 100 years, off road mobility remains one of its core competencies. The Company maintains four reportable segments for financial reporting purposes: access equipment, defense, fireAccess Equipment, Defense, Fire & emergencyEmergency and commercial,Commercial, which comprised 49%36%, 24%33%, 14%17% and 13%14%, respectively, of the Company’s consolidated net sales in fiscal 2018. These segments, in some way, all share common customers2020. Oshkosh’s leading brands include a wide range of products to serve a diverse group of industries. This allows the Company to leverage innovations and distribution channels, leverage common components and suppliers, share engineering talent and processes, use common technical solutions andefficiencies across the enterprise, including supply chain, materials integration, manufacturing processes, facilities and share employees and manufacturing and distribution facilities, which results in the Company beingcross portfolio innovation creating a company that is a truly different integrated global industrial. The Company made approximately 22%35%, 20%24% and 19%22% of its net sales for fiscal 2018, 20172020, 2019 and 2016,2018, respectively, to the U.S. government, a substantial majority of which were under multi-year contracts and programs in the defense vehicle market. See Note 2223 of the Notes to Consolidated Financial Statements for financial information related to the Company’s business segments.
JLG, a global designer and manufacturer of aerial work platforms and telehandlers used in a wide variety of construction, industrial, institutional and general maintenance applications to safely position workers and materials at elevated heights, forms the basefoundation of the Company’s access equipmentAccess Equipment segment. JLG’s customer base includes equipment rental companies, construction contractors, manufacturing companies and home improvement centers. The access equipmentAccess Equipment segment also includes Jerr-Dan-branded tow trucks (wreckers) and roll-back vehicle carriers (carriers) sold to towing companies in the U.S. and abroad.
The Company’s defenseDefense segment has designed, manufactured and sold military tactical wheeled vehicles to the DoD for more than 90 years. In 1981, Oshkosh Defense was awarded the first Heavy Expanded Mobility Tactical Truck (HEMTT) contract for the DoD, and thereafter, it developed into the DoD’s leading supplier of severe-duty, heavy-payload tactical trucks. Since that time, Oshkosh Defense has broadened its product offerings to become the leading manufacturer of severe-duty, heavy- and medium-payload tactical trucks for the DoD, manufacturing vehicles that perform a variety of demanding tasks such as hauling tanks, missile systems, ammunition, fuel, troops and cargo for combat units. Most recently,In 2015, Oshkosh Defense solidified its position in the light-payload tactical wheeled vehicle category through the successful effort to captureby capturing the DoD’s Joint Light Tactical Vehicle (JLTV) program. The Company is currently in the lowfull rate initial production phase of this eight-year, $6.7 billion contract awarded in 2015 for approximately 17,00016,901 of these technologically enhanced vehicles and sustainingrelated sustainment services.
The Company’s fireFire & emergencyEmergency segment designs and manufactures custom and commercial firefighting vehicles and equipment, aircraft rescue and firefighting (ARFF) vehicles, snow removal vehicles, simulators and other emergency vehicles primarily sold to fire departments, airports and other governmental units in the Americas and abroad and broadcast vehicles sold to broadcasters and television stations in the Americas and abroad.
The Company’s commercialCommercial segment designs and manufactures rear- and front-discharge concrete mixers, refuse collection vehicles portable and stationary concrete batch plants and vehiclerelated components sold to ready-mix companies and commercial and municipal waste haulers, in North Americarear- and other international marketsfront-discharge concrete mixer vehicles and related components sold to ready-mix companies and field service vehicles and truck-mounted cranes sold to mining, construction and other companies in the Americas and abroad.
Competitive Strengths
The following competitive strengths support the Company’s business strategy:
Strong Market Positions.
The Company has developed strong market positions and brand recognition in its core businesses, which it attributes to its reputation for quality products, advanced engineering, market leading innovation, vehicle performance, reliability, customer service and low totalDiversified Product Offerings.
The Company believes its broad product offerings and target markets serve to diversify its sources of revenues, mitigate the impact of economic cycles and provide multiple platforms for potential organic growth and acquisitions. The Company’s product offerings provide extensive opportunitiesQuality Products and Customer Service.
The Company has developed strong brand recognition for its products as a result of its commitment to meet the stringent product quality and reliability requirements of its customers in the specialty vehicle and vehicle body markets it serves. The Company frequently achieves premium pricing due to the quality, durability and lowInnovative and Proprietary Components.
The Company’s advanced design and engineering capabilities have contributed to the development of innovative and/or proprietary, severe-duty components that enhance vehicle performance, reduce manufacturing costs and strengthen customer relationships. The Company’s advanced design and engineering capabilities have also allowed it to integrate many of these components across various segments and product lines, which enhances its ability to compete for new business and reduces its costs to manufacture its products compared to manufacturers who simply assemble purchased components.Flexible and Efficient Manufacturing.
The Company believes it has competitive advantages over larger vehicle manufacturers in its specialty vehicle markets due to its product quality, manufacturing flexibility, vertical integration, purchasing power in specialty vehicle components and tailored distribution networks. In addition, the Company believes it has competitive advantages over smaller vehicle and vehicle body manufacturers due to its relatively higher volumes of similar products that permit the use of moving assembly lines and allow it to leverage purchasing power and technology opportunities across product lines.Strong Management Team.
The Company is led byBusiness Strategy
The Company is focused on increasing its net sales, profitability and cash flow and maintaining a strong balance sheet by capitalizing on its competitive strengths and pursuing anexecuting on MOVE, the Company’s integrated business strategy. The Company completedMOVE strategy provides a comprehensive strategic planning process in fiscal 2011 withroadmap for the assistance of a globally-recognized consulting firm that culminated in the creation of the Company’s roadmap, named MOVE,Company to deliver outstanding long-term shareholder value. The Company intends to continue executing its MOVE strategy in fiscal 2019.
The MOVE strategy consists of the following four key initiatives:
M
arket Leader Delighting Customers. This initiative focuses on growing profitability by maintaining intense emphasis on customer and end-user experiences, with an organizational commitment to the entire product life cycle. With a focus on responding to evolving customerO
ptimize Cost and Capital Structure. This initiative focuses on optimizing the Company’s cost and capital structure to provide value forproduct, process, and overhead costs, and opportunistically using its expected free cash flow to return capital to shareholders or invest in acquisitiongrowth opportunities. The Company utilizes a comprehensive lean enterprise focus to drive to be a low cost producer in all of its product lines while sustaining premium product features and quality and to deliver low product life cycle costs for its customers. Lean is a methodology used to eliminate non-value added work from a process stream. The Company also embraces organizational simplification by focusing on what drives value to customers and objectively allocating time and resources in these areas. As a result of its focus on simplification and cost optimization, the Company expects to more efficiently utilize its manufacturing facilities, increase inventory turns, reduce product, process and overhead costs, lower manufacturing lead times and new product development cycle times and increase its operating income margins.
V
alue Innovation. This initiative focuses on emphasizing the Company’s new product development as it seeks to expand sales and margins by providing market leadingE
merging MarketProducts
The Company is focused on the following core segments of the specialty vehicle and vehicle body markets:
Access equipmentEquipment segment.
JLG also arranges equipment financing and leasing solutions for its customers, primarily through third-party funding arrangements with independent financial companies, and occasionally provides credit support in connection with these financing and leasing arrangements. Financing arrangements that JLG offers or arranges through this segment include various types of rental fleet loans and leases, as well as floor plan and retail financing. Terms of these arrangements vary depending on the type of transaction, but typically range between 36 and 72 months and generally require the customer to be responsible for maintenance of the equipment and to bear the risk of damage to or loss of the equipment.
The Company, through its Jerr-Dan brand, is a leading designer, manufacturer and marketer of towing and recovery equipment in the U.S. The Company believes Jerr-Dan is recognized as an industry leader in quality and innovation. Jerr-Dan offers a complete line of both carriers and wreckers. In addition to manufacturing equipment, Jerr-Dan provides its customers with one-stop service for carriers and wreckers and generates revenue from the installation of equipment, as well as the sale of chassis and service parts.
Defense segment.
Oshkosh Defense has designed and sold products to the DoD for over 90 years and also exports tactical wheeled vehicles to approved foreign customers. By successfully responding to the DoD’s changing vehicle requirements, Oshkosh Defense has become the leading manufacturer of Heavy, Medium, and Light tactical wheeled vehicles and relatedSystem Replacement (LVSR). Oshkosh Defense’s proprietary medium-payload military tactical wheeled vehicles include the Medium Tactical Vehicle Replacement (MTVR). Oshkosh Defense’s proprietary light-payload military tactical wheeled vehicles include the Mine Resistant Ambush Protected-All Terrain Vehicle (M-ATV), which was specifically designed with superior survivability as well as extreme off-road mobility for use in conditions similar to those encountered in the conflict in Afghanistan.
In August 2009, the DoD awarded Oshkosh Defense a contract to be the sole producer of Family of Medium Tactical Vehicles (FMTV) under the U.S. Army’s FMTV Rebuy program. Originally a five-year requirements contract, the DoD extended the FMTV Rebuy program several times to allow for the delivery of vehicles and trailers through the fourth quarter of fiscal 2020.2021. In February 2018, the DoD awarded Oshkosh Defense the FMTV A2 contract for the design, development, production and support of a fleet of future generation FMTV vehicles. The FMTV A2 contract is a firm-fixed price requirements contract valued at $467 million that initially covers a five-year delivery period starting in 2021, with a customer option for two additional years.
In June 2015, the DoD awarded Oshkosh Defense a new Family of Heavy Tactical Vehicles (FHTV) contract for the recapitalization of HEMTT, HET and PLS vehicles as well as associated logistics and configuration management support. The contract iswas a five-year requirements contract for the continued remanufacturing of FHTV vehicles. The Company can acceptperiod for accepting orders under this contract throughexpired during the third quarter of fiscal 2020 for deliveries through fiscal 2022.2020. The contract iswas a fixed-price incentive firm contract where the price paid to the Company iswas subject to adjustment based on actual costs incurred. The impact of pricing adjustments under fixed-price incentive firm contracts areis generally shared by the Company and the customer.
In August 2015, Oshkosh Defense solidified its position in the light-payload tactical wheeled vehicle category when the DoD awarded Oshkosh Defense an eight-year, fixed price JLTV contract valued at $6.7 billion for production and delivery of approximately 17,00016,901 of these technologically enhanced vehicles and sustainingrelated sustainment services. The Company delivered its first production JLTV vehicles to the U.S. Army in September 2016. The program achieved full rate production milestone decision in fiscal 2019. Recently, the Army authorized an increase to the contract ceiling from 16,901 vehicles to 23,163. Under the current JLTV contract, Oshkosh Defense can accept vehicle orders through the first quarter of fiscal 2024 with deliveries into fiscal 2025. The U.S. Army, which purchased Government Purpose Rights to the Oshkosh JLTV design, has stated that they intend to conduct a full and open competition for follow-on JLTV production, with contract award in the fourth quarter of fiscal 2022. In total, the JLTV program is expected to be a 20-year, $30 billion program for the production of up to 55,000 vehicles, support services and engineering. The Company delivered its first production JLTV vehicles to the U.S. Army in September 2016. The contract remained in the low rate initial production phase during fiscal 2018. The Company expects a decision by the DoD on moving to full rate production in fiscal 2019. Oshkosh Defense solidified its position in the light-payload tactical wheeled vehicle category through the successful effort to capture the JLTV program.
In addition to retaining its current defense truck contracts, the Company’s objective is to continue to diversify into other areas of the U.S. and international defense vehicle markets by expanding applications, uses and vehicle body styles of its current tactical truck lines and growing aftermarket product and service offerings.
Fire
&The Company, through Airport Products, is among the leadersa leader in the design and sale of ARFF vehicles to domestic and international airports. These highly-specialized vehicles are required to be in service at most airports worldwide to support commercial airlines in the event of an emergency. Many of the world’s largest airports in the United States, including LaGuardia International Airport, John F. Kennedy International Airport, O’Hare International Airport, Hartsfield-Jackson International Airport, Denver International Airport, Baltimore-Washington International Airport, Dallas/Fort Worth International Airport, Tampa International Airport, Philadelphia
International Airport and San Francisco International Airport, in the U.S., are served by the Company’s ARFF vehicles. The U.S. government also maintains a fleet of ARFF vehicles that are used to support military operations throughout the world. Internationally, the Company’s vehicles serve, among others, Beijing, China and more than thirtyfifty other airports in China; Singapore; Toronto andIndonesia; Quebec, Canada; Abu Dhabi, UAE; and Birmingham, Cardiff, Manchester and Liverpool, United Kingdom. TheIn addition, the Company has recently delivered ARFF vehicles to airports in Kuwait, Southeast Asia, Papua New Guinea, Mexico, Chile, Japan, Bolivia, Australia,Egypt, Peru, SurinameJamaica, Armenia, South Korea, Dominican Republic and Ghana.the Philippines. The Company believes that the performance and reliability of its ARFF vehicles contribute to the Company’s strong position in this market.
The Company, through Airport Products, is a global leader in airport snow removal vehicles. The Company’s specially designed airport snow removal vehicles are used by some of the largest airports in the world, including Dallas/Fort Worth International Airport, Hartsfield-Jackson International Airport, Minneapolis-St. Paul International Airport, O’Hare International Airport, John F. Kennedy International Airport and Denver International Airport in the U.S. and Beijing, China; Incheon, South Korea; Toronto and Montreal, Canada; Chile, Japan and Argentina, internationally. The vehicles are also used at military air bases. The Company believes that the reliability of its high-performance snow removal vehicles and the speed with which they clear airport runways contribute to its strong position in this market.
The Company, through its Frontline brand, is a leading manufacturer, system designer and integrator of broadcast and communication vehicles, including electronic field production trailers, satellite news gathering and electronic news gathering vehicles for broadcasters and command trucks for local and federal governments along with being a leading supplier of military simulator shelters and trailers.trailers under the Oshkosh Specialty Vehicles (OSV) brand. The Company’s vehicles have been used worldwide to broadcast the NFL Super Bowl, the FIFA World Cup and the Olympics.
The Company offers three-two- to fifteen-yeartwelve-year municipal lease financing programs to its fireFire & emergencyEmergency segment customers in the U.S. through Oshkosh Equipment Finance, LLC, doing business as Pierce Financial Solutions. Programs include competitive lease financing rates, creative and flexible finance arrangements and the ease of one-stop shopping for customers’ equipment and financing. The Company executes the lease financing transactions through a private labelco-branded arrangement with an independent third-party finance company. The Company typically provides credit support in connection with these financing and leasing arrangements.
Commercial segment.
Through IMT, the Company is a leading North American designer and manufacturer of field service vehicles and truck-mounted cranes for the construction, equipment dealer, building supply, utility, tire service, railroad and mining industries. The Company believes its commercialCommercial segment vehicles and equipment have a reputation for efficient, cost-effective, dependable and low maintenance operation.
The Company also arranges equipment financing and leasing solutions for its customers, primarily through third-party funding arrangements with independent financial companies, and occasionally provides credit support in connection with these financing and leasing arrangements.
Marketing, Sales, Distribution and Service
The Company believes it differentiates itself from many of its competitors by tailoring its distribution to the needs of its specialty vehicle and vehicle body markets and with its national and global sales and service capabilities. Distribution personnel demonstrate to customers how to use the Company’s products properly. In addition, the Company’s flexible distribution is focused on meeting customers on their terms, whether on a job site, in an evening public meeting or at a municipality’s offices,office, compared to the showroom sales approach of the typical dealersdealer of large vehicle manufacturers. The Company backs all products with same-day parts shipment, and its service technicians are available in person or by telephone to domestic customers 365 days a year. The Company believes its dedication to keeping its products in-service in demanding conditions worldwide has contributed to customer loyalty.
The Company provides its salespeople, representatives and distributors with product and sales training on the operation and specifications of its products. The Company’s engineers, along with its product managers, develop operating manuals and provide field support at vehicle delivery.
U.S. dealers and representatives enter into agreements with the Company that allow for termination by either party generally upon 90 days’ notice, subject to applicable laws. Dealers and representatives, except for those utilized by JLG and IMT, are generally not permitted to market and sell competitive products.
Access equipmentEquipment segment.
The Company markets its Jerr-Dan-branded carriers and wreckers through its extensive network of independent distributors.
Defense segment.
While Oshkosh Defense sells substantially all of its domestic defense products directly to principal branches of the DoD,In addition to marketing its current tactical wheeled vehicle offerings and competing for new contracts, Oshkosh Defense actively works with the U.S. Armed Services to develop new applications for its vehicles and expand its services.
Logistics services are increasingly important in the defense market. The Company believes that its proven worldwide logistics capabilities and internet-based ordering, invoicing and electronic payment systems have significantly contributed to the expansion of its defense parts and service business. Oshkosh Defense maintains a large parts distribution warehouse in Milwaukee, Wisconsin to fulfill stringent parts delivery schedule requirements, as well as satellite facilities near DoD bases in the U.S., Europe, Asia and the Middle East.
Fire & emergencyEmergency segment.
Pierce also sells directly to the DoD and other U.S. government agencies. Many of the Pierce fire apparatus sold to the DoD are placed in service at U.S. military bases, camps and stations overseas. Additionally, Pierce sells fire apparatus to international municipal and industrial fire departments through a network of international dealers.
The Company markets its Frontline-branded broadcast vehicles through sales representatives and its Frontline-branded command vehicles through both sales representatives and dealer organizations that are directed at government and commercial customers.
The Company markets its Oshkosh-branded ARFF vehicles through a combination of direct sales representatives domestically and an extensive network of representatives and distributors in international markets. Certain of these international representatives and distributors also handle Pierce products. The Company’s snow removal business uses a combination of internal sales and service representatives and distributor locations to focus on the sale of snow removal vehicles, principally to airports, but also to municipalities, counties and other governmental entities in the U.S. and Canada. In addition, the Company maintains offices in Abu Dhabi,Dubai, UAE; Beijing, China; Tonneins, France; and Singapore to support airport product vehicle sales and aftermarket sales and support in Europe, the Middle East, China and Southeast Asia.
Commercial segment.
The Company has also established an extensive network of representatives and dealers throughout the Americas for the sale of McNeilus-branded refuse collection vehicles and Oshkosh-, McNeilus-, CON-E-CO- and London-branded concrete mixers concrete batch plants and refuse collection vehicles to international customers. The Company coordinates among its various businesses to respond to large international sales tenders with its most appropriate product offering for the tender.
The Company utilizes an extensive network of representatives and dealers supported by hundreds of internal and external sales and service representatives in North America to sell and service refuse collection vehicles and front- and rear-discharge concrete mixers. The Company also performs sales and service activities at the Company’s manufacturing facilities. Service centers located throughout the U.S. provide sales, service and parts distribution to customers in their geographic regions. The Company believes this network represents one of the largest refuse collection vehicle and concrete mixer distribution networks in the U.S.
IMT distributes its products through a wide network of dealers in over one hundred locations worldwide. International dealers are primarily located in Central and South America, Australia and Asia and are primarily focused on mining and construction markets.
Manufacturing
The Company manufactures its products at 2728 manufacturing facilities. To reduce production costs, the Company maintains a continuing emphasis on the development of proprietary components, self-sufficiency in fabrication, just-in-time inventory management, improvement in production flows interchangeability and simplificationinterchangeability of components among product lines, creation of jigs and fixtures to ensure repeatability of quality processes, utilization of robotics, and performance measurement to assure progress toward cost reduction targets. The Company encourages employee involvement to improve production processes and product quality.
The Company uses a common Quality Management System globally to support the delivery of consistent, high quality products and services to customers. The Company educates and trains all employees at its facilities in quality principles. The Company requires employees at all levels to understand customer and supplier requirements, measure performance, develop systems and procedures to prevent product nonconformance with requirements and continually improve all work processes. The Company educates and trains all employees at its facilities in quality principles. The Company utilizes quality gates in its manufacturing facilities to identify quality issues early in the process and to analyze root cause at the source, resulting in improved quality, fewer defects and less rework. The Company’s Quality Management System is based on ISO 9001, a set of internationally-accepted quality system requirements established by the International Organization for Standardization. ISO 9001 certification indicates that a company has established and follows a rigorous set of requirementsstandards aimed at achieving customer satisfaction by following the processa process-based approach to identify processand control the quality needs of suppliers, inputs, outputs, customers, critical processes and key performance indicators, and byoutputs. The Quality Management System helps ensure that the Company is continually improving these processes and sharing successful practices across the organization. The following brands are ISO 9001 certified: JLG, Oshkosh Defense, Pierce, McNeilus, Frontline, Jerr-Dan and Airport Products.
The Company has a team of employees dedicated to leading the implementation of the Oshkosh Continuous Improvement Management System (CIMS).Company’s Simplification program in support of the Company’s MOVE strategy. The team is comprised of members with diverse backgrounds in quality, lean, finance,data analytics, product and process engineering, and culture change management. CIMS is a business system that defines and seeks to enhance customers’ experiences with the Company’s products and services by empowering all employees to improve business processes and create a great customer experience. CIMSSimplification includes lean tools to eliminate waste and to provide better value for customers. CIMSIt also guides customer satisfaction assessment and helpsassessments to help identify opportunities to improve the customer experience with Oshkosh. CIMS supports the execution of the Company’s MOVE strategy, delivering value to both customers and shareholders. Within the Company’s facilities, CIMS improvementSimplification projects have contributed to manufacturing efficiency gains, materials management improvements, steady quality improvementsenhancements and reduction of lead times. CIMS improvementSimplification projects have also freed up manufacturing space, allowing the Company to pursue a program focused on increased vertical integration, further setting the Company apart as a different integrated global industrial.
Engineering, Research and Development
The Company believes its extensive engineering, research and development capabilities have been key drivers of the Company’s marketplace success. The Company maintains multiple facilities for new product development and testing with a staff of approximately 1,200 engineers and technicians who are dedicated to improving existing products, development and testing of new vehicles, vehicle bodies and components and sustaining its production activities. The Company prepares multi-year new product development and technology plans for each of its markets and measures progress against those plans each month.
Virtually all of the Company’s sales of fire apparatus and broadcast vehicles require some level of custom engineering to meet the customer’s specifications and changing industry standards. Engineering is also a critical factor in defense vehicle markets due to the severe operating conditions under which the Company’s vehicles are utilized, new customer requirements and stringent government documentation requirements. In the access equipmentAccess Equipment and commercialCommercial segments, product innovation is highly important to meet customers’ changing requirements. Accordingly, in addition to new product development engineers and technicians, the Company maintains an additional permanent staff of engineers and engineering technicians to sustain its production activities.
Competition
In all of the Company’s segments, competitors include smaller, specialized manufacturers as well as large, mass producers. The Company believes that, in its specialty vehicle and vehicle body markets, it has been able to effectively compete against large, mass producers due to its product quality, manufacturing flexibility, vertical integration, purchasing power in specialty vehicle components and tailored distribution systems. In addition, the Company believes it has competitive advantages over smaller vehicle and vehicle body manufacturers due to its relatively higher volumes of similar products that permit the use of moving assembly lines and which allow it to leverage purchasing power and technology opportunities across product lines. The Company believes that its competitive cost structure, strategic global purchasing capabilities, engineering expertise, product quality and global distribution and service systems have enabled it to compete effectively.
Certain of the Company’s competitors have greater financial, marketing, manufacturing, distribution and governmental affairs resources than the Company. There can be no assurance that the Company’s products will continue to compete effectively with the products of competitors or that the Company will be able to retain its customer base or improve or maintain its profit margins on sales to its customers, all of which could have a material adverse effect on the Company’s financial condition, results of operations and cash flows.
Access equipmentEquipment segment.
The principal competitor for Jerr-Dan-branded products is Miller Industries, Inc. Principal methods of competition for carriers and wreckers include product quality and innovation, product performance, price and service. The Company believes its competitive strengths in this market include its high quality, innovative and high-performance product line and its low-cost manufacturing capabilities.
Defense segment.
Oshkosh Defense produces heavy- and medium-payload, Mine Resistant Ambush Protected (MRAP) and light-payload tactical wheeled vehicles for the military and security forces around the world. Competition for sales of these vehicles includes, among others, Man Group plc, Mercedes-Benz (a subsidiary of Daimler AG), Navistar Defense LLC (a subsidiary ofThe Weapon Systems Acquisition Reform Act requires competition for defense programs in certain circumstances. Accordingly, it is possible that the U.S. Army and U.S. Marine Corps will conduct competitions for programs for which the Company currently has contracts upon the expiration of the existing contracts. Competition for these and other domestic programs could result in future contracts being awarded based upon different competitive factors than those described above and would primarily include price, production capability and past performance. The U.S. government has become more aggressive in seeking to acquire the design rights to the Company’s current and potential future programs to facilitate competition for manufacturing our vehicles. The willingness of the bidders to license their design rights to the DoD was an evaluation factor in the JLTV and FMTV A2 contract competitions. Certain of the Company’s contracts with the DoD, including the JLTV and FMTV A2 contracts, require that the Company effectively transfer the “technical know-how” necessary to produce and support the vehicles and/or other deliverables within the contract to the customer.
The Competition in Contracting Act requires competition for U.S. defense programs in most circumstances. Competition for DoD programs that the Company currently has could result in the U.S. government awarding future contracts to another manufacturer or the U.S. government awarding the contracts to the Company at lower prices and operating margins than the Company experiences under current contracts.
Fire & emergencyEmergency segment.
Airport Products manufactures ARFF vehicles for sale in the U.S. and abroad. Oshkosh’s competitors for ARFF vehicle sales are Rosenbauer International AG and Emergency One,E-One, Inc. Airport Products also manufactures snow removal vehicles, principally for U.S. and Canadian airports. The Company’s principal competitors for snow removal vehicle sales are M-B Companies, Inc. (owned by Aebi Schmidt Holding AG), Wausau-Everest LP (owned by Alamo Group, Inc.) and Overaasen AS. Principal methods of competition are product performance, price, service, product quality and innovation. The Company believes its competitive strengths in these airport markets include its high-quality, innovative products and a strong dealerservice support network.
Commercial segment.
The Company produces front- and rear-discharge concrete mixers for the Americas under the Oshkosh, McNeilus and London brands. Competition for concrete mixer sales includes Beck Industrial, Con-Tech Manufacturing, Inc., Terex Corporation and other regional competitors. Principal methods of competition are price, service, product features, product quality and product availability. The Company believes its competitive strengths include: strong brand recognition; large-scale and high-efficiency manufacturing; extensive product offerings; high product quality; innovative control systems; ability to offer factory-installed compressed natural gas fuel systems; a significant installed base of concrete mixers in use in the marketplace; and its nationwide network of sales and service centers.
IMT is a manufacturer of field service vehicles and truck-mounted cranes for the construction, equipment dealer, building supply, utility, tire service, railroad and mining industries. IMT’s principal field service vehicle competition is from Auto Crane Company (owned by Gridiron Capital)Ramsey Industries, Inc.), Stellar Industries, Inc., Maintainer Corporation of Iowa, Inc., the Knapheide Manufacturing Company and other regional companies. Competition in truck-mounted cranes comes primarily from European companies including Palfinger AG, Cargotec Corporation and Fassi Group SpA. Principal methods of competition are product quality, price and service. The Company believes its competitive strengths include its high-quality products, global distribution network and low-cost manufacturing capabilities.
Government Contracts
Approximately 22%35% of the Company’s net sales for fiscal 20182020 were made to the U.S. government, a substantial majority of which were under multi-year contracts and programs in the defense vehicle market. Accordingly, a significant portion of the Company’s sales are subject to risks specific to doing business with the U.S. government, including uncertainty of economic conditions, changes in government policies and requirements that may reflect rapidly changing military and political developments, the availability of funds and the ability to meet specified performance thresholds. Multi-year contracts may be conditioned upon continued availability of congressional appropriations and are being impacted by the uncertainty regarding the federal budget pressures. Variances between anticipated budget and congressional appropriations may result in a delay, reduction or termination of these contracts.
Oshkosh Defense’s sales are substantially dependent upon periodic awards of new contracts, the purchase of base vehicle quantities and the exercise of options under existing contracts. The funding of U.S. government programs is subject to an annual congressional budget authorization and appropriation process. In years when the U.S. government has not completed its budget process before the end of its fiscal year, government operations are typically funded pursuant to a “continuing resolution,” which allows federal government agencies to operate at spending levels approved in the previous budget cycle but does not authorize new spending initiatives. When the U.S. government operates under a continuing resolution, delays can occur in the procurement of the products, services and solutions that Oshkosh Defense provides and may result in new initiatives being delayed or canceled, or funds could be reprogrammed away from Oshkosh Defense’s programs to pay for higher priority operational needs. In years when the U.S. government fails to complete its budget process or to provide for a continuing resolution, a federal government shutdown may result. This could in turn result in the delay or cancellation of key programs, which could have a negative effect on the Company’s cash flows and adversely affect the Company’s future results. In addition, payments to contractors for services performed during a federal government shutdown may be delayed, which would have a negative effect on the Company’s cash flows.
Defense contract awards that Oshkosh Defense receives may be subject to protests by competing bidders. These protests, if successful, could result in the DoD revoking part or all of any defense contract it awards to Oshkosh Defense and an inability of Oshkosh Defense to recover amounts it has expended during the protest period in anticipation of initiating work under any such contract.
Under firm, fixed-price contracts with the U.S. government, the price paid to the Company is generally not subject to adjustment to reflect the Company’s actual costs, except costs incurred as a result of contract changes ordered by the U.S. government. The Company generally attempts to negotiate with the U.S. government the amount of increased compensation to which the Company is entitled for government-ordered changes that result in higher costs. If the Company is unable to negotiate a satisfactory agreement to provide such increased compensation, then the Company may file an appeal with the Armed Services Board of Contract Appeals or the U.S. Claims Court. The Company has no such appeals pending. The Company seeks to mitigate risks with respect to fixed-price contracts by executing firm, fixed-price contracts with its suppliers of significant components for the duration of the Company’s contracts.
U.S. government contracts generally permit the government to terminate a contract, in whole or part, at the government’s convenience. If the U.S. government exercises its rights under this clause the contractor is entitled to payment for the allowable costs incurred and a reasonable profit on the work performed to date. The U.S. government can also terminate a contract for default. If a contract is terminated for default, the contractor is generally entitled to payment for work that has been accepted by the U.S. government. Termination for default may expose the Company to loss on work not yet accepted by the government and have a negative impact on the Company’s ability to obtain future orders and contracts. The U.S. government’s right to terminate its contracts has not had a material effect on the operations or financial condition of the Company.
The Company, as a U.S. government contractor, is subject to financial audits and other reviews by the U.S. government relating to the performance of, and the accounting and general practices relating to, U.S. government contracts. Like most large government contractors, the Company is audited and reviewed by the government on a continual basis. Costs and prices under such contracts may be subject to adjustment based upon the results of such audits and reviews. Additionally, such audits and reviews can lead to civil, criminal or administrative proceedings. Such proceedings could involve claims by the government for fines, penalties, compensatory and treble damages, restitution and/or forfeitures. Under government regulations, a company or one or more of its subsidiaries can also be suspended or debarred from government contracts, or lose its export privileges based on the results of such proceedings. The Company believes that the outcome of all such audits and reviews that are now pending will not have a material effect on its financial condition, results of operations or cash flows.
Suppliers
The Company is dependent on its suppliers and subcontractors to meet commitments to its customers, and many components are procured or subcontracted on a sole-source basis with a number of domestic and foreign companies. Components for the Company’s products are generally available from a number of suppliers, although the transition to a new supplier may require several months to conclude. The Company purchases chassis components, such as vehicle frames, engines, transmissions, radiators, axles, tires, drive motors, bearings and hydraulic components and vehicle body options, such as cranes, cargo bodies and trailers, from third-party suppliers. These body options may be manufactured specific to the Company’s requirements; however, most of the body options could be manufactured by other suppliers or the Company itself. Through reliance on this supply network for the purchase of certain components, the Company is able to reduce many of the pre-production and fixed costs associated with the manufacture of these components and vehicle body options. The Company purchases a large amount of fabrications and outsources certain manufacturing services, each generally from small companies located near its facilities. While providing low-cost services and product surge capability, such companies often require additional management attention during difficult economic conditions or contract start-up. The Company also purchases complete vehicle chassis from truck chassis suppliers in its commercialCommercial segment and, to a lesser extent, in its fireFire & emergencyEmergency and access equipmentAccess Equipment segments. Increasingly, the Company is sourcing components globally, which may involve additional inventory requirements and introduces additional foreign currency exposures. The Company maintains an extensive qualification, on-site inspection, assistance and performance measurement system to attempt to control risks associated with reliance on suppliers. The Company occasionally experiences problems with supplier and subcontractor performance and component, chassis and body availability and must identify alternate sources of supply and/or address related warranty claims from customers.
While the Company purchases many costly components such as chassis, engines and transmissions, it manufactures certain proprietary components and systems. These components include front drive steer axles, transfer cases, transaxles, cabs, the TAK-4 independent suspension system, Hercules and Husky compressed air foam systems, the Command Zone vehicle control system, body structures and many smaller parts that add uniqueness and value to the Company’s products. The Company believes controlling the production of these components provides a significant competitive advantage and also serves to reduce the production costs of the Company’s products. The Company intends to continue to pursue vertical integration opportunities to further increase its competitive advantage.
Intellectual Property
Patents and licenses are important in the operation of the Company’s business. One of management’s objectives is developing proprietary components to provide the Company’s customers with advanced technological solutions at attractive prices. The Company holds in excess of 8001,000 active domestic and foreign patents. The Company believes patents for the TAK-4
The Company believes that patents for certain components of its ProPulse hybrid electric drive system and Command Zone electronics system offer potential competitive advantages to product lines across all its segments. To a lesser extent, other proprietary components provide the Company a competitive advantage in each of the Company’s segments.
As part of the Company’s long-term alliance with Caterpillar Inc., the Company acquired a non-exclusive, non-transferable worldwide license to use certain Caterpillar Inc. intellectual property through 2025 in connection with the design and manufacture of Caterpillar Inc.’s current telehandler products. Additionally, Caterpillar Inc. assigned to JLG certain patents and patent applications relating to the Caterpillar-branded telehandler products.
The Company holds trademarks for “Oshkosh,” “Oshkosh Defense,” “TAK-4,” “ProPulse,” “JLG,” “SkyTrak,” “Pierce,” “McNeilus,” “Jerr-Dan,” “CON-E-CO,” “London” and “IMT” among others. These trademarks are considered to be important to the future success of the Company’s business.
Human Capital Management
The Company maintains a People First culture that includes investing in employees’ safety, wellbeing, and personal and professional development, as well as diversity and inclusion. The Company believes its People First culture is a strength, and the Company intends to continue building upon that culture to drive sustainable performance across the business.
The Company tracks its performance by measuring numerous relevant elements relating to its employees and the Company’s human capital management efforts, including but not limited to safety and diversity and inclusion. Relative to safety, the Company generally aspires to reduce its lost time and recordable injuries each year. In fiscal 2020, the Company achieved a lost time rate of .06 and a recordable injury rate of 2.58. The Company also measures diverse hires for full time U.S. non-production positions and has a goal that 40% of such hires should be diverse in any given year. Diverse hires include ethnicity, gender, veteran and disability status. In fiscal 2020, 42.2% of the Company’s hires for full time U.S. non-production positions were diverse. Further, the Company is committed to supporting its diverse team members and in doing so recently established three additional employee business resource groups consisting of intergenerational, multicultural and LGBTQ+ employee business resource groups during fiscal 2020.
As of September 30, 2018,2020, the Company had approximately 15,00014,400 employees, approximately 9,000 of whom are production employees. The United Auto Workers union (UAW) represented approximately 2,000 production employees at the Company’s Oshkosh, Wisconsin facilities; the Boilermakers, Iron Shipbuilders, Blacksmiths and Forgers Union (Boilermakers) represented approximately 245240 employees at the Company’s Kewaunee, Wisconsin facility; and the International Brotherhood of Teamsters Union (Teamsters) represented approximately 85200 employees at the Company’s Garner, Iowa facility. The Company’s agreement with the UAW expires in September 2021.2027. The Company’s five-year agreement with the Boilermakers expires in May 2022. The Company’s three-year agreement with the Teamsters extends through October 2020.2023. In addition, the majority of the Company’s approximately 1,500900 employees located outside of the U.S. are represented by separate works councils or unions. The Company has adopted a people first culture to build meaningful relationships with its employees and believes its relationship with its employee team members is satisfactory.
Seasonal Nature of Business
In the Company’s access equipmentAccess Equipment and commercialCommercial segments, business tends to be seasonal with an increase in sales occurring in the spring and summer months that constitute the traditional construction season in the northern hemisphere. In addition, sales are generally lower in the first fiscal quarter in all segments due to the relatively high number of holidays in the United States, which reduce available production and shipping days.
Available Information
The Company maintains a website with the address
ITEM 1A. RISK FACTORS
The Company’s financial position, results of operations and cash flows are subject to various risks, many of which are not exclusively within the Company’s control, which may cause actual performance to differ materially from historical or projected future performance. Investors should consider carefully information in this Annual Report on Form 10-K in light of the risk factors described below.
Operational Risks
The COVID-19 pandemic could further materially adversely affect our business, workforce, supply chain, results of operations, financial condition and/or cash flows.
In March 2020, the World Health Organization declared COVID-19, a novel strain of coronavirus, a global pandemic. Governments across the world have implemented numerous measures to attempt to contain or lessen the impact of the COVID-19 pandemic on their populations, such as travel bans, quarantines, shut-downs and shelter in place orders. The COVID-19 pandemic, as well as the current and future measures directed toward it, has resulted in significant uncertainty in capital markets and negatively impacted global economies and markets. The pandemic has negatively impacted, and is likely to continue to negatively impact, our business in numerous ways, including but not limited to those outlined below:
• | The COVID-19 pandemic has reduced demand for access equipment, refuse collection vehicles and concrete mixers and may reduce demand for other products. Furthermore, because working remotely has become more prevalent and accepted as a result of the pandemic, companies could determine that it will be acceptable for employees to work from their homes on a long-term basis, which could reduce demand for future nonresidential construction, which in turn could further reduce demand for access equipment and concrete mixers. |
• | Travel restrictions related to the COVID-19 pandemic have prevented some customers in our Fire & Emergency segment from inspecting and accepting vehicles on a timely basis. |
• | Our customers may experience financial hardships during the COVID-19 pandemic that could result in lower demand for our products and/or default on financial and other commitments to us. |
• | The COVID-19 pandemic adversely affects our workforce and business as a result of impacts associated with required, preventive and precautionary measures that we, other businesses, our communities and governments are taking. These impacts include our requiring certain employees to work from home, limiting the number of employees attending meetings, reducing the number of people in our sites at any one time, reducing employee travel and adopting other employee safety measures. These measures have also impacted, and in the future may impact, our ability to meet production demands or requests depending on employee attendance or ability to continue to work. Restrictions on, as well as the health of, our workforce could limit our ability to support our business, as it did in our Defense and Fire & Emergency segments during the fourth quarter of fiscal 2020 as workforce absenteeism rose at certain facilities located in communities experiencing higher rates of COVID-19. |
• | We operate a global supply chain that has been, and could in the future continue to be, disrupted by the COVID-19 pandemic, resulting in delays or inefficiencies in production. Some of our suppliers have limited, and may in the future limit, their production or shut down due to shelter-in-place requirements, sanitizing facilities and workforce availability issues. While we have generally been successful in mitigating these supply chain challenges, supplier parts shortages lowered our production rates in the Fire & Emergency segment during the third quarter of fiscal 2020, and it is possible that a part or component shortage could limit our production in the future. |
• | Government or regulatory responses to the COVID-19 pandemic have negatively impacted, and are likely to continue to negatively impact, our business. Mandatory lockdowns or other restrictions on operations may disrupt our ability to manufacture or distribute our products in some markets. Governments may continue to impose travel restrictions and close borders, impose prolonged quarantines and further restrict business activity, which could impact our ability to support our operations and customers and the ability of our employees to get to their workplaces to produce products and services, limit the ability of our suppliers to provide us with products, or hamper our products from moving through the supply chain. |
• | The COVID-19 pandemic has led to disruption and volatility in the global capital markets, which depending on future developments could impact our capital resources and liquidity in the future. Although we believe our balance sheet remains strong, we have been focused on preserving capital resources given the uncertain duration of the pandemic, and in an attempt to maintain strong liquidity, the Company temporarily paused its share repurchase program and implemented other cost reduction actions, there is no certainty that measures we have taken will be effective to enable us to maintain adequate resources and liquidity. |
The impacts that we list above and other impacts of the COVID-19 pandemic are highly cyclical. Declineslikely to also have the effect of heightening many of the other risk factors described below. The ultimate impact of the COVID-19 pandemic, including the extent of its impact on our business, results of operations, financial condition and/or cash flow, is dependent, among other things, on the duration and severity of the pandemic, the effect of actions taken by government authorities and other third parties in these marketsresponse to the pandemic and the impact of the pandemic on global economies, each of which is uncertain, rapidly changing and difficult to predict. We cannot at this time predict the overall impact of the COVID-19 pandemic on us, but it could continue to have a material adverse effectimpact on our operating performance.
We face significant competition in the markets we serve. If we are unable to continue to enhance existing products and develop new products that respond to customer needs and preferences, we may experience a decrease in demand for our products and our business could suffer.
The access equipment market ismarkets in which we operate are highly cyclical and impacted (i) by the strength of economies in general, (ii) by residential and non-residential construction spending, (iii) by the ability of rental companies to obtain third-party financing to purchase revenue generating assets, (iv) by capital expenditures of rental companies in general, including the rate at which they replace aged rental equipment, which is impacted in part by historical purchase levels, (v) by the timing of engine emissions standards changes, and (vi) by other factors, including oil and gas related activity. The ready-mix concrete market that we serve is highly cyclical and impacted by the strength of the economy generally, by thecompetitive. We compete worldwide with a number of housing startsother manufacturers that produce and by other factors that may have an effectsell similar products. Our products primarily compete on the levelbasis of concrete placement activity, either regionally or nationally. Refuse collection vehicle markets are also cyclicalbrand awareness, product innovation, performance, quality, reliability, availability, price, service and impacted bysupport, ability to meet customer specifications and the strengthextent to which a company offers single-source customer solutions. Certain of economies in general, by municipal tax receiptsour competitors have greater financial, marketing, manufacturing, distribution and by the size and timing of capital expenditures, including replacement demand, by large waste haulers. Fire & emergency markets are cyclical later in an economic cycle and are impacted by the economy generally and by municipal tax receipts and capital expenditures.
One of our growth strategies is emphasizing our new product development as we seek to expand sales and margins by leading our core markets in the introduction of new or improved products and technologies. Our ability to match product improvements and new product offerings to diverse global customers’ anticipated needs for different types of products and various product features and functions, at acceptable prices, is critical to our success. We may not progress evenbe able to compete as effectively and ultimately satisfy the needs and preferences of our customers, unless we can continue to improve existing products and develop new innovative products in the global markets in which we compete. While we spent $103.9 million, $99.0 million and $98.0 million for research and development in fiscal 2020, 2019 and 2018, respectively, we cannot provide any assurance that this level of investment in research and development will be sufficient to maintain our competitive strength in product innovation, which could cause our business to suffer. Product improvements and new product introductions also require significant planning, design, development and testing at the technological, product and manufacturing process levels, and we may not be able to timely develop product improvements or new products. Our competitors’ new products may arrive in the market before our products arrive and be more slowlyattractive with more features and functions and/or lower prices than whatour
products. If we are unable to provide continued technological improvements in our products that meet our customers’ or the market expect. Ifindustry’s expectations, then the housing recovery progresses more slowly than what we or the market expect, then theredemand for our products could be an adverse effect on our net sales, financial condition, profitability and/or cash flows.
Our dependency on contracts with U.S. and foreign government agencies subjects us to a variety of risks that could materially reduce our revenues or profits.
We are dependent on U.S. and foreign government contracts for a substantial portion of our business. Approximately 22%35% of our sales in fiscal 20182020 were to the DoD. That business is subject to the following risks, among others, that could have a material adverse effect on our operating performance:
• | Our business is susceptible to changes in the annual U.S. defense budget, which changes may reduce revenues that we expect from our defense business, especially in light of federal budget pressures, lower levels of U.S. ground troops deployed in foreign conflicts, sequestration and the level of defense funding that will be allocated to the DoD’s tactical wheeled vehicle strategy generally. |
• | The U.S. government may not budget for or appropriate funding that we expect for our U.S. government contracts, which may prevent us from realizing revenues under current contracts or receiving additional orders that we anticipate we will receive. The DoD could also seek to reprogram certain funds originally planned for the purchase of vehicles we manufacture under the current defense budget allocations. The U.S. Army has identified its top modernization and readiness priorities, which could result in the customer re-programming funds away from the Company’s JLTV program to support these initiatives. |
• | The funding of U.S. government programs is subject to an annual congressional budget authorization and appropriation process. In years when the U.S. government has not completed its budget process before the end of its fiscal year including currently, government operations are typically funded pursuant to a “continuing resolution,” which allows federal government agencies to operate at spending levels approved in the previous budget cycle but does not authorize new spending initiatives. When the U.S. government operates under a continuing resolution, delays can occur in the procurement of the products, services and solutions that we provide and may result in new initiatives being delayed or canceled, or funds could be reprogrammed away from our programs to pay for higher priority operational needs. The U.S. government is currently operating under a continuing resolution budget that funds the federal government through December 11, 2020. Furthermore, in years when the U.S. government fails to complete its budget process or to provide for a continuing resolution, a federal government shutdown may result. This could in turn result in the delay or cancellation of key programs, which could have a negative effect on our cash flows and adversely affect our future results. In addition, payments to contractors for services performed during a federal government shutdown may be delayed, which would have a negative effect on our cash flows. |
• | Certain of our government contracts for the DoD could be delayed or terminated, and all such contracts expire in the future and may not be replaced, which could reduce revenues that we expect under the contracts and negatively affect margins in our Defense segment. |
• | The Weapon Systems Acquisition Reform Act and the Competition in Contracting Act require competition for U.S. defense programs in most circumstances. Competition for DoD programs that we currently have could result in the U.S. government awarding future contracts to another manufacturer or the U.S. government awarding the contracts to us at lower prices and operating margins than we experience under the current contracts. |
• | Competitions for the award of defense tactical wheeled vehicle contracts are intense, and we cannot provide any assurance that we will be successful in the defense tactical wheeled vehicle procurement competitions in which we participate. In addition, the U.S. government has become more aggressive in seeking to acquire the design rights to the Company’s current and potential future programs to facilitate competition for manufacturing our vehicles. The willingness of bidders to license their design rights to the DoD was an evaluation factor in the JLTV and FMTV A2 competitions. |
• | Defense tactical wheeled vehicles contract awards that we receive may be subject to protests or lawsuits by competing bidders, which protests or lawsuits, if successful, could result in the DoD revoking part or all of any defense tactical wheeled vehicle contracts it awards to us and our inability to recover amounts we have expended in anticipation of initiating production under any such contract. |
• | We must spend significant sums on product development and testing, bid and proposal activities, and pre-contract engineering, tooling and design activities in competitions to have the opportunity to be awarded these contracts. |
• | As a U.S. government contractor, our U.S. government contracts and systems are subject to audit and review by the Defense Contract Audit Agency and the Defense Contract Management Agency. These agencies review our performance under our U.S. government contracts, our cost structure and our compliance with laws and regulations applicable to U.S. government contractors. Systems that are subject to review include, but are not limited to, our accounting systems, estimating systems, material management systems, earned value management systems, purchasing systems and government property systems. If improper or illegal activities, errors or system inadequacies come to the attention of the U.S. government, as a result of an audit or otherwise, then we may be subject to civil and criminal penalties, contract adjustments and/or agreements to upgrade existing systems as well as administrative sanctions that may include the termination of our U.S. government contracts, forfeiture of profits, suspension of payments, fines and, under certain circumstances, suspension or debarment from future U.S. government contracts for a period of time. Whether or not illegal activities are alleged and regardless of materiality, the U.S. government also has the ability to decrease or withhold certain payments when it deems systems subject to its review to be inadequate. These laws and regulations affect how we do business with our customers and, in many instances, impose added costs on our business. |
• | Our Defense business may fluctuate significantly from time to time as a result of the start and completion of existing and new domestic and international contract awards that we may receive. Our defense tactical wheeled vehicle contracts are large in size and require significant personnel and production resources, and when our defense tactical wheeled vehicle customers allow such contracts to expire or significantly reduce their vehicle requirements under such contracts, we must make adjustments to personnel and production resources. The start and completion of existing and new contract awards that we may receive can cause our Defense business to fluctuate significantly. |
• | We may face uncertainty regarding the timing of funding or payments on international defense tactical wheeled vehicle contract awards that we may receive. |
• | We periodically experience difficulties with sourcing sufficient vehicle carcasses from the U.S. military to maintain our defense tactical wheeled vehicles remanufacturing schedule, which can create uncertainty and inefficiencies for this area of our business. |
Raw material price fluctuations may adversely affect our results.
We purchase, directly and indirectly through component purchases, significant amounts of steel, aluminum, petroleum-based products and other commodities. Steel, aluminum, fuel and other commodity prices have historically been highly volatile. For example,While steel and aluminum costs are currently within historical norms, U.S. steel plate prices have increased between 40% and 45%spiked 50% from Septemberthe end of our fiscal 2017 through September 2018, depending on the type of steel.January 2019. Costs for these items may increase or remain at increased levels,again in the future due to one or more of the following: a sustained economic recovery, the level of tariffs imposedthat the U.S. imposes on imported steel and aluminum, including the recent Section 232 tariffs, or a weakening U.S. dollar. Increases in commodity costs, such as those driven by the recent Section 232 tariffs, negatively impact the profitability of orders in backlog as prices on those orders are usually fixed. If we are not able to recover commodity cost increases through surcharges or permanent price increases to our customers, then such increases will have an adverse effect on our financial condition, profitability and/or cash flows. Furthermore, surcharges and permanent price increases may not be accepted by our customers, resulting in them choosing to order from our competitors instead of us or delaying orders to us. Any significant decrease in orders could have an adverse effect on our financial condition, profitability and/or cash flow. Additionally, if commodity costs decrease and we are unable to negotiate timely component cost decreases commensurate with any decrease in commodity costs, then our higher component prices could put us at a material disadvantage as compared to our competition which could have a material adverse effect on our net sales, financial condition, profitability and/or cash flows.
Most of our contracts with the DoD in the Defense segment are multi-year firm, fixed-price contracts. These contracts typically contain annual sales price increases. Under the JLTV contract, we bear the risk of material, labor and overhead cost escalation for the full eight years of the contract, which is three to five years longer than has been the case under our other defense contracts. We attempt to limit the risk related to raw material price fluctuations on prices for major defense components by obtaining firm pricing from suppliers at the time a contract is awarded. However, if these suppliers do not honor their contracts, then we could face margin pressure. Furthermore, if our actual costs on any of these contracts exceed our projected costs, it could result in profits lower than historically realized or than we anticipate or net losses under these contracts.
We are dependent upon third-party suppliers, making us vulnerable to supply shortages and price increases.
We have experienced, and may in the future experience, significant disruption or termination of the supply of some of our parts, materials, components and final assemblies that we obtain from sole source suppliers or subcontractors. Delays in obtaining parts, materials, components and final assemblies may result from a number of factors affecting our suppliers including capacity constraints, labor shortages or disputes, supplier product quality issues, suppliers’ impaired financial condition and suppliers’ allocation to other purchasers. These risks are increased in a weak economic environment and when demand increases coming out of an economic downturn.
We may incur a significant increase in the costs of parts, materials, components or final assemblies. Factors such as supply and demand, freight costs, transportation availability, inventory levels, the level of imports, the imposition of duties and tariffs, including Section 301 tariffs that the U.S. imposes on goods and materials imported from China and other countries, and other trade barriers and general economic conditions may affect the price of these parts, materials components or final assemblies. Many of these factors impacted the access equipment segment’s performance in fiscal 2018. Such disruptions, terminations or cost increases have resulted and could further result in manufacturing inefficiencies due to us having to wait for parts to arrive on the production line, could delay sales and could result in a material adverse effect on our net sales, financial condition, profitability and/or cash flows.
We may not be able to executeare dependent on our MOVE strategy.
We expect to incur costs and charges as a result of restructuring of facilities or operations that we expect will reduce on-going costs. These actions may be disruptive to our business and may not result in anticipated cost savings.
Periodically we restructure facilities and operations in an effort to make our business more efficient. Inefficient, such as the future,closure of our Medias, Romania and Riverside, California facilities in our Access Equipment segment that we may incurannounced at the end of June 2020 and the relocation of concrete mixer production from our Dodge Center, Minnesota facility within our Commercial segment that was announced in July 2020. We have incurred costs, asset impairments and restructuring charges in connection with such consolidations,restructuring activities, workforce reductions and other cost reduction measures, and in the future, may incur additional such costs that would adversely affect our future earnings and cash flows. Such actions may be disruptive to our business. This may result in production inefficiencies, product quality issues, late product deliveries or lost orders as we begin production at consolidated facilities or outsource activities to third parties, which would adversely impact our sales levels, operating results and operating margins. Furthermore, we may not realize the cost savings that we expect to realize as a result of such actions.
Our results could be adversely affected by severe weather, natural disasters, and other events in the locations in which we or our customers or suppliers operate.
We have manufacturing and other operations in locations prone to severe weather and natural disasters, including earthquakes, floods, hurricanes or tsunamis that could disrupt our operations. Our suppliers and customers also have operations in such locations. Severe weather or a natural disaster that results in a prolonged disruption to our operations, or the operations of our customers or suppliers could delay delivery of parts, materials or components to us or sales to our customers and could have a material adverse effect on our net sales, financial condition, profitability and/or cash flows.
Concrete mixer and access equipment sales also are seasonal with the majority of such sales occurring in the spring and summer months, which constitute the traditional construction season in the Northern hemisphere. The timing of orders for the traditional construction season in the Northern hemisphere can be impacted by weather conditions.
Disruptions within our dealer network could adversely affect our business.
Although we sell the majority of our products directly to the end user, we market, sell and service products through a network of independent dealers in the Fire & Emergency segment and in a limited number of markets for the Access Equipment and Commercial segments. As a result, our business with respect to these products is influenced by our ability to establish and manage new and existing relationships with dealers. While we have relatively low turnover of dealers, from time to time, we or a dealer may choose to terminate the relationship as a result of difficulties that our independent dealers experience in operating their businesses due to economic conditions or other factors, or as a result of an alleged failure by us or an independent dealer to comply with the terms of our dealer agreement. We do not believe our business is dependent on any single dealer, the loss of which would have a sustained material adverse effect upon our business. However, disruption of dealer coverage within a specific state or other geographic market could cause difficulties in marketing, selling or servicing our products and have an adverse effect on our business, operating results or financial condition.
In addition, our ability to terminate our relationship with a dealer is limited due to state dealer laws, which generally provide that a manufacturer may not terminate or refuse to renew a dealer agreement unless it has first provided the dealer with required notices. Under many state laws, dealers may protest termination notices or petition for relief from termination actions. Responding to these protests and petitions may cause us to incur costs and, in some instances, could lead to litigation resulting in lost opportunities with other dealers or lost sales opportunities, which may have an adverse effect on our business, operating results or financial condition.
Strategic Risks
Our markets are highly cyclical. Declines in these markets could have a material adverse effect on our operating performance.
The access equipment market is highly cyclical and impacted (i) by the strength of economies in general and customers’ perceptions concerning the timing of economic cycles, (ii) by residential and non-residential construction spending, (iii) by the ability of rental companies to obtain third-party financing to purchase revenue generating assets, (iv) by capital expenditures of rental companies in general, including the rate at which they replace aged rental equipment, which is impacted in part by historical purchase levels, (v) by the timing of regulatory standard changes, and (vi) by other factors, including oil and gas related activity. Refuse collection vehicle markets are also cyclical and impacted by the strength of economies in general, by municipal tax receipts and by the size and timing of capital expenditures, including replacement demand, by large waste haulers. The ready-mix concrete market that we serve is highly cyclical and impacted by the strength of the economy generally, by the number of housing starts and by other factors that may have an effect on the level of concrete placement activity, either regionally or nationally. Fire & emergency markets are cyclical later in an economic cycle and are impacted by the economy generally and by municipal tax receipts and capital expenditures. We expect that municipal budgets may be constrained in the next several quarters, which could cause a decline in the North American fire truck market.
Lower U.S. housing starts since fiscal 2008 have had a negative impact on sales volumes for our concrete placement products. Despite U.S. residential construction growth, housing starts remain below historical 30-year averages. We believe concrete mixer customers have maintained a cautious approach to fleet replacement/expansion, generally wanting to confirm that construction activity in the U.S. will support solid fleet utilization. A lack of sustained improvement in residential construction spending generally may result in our inability to achieve our sales expectations or cause future weakness in demand for our products. We cannot provide any assurance that the housing recovery will not progress even more slowly than what we or the market expect. If the housing recovery progresses more slowly than what we or the market expect, then there could be an adverse effect on our net sales, financial condition, profitability and/or cash flows.
Our objective is to expand international operations and sales
Expanding international operations and sales is a significant part of our growth strategy. International operations and sales are subject to various risks, including political, religious and economic instability, local labor market conditions, the imposition of foreign tariffs upon our products (which include tariffs in response to tariffs that the U.S. imposes) and other trade barriers, the impact of foreign government regulations and the effects of income and withholding taxes, sporadic order patterns, governmental expropriation, uncertainties or delays in collection of accounts receivable and differences in business practices. We may incur increased costs, including increased supply chain costs, and experience delays or disruptions in production schedules, product deliveries or payments in connection with international manufacturing and sales that could cause loss of revenues and earnings. Among other things, there are additional logistical requirements associated with international sales,
which increase the amount of time between the completion of vehicle production and our ability to recognize related revenue. In addition, expansion into foreign markets requires the establishment of distribution networks and may require modification of products to meet local requirements or preferences. Establishment of distribution networks or modification to the design of our products to meet local requirements and preferences may take longer or be more costly than we anticipate and could have a material adverse effect on our ability to achieve international sales growth. In addition, our entry into certain markets that we wish to enter may require us to establish a joint venture. Identifying an appropriate joint venture partner and creating a joint venture could be more time consuming, more costly and more difficult than we anticipate.
We may not be able to execute on our MOVE strategy.
MOVE is our strategy to deliver long-term growth and earnings for our shareholders. We cannot provide any assurance we will be able to continue to successfully execute our MOVE strategy due to a variety of risks, including the following:
• | Our inability to adopt the use of standard processes and tools to drive improved customer satisfaction; |
• | Our inability to expand our aftermarket parts and service availability; |
• | Our inability to improve our product quality; |
• | Our inability to improve margins through simplification actions; |
• | Our failure to realize product, process and overhead cost reduction targets; |
• | Our inability to design new products that meet our customers’ requirements and bring them to market; |
• | Higher costs than anticipated to launch new products or delays in new product launches; and |
• | Slow adoption of our products in emerging markets and/or our inability to successfully execute our emerging market growth strategy. |
Financial Risks
We are subject to fluctuations in exchange rates associated with our non-U.S. operations that could adversely affect our results of operations and may significantly affect the comparability of our results between financial periods.
Approximately 20%14% of our net sales in fiscal 20182020 were attributable to products sold outside of the United States, of which approximately 80%51% involved export sales from the United States. The majority of export sales are denominated in U.S. dollars. Sales that originate outside the United States are typically transacted in the local currencies of those countries. Fluctuations in foreign currency can have an adverse impact on our sales and profits as amounts that are measured in foreign currency are translated back to U.S. dollars. We have sales of inventory denominated in U.S. dollars to certain of our subsidiaries that have functional currencies other than the U.S. dollar. The exchange rates between many of these currencies and the U.S. dollar have fluctuated significantly in recent years and may fluctuate significantly in the future. Such fluctuations, in particular those with respect to the Euro, the Chinese renminbi, the Canadian dollar, the Mexican peso, the Australian dollar and the British pound sterling, may have a material effect on our net sales, financial condition, profitability and/or cash flows and may significantly affect the comparability of our results between financial periods. In addition, any appreciation in the value of the U.S. dollar in relation to the value of the local currency of those countries where our products are sold will increase our costs of goods in our foreign operations, to the extent such costs are payable in U.S. dollars, and impact the competitiveness of our product offerings in international markets.
We are subject to changes in contract estimates
We account for substantially all long-term contracts with the DoD utilizing the cost-to-cost method of percentage-of-completion accounting. This accounting requires judgment relative to assessing risks, estimating revenues and costs and making assumptions regarding the timing of receipt of delivery orders from our government customer and technical issues. Due to the size and nature of these contracts, the estimation of total revenues and costs is complicated and subject to many variables. We must make assumptions regarding expected increases in wages and employee benefits, productivity and availability of labor, material costs and allocated fixed costs. Changes to production costs, overhead rates, learning curve and/or supplier performance can also impact these estimates. Furthermore, under the revenue recognition accounting rules, we can only
include units in our estimates of overall contract profitability after we have received a firm delivery order for those units. Because new orders have the potential to significantly change the overall profitability of cumulative orders received to date, particularly early in the contract when fewer overall units are on order, the period in which we receive those orders from the government will impact the estimated life-to-date contract profitability. Changes in underlying assumptions, circumstances or estimates could have a material adverse effect on our net sales, financial condition, profitability and/or cash flows.
We may experience losses in excess of our recorded reserves for doubtful accounts, finance receivables, notes receivable and guarantees of indebtedness of others.
As of September 30, 2018,2020, we had consolidated gross receivables of $1.5 billion.$875.7 million. In addition, we were subject to obligations to guarantee customer indebtedness to third parties of $685.3$749.8 million, under which we estimate our maximum exposure to be $121.8$150.2 million. We evaluate the collectibilitycollectability of open accounts, finance receivables, notes receivable and our guarantees of indebtedness of others based on a combination of factors and establish reserves based on our estimates of potential losses. In circumstances where we believe it is probable that a specific customer will have difficulty meeting its financial obligations, a specific reserve is recorded to reduce the net recognized receivable to the amount we expect to collect, and/or we recognize a liability for a guarantee we expect to pay, taking into account any amounts that we would anticipate realizing if we are forced to repossess the equipment that supports the customer’s financial obligations to us. We also establish additional reserves based upon our perception of the quality of the current receivables, the current financial position of our customers and past collections experience. Prolonged or more severe economic weakness may result in additional requirements for specific reserves. During periods of economic weakness, the collateral underlying our guarantees of indebtedness of customers or receivables can decline sharply, thereby increasing our exposure to losses. We also face a concentration of credit risk as the access equipmentAccess Equipment segment’s ten largest debtors at September 30, 20182020 represented approximately 25%42% of our consolidated gross receivables. Some of these customers are highly leveraged. We may incur losses in excess of our recorded reserves if the financial condition of our customers were to deteriorate or the full amount of any anticipated proceeds from the sale of the collateral supporting our customers’ financial obligations is not realized. Our cash flows and overall liquidity may be materially adversely affected if any of the financial institutions that finance our customer receivables become unable or unwilling, due to unfavorable economic conditions, a weakening of our or their financial position or otherwise, to continue providing such credit.
An impairment in the carrying value of goodwill and other indefinite-lived intangible assets could negatively affect our operating results.
We have a substantial amount of goodwill and other indefinite-lived intangible assets on our balance sheet as a result of acquisitions we have completed. At September 30, 2018,2020, approximately 90% of these intangibles were concentrated in the access equipmentAccess Equipment segment. We evaluate goodwill and indefinite-lived intangible assets for impairment at least annually, or more frequently if potential interim indicators exist that could result in impairment. Events and conditions that could result in impairment include a prolonged period of global economic weakness, a decline in economic conditions or a slow, weak economic recovery, a sustained decline in the price of our common stock, adverse changes in the regulatory environment, adverse changes in the market share of our products, adverse changes in interest rates, or other factors leading to reductions in the long-term sales or profitability that we expect. Determination of the fair value of a reporting unit includes developing estimates which are highly subjective and incorporate calculations that are sensitive to minor changes in underlying assumptions. Management’s assumptions change as more information becomes available. Changes in these events and conditions or other assumptions could result in an impairment charge in the future, which could have a significant adverse impact on our reported earnings.
Financing costs and restrictive covenants in our current debt facilities could limit our flexibility in managing our business and increase our vulnerability to general adverse economic and industry conditions.
Our credit agreement contains financial and restrictive covenants which, among other things, require us to satisfy quarter-end financial ratios. Our ability to meet the financial ratios in such covenants may be affected by a number of risks or events, including the risks described in this CurrentAnnual Report on Form 10-K and events beyond our control. The indenturesindenture governing our senior notes also contain restrictive covenants. Any failure by us to comply with these restrictive covenants or the financial and restrictive covenants in our credit agreement could have a material adverse effect on our financial condition, results of operations and debt service capability.
Our access to debt financing at competitive risk-based interest rates is partly a function of our credit ratings. Our current long-term credit ratings are BBB with “positive”“negative” outlook from S&P Global Ratings, Ba1Baa3 with “stable” outlook from Moody’s Investors Service and BBB- with “stable” outlook from Fitch Ratings. A downgrade to our credit ratings could increase our interest rates, could limit our access to public debt markets, could limit the institutions willing to provide us credit facilities, and could make any future credit facilities or credit facility amendments more costly and/or difficult to obtain. In addition, a portion of our debt is subject to variable interest rates. An increase in general interest rates like increases recently announced by the United States Federal Reserve, would also increase our cost of borrowing under our credit agreement.
We had $818.0$825 million of long-term debt outstanding as of September 30, 2018.2020. Our ability to make required payments of principal and interest on our debt will depend on our future performance, which, to a certain extent, is subject to general economic, financial, competitive, political and other factors, some of which are beyond our control. As we discussed above,previously, our dependency on contracts with U.S. and foreign government agencies subjects us to a variety of risks that, if realized, could materially reduce our revenues, profits and cash flows. Accordingly, conditions could arise that could limit our ability to generate sufficient cash flows or access borrowings to enable us to fund our liquidity needs, further limit our financial flexibility or impair our ability to obtain alternative financing sufficient to repay our debt at maturity.
The covenants in our credit agreement and the indenturesindenture governing our senior notes, our credit rating, our current debt levels and the current credit market conditions could have important consequences for our operations, including:
• | Render us more vulnerable to general adverse economic and industry conditions in our highly cyclical markets or economies generally; |
• | Require us to dedicate a portion of our cash flow from operations to interest costs or required payments on debt, thereby reducing the availability of such cash flow to fund working capital, capital expenditures, research and development, share repurchases, dividends and other general corporate activities; |
• | Limit our ability to obtain additional financing in the future to fund growth, working capital, capital expenditures, new product development expenses and other general corporate requirements; |
• | Make us vulnerable to increases in interest rates as our debt under our credit agreement is at variable rates; |
• | Limit our flexibility in planning for, or reacting to, changes in our business and the markets we serve; and |
• | Limit our ability to pursue strategic acquisitions that may become available in our markets or otherwise capitalize on business opportunities if we had additional borrowing capacity. |
Legal, Regulatory & Compliance Risks
Our international sales and industry conditions in our highly cyclical markets or economies generally;
As a result of our international operations and sales, we are subject to the Foreign Corrupt Practices Act (FCPA) and other laws that prohibit improper payments or offers of payments to foreign governments and their officials for the purpose of obtaining or retaining business. Our international activities create the risk of unauthorized payments or offers of payments in violation of the FCPA by one of our employees, consultants, sales agents or distributors, because these parties are not always subject to our control. Any violations of the FCPA could result in significant fines, criminal sanctions against us or our employees, and prohibitions on the conduct of our business, including our business with the U.S. government. We are also increasingly subject to export control regulations, including, without limitation, the United States Export Administration Regulations and the International Traffic in Arms Regulations. Unfavorable changes in the political, regulatory or business climate could have a material adverse effect on our net sales, financial condition, profitability and/or cash flows.
Changes in regulations could adversely affect our business.
Both our products and the operation of our manufacturing facilities are subject to statutory and regulatory requirements. These include environmental requirements applicable to manufacturing and vehicle emissions, government contracting regulations, regulations impacting our supply chain regulations and domestic and international trade regulations. A significant change to these regulatory requirements could substantially increase manufacturing costs or impact the size or timing of demand for our products, all of which could make our business results more variable.
In particular, many scientists, legislators and others attribute climate change to increased levels of greenhouse gases, including carbon dioxide, which has led to significant legislative and regulatory efforts to limit greenhouse gas emissions. Congress has previously considered and may in the future implement restrictions on greenhouse gas emissions through a cap-and-trade system under which emitters would be required to buy allowances to offset emissions of greenhouse gas. In addition, several states, including states where we have manufacturing plants, are considering various greenhouse gas registration and reduction programs. Our manufacturing plants use energy, including electricity and natural gas, and certain of our plants emit amounts of greenhouse gas that may be affected by these legislative and regulatory efforts. Greenhouse gas regulation could increase the price of the electricity we purchase, increase costs for our use of natural gas, potentially restrict access to or the use of natural gas, require us to purchase allowances to offset our own emissions or result in an overall increase in our costs of raw materials, any one of which could increase our costs, reduce our competitiveness in a global economy or otherwise negatively affect our business, operations or financial results.
In response to changes in accounting standardscustomer preferences concerning global climate changes and related changes in regulations, we may face greater pressure to develop products that could adversely impactgenerate less greenhouse gas emissions. Many manufacturers foresee sales of electric-powered vehicles and mobile equipment becoming increasingly important to their businesses, and we may not have the expertise or resources to successfully address these pressures on a cost-effective basis or at all. While we are continuing to explore options to offer more propulsion choices in our profitabilityproducts, such as electric-powered vehicles or financial position.
General Risk Factors
Security breaches and other disruptions could compromise our information and expose us to liability, which could cause our business and reputation to suffer.
Security threats via computer malware and other “cyber-attacks” are increasing in both frequency and sophistication. As a defense contractor, we face many cyber and security threats that can range from attacks common to most industries, which could have financial or reputational consequences, to advanced persistent threats on our Defense business, which could involve information that is considered a matter of America,national security. These threats may include attempts to gain unauthorized access to our information system and networks, which we use to collect and store confidential and sensitive data, including information about our business, our customers and employees. The technology within our products also presents a risk to our customers that if compromised could have negative implications on the Company. As technology continues to evolve, we anticipate that we will collect, store and embed even more data capabilities in our systems and products that are periodically revisedsensitive to both willful and unintentional security breaches. We have designed our processes and controls to monitor and mitigate against such risks. However, there can be no assurance that these processes and controls will be sufficient to prevent such attacks. In the event of a breach in security, it may lead to customers purchasing products from our competitors, subject us to lawsuits, fines and other means of regulatory enforcement, disrupt our operations or harm employee wellbeing and/or expanded. Accordingly, from timemorale.
In addition, we could be impacted by cyber threats, disruptions or vulnerabilities of our suppliers and customers. The costs of maintaining robust information security mechanisms and controls are increasing and are likely to time, we must adopt new or revised accounting standards that recognized authoritative bodies, includingincrease further in the Financial Accounting Standards Board, have issued. Recently, accounting standard setters issued new guidance that further interprets or seeksfuture. We are unable to revise accounting pronouncements related to revenue recognition and lease accounting and issued new standards expanding disclosures. We discusspredict the impact of accounting pronouncements that have been issued but not yet implemented in our annual and quarterly reports on Form 10-K and Form 10-Q. It is possible that accounting standards we must adopt in the future could change the current accounting treatment that we apply to our consolidated financial statements and that such changes could have a material adverse effect on our reported results of operations and/or financial condition.
ITEM 1B. UNRESOLVED STAFF COMMENTS
The Company has no unresolved staff comments regarding its periodic or current reports from the staff of the SEC that were issued 180 days or more preceding September 30, 2018.
ITEM 2. PROPERTIES
The Company believes its equipment and buildings are well maintained and adequate for its present and anticipated needs. As of September 30, 2018,2020, the Company operated in 2728 manufacturing facilities. The locations of the Company’s principal manufacturing facilities are provided in the table below:
Segment | ||||||
Location (# of facilities) | Segment | Location (# of facilities) | ||||
Access Equipment | McConnellsburg, Pennsylvania (3)(a) | Fire & Emergency | Appleton, Wisconsin (2) | |||
Shippensburg, Pennsylvania (1) | Bradenton, Florida (1) | |||||
Greencastle, Pennsylvania (1) | Kewaunee, Wisconsin (1) | |||||
Medias, Romania (1) | Clearwater, Florida (1) | |||||
Tianjin, China | Neenah, Wisconsin (1) | |||||
Tonneins, France (1) | ||||||
Port Macquarie, Australia (1) | Commercial | Dodge Center, Minnesota (1) | ||||
Leicester, United Kingdom (1) | Garner, Iowa (1) | |||||
Bedford, Pennsylvania (1) | ||||||
Riceville, Iowa (1) | ||||||
Leon, Mexico (1) | London, Canada (1) | |||||
Defense | Oshkosh, Wisconsin (4) | |||||
Corporate | Jefferson City, Tennessee (1) (b) |
(a)
Two facilities are owned and the other is leased.(b)These facilities are leased.
(c)One facility is owned and the other is leased.
(d)The Company intends to cease operations at its Medias, Romania manufacturing facility by June 30, 2021.
The Company’s manufacturing facilities generally operate five days per week on one or two shifts, except for seasonal shutdowns for one- to three-week periods. The Company believes its manufacturing capacity could be significantly increased with limited capital spending by operating an additional shift at each facility.
The Company also performs contract maintenance services out of multiple warehousing and service facilities owned and/or operated by the U.S. government and third parties, including locations in the U.S., Japan and multiple other countries in Europe and the Middle East.
In addition to sales and service activities at the Company’s manufacturing facilities, the Company maintains a network of sales and service centers in the U.S. The Company uses these facilities primarily for sales and service of concrete mixers and refuse collection vehicles.vehicles and concrete mixers. The access equipmentAccess Equipment segment also leases a number of small distribution, engineering, administration or service facilities throughout the world.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to environmental matters and legal proceedings and claims, including patent, antitrust, product liability, warranty and state dealership regulation compliance proceedings that arise in the ordinary course of business. Although the final results of all such matters and claims cannot be predicted with certainty, the Company believes that the ultimate resolution of all such matters and claims will not have a material effect on the Company’s financial condition, results of operations or cash flows.
Personal injury actions and other.
At September 30,ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
INFORMATION ABOUT OUR EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information as of November 20, 201818, 2020 concerning the Company’s executive officers. All of the Company’s executive officers serve terms of one year and until their successors are elected and qualified.
Name | Age | Title | ||
Wilson R. Jones | 59 | Chief Executive Officer | ||
John C. Pfeifer | 55 | President and Chief | ||
John J. Bryant | 62 | Executive Vice President and President, Defense Segment | ||
Ignacio A. Cortina | 49 | Executive Vice President, General Counsel and Secretary | ||
James W. Johnson | 56 | Executive Vice President and President, Fire & Emergency Segment | ||
Frank R. Nerenhausen | 56 | Executive Vice President and President, Access Equipment Segment | ||
Michael E. Pack | 46 | Executive Vice President and Chief Financial Officer | ||
Bryan K. Brandt | 52 | Senior Vice President and Chief Marketing Officer | ||
Thomas P. Hawkins | 55 | Senior Vice President, Government Relations | ||
Anupam Khare | 56 | Senior Vice President and Chief Information Officer | ||
Bradley M. Nelson | 51 | Senior Vice President and President, Commercial Segment | ||
Tina R. Schoner | 53 | Senior Vice President and Chief Procurement Officer |
Wilson R. Jones.
Mr. Jones joined the Company in 2005 as Vice President and General Manager of the Company’s airport products business. He served as President, Pierce; Executive Vice President and President, Fire & Emergency Segment from 2008 to 2010, Executive Vice President and President, Access Equipment Segment from 2010 to 2012,John C. Pfeifer. Mr. Pfeifer joined the Company in 2019 as Executive Vice President and Chief Operating Officer. In May 2020, Mr. Pfeifer assumed the position of President and Chief Operating Officer of the Company. On November 18, 2020, it was announced that Mr. Pfeifer was appointed President and Chief Executive Officer effective upon the retirement of Mr. Jones on April 2, 2021. Prior to joining the Company, he served as Senior Vice President and President - Mercury Marine, of Brunswick Corporation, a designer, manufacturer and marketer of marine engines and marine parts and accessories, from 2014 to 2019. Prior to that, Mr. Pfeifer served as Vice President and President - Mercury Marine of Brunswick Corporation from 2014 to 2018. Mr. Pfeifer is a director of The Manitowoc Company, Inc.
John J. Bryant.
Mr. Bryant joined the Company in 2010 as Vice President and General Manager of Marine Corps Programs - Defense segment. He served as Vice President of Programs - Defense segment from 2013 to 2016 and as Senior Vice President and President, Defense Segment from 2016 until his appointment to his current position of Executive Vice President and President, Defense Segment in February 2018. Prior to joining Oshkosh Defense, he served as a Professor of Program Management at the Defense Acquisition University. Mr. Bryant retired from the U.S. Marine Corps with the rank of Colonel in 2008.Ignacio A. Cortina.
Mr. Cortina joined the Company in 2006 with the acquisition of JLG. He has held various roles of increasing responsibility, serving as the Company’s Vice President and Deputy General Counsel from 2011 to 2015 and Senior Vice President, General Counsel and Secretary from 2015 to 2016. Prior to joining the Company, he spent seven years in private practice in the Washington, D.C. area. He was appointed to his current position of Executive Vice President, General Counsel and Secretary in 2016.James W. Johnson.
Mr. Johnson joined the Company in 2007 as Director of Dealer Development for Pierce. He was appointed to Senior Vice President of Sales and Marketing for Pierce in 2009 and was appointed to his current position of Executive Vice President and President, Fire & Emergency Segment in 2010.Frank R. Nerenhausen.
Mr. Nerenhausen joined the Company in 1986 and has served in various assignments, including Vice President of Concrete & Refuse Sales & Marketing for McNeilus from 2008 to 2010 and Executive Vice President and President, Commercial Segment from 2010 to 2012. He was appointed to his current position of Executive Vice President and President, Access Equipment Segment in 2012.Michael E. Pack. Mr. SagehornPack joined the Company in 20002006 as Senior Manager - Mergers & AcquisitionsDirector of Financial Analysis and Controls and has served in various assignments in the Commercial, Access Equipment and Fire & Emergency segments, including Director - Business Development, Vice President Finance - Defense Finance, Vice President - McNeilus Finance, Vice President - Business Development and Vice President and Treasurer.Fire & Emergency from 2012 to 2020. He was appointed to his current position of Executive Vice President and Chief Financial Officer in 2007.
Bryan K. Brandt.
Mr. Brandt joined the Company in 2016 as Vice President, Global Branding and Communications. He was appointed to his current position of Senior Vice President and Chief Marketing Officer in September 2018. Prior to joining the Company, he spent more than twenty years with Bemis Company, Inc., a global supplier of flexible packaging, in numerous positions of increasing responsibility, most recently as Vice President of Marketing and Transformation for Bemis North America from 2014 to 2016.Thomas P. Hawkins. Mr. Brandt servedHawkins joined the Company in September 2018 as Senior Vice President of World Class Operation Management at Bemis Company, Inc.Government Relations. Mr. Hawkins has 29 years of government service, most recently as the National Security Advisor with the Office of the Senate Republican Leader from 20122007 to 2014.
Anupam Khare.
Mr. Khare joined the Company in April 2018 as Senior Vice President and Chief Information Officer. He previously served as the Executive Director - Digital Technology at United Technologies Corporation, a global technology products and services company that serves the building systems and aerospace industries, from 2015 to April 2018. Prior to that, Mr. Khare served in positions of increasing responsibility at Koch Industries, Inc., a manufacturer of a wide variety ofBradley M. Nelson.
Mr. Nelson joined the Company in 2011 as Global Vice President of Marketing for JLG and was appointed to his current position of Senior Vice President and President, Commercial Segment in 2013. He previously served as Vice President of Global Marketing and CommunicationsTina R. Schoner
. Ms. Schoner joined the Company in November 2017 as Senior Vice President and Chief Procurement Officer. She previously served as the Executive Director, Global Operations Management and Strategy at United Technologies Corporation, a global technology products and services company that serves the building systems and aerospace industries, from 2015 to November 2017. Prior to that, Ms. Schoner served in positions of increasing responsibility at Rockwell Collins Inc., a worldwide leader in commercial and militaryPART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Common Stock Repurchases
The following table sets forth information with respect to purchases of Common Stock made by the Company or on the
Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1) | |||||||||
July 1 - July 31 | 308,945 | $ | 71.23 | 308,945 | 5,093,322 | ||||||||
August 1 - August 31 | 572,833 | $ | 70.72 | 572,833 | 4,520,489 | ||||||||
September 1 - September 30 | 280,955 | $ | 71.21 | 280,955 | 4,239,534 | ||||||||
Total | 1,162,733 | 1,162,733 | 4,239,534 |
Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1) | ||||||||||||
July 1 - July 31 | — | $ | — | — | 7,459,328 | |||||||||||
August 1 - August 31 | — | $ | — | — | 7,459,328 | |||||||||||
September 1 - September 30 | — | $ | — | — | 7,459,328 | |||||||||||
Total | — | — | 7,459,328 |
(1) | In May 2019, the |
Common Stock Information
The Company’s Common Stock is listed on the New York Stock Exchange (NYSE) under the symbol OSK. As of November 13, 2018,11, 2020, there were 1,0331,854 holders of record of the Common Stock.
Item 12 of this Annual Report on Form 10-K contains certain information relating to the Company’s equity compensation plans.
The following information in this Item 5 is not deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C under the Securities Exchange Act of 1934 (Exchange Act) or to the liabilities of Section 18 of the Exchange Act, and will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent the Company specifically incorporates it by reference into such a filing. The SEC requires the Company to include a line graph presentation comparing cumulative five year Common Stock returns with a broad-based stock index and either a nationally recognized industry index or an index of peer companies selected by the Company. The Company has chosen to use the Standard & Poor’s MidCap 400 market index as the broad-based index and the companies currently in the Standard Industry Classification Code 371 Index (motor vehicles and equipment) (the SIC Code 371 Index) as a more specific comparison.
The comparisons assume that $100 was invested on September 30, 20132015 in each of: the Company’s Common Stock, the Standard & Poor’s MidCap 400 market index and the SIC Code 371 Index. The total return assumes reinvestment of dividends and is adjusted for stock splits. The fiscal 20182020 return listed in the charts below is based on closing prices per share on September 30, 2018.2020. On that date, the closing price for the Company’s Common Stock was $71.24.
* $100 invested on September 30, 20132015 in stock or index, including reinvestment of dividends.
|
| September 30, |
| |||||||||||||||||
|
| 2016 |
|
| 2017 |
|
| 2018 |
|
| 2019 |
|
| 2020 |
| |||||
Oshkosh Corporation |
| $ | 157.03 |
|
| $ | 234.29 |
|
| $ | 204.74 |
|
| $ | 221.11 |
|
| $ | 217.76 |
|
S&P MidCap 400 market index |
|
| 115.33 |
|
|
| 135.53 |
|
|
| 154.78 |
|
|
| 150.93 |
|
|
| 147.67 |
|
SIC Code 371 Index |
|
| 112.56 |
|
|
| 146.10 |
|
|
| 141.21 |
|
|
| 145.58 |
|
|
| 265.52 |
|
September 30, | ||||||||||||||||||||
2014 | 2015 | 2016 | 2017 | 2018 | ||||||||||||||||
Oshkosh Corporation | $ | 91.20 | $ | 76.18 | $ | 119.62 | $ | 178.48 | $ | 155.97 | ||||||||||
S&P MidCap 400 market index | 111.82 | 113.38 | 130.76 | 153.66 | 175.49 | |||||||||||||||
SIC Code 371 Index | 104.09 | 104.46 | 117.45 | 155.05 | 150.10 |
ITEM 6. SELECTED FINANCIAL DATA
|
| Fiscal Year Ended September 30, |
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
| As adjusted (5) |
| |||||||||
(In millions, except per share amounts) |
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2016 |
| |||||
Income Statement Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | 6,856.8 |
|
| $ | 8,382.0 |
|
| $ | 7,705.5 |
|
| $ | 6,829.6 |
|
| $ | 6,279.2 |
|
Gross income |
|
| 1,120.3 |
|
|
| 1,517.4 |
|
|
| 1,358.6 |
|
|
| 1,180.8 |
|
|
| 1,059.8 |
|
Asset impairment charges |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 26.9 |
|
Depreciation (1) |
|
| 91.4 |
|
|
| 76.7 |
|
|
| 79.8 |
|
|
| 81.5 |
|
|
| 73.3 |
|
Amortization of purchased intangibles, deferred financing costs and stock-based compensation (2) |
|
| 42.1 |
|
|
| 67.5 |
|
|
| 67.4 |
|
|
| 71.2 |
|
|
| 74.2 |
|
Operating income (3) |
|
| 488.7 |
|
|
| 797.0 |
|
|
| 656.0 |
|
|
| 470.3 |
|
|
| 368.9 |
|
Net income (4) |
|
| 324.5 |
|
|
| 579.4 |
|
|
| 471.9 |
|
|
| 285.6 |
|
|
| 216.4 |
|
Diluted earnings per share (4) |
| $ | 4.72 |
|
| $ | 8.21 |
|
| $ | 6.29 |
|
| $ | 3.77 |
|
| $ | 2.91 |
|
Dividends per share |
| $ | 1.20 |
|
| $ | 1.08 |
|
| $ | 0.96 |
|
| $ | 0.84 |
|
| $ | 0.76 |
|
Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 582.9 |
|
| $ | 448.4 |
|
| $ | 454.6 |
|
| $ | 447.0 |
|
| $ | 321.9 |
|
Total assets |
|
| 5,815.9 |
|
|
| 5,566.3 |
|
|
| 5,294.2 |
|
|
| 5,098.9 |
|
|
| 4,513.8 |
|
Net working capital |
|
| 1,950.7 |
|
|
| 1,666.4 |
|
|
| 1,579.8 |
|
|
| 1,356.7 |
|
|
| 1,049.9 |
|
Long-term debt (including current maturities) |
|
| 817.9 |
|
|
| 819.0 |
|
|
| 818.0 |
|
|
| 830.9 |
|
|
| 846.2 |
|
Shareholders’ equity |
|
| 2,850.7 |
|
|
| 2,599.8 |
|
|
| 2,513.5 |
|
|
| 2,307.4 |
|
|
| 1,976.5 |
|
Other Financial Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for property, plant and equipment |
| $ | 112.3 |
|
| $ | 147.6 |
|
| $ | 95.3 |
|
| $ | 85.8 |
|
| $ | 92.5 |
|
Backlog |
|
| 4,577.5 |
|
|
| 4,144.7 |
|
|
| 4,172.9 |
|
|
| 3,791.0 |
|
|
| 3,537.9 |
|
Book value per share |
| $ | 41.83 |
|
| $ | 38.24 |
|
| $ | 34.73 |
|
| $ | 30.76 |
|
| $ | 26.74 |
|
Fiscal Year Ended September 30, | ||||||||||||||||||||
(In millions, except per share amounts) | 2018 | 2017 | 2016 | 2015 | 2014 | |||||||||||||||
Income Statement Data: | ||||||||||||||||||||
Net sales | $ | 7,705.5 | $ | 6,829.6 | $ | 6,279.2 | $ | 6,098.1 | $ | 6,808.2 | ||||||||||
Gross income | 1,355.7 | 1,174.4 | 1,055.8 | 1,039.2 | 1,182.7 | |||||||||||||||
Asset impairment charges | — | — | 26.9 | — | — | |||||||||||||||
Depreciation | 79.8 | 81.5 | 73.3 | 64.9 | 65.3 | |||||||||||||||
Amortization of purchased intangibles, deferred financing costs and stock-based compensation (1) | 67.4 | 71.2 | 74.2 | 81.0 | 86.5 | |||||||||||||||
Operating income (2) | 653.5 | 463.0 | 364.0 | 398.6 | 503.3 | |||||||||||||||
Net income (3) | 471.9 | 285.6 | 216.4 | 229.0 | 308.1 | |||||||||||||||
Diluted earnings per share (3) | $ | 6.29 | $ | 3.77 | $ | 2.91 | $ | 2.90 | $ | 3.61 | ||||||||||
Dividends per share | $ | 0.96 | $ | 0.84 | $ | 0.76 | $ | 0.68 | $ | 0.60 | ||||||||||
Balance Sheet Data: | ||||||||||||||||||||
Cash and cash equivalents | $ | 454.6 | $ | 447.0 | $ | 321.9 | $ | 42.9 | $ | 313.8 | ||||||||||
Total assets | 5,294.2 | 5,098.9 | 4,513.8 | 4,552.7 | 4,503.2 | |||||||||||||||
Net working capital | 1,579.8 | 1,356.7 | 1,049.9 | 919.0 | 1,006.4 | |||||||||||||||
Long-term debt (including current maturities) | 818.0 | 830.9 | 846.2 | 927.8 | 882.7 | |||||||||||||||
Shareholders’ equity | 2,513.5 | 2,307.4 | 1,976.5 | 1,911.1 | 1,985.0 | |||||||||||||||
Other Financial Data: | ||||||||||||||||||||
Expenditures for property, plant and equipment | $ | 95.3 | $ | 85.8 | $ | 92.5 | $ | 131.7 | $ | 92.2 | ||||||||||
Backlog | 4,172.9 | 3,791.0 | 3,537.9 | 2,607.4 | 1,891.0 | |||||||||||||||
Book value per share | $ | 34.73 | $ | 30.76 | $ | 26.74 | $ | 25.33 | $ | 24.86 |
(1) | Includes accelerated depreciation related to restructuring actions of $6.9 million and amortization of financing leases of $2.3 million in fiscal 2020. |
| Includes amortization of deferred financing costs of $1.8 million in fiscal 2020, $1.6 million in fiscal 2019, $2.4 million in fiscal 2018, $3.0 million in fiscal 2017 and $3.0 million in fiscal |
(3) | Includes $23.2 million of restructuring-related costs, a $12.3 million business interruption insurance recovery within the Commercial segment, a $3.1 million gain on the sale of a business in the Commercial segment and $0.9 million of gain for an arbitration settlement within the Defense segment in fiscal |
2020. Includes $35.4 million of |
(4) | |
Includes $17.9 million, or $0.26 per share, of restructuring-related costs, $14.2 million, or $0.21 per share, insurance recovery within the Commercial segment, a $2.8 million, or $0.04 per share, gain on the sale of a business in the Commercial segment, a $3.2 million, or $0.05 per share, gain for the arbitration settlement within the Defense segment, debt extinguishment costs of $6.5 million, or $0.10 per share, and $11.4 million, or $0.16 per share, of tax expense due to the establishment of a valuation allowance on deferred tax assets in Europe as a result of the negative impacts of the COVID-19 pandemic on the Access Equipment segment’s European results in fiscal 2020. Includes $7.0 million, or $0.10 per share, of tax expense related to tax reform in the United States in fiscal 2019. Includes $27.5 million, or $0.37 per share, of |
(5) | The selected financial data has been adjusted from the originally filed data to reflect the adoption of |
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company is a leading designer, manufacturer and marketer of a wide range of essential specialty vehicles and vehicle bodies, including access equipment, defense trucks and trailers, fire & emergency vehicles, concrete mixers and refuse collection vehicles.vehicles and concrete mixers. The Company is a leading global designer and manufacturer of aerial work platforms under the “JLG” brand name. The Company is among the worldwide leaders in the design and manufacturing of telehandlers under the “JLG” and “SkyTrak” brand names. Under the “Jerr-Dan” brand name, the Company is a leading domestic designer and manufacturer and marketer of towing and recovery equipment. The Company manufactures defense trucks under the “Oshkosh” brand name and is a leading designer and manufacturer of severe-duty, tactical wheeled vehicles for the DoD. Under the “Pierce” brand name, the Company is among the leading global designers and manufacturers of fire trucks assembled on both custom and commercial chassis. Under the “Frontline” brand name, the Company is a leading domestic designer, manufacturer and marketer of broadcast and command vehicles. The Company designs and manufactures aircraft rescue and firefighting and airport snow removal vehicles under the “Oshkosh” brand name. Under the “McNeilus,” “Oshkosh,” “London” and “CON-E-CO” brand names, the Company designs and manufactures rear- and front-discharge concrete mixers and portable and stationary concrete batch plants. Under the “McNeilus” brand name, the Company designs and manufactures a wide range of automated, rear, front, side and top loading refuse collection vehicles. Under the “McNeilus,” “Oshkosh,” and “London” brand names, the Company designs and manufactures rear- and front-discharge concrete mixers. Under the “IMT” brand name, the Company is a leading domestic designer and manufacturer of field service vehicles and truck-mounted cranes.
Major products manufactured and marketed by each of the Company’s business segments are as follows:
Access equipment
Defense
— tactical trucks, trailers and supply parts and services sold to the U.S. military and to other militaries around the world.Fire & emergency
Commercial
—All estimates referred to in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” refer to the Company’s estimates as of November 20, 2018.
Executive Overview
Entering fiscal 2020, the Company expected lower Access Equipment sales in North America and Europe as rental company customers were slowing down their capital expenditures after two years of strong fleet growth, but the impact of the COVID-19 pandemic on the business environment significantly altered the Company’s expectations for the year. The COVID-19 pandemic significantly impacted demand in certain markets in fiscal 2020, with the Company’s construction-related markets impacted most severely. The Company achieved another year of significantly improved earnings growthquickly responded to the challenges caused by the pandemic, including changing customer demand, new working protocols, workforce availability issues and supply chain disruptions. Because the Company’s products are considered essential, to date, operations in all segments have been able to remain open during the pandemic despite government-ordered shut-downs and shelter in place orders. The Company’s operations teams maintained strong efficiencies while successfully navigating through numerous supplier shutdowns in fiscal 2018. Consolidated net sales increased $875.92020 to continue production without any major supplier-induced line stoppages. The Company also introduced temporary company-wide cost reductions, including salary reductions, furloughs, temporary plant shutdowns, limiting travel, and reducing project costs and other discretionary spending, that reduced pre-tax costs by approximately $120 million or 12.8%, to $7.71 billion, consolidated operating income increased $190.5 million, or 41.1%, to $653.5 million, and dilutedfor fiscal 2020. Strong execution combined with rapid implementation of temporary cost reductions resulted in earnings per share increased $2.52 per share, or 66.8%, to $6.29 per share. This was the second consecutive year that the Company increased operating income by more than 25%. All segments reported higher sales and operating incomeof $4.72 in fiscal 2018 compared to fiscal 2017. The lower U.S. federal income tax rate benefited fiscal 2018 results by $0.86 per share compared to the prior year. Share repurchases completed during the past year also benefited2020. Although down from earnings per share by $0.12 compared toof $8.21 in fiscal 2017.
Fiscal 20182020 results included after-tax charges related to restructuring actions of $27.5$17.9 million, or $0.37 per share, for costsa $14.2 million after-tax gain on a property and inefficienciesbusiness interruption insurance recovery, the establishment of a valuation allowance on deferred tax assets in Europe of $11.4 million due to the negative impacts of the COVID-19 pandemic on the Access Equipment segment’s European results, an after-tax charge of $6.5 million associated with restructuring actions in the access equipment and commercial segments, after-tax charges of $7.7 million, or $0.10 per share, of debt extinguishment costs incurred in connection with the refinancing of the Company’s senior notes, and credit agreementan after-tax gain of $3.2 million on an arbitration settlement in the Defense segment and an after-tax loss of $1.0 million, or $0.01 per share,gain on the sale of a small product linebusiness in the commercial segment. Fiscal 2018 also included after-tax gainsCommercial segment of $15.4 million, or $0.21 per share, related to a litigation settlement in the defense segment, $10.7 million, or $0.13 per share, related to the implementation of tax reform in the United States and an after-tax gain of $4.9 million, or $0.07 per share, related to the receipt of business interruption insurance proceeds in the commercial segment.$2.8 million. In the aggregate, these items accounted for a net $5.2$15.6 million, or $0.07$0.22 per share, charge. Fiscal 20172019 results included after-tax charges of $36.2$7.0 million, or $0.48$0.10 per share, for restructuring-related actionsof charges related to adjustments to the repatriation tax on deemed repatriated earnings of foreign subsidiaries required under the U.S. Tax Cuts and Jobs Act enacted in the access equipment segment.
Consolidated net sales in North America and most regions aroundfiscal 2020 decreased $1.53 billion, or 18.2%, to $6.86 billion compared to fiscal 2019 largely as a result of a 38% decrease in sales in the globe.
Consolidated operating income increased to $653.5was $488.7 million, or 8.5%7.1% of sales, in fiscal 20182020, a decrease of 38.7% compared to $463.0 million, or 6.8% of sales,fiscal 2019. The decrease in fiscal 2017. The increase inconsolidated operating income was driven by higherprimarily due to the impact of lower gross margin associated with higher consolidatedlower sales improved pricingvolume and a litigation settlement in the defense segment,an adverse product mix, offset in part by higherfavorable material costs, lower incentive compensation accruals and freight costs and unfavorable foreign exchange rates. Similar to many industrial companies, the Company is working through challengeslower spending as a result of temporary costs reductions in response to the COVID-19 pandemic.
Demand for the Defense segment’s products remained unaffected by the COVID-19 pandemic, which provided stability for the Company during a year in which it experienced lower sales in other segments. During the year, the Company received large orders for both the Joint Light Tactical Vehicle (JLTV) and the Family of Heavy Tactical Vehicle (FHTV) programs that increased the Company’s backlog. The Defense segment’s backlog includes $2.2 billion that the Company expects to deliver in fiscal 2021.
While demand in the Defense segment remained strong, economyit did experience other impacts from the pandemic. The Defense segment successfully navigated through numerous supplier shutdowns by re-sourcing critical components and addressed workforce issues with social distancing and increased cleaning frequency to enable continued production. The Defense segment still faces production challenges due to COVID-19 related supply chain disruptions and workforce availability as the Company enters fiscal 2021, which could negatively impact Defense segment production in fiscal 2021.
Fire trucks remain critical assets to first responders battling the COVID-19 pandemic on the frontlines. Pierce’s fire truck orders in fiscal 2020 represented the largest order year the Company’s history, leading to a record year-end backlog for the Fire & Emergency segment of more than $1.1 billion. Despite strong demand, the COVID-19 pandemic has impacted the Fire & Emergency segment in several ways, including supply chain disruptions, workforce availability and delayed customer final inspections that delayed product deliveries.
COVID-19 has impacted concrete mixer product line orders as construction sites in some states faced temporary shutdowns early in the pandemic and customers pushed out deliveries. The Commercial segment also faced some order pushouts in the refuse collection vehicle and IMT product lines as well. Similar to the Company’s other segments, the Commercial segment experienced supply chain challenges as suppliers limited their production. The Company has generally been successful in mitigating these challenges to date, but it is possible that parts shortages or workforce availability issues could limit production in fiscal 2021.
During fiscal 2020, the Company implemented temporary cost reduction actions which reduced 2020 pre-tax costs by approximately $120 million. Because these cost reductions were temporary in nature, the Company expects these costs to largely return to its expense run rate in fiscal 2021. While the duration and magnitude of the impact of the COVID-19 pandemic remain uncertain, the Company took additional permanent cost reduction actions in response to ongoing market softness. In the third quarter of fiscal 2020, the Company announced permanent restructuring actions in the Access Equipment, Commercial and Fire & Emergency segments. These actions included initiating closure of the Medias, Romania factory in the Access Equipment segment, transferring rear-discharge concrete mixer production in the Commercial segment from a facility in Dodge Center, Minnesota to consolidate production in London, Ontario, and reductions in office staffing. The Company expects these actions to yield combined annualized cost savings of $30 million to $35 million once complete. The Company expects to realize approximately $20 million of benefits related of these actions in fiscal 2021 with the full impact of these actions in fiscal 2022. In addition, the Company recently implemented additional permanent cost reductions totaling approximately $15 million for fiscal
2021. The Company is carefully balancing its permanent cost reductions with maintaining the ability to ramp-up production when markets return.
The COVID-19 pandemic has continued to drive uncertainty in the cadence of customer demand in both the Access Equipment and Commercial segments. Although strong backlogs in the Defense and Fire & Emergency segments provide good visibility well into fiscal 2021, recent spikes in COVID-19 infection rates are creating workforce availability and supply chain issues, particularly in Wisconsin where a significant portion of the production occurs for the Defense and Fire & Emergency segments. The situation is causing production and labor efficiency risks for these two segments and is also likely to impact final truck inspections by customers in the Fire & Emergency segment. Taking these factors into account, including the ongoing uncertainty of the pandemic, the Company is not providing quantitative expectations for fiscal 2021.
The Company is actively engaged in discussions with its key customers in the Access Equipment and Commercial segments to understand their requirements for fiscal 2021. The Company expects softer year over year demand in the first half of fiscal 2021 compared to fiscal 2020. As a result, the Access Equipment segment is once again implementing two-week production shutdowns per month in the United States in the first quarter of fiscal 2021 to better align production with customer requirements.
The Company’s balance sheet remains strong, with available liquidity of approximately $1.4 billion at September 30, 2020 consisting of cash of approximately $600 million and current trade policies. Labor markets are tight, commodity and logistics costs have increased significantly and rapidly, and higher production levels are causing a strain onavailability under the Company’s supply chain. These challenges are especially apparentrevolving line of credit of approximately $800 million. The Company expects a modest increase in the access equipment segment, which has ramped up productioncapital expenditures to meet significantly higher demand for its products. Trade policies have resultedapproximately $120 million in higher commodity costs, and as a result, the Company is paying significantly more for its raw materials compared to a year ago. During fiscal 2018, the Company implemented surcharges in its non-defense segments to address the dramatic cost increases it was experiencing. Approximately 74% of the Company’s fiscal 2019 first quarter non-defense backlog does not have a surcharge associated with it as the orders were placed prior to the implementation of the surcharge or the orders were placed for products produced outside of the United States.
The Company continued to execute its disciplined capital allocation strategy in fiscal 2018.2020. The Company refinanced its credit agreement, lowering the interest rate and extending the term of the credit agreement to April 2023. In addition, the Company replaced its 5.375% interest rate unsecured senior notes due in March 2022 with $300 million of new senior unsecured notes due in May 2028 at a 4.6% interest rate. The Company also returned more than $320$122.6 million of cash to shareholders through the repurchase of nearly 3.3 millionapproximately 550,853 shares of stock and payment of quarterly dividends. In addition, the Company recently announced an increase in its quarterly dividend rate of 12.5%10%, to $0.27,$0.33, per share beginning in November 2018.2020. This was the Company’s fifthseventh straight year of a double digitdouble-digit percentage increase in its dividend rate.
Results of Operations
A detailed discussion of the year-over-year changes from the Company’s fiscal 2018 to fiscal 2019 consolidated net sales willcan be $7.85 billion to $8.15 billion, an approximate 2% to 6% increase compared to fiscal 2018. The Company expectsfound in the Management’s Discussion and Analysis section in the Company’s fiscal 2019 consolidated operating income will be in the range of $640 million to $710 million, resulting in earnings per share of $6.50 to $7.25.
Consolidated Net Sales — ThreeTwo Years Ended September 30, 2018
The following table presents net sales (see definition of net sales contained in Note 2 of the Notes to Consolidated Financial Statements) by business segment (in millions):
Fiscal Year Ended September 30, |
| Fiscal Year Ended September 30, |
| ||||||||||||||||
2018 | 2017 | 2016 |
| 2020 |
|
| 2019 |
| |||||||||||
Net sales: |
|
|
|
|
|
|
|
| |||||||||||
Access equipment | $ | 3,776.8 | $ | 3,026.4 | $ | 3,012.4 | |||||||||||||
Access Equipment |
| $ | 2,515.1 |
|
| $ | 4,079.7 |
| |||||||||||
Defense | 1,828.9 | 1,820.1 | 1,351.1 |
|
| 2,262.2 |
|
|
| 2,032.1 |
| ||||||||
Fire & emergency | 1,069.7 | 1,030.9 | 953.3 | ||||||||||||||||
Fire & Emergency |
|
| 1,147.1 |
|
|
| 1,266.1 |
| |||||||||||
Commercial | 1,054.7 | 970.3 | 979.2 |
|
| 957.8 |
|
|
| 1,022.2 |
| ||||||||
Intersegment eliminations and other | (24.6 | ) | (18.1 | ) | (16.8 | ) |
|
| (25.4 | ) |
|
| (18.1 | ) | |||||
$ | 7,705.5 | $ | 6,829.6 | $ | 6,279.2 |
| $ | 6,856.8 |
|
| $ | 8,382.0 |
|
The following table presents net sales by geographic region based on product shipment destination (in millions):
|
| Fiscal Year Ended September 30, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Net sales: |
|
|
|
|
|
|
|
|
North America |
| $ | 6,023.7 |
|
| $ | 7,216.6 |
|
Europe, Africa and the Middle East |
|
| 413.7 |
|
|
| 664.2 |
|
Rest of the world |
|
| 419.4 |
|
|
| 501.2 |
|
|
| $ | 6,856.8 |
|
| $ | 8,382.0 |
|
Fiscal Year Ended September 30, | |||||||||||
2018 | 2017 | 2016 | |||||||||
Net sales: | |||||||||||
United States | $ | 6,177.8 | $ | 5,094.8 | $ | 4,756.6 | |||||
Other North America | 311.8 | 191.6 | 219.5 | ||||||||
Europe, Africa and the Middle East | 851.8 | 1,146.9 | 905.5 | ||||||||
Rest of the world | 364.1 | 396.3 | 397.6 | ||||||||
$ | 7,705.5 | $ | 6,829.6 | $ | 6,279.2 |
Consolidated net sales increased $875.9 million,decreased $1.53 billion, or 12.8%18.2%, to $7.71$6.86 billion in fiscal 20182020 compared to fiscal 2017 driven by strong demand for access equipment. All2019 as a result of lower sales in the Access Equipment and Commercial segments, reported an increaselargely as a result of the impact of the COVID-19 pandemic on these segments’ markets. In addition, COVID-19 pandemic-induced production slowdowns contributed to a decline in Fire & Emergency segment sales in fiscal 20182020. Higher Defense segment sales due to the continued ramp up of JLTV program sales to the U.S. government helped offset some of the sales declines experienced in the other three segments in fiscal 2020.
Access Equipment segment net sales decreased $1.56 billion, or 38.4%, to $2.52 billion in fiscal 2020 compared to fiscal 2017.
Defense segment net sales increased $8.8$230.1 million, or 0.5%11.3%, to $1.83$2.26 billion in fiscal 20182020 compared to fiscal 2017. The increase in sales was primarily 2019 due to the continued ramp-upramp up of production underJLTV program sales to the JLTV program and higher FMTV sales,U.S. government, offset in part by lower international M-ATVFHTV program sales.
Fire & emergencyEmergency segment net sales increased $38.8decreased $119.0 million, or 3.8%9.4%, to $1.07$1.15 billion in fiscal 20182020 compared to fiscal 2017 primarily 2019 due to improved pricing ($31 million).
Commercial segment net sales decreased $8.9$64.4 million, or 0.9%6.3%, to $970.3$957.8 million in fiscal 20172020 compared to fiscal 2016. The decrease in sales was primarily 2019 due to lower refuse collection vehicle unit volume ($53 million) due todemand following the atypical timingglobal economic downturn as a result of orders, offset in part by sales of higher content units ($21 million) and higher concrete mixer unit volume ($23 million).
Consolidated Cost of Sales — ThreeTwo Years Ended September 30, 2018
The following table presents costs of sales by business segment (in millions):
|
| Fiscal Year Ended September 30, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Cost of sales: |
|
|
|
|
|
|
|
|
Access Equipment |
| $ | 2,090.6 |
|
| $ | 3,291.0 |
|
Defense |
|
| 1,974.8 |
|
|
| 1,727.1 |
|
Fire & Emergency |
|
| 907.8 |
|
|
| 998.0 |
|
Commercial |
|
| 788.5 |
|
|
| 862.4 |
|
Intersegment eliminations and other |
|
| (25.2 | ) |
|
| (13.9 | ) |
|
| $ | 5,736.5 |
|
| $ | 6,864.6 |
|
Fiscal Year Ended September 30, | |||||||||||
2018 | 2017 | 2016 | |||||||||
Cost of sales: | |||||||||||
Access equipment | $ | 3,106.7 | $ | 2,472.9 | $ | 2,435.4 | |||||
Defense | 1,529.6 | 1,518.3 | 1,147.7 | ||||||||
Fire & emergency | 844.4 | 849.2 | 816.0 | ||||||||
Commercial | 886.7 | 827.2 | 817.5 | ||||||||
Intersegment eliminations and other | (17.6 | ) | (12.4 | ) | 6.8 | ||||||
$ | 6,349.8 | $ | 5,655.2 | $ | 5,223.4 |
Consolidated cost of sales was $6.35$5.74 billion, or 82.4%83.7% of sales, in fiscal 20182020 compared to $5.66$6.86 billion, or 82.8%81.9% of sales, in fiscal 2017. The 40 basis point decrease in cost of sales as a percentage of sales in fiscal 2018 compared to fiscal 2017 was primarily due to improved pricing (80 basis points) and lower restructuring-related costs and inefficiencies (30 basis points), offset in part by higher material and freight costs (80 basis points).
Access Equipment segment cost of sales was $2.09 billion, or 83.1% of sales, in fiscal 20172020 compared to $3.29 billion, or 80.7% of sales, in fiscal 20162019. The 240 basis point increase in cost of sales as a percentage of sales was due to unfavorable manufacturing absorption as a result of lower production volume (300 basis points) and flat engineering costs on lower sales (100 basis points), offset in part by favorable material costs (130 basis points).
Defense segment cost of sales was $1.97 billion, or 87.3% of sales, in fiscal 2020 compared to $1.73 billion, or 85.0% of sales, in fiscal 2019. The 230 basis point increase in cost of sales as a percentage of sales was attributable to larger cumulative catch-up adjustments on contracts in fiscal 2019 (90 basis points), higher new product development spending (80 basis points) and higher warranty costs (50 basis points).
In the first quarter of fiscal 2019, the Defense segment received a very large order for JLTVs. Upon receipt of that order, the Defense segment recorded a cumulative adjustment to the program margin to reflect a near doubling of the number of units on contract for that program. The Defense segment received a JLTV order again in the first quarter fiscal 2020, but the quantity of units ordered was not as large as the first quarter of fiscal 2019. Consequently, the impact of the cumulative adjustment to the program margin was not as large. For comparison, the order in first quarter of fiscal 2020 only increased the quantity of units ordered life to date of the program by slightly more than 25%.
Fire & Emergency segment cost of sales was $907.8 million, or 79.1% of sales, in fiscal 2020 compared to $998.0 million, or 78.8% of sales, in fiscal 2019. The 30 basis point increase in cost of sales as a percentage of sales was primarily attributable to adverse product mix (210 basis points), flat engineering costs on lower sales (40 basis points) and manufacturing inefficiencies (20 basis points), offset in part by improved pricing (260 basis points).
Commercial segment cost of sales was $788.5 million, or 82.3% of sales, in fiscal 2020 compared to $862.4 million, or 84.4% of sales, in fiscal 2019. The 210 basis point decrease in cost of sales as a percentage of sales was largely due to operational inefficiencies associated with variability in production volumes during fiscal 2017 (100favorable material costs (240 basis points) and anthe business interruption insurance recovery in fiscal 2020 associated with the weather-related partial roof collapse at one of its manufacturing facilities in February 2019 (110 basis points), offset in part by adverse product mix (50(70 basis points).
Intersegment eliminations and other includes intercompany profit on inter-segmentintersegment sales not yet sold to third party customers as well as start-up costs not allocated to segments relating to the corporate-led shared manufacturing facility in Mexico in fiscal 2016.
Consolidated Operating Income (Loss) — ThreeTwo Years Ended September 30, 2018
The following table presents operating income (loss) by business segment (in millions):
|
| Fiscal Year Ended September 30, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Operating income (loss): |
|
|
|
|
|
|
|
|
Access Equipment |
| $ | 198.6 |
|
| $ | 502.6 |
|
Defense |
|
| 183.5 |
|
|
| 203.3 |
|
Fire & Emergency |
|
| 151.1 |
|
|
| 176.5 |
|
Commercial |
|
| 81.2 |
|
|
| 66.8 |
|
Corporate |
|
| (125.7 | ) |
|
| (152.2 | ) |
|
| $ | 488.7 |
|
| $ | 797.0 |
|
Fiscal Year Ended September 30, | |||||||||||
2018 | 2017 | 2016 | |||||||||
Operating income (loss): | |||||||||||
Access equipment | $ | 387.8 | $ | 259.1 | $ | 263.4 | |||||
Defense | 222.9 | 207.9 | 122.5 | ||||||||
Fire & emergency | 137.2 | 104.2 | 67.0 | ||||||||
Commercial | 67.5 | 43.8 | 67.6 | ||||||||
Corporate | (161.9 | ) | (152.0 | ) | (156.5 | ) | |||||
$ | 653.5 | $ | 463.0 | $ | 364.0 |
Consolidated operating income increased 41.1% to $653.5decreased $308.3 million, or 8.5%38.7%, to $488.7 million, or 7.1% of sales, in fiscal 20182020 compared to $463.0$797.0 million, or 6.8%9.5% of sales, in fiscal 2017.2019. The increasedecrease in operating income was primarily due to the impact of lower gross margin associated with lower sales volume ($356 million), adverse product mix ($51 million), unfavorable fixed manufacturing absorption as a result of lower production volume ($31 million), lower cumulative catch-up adjustments on contract margins in the current year compared with the prior year ($29 million) and restructuring-related costs ($23 million) in fiscal 20182020, offset in part by favorable material costs ($66 million), lower incentive compensation accruals ($48 million), lower spending as a result of temporary cost reductions in response to the COVID-19 pandemic ($37 million) and lower intangible asset amortization ($26 million).
Access Equipment segment operating income decreased $304.0 million, or 60.5%, to $198.6 million, or 7.9% of sales, in fiscal 2020 compared to $502.6 million, or 12.3% of sales, in fiscal 20172019. The decrease in operating income was primarily due to lower gross margin associated with lower sales volume ($389 million) and unfavorable fixed manufacturing absorption as a result of lower production volume ($37 million), offset in part by favorable material costs ($33 million), lower incentive compensation accruals ($28 million), lower spending as a result of temporary cost reductions in response to the COVID-19 pandemic ($27 million) and lower intangible asset amortization ($26 million).
Defense segment operating income decreased $19.8 million, or 9.7%, to $183.5 million, or 8.1% of sales, in fiscal 2020 compared to $203.3 million, or 10.0% of sales, in fiscal 2019. The decrease in operating income was primarily a result of lower cumulative catch-up adjustments on contract margins in the current year compared with the prior year ($29 million), higher engineering & proposal spending ($22 million) and higher warranty costs ($13 million), offset in part by higher gross margin associated with higher sales volume ($183 million), improved pricing ($80 million), a gain on a litigation settlement in the defense segment ($19 million), lower charges and inefficiencies associated with restructuring actions in the access equipment and commercial segments ($8 million) and a gain on the receipt of business interruption insurance proceeds in the commercial segment ($7 million), offset in part by increased material and freight costs ($79 million), unfavorable foreign exchange rates ($16 million) and adverse product mix ($12 million).
Fire & emergencyEmergency segment operating income increased 31.7% to $137.2decreased $25.4 million, or 12.8%14.4%, to $151.1 million, or 13.2% of sales, in fiscal 20182020 compared to $104.2$176.5 million, or 10.1%13.9% of sales, in fiscal 2017. The increase in operating income in fiscal 2018 compared to fiscal 2017 was primarily the result of improved pricing ($31 million), improved product mix ($15 million) and improved manufacturing performance ($6 million), offset in part by higher selling, general and administrative expenses ($11 million) and higher material costs ($9 million).
Commercial segment operating income increased $14.4 million, or 21.6%, to $81.2 million, or 8.5% of sales, in fiscal 2020 compared to $66.8 million, or 6.5% of sales, in fiscal 2019. The increase in operating income was primarily due to favorable material costs ($23 million), the lack of business disruption costs caused by the weather-related roof collapse at one of its manufacturing facilities in February 2019 ($13 million) and the business interruption insurance recovery associated with variabilitythe weather-related partial roof collapse ($11 million), offset in production volumes in fiscal 2017part by lower gross margin associated with lower sales volume ($1016 million) and adverse product mix ($16 million).
Corporate operating costs decreased $4.5$26.5 million to $152.0$125.7 million in fiscal 20172020 compared to fiscal 2016.2019. The decrease in corporate operating costs in fiscal 2017 compared to fiscal 2016 was primarily due to improved operating results relatedlower management incentive expense ($12 million), lower spending as a result of temporary cost reductions in response to the corporate-led shared manufacturing facility in Mexico which incurred higher start-up costs during fiscal 2016, offset in part by higher incentive compensation expenseCOVID-19 pandemic and lower new product development spending ($84 million), higher corporate-funded research & development ($3 million) and higher share-based compensation ($3 million).
Consolidated selling, general and administrative expenses increased 8.7% to $665.6decreased $62.9 million, or 9.7%9.2%, to $620.6 million, or 9.1% of sales, in fiscal 20172020 compared to $612.4$683.5 million, or 9.7%8.2% of sales, in fiscal 2016.2019. The increasedecrease in consolidated selling, general and administrative expenses in fiscal 2017 compared to fiscal 2016 was generallyprimarily a result of higherlower management incentive compensation expense ($48 million) and higher salaries.
Non-Operating Income (Expense) — ThreeTwo Years Ended September 30, 2018
Interest expense, net of interest income increased $0.7$4.2 million to $55.6$51.8 million in fiscal 20182020 compared to fiscal 2017 primarily due to $9.92019. Fiscal 2020 included $8.5 million of debt extinguishment costs incurred in connection with the refinancing of the Company’s senior notes and credit agreement offset in part by the receipt$3.3 million of interest from a customer that had been on non-accrual status.
Net miscellaneous expense, netincome of $3.3$2.2 million and $1.3 million in fiscal 20182020 and other miscellaneous income, net of $3.2 million in fiscal 20172019, respectively, primarily related to gains and losses on investments held in a rabbi trust, net foreign currency transaction gains and losses, and investment gains and losses.
Provision for Income Taxes — ThreeTwo Years Ended September 30, 2018
The Company recorded income tax expense of $123.8$112.8 million, or 20.8%25.7% of pre-tax income, in fiscal 20182020 compared to $127.2$171.3 million, or 30.9%22.8% of pre-tax income, in fiscal 2017.2019. Fiscal 20182020 results were favorablyadversely impacted by discrete tax benefitscharges of $21.7$8.0 million, primarily dueincluding tax valuation reserves of $11.4 million recorded against certain foreign net deferred tax assets in Europe (260 basis points). Fiscal 2019 results were adversely impacted by discrete tax charges of $1.9 million, including $7.0 million of charges for uncertain tax position reserves related to a $10.7 million netrepatriation tax benefit related toon deemed repatriated earnings of foreign subsidiaries created by tax reform in the United States (180(the “Transition Tax”) (90 basis points), offset in part by favorable share-based compensation tax benefits of $7.2$1.5 million (120(20 basis points), $5.1$1.5 million of tax benefits related to state tax matters (90(20 basis points) and a $2.5$1.4 million tax benefit related to a foreign provision-to-return adjustment (40 basis points). Fiscal 2017 results were favorably impacted by discrete tax benefits of $20.1 million largely due to net tax benefits related to the release of valuation allowances on a federal capital loss and state net operating losses of $5.7 million (140 basis points), tax benefits from stock-based compensation of $5.3 million (130 basis points), a $5.4 million tax benefit related to state tax matters (130 basis points) and benefits due to a provision-to-return adjustment on the Company’s 2016 federal income tax return of $2.1 million (50(20 basis points). See Note 186 of the Notes to Consolidated Financial Statements for a reconciliation of the effective tax rate compared to the U.S. statutory tax rate.
On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the “Tax Reform Act”) was signed into law by President Trump.law. The Tax Reform Act significantly revised the U.S. corporate income tax regime by, among other things, lowering the U.S. corporate tax rate from 35% to 21% effective January 1, 2018, repealing the deduction for domestic production activities, implementing a territorial tax system and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries. As a result of the Tax Reform Act, the Company recorded a $7.0 million charge for changes to uncertain tax benefit of $30.2 million due to a remeasurement of deferred tax assets and liabilities and a tax charge of $19.5 million dueposition reserves related to the transition tax on deemed repatriation of deferred foreign incomeTransition Tax liability in fiscal 2018. The remeasurement of the deferred tax assets and liabilities has been finalized as of September 30, 2018. The transition tax charge represents a provisional amount and the Company’s best estimates as of September 30, 2018. Any adjustments recorded to the provisional transition tax through the first quarter of fiscal 2019 will be included in income from operations as an adjustment to tax expense. The provisional transition tax incorporates assumptions made based upon the Company’s current interpretation of the Tax Reform Act and may change as the Company receives additional clarification and implementation guidance.
Equity in Earnings of Unconsolidated Affiliates — ThreeTwo Years Ended September 30, 2018
Losses of unconsolidated affiliates of $1.1$1.8 million in fiscal 2018 and $1.5 million in fiscal 20172020 primarily represented the Company’s equity interest in a commercialCommercial segment entity in Mexico and a joint venture in Europe.
Liquidity and Capital Resources
The Company generates significant capital resources from operating activities, which is the expected primary source of funding for its operations. Otherthe Company. The Company expects cash flow from operations will be sufficient to fund expenditures for property, plant and equipment in fiscal 2021. The Company expects to utilize approximately $120 million of cash during fiscal 2021 for capital spending needs. In addition to cash generated from operations, the Company had other sources of liquidity are availability under the Revolving Credit Facility (as defined in “Liquidity”) and available at September 30, 2020, including $582.9 million of cash and cash equivalents of $454.6 million at September 30, 2018. The Company had $764.5and $790.1 million of unused available capacity under the Revolving Credit Facility as of September 30, 2018 if liquidity needs would arise.(as defined in “Liquidity”). Borrowings under the Revolving Credit Facility could, as discussed below, be limited by the financial covenants contained withinin the Credit Agreement (as defined in “Liquidity”). These sources of liquidity are needed to fund the Company’s working capital requirements, capital expenditures, dividends, share repurchases, debt service requirements capital expenditures, share repurchases, dividends and acquisitions. At September 30, 2018, the Company had approximately 4.2 million shares of Common Stock remaining under a repurchase authorization approved by the Company’s Board of Directors in August 2015.
The Company expectscontinues to meet its fiscal 2019 U.S. funding needs without repatriating undistributed profits that are indefinitely reinvested outside the United States.
Financial Condition at September 30, 2018
The Company’s capitalization was as follows (in millions):
|
| September 30, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Cash and cash equivalents |
| $ | 582.9 |
|
| $ | 448.4 |
|
Total debt |
|
| 823.1 |
|
|
| 819.0 |
|
Total shareholders’ equity |
|
| 2,850.7 |
|
|
| 2,599.8 |
|
Total capitalization (debt plus equity) |
|
| 3,673.8 |
|
|
| 3,418.8 |
|
Debt to total capitalization |
|
| 22.4 | % |
|
| 24.0 | % |
September 30, | |||||||
2018 | 2017 | ||||||
Cash and cash equivalents | $ | 454.6 | $ | 447.0 | |||
Total debt | 818.0 | 830.9 | |||||
Total shareholders’ equity | 2,513.5 | 2,307.4 | |||||
Total capitalization (debt plus equity) | 3,331.5 | 3,138.3 | |||||
Debt to total capitalization | 24.6 | % | 26.5 | % |
The Company’s ratio of debt to total capitalization of 24.6%22.4% at September 30, 20182020 remained within its targeted range.
Consolidated days sales outstanding (defined as “Trade Receivables” at quarter end divided by “Net Sales” for the most recent quarter multiplied by 90 days) increased from 56was 41 days at September 30, 20172020, compared to 6340 days at September 30, 2018 primarily as a result of the increase in unbilled receivables associated with utilizing percentage-of-completion accounting on the JLTV contract and the timing of a payment on a large international order in the defense segment.2019. Days sales outstanding for segments other than the defenseDefense segment were 53was 50 days at September 30, 2018,2020, up slightly from 5249 days at September 30, 2017.2019. Consolidated inventory turns (defined as “Cost of Sales” on an annualized basis, divided by the average “Inventory” at the past five quarter end periods) increaseddecreased from 4.55.2 times at September 30, 20172019 to 5.13.8 times at September 30, 2018 as a result of lower inventory levels in the defense segment.
A detailed discussion of the year-over-year changes in cash flows from the Company’s fiscal 2018 and 2019 can be found in the Management Discussion and Analysis section in the Company’s fiscal 2019 Annual Report on Form 10-K filed November 19, 2019.
Operating Cash Flows
Operating activities provided $327.3 million of cash during fiscal 2020 compared to $568.3 million during fiscal 2019. The access equipment segment reduced inventories significantly ($305.8 million)decrease in fiscal 2016 to better align inventory levels with lower market demand.
Investing Cash Flows
Investing activities used cash of $77.6 million during fiscal 2020 compared to $153.0 million in fiscal 2017.2019. Additions to property, plant and equipment of $95.3$112.3 million in fiscal 20182020 reflected an increasea decrease in capital spending of $9.5$35.3 million compared to fiscal 2017. The Company anticipates that it will spend $165 million on capital expenditures2019. Capital spending returned to more normal levels in fiscal 2019, higher than the Company’s typical capital spending, reflecting2020 after the construction of the Company’s new global headquarters in Oshkosh, Wisconsin. ProceedsWisconsin in fiscal 2019, although the Company reduced capital spending when the COVID-19 pandemic struck. The Company anticipates that it will spend $120 million on capital expenditures in fiscal 2021. In addition, a customer in the Access Equipment segment purchased a large amount of equipment in the first quarter of fiscal 2020 that the customer was previously renting. This transaction increased proceeds received from the sale of equipment held for rental net of additions, decreased $21.1 million after a large sale of equipment in fiscal 2017.
Financing Cash Flows
Financing activities used cash of $338.9$115.5 million in fiscal 20182020 compared to $44.8$421.6 million in fiscal 2017.2019. The decrease in cash utilized for financing activities was due to a decrease in Common Stock repurchases under the authorization approved by the Company’s Board of Directors as the Company paused repurchases in fiscal 2020 to preserve liquidity when the COVID-19 pandemic struck. In fiscal 2018,2020, the Company repurchased approximately 3.3 million550,853 shares of its Common Stock at an aggregate cost of $249.3 million under a repurchase authorization approved by$40.8 million. In fiscal 2019, the Company’s BoardCompany repurchased 4,866,532 shares of Directors in August 2015. its Common Stock at an aggregate cost of $350.1 million.
The Company did not repurchase any Common Stock under the authorization during fiscal 2017. At September 30, 2018, the Company hadmaintains a long-term strategy of returning approximately 4.2 million shares of Common Stock remaining under the repurchase authorization. In addition, the Company paid dividends of $71.2 million and $62.8 million in fiscal 2018 and 2017, respectively. The Company increased its quarterly dividend rate by approximately 12.5% in November 2018.
Liquidity
Senior Credit Agreement
In April 3, 2018, the Company entered into a Second Amended and Restated Credit Agreement with various lenders (the “Credit Agreement”). The Credit Agreement provides for (i) an unsecured revolving credit facility (the “Revolving Credit Facility”) that matures in April 2023 with an initial maximum aggregate amount of availability of $850 million and (ii) an unsecured $325 million term loan (the “Term Loan”) due in quarterly principal installments of $4.1 million commencing as of September 30, 2019 with a balloon payment of $264.1 million due at maturity in April 2023. As of September 30, 2020, the Company has prepaid all required quarterly principal installments and $39.1 million of the balloon payment on the Term Loan. At September 30, 2018,2020, outstanding letters of credit of $85.5$59.9 million reduced available capacity under the Revolving Credit Facility to $764.5$790.1 million. See Note 9 of the Notes to Consolidated Financial Statements for additional information regarding the Credit Agreement.
Under the Credit Agreement, the Company is obligated to pay (i) an unused commitment fee ranging from 0.125% to 0.275% per annum of the average daily unused portion of the aggregate revolving credit commitments under the Credit Agreement and (ii) a fee ranging from 0.563% to 1.75% per annum of the maximum amount available to be drawn for each letter of credit issued and outstanding under the Credit Agreement.
Borrowings under the Credit Agreement bear interest at a variable rate equal to (i) LIBOR plus a specified margin, which may be adjusted upward or downward depending on whether certain criteria are satisfied, or (ii) for dollar-denominated loans only, the base rate (which is the highest of (a) the administrative agent’s prime rate, (b) the federal funds rate plus 0.50% or (c) the sum of 1% plus one-month LIBOR) plus a specified margin, which may be adjusted upward or downward depending on whether certain criteria are satisfied.
Covenant Compliance
The Credit Agreement contains various restrictions and covenants, including requirements that the Company maintain certain financial ratios at prescribed levels and restrictions, subject to certain exceptions, on the ability of the Company and certain of its subsidiaries to consolidate or merge, create liens, incur additional indebtedness, and dispose of assets, consummate acquisitions and make investments in joint ventures and foreign subsidiaries.
The Credit Agreement contains the following financial covenants: