Business Context and Reporting Period
Company: Oshkosh Corporation
Filing Type: Form 10-K (Annual Report)
Period Ended: September 30, 2009
Overview: Oshkosh Corporation is a leading designer and manufacturer of specialty vehicles and vehicle bodies operating in four segments: Defense, Access Equipment, Fire & Emergency, and Commercial. The fiscal year was significantly impacted by the global recession and credit crisis, resulting in a net loss driven primarily by non-cash impairment charges, partially offset by strong defense contract awards.
Key Financial Metrics
| Metric (in millions) | Fiscal 2009 | Fiscal 2008 |
|---|---|---|
| Net Sales | $5,295.2 | $6,936.4 |
| Gross Income | $706.0 | $1,178.3 |
| Operating (Loss) Income | $(992.0) | $615.0 |
| Net (Loss) Income | $(1,098.8) | $79.3 |
| Diluted EPS (Continuing Ops) | $(15.33) | $3.83 |
| Cash from Operating Activities | $898.9 | $390.4 |
| Total Debt | $2,038.2 | $2,774.0 |
| Cash and Cash Equivalents | $530.4 | $88.2 |
| Backlog | $5,615.4 | $2,353.8 |
Material Changes vs. Prior Period
- Revenue Decline: Consolidated net sales decreased 23.7% to $5.30 billion, driven by a 63.1% drop in Access Equipment sales and a 29.3% drop in Commercial sales due to the global recession. Defense sales increased 37.2% to $2.59 billion.
- Impairment Charges: The company recorded $1.20 billion in pre-tax, non-cash impairment charges for goodwill and long-lived assets, primarily in the Access Equipment segment ($892.5 million), Fire & Emergency ($123.0 million), and Commercial ($184.3 million).
- Debt Reduction: Total debt decreased by $735.8 million. The company utilized $358.1 million in net proceeds from a public equity offering (August 2009) and cash flow from operations to repay $731.6 million of debt.
- Backlog Surge: Total backlog increased 138.6% to $5.62 billion, largely due to the Defense segment backlog rising 307.2% following major contract awards.
- Discontinued Operations: The company sold its European refuse collection vehicle business (Geesink) in July 2009, recording a $33.8 million pre-tax gain. Results are now reported as discontinued operations.
Guidance, Outlook, and Risks
Management Commentary and Outlook
- Fiscal 2010 Outlook: Management expects fiscal 2010 results to be "solidly profitable" and significantly improved compared to fiscal 2009.
- Defense Segment: Significant sales growth is expected due to M-ATV deliveries. Margins are not expected to sustain Q4 2009 levels due to the absence of a LIFO inventory benefit and increased investment in future opportunities.
- Commercial Segments: Access equipment sales remain soft with no significant change expected until fiscal 2011. Concrete placement products are expected to remain soft until mid-calendar 2010. Refuse collection vehicle sales are expected to be flat to up modestly.
- Cost Management: The company continues to focus on cost reduction and debt reduction, though it is adding workforce to staff the M-ATV contract.
Key Risks and Contingencies
- Government Contract Protests: The $280.9 million FMTV Rebuy contract is under a stop-work order pending resolution of protests filed with the GAO. A decision is expected in December 2009. If protests are upheld, the company may not recover start-up costs.
- Production Ramp-Up: The M-ATV contract requires ramping production to 1,000 vehicles per month by December 2009. Failure to meet this schedule could impact future business and earnings.
- Credit and Liquidity: The company has substantial debt ($2.0 billion) and restrictive covenants. While currently compliant, further economic deterioration could impact the ability to meet financial ratios.
- Legal Proceedings: A securities class action lawsuit is pending regarding disclosures made in 2008. The company intends to vigorously defend against it.
Investor Verification Checklist
- FMTV Contract Status: Verify the outcome of the GAO protests regarding the FMTV Rebuy contract and the potential impact on backlog and revenue recognition.
- M-ATV Production Capability: Confirm the company's ability to meet the 1,000 units/month production target and manage supply chain constraints.
- Goodwill Impairment Sensitivity: Review the assumptions used in the goodwill impairment testing (discount rates, growth rates) for the Access Equipment segment, as the fair value margin was narrow (approx. 4% above book value).
- Debt Covenant Compliance: Monitor the Leverage Ratio and Interest Coverage Ratio to ensure continued compliance with the amended Credit Agreement.
- Discontinued Operations: Confirm the final accounting treatment and tax benefits related to the Geesink sale and the subsequent sale of the BAI European fire apparatus business.