OSK 10Q 03.31.13
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM  10-Q
 
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended March 31, 2013

or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 1-31371

Oshkosh Corporation
(Exact name of registrant as specified in its charter)

Wisconsin
 
39-0520270
(State or other jurisdiction
of incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
P.O. Box 2566
Oshkosh, Wisconsin
 
54903-2566
(Address of principal executive offices)
 
(Zip Code)
 
Registrant’s telephone number, including area code: (920) 235-9151

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (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.        ý Yes        o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
ý Yes        o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
 
Accelerated filer o
 
 
 
Non-accelerated filer o
 
Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). o Yes     ý No

As of April 25, 2013, 87,987,817 shares of the registrant’s Common Stock were outstanding.



Table of Contents

OSHKOSH CORPORATION
FORM 10-Q INDEX
FOR THE QUARTER ENDED March 31, 2013
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Table of Contents

PART I - FINANCIAL INFORMATION
1
ITEM 1. FINANCIAL STATEMENTS
1
OSHKOSH CORPORATION
Condensed Consolidated Statements of Income
(In millions, except per share amounts; unaudited)

 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2013
 
2012
 
2013
 
2012
Net sales
$
1,984.4

 
$
2,062.3

 
$
3,734.2

 
$
3,930.8

Cost of sales
1,681.0

 
1,818.2

 
3,184.8

 
3,461.8

Gross income
303.4

 
244.1

 
549.4

 
469.0

 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
Selling, general and administrative
154.3

 
145.4

 
305.6

 
276.5

Amortization of purchased intangibles
14.5

 
14.6

 
28.9

 
29.3

Total operating expenses
168.8

 
160.0

 
334.5

 
305.8

Operating income
134.6

 
84.1

 
214.9

 
163.2

 
 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
 
Interest expense
(16.4
)
 
(18.0
)
 
(32.8
)
 
(38.5
)
Interest income
1.7

 
0.6

 
4.2

 
1.2

Miscellaneous, net
0.1

 
1.3

 
0.4

 
(4.3
)
Income from continuing operations before income taxes and equity in earnings of unconsolidated affiliates
120.0

 
68.0

 
186.7

 
121.6

Provision for income taxes
34.8

 
24.4

 
55.8

 
36.8

Income from continuing operations before equity in earnings of unconsolidated affiliates
85.2

 
43.6

 
130.9

 
84.8

Equity in earnings of unconsolidated affiliates
0.7

 
—

 
1.3

 
0.7

Income from continuing operations, net of tax
85.9

 
43.6

 
132.2

 
85.5

Income (loss) from discontinued operations, net of tax
0.6

 
(5.6
)
 
0.8

 
(8.2
)
Net income
86.5

 
38.0

 
133.0

 
77.3

Net income attributable to noncontrolling interest
—

 
(0.7
)
 
—

 
(1.1
)
Net income attributable to Oshkosh Corporation
$
86.5

 
$
37.3

 
$
133.0

 
$
76.2

 
 
 
 
 
 
 
 
Earnings (loss) per share attributable to Oshkosh Corporation common shareholders-basic:
 
 
 
 
 
 
 
From continuing operations
$
0.98

 
$
0.47

 
$
1.48

 
$
0.92

From discontinued operations
0.01

 
(0.06
)
 
0.01

 
(0.09
)
 
$
0.99

 
$
0.41

 
$
1.49

 
$
0.83

 
 
 
 
 
 
 
 
Earnings (loss) per share attributable to Oshkosh Corporation common shareholders-diluted:


 


 
 
 
 
From continuing operations
$
0.96

 
$
0.47

 
$
1.46

 
$
0.92

From discontinued operations
0.01

 
(0.06
)
 
0.01

 
(0.09
)
 
$
0.97

 
$
0.41

 
$
1.47

 
$
0.83


The accompanying notes are an integral part of these financial statements

1
Table of Contents

OSHKOSH CORPORATION
Condensed Consolidated Statements of Comprehensive Income
(In millions; unaudited)

 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2013
 
2012
 
2013
 
2012
Net income
$
86.5

 
$
38.0

 
$
133.0

 
$
77.3

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Change in fair value of derivative instruments
—

 
—

 
—

 
1.4

Employee pension and postretirement benefits
1.0

 
1.5

 
2.0

 
3.0

Currency translation adjustments
(10.0
)
 
11.8

 
(1.4
)
 
3.7

Total other comprehensive income (loss), net of tax
(9.0
)
 
13.3

 
0.6

 
8.1

Comprehensive income
77.5

 
51.3

 
133.6

 
85.4

Comprehensive (income) loss attributable to noncontrolling interest
—

 
(0.7
)
 
—

 
(1.1
)
Comprehensive income attributable to Oshkosh Corporation
$
77.5

 
$
50.6

 
$
133.6

 
$
84.3


The accompanying notes are an integral part of these financial statements
1

2
Table of Contents

OSHKOSH CORPORATION
Condensed Consolidated Balance Sheets
(In millions, except share and per share amounts; unaudited)

 
March 31,
 
September 30,
 
2013
 
2012
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
452.3

 
$
540.7

Receivables, net
970.3

 
1,018.6

Inventories, net
1,060.7

 
937.5

Deferred income taxes
66.7

 
69.9

Prepaid income taxes
77.9

 
98.0

Other current assets
31.1

 
29.8

Total current assets
2,659.0

 
2,694.5

Investment in unconsolidated affiliates
20.1

 
18.8

Property, plant and equipment, net
357.2

 
369.9

Goodwill
1,033.2

 
1,033.8

Purchased intangible assets, net
750.2

 
775.4

Other long-term assets
54.9

 
55.4

Total assets
$
4,874.6

 
$
4,947.8

 
 
 
 
Liabilities and Shareholders' Equity
 
 
 
Current liabilities:
 
 
 
Revolving credit facility and current maturities of long-term debt
$
32.5

 
$
—

Accounts payable
659.5

 
683.3

Customer advances
529.1

 
510.4

Payroll-related obligations
109.2

 
130.1

Accrued warranty
96.9

 
95.0

Deferred revenue
28.0

 
113.0

Other current liabilities
159.4

 
172.7

Total current liabilities
1,614.6

 
1,704.5

Long-term debt, less current maturities
922.5

 
955.0

Deferred income taxes
115.3

 
129.6

Other long-term liabilities
334.5

 
305.2

Commitments and contingencies


 


Shareholders' equity:
 
 
 
Preferred Stock ($.01 par value; 2,000,000 shares authorized; none issued and outstanding)
—

 
—

Common Stock ($.01 par value; 300,000,000 shares authorized; 92,096,465 and 92,086,465 shares issued, respectively)
0.9

 
0.9

Additional paid-in capital
711.6

 
703.5

Retained earnings
1,396.6

 
1,263.5

Accumulated other comprehensive loss
(100.8
)
 
(101.4
)
Common Stock in treasury, at cost (4,117,598 and 528,695 shares, respectively)
(120.6
)
 
(13.0
)
Total shareholders’ equity
1,887.7

 
1,853.5

Total liabilities and shareholders' equity
$
4,874.6

 
$
4,947.8


The accompanying notes are an integral part of these financial statements

3
Table of Contents

OSHKOSH CORPORATION
Condensed Consolidated Statements of Equity
(In millions; unaudited)

 
Oshkosh Corporation’s Shareholders
 
 
 
Common
Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Common
Stock in
Treasury
at Cost
 
Non-
Controlling
Interest
Balance at September 30, 2011
$
0.9

 
$
685.6

 
$
1,032.7

 
$
(122.6
)
 
$
(0.1
)
 
$
0.1

Net income
—

 
—

 
76.2

 
—

 
—

 
1.1

Change in fair value of derivative instruments, net of tax of $0.8
—

 
—

 
—

 
1.4

 
—

 
—

Employee pension and postretirement benefits, net of tax of $1.8
—

 
—

 
—

 
3.0

 
—

 
—

Currency translation adjustments, net
—

 
—

 
—

 
3.7

 
—

 
—

Exercise of stock options
—

 
2.2

 
—

 
—

 
0.7

 
—

Stock-based compensation and award of nonvested shares
—

 
6.6

 
—

 
—

 
—

 
—

Other
—

 
0.4

 
—

 
—

 
(0.6
)
 
—

Balance at March 31, 2012
$
0.9

 
$
694.8

 
$
1,108.9

 
$
(114.5
)
 
$
—

 
$
1.2

 
 
 
 
 
 
 
 
 
 
 
 
 
Oshkosh Corporation’s Shareholders
 
 
 
Common
Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Common
Stock in
Treasury
at Cost
 
Non-
Controlling
Interest
Balance at September 30, 2012
$
0.9

 
$
703.5

 
$
1,263.5

 
$
(101.4
)
 
$
(13.0
)
 
$
—

Net income
—

 
—

 
133.0

 
—

 
—

 
—

Employee pension and postretirement benefits, net of tax of $1.1
—

 
—

 
—

 
2.0

 
—

 
—

Currency translation adjustments, net
—

 
—

 
—

 
(1.4
)
 
—

 
—

Repurchase of common stock
—

 
—

 
—

 
—

 
(125.1
)
 
—

Exercise of stock options
—

 
(1.1
)
 
—

 
—

 
16.8

 
—

Stock-based compensation and award of nonvested shares
—

 
10.8

 
—

 
—

 
—

 
—

Tax benefit related to stock-based compensation
—

 
(0.8
)
 
—

 
—

 
—

 
—

Other
—

 
(0.8
)
 
0.1

 
—

 
0.7

 
—

Balance at March 31, 2013
$
0.9

 
$
711.6

 
$
1,396.6

 
$
(100.8
)
 
$
(120.6
)
 
$
—


The accompanying notes are an integral part of these financial statements

4
Table of Contents

OSHKOSH CORPORATION
Condensed Consolidated Statements of Cash Flows
(In millions; unaudited)

 
Six Months Ended March 31,
 
2013
 
2012
Operating activities:


 


Net income
$
133.0

 
$
77.3

Depreciation and amortization
63.3

 
64.3

Deferred income taxes
(13.8
)
 
(11.8
)
Other non-cash adjustments
4.1

 
4.4

Changes in operating assets and liabilities
(142.2
)
 
(87.3
)
Net cash provided by operating activities
44.4

 
46.9

 
 
 
 
Investing activities:
 
 
 
Additions to property, plant and equipment
(15.4
)
 
(24.1
)
Additions to equipment held for rental
(10.1
)
 
(3.1
)
Proceeds from sale of property, plant and equipment
0.1

 
6.1

Proceeds from sale of equipment held for rental
3.9

 
2.4

Other investing activities
(3.4
)
 
(0.7
)
Net cash used by investing activities
(24.9
)
 
(19.4
)
 
 
 
 
Financing activities:


 


Repayment of long-term debt
—

 
(72.5
)
Repurchases of common stock
(125.1
)
 
—

Proceeds from exercise of stock options
15.7

 
2.9

Other financing activities
0.8

 
(0.2
)
Net cash used by financing activities
(108.6
)
 
(69.8
)
 
 
 
 
Effect of exchange rate changes on cash
0.7

 
2.2

Decrease in cash and cash equivalents
(88.4
)
 
(40.1
)
Cash and cash equivalents at beginning of period
540.7

 
428.5

Cash and cash equivalents at end of period
$
452.3

 
$
388.4

 
 
 
 
Supplemental disclosures:
 
 
 
Cash paid for interest
$
30.2

 
$
37.0

Cash paid for income taxes
44.0

 
31.6


The accompanying notes are an integral part of these financial statements

5
Table of Contents
OSHKOSH CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)



1.    Basis of Presentation

In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements contain all adjustments (which include normal recurring adjustments, unless otherwise noted) necessary to present fairly the financial position, results of operations and cash flows for the periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States have been condensed or omitted pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). These Condensed Consolidated Financial Statements should be read in conjunction with the audited financial statements and notes thereto included in Oshkosh Corporation and its subsidiaries (the “Company”) Annual Report on Form 10-K for the year ended September 30, 2012. "Oshkosh" refers to Oshkosh Corporation, not including its subsidiaries. The interim results are not necessarily indicative of results for the full year.


2.    New Accounting Standards

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


3.    Discontinued Operations

In April 2012, the Company discontinued production of mobile medical trailers in the United States, which were sold under the Oshkosh Specialty Vehicles brand name. In August 2012, the Company sold its interest in SMIT, a European mobile medical trailer manufacturer, for nominal cash consideration. In March 2013, the Company discontinued production of ambulances, which were sold under the Medtec brand name. All three businesses were previously included in the Company's fire & emergency segment. Due to the sale and/or closure of these businesses, they have been segregated from continuing operations and reported as discontinued operations in the Condensed Consolidated Statements of Income. Results of discontinued operations were the following (in millions):

 
Three Months Ended
 
Six Months Ended
 
March 31
 
March 31,
 
2013
 
2012
 
2013
 
2012
Net sales
$
9.0

 
$
13.0

 
$
20.2

 
$
23.1

Cost of sales
7.9

 
17.7

 
18.8

 
30.2

Gross income (loss)
1.1

 
(4.7
)
 
1.4

 
(7.1
)
Operating expenses:
 
 
 
 
 
 
 
Selling, general and administrative
—

 
3.3

 
(0.2
)
 
4.5

Amortization of purchased intangibles
—

 
0.2

 
—

 
0.4

Total operating expenses
—

 
3.5

 
(0.2
)
 
4.9

Operating income (loss)
1.1

 
(8.2
)
 
1.6

 
(12.0
)
Other income (expense)
(0.1
)
 
(0.2
)
 
(0.4
)
 
(0.3
)
Income (loss) before income taxes
1.0

 
(8.4
)
 
1.2

 
(12.3
)
Provision for (benefit from) income taxes
0.4

 
(2.8
)
 
0.4

 
(4.1
)
Income (loss) from discontinued operations, net of tax
$
0.6

 
$
(5.6
)
 
$
0.8

 
$
(8.2
)


6
Table of Contents
OSHKOSH CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)




4.    Receivables
 
Receivables consisted of the following (in millions):

 
March 31,
 
September 30,
 
2013
 
2012
U.S. government:
 

 
 

Amounts billed
$
141.4

 
$
99.2

Costs and profits not billed
54.2

 
251.7

 
195.6

 
350.9

Other trade receivables
749.7

 
633.0

Finance receivables
5.5

 
5.2

Notes receivable
23.9

 
24.6

Other receivables
33.0

 
35.6

 
1,007.7

 
1,049.3

Less allowance for doubtful accounts
(23.3
)
 
(18.0
)
 
$
984.4

 
$
1,031.3

 
Costs and profits not billed generally result from undefinitized change orders on existing long-term contracts and “not-to-exceed” undefinitized contracts whereby the Company cannot invoice the customer the full price under the contract or contract change order until such contract or change order is definitized and agreed to with the customer following a review of costs under such a contract or change order, even though the contract deliverables may have been met. Definitization of a change order on an existing long-term contract or a sole source contract begins when the U.S. government customer undertakes a detailed review of the Company’s submitted costs and proposed margin related to the contract and concludes with a final change order. The Company recognizes revenue on undefinitized contracts to the extent that it can reasonably and reliably estimate the expected final contract price and when collectability is reasonably assured. At March 31, 2013, the Company had recorded $89.8 million of revenue on contracts which remained undefinitized as of that date. To the extent that contract definitization results in changes to previously estimated or incurred costs or revenues, the Company records those adjustments as a change in estimate. The Company recorded income (expense) of $3.3 million and $(2.8) million for the six months ended March 31, 2013 and 2012, respectively, related to changes in estimates on these contracts. The changes increased (decreased) net income by $2.1 million, or $0.02 per share, and $(1.8) million, or $(0.02) per share, respectively. 

Classification of receivables in the Condensed Consolidated Balance Sheets consisted of the following (in millions):
 
 
March 31,
 
September 30,
 
2013
 
2012
Current receivables
$
970.3

 
$
1,018.6

Long-term receivables
14.1

 
12.7

 
$
984.4

 
$
1,031.3

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

7
Table of Contents
OSHKOSH CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)



Finance receivables consisted of the following (in millions):
 
 
March 31,
 
September 30,
 
2013
 
2012
Finance receivables
$
6.4

 
$
6.0

Less unearned income
(0.9
)
 
(0.8
)
Net finance receivables
5.5

 
5.2

Less allowance for doubtful accounts
(1.3
)
 
(1.4
)
 
$
4.2

 
$
3.8

 
Contractual maturities of the Company’s finance receivables at March 31, 2013 were as follows: 2013 (remaining six months) - $2.4 million; 2014 - $1.3 million; 2015 - $0.8 million; 2016 - $0.4 million; 2017 - $0.4 million; 2018 - $0.4 million; and thereafter - $0.7 million. Historically, obligors have paid off finance receivables prior to their contractual due dates, although actual repayment timing is impacted by a number of factors, including the economic environment at the time. As a result, contractual maturities are not to be regarded as a forecast of future cash flows.
 
Delinquency is the primary indicator of credit quality of finance receivables. The Company maintains a general allowance for finance receivables considered doubtful of future collection based upon historical experience. Additional allowances are established based upon the Company’s perception of the quality of the finance receivables, including the length of time the receivables are past due, past experience of collectability and underlying economic conditions. In circumstances where the Company believes collectability is no longer reasonably assured, a specific allowance is recorded to reduce the net recognized receivable to the amount reasonably expected to be collected. The terms of the finance agreements generally give the Company the ability to take possession of the underlying collateral. The Company may incur losses in excess of recorded allowances if the financial condition of its customers were to deteriorate or the full amount of any anticipated proceeds from the sale of the collateral supporting its customers’ financial obligations is not realized.
 
Notes Receivable: Notes receivable include amounts related to refinancing of trade accounts and finance receivables. As of March 31, 2013, approximately 93% of the notes receivable balance outstanding was due from two parties. The Company routinely evaluates the creditworthiness of its customers and establishes reserves where the Company believes collectability is no longer reasonably assured. Notes receivable are written down if management determines that the specific borrower does not have the ability to repay the loan in full. Certain notes receivable are collateralized by a security interest in the underlying assets and/or other assets owned by the debtor. The Company may incur losses in excess of recorded allowances if the financial condition of its customers were to deteriorate or the full amount of any anticipated proceeds from the sale of the collateral supporting its customers' financial obligations is not realized.

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


8
Table of Contents
OSHKOSH CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)


Finance and notes receivable aging and accrual status consisted of the following (in millions):
 
 
Finance Receivables
 
Notes Receivables
 
March 31,
2013
 
September 30, 2012
 
March 31,
 2013
 
September 30, 2012
Aging of receivables that are past due:
 

 
 

 
 

 
 

Greater than 30 days and less than 60 days
$
0.1

 
$
0.1

 
$
—

 
$
—

Greater than 60 days and less than 90 days
0.1

 
—

 
—

 
—

Greater than 90 days
1.5

 
1.3

 
—

 
—

 
 
 
 
 
 
 
 
Receivables on nonaccrual status
3.1

 
3.4

 
18.9

 
19.0

Receivables past due 90 days or more and still accruing
—

 
—

 
—

 
—

 
 
 
 
 
 
 
 
Receivables subject to general reserves
0.4

 
1.5

 
1.6

 
—

Allowance for doubtful accounts
—

 
—

 
—

 
—

Receivables subject to specific reserves
5.1

 
3.7

 
22.3

 
24.6

Allowance for doubtful accounts
(1.3
)
 
(1.4
)
 
(11.0
)
 
(8.0
)

Receivables subject to specific reserves also include loans that the Company has modified in troubled debt restructurings as a concession to customers experiencing financial difficulty. To minimize the economic loss, the Company may modify certain finance and notes receivable. Modifications generally consist of restructured payment terms and time frames in which no payments are required. At March 31, 2013, restructured finance receivables and notes receivables were $4.1 million and $23.1 million, respectively. Losses on troubled debt restructurings were not significant during the three and six months ended March 31, 2013.

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

 
Three Months Ended March 31, 2013
 
Three Months Ended March 31, 2012
 
Finance
 
Notes
 
Trade and Other
 
Total
 
Finance
 
Notes
 
Trade and Other
 
Total
Allowance for doubtful accounts at beginning of period
$
1.5

 
$
8.0

 
$
9.0

 
$
18.5

 
$
3.7

 
$
8.7

 
$
8.7

 
$
21.1

Provision for doubtful accounts, net of recoveries
(0.2
)
 
3.0

 
2.4

 
5.2

 
(0.6
)
 
(0.2
)
 
1.7

 
0.9

Charge-off of accounts
—

 
—

 
(0.4
)
 
(0.4
)
 
—

 
—

 
(0.2
)
 
(0.2
)
Foreign currency translation
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Allowance for doubtful accounts at end of period
$
1.3

 
$
11.0

 
$
11.0

 
$
23.3

 
$
3.1

 
$
8.5

 
$
10.2

 
$
21.8

 
Six Months Ended March 31, 2013
 
Six Months Ended March 31, 2012
 
Finance
 
Notes
 
Trade and Other
 
Total
 
Finance
 
Notes
 
Trade and Other
 
Total
Allowance for doubtful accounts at beginning of period
$
1.4

 
$
8.0

 
$
8.6

 
$
18.0

 
$
11.5

 
$
8.9

 
$
9.1

 
$
29.5

Provision for doubtful accounts, net of recoveries
(0.1
)
 
3.0

 
2.8

 
5.7

 
(3.1
)
 
(0.2
)
 
2.3

 
(1.0
)
Charge-off of accounts
—

 
—

 
(0.4
)
 
(0.4
)
 
(5.3
)
 
(0.2
)
 
(1.2
)
 
(6.7
)
Foreign currency translation
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Allowance for doubtful accounts at end of period
$
1.3

 
$
11.0

 
$
11.0

 
$
23.3

 
$
3.1

 
$
8.5

 
$
10.2

 
$
21.8



9
Table of Contents
OSHKOSH CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)



5.    Inventories

Inventories consisted of the following (in millions):

 
 
March 31,
 
September 30,
 
 
2013
 
2012
Raw materials
$
462.8

 
$
558.0

Partially finished products
317.6

 
318.3

Finished products
499.0

 
371.0

Inventories at FIFO cost
1,279.4

 
1,247.3

Less:
Progress/performance-based payments on U.S. government contracts
(144.7
)
 
(238.0
)
 
Excess of FIFO cost over LIFO cost
(74.0
)
 
(71.8
)
 
 
$
1,060.7

 
$
937.5


Title to all inventories related to U.S. government contracts, which provide for progress or performance-based payments, vests with the U.S. government to the extent of unliquidated progress or performance-based payments. Finished goods inventory at March 31, 2013 included approximately $175 million of inventory related to an international defense order, which will be shipped and recognized as sales in the third and fourth quarters of fiscal 2013.


6.    Investments in Unconsolidated Affiliates

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

 
 
March 31,
 
September 30,
 
 
2013
 
2012
RiRent (The Netherlands)
 
$
10.9

 
$
10.5

Other
 
9.2

 
8.3

 
 
$
20.1

 
$
18.8


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

The Company and an unaffiliated third party are joint venture partners in RiRent Europe BV ("RiRent"). RiRent maintains a fleet of access equipment for short-term lease to rental companies throughout most of Europe. The re-rental fleet provides rental companies with equipment to support requirements on short notice. RiRent does not provide services directly to end users. The Company’s sales to RiRent were $0.2 million and $1.7 million for the six months ended March 31, 2013 and 2012, respectively. The Company recognizes income on sales to RiRent at the time of shipment in proportion to the outside third-party interest in RiRent and recognizes the remaining income ratably over the estimated useful life of the equipment, which is generally five years. Indebtedness of RiRent is secured by the underlying leases and assets of RiRent. All such RiRent indebtedness is non-recourse to the Company and its partner. Under RiRent’s €15.0 million bank credit facility, the partners of RiRent have committed to maintain an overall equity to asset ratio of at least 30.0% (71.2% as of March 31, 2013).


10
Table of Contents
OSHKOSH CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)



7.    Property, Plant and Equipment
 
Property, plant and equipment consisted of the following (in millions):
 
 
March 31,
 
September 30,
 
2013
 
2012
Land and land improvements
$
46.1

 
$
45.8

Buildings
237.4

 
236.3

Machinery and equipment
560.5

 
550.6

Equipment on operating lease to others
20.9

 
23.8

 
864.9

 
856.5

Less accumulated depreciation
(507.7
)
 
(486.6
)
 
$
357.2

 
$
369.9


Depreciation expense recorded in continuing operations was $32.0 million and $31.8 million for the six months ended March 31, 2013 and 2012, respectively. Capitalized interest was insignificant for all reported periods.

Equipment on operating lease to others represents the cost of equipment shipped to customers for whom the Company has guaranteed the residual value and equipment on short-term leases. These transactions are accounted for as operating leases with the related assets capitalized and depreciated over their estimated economic lives of five to ten years. Cost less accumulated depreciation for equipment on operating lease to others at March 31, 2013 and September 30, 2012 was $15.3 million and $9.4 million, respectively.


8.    Goodwill and Purchased Intangible Assets

Goodwill and other indefinite-lived intangible assets are not amortized, but are reviewed for impairment annually, or more frequently if potential interim indicators exist that could result in impairment. The Company performs its annual impairment test in the fourth quarter of its fiscal year.

The following table presents changes in goodwill during the six months ended March 31, 2013 (in millions):
 
Access
Equipment
 
Fire &
Emergency
 
Commercial
 
Total
Net goodwill at September 30, 2012
$
906.1

 
$
106.1

 
$
21.6

 
$
1,033.8

Foreign currency translation
(0.5
)
 
—

 
(0.1
)
 
(0.6
)
Net goodwill at March 31, 2013
$
905.6

 
$
106.1

 
$
21.5

 
$
1,033.2


The following table presents details of the Company’s goodwill allocated to the reportable segments (in millions):
 
March 31, 2013
 
September 30, 2012
 
Gross
 
Accumulated
Impairment
 
Net
 
Gross
 
Accumulated
Impairment
 
Net
Access equipment
$
1,837.7

 
$
(932.1
)
 
$
905.6

 
$
1,838.2

 
$
(932.1
)
 
$
906.1

Fire & emergency
114.3

 
(8.2
)
 
106.1

 
114.3

 
(8.2
)
 
106.1

Commercial
197.4

 
(175.9
)
 
21.5

 
197.5

 
(175.9
)
 
21.6

 
$
2,149.4

 
$
(1,116.2
)
 
$
1,033.2

 
$
2,150.0

 
$
(1,116.2
)
 
$
1,033.8



11
Table of Contents
OSHKOSH CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)


Details of the Company’s total purchased intangible assets were as follows (in millions):
 
March 31, 2013
 
Weighted-
Average
Life
 
Gross
 
Accumulated
Amortization
 
Net
Amortizable intangible assets:
 
 
 

 
 

 
 

Distribution network
39.1
 
$
55.4

 
$
(22.9
)
 
$
32.5

Non-compete
10.5
 
56.3

 
(56.0
)
 
0.3

Technology-related
11.9
 
104.3

 
(62.5
)
 
41.8

Customer relationships
12.7
 
562.1

 
(286.2
)
 
275.9

Other
16.6
 
16.6

 
(13.1
)
 
3.5

 
14.4
 
794.7

 
(440.7
)
 
354.0

Non-amortizable trade names
 
 
396.2

 
—

 
396.2

 
 
 
$
1,190.9

 
$
(440.7
)
 
$
750.2

 
September 30, 2012
 
Weighted-
Average
Life
 
Gross
 
Accumulated
Amortization
 
Net
Amortizable intangible assets:
 
 
 

 
 

 
 

Distribution network
39.1
 
$
55.4

 
$
(22.2
)
 
$
33.2

Non-compete
10.5
 
56.9

 
(55.5
)
 
1.4

Technology-related
12.0
 
100.9

 
(58.4
)
 
42.5

Customer relationships
12.7
 
563.8

 
(265.5
)
 
298.3

Other
16.5
 
16.6

 
(12.8
)
 
3.8

 
14.4
 
793.6

 
(414.4
)
 
379.2

Non-amortizable trade names
 
 
396.2

 
—

 
396.2

 
 
 
$
1,189.8

 
$
(414.4
)
 
$
775.4


Amortization expense recorded in continuing operations was $28.9 million and $29.3 million for the six months ended March 31, 2013 and 2012, respectively. The estimated future amortization expense of purchased intangible assets for the remainder of fiscal 2013 and the five years succeeding September 30, 2013 are as follows: 2013 (remaining six months) - $27.5 million; 2014 - $55.0 million; 2015 - $54.2 million; 2016 - $53.7 million; 2017 - $45.9 million and 2018 - $38.1 million.


12
Table of Contents
OSHKOSH CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)



9.    Credit Agreements

The Company was obligated under the following debt instruments (in millions):

 
March 31,
 
September 30,
 
2013
 
2012
Senior Secured Term Loan
$
455.0

 
$
455.0

8¼% Senior notes due March 2017
250.0

 
250.0

8½% Senior notes due March 2020
250.0

 
250.0

 
955.0

 
955.0

Less current maturities
(32.5
)
 
—

 
$
922.5

 
$
955.0

 
 
 
 
Revolving Credit Facility
$
—

 
$
—

Current maturities of long-term debt
32.5

 
—

 
$
32.5

 
$
—


The Company maintains a senior secured credit agreement with various lenders (the “Credit Agreement”). The Credit Agreement provides for (i) a revolving credit facility (“Revolving Credit Facility”) that matures in October 2015 with an initial maximum aggregate amount of availability of $525 million and (ii) a $455 million term loan (“Term Loan”) facility due in quarterly principal installments of $16.25 million commencing December 31, 2013 with a balloon payment of $341.25 million due at maturity in October 2015. At March 31, 2013, outstanding letters of credit of $186.5 million reduced available capacity under the Revolving Credit Facility to $338.5 million.

The Company’s obligations under the Credit Agreement are guaranteed by certain of its domestic subsidiaries, and the Company will guarantee the obligations of certain of its subsidiaries under the Credit Agreement to the extent such subsidiaries borrow directly under the Credit Agreement. Subject to certain exceptions, the Credit Agreement is secured by (i) a first-priority perfected lien and security interests in substantially all of the personal property of the Company, each material subsidiary of the Company and each subsidiary guarantor, (ii) mortgages upon certain real property of the Company and certain of its domestic subsidiaries and (iii) a pledge of the equity of each material subsidiary and each subsidiary guarantor.

Under the Credit Agreement, the Company must pay (i) an unused commitment fee ranging from 0.25% to 0.50% per annum of the average daily unused portion of the aggregate revolving credit commitments under the Credit Agreement and (ii) a fee ranging from 0.75% to 1.25% per annum of the maximum amount available to be drawn for each performance 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. At March 31, 2013, the interest spread on the Revolving Credit Facility and Term Loan was 175 basis points. The weighted-average interest rate on borrowings outstanding under the Term Loan at March 31, 2013 was 1.95%.

The Credit Agreement contains various restrictions and covenants, including requirements that the Company maintain certain financial ratios at prescribed levels and restrictions on the ability of the Company and certain of its subsidiaries to consolidate or merge, create liens, incur additional indebtedness, dispose of assets, consummate acquisitions and make investments in joint ventures and foreign subsidiaries.


13
Table of Contents
OSHKOSH CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)


The Credit Agreement contains the following financial covenants:
•
Leverage Ratio: A maximum leverage ratio (defined as, with certain adjustments, the ratio of the Company’s consolidated indebtedness to consolidated net income before interest, taxes, depreciation, amortization, non-cash charges and certain other items (“EBITDA”)) as of the last day of any fiscal quarter of 4.50 to 1.0.
•
Interest Coverage Ratio: A minimum interest coverage ratio (defined as, with certain adjustments, the ratio of the Company’s consolidated EBITDA to the Company’s consolidated cash interest expense) as of the last day of any fiscal quarter of 2.50 to 1.0.
•
Senior Secured Leverage Ratio: A maximum senior secured leverage ratio (defined as, with certain adjustments, the ratio of the Company’s consolidated secured indebtedness to the Company’s consolidated EBITDA) of 2.75 to 1.0.

The Company was in compliance with the financial covenants contained in the Credit Agreement as of March 31, 2013 and expects to be able to meet the financial covenants contained in the Credit Agreement over the next twelve months.

Additionally, with certain exceptions, the Credit Agreement limits the ability of the Company to pay dividends and other distributions, including repurchases of shares of the Company's Common Stock. However, so long as no event of default exists under the Credit Agreement or would result from such payment, the Company may pay dividends and other distributions after April 1, 2012 in an aggregate amount not exceeding the sum of:

i.
$485 million; plus
ii.
50% of the consolidated net income of the Company and its subsidiaries (or if such consolidated net income is a deficit, minus 100% of such deficit), accrued on a cumulative basis during the period beginning on April 1, 2012 and ending on the last day of the fiscal quarter immediately preceding the date of the applicable proposed dividend or distribution; plus
iii.
100% of the aggregate net proceeds received by the Company subsequent to March 31, 2012 either as a contribution to its common equity capital or from the issuance and sale of its Common Stock.

In March 2010, the Company issued $250.0 million of 8¼% unsecured senior notes due March 1, 2017 and $250.0 million of 8½% unsecured senior notes due March 1, 2020 (collectively, the “Senior Notes”). The Senior Notes were issued pursuant to an indenture (the “Indenture”) among the Company, the subsidiary guarantors named therein and a trustee. The Indenture contains customary affirmative and negative covenants. The Company has the option to redeem the Senior Notes due 2017 and Senior Notes due 2020 for a premium after March 1, 2014 and March 1, 2015, respectively. Certain of the Company’s subsidiaries fully, unconditionally, jointly and severally guarantee the Company’s obligations under the Senior Notes. See Note 23 of the Notes to Condensed Consolidated Financial Statements for separate financial information of the subsidiary guarantors.

The fair value of the long-term debt is estimated based upon the market rate of the Company’s debt. At March 31, 2013, the fair value of the Senior Notes was estimated to be $550 million and the fair value of the Term Loan approximated book value.


10.    Warranties
 
The Company’s products generally carry explicit warranties that extend from six months to five years, based on terms that are generally accepted in the marketplace. Selected components (such as engines, transmissions, tires, etc.) included in the Company’s end products may include manufacturers’ warranties. These manufacturers’ warranties are generally passed on to the end customer of the Company’s products, and the customer would generally deal directly with the component manufacturer.
 

14
Table of Contents
OSHKOSH CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)


Changes in the Company’s warranty liability were as follows (in millions):
 
 
Six Months Ended
March 31,
 
2013
 
2012
Balance at beginning of period
$
95.0

 
$
75.0

Warranty provisions
24.3

 
26.8

Settlements made
(25.0
)
 
(24.2
)
Changes in liability for pre-existing warranties, net
3.6

 
2.6

Foreign currency translation
(1.0
)
 
0.7

Balance at end of period
$
96.9

 
$
80.9

 
Provisions for estimated warranty and other related costs are recorded at the time of sale and are periodically adjusted to reflect actual experience. Certain warranty and other related claims involve matters of dispute that ultimately are resolved by negotiation, arbitration or litigation. At times, warranty issues arise that are beyond the scope of the Company's historical experience. It is reasonably possible that additional warranty and other related claims could arise from disputes or other matters in excess of amounts accrued; however, the Company does not expect that any such amounts, while not determinable, would have a material adverse effect on the Company's consolidated financial condition, results of operations or cash flows.


11.    Guarantee Arrangements

The Company is party to multiple agreements whereby it guarantees an aggregate of $365.7 million in indebtedness of customers, including $128.0 million under loss pool agreements. The Company estimated that its maximum loss exposure under these contracts at March 31, 2013 was $89.2 million. Under the terms of these and various related agreements and upon the occurrence of certain events, the Company generally has the ability to, among other things, take possession of the underlying collateral. If the financial condition of the customers were to deteriorate and result in their inability to make payments, then additional accruals may be required. While the Company does not expect to experience losses under these agreements that are materially in excess of the amounts reserved, it cannot provide any assurance that the financial condition of the customers will not deteriorate resulting in the customers' inability to meet their obligations. In the event that this occurs, the Company cannot guarantee that the collateral underlying the agreements will be sufficient to avoid losses materially in excess of the amounts reserved. Any losses under these guarantees would generally be mitigated by the value of any underlying collateral, including financed equipment, and are generally subject to the finance company's ability to provide the Company clear title to foreclosed equipment and other conditions. During periods of economic weakness, collateral values generally decline and can contribute to higher exposure to losses.

Changes in the Company’s credit guarantee liability were as follows (in millions):

 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2013
 
2012
 
2013
 
2012
Balance at beginning of period
$
4.7

 
$
4.7

 
$
5.0

 
$
6.5

Provision for new credit guarantees
0.4

 
0.5

 
0.4

 
0.7

Settlements made
—

 
—

 
(0.1
)
 
(0.5
)
Changes for pre-existing guarantees, net
(0.2
)
 
(0.6
)
 
(0.3
)
 
(1.7
)
Amortization of previous guarantees
(0.1
)
 
(0.1
)
 
(0.2
)
 
(0.5
)
Foreign currency translation
—

 
0.1

 
—

 
0.1

Balance at end of period
$
4.8

 
$
4.6

 
$
4.8

 
$
4.6



15
Table of Contents
OSHKOSH CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)



12.    Oshkosh Corporation Shareholders' Equity

On October 25, 2012, the Company's Board of Directors adopted a shareholder rights plan (the "Rights Plan") and declared a dividend of one preferred stock purchase right (a “right”) for each outstanding share of the Company's Common Stock to shareholders of record at the close of business on November 5, 2012. On January 4, 2013, the Board of Directors approved, and the Company entered into, an amendment to the Rights Plan accelerating the expiration date of the Rights Plan to January 7, 2013. As a result, the rights expired and the Rights Plan terminated on January 7, 2013.

In July 1995, the Company authorized the repurchase of up to 6,000,000 shares of the Company's Common Stock. In July 2012, the Company's Board of Directors increased the repurchase authorization by 4,000,000 shares of Common Stock. On November 15, 2012, the Company's Board of Directors further increased the repurchase authorization from the then remaining 6,683,825 shares of Common Stock to 11,000,000 shares of Common Stock. During the six months ended March 31, 2013, the Company had repurchased 4,250,072 shares of its Common Stock at an aggregate cost of $125.1 million. As a result, 6,749,928 shares of Common Stock remained under this repurchase authorization at March 31, 2013. The Company is restricted by its Credit Agreement from repurchasing shares in certain situations. See Note 9 of the Notes to Condensed Consolidated Financial Statements for information regarding these restrictions.


13.    Derivative Financial Instruments and Hedging Activities

The Company has used forward foreign currency exchange contracts (“derivatives”) to reduce the exchange rate risk of specific foreign currency denominated transactions. These derivatives typically require the exchange of a foreign currency for U.S. dollars at a fixed rate at a future date. At times, the Company has designated these hedges as either cash flow hedges or fair value hedges under FASB ASC Topic 815, Derivatives and Hedging. At March 31, 2013 and 2012, the Company had no forward foreign exchange contracts designated as hedges.

The Company has entered into forward foreign currency exchange contracts to create an economic hedge to manage foreign exchange risk exposure associated with non-functional currency denominated payables resulting from global sourcing activities. The Company has not designated these derivative contracts as hedge transactions under FASB ASC Topic 815, and accordingly, the mark-to-market impact of these derivatives is recorded each period in current earnings. The fair value of foreign currency related derivatives is included in the Condensed Consolidated Balance Sheets in “Other current assets” and “Other current liabilities.” At March 31, 2013, the U.S. dollar equivalent of these outstanding forward foreign exchange contracts totaled $118.0 million in notional amounts, including $79.3 million in contracts to sell Euro and $24.4 million in contracts to sell Australian dollars, with the remaining contracts covering a variety of foreign currencies.

Fair Market Value of Financial Instruments — The fair values of all open derivative instruments in the Condensed Consolidated Balance Sheets were as follows (in millions):
 
 
March 31, 2013
 
September 30, 2012
 
Other
Current
Assets
 
Other
Current
Liabilities
 
Other
Current
Assets
 
Other
Current
Liabilities
Not designated as hedging instruments:
 
 
 
 
 

 
 

Foreign exchange contracts
$
1.5

 
$
0.4

 
$
0.4

 
$
—



16
Table of Contents
OSHKOSH CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)


The pre-tax effects of derivative instruments on the Condensed Consolidated Statements of Income consisted of the following (in millions):
 
Classification of
Gains (Losses)
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
 
2013
 
2012
 
2013
 
2012
Cash flow hedges:
 
 
 

 
 

 
 
 
 
Reclassified from other comprehensive income (effective portion):
 
 
 

 
 

 
 
 
 
Interest rate contracts
Interest expense
 
$
—

 
$
—

 
$
—

 
$
(2.2
)
 
 
 
 
 
 
 
 
 
 
Not designated as hedges:
 
 
 

 
 

 
 
 
 
Foreign exchange contracts
Miscellaneous, net
 
2.1

 
(4.0
)
 
0.1

 
(6.9
)
 
 
 
$
2.1

 
$
(4.0
)
 
$
0.1

 
$
(9.1
)


14.    Fair Value Measurement

FASB ASC Topic 820, Fair Value Measurements and Disclosures, defines fair value as the price that would be received to sell an asset or paid to transfer a liability (i.e., exit price) in an orderly transaction between market participants at the measurement date. FASB ASC Topic 820 requires disclosures that categorize assets and liabilities measured at fair value into one of three different levels depending on the assumptions (i.e., inputs) used in the valuation. Level 1 provides the most reliable measure of fair value, while Level 3 generally requires significant management judgment. The three levels are defined as follows:

Level 1:
Unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2:
Observable inputs other than quoted prices in active markets for identical assets or liabilities, such as quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.

Level 3:
Unobservable inputs reflecting management's own assumptions about the inputs used in pricing the asset or liability.

There were no transfers of assets between levels during the three months ended March 31, 2013.

As of March 31, 2013, the fair values of the Company’s financial assets and liabilities were as follows (in millions):
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 

 
 

 
 

 
 

Foreign currency exchange derivatives (a)
$
—

 
$
1.5

 
$
—

 
$
1.5

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Foreign currency exchange derivatives (a)
$
—

 
$
0.4

 
$
—

 
$
0.4

_________________________

(a) 
Based on observable market transactions of forward currency prices.


17
Table of Contents
OSHKOSH CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)



15.    Stock-Based Compensation
 
In February 2009, the Company’s shareholders approved the 2009 Incentive Stock and Awards Plan. In January 2012, the Company's shareholders approved amendments to the 2009 Incentive Stock and Awards Plan (as amended, the “2009 Stock Plan”) to add 6,000,000 shares to the number of shares available for issuance under the plan. The 2009 Stock Plan replaced the 2004 Incentive Stock and Awards Plan, as amended (the “2004 Stock Plan”) and 1990 Incentive Stock Plan, as amended (the “1990 Stock Plan”). While no new awards will be granted under the 2004 Stock Plan and 1990 Stock Plan, awards previously made under these two plans that remained outstanding as of the initial approval date of the 2009 Stock Plan will remain outstanding and continue to be governed by the provisions of those plans.

Under the 2009 Stock Plan, officers, directors, including non-employee directors, and employees of the Company may be granted stock options, stock appreciation rights (“SAR”), performance shares, performance units, shares of Common Stock, restricted stock, restricted stock units (“RSU”) or other stock-based awards. The 2009 Stock Plan provides for the granting of options to purchase shares of the Company’s Common Stock at not less than the fair market value of such shares on the date of grant. Stock options granted under the 2009 Stock Plan generally become exercisable in equal installments over a three-year period, beginning with the first anniversary of the date of grant of the option, unless a shorter or longer duration is established by the Human Resources Committee of the Board of Directors at the time of the option grant. Stock options terminate not more than seven years from the date of grant. Except for performance shares and performance units, vesting is based solely on continued service as an employee of the Company. At March 31, 2013, the Company had reserved 9,944,976 shares of Common Stock available for issuance under the 2009 Stock Plan to provide for the exercise of outstanding stock options and the issuance of Common Stock under incentive compensation awards, including awards issued prior to the effective date of the 2009 Stock Plan.

The Company recognizes compensation expense over the requisite service period for vesting of an award, or to an employee's eligible retirement date, if earlier and applicable. Total stock-based compensation expense included in the Condensed Consolidated Statements of Income for the three and six months ended March 31, 2013 was $12.3 million ($7.8 million net of tax) and $18.7 million ($11.9 million net of tax), respectively. Total stock-based compensation expense included in the Company's Condensed Consolidated Statements of Income for the three and six months ended March 31, 2012 was $5.8 million ($3.7 million net of tax) and $10.2 million ($6.5 million net of tax), respectively.


16.    Restructuring and Other Charges

Pre-tax restructuring charges (credits) included in continuing operations for the three and six months ended March 31, 2013 and 2012 were as follows (in millions):

 
Three Months Ended March 31, 2013
 
Three Months Ended March 31, 2012
 
Cost of
Sales
 
Selling,
General and
Administrative
 
Total
 
Cost of
Sales
 
Selling,
General and
Administrative
 
Total
Access equipment
$
(0.2
)
 
$
—

 
$
(0.2
)
 
$
(0.1
)
 
$
—

 
$
(0.1
)
Defense
0.5

 
—

 
0.5

 
—

 
—

 
—

Fire & emergency
—

 
—

 
—

 
0.2

 
0.2

 
0.4

Commercial
—

 
—

 
—

 
0.1

 
—

 
0.1

 
$
0.3

 
$
—

 
$
0.3

 
$
0.2

 
$
0.2

 
$
0.4


18
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OSHKOSH CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)


 
Six Months Ended March 31, 2013
 
Six Months Ended March 31, 2012
 
Cost of
Sales
 
Selling,
General and
Administrative
 
Total
 
Cost of
Sales
 
Selling,
General and
Administrative
 
Total
Access equipment
$
(0.2
)
 
$
—

 
$
(0.2
)
 
$
(0.6
)
 
$
—

 
$
(0.6
)
Defense
0.5

 
—

 
0.5

 
—

 
—

 
—

Fire & emergency
—

 
—

 
—

 
0.2

 
0.3

 
0.5

Commercial
—

 
—

 
—

 
0.1

 
—

 
0.1

 
$
0.3

 
$
—

 
$
0.3

 
$
(0.3
)
 
$
0.3

 
$
—


Changes in the Company’s restructuring reserves, included within “Other current liabilities” in the Condensed Consolidated Balance Sheets, were as follows (in millions):
 
Employee
Severance and
Termination
Benefits
Balance at September 30, 2012
$
1.9

Restructuring provisions
0.3

Utilized - cash
(0.1
)
Foreign currency translation
0.1

Balance at March 31, 2013
$
2.2



17.    Employee Benefit Plans

Defined Benefit Plans - Oshkosh and certain of its subsidiaries sponsor multiple defined benefit pension plans covering certain Oshkosh and Pierce Manufacturing Inc. ("Pierce") employees. The benefits provided are based primarily on average compensation, years of service and date of birth. Hourly plans are generally based on years of service and a benefit dollar multiplier. The Company periodically amends the plans, including changing the benefit dollar multipliers and other revisions. In September 2012, the Company amended its Oshkosh and Pierce defined benefit plans, freezing benefit accruals for Oshkosh and Pierce salaried employees effective December 31, 2012. The amendment provided that salaried participants in the Oshkosh and Pierce pension plans would not receive credit, other than for vesting purposes, for eligible earnings paid for any month of service worked after the effective date. All accrued benefits under the plans as of the effective date remained intact, and service credits for vesting and retirement eligibility continued in accordance with the terms of the plans. As a result of the formal decision to freeze the plans benefit accruals, net periodic benefit costs decreased significantly in fiscal 2013. The pension benefit is expected to be offset by additional employer contributions to the Company's defined contribution plan which began in January 2013.

Postretirement Medical Plans - Oshkosh and certain of its subsidiaries sponsor multiple postretirement benefit plans covering Oshkosh, JLG Industries, Inc. and Kewaunee Fabrications, LLC hourly and salaried active employees, retirees and their spouses. The plans generally provide health benefits based on years of service and date of birth. These plans are unfunded. In September 2012, the Oshkosh plan was amended to eliminate postretirement benefits coverage for salaried employees retiring at age 55 or older effective December 31, 2012, except for existing eligible employees who are at least age 55 with at least five years of service by December 31, 2012 who elect to retire on or before December 31, 2013.


19
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OSHKOSH CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)


Components of net periodic pension benefit cost were as follows (in millions):

 
Three Months Ended
 
Six Months Ended
 
March 31,
 
March 31,
 
2013
 
2012
 
2013
 
2012
Components of net periodic benefit cost
 

 
 

 
 
 
 
Service cost
$
3.6

 
$
5.5

 
$
7.6

 
$
11.1

Interest cost
4.0

 
4.1

 
8.0

 
8.2

Expected return on plan assets
(4.1
)
 
(3.9
)
 
(8.3
)
 
(7.8
)
Amortization of prior service cost
0.4

 
0.6

 
0.9

 
1.2

Curtailment
1.9

 
—

 
2.8

 
—

Amortization of net actuarial loss
1.1

 
1.8

 
2.2

 
3.6

Net periodic benefit cost
$
6.9

 
$
8.1

 
$
13.2

 
$
16.3


In connection with staffing reductions in the defense segment as a result of declining sales to the U.S. Department of Defense ("DoD"), pension curtailment charges of $1.9 million and $2.8 million were recorded for the three and six months ended
March 31, 2013. The Company expects to contribute between $10.0 million and $15.0 million to its pension plans in fiscal 2013 compared to $35.8 million in fiscal 2012.

Components of net periodic other post-employment benefit cost were as follows (in millions):

 
Three Months Ended
 
Six Months Ended
 
March 31,
 
March 31,
 
2013
 
2012
 
2013
 
2012
Components of net periodic benefit cost
 

 
 

 
 
 
 
Service cost
$
1.8

 
$
1.8

 
$
3.8

 
$
3.6

Interest cost
0.8

 
0.8

 
1.6

 
1.7

Amortization of prior service cost
(0.1
)
 
—

 
(0.2
)
 
—

Curtailment
(1.0
)
 
—

 
(1.0
)
 
—

Amortization of net actuarial loss
0.3

 
0.3

 
0.6

 
0.6

Net periodic benefit cost
$
1.8

 
$
2.9

 
$
4.8

 
$
5.9


In connection with staffing reductions in the defense segment, an other post-employment curtailment benefit of $1.0 million was recorded for the three and six months ended March 31, 2013. The Company made contributions to fund benefit payments of $0.8 million and $0.7 million for the six months ended March 31, 2013 and 2012, respectively, under its other post-employment benefit plans. The Company estimates that it will make additional contributions of approximately $0.8 million under these other post-employment benefit plans prior to the end of fiscal 2013.

401(k) Plans - The Company has defined contribution 401(k) plans covering substantially all domestic employees. Amounts expensed for Company matching and discretionary contributions were $8.1 million and $4.6 million for the three months ended March 31, 2013 and 2012, respectively. Amounts expensed for Company matching and discretionary contributions were $13.4 million and $9.5 million for the six months ended March 31, 2013 and 2012, respectively. The increase in defined contribution costs during fiscal 2013 was generally a result of Company contributions beginning in January 2013 to the defined benefit replacement plan.


18.    Income Taxes

The Company's effective income tax rate was 29.9% and 30.3% of pre-tax income for the six months ended March 31, 2013 and 2012, respectively. The effective income tax rate for the six months ended March 31, 2013 was favorably impacted by the reinstatement of the U.S. research and development income tax credit (250 basis points) and reported lower foreign income taxes (400 basis points). The effective income tax rate for the six months ended March 31, 2012 was favorably impacted by net discrete tax benefits aggregating 660 basis points including adjustments to reflect positions taken on previously filed tax returns

20
Table of Contents
OSHKOSH CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)


(270 basis points), the settlement of foreign tax audits (200 basis points) and reductions of the liability for unrecognized tax benefits related to the expiration of statutes of limitations (80 basis points).

The Company’s liability for gross unrecognized tax benefits, excluding related interest and penalties, was $36.3 million and $33.9 million as of March 31, 2013 and September 30, 2012, respectively. As of March 31, 2013, net unrecognized tax benefits, excluding interest and penalties, of $25.2 million would affect the Company’s net income if recognized, including $24.6 million which would impact net income from continuing operations.

The Company recognizes accrued interest and penalties, if any, related to unrecognized tax benefits in the “Provision for income taxes” in the Condensed Consolidated Statements of Income. During the six months ended March 31, 2013 and 2012, the Company recognized a charge of $1.4 million and a benefit of $1.2 million, respectively, related to interest and penalties. At March 31, 2013, the Company had accruals for the payment of interest and penalties of $15.5 million. During the next twelve months, it is reasonably possible that federal, state and foreign tax audit resolutions could reduce unrecognized tax benefits by approximately $2.5 million, because the Company’s tax positions are sustained on audit, the Company agrees to their disallowance or the applicable statutes of limitations expire.

The Company files federal income tax returns, as well as multiple state, local and non-U.S. jurisdiction tax returns. The Company is regularly audited by federal, state and foreign tax authorities. At March 31, 2013, the Company was under audit by the U.S. Internal Revenue Service for the taxable years ended September 30, 2011 and 2010.


19.    Accumulated Other Comprehensive Income (Loss)

Changes in accumulated other comprehensive income (loss) by component were as follows (in millions):

 
Three Months Ended March 31, 2013
 
Six Months Ended March 31, 2013
 
Employee Pension and Postretirement Benefits, Net of Tax
 
Cumulative Translation Adjustments
 
Accumulated Other Comprehensive Income (Loss)
 
Employee Pension and Postretirement Benefits, Net of Tax
 
Cumulative Translation Adjustments
 
Accumulated Other Comprehensive Income (Loss)
Balance at beginning of period
$
(98.6
)
 
$
6.8