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25 Jul 02. Oshkosh Truck Corporation (NYSE:OSK – News) reported that third quarter net income increased 57.4 percent to $21.6m, or $1.24 per share, on sales of $489.5m for the quarter ended June 30, 2002 $13.7m, or $0.80 per share, on sales of $405.8m). These results exceeded Oshkosh’s previous earnings expectations of $0.88 per share for the quarter. Primarily as a result of the strong third quarter results, Oshkosh also increased its earnings per share estimate for the full year ending September 30, 2002 to $3.35 per share.

Sales increased 20.6 percent in the third quarter. Operating income increased 39.5 percent to $38.4m, or 7.8 percent of sales, compared to $27.5m, or 6.8 percent of sales, in the prior year’s third quarter.

The company’s third quarter performance included a $4.5m increase in operating income ($0.16 per share after tax) to record a cumulative adjustment to margins recognized on its multi-year Medium Tactical Vehicle Replacement (“MTVR”) vehicle production contract. This increase was a result of events in the third quarter, including the completion of a retrofit program to bring low-rate production vehicles to final configuration, sustained positive cost performance and negotiation of a modification to the MTVR contract to include “dump and wrecker body” variants. Excluding the impact of the Geesink Norba Group acquisition (completed in the fourth quarter of fiscal 2001), the MTVR
margin adjustment and adjusting for the elimination of goodwill and other indefinite-lived intangible assets as a result of the adoption of a new accounting standard ($0.10 per share after tax), earnings per share would have been up approximately 16.7% percent in the third quarter of fiscal 2002 compared to the same period in the prior year.

“This quarter all of our businesses performed quite well. However, a major factor was the aggressive cost reduction efforts on the MTVR defense truck program that permitted us to increase our MTVR margins by one percentage point. A contract modification to the MTVR contract during the quarter to include dump truck and wrecker models should assure the production of more than thebase quantity volumes under the contract, assuming the government approves funding of the wrecker models. And, we expect to significantly reduce working capital commitments to support this contract as a result of `performance-based’ payments that have been negotiated,” commented Robert G. Bohn, chairman, president and chief executive officer.

Bohn continued, “With our debt down significantly and our backlog up about 29 percent, we believe we are well-positioned for fiscal 2003 as we approach final bids on some very significant long-term defense business in the U.S. and the U.K. The rough financial markets of recent weeks, however, cause us to approach our outlook for fiscal 2003 with caution. Accordingly, today we are initiating our estimate of fiscal 2003 earnings per share at $3.70, up approximately 10.4% over estimated fiscal 2002 earnings. This estimate assumes no further margin increase on the MTVR contract in fiscal 2003 although we continue to target higher margins under the contract.”

Defense sales increased 46.3 percent, to $162.8m, for the
quarter. Operating income was up 71.4 percent, to $15.0m, or 9.2 percent of sales, $8.7m, or 7.8 percent of sales). Results for the quarter reflect increased volume related to a full quarter of full-rate production under the MTVR contract and increased parts sales, which were shifted from the fourth to the third quarter. The Company increased margins on the MTVR long-term production contract by one percentage point to 4.3% during the quarter. Excluding the impact of the cumulative adjustment of MTVR margins during the quarter, overall defense operating income margins would have been 7.0 percent in the third quarter of fiscal 2002.

Operating income and margins for the third quarter of fiscal 2002 were adversely impacted by the relatively low margin

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