Oshkosh Corporation (OSK) Q4 2008 Earnings Report, Transcript and Summary

Greetings and welcome to the Oshkosh Corporation's Fiscal Year 2008 Fourth Quarter Financial Results Conference. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Pat Davidson, Vice President of Investor Relations for Oshkosh Corporation. Thank you, Mr. Davidson, you may begin.

Thanks, Segal. Good morning and thanks for joining us. Earlier today we published our fourth quarter results for fiscal 2008. Copy of that release is available on our website at www.oshcoshcorporation.com. Today's call is being webcast and is accompanied by a slide presentation also available on our website. The audio replay and slide presentation will be available on the web for approximately 12 months. Please refer now to slide2 of that presentation. Our remarks to follow including answers to your questions include statements that we believe to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks that could cause actual results to be materially different. Those risks include among others; matters that we have described in our Form 8-K filed with SEC this morning and other filings we make with the SEC. We disclaim any obligation to update these forward-looking statements which may not be updated until our next quarterly earnings conference call if it all. Occasionally, today we will refer to previous estimates. We made or updated such estimates during our third fiscal quarter earnings conference call on August 1, 2008 and provided additional details in press release on September 26, 2008. Unless stated otherwise all figures and data that we discuss today will relate to our performance excluding non-cash asset impairment charges totaling $175.2 million that we recorded during our third fiscal quarter. For the purposes of our discussion today, we believe that excluding the impairment charges is the best way for you the participants on this call to better understand our operating performance. A reconciliation of non-GAAP measures that we discuss today to the most comparable GAAP measures can be found on the last slide of our presentation as well as in our earnings release, both of which are available on our website. Presenting today for Oshkosh Corporation will Bob Bohn, our Chairman and Chief Executive Officer, Charlie Szews, President and Chief Operating Officer; and Dave Sagehorn, Executive Vice President and Chief Financial Officer. Let's begin by turning to slide 3, and I'll turn it over to you Bob.

Thank you, Pat and good morning, and thank you all for joining us today. We are living in unprecedented times, the equity and credit markets are extremely volatile on a daily and even hourly basis. This daily dose of volatility and general negative news is leading to rapidly changing demand in some of our markets. In these uncertain times, Oshkosh management moved quickly to drive free cash flow for significant debt reduction and to implement strong fiscal management. Our fourth quarter results are evidence of our early jump on achieving these objectives. On August 1st, we reported our third fiscal quarter performance and gave you our earnings and debt reduction expectations for the remainder of fiscal year. On Friday, September 26th, we announced that we would be at or above the higher end of the August 1st EPS range. We also said that we expected a little bit more debt reduction during the quarter than our August estimates. I am happy to announce that we achieved and even outperformed these expectations with EPS of $0.72 and debt reduction of $202 million for the quarter. With all the uncertainty in the market, we believe these results reflect the strength of the Oshkosh family of businesses. Because of the weakened economic conditions, several of our markets are experiencing lower demand. Despite this, we delivered a solid quarter which kept off a year of record revenues for Oshkosh Corporation. Sales were up nearly 6% in the quarter over the prior year quarter driven by strong performance in our Defense and Fire and Emergency segments. We experienced a decline in operating income of 32% to $122 million in the fourth quarter due to lower operating income in our access equipment segment as a result of lower volume, higher raw material cost and adverse product mix. Charlie and Dave will provide more detail in a few moments. We told you during this last conference call that we would be focusing more attention on inventory reduction to better balance inventory with demand and drive debt reduction in this tight credit environment. We have done just that. In the fourth fiscal quarter, we were able to reduce inventories by $241million which helped drive the $202 million in debt reduction during the quarter. We believe there is much more inventory reduction possible and that this will remain an area of focus for the team. Please turn to slide to 4. We finished the year with an all time record revenue of just over $7 billion; we also posted our strongest international revenues ever at approximately $2.1 billion or 30% of total sales. This represented 37% growth over fiscal 2007 international revenues and forms a strong foundation for future growth as we expand our international footprint. Although many of our markets are down, that doesn't mean that Oshkosh and the team accepts performance comparable to the market. In fact, during times of economic weaknesses, we benefit from customers concentrating their orders with industrial leaders like Oshkosh and from the strong value proposition that we really offer our customers today and in the future. In fiscal 2008, we were successful in delivering 20% and 40% higher orders in two businesses. Pierce fire apparatus and domestic refuse collection vehicles respectively where we estimate the associated market volumes were flat to down 10%. In Europe, we believe JLG also delivered substantially higher sales growth than the underlying market in fiscal 2008; that's real, real performance. That's the power of the Oshkosh brands. While we did experience revenue growth, we reported lower operating income as well as lower EPS driven by under absorption of fixed cost at businesses where we have reduced production levels, factory rationalization cost at our European refuse businesses, raw material cost pressures later in the fiscal year and higher personnel cost and information technology expenses. As I mentioned earlier, we worked aggressively drive down debt. We reduced debt by $283 million in fiscal 2008 which left us with $2.77 billion on September 30th. We felt just short of our original debt reduction target for the year of $300 million to $400 million due in large part to softness that we began to experience in selected markets late in the third fiscal quarter. But with renewed focus, we believe we can do better in fiscal 2009. Reflecting on fiscal 2008, we're proud that our team responded early and decisively to address the current economic downturn escalating steel and fuel cost in the credit crisis. We raised product selling prices by 6% to 11% across to our non-defense businesses. We drove down overhead cost and focused on cash flow. We anticipate that these actions will place us in a better foundation to face continued economic challenges in the future. We also were pleased with the strong talent that we brought into our company in fiscal 2008. From our new chief procurement officer to new business leadership and to expanded global sales and service teams. This talent will help Oshkosh weather current conditions and create a roadmap for superior performance in the next economic upturn. Please turn with me now to slide 5. The volatile credit and equity markets in October have caused some customers around the globe to reduce or pause their spending plans for fiscal 2009. As a result, particularly in the last month, it has become very difficult for the company to project first fiscal quarter and full year fiscal 2009 results. Fortunately, we have some businesses like defense, fire apparatus and domestic refuse with large backlogs that provide us the solid visibility and revenue expectations into fiscal 2009. Dave will provide our best judgment of expected fiscal 2009 results for the company as a whole in a moment, but they are based on the assumption that the equity and credit markets exhibit significant improvement that by early calendar 2009 customers take their fingers off the order pause button and have some confidence in the direction of the global economy. If there is no improvement in these markets, then our outlook for fiscal 2009 will need to be revised downward. Now, we believe that our actions over the last few months have better positioned us to address these challenging market conditions. We've reduced our workforce by approximately 10% and lowered discretionary spending resulting in the expected annual savings rate of approximately $100 million. Reducing the size of our workforce is a responsible move in light of weaker demand and further reductions are likely given the global economic softening over the last few weeks. We have micromanaged production rates and inventory reduction plans, this drove significant debt reduction in the fourth fiscal quarter and we expect to reduce further inventories and debt in our first quarter of fiscal 2009. Furthermore, we have modified our bonus plan to promote improved working capital management and debt reduction in fiscal 2009 to assure that our whole team is inline with these key objectives. We formed and staffed an Asian procurement team and created a pipeline of items that are being investigated for low cost country sourcing. We've taken a very positive step towards continuing to improve our operations by moving Tom Fenner, one of our strongest and most experienced leaders from the Fire and Emergency segment to the new position of Executive Vice President of Global Manufacturing Services reporting to Charlie. In this role, Tom will lead our global manufacturing efforts as we strive to improve the productivity and other key performance measures of our current facilities as well as expand our global foot print. Finally, we are of course monitoring our ability to comply with the financial covenants contained in our current credit agreement. We see this as a cost issue rather than a liquidity issue. Why do we believe this? Number one, because we expect to generate strong cash flow in fiscal 2009. And two, based on recent discussions with our lead banks we believe that we would be able to conclude an amendment if we determine that we would otherwise face a covenant violation. We are moving forward with the plan, with the objective of avoiding the need to amend the agreement in fiscal 2009 or at least delaying the need for an amendment and reducing the related incremental cost. This plan includes actions intended to drive $500 million or more of debt reduction as well as maintain strong fiscal management. In these volatile market conditions, we expect to assess our performance against the plan quarterly to be in the best position to amend the agreement if necessary. The team today is driving hard to avoid an amendment and strong decisive actions like these to avoid delay or mitigated amendment are good for our shareholders, Dave will share more about this plan in a few minutes. Our plan does, does permit us to continue limited but important global and new product development initiatives to position our company to perform strongly in the next economic upturn. We are a company of leaders, and we plan to lead our markets in the next upturn. I will now turn it to over to our President, Charlie Szews to discuss details on each of our business segments and review some of our operating highlights and challenges. Charlie?

Thanks Bob. Please turn with me to slide 6 and we'll get started. JLG continued to perform well in some international markets in the fourth fiscal quarter. But in the larger North American and to lesser extent Western European markets, we experienced sales decline as soft construction markets have caused our rental customers to curtail their equipment orders. While we firmly believe in our long-term strength of our access equipment market, we are expecting weakness through fiscal 2009. These projected weak markets are prime reasons for many of the cost reduction moves we have been taking. Our profitability was greatly affected this past quarter by higher raw material and component costs that have not yet been recovered with price increases through our customers. We will continue to have limited recovery of raw material cost increases from our higher selling prices in the first fiscal quarter, we expect to see meaningful benefits from our recent price increases starting in our second fiscal quarter. While there has been some recent weakening in the prices of certain types of steel, we have not yet seen the price reductions we would expect in a recession. We do know that steel companies are shutting down plants for extended maintenance and don't know if that will be successful for them to sustain relatively high pricing. Pricing for our products in the access equipment segment remains competitive with deals being offered by many competitors to unload excess inventory. We are the premium price manufacturer in this market globally and expect to maintain pricing discipline in order to achieve our announced price increase which is simply necessary to offset the significantly higher steel and another cost that we have experienced over the last six months as well to address the effects of the recent strengthening of the U.S. dollar. We do not believe that by... or we do believe that by January 2009 much of the industry's excess inventory will be worked off and that industry pricing will improve beginning in January. The segment has done a good job of reducing inventory including a reduction of over $100 million in the fourth fiscal quarter, but we still have one or two more quarters of work to achieve our inventory reduction goal in this segment. Looking ahead, we believe our access equipment unit sales will be down 35% to 40% in North America and in both Western and Eastern Europe in fiscal 2009 as both residential and non-residential construction markets are expected to be weak in these regions through most of the year. The events in the financial markets over the last several weeks have caused some construction projects in Eastern Europe to be discontinued and our customers in this region are now pulling back in their investment plans similar to what we saw earlier in North America and Western Europe. However, we expect demand in emerging regions like the Middle East and Latin America to remain strong although not as robust as we thought a few weeks ago. Recent distribution improvements in Asia should permit us to increase our revenues in that important region in fiscal 2009 in spite of an uncertain economic outlook for the region. Also, we are expecting our parts, service and reconditioning sales to be up modestly in fiscal 2009. With steel cost high and funding tight, there is growing interest among our customers to recondition their fleets. JLG products were designed for just these kinds of markets. They are designed so that customers could recondition in two or three times to extend their lives and offer greater value to our customers in weak economies. Please move with me to slide 7, and let's take a look at defense. The defense segment posted another strong quarter as both truck production and parts and service revenues increased. We experienced lower margins in this segment as we had a higher percentage of sales under lower margin contracts. But this is consistent with the outlook over the last year or so. We recently signed a multi-year requirement contract for the family of heavy tactical vehicles, or FHTV program, which keeps Oshkosh as the primary supplier for heavy tactical vehicles for the U.S. Army. Under this contract we'll be building significantly more of our Heavy Expanded Mobility Tactical Truck or HEMTT A4 configurations. The A4 provides the army with more horsepower, greater armor integration, the common cab with a Palletized Load System and air conditioning to name just a few upgrades. We expect our parts and service business in fiscal 2009 will be bleed by the strength of our recently announced orders, for reducible-height armor kits for the Medium Tactical Vehicle Replacement or MTVR trucks. Reducible-height feature allows us for greater transportability for the U.S. Marine Corps. while providing significant protection for the troops. We also recently notified that Oshkosh was chosen as the preferred bidder to manufacture next generation Light Equipment Transporters or LET 2 for the British Ministry of Defense. They LET 2 requirements initially call for production of 107 vehicles but contain options for up to 250 additional vehicles and in-service support over the next 15 years. In addition to the LET 2, Oshkosh supplies the UK Ministry of Defense with a variant of our Heavy Equipment Transporters or HET and wheeled tankers. Initial sales of the first LET 2 are scheduled to begin in fiscal 2010. Finally, we are disappointed that we are not selected for a Joint Light Tactical Vehicle or JLTV technology development contract with a partner in North of Roman. We remain firm in our belief that the JLTV concept we presented was the best solution for the U.S. Army and Marine Corps. needs for Light Tactical Vehicles and represent an innovative and proven design that leapfrogs current capabilities to exceed the customers' requirements for protection, payroll and performance. We expect to receive a de-brief from the U.S. government on our proposal and we'll determine at that time with our partner our next steps. Please turn to slide 8, even with soft municipal spending effecting fire truck sales our Pierce supplier apparatus business continues to outperform in a tough market. The strength that our new product launches over the last year and a half is evident as we have had significant orders for our Velocity and Impel chassis as well as for the Pierce Ultimate Configuration or PUC. In fact, we finished fiscal 2008 with more orders for fire trucks than any other year in the company's history. We also expect Pierce to exit fiscal 2008 with its highest market share ever. The airport products business was once again led by strong aircraft rescues and firefighting of vehicle shipments and brisk order activity in international market to support global airport expansion. Our broadcast vehicle business is a smaller portion of the segment; we are excited by recent strength in orders and shipments for these units. In conjunction with Tom Fenner's new position as Executive Vice President of Global Manufacturing Services, Wilson Jones was promoted from President of Pierce to Executive Vice President of Oshkosh Corporation and President of the entire fire and emergency segment. Wilson's sales acumen, experience and strong leadership qualities will serve him well as he takes over one of our most visible segments at a time when markets are challenging, competition is fierce. I am very confident in Wilson's ability to drive results and built on the success that he has achieved at Pierce. Please turn with me to slide 9. We previously described the U.S. concrete mixers market is anemic with the industry volumes down roughly 70% from the peak. That view point has not really changed as order flow in construction activities in the U.S. remain weak. Since we do not expect significant revenue growth in this business until the broader U.S. economy and construction markets improve, we've continued to work on lowering the cost structure in this business with an objective of remaining profitable in times of weak markets. We've been pleased with the performance of our domestic refuse collection vehicle business in the softer market. Sales in this business were up for fourth fiscal quarter and the strength of orders from customers looking to reduce the age of their fleets. Orders were up more than 40% for this product line at fiscal 2008 and we exited the fiscal year with our strongest backlog ever. On our last call, we talked about our excitement for growth opportunities in compressed natural gas or CNG, powered refuse collection vehicles. That excitement is growing. We won several bids for CNG powered refuse collection vehicles and are competing for others. We expect CNG powered vehicles to be a larger part of our business as communities seek lower fuel cost and reduce the emissions alternatives for their refuse collection vehicles. Now during the fourth fiscal quarter, we continued the restructuring of the Geesink Norba Group or Geesink, our European refuse collections vehicle business. We made further management changes in the fourth fiscal quarter and we completely exited our Blomstermala Sweden facility. We have orders that we believe should enable us to deliver stronger performance in the first quarter of fiscal 2009, but we have struggled to achieve the targeted production efficiencies anticipated from the facility rationalization plan. Geesink's focus in the coming quarter will be to achieve those targeted efficiencies that drive out excess working capital from that business. That's a brief overview of our operations. Dave, please take it from here.

Thanks Charlie and good morning everyone. Please turn to slide 10. Consolidated net sales of $1.9 billion for the fourth fiscal quarter were up 5.8% compared to the fourth fiscal quarter of last year as increased sales in defense, fire and emergency and our domestic refuse collection vehicle businesses offset lower sales in our access equipment segment. Operating income decreased 31.9% to $122.1 million or 6.4% of sales. Operating income margins were negatively impacted by sales mix and un-recovered material cost increases largely at our access equipment segment. Operating income also reflects severance charges totaling $7.2 million related to staffing reductions during the quarter. Earnings per share for the quarter was $0.72, a decrease of 36.8% compared to the fourth quarter of fiscal 2007. Corporate operating expenses and inter-segment profit elimination declined $1.4 million in the fourth quarter of fiscal 2008 compared to the fourth quarter of fiscal 2007 due to lower incentive compensation expense and travel costs, partially offset by higher information technology spending. Interest expense decreased in the fourth fiscal quarter compared to the prior year quarter due to favorable interest rates and lower net borrowings. Our tax rate in the quarter decreased to 26.1% reflecting a full year tax rate of 33% excluding the impact of the Geesink impairment charge recorded in the third fiscal quarter. Now let's take a look at each of the segments in detail. Please turn to slide 11. Access equipment sales were $742.1 million in the fourth fiscal quarter, down 11.7% compared to the same period last year as strength in emerging market was not enough to offset continued weakness in U.S. and in certain Western European countries that began late in our third fiscal quarter. Sales of both aerial work platforms and telehandlers were down in the quarter. Segment revenues in North America were down more than 20% on significantly lower aerial work platform sales. Sales in Europe were down almost 5%. The segment recorded operating income of $50.2 million, down 56.2% from the prior year quarter and an operating income margin of 6.8%. Operating income margin was negatively impacted by lower volumes and under absorption of fixed costs, un-recovered material cost increases of approximately 350 basis points as JLG's previously announced price increases were not yet in effect and adverse product mix as aerial work platforms experienced a larger percentage sales decline than telehandlers. Foreign currency exchange rates positively impacted margins in the quarter by approximately 80 basis points compared to the fourth quarter of fiscal 2007. Backlog for access equipment was $330 million at September 30, 2008, a decrease of 61.4% compared to September 30, 2007. The decrease in backlog was largely the result of weaker economies in U.S. and Europe and the timing of orders that were placed in the prior year when there were capacity constrains in the industry. Please turn to slide12, defense segment sales were $553.4 million up 31% compared to last year's fourth fiscal quarter due to continued strong demand for new trucks and significantly higher after market parts and service revenues led by higher armor kit sales. Operating income increased 3.8% to $75.1 million compared to $72.4 million in the prior year quarter. Operating income margin in the quarter declined to 13.6% compared to 17.1% in the fourth quarter of fiscal 2007. The decrease in operating income margin was largely a result of a higher percentage of sales this quarter from truck shipments under the lower margin FHTV contract. As well as some start-up costs associated with the HEMTT A4 and LVSR models. Backlog in this segment was $1.2 billion at September 30, 2008 down 22.9% compared to September 30, 2007. The decrease in backlog was largely a result of the timing of our FHTV contract negotiations with the DoD. The delivery order received last week with the new FHTV contract has significantly increased backlog in the segment. Please turn to slide13, turning to fire and emergency, sales increased by 25.6% to $366.5 million compared to the prior year's fourth fiscal quarter due to a shift in the timing of delivery of a large, of a number of larger orders for international fire apparatus, airport products growth and continued strength at Pierce in the face of a challenging municipal spending environment. Operating income in the segment increased to $33.2 million or 9.1% of sales. Positive volume impact on margins in this segment was partially offset by costs related to a work stoppage that was settled during the quarter. Compared to prior year, fire and emergency backlog was up 9.6% to $633.2 million on September 30, 2008 due largely to higher fire apparatus backlog. Please turn to slide 14; commercial sales increased 4.7% to $261.2 million compared to last year's fourth fiscal quarter. The increase was due to higher sales of refuse collection vehicles in North America as customers continue to update their fleets. Demand for concrete mixers remains extremely week driven by the nearly unprecedented decrease in residential construction and slowing non-residential construction. We recorded an operating income loss of $6.9 million in this segment in the fourth fiscal quarter. The loss included an operating loss of $10.7 million at Geesink. Included in the Geesink loss were expenses totaling $4.5 million perseverance and other costs associated with our restructuring actions. We also continue to experience production inefficiencies during the fourth fiscal quarter related to the transfer of production of Norba branded products to our Netherlands facility and higher material cost. We expect that results at Geesink will improve in fiscal 2009. Backlog for the commercial segment at September 30, 2008 was flat compared to September 30, 2008 was flat compared to September 30, 2007. Significantly higher refuse collection vehicle backlog was offset by lower backlog for concrete mixers and batch plants. Please turn to slide 15 for a review of our estimates for fiscal 2009. All comparisons are to our fiscal 2008 actual results. We are initiating fiscal 2009 estimates reflecting a wider range for both sales and earnings per share than we have technically provided. This wider range is an indication of the increased difficulty that we have in projecting results for fiscal 2009 in the midst of uncertain economic conditions. It is important to recognize that the estimates assume that worldwide equity and credit markets will stabilize in the neat future. If these markets do not stabilize, we would most likely revise our fiscal 2009 estimates lower as we would expect our access equipment, commercial and to a lesser extent, fire and emergency segment sales to be impacted by lower demand for our products and services. We are estimating consolidated sales of $6.3 billion to $6.7 billion, a decrease of approximately 6% to 12% compared to fiscal 2008. For access equipment, we believe that revenues will be down about 30% plus or minus a couple of percentage points. We expect that sales in both JLG's North America and Europe regions will be down more than this range compared to fiscal 2008 partially offset by expected continued growth in other regions as well as modest growth in our parts, service and reconditioning revenues. We expect strong sales growth of approximately 20% to 25% in our defense segment in fiscal 2009 driven by continued demand for our tactical wheeled vehicles. We believe that fire and emergency sales will be down approximately 5% to 10% with continued strength at our fire apparatus and airport products businesses based on the current strong backlogs offset by lower sales throughout much of the rest of the segment. Finally, we anticipate commercial sales will be flat to down 10% with weaker concrete mixer and batch plant sales offsetting growth in refuse collection vehicle sales. Turning to slide 16, let's review our operating income assumptions. We are expecting full year operating income of $350 million to $400 million. This implies a consolidated margin of about 5% to 6%. The anticipated reduction in consolidated margins is primarily the result of lower margins in our access equipment and defense segments. We believe access equipment margins will decrease to between 3.5% to 4.5%. This significant drop is a result of expected lower volumes and a related under absorption of fixed costs more than offsetting cost reductions that we've implemented in this segment. Unfavorable foreign currency exchange rates and un-recovered steel costs early in the fiscal year are the other major contributors to the expected lower margins. We are currently estimating that the U.S. dollar will not continue to appreciate significantly from current levels. The continued strengthening of the dollar would negatively impact our results. We expect defense margins will continue to remain under pressure decreasing by approximately 200 to 250 basis points. The margin decrease will be driven by a higher percentage of lower margin sales under our FHTV and LVSR contract. For fire and emergency, we anticipate that margins will increase approximately 100 to 150 basis points due to sales mix among businesses in this segment and the impact of cost reduction efforts. We estimate commercial margins will increase to slightly better than breakeven largely due to improved results at Geesink as we expect to have the facility rationalization costs behind us. We also expect an improved performance at McNeilus will contribute better results for this segment. We expect corporate and inter-segment elimination expenses to be flat to slightly down. We expect the impact of our cost reduction efforts will be partially offset by general inflationary increases and costs related to a potential receivable sales program that I'll describe shortly. Turning to slide 17, let's take care of a few more P&L items. We expect interest expense to be approximately a $180 million reflecting planned significant debt reductions throughout the fiscal year. Should we need to amend our credit agreement in fiscal 2009, we would likely incur substantial fees and significantly higher interest costs $180 million. We are not presently able to estimate the impact of any amendment as we simply don't know when an amendment would be necessary, if it all and what credit market conditions would be at that time. We expect our tax rate to remain at approximately 33% reflecting a shift in earnings among lower tax rate countries and reinstatement of the R&D tax credit, including a full 12 months of benefit in the first fiscal quarter. We believe that equity and earnings will be approximately $4 million compared with $6 million in fiscal 2008. And we expect to use approximately 75 million shares for our earnings per share calculation. Finishing up, our earnings estimates with slide18, we are estimating earnings per share of $1.65 to $2.05 in fiscal 2009. The reduced earnings are a reflection of the challenging global economy we are facing and again assume some stabilization in global equity and credit markets. Should a credit agreement amendment be necessary this range would need to be reduced by the financial impact of the amendment. As we look at our first fiscal quarter, which is normally our seasonally weakest quarter of the year. There are a couple of items that we expect will make this quarter weaker than usual. We expect lower demand the normal in the first quarter at our businesses that are exposed to construction markets, as customers react to the uncertainty created by the credit crises. Additionally, JLG will not recover steel and other commodity cost increases in the quarter as their previously announced price increase won't be fully effective. Together we expect these items to lead to a net loss in our first fiscal quarter. We expect to be able to comply with our financial covenants at the end of the first fiscal quarter even with the loss in the quarter due to planned strong debt reduction. Presently we believe that we can generate cash available for debt reduction of $200 million to $250 million in the first quarter of fiscal 2009. If we don't achieve the planned debt reduction or if the loss is greater than anticipated, we may be forced to seek an amendment to our credit agreement, late in the quarter, but presently we believe that our plans are more than adequate to avoid the need to seek an amendment in the first fiscal quarter. Historically, we have provided an EPS estimate range for the upcoming quarter as we move into fiscal 2009, we'll be limiting our estimates to those for the full fiscal year for the company and for each segment. And we will only be updating these estimates once each quarter when we release earnings. Before I turn it back to Bob, I'd like to finish with an update on our financing. Please turn to slide19, building on our strong fourth fiscal quarter debt reduction, we are proceeding with a plan that we expect could provide significant debt reduction in fiscal 2009 with the objective of allowing us to avoid seeking an amendment of our credit agreement or at least delay an amendment and mitigate the financial impact. This plan seeks to reduce our debt like $500 million or more in fiscal 2009. We are also closely monitoring expenses to support our earnings and would likely implement further cost cuts if demand continues to weaken. The significant debt reduction target is driven by continued focused on lowering our working capital requirements as well as managing capital expenditures to a total of approximately $60 million in fiscal 2009. We made good progress in reducing working capital in the fourth quarter but believe that we have additional opportunities for further reduction. We have adjusted production schedules to drive inventory reduction and we are particularly focused on selling off aged inventory. As part of our plan, we are in negotiations with third parties regarding a program to sell certain European accounts receivable which would allow us to accelerate cash receipts. Finally, we expect payments from the U.S. government associated with the recent signing of the defense segments of FHTV contract extension to contribute to our debt reduction target in fiscal 2009. If we are not successful in delivering both the higher end of our earnings estimate range and timely debt reduction of $500 million or more, we will need to request an amendment to our credit agreement. We will work diligently to avoid this, but the challenge has become greater in the last month as access equipment demand has slowed further and the U.S. dollar strengthened. I would like to repeat Bob's remarks that we will assess our performance to plan on a quarterly basis and if we anticipate that without an amendment a financial covenant violation is likely, we believe based on recent discussions with our lead banks that we will able to amend our credit agreement. Further, we also believe that we will maintain sufficient liquidity for the business and be able to continue limited global and new product development initiatives based on our demonstrated ability to generate strong free cash flow. Bob, I'll turn it back over to you for slide 20.

Thanks Dave. We've described the challenges we face. To address these challenges, we have strong brands, leading technologies and competitive advantages in nearly every one of our markets. We also have a few strong businesses like defense, Pierce and our McNeilus refuse business to help us manage through these difficult times. We believe our intense focus on reducing supply chain cost as well as lowering overhead and non-essential spending is working. We strengthened our manufacturing leadership and have strong operating teams in each of our segments. We remain committed to reducing working capital and freeing up cash for debt repayment. The hardworking employees of Oshkosh Corporation are focused on building a great company and we are moving decisively to position ourselves to take advantage of the eventual turnaround in the world economies. I said around the last call and if bears repeating here. We are taking the necessary steps to optimize our performance. Oshkosh has a long proud history of creating shareholder value. We have built a strong foundation and we will continue to take advantage of this foundation as we go for the future. With that, I will turn it back over to Pat and the operator for questions. Thank you.

Thanks Bob. I'd like to remind everyone to limit their questions to one plus a follow-up and please avoid questions with multiple subparts as it makes it very difficult to ensure that everyone participates. As for follow-up, we ask that each participant get back in queue to ask additional questions. And Segal with that, I will turn it over to you to begin the question-and-answer period. Question And Answer

Thank you, sir. We will now be conducting the question-and-answer session. [Operator Instructions]. Our first question comes from Charley Brady with BMO Capital Markets. Please state your question.

Hi, thanks. Good morning.

Hi, Charlie.

Good morning.

With regard to access equipment and JLG, do you anticipate that business incurring a loss in any quarter in '09? And I guess going along with that, what leads you to your comment that you believe the... yes things are going... inventory excess, inventory is going to level off, is that coming from customer comments or just sort of a broader macro view?

Charlie, this is Charlie. Yes, we do think that we will probably have a loss in the segment in the first quarter largely due to the un-recovered steel and commodity cost, also volume is seasonally very weak in this quarter as you might, as expected, and certainly we've got a pause. Several customers have put a pause on their orders in this particular market condition. Why we think, it will get better, we do travel around; we do look at the inventory situation around the industry. So we do know that we have made progress reducing inventories. We believe our competitors know as well and by that period of time it just can be very compelling for everyone, to be able to offset the steel cost increases that we have suffered for the last six to nine months by them.

Yes, thanks.

Thank you.

Our next question comes from Alex Blanton with Ingalls & Snyder. Please state your question. Alex Blanton - Ingalls & Snyder LLC: Hi, good morning.

Good morning.

Good morning, Alex. Alex Blanton - Ingalls & Snyder LLC: I want to address the $500 million and I guess as well as the amount the you are talking about for the first quarter in debt reductions; if you use the top end of your range EPS $2.05 for this year and CapEx is $60 million and dividends are $40 million and depreciation and amortization of $130 million. There is about a $300 million gap that has to be filled after you take into account EBITDA, CapEx and dividends by inventory reduction and as you mentioned factoring accounts receivable. How much do you expect to get from accounts receivable, as opposed to inventory. And please let me know, if there any significant amount other than that I think you mentioned advances on government contracts as part of the $2.05 so how much is that, I mean I am asking you really to document the $500 million because that's what everybody is going to be focused on?

Alex, good morning it's Dave. There are a number of pieces in this equation to get to the $500 million of debt reduction. As Charlie mentioned, we are focusing on inventory reduction, we did talk about the payments from the government, it's really the timing of that associated with the new contract that we just recently entered with them. That will be significant contribution to our cash flow for the year. We believe the European AR program that's probably a $50 million to $100 million depending on volumes in Europe that we see there. And we are still in negotiations on that program by the way. Our cash taxes in addition will be significantly less in our fiscal '09 than they were in fiscal '08 as we made estimated payments throughout the year on an annualized basis using early fiscal '08 higher annualized earnings so you can imagine that we are in a prepayment position with our taxes as we exit fiscal '08. And then also if you look at our cash line we ended up with cash balance at the end of September approximately $40 million higher than we normally would carry and that just related to the timing of getting some cash in at the end of the quarter. And that will also we believe translate into debt reduction in fiscal 2009. Alex Blanton - Ingalls & Snyder LLC: What about the inventory part?

It's probably in the range of another $100 million, would be I guess. Alex Blanton - Ingalls & Snyder LLC: Okay. Now the second part of the... or my follow-up is on the inventory. You had quite a big inventory reduction in fiscal '08. I think you said $241 million?

That was in that fourth quarter. Alex Blanton - Ingalls & Snyder LLC: Yes, well. What was the year-over-year in figure?

Actually, year-over-year our inventory was higher by about $30 million. So, again as we enter a time of weaker economic conditions, we had higher inventories so we think we have opportunity there. Alex Blanton - Ingalls & Snyder LLC: Yes, so was a seasonal reduction in the fourth quarter then?

It was more than that Alex. We were very aggressively reducing our production schedules. Alex Blanton - Ingalls & Snyder LLC: Okay. Well it was really... would you stay at this level of inventory going forward, this can be a permanent saving?

Alex, its certainly going to be a saving through the down turn. Any kind of inventory reduction that you see I think in the next few months is something we will sustain until there is an up turn. Alex Blanton - Ingalls & Snyder LLC: Okay, thank you.

Our next question comes from Walt Liptak with Barrington Research. Please state your question.

Hi, thanks, good morning everyone.

Hi, Walt.

My question is similar to the last one I wonder if you can talk in a little bit more detail about the... where the debt reduction is coming from in the first quarter and break it up by the various components?

Walt, a large driver of that will be the payments from the government that we anticipate in association with the FHTV contract extension that we signed.

To give you some color Walt we are producing already in a large number of the vehicles under the HEMTT A3 and many of the... much of the inventory was purchased pre-contract signing. So we do have some sort of pent up availability for performance based payments under that contract. So we'll drive more cash flow in Q1.

Okay. Got it, and then just as a follow-on you mentioned that you had discussions with banks. Obviously, the plan that you are talking to us about you have already talked about with the bank groups and I wonder if you could update us with, if you were to amend the credit today. What will be the numbers in terms of a fee and higher interest rate you would be looking at versus some time in the future when the credit markets start to improve?

Well, we haven't talk to them about what it would cost because we are not in a position that we need to do it today. I mean we are planning working to the plan to avoid having to amend in fiscal 2009 and that's really our focus.

Okay, if I just could ask one more, Bob mentioned, the pause that's happened in the business because of the banking crises. I wonder if you could calibrate that for us. You make an assumption that there's going to be an improvement in the banking crises, may be this is a tough question but how would you calibrate that or you expecting the lending to start up again in a month or two months or the beginning of next year, how did you come to the... put that assumption into your guidance?

Go ahead, Dave.

Well, I think the way we look at it is what's occurred over the past months, it's been extreme, a lot of people have been shocked I think and as a result they are taking a pause to see where this thing plays out. I don't think we correlated to an actual number or any metric or indices out there. I think its just an overall sense that liquidity will return to the credit markets, lending will occur, people will be able to get the funds they need to go ahead and work on the projects or acquire the equipment that they need, just some sense of stability overall that leads us to... that's what we are looking for.

Okay, okay thanks guys.

Our next question comes from Jerry Revich with Goldman Sachs. Please state your question.

Thank you, good morning.

Good morning.

Your fire and emergency segment guidance assumes some strong margin expansion despite anticipated volume declines like share, can you please step us through the drivers?

Yes, the largest driver would really be a mix between businesses in that segment, we'll continue to have we believe strong performance from our Pierce and airport products group and they'll account for a larger percentage of the sales out of that segment with continued weakness at other businesses in that segment. And the other piece of that would be some of the cost reduction activities that we are implementing throughout the company.

And can you give us some more color on that cost cutting programs, in particular can you quantify the savings that you expect next year by segment if possible and what kind of charges or cost with those programs should we expect?

We did note and already incur in the fourth quarter severance charges related with headcount reduction actions that we undertook in the fourth fiscal quarter. And we don't anticipate significant additional cost associated with implementing the remainder of the cost reductions in fiscal 2009. As it relates to segment or by segment, we aren't prepared to give that out.

What about the total company?

We mentioned approximately $100 million.

And just a clarifying question that if the cost of the securitization facility that you mentioned $50 million to $100 million is that included in your corporate expense guidance?

Yes, it is.

Okay. Thank you.

Our next question comes from Robert McCarthy with Robert W. Baird. Please state your question. Robert F. McCarthy - Robert W. Baird & Co.: Good morning, gentlemen.

Good morning. Hi, Rob. Robert F. McCarthy - Robert W. Baird & Co.: The announcement on the new FHTV contract specifies that you have a release for an initial $1.2 billion, can you give us some kind of I guess measuring stick to understand, is that the '09 impact, is it impossible to say when that will be shift? Can you characterize how big the total contract ought to be worth at the stated number of vehicles, so is there anything you can do to help us understand how this is going to show up in your numbers?

Rob I'll... a fair chunk of this will be FY09 revenue for us as Charlie mentioned, we'd previously been building units for the new contract without even a contract in place. This is a first order obviously; under the new contract we anticipate after the next President's budget is awarded that there will be additional contracts with... that will take us into a contract award that will take us into fiscal 2010.

We think... go ahead.

No,that's all. Robert F. McCarthy - Robert W. Baird & Co.: Okay. So there is or I am not clear. Is there is or there is not a likelihood that or chance that this number goes up in terms of its '09 impact?

I don't know that we have enough visibility Rob into what the next President's budget will have in it. What I would say is the estimated numbers that we have provided today do include just our defense segment's view of what they will get in '09 from the contract and would anticipate the award that we received on Friday. Robert F. McCarthy - Robert W. Baird & Co.: Yes, okay. And then my other question has to do with is a follow-up actually to the question you had on cost reduction initiatives and their cost. I hear the answer that you don't expect material incremental cost going forward, yet I believe Bob's remarks spoke specifically about the likely necessity for further cuts based on the events over the last few weeks, can you... I mean it appeared to be a little bit conflict to each other, can you help me understand how they are not?

Well, Rob what we talked about was 10% reduction of all $7 million; it's not a material number. Yes, there will be some additional changes and I'd have to think that it'll be less in that in terms of severance cost. Robert F. McCarthy - Robert W. Baird & Co.: Okay. Thank you.

Our next question comes from Jamie Cook with Credit Suisse Group. Please state your question.

Hi, good morning, it's actually Jose Becker [ph] in for Jamie. Have a quick question regarding your backlog; specifically on access equipment; so are you seeing any cancellations and the backlog that you have in there for the JLG segment; how firm are these orders, do you see any risk of cancellations?

This is Charlie, yes we have had cancellations, and particularly in October we had some in Europe. But we think that our forecast or estimates for Q1 still hold. And for the year it will largely depend on if we have some stabilization equity in credit markets come January.

Okay. And then in your prepared remarks you also mentioned in fire and emergency that you had some cost on a work stoppage, do you care to quantify how much that impacted you?

Probably on a couple of million dollars.

Okay. Thank you very much.

Our next question comes from Steve Barger with KeyBanc Capital Markets. Please state your question.

Hi, good morning.

Good morning, Steve.

I know you are projecting a loss at JLG in the first quarter but can you give us an indication for the sales decline in 1Q relative to the expected for your decline of 30% and can you give us an operating margin range for that first quarter?

The sales we would have expected JLG in the first quarter, the percentage decline would be higher than the full year and I'm sorry what was the second part of the question?

Range of operating margins in the context of the loss?

We are not going to that, its just... we're acknowledging that we will expect, we are expecting that we're going to have a loss in the segment.

Okay. Second question, you are exiting FY08 with a $48 million interest expense, annualized a $192 million, if you are planning on reducing debt by $500 million and a lot of that's going to come in the first part of the year. Can you talk about your assumptions that get you to the $180 million in interest expenses? Is there any change to the interest rate?

The interest rate that we have in there, I don't have that at my finger tips Steve but one thing I will mention is that along with the prepayment of the principal. We do have to write-off part of the amortization that we write-off some of the finance fees that we capitalized upon entering into the credit agreement itself. So that probably is part of the piece that you may be missing there.

All right, thanks.

Our next comes from Seth Weber with Banc of America Securities. Please state your question.

Hi, thanks. Good morning, everybody. First just a clarification, how much of the fire and emergency revenue slipped from the third quarter fourth quarter that contributed to the gain there or to the growth there?

It was probably... it was I think in close to probably $10 million to $20 million, it was a fairly large couple of orders internationally that we had moved from third to fourth quarter.

Okay, thanks. And then on the... just going back to the backlog discussion, on the fire and emergency and the commercial segments, I mean how much of the sequential decline there was just related to seasonal order patterns and can you talk about whether how secure that backlog is for those two segments, whether you take deposits in those two areas are not?

The backlog in fire and emergency is generally very strong. We do take deposits. If we have one cancellation of a fire truck order one every couple of years, I mean that will be pretty significant for us. And in our commercial segment, the backlog that we have is largely with the big waste haulers, and they've repeatedly talked about strong spending for fiscal 2009. I think our backlog is relatively secure in both of those. What was your other question?

Just... so it sounds like most of the sequential decline was just a seasonal order pattern versus can things getting pulled out of the or above?

For those two segments, yes.

Right, okay. And then just a follow-up on the JLG business, is it my understanding... so your are suggesting that the customers are willing to take your... its your assumption that the customers are going to be willing to take the 7% or 7.5% price increase starting next year, is that your assumption?

Well, the assumption is yes that they do understand that what's happened to the cost structure and any of these, it's a negotiation and I can't say that any customer particularly in the time of an economic downturn is willingly going to accept or increase this real easily. But we do believe that across the board machines and equipment segment, sectors people have been raising prices, they've been able to achieve those price increases and there is no reason that we can't in our area as well.

Okay. And is there any point next year where you think you might get a benefit from declining steel costs?

Well, at this point, the declining cost structure isn't that significant and but obviously we and everyone else would like see cost structures coming down.

Okay, thank you.

Our next question comes from Charlie Brady with BMO Capital Markets. Please state your question.

Thanks. Just with regards to the tax credit, there is a full 12 months, you have got on current Q1. Can you give us a sense of what that can do to the tax rate in Q1?

Charlie, its we are expecting a loss in Q1 so its kind of its a little abnormal I guess what I would say is it's probably $2.5 million to $3 million of tax benefit in the first quarter as we catch up due to the change in the tax law.

Okay, thanks. And just in regards of foreign exchange I am just so unclear, your forecast embed foreign exchange rate on the euro primarily at what timeframe at the end of September or currently right now?

Actually, it's more current than at the end of September. So we are factoring in the lower or significantly stronger dollar that we've seen over the last month.

Okay, thanks very much.

Our next question comes from Alex Blanton with Ingalls & Snyder. Please state your question. Alex Blanton - Ingalls & Snyder LLC: Thanks. Is it possible for you to just give us a little clear idea of how you calculate the covenant? I know that you have to meet requirement of 4.25 debt over EBITDA in 2009, but is it vary by quarter?

No, it's 4.25 times through each of the four quarters Alex. Alex Blanton - Ingalls & Snyder LLC: Okay. But how do you calculate the debt part of it?

Its balance sheet debt and we add to that there are guarantees that we have of third parties obligations generally through some of the funding arrangements we have in our access equipment segment. And a portion of the obligation that we have there is considered an add back to the balance sheet debt. Normally it runs from anywhere $50 million to $60 million of an add back on a quarter-to-quarter basis. Alex Blanton - Ingalls & Snyder LLC: Is that off balance sheet?

Yes. Alex Blanton - Ingalls & Snyder LLC: Kinds of things, JLG always had that of course?

Correct. Alex Blanton - Ingalls & Snyder LLC: It's nil in Europe I understand. What about the short-term part. We just look at long-term debt at the $50 million or $60 million or?

No, its total balance sheet debt. Alex Blanton - Ingalls & Snyder LLC: Okay. So that includes the short-term debt as well?

Correct. Alex Blanton - Ingalls & Snyder LLC: Okay. And it's... at end of the quarter you calculate this or the entire year how do you?

It's the debt balance at the end of the each quarter and then on the EBITDA, it is starting with net income and adding back. So it does capture a number of things below the operating income line. In addition to the depreciation and amortization, it would also include non-cash stock-based compensation add back, it will include an add back for things like LIFO etcetera, and that is also calculated or that's calculated on a trailing 12 month basis each quarter. Alex Blanton - Ingalls & Snyder LLC: Okay. So this is a quarterly debt... quarterly last 12 months with those add backs. Okay, thank you.

Operator we'll take one more question.

Sure one more Pat.

Thank you. Our final question comes from Robert McCarthy with Robert W. Baird. Please state your question. Robert F. McCarthy - Robert W. Baird & Co.: I am sorry guys; it's a mostly detailed at this point. I wanted to follow-up on currency, can you give us an idea of in terms of the access equipment forecast, how much of the 30% decline in revenue is a factor of adverse currency and what kind of impact do you assume on your margins on a year-to-year basis?

Year-over-year on the margins Rob, it's somewhere in that 200 to 250 basis point range. Robert F. McCarthy - Robert W. Baird & Co.: Okay.

On the top-line, that number I don't have right handy with me, can I have Pat get back to you on that one? Robert F. McCarthy - Robert W. Baird & Co.: Absolutely. And then similarly in the commercial segment, you are forecasting, your relatively modest sales decline overall, revenue decline I should say, currency of course would be a drag there. So it suggests that closer to flat on a price volume basis, you talk a little about how the pieces add up to that forecast, I gather we are looking for particular year-to-year strength in the refuse business domestically offsetting declines in concrete placement and European refuse, and can you characterize what's going to be the weakest strongest etcetera?

Yes, we are going to see declines in concrete placement as expected. Our refuse, we are anticipating overall relatively a flat to slightly up, we are going to see some increased sales at our Iowa Mold Tooling business or at least we expect to which will help get us more to that flattish levels on currency. Robert F. McCarthy - Robert W. Baird & Co.: All right, thank you.

Okay, appreciate your answers today. We continue to focus on our customers, there is nothing more important in this company than our customers and meeting their obligations and parts and service and support 24 hours, 7 days a week. We're absolutely focused on reducing working capital and freeing up cash flow, and that's where our heads, our bodies and our minds at this time. We've got a great company with great products. Thanks for your interest. Have a nice day.

Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you all for your participation. .