OSHKOSH CORP (OSK)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

Oshkosh Corporation is a global industrial technology company dedicated to moving the world forward. As an innovator and integrator, we specialize in the design, development and manufacturing of purpose-built vehicles and equipment, serving everyday heroes. The Company is an innovator, developing and leveraging disruptive technologies across our portfolio in the areas of electrification, autonomy and connectivity, making some of the most challenging jobs in the world safe, smart, connected, quiet, clean and productive — delivering both efficiency and impact. The Company is a leading global designer and manufacturer of aerial work platforms under the “JLG” brand name. The Company is among the worldwide leaders in the design and manufacturing of telehandlers under the “JLG” and “SkyTrak” brand names. Under the “Jerr-Dan” brand name, the Company is a leading domestic designer and manufacturer of towing and recovery equipment. Under the “Pierce” and "Maxi-Metal" brand names, the Company is among the leading global designers and manufacturers of municipal fire trucks assembled on both custom and commercial chassis. Under the “Jetway,” brand name, the Company is one of the leading global designers and manufacturers of aircraft passenger boarding bridges. Under the “Commander,” “LEKTRO” and "Tempest" brand names, the Company is one of the leading global designers and manufacturers of airport ground support equipment. The Company designs and manufactures Aircraft Rescue and Firefighting (ARFF) vehicles under the “Oshkosh” brand name. Under the “McNeilus” brand name, the Company designs and manufactures a wide range of automated, rear, front, side and top loading refuse and recycling collection vehicles. Under the “IMT” brand name, the Company is a leading domestic designer and manufacturer of field service vehicles and truck-mounted cranes. Under the “Frontline” brand name, the Company is a leading domestic designer, manufacturer and marketer of command vehicles. Under the “Oshkosh” brand name, the Company designs and manufactures front-discharge concrete mixers. The Company manufactures defense trucks under the “Oshkosh” brand name and is a leading designer and manufacturer of severe-duty, tactical wheeled vehicles for the U.S. Department of Defense (DoD) and other militaries. The Company also designs and manufactures delivery vehicles for the United States Postal Service (USPS) under the “Oshkosh” brand name.

Major products manufactured and marketed by each of the Company’s business segments are as follows:

Access — aerial work platforms and telehandlers used in a wide variety of construction, industrial, agricultural, vegetation management and maintenance applications to position workers and materials at elevated heights. Access customers include equipment rental companies, construction contractors, manufacturing companies and home improvement centers. The Access segment also manufactures carriers and wreckers sold to towing companies.

Vocational — custom and commercial firefighting vehicles and equipment; aviation ground support products, gate equipment and airport services provided to commercial airlines, airports, air-freight carriers, ground handling customers and the military; aircraft rescue and firefighting (ARFF) vehicles; refuse and recycling collection vehicles sold to commercial and municipal waste haulers; field service vehicles and truck-mounted cranes sold to mining, construction and other companies; simulators, mobile command and control vehicles and other emergency vehicles primarily sold to fire departments, airports and other governmental units and front-discharge concrete mixers sold to ready-mix companies.

Defense — tactical vehicles, trailers, weapons system integration and parts sold to the U.S. military and to other militaries around the world and delivery vehicles for the United States Postal Service (USPS).

All estimates referred to in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” refer to the Company’s estimates as of February 20, 2025.

BASIS OF PRESENTATION

In July 2024, the Company moved the reporting responsibility for Pratt Miller from its Defense segment to the Chief Technology and Strategic Sourcing Officer to better utilize Pratt Miller’s expertise across the entire Oshkosh Corporation enterprise. Pratt Miller results are now reported within "Corporate and other." All historical information has been recast to reflect this change.

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OVERVIEW

The Company delivered another successful year in 2024, demonstrating significant progress in its strategy to drive meaningful growth across the Company's businesses and to position Oshkosh for long-term success and shareholder value creation. Net sales grew in each of the Company's segments during the year, led by the Vocational segment. The Company also significantly improved profitability during the year, delivering operating income of $1.01 billion, or 9.4% of sales, in 2024, compared to $0.84 billion, or 8.7% of sales, in 2023. Diluted earnings per share also increased 14% to $10.35 per share.

The Company's success in 2024 was also highlighted by its progress on strategic priorities, each of which advances the Company's purpose — to make a difference in the lives of those who build, serve and protect communities across the globe. In April 2024, the Company reached a significant milestone in its partnership with the USPS as the Company began shipping its Next Generation Delivery Vehicle (NGDV). The Company expects to increase NGDV production throughout 2025 to reach full rate production by the start of 2026. The NGDV program is expected to be a meaningful contributor to profitable growth for the remainder of the decade. In addition to NGDV, Oshkosh also expanded its product portfolio by launching its all-electric, fully integrated Volterra refuse and recycling vehicles. Oshkosh showcased these innovative products and its technology for everyday heroes during its inaugural appearance at the CES trade show in January 2025.

The Company also focused on its strategic acquisitions. The Vocational segment continued the integration of its AeroTech business, and AeroTech contributed meaningfully to the Company's growth and broadened the end markets that the Company serves. The strategic acquisition of AeroTech increased the Company's participation in the attractive air transportation support market, an industry that continues to have strong secular growth projections. The Company also completed the acquisition of AUSACORP S.L. (AUSA), a European manufacturer of specialty equipment including wheeled dumpers, rough terrain forklifts and telehandlers, for $114.5 million during the third quarter of 2024. The acquisition supports the Company's accelerated growth strategy, strengthens the Access segment's equipment portfolio and enhances the Company's ability to serve customers globally. AUSA is a market leader in Spain, which serves adjacent new markets for Oshkosh, including vegetation management, expands the Company's agricultural presence and complements the Access segment's traditional access equipment markets.

Oshkosh also continued investing in growth through capital expenditures of $281 million, which included continued investment in the Company's production capabilities at its facilities in Tennessee and South Carolina. The Company also invested $169 million in research and development, an increase of nearly 30% compared to the previous year. Oshkosh believes these investments help to position the Company for long-term success and shareholder value creation.

The Company announced an increase in its quarterly dividend rate of 10.9%, to $0.51 per share, beginning in the first quarter of 2025. This was the Company’s eleventh straight year of a double-digit percentage increase to its dividend rate.

2025 OUTLOOK

The Company estimates consolidated sales will be approximately $10.6 billion in 2025, compared to $10.7 billion in 2024. The Company expects consolidated operating income will be approximately $990 million, resulting in diluted earnings per share of approximately $10.30. Included in the Company's expectations is amortization of intangible assets of approximately $60 million, or $0.70 per share. Excluding amortization of intangible assets, the Company expects adjusted diluted earnings per share to be approximately $11.00. The Company's estimates assume that present levels of tariff rates, raw material prices and supply chain performance continue into 2025 without significant disruption.

The Company expects Access segment sales will be approximately $4.4 billion in 2025, a decrease of approximately 15% compared to 2024 sales reflecting market conditions in North America and Europe and conclusion of the agreement to produce Caterpillar-branded telehandlers. The Company expects operating margin in the Access segment in 2025 will be approximately 12.5%, down from 15.6% in 2024 as a result of adverse sales mix and the impact of lower sales levels on fixed costs.

The Company expects Vocational segment sales of approximately $3.8 billion in 2025, an increase of approximately 15% compared to 2024 sales reflecting expected increases in production volume and pricing. The Company expects Vocational segment operating margin in 2025 will be approximately 14.0%, compared to 12.0% in 2024. The segment's operating margin is expected to increase in 2025 as a result of expected continued favorable price/cost dynamics. Customer orders in backlog for delivery in 2025 were booked at significantly higher prices.

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The Company expects Defense segment sales will be approximately $2.3 billion in 2025, an increase of approximately 7% compared to 2024 sales. The Company's estimates reflect the expected ramp-up of NGDV production, offset in part by the completion of production on the domestic Joint Light Tactical Vehicle (JLTV) contract in early 2025. The Company expects Defense segment operating margin will be approximately 4.0% in 2025, compared to 2.4% in 2024, as a result of lower adverse cumulative catch-up adjustments and the ramp-up of NGDV production.

The Company estimates corporate and other costs in 2025 will be approximately $185 million. The Company estimates net interest expense will be approximately $120 million in 2025, compared to $112 million in 2024. The Company estimates the tax rate for 2025 will be approximately 23.5% and the average share count will be approximately 65.0 million shares.

The Company expects earnings per share in the first quarter of 2025 will be approximately $1.75, reflecting the Company's expectations for softness and seasonality in the access equipment markets.

RESULTS OF OPERATIONS- 2024 COMPARED WITH 2023

CONSOLIDATED RESULTS

The following table presents consolidated results (in millions):

The following table presents net sales by geographic region based on product shipment destination (in millions):

Consolidated sales increased as a result of higher organic volume in all three segments ($544 million), the inclusion of sales related to the AeroTech and AUSA acquisitions ($473 million) and higher pricing ($166 million), partially offset by the impact of the sale of the rear-discharge concrete mixer business ($65 million) and changes in cumulative catch-up adjustments on contracts in the Defense segment ($48 million).

The increase in consolidated gross margin was due to improved pricing (120 basis points), offset in part by changes in cumulative catch-up adjustments on contracts in the Defense segment (50 basis points).

The increase in consolidated selling, general and administrative expenses was primarily a result of operating costs related to acquired businesses ($52 million), offset in part by lower incentive compensation costs ($14 million).

Amortization of purchased intangible assets increased primarily due to the acquisitions of AeroTech in August 2023 and AUSA in September 2024.

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Intangible asset impairment charges relate to the impairments of intangible assets at Pratt Miller recognized in the second quarter of 2024 as a result of unfavorable performance compared to forecast and adverse market conditions related to mobility and motorsports leading to a decline in the Company's expectations of future performance.

The increase in consolidated operating income was primarily due to improved pricing ($166 million), the impact of higher gross margin associated with higher sales volume ($134 million) and improved sales mix ($63 million), partially offset by intangible asset impairments ($52 million), the impact of changes in cumulative catch-up adjustments on contracts ($50 million), higher engineering costs ($47 million) and higher production costs ($43 million).

The following table presents consolidated non-operating changes (in millions):

Interest expense, net of interest income increased due to increased borrowings on the Revolving Credit Facility (as defined in "Liquidity") primarily to fund the acquisitions of AeroTech in August 2023 and AUSA in September 2024.

Miscellaneous, net includes gains and losses on investments, net foreign currency transaction gains and losses, and non-service costs of the Company’s pension plans. Miscellaneous income, net decreased primarily due to changes in foreign currency transactions ($8 million) and the recognition of a gain on a settlement with the Company's pension advisor in 2023 ($5 million).

The lower effective tax rate in 2024 as compared to 2023 is the result of a higher foreign-derived intangible income deduction due to higher export sales. See Note 7 of the Notes to Consolidated Financial Statements for a reconciliation of the effective tax rate compared to the U.S. statutory tax rate.

Losses of unconsolidated affiliates primarily represented changes in the Company’s equity method investments. During 2024, the Company recorded an impairment of an equity method investment of $7 million. During 2023, the Company wrote down its investment in an equity interest in an entity in Mexico by $6 million based on the estimated fair market value of the entity and subsequently completed the sale of its interest in the entity, resulting in an additional loss of $2 million.

SEGMENT RESULTS

Access

The following table presents the Access segment results (in millions):

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Access segment sales increased primarily as a result of improved sales volume in North America ($277 million) and the inclusion of sales related to the AUSA acquisition ($44 million), offset in part by lower sales volume in the Europe, Africa and Middle East ($103 million) and Rest of the World ($43 million) regions. The Company's long-term license agreement with Caterpillar Inc. to produce Caterpillar branded telehandlers ended in the fourth quarter of 2024. Caterpillar-branded telehandlers accounted for $315.4 million in sales in 2024.

The increase in Access segment gross margin was primarily due to improved product and customer mix (80 basis points).

The increase in Access segment selling, general and administrative expenses was generally a result of higher spending on outside services ($16 million), higher salaries ($11 million) and the inclusion of operating costs related to AUSA ($4 million), offset in part by lower incentive compensation costs ($8 million).

Amortization of purchased intangible assets increased primarily due to the acquisition of AUSA.

The increase in Access segment operating income was primarily due to improved sales mix ($48 million), the impact of higher gross margin associated with higher sales volume ($33 million), favorable absorption ($15 million) and lower litigation costs ($10 million), offset in part by higher selling, general and administrative expenses to support higher sales volume ($24 million) and higher engineering costs ($21 million).

Vocational

The following table presents the Vocational segment results (in millions):

Vocational segment sales increased due to the timing of the AeroTech acquisition ($429 million), improved organic sales volume ($212 million) and improved pricing in response to higher input costs ($160 million), offset in part by the impact of the sale of the rear-discharge concrete mixer business in the first quarter of 2023 ($65 million).

The increase in gross margin in the Vocational segment was primarily attributable to improved pricing.

The increase in Vocational segment selling, general and administrative expenses was generally a result of incremental operating costs related to the timing of the AeroTech acquisition ($48 million), offset in part by the absence of the loss on the sale of the rear-discharge concrete mixer business ($13 million), the absence of acquisition costs related to AeroTech ($13 million) and net gains related to the sale of its sales and service locations to dealers in conjunction with its change to a dealer network in North America ($8 million).

Amortization of purchased intangible assets increased primarily due to the acquisition of AeroTech.

The increase in operating income in the Vocational segment was primarily due to improved pricing ($160 million), the impact of higher gross margin associated with higher sales volume ($55 million), improved product mix ($31 million), the absence of the loss on the sale of the rear-discharge concrete mixer business ($13 million) and the absence of acquisition costs related to AeroTech ($13 million), offset in part by higher material costs ($25 million) and adverse production variances ($25 million).

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Defense

The following table presents the Defense segment results (in millions):

Defense segment sales increased primarily due to higher volume ($202 million), partially offset by unfavorable cumulative catch-up adjustments in 2024 compared to favorable cumulative catch-up adjustments in 2023 ($48 million). Higher volume included higher Family of Medium Tactical Vehicles sales ($110 million), the start of low-rate NGDV production for the USPS ($104 million) and higher aftermarket parts ($69 million), offset in part by lower JLTV sales associated with the wind down of the contract ($110 million). The U.S. Army, which purchased Government Purpose Rights to the Oshkosh JLTV design, conducted a full and open competition for follow-on JLTV production in which Oshkosh Defense participated. In February 2023, the DoD awarded the JLTV follow-on contract to another company. The Company expects to finish production of domestic JLTVs in early 2025. The JLTV contract accounted for $860 million of sales in 2024.

The decrease in gross margin in the Defense segment was primarily due to changes in cumulative catch-up adjustments on contracts (200 basis points) and adverse production variances (60 basis points).

Selling, general and administrative expenses in the Defense segment remained relatively flat in 2024 compared to 2023.

The decrease in operating income in the Defense segment was primarily a result of the impact of changes in cumulative catch-up adjustments on contracts ($50 million) and adverse production variances ($15 million), offset in part by the impact of higher gross margin associated with higher sales volume ($30 million). Changes in estimates on contracts accounted for under the cost-to-cost method resulted in cumulative catch-up adjustments on contract margins that decreased Defense segment operating income by $46.9 million in 2024 primarily as a result of significant costs to prepare units for acceptance and receiving orders that required loss reserves. Changes in estimates on contracts accounted for under the cost-to-cost method increased Defense segment operating income by $2.8 million in 2023.

Corporate and other

The following table presents corporate and other results (in millions):

Net operating costs for corporate and other increased primarily due to the intangible asset impairments in the second quarter of 2024 at Pratt Miller ($52 million), higher share-based compensation expenses ($6 million), lower operating results at Pratt Miller ($6 million) and higher new product development investments ($5 million).

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2023 COMPARED WITH 2022

The comparison of the year ended December 31, 2023 results with the year ended December 31, 2022 results can be found in the “Management’s Discussion and Analysis” section in the Company’s 2023 Annual Report on Form 10-K.

LIQUIDITY AND CAPITAL RESOURCES

The Company generates significant capital resources from operating activities, which is the expected primary source of funding for the Company. The Company expects cash flow from operations to be between $550 million and $650 million in 2025. In addition to cash generated from operations, the Company had other sources of liquidity available at December 31, 2024, including $204.9 million of cash and cash equivalents and $1.16 billion of unused available capacity under the Revolving Credit Facility (as defined in “Liquidity”). Borrowings under the Revolving Credit Facility could, as discussed below, be limited by a financial covenant contained in the Credit Agreement (as defined in “Liquidity”). The Company was in compliance and expects to remain in compliance with the financial covenant contained in the Credit Agreement.

The Company continues to actively monitor its liquidity position and working capital needs and prioritizes capital expenditures related to capacity and strategic investments. The Company believes that its liquidity position is adequate to meet its projected needs. To provide additional flexibility for working capital needs, organic and inorganic investments as well as share repurchases, the Company amended the Credit Agreement in April 2024 to increase the maximum aggregate amount of availability under the Revolving Credit Facility by $450 million to $1.55 billion.

Financial Condition at December 31, 2024

The Company’s capitalization was as follows (in millions):

The Company’s ratio of debt to total capitalization of 18.8% at December 31, 2024 remained within its targeted range. The increase in the debt to total capitalization compared to December 31, 2023 was primarily due to the acquisition of AUSA.

The Company’s goal is to maintain an investment-grade credit rating. The rating agencies periodically update the Company’s credit ratings as events or changes in economic conditions occur. At December 31, 2024, the long-term credit ratings assigned to the Company’s senior debt securities by the credit rating agencies engaged by the Company were as follows:

Consolidated days sales outstanding (defined as “Trade Receivables” at quarter end divided by “Net Sales” for the most recent quarter multiplied by 90 days) was 40 days at December 31, 2024, down from 44 days at December 31, 2023. Days sales outstanding for segments other than the Defense segment was 44 days at December 31, 2024, down from 49 days at December 31, 2023, primarily due to the impact of sales mix on average payment terms in the Access segment. Consolidated inventory turns (defined as “Cost of Sales” on an annualized basis, divided by the average “Inventory” at the past five quarter end periods) decreased from 4.2 times at December 31, 2023 to 3.9 times at December 31, 2024, primarily due to increases in inventory levels in the Vocational and Access segments. Consolidated days payables outstanding (defined as “Accounts Payable” at quarter end divided by material costs of sales for the most recent quarter multiplied by 90 days) was 65 days, down from 72 days at December 31, 2023, primarily due to the timing of cash disbursements.

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Operating Cash Flows

Operating activities provided $550.1 million of cash in 2024 compared to $599.6 million in 2023. Cash used in operations in 2024 included cash paid for income taxes, net of refunds of $398.5 million, which increased by $236.8 million compared to 2023 primarily due to the Company's generation of significantly higher pre-tax income in 2023 compared to 2022. Cash used in operations during 2024 included the payment of 2023 incentive compensation, which was higher than 2022 incentive compensation due to the Company's improved performance.

Investing Cash Flows

Investing activities used cash of $388.8 million in 2024 compared to $1.29 billion in 2023. The Company used $113.5 million to fund the acquisition of AUSA in 2024 compared to $995.8 million to fund the acquisitions of AeroTech and Hinowa during 2023. Additions to property, plant and equipment of $281.0 million in 2024 decreased $44.3 million from 2023. The Company anticipates that it will spend $250 million on capital expenditures in 2025. Capital expenditures remains elevated due to efforts to expand production capacity in the Vocational segment.

Financing Cash Flows

Financing activities used cash of $75.1 million in 2024 compared to provided cash of $3.4 million in 2023. In 2024, the Company repurchased 1,058,474 shares of its Common Stock at an aggregate cost of $116.0 million. The Company's Board of Directors authorized the repurchase of 12 million shares in May 2022, of which approximately 10.2 million shares remained as of December 31, 2024. In 2023, the Company repurchased 265,795 shares of its Common Stock at an aggregate cost of $22.5 million.

Liquidity

Senior Credit Agreement

On March 23, 2022, the Company entered into a Third Amended and Restated Credit Agreement (the “Credit Agreement”). The Credit Agreement provides for an unsecured revolving credit facility (the “Revolving Credit Facility”) that matures in March 2027 with an initial maximum aggregate amount of availability of $1.10 billion. On April 3, 2024, the Company amended the Credit Agreement to increase the maximum aggregate amount of availability under the Revolving Credit Facility by $450 million to $1.55 billion. At December 31, 2024, borrowings under the Revolving Credit Facility of $360.0 million and specified outstanding letters of credit of $26.3 million reduced available capacity under the Revolving Credit Facility to $1.16 billion.

Under the Credit Agreement, the Company is obligated to pay (i) an unused commitment fee ranging from 0.080% to 0.225% per annum of the average daily unused portion of the aggregate revolving credit commitments under the Credit Agreement and (ii) a fee ranging from 0.4375% to 1.500% per annum of the maximum amount available to be drawn for each letter of credit issued and outstanding under the Credit Agreement.

Covenant Compliance

The Credit Agreement contains various restrictions and covenants, including a requirement that the Company maintain a leverage ratio at certain levels, subject to certain exceptions, restrictions on the ability of the Company and certain of its subsidiaries to consolidate or merge, create liens, incur additional subsidiary indebtedness and consummate acquisitions and a restriction on the disposition of all or substantially all of the assets of the Company and its subsidiaries taken as a whole. The Company was in compliance with the financial covenant contained in the Credit Agreement as of December 31, 2024 and expects to be able to meet the financial covenant contained in the Credit Agreement over the next twelve months.

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Senior Notes

In May 2018, the Company issued $300.0 million of 4.60% unsecured senior notes due May 15, 2028 (the “2028 Senior Notes”). In February 2020, the Company issued $300.0 million of 3.10% unsecured senior notes due March 1, 2030 (the “2030 Senior Notes”). The 2028 Senior Notes and the 2030 Senior Notes were issued pursuant to an indenture (the “Indenture”) between the Company and a trustee. The Indenture contains customary affirmative and negative covenants. The Company has the option to redeem the 2028 and 2030 Senior Notes at any time for a premium.

Refer to Note 16 of the Notes to Consolidated Financial Statements for additional information regarding the Company’s debt as of December 31, 2024.

Contractual Obligations

The total amount of gross unrecognized tax benefits, including interest, for uncertain tax positions was $61.6 million as of December 31, 2024. Future settlements with tax authorities could result in payment of these obligations. Due to the difficulty in determining the timing of such settlements, these obligations are not included in the summary of the Company’s fixed contractual obligations. See Note 7 of the Notes to Consolidated Financial Statements for additional information regarding the Company’s unrecognized tax benefits as of December 31, 2024. Following is a summary of the Company’s contractual obligations and payments due by period following December 31, 2024 (in millions):

(1)
Interest was calculated based upon the interest rate in effect on December 31, 2024.

(2)
The amounts for purchase obligations included above represent all obligations to purchase goods or services under agreements that are enforceable and legally binding and that specify all significant terms.

(3)
Represents other non-current liabilities on the Company’s Consolidated Balance Sheet, including the current portion of these liabilities. The projected timing of cash flows associated with these obligations is based on management’s estimates, which are based largely on historical experience. This amount also includes all liabilities under the Company’s pension and other post-employment benefit plans. See Note 6 of the Notes to Consolidated Financial Statements for information regarding these liabilities and the plan assets available to satisfy them.

CRITICAL ACCOUNTING ESTIMATES

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” is based on the Company’s Consolidated Financial Statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America (U.S. GAAP). The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and judgments that affect reported amounts and related disclosures. On an ongoing basis, management evaluates and updates its estimates. Management employs judgment in making its estimates but they are based on historical experience and currently available information and various other assumptions that the Company believes to be reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily available from other sources. Actual results could differ from those estimates.

Management believes that its judgment is applied consistently and produces financial information that fairly depicts the results of operations for all periods presented.

Estimate-at-Completion (EAC). The Company has concluded that control of substantially all of the Defense segment’s performance obligations transfers to the customer continuously and therefore revenue is recognized over time. The Defense segment recognizes revenue on its performance obligations that are satisfied over time by measuring progress using the cost-to-cost method of percentage-of-completion because it best depicts the transfer of control to the customer. Under the cost-to-cost method of percentage-of-completion, the Defense segment measures progress based on the ratio of costs incurred to date

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to total estimated costs for the performance obligations. Due to the size and nature of these contracts, the estimation of total revenues and costs is complex and requires judgment by management. The Company must make assumptions regarding expected increases in wages and employee benefits, productivity and availability of labor, material costs and allocated fixed costs, as well as expected impacts on pricing related to certain economic price adjustment clauses. Each contract is evaluated at contract inception to identify risks and estimate revenue and costs. In performing this evaluation, the Defense segment considers risks of contract performance such as technical requirements, schedule, duration and key contract dependencies. Occasionally, the Company incurs production costs not planned or budgeted, or in excess of its original budget. The Company reviews such costs to determine if they are contributing and proportionate to the Company's progress in satisfying the performance obligation. Costs that are contributing but not proportionate to the Company's progress are reviewed to determine if they meet the definition of learning curve costs, which requires significant judgment. Learning curve costs are included in the cost-to-cost method of percentage-of-completion while costs that do not contribute to the Company's progress in satisfying the performance obligation are considered inefficiencies and expensed as incurred. The above considerations are then factored into the Company’s estimated revenue and costs. If a loss is expected on a performance obligation, the complete estimated loss is recorded in the period in which the loss is identified. Preliminary contract estimates are subject to change throughout the duration of the contract as additional information becomes available that impacts risks and estimated revenue and costs. Changes to production costs, overhead rates, learning curve and/or supplier performance can also impact these estimates. These estimates require significant judgment by management. The Company recognizes changes in estimated sales or costs and the resulting profit or loss on a cumulative basis. In addition, as contract modifications (e.g., new orders) are received, they are evaluated to determine if they represent a separate contract or a modification of the existing contract. As of December 31, 2024, the estimated remaining costs on the NGDV and FMTV A2 contracts represent the majority of the total estimated costs to complete in the Defense segment. Changes in estimates on contracts accounted for under the cost-to-cost method resulted in cumulative catch-up adjustments on contract margins that decreased Defense segment operating income by $46.9 million in 2024, increased operating income by $2.8 million in 2023 and decreased operating income by $45.7 million in 2022.

Goodwill. Goodwill reflects the cost of an acquisition in excess of the aggregate fair value assigned to identifiable net assets acquired. Goodwill is not amortized; however, it is assessed for impairment annually and as triggering events or “indicators of potential impairment” occur. The Company performs its annual impairment test at the beginning of the fourth quarter. The Company evaluates the recoverability of goodwill by estimating the fair value of the businesses to which the goodwill relates. Estimated cash flows and related goodwill are grouped at the reporting unit level. A reporting unit is an operating segment or, under certain circumstances, a component of an operating segment. When a reporting unit's fair value is less than its carrying value, an impairment loss is recognized for the difference between the fair value and carrying value of the reporting unit. The Company had $1.4 billion of goodwill at December 31, 2024.

The Company estimates the fair value of the reporting units utilizing the income approach and the market approach. The income approach is weighted more heavily (75%) as the Company believes the income approach more accurately considers long-term fluctuations in the U.S. and European construction markets compared to the market approach. Under the income approach, the Company estimates fair values based on discounted estimated future cash flows. Future cash flows are estimated based on the Company’s internal projection models, industry projections, terminal growth rates and other assumptions, including the Company's estimates for revenue growth and operating income margins. The Company estimates discounts rates based on the Company’s estimated weighted-average cost of capital, adjusted based on risk, which reflects the overall level of inherent risk of a reporting unit and the rate of return a market participant would expect to earn. Under the market approach, the Company estimates the fair value of its reporting units based on revenue and earnings multiples of comparable publicly traded companies. There are inherent uncertainties related to the Company’s estimates and assumptions and management uses significant judgment in estimating them. In evaluating the fair values of its reporting units, the Company also reconciles its total estimated fair value to within a reasonable range of the Company’s market capitalization.

During the second quarter of 2024, the Company determined that a triggering event occurred at Pratt Miller and assessed the reporting unit for impairment. For the income approach, a discount rate of 13.0% (14.0% at October 1, 2023) and a terminal growth rate of 3.0% (3.0% at October 1, 2023) were used. As a result of the assessment, the Company recorded an impairment charge of $38.7 million in the second quarter of 2024. Changes in estimates or the application of alternative assumptions could have produced significantly different results. At December 31, 2024, the Pratt Miller reporting unit had $5.7 million of goodwill remaining.

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For the annual impairment test, the Company used discount rates, depending on reporting unit, of 13.0% to 17.0% (12.0% to 14.5% at October 1, 2023) and a terminal growth rate of 3.0% (3.0% at October 1, 2023). The Company’s annual impairment assessment indicated that no additional impairments to goodwill were required. The fair value of all but one reporting unit exceeded its carrying value by more than 10%. Changes in estimates or the application of alternative assumptions could have produced significantly different results. For example, an increase in the discount rate of 100 basis points or a decrease in the terminal growth rate of 200 basis points would likely cause impairment of a reporting unit in the Vocational segment. That reporting unit had $262.0 million of goodwill at December 31, 2024. See Note 12 of the Notes to Consolidated Financial Statements for information regarding the Company’s goodwill.

NEW ACCOUNTING STANDARDS

See Note 2 of the Notes to Consolidated Financial Statements regarding the impact or potential impact of recent accounting pronouncements on the Company’s consolidated financial statements.

CUSTOMERS AND BACKLOG

Sales to the U.S. government comprised approximately 20% of the Company’s net sales in 2024. No other single customer accounted for more than 10% of the Company’s net sales for this period. A substantial majority of the Company’s net sales are derived from the fulfillment of customer orders that are received prior to commencing production.

The Company’s backlog as of December 31, 2024 decreased 12.0% to $14.74 billion compared to $16.75 billion at December 31, 2023. Access segment backlog decreased 59.5% to $1.83 billion at December 31, 2024, compared to $4.53 billion at December 31, 2023. The decrease in backlog is believed to primarily be the result of the normalization of orders in connection with improved product availability and slowing demand in North America. Vocational segment backlog increased 15.6% to $6.32 billion at December 31, 2024, compared to $5.46 billion at December 31, 2023, due to strong demand for municipal fire apparatus and price increases. Unit backlog for municipal fire apparatus as of December 31, 2024 was up 3.8% compared to December 31, 2023. Unit backlog for refuse and recycling collection vehicles as of December 31, 2024 was up 5.3% compared to December 31, 2023. Defense segment backlog decreased 2.7% to $6.53 billion at December 31, 2024, compared to $6.71 billion at December 31, 2023, primarily due to the wind-down of production under the Company's domestic JLTV contract.

Backlog represents the dollar amount of revenues that the Company anticipates from customer contracts that have been awarded and/or are in progress. Reported backlog includes the original contract amount and any contract modifications that have been agreed upon. Reported backlog excludes purchase options, orders for which definitive contracts have not been executed and any potential future contract modifications. Backlog is comprised of fixed and variable priced contracts that may be canceled, modified or otherwise changed in the future. As a result, backlog may not be indicative of future operating results. Backlog information and comparisons thereof as of different dates may not be accurate indicators of future sales. Approximately 53% of the Company’s December 31, 2024 backlog is not expected to be filled in 2025.

NON-GAAP FINANCIAL MEASURES

The Company is forecasting earnings per share excluding items that affect comparability. When the Company forecasts earnings per share, excluding items, this is considered a non-GAAP financial measure. The Company believes excluding the impact of these items is useful to investors to allow a more accurate comparison of the Company’s operating performance to prior year results. However, while forecasted adjusted earnings per share excludes amortization of purchased intangibles, revenue and earnings of acquired companies are reflected in forecasted adjusted earnings per share and intangible assets contribute to the generation of revenue and earnings. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company’s results or forecasts prepared in accordance with GAAP. The table below presents a reconciliation of the Company’s presented non-GAAP measure to the most directly comparable GAAP measure:

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

Oshkosh Corporation is an innovative industrial company focused on the design, development and manufacture of purpose-built vehicles and equipment that enhance safety, maximize productivity, lower total cost of ownership and simplify fleet management to support those who perform some of the most difficult jobs in the world. The Company is a leading global designer and manufacturer of aerial work platforms under the “JLG” brand name. The Company is among the worldwide leaders in the design and manufacturing of telehandlers under the “JLG” and “SkyTrak” brand names. Under the “Jerr-Dan” brand name, the Company is a leading domestic designer and manufacturer of towing and recovery equipment. The Company manufactures defense trucks under the “Oshkosh” brand name and is a leading designer and manufacturer of severe-duty, tactical wheeled vehicles for the U.S. Department of Defense (DoD) and other militaries. The Company also designs and manufactures delivery vehicles for the United States Postal Service (USPS) under the “Oshkosh” brand name. Under the “Pierce” and "Maxi-Metal" brand names, the Company is among the leading global designers and manufacturers of fire trucks assembled on both custom and commercial chassis. Under the “Frontline” brand name, the Company is a leading domestic designer, manufacturer and marketer of command vehicles. The Company designs and manufactures Aircraft Rescue and Firefighting (ARFF) vehicles under the “Oshkosh” brand name. Under the “McNeilus” brand name, the Company designs and manufactures a wide range of automated, rear, front, side and top loading refuse collection vehicles. Under the “Oshkosh” brand name, the Company designs and manufactures front-discharge concrete mixers. Under the “IMT” brand name, the Company is a leading domestic designer and manufacturer of field service vehicles and truck-mounted cranes. Under the “Jetway,” brand name, the Company is one of the leading global designers and manufacturers of aircraft passenger boarding bridges. Under the “Commander,” “LEKTRO” and "Tempest" brand names, the Company is one of the leading global designers and manufacturers of airport ground support equipment.

Major products manufactured and marketed by each of the Company’s business segments are as follows:

Access — aerial work platforms and telehandlers used in a wide variety of construction, industrial, institutional and general maintenance applications to position workers and materials at elevated heights, as well as carriers and wreckers. Access products are sold to equipment rental companies, construction contractors, manufacturing companies, home improvement centers and towing companies.

Defense — tactical vehicles, trailers, weapons system integration and parts sold to the U.S. military and to other militaries around the world and delivery vehicles for the USPS.

Vocational — custom and commercial firefighting vehicles and equipment, aircraft rescue and firefighting (ARFF) vehicles, simulators, mobile command and control vehicles and other emergency vehicles primarily sold to fire departments, airports and other governmental units. Refuse collection vehicles sold to commercial and municipal waste haulers. Aviation ground support products, gate equipment and airport services provided to commercial airlines, airports, air-freight carriers, ground handling customers and the military. Front-discharge concrete mixers sold to ready-mix companies. Field service vehicles and truck-mounted cranes sold to mining, construction and other companies.

All estimates referred to in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” refer to the Company’s estimates as of February 29, 2024.

BASIS OF PRESENTATION

In October 2021, the Company’s changed its fiscal year end from September 30 to December 31. Accordingly, the Company reported a transition quarter that ran from October 1, 2021 through December 31, 2021. Fiscal 2021 relates to the year ended September 30, 2021. Fiscal 2022 and 2023 relate to the years ended December 31, 2022 and December 31, 2023, respectively.

OVERVIEW

Fiscal 2023 was a very successful year for the Company, with growth in revenue, operating income and diluted earnings per share. Results for fiscal 2023 significantly exceeded our initial expectations for the year as the Company's initial guidance reflected modest supply chain improvements, which were expected to limit revenues and contribute to production

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inefficiencies. Continued improvements in supply chain conditions, actions the Company has taken to improve production resiliency in a constrained supply environment, improved sales mix and disciplined pricing helped the Company achieve the improved performance. The Company also completed the strategic acquisitions of JBT AeroTech (AeroTech) and Hinowa S.p.A. (Hinowa). These acquisitions advance our purpose — to make a difference in the lives of those who build, serve and protect communities across the globe. Our acquisitions also broaden the end markets that we serve. In particular, we have increased our participation in the attractive air transportation support market with the AeroTech acquisition, an industry with strong secular growth projections. The Company has also made targeted investments in manufacturing capacity in order to meet the growing needs of our customers in the future. During the year, we made significant progress in preparing for the start of production of the Next Generation Delivery Vehicles (NGDV) for the USPS in April 2024.

The Company grew revenues 16.6% in fiscal 2023 compared to fiscal 2022, resulting in diluted earnings per share of $9.08. Earnings per share were significantly higher than earnings per share of $2.63 in fiscal 2022 largely due to improved price/cost dynamics, the impact of higher gross margin associated with higher sales volume, improved mix, favorable cumulative catch-up adjustments in the Defense segment on contracts in fiscal 2023 compared to unfavorable adjustments in fiscal 2022, the absence of a charge of $31.3 million associated with foreign anti-hybrid tax legislation due to comments made by taxing authorities of the applicable jurisdiction in 2022 and the absence of a loss on the settlement of a frozen defined benefit pension plan, offset in part by higher incentive compensation costs and increased operating expenses to support higher sales levels.

Fiscal 2023 results included amortization of intangible assets of $41.7 million, costs related to the acquisition of AeroTech of $12.9 million, a loss on the sale of an equity method investment of $7.8 million, amortization of inventory fair value step-up associated with the AeroTech acquisition of $7.1 million, net gains and losses on the sale of businesses of $5.3 million and restructuring costs of $4.4 million, offset in part by a gain on a settlement with the Company's pension advisor of $4.7 million. In aggregate, these items accounted for a net after-tax charge of $59.2 million, or $0.90 per share, in fiscal 2023. Fiscal 2022 results included a loss of $33.6 million for the settlement of the frozen pension plan, a charge of $18.1 million associated with foreign anti-hybrid tax legislation, amortization of intangible assets of $11.6 million, a charge of $7.7 million for the impairment of intangible assets and a charge of $4.6 million for the release of cumulative translation adjustment losses. In aggregate, these items accounted for a net after-tax charge of $63.7 million, or $0.96 per share, in fiscal 2022.

The Company announced an increase in its quarterly dividend rate of 12.2%, to $0.46 per share, beginning in February 2024. This was the Company’s tenth straight year of a double-digit percentage increase to its dividend rate.

FISCAL 2024 OUTLOOK

The Company estimates consolidated net sales will be in the range of $10.4 billion in fiscal 2024, compared to $9.7 billion in fiscal 2023. The Company expects consolidated operating income will be in the range of $925 million, resulting in diluted earnings per share in the range of $9.45. Included in the Company's expectations is amortization of intangible assets of approximately $65 million, or $0.80 per share. Excluding amortization of intangible assets, the Company expects adjusted diluted earnings per share to be in the range of $10.25.

Demand for the Company's products has remained strong as indicated by order intake of $3.5 billion in the fourth quarter of fiscal 2023, leading to the Company’s record backlog of $16.8 billion on December 31, 2023. The Company’s guidance reflects the full year benefits of the Company's acquisitions completed in 2023, its pricing actions, its investments in growing capacity and incremental supply chain improvements, offset in part by lower JLTV sales and costs associated with preparing for the start of NGDV production.

The Company believes Access segment net sales will be in the range of $5.2 billion in fiscal 2024, a 4% increase compared to fiscal 2023 net sales. The Company experienced order growth in fiscal 2023 that resulted in the Access segment exiting the year largely booked for fiscal 2024. With strong market dynamics and continued normalization of supply chains, the Company expects operating margin in the Access segment in fiscal 2024 will be in the range of 14.8%, consistent with fiscal 2023. Fiscal 2024 operating margin expectation for the Access segment includes an approximate $20 million increase in new product development costs.

The Company expects Defense segment net sales will be in the range of $2.1 billion in fiscal 2024, which is consistent with fiscal 2023 net sales. The Company's expectation reflects lower JLTV volumes, offset by higher Family of Medium Tactical Vehicle

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and Family of Heavy Tactical Vehicle volumes. The Company expects Defense segment operating margin will be in the range of 2.1% in fiscal 2024, down from 4.4% in fiscal 2023. The Company expects unfavorable product mix and NGDV-related start-up costs to account for the lower operating margin in fiscal 2024 as compared to fiscal 2023. The Company expects NGDV first year production start-up costs combined with increased new product development will reduce operating income in the Defense segment by approximately $35 million in fiscal 2024 as compared to fiscal 2023.

The Company expects Vocational segment net sales will be in the range of $3.1 billion in fiscal 2024, an increase of 20% compared to the fiscal 2023 net sales. The Company’s expectation reflects the full year benefit of the AeroTech acquisition, which is expected to contribute approximately $420 million of incremental sales versus fiscal 2023. The Company expects Vocational segment operating margin in fiscal 2024 will be in the range of 9.4% as compared to 7.2% in fiscal 2023. The segment's operating income margin is expected to increase in 2024 as municipal customer orders in backlog for delivery in fiscal 2024 were booked at significantly higher prices.

The Company estimates corporate expenses in fiscal 2024 will be approximately $180 million, with higher new product development investments expected to largely offset lower incentive compensation costs. The Company estimates net interest expense will be approximately $90 million in fiscal 2024 as compared to $53.8 million in fiscal 2023. The Company estimates the tax rate for fiscal 2024 will be approximately 24.5% and the average share count will be approximately 66.2 million shares.

The Company expects consolidated net sales in the first quarter of fiscal 2024 to be in the range of $2.5 billion, consistent with the fourth quarter of fiscal 2023. The Company expects sequential growth in sales and operating income margins in the Access and Vocational segments to be offset by lower Defense sales and operating income margins. The Company expects earnings per share in the first quarter of fiscal 2024 will be in the range of $2.05, reflecting the lower sales and unfavorable mix in the Defense segment, offset in part by the return of incentive compensation costs to target levels.

RESULTS OF OPERATIONS- FISCAL 2023 COMPARED WITH FISCAL 2022

CONSOLIDATED RESULTS

The following table presents consolidated results (in millions):

The following table presents net sales by geographic region based on product shipment destination (in millions):

Consolidated net sales increased as a result of higher consolidated volume ($630 million), higher pricing in response to higher input costs ($401 million) and the inclusion of sales related to acquisitions ($365 million).

The increase in consolidated gross margin was due to improved pricing (320 basis points) and improved sales mix (120 basis points).

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The increase in consolidated selling, general and administrative expenses was generally a result of higher incentive compensation costs ($68 million), operating costs related to acquired businesses ($32 million), increased information technology costs ($15 million), acquisition costs related to AeroTech ($13 million) and increased advertising costs ($11 million).

The increase in consolidated amortization relates to the acquisitions of AeroTech and Hinowa during fiscal 2023.

The increase in consolidated operating income was primarily due to improved price ($401 million), the impact of higher gross margin associated with higher sales volume ($138 million), improved sales mix ($112 million) and the absence of unfavorable cumulative catch-up adjustments on contracts in the Defense segment ($45 million), offset in part by higher incentive compensation costs ($110 million), higher manufacturing costs ($49 million) and increased operating expenses to support higher sales levels in the Access segment ($38 million).

The following table presents consolidated non-operating changes (in millions):

Interest expense, net of interest income increased in fiscal 2023 due to increased borrowings on the Company's revolving credit facility and lower cash holdings as a result of the acquisition of AeroTech.

Miscellaneous, net includes gains and losses on investments, net foreign currency transaction gains and losses, and non-service costs of the Company’s pension plans. Miscellaneous income, net in fiscal 2023 included a gain on a settlement with the Company's pension advisor ($5 million) and gains on foreign currency transactions ($5 million). Miscellaneous expense, net in fiscal 2022 included a loss on the settlement of a frozen pension plan ($34 million), unrealized loss on an investment ($10 million) and losses on foreign currency transactions ($7 million).

Income tax expense in fiscal 2022 included a charge of $31.3 million as the Company revised its interpretation of certain foreign anti-hybrid tax legislation based upon comments from the corresponding taxing authorities. See Note 7 of the Notes to Consolidated Financial Statements for a reconciliation of the effective tax rate compared to the U.S. statutory tax rate.

Gains and losses of unconsolidated affiliates primarily represented changes in the Company’s equity method investments. During the first quarter of fiscal 2023, the Company wrote down its investment in an equity interest in an entity in Mexico by $6 million based on the estimated fair market value of the entity. The Company completed the sale of its interest in the entity during the third quarter of fiscal 2023, resulting in an additional loss of $2 million.

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SEGMENT RESULTS

Access

The following table presents the Access segment results (in millions):

Access segment net sales increased as a result of improved sales volume ($703 million) as supply chain improvements supported higher production levels, higher pricing in response to higher input costs ($239 million) and the inclusion of sales related to the Hinowa acquisition ($73 million).

The increase in Access segment gross margin was due to improved pricing (360 basis points), lower material & logistics costs (150 basis points), improved sales mix (140 basis points) and favorable manufacturing absorption (100 basis points), offset in part by higher incentive compensation costs (50 basis points).

The increase in Access segment selling, general and administrative expenses was generally a result of higher incentive compensation costs ($25 million), increased information technology costs ($13 million), higher product liability costs ($10 million), increased advertising costs ($8 million) and the inclusion of operating costs related to Hinowa ($4 million).

The increase in Access segment operating income was primarily due to improved pricing ($239 million), the impact of higher gross margin associated with higher sales volume ($181 million), improved sales mix ($65 million) and lower material & logistics costs ($30 million), offset in part by higher incentive compensation costs ($49 million) and increased operating expenses to support higher sales levels ($38 million).

Defense

The following table presents the Defense segment results (in millions):

Defense segment net sales decreased due to lower volume ($95 million) due to lower customer requirements for the Company's JLTV, offset in part by favorable cumulative catch-up adjustments in fiscal 2023 compared to unfavorable cumulative catch-up adjustments in fiscal 2022 ($50 million). The U.S. Army, which purchased Government Purpose Rights to the Oshkosh JLTV design, conducted a full and open competition for follow-on JLTV production in which Oshkosh Defense participated. In February 2023, the DoD awarded the JLTV follow on contract to another company. JLTV accounted for sales of $0.98 billion in fiscal 2023.

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The increase in gross margin in the Defense segment was due to changes in cumulative catch-up adjustments on contracts (200 basis points) and lower new product development expenses (80 basis points), offset in part by higher inventory obsolescence reserves (40 basis points).

The decrease in Defense segment selling, general and administrative expenses was primarily due to a gain on the sale of the Company's snow removal apparatus business ($8 million), offset in part by higher incentive compensation costs ($6 million).

The increase in operating income in the Defense segment was primarily a result of the absence of unfavorable cumulative catch-up adjustments on contract margins ($45 million), lower new product development expense ($17 million) and a gain on the sale of the Company's snow removal apparatus business ($8 million), offset in part by lower gross margin associated with lower sales volume ($12 million), higher incentive compensation costs ($11 million) and higher inventory obsolescence reserves ($9 million). Changes in estimates on contracts accounted for under the cost-to-cost method resulted in cumulative catch-up adjustments on contract margins that increased Defense segment operating income by $5.2 million in fiscal 2023. Changes in estimates on contracts accounted for under the cost-to-cost method decreased Defense segment operating income by $44.9 million in fiscal 2022.

Vocational

The following table presents the Commercial segment results (in millions):

Vocational segment net sales increased as a result of the inclusion of sales related to acquisitions ($292 million) and higher pricing in response to higher input costs ($161 million), offset in part by the impact of the sale of the rear discharge concrete mixer business in the first quarter of fiscal 2023 ($79 million).

The increase in gross margin in the Vocational segment was primarily attributable to improved pricing (480 basis points), offset in part by higher material costs (270 basis points) and higher production costs (80 basis points).

The increase in Vocational segment selling, general and administrative expenses was generally a result of the inclusion of operating costs related to AeroTech ($27 million), the loss on the sale of the rear discharge concrete mixer business ($13 million), acquisition costs related to AeroTech ($13 million) and higher incentive compensation costs ($11 million).

The increase in operating income in the Vocational segment was primarily due to improved pricing ($161 million), offset in part by higher material costs ($69 million), higher incentive compensation costs ($21 million), higher production costs ($21 million), the loss on the sale of the rear discharge concrete mixer business ($13 million) and acquisition costs related to AeroTech ($13 million).

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Corporate and Intersegment eliminations

The following table presents the corporate costs and intersegment eliminations (in millions):

Corporate cost of sales increased primarily as a result of higher engineering and new product development costs ($5 million) and higher incentive compensation costs ($4 million).

Corporate operating expenses increased primarily as a result of higher incentive compensation costs ($24 million).

FISCAL 2022 COMPARED WITH THE YEAR ENDED DECEMBER 31, 2021

The comparison of the fiscal 2022 results with the year ended December 31, 2021 results can be found in the “Management’s Discussion and Analysis” section in the Company’s fiscal 2022 Annual Report on Form 10-K.

LIQUIDITY AND CAPITAL RESOURCES

The Company generates significant capital resources from operating activities, which is the expected primary source of funding for the Company. The Company expects cash flow from operations of approximately $725 million in fiscal 2024. In addition to cash generated from operations, the Company had other sources of liquidity available at December 31, 2023, including $125.4 million of cash and cash equivalents and $909.2 million of unused available capacity under the Revolving Credit Facility (as defined in “Liquidity”). Borrowings under the Revolving Credit Facility could, as discussed below, be limited by a financial covenant contained in the Credit Agreement (as defined in “Liquidity”). The Company was in compliance and expects to remain in compliance with the financial covenant contained in the Credit Agreement.

The Company continues to actively monitor its liquidity position and working capital needs and prioritizes debt repayment, capital expenditures related to capacity and strategic investments. The Company remains in a stable overall capital resources and liquidity position that the Company believes is adequate to meet its projected needs. Other uses of cash include the repurchase of the Company’s Common Stock. In fiscal 2023, the Company used available cash to repurchase 265,795 shares of Common Stock ($22.5 million).

Financial Condition at December 31, 2023

The Company’s capitalization was as follows (in millions):

The Company’s ratio of debt to total capitalization of 17.3% at December 31, 2023 remained within its targeted range. The increase in the debt to total capitalization compared to December 31, 2022 was primarily due to the acquisition of AeroTech and corresponding borrowings on the Revolving Credit Facility.

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The Company’s goal is to maintain an investment-grade credit rating. The rating agencies periodically update the Company’s credit ratings as events or changes in economic conditions occur. At December 31, 2023, the long-term credit ratings assigned to the Company’s senior debt securities by the credit rating agencies engaged by the Company were as follows:

Consolidated days sales outstanding (defined as “Trade Receivables” at quarter end divided by “Net Sales” for the most recent quarter multiplied by 90 days) was 44 days at December 31, 2023, down slightly from 45 days at December 31, 2022. Days sales outstanding for segments other than the Defense segment was 49 days at both December 31, 2023 and 2022. Consolidated inventory turns (defined as “Cost of Sales” on an annualized basis, divided by the average “Inventory” at the past five quarter end periods) increased slightly from 4.1 times at December 31, 2022 to 4.2 times at December 31, 2023. Consolidated days payables outstanding (defined as “Accounts Payable” at quarter end divided by material costs of sales for the most recent quarter multiplied by 90 days) was 72 days, up from 66 days at December 31, 2022, primarily due to the timing of cash disbursements.

Operating Cash Flows

Operating activities provided $599.6 million of cash in fiscal 2023 compared to $601.3 million in fiscal 2022. Net cash provided by operating activities remained relatively consistent between fiscal 2023 and 2022 as the increase in net income in 2023 was offset by lower cash generation from working capital. Customer advances generated $157.0 million of cash in fiscal 2023 versus $819.3 million in fiscal 2022. Cash generated from customer advances in fiscal 2022 included advances related to NGDV in the Defense segment of $302.1 million compared to $134.4 million in fiscal 2023. Additionally, fewer customers within the Vocational segment provided advance payments in fiscal 2023 than fiscal 2022.

Investing Cash Flows

Investing activities used cash of $1,285.6 million in fiscal 2023 compared to $300.4 million in fiscal 2022. The Company completed the acquisitions of AeroTech and Hinowa for $995.8 million in fiscal 2023. Additions to property, plant and equipment of $325.3 million in fiscal 2023 increased $55.8 million from fiscal 2022, driven by capital spending to expand capacity in the Access and Vocational segments and set up the NGDV manufacturing plant in Spartanburg, SC. The Company anticipates that it will spend $300 million on capital expenditures in fiscal 2024 as the Company completes its facilities in Tennessee and South Carolina.

Financing Cash Flows

Financing activities provided cash of $3.4 million in fiscal 2023 compared to the use of cash of $485.0 million in fiscal 2022. The change in cash use/generation was primarily due to changes in debt and lower share repurchases in fiscal 2023 as compared to fiscal 2022. The Company borrowed approximately $575 million to fund the acquisition of AeroTech in the third quarter of fiscal 2023. Subsequent to the acquisition, the Company used cash flow from operations to repay approximately $400 million of those borrowings. The Company repaid its $225 million term loan in the second quarter of fiscal 2022. In fiscal 2023, the Company repurchased 265,795 shares of its Common Stock at an aggregate cost of $22.5 million. The Company's Board of Directors authorized the repurchase of 12 million shares in May 2022, of which approximately 11.3 million shares remained as of December 31, 2023. In fiscal 2022, the Company repurchased 1,508,467 shares at an aggregate cost of $155.0 million.

Liquidity

Senior Credit Agreement

On March 23, 2022, the Company entered into a Third Amended and Restated Credit Agreement (the “Credit Agreement”). The Credit Agreement provides for an unsecured revolving credit facility (the “Revolving Credit Facility”) that matures in March 2027 with an initial maximum aggregate amount of availability of $1.1 billion. At December 31, 2023, borrowings under the

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Revolving Credit Facility of $175.0 million and outstanding letters of credit of $15.8 million reduced available capacity under the Revolving Credit Facility to $909.2 million.

Under the Credit Agreement, the Company is obligated to pay (i) an unused commitment fee ranging from 0.080% to 0.225% per annum of the average daily unused portion of the aggregate revolving credit commitments under the Credit Agreement and (ii) a fee ranging from 0.4375% to 1.500% per annum of the maximum amount available to be drawn for each letter of credit issued and outstanding under the Credit Agreement.

Covenant Compliance

The Credit Agreement contains various restrictions and covenants, including a requirement that the Company maintain a leverage ratio at certain levels, subject to certain exceptions, restrictions on the ability of the Company and certain of its subsidiaries to consolidate or merge, create liens, incur additional subsidiary indebtedness and consummate acquisitions and a restriction on the disposition of all or substantially all of the assets of the Company and its subsidiaries taken as a whole. The Company was in compliance with the financial covenant contained in the Credit Agreement as of December 31, 2023 and expects to be able to meet the financial covenant contained in the Credit Agreement over the next twelve months.

Senior Notes

In May 2018, the Company issued $300.0 million of 4.600% unsecured senior notes due May 15, 2028 (the “2028 Senior Notes”). In February 2020, the Company issued $300.0 million of 3.100% unsecured senior notes due March 1, 2030 (the “2030 Senior Notes”). The 2028 Senior Notes and the 2030 Senior Notes were issued pursuant to an indenture (the “Indenture”) between the Company and a trustee. The Indenture contains customary affirmative and negative covenants. The Company has the option to redeem the 2028 and 2030 Senior Notes at any time for a premium.

Refer to Note 16 of the Notes to Consolidated Financial Statements for additional information regarding the Company’s debt as of December 31, 2023.

Contractual Obligations

The total amount of gross unrecognized tax benefits, including interest, for uncertain tax positions was $73.6 million as of December 31, 2023. Payment of these obligations would result from settlements with tax authorities. Due to the difficulty in determining the timing of the settlement, these obligations are not included in the summary of the Company’s fixed contractual obligations. See Note 7 of the Notes to Consolidated Financial Statements for additional information regarding the Company’s unrecognized tax benefits as of December 31, 2023. Following is a summary of the Company’s contractual obligations and payments due by period following December 31, 2023 (in millions):

(1)
Interest was calculated based upon the interest rate in effect on December 31, 2023.

(2)
The amounts for purchase obligations included above represent all obligations to purchase goods or services under agreements that are enforceable and legally binding and that specify all significant terms.

(3)
Represents other long-term liabilities on the Company’s Consolidated Balance Sheet, including the current portion of these liabilities. The projected timing of cash flows associated with these obligations is based on management’s estimates, which are based largely on historical experience. This amount also includes all liabilities under the Company’s pension and other postretirement benefit plans. See Note 6 of the Notes to Consolidated Financial Statements for information regarding these liabilities and the plan assets available to satisfy them.

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CRITICAL ACCOUNTING POLICIES

The Company’s significant accounting policies are described in Note 2 of the Notes to Consolidated Financial Statements. The Company considers the following policy to be the most critical in understanding the judgments that are involved in the preparation of the Company’s consolidated financial statements and the uncertainties that could impact the Company’s financial condition, results of operations and cash flows.

Revenue Recognition. The Company recognizes revenue when control of the goods or services promised under a contract is transferred to the customer either at a point in time (e.g., upon delivery) or over time (e.g., as the Company performs under the contract) in an amount that reflects the consideration to which the Company expects to be entitled in exchange for the goods or services. In fiscal 2023, approximately 28% of the Company’s revenues were recognized using an over time accounting method.

Contracts are reviewed to determine whether there is one or multiple performance obligations. A performance obligation is a promise to transfer a distinct good or service to a customer and represents the unit of accounting for revenue recognition. For contracts with multiple performance obligations, the expected consideration (e.g., the transaction price) is allocated to each performance obligation identified in the contract based on the relative standalone selling price of each performance obligation, which is determinable based on observable standalone selling prices or is estimated using an expected cost plus a margin approach. Revenue is then recognized for the transaction price allocated to the performance obligation when control of the promised goods or services underlying the performance obligation is transferred. When the amount of consideration allocated to a performance obligation through this process differs from the invoiced amount, it results in a contract asset or liability. The identification of performance obligations within a contract requires significant judgment.

The following is a description of the primary activities from which the Company generates revenue.

Access and Vocational segments revenue

The Company derives revenue in the Access and Vocational segments (non-defense segments) through the sale of machinery, vehicles and related aftermarket parts and services. Customers include distributors and end-users. Contracts with customers generally exist upon the approval of a quote and/or purchase order by the Company and customer. Each contract is also assessed at inception to determine whether it is necessary to combine the contract with other contracts.

The Company’s non-defense segments offer various customer incentives within contracts, such as sales and marketing rebates, volume discounts and interest subsidies, some of which are variable and therefore must be estimated by the Company. Transaction prices may also be impacted by rights of return, primarily within the aftermarket parts business, which requires the Company to record a liability and asset representing its rights and obligations in the event a return occurs. The estimated return liability is based on historical experience rates.

Revenue for performance obligations consisting of machinery, vehicles and aftermarket parts (together, “product”) is recognized when the customer obtains control of the product, which typically occurs at a point in time, based on the shipping terms within the contract. In the Vocational segment, refuse collection vehicles are sold on both Company owned chassis and customer owned chassis. When performing work on a customer owned chassis, revenue is recognized over time based on the cost-to-cost method, as the Company is enhancing a customer owned asset. Jet bridges are designed to customer specification. Revenue related to jet bridges is recognized over time based on the cost-to-cost method as the Company's performance does not create an asset with an alternative use and the Company has an enforceable right to payment for its performance completed to date.

All non-defense segments offer aftermarket services related to their respective products such as repair, refurbishment and maintenance (together, “services”). The Company generally recognizes revenue on service performance obligations over time using the method that results in the most faithful depiction of transfer of control to the customer. Non-defense segments also offer extended warranty coverage as an option on most products. The Company considers extended warranties to be service-type warranties and therefore a performance obligation. Service-type warranties differ from the Company’s standard, or assurance-type warranties, as they are generally separately priced and negotiated as part of the contract and/or provide additional coverage beyond what the customer or customer group that purchases the product would receive under the

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Company’s standard assurance-type warranty. The Company has concluded that its extended warranties are stand-ready obligations to perform and therefore recognizes revenue ratably over the coverage period.

Defense segment revenue

The majority of the Company’s Defense segment sales are derived through long-term contracts with the U.S. government to design, develop, manufacture or modify defense and other specialty vehicles. These contracts, which also include those under the U.S. Government-sponsored Foreign Military Sales (FMS) program, accounted for approximately 84% of Defense segment revenue in fiscal 2023. Contracts with Defense segment customers are generally fixed-price or cost-reimbursement type contracts. Under fixed-price contracts, the price paid to the Company is generally not adjusted to reflect the Company’s actual costs except for costs incurred as a result of contract modifications. Certain fixed-price contracts include an incentive component under which the price paid to the Company is subject to adjustment based on the actual costs incurred. Under cost-reimbursement contracts, the price paid to the Company is determined based on the allowable costs incurred to perform plus a fee. The fee component of cost-reimbursement contracts can be fixed based on negotiations at contract inception or can vary based on performance against target costs established at the time of contract inception. The Company also designs, develops, manufactures or modifies defense products for international customers through Direct Commercial Sale contracts. The Defense segment supports its products through the sale of aftermarket parts and services. Aftermarket contracts can range from long-term supply agreements to ad hoc purchase orders for replacement parts.

The Company evaluates the promised goods and services within Defense segment contracts at inception to identify performance obligations. The goods and services in Defense segment contracts are typically not distinct from one another as they are generally customized and have complex inter-relationships and the Company is responsible for overall management of the contract. As a result, Defense segment contracts are typically accounted for as a single performance obligation. The Defense segment provides standard warranties for its products for periods that typically range from one to two years. These assurance-type warranties typically cannot be purchased separately and do not meet the criteria to be considered a performance obligation.

The Company determines the transaction price for each contract at inception based on the consideration that it expects to receive for the goods and services promised under the contract. This determination is made based on the Company’s current rights, excluding the impact of any subsequent contract modifications (including unexercised options) until they become legally enforceable. Contract modifications frequently occur within the Defense segment. The Company evaluates each modification to identify changes that impact the price or scope of its contracts, which are then assessed to determine if the modification should be accounted for as an adjustment to an existing contract or as a separate contract. Contract modifications within the Defense segment are generally accounted for as a cumulative catch-up adjustment to existing contracts as they are not distinct from the goods and services within the existing contract.

The Company recognizes revenue on Defense segment contracts as performance obligations are satisfied and control of the underlying goods and services is transferred to the customer. In making this evaluation, the Defense segment considers contract terms, payment terms and whether there is an alternative future use for the good or service. Through this process the Company has concluded that substantially all of the Defense segment’s performance obligations, including a majority of performance obligations for aftermarket goods and services, transfer control to the customer over time. For U.S. government and FMS program contracts, this determination is supported by the inclusion of clauses within contracts that allow the customer to terminate a contract at its convenience. When the clause is present, the Company is entitled to compensation for the work performed through the date of notification at a price that reflects actual costs plus a reasonable margin in exchange for transferring its work in process to the customer. For contracts that do not contain termination for convenience provisions, the Company is generally able to support the over time transfer of control determination as a result of the customized nature of its goods and services, which create assets without an alternative use and contractual rights.

The Company defers contract costs that relate to a contract prior to transfer of control or to an anticipated contract, as they generate or enhance assets that will be utilized to satisfy performance obligations in the future and are expected to be recovered. Deferred contract costs are subsequently amortized on a systematic basis consistent with the pattern of transfer of the goods and services to which they relate. Unlike the JLTV and FMTV A2 contracts, for which the Company has concluded control of the performance obligations transfers continuously over the contract terms, the Company has concluded that control of the performance obligation for the USPS contract transfers during the production phase of the contract. As a result, the

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Company has recognized $689.1 million of deferred contract costs related to the USPS contract at December 31, 2023 consisting of engineering costs, setup costs and tooling costs. The Company anticipates the production phase of the contract will begin in 2024.

CRITICAL ACCOUNTING ESTIMATES

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” is based on the Company’s Consolidated Financial Statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America (U.S. GAAP). The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and judgments that affect reported amounts and related disclosures. On an ongoing basis, management evaluates and updates its estimates. Management employs judgment in making its estimates but they are based on historical experience and currently available information and various other assumptions that the Company believes to be reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily available from other sources. Actual results could differ from those estimates.

Management believes that its judgment is applied consistently and produces financial information that fairly depicts the results of operations for all periods presented.

Estimate-at-Completion (EAC). The Company has concluded that control of substantially all of the Defense segment’s performance obligations transfers to the customer continuously and therefore revenue is recognized over time. The Defense segment recognizes revenue on its performance obligations that are satisfied over time by measuring progress using the cost-to-cost method of percentage-of-completion because it best depicts the transfer of control to the customer. Under the cost-to-cost method of percentage-of-completion, the Defense segment measures progress based on the ratio of costs incurred to date to total estimated costs for the performance obligations. Due to the size and nature of these contracts, the estimation of total revenues and costs is highly complicated and judgmental. The Company must make assumptions regarding expected increases in wages and employee benefits, productivity and availability of labor, material costs and allocated fixed costs. Each contract is evaluated at contract inception to identify risks and estimate revenue and costs. In performing this evaluation, the Defense segment considers risks of contract performance such as technical requirements, schedule, duration and key contract dependencies. These considerations are then factored into the Company’s estimated revenue and costs. If a loss is expected on a performance obligation, the complete estimated loss is recorded in the period in which the loss is identified. Preliminary contract estimates are subject to change throughout the duration of the contract as additional information becomes available that impacts risks and estimated revenue and costs. Changes to production costs, overhead rates, learning curve and/or supplier performance can also impact these estimates. These estimates are highly judgmental, particularly the non-production costs on the JLTV and FMTV A2 contracts. The Company recognizes changes in estimated sales or costs and the resulting profit or loss on a cumulative basis. In addition, as contract modifications (e.g., new orders) are received, they are evaluated to determine if they represent a separate contract or a modification of the existing contract. As of December 31, 2023, the estimated remaining costs on the NGDV and JLTV contracts represent the majority of the total estimated costs to complete in the Defense segment. Changes in estimates on contracts accounted for under the cost-to-cost method resulted in cumulative catch-up adjustments on contract margins that increased Defense segment operating income by $5.2 million in fiscal 2023 and decreased Defense segment operating income by $44.9 million in fiscal 2022.

Fair Value of Intangible Assets. The Company makes strategic acquisitions that may have a material impact on its consolidated results of operations or financial position. The purchase price of acquired businesses is allocated to the assets acquired and liabilities assumed in the transaction at their estimated fair values. The determination of the fair value of intangible assets, which represent a significant portion of the purchase price in many of the Company's acquisitions, can be complex and requires the use of significant judgment with regard to (i) the fair value and (ii) the period and the method by which the intangible assets will be amortized. Management uses information available to make fair value determinations and engages independent valuation specialists, when necessary, to assist in the fair value determination of acquired intangibles.

The fair value of acquisition-related intangible assets is estimated principally based on projections of cash flows that will arise from identifiable intangible assets of acquired businesses, which include estimates of discount rates, revenue growth rates, EBITDA, royalty rates, customer attrition rates and technology obsolescence rates. The projected cash flows are discounted to determine the present value of the assets at the dates of acquisition. Although management believes the projections, assumptions and estimates made were reasonable and appropriate, these estimates require significant judgment, are inherently

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uncertain and are subject to refinement. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Any adjustments subsequent to the measurement period are recorded to the consolidated statements of income. See Note 3 to Consolidated Financial Statements for additional information regarding acquisitions.

NEW ACCOUNTING STANDARDS

See Note 2 of the Notes to Consolidated Financial Statements regarding the impact or potential impact of recent accounting pronouncements on the Company’s consolidated financial statements.

CUSTOMERS AND BACKLOG

Sales to the U.S. government comprised approximately 19% of the Company’s net sales in fiscal 2023. No other single customer accounted for more than 10% of the Company’s net sales for this period. A substantial majority of the Company’s net sales are derived from the fulfillment of customer orders that are received prior to commencing production.

The Company’s backlog as of December 31, 2023 increased 18.8% to $16.8 billion compared to $14.1 billion at December 31, 2022. Access segment backlog increased 3.9% to $4.5 billion at December 31, 2023, compared to $4.4 billion at December 31, 2022, primarily due to higher pricing. The Access segment is largely booked for fiscal 2024 and the Company expects ordering patterns to normalize due to improvements in supply chains and product availability. Defense segment backlog increased 7.5% to $6.8 billion at December 31, 2023, compared to $6.3 billion at December 31, 2022, primarily due to the USPS increasing the mix of battery-electric vehicles ordered for the NGDV program. Vocational segment backlog increased 58.4% to $5.5 billion at December 31, 2023, compared to $3.5 billion at December 31, 2022, due to strong demand for fire apparatus coming out of the COVID-19 pandemic, increased pricing and the inclusion of AeroTech backlog of $775.5 million. Fire apparatus backlog increased 42.1% to $4.0 billion at December 31, 2023, compared to $2.8 billion at December 31, 2022. Refuse collection equipment backlog increased 19.1% to $352.0 million at December 31, 2023, compared to $295.5 million at December 31, 2022.

Backlog represents the dollar amount of revenues that the Company anticipates from customer contracts that have been awarded and/or are in progress. Reported backlog includes the original contract amount and any contract modifications that have been agreed upon. Reported backlog excludes purchase options, announced orders for which definitive contracts have not been executed and any potential future contract modifications. Backlog is comprised of fixed and variable priced contracts that may be canceled, modified or otherwise changed in the future. As a result, backlog may not be indicative of future operating results. Backlog information and comparisons thereof as of different dates may not be accurate indicators of future sales. Approximately 50% of the Company’s December 31, 2023 backlog is not expected to be filled in fiscal 2024.

NON-GAAP FINANCIAL MEASURES

The Company is forecasting earnings per share excluding items that affect comparability. When the Company forecasts earnings per share, excluding items, this is considered a non-GAAP financial measure. The Company believes excluding the impact of these items is useful to investors to allow a more accurate comparison of the Company’s operating performance to prior year results. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company’s results or forecasts prepared in accordance with GAAP. The table below presents a reconciliation of the Company’s presented non-GAAP measure to the most directly comparable GAAP measure:

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

The Company is an industrial technology company and manufacturer that innovates purpose-built vehicles and equipment for the access, defense, fire & emergency, refuse collection and concrete placement markets. The Company is a leading global designer and manufacturer of aerial work platforms under the “JLG” brand name. The Company is among the worldwide leaders in the design and manufacturing of telehandlers under the “JLG” and “SkyTrak” brand names. Under the “Jerr-Dan” brand name, the Company is a leading domestic designer and manufacturer and marketer of towing and recovery equipment. The Company manufactures defense trucks under the “Oshkosh” brand name and is a leading designer and manufacturer of severe-duty, tactical wheeled vehicles for the U.S. Department of Defense (DoD). The Company also designs and manufactures delivery vehicles for the United States Postal Service (USPS) and airport snow removal vehicles under the “Oshkosh” brand name. Under the “Pierce” and "Maxi-Metal" brand names, the Company is among the leading global designers and manufacturers of fire trucks assembled on both custom and commercial chassis. Under the “Frontline” brand name, the Company is a leading domestic designer, manufacturer and marketer of broadcast and command vehicles. The Company designs and manufactures Aircraft Rescue and Firefighting (ARFF) vehicles under the “Oshkosh” brand name. Under the “McNeilus” brand name, the Company designs and manufactures a wide range of automated, rear, front, side and top loading refuse collection vehicles. Under the “McNeilus,” “Oshkosh,” and “London” brand names, the Company designs and manufactures rear- and front-discharge concrete mixers. Under the “IMT” brand name, the Company is a leading domestic designer and manufacturer of field service vehicles and truck-mounted cranes.

Major products manufactured and marketed by each of the Company’s business segments are as follows:

Access Equipment — aerial work platforms and telehandlers used in a wide variety of construction, industrial, institutional and general maintenance applications to position workers and materials at elevated heights, as well as carriers and wreckers. Access Equipment customers include equipment rental companies, construction contractors, manufacturing companies, home improvement centers and towing companies.

Defense — tactical vehicles, trailers, weapons system integration and parts sold to the U.S. military and to other militaries around the world, delivery vehicles for the USPS, and snow removal vehicles for military and civilian airports.

Fire & Emergency — custom and commercial firefighting vehicles and equipment, ARFF vehicles, simulators, mobile command and control vehicles and other emergency vehicles primarily sold to fire departments, airports and other governmental units, as well as broadcast vehicles sold to broadcasters and TV stations.

Commercial — refuse collection vehicles sold to commercial and municipal waste haulers, concrete mixers sold to ready-mix companies and field service vehicles and truck-mounted cranes sold to mining, construction and other companies.

All estimates referred to in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” refer to the Company’s estimates as of February 21, 2023.

BASIS OF PRESENTATION

In October 2021, the Company’s changed its fiscal year end from September 30 to December 31. Accordingly, the Company reported a transition quarter that ran from October 1, 2021 through December 31, 2021. Fiscal 2020 and Fiscal 2021 relate to the years ended September 30, 2020 and September 30, 2021, respectively. Fiscal 2022 relates to the year ended December 31, 2022. The Company has presented the unaudited Condensed Consolidated Statements of Income and Condensed Consolidated Statements of Cash Flows for the year ended December 31, 2021 at the end of the “Results of Operations” section below for reference in the comparisons to fiscal 2022. The Company has presented the year ended December 31, 2021 as a comparison to its results for fiscal 2022 as it believes this comparison is more meaningful to a reader’s understanding of its fiscal 2022 results of operations than a comparison to fiscal 2021.

Effective October 1, 2022, the Company changed its method of accounting for certain inventory in the United States from the Last-in, First-Out (LIFO) method to the First-In, First-Out (FIFO) method. The FIFO method of accounting for inventory is preferable because it more accurately reflects the current value and physical flow of inventory, it improves comparability with

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the Company’s peers and it harmonizes the accounting method for all of the Company’s inventories. The effects of the change in accounting method from LIFO to FIFO have been retrospectively applied to all periods presented in this Annual Report, including Management’s Discussion and Analysis. Refer to Note 2 of the consolidated financial statements in Part II Item 8 of this Annual Report on Form 10-K for further information related to the change in accounting method.

OVERVIEW

The Company entered 2021 in the midst of the COVID-19 pandemic, which negatively impacted its sales at the start of 2021, particularly in the Access Equipment segment. Higher COVID-19 infection rates also resulted in production challenges in both the Defense and Fire & Emergency segments in the first quarter of 2021. Toward the end of the first quarter of 2021, positive vaccination progress, and the confidence that brought to the marketplace, caused the U.S. economy to begin to rebound. As a result, the Company experienced a strong return in demand for many of its products. This rapid rebound coincided with significant supply chain and logistics disruptions across the globe, which in turn led to labor inefficiencies within the Company’s production facilities and higher freight costs to expedite parts. The rapid increase in business activity also caused the Company to experience significant inflation in materials, freight and labor costs. These global supply chain bottlenecks and inflationary conditions continued throughout fiscal 2022. The Company increased prices multiple times in its non-Defense segments in an effort to offset the higher input costs, but the realization of the price increases was not immediate due to existing backlog at the time the price increases were implemented. The difference in the timing of the realization of our price increases as compared to the impact of cost increases adversely impacted price/cost dynamics of the Company, particularly during the first half of fiscal 2022. Realized price increases largely caught up to cost increases in the back half of fiscal 2022, particularly in the Access Equipment and Commercial segments. The time to achieve price-cost neutrality in the Fire & Emergency segment is longer due to the nature of bonded orders for municipal customers.

The Company grew revenues 4.1% in fiscal 2022 compared to the year ended December 31, 2021, resulting in diluted earnings per share of $2.63. Earnings per share were lower than earnings per share of $6.68 for the year ended December 31, 2021 largely due to manufacturing inefficiencies associated with supply chain disruptions, the absence of a carryback of a U.S. net operating loss to previous tax years, unfavorable cumulative catch-up adjustments in the Defense segment, a loss on the settlement of a frozen pension plan and higher new product development spending.

Fiscal 2022 results included an after-tax charge of $25.7 million for the settlement of a frozen pension plan, a charge of $18.1 million associated with foreign anti-hybrid tax legislation, an after-tax charge $6.4 million for the impairment of intangible assets and an after-tax charge of $4.6 million for the release of cumulative translation adjustment losses. In aggregate, these items accounted for a net $54.8 million, or $0.83 per share, charge in fiscal 2022. Results for the year ended December 31, 2021 included a $75.3 million tax benefit associated with the carryback of a U.S. net operating loss to prior years and an $11.7 million tax benefit associated with the release of a valuation allowance on deferred tax assets in Europe, offset in part by an after-tax charge of $3.9 million associated with restructuring actions in the Access Equipment segment and an after-tax charge of $0.2 million associated with business acquisition costs in the Defense segment. In aggregate, these items accounted for a net $82.9 million, $1.20 per share, benefit for the year ended December 31, 2021.

The Company announced an increase in its quarterly dividend rate of 10.8%, to $0.41 per share, beginning in February 2023. This was the Company’s ninth straight year of a double-digit percentage increase to its dividend rate.

Effective January 31, 2023, the Company combined its Fire & Emergency and Commercial segment businesses into a new reporting segment called Vocational as all of the businesses design, develop and manufacture purpose-built vocational vehicles for people in communities around the world who do tough work. By combining these segments, the Company expects to drive enhanced efficiencies across the board, while better leveraging its scale in technology development at an accelerated pace. The Company believes the Vocational segment also serves as a platform for further organic and inorganic growth opportunities in several important end markets. The Company expects that the Vocational segment will initially generate annual revenues of over $2 billion with the opportunity to grow organically at a high single digit compound annual growth rate to nearly $3 billion with 12% plus operating margins over the next few years. The Company has also announced that it has entered into a definitive agreement to sell its rear discharge concrete mixer business, which is expected to occur by the end of the first quarter of fiscal 2023. The Company expects this will enable it to focus on attractive end markets that value technology and innovation that it believes will drive higher margins.

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FISCAL 2023 OUTLOOK

The Company estimates consolidated net sales will be in the range of $8.4 billion in fiscal 2023, compared to $8.3 billion in fiscal 2022. The Company expects consolidated operating income will be in the range of $530 million, resulting in diluted earnings per share in the range of $5.50. The fiscal 2023 estimate assumes an average share count of 65.7 million shares. Included in the Company’s expectations is the adverse impact of approximately $0.80 per share related to incentive compensation costs returning to typical levels and increased new product development investments of approximately $0.30 per share.

Demand remains strong as indicated by order intake of $3.3 billion in the fourth quarter of fiscal 2022, leading to the Company’s record backlog of $14.1 billion on December 31, 2022. The Company’s guidance reflects modest supply chain improvements in fiscal 2023, but the Company expects that supply chain impacts will continue to limit the Company’s revenues and contribute to production inefficiencies in fiscal 2023.

The Company believes Access segment net sales will be in the range of $4.2 billion in fiscal 2023, a 6% increase compared to fiscal 2022 net sales. The Company’s estimates reflect expectations of improved pricing and a modest volume increase. Supply chain dynamics are expected to remain the limiting factor for more significant revenue growth as demand remains very robust. The Company expects operating margin in the Access segment in fiscal 2023 will be in the range of 11%. The Company expects the 310 basis point improvement in operating margin compared to fiscal 2022 will be driven by the full year benefit of improved pricing and improved absorption.

The Company expects Defense segment net sales will be in the range of $2.0 billion in fiscal 2023, approximately $140 million lower than fiscal 2022. The Company expects that revenue will begin to grow in fiscal 2024 as the USPS NGDV production begins to ramp up. The Company expects Defense segment operating margin will be in the range of 4% in fiscal 2023. The Company expects unfavorable product mix and NGDV-related pre-production operating expenses to account for the mid-single digit operating margin. The Company expects margins will improve as new programs ramp up in fiscal 2024.

The Company expects Vocational segment net sales will be in the range of $2.2 billion in fiscal 2023, roughly flat to the fiscal 2022 combined revenue for the Fire & Emergency and Commercial segments. The Company’s guidance for the Vocational segment reflects modest volume increases, offset in part by the impact of the planned divestiture of the rear discharge concrete mixer business which is expected to occur during the first quarter of fiscal 2023. Similar to the Access segment, demand remains very strong, but the Company’s revenues are expected to be constrained in fiscal 2023 by supply chain dynamics.

The Company expects operating margin in the Vocational segment will be in the range of 7.5%, reflecting the impact of constrained output and manufacturing inefficiencies due to supply chain dynamics and the impact of price-protected orders. Vocational segment operating income margins are expected to grow beyond fiscal 2023 as municipal customer orders in backlog for delivery in fiscal 2024 were booked at significantly higher prices and the Company expects margin benefit over time from the integration of the two segments.

The Company estimates corporate expenses in fiscal 2023 will be approximately $170 million, approximately $29 million higher than fiscal 2022 driven by a return of incentive compensation to typical levels and increased investments in growth initiatives and new product development. The Company estimates the tax rate for fiscal 2023 will be approximately 25%.

The Company expects consolidated net sales in the first quarter of fiscal 2023 to be in the range of $2.1 billion, down approximately $100 million versus the fourth quarter of fiscal 2022. The Company expects the lower revenue to be driven by the timing of deliveries in the Access and Vocational segments as well as lower sales in the Defense segment. The Company expects earnings per share in the first quarter of fiscal 2023 will be in the range of $1.00, reflecting the lower sales, unfavorable order mix in the Defense segment and the return of incentive compensation costs to typical levels. Based on these factors, the Company expects that the first quarter will be the lowest quarter of fiscal 2023 for diluted earnings per share.

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RESULTS OF OPERATIONS

CONSOLIDATED RESULTS - YEAR ENDED DECEMBER 31, 2022

The following table presents consolidated results (in millions):

The following table presents net sales by geographic region based on product shipment destination (in millions):

Fiscal 2022 Compared to Year Ended December 31, 2021 (unaudited)

Consolidated net sales increased as a result of improved pricing ($467 million), offset in part by the unfavorable impact of foreign currency exchange rates ($57 million), lower consolidated volume ($52 million) and unfavorable cumulative catch-up adjustments on contracts in the Defense segment ($27 million).

The decrease in consolidated gross margin was due to higher material & logistics costs (580 basis points) and higher manufacturing costs (130 basis points) largely as a result of supply chain disruptions, offset in part by improved pricing (430 basis points).

The decrease in consolidated selling, general and administrative expenses was generally a result of lower incentive compensation costs ($46 million), offset in part by higher salaries ($11 million), higher reserves for credit losses ($10 million), higher software costs ($9 million) and increased travel ($5 million).

The decrease in consolidated operating income was primarily due to unfavorable material & logistics costs ($482 million), manufacturing inefficiencies ($119 million) associated with supply chain disruptions, unfavorable cumulative catch-up adjustments on contracts in the Defense segment ($42 million), higher engineering and new product development spending ($32 million) and higher operating expenses ($28 million), offset in part by improved pricing ($467 million) and lower incentive compensation costs ($58 million).

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The following table presents consolidated non-operating changes (in millions):

Fiscal 2022 Compared to Year Ended December 31, 2021 (unaudited)

Other miscellaneous income (expense) primarily related to gains and losses on investments, net foreign currency transaction gains and losses, and non-service costs of the Company’s pension plans. Fiscal 2022 results included a charge of $33.6 million for the settlement of a frozen pension plan. Foreign currency transactions resulted in losses of $6.9 million in fiscal 2022 and gains of $4.9 million for the year ended December 31, 2021. Results included an unrealized loss on an investment of $10.3 million in fiscal 2022 and $10.8 million for the year ended December 31, 2021.

Income tax expense in fiscal 2022 included a charge of $31.3 million as the Company revised its interpretation of certain foreign anti-hybrid tax legislation based upon comments from the corresponding taxing authorities. Results for the year ended December 31, 2021 included discrete tax benefits of $91.3 million, primarily related to the carryback of the net operating loss to previous tax years with higher federal statutory tax rates ($75.3 million) and the reversal of a tax valuation allowance recorded against certain foreign net deferred tax assets in Europe ($11.7 million). See Note 6 of the Notes to Consolidated Financial Statements for a reconciliation of the effective tax rate compared to the U.S. statutory tax rate.

Gains and losses of unconsolidated affiliates primarily represented changes in the Company’s equity method investments.

SEGMENT RESULTS

Access Equipment

The following table presents the Access Equipment segment results (in millions):

Fiscal 2022 Compared to Year Ended December 31, 2021 (unaudited)

Access Equipment segment net sales increased as a result of higher pricing ($348 million) in response to higher input costs and increased volume ($337 million). Access Equipment sales for fiscal 2022 were unfavorably impacted by $53 million from changes in foreign currency exchange rates.

The decrease in Access Equipment segment gross margin was due to higher material & logistics costs (900 basis points), offset in part by improved pricing (650 basis points) and lower product liability costs (40 basis points).

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The increase in Access Equipment segment operating income was primarily due to improved pricing ($348 million), the impact of higher gross margin associated with higher sales volume ($84 million) and lower incentive compensation costs ($27 million), offset in part by higher material & logistics costs ($372 million) and higher manufacturing costs ($63 million).

Defense

The following table presents the Defense segment results (in millions):

Fiscal 2022 Compared to Year Ended December 31, 2021 (unaudited)

Defense segment net sales decreased as U.S. Government funding for the Company’s tactical wheeled vehicle programs has decreased in recent years.

The decrease in gross margin in the Defense segment was due to unfavorable cumulative catch-up adjustments on contracts (180 basis points) and unfavorable product mix (120 basis points).

The decrease in operating income in the Defense segment was primarily a result of the impact of lower gross margin associated with lower sales volume ($54 million), unfavorable cumulative catch-up adjustments on contracts ($42 million) and unfavorable product mix ($26 million), offset in part by lower warranty costs ($14 million). Changes in estimates on contracts accounted for under the cost-to-cost method resulted in cumulative catch-up adjustments on contract margins that decreased Defense segment operating income by $44.9 million in fiscal 2022 primarily as a result of higher material and logistics costs. Changes in estimates on contracts accounted for under the cost-to-cost method decreased Defense segment operating income by $3.3 million in the year ended December 31, 2021.

Fire & Emergency

The following table presents the Fire & Emergency segment results (in millions):

Fiscal 2022 Compared to Year Ended December 31, 2021 (unaudited)

Fire & Emergency segment net sales decreased due to lower ARFF vehicle volume ($53 million) and lower fire truck volume ($41 million) as a result of supply chain disruptions, offset in part by improved pricing ($32 million).

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The decrease in gross margin in the Fire & Emergency segment was primarily attributable to higher material & logistics costs (320 basis points), manufacturing inefficiencies (270 basis points) largely associated with parts shortages and labor availability and adverse product mix (100 basis points), offset in part by improved pricing (210 basis points).

The decrease in operating income in the Fire & Emergency segment was largely a result of higher material & logistics costs ($36 million), higher manufacturing inefficiencies ($29 million), the impact of lower gross margin associated with lower sales volume ($25 million) and adverse product mix ($11 million), offset in part by improved pricing ($32 million) and lower incentive compensation costs ($6 million).

Commercial

The following table presents the Commercial segment results (in millions):

Fiscal 2022 Compared to Year Ended December 31, 2021 (unaudited)

Commercial segment net sales increased as a result of higher pricing ($87 million) in response to higher input costs and favorable product mix primarily due to a greater percentage of sales that included a third-party chassis ($37 million).

The decrease in gross margin in the Commercial segment was primarily attributable to unfavorable material & logistics costs (680 basis points) and higher manufacturing costs (150 basis points), offset in part by improved pricing (600 basis points).

The decrease in operating income in the Commercial segment was primarily due to higher material & logistics costs ($72 million), higher manufacturing costs ($24 million), higher engineering and new product development spending ($10 million) and higher warranty costs ($4 million), offset in part by improved pricing ($87 million) and favorable product mix ($14 million).

Corporate and Intersegment eliminations

The following table presents the corporate costs and intersegment eliminations (in millions):

Fiscal 2022 Compared to Year Ended December 31, 2021 (unaudited)

Corporate operating expenses decreased as a result of lower incentive compensation costs ($16 million), offset in part by higher engineering and new product development spending ($7 million).

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THREE MONTHS ENDED DECEMBER 31, 2021 COMPARED WITH THE THREE MONTHS ENDED DECEMBER 31, 2020

The comparison of the results for the three months ended December 31, 2021 with the results for the three months ended December 31, 2020 can be found in the “Management’s Discussion and Analysis” section in the Company’s Transition Report on Form 10-Q for the transition period from October 1, 2021 to December 31, 2021.

FISCAL 2021 COMPARED WITH FISCAL 2020

The comparison of the fiscal 2021 results with the fiscal 2020 results can be found in the “Management’s Discussion and Analysis” section in the Company’s fiscal 2021 Annual Report on Form 10-K.

PRO-FORMA FINANCIAL STATEMENTS

The Condensed Consolidated Statement of Income for fiscal 2022 is presented below for reference in comparison to the year ended December 31, 2021 (in millions):

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The Condensed Consolidated Statement of Cash Flows for fiscal 2022 is presented below for reference in comparison to the year ended December 31, 2021 (in millions):