Price Performance (2 Yrs) Relative Strength vs. Industrials (2 Yrs)

Recommendation: November 27, 2007 BUY Oshkosh Truck Corp. (OSK) Analyst: Ken Melick Fisher College of Business The Ohio State University Columbus, OH Contact: 513.850.4432 melick.20@osu.edu Fund: OSU SIM Class (Bus Fin 824) Fund Manager: Royce West, CFA Sector: Industrials Industry: Heavy Duty Trucks & Parts Key Data Current Price Target ($) 67.00 Share Price ($) 46.31

Market Cap ($ mn) 3,435.0 Dividend Yield (%) 0.9 Net Margin (%) 4.2 Debt/total capital (%) 68.7 52 Week High ($) 65.83 52 Week Low ($) 46.09

Investment Thesis Oshkosh Truck Corporation is a leading manufacturer of specialty vehicles and bodies reporting in four primary business segments: Defense, Access Equipment, Fire & Emergency and Commercial. In fiscal 2007, Oshkosh Truck reached $6.3 billion in sales and delivered an 11th consecutive year of improving financial results. Oshkosh is poised for continued strong performance.

Summary I have assigned a one year price target of $67 to shares of OSK. The following are key assumptions supporting this estimate:

Growth in the Defense segment will continue at a robust pace until 2010. In FY2008 the U.S. Department of Defense plans on ordering 3x FY2007 levels of Oshkosh Heavy Tactical Vehicles. The process of recapitalizing existing vehicles will also begin to take place and will last through 2010.

Recently completed acquisition of JLG gets the Company a more diverse and profitable product line-up while reducing Oshkosh’s exposure to the slowing domestic economy.

Access Equipment segment will be able to continue improving operating margins.

Three standard valuation methods (Multiples Analysis, Comparable Multiples and Discounted Cash Flow) support this valuation and all suggest the intrinsic value of OSK shares is 35-45% above the current price.

Key Risks U.S. defense budget cuts and a weaker global economy

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Table of Contents

Investment Thesis 1 Summary 1 Key Risks 1 Company Overview 3 Defense 4 Access Equipment 4 Fire & Emergency 4 Commercial 5 Macroeconomic Analysis & Sector Implications 5 Industry Analysis 7 Federal Reserve 8 Oshkosh Truck’s Position in the Industry 9 Growth Drivers & Catalysts 10 Defense 10 Access Equipment 11 Fire & Emergency 12 Commercial 12 Acquisitions 13 Risks 13 Financial Analysis 14 DuPont Analytics 14 Valuation 15 Multiples Analysis 15 Comparables Analysis 16 Discounted Cash Flow Model 17 Conclusion 19 Appendix A – Balance Sheet 20 Appendix B – Income Statement 21 Appendix C – Cash Flow Statement 22 Appendix D – Projected Income Statement 23 Appendix E – Discounted Cash Flow Model 24

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Company Overview 1

Oshkosh is a leading designer, manufacturer and marketer of specialty vehicles and vehicle bodies. The company has built leading positions within its set of businesses including #1 market leading positions in heavy military trucks, U.S. and European Fire Rescue vehicles and U.S. concrete mixers. Oshkosh operates in four segments – Defense, Access Equipment, Fire & Emergency, and Commercial. The company’s four primary end markets are non-residential construction, defense, residential construction and trucks. Exhibit 1: Revenue fairly balanced Exhibit 2: Profits are concentrated in 2008E Oshkosh sales by segment Access Equipment & Defense 2008E Oshkosh EBIT by segment

Exhibit 3: Concentrated geographically Exhibit 4: Becomes more diverse with 2007 Oshkosh sales by region JLG acquisition 2008E Oshkosh sales by region

U.S.82%

EAME13%

Other5%

Source: Investor Presentation Source: Investor Presentation

1 Adapted from Oshkosh Truck’s 2007 10-K

Defense26%

Commercial17%

Fire & Emergency

17%

Access Equipment

40%

Defense35%

Commercial8%

Fire & Emergency

14%

Access Equipment

43%

U.S.73%

EAME21%

Other6%

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Defense Oshkosh Trucks has sold products to the U.S. Department of Defense for over 80 years and has a proven track record as a reliable, quality supplier. The Company’s military line of heavy-payload tactical trucks includes the Heavy Equipment Transporter, the Palletized Load System, the Common Bridge Transporter and the Logistic Vehicle System. Oshkosh is also a manufacturer of severe-duty, medium-payload trucks for the U.S. Marine Corps. In 2005 Oshkosh launched the Medium Tactical Truck to offer a line of lower-cost severe-duty, medium-payload trucks suitable for less demanding requirements. The Company also exports severe-duty-heavy-and medium-payload tactical trucks to approved foreign customers. For example, Oshkosh was recently awarded a contract by the Egyptian Ministry of Defense to deliver 35 Heavy Equipment Transport military vehicles along with 35 trailer kits, training services and support. Oshkosh operates under a one-year, renewable Family of Heavy Tactical Vehicles (FHTV) requirements contract with the DoD. The current contract expires in February 2008 and management is currently in negotiations to renew this contract for an additional year. As a result of the significant usage of the Company’s heavy-payload trucks in Operation Iraqi Freedom and the Company’s performance under the initial contract, the Company was awarded a five-year follow-on contract in September 2004 to rebuild Oshkosh heavy-payload defense trucks and trailers deployed in Iraq. Access Equipment In December 2006, through its JLG acquisition, Oshkosh became a leading worldwide manufacturer of a wide range of aerial work platforms, telehandlers, scissor lifts and vertical masts used in a variety of construction, industrial, institutional and general maintenance applications to safely and efficiently position workers and materials at elevated heights that might otherwise require scaffolding, ladders or cranes. The Company also designs, manufactures, and sells Caterpillar-branded telehandlers under a 20-year strategic alliance entered into in October 2005. Fire & Emergency Through the Pierce brand, Oshkosh is a leading manufacturer of fire apparatus assembled on custom chassis, designed by Pierce to meet the special needs of firefighters. Pierce also manufactures fire apparatus assembled on commercially available chassis, which are produced for multiple end-customer applications. The Company offers a full line of custom and commercial fire apparatus and emergency vehicles including pumpers, aerial and ladder trucks, tankers, light-,medium and heavy duty rescue vehicles, wildland rough terrain response vehicles, mobile command and control centers, bomb squad vehicles and hazardous materials control vehicles. Pierce primarily serves domestic municipal customers, but also sells fire apparatus to airports, universities and large industrial companies, and in international markets.

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Other brands include; JerrDan, a manufacturer of towing and recovery trucks and equipment; BAI, which produces emergency vehicles and snow removal vehicles for use in the airline industry; Medtec, a manufacturer of custom ambulances for private and public transporters; OSV, manufactures mobile medical vehicles. Commercial Through McNeilus and the Geesink Norba Group the company is a leading North American and European manufacturer of refuse collection vehicles for the waste services industry. The Company is also a leading manufacturer of front- and rear-discharge concrete mixers and portable and stationary concrete batch plants for the concrete ready-mix industry throughout North America. Through IMT, the Company manufactures field service vehicles and truck-mounted cranes for the construction, equipment dealer, building supply, utility, tire service and mining industries. Macroeconomic Analysis & Sector Implications Given the inherent cyclicality of the Industrials sector it is important to study the current economic environment for any signs that the steady growth we have enjoyed for the past five years may be slowing. Any apparent signs that the economy may go into a recession would put immediate pressure on economically sensitive sectors, especially Industrials. Several economic data points that are useful for gauging the health of the economy and Industrials sector are: Industrial Production, Capacity Utilization and the ISM Purchasing Managers Index. Exhibit 5 shows the Industrial Production Index (IPI) sequential quarter growth for the past 20 years. The IPI is an economic indicator released by the Federal Reserve Board each month. The index measures the amount of output from the manufacturing, mining, electric, and gas industries. If the index is growing quarter/quarter than that indicates companies within the Industrial sector are performing well. Since 2002 there have only been six instances where the index did not grow from quarter to quarter and each negative dip has only lasted one quarter. In the most recent quarter the index grew slightly less than 1%, which is in-line with historical averages through periods of economic expansion. This indicates a healthy economy and an environment conducive to growth within the Industrial sector.

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Exhibit 5: Industrial production growth remains strong Index of industrial production

Source: Factset Exhibit 6 displays the U.S. Capacity Utilization rate. This measure, released by the Federal Reserve Board, shows the percent of plants and equipment in the U.S. that are actually being utilized. If this measure is rising then it indicates that the economy is expanding. Capacity utilization has been steadily increasing since the last recession, but is still off of the historic highs seen in the past 20 years, indicating that there is still room for this measure to improve further. Another important indication that can be gleaned from this data is the pricing power that companies within the Industrial sector have. If capacity is tight, then companies will have an easier time passing price increases through to their customers. Exhibit 6: Robust demand driving capacity utilization rates higher Capacity utilization rate for manufacturing companies

Source: Factset

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The Institute of Supply Management’s (ISM) Purchasing Managers Index (PMI) for the past 20 years is shown in Exhibit 7. This index is created by surveying 300 purchasing managers from different U.S. industrial companies. It obtains their opinion on five major indicators: new orders, inventory levels, production, supplier deliveries, and the employment environment. A PMI above 50 indicates expansion in the manufacturing sector. The most recent reading was 52, indicating a current economic environment suitable for continued growth in the Industrial sector. Exhibit 7: Manufacturing sector is in a period of expansion ISM Purchasing Managers Index

Source: Factset

Industry Analysis Oshkosh Truck fits into Heavy Duty Trucks & Parts industry group. Some of the largest companies in this industry group include: Paccar, Volvo, Spartan Motors, and Federal Signal. All of these companies produce large trucks used for commercial purposes. Federal Signal competes directly with Oshkosh’s Fire & Emergency segment by producing fire rescue apparatus including pumpers and tankers. When assessing future out-performance prospects for this industry group, and thus Oshkosh, it is important to analyze the industry’s performance during different economic cycles as determined by analyzing the Federal Reserve’s adjustments to the Federal Funds Rate. It is also equally important to assess Oshkosh Truck’s position within the industry and specific factors that will drive its growth in the future.

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Federal Reserve So far this year the Federal Reserve has lowered the Federal Funds Rate by 75 basis points. They cited slowness in the American economy and turmoil in the financial markets as the reason for the two easings in each of their past two meetings. In each of the past two meetings the market had fully expected easings by the Federal Reserve. However, the Fed’s last statement accompanying the rate cut announcement indicated that they believe the risk of slowing economic growth is currently balanced with the risk of increasing inflation. From this statement I believe that while the Fed may cut rates one more time in December, it is unlikely that we will see additional rates cuts in the first half of 2008, unless future economic data indicates that the economy is slowing more than the Fed expects. Exhibit 8 shows the area of the business cycle I believe we are in, based on actions by the Federal Reserve, and the asset classes that have historically performed best in this environment. Exhibit 8: Economy currently in the midst of a mid-cycle slowdown General business cycle as it relates to the Fed’s adjustments to the Federal Funds rate

Extensive research has been done to show which industry groups perform best during periods of Fed rate hikes, rate cuts and the interim period between the last rate cut and the first rate increase. Given the uncertainty as to whether the Fed will continue to cut rates or whether we are in the interim period, it is useful to see how the Heavy Duty Trucks & Parts industry has fared in each of these periods. Research done by investment firm, Bernstein, in January of 2001 shows the relative returns of different industries compared to the S&P 500 during periods of Fed rate cuts. While some cyclical groups have performed poorly, such as commodities and transports,

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the capital goods group, which includes Heavy Duty Trucks & Parts, has outperformed the S&P 500 by an average of 1.7%. Bear, Stearns & Co. did similar research in 2002 that shows what industry groups performed best during the interim period between the last Fed rate cut and the first rate increase. The performance of the Heavy Duty Trucks & Parts industry group is even more impressive in this stage. Historically the industry group has outperformed the S&P 500 by 5% during these time periods. While it is unclear what the Federal Reserve’s next move will be, investors should feel secure knowing that this industry group has performed well in either stage of the business cycle that we might possibly be going through. Oshkosh Truck’s Position within the Industry Oshkosh has a unique position within the industry. Whereas companies like Paccar and Volvo may sell a large portion of their products directly to other industrial companies, Oshkosh obtains a significant amount of their revenue and earnings from the government through their Defense segment. This puts Oshkosh in a unique and advantageous position. Because government defense spending is not related to the health of the U.S. economy, Oshkosh will continue to have success in this segment regardless of whether or not the economy slows down. Exhibit 9 shows the amount of money spent by the U.S. government on the Army and as this amount has increased so have Oshkosh’s Defense sales. Since the government is expected to increase their spending on the Army in 2008, Oshkosh should see increased sales in their Defense segment. Exhibit 9: Oshkosh Defense sales to accelerate in 2008 OSK Defense sales vs. Government spending on the U.S. army

$0

$500

$1,000

$1,500

$2,000

$2,500

1999 2000 2001 2002 2003 2004 2005 2006 2007E 2008E

U.S. Army spending OSK Defense Sales

Source: Company data and Goldman Sachs Research

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Growth Drivers & Catalysts2 Given the segmented operations of Oshkosh Trucks it is important to analyze each segment individually to determine what will cause each segment to out-perform or to what factors will cause a segment to become a drag on the Company’s growth. The two best performing segments are Defense and Access Equipment. The Defense segment is set to outperform by increasing their production for the U.S. government and the Access Equipment segment is set to outperform due to increased international sales and margin improvement. Fire & Emergency and Commercial will continue to show below trend growth as a result of a slowdown in the economy. In addition, management has demonstrated a strong ability to make quality acquisitions to fuel Oshkosh’s growth.

Defense

I believe the reason for the recent sell-off in OSK shares is a result of market expectations that spending by the U.S. Department of Defense will soon slow to more normal levels as Operation Iraqi Freedom winds down. However, the market is pricing in a slowdown quicker than what will actually occur. Investors would have significant reason to worry if this were to actually be the case. The war in Iraq has helped to fuel the 121% increase in the Defense segment’s sales since it began in 2003. Obviously a rapid reduction in military spending on the war would negatively impact the segment. On the contrary, recent developments do not support this case.

The Department of Defense is planning a three-fold increase in the deployment of Oshkosh’s trucks within their Family of Heavy Tactical Vehicles (FHTV) in 2008 (approximately 45% of the Defense segment’s sales). Management expects the Defense segment to see revenue growth of 20% in 2008. In my DCF model I factored in Defense growth of 32% for two reasons. First, management has historically been conservative when estimating the growth of this segment (Exhibit 10) by an average of 15% since 2003. Second, because the Defense segment’s business is contract driven as opposed to being based on government production plans, it is often hard to pin down exactly how much business will be given to Oshkosh and this uncertainty causes management to give conservative guidance. Exhibit 10: Guidance has been consistently conservative since beginning of Iraq war Oshkosh Defense sales vs. initial management guidance

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

2003 2004 2005 2006

Initial Guidance Actual Sales (millions)

Source: Company data, Goldman Sachs Research 2 Oshkosh Truck Corp. – Goldman Sachs Research, 2 October 2007

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After this surge in 2008 I expect the Defense segment’s growth to moderate to 10% in 2009 when U.S. activities in Iraq begin winding down. However in 2009, when this slowdown does occur, Oshkosh will again be called upon to maintain and repair their vehicles that are currently deployed in Iraq. This should keep growth in this segment going for at least an additional 12 months. If the U.S. maintains its force in Iraq past 2009 then this would provide upside to my model. There is one major catalyst that, if it were to occur, would give significant upside to my Defense segment growth estimates. The Department of Defense currently has plans to purchase 6,400 mine-resistant ambush protected (MRAP) vehicles for deployment in Iraq. Several companies have already announced large contracts for their own MRAP vehicles including Force Protection and General Dynamics. Oshkosh has partnered with two other defense companies, Ceradyne and Ideal Innovations, to produce “the Bull.” It has delivered the prototype to the government for testing and no decision has yet been made as to whether or not Oshkosh will be awarded a contract for their MRAP vehicle. Access Equipment In December 2006 Oshkosh bought JLG for $3 billion in cash and debt. JLG is a market leader in aerial access equipment. This acquisition will give Oshkosh access to the rapidly growing international infrastructure build-out. I am forecasting 8% growth in this segment due to an expected slowdown in North American sales. This is due to the expectation that equipment rental companies are going to reduce their capital spending by almost 15% in 2008. However, growth outside of North America is expected to remain robust with at least 15% growth in 2007. International growth is being fueled by large government surpluses in Asia and the Middle East. Also, this higher mix of international sales is a positive for the segment as the product mix sold overseas tends to have higher margins. For example, telehandlers, which have low margins, are a larger portion of the product mix sold in North America than overseas. The main driver of growth in this segment going forward will be margin improvements. Operating margins at JLG are currently about 10-11%. Its primary competitor, the Genie subsidiary of Terex, has margins of almost 20%. JLG should begin to move closer to these margins by shifting to higher margin products, reducing manufacturing efficiencies and better utilizing their large scale across all of their processes. To account for these improvements I factored in gradually improving margins for this segment for 2008 (11.5%) and 2009 (12.0%). Exhibit 11 shows the significant progress JLG has already made since 2001.

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Exhibit 11: Margin improvement initiatives already taking shape Access Equipment historic and forecasted operating margins

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

2001 2002 2003 2004 2005 2006 2007E 2008E 2009E

Source: Company Data, Goldman Sachs Research Fire & Emergency After the acquisition of Pierce in 1996 Oshkosh’s Fire & Emergency segment has achieved an 11% organic CAGR. Pierce is approximately 55% of Fire & Emergency sales. Within this segment many brands have increased market share in each of their respective markets. For example, when Pierce was acquired in 1996 they held 20% of the market for fire rescue pumpers and by 2006 that market share had improved to 33%. Margins in this segment have historically been lower than the rest of Oshkosh given the competition that exists in the fire and emergency vehicles market. Also, this segment spends 3% of revenue on R&D, which is higher than the average for the rest of Oshkosh (1.2%). This higher spending on R&D has been an important driver of the market share gains won by the Fire & Emergency segment. I am forecasting sales growth of 6% for 2008, which is in-line with management’s guidance and takes into account a slowing U.S. economy. U.S. sales account for 95% of this segment’s revenue. Commercial The Commercial segment has recently been the worst performing segment within Oshkosh and will likely continue to show lackluster growth for the near future. Fortunately, it is also the smallest segment within Oshkosh, accounting for 17% of 2008E revenue and only 8% of 2008E EBIT. My forecast is for -1% revenue growth in 2008, which is in-line with management’s guidance, and no growth in 2009 as a result of the slowing construction markets. The Company has had some recent success. In 2002 they launched the rear-discharge Revolution concrete mixer drum and in 2006 they launched the front-discharge version. This concrete drum is the first and only composite drum ever produced (all other drums are made with steel). The Revolution drum offers greater concrete payload per vehicle and longer drum life, which lowers the cost per yard of concrete delivered. Oshkosh offers the Revolution as a premium priced product and has seen great adoption rates due

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to the quick payback to customers through lower operating costs. To date the Company has sold 2,000 drums. The sale of these drums has been slower than expected due to problems with the technical design and the production process. Management now believes those issues have been resolved and the production process can be ramped up to meet the demand for the Revolution drum. If this ramp-up process moves at a rate quicker than management expects, then that would add upside to my model. Acquisitions Since 1997 Oshkosh has generated a return of 12% on their invested capital, while at the same time growing their invested capital at a 32% CAGR. This is well ahead of the peer group average. Seven of Oshkosh’s largest acquisitions account for approximately 50% of 2007 earnings. Management has established a strong track record for making quality acquisitions. They have successfully acquired and integrated 15 companies over the last 11 years, which has helped to contribute to the 35% CAGR in operating income over the last 10 years. For example in 2008, Pierce, McNeilus and Jerr-Dann are all forecasted to show 14-30% returns on capital from their original purchase price. The current management team has been with Oshkosh for over 15 years on average. During that time they have grown Oshkosh by establishing many diverse product lines, distribution networks and established a wide geographic footprint. When many of them began in 1997 sales were only $700 million. Today sales are over $6 billion. Risks Oshkosh Trucks faces a number of risk factors that could adversely affect the Company’s performance and have a negative impact on their stock price.

Oshkosh is a cyclical company and their performance relies heavily on a strong U.S. and global economy. Any slowdown greater than what is currently expected, and especially a recession, would cause many of my growth estimates to prove too optimistic.

A heavy reliance on domestic growth. Of 2008E revenue 73% is expected to come from the U.S. This does not give Oshkosh significant exposure to the international infrastructure boom and more rapidly expanding economies. However, the acquisition of JLG will help to give the company more international exposure than it has had in the past.

A reduction in spending by the U.S. Department of Defense. 35% of 2008E EBIT comes from the Defense segment and the DoD is the primary customer. If Operation Iraqi Freedom were to not last as long as expected, then that would negatively affect the Defense segment.

Inability to fully integrate the JLG acquisition. This $3 billion acquisition is very significant for Oshkosh considering the market cap of Oshkosh is only $3.5 billion. However, in their most recent quarter JLG was more accretive than management had expected.

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Financial Analysis Located at the end of this report (Appendix A-C) are Oshkosh Truck’s financial statements dating back to 2002. Looking at the balance sheet, the biggest change is the large increase in long-term debt to $3 billion when historically long-term debt has been minimal. This is a result of the debt Oshkosh took on to acquire JLG. While this is a very large increase, it should be manageable given the Company’s strong cash flow. Also, the Company’s liquidity ratios still look healthy. The current ratio is 1.4, which is higher than the historical average of 1.1. EBIT/Interest Expense is 3.0, which is significantly lower than it has been historically, but still shows that the Company can service its temporarily high debt level. In general, most balance sheet accounts are significantly higher in FY07 than in FY06 due to the large acquisition of JLG. The income statement is quite impressive. Since 1997 revenue, operating income, and EPS have had CAGRs at 25%, 35%, and 38% respectively. All of this growth has been fueled by several factors including: increased international exposure, strong defense spending, cost reductions, and acquisitions made possible by strong free cash flow. Oshkosh has historically been able to generate high levels of cash. Their largest source of cash has come from operating activities. In FY07 the Company generated more than $400 million in cash from operations and cash flow from operation has been positive for 9 out of the last 10 years. The Company has typically had negative cash flow from investing activities since they make frequent acquisitions and have to spend to maintain their property, plant, and equipment. Cash flows from financing have been mixed over the last 10 years. Recently, cash flow from financing was approximately $2.9 billion as the Company borrowed to buy JLG. Oshkosh has also always paid a dividend. DuPont Analytics A DuPont Analysis is a quick way to summarize the efficiency of the income statement through profitability and the efficiency of balance sheet by analyzing activity levels. The profitability measure assesses the operating performance of a company by looking at margins. The activity measure shows how efficiently a company utilizes its resources prior to financing costs and tax expenses. These two measures combine to show a company’s Return on Equity. Exhibit 12 shows the data and calculations made in a DuPont analysis.

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Exhibit 12: Return on Capital Employed Improving DuPont Analysis Summary 9/2007 9/2006 9/2005 9/2004 9/2003 Asset Turnover 1.48 1.79 1.87 1.78 1.83 x Pretax Income Margin 6.4 9.5 8.9 7.9 5.9= Pretax Return on Assets 9.5 17.1 16.6 14.1 10.7 x Tax Rate Complement (1-Tax Rate) 66.5 63.0 61.1 63.1 67.1= Return on Assets 6.3 10.7 10.1 8.9 7.2 x Equity Leverage (Assets/Equity) 4.59 1.99 2.10 2.28 2.09= Return on Equity 21.8 21.9 22.0 19.5 16.3 x Earnings Retention (1-Payout) 89.0 86.9 90.0 91.9 92.9= Reinvestment Rate 19.4 19.0 20.2 17.8 14.8

Source: Company Data, Factset The Asset Turnover and Return on Asset measures are slightly lower than historical averages, but this does not necessarily mean Oshkosh is operating any less efficiently than it has in the past. This reduction is primarily due to the large acquisition of JLG. The Company used nearly $3 billion in debt to buy JLG and has caused returns on assets to be lower in FY2007 due to the large interest expense burden. However, the Company’s Return on Capital Employed remains close to an all-time indicating that Oshkosh management is still able to acquire and integrate quality assets. I estimate that the Company will return to more historical asset turnover and ROA characteristics as their high levels of free cash flow allow them to pay off the increased debt load. Valuation There are several ways to value shares of Oshkosh Trucks including: Multiples Analysis, Comparable Analysis and a Discounted Cash Flow model. Multiples Analysis The first step in my multiples analysis is to compare Oshkosh Trucks to the entire Industrials sector to determine if it is over or undervalued relative to its sector (Exhibit 13). Exhibit 13: OSK relatively cheap compared to the Industrials sector OSK valuations relative to the Industrials sector Stock vs. Sector Valuation

High Low Mean Current

P/Forward E 1.20 0.39 0.88 0.77 P/S 0.91 0.12 0.41 0.51 P/EBITDA 1.60 0.29 0.78 0.78 P/CF 1.61 0.38 1.00 1.24 P/E/G ratio 0.90 0.45 0.64 0.48 Source: StockVal

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OSK looks cheap on this basis. The P/Forward E is significantly lower than it has been historically. Also, the PEG ratio is much lower than it has been. This indicates that the market has not taken into account the level of growth that OSK can produce. It looks expensive by the P/S and P/CF but this is likely due to the large acquisition of JLG that OSK completed this year. The increases in sales and cash flow have not fully occurred as of today and the market has taken that into account. In general, OSK shares should warrant a premium versus the sector given that Oshkosh is expected to grow at 20.0% while the sector is only expected to grow at 12.4%. This relatively low valuation indicates that there is potential for current multiples to expand. This step of the analysis helps to put into perspective the absolute valuation of Oshkosh. It gives a basis for assigning multiples and acts as a reasonability check. I then assessed the current multiples of OSK shares and compared them to the historical highs, lows, and means. I assumed that all of the multiples would return to the mean (Exhibit 14) and then I took the arithmetic average of the implied share prices to come up with a target price of $63.82. This is likely a conservative assumption given the favorable factors offered by the JLG acquisition. First, JLG gives Oshkosh more exposure to international economies, which are growing significantly faster than the U.S. Second, margins in the JLG business are approximately 10%, which is higher than the historical average for the company. Also, tax rates in foreign countries tend to be lower than in the U.S., which will bring down the amount of tax Oshkosh pays and make the Company more profitable. Exhibit 14: Multiples should at least revert to their historical means Multiples Analysis Absolute Valuation

High Low Mean Current Target Multiple

Per Share Target

Target Price

P/Forward E 26.50 7.70 14.80 12.30 14.80 4.69 69.41 P/S 1.46 0.20 0.59 0.80 0.59 98.15 57.91 P/EBITDA 17.90 2.90 7.10 6.70 7.10 8.68 61.63 P/CF 21.20 5.30 11.90 16.10 11.90 3.61 42.96 P/E/G ratio 1.30 0.60 0.90 0.60 0.90 96.92 87.23 Average 63.82 Source: StockVal Comparables Analysis For the comparables analysis I looked at each segment within Oshkosh and assigned it an EV/EBITDA multiple based on the same multiple for companies that have comparable business operations to each respective segment (Exhibit 15). I factored in a 5% premium for the Defense and Fire & Emergency segments to account for their superior growth rates and market leading positions compared to their competitors.

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Exhibit 15: Oshkosh trades at a discount on a sum-of-the-parts basis Sum-of-the-parts analysis for Oshkosh based on 2008E EV/EBITDA

Comparable companies OSK segment target valuation

EV/EBITDA Target

Premium Segment Target

Multiple 2008E

EBITDA Implied Enterprise

Value Equity Value

Per Share

Defense Alliant Tech 9.1 Ceradyne 8.0 Force Protection 8.2 General Dynamics 9.2 Lockheed Martin 8.4 Northrop Grumman 8.4 Raytheon 11.0 Average 8.9 5% 9.3 329.0 $3,074 $41.10 Commercial Dover 8.8 Paccar 8.6 + Terex 7.1 Average 8.2 0% 8.2 72.9 $595 $7.96 Fire & Emergency Federal Signal 7.7 Paccar 8.6 + Average 8.2 5% 8.6 127.0 $1,087 $14.53 Access Equipment Caterpillar 8.2 Manitowoc 8.8 + Terex 7.1 Average 8.0 0% 8.0 362.1 $2,909 $38.89 - Net Debt $40.65 = Sum of Parts Target $61.83 Implied Upside 34%

Source: Company Data, Factset, Goldman Sachs Research

Discounted Cash Flow Model The DCF model (Appendix E) is the most comprehensive valuation tool discussed in this report. It allows the user to input and assess a wide range of assumptions. It reduces the amount of ambiguity of looking at past multiple averages, which do not account for changes in a company’s business model. A comparable company analysis compares the company to competitors that are not exactly similar to each individual business segment. However, they do provide good reasonability checks. Using the DCF model I have calculated a target price of $67. While constructing this model I used the following assumptions: Income Statement

I followed the sales and margin estimates discussed in the Growth and Catalysts section along with management estimates.

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Interest expense is expected to decrease by 0.1% each year starting in 2010 as the Company pays off its debt it used to acquire JLG.

The tax rate is expected to be 30%. This approximates the historical average and accounts for expanding international operations, which carry a lower tax rate.

Non-operating income is expected to be at 0.1% of sales, which is slightly below the historical average.

Balance Sheet Accounts Receivable, Accounts Payable and Inventories have been stable

historically and the levels used in the model are consistent with those trends. A higher debt level is the basis for the elevated interest expense. Depreciation is expected to remain steady and follow the historic trend.

Cash Flow Depreciation and capital expenditure levels are in-line with near-term

expectations and are set to become the same percentage of sales over time. The discount rate used is 10%, which is reasonable given the inherent risks in a cyclical growth company. The terminal discount rate is 5%, which is approximately long-run GDP growth (3%) plus long-run inflation (2%). Exhibit 16 shows the differences between my estimates and consensus estimates for revenue and diluted EPS. Management guidance is also shown for revenue in FY2008. My estimates are slightly lower than each of the other estimates. This is due to my belief that residential construction is set to remain slow for longer than expected. I am also accounting for the risk that the JLG acquisition may not be as accretive as quickly as expected due to the fact that management has not ever completed an acquisition of this magnitude. Their estimates may be slightly too optimistic. Exhibit 16: Estimated Revenue and Diluted EPS slightly lower than expectations Revenue and Diluted EPS vs. Management and Consensus expectations Revenues 2008 2009 Management Guidance $7.1 - 7.3 billion N/A Consensus $7.4 billion $7.9 billion Estimated Sales $7.0 billion $7.3 billion EPS (Diluted) 2008 2009 Consensus $4.72 $5.36 Estimated EPS $4.39 $4.79

Source: Company Data, Wedbush Morgan Research

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Conclusion I am rating shares of Oshkosh Trucks a BUY with a price target of $67. I believe that shares of Oshkosh are currently undervalued by the market for several reasons. First, the market may be pricing in a rapid and significant slowdown in the Defense segment as Operation Iraqi Freedom becomes increasingly unpopular and presidential candidates reveal their plans for troop withdrawals. However, this is not what recent developments tell us. The U.S. Department of Defense is planning a three fold increase in orders of trucks from Oshkosh’s FHTV segment. Also, even when the war ends there will still be significant need to recapitalize the vehicles and equipment that have been used during the war. Second, the market may be discounting the shares due to the exposure to the residential construction market. However, the Company’s primary exposure to this segment of the economy is primarily through the Commercial segment and a small portion of the Access Equipment segment. The Commercial segment is only 8% of EBIT and slower growth has been factored into my model and is in-line with management’s near-term expectations. The Access Equipment segment is more levered to commercial construction spending and also has significant growth opportunities overseas. Third, the market may be pricing in an economic environment that will slow more than expected. However, most economic indicators are not signaling a significant slowdown and certainly not a recession. Also, a significant portion of Oshkosh’s revenue is from the government, which is not heavily dependent on the economic environment. Finally, investors may believe that management will have trouble integrating JLG. This may be the case and is the reason for my below-consensus estimates. However, JLG was more accretive in FY2007 than was expected. Also, JLG will eventually be fully integrated and it presents the Company with significant opportunities through exposure to rapidly-expanding international economies, increased diversification of product lines, and a reputable and market-leading brand.

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Appendix A - Oshkosh Truck Balance Sheet

Year Ended September 30 ($ in millions, except per share data)

FY FY FY FY FY FY 2007 2006 2005 2004 2003 2002 Assets Current Assets Cash & Short-Term Investments 75.2 22.0 127.5 30.1 19.2 40.0 Net Receivables 1,076.2 317.9 280.2 253.9 159.8 142.7 Inventory 909.5 589.8 490.0 368.1 242.2 210.9 Other Current Assets 134.0 73.7 56.6 58.6 45.5 33.4 Total Current Assets 2,194.9 1,003.4 954.3 710.7 466.7 427.0 Net Property, Plant & Equipment 429.6 231.9 193.0 168.6 146.5 140.4 Long-Term Investments 35.1 19.3 20.3 21.2 22.0 22.3 Intangibles 3,597.5 778.0 528.4 531.2 445.9 423.0 Other Assets 142.7 78.4 22.2 20.7 2.2 11.6 Total Assets 6,399.8 2,111.0 1,718.2 1,452.4 1,083.3 1,024.3 Liabilities and Shareholder's Equity Current Liabilities Debt in Current Liabilities 90.0 136.0 42.9 98.6 70.4 42.0 Accounts Payable 628.1 236.5 226.8 200.3 115.7 116.4 Income Taxes Payable 64.0 12.8 11.6 17.6 0.3 8.6 Other Current Liabilities 765.9 496.8 494.3 363.2 281.6 226.0 Total Current Liabilities 1,548.0 882.1 775.6 679.7 468.0 393.0 Long-Term Debt 2,975.6 2.2 2.6 3.2 1.5 131.7 Deferred Taxes 340.1 100.0 55.4 66.5 47.6 39.3 Minority Interest 3.8 3.8 3.1 2.6 0.0 0.0 Other Liabilities 138.7 61.0 62.9 64.3 47.1 50.5 Total Liabilities 5,006.2 1,049.1 899.6 816.3 564.2 614.5 Common Stock 0.7 0.7 0.7 0.4 0.4 0.2 Capital Surplus 227.6 205.2 186.1 134.7 126.5 111.6 Retained Earnings 1,165.3 856.0 631.8 501.0 392.2 298.0 Total Shareholders Equity 1,393.6 1,061.9 818.6 636.1 519.1 409.8 Total Liabilities and Shareholder's Equity 6,399.8 2,111.0 1,718.2 1,452.4 1,083.3 1,024.3

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Appendix B – Oshkosh Truck Income Statement

Year Ended September 30 ($ in millions, except per share data)

FY FY FY FY FY FY 2007 2006 2005 2004 2003 2002

Net Sales 6,307.3 3,427.4 2,959.9 2,262.3 1,926.0 1,743.6 Cost of Goods Sold 5,270.4 2,827.5 2,472.8 1,905.9 1,640.5 1,489.1 SG&A 446.6 265.6 220.4 176.0 156.3 143.3 Depreciation & Amortization* 129.0 37.2 31.4 26.9 24.8 25.4 Operating Income 590.3 334.3 266.7 180.4 129.2 111.2 Interest Expense 200.8 7.4 8.2 5.5 13.5 21.3 Nonoperating Income 13.5 8.6 4.1 4.2 2.1 2.0 Nonrecurring Pretax Income (Expense) 0.0 (8.4) 0.5 (0.3) (5.1) 0.0 Pretax Income 403.0 335.5 262.6 179.1 117.8 91.9 Income Taxes 135.2 121.2 102.3 65.9 37.1 32.3 Minority Interest (0.3) 0.5 0.6 0.1 0.0 0.0 Net Income 268.1 205.4 160.2 112.8 75.6 59.6 Basic EPS 3.64 2.82 2.25 1.62 1.18 0.88Diluted EPS 3.58 2.77 2.18 1.57 1.15 0.86 * D&A included in Cost of Goods Sold

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Appendix C – Oshkosh Truck Cash Flow Statement

Year Ended September 30 ($ in millions, except per share data)

FY FY FY FY FY FY 2007 2006 2005 2004 2003 2002 Operating Net Income 268.4 205.5 160.2 112.8 75.6 59.6 Depreciation and Amortization 129.0 37.5 34.7 28.0 26.1 25.4 Deferred Tax Credit 13.6 (19.6) 4.0 0.0 2.0 (1.9)Other Operating Activities (4.4) 12.1 (2.4) (3.3) 3.5 (3.9)Loss (Gain) - PP&E (1.4) 0.1 0.3 0.3 (1.6) 0.0 Dec (Inc) in Accounts Rec (408.9) (8.8) (20.7) (56.3) (10.8) 70.6 Dec (Inc) in Inventory 116.0 (48.9) (110.9) (94.4) (25.7) 48.9 Inc (Dec) in Accounts Payable 137.8 11.4 28.0 67.5 (1.6) 17.3 Inc (Dec) in Income Tax Credit 34.7 1.6 19.2 19.5 (1.1) (12.4)Net Change in Other A&L 121.9 (11.8) 99.9 60.9 38.9 60.3 Net Cash Flow - Operating 406.7 179.1 212.3 135.0 105.3 263.9 Investing Cap Ex. (102.0) (56.0) (43.2) (30.0) (24.7) (15.6)Acquisitions and Investments (3,140.5) (272.8) (31.3) (87.5) 0.0 0.0 Sale of Property & Investments 14.6 Other Investing Activities 0.6 (0.1) 6.0 (11.0) (3.5) (7.8)Net Cash Flow - Investing (3,227.3) (328.9) (68.5) (128.5) (28.2) (23.4) Financing Dividends (29.6) (27.1) (16.0) (9.1) (6.4) (5.8)Change in Current Debt (79.9) 64.4 (51.6) 10.1 51.4 0.0 Change in Long Term Debt 3,003.2 (0.6) (0.7) (1.0) (152.9) (209.3)Change in Capital Stock 4.9 2.4 23.6 4.6 9.6 2.3 Tax Benefit of Stock Options 6.0 4.1 0.0 0.0 0.0 0.0 Other Financing Activity (34.9) 0.0 0.0 (1.3) 0.0 0.0 Net Cash Flow - Financing 2,869.7 43.2 (44.7) 3.3 (98.3) (212.8) Exchange Rate Effect 4.1 1.2 (1.7) 1.1 0.5 1.1 Increase (Dec) in Cash 53.2 (105.4) 97.4 10.9 (20.7) 28.8

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Appendix D – Oshkosh Truck Projected Income Statement

Year Ended September 30 ($ in millions, except

per share data) FY FY FY FY FY FY FY FY 2009E 2008E 2007 2006 2005 2004 2003 2002 Net Sales 7272.1 7002.5 6307.3 3427.4 2960.0 2262.3 1926.1 1743.6 Cost of Sales 5204.5 2827.5 2472.8 1905.9 1640.5 1489.1 SG&A 446.6 265.6 220.4 176.0 156.3 143.3 Operating Profit 654.4 605.6 590.3 326.2 267.1 180.5 129.2 111.1 Interest Expense (152.7) (147.1) (200.8) (7.4) (8.2) (5.5) (13.5) (21.3)Pre Tax Income 501.7 458.6 389.5 318.8 258.9 175.0 115.7 89.8 Tax (150.5) (137.6) (135.2) (121.2) (102.3) (65.9) (37.1) (32.3)Non-Operating Income 7.3 7.0 6.3 8.6 4.1 4.2 2.1 2.0 Net Income 358.5 328.0 268.1 206.2 160.7 113.3 80.7 59.5 EPS Basic 4.86 4.45 3.64 2.82 2.25 1.62 1.18 0.88 Diluted 4.79 4.39 3.58 2.77 2.18 1.57 1.15 0.86 Consensus Revenue 7890.0 7415.0 Consensus EPS – Diluted 5.36 4.72 Avg number of shares (000's) Basic 73,700 73,700 73,700 73,200 71,300 70,000 68,200 67,300Diluted 74,800 74,800 74,800 74,400 73,600 72,000 70,000 69,100 Depreciation and amortization, total 138.2 140.1 129.0 37.5 34.7 28.0 26.1 25.4 % of sales 1.9% 2.0% 1.9% 1.1% 1.2% 1.2% 1.4% 1.5% Cap Ex 116.4 112.0 126.1 56.0 43.2 30.0 24.7 15.6

% of sales 1.6% 1.6% 2.0% 1.6% 1.5% 1.3% 1.3% 0.9% Inventories 1185.3 1155.4 909.5 589.8 490.0 368.1 242.1 210.9 % of sales 16.3% 16.5% 14.4% 17.2% 16.6% 16.3% 12.6% 12.1% Accts Receivable 799.9 770.3 1076.2 317.9 280.2 253.9 159.8 142.7 % of sales 11.0% 11.0% 17.1% 9.3% 9.5% 11.2% 8.3% 8.2%Accts Payable 523.6 490.2 628.1 236.5 226.8 200.3 115.7 116.4 % of sales 7.2% 7.0% 10.0% 6.9% 7.7% 8.9% 6.0% 6.7%Chg in WC (26.2) (77.9) (686.4) (127.8) (121.7) (135.5) (49.0) (237.2) Sales growth 3.8% 11.0% 84.0% 15.8% 30.8% 17.5% 10.5% SG&A -7.5% -7.5% -7.1% -7.7% -7.4% -7.8% -8.1% -8.2%Interest Expense -2.1% -2.1% -3.9% -0.3% -0.3% -0.3% -0.8% -1.4%Operating Profit 9.0% 8.6% 9.4% 9.5% 9.0% 8.0% 6.7% 6.4%Non-Operating Income 0.1% 0.1% 0.1% 0.3% 0.1% 0.2% 0.1% 0.1%Tax Rate -30.0% -30.0% -22.9% -37.2% -38.3% -36.5% -28.7% -29.1%

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Appendix E – Discounted Cash Flow Model