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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
F O R M 10 - Q
(Mark One)
|X| Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2002
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-10702
Terex Corporation
(Exact name of registrant as specified in its charter)
Delaware 34-1531521
(State of Incorporation) (IRS Employer Identification No.)
500 Post Road East, Suite 320, Westport, Connecticut 06880
(Address of principal executive offices)
(203) 222-7170
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
------- -------
Number of outstanding shares of common stock: 47.4 million as of November 11,
2002.
The Exhibit Index begins on page 52.
INDEX
TEREX CORPORATION AND SUBSIDIARIES
GENERAL
This Quarterly Report on Form 10-Q filed by Terex Corporation ("Terex" or the
"Company") includes financial information with respect to the following
subsidiaries of the Company (all of which are wholly-owned except PPM Cranes,
Inc.) which are guarantors (the "Guarantors") of the Company's $300 million
principal amount of 10-3/8% Senior Subordinated Notes due 2011 (the "10-3/8%
Notes") and $250 million principal amount of 8-7/8% Senior Subordinated Notes
due 2008 (the "8-7/8% Notes"). The following subsidiaries, with the exception of
PPM Cranes, Inc., are also guarantors of the Company's $200 million principal
amount of 9-1/4% Senior Subordinated Notes due 2011 (the "9-1/4% Notes"). See
Note P to the Company's September 30, 2002 Condensed Consolidated Financial
Statements included in this Quarterly Report.
State or other jurisdiction of I.R.S. employer
Guarantor incorporation or organization identification number
--------- ----------------------------- ---------------------
Amida Industries, Inc. South Carolina 57-0531390
Benford America, Inc. Delaware 76-0522879
BL-Pegson USA, Inc. Connecticut 31-1629830
Cedarapids, Inc. Iowa 42-0332910
CMI Dakota Company South Dakota 46-0440642
CMI Terex Corporation Oklahoma 73-0519810
CMIOIL Corporation Oklahoma 73-1125438
Coleman Engineering, Inc. Tennessee 62-0949893
EarthKing, Inc. Delaware 06-1572433
Finlay Hydrascreen USA, Inc. New Jersey 22-2776883
Fuchs Terex, Inc. Delaware 06-1570294
Genie Access Services, Inc. Washington 91-2073567
Genie Financial Services, Inc. Washington 91-1712115
Genie Holdings, Inc. Washington 91-1666966
Genie Industries, Inc. Washington 91-0815489
Genie International, Inc. Washington 91-1975116
Genie Manufacturing, Inc. Washington 91-1499412
Genie USA Trading, Inc. Washington 91-1973009
GFS Commercial LLC Washington n/a
GFS National, Inc. Washington 91-1959375
Go Credit Corporation Washington 91-1563427
Koehring Cranes, Inc. Delaware 06-1423888
Lease Servicing & Funding Corp. Washington 91-1808180
O & K Orenstein & Koppel, Inc. Delaware 58-2084520
Payhauler Corp. Illinois 36-3195008
Powerscreen Holdings USA Inc. Delaware 61-1265609
Powerscreen International LLC Delaware 61-1340898
Powerscreen North America Inc. Delaware 61-1340891
Powerscreen USA, LLC Kentucky 31-1515625
PPM Cranes, Inc. Delaware 39-1611683
Product Support, Inc. Oklahoma 73-1488926
Royer Industries, Inc. Pennsylvania 24-0708630
Schaeff, Inc. Iowa 42-1097891
Standard Havens, Inc Delaware 43-0913249
Standard Havens Products, Inc. Delaware 43-1435208
Telelect Southeast Distribution, Inc. Tennessee 02-0560744
Terex Advance Mixer, Inc. Delaware 06-1444818
Terex Bartell, Inc. Delaware 34-1325948
Terex Cranes, Inc. Delaware 06-1513089
Terex Mining Equipment, Inc. Delaware 06-1503634
Terex Utilities, Inc. Delaware 04-3711918
Terex-RO Corporation Kansas 44-0565380
Terex-Telelect, Inc. Delaware 41-1603748
The American Crane Corporation North Carolina 56-1570091
Utility Equipment, Inc. Oregon 93-0557703
1
Page No.
PART I FINANCIAL INFORMATION
Item 1 Condensed Consolidated Financial Statements
TEREX CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Operations --
Three months and nine months ended September 30, 2002 and 2001......3
Condensed Consolidated Balance Sheet - September 30, 2002
and December 31, 2001...........................................4
Condensed Consolidated Statement of Cash Flows --
Nine months ended September 30, 2002 and 2001.......................5
Notes to Condensed Consolidated Financial Statements
-- September 30, 2002...........................................6
PPM CRANES, INC.
Condensed Consolidated Statement of Operations --
Three months and nine months ended September 30, 2002 and 2001.....27
Condensed Consolidated Balance Sheet - September 30, 2002
and December 31, 2001..........................................28
Condensed Consolidated Statement of Cash Flows --
Nine months ended September 30, 2002 and 2001......................29
Notes to Condensed Consolidated Financial Statements
-- September 30, 2002..........................................30
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................33
Item 3 Quantitative and Qualitative Disclosures About Market Risk...........46
Item 4 Controls and Procedures..............................................47
PART II OTHER INFORMATION
Item 1 Legal Proceedings....................................................47
Item 2 Changes in Securities and Use of Proceeds............................47
Item 3 Defaults Upon Senior Securities......................................47
Item 4 Submission of Matters to a Vote of Security Holders..................47
Item 5 Other Information....................................................47
Item 6 Exhibits and Reports on Form 8-K.....................................48
SIGNATURES....................................................................49
CERTIFICATIONS................................................................50
EXHIBIT INDEX.................................................................52
2
PART 1. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
(in millions, except per share data)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
--------------------------- ---------------------------
2002 2001 2002 2001
------------- ------------- ------------- -------------
Net sales.....................................................$ 674.1 $ 453.7 $ 1,946.3 $ 1,370.4
Cost of goods sold............................................ 585.4 408.2 1,654.4 1,166.1
------------- ------------- ------------- -------------
Gross profit............................................. 88.7 45.5 291.9 204.3
Selling, general and administrative expenses.................. 54.7 41.8 187.8 123.4
------------- ------------- ------------- -------------
Income from operations................................... 34.0 3.7 104.1 80.9
Other income (expense):
Interest income.......................................... 1.8 2.8 4.7 6.6
Interest expense......................................... (22.3) (21.9) (66.9) (66.1)
Other income (expense) - net............................. 3.2 (0.6) (8.4) (1.5)
------------- ------------- ------------- -------------
Income (loss) before income taxes and extraordinary items 16.7 (16.0) 33.5 19.9
Provision for income taxes.................................... (5.3) 5.1 (10.7) (6.4)
------------- ------------- ------------- -------------
Income (loss) before extraordinary items................. 11.4 (10.9) 22.8 13.5
Extraordinary loss on retirement on debt...................... (1.6) --- (1.6) (2.3)
Cumulative effect of change in accounting principle........... --- --- (113.4) ---
------------- ------------- ------------- -------------
Net income (loss).............................................$ 9.8 $ (10.9) $ (92.2) $ 11.2
============= ============= ============= =============
Per common share:
Basic:
Income (loss) before extraordinary items................$ 0.26 $ (0.41) $ 0.55 $ 0.50
Extraordinary loss on retirement of debt................ (0.04) --- (0.04) (0.08)
Cumulative effect of change in accounting principle..... --- --- (2.71) ---
------------- ------------- ------------- -------------
Net income (loss).....................................$ 0.22 $ (0.41) $ (2.20) $ 0.42
============= ============= ============= =============
Diluted:
Income (loss) before extraordinary items................$ 0.25 $ (0.41) $ 0.54 $ 0.48
Extraordinary loss on retirement of debt................ (0.03) --- (0.04) (0.08)
Cumulative effect of change in accounting principle..... --- --- (2.67) ---
------------- ------------- ------------- -------------
Net income (loss).....................................$ 0.22 $ (0.41) $ (2.17) $ 0.40
============= ============= ============= =============
Weighted average number of shares outstanding in per share calculation:
Basic................................................. 44.5 26.9 41.8 26.9
Diluted............................................... 45.2 26.9 42.5 27.7
The accompanying notes are an integral part of these financial statements.
3
TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(in millions, except par value)
September 30,
2002 December 31,
(unaudited) 2001
----------------- -----------------
Assets
Current assets
Cash and cash equivalents.............................................. $ 337.6 $ 250.4
Trade receivables (net of allowance of $12.8 at September 30, 2002
and $8.6 at December 31, 2001)....................................... 639.0 351.1
Inventories............................................................ 1,133.7 704.8
Deferred taxes......................................................... 49.0 23.7
Other current assets................................................... 136.2 53.0
----------------- -----------------
Total current assets............................................... 2,295.5 1,383.0
Long-term assets
Property, plant and equipment.......................................... 265.3 173.9
Goodwill............................................................... 604.5 620.1
Deferred taxes......................................................... 94.6 75.4
Other assets........................................................... 332.8 134.6
----------------- -----------------
Total assets................................................................ $ 3,592.7 $ 2,387.0
================= =================
Liabilities and Stockholders' Equity
Current liabilities
Notes payable and current portion of long-term debt.................... $ 86.5 $ 34.7
Trade accounts payable................................................. 527.9 291.0
Accrued compensation and benefits...................................... 73.6 37.4
Accrued warranties and product liability............................... 85.5 62.7
Other current liabilities.............................................. 300.8 201.3
----------------- -----------------
Total current liabilities.......................................... 1,074.3 627.1
Non-current liabilities
Long-term debt, less current portion................................... 1,548.2 1,020.7
Other.................................................................. 198.1 143.8
Commitments and contingencies
Stockholders' equity
Equity rights.......................................................... --- 0.5
Common stock, $.01 par value - authorized 150.0 shares; issued 48.5
and 37.5 shares at September 30, 2002 and December 31, 2001,
respectively......................................................... 0.5 0.4
Additional paid-in capital............................................. 753.8 532.4
Retained earnings...................................................... 107.7 199.9
Accumulated other comprehensive income................................. (72.1) (120.3)
Less cost of shares of common stock in treasury - 1.2 and 1.1 shares at
September 30, 2002 and December 31, 2001, respectively............... (17.8) (17.5)
----------------- -----------------
Total stockholders' equity......................................... 772.1 595.4
----------------- -----------------
Total liabilities and stockholders' equity.................................. $ 3,592.7 $ 2,387.0
================= =================
The accompanying notes are an integral part of these financial statements.
4
TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
(in millions)
For the Nine Months
Ended September 30,
---------------------------
2002 2001
---------------------------
Operating Activities
Net income (loss)........................................................... $ (92.2) $ 11.2
Adjustments to reconcile net income (loss) to cash provided by (used in)
operating activities:
Depreciation........................................................... 23.1 16.2
Amortization........................................................... 6.0 13.0
Impairment charges and asset write downs............................... 140.8 ---
Restructuring charges.................................................. 5.4 19.5
Extraordinary loss on retirement of debt............................... 1.6 2.3
Gain on sale of fixed assets........................................... (0.3) (1.3)
Changes in operating assets and liabilities (net of effects of
acquisitions):
Trade receivables.................................................... (45.8) 13.8
Inventories.......................................................... (61.4) (56.4)
Trade accounts payable............................................... 84.8 5.4
Other, net........................................................... (53.7) (47.7)
-------------- -------------
Net cash provided by (used in) operating activities............... 8.3 (24.0)
-------------- -------------
Investing Activities
Acquisition of businesses, net of cash acquired............................. (440.7) (10.4)
Capital expenditures........................................................ (16.4) (9.3)
Proceeds from sale of assets................................................ 3.6 3.7
Other....................................................................... --- (3.4)
-------------- -------------
Net cash used in investing activities............................. (453.5) (19.4)
-------------- -------------
Financing Activities
Proceeds from issuance of long-term debt, net of issuance costs............. 572.0 287.9
Issuance of common stock.................................................... 113.3 ---
Principal repayments of long-term debt...................................... (218.1) (194.2)
Net borrowings (repayments) under revolving line of credit agreements....... 60.4 29.2
Other....................................................................... (1.3) (1.0)
-------------- -------------
Net cash provided by financing activities......................... 526.3 121.9
-------------- -------------
Effect of Exchange Rate Changes on Cash and Cash Equivalents................... 6.1 0.9
-------------- -------------
Net Increase in Cash and Cash Equivalents...................................... 87.2 79.4
Cash and Cash Equivalents at Beginning of Period............................... 250.4 181.4
-------------- -------------
Cash and Cash Equivalents at End of Period..................................... $ 337.6 $ 260.8
============== =============
The accompanying notes are an integral part of these financial statements.
5
TEREX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002
(unaudited)
(dollar amounts in millions, unless otherwise noted, except per share amounts)
NOTE A -- BASIS OF PRESENTATION
Basis of Presentation. The accompanying unaudited condensed consolidated
financial statements of Terex Corporation and subsidiaries as of September 30,
2002 and for the three months and nine months ended September 30, 2002 and 2001
have been prepared in accordance with accounting principles generally accepted
in the United States of America for interim financial information and the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by accounting
principles generally accepted in the United States of America to be included in
full year financial statements. The accompanying condensed consolidated balance
sheet as of December 31, 2001 has been derived from the audited consolidated
balance sheet as of that date.
The condensed consolidated financial statements include the accounts of Terex
Corporation and its majority owned subsidiaries ("Terex" or the "Company"). All
material intercompany balances, transactions and profits have been eliminated.
In the opinion of management, all adjustments considered necessary for a fair
statement have been made. Except as otherwise disclosed, all such adjustments
consist only of those of a normal recurring nature. Operating results for the
three months and nine months ended September 30, 2002 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2002. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 2001.
Cash and cash equivalents at September 30, 2002 and December 31, 2001 include
$5.5 and $7.6, respectively, which was not immediately available for use. These
consist primarily of cash balances held in escrow to secure various obligations
of the Company.
Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets," was issued in October 2001.
SFAS No. 144 became effective for the Company on January 1, 2002 and provides
new guidance on the recognition of impairment losses on long-lived assets to be
held and used or to be disposed of and also broadens the definition of what
constitutes a discontinued operation and how the results of a discontinued
operation are to be measured and presented. The adoption of the standard has not
materially changed the methods used by the Company to determine impairment
losses on long-lived assets, but may result in additional items being reported
as discontinued operations in the future. Refer to Note E - "Restructuring and
Other Charges" for information on the recognition of impairment losses in 2002.
SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13, and Technical Corrections as of April 2002," was issued in May
2002. SFAS No. 145 became effective for certain leasing transactions occurring
after May 15, 2002 and shall be applied by the Company from January 1, 2003 with
respect to reporting gains and losses from extinguishments of debt. The Company
is currently evaluating the provisions of SFAS No. 145 to determine its impact
on the Company's financial statements.
SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities," was issued in June 2002. SFAS No. 146 becomes effective for exit or
disposal activities that are initiated after December 31, 2002. Under SFAS No.
146 a liability for a cost associated with an exit or disposal activity is
recognized when the liability is incurred. Under current accounting principles,
a liability for an exit cost is recognized at the date of an entity's commitment
to an exit plan. The Company is currently evaluating the provisions of SFAS No.
146 to determine its impact on the Company's financial statements.
Revenue recognition - lease transactions. Revenue from sales-type leases is
recognized at the inception of the lease. Income from operating leases is
recognized ratably over the term of the lease. The Company routinely sells
equipment subject to operating leases and the related lease payments. If the
Company does not retain a substantial risk of ownership in the equipment, the
transaction is recorded as a sale. If the Company does retain a substantial risk
of ownership, the transaction is recorded as a borrowing and the operating lease
payments are recognized as revenue over the term of the lease and the debt is
amortized over a similar period.
6
NOTE B -- ACQUISITIONS
On January 14, 2002, the Company completed the acquisition of the Schaeff Group
of Companies ("Schaeff"). Schaeff is a German manufacturer of compact
construction equipment and a full range of scrap material handlers. Schaeff's
annual revenues for 2001 were approximately $220. Total cash consideration paid
for Schaeff was approximately $62, subject to adjustment. In a separate
transaction, certain former shareholders of Schaeff purchased approximately 1.3
million shares of Common Stock from the Company in January 2002 for $17.3045 per
share, or approximately $23 in total. The per share purchase price was based on
the average price of the Common Stock on the New York Stock Exchange ("NYSE")
for a twenty day trading period prior to the sale. Schaeff is included in the
Terex Construction segment. In addition, as consideration for this Common Stock
purchase, the Company may be required to pay cash or issue additional shares of
Common Stock (at the Company's option) if, at each of eighteen, twenty four,
thirty and thirty six months following such stock purchase, the Common Stock is
not trading on the NYSE at a price at least 28% higher than the purchase price,
up to a maximum number of shares of Common Stock having a value of $3.2.
On January 15, 2002, the Company completed the acquisition of Utility Equipment,
Inc., which does business as Pacific Utility Equipment Co. ("Utility
Equipment"). Utility Equipment, headquartered in Oregon with locations in
various states, distributes, assembles, rents and provides service of products
for the utility, telecommunications and municipal markets. In connection with
the acquisition, the Company issued approximately 455 thousand shares of Common
Stock, subject to adjustment. One of such adjustments may require the Company to
pay cash or issue additional shares of Common Stock (at the Company's option)
if, on the second anniversary of the Utility Equipment acquisition, the Common
Stock is not trading on the NYSE at a price at least 25% higher than it was at
the time of the acquisition, up to a maximum number of shares of Common Stock
having a value of $2.0. Utility Equipment is included in the Terex Roadbuilding,
Utility Products and Other segment.
On March 26, 2002, the Company acquired EPAC Holdings, Inc., which did business
under the names Telelect East and Eusco ("Telelect Southeast"). Telelect
Southeast, headquartered in Richmond, Virginia with locations in various states,
distributes, assembles, rents and provides service of products for the utility,
telecommunications and municipal markets. In connection with the acquisition,
the Company issued approximately 300 thousand shares of Common Stock and $1.1
cash. In addition, the Company may be required to pay cash or issue additional
shares of Common Stock (at the Company's option) if, on the second anniversary
of the Telelect Southeast acquisition, the Common Stock is not trading on the
NYSE at a price at least 25% higher than it was at the time of the acquisition,
up to a maximum number of shares of Common Stock having a value of $1.7.
Telelect Southeast is included in the Terex Roadbuilding, Utility Products and
Other segment.
On April 11, 2002, the Company acquired certain assets and liabilities of
Advance Mixer, Inc. ("Advance Mixer") in the bankruptcy proceedings of Advance
Mixer for $12.5 cash. Advance Mixer manufactures and markets cement mixer trucks
at its facilities in Fort Wayne, Indiana. Advance Mixer is included in the Terex
Roadbuilding, Utility Products and Other segment.
On August 30, 2002, the Company completed the acquisition of Demag Mobile Cranes
GmbH & Co. KG and its affiliates ("Demag") for approximately 160 million Euros.
Demag, headquartered in Zweibrucken, Germany, manufactures and distributes
telescopic and lattice boom cranes, and had 2001 revenues of approximately $360.
Demag is included in the Terex Cranes segment.
On September 18, 2002, the Company completed the acquisition of Genie Holdings,
Inc. and its affiliates ("Genie"), a global manufacturer of aerial work
platforms with 2001 revenues of approximately $575 (the "Genie Acquisition").
The purchase consideration was approximately $75, consisting of $64.9 in Common
Stock (approximately 3.2 million shares of Common Stock) and $10.1 in cash,
subject to adjustment. In addition, the Company assumed and refinanced
approximately $168 of Genie's debt. The number of shares of Common Stock issued
in the Genie Acquisition was determined based on the average price of the Common
Stock on the NYSE for a ten day trading period prior to the closing of the
transaction. In addition, one of the purchase consideration adjustments may
require the Company to issue additional shares of Common Stock if, at each of
twelve, eighteen and twenty four months following the Genie acquisition, the
Common Stock is not trading on the NYSE at a price at least 15% higher than the
price at the time of the acquisition, up to a maximum number of shares of Common
Stock having a value of approximately $9.7 in the aggregate. The Company
initiated the Genie Acquisition as an opportunity to diversify its product
offering with the addition of a complete line of aerial work platforms with a
strong global brand and significant market share. The Genie Acquisition is also
intended to provide operational and marketing synergies and cost savings, such
as allowing the Genie product line to expand the reach of its distribution
through the Company's existing sales base, particularly in Europe. Genie is
included in the Terex Aerial Work Platforms segment.
The operating results of the acquired businesses are included in the Company's
consolidated results of operations since their respective dates of acquisition.
7
The following pro forma summary presents the consolidated results of operations
as though the Company completed the Genie Acquisition as of the beginning of the
respective period, after giving effect to certain adjustments for interest
expense, amortization of debt issuance costs and other expenses related to the
transaction:
Pro Forma for the
-----------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
-----------------------------------------------------
2002 2001 2002 2001
---- ---- ---- ----
Net sales.........................................$ 784.5 $ 598.7 $ 2,331.6 $1,882.0
Income from operations............................$ 39.2 $ 2.6 $ 113.4 $ 103.2
Income (loss)before extraordinary items...........$ 9.9 $ (15.2) $ 12.0 $ 18.4
Income before extraordinary items, per share:
Basic..........................................$ 0.21 $ (0.50) $ 0.27 $ 0.61
Diluted........................................$ 0.21 $ (0.50) $ 0.26 $ 0.60
The pro forma information is not necessarily indicative of what the actual
results of operations of the Company would have been for the periods indicated,
nor does it purport to represent the results of operations for future periods.
The estimated fair values of assets and liabilities acquired by the Company in
the Genie Acquisition are summarized as follows:
Cash ...............................................$ 14.4
Net trade receivables................................ 121.0
Inventories.......................................... 95.3
Other current assets................................. 59.1
Property, plant and equipment........................ 64.5
Other non-current assets............................. 134.6
Accounts payable..................................... (82.7)
Other current liabilities............................ (47.9)
Current portion of long-term debt.................... (59.5)
Long-term debt, less current portion................. (24.7)
Other liabilities.................................... (27.2)
------------
$ 246.9
============
The Company is in the process of completing certain valuations, appraisals and
actuarial and other studies for purposes of determining the respective fair
values of tangible and intangible assets used in the allocation of purchase
consideration for the acquisitions of Atlas, Schaeff, Advance Mixer, Demag and
Genie. The Company does not anticipate that the final results of these
valuations will have a material impact on its financial position, operations or
cash flows. The Company is in the process of evaluating various alternatives to
integrate the activities of certain of the acquired businesses into the Company,
including alternative to exit or consolidate certain facilities and/or
activities and restructure certain functions and reduce the related headcount.
These alternatives could impact the acquired businesses or existing businesses,
and the Company intends to finalize its plans by December 31, 2002. The Company
may revise its preliminary allocations as additional information is obtained.
The Company does not believe that these restructuring activities by themselves
will have an adverse impact on the Company's ability to meet customer
requirements for the Company's products.
NOTE C - ACCOUNTING CHANGE - BUSINESS COMBINATIONS AND GOODWILL
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141
"Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets."
SFAS No. 141, effective July 1, 2001, addresses financial accounting and
reporting for business combinations and requires all business combinations be
accounted for using the purchase method. One requirement of SFAS No. 141 is that
previously recorded negative goodwill be eliminated. Accordingly, the Company
recorded a cumulative effect of an accounting change of $17.8, $10.7 net of
income tax related to the write-off of negative goodwill at January 1, 2002 from
the acquisition of Fermec Manufacturing Limited in December 2000.
SFAS No. 142 addresses financial accounting for acquired goodwill and other
intangible assets and how such assets should be accounted for in financial
statements upon their acquisition and after they have been initially recognized
in the financial statements. In accordance with SFAS No. 142, goodwill related
to acquisitions completed after June 30, 2001 was not amortized in 2001 or 2002
and, effective January 1, 2002, goodwill related to acquisitions completed prior
to July 1, 2001 is no longer being amortized. Under this standard, goodwill and
indefinite life intangible assets are to be reviewed at least annually for
impairment and written down only in the period in which the recorded value of
such assets exceed their fair value. The Company's initial impairment test was
performed on all reporting units prior to June 30, 2002, as required.
8
Under the transitional provisions of SFAS No. 142, the Company identified its
reporting units and performed impairment tests on the net goodwill and other
intangible assets associated with each of the reporting units, using a valuation
date of January 1, 2002. The SFAS No. 142 impairment test is a two-step process.
First, it requires comparison of the book value of net assets to the fair value
of the related reporting units. If the fair value is determined to be less than
book value, a second step is performed to compute the amount of impairment. In
the second step, the implied fair value of goodwill is estimated as the fair
value of the reporting unit used in the first step less the fair values of all
other tangible and intangible assets of the reporting unit. If the carrying
amount of goodwill exceeds its implied fair market value, an impairment loss is
recognized in an amount equal to that excess.
Under the SFAS No. 142 approach, the Company estimated the fair value of each of
its 10 reporting units existing as of January 1, 2002. The Company first
prepared a projection of undiscounted cash flow for each reporting unit based on
management's expectation of future market conditions, changes in working capital
and capital requirements. The undiscounted cash flows were then present valued
using the Company's weighted average cost of capital. The discounted cash flow
was then compared to the carrying value of the reporting unit. Consistent with
the requirements of SFAS No. 142, a second test was performed if the carrying
value exceeded the discounted cash flow.
The Terex Mining segment's carrying value exceeded the present value of the cash
flow expected to be generated by the segment. Future cash flow expectations have
been reduced due to the continued weakness in mineral commodity prices which are
a major determinant of the overall demand for mining equipment. The Company
utilized the services of a valuation adviser to determine the fair market value
of the Terex Mining segment's fixed assets and intangible assets. This
information was utilized in calculating a goodwill impairment of $105.7 ($105.7,
net of income taxes).
The Light Construction reporting unit, a component of the Terex Roadbuilding,
Utility Products and Other segment, also was determined to have a carrying value
in excess of its projected discounted cash flow. The market for the unit's
products, primarily light towers, has been negatively impacted by the
consolidation of distribution outlets for the unit's products, which has reduced
demand for these products, and the increasing preference of end users of the
unit's products to rent, rather than purchase, equipment. Given the relative
size of the impairment, no outside valuation adviser was used. The analysis
resulted in a goodwill impairment of $26.2 ($18.1, net of income taxes).
The EarthKing reporting unit, a component of the Terex Roadbuilding, Utility
Products and Other segment, was also determined to have a carrying value in
excess of its projected discounted cash flow. EarthKing was created to provide
on-line training and web based procurement services. Several businesses within
EarthKing were unsuccessful in gaining customer acceptance and were generating
revenue at levels insufficient to warrant anticipated growth, which
substantially reduced the value of EarthKing. A goodwill impairment of $0.3
($0.3, net of income taxes) was recorded.
The adjustment from the adoption of SFAS No. 142, an impairment loss of $132.2
(124.1, net of income taxes) has been recorded as a cumulative effect of change
in accounting principle adjustment as of January 1, 2002.
9
The table below illustrates the Company's reported results after applying SFAS
No. 142.
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
----------------------- ------------------------
2002 2001 2002 2001
------------ ---------- ----------- -----------
Goodwill amortization......................................... $ --- $ 3.0 $ --- $ 9.1
============ ========== =========== ===========
Reported net income (loss).................................... $ 9.8 $(10.9) $ (92.2) $ 11.2
Add back: Goodwill amortization, net of income taxes.......... --- 2.0 --- 6.3
------------ ---------- ----------- -----------
Adjusted net income (loss).................................... $ 9.8 $ (8.9) $ (92.2) $ 17.5
============ ========== =========== ===========
Per common share:
Basic:
Reported net income (loss)................................ $ 0.22 $ (0.41) $ (2.20) $ 0.42
Add back: Goodwill amortization, net of income taxes...... --- 0.08 --- 0.23
------------ ---------- ----------- -----------
Adjusted net income (loss)................................ $ 0.22 $ (0.33) $ (2.20) $ 0.65
============ ========== =========== ===========
Diluted:
Reported net income (loss)................................ $ 0.22 $ (0.41) $ (2.17) $ 0.40
Add back: Goodwill amortization, net of income taxes...... --- 0.08 --- 0.23
------------ ---------- ----------- -----------
Adjusted net income (loss)................................ $ 0.22 $ (0.33) $ (2.17) $ 0.63
============ ========== =========== ===========
An analysis of changes in the Company's goodwill by business segment is as
follows:
Terex
Roadbuilding,
Utility Terex
Terex Terex Terex Products and Aerial Work
Construction Cranes Mining Other Platforms Total
-------------- ------------- ------------- ----------------- --------------- ------------
Balance at December 31, 2001..... $ 219.8 $ 108.3 $ 99.7 $ 192.3 $ --- $ 620.1
Impairment due to adoption of
SFAS No. 142................... --- --- (105.7) (26.5) --- (132.2)
Write-off of negative goodwill
due to adoption of SFAS
No. 142........................ 17.8 --- --- --- --- 17.8
Acquisitions..................... 52.0 13.7 --- 22.7 --- 88.4
Foreign exchange effect.......... 2.6 1.8 6.0 --- --- 10.4
--------------- -------------- ------------- ---------------- ---------------- -------------
Balance at September 30, 2002.... $ 292.2 $ 123.8 $ --- $ 188.5 $ --- $ 604.5
=============== ============== ============= ================ ================ =============
No goodwill has been recognized for the acquisitions of Demag and
Genie as of September 30, 2002, as the Company has not yet
completed its valuations of tangible and intangible assets.
NOTE D -- DERIVATIVE FINANCIAL INSTRUMENTS
Effective January 1, 2001, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," and its related amendment, SFAS
No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities." These standards require that all derivative financial instruments
be recorded on the consolidated balance sheet at their fair value as either
assets or liabilities. Changes in the fair value of derivatives will be recorded
each period in earnings or accumulated other comprehensive income, depending on
whether a derivative is designated and effective as part of a hedge transaction
and, if it is, the type of hedge transaction. Gains and losses on derivative
instruments reported in accumulated other comprehensive income will be included
in earnings in the periods in which earnings are affected by the hedged item. As
of January 1, 2001, the adoption of these new standards resulted in no
cumulative effect of an accounting change on net earnings. The cumulative effect
of the accounting change increased accumulated other comprehensive income by
$0.9, net of income taxes. Prior years' financial statements were not restated
for this change.
10
Under SFAS No. 133, there are two types of derivatives that the Company enters
into: hedges of fair value exposures and hedges of cash flow exposures. Fair
value exposures relate to recognized assets or liabilities and firm commitments,
while cash flow exposures relate to the variability of future cash flows
associated with recognized assets or liabilities or forecasted transactions.
The Company operates internationally, with manufacturing and sales facilities in
various locations around the world, and utilizes certain financial instruments
to manage its foreign currency, interest rate and fair value exposures. To
qualify a derivative as a hedge at inception and throughout the hedge period,
the Company formally documents the nature and relationships between the hedging
instruments and hedged items, as well as its risk-management objectives,
strategies for undertaking the various hedge transactions and method of
assessing hedge effectiveness. Additionally, for hedges of forecasted
transactions, the significant characteristics and expected terms of a forecasted
transaction must be specifically identified, and it must be probable that each
forecasted transaction will occur. If it were deemed probable that the
forecasted transaction will not occur, the gain or loss would be recognized in
earnings currently. Financial instruments qualifying for hedge accounting must
maintain a specified level of effectiveness between the hedging instrument and
the item being hedged, both at inception and throughout the hedged period. The
Company does not engage in trading or other speculative use of financial
instruments.
The Company uses forward contracts and options to mitigate its exposure to
changes in foreign currency exchange rates on third-party and intercompany
forecasted transactions. The primary currencies to which the Company is exposed
include the Euro, British Pound and Australian Dollar. When using options as a
hedging instrument, the Company excludes the time value from the assessment of
effectiveness. The effective portion of unrealized gains and losses associated
with forward contracts and the intrinsic value of option contracts are deferred
as a component of accumulated other comprehensive income (loss) until the
underlying hedged transactions are reported on the Company's consolidated
statement of operations. The Company uses interest rate swaps to mitigate its
exposure to changes in interest rates related to existing issuances of variable
rate debt and to fair value changes of fixed rate debt. Primary exposure
includes movements in the London Interbank Offer Rate ("LIBOR").
Changes in the fair value of derivatives that are designated as fair value
hedges are recognized in earnings as offsets to the changes in fair value of
exposures being hedged. The change in fair value of derivatives that are
designated as cash flow hedges are deferred in accumulated other comprehensive
income (loss) and are recognized in earnings as the hedged transactions occur.
Any ineffectiveness is recognized in earnings immediately.
The Company records hedging activity related to debt instruments in interest
expense and hedging activity related to foreign currency and lease obligations
in operating profit.
The Company entered into interest rate swap agreements that effectively
converted variable rate interest payments into fixed rate interest payments. At
September 30, 2002, the Company had no such interest rate swap agreements
outstanding, as all of the Company's outstanding floating to fixed interest rate
swap agreements matured in the third quarter of 2002. These swap agreements were
designated as, and were effective as, cash flow hedges of outstanding debt
instruments. During the three months and nine months ended September 30, 2002
and 2001, the Company recorded the change in fair value to accumulated other
comprehensive income (loss) and reclassified to earnings a portion of the
deferred loss from accumulated other comprehensive income (loss) as the hedged
transactions occurred and were recognized in earnings.
The Company has entered into a series of interest rate swap agreements that
converted fixed rated interest payments into variable rate interest payments. At
September 30, 2002, the Company had $429.0 notional amount of such interest rate
swap agreements outstanding, all of which mature in 2006 through 2011. The fair
market value of these swaps at September 30, 2002 was a gain of $25.9 which is
recorded in other non-current assets and is offset by a $25.9 addition in the
carrying value of the long-term obligations being hedged.
The Company is also a party to currency exchange forward contracts to manage its
exposure to changing currency exchange rates that mature within one year. At
September 30, 2002, the Company had $73.6 of notional amount of currency
exchange forward contracts outstanding, all of which mature on or before March
31, 2003. The fair market value of these swaps at September 30, 2002 was a gain
of $2.5. All of these swap agreements have been designated as, and are effective
as, cash flow hedges of specifically identified assets and liabilities.
At June 30, 2002, the Company had a swap agreement in the notional amount of
$79.3. This represented a foreign currency exchange forward contract entered
into to hedge a portion of the purchase price of Demag. The purchase price for
Demag was denominated in Euros. The Company recorded a gain of $5.5 in the
second quarter of 2002 related to this transaction since it did not qualify as a
hedge under SFAS No. 133. This swap agreement matured on July 1, 2002.
11
During the three months and nine months ended September 30, 2002 and 2001, the
Company recorded the change in fair value to accumulated other comprehensive
income (loss) and reclassified to earnings a portion of the deferred loss from
accumulated other comprehensive income (loss) as the hedged transactions
occurred and were recognized in earnings.
At September 30, 2002, the fair value of all derivative instruments has been
recorded in the Condensed Consolidated Balance Sheet as a net asset of $27.6.
Counterparties to interest rate derivative contracts and currency exchange
forward contracts are major financial institutions with credit ratings of
investment grade or better and no collateral is required. There are no
significant risk concentrations. Management believes the risk of incurring
losses on derivative contracts related to credit risk is remote and any losses
would be immaterial.
Unrealized net gains (losses) included in Other Comprehensive Income are as
follows:
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- -------------------
2002 2001 2002 2001
--------- ----------- ---------- --------
Balance at beginning of period (upon $ 0.6 (1.3) $ (0.8) $ 0.9
adoption of SFAS No. 133 for 2001)....
Additional gains (losses)............... 0.1 2.6 0.1 ---
Amounts reclassified to earnings........ 1.0 2.6 2.4 3.0
--------- ----------- ---------- --------
Balance at end of period...............$ 1.7 3.9 $ 1.7 $ 3.9
========= =========== ========== ========
For further information on accounting policies related to derivative financial
instruments, refer to the Company's Annual Report on Form 10-K for the year
ended December 31, 2001.
NOTE E -- RESTRUCTURING AND OTHER CHARGES
In the first quarter of 2002, the Company recorded a charge of $1.2 in
connection with the closure and subsequent relocation of the Cedarapids hot mix
asphalt plant facility to the Company's CMI facility in Oklahoma City. The
consolidation of duplicative CMI and Cedarapids production facilities and
support functions was intended to lower the Company's operating costs.
Approximately $0.7 of this charge relates to severance costs which have been
paid, with the remainder related to non-cash closure costs. Approximately 92
employees were terminated in connection with this action. This restructuring was
complete as of September 30, 2002.
In the second quarter of 2002, the Company announced that its mining truck
production facility in Tulsa, Oklahoma would be closed. The Company recorded a
charge of $4.2 related to the Tulsa closure. The closure was in response to
continued weakness in demand for the Company's large mining trucks. Demand for
large mining trucks is closely related to commodity prices, which have been
declining in real terms over recent years. Approximately $1.0 of this charge
relates to severance and other employee related charges, while $2.2 of this
charge relates to inventory deemed uneconomical to relocate to other
distribution facilities. The remaining $1.0 of the cost accrued relates to the
Tulsa building closure costs and occupancy costs expected to be incurred after
production is ended. Approximately 93 positions have been eliminated as a result
of this action. The Tulsa restructuring is expected to be completed by December
31, 2002.
The Company also recorded a charge of $0.9 in the second quarter of 2002 in
connection with a reduction to the Cedarapids workforce in response to adverse
market conditions and resulting decreased demand for Cedarapids products. The
charge recorded in connection with this reduction to the Cedarapids workforce is
for employee severance costs. Approximately 42 employees have been terminated as
a result of this action. The Cedarapids restructuring is expected to be
completed by December 31, 2002.
In the third quarter of 2002, the Company announced restructuring charges of
$3.5 in connection with the consolidation of facilities in the Light
Construction group and staff reductions at its CMI roadbuilding operation and at
Terex Cranes. The restructuring charges at the Light Construction group were
$2.6, of which $0.2 was for severance in relation to the elimination of
approximately 71 positions. The remaining $2.4 was for costs associated with the
termination of leases and the write-down of inventory. Demand for the Light
Construction group's products has been negatively impacted by the consolidation
of distribution outlets for the unit's products and a change in end user
preference from direct ownership of the unit's products to rental of such
equipment. These changes have made it uneconomical to maintain numerous separate
production facilities. The restructuring charges at CMI were $0.7 for severance
in connection with the elimination of approximately 146 positions. CMI's
roadbuilding business has faced slow market conditions and reduced demand,
12
due in large part to delays in government funding for roadbuilding projects,
resulting in a need for staff reductions. Additionally, the Terex Cranes segment
recorded restructuring charges of $0.2 for severance in connection with the
elimination of approximately 35 positions at three of its North American
facilities due to reduced demand for the products manufactured at these
facilities. These restructurings are expected to be completed by December 31,
2002.
In aggregate the 2002 restructuring charge were in cost of sales ($9.2) and
selling, general and administrative expenses ($0.6).
During the third and fourth quarters of 2001, the Company recorded $29.9 of
restructuring costs in connection with the consolidation of seven facilities
around the world and headcount reductions of approximately 725 employees. This
restructuring was initiated to take advantage of recent acquisitions and in
expectation of a continued weak global economy. As of September 30, 2002, five
of these seven facilities have been closed. It is anticipated that the other two
facilities will be closed prior to March 31, 2003. As of September 30, 2002 the
Company's future cash payments related to 2001 and 2002 restructuring
initiatives are approximately $9.9 and all cash payments are expected to be made
by the end of 2002.
The restructuring and other non-recurring costs recorded in the third and fourth
quarters of 2001 include: $5 related to the headcount reductions, $2 related to
facility closure costs, $13 related to inventory write-off costs, $3 related to
receivable write-off costs, $2 realted to goodwill associated with the Cork,
Ireland aerials facility, $2 related to facility rationalization in the
Australian lifting business and $3 for other activities.
There have been no material changes relative to the initial plans established by
the Company for the restructuring activities listed above. The Company does not
believe that these restructuring activities by themselves will have an adverse
impact on the Company's ability to meet customer requirements for the Company's
products.
Given the poor performance of the Light Construction group and management's
projections of future results, the Company performed an impairment review of
fixed assets under SFAS No. 144. The market for this group's products, primarily
light towers, has been negatively impacted by the consolidation of distribution
outlets for the group's products, which has reduced demand for these products,
and the increasing preference of end users of the group's products to rent,
rather than purchase, equipment. This review took into account expected future
cash flow to be generated by the business given management's assessment of
market conditions. The result of this review was a write-down of fixed assets
within the Light Construction group, a component of the Terex Roadbuilding,
Utility Products and Other segment to their estimated fair values based
primarily on discounted cash flow analysis. A charge of $7.9 ($5.4, net of tax)
was recorded as cost of goods sold in the second quarter of 2002 in connection
with this write-down.
In the second quarter of 2002, the Company wrote down the value of notes
receivable and certain investments in the Terex Cranes segment in Europe. This
write-down reflects current difficult market conditions at certain divested
businesses and management's future expectation of cash flows from the underlying
assets. A write-down of $12.4 ($8.4, net of income tax) was recorded in the
second quarter of 2002. Additionally, the Company wrote down certain investments
it held in technology businesses related to its EarthKing subsidiary. These
investments were no longer economically viable, as these businesses were
unsuccessful in gaining customer acceptance and were generating revenue at
levels insufficient to warrant anticipated growth, and resulted in a write-down
of $2.6 ($1.8, net of income tax.) This write-down, as well as the write down
related to the Terex Cranes segment in Europe, were reported in "Other income
(expense) - net."
NOTE F -- INVENTORIES
Inventories consist of the following:
September 30, December 31,
2002 2001
----------------- ----------------
Finished equipment................. $ 437.1 $ 236.4
Replacement parts.................. 227.1 195.0
Work-in-process.................... 266.0 90.5
Raw materials and supplies......... 203.5 182.9
---------------- ----------------
Inventories........................ $ 1,133.7 $ 704.8
================ ================
13
NOTE G -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
September 30, December 31,
2002 2001
---------------- -----------------
Property.................................... $ 29.8 $ 20.9
Plant....................................... 157.6 108.9
Equipment................................... 177.5 126.9
---------------- -----------------
364.9 256.7
Less: Accumulated depreciation............. (99.6) (82.8)
---------------- -----------------
Net property, plant and equipment........... $ 265.3 $ 173.9
================ =================
NOTE H -- INVESTMENT IN JOINT VENTURE
In April 2001, Genie entered into a joint venture arrangement with a European
financial institution whereby Genie maintains a forty-nine percent (49%)
ownership interest in the joint venture, Genie Financial Solutions Holding B.V.
("GFSH B.V."). Genie contributed $4.7 in cash in exchange for its ownership
interest in GHFS B.V. During January 2002, Genie contributed an additional $0.6
in cash to GHFS B.V. The Company applies the equity method of accounting for its
investment in GFSH B.V., as the Company does not control the operations of GFSH
B.V.
NOTE I -- EQUIPMENT SUBJECT TO OPERATING LEASES
Operating leases arise from the leasing of the Company's products to customers.
Initial noncancellable lease terms range up to 84 months. The cost of equipment
subject to operating leases was approximately $108 at September 30, 2002. The
equipment is depreciated on the straight-line basis over the shorter of the
estimated useful life or the estimated amortization period of any borrowings
secured by the asset to its estimated salvage value.
NOTE J -- NET INVESTMENT IN SALES-TYPE LEASES
Genie Financial Services, Inc. ("GFS"), a wholly owned subsidiary of the
Company, leases new and used products manufactured and sold by Genie to
domestic and foreign distributors and rental companies. GFS provides specialized
financing alternatives that include sales-type leases, operating leases,
conditional sales contracts, and short-term rental agreements.
At the time a sales-type lease is consummated, the Company records the gross
finance receivable, unearned income and the estimated residual value of the
leased equipment. Unearned finance income represents the excess of the gross
minimum lease payments receivable plus the estimated residual value over the
sales price of the equipment. Residual values represent the estimate of the
values of the equipment at the end of the lease contracts and are initially
recorded based on industry data and management's estimates. Realization of the
residual values is dependent on the Company's future ability to market the
equipment under then prevailing market conditions. Management reviews residual
values periodically to determine that recorded amounts are appropriate. Unearned
finance income is recognized as financing income using the interest method over
the term of the transaction. The allowance for future losses is
established through charges to the provision for credit losses.
In prior years, GFS had a number of domestic agreements with financial
institutions to provide financing of new and eligible products to distributors
and rental companies. Under these programs, GFS originated leases with
distributors and rental companies and the resulting lease receivables were
either transferred to a financial institution with limited recourse to GFS or
used as collateral for borrowings. The aggregate unpaid sales-type lease
payments previously transferred was $89.3 at September 30, 2002. Under these
agreements, the Company's recourse obligation is limited to credit losses up to
the first 5%, in any given year, of the remaining discounted rental payments
due, subject to certain minimum and maximum recourse liability amounts. The
Company's maximum credit recourse exposure was $59.3 at September 30, 2002,
representing a contingent liability under the limited recourse provisions.
During 2001, domestically and globally, GFS entered into a number of
arrangements with financial institutions to provide financing of new and
eligible Genie products to distributors and rental companies. Under these
programs, GFS originates leases or leasing opportunities with distributors and
14
rental companies. If GFS originates the lease with a distributor or rental
company, the financial institution will purchase the equipment and take
assignment of the lease contract from GFS. If GFS originates a lease
opportunity, the financial institution will purchase the equipment from GFS and
execute a lease contract directly with the distributor or rental company. In
some instances, GFS retains certain credit and/or residual recourse in these
transactions. The Company's maximum exposure, representing a contingent
liability, under these transactions reflects a $44.3 credit risk and a $31.0
residual risk at September 30, 2002.
The Company's contingent liabilities previously referred to have not taken into
account various mitigating factors. These factors include the staggered timing
of maturity of lease transactions, resale value of the underlying equipment,
lessee return penalties and annual loss caps on credit loss pools. Further, the
credit risk contingent liability assumes that the individual leases were to all
default at the same time and that the repossessed equipment has no market value.
NOTE K - LONG-TERM DEBT
On July 3, 2002, the Company entered into an amended and restated credit
facility with its bank lending group. The revised agreement provides for $375 of
term debt maturing in June 2009 and a revolving credit facility of $300 that is
available through June 2007. The facility also includes provisions for an
additional $250 of term borrowing by the Company on terms similar to the current
term loan debt under the facility. In addition to providing the Company with
additional funds, the revised credit agreement also amended certain covenants
and other provisions to allow the Company greater flexibility. This added
flexibility included changes to increase the Company's ability to make
acquisitions, participate in joint ventures and take other corporate actions.
Adjustments were also made to financial covenant ratios, including the Company's
consolidated total leverage ratio, consolidated interest coverage ratio and
consolidated senior leverage ratio, that permit the Company to maintain
additional debt for a longer period of time. The Company used the net proceeds
from the term debt to pay off $217.9 of existing term debt under its bank credit
facility, pay down a portion of its existing revolving credit facility, acquire
Demag and for other general corporate purposes. An extraordinary loss for the
write-off of unamortized debt acquisition costs of $2.4 ($1.6, net of tax) was
recorded in connection with this refinancing.
On September 13, 2002, the Company consummated a $210 incremental term loan
borrowing under the terms of the existing July 3, 2002 bank credit facility. The
net proceeds were used to acquire Genie (approximately $10), to refinance some
of Genie's debt (approximately $168) and for other general corporate purposes.
15
NOTE L -- EARNINGS PER SHARE
Three Months Ended September 30,
(in millions, except per share data)
-------------------------------------------------------------------------
2002 2001
-------------------------------------- ----------------------------------
Per-Share Per-Share
Income Shares Amount Income Shares Amount
------------ ------------ ------------ ----------- --------- -----------
Basic earnings per share
Income (loss) before extraordinary items $ 11.4 44.5 $ 0.26 $ (10.9) 26.9 $ (0.41)
Effect of dilutive securities
Stock Options............................. --- 0.6 --- ---
Equity Rights............................. --- 0.1 --- ---
------------ ------------ ----------- ---------
Income before extraordinary items
- diluted............................. $ 11.4 45.2 $ 0.25 $ (10.9) 26.9 $ (0.41)
============ ============ ============ =========== ========= ============
Nine Months Ended September 30,
(in millions, except per share data)
-------------------------------------------------------------------------
2002 2001
-------------------------------------------------------------------------
Per-Share Per-Share
Income Shares Amount Income Shares Amount
------------ ------------ ------------ ----------- --------- ------------
Basic earnings per share
Income before extraordinary items....... $ 22.8 41.8 $ 0.55 $ 13.5 26.9 $ 0.50
Effect of dilutive securities
Stock Options........................... --- 0.7 --- 0.7
Equity Rights........................... --- --- --- 0.1
------------ ------------ ----------- ---------
Income before extraordinary items
- diluted.............................. $ 22.8 42.5 $ 0.54 $ 13.5 27.7 $ 0.48
============ ============ ============ =========== ========= ============
Options to purchase 670 thousand and 1,288 thousand shares of Common Stock
during the three months ended September 30, 2002 and 2001 and 577 thousand and
795 thousand shares of Common Stock during the nine months ended September 30,
2002 and 2001, respectively, were outstanding but were not included in the
computation of diluted earnings per share. These options were excluded because
the exercise price of these options was greater than the average market price of
the Common Stock during such periods and, therefore, the effect would be
anti-dilutive. As discussed in Note B - "Acquisitions", the Company has a
contingent obligation to make additional payments in cash or Common Stock based
on provisions of certain acquisition agreements. The Company's policy and past
practice has been generally to settle such obligations in cash. Accordingly,
contingently issuable Common Stock under these arrangements totaling 483
thousand and 395 thousand shares for the three months and nine months ended
September 30, 2002, respectively, are not included in the computation of diluted
earnings per share.
NOTE M -- STOCKHOLDERS' EQUITY
Total non-shareowner changes in equity (comprehensive income) include all
changes in equity during a period except those resulting from investments by,
and distributions to, shareowners. The specific components include: net income,
deferred gains and losses resulting from foreign currency translation, minimum
pension liability adjustments, deferred gains and losses resulting from
derivative hedging transactions and deferred gains and losses resulting from
debt and equity securities classified as available for sale. Total
non-shareowner changes in equity were as follows.
For the Three Months For Nine Months
Ended September 30, Ended September 30,
-------------------------------- ---------------------------
2002 2001 2002 2001
--------------- ---------------- ------------- -------------
Net income (loss).............................$ 9.8 $ (10.9) $ (92.2) $ 11.2
Other comprehensive income:
Translation adjustment................... (10.5) 23.3 43.1 (26.2)
Pension liability adjustment............. --- --- --- ---
Derivative hedging adjustment............ 1.1 --- 2.5 ---
Debt and equity securities adjustment.... (3.4) 5.2 (3.4) 3.9
--------------- ---------------- ------------- -------------
Comprehensive income (loss)...................$ (3.0) $ 17.6 $ (50.0) (11.1)
=============== ================ ============= =============
16
On April 23, 2002, the Company issued 5.3 million shares of its Common Stock in
a public offering with net proceeds to the Company of $113.3. As disclosed in
"Note B - Acquisitions", the Company also issued approximately 5.3 million
shares of its Common Stock during the nine months ended September 30, 2002 in
connection with the acquisitions of Schaeff, Utility Equipment, Telelect
Southeast and Genie.
NOTE N -- LITIGATION AND CONTINGENCIES
In the Company's lines of business numerous suits have been filed alleging
damages for accidents that have arisen in the normal course of operations
involving the Company's products. The Company is self-insured, up to certain
limits, for these product liability exposures, as well as for certain exposures
related to general, workers' compensation and automobile liability. Insurance
coverage is obtained for catastrophic losses as well as those risks required to
be insured by law or contract. The Company has recorded and maintains an
estimated liability in the amount of management's estimate of the Company's
aggregate exposure for such self-insured risks. For self-insured risks, the
Company determines its exposure based on probable loss estimations, which
requires such losses to be both probable and the amount or range of possible
loss to be estimable.
The Company is involved in various other legal proceedings which have arisen in
the normal course of its operations. The Company has recorded provisions for
estimated losses in circumstances where a loss is probable and the amount or
range of possible amounts of the loss is estimable.
The Company's outstanding letters of credit totaled $69.2 at September 30, 2002.
The letters of credit generally serve as collateral for certain liabilities
included in the Condensed Consolidated Balance Sheet. Certain of the letters of
credit serve as collateral guaranteeing the Company's performance under
contracts.
The Company previously reported that it was a party to an action commenced in
the United States District Court for the District of Delaware by the End of the
Road Trust, a creditor liquidating trust formed to liquidate the assets of
Fruehauf Trailer Corporation ("Fruehauf"), a former subsidiary of the Company
and currently a reorganized debtor in bankruptcy, and Pension Transfer
Corporation, as sponsor and administrator for certain Fruehauf pension plans
against the Company and certain former officers and directors of Fruehauf and
the Company. This matter has been settled as of May 3, 2002, with the Company
being released from all claims and the action being dismissed with prejudice.
The settlement will not have a material impact on the Company's financial
position, operations or cash flows.
The Company has a letter of credit outstanding covering losses related to a
former subsidiary's worker compensation obligations. The Company has recorded
liabilities for these contingent obligations representing management's estimate
of the potential losses which the Company might incur.
On March 11, 2002, an action was commenced in the United States District Court
for the Southern District of Florida, Miami Division by Ursula Ungaro-Benages
and Ursula Ungaro-Benages as Attorney-in-fact for Peter C. Ungaro, M.D., in
which the plaintiffs allege that ownership of O&K Orenstein & Koppel AG ("O&K
AG") was illegally taken from the plaintiffs' ancestors by German industry
during the Nazi era. The plaintiffs allege that the Company is liable for
conversion and unjust enrichment as the result of its purchase of the shares of
its mining shovel subsidiary, O&K Mining GmbH, from O&K AG, and is claiming a
return of a 25% interest in O&K Mining GmbH and monetary damages. The Company
believes that the action is without merit as to the Company. As of the date
hereof, the Company has not filed an answer in the action and the plaintiffs are
considering a request to dismiss the Company from the action. The Company has
made a claim for indemnification with respect to the action pursuant to the
Share Purchase Agreement dated December 18, 1997 between the Company and O&K AG.
On June 12, 2002, the United States Department of Justice filed a Statement of
Interest in the action that recommends dismissal of the action for foreign
policy interests of the United States. At the request of the Company, on October
8, 2002, the Federal Judicial Panel on Multi-district Litigation ordered that
the action be transferred to the District of New Jersey and assigned the case to
the Honorable William G. Bassler for inclusion in the coordinated or
consolidated pretrial proceedings established in that court.
In the third quarter of 2002, the Company obtained a favorable court judgment on
appeal as the defendant in a patent infringement case brought against the Terex
Construction segment's Powerscreen business. This favorable court judgment
reversed a lower court decision for which the Company had previously recorded a
liability. As a result of this favorable judgment, the Company recorded $8.0 of
income in "Other income (expense) - net" in the Condensed Consolidated Statement
of Operations during the third quarter of 2002.
17
NOTE O -- BUSINESS SEGMENT INFORMATION
Terex is a diversified global manufacturer of a broad range of equipment for the
construction, infrastructure and mining industries. From July 1, 2001 through
June 30, 2002, the Company operated in three business segments: (i) Terex
Americas; (ii) Terex Europe; and (iii) Terex Mining. The Company now operates in
five business segments: (i) Terex Construction; (ii) Terex Cranes; (iii) Terex
Mining; (iv) Terex Roadbuilding, Utility Products and Other; and (v) Terex
Aerial Work Platforms. All prior periods have been restated to reflect results
based on these five business segments.
Terex Construction designs, manufactures and markets loader backhoes,
articulated and rigid off-highway trucks, mobile crushing and screening
equipment, excavators (including both mini- and midi-excavators), compaction
equipment, loading machines, wheeled loaders, rough terrain telescopic boom
material handlers, related components and replacement parts, and other products.
Currently, Terex Construction products are marketed under the following brand
names: Atlas, Benford, B.L. Pegson, CPV, Fermec, Finlay, Fuchs, Italmacchine,
Matbro, Powerscreen, Schaeff, Square Shooter and Terex. These products are used
primarily by construction, logging, mining, industrial and government customers
in building roads and commercial and residential buildings and supplying coal,
minerals, sand and gravel.
Terex Cranes designs, manufactures and markets telescopic mobile cranes
(including rough terrain, truck and all-terrain mobile cranes), lattice boom
cranes, tower cranes, truck-mounted cranes (boom trucks), related components and
replacement parts, and other products. Currently, Terex Cranes products are
marketed under the following brand names: American, Bendini, Comedil, Demag,
Franna, Koehring, Lorain, Marklift, Peiner, PPM, RO and Terex. These products
are used primarily for construction, repair and maintenance of infrastructure,
buildings and manufacturing facilities.
Terex Mining designs, manufactures and markets large hydraulic excavators and
high capacity surface mining trucks, related components and replacement parts,
and other products. Currently, Terex Mining products are marketed under the
following brand names: Lectra Haul, O&K, Payhauler, Terex and Unit Rig. These
products are primarily used by mining and government customers in supplying coal
and minerals.
Terex Roadbuilding, Utility Products and Other designs, manufactures and markets
equipment for the roadbuilding, utility and light construction industries.
Products include asphalt and concrete plants and pavers, reclaimers, stabilizers
and milling machines, crushing and screening equipment, aerial devices, digger
derricks, tree trimmers, light towers, generators, related components and
replacement parts, and other products. Currently, Terex Roadbuilding, Utility
Products and Other products are marketed under the following brand names:
Advance, Amida, Bartell, Bid-Well, Canica, Cedarapids, Cifali, CMI, Coleman
Engineering, Grayhound, Hi-Ranger, Jaques, Johnson-Ross, Load King, Morrison,
Muller, Re-Tech, Royer, Simplicity, Telelect and Terex. These products are used
primarily by government, utility and construction customers to build roads,
maintain utility lines and trim trees.
The fifth segment, Terex Aerial Work Platforms, was formed upon completion of
Terex's acquisition of Genie. Terex Aerial Work Platforms designs, manufactures
and markets aerial work platforms, including boom lifts and scissor lifts.
Currently, Terex Aerial Work Platforms products are marketed under the Genie and
the Terex brand names. These products are used primarily in the construction and
building maintenance industries.
The results of businesses acquired during 2002 and 2001 are included from the
dates of their respective acquisitions.
18
Included in Eliminations/Corporate are the eliminations among the five segments,
as well as general and corporate items for the three months and nine months
ended September 30, 2002 and 2001. Business segment information is presented
below:
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- -----------------------------
2002 2001 2002 2001
----------- -------------- -------------- -------------
Sales
Terex Construction................................. $ 315.3 $ 183.9 $ 926.6 $ 567.6
Terex Cranes....................................... 177.4 123.0 448.9 402.6
Terex Mining....................................... 69.6 91.7 208.1 183.5
Terex Roadbuilding, Utility Products and Other..... 135.3 69.6 425.6 259.4
Terex Aerial Work Platforms........................ 20.6 --- 20.6 ---
Eliminations/Corporate............................. (44.1) (14.5) (83.5) (42.7)
-------------- -------------- ------------- -------------
Total............................................ $ 674.1 $ 453.7 $ 1,946.3 $ 1,370.4
============== ============== ============= =============
Income (Loss) from Operations
Terex Construction................................. $ 14.5 $ 5.9 $ 59.1 $ 41.4
Terex Cranes....................................... 8.4 (11.3) 28.0 10.5
Terex Mining....................................... 3.1 8.3 1.6 10.4
Terex Roadbuilding, Utility Products and Other..... 5.1 1.5 16.1 18.1
Terex Aerial Work Platforms........................ 0.9 --- 0.9 ---
Eliminations/Corporate............................. 2.0 (0.7) (1.6) 0.5
-------------- ---------------------------- -------------
Total............................................ $ 34.0 $ 3.7 $ 104.1 $ 80.9
============== ============= =============== =============
September 30, December 31,
2002 2001
------------ ------------
Identifiable Assets
Terex Construction............................. $ 1,284.1 $ 1,009.6
Terex Cranes................................... 877.6 457.4
Terex Mining................................... 337.2 386.0
Terex Roadbuilding, Utility Products and Other. 595.8 533.8
Terex Aerial Work Platforms.................... 494.5 ---
Corporate...................................... 1,397.0 825.2
Eliminations................................... (1,393.5) (825.0)
------------- -------------
Total........................................ $ 3,592.7 $ 2,387.0
============= =============
19
NOTE P -- CONSOLIDATING FINANCIAL STATEMENTS
On March 29, 2001, the Company sold and issued $300 aggregate principal amount
of 10-3/8% Senior Subordinated Notes due 2011 (the "10-3/8% Notes"). On December
17, 2001, the Company sold and issued $200 aggregate principal amount of 9-1/4%
Senior Subordinated Notes due 2011 (the "9-1/4% Notes"). On March 31, 1998 and
March 9, 1999, the Company issued and sold $150 and $100 aggregate principal
amount, respectively, of 8-7/8% Senior Subordinated Notes due 2008 (the "8-7/8%
Notes"). As of September 30, 2002, the 10-3/8% Notes, the 9-1/4% Notes and the
8-7/8% Notes were each jointly and severally guaranteed by the following
wholly-owned subsidiaries of the Company (the "Wholly-owned Guarantors"): Terex
Cranes, Inc., Koehring Cranes, Inc., Terex-Telelect, Inc., Terex-RO Corporation,
Payhauler Corp., O & K Orenstein & Koppel, Inc., The American Crane Corporation,
Amida Industries, Inc., Cedarapids, Inc., Standard Havens, Inc., Standard Havens
Products, Inc., BL-Pegson USA, Inc., Benford America, Inc., Coleman Engineering,
Inc., EarthKing, Inc., Finlay Hydrascreen USA, Inc., Powerscreen Holdings USA
Inc., Powerscreen International LLC, Powerscreen North America Inc., Powerscreen
USA, LLC, Royer Industries, Inc., Terex Bartell, Inc., Terex Mining Equipment,
Inc., CMI Terex Corporation, CMI Dakota Company, CMIOIL Corporation, Product
Support, Inc., Schaeff, Inc., Fuchs Terex, Inc., Telelect Southeast
Distribution, Inc., Utility Equipment, Inc., Terex Advance Mixer, Inc., Terex
Utilities, Inc., Genie Holdings, Inc., Genie Access Services, Inc., Genie
Industries, Inc., Genie Financial Services, Inc., GFS National, Inc., Genie
Manufacturing, Inc., Genie USA Trading, Inc., Genie International, Inc., Lease
Servicing & Funding Corp., GFS Commercial LLC, and Go Credit Corporation. As of
September 30, 2002, the 10-3/8% Notes and the 8-7/8% Notes are also jointly and
severally guaranteed by PPM Cranes, Inc., which is 92.4% owned by Terex. All of
the guarantees are full and unconditional.
No subsidiaries of the Company except the Wholly-owned Guarantors and PPM
Cranes, Inc. have provided a guarantee of the 10-3/8% Notes and the 8-7/8%
Notes. No subsidiaries of the Company except the Wholly-owned Guarantors have
provided a guarantee of the 9-1/4% Notes.
The following summarized condensed consolidating financial information for the
Company segregates the financial information of Terex Corporation, the
Wholly-owned Guarantors, PPM Cranes, Inc. and the Non-guarantor Subsidiaries.
The results of businesses acquired during 2002 and 2001 are included from the
dates of their respective acquisitions.
Terex Corporation consists of parent company operations. Subsidiaries of the
parent company are reported on the equity basis.
Wholly-owned Guarantors combine the operations of the Wholly-owned Guarantor
subsidiaries. Subsidiaries of Wholly-owned Guarantors that are not themselves
guarantors are reported on the equity basis.
PPM Cranes, Inc. consists of the operations of PPM Cranes, Inc. Its subsidiary
is reported on an equity basis.
Non-guarantor Subsidiaries combine the operations of subsidiaries which have not
provided a guarantee of the obligations of Terex Corporation under the 10-3/8%
Notes, the 9-1/4% Notes and the 8-7/8% Notes.
Debt and goodwill allocated to subsidiaries is presented on an accounting
"push-down" basis.
20
TEREX CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2002
(in millions)
Wholly- Non-
Terex owned PPM guarantor Intercompany
Corporation Guarantors Cranes, Inc. Subsidiaries Eliminations Consolidated
------------- ------------- ------------- ------------- ------------- -------------
Net sales............................... $ 52.7 $ 279.5 $ 5.0 $ 245.4 $ 91.5 $ 674.1
Cost of goods sold................... 51.2 251.8 4.3 186.6 91.5 585.4
------------- ------------- ------------- ------------- ------------- -------------
Gross profit............................ 1.5 27.7 0.7 58.8 --- 88.7
Selling, general & administrative 2.3 23.9 0.4 28.1 --- 54.7
expenses
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) from operations........... (0.8) 3.8 0.3 30.7 --- 34.0
Interest income....................... 1.1 --- --- 0.7 --- 1.8
Interest expense...................... (5.6) (3.7) (0.1) (12.9) --- (22.3)
Income (loss) from equity investees... 13.3 --- --- --- (13.3) ---
Other income (expense) - net.......... 3.6 (22.5) --- 22.1 --- 3.2
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) before income taxes and 11.6 (22.4) 0.2 40.6 (13.3) 16.7
extraordinary items...................
Provision for income taxes............ (0.9) (1.1) --- (3.3) --- (5.3)
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) before extraordinary items 10.7 (23.5) 0.2 37.3 (13.3) 11.4
Extraordinary loss on retirement of debt (0.9) --- (0.7) --- --- (1.6)
Cumulative effect of change in
accounting principle................. --- --- --- --- --- ---
------------- ------------- ------------- ------------- ------------- -------------
Net income (loss)....................... $ 9.8 $ (23.5) $ (0.5) $ 37.3 $ (13.3) $ 9.8
============= ============= ============= ============= ============= =============
TEREX CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2001
(in millions)
Wholly- Non-
Terex owned PPM guarantor Intercompany
Corporation Guarantors Cranes, Inc. Subsidiaries Eliminations Consolidated
------------- ------------- ------------- ------------- ------------- -------------
Net sales............................... $ 74.3 $ 193.7 $ 10.2 $ 297.8 $ (122.3) $ 453.7
Cost of goods sold................... 68.4 177.1 10.5 272.3 (120.1) 408.2
------------- ------------- ------------- ------------- ------------- -------------
Gross profit............................ 5.9 16.6 (0.3) 25.5 (2.2) 45.5
Selling, general & administrative 4.5 11.4 1.6 24.3 --- 41.8
expenses
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) from operations........... 1.4 5.2 (1.9) 1.2 (2.2) 3.7
Interest income....................... 0.9 (0.1) --- 2.0 --- 2.8
Interest expense...................... (6.8) (3.7) (0.9) (10.5) --- (21.9)
Income (loss) from equity investees... (16.9) --- --- --- 16.9 ---
Other income (expense) - net.......... (0.5) (2.5) --- 2.4 --- (0.6)
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) before income taxes and (21.9) (1.1) (2.8) (4.9) 14.7 (16.0)
extraordinary items...................
Provision for income taxes............ 11.0 (0.4) --- (5.5) --- 5.1
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) before extraordinary items (10.9) (1.5) (2.8) (10.4) 14.7 (10.9)
Extraordinary loss on retirement of debt --- --- --- --- --- ---
Cumulative effect of change in
accounting principle................. --- --- --- --- --- ---
------------- ------------- ------------- ------------- ------------- -------------
Net income (loss)....................... $ (10.9) $ (1.5) $ (2.8) $ (10.4) $ 14.7 $ (10.9)
============= ============= ============= ============= ============= =============
21
TEREX CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2002
(in millions)
Wholly- Non-
Terex owned PPM guarantor Intercompany
Corporation Guarantors Cranes, Inc. Subsidiaries Eliminations Consolidated
------------- ------------- ------------- ------------- ------------- -------------
Net sales............................... $ 179.8 $ 713.9 $ 16.0 $ 1,092.7 $ (56.1) $ 1,946.3
Cost of goods sold................... 177.3 639.5 14.6 879.1 (56.1) 1,654.4
------------- ------------- ------------- ------------- ------------- -------------
Gross profit............................ 2.5 74.4 1.4 213.6 --- 291.9
Selling, general & administrative
expenses........................... 14.6 63.5 1.2 108.5 --- 187.8
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) from operations........... (12.1) 10.9 0.2 105.1 --- 104.1
Interest income....................... 2.5 --- --- 2.2 --- 4.7
Interest expense...................... (18.0) (12.2) (1.5) (35.2) --- (66.9)
Income (loss) from equity investees... (44.9) --- --- --- 44.9 ---
Other income (expense) - net.......... (17.1) (10.9) --- 19.6 --- (8.4)
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) before income taxes....... (89.6) (12.2) (1.3) 91.7 44.9 33.5
Provision for income taxes............ (1.7) (1.2) --- (7.8) --- (10.7)
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) before extraordinary items (91.3) (13.4) (1.3) 83.9 44.9 22.8
Extraordinary loss on retirement of debt (0.9) --- (0.7) --- --- (1.6)
Cumulative effect of change in
accounting principle ................. --- (18.4) --- (95.0) --- (113.4)
------------- ------------- ------------- ------------- ------------- -------------
Net income (loss)....................... $ (92.2) $ (31.8) $ (2.0) $ (11.1) $ 44.9 $ (92.2)
============= ============= ============= ============= ============= =============
TEREX CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2001
(in millions)
Wholly- Non-
Terex owned PPM guarantor Intercompany
Corporation Guarantors Cranes, Inc. Subsidiaries Eliminations Consolidated
------------- ------------- ------------- ------------- ------------- -------------
Net sales............................... $ 154.7 $ 515.4 $ 36.8 $ 826.7 $ (163.2) $ 1,370.4
Cost of goods sold................... 147.4 445.1 33.1 701.5 (161.0) 1,166.1
------------- ------------- ------------- ------------- ------------- -------------
Gross profit............................ 7.3 70.3 3.7 125.2 (2.2) 204.3
Selling, general & administrative
expenses........................... 14.3 30.5 7.2 71.4 --- 123.4
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) from operations........... (7.0) 39.8 (3.5) 53.8 (2.2) 80.9
Interest income....................... 2.9 0.2 --- 3.5 --- 6.6
Interest expense...................... (18.2) (10.2) (3.7) (34.0) --- (66.1)
Income (loss) from equity investees... 28.9 --- --- (0.1) (28.8) ---
Other income (expense) - net.......... 0.4 (3.1) (0.1) 1.3 --- (1.5)
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) before income taxes and
extraordinary items................... 7.0 26.7 (7.3) 24.5 (31.0) 19.9
Provision for income taxes............ 5.2 (0.8) --- (10.8) --- (6.4)
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) before extraordinary items 12.2 25.9 (7.3) 13.7 (31.0) 13.5
Extraordinary loss on retirement of debt (1.0) (0.6) --- (0.7) --- (2.3)
Cumulative effect of change in
accounting principle ................. --- --- --- --- --- ---
------------- ------------- ------------- ------------- ------------- -------------
Net income (loss)....................... $ 11.2 $ 25.3 $ (7.3) $ 13.0 $ (31.0) $ 11.2
============= ============= ============= ============= ============= =============
22
TEREX CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 2002
(in millions)
Wholly- Non-
Terex owned PPM guarantor Intercompany
Corporation Guarantors Cranes, Inc. Subsidiaries Eliminations Consolidated
------------- ------------- ------------- ------------ ------------- -------------
Assets
Current assets
Cash and cash equivalents.......... $ 113.5 $ 11.3 $ 0.1 $ 212.7 $ --- $ 337.6
Trade receivables.................. 41.7 205.2 1.9 390.2 --- 639.0
Intercompany receivables........... 16.2 93.4 1.3 25.1 (136.0) ---
Inventories........................ 112.1 322.0 11.4 651.1 37.1 1,133.7
Deferred taxes..................... 22.4 21.3 --- 5.3 --- 49.0
Other current assets............... 11.0 19.5 0.1 105.6 --- 136.2
------------- ------------- ------------- ------------ ------------- -------------
Total current assets............. 316.9 672.7 14.8 1,390.0 (98.9) 2,295.5
Long-term assets
Property, plant and equipment...... 8.2 136.8 0.3 120.0 --- 265.3
Investment in and advances to
(from) subsidiaries.............. 828.3 (363.3) (1.5) (370.3) (93.2) ---
Goodwill........................... 2.7 241.3 10.6 349.9 --- 604.5
Deferred taxes..................... 66.6 17.0 --- 11.0 --- 94.6
Other assets....................... 67.9 82.6 1.5 180.8 --- 332.8
------------- ------------- ------------- ------------ ------------- -------------
Total assets............................ $ 1,290.6 $ 787.1 $ 25.7 $ 1,681.4 $ (192.1) $ 3,592.7
============= ============= ============= ============ ============= =============
Liabilities and stockholders' equity
(deficit)
Current liabilities
Notes payable and current portion
of long-term debt................ $ 0.4 $ 40.6 $ 0.4 $ 45.1 $ --- $ 86.5
Trade accounts payable............. 35.9 170.5 2.9 318.6 --- 527.9
Intercompany payables.............. 37.2 --- 0.1 98.7 (136.0) ---
Accruals and other current
liabilities...................... 85.0 94.7 6.1 274.1 --- 459.9
------------- ------------- ------------- ------------- ------------- -------------
Total current liabilities........ 158.5 305.8 9.5 736.5 (136.0) 1,074.3
Non-current liabilities
Long-term debt,less current portion 335.3 339.5 63.7 809.7 --- 1,548.2
Other.............................. 24.7 43.1 0.7 129.6 --- 198.1
Stockholders' equity (deficit)....... 772.1 98.7 (48.2) 5.6 (56.1) 772.1
------------- ------------- ------------- ------------- ------------- -------------
Total liabilities and stockholders'
equity (deficit)..................... $ 1,290.6 $ 787.1 $ 25.7 $ 1,681.4 $ (192.1) $ 3,592.7
============= ============= ============= ============= ============= =============
23
TEREX CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2001
(in millions)
Wholly- Non-
Terex Owned PPM guarantor Intercompany
Corporation Guarantors Cranes, Inc. Subsidiaries Eliminations Consolidated
------------- ------------- ------------- ------------- ------------- -------------
Assets
Current assets
Cash and cash equivalents.......... $ 144.2 $ 3.9 $ 0.1 $ 102.2 $ --- $ 250.4
Trade receivables.................. 23.1 94.6 3.9 229.5 --- 351.1
Intercompany receivables........... 14.2 18.7 --- 66.2 (99.1) ---
Net inventories.................... 76.1 254.2 14.5 361.8 (1.8) 704.8
Deferred taxes..................... 22.5 0.4 --- 0.8 --- 23.7
Other current assets............... 13.2 2.7 0.1 37.0 --- 53.0
------------- ------------- ------------- ------------- ------------- -------------
Total current assets............. 293.3 374.5 18.6 797.5 (100.9) 1,383.0
Property, plant & equipment - net.... 8.4 66.2 0.2 99.1 --- 173.9
Investment in and advances to
(from) subsidiaries................ 647.2 (245.2) (0.2) (295.4) (106.4) ---
Goodwill............................. 2.7 252.1 10.6 354.7 --- 620.1
Deferred taxes....................... 74.7 --- --- 0.7 --- 75.4
Other assets......................... 33.4 44.6 0.7 55.9 --- 134.6
------------- ------------- ------------- ------------- ------------- -------------
Total assets............................ $ 1,059.7 $ 492.2 $ 29.9 $ 1,012.5 $ (207.3) $ 2,387.0
============= ============= ============= ============= ============= =============
Liabilities and stockholders' equity
(deficit)
Current liabilities
Notes payable and current portion
of long-term debt................ $ 0.4 $ 2.6 $ 0.4 $ 31.3 $ --- $ 34.7
Trade accounts payable............. 33.4 54.0 3.3 200.3 --- 291.0
Intercompany payables.............. 23.1 21.1 2.2 52.7 (99.1) ---
Accruals and other current
liabilities...................... 70.3 87.6 7.0 136.5 --- 301.4
------------- ------------- ------------- ------------- ------------- -------------
Total current liabilities........ 127.2 165.3 12.9 420.8 (99.1) 627.1
Non current liabilities
Long-term debt less current portion 298.6 185.8 62.4 473.9 --- 1,020.7
Other............................. 38.5 10.6 0.8 93.9 --- 143.8
Stockholders' equity (deficit)....... 595.4 130.5 (46.2) 23.9 (108.2) 595.4
------------- ------------- ------------- ------------- ------------- -------------
Total liabilities and stockholders'
equity (deficit)..................... $ 1,059.7 $ 492.2 $ 29.9 $ 1,012.5 $ (207.3) $ 2,387.0
============= ============= ============= ============= ============= =============
24
TEREX CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2002
(in millions)
Wholly- Non-
Terex owned PPM guarantor Intercompany
Corporation Guarantors Cranes, Inc. Subsidiaries Eliminations Consolidated
------------- ------------- ------------- ------------ -------------- -------------
Net cash provided by (used in)
operating activities................. $ (128.8) $ 91.3 $ --- $ 45.8 $ --- $ 8.3
------------- ------------- ------------- ------------- ------------- -------------
Investing activities
Acquisition of businesses, net of
cash acquired...................... (13.5) (184.0) --- (243.2) --- (440.7)
Capital expenditures................. (1.7) (4.2) --- (10.5) --- (16.4)
Proceeds from sale of assets......... --- 2.4 --- 1.2 --- 3.6
------------- ------------- ------------- ------------- ------------- -------------
Net cash provided by (used in)
investing activities........... (15.2) (185.8) --- (252.5) --- (453.5)
------------- ------------- ------------- ------------- ------------- -------------
Financing activities
Proceeds from issuance of long-term
debt, net of issuance costs....... --- 144.8 60.0 367.2 --- 572.0
Issuance of common stock ............ 113.3 --- --- --- --- 113.3
Principal repayments of long-term debt --- (41.8) (60.0) (116.3) --- (218.1)
Net borrowings (repayments) under
revolving line of credit agreements --- (1.1) --- 61.5 --- 60.4
Other................................ --- --- (1.3) --- (1.3)
------------- ------------- ------------- ------------- ------------- -------------
Net cash provided by (used in)
financing activities............ 113.3 101.9 --- 311.1 --- 526.3
------------- ------------- ------------- ------------- ------------- -------------
Effect of exchange rates on cash and
cash equivalents..................... --- --- --- 6.1 --- 6.1
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in cash and cash
equivalents.......................... (30.7) 7.4 --- 110.5 --- 87.2
Cash and cash equivalents, beginning of
period............................... 144.2 3.9 0.1 102.2 --- 250.4
------------- ------------- ------------- ------------- ------------- -------------
Cash and cash equivalents,
end of period........................ $ 113.5 $ 11.3 $ 0.1 $ 212.7 $ --- $ 337.6
============= ============= ============= ============= ============= =============
25
TEREX CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2001
(in millions)
Wholly- Non-
Terex owned PPM guarantor Intercompany
Corporation Guarantors Cranes, Inc. Subsidiaries Eliminations Consolidated
------------- ------------- ------------ ------------- ------------- -------------
Net cash provided by (used in)
operating activities................. $ (41.1) $ (17.4) $ 0.5 $ 34.0 $ $ (24.0)
------------- ------------- ------------ ------------- ------------- -------------
Investing activities
Acquisition of businesses, net of
cash acquired...................... (5.3) --- --- (5.1) --- (10.4)
Capital expenditures................. (0.9) (3.1) --- (5.3) --- (9.3)
Proceeds from sale of assets......... 0.3 --- --- 3.4 --- 3.7
Other................................ --- --- --- (3.4) --- (3.4)
------------- ------------- ------------- ------------ ------------- -------------
Net cash provided by (used in)
investing activities........... (5.9) (3.1) --- (10.4) --- (19.4)
------------- ------------- ------------- ------------ ------------- -------------
Financing activities
Proceeds from issuance of long-term
debt, net of issuance costs....... 123.8 74.9 --- 89.2 --- 287.9
Principal repayments of long-term debt (38.5) (53.4) (0.5) (101.8) --- (194.2)
Net borrowings (repayments) under
revolving line of credit agreements --- --- -- 29.2 --- 29.2
Other................................ (0.2) (0.1) --- (0.7) --- (1.0)
------------- ------------- ------------- ------------ ------------- -------------
Net cash provided by (used in)
financing activities............ 85.1 21.4 (0.5) 15.9 --- 121.9
------------- ------------- ------------- ------------ ------------- -------------
Effect of exchange rates on cash and --- --- --- 0.9 0.9
cash equivalents..................... ---
------------- ------------- ------------- ------------ ------------- -------------
Net increase (decrease) in cash and cash 38.1 0.9 --- 40.4 79.4
equivalents.......................... ---
Cash and cash equivalents, beginning of
period............................... 108.7 0.3 0.1 72.3 --- 181.4
------------- ------------- ------------- ------------ ------------- -------------
Cash and cash equivalents,
end of period........................ $ 146.8 $ 1.2 $ 0.1 $ 112.7 $ --- $ 260.8
============= ============= ============= ============ ============= =============
26
PPM CRANES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
(in millions)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------------------------------------------
2002 2001 2002 2001
------------ ----------- ----------- ------------
Net sales.....................................$ 5.0 $ 10.2 $ 16.0 $ 36.8
Cost of goods sold............................ 4.3 10.5 14.6 33.1
------------ ----------- ----------- ------------
Gross profit............................. 0.7 (0.3) 1.4 3.7
Selling, general and administrative expenses.. 0.4 1.6 1.2 7.2
------------ ----------- ----------- ------------
Income (loss) from operations............ 0.3 (1.9) 0.2 (3.5)
Other income (expense):
Interest expense......................... (0.1) (0.9) (1.5) (3.7)
Amortization of debt issuance costs...... --- --- --- (0.1)
------------ ----------- ----------- ------------
Income (loss) before income taxes
and extraordinary items .................... 0.2 (2.8) (1.3) (7.3)
Provision for income taxes.................... --- --- --- ---
------------ ----------- ----------- ------------
Income (loss) before extraordinary items...... 0.2 (2.8) (1.3) (7.3)
Extraordinary loss on retirement of debt...... (0.7) --- (0.7) ---
------------ ----------- ----------- ------------
Net income (loss).............................$ (0.5) $ (2.8) $ (2.0) $ (7.3)
============ =========== =========== ============
The accompanying notes are an integral part of these financial statements.
27
PPM CRANES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(in millions, except share amounts)
September 30,
2002 December 31,
(unaudited) 2001
---------------- ---------------
ASSETS
Current assets:
Cash and cash equivalents........................................... $ 0.1 $ 0.1
Trade accounts receivables (net of allowance of $0.6 at September
30, 2002 and $0.6 at December 31, 2001)........................... 1.9 3.9
Inventories......................................................... 11.4 14.5
Due from affiliates................................................. 1.3 0.7
Other current assets ............................................... 0.1 0.1
---------------- -----------------
Total current assets.............................................. 14.8 19.3
Long-term assets:
Property, plant and equipment....................................... 0.3 0.3
Goodwill............................................................ 10.6 10.6
Other assets........................................................ 1.5 0.7
---------------- -----------------
Total assets........................................................... $ 27.2 $ 30.9
================ =================
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Trade accounts payable.............................................. $ 2.9 $ 3.3
Accrued warranties and product liability............................ 4.1 4.8
Accrued expenses.................................................... 2.0 2.4
Due to affiliates................................................... 0.1 2.2
Due to Terex Corporation............................................ 1.5 0.9
Current portion of long-term debt................................... 0.4 0.4
---------------- -----------------
Total current liabilities......................................... 11.0 14.0
Non-current liabilities:
Long-term debt, less current portion................................ 63.7 62.4
Other............................................................... 0.7 0.7
Commitments and contingencies
Shareholders' deficit
Common stock, Class A, $.01 par value -
authorized 8,000 shares; issued and outstanding 5,000 shares...... --- ---
Common stock, Class B, $.01 par value -
authorized 2,000 shares; issued and outstanding 413 shares........ --- ---
Accumulated deficit................................................. (48.2) (46.2)
---------------- -----------------
Total shareholders' deficit...................................... (48.2) (46.2)
---------------- -----------------
Total liabilities and shareholders' deficit............................ $ 27.2 $ 30.9
================ =================
The accompanying notes are an integral part of these financial statements.
28
PPM CRANES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
(in millions)
For the Nine Months
Ended September 30,
--------------------------
2002 2001
------------- ------------
OPERATING ACTIVITIES
Net loss..................................................................... $ (2.0) $ (7.3)
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation and amortization............................................ --- 1.1
Changes in operating assets and liabilities:
Trade accounts receivable.............................................. 2.0 (1.4)
Inventories............................................................ 3.1 (9.4)
Trade accounts payable................................................. (0.4) (0.9)
Extraordinary loss on retirement of debt............................... 0.7 ---
Net amounts due to affiliates.......................................... (2.0) 15.9
Other, net............................................................. (1.4) 2.5
------------- --------------
Net cash provided by operating activities............................ --- 0.5
------------- --------------
INVESTING ACTIVITIES
Net cash used in investing activities...................................... --- ---
------------- --------------
FINANCING ACTIVITIES
Principal repayments of long-term debt..................................... (60.0) (0.5)
Proceeds from issuance of long term debt net of issuance costs............. 60.0 ---
------------- --------------
Net cash used in financing activities................................... --- (0.5)
------------- --------------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS.................................................... --- ---
------------- --------------
NET INCREASE IN CASH AND CASH EQUIVALENTS....................................... --- ---
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD................................ 0.1 0.1
------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD...................................... $ 0.1 $ 0.1
============= ==============
The accompanying notes are an integral part of these financial statements.
29
PPM CRANES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002
(unaudited)
(dollar amounts in millions, unless otherwise noted)
NOTE 1 -- Description of the Business and Basis of Presentation
PPM Cranes, Inc. (the "Company" or "PPM") is engaged in the design, manufacture,
marketing and worldwide distribution and support of construction equipment,
primarily hydraulic cranes and related spare parts.
On May 9, 1995, Terex Corporation, through its wholly-owned subsidiary Terex
Cranes, Inc., a Delaware corporation, completed the acquisition of all of the
capital stock of Legris Industries, Inc., a Delaware corporation, which then
owned 92.4% of the capital stock of PPM Cranes, Inc.
The condensed consolidated financial statements reflect Terex Corporation's
basis in the assets and liabilities of the Company which was accounted for as a
purchase transaction. As a result, the debt and goodwill associated with the
acquisition have been "pushed down" to the Company's financial statements.
In the opinion of management, all adjustments considered necessary for a fair
statement have been made. Such adjustments consist only of those of a normal
recurring nature. Operating results for the three months and nine months ended
September 30, 2002 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2002. For further information, refer
to the Company's consolidated financial statements and footnotes thereto for the
year ended December 31, 2001.
The condensed consolidated financial statements include the accounts of the
Company and its wholly owned inactive subsidiary, PPM Far East Pte. Ltd through
September 7, 2002. PPM Far East Pte. Ltd. was dissolved effective September 7,
2002. All material intercompany transactions and profits have been eliminated.
NOTE 2 - ACCOUNTING CHANGE - BUSINESS COMBINATIONS AND GOODWILL
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141
"Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets."
SFAS No. 141, effective July 1, 2001, addresses financial accounting and
reporting for business combinations and requires all business combinations be
accounted for using the purchase method.
SFAS No. 142 addresses financial accounting for acquired goodwill and other
intangible assets and how such assets should be accounted for in financial
statements upon their acquisition and after they have been initially recognized
in the financial statements. In accordance with SFAS No. 142, effective January
1, 2002, goodwill is no longer being amortized. Under this standard, goodwill
and indefinite life intangible assets are to be reviewed for impairment at least
annually and written down in the period in which the recorded value of such
assets exceed their fair value. The Company's initial impairment test was
performed prior to June 30, 2002, as required. Under the transitional provisions
of SFAS No. 142, the Company performed its impairment tests on the net goodwill
and other intangible assets, using a valuation date of January 1, 2002. As a
result of the tests, no impairment loss was recorded.
During the three months and nine months ended September 30, 2001, the Company
recorded goodwill amortization expense of $0.3 and $0.9, respectively. The
Company's net loss for the three months and nine months ended September 30, 2001
excluding amortization of goodwill was $2.5 and $6.4, respectively.
NOTE 3 - RESTRUCTURING AND OTHER CHARGES
During the third quarter of 2001, Terex Corporation announced that a number of
its production facilities would be consolidated, some facilities would be closed
(including PPM's Conway facility) and that other additional expenses would be
incurred. These actions were designed to maximize factory utilization by taking
advantage of recently acquired factories and to leverage common purchasing,
engineering and marketing operations. The PPM facility closed in the first
quarter of 2002 and production was relocated to the Terex Corporation facility
in Waverly, Iowa.
30
PPM recorded costs of $2.7 during 2001 for severance and closing costs related
to these actions as well as other expenses. The severance costs, totaling $0.5,
were for the elimination of approximately 42 positions in connection with the
plant closure. Other costs, totaling $2.2, include asset write-offs and plant
closing costs of which approximately $1.4 represents non-cash charges. Cash
payments took place primarily in the fourth quarter of 2001 and were completed
during the first quarter of 2002.
NOTE 4 -- Inventories
Inventories consist of the following:
September 30, December 31,
2002 2001
---------------- ----------------
Finished equipment.......................$ 1.6 $ 4.5
Replacement parts........................ 5.5 5.9
Work in process.......................... 0.3 1.2
Raw materials and supplies............... 4.0 2.9
---------------- -----------------
Inventories..............................$ 11.4 $ 14.5
================ =================
note 5 -- Property, Plant and Equipment
Property, plant and equipment consists of the following:
September 30, December 31,
2002 2001
----------------- ----------------
Property, plant and equipment............$ 0.8 $ 0.8
Less: Accumulated depreciation.......... (0.5) (0.5)
----------------- ----------------
Net property, plant and equipment........$ 0.3 $ 0.3
================= ================
NOTE 6 - LONG-TERM DEBT
On July 3, 2002, Terex Corporation entered into an amended and restated credit
facility with its bank lending group, whereby $60.0 of the Company's long-term
debt was refinanced with term debt maturing in June 2009. In connection with the
refinancing of this long-term debt, the Company incurred a $0.7 extraordinary
loss on the retirement of debt.
NOTE 7 - COMMITMENTS AND Contingencies
The Company is involved in product liability and other lawsuits incident to the
operation of its business. Insurance with third parties is maintained for
certain of these items. It is management's opinion that none of these lawsuits
will have a material adverse effect on the Company's financial position.
On March 29, 2001, Terex Corporation sold and issued $300 aggregate principal
amount of 10-3/8% Senior Subordinated Notes due 2011 (the "10-3/8% Notes"). On
March 31, 1998 and March 9, 1999, Terex Corporation issued and sold $150.0 and
$100.0 aggregate principal amount, respectively, of 8-7/8% Senior Subordinated
Notes due 2008 (the "8-7/8% Notes"). The 10-3/8% Notes and the 8-7/8% Notes are
each jointly and severally guaranteed by certain domestic subsidiaries of Terex
Corporation, including PPM.
31
NOTE 8 - RELATED PARTY TRANSACTIONS
During the three months and nine months ended September 30, 2002 and 2001, the
Company had transactions with various unconsolidated affiliates as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- -------------------
2002 2001 2002 2001
---------- --------- -------- ----------
Product sales and service revenues $ --- $ --- $ 0.4 $ ---
Management fee expense $ --- $ 0.3 $ --- $ 0.8
Interest expense $ 0.7 $ 1.2 $ 2.3 $ 4.0
Included in management fee expenses are expenses paid by Terex Corporation on
behalf of the Company (e.g. legal, treasury and tax services expense).
32
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Terex is a diversified global manufacturer of a broad range of equipment for the
construction, infrastructure and mining industries. From July 1, 2001 through
June 30, 2002, the Company operated in three business segments: (i) Terex
Americas; (ii) Terex Europe; and (iii) Terex Mining. The Company now operates in
five business segments: (i) Terex Construction; (ii) Terex Cranes; (iii) Terex
Mining; (iv) Terex Roadbuilding, Utility Products and Other; and (v) Terex
Aerial Work Platforms. All prior periods have been restated to reflect results
based on these five business segments.
Terex Construction designs, manufactures and markets loader backhoes,
articulated and rigid off-highway trucks, mobile crushing and screening
equipment, excavators (including both mini- and midi-excavators), compaction
equipment, loading machines, wheeled loaders, rough terrain telescopic boom
material handlers, related components and replacement parts, and other products.
Currently, Terex Construction products are marketed under the following brand
names: Atlas, Benford, B.L. Pegson, CPV, Fermec, Finlay, Fuchs, Italmacchine,
Matbro, Powerscreen, Schaeff, Square Shooter and Terex. These products are used
primarily by construction, logging, mining, industrial and government customers
in building roads and commercial and residential buildings and supplying coal,
minerals, sand and gravel. The Company acquired Atlas Weyhausen GmbH and its
affiliates ("Atlas") on December 28, 2001 and the Schaeff Group of Companies
("Schaeff") on January 14, 2002. The results of Atlas and Schaeff are included
in the Terex Construction segment since their respective dates of acquisition.
Terex Cranes designs, manufactures and markets telescopic mobile cranes
(including rough terrain, truck and all-terrain mobile cranes), lattice boom
cranes, tower cranes, truck-mounted cranes (boom trucks), related components and
replacement parts, and other products. Currently, Terex Cranes products are
marketed under the following brand names: American, Bendini, Comedil, Demag,
Franna, Koehring, Lorain, Marklift, Peiner, PPM, RO and Terex. These products
are used primarily for construction, repair and maintenance of infrastructure,
buildings and manufacturing facilities. The Company acquired Demag Mobile Cranes
GmbH & Co. KG and its affiliates ("Demag") on August 30, 2002. The results of
Demag are included in the Terex Cranes segment since its date of acquisition.
Terex Mining designs, manufactures and markets large hydraulic excavators and
high capacity surface mining trucks, related components and replacement parts,
and other products. Currently, Terex Mining products are marketed under the
following brand names: Lectra Haul, O&K, Payhauler, Terex and Unit Rig. These
products are primarily used by mining and government customers in supplying coal
and minerals.
Terex Roadbuilding, Utility Products and Other designs, manufactures and markets
equipment for the roadbuilding, utility and light construction industries.
Products include asphalt and concrete plants and pavers, reclaimers, stabilizers
and milling machines, crushing and screening equipment, aerial devices, digger
derricks, tree trimmers, light towers, generators, related components and
replacement parts, and other products. Currently, Terex Roadbuilding, Utility
Products and Other products are marketed under the following brand names:
Advance, Amida, Bartell, Bid-Well, Canica, Cedarapids, Cifali, CMI, Coleman
Engineering, Grayhound, Hi-Ranger, Jaques, Johnson-Ross, Load King, Morrison,
Muller, Re-Tech, Royer, Simplicity, Telelect and Terex. These products are used
primarily by government, utility and construction customers to build roads,
maintain utility lines and trim trees. On January 24, 2001, October 1, 2001,
January 15, 2002, March 26, 2002 and April 11, 2002, the Company acquired Jaques
International Holdings Pty. Ltd. and its affiliates (collectively, the "Jaques
Group"), CMI Corporation and its affiliates ("CMI"), Utility Equipment, Inc.
("Utility Equipment"), EPAC Holdings, Inc. ("Telelect Southeast") and certain
assets and liabilities of Advance Mixer, Inc. ("Advance Mixer"), respectively.
The results of the Jaques Group, CMI, Utility Equipment, Telelect Southeast and
Advance Mixer are included in the results of the Terex Roadbuilding, Utility
Products and Other segment from their respective dates of acquisition.
The fifth segment, Terex Aerial Work Platforms, was formed upon completion of
Terex's acquisition of Genie Holdings, Inc. and its affiliates ("Genie") on
September 18, 2002. Terex Aerial Work Platforms designs, manufactures and
markets aerial work platforms, including boom lifts and scissor lifts.
Currently, Terex Aerial Work Platforms products are marketed under the brand
names Genie and Terex. These products are used primarily in the construction and
building maintenance industries.
Included in Eliminations/Corporate are the eliminations among the five segments,
as well as general and corporate items for the three months and nine months
ended September 30, 2002 and 2001.
33
RESTRUCTURING The Company has initiated numerous restructuring Programs since
October 1, 2001 as disclosed in Note E -- -- "Restructuring and Other Changes"
in the Company's Condensed Consolidated Financial Statements. These programs
were intiated in response to a slowing economy, to reduce duplicative operating
facilities and to respond to specific market conditions seen in the Terex Mining
segment and in the Light Construction business, which is reported in the Terex
Roadbuilding, Utility and Other segment. The Company's plans have been designed
to minimize the impact of any program on future operating results and the
Company's liquidity. To date, these restructuring programs have not negatively
impacted operating results or the Company's liquidity. These initiatives are
expected to generate a reduction in ongoing labor and factory overhead expense
as well as to reduce overall material costs by leveraging the purchasing power
of the consolidated facilities
Three Months Ended September 30, 2002 Compared with the Three Months Ended
September 30, 2001
The table below is a comparison of net sales, gross profit, selling, general and
administrative expenses, and income from operations, by segment, for the three
months ended September 30, 2002 and 2001.
Three Months Ended
September 30,
--------------------------- Increase
2002 2001 (Decrease)
------------- ------------- --------------
(amounts in millions)
NET SALES
Terex Construction................................$ 315.3 $ 183.9 $ 131.4
Terex Cranes...................................... 177.4 123.0 54.4
Terex Mining...................................... 69.6 91.7 (22.1)
Terex Roadbuilding, Utility Products and Other.... 135.3 69.6 65.7
Terex Aerial Work Platforms....................... 20.6 --- 20.6
Eliminations/Corporate............................ (44.1) (14.5) (29.6)
------------- ------------- --------------
Total...........................................$ 674.1 $ 453.7 $ 220.4
============= ============= ==============
GROSS PROFIT
Terex Construction................................$ 35.3 $ 20.5 $ 14.8
Terex Cranes...................................... 20.5 0.6 19.9
Terex Mining...................................... 9.4 14.1 (4.7)
Terex Roadbuilding, Utility Products and Other.... 21.6 10.4 11.2
Terex Aerial Work Platforms....................... 2.5 --- 2.5
Eliminations/Corporate............................ (0.6) (0.1) (0.5)
------------- ------------- --------------
Total...........................................$ 88.7 $ 45.5 $ 43.2
============= ============= ==============
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Terex Construction................................$ 20.8 $ 14.6 $ 6.2
Terex Cranes...................................... 12.1 11.9 0.2
Terex Mining...................................... 6.3 5.8 0.5
Terex Roadbuilding, Utility Products and Other.... 16.5 8.9 7.6
Terex Aerial Work Platforms....................... 1.6 --- 1.6
Eliminations/Corporate............................ (2.6) 0.6 (3.2)
------------- ------------- --------------
Total...........................................$ 54.7 $ 41.8 $ 12.9
============= ============= ==============
INCOME FROM OPERATIONS
Terex Construction................................$ 14.5 $ 5.9 $ 8.6
Terex Cranes...................................... 8.4 (11.3) 19.7
Terex Mining...................................... 3.1 8.3 (5.2)
Terex Roadbuilding, Utility Products and Other.... 5.1 1.5 3.6
Terex Aerial Work Platforms....................... 0.9 --- 0.9
Eliminations/Corporate............................ 2.0 (0.7) 2.7
------------- ------------- --------------
Total...........................................$ 34.0 $ 3.7 $ 30.3
============= ============= ==============
Net Sales
Sales increased $220.4 million or approximately 49% to $674.1 million for the
three months ended September 30, 2002 from $453.7 million for the comparable
2001 period. The primary reason for the increase in sales was the impact of
businesses acquired since the third quarter of 2001, including CMI, Atlas,
Schaeff, Utility Equipment, Telelect Southeast, Advance Mixer, Demag and Genie.
Excluding the impact of acquisitions and divestitures, third quarter 2002 net
sales decreased approximately 10% from the comparable 2001 period.
Terex Construction sales increased approximately 72% or $131.4 million from
third quarter of 2001 levels to $315.3 million in the third quarter of 2002. The
acquisitions of Atlas and Schaeff accounted for $116.9 million of the increase.
Excluding acquisitions and divestitures, sales increased by approximately 2% or
$2.6 million over third quarter of 2001 levels.
Terex Cranes sales increased 44% from third quarter of 2001 levels to $177.4
million in the third quarter of 2002. The increase was due to the acquisition of
Demag, which generated $55.1 million of sales during the third quarter of 2002.
34
Excluding the impact of acquisitions and divestitures, Terex Cranes sales
increased by approximately 2% over third quarter of 2001 levels to $119.6
million.
Terex Mining sales decreased 24% to $69.6 million in the third quarter of 2002
from $91.7 million in the third quarter of 2001. The decrease was due to reduced
demand for mining trucks and replacement parts, due largely to the continued
weakness in mineral commodity prices, which are a major determinant of the
overall demand for mining equipment.
Terex Roadbuilding, Utility Products and Other sales increased by $65.7 million
or 95% over third quarter sales of $69.6 million in 2001. Excluding the
acquisitions of CMI, Utility Equipment, Telelect Southeast and Advance Mixer,
sales decreased by $2.0 million or approximately 3% due to lower sales in the
Utility Products group as a result of reduced demand from telecommunication
customers.
Terex Aerial Work Platforms net sales represent the activity of Genie since
Genie's acquisition date of September 18, 2002.
Net sales eliminations consists of the elimination of sales among the segments.
In the third quarter of 2002, sales eliminations primarily represents the sale
of material handlers between the Terex Construction and Terex Cranes segments.
Gross Profit
Gross profit for the three months ended September 30, 2002 increased
approximately $43.2 million or 95% over third quarter 2001 levels. Third quarter
2001 results include a restructuring charge of $24.8 million related to the
closure of seven facilities throughout the United States and Europe initiated to
take advantage of recent acquisitions and in expectation of a continued weak
global economy. Third quarter 2002 results include a restructuring charge of
$3.5 million related to the closure of a Light Construction facility in the
Terex Roadbuilding, Utility Products and Other segment and staff reductions due
to decreases in market demand at CMI and the Terex Cranes segment. These
restructurings are both expected to be completed by December 31, 2002. Gross
profit from acquired businesses added $23.6 million of gross profit to the
results in the third quarter of 2002. Excluding acquisitions, divestitures and
restructuring, gross profit for the third quarter of 2002 was 16.7% of sales, an
increase from 15.6% for the third quarter of 2001.
Terex Construction gross profit increased by $14.8 million to $35.3 million from
$20.5 million in the third quarter of 2001. Gross profit in the third quarter of
2001 was reduced by $6.1 million due to restructuring initiatives at three
facilities in the United States and Europe. Acquisitions made since September
2001 added $5.7 million of gross profit. The remainder of the increase in gross
profit is a result of continued strong performance in the Powerscreen
businesses, where sales increased by 24% over 2001 levels and gross profit as a
percent of sales increased by 19% over 2001 levels, due to a trend in the market
towards mobile tracked crushing and screening equipment and away from stationary
plants to increase customers' flexibility and productivity. Improvements in
Powerscreen were partially offset by a slowdown in sales of articulated trucks
in Europe and the United States.
Terex Cranes gross profit increased to $20.5 million in the third quarter of
2002 from $0.6 million in the third quarter of 2001. The majority of the
increase is due to lower costs arising from restructuring actions. During the
third quarter of 2001, Terex Cranes incurred $15.9 million of costs arising from
restructuring actions at seven facilities around the world. The acquisition of
Demag during the third quarter of 2002 accounted for $5.5 million of increased
gross profit over the prior year's period. Demag's gross profit reported since
its date of acquisition, August 30, 2002, includes a charge of $2.4 million
related to inventory valuation adjustments required under SFAS No. 141. This
charge relates to inventory held by Demag on the date of acquisition and is a
non-cash charge that is not reflective of ongoing business performance.
Terex Mining gross profit declined by $4.7 million to $9.4 million in the third
quarter of 2002 as compared to the third quarter of 2001. The decline in gross
profit is due primarily to lower parts volumes and margins as well as
significantly lower demand for large mining trucks. As a percent of sales, gross
profit declined to 13.5% in the third quarter 2002 from 15.4% in the third
quarter of 2001.
Terex Roadbuilding, Utility Products and Other gross profit increased by $11.2
million to $21.6 million from the third quarter of 2001 levels. When compared to
the third quarter of 2001, restructuring charges reduced year over year gross
profit by $0.3 million. Restructuring charges in the third quarter of 2001 were
$2.3 million while restructuring charges in the third quarter of 2002 were $3.4
million, as the Company continued to reduce the size of its organization due to
slow market conditions in the roadbuilding industry, where delays in government
funding for roadbuilding projects have negatively impacted performance.
Acquisitions made since September 2001, including CMI, Utility Equipment,
Telelect Southeast and Advance Mixer, added $9.9 million to results in the third
quarter of 2002. The majority of the remaining increase in year over year gross
profit was generated by improvements in sales levels and the benefit of
restructuring activities initiated in 2001 in the roadbuilding businesses.
35
Terex Aerial Work Platforms gross profit for the twelve days since Genie's
acquisition date of September 18, 2002 totaled $2.5 million. The gross profit
reported includes a charge of $1.3 million related to inventory valuation
adjustments required under SFAS No. 141. This charge relates to inventory held
by Genie on the date of acquisition and is a non-cash charge that is not
reflective of ongoing business performance.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by $12.9 million to $54.7
million in the third quarter of 2002 as compared to $41.8 million in the third
quarter of 2001. Excluding the impact of restructuring activities initiated in
the third quarter of 2001, selling, general and administrative expenses
increased by $16.8 million in the third quarter 2002 versus the comparable
period in 2001. Acquisitions made since September 2001 added $19.7 million of
selling, general and administrative expenses in the third quarter of 2002.
Excluding acquisitions, divestitures and restructuring costs, selling, general
and administrative expenses declined by $2.5 million as a result of cost savings
initiatives launched during the third quarter of 2001. Selling, general and
administrative expenses decreased to 8.1% of sales in the third quarter of 2002
from 9.2% in the third quarter of 2001.
Selling, general and administrative expenses at Terex Construction increased by
$6.2 million to $20.8 million in the third quarter of 2002 versus $14.6 million
in the third quarter of 2001. Excluding the impact of restructuring charges in
the third quarter of 2001, selling, general and administrative expenses
increased by $7.4 million. Businesses acquired since September 2001, namely
Atlas and Schaef, accounted for $4.9 million of the increase. The remaining
increase in selling, general and administrative expenses over the third quarter
of 2001 levels came from the Powerscreen business and other businesses where
sales, excluding acquisitions, increased by $14.5 million.
Selling, general and administrative expenses at Terex Cranes increased by $0.2
million to $12.1 million in the third quarter of 2002 versus $11.9 million in
the third quarter of 2001. Excluding the impact of restructuring charges
incurred in the third quarter of 2001 and businesses acquired in 2002, selling,
general and administrative expenses decreased by $1.8 million in the third
quarter of 2002 as compared to the third quarter of 2001.
Selling, general and administrative expenses at Terex Mining increased by $0.5
million to $6.3 million in the third quarter of 2002 versus $5.8 million in the
third quarter of 2001. As a percent of sales, selling, general and
administrative expenses increased to 9.1% from 6.3% in the third quarter of
2001. The primary reason for the increase in selling, general and administrative
spending was due to additional legal costs incurred at the German mining shovel
operations.
Selling, general and administrative expenses at Terex Roadbuilding, Utility
Products and Other increased by $7.6 million to $16.5 million in the third
quarter of 2002 versus $8.9 million in the third quarter of 2001. Acquisitions
made since September 2001 increased selling, general and administrative expenses
by $9.3 million. Excluding the acquisitions made since September 30, 2001,
selling, general and administrative expenses declined over third quarter of 2001
levels in the Roadbuilding and Utility Products businesses as a result of
restructuring activities initiated in 2001.
Selling, general and administrative expenses for Terex Aerial Work Platforms was
$1.6 million for the twelve days from Genie's acquisition on September 18, 2002
to September 30, 2002.
Income from Operations
Income from operations increased by $30.3 million to $34.0 million in the third
quarter of 2002 from third quarter of 2001 levels. The net effect of
restructuring was an increase in earnings of $25.2 million in the third quarter
of 2002 as compared to the third quarter of 2001. The net impact of acquisitions
and divestitures was an increase in year over year earnings of $3.9 million. As
of January 1, 2002, the Company no longer amortizes goodwill, as required by
SFAS No. 142. The benefit in the third quarter of 2002 of no longer amortizing
goodwill expense was $2.9 million.
Net Interest Expense
Net interest expense in the third quarter of 2002 increased by $1.4 million to
$20.5 million as compared to the third quarter of 2001. The majority of the
increase in net interest expense is due to higher net debt levels used to
finance the acquisitions made during the last twelve months. Net debt increased
by $581.1 million to $1,495.2 million during the twelve months ended September
30, 2002.
Other Income (Expense) - net
Total other income increased by $3.8 million in the third quarter of 2002 to
$3.2 million. The primary reason for the increase was an $8.0 million benefit
associated with a favorable judgment on appeal as the defendant in a patent
infringement case brought against the Terex Construction segment's Powerscreen
36
business. This favorable court judgment reversed a lower court decision for
which the Company had previously recorded a liability. Offsetting this favorable
court judgment was an equity loss of $1.8 million on the Company's minority
investment in Tatra, a.s., a Czech Republic based manufacturer of off-road
trucks, which reflects the Company's share of Tatra's operating loss, and a $1.4
million foreign exchange loss associated with Euro denominated cash balances
held by the Company to facilitate the acquisition of Demag.
Extraordinary Item
During the three months ended September 30, 2002, the Company recorded a charge
of $1.6 million, net of income taxes, to recognize a loss on the write-off of
unamortized debt acquisition costs for the early extinguishment of debt in
connection with the refinancing of loans under the Company's bank credit
facilities on July 3, 2002.
Nine Months Ended September 30, 2002 Compared with the Nine Months Ended
September 30, 2001
The table below is a comparison of net sales, gross profit, selling, general and
administrative expenses, and income from operations, by segment, for the nine
months ended September 30, 2002 and 2001.
Nine Months Ended
September 30,
---------------------------- Increase
2002 2001 (Decrease)
------------- ----------------------------
(amounts in millions)
NET SALES
Terex Construction................................$ 926.6 $ 567.6 $ 359.0
Terex Cranes...................................... 448.9 402.6 46.3
Terex Mining...................................... 208.1 183.5 24.6
Terex Roadbuilding, Utility Products and Other.... 425.6 259.4 166.2
Terex Aerial Work Platforms....................... 20.6 --- 20.6
Eliminations/Corporate............................ (83.5) (42.7) (40.8)
------------- ------------- --------------
Total...........................................$ 1,946.3 $ 1,370.4 $ 575.9
============= ============= ==============
GROSS PROFIT
Terex Construction................................$ 137.2 $ 82.8 $ 54.4
Terex Cranes...................................... 59.0 42.8 16.2
Terex Mining...................................... 21.7 33.6 (11.9)
Terex Roadbuilding, Utility Products and Other.... 71.9 44.2 27.7
Terex Aerial Work Platforms....................... 2.5 --- 2.5
Eliminations/Corporate............................ (0.4) 0.9 (1.3)
------------- ------------- --------------
Total...........................................$ 291.9 $ 204.3 $ 87.6
============= ============= ==============
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Terex Construction................................$ 78.1 $ 41.4 $ 36.7
Terex Cranes...................................... 31.0 32.3 (1.3)
Terex Mining...................................... 20.1 23.2 (3.1)
Terex Roadbuilding, Utility Products and Other.... 55.8 26.1 29.7
Terex Aerial Work Platforms....................... 1.6 --- 1.6
Eliminations/Corporate............................ 1.2 0.4 0.8
------------- ------------- --------------
Total...........................................$ 187.8 $ 123.4 $ 64.4
============= ============= ==============
INCOME FROM OPERATIONS
Terex Construction................................$ 59.1 $ 41.4 $ 17.7
Terex Cranes...................................... 28.0 10.5 17.5
Terex Mining...................................... 1.6 10.4 (8.8)
Terex Roadbuilding, Utility Products and Other.... 16.1 18.1 (2.0)
Terex Aerial Work Platforms....................... 0.9 --- 0.9
Eliminations/Corporate............................ (1.6) 0.5 (2.1)
------------- ------------- --------------
Total...........................................$ 104.1 $ 80.9 $ 23.2
============= ============= ==============
37
Net Sales
Sales increased $575.9 million or approximately 42% to $1,946.3 million for the
nine months ended September 30, 2002 from $1,370.4 million for the comparable
2001 period. The primary reason for the increase in sales was the impact of
businesses acquired since the third quarter of 2001, including CMI, Atlas,
Schaeff, Utility Equipment, Telelect Southeast, Advance Mixer, Demag and Genie.
Excluding the impact of acquisitions and divestitures, sales declined by $1.2
million or 0.1% for the comparable periods.
Terex Construction sales increased approximately 63% or $359.0 million from the
first nine months of 2001 to $926.6 million in the nine months ended September
30, 2002. The Atlas and Schaeff acquisitions accounted for $303.8 million of the
increase. Sales from businesses held for more than one year increased by
approximately $55 million in the nine months ended September 30, 2002 compared
to same period in 2001, with sales growth realized in the Powerscreen, Fermec,
Benford and Italmacchine businesses.
Terex Cranes sales increased 12% from the nine months ended September 30, 2001
levels to $448.9 million for the nine months ended September 30, 2002. The
acquisition of Demag and Schaeff, Inc., a producer of forklifts, increased sales
for the nine months ended September 30, 2002 by $59.9 million over the same
period in 2001. Excluding acquisitions and divestitures, sales decreased by
approximately 3%. The decline in Terex Crane sales reflects an overall decline
in end user demand for the segment's products. This decline in demand was
partially offset by shipments of material handlers to the United States Marine
Corps in the first nine months of 2002.
Terex Mining sales increased 13% to $208.1 million for the nine months ended
September 30, 2002 as compared to $183.5 million in the same period in 2001.
Stronger demand for hydraulic excavators more than offset weakness in demand for
large mining trucks.
Terex Roadbuilding, Utility Products and Other sales increased by $166.2 million
or 64% to $425.6 million for the nine months ended September 30, 2002. The
acquisitions of CMI, Utility Equipment, Telelect Southeast and Advance Mixer
contributed $209.0 million of sales growth in 2002. Excluding acquisitions,
sales declined relative to the nine months ended September 30, 2001 in the
roadbuilding businesses, where delays in government funding for roadbuilding
projects have negatively impacted performance. Sales of Telelect product into
the utility and telecommunications markets also declined over the nine months
ended September 30, 2001 levels as a result of reduced demand from customers.
Finally, sales of Terex's light construction products declined, in part due to
the changing buying behavior of large rental houses, who have postponed
purchases while awaiting an upturn in the industry and the economy generally.
Terex Aerial Work Platforms net sales of $20.6 million represent the activity of
Genie since Genie's acquisition date of September 18, 2002.
Net sales eliminations consists of the elimination of sales among the segments.
Gross Profit
Gross profit for the nine months ended September 30, 2002 increased
approximately $87.6 million or 43% over the nine months ended September 30,
2001. Acquisitions net of divested businesses generated $89.5 million of gross
profit in the nine months ended September 30, 2002 compared to $1.2 million in
the nine months ended September 30, 2001. In the nine months ended September 30,
2002, the Company did not amortize goodwill, consistent with the requirements of
SFAS No. 142. This increased gross profit in 2002 by $7.4 million as compared to
the comparable nine-month period in 2001. Restructuring charges for the nine
months ended September 30, 2002 were $18.9 million lower than the comparable
period in 2001. In addition, in the second quarter of 2002, the Company recorded
a $7.9 million charge to recognize a reduction in the carrying value in the
fixed assets in the Light Construction business included in the Terex
Roadbuilding, Utility Products and Other segment. This charge was based upon the
group's poor performance and management's projections of future results for the
group, as the market for the group's products (primarily light towers) has been
negatively impacted by the consolidation of distribution outlets for the group's
products, which has reduced demand for these products, and the increasing
preference of end users of the group's products to rent, rather than purchase,
equipment.
Terex Construction gross profit increased by $54.4 million to $137.2 million for
the nine months ended September 30, 2002. Acquisitions accounted for $40.3
million of the increase, and the benefit of no longer amortizing goodwill
accounted for an additional $3.2 million of the increase. No restructuring
charges were incurred during the nine months ended September 30, 2002 while $6.3
million of restructuring charges were recorded during the same period in 2001.
38
Gross profit in the Powerscreen business improved over 2001 levels, primarily as
a result of higher sales volumes throughout the world. This increase is due to a
trend in the market towards mobile tracked crushing and screening equipment and
away from stationary plants to increase customers' flexibility and productivity.
In addition, gross profit improved in the nine months ended September 30, 2002
as the Company's sales of articulated trucks, loader backhoes and compaction
equipment increased.
Terex Cranes gross profit increased $16.2 million for the nine months ended
September 30, 2002 to $59.0 million. Acquisitions accounted for $5.9 million of
the increase, while the elimination of goodwill amortization accounted for
another $0.9 million of the increase in gross profit over 2001 levels.
Restructuring charges incurred during the nine months ended September 30, 2002
were $15.7 million lower than in the comparable period in 2001. Gross profit in
the tower crane product line as well as in the off road crane businesses has
been unfavorably impacted in the nine months ended September 30, 2002 by lower
demand throughout the crane industry. This decline has been partially offset by
sales of material handlers to the United States Marine Corps as well as improved
sales in the boom truck mounted crane business. Demag's gross profit reported
since its date of acquisition, August 30, 2002, includes a charge of $2.4
million related to inventory valuation adjustments required under SFAS No. 141.
This charge relates to inventory held by Demag on the date of acquisition and is
a non-cash charge that is not reflective of ongoing business performance.
Terex Mining gross profit declined by $11.9 million to $21.7 million for the
nine months ended September 30, 2002 as compared to the nine months ended
September 30, 2001. Excluding the benefit of no longer amortizing goodwill in
2002, gross profit declined by $14.0 million. Gross profit was unfavorably
impacted by declines in selling margins realized by the hydraulic shovel and
large mining truck businesses as well as a decline in parts margin and volume
relative to overall sales. Customer demand for the segment's products has been
negatively impacted by market prices for commodities such as coal, gold and
other industrial metals, which remain low relative to historical averages.
Terex Roadbuilding, Utility Products and Other gross profit increased by $27.7
million to $71.9 million for the nine months ended September 30, 2002.
Businesses acquired since September 30, 2001 earned $40.8 million of gross
profit during 2002 and the benefit of no longer amortizing goodwill added $1.2
million of gross profit in 2002 over the comparable period in 2001.
Restructuring charges incurred in 2002 increased by $2.5 million over 2001
levels as the Company consolidated facilities and reduced employment levels to
meet lower anticipated demand throughout the industries. Gross profit declined
in 2002 as compared to 2001 in the Light Construction and Telelect businesses as
the demand for each business's products declined.
Terex Aerial Work Platforms' gross profit for the twelve days since its
acquisition date of September 18, 2002 totaled $2.5 million. The gross profit
includes a charge of $1.3 million related to inventory valuation adjustments
required under SFAS No. 141. This charge relates to inventory held by Genie on
the date of acquisition and is a non-cash charge that is not reflective of
ongoing business performance.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased to $187.8 million for the
nine months ended September 30, 2002 from $123.4 million for the same period in
2001. Selling, general and administrative expenses of the businesses acquired
since September 2001 were $71.8 million in the nine months ended September 30,
2002. Total restructuring costs included in selling, general and administrative
expenses for the first nine months of 2002 totaled $0.6 million, a reduction of
$3.0 million from the nine months ended September 30, 2001. As a result of
restructuring activities initiated in 2001, selling, general and administrative
expenses for the nine months ended September 30, 2002 were $2.0 million lower
than the comparable period in 2001.
Terex Construction selling, general and administrative expenses for the first
nine months of 2002 were $36.7 million higher than the comparable period in 2002
and totaled $78.1 million. The acquisition of Atlas and Schaeff increased
selling, general and administrative expenses in the Terex Construction segment
by $33.7 million during the first nine months of 2002 as compared to the same
period in 2001. Selling, general and administrative expenses in the first nine
months of 2002 included a $1.1 million charge related to restructuring
activities. The remaining increase in selling, general and administrative
expenses in the nine months ended September 30, 2002 was due to an increase in
sales. Excluding restructuring and acquisitions, selling, general and
administrative expenses as a percentage of sales in the nine months ended
September 30, 2002 was 7.1%, the same as in the comparable period in 2001.
Terex Cranes selling, general and administrative expenses for the first nine
months of 2002 were $1.3 million lower than the comparable period in 2001 and
totaled $31.0 million. Businesses acquired since September 2001, which include
Schaeff, Inc., a producer of forklifts, and Demag, added $4.8 million of
selling, general and administrative expenses in the nine months ended September
30, 2002. The divestiture of the Company's Brimont and Holland Lift operations
39
reduced selling, general and administrative expenses for the nine months ended
September 30, 2002 by $1.2 million as compared to the same period in 2001.
Selling, general and administrative expenses for the nine months ended September
30, 2001 included $2.5 million of restructuring, while no restructuring costs
were recorded for the same period in 2002. These restructuring activities
reduced selling, general and administrative expenses by $2.4 million dollars in
the nine months ended September 30, 2002 when compared to the comparable period
in 2001.
Terex Mining selling, general and administrative expenses for the first nine
months of 2002 were $3.1 million lower than the comparable period in 2001 and
totaled $20.1 million. The majority of the decrease was due to adverse market
conditions and fewer opportunities to bid on orders, which resulted in lower
selling costs.
Terex Roadbuilding, Utility Products and Other selling, general and
administrative expenses increased by $29.7 million for the nine months ended
September 30, 2002 when compared to the same period in 2001 and totaled $55.8
million. Acquisitions made after September 30, 2001 increased selling, general
and administrative expenses by $31.3 million in the nine months ended September
30, 2002 over the nine months ending September 30, 2001. Restructuring costs
increased by $0.3 million in the nine months ended September 30, 2002 when
compared to the nine months ended September 30, 2001 and totaled $0.6 million.
These restructuring actions resulted in a reduction in selling, general and
administrative expenses of $1.9 million in the nine months ended September 30,
2002 relative to the nine months ended September 30, 2001.
Terex Aerial Work Platforms selling, general and administrative expenses for the
twelve days since Genie was acquired on September 18, 2002 totaled $1.6 million.
Income from Operations
Income from operations increased by $23.2 million to $104.1 million for the nine
months ended September 30, 2002 as compared to $80.9 million in the nine months
ended September 30, 2001. Restructuring costs incurred in the nine months ended
September 30, 2002 were $18.9 million dollars lower than in the same period in
2001 and totaled $9.8 million. Income from operations in the nine months ended
September 30, 2001 was negatively impacted ($2.9 million) by the return of five
mining trucks from a customer in Chile. Included in income from operations for
2002 is a $7.9 million charge as required by SFAS No. 144 related to the
impairment of certain long lived assets of the Light Construction business in
the Terex Roadbuilding, Utility Products and Other segment. As of January 1,
2002, the Company no longer amortizes goodwill as required by SFAS No. 142,
which resulted in increased income from operations of $7.4 million for the nine
months ended September 30, 2002 when compared to the same period in 2001.
Earnings from businesses acquired since September 30, 2001 added $17.6 million
of income from operations in the nine months ended September 30, 2002. In
January 2002 and December 2001, the Company divested the Holland Lift and
Brimont businesses, respectively, reported in the Terex Cranes segment. During
the first nine months of 2001, these businesses generated a loss of $0.7
million.
Income from operations, excluding the impact of the restructuring costs, the
return of five mining trucks, the SFAS No. 144 impairment charge and the
elimination of the amortization of goodwill, declined by $17.3 million for the
nine months ended September 30, 2002 as compared to the same period in 2001.
Lower demand due to slowing construction expenditures in the United States and
Europe negatively impacted earnings in the Terex Cranes segment by $4.2 million
in the first nine months of 2002 when compared to the same period in 2001. Lower
demand from the telecommunications marketplace as well as changing buying
patterns in the light construction business negatively impacted income from
operations by $2.1 million in 2002 when compared to 2001. Income from operations
in the Terex Mining segment was $10.6 million lower than in 2001 as commodity
prices remained low.
Net Interest Expense
Net interest expense for the nine months ending September 30, 2002 increased by
$2.7 million over the same period in 2001 and totaled $62.2 million. The
increase in net interest expense is due to the overall increase in bank debt
used to finance acquisitions made since September 30, 2001. The impact of
increased net debt has been partially offset by more favorable interest rates
and the use of interest rate derivatives to convert fixed rate debt to floating
rate debt.
Other Income (Expense) - Net
Other expense for the nine months ended September 30, 2002 totaled $8.4 million,
which is an increase of $6.9 million relative to the same period in 2001. During
the first nine months of 2002, the Company recorded a loss of $2.6 million
related to its Earthking investments, a loss of $1.7 million related to its
investment in Tatra, which reflects the Company's share of Tatra's operating
loss, and a loss of $12.4 million related to the divestiture of its Holland Lift
and Brimont businesses, which divested businesses were included in the Terex
Cranes segment and manufactured and distributed products the Company deemed to
40
be non-strategic. Offsetting these items were a $8.0 million benefit associated
with a favorable judgment on appeal as the defendant in a patent infringement
case brought against the Terex Construction segment's Powerscreen business and a
gain on a foreign currency hedge initiated in connection with the acquisition of
Demag.
Extraordinary Item
During the nine months ended September 30, 2002, the Company recorded a charge
of $1.6 million, net of income taxes, to recognize a loss on the write-off of
unamortized debt acquisition costs for the early extinguishment of debt in
connection with the refinancing of loans under the Company's bank credit
facilities on July 3, 2002.
During the nine months ended September 30, 2001, the Company recorded a charge
of $2.3 million, net of income taxes, to recognize a loss on the write-off of
unamortized debt acquisition costs for the early extinguishments of debt in
connection with the prepayment of principal of certain term loans under the
Company's bank credit facilities.
Cumulative Effect of Change in Accounting Principle
In accordance with the requirements of Statement of Financial Accounting
Standards ("SFAS") No. 141, "Business Combinations," and SFAS No. 142, "Goodwill
and Other Intangible Assets," the Company recorded a charge for the cumulative
effect of change in accounting principle of $113.4 million in the nine months
ended September 30, 2002. (See "Critical Accounting Policies," below, for
additional information on these charges.) This charge represents the write-off
of $132.2 million of goodwill ($124.1 million, net of income taxes) principally
in the Mining Group (Terex Mining Segment) ($105.7 million, or $105.7 million,
net of income taxes), and the Light Construction Group (Terex Roadbuilding,
Utility Products and Other Segment) ($26.2 million, or $18.1 million, net of
income taxes). The charge was partially offset by the write-off of negative
goodwill at January 1, 2002 from the acquisition of Fermec Manufacturing Limited
in December 2000.
CRITICAL ACCOUNTING POLICIES
In the nine months ended September 30, 2002, the Company recorded a charge for
the cumulative effect of change in accounting principle of $113.4 million. This
was in accordance with the requirements of the Financial Accounting Standards
Board as set out in its SFAS No. 141 "Business Combinations" and SFAS No. 142
"Goodwill and Other Intangible Assets."
SFAS No. 141 addresses financial accounting and reporting for business
combinations and requires all business combinations be accounted for using the
purchase method, including eliminating any previously recorded negative
goodwill. Accordingly, the Company recorded a cumulative effect of an accounting
change of $10.7 million related to the write-off of negative goodwill at January
1, 2002 from the acquisition of Fermec Manufacturing Limited in December 2000.
SFAS No. 142 addresses financial accounting for acquired goodwill and other
intangible assets and details how such assets should be accounted for in
financial statements upon their acquisition and after they have been initially
recognized in the financial statements. In accordance with SFAS No. 142,
goodwill related to acquisitions completed by the Company after June 30, 2001
was not amortized in 2001 or 2002 and, beginning on January 1, 2002, goodwill
related to acquisitions completed by the Company prior to July 1, 2001 is no
longer being amortized. Under SFAS No. 142, goodwill and indefinite life
intangible assets are to be reviewed at least annually for impairment and
written down only in the period in which the recorded value of such assets
exceed their fair value. The Company's initial impairment test was performed on
all reporting units prior to June 30, 2002, as required.
Under the transitional provisions of SFAS No. 142, the Company identified its
reporting units and performed impairment tests on the net goodwill and other
intangible assets associated with each of the reporting units, using a valuation
date of January 1, 2002. The SFAS No. 142 impairment test is a two-step process.
First, it requires comparison of the book value of net assets to the fair value
of the related reporting units. If the fair value is determined to be less than
book value, a second step is performed to compute the amount of impairment. In
the second step, the implied fair value of goodwill is estimated as the fair
value of the reporting unit used in the first step less the fair values of all
other tangible and intangible assets of the reporting unit. If the carrying
amount of goodwill exceeds its implied fair market value, an impairment loss is
recognized in an amount equal to that excess.
Under the SFAS No. 142 approach, the Company estimated the fair value of each of
its ten reporting units existing as of January 1, 2002. The Company first
prepared a projection of undiscounted cash flow for each reporting unit based on
management's expectation of future market conditions, changes in working capital
and capital requirements. The undiscounted cash flows were then present valued
using the Company's weighted average cost of capital. The discounted cash flow
41
was then compared to the carrying value of the reporting unit. Consistent with
the requirements of SFAS No. 142, a second test was performed if the carrying
value exceeded the discounted cash flow.
The Terex Mining segment's carrying value exceeded the present value of the cash
flow expected to be generated by the segment. Future cash flow expectations have
been reduced due to the continued weakness in mineral commodity prices which are
a major determinant of the overall demand for mining equipment. The Company
utilized the services of a valuation adviser to determine the fair market value
of the Terex Mining segment's fixed assets and intangible assets. This
information was utilized in calculating a goodwill impairment of $105.7 million
($105.7 million, net of income taxes).
The Light Construction reporting unit, a component of the Terex Roadbuilding,
Utility Products and Other segment, also was determined to have a carrying value
in excess of its projected discounted cash flow. The market for the unit's
products, primarily light towers, has been negatively impacted by the
consolidation of distribution outlets for the unit's products, which has reduced
demand for these products, and the increasing preference of end users of the
unit's products to rent, rather than purchase, equipment. Given the relative
size of the impairment, no outside valuation adviser was used. The analysis
resulted in a goodwill impairment of $26.2 million ($18.1 million, net of income
taxes).
The EarthKing reporting unit, a component of the Terex Roadbuilding, Utility
Products and Other segment, was also determined to have a carrying value in
excess of its projected discounted cash flow. EarthKing was created to provide
on-line training and web based procurement services. Several businesses within
EarthKing were unsuccessful in gaining customer acceptance and were generating
revenue at levels insufficient to warrant anticipated growth, which
substantially reduced the value of EarthKing. A goodwill impairment of $0.3
million ($0.3 million, net of income taxes) was recorded.
The adjustment from the adoption of SFAS No. 142, an impairment loss of $132.2
million (124.1 million, net of income taxes) has been recorded as a cumulative
effect of change in accounting principle adjustment as of January 1, 2002.
..
42
LIQUIDITY AND CAPITAL RESOURCES
Net cash of $8.3 million was provided by operating activities during the nine
months ended September 30, 2002. Approximately $22 million was used for working
capital. Net cash used in investing activities was $453.5 million during the
nine months ended September 30, 2002 and primarily represents the acquisitions
of Schaeff, Utility Equipment, Telelect Southeast, Advance Mixer, Demag and
Genie ($440.7 million) and capital expenditures ($16.4 million). Net cash
provided by financing activities was $526.3 million during the nine months ended
September 30, 2002, which primarily represents the proceeds from the issuance in
a public offering of 5.3 million shares of the Company's common stock on April
23, 2002 ($113.3 million), the refinancing of the Company's bank credit facility
on July 3, 2002 ($367.3 million) and the additional borrowing under the
Company's bank credit facility on September 13, 2002 ($204.7 million). Cash and
cash equivalents totaled $337.6 million at September 30, 2002. In addition, the
Company had approximately $167 million available for borrowing under its
revolving credit facilities at September 30, 2002. Therefore, total liquidity
available to the Company at September 30, 2002 was approximately $504 million.
Including the January 2002 acquisitions of Schaeff and Utility Equipment, the
March 2002 acquisition of Telelect Southeast, the April 2002 acquisition of
Advance Mixer, the August 2002 acquisition of Demag, the September 2002
acquisition of Genie and the 2001 acquisitions of the Jaques Group, CMI and
Atlas, since the beginning of 1995 Terex has invested approximately $1.9 billion
to strengthen and expand its core businesses through more than 24 strategic
acquisitions. Acquisitions and new product development have been important
components of the Company's growth strategy. Although the Company may make
additional acquisitions in the future, particularly acquisitions that would
complement the Company's existing operations, at the present time the Company is
focused on completing the integration of its recent acquisitions.
Debt reduction and an improved capital structure are major focal points for the
Company. The Company regularly reviews its alternatives to improve its capital
structure and to reduce debt service through debt refinancings, issuance of
equity, asset sales, including strategic dispositions of business units, or any
combination thereof. On April 23, 2002, the Company issued approximately 5.3
million shares of its common stock in a public offering with net proceeds to the
Company of $113.3 million. On July 3, 2002, the Company entered into an amended
and restated credit facility with its bank lending group. The revised agreement
provides for $375 million of term debt maturing in June 2009 and a revolving
credit facility of $300 million that is available through June 2007. The
facility also included provisions for an additional $250 million of term
borrowing by the Company on terms similar to the current term loan debt under
the facility. On September 13, 2002, the Company consummated an incremental term
loan borrowing of $210 million under this facility to acquire Genie, to
refinance some of Genie's debt and for other general corporate purposes. In
addition to providing the Company with additional funds, the revised credit
agreement also amended certain covenants and other provisions to allow the
Company greater flexibility. This added flexibility included changes to increase
the Company's ability to make acquisitions, participate in joint ventures and
take other corporate actions. Adjustments were also made to financial covenant
ratios, including the Company's consolidated total leverage ratio, consolidated
interest coverage ratio and consolidated senior leverage ratio, that permit the
Company to maintain additional debt for a longer period of time.
During 2001, the Company successfully executed three capital market transactions
raising $500 million in senior subordinated notes, expanding its revolving
credit facilities to $300 million and raising $96 million from the issuance of
common stock. Additionally, in October 2001, January 2002, March 2002 and
September 2002, the Company issued approximately 3.6 million shares, 0.5 million
shares, 0.3 million shares and 3.2 million shares of its common stock in
connection with the acquisition of CMI, Utility Equipment, Telelect Southeast
and Genie, respectively, as a means of acquiring businesses. The Company also
sold approximately 1.3 million shares of its common stock for $17.3045 per
share, or approximately $23 million in total, to certain former shareholders of
Schaeff in January 2002. In each instance, the number of shares of common stock
issued was determined based on the average price of the common stock on the New
York Stock Exchange for a specified time period prior to the date of issuance.
43
The Company's businesses are working capital intensive and require funding for
purchases of production and replacement parts inventories, capital expenditures
for repair, replacement and upgrading of existing facilities, as well as trade
financing for receivables from customers and dealers. The Company has
significant debt service requirements, including semi-annual interest payments
on its senior subordinated notes and monthly interest payments on its bank
credit facilities. Other than default under the terms of the Company's debt
instruments, there are no other events that would accelerate the repayment of
the Company's debt. The Company's contractual long-term debt future cash
obligations as of September 30, 2002 are as follows:
Long-term debt
--------------
(in millions)
Payments due by year:
2002.............................. $ 34.5
2003.............................. 71.9
2004.............................. 39.6
2005.............................. 24.0
2006.............................. 9.7
2007.............................. 106.4
Thereafter........................ 1,322.7
---------------
Total........................ $ 1,608.8
===============
Management believes that cash generated from operations, together with the
Company's bank credit facilities and cash on hand, provides the Company with
adequate liquidity to meet the Company's operating and debt service
requirements.
The Company's main sources of funding are cash generated from operations and
access to the Company's bank credit facilities, as well as the Company's ability
to access the capital markets. Additionally, the Company sells customer accounts
receivable, substantially all of which are insured, to third party institutions
to accelerate the collection of cash.
Cash generated from operations is directly tied to the Company's sales. A
decrease in sales will have a negative impact on the Company's ability to derive
liquidity from its operations. Sales are subject to decline for a number of
reasons, including economic conditions, weather, competition and foreign
currency fluctuations. A significant portion of sales are financed by third
party finance companies in reliance on the credit worthiness of the Company's
customers and the estimated residual value of its equipment. Deterioration in
the credit quality of the Company's customers or the estimated residual value of
its equipment could negatively impact the ability of such customers to obtain
the resources needed to make purchases from the Company and could have a
material adverse impact on results of operations or financial condition of the
Company. The recent economic climate has had a negative effect on cash generated
from operations, as consumer confidence remains fragile, many of the Company's
customers have delayed purchasing decisions and the availability of third party
financing has become more limited.
The Company's ability to borrow under its existing bank credit facilities is
subject to the Company's ability to comply with a number of covenants. The
Company's bank credit facilities include covenants regarding interest coverage,
fixed charge coverage and leverage, among others. These covenants require
quarterly compliance and become more restrictive annually. Maintaining
compliance with these ratios depends on the future performance of the Company
and the achievement of cost savings and earning levels anticipated in
acquisitions. As noted earlier, the Company has recently revised its bank credit
facilities, borrowed additional funds under these facilities and seen a
relaxation of key restrictive covenants contained in these facilities.
The Company's ability to access the capital markets to raise funds, through the
sale of equity or debt securities, is subject to various factors, some specific
to the Company and some impacted by general economic and/or financial market
conditions. These include results of operations, projected operating results for
future periods and debt to equity leverage. As noted earlier, in 2002 and 2001
the Company successfully executed four capital market transactions raising $500
million in senior subordinated notes and raised $209 million from the issuance
of its common stock.
CONTINGENCIES AND UNCERTAINTIES
Euro
In 1999, 12 of the 15 member countries of the European Union established fixed
conversion rates between their existing currencies ("legacy currencies") and one
common currency, the Euro. Since 1999 the Euro has traded on currency exchanges
and could be used in business transactions. Beginning in January 2002, new
Euro-denominated bills and coins were issued, and legacy currencies began to be
withdrawn from circulation. The Company's operating subsidiaries affected by the
44
Euro conversion previously assessed the systems and business issues raised by
the Euro currency conversion. These issues included, among others, (1) the need
to adapt computer and other business systems and equipment to accommodate
Euro-denominated transactions and (2) the competitive impact of cross-border
price transparency, which may make it more difficult for businesses to charge
different prices for the same products on a country-by-country basis, since the
Euro currency was issued in 2002. To date, the Euro conversion has not had a
material adverse impact on the Company's financial condition or results of
operations.
Foreign Currencies and Interest Rate Risk
The Company's products are sold in over 100 countries around the world and,
accordingly, revenues of the Company are generated in foreign currencies, while
the costs associated with those revenues are only partly incurred in the same
currencies. The major foreign currencies, among others, in which the Company
does business are the Euro, the British Pound and the Australian Dollar. The
Company may, from time to time, hedge specifically identified committed cash
flows in foreign currencies using forward currency sale or purchase contracts.
Such foreign currency contracts have not historically been material in amount.
Certain of the Company's obligations, including indebtedness under the Company's
bank credit facility, bear interest at floating rates, and as a result an
increase in interest rates could adversely affect, among other things, the
results of operations of the Company.
Certain of the Company's obligations, including its senior subordinated notes,
bear interest at fixed interest rates from 8-7/8% to 10-3/8%. The Company has
entered into interest rate agreements to convert these fixed rates to floating
rates with respect to approximately $350 million of the principal amount of its
indebtedness under its 8-7/8% Senior Subordinated Notes and its 10-3/8% Senior
Subordinated Notes. The floating rates are based on a spread of 2.91% to 4.94%
over London Interbank Offer Rate ("LIBOR"). At September 30, 2002, the floating
rates ranged between 4.66% and 6.69%.
Other
The Company is subject to a number of contingencies and uncertainties including,
without limitation, product liability claims, self-insurance obligations, tax
examinations and guarantees. Many of the exposures are unasserted or proceedings
are at a preliminary stage, and it is not presently possible to estimate the
amount or timing of any cost to the Company. However, the Company does not
believe that these contingencies and uncertainties will, in the aggregate, have
a material adverse effect on the Company. When it is probable that a loss has
been incurred and possible to make reasonable estimates of the Company's
liability with respect to such matters, a provision is recorded for the amount
of such estimate or for the minimum amount of a range of estimates when it is
not possible to estimate the amount within the range that is most likely to
occur.
The Company generates hazardous and nonhazardous wastes in the normal course of
its manufacturing operations. As a result, Terex is subject to a wide range of
federal, state, local and foreign environmental laws and regulations. These laws
and regulations govern actions that may have adverse environmental effects and
also require compliance with certain practices when handling and disposing of
hazardous and nonhazardous wastes. These laws and regulations would also impose
liability for the costs of, and damages resulting from, cleaning up sites, past
spills, disposals and other releases of hazardous substances, should any of such
events occur. Compliance with these laws and regulations has, and will continue
to require, the Company to make expenditures. The Company does not expect that
these expenditures will have a material adverse effect on its business or
profitability.
The Company previously reported that it was a party to an action commenced in
the United States District Court for the District of Delaware by the End of the
Road Trust, a creditor liquidating trust formed to liquidate the assets of
Fruehauf Trailer Corporation ("Fruehauf"), a former subsidiary of the Company
and currently a reorganized debtor in bankruptcy, and Pension Transfer
Corporation, as sponsor and administrator for certain Fruehauf pension plans
against the Company and certain former officers and directors of Fruehauf and
the Company. This matter has been settled as of May 3, 2002, with the Company
being released from all claims and the action being dismissed with prejudice.
The settlement will not have a material impact on the Company's financial
position, operations or cash flows.
On March 11, 2002, an action was commenced in the United States District Court
for the Southern District of Florida, Miami Division by Ursula Ungaro-Benages
and Ursula Ungaro-Benages as Attorney-in-fact for Peter C. Ungaro, M.D., in
which the plaintiffs allege that ownership of O&K Orenstein & Koppel AG ("O&K
AG") was illegally taken from the plaintiffs' ancestors by German industry
during the Nazi era. The plaintiffs allege that the Company is liable for
conversion and unjust enrichment as the result of its purchase of the shares of
its mining shovel subsidiary, O&K Mining GmbH, from O&K AG, and is claiming a
return of a 25% interest in O&K Mining GmbH and monetary damages. The Company
believes that the action is without merit as to the Company. As of the date
hereof, the Company has not filed an answer in the action and the plaintiffs are
considering a request to dismiss the Company from the action. The Company has
made a claim for indemnification with respect to the action pursuant to the
45
Share Purchase Agreement dated December 18, 1997 between the Company and O&K AG.
On June 12, 2002, the United States Department of Justice filed a Statement of
Interest in the action that recommends dismissal of the action for foreign
policy interests of the United States. At the request of the Company, on October
8, 2002, the Federal Judicial Panel on Multi-district Litigation ordered that
the action be transferred to the District of New Jersey and assigned the case to
the Honorable William G. Bassler for inclusion in the coordinated or
consolidated pretrial proceedings established in that court.
In the third quarter of 2002, the Company obtained a favorable court judgment on
appeal as the defendant in a patent infringement case brought against the Terex
Construction segment's Powerscreen business. This favorable court judgment
reversed a lower court decision for which the Company had previously recorded a
liability. As a result of this favorable judgment, the Company recorded a
benefit of $8.0 million in "Other income (expense) - net" in the Condensed
Consolidated Statement of Operations during the third quarter of 2002.
RECENT ACCOUNTING PRONOUNCEMENTS
SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13, and Technical Corrections as of April 2002," was issued in May
2002. SFAS No. 145 becomes effective for certain leasing transactions occurring
after May 15, 2002 and shall be applied by the Company from January 1, 2003 with
respect to reporting gains and losses from extinguishments of debt. The Company
is currently evaluating the provisions of SFAS No. 145 to determine the impact
on its financial statements.
SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities," was issued in June 2002. SFAS No. 146 becomes effective for exit or
disposal activities that are initiated after December 31, 2002. Under SFAS No.
146 a liability for a cost associated with an exit or disposal activity is
recognized when the liability is incurred. Under current accounting principles,
a liability for an exit cost is recognized at the date of an entity's commitment
to an exit plan. The Company is currently evaluating the provisions of SFAS No.
146 to determine its impact on its financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to certain market risks which exist as part of its
ongoing business operations and the Company uses derivative financial
instruments, where appropriate, to manage these risks. The Company, as a matter
of policy, does not engage in trading or speculative transactions. For further
information on accounting policies related to derivative financial instruments,
refer to the Company's Annual Report on Form 10-K for the year ended December
31, 2001.
Foreign Exchange Risk
The Company is exposed to fluctuations in foreign currency cash flows related to
third party purchases and sales, intercompany product shipments and intercompany
loans. The Company is also exposed to fluctuations in the value of foreign
currency investments in subsidiaries and cash flows related to repatriation of
these investments. Additionally, the Company is exposed to volatility in the
translation of foreign currency earnings to U.S. Dollars. Primary exposures
include the U.S. Dollars versus functional currencies of the Company's major
markets which include the Euro, the British Pound and the Australian Dollar. The
Company assesses foreign currency risk based on transactional cash flows and
identifies naturally offsetting positions and purchases hedging instruments to
protect anticipated exposures. At September 30, 2002, the Company had foreign
currency contracts with a notional value of $73.6 million. The fair market value
of these arrangements, which represents the cost to settle these contracts, was
an asset of approximately $2.5 million at September 30, 2002.
Interest Rate Risk
The Company is exposed to interest rate volatility with regard to future
issuances of fixed rate debt and existing issuances of variable rate debt.
Primary exposure includes movements in the LIBOR. At September 30, 2002,
approximately 66% of the Company's debt was floating rate debt and the weighted
average interest rate for all debt was approximately 6.2%.
At September 30, 2002, the Company had approximately $429 million of interest
rate swaps that converted fixed rates to floating rates. The floating rates
ranged between 4.66% and 6.69% at September 30, 2002. The fair market value of
these arrangements, which represent the cost to settle these contracts, was an
asset of approximately $26 million.
At September 30, 2002, the Company performed a sensitivity analysis for the
Company's derivatives and other financial instruments that have interest rate
risk. The Company calculated the pretax earnings effect on its interest
sensitive instruments. Based on this sensitivity analysis, the Company has
determined that an increase of 10% in the Company's weighted average interest
rates at September 30, 2002 would have increased interest expense by
approximately $5 million in the nine months ended September 30, 2002.
46
ITEM 4. CONTROLS AND PROCEDURES
Within the 90-day period prior to the date of this report, the Company carried
out an evaluation of the effectiveness of the design and operation of its
disclosure controls and procedures pursuant to the requirements of the
Securities Exchange Act of 1934 (the "Exchange Act"), under the supervision and
with the participation of the Company's Chief Executive Officer and Chief
Financial Officer.
Based on that evaluation, the Company's Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures are effective to ensure that information required to be disclosed in
the Company's reports filed or submitted pursuant to the Exchange Act is
recorded, processed, summarized and reported within the appropriate time
periods.
There have been no significant changes to the Company's internal controls or in
other factors that could significantly affect these controls subsequent to the
date of the Company's evaluation.
During their evaluation of the Company's disclosure controls and procedures, the
Company's Chief Executive Officer and Chief Financial Officer noted that the
Company's acquisitions of Genie and Demag, which took place in the third quarter
of 2002, will significantly increase the Company's size and complexity, and made
note of the need to reinforce the importance of the Company's system of
disclosure controls and procedures and internal controls at such newly-acquired
operations. They particularly noted that these acquisitions included a U.S.
private enterprise and a non-U.S. entity, so that both will need ongoing
guidance and monitoring with respect to the system of disclosure controls and
procedures maintained by the Company or required under the Exchange Act and the
internal control system maintained by the Company.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in certain claims and litigation arising in the ordinary
course of business, which are not considered material to the financial
operations or cash flow of the Company. For information concerning litigation
and other contingencies see "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Contingencies and Uncertainties."
Item 2. Changes in Securities and Use of Proceeds
On September 18, 2002, the Company issued 3,179,659 shares of its common stock
that were not registered under the Securities Act of 1933, as amended (the
"Securities Act'). These shares, having a value of approximately $64.9 million
at the time of issuance, were issued to the five former shareholders of Genie in
connection with the Company's acquisition of all of the outstanding stock of
Genie. Of these shares, 979,864 shares have been deposited into an escrow
account to ensure compliance with, and indemnification under, the terms of the
Genie acquisition documents in the event of any breach of such terms by the
former shareholders of Genie. The issuance was made pursuant to an exemption
from registration provided by Section 4(2) of the Securities Act, as this
issuance of common stock did not involve a "public offering" pursuant to the
Securities Act given the limited number and scope of persons to whom the
securities were issued. The Company has agreed to register the resale of these
shares by the former shareholders of Genie under the Securities Act.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
On October 1, 2002, Helge H. Wehmeier was added as a member of the Company's
Board of Directors. Mr. Wehmeier recently retired from Bayer AG, a diversified,
international chemicals and health care group, where he had spent more than 35
years in various positions of increasing responsibility, including senior
management positions in both Europe and the United States. Mr. Wehmeier's most
recent position was President and Chief Executive Officer, Bayer Corporation, a
position he held since 1991. Mr. Wehmeier is an alumnus of the International
Management Development Institute, Lausanne, Switzerland and Institut European
d'Administration des Affaires, Fontainebleau, France. Mr. Wehmeier is also a
director of PNC Financial Services Group, a diversified banking and financial
services company.
47
On October 4, 2002, the Company issued 64,871 shares of its common stock to the
holders of expired and unexercised Common Stock Appreciation Rights of the
Company as an accommodation to the holders of such Rights. The Rights were
originally issued by the Company pursuant to the Common Stock Appreciation
Rights Agreement, dated as of May 9, 1995, between the Company and The Bank of
New York (formerly United States Trust Company of New York), as rights agent.
Forward Looking Information
Certain information in this Quarterly Report includes forward-looking statements
regarding future events or the future financial performance of the Company that
involve certain contingencies and uncertainties, including those discussed above
in the section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Contingencies and Uncertainties." In
addition, when included in this Quarterly Report or in documents incorporated
herein by reference, the words "may," "expects," "intends," "anticipates,"
"plans," "projects," "estimates" and the negatives thereof and analogous or
similar expressions are intended to identify forward-looking statements.
However, the absence of these words does not mean that the statement is not
forward-looking. The Company has based these forward-looking statements on
current expectations and projections about future events. These statements are
not guarantees of future performance. Such statements are inherently subject to
a variety of risks and uncertainties that could cause actual results to differ
materially from those reflected in such forward-looking statements. Such risks
and uncertainties, many of which are beyond the Company's control, include,
among others: the Company's business is highly cyclical and weak general
economic conditions may affect the sales of its products and its financial
results; the sensitivity of construction and mining activity to interest rates,
government spending and general economic conditions; the ability to successfully
integrate acquired businesses; the retention of key management personnel;
foreign currency fluctuations; the Company's businesses are very competitive and
may be affected by pricing, product initiatives and other actions taken by
competitors; the effects of changes in laws and regulations; the Company's
business is international in nature and is subject to changes in exchange rates
between currencies, as well as international politics; the ability of suppliers
to timely supply the Company parts and components at competitive prices; the
financial condition of suppliers and customers, and their continued access to
capital; the Company's ability to timely manufacture and deliver products to
customers; the Company's substantial amount of debt and its need to comply with
restrictive covenants contained in the Company's debt agreements; compliance
with applicable environmental laws and regulations; and other factors. Actual
events or the actual future results of the Company may differ materially from
any forward-looking statement due to these and other risks, uncertainties and
significant factors. The forward-looking statements contained herein speak only
as of the date of this Quarterly Report and the forward-looking statements
contained in documents incorporated herein by reference speak only as of the
date of the respective documents. The Company expressly disclaims any obligation
or undertaking to release publicly any updates or revisions to any
forward-looking statement contained or incorporated by reference in this
Quarterly Report to reflect any change in the Company's expectations with regard
thereto or any change in events, conditions or circumstances on which any such
statement is based.
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits set forth on the accompanying Exhibit Index have
been filed as part of this Form 10-Q.
(b) Reports on Form 8-K.
- During the quarter ended September 30, 2002, the Company
filed the following Current Reports on Form 8-K:
- A report on Form 8-K dated July 19, 2002 was filed on
July 22, 2002 announcing the Company had entered into
an agreement to acquire Genie Holdings, Inc.
- A report on Form 8-K dated August 9, 2002 was filed on
August 9, 2002 containing various statements under oath
and certifications of the Company's chief executive
officer and chief financial officer.
- A report on Form 8-K dated August 30, 2002 was filed on
August 30, 2002 announcing the Company had completed
the acquisition of Demag Mobile Cranes GmbH & Co. KG.
- A report on Form 8-K dated September 11, 2002 was filed
on September 16, 2002 announcing the Company's new
operating structure and providing operating segment
information for the Company.
- A report on Form 8-K dated September 13, 2002 was filed
on September 20, 2002 announcing the Company had
completed the acquisition of Genie Holdings, Inc. and
that the Company consumated a $210 million incremental
term loan borrowing under the Company's existing bank
credit facility.
- A report on Form 8-K dated September 16, 2002 was filed
on September 17, 2002 announcing the appointment of
Phillip C. Widman as Senior Vice President and Chief
Financial Officer of the Company and Joseph F. Apuzzo
as President - Terex Financial Services.
48
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TEREX CORPORATION
(Registrant)
Date: November 14, 2002 /s/ Phillip C. Widman
Phillip C. Widman
Chief Financial Officer
(Principal Financial Officer)
Date: November 14, 2002 /s/ Mark T. Cohen
Mark T. Cohen
Controller
(Principal Accounting Officer)
49
CERTIFICATION
I, Ronald M. DeFeo, Chairman, President and Chief Executive Officer of Terex
Corporation, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Terex Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
/s/ Ronald M. DeFeo
Ronald M. DeFeo
Chairman, President and
Chief Executive Officer
50
CERTIFICATION
I, Phillip C. Widman, Senior Vice President and Chief Financial Officer of Terex
Corporation, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Terex Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
/s/ Phillip C. Widman
Phillip C. Widman
Senior Vice President and
Chief Financial Officer
51
EXHIBIT INDEX
3.1 Restated Certificate of Incorporation of Terex Corporation
(incorporated by reference to Exhibit 3.1 to the Form S-1 Registration
Statement of Terex Corporation, Registration No. 33-52297).
3.2 Certificate of Elimination with respect to the Series B Preferred Stock
(incorporated by reference to Exhibit 4.3 to the Form 10-K for the year
ended December 31, 1998 of Terex Corporation, Commission File No.
1-10702).
3.3 Certificate of Amendment to Certificate of Incorporation of Terex
Corporation dated September 5, 1998 (incorporated by reference to
Exhibit 3.3 to the Form 10-K for the year ended December 31, 1998 of
Terex Corporation, Commission File No. 1-10702).
3.4 Amended and Restated Bylaws of Terex Corporation (incorporated by
reference to Exhibit 3.2 to the Form 10-K for the year ended December
31, 1998 of Terex Corporation, Commission File No. 1-10702).
4.1 Indenture dated as of September 30, 1998 among Terex Corporation, the
Guarantors named therein and United States Trust Company of New York,
as Trustee (incorporated by reference to Exhibit 4.6 of Amendment No. 1
to the Form S-4 Registration Statement of Terex Corporation,
Registration No. 333-53561).
4.2 First Supplemental Indenture, dated as of September 23, 1998, between
Terex Corporation and United States Trust Company of New York, as
Trustee (to Indenture dated as of September 30, 1998) (incorporated by
reference to Exhibit 4.4 to the Form 10-Q for the quarter ended
September 30, 1999 of Terex Corporation, Commission File No. 1-10702).
4.3 Second Supplemental Indenture, dated as of April 1, 1999, between Terex
Corporation and United States Trust Company of New York, as Trustee (to
Indenture dated as of September 30, 1998) (incorporated by reference to
Exhibit 4.5 to the Form 10-Q for the quarter ended September 30, 1999
of Terex Corporation, Commission File No. 1-10702).
4.4 Third Supplemental Indenture, dated as of July 29, 1999, between Terex
Corporation and United States Trust Company of New York, as Trustee (to
Indenture dated as of September 30, 1998) (incorporated by reference to
Exhibit 4.6 to the Form 10-Q for the quarter ended September 30, 1999
of Terex Corporation, Commission File No. 1-10702).
4.5 Fourth Supplemental Indenture, dated as of August 26, 1999, between
Terex Corporation and United States Trust Company of New York, as
Trustee (to Indenture dated as of September 30, 1998) (incorporated by
reference to Exhibit 4.7 to the Form 10-Q for the quarter ended
September 30, 1999 of Terex Corporation, Commission File No. 1-10702).
4.6 Fifth Supplemental Indenture, dated as of March 29, 2001, between Terex
Corporation and United States Trust Company of New York, as Trustee (to
Indenture dated as of September 30, 1998) (incorporated by reference to
Exhibit 4.6 to the Form 10-Q for the quarter ended March 31, 2001 of
Terex Corporation, Commission File No. 1-10702).
4.7 Sixth Supplemental Indenture, dated as of October 1, 2001, between
Terex Corporation and United States Trust Company of New York, as
Trustee (to Indenture dated as of September 30, 1998) (incorporated by
reference to Exhibit 4.7 to the Form 10-Q for the quarter ended
September 30, 2001 of Terex Corporation, Commission File No. 1-10702).
4.8 Indenture dated as of March 9, 1999 among Terex Corporation, the
Guarantors named therein and United States Trust Company of New York,
as Trustee (incorporated by reference to Exhibit 4.4 to the Form 10-K
for the year ended December 31, 1998 of Terex Corporation, Commission
File No. 1-10702).
4.9 First Supplemental Indenture, dated as of April 1, 1999, between Terex
Corporation and United States Trust Company of New York, as Trustee (to
Indenture dated as of March 9, 1999) (incorporated by reference to
Exhibit 4.8 to the Form 10-Q for the quarter ended September 30, 1999
of Terex Corporation, Commission File No. 1-10702).
4.10 Second Supplemental Indenture, dated as of July 30, 1999, between Terex
Corporation and United States Trust Company of New York, as Trustee (to
Indenture dated as of March 9, 1999) (incorporated by reference to
Exhibit 4.9 to the Form 10-Q for the quarter ended September 30, 1999
of Terex Corporation, Commission File No. 1-10702).
52
4.11 Third Supplemental Indenture, dated as of August 26, 1999, between
Terex Corporation and United States Trust Company of New York, as
Trustee (to Indenture dated as of March 9, 1999) (incorporated by
reference to Exhibit 4.11 to the Form 10-Q for the quarter ended
September 30, 1999 of Terex Corporation, Commission File No. 1-10702).
4.12 Fourth Supplemental Indenture, dated as of March 29, 2001, between
Terex Corporation and United States Trust Company of New York, as
Trustee (to Indenture dated as of March 9, 1999) (incorporated by
reference to Exhibit 4.11 to the Form 10-Q for the quarter ended March
31, 2001 of Terex Corporation, Commission File No. 1-10702).
4.13 Fifth Supplemental Indenture, dated as of October 1, 2001, between
Terex Corporation and United States Trust Company of New York, as
Trustee (to Indenture dated as of March 9, 1999) (incorporated by
reference to Exhibit 4.13 to the Form 10-Q for the quarter ended
September 30, 2001 of Terex Corporation, Commission File No. 1-10702).
4.14 Indenture, dated as of March 29, 2001, between Terex Corporation and
United States Trust Company of New York, as Trustee (incorporated by
reference to Exhibit 4.12 to the Form 10-Q for the quarter ended March
31, 2001 of Terex Corporation, Commission File No. 1-10702).
4.15 First Supplemental Indenture, dated as of October 1, 2001, between
Terex Corporation and United States Trust Company of New York, as
Trustee (to Indenture dated as of March 29, 2001) (incorporated by
reference to Exhibit 4.15 to the Form 10-Q for the quarter ended
September 30, 2001 of Terex Corporation, Commission File No. 1-10702).
4.16 Indenture, dated as of December 17, 2001, between Terex Corporation,
the Guarantors named therein and The Bank of New York, as Trustee
(incorporated by reference to Exhibit 4.16 to Form S-4 Registration
Statement of Terex Corporation, Registration No. 333-75700).
10.1 Terex Corporation Incentive Stock Option Plan, as amended (incorporated
by reference to Exhibit 4.1 to the Form S-8 Registration Statement of
Terex Corporation, Registration No. 33-21483).
10.2 1994 Terex Corporation Long Term Incentive Plan (incorporated by
reference to Exhibit 10.2 to the Form 10-K for the year ended December
31, 1994 of Terex Corporation, Commission File No. 1-10702).
10.3 Terex Corporation Employee Stock Purchase Plan (incorporated by
reference to Exhibit 10.3 to the Form 10-K for the year ended December
31, 1994 of Terex Corporation, Commission File No. 1-10702).
10.4 1996 Terex Corporation Long Term Incentive Plan (incorporated by
reference to Exhibit 10.1 to Form S-8 Registration Statement of Terex
Corporation, Registration No. 333-03983).
10.5 Amendment No. 1 to 1996 Terex Corporation Long Term Incentive Plan
(incorporated by reference to Exhibit 10.5 to the Form 10-K for the
year ended December 31, 1999 of Terex Corporation, Commission File No.
1-10702).
10.6 Amendment No. 2 to 1996 Terex Corporation Long Term Incentive Plan
(incorporated by reference to Exhibit 10.6 to the Form 10-K for the
year ended December 31, 1999 of Terex Corporation, Commission File No.
1-10702).
10.7 Terex Corporation 1999 Long-Term Incentive Plan (incorporated by
reference to Exhibit 10.7 to the Form 10-Q for the quarter ended
September 30, 2000 of Terex Corporation, Commission File No. 1-10702).
10.8 Terex Corporation 2000 Incentive Plan, as amended (incorporated by
reference to Exhibit 10.8 to the Form 10-Q for the quarter ended June
30, 2002 of Terex Corporation, Commission File No. 1-10702).
10.9 Amended and Restated Credit Agreement, dated as of July 3, 2002, among
Terex Corporation, certain of its Subsidiaries, the Lenders named
therein, and Credit Suisse First Boston, as Administrative Agent
(incorporated by reference to Exhibit 10.9 to the Form 10-Q for the
quarter ended June 30, 2002 of Terex Corporation, Commission File No.
1-10702).
10.10 Incremental Term Loan Assumption Agreement, dated as of September 13,
2002, relating to the Amended and Restated Credit Agreement dated as of
July 3, 2002, among Terex Corporation, certain of its subsidiaries, the
lenders party thereto and Credit Suisse First Boston, as administrative
agent (incorporated by reference to Exhibit 2 of the Form 8-K Current
Report, Commission File No. 1-10702, dated September 13, 2002 and filed
with the Commission on September 20, 2002).
10.11 Guarantee Agreement dated as of March 6, 1998 of Terex Corporation and
Credit Suisse First Boston, as Collateral Agent (incorporated by
reference to Exhibit 10.14 to the Form 10-K for the year ended December
31, 1998 of Terex Corporation, Commission File No. 1-10702).
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10.12 Guarantee Agreement dated as of March 6, 1998 of Terex Corporation,
each of the subsidiaries of Terex Corporation listed therein and Credit
Suisse First Boston, as Collateral Agent (incorporated by reference to
Exhibit 10.15 to the Form 10-K for the year ended December 31, 1998 of
Terex Corporation, Commission File No. 1-10702).
10.13 Security Agreement dated as of March 6, 1998 of Terex Corporation, each
of the subsidiaries of Terex Corporation listed therein and Credit
Suisse First Boston, as Collateral Agent (incorporated by reference to
Exhibit 10.16 to the Form 10-K for the year ended December 31, 1998 of
Terex Corporation, Commission File No. 1-10702).
10.14 Pledge Agreement dated as of March 6, 1998 of Terex Corporation, each
of the subsidiaries of Terex Corporation listed therein and Credit
Suisse First Boston, as Collateral Agent (incorporated by reference to
Exhibit 10.17 to the Form 10-K for the year ended December 31, 1998 of
Terex Corporation, Commission File No. 1-10702).
10.15 Form Mortgage, Leasehold Mortgage, Assignment of Leases and Rents,
Security Agreement and Financing entered into by Terex Corporation and
certain of the subsidiaries of Terex Corporation, as Mortgagor, and
Credit Suisse First Boston, as Mortgagee (incorporated by reference to
Exhibit 10.18 to the Form 10-K for the year ended December 31, 1998 of
Terex Corporation, Commission File No. 1-10702).
10.16 Purchase Agreement dated as of March 22, 2001 among the Company and the
Purchasers, as defined therein (incorporated by reference to Exhibit
10.27 to the Form 10-Q for the quarter ended March 31, 2001 of Terex
Corporation, Commission File No. 1-10702).
10.17 Registration Rights Agreement dated as of March 29, 2001 among the
Company and the Initial Purchasers, as defined therein (incorporated by
reference to Exhibit 10.28 to the Form 10-Q for the quarter ended March
31, 2001 of Terex Corporation, Commission File No. 1-10702).
10.18 Agreement and Plan of Merger, dated as of June 27, 2001, by and among
CMI Corporation, Terex Corporation and Claudius Acquisition Corp.
(incorporated by reference to Exhibit 2.1 of the Form 8-K Current
Report, Commission File No. 1-10702, dated June 27, 2001 and filed with
the Commission on June 28, 2001).
10.19 Underwriting Agreement, dated as of December 5, 2001, between Terex
Corporation and Salomon Smith Barney Inc. (incorporated by reference to
Exhibit 1 of the Form 8-K Current Report, Commission File No. 1-10702,
dated December 5, 2001 and filed with the Commission on December 6,
2001).
10.20 Purchase Agreement, dated as of December 10, 2001, among Terex
Corporation and the Purchasers, as defined therein (incorporated by
reference to Exhibit 10.32 to Form S-4 Registration Statement of Terex
Corporation, Registration No. 333-75700).
10.21 Registration Rights Agreement, dated as of December 17, 2001, among
Terex Corporation and the Initial Purchasers, as defined therein
(incorporated by reference to Exhibit 10.33 to Form S-4 Registration
Statement of Terex Corporation, Registration No. 333-75700).
10.22 Agreement on the Sale and Purchase of Shares of the Schaeff Group of
Companies, dated as of November 26, 2001, among Terex Corporation, its
wholly-owned subsidiary and the parties named therein (incorporated by
reference to Exhibit 10.1 of the Form 8-K Current Report, Commission
File No. 1-10702, dated December 28, 2001 and filed with the Commission
on January 15, 2002).
10.23 Stock Purchase Agreement Concerning the Acquisition of Terex Common
Stock, dated as of November 26, 2001, among Terex Corporation, its
wholly-owned subsidiary and the parties named therein (incorporated by
reference to Exhibit 10.2 of the Form 8-K Current Report, Commission
File No. 1-10702, dated December 28, 2001 and filed with the Commission
on January 15, 2002).
10.24 Underwriting Agreement, dated as of April 18, 2002 between Terex
Corporation and Credit Suisse First Boston Corporation (incorporated by
reference to Exhibit 1.1 of the Form 8-K Current Report, Commission
File No. 1-10702, dated April 18, 2002 and filed with the Commission on
April 18, 2002).
10.25 Sale and Purchase Agreement, dated May 16, 2002, among Terex
Corporation, Terex Germany GmbH & Co. KG and Demag Mobile Cranes GmbH
(incorporated by reference to Exhibit 1 of the Form 8-K Current Report,
Commission File No. 1-10702, dated May 16, 2002 and filed with the
Commission on May 17, 2002).
10.26 Agreement and Plan of Merger, dated July 19, 2002, among Terex
Corporation, Magic Acquisition Corp., Genie Holdings, Inc., Robert
Wilkerson, S. Ward Bushnell, F. Roger Brown, Wilkerson Limited
Partnership, Bushnell Limited Partnership and R. Brown Limited
Partnership (incorporated by reference to Exhibit 1 of the Form 8-K
Current Report, Commission File No. 1-10702, dated July 19, 2002 and
filed with the Commission on July 22, 2002).
54
10.27 First Amendment to Agreement and Plan of Merger, dated as of September
18, 2002, by and among Terex Corporation, Magic Acquisition Corp.,
Genie Holdings, Inc. and Robert Wilkerson, S. Ward Bushnell and F.
Roger Brown and certain limited partnerships (incorporated by reference
to Exhibit 1 of the Form 8-K Current Report, Commission File No.
1-10702, dated September 13, 2002 and filed with the Commission on
September 20, 2002).
10.28 Contract of Employment, dated as of September 1, 1999, between Terex
Corporation and Filip Filipov (incorporated by reference to Exhibit
10.29 to the Form 10-Q for the quarter ended September 30, 1999 of
Terex Corporation, Commission File No. 1-10702).
10.29 Supplement to Contract of Employment, dated as of April 1, 2000,
between Terex Corporation and Filip Filipov (incorporated by reference
to Exhibit 10.37 to the Form 10-Q for the quarter ended September 30,
2000 of Terex Corporation, Commission File No. 1-10702).
10.30 Second Amended and Restated Employment and Compensation Agreement,
dated as of January 1, 2002, between Terex Corporation and Ronald M.
DeFeo (incorporated by reference to Exhibit 10.34 to the Form 10-K for
the year ended December 31, 2001 of Terex Corporation, Commission File
No. 1-10702).
10.31 Form of Amended and Restated Change in Control and Severance Agreement
dated as of April 1, 2002 between Terex Corporation and certain
executive officers (incorporated by reference to Exhibit 10.36 to the
Form 10-Q for the quarter ended March 31, 2002 of Terex Corporation,
Commission File No. 1-10702).
12 Calculation of Ratio of Earnings to Fixed Charges. *
99.1 Chief Executive Officer Certification pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes -Oxley Act of
2002. *
99.2 Chief Financial Officer Certification pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes -Oxley Act of
2002. *
* Exhibit filed with this document.
55