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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
FOR ANNUAL AND TRANSITIONAL REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
|X| OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2002
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
|_| OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________.
Commission File Number 1-10702
TEREX CORPORATION
(Exact Name of Registrant as Specified in Charter)
Delaware 34-1531521
(State of incorporation) (I.R.S. Employer Identification No.)
500 Post Road East, Suite 320, Westport, Connecticut 06880
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code: (203) 222-7170
Securities registered pursuant to Section 12(b)of the Act:
Common Stock, $.01 par value
(Title of Class)
New York Stock Exchange
(Name of Exchange on which Registered)
Securities registered pursuant to Section 12(g) of the Act: None
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
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
Indicate by check mark whether the Registrant is an accelerated filers (as
defined in Exchange Act Rule 12b -2).
YES X NO
----- -----
The aggregate market value of the voting and non-voting common equity stock held
by non-affiliates of the Registrant was approximately $962 million based on
the last sale price on June 28, 2002.
The number of shares of the Registrant's Common Stock outstanding
was 48,061,241 as of March 19, 2003.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Terex Corporation Proxy Statement to be filed with the
Securities and Exchange Commission within 120 days after the year covered
by this Form 10-K with respect to the 2003 Annual Meeting of Stockholders
are incorporated by reference into Part III hereof.
TEREX CORPORATION AND SUBSIDIARIES
Index to Annual Report on Form 10-K
For the Year Ended December 31, 2002
PART I
Item 1 Business......................................................... 3
Item 2 Properties....................................................... 28
Item 3 Legal Proceedings................................................ 30
Item 4 Submission of Matters to a Vote of Security Holders.............. 31
PART II
Item 5 Market for Registrant's Common Stock and
Related Stockholder Matters..................................... 31
Item 6 Selected Financial Data.......................................... 32
Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 33
Item 7A Quantitative and Qualitative Disclosure about Market Risk........ 52
Item 8 Financial Statements and Supplementary Data...................... 53
Item 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................ 54
PART III
Item 10 Directors and Executive Officers of the Registrant............... 54
Item 11 Executive Compensation........................................... 54
Item 12 Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters..................................... 54
Item 13 Certain Relationships and Related Transactions................... 55
Item 14 Controls and Procedures.......................................... 55
PART IV
Item 15 Exhibits, Financial Statement Schedules and Reports on Form 8-K.. 55
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As used in this Annual Report on Form 10-K, unless otherwise indicated, Terex
Corporation, together with its consolidated subsidiaries, is hereinafter
referred to as "Terex," the "Registrant," or the "Company."
PART I
ITEM 1. BUSINESS
General
Terex is a diversified global manufacturer of a broad range of equipment
primarily for the construction, infrastructure and surface mining industries.
The Company is building a growing franchise under the Terex brand name. The
Company remains focused on its mission of delivering products that are reliable
and cost-effective and producing equipment that improves its customers' return
on invested capital. The Company's products are manufactured at plants in the
United States, Canada, Europe, Australia, Asia and South America, and are sold
primarily through a worldwide distribution network serving the global
construction, infrastructure and surface mining markets.
Over the past several years, the Company has implemented a series of
interrelated operational and strategic initiatives designed to create a
competitive advantage in the marketplace. These initiatives include: (i)
providing customers with lower cost products to increase their return on
invested capital; (ii) implementing a variable cost structure with over 80% of
cost of sales from purchased components; (iii) reducing selling expense and
eliminating non-value-added functions throughout the organization; and (iv)
increasing product and geographic diversity through internal development and
acquisitions.
The Company operates in five business segments: Terex Construction, Terex
Cranes, Terex Roadbuilding, Utility Products and Other, Terex Aerial Work
Platforms and Terex Mining.
For financial information about the Company's industry and geographic segments,
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note T -- "Business Segment Information" in the Notes to the
Consolidated Financial Statements.
Terex Construction
The Terex Construction segment designs, manufactures and markets three primary
categories of equipment and their related components and replacement parts:
heavy construction equipment (including off-highway trucks and scrapers),
compact equipment (including loader backhoes, compaction equipment, mini and
midi excavators, loading machines, site dumpers, telehandlers and wheel
loaders); and mobile crushing and screening equipment (including jaw crushers,
cone crushers, washing screens and trommels). Terex Construction products are
currently marketed principally under the following brand names: Atlas Terex,
Finlay, Fuchs Terex, Pegson, Powerscreen, Terex Benford, Terex Fermec, Terex
Handlers, Terex Schaeff, Terex and TerexLift. These products are primarily used
by construction, logging, mining, industrial and government customers in
construction and infrastructure projects and supplying coal, minerals, sand and
gravel.
Terex Construction has 20 significant manufacturing operations:
o Atlas Terex GmbH ("Atlas Terex"), located in Delmenhorst, Ganderkasee,
Loeningen and Vechta, Germany, at which excavators and truck mounted
articulated hydraulic cranes are manufactured under the ATLAS TEREX
and TEREX brand names;
o Atlas Terex UK Limited ("Atlas UK"), located in Hamilton, Scotland, at
which truck mounted articulated hydraulic cranes are manufactured
under the ATLAS TEREX and ATLAS trade names;
o Benford Limited ("Benford"), currently located in Warwick, England, at
which dumpers, compaction equipment and material handlers are
manufactured under the Company's AMIDA, TEREX BENFORD and TEREX brand
names;
o BL-Pegson Ltd. ("B.L. Pegson"), located in Coalville, England, which
manufactures crushers under the PEGSON brand name;
o Fermec Manufacturing Limited ("Fermec"), currently located in
Manchester, England, which manufactures loader backhoes under the
TEREX and TEREX FERMEC brand names;
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o Finlay Hydrascreens (Omagh) Limited ("Finlay"), located in Omagh,
Northern Ireland, at which crushers, washing systems, screens and
trommels are manufactured under the FINLAY brand name;
o Fuchs-Bagger GmbH & Co. KG ("Fuchs"), located in Bad Schoenborn,
Germany, at which loading machines are manufactured under the FUCHS
TEREX brand name;
o Powerscreen International Distribution Ltd. and Powerscreen Limited
("Powerscreen"), located in Dungannon, Northern Ireland; and
Kilbeggan, Ireland; respectively, which manufacture and sell washing
systems, screens and trommels under the POWERSCREEN brand name;
o The Schaeff Group of Companies ("Schaeff"), located in Langenburg,
Gerabron, Rothenburg, Crailsheim and Clausnitz, Germany, at which
small wheel loaders, mini excavators and midi excavators are
manufactured under the TEREX SCHAEFF, ATLAS TEREX and TEREX brand
names;
o Terex Equipment Limited ("TEL"), located in Motherwell, Scotland,
which manufactures off-highway rigid haul trucks and articulated haul
trucks, having capacities ranging from 25 to 100 tons, and scrapers
under the TEREX brand name;
o Terex Handlers, located in Baraga, Michigan, at which rough terrain
telescopic boom material handlers (also known as telehandlers) are
manufactured under the TEREX and TEREX HANDLERS brand names; and
o TerexLift S.r.l. ("TerexLift"), located near Perugia, Italy, at which
rough terrain telescopic material handlers (also known as
telehandlers) are manufactured under the TEREXLIFT and TEREX brand
names.
Terex Cranes
The Terex Cranes segment designs, manufactures and markets mobile telescopic
cranes, tower cranes, lattice boom crawler cranes, truck mounted cranes (boom
trucks) and telescopic container stackers, as well as their related replacements
parts and components. Currently, Terex Cranes products are marketed principally
under the following brand names: American, Atlas, Atlas Terex, Bendini, Comedil,
Demag, Franna, Lorain, P&H, Peiner, PPM, RO-Stinger and Terex. These products
are used primarily for construction, repair and maintenance of infrastructure,
building and manufacturing facilities.
Terex Cranes has 13 significant manufacturing operations:
o The American Crane Corporation ("American Crane") located in
Wilmington, North Carolina, at which lattice boom crawler cranes are
manufactured under the AMERICAN trade name;
o Demag Mobile Cranes GmbH & Co. KG ("Demag") located in Zweibrucken,
Wallerscheid and Bierbach, Germany, and Pecs, Hungary, at which
lattice boom crawler cranes and mobile cranes are manufactured under
the DEMAG trade name;
o Gru Comedil S.r.l. ("Comedil"), located in Fontanafredda and Milan,
Italy, at which tower cranes are manufactured under the COMEDIL and
TEREX trade names;
o PPM S.A.S., located in Montceau-les-Mines, France, at which mobile
cranes and container stackers under the brand names TEREX and PPM are
manufactured;
o Terex Italia S.r.l. ("Terex Italia"), located in Crespellano, Italy,
at which mobile cranes are manufactured under the TEREX, BENDINI and
PPM brand names;
o Terex Lifting Australia Pty. Ltd. ("Terex Lifting Australia"), located
in Brisbane, Australia, at which all terrain mobile cranes are
manufactured under the FRANNA trade name;
o Terex Cranes - Waverly (also known as Koehring Cranes, Inc.), located
in Waverly, Iowa, at which rough terrain hydraulic telescoping mobile
cranes and truck cranes are manufactured under the brand names TEREX,
LORAIN and P&H (a licensed trademark of Joy Global Inc.);
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o Terex Peiner GmbH ("Peiner"), located in Trier, Germany, at which
tower cranes are manufactured under the PEINER and TEREX brand names;
and
o Terex-RO Corporation ("Terex-RO"), located in Olathe, Kansas, at which
truck mounted cranes are manufactured under the RO-STINGER brand name.
Terex Roadbuilding, Utility Products and Other
The Terex Roadbuilding, Utility Products and Other segment designs, manufactures
and markets crushing and screening equipment (including crushers, impactors,
screens and feeders), asphalt and concrete equipment (including pavers, plants,
mixers, reclaimers, stabilizers and profilers), utility equipment (including
digger derricks, aerial devices and cable placers), light construction equipment
(including light towers, trowels, power buggies, generators and arrow boards)
and construction trailers, as well as related components and replacement parts.
These products are currently marketed principally under the following brand
names: Amida, Bartell, Bid-Well, Canica, Cedarapids, Cedarapids/Standard Havens,
CMI Johnson Ross, CMI Terex, CMI-Cifali, Coleman Engineering, Grayhound,
Hi-Ranger, Jaques, Load King, Morrison, Re-Tech, Royer, Simplicity, Terex, Terex
Advance Mixer, Terex Power, Terex Recycling and Terex Telelect. These products
are used primarily by government, utility and construction customers to build
roads, maintain utility lines and trim trees.
Terex also owns much of the North American distribution channel for the utility
products group, including the following distributors: Utility Equipment Co.,
Inc. ("Utility Equipment"), Telelect Southeast Distribution, Inc. ("Telelect
Southeast"), Commercial Body Corporation ("Commercial Body") and Combatel
Distribution Inc. ("Combatel"). These operations distribute and install the
Company's utility aerial devices as well as other products that service the
utility industry.
Terex Roadbuilding, Utility Products and Other has 13 significant manufacturing
operations:
o Amida Industries, Inc. ("Amida") and Coleman Engineering, Inc.
("Coleman"), located in Rock Hill, South Carolina, which manufacture
and sell portable floodlighting systems, concrete power trowels,
concrete placement systems, concrete finishing systems, concrete
mixers and traffic control products under the AMIDA, BARTELL,
MORRISON, TEREX BENFORD, COLEMAN ENGINEERING and TEREX brand names;
o Bid-Well, located in Canton, South Dakota, at which concrete pavers
are manufactured under the BID-WELL brand name;
o Cedarapids, Inc. ("Cedarapids") located in Cedar Rapids, Iowa, which
manufactures crushing and screening equipment, trommels, and asphalt
pavers under the CEDARAPIDS, ROYER and RE-TECH brand names;
o CMI-Cifali Equipmentamentos, Ltda. ("CMI-Cifali"), located in
Cachoeirinha, Brazil, which manufactures asphalt pavers and asphalt
plants under the CMI-CIFALI brand name;
o CMI Terex Corporation ("CMI"), located in Oklahoma City, Oklahoma, at
which pavement profilers, reclaimers/trimmers, asphalt plants,
concrete plants and concrete pavers are manufactured under the CMI
TEREX, CMI JOHNSON-ROSS and CEDARAPIDS/STANDARD HAVENS brand names;
o Jaques International ("Jaques"), located in Melbourne, Australia,
which manufactures crushing and screening equipment under the JAQUES
brand name;
o Jaques International Sdn Bhd ("Jaques Malaysia"), located in Subang
Jaya, Malaysia, which manufactures crushing and screening equipment
under the JAQUES brand name;
o Jaques (Thailand) Limited ("Jaques Thailand"), located in Chomburi,
Thailand, which manufactures crushing and screening equipment under
the JAQUES brand name;
o Load King, located in Elk Point, South Dakota, at which construction
trailers are manufactured under the LOAD KING brand name;
o Simplicity Engineering ("Simplicity"), located in Durand, Michigan, at
which crushing and screening equipment and recycling systems are
manufactured under the SIMPLICITY, CANICA and TEREX RECYCLING brand
names;
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o Terex Advance Mixer, Inc. ("Advance Mixer"), located in Ft. Wayne,
Indiana, which manufactures and sells front discharge concrete mixer
trucks under the TEREX ADVANCE MIXER brand name;
o Terex Bartell, Ltd. ("Bartell"), located in Brampton, Ontario, Canada,
which manufactures and sells concrete power trowels and concrete
finishing systems under the BARTELL brand name; and
o Terex-Telelect, Inc. ("Telelect"), located in Watertown and Huron,
South Dakota, at which utility aerial devices and digger derricks are
manufactured under the TEREX TELELECT and HI-RANGER brand names.
Terex Aerial Work Platforms
The Terex Aerial Work Platforms segment was formed upon the completion of the
acquisition of Genie Holdings, Inc. and its affiliates ("Genie") on September
18, 2002. The Terex Aerial Work Platforms segment designs, manufactures and
markets aerial work platform equipment. Products include material lifts,
portable aerial work platforms, trailer mounted booms, articulated booms, stick
booms, scissor lifts, related components and replacement parts, and other
products. Terex Aerial Work Platforms products currently are marketed
principally under the Genie brand name. These products are used primarily by
customers in the construction and building maintenance industries to lift people
and/or equipment as required to build and/or maintain large physical assets and
structures.
Terex Aerial Work Platforms has two significant manufacturing operations located
in Redmond and Moses Lake, Washington at which aerial work platform equipment is
manufactured.
Terex Mining
The Terex Mining segment 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 principally under the following brand names: O&K, Payhauler, Terex and
Unit Rig. These products are used primarily by construction, mining, quarrying
and government customers in construction, excavation and supplying coal and
minerals.
Terex Mining has one significant manufacturing operation, located in Dortmund,
Germany, at which it manufactures large hydraulic mining shovels under the O&K
brand name. Terex Mining markets high capacity surface mining trucks that are
manufactured for Terex Mining by a third party supplier.
Other Businesses
In January 2003, the Company announced the formation of Terex Financial
Services, Inc. ("TFS"). TFS will offer customers a complete line of financial
products and services to assist in the acquisition of the Company's equipment.
In North America, TFS will work with a dedicated team from General Electric
Capital Corporation Vendor Financial Services. TFS participates in the benefits
associated with the financing of the Company's products with minimal expense and
without adding any additional debt or credit risk to Terex.
Terex has a minority interest in Inner Mongolia North Hauler Joint Stock Company
Limited ("North Hauler"), a company incorporated under the laws of China, which
manufactures rigid and articulated haulers in China. Trucks manufactured by
North Hauler, which is located in Baotou, Inner Mongolia, are principally used
in the People's Republic of China under the TEREX brand name.
Terex is a minority shareholder of Tatra a.s. ("Tatra"), a company incorporated
under the laws of the Czech Republic. Tatra, which is located in Koprivnice,
Czech Republic, manufactures a range of four-by-four to twelve-by-twelve
heavy-duty on and off-road vehicles for military and commercial applications
under the TATRA brand name. The Company is also participating in a joint venture
with Tatra and STV USA under the name of American Truck Company ("ATC"). ATC
will assemble vehicles based on the Tatra design and technology incorporating
U.S. components under the brand names TEREX, AMERICAN TRUCK and/or ATC at the
Company's Advance Mixer facility in Ft. Wayne, Indiana. Terex also is a minority
shareholder of SDC International, Inc., which indirectly owns a majority
interest in Tatra.
The Company has minority equity interests in FleetEdge.com, Inc., a developer of
fleet management systems, SourceRight.com, Inc., an internet vendor of safety
and consumable products, and EarthKing Performance and Safety Solutions, Inc., a
provider of productivity and safety training programs for construction
equipment.
Terex also has an interest in Crane & Machinery, Inc. ("C&M"), which is
headquartered in Illinois, and distributes, rents and provides service for crane
products, including products manufactured by the Terex Cranes segment. During
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2002, the Company acquired from an unaffiliated financial institution
outstanding loans in the amount of approximately $5.9 million owed by C&M to
that financial institution, and C&M remains obligated to make payments to the
Company pursuant to the terms of such loans. The results of C&M have been
consolidated in the Company's financial results from December 1, 2002.
As discussed in Note J - "Investment in Joint Venture" in the Notes to the
Consolidated Financial Statements, the Company has a 49% ownership interest in a
joint venture, Genie Financial Solutions Holding B.V. ("GFSH B.V."). The other
51% of GFSH B.V. is owned by a European financial institution. GFSH B.V. was
established to facilitate the financing of Genie's products sold in Europe.
Business Strategy
Over the past several years, Terex has implemented a series of interrelated
operational and strategic initiatives designed to create a competitive advantage
in the marketplace and maximize its financial performance. These initiatives
include: (i) providing customers with lower cost products to increase their
return on invested capital; (ii) implementing a variable cost structure with
over 80% of cost of sales from purchased components; (iii) reducing selling
expense and eliminating non-value-added functions throughout the organization;
and (iv) increasing product and geographic diversity through internal
development and acquisitions.
Increase Sales and Market Share Through Best Value Strategy
o Terex has increased its sales and gained market share by pursuing its
best value strategy of providing comparable or superior products at a
lower total cost of ownership and with higher returns on invested
capital as compared to its competitors. Terex typically prices its
products aggressively relative to its competition while providing the
same level of functionality.
Reduce Costs and Improve Manufacturing Efficiency
o The Company's best value strategy is supported by ongoing efforts to
reduce costs and improve manufacturing efficiency. Over the past few
years, it has initiated several programs to consolidate manufacturing
operations, minimize selling costs, outsource non-critical
manufacturing processes and rationalize product lines in order to
increase profitability and reduce fixed costs. The Company believes
its focus on reducing costs and improving manufacturing efficiency has
yielded significantly more efficient and flexible operations than its
competitors as measured by its comparatively low selling, general and
administrative expense-to-sales ratio, significantly higher sales per
employee, and greater capital efficiency (based on the ratio of
capital expenditures to sales).
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Focus on Geographic, Product and End-Market Diversification
Over the past several years, the Company has focused on growing and improving
the operations of its core business segments. The Company also has expanded the
size and scope of its core businesses both through acquisitions and through
development of new products in order to increase its market share. Management
believes that these initiatives have helped to reduce the effect of potential
cyclical changes in any one product category or geographic market. These
initiatives have also expanded the Company's product lines within its core
businesses, added new technology and improved its distribution network. As a
result, the Company has developed a geographically diverse revenue base with
approximately 56% of its revenues derived outside the United States and Canada,
and has built a diverse product portfolio addressing a range of end-markets as
illustrated by the Company's sales by product category in:
Percentage of Sales
Product Category 2002 2001 2000
---------------- ------ ------ ------
Crushing, Screening & Paving Equipment 20 23 20
Compact Construction Equipment 18 9 5
Hydraulic Mobile Cranes 16 13 16
Off-Highway Trucks 9 11 13
Utility Aerial Devices 7 7 8
Hydraulic Mining Shovels 6 7 9
Aerial Work Platforms 5 3 4
Lattice Boom Cranes 4 3 2
Material Handlers 4 5 8
Surface Mining Trucks 3 7 6
Boom Trucks 2 3 2
Concrete Mixers 2 --- ---
Tower Cranes 2 4 3
Container Stackers 1 2 2
Light Construction Equipment 1 3 2
------ ------ ------
Total 100% 100% 100%
====== ====== ======
Grow through Acquisitions
Since 1995, the Company has invested over $1.9 billion to strengthen its core
business segments and complementary businesses through over 25 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 those that would complement
the Company's existing operations, the Company is currently focused on
completing the integration of its recent acquisitions.
Some recent examples of the Company's acquisition strategy include:
o The acquisition during 2003 of Commercial Body and Combatel.
o The acquisition during 2002 of Genie, Demag, Schaeff (including
Fuchs), Advance Mixer, Utility Equipment and Telelect Southeast.
o The acquisition during 2001 of Jaques (including Jaques Malaysia and
Jaques Thailand), CMI (including Bid-Well, Load King and CMI-Cifali)
and Atlas Terex (including Atlas UK).
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Products
Terex Construction
Heavy Equipment. Terex Construction manufactures off-highway trucks and scrapers
used in earthmoving applications.
[Graphic] Articulated off-highway trucks are three-axle, six-wheel
drive machines with a capacity range of 25 to 40 tons. An
oscillating connection between the cab and body allows the
cab and body to move independently, enabling all six tires
to maintain ground contact for traction on rough terrain.
This allows the truck to move effectively through extremely
rough or muddy off-road conditions. Articulated off-highway
trucks are typically used together with an excavator or
wheel loader to move dirt in connection with road, tunnel or
other infrastructure construction and commercial, industrial
or major residential construction projects. Terex
articulated off-highway trucks are manufactured in
Motherwell, Scotland, under the brand name TEREX.
[Graphic] Rigid off-highway trucks are two axle machines which
generally have larger capacities than articulated
off-highway trucks, but can operate only on improved or
graded surfaces. The capacities of rigid off-highway trucks
range from 35 to 100 tons, and are used in large
construction or infrastructure projects, aggregates and
smaller surface mines. Terex's rigid trucks are manufactured
in Motherwell, Scotland, under the TEREX brand name.
[Graphic] Scrapers move dirt by elevating it from the ground to a bowl
located between the two axles of the machine. Scrapers are
used most often in relatively dry, flat terrains. Terex
scrapers are manufactured in Motherwell, Scotland, under the
TEREX brand name.
Compact Equipment. Terex Construction manufactures a wide variety of compact
equipment used primarily in the construction and rental industries. Products
include loader backhoes, compaction equipment, excavators, loading machines,
site dumpers, telehandlers and wheel loaders.
[Graphic] Loader backhoes incorporate a front-end loader and rear
excavator arm. They are used for loading, excavating and
lifting in many construction and agricultural related
applications. Terex offers four models of loader backhoes,
ranging from 69 to 90 horsepower. Terex loader backhoes are
currently manufactured under the TEREX and TEREX FERMEC
brand names in Manchester, England.
[Graphic] Compaction equipment manufactured by Terex ranges from small
portable plates to heavy duty ride-on rollers. Single and
reversible direction plates are used in the compaction of
trench backfill material, paths and driveways. A range of
tandem rollers from 1.5 to 10 tons covers larger
applications, including road formation, construction and
asphalt surfacing. Self-propelled rollers from 6 to 12 tons
are used in landfill site construction and on soil and
sub-base materials. Included in the range are sophisticated
infrared trench compactors that enable the operator to use
the machine at a distance. Terex compaction equipment is
currently manufactured in Warwick, England, under the TEREX
and TEREX BENFORD brand names.
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[Graphic] Excavators in the compact equipment category include mini
and midi excavators used in the general construction,
landscaping and rental businesses. Mini excavators are
crawler type excavators ranging in size from 1.6 tons to 5.5
tons. These machines are equipped with either rubber or
steel tracks. Midi excavators are manufactured in a mobile
(wheeled) version in the 6 to 11 ton sizes for the European
market. These excavators are commonly used for excavation
and lifting in confined areas in communities and in rental
businesses. Midi excavators are also manufactured as crawler
excavators in sizes between 5.5 tons and 11.0 tons. In the 6
to 8 ton sizes Terex offers standard steel tracks and
optional rubber tracks. These excavators are manufactured in
Germany under the TEREX, ATLAS TEREX and TEREX SCHAEFF brand
names.
[Graphic] Loading machines are designed for handling logs, scrap and
other bulky materials with clamshell, magnet or grapple
attachments. There are stationary and mobile models for
loading barges and various operations in scrap,
manufacturing and materials handling. Terex produces loading
machines ranging from 11 tons to 65 tons at its facilities
in Bad Schoenborn and Ganderkasee, Germany, under the FUCHS
TEREX and ATLAS TEREX brand names.
[Graphic] Site dumpers are used to move smaller quantities of
materials from one location to another, and are primarily
used for landscaping and concrete applications. Terex offers
a variety of 2 wheel and 4 wheel drive models. Site dumpers
are manufactured in Warwick, England, under the TEREX
BENFORD and TEREX brand names.
[Graphic] Telehandlers are used to move and place materials on new
residential and commercial job sites. Terex manufactures
telehandlers with load capacities of up to 11,000 pounds and
with a maximum extended reach of up to 62 feet and lift
capabilities of up to 78 feet. Terex manufactures rough
terrain telehandlers and 360-degree boom rotating
telehandlers at its facilities in Baraga, Michigan, and in
Perugia, Italy, under the brand names TEREX HANDLERS and
TEREXLIFT.
[Graphic] Wheel Loaders are used for loading and unloading materials.
Due to the large variety of attachments, these machines are
also multi-equipment carriers used not only in the field of
construction but also in industrial, rental and landscaping
business. Terex wheel loaders are manufactured under the
brand names of TEREX SCHAEFF and TEREX at its facility in
Crailsheim, Germany.
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Crushing and Screening Equipment. Crushing and screening equipment offered by
Terex Construction is used in the quarry, demolition and recycling industries.
Crushing and screening plants can be either stationary or portable. Portable
crushing and screening plants are configured with a variety of components to
provide easy site-to-site mobility, application versatility, flexible on-demand
finished product and reduced set-up time.
Terex Construction manufactures crushing equipment under the PEGSON brand name
in Coalville, England.
[Graphic] Jaw crushers are primary crushers with reduction ratios of 6
to 1 for crushing larger rock. Applications include hard
rock, sand and gravel and recycled materials. Models offered
yield a range of production capacities: up to 265 tons per
hour for the smallest unit, and up to 1,700 tons per hour
for the largest.
[Graphic] Cone crushers are used in secondary and tertiary
applications to reduce a number of materials, including
quarry rock and riverbed gravel. High production, low
maintenance and enhanced final material cubicle shape are
the principal features of these compression-type roller
bearing crushers.
Terex Construction manufactures screening equipment in Dungannon, Northern
Ireland; Kilbeggan, Ireland; and Omagh, Northern Ireland; under the brand names
POWERSCREEN and FINLAY.
[Graphic] Dry screening is used to process materials such as sand,
gravel, quarry rock, coal, construction and demolition
waste, soil, compost and wood chips.
[Graphic] Washing screens are used to separate, wash, scrub, dewater
and stockpile sand and gravel. Products manufactured by
Terex include a completely mobile single chassis washing
plant incorporating separation, washing, dewatering and
stockpiling, mobile and stationary screening rinsers,
bucket-wheel dewaterers, scrubbing devices for aggregate, a
mobile cyclone for maximum retention of sand particles, silt
extraction systems, stockpiling conveyors and a sand screw
system as an alternative option to the bucket-wheel
dewaterers.
[Graphic] Trommels are used in the recycling of construction and
demolition waste materials, as well as soil, compost and
wood chips. Trommels incorporate conveyors and variable
speed fingertip control of the belts and rotating drum to
separate the various materials. Terex manufactures a range
of trommel and soil shredding equipment. Terex also designs,
sources, installs, commissions and provides aftersales
support for turnkey recycling systems. These systems are
used to process construction and demolition waste, as well
as decasing, segmenting and processing empty bottles. The
soil shredding units are mainly used by landscape
contractors and provide a high specification end product.
11
Terex Cranes
Terex Cranes offers a wide variety of cranes, including mobile telescopic
cranes, tower cranes, lattice boom cranes, boom trucks and container stackers.
Mobile Telescopic Cranes. Mobile telescopic cranes are used primarily for
industrial applications, in commercial and public works construction and in
maintenance applications, to lift equipment or material to heights in excess of
225 feet. Terex Cranes offers a complete line of mobile telescopic cranes,
including rough terrain cranes, truck cranes, all terrain cranes, and lift and
carry cranes.
[Graphic] Rough terrain cranes move materials and equipment on rough
or uneven terrain, and are often located on a single
construction or work site such as a building site, a highway
or a utility project for long periods of time. Rough terrain
cranes cannot be driven on highways and accordingly must be
transported by truck to the work site. Terex offers rough
terrain cranes with lifting capacities ranging from 20 to
100 tons and maximum tip heights of up to 246 feet. Terex
manufactures its rough terrain cranes at its facilities
located in Waverly, Iowa, and Crespellano, Italy, under the
brand names TEREX, LORAIN, P&H, PPM and BENDINI.
[Graphic] Truck cranes have two cabs and can travel rapidly from job
site to job site at highway speeds. Truck cranes are often
used for multiple local jobs, primarily in urban or suburban
areas. Truck cranes manufactured by Terex have maximum
lifting capacities of up to 90 tons and maximum tip heights
of up to 202 feet. Terex manufactures truck cranes at its
Waverly, Iowa, facility under the brand names TEREX, P&H and
LORAIN.
[Graphic] All terrain cranes were developed in Europe as a cross
between rough terrain and truck cranes, and are designed to
travel across both rough terrain and highways. All terrain
cranes manufactured by Terex have lifting capacities of up
to 800 tons and maximum tip heights of up to 490 feet. Terex
manufactures all terrain cranes at its Montceau-les-Mines,
France, and Zweibrucken and Wallerscheid, Germany,
facilities under the brand names TEREX, PPM and DEMAG.
[Graphic] Lift and carry cranes are designed primarily for site work,
such as at mine sites, big fabrication yards and building
and construction sites. Terex offers five models of lift and
carry cranes with lifting capacities ranging from 11 to 22
tons. Lift and carry cranes are manufactured in Terex's
Brisbane, Australia, facility under the brand name FRANNA.
12
Tower Cranes. Tower cranes are often used in urban areas where space is
constrained and in long-term or very high building sites. Tower cranes lift
construction material and place the material at the point where it is being
used. They include a vertical tower with a horizontal jib with a counterweight
at the top (except for self-erecting tower cranes where the counter weight is at
the bottom and the entire tower rotates). On the jib is a trolley through which
runs a load carrying cable and which moves the load along the jib length. On
larger cranes, the operator is located above the work site where the tower and
jib meet, providing superior visibility. The jib also rotates 360 degrees,
creating a large working area equal to twice the jib length. Tower cranes are
currently produced by Terex in Fontanafredda and Milan, Italy, and Trier,
Germany, under the PEINER, COMEDIL and TEREX brand names. Terex produces the
following types of tower cranes:
[Graphic] Self-erecting tower cranes are trailer-mounted and unfold
from four sections (two for the tower and two for the jib);
certain larger models have a telescopic tower and folding
jib. These cranes can be assembled on site in a few hours.
Applications include residential and small commercial
construction. Crane heights range from 50 feet to 90 feet
and jib lengths from 60 feet to 125 feet.
[Graphic] Hammerhead tower cranes have a tower and a horizontal jib
assembled from sections. The tower extends above the jib to
which suspension cables supporting the jib are attached.
These cranes are assembled on-site in one to three days
depending on height, and can increase in height with the
project; they have a maximum free-standing height of 250
feet to 300 feet and a maximum jib length of 240 feet.
[Graphic] Flat top tower cranes have a tower and a horizontal jib
assembled from sections. There is no A-frame above the jib,
which reduces cost and facilities assembly; the jib is
self-supporting and consists of reinforced jib sections.
These cranes are assembled on site in one to two days, and
can increase in height with the project; they have a maximum
freestanding height of 305 feet and a maximum jib length of
280 feet.
[Graphic] Luffing jib tower cranes have a tower and an angled jib
assembled from sections. There is one A-frame above the jib
to which suspension cables supporting the jib are attached.
Unlike other tower cranes, there is no trolley to control
lateral movement of the load, which is accomplished by
changing the jib angle. These cranes are assembled on site
in two to three days, and can increase in height with the
project; they have a maximum freestanding height of 185 feet
and a maximum jib length of 200 feet. Luffing jib tower
cranes operate like a traditional lattice boom crane mounted
on a tower.
13
Lattice Boom Crawler Cranes. Lattice boom crawler cranes are designed to lift
material on rough terrain and can maneuver while bearing a load. The boom is
made of tubular steel sections, which are transported to and erected, together
with the base unit, at a construction site.
[Graphic] Hydraulic lattice boom crawler cranes manufactured in
Wilmington, North Carolina, under the TEREX and AMERICAN
brand names have lifting capacities from 50 to 275 tons.
Larger crawler cranes manufactured in Zweibrucken, Germany,
under the DEMAG and TEREX brand names have lifting
capacities ranging from 300 to 1750 tons.
Truck Mounted Cranes (Boom Trucks). Terex Cranes manufactures telescopic boom
cranes for mounting on commercial truck chassis. Truck mounted cranes are used
primarily in the construction industry to lift equipment or materials to various
heights. Boom trucks are generally lighter and have less lifting capacity than
truck cranes, and are used for many of the same applications when lower lifting
capabilities are required. An advantage of a boom truck is that the equipment or
material to be lifted by the crane can be transported by the truck, which can
travel at highway speeds. Applications include the installation of air
conditioners and other roof equipment. Terex Cranes manufactures both telescopic
and articulated boom truck mounted cranes.
[Graphic] Telescopic boom truck mounted cranes enable an operator to
reach heights of up to 166 feet and have a maximum lifting
capacity of up to 35 tons. Terex manufactures its telescopic
boom truck mounted cranes at its Olathe, Kansas, facility
under the brand names RO-STINGER and TEREX.
[Graphic] Articulated boom truck mounted cranes are available in two
product categories, each with a maximum reach of
approximately 100 feet. The "knuckle boom" crane can be
mounted either on the front or the rear of commercial trucks
which are folded within the width of the truck while in
transport. The "V-boom" crane is also mounted on the front
or the rear of the truck and spans the length of the truck
while folded. Terex manufactures these products in
Delmenhorst, Germany, and Hamilton, Scotland, under the
ATLAS, ATLAS TEREX and TEREX brand names.
Telescopic Container Stackers. Telescopic container stackers are used to pick up
and stack containers at dock and terminal facilities. At the end of a telescopic
container stacker's boom is a spreader which enables it to attach to containers
of varying lengths and weights and to rotate the container up to 360 degrees.
[Graphic] Telescopic container stackers manufactured by Terex have
lifting capacities up to 49.5 tons, can stack up to five
full or eight empty containers and are able to maneuver
through very narrow areas. Terex manufactures its telescopic
container stackers under the brand names PPM, TEREX and P&H
at its Montceau-les-Mines, France, facility.
14
Terex Roadbuilding, Utility Products and Other
Terex offers a diverse range of products for the roadbuilding and utility
industries. Products in this group include crushing and screening equipment,
asphalt and concrete equipment, utility equipment, light construction equipment
and construction trailers.
Crushing and Screening Equipment. Crushing and screening equipment is used in
processing aggregate materials for roadbuilding materials. Typical crushing and
screening operations utilize a combination of components in reducing virgin
aggregate materials to required product sizes for final usage in road building
and related applications.
Terex Roadbuilding manufactures crushing equipment under the CEDARAPIDS, CANICA
and JAQUES brand names in Cedar Rapids, Iowa; Durand, Michigan; Melbourne,
Australia; and Subang Jaya, Malaysia. Crushing equipment manufactured by Terex
Roadbuilding includes jaw crushers, horizontal shaft impactors, vertical shaft
impactors and cone crushers.
[Graphic] Jaw crushers are primary crushers with reduction ratios of 6
to 1 for crushing larger rock. Applications include hard
rock, sand and gravel and recycled materials. Models offered
yield a range of production capacities: up to 265 tons per
hour for the smallest unit, and up to 1,700 tons per hour
for the largest.
[Graphic] Horizontal shaft impactors are secondary crushers which
utilize rotor impact bars and breaker plates to achieve high
production tonnages and improved aggregate particle shape.
They are typically applied to reduce soft to medium hard
materials.
[Graphic] Vertical shaft impactors are tertiary crushers which reduce
material utilizing various rotor configurations and are
highly adaptable to any application. Vertical shaft
impactors can be customized to material conditions and
desired product size/shape. A full range of models provides
customers with increased tonnages, better circuit balance
and screen efficiency.
[Graphic] Cone crushers are used in secondary and tertiary
applications to reduce a number of materials, including
quarry rock and riverbed gravel. High production, low
maintenance and enhanced final material cubicle shape are
the principal features of these compression-type roller
bearing crushers.
15
Terex Roadbuilding manufactures screening equipment in Durand, Michigan; Cedar
Rapids, Iowa; Melbourne, Australia; Subang Jaya, Malaysia; and Chomburi,
Thailand under the brand names SIMPLICITY, CEDARAPIDS, ROYER, RE-TECH, JAQUES
and TEREX RECYCLING.
[Graphic] Heavy duty inclined screens and feeders are found in high
tonnage applications. These units are typically custom
designed to meet the needs of each customer. Although
primarily found in stationary installations, Terex supplies
a variety of screens and feeders for use on heavy duty
portable crushing and screening spreads.
[Graphic] Inclined screens are used in all phases of plant design from
handling quarried material to fine screening. Capable of
handling much larger capacity than a flat screen, inclined
screens are most commonly found in large stationary
installations where maximum output is required. This
requires the ability to custom design and manufacture units
that meet both the engineering and application requirements
of the end user.
[Graphic] Feeders are generally situated at the primary end of the
processing facility, requiring rugged design in order to
handle the impact of the material being fed from front end
loaders, excavators, etc. The feeder moves material to the
crushing and screening equipment in a controlled fashion.
[Graphic] Flat screens combine the high efficiency of a horizontal
screen with the capacity, bearing life and low maintenance
of an inclined screen. They are adaptable for heavy
scalping, standard duty and fine screening applications and
are engineered for durability and user friendliness.
Asphalt and Concrete Equipment. Terex Roadbuilding manufactures asphalt mixing
plants, asphalt pavers, concrete production plants, concrete pavers, profilers,
stabilizers and reclaimers at its facilities in Cedar Rapids, Iowa; Oklahoma
City, Oklahoma; and Cachoeirinha, Brazil.
[Graphic] Asphalt pavers are available in rubber tire and steel or
rubber track designs. Terex sells asphalt pavers with
maximum widths from 18 feet to 30 feet. The smaller units
have a maximum paving width of 18 feet and are used for
commercial work such as parking lots, development streets
and construction overlay projects. Mid-sized pavers are used
for mainline and commercial projects and have maximum paving
widths ranging from 24 to 28 feet. High production pavers
are engineered and built for heavy-duty, mainline paving and
are capable of 30 foot maximum paving widths. All of the
above feature direct hydrostatic drive for maximum uptime,
patented frame raise for maneuverability and three-point
suspension for smooth, uniform mats. Terex asphalt pavers
are manufactured under the CEDARAPIDS and GRAYHOUND brand
names in Cedar Rapids, Iowa, and under the CMI-CIFALI brand
name in Cachoeirinha, Brazil.
16
[Graphic] Asphalt mixing plants are used by road construction
companies to produce hot mix asphalt. The mixing plants are
available in portable, relocatable and stationary
configurations. Associated plant components and control
systems are manufactured to offer customers a wide variety
of equipment to meet individual production requirements.
Asphalt mixing plants are manufactured under the CMI and
CEDARAPIDS/STANDARD HAVENS brand names in Oklahoma City,
Oklahoma, and under the CMI-CIFALI brand name in
Cachoeirinha, Brazil.
[Graphic] Concrete production plants are used in residential,
commercial, highway, airport and other markets. Terex
products include a full range of portable and stationary
transit mix and central mix production facilities. They are
manufactured in Oklahoma City, Oklahoma, and sold worldwide
under the CMI JOHNSON-ROSS brand name.
[Graphic] Concrete mixers are machines with a large revolving drum in
which cement is mixed with other materials to make concrete.
Terex offers models mounted on trucks with 3, 4, 5, 6 or 7
axles. They are manufactured in Ft. Wayne, Indiana, under
the brand name TEREX ADVANCE MIXER.
[Graphic] Concrete pavers produced by Terex are used by paving
contractors to place and finish concrete streets, highways
and airport surfaces. Terex manufactures slipform pavers,
which pave widths ranging from two feet to 35 feet in a
single pass. Terex also produces concrete pavers which
require paving forms, usually metal, to contain the paving
material. These pavers are used on bridge decks, elevated
highways and for general conduction paving needs. Concrete
pavers are manufactured under the CMI TEREX and BID-WELL
brand names in Oklahoma City, Oklahoma, and Canton, South
Dakota.
[Graphic] Reclaimers/Stabilizers produced by Terex are used to add
load-bearing strength to the base structures of new highways
and new building sites. They are also used for in-place
reclaiming of deteriorated asphalt pavement. Terex's
reclaimers/stabilizers are manufactured in Oklahoma City,
Oklahoma, under the CMI TEREX brand name.
[Graphic] Pavement profilers produced by Terex mill and reclaim
deteriorated asphalt pavement, leaving a level, textured
surface upon which new paving material is placed. The
process is less costly than complete removal, and produces a
by-product, RAP (Recycled Asphalt Product) that can be
processed through Terex hot mix asphalt plants to produce
lower cost paving materials. Terex produces pavement
profilers in Oklahoma City, Oklahoma, under the CMI TEREX
brand name.
17
Utility Equipment. Terex utility products include digger derricks, aerial
devices and cable placers. These products are used by electric utilities, tree
care companies, telecommunications companies, and the electric construction
industry as well as government organizations. The products are mounted on
commercial truck chassis. Digger derricks and aerial devices are primarily used
for the construction and maintenance of electric utility lines.
[Graphic] Digger derricks are used to dig holes and set utility poles.
They include a telescopic boom with an auger mounted on the
boom, which digs the hole, and a winch and devices to lift,
maneuver and set the pole. Digger derricks available from
Terex have sheave heights up to 95 feet and lifting
capacities up to 48,000 pounds. Terex digger derricks are
manufactured in Watertown, South Dakota, under the brand
name TEREX TELELECT.
[Graphic] Aerial devices are used to elevate workers and may handle
material to work areas at the top of utility poles or
trimming trees away from electrical lines as well as
miscellaneous purposes such as sign maintenance. Aerial
devices available from Terex include telescopic,
non-overcenter and overcenter models that range in working
heights from 34 to 105 feet and material handling capacity
up to 2,000 pounds. Terex aerial devices are manufactured at
the Watertown, South Dakota, facility under the brand names
TEREX TELELECT and HI-RANGER.
[Graphic] Cable placers are used to install fiber optic, copper and
strand telephone and cable lines. The cable placer includes
a man basket with working height of 37 feet. They are
manufactured in Watertown, South Dakota, under the brand
name TEREX TELELECT.
Light Construction Equipment. Light construction equipment produced by Terex
includes mobile and portable light towers, concrete power trowels, concrete
placement systems, concrete finishing systems, generators and traffic control
products.
[Graphic] Light towers are used primarily to light work areas for
night construction activity. They are towed to the work-site
where the telescopic tower is extended and outriggers are
deployed for stability. They are diesel powered and provide
adequate light for construction activity for a radius of
approximately 300 feet from the tower. Light towers are
manufactured under the AMIDA, COLEMAN ENGINEERING and TEREX
brand names in Rock Hill, South Carolina.
18
[Graphic] Power trowels are used to provide a smooth finish on
concrete surfaces. They are used on soft cement as the
concrete hardens. The power trowels are manufactured as
walk-behind and ride-on models. Trowels are typically used
in conjunction with other products manufactured by Terex,
including light towers, power buggies, screed, and material
spreaders. Power trowels are manufactured under the BARTELL
brand name in Brampton, Ontario, Canada.
[Graphic] Power buggies are used primarily to transport concrete from
the mixer to the pouring site. Terex power buggies include
dump capacities from 10 to 21 cubic feet with both
walk-behind and ride-on models. Terex manufactures power
buggies under the AMIDA, MORRISON and TEREX brand names in
Rock Hill, South Carolina.
[Graphic] Generators are used to provide electric power on
construction sites and other remote locations. Generators up
to 2,000 kilowatt are manufactured under the TEREX and
COLEMAN ENGINEERING brand names in Rock Hill, South
Carolina.
[Graphic] Arrow boards (or detour lights) are used to direct traffic
around road construction sites. They are primarily solar
powered, with solar panels continuously recharging batteries
which provide power during night hours. Terex arrow boards
include 15 and 25 light configurations, and are manufactured
under the TEREX and AMIDA brand names in Rock Hill, South
Carolina.
Construction Trailers. Terex produces construction trailers at its facility in
Elk Point, South Dakota under the LOAD KING brand name.
[Graphic] Construction trailers manufactured by Terex are used in the
construction industry to haul materials and equipment.
Bottom dump material trailers are used to transport raw
aggregates, crushed aggregates and finished hot mix asphalt
paving material. Lowbed trailers have capacities from 25
tons to 100 tons and are designed with several gooseneck
systems and are used primarily to transport construction
equipment.
19
Terex Aerial Work Platforms
Aerial work platforms are pieces of equipment that position workers and
materials easily and quickly to elevated work areas. These products have
developed over the past 20 years as alternatives to scaffolding and ladders.
Terex offers a variety of aerial lifts that are categorized into six product
families: material lifts; portable aerial work platforms; trailer mounted booms;
articulating booms; stick booms; and scissor lifts. All are manufactured under
the brand name GENIE in Redmond and Moses Lake, Washington.
[Graphic] Material lifts are used primarily indoors in the
construction, industrial and home owner markets. They safely
and easily lift up to 1,000 pounds from ground level to
heights of up to 26 feet.
[Graphic] Portable aerial work platforms (AWP) are used primarily
indoors in a variety of markets to perform overhead
maintenance. The AWP's lift one or two people to working
heights up to 46 feet. Most models will roll through a
standard doorway and can be transported in the back of a
pick-up truck. Some models are drivable when fully elevated.
[Graphic] Trailer mounted booms are used outdoors and provide the same
versatile reach of an articulating boom, plus the ability to
be towed. Terex trailer mounted booms have lift capacities
of 500 pounds and a working height of up to 56 feet.
[Graphic] Articulating booms are primarily used in construction and
industrial applications, both indoors and out. They feature
lifting versatility with up, out and over position
capabilities to access difficult to reach overhead areas
that typically cannot be reached with a scissor lift or
straight boom. Many options are available, including: two-
and four-wheel drive; a rough terrain package; narrow access
models that roll through standard double doorways; gas/LPG,
diesel, electric, and bi-fuel capabilities. Models have
working heights from 26 feet to 86 feet and horizontal reach
up to 60 feet.
[Graphic] Stick booms are used outdoors in commercial and industrial
new construction and highway and bridge maintenance
projects. Terex stick booms offer working heights from 46
feet to 131 feet, articulated jibs on some models, and
options including two- and four-wheel drive, rough terrain
packages and multi-power capabilities.
20
[Graphic] Scissor lifts are used in outdoor and indoor applications in
a variety of construction, industrial and commercial
settings. Terex scissor lifts are offered in slab or rough
terrain models. Some of their features are narrow access
capability, slide-out platform extension, quiet electric
drives, rough terrain models, and working heights from 21
feet to 59 feet.
Terex Mining
Terex Mining offers high capacity surface mining trucks and large hydraulic
excavators used in the surface mining industry.
[Graphic] Large hydraulic excavators in shovel or backhoe versions are
primarily used to dig overburden and minerals and load it
into trucks. These excavators are utilized in quarries,
surface mines and large construction sites around the world.
Terex Mining excavators have operating weights ranging from
58 to 1000 tons and bucket sizes ranging from 6 to 60 cubic
yards. They are manufactured under the O & K brand name in
Dortmund, Germany.
[Graphic] High capacity surface mining trucks are off-road dump trucks
with capacities in excess of 120 tons. They are powered by a
diesel engine driving an electric alternator that provides
power to individual electric motors in each of the rear
wheels. Terex's product line consists of a series of rear
dump trucks with payload capabilities ranging from 120 to
360 tons, and bottom dump trucks with payload capacities
ranging from 180 to 300 tons. Terex's high capacity surface
mining trucks are manufactured under the UNIT RIG and TEREX
brand names.
[Graphic] Terex also offers an all wheel drive, rear dump truck with
55 ton payload capacity that can operate in adverse
conditions. With high traction force and low ground bearing
pressure, this truck is found on construction sites, in
special applications and smaller mines. The Terex special
all wheel drive rear dump truck is manufactured under the
PAYHAULER brand name.
21
Backlog
The Company's backlog as of December 31, 2002 and 2001 was as follows:
December 31,
----------------------------
2002 2001
------------- --------------
(in millions)
Terex Construction.................$ 76.8 $ 97.1
Terex Cranes....................... 146.2 58.2
Terex Roadbuilding, Utility
Products and Other.............. 120.0 62.8
Terex Aerial Work Platforms........ 9.1 ---
Terex Mining....................... 47.8 17.1
------------- --------------
Total.........................$ 399.9 $ 235.2
============= ==============
Substantially all of the Company's backlog orders are expected to be filled
within one year, although there can be no assurance that all such backlog orders
will be filled within that time period. The Company's backlog orders represent
primarily new equipment orders. Parts orders are generally filled on an
as-ordered basis.
Terex Construction's backlog at December 31, 2002 decreased $20.3 million to
$76.8 million, as compared to $97.1 million at December 31, 2001. The decrease
in backlog was due primarily to a decline in orders for Atlas excavators and
boom trucks, and off-highway trucks, offset somewhat by the businesses acquired
in 2002.
The backlog at Terex Cranes increased $88.0 million to $146.2 million at
December 31, 2002 from $58.2 million at December 31, 2001, principally due to
the effect of the acquisition of Demag in August 2002, offset somewhat by a
decline at the United States crane operations.
The backlog at Terex Roadbuilding, Utility Products and Other increased $57.2
million to $120.0 million at December 31, 2002 from $62.8 primarily as a result
of the acquisition during 2002 of Utility Products, Telelect Southeast and
Advance Mixer and increases in orders at the light construction group.
The increase in the backlog at Terex Aerial Work Platforms to $9.1 million is
due to the acquisition of Genie in September 2002 and the establishment of the
Terex Aerial Work Platforms segment at that time.
Terex Mining's backlog at December 31, 2002 increased $30.7 million to $47.8
million, as compared to $17.1 million at December 31, 2001. The increase was
primarily due to an increase in orders for both surface mining trucks and mining
shovels.
Distribution
Terex distributes its products through a global network of dealers, major
accounts and direct sales to customers.
Terex Construction
Terex distributes heavy construction equipment manufactured by TEL (trucks,
scrapers and replacement parts) primarily through worldwide dealership networks.
TEL's truck dealers are independent businesses, which generally serve the
construction, mining, timber and/or scrap industries. Although these dealers may
carry products from a variety of manufacturers, they generally carry only one
manufacturer's "brand" of each particular type of product.
Terex distributes compact construction equipment primarily through a network of
independent dealers and distributors throughout the world. Although some dealers
represent only one of the Terex brands (such as Schaeff, Atlas, Fuchs or
Fermec), the Company has recently focused on developing the dealer network to
represent the full range of compact equipment under the TEREX brand name in both
Europe and North America.
Mobile crushing and screening equipment is distributed separately by
Powerscreen, B.L. Pegson and Finlay. Each business maintains a global network of
dealers, predominantly in Europe and the United States. All three brands are
supported in North America by a distribution center located in Louisville,
Kentucky.
22
Terex Cranes
Terex Cranes markets its products globally optimizing assorted channel marketing
systems including a distribution network and a direct sales force.
Terex Roadbuilding, Utility Products and Other
Crushing and screening equipment and asphalt pavers are distributed principally
through a worldwide network of independent distributors and dealers.
CMI asphalt reclaimers, stabilizers, profilers and asphalt plants are
principally sold direct to end user customers by the CMI sales force and, to a
lesser extent, through independent dealers and distributors.
Terex sells utility equipment to the utility and municipal markets through a
network of primarily company-owned distributors in North America, including
Utility Equipment, Telelect Southeast, Commercial Body and Combatel.
Terex sells concrete mixers primarily direct to customers, but concrete mixers
are also available through several dealers in the United States.
Terex light construction products are distributed through a global network of
dealers and national accounts. Terex employs sales representatives who service
these dealers throughout the world.
Construction trailers are distributed primarily through dealers in the United
States and are also sold directly to users when local dealers are not available.
Terex Aerial Work Platforms
Terex aerial work platform products are distributed under the GENIE brand name
principally through a global network of independent dealers, rental houses and
to a lesser extent, national accounts. Terex employs sales representatives who
service these dealers from offices located throughout the world.
Terex Mining
Terex Mining distributes Unit Rig products and services directly to customers
through its own sales organization, as well as through independent dealers.
Payhauler products are distributed primarily through a dealership network. O&K
hydraulic excavators and after-market parts and services are sold primarily
through an export sales department in Dortmund, Germany, through a global
network of wholly-owned subsidiaries and through dealership networks.
Research and Development
The Company maintains engineering staffs at several of its locations who design
new products and improvements in existing product lines. The Company's
engineering expenses are primarily incurred in connection with the improvements
of existing products, efforts to reduce costs of existing products and, in
certain cases, the development of products which may have additional
applications or represent extensions of the existing product line. Such costs
incurred in the development of new products, cost reductions, or improvements to
existing products of continuing operations amounted to $24.7, $6.2 and $9.1
million in 2002, 2001 and 2000, respectively. The increase in 2002 is mainly due
to the Company's acquisitions of Demag, Genie, Atlas and Schaeff.
Materials
Principal materials used by the Company in its various manufacturing processes
include steel, castings, engines, tires, hydraulic cylinders, drive trains,
electric controls and motors, and a variety of other fabricated or manufactured
items. In the absence of labor strikes or other unusual circumstances,
substantially all materials are normally available from multiple suppliers.
Current and potential suppliers are evaluated on a regular basis on their
ability to meet the Company's requirements and standards.
23
Competition
The Company faces a competitive global manufacturing market for each of its
products. The Company competes with other manufacturers based on many factors,
in particular the price, performance and reliability of its products. The
Company operates under a best value strategy, where it generally attempts to
offer its customers lower cost products or products that have enhanced
performance characteristics to improve the customer's return on invested
capital. However, in some instances, customers may prefer the pricing,
performance or reliability aspects of a competitor's product despite the
Company's product pricing or performance. The following table shows the primary
competitors for the Company's products in the following categories:
Business Segment Products Primary Competitors
- ----------------------------- ------------------------------------- ------------------------------------------------
Terex Construction Articulated off-highway trucks Volvo, Caterpillar, Moxy, John Deere and Bell
Rigid off-highway trucks
Scrapers Caterpillar and John Deere
Loader backhoes Caterpillar, CNH (Case and New Holland
brands), JCB, Komatsu and John Deere
Compaction Equipment Ingersoll-Rand, Caterpillar, Bomag, Amman,
Dynapac and Hamm
Mini Excavators Bobcat (Ingersoll-Rand), Yanmar, Volvo, Neuson
and Kubota
Midi Excavators Komatsu, Fiat-Hitachi, Volvo and Yanmar
Loading Machines Liebherr, Sennebogen and Caterpillar
Site Dumpers Thwaites and Ausa
Telehandlers Omniquip (Textron), Caterpillar, Gradall
(JLG), Bobcat (Ingersoll-Rand), JCB and Manitou
Wheel Loaders Caterpillar, Volvo, Kubota, Kawasaki, John
Deere and CNH
- ----------------------------- ------------------------------------- ------------------------------------------------
24
- ----------------------------- ------------------------------------- ------------------------------------------------
Terex Cranes Mobile Telescopic Cranes Liebherr , Grove Worldwide (Manitowoc),
Tadano-Faun, Link-Belt (Sumitomo Corporation)
and Kato
Tower cranes Liebherr, Potain (Manitowoc) and MAN Wolff
Lattice Boom Crawler Cranes Manitowoc, Link-Belt (Sumitomo Corporation),
Liebherr, Hitachi and Kobelco
Boom Trucks National Crane (Manitowoc), Palfinger, Hiab,
Fassi and PM
Telescopic Container Stackers Kalmar-Sisu, SMV, CVS Ferrari, Fantuzzi and
Linde
- ----------------------------- ------------------------------------- ------------------------------------------------
Terex Roadbuilding, Utility Crushing and Screening Equipment Metso Corporation, Extec, Astec Industries,
Products & Other Ohio Screen, and Parker Plant
Asphalt Pavers Blaw-Knox (Ingersoll-Rand), Caterpillar and
Roadtec (Astec Industries)
Asphalt Mixing Plants Astec Industries, Gencor Corporation, All-Mix,
Dillman Equipment and ADM
Concrete Production Plants Con-E-Co, Erie Strayer, Helco,
Hagen and Stephens
Concrete Mixers McNeilus, Oshkosh, London and Continental
Manufacturing
Concrete Pavers Gomaco
Reclaimers/Stabilizers Caterpillar, Wirtgen and Bomag
Pavement Profilers Caterpillar, Wirtgen and Roadtec (Astec
Industries)
Utility Equipment Altec and Time Manufacturing
Light Towers Allmand Bros. and Ingersoll-Rand
Power Trowels Multiquip, Allen Engineering and Wacker
Power Buggies Multiquip, Allen Engineering and Wacker
Generators Ingersoll-Rand and Multiquip
Arrow Boards (Detour Lights) Ingersoll-Rand and Multiquip
Construction Trailers Trail King, Talbert, Fontaine, Rogers, Etnyre,
Ranco, Clement, CPS, as well as regional
suppliers
- ----------------------------- ------------------------------------- ------------------------------------------------
Terex Aerial Work Platforms Boom Lifts JLG and Haulotte
Scissor Lifts JLG, Skyjack and Haulotte
- ----------------------------- ------------------------------------- ------------------------------------------------
25
- ----------------------------- ------------------------------------- ------------------------------------------------
Terex Mining High Capacity Surface Mining Trucks Caterpillar, Komatsu, Liebherr and
Euclid/Hitachi
Large Hydraulic Excavators Hitachi, Komatsu, Liebherr, Caterpillar, P&H
(Joy Global) and Bucyrus
- ----------------------------- ------------------------------------- ------------------------------------------------
Employees
As of December 31, 2002, the Company had approximately 11,975 employees. The
Company considers its relations with its personnel to be good. Approximately 39%
of the Company's employees are represented by labor unions which have entered
into or are in the process of entering into various separate collective
bargaining agreements with the Company.
Patents, Licenses and Trademarks
The Company makes use of proprietary materials such as patents, trademarks and
trade names in its operations and takes action to protect these rights.
The Company makes use of several significant trademarks and trade names,
including the TEREX, LORAIN, UNIT RIG, P&H, PPM, TELELECT, HI-RANGER, PAYHAULER,
O&K, AMERICAN, ITALMACCHINE, PEINER, COMEDIL, FRANNA, POWERSCREEN, CEDARAPIDS,
FINLAY, SIMPLICITY, PEGSON, BENFORD, RE-TECH, JAQUES, CANICA, AMIDA, MORRISON,
FERMEC, COLEMAN ENGINEERING, BARTELL, GRAYHOUND, BENDINI, DEMAG, STANDARD
HAVENS, JOHNSON-ROSS, CMI-CIFALI, ROYER, ADVANCE MIXER, GENIE, CMI, LOAD KING,
BID-WELL, ATLAS, FUCHS and SCHAEFF trademarks. The P&H trademark is a registered
trademark of Joy Global, Inc. that a subsidiary of the Company has the right to
use for certain products until 2011 pursuant to a license agreement. The Company
also has the right to use the O&K and Orenstein & Koppel names (which are
registered trademarks of O&K Orenstein & Koppel AG) for most applications in the
mining business for an unlimited period of time. All other trademarks and trade
names of the Company referred to in this Annual Report are registered trademarks
of Terex Corporation or its subsidiaries.
The Company has many patents that it uses in connection with its operations, and
most of the Company's products contain some proprietary components. Many of
these patents and related proprietary technology are important to the production
of particular products of the Company; however, on the whole, the Company's
patents, individually and in the aggregate, are not material to the business of
the Company nor does the Company's proprietary technology provide it with a
competitive advantage over its competitors.
The Company protects its patent, trademark and trade name proprietary rights
through registration, confidentiality agreements and litigation to the extent
the Company deems appropriate. The Company owns and maintains trademark
registrations and patents in countries where it conducts business, and monitors
the status of its trademark registrations and patents to maintain them in force
and renew them as required. The duration of these registrations is the maximum
permitted under the law and varies based upon the relevant statutes in the
applicable jurisdiction. The Company also takes further actions to protect its
trademark, trade name and patent rights when circumstances warrant, including
the initiation of legal proceedings if necessary.
Environmental Considerations
The Company generates hazardous and non-hazardous wastes in the normal course of
its manufacturing operations. As a result, the Company 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, such as discharges to air and water, and also require compliance with
certain practices when handling and disposing of hazardous and non-hazardous
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. No such
incidents have occurred which required the Company to pay material amounts to
comply with such laws and regulations.
Compliance with such laws and regulations has required, 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.
Seasonal Factors
The Company markets a large portion of its products in North America and Europe.
26
Due to the normal winter slowdown of construction activity, the Company's sales
of products during the fourth quarter of each year are usually lower than sales
of such equipment during each of the first three quarters of the year. However,
sales of trucks and excavators to the mining industry are generally less
affected by such seasonal factors.
Available Information
The Company maintains a website at www.terex.com. The Company makes available on
its website under "Investors" - "SEC Filings", free of charge, its annual
reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K, and amendments to those reports as soon as reasonably practicable after it
electronically files or furnishes such material with the Securities and Exchange
Commission.
27
ITEM 2. PROPERTIES
The following table outlines the principal manufacturing, warehouse and office
facilities owned or leased by the Company and its subsidiaries:
Business Unit Facility Location Type and Size of Facility
------------- ----------------- -------------------------
Terex (Corporate Offices)...................Westport, Connecticut (1) Office; 19,898 sq. ft.
Terex Construction
Atlas Terex.................................Delmenhorst, Germany Office, manufacturing and warehouse;
224,255 sq. ft.
Atlas Terex.................................Ganderkasee, Germany Office, manufacturing and warehouse;
362,281 sq. ft.
Atlas Terex.................................Loeningen, Germany Manufacturing and warehouse;
130,254 sq. ft.
Atlas Terex.................................Vechta, Germany Manufacturing and warehouse;
280,238 sq. ft.
Atlas UK....................................Hamilton, Scotland Office, manufacturing and warehouse;
118,486 sq. ft.
Benford.....................................Warwick, England Office, manufacturing and warehouse;
210,000 sq. ft.
B. L. Pegson................................Coalville, England Office, manufacturing and warehouse;
204,486 sq. ft.
Fermec......................................Manchester, England Office, manufacturing and warehouse;
371,683 sq. ft.
Finlay......................................Omagh, Northern Ireland (1) Office, manufacturing and warehouse;
152,863 sq. ft.
Fuchs ......................................Bad Schoenborn, Germany Office, manufacturing and warehouse;
237,839 sq. ft.
Powerscreen.................................Dungannon, Northern Ireland (1) Office, manufacturing and warehouse;
330,000 sq. ft.
Powerscreen.................................Kilbeggan, Ireland (1) Manufacturing; 70,000 sq. ft.
Schaeff ....................................Langenburg, Germany Office, manufacturing and warehouse;
102,102 sq. ft.
Schaeff ....................................Gerabronn, Germany Office, manufacturing and warehouse;
63,333 sq. ft.
Schaeff ....................................Rothenburg, Germany (2) Office, manufacturing and warehouse;
97,303 sq. ft.
Schaeff ....................................Crailsheim, Germany Office, manufacturing and warehouse;
185,384 sq. ft.
Schaeff.....................................Clausnitz, Germany Office, manufacturing and warehouse;
83,573 sq. ft.
TEL.........................................Motherwell, Scotland (1) Office, manufacturing and warehouse;
473,000 sq. ft.
Terex Handlers..............................Baraga, Michigan Office, manufacturing and warehouse;
53,620 sq. ft.
TerexLift...................................Perugia, Italy Office, manufacturing and warehouse;
113,834 sq. ft.
Terex Parts Distribution Center.............Southaven, Mississippi (1) Office and warehouse; 505,000 sq. ft.
28
Terex Cranes
American Crane..............................Wilmington, North Carolina Office, manufacturing and warehouse;
572,200 sq. ft.
Comedil.....................................Fontanafredda, Italy Office, manufacturing and warehouse;
100,682 sq. ft.
Comedil.....................................Milan, Italy (1) Manufacturing and warehouse;
27,000 sq. ft.
Demag ......................................Bierbach, Germany (1) Warehouse and manufacturing;
186,676 sq. ft.
Demag.......................................Pecs, Hungary (1) Office and manufacturing;
75,987 sq. ft.
Demag.......................................Wallerscheid, Germany (1) Office, warehouse and manufacturing;
350, 336 sq. ft.
Demag.......................................Zweibrucken, Germany Office, manufacturing and warehouse;
445,203 sq. ft.
Peiner......................................Trier, Germany Office, manufacturing and warehouse;
85,787 sq. ft.
PPM S.A.S. .................................Montceau-les-Mines, France Office, manufacturing and warehouse;
418,376 sq. ft.
Terex Cranes - Waverly......................Waverly, Iowa Office, manufacturing and warehouse;
311,920 sq. ft.
Terex Italia................................Crespellano, Italy Office, manufacturing and warehouse;
68,501 sq. ft.
Terex Lifting Australia.....................Brisbane, Australia (1) Office, manufacturing and warehouse;
42,495 sq. ft.
Terex-RO................................... Olathe, Kansas Office and manufacturing; 80,400 sq. ft.
Terex Roadbuilding, Utility Products and Other
Advance Mixer...............................Ft. Wayne, Indiana Office, manufacturing and warehouse;
160,000 sq. ft.
Amida.......................................Rock Hill, South Carolina Office, manufacturing and warehouse;
121,020 sq. ft.
Bartell.....................................Brampton, Ontario, Canada Office, manufacturing and warehouse;
32,509 sq. ft.
Bid-Well....................................Canton, South Dakota Office, manufacturing and warehouse;
70,760 sq. ft.
Cedarapids..................................Cedar Rapids, Iowa Office, manufacturing and warehouse;
608,423 sq. ft.
CMI.........................................Oklahoma City, Oklahoma Office, manufacturing and warehouse;
634,592 sq. ft.
CMI--Cifali.................................Cachoeirinha, Brazil Office, manufacturing and warehouse;
83,000 sq. ft.
Jaques......................................Melbourne, Australia (1) Office, manufacturing and warehouse;
36,000 sq. ft.
Jaques Malaysia.............................Subang Jaya, Malaysia (1) Manufacturing and warehouse;
111,200 sq. ft.
Jaques Thailand.............................Chomburi, Thailand Manufacturing; 79,500 sq. ft.
Load King...................................Elk Point, South Dakota Office, manufacturing and warehouse;
92,700 sq. ft.
Simplicity..................................Durand, Michigan Office, manufacturing and warehouse;
167,000 sq. ft.
Telelect....................................Watertown, South Dakota Office, manufacturing and warehouse;
219,350 sq. ft.
Telelect (Terex Manufacturing)..............Huron, South Dakota Manufacturing; 88,000 sq. ft.
29
Terex Aerial Work Platforms
Genie...................................... Redmond, Washington (1) Office, manufacturing and warehouse;
1,012,052 sq. ft.
Genie.......................................Moses Lake, Washington (1) Office, manufacturing and warehouse;
422,334 sq. ft.(3)
Terex Mining
O&K Mining..................................Dortmund, Germany (1) Office, manufacturing, warehouse;
775,000 sq. ft.
Unit Rig and Payhauler......................Tulsa, Oklahoma Office and warehouse; 375,587 sq.ft.
(1) These facilities are either leased or subleased by the indicated entity.
(2) Includes 54,134 sq. ft. which are leased by the indicated entity.
(3) Includes 105,584 sq. ft. of warehouse space subleased to others.
The Company also has numerous owned or leased locations for new machine and
parts sales and distribution and rebuilding of components located worldwide. In
2002 and 2003, the Company acquired the utility equipment distributors Utility
Equipment, Telelect Southeast, Commercial Body and Combatel. These distributors
have sales locations throughout the United States.
Management believes that the properties listed above are suitable and adequate
for the Company's use. The Company has determined that certain of its properties
exceed its requirements. Such properties may be sold, leased or utilized in
another manner and have been excluded from the above list.
The majority of the Company's U.S. properties are subject to mortgages in favor
of its bank lenders in connection with its bank credit facilities.
Financial Information about Industry and Geographic Segments, Export Sales and
Major Customers
Information regarding foreign and domestic operations, export sales, segment
information and major customers is included in Note T -- "Business Segment
Information" in the Notes to the Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
As described in Note R -- "Litigation and Contingencies" in the Notes to the
Consolidated Financial Statements, the Company is involved in various legal
proceedings, including product liability and workers' compensation liability,
which have arisen in the normal course of its operations and to which the
Company is self-insured for up to $5.0 million and $250 thousand per incident,
respectively. Management believes that the final outcome of such matters will
not have a material adverse effect on the Company's consolidated financial
position.
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
the mining shovel subsidiary O&K Mining GmbH from O&K AG, and are claiming
restitution 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 voluntarily dismiss the Company from the
action. On June 12, 2002, the United States Department of Justice filed a
Statement of Interest in the action that expresses the foreign policy interests
of the United States in dismissal of the case. 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. The Company, among
others, has made a claim for indemnification with respect to the action against
O&K AG and ThyssenKrupp AG.
For information concerning other contingencies and uncertainties, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Contingencies and Uncertainties."
30
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
(a) The Company's Common Stock is listed on the New York Stock Exchange (the
"NYSE") under the symbol "TEX." The high and low stock prices for the Company's
Common Stock on the NYSE Composite Tape (for the last two completed years) are
as follows:
2002 2001
-------------------------------------- ---------------------------------------
Fourth Third Second First Fourth Third Second First
------ ----- ------ ----- ------ ----- ------ -----
High......................... $17.82 $22.49 $27.40 $23.79 $19.00 $22.94 $24.50 $20.35
Low.......................... 9.90 16.33 21.20 15.00 15.78 15.35 16.75 14.50
No dividends were declared or paid in 2002 or in 2001. Certain of the Company's
debt agreements contain restrictions as to the payment of cash dividends. In
addition, payment of dividends is limited by Delaware law. The Company intends
generally to retain earnings, if any, to fund the development and growth of its
business and to pay down debt. The Company does not plan on paying dividends on
the Common Stock in the near term. Any future payments of cash dividends will
depend upon the financial condition, capital requirements and earnings of the
Company, as well as other factors that the Board of Directors may deem relevant.
As of March 19, 2003, there 1,328 stockholders of record of the Company's Common
Stock.
31
ITEM 6. SELECTED FINANCIAL DATA
(in millions except per share amounts and employees)
As of or for the Year Ended December 31,
----------------------------------------------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Summary of Operations
Net sales...................................................$ 2,797.4 $ 1,812.5 $ 2,068.7 $ 1,856.6 $ 1,233.2
Income from operations....................................... 68.6 104.2 198.3 178.3 122.0
Income (loss) from continuing operations before
extraordinary items........................................ (17.5) 16.7 103.9 172.9 72.8
Income (loss) from discontinued operations................... --- --- (7.3) --- ---
Income (loss) before extraordinary items..................... (17.5) 16.7 96.6 172.9 72.8
Net income (loss)............................................ (132.5) 12.8 95.1 172.9 34.5
Goodwill amortization after tax.............................. --- 9.7 9.9 8.1 6.3
Net income (loss) excluding goodwill amortization (a)........ (132.5) 22.5 105.0 181.0 40.8
Per Common and Common Equivalent Share:
Basic
Income (loss) from continuing operations................$ (0.41) $ 0.60 $ 3.82 $ 7.14 $ 3.52
Income (loss) from discontinued operations............... --- --- (0.27) --- ---
Income (loss) before extraordinary items................. (0.41) 0.60 3.55 7.14 3.52
Net income (loss)........................................ (3.07) 0.46 3.50 7.14 1.67
Goodwill amortization after tax.......................... --- 0.34 0.36 0.34 0.30
Net income (loss) excluding goodwill amortization (a).... (3.07) 0.80 3.86 7.48 1.97
Diluted
Income (loss) from continuing operations................$ (0.41) $ 0.58 $ 3.72 $ 6.75 $ 3.25
Income (loss) from discontinued operations............... --- --- (0.26) --- ---
Income (loss) before extraordinary items................. (0.41) 0.58 3.46 6.75 3.25
Net income (loss)........................................ (3.07) 0.44 3.41 6.75 1.54
Goodwill amortization after tax.......................... --- 0.34 0.35 0.32 0.28
Net income (loss) excluding goodwill amortization (a).... (3.07) 0.78 3.76 7.07 1.82
Working Capital
Current assets..............................................$ 2,221.1 $ 1,383.0 $ 1,242.4 $ 1,315.3 $ 771.6
Current liabilities.......................................... 1,106.2 627.1 575.6 579.5 425.4
Working capital.............................................. 1,114.9 755.9 666.8 735.8 346.2
Property, Plant and Equipment
Net property, plant and equipment...........................$ 309.4 $ 173.9 $ 153.9 $ 172.8 $ 99.5
Capital expenditures......................................... 29.2 13.5 24.2 21.4 13.1
Depreciation................................................. 35.9 22.5 23.0 17.6 10.1
Total Assets..................................................$ 3,625.7 $ 2,387.0 $ 1,983.7 $ 2,177.5 $ 1,151.2
Capitalization
Long-term debt and notes payable, including current
maturities................................................$ 1,561.2 $ 1,055.4 $ 902.5 $ 1,156.4 $ 631.3
Minority interest, including redeemable preferred stock of
a subsidiary.............................................. --- --- --- --- 0.6
Stockholders' equity ........................................ 769.2 595.4 451.5 432.8 98.1
Dividends per share of Common Stock.........................$ --- $ ---- $ --- $ --- $ ---
Shares of Common Stock outstanding at year end............... 47.4 36.4 26.8 27.5 20.8
Employees...................................................... 11,975 7,363 6,150 6,650 4,142
(a) Net income (loss) excluding goodwill amortization excludes the goodwill
amortization expense, net of income tax, for periods prior to 2002. See Note C -
"Accounting Change -- Business Combinations and Goodwill" to the Consolidated
Financial Statements.
The Selected Financial Data include the results of operations of Schaeff,
Utility Equipment, Telelect Southeast, Advance Mixer, Demag, Genie, Jaques, CMI,
Atlas Weyhausen GmbH, Coleman, Fermec, Amida, Powerscreen, Cedarapids, Bartell,
the Re-Tech division, the Princeton division and Kooi B.V. ("Princeton/Kooi"),
32
Terex Lifting Australia, Payhauler Corp., O&K Mining GmbH, American Crane,
Terexlift, Peiner and Comedil from January 14, 2002, January 15, 2002, March 26,
2002, April 11, 2002, August 30, 2002, September 18, 2002, January 24, 2001,
October 1, 2001, December 28, 2001, October 23, 2000, December 28, 2000, April
1, 1999, July 27, 1999, August 27, 1999, September 20, 1999, September 29, 1999,
November 3, 1999, December 1, 1999, January 5, 1998, March 31, 1998, July 31,
1998, November 3, 1998, November 13, 1998, December 18, 1998, respectively, the
dates of their acquisitions. See Note B -- "Acquisitions" in the Notes to the
Consolidated Financial Statements for further information. The Selected
Financial Data for the year ended December 31, 2000, includes the results of
operations of Princeton/Kooi and Moffett (a subsidiary of Powerscreen) through
September 30, 2000, the date these units were sold. See Note D - "Sale of
Businesses" in the Notes to the Consolidated Financial Statements for further
information.
ITEM 7. 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 surface mining industries. On April 23, 2001,
the Company announced that it was implementing a modified organizational
structure effective May 1, 2001. On May 1, 2001, the Company began operating
primarily in two business segments: (i) Terex Americas and Mining and (ii) Terex
Europe. Previously, the Company had reported its operations as Terex Earthmoving
and Terex Lifting. On August 28, 2001, the Company announced that the Terex
Americas and Mining group was being divided into two separate business segments:
(i) Terex Americas and (ii) Terex Mining. 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. From July 1, 2002 through September 18,
2002, the Company operated in four business segments: (i) Terex Construction;
(ii) Terex Cranes; (iii) Terex Roadbuilding, Utility Products and Other; and
(iv) Terex Mining, and upon the acquisition of Genie on September 18, 2002, the
Company added the Terex Aerial Work Platforms segment. The Company now operates
in five business segments: (i) Terex Construction; (ii) Terex Cranes; (iii)
Terex Roadbuilding, Utility Products and Other; (iv) Terex Aerial Work
Platforms; and (v) Terex Mining. All prior periods have been restated to reflect
results based on these five business segments.
The Terex Construction segment designs, manufactures and markets three primary
categories of equipment and their related components and replacement parts:
heavy construction equipment (including off-highway trucks and scrapers),
compact equipment (including loader backhoes, compaction equipment, mini and
midi excavators, loading machines, site dumpers, telehandlers and wheel
loaders); and mobile crushing and screening equipment (including jaw crushers,
cone crushers, washing screens and trommels). Terex Construction products are
currently marketed principally under the following brand names: Atlas Terex,
Finlay, Fuchs Terex, Pegson, Powerscreen, Terex Benford, Terex Fermec, Terex
Handlers, Terex Schaeff, Terex and TerexLift. These products are primarily used
by construction, logging, mining, industrial and government customers in
construction and infrastructure projects and supplying coal, minerals, sand and
gravel. The Company acquired Atlas Weyhausen GmbH and its affiliates ("Atlas"),
including Atlas Terex and Atlas UK, on December 28, 2001, Schaeff, including
Fuchs, on January 14, 2002 and Fermec on December 28, 2000. The results of
Atlas, Schaeff and Fermec are included in the Terex Construction segment since
their respective dates of acquisition.
The Terex Cranes segment designs, manufactures and markets mobile telescopic
cranes, tower cranes, lattice boom crawler cranes, truck mounted cranes (boom
trucks) and telescopic container stackers, as well as their related replacements
parts and components. Currently, Terex Cranes products are marketed principally
under the following brand names: American, Atlas, Atlas Terex, Bendini, Comedil,
Demag, Franna, Lorain, P&H, Peiner, PPM, RO-Stinger and Terex. These products
are used primarily for construction, repair and maintenance of infrastructure,
building and manufacturing facilities. The Company acquired Demag and its
affiliates on August 30, 2002. The results of Demag are included in the Terex
Cranes segment since its date of acquisition. On September 30, 2000, the Company
completed the sale of its truck-mounted forklift businesses. The businesses sold
included the Company's Princeton division, its Kooi B.V. subsidiary and the
Moffett Engineering Limited subsidiary of Powerscreen. The results of the
Company's truck-mounted forklift businesses were included in the Terex Cranes
segment prior to their sale.
The Terex Roadbuilding, Utility Products and Other segment designs, manufactures
and markets crushing and screening equipment (including crushers, impactors,
screens and feeders), asphalt and concrete equipment (including pavers, plants,
mixers, reclaimers, stabilizers and profilers), utility equipment (including
digger derricks, aerial devices and cable placers), light construction equipment
(including light towers, trowels, power buggies, generators and arrow boards)
and construction trailers, as well as related components and replacement parts.
These products are currently marketed principally under the following brand
33
names: Amida, Bartell, Bid-Well, Canica, Cedarapids, Cedarapids/Standard Havens,
CMI Johnson Ross, CMI Terex, CMI-Cifali, Coleman Engineering, Grayhound,
Hi-Ranger, Jaques, Load King, Morrison, Re-Tech, Royer, Simplicity, Terex, Terex
Advance Mixer, Terex Power, Terex Recycling and Terex Telelect. These products
are used primarily by government, utility and construction customers to build
roads, maintain utility lines and trim trees. Terex also owns much of the North
American distribution channel for the utility products group, including the
distributors Utility Equipment, Telelect Southeast, Commercial Body and
Combatel. These operations distribute and install the Company's utility aerial
devices as well as other products that service the utility industry. The Company
acquired Coleman on October 23, 2000. Jaques International Holdings Pty. Ltd.
and its affiliates (collectively, the "Jaques Group"), including Jaques, Jaques
Malaysia and Jaques Thailand, were acquired on January 24, 2001. On October 1,
2001, the Company acquired CMI and its affiliates, including CMI-Cifali,
Bid-Well and Load King. The Company acquired Utility Equipment on January 15,
2002, Telelect Southeast on March 26, 2002 and certain assets and liabilities of
Advance Mixer on April 11, 2002. The results of Coleman, 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 Terex Aerial Work Platforms segment was formed upon the completion of
Terex's acquisition of Genie and its affiliates on September 18, 2002. The Terex
Aerial Work Platforms segment designs, manufactures and markets aerial work
platform equipment. Products include material lifts, portable aerial work
platforms, trailer mounted booms, articulated booms, stick booms, scissor lifts,
related components and replacement parts, and other products. Terex Aerial Work
Platforms products currently are marketed principally under the Genie brand
name. These products are used primarily by customers in the construction and
building maintenance industries to lift people and/or equipment as required to
build and/or maintain large physical assets and structures.
The Terex Mining segment 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 principally under the following brand names: O&K, Payhauler, Terex and
Unit Rig. These products are used primarily used by construction, mining,
quarrying and government customers in construction, excavation and supplying
coal and minerals.
Included in Eliminations/Corporate are the eliminations among the five segments,
as well as general and corporate items.
Restructuring
The Company has initiated numerous restructuring programs since 2000. These
programs were initiated in response to a slowing economy, to reduce duplicative
operating facilities, including those arising from the Company's acquisitions,
and to respond to specific market conditions. Restructuring programs were
initiated within the Company's Terex Construction, Terex Cranes, Terex Mining
and Terex Roadbuilding, Utility Products and Other segments. The Company's
programs 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. For example,
cost savings from projects initiated during 2002 are expected to generate annual
savings of approximately $35 million per year by 2004. See Note F -
"Restructuring and Other Charges" in the Company's Consolidated Financial
Statements for a detailed description of the Company's restructuring programs,
including the reasons, timing and costs associated with each such program.
34
2002 Compared with 2001
The table below is a comparison of net sales, gross profit, selling, general and
administrative expenses, and income from operations, by segment, for the years
ended December 31, 2002 and 2001. During 2001, the Company's Mining segment
reclassified service costs from Selling, General and Administrative Expenses to
Cost of Goods Sold, and, therefore, the applicable 2001 amounts have been
reclassified for comparative purposes.
Year Ended
December 31,
--------------------------- Increase
2002 2001 (Decrease)
------------- ------------- ---------------
(amounts in millions)
NET SALES
Terex Construction................................$ 1,207.1 $ 739.1 $ 468.0
Terex Cranes...................................... 717.9 492.5 225.4
Terex Roadbuilding, Utility Products and Other.... 562.4 365.5 196.9
Terex Aerial Work Platforms....................... 116.8 --- 116.8
Terex Mining...................................... 282.8 266.2 16.6
Eliminations/Corporate............................ (89.6) (50.8) (38.8)
------------- ------------- ---------------
Total...........................................$ 2,797.4 $ 1,812.5 $ 984.9
============= ============= ===============
GROSS PROFIT
Terex Construction................................$ 167.0 $ 104.9 $ 62.1
Terex Cranes...................................... 57.1 56.1 1.0
Terex Roadbuilding, Utility Products and Other.... 91.4 66.5 24.9
Terex Aerial Work Platforms....................... 18.9 --- 18.9
Terex Mining...................................... 22.9 40.2 (17.3)
Eliminations/Corporate............................ (0.6) 4.7 (5.3)
------------- ------------- ---------------
Total...........................................$ 356.7 $ 272.4 $ 84.3
============= ============= ===============
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Terex Construction................................$ 110.7 $ 55.5 $ 55.2
Terex Cranes...................................... 55.1 43.8 11.3
Terex Roadbuilding, Utility Products and Other.... 73.0 40.5 32.5
Terex Aerial Work Platforms....................... 14.0 --- 14.0
Terex Mining...................................... 27.3 25.7 1.6
Eliminations/Corporate............................ 8.0 2.7 5.3
------------- ------------- ---------------
Total...........................................$ 288.1 $ 168.2 $ 119.9
============= ============= ===============
INCOME FROM OPERATIONS
Terex Construction................................$ 56.3 $ 49.4 $ 6.9
Terex Cranes...................................... 2.0 12.3 (10.3)
Terex Roadbuilding, Utility Products and Other.... 18.4 26.0 (7.6)
Terex Aerial Work Platforms....................... 4.9 --- 4.9
Terex Mining...................................... (4.4) 14.5 (18.9)
Eliminations/Corporate............................ (8.6) 2.0 (10.6)
------------- ------------- ---------------
Total...........................................$ 68.6 $ 104.2 $ (35.6)
============= ============= ===============
Terex Consolidated
Total sales for 2002 were $2,797.4 million, an increase of $984.9 million
relative to 2001 performance. Acquisitions in 2001 and 2002, net of divested
businesses, increased sales in 2002 by $961.0 million. Sales showed improvement
in 2002 relative to 2001 in the Company's Mining segment and the Construction
segment, excluding the 2002 acquisitions. The Mining segment's sales increased
due to higher demand for large mining shovels. The Construction segment's
product sales increased as the Company expanded its presence in the United
States and continued to see a shift in customer preference towards the Company's
mobile crushing and screening products. Sales in the Company's roadbuilding
business during 2002 were negatively impacted by ongoing uncertainty surrounding
federal and state government funding of road projects. Sales of mobile cranes in
the United States remained weak relative to prior year levels as demand has been
negatively impacted by weakness in non-residential construction and overcapacity
in rental fleets.
35
Gross profit in 2002 totaled $356.7 million, an increase of $84.3 million over
2001. Businesses acquired in 2001 and 2002 added $138.6 million to gross profit
in 2002. During 2002, the Company initiated a series of restructuring programs
aimed at addressing declining market demand in the Crane and Roadbuilding
businesses and at reducing product, production and distribution overlaps created
by the acquisition of Genie and Demag. The cost of these projects as well as
other non-recurring items was $63.4 million in 2002, an increase of $34.2
million over 2001 levels.
Selling, General and Administrative expense increased to $288.1 million in 2002
from $168.2 million in 2001. Businesses acquired in 2001 and 2002 added $106.4
million of Selling, General and Administrative expense in 2002. Restructuring
and other one-time costs, as described above and more fully in Note F -
"Restructuring and Other Charges" to the Consolidated Financial Statements,
increased by $6.2 million in 2002 and totaled $12.9 million.
Income from operations fell to $68.6 million in 2002, a reduction of $35.6
million from 2001. Restructuring and other one-time costs incurred in 2002
totaled $76.3 million, an increase of $40.4 million over 2001. Businesses
acquired in 2001 and 2002 increased income from operations by $29.5 million in
2002. As of January 1, 2002, the Company ceased amortization of goodwill,
consistent with the requirements of SFAS No. 142. The resulting benefit realized
in income from operations in 2002 was $14.2 million. The Mining segment
generated a loss from operations in 2002 as a result of reduced parts gross
profit. Income from operations in the mobile crane business declined relative to
2001 due to weakness in customer demand. Income from operations in the European
tower crane business also declined as the stability of its customers' finances
deteriorated. Continued weakness in the Roadbuilding segment also unfavorably
impacted year over year income from operations.
Terex Construction
Sales in the Terex Construction segment increased by 63% to $1,207.1 million in
2002 from $739.1 million in 2001. Excluding the impact of acquisitions in 2001
and 2002, sales increased by 9% to $806.0 million from $739.1 million in 2001.
Sales of loader backhoes increased by 16% or $16.2 million in 2002 as the
Company continued to expand distribution in the United States. Sales of
Benford's line of compaction equipment increased by 29% or $21.8 million as a
result of continued strong fleet purchases in Europe. Sales of Powerscreen
products increased by 20% or $45.3 million over 2001 levels as end users
continued a shift in demand towards mobile crushing and screening units away
from fixed plants. Sales of articulated trucks declined by 4% or $7.3 million
due to decreased demand in the United States and Europe. Sales of Atlas
(acquired December 28, 2001) and Schaeff (acquired January 14, 2002) products
totaled $401.1 million in 2002.
Gross profit in the Terex Construction segment increased by $62.1 million to
$167.0 million in 2002 relative to 2001's gross profit of $104.9 million. During
2002, several restructuring programs were initiated to consolidate production
facilities and exit non-core lines of business. In 2002, restructuring charges
included in gross profit totaled $11.9 million or a $5.7 million increase in
restructuring costs over 2001 levels. Gross profit in 2002 was positively
impacted by the acquisition of Schaeff and Atlas. These businesses contributed
$57.3 million of gross profit during 2002. Gross profit in 2002 was favorably
impacted by $5.2 million due to growth in the Fermec and Benford businesses.
Fermec benefited from increased penetration into the U.S. market and Benford
benefited from stronger rental fleet purchases in Europe. Gross profit in the
U.K. material handlers business increased by $1.0 million as the Company
realized the benefit of a factory consolidation initiated in late 2001. Gross
profit in the Powerscreen businesses increased as a result of growth in new
markets such as India as well as continued demand for the business's mobile
crushing products. These positive trends were partially offset by a decline in
gross profit earned in the articulated truck business, where the Company
continues to adjust production to reflect a general reduction in demand. Gross
profit was unfavorably impacted in 2002 by weakness seen in the UK based
equipment rental business. During the fourth quarter of 2002, the Company
initiated a restructuring program to exit certain non-core rental businesses and
continues to explore options to improve the overall profitability of the
European rental business.
Selling, General and Administrative expense in the Terex Construction segment
increased by $55.2 million from 2001 and totaled $110.7 million in 2002.
Acquisitions in 2001 and 2002 accounted for the majority of the increase.
Selling, General and Administrative expense for the Schaeff and Atlas businesses
totaled $42.9 million in 2002. In addition, the Company initiated several
restructuring programs during 2002 to respond to market conditions. The cost of
these programs, $4.1 million, is an increase of $2.9 million over 2001's
restructuring activities. Selling, General and Administrative expense in the
Powerscreen business increased by approximately $3 million in 2002 due to higher
sales levels in 2002. As a percentage of revenue, Powerscreen's Selling, General
and Administrative expense declined slightly.
Income from operations for the Terex Construction segment increased by $6.9
million in 2002 and totaled $56.3 million. Restructuring activities in 2002
totaled $16.0, an increase of $8.6 million. Income from operations for the Atlas
and Schaeff business, acquired on December 25, 2001 and January 14, 2002,
36
respectively totaled $14.3 million. As of January 1, 2002, the Company ceased
amortization of goodwill, consistent with the requirements of SFAS No. 142. The
resulting benefit realized in income from operations in 2002 was $5.1 million.
Terex Cranes
Sales in the Terex Cranes segment increased by 46% to $717.9 million in 2002
from $492.5 million in 2001. Excluding the impact of acquisitions, net of
divestitures, sales in the Terex Crane segment increased by 6% to $499.2 million
in 2002 from sales of $471.1 million in 2001. In 2002, the Cranes segment sold a
large, first time order of material handlers to the United States Marine Corps
with a value of approximately $33 million. This contract was completed in the
third quarter of 2002. Sales were also favorably impacted by increased demand
for the segment's truck mounted cranes as well as by increased demand for its
Italian produced mobile cranes. Sales were negatively impacted by continued weak
demand for mobile and rough terrain cranes in the United States as these
products contributed to a sales decline of 18% in 2002 or $31.5 million relative
to 2001 sales levels. Demag sales since its date of acquisition (August 30,
2002) totaled $201.8 million.
Gross profit in the Terex Cranes segment increased by $1.0 million in 2002
relative to 2001 and totaled $57.1 million. Businesses acquired during 2002, net
of divestitures, increased gross profit relative to 2001 by approximately $21.5
million. Gross profit earned by Demag since its date of acquisition totaled
$20.8 million. Included in 2002's gross profit is a $3.6 million non-recurring
reduction of gross profit related to fair-value accounting at Demag. The fair
value adjustments relate to the acquired inventory of Demag. A total of $2.1
million of the fair value adjustment remains in inventory at December 31, 2002
and will be recognized in cost of goods sold in 2003. Restructuring and other
one-time charges included in gross profit in 2002 totaled $27.7 million, an
increase of $11.0 million from 2001 levels. Gross profits in the mobile crane
businesses in the United States declined by $11.1 million as a result of an 18%
decline in sales. A general slow down in the construction industry has depressed
sales of mobile cranes. Gross profit increased in the European crane business by
$5.2 million relative to 2001 due to improved margins at the Bendini business.
Gross profits earned in the European tower crane business declined by $2.4
million on relatively flat sales in 2002 due to increased pricing pressure
resulting from financial difficulties experienced by large European rental
customers. During the fourth quarter of 2002, the Company announced a plan to
reduce the number of tower crane products offered and reduce manufacturing
capacity in Germany due to the difficult market conditions seen in the European
tower crane business.
Selling, General and Administrative expense in the Terex Cranes segment
increased by $11.3 million versus 2001 to a total of $55.1 million. Selling,
General and Administrative expense in 2002 included a restructuring charge of
$2.5 million. The acquisition of Demag increased Selling, General and
Administrative expense in 2002 by $16.5 million. Excluding the acquisition of
Demag, operating expense decreased by $3.0 million. A significant portion of the
reduction is a result of consolidating the mobile crane facility in Conway,
South Carolina into the Waverly, Iowa facility during the fourth quarter of
2001. Further cost savings were realized in connection with the closure of the
Cork, Ireland scissor lift facility. These initiatives were launched in response
to a continued decline in demand for mobile cranes with less than 50 tons in
capacity that materialized in late 2000 and continued through 2002.
Income from operations for the Terex Cranes segment declined by $10.3 million in
2002 and totaled $2.0 million. The acquisition of Demag increased income from
operations by $7.9 million, including the impact of non-recurring fair value
adjustments related to the value of acquired inventories of $3.6 million.
Restructuring and other non-recurring charges totaled $30.2 million in 2002, an
increase of $10.0 million from 2001. These projects were initiated in response
to slowing demand for mobile cranes in North America and weakness in the
financial health of large rental customers in Europe. The restructuring charge
also reflects the consolidation of production and distribution facilities as the
result of the Demag acquisition. Income from operations benefited by
restructuring activities launched in late 2001 in response to a slowing demand
for mobile cranes in the United States. As of January 1, 2002, the Company
ceased amortization of goodwill, consistent with the requirements of SFAS No.
142. The resulting benefit realized in income from operations in 2002 was $4.1
million.
Terex Roadbuilding, Utility Products and Other
Sales in the Terex Roadbuilding, Utility Products and Other segment increased by
54% or $196.9 million in 2002 from $365.5 million in 2001. Excluding the impact
of acquisitions in 2001 and 2002, sales decreased by 15% to $279.8 million in
2002 from sales of $328.7 million in 2001. Sales were negatively impacted by
continued weak demand for asphalt and cement pavers along with hot mix asphalt
plants. Demand for these products has been negatively impacted by uncertainty
surrounding state and federal funding for road improvements. Sales of these
products decreased by approximately 13% in 2002 relative to 2001. Demand for
utility products, excluding the acquisition of Utility Equipment and Telelect
Southeast, declined by 14% or $16.6 million in 2002 relative to 2001. Demand for
the Company's products that serve the telecommunications industry remained weak
in 2002 as a result of overcapacity in the telecommunications sector. During
37
2002 the Company acquired Utility Equipment and Telelect Southeast to expand
Company owned distribution for Telelect's products. Sales from these businesses
totaled $78.5 million from their respective dates of acquisitions in 2002. Sales
of light construction products continued to decline as customer consolidation
and slowing end market demand negatively impacted sales. Sales of light
construction products decreased by 21% or $11.0 million in 2002 relative to 2001
levels. Sales from Advance Mixer, a producer of front discharge cement mixers,
totaled $49.9 million from its date of acquisition of April 11, 2002.
Gross profit in the Terex Roadbuilding, Utility Products and Other segment
increased to $91.4 million in 2002 from $66.5 million in 2001. Businesses
acquired in 2001 and 2002 increased gross profit by $45.1 million in 2002
relative to 2001. Restructuring and other one-time charges negatively impacted
earnings by $14.0 million in 2002 relative to 2001 and totaled $16.4 million.
Gross profit in the Utility business, excluding acquisitions, declined by $3.5
million in 2002 relative to 2001 levels. Gross profit declined primarily due to
the reduction in sales volume, as the utility business was able to maintain
margins by implementing effective cost controls. Gross profit in 2002 in the
Light Construction business declined relative to 2001 as a result of a 21%
decline in demand. The impact of declining sales was partially offset by the
benefit of a facility consolidation initiated in 2002. Gross profit in the
Cedarapids business was negatively impacted by continued weak demand, driven by
uncertainty around funding levels for roadbuilding projects in the United
States. Margins in the Jaques business, providers of crushing & screening
products, increased on stronger sales in Asian markets.
Selling, General and Administrative expense in the Terex Roadbuilding, Utility
Products and Other segment increased by $32.5 million in 2002 relative to 2001
to a total of $73.0 million. The acquisition of Advance Mixer, Utility Equipment
and Telelect Southeast increased selling, general and administrative expense by
$9.3 million in 2002 when compared to 2001. The inclusion of a full year of
expense for CMI, acquired on October 1, 2001, increased 2002 selling, general
and administrative expense by $24.3 million when compared to 2001. Restructuring
costs in 2002 totaled $1.3 million, an increase of $0.8 million from $0.5
million in 2001. In late 2001, the Company decided to significantly reduce its
level of activity at its internet business to match the level of revenue it was
expected to generate. This accounted for a $3.1 million reduction in operating
expense in 2002 relative to 2001.
Income from operations in the Terex Roadbuilding, Utility Products and Other
segment was $18.4 in 2002, a reduction of $7.6 million from 2001. During 2002
the Company initiated $9.8 million of restructuring projects aimed at addressing
continued weakness in demand for light construction and roadbuilding products.
These projects were completed by the end of 2002. The restructuring charge of
$9.8 million represents an increase of $6.9 million over 2001. During 2002, the
Company reviewed the operating performance of its Light Construction business.
Based on management's expectation for future cash flow, the Company determined
the carrying value of Light Construction long-term assets was impaired and
recorded a charge of $7.9 million in 2002. Business acquired in 2002 increased
income from operations by $8.4 million relative to 2001. As of January 1, 2002,
the Company ceased amortization of goodwill, consistent with the requirements of
SFAS No. 142. The resulting benefit realized in income from operations in 2002
was $2.9 million.
Terex Aerial Work Platforms
Sales in the Terex Aerial Work Platform segment totaled $116.8 million in 2002
and represent the impact of Genie since its date of acquisition by the Company,
September 18, 2002. The period that corresponds with post-acquisition activity
has typically been the weakest sales period of the year; however, in 2002 sales
were marginally above the level of the comparative prior year period.
Gross profit in the Terex Aerial Work Platform segment totaled $18.9 million in
2002 or 16.2% of sales. Included in the gross profit of $18.9 is a non-recurring
reduction of gross profit of $4.1 million related to the effects of the required
fair-value accounting of Genie. The fair value adjustments relate to acquired
inventory. As of December 31, 2002, the remaining fair value adjustment in
inventory was $0.8 million. The remaining fair value adjustment will be charged
to cost of sales in 2003 as the associated inventory is sold to customers.
Selling, General and Administrative expense in the Terex Aerial Work Platforms
segment totaled $14.0 million in 2002, resulting in operating profit of $4.9
million (or 4.2% of sales) in 2002. The Terex Aerial Work Platform segment's
gross profit and operating profit margins have improved over the prior period
annual margins of approximately 14% and 2%, respectively. This improvement
represents the impact of global restructuring activities and cost control
initiatives initiated prior to acquisition by the Company as well as the
consolidation of additional domestic production facilities subsequent to the
acquisition.
38
Terex Mining
Sales in the Terex Mining segment increased by 6.2% to $282.8 million in 2002
relative to 2001 sales volume of $266.2 million. Sales of mining shovels
increased by approximately 14% or $16.4 million due to increased demand in
Australia and Canada. Sales of mining shovels in Canada were favorably impacted
by higher oil prices. These gains were partially offset by continued weakness in
demand for mining trucks.
Gross profit in the Terex Mining segment declined by $17.3 million relative to
2001 and totaled $22.9 million. Gross profit in 2002 includes one-time charges
related to the closure of the Tulsa, Oklahoma mining truck production facility
($4.2 million) and costs related to the exit of the rental of mining equipment
and the production of large scrapers ($2.6 million). Gross profit earned on the
sale of replacement parts declined by $10 million in 2002 when compared to 2001
levels. The decline is a result of selling an increased portion of replacement
parts through dealers in an effort to minimize working capital requirements for
the business. Margins earned on new machines sold in 2002 declined slightly from
levels realized in 2001 as competitive pricing pressures were partially offset
by the benefit of closing the Tulsa production facility.
Selling, General and Administrative expense in the Terex Mining segment
increased by $1.6 million in 2002 relative to 2001, to a total of $27.3 million,
primarily due to higher expenditures on product engineering as well as on
increased administrative costs.
Income from operations for the Terex Mining segment resulted in a loss of $4.4
million in 2002, a reduction of $18.9 million from an operating profit of $14.5
million in 2001. One-time costs related to restructuring activities initiated in
2002 totaled $6.8 million. These projects were launched to address continued
weakness in demand for the Mining segment's mining trucks and to exit non-core
activities. A decline in margins earned on replacement parts negatively impacted
earnings by $10 million relative to 2001. The decline in parts margin is
primarily due to lower prices realized and a shift to selling parts through
distributors to reduce working capital levels. As of January 1, 2002, the
Company ceased amortization of goodwill, consistent with the requirements of
SFAS No. 142. The benefit realized income from operations in 2002 was $2.9
million.
Net Interest Expense
During 2002, the Company's net interest expense increased $6.4 million to $85.4
million from $79.0 million for 2001. The increase was due to the overall
increase in bank debt used to finance acquisitions in 2002. 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 income (expense) - net for 2002 was an expense of $4.2 million as compared
to income of $3.2 million for 2001. During 2002, the Company recorded a loss of
$2.6 million related to its internet commerce investments, a loss of $1.7
million related to its equity 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 be non-strategic. Partially
offsetting these expenses were a $9.5 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 $5.5
million gain on a foreign currency hedge initiated in connection with the
acquisition of Demag.
Extraordinary Items
During 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 2001, the Company recorded a charge of $3.9 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
39
and Other Intangible Assets," the Company recorded a charge for the cumulative
effect of change in accounting principle of $113.4 million in 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). This charge was
partially offset by a one-time gain ($17.8 million, $10.7 million net of income
taxes) recognized on January 1, 2002 in the Fermec business. The purchase price
paid by the Company to acquire Fermec was less than the net assets acquired in
the transaction. Prior to January 1, 2002, the difference was recorded as a
deferred credit in goodwill. As required by SFAS No. 141, this credit balance
was recognized as a cumulative effect adjustment on January 1, 2002.
40
2001 Compared with 2000
The table below is a comparison of net sales, gross profit, selling, general and
administrative expenses, and income from operations, by segment, for the years
ended December 31, 2001 and 2000. During 2001, the Company's Mining segment
reclassified service costs from Selling, General and Administrative Expense to
Cost of Goods Sold, and, therefore, the applicable amounts have been
reclassified for comparative purposes.
Year Ended
December 31,
--------------------------- Increase
2001 2000 (Decrease)
------------- ------------- --------------
(amounts in millions)
NET SALES
Terex Construction................................$ 739.1 $ 708.0 $ 31.1
Terex Cranes...................................... 492.5 675.2 (182.7)
Terex Roadbuilding, Utility Products and Other.... 365.5 415.0 (49.5)
Terex Aerial Work Platforms....................... --- --- ---
Terex Mining...................................... 266.2 319.3 (53.1)
Eliminations/Corporate............................ (50.8) (48.8) (2.0)
------------- ------------- --------------
Total...........................................$ 1,812.5 $ 2,068.7 $ (256.2)
============= ============= ==============
GROSS PROFIT
Terex Construction................................$ 104.9 $ 132.1 $ (27.2)
Terex Cranes...................................... 56.1 104.2 (48.1)
Terex Roadbuilding, Utility Products and Other.... 66.5 82.3 (15.8)
Terex Aerial Work Platforms....................... --- --- ---
Terex Mining...................................... 40.2 35.0 5.2
Eliminations/Corporate............................ 4.7 0.1 4.6
------------- ------------- --------------
Total...........................................$ 272.4 $ 353.7 $ (81.3)
============= ============= ==============
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Terex Construction................................$ 55.5 $ 48.0 $ 7.5
Terex Cranes...................................... 43.8 47.3 (3.5)
Terex Roadbuilding, Utility Products and Other.... 40.5 30.6 9.9
Terex Aerial Work Platforms....................... --- --- ---
Terex Mining...................................... 25.7 28.1 (2.4)
Eliminations/Corporate............................ 2.7 1.4 1.3
------------- ------------- --------------
Total...........................................$ 168.2 $ 155.4 $ 12.8
============= ============= ==============
INCOME FROM OPERATIONS
Terex Construction................................$ 49.4 $ 84.1 $ (34.7)
Terex Cranes...................................... 12.3 56.9 (44.6)
Terex Roadbuilding, Utility Products and Other.... 26.0 51.7 (25.7)
Terex Aerial Work Platforms....................... --- --- ---
Terex Mining...................................... 14.5 6.9 7.6
Eliminations/Corporate............................ 2.0 (1.3) 3.3
------------- ------------- --------------
Total...........................................$ 104.2 $ 198.3 $ (94.1)
============= ============= ==============
Terex Consolidated
Overall sales declines were consistent with weaker end market and general
economic factors and generally did not reflect a weakening in the competitive
condition of the Company's products. Sales decreased $256.2 million, or
approximately 12%, to $1,812.5 million from $2,068.7 million in 2000.
Acquisitions made during 2001, net of businesses disposed of in 2000, increased
2001 revenues by $80.6 million.
Gross profit for 2001 decreased $81.3 million, or approximately 23%, to $272.4
million as compared to $353.7 million in 2000. The decrease in gross profit is
primarily due to the decrease in sales and the inclusion of $26.0 million of
restructuring and other charges in cost of goods sold in 2001, as compared to
2000 when restructuring and other charges were $9.9 million. Gross profit as a
41
percentage of sales decreased to 15.0% in 2001 as compared to 17.1% in 2000.
Restructuring charges in 2001 totaled $29.2 million or 1.6% of sales, an
increase of $19.3 million over 2000's restructuring charges.
Selling, general and administrative expenses increased to $168.2 million for
2001 from $155.4 million for 2000. The increase principally reflected the impact
of the businesses acquired in late 2000 and early 2001, the inclusion of $3.9
million and $3.2 million of restructuring and other charges in 2001 and 2000,
respectively, and the Company's investments in its EarthKing subsidiary and
other e-commerce businesses, offset by the effect of the divestiture of the
truck-mounted forklift businesses and continued cost control within all
businesses. As a percentage of sales, selling, general and administrative
expenses increased to 9.3% for 2001 as compared to 7.5% for 2000, primarily as a
result of decreased sales.
The Company had income from operations of $104.2 million, or 5.7% of sales, for
2001, compared to income from operations of $198.3 million, or 9.6% of sales,
for 2000. Total restructuring costs and other special items in 2001 was an
expense of $35.9 million. This was an increase of $22.6 million from the 2000
total for special items and restructuring costs.
Terex Construction
Sales in the Construction segment for 2001 totaled $739.1 million, an increase
of $31.1 million over 2000. The acquisition of Fermec increased sales in 2001 by
$98.7 million when compared to 2000. Sales from the Powerscreen businesses
increased by approximately 7% in 2001 as customer preferences shifted towards
Powerscreen's line of mobile crushing and screening equipment. Sales of
articulated trucks declined by 20% in 2001 when compared to 2000. Sales of the
segment's telehandler products in the United States fell by 36% as demand from
large rental customers fell after several years of increasing rental fleet
purchases.
Gross profit in the Construction segment for 2001 was $104.9 million, a
reduction of $27.2 million from 2000. Restructuring costs incurred in 2001
totaled $6.2 million. During 2001, the segment initiated a project to
consolidate three production facilities in the U.K. to reduce overall
manufacturing costs. The 2001 restructuring charge of $6.2 million represents a
$0.5 million reduction from restructuring costs incurred in 2000. The
acquisition of Fermec added $11.3 million of gross profit in 2001 relative to
2000. Gross profit in the articulated truck business fell by $14.1 million in
2001 when compared to 2000. Lower sales volume accounted for approximately 40%
of the decline in gross profit. The remainder of the reduction in gross profit
was due to higher factory costs which were only partially offset by improved
selling margins. Gross profit earned by the U.S. based telehandler business fell
by $4.5 million in 2001 relative to 2000. Approximately two-thirds of the drop
in gross profit experienced in 2001 was due to the revenue decline described
above, with the remainder due primarily to lower selling margins offset by
factory cost reductions.
Selling, general and administrative costs expenses increased by $7.5 million
relative to 2000 and totaled $55.5 million. Fermec, acquired in December 2000,
increased selling, general and administrative costs by $7.5 million when
compared to 2000 levels.
Income from operations in 2001 fell to $49.4 million, a reduction of $34.7
million from 2000. The acquisition of Fermec increased income from operations by
$3.8 million in 2001 relative to 2000. Lower unit sales and higher manufacturing
costs reduced the income from operations earned in the articulated truck
business by $13.5 million in 2001 relative to 2000. Income from operations in
the U.S. based telehandler business fell by $3.6 million due to lower sales
volumes, through the impact of lower selling margins was partially offset by
reductions in factory costs.
Terex Cranes
Sales in the Cranes segment fell by $182.7 million in 2001, when compared to
2000, and totaled $492.5 million. The sale of the truck-mounted forklift
businesses, completed in September 2000, reduced sales by $74.7 million when
compared to 2000. Sales of mobile cranes in the United States fell by $63.2
million in 2001 as non-residential construction spending was not sufficient to
maintain the prior year's level of demand for mobile cranes in the United
States. Sales of mobile cranes produced in France under the PPM brand fell by
$31.2 million in 2001 when compared to 2000.
Gross profit in the Cranes segment fell by $48.1 million in 2001 and totaled
$56.1 million. The sale of the truck-mounted forklift business reduced gross
profit in 2001 by $18.1 million. Gross profit earned in the United States based
mobile cranes businesses fell by $6.1 million in 2001 when compared to 2000. The
primary reason for this decline was the effect of lower volumes on factory
efficiency. Selling margins in the mobile cranes business increased across all
major product categories in 2001 and helped to mitigate the reduction in volume
on gross profit. Gross profits earned in the Australian rough terrain crane
42
business fell by $3.9 million in 2001. The majority of the decline was due to
lower selling margins realized on machines. During 2001, in response to realized
and anticipated weakness in the demand for mobile cranes in the United States
and Europe, the segment initiated a series of restructuring projects. These
projects were initiated to bring the cost structure of the various businesses to
a level consistent with expected demand for the segment's products. The cost of
these projects, recorded as a reduction to gross profit, was $16.7 million in
2001.
Selling, general and administrative expenses decreased by $3.5 million in 2001
and totaled $43.8 million. The sale of the truck-mounted forklift business
reduced selling, general and administrative expense by $6.8 million in 2001. The
aforementioned restructuring projects initiated in 2001 resulted in a $3.5
million charge to selling, general and administrative expense in 2001.
Income from operations for the Cranes segment was $12.3 million in 2001, a
reduction of $44.6 million from 2000. The sale of the truck-mounted forklift
businesses reduced income from operations by $11.3 million in 2001. Unfavorable
economics in the United States and European mobile crane businesses reduced
income from operations by $13.6 million in 2001. Restructuring initiatives
launched in 2001 to respond to the deteriorating business conditions experienced
in the U.S. and Europe totaled $20.2 million. By comparison, no restructuring
projects were initiated in the Cranes segment in 2000.
Terex Roadbuilding, Utility Products and Other
Sales in the Terex Roadbuilding, Utility Products and Other segment fell by
$49.5 million in 2001 and totaled $365.5 million. The acquisitions of CMI,
Jaques and Coleman Engineering increased sales by $60.9 in 2001 when compared to
2000. Sales of utility products fell by $34.5 million in 2001 as the sale of new
machines and parts both declined from levels realized in 2000. Sales of road
building equipment, excluding sales from CMI and Jaques, declined by $72.6
million in 2001 as demand from end customers fell and dealers rationalized
inventory levels in response to concerns over federal and state government
spending on road projects.
Gross profit in the Terex Roadbuilding, Utility Products and Other segment fell
by $15.8 million in 2001 and totaled $66.5 million. The acquisition of CMI,
Jaques and Coleman Engineering increased gross profit by $13.7 million in 2001.
Gross profit in the utility products business fell by $9.6 million primarily as
a result of lower machine and parts sales. Selling margins remained relatively
constant and cost reductions offset the impact of lower volumes. Gross profit
earned in the roadbuilding businesses, excluding CMI and Jaques, fell by $17.3
million in 2001. During 2001, the segment recorded $2.4 million of restructuring
charges, primarily to consolidate facilities in its roadbuilding business.
Selling, general and administrative expense in the segment increased by $9.9
million in 2001 and totaled $40.5 million. The acquisition of CMI, Jaques and
Coleman Engineering increased selling, general and administrative expense by
$10.3 million in 2001.
Income from operations in the segment fell by $25.7 million in 2001 and totaled
$26.0 million. The acquisition of CMI, Jaques and Coleman Engineering increased
income from operations by $3.3 million in 2001. Uncertainty of government
funding for roadbuilding products reduced income from operations for this line
of business by $13.6 million relative to 2000. Lower volumes in the utility
products business due to the economic difficulties experienced by the
telecommunication sector reduced income from operations by $9.4 million in 2001.
Restructuring projects targeted to reduce cost in the road building businesses
that were initiated in 2001 reduced income from operations by $2.9 million.
Terex Mining
Sales in the Terex Mining segment were $266.2 million in 2001, a $53.1 million
decrease from 2000. During 2001, the Mining segment accepted a return of mining
trucks sold to a customer in Chile. The return reduced sales in 2001 by $11.8
million. After using the trucks for more than six months, the customer claimed
that the trucks did not perform in accordance with certain of the manufacturer's
warranties. While the Company disputed this assertion, the return of the trucks
was accepted to maintain customer goodwill. The remaining drop in sales relative
to 2001 was due to continuing low commodity prices, which in turn negatively
impacted the demand for the segment's products.
Gross profit reported by the Mining segment in 2001 was $40.2 million, an
increase of $5.2 million over 2000. Gross profit in 2001 includes the impact of
the mining truck return described above; the return reduced reported gross
profit by $3.2 million. Gross profits in 2001 improved relative to 2000 as the
segment earned higher selling margins on its truck and shovel sales and as a
larger percentage of sales was generated from higher margin replacement parts.
43
Selling, general and administrative expense in 2001 totaled $25.7 million, a
reduction of $2.4 million from the prior year. In 2000, the segment recorded a
$1.6 million charge related to restructuring initiated at its O&K shovel
business located in Dortmund, Germany. No special charges were recorded in
selling, general and administrative costs in 2001.
Income from operations in 2001 was $14.5 million, an increase of $7.6 million
over 2000. Reductions in income experienced in the large mining truck business
were offset by improvements realized in the large shovel business. In addition,
a higher percentage of sales came from replacement parts, which increased
earnings relative to 2000.
Net Interest Expense
During 2001, the Company's net interest expense decreased $15.3 million to $79.0
million from $94.3 million for 2000. This decrease was primarily due to lower
interest rates and lower average net debt levels in 2001 versus 2000.
Gain on Sale of Businesses
During 2000, the Company recognized a $57.2 million gain on the sale of the
Company's truck-mounted forklift businesses to various subsidiaries of Partek
Corporation of Finland for $145 million in cash.
Loss from Discontinued Operations
In connection with the Company's sale of the Clark material handling business to
Clark Material Handling Company ("CMHC") in November 1996, CMHC assumed
liabilities from Terex arising from product liability claims dealing with Clark
material handling products manufactured prior to the date of the divestiture. In
connection with CMHC's voluntary filing for bankruptcy in 2000, CMHC defaulted
on its obligations to indemnify and defend the Company from such product
liability claims. As a result of this situation, the Company recorded an expense
of $7.3 million, net of income taxes, in the fourth quarter of 2000,
representing the Company's estimated liability for known product liability
claims.
Extraordinary Items
During 2001 and 2000, the Company recorded charges of $3.9 million and $1.5
million, net of income taxes, respectively, to recognize losses on the write-off
of unamortized debt acquisition costs for the early extinguishment of debt in
connection with the prepayment of principal of certain term loans under the
Company's bank credit facilities.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Changes in the estimates and assumptions used by management could have
significant impact on the Company's financial results. Actual results could
differ from those estimates.
The Company believes that the following are among its most significant
accounting polices which are important in determining the reporting of
transactions and events and which utilize estimates about the effect of matters
that are inherently uncertain and therefore are based on management judgment.
Please refer to Note A - "Significant Accounting Policies" in the accompanying
consolidated financial statements for a complete listing of the Company's
accounting policies.
Inventories - Inventories are stated at the lower of cost or market value. In
valuing inventory, management is required to make assumptions regarding the
level of reserves required to value potentially obsolete or over-valued items at
the lower of cost or market. The valuation of used equipment taken in trade from
customers requires the Company to use the best information available to
determine the value of the equipment to potential customers. This value is
subject to change based on numerous conditions. Inventory reserves are
established taking into account age, frequency of use, or sale, and in the case
of repair parts, the installed base of machines. While calculations are made
involving these factors, significant management judgment regarding expectations
for future events is involved. Future events which could significantly influence
management's judgment and related estimates include general economic conditions
in markets where the Company's products are sold, new equipment price
fluctuations, competitive actions including the introduction of new products and
technological advances, as well as new products and design changes introduced by
the Company. At December 31, 2002, reserves for excess and obsolete inventory
totaled $36.7 million.
44
Accounts Receivable - Management is required to make judgments relative to the
Company's ability to collect accounts receivable from the Company's customers.
Valuation of receivables includes evaluating customer payment histories,
customer leverage, availability of third party financing, political and exchange
risks and other factors. Many of these factors, including the assessment of a
customer's ability to pay, are influenced by economic and market factors which
cannot be predicted with certainty. At December 31, 2002, reserves for
potentially uncollectible accounts receivable totaled $19.6 million.
Guarantees - The Company has issued guarantees of customer financing to purchase
equipment as of December 31, 2002. The Company must assess the probability of
losses or non-performance in ways similar to the evaluation of accounts
receivable, including consideration of a customer's payment history, leverage,
availability of third party finance, political and exchange risks and other
factors. Many of these factors, including the assessment of a customer's ability
to pay, are influenced by economic and market factors that cannot be predicted
with certainty. To date, losses related to guarantees have been negligible.
Customers of the Company from time to time may fund the acquisition of the
Company's equipment through third-party finance companies. In certain instances,
the Company may provide a credit guarantee to the finance company, by which the
Company agrees to make payments to the finance company should the customer
default. The maximum liability of the Company is limited to the remaining
payments due to the finance company at the time of default. In the event of
customer default, the Company is generally able to dispose of the equipment with
the Company realizing the benefits of any net proceeds in excess of the
remaining payments due to the finance company.
As of December 31, 2002, the Company's maximum exposure to such credit
guarantees is $294.5 million. Total credit guarantees issued by Demag and Genie
as of December 31, 2002 totaled $171.6 million and $62.7 million, respectively.
The terms of these guarantees coincide with the financing arranged by the
customer and generally does not exceed five years. Given the Company's position
as the original equipment manufacturer and its knowledge of end markets, the
Company, when called upon to fulfill a guarantee, generally has been able to
liquidate the financed equipment at a minimal loss, if any, to the Company.
The Company, through its Genie subsidiary, issues residual value guarantees
under sales-type leases. A residual value guarantee involves a guarantee that a
piece of equipment will have a minimum fair market value at a future point in
time. As described in Note L - "Net Investment in Sales-Type Leases" in the
Notes to the Consolidated Financial Statements, the Company's maximum exposure
related to residual value guarantees at December 31, 2002 is $27.4 million. The
Company is able to mitigate the risk associated with these guarantees because
the maturity of the guarantees is staggered, which limits the amount of used
equipment entering the marketplace at any one time.
The Company from time to time guarantees that it will buy equipment from its
customers in the future at a stated price if certain conditions are met by the
customer. Such guarantees are referred to as buyback guarantees. These
conditions generally pertain to the functionality and state of repair of the
machine. As of December 31, 2002, the Company's maximum exposure pursuant to
buyback guarantees is $36.5 million. The Company is able to mitigate the risk of
these guarantees by staggering the timing of the buybacks and through leveraging
its access to the used equipment markets provided by the Company's original
equipment manufacturer status.
The Company recognizes a loss under a guarantee when the Company's obligation to
make payment under the guarantee is probable and the amount of the loss can be
estimated. A loss would be recognized if the Company's payment obligation under
the guarantee exceeds the value the Company can expect to recover to offset such
payment, primarily through the sale of the equipment underlying the guarantee.
Revenue Recognition -- Revenue and costs are generally recorded when products
are shipped and invoiced to either independently owned and operated dealers or
to customers. Certain new units may be invoiced prior to the time customers take
physical possession. Revenue is recognized in such cases only when the customer
has a fixed commitment to purchase the units, the units have been completed,
tested and made available to the customer for pickup or delivery, and the
customer has requested that the Company hold the units for pickup or delivery at
a time specified by the customer. In such cases, the units are invoiced under
the Company's customary billing terms, title to the units and risks of ownership
pass to the customer upon invoicing, the units are segregated from the Company's
inventory and identified as belonging to the customer and the Company has no
further obligations under the order.
Revenue generated in the United States is recognized when title and risk of loss
pass from the Company to its customers which occurs upon shipment when terms are
FOB shipping point (which is customary for the Company) and upon delivery when
terms are FOB destination. The Company also has a policy requiring it to meet
certain criteria in order to recognize revenue, including satisfaction of the
following requirements:
a) Persuasive evidence that an arrangement exists;
b) The price to the buyer is fixed or determinable;
45
c) Collectibility is reasonably assured; and
d) The Company has no significant obligations for future
performance.
In the United States, the Company has the ability to enter into a security
agreement and receive a security interest in the product by filing an
appropriate Uniform Commercial Code ("UCC") financing statement. However, a
significant portion of the Company's revenue is generated outside of the United
States. In many countries outside of the United States, as a matter of statutory
law, a seller retains title to a product until payment is made. The laws do not
provide for a seller's retention of a security interest in goods in the same
manner as established in the UCC. In these countries, the Company retains title
to goods delivered to a customer until the customer makes payment so that the
Company can recover the goods in the event of customer default on payment. In
these circumstances, where the Company only retains title to secure its recovery
in the event of customer default, the Company also has a policy which requires
it to meet certain criteria in order to recognize revenue, including
satisfaction of the following requirements:
a) Persuasive evidence that an arrangement exists;
b) Delivery has occurred or services have been rendered;
c) The price to the buyer is fixed or determinable;
d) Collectibility is reasonably assured;
e) The Company has no significant obligations for future
performance; and
f) The Company is not entitled to direct the disposition of the
goods, cannot rescind the transaction, cannot prohibit the
customer from moving, selling, or otherwise using the goods in the
ordinary course of business and has no other rights of holding
title that rest with a titleholder of property that is subject to
a lien under the UCC.
In circumstances where the sales transaction requires acceptance by the customer
for items such as testing on site, installation, trial period or performance
criteria, revenue is not recognized unless the following criteria have been met:
a) Persuasive evidence that an arrangement exists;
b) Delivery has occurred or services have been rendered;
c) The price to the buyer is fixed or determinable;
d) Collectibility is reasonably assured; and
e) The customer has given their acceptance, the time period for
acceptance has elapsed or the Company has otherwise objectively
demonstrated that the criteria specified in the acceptance
provisions have been satisfied.
In addition to performance commitments, the Company analyzes factors such as the
reason for the purchase to determine if revenue should be recognized. This
analysis is done before the product is shipped and includes the evaluation of
factors that may affect the conclusion related to the revenue recognition
criteria as follows:
a) Persuasive evidence that an arrangement exists;
b) Delivery has occurred or services have been rendered;
c) The price to the buyer is fixed or determinable; and
d) Collectibility is reasonably assured.
Goodwill & Acquired Intangible Assets - Goodwill represents the difference
between the total purchase price paid in the acquisition of a business and the
fair value of the assets, both tangible and intangible, and liabilities acquired
by the Company. Acquired intangible assets generally include trade names,
technology and customer relationships and are amortized over their estimated
useful lives. The Company is required annually to review the value of its
recorded goodwill and intangible assets to determine if either is potentially
impaired. The initial recognition of intangible assets, as well as the annual
review of the carrying value of goodwill and intangible assets, requires that
the Company develop estimates of future business performance. These estimates
are used to derive expected cash flow and include assumptions regarding future
sales levels, the impact of cost reduction programs, and the level of working
capital needed to support a given business. The Company relies on data developed
by business segment management as well as macroeconomic data in making these
calculations. The estimate also includes a determination of the Company's
weighted average cost of capital. The cost of capital is based on assumptions
about interest rates as well as a risk-adjusted rate of return required by the
Company's equity investors. Changes in these estimates can impact the present
value of the expected cash flow that is used in determining the fair value of
acquired intangible assets as well as the overall expected value of a given
business.
Impairment of Long Lived Assets - The Company's policy is to assess its ability
to realize on its long lived assets and to evaluate such assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of
such assets (or group of assets) may not be recoverable. Impairment is
determined to exist if the estimated future undiscounted cash flows is less than
its carrying value. Future cash flow projections include assumptions regarding
future sales levels, the impact of cost reduction programs, and the level of
working capital needed to support each business. The Company relies on data
developed by business segment management as well as macroeconomic data in making
these calculations. There are no assurances that future cash flow assumptions
will be achieved. The amount of any impairment then recognized would be
46
calculated as the difference between estimated fair value and the carrying value
of the asset.
Accrued Warranties - The Company records accruals for potential warranty claims
based on the Company's prior claim experience. Warranty costs are accrued at the
time revenue is recognized. However, adjustments to the initial warranty accrual
are recorded if actual claim experience indicates that adjustments are
necessary. These warranty costs are based upon management's assessment of past
claims and current experience. However, actual claims could be higher or lower
than amounts estimated, as the amount and value of warranty claims are subject
to variation as a result of many factors that cannot be predicted with
certainty, including the performance of new products, models and technology,
changes in weather conditions for product operation, different uses for products
and other similar factors.
Accrued Product Liability - The Company records accruals for potential product
liability claims based on the Company's prior claim experience. Accruals for
product liability claims are valued based upon the Company's prior claims'
experience, including consideration of the jurisdiction, circumstances of the
accident, type of loss or injury, identity of plaintiff, other potential
responsible parties, analysis of outside counsel, analysis of internal product
liability counsel and the experience of the Company's director of product
safety. The Company provides self-insurance accruals for estimated product
liability experience on known claims. Actual product liability costs could be
different due to a number of variables such as the decisions of juries or
judges.
Pension Benefits - Pension benefits represent financial obligations that will be
ultimately settled in the future with employees who meet eligibility
requirements. Because of the uncertainties involved in estimating the timing and
amount of future payments, significant estimates are required to calculate
pension expense and liabilities related to the Company's plans. The Company
utilizes the services of several independent actuaries, whose models are used to
facilitate these calculations.
Several key assumptions are used in actuarial models to calculate pension
expense and liability amounts recorded in the financial statements. Management
believes the three most significant variables in the models are expected
long-term rate of return on plan assets, the discount rate, and the expected
rate of compensation increase. The actuarial models also use assumptions for
various other factors including employee turnover, retirement age and mortality.
The Company's management believes the assumptions used in the actuarial
calculations are reasonable and are within accepted practices in each of the
respective geographic locations in which the Company operates.
The expected long-term rates of return on pension plan assets were 8.00% for
U.S. plans and 2.0% to 7.0% for international plans at December 31, 2002. These
rates are determined annually by management based on a weighted average of
current and historical market trends, historical portfolio performance and the
portfolio mix of investments.
The discount rates for pension plan liabilities were 6.75% for U. S. plans and
5.75% to 6.0% for international plans at December 31, 2002. These rates are used
to calculate the present value of plan liabilities and are determined annually
by management based on market yields for high-quality fixed income investments
on the measurement date.
The expected rates of compensation increase for the Company's pension plans were
5.0% for U.S. plans and 3.75% to 4.25% for international plans at December 31,
2002. These estimated annual compensation increases are determined by management
every year and are based on historical trends and market indices.
Income Taxes - At December 31, 2002 the Company had deferred tax assets of
$341.4 million ($200.4 million, net of valuation allowances). Income tax benefit
was $8.3 million for the year ended December 31, 2002. The Company estimates
income taxes based on diverse and complex regulations that exist in various
jurisdictions where it conducts business. Deferred income tax assets and
liabilities represent tax benefits or obligations that arise from temporary
timing differences due to differing treatment of certain items for accounting
and income tax purposes. The Company evaluates deferred tax assets each period
to ensure that estimated future taxable income will be sufficient in character
(e.g., capital gain versus ordinary income treatment), amount and timing to
result in their recovery. To the extent that the Company estimates recovery is
not likely, then the Company establishes a valuation allowance to reduce the
assets to their realizable value. Considerable judgments are required in
establishing deferred tax valuation allowances and in assessing possible
exposures related to tax matters. Tax returns are subject to audit and local
taxing authorities could challenge tax positions. The Company's practice is to
review tax-filing positions by jurisdiction and to record provisions for
probable tax assessments, including interest and penalties, if applicable. The
Company believes it records and/or discloses such potential tax liabilities as
appropriate and has reasonably estimated its income tax liabilities and
recoverable tax assets.
LIQUIDITY AND CAPITAL RESOURCES
Net cash of $70.3 million was provided by operating activities during the year
47
ended December 31, 2002. Reduced working capital needs provided approximately
$45 million of cash. The Company defines working capital as the sum of accounts
receivable and inventory less accounts payable. Net cash used in investing
activities was $440.6 million during the year ended December 31, 2002, primarily
related to the acquisitions of Genie and Demag. Net cash provided by financing
activities was $460.0 million during the year ended December 31, 2002. As
described below, this consists primarily of cash provided by the issuance of
long-term debt (approximately $572 million) and common stock (approximately $113
million) offset by the repayment of debt (approximately $220 million). Cash and
cash equivalents totaled $352.2 million at December 31, 2002. In addition, the
Company had $191.4 million available for borrowing under its revolving credit
facilities at December 31, 2002. Therefore, total liquidity available to the
Company at December 31, 2002 was approximately $543.6 million.
Including the February 2003 acquisitions of Commercial Body and Combatel and the
2002 acquisitions of Schaeff, Utility Equipment, Telelect Southeast, Advance
Mixer, Demag and Genie (see Note B --"Acquisitions" in the Notes to the
Consolidated Financial Statements), since the beginning of 1995 Terex has
invested approximately $1.9 billion to strengthen and expand its core businesses
through more than 25 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 those that would complement the Company's existing operations, the
Company is currently 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, issuances 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, September
2002 and February 2003, the Company issued approximately 3.6 million shares, 0.5
million shares, 0.3 million shares, 3.2 million shares and 0.6 million shares of
its common stock in connection with the acquisition of CMI, Utility Equipment,
Telelect Southeast, Genie and Commercial Body and Combatel, respectively. 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.
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. In the event of default, these borrowings could become
payable on demand.
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
48
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 that require the Company to
meet certain financial tests, including a pro forma consolidated leverage ratio
test, a consolidated interest ratio test, a consolidated fixed charge ratio
test, a pro forma consolidated senior secured debt leverage ratio test and a
capital expenditures test. 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. The Company is currently
in compliance with its financial covenants under its bank credit facilities. The
Company's ability to remain compliant with its covenants in the future is
dependent on its ability to maintain its earnings, including its ability to
generate cash flow from working capital reductions, realize cost savings at
recently acquired units, realize the benefit of its restructuring programs and
maintain an appropriate level of operating profits. The interest rates charged
are subject to adjustment based on the Company's consolidated leverage ratio.
The weighted average interest rate on the outstanding portion of the revolving
credit component of the Company's bank credit facility was 4.59% at December 31,
2002.
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 from the issuance of senior subordinated notes and $210 million from the
issuance of its common stock.
The Company's contractual cash obligations at December 31, 2002, are as follows:
Payments due by year
---------------------------------------------------------------------
Total
Committed 2003 2004 2005 2006 2007 There-after
--------------- ----------- --------- ---------- ----------- ----------- ------------
Long-term debt obligations...... $ 1,450.6 $ 36.8 $ 18.7 $ 10.6 $ 8.8 $ 62.1 $ 1,313.6
Capital lease obligations....... 88.3 37.4 22.7 15.5 2.1 0.7 9.9
Operating lease obligations..... 278.2 41.3 36.5 29.4 22.7 18.7 129.6
--------------- ----------- --------- ---------- ----------- ----------- ------------
$ 1,817.1 $ 115.5 $ 77.9 $ 55.5 $ 33.6 $ 81.5 $ 1,453.1
=============== =========== ========= ========== =========== =========== ============
Additionally, at December 31, 2002, the Company had outstanding letters of
credit that totaled $90.6 million and had issued $294.5 million in guarantees of
customer financing to purchase equipment, $27.4 million in residual value
guarantees and $36.5 million in buyback guarantees.
The Company maintains defined benefit pension plans for some of its operations
in the United States and Europe. It is the Company's policy to fund the pension
plans at the minimum level required by applicable regulations. In 2002, cash
contributions to the pension plans by the Company were $8.0 million, and the
Company estimates that its pension plan contributions will be approximately $8
million in 2003.
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 million in cash in exchange for its
ownership interest in GFSH B.V. During January 2002, Genie contributed an
additional $0.6 million in cash to GFSH 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.
49
GFSH B.V. was established to facilitate the financing of Genie's products sold
in Europe. As of December 31, 2002, the joint venture's total assets were $117.1
million and consisted primarily of financing receivables and lease related
equipment; total liabilities were $106.0 million and consisted primarily of debt
issued by the fifty-one percent (51%) joint venture partner. The Company
provided guarantees related to potential losses arising from shortfalls in the
residual values of financed equipment or credit defaults by the joint venture's
customers. As of December 31, 2002, the maximum exposure to loss under these
guarantees is approximately $7 million. Additionally, the Company is required to
maintain a capital account balance in GFSH B.V., pursuant to the terms of the
joint venture, which could result in the reimbursement to GFSH B.V. by the
Company of losses to the extent of the Company's ownership percentage.
CONTINGENCIES AND UNCERTAINTIES
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.
At December 31, 2002, the Company had foreign exchange contracts with a notional
value of $147.5 million.
The Company manages exposure to fluctuating interest rates with interest
protection arrangements. 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. The Company has
entered into interest protection arrangements with respect to approximately $100
million of the principal amount of its indebtedness under its bank credit
facility, fixing interest at 6.51% for the period from July 1, 2004 through June
30, 2009.
Certain of the Company's obligations, including its senior subordinated notes,
bear interest at a fixed interest rate. The Company has entered into interest
rate agreements to convert these fixed rates to floating rates with respect to
approximately $250 million of the principal amount of its indebtedness under its
8-7/8% Senior Subordinated Notes and approximately $79 million of capital
leases. The floating rates are based on a spread of 2.91% to 4.49% over LIBOR.
At December 31, 2002, the floating rates ranged between 4.29% and 5.88%.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes a new model for
accounting for derivative and hedging activities and supersedes and amends a
number of existing standards. Upon initial application, all derivatives were
required to be recognized in the statement of financial position as either
assets or liabilities and measured at fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other comprehensive
income, depending on whether a derivative is designated as part of a hedge
transaction and, if it is, the type of hedge transaction. In addition, all
hedging relationships must be reassessed and documented pursuant to the
provisions of SFAS No. 133. SFAS No. 133 became effective for the Company
beginning in 2001. Upon adoption of this statement on January 1, 2001, the
Company did not experience a significant impact on its financial position or
results of operations.
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
50
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 non-hazardous 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, such
as discharges to air and water, and also require compliance with certain
practices when handling and disposing of hazardous and non-hazardous wastes.
These laws and regulations 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. No such incidents have
occurred which required the Company to pay material amounts to comply with such
laws and regulations. Compliance with such laws and regulations has required,
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.
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
the mining shovel subsidiary O&K Mining GmbH from O&K AG, and are claiming
restitution 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 voluntarily dismiss the Company from the
action. On June 12, 2002, the United States Department of Justice filed a
Statement of Interest in the action that expresses the foreign policy interests
of the United States in dismissal of the case. 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. The Company, among
others, has made a claim for indemnification with respect to the action against
O&K AG and ThyssenKrupp AG.
Transactions with Former Employees
Atlas Terex, which the Company acquired in December 2001, was previously owned
by David Langevin, a former executive officer of the Company, and GKM Value
Partners L.P. ("GKM"), of which Mr. Langevin is a general partner. Mr. Langevin
left the Company to pursue other interests in 1998. In July 2001, the Company
entered into an agreement with GKM and Mr. Langevin whereby the Company was
granted an option to purchase all of the share capital of Atlas Terex for $750
thousand. The Company and Atlas Terex also entered into an agreement for the
Company to lend Atlas Terex funds for working capital purposes. During the
option period, the Company provided Atlas Terex with certain management
consulting services for which the Company received compensation. The Company
exercised its option to acquire Atlas Terex from GKM and Mr. Langevin for $750
thousand and completed the acquisition on December 28, 2001. The terms of the
transactions between the Company, Mr. Langevin, GKM and Atlas Terex are similar
to terms that the Company believes would have been agreed upon in an arm's
length transaction.
During 2002, the Company and a partnership formed by Mr. Langevin and certain
individuals affiliated with Mr. Langevin and/or GKM formed GT Distribution, LLC
("GT Distribution"), a limited liability company in which the Company and such
partnership are the only members. On April 10, 2002, GT Distribution completed
the acquisition of C&M for an aggregate purchase price of $2.7 million. In
connection with this transaction, the Company acquired from an unaffiliated
financial institution outstanding loans in the amount of approximately $5.9
million owed by C&M to that financial institution, and C&M remains obligated to
make payments to the Company pursuant to the terms of such loans. The results of
C&M have been consolidated in the Company's financial results from December 1,
2002. The terms of the transactions between the Company, Mr. Langevin, GT
Distribution and C&M are similar to terms that the Company believes would have
been agreed upon in an arm's length transaction.
Forward-Looking Information
Certain information in this Annual 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 "Contingencies and Uncertainties". In addition, when
included in this Annual 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
51
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 and government spending; the ability to successfully
integrate acquired businesses; the retention of key management personnel; 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
Annual 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 Annual 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 7A. 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. See Note E -
"Derivative Financial Instruments" to the Consolidated Financial Statements for
further information on accounting policies related to derivative financial
instruments.
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 December 31, 2002, the Company had foreign
exchange contracts with a notional value of $147.5 million. The fair market
value of these arrangements, which represents the cost to settle these
contracts, was an asset of approximately $4 million at December 31, 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 U.S. prime rate and London Interbank
Offer Rate ("LIBOR"). The Company uses interest rate swaps to reduce interest
rate volatility. At December 31, 2002, approximately 60% of the Company's debt
was floating rate debt and the weighted average interest rate for all debt was
approximately 6.3%.
At December 31, 2002, the Company had approximately $100 million of interest
rate swaps fixing interest rates at 6.51% for the period from July 1, 2004
through June 30, 2009. The fair market value of these arrangements, which
represents the cost to settle these contracts, was a liability of approximately
$1 million at December 31, 2002.
At December 31, 2002, the Company had approximately $329 million of interest
rate swaps that converted fixed rates to floating rates. The floating rates
ranged between 4.29% and 5.88% at December 31, 2002. The fair market value of
these arrangements, which represent the cost to settle these contracts, was an
asset of approximately $19 million.
At December 31, 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 December 31, 2002 would have increased interest expense by
approximately $6 million in 2002.
52
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Unaudited Quarterly Financial Data
Summarized quarterly financial data for 2002 and 2001 are as follows (in
millions, except per share amounts):
2002 2001
------------------------------------- -------------------------------------
Fourth Third Second First Fourth Third Second First
------------------------------------- -------------------------------------
Net sales .................................. $ 851.1 $674.1 $690.2 $582.0 $ 442.1 $453.7 $439.3 $477.4
Gross profit................................ 64.8 88.7 111.9 91.3 72.3 45.5 80.2 78.6
Income (loss) before extraordinary items.... (40.3) 11.4 5.2 6.2 3.2 (10.9) 12.0 12.4
Net income (loss) .......................... (40.3) 9.8 5.2 (107.2) 1.6 (10.9) 12.0 10.1
Goodwill amortization after tax............. --- --- --- --- 3.5 2.0 2.0 2.2
Net income (loss) excluding goodwill
amortization (a).......................... (40.3) 9.8 5.2 (107.2) 5.1 (8.9) 14.0 12.3
Per share:
Basic
Income (loss) before extraordinary items $ (0.85) $ 0.26 $ 0.12 $ 0.16 $ 0.10 $ (0.41) $ 0.45 $ 0.46
Net income (loss) ...................... (0.85) 0.22 0.12 (2.82) 0.05 (0.41) 0.45 0.37
Goodwill amortization after tax.......... --- --- --- --- 0.11 0.08 0.07 0.08
Net income (loss) excluding goodwill
amortization (a)....................... (0.85) 0.22 0.12 (2.82) 0.16 (0.33) 0.52 0.45
Diluted
Income (loss) before extraordinary items $ (0.85) $ 0.25 $ 0.12 $ 0.16 $ 0.10 $ (0.41) $ 0.43 $ 0.45
Net income (loss) ...................... (0.85) 0.22 0.12 (2.77) 0.05 (0.41) 0.43 0.37
Goodwill amortization after tax.......... --- --- --- ---- 0.11 0.08 0.07 0.08
Net income (loss) excluding goodwill
amortization (a)....................... (0.85) 0.22 0.12 (2.77) 0.16 (0.33) 0.50 0.45
(a) Net income (loss) excluding goodwill amortization excludes the goodwill
amortization expense, net of income tax, for periods prior to 2002. See Note C -
"Accounting Change -- Business Combinations and Goodwill" to the Consolidated
Financial Statements.
The accompanying unaudited quarterly financial data of the Company have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with Item 302 of Regulation S-K. In the opinion of
management, all adjustments considered necessary for a fair presentation have
been made and were of a normal recurring nature except for those discussed
below.
During the fourth quarter of 2002, the Company recorded expenses of $52.9
million for restructuring projects with the goal of eliminating products,
adjusting capacity to meet market conditions and eliminating overlap related to
the Company's recent acquisitions.
During the first quarter of 2002, the Company recorded a charge for the
cumulative effect of change in accounting principle of $113.4 million. 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). This charge was
partially offset by a one-time gain ($17.8 million, $10.7 million net of income
taxes) recognized on January 1, 2002 in the Fermec business. The purchase price
paid by the Company to acquire Fermec was less than the net assets acquired in
the transaction. Prior to January 1, 2002, the difference was recorded as a
deferred credit in goodwill. As required by SFAS No. 141, this credit balance
was recognized as a cumulative effect adjustment on January 1, 2002.
During the fourth quarter of 2001, the Company recorded expenses of $1.2 million
for severance and consolidation costs related to its decision to consolidate
seven facilities and restructure certain operations. These costs were included
in cost of sales in the statement of income.
53
During the third quarter of 2001, the Company recorded expenses of $28.7 million
in relation to its announcement that it would consolidate seven facilities as
part of a restructuring plan. These costs were for severance and consolidation
costs related to these actions as well as other non-recurring expenses. These
items have been reflected in cost of sales and selling, general and
administrative expenses in the statement of income in the amounts of $24.8
million and $3.9 million, respectively.
Extraordinary Items
During the third quarter of 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.
In the fourth and first quarters of 2001, the Company recognized extraordinary
losses on the early extinguishments of debt ($1.6 million and $2.3 million,
respectively) in connection with the prepayment of principal on its existing
credit facility.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 is incorporated by reference to the
definitive Terex Corporation Proxy Statement to be filed with the Securities and
Exchange Commission not later than 120 days after the end of the fiscal year
covered by this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by reference to the
definitive Terex Corporation Proxy Statement to be filed with the Securities and
Exchange Commission not later than 120 days after the end of the fiscal year
covered by this Annual Report on Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Equity Compensation Plan Information
The following table summarizes information about our equity compensation plans
as of December 31, 2002.
Number of securities
remaining available for
Weighted average future issuance under
Number of securities to exercise price of equity compensation
be issued upon exercise outstanding plans (excluding
of outstanding options, options, warrants securities reflected in
Plan Category warrants and rights (a) and rights (b) column (a)) (c)
- ------------------------------------ ------------------------ -------------------- --------------------------
Equity compensation plans 2,265,870 $ 19.37 1,674,555
approved by shareholders ........
Equity compensation plans not
approved by shareholders (1)..... --- --- ---
------------------------- --------------------------
Total......................... 2,265,870 $ 19.37 1,674,555
========================= ==========================
(1) Does not include options assumed in connection with the Company's
acquisition of CMI. As of December 31, 2002, there were 22,400 options
outstanding as a result of the Company's assumption of options granted by
CMI, with a weighted-average exercise price of $24.83. The Company has
not made, and will not make, any grants or awards under the CMI equity
compensation plan.
54
The other information required by Item 12 is incorporated by reference to the
definitive Terex Corporation Proxy Statement to be filed with the Securities and
Exchange Commission not later than 120 days after the end of the fiscal year
covered by this Annual Report on Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated by reference to the
definitive Terex Corporation Proxy Statement to be filed with the Securities and
Exchange Commission not later than 120 days after the end of the fiscal year
covered by this Annual Report on Form 10-K.
ITEM 14: 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.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) and (2) Financial Statements and Financial Statement Schedules.
See "Index to Consolidated Financial Statements and Financial Statement
Schedule" on Page F-1.
(3) Exhibits
See "Exhibit Index" on Page E-1.
(b) Reports on Form 8-K
During the quarter ended December 31, 2002, the Company filed the following
Current Reports on Form 8-K:
- - A report on Form 8-K dated October 1, 2002 was filed on October 1, 2002
announcing the appointment of Mr. Helge H. Wehmeier to the Company's Board
of Directors.
- - A report on Form 8-K dated October 4, 2002 was filed on October 4, 2002
providing exhibits for and announcing the Company's Offer of Accommodation
for holders of the Company's expired Common Stock Appreciation Rights to
receive shares of Terex Common Stock.
- - A report on Form 8-K/A dated September 13, 2002 was filed on November 26,
2002 providing the financial statements and pro forma information required
to be filed in connection with the acquisition of Genie Holdings, Inc.
55
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By: /s/ Ronald M. DeFeo March 28, 2003
-----------------------------------
Ronald M. DeFeo,
Chairman, Chief Executive Officer
and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Name Title Date
- ---- ----- ----
/s/ Ronald M. DeFeo Chairman, Chief Executive Officer, March 28, 2003
- ------------------------- and Director
Ronald M. DeFeo (Principal Executive Officer)
/s/ Phillip C. Widman Senior Vice President - March 28, 2003
- ------------------------- Chief Financial Officer
Phillip C. Widman (Principal Financial Officer)
/s/ Mark T. Cohen Controller March 28, 2003
- ------------------------- (Principal Accounting Officer)
Mark T. Cohen
/s/ G. Chris Andersen Director March 28, 2003
- -------------------------
G. Chris Andersen
/s/ Don DeFosset Director March 28, 2003
- -------------------------
Don DeFosset
/s/ Donald P. Jacobs Director March 28, 2003
- -------------------------
Donald P. Jacobs
/s/ William H. Fike Director March 28, 2003
- -------------------------
William H. Fike
/s/ David A. Sachs Director March 28, 2003
- -------------------------
David A. Sachs
/s/ J. C. Watts, Jr. Director March 28, 2003
- -------------------------
J. C. Watts, Jr.
/s/ Helge H. Wehmeier Director March 28, 2003
- -------------------------
Helge H. Wehmeier
56
CERTIFICATION
I, Ronald M. DeFeo, Chairman, President and Chief Executive Officer of Terex
Corporation, certify that:
1. I have reviewed this annual report on Form 10-K of Terex Corporation;
2. Based on my knowledge, this annual 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 annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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 annual 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 annual
report (the "Evaluation Date"); and
c) presented in this annual 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 annual
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: March 28, 2003
/s/ Ronald M. DeFeo
Ronald M. DeFeo
Chairman, President and
Chief Executive Officer
57
CERTIFICATION
I, Phillip C. Widman, Senior Vice President and Chief Financial Officer of Terex
Corporation, certify that:
1. I have reviewed this annual report on Form 10-K of Terex Corporation;
2. Based on my knowledge, this annual 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 annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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 annual 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 annual
report (the "Evaluation Date"); and
c) presented in this annual 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 annual
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: March 28, 2003
/s/ Phillip C. Widman
Phillip C. Widman
Senior Vice President and
Chief Financial Officer
58
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NEXT PAGE IS NUMBERED "F-1"
59
TEREX CORPORATION AND SUBSIDIARIES
Index to Consolidated Financial Statements and Financial Statement Schedule
Page
----
TEREX CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002 AND 2001
AND FOR EACH OF THE THREE YEARS
IN THE PERIOD ENDED DECEMBER 31, 2002
Report of independent accountants.........................................F - 2
Consolidated statement of income .........................................F - 3
Consolidated balance sheet................................................F - 4
Consolidated statement of changes in stockholders' equity.................F - 5
Consolidated statement of cash flows......................................F - 6
Notes to consolidated financial statements................................F - 7
FINANCIAL STATEMENT SCHEDULE
Schedule II -- Valuation and Qualifying Accounts and Reserves............F - 53
All other schedules for which provision is made in the applicable regulations of
the Securities and Exchange Commission are not required under the related
instructions or are not applicable, and therefore have been omitted.
F - 1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of Terex Corporation
In our opinion, the consolidated financial statements listed in the accompanying
index on page F-1 present fairly, in all material respects, the financial
position of Terex Corporation and its subsidiaries (the "Company") at December
31, 2002 and 2001, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2002, in conformity
with accounting principles generally accepted in the United States of America.
In addition, in our opinion, the financial statement schedule listed in the
accompanying index on page F-1 presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedule are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
As described in Note C to the consolidated financial statements, the Company
adopted Statements of Financial Accounting Standards No. 141, "Business
Combinations," and No. 142, "Goodwill and Other Intangible Assets," effective
January 1, 2002.
PricewaterhouseCoopers LLP
Stamford, Connecticut
March 12, 2003
F - 2
TEREX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(in millions, except per share amounts)
Year Ended December 31,
------------------------------------
2002 2001 2000
----------- ----------- ------------
NET SALES.......................................................................... $ 2,797.4 $ 1,812.5 $ 2,068.7
COST OF GOODS SOLD................................................................. 2,440.7 1,540.1 1,715.0
----------- ----------- ------------
GROSS PROFIT.................................................................... 356.7 272.4 353.7
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES....................................... 288.1 168.2 155.4
----------- ----------- ------------
INCOME FROM OPERATIONS.......................................................... 68.6 104.2 198.3
OTHER INCOME (EXPENSE)
Interest income................................................................. 7.5 7.7 5.5
Interest expense................................................................ (92.9) (86.7) (99.8)
Gain on sale of businesses...................................................... --- --- 57.2
Amortization of debt issuance costs............................................. (4.8) (3.8) (3.5)
Other income (expense) - net.................................................... (4.2) 3.2 1.9
----------- ----------- ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
AND EXTRAORDINARY ITEMS....................................................... (25.8) 24.6 159.6
BENEFIT FROM (PROVISION FOR) INCOME TAXES.......................................... 8.3 (7.9) (55.7)
----------- ----------- ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE EXTRAORDINARY
ITEMS........................................................................ (17.5) 16.7 103.9
LOSS FROM DISCONTINUED OPERATIONS.................................................. --- --- (7.3)
----------- ----------- ------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS........................................... (17.5) 16.7 96.6
EXTRAORDINARY LOSS ON RETIREMENT OF DEBT........................................... (1.6) (3.9) (1.5)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (net of income tax expense
of $1.0 in 2002)................................................................ (113.4) --- ---
----------- ----------- ------------
NET INCOME (LOSS)............................................................... $ (132.5) $ 12.8 $ 95.1
=========== =========== ============
PER COMMON SHARE:
Basic
Income (loss) from continuing operations....................................... $ (0.41) $ 0.60 $ 3.82
Loss from discontinued operations.............................................. --- --- (0.27)
----------- --------- ------------
Income (loss) before extraordinary items..................................... (0.41) 0.60 3.55
Extraordinary loss on retirement of debt....................................... (0.04) (0.14) (0.05)
Cumulative effect of change in accounting principle............................ (2.62) --- ---
----------- ----------- ------------
Net income (loss)............................................................. $ (3.07) $ 0.46 $ 3.50
=========== =========== ============
Diluted
Income (loss) from continuing operations....................................... $ (0.41) $ 0.58 $ 3.72
Loss from discontinued operations.............................................. --- --- (0.26)
----------- ----------- ------------
Income (loss) before extraordinary items..................................... (0.41) 0.58 3.46
Extraordinary loss on retirement of debt....................................... (0.04) (0.14) (0.05)
Cumulative effect of change in accounting principle............................ (2.62) --- ---
----------- ----------- ------------
Net income (loss)............................................................ $ (3.07) $ 0.44 $ 3.41
=========== =========== ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING IN PER SHARE CALCULATION:
Basic...................................................................... 43.2 28.1 27.2
Diluted.................................................................... 43.2 28.9 27.9
The accompanying notes are an integral part of these financial statements.
F - 3
TEREX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in millions, except par value)
December 31,
-------------------------
2002 2001
----------- -----------
CURRENT ASSETS
Cash and cash equivalents................................................................... $ 352.2 $ 250.4
Trade receivables (less allowance of $19.6 and $8.6 as of December 31, 2002 and 2001,
respectively).............................................................................. 578.6 351.1
Net inventories............................................................................. 1,106.3 704.8
Deferred taxes.............................................................................. 46.9 23.7
Other current assets........................................................................ 137.1 53.0
------------- -----------
Total Current Assets..................................................... 2,221.1 1,383.0
LONG-TERM ASSETS
Property, plant and equipment - net......................................................... 309.4 173.9
Goodwill.................................................................................... 622.9 620.1
Deferred taxes.............................................................................. 153.5 75.4
Other assets................................................................................ 318.8 134.6
------------- -----------
TOTAL ASSETS................................................................................... $ 3,625.7 $ 2,387.0
============= ===========
CURRENT LIABILITIES
Notes payable and current portion of long-term debt......................................... $ 74.1 $ 34.7
Trade accounts payable...................................................................... 542.9 291.0
Accrued compensation and benefits........................................................... 74.0 37.4
Accrued warranties and product liability.................................................... 86.0 62.7
Other current liabilities................................................................... 329.2 201.3
------------- -----------
Total Current Liabilities................................................ 1,106.2 627.1
NON CURRENT LIABILITIES
Long-term debt, less current portion........................................................ 1,487.1 1,020.7
Other....................................................................................... 263.2 143.8
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Equity rights................................................................................ --- 0.5
Common Stock, $0.01 par value --
authorized 150.0 shares; issued 48.6 and 37.5 shares at December 31, 2002 and 2001,
respectively............................................................................... 0.5 0.4
Additional paid-in capital.................................................................. 772.7 532.4
Retained earnings........................................................................... 67.4 199.9
Accumulated other comprehensive income (loss)............................................... (53.6) (120.3)
Less cost of shares of common stock in treasury (1.2 and 1.1 shares at December 31, 2002
and 2001, respectively).................................................................... (17.8) (17.5)
------------- -----------
Total Stockholders' Equity.................................................. 769.2 595.4
------------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY..................................................... $ 3,625.7 $ 2,387.0
============= ===========
The accompanying notes are an integral part of these financial statements.
F - 4
TEREX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(in millions)
Accumulated
Other
Additional Comprehen- Common
Equity Common Paid-in Retained siv Income Stock in
Warrants Rights Stock Capital Earnings (Loss) Treasury Total
----------- --------- ---------- ----------- ---------- ----------- ------------ -----------
BALANCE AT
DECEMBER 31, 1999 .................. $ 0.8 $ 0.8 $ 0.3 $ 355.0 $ 92.0 $ (16.1) $ --- $ 432.8
Net Income ........................... --- --- --- --- 95.1 --- --- 95.1
Other Comprehensive Income
(Loss):
Translation adjustment ........... --- --- --- --- --- (62.6) --- (62.6)
Pension liability adjustment...... --- --- --- --- --- 0.2 --- 0.2
------
Comprehensive Income (Loss) .......... 32.7
------
Exercise of Equity Rights ............ --- (0.1) --- (0.1) --- --- --- (0.2)
Issuance of Common Stock ............. --- --- --- 3.0 --- --- --- 3.0
Exercise of Warrants ................. (0.8) --- --- 0.8 --- --- --- ---
Acquisition of Businesses ............ --- --- --- 0.2 --- --- 3.2 3.4
Acquisition of Treasury Shares........ --- --- --- --- --- --- (20.2) (20.2)
----------- --------- ---------- ----------- ---------- ----------- ------------ -----------
BALANCE AT ............................ --- 0.7 0.3 358.9 187.1 (78.5) (17.0) 451.5
DECEMBER 31, 2000
Net Income ........................... --- --- --- --- 12.8 --- --- 12.8
Other Comprehensive Income
(Loss):
Translation adjustment ............ --- --- --- --- --- (37.7) --- (37.7)
Pension liability adjustment...... --- --- --- --- --- (3.3) --- (3.3)
Derivative hedging
adjustment ......................... --- --- --- --- --- (0.8) --- (0.8)
------
Comprehensive Income (Loss) .......... (29.0)
------
Issuance of Common Stock ............. --- --- 0.1 98.4 --- --- --- 98.5
Acquisition of businesses ............ --- --- --- 74.9 --- --- (0.5) 74.4
Exercise of Equity Rights ............ --- (0.2) --- 0.2 --- --- --- ---
----------- --------- ---------- ----------- ---------- ----------- ------------ -----------
BALANCE AT ............................ --- 0.5 0.4 532.4 199.9 (120.3) (17.5) 595.4
DECEMBER 31, 2001 .................. ---
Net Income (loss) .................... --- --- --- --- (132.5) --- --- (132.5)
Other Comprehensive Income
(Loss):
Translation adjustment ........... --- --- --- --- --- 90.6 --- 90.6
Pension liability adjustment...... --- --- --- --- --- (26.8) --- (26.8)
Derivative hedging
adjustment ...................... --- --- --- --- --- 2.9 --- 2.9
------
Comprehensive Income (Loss) .......... (65.8)
------
Exercise of Equity Rights ............ --- (0.5) --- 0.5 --- --- --- ---
Issuance of Common Stock ............. --- --- 0.1 119.0 --- --- --- 119.1
Acquisition of Treasury Shares ....... --- --- --- 0.3 --- --- (0.3) ---
Acquisition of businesses ............ --- --- --- 120.5 --- --- --- 120.5
----------- --------- ---------- ----------- ---------- ----------- ------------ -----------
BALANCE AT DECEMBER 31, 2002 .......... $ --- $ --- $ 0.5 $ 772.7 $ 67.4 $ (53.6) $ (17.8) $ 769.2
=========== ========= ========== =========== ========== =========== ============ ===========
The accompanying notes are an integral part of these financial statements.
F - 5
TEREX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
Year Ended December 31,
------------------------------------------
2002 2001 2000
--------------- ------------- ------------
OPERATING ACTIVITIES
Net income (loss).........................................................$ (132.5) $ 12.8 $ 95.1
Adjustments to reconcile net income (loss) to cash provided by (used in)
operating activities:
Depreciation ......................................................... 35.9 22.5 23.0
Amortization.......................................................... 9.1 17.8 18.5
Gain on sale of businesses............................................ --- --- (34.2)
Deferred taxes........................................................ (35.2) 10.7 33.5
Extraordinary loss on retirement of debt.............................. 1.6 3.9 1.5
Loss from discontinued operations..................................... --- --- 7.3
Gain on sale of fixed assets.......................................... (0.7) (1.5) (0.6)
Gain on foreign currency futures...................................... (3.8) --- ---
Restructuring charges................................................. 50.9 19.5 ---
Impairment charges and asset writedowns............................... 140.8 --- ---
Changes in operating assets and liabilities (net of effects of
acquisitions):
Trade receivables.................................................. 11.6 28.1 64.2
Net inventories.................................................... (52.7) (19.6) 43.6
Trade accounts payable............................................. 86.5 (40.5) 12.8
Other.............................................................. (41.2) (59.2) (64.1)
--------------- ------------- ------------
Net cash provided by (used in) operating activities.............. 70.3 (5.5) 200.6
--------------- ------------- ------------
INVESTING ACTIVITIES
Acquisition of businesses, net of cash acquired........................ (445.9) (130.8) (20.0)
Capital expenditures................................................... (29.2) (13.5) (24.2)
Proceeds from sale of businesses....................................... --- --- 144.3
Proceeds from sale of assets........................................... 34.5 8.0 10.8
--------------- ------------- ------------
Net cash provided by (used in) investing activities.............. (440.6) (136.3) 110.9
--------------- ------------- ------------
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt, net of issuance costs........ 572.0 481.4 ---
Issuance of common stock............................................... 113.3 96.3 ---
Principal repayments of long-term debt................................. (219.6) (388.5) (183.1)
Net borrowings (repayments) under revolving line of credit agreements.. (0.8) 23.6 (53.6)
Purchases of common stock held in treasury............................. --- --- (20.2)
Other.................................................................. (4.9) (1.3) (4.3)
--------------- ------------- ------------
Net cash provided by (used in) financing activities.............. 460.0 211.5 (261.2)
--------------- ------------- ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS.............. 12.1 (0.7) (2.2)
--------------- ------------- ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS................................. 101.8 69.0 48.1
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.......................... 250.4 181.4 133.3
--------------- ------------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................................$ 352.2 $ 250.4 $ 181.4
=============== ============= ============
The accompanying notes are an integral part of these financial statements.
F - 6
TEREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002
(dollar amounts in millions, unless otherwise noted, except per share amounts)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation. The 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. The equity method is used to account for investments in
affiliates in which the Company has an ownership interest between 20% and 50%.
Investments in entities in which the Company has an ownership interest of less
than 20% are accounted for on the cost method or at fair value in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 115 "Accounting
for Certain Investments in Debt and Equity Securities."
Reclassification. During 2001, the Company's Terex Mining segment reclassified
service costs from Selling, General and Administrative Expenses to Cost of Goods
Sold, and, therefore, the applicable 2001 and 2000 year amounts have been
reclassified for comparative purposes.
Use of Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual amounts could differ from those estimates.
Cash and Cash Equivalents. Cash equivalents consist of highly liquid investments
with original maturities of three months or less. The carrying amount of cash
and cash equivalents approximates their fair value. Cash and cash equivalents at
December 31, 2002 and 2001 include $4.5 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.
Inventories. Inventories are stated at the lower of cost or market value. Cost
is determined by the first-in, first-out ("FIFO") method.
Debt Issuance Costs. Debt issuance costs incurred in securing the Company's
financing arrangements are capitalized and amortized over the term of the
associated debt. Capitalized debt issuance costs related to debt that is retired
early are charged to extraordinary expense at the time of retirement. Debt
issuance costs before amortization totaled $41.9 and $32.2 at December 31, 2002
and 2001, respectively.
Intangible Assets. Intangible assets include purchased patents, trademarks and
other specifically identifiable assets and are amortized on a straight-line
basis over the respective estimated useful lives, which range from three to
twelve years.
Goodwill. In July 2001, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standard ("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 to 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
142, goodwill related to acquisitions completed after June 30, 2001, has not
been amortized and, effective January 1, 2002, goodwill related to acquisitions
completed prior to July 1, 2001 is no longer amortized. Under this standard,
goodwill and indefinite life intangible assets will be reviewed for impairment
and written down only in the period in which the recorded value of such assets
exceed their fair value. The initial impairment test was performed as of January
1, 2002, which resulted in an impairment charge reported as a cumulative effect
of change in accounting principle. The Company selected October 1 as the date
for the required annual impairment test. The impairment test performed as of
October 1, 2002 resulted in no impairment charge. Subsequent impairment tests
will be performed effective October 1 of each year and more frequently if
circumstances warrant. See Note C - "Accounting Changes - Business Combinations
and Goodwill."
The initial recognition of intangible assets, as well as the annual review of
the carrying value of goodwill and intangible assets, requires that the Company
develop estimates of future business performance. These estimates are used to
F - 7
derive expected cash flow and include assumptions regarding future sales levels,
the impact of cost reduction programs, and the level of working capital needed
to support a given business. The Company relies on data developed by business
segment management as well as macroeconomic data in making these calculations.
The estimate also includes a determination of the Company's weighted average
cost of capital. The cost of capital is based on assumptions about interest
rates as well as a risk-adjusted rate of return required by the Company's equity
investors. Changes in these estimates cam impact the present value of the
expected cash flow that is used in determining the fair value of acquired
intangible assets as well as the overall expected value of a given business.
Goodwill, representing the difference between the total purchase price and the
fair value of assets (tangible and intangible) and liabilities at the date of
acquisition, for all acquisitions prior to July 1, 2001, was being amortized on
a straight-line basis over between fifteen and forty years. Accumulated
amortization is $57.4 and $54.1 at December 31, 2002 and 2001, respectively.
During the years ended December 31, 2001 and 2000, the Company incurred goodwill
amortization expenses of $14.2 and $14.5, respectively.
Property, Plant and Equipment. Property, plant and equipment are stated at cost.
Expenditures for major renewals and improvements are capitalized while
expenditures for maintenance and repairs not expected to extend the life of an
asset beyond its normal useful life are charged to expense when incurred. Plant
and equipment are depreciated over the estimated useful lives of the assets
under the straight-line method of depreciation for financial reporting purposes
and both straight-line and other methods for tax purposes.
Impairment of Long-Lived Assets. The Company's policy is to assess the
realizability of its long-lived assets and to evaluate such assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of such assets (or group of assets) may not be recoverable.
Impairment is determined to exist if the estimated future undiscounted cash
flows are less than the carrying value. The amount of any impairment then
recognized would be calculated as the difference between estimated future
discounted cash flows and the carrying value of the asset.
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 matters being reported as discontinued operations in the future.
Refer to Note F - "Restructuring and Other Charges" for information on the
recognition of impairment losses in 2002.
Revenue Recognition. Revenue and costs are generally recorded when products are
shipped and invoiced to either independently owned and operated dealers or to
customers. Certain new units may be invoiced prior to the time customers take
physical possession. Revenue is recognized in such cases only when the customer
has a fixed commitment to purchase the units, the units have been completed,
tested and made available to the customer for pickup or delivery, and the
customer has requested that the Company hold the units for pickup or delivery at
a time specified by the customer. In such cases, the units are invoiced under
the Company's customary billing terms, title to the units and risks of ownership
pass to the customer upon invoicing, the units are segregated from the Company's
inventory and identified as belonging to the customer and the Company has no
further obligations under the order.
Revenue generated in the United States is recognized when title and risk of loss
pass from the Company to its customers which occurs upon shipment when terms are
FOB shipping point (which is customary for the Company) and upon delivery when
terms are FOB destination. The Company also has a policy which requires it to
meet certain criteria in order to recognize revenue, including satisfaction of
the following requirements:
a) Persuasive evidence that an arrangement exists;
b) The price to the buyer is fixed or determinable;
c) Collectibility is reasonably assured; and
d) The Company has no significant obligations for future performance.
In the United States, the Company has the ability to enter into a security
agreement and receive a security interest in the product by filing an
appropriate Uniform Commercial Code ("UCC") financing statement. However, a
significant portion of the Company's revenue is generated outside of the United
States. In many countries outside of the United States, as a matter of statutory
law, a seller retains title to a product until payment is made. The laws do not
provide for a seller's retention of a security interest in goods in the same
manner as established in the UCC. In these countries, the Company retains title
F - 8
to goods delivered to a customer until the customer makes payment so that the
Company can recover the goods in the event of customer default on payment. In
these circumstances, where the Company only retains title to secure its recovery
in the event of customer default, the Company also has a policy requiring it to
meet certain criteria in order to recognize revenue, including satisfaction of
the following requirements:
a) Persuasive evidence that an arrangement exists;
b) Delivery has occurred or services have been rendered;
c) The price to the buyer is fixed or determinable;
d) Collectibility is reasonably assured;
e) The Company has no significant obligations for future performance; and
f) The Company is not entitled to direct the disposition of the goods,
cannot rescind the transaction, cannot prohibit the customer from
moving, selling, or otherwise using the goods in the ordinary course
of business and has no other rights of holding title that rest with a
titleholder of property that is subject to a lien under the UCC.
In circumstances where the sales transaction requires acceptance by the customer
for items such as testing on site, installation, trial period or performance
criteria, revenue is not recognized unless the following criteria have been met:
a) Persuasive evidence that an arrangement exists;
b) Delivery has occurred or services have been rendered;
c) The price to the buyer is fixed or determinable;
d) Collectibility is reasonably assured; and
e) The customer has signed off on the acceptance, the time period has
elapsed or the Company has otherwise objectively demonstrated that the
criteria specified in the acceptance provisions have been satisfied.
In addition to performance commitments, the Company analyzes factors such as the
reason for the purchase to determine if revenue should be recognized. This
analysis is done before the product is shipped and includes the evaluation of
factors that may affect the conclusion related to the revenue recognition
criteria as follows:
a) Persuasive evidence that an arrangement exists;
b) Delivery has occurred or services have been rendered;
c) The price to the buyer is fixed or determinable; and
d) Collectibility is reasonably assured.
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.
Accrued Warranties. The Company records accruals for potential warranty claims
based on the Company's claim experience. The Company's products are typically
sold with a standard warranty covering defects that arise during a fixed period
of time. Each business provides a warranty specific to the products it offers.
The specific warranty offered by a business is a function of customer
expectations and competitive forces. The length of warranty is generally a fixed
period of time, a fixed number of operating hours, or both.
A liability for estimated warranty claims is accrued at the time of sale. The
liability is established using a historical warranty claim experience for each
product sold. The historical claim experience may be adjusted for known design
improvements or for the impact of unusual product quality issues. Warranty
reserves are reviewed quarterly to ensure that critical assumptions are updated
for known events that may impact the potential warranty liability.
F - 9
The following table summarizes the changes in the aggregate product warranty
liability:
Balance as of December 31, 2001...................... $ 33.0
Businesses acquired during 2002...................... 22.3
Accruals for warranties issued during the year....... 42.5
Changes in estimates ................................ 5.5
Settlements during the year.......................... (45.5)
Foreign exchange effect.............................. 1.3
---------
Balance as of December 31, 2002...................... $ 59.1
=========
Accrued Product Liability. The Company records accruals for potential product
liability claims based on the Company's claim experience. The Company provides
self-insurance accruals for estimated product liability experience on known
claims.
Non Pension Postretirement Benefits. The Company provides postretirement
benefits to certain former salaried and hourly employees and certain hourly
employees covered by bargaining unit contracts that provide such benefits and
has elected the delayed recognition method of adoption of the accounting
standard related to the benefits. See Note Q -- "Retirement Plans and Other
Benefits."
Stock-Based Compensation. At December 31, 2002, the Company has stock-based
employee compensation plans which are described more fully in Note P -
"Stockholders' Equity." The Company accounts for those plans under the
recognition and measurement principles of APB Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. No stock-based employee
compensation cost is reflected in net income, as all options granted under those
plans had an exercise price equal to the market value of the underlying common
stock on the date of grant. The following table illustrates the effect on net
income (loss) and earnings per share if the Company had applied the fair value
recognition provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation," to stock-based employee compensation.
For the Year Ended December 31,
------------------------------------------
2002 2001 2000
-------------- ------------- -------------
Reported net income (loss).................................... $ (132.5) $ 12.8 $ 95.1
Deduct: Total stock-based employee compensation expense
determined under fair value based methods for all awards,
net of related income tax effects............................ (3.3) (3.4) (2.2)
-------------- ------------- -------------
Proforma net income (loss).................................... $ (135.8) $ 9.4 $ 92.9
============== ============= =============
Per common share:
Basic:
Reported net income (loss)................................ $ (3.07) $ 0.46 $ 3.50
============== ============= =============
Proforma net income (loss)................................ $ (3.14) $ 0.34 $ 3.42
============== ============= =============
Diluted:
Reported net income (loss)................................ $ (3.07) $ 0.44 $ 3.41
============== ============= =============
Proforma net income (loss)................................ $ (3.14) $ 0.32 $ 3.33
============== ============= =============
The fair value for these options was estimated at the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions for 2002, 2001 and 2000, respectively: dividend yields of 0%, 0% and
0%; expected volatility of 51.24%, 51.28% and 49.46%; risk-free interest rates
of 5.42%, 5.63% and 6.23%; and expected life of 9.9 years, 9.9 years and 9.7
years. The aggregate fair value of options granted during 2002, 2001 and 2000
for which the exercise price equals the market price on the grant date was $8.4,
$9.9 and $1.9, respectively. The weighted average fair value at date of grant
for options granted during 2002, 2001 and 2000 was $14.97, $11.68 and $9.92,
respectively.
F - 10
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
In December 2002, SFAS No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure as amendment of FASB Statement No. 123," was issued.
SFAS No. 148, which became effective for fiscal years ended after December 15,
2002, provides alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based employee compensation. In
addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123. The
adoption of SFAS No. 148 has not had, and will not have, a material impact on
the Company's financial statements, since the Company will continue to follow
the method in APB Opinion No. 25.
Foreign Currency Translation. Assets and liabilities of the Company's
international operations are translated at year-end exchange rates. Income and
expenses are translated at average exchange rates prevailing during the year.
For operations whose functional currency is the local currency, translation
adjustments are accumulated in the Cumulative Translation Adjustment component
of Stockholders' Equity. Gains or losses resulting from foreign currency
transactions are recorded in the accounts based on the underlying transaction.
Derivatives. 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 have not been restated for this change. See Note E -
"Derivative Financial Instruments."
Environmental Policies. Environmental expenditures that relate to current
operations are either expensed or capitalized depending on the nature of the
expenditure. Expenditures relating to conditions caused by past operations that
do not contribute to current or future revenue generation are expensed.
Liabilities are recorded when environmental assessments and/or remedial actions
are probable, and the costs can be reasonably estimated. Such amounts were not
material at December 31, 2002 and 2001.
Research and Development Costs. Research and development costs are expensed as
incurred. Such costs incurred in the development of new products or significant
improvements to existing products are included in Selling, General and
Administrative Expenses.
Income Taxes. The Company accounts for income taxes using the asset and
liability method. This approach requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences of temporary
differences between the carrying amounts and the tax bases of assets and
liabilities. See Note O -- "Income Taxes".
Earnings Per Share. Basic earnings per share is computed by dividing net income
(loss) for the period by the weighted average number of shares of Terex common
stock, par value $0.01 ("Common Stock"), outstanding. Diluted earnings per share
is computed by dividing net income (loss) for the period by the weighted average
number of shares of Common Stock outstanding and potential dilutive common
shares.
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 became effective for
certain leasing transactions occurring after May 15, 2002 and is being applied
by the Company from January 1, 2003 with respect to reporting gains and losses
from extinguishments of debt. The adoption of SFAS No. 145 will result in the
Company reporting most gains and losses from extinguishments of debt as a
component of income or loss from continuing operations before income taxes and
extraordinary items; there will be no effect on the Company's net income or
loss. Prior period amounts will be reclassified.
F - 11
SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities," was issued in June 2002. SFAS No. 146 is 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 previous accounting principles,
a liability for an exit cost would be recognized at the date of an entity's
commitment to an exit plan. Adoption of SFAS No. 146 will be applied
prospectively and is not expected to have a material effect on the Company's
consolidated financial position or results of operations.
In November 2002, the FASB issued FASB Interpretation No. ("FIN") 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, an interpretation of Statement of
Financial Accounting Standards Nos. 5, 57, and 107 and rescission of FIN 34."
FIN 45 extends the disclosures to be made by a guarantor about its obligations
under certain guarantees that it has issued. It also clarifies that a guarantor
is required to recognize, at the inception of a guarantee, a liability for the
fair value of its obligations under certain guarantees. The disclosure
provisions of FIN 45 are effective for financial statements for periods ending
after December 15, 2002. The provisions for initial recognition and measurement
of guarantees are effective on a prospective basis for guarantees that are
issued or modified after December 31, 2002. The Company does not expect the
application of FIN 45 to have a material impact on the Company's consolidated
financial position or results of operations.
During January 2003 the FASB issued FIN 46, "Consolidation of Variable Interest
Entities" which is effective for the Company in its quarter ending September 30,
2003 for any existing entities and to any variable interest entities created
after January 31, 2003. A variable interest entity ("VIE") is a corporation,
partnership, trust or other legal entity that does not have equity investors
with voting rights or has equity investors that do not provide sufficient
financial resources for the entity to support its own activities. This
interpretation requires a company to consolidate a VIE when the company has a
majority of the risk of loss from the VIE's activities or is entitled to receive
a majority of the entity's residual returns or both. The Company is currently
evaluating the provisions of FIN 46 to determine its impact on the Company's
consolidated financial position or results of operations.
In January 2003, the Emerging Issues Task Force (the "EITF") released EITF
00-21, "Accounting for Revenue Arrangements with Multiple Deliverables." EITF
00-21 clarifies the timing and recognition of revenue from certain transactions
that include the delivery and performance of multiple products or services. EITF
00-21 is effective for revenue arrangements entered into in fiscal periods
beginning after June 15, 2003. The Company is currently reviewing the impact of
EITF 00-21 on the Company's consolidated financial position or results of
operations.
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
F - 12
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 $9.7 in the aggregate. The Company
initiated the Genie Acquisition as an opportunity to diversify its product
offering with the addition of a complete line of aerial work platforms with a
strong global brand and significant market share. The Genie Acquisition is also
intended to provide operational and marketing synergies and cost savings, such
as allowing the Genie product line to expand the reach of its distribution
through the Company's existing sales base, particularly in Europe. Genie is
included in the Terex Aerial Work Platforms segment.
The following pro forma summary presents the consolidated results of operations
as though the Company completed the Genie Acquisition as of the beginning of the
respective period, after giving effect to certain adjustments for interest
expense, amortization of debt issuance costs and other expenses related to the
transaction:
Pro Forma for the
Year Ended December 31,
--------------------------
2002 2001
---- ----
Net sales.............................................$ 3,182.7 $ 2,407.2
Income from operations................................$ 77.9 $ 109.8
Income (loss) before extraordinary items..............$ (23.5) $ 6.9
Income (loss) before extraordinary items, per share:
Basic..............................................$ (0.52) $ 0.22
Diluted............................................$ (0.52) $ 0.21
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.
F - 13
The estimated fair values of assets and liabilities acquired by the Company in
the Genie Acquisition are summarized as follows:
Cash ...............................................$ 14.5
Net trade receivables................................ 115.4
Inventories.......................................... 88.9
Other current assets................................. 48.1
Property, plant and equipment........................ 56.7
Goodwill............................................. 43.3
Other non-current assets............................. 139.7
Accounts payable..................................... (84.0)
Other current liabilities............................ (53.4)
Current portion of long-term debt.................... (59.5)
Long-term debt, less current portion................. (25.3)
Other liabilities.................................... (27.8)
------------
$ 256.6
============
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 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 has evaluated various alternatives to integrate the activities of
certain of the acquired businesses into the Company, including alternatives to
exit or consolidate certain facilities and/or activities and restructure certain
functions and reduce the related headcount. These alternatives have impacted the
acquired businesses and existing businesses, and the Company finalized its plans
prior to December 31, 2002. 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. See
Note F - "Restructuring and Other Charges" for a description of these
restructuring activities.
The Company recorded approximately $28 of liabilities under EITF 95-3 for the
businesses acquired in 2002. Approximately $22 of these recorded liabilities
were related to severance and relocation costs for employees at acquired
businesses. These employees' positions were deemed duplicative and eliminated as
a direct result of these acquisitions. The remainder of liabilities under EITF
95-3 related to plant closings of approximately $6.
As noted earlier, in certain of the acquisition agreements pursuant to which the
Company consummated its acquisitions in 2002, the Company guaranteed the future
market value, at various future dates, of Common Stock issued in connection with
such acquisitions. To the extent that these market values are not reached,
additional consideration in cash or additional Common Stock will be required to
be paid, up to pre-established maximums. Based on the $11.14 per share market
value of the Company's Common Stock at December 31, 2002, additional
consideration of $16.7 would be payable, of which $3.2 due in 2003 and $6.5 due
in 2004 must be settled with additional Common Stock. The remaining amount may
be settled with cash or additional Common Stock and would be payable as follows:
$3.6 due in 2003, $2.6 due in 2004 and $0.8 due in 2005.
On January 24, 2001, the Company completed the acquisition of Jaques
International Holdings Pty. Ltd. and its affiliates (collectively the "Jaques
Group"), manufacturers of crushing equipment in Australia, Asia and North
America. The Jaques Group is included in the Company's Terex Roadbuilding,
Utility Products and Other segment.
On October 1, 2001, the Company acquired 100% of the equity of CMI Corporation
and its affiliates ("CMI"). CMI manufactures and markets a wide variety of
mobile equipment and materials processing equipment for the road building and
heavy construction industry. The acquisition of CMI complements the Company's
existing infrastructure business and significant cost savings are anticipated.
CMI's operating results are included in the Company's results from October 1,
2001. CMI is included in the Company's Terex Roadbuilding, Utility Products and
Other segment.
The cost to acquire CMI was $145.5, including the issuance of approximately 3.6
million shares of the Company's common stock with a value of approximately $75
F - 14
based on the average market value of the Company's stock for the period of three
days before and three days after June 28, 2001, the date the acquisition was
announced. No contingent payments are provided for under the terms of the CMI
acquisition agreement.
On December 28, 2001, the Company acquired 100% of the equity of Atlas Weyhausen
GmbH and its affiliates ("Atlas"), a manufacturer of wheeled excavators and
truck-mounted articulated cranes with facilities in Germany and Scotland. Atlas'
operating results for 2001 are not included in the Company's consolidated
statement of income due to its December 28, 2001 acquisition date. The cost to
acquire Atlas was $41.1. Atlas is part of the Company's Terex Construction
segment.
The Jaques Group, CMI and Atlas acquisitions (the "2001 Acquired Businesses")
are being accounted for using the purchase method, with the purchase price
allocated to the assets acquired and the liabilities assumed based upon their
respective estimated fair values at their respective dates of acquisition. The
excess of purchase price over the net assets acquired ($139.4) in connection
with the 2001 Acquired Businesses was recorded as goodwill. In accordance with
SFAS No. 142, goodwill related to the CMI and Atlas acquisitions was not
amortized.
On October 23, 2000, the Company completed the purchase of Coleman Engineering,
Inc. ("Coleman"). Coleman manufactures and markets light construction equipment
consisting of light towers and generators at facilities in Rock Hill, South
Carolina. Coleman is included in the Company's Terex Roadbuilding, Utility
Products and Other segment.
On December 28, 2000, the Company acquired Fermec Manufacturing Limited
("Fermec"). Fermec, currently headquartered in Manchester, England, is a
manufacturer and marketer of loader backhoes. Fermec is included in the
Company's Terex Construction segment.
The Coleman and Fermec acquisitions are being accounted for using the purchase
method, with the purchase price allocated to the assets acquired and the
liabilities assumed based upon their respective estimated fair values at the
date of acquisition. Prior to January 1, 2002, the excess of purchase price over
the net assets acquired (approximately $15.9) was amortized on a straight-line
basis over 40 years.
The operating results of the acquired businesses are included in the Company's
consolidated results of operations since their respective dates of acquisition.
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."
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 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.
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.
Consistent with the approach required under SFAS No. 142, the Company estimated
the fair value of each of its ten reporting units existing as of January 1,
2002. Fair value was determined using a projection of undiscounted cash flow for
each reporting unit. Undiscounted cash flow was calculated using projected after
F - 15
tax operating earnings, adding back depreciation and amortization, deducting
projected capital expenditures and also including the net change in working
capital employed. The assumptions were based on the Company's 2002 operating
plan. The present value of the undiscounted cash flows were calculated using the
Company's weighted cost of capital. The Company used an explicit five-year
projection of cash flow along with a terminal value based on the fifth year's
projected cash flow. The Company created these models. The total fair value of
the Company, as determined above, as of January 1, 2002, was approximately equal
to the market value of the Company at the same date, as determined by the market
value of the Company's equity and debt.
The Company performed the test described in SFAS No. 142 for all units where the
Company's carrying amount for such unit was below the fair value of that unit as
calculated by the method described above. SFAS No. 142 defines how a company
determines the implied fair value of goodwill.
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
calculated the fair market value of the Terex Mining segment's fixed assets and
intangible assets. Given the specialized nature of this calculation, the Company
employed a third party to assist in the determination of the fair value of
intangible assets at the Terex Mining reporting unit. The appraiser helped
determine the value for the Terex Mining unit's intangible assets, which
included trade names, customer relationships, backlog and technology, as defined
in SFAS No. 141. An income-based approach was used to determine the market value
of these intangible assets. A market comparable approach was used to determine
appropriate royalty rates. In addition, the fair value of the Terex Mining
unit's plant, property and equipment was calculated using a cost approach. The
Company provided guidance to the appraiser related to assumptions and
methodologies used in valuation and took responsibility for determining the
goodwill impairment charge. The results of this valuation work were used in the
determination of the implied value of the Mining unit's goodwill as of January
1, 2002, which resulted in 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. 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 Company did not require the assistance of a third party when determining the
goodwill impairment associated with the Light Construction and EarthKing
reporting units, whose carrying amount exceeded their fair value, as it was
evident that the fair value of net tangible assets at these units was greater
than the estimated fair value of the reporting units, and that 100% of the
related goodwill was impaired.
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.
F - 16
The table below illustrates the Company's reported results after applying SFAS
No. 142.
For the Year Ended December 31,
-------------------------------------------
2002 2001 2000
-------------- ------------- --------------
Goodwill amortization......................................... $ --- $ 14.2 $ 14.5
============== ============= ==============
Reported net income (loss).................................... $ (132.5) $ 12.8 $ 95.1
Add back: Goodwill amortization, net of income taxes.......... --- 9.7 9.9
-------------- ------------- --------------
Adjusted net income (loss).................................... $ (132.5) $ 22.5 $ 105.0
============== ============= ==============
Per common share:
Basic:
Reported net income (loss)................................ $ (3.07) $ 0.46 $ 3.50
Add back: Goodwill amortization, net of income taxes...... --- 0.34 0.36
-------------- ------------- --------------
Adjusted net income (loss)................................ $ (3.07) $ 0.80 $ 3.86
============== ============= ==============
Diluted:
Reported net income (loss)................................ $ (3.07) $ 0.44 $ 3.41
Add back: Goodwill amortization, net of income taxes...... --- 0.34 0.35
-------------- ------------- --------------
Adjusted net income (loss)................................ $ (3.07) $ 0.78 $ 3.76
============== ============= ==============
An analysis of changes in the Company's goodwill by business segment is as
follows:
Terex Terex
Roadbuilding, Aerial
Terex Terex Utility Products Work Terex
Construction Cranes and Other Platforms Mining Total
------------ ---------- ----------------- ------------ ---------- -----------
Balance at December 31, 2000 ............$ 180.5 $ 93.3 $ 111.7 $ --- $ 105.9 $ 491.4
Amortization ............................ (5.1) (2.1) (4.1) --- (2.9) (14.2)
Acquisitions ............................ 58.1 --- 81.2 --- --- 139.3
Utilization of tax net operating
losses ............................... --- (1.2) (0.7) --- --- (1.9)
Foreign exchange effect ................. 8.6 0.2 --- --- (3.3) 5.5
------------ ---------- ----------------- ------------ ---------- -----------
Balance at December 31, 2001 ............ 242.1 90.2 188.1 --- 99.7 620.1
Impairment due to adoption of
SFAS No. 142 .......................... --- --- (26.5) --- (105.7) (132.2)
Write-off of negative goodwill
due to adoption of SFAS No.
142 ................................... 17.8 --- --- --- --- 17.8
Acquisitions ............................ 47.3 1.8 26.0 43.3 --- 118.4
Utilization of tax net operating
losses ............................... (0.1) (2.3) (10.1) --- --- (12.5)
Foreign exchange effect ................. 4.7 0.6 --- --- 6.0 11.3
------------ ---------- ----------------- ------------ ---------- -----------
Balance at December 31, 2002 ............$ 311.8 $ 90.3 $ 177.5 $ 43.3 $ --- $ 622.9
============ ========== ================= ============ ========== ===========
The goodwill recognized for the acquisitions of Demag and Genie as of December
31, 2002 is not final, as the Company has not yet completed its valuations of
their respective tangible and intangible assets.
F - 17
NOTE D - SALE OF BUSINESSES
On September 30, 2000, the Company completed the sale of its truck-mounted
forklift businesses to various subsidiaries of Partek Corporation of Finland for
$145 in cash. During the year ended December 31, 2000, total net sales for the
Company's truck-mounted forklift businesses were approximately $68. The Company
used approximately $125 of net after-tax proceeds from this transaction to repay
long-term bank debt. The businesses sold included the Company's Princeton
division and its Kooi B.V. subsidiary and the Moffett Engineering Limited
subsidiary of the Company's Powerscreen International plc subsidiary
("Powerscreen"). These truck-mounted forklift businesses were included in the
Company's Terex Cranes segment prior to September 30, 2000.
NOTE E -- 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.
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.
F - 18
The Company entered into interest rate swap agreements that effectively
converted variable rate interest payments into fixed rate interest payments. At
December 31, 2002, the Company had $100.0 notional amount of such interest rate
swap agreements outstanding, all of which mature in 2009. The fair market value
of these swaps at December 31, 2002 was a loss of $1.2. These swap agreements
have been designated as, and are effective as, cash flow hedges of outstanding
debt instruments. During 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
December 31, 2002, the Company had $329.0 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 December 31, 2002 was a gain of $18.6, which is
recorded in other non-current assets. During 2002, the Company exited an
interest rate swap agreement in the notional amount of $100.0 with a 2011
maturity that converted fixed rate interest payments into variable rate interest
payments. The Company received $5.6 upon exiting this swap agreement. This gain
is being amortized over the original maturity and, combined with the market
value of the swap agreements held at December 31, 2002, is offset by a $24.2
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
December 31, 2002, the Company had $147.5 of notional amount of currency
exchange forward contracts outstanding, all of which mature on or before
December 31, 2003. The fair market value of these swaps at December 31, 2002 was
a gain of $4.2. All of these swap agreements have been designated as, and are
effective as, cash flow hedges of specifically identified assets and
liabilities.
On May 23, 2002, the Company entered 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.
During 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 December 31, 2002, the fair value of all derivative instruments has been
recorded in the Consolidated Balance Sheet as a net asset of $20.7, net of
income taxes.
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 (Loss) are
as follows:
Year Ended December 31,
------------------------------
2002 2001
-------------- ---------------
Balance at beginning of period (upon
adoption of SFAS No. 133 for 2001).... $ (0.8) $ 0.9
Additional gains (losses)............... (1.5) (4.6)
Amounts reclassified to earnings........ 4.4 2.9
-------------- ---------------
Balance at end of period................ $ 2.1 $ (0.8)
============= ===============
NOTE F - RESTRUCTURING AND OTHER CHARGES
The Company continually evaluates its cost structure to ensure that it is
appropriately positioned to respond to changing market conditions. During 2002
and 2001, the Company experienced declines in several markets. In addition, the
Company's recent acquisitions have created product, production and selling and
administrative overlap with existing businesses. In response to changing market
demand and to optimize the impact of recently acquired businesses, the Company
has initiated the restructuring programs described below.
F - 19
There have been no material changes relative to the initial plans established by
the Company for the restructuring activities discussed below. 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.
2002 Programs
During 2002, the Company initiated a series of restructuring projects that
related to productivity and business rationalization.
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 Terex facility in Oklahoma City. The
consolidation of duplicative CMI Terex and Cedarapids production facilities and
support functions was intended to lower the Company's operating costs.
Approximately $0.7 of this charge related 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 and the production
activities outsourced to a third party supplier. 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
transfer of production activities to a third party was completed prior to
December 31, 2002 and the Company is currently marketing the Tulsa property for
sale.
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 was complete as of
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 Terex Roadbuilding operation
and in the Terex Cranes segment. 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 Terex
were $0.7 for severance in connection with the elimination of approximately 146
positions. CMI Terex's roadbuilding business has faced slow market conditions
and reduced demand, 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 were completed by December 31, 2002.
These projects are expected to reduce operating costs by approximately $20 when
fully implemented in 2004.
Projects initiated in the fourth quarter of 2002 related to productivity and
business rationalization include the following:
o The closure of the Company's pressurized vessel container business.
This business, located in Clones, Ireland, provides pressurized
containers to the shipping industry. The business, acquired as part of
the Powerscreen acquisition in 1999, is part of the Company's
Construction segment and is not core to the Company's overall
strategy. The Company recorded a charge of $5.4, of which $1.2 was for
severance, $2.5 for the write down of inventory, and $1.2 for facility
closing costs. The remaining $0.5 relates to the repayment of a local
government work grant. The business has faced declining demand over
the past few years and, as it is not integral to the Construction
business, the Company has scheduled the closure of the business by the
end of the third quarter 2003. This will result in the elimination of
approximately 137 jobs.
F - 20
o The consolidation of several Terex Construction segment facilities in
the U.K. The Company is in the process of consolidating several
compact equipment production facilities into a single location in
Coventry, England. The Company will move the production of
mini-dumpers, rollers and soil compactors into the new facility. The
Company recorded a charge of $7.2, of which $6.1 was for severance and
$1.1 was for the costs associated with exiting the facilities. The
consolidation will reduce total employment by approximately 269 and is
expected to be completed by the end of 2003.
o The exit of certain heavy equipment businesses related to mining
products. During the fourth quarter of 2002, the Company conducted a
review of its rental equipment businesses in both its Mining and
Construction segments. The Company's review indicated that it was not
economical to continue its mining equipment rental business due to the
high cost of moving mining equipment between customers and given the
continued weak demand for mining products. In addition, the Company
decided to rationalize its large scraper offering in its Mining
segment given the weak demand for related mining products. The Company
recorded a charge of $6.9 associated with the write down of inventory.
The Company expects to complete this process by June 30, 2003.
o The exit of certain non-core tower cranes produced by the Terex Cranes
segment under the Peiner brand in Germany. The European tower crane
business has been negatively impacted by reduced demand from large
rental customers who are undergoing financial difficulties. This has
resulted in reduced demand and a deterioration in margins recognized
in the tower crane business. The Company conducted a review of its
offering of tower cranes produced under the Peiner brand and
eliminated certain models that overlap with models produced at Gru
Comedil S.r.l., the Company's tower crane facility in Italy. The
Company recorded a charge of $3.9, of which $1.0 was for severance and
$2.9 for inventory write-downs on discontinued product lines. The
program will reduce employment by 47 and is expected to be completed
by June 30, 2003.
o The elimination of the Standard Havens portable hot mix asphalt
product. The Company performed marketing and engineering analysis that
indicated that the Standard Havens product line did not meet current
customer expectations. As a result, the Company opted to discontinue
the Standard Havens portable hot mix asphalt product. The Company
recorded a charge of $1.8 to write-down the discontinued inventory.
The program was completed prior to December 31, 2002. The Standard
Havens product line was part of the Terex roadbuilding group in the
Terex Roadbuilding, Utility Products and Other segment.
o The severance costs incurred in re-aligning the Company's management
structure. The Company eliminated an executive position and recorded a
charge of $1.5. The Company paid $0.4 prior to December 31, 2002 and
expects to pay remaining severance by December 31, 2003.
o The elimination of the rotating telehandler product in North America
by the Terex Construction segment. It was determined that the product,
although popular in Europe as a multi-purpose machine, was not gaining
customer acceptance in North America. The Company recorded a charge of
$0.7 to write-down the rotating telehandler inventory in North
America. The program was completed prior to December 31, 2002.
The projects are expected to reduce operating costs by approximately $11 when
fully implemented in 2004.
The following table sets forth the components and status of the restructuring
charges recorded in 2002 that related to productivity and business
rationalization:
Employee
Termination Asset Facility
Costs Disposals Exit Costs Other Total
-------------- ------------ -------------- --------------- -------------
Restructuring charges........... $ 13.1 $ 19.3 $ 2.9 $ 2.0 $ 37.3
Cash expenditures............... (3.0) --- (0.5) (0.6) (4.1)
Non-cash write-offs............. (0.4) (19.3) --- --- (19.7)
-------------- ------------ -------------- --------------- ------------
Accrued restructuring charges
at December 31, 2002.......... $ 9.7 $ --- $ 2.4 $ 1.4 $ 13.5
============== ============ ============== =============== =============
In aggregate, the restructuring charges described above incurred during the year
ended December 31, 2002 were included in cost of goods sold ($25.8) and selling,
general and administrative expenses ($11.5).
F - 21
Demag and Genie Acquisition Related Projects
During 2002, the Company also initiated a series of restructuring projects aimed
at addressing product, channel and production overlap created by the acquisition
of the Demag and Genie businesses in 2002.
Projects initiated in the Terex Cranes segment in the fourth quarter of 2002
related to the acquisition of Demag consist of:
o The elimination of certain PPM branded 3, 4 and 5 axle cranes produced
at the Company's Montceau, France facility. The Company determined
that the products produced under the PPM brand were similar to
products produced by Demag and has opted to eliminate these PPM models
in favor of the similar Demag products, which the Company believes
have superior capabilities. As a result, employment levels in Montceau
are scheduled to be reduced by approximately 141 employees during the
first half of 2003. In addition, the Company also recognized a loss in
value on the affected PPM branded cranes inventory in France and
Spain. The Company recorded a charge of $15.3, of which $5.4 was for
severance, $9.6 was associated with the write down of inventory and
$0.3 was for claims related to exiting the sales function of the
discontinued products.
o The closure of the Company's existing crane distribution center in
Germany. Prior to the acquisition of Demag, the Company distributed
mobile cranes under the PPM brand from a facility in Dortmund,
Germany. The acquisition of Demag provided an opportunity to
consolidate distribution and reduce the overall cost to serve
customers in Germany. The Company recorded a charge of $2.5, of which
$0.7 was for severance, $1.2 was for inventory write-downs, and $0.6
for lease termination costs. Eleven employees will be terminated as a
result of these actions. The Company expects this to be completed by
June 30, 2003.
o The rationalization of certain crawler crane products sold under the
American Crane brand in the United States. The acquisition of Demag
created an overlap with certain large crawler cranes produced in the
Company's Wilmington, North Carolina facility. Certain cranes produced
in the North Carolina facility will be rated for reduced lifting
capacity and marketed to a different class of user. This change in
marketing strategy, triggered by the acquisition of Demag, negatively
impacted inventory values. The Company recorded a charge of $3.2
associated with the write down of inventory. The Company expects to
complete the sale of such inventory by June 30, 2003.
o In addition, the acquisition of Demag created an overlap of small,
mobile cranes marketed for use in urban work places. As a result, the
Company opted to cease production of this style of crane, produced
under license from another company, and replace them with cranes
produced by Demag. As a result of this decision, a charge of $1.8 was
recorded to terminate the license agreement.
Projects initiated in the Terex Cranes segment in the fourth quarter of 2002
related to the acquisition of Genie consist of:
o The elimination of Terex branded aerial work platforms. The Company
determined that the acquisition of Genie created product and
distribution overlap with its existing Terex branded aerial work
platforms businesses in the United States and Europe. After a review
of products produced by the Company and Genie, the Company decided to
discontinue the Terex branded products. As a result, the Company
reduced the carrying values of the affected inventories to recognize
the loss in value created by the decision to discontinue these models
of aerial work platforms. As a result of this decision, a charge of
$1.9 was recorded to write down inventory.
The following table sets forth the components and status of the restructuring
charges recorded in the fourth quarter of 2002 that relate to addressing
product, channel and production overlaps created by the acquisition of the Demag
and Genie businesses:
Employee
Termination Asset Facility
Costs Disposals Exit Costs Other Total
---------------- ------------ ------------ --------------- -------------
Restructuring Charges............ $ 6.1 $ 15.9 $ 0.6 $ 2.1 $ 24.7
Cash expenditures................ (1.0) --- --- --- (1.0)
Non-cash write-offs.............. --- (15.9) --- (1.8) (17.7)
---------------- ------------ ------------ --------------- -------------
Accrued restructuring charges at
December 31, 2002............. $ 5.1 $ --- $ 0.6 $ 0.3 $ 6.0
================ ============ ============ =============== =============
F - 22
These projects are expected to reduce the Company's operating costs by
approximately $8 when fully implemented in 2004.
The restructuring charges described above were included in cost of goods sold
($22.7) and selling, general and administrative expenses ($2.0) in 2002.
Asset Impairment
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 was recorded as
cost of goods sold in the second quarter of 2002 in connection with this
write-down.
Other Items
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 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. In the fourth quarter
of 2002, the Company wrote down its investment in SDC International, Inc.
("SDC") by $3.4 due to the decline in market value of SDC. These write-downs, as
well as the write down related to the Terex Cranes segment in Europe, were
reported in "Other income (expense) - net."
2001 Programs
During the third and fourth quarters of 2001, the Company recorded $29.9 of
restructuring costs in connection with the consolidation of seven facilities
throughout 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 December 31, 2002, six of
these seven facilities have been closed. It is anticipated that the other
facility will be closed prior to June 30, 2003. As of December 31, 2002 the
Company's future cash payments related to 2001 restructuring initiatives are
approximately $1.4 and all cash payments are expected to be made by the end of
the first quarter of 2003.
The restructuring and other non-recurring costs in the third and fourth quarters
of 2001 include: $5 related to headcount reductions, $2 related to facility
closure costs, $13 related to inventory write-off costs, $3 related to
receivable write-off costs, $2 related to goodwill associated with the Cork,
Ireland aerials facility, $2 related to facility rationalization in the
Australian lifting business and $3 for other activities.
The 2001 restructuring charges were included in cost of goods sold ($26.0) and
selling, general and administrative expenses ($3.9) in 2001.
2000 Programs
During the fourth quarter of 2000, the Company recorded expenses of $9.8 related
to the closing of its distribution facility in the United Kingdom, the impact of
an aggregates customer that filed for bankruptcy and a one-time charge related
to due diligence costs associated with a large potential acquisition which did
not come to fruition. These expenses have been included in cost of sales and
selling, general and administrative expenses in the statement of income in the
amounts of $6.9 and $2.9, respectively.
During the third quarter of 2000, the Company recorded expenses of $3.0 related
to the further integration of the Company's surface mining truck and hydraulic
F - 23
shovel businesses, partially offset by a curtailment gain related to one of the
Company's pension plans. These items have been reflected in cost of sales and
selling, general and administrative expenses in the statement of income in the
amounts of $3.2 and $(0.2), respectively.
NOTE G -- EARNINGS PER SHARE
(in millions, except per share data)
----------------------------------------------------------------------------------------
2002 2001 2000
---------------------------- ---------------------------- ----------------------------
Per- Per- Per-
Share Share Share
Income Shares Amount Income Shares Amount Income Shares Amount
-------- -------- -------- -------- -------- -------- -------- -------- --------
Basic earnings per share
Income (loss) from
continuing operations
before extraordinary
items................... $(17.5) 43.2 $(0.41) $ 16.7 28.1 $ 0.60 $ 103.9 27.2 $ 3.82
Effect of dilutive securities
Warrants.................. --- --- --- --- --- 0.1
Stock Options.............. --- --- --- 0.7 --- 0.5
Equity Rights.............. --- --- --- 0.1 --- 0.1
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income (loss) from
continuing operations
before extraordinary items.. $(17.5) 43.2 $(0.41) $ 16.7 28.9 $ 0.58 $ 103.9 27.9 $ 3.72
======== ======== ======== ======== ======== ======== ======== ======== ========
Had the Company recognized income from continuing operations before
extraordinary items in 2002, incremental shares attributable to the assumed
exercise of outstanding stock options and the effect of Common Stock to be
issued at December 31, 2002 for the Company's contingent obligation to make
additional payments for the acquisition of Genie would have increased diluted
shares outstanding by 0.7 million and 0.2 million shares, respectively.
Options to purchase 956 thousand, 738 thousand, and 548 thousand shares of
Common Stock were outstanding during 2002, 2001, 2000 respectively, but were not
included in the computation of diluted earnings per share because the exercise
price of the options was greater than the average market price of the common
shares and therefore, the effect would be antidilutive. 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 639 thousand shares for the year ended December 31,
2002, are not included in the computation of diluted earnings per share.
NOTE H -- INVENTORIES
Inventories consist of the following:
December 31,
------------------------------
2002 2001
--------------- --------------
Finished equipment.................... $ 437.2 $ 236.4
Replacement parts..................... 225.0 195.0
Work-in-process....................... 225.5 90.5
Raw materials and supplies............ 218.6 182.9
--------------- --------------
Net inventories..................... $ 1,106.3 $ 704.8
=============== ==============
At December 31, 2002 and 2001, the Company had inventory reserves of $36.7 and
27.1, respectively, for excess and obsolete inventory.
F - 24
NOTE I -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
December 31,
--------------------------------
2002 2001
--------------- ----------------
Property.................................. $ 43.0 $ 20.9
Plant..................................... 173.4 108.9
Equipment................................. 197.6 126.9
--------------- ----------------
414.0 256.7
Less: Accumulated depreciation........... (104.6) (82.8)
--------------- ----------------
Net property, plant and equipment....... $ 309.4 $ 173.9
=============== ================
NOTE J -- 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 GFSH B.V. During January 2002, Genie contributed an additional $0.6
in cash to GFSH 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.
GFSH B.V. was established to facilitate the financing of Genie's products sold
in Europe. As of December 31, 2002, the joint venture's total assets were $117.1
and consisted primarily of financing receivables and lease related equipment;
total liabilities were $106.0 and consisted primarily of debt issued by the
fifty-one percent (51%) joint venture partner. The Company provided guarantees
related to potential losses arising from shortfalls in the residual values of
financed equipment or credit defaults by the joint venture's customers. As of
December 31, 2002 the maximum exposure to loss under these guarantees is
approximately $7. Additionally, the Company is required to maintain a capital
account balance in GFSH B.V., pursuant to the terms of the joint venture, which
could result in the reimbursement to GFSH B.V. by the Company of losses to the
extent of the Company's ownership percentage.
As defined by FIN 46, GFSH B.V. is a variable interest entity. For entities
created prior to February 1, 2003, FIN 46 requires the application of its
provisions in interim financial statements for periods beginning after June 15,
2003. Based on the legal and operating structure of GFSH B.V., it is reasonably
possible that the Company will consolidate the results of GFSH B.V. in future
financial statements.
NOTE K-- 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 $140 at December 31, 2002 and is
included in "Other Assets" on the Company's Consolidated Balance Sheet. 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.
Future minimum lease payments to be received under noncancelable operating
leases with lease terms in excess of one year are as follows:
Years ending December 31,
2003................... $ 23.4
2004................... 19.1
2005................... 14.8
2006................... 13.7
2007................... 9.8
Thereafter............. 1.1
-------------
$ 81.9
=============
F - 25
The Company received approximately $4.7 of rental income from assets subject to
operating leases during 2002, none of which represented contingent rental
payments.
NOTE L -- NET INVESTMENT IN SALES-TYPE LEASES
The Company leases new and used products manufactured and sold by the Company to
domestic and foreign distributors, end users and rental companies. The Company
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 finance 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
fair value 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.
Prior to its acquisition by the Company on September 18, 2002, Genie 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, Genie originated leases with distributors and rental companies and the
resulting lease receivables were either sold to a financial institution with
limited recourse to Genie or used as collateral for borrowings. The aggregate
unpaid sales-type lease payments previously transferred was $72.5 at December
31, 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 $15.0 at
December 31, 2002, representing a contingent liability under the limited
recourse provisions.
During 2001 and 2002, domestically and globally, Genie 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, Genie originates leases or leasing opportunities with distributors and
rental companies. If Genie originates the lease with a distributor or rental
company, the financial institution will purchase the equipment and take
assignment of the lease contract from Genie. If Genie originates a lease
opportunity, the financial institution will purchase the equipment from Genie
and execute a lease contract directly with the distributor or rental company. In
some instances, the Company retains certain credit and/or residual recourse in
these transactions. The Company's maximum exposure, representing a contingent
liability, under these transactions reflects a $47.7 credit risk and a $27.4
residual risk at December 31, 2002.
The Company's contingent liabilities previously referred to have not taken into
account various mitigating factors. These factors include the staggered timing
of maturity of lease transactions, resale value of the underlying equipment,
lessee return penalties and annual loss caps on credit loss pools. Further, the
credit risk contingent liability assumes that the individual leases were to all
default at the same time and that the repossessed equipment has no market value.
The components of net investment in sales-type leases consisted of the following
at December 31, 2002:
Gross minimum lease payments receivable....$ 43.5
Estimated residual values.................. 22.7
Allowance for future losses................ (3.8)
Unearned finance income.................... (11.6)
---------
Net investment in sales-type leases..... 50.8
Less: Current portion..................... (22.0)
---------
Net investment in sales-type leases.....$ 28.8
=========
F - 26
Scheduled future gross minimum lease payments receivable are as follows:
Years ending December 31,
2003 $ 17.4
2004 12.0
2005 8.7
2006 4.3
2007 1.1
---------------
$ 43.5
===============
NOTE M -- LONG-TERM OBLIGATIONS
Long-term debt is summarized as follows:
December 31,
-----------------------
2002 2001
---------- -----------
9-1/4 % Senior Subordinated Notes due July 15, 2011 ...$ 200.0 $ 200.0
10-3/8% Senior Subordinated Notes due April 11, 2011... 300.0 300.0
8-7/8% Senior Subordinated Notes due April 1, 2008 .... 246.2 245.7
2002 Bank Credit Facility - term debt ................. 582.6 --
2002 Bank Credit Facility - revolving credit facility.. 55.3 --
1999 Bank Credit Facility ............................. -- 152.9
1999 Revolving Credit Facility ........................ -- --
1998 Bank Credit Facility ............................. -- 65.0
1998 Revolving Credit Facility ........................ -- 29.6
Notes payable ......................................... 17.6 20.3
Capital lease obligations ............................. 86.4 15.2
Other ................................................. 73.1 26.7
---------- -----------
Total long-term debt ................................ 1,561.2 1,055.4
Less: Current portion of long-term debt ............. (74.1) (34.7)
---------- -----------
Long-term debt, less current portion ................$ 1,487.1 $ 1,020.7
========== ===========
The 9-1/4% Senior Subordinated 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"). The
9-1/4% Notes are jointly and severally guaranteed by certain domestic
subsidiaries of the Company (see Note U - "Consolidating Financial Statements").
The Company used approximately $194 of the net proceeds from the offering of the
9-1/4% Notes to prepay a portion of its existing term loans. The Company
recorded a charge of $1.6, 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 prepayment of such existing term loans. The 9-1/4%
Notes were issued in a private placement made in reliance upon an exemption from
registration under the Securities Act of 1933, as amended (the "Securities
Act"). During the first quarter of 2002, the outstanding unregistered 9-1/4%
Notes were exchanged for 9-1/4% Notes registered under the Securities Act.
The 10-3/8% Senior Subordinated Notes
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").
Additionally, on March 29, 2001, the Company increased its availability under
its revolving bank credit facilities, described below, from $125 to $300. The
10-3/8% Notes are jointly and severally guaranteed by certain domestic
subsidiaries of the Company (see Note U - "Consolidating Financial Statements").
The Company used approximately $194 of the net proceeds from the offering of the
10-3/8% Notes to prepay a portion of its existing term loans. The Company
recorded a charge of $2.3, 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 prepayment of such existing term loans. The 10-3/8%
Notes were issued in a private placement made in reliance upon an exemption from
registration under the Securities Act. During the third quarter of 2001, the
outstanding unregistered 10-3/8% Notes were exchanged for 10-3/8% Notes
registered under the Securities Act.
F - 27
The 8-7/8% Senior Subordinated Notes
On March 9, 1999 and March 31, 1998, the Company issued and sold $100.0 and
$150.0 aggregate principal amount of 8-7/8% Senior Subordinated Notes due 2008,
discounted to yield 9.73% and 8.94%, respectively (the "8-7/8% Notes"). The
8-7/8% Notes are jointly and severally guaranteed by certain domestic
subsidiaries of the Company (see Note U - "Consolidating Financial Statements").
The net proceeds from the offerings were used to repay a portion of the
outstanding indebtedness under Terex's credit facilities, to fund a portion of
the aggregate consideration for the acquisition of O&K Mining GmbH and for other
acquisitions.
The 2002 Bank Credit Facility
On July 3, 2002, the Company entered into an amended and restated credit
agreement (the "2002 Bank Credit Facility") with its bank lending group, which
replaced the Company's previous 1999 Bank Credit Facility and 1998 Bank Credit
Facility, described below. The 2002 Bank Credit Facility provides for $375 of
term debt maturing on July 3, 2009 and a revolving credit facility of $300 that
is available through July 3, 2007. The proceeds of the term debt were used to
repay amounts outstanding under the 1999 Bank Credit Facility and 1998 Bank
Credit Facility (approximately $288), for the acquisition of Demag and for
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 transaction. The revolving credit facility is used for
working capital and general corporate purposes, including acquisitions. The 2002
Bank Credit Facility also includes provisions for an additional $250 of term
borrowing by the Company on terms similar to the current term loan debt under
this facility. On September 13, 2002, the Company consummated a $210 incremental
term loan borrowing under this provision of the 2002 Bank Credit Facility, the
net proceeds of which were used to acquire Genie (approximately $10), to
refinance some of Genie's debt (approximately $168) and for other general
corporate purposes.
As of December 31, 2002, the Company had $582.6 of term loans outstanding under
the 2002 Bank Credit Facility. Term loans under the 2002 Bank Credit Facility
bear interest, at the Company's option, at a rate of 2.0% to 2.5% per annum in
excess of the adjusted Eurodollar rate. The weighted average interest rate on
the term loans under the 2002 Bank Credit Facility at December 31, 2002 was
3.88%.
As of December 31, 2002, the Company had a balance of $55.3 outstanding under
the revolving credit component of the 2002 Bank Credit Facility, letters of
credit issued under the 2002 Bank Credit Facility totaled $53.3, and the
additional amount the Company could have borrowed under the revolving credit
component of the 2002 Bank Credit Facility was $191.4. The outstanding principal
amount of loans under the revolving credit portion of the 2002 Bank Credit
Facility bears interest, at the Company's option, at an all-in drawn cost of
1.75% per annum in excess of the adjusted eurocurrency rate or, with respect to
U.S. dollar denominated alternate base rate loans, at an all-in drawn cost of
0.75% per annum above the prime rate. These rates are subject to change based on
the Company's consolidated leverage ratio as defined under the 2002 Bank Credit
Facility. The weighted average interest rate on the outstanding portion of the
2002 Bank Credit Facility revolving credit component was 4.59% at December 31,
2002.
With limited exceptions, the obligations of the Company under the 2002 Bank
Credit Facility are secured by a pledge of all of the capital stock of domestic
subsidiaries of the Company, a pledge of 65% of the stock of the foreign
subsidiaries of the Company and a first priority security interest in, and
mortgages on, substantially all of the assets of Terex and its domestic
subsidiaries. The 2002 Bank Credit Facility contains covenants limiting the
Company's activities, including, without limitation, limitations on dividends
and other payments, liens, investments, incurrence of indebtedness, mergers and
asset sales, related party transactions and capital expenditures. The 2002 Bank
Credit Facility also contains certain financial and operating covenants,
including financial covenant ratios such as a maximum consolidated leverage
ratio, a minimum consolidated interest coverage ratio, a maximum senior secured
debt leverage ratio and a minimum consolidated fixed charge coverage ratio. The
Company was in compliance with its covenants under the 2002 Bank Credit Facility
at December 31, 2002.
The 1999 Bank Credit Facility
On July 2, 1999, the Company entered into a credit agreement (the "1999 Bank
Credit Facility") for a term loan of up to $325 to provide the funds necessary
to acquire the outstanding share capital of Powerscreen and for other general
corporate purposes. The 1999 Bank Credit Facility was subsequently amended and
restated on August 23, 1999 to provide an additional term loan of up to $125 to
acquire Cedarapids. The 1999 Bank Credit Facility was further amended and
restated on March 29, 2001 to provide an additional $175 revolving credit
facility (the "1999 Revolving Credit Facility") for working capital and general
F - 28
corporate purposes, including acquisitions. All amounts outstanding under the
1999 Bank Credit Facility, including the term loans and the 1999 Revolving
Credit Facility, were repaid upon the Company's entry into the 2002 Bank Credit
Facility. During 2002, 2001 and 2000, the Company made principal prepayments of
$152.9, $246.0 and $50.0, respectively, on the term loans under the 1999 Bank
Credit Facility.
The 1998 Bank Credit Facility
On March 6, 1998, the Company refinanced its then outstanding credit facility
and redeemed or defeased all of its $166.7 principal amount of its then
outstanding 13-1/4% Senior Secured Notes due 2002. The refinancing included
effectiveness of a revolving credit facility aggregating up to $125 for working
capital and general corporate purposes, including acquisitions, and term loan
facilities providing for loans in an aggregate principal amount of up to
approximately $375 (collectively, the "1998 Bank Credit Facility").
Pursuant to the term loan component of the 1998 Bank Credit Facility, the
Company borrowed (i) $175 in aggregate principal amount pursuant to a Term Loan
A due March 2004 (the "Term A Loan") and (ii) $200 in aggregate principal amount
pursuant to a Term Loan B due March 2005 (the "Term B Loan"). At December 31,
2002, there is no outstanding principal amount for the Term A Loan, as the Term
A Loan was repaid in full during 2001, nor the Term B Loan, as the Term B Loan
was repaid in full during 2002 in connection with the Company's entry into the
2002 Bank Credit Facility. During 2002, 2001 and 2000, the Company made
principal prepayments of $65.0, $142.4 and $124.4, respectively, on the Term A
Loan and Term B Loan. In connection with the Company's entry into the 2002 Bank
Credit Facility, the Company also repaid all amounts outstanding under the
revolving loan component of the 1998 Bank Credit Facility in 2002.
The Letter of Credit Facility
In conjunction with the 1999 Bank Credit Facility, in July 1999 the Company
received a separate letter of credit facility of up to $50. In conjunction with
the July 3, 2002 amendment to the 1999 Bank Credit Facility, this letter of
credit facility was increased to up to $200. The 2002 Bank Credit Facility
incorporates a letter of credit facility of up to $200 in place of the facility
included in the 1999 Bank Credit Facility (the "Letter of Credit Facility").
Under the 2002 Bank Credit Facility, the Company may arrange with lenders for
the issuance of up to $200 of letters of credit, which may be issued either
under the revolving credit component of the 2002 Bank Credit Facility or under
the separate Letter of Credit Facility contained within the 2002 Bank Credit
Facility. Letters of credit issued under the revolving credit facility decrease
availability under the $300 revolving credit component of the 2002 Bank Credit
Facility; however, letters of credit issued under the Letter of Credit Facility
do not decrease availability under the revolving credit component of the 2002
Bank Credit Facility. As of December 31, 2002, the Company has received
commitments to issue letters of credit under the Letter of Credit Facility of
$23.4, and at December 31, 2002, letters of credit issued under the Letter of
Credit Facility totaled $19.1.
Other
Included in Other is $24.2 for a fair value adjustment increasing the carrying
value of debt. This adjustment is a result of the application of accounting for
fair value hedges with respect to fixed interest rate to floating interest rate
swaps on the 10-3/8% Notes and the 8-7/8% Notes. See Note E - "Derivative
Financial Instruments."
Schedule of Debt Maturities
Scheduled annual maturities of long-term debt outstanding at December 31, 2002
in the successive five-year period are summarized below. Amounts shown are
exclusive of minimum lease payments disclosed in Note N -- "Lease Commitments":
2003................................... $ 36.8
2004................................... 18.7
2005................................... 10.6
2006................................... 8.8
2007................................... 62.1
Thereafter............................. 1,313.6
-------------
Total.............................. $ 1,450.6
=============
F - 29
Total long-term debt at December 31, 2002 is $1,474.8. The $24.2 difference is
due to the fair value adjustment increasing the carrying value of debt as a
result of accounting for fair value hedges for the fixed interest rate to
floating interest rate swaps on the 10-3/8% Notes and the 8-7/8% Notes. See Note
E - "Derivative Financial Instruments."
Based on quoted market values, the Company believes that the fair values of the
9-1/4% Notes, the 10-3/8% Notes and the 8-7/8% Notes were approximately $182,
$282 and $222, respectively as of December 31, 2002. The Company believes that
the carrying value of its other borrowings approximates fair market value, based
on discounting future cash flows using rates currently available for debt of
similar terms and remaining maturities.
The Company paid $83.1, $95.6 and $94.9 of interest in 2002, 2001 and 2000,
respectively.
NOTE N -- LEASE COMMITMENTS
The Company leases certain facilities, machinery and equipment, and vehicles
with varying terms. Under most leasing arrangements, the Company pays the
property taxes, insurance, maintenance and expenses related to the leased
property. Certain of the equipment leases are classified as capital leases and
the related assets have been included in Property, Plant and Equipment. Net
assets under capital leases were $8.7 and $9.4, net of accumulated amortization
of $9.6 and $11.9, at December 31, 2002 and 2001, respectively.
Future minimum capital and noncancelable operating lease payments and the
related present value of capital lease payments at December 31, 2002 are as
follows:
Capital Operating
Leases Leases
------------- -------------
2003............................................ $ 37.4 $ 41.3
2004............................................ 22.7 36.5
2005............................................ 15.5 29.4
2006............................................ 2.1 22.7
2007............................................ 0.7 18.7
Thereafter...................................... 9.9 129.6
------------- -------------
Total minimum obligations .................. 88.3 $ 278.2
=============
Less amount representing interest............... (1.9)
-------------
Present value of net minimum obligations.... 86.4
Less current portion............................ (37.4)
-------------
Long-term obligations....................... $ 49.0
=============
Most of the Company's operating leases provide the Company with the option to
renew the leases for varying periods after the initial lease terms. These
renewal options enable the Company to renew the leases based upon the fair
rental values at the date of expiration of the initial lease. Total rental
expense under operating leases was $31.3, $13.2 and $8.7 in 2002, 2001 and 2000,
respectively.
NOTE O -- INCOME TAXES
The components of Income (Loss) From Continuing Operations Before Income Taxes
and Extraordinary Items are as follows:
Year ended December 31,
-----------------------------------------
2002 2001 2000
------------- ------------- -------------
United States.................................................... $ (25.0) $ 11.2 $ 91.2
Foreign.......................................................... (0.8) 13.4 68.4
------------- ------------- -------------
Income (loss) from continuing operations before income taxes
and extraordinary items...................................... $ (25.8) $ 24.6 $ 159.6
============= ============= =============
F - 30
The major components of the Company's (benefit from) provision for income taxes
are summarized below:
Year ended December 31,
-----------------------------------------
2002 2001 2000
------------- ------------- -------------
Current:
Federal........................................ $ (4.0) $ 6.0 $ 2.1
State.......................................... 0.7 1.4 0.7
Foreign........................................ 19.6 8.9 17.4
------------- ------------- -------------
Current income tax provision............... 16.3 16.3 20.2
------------- ------------- -------------
Deferred:
Federal........................................ (10.9) (6.0) 27.0
State.......................................... (2.4) 1.6 (1.5)
Foreign........................................ (11.3) (4.0) 10.0
------------- ------------- -------------
Deferred income tax provision (24.6) (8.4) 35.5
------------- ------------- -------------
Total (benefit from) provision
for income taxes....................... $ (8.3) $ 7.9 $ 55.7
============= ============= =============
Deferred tax assets and liabilities result from differences in the basis of
assets and liabilities for tax and financial statement purposes. The tax effects
of the basis differences and net operating loss carryforward as of December 31,
2002 and 2001 are summarized below for major balance sheet captions:
2002 2001
------------- -------------
Fixed Assets............................... $ (46.0) $ ---
Intangibles................................ (14.1) (13.1)
Other...................................... --- (0.3)
------------- -------------
Total deferred tax liabilities........ (60.1) (13.4)
------------- -------------
Receivables................................ 5.2 1.4
Net inventories............................ 7.6 6.2
Fixed assets............................... --- 1.4
Workers' compensation...................... 2.0 0.7
Warranties and product liability........... 15.9 9.7
Net operating loss carryforwards........... 247.1 131.9
Pension.................................... 22.9 ---
Equipment lease revenue.................... 32.5 ---
Other...................................... 8.2 4.0
------------- -------------
Total deferred tax assets............. 341.4 155.3
------------- -------------
Deferred tax assets valuation allowance.... (141.0) (56.2)
------------- -------------
Net deferred tax assets............... $ 140.3 $ 85.7
============= =============
Total deferred tax liabilities are included in other non-current liabilities on
the consolidated balance sheet. The valuation allowance for deferred tax assets
as of January 1, 2001 was $30.6. The net change in the total valuation allowance
for the years ended December 31, 2002 and 2001 were increases of $84.8 and
$25.6, respectively. The increase in valuation allowance for the year ended
December 31, 2002 was primarily due to an increase in foreign net operating loss
carryforwards, for which the Company has provided a valuation allowance.
Approximately $76.0 of the valuation allowance relates to acquired deferred tax
assets for which subsequently recognized tax benefits will be allocated to
reduce goodwill of the acquired entity. The Company provides valuation
allowances for deferred tax assets whose realization is not more likely than not
based on estimated future taxable income in the carryforward period. To the
extent that estimates of future taxable income decrease or do not materialize,
potentially significant additional valuation allowances may be required.
F - 31
The Company's Provision for Income Taxes is different from the amount that would
be provided by applying the statutory federal income tax rate to the Company's
Income From Continuing Operations Before Income Taxes and Extraordinary Items.
The reasons for the difference are summarized below:
Year ended December 31,
------------------------------------------
2002 2001 2000
-------------- ------------- -------------
Tax at statutory federal income tax rate.......................... $ (9.0) $ 8.6 $ 55.9
State taxes....................................................... (1.7) 1.6 0.3
Change in valuation allowance relating to NOL and temporary
differences.................................................... 6.0 (6.3) (6.1)
Foreign tax differential on income/losses of foreign subsidiaries. --- 3.8 1.4
Goodwill.......................................................... --- 0.4 1.9
Federal tax credits............................................... (1.3) --- ---
Other............................................................. (2.3) (0.2) 2.3
-------------- ------------- -------------
Total (benefit) provision for income taxes................... $ (8.3) $ 7.9 $ 55.7
============== ============= =============
United States income taxes have not been provided on undistributed earnings of
foreign subsidiaries. The Company's intention is to reinvest these earnings
indefinitely or to repatriate earnings when it is tax effective to do so. If
such earnings were not considered indefinitely reinvested, deferred U.S. and
foreign income taxes would have been provided, after consideration of estimated
foreign tax credits. However, determination of the amount of deferred federal
and foreign income taxes is not practical.
At December 31, 2002, the Company had domestic federal net operating loss
carryforwards of $279.2. The tax basis of U. S. federal net operating loss
carryforwards expire as follows:
Tax Basis Net
Operating Loss
Carryforwards
----------------
2004................................. $ 5.8
2005................................. 0.8
2006................................. 5.8
2007................................. 8.5
2008................................. 56.4
2009................................. 35.8
2010................................. 43.6
2011................................. 1.4
2012................................. 1.1
2013-2017............................ ---
2018 ................................ 0.5
2019................................. 0.6
2020................................. 22.3
2021................................. 92.4
2022................................. 4.2
----------------
Total............................ $ 279.2
================
If a change of control of the Company, as defined by the Tax Reform Act of 1986,
were to occur, the Company's utilization of the U.S. net operating loss and
credit carryforwards would be subject to annual limitation in future periods.
The Company also has various state net operating loss carryforwards expiring at
various dates through 2013 available to reduce future state taxable income and
income taxes. In addition, the Company's foreign subsidiaries have approximately
$416.7 of loss carryforwards, $135.4 in the United Kingdom, $8.1 in France,
$145.4 in Germany, $106.5 in Spain, and $21.3 in other countries, which are
available to offset future foreign taxable income. These foreign tax loss
carryforwards are available without expiration
The Company made income tax payments of $14.2, $14.8, and $2.9 in 2002, 2001 and
2000, respectively.
F - 32
NOTE P -- STOCKHOLDERS' EQUITY
Common Stock. The Company's certificate of incorporation was amended in June
1998 to increase the number of authorized shares of Common Stock to 150.0
million. On April 23, 2002, the Company issued 5.3 million shares of 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 Common Stock during 2002 in connection with the acquisitions
of Schaeff, Utility Equipment, Telelect Southeast and Genie.
On October 1, 2001, the Company issued 3.6 million shares of Common Stock in
exchange for the common stock of CMI. Additionally, on December 10, 2001, the
Company issued 5.8 million shares of Common Stock in a public offering for net
proceeds to the Company of $96.3.
On December 31, 2002, there were 48.6 million shares of Common Stock issued and
47.4 million shares of Common Stock outstanding. Of the 101.4 million unissued
shares of Common Stock at that date, 3.0 million shares of Common Stock were
reserved for issuance for the exercise of stock options and the vesting of
restricted stock.
Common Stock in Treasury. In March 2000, the Company's Board of Directors
authorized the purchase of up to 2.0 million shares of the Company's outstanding
Common Stock over the following twelve months. As of December 31, 2002, the
Company had acquired 1.4 million shares of Common Stock at a total cost of
$20.5. During the fourth quarter of 2000, the Company reissued 0.2 million
shares of Common Stock as partial payment for an acquired company. As of
December 31, 2002, the Company held 1.2 million shares of Common Stock in
treasury.
Preferred Stock. The Company's certificate of incorporation was amended in June
1998 to authorize 50.0 million shares of preferred stock, $0.01 par value per
share. As of December 31, 2001, no shares of preferred stock were outstanding.
Equity Rights. On May 9, 1995, the Company sold one million equity rights
securities (the "Equity Rights") along with a $250 debt offering. The portion of
the proceeds related to the Equity Rights ($3.2) was recorded in the
stockholders' equity section of the balance sheet, because they could be
satisfied in Common Stock or cash at the option of the Company. The Equity
Rights entitled the holders, upon exercise at any time on or prior to May 15,
2002, to receive cash or, at the election of the Company, Common Stock in an
amount equal to the average closing sale price of the Common Stock for the 60
consecutive trading days prior to the date of exercise (the "Current Price"),
less $7.288 per share, subject to adjustment in certain circumstances. Changes
in the Current Price did not affect the net income or loss reported by the
Company; however, changes in the Current Price did vary the amount of cash that
the Company would have to pay or the number of shares of Common Stock that would
have to be issued in the event holders exercise the Equity Rights. During 2002,
2001 and 2000, holders exercised 44.8 thousand, 72.0 thousand and 23.2 thousand
rights, respectively. Also, during 2002, 103 thousand rights were exchanged for
approximately 65 thousand shares of Common Stock pursuant to an offer of
accommodation made by the Company. As of December 31, 2002, there were no Equity
Rights outstanding, as all Equity Rights were either exercised or expired.
Series A Warrants. In connection with the December 1993 private placement of
Series A Preferred Stock, the Company issued 1.3 million Series A Warrants. Each
Series A Warrant could have been exercised, in whole or in part, at the option
of the holder at any time before the expiration date on December 31, 2000 and
was redeemable by the Company under certain circumstances. All Series A Warrants
were exercised prior to the December 31, 2000 expiration date.
Long-Term Incentive Plans. In May 2000, the stockholders approved the Terex
Corporation 2000 Incentive Plan (the "2000 Plan"). The purpose of the 2000 Plan
is to assist the Company in attracting and retaining selected individuals to
serve as directors, officers, consultants, advisors and employees of the Company
and its subsidiaries and affiliates who will contribute to the Company's success
and to achieve long-term objectives which will inure to the benefit of all
stockholders of the Company through the additional incentive inherent in the
ownership of the Common Stock. The 2000 Plan authorizes the granting of (i)
options ("Options") to purchase shares of Common Stock, (ii) stock appreciation
rights ("SARs"), (iii) stock purchase awards, (iv) restricted stock awards and
(v) performance awards. In May 2002, the stockholders approved an increase in
the number of shares of Common Stock authorized for issuance under the 2000 Plan
from 2.0 million shares to 3.5 million. As of December 31, 2002, 1.533 million
shares were available for grant under the 2000 Plan.
In May 1996, the stockholders approved the 1996 Terex Corporation Long-Term
Incentive Plan (the "1996 Plan"). The 1996 Plan authorizes the granting, among
other things, of (i) Options to purchase shares of Common Stock, (ii) shares of
F - 33
Common Stock, including restricted stock, and (iii) cash bonus awards based upon
a participant's job performance. In May 1999, the stockholders approved an
increase in the aggregate number of shares of Common Stock (including restricted
stock, if any) optioned or granted under the 1996 Plan to 2.0 million shares. At
December 31, 2002, 131.3 thousand shares were available for grant under the 1996
Plan. The 1996 Plan also provides for automatic grants of Options to
non-employee directors.
In 1994, the stockholders approved the 1994 Terex Corporation Long-Term
Incentive Plan (the "1994 Plan") covering certain managerial, administrative and
professional employees and outside directors. The 1994 Plan provides for awards
to employees, from time to time and as determined by a committee of outside
directors, of cash bonuses, stock options, stock and/or restricted stock. The
total number of shares of the Company's Common Stock available to be awarded
under the 1994 Plan is 750 thousand, subject to certain adjustments. At December
31, 2002, 10.5 thousand shares were available for grant under the 1994 Plan.
The Company maintains the Terex Corporation Incentive Stock Option Plan (the
"1988 Plan"). The 1988 Plan is a qualified incentive stock option ("ISO") plan
covering certain officers and key employees. The exercise price of the ISO is
the fair market value of the shares at the date of grant. An ISO allows the
holder to purchase shares of Common Stock, commencing one year after grant. An
ISO expires after ten years. In accordance with the terms of the 1988 Plan, no
additional stock options are available for grant under the 1988 Plan at December
31, 2002, since grants under the 1988 Plan could only be made within ten years
of the date of the 1988 Plan's adoption.
The following table is a summary of stock options under all of the Company's
plans.
Weighted
Average
Number of Exercise Price
Options per Share
------------- ----------------
Outstanding at December 31, 1999................ 1,207,242 $ 16.76
Granted...................................... 224,030 $ 13.33
Exercised.................................... (121,550) $ 4.65
Canceled or expired.......................... (12,325) $ 18.97
-------------
Outstanding at December 31, 2000................ 1,297,397 $ 17.29
Granted...................................... 852,000 $ 16.90
Exercised.................................... (154,650) $ 7.59
Canceled or expired.......................... (43,985) $ 13.62
-------------
Outstanding at December 31, 2001................ 1,950,762 $ 17.96
Granted...................................... 608,341 $ 21.80
Exercised.................................... (221,383) $ 14.48
Canceled or expired.......................... (49,450) $ 12.90
-------------
Outstanding at December 31, 2002................ 2,288,270 $ 19.43
=============
Exercisable at December 31, 2002................ 969,281 $ 19.56
============= ================
Exercisable at December 31, 2001................ 761,688 $ 18.52
============= ================
Exercisable at December 31, 2000................ 713,246 $ 15.78
============= ================
F - 34
The following table summarizes information about stock options outstanding and
exercisable at December 31, 2002:
Options Outstanding Options Exercisable
------------------------------------------------------------------------
Weighted
Weighted Weighted Average
Average Average Exercise
Range of Number of Life Exercise Price Number of Price per
Exercise Prices Options (in years) per Share Options Share
- ---------------------------- ------------- ----------- --------------- -------------- ---------------
$ 3.50 - $ 6.00 64,997 2.8 $ 4.38 64,997 $ 4.38
$ 6.01 - $ 10.00 8,300 3.1 $ 6.75 8,300 $ 6.75
$ 10.01 - $ 15.00 309,875 6.2 $ 13.18 224,250 $ 13.42
$ 15.01 - $ 20.00 830,716 8.1 $ 16.82 223,090 $ 16.79
$ 20.01 - $ 25.00 710,138 8.3 $ 22.42 143,750 $ 22.58
$ 25.01 - $ 30.00 349,521 4.8 $ 27.59 291,171 $ 27.98
$ 30.01 - $ 42.58 14,723 3.3 $ 33.76 13,723 $ 34.00
------------- --------------
2,288,270 7.2 $ 19.43 969,281 $ 19.56
============= ==============
Comprehensive Income. The following table reflects the accumulated balances of
other comprehensive income (loss).
Accumulated
Pension Cumulative Derivative Other
Liability Translation Hedging Comprehensive
Adjustment Adjustment Adjustment Income (Loss)
----------------- -------------- ----------------- --------------------
Balance at December 31, 1999....$ (0.5) $ (15.6) $ --- $ (16.1)
Current year change............. 0.2 (62.6) --- (62.4)
----------------- -------------- ----------------- --------------------
Balance at December 31, 2000.... (0.3) (78.2) --- (78.5)
Current year change............. (3.3) (37.7) (0.8) (41.8)
----------------- -------------- ----------------- --------------------
Balance at December 31, 2001 (3.6) (115.9) (0.8) (120.3)
Current year change............. (26.8) 90.6 2.9 66.7
----------------- -------------- ----------------- --------------------
Balance at December 31, 2002....$ (30.4) $ (25.3) $ 2.1 $ (53.6)
================= ============== ================= ====================
NOTE Q -- RETIREMENT PLANS AND OTHER BENEFITS
Pension Plans
US Plans - As of December 31, 2002, the Company maintained four defined benefit
pension plans covering certain domestic employees (the "Terex Plans"). The
benefits for the plans covering the salaried employees are based primarily on
years of service and employees' qualifying compensation during the final years
of employment. Participation in the plans for salaried employees was frozen on
or before October 15, 2000, and no participants will be credited with service
following such dates except that participants not fully vested were credited
with service for purposes of determining vesting only. The benefits for the
plans covering the hourly employees are based primarily on years of service and
a flat dollar amount per year of service. It is the Company's policy generally
to fund the Terex Plans based on the minimum requirements of the Employee
Retirement Income Security Act of 1974 ("ERISA"). Plan assets consist primarily
of common stocks, bonds, and short-term cash equivalent funds. At December 31,
2002 and 2001, the Terex Plans held 0.2 million shares of the Company's Common
Stock, with market values of $2.2 and $3.5, respectively.
The Company adopted a Supplemental Executive Retirement Plan ("SERP") effective
October 1, 2002. The SERP provides retirement benefits to certain senior
executives of the Company. Generally, the SERP provides a benefit based on
average total compensation and years of service reduced by benefits earned under
other Company funded retirement programs, including Social Security. The SERP is
unfunded.
F - 35
Other Postemployment Benefits
The Company provides postemployment health and life insurance benefits to
certain former salaried and hourly employees of Terex Cranes - Waverly
Operations (also known as Koehring Cranes, Inc.), Cedarapids and Simplicity
Engineering. The Company adopted SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions," on January 1, 1993. This statement
requires accrual of postretirement benefits (such as health care benefits)
during the years an employee provides service. Terex adopted the provisions of
SFAS No. 106 using the delayed recognition method, whereby the amount of the
unrecognized transition obligation at January 1, 1993 is recognized
prospectively as a component of future years' net periodic postretirement
benefit expense. The unrecognized transition obligation at January 1, 1993 was
$4.5. Terex is amortizing this transition obligation over 12 years, the average
remaining life expectancy of the participants.
The liability of the Company's U.S. Plans, including the SERP, as of December
31, was as follows:
Pension Benefits Other Benefits
--------------------------------------------------------
2002 2001 2002 2001
------------- ------------- ------------- -------------
Change in benefit obligation:
Benefit obligation at beginning of year$ 99.1 $ 97.0 $ 6.7 $ 6.9
Service cost.......................... 0.5 0.7 0.1 0.2
Interest cost......................... 7.1 7.1 0.6 0.5
Impact of plan amendments............. 3.5 --- --- ---
Actuarial (gain) loss................. 6.5 1.7 2.5 (0.2)
Benefits paid......................... (7.3) (7.4) (0.9) (0.7)
------------- ------------- ------------- -------------
Benefit obligation end of year.......... 109.4 99.1 9.0 6.7
------------- ------------- ------------- -------------
Change in plan assets:
Fair value of plan assets at beginning
of year.............................. 97.6 103.7 --- ---
Actual return on plan assets.......... (6.6) 1.3 --- ---
Employer contribution................. 2.3 --- 0.9 0.7
Benefits paid......................... (7.3) (7.4) (0.9) (0.7)
------------- ------------- ------------- -------------
Fair value of plan assets at end of year 86.0 97.6 --- ---
------------- ------------- ------------- -------------
Funded status........................... (23.4) (1.5) (9.0) (6.7)
Unrecognized actuarial (gain) loss...... 49.4 28.7 1.4 (1.1)
Unrecognized prior service cost......... 7.0 3.9 0.9 1.0
Unrecognized transition obligation...... --- --- 0.6 0.9
------------- ------------- ------------- -------------
Net amount recognized................... $ 33.0 $ 31.1 $ (6.1) $ (5.9)
============= ============= ============= =============
Amounts recognized in the Consolidated
Balance Sheet consist of:
Prepaid benefit cost................. $ --- $ 30.5 $ --- $ ---
Accrued benefit liability............ (16.1) (3.0) (6.1) (5.9)
Accumulated other comprehensive
income (loss)....................... 49.1 3.6 --- ---
------------- ------------- ------------- -------------
Net amount recognized................... $ 33.0 $ 31.1 $ (6.1) $ (5.9)
============= ============= ============= =============
Pension Benefits Other Benefits
-------------------------------------------------------
2002 2001 2002 2001
------------- ------------- ------------- -------------
Weighted-average assumptions as of December 31:
Discount rate........................ 6.75% 7.25% 6.75% 7.25%
Expected return on plan assets....... 8.00% 9.00% --- ---
Rate of compensation increase........ 5.00% --- --- ---
F - 36
Pension Benefits Other Benefits
--------------------------------------- -------------------------------------
2002 2001 2000 2002 2001 2000
------------ ------------ ------------ ------------ ------------ ----------
Components of net periodic cost:
Service cost.......................... $ 0.5 $ 0.7 $ 1.3 $ 0.1 $ 0.2 $ 0.2
Interest cost......................... 7.1 7.1 7.3 0.6 0.5 0.5
Expected return on plan assets........ (8.6) (9.0) (10.6) --- --- ---
Amortization of prior service cost.... 0.4 0.4 0.4 0.1 0.1 ---
Amortization of transition obligation. --- --- --- 0.3 0.3 0.4
Recognized actuarial (gain) loss...... 1.0 0.5 (0.1) --- (0.2) (0.1)
Curtailment (gain) loss............... --- --- (2.6) --- --- ---
------------ ------------ ------------ ------------ ------------ ----------
Net periodic cost (benefit)............. $ 0.4 $ (0.3) $ (4.3) $ 1.1 $ 0.9 $ 1.0
============ ============ ============ ============ ============ ==========
The projected benefit obligation, accumulated benefit obligation, and fair value
of plan assets for the pension plans with accumulated benefit obligations in
excess of plan assets were $109.4, $107.9 and $86.0, respectively, as of
December 31, 2002 and $19.5, $19.5 and $13.8, respectively, as of December 31,
2001.
The Company has five nonpension postretirement benefit plans. The health care
plans are contributory with participants' contributions adjusted annually; the
life insurance plan is noncontributory. For measurement purposes, a 6.83 percent
annual rate of increase in the per capita cost of covered health care benefits
was assumed for 2002. The rate was assumed to decrease gradually to 5.75 percent
for 2005 and remain at that level thereafter. Assumed health care cost trend
rates have a significant effect on the amounts reported for the health care
plan. A one-percentage-point change in assumed health care cost trend rates
would have the following effects:
1-Percentage- 1-Percentage-
Point Increase Point Decrease
---------------- -----------------
Effect on total service and interest cost 4.89% (4.31)%
components
Effect on postretirement benefit obligation 4.36% (3.94)%
International Plans - Terex Equipment Limited maintains a government-required
defined benefit plan (which includes certain defined contribution elements)
covering substantially all of its management employees. Terex Aerials Limited
(Ireland) maintains two voluntary defined benefit plans covering its employees.
O & K Mining maintains an unfunded noncontributory defined benefit plan covering
substantially all of its employees. Fermec maintains a voluntary defined benefit
pension plan covering substantially all of its employees. Atlas, which was
acquired on the December 28, 2001, maintains an unfunded noncontributory defined
benefit plan covering substantially all of its employees in Germany.
Additionally, Atlas maintains a government required defined benefit plan for its
employees in Scotland. Demag, which was acquired on August 30, 2002, maintains
two unfunded noncontributory defines benefit plans covering substantially all of
its employees in Germany.
F - 37
The liability of the Company's International Plans as of December 31, was as
follows:
Pension Benefits
---------------------
2002 2001
---------- ----------
Change in benefit obligation:
Benefit obligation at beginning of year.................$ 123.7 $ 54.2
Benefit obligation of plans acquired during the year.... 21.8 70.6
Service cost............................................ 4.2 2.4
Interest cost........................................... 7.9 3.2
Impact of plan amendments............................... --- ---
Actuarial (gain) loss................................... --- (0.8)
Benefits paid........................................... (6.5) (4.4)
Foreign exchange effect................................. 20.4 (1.5)
---------- ----------
Benefit obligation end of year............................ 171.5 123.7
---------- ----------
Change in plan assets:
Fair value of plan assets at beginning of year.......... 53.1 46.4
Fair value of plan assets acquired during the year...... --- 12.2
Actual return on plan assets............................ (7.8) (1.1)
Employer contribution................................... 5.7 2.2
Benefits paid........................................... (6.5) (4.4)
Foreign exchange effect................................. 5.1 (2.2)
---------- ----------
Fair value of plan assets at end of year.................. 49.6 53.1
---------- ----------
Funded status............................................. (121.9) (70.6)
Unrecognized actuarial (gain) loss....................... 33.4 6.9
Unrecognized transition obligation........................ (0.1) (0.1)
---------- ----------
Net amount recognized.....................................$ (88.6) $ (63.8)
========== ==========
Amounts recognized in the Consolidated Balance Sheet
consist of:
Prepaid benefit cost...................................$ 0.6 $ 0.8
Accrued benefit liability.............................. (89.2) (64.6)
---------- ---------
Net amount recognized.....................................$ (88.6) $ (63.8)
========== =========
Pension Benefits
-------------------------------
2002 2001
---------------- --------------
The range of assumptions as of December 31:
Discount rate........................ 5.75%-6.00% 6.00%-6.25%
Expected return on plan assets....... 2.00%-7.00% 6.00%-8.00%
Rate of compensation increase........ 3.75%-4.25% 3.75%-6.00%
Pension Benefits
--------------------------------------
2002 2001 2000
----------- ----------- -------------
Components of net periodic benefit cost:
Service cost..........................$ 4.2 $ 2.4 $ 0.7
Interest cost......................... 7.9 3.2 0.8
Expected return on plan assets........ (3.6) (3.7) (0.6)
Amortization of prior service cost.... --- --- ---
Amortization of transition obligation. --- --- ---
Recognized actuarial (gain) loss...... 0.2 --- ---
----------- ----------- ------------
Net periodic benefit cost...............$ 8.7 $ 1.9 $ 0.9
=========== =========== ============
The projected benefit obligation, accumulated benefit obligation, and fair value
of plan assets for the pension plans with accumulated benefit obligations in
excess of plan assets were $170.6, $160.8 and $48.1, respectively, as of
December 31, 2002, and $124.7, $111.2 and $55.8, respectively, as of December
31, 2001.
F - 38
Saving Plans
The Company sponsors various tax deferred savings plans into which eligible
employees may elect to contribute a portion of their compensation. The Company
may, but is not obligated to, contribute to certain of these plans. Company
contributions to these plans were $4.2, $2.8, and $2.5 for the years ended
December 31, 2002, 2001 and 2000 respectively.
NOTE R -- 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 $90.6 at December 31, 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 was settled as of May 3, 2002, with the Company being
released from all claims and the action being dismissed with prejudice. The
settlement did 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 two
former subsidiaries' 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
the mining shovel subsidiary O&K Mining GmbH from O&K AG, and is claiming
restitution 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 voluntarily dismiss the Company from the
action. On June 12, 2002, the United States Department of Justice filed a
Statement of Interest in the action that expresses the foreign policy interests
of the United States in the dismissal of the case. 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. The
Company, among others, has made a claim for indemnification with respect to the
action against O&K AG and ThyssenKrupp AG.
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 $9.5 of
income in "Other income (expense) - net" in the Condensed Consolidated Statement
of Operations during 2002.
F - 39
In connection with the Company's sale of the Clark material handling business to
Clark Material Handling Company ("CMHC") in November 1996, CMHC assumed
liabilities from Terex arising from product liability claims dealing with Clark
material handling products manufactured prior to the date of the divestiture. In
connection with CMHC's voluntary filing for bankruptcy in 2000, CMHC defaulted
on its obligations to indemnify and defend the Company from such product
liability claims. As a result, the Company recorded an expense of $7.3, net of
income taxes, in the fourth quarter of 2000 representing the Company's estimated
liability for known product liability claims.
Credit Guarantees
Customers of the Company from time to time may fund the acquisition of the
Company's equipment through third-party finance companies. In certain instances,
the Company may provide a credit guarantee to the finance company, by which the
Company agrees to make payments to the finance company should the customer
default. The maximum liability of the Company is limited to the remaining
payments due to the finance company at the time of default. In the event of
customer default, the Company is generally able to dispose of the equipment with
the Company realizing the benefits of any net proceeds in excess of the
remaining payments due to the finance company.
As of December 31, 2002, the Company's maximum exposure to such credit
guarantees is $294.5. Total credit guarantees issued by Demag and Genie as of
December 31, 2002 totaled $171.6 and $62.7, respectively. The terms of these
guarantees coincide with the financing arranged by the customer and generally
does not exceed five years. Given the Company's position as the original
equipment manufacturer and its knowledge of end markets, the Company, when
called upon to fulfill a guarantee, generally has been able to liquidate the
financed equipment at a minimal loss, if any, to the Company.
Residual Value and Buyback Guarantees
The Company, through its Genie subsidiary, issues residual value guarantees
under sales-type leases. A residual value guarantee involves a guarantee that a
piece of equipment will have a minimum fair market value at a future point in
time. As described in Note L - "Net Investment in Sales-Type Leases," the
Company's maximum exposure related to residual value guarantees under sales-type
leases is $27.4 at December 31, 2002. The Company is able to mitigate the risk
associated with these guarantees because the maturity of the guarantees is
staggered, which limits the amount of used equipment entering the marketplace at
any one time.
The Company from time to time guarantees that it will buy equipment from its
customers in the future at a stated price if certain conditions are met by the
customer. Such guarantees are referred to as buyback guarantees. These
conditions generally pertain to the functionality and state of repair of the
machine. As of December 31, 2002, the Company's maximum exposure pursuant to
buyback guarantees is $36.5. The Company is able to mitigate the risk of these
guarantees by staggering the timing of the buybacks and through leveraging its
access to the used equipment markets provided by the Company's original
equipment manufacturer status.
NOTE S -- RELATED PARTY TRANSACTIONS
On March 2, 2000, Terex made a loan to Ronald M. DeFeo, the Chairman, Chief
Executive Officer, President and Chief Operating Officer of the Company, in the
amount of $3.0. The purpose of the loan was to enable Mr. DeFeo to purchase a
house at a time when he was not permitted to sell any shares of his Common
Stock. Further, at such time, the Board of Directors determined that it did not
desire that Mr. DeFeo be required to sell his Common Stock when he was able to
do so in order to satisfy his other obligations, and preferred instead to grant
him this loan, secured by his shares of Common Stock and amounts earned by Mr.
DeFeo under the Company's 1999 Long-Term Incentive Plan ("LTIP"). The loan
currently bears interest at 4.5% per annum and matures on March 31, 2005. Mr.
DeFeo prepaid $1.0 of the principal amount of the loan in October 2000. The loan
is fully recourse to Mr. DeFeo and is secured by shares of Common Stock owned by
Mr. DeFeo and by payment of amounts earned by Mr. DeFeo under the LTIP. The
terms of the loan require prepayment by Mr. DeFeo of some or all of the loan's
outstanding balance upon the occurrence of certain events, including Mr. DeFeo's
ceasing to be employed by the Company for any reason (including death or
disability), Mr. DeFeo's failing to pay any amounts due under the loan, the
attainment of certain Common Stock price targets and the payment to Mr. DeFeo of
amounts under the LTIP.
Certain former executive officers and directors of the Company, including Marvin
B. Rosenberg, who retired as a director of the Company at the end of 2002, were
named along with the Company in a private litigation initiated by the End of the
Road Trust, the successor to certain of the assets of the bankruptcy estate of
Fruehauf Trailer Corporation, a former subsidiary of the Company. The Company
expended approximately $0.1, $2.4, and $0.5 for legal fees and expenses in 2002,
F - 40
2001 and 2000, respectively, for this matter, which included the defense of Mr.
Rosenberg, as well as other former executive officers and directors of the
Company. The Company is unable to separately determine the portion of these
legal fees and expenses allocable to Mr. Rosenberg individually. The Company has
settled this matter in a manner that did not have a material adverse effect on
the Company's operations.
The Company acquired Genie on September 18, 2002. Prior to the acquisition,
Genie, which became part of the Terex Aerial Work Platforms segment, had entered
into long-term operating leases for two buildings and a parcel of land with
partnerships in which Robert R. Wilkerson, President of the Terex Aerial Work
Platforms segment and former president of Genie, is a partner. These leases have
continued in effect following the acquisition. The buildings are used for office
and production purposes, and the land is used for a parking lot. The total
monthly rental payment by the Company under these leases is currently
approximately $0.2, and in 2002 the Company paid a total of approximately $0.5
under these leases. These leases are based on the then-current market rates in
effect at the time the leases were executed.
On August 28, 1995, the Company's former chairman retired from his positions
with the Company and its Board of Directors. In connection with his retirement,
the Company (upon the recommendation of a committee comprised of its independent
Directors and represented by independent counsel) and the former chairman
executed a retirement agreement providing certain benefits to the former
chairman and the Company. The agreement provided, among other things, for a
five-year consulting engagement requiring the former chairman to make himself
available to the Company to provide consulting services for certain portions of
his time. The former chairman, or his designee, received a fee for consulting
services which included payments in an amount, and a rate, equal to his 1995
base salary until December 31, 1996. The agreement also provided for the (i)
granting of a five-year $1.8 million loan bearing interest at 6.56% per annum
which was subject to being forgiven in increments over the five-year term of the
agreement upon certain conditions, and (ii) equity grants having a maximum
potential of 200.0 thousand shares of Terex Common Stock conditioned upon the
Company achieving certain financial performance objectives in the future. During
1998 the former chairman received 150.0 thousand shares of common stock in
accordance with this agreement. In contemplation of the execution of this
retirement agreement, the Company advanced to the former chairman the principal
amount of the forgivable loan. During 2000, the Company forgave $0.1 of
principal on the loan along with the current interest. As of December 31, 2002,
no principal or interest are owed to the Company for this loan.
The Company requires that all transactions with affiliates be on terms no less
favorable to the Company than could be obtained in comparable transactions with
an unrelated person. The Board of Directors is advised in advance of any such
proposed transaction or agreement and utilizes such procedures in evaluating
their terms and provisions as are appropriate in light of the Board's fiduciary
duties under Delaware law. In addition, the Company has an Audit Committee
consisting solely of independent directors. One of the responsibilities of the
Audit Committee is to review related party transactions.
NOTE T-- BUSINESS SEGMENT INFORMATION
Terex is a diversified global manufacturer of a broad range of equipment for the
construction, infrastructure and surface mining industries. On April 23, 2001,
the Company announced that it was implementing a modified organizational
structure effective May 1, 2001. On May 1, 2001, the Company began operating
primarily in two business segments: (i) Terex Americas and Mining and (ii) Terex
Europe. Previously, the Company had reported its operations as Terex Earthmoving
and Terex Lifting. On August 28, 2001, the Company announced that the Terex
Americas and Mining group was being divided into two separate business segments:
(i) Terex Americas and (ii) Terex Mining. 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. From July 1, 2002 through September 18,
2002, the Company operated in four business segments: (i) Terex Construction;
(ii) Terex Cranes; (iii) Terex Roadbuilding, Utility Products and Other; and
(iv) Terex Mining, and upon the acquisition of Genie on September 18, 2002, the
Company added the Terex Aerial Work Platforms segment. The Company now operates
in five business segments: (i) Terex Construction; (ii) Terex Cranes; (iii)
Terex Roadbuilding, Utility Products and Other; (iv) Terex Aerial Work
Platforms; and (v) Terex Mining. All prior periods have been restated to reflect
results based on these five business segments.
The Terex Construction segment designs, manufactures and markets three primary
categories of equipment and their related components and replacement parts:
heavy construction equipment (including off-highway trucks and scrapers),
compact equipment (including loader backhoes, compaction equipment, mini and
midi excavators, loading machines, site dumpers, telehandlers and wheel
loaders); and mobile crushing and screening equipment (including jaw crushers,
cone crushers, washing screens and trommels). Terex Construction products are
currently marketed principally under the following brand names: Atlas Terex,
Finlay, Fuchs Terex, Pegson, Powerscreen, Terex Benford, Terex Fermec, Terex
F - 41
Handlers, Terex Schaeff, Terex and TerexLift. These products are primarily used
by construction, logging, mining, industrial and government customers in
construction and infrastructure projects and supplying coal, minerals, sand and
gravel.
The Terex Cranes segment designs, manufactures and markets mobile telescopic
cranes, tower cranes, lattice boom crawler cranes, truck mounted cranes (boom
trucks) and telescopic container stackers, as well as their related replacements
parts and components. Currently, Terex Cranes products are marketed principally
under the following brand names: American, Atlas, Atlas Terex, Bendini, Comedil,
Demag, Franna, Lorain, P&H, Peiner, PPM, RO-Stinger and Terex. These products
are used primarily for construction, repair and maintenance of infrastructure,
building and manufacturing facilities.
The Terex Roadbuilding, Utility Products and Other segment designs, manufactures
and markets crushing and screening equipment (including crushers, impactors,
screens and feeders), asphalt and concrete equipment (including pavers, plants,
mixers, reclaimers, stabilizers and profilers), utility equipment (including
digger derricks, aerial devices and cable placers), light construction equipment
(including light towers, trowels, power buggies, generators and arrow boards)
and construction trailers, as well as related components and replacement parts.
These products are currently marketed principally under the following brand
names: Amida, Bartell, Bid-Well, Canica, Cedarapids, Cedarapids/Standard Havens,
CMI Johnson Ross, CMI Terex, CMI-Cifali, Coleman Engineering, Grayhound,
Hi-Ranger, Jaques, Load King, Morrison, Re-Tech, Royer, Simplicity, Terex, Terex
Advance Mixer, Terex Power, Terex Recycling and Terex Telelect. These products
are used primarily by government, utility and construction customers to build
roads, maintain utility lines and trim trees. Terex also owns much of the North
American distribution channel for the utility products group, including the
distributors Utility Equipment and Telelect Southeast. These operations
distribute and install the Company's utility aerial devices as well as other
products that service the utility industry.
The Terex Aerial Work Platforms segment was formed upon the completion of
Terex's acquisition of Genie and its affiliates on September 18, 2002. The Terex
Aerial Work Platforms segment designs, manufactures and markets aerial work
platform equipment. Products include material lifts, portable aerial work
platforms, trailer mounted booms, articulated booms, stick booms, scissor lifts,
related components and replacement parts, and other products. Terex Aerial Work
Platforms products currently are marketed principally under the Genie brand
name. These products are used primarily by customers in the construction and
building maintenance industries to lift people and/or equipment as required to
build and/or maintain large physical assets and structures.
The Terex Mining segment 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 principally under the following brand names: O&K, Payhauler, Terex and
Unit Rig. These products are used primarily used by construction, mining,
quarrying and government customers in construction, excavation and supplying
coal and minerals.
The results of businesses acquired during 2002, 2001 and 2000 are included from
the dates of their respective acquisitions.
F - 42
Included in Eliminations/Corporate are the eliminations among the five segments,
as well as general and corporate items. Business segment information is
presented below:
Year Ended December 31,
------------------------------------------
2002 2001 2000
------------ ------------ --------------
Sales
Terex Construction................................. $ 1,207.1 $ 739.1 $ 708.0
Terex Cranes....................................... 717.9 492.5 675.2
Terex Roadbuilding, Utility Products and Other..... 562.4 365.5 415.0
Terex Aerial Work Platforms........................ 116.8 --- ---
Terex Mining....................................... 282.8 266.2 319.3
Eliminations/Corporate............................. (89.6) (50.8) (48.8)
------------ ------------ --------------
Total............................................ $ 2,797.4 $ 1,812.5 $ 2,068.7
============ ============ ==============
Income (Loss) from Operations
Terex Construction................................. $ 56.3 $ 49.4 $ 84.1
Terex Cranes....................................... 2.0 12.3 56.9
Terex Roadbuilding, Utility Products and Other..... 18.4 26.0 51.7
Terex Aerial Work Platforms........................ 4.9 --- ---
Terex Mining....................................... (4.4) 14.5 6.9
Eliminations/Corporate............................. (8.6) 2.0 (1.3)
------------ ------------ --------------
Total............................................ $ 68.6 $ 104.2 $ 198.3
============ ============ ==============
Depreciation and Amortization
Terex Construction................................. $ 13.6 $ 11.9 $ 13.0
Terex Cranes....................................... 6.0 9.0 10.4
Terex Roadbuilding, Utility Products and Other..... 11.1 9.8 8.8
Terex Aerial Work Platforms........................ 7.3 --- ---
Terex Mining....................................... 1.7 5.3 5.8
Eliminations/Corporate............................. 5.3 4.3 3.5
------------ ------------ --------------
Total............................................ $ 45.0 $ 40.3 $ 41.5
============ ============ ==============
Amortization of Goodwill
Terex Construction................................. $ --- $ 5.1 $ 4.4
Terex Cranes....................................... --- 2.1 3.0
Terex Roadbuilding, Utility Products and Other..... --- 4.1 4.0
Terex Aerial Work Platforms........................ --- --- ---
Terex Mining....................................... --- 2.9 3.1
Eliminations/Corporate............................. --- --- ---
------------ ------------ --------------
Total............................................ $ --- $ 14.2 $ 14.5
============ ============ ==============
Capital Expenditures
Terex Construction................................. $ 12.9 $ 4.8 $ 6.9
Terex Cranes....................................... 5.9 3.8 11.8
Terex Roadbuilding, Utility Products and Other..... 5.3 4.3 3.9
Terex Aerial Work Platforms........................ 2.7 --- ---
Terex Mining....................................... 0.8 0.5 1.6
Eliminations/Corporate............................. 1.6 0.1 ---
------------ ------------ --------------
Total............................................ $ 29.2 $ 13.5 $ 24.2
============ ============ ==============
F - 43
December 31,
------------------------------------------
2002 2001 2000
------------ ------------ --------------
Identifiable Assets
Terex Construction................................. $ 1,326.6 $ 1,009.6 $ 976.4
Terex Cranes....................................... 937.9 457.4 495.9
Terex Roadbuilding, Utility Products and Other..... 602.7 533.8 359.5
Terex Aerial Work Platforms........................ 469.9 --- ---
Terex Mining....................................... 330.4 386.0 411.8
Corporate.......................................... 1,895.8 825.2 685.6
Eliminations....................................... (1,937.6) (825.0) (945.5)
------------ ------------ --------------
Total............................................ $ 3,625.7 $ 2,387.0 $ 1,983.7
============ ============ ==============
Sales between segments are generally priced to recover costs plus a reasonable
markup for profit.
Geographic segment information is presented below:
Year Ended December 31,
------------------------------------------
2002 2001 2000
------------ ------------ --------------
Sales
United States...................................... $ 1,146.5 $ 873.7 $ 1,048.9
United Kingdom..................................... 323.5 216.6 213.1
Germany............................................. 284.2 51.2 76.3
Other European countries........................... 541.1 331.5 308.0
All other.......................................... 502.1 339.5 422.4
------------ ------------ --------------
Total............................................ $ 2,797.4 $ 1,812.5 $ 2,068.7
============ ============ ==============
December 31,
------------------------------------------
2002 2001 2000
------------ ------------ --------------
Long-lived Assets
United States...................................... $ 140.7 $ 77.1 $ 58.5
United Kingdom..................................... 32.9 52.6 44.0
Germany............................................. 120.6 21.7 16.8
Other European Countries........................... 10.4 17.1 32.9
All other.......................................... 4.8 5.4 1.7
------------ ------------ --------------
Total............................................ $ 309.4 $ 173.9 $ 153.9
============ ============ ==============
The Company attributes sales to unaffiliated customers in different geographical
areas on the basis of the location of the customer. Long-lived assets include
net fixed assets which can be attributed to the specific geographic regions.
The Company is not dependent upon any single customer.
NOTE U -- CONSOLIDATING FINANCIAL STATEMENTS
On March 29, 2001, the Company sold and issued $300 aggregate principal amount
of the 10-3/8% Notes. On December 17, 2001, the Company sold and issued $200
aggregate principal amount of 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 the 8-7/8% Notes. As of December 31, 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.,
F - 44
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 December 31, 2002, the 10-3/8% Notes and the 8-7/8%
Notes are also jointly and severally guaranteed by PPM Cranes, Inc. Prior to
December 2002, PPM Cranes, Inc. was 92.4% owned by Terex. In December 2002, the
Company acquired the remaining minority interest in the equity of PPM Cranes,
Inc. The 2002 results include PPM Cranes, Inc. with the Wholly-owned Guarantors;
for prior periods PPM Cranes, Inc. is provided under a separate column. All of
the guarantees are full and unconditional. No subsidiaries of the Company except
the Wholly-owned Guarantors and, for periods prior to 2002, PPM Cranes, Inc.
have provided a guarantee of the 10-3/8% Notes and the 8-7/8% Notes. The
Wholly-owned Guarantors, excluding PPM Cranes, Inc., 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. (for periods prior to 2002) and the
Non-guarantor Subsidiaries.
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 subsidiaries
are 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.
F - 45
TEREX CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2002 (in millions)
Wholly- Non-
Terex owned guarantor Intercompany
Corporation Guarantors Subsidiaries Eliminations Consolidated
------------- ------------- ------------- ------------- -------------
Net sales............................... $ 252.9 $ 1,014.2 $ 1,656.7 $ (126.4) $ 2,797.4
Cost of goods sold.................... 260.4 918.7 1,388.0 (126.4) 2,440.7
------------- ------------- ------------- ------------- -------------
Gross profit............................ (7.5) 95.5 268.7 --- 356.7
Selling, general & administrative 28.7 95.6 163.8 --- 288.1
expenses.............................
------------- ------------- ------------- ------------- -------------
Income (loss) from operations........... (36.2) (0.1) 104.9 --- 68.6
Interest income....................... 3.0 1.6 2.9 --- 7.5
Interest expense...................... (23.8) (20.2) (48.9) --- (92.9)
Income (loss) from equity investees... (75.8) --- --- 75.8 ---
Gain on sale of businesses............ --- --- --- --- ---
Other income (expense) - net.......... (20.5) (16.9) 28.4 --- (9.0)
------------- ------------- ------------- ------------- -------------
Income (loss) before income taxes and
extraordinary items................... (153.3) (35.6) 87.3 75.8 (25.8)
Benefit from (provision for) income
taxes................................. 21.7 (0.7) (12.7) --- 8.3
------------- ------------- ------------- ------------- -------------
Income (loss) from continuing operations
before extraordinary items........... (131.6) (36.3) 74.6 75.8 (17.5)
Loss from discontinued operations..... --- --- --- --- ---
------------- ------------- ------------- ------------- -------------
Income (loss) before extraordinary items (131.6) (36.3) 74.6 75.8 (17.5)
Extraordinary loss on retirement of
debt................................. (0.9) (0.7) --- --- (1.6)
Cumulative effect of change in
accounting principles ............... --- (18.4) (95.0) --- (113.4)
------------- ------------- ------------- ------------- -------------
Net income (loss)....................... $ (132.5) $ (55.4) $ (20.4) $ 75.8 $ (132.5)
============= ============= ============= ============= =============
TEREX CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2001
(in millions)
Wholly- Non-
Terex owned PPM guarantor Intercompany
Corporation Guarantors Cranes, Inc. Subsidiaries Eliminations Consolidated
------------- ------------- ------------- ------------- ------------- -------------
Net sales............................... $ 233.4 $ 654.8 $ 46.0 $ 1,070.1 $ (191.8) $ 1,812.5
Cost of goods sold.................... 226.1 559.6 40.6 905.6 (191.8) 1,540.1
------------- ------------- ------------- ------------- ------------- -------------
Gross profit............................ 7.3 95.2 5.4 164.5 --- 272.4
Selling, general & administrative
expenses............................. 20.9 47.4 10.4 89.5 --- 168.2
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) from operations........... (13.6) 47.8 (5.0) 75.0 --- 104.2
Interest income....................... 3.4 0.2 --- 4.1 --- 7.7
Interest expense...................... (28.0) (12.7) (4.5) (41.5) --- (86.7)
Income (loss) from equity investees... 44.2 --- --- --- (44.2) ---
Gain on sale of businesses............
Other income (expense) - net.......... 1.5 (3.7) (0.1) 1.7 --- (0.6)
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) before income taxes and
extraordinary items................... 7.5 31.6 (9.6) 39.3 (44.2) 24.6
Benefit from (provision for) income
taxes................................ 7.0 (1.1) --- (13.8) --- (7.9)
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) from continuing operations
before extraordinary items............ 14.5 30.5 (9.6) 25.5 (44.2) 16.7
Loss from discontinued operations..... --- --- --- --- --- ---
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) before extraordinary items 14.5 30.5 (9.6) 25.5 (44.2) 16.7
Extraordinary loss on retirement of
debt................................. (1.7) (1.0) --- (1.2) --- (3.9)
------------- ------------- ------------- ------------- ------------- -------------
Net income (loss)....................... $ 12.8 $ 29.5 $ (9.6) $ 24.3 $ (44.2) $ 12.8
============= ============= ============= ============= ============= =============
F - 46
TEREX CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2000
(in millions)
Wholly- Non-
Terex owned PPM guarantor Intercompany
Corporation Guarantors Cranes, Inc. Subsidiaries Eliminations Consolidated
------------- ------------- ------------- ------------- ------------- -------------
Net sales............................... $ 371.9 $ 657.1 $ 69.5 $ 1,190.0 $ (219.8) $ 2,068.7
Cost of goods sold.................... 329.1 548.6 58.2 998.3 (219.2) 1,715.0
------------- ------------- ------------- ------------- ------------- -------------
Gross profit............................ 42.8 108.5 11.3 191.7 (0.6) 353.7
Selling, general & administrative
expenses............................. 27.1 31.1 7.7 89.5 --- 155.4
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) from operations........... 15.7 77.4 3.6 102.2 (0.6) 198.3
Interest income....................... 3.7 0.1 --- 1.7 --- 5.5
Interest expense...................... (19.8) (16.9) (5.9) (57.2) --- (99.8)
Income (loss) from equity investees... 105.2 --- 0.1 --- (105.3) ---
Gain on sale of businesses............ 39.0 --- --- 18.2 --- 57.2
Other income (expense) - net.......... 2.5 (0.9) (0.2) (3.0) --- (1.6)
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) before income taxes and
extraordinary items................... 146.3 59.7 (2.4) 61.9 (105.9) 159.6
Benefit from (provision for) income
taxes................................ (42.4) (0.3) --- (13.0) --- (55.7)
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) from continuing operations
before extraordinary items............ 103.9 59.4 (2.4) 48.9 (105.9) 103.9
Loss from discontinued operations..... (7.3) --- --- --- --- (7.3)
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) before extraordinary items 96.6 59.4 (2.4) 48.9 (105.9) 96.6
Extraordinary loss on retirement of
debt................................. (1.5) --- --- --- --- (1.5)
------------- ------------- ------------- ------------- ------------- -------------
Net income (loss)....................... $ 95.1 $ 59.4 $ (2.4) $ 48.9 $ (105.9) $ 95.1
============= ============= ============= ============= ============= =============
F - 47
TEREX CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2002
(in millions)
Wholly- Non-
Terex Owned Guarantor Intercompany
Corporation Guarantors Subsidiaries Eliminations Consolidated
------------- ------------- ------------- ------------- -------------
Assets
Current assets
Cash and cash equivalents.......... $ 134.0 $ 6.2 $ 212.0 $ --- $ 352.2
Trade receivables - net............ 45.7 189.8 343.1 --- 578.6
Intercompany receivables........... 13.4 6.7 14.4 (34.5) ---
Net inventories.................... 101.1 324.9 645.6 34.7 1,106.3
Current deferred tax assets........ 24.3 18.2 4.4 --- 46.9
Other current assets............... 16.8 36.4 83.9 --- 137.1
------------- ------------- ------------- ------------- -------------
Total current assets............. 335.3 582.2 1,303.4 0.2 2,221.1
Property, plant & equipment - net.... 7.4 128.0 174.0 --- 309.4
Investment in and advances to
(from) subsidiaries.............. 818.0 (520.9) (237.2) (59.9) ---
Goodwill - net....................... (9.8) 284.7 348.0 --- 622.9
Deferred taxes....................... 113.0 17.0 23.5 --- 153.5
Other assets - net................... 27.0 127.7 164.1 318.8
------------- ------------- ------------- ------------- -------------
Total assets............................ $ 1,290.9 $ 618.7 $ 1,775.8 $ (59.7) $ 3,625.7
============= ============= ============= ============= =============
Liabilities and stockholders' equity
(deficit)
Current liabilities
Notes payable and current portion
of long-term debt................ $ 0.4 $ 40.7 $ 33.0 $ --- $ 74.1
Trade accounts payable............. 39.2 149.3 354.4 --- 542.9
Intercompany payables.............. 23.4 (127.8) 138.9 (34.5) ---
Accruals and other current
liabilities...................... 68.0 98.5 322.7 --- 489.2
------------- ------------- ------------- ------------- -------------
Total current liabilities........ 131.0 160.7 849.0 (34.5) 1,106.2
Long-term debt less current portion.. 335.7 386.4 765.0 --- 1,487.1
Other long-term liabilities.......... 55.0 42.7 165.5 --- 263.2
Stockholders' equity (deficit)....... 769.2 28.9 (3.7) (25.2) 769.2
------------- ------------- ------------- ------------- -------------
Total liabilities and stockholders'
equity (deficit)..................... $ 1,290.9 $ 618.7 $ 1,775.8 $ (59.7) $ 3,625.7
============= ============= ============= ============= =============
F - 48
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 - net............ 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
Current deferred tax assets........ 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 - net....................... 2.7 252.1 10.6 354.7 --- 620.1
Deferred taxes....................... 74.7 --- --- 0.7 --- 75.4
Other assets - net................... 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
Long-term debt less current portion.. 298.6 185.8 62.4 473.9 --- 1,020.7
Other long-term liabilities.......... 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
============= ============= ============= ============= ============= =============
F - 49
TEREX CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2002
(in millions)
Wholly- Non-
Terex owned guarantor Intercompany
Corporation Guarantors Subsidiaries Eliminations Consolidated
------------- ------------- ------------- ------------- -------------
Net cash provided by (used in)
operating activities................. $ (109.5) $ 103.5 $ 76.3 $ --- $ 70.3
------------- ------------- ------------- ------------- -------------
Cash flows from investing activities:
Proceeds from sale of business........ --- --- --- --- ---
Acquisition of business, net of cash
acquired............................. (11.3) (191.5) (243.1) --- (445.9)
Capital expenditures.................. (1.7) (10.3) (17.2) --- (29.2)
Proceeds from sale of assets.......... 0.5 3.5 30.5 --- 34.5
Other................................. --- --- --- --- ---
------------- ------------- ------------- ------------- -------------
Net cash provided by (used in)
investing activities............... (12.5) (198.3) (229.8) --- (440.6)
------------- ------------- ------------- ------------- -------------
Cash flows from financing activities:
Principal repayments of long-term debt (1.5) (101.8) (116.3) --- (219.6)
Net borrowings (repayments) under
revolving line of credit agreements.. --- (1.1) 0.3 (0.8)
Proceeds from issuance of long-term
debt, net of issuance costs.......... --- 204.8 367.2 --- 572.0
Issuance of common stock.............. 113.3 --- --- --- 113.3
Other................................. --- (4.9) --- --- (4.9)
------------- ------------- ------------- ------------- -------------
Net cash provided by (used in)
financing activities............... 111.8 97.0 251.2 --- 460.0
------------- ------------- ------------- ------------- -------------
Effect of exchange rates on cash and
cash equivalents...................... --- --- 12.1 --- 12.1
------------- ------------- ------------- ------------- -------------
Net (decrease) increase in cash and cash
equivalents........................... (10.2) 2.2 109.8 101.8
Cash and cash equivalents, beginning of
period................................ 144.2 4.0 102.2 --- 250.4
------------- ------------- ------------- ------------- -------------
Cash and cash equivalents, end of period $ 134.0 $ 6.2 $ 212.0 $ --- $ 352.2
============= ============= ============= ============= =============
TEREX CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 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.................. $ (223.0) $ 41.3 $ 0.5 $ 175.7 $ --- $ (5.5)
------------- ------------- ------------- ------------- ------------- -------------
Cash flows from investing activities:
Proceeds from sale of business........ --- --- --- --- --- ---
Acquisition of business, net of cash
acquired............................. (5.3) (68.7) --- (15.7) --- (89.7)
Capital expenditures.................. (1.1) (5.1) --- (7.3) --- (13.5)
Proceeds from sale of assets.......... 0.3 1.0 --- 6.7 --- 8.0
Other................................. --- --- --- (41.1) --- (41.1)
------------- ------------- ------------- ------------- ------------- -------------
Net cash provided by (used in)
investing activities............... (6.1) (72.8) --- (57.4) --- (136.3)
------------- ------------- ------------- ------------- ------------- -------------
Cash flows from financing activities:
Principal repayments of long-term debt (38.5) (90.0) (0.5) (259.5) --- (388.5)
Net borrowings (repayments) under
revolving line of credit agreements.. --- --- --- 23.6 23.6
Proceeds from issuance of long-term
debt, net of issuance costs.......... 207.0 125.2 --- 149.2 --- 481.4
Issuance of common stock.............. 96.3 --- --- --- --- 96.3
Other................................. (0.2) (0.1) --- (1.0) --- (1.3)
------------- ------------- ------------- ------------- ------------- -------------
Net cash provided by (used in)
financing activities............... 264.6 35.1 (0.5) (87.7) --- 211.5
------------- ------------- ------------- ------------- ------------- -------------
Effect of exchange rates on cash and
cash equivalents...................... --- --- --- (0.7) --- (0.7)
------------- ------------- ------------- ------------- ------------- -------------
Net (decrease) increase in cash and cash 35.5 3.6 --- 29.9 69.0
equivalents...........................
Cash and cash equivalents, beginning of 108.7 0.3 0.1 72.3 --- 181.4
period................................
------------- ------------- ------------- ------------- ------------- -------------
Cash and cash equivalents, end of period $ 144.2 $ 3.9 $ 0.1 $ 102.2 $ --- $ 250.4
============= ============= ============= ============= ============= =============
F - 50
TEREX CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2000
(in millions)
Wholly- Non-
Terex owned PPM guarantor Intercompany
Corporation Guarantors Cranes, Inc. Subsidiaries Eliminations Consolidated
------------- ------------- ------------- ------------- ------------- -------------
Net cash provided by (used in)
operating activities.................. $ 180.2 $ 4.9 $ 1.1 $ 14.4 $ --- $ 200.6
------------- ------------- ------------- ------------- ------------- -------------
Cash flows from investing activities:
Proceeds from sale of business........ 51.8 --- --- 92.5 --- 144.3
Acquisition of business, net of cash (2.9) (0.5) --- (16.6) --- (20.0)
acquired.............................
Capital expenditures.................. (2.5) (12.6) (0.3) (8.8) --- (24.2)
Proceeds from sale of assets.......... --- 6.8 --- 4.0 --- 10.8
------------- ------------- ------------- ------------- ------------- -------------
Net cash provided by (used in)
investing activities............... 46.4 (6.3) (0.3) 71.1 --- 110.9
------------- ------------- ------------- ------------- ------------- -------------
Cash flows from financing activities:
Principal repayments of long-term debt (161.0) --- (0.8) (21.3) --- (183.1)
Net borrowings (repayments) under
revolving line of credit agreements.. --- --- --- (53.6) (53.6)
Purchases of common stock held in
treasury............................. (20.2) --- --- --- --- (20.2)
Other................................. (1.0) --- --- (3.3) (4.3)
------------- ------------- ------------- ------------- ------------- -------------
Net cash provided by (used in)
financing activities............... (182.2) --- (0.8) (78.2) --- (261.2)
------------- ------------- ------------- ------------- ------------- -------------
Effect of exchange rates on cash and
cash equivalents...................... --- --- --- (2.2) --- (2.2)
------------- ------------- ------------- ------------- ------------- -------------
Net (decrease) increase in cash and cash
equivalents........................... 44.4 (1.4) --- 5.1 48.1
Cash and cash equivalents, beginning of
period................................ 64.3 1.7 0.1 67.2 --- 133.3
------------- ------------- ------------- ------------- ------------- -------------
Cash and cash equivalents, end of period $ 108.7 $ 0.3 $ 0.1 $ 72.3 $ --- $ 181.4
============= ============= ============= ============= ============= =============
F - 51
NOTE V - SUBSEQUENT EVENT
On February 14, 2003, the Company acquired Commercial Body Corporation
("Commercial Body"). Commercial Body, headquartered in Texas 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 600 thousand shares of Common Stock and paid
$4.5 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 Commercial Body acquisition, the Common Stock is not trading
on the NYSE at a price at least 50% higher than it was at the time of
acquisition, up to a maximum number of shares of Common Stock having a value of
$3.4. Commercial Body will be included in the Terex Roadbuilding, Utility
Products and Other segment.
F - 52
TEREX CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(Amounts in millions)
Additions
---------------------------
Balance
Beginning Charges to Balance End
of Year Earnings Other(1) Deductions (2) of Year
------------- ------------- ------------- ----------------- -------------
Year ended December 31, 2002 Deducted from asset accounts:
Allowance for doubtful accounts............. $ 8.6 $ 31.6 $ 2.0 $ (22.6) $ 19.6
Reserve for excess and obsolete inventory... 27.1 43.5 3.4 (37.3) 36.7
------------- ------------- ------------- ----------------- -------------
Totals..................................... $ 35.7 $ 75.1 $ 5.4 $ (59.9) $ 56.3
============= ============= ============= ================= =============
Year ended December 31, 2001 Deducted from asset accounts:
Allowance for doubtful accounts............. $ 6.3 $ 7.4 $ --- $ (5.1) $ 8.6
Reserve for excess and obsolete inventory... 26.1 7.6 --- (6.6) 27.1
------------- ------------- ------------- ----------------- -------------
Totals..................................... $ 32.4 $ 15.0 $ --- $ (11.7) $ 35.7
============= ============= ============= ================= =============
Year ended December 31, 2000 Deducted from asset accounts:
Allowance for doubtful accounts............. $ 5.8 $ 2.4 $ --- $ (1.9) $ 6.3
Reserve for excess and obsolete inventory... 22.5 8.1 --- (4.5) 26.1
------------- ------------- ------------- ----------------- -------------
Totals..................................... $ 28.3 $ 10.5 $ --- $ (6.4) $ 32.4
============= ============= ============= ================= =============
(1) Primarily represents the impact of foreign currency exchange. (2) Primarily
represents the utilization of established reserves, net of recoveries.
F - 53
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 March 31, 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 March 31, 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 March 31, 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 March 31, 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 March 31, 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 March 31, 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 March 31, 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 Seventh Supplemental Indenture, dated as of September 30, 2002, between
Terex Corporation and Bank of New York (as successor to United States Trust
Company of New York), as Trustee (to Indenture dated as of March 31,
1998).*
4.9 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).
4.10 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).
4.11 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).
E - 1
4.12 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).
4.13 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).
4.14 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).
4.15 Sixth Supplemental Indenture, dated as of September 30, 2002, between Terex
Corporation and Bank of New York (as successor to United States Trust
Company of New York), as Trustee (to Indenture dated March 9, 1999).*
4.16 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).
4.17 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).
4.18 Second Supplemental Indenture, dated as of September 30, 2002, between
Terex Corporation and Bank of New York (as successor trustee to United
States Trust Company of New York), as Trustee (to Indenture dated as of
March 29, 2001).*
4.19 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).
4.20 First Supplemental Indenture, dated as of September 30, 2002, between Terex
Corporation and Bank of New York (as successor trustee to United States
Trust Company of New York), as Trustee (to Indenture dated as of December
17, 2001).*
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 Terex Corporation Supplemental Executive Retirement Plan, effective October
1, 2002. *
10.10 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).
E - 2
10.11 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).
10.12 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).
10.13 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).
10.14 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).
10.15 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).
10.16 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).
10.17 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).
10.18 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).
10.19 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).
10.20 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).
10.21 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).
10.22 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).
10.23 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).
10.24 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).
10.25 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).
E - 3
10.26 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).
10.27 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).
10.28 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).
10.29 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).
10.30 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).
10.31 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).
10.32 Amended and Restated Promissory Note, dated October 26,2001, by Ronald M.
DeFeo in favor of Terex Corporation.*
10.33 Pledge and Assignment Agreement dated as of March 2, 2000 between Ronald
M. DeFeo and Terex Corporation.*
10.34 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).
10.35 Form of Change in Control and Severance Agreement between Terex
Corporation and certain executive officers.*
12 Calculation of Ratio of Earnings to Fixed Charges. *
21.1 Subsidiaries of Terex Corporation.*
23.1 Consent of Independent Accountants - PricewaterhouseCoopers LLP, Stamford,
Connecticut.*
24.1 Power of Attorney.*
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.
E - 4