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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, 2003
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. |_|
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 $890 million based on the
last sale price on June 30, 2003.
The number of shares of the Registrant's Common Stock outstanding was 49,128,386
as of March 1, 2004.
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 2004 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, 2003
Page
----
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............ 30
PART II
Item 5 Market for Registrant's Common Stock, Related Stockholder
Matters and Issuer Purchases of Equity Securities............ 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...... 57
Item 8 Financial Statements and Supplementary Data.................... 58
Item 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure......................................... 59
Item 9A Controls and Procedures........................................ 59
PART III
Item 10 Directors and Executive Officers of the Registrant............. 59
Item 11 Executive Compensation......................................... 59
Item 12 Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters.............................. 59
Item 13 Certain Relationships and Related Transactions................. 59
Item 14 Principal Accountant Fees and Services......................... 60
PART IV
Item 15 Exhibits, Financial Statement Schedules and Reports
on Form 8-K.................................................. 61
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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 products that increase their return on invested capital
through lower life cycle costs; (ii) implementing a variable cost structure with
over 70% 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. Additionally, the Company recently announced an
internal improvement process focusing on matters that are intended to benefit
the Company's customers, investors and employees.
The Company operates in five business segments: Terex Construction, Terex
Cranes, Terex Aerial Work Platforms, Terex Mining and Terex Roadbuilding,
Utility Products and Other.
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). 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 products are currently marketed principally under the
following brand names: Terex, Atlas, Benford, Fermec, Finlay, Fuchs, Pegson,
Powerscreen, Schaeff and TerexLift. The Company's strategy going forward is to
build the Terex brand. As part of that effort, Terex will, over time, be
migrating historic brand names to Terex, and may include the use of the historic
brand name in conjunction with the Terex brand name for a transitional period of
time.
Terex Construction has 17 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 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 and TEREX trade names;
o BL-Pegson Ltd. ("B.L. Pegson"), located in Coalville, England, which
manufactures crushers under the PEGSON brand name;
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;
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o Fuchs-Bagger GmbH & Co. KG ("Fuchs"), located in Bad Schoenborn,
Germany, at which loading machines are manufactured under the FUCHS
and TEREX brand names;
o Powerscreen International Distribution Ltd. and Powerscreen Limited
("Powerscreen"), located in Dungannon, Northern Ireland, 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 SCHAEFF, ATLAS and TEREX brand names;
o Terex Compact Equipment, located in Coventry, England, at which
Benford Limited ("Benford") manufactures dumpers, compaction equipment
and material handlers under the Company's AMIDA, BENFORD and TEREX
brand names, and Fermec Manufacturing Limited ("Fermec") manufactures
loader backhoes under the TEREX and FERMEC 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; 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. These products are used primarily for construction, repair
and maintenance of infrastructure, building and manufacturing facilities.
Currently, Terex Cranes products are marketed principally under the following
brand names: Terex, American, Bendini, Comedil, Demag, Franna, Lorain, P&H,
Peiner, PPM and RO-Stinger. The Company's strategy going forward is to build the
Terex brand. As part of that effort, Terex will, over time, be migrating
historic brand names to Terex, and may include the use of the historic brand
name in conjunction with the Terex brand name for a transitional period of time.
Terex Cranes has 11 significant manufacturing operations:
o The American Crane Corporation ("American Crane") located in
Wilmington, North Carolina, at which lattice boom crawler cranes and
tower cranes are manufactured under the AMERICAN, TEREX TOWER and
DEMAG trade names;
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 telescopic cranes are
manufactured under the DEMAG, PEINER and TEREX trade names, and at
which large tower cranes are manufactured under the PEINER and TEREX
brand names;
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 telescopic cranes are manufactured under the TEREX and
BENDINI brand names;
o Terex Lifting Australia Pty. Ltd. ("Terex Lifting Australia"), located
in Brisbane, Australia, at which lift and carry cranes are
manufactured under the FRANNA trade name; and
o Terex Cranes - Waverly, 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
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trademark of Joy Global Inc.), and at which truck mounted cranes are
manufactured under the RO-STINGER brand name.
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 and telehandlers. Products include
material lifts, portable aerial work platforms, trailer mounted booms,
articulating booms, stick booms, scissor lifts, telehandlers, related components
and replacement parts, and other products. Terex Aerial Work Platforms products
currently are marketed principally under the GENIE and TEREX brand names. 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 three significant manufacturing operations
located in Redmond and Moses Lake, Washington, at which aerial work platform
equipment is manufactured, and a manufacturing location in Baraga, Michigan, at
which rough terrain telescopic boom material handlers (also known as
telehandlers) are 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. These products are used primarily by
construction, mining, quarrying and government customers in construction,
excavation and supplying coal and minerals. Currently, Terex Mining products are
marketed principally under the following brand names: O&K, PAYHAULER, TEREX and
UNIT RIG. The Company's strategy going forward is to build the Terex brand. As
part of that effort, Terex will, over time, be migrating historic brand names to
Terex, and may include the use of the historic brand name in conjunction with
the Terex brand name for a transitional period of time.
Terex Mining has one significant manufacturing operation, located in Dortmund,
Germany, at which it manufactures large hydraulic mining excavators under the
Terex and O&K brand names. Terex Mining markets high capacity surface mining
trucks that are manufactured for Terex Mining by a third party supplier.
Terex Roadbuilding, Utility Products and Other
The Terex Roadbuilding, Utility Products and Other segment designs, manufactures
and markets fixed installation 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), construction trailers and on/off road heavy-duty
vehicles, as well as related components and replacement parts. These products
are used primarily by government, utility and construction customers to build
roads, maintain utility lines, trim trees and for commercial and military
applications. These products are currently marketed principally under the
following brand names: Terex, Advance, American Truck Company, Amida, ATC,
Bartell, Benford, Bid-Well, Canica, Cedarapids, Cedarapids/Standard Havens, CMI
Johnson Ross, CMI Terex, CMI-Cifali, Grayhound, Hi-Ranger, Jaques, Load King,
Morrison, Re-Tech, Royer, Simplicity, Tatra, Terex Power, Terex Recycling and
Terex Telelect. The Company's strategy going forward is to build the Terex
brand. As part of that effort, Terex will, over time, be migrating historic
brand names to Terex, and may include the use of the historic brand name in
conjunction with the Terex brand name for a transitional period of time.
Terex also owns much of the North American distribution channel for the utility
products group through the distributors Terex Utilities South and Terex
Utilities West. Terex also owns 40% of Intercontinental Equipment Company
("INECO"), another distributor of utility products. These operations distribute
and install the Company's utility aerial devices as well as other products that
service the utility industry. The Company also operates a fleet of rental
utility products under the name Terex Utilities Rental.
Terex is a majority 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 4x4 to 12x12 heavy-duty on and off-road
vehicles for military and commercial applications under the Tatra brand name.
The Company also participates in a joint venture under the name American Truck
Company ("ATC"). ATC assembles vehicles based on the Tatra design and technology
incorporating U.S. components under the following brand names: Terex, American
Truck and ATC. ATC manufactures its products at the Company's Terex Advance
Mixer facility in Fort Wayne, Indiana.
The Company also leases and rents a variety of heavy equipment to third parties
under the Terex Re-Rentals brand name.
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In January 2003, the Company launched the operations of Terex Financial
Services, Inc. ("TFS"). TFS offers customers a complete line of loans and leases
to assist in the acquisition of all of the Company's products. In North America,
TFS, the Company and the Company's other domestic subsidiaries have entered into
an arrangement with General Electric Capital Corporation Vendor Financial
Services ("GE Capital"), whereby GE Capital acts as the preferred provider of
all such loans and leases and provides a dedicated team to work with TFS and the
Company's customers. All such loans and leases are originated by GE Capital on a
non-recourse private label basis under the licensed trade name "TFS Capital
Funding" and GE Capital bears all credit risk in connection with such loans and
leases. Terex receives fee and expense reimbursements from GE Capital, and TFS
shares in the profitability of the loan and lease portfolio originated by GE
Capital to purchasers of Terex products. As a result, TFS participates in the
benefits associated with the financing of the Company's products with marginal
expense and without adding any additional debt or credit risk to Terex.
Terex Roadbuilding, Utility Products and Other has 15 significant manufacturing
operations:
o Amida Industries, Inc. ("Amida") located in Rock Hill, South Carolina,
which manufactures and sells portable floodlighting systems, concrete
power trowels, concrete placement systems, concrete finishing systems,
concrete mixers, generators and traffic control products under the
AMIDA, BARTELL, MORRISON, BENFORD, TEREX and TEREX POWER 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, GRAYHOUND, 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;
o Tatra, located in Koprivnice, Czech Republic, at which a range of 4x4
to 12x12 heavy duty on and off-road vehicles for military and
commercial applications are manufactured under the TATRA brand name;
o Terex Advance Mixer, Inc. ("Terex Advance Mixer"), located in Fort
Wayne, Indiana, which manufactures and sells front and rear discharge
concrete mixer trucks under the TEREX and ADVANCE brand names, and at
which ATC manufactures heavy-duty on and off-road vehicles for
military and commercial applications under the TEREX, ATC and AMERICAN
TRUCK brand names;
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
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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.
Other Businesses
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.
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 by
offering loans and leases to purchasers of Genie products.
The Company has an interest in a joint venture in India under the name Terex
Vectra Equipment Pvt. Ltd., which will manufacture and market compact
construction equipment. Production is expected to begin in the first half of
2004.
Terex also participates in joint ventures in China under the names Wieland
International Trading (Shanghai) Co. Ltd. and Shanghai Wieland Engineering Co.
Ltd., which manufacture replacement and wear parts for crushing equipment.
The Company owns an interest in DuvalPilot Equipment Outfitters, LLC, a
distributor of the Company's products and other light construction equipment
located in Florida.
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 that increase their
return on invested capital through a lower life cycle cost; (ii) implementing a
variable cost structure with over 70% 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.
Additionally, the Company recently announced an internal improvement process,
known as the Terex Improvement Process or "TIP", focusing on matters that are
intended to benefit the Company's customers, investors and employees.
Increase Sales and Market Share Through Best Value Strategy
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
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).
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
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businesses, added new technology and improved its distribution network. As a
result, the Company has developed a geographically diverse revenue base with
approximately 61% 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 2003 2002 2001
---------------- ---- ---- ----
Hydraulic Mobile Cranes 18 16 13
Compact Construction Equipment 17 18 9
Crushing, Screening & Paving Equipment 15 20 23
Aerial Work Platforms 14 5 3
Surface Mining Equipment 8 9 14
Off-Highway Construction Trucks 6 9 11
Utility Equipment 6 7 7
Lattice Boom & Tower Cranes 6 6 7
Boom Trucks 3 2 3
Material Handlers & Container Stackers 2 5 7
On/Off Road Heavy Duty Vehicles 2 --- ---
Other 3 3 3
------- ------- ------
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. The Company is currently focused on
completing the integration of its recent acquisitions and growing organically by
turning its portfolio of individual businesses into an integrated franchise. The
Company may make additional acquisitions in the future, particularly those that
would complement the Company's existing operations, and expects acquisitions to
be part of the Company's future. The Company feels that any future acquisitions
would need to be of significant strategic importance, such as expanding the
Company's geographic range or product diversity.
Some recent examples of the Company's acquisition strategy include:
o The acquisition during 2003 of the utility products distributors
Commercial Body Corporation ("Commercial Body") and Combatel
Distribution, Inc. ("Combatel") (now part of Terex Utilities South)
and the majority interests in Tatra and ATC.
o The acquisition during 2002 of Genie, Demag, Schaeff (including
Fuchs), Terex Advance Mixer, and the utility product distributors
Pacific Utility Equipment Company ("Pacific Utility") (now part of
Terex Utilities West) and Telelect Southeast Distribution, Inc.
("Telelect Southeast") (now part of Terex Utilities South).
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).
Internal Improvement Process
Terex recently launched a series of initiatives intended to transform the
Company over the next several years. The Terex Improvement Process ("TIP") will
focus on improving the Company's internal processes and helping the Company
become more customer-centric. The Company has created several TIP teams of
cross-functional and operational managers to build the Terex of tomorrow. The
teams will focus on leadership and talent development, the customer experience,
the Company's product value proposition and returns delivered to the Company's
investors. Some areas of concentration include improving the workplace, better
management of the Company's assets, improving operating margins, making Terex an
easier partner to do business with, and new branding and marketing strategies.
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Terex's goal is to become the most customer responsive company in its industry
and a preferred place to work.
Products
Terex Construction
Heavy Construction Equipment. Terex Construction manufactures off-highway trucks
and scrapers, and also markets excavators and wheel loaders, 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.
[Graphic] Excavators are used for a wide variety of construction
applications, including non-residential construction (such
as commercial sites and road construction) and residential
construction. These machines are crawler type excavators
ranging in size from 13 to 47 tons. They are manufactured
for Terex in South Korea and are sold under the TEREX brand
name.
[Graphic] Wheel Loaders are used for loading and unloading materials.
Applications include mining and quarrying, non-residential
construction, airport and industrial snow removal, waste
management and general construction. These machines range in
size from three to five cubic yards capacity, and are
manufactured for Terex in South Korea and are sold under the
TEREX brand name.
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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, European 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 FERMEC brand
names in Coventry, 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 six 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 Coventry, England, under the TEREX
and BENFORD brand names.
[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 six 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 six to eight ton sizes Terex offers standard
steel tracks and optional rubber tracks. These excavators
are manufactured in Germany under the TEREX, ATLAS and
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 66 tons at its facilities
in Bad Schoenborn and Ganderkasee, Germany, under the TEREX,
FUCHS and ATLAS brand names.
- 10 -
[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 two wheel and four wheel drive models. Site
dumpers are manufactured in Coventry, England, under the
BENFORD and TEREX brand names.
[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 SCHAEFF and TEREX at its facility in
Crailsheim, Germany.
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
6:1 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 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.
- 11 -
[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. Trommels are also
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.
Terex Cranes
Terex Cranes offers a wide variety of cranes, including mobile telescopic
cranes, tower cranes, lattice boom crawler cranes, boom trucks and telescopic
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
490 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] 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] 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 195 feet. Terex
- 12 -
manufactures its rough terrain cranes at its facilities
located in Waverly, Iowa, and Crespellano, Italy, under the
brand names TEREX, LORAIN, P&H 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] 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.
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, under the COMEDIL
and TEREX brand names, and in Zweibrucken, Germany, under the PEINER 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.
- 13 -
[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.
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 Waverly, Iowa facility
under the brand names RO-STINGER and TEREX.
- 14 -
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 and TEREX at
its Montceau-les-Mines, France, facility.
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 twenty 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 of these aerial lifts
are manufactured under the brand name GENIE in Redmond and Moses Lake,
Washington. The Aerial Work Platforms segment also manufactures and markets
rough terrain telescopic boom material handlers (also known as telehandlers)
under the TEREX brand name at its facility in Baraga, Michigan.
[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 are used primarily indoors in
a variety of markets to perform overhead maintenance. These
aerial work platforms 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; rough terrain models; narrow access
- 15 -
models that roll through standard double doorways; gas/LPG,
diesel, electric, and hybrid 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.
[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.
[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 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 six to 60
cubic yards. They are manufactured under the O&K and TEREX
brand names 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.
- 16 -
[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.
Terex Roadbuilding, Utility Products and Other
Terex offers a diverse range of products for the roadbuilding, utility and
construction industries and governments. Products in this group include crushing
and screening equipment, asphalt and concrete equipment, utility equipment,
light construction equipment, construction trailers and on/off road heavy-duty
vehicles.
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
6:1 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.
- 17 -
[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 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 and
JAQUES.
[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
- 18 -
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.
[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 three, four,
five, six or seven axles. They are manufactured in Fort
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.
- 19 -
[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.
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 and TEREX brand names in Rock
Hill, South Carolina.
- 20 -
[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 brand
name 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.
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.
- 21 -
On/Off Road Heavy Duty Vehicles. Terex produces, through its majority ownership
of Tatra, a range of 4x4 to 12x12 heavy duty on and off-road vehicles for
military and commercial applications at its facility in Koprivnice, Czech
Republic under the TATRA brand name. ATC manufactures vehicles based on the
Tatra design and technology incorporating U.S. components at the Company's Terex
Advance Mixer facility in Fort Wayne, Indiana.
[Graphic] On/off road heavy duty vehicles are produced for military
and commercial use with axle configurations of 4x4 up to
12x12. The main features of the vehicle design include an
air cooled engine, a sturdy central load-carrying tube and a
swinging half axle design that controls the independent
movement of each wheel. The kinematics of the axles,
together with the backbone tube, make a stable base to which
a body can be mounted that limits extreme side rocking,
making it possible for the truck to go off-road at high
speeds.
Backlog
The Company's backlog as of December 31, 2003 and 2002 was as follows:
December 31,
----------------------------
2003 2002
-------------- -------------
(in millions)
Terex Construction.................$ 109.0 $ 75.9
Terex Cranes....................... 138.8 146.2
Terex Aerial Work Platforms........ 22.2 10.0
Terex Mining....................... 33.6 47.8
Terex Roadbuilding, Utility
Products and Other.............. 164.7 120.0
Eliminations....................... (5.7) ---
-------------- -------------
Total.........................$ 462.6 $ 399.9
============== =============
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, 2003 increased $33.1 million to
$109.0 million, as compared to $75.9 million at December 31, 2002. The increase
in backlog was due primarily to increased customer orders at Atlas prior to a
model change scheduled for the first quarter of 2004. Additionally, backlog
increased significantly at Fuchs, Schaeff and Benford.
The backlog at Terex Cranes decreased $7.4 million to $138.8 million at December
31, 2003 from $146.2 million at December 31, 2002, principally due to the
reduction of backlog at Demag, which was partially offset by increased backlog
at the North American crane businesses. The reduction in Demag's backlog was due
to improvements in production and shipping efficiencies implemented after
Demag's acquisition by Terex.
The increase in the backlog at Terex Aerial Work Platforms to $22.2 million at
December 31, 2003 from $10.0 million at December 31, 2002 was due to increased
sales in the United States, particularly to the rental customer market.
Terex Mining's backlog at December 31, 2003 decreased $14.2 million to $33.6
million, as compared to $47.8 million at December 31, 2002. The decrease was
primarily due to a decrease in orders for surface mining trucks.
The backlog at Terex Roadbuilding, Utility Products and Other increased $44.7
million to $164.7 million at December 31, 2003 from $120.0 million at December
31, 2002, primarily as a result of the acquisitions during 2003 of Commercial
Body, Combatel, Tatra and ATC.
Distribution
Terex distributes its products through a global network of dealers, major
accounts and direct sales to customers.
- 22 -
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. Excavators and wheel
loaders manufactured for Terex in South Korea are sold in North America, only,
through Terex's existing heavy construction equipment dealer network.
Terex distributes compact 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. In addition, Terex has begun to distribute its compact equipment
in North America through the Terex Aerial Work Platforms segment's sales staff.
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.
Terex Cranes
Terex Cranes markets its products globally, optimizing assorted channel
marketing systems including a distribution network and a direct sales force.
Direct sales are done in certain crane markets like the United States, United
Kingdom, Germany, Spain, Italy, France and Scandinavia to offer comprehensive
service and support to customers. Distribution via a dealer network is often
utilized in other geographic areas.
Terex Aerial Work Platforms
Terex aerial work platform products are distributed under the GENIE and TEREX
brand names 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.
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
Terex Utilities South and Terex Utilities West.
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.
On/off-road heavy duty vehicles for commercial applications are sold in Eastern
Europe, the Middle East and Asia through a network of existing dealers and joint
venture partners. Vehicles sold for military purposes are sold directly to
governments and may include a lengthy direct negotiation process.
- 23 -
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 $38.6 million, $24.7
million and $6.2 million in 2003, 2002 and 2001, respectively. The increase is
mainly due to the inclusion of Demag and Genie for a full twelve months in 2003.
Both Demag and Genie design and manufacture products which require more
extensive engineering input than many of the Company's other products.
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 commodities and fabricated
or manufactured items. The Company's performance may be impacted from extreme
movements in material pricing and from availability of these materials. For
example, steel prices have increased and steel availability has decreased in
response to higher demand caused from a recovering end-market and higher
consumption of emerging market countries, such as China. 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. The Company actively manages its material supply sourcing and prices,
and may employ various methods to limit risk associated with commodity pricing
and availability.
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:
- 24 -
- ------------------------------- ------------------------------------- ------------------------------------------------
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
Excavators Caterpillar, Komatsu, Volvo, John Deere,
Hitachi and CNH
Loader Backhoes Caterpillar, CNH (Case and New Holland
brands), JCB, Komatsu, Volvo and John Deere
Compaction Equipment Ingersoll-Rand, Caterpillar, Bomag, Amman,
Dynapac and Hamm
Mini Excavators Bobcat (Ingersoll-Rand), Yanmar, Volvo,
Takeuchi, IHI, CNH, Caterpillar, John Deere,
Neuson and Kubota
Midi Excavators Komatsu, Fiat-Hitachi, Volvo and Yanmar
Loading Machines Liebherr, Sennebogen and Caterpillar
Site Dumpers Thwaites and AUSA
Wheel Loaders Caterpillar, Volvo, Kubota, Kawasaki, John
Deere, Komatsu, Hitachi and CNH
Mobile Crushing and Screening Metso Corporation, Extec, McClusky Brothers,
Equipment Parker Plant and Viper International
- ------------------------------- ------------------------------------- ------------------------------------------------
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 Aerial Work Platforms Boom Lifts JLG and Haulotte
Scissor Lifts JLG, Skyjack and Haulotte
Telehandlers Skytrak (JLG), Lull (JLG), Caterpillar,
Gradall (JLG), Bobcat (Ingersoll-Rand), JCB,
CNH and Manitou
- 25 -
- ------------------------------- ------------------------------------- ------------------------------------------------
Terex Mining Large Hydraulic Excavators Hitachi, Komatsu, Liebherr and Caterpillar
High Capacity Surface Mining Trucks Caterpillar, Komatsu, Liebherr and
Euclid/Hitachi
- ------------------------------- ------------------------------------- ------------------------------------------------
Terex Roadbuilding, Utility Fixed Installation Crushing and Metso Corporation, Astec Industries, Ohio
Products & Other Screening Equipment 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., Magnum 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
On/Off Road Heavy Duty Vehicles Oshkosh, Stewart and Stevenson
- ------------------------------- ------------------------------------- ------------------------------------------------
Employees
As of December 31, 2003, the Company had approximately 15,050 employees. The
Company considers its relations with its personnel to be good. Approximately 55%
of the Company's employees are represented by labor unions or similar employee
organizations outside the United States which have entered into various separate
collective bargaining agreements with the Company.
- 26 -
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, ADVANCE, AMERICAN TRUCK COMPANY, AMERICAN, AMIDA, ATLAS,
BARTELL, BENDINI, BENFORD, BID-WELL, CANICA, CEDARAPIDS, CMI, CMI-CIFALI,
COMEDIL, DEMAG, FERMEC, FINLAY, FRANNA, FUCHS, GENIE, GRAYHOUND, HI-RANGER,
JAQUES, JOHNSON-ROSS, LOAD KING, LORAIN, MORRISON, O&K, P&H, PAYHAULER, PEGSON,
PEINER, POWERSCREEN, PPM, RE-TECH, ROYER, SCHAEFF, SIMPLICITY, STANDARD HAVENS,
TATRA, TELELECT, and UNIT RIG 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 or its financial results 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.
Financial Information about Industry Segments, Geographic Areas, 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.
Seasonal Factors
The Company's sales are seasonal, with more than half of the Company's sales
being generated in the first two quarters of a calendar year. This seasonality
is a result of the need of the Company's customers to have new equipment
available for the spring, summer and fall construction season. As a result, the
Company tends to use cash to fund its operations during the first half of a
calendar year and generate cash from operations during the second half of the
year.
Working Capital
The Company's businesses are working capital intensive and require funding for
- 27 -
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. Management believes that cash generated from operations,
together with availability under the Company's bank credit facilities and cash
on hand, provide the Company with adequate liquidity to meet the Company's
operating and debt service requirements. For more detail on working capital
matters, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources."
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. In addition, the Company makes available on its website under
"Investors" - "Corporate Governance," free of charge, its Audit Committee
Charter, Compensation Committee Charter, Governance and Nominating Committee
Charter, Corporate Governance Guidelines and Code of Ethics and Conduct. In
addition, the foregoing information is available in print, without charge, to
any stockholder who requests these materials from the Company.
ITEM 2. PROPERTIES
The following table outlines the principal manufacturing, warehouse and office
facilities owned or leased (as indicated below) 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.
B. L. Pegson................................Coalville, England Office, manufacturing and warehouse;
204,486 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.
Schaeff ....................................Langenburg, Germany Office, manufacturing and warehouse;
102,102 sq. ft.
Schaeff ....................................Gerabronn, Germany Office, manufacturing and warehouse;
146,842 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.
- 28 -
Terex Compact Equipment,
Benford & Fermec..........................Coventry, England (1) Office, manufacturing and warehouse;
326,000 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.
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.
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 Aerial Work Platforms
Genie.......................................Redmond, Washington (1) Office, manufacturing and warehouse;
1,012,052 sq. ft. (3)
Genie.......................................Moses Lake, Washington (1) Office, manufacturing and warehouse;
422,334 sq. ft. (4)
Terex Handlers..............................Baraga, Michigan Office, manufacturing and warehouse;
53,620 sq. ft.
Terex Mining
O&K Mining..................................Dortmund, Germany (1) Office, manufacturing and warehouse;
775,000 sq. ft.
Unit Rig & Payhauler........................Tulsa, Oklahoma Office and warehouse; 375,587 sq.ft.
Terex Roadbuilding, Utility Products and Other
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.
- 29 -
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.
Tatra.......................................Koprivnice, Czech Republic Office, manufacturing and warehouse;
4,886,907 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.
Terex Advance Mixer & ATC...................Fort Wayne, Indiana Office, manufacturing and warehouse;
160,000 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 122,944 sq.ft. of warehouse space subleased to others.
(4) 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 Pacific
Utility, Telelect Southeast, Commercial Body and Combatel (which now operate
under the names Terex Utilities South and Terex Utilities West). 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
in the United States and elsewhere exceed its requirements. Such properties may
be sold, leased or utilized in another manner and have been excluded from the
above list. The Company is actively marketing a number of these properties.
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.
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.
For information concerning other contingencies and uncertainties, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Contingencies and Uncertainties."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
- 30 -
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
(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:
2003 2002
-------------------------------------- ---------------------------------------
Fourth Third Second First Fourth Third Second First
High........................................ $29.63 $23.50 $21.25 $13.43 $17.82 $22.49 $27.40 $23.79
Low......................................... $18.65 $16.53 $12.34 $9.50 $9.90 $16.33 $21.20 $15.00
No dividends were declared or paid in 2003 or in 2002. 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 1, 2004, there were 1,397 stockholders of record of the Company's
Common Stock.
On October 21, 2003, the Company issued 98,287 shares of its common stock that
were not registered under the Securities Act of 1933, as amended (the
"Securities Act"). These shares, having a value of approximately $2 million at
the time of issuance, were issued to the five former shareholders of Genie in
connection with the Company's acquisition of all of the outstanding stock of
Genie. The issuance was made pursuant to an exemption from registration provided
by Section 4(2) of the Securities Act, as this issuance of common stock did not
involve a "public offering" pursuant to the Securities Act given the limited
number and scope of persons to whom the securities were issued.
- 31 -
ITEM 6. SELECTED FINANCIAL DATA
(in millions except per share amounts and employees)
As of or for the Year Ended December 31,
-----------------------------------------------------------------
2003 2002 2001 2000 1999
-----------------------------------------------------------------
Summary of Operations
Net sales...................................................$ 3,897.1 $ 2,797.4 $ 1,812.5 $ 2,068.7 $ 1,856.6
Income from operations....................................... 73.5 68.6 104.2 198.3 178.3
Income (loss) from continuing operations before cumulative
effect of change in accounting principle................... (25.5) (19.1) 12.8 102.4 172.9
Income (loss) from discontinued operations................... --- --- --- (7.3) ---
Income (loss) before cumulative effect of change in
accounting principle....................................... (25.5) (19.1) 12.8 95.1 172.9
Net income (loss)............................................ (25.5) (132.5) 12.8 95.1 172.9
Goodwill amortization after tax.............................. --- --- 9.7 9.9 8.1
Net income (loss) excluding goodwill amortization (a)........ (25.5) (132.5) 22.5 105.0 181.0
Per Common and Common Equivalent Share:
Basic
Income (loss) from continuing operations................$ (0.53) $ (0.44) $ 0.46 $ 3.77 $ 7.14
Income (loss) from discontinued operations............... --- --- --- (0.27) ---
Income (loss) before cumulative effect of change in
accounting principle.................................... (0.53) (0.44) 0.46 3.50 7.14
Net income (loss)........................................ (0.53) (3.07) 0.46 3.50 7.14
Goodwill amortization after tax........................... --- --- 0.34 0.36 0.34
Net income (loss) excluding goodwill amortization (a)..... (0.53) (3.07) 0.80 3.86 7.48
Diluted
Income (loss) from continuing operations................$ (0.53) $ (0.44) $ 0.44 $ 3.67 $ 6.75
Income (loss) from discontinued operations............... --- --- --- (0.26) ---
Income (loss) before cumulative effect of change in
accounting principle.................................... (0.53) (0.44) 0.44 3.41 6.75
Net income (loss)........................................ (0.53) (3.07) 0.44 3.41 6.75
Goodwill amortization after tax.......................... --- --- 0.34 0.35 0.32
Net income (loss) excluding goodwill amortization (a).... (0.53) (3.07) 0.78 3.76 7.07
Current Assets and Liabilities
Current assets..............................................$ 2,194.0 $ 2,221.1 $ 1,383.0 $ 1,242.4 $ 1,315.3
Current liabilities.......................................... 1,159.4 1,106.2 627.1 575.6 579.5
Property, Plant and Equipment
Net property, plant and equipment...........................$ 370.1 $ 309.4 $ 173.9 $ 153.9 $ 172.8
Capital expenditures......................................... 27.1 29.2 13.5 24.2 21.4
Depreciation................................................. 55.2 35.9 22.5 23.0 17.6
Total Assets..................................................$ 3,723.8 $ 3,625.7 $ 2,387.0 $ 1,983.7 $ 2,177.5
Capitalization
Long-term debt and notes payable, including current
maturities................................................$ 1,361.6 $ 1,561.2 $ 1,055.4 $ 902.5 $ 1,156.4
Stockholders' equity ........................................ 876.7 769.2 595.4 451.5 432.8
Dividends per share of Common Stock.......................... --- --- ---- --- ---
Shares of Common Stock outstanding at year end............... 48.8 47.4 36.4 26.8 27.5
Employees...................................................... 15,050 11,975 7,363 6,150 6,650
(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.
(b) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Notes to the Consolidated Financial
Statements for a discussion of "Acquisitions," "Accounting Change -
Business Combinations and Goodwill," "Restructuring and Other Charges,"
"Long-Term Obligations" and "Stockholders' Equity."
- 32 -
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
primarily 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. On July 1, 2003, the Company announced an agreement in principle to
sell its worldwide electric drive mining truck business, and ceased reporting
Terex Mining as a separate financial reporting segment. On December 10, 2003,
Terex terminated the negotiation for the sale of the electric drive mining truck
business, and has reinstated reporting of the Terex Mining segment. The Company
now operates in five business segments: (i) Terex Construction; (ii) Terex
Cranes; (iii) Terex Aerial Work Platforms; (iv) Terex Mining; and (v) Terex
Roadbuilding, Utility Products and Other. 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). 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 products are currently marketed principally under the
following brand names: Terex, Atlas, Benford, Fermec, Finlay, Fuchs, Pegson,
Powerscreen, Schaeff, and TerexLift. The Company's strategy going forward is to
build the Terex brand. As part of that effort, Terex will, over time, be
migrating historic brand names to Terex, and may include the use of the historic
brand name in conjunction with the Terex brand name for a transitional period of
time. The Company acquired Atlas Weyhausen GmbH and its affiliates ("Atlas"),
including Atlas Terex and Atlas UK, on December 28, 2001 and Schaeff, including
Fuchs, on January 14, 2002. The results of Atlas and Schaeff 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. These products are used primarily for construction, repair
and maintenance of infrastructure, building and manufacturing facilities.
Currently, Terex Cranes products are marketed principally under the following
brand names: Terex, American, Bendini, Comedil, Demag, Franna, Lorain, P&H,
Peiner, PPM and RO-Stinger. The Company's strategy going forward is to build the
Terex brand. As part of that effort, Terex will, over time, be migrating
historic brand names to Terex, and may include the use of the historic brand
name in conjunction with the Terex brand name for a transitional period of time.
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.
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 and telehandlers. Products include material lifts, portable
aerial work platforms, trailer mounted booms, articulating booms, stick booms,
scissor lifts, telehandlers, related components and replacement parts, and other
products. 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 products currently are marketed principally under the Genie and Terex
brand names.
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. These products are used primarily by
construction, mining, quarrying and government customers in construction,
excavation and supplying coal and minerals. Currently, Terex Mining products are
marketed principally under the following brand names: O&K, Payhauler, Terex and
Unit Rig. The Company's strategy going forward is to build the Terex brand. As
- 33 -
part of that effort, Terex will, over time, be migrating historic brand names to
Terex, and may include the use of the historic brand name in conjunction with
the Terex brand name for a transitional period of time.
The Terex Roadbuilding, Utility Products and Other segment designs, manufactures
and markets fixed installation 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), construction trailers and on/off road heavy-duty
vehicles, as well as related components and replacement parts. These products
are used primarily by government, utility and construction customers to build
roads, maintain utility lines, trim trees and for commercial and military
operations. These products are currently marketed principally under the
following brand names: Terex, Advance, American Truck Company, Amida, ATC,
Bartell, Benford, Bid-Well, Canica, Cedarapids, Cedarapids/Standard Havens, CMI
Johnson Ross, CMI Terex, CMI-Cifali, Grayhound, Hi-Ranger, Jaques, Load King,
Morrison, Re-Tech, Royer, Simplicity, Tatra, Terex Power, Terex Recycling and
Terex Telelect. The Company's strategy going forward is to build the Terex
brand. As part of that effort, Terex will, over time, be migrating historic
brand names to Terex, and may include the use of the historic brand name in
conjunction with the Terex brand name for a transitional period of time. Terex
also owns much of the North American distribution channel for the utility
products group through the distributors Terex Utilities South and Terex
Utilities West. These operations distribute and install the Company's utility
aerial devices as well as other products that service the utility industry. The
Company also operates a fleet of rental utility products under the name Terex
Utilities Rental. The Company also leases and rents a variety of heavy equipment
to third parties under the Terex Re-Rentals brand name. The Company, through
TFS, also offers customers loans and leases originated by GE Capital to assist
in the acquisition of all of the Company's products. 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 Pacific
Utility on January 15, 2002, Telelect Southeast on March 26, 2002 and certain
assets and liabilities of Terex Advance Mixer on April 11, 2002. On February 14,
2003, the Company acquired Commercial Body and Combatel. On August 28, 2003 the
Company acquired an additional 51% of the outstanding shares of Tatra, for a
total of 71% ownership, and acquired a controlling interest in ATC. The results
of the Jaques Group, CMI, Pacific Utility, Telelect Southeast, Terex Advance
Mixer, Commercial Body, Combatel, Tatra and ATC are included in the results of
the Terex Roadbuilding, Utility Products and Other segment from their respective
dates of acquisition.
Included in Eliminations/Corporate are the eliminations among the five segments,
as well as general and corporate items.
Overview
- --------
The Company is a diversified global manufacturer of capital equipment serving
the construction, infrastructure and surface mining markets. Terex's strategy is
to use its position as a low fixed and total cost manufacturer to provide its
customers with the best return on their capital investment.
In 2003, the Company continued to operate under challenging market conditions.
Recent acquisitions, such as Genie and Demag, made positive contributions, while
tight end markets and currency moves (particularly the weakness of the U.S.
dollar relative to other currencies in which the Company does business)
negatively impacted the Company's financial performance.
The Company's focus during 2003 was on generating cash and reducing working
capital invested in its businesses. The Company generated $384.1 million in cash
from operating activities in 2003, as compared to $70.3 million generated in
2002 and a usage of $5.5 million in 2001. The Company was able to make use of
this increased cash flow to reduce its long term debt, less current portion, to
$1,274.8 million at the end of 2003 from $1,487.1 million at the end of 2002.
The Company anticipates a mix of end market conditions in 2004, with certain
products anticipating recovering markets and others expecting continued sluggish
markets. For example, the Company sees opportunities for growth in the
Construction business resulting from initial signs of economic recovery and in
the Mining business based on recovering commodity prices; however, the Company
envisions a continued weak North American crane market and difficult end markets
for the Roadbuilding business. Overall, an economic recovery in the markets
served by the Company's businesses would have a beneficial impact on the
Company's performance. A significant area of uncertainty for 2004 remains the
impact of currency moves, particularly the relative strength of the U.S. dollar.
During 2004, the Company will continue to focus on cash generation, debt
reduction and margin improvement initiatives. The Company recently initiated its
TIP program aimed at improving the Company's internal processes and benefiting
the Company's customers, investors and employees. As part of the TIP objectives,
Terex management will have a particular focus on achieving a number of key
- 34 -
objectives including revenue growth, through a combination of expansion into
markets not currently served and by increasing market share in existing
products, and improving the Company's return on invested capital, through
reducing working capital requirements as a percentage of sales and by improving
operating margins through reducing the total cost of manufacturing products.
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 intended 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. 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.
2003 Compared with 2002
- -----------------------
Terex Consolidated
2003 2002
--------------------- --------------------------
% of % % Change In
Sales of Sales Reported Amounts
--------- -------------- --------------------
($ amounts in millions)
Net Sales $ 3,897.1 $ 2,797.4 +39.3%
Gross Profit 518.5 13.3% 356.7 12.8% +45.4%
SG&A 393.7 10.1% 288.1 10.3% +36.7%
Goodwill Impairment 51.3 1.3% --- --- ---
Income from Operations $ 73.5 1.9% $ 68.6 2.5% +7.1%
During 2003, the Company successfully completed the integration of both the
Demag and Genie acquisitions and successfully completed many of the
restructuring programs launched in 2002 to reduce production costs and
rationalize product offerings. The Company also generated approximately $384
million of cash from operations and reduced its net debt (defined as total debt
less cash) by $314.9 million during 2003. In addition, the Company acquired a
majority interest in Tatra, ATC, Commercial Body and Combatel, and launched TFS
to offer financial solutions to its customers in the United States and Europe.
Total net sales for 2003 were $3,897.1 million, an increase of $1,099.7 million
when compared to the same period in 2003. The acquisitions of Demag, Genie,
Commercial Body, Combatel, Tatra, ATC and Terex Advance Mixer increased sales in
2003 by a total of $928.6 million. Approximately 61% of the Company's sales in
2003 were made by businesses that operate primarily in currencies other than the
U.S. dollar. During 2003, the value of the U.S. dollar declined relative to many
of these foreign currencies. As a result, when these sales denominated in
foreign currencies were translated into U.S. dollars, there was an increase in
net sales of $222 million when compared to 2002 due to the variation of the
exchange rates.
Total gross profit for 2003 was $518.5 million, an increase of $161.8 million
when compared to 2002. Gross profit increased by approximately $164 million as a
result of the Genie, Demag, Tatra, ATC, Commercial Body, Combatel and Terex
Advance Mixer acquisitions. Gross profit increases in the Mining business were
offset by lower margins earned during 2003 in the North American cranes business
as well as in the Utility and Roadbuilding businesses.
During 2003, the Company incurred approximately $83 million of restructuring and
other costs (excluding a $51.3 million goodwill impairment charge), an increase
of $7 million over the prior year, primarily related to:
o Efforts associated with restructuring the Roadbuilding business to
operate profitably in light of the continuing weakness in demand for
its products;
o Costs incurred in the Cranes segment to complete projects initiated in
2002;
o Costs to complete the exit of product lines and consolidate
manufacturing facilities in the Construction group;
o Costs related to the extinguishment of debt; and
o Costs related to the Company's deferred compensation plan.
- 35 -
During 2002, the Company incurred approximately $76 million of restructuring and
other costs, primarily as a result of:
o Eliminating duplicate production capacity, distribution and products
created by the acquisition of Genie and Demag;
o Costs incurred with rightsizing the Roadbuilding business; and
o Facility consolidations in the Construction and Mining businesses.
During the second quarter of 2003, the Company recorded a charge of $51.3
million for the impairment of goodwill in the Roadbuilding unit of the Terex
Roadbuilding, Utility Products and Other segment.
Total selling, general and administrative costs ("SG&A") increased by $105.6
million when compared to the same period in 2002. The acquisitions of Demag,
Genie, Commercial Body, Combatel, Terex Advance Mixer, Tatra and ATC increased
SG&A by approximately $82 million when compared to 2002. The impact of a weaker
dollar relative to the British Pound and Euro accounted for the majority of the
remaining increase in SG&A in 2003 when compared to 2002.
Terex Construction
2003 2002
----------------------- -----------------------
% of % of % Change In
Sales Sales Reported Amounts
----------- ---------- ----------------------
($ amounts in millions)
Net Sales $ 1,359.5 $ 1,174.5 +15.8%
Gross Profit 172.4 12.7% 164.7 14.0% +4.7%
SG&A 118.1 8.7% 107.7 9.2% +9.7%
Income from Operations $ 54.3 4.0% $ 57.0 4.9% (4.7%)
Net sales in the Terex Construction segment increased by $185.0 million for 2003
when compared to 2002 and totaled $1,359.5 million. Approximately 64% of the
increase in sales over 2002 was due to the translation effect from a weaker U.S.
dollar relative to the British Pound and Euro. Excluding the impact of foreign
exchange translation, sales increased in the heavy construction equipment
product category as well as in the Powerscreen mobile crushing and screening
product category when compared to 2002. In the heavy construction equipment
product category, sales increased relative to 2002 as a result of better
performance across all products in the United States as well as improved sales
of articulated trucks and Atlas and Fuchs products in Europe. These gains were
partially offset by lower sales relative to 2002 of compact construction
equipment. The Company continues to focus on increasing sales in North America
by expanding its presence in the compact equipment market and by using the Genie
sales force to penetrate the North American rental markets.
Gross profit in the Terex Construction segment increased by $7.7 million in 2003
when compared to 2002 and totaled $172.4 million. Restructuring and other
charges decreased by $5.3 million for 2003 when compared to 2002 and totaled
$6.6 million. Included in gross profit for 2003 are charges related to the
closure of the Company's pressure vessel container business, consolidation of
its Powerscreen facilities and period costs related to the consolidation of its
compact construction equipment and loader backhoe facilities in the United
Kingdom. Gross profit as a percentage of sales has been unfavorably impacted by
the continued weakening of the U.S. dollar relative to the Euro and British
Pound in 2003.
Gross profit as a percentage of sales fell to 12.7% in 2003 as compared to 14.0%
in 2002. Restructuring and other costs fell to 0.5% of sales for 2003 when
compared to 1.0% for 2002, as the Company completed the majority of its facility
consolidations launched in 2002. Gross profit as a percentage of sales improved
in the Atlas business in 2003, as sales expanded in Europe and the business
realized improved selling margins relative to 2002 levels. Gross profit relative
to 2002 increased as a result of improved sales of Fuchs products in the United
States and from improved selling margins realized in Spain. Overall gross profit
was negatively impacted by the impact of the weak U. S. dollar on products
exported from Europe into the United States.
SG&A costs increased by 9.7% in 2003 when compared to 2002 and totaled $118.1
million. The increase in SG&A costs was due primarily to the impact of a weaker
U.S. dollar on SG&A costs reported in Euro and British Pounds and an increase in
bad debt charges. These costs, while relatively unchanged when expressed in Euro
and British Pounds, increased when translated to U.S. dollars. Lower
restructuring costs offset the unfavorable impact of a weaker U.S. dollar
relative to these currencies and other charges incurred in 2003 relative to
2002. In 2003, the Terex Construction segment incurred $1.3 million of
restructuring and other charges as compared to $4.2 million in 2002.
Income from operations in 2003 fell to $54.3 million or 4% of sales when
compared to operating profit of $57.0 million or 4.9% in 2002.
- 36 -
Terex Cranes
2003 2002
----------------------- -----------------------
% of % of % Change In Reported
Sales Sales Amounts
----------- ---------- --------------------------
($ amounts in millions)
Net Sales $ 1,005.1 $717.9 +40.0%
Gross Profit 102.5 10.2% 57.1 8.0% +79.5%
SG&A 86.6 8.6% 55.1 7.7% +57.2%
Income from Operations $ 15.9 1.6% $ 2.0 0.3% +695.0%
Net sales for the Terex Cranes segment in 2003 increased by $287.2 million and
totaled $1,005.1 million when compared to $717.9 million in 2002. The increase
was due to the acquisition of Demag, acquired on August 30, 2002. Sales of tower
cranes increased by approximately 29% relative to 2002, primarily as a result of
a weaker U.S. dollar relative to the Euro. Sales of cranes and boom trucks in
the United States declined by approximately 24% relative to 2002 as a result of
continued weakness in the construction and rental equipment markets. The Company
continues to focus on expanding sales by expanding its market share and
distribution throughout Europe. In North America, the Company continues to focus
on maintaining market share while the overall market for its products remains
flat.
Gross profit in 2003 increased by $45.4 million relative to 2002 and totaled
$102.5 million. Restructuring charges and other non-recurring items totaled
$14.6 million in 2003. These costs were primarily related to the closure of the
Peiner tower crane facility in Trier, Germany and rationalization of products
offered under the Peiner name, costs associated with the closure of the boom
truck facility in Olathe, Kansas and inventory value adjustments related to
discontinuance of products offered under the PPM brand that duplicated products
added through the acquisition of Demag. Restructuring and other costs totaled
$31.3 million in 2002. These costs related primarily to the elimination of
duplicate products created by the acquisition of Demag and Genie and from
facility consolidation and down sizing programs launched in response to current
and expected market demand.
Gross profit earned in 2003 increased relative to 2002 primarily due to the
acquisition of Demag and reduced restructuring charges. Gross profits were also
favorably impacted in 2003 relative to 2002 from improved volumes and selling
margins in the European crane businesses. These gains were partially offset by
an 88% decline in gross profit in the North American crane businesses in 2003
from 2002. This decline was a result of weak demand for cranes and boom trucks
in the United States and the resulting impact on selling margins and factory
productivity.
SG&A costs in 2003 totaled $86.6 million, an increase of 57.2% over the same
period in 2002. Restructuring and other charges included in SG&A costs totaled
$1.1 million in 2003 compared to $2.5 million in 2002. SG&A costs in the North
American cranes businesses fell by approximately 14%, as the Company completed
its facility consolidation and reduced spending in response to weak market
demand. The full year effect of the Demag acquisition accounted for the majority
of the remaining increase in SG&A costs in 2003 when compared to 2002.
Income from operations for the twelve months ending December 31, 2003 totaled
$15.9 million compared to $2.0 million for the same period in 2002.
Terex Aerial Work Platforms
2003 2002
----------------------- ---------------------
% of % of % Change in Reports
Sales Sales Amount
----------- --------- --------------------
($ amounts in millions)
Net Sales $ 583.6 $ 149.4 +290.6%
Gross Profit 127.2 21.8% 21.2 14.2% +500.0%
SG&A 59.4 10.2% 17.0 11.4% +249.4%
Income from Operations $ 67.8 11.6% $ 4.2 2.8% +1,514.3%
The Terex Aerial Work Platforms segment was formed upon the completion of
Terex's acquisition of Genie and its affiliates on September 18, 2002. As a
result, the 2003 performance of this segment reflects twelve months of
operations, while the 2002 performance reflects less than four months of
operations for the majority of this segment's operations. Accordingly,
comparisons between the years must be reviewed in this context.
Total sales for the Terex Aerial Work Platforms segment in 2003 were $583.6
million, an increase of $434.2 million when compared to 2002. The increase is
due to the inclusion of Genie for the full year ending December 31, 2003. Genie
- 37 -
was acquired on September 18, 2002. When compared to 2002, Genie's sales were
positively impacted by increased demand from rental customers. In addition,
Genie's export business has benefited from a weaker U.S. dollar relative to the
Euro and British Pound as Genie's manufacturing costs are primarily denominated
in U.S. dollars.
Total gross profit for the Terex Aerial Work Platforms segment for 2003 was
$127.2 million, an increase of $106.0 million when compared to 2002. The
increase is primarily due to the inclusion of Genie for the full year ending
December 31, 2003. Gross margins in the Genie business were positively impacted
by improvements in the North American rental markets as well as by the benefit
of the weaker U.S. dollar on Genie's export business. Gross profit realized by
the U.S. telehandler business also improved relative to 2002, as better selling
margins were realized.
Total SG&A costs for 2003 totaled $59.4 million, an increase of $42.4 million
from 2002. The increase is due primarily to the inclusion of Genie for the full
year ending December 31, 2003.
Income from operations for the Terex Aerial Work Platforms segment for 2003 was
$67.8 million, an increase of $63.6 million from 2002. The increase is due
primarily to the inclusion of Genie for the full year ending December 31, 2003.
Terex Mining
2003 2002
----------------------- ----------------------
% of % of % Change In Reported
Sales Sales Amounts
----------- ---------- -----------------------
($ amounts in millions)
Net Sales $ 294.5 $ 282.8 +4.1%
Gross Profit 48.7 16.5% 22.9 8.1% +112.7%
SG&A 34.3 11.6% 27.3 9.7% +25.6%
Income from Operations $ 14.4 4.9% $ (4.4) (1.6%) ---
Net sales in the Terex Mining segment increased by $11.7 million to $294.5
million in 2003 compared to $282.8 million in 2002. Parts sales were positively
impacted by foreign currency fluctuations in Europe, Australia and South Africa
as well as an increase in demand in the United States. These gains were
partially offset by continued weakness in demand for mining trucks and a
decrease in shovel sales in Canada. Demand for the Terex Mining segment's
products is dependent on expectations within the mining industry of future
commodity prices, including those for coal and iron ore.
Gross profit increased by $25.8 million relative to 2002 and totaled $48.7
million. Gross profit in 2003 benefited from reduced warranty expenses ($3.6
million) and improved manufacturing efficiencies related to the closure of the
Unit Rig facility in Tulsa, Oklahoma, as well as improved sales margins in the
Terex Mining segment's South Africa facility. In addition, gross profit in 2002
included $6.8 million in restructuring 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) as well as an inventory valuation adjustment at
the Unit Rig facility ($3.6 million).
SG&A expense increased by $7.0 million in 2003 relative to 2002, to a total of
$34.3 million. This increase is primarily attributed to the weakening of the
U.S. Dollar relative to the Euro, South African Rand and the Australian Dollar.
Income from operations for the Terex Mining segment was $14.4 million in 2003 or
4.9% of sales, an increase of $18.8 million from an operating loss of $4.4
million in 2002. This improvement in operating income is a result of foreign
currency fluctuations, the increase of gross profit at Unit Rig as discussed
above, improved margins in South Africa and the impact of restructuring and
other charges on 2002 operating income.
Terex Roadbuilding, Utility Products and Other
2003 2002
----------------------- ---------------------
% of % of % Change In Reported
Sales Sales Amounts
---------- --------- ------------------------
($ amounts in millions)
Net Sales $ 711.9 $ 562.4 +26.6%
Gross Profit 68.3 9.6% 91.4 16.3% (25.3%)
SG&A 79.2 11.1% 73.0 13.0% +8.5%
Goodwill Impairment 51.3 7.2% --- --- ---
Income (Loss) from Operations $ (62.2) (8.7%) $ 18.4 3.3% ---
- 38 -
Total sales for the Terex Roadbuilding, Utility Products and Other segment for
2003 were $711.9 million, an increase of $149.5 million when compared to 2002.
The acquisitions of Tatra, ATC, Commercial Body, Combatel and Terex Advance
Mixer increased sales relative to 2002 by $144.1 million. Sales of roadbuilding
products in 2003 declined relative to 2002 levels due to continued uncertainty
regarding state and federal funding levels for road construction and repair
projects in the United States. This decline was partially offset by rental
revenues generated by Terex's rental business in the United States. With the
acquisition of Commercial Body and Combatel in 2003, the Company is positioned
to focus on expanding into the investor owned utility market. This provides an
opportunity to sell both Terex Utility Products and Terex compact construction
equipment to a previously underserved market. In addition, the Company continues
to identify new market opportunities for its off-road trucks manufactured by
Tatra and ATC.
Gross profit for 2003 totaled $68.3 million, a decrease of $23.1 million when
compared to 2002. Total restructuring and other charges for 2003 totaled $30.3
million, or 4.4% of sales, and relate primarily to inventory reductions to
reflect a decrease in forecasted demand and to exit certain economically
unviable niche product lines. Restructuring and other charges for the same
period in 2002 totaled $16.4 million or 2.9% of sales. Gross profit from the
acquisition of Tatra, ATC, Commercial Body, Combatel and Terex Advance Mixer
increased 2003 gross profit by $13.4 million when compared to 2002. Gross profit
earned by the Light Construction business increased by 47%. This increase is
attributable to higher sales volume relative to 2002 as well as the savings
realized during 2003 associated with the October 2002 closure of the Memphis,
Tennessee production facility. These gains were offset by lower margins realized
in the Roadbuilding businesses in 2003 when compared to 2002.
SG&A costs for the Terex Roadbuilding, Utility Products and Other segment for
2003 totaled $79.2 million, an increase of $6.2 million when compared to 2002.
Restructuring and other charges in 2003 totaled $2.1 million, primarily as a
result of the product line exits described above. Restructuring and other
charges in 2002 totaled $1.3 million. The acquisitions of Tatra, ATC, Commercial
Body, Combatel and Terex Advance Mixer increased SG&A costs by $10.7 million in
2003 relative to 2002. TFS, the Company's subsidiary that arranges financing for
customers, began operations on January 1, 2003 and increased SG&A costs by $5.0
million compared to 2002. These increases were partially offset by lower costs
incurred in the Roadbuilding businesses, where the Company has reduced costs in
response to continued weak demand, by lower costs arising from the Light
Construction facility consolidation initiated in 2002 and by lower costs
resulting from the Company's exit from the business of its EarthKing Internet
subsidiary in late 2002.
During the second quarter of 2003, the Company determined that the business
performance during the first six months of 2003 in the Roadbuilding reporting
unit would not meet the Company's 2003 performance expectations that were used
when goodwill was last reviewed for impairment as of October 1, 2002. As of
December 31, 2003, funding for road projects have remained at historically low
levels as federal and state budgets have been negatively impacted by a weak
economy and costs related to the U.S. efforts in Iraq. In response to the
revised business outlook, management initiated several changes to address the
expected market conditions, including a change in business management,
discontinuance of several non-core products, work force furloughs and
reductions, and an inventory write-down based on anticipated lower sales volume.
Based on the continued weakness in the reporting unit, the Company initiated a
review of the long-term outlook for the reporting unit. The revised outlook for
the reporting unit assumed that funding levels for domestic road projects will
not improve significantly in the short term. In addition, the outlook assumed
that the Company will continue to reduce working capital invested in the
reporting unit to better match revenue expectations.
Based on this review, the Company determined the fair value of the Roadbuilding
reporting unit using the present value of the cash flow expected to be generated
by the reporting unit. The cash flow was determined based on the expected
revenues, after tax profits, working capital levels and capital expenditures for
the reporting unit. The present value was calculated by discounting the cash
flow by the Company's weighted average cost of capital. The Company, with the
assistance of a third-party, also reviewed the market value of the Roadbuilding
reporting unit's tangible and intangible assets. These values were included in
the determination of the carrying value of the Roadbuilding reporting unit.
Based on the revised fair value of the reporting unit, a goodwill impairment of
$51.3 million was recognized during the second quarter of 2003.
Income (loss) from operations for the Terex Roadbuilding, Utility Products and
Other segment for 2003 was a loss of $62.2 million compared to a profit of $18.4
million for 2002. The aforementioned goodwill impairment reduced operating
profit in 2003 by $51.3 million when compared to 2002. In addition,
restructuring and other charges totaled $32.4 million in 2003 and were related
primarily to product rationalization and a reduction of inventory in certain
niche product lines due to a decrease in demand. Restructuring and other
one-time charges totaled $17.2 million in 2002 or 3.1% of sales. Operating
profit from the acquisition of Tatra, ATC, Commercial Body, Combatel and Terex
Advance Mixer increased operating profit in 2003 when compared to 2002 by $2.7
million. This increase was offset by losses incurred by TFS during its first
- 39 -
year of operations and by operating losses generated by the Company's re-rental
business.
Net Interest Expense
Net interest expense for 2003 totaled $ 92.8 million, an increase of $7.4
million when compared to 2002. This increase is primarily due to higher average
bank debt balances related to the acquisitions of Demag and Genie in 2002 and a
reduction in the benefits recognized related to interest rate hedges.
Other Income (Expense) - Net
Other income (expense) for 2003 was income of $0.4 million compared to an
expense of $4.2 million for 2002. 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.
Loss on Retirement of Debt
The Company initiated two debt reductions during 2003. On June 30, 2003, the
Company redeemed $50.0 million aggregate principal amount of its 8-7/8% Senior
Subordinated Notes due 2008 (the "8-7/8% Notes"). In connection with this
redemption the Company recognized a loss of $1.9 million. The loss was comprised
of the payment of an early redemption premium ($2.2 million), the write-off of
unamortized original issuance discount ($1.6 million) and the write-off of
unamortized debt acquisition costs ($0.2 million), which were partially offset
by the recognition of deferred gains related to fair value interest rate swaps
previously closed on this debt ($2.1 million). On November 25, 2003, the Company
sold and issued $300 million principal amount of 7-3/8% Senior Subordinated
Notes due 2014 (the "7-3/8% Notes"). The net proceeds from the issuance of the
7-3/8% Notes, together with cash on hand of approximately $119 million, were
used to retire the remaining $200 million aggregate principal amount of the
8-7/8% Notes and prepay approximately $200 million of the Company's existing
bank term loans. In connection with these retirements of debt, the Company
recognized a loss of $9.0 million. The loss was comprised of the payment of an
early redemption premium, the write-off of unamortized debt acquisition costs
and original issue discount, which were partially offset by gains related to
fair value interest rate swaps.
Income Taxes
During 2003, the Company recognized a benefit from income taxes of $9.8 million
on a loss before income taxes of $35.3 million, an effective rate of 28%, as
compared to income tax benefit of $9.1 million on loss from continuing
operations before income taxes of $28.2 million, an effective rate of 32%, in
the prior year. The 2003 effective tax rate differs from the prior period
primarily due to a goodwill impairment charge recorded during the second quarter
of 2003 that is partially non-deductible for income tax purposes and a change in
the source of earnings among various jurisdictions with different tax rates.
Cumulative Effect of Change in Accounting Principle
In accordance with the requirements of Statement of Financial Accounting
Standards ("SFAS") No. 141, "Business Combinations," and SFAS No. 142, "Goodwill
and Other Intangible Assets," the Company recorded a charge for the cumulative
effect of change in accounting principle of $113.4 million in 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, 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, $10.7 million net of income
taxes) recognized on January 1, 2002 in the Fermec business. The purchase price
paid by the Company to acquire Fermec was less than the net assets acquired in
the transaction. Prior to January 1, 2002, the difference was recorded as a
deferred credit in goodwill. As required by SFAS No. 141, this credit balance
was recognized as a cumulative effect adjustment on January 1, 2002.
- 40 -
2002 Compared with 2001
- -----------------------
Terex Consolidated
2002 2001
--------------------- ----------------------
% of % of % Change In
Sales Sales Reported Amounts
--------- ---------- ---------------------
($ amounts in millions)
Net Sales $ 2,797.4 $ 1,812.5 +54.3%
Gross Profit 356.7 12.8% 272.4 15.0% +30.9%
SG&A 288.1 10.3% 168.2 9.3% +71.3%
Income from Operations $ 68.6 2.5% $ 104.2 5.7% (34.2%)
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.
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.
SG&A 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 SG&A 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 $14.2 million. The Mining segment
generated a loss from operations in 2002 as a result of reduced parts gross
profit. Income from operations in the mobile crane business declined relative to
2001 due to weakness in customer demand. Income from operations in the European
tower crane business also declined as the stability of its customers' finances
deteriorated. Continued weakness in the Roadbuilding segment also unfavorably
impacted year over year income from operations.
- 41 -
Terex Construction
2002 2001
----------------------- -----------------------
% of % of % Change In Reported
Sales Sales Amounts
----------- ---------- -----------------------
($ amounts in millions)
Net Sales $ 1,174.5 $ 702.1 +67.3%
Gross Profit 164.7 14.0% 101.7 14.5% +61.9%
SG&A 107.7 9.2% 53.0 7.5% +103.2%
Income from Operations $ 57.0 4.9% $ 48.7 6.9% +17.0%
Sales in the Terex Construction segment increased by 67% to $1,174.5 million in
2002 from $702.1 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 $63.0 million to
$164.7 million in 2002 relative to 2001's gross profit of $101.7 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.
SG&A expense in the Terex Construction segment increased by $54.7 million from
2001 and totaled $107.7 million in 2002. Acquisitions in 2001 and 2002 accounted
for the majority of the increase. SG&A 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. SG&A 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 SG&A expense declined slightly.
Income from operations for the Terex Construction segment increased by $8.3
million in 2002 and totaled $57.0 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,
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 $5.1 million.
- 42 -
Terex Cranes
2002 2001
----------------------- -----------------------
% of % of % Change In Reported
Sales Sales Amounts
----------- ---------- --------------------------
($ amounts in millions)
Net Sales $ 717.9 $ 492.5 +45.8%
Gross Profit 57.1 8.0% 56.1 11.4% +1.8%
SG&A 55.1 7.7% 43.8 8.9% +25.8%
Income from Operations $ 2.0 0.3% $ 12.3 2.5% (83.7%)
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 Cranes 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.
SG&A expense in the Terex Cranes segment increased by $11.3 million versus 2001
to a total of $55.1 million. SG&A expense in 2002 included a restructuring
charge of $2.5 million. The acquisition of Demag increased SG&A 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 $4.1
million.
- 43 -
Terex Aerial Work Platforms
2002 2001
----------------------- -----------------------
% of % of Change in Reported
Sales Sales Amounts
----------- ----------- ---------------------
($ amounts in millions)
Net Sales $ 149.4 $ 37.0 +303.8%
Gross Profit 21.2 14.2% 3.2 8.6% +562.5%
SG&A 17.0 11.4% 2.5 6.8% +580.0%
Income from Operations $ 4.2 2.8% $ 0.7 1.9% +500.0%
The Terex Aerial Work Platforms segment was formed upon the completion of
Terex's acquisition of Genie and its affiliates on September 18, 2002. As a
result, the 2002 performance of this segment includes more than three months of
operations of the Genie group, while the 2001 performance does not include any
results from the Genie group. Accordingly, comparisons between the years must be
reviewed in this context.
Sales in the Terex Aerial Work Platforms segment totaled $149.4 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 Platforms segment totaled $21.2 million in
2002 or 14.2% of sales. Included in the gross profit of $21.2 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.
SG&A expense in the Terex Aerial Work Platforms segment totaled $17.0 million in
2002, resulting in operating profit of $4.2 million (or 2.8% of sales) in 2002.
The Terex Aerial Work Platforms segment's gross profit and operating profit
margins have improved over the prior period annual margins of approximately 9%
and 2%, respectively. This improvement represents the impact of global
restructuring activities and cost control initiatives initiated prior to
acquisition by the Company as well as the consolidation of additional domestic
production facilities subsequent to the acquisition.
Terex Mining
2002 2001
------------------------- ----------------------
% of % of % Change In Reported
Sales Sales Amounts
------------- ---------- -----------------------
($ amounts in millions)
Net Sales $ 282.8 $ 266.2 +6.2%
Gross Profit 22.9 8.1% 40.2 15.1% (43.0%)
SG&A 27.3 9.7% 25.7 9.7% +6.2%
Income (Loss) from Operations $ (4.4) (1.6%) $ 14.5 5.4% ---
Net 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) as well as inventory
valuation adjustments at the Unit Rig facility ($3.6 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.
- 44 -
SG&A 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 $2.9
million.
Terex Roadbuilding, Utility Products and Other
2002 2001
----------------------- ---------------------
% of % of % Change In Reported
Sales Sales Amounts
---------- ---------- ------------------------
($ amounts in millions)
Net Sales $ 562.4 $ 365.5 +53.9%
Gross Profit 91.4 16.3% 66.5 18.2% +37.4%
SG&A 73.0 13.0% 40.5 11.1% +80.2%
Income (Loss) from Operations $ 18.4 3.3% $ 26.0 7.1% (29.2%)
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 Pacific Utility 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
2002 the Company acquired Pacific Utility 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 Terex 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.
SG&A 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 Terex Advance Mixer, Pacific Utility and Telelect Southeast
increased SG&A 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 SG&A 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
- 45 -
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.
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.
Loss on Retirement of Debt
During 2002, the Company recorded a charge of $2.4 million 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 $5.7 million to recognize a loss
on the write-off of unamortized debt acquisition costs for the early
extinguishments of debt in connection with the prepayment of principal of
certain term loans under the Company's bank credit facilities.
Cumulative Effect of Change in Accounting Principle
In accordance with the requirements of Statement of Financial Accounting
Standards ("SFAS") No. 141, "Business Combinations," and SFAS No. 142, "Goodwill
and Other Intangible Assets," the Company recorded a charge for the cumulative
effect of change in accounting principle of $113.4 million in 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.
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
- 46 -
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. Cost
is determined by the first-in, first-out ("FIFO") method. 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, 2003, reserves for excess and obsolete inventory totaled $59.4
million.
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, 2003, reserves for
potentially uncollectible accounts receivable totaled $38.2 million.
Guarantees - The Company has issued guarantees of customer financing to purchase
equipment as of December 31, 2003. 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, 2003, the Company's maximum exposure to such credit
guarantees is $328.2 million, including total guarantees issued by Demag and
Genie of $216.4 million and $58.8 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, 2003 is $36.5 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, 2003, the Company's maximum exposure pursuant to
buyback guarantees is $45.7 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.
Beginning in 2003 the Company recorded a liability for the estimated fair value
of guarantees issued.
- 47 -
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;
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;
- 48 -
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 reporting units'
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
calculated as the difference between estimated fair value and the carrying value
of the asset.
Accrued Warranties - The Company records accruals for unasserted 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 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 legal counsel, analysis of internal product liability
counsel and the experience of the Company's director of product safety. The
Company provides 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, 2003. 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 6.0% for U. S. plans and
5.5% to 6.0% for international plans at December 31, 2003. These rates are used
- 49 -
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
4.0% for U.S. plans and 2.75% to 4.25% for international plans at December 31,
2003. 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, 2003 the Company had net deferred tax assets of
$454.2 million ($218.4 million, net of valuation allowances). Income tax benefit
was $9.8 million for the year ended December 31, 2003. 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, amount and timing to
result in the utilization of its deferred tax assets. "Character" refers to the
type (capital gain vs. ordinary income) as well as the source (foreign vs.
domestic) of the income generated by the Company. "Timing" refers to the period
in which future income is expected to be generated and is important because
certain of the Company's net operating losses expire if not used within an
established time frame based on the jurisdiction in which they were generated.
A significant portion of the Company's deferred tax assets are comprised of net
operating loss ("NOL") generated in the United States by the Company. The
Company has had a history of generating tax losses in the United States and has
accumulated net operating losses of $332.0 million as of December 31, 2003.
During the fourth quarter of 2003, the Company evaluated its ability to utilize
its NOLs generated in the United States. The Company included the following
information in its analysis:
o The acquisitions of Genie and Terex Advance Mixer in 2002 adds
significantly to the Company's U.S. based income generation. In
addition, the Company had begun to see an increase in demand for Genie
products in the United States relative to 2002.
o The Company continues to reduce its long-term debt through the
generation of operating cash flow, reducing interest expense in the
United States relative to prior periods.
o The Company has undergone significant restructuring in the United
States to address market conditions in its North American crane
business as well as its Roadbuilding businesses. The Company believes
that these businesses are now properly sized for current business
volumes and that their respective end markets have stabilized.
o The Company has not yet taken advantage of several tax strategies that
would allow it to accelerate the utilization of accumulated NOLs.
Based on these facts, the Company has determined that it is more likely than not
that expected future U.S. earnings are sufficient to fully utilize the Company's
U.S. deferred tax assets.
In addition to its domestic NOLs, the Company has accumulated $645.8 million of
foreign NOLs at December 31, 2003. During the fourth quarter of 2003, the
Company also evaluated its ability to utilize these NOLs on a country-by-country
and entity-by-entity basis. In performing this analysis, the Company reviewed
the past and anticipated future earnings for each foreign entity, and, where
necessary, a valuation allowance was provided for foreign NOLs which the Company
believed were not more likely than not to be realized in the future. As of
December 31, 2003, the total valuation allowance provided for foreign deferred
tax assets was $149.4 million.
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.
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 has resulted in the Company reporting gains and losses from
- 50 -
extinguishments of debt as a component of income or loss from continuing
operations before income taxes and extraordinary items; there has been no effect
on the Company's net income or loss. Prior period amounts have been
reclassified.
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 has been applied
prospectively and has not had 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 application of FIN 45 has not
had a material impact on the Company's consolidated financial position or
results of operations.
In January 2003 the FASB issued FIN 46, "Consolidation of Variable Interest
Entities." 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 is own activities. The 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. In December 2003, the FASB revised FIN 46
("FIN 46R") and modified its effective date. The Company is required to adopt
the provisions of FIN 46R, for special purpose entities and VIEs created on or
after February 1, 2003, effective December 31, 2003. As of December 31, 2003,
there were no such entities which would require the Company to include its
financial results in the Company's consolidated financial statements. For all
other entities, the Company will adopt the provisions of FIN 46R on March 31,
2004. As discussed in Footnote J - "Investment in Joint Venture", the Company is
still evaluating the future impact of FIN 46R on its statements of operations
and financial position.
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 adoption of EITF 00-21 has not had a material
impact on the Company's consolidated financial position or results of
operations.
During April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." This statement amends and
clarifies financial accounting and reporting for derivative instruments and
hedging activities, resulting primarily from decisions reached by the FASB
Derivatives Implementation Group subsequent to the original issuance of SFAS No.
133. This statement is generally effective prospectively for contracts and
hedging relationships entered into after June 30, 2003. The adoption of SFAS No.
149 has not had a material impact on the Company's consolidated financial
position or results of operations.
On May 15, 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." This statement
establishes standards for classifying and measuring as liabilities certain
financial instruments that embody obligations of the issuer and have
characteristics of both liabilities and equity. SFAS No. 150 must be applied
immediately to instruments entered into or modified after May 31, 2003 and to
all other instruments that exist as of the beginning of the first interim
financial reporting period beginning after June 15, 2003. The adoption of SFAS
No. 150 has not had a material impact on the Company's consolidated financial
position or results of operation.
LIQUIDITY AND CAPITAL RESOURCES
The Company's main sources of funding are cash generated from operations, use of
the Company's bank credit facilities and access to capital markets. 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 had
- 51 -
cash and cash equivalents of $467.5 million at December 31, 2003. In addition,
the Company had $217.8 million available for borrowing under its revolving
credit facilities at December 31, 2003.
Cash from operations is dependent on the Company's ability to generate net
income through the sales of the Company's products and by reducing its
investment in working capital. During 2003, the Company's focus shifted from a
largely acquisition oriented growth approach to improving its operating
performance. The Company recently initiated a series of programs, collectively
known as TIP, aimed at improving operating earnings and net income as a
percentage of sales and at reducing the relative level of working capital needed
to operate the business. The Company is improving its liquidity through the
collection of receivables in a more timely manner. Consistent with past
practice, each quarter the Company sells receivables to various third party
financial institutions through a series of established pre-arranged facilities.
During the fourth quarter of 2003 and 2002, the Company sold, without recourse,
accounts receivable approximating 24% and 23% of its fourth quarter revenue in
2003 and 2002, respectively, to provide additional liquidity. The Company is
reducing inventory requirements by sharing, throughout the Company, many of the
lean manufacturing processes that Genie has successfully utilized. These
initiatives are expected to reduce the levels of raw materials and work in
process needed to support the business and enable the Company to reduce its
manufacturing lead times, thereby reducing the Company's working capital
requirements.
The Company's ability to generate cash from operations is subject to the
following factors:
o A substantial number of the Company's customers fund their purchases
through third party finance companies. Finance companies extend credit
to customers based on the credit worthiness of the customers and the
expected residual value of the Company's equipment. Changes in either
the customers' credit rating or in used equipment values may impact
the ability of customers to purchase equipment.
o As the Company's sales levels increase, the absolute amount of working
capital needed to support the business may increase with a
corresponding reduction in cash generated by operations. The TIP
initiatives described above are intended to reduce the relative
increase in working capital.
o As described above, the Company insures and sells a portion of its
accounts receivable to third party finance companies. Changes in
customers' credit worthiness, in the market for credit insurance or in
the willingness of third party finance companies to purchase accounts
receivable from the Company can impact the Company's cash flow from
operations.
o The Company purchases material and services from its suppliers on
terms extended based on the Company's overall credit rating. Changes
in the Company's credit rating may impact suppliers' willingness to
extend terms and increase the cash requirements of the business.
o Sales of the Company's products are subject to general economic
conditions, weather, competition and foreign currency fluctuations,
and other such factors that in many cases are outside the Company's
direct control. For example, during periods of economic uncertainty,
many of the Company's customers have tended to delay purchasing
decisions, which has had a negative impact on cash generated from
operations.
The Company's sales are seasonal, with more than half of the Company's sales
being generated in the first two quarters of a calendar year. This seasonality
is a result of the needs of the Company's customers to have new equipment
available for the spring, summer and fall construction season. As a result, the
Company tends to use cash to fund its operations during the first half of a
calendar year and generate cash from operations during the second half of the
year.
To help fund this seasonal cash pattern, the Company maintains a significant
cash balance and a revolving line of credit in addition to term borrowings from
its bank group. The Company maintains a bank credit facility that originally
provided for $375 million of term debt maturing in July 2009 and a revolving
credit facility of $300 million that is available through July 2007. The
facility also includes provisions for an additional $250 million of term
borrowing by the Company on terms similar to the current term loan debt under
the facility, of which the Company has utilized $210 million of additional term
borrowings. During 2003, the Company prepaid $200 million principal amount of
its bank term loans. 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 through the third quarter of 2005. 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 would
become payable on demand.
The Company is currently in compliance with all of its financial covenants under
its bank credit facilities. The Company's future compliance with its covenants
will depend on its ability to generate earnings, cash flow from working capital
reductions, other asset sales and cost reductions from its restructuring
programs. The interest rates charged are subject to adjustment based on the
- 52 -
Company's consolidated pro forma leverage ratio. The weighted average interest
rate on the outstanding portion of the revolving credit component of the
Company's bank credit facility was 4.40% at December 31, 2003.
During 2003, the Company changed its debt profile by using cash generated from
operations to reduce its debt, extending the maturities of its term debt and
thereby reducing the rate of interest on its debt. On June 30, 2003, the Company
redeemed $50 million of its 8-7/8% Notes. On November 25, 2003, the Company sold
and issued $300 million of its 7-3/8% Notes using the proceeds from such sale
plus $119 million of available cash to prepay the remaining $200 million
outstanding principal amount of its 8-7/8% Notes and $200 million principal
amount of its bank term loans.
The Company manages its interest rate risk by maintaining a balance between
fixed and floating rate debt through interest rate derivatives. Over the long
term, the Company believes this mix will produce lower interest cost than a
purely fixed rate mix without substantially increasing risk.
At the same time that it issued its 7-3/8% Notes, the Company negotiated an
amendment to certain of the financial covenants under its bank credit
facilities, described above, to extend the rate at which the pro forma
consolidated leverage ratio and the pro forma consolidated senior secured debt
leverage ratio are reduced in 2004 and 2005.
The Company continues to review its alternatives to improve its capital
structure and to reduce debt service costs through a combination of debt
refinancing, issuing equity, asset sales and the sale of non-strategic
businesses. 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. In addition,
the terms of the Company's bank credit facility and senior subordinated notes
restrict the Company's ability to make further borrowings and to sell
substantial portions of its assets.
Cash From Operations - 2003 vs. 2002
- ------------------------------------
Cash from operations for the twelve months ended December 31, 2003 totaled
$384.1 million, approximately $267 million of which came from reductions in
working capital. Cash from operations increased by $313.8 million in 2003 when
compared to 2002. During 2003, the Company reduced the working capital in the
Construction, Cranes, Aerial Work Platforms and Roadbuilding, Utility Products
and Other segments. A significant portion of the Cranes reduction was due to
improvements realized at Demag, which was acquired in August 2002 with a high
level of working capital.
Cash used in investing activities in 2003 was $28.7 million, $411.9 million less
than cash used in investing activities in 2002. The reduction in cash usage is a
direct result of the number and size of acquisitions completed in 2003 when
compared to 2002.
The Company used cash for financing activities of $269.6 million in 2003,
compared to cash provided by financing activities in 2002 of $460.0 million.
During 2003, the Company utilized cash from operations to reduce its debt by
approximately $262 million. During 2002, a significant use of the Company's cash
was to fund the acquisition of Demag and to pay indebtedness assumed in the
Genie acquisition.
Contractual Obligations
- -----------------------
The following table sets out specified contractual obligations of the Company at
December 31, 2003:
Payments due by year
-------------------------------------------------------------------------------
Total 2004 2005 2006 2007 2008 Thereafter
Committed
--------------- ------------ ---------- ----------- ---------- --------- ---------------
Long-term debt obligations $ 1,333.3 $ 79.2 $ 25.4 $ 7.7 $ 40.5 $ 89.9 $ 1,090.6
Capital lease obligations 20.9 8.1 3.6 3.2 2.1 1.4 2.5
Operating lease obligations 399.3 63.5 55.1 46.7 41.8 34.7 157.5
--------------- ------------ -------- ----------- ---------- --------- ---------------
Total $ 1,753.5 $ 150.8 $ 84.1 $ 57.6 $ 84.4 $ 126.0 $ 1,250.6
=============== ============ ========== =========== ========== ========= ===============
Additionally, at December 31, 2003, the Company had outstanding letters of
credit that totaled $76.2 million and had issued $328.2 million in guarantees of
customer financing to purchase equipment, $36.5 million in residual value
guarantees and $45.7 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 2003, cash
contributions to the pension plans by the Company were $9.3 million, and the
Company estimates that its pension plan contributions will be approximately $13
million in 2004.
- 53 -
Genie participates in a joint venture arrangement with a European financial
institution as described below in "Off-Balance Sheet Arrangements--Variable
Interest Entities."
OFF-BALANCE SHEET ARRANGEMENTS
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, 2003, the Company's maximum exposure to such credit
guarantees was $328.2 million, including total credit guarantees issued by Demag
and Genie of $216.4 million and $58.8 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 under sales-type leases was $36.5 million
at December 31, 2003. 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, 2003, the Company's maximum exposure pursuant to
buyback guarantees was $45.7 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.
Variable Interest Entities
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 2003 and 2002, Genie contributed
an additional $0.8 million and $0.6 million, respectively, 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, 2003, the joint venture's total assets were $161.4
million and consisted primarily of financing receivables and lease related
equipment; total liabilities were $145.3 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, 2003 the maximum exposure to loss under these
guarantees was approximately $10 million. Additionally, the Company is required
to maintain a capital account balance in GFSH B.V., pursuant to the terms of the
- 54 -
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.
Based on the legal and operating structure of GFSH B.V., it is possible that the
Company will be required to consolidate the results of GFSH B.V. in its March
31, 2004 financial statements. The Company is in the process of negotiating
changes to the ownership and operating structure of GFSH B.V. with its joint
venture partner, with the intended result that GFSH B.V. could continue to be
accounted for under the equity method; however, there can be no assurance that
an agreement on these terms will be reached.
Sale-Leaseback Transactions
The Company's rental business typically rents equipment to customers for periods
of no less than three months. To better match cash outflows in the rental
business to cash inflows from customers, the Company finances the equipment
through a series of sale-leasebacks which are classified as operating leases.
The leaseback period is typically 60 months in duration. At December 31, 2003,
the historical cost of equipment being leased back from the financing companies
was approximately $95 million and the minimum lease payment in 2004 will be
approximately $18 million.
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, the Australian Dollar and the
Czech Koruna. The Company may, from time to time, hedge specifically identified
committed cash flows or forecasted cash flows in foreign currencies using
forward currency sale or purchase contracts. At December 31, 2003, the Company
had foreign exchange contracts with a notional value of $155.1 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. As of December 31,
2003, 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 $200 million of the principal amount of its indebtedness under its
7-3/8% Senior Subordinated Notes and approximately $79 million of leases. The
floating rates are based on a spread of 2.45% to 4.50% over LIBOR. At December
31, 2003, the floating rates ranged between 3.68% and 5.61%.
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 established 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
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.
- 55 -
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.
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 Quantum Value Partners, L.P., a partnership formed
by Mr. Langevin and certain individuals affiliated with Mr. Langevin and/or GKM
("Quantum") formed GT Distribution, LLC ("GT Distribution"), a limited liability
company in which the Company and such partnership were the only members. On
April 10, 2002, GT Distribution completed the acquisition of Crane & Machinery,
Inc. ("C&M"), a distributor of crane products, 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. On
November 10, 2003, the Company sold its entire interest in GT Distribution to
Quantum. Also on November 10, 2003, C&M purchased substantially all of the
assets of Schaeff Incorporated, a subsidiary of the Company, in consideration of
C&M assuming approximately $3.1 million of Schaeff Incorporated's indebtedness
to other Terex subsidiaries. C&M remains obligated to make payment to the
Company pursuant to the terms of this indebtedness and the remaining outstanding
loans acquired by the Company, which in the aggregate totaled approximately $8.6
million. This indebtedness is secured by a pledge of the assets of C&M, which
were valued at approximately $10 million on November 10, 2003, and a guarantee
by Quantum with respect to $5.5 million of these obligations. The results of C&M
were consolidated in the Company's financial results from December 1, 2002
through November 10, 2003. The terms of the transactions among the Company, Mr.
Langevin, Quantum, GT Distribution and C&M are similar to terms that the Company
believes would have been agreed upon in an arm's length transaction.
On November 13, 2003, the Company entered into an agreement with FIVER S.A.
("FIVER"), an entity affiliated with Fil Filipov, the President of the Company's
Terex Cranes segment until his retirement from the Company effective January 1,
2004. Pursuant to this agreement, FIVER provides consulting services to Terex as
assigned by the Chief Executive Officer of Terex, including an initial
assignment to assist with the operations of Tatra. The term of the agreement is
for three years commencing January 1, 2004, with an initial base consulting fee
of $0.5 million per year, subject to adjustment based on usage of FIVER's
services and FIVER's performance (determined at the discretion of the Company),
plus reimbursement of certain expenses. The terms of the agreement between the
Company and FIVER 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
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
- 56 -
beyond the Company's control, include, among others:
o the Company's business is highly cyclical and weak general economic
conditions may affect the sales of its products and its financial
results;
o the sensitivity of construction, infrastructure and mining activity
and products produced for the military to interest rates and
government spending;
o the ability to successfully integrate acquired businesses;
o the retention of key management personnel;
o the Company's businesses are very competitive and may be affected by
pricing, product initiatives and other actions taken by competitors;
o the effects of changes in laws and regulations;
o the Company's business is international in nature and is subject to
changes in exchange rates between currencies, as well as international
politics;
o the ability of suppliers to timely supply the Company parts and
components at competitive prices;
o the financial condition of suppliers and customers, and their
continued access to capital;
o the Company's ability to timely manufacture and deliver products to
customers;
o the Company's significant amount of debt and its need to comply with
restrictive covenants contained in the Company's debt agreements;
o compliance with applicable environmental laws and regulations; and
o 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, the Australian Dollar and the
Czech Koruna. 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, 2003, the Company
had foreign exchange contracts with a notional value of $155.1 million. The fair
market value of these arrangements, which represents the cost to settle these
contracts, was an asset of approximately $12 million at December 31, 2003.
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 manage its
interest rate risk. At December 31, 2003, approximately 50% of the Company's
debt was floating rate debt and the weighted average interest rate for all debt
was approximately 6.4%.
At December 31, 2003, 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
$2 million at December 31, 2003.
- 57 -
At December 31, 2003, the Company had approximately $279 million of interest
rate swaps that converted fixed rates to floating rates. The floating rates
ranged between 3.68% and 5.61% at December 31, 2003. The fair market value of
these arrangements, which represent the cost to settle these contracts, was an
asset of approximately $4 million.
At December 31, 2003, 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, 2003 would have increased interest expense by
approximately $2 million in 2003.
Commodities Risk
The Company purchases many of the components included in its products. Component
prices and availability are linked to market conditions. The Company sources its
products from numerous suppliers throughout the world in order to mitigate the
risk of unfavorable component pricing or availability.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Unaudited Quarterly Financial Data
Summarized quarterly financial data for 2003 and 2002 are as follows (in
millions, except per share amounts):
2003 2002
------------------------------------------------------------------------------------
Fourth Third Second First Fourth Third Second First
------------------------------------------------------------------------------------
Net sales ..................................$ 1,014.3 $ 906.3 $ 1,048.8 $927.7 $ 851.1 $ 674.1 $ 690.2 $ 582.0
Gross profit................................ 138.5 133.5 116.8 129.7 64.8 88.7 111.9 91.3
Income (loss) before cumulative effect of
change in accounting principle............ (0.6) 14.9 (51.8) 12.0 (40.3) 9.8 5.2 6.2
Net income (loss)........................... (0.6) 14.9 (51.8) 12.0 (40.3) 9.8 5.2 (107.2)
Per share:
Basic
Income (loss) before cumulative effect
of change in accounting principle.....$ (0.01) $ 0.31 $ (1.09) $ 0.25 $ (0.85) $ 0.22 $ 0.12 $ 0.16
Net income (loss) .................... (0.01) 0.31 (1.09) 0.25 (0.85) 0.22 0.12 (2.82)
Diluted
Income (loss) before cumulative effect
of change in accounting principle.....$ (0.01) $ 0.30 $ (1.09) $ 0.24 $ (0.85) $ 0.22 $ 0.12 $ 0.16
Net income (loss) ...................... (0.01) 0.30 (1.09) 0.24 (0.85) 0.22 0.12 (2.77)
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 second quarter of 2003, the Company recorded restructuring and other
one-time charges of $30.3 million in its Roadbuilding, Utility Products and
Other segment. These charges were recorded primarily to reduce inventory to
reflect downward forecasted demand and to exit certain economically unviable
niche product lines. In addition, during the second quarter, the Company
recorded expenses of $51.3 million for the impairment of goodwill.
During the second quarter of 2003, the Company announced an agreement in
principle to sell its worldwide electric drive mining truck operation.
Accordingly, during the second and third quarters of 2003, the Company reported
its worldwide electric drive mining truck operation as a discontinued operation.
On December 10, 2003, the Company terminated the negotiation for the sale of the
electric drive mining truck business. The quarterly presentation above reflects
the electric drive mining truck business as a continuing operation in all
quarters.
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.
- 58 -
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.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A: CONTROLS AND PROCEDURES
The Company carried out an evaluation of the effectiveness of the design and
operation of its disclosure controls and procedures as of the end of the fiscal
year covered by this Annual Report on Form 10-K 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 were effective as of December 31, 2003 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 has been no change to the Company's internal control over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)
that occurred during the Company's fiscal quarter ended December 31, 2003, that
has materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.
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
The 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.
- 59 -
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by Item 14 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.
- 60 -
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, 2003, the Company filed the following
Current Reports on Form 8-K:
- A report on Form 8-K was filed on October 8, 2003, announcing a
conference call to review the Company's third quarter 2003 financial
results.
- A report on Form 8-K was furnished on October 22, 2003, providing the
Company's press release reviewing the Company's financial results for
its fiscal quarter ended September 30, 2003.
- A report on Form 8-K/A was furnished on October 23, 2003, providing
corrected information with respect to the Company's financial results
for its fiscal quarter ended September 30, 2003.
- A report on Form 8-K was filed on November 10, 2003, announcing the
Company's intention to issue approximately $300 million of senior
subordinated notes.
- A report on Form 8-K was filed on November 12, 2003, announcing the
Company's pricing of its new senior subordinated notes and its
intention to amend its existing bank credit facility.
- A report on Form 8-K was filed on November 17, 2003, announcing the
retirement of Fil Filipov, the president and CEO of Terex Cranes,
effective January 1, 2004.
- A report on Form 8-K was filed on November 26, 2003, announcing the
completion of the Company's issuance of its new senior subordinated
notes and the redemption date for the Company's 8-7/8% Senior
Subordinated Notes.
- A report on Form 8-K was filed on December 10, 2003, announcing the
termination of discussions between the Company and Caterpillar Inc.
regarding the sale of the Company's mining truck business to
Caterpillar and the Company's acquisition of Caterpillar's mining
shovel intellectual property.
- 61 -
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 15, 2004
----------------------------------------
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 15, 2004
- ------------------------- and Director
Ronald M. DeFeo (Principal Executive Officer)
/s/ Phillip C. Widman Senior Vice President-Chief Financial March 15, 2004
- ------------------------- Officer
Phillip C. Widman (Principal Financial Officer)
/s/ Mark T. Cohen Vice President and Controller March 15, 2004
- ------------------------- (Principal Accounting Officer)
Mark T. Cohen
/s/ G. Chris Andersen Director March 15, 2004
- -------------------------
G. Chris Andersen
/s/ Don DeFosset Director March 15, 2004
- -------------------------
Don DeFosset
/s/ Donald P. Jacobs Director March 15, 2004
- -------------------------
Donald P. Jacobs
/s/ William H. Fike Director March 15, 2004
- -------------------------
William H. Fike
/s/ David A. Sachs Director March 15, 2004
- -------------------------
David A. Sachs
/s/ J. C. Watts, Jr. Director March 15, 2004
- -------------------------
J. C. Watts, Jr.
/s/ Helge H. Wehmeier Director March 15, 2004
- -------------------------
Helge H. Wehmeier
- 62 -
THIS PAGE IS INTENTIONALLY BLANK
NEXT PAGE IS NUMBERED "F-1"
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TEREX CORPORATION AND SUBSIDIARIES
Index to Consolidated Financial Statements and Financial Statement Schedule
Page
----
TEREX CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2003 AND 2002
AND FOR EACH OF THE THREE YEARS
IN THE PERIOD ENDED DECEMBER 31, 2003
Report of independent auditors......................................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 - 56
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 AUDITORS
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, 2003 and 2002, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2003, 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 5, 2004
F - 2
TEREX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(in millions, except per share amounts)
`
Year Ended December 31,
------------------------------------
2003 2002 2001
----------- ----------- ------------
NET SALES.......................................................................... $ 3,897.1 $ 2,797.4 $ 1,812.5
COST OF GOODS SOLD................................................................. 3,378.6 2,440.7 1,540.1
----------- ----------- ------------
GROSS PROFIT.................................................................... 518.5 356.7 272.4
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES....................................... (393.7) (288.1) (168.2)
GOODWILL IMPAIRMENT................................................................ (51.3) --- ---
----------- ----------- ------------
INCOME FROM OPERATIONS.......................................................... 73.5 68.6 104.2
OTHER INCOME (EXPENSE)
Interest income................................................................. 7.1 7.5 7.7
Interest expense................................................................ (99.9) (92.9) (86.7)
Loss on retirement of debt...................................................... (10.9) (2.4) (5.7)
Amortization of debt issuance costs............................................. (5.5) (4.8) (3.8)
Other income (expense) - net.................................................... 0.4 (4.2) 3.2
----------- ----------- ------------
INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTINGPRINCIPLE................................................. (35.3) (28.2) 18.9
BENEFIT FROM (PROVISION FOR) INCOME TAXES.......................................... 9.8 9.1 (6.1)
----------- ----------- ------------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE........ (25.5) (19.1) 12.8
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (net of income tax
expense of $1.0 in 2002)........................................................ --- (113.4) ---
----------- ----------- ------------
NET INCOME (LOSS)............................................................... $ (25.5) $ (132.5) $ 12.8
=========== =========== ============
PER COMMON SHARE:
Basic
Income (loss) before cumulative effect of change in accounting principle....... $ (0.53) $ (0.44) $ 0.46
Cumulative effect of change in accounting principle............................ --- (2.63) ---
----------- ----------- ------------
Net income (loss)............................................................. $ (0.53) $ (3.07) $ 0.46
=========== =========== ============
Diluted
Income (loss) before cumulative effect of change in accounting principle....... $ (0.53) $ (0.44) $ 0.44
Cumulative effect of change in accounting principle............................ --- (2.63) ---
----------- ----------- ------------
Net income (loss)............................................................ $ (0.53) $ (3.07) $ 0.44
=========== =========== ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING IN PER SHARE CALCULATION:
Basic...................................................................... 47.7 43.2 28.1
Diluted.................................................................... 47.7 43.2 28.9
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,
------------------------
2003 2002
----------- ------------
CURRENT ASSETS
Cash and cash equivalents................................................................... $ 467.5 $ 352.2
Trade receivables (less allowance of $38.2 and $19.6 as of December 31, 2003 and 2002,
respectively)............................................................................. 540.2 578.6
Net inventories............................................................................. 1,009.7 1,106.3
Deferred taxes.............................................................................. 53.9 46.9
Other current assets........................................................................ 122.7 137.1
------------- -----------
Total Current Assets..................................................... 2,194.0 2,221.1
LONG-TERM ASSETS
Property, plant and equipment - net......................................................... 370.1 309.4
Goodwill.................................................................................... 603.5 622.9
Deferred taxes.............................................................................. 238.9 153.5
Other assets................................................................................ 317.3 318.8
------------- -----------
TOTAL ASSETS................................................................................... $ 3,723.8 $ 3,625.7
============= ===========
CURRENT LIABILITIES
Notes payable and current portion of long-term debt......................................... $ 86.8 $ 74.1
Trade accounts payable...................................................................... 608.6 542.9
Accrued compensation and benefits........................................................... 94.5 74.0
Accrued warranties and product liability.................................................... 88.5 86.0
Other current liabilities................................................................... 281.0 329.2
------------- -----------
Total Current Liabilities................................................. 1,159.4 1,106.2
NON CURRENT LIABILITIES
Long-term debt, less current portion........................................................ 1,274.8 1,487.1
Other....................................................................................... 412.9 263.2
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common Stock, $0.01 par value --
authorized 150.0 shares; issued 50.0 and 48.6 shares at December 31, 2003 and 2002,
respectively............................................................................... 0.5 0.5
Additional paid-in capital.................................................................. 795.1 772.7
Retained earnings........................................................................... 41.9 67.4
Accumulated other comprehensive income (loss)............................................... 57.0 (53.6)
Less cost of shares of common stock in treasury 1.2 shares at December 31, 2003 and 2002... (17.8) (17.8)
------------- -----------
Total Stockholders' Equity................................................ 876.7 769.2
------------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY..................................................... $ 3,723.8 $ 3,625.7
============= ===========
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 sive Income Stock in
Rights Stock Capital Earnings (Loss) Treasury Total
----------- ----------- ----------- ------------ ------------ ----------- ----------
BALANCE AT
DECEMBER 31, 2000....... $ 0.7 $ 0.3 $ 358.9 $ 187.1 $ (78.5) $ (17.0) $ 451.5
Net Income (Loss)......... --- --- --- 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
Net Income (Loss)......... --- --- --- (25.5) --- --- (25.5)
Other Comprehensive Income
(Loss):
Translation adjustment --- --- --- --- 104.9 ---- 104.9
Pension liability
adjustment............ --- --- --- --- 1.3 ---- 1.3
Derivative hedging
adjustment............ --- --- --- --- 4.4 ---- 4.4
----------
Comprehensive Income (Loss) 85.1
----------
Issuance of Common Stock.. --- --- 7.8 --- --- --- 7.8
Acquisition of Businesses.. --- --- 14.6 --- --- --- 14.6
----------- ----------- ----------- ------------ ------------ ----------- ----------
BALANCE AT
DECEMBER 31, 2003 $ --- $ 0.5 $ 795.1 $ 41.9 $ 57.0 $ (17.8) $ 876.7
=========== =========== =========== ============ ============ =========== ==========
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,
-----------------------------------------
2003 2002 2001
------------------------------------------
OPERATING ACTIVITIES
Net income (loss).........................................................$ (25.5) $ (132.5) $ 12.8
Adjustments to reconcile net income (loss) to cash provided by (used in)
operating activities:
Depreciation ......................................................... 55.2 35.9 22.5
Amortization.............................................................. 15.2 9.1 17.8
Deferred taxes........................................................ (31.8) (24.6) (8.4)
Loss on retirement of debt............................................ 10.9 1.6 3.9
Gain on sale of fixed assets.......................................... (4.5) (0.7) (1.5)
Gain on foreign currency forwards..................................... --- (3.8) ---
Restructuring charges................................................. --- 50.9 19.5
Impairment charges and asset writedowns............................... 72.5 140.8 ---
Changes in operating assets and liabilities (net of effects of
acquisitions):
Trade receivables.................................................. 83.3 11.6 28.1
Net inventories.................................................... 189.0 (52.7) (19.6)
Trade accounts payable............................................. (4.6) 86.5 (40.5)
Other.............................................................. 24.4 (51.8) (40.1)
--------------- ------------- -------------
Net cash provided by (used in) operating activities.............. 384.1 70.3 (5.5)
--------------- ------------- -------------
INVESTING ACTIVITIES
Acquisition of businesses, net of cash acquired........................ (7.7) (445.9) (130.8)
Capital expenditures................................................... (27.1) (29.2) (13.5)
Proceeds from sale of assets........................................... 6.1 34.5 8.0
--------------- ------------- -------------
Net cash provided by (used in) investing activities.............. (28.7) (440.6) (136.3)
--------------- ------------- -------------
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt, net of issuance costs........ 290.4 572.0 481.4
Issuance of common stock............................................... --- 113.3 96.3
Principal repayments of long-term debt................................. (454.5) (219.6) (388.5)
Net borrowings (repayments) under revolving line of credit agreements.. (65.0) (0.8) 23.6
Payment of premium on early retirement of debt......................... (11.1) --- ---
Other.................................................................. (29.4) (4.9) (1.3)
--------------- ------------- -------------
Net cash provided by (used in) financing activities.............. (269.6) 460.0 211.5
--------------- ------------- -------------
29.5 12.1 (0.7)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS..............
--------------- ------------- -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS................................. 115.3 101.8 69.0
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.......................... 352.2 250.4 181.4
--------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................................$ 467.5 $ 352.2 $ 250.4
=============== ============= =============
The accompanying notes are an integral part of these financial statements.
F - 6
TEREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003
(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. Certain prior year amounts have been reclassified to conform
with the current year's presentation.
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, 2003 and 2002 include $10.9 and $4.5, 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. 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, 2003, reserves for excess and obsolete inventory totaled $59.4
million.
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 other expense at the time of retirement. Debt issuance
costs before amortization totaled $39.7 and $41.9 at December 31, 2003 and 2002,
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 of $113.4, net of income taxes,
reported as a cumulative effect of change in accounting principle. During the
F - 7
second quarter of 2003, the Company identified indicators of goodwill impairment
in its Roadbuilding, Utility Products and Other segment. As discussed in Note C
- - "Accounting Changes - Business Combinations and Goodwill," the Company
performed an impairment test, which resulted in a pretax charge of $51.3. The
Company selected October 1 as the date for the required annual impairment test.
The impairment test performed as of October 1, 2003 resulted in no impairment
charge. Subsequent impairment tests will be performed effective October 1 of
each year and more frequently if circumstances warrant.
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.
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 $30.2 and $36.8 at December 31, 2003 and 2002, respectively.
During the year ended December 31, 2001, the Company incurred goodwill
amortization expense of $14.2.
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 (5-40 years and
3-20 years, respectively) 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 fair value
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:
F - 8
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
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.................................. 22.3
Accruals for warranties issued ...................... 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
Businesses acquired.................................. 5.7
Accruals for warranties issued during the year....... 60.4
Changes in estimates................................. 3.0
Settlements during the year.......................... (67.5)
Foreign exchange effect.............................. 7.7
------------
Balance as of December 31, 2003...................... $ 68.4
============
Accrued Product Liability. The Company records accruals for product liability
claims based on the Company's claim experience.
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, 2003, 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,
-------------------------------------------
2003 2002 2001
-------------- ------------- -------------
Reported net income (loss).................................... $ (25.5) $ (132.5) $ 12.8
Deduct: Total stock-based employee compensation expense
determined under fair value based methods for all awards,
net of related income tax effects............................ (4.2) (3.3) (3.4)
-------------- ------------- -------------
Proforma net income (loss).................................... $ (29.7) $ (135.8) $ 9.4
============== ============= =============
Per common share:
Basic:
Reported net income (loss)................................ $ (0.53) $ (3.07) $ 0.46
============== ============= =============
Proforma net income (loss)................................ $ (0.62) $ (3.14) $ 0.34
============== ============= =============
Diluted:
Reported net income (loss)................................ $ (0.53) $ (3.07) $ 0.44
============== ============= =============
Proforma net income (loss)................................ $ (0.62) $ (3.14) $ 0.32
============== ============= =============
F - 10
The fair value of these options was estimated at the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions for 2003, 2002 and 2001, respectively: dividend yields of 0%, 0% and
0%; expected volatility of 51.10%, 51.24% and 51.28%; risk-free interest rates
of 4.41%, 5.42% and 5.63%; and expected life of 9.8 years, 9.9 years and 9.9
years. The aggregate fair value of options granted during 2003, 2002 and 2001
for which the exercise price equals the market price on the grant date was $5.4,
$8.4 and $9.9, respectively. The weighted average fair value at date of grant
for options granted during 2003, 2002 and 2001 was $8.14, $14.97 and $11.68,
respectively.
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.
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." Derivative financial instruments are recorded on
the consolidated balance sheet at their fair value as either assets or
liabilities. Changes in the fair value of derivatives are 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 are 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, 2003 and 2002.
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. Research and development costs were $38.6, $24.7 and
$6.2 during 2003, 2002, and 2001, respectively.
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 has resulted in the
F - 11
Company reporting gains and losses from extinguishments of debt as a component
of income or loss from continuing operations before income taxes and
extraordinary items; there has been no effect on the Company's net income or
loss. In accordance with SFAS No. 145, losses on the extinguishment of debt of
$2.4 in 2002 and $5.7 in 2001 have been reclassified.
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 has been applied
prospectively and has not had 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 application of FIN 45 has not
had a material impact on the Company's consolidated financial position or
results of operations.
In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest
Entities." 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. The 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. In December 2003, the FASB revised FIN 46
("FIN 46R") and modified its effective date. The Company is required to adopt
the provisions of FIN 46R, for special purpose entities and VIEs created on or
after February 1, 2003, effective December 31, 2003. As of December 31, 2003,
there were no such entities that are required to be consolidated by the Company.
For all other entities, the Company will adopt the provisions of FIN 46R on
March 31, 2004. As discussed in Footnote J - "Investment in Joint Venture," the
Company is still evaluating the future impact of FIN 46R on its statements of
operations and financial position.
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 adoption of EITF 00-21 has not had a material
impact on the Company's consolidated financial position or results of
operations.
During April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." This statement amends and
clarifies financial accounting and reporting for derivative instruments and
hedging activities, resulting primarily from decisions reached by the FASB
Derivatives Implementation Group subsequent to the original issuance of SFAS No.
133. This statement is generally effective prospectively for contracts and
hedging relationships entered into after June 30, 2003. The adoption of SFAS No.
149 has not had a material impact on the Company's consolidated financial
position or results of operations.
On May 15, 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." This statement
establishes standards for classifying and measuring as liabilities certain
financial instruments that embody obligations of the issuer and have
characteristics of both liabilities and equity. SFAS No. 150 must be applied
immediately to instruments entered into or modified after May 31, 2003 and to
all other instruments that exist as of the beginning of the first interim
financial reporting period beginning after June 15, 2003. The adoption of SFAS
No. 150 has not had a material impact on the Company's consolidated financial
position or results of operation.
F - 12
NOTE B -- ACQUISITIONS
2003 Acquisitions
- -----------------
On February 14, 2003, the Company completed the acquisition of Commercial Body
Corporation ("Commercial Body"). Commercial Body, headquartered in San Antonio,
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 approximately
600 thousand shares of Common Stock and paid $3.7 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 New York Stock Exchange at a
price at least 50% higher than it was at the time of the acquisition, up to a
maximum number of shares of Common Stock having a value of $3.4. At the time of
Terex's acquisition of Commercial Body, Commercial Body had a 50% equity
interest in Combatel Distribution, Inc. ("Combatel"). The remaining 50% of
Combatel was owned by Terex and, prior to the Commercial Body acquisition, had
been accounted for under the equity method of accounting. During the second
quarter of 2003, Commercial Body and Combatel merged to form Terex Utilities
South, Inc. ("Utilities South"). Utilities South is included in the Terex
Roadbuilding, Utility Products and Other segment. The operating results of
Commercial Body and Combatel are included in the Company's consolidated results
of operations since February 14, 2003 (date of acquisition).
The Company is in the process of completing certain valuations for purposes of
determining the respective fair values of tangible and intangible assets used in
the allocation of purchase consideration for the acquisitions of Commercial Body
and Combatel. The Company does not anticipate that the final results of these
valuations will have a material impact on its financial position or its results
of operations. The Company may revise its preliminary allocations as additional
information is obtained. The Company is in the process of evaluating various
alternatives to integrate the activities of Commercial Body and Combatel 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 could impact the acquired businesses or existing
businesses, and the Company intends to finalize its plans by the first
anniversary of the date of acquisition. 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.
On August 28, 2003 the Company acquired an additional 51% of the outstanding
shares of TATRA a.s. ("Tatra") from SDC Prague s.r.o., a subsidiary of SDC
International, Inc. Tatra is located in the Czech Republic and is a manufacturer
of on/off road heavy-duty vehicles for commercial and military applications.
Consideration for the acquisition was comprised of debt forgiveness totaling
$8.1, cash of $0.2 and approximately 209 thousand shares of Terex common stock.
The acquisition brings Terex's total ownership interest in Tatra to
approximately 71%. Tatra's results have been included in the Company's
consolidated financial statements since August 28, 2003. Upon the initial
consolidation of Tatra into the Company's consolidated financial results,
Tatra's debt totaled approximately $33. This debt primarily consisted of notes
payable to financial institutions. Tatra is part of the Company's Roadbuilding,
Utility Products and Other segment.
The Company owns an approximately 33% interest in American Truck Company
("ATC"). ATC is located in the United States and manufactures heavy-duty
off-road trucks for military and severe duty commercial applications. Tatra also
owns an approximately 33% interest in ATC. As a result of the Company's August
28, 2003 acquisition of additional ownership of Tatra, the results of ATC also
have been included in the Company's consolidated financials statements since
August 28, 2003.
The Company is in the process of completing certain valuations, appraisals 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
acquisition of Tatra. 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.
On December 19, 2003, the Company completed the acquisition of substantially all
of the assets comprising the business of Compass Equipment Leasing ("CEL") and
Asplundh Canada. Both businesses rent digger dereks, aerial devices and other
related equipment to contractors and utility customers in the United States and
Canada, respectively. The purchase consideration was $0.1 plus the assumption of
CEL's and Asplundh Canada's operating lease obligations. Both businesses are
included in the Terex Roadbuilding, Utility Products and Other segment.
The Company is in the process of completing certain appraisals and other studies
for the purpose of determining the respective fair value of the assets and
liabilities acquired. This information will be used to allocate the purchase
consideration. The Company does not anticipate that the final results of these
studies will have a material impact on its financial position, results from
operations, or cash flow.
F - 13
2002 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. The
amount of the eighteen-month contingent purchase price payment, if any, has not
been finally determined as of December 31, 2003.
On January 15, 2002, the Company completed the acquisition of Utility Equipment,
Inc., which does business as Pacific Utility Equipment Co. and Terex Utilities
West ("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 have
required 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 was 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. However, no adjustment was
required, as the price of the Common Stock on the second anniversary of the
acquisition was greater than 25% higher than it was at the time of the
acquisition. Utility Equipment is included in the Terex Roadbuilding, Utility
Products and Other segment.
On March 26, 2002, the Company acquired EPAC Holdings, Inc., which did business
under the names Telelect East and Eusco ("Telelect Southeast"). Telelect
Southeast, headquartered in Richmond, Virginia with locations in various states,
distributes, assembles, rents and provides service of products for the utility,
telecommunications and municipal markets. In connection with the acquisition,
the Company issued approximately 300 thousand shares of Common Stock and $1.1
cash. In addition, the Company may be required to pay cash or issue additional
shares of Common Stock (at the Company's option) if, on the second anniversary
of the Telelect Southeast acquisition, the Common Stock is not trading on the
NYSE at a price at least 25% higher than it was at the time of the acquisition,
up to a maximum number of shares of Common Stock having a value of $1.7.
Telelect Southeast is included in the Terex Roadbuilding, Utility Products and
Other segment. Effective January 1, 2004, Telelect Southeast merged into
Utilities South.
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 $9.7 in the aggregate. On September 18,
2002, the twelve month measuring date, the Company's Common Stock was not
trading at least 15% higher than the price at the time of acquisition. As a
F - 14
result, the Company issued 98 thousand shares of Common Stock to the selling
shareholders in October 2003. The Company initiated the Genie Acquisition as an
opportunity to diversify its product offering with the addition of a complete
line of aerial work platforms with a strong global brand and significant market
share. The Genie Acquisition is also intended to provide operational and
marketing synergies and cost savings, such as allowing the Genie product line to
expand the reach of its distribution through the Company's existing sales base,
particularly in Europe. Genie is included in the Terex Aerial Work Platforms
segment.
The following pro forma summary presents the consolidated results of operations
as though the Company completed the Genie Acquisition as of the beginning of the
respective period, after giving effect to certain adjustments for interest
expense, amortization of debt issuance costs and other expenses related to the
transaction:
Pro Forma for the
Year Ended December 31,
--------------------------
2002 2001
---- ----
Net sales.............................................$ 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.
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................................ 111.3
Inventories.......................................... 87.9
Other current assets................................. 83.2
Property, plant and equipment........................ 49.6
Goodwill............................................. 51.0
Other non-current assets............................. 167.0
Accounts payable..................................... (83.7)
Other current liabilities............................ (60.0)
Current portion of long-term debt.................... (59.5)
Long-term debt, less current portion................. (28.5)
Other liabilities.................................... (76.2)
------------
$ 256.6
============
The Company has evaluated various alternatives to integrate the activities of
certain of the businesses acquired in 2002 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,
"Recognition of Liabilities in Connection with a Purchase Business Combination,"
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 2003 and 2002, the Company guaranteed
the future market value, at various future dates, of Common Stock issued in
F - 15
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 $28.48 per
share market value of the Company's Common Stock at December 31, 2003,
additional consideration of $6.9 would be payable, none of which must be settled
with additional Common Stock. Any additional consideration may be settled with
cash or additional Common Stock and would be due in 2004.
2001 Acquisitions
- -----------------
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
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.
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
F - 16
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
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
each reporting unit'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.
Upon adoption of SFAS No. 142, 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) was recorded as a cumulative effect of change in
accounting principle adjustment as of January 1, 2002.
Business performance during the first six months of 2003 in the Roadbuilding
reporting unit had not met the expectations of the Company that were used when
goodwill was last reviewed for impairment as of October 1, 2002. To date,
funding for road projects have remained at historically low levels, as federal
and state budgets have been negatively impacted by a weak economy and the war in
Iraq. In response to the revised business outlook, management initiated several
changes to address the expected market conditions, including a change in
business management, discontinuance of several non-core products, work force
F - 17
furloughs and reductions, and an inventory write-down based on anticipated lower
sales volume. Based on the continued weakness in the Roadbuilding reporting
unit, the Company initiated a review of the long-term outlook for the
Roadbuilding reporting unit. The revised outlook for the Roadbuilding reporting
unit assumes that funding levels for domestic road projects will not improve
significantly in the short term. In addition, the outlook assumes that the
Company will continue to reduce working capital invested in the reporting unit
to better match revenue expectations.
Based on this review during the second quarter of 2003, the Company determined
the fair value of the Roadbuilding reporting unit in accordance with the SFAS
No. 142 approach used during the initial review. The SFAS No. 142 approach uses
the present value of the cash flow expected to be generated by the reporting
unit. The cash flow was determined based on the expected revenues, after tax
profits, working capital levels and capital expenditures for the Roadbuilding
reporting unit. The present value was calculated by discounting the cash flow by
the Company's weighted average cost of capital. The Company, with the assistance
of a third-party, also reviewed the market value of the Roadbuilding reporting
unit's tangible and intangible assets. These values were included in the
determination of the carrying value of the Roadbuilding reporting unit.
Based on the revised fair value of the Roadbuilding reporting unit, a goodwill
impairment of $51.3 was recognized during the three months ended June 30, 2003.
A portion of the goodwill impairment ($27.3) is non-deductible for income tax
purposes.
The Company performed its last annual review of the carrying value of its
goodwill, as required by SFAS No. 142, as of October 1, 2003, which resulted in
no additional impairment. Subsequent impairment tests will be performed
effective October 1 of each year and more frequently as circumstances warrant.
On April 1, 2003 the Company changed the composition of its reporting units and
segments when it moved the North American operations of its telehandlers
business from the Terex Construction segment to the Terex Aerial Work Platforms
segment due to a change in the way the Company's operating decision makers view
the business. The goodwill balance at December 31, 2002 and 2001 has been
reclassified within the two segments to reflect this change in the Company's
reportable segments.
The table below illustrates the Company's reported results after applying SFAS
No. 142.
For the Year Ended December 31,
--------------------------------------------
2003 2002 2001
-------------- ------------- --------------
Goodwill amortization......................................... $ --- $ --- $ 14.2
============== ============= ==============
Reported net income (loss).................................... $ (25.5) $ (132.5) $ 12.8
Add back: Goodwill amortization, net of income taxes.......... --- --- 9.7
-------------- ------------- --------------
Adjusted net income (loss).................................... $ (25.5) $ (132.5) $ 22.5
============== ============= ==============
Per common share:
Basic:
Reported net income (loss)................................ $ (0.53) $ (3.07) $ 0.46
Add back: Goodwill amortization, net of income taxes...... --- --- 0.34
-------------- ------------- --------------
Adjusted net income (loss)................................ $ (0.53) $ (3.07) $ 0.80
============== ============= ==============
Diluted:
Reported net income (loss)................................ $ (0.53) $ (3.07) $ 0.44
Add back: Goodwill amortization, net of income taxes...... --- --- 0.34
-------------- ------------- --------------
Adjusted net income (loss)................................ $ (0.53) $ (3.07) $ 0.78
============== ============= ==============
F - 18
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, 2001.... $ 237.6 $ 90.2 $ 188.1 $ 4.5 $ 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.... $ 307.3 $ 90.3 $ 177.5 $ 47.8 $ --- $ 622.9
Impairment...................... --- --- (51.3) --- --- (51.3)
Acquisitions.................... --- 3.5 11.6 2.2 --- 17.3
Disposals....................... --- (3.1) --- --- --- (3.1)
Utilization of tax net
operating losses............. --- (2.7) (2.5) --- --- (5.2)
Foreign exchange effect......... 21.1 1.7 0.1 --- --- 22.9
--------------- ------------ ------------------ ------------ ------------ ------------
Balance at December 31, 2003.... $ 328.4 $ 89.7 $ 135.4 $ 50.0 $ --- $ 603.5
=============== ============ ================== ============ ============ ============
The goodwill recognized for the acquisition of Tatra as of December 31, 2003 is
not final, as the Company has not yet completed its valuations of its tangible
and intangible assets.
NOTE D - SALE OF BUSINESSES
In 2002, the Company acquired an interest in Crane & Machinery, Inc. ("C&M"),
which distributes, rents and provides service for crane products, including
those products manufactured by the Company. During 2002, the Company acquired
from an unaffiliated financial institution outstanding loans in the amount of
approximately $5.9 owed by C&M to that financial institution, and C&M was
obligated to make payments to the Company pursuant to the terms of such loans.
The results of C&M were consolidated in the Company's financial results from
December 31, 2002 through November 10, 2003. On November 10, 2003, the Company
sold its interest in C&M, and obtained a third party guarantee of the loans
payable by C&M to the Company, as well as a pledge of the assets of C&M as
security for the payment of such loans. As a result, the Company ceased to
consolidate C&M's results as of November 10, 2003. In addition, on November 10,
2003, the Company sold substantially all of the assets of its Schaeff
Incorporated subsidiary (a manufacturer of forklifts) to C&M, in consideration
of C&M assuming approximately $3.1 of Schaeff Incorporated's indebtedness to the
Company, with such indebtedness secured by the guarantee and pledge described
above. The results of Schaeff Incorporated and C&M were included in the Terex
Cranes segment prior to the November 10, 2003 transactions.
NOTE E -- DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into two types of derivatives: 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 uses 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
F - 19
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, Australian Dollar and Czech Koruna. 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. On the consolidated statement of cash flows, the Company
records cash flows from hedging activities in the same manner as it records the
underlying item being hedged.
The Company entered into interest rate swap agreements that effectively
converted variable rate interest payments into fixed rate interest payments. At
December 31, 2003, 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, 2003 was a loss of $2.4. These swap agreements
have been designated as, and are effective as, cash flow hedges of outstanding
debt instruments. During 2003, 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, 2003, the Company had $279.0 notional amount of such interest rate
swap agreements outstanding, all of which mature in 2006 through 2014. The fair
market value of these swaps at December 31, 2003 was a gain of $3.9, 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, 2003, is offset by an $8.9
addition in the carrying value of the long-term obligations being hedged.
On March 31, 2003, the Company exited certain interest rate swap agreements in
the notional amount of $175.0 with a 2011 maturity that converted fixed rate
interest payments into variable rate interest payments. The Company received
$7.8 upon exiting these swap agreements. The gain was being amortized over the
original maturity of the Company's 8-7/8% Senior Subordinated Notes due 2008,
the debt being hedged, prior to the retirement in June 2003 and December 2003 of
that debt. At the time of the retirement of the debt being hedged the
unamortized gain was recorded as an offset to the loss on the retirement of the
debt. See Note M - "Long-Term Obligations" for additional information on the
retirement of debt.
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, 2003, the Company had $155.1 of notional amount of currency
exchange forward contracts outstanding, all of which mature on or before
December 31, 2004. The fair market value of these swaps at December 31, 2003 was
a gain of $11.5. 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
F - 20
Demag was denominated in Euro. 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 2003, 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, 2003, the fair value of all derivative instruments has been
recorded in the Consolidated Balance Sheet as a net asset of $10.5, 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,
----------------------------------------------------
2003 2002 2001
----------------- ----------------------------------
Balance at beginning of period (upon $ 2.1 $ (0.8) $ 0.9
adoption of SFAS No. 133 for 2001)....
Additional gains (losses)............... 13.1 7.3 1.2
Amounts reclassified to earnings........ (8.7) (4.4) (2.9)
----------------- ----------------------------------
Balance at end of period................ $ 6.5 $ 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 2003,
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.
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.
2003 Programs
- -------------
In the first quarter of 2003, the Company recorded a charge of $0.7 related to
restructuring at its CMI Terex facility in Oklahoma City, Oklahoma. Due to the
continued poor performance in the Roadbuilding business, the Company reduced
employment by approximately 146 employees at its CMI Terex facility. As of June
30, 2003, all of the employees had ceased employment with the Company. The
program was substantially complete at June 30, 2003. CMI Terex is included in
the Terex Roadbuilding, Utility Products and Other segment.
Also in the first quarter of 2003, the Company recorded charges of $0.3 for
restructuring at its Terex-RO facility in Olathe, Kansas. As a result of weak
demand in the Company's North American crane business, the Terex-RO facility has
been closed and the production performed at that facility has been consolidated
into the Company's hydraulic crane production facility in Waverly, Iowa. The
program has reduced employment by approximately 50 employees and was
substantially completed at September 30, 2003. Booms for the Terex-RO product
were already being produced in the Waverly facility; accordingly, no production
problems are anticipated in connection with this consolidation. Terex-RO is
included in the Terex Cranes segment.
The Company recorded a charge of $1.5 in the first quarter of 2003 for the exit
of all activities at its EarthKing e-commerce subsidiary. The $1.5 charge is for
non-cash closure costs and has been recorded in cost of goods sold. EarthKing is
included in the Terex Roadbuilding, Utility Products and Other segment. The
F - 21
program was completed as of September 30, 2003. Additionally, during the first
quarter of 2003, 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 $0.8. This
write-down was reported in "Other income (expense) - net."
During the second quarter of 2003, the Company recorded a severance charge of
$3.1 for future cash expenditures related to restructuring at its Terex Peiner
tower crane manufacturing facility in Trier, Germany. This charge is a result of
the Company's decision to consolidate its German tower crane manufacturing into
its Demag facilities in an effort to lower fixed overhead and improve
manufacturing efficiencies and profitability. As a result of this restructuring,
the Company has accrued for a headcount reduction of 65 employees. As of
December 31, 2003, 62 of the employees had ceased employment with the Company.
The program is expected to be completed by April 30, 2004. Terex Peiner is
included in the Terex Cranes segment. During the three months ended June 30,
2003, $2.6 and $0.5 were recorded in cost of goods sold and selling, general and
administrative expenses, respectively. The Terex Peiner closing is expected to
reduce annual operating costs by $3.4 once the program is fully implemented.
The Company also recorded a restructuring charge in the second quarter of 2003
of $1.9 for future cash expenditures related to the closure of its Powerscreen
facility in Kilbeggan, Ireland. The $1.9 was comprised of $1.0 of severance
charges and $0.9 of accruable exit costs. This charge is a result of the
Company's decision to consolidate its European Powerscreen business at its
facility in Dungannon, Northern Ireland. This consolidation will lower the
Company's cost structure for this business and better utilize manufacturing
capacity. As a result of the restructuring, the Company has accrued for a
headcount reduction of 121 employees at the Kilbeggan facility. As of September
30, 2003, all of the employees had ceased employment with the Company. The
program was substantially complete at December 31, 2003, except for the disposal
of the real property, which is expected to be finalized in 2004. The Powerscreen
Kilbeggan facility is included in the Terex Construction segment. During the
three months ended June 30, 2003, $1.8 and $0.1 were recorded in cost of goods
sold and selling, general and administrative expenses, respectively. The
Kilbeggan facility closing is expected to generate annual cost savings of
approximately $3.
In addition, during the second quarter of 2003, the Company recorded
restructuring charges of $4.7 in the Terex Roadbuilding, Utility Products and
Other segment. These restructuring charges are the result of continued poor
performance in the Roadbuilding business and the Company's efforts to streamline
operations and improve profitability. The $4.7 restructuring charge is comprised
of the following components:
o A $2.8 charge related to exiting the bio-grind recycling business,
with $2.5 recorded in cost of goods sold and $0.3 recorded in selling,
general and administrative expenses.
o A charge of $1.8 related to the exiting of the screening and
shredder-mixer business operated at its Durand, Michigan facility,
with $1.7 recorded in cost of goods sold and $0.1 recorded in selling,
general and administrative expenses.
o A $0.1 charge was recorded in selling, general and administrative
expenses related to the headcount reduction of 17 employees at the
Company's Cedarapids facility.
During the third quarter of 2003, the Company recorded a severance charge of
$0.1 for future cash expenditures at its hydraulic crane production facility in
Waverly, Iowa. The Company has terminated six employees due to the integration
of the Terex-RO facility into Waverly. This charge has been recorded in cost of
goods sold.
All of the 2003 projects are expected to reduce annual operating costs by
approximately $15 in the aggregate when fully implemented.
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,
Oklahoma. 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.
F - 22
In the second quarter of 2002, the Company announced that its surface 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 mining trucks. Demand for mining trucks is
closely related to commodity prices, which have been declining in real terms
over recent years. Approximately $1.0 of this charge related 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 related 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.
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 transportation 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. This restructuring program reduced headcount by 137
positions and was completed as of June 30, 2003.
o The consolidation of several Terex Construction segment facilities in
the United Kingdom. The Company has consolidated several compact
equipment production facilities into a single location in Coventry,
England. The Company moved the production of mini-dumpers, rollers,
soil compactors and loader backhoes 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 has reduced total employment by 269 and was
substantially complete as of September 30, 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 during 2004.
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 deterioration in margins recognized in
F - 23
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 has reduced employment by 47 and was complete at September 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, 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
an additional $0.8 in 2003. The Company expects to pay the remaining
balance during the first half of 2004.
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.
During 2003, the Company recorded an additional $4.9 of charges ($2.4 recorded
in cost of goods sold and $2.5 in selling, general and administrative expenses)
relating to programs begun in 2002. These period charges primarily related to
facility closure costs, inventory write-downs, severance and the effect of
changes in foreign exchange and were consistent with the initial restructuring
plans established by the Company.
The following table sets forth the components and status of the restructuring
charges recorded in 2003 and 2002 that related to productivity and business
rationalization:
Employee Facility
Termination Asset Exit
Costs Disposals 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
Restructuring charges.......... 5.2 10.5 0.4 1.1 17.2
Cash expenditures.............. (14.8) (1.0) (0.6) (0.9) (17.3)
Non-cash write-offs............ --- (9.5) (0.8) (0.3) (10.6)
-------------- ----------- ------------- --------------- --------------
Accrued restructuring charges
at December 31, 2003......... $ 0.1 $ --- $ 1.4 $ 1.3 $ 2.8
============== ============ ============= =============== ==============
In aggregate, the restructuring charges described above incurred during 2003 and
2002 were included in cost of goods sold ($15.8 and $25.8) and selling, general
and administrative expenses ($1.4 and $11.5), respectively.
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 Demag and Genie in 2002.
F - 24
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
were reduced. As of June 30, 2003, 102 employees had ceased employment
with the Company. 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. This program was completed during the second
quarter of 2003.
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 were terminated as a
result of these actions. As of June 30, 2003, all of the employees had
ceased employment with the Company. The Company expects this program
to be completed by June 30, 2004.
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 completed the
sale of such inventory during the fourth quarter of 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.
During 2003, the Company recorded an additional $4.0 of charges related to
programs begun in 2002. These period charges primarily related to inventory
write-downs and plant and equipment disposals and were consistent with the
initial restructuring plans established by the Company.
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:
F - 25
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
Restructuring Charges............ --- 4.0 --- --- 4.0
Cash expenditures................ (4.1) --- --- (0.3) (4.4)
Non-cash write-offs.............. --- (4.0) --- --- (4.0)
-------------- ------------ ------------ --------------- -------------
Accrued restructuring charges at
December 31, 2003............. $ 1.0 $ --- $ 0.6 $ --- $ 1.6
============== ============ ============ =============== =============
The restructuring charges described above were included in cost of goods sold
($4.0 and $22.7) and selling, general and administrative expenses ($0.0 and
$2.0) in 2003 and 2002, respectively.
Asset Impairment
- ----------------
Given the poor performance of the Light Construction group in 2002 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, 2003, these
seven facilities have been closed.
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.
F - 26
The 2001 restructuring charges were included in cost of goods sold ($26.0) and
selling, general and administrative expenses ($3.9) in 2001.
NOTE G -- EARNINGS PER SHARE
(in millions, except per share data)
--------------------------------------------------------------------------------------------------
2003 2002 2001
------------------------------ ------------------------------ ---------------------------------
Per- Per- Per-
Share Share Share
Income Shares Amount Income Shares Amount Income Shares Amount
-------- -------- ------------ -------- -------- ------------ ---------- -------- ----------
Basic earnings per share
Income (loss) before
cumulative effect of
change in accounting
principle................ $(25.5) 47.7 $ (0.53) $(19.1) 43.2 $(0.44) $ 12.8 28.1 $ 0.46
Effect of dilutive securities
Stock Options.............. --- --- --- --- --- 0.7
Equity Rights.............. --- --- --- --- --- 0.1
-------- -------- -------- -------- ---------- --------
Income (loss) before
cumulative effect of change
in accounting principle..... $(25.5) 47.7 $ (0.53) $(19.1) 43.2 $(0.44) $ 12.8 28.9 $ 0.44
======== ======== ======== ======== ========== ========
Had the Company recognized income before cumulative effect of change in
accounting principle in 2003 and 2002, then the incremental shares attributable
to the assumed exercise of outstanding stock options, the effect of Common Stock
to be issued at December 31, 2003 and 2002 for the Company's contingent
obligation to make additional payments for the acquisition of Genie and the
effect of Common Stock held by the Company's deferred compensation plan would
have increased diluted shares outstanding by 0.9 million, 0.4 million and 0.6
million shares in 2003 and by 0.7 million, 0.2 million and 0.0 million shares in
2002, respectively.
Options to purchase 1,087 thousand, 956 thousand, and 738 thousand shares of
Common Stock were outstanding during 2003, 2002, 2001 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 319 thousand and 639 thousand shares for the years
ended December 31, 2003 and 2002, respectively, are not included in the
computation of diluted earnings per share.
NOTE H -- INVENTORIES
Inventories consist of the following:
December 31,
------------------------------
2003 2002
--------------- --------------
Finished equipment........................ $ 365.7 $ 437.2
Replacement parts......................... 251.3 225.0
Work-in-process........................... 187.4 225.5
Raw materials and supplies................ 205.3 218.6
--------------- --------------
Net inventories......................... $ 1,009.7 $ 1,106.3
=============== ==============
At December 31, 2003 and 2002, the Company had inventory reserves of $59.4 and
$36.7, respectively, for excess and obsolete inventory.
F - 27
NOTE I -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
December 31,
--------------------------------
2003 2002
-------------- -----------------
Property.................................... $ 51.9 $ 43.0
Plant....................................... 233.4 173.4
Equipment................................... 249.9 197.6
-------------- -----------------
535.2 414.0
Less: Accumulated depreciation............. (165.1) (104.6)
-------------- -----------------
Net property, plant and equipment......... $ 370.1 $ 309.4
============== =================
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 2003 and 2002, Genie contributed an
additional $0.8 and $0.6, respectively, 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, 2003, the joint venture's total assets were $161.4
and consisted primarily of financing receivables and lease related equipment;
total liabilities were $145.3 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, 2003 the maximum exposure to loss under these guarantees is
approximately $10. 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 46R, GFSH B.V. is a VIE. For entities created prior to
February 1, 2003, FIN 46R requires the application of its provisions effective
the first reporting period after March 15, 2004. Based on the legal and
operating structure of GFSH B.V., it is possible that the Company will be
required to consolidate the results of GFSH B.V. in its March 31, 2004 financial
statements. The Company is in the process of negotiating changes to the
ownership and operating structure of GFSH B.V. with its joint venture partner,
with the intended result that GFSH B.V. could continue to be accounted for under
the equity method; however, there can be no assurance that an agreement on these
terms will be reached.
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 net book value of
equipment subject to operating leases was approximately $126 and $140 at
December 31, 2003 and 2002, respectively, and are 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,
2004...................... $9.2
2005...................... 3.7
2006 ..................... 2.3
2007 ..................... 1.1
2008...................... 0.3
Thereafter................ 0.6
-------------
$17.2
=============
F - 28
The Company received approximately $14 and $5 of rental income from assets
subject to operating leases with lease terms greater than one year during 2003
and 2002, respectively, 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 $23.5 and $72.5 at
December 31, 2003 and 2002, respectively. 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, 2003, representing a contingent
liability under the limited recourse provisions.
During 2001, 2002 and 2003, 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 $43.8 credit risk and a $36.5 residual risk at December
31, 2003.
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, which are included in
Other Assets on the Company's consolidated Balance Sheet, consisted of the
following at December 31, 2003:
Gross minimum lease payments receivable ................... $ 29.4
Estimated residual values.................................. 18.9
Allowance for future losses................................ (3.3)
Unearned finance income.................................... (7.7)
----------------
Net investment in sales-type leases..................... 37.3
Less: Current portion..................................... (21.4)
----------------
Non-current net investment in sales-type leases......... $ 15.9
================
F - 29
Scheduled future gross minimum lease payments receivable are as follows:
Years ending December 31,
2004..................................$ 11.1
2005.................................. 10.3
2006.................................. 5.0
2007.................................. 2.3
2008.................................. 0.7
------------------
$ 29.4
==================
NOTE M -- LONG-TERM OBLIGATIONS
Long-term debt is summarized as follows:
December 31,
-----------------------------
2003 2002
--------------- -------------
7-3/8 % Senior Subordinated Notes due January 15, 2014................................. $ 297.3 $ ---
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
2002 Bank Credit Facility - term debt.................................................. 378.2 582.6
2002 Bank Credit Facility - revolving credit facility.................................. 35.1 55.3
Notes payable.......................................................................... 26.4 17.6
Capital lease obligations.............................................................. 19.4 15.9
Other.................................................................................. 105.2 143.6
--------------- -------------
Total long-term debt................................................................. 1,361.6 1,561.2
Less: Current portion of long-term debt.............................................. (86.8) (74.1)
--------------- -------------
Long-term debt, less current portion................................................. $ 1,274.8 $ 1,487.1
=============== =============
Certain prior year amounts in the table above have been reclassified to conform
with the current year's presentation.
The 7-3/8% Senior Subordinated Notes
- ------------------------------------
On November 25, 2003, the Company sold and issued $300 aggregate principal
amount of 7-3/8% Senior Subordinated Notes Due 2014 discounted to yield 7-1/2%
(the "7-3/8% Notes"). The 7-3/8% Notes are jointly and severally guaranteed by
certain domestic subsidiaries of the Company (see Note U - "Consolidating
Financial Statements"). The Company used the approximately $290 net proceeds
from the offering of the 7-3/8% Notes, together with approximately $119 of cash
on hand, to prepay approximately $200 of its existing term loans and to retire
$200 of aggregate principal of its 8-7/8% Senior Subordinated Notes due 2008
(the "8-7/8% Notes"). The Company recorded a charge of $10.9 to recognize a loss
on the payment of a premium and on the write-off of unamortized debt acquisition
costs and original issue discount for the early extinguishment of debt in
connection with the prepayment of such existing term loans and the 8-7/8% Notes,
partially offset by a gain on related interest rate hedges. The 7-3/8% 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"). The 7-3/8% Notes are redeemable by the Company beginning in January 2009
at an initial redemption price of 103.688% of principal amount.
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 $2.3 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. 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 9-1/4% Notes are redeemable by the Company beginning in January 2007 at
an initial redemption price of 104.625% of principal amount.
F - 30
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 $3.4 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. The 10-3/8% Notes are redeemable by the Company beginning in April 2006 at
an initial redemption price of 105.188% of principal amount.
The 8-7/8% Senior Subordinated Notes
- ------------------------------------
On March 9, 1999 and March 31, 1998, the Company sold and issued $100.0 and
$150.0 aggregate principal amount of the 8-7/8% Notes discounted to yield 9.73%
and 8.94%, respectively. The 8-7/8% Notes were 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. In June 2003, the Company retired $50.0 principal
amount of the 8-7/8% Notes and incurred a loss on the retirement of debt of
$1.9. In December 2003, the Company retired the remaining $200.0 principal
amount of the 8-7/8% Notes and incurred a loss on the retirement of debt of
$9.0.
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 provided 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. A loss for the write-off of unamortized debt
acquisition costs of $2.4 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.
On November 25, 2003, the Company entered into an amendment of its 2002 Bank
Credit Facility that permitted the redemption of the 8-7/8% Notes with proceeds
from the offering of the 7-3/8% Notes. The amendment, among other things, will
also permit the repurchase of $200 principal amount of the Company's 10-3/8%
Notes on or after April 1, 2006 and extended the period of time until the
maximum consolidated leverage ratio covenant and maximum senior secured debt
leverage ratio covenant adjust downward until later in 2004 and 2005,
respectively, in order to provide the Company greater flexibility. In connection
with this amendment and the issuance and sale of the 7-3/8% Notes, the Company
prepaid $200 of the term loans outstanding under the 2002 Bank Credit Facility.
As of December 31, 2003, the Company had $378.2 of term loans outstanding under
the 2002 Bank Credit Facility. Term loans under the 2002 Bank Credit Facility
bear interest 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, 2003 was 3.45%.
As of December 31, 2003, the Company had a balance of $35.1 outstanding under
the revolving credit component of the 2002 Bank Credit Facility, letters of
credit issued under the 2002 Bank Credit Facility totaled $47.3, and the
additional amount the Company could have borrowed under the revolving credit
component of the 2002 Bank Credit Facility was $217.8. The outstanding principal
amount of loans under the revolving credit portion of the 2002 Bank Credit
F - 31
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 4.40% at December 31,
2003.
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, 2003.
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
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 and 2001, the Company made principal prepayments of $152.9
and $246.0, 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,
2003, 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 and 2001, the Company made principal
prepayments of $65.0 and $142.4, 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
F - 32
do not decrease availability under the revolving credit component of the 2002
Bank Credit Facility. As of December 31, 2003, the Company has received
commitments to issue letters of credit under the Letter of Credit Facility of
$33.4, and at December 31, 2003, letters of credit issued under the Letter of
Credit Facility totaled $19.0.
Other
- -----
Included in Other is $8.9 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 7-3/8% Notes. See Note E - "Derivative
Financial Instruments."
Schedule of Debt Maturities
- ---------------------------
Scheduled annual maturities of long-term debt outstanding at December 31, 2003
in the successive five-year period are summarized below. Amounts shown are
exclusive of minimum lease payments disclosed in Note N -- "Lease Commitments":
2004................................... $ 79.2
2005................................... 25.4
2006................................... 7.7
2007................................... 40.5
2008................................... 89.9
Thereafter............................. 1,090.6
-------------
Total.............................. $ 1,333.3
=============
Total long-term debt at December 31, 2003 is $1,342.2. The $8.9 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 7-3/8% Notes. See Note
E - "Derivative Financial Instruments."
Based on quoted market values, the Company believes that the fair values of the
7-3/8% Notes, the 9-1/4% Notes and the 10-3/8% Notes were approximately $303,
$220 and $336, respectively as of December 31, 2003. 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 $103.6, $83.1 and $95.6 of interest in 2003, 2002 and 2001,
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 $10.7 and $8.7, net of accumulated amortization
of $6.3 and $9.6, at December 31, 2003 and 2002, respectively.
Future minimum capital and noncancelable operating lease payments and the
related present value of capital lease payments at December 31, 2003 are as
follows:
Capital Operating
Leases Leases
------------- -------------
2004............................................ $ 8.1 $ 63.5
2005............................................ 3.6 55.1
2006............................................ 3.2 46.7
2007............................................ 2.1 41.8
2008............................................ 1.4 34.7
Thereafter...................................... 2.5 157.5
-------------
-------------
Total minimum obligations .................. 20.9 $ 399.3
=============
Less amount representing interest............... (1.5)
-------------
Present value of net minimum obligations.... 19.4
Less current portion............................ (7.6)
-------------
Long-term obligations....................... $ 11.8
=============
F - 33
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 $55.6, $31.3 and $13.2 in 2003, 2002 and 2001
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,
-----------------------------------------
2003 2002 2001
------------- ------------- -------------
United States.................................................... $ (53.9) $ (27.4) $ 5.5
Foreign.......................................................... 18.6 (0.8) 13.4
------------- ------------- -------------
Income (loss) from continuing operations before income taxes
and extraordinary items...................................... $ (35.3) $ (28.2) $ 18.9
============= ============= =============
The major components of the Company's (benefit from) provision for income taxes
are summarized below:
Year ended December 31,
-----------------------------------------
2003 2002 2001
------------- ------------- -------------
Current:
Federal........................................................ $ --- $ (4.7) $ 4.3
State.......................................................... 0.8 0.6 1.3
Foreign........................................................ 21.2 19.6 8.9
------------- ------------- -------------
Current income tax provision............................... 22.0 15.5 14.5
------------- ------------- -------------
Deferred:
Federal........................................................ (17.7) (10.9) (6.0)
State.......................................................... (0.3) (2.4) 1.6
Foreign........................................................ (13.8) (11.3) (4.0)
------------- ------------- -------------
Deferred income tax provision (31.8) (24.6) (8.4)
------------- ------------- -------------
Total (benefit from) provision for income taxes......... $ (9.8) $ (9.1) $ 6.1
============= ============= =============
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,
2003 and 2002 are summarized below for major balance sheet captions:
2003 2002
------------- -------------
Fixed assets............................... $ (63.5) $ (46.0)
Intangibles................................ --- (14.1)
Other...................................... (10.9) ---
------------- -------------
Total deferred tax liabilities........ (74.4) (60.1)
------------- -------------
Receivables................................ 5.8 5.2
Net inventories............................ 22.0 7.6
Fixed assets............................... --- ---
Workers' compensation...................... 2.3 2.0
Warranties and product liability........... 20.3 15.9
Net operating loss carryforwards........... 282.1 247.1
Pension.................................... 22.6 22.9
Equipment lease revenue.................... 54.1 32.5
Other...................................... 45.0 8.2
------------- -------------
Total deferred tax assets............. 454.2 341.4
------------- -------------
Deferred tax assets valuation allowance.... (161.4) (141.0)
------------- -------------
Net deferred tax assets............... $ 218.4 $ 140.3
============= =============
F - 34
Deferred tax liabilities are included in current liabilities and non-current
liabilities on the consolidated balance sheet. The current portion is $10.9 and
the non-current portion is $63.5. The valuation allowance for deferred tax
assets as of January 1, 2002 was $56.2. The net change in the total valuation
allowance for the years ended December 31, 2003 and 2002 were increases of $20.4
and $84.8, respectively. The increase in valuation allowance for the years ended
December 31, 2003 and 2002 were primarily due to an increase in foreign net
operating loss carryforwards, for which the Company has provided a valuation
allowance. Approximately $101.8 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.
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,
------------------------------------------
2003 2002 2001
-------------- ------------- -------------
Tax at statutory federal income tax rate.......................... $ (12.3) $ (9.9) $ 6.6
State taxes....................................................... (0.1) (1.8) 1.5
Change in valuation allowance relating to NOL and temporary
differences.................................................... (6.4) 6.0 (6.3)
Foreign tax differential on income/losses of foreign subsidiaries. (1.8) --- 3.8
Non-deductible goodwill charges................................... 9.6 --- 0.4
Federal tax credits............................................... --- (1.3) ---
Other............................................................. 1.2 (2.1) 0.1
-------------- ------------- -------------
Total (benefit) provision for income taxes................... $ (9.8) $ (9.1) $ 6.1
============== ============= =============
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, 2003, the Company had domestic federal net operating loss
carryforwards of $332.0. 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
2011-2019............................ 3.6
2020................................. 22.3
2021................................. 92.4
2022................................. 25.6
2023................................. 31.4
----------------
Total............................ $ 332.0
================
F - 35
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 available to
reduce future state taxable income and income taxes. These net operating loss
carryforwards expire at various dates beginning in 2004 through 2023. In
addition, the Company's foreign subsidiaries have approximately $645.8 of loss
carryforwards, $163.5 in the United Kingdom, $64.2 in France, $379.8 in Germany
and $38.3 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 $8.5, $14.2 and $14.8 in 2003, 2002 and
2001, respectively.
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 0.9
million shares of Common Stock in connection with the acquisitions of Commercial
Body, Tatra and Genie during 2003 and the Company issued 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, 2003, there were 50.0 million shares of Common Stock issued and
48.8 million shares of Common Stock outstanding. Of the 101.2 million unissued
shares of Common Stock at that date, 3.2 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. The Company values treasury stock on an average cost
basis. 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, 2003, 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, 2003, 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, 2003, 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. During 2002
and 2001, holders exercised 44.8 thousand and 72.0 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, 2003, there were no Equity
Rights outstanding, as all Equity Rights were either exercised or expired.
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, 2003, 655 thousand
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 - 36
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, 2003, 195 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, 2003, 10 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, 2003, since grants under the 1988 Plan could only be made within ten years
of the date of the 1988 Plan's adoption.
Substantially all stock option grants under the 2000 Plan, the 1996 Plan, the
1994 Plan and the 1988 Plan vest over a four year period, with 25% of each grant
vesting on each of the first four anniversary dates of the grant.
The following table is a summary of stock options under all of the Company's
plans.
Weighted
Number of Average Exercise Price
Options per Share
------------- ------------------------
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
Granted............................... 726,773 $ 12.30
Exercised............................. (201,975) $ 15.33
Canceled or expired................... (272,578) $ 22.28
-------------
Outstanding at December 31, 2003......... 2,540,490 $ 17.41
============= ========================
Exercisable at December 31, 2003......... 1,059,721 $ 18.96
============= ========================
Exercisable at December 31, 2002......... 969,281 $ 19.56
============= ========================
Exercisable at December 31, 2001......... 761,688 $ 18.52
============= ========================
F - 37
The following table summarizes information about stock options outstanding and
exercisable at December 31, 2003:
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 42,587 1.9 $ 4.37 42,587 $ 4.37
$ 6.01 - $ 10.00 6,900 2.3 $ 6.75 6,900 $ 6.75
$ 10.01 - $ 15.00 845,108 7.7 $ 11.81 219,420 $ 13.03
$ 15.01 - $ 20.00 752,341 6.9 $ 16.90 350,091 $ 16.83
$ 20.01 - $ 25.00 629,700 7.6 $ 22.37 199,950 $ 22.39
$ 25.01 - $ 30.00 258,131 4.0 $ 27.13 235,050 $ 27.28
$ 30.01 - $ 42.58 5,723 0.7 $ 39.18 5,723 $ 39.18
------------- ----------------
2,540,490 7.0 $ 17.41 1,059,721 $ 18.96
============= ================
Comprehensive Income (Loss). 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, 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)
Current year change............. 1.3 104.9 4.4 110.6
----------------- -------------- ----------------- --------------------
Balance at December 31, 2003....$ (29.1) $ 79.6 $ 6.5 $ 57.0
================= ============== ================= ====================
NOTE Q -- RETIREMENT PLANS AND OTHER BENEFITS
Pension Plans
- -------------
US Plans - As of December 31, 2003, 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,
2003 and 2002, the Terex Plans held 0.2 million shares of the Company's Common
Stock, with market values of $5.7 and $2.2, 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 - 38
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 Company uses a December 31 measurement date for its U.S. plans. The
liability of the Company's U.S. plans, including the SERP, as of December 31,
was as follows:
Pension Benefits Other Benefits
--------------------------- ---------------------------
2003 2002 2003 2002
Change in benefit obligation:
Benefit obligation at beginning of year $ 109.4 $ 99.1 $ 9.0 $ 6.7
Service cost.......................... 1.4 0.5 0.1 0.1
Interest cost......................... 7.3 7.1 0.7 0.6
Impact of plan amendments............. --- 3.5 --- ---
Actuarial (gain) loss................. 11.9 6.5 2.5 2.5
Benefits paid......................... (7.4) (7.3) (1.1) (0.9)
------------- ------------- ------------- -------------
Benefit obligation end of year.......... 122.6 109.4 11.2 9.0
------------- ------------- ------------- -------------
Change in plan assets:
Fair value of plan assets at beginning
of year.............................. 86.0 97.6 --- ---
Actual return on plan assets.......... 16.3 (6.6) --- ---
Employer contribution................. 1.3 2.3 1.1 0.9
Benefits paid......................... (7.4) (7.3) (1.1) (0.9)
------------- ------------- ------------- -------------
Fair value of plan assets at end of year 96.2 86.0 --- ---
------------- ------------- ------------- -------------
Funded status........................... (26.4) (23.4) (11.2) (9.0)
Unrecognized actuarial (gain) loss..... 48.0 49.4 3.7 1.4
Unrecognized prior service cost......... 7.4 7.0 0.8 0.9
Unrecognized transition obligation...... --- --- 0.3 0.6
------------- ------------- ------------- -------------
Net amount recognized................... $ 29.0 $ 33.0 $ (6.4) $ (6.1)
============= ============= ============= =============
Amounts recognized in the Consolidated
Balance Sheet consist of:
Accrued benefit liability............ $ (18.0) $ (16.1) $ (6.4) $ (6.1)
Accumulated other comprehensive
income (loss)....................... 47.0 49.1 --- ---
------------- ------------- ------------- -------------
Net amount recognized................... $ 29.0 $ 33.0 $ (6.4) $ (6.1)
============= ============= ============= =============
Pension Benefits Other Benefits
-------------------------------------------------------
2003 2002 2003 2002
------------- ------------- ------------- -------------
Weighted-average assumptions as of
December 31:
Discount rate........................ 6.00% 6.75% 6.00% 6.75%
Expected return on plan assets....... 8.00% 8.00% --- ---
Rate of compensation increase........ 4.00% 5.00% --- ---
F - 39
Pension Benefits Other Benefits
--------------------------------------- -------------------------------------
2003 2002 2001 2003 2002 2001
------------ ------------ ----------- ------------ ------------ ---------
Components of net periodic cost:
Service cost.......................... $ 1.4 $ 0.5 $ 0.7 $ 0.1 $ 0.1 $ 0.2
Interest cost......................... 7.3 7.1 7.1 0.7 0.6 0.5
Expected return on plan assets........ (6.6) (8.6) (9.0) --- --- ---
Amortization of prior service cost.... 0.7 0.4 0.4 0.4 0.1 0.1
Amortization of transition obligation. --- --- --- --- 0.3 0.3
Recognized actuarial (gain) loss...... 2.5 1.0 0.5 0.2 --- (0.2)
------------ ------------ ----------- ------------ ------------ ---------
Net periodic cost (benefit)............. $ 5.3 $ 0.4 $ (0.3) $ 1.4 $ 1.1 $ 0.9
============ ============ =========== ============ ============ =========
The projected benefit obligation, accumulated benefit obligation, and fair value
of plan assets for the U.S. pension plans, including the SERP, with accumulated
benefit obligations in excess of plan assets were $122.6, $120.8 and $96.2,
respectively, as of December 31, 2003, and $109.4, $107.9 and $86.0,
respectively, as of December 31, 2002.
Consistent with the Company's investment strategy, the rate used for the
expected return on plan assets is based on a number of different factors. Both
the historical and prospective long-term expected asset performances are
considered in determining the rate of return. While the Company examines
performance and future expectations annually, it also views historic asset
portfolios and performance over a long period of years before recommending a
change. In the short term there will be positive and negative yields which are
recognized as gains or losses. These fluctuations versus the expected return are
expected to average to zero over the long term.
At December 31, 2003 and 2002, the Terex Plans held the Company's Common Stock.
These shares represented 6.0% and 2.7%, respectively, of the Terex Plans'
assets. The asset allocation, excluding the Company's Common Stock, for the
Company's U.S. defined benefit pension plans at December 31, 2003, 2002 and
target allocation for 2004 are as follows:
Percentage of Plan Assets
at December 31, Target Allocation
---------------------------- --------------------
2003 2002 2004
------------- ------------- --------------------
Equity Securities, excluding Terex Common Stock 42.0% 39.1% 32.0% - 48.0%
Fixed Income............................ 58.0% 60.9% 54.0% - 66.0%
------------- -------------
Total, excluding Terex Common Stock.. 100.0% 100.0%
============= =============
The Company plans to contribute approximately $3 to its U.S. defined benefit
pension plans in 2004. The Company's estimated future benefit payments under our
U.S. defined benefit pension plans are as follows:
Year Ending December 31,
-----------------------------
2004......................$ 7.2
2005......................$ 7.3
2006......................$ 7.5
2007......................$ 7.8
2008......................$ 8.0
2009-2013.................$ 44.0
F - 40
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 6.47 percent
annual rate of increase in the per capita cost of covered health care benefits
was assumed for 2003. 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 components 6.39% (4.35)%
Effect on postretirement benefit obligation 5.63% (3.59)%
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.
PPM SAS maintains an unfunded noncontributory defined benefit plan covering
substantially all of 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.
The Company uses a December 31 measurement date for its international plans. The
liability of the Company's international plans as of December 31, was as
follows:
Pension Benefits
----------------------------
2003 2002
------------- --------------
Change in benefit obligation:
Benefit obligation at beginning of year.................$ 171.5 $ 123.7
Benefit obligation of plans acquired during the year.... --- 21.8
Service cost............................................ 4.6 4.2
Interest cost........................................... 10.5 7.9
Actuarial (gain) loss................................... 0.3 ---
Benefits paid........................................... (8.2) (6.5)
Foreign exchange effect................................. 28.4 20.4
------------- --------------
Benefit obligation end of year............................ 207.1 171.5
------------- --------------
Change in plan assets:
Fair value of plan assets at beginning of year.......... 49.6 53.1
Actual return on plan assets............................ 8.8 (7.8)
Employer contribution................................... 8.0 5.7
Benefits paid........................................... (8.2) (6.5)
Foreign exchange effect................................. 6.3 5.1
------------- --------------
Fair value of plan assets at end of year.................. 64.5 49.6
------------- --------------
Funded status............................................. (142.6) (121.9)
Unrecognized actuarial (gain) loss....................... 49.9 33.4
Unrecognized transition obligation........................ (0.1) (0.1)
------------- --------------
Net amount recognized.....................................$ (92.8) $ (88.6)
============= ==============
Amounts recognized in the Consolidated Balance Sheet
consist of:
Prepaid benefit cost...................................$ --- $ 0.6
Accrued benefit liability.............................. (92.8) (89.2)
----------------------------
Net amount recognized.....................................$ (92.8) $ (88.6)
============================
F - 41
Pension Benefits
--------------------------------
2003 2002
--------------- ----------------
The range of assumptions as of December 31:
Discount rate........................ 5.50%-6.00% 5.75%-6.00%
Expected return on plan assets....... 2.00%-7.00% 2.00%-7.00%
Rate of compensation increase........ 2.75%-4.00% 3.75%-4.25%
Pension Benefits
-----------------------------------
2003 2002 2001
----------- ----------- ----------
Components of net periodic cost:
Service cost.......................... $ 4.6 $ 4.2 $ 2.4
Interest cost......................... 10.5 7.9 3.2
Expected return on plan assets........ (3.8) (3.6) (3.7)
Curtailment (gain) loss............... 0.3 --- ---
Recognized actuarial (gain) loss...... 0.5 0.2 ---
------------ ----------- ----------
Net periodic cost....................... $ 12.1 $ 8.7 $ 1.9
============ =========== ==========
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 $207.1, $196.4 and $64.5, respectively, as of
December 31, 2003, and $170.6, $160.8 and $48.1, respectively, as of December
31, 2002.
Savings Plans
- -------------
The Company maintains a deferred compensation plan (the "Deferred Compensation
Plan") for participating employees that, prior to January 1, 2004, permitted
participants to transfer funds between investment options, one of which is an
option to invest in shares of the Company's Common Stock. It has been the
practice of the Deferred Compensation Plan to purchase shares of the Company's
Common Stock on an ongoing basis as participants contribute to the Company's
Common Stock fund, in order to eliminate the risk associated with fluctuations
in the price of the Company's Common Stock.
Due to the ability of the Deferred Compensation Plan participants to transfer
their investments between the Deferred Compensation Plan investment options, the
Company has recorded obligations to the Deferred Compensation Plan participants
invested in the Company's Common Stock at the fair value of the Company's Common
Stock (without making a corresponding adjustment for any change in value of the
shares of the Company's Common Stock held by the Deferred Compensation Plan).
Effective January 1, 2004, the Deferred Compensation Plan has been revised to
prohibit transfers between investment options, thereby eliminating the need for
future adjustments based on the changes in fair value of the Company's Common
Stock.
In addition to the Company's Deferred Compensation Plan, 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. The Company's obligation to
participants in the Deferred Compensation Plan who are invested in the Company's
common stock has been offset by the shares held by the Deferred Compensation
Plan for such purposes and are not separately presented as components of
Stockholders' Equity.
Charges recognized for the Deferred Compensation Plan and these other savings
plans were $13.3, $4.2, and $2.8 for the years ended December 31, 2003, 2002 and
2001 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
F - 42
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. Management does not believe that the final outcome of such
matters will have a material adverse effect on the Company's consolidated
financial position.
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 $76.2 at December 31, 2003.
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 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 alleged that the Company was 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 were claiming
restitution of a 25% interest in O&K Mining GmbH and monetary damages. On June
12, 2002, the United States Department of Justice filed a Statement of Interest
in the action that expressed 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. On April 21, 2003, the
plaintiffs voluntarily dismissed the action against the Company.
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 and an additional $2.4 during 2003.
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, 2003, the Company's maximum exposure to such credit
guarantees is $328.2, including total guarantees issued by Demag and Genie of
$216.4 and $58.8, 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 $36.5 at December 31, 2003. 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.
F - 43
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, 2003, the Company's maximum exposure pursuant to
buyback guarantees is $45.7. 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 and $2.4 for legal fees and expenses in 2002 and
2001, 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
continued in effect following the acquisition. The buildings are used for office
and production purposes, and the land is used for a parking lot. In November
2003, the partnership in which Mr. Wilkerson is a partner sold the properties to
an unrelated third party. During 2003 and 2002, the Company paid a total of
approximately $1.9 and $0.5, respectively, under these leases. These leases were
based on the then-current market rates in effect at the time the leases were
executed.
On November 13, 2003, the Company entered into an agreement with FIVER S.A.
("FIVER"), an entity affiliated with Fil Filipov, the President of the Company's
Terex Cranes segment until his retirement from the Company effective January 1,
2004. Pursuant to this agreement, FIVER provides consulting services to Terex as
assigned by the Chief Executive Officer of Terex, including an initial
assignment to assist with the operations of Tatra. The term of the agreement is
for three years commencing January 1, 2004, with an initial base consulting fee
of $0.5 per year, subject to adjustment based on usage of FIVER's services and
FIVER's performance (determined at the discretion of the Company), plus
reimbursement of certain expenses.
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.
F - 44
NOTE T-- BUSINESS SEGMENT INFORMATION
Terex is a diversified global manufacturer of a broad range of equipment
primarily 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. On July 1, 2003, the Company announced an agreement in principle to
sell its worldwide electric drive mining truck business, and ceased reporting
Terex Mining as a separate financial reporting segment. On December 10, 2003,
Terex terminated the negotiation for the sale of the electric drive mining truck
business, and has reinstated reporting of the Terex Mining 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). 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 products are currently marketed principally under the
following brand names: Terex, Atlas, Finlay, Fuchs, Pegson, Powerscreen,
Benford, Fermec, Terex Handlers, Schaeff, and TerexLift. The Company's strategy
going forward is to build the Terex brand. As part of that effort, Terex will,
over time, be migrating historic brand names to Terex and may include the use of
the historic brand name in conjunction with the Terex brand for a transitional
period of time.
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. These products are used primarily for construction, repair
and maintenance of infrastructure, building and manufacturing facilities.
Currently, Terex Cranes products are marketed principally under the following
brand names: Terex, American, Bendini, Comedil, Demag, Franna, Lorain, P&H,
Peiner, PPM and RO-Stinger. The Company's strategy going forward is to build the
Terex brand. As part of that effort, Terex will, over time, be migrating
historic brand names to Terex and may include the use of the historic brand name
in conjunction with the Terex brand for a transitional period of time.
The Terex Roadbuilding, Utility Products and Other segment designs, manufactures
and markets fixed installation 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), construction trailers and on/off road heavy-duty
vehicles, as well as related components and replacement parts. These products
are used primarily by government, utility and construction customers to build
roads, maintain utility lines, trim trees and for commercial and military
applications. These products are currently marketed principally under the
following brand names: Terex, Advance, American Truck Company, Amida, ATC,
Bartell, Benford, Bid-Well, Canica, Cedarapids, Cedarapids/Standard Havens, CMI
Johnson Ross, CMI Terex, CMI-Cifali, Grayhound, Hi-Ranger, Jaques, Load King,
Morrison, Re-Tech, Royer, Simplicity, Tatra, Terex Power, Terex Recycling and
Terex Telelect. The Company's strategy going forward is to build the Terex
brand. As part of that effort, Terex will, over time, be migrating historic
brand names to Terex and may include the use of the historic brand name in
conjunction with the Terex brand for a transitional period of time. Terex also
owns much of the North American distribution channel for the utility products
group through the distributors Terex Utilities South and Terex Utilities West.
These operations distribute and install the Company's utility aerial devices as
well as other products that service the utility industry. The Company also
operates a fleet of rental utility products under the name of Terex Utilities
Rental. The Company also leases and rents a variety of heavy equipment to third
parties under the Terex Re-Rentals brand name. The Company, through, Terex
Financial Services, Inc. also offers customers loans and leases originated by
General Electric Capital Corporation Vendor Financial Services to assist in the
acquisition of the Company's products.
F - 45
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 and telehandlers. Products include material lifts, portable
aerial work platforms, trailer mounted booms, articulating booms, stick booms,
scissor lifts, telehandlers, related components and replacement parts, and other
products. 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 products currently are marketed principally under the Genie and Terex
brand names.
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. These products are used primarily used by
construction, mining, quarrying and government customers in construction,
excavation and supplying coal and minerals. Currently, Terex Mining products are
marketed principally under the following brand names: O&K, Payhauler, Terex and
Unit Rig. The Company's strategy going forward is to build the Terex brand. As
part of that effort, Terex will, over time, be migrating historic brand names to
Terex and may include the use of the historic brand name in conjunction with the
Terex brand for a transitional period of time.
On April 1, 2003 the Company changed the composition of its segments when it
moved the North American operations of its telehandlers business from the Terex
Construction segment to the Terex Aerial Work Platforms segment due to a change
in the way the Company's operating decision makers view the business. The
results by segment have been reclassified within the two segments to reflect
this change in the Company's segments.
The results of businesses acquired during 2003, 2002 and 2001 are included from
the dates of their respective acquisitions.
F - 46
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,
------------------------------------------
2003 2002 2001
----------- ------------ --------------
Sales
Terex Construction................................. $ 1,359.5 $ 1,174.5 $ 702.1
Terex Cranes....................................... 1,005.1 717.9 492.5
Terex Roadbuilding, Utility Products and Other..... 711.9 562.4 365.5
Terex Aerial Work Platforms........................ 583.6 149.4 37.0
Terex Mining....................................... 294.5 282.8 266.2
Eliminations/Corporate............................. (57.5) (89.6) (50.8)
----------- ------------ --------------
Total............................................ $ 3,897.1 $ 2,797.4 $ 1,812.5
=========== ============ ==============
Income (Loss) from Operations
Terex Construction................................. $ 54.3 $ 57.0 $ 48.7
Terex Cranes....................................... 15.9 2.0 12.3
Terex Roadbuilding, Utility Products and Other..... (62.2) 18.4 26.0
Terex Aerial Work Platforms........................ 67.8 4.2 0.7
Terex Mining....................................... 14.4 (4.4) 14.5
Eliminations/Corporate............................. (16.7) (8.6) 2.0
----------- ------------ --------------
Total............................................ $ 73.5 $ 68.6 $ 104.2
=========== ============ ==============
Depreciation and Amortization
Terex Construction................................. $ 18.6 $ 13.6 $ 11.6
Terex Cranes....................................... 10.2 6.0 9.0
Terex Roadbuilding, Utility Products and Other..... 10.7 11.1 9.8
Terex Aerial Work Platforms........................ 23.4 7.3 0.3
Terex Mining....................................... 1.6 1.7 5.3
Corporate.......................................... 5.9 5.3 4.3
----------- ------------ --------------
Total............................................ $ 70.4 $ 45.0 $ 40.3
=========== ============ ==============
Amortization of Goodwill
Terex Construction................................. $ --- $ --- $ 5.0
Terex Cranes....................................... --- --- 2.1
Terex Roadbuilding, Utility Products and Other..... --- --- 4.1
Terex Aerial Work Platforms........................ --- --- 0.1
Terex Mining....................................... --- --- 2.9
Corporate.......................................... --- --- ---
----------- ------------ --------------
Total............................................ $ --- $ --- $ 14.2
=========== ============ ==============
Capital Expenditures
Terex Construction................................. $ 14.1 $ 12.9 $ 4.8
Terex Cranes....................................... 4.0 5.9 3.8
Terex Roadbuilding, Utility Products and Other..... 5.4 5.3 4.3
Terex Aerial Work Platforms........................ 2.1 2.7 ---
Terex Mining....................................... 1.0 0.8 0.5
Corporate.......................................... 0.5 1.6 0.1
----------- ------------ --------------
Total............................................ $ 27.1 $ 29.2 $ 13.5
=========== ============ ==============
F - 47
December 31,
------------------------------------------
2003 2002 2001
------------- ------------ ---------------
Identifiable Assets
Terex Construction................................. $ 1,394.1 $ 1,326.6 $ 996.1
Terex Cranes....................................... 890.4 937.9 457.4
Terex Roadbuilding, Utility Products and Other..... 641.2 602.7 533.8
Terex Aerial Work Platforms........................ 456.4 469.9 13.5
Terex Mining....................................... 443.0 330.4 386.0
Corporate.......................................... 1,971.7 1,895.8 825.2
Eliminations....................................... (2,073.0) (1,937.6) (825.0)
------------- ------------ ---------------
Total............................................ $ 3,723.8 $ 3,625.7 $ 2,387.0
============= ============ ===============
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,
------------------------------------------
2003 2002 2001
------------ ------------- ---------------
Sales
United States.................. $ 1,519.8 $ 1,146.5 $ 873.7
United Kingdom................. 433.6 323.5 216.6
Germany........................ 343.5 284.2 51.2
Other European countries....... 965.8 541.1 331.5
All other...................... 634.4 502.1 339.5
------------ ------------- ---------------
Total........................ $ 3,897.1 $ 2,797.4 $ 1,812.5
============ ============= ===============
December 31,
------------ -----------------------------
2003 2002 2001
------------ ------------- ---------------
Long-lived Assets
United States.................. $ 106.5 $ 140.7 $ 77.1
United Kingdom................. 38.9 32.9 52.6
Germany........................ 143.4 120.6 21.7
Other European Countries....... 75.8 10.4 17.1
All other...................... 5.5 4.8 5.4
------------ ------------- ---------------
Total........................ $ 370.1 $ 309.4 $ 173.9
============ ============= ===============
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 November 25, 2003, the Company sold and issued $300 aggregate principal
amount of the 7-3/8% Notes. 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, 2003, the 7-3/8% Notes, the 10-3/8% Notes and the 9-1/4% Notes were each
F - 48
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 Incorporated, Fuchs Terex, Inc., Utility Equipment, Inc., Terex
Advance Mixer, Inc., Terex Utilities, Inc., Terex Utilities South, Inc.,
Spinnaker Insurance Company, Terex Financial Services, Inc., Genie Holdings,
Inc., Genie Access Services, Inc., Genie Industries, Inc., Genie Financial
Services, Inc., GFS National, Inc., Genie Manufacturing, Inc., Genie China,
Inc., Genie International, Inc., Lease Servicing & Funding Corporation, GFS
Commercial LLC, and Go Credit Corporation. As of December 31, 2003, the 7-3/8%
Notes, the 10-3/8% Notes and the 9-1/4% 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 2003 and 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 7-3/8% Notes, the 10-3/8% Notes and 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 7-3/8%
Notes, 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 - 49
TEREX CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2003
(in millions)
Wholly- Non-
Terex owned guarantor Intercompany
Corporation Guarantors Subsidiaries Eliminations Consolidated
------------- ------------- ------------- ------------- -------------
Net sales...............................$ 295.9 $ 1,346.1 $ 2,479.8 $ (224.7) $ 3,897.1
Cost of goods sold.................... 275.5 1,188.1 2,139.7 (224.7) 3,378.6
------------- ------------- ------------- ------------- -------------
Gross profit............................ 20.4 158.0 340.1 --- 518.5
Selling, general & administrative
expenses................................ (32.9) (130.7) (230.1) --- (393.7)
Goodwill impairment................... --- (51.3) --- --- (51.3)
------------- ------------- ------------- ------------- -------------
Income (loss) from operations........... (12.5) (24.0) 110.0 --- 73.5
Interest income....................... 1.2 3.7 2.2 --- 7.1
Interest expense...................... (32.1) (24.3) (43.5) --- (99.9)
Income (loss) from equity investees... 36.6 --- --- (36.6) ---
Other income (expense) - net.......... (15.1) 4.7 (5.6) --- (16.0)
------------- ------------- ------------- ------------- -------------
Income (loss) before income taxes and
cumulative effect of change in
accounting principle.................. (21.9) (39.9) 63.1 (36.6) (35.3)
Benefit from (provision for) income
taxes................................... (3.6) (3.7) 17.1 --- 9.8
------------- ------------- ------------- ------------- -------------
Income (loss) before cumulative effect
of change in accounting principle.... (25.5) (43.6) 80.2 (36.6) (25.5)
Cumulative effect of change in
accounting principle.................. --- --- --- --- ---
------------- ------------- ------------- ------------- -------------
Net income (loss).......................$ (25.5) $ (43.6) $ 80.2 $ (36.6) $ (25.5)
============= ============= ============= ============= =============
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
expenses................................ (28.7) (95.6) (163.8) --- (288.1)
Goodwill impairment................... --- --- --- --- ---
------------- ------------- ------------- ------------- -------------
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 ---
Other income (expense) - net.......... (21.8) (18.0) 28.4 --- (11.4)
------------- ------------- ------------- ------------- -------------
Income (loss) before income taxes and
extraordinary items................... (154.6) (36.7) 87.3 75.8 (28.2)
Benefit from (provision for) income
taxes................................... 22.1 (0.3) (12.7) --- 9.1
------------- ------------- ------------- ------------- -------------
Income (loss) before cumulative effect (132.5) (37.0) 74.6 75.8 (19.1)
of change in accounting principle....
Cumulative effect of change in
accounting principle ................. --- (18.4) (95.0) --- (113.4)
------------- ------------- ------------- ------------- -------------
Net income (loss).......................$ (132.5) $ (55.4) $ (20.4) $ 75.8 $ (132.5)
============= ============= ============= ============= =============
F - 50
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)
Goodwill impairment................... --- --- --- --- --- ---
------------- ------------- ------------- ------------- ------------- --------------
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) ---
Other income (expense) - net.......... (0.8) (5.2) (0.1) (0.2) --- (6.3)
------------- ------------- ------------- ------------- ------------- --------------
Income (loss) before income taxes and
extraordinary items................... 5.2 30.1 (9.6) 37.4 (44.2) 18.9
Benefit from (provision for) income
taxes................................... 7.6 (0.6) --- (13.1) --- (6.1)
------------- ------------- ------------- ------------- ------------- --------------
Income (loss) before cumulative effect
of change in accounting principle..... 12.8 29.5 (9.6) 24.3 (44.2) 12.8
Cumulative effect of change in
accounting principle................ --- --- --- --- --- ---
------------- ------------- ------------- ------------- ------------- --------------
Net income (loss).......................$ 12.8 $ 29.5 $ (9.6) $ 24.3 $ (44.2) $ 12.8
============= ============= ============= ============= ============= ==============
F - 51
TEREX CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2003
(in millions)
Wholly- Non-
Terex Owned Guarantor Intercompany
Corporation Guarantors Subsidiaries Eliminations Consolidated
------------- ------------- ------------- ------------- -------------
Assets
Current assets
Cash and cash equivalents..........$ 148.7 $ 2.9 $ 315.9 $ --- $ 467.5
Trade receivables - net............ 32.1 119.9 388.2 --- 540.2
Intercompany receivables........... 11.7 14.0 18.0 (43.7) ---
Net inventories.................... 81.8 250.2 659.3 18.4 1,009.7
Current deferred tax assets........ 50.0 0.7 3.2 --- 53.9
Other current assets............... 17.1 25.2 80.4 --- 122.7
------------- ------------- ------------- ------------- -------------
Total current assets............. 341.4 412.9 1,465.0 (25.3) 2,194.0
Property, plant & equipment - net.... 7.3 101.6 261.2 --- 370.1
Investment in and advances to
(from) subsidiaries.............. 859.3 (209.4) (464.8) (185.1) ---
Goodwill - net....................... (9.8) 244.5 368.8 --- 603.5
Deferred taxes....................... 118.6 82.3 38.0 --- 238.9
Other assets - net................... 5.0 140.2 172.1 --- 317.3
------------- ------------- ------------- ------------- -------------
Total assets............................$ 1,321.8 $ 772.1 $ 1,840.3 $ (210.4) $ 3,723.8
============= ============= ============= ============= =============
Liabilities and stockholders' equity (deficit)
Current liabilities
Notes payable and current portion
of long-term debt................$ 0.1 $ 35.6 $ 51.1 $ --- $ 86.8
Trade accounts payable............. 31.3 124.2 453.1 --- 608.6
Intercompany payables.............. 20.6 21.3 1.8 (43.7) ---
Accruals and other current
liabilities...................... 42.8 101.8 319.4 --- 464.0
------------- ------------- ------------- ------------- -------------
Total current liabilities........ 94.8 282.9 825.4 (43.7) 1,159.4
Long-term debt less current portion.. 272.1 404.8 597.9 --- 1,274.8
Other long-term liabilities.......... 78.2 99.1 235.6 --- 412.9
Stockholders' equity (deficit)....... 876.7 (14.7) 181.4 (166.7) 876.7
------------- ------------- ------------- ------------- -------------
Total liabilities and stockholders'
equity (deficit).....................$ 1,321.8 $ 772.1 $ 1,840.3 $ (210.4) $ 3,723.8
============= ============= ============= ============= =============
F - 52
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 - 53
TEREX CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2003
(in millions)
Wholly- Non-
Terex owned guarantor Intercompany
Corporation Guarantors Subsidiaries Eliminations Consolidated
------------- ------------- --------------- --------------------------------
Net cash provided by (used in)
operating activities ................ $ 23.0 $ (0.4) $ 361.5 $ --- $ 384.1
------------- ------------- --------------- ---------------- -------------
Cash flows from investing activities:
Acquisition of business, net of cash
acquired............................. --- (7.9) 0.2 --- (7.7)
Capital expenditures.................. (0.9) (6.4) (19.8) --- (27.1)
Proceeds from sale of assets.......... --- 1.6 4.5 --- 6.1
------------- ------------- --------------- ---------------- -------------
Net cash provided by (used in)
investing activities............... (0.9) (12.7) (15.1) --- (28.7)
------------- ------------- --------------- ---------------- -------------
Cash flows from financing activities:
Proceeds from issuance of long-term
debt, net of issuance costs.......... 49.3 46.5 194.6 --- 290.4
Principal repayments of long-term debt (53.0) (15.6) (385.9) --- (454.5)
Net borrowings (repayments) under
revolving line of credit agreements.. --- (1.7) (63.3) --- (65.0)
Payment of premium on early
retirement of debt................... (3.7) (1.4) (6.0) --- (11.1)
Other................................. --- (18.0) (11.4) --- (29.4)
------------- ------------- --------------- ---------------- -------------
Net cash provided by (used in)
financing activities............... (7.4) 9.8 (272.0) --- (269.6)
------------- ------------- ------------- ---------------- -------------
---
Effect of exchange rates on cash and
cash equivalents...................... --- --- 29.5 --- 29.5
------------- ------------- --------------- ---------------- -------------
--- ---
Net (decrease) increase in cash and
cash equivalents...................... 14.7 (3.3) 103.9 --- 115.3
Cash and cash equivalents, beginning of
period................................ 134.0 6.2 212.0 --- 352.2
------------- ------------- --------------- ---------------- -------------
Cash and cash equivalents,end of period $ 148.7 $ 2.9 $ 315.9 $ --- $ 467.5
============= ============= =============== ================ =============
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
------------- ------------- ------------- ------------- -------------
Net cash provided by (used in)
investing activities............... (12.5) (198.3) (229.8) --- (440.6)
------------- ------------- ------------- ------------- -------------
Cash flows from financing activities:
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
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)
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
============= ============= ============= ============= =============
F - 54
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) --- (56.8) --- (130.8)
Capital expenditures.................. (1.1) (5.1) --- (7.3) --- (13.5)
Proceeds from sale of assets.......... 0.3 1.0 --- 6.7 --- 8.0
------------- ------------- ------------- ------------- ------------- --------------
Net cash provided by (used in)
investing activities............... (6.1) (72.8) --- (57.4) --- (136.3)
------------- ------------- ------------- ------------- ------------- --------------
Cash flows from financing activities:
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
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
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 equivalents...................... 35.5 3.6 --- 29.9 --- 69.0
Cash and cash equivalents, beginning of
period................................ 108.7 0.3 0.1 72.3 --- 181.4
------------- ------------- ------------- ------------- ------------- --------------
Cash and cash equivalents,end of period $ 144.2 $ 3.9 $ 0.1 $ 102.2 $ --- $ 250.4
============= ============= ============= ============= ============= ==============
F - 55
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, 2003
Deducted from asset accounts:
Allowance for doubtful accounts............. $ 19.6 $ 32.7 $ 1.1 $ (15.2) $ 38.2
Reserve for excess and obsolete inventory... 36.7 52.8 7.7 (37.8) 59.4
------------- ------------- ------------- ----------------- -------------
Totals..................................... $ 56.3 $ 85.5 $ 8.8 $ (53.0) $ 97.6
============= ============= ============= ================= =============
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
============= ============= ============= ================= =============
(1) Primarily represents the impact of foreign currency exchange.
(2) Primarily represents the utilization of established reserves, net of
recoveries.
F - 56
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 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).
4.2 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).
4.3 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) (incorporated by reference to Exhibit 4.18 to the Form
10-K for the year ended December 31, 2002 of Terex Corporation,
Commission File No. 1-10702).
4.4 Third Supplemental Indenture, dated as of March 31, 2003, 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 29,
2001) (incorporated by reference to Exhibit 4.21 to the Form 10-Q for the
quarter ended March 31, 2003 of Terex Corporation, Commission File No.
1-10702).
4.5 Fourth Supplemental Indenture, dated as of November 25, 2003, among Terex
Corporation, the Subsidiary Guarantors named therein and The Bank of New
York (as successor to United States Trust Company of New York), as
Trustee (to Indenture dated as of March 29, 2001).*
4.6 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).
4.7 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) (incorporated by reference to Exhibit 4.20 to the Form
10-K for the year ended December 31, 2002 of Terex Corporation,
Commission File No. 1-10702).
4.8 Second Supplemental Indenture, dated as of March 31, 2003, 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 December 17,
2001) (incorporated by reference to Exhibit 4.24 to the Form 10-Q for the
quarter ended March 31, 2003 of Terex Corporation, Commission File No.
1-10702).
4.9 Third Supplemental Indenture, dated as of November 25, 2003, among Terex
Corporation, the Subsidiary Guarantors named therein and The Bank of New
York (as successor to United States Trust Company of New York), as
Trustee (to Indenture dated as of December 17, 2001).*
4.10 Indenture, dated as of November 25, 2003, between Terex Corporation, the
Guarantors named therein and HSBC Bank USA, as Trustee (incorporated by
reference to Exhibit 4.10 to Form S-4 Registration Statement of Terex
Corporation, Registration No. 333-112097).
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).
E-1
10.3 Terex Corporation Employee Stock Purchase Plan, as amended.*
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 (incorporated by reference to Exhibit 10.9 to the Form
10-K for the year ended December 31, 2002 of Terex Corporation,
Commission File No. 1-10702).
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).
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 Amendment No. 1 and Agreement, dated as of November 25, 2003, to the
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 10.12 to Form S-4 Registration
Statement of Terex Corporation, Registration No. 333-112097).
10.13 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).
10.14 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).
10.15 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).
10.16 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).
10.17 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).
10.18 Underwriting Agreement, dated as of April 18, 2002 between Terex
Corporation and Credit Suisse First Boston Corporation (incorporated by
reference to Exhibit 1.1 of the Form 8-K Current Report, Commission File
No. 1-10702, dated April 18, 2002 and filed with the Commission on April
18, 2002).
10.19 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).
10.20 Agreement and Plan of Merger, dated July 19, 2002, among Terex
E-2
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).
10.21 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).
10.22 Purchase Agreement, dated as of November 10, 2003, among Terex
Corporation and the Initial Purchasers, as defined therein Agent
(incorporated by reference to Exhibit 10.22 to Form S-4 Registration
Statement of Terex Corporation, Registration No. 333-112097).
10.23 Registration Rights Agreement, dated as of November 25, 2003, among Terex
Corporation and the Initial Purchasers, as defined therein (incorporated
by reference to Exhibit 10.23 to Form S-4 Registration Statement of Terex
Corporation, Registration No. 333-112097).
10.24 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).
10.25 Amended and Restated Promissory Note, dated October 26, 2001, by Ronald
M. DeFeo in favor of Terex Corporation (incorporated by reference to
Exhibit 10.32 to the Form 10-K for the year ended December 31, 2002 of
Terex Corporation, Commission File No. 1-10702).
10.26 Pledge and Assignment Agreement dated as of March 2, 2000 between Ronald
M. DeFeo and Terex Corporation (incorporated by reference to Exhibit
10.33 to the Form 10-K for the year ended December 31, 2002 of Terex
Corporation, Commission File No. 1-10702).
10.27 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).
10.28 Form of Change in Control and Severance Agreement between Terex
Corporation and certain executive officers (incorporated by reference to
Exhibit 10.35 to the Form 10-K for the year ended December 31, 2002 of
Terex Corporation, Commission File No. 1-10702).
10.29 Retirement Agreement dated as of November 13, 2003 between Terex
Corporation and Filip Filipov (incorporated by reference to Exhibit 10.29
to Form S-4 Registration Statement of Terex Corporation, Registration No.
333-112097).
10.30 Consulting Agreement dated as of November 13, 2003 between Terex
Corporation and Fiver S.A. (incorporated by reference to Exhibit 10.30 to
Form S-4 Registration Statement of Terex Corporation, Registration No.
333-112097).
10.31 Termination, Severance, General Release and Waiver Agreement between
Terex Corporation and Matthys de Beer dated as of February 1, 2004
(incorporated by reference to Exhibit 99.1 of the Form 8-K Current
Report, Commission File No. 1-10702, dated February 1, 2004 and filed
with the Commission on February 4, 2004).
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.*
31.1 Chief Executive Officer Certification pursuant to Rule
13a-14(a)/15d-14(a).*
31.2 Chief Financial Officer Certification pursuant to Rule
13a-14(a)/15d-14(a).*
32 Chief Executive Officer and 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-3