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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(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, 1998
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. |_|
The aggregate market value of the voting and non-voting common equity stock held
by non-affiliates of the Registrant was approximately $484.9 million based on
the last sale price on March 25, 1999.
The number of shares of the Registrant's Common Stock outstanding was
20,854,142 as of March 25, 1999.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the 1999 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 1999 Annual Meeting of Stockholders
are incorporated by reference into Part III here of
1
TEREX CORPORATION AND SUBSIDIARIES
Index to Annual Report on Form 10-K
For the Year Ended December 31, 1998
Page
PART I
Item 1 Business............................................................. 3
Item 2 Properties...........................................................13
Item 3 Legal Proceedings....................................................14
Item 4 Submission of Matters to a Vote of Security Holders..................14
PART II
Item 5 Market for Registrant's Common Stock and Related Stockholder Matters.15
Item 6 Selected Financial Data..............................................16
Item 7 Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................17
Item 8 Financial Statements and Supplementary Data..........................27
Item 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures...............................................27
PART III
Item 10 Directors and Executive Officers of the Registrant....................*
Item 11 Executive Compensation................................................*
Item 12 Security Ownership of Certain Beneficial Owners and Management........*
Item 13 Certain Relationships and Related Transactions........................*
PART IV
Item 14 Exhibits, Financial Statement Schedule and Reports on Form 8-K.......28
* Incorporated by reference from Terex Corporation Proxy Statement.
2
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 global manufacturer of a broad range of construction and mining
related capital equipment. The Company strives to manufacture high quality
machines which are low cost, simple to use and easy to maintain. The Company's
principal products include telescopic mobile cranes, lattice boom cranes, tower
cranes, aerial work platforms, utility aerial devices, telescopic material
handlers, truck mounted mobile cranes, large hydraulic excavators (i.e., mining
shovels), rigid and articulated off-highway trucks, high capacity surface mining
trucks, and related components and replacement parts. The Company's products are
manufactured at 21 plants in the United States and Europe and are sold primarily
through a worldwide network of dealers in over 750 locations to the global
construction, infrastructure and surface mining markets.
The Company currently operates in two business segments: Terex Lifting and
Terex Earthmoving.
Terex Lifting manufactures and sells telescopic mobile cranes (including rough
terrain, truck and all terrain mobile cranes), lattice boom cranes, tower
cranes, aerial work platforms (including scissor, articulated boom and straight
telescoping boom aerial work platforms), utility aerial devices (including
digger derricks and articulated aerial devices), telescopic material handlers
(including container stackers and rough terrain lift trucks), truck mounted
cranes (boom trucks), and related components and replacement parts. These
products are used by construction and industrial customers, as well as utility
companies.
Terex Earthmoving manufactures and sells large hydraulic excavators, articulated
and rigid off-highway trucks and high capacity surface mining trucks, and
related components and replacement parts. These products are used primarily by
construction, mining and government customers.
Over the past several years, Terex has implemented a series of interrelated
strategic initiatives designed to improve manufacturing efficiency and to offer
its products at a lower cost than competitors, thereby increasing sales,
earnings and market share. These include: (i) focusing the Company's business on
its core lifting and earthmoving businesses; (ii) focusing product lines on
products which it can manufacture for low cost relative to its competitors by
rationalizing product lines and simplifying its product designs; (iii) growing
in the size and scope of operations through both acquisitions and new product
development; and (iv) increasing profitability through cost reductions and
improved manufacturing efficiency. The Company has also implemented a strategy
to improve its financial flexibility, strengthen its capital structure and
enhance its liquidity to execute its growth initiatives. In addition, the
Company has made, and continues to seek out, acquisitions which complement its
core operations and provide cost reduction opportunities, distribution and
purchasing synergies and product diversification.
For financial information about the Company's industry and geographic segments,
see Note O --- "Business Segment Information" in the Notes to the Consolidated
Financial Statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Terex Lifting
Terex Lifting manufactures and sells telescopic mobile cranes (including rough
terrain, truck and all terrain mobile cranes), tower cranes, lattice boom
cranes, aerial work platforms (including scissor, articulated boom and straight
telescoping boom aerial work platforms), utility aerial devices (including
digger derricks and articulated aerial devices), telescopic material handlers
(including container stackers and rough terrain lift trucks), truck mounted
cranes (boom trucks), and related components and replacement parts. Construction
and industrial customers, as well as utility companies, are the primary users of
these products. Customers use these products to lift equipment, material or
workers to various heights. Throughout the world market, mobile cranes are
principally sold to rental companies and dealers with rental fleets. Terex
Lifting's mobile crane market share varies dramatically by geographical area;
however, the Company believes it is the leading manufacturer of mobile cranes in
France and Italy and is the second largest manufacturer in the United States.
The Company also believes that it is the second largest manufacturer in the
United States of utility aerial devices and the third largest manufacturer of
tower cranes worldwide.
3
Terex Lifting was established as a separate business segment as a result of an
acquisition (the "PPM Acquisition") in May 1995 of substantially all of the
shares of PPM S.A. and certain of its subsidiaries, including PPM SpA, Brimont
Agraire S.A., a specialized trailer manufacturer in France, PPM Krane GmbH, a
sales organization in Germany, and Baulift Baumaschinen Und Krane Handels GmbH,
a parts distributor in Germany (collectively, "PPM Europe") from Potain S.A.,
and all of the capital stock of Legris Industries, Inc., which owned 92.4% of
the capital of PPM Cranes, Inc., ("PPM North America" and PPM Europe and PPM
North America are collectively referred to herein as "PPM") from Legris
Industries, S.A. Concurrently with the completion of the PPM Acquisition, the
Company contributed the assets (subject to liabilities) of its Koehring Cranes
and Excavators and Mark Industries division to Terex Cranes, Inc. The former
division now operates as Koehring Cranes, Inc. ("Koehring"), a wholly owned
subsidiary of Terex Cranes, Inc.
Koehring and PPM are part of the Terex Lifting segment.
In 1997, the Company completed two acquisitions to augment its Terex Lifting
segment. On April 7, 1997, the Company completed the acquisition of
substantially all of the capital stock of certain of the former subsidiaries of
Simon Engineering plc (collectively referred to herein as the "Simon Access
Companies"). The Simon Access Companies consist principally of business units in
the United States and Europe engaged in the manufacture, sale and worldwide
distribution of access equipment designed to position people and materials to
work at heights. The Simon Access Companies' products include utility aerial
devices, aerial work platforms and truck-mounted cranes (boom trucks) which are
sold to customers in the industrial and construction markets, as well as utility
companies. Specifically, the Company acquired 100% of the outstanding common
stock of (i) Simon Telelect, Inc. (now named Terex Telelect Inc.), a Delaware
corporation, (ii) Simon Aerials, Inc. (now named Terex Aerials, Inc.), a
Wisconsin corporation and parent company of Simon RO Corporation (now named
Terex RO Corporation), (iii) Sim-Tech Management Limited, a private limited
company incorporated under the laws of Hong Kong, (iv) Simon Cella, S.r.l. (now
named Terex Italia S.r.l.), a company incorporated under the laws of Italy, and
(v) Simon Aerials Limited (now named Terex Aerials Limited), a company
incorporated under the laws of Ireland; and 60% of the outstanding common stock
of Simon-Tomen Engineering Co. Ltd., a limited liability stock company organized
under the laws of Japan. On April 14, 1997, the Company completed the
acquisition of all of the capital stock of Baraga Products, Inc. and M&M
Enterprises of Baraga, Inc. ("Square Shooter"). The Square Shooter business (now
merged into Terex Corporation) manufactures the Square Shooter, a rough terrain
telescopic lift truck designed to lift materials to heights where they are used
in construction.
During 1998, the Company completed five acquisitions to further augment its
Terex Lifting segment. On May 4, 1998, the Company completed the purchase of
Holland Lift International B.V. ("Holland Lift"). Holland Lift manufactures
aerial work platforms at its facility in the Netherlands. On July 31, 1998, the
Company completed the acquisition of all of the capital stock of The American
Crane Corporation ("American Crane"). American Crane manufactures lattice boom
cranes at its facility in Wilmington, North Carolina. On November 3, 1998, the
Company completed the acquisition of Italmacchine SpA ("Italmacchine").
Italmacchine manufactures rough terrain telescopic material handlers, cement
mixers and concrete pumps at its facility near Perugia, Italy. On November 13,
1998, the Company completed the acquisition of all of the assets comprising the
business of Peiner HTS (now named Terex Peiner GmbH) ("Peiner"). Peiner
manufactures tower cranes at its facility at Trier, Germany. On December 18,
1998, the Company completed the acquisition of all of the capital stock of Gru
Comedil SpA ("Comedil"). Comedil manufactures tower cranes at its facility in
Fontanafredda, Italy.
Terex Lifting has 14 significant manufacturing operations: (i) PPM S.A. located
in Montceau-les-Mines, France, at which mobile cranes and container stackers
under the brand names TEREX and PPM are manufactured; (ii) PPM SpA, located in
Crespellano, Italy, at which mobile cranes are manufactured under the TEREX,
BENDINI and PPM brand names; (iii) Terex Lifting, located in Conway, South
Carolina, at which mobile cranes are manufactured under the P&H (a licensed
trademark of Harnischfeger Corporation) and TEREX brand names; (iv) Terex
Lifting - Waverly Operations, located in Waverly, Iowa, at which rough terrain
hydraulic telescoping mobile cranes and truck cranes are manufactured under the
brand names TEREX, KOEHRING and LORAIN, and aerial lift equipment is
manufactured under the brand names TEREX AERIALS, TEREX AND MARK; (v) Terex
Telelect, Inc., located in Watertown, South Dakota, at which utility aerial
devices and digger derricks are manufactured under the TELELECT and HI-RANGER
brand names, (vi) Terex Aerials, Inc., located in Milwaukee, Wisconsin, at which
aerial platforms are manufactured under the TEREX, SIMON, MARK and TEREX AERIALS
brand names; (vii) Terex Aerials Limited, located in Cork Ireland, at which
aerial platforms are manufactured under the TEREX brand name; (viii) Terex RO
Corporation, located in Olathe, Kansas, at which truck mounted cranes are
manufactured under the RO-STINGER brand name; (ix) Square Shooter is located in
Baraga, Michigan, at which rough terrain telescopic lift trucks are manufactured
under the SQUARE SHOOTER brand name.; (x) Holland Lift, located in Hoorn, the
Netherlands, at which aerial platforms are manufactured under the HOLLAND LIFT
brand name; (xi) American Crane located in Wilmington, North Carolina, at which
lattice boom cranes are manufactured under the AMERICAN brand name; (xii)
Italmacchine, located near Perugia, Italy, at which rough terrain telescopic
material handlers are manufactured under the ITALMACCHINE and TEREX brand names
and cement mixers and concrete pumps are manufactured under the ITALMACCHINE
brand name; (xiii) Peiner located in Trier, Germany at which tower cranes are
manufactured under the PEINER trade name; and (xiv) Comedil, located in
Fontanafredda, Italy at which tower cranes are manufactured under the COMEDIL
trade name.
4
Terex Earthmoving
Terex Earthmoving currently manufactures and sells large hydraulic excavators,
articulated and rigid off-highway trucks, high capacity surface mining trucks,
and related components and replacement parts. These products are used primarily
by construction, mining and government customers. Terex Earthmoving consists of
Terex Equipment Limited ("TEL"), located in Motherwell, Scotland, Unit Rig
("Unit Rig") and Payhauler Corporation ("Payhauler"), located in Tulsa,
Oklahoma, and O&K Mining GmbH ("O&K Mining"), located in Dortmund, Germany. TEL
manufactures, sells and markets hauler trucks having capacities ranging from 25
to 100 tons, and scrapers that load, move and unload large quantities of soil
for site preparations, including roadbeds. TEL's products are sold under the
Company's TEREX brand name. Unit Rig, Payhauler and O & K Mining manufacture,
sell and market hauler trucks with payload capacities ranging from 50 to 260
tons, bottom dump haulers with capacities ranging from 180 to 270 tons and large
hydraulic excavators. These products are sold under the Company's TEREX, UNIT
RIG, LECTRA HAUL, O&K and PAYHAULER brand names. TEL's North, Central and South
American sales and distribution are managed by Terex Americas, a division of the
Company, located in Tulsa, Oklahoma. Terex Earthmoving believes that it has the
leading market share for large hydraulic excavator models having machine weights
in excess of 200 tons and that it is a significant competitor in the market for
large capacity off highway haulers and scrapers.
During 1998, the Company completed two acquisitions to augment its Terex
Earthmoving segment. On January 5, 1998, the Company acquired Payhauler, which
manufactures and markets 30 and 50 ton all wheel drive rigid frame trucks
designed to move material in more severe operating conditions than a standard
rear wheel drive rigid frame truck. On March 31, 1998, Terex purchased all of
the outstanding shares of O&K Mining GmbH from Orenstein & Koppel AG. O&K Mining
is engaged in the manufacture, sale and worldwide distribution of a complete
range of large hydraulic excavators under the O&K trade name, serving the global
surface mining industry and the global construction and infrastructure
development markets. These products are used by mining equipment contractors,
mining and quarrying companies and large construction companies involved in
infrastructure projects worldwide to load coal, copper ore, iron ore, other
mineral-bearing materials or rocks into trucks. The use of O&K Mining's
excavators in around the clock intensive, harsh condition mining operations
requires significant higher margin after-market parts and service, which in the
case of the larger hydraulic excavators can generate revenues of up to 200% of
the original sale price over the expected life of the machines. In 1997, O&K
Mining introduced the RH 400, the world's largest hydraulic excavator with an
800 ton machine weight and 80 ton bucket capacity.
During 1998, Unit Rig received a $157 million order for the construction and
delivery of 160 rigid off-highway haul trucks from Coal India, the government
agency for coal management in India. This order was received as the result of a
tender offer which included participation of all major construction and mining
equipment manufacturers, and is believed to the largest single truck order of
its kind. The Company also expects that this order will add several million
dollars a year of higher-margin parts revenues for at least the next 10 years.
Terex Earthmoving currently has three significant manufacturing operations: (i)
TEL, located at Motherwell, Scotland, which manufactures and sells off-highway
rigid haulers and articulated haulers, ranging in capacity from 25 to 100 tons,
and scrapers, each sold under the TEREX brand name and to other truck
manufacturers on a private label basis; (ii) Unit Rig and Payhauler, located in
Tulsa, Oklahoma, manufacture and sell electric rear and bottom dump haulers
principally sold to the copper, gold and coal mining industry customers in North
and South America, Asia, Africa and Australia and all wheel drive rigid off
highway trucks; and (iii) O&K Mining, located in Dortmund, Germany, which
manufactures and sells large hydraulic excavators. In addition, Terex
Earthmoving has an interest in North Hauler Limited Liability Company, a
corporation incorporated under the laws of China, a joint venture with Second
Inner Mongolia Machinery Company for the production of haulers in China. North
Hauler Limited Liability Company, manufactures and sells heavy trucks,
principally used in mining, at a facility in Baotou, Inner Mongolia, People's
Republic of China.
5
Products
Telescopic Mobile Cranes
Telescopic mobile 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 50 feet. Terex Lifting
manufactures the following types of telescopic mobile cranes:
[Graphic] Rough Terrain Cranes -- are designed to lift materials and equipment
on rough or uneven terrain. Rough terrain cranes are most 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. Rough terrain cranes
manufactured by Terex Lifting have maximum lifting capacities of up to
90 tons and maximum tip heights of up to 205 feet. Terex Lifting
manufactures its rough terrain cranes at its facilities located at
Waverly, Iowa, Conway, South Carolina, Montceau-les-Mines, France, and
Crespellano, Italy under the brand names TEREX, LORAIN, P&H, PPM and
BENDINI.
[Graphic] Truck Cranes -- have two cabs and can travel rapidly from job site to
job site at highway speeds. In contrast to rough terrain cranes which
are often located for extended periods at a single work site, truck
cranes are often used for multiple local jobs, primarily in urban or
suburban areas. Truck cranes manufactured by Terex Lifting have
maximum lifting capacities of up to 75 tons and maximum tip heights of
up to 193 feet. Terex Lifting manufactures truck cranes at its
Waverly, Iowa and Conway, South Carolina facilities under the brand
names P&H and LORAIN.
[Graphic] All Terrain Cranes -- were developed in Europe as a cross between
rough terrain and truck cranes in that they are designed to travel
across both rough terrain and highways. All terrain cranes have two
cabs and are versatile and highly maneuverable. All terrain cranes
manufactured by Terex Lifting have lifting capacities of up to 130
tons and maximum tip heights of up to 223 feet. Terex Lifting
manufactures its all terrain cranes at its Montceau-les-Mines, France
facility under the brand names TEREX and PPM.
Truck Mounted Cranes (Boom Trucks)
Terex Lifting manufactures telescopic boom cranes for mounting on commercial
truck chassis. Terex also distributes truck mounted articulated cranes under the
EFFER brand name which are manufactured by Effer SpA. 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 a lower 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. The Terex Lifting segment
manufactures the following types of cranes for installation on truck chassis:
[Graphic] Telescopic Boom Truck Mounted Cranes -- enable an operator to reach
heights of up to 167 feet and have a maximum lifting capacity of up to
37.5 tons. Terex Lifting manufactures its telescopic boom truck
mounted cranes at its Olathe, Kansas facility under the brand name
RO-STINGER.
[Graphic] Articulated Boom Truck Mounted Cranes -- are for users who prefer
greater capacities over the greater vertical reach provided by a
telescopic boom truck mounted crane. At its Olathe, Kansas facility,
Terex Lifting acts as the master distributor for the EFFER brand line
of articulated boom truck mounted cranes which have maximum capacities
up to 87,305 pounds and horizontal reach to 66 feet.
6
Tower Cranes
Tower cranes lift construction material to heights and place the material at the
point where it is being used. They include a stationary vertical tower near the
top of which is a horizontal jib with a counterweight. 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. Luffing
jib tower cranes have an angled jib with no trolley, and operate like a
traditional lattice boom crane mounted on a tower. Luffing jib tower cranes are
often used in urban areas where space is constrained. Tower cranes are currently
produced by Terex under the PEINER and COMEDIL 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 50-75 feet and
jib lengths from 60-100 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
200 feet and a maximum jib length of 240 feet.
[Graphic] Flat Top Tower Cranes -- have a tower and a horizontal jib assembled
from sections. There is no tower extension above the jib, which
reduces cost and facilitates 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 free-standing 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. The tower extends 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 free-standing height of 185 feet and a
maximum jib length of 200 feet.
Lattice Boom Cranes
Terex Lifting produces crawler and truck mounted lattice boom cranes.
[Graphic] The crawler mounted cranes are designed to lift material on rough
terrain and can maneuver while bearing a load. Truck mounted lattice
boom cranes are used on-road, typically in urban areas. Both types
consist of a boom made of tubular steel sections which are transported
to and erected, together with the base unit, at a construction site.
Terex Lifting manufactures lattice boom crawler cranes at its
Wilmington, North Carolina facilities under the AMERICAN brand name.
These lattice boom cranes have lifting capacities from 125 to 450
tons, and lattice boom truck cranes with lifting capacities from 125
to 300 tons
Aerial Work Platforms
Aerial work platforms are self propelled devices which position workers and
materials easily and quickly to elevated work areas. These products have
developed over the past 20 years as alternatives to scaffolding and ladders. The
work platform is mounted on either a telescoping and/or articulating boom or on
a vertical lifting scissor mechanism. Terex Lifting manufactures the following
types or aerial work platforms:
[Graphic] Scissor Lifts -- are used in open areas in indoor or outdoor
applications in a variety of construction, industrial and commercial
settings. Scissor lifts manufactured by Terex Lifting have maximum
working heights of up to 52 feet and maximum load capacities of up to
2,000 pounds. Terex Lifting manufactures scissor aerial work platforms
at its Waverly, Iowa, Milwaukee, Wisconsin and Amsterdam, The
Netherlands facilities under the brand names TEREX, SIMON, MARK and
HOLLAND LIFT.
7
[Graphic] Straight Telescopic Boom Lifts -- are used primarily outdoors in
residential, commercial and industrial new construction and
maintenance projects. Straight telescopic boom lifts manufactured by
Terex Lifting have maximum working heights of up to 126 feet and
maximum load capacities of up to 650 pounds. Terex Lifting
manufactures its straight telescopic aerial work platforms at its
Waverly, Iowa and Milwaukee, Wisconsin facilities under the brand
names TEREX, SIMON and MARK.
[Graphic] Articulating Telescopic Boom Lifts -- are generally used in industrial
environments where the articulation allows the user to access elevated
areas over machines or structural obstacles which prevent access with
a scissor lift or straight boom. Articulating lifts available from
Terex Lifting have maximum working heights of up to 70 feet and
maximum load capacities of up to 500 pounds. Terex Lifting
manufactures its articulating telescopic boom lifts at its Waverly,
Iowa, Cork, Ireland and Milwaukee, Wisconsin facilities under the
brand name TEREX AERIALS.
Utility Aerial Devices
Utility aerial devices are used to set utility poles and move workers and
materials to work areas at the top of utility poles and towers. Utility aerial
devices are mounted on commercial truck chassis which include separately
installed steel cabinets for tool and material storage. Most utility aerial
devices are insulated to permit live wire work.
[Graphic] Articulated Aerial Devices -- are used to elevate workers to work
areas at the top of utility poles or in trees and include one or two
man baskets. Articulated aerial devices available from Terex Lifting
include telescopic, non-overcenter and overcenter models and range in
working heights from 32 to 203 feet. Articulated aerial devices are
manufactured by Terex Lifting at its Watertown, South Dakota facility
under the brand names TELELECT and HI-RANGER.
[Graphic] Digger Derricks -- are used to set telephone poles. The digger
derricks include a telescopic boom with an auger mounted at the tip
which digs a hole, and a device to grasp, manipulate and set the pole.
Digger derricks available from Terex Lifting have sheave heights
exceeding 70 feet and lifting capacities up to 48,000 pounds. Digger
derricks are manufactured by Terex Lifting at its Watertown, South
Dakota facility under the brand names TELELECT.
Telescopic Material Handlers
Telescopic material handlers are used to lift containers or other material from
one location to another at the same job site.
[Graphic] 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. Telescopic container stackers are particularly
effective in storage areas where containers are continually added and
removed, and where the efficient manipulation of, and access to,
specific containers is required. Telescopic container stackers
manufactured by Terex Lifting have lifting capacities up to 49.5 tons,
can stack up to six full or nine empty containers and are able to
maneuver through very narrow areas. Terex Lifting manufactures its
telescopic container stackers under the brand names PPM and P&H
SUPERSTACKERS at its Wilmington, North Carolina and
Montceau-les-Mines, France facilities.
[Graphic] Rough Terrain Telescopic Boom Forklifts -- serve a similar function as
smaller size rough terrain telescopic mobile cranes and are used
exclusively to move and place materials on new residential and
commercial job sites. Terex Lifting manufactures rough terrain
telescopic boom forklifts with load capacities of up to 10,000 pounds
and with a maximum extended reach of up to 31 feet and lift
capabilities of up to 48 feet. Terex Lifting manufactures rough
terrain telescopic boom forklifts at its facilities in Baraga,
Michigan and Perugia, Italy under the brand name SQUARE SHOOTER and
ITALMACCHINE.
8
Rigid and Articulated Off-Highway Trucks
Terex Earthmoving manufactures two distinct types of off-highway trucks with
hauling capacities from 25 to 100 tons: articulated and rigid frame.
[Graphic] Articulated Off-Highway Trucks -- are three axle, six wheel drive
machines with a capacity range of 25 to 40 tons. Their differentiating
feature is an oscillating connection between the cab and body which
allows the cab and body to move independently. This enables all six
tires to maintain ground contact for improved traction on rough
terrain. This also 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's articulated trucks are manufactured in
Motherwell, Scotland, under the brand names TEREX and O&K.
[Graphic] Rigid Off-Highway Trucks -- are two axle machines which generally have
larger capacities than articulated trucks but can operate only on
improved or graded surfaces. The capacities of rigid off-highway
trucks range from 35 to 100 tons, and off-highway trucks have
applications in large construction or infrastructure projects,
aggregates and smaller surface mines. Terex Earthmoving's rigid trucks
are manufactured in Motherwell, Scotland, under the TEREX and O&K
brand names and in Tulsa, Oklahoma, under the PAYHAULER brand name.
[Graphic] High Capacity Surface Mining Trucks -- are off road dump trucks with
capacities in excess of 120 tons used primarily for surface mining.
Terex Earthmoving's trucks are powered by a diesel engine driving an
electric generator that provides power to individual electric motors
in each of the rear wheels. Unit Rig's current LECTRA HAUL product
line consists of a series of rear dump trucks with payload
capabilities ranging from 120 to 260 tons, and bottom dump trucks with
capacities ranging from 180 to 270 tons. Terex Earthmoving's high
capacity surface mining trucks are manufactured at Unit Rig, located
in Tulsa, Oklahoma, under the UNIT RIG and LECTRA HAUL brand names.
Large Hydraulic Excavators
Terex Earthmoving sells hydraulic excavators which are shovels primarily used to
load coal, copper ore, iron ore, other mineral-bearing materials, or rocks into
trucks. These products are primarily utilized for quarrying construction
materials or digging in opencast mines. Additional applications include large
construction projects with difficult working conditions and large amounts of
solid material and rock to be moved.
[Graphic] Terex Earthmoving offers a complete range of large hydraulic
excavators, with operating weights from 58 to 800 tons. In 1997, O&K
Mining introduced the RH 400, the world's largest hydraulic excavator
with an 800 ton machine weight and 80 ton bucket capacity. This
expansion of Terex Earthmoving's product line enables it to compete
with the most popular electric rope shovel size class and represents a
significant growth opportunity for Terex Earthmoving. Most hydraulic
excavators sold by Terex Earthmoving are manufactured under the O&K
brand name by O&K Mining in Dortmund, Germany.
9
Backlog
The Company's backlog as of December 31, 1998 and 1997 was as follows:
December 31,
---------------------------
1998 1997
------------- -------------
(in millions)
Terex Lifting...................... $ 221.8 $ 186.5
Terex Earthmoving.................. 196.4 30.3
------------- -------------
Total......................... $ 418.2 $ 216.8
============= =============
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 Lifting backlog at December 31, 1998 increased $35.3 million to $221.8
million as compared to $186.5 million at December 31, 1997. The increase in
backlog was due to the effect of the businesses acquired in 1998 (approximately
$18.7 million in backlog) as well as an approximately 9% increase in the
businesses other than the 1998 acquisitions. The backlog at Terex Earthmoving
increased to $196.4 million at December 31, 1998 from $30.3 million at December
31, 1997, principally because of the acquisition of O&K Mining and the receipt
of the $157 million order of Unit Rig trucks from Coal India in October 1998.
Distribution
Terex Lifting distributes its products primarily through a global network of
dealers and national accounts in over 750 different locations. Terex Lifting's
telescopic mobile cranes are marketed in the great majority of the United States
under the TEREX brand name. Terex Lifting's European distribution is carried out
primarily under three brand names, TEREX, PPM and BENDINI, through a
distribution network comprised of both distributors and a direct sales force.
Terex Lifting sells its utility aerial devices under the TEREX TELELECT brand
name principally through a network of North American distributors. Terex Lifting
sells its aerial work platform products through a distribution network
throughout the world, but principally in North America and Europe. Terex
Lifting's aerial work platform products are sold under the brand names TEREX
AERIALS and HOLLAND LIFT. Terex Lifting sells its tower cranes through a
distribution network under the PEINER and COMEDIL brand names. Terex Lifting's
material and container handlers products are sold, through a distribution
network under the brand names of TEREX, PPM, P&H and ITALMACCHINE. Terex Lifting
sells its lattice boom cranes through a distribution network under the TEREX
AMERICAN brand name.
With respect to Terex Earthmoving products, TEL markets machines 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 carry products of a variety of
manufacturers, and may or may not carry more than one of Terex's products, each
dealer generally carries only one manufacturer's "brand" of each particular type
of product. Terex employs sales representatives who service these dealers from
offices located throughout the world. Payhauler distributes its products
primarily through a dealership network. Unit Rig distributes its products and
services directly to customers primarily through its own distribution system.
O&K Mining sells its hydraulic excavators and after-market parts and services
primarily through its export sales department in Dortmund, Germany, through O&K
Mining's global network of wholly-owned foreign subsidiaries and through
dealership networks.
Research and Development
Terex maintains engineering staffs at several of its locations who design new
products and improvements in existing product lines. Terex'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 or significant improvements to existing products of continuing
operations amounted to $8.2, $6.2 and $6.1 million in 1998, 1997 and 1996,
respectively.
10
Materials
Principal materials used by the Company in its various manufacturing processes
include steel, castings, engines, tires, hydraulic cylinders, electric controls
and motors, and a variety of other fabricated or manufactured items. In the
absence of labor strikes or other unusual circumstances, substantially all
materials are normally available from multiple suppliers. Current and potential
suppliers are evaluated on a regular basis on their ability to meet the
Company's requirements and standards. Electric wheel motors and controls used in
the Unit Rig product line are currently supplied exclusively by General Electric
Company. The Company is endeavoring to develop alternative sources and has
entered into a contract with General Atomics, a former defense contractor, to
develop electric wheel motors for Unit Rig trucks. If the Company is unable to
develop alternative sources, or if there is disruption or termination of its
relationship with General Electric Company (which is not governed by a written
contract), it could have a material adverse effect on Unit Rig's operations.
Working Capital Items
The Company, in the normal course of business, does not provide right of return
on merchandise sold, nor does it provide extended payment terms to customers.
Competition
Telescopic Mobile Cranes -- The domestic telescopic mobile crane industry is
comprised primarily of three manufacturers. The Company believes that Terex
Lifting is the second largest domestic manufacturer. The Company believes that
the number one domestic manufacturer is Grove Worldwide, and the number three
domestic manufacturer is Link-Belt, a subsidiary of Sumitomo Corp. The Company's
principal markets in Europe are in France and Italy, where the Company believes
it has the largest market shares. In Europe, Terex Lifting's primary competitors
are Grove Cranes Ltd. (including the recently acquired Krupp Mobilkran),
Liebherr and Mannesmann Dematic.
Truck Mounted Cranes (Boom Trucks) -- The United States boom truck industry is
dominated by four manufacturers, of which the Company believes Terex RO is the
second largest behind Grove National.
Tower Cranes -- The tower crane industry includes two principal competitors,
Liebherr and Potain, who combined represent well over half of the worldwide
market. Terex and Wolf are the only other competitors with a multi-national
presence; other manufacturers are small and regional.
Lattice Boom Cranes -- The lattice boom crane industry includes Manitowoc,
Link-Belt, Mannesmann Dematic, Liebherr, and Hitachi. Manitowoc is the world
leader in lifting capacities over 125 tons, and represents over half of the
United States lattice boom crane market.
Aerial Work Platforms -- The aerial work platform industry in North America is
fragmented, with seven major competitors. Terex believes that it is the fifth
largest manufacturer of aerial work platforms in North America, behind JLG,
Genie, Grove Manlift and Snorkel. Terex believes that approximately 44,000
aerial platforms were sold in the United States during 1998, of which
approximately 70% were scissor lifts, 20% were articulated boom lifts, and 10%
were straight boom lifts. The Company believes that its market share in boom
lifts is greater than its market share in scissor lifts.
Utility Aerial Devices -- The utility aerial device industry is comprised
primarily of three manufacturers. The Company believes that it is the second
largest manufacturer in the United States of utility aerial devices behind
Altec. Outside the United States, Terex is focusing primarily on the Mexican and
Caribbean markets.
Telescopic Container Stackers - The Company believes that three manufacturers
account for a majority of the global market for telescopic container stackers.
The Company believes that it is the second largest manufacturer behind Kalmar.
Other manufacturers include Valmet Belloti and Taylor.
Telescopic Rough Terrain Lift Trucks -- OmniQuip and Gradall are the largest
manufacturers of telescopic rough terrain lift trucks.
Off-Highway Trucks -- North America and Europe account for a majority of the
global market. Four manufacturers dominate the global market. Terex believes
that it is the third largest of these manufacturers (behind Volvo and
Caterpillar).
11
High Capacity Surface Mining Trucks -- The high capacity surface mining truck
industry includes three principal manufacturers: Caterpillar, Komatsu-Dresser
and the Company. The Company believes that it is the third largest manufacturer.
Large Hydraulic Excavator -- The large hydraulic excavator industry is comprised
of primarily seven manufacturers, the largest of which are Hitachi,
Komatsu-DeMag, Liebherr and Caterpillar. Terex believes it is the largest
manufacturer of hydraulic excavators having machine weights in excess of 200
tons. The largest hydraulic excavators also compete against electric mining
shovels (rope excavators) from competitors such as Harnischfeger Corporation and
Bucyrus International, Inc. and, for some applications, against bucket wheel
loaders from competitors such as Caterpillar, Volvo and Komatsu-Dresser.
Employees
As of December 31, 1998, the Company had approximately 4,142 employees. The
Company considers its relations with its personnel to be good. Approximately
25% of the Company's employees are represented by labor unions which have
entered into or are in the process of entering into various separate collective
bargaining agreements with the Company.
Patents, Licenses and Trademarks
Several of the trademarks and trade names of the Company, in particular the
TEREX, LORAIN, UNIT RIG, MARK, P&H, PPM, SIMON, TELELECT, SQUARE SHOOTER,
PAYHAULER, O&K, HOLLAND LIFT, AMERICAN, ITALMACCINE, PEINER and COMEDIL
trademarks, are important to the business of the Company. 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 renews them as required. The Company also protects
its trademark, trade name and patent rights when circumstances warrant such
action, including the initiation of legal proceedings, if necessary. P&H is a
registered trademark of Harnischfeger Corporation which the Company has the
right to use for certain products pursuant to a license agreement until 2011.
Pursuant to the terms of the acquisition agreements for the Simon Access
Companies, the Company has the right to use the SIMON name (which is a
registered trademark of Simon Engineering plc) for certain products until April
7, 2000. CELLA is a trademark of Sergio Cella. EFFER is a trademark of Effer
SpA. The Company also has the right to use the O&K and Orenstein & Koppel names
(which are registered trademarks of Orenstein & Koppel) for most applications in
the mining business for an unlimited period of time. All other trademarks and
tradenames referred to in this Annual Report are registered trademarks of Terex
Corporation or its subsidiaries.
Environmental Considerations
The Company generates hazardous and non-hazardous wastes in the normal course of
its operations. As a result, the Company is subject to a wide range of federal,
state, local and foreign environmental laws and regulations, including the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"),
that (i) govern activities or operations that may have adverse environmental
effects, such as discharges to air and water, as well as handling and disposal
practices for hazardous and non-hazardous wastes, and (ii) impose liability for
the costs of cleaning up, and certain damages resulting from, sites of past
spills, disposals or other releases of hazardous substances. Compliance with
such laws and regulations has, and will, require expenditures by the Company on
a continuing basis. However, the Company has not incurred, and does not expect
to incur in the future, any material capital expenditures for environmental
control facilities.
Seasonal Factors
The Company markets a large portion of its products in North America and Europe,
and its sales of trucks and cranes during the fourth quarter of each year to the
construction industry are usually lower than sales of such equipment during each
of the first three quarters of the year because of the normal winter slowdown of
construction activity. However, sales of trucks and excavators to the mining
industry are generally less affected by such seasonal factors.
12
ITEM 2. PROPERTIES
The following table outlines the principal manufacturing, warehouse and office
facilities owned or leased by the Company and its subsidiaries:
Entity Facility Location Type and Size of Facility
Terex
(Corporate Offices)....Westport, Connecticut (1) Office; 14,898 sq. ft.
Terex
(Distribution Center)..Southaven, Mississippi (1) Warehouse and light
manufacturing;
505,000 sq. ft. (2)
Terex Lifting
Terex Lifting -
Waverly Operations.....Waverly, Iowa Office, manufacturing and
warehouse; 383,000 sq. ft.
Terex Lifting -
Conway Operations......Conway, South Carolina (1) Office, manufacturing and
warehouse; 168,716 sq. ft.
PPM S.A.................Montceau-les-Mines, France Office, manufacturing and
warehouse; 418,376 sq. ft.
P.P.M SpA...............Crespellano, Italy Office, manufacturing and
warehouse; 68,501 sq ft.
PPM Europe Subsidiary...Dortmund, Germany (1) Office and warehouse;
129,180 sq. ft.
PPM Europe Subsidiary...Rethel, France Office, manufacturing and
warehouse; 213,058 sq. ft.
Terex Manufacturing.....Huron, South Dakota Manufacturing;
88,000 sq.ft.
Telelect................Watertown, South Dakota (3) Office, manufacturing and
warehouse; 205,350 sq. ft.
Cella...................Brescia, Italy (1) Office and manufacturing;
35,508 sq. ft.
Terex Aerials Limited...Cork, Ireland (1) Office and manufacturing;
35,250 sq. ft.
Terex RO................Olathe, Kansas Office and manufacturing;
80,400 sq. ft.
Terex Aerials...........Milwaukee, Wisconsin Office, manufacturing and
warehouse; 103,000 sq. ft.
Square Shooter..........Baraga, Michigan Office, manufacturing and
warehouse; 61,380 sq. ft.
Comedil.................Fontanafredda, Italy Office, manufacturing and
warehouse; 100,682 sq. ft.
Holland Lift............Hoorn, The Netherlands Office, manufacturing and
warehouse; 30,000 sq. ft.
Italmacchine............Perugia, Italy Office, manufacturing and
warehouse; 113,834 sq. ft.
Peiner..................Trier, Germany Office, manufacturing and
warehouse; 85,787 sq. ft.
American Crane..........Wilmington, North Carolina Office, manufacturing and
warehouse; 572,200 sq. ft.
American Crane
International..........Oudenbosch, The Netherlands Office and warehouse;
86,111 sq. ft.
Terex Earthmoving
O&K Mining..............Dortmund, Germany (1) Office, manufacturing,
warehouse; 775,000 sq. ft.
Unit Rig
and Payhauler..........Tulsa, Oklahoma Office, manufacturing and
warehouse; 375,587 sq. ft.
TEL.....................Motherwell, Scotland Office, manufacturing and
warehouse; 473,000 sq. ft.
- ------------------------------
(1) These facilities are either leased or subleased by the indicated entity.
(2) Includes 239,400 sq. ft. of warehouse space currently available for lease
to others.
(3) Includes 18,550 sq. ft. which are leased by the indicated entity.
13
Unit Rig and O&K Mining also have 10 owned or leased locations for parts
distribution and rebuilding of components, of which one are in the United
States, two are in Canada and seven are outside North America.
Management believes that the properties listed above are suitable and adequate
for the Company's use. The Company has determined that certain of its properties
exceed its requirements. Such properties may be sold, leased or utilized in
another manner and have been excluded from the above list.
Discontinued Operations
On November 27, 1996, the Company sold substantially all the assets and
liabilities of its worldwide material handling business ("CMHC") for an
aggregate cash purchase price, subject to adjustments, of $139.5 million (the
"Clark Sale"). Prior to the disposition on November 27, 1996, CMHC consisted of
Clark Material Handling Company and certain affiliated companies which were
acquired by the Company in July 1992 from Clark Equipment Company. CMHC
designed, manufactured and marketed a complete line of internal combustion and
electric lift trucks, electric walkies and related components and replacement
parts under the CLARK trademark.
Financial Information about Industry and Geographic Segments, Export Sales and
Major Customers
Information regarding foreign and domestic operations, export sales, segment
information and major customers is included in Note O -- "Business Segment
Information" in the Notes to the Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
As described in Note M -- "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
matters, which have arisen in the normal course of its operations and to which
the Company is self-insured for up to $2.5 million per incident. Management
believes that the final outcome of such matters will not have a material adverse
effect on the Company's consolidated financial position.
As described in Note I - "Income Taxes" in the Notes to the Consolidated
Financial Statements, the Company's federal income tax returns for the years
1987 through 1989 are currently being audited by the Internal Revenue Service
("IRS"). In December 1994, the Company received an examination report from the
IRS proposing a substantial tax deficiency. The examination report raised many
issues. Among these issues are substantiation for certain tax deductions and
whether the Company was able to use certain net operating loss carryovers
("NOLs") to offset taxable income. In April 1995, the Company filed an
administrative appeal to the examination report. The Company believes, however,
that it will be able to provide adequate documentation for a large part of the
tax deductions the IRS has disallowed. The IRS is currently reviewing
information the Company provided to it. The IRS has recently advised the Company
that it is no longer challenging the Company's right to use the NOLs in
question. The final outcome of this audit is subject to the resolution of
complicated legal and factual issues.
In March 1994, the Securities and Exchange Commission ("SEC") initiated a
private investigation, which included Terex Corporation and certain of its
affiliates, to determine whether violations of certain aspects of the Federal
securities laws had occurred. The SEC has advised the Company that it may bring
an administrative proceeding against the Company and certain of its present and
former officers and directors. The Company understands that if the SEC brings
such proceedings, the SEC would seek an order requiring the Company to cease and
desist violating the federal securities laws, but would not impose monetary
penalties on the Company. The Company is currently in negotiations with the SEC
to resolve this matter.
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.
14
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
(a) The Company's Common Stock is listed on the 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:
1998 1997
------------------------------- ----------------------------------
Fourth Third Second First Fourth Third Second First
High.. $ 28.94 $ 29.56 $31.50 $27.44 $ 25.50 $ 24.50 $ 19.50 $ 13.50
Low... 13.38 14.00 26.88 20.00 18.94 18.75 13.13 9.50
No dividends were declared or paid in 1997 or in 1998. 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. 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 25, 1999, there were 667 stockholders of record of the Company's
Common Stock.
(b) Not Applicable.
15
ITEM 6. SELECTED FINANCIAL DATA
(in millions except per share amounts and employees)
As of or for the Year Ended December 31,
-------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ------------ ------------ -----------
Summary of Operations
Net sales....................................................$ 1,233.2 $ 842.3 $ 678.5 $ 501.4 $ 314.1
Operating income from continuing operations.................. 122.0 71.1 5.1 12.8 10.4
Income (loss) from continuing operations before
extraordinary items........................................ 72.8 30.3 (54.3) (32.1) 4.9
Income (loss) from discontinued operations................... --- --- 102.0 4.4 (3.7)
Income (loss) before extraordinary items..................... 72.8 30.3 47.7 (27.7) 1.2
Net income (loss)............................................ 34.5 15.5 47.7 (35.2) 0.5
Income (loss) applicable to common stock..................... 34.5 10.7 24.8 (42.5) (5.5)
Per Common and Common Equivalent Share:
Basic
Income (loss) from continuing operations.................$ 3.52 $ 1.57 $ (6.54) $ (3.79) $ (0.10)
Income (loss) from discontinued operations............... --- --- 8.64 0.42 (0.36)
Income (loss) before extraordinary items................. 3.52 1.57 2.10 (3.37) (0.46)
Net income (loss)........................................ 1.67 0.66 2.10 (4.09) (0.53)
Diluted
Income (loss) from continuing operations.................$ 3.25 $ 1.44 $ (5.81) $ (3.79) $ (0.10)
Income (loss) from discontinued operations............... --- --- 7.67 0.42 (0.36)
Income (loss) before extraordinary items................. 3.25 1.44 1.86 (3.37) (0.46)
Net income (loss)........................................ 1.54 0.60 1.86 (4.09) (0.53)
Working Capital
Current assets...............................................$ 771.6 $ 426.5 $ 390.2 $ 312.0 $ 278.1
Current liabilities.......................................... 425.4 236.1 195.0 196.3 221.6
Working capital.............................................. 346.2 190.4 195.2 115.7 56.5
Property, Plant and Equipment
Net property, plant and equipment............................$ 99.5 $ 47.8 $ 31.7 $ 40.1 $ 86.2
Capital expenditures......................................... 13.1 9.9 8.1 5.2 12.7
Depreciation................................................. 10.1 8.2 7.0 7.4 13.7
Total Assets...................................................$ 1,151.2 $ 588.5 $ 471.2 $ 478.9 $ 401.6
Capitalization
Long-term debt and notes payable, including current
maturities.................................................$ 631.3 $ 300.1 $ 281.3 $ 329.9 $ 190.9
Minority interest, including redeemable preferred stock
of a subsidiary............................................ 0.6 0.6 10.0 9.4 ---
Redeemable convertible preferred stock....................... --- --- 46.2 24.6 17.3
Stockholders' equity (deficit)............................... 98.1 59.6 (71.7) (96.9) (55.7)
Dividends per share of Common Stock..........................$ --- $ --- $ --- $ --- $ ---
Shares of Common Stock outstanding at year end............... 20.8 20.5 13.2 10.6 10.3
Employees
Continuing operations........................................ 4,142 2,950 2,270 2,614 1,549
Discontinued operations (Material Handling).................. --- --- --- 986 1,302
Total...................................................... 4,142 2,950 2,270 3,600 2,851
The Selected Financial Data include the results of operations of Payhauler, O&K
Mining, Holland Lift, American Crane, Italmacchine, Peiner, Comedil, the Simon
Access Companies, Square Shooter and PPM from January 5, 1998, March 31, 1998,
May 4, 1998, July 31, 1998, November 3, 1998, November 13, 1998, December 18,
1998, April 7, 1997, April 14, 1997 and May 9, 1995, respectively, the dates of
their acquisitions. See Note B -- "Acquisitions" in the Notes to the
Consolidated Financial Statements for further information. The Selected
Financial Data for the years ended December 31, 1994, 1995 and 1996 include the
results of operations of CMHC as discontinued operations. See Note C --
"Discontinued Operations" in the Notes to the Consolidated Financial Statements
for further information.
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
The Company currently operates in two industry segments: Terex Lifting and Terex
Earthmoving. The Company previously operated a third industry segment, the
Material Handling segment, the results of which are now accounted for as Income
from Discontinued Operations. The 1997 Terex Lifting results include the
operations of Simon Access and Square Shooter businesses from their respective
acquisition dates of April 7, 1997 and April 14, 1997. The 1998 results for
Terex Lifting include the results of Holland Lift, American Crane, Italmacchine,
Peiner and Comedil from their respective acquisition dates of May 4, 1998, July
31, 1998, November 3, 1998, November 13, 1998 and December 18, 1998. Terex
Earthmoving results for 1998 includes the results of Payhauler and O&K Mining
from their respective acquisition dates of January 5, 1998 and March 31, 1998.
1998 Compared with 1997
The table below is a comparison of net sales, gross profit, engineering, selling
and administrative expenses and income (loss) from operations, by segment, for
1998 and 1997.
Year Ended December 31,
Increase
-----------------------
1998 1997 (Decrease)
--------- ----------- -----------
(in millions of dollars)
NET SALES
Terex Lifting ...............................$ 770.9 $ 548.0 $ 222.9
Terex Earthmoving ........................... 456.4 288.4 168.0
General/Corporate/Eliminations .............. 5.9 5.9 ---
--------- --------- -----------
Total ....................................$ 1,233.2 $ 842.3 $ 390.9
========= ========= ===========
GROSS PROFIT
Terex Lifting ...............................$ 128.5 $ 87.2 $ 41.3
Terex Earthmoving ........................... 96.5 50.7 45.8
General/Corporate/Eliminations .............. 0.8 1.7 (0.9)
--------- --------- -----------
Total ....................................$ 225.8 $ 139.6 $ 86.2
========= ========= ===========
ENGINEERING, SELLING AND ADMINISTRATIVE EXPENSES
Terex Lifting ...............................$ 46.4 $ 40.0 $ 6.4
Terex Earthmoving ........................... 54.8 26.0 28.8
General/Corporate ........................... 2.6 2.5 0.1
--------- --------- -----------
Total ....................................$ 103.8 $ 68.5 $ 35.3
========= ========= ===========
INCOME (LOSS) FROM OPERATIONS
Terex Lifting ...............................$ 82.1 $ 47.2 $ 34.9
Terex Earthmoving ........................... 41.7 24.7 17.0
General/Corporate ........................... (1.8) (0.8) (1.0)
--------- --------- -----------
Total ....................................$ 122.0 $ 71.1 $ 50.9
========= ========= ===========
17
Net Sales
Sales increased $390.9 million, or approximately 46%, to $1,233.2 million in
1998 from $842.3 million in 1997. Internally generated growth represented
approximately $146 million of this revenue increase while the acquired companies
contributed approximately $245 million.
Terex Lifting's sales were $770.9 million for 1998, an increase of $222.9
million, or 41%, from $548.0 million in 1997 which did not include the results
of Simon Access in the first quarter. Machine sales increased $183.2 million to
$643.7 million while part sales increased $8.7 million to $81.6 million. The
increase in sales is related to internally generated growth of approximately
$138 million, primarily driven by strong performances within our crane and
utility aerial device businesses, and approximately $85 million related to
acquisitions. Terex Lifting's backlog increased $35.3 million to $221.8 million
driven by acquisitions in 1998 and a 9% increase in backlog at existing
businesses.
Terex Earthmoving's sales were $456.4 million in 1998, an increase of $168.0
million, or 58%, from $288.4 million in 1997, primarily driven by acquisitions
in 1998. Machine sales increased $86.6 million to $275.6 million while parts
sales increased $47.5 million to $143.7 million. The sales mix was approximately
31% parts in 1998 compared to approximately 33% parts in 1997. Backlog increased
to $196.4 million at December 31, 1998 from $30.3 million at December 31, 1997
primarily as a result of the Coal India order and the O&K acquisition.
Gross Profit
Gross profit for 1998 increased $86.2 million to $225.8 million as a result of
acquisitions, internally generated growth in Terex Lifting and general
improvements in gross profit margins. Gross profit as a percentage of net sales
for 1998 increased to 18.3% as compared to 16.6% for 1997.
Terex Lifting's gross profit increased $41.3 million, or 47%, to $128.5 million,
compared to $87.2 million in 1997. The increase in gross profit is driven by
acquisitions (approximately $16 million), internally generated growth and the
improvement in the gross profit percentage. Gross profit as a percentage of
sales increased to 16.7% from 15.9% in 1997 driven primarily by improvements in
our utility aerial device business.
Terex Earthmoving's gross profit increased $45.8 million, or 90%, to $96.5
million, compared to $50.7 million in 1997. The increase on gross profit and
gross profit as a percentage of sales, 21.1% compared to 17.6% in 1997, is
primarily related to the acquisitions in 1998.
Engineering, Selling and Administrative Expenses
Engineering, selling and administrative expenses (which include the Company's
research and development expenses) increased to $103.8 million in 1998 from
$68.5 million for 1997, reflecting the effects of the companies acquired in 1998
and 1997. However, excluding the effects of the acquisitions, engineering,
selling and administrative expenses as a percentage of sales decreased to 7.4%
from 8.1% in 1997. Terex Earthmoving's engineering, selling and administrative
expenses increased $28.8 million to $54.8 million for 1998 primarily due to the
effect of the 1998 acquisitions. Terex Lifting's engineering, selling and
administrative expenses increased to $46.4 million from $40.0 million in 1997,
reflecting the 1998 and 1997 acquisitions. Engineering, selling administrative
expenses as a percentage of sales, however, decreased to 6.0% from 7.3% in 1997.
Unallocated corporate expenses increased slightly to $2.6 million in 1998 as
compared to $2.5 million in 1997. See "Business--Research and Development" for a
discussion of the Company's engineering expenses.
Income (Loss) from Operations
Income from operations for the Company increased $50.9 million, or 72%, to
$122.0 million, compared to $71.1 million in 1997. Income from operations as a
percentage of sales increased to 9.9% compared to 8.4% in 1997.
Terex Lifting's income from operations increased $34.9 million, or 74%, to $82.1
million, as compared to $47.2 million in 1997. The increase is the result of
acquisitions (approximately $9 million), internal growth primarily driven by
strong performances within our crane and utility aerial businesses, and
continuing cost control efforts.
18
Terex Earthmoving's income from operations increased $17.0 million, or 69%, to
$41.7 million, compared to $24.7 million in 1997. As a percentage of sales,
income from operations increased to 9.1% from 8.6% in 1997. The increase in both
dollars and as a percentage is driven primarily by acquisitions.
Interest Expense
Net interest expense increased to $44.5 million for 1998 from $38.5 million in
1997 as a result of higher average debt levels due to the 1998 acquisitions. The
effect of the increased average debt levels was somewhat offset by the lower
interest rates due to the redemption by the Company of $166.7 million of the
13-1/4 % Senior Secured Notes (the "Senior Secured Notes") on March 6, 1998.
Extraordinary Items
During 1998, the Company recorded a charge of $38.3 million to recognize a loss
on the early extinguishment of debt in connection with the redemption of its
Senior Secured Notes and the refinancing of the Company's bank credit
facilities.
The Company recorded a charge of $2.6 million in 1997 to recognize a loss on the
early extinguishment of debt in connection with a debt refinancing in April
1997. Additionally, the Company recorded a charge of $12.2 million to recognize
a loss on the early extinguishment of debt in connection with the September 1997
redemption of $83.3 million of the Senior Secured Notes.
19
1997 Compared with 1996
The table below is a comparison of net sales, gross profit, engineering, selling
and administrative expenses, income (loss) from operations, and income (loss)
from discontinued operations, by segment, for 1997 and 1996. The 1996 amounts
include $30.0 million in special charges comprised of $18.3 million at Terex
Lifting ($16.8 gross profit; $1.6 million engineering, selling and
administrative expenses), $10.4 million at Terex Earthmoving (gross profit), and
$1.2 million General/Corporate (engineering, selling and administrative
expenses).
Year Ended December 31,
Increase
---------------------------
1997 1996 (Decrease)
------------- -------------- ---------------
(in millions of dollars)
NET SALES
Terex Lifting....................$ 548.0 $ 363.9 $ 184.1
Terex Earthmoving................. 288.4 314.9 (26.5)
General/Corporate/Eliminations.... 5.9 (0.3) 6.2
------------- -------------- ----------------
Total.........................$ 842.3 $ 678.5 $ 163.8
============= ============== ================
GROSS PROFIT
Terex Lifting....................$ 87.2 $ 38.1 $ 49.1
Terex Earthmoving................. 50.7 31.3 19.4
General/Corporate/Eliminations.... 1.7 (0.2) 1.9
------------- -------------- ----------------
Total.........................$ 139.6 $ 69.2 $ 70.4
============= ============== ===============
ENGINEERING, SELLING AND ADMINISTRATIVE EXPENSES
Terex Lifting....................$ 40.0 $ 33.3 $ 6.7
Terex Earthmoving................. 26.0 25.7 0.3
General/Corporate................. 2.5 5.1 (2.6)
------------- -------------- ----------------
Total.........................$ 68.5 $ 64.1 $ 4.4
============= ============== ================
INCOME (LOSS) FROM OPERATIONS
Terex Lifting....................$ 47.2 $ 4.8 $ 42.4
Terex Earthmoving................. 24.7 5.6 19.1
General/Corporate................. (0.8) (5.3) 4.5
------------- -------------- ----------------
Total.........................$ 71.1 $ 5.1 $ 66.0
============= ============== ================
INCOME FROM DISCONTINUED OPERATIONS
$ --- $ 102.0 $ (102.0)
============= ============== ================
Net Sales
Sales increased $163.8 million, or approximately 24.1%, to $842.3 million in
1997 from $678.5 million in 1996, primarily reflecting the Simon Access and
Square Shooter Acquisitions in the second quarter of 1997.
Terex Lifting's sales were $548.0 million for 1997, an increase of $184.1
million, or 50.6%, from $363.9 million in 1996 which did not include the results
of Simon Access and Square Shooter. Machine sales increased $168.7 million to
$460.5 million in 1997. This increase in sales was due primarily to the
inclusion of Simon Access and Square Shooter since their acquisition in April
1997. The increase in Terex Lifting's sales in 1997 as compared to 1996 was also
attributable to an increase of $22.7 million in sales at Terex--Waverly
Operations as compared to 1996. Parts sales increased $8.6 million to $72.9
million in 1997. Terex Lifting's bookings were $613.3 million for 1997, compared
to $356.1 million for 1996, an increase of $257.2 million.
20
Terex Earthmoving's sales decreased $26.5 million in 1997 to $288.4 million.
This decline in sales resulted from a decrease in sales of Unit Rig machines
which was partially offset by sales increases in the other Terex Earthmoving
businesses. Machine sales at Terex Earthmoving in 1997 decreased $22.2 million
to $189.0 million from $211.2 million in 1996 of which approximately $33 million
was attributable to a decrease in Unit Rig's machine sales partially offset by
increased sales in Terex products primarily in North America. Sales of parts at
Terex Earthmoving in 1997 increased $2.2 million to $96.2 million as compared to
$94.0 million in 1996. The sales mix was approximately 33% parts in 1997
compared to approximately 29% parts in 1996. Terex Earthmoving's bookings for
1997 were $268.0 million, a decrease of $9.9 million, or 3.6%, from 1996.
Backlog decreased to $30.3 million at December 31, 1997 from $53.4 million in
1996 primarily as a result of the decrease in machine sales at Unit Rig.
Gross Profit
Gross profit for 1997 increased $70.4 million to $139.6 million. The increase in
the gross profit was due to the addition of the Simon Access and Square Shooter
businesses, general improvements at most operations and the effect of $27.1
million of non-recurring charges in 1996. The 1996 charges included a $16.8
million write down of goodwill and other long lived assets at Terex Lifting and
$10.4 million of non-recurring charges recorded at Terex Earthmoving, primarily
Unit Rig, in the fourth quarter of 1996. Gross profit as a percentage of net
sales for 1997 increased to 16.6% as compared to 10.2% for 1996 as a result of
the effect of the non-recurring charges in 1996. Excluding these $27.1 million
charges in 1996, gross profit as a percentage of sales in 1997 increased to
16.6% from 14.2% in 1996.
Terex Lifting's gross profit increased $49.1 million to $87.2 million for 1997,
compared to $38.1 million for 1996, reflecting the Simon Access and Square
Shooter acquisitions. The gross profit percentage increased to 15.9% in 1997 as
compared to 10.5% in 1996. Excluding the effect of the Simon Access and Square
Shooter acquisitions and the 1996 impairment charge, Terex Lifting's gross
profit in 1997 increased $3.6 million as compared to 1996.
Terex Earthmoving's gross profit increased $19.4 million to $50.7 million in
1997 compared to $31.3 million for 1996. Excluding the $10.4 million
non-recurring charges in 1996 noted above, Terex Earthmoving's gross profit
increased $9.0 million in 1997 as compared to 1996. Excluding the 1996
non-recurring charges, the gross profit percentage in 1997 increased to 17.6%
from 13.2% in 1996 due to an increase in the proportion of higher margin parts
sales as compared to machine sales, an increase in the gross margin for the
Terex product line, primarily due to cost reduction initiatives, and a decrease
in the percentage of Terex Earthmoving's sales in 1997 comprised of the lower
margin Unit Rig machines.
Engineering, Selling and Administrative Expenses
Engineering, selling and administrative expenses (which include the Company's
research and development expenses) increased to $68.5 million in 1997 from $64.1
million for 1996, reflecting the effects of the acquisition of the Simon Access
Companies and Square Shooter. However, engineering, selling and administrative
expenses as a percentage of net sales decreased to 8.1% for 1997 from 9.4% for
1996. Terex Earthmoving's engineering, selling and administrative expenses
increased $0.3 million to $26.0 million for 1997 due to increased selling
efforts. Terex Lifting's engineering, selling and administrative expenses
increased to $40.0 million for 1997 from $33.3 million for 1996, reflecting the
acquisition of the Simon Access Companies and Square Shooter. Excluding the
effect of the acquired companies, Terex Lifting engineering, selling and
administrative expenses fell by almost 22% year over year. Unallocated corporate
engineering, selling and administrative expenses decreased to $2.5 million in
1997 as compared to $5.1 million in 1996. See "Business--Research and
Development" for a discussion of the Company's engineering expenses.
Income (Loss) from Operations
Terex Lifting's income from operations of $47.2 million for 1997 increased by
$42.4 million over 1996, primarily due to the inclusion of the Simon Access and
Square Shooter businesses ($14.3 million), the 1996 impairment charges, improved
results at the European operations and continued strong performance by Terex
Lifting--Waverly Operations.
Terex Earthmoving's income from operations increased by $19.1 million to $24.7
million for 1997 from $5.6 million in 1996, primarily due to improved profits at
Unit Rig, higher gross margin percentages and the 1996 non-recurring charges
mentioned above under "Gross Profit."
On a consolidated basis, the Company had operating income of $71.1 million for
1997,compared to operating income of $5.1 million for 1996, for the reasons
mentioned above.
21
Interest Expense
Net interest expense decreased to $38.5 million for 1997 from $43.6 million in
1996 as a result of lower average debt levels and interest rates in 1997. A
portion of the decrease was due to the $139.5 million of cash provided from the
sale of the Company's Materials Handling Segment in November 1996, which allowed
the Company to eliminate borrowings under its revolving credit facility prior to
the acquisition of the Simon Access Companies on April 7, 1997. Furthermore, the
proceeds from the issuance of Common Stock in July 1997 were used to reduce the
average balance borrowed under the then existing revolving credit facility, and
then on September 4, 1997, the Company redeemed $83.3 million of then
outstanding Senior Secured Notes.
Other Income (Expense)
The Company realized gains in 1996 of $3.3 million from the sale of excess
property principally in Scotland and Italy. During 1996, the Company recorded a
provision for income taxes of $12.1 million; in 1997, the Company recorded $0.7
million provision for income taxes. The 1996 provision for income taxes
primarily relates to $11.3 million of tax expense recognized at PPM Europe in
connection with its recapitalization which required the Company to utilize a net
operating loss carryforward. The additional $0.8 million provision relates to
taxes due on the sale of property in Europe.
Income (Loss) from Discontinued Operations
Income from discontinued operations in the Company's Material Handling Segment
("Clark") was $102.0 million for 1996. The income was primarily due to the gain
realized on the Clark Sale of $84.5 million.
Extraordinary Items
The Company recorded a charge of $2.6 million in 1997 to recognize a loss on the
early extinguishment of debt in connection with its debt refinancing in April
1997. Additionally, the Company recorded a charge of $12.2 million to recognize
a loss on the early extinguishment of debt in connection with the September 1997
redemption of $83.3 million of the Senior Secured Notes.
Liquidity and Capital Resources
Net cash of $19.5 million was used by operating activities during the year ended
December 31, 1998. During this period, $91.2 million was provided by operating
results before depreciation, amortization and extraordinary loss on retirement
of debt, and approximately $110 million was invested in working capital. The
investment in working capital was the result of a decision to invest in the
Terex Aerials business in Europe, the impact of the Coal India order and to
support the general increase in business activity. Net cash used in investing
activities was $222.0 million during the year ended December 31, 1998, primarily
related to the acquisitions of O&K Mining, Payhauler, Holland Lift, American
Crane, Italmacchine, Peiner, and Comedil. Net cash provided by financing
activities was $239.3 million during the year ended December 31, 1998. As
described below, cash was provided by the net proceeds from the issuance of
Terex's 8-7/8% Senior Subordinated Notes due 2008 and additional borrowings from
Terex's new bank credit facility. As also described below, cash was used in the
redemption or defeasance of the remainder of the Company's formerly outstanding
13-1/4% Senior Secured Notes. Cash and cash equivalents totaled $25.1 million at
December 31, 1998.
Debt reduction and an improved capital structure are major focal points for the
Company. In this regard, the Company regularly reviews its alternatives to
improve its capital structure and to reduce debt service through debt
refinancings, issuance of debt and/or equity, asset sales, including the sale of
business units, or any combination thereof.
Including the 1998 acquisitions of O&K Mining, American Crane, Holland Lift,
Payhauler, Italmacchine, Peiner and Comedil, since the beginning of 1995 Terex
has invested approximately $430 million to strengthen its core businesses
through ten strategic acquisitions. Terex expects that acquisitions and new
product development will continue to be important components of its growth
strategy and is continually reviewing acquisition opportunities. As with its
previous acquisitions, the Company will continue to pursue strategic
acquisitions, some of which could individually or in the aggregate be material,
which complement the Company's core operations, offer cost reduction
opportunities as well as distribution and purchasing synergies and provide
product diversification.
On October 15, 1998, the Company, through its Unit Rig division, was awarded a
$157.0 million order for the construction and delivery of 160 rigid off-highway
haul trucks from Coal India, the government agency for coal management in India.
As part of the contract, in January 1999 the Company received a down payment of
10% of the total contract value and in 1998 posted approximately $30 million in
letters of credit related to certain performance guarantees and to the 10% down
payment. It is anticipated that all trucks will be delivered during calendar
year 1999 and deliveries have commenced. Coal India is paying for the trucks
with a portion of a World Bank loan granted to the government of India in 1997,
and the order is fully supported by letters of credit.
22
On March 6, 1998, the Company refinanced its then existing credit facility and
redeemed or defeased all $166.7 million principal amount of its then outstanding
Senior Secured Notes. The proceeds for the offer to purchase the former 13-1/4%
Senior Secured Notes and the repayment of its then existing revolving credit
facility were obtained from borrowings under the Company's current bank credit
facility. In connection with the refinancing of the Company's then existing
credit facility and the repurchase of the remaining 13-1/4% Senior Secured
Notes, the Company incurred extraordinary losses of $1.9 million and $36.4
million, respectively. These extraordinary charges were recorded in the first
quarter of 1998. The total funds paid at the redemption were $202.2 million
($166.7 million principal, $28.7 million redemption premium and $6.8 million
accrued interest).
In addition, on March 31, 1998 the Company acquired O&K Mining GmbH for a net
aggregate consideration of approximately $168 million. Concurrently with the O&K
Mining acquisition, the Company issued $150.0 million of its 8-7/8% Senior
Subordinated Notes due 2008.
As of December 31, 1998, the Company's balance outstanding under its revolving
credit facility totaled $44.1 million, letters of credit issued under Terex's
revolving credit facility totaled $51.6 million, and the additional amount the
Company could have borrowed under its revolving credit facility was $29.3
million.
On March 9, 1999, the Company issued $100.0 million of its 8-7/8% Series C
Senior Subordinated Notes due 2008. The net proceeds from the offering will be
used to prepay scheduled principal payments due through March 31, 2000 of
approximately $30.0 million with respect to Term A and Term B indebtedness under
Terex's bank credit facility, to repay outstanding revolving credit indebtedness
and for acquisitions.
The Company's businesses are working capital intensive and require funding for
purchases of production and replacement parts inventories, capital expenditures
for repair, replacement and upgrading of existing facilities as well as
financing of receivables from customers and dealers. The Company has significant
debt service requirements including semi-annual interest payments on its 8-7/8%
Senior Subordinated Notes due 2008 and monthly interest payments on the
Company's bank credit facility.
The Company believes that cash generated from operations, together with the
Company's revolving credit facility and recently issued 8-7/8% senior
subordinated notes due 2008, provides the Company adequate liquidity to meet its
operating and debt service requirements.
Contingencies and Uncertainties
Internal Revenue Service
The Company's federal income tax returns for the years 1987 through 1989 are
currently being audited by the IRS. In December 1994, the Company received an
examination report from the IRS proposing a large tax deficiency. The
examination report raised many issues. Among these issues are substantiation for
certain tax deductions and whether the Company was able to use certain net
operating loss carryovers ("NOLs") to offset taxable income. In April 1995, the
Company filed an administrative appeal to the examination report. The IRS is
currently reviewing information the Company provided to it. The final outcome of
this audit is subject to the resolution of complicated legal and factual issues.
Given the number and complexity of the legal and administrative proceedings
involved, this audit could continue for several more years.
If the IRS prevails on all the issues raised, the amount of the tax the Company
would have to pay would be approximately $56 million plus penalties of
approximately $12.8 million and interest through December 31, 1998 of
approximately $112.1 million. The penalties claimed by the IRS are between 20%
and 25% of the amount of the tax deficiency assessed against the Company.
Interest on the amount of tax deficiency and penalties assessed against the
Company is currently accruing at a rate of 9% per annum. If the Company is
required to pay a significant portion of the tax deficiency claimed by the IRS,
it may not have or be able to obtain the money necessary to pay the tax
deficiency and continue in business.
The Company believes that it is able to provide adequate documentation for a
large part of the tax deductions the IRS has disallowed. In addition, the IRS
has recently advised the Company that it is no longer challenging the Company's
right to use the NOLs in question. As a result, the Company does not believe
that the outcome of the audit will have a material adverse effect on its
financial condition or results of operations. However, the Company may lose or
have to use some of its NOLs as a result of the audit. In addition, there is
also a possibility that the Company will have to pay some amount of tax,
penalties and interest to the IRS to resolve this matter. The final outcome of
the audit cannot be determined or estimated at this time. Accordingly, the
Company does not have any additional reserves for amounts which might be due as
a result of the audit because the loss ranges from zero to $56 million plus
interest and penalties.
23
Securities and Exchange Commission
In March 1994, the Securities and Exchange Commission began a private
investigation of the Company and certain of its present and former officers and
directors. The purpose of the investigation was to determine whether any of
these parties had violated federal securities laws. To date, this investigation
has focused primarily on the accounting treatment and the reporting (in filings
with the SEC) of various transactions which took place in the late 1980s and the
early 1990s. The Company is cooperating with the SEC in its investigation.
The SEC has advised the Company that it may bring an administrative proceeding
against the Company and certain of its present and former officers and
directors. The Company understands that if the SEC brings such proceedings, the
SEC would seek an order requiring the Company to cease and desist violating the
federal securities laws, but would not impose monetary penalties on the Company.
Such an order would be based on claims relating to the accounting treatment and
the reporting in the Company's financial statements for the years ended December
31, 1990 and 1991, and its Proxy Statement for the 1992 fiscal year. The Company
is currently in negotiations with the SEC to resolve this matter.
It is not possible at this time for us to determine the outcome of this
investigation.
Year 2000 Issue
The Year 2000 ("Y2K") problem is the result of computer programs being written
using two digits rather than four to define the applicable year. Thus, the year
1998 is represented by the number "98" in many legacy software applications.
Consequently, on January 1, 2000 the year will jump back to "00" for many
non-Y2K compliant applications. To systems that are non-Y2K compliant, the time
will seem to have reverted back 100 years. Accordingly, when computing basic
lengths of time, computer programs, certain building infrastructure components
(including elevators, alarm systems, telephone networks, sprinkler systems,
security access systems and certain HVAC systems) and any additional
time-sensitive software that are non-Y2K compliant may recognize a date using
"00" as the Year 1900. This could result in system failures or miscalculations
which could cause personal injury, property damage, disruption of operations,
and/or delays in payments from Terex's customers, any or all of which could
materially adversely affect Terex's business, financial condition, liquidity or
results of operations.
The Company has conducted a company-wide assessment of its computer systems,
products and operations infrastructure to identify computer hardware, software,
and process control systems that are not Y2K compliant. The Company believes
that it has identified those business-critical computer systems which are not
presently Y2K compliant, and has instituted a plan to replace, upgrade or modify
most of these systems by mid-1999. However, the Company acquired seven new
companies during 1998, all but one of which is located in Europe. The
business-critical systems of certain of the newly acquired companies, including
O&K Mining, were not Y2K compliant at the time of acquisition. The Company has
instituted a plan to replace, upgrade or modify the systems at these acquired
companies and expects to be completed by the end of 1999; however, no assurance
can be given that the replacement, upgrade or modification of the systems at
these companies will be timely completed. The total cost associated with
required modifications to become Y2K compliant is not expected to exceed $5
million, and a significant portion of these costs were planned upgrades to the
current financial and operating systems.
The Company has also initiated communications with third parties whose computer
systems' functionality could impact Terex. These communications will facilitate
coordination of Y2K solutions and will permit the Company to determine the
extent to which the Company may be vulnerable to failures of third parties to
address their own Y2K issues. To date, the Company has not identified any
significant issues with respect to third parties.
The failure to correct a material Y2K problem could result in an interruption
in, or a failure of, certain normal business activities or operations. Such
failures could materially and adversely affect the Company's results of
operations, liquidity and financial condition. Due to the general uncertainty
inherent in the Y2K problem, resulting in part from the uncertainty of the Year
2000 readiness of third-party suppliers and customers, the Company is unable to
determine at this time whether the consequences of Y2K failures will have a
material impact on the Company's results of operations, liquidity or financial
condition, and as such, has not yet established a contingency plan to handle the
most reasonably likely worst case scenario. The Company's Y2K project is
expected to significantly reduce the Company's level of uncertainty about the
Y2K problem and, in particular, about the Y2K compliance and readiness of its
material suppliers and customers. The Company believes that, with the
implementation of new business systems and completion of its Y2K project as
scheduled, the possibility of significant interruptions of normal operations
should be reduced.
24
Euro
On January 1, 1999, 11 of the 15 member countries of the European Union
established fixed conversion rates between their existing currencies ("legacy
currencies") and one common currency--the euro. The euro now trades on currency
exchanges and may be used in business transactions. Beginning in January 2002,
new euro-denominated bills and coins will be issued, and legacy currencies will
be withdrawn from circulation. Terex's operating subsidiaries affected by the
euro conversion are assessing the systems and business issues raised by the euro
currency conversion. These issues include, among others, (1) the need to adapt
computer and other business systems and equipment to accommodate
euro-denominated transactions and (2) the competitive impact of cross-border
price transparency, which may make it more difficult for businesses to charge
different prices for the same products on a country-by-country basis
particularly once the euro currency is issued in 2002. The Company anticipates
that the euro conversion will not have a material adverse impact on its
financial condition or results of operations.
Other
The Company is subject to a number of contingencies and uncertainties including
product liability claims, self-insurance obligations, tax examinations and
guarantees. Many of the exposures are unasserted or proceedings are at a
preliminary stage, and it is not presently possible to estimate the amount or
timing of any cost to the Company. However, the Company does not believe that
these contingencies and uncertainties will, in the aggregate, have a material
adverse effect on the Company. When it is probable that a loss has been incurred
and possible to make reasonable estimates of the Company's liability with
respect to such matters, a provision is recorded for the amount of such estimate
or for the minimum amount of a range of estimates when it is not possible to
estimate the amount within the range that is most likely to occur.
The Company generates hazardous and nonhazardous wastes in the normal course of
its manufacturing operations. As a result, 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 and also require compliance with certain practices when handling and
disposing of hazardous and nonhazardous 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.
Compliance with these laws and regulations has, and will continue to require,
the Company to make expenditures. The Company does not expect that these
expenditures will have a material adverse effect on its business or
profitability.
Foreign Currencies and Interest Rate Risk
The Company's products are sold in over 50 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 Pound Sterling, the French Franc, the German Mark and the
Italian Lira. The Company may, from time to time, hedge specifically identified
committed cash flows in foreign currencies using forward currency sale or
purchase contracts. Such foreign currency contracts have not historically been
material in amount.
Because certain of the Company's obligations, including indebtedness under the
Company's bank credit facility will bear interest at floating rates, an increase
in interest rates could adversely affect, among other things, the results of
operations of the Company. The Company has entered into interest protection
arrangements with respect to approximately $220 million of the principal amount
of its indebtedness under its bank credit facility fixing interest at various
rates between 6.6% and 8.2%.
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
beyond the Company's control, include, among others: the sensitivity of
construction and mining activity to interest rates, government spending and
general economic conditions; the ability to successfully integrate acquired
businesses; the retention of key management personnel; foreign currency
fluctuations; the Company's businesses are very competitive and may be affected
25
by pricing, product initiatives and other actions taken by competitors; the
effects of changes in laws and regulations; the Company's business is
international in nature and is subject to exchange rates between currencies, as
well as international politics; the ability of suppliers to timely supply parts
and components at competitive prices and the Company's ability to timely
manufacture and deliver products to customers; compliance with the restrictive
covenants contained in the Company's debt agreements; continued use of net
operating loss carryovers; the outcome of the Internal Revenue Service audit;
the outcome of the Securities and Exchange Commission investigation; compliance
with applicable environmental laws and regulations; and other factors. Actual
events or the actual future results of the Company may differ materially from
any forward looking statement due to these and other risks, uncertainties and
significant factors. The forward-looking statements contained herein speak only
as of the date of this Annual Report and the forward-looking statements
contained in documents incorporated herein by reference speak only as of the
date of the respective documents. The Company expressly disclaims any obligation
or undertaking to release publicly any updates or revisions to any
forward-looking statement contained or incorporated by reference in this Annual
Report to reflect any change in the Company's expectations with regard thereto
or any change in events, conditions or circumstances on which any such statement
is based.
Item 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to certain market risks which exist as part of its
ongoing business operations and the Company uses derivative financial
instruments, where appropriate, to manage these risks. The Company, as a matter
of policy, does not engage in trading or speculative transactions. See Note A in
the Consolidated Financial Statements for further information on accounting
policies related to derivative financial statements.
Foreign Exchange Risk
The Company is exposed to fluctuations in foreign currency cash flows related to
third party purchases, 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, British Pound, German Mark, French Franc and Italian
Lira. 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, 1998 and 1997 the
Company had foreign exchange contracts, which were hedges of firm commitments,
totaling $11.0 million and $13.8 million, respectively, fair value of which
approximates carrying value.
Interest Rate Risk
The Company is exposed to interest rate volatility with regard to future
issuances of fixed rate debt and existing issuances of variable rate debt.
Primary exposure includes movements in the U.S. prime rate and London Interbank
Offer Rate ("LIBOR"). The Company uses interest rate swaps to reduce interest
rate volatility. At December 31, 1998, the Company had approximately $220
million of interest rate swaps fixing interest rates between 6.6% and 8.2%. The
fair market value of these arrangements, which represents the cost to settle
these contracts, was a liability of approximately $(4.3) million at December 31,
1998.
At December 31, 1998, 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, 1998 would have increased interest expense by
approximately $1.6 million.
26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Unaudited Quarterly Financial Data
Summarized quarterly financial data for 1998 and 1997 are as follows (in
millions, except per share amounts):
1998 1997
----------------------------------------------------------------------------
Fourth Third Second First Fourth Third Second First
----------------------------------------------------------------------------
Net sales $ 320.4 $ 318.7 $ 333.5 $ 260.6 $ 219.7 $ 214.1 $ 232.2 $ 176.3
Gross profit 61.7 58.7 60.6 44.8 36.8 37.0 38.3 27.5
Income (loss) before extraordinary items 18.1 19.7 20.6 14.4 10.0 8.7 7.7 3.9
Net income (loss) 18.1 19.7 20.6 (23.9) 10.0 (3.5) 5.1 3.9
Income (loss) applicable to common stock 18.1 19.7 20.6 (23.9) 6.4 (3.9) 4.7 3.5
Per share:
Basic
Income (loss) before extraordinary items $ 0.87 $ 0.95 $ 1.00 $ 0.70 $ 0.32 $ 0.47 $ 0.54 $ 0.26
Net income (loss) 0.87 0.95 1.00 (1.16) 0.32 (0.21) 0.35 0.26
Diluted
Income (loss) before extraordinary items $ 0.81 $ 0.88 $ 0.92 $ 0.65 $ 0.30 $ 0.43 $ 0.48 $ 0.24
Net income (loss) 0.81 0.88 0.92 (1.08) 0.30 (0.20) 0.31 0.24
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.
In the first quarter of 1998, the Company recognized extraordinary losses on the
early extinguishment of debt -- $1.9 million in connection with the refinancing
of its then existing credit facility and $36.4 million in connection with the
repurchase of its Senior Secured Notes.
In 1997, the Company recognized an extraordinary loss on the early
extinguishment of debt -- $2.6 million in connection with the refinancing of its
then existing revolving credit in the second quarter and $12.2 million in
connection with the redemption of $83.3 million of its Senior Secured Notes in
the third quarter.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
27
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Items 10 through 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.
PART IV
ITEM 14. 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 "Index to Exhibits" on Page E-1.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of 1998.
28
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 30, 1999
-------------------------
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 30, 1999
- --------------------------
Ronald M. DeFeo and Director
(Principal Executive Officer)
/s/ Joseph F. Apuzzo Vice President - Corporate Finance March 30, 1999
- --------------------------
Joseph F. Apuzzo (Principal Financial Officer)
/s/ Kevin M. O'Reilly Controller March 30, 1999
- --------------------------
Kevin M. O'Reilly (Principal Accounting Officer))
/s/ G. Chris Andersen Director March 30, 1999
- --------------------------
G. Chris Andersen
/s/ Donald P. Jacobs Director March 30, 1999
- --------------------------
Donald P. Jacobs
/s/ William H. Fike Director March 30, 1999
- --------------------------
William H. Fike
/s/ Bruce I. Raben Director March 30, 1999
- --------------------------
Bruce I. Raben
/s/ Marvin B. Rosenberg Director March 30, 1999
- --------------------------
Marvin B. Rosenberg
/s/ David A. Sachs Director March 30, 1999
- --------------------------
David A. Sachs
29
THIS PAGE IS INTENTIONALLY BLANK
NEXT PAGE IS NUMBERED "F-1"
30
TEREX CORPORATION AND SUBSIDIARIES
Index to Consolidated Financial Statements and Financial Statement Schedules
Page
TEREX CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1998 AND 1997
AND FOR EACH OF THE THREE YEARS
IN THE PERIOD ENDED DECEMBER 31, 1998
Report of independent accountants...................................... F - 2
Consolidated statement of income ...................................... F - 3
Consolidated balance sheet............................................. F - 4
Consolidated statement of changes in stockholders' equity (deficit).... F - 5
Consolidated statement of cash flows................................... F - 6
Notes to consolidated financial statements............................. F - 7
PPM CRANES, INC.
CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1998 AND 1997
AND FOR EACH OF THE THREE YEARS
IN THE PERIOD ENDED DECEMBER 31, 1998
Report of independent accountants...................................... F - 36
Consolidated statement of operations................................... F - 37
Consolidated balance sheet............................................. F - 38
Consolidated statement of changes in shareholders' deficit............. F - 39
Consolidated statement of cash flows................................... F - 40
Notes to consolidated financial statements............................. F - 41
FINANCIAL STATEMENT SCHEDULES
Schedule II -- Valuation and Qualifying Accounts and Reserves.......... F - 48
Schedule IV -- Indebtedness of and to Related Parties -- Not Current... F - 49
All other schedules for which provision is made in the applicable regulations of
the Securities and Exchange Commission are not required under the related
instructions or are not applicable, and therefore have been omitted.
F - 1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of Terex Corporation
In our opinion, the Terex Corporation 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, 1998 and 1997, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards 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 the opinion expressed
above.
PricewaterhouseCoopers LLP
Stamford, Connecticut
March 1, 1999
F - 2
TEREX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(in millions, except per share amounts)
Year Ended December 31,
------------------------------------
1998 1997 1996
----------- ----------- ------------
NET SALES................................................. $ 1,233.2 $ 842.3 $ 678.5
COST OF GOODS SOLD........................................ 1,007.4 702.7 609.3
----------- ----------- ------------
GROSS PROFIT........................................... 225.8 139.6 69.2
ENGINEERING, SELLING AND ADMINISTRATIVE EXPENSES.......... 103.8 68.5 64.1
----------- ----------- ------------
INCOME FROM OPERATIONS................................. 122.0 71.1 5.1
OTHER INCOME (EXPENSE)
Interest income........................................ 2.7 0.9 1.2
Interest expense....................................... (47.2) (39.4) (44.8)
Amortization of debt issuance costs.................... (2.1) (2.6) (2.6)
Other income (expense) - net........................... (0.9) 1.0 (1.1)
----------- ----------- ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES AND EXTRAORDINARY ITEMS................. 74.5 31.0 (42.2)
PROVISION FOR INCOME TAXES................................ (1.7) (0.7) (12.1)
----------- ----------- ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
EXTRAORDINARY ITEMS.................................... 72.8 30.3 (54.3)
INCOME FROM DISCONTINUED OPERATIONS
(net of tax expense of $2.6 in 1996)................... --- --- 102.0
----------- ----------- ------------
INCOME BEFORE EXTRAORDINARY ITEMS....................... 72.8 30.3 47.7
EXTRAORDINARY LOSS ON RETIREMENT OF DEBT.................. (38.3) (14.8) ---
----------- ----------- ------------
NET INCOME ............................................ 34.5 15.5 47.7
LESS PREFERRED STOCK ACCRETION............................ --- (4.8) (22.9)
----------- ----------- ------------
INCOME APPLICABLE TO COMMON STOCK...................... $ 34.5 $ 10.7 $ 24.8
=========== =========== ============
PER COMMON AND COMMON EQUIVALENT SHARE:
Basic
Income (loss) from continuing operations............ $ 3.52 $ 1.57 $ (6.54)
Income from discontinued operations................. --- --- 8.64
----------- ----------- ------------
Income before extraordinary items................ 3.52 1.57 2.10
Extraordinary loss on retirement of debt............ (1.85) (0.91) ---
----------- ----------- ------------
Net income........................................... $ 1.67 $ 0.66 $ 2.10
=========== =========== ============
Diluted
Income (loss) from continuing operations............ $ 3.25 $ 1.44 $ (5.81)
Income from discontinued operations................. --- --- 7.67
----------- ----------- ------------
Income before extraordinary items............... 3.25 1.44 1.86
Extraordinary loss on retirement of debt............ (1.71) (0.84) ---
----------- ----------- ------------
Net income.......................................... $ 1.54 $ 0.60 $ 1.86
=========== =========== ============
AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING IN PER SHARE CALCULATION:
Basic............................................. 20.7 16.2 11.8
Diluted........................................... 22.4 17.7 13.3
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,
------------------------
1998 1997
------------ -----------
CURRENT ASSETS
Cash and cash equivalents.......................................... $ 25.1 $ 28.7
Trade receivables (less allowance $5.6 and $4.5 as
of December 31, 1998 and 1997)................................... 249.8 139.3
respectively).........................................................
Net inventories.................................................... 472.8 232.1
Other current assets............................................... 23.9 26.4
------------ -----------
Total Current Assets............................ 771.6 426.5
LONG-TERM ASSETS
Property, plant and equipment - net................................ 99.5 47.8
Goodwill - net..................................................... 240.9 88.4
Other assets - net................................................. 39.2 25.8
------------ ------------
TOTAL ASSETS.......................................................... $ 1,151.2 $ 588.5
============ ============
CURRENT LIABILITIES
Notes payable and current portion of long-term debt................ $ 44.7 $ 26.6
Trade accounts payable............................................. 226.9 138.1
Accrued compensation and benefits.................................. 24.7 16.4
Accrued warranties and product liability........................... 36.0 25.3
Other current liabilities.......................................... 93.1 29.7
------------ ------------
Total Current Liabilities........................ 425.4 236.1
NON CURRENT LIABILITIES
Long-term debt, less current portion............................... 586.6 273.5
Other.............................................................. 41.1 19.3
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Warrants to purchase common stock.................................. 0.8 0.8
Equity rights....................................................... 3.1 3.2
Common Stock, $0.01 par value --
authorized 150.0 and 30.0 shares; issued and outstanding 20.8
and 20.5 shares at December 31, 1998 and 1997, respectively..... 0.2 0.2
Additional paid-in capital......................................... 179.0 178.7
Accumulated deficit................................................ (80.9) (115.4)
Accumulated other comprehensive income............................. (4.1) (7.9)
------------ ------------
Total Stockholders' Equity......................... 98.1 59.6
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............................ $ 1,151.2 $ 588.5
============ ============
The accompanying notes are an integral part of these financial statements.
F - 4
TEREX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(in millions)
Acumulated
Additional Accumu- Other
Equity Common Paid-in lated Comprehensive Total
Warrants Rights Stock Capital Deficit Income
--------- ----------- --------- ---------- ------------ ------------- ---------------
BALANCE AT
DECEMBER 31, 1995....... $ 17.2 $ --- $ 0.1 $ 40.5 $ (150.9) $ (3.8) $ (96.9)
Net income................ --- --- --- --- 47.7 --- 47.7
Other Comprehensive Income:
Unrealized holding loss
on equity securities... --- --- --- --- --- (1.0) (1.0)
Translation adjustment --- --- --- --- --- (0.6) (0.6)
Pension liability --- --- --- --- --- 0.7 0.7
adjustment
----------------
Comprehensive Income...... 46.8
----------------
Accretion of carrying value
of redeemable preferred
stock to redemption value --- --- --- --- (22.9) --- (22.9)
Conversion of Warrants.... (14.0) --- --- 14.0 --- --- ---
Issuance of common stock.. --- --- --- 1.3 --- --- 1.3
---------- ----------- ---------- --------- ------------ ------------- ----------------
BALANCE AT
DECEMBER 31, 1996....... 3.2 --- 0.1 55.8 (126.1) (4.7) (71.7)
Net income................ --- --- --- --- 15.5 --- 15.5
Other Comprehensive Income:
Conversion of Series
B preferred stock --- --- --- 1.0 --- --- 1.0
Translation adjustment --- --- --- --- --- (3.4) (3.4)
Pension liability --- --- --- --- --- 0.2 0.2
adjustment
----------------
Comprehensive Income...... 13.3
----------------
Accretion of carrying value
of redeemable preferred
stock to redemption value --- --- --- --- (4.8) --- (4.8)
Conversion of Warrants.... (2.4) --- --- 2.4 --- --- ---
Issuance of Common Stock.. --- --- 0.1 106.1 --- --- 106.2
Reclassification of equity
rights from non-current --- 3.2 --- --- --- --- 3.2
liabilities
Exchange of Preferred Stock
of a subsidiary for common
stock................... --- --- --- 13.4 --- --- 13.4
---------- ----------- ---------- --------- ------------ ------------- ----------------
BALANCE AT
DECEMBER 31, 1997....... 0.8 3.2 0.2 178.7 (115.4) (7.9) 59.6
Net income................ --- --- --- --- 34.5 --- 34.5
Other Comprehensive Income:
Translation adjustment --- --- --- --- --- 3.8 3.8
----------------
Comprehensive Income...... 38.3
----------------
Issuance of Common Stock.. --- --- --- 0.8 --- --- 0.8
Exercise of Equity Rights. --- (0.1) --- (0.5) --- --- (0.6)
---------- ----------- ---------- --------- ------------ ------------- ----------------
BALANCE AT DECEMBER 31, 1998
$ 0.8 $ 3.1 $ 0.2 $ 179.0 $ (80.9) $ (4.1) $ 98.1
========== =========== ========== ========= ============ ============= ================
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,
------------------------------------------
1998 1997 1996
--------------- ------------- ------------
OPERATING ACTIVITIES
Net Income................................................................$ 34.5 $ 15.5 $ 47.7
Adjustments to reconcile net income to cash used in operating activities:
Depreciation .......................................................... 10.1 8.2 7.0
8.3 6.1 6.7
Amortization...........................................................
Extraordinary loss on retirement of debt............................... 38.3 14.8 ---
Gain on sale of discontinued operations................................ --- --- (84.5)
Impairment charges and asset writedowns................................ --- --- 33.8
Deferred taxes......................................................... --- --- 11.3
Other.................................................................. --- 0.1 (2.9)
Changes in operating assets and liabilities (net of effects of acquisitions):
Trade receivables.................................................. (45.5) (4.8) (23.7)
Net inventories.................................................... (106.1) (11.5) (12.7)
Net assets of discontinued operations.............................. --- --- (5.4)
Trade accounts payable............................................. 35.7 6.5 4.9
Accrued compensation and benefits.................................. 7.8 (2.6) 3.3
Other, net......................................................... (2.6) (32.6) (3.1)
--------------- ------------- -------------
Net cash used in operating activities............................ (19.5) (0.3) (17.6)
--------------- ------------- -------------
INVESTING ACTIVITIES
Acquisition of businesses, net of cash acquired........................ (211.3) (97.2) ---
Capital expenditures................................................... (13.1) (9.9) (8.1)
Proceeds from sale of excess assets.................................... 2.4 8.5 6.5
Net proceeds from sale of discontinued operations ..................... --- --- 137.2
Other.................................................................. --- --- 0.1
--------------- ------------- -------------
Net cash provided by (used in) investing activities.............. (222.0) (98.6) 135.7
--------------- ------------- -------------
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt, net of issuance costs........ 513.6 --- ---
Net borrowings (repayments) under revolving line of credit agreements.. (71.5) 99.7 (55.0)
Principal repayments of long-term debt................................. (170.8) (83.7) (1.0)
Payment of premiums on early extinguishment of debt.................... (29.0) (9.9) ---
Redemption of preferred stock.......................................... --- (45.4) ---
Issuance of common stock............................................... --- 104.6 ---
Other.................................................................. (3.0) (1.1) 5.6
--------------- ------------- -------------
Net cash provided by (used in) financing activities.............. 239.3 64.2 (50.4)
--------------- ------------- -------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS..............
(1.4) (8.6) (2.7)
--------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...................... (3.6) (43.3) 65.0
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.......................... 28.7 72.0 7.0
--------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................................$ 25.1 $ 28.7 $ 72.0
=============== ============= =============
The accompanying notes are an integral part of these financial statements.
F - 6
TEREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
(dollar amounts in millions, unless otherwise noted, except per share amounts)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. As set forth in Note C below, the Company sold its Clark
Material Handling business on November 27, 1996. The sale resulted in a gain of
$84.5. The Clark Material Handling business is accounted for as a discontinued
operation in the consolidated statement of operations for the year ended
December 31, 1996.
Generally accepted accounting principles permit, but do not require, the
allocation of interest expense between continuing and discontinued operations.
Because the methods allowed under generally accepted accounting principles for
calculating interest expense to be allocated to discontinued operations are not
necessarily indicative of the use of proceeds from the sale of the Clark
Material Handling business by the Company, and the effect on interest expense of
the continuing operations of the Company, the Company has elected not to
allocate interest expense to discontinued operations. The results of this
election is that loss from continuing operations includes substantially all of
the interest expense of the Company, and income from discontinued operations
does not include any material interest expense.
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."
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 results 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.
Inventories. Inventories are stated at the lower of cost or market value. Cost
is determined by the first-in, first-out ("FIFO") method.
Debt Issuance Costs. Debt issuance costs incurred in securing the Company's
financing arrangements are capitalized and amortized over the term of the
associated debt. Capitalized debt issuance costs related to debt that is retired
early are charged to expense at the time of retirement. Debt issuance costs
before amortization totaled $14.2 and $12.6 at December 31, 1998 and 1997,
respectively. During 1998, 1997 and 1996, the Company amortized $2.1, $2.6 and
$2.6, respectively, of capitalized debt issuance costs; in addition, $7.7 and
$4.1 of such costs were charged to extraordinary loss on retirement of debt in
1998 and 1997, respectively.
Intangible Assets. Intangible assets include purchased patents, trademarks and
other specifically identifiable assets arising from business combinations and
are amortized on a straight-line basis over the respective estimated useful
lives not exceeding seven years.
Goodwill. 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, is being amortized on a straight-line basis over between
fifteen and forty years. Accumulated amortization is $15.1 and $8.9 at December
31, 1998 and 1997, respectively.
Property, Plant and Equipment. Property, plant and equipment are stated at cost.
Expenditures for major renewals and improvements are capitalized while
expenditures for maintenance and repairs not expected to extend the life of an
asset beyond its normal useful life are charged to expense when incurred. Plant
and equipment are depreciated over the estimated useful lives of the assets
under the straight-line method of depreciation for financial reporting purposes
and both straight-line and other methods for tax purposes.
F - 7
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 is less than its carrying value. The amount of any impairment then
recognized would be calculated as the difference between estimated future
discounted cash flows and the carrying value of the asset. (See Note D --
"Impairment of Long Lived Assets and Other Special Charges.")
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 deliver 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.
Accrued Warranties and Product Liability. The Company records accruals for
potential warranty and product liability claims based on the Company's claim
experience. Warranty costs are accrued at the time revenue is recognized. The
Company provides self-insurance accruals for estimated product liability
experience on known claims and for claims anticipated to have been incurred
which have not yet been reported.
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 new standard
related to the benefits. (See Note L -- "Retirement Plans.")
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.
Financial Instruments. The Company may from time to time use foreign exchange
contracts to hedge recorded balance sheet amounts related to certain
international operations and firm commitments that create currency exposures.
The Company does not enter into speculative contracts. Gains and losses on
hedges of assets and liabilities are recognized in income as offsets to the
gains and losses from the underlying hedged amounts. Gains and losses on hedges
of firm commitments are recorded on the basis of the underlying transaction. At
December 31, 1998 and 1997 the Company had foreign exchange contracts, which
were hedges of firm commitments, totaling $11.0 and $13.8, respectively, fair
value of which approximates their carrying value.
As certain of the Company's obligations, including indebtedness under the New
Bank Credit facility (as defined in Note G), bear interest at floating rates,
the Company entered into certain interest protection arrangements. At December
31, 1998, the Company had approximately $220 of such interest protection
arrangements fixing interest at various rates between 6.6% and 8.2%. The
differentials to be received or paid are recognized as adjustments to interest
expense. The fair market value of these arrangements approximated $(4.3).
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, 1998 and 1997.
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 Engineering, Selling and
Administrative Expenses.
F - 8
Income Taxes. Prepaid and deferred taxes reflect the impact of temporary
differences between the amounts of assets and liabilities recognized for
financial reporting purposes and the amounts recognized for tax purposes as well
as tax credit carryforwards and loss carryforwards. These deferred taxes are
measured by applying currently enacted tax rates. A valuation allowance reduces
deferred tax assets when it is "more likely than not" that some portion or all
of the deferred tax assets will not be realized. (See Note I -- "Income Taxes.")
Earnings Per Share. Basic earnings per share is computed by dividing net income
for the period by the weighted average number of shares of Terex common stock
outstanding. Diluted earnings per share is computed by dividing net income for
the period by the weighted average number of shares of Terex common stock
outstanding and dilutive potential common shares. In computing diluted earnings
per share the assumed exercise of warrants, equity rights and stock options at
December 31, 1998 was 0.1, 0.8 and 0.8, respectively.
Comprehensive Income. In the first quarter of 1998, the Company adopted SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 requires disclosure of total
non-shareowner changes in equity in interim periods and additional disclosures
of the components of non-shareowner changes in equity on an annual basis.
Comprehensive income is disclosed in the Consolidated Statement of Changes in
Stockholder's Equity (Deficit).
Hedging Activities. In June 1998, the Financial Accounting Standards Board
issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which establishes a new model for accounting for derivative and
hedging activities and supersedes and amends a number of existing standards.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. Upon
initial application, all derivatives are 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. The Company does not
expect that adoption of this statement will have a significant impact on its
financial position or results of operations.
NOTE B -- ACQUISITIONS
On January 5, 1998, the Company completed the purchase of Payhauler Corp.
("Payhauler"). Payhauler, which is part of the Terex Earthmoving segment,
manufactures four-wheel drive off-highway trucks.
On March 31, 1998, the Company purchased all of the outstanding shares of O&K
Mining GmbH ("O&K Mining") from O&K Orenstein & Koppel AG ("Orenstein & Koppel")
for net aggregate consideration of approximately $168, subject to certain
post-closing adjustments. The transaction was financed through the issuance of
the Company's New Senior Subordinated Notes (as defined in Note G) and
borrowings under the Company's New Bank Credit Facility. O&K Mining, which is
part of the Terex Earthmoving segment, is headquartered in Dortmund, Germany,
and has operations in the United States, the United Kingdom, Australia, Canada,
South Africa and Singapore. O&K Mining markets a complete range of large
hydraulic mining shovels serving the global surface mining industry and the
global construction and infrastructure development markets.
On May 4, 1998, the Company completed the purchase of Holland Lift International
B.V. ("Holland Lift"). Holland Lift, which is part of the Terex Lifting segment,
manufactures aerial work platforms at its facility near Amsterdam, the
Netherlands.
On July 31, 1998, the Company completed the acquisition of The American Crane
Corporation ("American Crane"). American Crane, which is part of the Terex
Lifting segment, manufactures lattice boom cranes at its facility in Wilmington,
North Carolina.
On November 3, 1998, the Company completed the acquisition of Italmacchine SpA
("Italmacchine"). Italmacchine, which is part of the Terex Lifting segment,
manufactures rough terrain telescopic boom forklifts at its facility near
Perugia, Italy
On November 13, 1998, the Company completed the acquisition of Peiner HTS
("Peiner"). Peiner, which is part of the Terex Lifting segment, manufactures
tower cranes at it its facility in Trier, Germany.
On December 18, 1998, the Company completed the acquisition of Gru Comedi SpA
("Comedil"). Comedil, which is part of the Terex Lifting segment, manufactures
tower cranes at its facility in Fontanafredda, Italy.
F - 9
The Payhauler, O&K Mining, Holland Lift, American Crane, Italmacchine, Peiner
and Comedil acquisitions are being accounted for using the purchase method, with
the purchase price allocated to the assets acquired and the liabilities assumed
based upon their respective estimated fair values at the date of acquisition.
The excess of purchase price over the net assets acquired (approximately $153)
is being amortized on a straight-line basis over 40 years. The Company is in the
process of completing evaluations and estimates for purposes of determining
certain values and as such, may revise the estimates as additional information
is obtained.
Simon Access and Baraga - On April 7, 1997, the Company completed the purchase
of the industrial businesses of Simon Access division ("Simon Access") of Simon
Engineering plc for $90 in cash, subject to adjustment. Simon Access, which is
part of the Terex Lifting segment, consists principally of several business
units in the United States and Europe which are engaged in the manufacture and
sale of access equipment designed to position people and materials to work at
heights. Simon Access products include truck mounted aerial devices, aerial work
platforms and truck mounted cranes (boom trucks) which are sold to utility
companies as well as to customers in the industrial and construction markets.
The Company obtained the funds necessary to complete the transaction from its
cash on hand and borrowings under the 1997 Credit Facility. (See Note G -
"Long-Term Obligations").
On April 14, 1997 the Company completed the purchase of Baraga Products, Inc.
and M&M Enterprises of Baraga, Inc. (collectively, "Baraga", or the "Square
Shooter Business"). Baraga, which is part of the Terex Lifting segment,
manufactures rough terrain telescopic boom forklifts.
The Simon Access and Baraga acquisitions are being accounted for using the
purchase method, with the purchase price allocated to the assets acquired and
the liabilities assumed based upon their respective estimated fair values at the
date of acquisition. The excess of purchase price over the net assets acquired
(approximately $66) is being amortized on a straight-line basis over 40 years.
The operating results of the acquired businesses are included in the Company's
consolidated results of operations since the date of acquisition. The following
pro forma summary presents the consolidated results of operations, including the
pre-acquisition results of the acquired businesses, for the respective period,
after giving effect to certain adjustments, including amortization of goodwill,
interest expense and amortization of debt issuance costs related to the
Company's refinancings discussed in Note G.
Unaudited Pro Forma for the
Year Ended December 31,
------------- --------------
1998 1997
------------- --------------
Net sales.......................................$ 1,366.5 $ 1,307.2
Income from operations.......................... 117.5 84.2
Income before extraordinary items............... 64.9 34.8
Income before extraordinary items, per share:
Basic........................................$ 3.14 $ 1.54
Diluted......................................$ 2.90 $ 1.43
The pro forma information is not necessarily indicative of what the actual
results of operations of the Company would have been for the periods indicated,
nor does it purport to represent the results of operations for future periods.
F - 10
NOTE C -- DISCONTINUED OPERATIONS
The Company sold its worldwide Clark Material Handling business ("CMHC") on
November 27, 1996 for $139.5 in cash. The sale resulted in a $84.5 gain net of
$2.6 of income taxes. CMHC comprised the Company's Material Handling Segment.
The accompanying Consolidated Statement of Operations for the year ended
December 31, 1996 includes the results of CMHC in "Income from Discontinued
Operations." Please refer to Note A - Basis of Presentation for a discussion of
allocation of interest expense. Summary operating results of discontinued
operations are as follows:
Year ended
December 31,
1996
------------
Net sales................................................... $ 404.6
Income before income taxes.................................. 17.5
Provision for income taxes.................................. ---
Income from operations of discontinued operations........... $ 17.5
Gain on sale of discontinued operations..................... 84.5
------------
Income from discontinued operations......................... $ 102.0
============
NOTE D -- IMPAIRMENT OF LONG LIVED ASSETS AND OTHER SPECIAL CHARGES
As required by generally accepted accounting principles, in the acquisition of
PPM Cranes, Inc. and PPM S.A. in May 1995 goodwill was allocated to various
operating units. After eighteen months of continuous rationalization, it was
estimated that future undiscounted cash flows for certain operations would not
be sufficient to recover the goodwill and fixed assets recorded for these
operations. Thus, in the fourth quarter of 1996 the Company recorded an
impairment charge of $16.8 ($13.3 related to goodwill and $3.5 related to fixed
assets). Similarly, in the fourth quarter of 1996 the Company wrote off $1.9 of
goodwill related to its IMACO unit in the United Kingdom. These 1996 impairment
charges totaling $18.7 are included in "Cost of Goods Sold."
In addition to the impairment charges described above, the Company recorded
special charges of $8.6 to reduce the value of assets at Unit Rig, $2.0 related
to 1993 tax matters at PPM Europe, and $3.0 of other one-time charges during
1996.
F - 11
NOTE E -- INVENTORIES
Inventories consist of the following:
December 31,
----------------------
1998 1997
---------- -----------
Finished equipment..................................... $ 148.9 $ 54.1
Replacement parts...................................... 150.9 82.8
Work-in-process........................................ 59.4 22.4
Raw materials and supplies............................. 113.6 72.8
---------- -----------
Net inventories...................................... $ 472.8 $ 232.1
========== ===========
NOTE F -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
December 31,
-----------------------
1998 1997
----------- -----------
Property............................................... $ 13.6 $ 13.6
Plant.................................................. 44.6 43.8
Equipment.............................................. 90.8 25.6
----------- -----------
149.0 83.0
Less: Accumulated depreciation........................ (49.5) (35.2)
----------- -----------
Net property, plant and equipment.................... $ 99.5 $ 47.8
=========== ===========
NOTE G -- LONG-TERM OBLIGATIONS
Long-term debt is summarized as follows:
December 31,
-----------------------
1998 1997
----------- -----------
New Bank Credit Facility................................ $ 423.8 $ ---
8-7/8% Senior Subordinated Notes due March 31, 2008..... 149.4 ---
13-1/4% Senior Secured Notes due May 15, 2002........... --- 165.1
1997 Credit Facility maturing April 7, 2000............. --- 94.9
Notes payable........................................... 7.4 4.7
Capital lease obligations............................... 12.5 12.1
Other................................................... 38.2 23.3
----------- -----------
Total long-term debt.................................. 631.3 300.1
Current portion of long-term debt..................... 44.7 26.6
----------- -----------
Long-term debt, less current portion.................. $ 586.6 $ 273.5
=========== ===========
F - 12
The New Bank Credit Facility
On March 6, 1998, the Company refinanced its 1997 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 "Senior Secured Notes"). The refinancing
included effectiveness of a revolving credit facility aggregating up to $125.0
and term loan facilities providing for loans in an aggregate principal amount of
up to approximately $375.0 (collectively, the "New Bank Credit Facility"). In
connection with the refinancing of the Company's 1997 Credit Facility (as
defined below) and the repurchase of the Senior Secured Notes, the Company
incurred extraordinary losses of $1.9 and $36.4, respectively. These
extraordinary charges were recorded in the first quarter of 1998.
The New Bank Credit Facility consists of a new secured global revolving credit
facility aggregating up to $125.0 (the "New Revolving Credit Facility") and two
term loan facilities (collectively, the "Term Loan Facilities") providing for
loans in an aggregate principal amount of up to approximately $375.0. The New
Revolving Credit Facility will be used for working capital and general corporate
purposes, including acquisitions. With limited exceptions, the obligations of
the Company under the New Bank Credit Facility are secured by (i) a pledge of
all of the capital stock of domestic subsidiaries of the Company, (ii) a pledge
of 65% of the stock of the foreign subsidiaries of the Company and (iii) a first
priority security interest in, and mortgages on, substantially all of the assets
of Terex and its domestic subsidiaries. The New Bank Credit Facility contains
covenants limiting the Borrowers' 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 New Bank Credit Facility also contains certain financial and
operating covenants, including a maximum leverage ratio, a minimum interest
coverage ratio and a minimum fixed charge coverage ratio.
Pursuant to the Term Loan Facilities, the Company has borrowed (i) $175.0 in
aggregate principal amount pursuant to a Term Loan A due March 2004 (the "Term A
Loan") and (ii) $200.0 in aggregate principal amount pursuant to a Term Loan B
due March 2005 (the "Term B Loan"). The outstanding principal amount of the Term
A Loan currently bears interest, at the Company's option, at an all-in drawn
cost of 2.00% per annum in excess of the adjusted eurodollar rate or, with
respect to U.S. dollar denominated alternate based rate loans, at an all-in
drawn cost of 1.00% per annum in excess of the prime rate. The outstanding
principal amount of the Term B Loan currently bears interest, at the Company's
option, at a rate of 2.50% per annum in excess of the adjusted eurodollar rate
or, with respect to U.S. Dollar denominated alternate base rate loans, 1.50% in
excess of the prime rate. The weighted average interest rate on the Term A Loan
and Term B Loan at December 31, 1998 was 6.75% and 7.75%, respectively. The Term
A Loan amortizes on a quarterly basis, in the annual percentages of 0%, 16%,
16%, 21%, 21% and 26%, respectively, during the six-year term of the loan. The
Term B Loan amortizes in an annual percentage of 1% during each of the first six
years of the term of the loan and 94% in the seventh year of the term of the
loan. The Term A Loan and Term B Loan are subject to mandatory prepayment in
certain circumstances and are voluntarily prepayable without payment of a
premium (subject to reimbursement of the lenders' costs in case of prepayment of
eurodollar loans other than on the last day of an interest period.)
Pursuant to the New Revolving Credit Facility, the Company has available an
aggregate amount of up to $125.0. As of December 31, 1998, the Company's balance
outstanding under the New Revolving Credit Facility totaled $44.1, letters of
credit issued totaled $51.6, and the additional amount the Company could have
borrowed was $29.3. The outstanding principal amount of loans under the New
Revolving Credit Facility bears interest, at the Company's option, at an all-in
drawn cost of 2.00% 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 1.00% per annum in excess of the prime rate. The New Revolving
Credit Facility will terminate on the sixth anniversary thereof.
The New Senior Subordinated Notes
On March 31, 1998, the Company issued and sold $150.0 aggregate principal amount
of 8-7/8% Senior Subordinated Notes due 2008, discounted to yield 8.94% (the
"New Senior Subordinated Notes"). The New Senior Subordinated Notes are jointly
and severally guaranteed by certain of the domestic subsidiaries (see Note P).
The New Senior Subordinated Notes were issued in a private placement made in
reliance upon an exemption from registration under the Securities Act of 1933,
as amended. The net proceeds from the offering were used to fund a portion of
the aggregate consideration for the acquisition of O&K Mining. During the third
quarter of 1998, the New Senior Subordinated Notes were exchanged for New Senior
Subordinated Notes registered under the Securities Act of 1933, as amended.
F - 13
The Senior Secured Notes
On May 9, 1995, the Company issued $250 of 13-1/4% Senior Secured Notes due May
15, 2002. The Senior Secured Notes were issued in conjunction with the PPM
Acquisition and a refinancing of 13.0% Senior Secured Notes due August 1, 1996
("Old Senior Secured Notes"), and 13.5% Secured Senior Subordinated Notes due
July 1, 1997 ("Subordinated Notes").
On September 4, 1997, the Company used a portion of the proceeds from a common
stock offering to redeem $83.3 in principal of the Secured Senior Notes. In
accordance with the terms of the Indenture, the redemption of the Senior Secured
Notes was at a 9.46% redemption premium. The redemption premium plus the
pro-rata share of unamortized debt origination costs totaled $12.2 and were
reflected as extraordinary items in the third quarter of 1997.
The 1997 Credit Facility
On April 7, 1997, the Company and certain of its domestic subsidiaries
(collectively, the "Borrowers") entered a Revolving Credit Agreement with a
financial institution, as agent (the "Agent"), pursuant to which the Agent and
other financial institutions party thereto provided the Borrowers with a line of
credit of up to $125 (the "1997 Credit Facility"). The 1997 Credit Facility was
refinanced with the New Bank Credit Facility on March 6, 1998 and incurred an
extraordinary charge of $1.9.
Loans made under the 1997 Credit Facility (a) bore interest, based on the
Company's fixed charge coverage ratio, at a rate between 0.5% and 1.5% per annum
in excess of the prime rate or at a rate between 2.0% and 3.0% per annum in
excess of the eurodollar rate, at the election of the Company, (b) were to
mature on April 7, 2000, (c) were used by the Borrowers to repay the Old Credit
Facility (as defined below), and (d) could be used for working capital and other
general corporate purposes, including acquisitions.
The Old Credit Facility
The Company's $100 revolving credit facility (the "Old Credit Facility") was
terminated in April 1997 in conjunction with the Simon Access acquisition and
entering into the 1997 Credit Facility. The Company paid a fee of $2.0 upon
termination of the Old Credit Facility and wrote off $0.6 of unamortized debt
acquisition costs. These expenses have been reflected as extraordinary items in
the second quarter of 1997.
The Company had the option to base the interest rate on prime or the Eurodollar
rate. The outstanding principal amount of prime rate loans was at the rate of
1.75% per annum in excess of the prime rate. The outstanding principal amount of
Eurodollar rate loans was at the rate of 3.75% per annum in excess of the
adjusted Eurodollar rate.
Schedule of Debt Maturities
Scheduled annual maturities of long-term debt outstanding at December 31, 1998
in the successive five-year period are summarized below. Amounts shown are
exclusive of minimum lease payments disclosed in Note H -- "Lease Commitments":
1999................................... $ 40.5
2000................................... 34.9
2001................................... 40.4
2002................................... 41.5
2003................................... 48.0
Thereafter............................. 413.5
=============
Total.............................. $ 618.8
=============
Based on quoted market values, the Company believes that the fair value of the
New Senior Subordinated Notes was approximately $148.5 as of December 31, 1998.
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 $42.5, $39.8 and $45.3 of interest in 1998, 1997 and 1996,
respectively.
F - 14
The weighted average interest rate on the Company's revolving debt facilities
outstanding was 5.8% and 8.3% at December 31, 1998 and 1997, respectively.
NOTE H -- 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 $19.0 and $21.9, net of accumulated
amortization of $8.6 and $8.2, at December 31, 1998 and 1997, respectively.
Future minimum capital and noncancelable operating lease payments and the
related present value of capital lease payments at December 31, 1998 are as
follows:
Capital Operating
Leases Leases
------------- -------------
1999............................................ $ 4.6 $ 10.0
2000............................................ 3.4 5.9
2001............................................ 2.7 5.0
2002............................................ 1.0 4.3
2003............................................ 0.8 3.7
Thereafter...................................... 1.1 6.0
------------- ------------
Total minimum obligations .................. 13.6 $ 34.9
=============
Less amount representing interest............... (1.1)
-------------
Present value of net minimum obligations.... 12.5
Less current portion............................ (4.2)
-------------
Long-term obligations....................... $ 8.3
=============
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 $9.3, $6.8 and $4.7 in 1998, 1997, and 1996,
respectively.
NOTE I -- INCOME TAXES
The components of Income (Loss) From Continuing Operations Before Income Taxes
and Extraordinary Items are as follows:
Year ended December 31,
-------------------------------
1998 1997 1996
--------- ---------- ----------
United States................................... $ 57.4 $ 16.1 $ (40.6)
Foreign......................................... 17.1 14.9 (1.6)
--------- ---------- ----------
Income (loss) from continuing operations
before income taxes and extraordinary items..... $ 74.5 $ 31.0 $ (42.2)
========= ========== ==========
F - 15
The major components of the Company's provision for income taxes are summarized
below:
Year ended December 31,
-----------------------------
1998 1997 1996
--------- --------- ---------
Current:
Federal....................................... $ --- $ --- $ ---
State......................................... --- --- ---
Foreign....................................... 1.7 0.7 0.8
--------- --------- ---------
Current income tax provision.............. 1.7 0.7 0.8
Deferred:
Deferred foreign income tax................... --- --- 11.3
--------- --------- ---------
Total provision for income taxes.......... $ 1.7 $ 0.7 12.1
========= ========= =========
As a result of the recapitalization of PPM Europe, certain NOL benefit
carryforwards which were fully provided for at the acquisition were utilized
resulting in a deferred tax charge of $11.3 in the fourth quarter of 1996.
Deferred tax assets and liabilities result from differences in the basis of
assets and liabilities for tax and financial statement purposes. Based on
historical operating results and the uncertainty surrounding the IRS
examinations for tax years 1987 through 1989, as discussed in more detail below,
a valuation allowance has been recognized for the full amount of the deferred
tax assets. The tax effects of the basis differences and net operating loss
carryforward as of December 31, 1998 and 1997 are summarized below for major
balance sheet captions:
1998 1997
----------- -----------
Intangibles................................ $ (2.8) $ (0.4)
Accrued liabilities........................ --- (1.6)
Other...................................... (0.5) (0.8)
----------- -----------
Total deferred tax liabilities........ (3.3) (2.8)
----------- -----------
Receivables................................ 1.1 0.6
Net inventories............................ 15.2 4.0
Fixed assets............................... 0.5 0.7
Worker's compensation...................... 1.5 1.4
Warranties and product liability........... 8.2 7.8
All other items............................ 8.6 6.4
Benefit of net operating loss carryforward. 120.9 140.2
----------- -----------
Total deferred tax assets............. 156.0 161.1
----------- -----------
Deferred tax assets valuation allowance.... (152.7) (158.3)
----------- -----------
Net deferred tax liabilities.......... $ --- $ ---
=========== ===========
The valuation allowance for deferred tax assets as of January 1, 1997 was
$115.0. The net change in the total valuation allowance for the years ended
December 31, 1997 and 1998 were an increase of $43.3 and a decrease of $5.6,
respectively.
The Company's Provision for Income Taxes is different from the amount which
would be provided by applying the statutory federal income tax rate to the
Company's Income (Loss) From Continuing Operations Before Income Taxes and
Extraordinary Items. The reasons for the difference are summarized below:
Year ended December 31,
------------------------------------------
1998 1997 1996
------------- ------------- --------------
Statutory federal income tax rate................................. $ 26.1 $ 10.9 $ (14.8)
Recognition of fully reserved preacquisition deferred tax asset... --- --- 11.3
Change in valuation allowance relating to U.S. NOL................ (21.1) (6.6) 7.8
Foreign tax differential on income/losses of foreign subsidiaries. (4.4) (4.5) 1.4
Goodwill.......................................................... 1.0 0.9 6.3
Other............................................................. 0.1 --- 0.1
------------- ------------- --------------
Total provision for income taxes............................. $ 1.7 $ 0.7 $ 12.1
============= ============= ==============
F - 16
The effective tax rate for discontinued operations differs from the statutory
rate due primarily to utilization of NOLs and foreign tax differential on the
income of foreign subsidiaries.
The Company has not provided for U.S. federal and foreign withholding taxes on
$52.0 of foreign subsidiaries' undistributed earnings as of December 31, 1998,
because such earnings are intended to be reinvested indefinitely. Any income tax
liability that would result had such earnings actually been repatriated would
likely be offset by utilization of NOLs. On repatriation, certain foreign
countries impose withholding taxes. The amount of withholding tax that would be
payable on remittance of the entire amount of undistributed earnings would
approximate $0.2.
At December 31, 1998, the Company had domestic federal net operating loss
carryforwards of $243.5. Approximately $55.8 of the remaining net operating loss
carryforwards are subject to special limitations under the Internal Revenue
Code, and the NOLs may be affected by the current Internal Revenue Service (the
"IRS") examination discussed below.
The tax basis net operating loss carryforwards expire as follows:
Tax Basis Net
Operating Loss
Carryforwards
----------------
1999................................. 11.9
2001................................. 4.6
2004................................. 21.6
2005................................. 0.8
2006................................. 5.8
2007................................. 21.9
2008................................. 100.4
2009................................. 34.2
2010................................. 42.3
----------------
Total............................ $ 243.5
================
The Company also has various state net operating loss and tax credit
carryforwards expiring at various dates through 2013 available to reduce future
state taxable income and income taxes. In addition, the Company's foreign
subsidiaries have approximately $74.8 of loss carryforwards, $31.5 in the United
Kingdom, $9.5 in France, $10.4 in Germany, and $23.4 in other countries, which
are available to offset future foreign taxable income. The tax loss
carryforwards in the United Kingdom, Germany and France are available without
expiration. Tax loss carryforwards in other countries of $3.2 expire in 1999
through 2003, with the remaining $20.2 available without expiration.
The Company's federal income tax returns for the years 1987 through 1989 are
currently being audited by the IRS. In December 1994, the Company received an
examination report from the IRS proposing a large tax deficiency. The
examination report raised many issues. Among these issues are substantiation for
certain tax deductions and whether the Company was able to use certain NOLs to
offset taxable income. In April 1995, the Company filed an administrative appeal
to the examination report. The IRS is currently reviewing information the
Company provided to it. The final outcome of this audit is subject to the
resolution of complicated legal and factual issues. Given the number and
complexity of the legal and administrative proceedings involved, this audit
could continue for several more years.
If the IRS prevails on all the issues raised, the amount of the tax the Company
would have to pay would be approximately $56 million plus penalties of
approximately $12.8 million and interest through December 31, 1998 of
approximately $112.1 million. The penalties claimed by the IRS are between 20%
and 25% of the amount of the tax deficiency assessed against the Company.
Interest on the amount of tax deficiency and penalties assessed against the
Company is currently accruing at a rate of 9% per annum. If the Company is
required to pay a significant portion of the tax deficiency claimed by the IRS,
it may not have or be able to obtain the money necessary to pay the tax
deficiency and continue in business.
The Company believes that it is able to provide adequate documentation for a
large part of the tax deductions the IRS has disallowed. In addition, the IRS
has recently advised the Company that it is no longer challenging the Company's
right to use the NOLs in question. As a result, the Company does not believe
that the outcome of the audit will have a material adverse effect on its
financial condition or results of operations. However, the Company may lose or
have to use some of its NOLs as a result of the audit. In addition, there is
also a possibility that the Company will have to pay some amount of tax,
penalties and interest to the IRS to resolve this matter. The final outcome of
the audit cannot be determined or estimated at this time. Accordingly, the
Company does not have any additional reserves for amounts which might be due as
a result of the audit because the loss ranges from zero to $56 million plus
interest and penalties.
F - 17
The Company made income tax payments of $0.7 in 1998, and $1.8 in 1997,
respectively. No income tax payments were made in 1996.
NOTE J -- PREFERRED STOCK
The Company's certificate of incorporation was amended in June 1998 to authorize
50.0 million shares of preferred stock, $.01 par value per share. As of December
31, 1998, no shares of preferred stock were outstanding.
Series A Cumulative Redeemable Convertible Preferred Stock
As of December 31, 1996, the Company had 1.2 million issued and outstanding
shares of Series A Cumulative Redeemable Convertible Preferred Stock (the
"Series A Preferred Stock"). The Liquidation Preference totaled $45.4 at
December 31, 1996. On December 30, 1996, the Company called all of its Series A
Preferred Stock for redemption and subsequently redeemed the stock in January
1997 at an aggregate redemption price of $45.4.
The aggregate net proceeds to the Company for the Series A Preferred Stock and
the Series A Warrants issued on December 20, 1993 were $27.2. The Company
allocated $10.3 and $16.9 of this amount to the Series A Preferred Stock and the
Series A Warrants, respectively, based on management's estimate of the relative
fair values of these securities at the time of their issuance, using information
provided by the Company's investment bankers. The difference between the
initially recorded amount and the redemption amount was accreted to the carrying
value of the Series A Preferred Stock using the interest method over the period
from issuance to the mandatory redemption date, December 31, 2000. As a result
of calling all of the stock for redemption on December 30, 1996, the carrying
value of the Series A Preferred Stock was further adjusted for increases in the
Liquidation Preference. There was no accretion recorded in 1997. The total
accretion recorded in 1996 was $22.9.
Series B Cumulative Redeemable Convertible Preferred Stock
As of December 31, 1996, the Company had 38.8 thousand issued and outstanding
shares of Series B Cumulative Redeemable Convertible Preferred Stock (the
"Series B Preferred Stock"). These shares constituted the remaining balance
outstanding of the Series B Preferred Stock issued to certain individuals on
December 9, 1994 in consideration for the early termination of a contract
between the Company and KCS Industries, L.P., a Connecticut limited partnership
("KCS"), a related party. On December 30, 1997, all 38.8 thousand outstanding
shares of Series B Preferred Stock were converted by the holder thereof into
87.3 thousand shares of common stock.
NOTE K -- 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, par value $.01
(the "Common Stock"), to 150.0 million. As of December 31, 1998, there were 20.8
million shares issued and outstanding. Of the 129.2 million unissued shares at
that date, 2.5 million shares were reserved for issuance for the exercise of
stock options and Series A Warrants.
Equity Rights. On May 9, 1995, the Company sold one million equity rights
securities (the "Equity Rights") along with $250 of the Senior Secured Notes. A
portion of the proceeds ($3.2) of the sale of the Senior Secured Notes and the
Equity Rights was allocated to the Equity Rights. The portion of the proceeds
related to the Equity Rights has been recorded in the stockholders' equity
section of the balance sheet, because they can be satisfied in Common Stock or
cash at the option of the Company. The Equity Rights entitle the holders, upon
exercise at any time on or prior to May 15, 2002, to receive cash or, at the
election of the Company, Common Stock in an amount equal to the average closing
sale price of the Common Stock for the 60 consecutive trading days prior to the
date of exercise (the "Current Price"), less $7.288 per share, subject to
adjustment in certain circumstances. Changes in the Current Price do not affect
the net income or loss reported by the Company; however, changes in the Current
Price vary the amount of cash that the Company would have to pay or the number
of Shares of Common Stock that would have to be issued in the event holders
exercise the Equity Rights. During 1998 holders exercised 35.6 thousand rights.
As of December 31, 1998, the Current Price of the Common Stock was $23.382 which
would have required the Company to either pay $15.5 or issue 543.4 thousand
shares of Common Stock, at the Company's option, in the event that all of the
holders had exercised their Equity Rights.
Series A Warrants. In connection with the private placement of the Series A
Preferred Stock (see Note J -- "Series A Preferred Stock"), the Company issued
1.3 million Series A Warrants of which 62.7 thousand warrants were outstanding
at December 31, 1998. Each Series A Warrant may be exercised, in whole or in
part, at the option of the holder at any time before the expiration date on
December 31, 2000 and is redeemable by the Company under certain circumstances.
As of December 31, 1998, upon the exercise or redemption of a Warrant, the
holder thereof was entitled to receive 2.41 shares of Common Stock. The exercise
price for the Warrants is $0.01 for each share of Common Stock. The number of
shares of Common Stock issuable upon exercise or redemption of the Warrants is
subject to adjustment in certain circumstances.
F - 18
Series B Warrants. In connection with the issuance of the Series B Preferred
Stock (see Note J -- "Series B Preferred Stock"), the Company issued 107.0
thousand Series B Warrants. At December 31, 1998, all Series B Warrants had been
exercised. The exercise price for the Warrants was $0.01 for each share of
Common Stock.
Stock Options. The Company maintains 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. The ISO allows the
holder to purchase shares of Common Stock, commencing one year after grant. ISO
expire after ten years. At December 31, 1998, 12.8 thousand stock options were
available for grant under the ISO.
Long-Term Incentive Plans. In May 1996, the stockholders approved, the 1996
Terex Corporation Long-Term Incentive Plan (the "1996 Plan"). The 1996 Plan
authorizes the granting of (i) options ("Stock Option Awards") to purchase
shares of Common Stock, including Restricted Stock, (ii) shares of Common Stock,
including Restricted Stock ("Stock Awards"), and (iii) cash bonus awards based
upon a participant's job performance ("Performance Awards"). In May 1998, the
stockholders approved that the aggregate number of shares of Common Stock
(including Restricted Stock, if any) optioned or granted under the 1996 Plan was
not to exceed 2.0 million shares. At December 31, 1998, 736.3 thousand shares
were available for grant under the 1996 Plan. The 1996 Plan provides that a
committee (the "Committee") of the Board of Directors consisting of two or more
members thereof who are non-employee directors, shall administer the 1996 Plan
and has provided the Committee with the flexibility to respond to changes in the
competitive and legal environments, thereby protecting and enhancing the
Company's current and future ability to attract and retain directors and
officers and other key employees and consultants. The 1996 Plan also provides
for automatic grants of Stock Option Awards to non-employee directors.
In 1994, the stockholders approved a Long-Term Incentive Plan (the "Plan")
covering certain managerial, administrative and professional employees and
outside directors. The 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 Plan is 750 thousand,
subject to certain adjustments. At December 31, 1998, 41.2 thousand shares were
available for grant under the Plan.
F - 19
The following table is a summary of stock options under all three of the
Company's plans.
Weighted
Average Exercise
Number of Price per Share
Options
------------- -----------------
Outstanding at December 31, 1995................ 798,100 $ 5.65
Granted...................................... 108,500 $ 6.57
Exercised.................................... (18,075) $ 5.70
Canceled or expired.......................... (45,100) $ 6.32
-------------
Outstanding at December 31, 1996................ 843,425 $ 5.73
Granted...................................... 176,750 $ 13.93
Exercised.................................... (184,988) $ 6.04
Canceled or expired.......................... (103,600) $ 5.69
-------------
Outstanding at December 31, 1997................ 731,587 $ 7.64
Granted...................................... 547,851 $ 22.02
Exercised.................................... (100,900) $ 6.72
Canceled or expired.......................... (17,329) $ 15.00
-------------
Outstanding at December 31, 1998................ 1,161,209 $ 14.39
============= =================
Exercisable at December 31, 1998................ 579,595 $ 10.00
============= =================
Exercisable at December 31, 1997................ 473,340 $ 6.92
============= =================
Exercisable at December 31, 1996................ 479,364 $ 6.08
============= =================
The following table summarizes information about stock options outstanding at
December 31, 1998:
Weighted
Weighted Average
Average Exercise
Range of Number of Life Price per
Exercise Prices Options (in years) Share
- ---------------------------- ------------- ----------- ---------------
$ 3.50 - $ 6.00 315,633 4.2 $ 4.69
$ 6.01 - $ 10.00 128,450 4.5 $ 6.68
$ 10.01 - $ 15.00 346,125 7.9 $ 13.58
$ 15.01 - $ 25.00 156,101 8.7 $ 21.70
$ 25.01 - $ 30.38 214,900 7.7 $ 29.25
-------------
1,161,209 6.6 $ 14.39
=============
The Company has adopted SFAS No. 123, "Accounting for Stock-Based Compensation."
In accordance with the provisions of SFAS 123, the Company applies APB Opinion
No. 25, "Accounting for Stock Issued to Employees," and related interpretations
in accounting for its plans and does not recognize compensation expense for its
stock-based compensation plans other than for restricted stock. If the Company
had elected to recognize compensation expense based upon the fair value at the
grant date for awards under these plans consistent with the methodology
prescribed by SFAS No. 123, the Company's net income would have been reduced by
$3.4 ($0.16 (basic) and $0.15 (diluted) per share), $1.1 ($0.07 (basic) and
$0.06 (diluted) per share), $0.6 ($0.05 (basic) and 0.04 (diluted) per share) in
1998, 1997and 1996, respectively.
F - 20
The fair value for these options was estimated at the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions for 1998, 1997 and 1996, respectively: dividend yields of 0%, 0% and
0%; expected volatility of 54.86 %, 57.50% and 58.72% risk-free interest rates
of 5.26%, 6.34% and 6.42%; and expected life of 9.3 years, 8.1 years and 6.6
years. The aggregate fair value of options granted during 1998, 1997 and
1996 for which the exercise price equals the market price on the grant date was
$8.1, $1.7 and $0.4, respectively.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
Comprehensive Income. The following table reflects the accumulated balances of
other comprehensive income.
Accumulated
Pension Unrealized Cumulative Other
Liability Holding Gain Translation Comprehensive
Adjustment (Loss) Adjustment Income
---------------- ------------------ ------------------- ----------------------
Balance at December 31, 1995......$ (2.7) $ 1.0 $ (2.1) $ (3.8)
Current year change............... 0.7 (1.0) (0.6) (0.9)
---------------- ------------------ ------------------- ----------------------
Balance at December 31, 1996...... (2.0) --- (2.7) (4.7)
Current year change............... 0.2 --- (3.4) (3.2)
---------------- ------------------ ------------------- ----------------------
Balance at December 31, 1997...... (1.8) --- (6.1) (7.9)
Current year change.............. --- --- 3.8 3.8
---------------- ------------------ ------------------- ----------------------
Balance at December 31, 1998......$ (1.8) $ --- $ (2.3) $ (4.1)
================ ================== =================== ======================
NOTE L -- RETIREMENT PLANS
Pension Plans
US Plans - The Company maintains four defined benefit pension plans covering
certain domestic employees. 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 plan for
salaried employees was frozen as of May 7, 1993, and no participants will be
credited with service following such date except that participants not fully
vested will be 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 these 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.
In December 1993, Terex contributed 350.0 thousand shares of Terex Common Stock
to the Master Trust for the benefit of two of the Terex plans, which were valued
by the Company at $2.3 based upon 96.5% of the market value of Terex Common
Stock as quoted on the New York Stock Exchange on the day of contribution. The
market value of this investment was $10.0 at December 31, 1998.
Other Postemployment Benefits
The Company provides postemployment health and life insurance benefits to
certain former salaried and hourly employees of Terex Cranes - Waverly
Operations. 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
F - 21
$4.5. Terex is amortizing this transition obligation over 12 years, the average
remaining life expectancy of the participants.
The liability of the Company's U.S. Plans, as of December 31, was as follows:
Pension Benefits Other Benefits
-------------------------------------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
Change in benefit obligation:
Benefit obligation at beginning of year $ 34.6 $ 32.1 $ 2.6 $ 2.8
Service cost.......................... 0.2 0.2 --- ---
Interest cost......................... 2.4 2.4 0.2 0.2
Actuarial (gain) loss................. 2.2 2.2 --- (0.1)
Benefits paid......................... (2.4) (2.3) (0.3) (0.3)
------------- ------------- ------------- -------------
Benefit obligation end of year.......... 37.0 34.6 2.5 2.6
------------- ------------- ------------- -------------
Change in plan assets:
Fair value of plan assets at beginning
of year.............................. 32.0 30.2 --- ---
Actual return on plan assets.......... 5.9 4.0 --- ---
Employer contribution................. 0.6 0.1 --- ---
Benefits paid......................... (2.4) (2.3) --- ---
------------- ------------- ------------- -------------
Fair value of plan assets at end of year 36.1 32.0 --- ---
------------- ------------- ------------- -------------
Funded status........................... (0.9) (2.6) (2.5) (2.6)
Unrecognized actuarial loss............ 2.0 3.4 (1.2) (1.4)
Unrecognized prior service cost......... 0.7 0.7 --- ---
Unrecognized transition obligation...... --- --- 1.8 2.2
------------- ------------- ------------- -------------
Net amount recognized................... $ 1.8 $ 1.5 $ (1.9) $ (1.8)
============= ============= ============= =============
Amounts recognized in the Consolidated Balance Sheet consist of:
Prepaid benefit cost................. $ 3.1 $ 3.0 $ --- $ ---
Accrued benefit liability............ (3.1) (3.3) (1.9) (1.8)
Accumulated other comprehensive income
1.8 1.8 --- ---
------------- ------------- ------------- -------------
Net amount recognized................... $ 1.8 $ 1.5 $ (1.9) $ (1.8)
============= ============= ============= =============
Pension Benefits Other Benefits
-------------------------------------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
Weighted-average assumptions as of December 31:
Discount rate........................ 6.50% 7.00% 6.50% 7.00%
Expected return on plan.............. 9.00% 9.00% 9.00% 9.00%
Rate of compensation increase........ --- --- --- ---
F - 22
Pension Benefits Other Benefits
-------------------------------------- -------------------------------------
1998 1997 1996 1998 1997 1996
------------ ------------ ------------ ----------- ------------ ------------
Components of net periodic benefit cost:
Service cost.......................... $ 0.2 $ 0.2 $ 0.2 $ --- $ --- $ ---
Interest cost......................... 2.4 2.4 2.3 0.2 0.2 0.2
Expected return on plan assets........ (2.5) (2.2) (2.1) --- ---
Amortization of prior service cost.... 0.1 0.1 0.1 --- --- (0.1)
Amortization of transition obligation. --- --- --- 0.3 0.3 0.4
Recognized actuarial (gain)loss....... 0.2 0.3 0.4 (0.1) (0.1) (0.1)
============ ============ ============ =========== ============ ============
Net periodic benefit cost............... $ 0.4 $ 0.8 $ 0.9 $ 0.4 $ 0.4 $ 0.4
============ ============ ============ =========== ============ ============
The projected benefit obligation, accumulated benefit obligation, and fair value
of plan assets for the pension plan with accumulated benefit obligations in
excess of plan assets were $9.8, $9.8 and $7.1, respectively, as of December 31,
1998, and $9.3, $9.3 and $6.1, respectively, as of December 31, 1997.
The Company has two nonpension postretirement benefit plans. The health care
plan is contributory with participants' contributions adjusted annually; the
life insurance plan is noncontributory. For measurement purposes, a 8.56%
percent annual rate of increase in the per capita cost of covered health care
benefits was assumed for 1998. The rate was assumed to decrease gradually to 5
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 5.13% (4.71)%
Effect on postretirement benefit obligation 5.57% (5.10)%
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. This plan is fully
funded. Pension expense relating to this plan was approximately $0.4, $0.5 and
$0.4 for the years ended December 31, 1998, 1997 and 1996, respectively.
Terex Aerials Limited (Ireland) maintains two voluntary defined benefit plans
covering its employees. These plans are fully funded. Pension expense relating
to these plans was approximately $0.1 and $0.1 for the years ended December 31,
1998 and 1997, respectively.
O & K Mining maintains an unfunded noncontributory defined benefit plan covering
substantially all of its employees. The project benefit obligation, accumulated
benefit obligation and pension expense related to the plan for 1998 was $5.7,
$5.7 and $0.4, respectively
Saving Plans
The Company sponsors various tax deferred savings plans into which eligible
employees may elect to contribute a portion of their compensation. The Company
may, but is not obligated to, contribute to certain of these plans. Company
contributions to these plans were $1.2, $0.7 and $0.8 for the years ended
December 31, 1998, 1997 and 1996, respectively.
NOTE M -- 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.
F - 23
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 $51.6. The letters of credit
generally serve as collateral for certain liabilities included in the
Consolidated Balance Sheet. Certain of the letters of credit serve as collateral
guaranteeing the Company's performance under contracts.
As described in Note I -- "Income Taxes," the Internal Revenue Service is
currently examining the Company's federal tax returns for the years 1987 through
1989.
The Company has agreed to indemnify certain outside parties for losses related
to a former subsidiary's worker compensation obligations. Some of the claims for
which Terex is contingently obligated are also covered by bonds issued by an
insurance company. The Company recorded liabilities for these contingent
obligations representing management's estimate of the potential losses which the
Company might incur.
NOTE N -- RELATED PARTY TRANSACTIONS
On August 28, 1995, the Company's former chairman retired from his positions
with the Company and its Board of Directors. In connection with his retirement,
the Company (upon the recommendation of a committee comprised of its independent
Directors and represented by independent counsel) and the former chairman
executed a retirement agreement providing certain benefits to the former
chairman and the Company. The agreement provides, among other things, for a
five-year consulting engagement requiring the former chairman to make himself
available to the Company to provide consulting services for certain portions of
his time. The former chairman, or his designee, received a fee for consulting
services which included payments in an amount, and a rate, equal to his 1995
base salary until December 31, 1996. The agreement also provides for the (i)
granting of a five-year $1.8 million loan bearing interest at 6.56% per annum
which is subject to being forgiven in increments over the five-year term of the
agreement upon certain conditions, and (ii) equity grants having a maximum
potential of 200.0 thousand shares of Terex Common Stock conditioned upon the
Company achieving certain financial performance objectives in the future. During
1997 the former chairman received 150.0 thousand shares of common stock in
accordance with this agreement. In contemplation of the execution of this
retirement agreement, the Company advanced to the former chairman the principal
amount of the forgivable loan. During 1998, 1997 and 1996, the Company forgave
$0.5, $0.6 and $0.4, respectively, of principal on the loan along with the
current interest.
The Company, a director and certain former executives of the Company, and KCS,
have been named parties in various legal proceedings. During 1998, 1997 and
1996, the Company incurred $0.3, $0.2 and $0.3, respectively, of legal fees and
expenses on behalf of the Company, the director and former executives of the
Company, and KCS named in the lawsuits.
Ares Leverage Investment Fund L.P. ("Ares"), an affiliate of a director of the
Company, participated as a lender under the New Bank Credit Facility for the
amount of $15.0. Ares also received a fee of less than $0.1 for participating as
a lender under the New Bank Credit Facility. Participation by Ares as a lender
under the New Bank Credit Facility was made in the ordinary course of Ares'
business and on the same terms as all other lenders under the New Bank Credit
Facility.
Canadian Imperial Bank of Commerce, an affiliate of CIBC Oppenheimer Corp., of
which a director of the Company is a managing director, is a lender with a
commitment of up to $37.5 and a Co-Documentation Agent under the New Bank Credit
Facility. Canadian Imperial Bank of Commerce received a fee of $0.8 for acting
as Co-Documentation Agent under the New Bank Credit Facility. Participation by
Canadian Imperial Bank of Commerce as a lender under the New Bank Credit
Facility was made in the ordinary course of its business and on the same terms
as all other lenders under the New Bank Credit Facility. In addition, CIBC
Oppenheimer Corp. was retained by the Company in connection with the offering of
the New Senior Subordinated Notes. CIBC was paid $0.5 as an underwriting
discount upon issuance of the New Senior Subordinated Notes on the same terms as
all other underwriters.
On December 31, 1997, an officer and director of the Company retired as an
officer. In connection with his retirement, the Company and the former officer
entered into an agreement providing certain benefits to the former officer and
the Company. Pursuant to the agreement, the former officer received an award of
5.0 thousand shares of Common Stock in consideration of his years of service to
the Company. The agreement also provides for a two-year consulting engagement
requiring the former officer to make himself available to the Company to provide
consulting services for a certain portion of his time, for such services he
received a consulting fee equal to his base salary in 1997 of $0.3 for services
provided in 1998, in 1999 he will receive $0.1 for services provided.
F - 24
In 1997, the Company invested $0.1 in a company ("Investee") which was
reorganizing after declaring bankruptcy. Subsequent to the initial investment,
the Company was required to make an additional investment in Investee. As a
result, the Company elected not to continue its investment in Investee and not
to make the additional required investment. A director of the Company and one of
his business associates, acquired the Company's investment in Investee for the
amount invested by the Company and assumed the Company's obligations to make
additional investments in Investee.
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 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 outside directors. One of the responsibilities of the Audit Committee is to
review related party transactions.
NOTE O-- BUSINESS SEGMENT INFORMATION
The Company operates in two industry segments: Terex Lifting and Terex
Earthmoving. Prior to November 27, 1996 the Company operated in a third industry
segment, the Material Handling Segment, which is treated as a discontinued
operation.
Terex Lifting designs, manufactures and markets telescopic mobile cranes
(including rough terrain, truck and all-terrain mobile cranes), lattice boom
cranes, tower cranes, aerial platforms (including-scissors, articulated boom and
straight telescoping boom aerial work platforms), utility aerial devices
(including digger derricks and articulated aerial devices), telescopic materials
handlers (including container stackers and rough terrain lift trucks),
truck-mounted cranes (boom trucks) and related components and replacement parts.
These products are used primarily for construction, repair and maintenance of
infrastructure, buildings and manufacturing facilities, for material handling
applications in the distribution, transportation and utilities industries as
well as in the scrap, refuse and lumber industries. Terex Lifting has fourteen
significant manufacturing operations: (i) P.P.M. S.A. located in Montceau Les
Mines, France, at which mobile cranes and container stackers under the brand
names TEREX and PPM are manufactured; (ii) PPM SpA, located in Crespellano,
Italy, at which mobile cranes are manufactured under the TEREX, BENDINI and PPM
brand names; (iii) Terex Lifting, located in Conway, South Carolina, at which
mobile cranes are manufactured under the P&H (a licensed trademark of
Harnischfeger Corporation) and TEREX brand names; (iv) Terex Lifting - Waverly
Operations, located in Waverly, Iowa, at which rough terrain hydraulic
telescoping mobile cranes and truck cranes are manufactured under the brand
names TEREX, KOEHRING and LORAIN, and aerial lift equipment is manufactured
under the brand names TEREX AERIALS, TEREX AND MARK; (v) Terex-Telelect, Inc.,
located in Watertown, South Dakota, at which utility aerial devices and digger
derricks are manufactured under the TELELECT and HI-RANGER brand names, (vi)
Terex Aerials, Inc., located in Milwaukee, Wisconsin, at which aerial platforms
are manufactured under the TEREX, SIMON, MARK and TEREX AERIALS brand names;
(vii) Terex Aerials Limited, located in Cork, Ireland, at which aerial platforms
are manufactured under the TEREX brand name; (viii) Terex-RO Corporation,
located in Olathe, Kansas, at which truck mounted cranes are manufactured under
the RO-STINGER brand name; (ix) Baraga Products, located in Baraga, Michigan, at
which rough terrain telescopic lift trucks are manufactured under the SQUARE
SHOOTER brand name; (x) Holland Lift, located in Hoorn, the Netherlands, at
which aerial platforms are manufactured under the HOLLAND LIFT brand name; (xi)
American Crane, located in Wilmington, North Carolina, at which lattice boom
cranes are manufactured under the AMERICAN brand, (xii) Italmacchine, located
near Perugia, Italy at which rough terrain telescopic material handlers are
manufactured under the ITALMACCHINE and TEREX brand names and cement mixers and
concrete pumps are manufactured under the ITALMACCHINE brand name; (xiii) Peiner
located in Trier, Germany at which tower cranes are manufactured under the
PEINER trade name; and (xiv) Comedil, located in Fontanfredda, Italy, at which
tower cranes are manufactured under the COMEDIL trade name.
Terex Earthmoving designs, manufactures and markets large hydraulic excavators,
articulated and rigid off-highway trucks, high capacity surface mining trucks
and related components and replacement parts. These products are used primarily
by construction, mining, logging, industrial and government customers in
building roads, dams and commercial and residential buildings; supplying coal,
minerals, sand and gravel. Terex Earthmoving has three manufacturing operations:
(i) Terex Equipment Limited ("TEL"), located in Motherwell, Scotland, which
manufactures off-highway rigid haulers and articulated haulers and scrapers,
each sold under the TEREX brand name and to other truck manufacturers on a
private label basis; (ii) the Unit Rig Division ("Unit Rig") and Payhauler,
located in Tulsa, Oklahoma, manufacture electric rear and bottom dump haulers
principally sold to the copper, gold and coal mining industry customers in North
and South America, Asia, Africa and Australia and all wheel drive rigid off
highway trucks. These products are sold under the Company's TEREX, UNIT RIG,
LECTRA HAUL and PAYHAULER trademarks. TEL's North, Central and South American
sales and distribution are managed by Terex Americas, a division of the Company,
located in Tulsa, Oklahoma; and (iii) O&K Mining, located in Dortmund, Germany
which manufactures large hydraulic excavators, principally sold to the mining
industry under the O&K brand name.
F - 25
Industry segment information is presented below:
1998 1997 1996
------------- ------------- --------------
Sales
Terex Earthmoving.................................. $ 456.4 $ 288.4 $ 314.9
Terex Lifting...................................... 770.9 548.0 363.9
General/Corporate/Eliminations..................... 5.9 5.9 (0.3)
============= ============= ==============
Total............................................ $ 1,233.2 $ 842.3 $ 678.5
============= ============= ==============
Income (Loss) from Operations
Terex Earthmoving.................................. $ 41.7 $ 24.7 $ 5.6
Terex Lifting...................................... 82.1 47.2 4.8
General/Corporate/Eliminations..................... (1.8) (0.8) (5.3)
============= ============= ==============
Total............................................ $ 122.0 $ 71.1 $ 5.1
============= ============= ==============
Depreciation and Amortization
Terex Earthmoving.................................. $ 6.7 $ 2.3 $ 1.8
Terex Lifting...................................... 9.5 8.8 8.6
General/Corporate.................................. 2.2 3.2 3.3
============= ============= ==============
Total............................................ $ 18.4 $ 14.3 $ 13.7
============= ============= ==============
Capital Expenditures
Terex Earthmoving.................................. $ 4.8 $ 4.5 $ 5.1
Terex Lifting...................................... 7.5 4.3 2.9
General/Corporate.................................. 0.8 1.1 0.1
============= ============= ==============
Total............................................ $ 13.1 $ 9.9 $ 8.1
============= ============= ==============
Identifiable Assets
Terex Earthmoving.................................. $ 544.9 $ 174.6 $ 189.2
Terex Lifting...................................... 574.3 402.1 210.5
General/Corporate.................................. 32.0 11.8 71.5
==========================================
Total............................................ $ 1,151.2 $ 588.5 $ 471.2
==========================================
F - 26
Geographic segment information is presented below:
1998 1997 1996
------------- ------------- --------------
Sales
United States................ $ 700.4 $ 499.8 $ 379.2
Europe....................... 477.5 362.3 348.6
All other.................... 312.2 91.0 27.2
Eliminations................. (256.9) (110.8) (76.5)
============= ============= ==============
Total...................... $ 1,233.2 $ 842.3 $ 678.5
============= ============= ==============
Long-lived Assets
United States................ $ 38.5 $ 25.6 $ 8.0
Europe....................... 59.7 22.0 23.5
All other.................... 1.3 0.2 0.2
============= ============= ==============
Total...................... $ 99.5 $ 47.8 $ 31.7
============= ============= ==============
Sales between segments and geographic areas are generally priced to recover
costs plus a reasonable markup for profit. 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 P -- CONSOLIDATING FINANCIAL STATEMENTS
On March 31, 1998, the Company issued and sold $150.0 aggregate principal amount
of the New Senior Subordinated Notes. The New Senior Subordinated Notes are
jointly and severally guaranteed by the following subsidiaries of the Company:
Terex Cranes, Inc., PPM Cranes, Inc., Koehring Cranes, Inc., Terex-Telelect,
Inc., Terex-RO Corporation, Terex Aerials, Inc., Payhauler Corp. and The
American Crane Corporation. With the exception of PPM Cranes, Inc., which is
92.4% owned by Terex, each of the Guarantors is a wholly-owned subsidiary of the
Company.
The following summarized condensed consolidating financial information for the
Company segregates the financial information of Terex Corporation, the
Wholly-owned Guarantors, PPM Cranes, Inc. and the Non-guarantor Subsidiaries.
Separate financial statements of the Wholly-owned Guarantors are not presented
because management has determined that they would not be material to investors.
Separate audited financial statements of PPM Cranes, Inc. have been provided
pursuant to Rule 3-10 of Regulation S-X.
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 (Terex Cranes, Inc., Koehring Cranes, Inc., Terex Aerials, Inc.,
Terex-RO Corporation, Terex-Telelect, Inc., Payhauler Corportation and The
American Crane Corporation (collectively, "Wholly-owned Guarantors").
Non-guarantor subsidiaries of Wholly-owned Guarantors are reported on the equity
basis.
PPM Cranes, Inc. presents the operations of PPM Cranes, Inc. and its
subsidiaries (PPM of Australia Pty Ltd and PPM Far East Private Ltd) 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 New
Senior Subordinated Notes. These subsidiaries include Terex Equipment Limited,
Unit Rig Australia (Pty) Ltd., Unit Rig South Africa (Pty) Ltd., Unit Rig
(Canada) Ltd., PPM S.A., PPM S.p.A., Brimont Agraire, PPM Deutschland GmbH, PPM
of Australia Pty Ltd., and PPM Far East Private Ltd. Terex Aerials Limited,
Terex Italia, S.r.l., Sim-Tech Management Limited and Simon-Tomen Engineering
Company Limited are included in the results of the Non-Guarantor Subsidiaries
since April 7, 1997. O&K Mining GmbH, Holland Lift International B.V., American
Crane International B.V., Italmacchine S.r.l., Terex-Peiner GmbH and Gru Comedil
S.p.A. are included in the results of the Non Guarantor Subsidiaries since March
31, 1998, May 4, 1998, July 31, 1998, November 3, 1998, November 13, 1998 and
December 18, 1998.
F - 27
Debt and Goodwill allocated to subsidiaries is presented on an accounting
"push-down" basis.
F - 28
TEREX CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(in millions)
Wholly- Non-
Terex owned PPM guarantor Intercompany
Corporation Guarantors Cranes, Inc. Subsidiaries Eliminations Consolidated
------------- ------------- ------------- ------------- ------------- -------------
Net Sales............................... $ 208.9 $ 445.7 $ 84.9 $ 616.8 $ (123.1) $ 1,233.2
Cost of goods sold.................... 174.0 360.8 74.7 516.4 (118.5) 1,007.4
------------- ------------- ------------- ------------- ------------- -------------
Gross Profit............................ 34.9 84.9 10.2 100.4 (4.6) 225.8
Engineering, selling & administrative 20.5 24.5 3.4 55.4 --- 103.8
expenses................................
------------- ------------- ------------- ------------- ------------- -------------
Income (Loss) From Operations........... 14.4 60.4 6.8 45.0 (4.6) 122.0
Interest income....................... 1.0 0.5 --- 1.2 --- 2.7
Interest expense...................... (8.5) (8.0) (5.4) (25.3) --- (47.2)
Income (loss) from equity investees... 36.8 5.5 (1.1) --- (41.2) ---
Other income (expense) - net.......... (0.7) (0.4) (0.2) (1.7) --- (3.0)
------------- ------------- ------------- ------------- ------------- -------------
Income (Loss) From Continuing Operations
Before Income Taxes And Extraordinary 43.0 58.0 0.1 19.2 (45.8) 74.5
Items.................................
Provision for income taxes............ --- --- --- (1.7) --- (1.7)
------------- ------------- ------------- ------------- ------------- -------------
Income (Loss) From Continuing Operations
Before Extraordinary Items............ 43.0 58.0 0.1 17.5 (45.8) 72.8
Extraordinary loss on retirement of (8.5) (5.0) (10.4) (14.4) --- (38.3)
debt....................................
------------- ------------- ------------- ------------- ------------- -------------
Net Income (Loss)....................... 34.5 53.0 (10.3) 3.1 (45.8) 34.5
Less preferred stock accretion........ --- --- --- --- --- ---
============= ============= ============= ============= ============= =============
Income (Loss) Applicable To Common Stock $ 34.5 $ 53.0 $ (10.3) $ 3.1 $ (45.8) $ 34.5
============= ============= ============= ============= ============= =============
TEREX CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(in millions)
Wholly- Non-
Terex owned PPM guarantor Intercompany
Corporation Guarantors Cranes, Inc. Subsidiaries Eliminations Consolidated
------------- ------------- ------------- ------------- ------------- -------------
Net Sales............................... $ 163.3 $ 304.3 $ 79.5 $ 398.6 $ (103.4) $ 842.3
Cost of goods sold.................... 136.0 248.8 70.0 349.4 (101.5) 702.7
------------- ------------- ------------- ------------- ------------- -------------
Gross Profit............................ 27.3 55.5 9.5 49.2 (1.9) 139.6
Engineering, selling & administrative 15.0 18.4 3.3 31.8 --- 68.5
expenses................................
------------- ------------- ------------- ------------- ------------- -------------
Income (Loss) From Operations........... 12.3 37.1 6.2 17.4 (1.9) 71.1
Interest income....................... 0.5 0.1 --- 0.3 --- 0.9
Interest expense...................... (14.2) (6.3) (6.7) (12.2) --- (39.4)
Income (loss) from equity investees... 29.3 (2.4) (0.3) --- (26.6) ---
Other income (expense) - net.......... (2.0) 0.4 (0.3) 0.3 --- (1.6)
------------- ------------- ------------- ------------- ------------- -------------
Income (Loss) From Continuing Operations
Before Income Taxes And Extraordinary 25.9 28.9 (1.1) 5.8 (28.5) 31.0
Items.................................
Provision for income taxes............ --- --- --- (0.7) --- (0.7)
------------- ------------- ------------- ------------- ------------- -------------
Income (Loss) From Continuing Operations
Before Extraordinary Items............ 25.9 28.9 (1.1) 5.1 (28.5) 30.3
Extraordinary loss on retirement of (14.8) --- --- --- --- (14.8)
debt....................................
------------- ------------- ------------- ------------- ------------- -------------
Net Income (Loss)....................... 11.1 28.9 (1.1) 5.1 (28.5) 15.5
Less preferred stock accretion........ (0.4) (4.4) --- --- --- (4.8)
------------- ------------- ------------- ------------- ------------- -------------
Income (Loss) Applicable To Common Stock $ 10.7 $ 24.5 $ (1.1) $ 5.1 $ (28.5) $ 10.7
============= ============= ============= ============= ============= =============
F - 29
TEREX CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(in millions)
Wholly- Non-
Terex owned PPM guarantor Intercompany
Corporation Guarantors Cranes, Inc. Subsidiaries Eliminations Consolidated
------------- ------------- ------------- ------------- ------------- -------------
Net Sales............................... $ 175.3 $ 134.7 $ 88.0 $ 356.5 $ (76.0) $ 678.5
Cost of goods sold.................... 163.1 110.8 91.3 318.8 (74.7) 609.3
------------- ------------- ------------- ------------- ------------- -------------
Gross Profit............................ 12.2 23.9 (3.3) 37.7 (1.3) 69.2
Engineering, selling & administrative 18.3 8.7 5.2 31.9 --- 64.1
expenses................................
------------- ------------- ------------- ------------- ------------- -------------
Income (Loss) From Operations........... (6.1) 15.2 (8.5) 5.8 (1.3) 5.1
Interest income....................... 0.4 --- --- 0.8 --- 1.2
Interest expense...................... (23.6) (2.5) (7.0) (11.7) --- (44.8)
Income (loss) from equity investees... (22.0) (37.4) (1.2) --- 60.6 ---
Other income (expense) - net.......... (3.7) (0.7) (0.4) 1.1 --- (3.7)
------------- ------------- ------------- ------------- ------------- -------------
Income (Loss) From Continuing Operations
Before Income Taxes And Extraordinary (55.0) (25.4) (17.1) (4.0) 59.3 (42.2)
Items.................................
Provision For Income Taxes............ --- --- --- (12.1) --- (12.1)
------------- ------------- ------------- ------------- ------------- -------------
Income (Loss) From Continuing Operations
Before Extraordinary Items............ (55.0) (25.4) (17.1) (16.1) 59.3 (54.3)
Income (loss) from discontinued
operations, net of tax expense....... 102.1 17.6 --- 3.0 (20.7) 102.0
------------- ------------- ------------- ------------- ------------- -------------
Net Income (Loss)....................... 47.1 (7.8) (17.1) (13.1) 38.6 47.7
Less preferred stock accretion........ (22.3) (0.6) --- --- --- (22.9)
------------- ------------- ------------- ------------- ------------- -------------
Income (Loss) Applicable To Common Stock $ 24.8 $ (8.4) $ (17.1) $ (13.1) $ 38.6 $ 24.8
============= ============= ============= ============= ============= =============
F - 30
TEREX CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1998
(in millions)
Wholly- Non-
Terex owned PPM guarantor Intercompany
Corporation Guarantors Cranes, Inc. Subsidiaries Eliminations Consolidated
------------- ------------- ------------- ------------- ------------- -------------
Assets
Current Assets
Cash and cash equivalents.......... $ 9.3 $ 0.5 $ 0.1 $ 15.2 $ --- $ 25.1
Trade receivables - net............ 19.7 51.9 18.0 160.2 --- 249.8
Intercompany receivables........... 7.0 16.9 12.8 96.5 (133.2) ---
Inventories - net.................. 113.9 101.1 30.0 235.2 (7.4) 472.8
Other current assets............... 4.8 4.1 0.1 14.9 --- 23.9
------------- ------------- ------------- ------------- ------------- -------------
Total current assets............. 154.7 174.5 61.0 522.0 (140.6) 771.6
Property, plant & equipment - net.... 10.8 28.4 --- 60.3 --- 99.5
Investment in and advances to
(from) subsidiaries.............. 75.2 (92.7) (1.4) (49.0) 67.9 ---
Goodwill - net....................... 30.3 80.4 13.7 116.5 --- 240.9
Other assets - net................... 9.9 12.7 1.3 15.3 --- 39.2
------------- ------------- ------------- ------------- ------------- -------------
Total Assets............................ $ 280.9 $ 203.3 $ 74.6 $ 665.1 $ (72.7) $ 1,151.2
============= ============= ============= ============= ============= =============
Liabilities and Stockholders' Equity
(Deficit)
Current Liabilities
Notes payable and current portion
of long-term debt................ $ 13.5 $ 3.4 $ 0.8 $ 27.0 $ --- $ 44.7
Trade accounts payable............. 29.4 53.7 8.4 135.4 --- 226.9
Intercompany payables.............. 13.1 15.2 26.5 78.4 (133.2) ---
Accruals and other current 44.8 22.6 9.3 77.1 --- 153.8
liabilities......................
------------- ------------- ------------- ------------- ------------- -------------
Total current liabilities........ 100.8 94.9 45.0 317.9 (133.2). 425.4
Long-term debt less current portion.. 69.9 100.1 60.8 355.8 --- 586.6
Other long-term liabilities.......... 12.1 9.3 0.6 19.1 --- 41.1
Stockholders' equity (deficit)....... 98.1 (1.0) (31.8) (27.7) 60.5 98.1
------------- ------------- ------------- ------------- ------------- -------------
Total Liabilities and Stockholders'
Equity (Deficit)..................... $ 280.9 $ 203.3 $ 74.6 $ 665.1 $ (72.7) $ 1,151.2
============= ============= ============= ============= ============= =============
F - 31
TEREX CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1997
(in millions)
Wholly- Non-
Terex owned PPM guarantor Intercompany
Corporation Guarantors Cranes, Inc. Subsidiaries Eliminations Consolidated
------------- ------------- ------------- ------------- ------------- -------------
Assets
Current Assets
Cash and cash equivalents.......... $ 5.6 $ 0.1 $ --- $ 23.0 $ --- $ 28.7
Trade receivables - net............ 10.6 40.8 20.5 67.4 --- 139.3
Intercompany receivables........... 4.3 19.5 12.6 45.6 (82.0) ---
Inventories - net.................. 55.7 59.7 27.8 92.4 (3.5) 232.1
Other current assets............... 3.5 2.5 0.1 20.3 --- 26.4
------------- ------------- ------------- ------------- ------------- -------------
Total current assets............. 79.7 122.6 61.0 248.7 (85.5) 426.5
Property, plant & equipment - net.... 5.2 18.5 --- 24.1 --- 47.8
Investment in and advances to
(from) subsidiaries.............. 110.2 (99.6) (9.7) (115.7) 114.8 ---
Goodwill - net....................... --- 53.9 14.9 19.6 --- 88.4
Other assets - net................... 5.7 15.9 2.0 2.2 --- 25.8
------------- ------------- ------------- ------------- ------------- -------------
Total Assets............................ $ 200.8 $ 111.3 $ 68.2 $ 178.9 $ 29.3 $ 588.5
============= ============= ============= ============= ============= =============
Liabilities and Stockholders' Equity
(Deficit)
Current Liabilities
Notes payable and current portion
of long-term debt................ $ 0.5 $ 3.0 $ 0.8 $ 22.3 $ --- $ 26.6
Trade accounts payable............. 24.3 37.8 7.4 68.6 --- 138.1
Intercompany payables.............. 21.0 21.3 19.9 19.8 (82.0) ---
Accruals and other current 26.0 14.8 9.6 21.0 --- 71.4
liabilities......................
------------- ------------- ------------- ------------- ------------- -------------
Total current liabilities........ 71.8 76.9 37.7 131.7 (82.0) 236.1
Long-term debt less current portion.. 62.6 82.3 51.3 77.3 --- 273.5
Other long-term liabilities.......... 6.8 6.1 0.9 5.5 --- 19.3
Stockholders' equity (deficit)....... 59.6 (54.0) (21.7) (35.6) 111.3 59.6
------------- ------------- ------------- ------------- ------------- -------------
Total Liabilities and Stockholders'
Equity (Deficit)..................... $ 200.8 $ 111.3 $ 68.2 $ 178.9 $ 29.3 $ 588.5
============= ============= ============= ============= ============= =============
F - 32
TEREX CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1998
(in millions)
Wholly- Non-
Terex owned PPM guarantor Intercompany
Corporation Guarantors Cranes, Inc. Subsidiaries Eliminations Consolidated
------------- ------------- ------------- ------------- ------------- -------------
Net cash provided by (used in)
operating activities $ 6.6 $ (0.8) $ (1.4) $ (23.9) $ --- $ (19.5)
------------- ------------- ------------- ------------- ------------- -------------
Cash flows from investing activities:
Acquisition of business, net of cash
acquired............................. (184.9) --- --- (26.4) --- (211.3)
Capital expenditures.................. (1.7) (4.1) (0.1) (7.2) --- (13.1)
Proceeds from sale of excess assets... --- 1.9 0.2 0.3 --- 2.4
------------- ------------- ------------- ------------- ------------- -------------
Net cash used in investing (186.6) (2.2) 0.1 (33.3) --- (222.0)
activities...........................
------------- ------------- ------------- ------------- ------------- -------------
Cash flows from financing activities:
Net borrowings (repayments) under
revolving line of credit agreements.. (24.9) (64.1) 0.5 17.0 --- (71.5)
Principal repayments of long-term debt (39.3) (20.1) (47.9) (63.5) --- (170.8)
Proceeds from issuance of long-term
debt, net of issuance costs.......... 254.4 90.8 58.6 109.8 --- 513.6
Payment of premiums on early
extinguishment of debt............... (6.0) (3.7) (8.6) (10.7) --- (29.0)
Other................................. --- --- (1.2) (1.8) --- (3.0)
------------- ------------- ------------- ------------- ------------- -------------
Net cash provided by financing
activities........................... 184.2 2.9 1.4 50.8 --- 239.3
------------- ------------- ------------- ------------- ------------- -------------
Effect of exchange rates on cash and
cash equivalents...................... (0.5) 0.5 --- (1.4) --- (1.4)
------------- ------------- ------------- ------------- ------------- -------------
Net (decrease) increase in cash and cash
equivalents........................... 3.7 0.4 0.1 (7.8) --- (3.6)
Cash and cash equivalents, beginning of 5.6 0.1 --- 23.0 --- 28.7
period................................
------------- ------------- ------------- ------------- ------------- -------------
Cash and cash equivalents, end of period $ 9.3 $ 0.5 $ 0.1 $ 15.2 $ --- $ 25.1
============= ============= ============= ============= ============= =============
TEREX CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
(in millions)
Wholly- Non-
Terex owned PPM guarantor Intercompany
Corporation Guarantors Cranes, Inc. Subsidiaries Eliminations Consolidated
------------- ------------- ------------- ------------- ------------- -------------
Net cash provided by (used in) $ (7.2) $ (5.1) $ 1.4 $ 10.6 $ --- $ (0.3)
operating activities
------------- ------------- ------------- ------------- ------------- -------------
Cash flows from investing activities:
Acquisition of businesses, net of cash (97.2) --- --- --- --- (97.2)
acquired.............................
Capital expenditures.................. (1.2) (2.4) (0.7) (5.6) --- (9.9)
Proceeds from sale of excess assets... 0.1 7.5 0.7 0.2 --- 8.5
------------- ------------- ------------- ------------- ------------- -------------
Net cash (used in) provided by
investing activities.............. (98.3) 5.1 --- (5.4) --- (98.6)
------------- ------------- ------------- ------------- ------------- -------------
Cash flows from financing activities:
Net borrowings (repayments) under
revolving line of credit agreements.. 94.9 --- (0.3) 5.1 --- 99.7
Principal repayments of long-term debt (83.0) --- (0.7) --- --- (83.7)
Redemption of preferred stock......... (45.4) --- --- --- --- (45.4)
Issuance of common stock.............. 104.6 --- --- --- --- 104.6
Payment of premiums on early
extinguishment of debt............... (9.9) --- --- --- --- (9.9)
Other................................. 2.5 --- --- (3.6) --- (1.1)
------------- ------------- ------------- ------------- ------------- -------------
Net cash provided by (used in)
financing activities............... 63.7 --- (1.0) 1.5 --- 64.2
------------- ------------- ------------- ------------- ------------- -------------
Effect of exchange rates on cash and
cash equivalents...................... (6.0) --- (0.4) (2.2) --- (8.6)
------------- ------------- ------------- ------------- ------------- -------------
Net (decrease) increase in cash and cash
equivalents........................... (47.8) --- --- 4.5 --- (43.3)
Cash and cash equivalents, beginning of 53.4 0.1 --- 18.5 --- 72.0
period................................
------------- ------------- ------------- ------------- ------------- -------------
Cash and cash equivalents, end of period $ 5.6 $ 0.1 $ --- $ 23.0 $ --- $ 28.7
============= ============= ============= ============= ============= =============
F - 33
TEREX CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
(in millions)
Wholly- Non-
Terex owned PPM guarantor Intercompany
Corporation Guarantors Cranes, Inc. Subsidiaries Eliminations Consolidated
------------- ------------- ------------- ------------- ------------- -------------
Net cash provided by (used in) operating
activities............................ $ (18.7) $ --- $ (0.5) $ 1.6 $ --- $ (17.6)
------------- ------------- ------------- ------------- ------------- -------------
Cash flows from investing activities:
Capital expenditures.................. (0.5) (0.1) (0.3) (7.2) --- (8.1)
Net proceeds from sale of discontinued
operations........................... 137.2 --- --- --- --- 137.2
Proceeds from sale of excess assets... 0.4 0.1 1.0 5.0 --- 6.5
Other................................. --- --- --- 0.1 --- 0.1
------------- ------------- ------------- ------------- ------------- -------------
Net cash provided by (used in)
investing activities............... 137.1 --- 0.7 (2.1) --- 135.7
------------- ------------- ------------- ------------- ------------- -------------
Cash flows from financing activities:
Net borrowings (repayments) under
revolving line of credit agreements... (66.8) --- 0.4 11.4 --- (55.0)
Principal repayments of long-term debt.. --- --- (1.0) --- --- (1.0)
Other................................... (0.8) --- 0.1 6.3 --- 5.6
------------- ------------- ------------- ------------- ------------- -------------
Net cash (used in) provided by
financing activities............... (67.6) --- (0.5) 17.7 --- (50.4)
------------- ------------- ------------- ------------- ------------- -------------
Effect of exchange rates on cash and
cash equivalents...................... (0.4) --- --- (2.3) --- (2.7)
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in cash and cash
equivalents........................... 50.4 --- (0.3) 14.9 --- 65.0
Cash and cash equivalents, beginning of 3.1 --- 0.3 3.6 --- 7.0
period................................
------------- ------------- ------------- ------------- ------------- -------------
Cash and cash equivalents, end of period $ 53.5 $ --- $ --- $ 18.5 $ --- $ 72.0
============= ============= ============= ============= ============= =============
F - 34
NOTE Q - SUBSEQUENT EVENTS (UNAUDITED)
On March 9, 1999, Company issued and sold $100.0 aggregate principal amount of
8-7/8 % Senior Subordinated Notes due 2008 (the "1999 Senior Subordinated
Notes"). The 1999 Senior Subordinated Notes were issued at a discount with the
Company receiving net proceeds of $94.9. The 1999 Senior Subordinated Notes were
issued in a private placement made in reliance upon an exemption from
registration under the Securities Act of 1933, as amended. The net proceeds from
the offering are being used to repay a portion of the outstanding indebtedness
under Terex's credit facilities incurred primarily in connection with the
Company's 1998 acquisitions and for future acquisitions.
Canadian Imperial Bank of Commerce, an affiliate of CIBC Oppenheimer Corp., of
which a director of the Company is a managing director, was retained by the
Company in connection with the offering of the 1999 Senior Subordinated Notes.
CIBC was paid $0.4 as an underwriting discount upon issuance of the 1999 Senior
Subordinated Notes on the same terms as the other underwriter.
F - 35
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of PPM Cranes, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in shareholders' deficit and
of cash flows present fairly, in all material respects, the financial position
of PPM Cranes, Inc. and its subsidiary (the "Company") at December 31, 1998 and
1997, and the results of their operations and their cash flows for each of the
three years in the period ended December 31,1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards 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 the opinion expressed above.
PricewaterhouseCoopers LLP
Stamford, Connecticut
March 1, 1999
F - 36
PPM Cranes, Inc.
Consolidated Statement of Operations
(in millions)
Year Ended December 31,
---------------------------
1998 1997 1996
--------- -------- --------
Net sales........................................... $ 92.4 $ 87.4 $ 95.9
Cost of goods sold.................................. 81.2 76.5 98.4
--------- -------- --------
Gross profit................................... 11.2 10.9 (2.5)
Engineering, selling and administrative expenses.... 4.5 4.5 6.6
--------- -------- --------
Income (loss) from operations................... 6.7 6.4 (9.1)
Other income (expense):
Interest expense................................ (5.8) (7.1) (7.5)
Amortization of debt issuance costs............. (0.3) (0.5) (0.5)
Other income.................................... --- 0.1 ---
--------- -------- --------
Income (loss) before income taxes............... 0.6 (1.1) (17.1)
Provision for income taxes........................... --- --- ---
--------- -------- --------
Income (loss) before extraordinary items........ 0.6 (1.1) (17.1)
Extraordinary loss on retirement of debt............. (10.9) --- ---
--------- -------- --------
Net loss........................................$ (10.3) $ (1.1) $ (17.1)
========= ======== ========
The accompanying notes are an integral part of these financial statements.
F - 37
PPM Cranes, Inc.
Consolidated Balance Sheet
(in millions, except share amounts)
December 31,
------------------
1998 1997
-------- ---------
Assets
Current assets:
Cash and cash equivalents...................................$ 0.2 $ 0.2
Trade accounts receivable (net of allowance of $0.8
and $0.7 at December 31, 1998 and 1997, respectively)...... 19.3 21.4
Net inventories............................................. 30.4 29.7
Due from affiliates......................................... 15.1 14.0
Prepaid expenses and other current assets................... 0.1 0.2
-------- ---------
Total current assets.......................................... 65.1 65.5
Property, plant and equipment - net........................... --- --
Intangible assets:
Goodwill - net.............................................. 14.4 15.7
Other assets - net.......................................... 1.3 1.9
-------- ---------
Total assets..................................................$ 80.8 $ 83.1
======== =========
Liabilities and shareholders' deficit Current liabilities:
Trade accounts payable......................................$ 10.6 $ 7.4
Accrued warranties and product liability.................... 8.0 7.5
Accrued expenses............................................ 1.8 2.3
Due to affiliates........................................... 26.4 22.0
Due to Terex Corporation.................................... 0.3 9.8
Current portion of long-term debt........................... 0.8 1.0
-------- --------
Total current liabilities..................................... 47.9 50.0
-------- --------
Non-current liabilities:
Long-term debt, less current portion........................ 63.9 53.8
Other non-current liabilities............................... 0.8 1.0
-------- --------
Total non-current liabilities................................. 64.7 54.8
-------- --------
Commitments and contingencies
Shareholders' deficit:
Common stock, Class A, $.01 par value --
authorized 8,000 shares; issued and outstanding 5,000 share --- ---
Common stock, Class B, $.01 par value --
authorized 2,000 shares; issued and outstanding 413 shares. --- ---
Accumulated deficit......................................... (31.7) (21.4)
Foreign currency translation adjustments.................... (0.1) (0.3)
-------- --------
Total shareholders' deficit................................... (31.8) (21.7)
-------- --------
Total liabilities and shareholders' deficit...................$ 80.8 $ 83.1
======== ========
The accompanying notes are an integral part of these financial statements.
F - 38
PPM Cranes, Inc.
Consolidated Statement of Changes in Shareholders' Deficit
(in millions)
Foreign
Currency
Common Stock Accumulated Translation
Deficit Adjustments Total
--------------- --------------------------------- ----------------
Balance at December 31, 1995.......... $ --- $ (3.2) $ 0.1 $ (3.1)
Net loss.......................... --- (17.1) --- (17.1)
Translation adjustment............ --- --- --- ---
----------------
Comprehensive Income............. (17.1)
--------------- --------------------------------- ----------------
Balance at December 31, 1996.......... --- (20.3) 0.1 (20.2)
Net loss.......................... --- (1.1) --- (1.1)
Translation adjustment............ --- --- (0.4) (0.4)
----------------
Comprehensive Income............. (1.5)
--------------- --------------------------------- ----------------
Balance at December 31, 1997.......... --- (21.4) (0.3) (21.7)
Net loss.......................... --- (10.3) --- (10.3)
Translation adjustment............ --- --- 0.2 0.2
----------------
Comprehensive Income.............. (10.1)
--------------- --------------------------------- ----------------
Balance at December 31, 1998 $ --- $ (31.7) $ (0.1) $ (31.8)
=============== ================================= ================
The accompanying notes are an integral part of these financial statements.
F - 39
PPM Cranes, Inc.
Consolidated Statement of Cash Flows
(in millions)
Year Ended December 31,
---------------------------------------------------------
1998 1997 1996
------------------ ------------------ ----------------
Operating activities
Net loss........................................................$(10.3) $ (1.1) $ (17.1)
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization.............................. 1.6 1.8 3.2
Extraordinary loss on retirement of debt................... 10.9 --- ---
Impairment charge.......................................... --- --- 13.5
Other...................................................... --- 0.4 1.4
Changes in operating assets and liabilities:
Trade accounts receivable............................. 2.1 (7.0) (2.5)
Net inventories....................................... (0.7) (0.5) (4.2)
Prepaid expenses and other current assets............. 0.1 (0.1) 0.1
Trade accounts payable................................ 3.2 2.4 (0.5)
Net amounts due to affiliates......................... (6.2) 6.8 6.0
Accrued warranty and product liability................ 0.5 --- (0.7)
Accrued expenses...................................... (0.5) (0.6) (1.2)
Other - net........................................... (0.2) (0.8) 1.3
------------------ ------------------ ----------------
Net cash provided by (used in) operating activities............ 0.5 1.3 (0.7)
------------------ ------------------ ----------------
Investing activities
Capital expenditures............................................ (0.1) (0.7) (0.4)
Proceeds from sale of excess assets............................. 0.2 0.7 1.1
------------------ ------------------ ----------------
Net cash provided by (used in) investing activities............. 0.1 --- 0.7
------------------ ------------------ ----------------
Financing activities
Proceeds from issuance of long-term debt, net of issuance costs.
60.0 --- ---
Net (repayments) borrowings under revolving line of credit
agreements.................................................... --- (0.3) 0.8
Principal repayments of long-term debt.......................... (50.8) (0.7) (1.0)
Payment of premiums on early extinguishment of debt............. (8.6) --- ---
Other........................................................... (1.2) (0.1) 0.1
------------------ ------------------ ----------------
Net cash used in financing activities........................... (0.6) (1.1) (0.1)
------------------ ------------------ ----------------
Effect of exchange rate changes on cash......................... --- (0.4) ---
------------------ ------------------ ----------------
Net increase (decrease) in cash and cash equivalents............ --- (0.2) (0.1)
Cash and cash equivalents at beginning of period................ 0.2 0.4 0.5
------------------
================== ================
Cash and cash equivalents at end of period......................$ 0.2 $ 0.2 $ 0.4
================== ================== ================
Supplemental disclosure of cash flow information
Cash paid for interest..........................................$ 0.5 $ 0.4 $ ---
================== ================== ================
Cash paid for income taxes......................................$ --- $ --- $ ---
================== ================== ================
The accompanying notes are an integral part of these financial statements.
F - 40
PPM CRANES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(In millions of dollars)
NOTE 1 -- DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION
PPM Cranes, Inc. (the "Company" or "PPM") is engaged in the design, manufacture,
marketing and worldwide distribution and support of construction equipment,
primarily hydraulic cranes and related spare parts.
On May 9, 1995 (the "date of acquisition"), Terex Corporation, through its
wholly-owned subsidiary Terex Cranes, Inc., completed the acquisition of all of
the capital stock of Legris Industries, Inc., a Delaware Corporation which owns
92.4% of the capital stock of PPM Cranes, Inc. Terex Corporation and Terex
Cranes, Inc., are both Delaware corporations. Prior to the acquisition of Legris
Industries, Inc. by Terex Cranes, Inc. on May 9, 1995, Legris Industries, Inc.
was a holding company, with no assets, liabilities, or operations other than its
investment in PPM.
The financial statements reflect Terex Corporation's basis in the assets and
liabilities of the Company which was accounted for as a purchase transaction. As
a result, the debt and goodwill associated with the acquisition have been
"pushed down" to the Company's financial statements.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation. The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiary: PPM of Australia Pty.
Ltd. All material intercompany transactions and profits have been eliminated.
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 results could differ from those estimates.
Inventories. Inventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out (FIFO) method.
Property, Plant and Equipment. Additions and major replacements or improvements
to property, plant and equipment are recorded at cost. Maintenance, repairs and
minor replacements are charged to expense when incurred. Plant and equipment are
depreciated over the estimated useful lives of the assets under the
straight-line method of depreciation for financial reporting purposes and both
straight-line and other methods for tax purposes.
Goodwill. 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, is amortized on a straight-line basis over fifteen years.
Accumulated amortization is $4.8 and $3.5 at December 31, 1998 and 1997,
respectively.
Debt Issuance Costs. Debt issuance costs incurred by Terex Corporation in
securing the financing related to acquiring the Company have been capitalized
and are reflected in the financial statements. Capitalized debt issuance costs
are amortized over the term of the related debt. Accumulated amortization is
$0.2 and $1.2 at December 31, 1998 and 1997, respectively.
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 is less than its carrying value. The amount of any impairment then
recognized would be calculated as the difference between estimated future
discounted cash flows and the carrying value of the asset.
F - 41
Product Liability and Warranty. The Company records accruals for potential
warranty and product liability claims based on the Company's claim experience.
Warranty costs are accrued at the time revenue is recognized. The Company
provides self-insurance accruals for estimated product liability experience on
claims and for claims anticipated to have been incurred which have not yet been
reported.
Income Taxes. Income taxes are provided using the liability method in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting
for Income Taxes." The Company is a part of a group that files a consolidated
income tax return. The method used to allocate income taxes to members of the
group is one in which current and deferred income taxes are calculated on a
separate return basis as if the Company had not been included in a consolidated
income tax return with its parent. The tax benefit associated with the
acquisition debt has been taken into account in the Company's tax provision.
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.
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' Deficit. Gains or (losses) resulting from foreign currency
transactions are recorded in the accounts based on the underlying transaction.
Foreign Exchange Contracts. The Company may from time to time use foreign
exchange contracts to hedge recorded balance sheet amounts related to certain
international operations and firm commitments that create currency exposures.
The Company does not enter into speculative contracts. Gains and losses on
hedges of assets and liabilities are recognized in income as offsets to the
gains and losses from the underlying hedged amounts. Gains and losses on hedges
of firm commitments are recorded on the basis of the underlying transaction. At
December 31, 1998 the Company had no material outstanding foreign exchange
contracts.
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, 1998 and 1997.
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 Engineering, Selling and
Administrative Expenses and amounted to $0.0, $0.1 and $0.1 in 1998, 1997 and
1996, respectively.
NOTE 3 -- IMPAIRMENT OF LONG LIVED ASSETS
The Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed of," in 1996. This statement
establishes accounting standards for determining impairment of long-lived assets
and long-lived assets to be disposed of. The Company assesses the realizability
of its long-lived assets and evaluates 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. For assets in use or under
development, impairment is determined to exist if the estimated future cash flow
associated with the asset, undiscounted and without interest charges, is less
than the carrying amount of the asset. When the estimated future cash flow
indicates that the carrying amount of the asset will not be recovered, the asset
is written down to its fair value.
F - 42
As required by generally accepted accounting principles, goodwill was allocated
in the PPM Acquisition to various operating units. After eighteen months of
continuous rationalization, estimated future undiscounted cash flows for certain
U.S. operations would not be sufficient to recover the goodwill and fixed assets
recorded for these operations. Thus, in the fourth quarter of 1996 the Company
recorded an impairment charge of $13.5. These 1996 impairment charges totaling
$13.5 are included in "Cost of Goods Sold."
NOTE 4 -- INVENTORIES
Inventories at December 31, 1998 and 1997 consist of the following:
1998 19957
--------- ----------
Raw materials and supplies....................... $ 10.4 $ 9.0
Work in process.................................. 1.6 0.3
Replacement parts................................ 9.1 9.7
Finished goods equipment......................... 9.3 10.7
========= ==========
$ 30.4 $ 29.7
========= ==========
NOTE 5 -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1998 and 1997 consists of the
following:
1998 1997
---------------------
Property.......................................... $ 0.2 $ 0.1
Plant............................................. --- ---
Machinery and equipment........................... --- ---
---------------------
0.2 0.1
Less accumulated depreciation..................... (0.2) (0.1)
=====================
$ --- $ ---
=====================
Depreciation expense for 1998, 1997 and 1996 was $0.1, $0.1 and $0.6,
respectively.
NOTE 6 - LONG-TERM DEBT
Long-term debt at December 31, 1998 and 1997 is summarized as follows:
1998 1997
--------- ---------
New Bank Credit Facility.................................... $ 60.0 $ ---
13 1/4% Senior Secured Notes due May 15, 2002............... --- 49.5
Note payable................................................ 4.4 4.7
Other....................................................... 0.3 0.6
--------- ---------
Total long-term debt................................... 64.7 54.8
Current portion long-term debt.............................. 0.8 1.0
========= =========
Long-term debt less current portion.................... $ 63.9 $ 53.8
========= =========
On March 6, 1998, Terex Corporation redeemed or defeased all of its $166.7
principal amount of its then outstanding 13-1/4% Senior Secured Notes due 2002
(the "Senior Secured Notes"). The Company had $50.0 in principal of the Senior
Secured Notes that were redeemed. Concurrently therewith, Terex Corporation also
refinanced substantially all of its then existing domestic and foreign revolving
credit debt. The proceeds for the offer to purchase and the repayment of its
then existing revolving credit facility were obtained from borrowings under
Terex Corporation's new $500.0 global bank credit facility ("New Bank Credit
Facility"). In connection with the repurchase of the Senior Secured Notes, the
Company incurred an extraordinary loss of $10.9. This extraordinary loss was
recorded in the first quarter of 1998.
F - 43
The New Bank Credit Facility consists of a new secured global revolving credit
facility aggregating up to $125.0 (the "New Revolving Credit Facility") and two
term loan facilities (collectively, the "Term Loan Facilities") providing for
loans in an aggregate principal amount of up to approximately $375.0. With
limited exceptions, the obligations under the New Bank Credit Facility are
secured by (i) a pledge of all of the capital stock of domestic subsidiaries of
Terex Corporation, (ii) a pledge of 65% of the stock of the foreign subsidiaries
of Terex Corporation and (iii) a first priority security interest in, and
mortgages on, substantially all of the assets of Terex and its domestic
subsidiaries. The New Bank Credit Facility contains covenants limiting Terex
Corporation'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 new Bank Credit Facility also contains certain financial and operating
covenants, including a maximum leverage ratio, a minimum interest coverage ratio
and a minimum fixed charge coverage ratio.
Pursuant to the Term Loan Facilities, Terex Corporation has borrowed (i) $175.0
in aggregate principal amount pursuant to a Term Loan A due March 2004 (the
"Term A Loan") and (ii) $200.0 in aggregate principal amount pursuant to a Term
Loan B due March 2005 (the "Term B Loan") of which $60.0 was pushed down to the
Company. The outstanding principal amount of the Term B Loan currently bears
interest, at Terex Corporation's option, at a rate of 2.50% per annum in excess
of the adjusted eurodollar rate or, with respect to U.S. Dollar denominated
alternate base rate loans, 1.50% in excess of the prime rate. The weighted
average interest rate on the Term B Loan at December 31, 1998 was 7.75%. The
Term B Loan amortizes in an annual percentage of 1% during each of the first six
years of the term of the loan and 94% in the seventh year of the term of the
loan. The Term A Loan and Term B Loan are subject to mandatory prepayment in
certain circumstances and are voluntarily prepayable without payment of a
premium (subject to reimbursement of the lenders' costs in case of prepayment of
eurodollar loans other than on the last day of an interest period.)
The Senior Secured Notes
On May 9, 1995, Terex Corporation issued $250 of 13-1/4% Senior Secured Notes
due May 15, 2002. The Senior Secured Notes were issued in conjunction with Terex
Corporation's acquisition of substantially all of the capital stock of PPM
Cranes, Inc. and P.P.M. S.A. and the refinancing of Terex Corporation's debt. Of
the total principal amount $50 related to the acquisition of substantially all
of the capital stock of PPM Cranes, Inc. and was included in the Company's
consolidated balance sheet prior to March 6, 1998.
Repayment of the Senior Secured Notes were guaranteed by certain domestic
subsidiaries of Terex Corporation (the "Guarantors"), including PPM Cranes, Inc.
The Senior Secured Notes were secured by a first priority security interest on
substantially all of the assets of Terex Corporation and the Guarantors, other
than cash and cash equivalents, except that as to accounts receivable and
inventory and proceeds thereof, and certain related rights, such security was
subordinated to liens securing obligations outstanding under any working capital
or revolving credit facility secured by such accounts receivable and inventory.
The indenture for the Senior Secured Notes placed certain limits on Terex
Corporation's ability to incur additional indebtedness; permit the existence of
liens; issue, pay dividends on or redeem equity securities; sell assets;
consolidate, merge or transfer assets to another entity; and enter into
transactions with affiliates.
Note payable - Harnischfeger Corporation
The note payable to Harnischfeger Corporation is not interest bearing.
F - 44
Schedule of Debt Maturities
Scheduled annual maturities of long-term debt outstanding at December 31, 1998
in the successive five-year period are summarized as follows:
Note Payable -
Harnischfeger Other Total
--------------- --------------- -------------
1999...........................$ 0.8 $ --- $ 0.8
2000........................... 0.8 --- 0.8
2001........................... 0.8 0.1 0.9
2002........................... 0.4 0.1 0.5
2003........................... 0.5 0.1 0.6
Thereafter..................... 4.1 60.0 64.1
------------------------------- -------------
7.4 60.3 67.7
Imputed Interest............... (3.0) --- (3.0)
=============================== =============
$ 4.4 $ 60.3 $ 64.7
=============================== =============
The Company believes that the carrying value of other borrowings approximates
fair market value, based on discounting future cash flows using rates currently
available for debt of similar terms and remaining maturities.
NOTE 7 -- EMPLOYEE BENEFIT PLAN
The Company participates in a defined contribution plan which is sponsored by
Terex Corporation. The plan covers U.S. employees. Under the plan, the Company
matches a portion of an employee's contribution to the plan. The related expense
to the Company was $0.1, $0.1 and $0.1 for 1998, 1997 and 1996, respectively.
F - 45
NOTE 8 -- INCOME TAXES
The components of income (loss) from continuing operations before income taxes
and extraordinary items consisted of the following:
Year Ended December 31,
------------------------------------
1998 1997 1996
----------- ------------- ---------
Domestic....................................$ 0.4 $ (1.1) $ (16.3)
Foreign..................................... 0.2 --- (0.8)
----------- ------------- ---------
$ 0.6 $ (1.1) $ (17.1)
=========== ============= =========
The Company has no provision for federal, foreign and state income taxes
(benefit).
The Company has not provided deferred taxes on $1.3 of cumulative undistributed
earnings of foreign subsidiaries as of December 31, 1998 as these earnings will
be either permanently re-invested or remitted substantially free of additional
income tax.
Deferred tax assets and liabilities result from differences in the basis of
assets and liabilities for tax and financial statements purposes. In accordance
with SFAS No. 109, "Accounting for income taxes," a valuation allowance fully
offsetting the net deferred tax asset, has been recognized. The tax effects of
the basis differences and Net Operating Loss ("NOL") carryforward as of December
31, 1998 and 1997 are summarized below:
Year Ended December 31,
-----------------------------
1998 1997
------------ ------------
Total deferred tax liabilities.................... $ --- $ ---
------------ ------------
Receivables....................................... 0.1 0.1
Inventory......................................... 0.7 0.9
Fixed Assets...................................... 0.8 0.8
Product liability................................. 2.1 2.1
Warranty.......................................... 0.7 0.5
Other............................................. --- 0.2
NOL carryforwards................................. 20.7 16.9
------------ ------------
Total deferred tax assets......................... 25.1 21.5
Deferred tax asset valuation allowance............ (25.1) (21.5)
------------ ------------
Net deferred taxes................................ $ --- $ ---
============ ============
The valuation allowance for deferred tax assets at acquisition date, May 9,
1995, was $19.0. Any future reduction of this valuation allowance attributable
to the pre-acquisition period will reduce goodwill. The net change in the
valuation allowance for 1998, 1997 and 1996 was an increase of $3.6, a decrease
of $3.1 and an increase of $1.2, respectively.
F - 46
At December 31, 1998, the Company has loss carryforwards for federal income tax
purposes of approximately $59.1 available to offset future taxable income. The
expiration of the Company's loss carryforwards are as follows:
Year
Expiring Amount
------------ -------------
2004 ................. $ 21.7
2005 ................. 0.8
2006 ................. 5.8
2007 ................. 8.9
2008 ................. 3.1
2009 ................. 2.4
2010 ................. 0.2
2011 ................. 5.4
2018 ................. 10.8
=============
Total ................. $ 59.1
=============
The utilization of approximately $42.7 of loss carryforwards is limited
annually, as a result of an "ownership change" (as defined by Section 382 of the
Internal Revenue code), which occurred in 1995. Further, the use of these
pre-acquisition losses is limited to future taxable income of PPM Cranes, Inc.
The Company's provision for income taxes from continuing operations is different
from the amount which would be provided by applying the statutory federal income
tax rate to the Company's loss before income taxes. The reasons for the
difference are summarized below:
Year Ended December 31,
----------------------------
1998 1997 1996
-------- --------- ---------
Statutory federal income tax rate...................$ 0.2 $ (0.4) $ (6.0)
Goodwill............................................ 0.4 0.5 3.9
NOL and basis differences with no current benefit... (0.6) (0.1) 2.1
-------- --------- ---------
Total provision for income taxes....................$ --- $ --- $ ---
======== ========= =========
There were no income taxes paid during 1998, 1997 and 1996.
NOTE 9 -- COMMITMENTS AND CONTINGENCIES
The Company has various lease agreements, primarily related to office space,
production facilities, and office equipment, which are accounted for as
operating leases. Certain leases have renewal options and provisions requiring
the Company to pay maintenance, property taxes and insurance. Rent expense for
1998, 1997 and 1996 was $0.3, $0.4 and $0.7, respectively.
Future minimum payments under noncancelable operating leases at December 31,
1998 are as follows:
1999...................................... $ 0.2
2000...................................... 0.1
2001...................................... 0.1
2002...................................... ---
2003...................................... ---
Thereafter................................. ---
==============
$ 0.4
==============
The Company is involved in product liability and other lawsuits incident to the
operation of its business. Insurance with third parties is maintained for
certain of these items. It is management's opinion that none of these lawsuits
will have a materially adverse effect on the Company's financial position.
F - 47
NOTE 10 - BUSINESS SEGMENT INFORMATION
The Company operates in one industry segment, that being the designing,
manufacturing, and marketing of telescopic mobile cranes. These products are
used primarily in the construction industry.
Geographic segment information is presented below:
1998 1997 1996
-------- -------- --------
Sales
United States............................$ 66.6 $ 54.3 $ 64.7
Other North American Countries........... 9.1 6.6 2.3
Europe................................... 2.4 4.2 3.4
All Other................................ 14.3 22.3 25.5
======== ======== ========
$ 92.4 $ 87.4 $ 95.9
======== ======== ========
Sales to the Company's largest customer comprised 12%, 12% and 7% of the
Company's net sales in the years ended December 31, 1998, 1997 and 1996,
respectively.
NOTE 11 -- RELATED PARTY TRANSACTIONS
During the years ended December 31, 1998 and 1997 and 1996, the Company had
transactions with various unconsolidated affiliates as follows:
1998 1997 1996
-------- --------- ---------
Product sales and service revenues......... $ 1.3 $ 2.5 $ 2.1
Management fee expense..................... $ 1.0 $ 1.1 $ 1.1
Interest expense........................... $ 5.3 $ 6.5 $ 7.0
Included in management fee expense are expenses paid by Terex Corporation on
behalf of the Company (e.g. legal, treasury and tax expense).
F - 48
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 Deductions (1) of Year
------------- ------------- ------------- ----------------- -------------
Year ended December 31, 1998:
Deducted from asset accounts:
Allowance for doubtful accounts............. $ 4.5 $ 1.8 $ --- $ (0.7) $ 5.6
Reserve for excess and obsolete inventory... 24.0 5.6 --- (5.6) 24.0
============= ============= ============= ================= =============
Totals..................................... $ 28.5 $ 7.4 $ --- $ (6.3) $ 29.6
============= ============= ============= ================= =============
Year ended December 31, 1997:
Deducted from asset accounts:
Allowance for doubtful accounts............. $ 7.0 $ 0.4 $ --- $ (2.9) $ 4.5
Reserve for excess and obsolete inventory... 18.7 8.1 --- (2.8) 24.0
============= ============= ============= ================= =============
Totals..................................... $ 25.7 $ 8.5 $ --- $ (5.7) $ 28.5
============= ============= ============= ================= =============
Year ended December 31, 1996:
Deducted from asset accounts:
Allowance for doubtful accounts............. $ 7.4 $ 2.4 $ --- $ (2.8) $ 7.0
Reserve for excess and obsolete inventory... 15.9 9.1 --- (6.3) 18.7
============= ============= ============= ================= =============
Totals..................................... $ 23.3 $ 11.5 $ --- $ (9.1) $ 25.7
============= ============= ============= ================= =============
(1) Primarily represents the utilization of established reserves, net of
recoveries.
F - 49
TEREX CORPORATION AND SUBSIDIARIES
SCHEDULE IV - INDEBTEDNESS OF AND TO RELATED PARTIES -- NOT CURRENT
Indebtedness of
---------------------------------------------------------------
Balance at Balance at End
Beginning of of
Name of Person Period Additions Deductions Period
- ---------------------------------------------- --------------- --------------- -------------- ----------------
Year ended December 31, 1998:
Randolph W. Lenz
Promissory note, interest at 6.56% due
November 2, 2000....................... $ 840,000 $ --- $ (480,000) $ 360,000
=============== =============== ============== ================
Year ended December 31, 1997:
Randolph W. Lenz
Promissory note, interest at 6.56% due
November 2, 2000....................... $ 1,440,000 $ --- $ (600,000) $ 840,000
=============== =============== ============== ================
Year ended December 31, 1996:
Randolph W. Lenz
Promissory note, interest at 6.56% due
November 2, 2000....................... $ 1,800,000 $ --- $ (360,000) $ 1,440,000
Payable for shipping charges............. 33,450 --- (33,450) ---
=============== =============== ============== ================
Total.................................. $ 1,833,450 $ --- $ (393,450) $ 1,440,000
=============== =============== ============== ================
F - 50
INDEX TO EXHIBITS
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 June 5, 1998.
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 Warrant Agreement dated as of December 20, 1993 between Terex Corporation
and Mellon Securities Trust Company, as Warrant Agent (incorporated by
reference to Exhibit 4.40 to the Form S-1 Registration Statement of Terex
Corporation, Registration No. 33-52297).
4.2 Form of Series A Warrant (incorporated by reference to Exhibit 4.41 to
the Form S-1 Registration Statement of Terex Corporation, Registration
No. 33-52297).
4.3 Indenture dated as of March 31, 1998 among Terex Corporation, the
Guarantors named therein and United States Trust Company of New York, as
Trustee (incorporated by reference to Exhibit 4.6 of Amendment No. 1 to
the Form S-4 Registration Statement of Terex Corporation, Registration
No. 333-53561).
4.4 Indenture dated as of March 9, 1999 among Terex Corporation, the
Guarantors named therein and United States Trust Company of New York, as
Trustee.
10.1 Terex Corporation Incentive Stock Option Plan, as amended (incorporated
by reference to Exhibit 4.1 to the Form S-8 Registration Statement of
Terex Corporation, Registration No. 33-21483).
10.2 1994 Terex Corporation Long Term Incentive Plan (incorporated by
reference to Exhibit 10.2 to the Form 10-K for the year ended December
31, 1994 of Terex Corporation, Commission File No. 1-10702).
10.3 Terex Corporation Employee Stock Purchase Plan (incorporated by reference
to Exhibit 10.3 to the Form 10-K for the year ended December 31, 1994 of
Terex Corporation, Commission File No. 1-10702).
10.4 1996 Terex Corporation Long Term Incentive Plan (incorporated by
reference to Exhibit 10.1 to Form S-8 Registration Statement of Terex
Corporation, Registration No. 333-03983).
10.5 Common Stock Appreciation Rights Agreement dated as of May 9, 1995
between the Company and United States Trust Company of New York, as
Rights Agents (incorporated by reference to Exhibit 10.29 of the
Amendment No. 1 to the Form S-1 Registration Statement of Terex
Corporation, Registration No. 33-52711).
10.6 SAR Registration Rights Agreement dated as of May 9, 1995 among the
Company and the Purchasers, as defined therein (incorporated by reference
to Exhibit 10.31 of the Amendment No. 1 to the Form S-1 Registration
Statement of Terex Corporation, Registration No. 33-52711).
10.7 Agreement dated as of November 2, 1995 between Terex Corporation, a
Delaware corporation, and Randolph W. Lenz (incorporated by reference to
Exhibit 10 to the Form 10-Q for the Three Months ended September 30,
1995, Commission File No. 1-10702).
10.8 Service Agreement, dated as of November 27, 1996, between Terex
Corporation and CLARK Material Handling Company (incorporated by
reference to Exhibit 10.2 of the Form 8-K Current Report, Commission File
No. 1-10702, dated and filed with the Commission on December 11, 1996).
10.9 Standstill Agreement, dated June 27, 1997, among Terex Corporation,
Randolph W. Lenz and the other parties named herein (incorporated by
reference to Exhibit 10.1 of Amendment No. 1 to the Form S-1 Registration
Statement of Terex Corporation, Registration No. 333-27749).
10.10 Credit Agreement dated as of March 6, 1998 among Terex Corporation,
certain of its subsidiaries, the lenders named therein, Credit Suisse
First Boston, as Administrative Agent, Bank Boston N.A., as Syndication
Agent and Canadian Imperial Bank of Commerce and First Union National
Bank, as Co-Documentation Agents (incorporated by reference to Exhibit
10.13 to the Form 10-K for the year ended December 31, 1998 of Terex
Corporation, Commission File No. 1-10702).
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10.11 GuaranteeAgreement 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).
10.12 Guarantee Agreement dated as of March 6, 1998 of Terex Corporation, each
of the subsidiaries of Terex Corporation listed therein and Credit Suisse
First Boston, as Collateral Agent (incorporated by reference to Exhibit
10.15 to the Form 10-K for the year ended December 31, 1998 of Terex
Corporation, Commission File No. 1-10702).
10.13 Security Agreement dated as of March 6, 1998 of Terex Corporation, each
of the subsidiaries of Terex Corporation listed therein and Credit Suisse
First Boston, as Collateral Agent (incorporated by reference to Exhibit
10.16 to the Form 10-K for the year ended December 31, 1998 of Terex
Corporation, Commission File No. 1-10702).
10.14 Pledge Agreement dated as of March 6, 1998 of Terex Corporation, each of
the subsidiaries of Terex Corporation listed therein and Credit Suisse
First Boston, as Collateral Agent (incorporated by reference to Exhibit
10.17 to the Form 10-K for the year ended December 31, 1998 of Terex
Corporation, Commission File No. 1-10702).
10.15 Form Mortgage, Leasehold Mortgage, Assignment of Leases and Rents,
Security Agreement and Financing entered into by Terex Corporation and
certain of the subsidiaries of Terex Corporation, as Mortgagor, and
Credit Suisse first Boston, as Mortgagee (incorporated by reference to
Exhibit 10.18 to the Form 10-K for the year ended December 31, 1998 of
Terex Corporation, Commission File No. 1-10702).
10.16 Share Purchase Agreement dated December 18, 1997 between O&K AG and Terex
Mining Equipment, Inc. (incorporated by reference to Exhibit 10.19 to the
Form 10-K for the year ended December 31, 1998 of Terex Corporation,
Commission File No. 1-10702).
10.17 Amendment No. 1 to Credit Agreement dated as of March 6, 1998 among Terex
Corporation, certain of its subsidiaries, the lenders named therein,
Credit Suisse First Boston, as Administrative and Collateral Agent.
10.18 Amendment No. 2 to Credit Agreement dated as of March 6, 1998 among Terex
Corporation, certain of its subsidiaries, the lenders named therein,
Credit Suisse First Boston, as Administrative and Collateral Agent.
10.19 Amendment No 3 to Credit Agreement dated as of March 6, 1998 among Terex
Corporation, certain of its subsidiaries, the lenders named therein,
Credit Suisse First Boston, as Administrative and Collateral Agent.
10.20 Purchase Agreement dated as of March 9, 1999 among the Company and the
Initial Purchasers, as defined therein.
10.21 Registration Rights Agreement dated as of March 9, 1999 among the Company
and the Purchasers, as defined therein.
11.1 Computation of per share earnings.
21.1 Subsidiaries of Terex Corporation.
23.1 Independent Accountants' Consent of PricewaterhouseCoopers LLP, Stamford,
Connecticut.
24.1 Power of Attorney.
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