SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
F O R M 10 - Q/A
AMENDMENT NO. 1
(Mark One)
(x) Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 1994
( ) 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 its charter)
Delaware 34-1531521
(State of Incorporation) (IRS Employer Identification No.)
500 Post Road East, Suite 320, Westport, Connecticut 06880
(Address of principal executive offices)
(203) 222-7170
(Registrant's telephone number)
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 NO X
Number of outstanding shares of common stock: 10,303,067 as of March 31, 1994.
The Exhibit Index appears on page 28.
The Registrant, Terex Corporation ("Terex" or the "Company"), hereby amends
the following Items of its Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1994 as set forth on the following pages. The
amendments principally relate to the computation of earnings per share and the
reclassification, for consistency, of certain costs incurred in the first
quarter of 1994 from cost of sales to engineering, selling and administrative
expense. The information set forth herein is as of May 16, 1994 and is subject
to updating and supplement as provided in the Company's periodic reports filed
with the Securities and Exchange Commission on Form 10-Q subsequent to such
date.
.
Page No.
PART I FINANCIAL INFORMATION
Item 1 Financial Statements 3
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 22
EXHIBITS
Exhibit 11 Amended Computation of Earnings per Share 29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TEREX CORPORATION
(Registrant)
Date: August 30, 1994 By: /s/ RALPH T. BRANDIFINO
Ralph T. Brandifino
(Principal Accounting Officer,
Senior Vice President and
Chief Financial Officer)
Date: August 30, 1994 By: /s/ RICHARD L. EVANS
Richard L. Evans, Controller
(Principal Accounting Officer and
Authorized Officer)
INDEX
TEREX CORPORATION AND SUBSIDIARIES
Page No.
PART I FINANCIAL INFORMATION
Item 1 Condensed Consolidated Financial Statements
Terex Corporation (the "Company") has not yet filed its Annual Report on Form
10-K for the year ended December 31, 1993. The Company's auditors, Price
Waterhouse, and former auditors, Deloitte & Touche, have advised the Company
that they are unable to issue accountant's reports on the Company's financial
statements for 1991, 1992 and 1993, which are required to be included in the
Company's Annual Report on Form 10-K, until consideration has been completed of
certain items which may affect the financial statements of Fruehauf Trailer
Corporation ("Fruehauf"), the Company's former subsidiary, and, as a result,
may also affect the financial statements of the Company. The accompanying
condensed consolidated financial statements of Terex Corporation and
Subsidiaries as of March 31, 1994 and for the three months ended March 31, 1994
and and December 31, 1993 have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles. However, the accompanying condensed
consolidated financial statements include certain additional disclosures as of
December 31, 1993 which management believes to be useful for a complete
understanding of the financial statements.
Condensed Consolidated Statement of Operations --
Three months ended March 31, 1994 and 1993 4
Condensed Consolidated Balance Sheet --
March 31, 1994 and December 31, 1993 5
Condensed Consolidated Statement of Cash Flows --
Three months ended March 31, 1994 and 1993 6
Notes to Condensed Consolidated Financial Statements --
March 31, 1994 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 22
PART 1. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data)
For the Three Months
Ended March 31,
1994 1993
Net sales $ 168,038 $ 183,197
Cost of goods sold 152,752 165,598
Gross profit 15,286 17,599
Engineering, selling and administrative expenses:
Third parties 20,311 19,941
Related parties 2,245 875
Total engineering, selling and
administrative expenses 22,556 20,816
Loss from operations (7,270) (3,217)
Other income (expense):
Interest income 191 410
Interest expense (7,551) (7,625)
Equity in net loss of Fruehauf --- (496)
Gain on sale of Fruehauf stock 4,620 ---
Gain (loss) on sale of property, plant
and equipment (60) 214
Amortization of debt issuance costs (620) (908)
Amortization of goodwill and other
intangibles (189) (963)
Other income (expense) 73 406
Loss before income taxes (10,806) (12,179)
Provision for income taxes (18) (220)
NET LOSS $ (10,824) $ (12,399)
Less preferred stock accretion (1,380) ---
Loss applicable to common stock $ (12,204) $ (12,399)
Net loss per common and common
equivalent share $ (1.18) $ (1.25)
Weighted average common shares outstanding
including dilutive securities
(See Exhibit 11.1) 10,303 9,950
The accompanying notes are an integral part of these financial statements.
TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
March 31, December 31,
1994 1993
ASSETS
Current assets
Cash and cash equivalents $ 3,882 $ 9,183
Restricted cash 4,087 6,263
Trade receivables (less allowance of
$6,722 in 1994 and $7,478 in 1993) 78,948 74,326
Net inventories 159,225 164,343
Other current assets 4,080 4,016
Total current assets 250,222 258,131
Property, plant and equipment - net 100,709 97,537
Debt issuance costs and intangible assets 11,884 12,645
Investment in Fruehauf (Note B) 39,053 ---
Other assets 22,831 23,192
Total assets $ 424,699 $ 391,505
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities
Notes payable $ 1,506 $ 2,909
Current portion of long-term debt 24,327 19,799
Trade accounts payable 81,328 82,270
Accrued compensation and benefits 8,087 8,162
Accrued warranties and product liability 27,258 27,226
Accrued interest 5,005 10,698
Accrued income taxes 1,537 1,415
Accrued costs to consolidate operations 7,441 8,384
Other current liabilities 26,701 23,837
Total current liabilities 183,190 184,700
Long-term debt less current portion 198,709 195,331
Accrued warranties and product
liability - long-term 34,811 33,959
Accrued pension 21,207 20,270
Other long-term liabilities 5,174 5,217
Redeemable convertible preferred stock 11,860 10,480
Commitments and contingencies (Note K)
Stockholders' investment
Warrants to purchase common stock 16,851 16,851
Common stock, $.01 par value -
authorized 30,000,000 shares;
issued and outstanding 10,303 at
March 31, 1994 and 10,303 at
December 31, 1993 103 103
Additional paid-in capital 40,127 40,127
Accumulated deficit (111,248) (99,044)
Pension liability adjustment (4,173) (4,173)
Unrealized holding gain on equity
securities 39,053 ---
Cumulative translation adjustment (10,965) (12,316)
Total stockholders' investment (30,252) (58,452)
Total liabilities and stockholders'
investment $ 424,699 $ 391,505
The accompanying notes are an integral part of these financial statements.
TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
For the Three Months
Ended March 31,
1994 1993
OPERATING ACTIVITIES
Net loss $ (10,824) $ (12,399)
Adjustments to reconcile net loss to
cash flows from operating activities:
Depreciation 3,242 3,782
Amortization 944 1,946
(Gain) loss on sale of property, plant
and equipment 60 (214)
Equity in net loss of Fruehauf --- 496
Gain on sale of Fruehauf stock (4,620) ---
Other (48) 18
Changes in operating assets and liabilities:
Restricted cash 2,176 3,022
Trade receivables (4,620) 1,640
Net inventories 5,694 11,463
Trade accounts payable (201) 117
Accrued compensation and benefits (170) 1,674
Accrued warranties and product liability 1,164 (509)
Accrued interest (5,693) (6,591)
Accrued income taxes 132 (412)
Accrued costs to consolidate operations (998) (7,615)
Other 1,093 1,059
Net cash used in operating activities (12,669) (2,523)
INVESTING ACTIVITIES
Capital expenditures, net of dispositions (5,117) (3,302)
Proceeds from sale of property, plant
and equipment 106 340
Proceeds from refinancing note receivable 1,000 ---
Advances to Fruehauf --- (436)
Proceeds from sale of Fruehauf stock 5,175 ---
Other 25 (100)
Net cash from (used in) investing
activities 1,189 (3,498)
FINANCING ACTIVITIES
Net borrowings under revolving line of
credit agreements 5,764 303
Other 354 817
Net cash from financing activities 6,118 1,120
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS 61 (97)
NET DECREASE IN CASH AND CASH EQUIVALENTS (5,301) (4,998)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 9,183 25,671
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,882 $ 20,673
The accompanying notes are an integral part of these financial statements.
TEREX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, unless otherwise denoted)
March 31, 1994
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. The accompanying condensed consolidated financial
statements of Terex Corporation and Subsidiaries as of March 31, 1994 and
December 31, 1993 and for the three months ended March 31, 1994 and 1993 have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles.
However, the accompanying condensed consolidated financial statements include
certain additional disclosures as of December 31, 1993, which have been derived
from the unaudited consolidated financial statements as of that date, which
management believes to be useful for a complete understanding of the financial
statements. In the opinion of management, all adjustments considered necessary
for a fair presentation have been made. Such adjustments consist only of those
of a normal recurring nature, except for the impact of the accounting changes
discussed in Note B -- "Accounting Changes." Operating results for the three
months ended March 31, 1994 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1994.
Principles of Consolidation. The Consolidated Financial Statements include the
accounts of Terex Corporation and its majority owned subsidiaries ("Terex" or
the "Company"). All 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%. The cost
method or fair value method as discussed in Note B -- "Accounting Changes" is
used to account for investments in affiliates in which the Company has an
ownership interest of less than 20%.
Business Segment Information. The Company operates in two industry segments:
Heavy Equipment and Material Handling. Through its Material Handling Segment,
the Company is engaged in designing, manufacturing and marketing a complete
line of internal combustion and electric lift trucks, electric walkies,
automated pallet trucks, industrial tow tractors and related replacement parts.
Material Handling Segment products are used in material handling applications
in a broad array of manufacturing, distribution and transportation industries.
Through its Heavy Equipment Segment, the Company designs, manufactures and
markets heavy-duty, off-highway earthmoving, construction, lifting, material
handling and aerial lift equipment, and related components and replacement
parts. Products include haulers, scrapers, loaders, crawlers, cranes,
excavators, draglines and aerial lifts. Such products are used primarily by
construction, mining, logging, industrial and government customers in the
building of roads, dams and commercial and residential buildings; supplying
coal, minerals, sand and gravel; and the handling of materials in the scrap,
refuse and lumber industries.
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.
Restricted Cash. The Company has classified as restricted certain cash and
cash equivalents that are not fully available for use in its operations. The
Company deposits funds in cash collateral accounts to collateralize certain
letters of credit issued by banks for use in the ordinary course of the
Company's business or to guarantee the Company's performance under certain
contracts. The restricted cash balances will be made available to the Company
as the underlying letters of credit expire.
Inventories. Inventories are stated at the lower of cost or market value.
Cost is determined by the last-in, first-out ("LIFO") method for certain
domestic inventories and by the first-in, first-out ("FIFO") method for
inventories of international subsidiaries and certain domestic inventories.
Approximately 50% of consolidated inventories are accounted for under the LIFO
method.
Debt Issuance Costs. Debt issuance costs represent costs associated with
securing the Company's financing arrangements which are capitalized and
amortized over the life of the respective debt agreement. Capitalized debt
issuance costs related to debt that is retired are charged to expense at the
time of retirement.
Intangible Assets. Intangible assets include the excess of purchase price over
the fair value of identifiable net assets of acquired companies, which is being
amortized on a straight-line basis over 15 years, and costs allocated to
patents, trademarks and other specifically identifiable assets arising from
business combinations, which are amortized on a straight-line basis over the
respective estimated useful lives not exceeding seven years.
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.
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 reserves for estimated product liability
experience costs for known claims and for claims anticipated to have been
incurred which have not yet been reported. Certain of the Company's product
liability accruals, principally related to the forklift business acquired
during 1992, are presented on a discounted basis. The related discount,
computed using an 8.0% discount rate, is recorded as a direct reduction of
gross product liability claims and is amortized using the effective interest
rate method. The remainder of the Company's product liability accruals are
presented on a gross settlement basis.
Non Pension Postretirement Benefits. The Company records an accrual of the
obligation to provide future benefits to employees during the years that the
employees provide service, pursuant to the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 106, "Employers Accounting for Postretirement
Benefits Other than Pensions." 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. The Company
has elected the delayed recognition method for the obligation measured as of
the date of adoption of SFAS No. 106.
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 (generally within two weeks) specified by the customer at
the time the customer is notified that the unit is completed or specified in
the sales agreement. 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 period-end exchange rates. Income
and expenses are translated at average exchange rates prevailing during the
period. For operations whose functional currency is the local currency,
translation adjustments are accumulated in the Cumulative Translation
Adjustment component of Stockholders' Investment. Gains or losses resulting
from foreign currency transactions are included in Other income (expense) --
net.
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.
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.
Income Taxes. The Company follows the liability method of accounting for
income taxes which provides that deferred tax assets and liabilities be
recorded based upon the difference between the tax bases of assets and
liabilities and their carrying amounts for financial reporting purposes,
pursuant to the provisions of SFAS No. 109, "Accounting for Income Taxes."
SFAS No. 109 further requires that the Company record a valuation allowance for
deferred tax assets if realization of such assets is dependent on future
taxable income.
Issuance of Stock by a Subsidiary. The Company accounts for increases and
decreases in its proportionate share of a subsidiary's equity arising from the
issuance of stock by the subsidiary and related transactions as gains and
losses in the Consolidated Statement of Operations.
Net Income (Loss) Per Share. Net income (loss) per share is based on the
weighted average number of common and common equivalent shares outstanding
during the period. The dilutive effect of common stock equivalents (if
applicable) is calculated assuming the conversion of convertible securities at
the beginning of the period and using the treasury stock method for options and
warrants.
NOTE B -- ACCOUNTING CHANGES
Employers' Accounting for Postemployment Benefits
The Company adopted SFAS No. 112, "Employers' Accounting for Postemployment
Benefits," on January 1, 1994. This statement establishes accounting and
reporting for the estimated cost of benefits provided by an employer to former
or inactive employees after employment but before retirement. The Company
already accounts for substantially all of such benefits on an accrual basis and
the effect of adoption of the new standard was not material to the Company's
financial statements.
Accounting for Certain Investments in Debt and Equity Securities
The Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," on January 1, 1994. This statement requires the use of
fair value accounting for investments in certain debt and equity securities,
with changes in fair value recorded in income or as a separate component of
stockholders' investment depending on whether the securities are considered
trading securities or securities available for sale. The statement does not
apply to investments in equity securities accounted for under the equity method
of accounting.
During 1993, the Company accounted for its investment in Fruehauf Trailer
Corporation ("Fruehauf") using the equity method. Subsequent to the Company's
February 1994 sale of 1,000,000 shares of Fruehauf common stock, the Company's
remaining ownership interest in Fruehauf was 19.1% and management concluded,
after consultation with the Company's auditors, that use of the equity method
was no longer appropriate for the Company's investment in Fruehauf. All of the
shares of Fruehauf common stock held by the Company, which had a carrying value
of zero as of December 31, 1993, are classified as securities available for
sale under SFAS No. 115. Accordingly, as of February 28, 1994, the Company
recorded an initial increase in stockholders' investment of approximately
$36,360 to adjust the carrying value of such shares of Fruehauf common stock to
fair value upon initial application of SFAS No. 115. Subsequent unrealized
holding gains and losses are recorded as adjustments to stockholders'
investment.
NOTE C -- INVENTORIES
Net inventories consist of the following:
March 31, December 31,
1994 1993
New machines $ 23,979 $ 26,317
Used machines 1,209 1,345
Replacement parts 64,348 62,150
Work-in-process 12,303 14,351
Raw materials and supplies 61,660 65,165
163,499 169,328
Less: Excess of FIFO inventory
value over LIFO cost (4,274) (4,985)
Net inventories $ 159,225 $ 164,343
NOTE D -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
March 31, December 31,
1994 1993
Property $ 10,472 $ 10,119
Plant 40,232 38,398
Equipment 84,048 79,270
134,752 127,787
Less: Accumulated depreciation (34,043) (30,250)
Net property, plant and equipment $ 100,709 $ 97,537
NOTE E -- LONG-TERM OBLIGATIONS
Long-term debt is summarized as follows:
March 31, December 31,
1994 1993
Senior Secured Notes bearing interest
at 13%, due August 1, 1996
("Senior Secured Notes") $ 154,240 $ 154,173
Secured Senior Subordinated Notes
bearing interest at 13.5%,
due July 1, 1997 ("Subordinated Notes") 32,772 32,702
Secured promissory note bearing interest
at prime rate, due July 31, 1994 6,090 6,090
Lending Facility maturing August 24, 1995 17,344 10,165
Secured term note bearing interest at
9.0% payable in equal semiannual
installments from August 1994 to
February 1998 742 740
Capital lease obligations and other 11,848 11,260
Total long-term debt 223,036 215,130
Current portion of long-term debt 24,327 19,799
Long-term debt, less current portion $ 198,709 $ 195,331
Senior Secured Notes and Subordinated Notes
The Senior Secured Notes were issued in July 1992 for a total of $160,000 in
conjunction with the acquisition of Clark Material Handling Company and certain
affiliated companies (the "Clark Acquisition") and a refinancing of the
Company's bank debt. Proceeds from the issuance of the Senior Secured Notes
were used for the cash portion of the Clark Acquisition purchase price
($85,000), for the settlement of all amounts outstanding under its previous
credit facility ($58,000), and for working capital and transaction costs.
Interest on the Senior Secured Notes is due semiannually on February 1 and
August 1. In December 1993, the Company repurchased in the open market $5,000
principal amount of Senior Secured Notes. Senior Secured Notes totalling
$155,000 principal amount were outstanding at March 31, 1994 and December 31,
1993.
As a result of the sale of 1,000,000 shares of Fruehauf common stock in
December 1993, the Company has made an offer to repurchase $3,000 principal
amount of Senior Secured Notes in May 1994 in accordance with the terms of the
indentures for the Senior Secured Notes and Subordinated Notes. As a result of
the sale of 1,000,000 shares of Fruehauf common stock in February 1994, the
Company will make a similar offer to repurchase $4,620 principal amount of the
Senior Secured Notes in the third quarter of 1994. Accordingly, $7,620 is
classified as current portion of long-term debt in the March 31, 1994
Consolidated Balance Sheet.
The provisions of the Senior Secured Notes registration rights agreement
required that the Company file a registration statement to register the Senior
Secured Notes, or to effect an exchange offer of registered notes for such
notes, with the Securities and Exchange Commission by November 30, 1992, which
registration was to become effective no later than March 1, 1993. The
registration has not become effective and, as a result, Terex is incurring
liquidated damages of $16 per week until such registration becomes effective.
The Subordinated Notes totalling $33,333 principal amount at March 31, 1994 and
December 31, 1993 were initially issued as unsecured subordinated notes for a
total amount of $50,000. Interest on the Subordinated Notes is due
semiannually on January 2 and July 1. The Subordinated Notes have annual
sinking fund requirements of $8,333 due July 1 which commenced in 1992 and
mature in 1997. The Company has notified the trustee for the Subordinated
Notes that it intends to satisfy the July 1, 1994 sinking fund payment by
delivering $8,333 principal amount of the Subordinated Notes which the Company
has made arrangements to purchase in the marketplace.
The Senior Secured Notes are secured by substantially all of the Company's
inventory and property, plant and equipment, as well as the Company's
investment in Fruehauf common stock. The Subordinated Notes are secured by a
secondary secured position in substantially the same assets. Certain
non-financial covenants of the indentures governing the Senior Secured Notes
and Subordinated Notes (together, the "Notes") limit, among other things,
Terex's ability to incur additional indebtedness, consummate mergers and
acquisitions, pay dividends, sell business segments and enter into transactions
with affiliates, and also place limitations on change of control.
The financial covenants of the indentures require, among other things, that the
Company maintain certain levels of tangible net worth (the "Net Worth
Covenants") and collateral coverage (the "Collateral Covenant"). In the event
that the Company's net worth is not in excess of the amount required under the
Net Worth Covenants for any two consecutive quarters, the Company must offer to
repurchase, at par plus accrued interest, 20% of the outstanding principal
amount of the Notes. In the event the Company is not in compliance with the
Collateral Covenant at the end of any calendar quarter, the Company must offer
to repurchase, at par plus accrued interest, $16,000 principal amount of the
Senior Secured Notes or such greater amount as would be necessary to bring the
Company into compliance with the Collateral Covenant.
The Company was in compliance with the Net Worth Covenants and the
Collateral Covenant at December 31, 1993. The Company continued to sustain
losses from operations during the first quarter of 1994 and the Company's
tangible net worth at March 31, 1994 was less than the $15,000 required under
the Net Worth Covenants. In addition, unless the Company returns to
profitability, realizes additional gains from sales of assets and/or raises
additional equity during the second quarter of 1994, it will have a tangible
net worth at June 30, 1994 of less than the $15,000 required under the Net
Worth Covenants. If any offer to repurchase Notes were required to be made as
a result of noncompliance with the Net Worth Covenants at June 30, 1994 or
otherwise, it is likely that the Company would require additional funding to
complete the offer, and if such funding were unavailable to it, the Company
would be unable to comply with the terms of the Notes and the maturity of the
Notes might be accelerated. Such circumstances could result in a material
adverse impact on the Company and its financial position. As described in Note
M -- "Liquidity and Refinancing Plans," the Company has taken, and plans to
take, actions to maintain compliance with the Net Worth Covenants and
Collateral Covenant, including the sale of its Drexel subsidiary, shares of
Fruehauf common stock and other assets.
Lending Facility
In 1993, Terex entered into an agreement with a lender which provides for up to
$20,000 of cash advances and guarantees of bank letters of credit and is
secured by substantially all the Company's domestic receivables and proceeds
thereof (the "Lending Facility"). Interest on the Lending Facility is payable
monthly at 2.75% above the Reference Rate, as such term is defined in such
agreement. Borrowings under the Lending Facility mature in two years from the
August 24, 1993 effective date. Accordingly, all such borrowings are
classified as Long Term Debt in the accompanying Balance Sheet.
TEL Facility
In 1993, the Company's subsidiary, Terex Equipment Limited ("TEL") located in
Motherwell, Scotland, entered into a bank facility (the "TEL Facility") which
provides up to lb.28,000 ($42,000) including up to lb.13,000 $(19,500) non-
recourse discounting of account receivable which meet certain credit criteria,
plus additional facilities for tender and performance bonds and foreign exchange
contracts. Interest rates vary between 1.0% - 1.5% above the financial
institution's Published Base Rate or LIBOR. The TEL Facility is collateralized
by the related accounts receivable and currency exchange contracts. The TEL
Facility requires no performance covenants although payments of cash dividends
are restricted. Proceeds from the TEL Facility will primarily be used for
working capital purposes.
Secured Term Note
A portion of the Clark Acquisition was financed through a note to the seller in
the amount of $6,090 due July 31, 1994. Interest accrues at prime rate and is
payable quarterly. The seller note is secured by certain property, plant and
equipment.
Schedule of Debt Maturities
Scheduled annual maturities of long-term debt outstanding at December 31, 1993
in the successive five-year period are summarized below. Amounts shown are
exclusive of minimum lease payments disclosed in Note F -- "Lease Commitments":
1994 $ 17,528
1995 18,687
1996 160,513
1997 8,523
1998 78
Thereafter 130
Total $205,459
NOTE F -- 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 $5,011 at December 31, 1993, net of
accumulated amortization of $3,352.
Future minimum capital and noncancelable operating lease payments and the
related present value of capital lease payments at December 31, 1993 are as
follows:
Capital Operating
Leases Leases
1994 $ 3,414 $ 5,249
1995 2,871 4,239
1996 2,401 3,669
1997 2,220 2,891
1998 1,623 1,784
Thereafter 897 1,128
Total minimum obligations 13,426 $ 18,960
Present value of net minimum obligations 11,130
Less current portion 2,366
Long-term obligations $ 8,764
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.
The Company's Material Handling Segment also routinely enters into
sale-leaseback arrangements for certain equipment, which is later sold to
third-party customers under sales-type lease agreements. The Company maintains
a net investment in these leases, represented by the present value of payments
due under the leases of $6,930 of which $1,295 is current at December 31, 1993.
In connection with the original sale-leaseback arrangements underlying the
customer leasing program, the Company has an outstanding rental installment
obligation which is recorded based on the present value of minimum payments due
under the leases.
NOTE G -- INCOME TAXES
At December 31, 1993, the Company had domestic federal tax basis net operating
loss and tax credit carryforwards of $244,012 and $300, respectively.
Approximately $93,000 of the remaining net operating loss carryforwards and all
of the tax credit carryforwards are subject to special limitations under the
Internal Revenue Code.
The tax basis net operating loss and tax credit carryforwards expire as
follows:
Tax Basis Net
Operating Loss Tax
Carryforwards Credits
1994 $ --- $140
1995 24,041 63
1996 45,231 29
1997 8,004 38
1998 11,908 17
1999 --- 13
2000 4,581 ---
2006 20,689 ---
2007 35,661 ---
2008 93,897 ---
Total $ 244,012 $300
The Company has an alternative minimum tax credit carryforward of $580
available to offset future regular income taxes. This credit has no expiration
date.
The Company also has various state net operating loss and tax credit
carryforwards expiring at various dates through 2008 available to reduce future
state taxable income and income taxes. In addition, the Company's foreign
subsidiaries have approximately $56,275 of tax basis loss carryforwards which
may be available to offset future foreign taxable income, $3,507 expiring in
the years 1994 through 1998, and the remainder generally remaining available
without expiration dates.
Deferred tax assets and liabilities result from differences in the basis of
assets and liabilities for tax and financial statement purposes. In accordance
with SFAS No. 109, a valuation allowance has been recognized to the extent that
realization of deferred tax assets is dependent on future taxable income. The
tax effects of the basis differences and net operating loss carryforwards as of
December 31, 1993 are summarized below for major balance sheet captions:
Net inventories $ (4,343)
Fixed assets (9,933)
Total deferred tax liabilities (14,276)
Receivables 2,136
Intangibles 2,008
Warranties and product liability 20,709
Pension 3,174
All other items 4,914
Benefit of net operating loss
carryforward 114,109
Total deferred tax assets 147,050
Deferred tax assets valuation allowance (132,774)
Net deferred tax liabilities $ 0
NOTE H -- PREFERRED STOCK
The Company's certificate of incorporation was amended in October 1993 to
authorize 10,000,000 shares of preferred stock, $.01 par value per share. As
of March 31, 1994 and December 31, 1993, 1,200,000 shares of preferred stock
are issued and outstanding as described below under "Series A Cumulative
Redeemable Convertible Preferred Stock." None of the remaining 8,800,000
shares of authorized preferred stock are issued or outstanding.
Series A Cumulative Redeemable Convertible Preferred Stock
The Company has 1,200,000 issued and outstanding shares of Series A Cumulative
Redeemable Convertible Preferred Stock (the "Series A Preferred Stock"). These
shares were issued as part of a private placement on December 20, 1993 which
also included the issuance of 1,300,000 Common Stock Purchase Warrants (the
"Warrants," see Note I -- "Stockholders' Investment"). The Series A Preferred
Stock has a par value of $.01 per share and an initial liquidation preference
of $25.00 per share (the "Liquidation Preference"). During the period from the
issue date and ending at the Accretion Termination Date (as defined below), the
Liquidation Preference will accrete at the rate of 13% per year until December
20, 1998, and 18% per year thereafter. After the Accretion Termination Date,
the holders of the Series A Preferred Stock are entitled to cumulative
dividends, payable quarterly, as described below. Each share of Series A
Preferred Stock is convertible into 2.25 shares of the Company's common stock
(subject to adjustment in certain circumstances), and is redeemable at the
option of the Company on or after December 31, 1994 at a price equal to the
Liquidation Preference plus unpaid dividends provided that a concurrent
redemption of all outstanding Warrants is made. The Series A Preferred Stock
is subject to a mandatory redemption requirement on or before December 31, 2000
at a per share redemption price equal to the Liquidation Preference on the date
of redemption plus accrued but unpaid dividends. The Series A Preferred Stock
has no voting rights except when and if dividends are in arrears as described
below.
Commencing three months prior to the date the Company's current indentures and
loan agreements allow the Company to declare and pay cash dividends on the
Series A Preferred Stock ("the Accretion Termination Date"), dividends will
begin to accrue at the rate of 13% per year through December 20, 1998, and at
the rate of 18% per year thereafter. After the Accretion Termination Date the
holders of the Series A Preferred Stock will be entitled to elect one
additional director of the Company if the Company fails to declare and pay the
full amount of dividends payable on any two dividend payment dates. Such
holders will have a right to elect two additional directors of the Company if
the Company misses four dividend payment dates.
The provisions of a preferred stock registration rights agreement among the
Company and the initial purchasers of the Series A Preferred Stock require that
the Company file a registration statement to register the Series A Preferred
Stock and the common stock into which it is convertible by February 18, 1994,
which registration was to become effective no later than May 19, 1994. Such
registration statement was filed March 17, 1994 but has not yet become
effective. If the registration statement is not declared effective by May 19,
1994, the accretion rate and/or dividend rate on the Series A Preferred Stock
will be increased by 0.25% per annum for the period after May 19, 1994 until
such registration statement is declared effective.
The aggregate net proceeds to the Company for the Series A Preferred Stock and
the Warrants issued on December 20, 1993 were $27,179. The Company has
allocated $10,328 and $16,851 of this amount to the Series A Preferred Stock
and the 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 will be
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. In addition, the carrying value of the Series A Preferred
Stock will be further adjusted for increases in the Liquidation Preference
prior to the Accretion Termination Date as described above.
NOTE I -- STOCKHOLDERS' INVESTMENT
Common Stock. The Company's certificate of incorporation was amended in
October 1993 to increase the number of authorized shares of common stock, par
value $.01 (the "Common Stock"), to 30,000,000. As of March 31, 1994 and
December 31, 1993, there were 10,303,067 shares issued and outstanding. Of the
19,696,933 unissued shares at that date, 6,708,228 shares were reserved for
issuance as follows:
Conversion of Series A Preferred Stock (Note H) 2,700,000
Exercise of Warrants 3,900,000
Exercise of Stock Options 108,228
Total reserved for issuance 6,708,228
Warrants. In connection with the private placement of the Series A Preferred
Stock (see Note H -- "Preferred Stock"), the Company issued 1,300,000 Warrants.
Each Warrant may be exercised, in whole or in part, at the option of the
holder, commencing at the opening of business on the day following a date,
which must be before December 20, 1994, designated by the Board of Directors
or otherwise determined under the provisions of the Warrants (the "Warrant
Ratio Determination Date"), until 5:00 p.m. New York time on December 31, 2000
(the "Expiration Date"), and is redeemable by the Company under certain
circumstances. The exercise price for the Warrants is $.01 for each share of
Common Stock issuable as described below.
Upon the exercise or redemption of a Warrant, the holder thereof shall be
entitled to receive the number of shares of Common Stock (the "Warrant Ratio")
equal to (a) 3.0 shares of Common Stock if the average of the daily closing
prices with respect to the Common Stock for the 30 consecutive trading days
(the "Current Market Price") of a share of Common Stock on the Warrant Ratio
Determination Date is $5.00 or less; (b) a number of shares of Common Stock
which decreases from 3.0 shares to 1.0 share with the increase in such Current
Market Price per share from $5.00 to $18.00, if such Current Market Price per
share is greater than $5.00 but less than $18.00 on the Warrant Ratio
Determination Date; and (c) 1.0 share of Common Stock if such Current Market
Price per share is $18.00 or more on the Warrant Ration Determination Date.
The number of shares of Common Stock issuable upon exercise or redemption of
the Warrants is subject to adjustment in certain circumstances.
The provisions of the warrant agreement for the Warrants and a warrant
registration rights agreement among the Company and the initial purchasers of
the Warrants require that the Company file a registration statement to register
the Warrants and the Common Stock into which it is exchangeable by January 19,
1994, which registration was to become effective no later than March 20, 1994.
Such registration statement was filed February 17, 1994 but has not yet become
effective and, as a result, the Warrant Ratio, determined as described above,
will be increased by 0.5% for each 30 day period after March 20, 1994 until
such registration statement is declared effective.
Stock Options. The Company maintains a qualified incentive stock option ("ISO")
plan covering certain officers and key employees. The exercise price of the
ISO stock option 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 options expire after ten years. At March 31, 1994,
75,916 stock options were outstanding under the plan, of which 46,750 were
currently exercisable, and 32,312 stock options were available for grant under
the plan.
Stock Appreciation Rights. In connection with the sale of the Senior Secured
Notes and obtaining the consent of the holders of the Company's existing
Subordinated Notes to modify the Subordinated Notes, the Company issued 658,409
common stock appreciation rights ("SAR's"). As of March 31, 1994, there were
624,794 SAR's outstanding. Of the outstanding SAR's, 552,000 may be exercised
at the option of the holder thereof at any time through July 31, 1996. The
remaining 72,794 SAR's may be exercised through July 1, 1997. The SAR's
entitle the holder to receive the market appreciation in the Company's Common
Stock between $11.00 per share, subject to adjustment, and the average price
per share for the 30 consecutive trading days prior to the date of exercise.
At March 31, 1994, there was no reserve requirement necessary because the
Company's Common Stock price was below $11.00 per share.
Dividends. As discussed in Note E -- "Long-Term Obligations," certain of the
Company's debt agreements contain restrictions as to the payment of cash
dividends. Under the most restrictive of these agreements, no retained
earnings were available for dividends at March 31, 1994.
NOTE J -- RETIREMENT PLANS
Pension Plans
The Company maintains several defined benefit pension plans covering most
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. 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.
The following table sets forth the plans' funded status and the amounts
recognized in the Company's financial statements at December 31, 1993:
Overfunded Underfunded
Plans Plans
Actuarial present value of:
Vested benefits $ 9,252 $ 22,450
Accumulated benefits $ 9,509 $ 22,657
Projected benefits $ 9,509 $ 22,657
Fair value of plan assets 9,711 14,641
Projected benefit obligation (in excess of)
less than plan assets 202 (8,016)
Unrecognized net loss from past
experience different than assumed 3,691 4,173
Unrecognized prior service cost 503 ---
Adjustment to recognize minimum liability --- (4,173)
Pension asset (liability) recognized
in the balance sheet $ 4,396 $(8,016)
The expected long-term rate of return on plan assets was 9% and the discount
rate assumption was 7.0% for 1993. The assumption for the rate of compensation
increase, if applicable per plan provisions, was 5.5% until May 7, 1993.
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.
In accordance with the provisions of the SFAS No. 87, "Employers' Accounting
for Pensions," the Company has recorded an adjustment of $4,173 to recognize a
minimum pension liability at December 31, 1993. This liability is offset by a
direct reduction of stockholders' investment of $4,173.
TEL maintains a government-required defined benefit plan (which includes
certain defined contribution elements) covering substantially all of its
employees. This plan is fully funded.
The employees of the Company's German subsidiary, Clark Material Handling GmbH,
are also covered by a defined benefit pension plan as required by German law.
At December 31, 1993, the Company has accrued approximately $11,968 related to
the benefits earned by active and retired participants as of that date. The
plan is unfunded.
The Company sponsors various tax deferred savings plans into which eligible
employees may elect to contribute a portion of their compensation. The Company
can, but is not obligated to, contribute to certain of these plans.
Other Postretirement Benefits
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. The Company provides postretirement
benefits to certain former salaried and hourly employees.
Terex adopted the provisions of SFAS No. 106 using the delayed recognition
method, whereby the amount of the unrecognized transition obligation at January
1, 1993 is recognized prospectively as a component of future years' net
periodic postretirement benefit expense. The unrecognized transition
obligation at January 1, 1993 was $4,476. Terex is amortizing this transition
obligation over 12 years, the average remaining life expectancy of the
participants. The liability of the Company, as of December 31, 1993, was as
follows:
Actuarial present value of accumulated
postretirement benefit obligation:
Retirees $ 4,522
Active participants ---
total accumulated postretirement benefit obligation 4,522
Unamortized transition obligation (4,103)
Liability recognized in the balance sheet $ 419
Health care trend rates used in the actuarial assumptions range from 12.3% to
13.5%. These rates decrease to 6.75% over a period of 9 to 11 years. The
effect of a one percentage-point change in the health care cost trend rates
would change the accumulated postretirement benefit obligation approximately
5%. The discount rate used in determining the accumulated postretirement
benefit obligation is 8.25%.
NOTE K -- LITIGATION AND CONTINGENCIES
General
In December 1992, a Class Action complaint was filed against Fruehauf, the
Company and certain of Fruehauf's present and former officers, directors and
investment bankers, in the United States District Court for the Eastern
District of Michigan, Southern Division, alleging, among other things,
violations of certain provisions of the federal securities laws, and seeking
unspecified compensatory and punitive damages. A motion to dismiss the action
filed by the defendants has been denied and discovery has begun. This action
is at a very early stage; however, the Company believes that meritorious
defenses exist to the claims made. The Company has not recorded any loss
provision for this litigation.
In the Company's lines of business, but primarily in the Material Handling
Segment, numerous suits have been filed alleging damages for injuries or deaths
from accidents involving the Company's products that have arisen in the normal
course of operations. As part of the acquisition of Clark Material Handling
Company and certain affiliated companies ("Clark"), the Company and Clark
assumed both the outstanding and future product liability exposures related to
such operations. As of December 31, 1993, Clark had approximately 120 lawsuits
outstanding alleging damages for injuries or deaths arising from accidents
involving Clark products. Most of the foregoing suits are in various stages of
pretrial completion, and certain plaintiffs are seeking punitive as well as
compensatory damages. In the aggregate, these claims could be material to the
Company. However, all pending cases do not reach final disposition in any one
year, and damages actually awarded, if any, are generally less than the amount
of damages sought. 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, based in part upon actuarial determinations, in the amount of
management's estimate of the Company's aggregate exposure for such self-insured
risks.
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 is contingently liable as a guarantor for certain customers' floor
plan obligations with financial institutions. As a guarantor, the Company is
obligated to purchase equipment which has been repossessed by the financial
institution based upon the unamortized principal balance outstanding. The
Company records the repossessed inventory as used equipment at its estimated
net realizable value. Any resultant losses are charged against related
reserves. The guarantee under such floor plans aggregated $8,317 at December
31, 1993. The Company has recorded reserves based on management's estimates of
potential losses arising from these guarantees. Losses under these
arrangements have not been material in the past.
Clark has also given guarantees to financial institutions relating to capital
loans, residual guarantees and other dealer and customer obligations arising
out of the ordinary conduct of its business. Such guarantees approximated
$22,900 at December 31, 1993. Potential losses on such guarantees are accrued
as a component of the Allowance for Doubtful Accounts.
To enhance its marketing effort and ensure continuity of its dealer network,
Clark has also agreed as part of its dealer sales agreements to repurchase
certain new and unused products and parts inventory and certain products used
as dealer rental assets in the event of a dealer termination. Repurchase
agreements included in operating agreements with an independent financial
institution have been patterned after those included in the dealer sales
agreements. Dealer inventory and rental asset financing of approximately
$206,100 at December 31, 1993 are covered by those operating agreements. Under
these agreements, when dealer terminations do occur, a newly selected dealer
generally assumes the assets of the prior dealer and any related financial
obligations. Historically, Clark has incurred only immaterial losses relating
to these arrangements. During 1993, one dealer was terminated and the related
losses were not material.
Terex's outstanding letters of credit totaled $6,466 at December 31, 1993, a
substantial portion of which are cash collateralized (see Note A --
"Significant Accounting Policies - Restricted Cash"). The letters of credit
serve as collateral for certain liabilities included in the Consolidated
Balance Sheet or guaranteeing the Company's performance under certain
contracts.
The Internal Revenue Service is currently in various stages of examination of
the Company's federal tax returns for the years 1987 through 1989. Liability,
if any, resulting from the examinations cannot be determined at present. The
Company believes that its positions for issues raised in these audits are
correct and that it would prevail if the taxing authorities were to propose
adjustments. In any event, management believes that the outcome of these
examinations will not have a material impact on the consolidated financial
statements because the Company has significant net operating loss carryovers.
No accruals have been made for any taxes which might result from these
examinations.
Terex has agreed to indemnify certain outside parties for losses related to
Fruehauf's worker compensation obligations. Some of the claims for which Terex
is contingently obligated are also covered by bonds issued by an insurance
company. Terex has recognized liabilities for these contingent obligations in
the aggregate amount of $3,000, representing management's estimate of the
maximum potential losses which the Company might incur.
The Company generates hazardous and nonhazardous 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 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 nonhazardous 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.
Fruehauf is contingently liable for portions of remedial costs at numerous
off-site waste disposal sites including those previously used by operations of
Fruehauf's predecessor. Fruehauf has received notice that it is considered a
"Potentially Responsible Party" under the Comprehensive Environmental Response,
Compensation, and Liability Act or other similar state laws at approximately 23
Superfund sites and has also identified environmental exposures at
approximately 36 other sites not designated as Superfund sites. The Company
believes that it could have contingent responsibility for certain of Fruehauf's
liabilities with respect to Fruehauf's environmental matters if Fruehauf fails
to discharge its obligations, to the extent that such liabilities arose during
the time period during which Terex was the controlling stockholder of Fruehauf.
The Company believes that Fruehauf's significant environmental liabilities
predate Terex's acquisition of Fruehauf, and therefore any contingent
responsibility of the Company is not expected to have a material adverse effect
on the Company.
NOTE L -- RELATED PARTY TRANSACTIONS
Under a contract dated July 1, 1987, as amended, KCS Industries, L.P., a
Connecticut limited partnership ("KCS"), principally owned by Randolph W. Lenz,
Chairman of the Board and Chief Executive Officer of the Company, provided
administrative, financial, marketing, technical, real estate and legal services
to the Company and its subsidiaries until December 31, 1993. KCS also provided
assistance in the evaluation, negotiation and consummation of potential
acquisitions of other companies, products and processes, as well as the
development of new areas of business for the Company. For the services of KCS,
the Company paid KCS an annual fee plus the reimbursement for all out-of-pocket
expenses incurred by KCS in fulfilling the contract, including travel and
similar expenses and fees for professional and other services provided by third
parties. Each year the contract was in effect, the annual fee increased by the
greater of 10% or the increase in the Consumer Price Index, subject to
limitations imposed by the Company's debt agreements.
During 1993, the Board of Directors of the Company concluded that it would be
in the Company's best interest to terminate the Company's contract with KCS and
integrate the management services of KCS directly into the Company. Pursuant
to an agreement between the Company and KCS, the contract between the Company
and KCS was suspended as of the close of business on December 31, 1993, with
the contract to be terminated upon the consent of the Company's stockholders to
a proposed issuance of securities to certain executives of KCS, as discussed
below. David J. Langevin and Marvin B. Rosenberg, employees of KCS, became
salaried employees of the Company effective January 1, 1994, with the titles of
Executive Vice President and Senior Vice President, respectively. In addition,
in consideration of the proposed termination of the contract, the Company has
agreed, subject to the approval of the stockholders of the Company, to issue
89,800 shares of the Company's Series B Cumulative Redeemable Convertible
Preferred Stock ("Series B Preferred Stock") and 89,800 common stock purchase
warrants to certain executives of KCS, the terms of which will be substantially
similar to the terms of the Series A Preferred Stock and the Warrants,
respectively. Of such amounts, Messrs. Langevin and Rosenberg would each
receive 25,500 shares of preferred stock and warrants and Mr. Lenz would
receive 38,800 shares of preferred stock and warrants. Upon stockholder
approval, the contract will terminate and such securities will be issued to
Messrs. Langevin, Rosenberg and Lenz. Absent such stockholder approval, the
suspension will terminate and the contract will be restored in full force and
effect, although the Company will continue to endeavor to achieve an alternate
agreement with KCS to terminate the contract at a date prior to the date it
would be cancellable under its terms. In recognition of the termination
agreement, the Company recorded a charge of $2,245 in the first quarter of 1994
for the value, at $25 per "unit" of one share of Series B Preferred Stock and
one Warrant, of the securities to be so issued.
The Company, certain directors and executives of the Company, and KCS are named
parties in various legal proceedings. The Company pays legal fees and expenses
on behalf of the Company, directors and executives of the Company, and KCS
named in the lawsuits.
At the time of the Fruehauf restructuring and refinancing in August 1993, the
Company entered into an agreement with IBJ Schroder Bank & Trust Company ("IBJ
Schroder"), on behalf of a group of commercial bank lenders, pursuant to which
the Company is obligated to pay a fee of $1,000 on or before December 31, 1994
in consideration of the assistance of the banks in evaluating the feasibility
of Fruehauf's proposed Turnaround Plan and to induce the banks to consent to
certain requests by the Company. Mr. Lenz pledged certain of his shares of
Common Stock to IBJ Schroder, as agent for such lenders, as security for the
payment of such amount by the Company.
David A. Sachs, a director of the Company, is affiliated with The Airlie Group
L.P. ("Airlie"), a limited partnership which owns approximately 9.29% of the
Company's Common Stock (including Common Stock issuable upon conversion of
Series A Preferred Stock) and 40,000 Warrants. Mr. Sachs is an employee of
TMT-FW, Inc. which is one of two general partners of the general partner of
Airlie. Airlie receives all director fees to which Mr. Sachs is entitled by
reason of his service as a director of the Company. On December 20, 1993,
Airlie purchased 40,000 Warrants and 40,000 shares of Series A Preferred Stock
from the Company as part of the Company's private placement.
Bruce I. Raben, a director of the Company, is an employee and officer of
Jefferies & Company, Inc. ("Jefferies"), the investment banking firm which
acted as placement agent for the Company's December 1993 sale of the Series A
Preferred Stock and Warrants. Jefferies was also the agent for the Company for
certain sales by the Company of its common stock of Fruehauf in 1993.
Jefferies purchased 250,000 Warrants and 180,000 shares of Series A Preferred
Stock from the Company in connection with the Company's private placement on
December 20, 1993.
G. Chris Andersen, a director of the Company, is an executive with PaineWebber
Incorporated ("PaineWebber"). During 1993, Fruehauf retained PaineWebber as a
financial advisor to explore opportunities to maximize stockholder value in
Fruehauf.
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 M - LIQUIDITY AND REFINANCING PLANS
As a result of significant operating losses, which have continued into the
first quarter of 1994, and cash flow constraints, the Company has taken
significant actions to reduce its overall cost structure and improve liquidity.
During 1993, the Company experienced liquidity constraints, primarily because
of continuing operating losses. Payables to a significant number of vendors
were aged 60 days or more and certain vendors required COD or advance cash
payments before shipping materials. As a result, the Company's manufacturing
facilities operated at less than optimal levels, and the availability of
inventory for parts sales, on which the Company generally realizes higher gross
margins, was adversely affected.
In May 1993, Terex entered into the Lending Facility, which presently provides
for up to $20,000 of cash advances and guarantees of bank letters of credit and
is secured by substantially all of the Company's domestic cash and receivables.
In addition to the Lending Facility, the Company has arranged similar financing
for TEL, in the form of the lb.28,000 ($42,000) TEL Facility, including up to
lb.13,000 ($19,500) nonrecourse discounting of TEL accounts receivable which
meet certain credit criteria plus additional facilities for tender and
performance bonds and foreign exchange contracts.
In December 1993, in order to provide additional liquidity to the Company, the
Company completed the private placement of 1,200,000 shares of the Series A
Preferred Stock and 1,300,000 Warrants for aggregate net proceeds to the
Company of $27,179. The proceeds of such private placement are being used by
the Company for additional working capital. Concurrent with the infusion of
working capital from the private placement, Clark entered into agreements with
approximately 225 of its vendors to freeze the balances due such vendors as of
November 1993 (totalling approximately $13,900) and establish normal credit
terms for new purchases. Clark will pay the frozen balances in twelve monthly
installments of approximately $1,150 each from December 1993 through November
1994, but may prepay the remaining balance to any or all of the vendors at any
time. In December 1994, Clark will make an additional payment to each vendor
equivalent to 1/12 of the frozen balance, but only to such vendors as are not
prepaid.
The Company is also generating cash by reducing receivables and inventories,
selling certain real estate and other assets, including the sale of its Drexel
subsidiary and the sale of Fruehauf common stock as described below, and
continuing corporate wide cost containment efforts. Management believes that
the Lending Facility together with these additional financing and cash
generating activities will allow the Company to meet its operating payment
obligations, including payments to vendors, on a timely basis which will
improve the Company's ability to take advantage of improved market conditions,
especially in the Material Handling Segment.
In December 1993, the Company repurchased $5,000 principal amount of the
Secured Notes for $4,544 including accrued interest. In addition, the Company
sold 1,000,000 shares of Fruehauf common stock for aggregate proceeds of $3,009
in December 1993 and 1,000,000 shares of Fruehauf common stock for aggregate
proceeds of $4,620 in February 1994. The Company has offered to repurchase
$3,000 of the Senior Secured Notes in May 1994 and will offer to repurchase
$4,620 of the Senior Secured Notes in the third quarter of 1994, pursuant to
the indenture for the Senior Secured Notes. In addition to such offers to
repurchase, the Company's principal repayment requirements for 1994 include
approximately $8,333 in July 1994 for a required sinking fund payment on the
Subordinated Notes and $6,090 in July 1994 for the maturity of the note issued
to the seller in connection with the Clark Acquisition. The Company has
notified the trustee for the Subordinated Notes that it intends to satisfy the
July 1, 1994 sinking fund payment by delivering $8,333 principal amount of the
Subordinated Notes which the Company has made arrangements to purchase in the
marketplace. The Company's interest payment requirements in 1994 include
approximately $27,600 of interest on the Senior Secured Notes, Subordinated
Notes and the Lending Facility, of which amount approximately $13,500 has been
paid as of May 1, 1994. Management believes that selling certain excess real
estate and other non-strategic assets (including Drexel, see Note N --
"Subsequent Events") and other cash generating activities discussed above will
allow the Company to meet its scheduled interest and principal repayment
requirements as they come due.
The Company was in compliance with the Net Worth Covenants and the
Collateral Covenant at December 31, 1993. The Company continued to sustain
losses from operations during the first quarter of 1994 and, the Company's
tangible net worth at March 31, 1994 was less than the $15,000 required under
the Net Worth Covenants. In addition, unless the Company returns to
profitability, realizes additional gains from sales of assets and/or raises
additional equity during the second quarter of 1994, it will have a tangible
net worth at June 30, 1994 of less than the $15,000 required under the Net
Worth Covenants. If any offer to repurchase Notes were required to be made as
a result of noncompliance with the Net Worth Covenant at June 30, 1994 or
otherwise, it is likely that the Company would require additional funding to
complete the offer, and if such funding were unavailable to it, the Company
would be unable to comply with the terms of the Notes and the maturity of the
Notes might be accelerated. Such circumstances could result in a material
adverse impact on the Company and its financial position. Management believes
that the Company will be able to maintain compliance with the Net Worth
Covenants and Collateral Covenant until the Company returns to profitability by
selling certain non-strategic assets, including without limitation the
Company's investment in Fruehauf common stock. In February 1994, the Company
sold 1,000,000 shares of Fruehauf common stock for aggregate proceeds of
approximately $4,600 and recognized a gain for that amount. At March 31, 1994
the Company continued to hold 5,386,622 shares of Fruehauf common stock.
Subsequent to March 31, 1994 the Company sold additional assets as described
below in Note N -- "Subsequent Events."
NOTE N - SUBSEQUENT EVENTS
On April 15, 1994, the Company completed the sale of 100% of the stock of
Drexel Industries, Inc. ("Drexel"), pursuant to an agreement to sell entered
into in March 1994, for total proceeds of $12,521, of which $12,197 was in cash
and $324 was in the form of a note due December 15, 1994 and bearing interest
at 6%. The Company retained certain past-due receivables and certain
obligations of Drexel, including environmental cleanup costs at Drexel's
facility in Horsham, Pennsylvania and state and federal income taxes related to
the sale, and will recognize a gain of approximately $4,000 as a result of the
sale. Pursuant to the terms of the indentures for the Company's Senior Secured
Notes, the Company is required to reinvest the net proceeds of the sale,
estimated to be approximately $10,900, in certain categories of assets within
180 days, and will be required to make an offer to repurchase Senior Secured
Notes after such 180 day period in the principal amount equivalent to the
amount of net proceeds not so reinvested. Drexel operated in the Material
Handling Segment and manufactures very narrow-aisle lift trucks. Drexel's net
sales and income from operations totaled $4,325 and $35, respectively, in the
first quarter of 1994.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Quarter Ended March 31, 1994
The table below is a comparison of net sales, gross profit, selling, general
and administrative expenses and income (loss) from operations, by segment, for
the three months ended March 31, 1994 and 1993.
Three Months Ended March 31, Increase
1994 1993 (Decrease)
(in millions of dollars)
NET SALES
Material Handling $ 90.8 $ 118.7 $ (27.9)
Heavy Equipment 78.0 64.5 13.5
Eliminations (0.8) --- (0.8)
Total $ 168.0 $ 183.2 $ (15.2)
GROSS PROFIT
Material Handling $ 4.5 $ 10.8 $ (6.3)
Heavy Equipment 10.8 6.8 4.0
Total $ 15.3 $ 17.6 $ (2.3)
ENGINEERING, SELLING AND ADMINISTRATIVE
EXPENSES
Material Handling $ 13.5 $ 12.4 $ (1.1)
Heavy Equipment 7.0 8.2 (1.2)
General/Corporate 2.1 0.2 1.9
Total $ 22.6 $ 20.8 $ 1.8
INCOME (LOSS) FROM OPERATIONS
Material Handling $ (9.0) $ (1.6) $ (7.4)
Heavy Equipment 3.8 (1.4) 5.2
General/Corporate (2.1) (.2) (1.9)
Total $ (7.3) $ (3.2) $ (4.1)
Net Sales
Sales decreased $15.2 million, or approximately 8%, for the three months ended
March 31, 1994 over the comparable 1993 period.
Material Handling Segment sales were $90.8 million for the three months ended
March 31, 1994, a decrease of $27.9 million from $118.7 million in the year
earlier period. Machine sales decreased $20.0 million and parts sales
decreased $7.9 million. Machine sales were adversely affected by lack of
supplies and materials necessary to restore full production and meet increased
industry demand. The lack of production supplies and materials resulted from a
deterioration in supplier relations that occurred during the last half on 1993
because of liquidity constraints, as well as from capacity shortages at several
suppliers due to increased industry demand for their products. As a result of
the working capital infusion in December 1993 discussed below under "Liquidity
and Capital Resources," management was able to normalize relations and schedule
payment terms with its key suppliers. Management is negotiating with critical
suppliers to move production of Material Handling Segment parts and supplies to
a higher priority and is developing alternate suppliers where necessary to keep
up with production demands. Parts sales were affected by difficulties in
assimilating the Material Handling Segments parts business into the Terex Parts
Distribution Center and by decreased parts availability compared to the quarter
ended March 31, 1993.
Material Handling Segment bookings for the three months ended March 31, 1994
were $106.6 million, an increase of $11.2 million, or 12%, from the year
earlier period, as customer demand, especially in North America, increased.
Bookings for parts sales for the three months ended March 31, 1994, from which
the Company generally realized higher margins than machine sales, decreased
$4.4 million or 16% from the year earlier period. Machine order bookings for
the three months ended March 31, 1994 increased $15.6 million or 23% from the
year earlier period. Material Handling Segment backlog was $168.3 million at
March 31, 1994 compared to $152.7 million at December 31, 1993 and $59.9
million at March 31, 1993. This increase reflects the increased customer
demand as well as reduced first quarter sales resulting from the lack of
production supplies and materials and decreased parts availability levels
discussed above. Management expects that the backlog of both machines orders
and parts orders will be reduced during the remainder of 1994 as the Company
restores full production in the Material Handling Segment U. S. operations and
as parts availability is restored to historical levels.
Heavy Equipment Segment sales increased $13.5 million for the three months
ended March 31, 1994 from the three months ended March 31, 1993. Machines and
contract sales increased $15.6 million, partially offset by a parts sales
decrease of $2.1 million. The sales mix changed from approximately 39% parts
for the three months ended March 31, 1993 to 30% parts for the three months
ended March 31, 1994. Machine sales increased at all of the Heavy Equipment
Segment divisions, but primarily in the Terex Business, which consists of the
Company's Terex Division and TEL and which serves the heavy construction
industry, reflecting general improvement in the economy, industry demand and
the favorable effects of low interest rates. The Terex Business experienced an
increase in machine sales of $11.2 million to $29.4 million for the three
months ended March 31, 1994 compared to the comparable period in 1993. Heavy
Equipment Segment parts sales decreased $2.1 million for the three months ended
March 31, 1994 versus the year earlier period. Sales have been adversely
impacted by lower parts availability and the assimilation of the Material
Handling Segment's parts business into the Company's Southaven, Mississippi
Parts Distribution Center.
Heavy Equipment Segment bookings for the three months ended March 31, 1994 were
$64.2 million, a decrease of $21.8 million, or 25%, from the year earlier
period, but consistent with the bookings levels for the last two quarters of
1993. Bookings for parts sales, from which the Company realizes higher margins
than machine sales, decreased $1.0 million or 4.0% from the three months ended
March 31, 1993. Machine and contract bookings for the three months ended March
31, 1994 decreased $20.8 million or 35% from the prior year period, reflecting
decreases due to consolidation of model offerings at the Company's Koehring
Cranes & Excavators Division ("Koehring") and decreases at the Company's Unit
Rig Division due to continued softness in the mining industry, as well as more
aggressive pricing and financing by the Company's competitors. The slow
recovery in the construction industry has also made the Koehring and Terex
Business distributor networks more cautious in their acquisition of new
equipment, especially for machines to be used in the rental market. Heavy
Equipment Segment backlog was $67.0 million at March 31, 1994 compared to $80.9
million at December 31, 1993 and $106.9 million at March 31, 1993, reflecting
the decrease in bookings and increases in first quarter 1994 sales. Parts
backlog was $11.2 million at March 31, 1994 compared to $10.4 million at
December 31, 1993 and $7.0 million at March 31, 1993. This increase resulted
from decreased parts availability due to liquidity constraints experienced
during 1993. As a result of the working capital infusion discussed below under
"Liquidity and Capital Resources," the inventory availability for parts sales
trended upwards during the quarter and management expects that the backlog of
parts orders will be reduced as working capital continues to be applied towards
purchase of parts inventory.
Gross Profit
Gross profit for the three months ended March 31, 1994 decreased $2.3 million
compared to the three months ended March 31, 1993.
The Material Handling Segment's gross profit decreased $6.3 million to $4.5
million for the three months ended March 31, 1994 compared to $10.8 million for
the prior year's period. The gross profit percentage in the Material Handling
Segment decreased to 5.0% for the three months ended March 31, 1994 from 9.0%
for the the prior year's period. The decrease in gross profit percentage
reflects comparatively lower sales and decreased manufacturing efficiency due
to shortages in manufacturing supplies and materials, somewhat offset by cost
reduction initiatives.
The Heavy Equipment Segment's gross profit increased $4.0 million to $10.8
million for the three months ended March 31, 1994 compared to $6.8 million for
the prior year's period. Improved gross profit from machines and contract
sales accounted for substantially all of the increase, reflecting the increase
in sales and continuing effects of cost reduction initiatives implemented
during 1992 and 1993. The gross profit percentage in the Heavy Equipment
Segment increased to 13.8% for the three months ended March 31, 1994 from 10.6%
for the three months ended March 31, 1993, reflecting improved manufacturing
efficiency and increased absorption of fixed costs due to higher levels of
production.
Engineering, Selling and Administrative Expenses
Engineering, selling and administrative expenses increased to $22.6 million for
the three months ended March 31, 1994 from $20.8 million for the three months
ended March 31, 1994. Material Handling Segment engineering, selling and
administrative expenses increased to $13.5 million for for the three months
ended March 31, 1994 from to $12.4 million for the prior year's period due to
difficulties encountered in restoring full production during the first quarter
of 1994. Heavy Equipment Segment engineering, selling and administrative
expenses decreased to $7.0 million for the three months ended March 31, 1994
from $8.2 million for the prior year's period as a result of cost reduction
initiatives. Corporate administrative expense includes a charge of $2.2
million in connection with the proposed termination of the Company's management
contract with KCS.
Income (Loss) from Operations
The Material Handling Segment incurred a loss from operations of $9.0 million
for the three months ended March 31, 1994, compared to a loss of $1.6 million
for the three months ending March 31, 1993. As discussed above, the decreases
in sales and gross profit in 1994 reflect the difficulties in restoring full
production due to supplier problems. Management expects that the Material
Handling Segment will continue to make improvements in the level of production
during the second quarter of 1994.
Heavy Equipment Segment income (loss) from operations improved by $5.2 million
to $3.8 million of net income for the three months ended March 31, 1994 from a
$1.4 million loss in the prior year's period. This improvement resulted from
the increase in gross profit and the decrease in engineering, selling and
administrative expenses. All of the businesses comprising the Heavy Equipment
Segment reported income from operations for the three months ended March 31,
1994. The losses at Koehring have been reversed as a result of continuing cost
reductions, improvements in inventory management and consolidation of model
offerings, and the Company continues to consider additional actions necessary
to maintain consistent profitability, including a continuing evaluation of
facilities, products and inventories.
On a consolidated basis, the Company experienced an operating loss of $7.3
million for the three months ended March 31, 1993, compared to an operating
loss of $3.2 million for the prior year's period.
Other Income (Expense)
The Company recognized equity in the net loss of Fruehauf of $0.5 million for
the three months ended March 31, 1993. As described in Note B -- "Accounting
Changes" in the Notes to the Condensed Consolidated Financial Statements, the
Company presently accounts for its investment in Fruehauf in accordance with
the provisions of SFAS 115 and the Company does not expect to recognize any
significant additional gains or losses with respect to its investment in
Fruehauf except as realized on transactions in Fruehauf common stock. In
February 1994, the Company sold 1,000,000 shares of Fruehauf common stock and
realized a gain of $4.6 million.
The provision for income taxes generally represents taxes withheld on foreign
royalties and dividends, and the fluctuation in the provision for income tax is
due to fluctuations in these items.
Liquidity and Capital Resources
The information set forth herein is as of May 16, 1994 and is subject to
updating and supplement as provided in the Company's periodic reports filed
with the Securities and Exchange Commission on Form 10-Q subsequent to such
date.
Net cash of $12.7 million was used in operating activities during the three
months ended March 31, 1994, principally to fund operating losses and interest
payments.
Net cash provided by investing activities of $1.2 million during the three
months ended March 31, 1994 principally resulted from the sale of Fruehauf
common stock, offset by cash used to finance capital expenditures. Proceeds
from the sale of Fruehauf common stock were approximately $5.2 million
including the sale of 1,000,000 shares in February 1994 for approximately $4.6
million, and the settlement of a December 1993 trade in January 1994 for
approximately $0.6 million. Proceeds from refinancing a note receivable were
$1.0 million. Capital expenditures in the three months ended March 31, 1994
were $5.1 million.
Net cash provided by financing activities during the three months ended March
31, 1994 was $6.1 million. As described below, the Company entered into new
lending facilities during 1993. The balances outstanding under these
facilities were approximately $17.3 million as of March 31, 1994.
Actions taken to address liquidity constraints
During 1993, the Company experienced liquidity constraints, primarily because
of continuing operating losses. During this period, payables to a significant
number of vendors were aged 60 days or more and certain vendors required COD or
advance cash payments before shipping materials. As a result, the Company's
manufacturing facilities operated at less than optimal levels, and the
availability of inventory for parts sales, on which the Company generally
realizes higher gross margins, was adversely affected. During 1993, the
Company took a number of steps to address these liquidity constraints, as
discussed below.
In May 1993, Terex entered into the Lending Facility, which presently provides
for up to $20.0 million of cash advances and guarantees of bank letters of
credit and is secured by substantially all of the Company's domestic
receivables and proceeds thereof. The balance outstanding under the Lending
Facility was $17.3 million as of March 31, 1994, and the additional amount the
Company could have borrowed was $2.4 million as of that date.
The Company arranged similar financing for TEL during 1993, in the form of a
lb.28.0 million ($42.0 million) credit facility, including up to lb.13.0 million
($19.5 million) nonrecourse discounting of TEL accounts receivable which meet
certain credit criteria plus additional facilities for tender and performance
bonds and foreign exchange contracts. The balance discounted under the credit
facility was $1.5 million at March 31, 1994, and the additional amount the
Company could have discounted was $0.3 million as of that date.
In September 1993, the Company sold certain excess real estate in Germany for
net proceeds of approximately $9.7 million.
In December 1993, the Company completed the private placement of 1,200,000
shares of the Series A Preferred Stock and 1,300,000 Warrants for aggregate net
proceeds to the Company of $27.2 million. The proceeds of such private
placement are being used by the Company for additional working capital.
Debt covenants and other liquidity restrictions
The indentures governing the Senior Secured Notes and Subordinated Notes
require, among other things, that the Company comply with the Net Worth
Covenants and the Collateral Covenant. In the event that the Company's net
worth is not in excess of the amount required under the Net Worth Covenants for
any two consecutive quarters, the Company must offer to repurchase, at par plus
accrued interest, 20% of the outstanding principal amount of the Notes. In
the event the Company is not in compliance with the Collateral Covenant at the
end of any calendar quarter, the Company must offer to repurchase, at par plus
accrued interest, $16.0 million principal amount of the Senior Secured Notes or
such greater amount as would be necessary to bring the Company into compliance
with the Collateral Covenant.
The Company was in compliance with the Net Worth Covenants and the
Collateral Covenant at December 31, 1993. The Company continued to sustain
losses from operations during the first quarter of 1994 and the Company's
tangible net worth at March 31, 1994 was less than the $15.0 million required
under the Net Worth Covenants. In addition, unless the Company returns to
profitability, realizes additional gains from sales of assets and/or raises
additional equity during the second quarter of 1994, it will have a tangible
net worth at June 30, 1994 of less than the $15.0 million required under the
Net Worth Covenants. If any offer to repurchase Notes were required to be made
as a result of noncompliance with the Net Worth Covenant at June 30, 1994 or
otherwise, it is likely that the Company would require additional funding to
complete the offer, and if such funding were unavailable to it, the Company
would be unable to comply with the terms of the Notes and the maturity of the
Notes might be accelerated. Such circumstances could result in a material
adverse impact on the Company and its financial position. As explained below,
the Company has taken, and plans to take, actions to maintain compliance with
the Net Worth Covenant and Collateral Covenant, including the sale of its
Drexel subsidiary, shares of Fruehauf common stock and other assets.
In addition to the financial covenants discussed above, the indentures
governing the Notes limit, among other things, Terex's ability to incur
additional indebtedness, consummate mergers and acquisitions, pay dividends,
sell business segments and enter into transactions with affiliates, and place
limitations on change in control of Terex.
As of March 31, 1994, the Company was in compliance with the tangible net worth
covenant under the Lending Facility. The Company believes, based on
management's current estimates, that it will be in compliance with the covenant
over the next twelve months.
Terex currently owns approximately 19.1% of the outstanding common stock of
Fruehauf. By the terms of debt agreements of both companies, neither company
may participate in the debt service of the other. Generally, funds cannot be
transferred between the companies.
Cash and cash equivalents totaled $3.9 million and $9.2 million at March 31,
1994 and December 31, 1993, respectively. Restricted cash represents amount
required to cash collateralize letters of credit issued for various business
purposes. At March 31, 1994 and December 31, 1993 the unexpired letters of
credit were cash collateralized by a total of $4.1 million and $6.3 million in
cash collateral accounts. These cash balances will be made available to the
Company as the underlying letters of credit expire.
Liquidity requirements and actions to be taken in 1994
Concurrent with the infusion of working capital from the Company's private
placement in December 1993, Clark entered into agreements with approximately
225 of its vendors to freeze the balances due such vendors as of November 1993
(totaling approximately $13.9 million) and to reestablish normal credit terms
for new purchases. Clark is paying the frozen balances in twelve monthly
installments of approximately $1.2 million each from December 1993 through
November 1994, but may prepay the remaining balance to any or all of the
vendors at any time. In December 1994, Clark will make an additional payment
to each vendor equivalent to 1/12 of the frozen balance, but only to such
vendors as are not prepaid.
The Company's interest payment requirements for 1994 total approximately $27.6
million on the Senior Secured Notes, the Subordinated Notes and the Lending
Facility, of which amount approximately $13.5 million has been paid as of May
1, 1994. The Company's principal repayment requirements for 1994 include
approximately $8.3 million in July 1994 for a required sinking fund payment on
the Subordinated Notes and $6.1 million in July 1994 for the maturity of a note
issued to the seller in connection with the Clark Acquisition. The Company has
notified the trustee for the Subordinated Notes that it intends to satisfy the
July 1, 1994 sinking fund payment by delivering $8.3 million principal amount
of the Subordinated Notes which the Company has made arrangements to purchase
in the marketplace. The Company also has offered to repurchase $3.0 million of
the Senior Secured Notes in May 1994 and will offer to repurchase approximately
$4.6 million of the Senior Secured Notes in the third quarter of 1994, pursuant
to the indenture for the Senior Secured Notes, as a result of the sale of
1,000,000 shares of Fruehauf common stock in December 1993 and the sale of
1,000,000 shares of Fruehauf common stock in February 1994, respectively.
Management believes that the Lending Facility, together with other financing
and cash generating activities, will allow the Company to meet its operating
payment obligations, including payments to vendors, on a timely basis, which
will improve the Company's ability to take advantage of improved market
conditions, especially in the Material Handling Segment. Management expects to
continue the Company's efforts to reduce receivables and inventory during 1994.
In particular, management believes that required inventory levels in the
Material Handling Segment have been reduced as a result of transfer of certain
production to the United States and Germany from Korea during 1993 because the
Company will no longer experience the significant lead times associated with
the shipping of product from Korea.
Additionally, management believes that selling certain excess real estate and
other non-strategic assets and other cash generating activities discussed above
will allow the Company to meet its scheduled interest and principal repayment
requirements as they come due and to maintain compliance with the Net Worth
Covenants and the Collateral Covenant until the Company returns to
profitability. In February 1994, as noted above, the Company sold 1,000,000
shares of Fruehauf common stock for aggregate proceeds of approximately $4.6
million. In April 1994, the Company sold 100% of the stock of Drexel, a
subsidiary in the Material Handling Segment which manufactures very
narrow-aisle lift trucks, for net proceeds of approximately $10.9 million.
Contingencies and Uncertainties
The Company has not yet filed its Annual Report on Form 10-K for the year ended
December 31, 1993. The Company's auditors, Price Waterhouse, and former
auditors, Deloitte & Touche, have advised the Company that they are unable to
issue accountant's reports on the Company's financial statements for 1991, 1992
and 1993, which are required to be included in the Company's Annual Report on
Form 10-K, until consideration has been completed of certain items which may
affect the financial statements of Fruehauf and, as a result, may also affect
the financial statements of the Company. In their opinion on the Company's
Consolidated Financial Statements for December 31, 1992, Price Waterhouse, the
Company's independent accountants, indicated that there are matters, including
recurring losses from operations and a net capital deficiency, which raise
substantial doubt about the Company's ability to continue as a going concern.
As of this date, Price Waterhouse has not issued an opinion on the Company's
1993 Financial Statements. As described above under "Liquidity and Capital
Resources," the Company has entered into the Lending Facility which provides up
to $20.0 million in revolving credit loans and guarantees of letters of credit,
and has arranged similar financing for TEL. The Company also completed the
private placement of Series A Preferred Stock and Warrants, which provided
aggregate net proceeds to the Company of $27.2 million for working capital.
The Company is also generating cash by reducing receivables and inventories,
selling certain real estate and other assets and continuing corporate wide cost
containment efforts. In April 1994, the Company sold Drexel for net proceeds
of approximately $10.9 million. Management believes that the Lending Facility
and other financing and cash generating activities will allow the Company to
meet its obligations on a timely basis.
The Company generates hazardous and nonhazardous 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 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 nonhazardous 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.
Fruehauf is contingently liable for portions of remedial costs at numerous
off-site waste disposal sites including those previously used by operations of
Fruehauf's predecessor. Fruehauf has received notice that it is considered a
"Potentially Responsible Party" under the Comprehensive Environmental Response,
Compensation, and Liability Act or other similar state laws at approximately 23
Superfund sites and has also identified environmental exposures at
approximately 36 other sites not designated as Superfund sites. The Company
believes that it could have contingent responsibility for certain of Fruehauf's
liabilities with respect to Fruehauf's environmental matters if Fruehauf fails
to discharge its obligations, to the extent that such liabilities arose during
the time period during which Terex was the controlling stockholder of Fruehauf.
The Company believes that Fruehauf's significant environmental liabilities
predate Terex's acquisition of Fruehauf, and therefore any contingent
responsibility of the Company is not expected to have a material adverse effect
on the Company.
EXHIBIT INDEX
Exhibit No.
11.1 Amended Computation of Earnings per Share