SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
F O R M 10 - Q
(Mark One)
[x] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 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 September 30,
1994.
The Exhibit Index appears on page 22.
- - - ------------------------------------------------------------------------------
INDEX
TEREX CORPORATION AND SUBSIDIARIES
Page No.
PART I FINANCIAL INFORMATION
Item 1 Condensed Consolidated Financial Statements
The accompanying condensed consolidated financial statements of Terex
Corporation and Subsidiaries as of September 30, 1994 and for the three and
nine month periods ended September 30, 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 Company's
report on Form 10-Q for the quarter ended March 31, 1994 includes certain
additional disclosures as of December 31, 1993 which management believes to be
useful for a complete understanding of the 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
LLP, have advised the Company that they are unable to issue an accountants'
report on the Company's consolidated financial statements for inclusion in such
Form 10-K until an accountants' report on the consolidated financial statements
of the Company and its subsidiaries is reissued for the year ended December 31,
1991. Deloitte & Touche LLP are the auditors of record for such year. As a
result of the anticipated restatement of the financial statements of Fruehauf
Trailer Corporation ("Fruehauf"), formerly a consolidated subsidiary of the
Company, the Company expects that its consolidated financial statements for the
year ended December 31, 1991 will be required to be restated to reflect any
changes necessitated by the restatement of the Fruehauf financial statements.
Deloitte & Touche has not agreed to report on Terex's 1991 restated financial
statements. The Company is endeavoring to have Deloitte & Touche reissue its
report on any such restated financial statements for the year. However, the
Company cannot predict whether its efforts with Deloitte & Touche will be
successful or whether it will be able to issue audited restated 1991 financial
statements in the near future.
Condensed Consolidated Statement of Operations --
Three months and nine months ended September 30, 1994 and 1993 3
Condensed Consolidated Balance Sheet --
September 30, 1994 and December 31, 1993 4
Condensed Consolidated Statement of Cash Flows --
Nine months ended September 30, 1994 and 1993 5
Notes to Condensed Consolidated Financial Statements --
September 30, 1994 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 20
SIGNATURE 21
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 For the Nine Months
Ended September 30, Ended September 30,
1994 1993 1994 1993
Net sales $ 207,063 $ 164,052 $ 573,350 $519,510
Cost of goods sold 183,363 151,713 514,060 475,251
Gross profit 23,700 12,339 59,290 44,259
Engineering, selling
and administrative expenses:
Third parties 17,576 19,577 55,403 60,313
Related parties --- 564 2,245 2,314
Total engineering,
selling and
administrative expenses 17,576 20,141 57,648 62,627
Severance charge --- --- 4,549 ---
Income (loss) from
operations 6,124 (7,802) (2,907) (18,368)
Other income (expense):
Interest income 83 270 400 945
Interest expense (7,855) (8,001) (23,298) (23,849)
Equity in net loss
of Fruehauf --- --- --- (677)
Gain on sale of
Fruehauf stock 4,255 --- 24,361 ---
Gain on sale of Drexel
business --- --- 4,742 ---
Gain (loss) on sale
of property, plant
and equipment (1) 1773 (51) 2,029
Amortization of debt
issuance costs (598) (622) (1,835) (2,445)
Amortization of goodwill
and other intangibles (190) (368) (569) (1,105)
Other income (expense) (627) (181) 612 571
Income (loss) before
income taxes and
extraordinary items 1,191 (14,931) 1,455 (42,899)
Income tax (provision)
benefit 18 (115) (816) (193)
Income (loss) before
extraordinary items $ 1,209 $(15,046) $ 639 $(43,092)
Extraordinary losses
on retirement of debt (164) --- (397) (2,003)
NET INCOME (LOSS) 1,045 (15,046) 242 (45,095)
Less preferred stock
accretion (1,517) --- (4,341) ---
Income (loss) applicable
to common stock $ (472) $(15,046) $ (4,099) $(45,095)
Earnings (loss) on common stock, per share:
Primary:
Before extraordinary
items $ (0.03) $ (1.51) $ (0.36) $ (4.33)
Extraordinary items (0.02) --- (0.04) (0.20)
Total $ (0.05) $ (1.51) $ (0.40) $ (4.53)
Fully diluted:
Before extraordinary
items $ (0.03) $ (1.51) $ (0.36) $ (4.33)
Extraordinary items (0.02) --- $ (0.04) (0.20)
Total $ (0.05) $ (1.51) $ (0.40) $ (4.53)
Weighted average common shares outstanding
including dilutive securities (See Exhibit 11.1)
Primary 10,303 9,953 10,303 9,952
Fully diluted 10,303 9,953 10,303 9,952
The accompanying notes are an integral part of these financial statements.
TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
September 30, December 31,
1994 1993
ASSETS
Current assets
Cash and cash equivalents $ 2,755 $ 9,183
Cash securing letters of credit 7,042 6,263
Trade receivables (less allowance of
$5,725 in 1994 and $7,478 in 1993) 92,023 74,326
Net inventories 165,746 164,343
Other current assets 5,464 4,016
Total current assets 273,030 258,131
Property, plant and equipment - net 98,991 97,537
Debt issuance costs and intangible assets 10,051 12,645
Investment in Fruehauf (Note B) 5,180 ---
Other assets 22,343 23,192
Total assets $ 409,595 $ 391,505
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities
Notes payable $ 3,492 $ 2,909
Current portion of long-term debt 24,241 19,799
Trade accounts payable 98,181 82,270
Accrued compensation and benefits 9,915 8,162
Accrued warranties and product liability 28,329 27,226
Accrued interest 4,856 10,698
Accrued income taxes 1,667 1,415
Accrued costs to consolidate operations 6,433 8,384
Other current liabilities 31,594 23,837
Total current liabilities 208,708 184,700
Long-term debt less current portion 175,303 195,331
Accrued warranties and product
liability - long-term 35,998 33,959
Accrued pension 21,244 20,270
Other long-term liabilities 4,237 5,217
Redeemable convertible preferred stock 14,821 10,480
Commitments and contingencies (Note F)
Stockholders' investment
Warrants to purchase common stock 16,851 16,851
Common stock, $.01 par value - authorized
30,000 shares; issued and outstanding
10,303 at September 30, 1994 and
10,303 at December 31, 1993 103 103
Additional paid-in capital 40,127 40,127
Accumulated deficit (103,143) (99,044)
Pension liability adjustment (4,173) (4,173)
Unrealized holding gain on
equity securities 5,180 ---
Cumulative translation adjustment (5,661) (12,316)
Total stockholders' investment (50,716) (58,452)
Total liabilities and
stockholders' investment $ 409,595 $ 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 Nine Months
Ended September 30,
1994 1993
OPERATING ACTIVITIES
Net income (loss) $ 242 $ (45,095)
Adjustments to reconcile net loss to
cash used in operating activities:
Depreciation 10,053 11,615
Amortization 3,207 5,979
(Gain) loss on sale of property,
plant and equipment (115) (2,029)
Equity in net loss of Fruehauf --- 677
Gain on sale of Fruehauf stock (24,361) ---
Gain on sale of Drexel business (4,742) ---
Other (647) (221)
Changes in operating assets and liabilities:
Restricted cash (781) 6,846
Trade receivables (18,201) (782)
Net inventories (1,043) 28,223
Trade accounts payable 15,488 (8,340)
Accrued compensation and benefits 1,616 (229)
Accrued warranties and product
liability 3,251 (3,835)
Accrued interest (5,842) (7,008)
Accrued income taxes 242 (441)
Accrued costs to consolidate operations (2,276) (16,503)
Other 6,159 3,135
Net cash used in operating activities (17,750) (28,008)
INVESTING ACTIVITIES
Capital expenditures, net of dispositions (9,853) (8,529)
Proceeds from sale of property,
plant and equipment 483 10,377
Proceeds from refinancing note receivable 1,000 ---
Advances to Fruehauf --- (622)
Proceeds from sale of Fruehauf stock 24,916 ---
Proceeds from sale of Drexel business 10,289 ---
Other 535 (337)
Net cash from (used in) investing
activities 27,370 889
FINANCING ACTIVITIES
Net borrowings under revolving line of
credit and term loan agreements 11,916 19,324
Principal repayments of long-term debt (28,275) (8,175)
Other (124) (443)
Net cash from (used in)
financing activities (16,483) 10,706
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS 435 (371)
NET DECREASE IN CASH AND CASH EQUIVALENTS (6,428) (16,784)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 9,183 25,671
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,755 $ 8,887
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)
September 30, 1994
NOTE A -- BASIS OF PRESENTATION
Basis of Presentation. The accompanying condensed consolidated financial
statements of Terex Corporation and Subsidiaries as of September 30, 1994 and
December 31, 1993 and for the three and nine months ended September 30, 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. The accompanying condensed consolidated balance sheet as of
December 31, 1993, has been derived from the unaudited consolidated balance
sheet as of that date.
The condensed consolidated financial statements include the accounts of Terex
Corporation and its majority owned subsidiaries ("Terex" or the "Company").
All 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 for Investment in Fruehauf"
is used to account for investments in affiliates in which the Company has an
ownership interest of less than 20%.
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 for Investment in Fruehauf." Operating
results for the three months and nine months ended September 30, 1994 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1994. For further information, refer to the condensed
consolidated financial statements and footnotes thereto included in the
Company's report on Form 10-Q for the quarter ended March 31, 1994.
NOTE B -- ACCOUNTING FOR INVESTMENT IN FRUEHAUF
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. As a result of the sale of an aggregate of 4,400,000 shares of
Fruehauf common stock in May, June and September 1994, the Company's remaining
ownership interest in Fruehauf is 986,622 shares of common stock or
approximately 3.2% of Fruehauf's outstanding common stock.
NOTE C -- INVENTORIES
Net inventories consist of the following:
September 30, December 31,
1994 1993
New machines $ 21,840 $ 26,317
Used machines 181 1,345
Replacement parts 66,234 62,150
Work-in-process 17,536 14,351
Raw materials and supplies 64,229 65,165
170,020 169,328
Less: Excess of FIFO inventory
value over LIFO cost (4,274) (4,985)
Net inventories $ 165,746 $ 164,343
NOTE D -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
September 30, December 31,
1994 1993
Property $ 12,718 $ 12,157
Plant 45,776 41,711
Equipment 80,392 73,919
138,886 127,787
Less: Accumulated depreciation (39,895) (30,250)
Net property, plant and equipment $ 98,991 $ 97,537
NOTE E -- LONG-TERM OBLIGATIONS
Senior Secured Notes and Subordinated Notes
The financial covenants of the indentures governing the Company's 13% Senior
Secured Notes due August 1, 1996 (the "Senior Secured Notes") and 13.5% Secured
Senior Subordinated Notes due July 1, 1997 (the "Subordinated Notes")
(together, the "Notes") require, among other things, that the Company maintain
certain levels of tangible net worth (the "Net Worth Covenants") and collateral
coverage (the "Collateral Covenants"). 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 Covenants 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 Covenants. If the Company were not to be in compliance with
such covenants, there could result a material adverse impact on the Company and
its financial position.
The Company was in compliance with the Net Worth Covenants and the
Collateral Covenants at September 30, 1994. The Company believes that, based
on management's current estimates, it will be in compliance with its covenants
with respect to the Senior Secured Notes and Subordinated Notes over the next
twelve months. As described in Note G -- "Liquidity and Financing," the
Company has taken actions to maintain compliance with the Net Worth Covenants
and Collateral Covenants, including the sale of its Drexel subsidiary, shares
of Fruehauf common stock and other assets, and plans to take additional
actions, if needed, to continue in compliance.
Lending Facility
In 1993, Terex entered into an agreement with a lender which provided 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. During 1994, the agreement was amended to provide for up to $25,000
of cash advances and guarantees and to extend the maturity date from August 24,
1995 to August 24, 1997. Accordingly, all outstanding borrowings are
classified as Long Term Debt in the accompanying Balance Sheet. The balance
outstanding under the Lending Facility at September 30, 1994 was $21,612.
NOTE F -- 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.
The Company is subject to a number of contingencies and uncertainties including
product liability claims, self-insurance obligations, tax examinations and
guarantees. Many of the exposures are unasserted or proceedings are at a
preliminary stage, and it is not presently possible to estimate the amount or
timing of any cost to the Company. However, management does not believe that
these contingencies and uncertainties will, in the aggregate, have a material
effect on the Company. When it is probable that a loss has been incurred and
possible to make reasonable estimates of the Company's liability with respect
to such matters, a provision is recorded for the amount of such estimate or for
the minimum amount of a range of estimates when it is not possible to estimate
the amount within the range that is most likely to occur.
The Company generates hazardous and nonhazardous wastes in the normal course of
its 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, and is directly liable for remedial costs at a number
of other locations. If Fruehauf fails to discharge its environmental
obligations, to the extent that such liabilities arose during the time period
during which Terex was the controlling stockholder of Fruehauf, Terex might be
contingently liable for such obligations. The Company believes, however, 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 G - LIQUIDITY AND FINANCING
The Company experienced significant operating losses in the first quarter of
1994. Results have improved in the second and third quarters of 1994 and the
Company has taken significant actions to reduce its overall cost structure and
improve liquidity. Management believes that the Company's lending facilities,
together with the additional financing and cash generating activities described
below, will allow the Company to meet its operating payment obligations,
including payments to vendors, on a timely basis and to meet its scheduled
interest and principal repayment requirements as they come due. The Company is
also generating cash by selling certain real estate and other assets and
continuing corporate wide cost containment efforts.
On April 15, 1994, the Company completed the sale of 100% of the stock of its
subsidiary, Drexel Industries, Inc. ("Drexel"), a non-strategic business,
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, and recognized a gain of approximately $4,244, net of
taxes, as a result of the sale. 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. The Company has reinvested the net proceeds of the sale of
Drexel in the Company's business.
The Company sold 1,000,000 shares of Fruehauf common stock for aggregate
proceeds of $3,009 in December 1993 and 5,400,000 shares of Fruehauf common
stock for aggregate proceeds of $24,361 during the first nine months of 1994.
The Company repurchased $3,000 of the Senior Secured Notes in May 1994, $4,806
of the Senior Secured Notes in June 1994, and $5,961 of the Senior Secured
Notes in September 1994, pursuant to the indenture for the Senior Secured
Notes, and has made a similar offer to repurchase a total of $13,560 of the
Senior Secured Notes in the fourth quarter of 1994.
In addition to such offers to repurchase, the Company repaid approximately
$8,333 in May 1994 for a required sinking fund payment on the Subordinated
Notes and paid $6,090 in May 1994 on the maturity of the note issued to the
seller in connection with the CMH Acquisition. The Company has also paid
approximately $27,200 of interest on the Senior Secured Notes, Subordinated
Notes and the Lending Facility as of November 1, 1994. Interest payment
requirements for the remainder of 1994 are approximately $600.
Concurrent with the infusion of working capital into the Company from its
private placement of preferred stock and warrants to purchase common stock in
December 1993, CMH entered into agreements with approximately 225 of its
vendors to freeze the balances due such vendors as of November 1993 (totaling
approximately $12,900) and establish normal credit terms for new purchases.
CMH agreed to pay the frozen balances in monthly installments for periods of up
to twelve months from December 1993 through November 1994 and to make an
additional payment equivalent to 1/12 of the frozen balance to certain vendors
in December 1994. Through November 1, 1994, CMH paid approximately $12,000 to
vendors under these agreements, and the Company expects to fund the remaining
payments (approximately $1,900 including the additional payment) in the
ordinary course of business.
The Company was in compliance with the Net Worth Covenants and the
Collateral Covenants with respect to the Senior Secured Notes and Subordinated
Notes at September 30, 1994. Noncompliance with these covenants 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 Covenants by selling certain
non-strategic assets, including without limitation the Company's investment in
Fruehauf common stock, and by achieving consistent profitability. As described
above, the Company sold a total of 5,400,000 shares of Fruehauf common stock
during the first nine months of 1994 for aggregate proceeds of approximately
$24,361 and recognized a gain of that amount. At September 30, 1994 the
Company continued to hold 986,622 shares of Fruehauf common stock. The Company
believes that, based on management's current estimates, it will be in
compliance with the Net Worth Covenants and the Collateral Covenants over the
next twelve months.
NOTE H -- LONG-TERM INCENTIVE PLAN
In June 1994, the Company's board of directors approved a Long-Term Incentive
Plan (the "Plan") covering certain managerial, administrative and professional
employees and outside directors. The Plan provides for awards to employees,
from time to time and as determined by a committee of outside directors, of
cash bonuses, stock options, stock and/or restricted stock. The total number
of shares of the Company's common stock available to be awarded under the Plan
is 750,000, subject to certain adjustments. In June 1994, options to purchase
a total of 308,800 shares of common stock at $5.50 per share and a total of
129,400 shares of restricted common stock were granted to employees and outside
directors. Because the Plan, and the options and restricted stock granted
thereunder, are subject to approval by the Company's shareholders and such
approval has not yet been obtained, these shares and options are not considered
to be outstanding and are not included in calculations of earnings per share.
NOTE I SUBSEQUENT EVENTS
On October 19, 1994, the Company announced plans for the sale of its Koehring
Cranes and Mark Industries divisions (collectively, "Koehring") to a new
venture. Koehring's net sales and income from operations totaled $66,900 and
$5,500, respectively, for the nine months ended September 30, 1994. Upon
closing, Terex will receive $30,000 in cash for Koehring. The Company expects
to use the $30,000 cash proceeds from the sale to reduce the level of long
term debt.
It is anticipated the new venture will also purchase the worldwide mobile crane
and container stacker businesses from Legris Industries, S.A. The purchase of
the Legris businesses and Koehring by the new venture is expected to be
completed in December 1994 subject to the new venture obtaining regulatory
approvals. Financing for the new venture is expected to be provided from a
variety of sources outside of Terex. After completion of this transaction the
Company will own, through a subsidiary, a 40% equity participation in the new
venture. The Company will have an option to increase its holdings to become a
majority shareholder at a future date. The Company expects to account for its
40% participation in the results of the new venture on the equity method.
On November 2, 1994, the Company closed a sale-leaseback transaction for the
Material Handling Segment's parts distribution center in Germany. The Company
received proceeds of 16,500 German marks ($11,000) and will lease the facility
under the terms of a five year lease for a total rental of 2,900 German marks
($1,900) per year. The Company realized a gain of approximately 10,000 German
marks ($6,700) which will be deferred and amortized as a reduction of rental
expense over the term of the lease. This property was collateral for the
Senior Secured Notes and the Subordinated Notes and, pursuant to the indenture
for the Senior Secured Notes, the Company will make an offer to repurchase
approximately $11,000 of the Senior Secured Notes in the second quarter of
1995.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Quarter Ended September 30, 1994
The table below is a comparison of net sales, gross profit, selling, general
and administrative expenses, severance charge and income (loss) from
operations, by segment, for the three months ended September 30, 1994 and 1993.
Three Months Ended
September 30, Increase
1994 1993 (Decrease)
(in millions of dollars)
NET SALES
Material Handling $ 128.2 $ 93.0 $ 35.2
Heavy Equipment 79.6 71.6 8.0
Eliminations (0.7) (0.5) (0.2)
Total $ 207.1 $ 164.1 $ 43.0
GROSS PROFIT
Material Handling $ 11.7 $ 2.6 $ 9.1
Heavy Equipment 12.0 9.7 2.3
Total $ 23.7 $ 12.3 $ 11.4
ENGINEERING, SELLING AND
ADMINISTRATIVE EXPENSES
Material Handling $ 10.7 $ 11.9 $ (1.2)
Heavy Equipment 6.7 7.0 (0.3)
General/Corporate 0.2 1.2 (1.0)
Total $ 17.6 $ 20.1 $ (2.5)
INCOME (LOSS) FROM OPERATIONS
Material Handling $ 1.0 $ (9.3) $ 10.3
Heavy Equipment 5.3 2.7 2.6
General/Corporate (0.2) (1.2) 1.0
Total $ 6.1 $ (7.8) $ 13.9
Net Sales
Sales increased $43.0 million, or approximately 26%, for the three months ended
September 30, 1994 over the comparable 1993 period.
Material Handling Segment sales were $128.2 million for the three months ended
September 30, 1994, an increase of $35.2 million from $93.0 million in the year
earlier period. Machine sales increased $34.3 million and parts sales
increased $0.9 million due to increased industry demand and the easing of
capital constraints and the resultant problems caused by lack of production
supplies and materials that occurred during the last half of 1993 and the first
half of 1994. Production improved because of reorganization of work flows and
other actions taken by manufacturing management as well as improved delivery of
materials and supplies. Parts sales improved as difficulties in assimilating
the Material Handling Segment's parts business into the Terex Parts
Distribution Center were resolved and parts availability continued to increase.
Material Handling Segment bookings for the three months ended September 30,
1994 were $106.9 million, a decrease of $30.4 million, or 22%, from the year
earlier period. Bookings for parts sales for the three months ended September
30, 1994, from which the Company generally realizes higher margins than machine
sales, decreased $2.3 million, or 9.4%, from the year earlier period. Machine
order bookings for the three months ended September 30, 1994 decreased $28.1
million, or 24.9%, from the year earlier period. The Company has announced the
introduction of a new line of "Genesis" internal combustion lift trucks in the
fourth quarter, but as of September 30, 1994 it had not yet begun accepting
orders for these new models, affecting the rate of orders in the third quarter.
Material Handling Segment backlog was $119.7 million at September 30, 1994
compared to $141.1 million at June 30, 1994 and $127.0 million at September 30,
1993. This change reflects the improved third quarter sales resulting from the
increases in production levels discussed above. Management expects that the
backlog of both machines orders and parts orders will be reduced during the
fourth quarter of 1994 as the Company restores full production in the Material
Handling Segment United States operations and as parts availability is restored
to normalized levels.
Heavy Equipment Segment sales for the three months ended September 30, 1994
were $79.6 million, an increase of $8.0 million from the three months ended
September 30, 1993. Machines and contract sales for the three months ended
September 30, 1994 increased $4.7 million and parts sales increased by $3.3
million over the comparable prior year period. Machine sales increased at all
of the Heavy Equipment Segment divisions, reflecting general improvement in the
United States economy, increased industry demand and the success of new
business initiatives outside the United States.
Heavy Equipment Segment bookings for the three months ended September 30, 1994
were $62.3 million comparable to $62.5 million from the year earlier period.
Bookings for parts sales, from which the Company generally realizes higher
margins than machine sales, increased $5.3 million, or 21%, from the three
months ended September 30, 1993. Machine and contract bookings for the three
months ended September 30, 1994 decreased $5.5 million, or 15%, from the prior
year period, reflecting sharp decreases at the Company's Unit Rig division
because of continuing weakness in the worldwide mining industry which this unit
serves. Heavy Equipment Segment backlog was $60.1 million at September 30,
1994 compared to $77.4 million at June 3, 1994 and $89.0 million at September
30, 1993, reflecting the increases in third quarter 1994 sales. Machine
backlog was $51.9 million at September 30, 1994, but the Company received $30.6
million in new orders during October. Parts backlog was $8.2 million at
September 30, 1994 compared to $7.9 million at June 30, 1994 and $10.2 million
at September 30, 1993. As a result of the working capital infusion in December
1993, the inventory availability for parts sales continued to increase during
the quarter and management expects that the backlog of parts orders will be
reduced as working capital continues to be applied to improve parts inventory
availability.
Gross Profit
Gross profit for the three months ended September 30, 1994 increased $11.4
million compared to the three months ended September 30, 1993.
The Material Handling Segment's gross profit increased $9.1 million to $11.7
million for the three months ended September 30, 1994 compared to $2.6 million
for the prior year's period. The gross profit percentage in the Material
Handling Segment increased to 9.1% for the three months ended September 30,
1994 from 2.8% for the prior year's period, reflecting comparatively higher
sales and increased manufacturing efficiency due to improvements in the flow of
manufacturing supplies and materials as well as cost reduction initiatives.
The Heavy Equipment Segment's gross profit increased $2.3 million to $12.0
million for the three months ended September 30, 1994 compared to $9.7 million
for the prior year's period. Improved gross profit from machines and contract
sales accounted for substantially all of the increase. The gross profit
percentage in the Heavy Equipment Segment increased to 15.1% for the three
months ended September 30, 1994 from 13.5% for the three months ended September
30, 1993, reflecting improved manufacturing efficiency and increased absorption
of fixed costs due to higher levels of production resulting from increased
sales.
Engineering, Selling and Administrative Expenses
Engineering, selling and administrative expenses decreased to $17.6 million for
the three months ended September 30, 1994 from $20.1 million for the three
months ended September 30, 1993 as a result of cost reduction initiatives
throughout the Company. Material Handling Segment engineering, selling and
administrative expenses totaled $10.7 million for the three months ended
September 30, 1994 compared to $11.9 million for the prior year's period.
Heavy Equipment Segment engineering, selling and administrative expenses
decreased to $6.7 million for the three months ended September 30, 1994 from
$7.0 million for the prior year's period.
Income (Loss) from Operations
The Material Handling Segment generated income from operations of $1.0 million
for the three months ended September 30, 1994 compared to a loss of $9.3
million for the three months ending September 30, 1993. Management expects
that the Material Handling Segment will continue to make improvements in the
level of production during the fourth quarter of 1994. Because of the
production improvements and the reduced operating expenses resulting from the
restructuring actions described above, management expects continuing
improvement in the Material Handling Segment's income from operations in the
fourth quarter of 1994.
Heavy Equipment Segment income from operations improved by $2.6 million to $5.3
million for the three months ended September 30, 1994 from $2.7 million in the
prior year's period. This improvement resulted from the increase in gross
profit and the decrease in engineering, selling and administrative expenses.
The losses at Koehring experienced during 1993 have been reversed as a result
of continuing cost reductions, improvements in inventory management and
consolidation of model offerings.
On a consolidated basis, the Company generated operating income of $6.1 million
for the three months ended September 30, 1994 compared to an operating loss of
$7.8 million for the prior year's period.
Other Income (Expense)
As described in Note B -- "Accounting for Investment in Fruehauf" 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 September of 1994, the
Company sold 1,000,000 shares of Fruehauf common stock and realized a gain of
$4.3 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.
Nine Months Ended September 30, 1994
The table below is a comparison of net sales, gross profit, selling, general
and administrative expenses, severance charge and income (loss) from
operations, by segment, for the nine months ended September 30, 1994 and 1993.
Nine Months Ended
September 30, Increase
1994 1993 (Decrease)
(in millions of dollars)
NET SALES
Material Handling $ 335.7 $ 314.0 $ 21.7
Heavy Equipment 240.0 206.0 34.0
Eliminations (2.4) (0.5) (1.9)
Total $ 573.3 $ 519.5 $ 53.8
GROSS PROFIT
Material Handling $ 24.6 $ 19.6 $ 5.0
Heavy Equipment 34.6 24.7 9.9
Total $ 59.2 $ 44.3 $ 14.9
ENGINEERING, SELLING AND
ADMINISTRATIVE EXPENSES
Material Handling $ 35.3 $ 37.5 $ (2.2)
Heavy Equipment 20.2 22.5 (2.3)
General/Corporate 2.1 2.6 (0.5)
Total $ 57.6 $ 62.6 $ (5.0)
SEVERANCE CHARGE
Material Handling $ 4.3 $ --- $ 4.3
Heavy Equipment 0.2 --- 0.2
Total $ 4.5 $ --- $ 4.5
INCOME (LOSS) FROM OPERATIONS
Material Handling $ (15.0) $ (17.9) $ 2.9
Heavy Equipment 14.2 2.2 12.0
General/Corporate (2.1) (2.6) 0.5
Total $ (2.9) $ (18.3) $ 15.4
Net Sales
Sales increased $53.8 million, or approximately 10%, for the nine months ended
September 30, 1994 over the comparable 1993 period.
Material Handling Segment sales were $335.7 million for the nine months ended
September 30, 1994, an increase of $21.7 million from $314.0 million in the
year earlier period. Machine sales increased $26.5 million and parts sales
decreased $4.8 million. Machine sales improved due to increased industry
demand and the easing of capital constraints and the resultant problems caused
by lack of production supplies and materials that occurred during the last half
of 1993 and the opening months of 1994. Production improved because of
reorganization of work flows and other actions taken by manufacturing
management and because a working capital infusion in December 1993 from the
proceeds of the issuance of preferred stock and warrants to purchase common
stock allowed management to improve relations and schedule payment terms with
its key suppliers. Parts sales were affected by the cash difficulties
previously discussed and by difficulties in assimilating the Material Handling
Segment's parts business into the Terex Parts Distribution Center during the
first half of 1994 leading to decreased parts availability. Parts sales
improved during the September 1994 quarter as these difficulties were resolved.
Material Handling Segment bookings for the nine months ended September 30, 1994
were $317.6 million, a decrease of $40.1 million, or 11%, from the year earlier
period. Bookings for parts sales for the nine months ended September 30, 1994,
from which the Company generally realizes higher margins than machine sales,
decreased $11.9 million, or 15%, from the year earlier period. Machine order
bookings for the nine months ended September 30, 1994 of $242.9 million
decreased $28.2 million or 10% compared to $280.0 million in the year earlier
period. Material Handling Segment backlog was $119.7 million at September 30,
1994 compared to $152.7 million at December 31, 1993 and $127.0 million at
September 30, 1993. This change reflects the improvement in second and third
quarter sales resulting from the upward trend in production supplies and
materials and parts availability levels. 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 United States operations and as parts availability is restored to
normalized levels.
Heavy Equipment Segment sales increased $34.0 million, or 17%, for the nine
months ended September 30, 1994 from the nine months ended September 30, 1993.
Machines and contract sales increased $32.9 million and parts sales increased
$1.1 million. Machine sales increased at all of the Heavy Equipment Segment
divisions, reflecting general improvement in the United States economy,
increased industry demand and the success of new business initiatives outside
the United States Heavy Equipment Segment parts sales increased $1.5 million
for the nine months ended September 30, 1994 from the year earlier period.
Heavy Equipment Segment bookings for the nine months ended September 30, 1994
were $219.3 million, an increase from bookings levels of $209.6 for the
comparable 1993 period. Bookings for parts sales of $77.4 million, from which
the Company generally realizes higher margins than machine sales, was
comparable to bookings for the nine months ended September 30, 1993. Machine
and contract bookings for the nine months ended September 30, 1994 increased
$11.0 million, or 8.4%, from the prior year period, reflecting the factors
discussed above. Heavy Equipment Segment backlog was $60.1 million at
September 30, 1994 compared to $80.9 million at December 31, 1993 and $89.0
million at September 30, 1993, reflecting the increases in first nine months of
1994 sales. Parts backlog was $8.2 million at September 30, 1994 compared to
$10.0 million at December 31, 1993 and $10.2 million at September 30, 1993.
This decrease resulted from the decrease in bookings and from increased parts
availability during 1994. As a result of the working capital infusion in
December 1993, the inventory availability for parts sales increased during the
first nine months of 1994 and management expects that the backlog of parts
orders will continue to be reduced as working capital continues to be applied
to improve parts inventory availability.
Gross Profit
Gross profit for the nine months ended September 30, 1994 increased $14.9
million compared to the nine months ended September 30, 1993.
The Material Handling Segment's gross profit increased $5.0 million to $24.6
million for the nine months ended September 30, 1994 compared to $19.6 million
for the prior year's period. The gross profit percentage in the Material
Handling Segment increased to 7.3% for the nine months ended September 30, 1994
from 6.2% for the prior year's period, reflecting cost reduction initiatives
and production improvements in the second and third quarters of 1994, somewhat
offset by comparatively lower sales and decreased manufacturing efficiency due
to shortages in manufacturing supplies and materials during the first quarter
of the year.
The Heavy Equipment Segment's gross profit increased $9.9 million to $34.6
million for the nine months ended September 30, 1994 compared to $24.7 million
for the prior year's period. Improved gross profit from machines and contract
sales accounted for substantially all of the increase. The gross profit
percentage in the Heavy Equipment Segment increased to 14.4% for the nine
months ended September 30, 1994 from 12.0% for the nine months ended September
30, 1993, reflecting the continuing effects of cost reduction initiatives
implemented during 1992 and 1993 and improved manufacturing efficiency and
increased absorption of fixed costs due to higher levels of production as a
result of increased sales.
Engineering, Selling and Administrative Expenses
Engineering, selling and administrative expenses decreased to $57.6 million for
the nine months ended September 30, 1994 from $62.6 million for the nine months
ended September 30, 1994 as a result of cost reduction initiatives throughout
the Company. Material Handling Segment engineering, selling and administrative
expenses totaled $35.3 million for the nine months ended September 30, 1994
compared to $37.5 million for the prior year's period. Heavy Equipment Segment
engineering, selling and administrative expenses decreased to $20.2 million for
the nine months ended September 30, 1994 from $22.5 million for the prior
year's period. Corporate administrative expense in 1994 includes a charge of
$2.2 million in connection with the termination of the Company's management
contract with KCS Industries, L.P. ("KCS"), a Connecticut limited partnership
principally owned by certain officers of the Company. Charges under such
contract would have totaled approximately $2.7 million for the nine months
ended September 30, 1994, and would have continued at such rate until at least
June 30, 1995.
Severance Charge
During the second quarter of 1994, the Company recorded a charge of $4.5
million principally related to severance costs in the Material Handling
Segment's North American and European operations. In June 1994, the Company
announced personnel reductions in plant supervision, engineering, marketing and
administration totaling approximately 160 employees, of which approximately 39%
were effective in July 1994 with the remainder to be effective before the end
of 1994. The Company is also reorganizing certain marketing activities and
closing several of its regional sales offices in the United States. The $4.5
million charge represents severance costs associated with these actions. When
fully implemented, the Company expects that these actions will reduce operating
expenses in the Material Handling Segment by approximately $9 million annually.
Income (Loss) from Operations
The Material Handling Segment incurred a loss from operations of $10.7 million,
excluding the severance charge discussed above, for the nine months ended
September 30, 1994 ($15.0 million including the severance charge) compared to a
loss of $17.9 million for the nine months ending September 30, 1993. As
discussed above, the decreases in sales and gross profit in the opening months
of 1994 reflect the difficulties in restoring full production due to supplier
problems. Management expects that the Material Handling Segment will continue
the improvements in the level of production made during the second and third
quarters for the remainder of 1994. Because of the production improvements and
the reduced operating expenses resulting from the restructuring actions
described above, management expects continued improvement in the Material
Handling Segment's income from operations for the remainder of 1994.
Heavy Equipment Segment income from operations improved by $12.0 million to
$14.2 million of net income for the nine months ended September 30, 1994
compared to $2.2 million income 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 nine months
ended September 30, 1994. The losses at Koehring experienced during 1993 have
been reversed as a result of continuing cost reductions, improvements in
inventory management and consolidation of model offerings.
On a consolidated basis, the Company experienced operating income of $1.6
million, excluding the severance charge discussed above, for the nine months
ended September 30, 1994 ($2.9 million loss including the severance charge)
compared to an operating loss of $18.3 million for the prior year's period.
Other Income (Expense)
As described in Note B -- "Accounting for Investement in Fruehauf" 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. The Company recognized a
loss on its investment in Fruehauf of $0.7 million for the nine months ended
September 30, 1993. In the first nine months of 1994, the Company sold an
aggregate of 5,400,000 shares of Fruehauf common stock and realized a gain
totaling $24.4 million in the nine months ended September 30, 1994.
As described in Note G -- "Liquidity and Financing," in April 1994 the Company
sold 100% of the stock of Drexel Industries, Inc. ("Drexel"). The Company
realized a gain on the transaction of $4.7 million ($4.2 million net of taxes)
in the second quarter of 1994.
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. The provision in 1994 also includes $0.5
million provision for state taxes on the sale of Drexel.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by investing activities of $27.4 million during the nine
months ended September 30, 1994 principally resulted from the sale of Fruehauf
common stock and proceeds from the sale of the Drexel business, offset by cash
used to finance capital expenditures. Proceeds from the sale of Fruehauf
common stock were approximately $25.0 million, reflecting sales of 5,400,000
shares in February through September 1994 for approximately $24.4 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 nine months ended September 30, 1994 were $9.9
million.
Net cash of $17.8 million was used in operating activities during the nine
months ended September 30, 1994, principally to fund operating losses and
interest payments.
Net cash used by financing activities of $16.5 million during the nine months
ended September 30, 1994 resulted from the principal repayment of debt offset
by borrowings of $11.9 million under the Lending Facility entered into during
1993. Payments of debt during the nine months ended September 30, 1994
included $13.8 million for repurchases of Senior Secured Notes, an $8.3 million
sinking fund payment of Subordinated Notes, and the repayment of a $6.1 million
note due in July 1994.
The balance outstanding under the Lending Facility was $21.6 million as of
September 30, 1994, and the additional amount the Company could have borrowed
was $1.4 million as of that date. The balance discounted under the credit
facility of the Company's primary overseas manufacturing operations was $16.2
million at September 30, 1994, the maximum amount that could have been
discounted as of that date.
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 Covenants. 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 Covenants 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 Covenants. If the Company were not to be in compliance
with such covenants, there could result a material adverse impact on the
Company and its financial position.
The Company was in compliance with the Net Worth Covenants and the
Collateral Covenants at September 30, 1994. The Company believes that, based
on management's current estimates, it will be in compliance with its covenants
with respect to the Senior Secured Notes and Subordinated Notes over the next
twelve months. As described below, the Company has taken actions to maintain
compliance with the Net Worth Covenants and Collateral Covenants, including the
sale of its Drexel subsidiary, shares of Fruehauf common stock and other
assets, and plans to take additional actions, if needed, to continue in
compliance.
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.
Cash and cash equivalents totaled $2.8 million and $9.2 million at September
30, 1994 and December 31, 1993, respectively. Cash securing letters of credit
represents the amount required to cash collateralize letters of credit and
performance bonds issued for various business purposes and is not fully
available for use in the Company's operations. At September 30, 1994 and
December 31, 1993 the unexpired letters of credit were cash collateralized by a
total of $7.0 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 taken and to be taken in 1994
The Company experienced significant operating losses in the first quarter of
1994. Results have improved in the second and third quarters of 1994 and the
Company has taken significant actions to reduce its overall cost structure and
improve liquidity. Management believes that the Company's lending facilities,
together with the additional financing and cash generating activities described
below, will allow the Company to meet its operating payment obligations,
including payments to vendors, on a timely basis and to meet its scheduled
interest and principal repayment requirements as they come due.
The Company sold 1,000,000 shares of Fruehauf common stock for aggregate
proceeds of $3.0 million in December 1993 and 5,400,000 shares of Fruehauf
common stock for aggregate proceeds of $24.4 million during the first nine
months of 1994. The Company repurchased $3.0 million of the Senior Secured
Notes in May 1994, $4.8 million of the Senior Secured Notes in June 1994 and
$6.0 million of the Senior Secured Notes in September 1994, pursuant to the
indenture for the Senior Secured Notes, and has made a similar offer to
repurchase a total of $13.6 million of the Senior Secured Notes in the fourth
quarter of 1994.
In addition to such offers to repurchase, the Company repaid approximately $8.3
million in May 1994 for a required sinking fund payment on the Subordinated
Notes and paid $6.1 million in May 1994 on the maturity of the note issued to
the seller in connection with the CMH Acquisition. The Company has also paid
approximately $27.2 million of interest on the Senior Secured Notes,
Subordinated Notes and the Lending Facility as of November 1, 1994. Interest
payment requirements for the remainder of 1994 are approximately $0.6 million.
Concurrent with the infusion of working capital into the Company from its
private placement of preferred stock and warrants to purchase common stock in
December 1993, CMH entered into agreements with approximately 225 of its
vendors to freeze the balances due such vendors as of November 1993 (totaling
approximately $12.9 million) and establish normal credit terms for new
purchases. CMH agreed to pay the frozen balances in monthly installments for
periods of up to twelve months from December 1993 through November 1994 and to
make an additional payment equivalent to 1/12 of the frozen balance to certain
vendors in December 1994. Through November 1, 1994, CMH paid approximately
$12.0 million to vendors under these agreements, and the Company expects to
fund the remaining payments (approximately $1.9 million including the
additional payment) in the ordinary course of business.
On April 15, 1994, the Company completed the sale of 100% of the stock of its
Drexel subsidiary, a non-strategic business, pursuant to an agreement to sell
entered into in March 1994, for total proceeds of $12.5 million, of which $12.2
million was in cash and $0.3 million 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, and recognized a gain of approximately $4.2 million, net of
taxes, as a result of the sale. The Company has reinvested the net proceeds of
the sale of Drexel in the Company's business.
In June 1994, the Company announced personnel reductions in plant supervision,
engineering, marketing and administration totaling approximately 160 employees
in the Material Handling Segment's North American and European operations, of
which approximately 39% were effective in July 1994 with the remainder to be
effective before the end of 1994. The Company is also reorganizing certain
marketing activities and closing several of its regional sales offices in the
United States The Company recorded a $4.5 million charge in the second quarter
of 1994 for severance costs associated with these actions. When fully
implemented, the Company expects that these actions will reduce operating
expenses in the Material Handling Segment by approximately $9 million annually.
The Company is also generating cash by selling certain real estate and other
assets and continuing corporate wide cost containment efforts.
On October 19, 1994, the Company announced plans for the sale of its Koehring
Cranes and Mark Industries divisions (collectively, "Koehring") to a new
venture (see Note I - Subsequent Events). Koehring's net sales and income from
operations totaled $66.9 million and $5.5 million, respectively, for the nine
months ended September 30, 1994. Upon closing, Terex will receive $30 million
in cash for the Koehring. The Company expects to use the $30 million cash
proceeds from the sale to reduce the level of long term debt. This reduction
in long term debt would result in a corresponding $4 million annual reduction
of interest expense. Management expects that the lower level of debt will also
greatly assist in refinancing the Company's long-term debt during 1995.
It is anticipated the new venture will also purchase the worldwide mobile crane
and container stacker businesses from Legris Industries, S.A. The purchase of
the Legris businesses and Koehring by the new venture is expected to be
completed in December 1994 subject to the new venture obtaining regulatory
approvals. Financing for the new venture is expected to be provided from a
variety of sources outside of Terex. After completion of this transaction the
Company will own, through a subsidiary, a 40% equity participation in the new
venture. The Company will have an option to increase its holdings to become a
majority shareholder at a future date. The Company expects to account for its
40% participation in the results of the new venture on the equity method.
On November 2, 1994, the Company closed a sale-leaseback transaction for the
Material Handling Segment's parts distribution center in Germany. The Company
received proceeds of 16.5 million German marks ($11.0 million) and will lease
the facility under the terms of a five year lease for a total rental of 2.9
million German marks ($1.9 million) per year. This property was collateral for
the Senior Secured Notes and the Subordinated Notes and, pursuant to the
indenture for the Senior Secured Notes, the Company will make an offer to
repurchase approximately $11 million of the Senior Secured Notes in the second
quarter of 1995, resulting in a $1.4 million additional annual reduction of
interest expense.
CONTINGENCIES AND UNCERTAINTIES
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, and is directly liable for remedial costs at a number
of other locations. If Fruehauf fails to discharge its environmental
obligations, to the extent that such liabilities arose during the time period
during which Terex was the controlling stockholder of Fruehauf, Terex might be
contingently liable for such obligations. The Company believes, however, 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.
As a result of the introduction of the Material Handling Segment's new line of
internal combustion lift trucks, planned for the fourth quarter of 1994, the
Material Handling Segment's subsidiary in Korea will no longer be strategic to
the Company's business. Management is evaluating a number of alternatives with
respect to the Korean operations, including sale or discontinuance of the
operations, and the Company may realize a loss as a result of such actions.
The amount of such loss cannot presently be estimated because the course of
action has not been determined.
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 LLP, have advised
the Company that they are unable to issue an accountants' report on the
Company's consolidated financial statements for inclusion in Form 10-K until an
accountants' report on the Company's consolidated financial statements for
inclusion in such Form 10-K an accountants' report on the consolidated
financial statements of the Company and its subsidiaries is reissued for the
year ended December 31, 1991. Deloitte & Touche LLP are the auditors of record
for such year. As a result of the anticipated restatement of the financial
statements of Fruehauf, formerly a consolidated subsidiary of the Company, the
Company expects that its consolidated financial statements for the year ended
December 31, 1991 will be required to be restated to reflect any changes
necessitated by the restatement of the Fruehauf financial statements. Deloitte
& Touche has not agreed to report on Terex's 1991 restated financial
statements. The Company is endeavoring to have Deloitte & Touche reissue its
report on any such restated financial statements for the year. However, the
Company cannot predict whether its efforts with Deloitte & Touche will be
successful or whether it will be able to issue audited restated 1991 financial
statements in the near future. In their previously issued opinion on the
Company's consolidated financial statements for December 31, 1992, Price
Waterhouse indicated that there are matters, including recurring losses from
operations and a net capital deficiency, which raised substantial doubt about
the Company's ability to continue as a going concern. During 1993, the Company
entered into the Lending Facility, which currently provides up to $25.0 million
in revolving credit loans and guarantees of letters of credit, and has arranged
similar financing for overseas operations. The Company also completed a
private placement of preferred stock and warrants to purchase common stock in
December 1993, which provided aggregate net proceeds to the Company of $27.2
million for working capital. The Company is also generating cash by 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. The Company also sold 5,400,000 shares of
Fruehauf common stock for aggregate proceeds of $24.4 million during the first
nine months of 1994. 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.
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits have been filed as part of this Form 10-Q:
Exhibit No.
11.1 Computation of earnings per share
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended
September 30, 1994.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TEREX CORPORATION
(Registrant)
Date November 10, 1994 /s/ Ralph T. Brandifino
Ralph T. Brandifino
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date November 10, 1994 /s/ Richard L. Evans
Richard L. Evans, Controller
(Principal Accounting Officer)
EXHIBIT INDEX
Exhibit No. Page No.
11.1 Computation of earnings per share 23
27 Financial data schedule