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 March 31, 1995
[ ] 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 [X] NO [ ]
Number of outstanding shares of common stock: 10,314,217 as of March 31, 1995.
The Exhibit Index appears on page 15.
INDEX
TEREX CORPORATION AND SUBSIDIARIES
Page No.
PART I FINANCIAL INFORMATION
Item 1 Condensed Consolidated Financial Statements
Condensed Consolidated Statements of Operations --
Three months ended March 31, 1995 and 1994 3
Condensed Consolidated Balance Sheets --
March 31, 1995 and December 31, 1994 4
Condensed Consolidated Statements of Cash Flows --
Three months ended March 31, 1995 and 1994 5
Notes to Condensed Consolidated Financial Statements --
March 31, 1995 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II OTHER INFORMATION
Item 1 Legal Proceedings 13
Item 6 Exhibits and Reports on Form 8-K 13
SIGNATURES 14
PART 1. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
For the Three Months
Ended March 31,
1995 1994
Net sales $ 214,076 $ 168,038
Cost of goods sold 192,864 152,860
Gross profit 21,212 15,178
Engineering, selling and
administrative expenses:
Third parties 15,210 20,203
Related parties --- 2,245
Total engineering, selling and
administrative expenses 15,210 22,448
Income (loss) from operations 6,002 (7,270)
Other income (expense):
Interest income 331 191
Interest expense (7,000) (7,551)
Gain on sale of Fruehauf stock 1,032 4,620
Gain (loss) on sale of property,
plant and equipment 46 (60)
Amortization of debt issuance costs (477) (620)
Other income (expense) (1,769) (116)
Loss before income taxes (1,835) (10,806)
Provision for income taxes (50) (18)
Net Loss $ (1,885) $ (10,824)
Less preferred stock accretion (1,729) (1,380)
Loss applicable to common stock $ (3,614) $ (12,204)
Net loss per common and common
equivalent share $ (0.35) $ (1.18)
Weighted average common shares outstanding
including dilutive securities
(See Exhibit 11.1) 10,310 10,303
The accompanying notes are an integral part of these financial statements.
TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31, December 31,
1995 1994
ASSETS
Current assets
Cash and cash equivalents $ 11,699 $ 9,727
Cash securing letters of credit 4,199 6,688
Trade receivables (less allowance of
$5,704 at March 31 and
$6,114 at December 31) 85,898 91,717
Net inventories 181,716 164,245
Other current assets 4,128 5,775
Total current assets 287,640 278,152
Property, plant and equipment - net 88,991 86,160
Debt issuance costs and
intangible assets - net 8,347 8,604
Other assets 27,304 28,700
Total assets $ 412,282 $ 401,616
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities
Notes payable $ 1,091 $ 2,078
Current portion of long-term debt 25,899 25,806
Trade accounts payable 127,075 112,213
Accrued compensation and benefits 10,672 10,823
Accrued warranties and product liability 28,598 27,629
Accrued interest 3,836 8,969
Accrued income taxes 1,145 1,328
Other current liabilities 27,399 32,732
Total current liabilities 225,715 221,578
Long-term debt less current portion 165,096 162,987
Accrued warranties and
product liability - long-term 33,211 31,846
Accrued pension 18,362 16,456
Other long-term liabilities 7,536 7,225
Redeemable convertible preferred stock
(liquidation preference $37,810 at March 31
and $36,578 at December 31) 18,991 17,262
Commitments and contingencies (Note E)
Stockholders' investment
Warrants to purchase common stock 17,495 17,564
Common stock, $.01 par value -
authorized 30,000,000 shares;
issued and outstanding 10,314 at March 31
and 10,303 at December 31 103 103
Additional paid-in capital 40,197 40,127
Accumulated deficit (112,009) (108,395)
Pension liability adjustment (1,778) (1,778)
Unrealized holding gain on
equity securities --- 1,825
Cumulative translation adjustment (637) (5,184)
Total stockholders' investment (56,629) (55,738)
Total liabilities and
stockholders' investment $ 412,282 $ 401,616
The accompanying notes are an integral part of these financial statements.
TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Three Months
Ended March 31,
1995 1994
OPERATING ACTIVITIES
Net loss $ (1,885) $ (10,824)
Adjustments to reconcile net loss to
cash flows from operating activities:
Depreciation 3,926 3,242
Amortization 791 944
(Gain) loss on sale of property,
plant and equipment (46) 60
Gain on sale of Fruehauf stock (1,032) (4,620)
Other 277 (48)
Changes in operating assets and liabilities:
Restricted cash 2,489 2,176
Trade receivables 7,463 (4,620)
Net inventories (16,279) 5,694
Trade accounts payable 12,791 (201)
Accrued interest (4,851) (5,693)
Other (4,131) 1,221
Net cash used in operating activities (487) (12,669)
INVESTING ACTIVITIES
Capital expenditures, net of dispositions (1,885) (5,117)
Proceeds from sale of property,
plant and equipment 463 106
Proceeds from sale of Fruehauf stock 2,714 5,175
Other (115) 1,025
Net cash from (used in)
investing activities 1,177 1,189
FINANCING ACTIVITIES
Net borrowings under revolving line
of credit agreements 508 5,764
Other (633) 354
Net cash from financing activities (125) 6,118
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS 1,407 61
NET DECREASE IN CASH AND CASH EQUIVALENTS 1,972 (5,301)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 9,727 9,183
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 11,699 $ 3,882
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, 1995
NOTE A -- BASIS OF PRESENTATION
Basis of Presentation. The accompanying condensed consolidated financial
statements of Terex Corporation and subsidiaries as of March 31, 1995 and for
the three months ended March 31, 1995 and 1994 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, 1994, has been derived from the
audited 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 material intercompany balances, transactions and profits have been
eliminated. The equity method is used to account for investments in affiliates
in which the Company has an ownership interest between 20% and 50%.
Investments in affiliates in which the Company has an ownership interest of
less than 20% are accounted for on the cost method or at fair value in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
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. Operating results for the three months ended March
31, 1995 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1995. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1994.
NOTE B -- SUBSEQUENT EVENTS - REFINANCING AND ACQUISITION
On May 9, 1995, the Company completed the refinancing of substantially all of
its outstanding debt (the "Refinancing") and, through Terex Cranes, Inc.
("Terex Cranes"), a newly formed subsidiary, completed the acquisition of
substantially all of the outstanding stock of P.P.M., S.A and Legris
Industries, Inc. (together, "PPM") (the "Acquisition"). The Refinancing
included the private placement to institutional investors of $250 million of
13.25% Senior Secured Notes due May 15, 2002 (the "New Senior Secured Notes"),
repayment of the Company's existing Senior Secured Notes and Senior
Subordinated Notes, totaling approximately $152.6 million principal amount, and
entry into a New Credit Facility to replace the Company's existing lending
facility in the U. S. In connection with the issuance of the New Senior
Secured Notes, the Company issued 1,000,000 stock appreciation rights ("SAR")
entitling the holders to receive cash or Terex Corporation common stock, at the
option of the Company, in an amount equal to the average closing sale price of
the common stock for 60 trading days prior to the date of exercise less $7.288
for each SAR.
Approximately $92.6 million of the proceeds of the New Senior Secured Notes was
used for the Acquisition of PPM. The remainder of the purchase price consisted
of the issuance of redeemable preferred stock of Terex Cranes having an
aggregate liquidation preference of 127 million French francs (approximately
$25.9 million), subject to adjustment. The purchase price is subject to
adjustment calculated by reference to the consolidated net asset value of PPM
as determined by an audit as of the date of closing. PPM designs, manufactures
and markets mobile cranes and container stackers primarily in North America and
Western Europe. PPM had sales of approximately $153 million in 1994.
The Company's New Credit Facility provides that the Company will be able to
borrow (in the form of revolving loans and up to $15 million in outstanding
letters of credit) up to $100 million, subject to borrowing base limitations
and subject to participation commitments to be obtained from additional
lenders. The New Credit Facility will be secured by substantially all of the
Company's domestic receivables and inventory (including PPM). The amount of
borrowings is limited to the sum of the following: (i) 75% of the net amount
of eligible receivables, as defined, of the Company's U.S. businesses other
than Clark Material Handling Company ("CMHC"), plus (ii) 70% of the net amount
of CMHC eligible receivables, plus (iii) the lesser of 45% of the value of
eligible inventory, as defined, or 80% of the appraised orderly liquidation
value of eligible inventory, less (iv) any availability reserves established by
the lenders. The New Credit Facility expires May 9, 1998 unless extended by
the lenders for one additional year. At the option of the Company, revolving
loans may be in the form of prime rate loans bearing interest at the rate of
1.75% per annum in excess of the prime rate and eurodollar rate loans bearing
interest at the rate of 3.75% per annum in excess of the adjusted eurodollar
rate.
The Company's long-term debt as of March 31, 1995 and pro forma long-term debt
giving effect to the Refinancing is summarized as follows:
Pro forma
March 31, March 31,
1995 1995
Senior Secured Notes bearing interest
at 13 1/4% due May 15, 2002
($250,000 principal amount) $ --- $ 246,800
Lending facility maturing May 9, 1998 --- 43,034
Senior Secured Notes bearing interest
at 13%, due August 1, 1996 127,281 ---
Secured Senior Subordinated Notes
bearing interest at 13.5% due July 1, 1997 24,605 ---
Lending Facility maturing August 24, 1997 25,674 ---
Secured term note bearing interest
at 9.0% payable in equal semiannual
installments from August 1994 to
February 1998 608 608
Capital lease obligations and other 12,827 12,827
Total long-term debt 190,995 303,269
Current portion of long-term debt 25,899 2,711
Long-term debt, less current portion $ 165,096 $ 300,558
NOTE C -- INVENTORIES
Net inventories consist of the following:
March 31, December 31,
1995 1994
Finished Equipment $ 30,913 $ 26,812
Replacement parts 73,474 68,932
Work-in-process 15,143 13,520
Raw materials and supplies 65,099 57,894
184,629 167,158
Less: Excess of FIFO inventory value
over LIFO cost (2,913) (2,913)
Net inventories $ 181,716 $ 164,245
NOTE D -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
March 31, December 31,
1995 1994
Property $ 9,305 $ 8,335
Plant 34,147 32,249
Equipment 86,948 83,419
130,400 124,003
Less: Accumulated depreciation (41,409) (37,843)
Net property, plant and equipment $ 88,991 $ 86,160
NOTE E -- LITIGATION AND CONTINGENCIES
In December 1992, a Class Action complaint was filed against Fruehauf Trailer
Corporation ("Fruehauf," a former subsidiary of the Company), the Company,
certain of Fruehauf's then officers and directors and certain of the
underwriters of the initial public offering of Fruehauf, 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.
The Company has reached an agreement in principle with the plaintiffs to settle
this litigation, and has recorded a provision of $250 in the quarter ended
March 31, 1995.
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.
The Internal Revenue Service is currently examining the Company's federal tax
returns for the years 1987 through 1989. In December 1994, the Company
received an examination report from the IRS proposing a substantial tax
deficiency based on this examination. The examination report raises a variety
of issues, including the Company's substantiation for certain deductions taken
during this period, the Company's utilization of certain net operating loss
carryovers ("NOL's") and the availability of such NOL's to offset future
taxable income. If the IRS were to prevail on all the issues raised, the
amount of the tax assessment would be approximately $56 million plus interest
and penalties. If the Company were required to pay a significant amount to
resolve such assessment, it would have a material adverse impact on the Company
and could exceed the Company's resources. The Company has filed its
administrative appeal to the examination report. Although management believes
that the Company will be able to provide adequate documentation for a
substantial portion of the deductions questioned by the IRS and that there is
substantial support for the Company's past and future utilization of the NOL's,
the ultimate outcome of this matter is subject to significant legal and factual
issues. If the Company's positions are upheld, management believes that the
amounts due would not exceed amounts previously paid or provided; however, the
Company's NOL's could be reduced. No additional accruals have been made for
any amounts which might be due as a result of this matter because the possible
loss ranges from zero to $56 million plus interest and penalties and the
ultimate outcome cannot presently be determined.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Quarter Ended March 31, 1995
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, 1995 and 1994.
Three Months Ended
March 31, Increase
1995 1994 (Decrease)
(in millions of dollars)
NET SALES
Material Handling $ 133.9 $ 90.9 $ 43.0
Heavy Equipment 80.7 78.0 2.7
Eliminations (0.5) (0.9) 0.4
Total $ 214.1 $ 168.0 $ 46.1
GROSS PROFIT
Material Handling $ 9.2 $ 4.0 $ 5.2
Heavy Equipment 12.0 11.2 0.8
Total $ 21.2 $ 15.2 $ 6.0
ENGINEERING, SELLING
AND ADMINISTRATIVE EXPENSES
Material Handling $ 8.5 $ 13.0 $ (4.5)
Heavy Equipment 6.9 7.4 (0.5)
General/Corporate (0.2) 2.1 (2.3)
Total $ 15.2 $ 22.5 $ (7.3)
INCOME (LOSS) FROM OPERATIONS
Material Handling $ 0.7 $ (9.0) $ 9.7
Heavy Equipment 5.1 3.8 1.3
General/Corporate 0.2 (2.1) 2.3
Total $ 6.0 $ (7.3) $ 13.3
Net Sales
Sales increased $46.1 million, or approximately 27%, for the three months
ended March 31, 1995 over the comparable 1994 period.
Material Handling Segment sales were $133.9 million for the three months ended
March 31, 1995, an increase of $43.0 million from $90.9 million in the year
earlier period. The sales mix was approximately 17% parts in the three months
ended March 31, 1995 compared to 21% in the comparable 1994 period. Machine
sales increased 56%, primarily because of increased output resulting from
reorganization of work flows and other actions taken by management during 1994
and continued strong industry demand. Machine sales in the first quarter of
1994 were adversely affected by lack of supplies and materials caused primarily
by liquidity constraints. Parts sales increased 15% because of improved parts
inventory availability, but were adversely affected by a labor strike at the
Company's parts distribution center. During January and February, above
average absenteeism and below average productivity resulted in lower shipment
rates. During March, the Company staffed the parts distribution center with
replacement workers and March sales volume reached normal levels. Management
believes that the strike will not have a material continuing effect on parts
sales.
Material Handling Segment bookings for the three months ended March 31, 1995
were $140.0 million, an increase of $33.4 million, or 31%, from the year
earlier period, as customer demand, especially in North America, continued to
be strong. Bookings for parts sales for the three months ended March 31, 1995,
from which the Company generally realized higher margins than machine sales,
decreased 2% from the year earlier period. Machine order bookings for the
three months ended March 31, 1995 increased 40% from the year earlier period,
reflecting the favorable acceptance of the Company's new Genesis line of IC
trucks, introduced in December 1994. Material Handling Segment backlog was
$141.9 million at March 31, 1995 compared to $135.9 million at December 31,
1994 and $168.3 million at March 31, 1994.
Heavy Equipment Segment sales increased $2.7 million for the three months
ended March 31, 1995 from the three months ended March 31, 1994. Machines
sales decreased 1%, offset by a parts sales increase of 17%. The sales mix was
approximately 34% parts for the three months ended March 31, 1995 compared to
30% parts for the comparable 1994 period. Heavy Equipment Segment parts sales
were also adversely affected by the strike at the parts distribution center, to
a lesser degree than the Material Handling Segment.
Heavy Equipment Segment bookings for the three months ended March 31, 1995 were
$65.2 million, an increase of $1.1 million, or 2%, from the year earlier
period. Bookings for parts sales, from which the Company generally realizes
higher margins than machine sales, increased 21% from the three months ended
March 31, 1994. Machine bookings for the three months ended March 31, 1995
decreased 10% from the comparable 1994 period. Heavy Equipment Segment backlog
was $64.2 million at March 31, 1995 compared to $79.5 million at December 31,
1994 and $67.0 million at March 31, 1994.
Gross Profit
Gross profit for the three months ended March 31, 1995 increased $6.0 million
compared to the three months ended March 31, 1994.
The Material Handling Segment's gross profit increased $5.2 million to $9.2
million for the three months ended March 31, 1994 compared to $4.0 million for
the prior year's period. The gross profit percentage in the Material Handling
Segment increased to 6.9% for the three months ended March 31, 1995 from 4.4%
for the comparable 1994 period reflecting increased efficiencies due to higher
production and sales volumes and the effects of severance actions taken by
management during the second half of 1994 to reduce costs. However, this was
partially offset by additional costs associated with the start-up of production
of the new Genesis product line. In January, the Company completed the
retooling of the IC production line in Lexington and began full scale
production of the Genesis models; production returned to normal levels during
February. The Company incurred greater than normal overtime costs during this
start-up period.
The Heavy Equipment Segment's gross profit increased $0.8 million to $12.0
million for the three months ended March 31, 1995 compared to $11.2 million
for the comparable 1994 period. The gross profit percentage in the Heavy
Equipment Segment increased to 14.9% for the three months ended March 31, 1995
from 14.4% for the three months ended March 31, 1994, reflecting continuing
improvements in manufacturing efficiency.
Engineering, Selling and Administrative Expenses
Engineering, selling and administrative expenses decreased to $15.2 million
for the three months ended March 31, 1995 from $22.5 million for the three
months ended March 31, 1994. Material Handling Segment engineering, selling
and administrative expenses decreased to $8.5 million for the three months
ended March 31, 1995 from to $13.0 million for the comparable 1994 period,
primarily as a result of severance actions taken by management during the
second half of 1994. Heavy Equipment Segment engineering, selling and
administrative expenses decreased to $6.9 million for the three months ended
March 31, 1995 from $7.4 million for the comparable 1994 period. Corporate
administrative expenses in 1994 included a charge of $2.2 million in connection
with the proposed termination of the Company's management contract with KCS
Industries, a related party.
Income (Loss) from Operations
The Material Handling Segment income from operations of $0.7 million for the
three months ended March 31, 1995 represents a $9.7 million improvement over
the $9.0 million loss in the comparable 1994 period. As discussed above,
increased sales and reduced costs contributed to the improvement in income from
operations for the three months ended March 31, 1995.
Heavy Equipment Segment income from operations improved by $1.3 million to
$5.1 million for the three months ended March 31, 1995 from $3.8 million in
the comparable 1994 period, primarily as a result of reduced costs. All of the
businesses comprising the Heavy Equipment Segment reported income from
operations for the three months ended March 31, 1995.
On a consolidated basis, the Company realized operating income of $6.0 million
for the three months ended March 31, 1995, compared to an operating loss of
$7.3 million for the comparable 1994 period.
Other Income (Expense)
Interest expense decreased to $7.0 million for the three months ended March 31,
1995 from $7.6 million in the comparable 1994 period as a result of repayments
of senior and subordinated debt during 1994. The Company realized gains of
$1.0 million and $4.6 million in the three months ended March 31, 1995 and
1994, respectively, from the sale of shares of Fruehauf common stock. The
Company no longer owns any Fruehauf common stock. Foreign currency transaction
losses were $1.4 million in the three months ended March 31, 1995 compared to
gains of $0.1 million in the comparable 1994 period. The Company recorded a
provision of $0.25 million in the three months ended March 31, 1995 for the
proposed settlement of litigation as described in Part II -- Item 1 -- "Legal
Proceedings." 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
Net cash of $0.5 million was used in operating activities during the three
months ended March 31, 1995. Net cash provided by investing activities was
$1.2 million during the three months ended March 31, 1995. Proceeds from the
sale of the Company's remaining shares of Fruehauf common stock were $2.7
million. Capital expenditures were $1.9 million. Net cash used in financing
activities during the three months ended March 31, 1995 was $0.1 million. The
balance outstanding under the Company's domestic lending facility was
approximately $25.7 million as of March 31, 1995, and the additional amount the
Company could have borrowed was approximately $3.4 million at that date. Cash
and cash equivalents totaled $11.7 million at March 31, 1995.
Refinancing and Acquisition
On May 9, 1995, the Company completed the refinancing of substantially all of
its outstanding debt (the "Refinancing") and, through Terex Cranes, Inc.
("Terex Cranes"), a newly formed subsidiary, completed the acquisition of
substantially all of the outstanding stock of P.P.M., S.A and Legris
Industries, Inc. (together, "PPM") (the "Acquisition"). The Refinancing
included the private placement to institutional investors of $250 million of
13.25% Senior Secured Notes due May 15, 2002 (the "New Senior Secured Notes"),
repayment of the Company's existing Senior Secured Notes and Senior
Subordinated Notes, totaling approximately $152.6 million principal amount, and
entry into a New Credit Facility to replace the Company's existing lending
facility in the U. S. In connection with the issuance of the New Senior
Secured Notes, the Company issued 1,000,000 stock appreciation rights ("SAR")
entitling the holders to receive cash or Terex Corporation common stock, at the
option of the Company, in an amount equal to the average closing sale price of
the common stock for 60 trading days prior to the date of exercise less $7.288
for each SAR.
Approximately $92.6 million of the proceeds of the New Senior Secured Notes was
used for the Acquisition of PPM. The remainder of the purchase price consisted
of the issuance of redeemable preferred stock of Terex Cranes having an
aggregate liquidation preference of 127 million French francs (approximately
$25.9 million), subject to adjustment. The purchase price is subject to
adjustment calculated by reference to the consolidated net asset value of PPM
as determined by an audit as of the date of closing. PPM had sales of
approximately $153 million in 1994.
The Company's New Credit Facility provides that the Company will be able to
borrow (in the form of revolving loans and up to $15 million in outstanding
letters of credit) up to $100 million, subject to borrowing base limitations
and subject to participation commitments to be obtained from additional
lenders. The New Credit Facility will be secured by substantially all of the
Company's domestic receivables and inventory (including PPM). The amount of
borrowings is limited to the sum of the following: (i) 75% of the net amount
of eligible receivables, as defined, of the Company's U.S. businesses other
than Clark Material Handling Company ("CMHC"), plus (ii) 70% of the net amount
of CMHC eligible receivables, plus (iii) the lesser of 45% of the value of
eligible inventory, as defined, or 80% of the appraised orderly liquidation
value of eligible inventory less (iv) any availability reserves established by
the lenders. The New Credit Facility expires May 9, 1998 unless extended by
the lenders for one additional year. At the option of the Company, revolving
loans may be in the form of prime rate loans bearing interest at the rate of
1.75% per annum in excess of the prime rate and eurodollar rate loans bearing
interest at the rate of 3.75% per annum in excess of the adjusted eurodollar
rate.
Management believes that, together with cash generated from operations, the
Refinancing will provide the Company sufficient liquidity to meet the Company's
operating and debt service requirements for the foreseeable future. Management
intends, however, to seek additional working capital financing facilities for
the Company's international operations to provide additional liquidity
worldwide.
CONTINGENCIES AND UNCERTAINTIES
The Internal Revenue Service is currently examining the Company's federal tax
returns for the years 1987 through 1989. In December 1994, the Company
received an examination report from the IRS proposing a substantial tax
deficiency based on this examination. The examination report raises a variety
of issues, including the Company's substantiation for certain deductions taken
during this period, the Company's utilization of certain net operating loss
carryovers ("NOL's") and the availability of such NOL's to offset future
taxable income. If the IRS were to prevail on all the issues raised, the
amount of the tax assessment would be approximately $56 million plus interest
and penalties. If the Company were required to pay a significant amount to
resolve such assessment, it would have a material adverse impact on the Company
and could exceed the Company's resources. The Company has filed its
administrative appeal to the examination report. Although management believes
that the Company will be able to provide adequate documentation for a
substantial portion of the deductions questioned by the IRS and that there is
substantial support for the Company's past and future utilization of the NOL's,
the ultimate outcome of this matter is subject to significant legal and factual
issues. If the Company's positions are upheld, management believes that the
amounts due would not exceed amounts previously paid or provided; however, the
Company's NOL's could be reduced. No additional accruals have been made for
any amounts which might be due as a result of this matter because the possible
loss ranges from zero to $56 million plus interest and penalties and the
ultimate outcome cannot presently be determined.
The Securities and Exchange Commission (the "Commission") in March of 1994
initiated a private investigation, which included the Company, to determine
whether violations of certain aspects of the Federal securities laws have taken
place. The Company is cooperating with the Commission in its investigation and
it is not possible at this time to determine the outcome of the Commission's
investigation.
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.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
In December 1992, a Class Action complaint was filed against Fruehauf Trailer
Corporation ("Fruehauf," a former subsidiary of the Company), the Company,
certain of Fruehauf's then officers and directors and certain of the
underwriters of the initial public offering of Fruehauf, 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.
The Company has reached an agreement in principle with the plaintiffs to settle
this litigation, and has recorded a provision of $250,000 in the quarter ended
March 31, 1995.
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
27
Financial data schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended March 31, 1995.
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 May 15, 1995 /s/ Ralph T. Brandifino
Ralph T. Brandifino
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date May 15, 1995 /s/ Richard L. Evans
Richard L. Evans, Controller
(Principal Accounting Officer)
EXHIBIT INDEX
Exhibit No.
11.1 Amended Computation of Earnings per Share
27 Financial Data Schedule