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 June 30, 1996
|_| 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: 11.5 million as of June 30, 1996.
The Exhibit Index appears on page 19.
INDEX
TEREX CORPORATION AND SUBSIDIARIES
Page No.
PART I FINANCIAL INFORMATION
Item 1 Condensed Consolidated Financial Statements
Condensed Consolidated Statements of Operations --
Three months and six months ended June 30, 1996 and 1995...... 3
Condensed Consolidated Balance Sheets --
June 30, 1996 and December 31, 1995........................... 5
Condensed Consolidated Statements of Cash Flows --
Six months ended June 30, 1996 and 1995....................... 6
Notes to Condensed Consolidated Financial Statements --
June 30, 1996................................................. 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 10
PART II OTHER INFORMATION
Item 1 Legal Proceedings.................................................. 17
Item 5 Other Information.................................................. 17
Item 6 Exhibits and Reports on Form 8-K................................... 17
SIGNATURES.................................................................. 18
PART 1. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in millions, except per share data)
For the For the
Three Months Six Months
Ended Ended
June 30, June 30,
1996 1995 1996 1995
Net sales ..............................$ 182.8 $ 133.3 $ 356.0 $ 213.5
Cost of goods sold ..................... 155.8 115.7 305.6 183.9
Gross profit........................ 27.0 17.6 50.4 29.6
Engineering, selling and
administrative expenses............... 16.3 16.1 32.6 24.1
Income from operations.............. 10.7 1.5 17.8 5.5
Other income (expense):
Interest income..................... -- 0.2 0.1 0.5
Interest expense.................... (11.4) (9.3) (22.8) (16.0)
Amortization of debt
issuance costs.................... (0.7) (0.6) (1.3) (1.1)
Other income (expense) - net........ (0.3) (1.2) 1.8 (1.4)
Income (loss) from continuing
operations before income taxes
and extraordinary items (1.7) (9.4) (4.4) (12.5)
Provision for income taxes ............. -- -- -- --
Income (loss) from
continuing operations before
extraordinary items................... (1.7) (9.4) (4.4) (12.5)
Income (loss) from discontinued
operations............................ 6.2 (6.8) 9.4 (5.6)
Income (loss) before
extraordinary items................... 4.5 (16.2) 5.0 (18.1)
Extraordinary loss on retirement
of debt............................... -- (7.5) -- (7.5)
NET INCOME (LOSS) ...................... 4.5 (23.7) 5.0 (25.6)
Less preferred stock accretion ......... (1.9) (1.8) (3.8) (3.5)
Income (loss) applicable
to common stock ......................$ 2.6 $ (25.5) $ 1.2 $ (29.1)
The accompanying notes are an integral part of these financial statements.
TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in millions, except per share data)
PER COMMON AND COMMON EQUIVALENT SHARE:
Primary:
Income (loss) from
continuing operations ................. $ (0.26) $ (1.10) $ (0.66) $ (1.57)
Income (loss) from
discontinued operations ............... 0.44 (0.66) 0.76 (0.55)
Income (loss) before
extraordinary items ................... 0.18 (1.76) 0.10 (2.12)
Extraordinary items ..................... -- (0.72) -- (0.72)
Net income (loss) ....................... 0.18 (2.48) 0.10 (2.84)
Fully diluted:
Income (loss) from
continuing operations ................. (0.26) (1.10) (0.66) (1.57)
Income (loss) from
discontinued operations ............... 0.44 (0.66) 0.76 (0.55)
Income (loss) before
extraordinary items ................... 0.18 (1.76) 0.10 (2.12)
Extraordinary items ..................... -- (0.72) -- (0.72)
Net income (loss) ....................... 0.18 (2.48) 0.10 (2.84)
Weighted average common shares
outstanding including dilutive
securities (See Exhibit 11.1)
Primary ................................. 14.2 10.3 12.4 10.3
Fully diluted ........................... 14.2 10.3 12.4 10.3
The accompanying notes are an integral part of these financial statements.
TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(in millions)
June 30, December 31,
1996 1995
ASSETS
Current assets
Cash and cash equivalents ..................... $ 9.5 $ 7.8
Cash securing letters of credit ............... 3.5 7.7
Trade receivables (less allowance of
$5.6 at June 30, 1996 and
$9.8 at December 31, 1995) .................. 108.3 127.1
Customer deposit .............................. 1.0 19.1
Net inventories ............................... 180.3 249.3
Other current assets - net .................... 14.7 15.2
Total current assets ........................ 317.3 426.2
Long-term assets
Property, plant and equipment - net ........... 35.4 101.3
Goodwill - net ................................ 59.0 65.8
Other assets - net ............................ 23.1 33.6
Net assets of discontinued operations ......... 42.9 --
Total assets .................................... $ 477.7 $ 626.9
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Notes payable ................................. $ 7.2 $ 1.9
Current portion of long-term debt and
capital lease obligation .................... 5.4 7.2
Trade accounts payable ........................ 103.2 161.0
Accrued compensation and benefits ............. 14.0 16.8
Accrued warranties and product liability ...... 20.5 38.6
Accrued interest .............................. 4.4 4.7
Accrued income taxes .......................... 0.5 1.4
Customer deposit .............................. 1.0 19.1
Other current liabilities ..................... 32.1 44.0
Total current liabilities ................... 188.3 294.7
Long-term liabilities
Long-term debt and capital lease
obligations less current portion ............ 328.1 328.4
Accrued warranties and product
liability - long-term ....................... 1.7 33.1
Accrued pension ............................... 5.8 18.9
Other long-term liabilities ................... 13.6 16.6
Minority interest, including
redeemable preferred stock of a
subsidiary (liquidation preference
$24.7, subject to adjustment) ................. 9.4 9.4
Redeemable convertible preferred stock
(liquidation preference $43.1 at
June 30, 1996 and $41.2 at
December 31, 1995)............................. 27.6 24.6
Commitments and contingencies
Stockholders' deficit
Warrants to purchase common stock ............. 12.2 17.2
Common stock, $.01 par value -
authorized 30.0 shares;
issued and outstanding 11.5 at
June 30, 1996 and 10.6 at
December 31, 1995 ........................... 0.1 0.1
Additional paid-in capital .................... 46.4 40.5
Accumulated deficit............................ (149.8) (150.9)
Pension liability adjustment .................. (2.7) (2.7)
Unrealized holding gain on equity securities .. 0.2 1.0
Cumulative translation adjustment ............. (3.2) (4.0)
Total stockholders' deficit ................. (96.8) (98.8)
Total liabilities and stockholders' deficit ..... $ 477.7 $ 626.9
The accompanying notes are an integral part of these financial statements.
TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
For the Six Months
Ended June 30,
1996 1995
OPERATING ACTIVITIES
Net income (loss) ................................ $ 5.0 $ (25.8)
Adjustments to reconcile net income
(loss) to cash used in operating
activities:
Depreciation ................................... 4.3 8.4
Amortization ................................... 2.4 5.9
Gain on sale of property,
plant and equipment .......................... (2.4) (0.2)
Gain on sale of Fruehauf stock ................. -- (1.0)
Property impairment charge ..................... -- 3.0
Other .......................................... 0.4 0.3
Changes in operating assets and
liabilities:
Restricted cash .............................. 3.4 2.2
Trade receivables ............................ (22.9) (0.4)
Net inventories .............................. 0.5 (12.9)
Net assets of discontinued operations......... (1.1) --
Trade accounts payable ....................... 3.7 (6.5)
Accrued interest ............................. (0.4) (3.8)
Other, net ................................... (3.1) 6.7
Net cash used in operating activities ...... (10.2) (24.1)
INVESTING ACTIVITIES
Acquisition of businesses,
net of cash acquired ........................... -- (92.4)
Capital expenditures.............................. (1.3) (3.6)
Proceeds from sale of property,
plant and equipment ............................ 3.8 0.8
Proceeds from sale of Fruehauf stock ............. -- 2.7
Other ............................................ -- 0.2
Net cash provided by (used in)
investing activities ......................... 2.5 (92.3)
FINANCING ACTIVITIES
Net incremental borrowings under
revolving line of credit agreements............. 12.7 35.2
Principal repayments of long-term debt............ (1.0) (153.9)
Issuance of long-term debt,
net of issuance costs .......................... -- 239.8
Other............................................. (1.5) (0.5)
Net cash provided by (used in)
financing activities ......................... 10.2 120.6
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS ........................ -- (0.6)
NET INCREASE IN CASH AND CASH EQUIVALENTS .......... 2.5 3.6
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD ........................... 7.0 9.7
CASH AND CASH EQUIVALENTS AT END OF PERIOD ......... $ 9.5 $ 13.3
The accompanying notes are an integral part of these financial statements.
TEREX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, unless otherwise denoted)
June 30, 1996
NOTE A -- BASIS OF PRESENTATION
Basis Of Presentation. As set forth in Note B below, on July 25, 1996 the
Company announced the signing of a definitive agreement to sell its Material
Handling business for $135.0 in cash. Subject to the fulfillment of customary
closing conditions and regulatory clearances, closing of the sale is expected to
take place within ninety days of the announcement. The sale will result in a
gain which will be recognized in the period of the closing. The Material
Handling business is accounted for as a discontinued operation in the June 30,
1996 balance sheet, and in the statements of operations for the three and six
month periods ended June 30, 1996 and June 30, 1995.
Generally accepted accounting principles permit, but do not require, the
allocation of interest expense between continuing and discontinued operations.
Because the methods allowed under generally accepted accounting principles for
calculating interest expense to be allocated to discontinued operations are not
necessarily indicative of the use of proceeds from the sale of the Material
Handling business by the Company, and the effect on interest expense of the
continuing operations of the Company, the Company has elected not to allocate
interest expense to discontinued operations. The results of this election is
that loss from continuing operations includes substantially all of the interest
expense of the Company, and income from discontinued operations does not include
any material interest expense.
The assets and liabilities of the Material Handling business as of June 30, 1996
have been segregated in the balance sheet and are shown under "Net assets of
discontinued operations." In accordance with generally accepted accounting
principles, such segregation was not made in the December 31, 1995 balance
sheet.
The accompanying condensed consolidated financial statements of Terex
Corporation and subsidiaries as of June 30, 1996 and for the three and six
months ended June 30, 1996 and 1995 have been prepared in accordance with
generally accepted accounting principles for interim financial information and
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 to be included in full year financial statements.
The accompanying condensed consolidated balance sheet as of December 31, 1995,
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.
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. Certain 1995 amounts have been reclassified to conform with
the 1996 presentation. Operating results for the three and six months ended June
30, 1996 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1996. 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, 1995.
NOTE B -- DISCONTINUED OPERATIONS
On July 25, 1996 the Company signed a definitive agreement to sell its worldwide
Material Handling business ("CMHC") for $135.0 in cash. CMHC comprises the
Company's Material Handling Segment. The accompanying condensed consolidated
statement of operations for the three months and six months ended June 30, 1996
and 1995 include the results of CMHC in "Income (Loss) from Discontinued
Operations." Net assets of the discontinued operations at June 30, 1996 have
been segregated in the Condensed Consolidated Balance Sheet. Please refer to
Note A - Basis of Presentation for a discussion of allocation of interest
expense. Summary operating results of discontinued operations are as follows:
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
Net Sales ................................ $115.4 $136.1 $224.2 $270.1
Income (loss) before income taxes ........ 6.2 (6.8) 9.4 (5.5)
Provision for income taxes ............... -- -- -- 0.1
Income (loss) from discontinued operations 6.2 (6.8) 9.4 (5.6)
NOTE C -- INVENTORIES
Net inventories consist of the following:
June 30, December 31,
1996 1995
Finished equipment .................................. $ 46.4 $ 53.1
Replacement parts ................................... 56.7 94.5
Work-in-process ..................................... 18.2 26.0
Raw materials and supplies .......................... 61.6 78.9
182.9 252.5
Less: Excess of FIFO inventory value of LIFO cost ... (2.6) (3.2)
Net inventories ..................................... $ 180.3 $ 249.3
NOTE D -- PROPERTY, PLANT AND EQUIPMENT
Net property, plant and equipment consists of the following:
June 30, December 31,
1996 1995
Property, plant and equipment ................... $ 62.2 $ 153.9
Less: Accumulated depreciation .................. (26.8) (52.6)
Net property, plant and equipment ............... 35.4 $ 101.3
NOTE E -- LITIGATION AND CONTINGENCIES
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, including the
Comprehensive Environmental Response, Compensation and Liability Act, 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 plus interest and penalties. If the
Company were required to pay a significant portion of the assessment, it could
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 the
resolution of significant legal and factual issues. If the Company's positions
prevail on the most significant issues, management believes that the amounts due
would not exceed amounts previously paid or provided; however, even under such
circumstances, it is possible that the Company's NOL's could be reduced to some
extent. 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
plus interest and penalties and the ultimate outcome cannot presently be
determined or estimated. Additionally, if a change in control for tax purposes
were to occur, such a change in control could possibly result in a significant
reduction in the amount of NOL's available to the Company to offset future
taxable income.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
The Company operates in three industry segments: Material Handling, Terex
Trucks, and Terex Cranes. On July 25, 1996 the Company announced the signing of
a definitive agreement for the sale of its Material Handling business for $135
million in cash. Accordingly, the results of the Material Handling business are
classified as Income (Loss) from Discontinued Operations. The Terex Cranes
segment results for periods prior to May 1995 consist solely of Koehring's
operations. Subsequent to that date, Terex Cranes results include the results of
the PPM business acquired in May of 1995. Terex Trucks consists of the Terex
business and Unit Rig division.
Quarter Ended June 30, 1996
The table below is a comparison of net sales, gross profit, engineering, selling
and administrative expenses, and income (loss) from continuing operations, by
segment, and income (loss) from discontinued operations, for the three months
ended June 30, 1996 and 1995.
Three Months Ended
June 30, Increase
1996 1995 (Decrease)
(in millions of dollars)
NET SALES
Terex Trucks $ 82.0 $ 68.2 $ 13.8
Terex Cranes 101.0 65.4 35.6
Eliminations (0.2) (0.3) 0.1
Total $ 182.8 $133.3 $ 49.5
GROSS PROFIT
Terex Trucks $ 11.2 $ 8.6 $ 2.6
Terex Cranes 15.8 9.0 6.8
Eliminations --- --- ---
Total $ 27.0 $ 17.6 $ 9.4
ENGINEERING, SELLING AND ADMINISTRATIVE EXPENSES
Terex Trucks $ 6.1 $ 6.1 $ ---
Terex Cranes 9.0 7.8 1.2
General/Corporate 1.2 2.2 (1.0)
Total $ 16.3 $ 16.1 $ 0.2
INCOME (LOSS) FROM OPERATIONS
Terex Trucks $ 5.1 $ 2.5 $ 2.6
Terex Cranes 6.8 1.2 5.6
General/Corporate (1.2) (2.2) 1.0
Total $ 10.7 $ 1.5 $ 9.2
INCOME (LOSS) FROM DISCONTINUED OPERATIONS
Material Handling $ 6.2 $ (6.8) $ 13.0
Total $ 6.2 $ (6.8) $ 13.0
Net Sales
Sales increased $49.5 million, or approximately 37%, to $182.8 million for the
three months ended June 30, 1996 over the comparable 1995 period, reflecting the
acquisition of PPM Cranes in the second quarter of 1995, a strong sales quarter
for Terex Cranes overall, and increased revenue at Terex Trucks.
Terex Trucks sales increased $13.8 million to $82.0 million for the three months
ended June 30, 1996 from $68.2 million for the three months ended June 30, 1995.
Machines sales increased 19%, and parts sales increased 17%. The sales mix was
approximately 30% parts for the three months ended June 30, 1996 compared to 31%
parts for the comparable 1995 period.
Terex Trucks bookings for the three months ended June 30, 1996 were $54.3
million, an increase of $4.9 million, or 10%, from the year earlier period.
Bookings for parts sales, from which the Company generally realizes higher
margins than machine sales, increased $8.7 million from the three months ended
June 30, 1995. Machine bookings for the three months ended June 30, 1996
decreased $3.8 million from the comparable 1995 period. Backlog was $64.1
million at June 30, 1996 compared to $86.5 million at March 31, 1996 and $32.5
million at June 30, 1995.
Terex Cranes sales were $101.0 million for the three months ended June 30, 1996,
an increase of $35.6 million from $65.4 million in the year earlier period which
did not include the PPM business prior to its acquisition in May 1995. Terex
Cranes backlog was $58.1 million at June 30, 1996, compared to $59.8 million at
March 31, 1996 and $60.2 million at June 30, 1995. The increase in Terex Cranes
sales was due to the addition of the PPM business, growth in sales at the PPM
business, and continued strong performance by Koehring.
Gross Profit
Gross profit for the three months ended June 30, 1996 increased $9.4 million to
$27.0 million as compared to the three months ended June 30, 1995.
Terex Trucks gross profit increased $2.6 million to $11.2 million for the three
months ended June 30, 1996 compared to $8.6 million for the comparable 1995
period. The increase in gross profit was due to both the increased net sales and
an improved gross margin percentage. The gross margin percentage at Terex Trucks
increased to 13.7% for the three months ended June 30, 1996 from 12.6% for the
three months ended June 30, 1995.
Terex Cranes gross profit increased $6.8 million to $15.8 million for the three
months ended June 30, 1996, compared to $9.0 million for the prior year's
period, reflecting the PPM acquisition, the effect of cost reduction actions put
in place at PPM, and improved performance at Koehring.
Engineering, Selling and Administrative Expenses
Engineering, selling and administrative expenses increased slightly to $16.3
million for the three months ended June 30, 1996 from $16.1 million for the
three months ended June 30, 1995, reflecting the effects of the PPM acquisition
in May 1995 offset by reductions at the corporate level. Terex Trucks
engineering, selling and administrative expenses remained at $6.1 for the three
months ended June 30, 1996 as compared to the same period in 1995. Terex Cranes
engineering, selling and administrative expenses increased to $9.0 million for
the three months ended June 30, 1996 from $7.8 million for the comparable 1995
period, reflecting the PPM acquisition in May 1995, which was partially offset
by the effect of cost reduction actions put in place at PPM.
Income (Loss) from Operations
Terex Trucks income from operations increased by $2.6 million to $5.1 million
for the three months ended June 30, 1996 from $2.5 million in the comparable
1995 period, primarily due to the realization of increased revenues and improved
gross margin percentages, while maintaining the same level of engineering,
selling and administrative expenses.
Terex Cranes income from operations of $6.8 million for the three months ended
June 30, 1996 increased by $5.6 million over the comparable 1995 period,
primarily due to the effect of cost control initiatives implemented at PPM
during Terex's ownership of that business, and continued strong performance by
Koehring.
On a consolidated basis, the Company had operating income of $10.7 million for
the three months ended June 30, 1996, compared to operating income of $1.5
million for the comparable 1995 period, for the reasons mentioned above.
Other Income (Expense)
Interest expense increased to $11.4 million for the three months ended June 30,
1996 from $9.3 million in the comparable 1995 period as a result of incremental
borrowings associated with the PPM acquisition in May 1995. In 1995, the Company
recorded a charge of $0.5 to recognize the impairment in value of certain
properties held for sale.
Income (Loss) from Discontinued Operations
Income from discontinued operations in the Company's Material Handling Segment
increased $13.0 million to $6.2 million for the three months ended June 30, 1996
as compared to a loss of $6.8 million for the same period in 1995. The increased
income was primarily due to the success of the cost reduction programs put in
place in the latter half of 1995, as well as some improvements in pricing. As a
result, gross profit for the three months ended June 30, 1996 increased $5.1
million to $13.4 as compared to the same period in 1995 even though net sales
decreased $20.7 million or 15%. Additionally, in 1995 the Material Handling
Segment recorded charges of $6.0 million related to charges for severance costs,
exit costs and the impairment in value of certain properties held for sale.
Extraordinary Items
The Company recorded a charge of $7.5 million in 1995 to recognize a loss on the
early extinguishment of debt in connection with the refinancing of its debt and
the purchase of PPM in May 1995.
Six Months Ended June 30, 1996
The table below is a comparison of net sales, gross profit, engineering, selling
and administrative expenses, income (loss) from operations, and income (loss)
from discontinued operations, by segment, for the six months ended June 30, 1996
and 1995.
Six Months Ended
June 30, Increase
1996 1995 (Decrease)
(in millions of dollars)
NET SALES
Terex Trucks $ 152.9 $125.7 $ 27.2
Terex Cranes 203.5 88.6 114.9
Eliminations (0.4) (0.8) 0.4
Total $ 356.0 $213.5 $ 142.5
GROSS PROFIT
Terex Trucks $ 20.3 $ 17.3 $ 3.0
Terex Cranes 30.7 12.3 18.4
Eliminations (0.6) --- (0.6)
Total $ 50.4 $ 29.6 $ 20.8
ENGINEERING, SELLING AND ADMINISTRATIVE EXPENSES
Terex Trucks $ 12.3 $ 11.5 $ 0.8
Terex Cranes 17.7 9.3 8.4
General/Corporate 2.6 3.3 (0.7)
Total $ 32.6 $ 24.1 $ 8.5
INCOME (LOSS) FROM OPERATIONS
Terex Trucks $ 8.0 $ 5.8 $ 2.2
Terex Cranes 13.0 3.0 10.0
General/Corporate (3.2) (3.3) 0.1
Total $ 17.8 $ 5.5 $ 12.3
INCOME (LOSS) FROM DISCONTINUED OPERATIONS
Material Handling $ 9.4 $ (5.6) $ 15.0
Total $ 9.4 $ (5.6) $ 15.0
Net Sales
Sales increased $142.5 million, or approximately 67%, to $356.0 million for the
six months ended June 30, 1996 over the comparable 1995 period, reflecting the
acquisition of PPM Cranes in the second quarter of 1995, a strong sales quarter
for Terex Cranes overall, and increased revenue at Terex Trucks.
Terex Trucks sales increased $27.2 million for the six months ended June 30,
1996 from the six months ended June 30, 1995. Machines sales increased 24%, and
parts sales increased 10%. The sales mix was approximately 31% parts for the six
months ended June 30, 1996 compared to 34% parts for the comparable 1995 period.
Terex Trucks bookings for the six months ended June 30, 1996 were $103.1
million, an increase of $12.8 million, or 14%, from the year earlier period.
Bookings for parts sales, from which the Company generally realizes higher
margins than machine sales, increased $4.7 million from the six months ended
June 30, 1995. Machine bookings for the six months ended June 30, 1996 increased
$8.1 million from the comparable 1995 period. Backlog was $64.1 million at June
30, 1996 compared to $86.5 million at March 31, 1996 and $32.5 million at June
30, 1995.
Terex Cranes sales were $203.5 million for the six months ended June 30, 1996,
an increase of $114.9 million from $88.6 million in the year earlier period
which did not include the PPM business prior to its acquisition in May 1995.
Terex Cranes backlog was $58.1 million at June 30, 1996, compared to $59.8
million at March 31, 1996 and $60.2 million at June 30, 1995. The increase in
cranes sales was due to the addition of the PPM business, growth in sales at the
PPM business, and continued strong performance by Koehring.
Gross Profit
Gross profit for the six months ended June 30, 1996 increased $20.8 million to
$50.4 million compared to the six months ended June 30, 1995. The improvement in
the gross profit was primarily due to the increased net sales during 1996 as
compared to 1995. The gross profit percentage for the six months ended June 30,
1996 increased to 14.2% from 13.9% for the same period in 1995.
Terex Trucks gross profit increased $3.0 million to $20.3 million for the six
months ended June 30, 1996 compared to $17.3 million for the comparable 1995
period. The gross profit percentage in the Terex Trucks decreased to 13.3% for
the six months ended June 30, 1996 from 13.8% for the six months ended June 30,
1995, primarily due to the negative impact on Unit Rig of the inability of a
major supplier to adhere to its delivery schedule. This resulted in Unit Rig
having to shut down production for a period in March, with an estimated negative
profit impact of $800 thousand, due to lost sales volume and unabsorbed
overhead. The Company understands that the supplier has corrected the problem
and it is not expected to recur.
Terex Cranes gross profit increased $18.4 million to $30.7 million for the six
months ended June 30, 1996, compared to $12.3 million for the prior year's
period, reflecting the PPM acquisition, the effect of cost reduction actions put
in place at PPM, and improved performance at Koehring. The gross profit
percentage at Terex Cranes increased to 15.1% for the six months ended June 30,
1996 compared to 13.9% in the same period during 1995.
Engineering, Selling and Administrative Expenses
Engineering, selling and administrative expenses increased to $32.6 million for
the six months ended June 30, 1996 from $24.1 million for the six months ended
June 30, 1995, reflecting the effects of the PPM acquisition in May 1995.
However, engineering, selling and administrative expenses as a percentage of net
sales decreased to 9.2% for the six months ended June 30, 1996 from 11.3% for
the same period in 1995. Terex Trucks engineering, selling and administrative
expenses increased to $12.3 million for the six months ended June 30, 1996 from
$11.5 million for the comparable 1995 period primarily due to costs associated
with a new parts sales office and a new U.K. dealership. Terex Cranes
engineering, selling and administrative expenses increased to $17.7 million for
the six months ended June 30, 1996 from $9.3 million for the comparable 1995
period, reflecting the PPM acquisition in May 1995.
Income (Loss) from Operations
Terex Trucks income from operations increased by $2.2 million to $8.0 million
for the six months ended June 30, 1996 from $5.8 million in the comparable 1995
period, primarily due to the factors mentioned above under "Gross Profit".
Terex Cranes income from operations of $13.0 million for the six months ended
June 30, 1996 increased by $10.0 million over the comparable 1995 period,
primarily due to the increased net sales and the effect of cost control
initiatives implemented at PPM during Terex's ownership of that business, and
continued strong performance by Koehring.
On a consolidated basis, the Company had operating income of $17.8 million for
the six months ended June 30, 1996, compared to operating income of $5.5 million
for the comparable 1995 period, for the reasons mentioned above.
Other Income (Expense)
Interest expense increased to $22.8 million for the six months ended June 30,
1996 from $16.0 million in the comparable 1995 period as a result of incremental
borrowings associated with the PPM acquisition in May 1995. The Company realized
a gain in the six months ended June 30, 1996 of $2.4 million from the sale of
excess property in Scotland. In 1995, the Company had a gain of $1.0 million
from the sale of Fruehauf stock and recorded a charge of $0.5 to recognize the
impairment in value of certain properties held for sale.
Income (Loss) from Discontinued Operations
Income from discontinued operations in the Company's Material Handling Segment
increased $15.0 million to $9.4 million for the six months ended June 30, 1996
as compared to a loss of $5.6 million for the same period in 1995. The increased
income was primarily due to the success of the cost reduction programs put in
place in the latter half of 1995, as well as some improvements in pricing. As a
result, gross profit for the six months ended June 30, 1996 increased $5.3
million to $24.7 as compared to the same period in 1995 even though net sales
decreased $45.9 million or 17%. Additionally, in 1995 the Material Handling
Segment recorded charges of $6.0 million related to charges for severance costs,
exit costs and the impairment in value of certain properties held for sale.
Extraordinary Items
The Company recorded a charge of $7.5 million in 1995 to recognize a loss on the
early extinguishment of debt in connection with the May 1995 refinancing.
LIQUIDITY AND CAPITAL RESOURCES
The Company's businesses are working capital intensive and require funding for
purchases of production and replacement parts inventories, capital expenditures
for repair, replacement and upgrading of existing facilities as well as
financing of receivables from customers and dealers. The Company has significant
debt service requirements including semi-annual interest payments on senior debt
and monthly interest payments on its credit facility. Debt reduction and an
improved capital structure are major focal points for the Company. In this
regard, the Company regularly reviews its alternatives to improve its capital
structure and to reduce debt through debt financings, issuance of equity, assets
sales, including the sale of business units, or any combination thereof. As part
of the Company's efforts to improve its capital structure and reduce debt, on
July 25, 1996 the Company signed a definitive agreement to sell its Material
Handling business for $135 million in cash at closing. Subject to the
fulfillment of customary closing conditions and regulatory clearances, the
closing is expected to take place within ninety days of the announcement. To the
extent borrowings under the Credit Facility are secured by working capital of
CMHC, proceeds will be used to reduce the Credit Facility. Based on current
borrowing levels, approximately $30 million borrowed under the Credit Facility
is secured by CMHC working capital. In accordance with the Indenture governing
the Company's 13.25% Senior Secured Notes, the Company plans to use the portion
of the proceeds applicable to the Notes to offer to purchase the Notes and
reduce its overall debt level.
Net cash of $10.2 million was used in operating activities during the six months
ended June 30, 1996. Net cash provided by investing activities was $2.5 million
during the six months ended June 30, 1996 principally due to the sale of excess
property. Net cash provided by financing activities during the six months ended
June 30, 1996 was $10.2 million, primarily from use of the lending facilities in
the U.S. ($5.4 million) and in the U.K ($6.5 million). Cash and cash equivalents
totaled $9.5 million at June 30, 1996.
The balance outstanding under the Credit Facility as of June 30, 1996 was $72.2
million, and the additional amount the Company could have borrowed was $6.5
million as of that date. TEL entered into a new bank working capital facility in
1995, and PPM Europe is in negotiations to secure a working capital facility in
1996. Management intends 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 portion of the assessment, it
could 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 the resolution of significant legal and factual issues. If the
Company's positions prevail on the most significant issues, management believes
that the amounts due would not exceed amounts previously paid or provided;
however, even under such circumstances, it is possible that the Company's NOL's
could be reduced to some extent. 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 or estimated. A change in control of the
Company for tax purposes could possibly result in a significant reduction in the
amount of NOL's available to the Company to offset future taxable income.
The Securities and Exchange Commission (the "Commission") in March of 1994
initiated a private investigation, which included the Company and certain of its
affiliates, 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 received a letter from the Department of Labor (the "DOL") in May of
1995, alleging that the Company's former Chairman of the Board, at the time a
fiduciary for the Company's retirement plans, violated certain provisions of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") in making
certain investments which may have been imprudent and by possibly engaging in
prohibited transactions under ERISA. The Company and its former Chairman of the
Board are currently in discussions with the DOL concerning the allegations and
it is not possible at this time to determine the outcome of this matter;
however, the Company does not believe that the resolution of the allegations
will have a material adverse effect on the Company.
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, including the
Comprehensive Environmental Response, Compensation and Liability Act, 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
For information concerning other contingencies see "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Contingencies and
Uncertainties."
Item 5. Other Information
Recent Developments
On July 25, 1996, the Company announced the signing of a definitive agreement to
sell its Clark Material Handling ("CMH") business for $135 million in cash to
Clark Acquisition Corp., a newly formed affiliate of Nesco, Inc. Subject to the
fulfillment of customary closing conditions and regulatory clearances, closing
of the sale is expected to take place on or before October 30, 1996. CMH is a
leading North American and European designer, manufacturer and marketer of a
complete line of lift trucks, electric walkies and related components and
replacement parts under the Clark trademark. CMH is headquartered in Lexington,
Kentucky and its manufacturing facilities are located in Lexington, Kentucky and
Mulheim-Ruhr, Germany.
For further information concerning CMH, the accounting treatment of the sale and
use of proceeds thereof, reference is made to Notes A and B to the Notes to
Condensed Consolidated Financial Statements included elsewhere herein and to
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Forward Looking Information
Forward looking information included in this report involves risks and
uncertainties that could significantly impact expected results. The Company's
expectations are predominantly based on what it considers key economic
assumptions. Construction and mining activity are sensitive to interest rates,
government spending and general economic conditions. Some of the other
significant factors for the Company include foreign currency movements,
political uncertainty in various areas of the world, pricing, product
initiatives and other actions taken by competitors, disruptions in production
capacity, excess inventory levels, the effects of changes in laws and
regulations, employee relations and other factors.
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 June 30, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TEREX CORPORATION
(Registrant)
Date: August 14, 1996 /s/ David J. Langevin
David J. Langevin
Executive Vice President
(Acting Principal Financial Officer)
Date: August 14, 1996 /s/ Joseph F. Apuzzo
Joseph F. Apuzzo
Vice President Finance and Controller
(Principal Accounting Officer)
EXHIBIT INDEX
Exhibit No.
11.1 Computation of Earnings per Share
27 Financial Data Schedule