1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
|X| OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1997
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
|_| OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______.
Commission File Number 1-10702
TEREX CORPORATION
(Exact Name of Registrant as Specified in Charter)
Delaware 34-1531521
(State of incorporation) (I.R.S. Employer
Identification No.)
500 Post Road East, Suite 320, Westport, Connecticut 06880
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code: (203) 222-7170
Securities registered pursuant to Section 12(b)of the Act:
Common Stock, $.01 par value
(Title of Class)
New York Stock Exchange
(Name of Exchange on which Registered)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
YES X NO____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
The aggregate market value of the voting and non-voting common equity stock held
by non-affiliates of the Registrant was approximately $462.8 million based on
the last sale price on March 23, 1998.
The number of shares of the Registrant's Common Stock outstanding was
20,642,649 as of March 23, 1998.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the 1998 Terex Corporation Proxy Statement to be filed with the
Securities and Exchange Commission within 120 days after the year covered
by this Form 10-K with respect to the 1998 Annual Meeting of Stockholders
are incorporated by reference into Part III
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TEREX CORPORATION AND SUBSIDIARIES
Index to Annual Report on Form 10-K
For the Year Ended December 31, 1997
Page
PART I
Item 1 Business..............................................................3
Item 2 Properties...........................................................13
Item 3 Legal Proceedings....................................................14
Item 4 Submission of Matters to a Vote of Security Holders..................14
PART II
Item 5 Market for Registrant's Common Stock and Related Stockholder Matters.14
Item 6 Selected Financial Data..............................................16
Item 7 Management's Discussion and Analysis of Financial Condition and Results
of Operations......................................................17
Item 8 Financial Statements and Supplementary Data..........................26
Item 9 Changes in and Disagreements With Accountants on Accounting and
Financial Disclosures..............................................26
PART III
Item 10 Directors and Executive Officers of the Registrant....................*
Item 11 Executive Compensation................................................*
Item 12 Security Ownership of Certain Beneficial Owners and Management........*
Item 13 Certain Relationships and Related Transactions........................*
PART IV
Item 14 Exhibits, Financial Statement Schedule and Reports on Form 8-K.......27
* Incorporated by reference from Terex Corporation Proxy Statement.
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As used in this Annual Report on Form 10-K, unless otherwise indicated, Terex
Corporation, together with its consolidated subsidiaries, is hereinafter
referred to as "Terex", the "Registrant", or the "Company".
PART I
ITEM 1. BUSINESS
General
Terex is a global manufacturer of a broad range of construction and mining
related capital equipment. The Company strives to manufacture high quality
machines which are low cost, simple to use and easy to maintain. The Company's
principal products include telescopic mobile cranes, aerial work platforms,
utility aerial devices, telescopic material handlers, truck mounted mobile
cranes, rigid and articulated off-highway trucks and high capacity surface
mining trucks, and related components and replacement parts. The Company's
products are manufactured at 15 plants in the United States and Europe and are
sold primarily through a worldwide network of dealers in over 750 locations to
the global construction, infrastructure and surface mining markets.
The Company's operations began in 1983 with the purchase of Northwest
Engineering Company, the Company's original business and name. Since 1983,
management has expanded and changed the Company's business through a series of
acquisitions and dispositions. In 1988, Northwest Engineering Company merged
into a subsidiary acquired in 1986 named Terex Corporation, with Terex
Corporation as the surviving entity. As a result of the completion of the PPM
Acquisition (as defined below) in May 1995, the Company's operations were
divided into three principal segments: Material Handling, Heavy Equipment and
Mobile Cranes. On November 27, 1996, the Company completed the sale of its
worldwide material handling segment, which was originally acquired in July 1992,
and currently the Company operates in two business segments: Terex Lifting
(formerly known as Terex Cranes) and Terex Earthmoving (formerly known as Terex
Trucks).
Terex Lifting manufactures and sells telescopic mobile cranes (including rough
terrain, truck and all terrain mobile cranes), aerial work platforms (including
scissor, articulated boom and straight telescoping boom aerial work platforms),
utility aerial devices (including digger derricks and articulated aerial
devices), telescopic material handlers (including container stackers and rough
terrain lift trucks), truck mounted cranes (boom trucks) and related components
and replacement parts. These products are used by construction and industrial
customers, as well as utility companies.
Terex Earthmoving manufactures and sells articulated and rigid off-highway
trucks and high capacity surface mining trucks, and related components and
replacement parts. These products are used primarily by construction, mining and
government customers. As discussed more fully below under the heading "Recent
Developments," the Company has agreed to purchase all of the outstanding shares
of O & K Mining GmbH ("O & K Mining"), whose principal executive offices and
primary manufacturing facility are located in Dortmund, Germany. O & K Mining's
product line includes a full range of large hydraulic excavators and related
parts and components to be sold primarily by O&K Mining's and Terex's combined
sales organization.
Over the past several years, Terex has implemented a series of interrelated
strategic initiatives designed to improve manufacturing efficiency and offer its
products at a lower cost than competitors, thereby increasing sales, earnings
and market share. These include: (i) focusing the Company's business on its core
lifting and earthmoving businesses; (ii) focusing product lines on products
which it can manufacture for low cost relative to its competitors by
rationalizing product lines and simplifying its product designs; (iii) growth in
the size and scope of operations through both acquisitions and new product
development; and (iv) increasing profitability through cost reductions and
improved manufacturing efficiency. The Company has also implemented a strategy
to improve significantly its financial flexibility, strengthen its capital
structure and enhance its liquidity to execute its growth initiatives. In
addition, the Company has, and continues to, seek out acquisitions in the
capital goods industry where aggressive management can achieve substantial
improvements in profitability and cash flow.
For financial information about the Company's industry and geographic segments,
see Note O --- "Business Segment Information" in the Notes to the Consolidated
Financial Statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
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Terex Lifting
Terex Lifting was established as a separate business segment as a result of an
acquisition (the "PPM Acquisition") in May 1995 of substantially all of the
shares of PPM S.A. and certain of its subsidiaries, including PPM SpA, Brimont
Agraire S.A., a specialized trailer manufacturer in France, PPM Krane GmbH, a
sales organization in Germany, and Baulift Baumaschinen Und Krane Handels GmbH,
a parts distributor in Germany (collectively, "PPM Europe") from Potain S.A.,
and all of the capital stock of Legris Industries, Inc., which owned 92.4% of
the capital of PPM Cranes, Inc., ("PPM North America" and PPM Europe and PPM
North America are collectively referred to herein as "PPM") from Legris
Industries, S.A. Concurrently with the completion of the PPM Acquisition, the
Company contributed the assets (subject to liabilities) of its Koehring Cranes
and Excavators and Mark Industries division to Terex Cranes, Inc. The former
division now operates as Koehring Cranes, Inc. ("Koehring"), a wholly owned
subsidiary of Terex Cranes, Inc. Koehring and PPM are part of the Terex Lifting
segment.
During 1997, the Company completed two acquisitions to augment its Terex Lifting
segment. On April 7, 1997, the Company completed the acquisition of
substantially all of the capital stock of certain of the former subsidiaries of
Simon Engineering plc (collectively referred to herein as the "Simon Access
Companies") for approximately $90 million. The Simon Access Companies consist
principally of business units in the United States and Europe engaged in the
manufacture, sale and worldwide distribution of access equipment designed to
position people and materials to work at heights. The Simon Access Companies'
products include utility aerial devices, aerial work platforms and truck-mounted
cranes (boom trucks) which are sold to customers in the industrial and
construction markets, as well as utility companies. Specifically, the Company
acquired 100% of the outstanding common stock of (i) Simon Telelect, Inc. (now
named Terex Telelect Inc.), a Delaware corporation, (ii) Simon Aerials, Inc.
(now named Terex Aerials, Inc.), a Wisconsin corporation and parent company of
Terex RO, (iii) Sim-Tech Management Limited, a private limited company
incorporated under the laws of Hong Kong, (iv) Simon Cella, S.r.l., a company
incorporated under the laws of Italy, and (v) Simon Aerials Limited (now named
Terex Aerials Limited), a company incorporated under the laws of Ireland; and
60% of the outstanding common stock of Simon-Tomen Engineering Company Limited,
a limited liability stock company organized under the laws of Japan. On April
14, 1997, the Company completed the acquisition of all of the capital stock of
Baraga Products, Inc. and M&M Enterprises of Baraga, Inc. Baraga Products, Inc.
(now named Terex Baraga Products, Inc.) manufactures the Square Shooter, a rough
terrain telescopic lift truck designed to lift materials to heights where they
are used in construction.
Terex Lifting has eight significant manufacturing operations: (i) PPM S.A.
located in Montceau-les-Mines, France, at which mobile cranes and container
stackers under the brand names TEREX and PPM are manufactured; (ii) PPM SpA,
located in Crespellano, Italy, at which mobile cranes are manufactured under the
TEREX, BENDINI and PPM brand names; (iii) Terex Lifting, located in Conway,
South Carolina, at which mobile cranes are manufactured under the P&H (a
licensed trademark of Harnischfeger Corporation) and TEREX brand names; (iv)
Terex Lifting - Waverly Operations, located in Waverly, Iowa, at which rough
terrain hydraulic telescoping mobile cranes, truck cranes and material handlers
are manufactured under the brand names TEREX, KOEHRING and LORAIN, and aerial
lift equipment is manufactured under the brand names TEREX AERIALS, TEREX AND
MARK; (v) Terex Telelect, Inc., located in Watertown, South Dakota, at which
utility aerial devices and digger derricks are manufactured under the TELELECT
and HI-RANGER brand names, (vi) Terex Aerials, Inc., located in Milwaukee,
Wisconsin, at which aerial platforms are manufactured under the TEREX, SIMON,
MARK and TEREX AERIALS brand names; (vii) Terex RO, Inc., located in Olathe,
Kansas, at which truck mounted cranes are manufactured under the RO-STINGER
brand name; and (viii) Terex Baraga Products, Inc., located in Baraga, Michigan,
at which rough terrain telescopic lift trucks are manufactured under the SQUARE
SHOOTER brand name.
Throughout the world market, mobile cranes are principally sold to rental
companies and dealers with rental fleets. Terex Lifting's mobile crane market
share varies dramatically by geographical area; however, the Company believes it
is the leading manufacturer of mobile cranes in France and Italy and is the
second largest manufacturer in North America. Terex Lifting's principal
worldwide mobile crane competitors are Grove Worldwide and Link Belt (Sumitomo);
Terex Lifting competes with several smaller specialty companies in North America
and with Grove Cranes Ltd., Liebherr Werk Ehingen and DeMag in Europe. Terex
Lifting's major competitors in the container stacker market are Kalmar, Valmet
Belloti and Taylor. The Company believes that it is the fifth largest
manufacturer of aerial work platforms in North America. Currently, the leading
competitors in the aerial lift industry are JLG Industries, Genie, Grove Manlift
(including the recently acquired Krupp Mobil Krane), Skyjack, and Snorkel.
Currently, the leading competitors in the telescopic rough terrain lift truck
industry are OmniQuip and Gradall. The Company believes that it is the second
largest manufacturer in the United States of utility aerial devices behind
Altec.
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Terex Earthmoving
Terex Earthmoving currently manufactures and sells articulated and rigid
off-highway trucks and high capacity surface mining trucks, and related
components and replacement parts. These products are used primarily by
construction, mining and government customers. Terex Earthmoving currently has
three manufacturing operations: (i) Terex Equipment Limited ("TEL"), located at
Motherwell, Scotland, which manufactures off-highway rigid haulers and
articulated haulers and scrapers, each sold under the TEREX brand name and to
other truck manufacturers on a private label basis; (ii) the Unit Rig Division,
located in Tulsa, Oklahoma, which manufactures electric rear and bottom dump
haulers principally sold to the copper, gold and coal mining industry customers
in North and South America, Asia, Africa and Australia; and (iii) Payhauler
Corp. ("Payhauler"), located in Batavia, Illinois, which was acquired by Terex
on January 5, 1998 and manufactures all-wheel drive rigid off highway trucks. In
addition, Terex Earthmoving has an interest in North Hauler Limited Liability
Company, a corporation incorporated under the laws of China. In 1987, TEL
entered into a joint venture agreement with Second Inner Mongolia Machinery
Company for the production of haulers in China. The joint venture company, North
Hauler Limited Liability Company, manufactures heavy trucks, principally used in
mining, at a facility in Baotou, Inner Mongolia, People's Republic of China. As
discussed more fully below under the heading "Recent Developments," the Company
has agreed to purchase all of the outstanding shares of O & K Mining GmbH ("O &
K Mining"), whose principal executive offices and primary manufacturing facility
are located in Dortmund, Germany. O & K Mining's product line includes a full
range of large hydraulic excavators and related parts and components to be sold
primarily by O&K Mining's and Terex's combined sales organization.
A "hauler" is an off-road dump truck with a capacity in excess of 25 tons.
Haulers produced by TEL and Payhauler have capacities ranging from 25 to 100
tons. The "scrapers" manufactured by TEL are off-road vehicles, commonly
referred to as "earthmovers," that load, move and unload large quantities of
soil for site preparations, including roadbeds. The Unit Rig hauler is powered
by a diesel engine driving an electric generator that provides power to
individual electric motors in each of the rear wheels. Unit Rig's current LECTRA
HAUL product line consists of a series of rear dump hauler trucks with payload
capacities ranging from 100 to 260 tons, and bottom dump haulers with capacities
ranging from 180 to 270 tons. Unit Rig's products are sold under the Company's
TEREX, UNIT RIG, and LECTRA HAUL trademarks. TEL's North, Central and South
American sales and distribution are managed by Terex Americas, a division of the
Company, located in Tulsa, Oklahoma. Payhauler manufactures 30- and 50-ton
all-wheel drive rigid rear dump haulers under the PAYHAULER trade name.
Terex Earthmoving believes that it is a significant competitor in the market for
large capacity off highway haulers and scrapers. However, the Company is not a
dominant manufacturer in the heavy equipment industry, which is dominated in
most segments by large, diversified firms, such as Caterpillar, Volvo Group and
Komatsu with respect to the TEL products and Caterpillar, Komatsu, Liebherr Werk
Ehingen and Euclid with respect to Unit Rig products.
Recent Developments
Acquisition of O & K Mining GmbH
The Company has agreed to purchase all of the outstanding shares of O&K Mining
from O&K Orenstein & Koppel AG ("Orenstein & Koppel") for net aggregate
consideration of DM 309 million (approximately $172 million), subject to certain
post-closing adjustments. The transaction is scheduled to close on March 31,
1998 and will be financed through the issuance by the Company of its New Senior
Subordinated Notes (defined below) and borrowings under the New Bank Credit
Facility (as defined below). O&K Mining, which will be part of the Terex
Earthmoving segment, is headquartered in Dortmund, Germany, and has operations
in the United States, United Kingdom, Australia, Canada, South Africa and
Singapore. O&K Mining markets a complete range of large hydraulic excavators
serving the global surface mining industry and the global construction and
infrastructure development markets. The Company believes that O&K Mining has the
leading market share for large hydraulic excavator models having machine weights
in excess of 200 tons. The use of O&K Mining's excavators in around the clock
intensive, harsh condition mining operations requires significant higher margin
after-market parts and service, which in the case of the larger hydraulic
excavators can generate revenues of up to 200% of the original sale price over
the expected life of the machines. In 1997, O&K Mining introduced the RH 400,
the world's largest hydraulic excavator with an 800 ton machine weight and 80
ton bucket capacity.
The Company has identified and plans to initiate several programs to increase
sales and reduce costs in connection with the integration of O&K Mining into the
Terex Earthmoving segment. Since 1993, O&K Mining has successfully marketed the
Company's off-highway trucks under private label, primarily in Europe. The
Company believes that additional opportunities exist to offer packages of
off-highway trucks with complementary small hydraulic excavators to the
construction industry outside Europe and of high capacity trucks with
complementary large hydraulic excavators to the global surface mining industry.
The new machine product combinations and the related integrated parts and field
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service business will allow the Company to expand on its and O&K Mining's
established customer relationships and position itself as an integrated provider
of surface mining and construction products.
Repurchase of 13-1/4% Senior Secured Notes and New Bank Credit Facility
On March 6, 1998, the Company completed the purchase or defeasance of all of the
$166.7 million in principal amount of its then outstanding 13-1/4% Senior
Secured Notes due 2002 (the "Senior Secured Notes"). Concurrently therewith, the
Company also amended or eliminated certain of the principal restrictive
covenants contained in the Indenture governing the Senior Secured Notes and
refinanced substantially all of its then existing domestic and foreign revolving
credit debt. The proceeds for the offer to purchase and the repayment of its
then existing revolving credit facility were obtained from borrowings under the
Company's new $500 million global bank credit facility (the "New Bank Credit
Facility").
The New Bank Credit Facility consists of a new secured global revolving credit
facility aggregating up to $125 million (the "New Revolving Credit Facility")
and two term loan facilities (collectively, the "Term Loan Facilities")
providing for loans in an aggregate principal amount of up to approximately $375
million. The New Revolving Credit Facility, which is currently undrawn, will be
used for working capital and general corporate purposes, including acquisitions.
Pursuant to the Term Loan Facilities, the Company has borrowed, or may borrow in
the future, (i) up to $175 million in aggregate principal amount pursuant to a
Term Loan A due March 2004 (the "Term A Loan") and (ii) up to $200 million in
aggregate principal amount pursuant to a Term Loan B due March 2005 (the "Term B
Loan"). The outstanding principal amount of the Term A Loan initially bears
interest, at Company's option, at an all-in drawn cost of 2% per annum in excess
of the adjusted eurocurrency rate or, with respect to U.S. dollar denominated
alternate base rate loans, at an all-in drawn cost of 1% per annum in excess of
the prime rate. The outstanding principal amount of the Term B Loan initially
bears interest, at the Company's option, at a rate of 2.5% per annum in excess
of the adjusted eurodollar rate or, with respect to U.S. dollar denominated
alternate base rate loans, 1.5% in excess of the prime rate. The Term A Loan
amortizes on a quarterly basis, in the annual percentages of 0%, 16%, 16%, 21%,
21% and 26%, respectively, during the six year term of the loan. The Term B Loan
amortizes in an annual percentage of 1% during each of the first six years of
the term of the loan and 94% in the seventh year of the term of the loan. The
Term A Loan and Term B Loan are subject to mandatory prepayment under certain
circumstances and is voluntarily prepayable without payment of a premium
(subject to reimbursement of the lenders' costs in case of prepayment of
eurodollar loans other than on the last day of an interest period). The
outstanding principal amount of loans under the New Revolving Credit Facility
initially bears interest, at the Company's option, at an all-in drawn cost of 2%
per annum in excess of the adjusted eurocurrency rate or, with respect to U.S.
dollar denominated alternate base rate loans, at an all-in drawn cost of 1% per
annum in excess of the prime rate. The New Revolving Credit Facility terminates
on March 5, 2004. The Company has entered into certain interest rate protection
agreements with respect to a portion of the principal amount of the New Bank
Credit Facility.
With limited exceptions, the obligations of the Company under the New Bank
Credit Facility are secured by (i) a pledge of all of the capital stock of
domestic subsidiaries of the Company, (ii) a pledge of 65% of the stock of
certain of the foreign subsidiaries of the Company and (iii) a first priority
security interest in, and mortgages on, substantially all of the assets of Terex
and its domestic subsidiaries. The New Bank Credit Facility contains covenants
limiting the Company's activities, including, without limitation, limitations on
dividends and other payments, liens, investments, incurrence of indebtedness,
mergers and asset sales, related party transactions and capital expenditures.
The New Bank Credit Facility also contains certain financial and operating
covenants, including a maximum leverage ratio, a minimum interest coverage ratio
and a minimum fixed charge coverage ratio. If for any reason the Company is
unable to comply with the terms of the New Bank Credit Facility, including the
covenants included therein, such noncompliance would result in an event of
default under the New Bank Credit Facility and could result in acceleration of
the payment of the indebtedness outstanding under the New Bank Credit Facility.
New Senior Subordinated Notes
On March 24, 1998, the Company entered into a Purchase Agreement to issue and
sell $150 million aggregate principal amount of 8.875% Senior Subordinated Notes
Due 2008 (the "New Senior Subordinated Notes"). The New Senior Subordinated
Notes are being issued and sold pursuant to an exemption from registration under
the Securities Act of 1933, as amended, and the closing is expected to occur on
March 31, 1998. The New Senior Subordinated Notes are unsecured and repayment is
guaranteed on an unsecured basis by certain of the Company's domestic
subsidiaries. The proceeds of the issuance and sale of the New Senior
Subordianted Notes will be used to fund a portion of the aggregate consideration
for the acquisition of O&K Mining and for general corporate purposes.
Products
Telescopic Mobile Cranes
Telescopic mobile cranes are used primarily in new industrial, commercial
construction and public works construction industries and in maintenance
applications, to lift equipment or material to heights in excess of 50 feet. The
Company's Terex Lifting segment manufactures the following types of telescopic
mobile cranes:
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Rough Terrain Cranes--are designed
to lift materials and equipment on rough or
uneven terrain and are most often located on
a single construction or work site such as a
building site, a highway or a utility
project for long periods of time. Rough
terrain cranes cannot be driven on highways
and accordingly must be transported by truck
to the work site. Rough terrain cranes
manufactured by Terex Lifting have maximum
lifting capacities of up to 90 tons and
maximum tip heights of up to 205 feet. Terex
Lifting manufactures its rough terrain
cranes at its facilities located at Waverly,
Iowa, Conway, South Carolina,
Montceau-les-Mines, France, and Crespellano,
Italy under the brand names TEREX, LORAIN,
P&H, PPM and BENDINI.
Truck Cranes--have two cabs and can
travel rapidly from job site to job site at
highway speeds. In contrast to rough terrain
cranes which are often located for extended
periods at a single work site, truck cranes
are often used for multiple local jobs,
primarily in urban or suburban areas. Truck
cranes manufactured by Terex Lifting have
maximum lifting capacities of up to 75 tons
and maximum tip heights of up to 193 feet.
Terex Lifting manufactures truck cranes at
its Waverly, Iowa and Conway, South Carolina
facilities under the brand names P&H and
LORAIN.
All Terrain Cranes--were developed
in Europe as a cross between rough terrain
and truck cranes in that they are designed
to travel across both rough terrain and
highways. All terrain cranes have two cabs
and are versatile and highly maneuverable.
All terrain cranes manufactured by Terex
Lifting have lifting capacities of up to 130
tons and maximum tip heights of up to 223
feet. Terex Lifting manufactures its all
terrain cranes at its Montceau-les-Mines,
France facility under the brand names TEREX
and PPM.
Truck Mounted Cranes (Boom Trucks)
Terex Lifting manufactures telescopic boom cranes for mounting on
commercial truck chassis. Terex also distributes truck mounted articulated
cranes under the EFFER brand name which are manufactured by Effer SpA. Truck
mounted cranes are used primarily in the construction industry to lift equipment
or materials to various heights. Boom trucks are generally lighter and have a
lower lifting capacity than truck cranes, and are used for many of the same
applications when lower lifting capabilities are required. An advantage of a
boom truck is that the equipment or material to be lifted by the crane can be
transported by the truck which can travel at highway speeds. Applications
include the installation of air conditioners and other roof equipment. The
Company's Terex Lifting segment manufactures the following types of cranes for
installation on truck chassis:
Telescopic Boom Truck Mounted
Cranes--enable an operator to reach heights
of up to 167 feet and have a maximum lifting
capacity of up to 37.5 tons. Terex Lifting
manufactures its telescopic boom truck
mounted cranes at its Olathe, Kansas
facility under the brand name RO-STINGER.
Articulated Boom Truck Mounted
Cranes--are for users who prefer greater
capacities over the greater vertical reach
provided by a telescopic boom truck mounted
crane. At its Olathe, Kansas facility, Terex
Lifting acts as the master distributor for
the EFFER brand line of articulated boom
truck mounted cranes which have maximum
capacities up to 87,305 pounds and
horizontal reach to 66 feet.
Aerial Work Platforms
Aerial work platforms are self propelled devices which position workers
and materials easily and quickly to elevated work areas. These products have
developed over the past 20 years as alternatives to scaffolding and ladders. The
work platform is mounted on either a telescoping and/or articulating boom or on
a vertical lifting scissor mechanism.
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Scissor Lifts--are used in open
areas in indoor or outdoor applications in a
variety of construction, industrial and
commercial settings. Scissor lifts
manufactured by Terex Lifting have maximum
working heights of up to 52 feet and maximum
load capacities of up to 2,000 pounds. Terex
Lifting manufactures scissor aerial work
platforms at its Waverly, Iowa and
Milwaukee, Wisconsin facilities under the
brand names TEREX, SIMON and MARK.
Straight Telescopic Boom Lifts--are
used primarily outdoors in residential,
commercial and industrial new construction
and maintenance projects. Straight
telescopic boom lifts manufactured by Terex
Lifting have maximum working heights of up
to 126 feet and maximum load capacities of
up to 650 pounds. Terex Lifting manufactures
its straight telescopic aerial work
platforms at its Waverly, Iowa and
Milwaukee, Wisconsin facilities under the
brand names TEREX, SIMON and MARK.
Articulating Telescopic Boom
Lifts--are generally used in industrial
environments where the articulation allows
the user to access elevated areas over
machines or structural obstacles which
prevent access with a scissor lift or
straight boom. Articulating lifts available
from Terex Lifting have maximum working
heights of up to 70 feet and maximum load
capacities of up to 500 pounds. Terex
Lifting manufactures its articulating
telescopic boom lifts at its Waverly, Iowa
and Milwaukee, Wisconsin facilities under
the brand name TEREX AERIALS.
Utility Aerial Devices
Utility aerial devices are used to set utility poles and move workers
and materials to work areas at the top of utility poles and towers. Utility
aerial devices are mounted on commercial truck chassis which include separately
installed steel cabinets for tool and material storage. Most utility aerial
devices are insulated to permit live wire work.
Articulated Aerial Devices--are used
to elevate workers to work areas at the top
of utility poles or in trees and include one
or two man baskets. Articulated aerial
devices available from Terex Lifting include
telescopic, non-overcenter and overcenter
models and range in working heights from 32
to 203 feet. Articulated aerial devices are
manufactured by Terex Lifting at its
Watertown, South Dakota facility under the
brand names TELELECT and HI-RANGER.
Digger Derricks--are used to set
telephone poles. The digger derricks include
a telescopic boom with an auger mounted at
the tip which digs a hole, and a device to
grasp, manipulate and set the pole. Digger
derricks available from Terex Lifting have
sheave heights exceeding 70 feet and lifting
capacities up to 48,000 pounds. Digger
derricks are manufactured by Terex Lifting
at its Watertown, South Dakota facility
under the brand name TELELECT.
Telescopic Material Handlers
Telescopic material handlers are used to lift containers or other
material from one location to another at the same job site.
Telescopic Container Stackers--are
used to pick up and stack containers at dock
and terminal facilities. At the end of a
telescopic container stacker's boom is a
spreader which enables it to attach to
containers of varying lengths and weights
and to rotate the container up to 360
degrees. Telescopic container stackers are
particularly effective in storage areas
where containers are continually added and
removed, and where the efficient
manipulation of, and access to, specific
containers is required. Telescopic container
stackers manufactured by Terex Lifting have
lifting capacities up to 49.5 tons, can
stack up to six full or nine empty
containers and are able to maneuver through
very narrow areas. Terex Lifting
manufactures its telescopic container
stackers under the brand names PPM and P&H
SUPERSTACKERS at its Conway, South Carolina
and Montceau-les-Mines, France facilities.
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Rough Terrain Telescopic Boom
Forklifts--serve a similar function as
smaller size rough terrain telescopic mobile
cranes and are used exclusively to move and
place materials on new residential and
commercial job sites. Terex Lifting
manufactures rough terrain telescopic boom
forklifts with load capacities of up to
10,000 pounds and with a maximum extended
reach of up to 31 feet and lift capabilities
of up to 48 feet. Terex Lifting manufactures
rough terrain telescopic boom forklifts at
its facility in Baraga, Michigan under the
brand name SQUARE SHOOTER.
Rigid and Articulated Off-Highway Trucks
Terex Earthmoving manufactures two distinct types of off-highway trucks
with hauling capacities from 25 to 100 tons: articulated and rigid frame. Terex
Earthmoving manufactures rigid and articulated trucks at its TEL facility in
Motherwell, Scotland. TEL manufactures and markets articulated trucks and rigid
frame trucks under the TEREX brand name and sells to O&K Mining on a private
label basis. Upon consummation of the O&K Acquisition, the Company will continue
to manufacture articulated trucks and rigid frame trucks under the O&K name.
Articulated Off-Highway Trucks--are
three axle, six wheel drive machines with a
capacity range of 25 to 40 tons. Their
differentiating feature is an oscillating
connection between the cab and body which
allows the cab and body to move
independently, thereby enabling all six
tires to maintain ground contact for
improved traction on rough terrain. This
allows the truck to move effectively through
extremely rough or muddy off-road
conditions. Articulated off-highway trucks
are typically used together with an
excavator or wheel loader to move dirt in
connection with road, tunnel or other
infrastructure construction and commercial,
industrial or major residential construction
projects. Terex's articulated trucks are
manufactured in Motherwell, Scotland, under
the brand name TEREX.
Rigid Off-Highway Trucks--are two
axle machines which generally have larger
capacities than articulated trucks but can
operate only on improved or graded surfaces.
The capacities of rigid off-highway trucks
range from 35 to 100 tons, and off-highway
trucks have applications in large
construction or infrastructure projects,
aggregates and smaller surface mines. Terex
Earthmoving's rigid trucks are manufactured
in Motherwell, Scotland, under the TEREX
brand name and in Batavia, Illinois, under
the PAYHAULER brand name.
High Capacity Surface Mining
Trucks--are off road dump trucks with
capacities in excess of 120 tons primarily
for surface mining. Terex Earthmoving's
haulers are powered by a diesel engine
driving an electric generator that provides
power to individual electric motors in each
of the rear wheels. Unit Rig's current
LECTRA HAUL product line consists of a
series of rear dump trucks with payload
capacities ranging from 120 to 260 tons, and
bottom dump trucks with capacities ranging
from 180 to 270 tons. Terex Earthmoving's
high capacity surface mining trucks are
manufactured at Unit Rig, located in Tulsa,
Oklahoma, under the UNIT RIG and LECTRA HAUL
brand names.
Backlog
The Company's backlog as of December 31, 1997 and 1996 was as follows:
December 31,
---------------------------
1997 1996
------------- -------------
Terex Lifting...................... $ 186.5 $ 67.2
Terex Earthmoving.................. 30.3 53.4
============= =============
Total......................... $ 216.8 $ 120.6
============= =============
Substantially all of the Company's backlog orders are expected to be filled
10
within one year, although there can be no assurance that all such backlog orders
will be filled within that time period. The Company's backlog orders represent
primarily new equipment orders. Parts orders are generally filled on an
as-ordered basis.
Terex Lifting backlog at December 31, 1997 increased $119.3 million to $186.5
million as compared to $67.2 at December 31, 1996. The increase in backlog was
due to the effect of the Simon Access and Square Shooter businesses acquired in
April 1997 (approximately $51 million in backlog) as well as increases in the
businesses other than the 1997 acquisitions. The backlog at Terex Earthmoving
decreased to $30.3 million at December 31, 1997 from $53.4 million at December
31, 1996, principally because of the decline in sales and backlog of Unit Rig
machines during 1997.
Distribution
Terex Lifting distributes its products primarily through a global network of
dealers in over 750 different locations. With respect to telescopic mobile
cranes in North America, Terex Lifting maintains extensive dealer networks. The
geographic strength of Terex Lifting's telescopic mobile cranes marketed under
the LORAIN brand name centers in the midwest and mid-Atlantic regions of the
United States and the geographic strength of telescopic mobile cranes marketed
under the P&H brand name centers in the southern and western regions of the
United States. Terex Lifting's European distribution is carried out primarily
under three brand names, TEREX, PPM and BENDINI, through a single distribution
network comprised of both distributors and a direct sales force. Terex Lifting
sells its utility aerial devices under the SIMON, TEREX and TELELECT brand names
principally through a network of North American distributors. Terex Lifting
sells its aerial work platform products through a distribution network that
includes many of the Aerials Limited and Aerials dealers throughout the world,
but principally in North America and Europe. Terex Lifting's aerial work
platform products are sold under the brand name TEREX AERIALS.
TEL markets machines and replacement parts primarily through worldwide
dealership networks. TEL's truck dealers are independent businesses which
generally serve the construction, mining, timber and/or scrap industries.
Although these dealers carry products of a variety of manufacturers, and may or
may not carry more than one of the Company's products, each dealer generally
carries only one manufacturer's "brand" of each particular type of product. The
Company employs sales representatives who service these dealers from offices
located throughout the world. Payhauler distributes its products primarily
through a dealership network. Unit Rig distributes its products and services
directly to customers primarily through its own distribution system.
Research and Development
The Company maintains engineering staffs at several of its locations which
design new products and improvements in existing product lines. Such costs
incurred in the development of new products or significant improvements to
existing products of continuing operations amounted to $6.2, $6.1 and $5.0
million in 1997, 1996 and 1995, respectively.
Materials
Principal materials used by the Company in its various manufacturing processes
include steel, castings, engines, tires, hydraulic cylinders, electric controls
and motors, and a variety of other fabricated or manufactured items. In the
absence of labor strikes or other unusual circumstances, substantially all
materials are normally available from multiple suppliers. Current and potential
suppliers are evaluated on a regular basis on their ability to meet the
Company's requirements and standards. Electric wheel motors and controls used in
the Unit Rig product line are currently supplied exclusively by General Electric
Company. The Company is endeavoring to develop alternative sources and has
entered into a contract with General Atomics, a former defense contractor, to
develop electric wheel motors for Unit Rig trucks. If the Company is unable to
develop alternative sources, or if there is disruption or termination of its
relationship with General Electric Company (which is not governed by a written
contract), it could have a material adverse effect on Unit Rig's operations.
Working Capital Items
The Company, in the normal course of business, does not provide right of return
on merchandise sold, nor does it provide extended payment terms to customers.
Competition
Telescopic Mobile Cranes--The domestic telescopic mobile crane industry
is comprised primarily of three manufacturers. The Company believes that Terex
Lifting is the second largest domestic manufacturer, with approximately a 36%
market share. The Company believes that the number one domestic manufacturer is
Grove Worldwide, and the number three domestic manufacturer is Link-Belt, a
11
subsidiary of Sumitomo Corp. The Company's principal markets in Europe are in
France and Italy, where the Company believes it has the largest market shares,
with an estimated 50% market share in each of these countries. In Europe, Terex
Lifting's primary competitors are Grove Cranes Ltd., Liebherr Werk Ehingen and
DeMag. Outside the United States and Europe, the most active new mobile crane
markets are the Middle East and South America. Terex Lifting sells approximately
10% of its newly manufactured telescopic mobile cranes to those markets.
The United States boom truck industry is dominated by four
manufacturers, of which the Company believes Terex RO, with a 25% market share,
is the second largest behind Grove National.
Aerial Work Platforms--The aerial work platform industry in North
America is fragmented, with seven major competitors. The Company believes that
its approximate 7% market share makes it the fifth largest manufacturer of
aerial work platforms in North America, behind JLG, Grove Manlift, Skyjack and
Snorkel. The Company believes that approximately 42,000 aerial platforms were
sold in the United States during 1997, of which approximately 70% were scissor
lifts, 19% were articulated boom lifts, and 11% were straight boom lifts. The
Company believes that its market share in boom lifts is greater than its market
share in scissor lifts.
Utility Aerial Devices--The utility aerial device industry is comprised
primarily of three manufacturers. The Company believes that it has a 20% market
share of that industry and that it is the second largest manufacturer in the
United States of utility aerial devices behind Altec. Outside the United States,
the Company is focusing primarily on the Mexican and Caribbean markets.
Telescopic Container Stackers--The Company believes that three
manufacturers account for approximately 66% of the global market for telescopic
container stackers. The Company believes that it has a global market share of
25% and that it is the second largest manufacturer behind Kalmar. Other
manufacturers include Valmet Belloti and Taylor.
Telescopic Rough Terrain Lift Trucks--OmniQuip and Gradall are the
largest manufacturers of telescopic rough terrain lift trucks. The Company
believes that the Square Shooter Business has approximately a 4% market share.
Off-Highway Trucks--North America and Europe account for greater than
60% of the global market. Four manufacturers dominate the global market. The
Company believes that it is the third largest of these manufacturers (behind
Volvo and Caterpillar), with approximately a 10% global market share.
High Capacity Surface Mining Trucks--The high capacity surface mining
truck industry includes three principal manufacturers: Caterpillar,
Komatsu-Dresser and the Company. The Company believes that it is the third
largest manufacturer with a global market share of approximately 13%.
Employees
As of December 31, 1997, the Company had approximately 2,950 employees. The
Company considers its relations with its personnel to be good. Approximately 35%
of the Company's employees are represented by labor unions which have entered
into or are in the process of entering into various separate collective
bargaining agreements with the Company. The Company experienced a labor strike
at its parts distribution center in Southaven, Mississippi during the second
quarter of 1995 which was settled in February 1997. The strike at Southaven had
no appreciable effect on the conduct of business or financial results of that
operation as a whole, although individual product line sales growth may have
been hindered.
Patents, Licenses and Trademarks
Several of the trademarks and trade names of the Company, in particular the
TEREX, LORAIN, UNIT RIG, MARK, P&H, PPM, SIMON, TELELECT, SQUARE SHOOTER and
PAYHAULER trademarks, are important to the business of the Company. The Company
owns and maintains trademark registrations and patents in countries where it
conducts business, and monitors the status of its trademark registrations and
patents to maintain them in force and renews them as required. The Company also
protects its trademark, trade name and patent rights when circumstances warrant
such action, including the initiation of legal proceedings, if necessary. P&H is
a registered trademark of Harnischfeger Corporation which the Company has the
right to use for certain products pursuant to a license agreement until 2011.
Pursuant to the terms of the acquisition agreements for the Simon Access
Companies, the Company has the right to use the SIMON name (which is a
registered trademark of Simon Engineering plc) for certain products until April
7, 2000. CELLA is a trademark of Sergio Cella. EFFER is a trademark of Effer
SpA. All other trademarks and tradenames referred to in this Annual Report are
registered trademarks of Terex Corporation or its subsidiaries.
12
Environmental Considerations
The Company generates hazardous and non-hazardous wastes in the normal course of
its operations. As a result, the Company is subject to a wide range of federal,
state, local and foreign environmental laws and regulations, including the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"),
that (i) govern activities or operations that may have adverse environmental
effects, such as discharges to air and water, as well as handling and disposal
practices for hazardous and non-hazardous wastes, and (ii) impose liability for
the costs of cleaning up, and certain damages resulting from, sites of past
spills, disposals or other releases of hazardous substances. Compliance with
such laws and regulations has, and will, require expenditures by the Company on
a continuing basis.
Seasonal Factors
The Company markets a large portion of its products in North America and Europe,
and its sales of heavy equipment and cranes during the fourth quarter of each
year to the construction industry are usually lower than sales of such equipment
during each of the first three quarters of the year because of the normal winter
slowdown of construction activity. However, sales of heavy equipment to the
mining industry are generally less affected by such seasonal factors.
13
ITEM 2. PROPERTIES
The following table outlines the principal manufacturing, warehouse and office
facilities owned or leased by the Company and its subsidiaries:
Entity Facility Location Type and Size of Facility
Terex
(Corporate Offices)......Westport, Connecticut(1) Office; 14,898 sq.ft.
Terex
(Distribution Center)....Southaven, Mississippi(1) Warehouse and light
manufacturing;
505,000 sq.ft.(2)
Terex Lifting
Terex Lifting -
Waverly Operations.......Waverly, Iowa(3) Office, manufacturing and
warehouse; 383,000 sq.ft.
Terex Lifting -
Conway Operations........Conway, South Carolina(1) Office, manufacturing and
warehouse; 168,716 sq.ft.
PPM S.A..................Montceau-les-Mines, Office, manufacturing and
France warehouse; 419,764 sq.ft.
P.P.M SpA................Crespellano, Italy Office, manufacturing and
warehouse; 79,900 sq.ft.
PPM Europe Subsidiary....Dortmund, Germany (1) Office and warehouse;
129,180 sq.ft.
PPM Europe Subsidiary....Rethel, France Office, manufacturing and
warehouse; 215,300 sq.ft.
Telelect.................Huron, South Dakota Manufacturing; 88,000 sq.ft
Telelect.................Watertown, South Dakota Office, manufacturing and
warehouse; 222,450 sq.ft.
Cella....................Brescia, Italy (1) Office and manufacturing;
64,000 sq.ft.
Aerials Limited..........Cork, Ireland (1) Manufacturing; 80,000 sq.ft
PPM Europe Subsidiary....Hong Kong (1) Office; 830 sq.ft.
Aerials (Terex RO)......Olathe, Kansas Office and manufacturing;
80,400 sq.ft.
Aerials ................Milwaukee, Wisconsin Office, manufacturing and
warehouse; 103,000 sq.ft.
Square Shooter...........Baraga, Michigan Office, manufacturing and
warehouse; 41,152 sq.ft.
Terex Earthmoving
Unit Rig................ Tulsa, Oklahoma Office, manufacturing and
warehouse; 375,587 sq.ft.
TEL......................Motherwell, Scotland Office, manufacturing and
warehouse; 473,000 sq.ft.
Payhauler................Batavia, Illinois Office, manufacturing and
warehouse; 112,000 sq.ft.
- ------------------------------
(1) These facilities are either leased or subleased by the indicated entity.
(2) Includes 239,400 sq. ft. of warehouse space currently leased to others.
(3) The Company also owns a 66,000 sq. ft. facility in Waterloo, Iowa which is
currently leased to others.
Unit Rig also has 10 owned or leased locations for parts distribution and
rebuilding of components, of which two are in the United States, two are in
Canada and six are abroad.
Management believes that the properties listed above are suitable and adequate
for the Company's use. The Company has determined that certain of its properties
exceed its requirements. Such properties may be sold, leased or utilized in
another manner and have been excluded from the above list.
14
Discontinued Operations
On November 27, 1996, the Company sold substantially all the assets and
liabilities of its worldwide material handling business ("CMHC") for an
aggregate cash purchase price, subject to adjustments, of $139.5 million (the
"Clark Sale"). Prior to the disposition on November 27, 1996, CMHC consisted of
Clark Material Handling Company and certain affiliated companies which were
acquired by the Company in July 1992 from Clark Equipment Company. CMHC
designed, manufactured and marketed a complete line of internal combustion and
electric lift trucks, electric walkies and related components and replacement
parts under the CLARK trademark.
Financial Information about Industry and Geographic Segments, Export Sales
and Major Customers
Information regarding foreign and domestic operations, export sales, segment
information and major customers is included in Note O -- "Business Segment
Information" in the Notes to the Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
As described in Note M -- "Litigation and Contingencies" in the Notes to the
Consolidated Financial Statements, the Company is involved in various legal
proceedings, including product liability and workers' compensation liability
matters, which have arisen in the normal course of its operations and to which
the Company is self-insured for up to $2.0 million per incident. Management
believes that the final outcome of such matters will not have a material adverse
effect on the Company's consolidated financial position.
For information concerning other contingencies and uncertainties, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Contingencies and Uncertainties."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
(a) The Company's Common Stock is listed on the NYSE under the symbol "TEX."
Quarterly Market Prices
The high and low stock prices for the Company's Common Stock on the NYSE
Composite Tape (for the last two completed years) are as follows:
1997 1996
--------------------------------- ---------------------------------
Fourth Third Second First Fourth Third Second First
------ ----- ------ ----- ------ ----- ------ -----
High... $ 25.19 $ 23.75 $ 19.50 $ 13.50 $ 10.13 $ 9.38 $ 9.25 $ 7.13
Low.... 18.94 18.75 13.13 9.50 6.63 6.50 6.38 4.13
No dividends were declared or paid in 1996 or in 1997. Certain of the Company's
debt agreements contain restrictions as to the payment of cash dividends. In
order for the Company to pay dividends, the New Bank Credit Facility requires
that the ratio of the Company's total debt to pro forma earnings before
interest, taxes, depreciation and amortization for the immediately preceding
four fiscal quarters be less than 3.85 to 1.0, and that the amount of dividends
paid by the Company during the entire term of New Bank Credit Facility not
exceed an aggregate of $25 million. The Company intends generally to retain
earnings, if any, to fund the development and growth of its business. The
Company does not plan on paying dividends on the Common Stock in the foreseeable
future. Any future payments of cash dividends will depend upon the financial
condition, capital requirements and earnings of the Company, as well as other
factors that the Board of Directors may deem relevant.
15
As of March 23, 1998, there were 661 stockholders of record of the Company's
Common Stock.
(b) On December 30, 1997, the Company issued 87,300 shares of Common Stock to
Randolph W. Lenz in connection with the conversion of all of the shares of
Series B Preferred Stock held by him. The issuance of the shares of Common Stock
by the Company to Mr. Lenz was exempt from registration under the Securities Act
of 1933, as amended, pursuant to Section 4(2) thereof. The Company did not
receive any cash proceeds from the issuance of the shares of Common Stock to Mr.
Lenz.
16
ITEM 6. SELECTED FINANCIAL DATA
(in millions except per share amounts and employees)
As of or for the Year Ended December 31,
------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
Summary of Operations
Net sales..................................................$ 842.3 $ 678.5 $ 501.4 $ 314.1 $ 274.7
Operating income (loss) from continuing operations......... 71.1 5.1 12.8 10.4 (8.2)
Income (loss) from continuing operations before
extraordinary items...................................... 30.3 (54.3) (32.1) 4.9 (40.7)
Income (loss) from discontinued operations................. --- 102.0 4.4 (3.7) (24.3)
Income (loss) before extraordinary items................... 30.3 47.7 (27.7) 1.2 (65.0)
Net income (loss).......................................... 15.5 47.7 (35.2) 0.5 (66.5)
Income (loss) applicable to common stock................... 10.7 24.8 (42.5) (5.5) (66.7)
Per Common and Common Equivalent Share:
Basic
Income (loss) from continuing operations...............$ 1.57 $ (6.54)$ (3.79) $ (0.10) $ (4.11)
Income (loss) from discontinued operations............. --- 8.64 0.42 (0.36) (2.44)
Income (loss) before extraordinary items............... 1.57 2.10 (3.37) (0.46) (6.55)
Net income (loss)...................................... 0.66 2.10 (4.09) (0.53) (6.70)
Diluted
Income (loss) from continuing operations...............$ 1.44 $ (5.81)$ (3.79) $ (0.10) $ (4.11)
Income (loss) from discontinued operations............. --- 7.67 0.42 (0.36) (2.44)
Income (loss) before extraordinary items............... 1.44 1.86 (3.37) (0.46) (6.55)
Net income (loss)...................................... 0.60 1.86 (4.09) (0.53) (6.70)
Working Capital
Current assets.............................................$ 426.5 $ 390.2 $ 312.0 $ 278.1 $ 257.3
Current liabilities........................................ 236.1 195.0 196.3 221.6 187.8
Working capital............................................ 190.4 195.2 115.7 56.5 69.5
Property, Plant and Equipment
Net property, plant and equipment..........................$ 47.8 $ 31.7 $ 40.1 $ 86.2 $ 97.5
Capital expenditures....................................... 9.9 8.1 5.2 12.7 11.5
Depreciation............................................... 8.2 7.0 7.4 13.7 12.1
Total Assets.................................................$ 588.5 $ 471.2 $ 478.9 $ 401.6 $ 390.7
Capitalization
Long-term debt and notes payable, including current
maturities...............................................$ 300.1 $ 281.3 $ 329.9 $ 190.9 $ 218.0
Minority interest, including redeemable preferred stock
of a subsidiary......................................... 0.6 10.0 9.4 --- ---
Redeemable convertible preferred stock..................... --- 46.2 24.6 17.3 10.5
Stockholders' equity (deficit)............................. 59.6 (71.7) (96.9) (55.7) (62.3)
Dividends per share of Common Stock........................$ --- $ --- $ --- $ --- $ ---
Shares of Common Stock outstanding at year end............. 20.5 13.2 10.6 10.3 10.3
Employees
Continuing operations...................................... 2,950 2,270 2,614 1,549 1,520
Discontinued operations (Material Handling)................ --- --- 986 1,302 1,410
Total.................................................... 2,950 2,270 3,600 2,851 2,930
The Selected Financial Data include the results of operations of the Simon
Access Companies, Square Shooter and PPM from April 7, 1997, April 14, 1997 and
May 9, 1995, respectively, the dates of their acquisitions. See Note C --
"Acquisitions" in the Notes to the Consolidated Financial Statements for further
information. The Selected Financial Data for the years ended December 31, 1995
and 1996 include the results of operations of CMHC as discontinued operations.
See Note B -- "Discontinued Operations" in the Notes to the Consolidated
Financial statements for further information.
17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company currently operates in two industry segments: Terex Lifting and Terex
Earthmoving. The Company previously operated a third industry segment, the
Material Handling segment, the results of which are now accounted for as Income
from Discontinued Operations. The Terex Lifting segment results for periods
prior to April 1997 consist of Terex Lifting - Waverly Operations, Terex Lifting
- - Conway Operations and PPM Europe. Subsequent to that date, Terex Lifting'
results also include the results of the Simon Access and Square Shooter
businesses acquired in April of 1997. Terex Earthmoving consists of TEL and Unit
Rig.
1997 Compared with 1996
The table below is a comparison of net sales, gross profit, engineering, selling
and administrative expenses, income (loss) from operations, and income (loss)
from discontinued operations, by segment, for 1997 and 1996. The 1996 amounts
include $30.0 million in special charges comprised of $18.3 million at Terex
Lifting ($16.8 gross profit; $1.6 million engineering, selling and
administrative expenses), $10.4 million at Terex Earthmoving (gross profit), and
$1.2 million General/Corporate (engineering, selling and administrative
expenses).
Year Ended December 31, Increase
-----------------------
1997 1996 (Decrease)
----------- ---------- ------------
(in millions of dollars)
NET SALES
Terex Lifting.................................. $ 548.0 $ 363.9 $ 184.1
Terex Earthmoving.............................. 288.4 314.9 (26.5)
General/Corporate/Eliminations................. 5.9 (0.3) 6.2
=========== ========== ============
Total....................................... $ 842.3 $ 678.5 $ 163.8
=========== ========== ============
GROSS PROFIT
Terex Lifting.................................. $ 87.2 $ 38.1 $ 49.1
Terex Earthmoving.............................. 50.7 31.3 19.4
General/Corporate/Eliminations................. 1.7 (0.2) 1.9
=========== =========== ============
Total....................................... $ 139.6 $ 69.2 $ 70.4
=========== =========== ============
ENGINEERING, SELLING AND ADMINISTRATIVE EXPENSES
Terex Lifting.................................. $ 40.0 $ 33.3 $ 6.7
Terex Earthmoving.............................. 26.0 25.7 0.3
General/Corporate.............................. 2.5 5.1 (2.6)
=========== =========== ============
Total....................................... $ 68.5 $ 64.1 $ 4.4
=========== =========== ============
INCOME (LOSS) FROM OPERATIONS
Terex Lifting.................................. $ 47.2 $ 4.8 $ 42.4
Terex Earthmoving.............................. 24.7 5.6 19.1
General/Corporate.............................. (0.8) (5.3) 4.5
----------- ----------- ------------
Total....................................... $ 71.1 $ 5.1 $ 66.0
=========== ============ ============
INCOME FROM DISCONTINUED OPERATIONS
$ --- $ 102.0 $ (102.0)
=========== ============ ============
18
Net Sales
Sales increased $163.8 million, or approximately 24.1%, to $842.3 million in
1997 from $678.5 million in 1996, primarily reflecting the Simon Access and
Square Shooter Acquisitions in the second quarter of 1997.
Terex Lifting's sales were $548.0 million for 1997, an increase of $184.1
million, or 50.6%, from $363.9 million in 1996 which did not include the results
of Simon Access and Square Shooter. Machine sales increased $168.7 million to
$460.5 million in 1997. This increase in sales was due primarily to the
inclusion of Simon Access and Square Shooter since their acquisition in April
1997. The increase in Terex Lifting's sales in 1997 as compared to 1996 was also
attributable to an increase of $22.7 million in sales at Terex--Waverly
Operations as compared to 1996. Parts sales increased $8.6 million to $72.9
million in 1997. Terex Lifting's bookings were $613.3 million for 1997, compared
to $356.1 million for 1996, an increase of $257.2 million.
Terex Earthmoving's sales decreased $26.5 million in 1997 to $288.4 million.
This decline in sales resulted from a decrease in sales of Unit Rig machines
which was partially offset by sales increases in the other Terex Earthmoving
businesses. Machine sales at Terex Earthmoving in 1997 decreased $22.2 million
to $189.0 million from $211.2 million in 1996 of which approximately $33 million
was attributable to a decrease in Unit Rig's machine sales partially offset by
increased sales in Terex products primarily in North America. Sales of parts at
Terex Earthmoving in 1997 increased $2.2 million to $96.2 million as compared to
$94.0 million in 1996. The sales mix was approximately 33% parts in 1997
compared to approximately 29% parts in 1996. Terex Earthmoving's bookings for
1997 were $268.0 million, a decrease of $9.9 million, or 3.6%, from 1996.
Backlog decreased to $30.3 million at December 31, 1997 from $53.4 million in
1996 primarily as a result of the decrease in machine sales at Unit Rig.
Gross Profit
Gross profit for 1997 increased $70.4 million to $139.6 million. The increase in
the gross profit was due to the addition of the Simon Access and Square Shooter
businesses, general improvements at most operations and the effect of $27.1
million of non-recurring charges in 1996. The 1996 charges included a $16.8
million write down of goodwill and other long lived assets at Terex Lifting and
$10.4 million of non-recurring charges recorded at Terex Earthmoving, primarily
Unit Rig, in the fourth quarter of 1996. Gross profit as a percentage of net
sales for 1997 increased to 16.6% as compared to 10.2% for 1996 as a result of
the effect of the non-recurring charges in 1996. Excluding these $27.1 million
charges in 1996, gross profit as a percentage of sales in 1997 increased to
16.6% from 14.2% in 1996.
Terex Lifting's gross profit increased $49.1 million to $87.2 million for 1997,
compared to $38.1 million for 1996, reflecting the Simon Access and Square
Shooter acquisitions. The gross profit percentage increased to 15.9% in 1997 as
compared to 10.5% in 1996. Excluding the effect of the Simon Access and Square
Shooter acquisitions and the 1996 impairment charge, Terex Lifting's gross
profit in 1997 increased $3.6 million as compared to 1996.
Terex Earthmoving's gross profit increased $19.4 million to $50.7 million in
1997 compared to $31.3 million for 1996. Excluding the $10.4 million
non-recurring charges in 1996 noted above, Terex Earthmoving's gross profit
increased $9.0 million in 1997 as compared to 1996. Excluding the 1996
non-recurring charges, the gross profit percentage in 1997 increased to 17.6%
from 13.2% in 1996 due to an increase in the proportion of higher margin parts
sales as compared to machine sales, an increase in the gross margin for the
Terex product line, primarily due to cost reduction initiatives, and a decrease
in the percentage of Terex Earthmoving's sales in 1997 comprised of the lower
margin Unit Rig machines.
Engineering, Selling and Administrative Expenses
Engineering, selling and administrative expenses (which include the Company's
research and development expenses) increased to $68.5 million in 1997 from $64.1
million for 1996, reflecting the effects of the acquisition of the Simon Access
Companies and Square Shooter. However, engineering, selling and administrative
expenses as a percentage of net sales decreased to 8.1% for 1997 from 9.4% for
1996. Terex Earthmoving's engineering, selling and administrative expenses
increased $0.3 million to $26.0 million for 1997 due to increased selling
efforts. Terex Lifting's engineering, selling and administrative expenses
increased to $40.0 million for 1997 from $33.3 million for 1996, reflecting the
acquisition of the Simon Access Companies and Square Shooter. Excluding the
effect of the acquired companies, Terex Lifting engineering, selling and
administrative expenses fell by almost 22% year over year. Unallocated corporate
engineering, selling and administrative expenses decreased to $2.5 million in
1997 as compared to $5.1 million in 1996. See "Business--Research and
Development" for a discussion of the Company's engineering expenses.
19
Income (Loss) from Operations
Terex Lifting's income from operations of $47.2 million for 1997 increased by
$42.4 million over 1996, primarily due to the inclusion of the Simon Access and
Square Shooter businesses ($14.3 million), the 1996 impairment charges, improved
results at the European operations and continued strong performance by Terex
Lifting--Waverly Operations.
Terex Earthmoving's income from operations increased by $19.1 million to $24.7
million for 1997 from $5.6 million in 1996, primarily due to improved profits at
Unit Rig, higher gross margin percentages and the 1996 non-recurring charges
mentioned above under "Gross Profit."
On a consolidated basis, the Company had operating income of $71.1 million for
1997, compared to operating income of $5.1 million for 1996, for the reasons
mentioned above.
Interest Expense
Net interest expense decreased to $38.5 million for 1997 from $43.6 million in
1996 as a result of lower average debt levels and interest rates in 1997. A
portion of the decrease was due to the $139.5 million of cash provided from the
sale of the Company's Materials Handling Segment in November 1996, which allowed
the Company to eliminate borrowings under its revolving credit facility prior to
the acquisition of the Simon Access Companies on April 7, 1997. Furthermore, the
proceeds from the issuance of the Common Stock in July 1997 were used to reduce
the average balance borrowed under the then existing revolving credit facility,
and then on September 4, 1997, the Company redeemed $83.3 million of the Senior
Secured Notes.
Other Income (Expense)
The Company realized gains in 1996 of $3.3 million from the sale of excess
property principally in Scotland and Italy. During 1996, the Company recorded a
provision for income taxes of $12.1 million; in 1997, the Company recorded $0.7
million provision for income taxes. The 1996 provision for income taxes
primarily relates to $11.3 million of tax expense recognized at PPM Europe in
connection with its recapitalization which required the Company to utilize a net
operating loss carryforward. The additional $0.8 million provision relates to
taxes due on the sale of property in Europe.
Income (Loss) from Discontinued Operations
Income from discontinued operations in the Company's Material Handling Segment
("Clark") was $102.0 million for 1996. The income was primarily due to the gain
realized on the Clark Sale of $84.5 million. Gross profit for 1996 (through the
date of the Clark Sale) was $46.0 million.
Extraordinary Items
The Company recorded a charge of $2.6 million in 1997 to recognize a loss on the
early extinguishment of debt in connection with its debt refinancing in April
1997. Additionally, the Company recorded a charge of $12.2 million to recognize
a loss on the early extinguishment of debt in connection with the September 1997
redemption of $83.3 million of the Senior Secured Notes.
1996 Compared with 1995
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 1996 and 1995. The 1996 amounts
include $30.0 million in special charges comprised of $18.3 million at Terex
Lifting ($16.8 gross profit; $1.6 million engineering, selling and
administrative expenses), $10.4 million at Terex Earthmoving (gross profit), and
$1.2 million General/Corporate (engineering, selling and administrative
expenses).
20
Year Ended December 31, Increase
------------ ------------
1996 1995 (Decrease)
------------ ------------ ------------
(in millions of dollars)
NET SALES
Terex Lifting.................................. $ 363.9 $ 252.3 $ 111.6
Terex Earthmoving.............................. 314.9 250.3 64.6
Eliminations................................... (0.3) (1.2) 0.9
============ ============ ============
Total....................................... $ 678.5 $ 501.4 $ 177.1
============ ============ ============
GROSS PROFIT
Terex Lifting.................................. $ 38.1 $ 35.2 $ 2.9
Terex Earthmoving.............................. 31.3 35.9 (4.6)
Eliminations................................... (0.2) (0.7) 0.5
============ ============ ============
Total....................................... $ 69.2 $ 70.4 $ (1.2)
============ ============ ============
ENGINEERING, SELLING AND ADMINISTRATIVE EXPENSES
Terex Lifting.................................. $ 33.3 $ 28.0 $ 5.3
Terex Earthmoving.............................. 25.7 22.9 2.8
General/Corporate.............................. 5.1 6.7 (1.6)
============ ============ ============
Total....................................... $ 64.1 $ 57.6 $ 6.5
============ ============ ============
INCOME (LOSS) FROM OPERATIONS
Terex Lifting.................................. $ 4.8 $ 7.2 $ (2.4)
Terex Earthmoving.............................. 5.6 13.0 (7.4)
General/Corporate.............................. (5.3) (7.4) 2.1
------------ ------------ ------------
Total....................................... $ 5.1 $ 12.8 $ (7.7)
============ ============ ============
INCOME FROM DISCONTINUED OPERATIONS
$ 102.0 $ 4.4 $ 97.6
============ ============ ============
Net Sales
Sales increased $177.1 million, or approximately 35.3%, to $678.5 million in
1996 from $501.4 million in 1995, reflecting the PPM Acquisition in the second
quarter of 1995.
Terex Lifting's sales were $363.9 million for 1996, an increase of $111.6
million, or 44.2%, from $252.3 million in 1995 which did not include PPM prior
to the PPM Acquisition. Machine sales increased $94.9 million to $291.8 million
in 1996. This increase in sales was due primarily to the inclusion of PPM Europe
and Terex Lifting--Conway Operations for all of 1996, as compared to 1995 when
the results of these operations were not included prior to May 9, 1995. The
increase in Terex Lifting's sales in 1996 as compared to 1995 was also
attributable to an increase of $34.3 million in sales at Terex--Waverly
Operations as compared to 1995 and, to a lesser extent, to growth in sales at
PPM Europe and Terex Lifting--Conway Operations during such period. Parts sales
increased $11.4 million to $64.3 million in 1996. Terex Lifting's bookings were
$356.1 million for 1996, compared to $236.7 million for 1995, an increase of
$119.4 million.
Terex Earthmoving's sales increased $64.6 million in 1996 to $314.9 million.
Machines sales increased 36.2% primarily due to increased presence in the Asian
market and the United States rental market, and parts sales increased 8.5% in
1996. The sales mix was approximately 29% parts in 1996 compared to 34.6% parts
in 1995. Terex Earthmoving's bookings for 1996 were $277.9 million, a decrease
of $3.0 million, or 1.1%, from 1995. Backlog decreased to $53.4 million at
December 31, 1996 from $88.8 million in 1995 as a result of a large order which
was placed late in 1995. However, the average backlog increased slightly to
$68.1 million for 1996 as compared to $57.0 million for 1995.
21
Gross Profit
Gross profit for 1996 decreased $1.2 million to $69.2 million. The decline in
the gross profit was primarily due to the $16.8 million write down of goodwill
and other long lived assets at Terex Lifting and $10.4 million of non-recurring
charges recorded at Terex Earthmoving in the fourth quarter of 1996. These
charges substantially offset the increased gross profit from increased net sales
during 1996 as compared to 1995. Gross profit as a percentage of net sales for
1996 decreased to 10.2% as compared to 14.0% for 1995 as a result of the
non-recurring charges. However, excluding these $27.1 million charges in 1996,
gross profit as a percentage of sales increased to 14.2% and increased from
$70.4 million to $96.3 million.
Terex Lifting's gross profit increased $2.9 million to $38.1 million for 1996,
compared to $35.2 million for 1995, reflecting the PPM Acquisition, the effect
of cost reduction actions put in place at PPM Europe and Terex Lifting--Conway
Operations, and improved performance at Terex Lifting--Waverly Operations. These
improvements were substantially offset by an impairment charge which resulted
from a detailed analysis of future cash flows from operations primarily at Terex
Lifting--Conway Operations facility. Excluding the impairment charge, Terex
Lifting's gross profit in 1996 increased $19.7 million as compared to 1995 and
the gross profit percentage increased to 15.1% as compared to 14.0% in 1995.
Terex Earthmoving's gross profit decreased $4.6 million to $31.3 million in 1996
compared to $35.9 million for 1995. Excluding the $10.4 million non-recurring
charges noted above, Terex Earthmoving's gross profit increased $5.8 million in
1996 as compared to 1995. The $10.4 million non-recurring charges are comprised
mainly of $8.6 million at Unit Rig for the reduction in value of the Unit Rig
Tulsa facility due to changes in production methods, and $1.9 million of
goodwill associated with TEL's acquisition of its UK distributor, Terex (UK)
Limited, which was written off and recorded as an impairment charge in 1996.
Exclusive of these non-recurring charges, the gross profit percentage in 1996
decreased to 13.2% from 14.3% in 1995 due to an increase in the proportion of
machine sales as compared to parts sales. Parts sales have higher margins than
machine sales.
Engineering, Selling and Administrative Expenses
Engineering, selling and administrative expenses (which include the Company's
research and development expenses) increased to $64.1 million in 1996 from $57.6
million for 1995, reflecting the effects of the PPM Acquisition. However,
engineering, selling and administrative expenses as a percentage of net sales
decreased to 9.4% for 1996 from 11.5% for 1995. Terex Earthmoving's engineering,
selling and administrative expenses increased to $25.7 million for 1996 from
$22.9 million for 1995 primarily due to costs associated with a new parts sales
office and a new U.K. dealership. Terex Lifting's engineering, selling and
administrative expenses increased to $33.3 million for 1996 from $28.0 million
for 1995, reflecting the PPM Acquisition and non-recurring charges of $1.6
million. See "Business--Research and Development" for a discussion of the
Company's engineering expenses.
Income (Loss) from Operations
Terex Lifting's income from operations of $4.8 million for 1996 decreased by
$2.4 million over 1995, primarily due to the impairment charges at the Terex
Lifting--Conway Operations facility, which were offset somewhat by the increased
net sales and the effect of cost control initiatives implemented at all PPM
operations since they were acquired by the Company, and continued strong
performance by Terex Lifting--Waverly Operations.
Terex Earthmoving's income from operations decreased by $7.4 million to $5.6
million for 1996 from $13.0 million in 1995, primarily due to the non-recurring
charges mentioned above under "Gross Profit." Excluding these charges, income
from operations increased to $16.0 million.
On a consolidated basis, the Company had operating income of $5.1 million for
1996, compared to operating income of $12.8 million for 1995, for the reasons
mentioned above.
Interest Expense
Net interest expense increased to $43.6 million for 1996 from $38.0 million in
1995 as a result of incremental borrowings associated with the PPM Acquisition.
Other Income (Expense)
The Company realized gains in 1996 of $3.3 million from the sale of excess
property principally in Scotland and Italy. During 1996, the Company recorded a
provision for income taxes of $12.1 million; in 1995, the Company recorded no
22
provision for income taxes. The 1996 provision for income taxes primarily
relates to $11.3 million of tax expense recognized at PPM Europe in connection
with its recapitalization which required the Company to utilize a net operating
loss carryforward. The additional $0.8 million provision relates to taxes due on
the sale of property in Europe.
In 1995, the Company had a gain of $1.0 million from the sale of stock of a
former subsidiary and recorded a charge of $0.5 million 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 $97.6 million to $102.0 million for 1996 as compared to $4.4 million
in 1995. The increased income was primarily due to the gain realized on the
Clark Sale of $84.5 million. Gross profit for 1996 (through the date of the
Clark Sale) increased $1.2 million to $46.0 million as compared to 1995 even
though net sales decreased $124.2 million or 23%. Additionally, in 1995 the
Clark Material Handling Segment recorded charges of $6.0 million related to
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 its debt refinancing in May
1995.
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.
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 refinancings,
issuances of equity, asset sales, including the sale of business units, or any
combination thereof. As part of its strategy the Company has consummated several
transactions over the past 18 months which have strengthened its capital
structure and significantly reduced its cost of funds.
On November 27, 1996, the Company completed the Clark Sale for an aggregate cash
purchase price of approximately $139.5 million. Upon closing, the Company
initially used the proceeds to pay down its then existing domestic credit
facility. Then, on December 30, 1996, the Company called all of its issued and
outstanding Series A Preferred Stock for redemption on January 29, 1997 (the
"Series A Redemption Date"). The Series A Preferred Stock was accreting
initially at a rate of 13% per annum, which was to increase to 18% per annum at
the end of 1998. All 1,200,000 shares of the Series A Preferred Stock
outstanding on the Series A Redemption Date were redeemed at a redemption price
of $37.80 per share, or approximately $45.4 million in aggregate.
On July 28, 1997 and August 7, 1997, the Company issued an additional 5,000,000
shares and 700,000 shares, respectively, of its Common Stock in an underwritten
public stock offering. The shares were issued at a price to the public of $19.50
per share. The net proceeds received by the Company were $104.6 million. A
portion of the proceeds from the stock offering were initially used to reduce
borrowings under the Company's then existing domestic revolving credit facility.
On September 4, 1997, the Company used a portion of the proceeds from the stock
offering to redeem $83.3 million of the Senior Secured Notes. The total funds
paid at the redemption were $94.6 million ($83.3 million principal, $7.9 million
redemption premium and $3.4 million accrued interest). As a result of the
redemption of a portion of the Senior Secured Notes, the annual interest
payments on the Senior Secured Notes decreased from $33.1 million to $22.1
million, a savings of $11.0 million per year.
In December 1997, two additional transactions were completed that further
improved the Company's capital structure. On December 10, 1997, the Company
eliminated all of the issued and outstanding shares of Series A Redeemable
Exchangeable Preferred Stock of its subsidiary, Terex Cranes, Inc. (the
"Subsidiary Preferred Stock"), by merging Terex Cranes, Inc. with the Company
and exchanging the Subsidiary Preferred Stock (originally issued in connection
with the PPM Acquisition) into 705,969 shares of Common Stock of the Company. On
December 30, 1997, all of the Company's issued and outstanding shares of Series
B Cumulative Redeemable Convertible Preferred Stock, which was accreting
initially at a rate of 13% per annum, and was to increase to 18% per annum at
the end of 1998, were converted by the holder thereof into 87,300 shares of
Common Stock of the Company.
23
On March 6, 1998, the Company consummated the New Bank Credit Facility, the
refinancing of substantially all of its domestic and foreign revolving credit
facilities, and the purchase or defeasance of all of the Company's outstanding
Senior Secured Notes. The New Bank Credit Facility consists of the New Revolving
Credit Facility aggregating up to $125 million and the Term Loan Facilities
providing for loans in an aggregate principal amount of up to approximately $375
million. Borrowings under the Term Loan Facilities were used by the Company to
(i) finance the purchase of the $166.7 million of its then outstanding Senior
Secured Notes and pay the premium and accrued interest in connection therewith
and (ii) repay in full the outstanding indebtedness and related fees and
expenses under certain of the Company's then existing credit facilities. In
connection with these actions, the Company will incur an extraordinary loss of
$38.4 million in the first quarter of 1998. Borrowings under the Term Loan
Facilities will also be used to fund a portion of the aggregate consideration
for the acquisition of O&K Mining. The New Revolving Credit Facility, which is
currently undrawn, will be used for working capital and general corporate
purposes.
On March 24, 1998, the Company entered into a Purchase Agreement to issue and
sell $150 million aggregate principal amount of 8.875% Senior Subordinated Notes
Due 2008 (the "New Senior Subordinated Notes"). The New Senior Subordinated
Notes are being issued and sold pursuant to an exemption from registration under
the Securities Act of 1933, as amended, and the closing is expected to occur on
March 31, 1998. The New Senior Subordinated Notes are unsecured and repayment is
guaranteed on an unsecured basis by certain of the Company's domestic
subsidiaries. The proceeds of the issuance and sale of the New Senior
Subordinated Notes will be used to fund a portion of the aggregate consideration
for the acquisition of O&K Mining and for general corporate purposes.
Net cash of $0.3 million was used by operating activities during 1997. $85.4
million was provided by operating results plus depreciation and amortization,
and approximately $9.8 million was invested in working capital during the period
to support the increase in business activity at Terex Lifting and TEL. The
remaining effect on cash from operations for the period was due to the costs of
financing. Net cash used in investing activities was $98.6 million during 1997,
primarily related to the purchase of the Simon Access Companies and Baraga
Products, Inc. Net cash provided by financing activities was $64.2 million
during 1997. Cash was provided by the net proceeds from the public offering of
common stock and additional borrowings primarily related to the purchase of the
Simon Access Companies. Cash was used for the redemption of the Series A
Preferred Stock and the redemption of a portion of the Senior Secured Notes.
Cash and cash equivalents totaled $28.7 million at December 31, 1997.
Factors Affecting Future Liquidity
The Company's debt service obligations for 1998 include quarterly interest and
principal payments on the Term Loan Facilities and variable periodic payments on
the New Revolving Credit Facility and will include semi-annual interest payments
due on the Senior Subordinated Notes issued in connection with the O&K Mining
acquisition. Management believes that with cash generated from operations,
together with borrowings under the New Revolving Credit Facility (which is
currently undrawn), the Company has adequate liquidity to meet the Company's
operating and debt service requirements for the foreseeable future.
The New Bank Credit Facility places certain limits on the Company's ability,
among other things, to incur indebtedness and liens, pay dividends and make
other payments, consummate mergers and asset acquisitions and sales, enter into
related party transactions and make capital expenditures and investments. The
New Bank Credit Facility also contains certain financial and operating
covenants, including a maximum leverage ratio, a minimum interest coverage ratio
and a minimum fixed charge coverage ratio.
Foreign Currencies and Interest Rate Risk
The Company's products are sold in over 50 countries around the world and,
accordingly, revenues of the Company are generated in foreign currencies, while
the costs associated with those revenues are only partly incurred in the same
currencies. The major foreign currencies, among others, in which the Company
does business are the Pound Sterling and the French Franc. Following
consummation of the O&K Mining acquisition, the Company will also conduct
significant business in Deutsche Marks. The Company may, from time to time,
hedge specifically identified committed cash flows in foreign currencies using
forward currency sale or purchase contracts. Such foreign currency contracts
have not historically been material in amount.
Because certain of the Company's obligations, including indebtedness under the
New Bank Credit Facility, will bear interest at floating rates, an increase in
interest rates could adversely affect, among other things, the ability of the
Company to meet its debt service obligations. The Company has entered into
interest protection arrangements with respect to approximately $220 million of
the principal amount of its indebtedness under the New Bank Credit Facility
fixing interest at various rates between 6.6% and 8.3%.
Contingencies and Uncertainties
The Internal Revenue Service (the "IRS") 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. The examination report raised 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 ("NOLs") and the
availability of such NOLs to offset future taxable income. The Company filed an
administrative appeal to the examination report in April 1995. In June 1996, the
Company was advised that the matter was being referred back to the audit
division of the IRS. The IRS is currently reviewing information provided by the
Company. The ultimate outcome of this matter is subject to the resolution of
significant legal and factual issues. Given the stage of the audit, and the
24
number and complexity of the legal and administrative proceedings involved in
reaching a resolution of this matter, it is unlikely that the ultimate outcome,
if unfavorable to the Company, will be determined for at least several years. If
the IRS were to prevail on all the issues raised, the amount of the tax
assessment would be approximately $56 million plus penalties of approximately
$12.8 million and interest through December 31, 1997 of approximately $94.5
million. The penalties asserted by the IRS are calculated as 20% of the amount
of the tax assessed for fiscal year 1987 and 25% of the tax assessed for each of
fiscal years 1988 and 1989. Interest on the amount of tax assessed and penalties
is currently accruing at a rate of 11% per annum. The applicable annual rate of
interest has historically varied from 7% to 12%.
If the Company were required to pay a significant portion of the assessment with
related interest and penalties, such payment might exceed the Company's
resources. In such event, the viability of the Company would be placed in
jeopardy, and it is uncertain that the Company could, through financing or
otherwise, obtain the funds required to pay such assessment, interest, and
applicable penalties. Management believes, however, 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 NOLs. Based upon consultation with
its tax advisors, management believes that the Company's position will prevail
on the most significant issues. Accordingly, management believes that the
outcome of the examination will not have a material adverse effect on its
financial condition or results of operations, but may result in some reduction
in the amount of the NOLs available to the Company. 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 be determined or estimated at this time. No
reserves are being expensed to cover the potential liability.
As of December 31, 1997, the Company had federal NOLs of approximately $290.5
million. The Company would be subject to an annual limitation (described below)
on its ability to utilize its NOLs to offset future taxable income if the
Company undergoes an ownership change (an "Ownership Change") within the meaning
of Section 382 of the Internal Revenue Code of 1986, as amended ("Section 382").
Generally, an Ownership Change is deemed to occur if the aggregate cumulative
increase in the percentage ownership of the capital stock of the Company (which
generally includes for this purpose, but is not limited to, the common stock and
certain options and warrants) by persons owning 5% or more of such capital stock
and certain public groups (within the meaning of Section 382) is more than 50
percentage points in any three-year testing period. In the event of an Ownership
Change, the Company's utilization of its NOLs would be limited to an annual
amount (without extending the applicable 15-year carryforward period for NOLs)
equal to the product of the fair market value of the Company immediately before
such Ownership Change (as determined pursuant to Section 382, which may provide
for certain reductions in value) multiplied by the long-term tax-exempt rate,
which is an interest-indexed rate that is published monthly by the IRS and which
is approximately 5.23% as of the date of this Annual Report. NOLs arising after
the date that any Ownership Change occurs will be unaffected by such Ownership
Change.
It is impossible for the Company to ensure that an Ownership Change will not
occur in the future, in part because the Company has no ability to restrict the
acquisition or disposition of the Company's capital stock by persons whose
ownership could cause an Ownership Change. In addition, the Company may in the
future take certain actions which, alone or coupled with other events, could
give rise to an Ownership Change, if in the exercise of the business judgment of
the Company such actions (which may include future issuances of equity
securities) are necessary or desirable. If an Ownership Change were to occur,
the NOL annual limitation under Section 382 could substantially reduce the
Company's future after-tax earnings and cash flow.
In March 1994, the Securities and Exchange Commission (the "Commission")
initiated a private investigation, which included the Company and certain of its
present and former officers and affiliates, to determine whether violations of
certain aspects of the Federal securities laws had occurred. To date, the
25
inquiry of the Commission has primarily focused on accounting treatment and
reporting matters relating to various transactions which took place in the late
1980s and early 1990s. The Company is cooperating with the Commission in its
investigation. The Company has recently been advised by the Staff of the
Commission that it has been authorized by the Commission to institute an
administrative proceeding against the Company and certain of its present and
former officers and affiliates. Based on information currently available to the
Company, it is the Company's understanding that if a proceeding were to be
brought, the Staff intends to seek an order to cease and desist violations of
the Federal securities laws (without monetary penalties) based on claims
relating to accounting treatment and reporting matters with respect to the
Company's financial statements for the years ended December 31, 1990 and 1991,
as well as the Company's Proxy Statement covering the 1992 fiscal year. It is
not possible at this time to determine the outcome of the Commission's
investigation.
During 1997, in connection with the Commission's investigation, the Company
incurred $0.2 million of legal fees and expenses on behalf of the Company,
directors and executives of the Company, and KCS. In general, under the
Company's by-laws, the Company is obligated to indemnify officers and directors
for all liabilities arising in the course of their duties on behalf of the
Company. To date, no officer or director has had legal representation separate
from the Company's legal representation, and no allocation of the legal fees for
such representation has been made.
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
adverse effect on the Company. When it is probable that a loss has been incurred
and possible to make reasonable estimates of the Company's liability with
respect to such matters, a provision is recorded for the amount of such estimate
or for the minimum amount of a range of estimates when it is not possible to
estimate the amount within the range that is most likely to occur.
The Company generates hazardous and non-hazardous wastes in the normal course of
its manufacturing operations. As a result, the Company is subject to a wide
range of federal, state, local and foreign environmental laws and regulations,
including CERCLA, that (i) govern activities or operations that may have adverse
environmental effects, such as discharges to air and water, as well as handling
and disposal practices for hazardous and non-hazardous wastes, and (ii) impose
liability for the costs of cleaning up, and certain damages resulting from,
sites of past spills, disposals or other releases of hazardous substances.
Compliance with such laws and regulations has, and will, require expenditures by
the Company on a continuing basis. The Company does not expect that these
expenditures will have a material adverse effect on its financial condition or
results of operations.
Forward-Looking Information
Certain information in this Annual Report includes forward looking statements
regarding future events or the future financial performance of the Company that
involve certain contingencies and uncertainties, including those discussed above
in the section entitled Contingencies and Uncertainties. In addition, when
included in this Annual Report or in documents incorporated herein by reference,
the words "may," "expects," "intends," "anticipates," "plans," "projects,"
"estimates" and the negatives thereof and analogous or similar expressions are
intended to identify forward-looking statements. Such statements are inherently
subject to a variety of risks and uncertainties that could cause actual results
to differ materially from those reflected in such forward-looking statements.
Such risks and uncertainties, many of which are beyond the Company's control,
include, among others, the sensitivity of construction and mining activity to
interest rates, government spending and general economic conditions; the success
of the integration of acquired businesses; the retention of key management;
foreign currency fluctuations; pricing, product initiatives and other actions
taken by competitors; the effects of changes in laws and regulations; continued
use of net operating loss carryovers and other factors. Actual events or the
actual future results of the Company may differ materially from any forward
looking statement due to these and other risks, uncertainties and significant
factors. The forward-looking statements contained herein speak only as of the
date of this Annual Report and the forward-looking statements contained in
documents incorporated herein by reference speak only as of the date of the
respective documents. The Company expressly disclaims any obligation or
undertaking to release publicly any updates or revisions to any forward-looking
statement contained or incorporated by reference in this Annual Report to
reflect any change in the Company's expectations with regard thereto or any
change in events, conditions or circumstances on which any such statement is
based.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Unaudited Quarterly Financial Data
Summarized quarterly financial data for 1997 and 1996 are as follows (in
millions, except per share amounts):
1997 1996
------------------------------------- -------------------------------------
Fourth Third Second First Fourth Third Second First
------------------------------------- -------------------------------------
Net sales.................................... $ 219.7 $ 214.1 $ 232.2 $ 176.3 $ 156.8 $ 165.7 $ 182.8 $ 173.2
Gross profit................................. 36.8 37.0 38.3 27.5 (4.9) 23.7 27.0 23.4
Income (loss) from continuing operations
before extraordinary items................. 10.0 8.7 7.7 3.9 (46.5) (3.4) (1.7) (2.7)
Income (loss) from discontinued operations... --- --- --- --- 87.8 4.8 6.2 3.2
Income (loss) before extraordinary items.... 10.0 8.7 7.7 3.9 41.3 1.4 4.5 0.5
Net income (loss)............................ 10.0 (3.5) 5.1 3.9 41.3 1.4 4.5 0.5
Income (loss) applicable to common stock..... 6.4 (3.9) 4.7 3.5 24.4 (0.9) 2.6 (1.4)
Per share:
Basic
Income (loss) before extraordinary items. $ 0.32 $ 0.47 $ 0.35 $ 0.26 $ 1.85 $ (0.07) $ 0.19 $ (0.13)
Net income (loss)........................ 0.32 (0.21) 0.33 0.26 1.85 (0.07) 0.19 (0.13)
Diluted
Income (loss) before extraordinary items. $ 0.30 $ 0.43 $ 0.48 $ 0.24 $ 1.71 $ (0.06) $ 0.18 $ (0.13)
Net income (loss)........................ 0.30 (0.20) 0.31 0.24 1.71 (0.06) 0.18 (0.13)
The accompanying unaudited quarterly financial data of the Company have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with Item 302 of Regulation S-K. In the opinion of
management, all adjustments considered necessary for a fair presentation have
been made and were of a normal recurring nature except for those discussed
below.
The results of the Company's Material Handling Segment have been accounted for
as discontinued operations for all periods presented. See Item 1. - Business.
In 1997, the Company recognized an extraordinary loss on the early
extinguishment of debt -- $2.6 million in connection with the refinancing of its
then existing revolving credit in the second quarter and $12.2 million in
connection with the redemption of $83.3 million of its Senior Secured Notes in
the third quarter.
In 1996, the Company recognized a gain of $2.4 million in the first quarter from
the sale of excess property in Scotland. In 1996 Income (loss) from discontinued
operations includes the gain, net of income taxes, of $84.5 million on the sale
of CMHC in the fourth quarter. In the fourth quarter of 1996 the Company
recorded special charges of $45.1 million, including impairment charges of $18.7
million (see Note D -- "Impairment of Long Lived Assets and Other Special
Charges"), a reduction in the value of certain assets of $8.6 million, $2.0
million related to pre-purchase tax contingencies at PPM, $3.0 million of other
one time accruals, and income tax expense of $12.1 million (see Note I --
"Income Taxes"). Net income (loss) has been reduced by Preferred Stock accretion
for purposes of calculating earnings per share amounts. See Note J -- "Preferred
Stock" in the Notes to the Company's Consolidated Financial Statements. In the
fourth quarter of 1996 preferred stock accretion was $16.9 million, which
included $14.5 of additional accretion due to the redemption of the Series A
Preferred Stock on January 29, 1997.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
27
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Items 10 through 13 is incorporated by reference to
the definitive Terex Corporation Proxy Statement to be filed with the Securities
and Exchange Commission not later than 120 days after the end of the fiscal year
covered by this Annual Report on Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) and (2) Financial Statements and Financial Statement Schedules.
See "Index to Consolidated Financial Statements and Financial Statement
Schedule" on Page F-1.
(3) Exhibits
See "Index to Exhibits" on Page E-1.
(b) Reports on Form 8-K
A report on form 8-K dated December 8, 1997 was filed December 8, 1997 reporting
that the Company had entered into an underwriting agreement with Credit Suisse
First Boston Corporation (the "Underwriter") and Legris Industries S.A. and
Potain S.A. (collectively, the "Selling Shareholders"), providing for the
purchase by the Underwriter from the Selling Stockholders of 705,969 shares of
the Company's Common Stock.
A report on Form 8-K dated December 15, 1997 was filed December 29, 1997
reporting the Company's announcement of an agreement to acquire the shares of
O&K Mining GmbH.
28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TEREX CORPORATION
By: /s/ Ronald M. DeFeo March 27, 1998
----------------------------------
Ronald M. DeFeo,
Chairman, Chief Executive Officer
and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Name Title Date
/s/ Ronald M. DeFeo Chairman, Chief Executive Officer, March 27, 1998
- ---------------------- and Director
Ronald M. DeFeo (Principal Executive Officer)
/s/ David J. Langevin Executive Vice President March 27, 1998
- ---------------------- (Acting Principal Financial Officer)
David J. Langevin
/s/ Joseph F. Apuzzo Vice President Finance and Controller March 27, 1998
- ---------------------- (Principal Accounting Officer)
Joseph F. Apuzzo
/s/ G. Chris Andersen Director March 27, 1998
- ----------------------
G. Chris Andersen
/s/ William H. Fike Director March 27, 1998
- ----------------------
William H. Fike
/s/ Bruce I. Raben Director March 27, 1998
- ----------------------
Bruce I. Raben
/s/ Marvin B. Rosenberg Director March 27, 1998
- ------------------------
Marvin B. Rosenberg
/s/ David A. Sachs Director March 27, 1998
- ------------------------
David A. Sachs
/s/ Adam E. Wolf Director March 27, 1998
- ------------------------
Adam E. Wolf
29
THIS PAGE IS INTENTIONALLY BLANK
NEXT PAGE IS NUMBERED "F-1"
F-1
TEREX CORPORATION AND SUBSIDIARIES
Index to Consolidated Financial Statements and Financial Statement Schedules
Page
TEREX CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997
AND 1996 AND FOR EACH OF THE THREE YEARS
IN THE PERIOD ENDED DECEMBER 31, 1997
Report of independent accountants.......................................F - 2
Consolidated statement of operations ...................................F - 3
Consolidated balance sheet..............................................F - 4
Consolidated statement of changes in stockholders' equity (deficit).....F - 5
Consolidated statement of cash flows....................................F - 6
Notes to consolidated financial statements..............................F - 7
FINANCIAL STATEMENT SCHEDULES
Schedule II -- Valuation and Qualifying Accounts and Reserves...........F - 28
Schedule IV -- Indebtedness of and to Related Parties -- Not Current....F - 29
All other schedules for which provision is made in the applicable regulations of
the Securities and Exchange Commission are not required under the related
instructions or are not applicable, and therefore have been omitted.
F-2
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of Terex Corporation
In our opinion, the Terex Corporation consolidated financial statements listed
in the accompanying index on page F-1 present fairly, in all material respects,
the financial position of Terex Corporation and its subsidiaries at December 31,
1997 and 1996, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Stamford, Connecticut
March 6, 1998
F-3
TEREX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(in millions except per share amounts)
Year Ended December 31,
------------------------------------
1997 1996 1995
----------- ----------- ------------
NET SALES............................................... $ 842.3 $ 678.5 $ 501.4
COST OF GOODS SOLD...................................... 702.7 609.3 431.0
----------- ----------- ------------
Gross Profit......................................... 139.6 69.2 70.4
ENGINEERING, SELLING AND ADMINISTRATIVE EXPENSES........ 68.5 64.1 57.6
----------- ----------- ------------
Income from operations............................... 71.1 5.1 12.8
OTHER INCOME (EXPENSE)
Interest income...................................... 0.9 1.2 0.7
Interest expense..................................... (39.4) (44.8) (38.7)
Amortization of debt issuance costs.................. (2.6) (2.6) (2.3)
Other income (expense) - net......................... 1.0 (1.1) (4.6)
----------- ----------- ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES AND EXTRAORDINARY ITEMS............... 31.0 (42.2) (32.1)
PROVISION FOR INCOME TAXES.............................. (0.7) (12.1) ---
----------- ----------- ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
EXTRAORDINARY ITEMS.................................. 30.3 (54.3) (32.1)
INCOME FROM DISCONTINUED OPERATIONS
(net of tax expense of $2.6, in 1996................. --- 102.0 4.4
----------- ----------- ------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS.............. 30.3 47.7 (27.7)
EXTRAORDINARY LOSS ON RETIREMENT OF DEBT................ (14.8) --- (7.5)
----------- ----------- ------------
NET INCOME (LOSS).................................... 15.5 47.7 (35.2)
LESS PREFERRED STOCK ACCRETION.......................... (4.8) (22.9) (7.3)
----------- ----------- ------------
INCOME (LOSS) APPLICABLE TO COMMON STOCK............. $ 10.7 $ 24.8 $ (42.5)
=========== =========== ============
PER COMMON AND COMMON EQUIVALENT SHARE:
Basic
Income (loss) from continuing operations.......... $ 1.57 $ (6.54) $ (3.79)
Income from discontinued operations............... --- 8.64 0.42
----------- ----------- ------------
Income (loss) before extraordinary items....... 1.57 2.10 (3.37)
Extraordinary loss on retirement of debt.......... (0.91) --- (0.72)
=========== =========== ============
Net income (loss).................................. $ 0.66 $ 2.10 $ (4.09)
=========== =========== ============
Diluted
Income (loss) from continuing operations.......... $ 1.44 $ (5.81) $ (3.79)
Income from discontinued operations............... --- 7.67 0.42
---------- ------------ -----------
Income (loss) before extraordinary items...... 1.44 1.86 (3.37)
Extraordinary loss on retirement of debt.......... (0.84) --- (0.72)
----------- ----------- ------------
Net income (loss)................................. $ 0.60 $ 1.86 $ (4.09)
=========== =========== ============
AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING IN PER SHARE CALCULATION:
Basic........................................... 16.2 11.8 10.4
Diluted......................................... 17.7 13.3 10.4
The accompanying notes are an integral part of these financial statements.
F-4
TEREX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in millions, except par value)
December 31,
------------------------
1997 1996
----------- ------------
CURRENT ASSETS
Cash and cash equivalents............................................................. $ 28.7 $ 72.0
Trade receivables (less allowance of $4.5 in 1997 and $7.0 in 1996)................... 139.3 110.3
Net inventories....................................................................... 232.1 190.6
Other current assets.................................................................. 26.4 17.3
------------- -----------
Total Current Assets............................................... 426.5 390.2
LONG-TERM ASSETS
Property, plant and equipment - net................................................... 47.8 31.7
Goodwill - net........................................................................ 88.4 32.4
Other assets - net.................................................................... 25.8 16.9
------------- -----------
TOTAL ASSETS............................................................................. $ 588.5 $ 471.2
============= ===========
CURRENT LIABILITIES
Notes payable and current portion of long-term debt................................... $ 26.6 $ 19.2
Trade accounts payable................................................................ 138.1 104.4
Accrued compensation and benefits..................................................... 16.4 15.8
Accrued warranties and product liability.............................................. 25.3 19.4
Other current liabilities............................................................. 29.7 36.2
------------- -----------
Total Current Liabilities........................................... 236.1 195.0
NON CURRENT LIABILITIES
Long-term debt, less current portion.................................................. 273.5 262.1
Other................................................................................. 18.7 29.6
MINORITY INTEREST, INCLUDING REDEEMABLE PREFERRED STOCK OF A SUBSIDIARY
Liquidation preference $0 in 1997 and $21.4 in 1996................................... 0.6 10.0
REDEEMABLE CONVERTIBLE PREFERRED STOCK
Liquidation preference $0 in 1997 and $46.2 in 1996................................... --- 46.2
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Warrants to purchase common stock..................................................... 0.8 3.2
Equity rights.......................................................................... 3.2 ---
Common Stock, $0.01 par value --
authorized 30.0 shares; issued and outstanding 20.5 in 1997 and 13.2 in 1996....... 0.2 0.1
Additional paid-in capital............................................................ 178.7 55.8
Accumulated deficit................................................................... (115.4) (126.1)
Pension liability adjustment.......................................................... (1.8) (2.0)
Cumulative translation adjustment..................................................... (6.1) (2.7)
------------- -----------
Total Stockholders' Equity (Deficit).................................. 59.6 (71.7)
------------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)..................................... $ 588.5 $ 471.2
============= ===========
The accompanying notes are an integral part of these financial statements.
F-5
TEREX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(in millions)
Unrealized
Additional Accumu- Pension Holding Cumulative
Equity Common Paid-in lated Liability Gain Translation
Warrants Rights Stock Capital Deficit Adjustment (Loss) Adjustment Total
---------- --------- --------- ----------- --------- ----------- --------- ----------- --------
BALANCE AT DECEMBER 31,
1994....................$ 17.6 $ --- $ 0.1 $ 40.1 $ (108.4)$ (1.8)$ 1.8 $ (5.1) $ (55.7)
Conversion of Warrants... (0.4) --- --- 0.4 --- --- --- --- ---
Net loss................. --- --- --- --- (35.2) --- --- --- (35.2)
Accretion of carrying
value of redeemable
preferred stock to
redemption value........ --- --- --- --- (7.3) --- --- --- (7.3)
Pension liability
adjustment.............. --- --- --- --- --- (0.9) --- --- (0.9)
Unrealized holding loss
on equity securities.... --- --- --- --- --- --- (0.8) --- (0.8)
Translation adjustment... --- --- --- --- --- --- --- 3.0 3.0
---------- ---------- ---------- --------- ---------- --------- ---------- ---------- ---------
BALANCE AT DECEMBER 31,
1995.................... 17.2 --- 0.1 40.5 (150.9) (2.7) 1.0 (2.1) (96.9)
Conversion of Warrants... (14.0) --- --- 14.0 --- --- --- --- ---
Issuance of common stock. --- --- --- 1.3 --- --- --- --- 1.3
Net income............... --- --- --- --- 47.7 --- --- --- 47.7
Accretion of carrying
value of redeemable
preferred stock to --- --- --- --- (22.9) --- --- --- (22.9)
redemption value........
Pension liability --- --- --- --- --- 0.7 --- --- 0.7
adjustment..............
Unrealized holding loss
on equity securities.... --- --- --- --- --- --- (1.0) --- (1.0)
Translation adjustment... --- --- --- --- --- --- --- (0.6) (0.6)
---------- ---------- ---------- ---------- --------- --------- ---------- ---------- ---------
BALANCE AT DECEMBER 31,
1996.................... 3.2 --- 0.1 55.8 (126.1) (2.0) --- (2.7) (71.7)
Conversion of Warrants... (2.4) --- --- 2.4 --- --- --- --- ---
Issuance of Common Stock. --- --- 0.1 106.1 --- --- --- --- 106.2
Net income............... --- --- --- --- 15.5 --- --- --- 15.5
Accretion of carrying
value of redeemable
preferred stock to
redemption value........ --- --- --- --- (4.8) --- --- --- (4.8)
Reclassification of
equity rights from
non-current liabilities. --- 3.2 --- --- --- --- --- --- 3.2
Exchange of Preferred
Stock of a subsidiary
for common stock........ --- --- --- 13.4 --- --- --- --- 13.4
Conversion of Series B
preferred stock......... --- --- --- 1.0 --- --- --- --- 1.0
Pension liability
adjustment.............. --- --- --- --- --- 0.2 --- --- 0.2
Translation adjustment... --- --- --- --- --- --- --- 3.4 (3.4)
---------- ---------- ---------- ----------- -------- ---------- --------- ---------- --------
BALANCE AT DECEMBER 31,
1997....................$ 0.8 $ 3.2 $ 0.2 $ 178.7 $ (115.4) $ (1.8) $ --- $ (6.1) $ 59.6
========== ========== ========== ========== ========= ========= ========= =========== =========
The accompanying notes are an integral part of these financial statements.
F-6
TEREX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
Year Ended December 31,
------------------------------------------
1997 1996 1995
------------- ------------- --------------
OPERATING ACTIVITIES
Net Income (Loss)...................................................$ 15.5 $ 47.7 $ (35.2)
Adjustments to reconcile net income (loss) to cash used
in operating activities:
Depreciation .................................................... 8.2 7.0 7.4
Amortization .................................................... 6.1 6.7 5.5
Extraordinary loss on retirement of debt......................... 14.8 --- 7.5
Gain on sale of discontinued operations.......................... --- (84.5) ---
Impairment charges and asset writedowns.......................... --- 33.8 ---
Deferred taxes................................................... --- 11.3 ---
Other............................................................ 0.1 (2.9) (0.9)
Changes in operating assets and liabilities
(net of effects of acquisitions):
Trade receivables............................................ (4.8) (23.7) 7.0
Net inventories.............................................. (11.5) (12.7) (7.9)
Net assets of discontinued operations........................ --- (5.4) 2.0
Trade accounts payable....................................... 6.5 4.9 (2.3)
Accrued compensation and benefits............................ (2.6) 3.3 5.6
Other, net................................................... (32.6) (3.1) (17.3)
------------- ------------- -------------
Net cash used in operating activities...................... (0.3) (17.6) (28.6)
------------- ------------- -------------
INVESTING ACTIVITIES
Net proceeds from sale of discontinued operations ............... --- 137.2 ---
Acquisition of businesses, net of cash acquired.................. (97.2) --- (92.4)
Capital expenditures............................................. (9.9) (8.1) (5.2)
Proceeds from sale of excess assets.............................. 8.5 6.5 3.3
Other............................................................ --- 0.1 0.2
------------- ------------- -------------
Net cash provided by (used in) investing activities........ (98.6) 135.7 (94.1)
------------- ------------- -------------
FINANCING ACTIVITIES
Redemption of preferred stock.................................... (45.4) --- ---
Issuance of common stock......................................... 104.6 --- ---
Net borrowings (repayments) under revolving line of credit
agreements..................................................... 99.7 (55.0) 35.9
Principal repayments of long-term debt........................... (83.7) (1.0) (153.9)
Proceeds from issuance of long-term debt, net of issuance costs.. --- --- 239.8
Other............................................................ (11.0) 5.6 ---
------------- ------------- -------------
Net cash provided by (used in) financing activities........ 64.2 (50.4) 121.8
------------- ------------- -------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS........ (8.6) (2.7) (0.3)
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................ (43.3) 65.0 (1.2)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.................... 72.0 7.0 8.2
============= ============= =============
CASH AND CASH EQUIVALENTS AT END OF PERIOD..........................$ 28.7 $ 72.0 $ 7.0
============= ============= =============
The accompanying notes are an integral part of these financial statements.
F-7
TEREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(dollar amounts in millions, unless otherwise noted, except per share amounts)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. As set forth in Note B below, the Company sold its Clark
Material Handling business on November 27, 1996. The sale resulted in a gain of
$84.5. The Clark Material Handling business is accounted for as a discontinued
operation in the consolidated statement of operations for the years ended
December 31, 1996 and 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 Clark
Material Handling business by the Company, and the effect on interest expense of
the continuing operations of the Company, the Company has elected not to
allocate interest expense to discontinued operations. The results of this
election is that loss from continuing operations includes substantially all of
the interest expense of the Company, and income from discontinued operations
does not include any material interest expense.
Principles of Consolidation. The Consolidated Financial Statements include the
accounts of Terex Corporation and its majority owned subsidiaries ("Terex" or
the "Company"). All material intercompany balances, transactions and profits
have been eliminated. The equity method is used to account for investments in
affiliates in which the Company has an ownership interest between 20% and 50%.
Investments in entities in which the Company has an ownership interest of less
than 20% are accounted for on the cost method or at fair value in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 115 "Accounting
for Certain Investments in Debt and Equity Securities."
Use of Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents. Cash equivalents consist of highly liquid investments
with original maturities of three months or less. The carrying amount of cash
and cash equivalents approximates their fair value.
Inventories. Inventories are stated at the lower of cost or market value. Cost
is determined by the first-in, first-out ("FIFO") method.
Debt Issuance Costs. Debt issuance costs incurred in securing the Company's
financing arrangements are capitalized and amortized over the term of the
associated debt. Capitalized debt issuance costs related to debt that is retired
early are charged to expense at the time of retirement. Debt issuance costs
before amortization totaled $12.6 and $16.9 at December 31, 1997 and 1996,
respectively. During 1997, 1996 and 1995, the Company amortized $2.6, $2.6 and
$2.3, respectively, of capitalized debt issuance costs; in addition, $4.1 and
$7.5 of such costs were charged to extraordinary loss on retirement of debt in
1997 and 1995, respectively.
Intangible Assets. Intangible assets include purchased patents and trademarks.
Costs allocated to patents, trademarks and other specifically identifiable
assets arising from business combinations are amortized on a straight-line basis
over the respective estimated useful lives not exceeding seven years.
Goodwill. Goodwill, representing the difference between the total purchase price
and the fair value of assets (tangible and intangible) and liabilities at the
date of acquisition, is being amortized on a straight-line basis over between
fifteen and forty years. Accumulated amortization is $8.9 and $5.6 at December
31, 1997 and 1996, respectively.
Property, Plant and Equipment. Property, plant and equipment are stated at cost.
Expenditures for major renewals and improvements are capitalized while
expenditures for maintenance and repairs not expected to extend the life of an
asset beyond its normal useful life are charged to expense when incurred. Plant
and equipment are depreciated over the estimated useful lives of the assets
F-8
under the straight-line method of depreciation for financial reporting purposes
and both straight-line and other methods for tax purposes.
Impairment of Long Lived Assets. The Company's policy is to assess the
realizability of its long lived assets and to evaluate such assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of such assets (or group of assets) may not be recoverable.
Impairment is determined to exist if the estimated future undiscounted cash
flows is less than its carrying value. The amount of any impairment then
recognized would be calculated as the difference between estimated future
discounted cash flows and the carrying value of the asset. (See Note D --
"Impairment of Long Lived Assets and Other Special Charges.")
Revenue Recognition. Revenue and costs are generally recorded when products are
shipped and invoiced to either independently owned and operated dealers or to
customers. Certain new units may be invoiced prior to the time customers take
physical possession. Revenue is recognized in such cases only when the customer
has a fixed commitment to purchase the units, the units have been completed,
tested and made available to the customer for pickup or delivery, and the
customer has requested that the Company hold the units for pickup or delivery at
a time specified by the customer in the sales documents. In such cases, the
units are invoiced under the Company's customary billing terms, title to the
units and risks of ownership pass to the customer upon invoicing, the units are
segregated from the Company's inventory and identified as belonging to the
customer and the Company has no further obligations under the order.
Accrued Warranties and Product Liability. The Company records accruals for
potential warranty and product liability claims based on the Company's claim
experience. Warranty costs are accrued at the time revenue is recognized. The
Company provides self-insurance accruals for estimated product liability
experience on known claims and for claims anticipated to have been incurred
which have not yet been reported. The Company's product liability accruals are
presented on a gross settlement basis.
Non Pension Postretirement Benefits. The Company provides postretirement
benefits to certain former salaried and hourly employees and certain hourly
employees covered by bargaining unit contracts that provide such benefits and
has elected the delayed recognition method of adoption of the new standard
related to the benefits. (See Note L -- "Retirement Plans.")
Foreign Currency Translation. Assets and liabilities of the Company's
international operations are translated at year-end exchange rates. Income and
expenses are translated at average exchange rates prevailing during the year.
For operations whose functional currency is the local currency, translation
adjustments are accumulated in the Cumulative Translation Adjustment component
of Stockholders' Equity (Deficit). Gains or losses resulting from foreign
currency transactions are included in Other income (expense) -- net.
Foreign Exchange Contracts. The Company uses foreign exchange contracts to hedge
recorded balance sheet amounts related to certain international operations and
firm commitments that create currency exposures. The Company does not enter into
speculative contracts. Gains and losses on hedges of assets and liabilities are
recognized in income as offsets to the gains and losses from the underlying
hedged amounts. Gains and losses on hedges of firm commitments are recorded on
the basis of the underlying transaction. At December 31, 1997 and 1996 the
Company had foreign exchange contracts, which were hedges of firm commitments,
totaling $13.8 and $29.4, respectively, fair value of which approximates their
carrying value.
Environmental Policies. Environmental expenditures that relate to current
operations are either expensed or capitalized depending on the nature of the
expenditure. Expenditures relating to conditions caused by past operations that
do not contribute to current or future revenue generation are expensed.
Liabilities are recorded when environmental assessments and/or remedial actions
are probable, and the costs can be reasonably estimated. Such amounts were not
material at December 31, 1997 and 1996.
Research and Development Costs. Research and development costs are expensed as
incurred. Such costs incurred in the development of new products or significant
improvements to existing products are included in Engineering, Selling and
Administrative Expenses.
Income Taxes. The Company records deferred tax assets and liabilities based upon
the difference between the tax bases of assets and liabilities and their
carrying amounts for financial reporting purposes. The Company records a
valuation allowance for deferred tax assets if realization of such assets is
dependent on future taxable income. (See Note I -- "Income Taxes.")
F-9
Earnings Per Share. Effective with the fourth quarter of 1997, Terex implemented
SFAS No. 128 "Earnings per Share", which establishes new standards for computing
and presenting earnings per share and requires the disclosure of basic and
diluted amounts. Earnings per share amounts for all prior periods have been
restated. Basic earnings per share is computed by dividing net income for the
period by the weighted average number of Terex common shares outstanding.
Diluted earnings per share, which is consistent with the Company's previously
disclosed amounts, is computed by dividing net income for the period by the
weighted average number of Terex common shares outstanding and dilutive common
stock equivalents.
NOTE B -- DISCONTINUED OPERATIONS
The Company sold its worldwide Clark Material Handling business ("CMHC") on
November 27, 1996 for $139.5 in cash. The sale resulted in a $84.5 gain net of
$2.6 of income taxes. CMHC comprised the Company's Material Handling Segment.
The accompanying Consolidated Statement of Operations for the years ended
December 31, 1996 and 1995 include the results of CMHC in "Income from
Discontinued Operations." Please refer to Note A - Basis of Presentation for a
discussion of allocation of interest expense. Summary operating results of
discontinued operations are as follows:
Year Ended
December 31,
-------------------------
1996 1995
----------- -----------
Net sales................................... $ 404.6 $ 528.8
Income before income taxes.................. 17.5 4.4
Provision for income taxes.................. --- ---
Income from operations of discontinued
operations................................ $ 17.5 $ 4.4
Gain on sale of discontinued operations..... 84.5 ---
=========== ===========
Income from discontinued operations......... $ 102.0 $ 4.4
=========== ===========
NOTE C -- ACQUISITIONS
Simon Access and Baraga - On April 7, 1997, the Company completed the purchase
of the industrial businesses of Simon Access division ("Simon Access") of Simon
Engineering plc for $90 in cash, subject to adjustment. Simon Access consists
principally of several business units in the United States and Europe which are
engaged in the manufacture and sale of access equipment designed to position
people and materials to work at heights. Simon Access products include truck
mounted aerial devices, aerial work platforms and truck mounted cranes (boom
trucks) which are sold to utility companies as well as to customers in the
industrial and construction markets. Specifically, the Company acquired 100% of
the outstanding common stock of (i) Simon-Telelect Inc. (now named
Terex-Telelect, Inc.), a Delaware corporation, (ii) Simon Aerials, Inc. (now
named Terex Aerials, Inc.), a Wisconsin corporation, (iii) Sim-Tech Management
Limited, a private limited company incorporated under the laws of Hong Kong,
(iv) Simon-Cella, S.r.l., a company incorporated under the laws of Italy, and
(v) Simon Aerials Limited (now named Terex Aerials Limited), a company
incorporated under the laws of Ireland; and 60% of the outstanding common stock
of Simon-Tomen Engineering Company Limited, a limited liability stock company
organized under the laws of Japan. Not included in the businesses acquired were
Simon Access' fire fighting equipment business. The Company obtained the funds
necessary to complete the transaction from its cash on hand and borrowings under
a new revolving credit facility. (See Note G - "Long-Term Obligations").
On April 14, 1997 the Company completed the purchase of Baraga Products, Inc.
and M&M Enterprises of Baraga, Inc. (collectively, "Baraga", or the "Square
Shooter Business"). Baraga manufactures rough terrain telescopic boom forklifts.
The Simon Access and Baraga (the "Acquired Businesses") acquisitions are being
accounted for using the purchase method, with the purchase price allocated to
the assets acquired and the liabilities assumed based upon their respective
estimated fair values at the date of acquisition. The excess of purchase price
over the net assets acquired (approximately $54.5) is being amortized on a
straight-line basis over 40 years.
F-10
The estimated fair values of assets and liabilities acquired in the Simon Access
and Baraga businesses are summarized as follows:
Accounts receivable..................................$ 23.1
Inventories.......................................... 38.8
Other current assets................................. 0.9
Property, plant and equipment........................ 21.1
Goodwill............................................. 54.5
Other assets......................................... 11.8
Accounts payable and other current liabilities....... (42.1)
Long-term debt....................................... (4.9)
Other non-current liabilities........................ (4.5)
---------------
$ 98.7
===============
The Company is in the process of completing evaluations and estimates for
purposes of determining certain values. The Company has also estimated costs
related to plans to integrate the activities of the Acquired Businesses into the
Company, including plans to exit certain activities and consolidate and
restructure certain functions. The Company may revise the estimates as
additional information is obtained.
The operating results of the Acquired Businesses are included in the Company's
consolidated results of operations since April 7, 1997 and April 14, 1997,
respectively. The following pro forma summary presents the consolidated results
of operations as though the Company completed the acquisition of the Acquired
Businesses on January 1, 1996, after giving effect to certain adjustments,
including amortization of goodwill, interest expense and amortization of debt
issuance costs on the New Credit Facility:
Unaudited Pro Forma
for the Year Ended
December 31,
-------------------------
1997 1996
----------- -----------
Net sales.........................................$ 893.3 $ 887.1
Income from operations............................ 71.4 20.2
Income (loss) before discontinued operations
and extraordinary items......................... 29.2 (45.3)
Income (loss) before discontinued operations
and extraordinary items, per share
Basic.......................................$ 1.80 $ (3.84)
Diluted..................................... 1.65 (3.41)
The pro forma information is not necessarily indicative of what the actual
results of operations of the Company would have been for the periods indicated,
nor does it purport to represent the results of operations for future periods.
PPM - On May 9, 1995, the Company, through Terex Cranes, Inc., a wholly owned
subsidiary of the Company ("Terex Cranes, Inc."), completed the acquisition (the
"PPM Acquisition") of substantially all of the shares of P.P.M. S.A. ("PPM
Europe"), from Potain S.A., and all of the capital stock of Legris Industries,
Inc., which owns 92.4% of the capital stock of PPM Cranes, Inc. ("PPM North
America;" and PPM North America together with PPM Europe collectively referred
to as "PPM") from Legris Industries S.A. PPM designs, manufactures and markets
mobile cranes and container stackers primarily in North America and Western
Europe under the brand names of PPM, P&H (trademark of Harnischfeger
Corporation) and BENDINI. Concurrently with the completion of the PPM
Acquisition, the Company contributed the assets (subject to liabilities) of its
Koehring Cranes and Excavators and Marklift division to Terex Cranes. The former
division now operates as Koehring Cranes, Inc., a wholly owned subsidiary of
Terex Cranes Inc. ("Koehring").
The purchase price of PPM, including acquisition costs, was approximately
$104.5. Approximately $92.6 of the purchase price was paid in cash, including
the repayment of certain indebtedness of PPM required to be repaid in connection
with the acquisition. The remainder of the purchase price consisted of the
issuance of redeemable preferred stock of Terex Cranes having an aggregate
liquidation preference of approximately $21.4, subject to adjustment. On
December 10, 1997, the Company issued 706.0 thousand shares of Terex Common
Stock in exchange for the outstanding preferred stock of Terex Cranes. At the
time of the exchange Terex recorded an additional $3.2 preferred stock accretion
to reflect the difference between the fair market value of the Common Stock
issued and the carrying value of the Terex Cranes preferred stock.
F-11
The PPM Acquisition was accounted for as a purchase, with the purchase price
allocated to the assets acquired and liabilities assumed based upon their
respective estimated fair values at the date of acquisition. The excess of
purchase price over the net assets acquired is being amortized on a
straight-line basis over 15 years. The estimated fair values of assets and
liabilities acquired in the PPM Acquisition were:
Cash............................................... $ 1.0
Accounts receivable................................ 33.8
Inventories........................................ 69.1
Other current assets............................... 11.9
Property, plant and equipment...................... 20.5
Other assets....................................... 0.3
Goodwill........................................... 68.0
Accounts payable and other current liabilities..... (86.6)
Other liabilities.................................. (13.5)
------------
$ 104.5
============
The operating results of PPM are included in the Company's consolidated results
of operations since May 9, 1995. The following pro forma summary presents the
consolidated results of operations as though the Company completed the PPM
Acquisition on January 1, 1994, after giving effect to certain adjustments,
including amortization of goodwill, interest expense and amortization of debt
issuance costs on the debt issued in the Refinancing:
Unaudited Pro
Forma for the Year Ended
December 31, 1995
-----------------------
Net sales...................................... $ 566.3
Income (loss) from operations.................. (3.7)
Loss before discontinued operations and
extraordinary items........................ (53.0)
Loss before discountinued operations and
extraordinary items, per share:
Basic.................................. $ (5.89)
Diluted................................ (5.89)
The pro forma information is not necessarily indicative of what the actual
results of operations of the Company would have been for the periods indicated,
nor does it purport to represent the results of operations for future periods.
NOTE D -- IMPAIRMENT OF LONG LIVED ASSETS AND OTHER SPECIAL CHARGES
As required by generally accepted accounting principles, goodwill was allocated
in the PPM Acquisition to various operating units. After eighteen months of
continuous rationalization, estimated future undiscounted cash flows for certain
operations would not be sufficient to recover the goodwill and fixed assets
recorded for these operations. Thus, in the fourth quarter of 1996 the Company
recorded an impairment charge of $16.8 ($13.3 related to goodwill and $3.5
related to fixed assets). Similarly, in the fourth quarter of 1996 the Company
wrote off $1.9 of goodwill related to its IMACO unit in the United Kingdom.
These 1996 impairment charges totaling $18.7 are included in "Cost of Goods
Sold."
In addition to the impairment charges described above, the Company recorded
special charges of $8.6 to reduce the value of assets at Unit Rig, $2.0 related
to 1993 tax matters at PPM Europe, and $3.0 of other one-time charges during the
fourth quarter of 1996.
F-12
NOTE E -- INVENTORIES
Inventories consist of the following:
December 31,
-------------------------
1997 1996
----------- -----------
Finished equipment..................... $ 54.1 $ 46.5
Replacement parts...................... 82.8 68.0
Work-in-process........................ 22.4 19.8
Raw materials and supplies............. 72.8 56.3
----------- -----------
Net inventories...................... $ 232.1 $ 190.6
=========== ===========
NOTE F -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
December 31,
-----------------------
1997 1996
----------- ------------
Property......................................... $ 13.6 $ 0.2
Plant............................................ 43.8 14.0
Equipment........................................ 25.6 51.2
----------- ------------
83.0 65.4
Less: Accumulated depreciation.................. (35.2) (33.7)
=========== ============
Net property, plant and equipment.............. $ 47.8 $ 31.7
=========== ============
NOTE G -- LONG-TERM OBLIGATIONS
See Note P -- "Subsequent Events" for a discussion regarding the refinancing of
substantially all of the Company's debt in the first quarter of 1998. Long-term
debt is summarized as follows:
December 31,
------------------------
1997 1996
----------- -----------
13.25% Senior Secured Notes due May 15, 2002
("Senior Secured Notes")........................ $ 165.1 $ 247.3
Credit Facility maturing April 7, 2000.............. 94.9 ---
Note payable........................................ 4.7 5.0
Capital lease obligations........................... 12.1 14.7
Other............................................... 23.3 14.3
------------ -----------
Total long-term debt.............................. 300.1 281.3
Current portion of long-term debt................. 26.6 19.2
------------ -----------
Long-term debt, less current portion.............. $ 273.5 $ 262.1
============ ===========
The Senior Secured Notes
On May 9, 1995, the Company issued $250 of 13.25% Senior Secured Notes due May
15, 2002. The Senior Secured Notes were issued in conjunction with the PPM
Acquisition and a refinancing of 13.0% Senior Secured Notes due August 1, 1996
("Old Senior Secured Notes"), and 13.5% Secured Senior Subordinated Notes due
July 1, 1997 ("Subordinated Notes"). Except in the event of certain asset sales,
there are no principal repayment or sinking fund requirements prior to maturity.
Interest on the Notes is payable semi-annually on May 15 and November 15 of each
year to holders of record on the immediately preceding May 1 and November 1,
respectively. The Notes bear interest at 13.25% per annum. Prior to the
consummation of an exchange offer on November 5, 1996, the interest rate on the
Notes was 13.75% per annum. Interest is computed on the basis of a 360-day year
comprised of twelve 30-day months.
F-13
The Senior Secured Notes are senior obligations of the Company, pari passu in
right of payment with all existing and future senior indebtedness and senior to
all subordinated indebtedness. Repayment of the Senior Secured Notes is
guaranteed by certain domestic subsidiaries of the Company (the "Guarantors").
The Senior Secured Notes are secured by a first priority security interest on
substantially all of the assets of the Company and the Guarantors, other than
cash and cash equivalents, except that as to accounts receivable and inventory
and proceeds thereof, and certain related rights, such security shall be
subordinated to liens securing obligations outstanding under any working capital
or revolving credit facility secured by such accounts receivable and inventory,
including the Credit Facility. The Senior Secured Notes are also secured by a
lien on certain assets of the Company's foreign subsidiaries. The indenture for
the 13.25% Senior Secured Notes (the "Indenture") places certain limits on the
Company's ability to incur additional indebtedness; permit the existence of
liens; issue, pay dividends on or redeem equity securities; sell assets;
consolidate, merge or transfer assets to another entity; and enter into
transactions with affiliates.
As required by the Indenture, the Company, following the sale of CMHC, offered
to repurchase (the "Offer") $100 principal amount of the Senior Secured Notes.
The Offer expired on December 27, 1996, with no Senior Secured Notes being
tendered for repurchase. As a result, the $100 of sale proceeds was available
for other corporate purposes.
On July 28, 1997 and August 7, 1997, the Company issued an additional five
million shares and 700 thousand shares, respectively, of its Common Stock in a
public stock offering. The shares were issued at a price to the public of $19.50
per share. The net proceeds received by the Company after deduction of
underwriting discounts, commissions and other expenses was $104.6. On September
4, 1997, the Company used a portion of the proceeds to redeem $83.3 in principal
of the Secured Senior Notes. In accordance with the terms of the Indenture, the
redemption of the Senior Secured Notes was at a 9.46% redemption premium. The
redemption premium plus the pro-rata share of unamortized debt origination costs
totaled $12.2 and have been reflected as extraordinary items in the third
quarter of 1997.
The 1997 Credit Facility
On April 7, 1997, the Company and certain of its domestic subsidiaries
(collectively, the "Borrowers") entered a Revolving Credit Agreement with a
financial institution, as agent (the "Agent"), pursuant to which the Agent and
other financial institutions party thereto have provided the Borrowers with a
line of credit of up to $125 secured by accounts receivable and inventory (the
"1997 Credit Facility"). The 1997 Credit Facility replaced the Company's $100
revolving credit facility (the "Old Credit Facility").
Loans made under the 1997 Credit Facility (a) bear interest, based on the
Company's fixed charge coverage ratio, at a rate between 0.5% and 1.5% per annum
in excess of the prime rate or at a rate between 2.0% and 3.0% per annum in
excess of the eurodollar rate, at the election of the Company, (b) mature on
April 7, 2000, (c) were used by the Borrowers to repay the Old Credit Facility,
and (d) are to be used for working capital and other general corporate purposes,
including acquisitions.
The Old Credit Facility
The Old Credit Facility was terminated in April 1997 in conjunction with the
Simon Access acquisition and entering into the 1997 Credit Facility. The Company
paid a fee of $2.0 upon termination of the Old Credit Facility. Additionally,
$0.6 of unamortized debt acquisition costs related to the Old Credit Facility
were written off at the termination of the Old Credit Facility. These expenses
have been reflected as extraordinary items in the second quarter of 1997.
The Company had the option to base the interest rate on prime or the Eurodollar
rate. The outstanding principal amount of prime rate loans was at the rate of
1.75% per annum in excess of the prime rate. The outstanding principal amount of
Eurodollar rate loans was at the rate of 3.75% per annum in excess of the
adjusted Eurodollar rate.
Old Senior Secured Notes and Subordinated Notes
The Old Senior Secured Notes and Subordinated Notes were retired on May 9, 1995
in conjunction with the PPM Acquisition and the issuance of the 13.25% Senior
Secured Notes. The Company realized an extraordinary loss of $5.7 and $1.6 on
the early extinguishment of the Old Senior Secured Notes and the Subordinated
Notes, respectively.
F-14
Old TEL Facility
In 1995, the Company's subsidiary, Terex Equipment Limited ("TEL") located in
Motherwell, Scotland, entered into a bank facility (the "TEL Facility") which
provides up to (pound)47.0 ($80.5) including up to (pound)10.0 ($17.1)
non-recourse discounting of accounts receivable which meet certain credit
criteria, plus additional facilities for tender and performance bonds, letters
of credit discounting and foreign exchange contracts. Interest rates vary
between 1.0% - 1.5% above the financial institution's Published Base Rate or
LIBOR. The TEL Facility is collateralized primarily by the related accounts
receivable. The TEL Facility requires no performance covenants. Proceeds from
the TEL Facility are primarily used for working capital purposes. Amounts
discounted under this and the prior facility were $12.7, $6.9 and $11.7 at
December 31, 1997, 1996, and 1995, respectively.
Schedule of Debt Maturities
See Note P - "Subsequent Events" for a discussion regarding the refinancing of
substantially all of the debt of the Company in the first quarter of 1998.
Prior to the refinancing in the first quarter of 1998, scheduled annual
maturities of long-term debt outstanding at December 31, 1997 in the successive
five-year period are summarized below. Amounts shown are exclusive of minimum
lease payments disclosed in Note H -- "Lease Commitments":
1998................................... $ 21.9
1999................................... 1.8
2000................................... 96.3
2001................................... 0.9
2002................................... 165.6
Thereafter............................. 1.5
-----------
Total............................ $ 288.0
===========
Based on quoted market values, the Company believes that the fair value of the
Senior Secured Notes was approximately $190.4 as of December 31, 1997. The
Company believes that, based on quoted market values, the carrying value of its
other borrowings approximates fair market value, based on discounting future
cash flows using rates currently available for debt of similar terms and
remaining maturities.
The Company paid $39.8, $45.3 and $43.0 of interest in 1997, 1996 and 1995,
respectively.
The weighted average interest rate on short term borrowings outstanding was 8.3%
at December 31, 1997 and 10.0% at December 31, 1996.
NOTE H -- LEASE COMMITMENTS
The Company leases certain facilities, machinery and equipment, and vehicles
with varying terms. Under most leasing arrangements, the Company pays the
property taxes, insurance, maintenance and expenses related to the leased
property. Certain of the equipment leases are classified as capital leases and
the related assets have been included in Property, Plant and Equipment. Net
assets under capital leases were $21.9 and $8.2 at December 31, 1997 and 1996,
respectively, net of accumulated amortization of $8.2 and $9.6 at December 31,
1997 and 1996, respectively.
F-15
Future minimum capital and noncancelable operating lease payments and the
related present value of capital lease payments at December 31, 1997 are as
follows:
Capital Operating
Leases Leases
------------- -------------
1998............................................ $ 5.4 $ 5.2
1999............................................ 2.7 3.9
2000............................................ 2.9 3.1
2001............................................ 1.3 2.6
2002............................................ 0.3 2.2
Thereafter...................................... 0.6 3.3
------------- -------------
Total minimum obligations .................. 13.2 $ 20.3
=============
Less amount representing interest............... 1.1
-------------
Present value of net minimum obligations.... 12.1
Less current portion............................ 4.7
-------------
Long-term obligations....................... $ 7.4
=============
Most of the Company's operating leases provide the Company with the option to
renew the leases for varying periods after the initial lease terms. These
renewal options enable the Company to renew the leases based upon the fair
rental values at the date of expiration of the initial lease. Total rental
expense under operating leases was $6.8, $4.7 and $3.9 in 1997, 1996, and 1995,
respectively.
NOTE I -- INCOME TAXES
The components of Income (Loss) From Continuing Operations Before Income Taxes
and Extraordinary Items are as follows:
Year ended December 31,
--------------------------------
1997 1996 1995
---------- ---------- ----------
United States...................................... $ 16.1 $ (40.6) $ (36.1)
Foreign............................................ 14.9 (1.6) 4.0
========== ========== ==========
Income (loss) from continuing operations before
income taxes and extraordinary items........... $ 31.0 $ (42.2) $ (32.1)
========== ========== ==========
The major components of the Company's provision for income taxes are summarized
below:
Year ended December 31,
-------------------------------
1997 1996 1995
---------- --------- --------
Current:
Federal...................................... $ --- $ --- $ ---
State........................................ --- --- ---
Foreign...................................... 5.2 12.1 3.8
Utilization of foreign net operating loss
("NOL") carryforward..................... (4.5) (11.3) (3.8)
---------- --------- --------
Current income tax provision............. 0.7 0.8 ---
Deferred:
Deferred foreign income tax.................. --- 11.3 ---
---------- --------- --------
Total provision for income taxes......... $ 0.7 12.1 ---
========== ========= ========
As a result of the recapitalization of PPM Europe, certain NOL benefit
carryforwards which were fully provided for at the acquisition were utilized
resulting in a deferred tax charge of $11.3 in the fourth quarter of 1996.
F-16
Deferred tax assets and liabilities result from differences in the basis of
assets and liabilities for tax and financial statement purposes. A valuation
allowance has been recognized for the full amount of the deferred tax assets as
it is not more likely than not that they will be fully utilized. The tax effects
of the basis differences and net operating loss carryforward as of December 31,
1997 and 1996 are summarized below for major balance sheet captions:
1997 1996
----------- -----------
Intangibles................................ $ (0.4) $ ---
Accrued liabilities........................ (1.6) ---
Other...................................... (0.8) (0.8)
----------- -----------
Total deferred tax liabilities........ (2.8) (0.8)
----------- -----------
Receivables................................ 0.6 0.6
Net inventories............................ 4.0 4.6
Fixed assets............................... 0.7 2.4
Warranties and product liability........... 7.8 5.8
All other items............................ 7.8 6.2
Benefit of net operating loss carryforward. 140.2 96.2
----------- -----------
Total deferred tax assets............. 161.1 115.8
----------- -----------
Deferred tax assets valuation allowance.... (158.3) (115.0)
----------- -----------
Net deferred tax liabilities.......... $ --- $ ---
=========== ===========
The valuation allowance for deferred tax assets as of January 1, 1996 was
$149.6. The net change in the total valuation allowance for the years ended
December 31, 1996 and 1997 were a decrease of $34.6 and an increase of $43.3,
respectively.
The Company's Provision for Income Taxes is different from the amount which
would be provided by applying the statutory federal income tax rate to the
Company's Income (Loss) From Continuing Operations Before Income Taxes and
Extraordinary Items. The reasons for the difference are summarized below:
Year ended December 31,
--------------------------------
1997 1996 1995
----------- --------- ----------
Statutory federal income tax rate................................. $ 10.9 $ (14.8) $ (11.2)
Recognition of fully reserved preacquisition deferred tax asset... --- 11.3 ---
Change in valuation allowance relating to NOL..................... (6.6) 7.8 11.4
Foreign tax differential on income/losses of foreign subsidiaries. (4.5) 1.4 (1.4)
Goodwill.......................................................... 0.9 6.3 1.1
Other............................................................. --- 0.1 0.1
---------- --------- ----------
Total provision for income taxes............................. $ 0.7 $ 12.1 $ ---
========== ========== ==========
The effective tax rate for discontinued operations differs from the statutory
rate due primarily to utilization of NOLs and foreign tax differential on the
income of foreign subsidiaries.
The Company has not provided for U.S. federal and foreign withholding taxes on
$37.8 of foreign subsidiaries' undistributed earnings as of December 31, 1997,
because such earnings are intended to be reinvested indefinitely. Any income tax
liability that would result had such earnings actually been repatriated would
likely be offset by utilization of NOLs. On repatriation, certain foreign
countries impose withholding taxes. The amount of withholding tax that would be
payable on remittance of the entire amount of undistributed earnings would
approximate $6.6.
At December 31, 1997, the Company had domestic federal net operating loss
carryforwards of $290.5. Approximately $66.6 of the remaining net operating loss
carryforwards are subject to special limitations under the Internal Revenue
Code, and the NOLs may be affected by the current Interal Revenue Service (the
"IRS") examination discussed below.
F-17
The tax basis net operating loss carryforwards expire as follows:
Tax Basis Net
Operating Loss
Carryforwards
----------------
1998................................. $ 8.1
1999................................. 11.9
2000................................. 0.1
2001................................. 4.8
2002................................. 0.5
2003................................. 0.9
2004................................. 22.4
2005................................. 0.8
2006................................. 14.8
2007................................. 41.1
2008................................. 100.4
2009................................. 34.2
2010................................. 42.3
2012................................. 8.2
----------
Total............................ $ 290.5
==========
The Company also has various state net operating loss and tax credit
carryforwards expiring at various dates through 2012 available to reduce future
state taxable income and income taxes. In addition, the Company's foreign
subsidiaries have approximately $78.4 of loss carryforwards, $33.6 in the United
Kingdom, $23.1 in France, and $21.7 in other countries, which are available to
offset future foreign taxable income. The tax loss carryforwards in the United
Kingdom and other countries are available without expiration. Tax loss
carryforwards in France of $6.7 expire in 2000 and 2002, with the remaining
$16.4 available without expiration.
The IRS 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. The examination report
raised a variety of issues, including the Company's substantiation for certain
deductions taken during this period, the Company's utilization of certain NOLs
and the availability of such NOLs to offset future taxable income. The Company
filed an administrative appeal to the examination report in April 1995. As a
result of a meeting with the Manhattan division of the IRS in July 1995, in June
1996 the Company was advised that the matter was being referred back to the
Milwaukee audit division of the IRS. The Milwaukee audit division of the IRS is
currently reviewing information provided by the Company. The ultimate outcome of
this matter is subject to the resolution of significant legal and factual
issues. Given the stage of the audit, and the number and complexity of the legal
and administrative proceedings involved in reaching a resolution of the matter,
it is unlikely that the ultimate outcome, if unfavorable to the Company, will be
determined for at least several years. If the IRS were to prevail on all the
issues raised, the amount of the tax assessment would be approximately $56 plus
penalties of approximately $12.8 and interest through December 31, 1997 of
approximately $94.5. The penalties asserted by the IRS are calculated as 20% of
the amount of the tax assessed for fiscal year 1987 and 25% of the tax assessed
for each of fiscal years 1988 and 1989. Interest on the amount of tax assessed
and penalties is currently accruing at a rate of 11% per annum. The applicable
annual rate of interest has historically carried from 7% to 12%.
If the Company were required to pay a significant portion of the assessment with
related interest and penalties, such payment might exceed the Company's
resources. In such event, the viability of the Company would be placed in
jeopardy, and it is uncertain that the Company could, through financing or
otherwise, obtain the funds required to pay such assessment, interest, and
applicable penalties. Management believes, however, 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 NOLs. Based upon consultation with
its tax advisors, management believes that the Company's position will prevail
on the most significant issues. Accordingly, management believes that the
outcome of the examination will not have a material adverse effect on its
financial condition or results of operations, but may result in some reduction
in the amount of the NOLs available to the Company. 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,
F-18
and the ultimate outcome cannot be determined or estimated at this time. No
reserves are being expensed to cover the potential liability.
The Company made income tax payments of $1.8 in 1997. No income tax payments
were made in 1996 and 1995.
NOTE J -- PREFERRED STOCK
The Company's certificate of incorporation was amended in October 1993 to
authorize 10.0 million shares of preferred stock, $.01 par value per share. As
of December 31, 1997, no shares of preferred stock are outstanding as described
below.
Series A Cumulative Redeemable Convertible Preferred Stock
As of December 31, 1996, the Company had 1.2 million issued and outstanding
shares of Series A Cumulative Redeemable Convertible Preferred Stock (the
"Series A Preferred Stock"). The Liquidation Preference totaled $45.4 at
December 31, 1996. On December 30, 1996, the Company called all of its Series A
Preferred Stock for redemption and subsequently redeemed the stock in January
1997 at an aggregate redemption price of $45.4.
The aggregate net proceeds to the Company for the Series A Preferred Stock and
the Series A Warrants issued on December 20, 1993 were $27.2. The Company
allocated $10.3 and $16.9 of this amount to the Series A Preferred Stock and the
Series A Warrants, respectively, based on management's estimate of the relative
fair values of these securities at the time of their issuance, using information
provided by the Company's investment bankers. The difference between the
initially recorded amount and the redemption amount was accreted to the carrying
value of the Series A Preferred Stock using the interest method over the period
from issuance to the mandatory redemption date, December 31, 2000. As a result
of calling all of the stock for redemption on December 30, 1996, the carrying
value of the Series A Preferred Stock was further adjusted for increases in the
Liquidation Preference. There was no accretion recorded in 1997. The total
accretion recorded in 1996 and 1995 was $22.9 and $7.3, respectively.
Series B Cumulative Redeemable Convertible Preferred Stock
As of December 31, 1996, the Company had 38.8 thousand issued and outstanding
shares of Series B Cumulative Redeemable Convertible Preferred Stock (the
"Series B Preferred Stock"). These shares constituted the remaining balance
outstanding of the Series B Preferred Stock issued to certain individuals on
December 9, 1994 in consideration for the early termination of a contract
between the Company and KCS Industries, L.P., a Connecticut limited partnership
("KCS"), a related party. On December 30, 1997 all 38.8 thousand outstanding
shares of Series B Preferred Stock were converted by the holder thereof into
87.3 thousand shares of common stock.
NOTE K -- STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock. The Company's certificate of incorporation was amended in October
1993 to increase the number of authorized shares of common stock, par value $.01
(the "Common Stock"), to 30.0 million. As of December 31, 1997, there were 20.5
million shares issued and outstanding. Of the 9.5 million unissued shares at
that date, $1.7 million shares were reserved for issuance for the exercise of
stock options and Series A Warrants.
Equity Rights. On May 9, 1995, the Company sold one million equity rights
securities (the "Equity Rights") along with $250 of the Senior Secured Notes. A
portion of the proceeds ($3.2) of the sale of the Senior Secured Notes and the
Equity Rights was allocated to the Equity Rights. The portion of the proceeds
related to the Equity Rights has been reclassified from other non-current
liabilities to the stockholders' equity (deficit) section of the balance sheet,
because they can be satisfied in Common Stock or cash at the option of the
Company. The Equity Rights entitle the holders, upon exercise at any time on or
prior to May 15, 2002, to receive cash or, at the election of the Company,
Common Stock in an amount equal to the average closing sale price of the Common
Stock for the 60 consecutive trading days prior to the date of exercise (the
"Current Price"), less $7.288 per share, subject to adjustment in certain
circumstances. Changes in the Current Price do not affect the net income or loss
reported by the Company; however, changes in the Current Price vary the amount
of cash that the Company would have to pay or the number of Shares of Common
Stock that would have to be issued in the event holders exercise the Equity
Rights. As of December 31, 1997, the Current Price of the Common Stock was
$21.891, which would have required the Company to either pay $14.6 or issue
F-19
621.4 thousand shares of Common Stock, at the Company's option, in the event
that all of the holders had exercised their Equity Rights.
Series A Warrants. In connection with the private placement of the Series A
Preferred Stock (see Note J -- "Series A Preferred Stock"), the Company issued
1.3 million Series A Warrants of which 66.4 thousand warrants were outstanding
at December 31, 1997. Each Series A Warrant may be exercised, in whole or in
part, at the option of the holder at any time before the expiration date on
December 31, 2000 and is redeemable by the Company under certain circumstances.
As of December 31, 1997, upon the exercise or redemption of a Warrant, the
holder thereof was entitled to receive 2.41 shares of Common Stock. The exercise
price for the Warrants is $.01 for each share of Common Stock. The number of
shares of Common Stock issuable upon exercise or redemption of the Warrants is
subject to adjustment in certain circumstances.
Series B Warrants. In connection with the issuance of the Series B Preferred
Stock (see Note J -- "Series B Preferred Stock"), the Company issued 107.0
thousand Series B Warrants. At December 31, 1997, all Series B Warrants had been
exercised. The exercise price for the Warrants was $.01 for each share of Common
Stock.
Stock Options. The Company maintains a qualified incentive stock option ("ISO")
plan covering certain officers and key employees. The exercise price of the ISO
is the fair market value of the shares at the date of grant. The ISO allows the
holder to purchase shares of Common Stock, commencing one year after grant. ISO
expire after ten years. At December 31, 1997, 11.1 thousand stock options were
available for grant under the ISO.
Long-Term Incentive Plans. In May 1996, the shareholders approved, the 1996
Terex Corporation Long-Term Incentive Plan (the "1996 Plan"). The 1996 Plan
authorizes the granting of (i) options ("Stock Option Awards") to purchase
shares of Common Stock, including Restricted Stock, (ii) shares of Common Stock,
including Restricted Stock ("Stock Awards"), and (iii) cash bonus awards based
upon a participant's job performance ("Performance Awards"). Subject to
adjustment as described below under "Adjustments," the aggregate number of
shares of Common Stock (including Restricted Stock, if any) optioned or granted
under the 1996 Plan was not to exceed 300 thousand shares. In May 1997, the
shareholders approved that the aggregate number of shares available under the
1996 Plan be increased to 1.0 million shares. At December 31, 1997, 489.5
thousand shares were available for grant under the 1996 Plan. The 1996 Plan
provides that a committee (the "Committee") of the Board of Directors consisting
of two or more members thereof who are non-employee directors, shall administer
the 1996 Plan and has provided the Committee with the flexibility to respond to
changes in the competitive and legal environments, thereby protecting and
enhancing the Company's current and future ability to attract and retain
directors and officers and other key employees and consultants. The 1996 Plan
also provides for automatic grants of Stock Option Awards to non-employee
directors.
In 1994, the shareholders approved a Long-Term Incentive Plan (the "Plan")
covering certain managerial, administrative and professional employees and
outside directors. The Plan provides for awards to employees, from time to time
and as determined by a committee of outside directors, of cash bonuses, stock
options, stock and/or restricted stock. The total number of shares of the
Company's common stock available to be awarded under the Plan is 750 thousand,
subject to certain adjustments. At December 31, 1997, 15.6 thousand shares were
available for grant under the Plan.
F-20
The following table is a summary of stock options under all three of the
Company's plans.
Weighted
Exercise
Number of Average Price
Options per Share
------------- --------------
Outstanding at December 31, 1994.......... 423,966 $ 6.60
448,300 4.85
--- ---
(74,166) 6.21
------------- --------------
Outstanding at December 31, 1995.......... 798,100 $ 5.65
Granted................................ 108,500 6.57
Exercised.............................. (18,075) 5.70
Canceled or expired.................... (45,100) 6.32
------------- --------------
Outstanding at December 31, 1996.......... 843,425 $ 5.73
Granted................................ 176,750 13.93
Exercised.............................. (184,988) 6.04
Canceled or expired.................... (103,600) 5.69
------------- --------------
Outstanding at December 31, 1997.......... 731,587 $ 7.64
============= ==============
Exercisable at December 31, 1997.......... 473,340 $ 6.92
============= ==============
Exercisable at December 31, 1996.......... 479,364 $ 6.08
============= ==============
Exercisable at December 31, 1995.......... 269,893 $ 6.31
============= ==============
The following table summarizes information about stock options outstanding at
December 31, 1997:
Weighted Exercise
Range of Number of Average Life Price per
Exercise Prices Options (in years) Share
- ------------------------- ------------- ------------ ------------
$ 3.50 - $ 6.00 382,187 7.0 $ 4.70
$ 6.01 - $ 10.00 147,150 7.6 $ 6.68
$ 10.01 - $ 15.00 179,500 8.4 $ 12.90
$ 15.01 - $ 24.13 22,750 9.6 $ 21.67
-------------
731,587 7.5 $ 7.64
=============
The Company has adopted SFAS No. 123, "Accounting for Stock-Based Compensation."
In accordance with the provisions of SFAS 123, the Company applies APB Opinion
No. 25, "Accounting for Stock Issued to Employees," and related interpretations
in accounting for its plans and does not recognize compensation expense for its
stock-based compensation plans other than for restricted stock. If the Company
had elected to recognize compensation expense based upon the fair value at the
grant date for awards under these plans consistent with the methodology
prescribed by SFAS No. 123, the Company's net income would have been reduced by
$1.1 ($0.07 (basic) and $0.06 (diluted) per share), $0.6 ($0.05 (basic) and 0.04
(diluted) per share) and $0.6 ($0.06 (basic and diluted) per share) in 1997,
1996 and 1995, respectively.
F-21
The fair value for these options was estimated at the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions for 1997, 1996 and 1995, respectively: dividend yields of 0%, 0% and
0%; expected volatility of 57.50%, 58.72% and 63.76%; risk-free interest rates
of 6.34%, 6.42% and 5.57%; and expected life of 8.1 years, 6.6 years and 8.6
years. The weighted average fair value of options granted during 1997, 1996 and
1995 for which the exercise price equals the market price on the grant date was
$1.7, $0.4 and $1.6, respectively.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
NOTE L -- RETIREMENT PLANS
Pension Plans
US Plans - The Company maintains four defined benefit pension plans covering
certain domestic employees. The benefits for the plans covering the salaried
employees are based primarily on years of service and employees' qualifying
compensation during the final years of employment. Participation in the plan for
salaried employees was frozen as of May 7, 1993, and no participants will be
credited with service following such date except that participants not fully
vested will be credited with service for purposes of determining vesting only.
The benefits for the plans covering the hourly employees are based primarily on
years of service and a flat dollar amount per year of service. It is the
Company's policy generally to fund these plans based on the minimum requirements
of the Employee Retirement Income Security Act of 1974 (ERISA). Plan assets
consist primarily of common stocks, bonds, and short-term cash equivalent funds.
Pension expense includes the following components for 1997, 1996 and 1995:
Year ended December 31,
----------------------------
1997 1996 1995
--------- --------- --------
Service cost for benefits earned during period.... $ 0.2 $ 0.2 $ 0.1
Interest cost on projected benefit obligation..... 2.4 2.3 2.2
Actual (return) loss on plan assets............... (4.0) (5.0) (3.8)
Net amortization and deferral..................... 2.2 3.4 2.0
--------- --------- --------
Net pension expense.......................... $ 0.8 $ 0.9 $ 0.5
========= ========= ========
The following table sets forth the US plans' funded status and the amounts
recognized in the Company's financial statements at December 31:
1997 1996 1995
------------------------- --------------------------- --------------------------
Overfunded Underfunded Overfunded Underfunded Overfunded Underfunded
Plans Plan Plans Plans Plans Plans
----------- ------------- ------------ ------------- ----------- -------------
Actuarial present value of:
Vested benefits....................$ 24.9 $ 9.3 $ 9.8 $ 21.8 $ 9.4 $ 20.9
=========== ============ ============ ============= =========== =============
Accumulated benefits...............$ 25.4 $ 9.3 $ 10.2 $ 21.8 $ 9.9 $ 20.9
=========== ============ ============ ============= =========== =============
Projected benefits.................$ 25.4 $ 9.3 $ 10.2 $ 21.8 $ 9.9 $ 20.9
Fair value of plan assets............ 25.8 6.1 11.5 18.6 10.2 16.5
----------- ------------ ------------ ------------- ----------- -------------
Projected benefit obligation
(in excess of) less than 0.5 (3.2) 1.3 (3.2) 0.4 (4.4)
plan assets........................
Unrecognized net loss from past
experience different than assumed.. 1.7 1.8 1.4 2.0 2.6 2.7
Unrecognized prior service cost...... 0.8 --- 0.8 --- 0.9 ---
Adjustment to recognize minimum
liability.......................... --- (1.8) --- (2.0) --- (2.7)
----------- ------------ ------------ ------------- ----------- -------------
Pension asset (liability)
recognized in the balance sheet....$ 3.0 $ (3.2) $ 3.5 $ (3.2) $ 3.9 $ (4.4)
=========== ============ ============ ============= =========== =============
F-22
The expected long-term rate of return on plan assets was 9% for the periods
presented. The discount rate assumption was 7.0% for 1997, 7.5% for 1996 and
7.5% for 1995.
In accordance with the provisions of the SFAS No. 87, "Employers' Accounting for
Pensions," the Company has recorded an adjustment of $1.8 and $2.0 to recognize
a minimum pension liability at December 31, 1997 and 1996, respectively. This
liability is offset by a direct reduction of stockholders' equity (deficit).
In December 1993, Terex contributed 350.0 thousand shares of Terex Common Stock
to the Master Trust for the benefit of two of the Terex plans, which were valued
by the Company at $2.3 based upon 96.5% of the market value of Terex Common
Stock as quoted on the New York Stock Exchange on the day of contribution. The
market value of this investment was $8.2 at December 31, 1997.
International Plans - TEL maintains a government-required defined benefit plan
(which includes certain defined contribution elements) covering substantially
all of its management employees. This plan is fully funded. Pension expense
relating to this plan was approximately $0.5, $0.4 and $0.3 for the years ended
December 31, 1997, 1996 and 1995, respectively.
Terex Aerials Limited (Ireland) maintains a voluntary, defined pension plan
covering its employees. Pension expense relating to this plan was approximately
$0.1 for the year ended December 31, 1997.
Saving Plans
The Company sponsors various tax deferred savings plans into which eligible
employees may elect to contribute a portion of their compensation. The Company
may, but is not obligated to, contribute to certain of these plans.
Other Postemployment Benefits
The Company provides postemployment health and life insurance benefits to
certain former salaried and hourly employees of Terex Cranes - Waverly
Operations. The Company adopted SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions," on January 1, 1993. This statement
requires accrual of postretirement benefits (such as health care benefits)
during the years an employee provides service.
Terex adopted the provisions of SFAS No. 106 using the delayed recognition
method, whereby the amount of the unrecognized transition obligation at January
1, 1993 is recognized prospectively as a component of future years' net periodic
postretirement benefit expense. The unrecognized transition obligation at
January 1, 1993 was $4.5. Terex is amortizing this transition obligation over 12
years, the average remaining life expectancy of the participants. The liability
of the Company, as of December 31, was as follows:
1997 1996
------------ ------------
Actuarial present value of accumulated
postretirement benefit obligation of:
Retirees....................................... $ 2.6 $ 2.8
Active participants............................ --- ---
------------ ------------
Total accumulated postretirement benefit
obligation................................... 2.6 2.8
Unamortized transition obligation................. (2.2) (3.0)
------------ ------------
Liability (asset) recognized in the
balance sheet................................ $ 0.4 $ (0.2)
============ ============
Health care trend rates used in the actuarial assumptions range from 9.0% to
11.5% These rates decrease to 5.5% over a period of 8 to 9 years. The effect of
a one percentage-point change in the health care cost trend rates would change
the accumulated postretirement benefit obligation approximately 4.8%. The
discount rate used in determining the accumulated postretirement benefit
obligation was 7.5% for the years ended December 31, 1997 and 1996.
F-23
Net periodic postretirement benefit expense includes the following components
for 1997 and 1996:
Year ended December 31,
-----------------------
1997 1996
---------- ----------
Service cost..................... $ --- $ ---
Interest cost.................... 0.2 0.2
Net amortization................. 0.2 0.2
========== ==========
Total....................... $ 0.4 $ 0.4
========== ==========
The Company's postretirement benefit obligations are not funded. Net periodic
postretirement benefit expense for the years ended December 31, 1997, 1996 and
1995 was approximately $0.1, $0.3 and $0.6 greater on the accrual basis than it
would have been on the cash basis.
NOTE M -- LITIGATION AND CONTINGENCIES
In the Company's lines of business numerous suits have been filed alleging
damages for accidents that have arisen in the normal course of operations
involving the Company's products. The Company is self-insured, up to certain
limits, for these product liability exposures, as well as for certain exposures
related to general, workers' compensation and automobile liability. Insurance
coverage is obtained for catastrophic losses as well as those risks required to
be insured by law or contract. The Company has recorded and maintains an
estimated liability in the amount of management's estimate of the Company's
aggregate exposure for such self-insured risks.
The Company is involved in various other legal proceedings which have arisen in
the normal course of its operations. The Company has recorded provisions for
estimated losses in circumstances where a loss is probable and the amount or
range of possible amounts of the loss is estimable.
The Company's outstanding letters of credit totaled $13.8. The letters of credit
generally serve as collateral for certain liabilities included in the
Consolidated Balance Sheet. Certain of the letters of credit serve as collateral
guaranteeing the Company's performance under contracts.
As described in Note I -- "Income Taxes," the Internal Revenue Service is
currently examining the Company's federal tax returns for the years 1987 through
1989.
The Company has agreed to indemnify certain outside parties for losses related
to a former subsidiary's worker compensation obligations. Some of the claims for
which Terex is contingently obligated are also covered by bonds issued by an
insurance company. The Company recorded liabilities for these contingent
obligations representing management's estimate of the potential losses which the
Company might incur.
NOTE N -- RELATED PARTY TRANSACTIONS
On August 28, 1995, the Company announced that its Chairman had retired from his
position with the Company and its Board of Directors. In connection with his
retirement, the Company (upon the recommendation of a committee comprised of its
independent Directors and represented by independent counsel) and the former
chairman have executed a retirement agreement providing certain benefits to the
former chairman and the Company. The agreement provides, among other things, for
a five-year consulting engagement requiring the former chairman to make himself
available to the Company to provide consulting services for certain portions of
his time. The former chairman, or his designee, received a fee for consulting
services which included payments in an amount, and a rate, equal to his 1995
base salary until December 31, 1996. The agreement also provides for the (i)
granting of a five-year $1.8 million loan bearing interest at 6.56% per annum
which is subject to being forgiven in increments over the five-year term of the
agreement upon certain conditions, and (ii) equity grants having a maximum
potential of 200.0 thousand shares of Terex Common Stock conditioned upon the
Company achieving certain financial performance objectives in the future. During
1997 the former chairman received 150.0 thousand shares of common stock in
accordance with this agreement. In contemplation of the execution of this
retirement agreement, the Company advanced to the former chairman the principal
amount of the forgivable loan. During 1997 and 1996, the Company forgave $0.6
F-24
and $0.4, respectively, of principal on the loan along with the current
interest. The former chairman has also agreed not to compete with the Company,
to vote his Terex shares in the manner recommended by the Company's Board of
Directors and not to acquire any additional shares of the Company's Common
Stock.
The Company, certain directors and executives of the Company, and KCS, have been
named parties in various legal proceedings. During 1997, 1996 and 1995, the
Company incurred $0.2, $0.3 and $0.3, respectively, of legal fees and expenses
on behalf of the Company, directors and executives of the Company, and KCS named
in the lawsuits.
On December 31, 1997, an officer and director of the Company retired as an
officer. In connection with his retirement, the Company and the former officer
entered into an agreement providing certain benefits to the former officer and
the Company. Pursuant to the agreement, the former officer received an award of
5.0 thousand shares of Common Stock in consideration of his years of service to
the Company. The agreement also provides for a two-year consulting engagement
requiring the former officer to make himself available to the Company to provide
consulting services for a certain portion of his time, for such services he will
receive a consulting fee equal to his base salary in 1997 of $0.3 for services
provided in 1998 and $0.1 for services provided in 1999.
In 1997, the Company invested $0.1 in a company ("Investee") which was
additional reorganizing after declaring bankruptcy. Subsequent to the initial
investment, the Company was required to make an additional investment in
Investee. As a result, the Company elected not to continue its investment in
Investee and not to make the additional required investment. A director of the
Company and one of his business associates, acquired the Company's investment in
Investee for the amount invested by the Company and assumed the Company's
obligations to make additional investments in Investee.
In 1995, the Company retained Jefferies & Company, Inc., of which a director of
the Company was then Executive Vice President, in connection with the offering
of the Company's $250 Senior Secured Notes and acquisition of PPM which was
completed in May 1995. Jefferies & Company, Inc. was paid $9.2 as an
underwriting discount and for services rendered.
The Company requires that all transactions with affiliates be on terms no less
favorable to the Company than could be obtained in comparable transactions with
an unrelated person. The Board is advised in advance of any such proposed
transaction or agreement and utilizes such procedures in evaluating their terms
and provisions as are appropriate in light of the Board's fiduciary duties under
Delaware law. In addition, the Company has an Audit Committee consisting solely
of outside directors. One of the responsibilities of the Audit Committee is to
review related party transactions.
NOTE O-- BUSINESS SEGMENT INFORMATION
The Company operates in two industry segments: Terex Lifting and Terex
Earthmoving. Prior to November 27, 1996 the Company operated in a third industry
segment, the Material Handling Segment, which is treated as a discontinued
operation.
Terex Lifting designs, manufactures and markets telescopic mobile cranes
(including rough terrain trucks and all-terrain mobile cranes), aerial platforms
(including-scissor articulated boom and straight telescoping boom aerial work
platforms), utility aerial devices (including digger derricks and articulated
aerial devices), telescopic materials handlers (including container stackers and
rough terrain lift trucks), truck-mounted cranes (boom trucks) and related
components and replacement parts. These products are used primarily for
construction, repair and maintenance of infrastructure, buildings and
manufacturing facilities, for material handling applications in the
distribution, transportation and utilities industries as well as in the scrap,
refuse and lumber industries. Terex Lifting has eight significant manufacturing
operations: (i) P.P.M. S.A. located in Montceau Les Mines, France, at which
mobile cranes and container stackers under the brand names TEREX and PPM are
manufactured; (ii) PPM SpA, located in Crespellano, Italy, at which mobile
cranes are manufactured under the TEREX, BENDINI and PPM brand names; (iii)
Terex Lifting, located in Conway, South Carolina, at which mobile cranes are
manufactured under the P&H (a licensed trademark of Harnischfeger Corporation)
and TEREX brand names; (iv) Terex Lifting - Waverly Operations, located in
Waverly, Iowa, at which rough terrain hydraulic telescoping mobile cranes, truck
cranes and material handlers are manufactured under the brand names TEREX,
KOEHRING and LORAIN, and aerial lift equipment is manufactured under the brand
names TEREX AERIALS, TEREX AND MARK; (v) Terex Telelect, Inc., located in
Watertown, South Dakota, at which utility aerial devices and digger derricks are
manufactured under the TELELECT and HI-RANGER brand names, (vi) Terex Aerials,
Inc., located in Milwaukee, Wisconsin, at which aerial platforms are
manufactured under the TEREX, SIMON, MARK and TEREX AERIALS brand names; (vii)
Terex RO, Inc., located in Olathe, Kansas, at which truck mounted cranes are
manufactured under the RO-STINGER brand name; and (viii) Terex Baraga Products,
F-25
Inc., located in Baraga, Michigan, at which rough terrain telescopic lift trucks
are manufactured under the SQUARE SHOOTER brand name.
Terex Earthmoving designs, manufactures and markets heavy-duty, off-highway
earthmoving and construction equipment and related components and replacement
parts. These products are used primarily by construction, mining, logging,
industrial and government customers in building roads, dams and commercial and
residential buildings; supplying coal, minerals, sand and gravel. Terex
Earthmoving has two manufacturing operations: (i) Terex Equipment Limited
("TEL"), located in Motherwell, Scotland, which manufactures off-highway rigid
haulers and articulated haulers and scrapers, each sold under the TEREX brand
name and to other truck manufacturers on a private label basis; and (ii) the
Unit Rig Division of Terex Earthmoving, located in Tulsa, Oklahoma, which
manufactures electric rear and bottom dump haulers principally sold to the
copper, gold and coal mining industry customers in North and South America,
Asia, Africa and Australia. Unit Rig's products are sold under the Company's
TEREX, UNIT RIG, and LECTRA HAUL trademarks. TEL's North, Central and South
American sales and distribution are managed by Terex Americas, a division of the
Company, located in Tulsa, Oklahoma.
Industry segment information is presented below:
1997 1996 1995
------------- ------------- --------------
Sales
Terex Earthmoving................. $ 288.4 $ 314.9 $ 250.3
Terex Lifting..................... 548.0 363.9 252.3
General/Corporate/Eliminations.... 5.9 (0.3) (1.2)
------------- ------------- --------------
Total........................... $ 842.3 $ 678.5 $ 501.4
============= ============= ==============
Income (Loss) from Operations
Terex Earthmoving................. $ 24.7 $ 5.6 $ 13.0
Terex Lifting..................... 47.2 4.8 7.2
General/Corporate/Eliminations.... (0.8) (5.3) (7.4)
------------- ------------- --------------
Total........................... $ 71.1 $ 5.1 $ 12.8
============= ============= ==============
Depreciation and Amortization
Terex Earthmoving................. $ 2.3 $ 1.8 $ 2.3
Terex Lifting..................... 8.8 8.6 7.6
General/Corporate................. 3.2 3.3 3.0
Discontinued Operations........... --- --- 14.8
------------- ------------- --------------
Total........................... $ 14.3 $ 13.7 $ 27.7
============= ============= ==============
Capital Expenditures
Terex Earthmoving................. $ 4.5 $ 5.1 $ 2.7
Terex Lifting..................... 4.3 2.9 2.4
General/Corporate................. 1.1 0.1 0.1
Discontinued Operations........... --- --- 5.3
------------- ------------- --------------
Total........................... $ 9.9 $ 8.1 $ 10.5
============= ============= ==============
Identifiable Assets
Terex Earthmoving................. $ 174.6 $ 189.2 $ 169.4
Terex Lifting..................... 402.1 210.5 239.9
General/Corporate................. 11.8 71.5 27.8
Discontinued Operations........... --- --- 41.8
------------- ------------- --------------
Total........................... $ 588.5 $ 471.2 $ 478.9
============= ============= ==============
F-26
Geographic segment information is presented below:
1997 1996 1995
------------- ------------- --------------
Sales
North America.................. $ 499.8 $ 379.2 $ 292.3
Europe......................... 362.3 348.6 223.0
All other...................... 91.0 27.2 12.9
Eliminations................... (110.8) (76.5) (26.8)
------------- ------------- --------------
Total........................ $ 842.3 $ 678.5 $ 501.4
============= ============= ==============
Income (Loss) from Operations
North America.................. $ 53.4 $ 1.7 $ 8.6
Europe......................... 18.6 8.3 12.0
All other...................... 1.0 (1.7) (4.2)
Eliminations................... (1.9) (3.2) (3.6)
------------- ------------- --------------
Total........................ $ 71.1 $ 5.1 $ 12.8
============= ============= ==============
Identifiable Assets
North America.................. $ 466.1 $ 237.0 $ 170.2
Europe......................... 295.0 271.1 247.7
All other...................... 7.4 7.2 23.1
Eliminations................... (180.0) (44.1) 37.9
------------- ------------- --------------
Total........................ $ 588.5 $ 471.2 $ 478.9
============= ============= ==============
Sales between segments and geographic areas are generally priced to recover
costs plus a reasonable markup for profit. Operating income equals net sales
less direct and allocated operating expenses, excluding interest and other
nonoperating items. Corporate assets are principally cash, marketable securities
and administration facilities.
The Company is not dependent upon any single customer.
Export sales from U.S. continuing operations were as follows:
Year ended December 31,
------------------------------------------
1997 1996 1995
------------- ------------- ---------------
North and South America............ $ 56.4 $ 31.6 $ 20.1
Europe, Africa and Middle East..... 41.1 49.7 21.5
Asia and Australia................. 32.6 37.5 33.5
============= ============= ===============
$ 130.1 $ 118.8 $ 75.1
============= ============= ===============
NOTE P -- SUBSEQUENT EVENTS (UNAUDITED)
The Company has agreed to purchase all of the outstanding shares of O&K Mining
GmbH ("O&K Mining") from O&K Orenstein & Koppel AG ("Orenstein & Koppel") for
net aggregate consideration of DM 309 (approximately $172), subject to certain
post-closing adjustments. The transaction is scheduled to close on March 31,
1998 and will be financed through the issuance of debt securities and borrowings
under the Company's new $500 global bank credit facility, the New Bank Credit
Facility (as defined below). O&K Mining, which will be part of the Terex
Earthmoving segment, is headquartered in Dortmund, Germany, and has operations
in the United States, United Kingdom, Australia, Canada, South Africa and
Singapore. O&K Mining markets a complete range of large hydraulic excavators
serving the global surface mining industry and the global construction and
infrastructure development markets.
On March 6, 1998, the Company refinanced its 1997 Credit Facility and redeemed
or defeased all of its $166.7 principal amount of its then outstanding Senior
Secured Notes. The refinancing included effectiveness of a revolving credit
facility aggregating up to $125.0 and term loan facilities providing for loans
in an aggregate principal amount of up to approximately $375.0 (collectively the
"New Bank Credit Facility"). In connection with the refinancing of the Company's
1997
F-27
1997 Bank Credit Facility and the repurchase of the Senior Secured Notes, the
Company incurred extraordinary losses of $1.9 and $36.5, respectively. These
extraordinary charges will be recorded in the first quarter of 1998.
On March 24, 1998, the Company entered into a Purchase Agreement to issue and
sell $150.0 aggregate principal amount of Senior Subordinated Notes due 2008 at
8.875%, discounted to yield 8.94% (the "New Senior Subordinated Notes"). It is
expected that delivery of the New Senior Subordinated Notes will be made against
payment therefore on or about March 31, 1998. The New Senior Subordinated Notes
will be issued in a private placement made in reliance upon an exemption from
registation under the Securities Act of 1933, as amended. It is expected that
the net proceeds from the offering will be used to fund a portion of the
aggregate consideration for the acquisition of O&K Mining and for general
working capital purposes.
Ares Leverage Investment Fund L.P. ("Ares"), an affiliate of a director of the
Company, participated as a lender under the New Bank Credit Facility for the
amount of $15.0. Ares also received a fee of less than $0.1 for participating as
a lender under the New Bank Credit Facility. Participation by Ares as a lender
under the New Bank Credit facility was made in the ordinary course of Ares'
business and on the same terms as all other lenders under the New Bank Credit
Facility.
Canadian Imperial Bank of Commerce, an affiliate of CIBC Oppenheimer Corp., of
which a director of the Company is a managing director, is a lender with a
commitment of up to $37.5 and a Co-Documentation Agent under the New Bank Credit
Facility. Canadian Imperial Bank of Commerce received a fee of $0.8 for acting
as a Co-Documentation Agent under the New Bank Credit Facility. Participation by
Canadian Imperial Bank of Commerce as a lender under the New Bank Credit
Facility was made in the ordinary course of its business and on the same terms
as all other lenders under the New Bank Credit Facility. In addition, CIBC
Oppenheimer Corp. was retained by the Company in connection with the offering of
the New Senior Subordinated Notes. CIBC will be paid $0.5 as an underwriting
discount upon issuance of the New Senior Subordinated Notes.
F-28
TEREX CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(Amounts in millions)
Additions
----------------------
Balance
Beginning Charges to Balance
of Year Earnings Other Deductions(1) End of Year
---------- ---------- ----------- ------------- ------------
Year ended December 31, 1997: Deducted from asset accounts:
Allowance for doubtful accounts........................... $ 7.0 $ 0.4 $ --- $ (2.9) $ 4.5
Reserve for excess and obsolete inventory................. 18.7 8.1 --- (2.8) 24.0
---------- ---------- ------------ ------------- ------------
Totals................................................... $ 25.7 $ 8.5 $ --- $ (5.7) $ 28.5
========== ========== ============ ============= ============
Year ended December 31, 1996: Deducted from asset accounts:
Allowance for doubtful accounts........................... $ 7.4 $ 2.4 $ --- $ (2.8) $ 7.0
Reserve for excess and obsolete inventory.................. 15.9 9.1 --- (6.3) 18.7
---------- ---------- ------------ ------------- ------------
Totals................................................... $ 23.3 $ 11.5 $ --- $ (9.1) $ 25.7
========== ========== ============ ============= ============
Year ended December 31, 1995: Deducted from asset accounts:
Allowance for doubtful accounts........................... $ 6.1 $ 6.3 $ (3.1) $ (1.9) $ 7.4
Reserve for excess and obsolete inventory................. 21.1 8.7 (4.4)(2) (9.5) 15.9
---------- ---------- ------------ ------------- ------------
Totals................................................... $ 27.2 $ 15.0 $ (7.5) $ (11.4) $ 23.3
========== ========== ============ ============= ============
(1) Primarily represents the utilization of established reserves, net of
recoveries.
(2) Added with the acquisition of businesses and the restatement to Net Assets
of Discontinued Operations.
F-29
TEREX CORPORATION AND SUBSIDIARIES
SCHEDULE IV - INDEBTEDNESS OF AND TO RELATED PARTIES -- NOT CURRENT
Indebtedness of
------------------------------------------------------------
Balance at Balance at
Beginning of End of
Name of Person Period Additions Deductions Period
- --------------------------------------------- --------------- --------------- -------------- -------------
Year ended December 31, 1997:
Randolph W. Lenz
Promissory note, interest at 6.56% due
November 2, 2000........................ $ 1,440,000 $ --- $ (600,000) $ 840,000
Payable for shipping charges.............. --- --- --- ---
=============== =============== ============== =============
Total................................... $ 1,440,000 $ --- $ (600,000) $ 840,000
=============== =============== ============== =============
Year ended December 31, 1996:
Randolph W. Lenz
Promissory note, interest at 6.56% due
November 2, 2000........................ $ 1,800,000 $ --- $ (360,000) $ 1,440,000
Payable for shipping charges.............. 33,450 --- (33,450) ---
=============== =============== ============== =============
Total................................... $ 1,833,450 $ --- $ (393,450) $ 1,440,000
=============== =============== ============== =============
Year ended December 31, 1995:
Randolph W. Lenz
Promissory note, interest at 6.56% due
November 2, 2000........................ $ --- $ 1,800,000 $ --- $ 1,800,000
Payable for shipping charges.............. --- 33,450 --- 33,450
=============== =============== ============== =============
Total................................... $ --- $ 1,833,450 $ --- $ 1,833,450
=============== =============== ============== =============
E-1
INDEX TO EXHIBITS
3.1 Restated Certificate of Incorporation of Terex Corporation (incorporated by
reference to Exhibit 3.1 to the Form S-1 Registration Statement of Terex
Corporation, Registration No. 33-52297).
3.2 Amended and Restated Bylaws of Terex Corporation.
4.1 Warrant Agreement dated as of December 20, 1993 between Terex Corporation
and Mellon Securities Trust Company, as Warrant Agent (incorporated by
reference to Exhibit 4.40 to the Form S-1 Registration Statement of Terex
Corporation, Registration No. 33-52297).
4.2 Form of Series A Warrant (incorporated by reference to Exhibit 4.41 to the
Form S-1 Registration Statement of Terex Corporation, Registration No.
33-52297).
4.3 Certificate of Elimination with respect to the Series B Preferred Stock.
4.4 Indenture dated as of May 9, 1995 among Terex Corporation, the Guarantors
named therein and United States Trust Company of New York, as Trustee
(incorporated by reference to Exhibit 4.7 of Amendment No. 1 to the Form
S-1 Registration Statement of Terex Corporation, Registration No.
33-52711).
4.5 Fifth Supplemental Indenture dated as of February 18, 1998 among Terex
Corporation, the Guarantors named therein and United States Trust Company
of New York, as Trustee.
10.1 Terex Corporation Incentive Stock Option Plan, as amended (incorporated by
reference to Exhibit 4.1 to the Form S-8 Registration Statement of Terex
Corporation, Registration No. 33-21483).
10.2 1994 Terex Corporation Long Term Incentive Plan (incorporated by reference
to Exhibit 10.2 to the Form 10-K for the year ended December 31, 1994 of
Terex Corporation, Commission File No. 1-10702).
10.3 Terex Corporation Employee Stock Purchase Plan (incorporated by reference
to Exhibit 10.3 to the Form 10-K for the year ended December 31, 1994 of
Terex Corporation, Commission File No. 1-10702).
10.4 1996 Terex Corporation Long Term Incentive Plan (incorporated by reference
to Exhibit 10.1 to Form S-8 Registration Statement of Terex Corporation,
Registration No. 333-03983).
10.5 Share Purchase Agreement, as amended, between Terex Cranes, Inc. and Legris
Industries, S.A. and Potain, S.A. (incorporated by reference to Exhibit
10.1 to the From 8-K for May 9, 1995, Commission File No. 1-10702).
10.6 Common Stock Appreciation Rights Agreement dated as of May 9, 1995 between
the Company and United States Trust Company of New York, as Rights Agents
(incorporated by reference to Exhibit 10.29 of the Amendment No. 1 to the
Form S-1 Registration Statement of Terex Corporation, Registration No.
33-52711).
10.7 SAR Registration Rights Agreement dated as of May 9, 1995 among the Company
and the Purchasers (incorporated by reference to Exhibit 10.31 of the
Amendment No. 1 to the Form S-1 Registration Statement of Terex
Corporation, Registration No. 33-52711).
10.8 Agreement dated as of November 2, 1995 between Terex Corporation, a
Delaware corporation, and Randolph W. Lenz (incorporated by reference to
Exhibit 10 to the Form 10-Q for the Three Months ended September 30, 1995,
Commission File No. 1-10702).
10.9 Stock and Asset Purchase and Sales Agreement, dated as of November 9, 1996,
among Terex Corporation, CMH Acquisition Corp., CMH Acquisition
International Corp., Clark Material Handling International, Inc. and Clark
Material Handling Company, as Sellers, and CMHC Acquisition Corporation
(now known as CLARK Material Handling Company), as Buyer (incorporated by
reference to Exhibit 10.1 of the Form 8-K Current Report, Commission File
No. 1-10702, dated and filed with the Commission on December 11, 1996).
10.10 Service Agreement, dated as of November 27, 1996, between Terex
Corporation and CLARK Material Handling Company (incorporated by
reference to Exhibit 10.2 of the F orm 8-K Current Report, Commission File
No. 1-10702, dated and filed with the Commission on December 11, 1996).
10.11 Agreement of Purchase and Sale, dated as of February 24, 1997, among
Simon United States Holdings, Inc. and Simon Overseas Holdings
as Buyer (incorporated by reference to Exhibit 10.25 of the Form 10-K
Annual Report for the year ended December 31, 1996, Commission File
No. 1-10702).
E-2
10.12 Standstill Agreement , dated June 27, 1997, among Terex
Corporation Randolph W. Lenz and the other parties named herein
(incorporated by reference to Exhibit 10.1 of Amendment No. 1 to the
Form S-1 Registration Statement of Terex Corporation, Registration
No. 333-27749).
10.13 Credit Agreement dated as of March 6, 1998 among Terex
Corporation, certain of its subsidiaries, the lenders named therein, Credit
Suisse First Boston, as Administrative Agent, Bank Boston N.A., as
Syndication Agent and Canadian Imperial Bank of Commerce and First
Union National Bank, as Co-Documentation Agents.
10.14 Guarantee Agreement dated as of March 6, 1998 of Terex Corporation
and Credit Suisse First Boston, as Collateral Agent.
10.15 Guarantee Agreement dated as of March 6, 1998 of Terex Corporation,
each of the subsidiaries of Terex Corporation listed therein and Credit
Suisse First Boston, as Collateral Agent.
10.16 Security Agreement dated as of March 6, 1998 of Terex Corporation, each
of the subsidiaries of Terex Corporation listed therein and Credit
Suisse First Boston, as Collateral Agent.
10.17 Pledge Agreement dated as of March 6, 1998 of Terex Corporation, each
of the subsidiaries of Terex Corporation listed therein and Credit
Suisse First Boston, as Collateral Agent.
10.18 Form Mortgage, Leasehold Mortgage , Assignment of Leases and
Rents, Security Agreement and Financing entered into by Terex
Corporation and certain of the subsidiaries of Terex Corporation, as
Mortgagor, and Credit Suisse first Boston, as Mortgagee.
10.19 Share Purchase Agreement dated December 18, 1997 between O&K AG and Terex
Mining Equipment, Inc.
11.1 Computation of per share earnings.
21.1 Subsidiaries of Terex Corporation.
23.1 Independent Accountants' Consent of Price Waterhouse LLP, Stamford,
Connecticut.
24.1 Power of Attorney.
EXHIBIT 11.1
(Page 1 of 2)
TEREX CORPORATION AND SUBSIDIARIES
Computation of Earnings per Common Share
(in millions except per share amounts)
Year Ended December 31,
--------------- --------------- --------------
1997 1996 1995
--------------- --------------- --------------
BASIC:
Income (loss) from continuing operations before extraordinary items....$ 30.3 $ (54.3) $ (32.1)
Income from discontinued operations.................................... --- 102.0 4.4
--------------- --------------- --------------
Income (loss) before extraordinary items............................... 30.3 47.7 (27.7)
Less: Accretion of Preferred Stock................................. (4.8) (22.9) (7.3)
--------------- --------------- --------------
Income (loss) before extraordinary item applicable to common stock..... 25.5 24.8 (35.0)
Extraordinary loss on retirement of debt............................... (14.8) --- (7.5)
=============== =============== ==============
Net income (loss) applicable to common stock...........................$ 10.7 $ 24.8 $ (42.5)
=============== =============== ==============
Basic shares outstanding............................................... 16.2 11.8 10.4
=============== =============== ==============
Basic income per common share
Income (loss) from continuing operations before extraordinary item..$ 1.57 $ (6.54) $ (3.79)
Income from discontinued operations................................. --- 8.64 0.42
--------------- -------------- ---------------
Income (loss) before extraordinary items............................ 1.57 2.10 (3.37)
Extraordinary loss.................................................. (0.91) --- (0.72)
=============== ============== ===============
Net income (loss)...................................................$ 0.66 $ 2.10 $ (4.09)
=============== ==============================
EXHIBIT 11.1
(Page 2 of 2)
TEREX CORPORATION AND SUBSIDIARIES
Computation of Earnings per Common Share
(in millions except per share amounts)
Year Ended December 31,
--------------- --------------- --------------
1997 1996 1995
--------------- --------------- --------------
DILUTED:
Income (loss) from continuing operations before extraordinary items....$ 30.3 $ (54.3) $ (32.1)
Income from discontinued operations.................................... --- 102.0 4.4
--------------- --------------- --------------
Income (loss) before extraordinary items............................... 30.3 47.7 (27.7)
Less: Accretion of Preferred Stock................................. (4.8) (22.9) (7.3)
--------------- --------------- --------------
Income (loss) before extraordinary item applicable to common stock..... 25.5 24.8 (35.0)
Add: Accretion of Preferred Stock assumed converted at
beginning of period............................................... --- --- (a) --- (a)
--------------- --------------- --------------
25.5 24.8 (35.0)
Extraordinary loss on retirement of debt............................... (14.8) --- (7.5)
--------------- --------------- --------------
Net income (loss) applicable to common stock...........................$ 10.7 $ 24.8 $ (42.5)
=============== =============== ==============
Weighted average shares outstanding during the period.................. 16.2 11.8 10.4
Assumed exercise of warrants at ratio determined as of
December 31, 1997................................................. 0.3 1.2 --- (a)
Assumed conversion of Preferred Stock.................................. --- --- (a) --- (a)
Assumed exercise of equity rights...................................... 0.5 --- ---
Assumed exercise of stock options...................................... 0.7 0.3 --- (a)
=============== =============== ==============
Diluted shares outstanding............................................. 17.7 13.3 10.4
=============== =============== ==============
Diluted income per common share
Income (loss) from continuing operations before extraordinary item..$ 1.44 $ (5.81) $ (3.79)
Income from discontinued operations................................. --- 7.67 0.42
--------------- --------------- --------------
Income (loss) before extraordinary items............................ 1.44 1.86 (3.37)
Extraordinary loss.................................................. (0.84) --- (0.72)
=============== =============== ==============
Net income (loss)...................................................$ 0.60 $ 1.86 $ (4.09)
=============== =============== ==============
(a) Excluded from the computation because the effect is anti-dilutive.
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-21483, 33-00949 and 33-03983) and on Form S-3
(No. 33-52297) of Terex Corporation of our report dated March 6, 1998 appearing
on page F-2 of this Form 10-K.
PRICE WATERHOUSE LLP
Stamford, Connecticut
March 27, 1998
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below hereby constitutes and appoints Ronald M. DeFeo and Eric I Cohen,
or either of them, as his true and lawful attorneys-in-fact and agents with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign the Terex Corporation Annual Report on
Form 10-K for the year ended December 31, 1997 (including, without limitation,
amendments), and to file the same with all exhibits thereto, and all document in
connection therewith, with the Securities and Exchange Commission, granting said
attorney-in-fact and agent, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Signature Title Date
--------- ----- ----
/s/ Ronald M. DeFeo Chairman, Chief Executive Officer March 27, 1998
Ronald M. DeFeo and Director
(Principal Executive Officer)
/s/ David J. Langevin Executive Vice President March 27, 1998
David J. Langevin (Acting Principal Financial Officer)
/s/ Joseph F. Apuzzo Vice President Finance and March 27, 1998
Joseph F. Apuzzo and Controller
(Principal Accounting Officer)
/s/ G. Chris Andersen Director March 27, 1998
G. Chris Andersen
/s/ William H. Fike Director March 27, 1998
William H. Fike
/s/ Bruce I. Raben Director March 27, 1998
Bruce I. Raben
/s/ Marvin B. Rosenberg Director March 27, 1998
Marvin B. Rosenberg
/s/ David A. Sachs Director March 27, 1998
David A. Sachs
/s/ Adam E. Wolf Director March 27, 1998
Adam E. Wolf