UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
F O R M 10 - Q
(Mark One)
|X| Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 1999
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission file number 1-10702
Terex Corporation
(Exact name of registrant as specified in its charter)
Delaware 34-1531521
(State of Incorporation) (IRS Employer Identification No.)
500 Post Road East, Suite 320, Westport, Connecticut 06880
(Address of principal executive offices)
(203) 222-7170
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
----- -----
Number of outstanding shares of common stock: 21.4 million as of May 4, 1999.
The Exhibit Index appears on page 29.
INDEX
TEREX CORPORATION AND SUBSIDIARIES
GENERAL
This Quarterly Report on Form 10-Q filed by Terex Corporation (the "Company")
includes financial information with respect to the following subsidiaries of the
Company, all of which are wholly-owned except PPM Cranes, Inc., which are
guarantors (the "Guarantors") of the Company's $150 million principal amount of
8-7/8% Senior Subordinated Notes due 2008 (the "1998 Senior Subordinated Notes")
and the Company's $100 million principal amount of 8-7/8% Series C Senior
Subordinated Notes due 2008 ( the "1999 Senior Subordinated Notes"). See Note I
- -- Consolidating Financial Statements.
State or other
jurisdiction of
incorporation or I.R.S. employer
Guarantor organization identification number
Terex Cranes, Inc. Delaware 06-1513089
PPM Cranes, Inc. Delaware 39-1611683
Koehring Cranes, Inc. Delaware 06-1423888
Terex-Telelect, Inc. Delaware 41-1603748
Terex-RO Corporation Kansas 44-0565380
Terex Aerials, Inc. Wisconsin 39-1028686
Terex Mining Equipment, Inc. Delaware 06-1503634
Payhauler Corp. Illinois 36-3195008
The American Crane Corporation North Carolina 56-1570091
O & K Orenstein & Koppel, Inc. Delaware 58-2084520
Page No.
PART I FINANCIAL INFORMATION
Item 1 Condensed Consolidated Financial Statements
TEREX CORPORATION
Condensed Consolidated Statement of Operations --
Three months ended March 31, 1999 and 1998......................3
Condensed Consolidated Balance Sheet - March 31, 1999
and December 31, 1998..........................................4
Condensed Consolidated Statement of Cash Flows --
Three months ended March 31, 1999 and 1998......................5
Notes to Condensed Consolidated Financial Statements
- March 31, 1999...............................................6
PPM CRANES, INC.
Condensed Consolidated Statement of Operations --
Three months ended March 31, 1999 and 1998.....................15
Condensed Consolidated Balance Sheet - March 31, 1999
and December 31, 1998.........................................16
Condensed Consolidated Statement of Cash Flows --
Three months ended March 31, 1999 and 1998.....................17
Notes to Condensed Consolidated Financial Statements
- March 31, 1999..............................................18
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations............................20
Item 3 Quantitative and Qualitative Disclosures About Market Risk......25
PART II OTHER INFORMATION
Item 1 Legal Proceedings...............................................26
Item 2 Changes in Securities and Use of Proceeds.......................26
Item 3 Defaults Upon Senior Securities.................................26
Item 4 Submission of Matters to a Vote of Security Holders.............26
Item 5 Other Information...............................................26
Item 6 Exhibits and Reports on Form 8-K................................27
SIGNATURES...............................................................28
2
PART 1. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in millions, except per share data)
For the Three Months
Ended March 31,
------------------------
1999 1998
------------ ------------
Net sales............................................ $ 423.3 $ 260.6
Cost of goods sold................................... 352.4 215.8
----------- -----------
Gross profit.................................... 70.9 44.8
Selling, general and administrative expenses......... 30.4 21.0
----------- -----------
Income from operations.......................... 40.5 23.8
Other income (expense):
Interest income................................. 0.5 0.1
Interest expense................................ (13.3) (8.8)
Other income (expense) - net.................... (0.9) (0.5)
----------- -----------
Income before income taxes and extraordinary items... 26.8 14.6
Provision for income taxes........................... (0.8) (0.2)
----------- -----------
Income before extraordinary items.................... 26.0 14.4
Extraordinary loss on retirement of debt............. --- (38.3)
=========== ===========
Net income (loss).................................... $ 26.0 $ (23.9)
=========== ===========
EARNINGS PER SHARE:
Basic
Income before extraordinary items.............. $ 1.25 $ 0.70
Extraordinary loss on retirement of debt....... --- (1.86)
=========== ===========
Net income (loss)............................ $ 1.25 $ (1.16)
=========== ===========
Diluted
Income before extraordinary items.............. $ 1.16 $ 0.65
Extraordinary loss on retirement of debt....... --- (1.73)
----------- -----------
Net income (loss)............................ $ 1.16 $ (1.08)
=========== ===========
Weighted average number of common and common equivalent
shares outstanding in per share calculation
Basic........................................... 20.8 20.6
Diluted......................................... 22.5 22.2
The accompanying notes are an integral part of these financial statements.
3
TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(in millions)
March 31, December 31,
1999 1998
----------- -----------
ASSETS
Current assets
Cash and cash equivalents.......................... $ 22.0 $ 25.1
Trade receivables (net of allowance of $6.1
at March 31, 1999 and $5.6 at December 31,
1998)............................................ 343.9 249.8
Net inventories.................................... 478.3 472.8
Other current assets............................... 28.0 23.9
---------- -----------
Total current assets........................... 872.2 771.6
Long-term assets
Property, plant and equipment - net................ 95.6 99.5
Goodwill - net..................................... 242.8 240.9
Other assets - net................................. 40.6 39.2
---------- -----------
Total assets $ 1,251.2 $ 1,151.2
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable and current portion of long-term debt $ 17.4 $ 44.7
Trade accounts payable............................. 254.2 226.9
Accrued compensation and benefits.................. 26.6 24.7
Accrued warranties and product liability........... 32.2 36.0
Other current liabilities.......................... 106.4 93.1
---------- -----------
Total current liabilities...................... 436.8 425.4
Non current liabilities
Long-term debt, less current portion............... 661.1 586.6
Other.............................................. 42.1 41.1
Commitments and contingencies
Stockholders' equity
Warrants to purchase common stock.................. 0.8 0.8
Equity rights...................................... 3.1 3.1
Common stock, $.01 par value - authorized
150.0 shares; issued and outstanding 20.9
at March 31, 1999 and 20.8 at December 31,
1998, respectively................................ 0.2 0.2
Additional paid-in capital......................... 179.1 179.0
Accumulated deficit................................ (54.9) (80.9)
Accumulated other comprehensive income............. (17.1) (4.1)
---------- -----------
Total stockholders' equity..................... 111.2 98.1
---------- -----------
Total liabilities and stockholders' equity.............. $ 1,251.2 $ 1,151.2
========== ===========
The accompanying notes are an integral part of these financial statements.
4
TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
For the Three Months
Ended March 31,
---------------------
1999 1998
---------- ----------
OPERATING ACTIVITIES
Net income (loss)....................................... $ 26.0 $ (23.9)
Adjustments to reconcile net income to cash
used in operating activities:
Depreciation....................................... 3.2 2.4
Amortization....................................... 2.7 1.5
Extraordinary loss on retirement of debt........... --- 38.3
Other, net......................................... --- (0.2)
Changes in operating assets and liabilities
(net of effects of acquisitions):
Trade receivables................................ (108.3) (32.3)
Net inventories.................................. (17.3) (16.2)
Trade accounts payable........................... 32.8 26.1
Other, net....................................... 9.2 (7.3)
---------- ---------
Net cash provided by (used in) operating
activities.................. (51.7) (11.6)
---------- ---------
INVESTING ACTIVITIES
Acquisition of businesses, net of cash acquired......... --- (172.9)
Capital expenditures.................................... (4.4) (2.5)
Proceeds from sale of excess assets..................... 0.1 1.9
---------- ---------
Net cash provided by (used in) investing
activities.................. (4.3) (173.5)
---------- ---------
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt, net of
issuance costs................ 94.9 508.6
Principal repayments of long-term debt.................. (31.4) (167.7)
Net incremental borrowings (repayments) under
revolving line of credit agreements.................... (11.2) (100.8)
Payment of premiums on early extinguishment of debt..... --- (29.0)
Other................................................... 0.1 2.6
---------- ---------
Net cash provided by (used in) financing
activities.................. 52.4 213.7
---------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS............................... 0.5 1.2
---------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS........................................ (3.1) 29.8
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD........... 25.1 28.7
========== =========
CASH AND CASH EQUIVALENTS AT END OF PERIOD................. $ 22.0 $ 58.5
========== =========
The accompanying notes are an integral part of these financial statements.
5
TEREX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
(in millions, unless otherwise noted)
NOTE A -- BASIS OF PRESENTATION
Basis of Presentation. The accompanying unaudited condensed consolidated
financial statements of Terex Corporation and subsidiaries as of March 31, 1999
and for the three months ended March 31, 1999 and 1998 have been prepared in
accordance with generally accepted accounting principles for interim financial
information and the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles to be included in full year
financial statements. The accompanying condensed consolidated balance sheet as
of December 31, 1998, has been derived from the audited consolidated balance
sheet as of that date.
The condensed consolidated financial statements include the accounts of Terex
Corporation and its majority owned subsidiaries ("Terex" or the "Company"). All
material intercompany balances, transactions and profits have been eliminated.
In the opinion of management, all adjustments considered necessary for a fair
presentation have been made. Such adjustments consist only of those of a normal
recurring nature. Operating results for the three months ended March 31, 1999
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1999. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes a new model for
accounting for derivative and hedging activities and supersedes and amends a
number of existing standards. SFAS No. 133 is effective for fiscal years
beginning after June 15, 1999. Upon initial application, all derivatives are
required to be recognized in the statement of financial position as either
assets or liabilities and measured at fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other comprehensive
income, depending on whether a derivative is designated as part of a hedge
transaction and, if it is, the type of hedge transaction. In addition, all
hedging relationships must be reassessed and documented pursuant to the
provisions of SFAS No. 133. The Company does not expect adoption of this
statement to have a significant impact on its financial position or results of
operations.
NOTE B - DEBT ISSUANCE
On March 9, 1999, Company issued and sold $100.0 aggregate principal amount of
8-7/8 % Series C Senior Subordinated Notes due 2008 (the "1999 Senior
Subordinated Notes"). The 1999 Senior Subordinated Notes were issued at a
discount with the Company receiving net proceeds of $94.9. The 1999 Senior
Subordinated Notes were issued in a private placement made in reliance upon an
exemption from registration under the Securities Act of 1933, as amended. The
net proceeds from the offering are being used to repay a portion of the
outstanding indebtedness under Terex's credit facilities and for acquisitions.
NOTE C -- INVENTORIES
Net inventories consist of the following:
March 31, December 31,
1999 1998
----------------- ----------------
Finished equipment......................... $ 131.6 $ 148.9
Replacement parts.......................... 169.2 150.9
Work-in-process............................ 63.8 59.4
Raw materials and supplies................. 113.7 113.6
----------------------------------
Net inventories............................ $ 478.3 $ 472.8
================ =================
6
NOTE D -- PROPERTY, PLANT AND EQUIPMENT
Net property, plant and equipment consists of the following:
March 31, December 31,
1999 1998
----------------- ----------------
Property..................................... $ 13.2 $ 13.6
Plant........................................ 42.3 44.6
Equipment.................................... 90.5 90.8
---------------- ----------------
146.0 149.0
Less: Accumulated depreciation.............. (50.4) (49.5)
================ ================
Net property, plant and equipment............ $ 95.6 $ 99.5
================ ================
NOTE E - EARNINGS PER SHARE
Three Months Ended March 31,
(in millions, except per share data)
-------------------------------------------------------------------------
1999 1998
----------------------------------- -----------------------------------
Per-Share Per-Share
Income Shares Amount Income Shares Amount
----------- ----------- ----------- ----------- ----------- -----------
Basic earnings per share
Income before extraordinary items.. $ 26.0 20.8 $ 1.25 $ 14.4 20.6 $ 0.70
Effect of dilutive securities
Warrants........................... --- 0.1 --- 0.2
Stock Options...................... --- 0.9 --- 0.8
Equity Rights...................... --- 0.7 --- 0.6
----------- ----------- ----------- -----------
Income available to common
stockholders - diluted.............. $ 26.0 22.5 $ 1.16 $ 14.4 22.2 $ 0.65
=========== =========== =========== =========== =========== ===========
NOTE F - COMPREHENSIVE INCOME
Total non-shareowner changes in equity (comprehensive income) include all
changes in equity during a period except those resulting from investments by,
and distributions to, shareowners. The specific components include: net income,
deferred gains and losses resulting from foreign currency translation, and
minimum pension liability adjustments. For the three months ended March 31, 1999
and March 31, 1998, total non-shareowner changes in equity were $13.0 and
$(31.9), respectively.
NOTE G -- LITIGATION AND CONTINGENCIES
The Company is subject to a number of contingencies and uncertainties including
product liability claims, self-insurance obligations, tax examinations and
guarantees. Many of the exposures are unasserted or proceedings are at a
preliminary stage, and it is not presently possible to estimate the amount or
timing of any cost to the Company. However, management does not believe that
these contingencies and uncertainties will, in the aggregate, have a material
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 nonhazardous wastes in the normal course of
its operations. As a result, the Company is subject to a wide range of federal,
state, local and foreign environmental laws and regulations, including the
Comprehensive Environmental Response, Compensation and Liability Act ("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 nonhazardous wastes, and (ii) impose liability for
the costs of cleaning up, and certain damages resulting from, sites of past
spills, disposals or other releases of hazardous substances. Compliance with
such laws and regulations has, and will, require expenditures by the Company on
a continuing basis.
7
The Company's federal income tax returns for the years 1987 through 1989 are
currently being audited by the Internal Revenue Service (the "IRS"). In December
1994, the Company received an examination report from the IRS proposing a large
tax deficiency. The examination report raised many issues. Among these issues
are substantiation for certain tax deductions and whether the Company was able
to use certain net operating loss carryovers ("NOLs") to offset taxable income.
In April 1995, the Company filed an administrative appeal to the examination
report. The IRS is currently reviewing information the Company provided to it.
The final outcome of this audit is subject to the resolution of complicated
legal and factual issues. Given the number and complexity of the legal and
administrative proceedings involved, this audit could continue for several more
years.
If the IRS prevails on all the issues raised, the amount of the tax the Company
would have to pay would be approximately $56 million plus penalties of
approximately $12.8 million and interest through March 31, 1999 of approximately
$116.2 million. The penalties claimed by the IRS are between 20% and 25% of the
amount of the tax deficiency assessed against the Company. Interest on the
amount of tax deficiency and penalties assessed against the Company is currently
accruing at a rate of 9% per annum. If the Company is required to pay a
significant portion of the tax deficiency claimed by the IRS, it may not have or
be able to obtain the money necessary to pay the tax deficiency and continue in
business.
The Company believes that it is able to provide adequate documentation for a
large part of the tax deductions the IRS has disallowed. In addition, the IRS
has advised the Company that it is no longer challenging the Company's right to
use the NOLs in question. As a result, the Company does not believe that the
outcome of the audit will have a material adverse effect on its financial
condition or results of operations. However, the Company may lose or have to use
some of its NOLs as a result of the audit. In addition, there is also a
possibility that the Company will have to pay some amount of tax, penalties and
interest to the IRS to resolve this matter. The final outcome of the audit
cannot be determined or estimated at this time. Accordingly, the Company does
not have any additional reserves for amounts which might be due as a result of
the audit because the loss ranges from zero to $56 million plus interest and
penalties.
NOTE H - BUSINESS SEGMENT INFORMATION
The Company operates in two industry segments: Terex Lifting and Terex
Earthmoving. Industry segment information is presented below:
Three months ended
March 31,
-----------------------------
1999 1998
-------------- -------------
Sales
Terex Lifting................................ $ 241.4 $ 182.5
Terex Earthmoving............................ 180.7 76.6
General/Corporate/Eliminations............... 1.2 1.5
============== =============
Total...................................... $ 423.3 $ 260.6
============== =============
Income (Loss) from Operations
Terex Lifting................................ $ 24.5 $ 18.4
Terex Earthmoving............................ 17.5 6.6
General/Corporate/Eliminations............... (1.5) (1.2)
============== =============
Total...................................... $ 40.5 $ 23.8
============== =============
NOTE I -- CONSOLIDATING FINANCIAL STATEMENTS
On March 31, 1998, the Company issued and sold $150.0 aggregate principal amount
of the 8-7/8% Senior Subordinated Notes due 2008 (the "1998 Senior Subordinated
Notes"). On March 9, 1999, the Company issued and sold $100.0 aggregate
principal amount of the 1999 Senior Subordinated Notes. The 1998 Senior
Subordinated Notes and the 1999 Senior Subordinated Notes are each jointly and
severally guaranteed by the following wholly-owned subsidiaries of the Company
(the "Wholly-owned Guarantors"): Terex Cranes, Inc., PPM Cranes, Inc., Koehring
Cranes, Inc., Terex-Telelect, Inc., Terex-RO Corporation, Terex Aerials, Inc.,
Payhauler Corp, O & K Orenstein & Koppel, Inc. and The American Crane
Corporation. The financial results of O & K Orenstein & Koppel, Inc. and The
American Crane Corporation are included in the results of the Wholly-owned
Guarantors since March 31, 1998 and July 31, 1998, their respective dates of
acquisition. The 1998 Senior Subordinated Notes and the 1999 Senior Subordinated
Notes are each also jointly and severally guaranteed by PPM Cranes, Inc., which
is 92.4% owned by Terex.
8
The following subsidiaries of the Company have not provided a guarantee of
either the 1998 Senior Subordinated Notes nor the 1999 Senior Subordinated
Notes: Terex Equipment Limited, Unit Rig Australia (Pty) Ltd., Unit Rig South
Africa (Pty) Ltd., Unit Rig (Canada) Ltd., PPM S.A., PPM S.p.A., Brimont
Agraire, PPM Deutschland GmbH, PPM of Australia Pty Ltd., PPM Far East Private
Ltd, Terex Aerials Limited, Terex Italia, S.r.l., Sim-Tech Management Limited
and Simon-Tomen Engineering Company Limited. Such subsidiaries also include O&K
Mining GmbH, Holland Lift International B.V., American Crane International B.V.,
Italmacchine S.r.l., Terex-Peiner GmbH and Gru Comedil S.p.A. (the
"Non-guarantor Subsidiaries"). The financial results of O & K Mining GmbH,
Holland Lift International B.V., American Crane International B.V., Italmacchine
S.r.l., Terex-Peiner GmbH and Gru Comedil S.p.A. are included in the results of
the Non-guarantor Subsidiaries since March 31, 1998, May 4, 1998, July 31, 1998,
November 3, 1998, November 13, 1998 and December 18, 1998, their respective
dates of acquisition.
The following summarized condensed consolidating financial information for the
Company segregates the financial information of Terex Corporation, the
Wholly-owned Guarantors, PPM Cranes, Inc. and the Non-guarantor Subsidiaries.
Terex Corporation consists of parent company operations. Subsidiaries of the
parent company are reported on the equity basis.
Wholly-owned Guarantors combine the operations of the Wholly-owned Guarantor
subsidiaries. Non-guarantor subsidiaries of Wholly-owned Guarantors are reported
on the equity basis.
PPM Cranes, Inc. presents the operations of PPM Cranes, Inc. and its
subsidiaries (PPM of Australia Pty Ltd and PPM Far East Private Ltd) are
reported on an equity basis.
Non-guarantor Subsidiaries combine the operations of subsidiaries which have not
provided a guarantee of the obligations of Terex Corporation under the 1998
Senior Subordinated Notes and the 1999 Senior Subordinated Notes.
Debt and Goodwill allocated to subsidiaries is presented on an accounting
"push-down" basis.
9
TEREX CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999
(in millions)
Wholly- Non-
Terex owned PPM guarantor Intercompany
Corporation Guarantors Cranes, Inc. Subsidiaries Eliminations Consolidated
-------------- ------------- ------------- ------------- ------------- --------------
Net sales............................... $ 112.3 $ 133.0 $ 19.0 $ 177.4 $ (18.4) $ 423.3
Cost of goods sold................... 98.7 111.1 17.1 142.7 (17.2) 352.4
------------- ------------- ------------- ------------- ------------- -------------
Gross profit............................ 13.6 21.9 1.9 34.7 (1.2) 70.9
Selling, general & administrative
expenses.......................... 6.6 6.0 0.9 16.9 --- 30.4
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) from operations........... 7.0 15.9 1.0 17.8 (1.2) 40.5
Interest income....................... 0.2 --- --- 0.3 --- 0.5
Interest expense...................... (2.9) (1.9) (1.2) (7.3) --- (13.3)
Income (loss) from equity investees... 22.3 1.0 0.1 --- (23.4) ---
Other income (expense) - net.......... (0.2) (0.3) (0.1) (0.3) --- (0.9)
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) before income taxes and
extraordinary items................... 26.4 14.7 (0.2) 10.5 (24.6) 26.8
Provision for income taxes............ (0.4) 0.1 --- (0.5) --- (0.8)
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) before extraordinary items 26.0 14.8 (0.2) 10.0 (24.6) 26.0
Extraordinary loss on retirement of debt --- --- --- --- --- ---
------------- ------------- ------------- ------------- ------------- -------------
Net income (loss)....................... $ 26.0 $ 14.8 $ (0.2) $ 10.0 $ (24.6) $ 26.0
============= ============= ============= ============= ============= =============
TEREX CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
(in millions)
Wholly- Non-
Terex owned PPM guarantor Intercompany
Corporation Guarantors Cranes, Inc. Subsidiaries Eliminations Consolidated
-------------- ------------- ------------- ------------ -------------- --------------
Net sales............................... $ 42.5 $ 113.3 $ 24.9 $ 113.4 $ (33.5) $ 260.6
Cost of goods sold................... 36.2 92.4 22.4 97.4 (32.6) 215.8
------------- ------------- ------------- ------------- ------------- -------------
Gross profit............................ 6.3 20.9 2.5 16.0 (0.9) 44.8
Selling, general & administrative
expenses........................... 4.6 7.0 0.8 8.6 --- 21.0
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) from operations........... 1.7 13.9 1.7 7.4 (0.9) 23.8
Interest income....................... --- --- --- 0.1 --- 0.1
Interest expense...................... (2.1) (2.2) (1.6) (2.9) --- (8.8)
Income (loss) from equity investees... (14.6) 3.4 (0.3) --- 11.5 ---
Other income (expense) - net.......... (0.4) --- (0.1) --- --- (0.5)
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) before income taxes and
extraordinary items................... (15.4) 15.1 (0.3) 4.6 10.6 14.6
Provision for income taxes............ --- --- --- (0.2) --- (0.2)
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) before extraordinary items (15.4) 15.1 (0.3) 4.4 10.6 14.4
Extraordinary loss on retirement of debt (8.5) (5.0) (10.4) (14.4) --- (38.3)
------------- ------------- ------------- ------------- ------------- -------------
Net income (loss)....................... $ (23.9) $ 10.1 $ (10.7) $ (10.0) $ 10.6 $ (23.9)
============= ============= ============= ============= ============= =============
10
TEREX CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
MARCH 31, 1999
(in millions)
Wholly- Non-
Terex owned PPM guarantor Intercompany
Corporation Guarantors Cranes, Inc. Subsidiaries Eliminations Consolidated
-------------- -------------- ------------- ------------ ------------- --------------
Assets
Current Assets
Cash and cash equivalents.......... $ 8.2 $ 1.8 $ 0.2 $ 11.8 $ --- $ 22.0
Trade receivables - net............ 79.2 69.6 20.2 174.9 --- 343.9
Intercompany receivables........... 7.9 15.3 15.9 24.5 (63.6) ---
Net inventories.................... 126.5 109.7 21.3 226.7 (5.9) 478.3
Other current assets............... 5.0 5.2 --- 17.8 --- 28.0
------------- ------------- ------------- ------------- ------------- -------------
Total current assets............. 226.8 201.6 57.6 455.7 (69.5) 872.2
Long-Term Assets
Property, plant & equipment - net.. 10.6 27.2 --- 57.8 --- 95.6
Investment in and advances
to (from) subsidiaries........... 145.0 (101.3) (23.1) (62.4) 41.8 ---
Goodwill - net..................... 31.5 79.9 13.4 118.0 --- 242.8
Other assets - net................. 5.1 13.1 0.6 21.8 --- 40.6
------------- ------------- ------------- ------------- ------------- -------------
Total Assets............................ $ 419.0 $ 220.5 $ 48.5 $ 590.9 $ (27.7) $ 1,251.2
============= ============= ============= ============= ============= =============
Liabilities And Stockholders' Equity
(Deficit)
Current Liabilities
Notes payable and current portion
of long-term debt................ $ 0.5 $ 3.3 $ 0.8 $ 12.8 $ --- $ 17.4
Trade accounts payable............. 45.2 61.2 9.4 138.4 --- 254.2
Intercompany payables.............. 14.0 17.7 1.4 30.5 (63.6) ---
Accruals and other current 59.4 17.8 7.6 80.4 --- 165.2
liabilities......................
------------- ------------- ------------- ------------- ------------- -------------
Total current liabilities........ 119.1 100.0 19.2 262.1 (63.6) 436.8
Non-Current Liabilities
Long-term debt less current portion 176.6 100.1 60.4 324.0 --- 661.1
Other long-term liabilities........ 12.1 6.6 0.9 22.5 --- 42.1
Stockholders' equity (deficit)....... 111.2 13.8 (32.0) (17.7) 35.9 111.2
------------- ------------- ------------- ------------- ------------- -------------
Total Liabilities And Stockholders'
Equity (Deficit)..................... $ 419.0 $ 220.5 $ 48.5 $ 590.9 $ (27.7) $ 1,251.2
============= ============= ============= ============= ============= =============
11
TEREX CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1998
(in millions)
Wholly- Non-
Terex owned PPM guarantor Intercompany
Corporation Guarantors Cranes, Inc. Subsidiaries Eliminations Consolidated
-------------- -------------- ------------ ------------- ------------- --------------
Assets
Current Assets
Cash and cash equivalents.......... $ 9.3 $ 0.5 $ 0.1 $ 15.2 $ --- $ 25.1
Trade receivables - net............ 19.7 51.9 18.0 160.2 --- 249.8
Intercompany receivables........... 7.0 16.9 12.8 96.5 (133.2) ---
Inventories - net.................. 113.9 101.1 30.0 235.2 (7.4) 472.8
Other current assets............... 4.8 4.1 0.1 14.9 --- 23.9
------------- ------------- ------------- ------------- ------------- -------------
Total current assets............. 154.7 174.5 61.0 522.0 (140.6) 771.6
Property, plant & equipment - net.... 10.8 28.4 --- 60.3 --- 99.5
Investment in and advances to
(from) subsidiaries.............. 75.2 (92.7) (1.4) (49.0) 67.9 ---
Goodwill - net....................... 30.3 80.4 13.7 116.5 --- 240.9
Other assets - net................... 9.9 12.7 1.3 15.3 --- 39.2
------------- ------------- ------------- ------------- ------------- -------------
Total Assets............................ $ 280.9 $ 203.3 $ 74.6 $ 665.1 $ (72.7) $ 1,151.2
============= ============= ============= ============= ============= =============
Liabilities and Stockholders' Equity
(Deficit)
Current Liabilities
Notes payable and current portion
of long-term debt................ $ 13.5 $ 3.4 $ 0.8 $ 27.0 $ --- $ 44.7
Trade accounts payable............. 29.4 53.7 8.4 135.4 --- 226.9
Intercompany payables.............. 13.1 15.2 26.5 78.4 (133.2) ---
Accruals and other current 44.8 22.6 9.3 77.1 --- 153.8
liabilities......................
------------- ------------- ------------- ------------- ------------- -------------
Total current liabilities........ 100.8 94.9 45.0 317.9 (133.2). 425.4
Long-term debt less current portion.. 69.9 100.1 60.8 355.8 --- 586.6
Other long-term liabilities.......... 12.1 9.3 0.6 19.1 --- 41.1
Stockholders' equity (deficit)....... 98.1 (1.0) (31.8) (27.7) 60.5 98.1
------------- ------------- ------------- ------------- ------------- -------------
Total Liabilities and Stockholders'
Equity (Deficit)..................... $ 280.9 $ 203.3 $ 74.6 $ 665.1 $ (72.7) $ 1,151.2
============= ============= ============= ============= ============= =============
12
TEREX CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1999
(in millions)
Wholly- Non-
Terex owned PPM Guarantor Intercompany
Corporation Guarantors Cranes, Inc. Subsidiaries Eliminations Consolidated
------------- ------------- ------------- ------------- ------------- --------------
Net cash provided by (used in)
operating activities................. $ (93.7) $ 2.1 $ 0.1 $ 39.8 $ --- $ (51.7)
------------- ------------- ------------- ------------- ------------- -------------
Cash flows from investing activities
Capital expenditures................. (0.9) (0.6) --- (2.9) --- (4.4)
Proceeds from sale of excess assets.. --- --- --- 0.1 --- 0.1
------------- ------------- ------------- ------------- ------------- -------------
Net cash provided by (used in)
investing activities.............. (0.9) (0.6) --- (2.8) --- (4.3)
------------- ------------- ------------- ------------- ------------- -------------
Cash flows from financing activities
Proceeds from issuance of long-term
debt, net of issuance costs....... 94.9 --- --- --- --- 94.9
Principal repayments of long-term debt (17.7) (0.2) --- (13.5) --- (31.4)
Net incremental borrowings
(repayments) under revolving
line of credit agreements......... 16.5 --- --- (27.7) --- (11.2)
Other................................ (0.2) --- --- 0.3 --- 0.1
------------- ------------- ------------- ------------- ------------- -------------
Net cash provided by (used in)
financing activities............. 93.5 (0.2) --- (40.9) --- 52.4
------------- ------------- ------------- ------------- ------------- -------------
Effect of exchange rates on cash and
cash equivalents..................... --- --- --- 0.5 --- 0.5
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in cash and cash
equivalents.......................... (1.1) 1.3 0.1 (3.4) --- (3.1)
Cash and cash equivalents, beginning of
period............................... 9.3 0.5 0.1 15.2 --- 25.1
============= ============= ============= ============= ============= =============
Cash and cash equivalents,
end of period........................ $ 8.2 $ 1.8 $ 0.2 $ 11.8 $ --- $ 22.0
============= ============= ============= ============= ============= =============
13
TEREX CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1998
(in millions)
Wholly- Non-
Terex owned PPM Guarantor Intercompany
Corporation Guarantors Cranes, Inc. Subsidiaries Eliminations Consolidated
------------- -------------- ------------- ------------- ------------- --------------
Net cash provided by (used in)
operating activities................. $ 27.3 $ (1.2) $ (3.3) $ (34.4) $ --- $ (11.6)
-------------- ------------- ------------- ------------- ------------- -------------
Cash flows from investing activities
Acquisition of businesses, net of
cash acquired...................... (172.9) --- --- --- --- (172.9)
Capital expenditures................. (0.2) (0.7) (0.1) (1.5) --- (2.5)
Proceeds from sale of excess assets.. --- 1.9 --- --- --- 1.9
-------------- ------------- ------------- ------------- ------------- -------------
Net cash provided by (used in)
investing activities.............. (173.1) 1.2 (0.1) (1.5) --- (173.5)
-------------- ------------- ------------- ------------- ------------- -------------
Cash flows from financing activities
Proceeds from issuance of long-term
debt, net of issuance costs....... 254.4 85.8 58.6 109.8 --- 508.6
Principal repayments of long-term debt (38.3) (18.8) (47.1) (63.5) --- (167.7)
Net incremental borrowings
(repayments) under revolving
line of credit agreements......... (24.9) (63.2) --- (12.7) --- (100.8)
Payment of premiums on early
extinguishment of debt............. (6.0) (3.7) (8.6) (10.7) (29.0)
Other................................ --- --- --- 2.6 --- 2.6
-------------- ------------- ------------- ------------- ------------- -------------
Net cash provided by (used in)
financing activities............. 185.2 0.1 2.9 25.5 --- 213.7
-------------- ------------- ------------- ------------- ------------- -------------
Effect of exchange rates on cash and
cash equivalents..................... 0.1 --- 0.5 0.6 --- 1.2
-------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in cash and cash
equivalents.......................... 39.5 0.1 --- (9.8) --- 29.8
Cash and cash equivalents, beginning of
period............................... 5.6 0.1 --- 23.0 --- 28.7
============== ============= ============= ============= ============= =============
Cash and cash equivalents,
end of period........................ $ 45.1 $ 0.2 $ --- $ 13.2 $ --- $ 58.5
============== ============= ============= ============= ============= =============
14
PPM CRANES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in millions)
For the Three Months
Ended March 31,
--------------------------
1999 1998
------------ ------------
Net sales............................................ $ 21.0 $ 28.9
Cost of goods sold................................... 18.8 25.7
----------- -------------
Gross profit.................................... 2.2 3.2
Selling, general and administrative expenses......... 1.1 1.1
----------- -------------
Income from operations.......................... 1.1 2.1
Other income (expense):
Interest expense................................ (1.2) (1.8)
Amortization of debt issuance costs............. (0.1) (0.1)
----------- -------------
Income (loss) before income taxes and extraordinary
items.............................................. (0.2) 0.2
Provision for income taxes........................... --- ---
----------- ------------
Income (loss) before extraordinary items............. (0.2) 0.2
Extraordinary loss on retirement of debt............. --- (10.9)
----------- -------------
Net loss............................................. $ (0.2) $ (10.7)
=========== =============
The accompanying notes are an integral part of these financial statements.
15
PPM CRANES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(in millions, except share amounts)
March 31, December 31,
1999 1998
----------- -------------
ASSETS
Current assets:
Cash and cash equivalents....................... $ 0.5 $ 0.2
Trade accounts receivables (net of allowance
of $0.7 at March 31, 1999 and $0.8 at
December 31, 1998)............................. 20.5 19.3
Net inventories................................. 25.2 30.4
Due from affiliates............................. 18.2 15.1
Prepaid expenses and other current assets....... 0.1 0.1
------------ -------------
Total current assets.......................... 64.5 65.1
Property, plant and equipment - net............. --- ---
Goodwill - net.................................. 14.1 14.4
Other assets - net.............................. 1.2 1.3
------------ -------------
Total assets....................................... $ 79.8 $ 80.8
============ =============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Trade accounts payable.......................... $ 10.2 $ 10.6
Accrued warranties and product liability........ 6.6 8.0
Accrued expenses................................ 1.4 1.8
Due to affiliates............................... 4.8 26.4
Due to Terex Corporation........................ 23.1 0.3
Current portion of long-term debt............... 0.8 0.8
------------ -------------
Total current liabilities..................... 46.9 47.9
------------ -------------
Non-current liabilities:
Long-term debt, less current portion............ 64.0 63.9
Other non-current liabilities................... 0.9 0.8
------------ -------------
Total non-current liabilities................. 64.9 64.7
------------ -------------
Commitments and contingencies
Shareholders' deficit
Common stock, Class A, $.01 par value -
authorized 8,000 shares; issued and
outstanding 5,000 shares...................... --- ---
Common stock, Class B, $.01 par value -
authorized 2,000 shares; issued and
outstanding 413 shares........................ --- ---
Accumulated deficit............................. (31.9) (31.7)
Foreign currency translation adjustment......... (0.1) (0.1)
------------ -------------
Total shareholders' deficit................... (32.0) (31.8)
------------ -------------
Total liabilities and shareholders' deficit........ $ 79.8 $ 80.8
============ =============
The accompanying notes are an integral part of these financial statements.
16
PPM CRANES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
For the Three Months
Ended March 31,
------------------------
1999 1998
---------- ------------
OPERATING ACTIVITIES
Net loss............................................ $ (0.2) $ (10.7)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization................... 0.4 0.4
Extraordinary loss on retirement of debt........ --- 10.9
Other........................................... --- ---
Changes in operating assets and liabilities:
Trade accounts receivable..................... (1.2) (2.6)
Net inventories............................... 5.2 2.0
Trade accounts payable........................ (0.4) 1.2
Net amounts due to affiliates................. (1.9) (1.5)
Other, net.................................... (1.6) (0.3)
---------- ------------
Net cash provided by (used in) operating
activities................................. 0.3 (0.6)
---------- ------------
INVESTING ACTIVITIES
Capital expenditures................................ --- (0.1)
---------- ------------
Net cash used in investing activities............. --- (0.1)
---------- ------------
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt,
net of issuance costs.............................. --- 60.0
Net repayments under revolving line of
credit agreements.................................. --- (0.1)
Principal repayments of long-term debt.............. --- (50.0)
Payment of premiums on early
extinguishment of debt............................. --- (8.5)
Other............................................... --- (1.4)
---------- ------------
Net cash used in financing activities............. --- ---
---------- ------------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS........................... --- 0.5
---------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS... 0.3 (0.2)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD....... 0.2 0.2
---------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............. $ 0.5 $ ---
========== ============
The accompanying notes are an integral part of these financial statements.
17
PPM CRANES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
(in millions unless otherwise denoted)
NOTE 1 -- Description of the Business and Basis of Presentation
PPM Cranes, Inc. (sometimes referred to as Terex Cranes - Conway Operations)
(the "Company" or "PPM") is engaged in the design, manufacture, marketing and
worldwide distribution and support of construction equipment, primarily
hydraulic cranes and related spare parts.
On May 9, 1995 (the "date of acquisition"), Terex Corporation, through its
wholly-owned subsidiary Terex Cranes, Inc., a Delaware Corporation, completed
the acquisition of all of the capital stock of Legris Industries, Inc., a
Delaware Corporation, which then owned 92.4% of the capital stock of PPM Cranes,
Inc.
The condensed consolidated financial statements reflect Terex Corporation's
basis in the assets and liabilities of the Company which was accounted for as a
purchase transaction. As a result, the debt and goodwill associated with the
acquisition have been "pushed down" to the Company's financial statements.
In the opinion of management, all adjustments considered necessary for a fair
presentation have been made. Such adjustments consist only of those of a normal
recurring nature. Operating results for the three ended March 31, 1999 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999. For further information, refer to the Company's consolidated
financial statements and footnotes thereto for the year ended December 31, 1998.
The condensed consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All material intercompany
transactions and profits have been eliminated.
NOTE 2 -- Inventories
Net inventories consist of the following:
March 31, December 31,
1999 1998
---------------- ----------------
Finished equipment......................... $ 4.4 $ 9.3
Replacement parts.......................... 9.2 9.1
Work in process............................ 2.7 1.6
Raw materials and supplies................. 8.9 10.4
---------------- ------------------
$ 25.2 $ 30.4
================ =================
Note 3 -- Property, Plant and Equipment
Net property, plant and equipment consists of the following:
March 31, December 31,
1999 1998
------------------ ----------------
Property, plant and equipment.............. $ 0.2 $ 0.2
Less: Accumulated depreciation............ (0.2) (0.2)
----------------- ----------------
Net property, plant and equipment.......... $ --- $ ---
================= ================
18
NOTE 4 - COMMITMENTS AND Contingencies
The Company is involved in product liability and other lawsuits incident to the
operation of its business. Insurance with third parties is maintained for
certain of these items. It is management's opinion that none of these lawsuits
will have a materially adverse effect on the Company's financial position.
On March 31, 1998, Terex Corporation issued and sold $150.0 aggregate principal
amount of 8-7/8% Senior Subordinated Notes due 2008, which notes were exchanged
by Terex Corporation for 8-7/8% Senior Subordinated Notes due 2008 registered
under the Securities Act of 1933, as amended (the "1998 Senior Subordinated
Notes"). On March 9, 1999, Terex Corporation issued and sold $100.0 aggregate
principal amount of 8-7/8% Series C Senior Subordinated Notes due 2008 (the
"1999 Senior Subordinated Notes"). The 1998 Senior Subordinated Notes and the
1999 Senior Subordinated Notes are each jointly and severally guaranteed by
certain domestic subsidiaries of Terex Corporation, including PPM.
19
ITEM 2. 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.
Three Months Ended March 31, 1999 Compared with the Three Months Ended March 31,
1998
The table below is a comparison of net sales, gross profit, selling, general and
administrative expenses, and income from operations, by segment, for the three
months ended March 31, 1999 and 1998.
Three Months Ended
March 31, Increase
---------------------------
1999 1998 (Decrease)
--------------------------- -------------
(dollars in millions)
NET SALES
Terex Lifting..................................... $ 241.4 $ 182.5 $ 58.9
Terex Earthmoving................................. 180.7 76.6 104.1
General/Corporate/Eliminations.................... 1.2 1.5 (0.3)
------------- ------------- -------------
Total........................................... $ 423.3 $ 260.6 $ 162.7
============= ============= =============
GROSS PROFIT
Terex Lifting..................................... $ 39.4 $ 30.1 $ 9.3
Terex Earthmoving................................. 31.7 14.4 17.3
General/Corporate/Eliminations.................... (0.2) 0.3 (0.5)
------------- ------------- -------------
Total........................................... $ 70.9 $ 44.8 $ 26.1
============= ============= =============
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Terex Lifting..................................... $ 14.9 $ 11.7 $ 3.2
Terex Earthmoving................................. 14.2 7.8 6.4
General/Corporate/Eliminations.................... 1.3 1.5 (0.2)
------------- ------------- -------------
Total........................................... $ 30.4 $ 21.0 $ 9.4
============= ============= =============
INCOME FROM OPERATIONS
Terex Lifting..................................... $ 24.5 $ 18.4 $ 6.1
Terex Earthmoving................................. 17.5 6.6 10.9
General/Corporate/Eliminations.................... (1.5) (1.2) (0.3)
------------- ------------- -------------
Total........................................... $ 40.5 $ 23.8 $ 16.7
============= ============= =============
Net Sales
Sales increased $162.7 million, or approximately 62%, to $423.3 million for the
three months ended March 31, 1999 over the comparable 1998 period. Internally
generated growth represented approximately $78 million of this revenue increase
while the companies acquired in 1998 contributed approximately $85 million.
Terex Lifting's sales were $241.4 million for the three months ended March 31,
1999, an increase of $58.9 million from $182.5 million for the three months
ended March 31, 1998. A significant amount of the increase comes from the U.S.,
driven by strong performances within our crane and utility aerial device
businesses, and increases in Germany and Italy. Additionally, approximately $37
million of the increased sales were at the businesses acquired in 1998. Terex
Lifting's backlog was $222.5 million at March 31, 1999, and $224.0 million at
March 31, 1998. Backlog does not include any significant parts orders which are
normally filled in the period ordered. The sales mix was approximately 9% parts
for the three months ended March 31, 1999 compared to approximately 10% parts
for the comparable 1998 period reflecting the increase in machine sales.
20
Terex Earthmoving sales were $180.7 million for the three months ended March 31,
1999, an increase of $104.1 million from $76.6 million for the three months
March 31, 1998. The increase in sales is driven by businesses acquired in 1998
(approximately $48 million) and the impact of a significant truck order received
from Coal India, a government agency for coal management in India. Backlog was
$162.6 million at March 31, 1999 compared to $48.5 million at March 31, 1998.
The sales mix was approximately 24% parts for the three months ended March 31,
1999 compared to 30% for the comparable 1998 period reflecting the increase in
machine sales.
Net sales for corporate in the three months ended March 31, 1999 and 1998 are
service revenues of $1.2 million and $1.5 million, respectively, generated by
Terex's parts distribution center for services provided to a third party.
Gross Profit
Gross profit for the three months ended March 31, 1999 increased $26.1 million,
or approximately 58%, to $70.9 million as result of acquisitions and internally
generated growth in both the Terex Lifting and Earthmoving businesses.
Terex Lifting's gross profit increased $9.3 million to $39.4 million for the
three months ended March 31, 1999, compared to $30.1 million for the three
months ended March 31, 1998. The increase in gross profit is driven by the
performance of companies acquired in 1998 and internally generated growth. Gross
profit as a percentage of sales decreased to 16.3% from 16.5% in 1998 due
primarily to sales mix.
Terex Earthmoving's gross profit increased $17.3 million to $31.7 million for
the three months ended March 31, 1999, compared to $14.4 million for the three
months ended March 31, 1998. The increase in gross profit is due to the
performance of companies acquired in 1998 and internally generated growth,
primarily the Coal India order. The gross margin percentage decreased to 17.5%
from 18.8% in 1998 driven primarily by sales mix and the impact of the Coal
India order.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased to $30.4 million for the
three months ended March 31, 1999 from $21.0 million for the three months ended
March 31, 1998, principally reflecting the effect of the businesses acquired in
1998. However, as a percentage of sales, selling, general and administrative
expenses decreased to 7.2% for the three months ended March 31, 1999 as compared
to 8.1% for the three months ended March 31, 1998.
Terex Lifting's selling, general and administrative expenses increased to $14.9
million for the three months ended March 31, 1999 from $11.7 million for the
three months ended March 31, 1998. This increase in selling, general and
administrative expenses was principally due to businesses acquired in 1998. As a
percentage of sales, however, selling, general and administrative expenses for
the year decreased to 6.2% compared to 6.4% in 1998. Excluding companies
acquired in 1998, selling, general and administrative expenses actually
decreased in both dollars and as a percentage of sales when compared to the
prior year.
Terex Earthmoving's selling, general and administrative expenses increased to
$14.2 million for the three months ended March 31, 1999, from $7.8 million for
the comparable period in 1998 principally due to the effect of the businesses
acquired in 1998. As a percentage of sales, selling, general and administrative
expenses decreased to 7.9% for the three months ended March 31, 1999, from 10.2%
for the comparable 1998 period.
Income from Operations
On a consolidated basis, the Company had operating income of $40.5 million, or
9.6% of sales, for the three months ended March 31, 1999, compared to operating
income of $23.8 million, or 9.1% of sales, for the three months ended March 31,
1998, for the reasons mentioned above.
Terex Lifting's income from operations of $24.5 million for the three months
ended March 31, 1999 increased by $6.1 million over the three months ended March
31, 1998. The increase is the result of internal growth driven by strong
performances within our crane and utility aerial businesses, continuing cost
control efforts and the impact of companies acquired in 1998 (approximately $3
million).
Terex Earthmoving's income from operations increased by $10.9 million to $17.5
million for the three months ended March 31, 1999 from $6.6 million for the
three months ended March 31, 1998, primarily due to the impact of the Coal India
order and the 1998 acquisition of O&K Mining.
21
Interest Expense
During the three months ended March 31, 1999, the Company's interest expense
increased $4.5 million to $13.3 million from $8.8 million for the comparable
1998 period. This increase was due to higher debt levels in the three months
ended March 31, 1999 versus the comparable period in 1998. Although debt levels
increased during the three months ended March 31, 1999 as compared to the three
months ended March 31, 1998, the average interest rate on the debt declined due
to the redemption of the Company's 13-1/4% Senior Secured Notes due 2002 (the
"Senior Secured Notes") and the refinancing of the Company's bank credit
facilities in March 1998.
Extraordinary Items
The Company recorded a charge of $38.3 million in the three months ended March
31, 1998 to recognize a loss on the early extinguishment of debt in connection
with the redemption of the Senior Secured Notes and the refinancing of the
Company's bank credit facilities.
LIQUIDITY AND CAPITAL RESOURCES
Net cash of $51.7 million was used by operating activities during the three
months ended March 31, 1999. Operating results before depreciation and
amortization provided $31.9 million, and approximately $84 million was invested
in working capital. The increase in working capital reflects the impact of the
Coal India contract and the general increase in business activity. Net cash used
in investing activities was $4.3 million during the three months ended March 31,
1999 and primarily represents capital expenditures. Net cash provided by
financing activities was $52.4 million during the three months ended March 31,
1999 which represents the net proceeds from the issuance of the 1999 Senior
Subordinated Notes, offset by the repayment of principal under the Company's
bank credit facility. Cash and cash equivalents totaled $22.0 million at March
31, 1999.
On April 1, 1999, the Company acquired Amida Industries, Inc., a manufacturer of
light construction equipment, principally mobile light towers, concrete screeds,
motorized front dumpers and directional arrow boards, at its facility in Rock
Hill, South Carolina. Since the beginning of 1995, including the acquisition of
Amida Industries, Inc., the Company has invested approximately $460 million to
strengthen its core businesses through eleven strategic acquisitions. The
Company expects that acquisitions and new product development will continue to
be important components of its growth strategy and is continually reviewing
acquisition opportunities. Terex will continue to pursue strategic acquisitions
which complement the Company's core operations, offer cost reduction
opportunities as well as distribution and purchasing synergies and provide
product diversification.
As discussed in Note B of the notes to the interim condensed consolidated
financial statements, on March 9, 1999 the Company issued $100.0 million
aggregate principal amount of 8-7/8% Series C Senior Subordinated Notes due
2008. The net proceeds from the offering were used to prepay scheduled principal
payments due through March 31, 2000 under the Company's bank credit facility,
repay outstanding revolving credit indebtedness and pay the cash portion of the
purchase price for the Amida acquisition.
As of March 31, 1999, the Company's balance outstanding under its revolving
credit facility totaled $34.8 million, including borrowings of $30.2 million to
pay the scheduled principle payments mentioned above, letters of credit issued
under its revolving credit facility totaled $55.1 million, and the additional
amount the Company could have borrowed under its revolving credit facility was
$35.1 million.
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 service through debt
refinancings, issuance of equity, assets sales, including the sale of business
units, or any combination thereof.
The Company's businesses are working capital intensive and require funding for
purchases of production and replacement parts inventories, capital expenditures
for repair, replacement and upgrading of existing facilities as well as
financing of receivables from customers and dealers. The Company has significant
debt service requirements including semi-annual interest payments on the 1998
Senior Subordinated Notes and the 1999 Senior Subordinated Notes and monthly
interest payments on the Company's bank credit facility. Management believes
that cash generated from operations, together with the Company's bank credit
facility, provides the Company adequate liquidity to meet the Company's
operating and debt service requirements.
22
CONTINGENCIES AND UNCERTAINTIES
Internal Revenue Service
The Company's federal income tax returns for the years 1987 through 1989 are
currently being audited by the Internal Revenue Service (the "IRS"). In December
1994, the Company received an examination report from the IRS proposing a large
tax deficiency. The examination report raised many issues. Among these issues
are substantiation for certain tax deductions and whether the Company was able
to use certain net operating loss carryovers ("NOLs") to offset taxable income.
In April 1995, the Company filed an administrative appeal to the examination
report. The IRS is currently reviewing information the Company provided to it.
The final outcome of this audit is subject to the resolution of complicated
legal and factual issues. Given the number and complexity of the legal and
administrative proceedings involved, this audit could continue for several more
years.
If the IRS prevails on all the issues raised, the amount of the tax the Company
would have to pay would be approximately $56 million plus penalties of
approximately $12.8 million and interest through March 31, 1999 of approximately
$116.2 million. The penalties claimed by the IRS are between 20% and 25% of the
amount of the tax deficiency assessed against the Company. Interest on the
amount of tax deficiency and penalties assessed against the Company is currently
accruing at a rate of 9% per annum. If the Company is required to pay a
significant portion of the tax deficiency claimed by the IRS, it may not have or
be able to obtain the money necessary to pay the tax deficiency and continue in
business.
The Company believes that it is able to provide adequate documentation for a
large part of the tax deductions the IRS has disallowed. In addition, the IRS
has advised the Company that it is no longer challenging the Company's right to
use the NOLs in question. As a result, the Company does not believe that the
outcome of the audit will have a material adverse effect on its financial
condition or results of operations. However, the Company may lose or have to use
some of its NOLs as a result of the audit. In addition, there is also a
possibility that the Company will have to pay some amount of tax, penalties and
interest to the IRS to resolve this matter. The final outcome of the audit
cannot be determined or estimated at this time. Accordingly, the Company does
not have any additional reserves for amounts which might be due as a result of
the audit because the loss ranges from zero to $56 million plus interest and
penalties.
Year 2000 Issue
The Year 2000 ("Y2K") problem is the result of computer programs being
written using two digits rather than four to define the applicable year. Thus,
the year 1998 is represented by the number "98" in many legacy software
applications. Consequently, on January 1, 2000 the year will jump back to "00"
for many non-Y2K compliant applications. To systems that are non-Y2K compliant,
the time will seem to have reverted back 100 years. Accordingly, when computing
basic lengths of time, computer programs, certain building infrastructure
components (including elevators, alarm systems, telephone networks, sprinkler
systems, security access systems and certain HVAC systems) and any additional
time-sensitive software that are non-Y2K compliant may recognize a date using
"00" as the Year 1900. This could result in system failures or miscalculations
which could cause personal injury, property damage, disruption of operations,
and/or delays in payments from the Company's customers, any or all of which
could materially adversely affect the Company's business, financial condition,
liquidity or results of operations.
The Company has conducted a company-wide assessment of its computer
systems, products and operations infrastructure to identify computer hardware,
software, and process control systems that are not Y2K compliant. The Company
believes that it has identified those business-critical computer systems which
are not presently Y2K compliant, and has instituted a plan to replace, upgrade
or modify most of these systems by mid-1999. However, the Company acquired seven
new companies during 1998, all but one of which is located in Europe. The
business-critical systems of certain of the newly acquired companies, including
O&K Mining, were not Y2K compliant at the time of acquisition. The Company has
instituted a plan to replace, upgrade or modify the systems at these acquired
companies and expects to be completed by the end of 1999; however, no assurance
can be given that the replacement, upgrade or modification of the systems at
these companies will be timely completed. The total cost associated with
required modifications to become Y2K compliant is not expected to exceed $5
million, and a significant portion of these costs were planned upgrades to the
current financial and operating systems.
The Company has also initiated communications with third parties whose
computer systems' functionality could impact the Company. These communications
will facilitate coordination of Y2K solutions and will permit the Company to
determine the extent to which the Company may be vulnerable to failures of third
parties to address their own Y2K issues. To date, the Company has not identified
any significant issues with respect to third parties.
The failure to correct a material Y2K problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
23
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Y2K problem, resulting in part from the uncertainty
of the Year 2000 readiness of third-party suppliers and customers, the Company
is unable to determine at this time whether the consequences of Y2K failures
will have a material impact on the Company's results of operations, liquidity or
financial condition, and as such, has not yet established a contingency plan to
handle the most reasonably likely worst case scenario. the Company's Y2K project
is expected to significantly reduce the Company's level of uncertainty about the
Y2K problem and, in particular, about the Y2K compliance and readiness of its
material suppliers and customers. The Company believes that, with the
implementation of new business systems and completion of its Y2K project as
scheduled, the possibility of significant interruptions of normal operations
should be reduced.
Euro
On January 1, 1999, 11 of the 15 member countries of the European Union
established fixed conversion rates between their existing currencies ("legacy
currencies") and one common currency the euro. The euro now trades on currency
exchanges and may be used in business transactions. Beginning in January 2002,
new euro-denominated bills and coins will be issued, and legacy currencies will
be withdrawn from circulation. The Company's operating subsidiaries affected by
the euro conversion are assessing the systems and business issues raised by the
euro currency conversion. These issues include, among others, (1) the need to
adapt computer and other business systems and equipment to accommodate
euro-denominated transaction and (2) the competitive impact of cross-border
price transparency, which may make it more difficult for businesses to charge
different prices for the same products on a country-by-country basis
particularly once the euro currency is issued in 2002. The Company anticipates
that the euro conversion will not have a material adverse impact on its
financial condition or results of operations.
Other
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 a
preliminary stage, and it is not presently possible to estimate the amount or
timing of any cost to the Company. However, the Company 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 not possible to
estimate the amount within the range that is most likely to occur.
The Company generates hazardous and nonhazardous wastes in the normal
course of its manufacturing operations. As a result, Terex is subject to a wide
range of federal, state, local and foreign environmental laws and regulations.
These laws and regulations govern actions that may have adverse environmental
effects and also require compliance with certain practices when handling and
disposing of hazardous and nonhazardous wastes. These laws and regulations also
impose liability for the costs of, and damages resulting from, cleaning up
sites, past spills, disposals and other releases of hazardous substances.
Compliance with these laws and regulations has, and will continue require, the
Company to make expenditures. The Company does not expect that these
expenditures will have a material adverse effect on its business or
profitability.
24
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to certain market risks which exist as part of its
ongoing business operations and the Company uses derivative financial
instruments, where appropriate, to manage these risks. The Company, as a matter
of policy, does not engage in trading or speculative transactions. For further
information on accounting policies related to derivative financial instruments,
refer to the Company's Annual Report on Form 10-K for the year ended December
31, 1998.
Foreign Exchange Risk
The Company is exposed to fluctuations in foreign currency cash flows related to
third party purchases, intercompany product shipments and intercompany loans.
The Company is also exposed to fluctuations in the value of foreign currency
investments in subsidiaries and cash flows related to repatriation of these
investments. Additionally, the Company is exposed to volatility in the
translation of foreign currency earnings to U.S. Dollars. Primary exposures
include the U.S. Dollars versus functional currencies of the Company's major
markets which include, British Pound, German Mark, French Franc and Italian
Lira. The Company assesses foreign currency risk based on transactional cash
flows and identifies naturally offsetting positions and purchases hedging
instruments to protect anticipated exposures. Such foreign currency contracts
have not historically been material in amount.
Interest Rate Risk
The Company is exposed to interest rate volatility with regard to future
issuances of fixed rate debt and existing issuances of variable rate debt.
Primary exposure includes movements in the U.S. prime rate and London Interbank
Offer Rate ("LIBOR"). The Company uses interest rate swaps to reduce interest
rate volatility. At March 31, 1999, the Company had approximately $220 million
of interest rate swaps fixing interest rates between 6.6% and 8.2%.
25
PART II OTHER INFORMATION
Item 1. Legal Proceedings
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. The inquiry of the
Commission has primarily focused on the purchase accounting treatment and
reporting matters relating to various transactions which took place in the late
1980s and early 1990s. Without admitting or denying the Commissions's finding or
any wrongdoing on the part of Terex or its then officers or directors, on April
20, 1999 Terex consented to the entry of an administrative cease and desist
order ("the Order") prohibiting future violations of the provisions of the
Federal securities laws, specifically the periodic reporting and the
recordkeeping provisions of Sections 13(a) and 13(b)(2)(A) of the Securities and
Exchange Act of 1934, as amended (the "Exchange Act") and Rules 12b-20, 13a-1
and 13a-13 thereunder, and the proxy provisions of the Exchange Act. The Order
does not provide for any monetary or other sanctions against the Company. The
resolution of this matter will not impact the Company's financial statements or
results of operations, and does not require a restatement of the Company's
financial statements.
For information concerning other contingencies see "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Contingencies and
Uncertainties."
Item 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Recent Developments
Not applicable.
Forward Looking Information
Certain information in this Quarterly 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 Quarterly 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; the ability to meet production and
delivery schedules; the ability of suppliers to provide components on a timely
basis; pricing, product initiatives and other actions taken by competitors; the
effects of changes in laws and regulations; the national and international
political climate; continued use of net operating loss carryovers; the outcome
of the Internal Revenue Service audit; compliance with environmental laws and
regulations; 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
Quarterly 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 Quarterly Report to reflect any
changes in the Company's expectations with regard thereto or any changes in
events, conditions or circumstances on which any such statement is based.
26
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits have been filed as part of this Form 10-Q:
Exhibit No.
27 Financial data schedule
(b) Reports on Form 8-K.
- A report on Form 8-K dated March 1, 1999 was filed on March 1, 1999,
announcing the offering of $100 million of 8-7/8% Senior Subordinated
Notes Due 2008.
- A report on form 8-K dated March 9, 1999 was filed on March 10, 1999,
announcing the completion of the $100 million offering of 8-7/8%
Senior Subordinated Notes Due 2008.
27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TEREX CORPORATION
(Registrant)
Date: May 14, 1999 /s/ Joseph F. Apuzzo
Joseph F. Apuzzo
Vice President-Corporate Finance
(Principal Financial Officer)
Date: May 14, 1999 /s/ Kevin M. O'Reilly
Kevin M. O'Reilly
Controller
(Principal Accounting Officer)
28
EXHIBIT INDEX
Exhibit No.
Exhibit 27 Financial Data Schedule
30