UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
F O R M 10 - Q/A
Amendment No. 1 to Form 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, 2003
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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, including area code)
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 whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b -2).
YES X NO _______
Number of outstanding shares of common stock: 48.2 million as of May 8, 2003.
The Exhibit Index begins on page 44.
INDEX
TEREX CORPORATION AND SUBSIDIARIES
GENERAL
This Amendment to the Quarterly Report on Form 10-Q filed by Terex Corporation
("Terex" or the "Company") includes financial information with respect to the
following subsidiaries of the Company (all of which are wholly-owned) which were
guarantors on March 31, 2003 (the "Guarantors") of the Company's $300 million
principal amount of 10-3/8% Senior Subordinated Notes due 2011 (the "10-3/8%
Notes"), $250 million principal amount of 8-7/8% Senior Subordinated Notes due
2008 (the "8-7/8% Notes") and $200 million principal amount of 9-1/4% Senior
Subordinated Notes due 2011 (the "9-1/4% Notes"). See Note O to the Company's
March 31, 2003 Condensed Consolidated Financial Statements included in this
Amendment to the Quarterly Report.
State or other
jurisdiction of
Incorporation I.R.S. employer
Guarantor or organization identification number
--------- ------------------ ---------------------
Amida Industries, Inc. South Carolina 57-0531390
Benford America, Inc. Delaware 76-0522879
BL-Pegson USA, Inc. Connecticut 31-1629830
Cedarapids, Inc. Iowa 42-0332910
CMI Dakota Company South Dakota 46-0440642
CMI Terex Corporation Oklahoma 73-0519810
CMIOIL Corporation Oklahoma 73-1125438
Coleman Engineering, Inc. Tennessee 62-0949893
Combatel Distribution, Inc. Delaware 63-1094091
Commercial Body Corporation Delaware 74-3075523
EarthKing, Inc. Delaware 06-1572433
Finlay Hydrascreen USA, Inc. New Jersey 22-2776883
Fuchs Terex, Inc. Delaware 06-1570294
Genie Access Services, Inc. Washington 91-2073567
Genie China, Inc. Washington 91-1973009
Genie Financial Services, Inc. Washington 91-1712115
Genie Holdings, Inc. Washington 91-1666966
Genie Industries, Inc. Washington 91-0815489
Genie International, Inc. Washington 91-1975116
Genie Manufacturing, Inc. Washington 91-1499412
GFS Commercial LLC Washington n/a
GFS National, Inc. Washington 91-1959375
Go Credit Corporation Washington 91-1563427
Koehring Cranes, Inc. Delaware 06-1423888
Lease Servicing & Funding Corp. Washington 91-1808180
O & K Orenstein & Koppel, Inc. Delaware 58-2084520
Payhauler Corp. Illinois 36-3195008
Powerscreen Holdings USA Inc. Delaware 61-1265609
Powerscreen International LLC Delaware 61-1340898
Powerscreen North America Inc. Delaware 61-1340891
Powerscreen USA, LLC Kentucky 31-1515625
PPM Cranes, Inc. Delaware 39-1611683
Product Support, Inc. Oklahoma 73-1488926
Royer Industries, Inc. Pennsylvania 24-0708630
Schaeff, Inc. Iowa 42-1097891
Standard Havens, Inc Delaware 43-0913249
Standard Havens Products, Inc. Delaware 43-1435208
Telelect Southeast Distribution, Inc. Tennessee 02-0560744
Terex Advance Mixer, Inc. Delaware 06-1444818
Terex Bartell, Inc. Delaware 34-1325948
Terex Cranes, Inc. Delaware 06-1513089
Terex Financial Services, Inc. Delaware 45-0497096
Terex Mining Equipment, Inc. Delaware 06-1503634
Terex Utilities, Inc. Delaware 04-3711918
Terex-RO Corporation Kansas 44-0565380
Terex-Telelect, Inc. Delaware 41-1603748
The American Crane Corporation North Carolina 56-1570091
Utility Equipment, Inc. Oregon 93-0557703
Page No.
PART I FINANCIAL INFORMATION
Item 1 Condensed Consolidated Financial Statements
TEREX CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Operations --
Three months ended March 31, 2003 and 2002..........................................................4
Condensed Consolidated Balance Sheet - March 31, 2003 and December 31, 2002.............................5
Condensed Consolidated Statement of Cash Flows --
Three months ended March 31, 2003 and 2002..........................................................6
Notes to Condensed Consolidated Financial Statements -- March 31, 2003..................................7
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations.....................29
SIGNATURES ..........................................................................................................43
EXHIBIT INDEX .......................................................................................................44
EXPLANATORY NOTE
This Amendment to the Quarterly Report on Form 10-Q/A ("Form 10-Q/A") of Terex
Corporation (the "Company" or "Terex") is being filed to amend and restate
certain items of the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 2003, which was filed with the SEC on May 15, 2003 ("Original
Form 10-Q"). Terex maintains a deferred compensation plan (the "Plan") for
participating employees that, prior to January 1, 2004, permitted participants
to transfer funds between investment options, one of which is an option to
invest in shares of Terex common stock. It has been the practice of the Plan to
purchase shares of Terex common stock on an ongoing basis as participants
contribute to the Terex common stock fund, in order to eliminate the risk
associated with fluctuations in the price of Terex common stock.
The Company, in consultation with its independent auditors, has determined that
generally accepted accounting principles required the Company to record an
obligation to Plan participants invested in Terex common stock at the fair value
of the Terex common stock. Accordingly, the Company's consolidated financial
statements as of and for the three months ended March 31, 2003 have been
restated to record the fair value of the Company's obligations to Plan
participants invested in Terex common stock. As the Company has acquired shares
equal to its obligation to Plan participants, there is no cash impact associated
with this amendment.
The amendments contained herein reflect changes resulting from the foregoing
adjustments with regard to the Plan and the related income tax effect. The
Company has not updated the information contained herein for events and
transactions occurring subsequent to May 15, 2003, the filing date of the
Original Form 10-Q, except to reflect the restatement of the Company's financial
statements as described above.
3
PART 1. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
(in millions, except per share data)
For the Three Months
Ended March 31,
---------------------------
(Restated -
See Note A)
2003 2002
------------- -------------
Net sales.....................................................$ 927.7 $ 582.0
Cost of goods sold............................................ 798.0 490.7
------------- -------------
Gross profit............................................. 129.7 91.3
Selling, general and administrative expenses.................. 89.2 59.8
------------- -------------
Income from operations................................... 40.5 31.5
Other income (expense):
Interest income.......................................... 1.7 0.8
Interest expense......................................... (25.9) (22.0)
Other income (expense) - net............................. 0.3 (1.2)
------------- -------------
Income before income taxes and cumulative effect of
change in accounting principle.......................... 16.6 9.1
Provision for income taxes.................................... (4.6) (2.9)
------------- -------------
Income before cumulative effect of change in accounting
principle............................................... 12.0 6.2
Cumulative effect of change in accounting principle (net of
income tax expense of $1.0 in 2002)......................... --- (113.4)
------------- -------------
Net income (loss).............................................$ 12.0 $ (107.2)
============= =============
Per common share:
Basic:
Income before cumulative effect of change in accounting
principle..............................................$ 0.25 $ 0.16
Cumulative effect of change in accounting principle..... --- (2.98)
------------- -------------
Net income (loss).....................................$ 0.25 $ (2.82)
============= =============
Diluted:
Income before cumulative effect of change in accounting
principle..............................................$ 0.24 $ 0.16
Cumulative effect of change in accounting principle..... --- (2.93)
------------- -------------
Net income (loss).....................................$ 0.24 $ (2.77)
============= =============
Weighted average number of shares outstanding in per share calculation:
Basic................................................. 47.2 38.0
Diluted............................................... 49.0 38.7
The accompanying notes are an integral part of these financial statements.
4
TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited)
(in millions, except par value)
----------------------------------
(Restated - December 31,
See Note A)
March 31,
2003 2002
---------------- -----------------
Assets
Current assets
Cash and cash equivalents........................................................ $ 419.9 $ 352.2
Trade receivables (net of allowance of $19.6 at March 31, 2003
and $19.6 at December 31, 2002)................................................ 597.8 578.6
Inventories...................................................................... 1,079.0 1,106.3
Other current assets............................................................. 158.2 184.0
----------------- -----------------
Total current assets......................................................... 2,254.9 2,221.1
Long-term assets
Property, plant and equipment.................................................... 304.5 309.4
Goodwill......................................................................... 635.2 622.9
Deferred taxes................................................................... 150.7 153.5
Other assets..................................................................... 335.0 318.8
----------------- -----------------
Total assets.......................................................................... $ 3,680.3 $ 3,625.7
================= =================
Liabilities and Stockholders' Equity
Current liabilities
Notes payable and current portion of long-term debt.............................. $ 71.4 $ 74.1
Trade accounts payable........................................................... 597.5 542.9
Accrued compensation and benefits................................................ 83.9 74.0
Accrued warranties and product liability......................................... 82.0 86.0
Other current liabilities........................................................ 324.7 329.2
----------------- -----------------
Total current liabilities.................................................... 1,159.5 1,106.2
Non-current liabilities
Long-term debt, less current portion............................................. 1,457.4 1,487.1
Other............................................................................ 263.2 263.2
Commitments and contingencies
Stockholders' equity
Common stock, $.01 par value - authorized 150.0 shares; issued 49.2 and 48.6
shares at March 31, 2003 and December 31, 2002, respectively................... 0.5 0.5
Additional paid-in capital....................................................... 782.9 772.7
Retained earnings................................................................ 79.4 67.4
Accumulated other comprehensive income (loss).................................... (44.8) (53.6)
Less cost of shares of common stock in treasury - 1.2 shares at March 31, 2003
and December 31, 2002.......................................................... (17.8) (17.8)
----------------- -----------------
Total stockholders' equity................................................... 800.2 769.2
----------------- -----------------
Total liabilities and stockholders' equity............................................ $ 3,680.3 $ 3,625.7
================= =================
The accompanying notes are an integral part of these financial statements.
5
TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
(in millions)
---------------------------
For the Three Months
Ended March 31,
---------------------------
(Restated -
See Note A)
2003 2002
---------------------------
Operating Activities
Net income (loss)............................................................. $ 12.0 $ (107.2)
Adjustments to reconcile net income (loss) to cash provided by (used in)
operating activities:
Depreciation............................................................. 12.9 6.9
Amortization............................................................. 2.7 1.4
Impairment charges and asset write downs................................. 1.7 113.4
Gain on sale of fixed assets............................................. (0.5) ---
Changes in operating assets and liabilities (net of effects of
acquisitions):
Trade receivables...................................................... (9.3) (53.3)
Inventories............................................................ 40.4 (12.0)
Trade accounts payable................................................. 59.1 34.3
Other, net............................................................. (4.1) 2.0
-------------- -------------
Net cash provided by (used in) operating activities................. 114.9 (14.5)
-------------- -------------
Investing Activities
Acquisition of businesses, net of cash acquired............................... (8.5) (72.5)
Capital expenditures.......................................................... (8.6) (5.9)
Proceeds from sale of assets.................................................. 2.6 0.4
-------------- -------------
Net cash used in investing activities............................... (14.5) (78.0)
-------------- -------------
Financing Activities
Principal borrowings (repayments) of long-term debt........................... (1.5) 0.7
Net borrowings (repayments) under revolving line of credit agreements......... (22.5) 1.6
Other......................................................................... (11.6) (0.3)
-------------- -------------
Net cash provided by (used in) financing activities................. (35.6) 2.0
-------------- -------------
Effect of Exchange Rate Changes on Cash and Cash Equivalents..................... 2.9 (1.1)
-------------- -------------
Net Increase (Decrease) in Cash and Cash Equivalents............................. 67.7 (91.6)
Cash and Cash Equivalents at Beginning of Period................................. 352.2 250.4
-------------- -------------
Cash and Cash Equivalents at End of Period....................................... $ 419.9 $ 158.8
============== =============
The accompanying notes are an integral part of these financial statements.
6
TEREX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2003
(unaudited)
(dollar amounts in millions, unless otherwise noted, except per share amounts)
NOTE A -- BASIS OF PRESENTATION Basis of Presentation. The accompanying
unaudited condensed consolidated financial statements of Terex Corporation and
subsidiaries as of March 31, 2003 and for the three months ended March 31, 2003
and 2002 have been prepared in accordance with accounting principles generally
accepted in the United States of America 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 accounting
principles generally accepted in the United States of America to be included in
full year financial statements. The accompanying condensed consolidated balance
sheet as of December 31, 2002 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
statement have been made. Except as otherwise disclosed, all such adjustments
consist only of those of a normal recurring nature. Operating results for the
three months ended March 31, 2003 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2003. 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, 2002.
Cash and cash equivalents at March 31, 2003 and December 31, 2002 include $13.7
and $4.5, respectively, which was not immediately available for use. These
consist primarily of cash balances held in escrow to secure various obligations
of the Company.
Restatement - The Company maintains a deferred compensation plan (the "Plan")
for participating employees that, prior to January 1, 2004, permitted
participants to transfer funds between investment options, one of which is an
option to invest in shares of Terex common stock. The Company, in consultation
with its independent auditors, has determined that generally accepted accounting
principles require the Company to adjust its obligation to Plan participants
invested in Terex common stock to the fair value of the Terex common stock.
Accordingly, the Company's consolidated financial statements for the three
months ended March 31, 2003 have been restated to increase the liability to Plan
participants by $0.8 as of March 31, 2003 based on the fair value of Terex
common stock at that date.
The impact of the restatement on the restated components of the Company's
consolidated balance sheet is as follows (in millions):
As Originally
March 31, 2003 Reported As Restated
---------------------------------------------------------------------------------- ------------------ ----------------
Deferred Tax Assets......................................................... 150.4 150.7
------------------ ----------------
Total assets................................................................ $ 3,680.0 $ 3,680.3
------------------ ----------------
Other long term liabilities................................................. 262.4 263.2
Retained earnings........................................................... 79.9 79.4
Total stockholders' equity.................................................. 800.7 800.2
------------------ ----------------
Total liabilities and stockholders' equity.................................. $ 3,680.0 $ 3,680.3
------------------ ----------------
As Originally As
For the Three Months Ended March 31, 2003 Reported Restated
-------------------------------------------------------------------------------- ------------------ ---------------
Net Sales $ 927.7 $ 927.7
Selling, general and administrative expenses................................ (88.4) (89.2)
Income from operations...................................................... 41.3 40.5
Provision for income taxes.................................................. (4.9) (4.6)
Net income.................................................................. $ 12.5 $ 12.0
Earnings per share - Net income............................................. $ 0.26 $ 0.25
Diluted earnings per share - Net income..................................... $ 0.26 $ 0.24
7
Recent Accounting Pronouncements. Statement of Financial Accounting Standards
("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets," was issued in October 2001. SFAS No. 144 became effective for the
Company on January 1, 2002 and provides new guidance on the recognition of
impairment losses on long-lived assets to be held and used or to be disposed of
and also broadens the definition of what constitutes a discontinued operation
and how the results of a discontinued operation are to be measured and
presented. The adoption of the standard has not materially changed the methods
used by the Company to determine impairment losses on long-lived assets, but may
result in additional items being reported as discontinued operations in the
future. Refer to Note E - "Restructuring and Other Charges" for information on
the recognition of impairment losses.
SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13, and Technical Corrections as of April 2002," was issued in May
2002. SFAS No. 145 became effective for certain leasing transactions occurring
after May 15, 2002 and became effective for the Company on January 1, 2003 with
respect to reporting gains and losses from extinguishments of debt. The adoption
of SFAS No. 145 will result in the Company reporting most gains and losses from
extinguishments of debt as a component of income or loss from continuing
operations before income taxes and extraordinary items; there will be no effect
on the Company's net income or loss. Prior period amounts will be reclassified.
SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities," was issued in June 2002. SFAS No. 146 became effective for exit or
disposal activities that are initiated after December 31, 2002. Under SFAS No.
146, a liability for a cost associated with an exit or disposal activity is
recognized when the liability is incurred. Under previous accounting principles,
a liability for an exit cost would be recognized at the date of an entity's
commitment to an exit plan. Adoption of SFAS No. 146 has been applied
prospectively and has not had a material effect on the Company's consolidated
financial position or results of operations.
In November 2002, the Financial Accounting Standards Board (the "FASB") issued
FASB Interpretation No. ("FIN") 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others, an interpretation of Statement of Financial Accounting Standards Nos. 5,
57, and 107 and rescission of FIN 34." FIN 45 extends the disclosures to be made
by a guarantor about its obligations under certain guarantees that it has
issued. It also clarifies that a guarantor is required to recognize, at the
inception of a guarantee, a liability for the fair value of its obligations
under certain guarantees. The disclosure provisions of FIN 45 were effective for
financial statements for periods ending after December 15, 2002. The provisions
for initial recognition and measurement of guarantees are effective on a
prospective basis for guarantees that are issued or modified after December 31,
2002. The application of FIN 45 has not had a material impact on the Company's
consolidated financial position or results of operations.
During January 2003 the FASB issued FIN 46, "Consolidation of Variable Interest
Entities" which is effective for the Company on July 1, 2003 for any existing
entities and to any variable interest entities created after January 31, 2003. A
variable interest entity ("VIE") is a corporation, partnership, trust or other
legal entity that does not have equity investors with voting rights or has
equity investors that do not provide sufficient financial resources for the
entity to support its own activities. This interpretation requires a company to
consolidate a VIE when the company has a majority of the risk of loss from the
VIE's activities or is entitled to receive a majority of the entity's residual
returns or both. The Company is currently evaluating the provisions of FIN 46 to
determine its impact on the Company's consolidated financial position or results
of operations.
In January 2003, the Emerging Issues Task Force (the "EITF") released EITF
00-21, "Accounting for Revenue Arrangements with Multiple Deliverables." EITF
00-21 clarifies the timing and recognition of revenue from certain transactions
that include the delivery and performance of multiple products or services. EITF
00-21 is effective for revenue arrangements entered into in fiscal periods
beginning after June 15, 2003. The Company is currently reviewing the impact of
EITF 00-21 on the Company's consolidated financial position or results of
operations.
During April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." This statement amends and
clarifies financial accounting and reporting for derivative instruments and
hedging activities, resulting primarily from decisions reached by the FASB
Derivatives Implementation Group subsequent to the original issuance of SFAS No.
133. This statement is generally effective prospectively for contracts and
hedging relationships entered into after June 30, 2003. The adoption of SFAS No.
149 will not have a material impact on the Company's consolidated financial
position or results of operations.
Accrued Warranties. The Company records accruals for potential warranty claims
based on the Company's claim experience. The Company's products are typically
sold with a standard warranty covering defects that arise during a fixed period
of time. Each business provides a warranty specific to the products it offers.
The specific warranty offered by a business is a function of customer
expectations and competitive forces. The length of warranty is generally a fixed
period of time, a fixed number of operating hours, or both.
8
A liability for estimated warranty claims is accrued at the time of sale. The
liability is established using a historical warranty claim experience for each
product sold. The historical claim experience may be adjusted for known design
improvements or for the impact of unusual product quality issues. Warranty
reserves are reviewed quarterly to ensure that critical assumptions are updated
for known events that may impact the potential warranty liability.
The following table summarizes the changes in the aggregate product warranty
liability:
Three Months Ended
March 31, 2003
-----------------
-----------------
Balance at beginning of period.............................. $ 59.1
Accruals for warranties issued during the period............ 13.3
Changes in estimates........................................ 0.1
Settlements during the period............................... (14.2)
Foreign exchange effect..................................... 0.9
--------------
Balance at end of period.................................... $ 59.2
==============
Stock-Based Compensation. At March 31, 2003, the Company has stock-based
employee compensation plans. The Company accounts for those plans under the
recognition and measurement principles of APB Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. No employee
compensation cost is reflected in net income for the granting of employee stock
options, as all options granted under those plans had an exercise price equal to
the market value of the underlying common stock on the date of grant. The
following table illustrates the effect on net income (loss) and earnings per
share if the Company had applied the fair value recognition provisions of SFAS
No. 123, "Accounting for Stock-Based Compensation," to stock-based employee
compensation.
For the Three Months
Ended March 31,
-----------------------------
-----------------------------
2003 2002
-------------- -------------
Reported net income (loss).................................... $ 12.0 $ (107.2)
Deduct: Total stock-based employee compensation expense
determined under fair value based methods for all awards,
net of related income tax effects............................ (1.1) (0.7)
-------------- -------------
Pro forma net income (loss)................................... $ 10.9 $ (107.9)
============== =============
Per common share:
Basic:
Reported net income (loss)................................ $ 0.25 $ (2.82)
============== =============
Pro forma net income (loss)............................... $ 0.23 $ (2.84)
============== =============
Diluted:
Reported net income (loss)................................ $ 0.24 $ (2.77)
============== =============
Pro forma net income (loss)............................... $ 0.22 $ (2.79)
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 the three months ended March 31, 2003 and 2002, respectively:
dividend yields of 0% and 0%; expected volatility of 51.24% and 51.24%;
risk-free interest rates of 4.90% and 5.42%; and expected life of 9.7 years and
9.6 years. The aggregate fair value of options granted during the three months
ended March 31, 2003 and 2002 for which the exercise price equals the market
price on the grant date was $4.5 and $2.5 respectively. The weighted average
fair value at date of grant for options granted during the three months ended
March 31, 2003 and 2002, was $7.59 and $14.71. per share, 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.
9
In December 2002, SFAS No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure as amendment of FASB Statement No. 123," was issued.
SFAS No. 148, which became effective for fiscal years ended after December 15,
2002, provides alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based employee compensation. In
addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123. The
adoption of SFAS No. 148 has not had, and will not have, a material impact on
the Company's financial statements, since the Company will continue to follow
the method in APB Opinion No. 25.
NOTE B -- ACQUISITIONS
On February 14, 2003, the Company completed the acquisition of Commercial Body
Corporation ("Commercial Body"). Commercial Body, headquartered in San Antonio,
Texas with locations in various states, distributes, assembles, rents and
provides service of products for the utility, telecommunications and municipal
markets. In connection with the acquisition, the Company issued approximately
600 thousand shares of Common Stock and paid $4.5 cash, subject to adjustment.
One of such adjustments may require the Company to pay cash or issue additional
shares of Common Stock (at the Company's option) if, on the second anniversary
of the Commercial Body acquisition, the Common Stock is not trading on the New
York Stock Exchange at a price at least 50% higher than it was at the time of
the acquisition, up to a maximum number of shares of Common Stock having a value
of $3.4. At the time of Terex's acquisition of Commercial Body, Commercial Body
had a 50% equity interest in Combatel Distribution, Inc. ("Combatel"). The
remaining 50% of Combatel was owned by Terex and prior to the acquisition had
been accounted for under the equity method of accounting. Commercial Body and
Combatel are included in the Terex Roadbuilding, Utility Products and Other
segment.
The operating results of Commercial Body and Combatel are included in the
Company's consolidated results of operations since February 14, 2003 (date of
acquisition).
The Company is in the process of completing certain valuations, appraisals and
actuarial and other studies for purposes of determining the respective fair
values of tangible and intangible assets used in the allocation of purchase
consideration for the acquisitions of Commercial Body and Combatel. The Company
does not anticipate that the final results of these valuations will have a
material impact on its financial position, operations or cash flows. The Company
may revise its preliminary allocations as additional information is obtained.
The Company is in the process of evaluating various alternatives to integrate
the activities of Commercial Body and Combatel into the Company, including
alternatives to exit or consolidate certain facilities and/or activities and
restructure certain functions and reduce the related headcount. These
alternatives could impact the acquired businesses or existing businesses, and
the Company intends to finalize its plans by June 30, 2003. The Company does not
believe that these restructuring activities by themselves will have an adverse
impact on the Company's ability to meet customer requirements for the Company's
products.
On September 18, 2002, the Company completed the acquisition of Genie Holdings,
Inc. and its affiliates ("Genie"), a global manufacturer of aerial work
platforms (the "Genie Acquisition"). The Company initiated the Genie Acquisition
as an opportunity to diversify its product offering with the addition of a
complete line of aerial work platforms with a strong global brand and
significant market share. The Genie Acquisition was also intended to provide
operational and marketing synergies and cost savings, such as allowing the Genie
product line to expand the reach of its distribution through the Company's
existing sales base, particularly in Europe. Genie is included in the Terex
Aerial Work Platforms segment.
The following pro forma summary presents the consolidated results of operations
as though the Company completed the Genie Acquisition as of the beginning of the
respective period, after giving effect to certain adjustments for interest
expense, amortization of debt issuance costs and other expenses related to the
transaction:
Pro Forma for the
Three Months Ended
March 31, 2002
--------------------------
Net sales.............................................$ 725.9
Income from operations................................$ 36.4
Income (loss) before cumulative effect of change in
accounting principle................................$ 4.7
Income (loss) before cumulative effect of change in
accounting principle, per share:
Basic.............................................$ 0.11
Diluted...........................................$ 0.11
10
The pro forma information is not necessarily indicative of what the actual
results of operations of the Company would have been for the period indicated,
nor does it purport to represent the results of operations for future periods.
NOTE C - ACCOUNTING CHANGE - BUSINESS COMBINATIONS AND GOODWILL
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141
"Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets."
SFAS No. 141, effective July 1, 2001, addresses financial accounting and
reporting for business combinations and requires all business combinations be
accounted for using the purchase method. One requirement of SFAS No. 141 is that
previously recorded negative goodwill be eliminated. Accordingly, the Company
recorded a cumulative effect of an accounting change of $17.8, $10.7, net of
income tax, related to the write-off of negative goodwill at January 1, 2002
from the acquisition of Fermec Manufacturing Limited in December 2000.
SFAS No. 142 addresses financial accounting for acquired goodwill and other
intangible assets and how such assets should be accounted for in financial
statements upon their acquisition and after they have been initially recognized
in the financial statements. In accordance with SFAS No. 142, goodwill related
to acquisitions completed after June 30, 2001 was not amortized in 2001 or 2002
and, effective January 1, 2002, goodwill related to acquisitions completed prior
to July 1, 2001 is no longer being amortized. Under this standard, goodwill and
indefinite life intangible assets are to be reviewed at least annually for
impairment and written down only in the period in which the recorded value of
such assets exceed their fair value.
Under the transitional provisions of SFAS No. 142, the Company identified its
reporting units and performed impairment tests on the net goodwill and other
intangible assets associated with each of the reporting units, using a valuation
date of January 1, 2002. The SFAS No. 142 impairment test is a two-step process.
First, it requires comparison of the book value of net assets to the fair value
of the related reporting units. If the fair value is determined to be less than
book value, a second step is performed to compute the amount of impairment. In
the second step, the implied fair value of goodwill is estimated as the fair
value of the reporting unit used in the first step less the fair values of all
other tangible and intangible assets of the reporting unit. If the carrying
amount of goodwill exceeds its implied fair market value, an impairment loss is
recognized in an amount equal to that excess.
Consistent with the approach required under SFAS No. 142, the Company estimated
the fair value of each of its ten reporting units existing as of January 1,
2002. Fair value was determined using a projection of undiscounted cash flow for
each reporting unit. Undiscounted cash flow was calculated using projected after
tax operating earnings, adding back depreciation and amortization, deducting
projected capital expenditures and also including the net change in working
capital employed. The assumptions were based on the Company's 2002 operating
plan. The present value of the undiscounted cash flows were calculated using the
Company's weighted cost of capital. The Company used an explicit five-year
projection of cash flow along with a terminal value based on the fifth year's
projected cash flow. The Company created these models. The total fair value of
the Company, as determined above, as of January 1, 2002, was approximately equal
to the market value of the Company at the same date, as determined by the market
value of the Company's equity and debt.
The Company performed the test described in SFAS No. 142 for all units where the
Company's carrying amount for such unit was below the fair value of that unit as
calculated by the method described above. SFAS No. 142 defines how a company
determines the implied fair value of goodwill.
The Terex Mining segment's carrying value exceeded the present value of the cash
flow expected to be generated by the segment. Future cash flow expectations have
been reduced due to the continued weakness in mineral commodity prices which are
a major determinant of the overall demand for mining equipment. The Company
calculated the fair market value of the Terex Mining segment's fixed assets and
intangible assets. Given the specialized nature of this calculation, the Company
employed a third party to assist in the determination of the fair value of
intangible assets at the Terex Mining reporting unit. The appraiser helped
determine the value for the Terex Mining unit's intangible assets, which
included trade names, customer relationships, backlog and technology, as defined
in SFAS No. 141. An income-based approach was used to determine the market value
of these intangible assets. A market comparable approach was used to determine
appropriate royalty rates. In addition, the fair value of the Terex Mining
unit's plant, property and equipment was calculated using a cost approach. The
Company provided guidance to the appraiser related to assumptions and
methodologies used in valuation and took responsibility for determining the
goodwill impairment charge. The results of this valuation work were used in the
determination of the implied value of the Mining unit's goodwill as of January
1, 2002, which resulted in a goodwill impairment of $105.7 ($105.7, net of
income taxes).
The Light Construction reporting unit, a component of the Terex Roadbuilding,
Utility Products and Other segment, also was determined to have a carrying value
in excess of its projected discounted cash flow. The market for the unit's
products, primarily light towers, has been negatively impacted by the
consolidation of distribution outlets for the unit's products, which has reduced
demand for these products, and the increasing preference of end users of the
unit's products to rent, rather than purchase, equipment. The analysis resulted
in a goodwill impairment of $26.2 ($18.1, net of income taxes).
11
The EarthKing reporting unit, a component of the Terex Roadbuilding, Utility
Products and Other segment, was also determined to have a carrying value in
excess of its projected discounted cash flow. EarthKing was created to provide
web based procurement services and complimentary products and services. Several
businesses in which EarthKing invested were unsuccessful in gaining customer
acceptance and were generating revenue at levels insufficient to warrant
anticipated growth, which substantially reduced its value. A goodwill impairment
of $0.3 ($0.3, net of income taxes) was recorded.
The Company did not require the assistance of a third party when determining the
goodwill impairment associated with the Light Construction and EarthKing
reporting units, whose carrying amount exceeded their fair value, as it was
evident that the fair value of net tangible assets at these units was greater
than the estimated fair value of the reporting units, and that 100% of the
related goodwill was impaired.
The adjustment from the adoption of SFAS No. 142, an impairment loss of $132.2
($124.1, net of income taxes) was recorded as a cumulative effect of change in
accounting principle adjustment as of January 1, 2002.
An analysis of changes in the Company's goodwill by business segment is as
follows:
Terex
Roadbuilding, Terex
Utility Aerial
Terex Terex Products and Work
Construction Cranes Other Platforms Terex Mining Total
---------------- ------------- --------------- -------------- --------------- ------------
Balance at December 31, 2002.... $ 311.8 $ 90.3 $ 177.5 $ 43.3 $ --- $ 622.9
Acquisitions.................... --- 3.2 6.8 1.4 --- 11.4
Foreign exchange effect......... 0.6 0.3 --- --- --- 0.9
---------------- -------------- -------------- -------------- --------------- -------------
Balance at March 31, 2003....... $ 312.4 $ 93.8 $ 184.3 $ 44.7 $ --- $ 635.2
================ ============== ============== ============== =============== =============
The goodwill recognized for the acquisitions of Commercial Body, Combatel, Demag
Mobile Cranes GmbH & Co. KG and its affiliates ("Demag") and Genie as of March
31, 2003 is not final, as the Company has not yet completed its valuation of
their respective tangible and intangible assets.
The initial impairment test was performed as of January 1, 2002. The Company
selected October 1 as the date for the required annual impairment test. The
Company performed its last review of the carrying value of its goodwill, as
required by SFAS No. 142, as of October 1, 2002. At that time, the estimated
fair value of each reporting unit exceeded the carrying value of each reporting
unit. Therefore, goodwill was not considered to be impaired and no further
analysis was required by SFAS No. 142. Subsequent impairment tests will be
performed effective October 1 of each year and more frequently if circumstances
warrant.
Business performance during the first quarter of 2003 in the Roadbuilding
reporting unit has not yet met the expectations assumed by the Company when
goodwill was last tested for impairment on October 1, 2002. Sales levels in the
Roadbuilding reporting unit have not reached expected volumes, as funding levels
for road construction remain weak. In addition, margins have been affected as
competitors have priced products aggressively to maintain market share. As a
result of these issues, cash flow generated in the Roadbuilding business has not
yet met the Company's estimates. The Company has taken several actions to
address this shortfall, including staff reductions and changes in management.
The Company is closely monitoring the performance of this business and, if
results do not approximate expectations, a re-assessment of the expected future
performance of the Roadbuilding business will be undertaken. If such a review is
required and indicates a significant, permanent reduction in expected cash
flows, the Company may be required to record a goodwill impairment charge to
reflect a decrease in fair value for the Roadbuilding business. If required, the
results of this review will be reflected in the Company's June 30, 2003
financial statements.
NOTE D -- DERIVATIVE FINANCIAL INSTRUMENTS
There are two types of derivatives that the Company enters into: hedges of fair
value exposures and hedges of cash flow exposures. Fair value exposures relate
to recognized assets or liabilities and firm commitments, while cash flow
exposures relate to the variability of future cash flows associated with
recognized assets or liabilities or forecasted transactions.
12
The Company operates internationally, with manufacturing and sales facilities in
various locations around the world, and utilizes certain financial instruments
to manage its foreign currency, interest rate and fair value exposures. To
qualify a derivative as a hedge at inception and throughout the hedge period,
the Company formally documents the nature and relationships between the hedging
instruments and hedged items, as well as its risk-management objectives,
strategies for undertaking the various hedge transactions and method of
assessing hedge effectiveness. Additionally, for hedges of forecasted
transactions, the significant characteristics and expected terms of a forecasted
transaction must be specifically identified, and it must be probable that each
forecasted transaction will occur. If it were deemed probable that the
forecasted transaction will not occur, the gain or loss would be recognized in
earnings currently. Financial instruments qualifying for hedge accounting must
maintain a specified level of effectiveness between the hedging instrument and
the item being hedged, both at inception and throughout the hedged period. The
Company does not engage in trading or other speculative use of financial
instruments.
The Company uses forward contracts and options to mitigate its exposure to
changes in foreign currency exchange rates on third-party and intercompany
forecasted transactions. The primary currencies to which the Company is exposed
include the Euro, British Pound and Australian Dollar. When using options as a
hedging instrument, the Company excludes the time value from the assessment of
effectiveness. The effective portion of unrealized gains and losses associated
with forward contracts and the intrinsic value of option contracts are deferred
as a component of accumulated other comprehensive income (loss) until the
underlying hedged transactions are reported on the Company's consolidated
statement of operations. The Company uses interest rate swaps to mitigate its
exposure to changes in interest rates related to existing issuances of variable
rate debt and to fair value changes of fixed rate debt. Primary exposure
includes movements in the London Interbank Offer Rate ("LIBOR").
Changes in the fair value of derivatives that are designated as fair value
hedges are recognized in earnings as offsets to the changes in fair value of
exposures being hedged. The change in fair value of derivatives that are
designated as cash flow hedges are deferred in accumulated other comprehensive
income (loss) and are recognized in earnings as the hedged transactions occur.
Any ineffectiveness is recognized in earnings immediately.
The Company records hedging activity related to debt instruments in interest
expense and hedging activity related to foreign currency and lease obligations
in operating profit.
The Company entered into interest rate swap agreements that effectively
converted variable rate interest payments into fixed rate interest payments. At
March 31, 2003, the Company had $100.0 notional amount of such interest rate
swap agreements outstanding, all of which mature in 2009. The fair market value
of these swaps at March 31, 2003 was a loss of $2.0. These swap agreements have
been designated as, and are effective as, cash flow hedges of outstanding debt
instruments. During the three months ended March 31, 2003 and 2002, the Company
recorded the change in fair value to accumulated other comprehensive income
(loss) and reclassified to earnings a portion of the deferred loss from
accumulated other comprehensive income (loss) as the hedged transactions
occurred and were recognized in earnings.
The Company has entered into a series of interest rate swap agreements that
converted fixed rated interest payments into variable rate interest payments. At
March 31, 2003, the Company had $154.0 notional amount of such interest rate
swap agreements outstanding, all of which mature in 2006 through 2008. The fair
market value of these swaps at March 31, 2003 was a gain of $9.5, which is
recorded in other non-current assets. These swap agreements have been designated
as, and are effective as, fair value hedges of outstanding debt instruments.
During March 2003 and December 2002, the Company exited interest rate swap
agreements in the notional amount of $275.0 with maturities from 2008 through
2011 that converted fixed rate interest payments into variable rate interest
payments. The Company received $13.4 upon exiting these swap agreements. These
gains are being amortized over the original maturity and, combined with the
market value of the swap agreements held at March 31, 2003, are offset by a
$22.7 addition in the carrying value of the long-term obligations being hedged.
The Company is also a party to currency exchange forward contracts to manage its
exposure to changing currency exchange rates that mature within one year. At
March 31, 2003, the Company had $158.5 of notional amount of currency exchange
forward contracts outstanding, all of which mature on or before March 1, 2004.
The fair market value of these swaps at March 31, 2003 was a gain of $3.2. All
of these swap agreements have been designated as, and are effective as, cash
flow hedges of specifically identified assets and liabilities.
During the three months ended March 31, 2003 and 2002, the Company recorded the
change in fair value to accumulated other comprehensive income (loss) and
reclassified to earnings a portion of the deferred loss from accumulated other
comprehensive income (loss) as the hedged transactions occurred and were
recognized in earnings.
At March 31, 2003, the fair value of all derivative instruments has been
recorded in the Condensed Consolidated Balance Sheet as a net asset of $10.3,
net of income taxes.
13
Counterparties to interest rate derivative contracts and currency exchange
forward contracts are major financial institutions with credit ratings of
investment grade or better and no collateral is required. There are no
significant risk concentrations. Management believes the risk of incurring
losses on derivative contracts related to credit risk is remote and any losses
would be immaterial.
Unrealized net gains (losses) included in Other Comprehensive Income (Loss) are
as follows:
Three Months Ended
March 31,
------------------------
2003 2002
------------------------
Balance at beginning of period.........$ 2.1 (0.8)
Additional gains (losses)............... (0.5) (0.2)
Amounts reclassified to earnings........ (0.8) 0.1
------------------------
Balance at end of period...............$ 0.8 (0.9)
========================
NOTE E -- RESTRUCTURING AND OTHER CHARGES
The Company continually evaluates its cost structure to ensure that it is
appropriately positioned to respond to changing market conditions. During 2003
and 2002, the Company experienced declines in several markets. In addition, the
Company's recent acquisitions have created product, production and selling and
administrative overlap with existing businesses. In response to changing market
demand and to optimize the impact of recently acquired businesses, the Company
has initiated the restructuring programs described below. For further
information on restructuring programs initiated prior to 2002, refer to the
Company's Annual Report on Form 10-K for the year ended December 31, 2002.
There have been no material changes relative to the initial plans established by
the Company for the restructuring activities discussed below. The Company does
not believe that these restructuring activities by themselves will have an
adverse impact on the Company's ability to meet customer requirements for the
Company's products.
2003 Programs
In the first quarter of 2003, the Company recorded a charge of $0.7 related to
restructuring at its CMI Terex facility in Oklahoma City, Oklahoma. Due to the
continued poor performance in the roadbuilding business, the Company reduced
employment by approximately 146 employees at its CMI Terex facility. As of March
31, 2003, none of the employees had ceased employment with the Company. The
program is expected to be completed by June 30, 2003. CMI Terex is included in
the Terex Roadbuilding, Utility Products and Other Segment.
Also in the first quarter of 2003, the Company recorded charges of $0.3 for
restructuring at its Terex-RO facility in Olathe, Kansas. As a result of weak
demand in the Company's North American crane business, the Terex-RO facility
will be closed and the production currently performed at that facility will be
consolidated into the Company's hydraulic crane production facility in Waverly,
Iowa. The program will reduce employment by approximately 50 employees and is
expected to be completed by June 30, 2003. None of the 50 employees had ceased
employment with the Company as of March 31, 2003. Booms for the Terex-RO product
are already made in the Waverly facility; accordingly, no production problems
are anticipated in connection with this consolidation. Terex-RO is included in
the Terex Cranes Segment.
The Company recorded a charge of $1.5 in the first quarter of 2003 for the exit
of all activities at its EarthKing e-commerce subsidiary. The $1.5 charge is for
non-cash closure costs and has been recorded in cost of sales. EarthKing is
included in the Terex Roadbuilding, Utility Products and Other Segment. The
program is expected to be completed by June 30, 2003.
These projects are expected to reduce annual operating costs by approximately $8
when fully implemented.
Additionally, the Company wrote down certain investments it held in technology
businesses related to its EarthKing subsidiary. These investments were no longer
economically viable, as these businesses were unsuccessful in gaining customer
acceptance and were generating revenue at levels insufficient to warrant
anticipated growth, and resulted in a write-down of $0.8. This write-down was
reported in "Other income (expense) - net."
14
2002 Programs
During 2002, the Company initiated a series of restructuring projects that
related to productivity and business rationalization.
In the first quarter of 2002, the Company recorded a charge of $1.2 in
connection with the closure and subsequent relocation of the Cedarapids hot mix
asphalt plant facility to the Company's CMI Terex facility in Oklahoma City. The
consolidation of duplicative CMI Terex and Cedarapids production facilities and
support functions was intended to lower the Company's operating costs.
Approximately $0.7 of this charge related to severance costs which have been
paid, with the remainder related to non-cash closure costs. Approximately 92
employees were terminated in connection with this action. This restructuring was
complete as of September 30, 2002.
In the second quarter of 2002, the Company announced that its mining truck
production facility in Tulsa, Oklahoma would be closed and the production
activities outsourced to a third party supplier. The Company recorded a charge
of $4.2 related to the Tulsa closure. The closure was in response to continued
weakness in demand for the Company's large mining trucks. Demand for large
mining trucks is closely related to commodity prices, which have been declining
in real terms over recent years. Approximately $1.0 of this charge related to
severance and other employee related charges, while $2.2 of this charge relates
to inventory deemed uneconomical to relocate to other distribution facilities.
The remaining $1.0 of the cost accrued related to the Tulsa building closure
costs and occupancy costs expected to be incurred after production is ended.
Approximately 93 positions have been eliminated as a result of this action. The
transfer of production activities to a third party was completed prior to
December 31, 2002 and the Company is currently marketing the Tulsa property for
sale.
The Company also recorded a charge of $0.9 in the second quarter of 2002 in
connection with a reduction to the Cedarapids workforce in response to adverse
market conditions and resulting decreased demand for Cedarapids products. The
charge recorded in connection with this reduction to the Cedarapids workforce is
for employee severance costs. Approximately 42 employees have been terminated as
a result of this action. The Cedarapids restructuring was complete as of
December 31, 2002.
In the third quarter of 2002, the Company announced restructuring charges of
$3.5 in connection with the consolidation of facilities in the Light
Construction group and staff reductions at its CMI Terex Roadbuilding operation
and in the Terex Cranes segment. The restructuring charges at the Light
Construction group were $2.6, of which $0.2 was for severance in relation to the
elimination of approximately 71 positions. The remaining $2.4 was for costs
associated with the termination of leases and the write-down of inventory.
Demand for the Light Construction group's products has been negatively impacted
by the consolidation of distribution outlets for the unit's products and a
change in end user preference from direct ownership of the unit's products to
rental of such equipment. These changes have made it uneconomical to maintain
numerous separate production facilities. The restructuring charges at CMI Terex
were $0.7 for severance in connection with the elimination of approximately 146
positions. CMI Terex's roadbuilding business has faced slow market conditions
and reduced demand, due in large part to delays in government funding for
roadbuilding projects, resulting in a need for staff reductions. Additionally,
the Terex Cranes segment recorded restructuring charges of $0.2 for severance in
connection with the elimination of approximately 35 positions at three of its
North American facilities due to reduced demand for the products manufactured at
these facilities. These restructurings were completed by December 31, 2002.
Projects initiated in the fourth quarter of 2002 related to productivity and
business rationalization include the following:
o The closure of the Company's pressurized vessel container business. This
business, located in Clones, Ireland, provides pressurized containers to
the shipping industry. The business, acquired as part of the Powerscreen
acquisition in 1999, is part of the Company's Construction segment and is
not core to the Company's overall strategy. The Company recorded a charge
of $5.4, of which $1.2 was for severance, $2.5 for the write down of
inventory, and $1.2 for facility closing costs. The remaining $0.5 relates
to the repayment of a local government work grant. The business has faced
declining demand over the past few years and, as it is not integral to the
Construction business, the Company has scheduled the closure of the
business by the end of the third quarter 2003. This will reduce employment
by approximately 137 positions. As of March 31, 2003, 58 employees had
ceased employment with the Company.
o The consolidation of several Terex Construction segment facilities in the
U.K. The Company is in the process of consolidating several compact
equipment production facilities into a single location in Coventry,
England. The Company will move the production of mini-dumpers, rollers,
soil compactors and loader backhoes into the new facility. The Company
recorded a charge of $7.2, of which $6.1 was for severance and $1.1 was for
the costs associated with exiting the facilities. The consolidation will
reduce total employment by approximately 269 and is expected to be
completed by the end of 2003. As of March 31, 2003, nine employees had
ceased employment with the Company.
o The exit of certain heavy equipment businesses related to mining products.
During the fourth quarter of 2002, the Company conducted a review of its
rental equipment businesses in both its Mining and Construction segments.
The Company's review indicated that it was not economical to continue its
mining equipment rental business due to the high cost of moving mining
equipment between customers and given the continued weak demand for mining
products. In addition, the Company decided to rationalize its large scraper
offering in its Mining segment given the weak demand for related mining
products. The Company recorded a charge of $6.9 associated with the write
down of inventory. The Company expects to complete this process by June 30,
2003.
15
o The exit of certain non-core tower cranes produced by the Terex Cranes
segment under the Peiner brand in Germany. The European tower crane
business has been negatively impacted by reduced demand from large rental
customers who are undergoing financial difficulties. This has resulted in
reduced demand and a deterioration in margins recognized in the tower crane
business. The Company conducted a review of its offering of tower cranes
produced under the Peiner brand and eliminated certain models that overlap
with models produced at Gru Comedil S.r.l., the Company's tower crane
facility in Italy. The Company recorded a charge of $3.9, of which $1.0 was
for severance and $2.9 for inventory write-downs on discontinued product
lines. The program will reduce employment by 47 and is expected to be
completed by June 30, 2003. As of March 31, 2003, 47 employees had ceased
employment with the Company.
o The elimination of the Standard Havens portable hot mix asphalt product.
The Company performed marketing and engineering analysis that indicated
that the Standard Havens product line did not meet current customer
expectations. As a result, the Company opted to discontinue the Standard
Havens portable hot mix asphalt product. The Company recorded a charge of
$1.8 to write-down the discontinued inventory. The program was completed
prior to December 31, 2002. The Standard Havens product line was part of
the Terex roadbuilding group in the Terex Roadbuilding, Utility Products
and Other segment.
o The severance costs incurred in re-aligning the Company's management
structure. The Company eliminated an executive position and recorded a
charge of $1.5. The Company paid $0.4 prior to December 31, 2002 and
expects to pay remaining severance by December 31, 2003.
o The elimination of the rotating telehandler product in North America by the
Terex Construction segment. It was determined that the product, although
popular in Europe as a multi-purpose machine, was not gaining customer
acceptance in North America. The Company recorded a charge of $0.7 to
write-down the rotating telehandler inventory in North America. The program
was completed prior to December 31, 2002.
In the first quarter of 2003, the Company recorded an additional $0.6 of charges
relating to programs begun in 2002. These period charges primarily related to
facility closure costs and were consistent with the initial restructuring plans
established by the Company.
These 2002 programs are expected to reduce operating costs by approximately $27
when fully implemented in 2004.
The following table sets forth the components and status of the restructuring
charges recorded in 2003 and 2002 that related to productivity and business
rationalization:
Employee
Termination Asset Facility Exit
Costs Disposals Costs Other Total
-------------- ------------ -------------- --------------- -------------
Accrued restructuring charges
at December 31, 2002.......... $ 9.7 $ --- $ 2.4 $ 1.4 $ 13.5
Restructuring charges........... 1.0 1.7 0.3 0.1 3.1
Cash expenditures............... (1.9) --- (0.3) (0.1) (2.3)
Non-cash write-offs............. --- (1.7) (0.1) --- (1.8)
---------------- ------------- ---------------- --------------- --------------
Accrued restructuring charges
at March 31, 2003............. $ 8.8 $ --- $ 2.3 $ 1.4 $ 12.5
================ ============= ============== ================= ===============
In aggregate, the restructuring charges described above incurred during the
three months ended March 31, 2003 and 2002 were included in cost of goods sold
($2.8 and $1.2) and selling, general and administrative expenses ($0.3 and
$0.0), respectively.
Demag and Genie Acquisition Related Projects
During 2002, the Company also initiated a series of restructuring projects aimed
at addressing product, channel and production overlap created by the acquisition
of Demag and Genie in 2002.
Projects initiated in the Terex Cranes segment in the fourth quarter of 2002
related to the acquisition of Demag consist of:
16
o The elimination of certain PPM branded 3, 4 and 5 axle cranes produced at
the Company's Montceau, France facility. The Company determined that the
products produced under the PPM brand were similar to products produced by
Demag and has opted to eliminate these PPM models in favor of the similar
Demag products, which the Company believes have superior capabilities. As a
result, employment levels in Montceau are scheduled to be reduced by
approximately 141 employees during the first half of 2003. As of March 31,
2003, 51 employees had ceased employment with the Company. In addition, the
Company also recognized a loss in value on the affected PPM branded cranes
inventory in France and Spain. The Company recorded a charge of $15.3, of
which $5.4 was for severance, $9.6 was associated with the write down of
inventory and $0.3 was for claims related to exiting the sales function of
the discontinued products.
o The closure of the Company's existing crane distribution center in Germany.
Prior to the acquisition of Demag, the Company distributed mobile cranes
under the PPM brand from a facility in Dortmund, Germany. The acquisition
of Demag provided an opportunity to consolidate distribution and reduce the
overall cost to serve customers in Germany. The Company recorded a charge
of $2.5, of which $0.7 was for severance, $1.2 was for inventory
write-downs, and $0.6 for lease termination costs. Eleven employees will be
terminated as a result of these actions. As of March 31, 2003, three
employees had ceased employment with the Company. The Company expects this
to be completed by June 30, 2003.
o The rationalization of certain crawler crane products sold under the
American Crane brand in the United States. The acquisition of Demag created
an overlap with certain large crawler cranes produced in the Company's
Wilmington, North Carolina facility. Certain cranes produced in the North
Carolina facility will be rated for reduced lifting capacity and marketed
to a different class of user. This change in marketing strategy, triggered
by the acquisition of Demag, negatively impacted inventory values. The
Company recorded a charge of $3.2 associated with the write down of
inventory. The Company expects to complete the sale of such inventory by
June 30, 2003.
o In addition, the acquisition of Demag created an overlap of small, mobile
cranes marketed for use in urban work places. As a result, the Company
opted to cease production of this style of crane, produced under license
from another company, and replace them with cranes produced by Demag. As a
result of this decision, a charge of $1.8 was recorded to terminate the
license agreement.
Projects initiated in the Terex Cranes segment in the fourth quarter of 2002
related to the acquisition of Genie consist of:
o The elimination of Terex branded aerial work platforms. The Company
determined that the acquisition of Genie created product and distribution
overlap with its existing Terex branded aerial work platforms businesses in
the United States and Europe. After a review of products produced by the
Company and Genie, the Company decided to discontinue the Terex branded
products. As a result, the Company reduced the carrying values of the
affected inventories to recognize the loss in value created by the decision
to discontinue these models of aerial work platforms. As a result of this
decision, a charge of $1.9 was recorded to write down inventory.
The following table sets forth the components and status of the restructuring
charges recorded in the fourth quarter of 2002 that relate to addressing
product, channel and production overlaps created by the acquisition of the Demag
and Genie businesses:
Employee
Termination Asset Facility
Costs Disposals Exit Costs Other Total
-------------- ------------ ------------ --------------- -------------
Accrued restructuring charges at
December 31, 2002...............$ 5.1 $ --- $ 0.6 $ 0.3 $ 6.0
Restructuring charges............. --- --- --- --- ---
Cash expenditures................. (1.4) --- --- --- (1.4)
Non-cash write-offs............... --- --- --- --- ---
-------------- ------------ ------------ --------------- -------------
Accrued restructuring charges at
March 31, 2003.................$ 3.7 $ --- $ 0.6 $ 0.3 $ 4.6
============== ============ ============ =============== =============
17
NOTE F -- INVENTORIES
Inventories consist of the following:
March 31, December 31,
2003 2002
----------------- ----------------
Finished equipment............................................ $ 433.2 $ 437.2
Replacement parts............................................. 237.6 225.0
Work-in-process............................................... 209.0 225.5
Raw materials and supplies.................................... 199.2 218.6
----------------------------------
Inventories................................................... $ 1,079.0 $ 1,106.3
==================================
NOTE G -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
March 31, December 31,
2003 2002
----------------- -----------------
Property...................................................... $ 41.7 $ 43.0
Plant......................................................... 177.5 173.4
Equipment..................................................... 197.0 197.6
---------------- -----------------
416.2 414.0
Less: Accumulated depreciation............................... (111.7) (104.6)
---------------- -----------------
Net property, plant and equipment............................. $ 304.5 $ 309.4
================ =================
NOTE H -- INVESTMENT IN JOINT VENTURE
In April 2001, Genie entered into a joint venture arrangement with a European
financial institution whereby Genie maintains a forty-nine percent (49%)
ownership interest in the joint venture, Genie Financial Solutions Holding B.V.
("GFSH B.V."). Prior to the Company's acquisition of Genie, Genie had
contributed $5.3 in cash in exchange for its ownership interest in GFSH B.V.
During January 2003, Genie contributed an additional $0.8 in cash to GFSH B.V.
The Company applies the equity method of accounting for its investment in GFSH
B.V., as the Company does not control the operations of GFSH B.V.
GFSH B.V. was established to facilitate the financing of Genie's products sold
in Europe. As of March 31, 2003, the joint venture's total assets were $119.4
and consisted primarily of financing receivables and lease related equipment;
total liabilities were $106.2 and consisted primarily of debt payable to the
fifty-one percent (51%) joint venture partner. The Company provided guarantees
related to potential losses arising from shortfalls in the residual values of
financed equipment or credit defaults by the joint venture's customers. As of
March 31, 2003 the maximum exposure to loss under these guarantees is
approximately $7. Additionally, the Company is required to maintain a capital
account balance in GFSH B.V., pursuant to the terms of the joint venture, which
could result in the reimbursement to GFSH B.V. by the Company of losses to the
extent of the Company's ownership percentage.
As defined by FIN 46, GFSH B.V. is a variable interest entity. For entities
created prior to February 1, 2003, FIN 46 requires the application of its
provisions effective July 1, 2003. Based on the legal and operating structure of
GFSH B.V., it is reasonably possible that the Company will consolidate the
results of GFSH B.V. in future financial statements. However, the Company also
is evaluating possible changes to the operating structure of GFSH B.V. that
would result in GFSH B.V. continuing to be accounted for under the equity
method.
NOTE I -- EQUIPMENT SUBJECT TO OPERATING LEASES
Operating leases arise from the leasing of the Company's products to customers.
Initial noncancellable lease terms typically range up to 60 months. The cost of
equipment subject to operating leases was approximately $169 at March 31, 2003.
The equipment is depreciated on the straight-line basis over the shorter of the
estimated useful life or the estimated amortization period of any borrowings
secured by the asset to its estimated salvage value.
18
NOTE J -- NET INVESTMENT IN SALES-TYPE LEASES
The Company leases new and used products manufactured and sold by the Company to
domestic and foreign distributors, end users and rental companies. The Company
provides specialized financing alternatives that include sales-type leases,
operating leases, conditional sales contracts, and short-term rental agreements.
At the time a sales-type lease is consummated, the Company records the gross
finance receivable, unearned finance income and the estimated residual value of
the leased equipment. Unearned finance income represents the excess of the gross
minimum lease payments receivable plus the estimated residual value over the
fair value of the equipment. Residual values represent the estimate of the
values of the equipment at the end of the lease contracts and are initially
recorded based on industry data and management's estimates. Realization of the
residual values is dependent on the Company's future ability to market the
equipment under then prevailing market conditions. Management reviews residual
values periodically to determine that recorded amounts are appropriate. Unearned
finance income is recognized as financing income using the interest method over
the term of the transaction. The allowance for future losses is established
through charges to the provision for credit losses.
Prior to its acquisition by the Company on September 18, 2002, Genie had a
number of domestic agreements with financial institutions to provide financing
of new and eligible products to distributors and rental companies. Under these
programs, Genie originated leases with distributors and rental companies and the
resulting lease receivables were either sold to a financial institution with
limited recourse to Genie or used as collateral for borrowings. The aggregate
unpaid sales-type lease payments previously transferred was $54.9 at March 31,
2003. Under these agreements, the Company's recourse obligation is limited to
credit losses up to the first 5%, in any given year, of the remaining discounted
rental payments due, subject to certain minimum and maximum recourse liability
amounts. The Company's maximum credit recourse exposure was $15.0 at March 31,
2003, representing a contingent liability under the limited recourse provisions.
During 2002 and 2001, domestically and globally, Genie entered into a number of
arrangements with financial institutions to provide financing of new and
eligible Genie products to distributors and rental companies. Under these
programs, Genie originates leases or leasing opportunities with distributors and
rental companies. If Genie originates the lease with a distributor or rental
company, the financial institution will purchase the equipment and take
assignment of the lease contract from Genie. If Genie originates a lease
opportunity, the financial institution will purchase the equipment from Genie
and execute a lease contract directly with the distributor or rental company. In
some instances, the Company retains certain credit and/or residual recourse in
these transactions. The Company's maximum exposure, representing a contingent
liability, under these transactions reflects a $41.9 credit risk and a $35.3
residual risk at March 31, 2003.
The Company's contingent liabilities previously referred to have not taken into
account various mitigating factors. These factors include the staggered timing
of maturity of lease transactions, resale value of the underlying equipment,
lessee return penalties and annual loss caps on credit loss pools. Further, the
credit risk contingent liability assumes that the individual leases were to all
default at the same time and that the repossessed equipment has no market value.
NOTE K-- EARNINGS PER SHARE
Three Months Ended March 31,
(in millions, except per share data)
-------------------------------------------------------------------------
2003 2002
----------------------------------- -------------------------------------
Per-Share Per-Share
Income Shares Amount Income Shares Amount
------------- ----------- ---------- ---------- ---------- ------------
Basic earnings per share
Income before cumulative effect of
change in accounting principle......... $ 12.0 47.2 $ 0.25 $ 6.2 38.0 $ 0.16
Effect of dilutive securities
Stock Options........................... --- 0.5 --- 0.6
Contingently issuable shares for
acquisitions......................... --- 0.7 --- ---
Shares held by deferred compensation
plan................................... --- 0.6 --- ---
----------- ----------
Equity Rights........................... --- --- --- 0.1
------------- ----------- ---------- ---------- ---------- ------------
Income before cumulative effect of
change in accounting principle - diluted. $ 12.0 49.0 $ 0.24 $ 6.2 38.7 $ 0.16
============ =========== =========== =========== ============ ===========
Options to purchase 2,169 thousand and 693 thousand shares of Common Stock
during the three months ended March 31, 2003 and 2002, respectively, were
outstanding but were not included in the computation of diluted earnings per
share. These options were excluded because the exercise price of these options
was greater than the average market price of the Common Stock during such
periods and, therefore, the effect would be anti-dilutive. As discussed in the
Company's Annual Report on Form 10-K for the year ended December 31, 2002 and in
Note B - "Acquisitions", the Company has a contingent obligation to make
additional payments in cash or Common Stock based on provisions of certain
acquisition agreements. The Company's policy and past practice has been
generally to settle such obligations in cash. Accordingly, contingently issuable
Common Stock under these arrangements totaling 772 thousand and 74 thousand
shares for the three months ended March 31, 2003 and 2002, respectively, are not
included in the computation of diluted earnings per share.
NOTE L -- STOCKHOLDERS' EQUITY
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, minimum
pension liability adjustments, deferred gains and losses resulting from
derivative hedging transactions and deferred gains and losses resulting from
debt and equity securities classified as available for sale. Total
non-shareowner changes in equity were as follows.
For the Three Months
Ended March 31,
---------------- ----------------
2003 2002
---------------- ----------------
Net income (loss)..........................$ 12.0 $ (107.2)
Other comprehensive income:
Translation adjustment................ 10.1 (5.9)
Pension liability adjustment.......... --- ---
Derivative hedging adjustment......... (1.3) (0.1)
Debt and equity securities adjustment. --- ---
---------------- ----------------
Comprehensive income (loss)................$ 20.8 $ (113.2)
================ ================
As disclosed in "Note B - Acquisitions", the Company also issued approximately
0.6 million shares of its Common Stock during the three months ended March 31,
2003 in connection with the acquisition of Commercial Body.
20
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. For self-insured risks, the
Company determines its exposure based on probable loss estimations, which
requires such losses to be both probable and the amount or range of possible
loss to be estimable.
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 $87.5 at March 31, 2003. The
letters of credit generally serve as collateral for certain liabilities included
in the Condensed Consolidated Balance Sheet. Certain of the letters of credit
serve as collateral guaranteeing the Company's performance under contracts.
The Company has a letter of credit outstanding covering losses related to a
former subsidiary's worker compensation obligations. The Company has recorded
liabilities for these contingent obligations representing management's estimate
of the potential losses which the Company might incur.
On March 11, 2002, an action was commenced in the United States District Court
for the Southern District of Florida, Miami Division by Ursula Ungaro-Benages
and Ursula Ungaro-Benages as Attorney-in-fact for Peter C. Ungaro, M.D., in
which the plaintiffs alleged that ownership of O&K Orenstein & Koppel AG ("O&K
AG") was illegally taken from the plaintiffs' ancestors by German industry
during the Nazi era. The plaintiffs alleged that the Company was liable for
conversion and unjust enrichment as the result of its purchase of the shares of
the mining shovel subsidiary O&K Mining GmbH from O&K AG, and were claiming
restitution of a 25% interest in O&K Mining GmbH and monetary damages. On June
12, 2002, the United States Department of Justice filed a Statement of Interest
in the action that expressed the foreign policy interests of the United States
in dismissal of the case. At the request of the Company, on October 8, 2002, the
Federal Judicial Panel on Multi-district Litigation ordered that the action be
transferred to the District of New Jersey and assigned the case to the Honorable
William G. Bassler for inclusion in the coordinated or consolidated pretrial
proceedings established in that court. On April 21, 2003 the plaintiffs
voluntarily dismissed the action against the Company.
In the third quarter of 2002, the Company obtained a favorable court judgment on
appeal as the defendant in a patent infringement case brought against the Terex
Construction segment's Powerscreen business. This favorable court judgment
reversed a lower court decision for which the Company had previously recorded a
liability. During the first quarter of 2003, amounts previously paid for the
litigation were returned to the Company. As a result, the Company recorded $2.4
of income in "Other income (expense) - net" in the Condensed Consolidated
Statement of Operations during the first quarter of 2003.
Credit Guarantees
Customers of the Company from time to time may fund the acquisition of the
Company's equipment through third-party finance companies. In certain instances,
the Company may provide a credit guarantee to the finance company, by which the
Company agrees to make payments to the finance company should the customer
default. The maximum liability of the Company is limited to the remaining
payments due to the finance company at the time of default. In the event of
customer default, the Company is generally able to dispose of the equipment with
the Company realizing the benefits of any net proceeds in excess of the
remaining payments due to the finance company.
As of March 31, 2003, the Company's maximum exposure to such credit guarantees
is $297.2. The terms of these guarantees coincide with the financing arranged by
the customer and generally does not exceed five years. Given the Company's
position as the original equipment manufacturer and its knowledge of end
markets, the Company, when called upon to fulfill a guarantee, generally has
been able to liquidate the financed equipment at a minimal loss, if any, to the
Company.
Residual Value and Buyback Guarantees
The Company, through its Genie subsidiary, issues residual value guarantees
under sales-type leases. A residual value guarantee involves a guarantee that a
piece of equipment will have a minimum fair market value at a future point in
time. As described in Note J - "Net Investment in Sales-Type Leases," the
Company's maximum exposure related to residual value guarantees under sales-type
leases is $35.3 at March 31, 2003. The Company is able to mitigate the risk
associated with these guarantees because the maturity of these guarantees is
staggered, which limits the amount of used equipment entering the marketplace at
any time.
21
The Company from time to time guarantees that it will buy equipment from its
customers in the future at a stated price if certain conditions are met by the
customer. Such guarantees are referred to as buyback guarantees. These
conditions pertain to the functionality and state of repair of the machine. As
of March 31, 2003, the Company's maximum exposure to buyback guarantees is
$35.1. The Company is able to mitigate the risk of these guarantees by
staggering the timing of the buybacks and through leveraging its access to the
used equipment markets provided by the Company's original equipment manufacturer
status.
NOTE N -- BUSINESS SEGMENT INFORMATION
Terex is a diversified global manufacturer of a broad range of equipment for the
construction, infrastructure and surface mining industries. From July 1, 2001
through June 30, 2002, the Company operated in three business segments: (i)
Terex Americas; (ii) Terex Europe; and (iii) Terex Mining. From July 1, 2002
through September 18, 2002, the Company operated in four business segments: (i)
Terex Construction; (ii) Terex Cranes; (iii) Terex Roadbuilding, Utility
Products and Other; and (iv) Terex Mining, and upon the acquisition of Genie on
September 18, 2002, the Company added the Terex Aerial Work Platforms segment.
The Company now operates in five business segments: (i) Terex Construction; (ii)
Terex Cranes; (iii) Terex Roadbuilding, Utility Products and Other; (iv) Terex
Aerial Work Platforms; and (v) Terex Mining. All prior periods have been
restated to reflect results based on these five business segments.
The Terex Construction segment designs, manufactures and markets three primary
categories of equipment and their related components and replacement parts:
heavy construction equipment (including off-highway trucks and scrapers),
compact equipment (including loader backhoes, compaction equipment, mini and
midi excavators, loading machines, site dumpers, telehandlers and wheel
loaders); and mobile crushing and screening equipment (including jaw crushers,
cone crushers, washing screens and trommels). Terex Construction products are
currently marketed principally under the following brand names: Atlas Terex,
Finlay, Fuchs Terex, Pegson, Powerscreen, Terex Benford, Terex Fermec, Terex
Handlers, Terex Schaeff, Terex and TerexLift. These products are primarily used
by construction, logging, mining, industrial and government customers in
construction and infrastructure projects and supplying coal, minerals, sand and
gravel.
The Terex Cranes segment designs, manufactures and markets mobile telescopic
cranes, tower cranes, lattice boom crawler cranes, truck mounted cranes (boom
trucks) and telescopic container stackers, as well as their related replacements
parts and components. Currently, Terex Cranes products are marketed principally
under the following brand names: American, Atlas, Atlas Terex, Bendini, Comedil,
Demag, Franna, Lorain, P&H, Peiner, PPM, RO-Stinger and Terex. These products
are used primarily for construction, repair and maintenance of infrastructure,
building and manufacturing facilities.
The Terex Roadbuilding, Utility Products and Other segment designs, manufactures
and markets crushing and screening equipment (including crushers, impactors,
screens and feeders), asphalt and concrete equipment (including pavers, plants,
mixers, reclaimers, stabilizers and profilers), utility equipment (including
digger derricks, aerial devices and cable placers), light construction equipment
(including light towers, trowels, power buggies, generators and arrow boards)
and construction trailers, as well as related components and replacement parts.
These products are currently marketed principally under the following brand
names: Amida, Bartell, Bid-Well, Canica, Cedarapids, Cedarapids/Standard Havens,
CMI Johnson Ross, CMI Terex, CMI-Cifali, Coleman Engineering, Grayhound,
Hi-Ranger, Jaques, Load King, Morrison, Re-Tech, Royer, Simplicity, Terex, Terex
Advance Mixer, Terex Power, Terex Recycling and Terex Telelect. These products
are used primarily by government, utility and construction customers to build
roads, maintain utility lines and trim trees. Terex also owns much of the North
American distribution channel for the utility products group, including the
distributors Utility Equipment, Telelect Southeast, Commercial Body and
Combatel. These operations distribute and install the Company's utility aerial
devices as well as other products that service the utility industry.
The Terex Aerial Work Platforms segment was formed upon the completion of
Terex's acquisition of Genie and its affiliates on September 18, 2002. The Terex
Aerial Work Platforms segment designs, manufactures and markets aerial work
platform equipment. Products include material lifts, portable aerial work
platforms, trailer mounted booms, articulated booms, stick booms, scissor lifts,
related components and replacement parts, and other products. Terex Aerial Work
Platforms products currently are marketed principally under the Genie brand
name. These products are used primarily by customers in the construction and
building maintenance industries to lift people and/or equipment as required to
build and/or maintain large physical assets and structures.
The Terex Mining segment designs, manufactures and markets large hydraulic
excavators and high capacity surface mining trucks, related components and
replacement parts, and other products. Currently, Terex Mining products are
marketed principally under the following brand names: O&K, Payhauler, Terex and
Unit Rig. These products are used primarily used by construction, mining,
quarrying and government customers in construction, excavation and supplying
coal and minerals.
22
The results of businesses acquired during 2003 and 2002 are included from the
dates of their respective acquisitions.
Included in Eliminations/Corporate are the eliminations among the five segments,
as well as general and corporate items for the three months ended March 31, 2003
and 2002. Business segment information is presented below:
For the Three Months
Ended March 31,
-------------- --------------
2003 2002
-------------- --------------
Sales
Terex Construction................................. $ 326.1 $ 264.3
Terex Cranes....................................... 237.9 135.1
Terex Roadbuilding, Utility Products and Other..... 158.1 132.6
Terex Aerial Work Platforms........................ 139.3 ---
Terex Mining....................................... 80.0 65.3
Eliminations/Corporate............................. (13.7) (15.3)
-------------- --------------
Total............................................ $ 927.7 $ 582.0
============== ==============
Income (Loss) from Operations
Terex Construction................................. $ 14.7 $ 15.5
Terex Cranes....................................... 6.8 7.3
Terex Roadbuilding, Utility Products and Other..... 1.4 8.4
Terex Aerial Work Platforms........................ 15.3 ---
Terex Mining....................................... 4.6 1.6
Eliminations/Corporate............................. (2.3) (1.3)
-------------- --------------
Total............................................ $ 40.5 $ 31.5
============== ===============
March 31, December 31,
2003 2002
------------- ---------------
Identifiable Assets
Terex Construction................................. $ 1,334.3 $ 1,326.6
Terex Cranes....................................... 912.1 937.9
Terex Roadbuilding, Utility Products and Other..... 648.3 602.7
Terex Aerial Work Platforms........................ 456.0 469.9
Terex Mining....................................... 330.4 330.4
Corporate.......................................... 1,917.9 1,895.8
Eliminations....................................... (1,918.7) (1,937.6)
------------- ---------------
Total............................................ $ 3,680.3 $ 3,625.7
============= ===============
NOTE O -- CONSOLIDATING FINANCIAL STATEMENTS
As discussed in Note A, the Company's consolidated financial statements for the
three months ended March 31, 2003 have been restated to increase the liability
to participants in its deferred compensation plan by $0.8 as of March 31, 2003
based on the fair value of Terex common stock at that date.
On March 29, 2001, the Company sold and issued $300 aggregate principal amount
of 10-3/8% Senior Subordinated Notes due 2011 (the "10-3/8% Notes"). On December
17, 2001, the Company sold and issued $200 aggregate principal amount of 9-1/4%
Senior Subordinated Notes due 2011 (the "9-1/4% Notes"). On March 31, 1998 and
March 9, 1999, the Company issued and sold $150 and $100 aggregate principal
amount, respectively, of 8-7/8% Senior Subordinated Notes due 2008 (the "8-7/8%
Notes"). As of March 31, 2003, the 10-3/8% Notes, the 9-1/4% Notes and the
8-7/8% Notes were each jointly and severally guaranteed by the following
wholly-owned subsidiaries of the Company (the "Wholly-owned Guarantors"): Terex
Cranes, Inc., Koehring Cranes, Inc., Terex-Telelect, Inc., Terex-RO Corporation,
Payhauler Corp., PPM Cranes, Inc., O & K Orenstein & Koppel, Inc., The American
Crane Corporation, Amida Industries, Inc., Cedarapids, Inc., Standard Havens,
Inc., Standard Havens Products, Inc., BL-Pegson USA, Inc., Benford America,
Inc., Coleman Engineering, Inc., EarthKing, Inc., Finlay Hydrascreen USA, Inc.,
Powerscreen Holdings USA Inc., Powerscreen International LLC, Powerscreen North
America Inc., Powerscreen USA, LLC, Royer Industries, Inc., Terex Bartell, Inc.,
Terex Mining Equipment, Inc., CMI Terex Corporation, CMI Dakota Company, CMIOIL
Corporation, Product Support, Inc., Schaeff, Inc., Fuchs Terex, Inc., Telelect
23
Southeast Distribution, Inc., Utility Equipment, Inc., Terex Advance Mixer,
Inc., Terex Utilities, Inc., Genie Holdings, Inc., Genie Access Services, Inc.,
Genie Industries, Inc., Genie Financial Services, Inc., GFS National, Inc.,
Genie Manufacturing, Inc., Genie China, Inc., Genie International, Inc., Lease
Servicing & Funding Corp., GFS Commercial LLC, Go Credit Corporation, Combatel
Distribution, Inc., Commercial Body Corporation, and Terex Financial Services,
Inc. Prior to December 2002, PPM Cranes, Inc. was 92.4% owned by Terex. In
December 2002, the Company acquired the remaining minority interest in the
equity of PPM Cranes, Inc. The 2003 results include PPM Cranes, Inc. with the
Wholly-owned Guarantors; for 2002, PPM Cranes, Inc. is provided under a separate
column. All of the guarantees are full and unconditional.
No subsidiaries of the Company except the Wholly-owned Guarantors have provided
a guarantee of the 10-3/8% Notes, the 8-7/8% Notes and the 9-1/4% Notes.
The following summarized condensed consolidating financial information for the
Company segregates the financial information of Terex Corporation, the
Wholly-owned Guarantors, PPM Cranes, Inc. (for 2002) and the Non-guarantor
Subsidiaries. The results of businesses acquired during 2003 and 2002 are
included from the dates of their respective acquisitions.
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. Subsidiaries of Wholly-owned Guarantors that are not themselves
guarantors are reported on the equity basis.
PPM Cranes, Inc. consists of the operations of PPM Cranes, Inc. Its subsidiary
is 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 10-3/8%
Notes, the 9-1/4% Notes and the 8-7/8% Notes.
Debt and goodwill allocated to subsidiaries is presented on an accounting
"push-down" basis.
24
TEREX CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2003
(in millions)
Wholly- Non-
Terex owned guarantor Intercompany
Corporation Guarantors Subsidiaries Eliminations Consolidated
------------- ------------- ------------- -------------- -------------
Net sales...............................$ 64.3 $ 342.1 $ 568.3 $ (47.0) $ 927.7
Cost of goods sold.................... 60.9 296.5 487.6 (47.0) 798.0
------------- ------------- ------------- -------------- --------------
Gross profit............................ 3.4 45.6 80.7 --- 129.7
Selling, general & administrative 6.6 30.4 52.2 --- 89.2
expenses................................
------------- ------------- ------------- -------------- --------------
Income (loss) from operations........... (3.2) 15.2 28.5 --- 40.5
Interest income....................... 0.3 0.2 1.2 --- 1.7
Interest expense...................... (6.9) (6.5) (12.5) --- (25.9)
Income (loss) from equity investees... 18.3 --- --- (18.3) ---
Other income (expense) - net.......... (1.8) (0.8) 2.9 --- 0.3
------------- ------------- ------------- --------------- -------------
Income (loss) before income taxes and 6.7 8.1 20.1 (18.3) 16.6
cumulative effect of change in
accounting principle..................
Benefit from (provision for) income 5.3 (3.2) (6.7) --- (4.6)
taxes...................................
------------- ------------- ------------- ---------------- ------------
Income (loss) cumulative effect of 12.0 4.9 13.4 (18.3) 12.0
change in accounting principle.......
Cumulative effect of change in
accounting principles ................ --- --- --- --- ---
------------- ------------- ------------- ----------------- -----------
Net income (loss).......................$ 12.0 $ 4.9 $ 13.4 $ (18.3) $ 12.0
============= ============= ============= ================= ===========
TEREX CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2002
(in millions)
Wholly- Non-
Terex owned PPM guarantor Intercompany
Corporation Guarantors Cranes, Inc. Subsidiaries Eliminations Consolidated
------------- ------------- ------------- ------------- --------------- ---------------
Net sales...............................$ 69.9 $ 213.7 $ 5.9 $ 361.3 $ (68.8) $ 582.0
Cost of goods sold................... 68.6 183.7 5.5 302.5 (69.6) 490.7
------------- ------------- ------------- ------------- --------------- ---------------
Gross profit............................ 1.3 30.0 0.4 58.8 0.8 91.3
Selling, general & administrative 6.3 18.5 0.4 34.6 --- 59.8
expenses
------------- ------------- ------------- ------------- --------------- ---------------
Income (loss) from operations........... (5.0) 11.5 --- 24.2 0.8 31.5
Interest income....................... 0.4 (0.1) --- 0.5 --- 0.8
Interest expense...................... (10.5) (2.3) (0.7) (8.5) --- (22.0)
Income (loss) from equity investees... (90.8) --- --- --- 90.8 ---
Other income (expense) - net.......... (0.8) (0.1) --- (0.3) --- (1.2)
------------- ------------- ------------- ------------- --------------- ---------------
Income (loss) before income taxes and (106.7) 9.0 (0.7) 15.9 91.6 9.1
cumulative effect of change in
accounting principle..................
Provision for income taxes............ (0.5) --- --- (2.4) --- (2.9)
------------- ------------- ------------- ------------- --------------- ---------------
Income (loss) before cumulative effect (107.2) 9.0 (0.7) 13.5 91.6 6.2
of change in accounting principle.....
Cumulative effect of change in
accounting principle................. --- (18.4) --- (95.0) --- (113.4)
------------- ------------- ------------- ------------- --------------- ---------------
Net income (loss).......................$ (107.2) $ (9.4) $ (0.7) $ (81.5) $ 91.6 $ (107.2)
============= ============= ============= ============= =============== ===============
25
TEREX CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
MARCH 31, 2003
(in millions)
Wholly- Non-
Terex Owned Guarantor Intercompany
Corporation Guarantors Subsidiaries Eliminations Consolidated
------------- ------------- ------------- ------------- -------------
Assets
Current assets
Cash and cash equivalents..........$ 152.2 $ 3.9 $ 263.8 $ --- $ 419.9
Trade receivables - net............ 23.4 207.8 366.6 --- 597.8
Intercompany receivables........... 21.5 9.1 26.9 (57.5) ---
Net inventories.................... 104.7 329.6 626.9 17.8 1,079.0
Other current assets............... 30.3 33.2 94.7 --- 158.2
------------- ------------- ------------- ------------- -------------
Total current assets............. 332.1 583.6 1,378.9 (39.7) 2,254.9
Property, plant & equipment - net.... 7.7 122.5 174.3 --- 304.5
Investment in and advances to
(from) subsidiaries.............. 853.0 (401.4) (380.1) (71.5) ---
Goodwill - net....................... (9.8) 292.9 352.1 --- 635.2
Other assets - net................... 129.6 161.7 194.4 --- 485.7
------------- ------------- ------------- ------------- -------------
Total assets............................$ 1,312.6 $ 759.3 $ 1,719.6 $ (111.2) $ 3,680.3
============= ============= ============= ============= =============
Liabilities and stockholders' equity
(deficit)
Current liabilities
Notes payable and current portion
of long-term debt................$ 0.5 $ 33.2 $ 37.7 $ --- $ 71.4
Trade accounts payable............. 29.5 150.9 417.1 --- 597.5
Intercompany payables.............. 25.2 19.1 13.2 (57.5) ---
Accruals and other current 69.1 92.7 328.8 --- 490.6
liabilities......................
------------- ------------- ------------- ------------- -------------
Total current liabilities........ 124.3 295.9 796.8 (57.5) 1,159.5
Long-term debt less current portion.. 334.3 384.3 738.8 --- 1,457.4
Other long-term liabilities.......... 53.8 45.4 164.0 --- 263.2
Stockholders' equity (deficit)....... 800.2 33.7 20.0 (53.7) 800.2
------------- ------------- ------------- ------------- -------------
Total liabilities and stockholders'
equity (deficit).....................$ 1,312.6 $ 759.3 $ 1,719.6 $ (111.2) $ 3,680.3
============= ============= ============= ============= =============
26
TEREX CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2002
(in millions)
Wholly- Non-
Terex Owned Guarantor Intercompany
Corporation Guarantors Subsidiaries Eliminations Consolidated
------------- ------------- ------------- ------------- -------------
Assets
Current assets
Cash and cash equivalents..........$ 134.0 $ 6.2 $ 212.0 $ --- $ 352.2
Trade receivables - net............ 45.7 189.8 343.1 --- 578.6
Intercompany receivables........... 13.4 6.7 14.4 (34.5) ---
Net inventories.................... 101.1 324.9 645.6 34.7 1,106.3
Other current assets............... 41.1 54.6 88.3 --- 184.0
------------- ------------- ------------- ------------- -------------
Total current assets............. 335.3 582.2 1,303.4 0.2 2,221.1
Property, plant & equipment - net.... 7.4 128.0 174.0 --- 309.4
Investment in and advances to (from)
subsidiaries....................... 818.0 (520.9) (237.2) (59.9) ---
Goodwill - net....................... (9.8) 284.7 348.0 --- 622.9
Other assets - net................... 140.0 144.7 187.6 --- 472.3
------------- ------------- ------------- ------------- -------------
Total assets............................$ 1,290.9 $ 618.7 $ 1,775.8 $ (59.7) $ 3,625.7
============= ============= ============= ============= =============
Liabilities and stockholders' equity
(deficit)
Current liabilities
Notes payable and current portion
of long-term debt................$ 0.4 $ 40.7 $ 33.0 $ --- $ 74.1
Trade accounts payable............. 39.2 149.3 354.4 --- 542.9
Intercompany payables.............. 23.4 (127.8) 138.9 (34.5) ---
Accruals and other current 68.0 98.5 322.7 --- 489.2
liabilities......................
------------- ------------- ------------- ------------- -------------
Total current liabilities........ 131.0 160.7 849.0 (34.5) 1,106.2
Long-term debt less current portion.. 335.7 386.4 765.0 --- 1,487.1
Other long-term liabilities.......... 55.0 42.7 165.5 --- 263.2
Stockholders' equity (deficit)....... 769.2 28.9 (3.7) (25.2) 769.2
------------- ------------- ------------- ------------- -------------
Total liabilities and stockholders'
equity (deficit).....................$ 1,290.9 $ 618.7 $ 1,775.8 $ (59.7) $ 3,625.7
============= ============= ============= ============= =============
27
TEREX CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2003
(in millions)
Wholly- Non-
Terex owned guarantor Intercompany
Corporation Guarantors Subsidiaries Eliminations Consolidated
------------- ------------- ------------- -------------- --------------
Net cash provided by (used in) $ 18.6 $ 8.1 $ 88.2 $ --- $ 114.9
operating activities
------------- ------------- ------------- -------------- --------------
Cash flows from investing activities:
Acquisition of business, net of cash --- (8.5) --- --- (8.5)
acquired.............................
Capital expenditures.................. (0.4) (1.2) (7.0) --- (8.6)
Proceeds from sale of assets.......... --- 0.9 1.7 --- 2.6
------------- ------------- ------------- -------------- --------------
Net cash provided by (used in)
investing activities............... (0.4) (8.8) (5.3) --- (14.5)
------------- ------------- ------------- -------------- --------------
Cash flows from financing activities:
Principal borrowings (repayments) of
long-term debt....................... --- (0.5) (1.0) --- (1.5)
Net borrowings (repayments) under
revolving line of credit agreements.. --- (1.1) (21.4) --- (22.5)
Other................................. --- --- (11.6) --- (11.6)
------------- ------------- ------------- -------------- --------------
Net cash provided by (used in)
financing activities............... --- (1.6) (34.0) --- (35.6)
------------- ------------- ------------- -------------- --------------
Effect of exchange rates on cash and --- --- 2.9 --- 2.9
cash equivalents......................
------------- ------------- ------------- -------------- --------------
Net (decrease) increase in cash and 18.2 (2.3) 51.8 --- 67.7
cash equivalents......................
Cash and cash equivalents, beginning of 134.0 6.2 212.0 --- 352.2
period................................
------------- ------------- ------------- -------------- --------------
Cash and cash equivalents, end of period$ 152.2 $ 3.9 $ 263.8 $ --- $ 419.9
============= ============= ============= ============== ==============
TEREX CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2002
(in millions)
Wholly- Non-
Terex owned PPM guarantor Intercompany
Corporation Guarantors Cranes, Inc. Subsidiaries Eliminations Consolidated
------------- --------------------------- --------------------------- --------------
Net cash provided by (used in)
operating activities $ (57.2) $ (0.4) $ --- $ 43.1 $ --- $ (14.5)
------------- ------------- ------------- ------------- ------------- -------------
Cash flows from investing activities
Acquisition of businesses, net of
cash acquired...................... (7.3) --- --- (65.2) --- (72.5)
Capital expenditures................. --- (1.9) --- (4.0) --- (5.9)
Proceeds from sale of assets......... --- 0.2 --- 0.2 --- 0.4
------------- ------------- ------------- ------------- ------------- -------------
Net cash provided by (used in)
investing activities........... (7.3) (1.7) --- (69.0) --- (78.0)
------------- ------------- ------------- ------------- ------------- -------------
Cash flows from financing activities
Principal borrowings (repayments) of
long-term debt.................... --- --- --- 0.7 --- 0.7
Net borrowings (repayments) under
revolving line of credit agreements --- --- --- 1.6 --- 1.6
Other................................ --- --- --- (0.3) --- (0.3)
------------- ------------- ------------- ------------- ------------- -------------
Net cash provided by (used in)
financing activities............ --- --- --- 2.0 --- 2.0
------------- ------------- ------------- ------------- ------------- -------------
Effect of exchange rates on cash and
cash equivalents..................... --- --- --- (1.1) --- (1.1)
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in cash and (64.5) (2.1) --- (25.0) --- (91.6)
cash equivalents.....................
Cash and cash equivalents, beginning of
period............................... 144.2 3.9 0.1 102.2 --- 250.4
------------- ------------- ------------- ------------- ------------- -------------
Cash and cash equivalents, end of period $ 79.7 $ 1.8 $ 0.1 $ 77.2 $ --- $ 158.8
============= ============= ============= ============= ============= =============
28
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-------------------------------------------------------------------
AND RESULTS OF OPERATIONS
Restatement - Terex maintains a deferred compensation plan (the "Plan") for
participating employees that, prior to January 1, 2004, permitted participants
to transfer funds between investment options, one of which is an option to
invest in shares of Terex common stock. It has been the practice of the Plan to
purchase shares of Terex common stock on an ongoing basis as participants
contribute to the Terex common stock fund, in order to eliminate the risk
associated with fluctuations in the price of Terex common stock.
The Company, in consultation with its independent auditors, has determined that
generally accepted accounting principles required the Company to record an
obligation to Plan participants invested in Terex common stock at the fair value
of the Terex common stock. Accordingly, the Company's consolidated financial
statements as of and for the three months ended March 31, 2003 have been
restated to record the fair value of the Company's obligations to Plan
participants invested in Terex common stock. As the Company has acquired shares
equal to its obligation to Plan participants, there is no cash impact associated
with this amendment.
The amendments contained herein reflect changes resulting from the foregoing
adjustments with regard to the Plan and the related income tax effect. The
Company has not updated the information contained herein for events and
transactions occurring subsequent to May 15, 2003, the filing date of the
Original Form 10-Q, except to reflect the restatement of the Company's financial
statements as described above
Results of Operations
Terex is a diversified global manufacturer of a broad range of equipment for the
construction, infrastructure and mining industries. From July 1, 2001 through
June 30, 2002, the Company operated in three business segments: (i) Terex
Americas; (ii) Terex Europe; and (iii) Terex Mining. From July 1, 2002 through
September 18, 2002, the Company operated in four business segments: (i) Terex
Construction; (ii) Terex Cranes; (iii) Terex Roadbuilding, Utility Products and
Other; and (iv) Terex Mining, and upon the acquisition of Genie Holdings, Inc.
and its affiliates ("Genie") on September 18, 2002, the Company added the Terex
Aerial Work Platforms segment. The Company now operates in five business
segments: (i) Terex Construction; (ii) Terex Cranes; (iii) Terex Roadbuilding,
Utility Products and Other; (iv) Terex Aerial Work Platforms; and (v) Terex
Mining. All prior periods have been restated to reflect results based on these
five business segments.
The Terex Construction segment designs, manufactures and markets three primary
categories of equipment and their related components and replacement parts:
heavy construction equipment (including off-highway trucks and scrapers),
compact equipment (including loader backhoes, compaction equipment, mini and
midi excavators, loading machines, site dumpers, telehandlers and wheel
loaders); and mobile crushing and screening equipment (including jaw crushers,
cone crushers, washing screens and trommels). Terex Construction products are
currently marketed principally under the following brand names: Atlas Terex,
Finlay, Fuchs Terex, Pegson, Powerscreen, Terex Benford, Terex Fermec, Terex
Handlers, Terex Schaeff, Terex and TerexLift. These products are primarily used
by construction, logging, mining, industrial and government customers in
construction and infrastructure projects and supplying coal, minerals, sand and
gravel. The Company acquired the Schaeff Group of Companies ("Schaeff"),
including Fuchs-Bagger GmbH & Co. KG, on January 14, 2002. The results of
Schaeff are included in the Terex Construction segment since its date of
acquisition.
The Terex Cranes segment designs, manufactures and markets mobile telescopic
cranes, tower cranes, lattice boom crawler cranes, truck mounted cranes (boom
trucks) and telescopic container stackers, as well as their related replacements
parts and components. Currently, Terex Cranes products are marketed principally
under the following brand names: American, Atlas, Atlas Terex, Bendini, Comedil,
Demag, Franna, Lorain, P&H, Peiner, PPM, RO-Stinger and Terex. These products
are used primarily for construction, repair and maintenance of infrastructure,
building and manufacturing facilities. The Company acquired Demag Mobile Cranes
GmbH and Co. KG and its affiliates ("Demag") on August 30, 2002. The results of
Demag are included in the Terex Cranes segment since its date of acquisition.
The Company also has an interest in Crane and Machinery, Inc. ("Crane &
Machinery"). During 2002, the Company acquired from an unaffiliated financial
institution outstanding loans owed by Crane & Machinery to that institution, and
Crane & Machinery remains obligated to make payments to the Company pursuant to
the terms of such loans. The combination of the Company's interest in Crane &
Machinery and the rights of the Company under the loans to Crane & Machinery
provide a basis for consolidation of Crane & Machinery's results with those of
the Company. Accordingly, the results of Crane & Machinery are included in the
results of the Terex Cranes segment since December 1, 2002.
29
The Terex Roadbuilding, Utility Products and Other segment designs, manufactures
and markets crushing and screening equipment (including crushers, impactors,
screens and feeders), asphalt and concrete equipment (including pavers, plants,
mixers, reclaimers, stabilizers and profilers), utility equipment (including
digger derricks, aerial devices and cable placers), light construction equipment
(including light towers, trowels, power buggies, generators and arrow boards)
and construction trailers, as well as related components and replacement parts.
These products are currently marketed principally under the following brand
names: Amida, Bartell, Bid-Well, Canica, Cedarapids, Cedarapids/Standard Havens,
CMI Johnson Ross, CMI Terex, CMI-Cifali, Coleman Engineering, Grayhound,
Hi-Ranger, Jaques, Load King, Morrison, Re-Tech, Royer, Simplicity, Terex, Terex
Advance Mixer, Terex Power, Terex Recycling and Terex Telelect. These products
are used primarily by government, utility and construction customers to build
roads, maintain utility lines and trim trees. Terex also owns much of the North
American distribution channel for the utility products group, including the
distributors Utility Equipment Co., Inc. ("Utility Equipment"), Telelect
Southeast Distribution, Inc. ("Telelect Southeast"), Commercial Body Corporation
("Commercial Body") and Combatel Distribution, Inc. ("Combatel"). These
operations distribute and install the Company's utility aerial devices as well
as other products that service the utility industry. The Company acquired
Utility Equipment on January 15, 2002, Telelect Southeast on March 26, 2002,
certain assets and liabilities of Terex Advance Mixer, Inc. ("Advance Mixer") on
April 11, 2002 and Commercial Body, including the remaining 50% of Combatel, on
February 14, 2003. The results of Utility Equipment, Telelect Southeast, Advance
Mixer, Commercial Body and Combatel are included in the results of the Terex
Roadbuilding, Utility Products and Other segment from their respective dates of
acquisition.
The Terex Aerial Work Platforms segment was formed upon the completion of
Terex's acquisition of Genie on September 18, 2002. The Terex Aerial Work
Platforms segment designs, manufactures and markets aerial work platform
equipment. Products include material lifts, portable aerial work platforms,
trailer mounted booms, articulated booms, stick booms, scissor lifts, related
components and replacement parts, and other products. Terex Aerial Work
Platforms products currently are marketed principally under the Genie brand
name. These products are used primarily by customers in the construction and
building maintenance industries to lift people and/or equipment as required to
build and/or maintain large physical assets and structures.
The Terex Mining segment designs, manufactures and markets large hydraulic
excavators and high capacity surface mining trucks, related components and
replacement parts, and other products. Currently, Terex Mining products are
marketed principally under the following brand names: O&K, Payhauler, Terex and
Unit Rig. These products are used primarily used by construction, mining,
quarrying and government customers in construction, excavation and supplying
coal and minerals.
Included in Eliminations/Corporate are the eliminations among the five segments,
as well as general and corporate items.
Restructuring
The Company has initiated numerous restructuring programs since 2001. These
programs were initiated in response to a slowing economy, to reduce duplicative
operating facilities, including those arising from the Company's acquisitions,
and to respond to specific market conditions. Restructuring programs were
initiated within the Company's Terex Construction, Terex Cranes, Terex Mining
and Terex Roadbuilding, Utility Products and Other segments. The Company's
programs have been designed to minimize the impact of any program on future
operating results and the Company's liquidity. To date, these restructuring
programs have not negatively impacted operating results or the Company's
liquidity. These initiatives are expected to generate a reduction in ongoing
labor and factory overhead expense as well as to reduce overall material costs
by leveraging the purchasing power of the consolidated facilities. For example,
cost savings from projects initiated during 2002 and 2003 are expected to
generate annual savings of approximately $43 million per year by 2004. See Note
E - "Restructuring and Other Charges" in the Company's Condensed Consolidated
Financial Statements for further information on the Company's restructuring
programs, including the reasons, timing and costs associated with each such
program.
30
Three Months Ended March 31, 2003 Compared with the Three Months Ended March 31,
2002
The table below is a comparison of net sales, gross profit, selling, general and
administrative expenses, and income from operations, by segment, for the three
months ended March 31, 2003 and 2002.
Three Months Ended
March 31,
---------------------------- Increase
2003 2002 (Decrease)
------------- -------------- ------------
(amounts in millions)
NET SALES
Terex Construction................................$ 326.1 $ 264.3 $ 61.8
Terex Cranes...................................... 237.9 135.1 102.8
Terex Roadbuilding, Utility Products and Other.... 158.1 132.6 25.5
Terex Aerial Work Platforms....................... 139.3 --- 139.3
Terex Mining...................................... 80.0 65.3 14.7
Eliminations/Corporate............................ (13.7) (15.3) 1.6
------------- -------------- -------------
Total...........................................$ 927.7 $ 582.0 $ 345.7
============= ============== =============
GROSS PROFIT
Terex Construction................................$ 42.9 $ 40.0 $ 2.9
Terex Cranes...................................... 27.2 16.8 10.4
Terex Roadbuilding, Utility Products and Other.... 19.7 26.3 (6.6)
Terex Aerial Work Platforms....................... 28.3 --- 28.3
Terex Mining...................................... 11.9 8.1 3.8
Eliminations/Corporate............................ (0.3) 0.1 (0.4)
------------- -------------- -------------
Total...........................................$ 129.7 $ 91.3 $ 38.4
============= ============== =============
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Terex Construction................................$ 28.2 $ 24.5 $ 3.7
Terex Cranes...................................... 20.4 9.5 10.9
Terex Roadbuilding, Utility Products and Other.... 18.3 17.9 0.4
Terex Aerial Work Platforms....................... 13.0 --- 13.0
Terex Mining...................................... 7.3 6.5 0.8
Eliminations/Corporate............................ 2.0 1.4 0.6
------------- ----------------------------
Total...........................................$ 89.2 $ 59.8 $ 29.4
============= ============================
INCOME FROM OPERATIONS
Terex Construction................................$ 14.7 $ 15.5 $ (0.8)
Terex Cranes...................................... 6.8 7.3 (0.5)
Terex Roadbuilding, Utility Products and Other.... 1.4 8.4 (7.0)
Terex Aerial Work Platforms....................... 15.3 --- 15.3
Terex Mining...................................... 4.6 1.6 3.0
Eliminations/Corporate............................ (2.3) (1.3) (1.0)
------------- ----------------------------
Total...........................................$ 40.5 $ 31.5 $ 9.0
============= ============================
Terex Consolidated
Total sales for the three months ended March 31, 2003 were $927.7 million, an
increase of $345.7 million when compared to the same period in 2002. Businesses
acquired after January 1, 2002, other than Schaeff (the "Recent Acquisitions"),
contributed approximately $323 million of the increase in sales in 2003 when
compared to 2002. Sales of large mining trucks and shovels sold by Terex Mining
increased sales by $14.7 million in the first quarter of 2003 when compared to
2002 as the Mining segment experienced increased demand in South Africa and
Australia. Sales in Terex Construction increased by $61.8 million in the first
quarter of 2003 when compared to the first quarter of 2002. Sales growth in the
Atlas Terex GmbH ("Atlas") and Schaeff businesses contributed to the increase in
sales along with favorable exchange rates. Sales of roadbuilding products
declined by over 23% in the first quarter of 2003 when compared to 2002 as a
result of weak demand and pricing pressure as competitors have priced products
aggressively to maintain market share. Sales of mobile cranes in North America
decreased significantly in the first quarter of 2003 when compared to the same
period in 2002. Weak construction demand and overcapacity in rental markets
contributed to the decline in demand for mobile cranes in North America.
31
Gross profit for the three months ended March 31, 2003 was $129.7 million, an
increase of $38.4 million when compared to the same period in 2002. The Recent
Acquisitions contributed $48.9 million of the increase in gross profit in 2003
when compared to 2002. The Terex Mining segment's gross profit increased by $3.8
million in 2003 when compared to 2002 as a result of increased sales levels and
the benefit of lower costs as a result of the closure of its Tulsa, Oklahoma
truck production facility in the third quarter 2002. Gross profit in the Terex
Construction segment increased by $2.9 million in the first quarter of 2003 when
compared to the same period in 2002. Sales growth and the benefit of several
cost reduction initiatives in the Atlas and Schaeff businesses accounted for
approximately two-thirds of the increase in gross profit. Continued weak demand
and depressed selling margins for roadbuilding products reduced gross profit in
the Terex Roadbuilding, Utility Products and Other Segment by $6.6 million in
the first quarter 2003 when compared to 2002.
Selling, General and Administrative expenses for the three months ended March
31, 2003 totaled $89.2 million, an increase of $29.4 million when compared to
the same period in 2002. The Recent Acquisitions increased selling, general and
administrative expense by $26.4 million in the first quarter 2003 when compared
with the same period in 2002.
Income from operations for the three months ended March 31, 2003 totaled $40.5
million, an increase of $9.0 million when compared to the same period in 2002.
The Recent Acquisitions increased income from operations by $22.5 million in the
first quarter of 2003 when compared to the same period in 2002. Income from
operations in the North American mobile crane business has been negatively
impacted by weak construction demand and overcapacity in the crane rental market
when compared to the first quarter of 2002. Income from operations in the
roadbuilding businesses of the Terex Roadbuilding, Utility Products and Other
segment fell by $4.2 million when compared to the same period in 2002. Demand
for roadbuilding products has remained weak due to lower than expected funding
levels for road construction. Income from operations in the Terex Mining segment
increased by $3.0 million in the first quarter of 2003 when compared to the same
period in 2002. Cost improvements from the closure of the Tulsa, Oklahoma truck
production facility as well as higher sales volumes accounted for the majority
of the increase.
Terex Construction
Sales in the Terex Construction segment increased by 23.4% to $326.1 million for
the three months ended March 31, 2003 from $264.3 million for the comparable
2002 period. Sales of excavators and scrap handling machines under the Atlas and
Schaeff brands increased for the three months ended March 31, 2003 when compared
to the same period in 2002. Approximately one-third of the increase is due to
the relative increase in the Euro exchange rate versus the U. S. Dollar. Sales
of other construction products increased for the three months ended March 31,
2003 when compared to the same period in 2002 primarily as a result of the
increase in the Euro and the British Pound exchange rates versus the U.S.
Dollar. Sales of crushing and screening products increased for the three months
ended March 31, 2003 when compared to the same period in 2002. In addition to
benefiting from the favorable exchange rates, sales benefited from the
continuing shift of customer preferences towards mobile crushing and screening
products and away from stationary products.
Gross profit in the Terex Construction segment increased by $2.9 million or 7.3%
for the three months ended March 31, 2003 from the comparable 2002 period. Gross
profit in the Schaeff businesses declined slightly during the three months ended
March 31, 2003 when compared to the same period in 2002, despite higher sales.
Gross margins in the articulated dump truck business were unfavorably impacted
by costs related to new product introduction. Gross margins in the crushing and
screening business declined during the quarter ended March 31, 2003 when
compared to 2002, in part due to the impact of exchange rates on U.S. Dollar
denominated sales of products manufactured in the U. K.
Selling, General and Administrative expense in the Terex Construction segment
increased by $3.7 million to $28.2 million during the three months ended March
31, 2003 when compared to the same period in 2002. A significant portion of the
increase is due to the impact of foreign exchange as the majority of the Terex
Construction segment businesses incur costs in Euro and British Pounds.
Operating profit in the Terex Construction segment fell by $0.8 million to $14.7
million for the three months ended March 31, 2003 when compared to the same
period in 2002. Operating profit in the Schaeff and Atlas business increased
during the first quarter 2003 when compared to 2002 as the businesses benefited
from higher sales and the impact of cost reductions initiated during 2002.
Operating profit for the crushing and screening businesses due to lower selling
margins earned on the sale of new machines, as noted above. Operating profit in
the articulated dump truck business fell due to lower selling margins earned on
the sale of new trucks and increased warranty costs.
32
Terex Cranes
Total sales for the Terex Cranes segment increased by $102.8 million and totaled
$237.9 million for the three months ended March 31, 2003 as compared to $135.1
million for the same period in 2002. Sales of Demag, acquired on August 30,
2002, and Crane & Machinery, consolidated since December 1, 2002, totaled $134.0
million. Sales of mobile cranes in North America decreased signigicantly
relative to 2002. Demand for mobile cranes continues to be negatively impacted
by weak construction activity and overcapacity in the rental markets.
Gross profit for the Terex Cranes segment increased by $10.4 million to $27.2
million for the three months ended March 31, 2003 as compared to $16.8 million
for the same period in 2002. The majority of the increase was due to the
acquisition of Demag. Included in the first quarter results for Demag is a
charge of $2.1 million related to fair value accounting. The fair value
adjustment relates to acquired inventory; no further fair value adjustments
remain to be recognized as of March 31, 2003. Gross profit in the North American
crane business fell in the first quarter of 2003 when compared to the same
period in 2002. The decline in gross profit is related primarily to the drop in
volume while the remainder is due to lower prices realized on the sale of both
new machines and replacement parts.
Selling, General and Administrative expense in the Terex Cranes segment
increased by $10.9 million to $20.4 million in the first quarter of 2003 when
compared to the same period in 2002. Selling, General and Administrative expense
from the Demag and Crane & Machinery businesses totaled $12.2 million, which
largely accounts for the increase over the prior year period.
Operating profit for the Terex Cranes segment fell by $0.5 million to $6.8
million in the three months ended March 31, 2003 when compared to $7.3 million
for the same period in 2002. Demag and Crane & Machinery contributed $4.0
million of operating profit in the first quarter of 2003. While operating profit
in the North American cranes business declined significantly in the first
quarter of 2003 when compared to 2002 as profits were depressed by continued
weakness in construction markets in North America, the inclusion of Demag and
Crane & Machinery partially offset the decline.
Terex Roadbuilding, Utility Products and Other
Sales in the Terex Roadbuilding, Utility Products and Other segment increased by
$25.5 million to $158.1 million for the three months ended March 31, 2003 from
$132.6 for the comparable 2002 period. Sales from Advance Mixer (acquired April
11, 2002), Telelect Southeast (acquired March 26, 2002) and Commercial Body
(acquired February 14, 2003) totaled $37.6 million for the three months ended
March 31, 2003. Sales of CMI Terex Corporation ("CMI Terex") and Cedarapids
Inc., ("Cedarapids"), products declined approximately 23% during the three
months ended March 31, 2003 when compared to the same period in 2002. Sales of
asphalt and concrete paving products under these brand names have been weak over
the past twelve months as anticipated improvements in state and federal funding
for road construction have yet to materialize.
Gross profit in the Terex Roadbuilding, Utility Products and Other segment
declined by $6.6 million to $19.7 million for the three months ended March 31,
2003 compared to $26.3 million for the comparable period in 2002. Gross profit
from Advance Mixer, Telelect Southeast and Commercial Body totaled $3.3 million
in the first quarter of 2003. During the first quarter of 2003, the Company
recorded a loss on the shut down of its EarthKing e-commerce subsidiary. A total
charge of $1.5 million was recognized in the first quarter results, reflecting
the Company's expected net loss. During the first quarter of 2003, the Company
eliminated approximately 146 positions at its CMI Terex business to adjust its
workforce to expected business levels. The cost of this workforce reduction
totaled $0.7 million and was recorded in the first quarter of 2003. During the
first quarter of 2002, the Company recorded a charge of $1.2 million in gross
profit to consolidate the Standard Havens hot mix asphalt plant production into
its CMI Terex operation in Oklahoma City, Oklahoma. Gross profit in the
Cedarapids and CMI Terex Roadbuilding businesses declined significantly during
the three months ended March 31, 2003 when compared to 2002. The drop in margin
related to lower selling margins for new machines, the impact of lower volumes
on factory costs and lower sales volume. Gross profit in the light construction
business increased during the three months ended March 31, 2003 when compared to
the same period in 2002. The increase in gross profit is due in part to the
consolidation of light tower production into the Rock Hill, North Carolina
production facility initiated in 2002.
Selling, General and Administrative expense in the Terex Roadbuilding, Utility
Products and Other segment increased by $0.4 million to $18.3 million in the
three months ending March 31, 2003 when compared to the same period in 2002. The
acquisition of Advance Mixer, Telelect Southeast and Commercial Body increased
selling, general and administrative expense by $2.2 million. Costs in the CMI
Terex business declined in the first quarter of 2003 as compared to 2002 due to
the Company's continued attempt to size the business for anticipated demand.
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Operating profit in the Terex Roadbuilding, Utility Products and Other segment
for the three months ended March 31, 2003 totaled $1.4 million, a reduction of
$7.0 million from the same period in 2002. Operating profit increased by $1.1
million over the same period in 2002 as a result of the acquisition of Advance
Mixer, Telelect Southeast and Commercial Body. Estimated costs related to the
closure of the Company's EarthKing e-commerce subsidiary as well as the cost
related to the workforce reduction at CMI Terex reduced profit by $2.2 million
in the first quarter of 2003. During the first quarter of 2002, the Terex
Roadbuilding, Utility Products and Other segment's operating profit included a
$1.2 million charge related to the consolidation of its hot mix asphalt plant
production facilities. Operating profit in the Cedarapids and CMI Terex
roadbuilding businesses fell in the three months ending March 31, 2003 when
compared to the same period in 2002. Continued weak demand for the products
produced by the business account for the majority of the decline in profits. The
Company has taken several actions to address the continued weak demand seen in
the roadbuilding businesses. In addition, the Company is in the process of
reviewing the long-term outlook for roadbuilding products and any potential
impact this may have on the value of the assets of this business.
Business performance during the first quarter of 2003 in the Roadbuilding
reporting unit has not yet met the expectations assumed by the Company when
goodwill was last tested for impairment on October 1, 2002. Sales levels in the
Roadbuilding reporting unit have not reached expected volumes, as funding levels
for road construction remain weak. In addition, margins have been affected as
competitors have priced products aggressively to maintain market share. As a
result of these issues, cash flow generated in the Roadbuilding business has not
yet met the Company's estimates. The Company has taken several actions to
address this shortfall, including staff reductions and changes in management.
The Company is closely monitoring the performance of this business and, if
results do not approximate expectations, a re-assessment of the expected future
performance of the Roadbuilding business will be undertaken. If such a review is
required and indicates a significant, permanent reduction in expected cash
flows, the Company may be required to record a goodwill impairment charge to
reflect a decrease in fair value for the Roadbuilding business. If required, the
results of this review will be reflected in the Company's June 30, 2003
financial statements.
Terex Aerial Work Platforms
Sales in the Terex Aerial Work Platform segment totaled $139.3 million for the
three months ended March 31, 2003 and were approximately the same as sales
during the same period in 2002.
Gross profit in the Terex Aerial Work Platform segment totaled $28.3 million for
the three months ended March 31, 2003, or 20.3% of sales. Included in the gross
profit of $28.3 million is a non-recurring reduction of gross profit of $0.7
million related to the effects of the required fair-value accounting of Genie.
The fair value adjustments relate to acquired inventory. As of March 31, 2003,
the remaining fair value adjustment in inventory was $0.1 million. The remaining
fair value adjustment will be charged to cost of sales in 2003 as the associated
inventory is sold to customers.
Selling, General and Administrative expense in the Terex Aerial Work Platforms
segment totaled $13.0 million in the three months ended March 31, 2003,
resulting in operating profit of $15.3 million (or 11.0% of sales). The
operating profit margin at the Terex Aerial Work Platforms segment for the three
months ended March 31, 2003 has improved from the Genie historical operating
profit margin, reflecting the impact of global restructuring activities and cost
control initiatives begun prior to acquisition by the Company as well as
consolidation of additional domestic production facilities subsequent to the
acquisition.
Terex Mining
Total sales for the Terex Mining segment increased by $14.7 million and totaled
$80.0 million for the three months ended March 31, 2003 when compared to $65.3
million for the same period in 2002. Sales of the Terex Mining segment's large
mining trucks and shovels increased in both South Africa and Australia. This
increase was partially offset by continued weakness for large mining truck
demand throughout the rest of the world.
Gross profit for the Terex Mining segment totaled $11.9 million, an increase of
$3.8 million for the three months ended March 31, 2003 when compared to $8.1
million for the same period in 2002. The closure of the segment's Tulsa,
Oklahoma production facility in the second quarter of 2002 reduced operating
costs by approximately $1.5 million in the first quarter 2003 when compared to
2002. Gross profit earned in South Africa increased due to the favorable mix of
products sold in the region. Gross profits in the German large shovel business
improved due to a favorable mix of shovel models and improved spare parts
margins.
Operating expense in the Terex Mining segment totaled $7.3 million for the three
months ended March 31, 2003, an increase of $0.8 million when compared to the
same period in 2002. The majority of the increase is due to the increase in the
value of the Euro and South African Rand relative to the U. S. Dollar.
34
Operating profit for the Terex Mining segment increased by $3.0 million and
totaled $4.6 for the three months ended March 31, 2003 when compared to the same
period in 2002. Operating profit in North America increased by $1.6 million as a
result of the closure of the Tulsa, Oklahoma facility. Operating profit in
Germany and South Africa increased as a result of higher sales of new machines
and favorable replacement part margins.
Net Interest Expense
During the three months ended March 31, 2003, the Company's net interest expense
increased $3.0 million to $24.2 million from $21.2 million for the prior year
period. The increase was due to the overall increase in bank debt used to
finance acquisitions in 2002. The impact of increased net debt has been
partially offset by more favorable interest rates on the Company's floating rate
debt.
Other Income (Expense) - Net
Other income (expense) - net for the three months ended March 31, 2003 was
income of $0.3 million as compared to an expense of $1.2 million for the prior
year period. During the three months ended March 31, 2003, the Company recorded
income of $2.4 million related to a favorable court judgment on appeal as the
defendant in a patent infringement case. This income was partially offset by a
loss of $0.8 million related to its internet e-commerce investments.
Cumulative Effect of Change in Accounting Principle
In accordance with the requirements of Statement of Financial Accounting
Standards ("SFAS") No. 141, "Business Combinations," and SFAS No. 142, "Goodwill
and Other Intangible Assets," the Company recorded a charge for the cumulative
effect of change in accounting principle of $113.4 million in the three months
ended March 31, 2002. See "Critical Accounting Policies," below, for additional
information on these charges. This charge represents the write-off of $132.2
million of goodwill ($124.1 million, net of income taxes) principally in the
Mining Group (Terex Mining Segment) ($105.7 million, or $105.7 million, net of
income taxes), and the Light Construction Group (Terex Roadbuilding, Utility
Products and Other Segment) ($26.2 million, or $18.1 million, net of income
taxes). This charge was partially offset by a one-time gain ($17.8 million,
$10.7 million net of income taxes) recognized on January 1, 2002 in the Fermec
Manufacturing Limited ("Fermec") business. The purchase price paid by the
Company to acquire Fermec was less than the net assets acquired in the
transaction. Prior to January 1, 2002, the difference was recorded as a deferred
credit in goodwill. As required by SFAS No. 141, this credit balance was
recognized as a cumulative effect adjustment on January 1, 2002.
CRITICAL ACCOUNTING POLICIES
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, the 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.
Changes in the estimates and assumptions used by management could have
significant impact on the Company's financial results. Actual results could
differ from those estimates.
The Company believes that the following are among its most significant
accounting polices which are important in determining the reporting of
transactions and events and which utilize estimates about the effect of matters
that are inherently uncertain and therefore are based on management judgment.
Please refer to the Company's Annual Report on Form 10-K for the year ended
December 31, 2002 for a complete listing of the Company's accounting policies.
Inventories - Inventories are stated at the lower of cost or market value. In
valuing inventory, management is required to make assumptions regarding the
level of reserves required to value potentially obsolete or over-valued items at
the lower of cost or market. The valuation of used equipment taken in trade from
customers requires the Company to use the best information available to
determine the value of the equipment to potential customers. This value is
subject to change based on numerous conditions. Inventory reserves are
established taking into account age, frequency of use, or sale, and in the case
of repair parts, the installed base of machines. While calculations are made
involving these factors, significant management judgment regarding expectations
for future events is involved. Future events which could significantly influence
management's judgment and related estimates include general economic conditions
in markets where the Company's products are sold, new equipment price
fluctuations, competitive actions including the introduction of new products and
technological advances, as well as new products and design changes introduced by
the Company. At March 31, 2003, reserves for excess and obsolete inventory
totaled $37.4 million.
35
Accounts Receivable - Management is required to make judgments relative to the
Company's ability to collect accounts receivable from the Company's customers.
Valuation of receivables includes evaluating customer payment histories,
customer leverage, availability of third party financing, political and exchange
risks and other factors. Many of these factors, including the assessment of a
customer's ability to pay, are influenced by economic and market factors which
cannot be predicted with certainty. At March 31, 2003, reserves for potentially
uncollectible accounts receivable totaled $19.6 million.
Guarantees - The Company has issued guarantees of customer financing to purchase
equipment as of March 31, 2003. The Company must assess the probability of
losses or non-performance in ways similar to the evaluation of accounts
receivable, including consideration of a customer's payment history, leverage,
availability of third party finance, political and exchange risks and other
factors. Many of these factors, including the assessment of a customer's ability
to pay, are influenced by economic and market factors that cannot be predicted
with certainty. To date, losses related to guarantees have been negligible.
Customers of the Company from time to time may fund the acquisition of the
Company's equipment through third-party finance companies. In certain instances,
the Company may provide a credit guarantee to the finance company, by which the
Company agrees to make payments to the finance company should the customer
default. The maximum liability of the Company is limited to the remaining
payments due to the finance company at the time of default. In the event of
customer default, the Company is generally able to dispose of the equipment with
the Company realizing the benefits of any net proceeds in excess of the
remaining payments due to the finance company.
As of March 31, 2003, the Company's maximum exposure to such credit guarantees
is $297.2 million. The terms of these guarantees coincide with the financing
arranged by the customer and generally does not exceed five years. Given the
Company's position as the original equipment manufacturer and its knowledge of
end markets, the Company, when called upon to fulfill a guarantee, generally has
been able to liquidate the financed equipment at a minimal loss, if any, to the
Company.
The Company, through its Genie subsidiary, issues residual value guarantees
under sales-type leases. A residual value guarantee involves a guarantee that a
piece of equipment will have a minimum fair market value at a future point in
time. As described in Note J - "Net Investment in Sales-Type Leases" in the
Notes to the Condensed Consolidated Financial Statements, the Company's maximum
exposure related to residual value guarantees at March 31, 2003 is $35.3
million. The Company is able to mitigate the risk associated with these
guarantees because the maturity of the guarantees is staggered, which limits the
amount of used equipment entering the marketplace at any one time.
The Company from time to time guarantees that it will buy equipment from its
customers in the future at a stated price if certain conditions are met by the
customer. Such guarantees are referred to as buyback guarantees. These
conditions generally pertain to the functionality and state of repair of the
machine. As of March 31, 2003, the Company's maximum exposure pursuant to
buyback guarantees is $35.1 million. The Company is able to mitigate the risk of
these guarantees by staggering the timing of the buybacks and through leveraging
its access to the used equipment markets provided by the Company's original
equipment manufacturer status.
The Company recognizes a loss under a guarantee when the Company's obligation to
make payment under the guarantee is probable and the amount of the loss can be
estimated. A loss would be recognized if the Company's payment obligation under
the guarantee exceeds the value the Company can expect to recover to offset such
payment, primarily through the sale of the equipment underlying the guarantee.
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 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.
Revenue generated in the United States is recognized when title and risk of loss
pass from the Company to its customers which occurs upon shipment when terms are
FOB shipping point (which is customary for the Company) and upon delivery when
terms are FOB destination. The Company also has a policy requiring it to meet
certain criteria in order to recognize revenue, including satisfaction of the
following requirements:
36
a) Persuasive evidence that an arrangement exists;
b) The price to the buyer is fixed or determinable;
c) Collectibility is reasonably assured; and
d) The Company has no significant obligations for future performance.
In the United States, the Company has the ability to enter into a security
agreement and receive a security interest in the product by filing an
appropriate Uniform Commercial Code ("UCC") financing statement. However, a
significant portion of the Company's revenue is generated outside of the United
States. In many countries outside of the United States, as a matter of statutory
law, a seller retains title to a product until payment is made. The laws do not
provide for a seller's retention of a security interest in goods in the same
manner as established in the UCC. In these countries, the Company retains title
to goods delivered to a customer until the customer makes payment so that the
Company can recover the goods in the event of customer default on payment. In
these circumstances, where the Company only retains title to secure its recovery
in the event of customer default, the Company also has a policy which requires
it to meet certain criteria in order to recognize revenue, including
satisfaction of the following requirements:
a) Persuasive evidence that an arrangement exists;
b) Delivery has occurred or services have been rendered;
c) The price to the buyer is fixed or determinable;
d) Collectibility is reasonably assured;
e) The Company has no significant obligations for future performance; and
f) The Company is not entitled to direct the disposition of the goods,
cannot rescind the transaction, cannot prohibit the customer from
moving, selling, or otherwise using the goods in the ordinary course
of business and has no other rights of holding title that rest with a
titleholder of property that is subject to a lien under the UCC.
In circumstances where the sales transaction requires acceptance by the customer
for items such as testing on site, installation, trial period or performance
criteria, revenue is not recognized unless the following criteria have been met:
a) Persuasive evidence that an arrangement exists;
b) Delivery has occurred or services have been rendered;
c) The price to the buyer is fixed or determinable;
d) Collectibility is reasonably assured; and
e) The customer has given their acceptance, the time period for
acceptance has elapsed or the Company has otherwise objectively
demonstrated that the criteria specified in the acceptance provisions
have been satisfied.
In addition to performance commitments, the Company analyzes factors such as the
reason for the purchase to determine if revenue should be recognized. This
analysis is done before the product is shipped and includes the evaluation of
factors that may affect the conclusion related to the revenue recognition
criteria as follows:
a) Persuasive evidence that an arrangement exists;
b) Delivery has occurred or services have been rendered;
c) The price to the buyer is fixed or determinable; and
d) Collectibility is reasonably assured.
Goodwill & Acquired Intangible Assets - Goodwill represents the difference
between the total purchase price paid in the acquisition of a business and the
fair value of the assets, both tangible and intangible, and liabilities acquired
by the Company. Acquired intangible assets generally include trade names,
technology and customer relationships and are amortized over their estimated
useful lives. The Company is required annually to review the value of its
recorded goodwill and intangible assets to determine if either is potentially
impaired. The initial recognition of intangible assets, as well as the annual
review of the carrying value of goodwill and intangible assets, requires that
the Company develop estimates of future business performance. These estimates
are used to derive expected cash flow and include assumptions regarding future
sales levels, the impact of cost reduction programs, and the level of working
capital needed to support a given business. The Company relies on data developed
by business segment management as well as macroeconomic data in making these
calculations. The estimate also includes a determination of the Company's
weighted average cost of capital. The cost of capital is based on assumptions
about interest rates as well as a risk-adjusted rate of return required by the
Company's equity investors. Changes in these estimates can impact the present
value of the expected cash flow that is used in determining the fair value of
acquired intangible assets as well as the overall expected value of a given
business.
37
Impairment of Long Lived Assets - The Company's policy is to assess its ability
to realize on 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. Future cash flow projections include assumptions regarding
future sales levels, the impact of cost reduction programs, and the level of
working capital needed to support each business. The Company relies on data
developed by business segment management as well as macroeconomic data in making
these calculations. There are no assurances that future cash flow assumptions
will be achieved. The amount of any impairment then recognized would be
calculated as the difference between estimated fair value and the carrying value
of the asset.
Accrued Warranties - The Company records accruals for potential warranty claims
based on the Company's prior claim experience. Warranty costs are accrued at the
time revenue is recognized. However, adjustments to the initial warranty accrual
are recorded if actual claim experience indicates that adjustments are
necessary. These warranty costs are based upon management's assessment of past
claims and current experience. However, actual claims could be higher or lower
than amounts estimated, as the amount and value of warranty claims are subject
to variation as a result of many factors that cannot be predicted with
certainty, including the performance of new products, models and technology,
changes in weather conditions for product operation, different uses for products
and other similar factors.
Accrued Product Liability - The Company records accruals for potential product
liability claims based on the Company's prior claim experience. Accruals for
product liability claims are valued based upon the Company's prior claims'
experience, including consideration of the jurisdiction, circumstances of the
accident, type of loss or injury, identity of plaintiff, other potential
responsible parties, analysis of outside counsel, analysis of internal product
liability counsel and the experience of the Company's director of product
safety. The Company provides self-insurance accruals for estimated product
liability experience on known claims. Actual product liability costs could be
different due to a number of variables such as the decisions of juries or
judges.
Pension Benefits - Pension benefits represent financial obligations that will be
ultimately settled in the future with employees who meet eligibility
requirements. Because of the uncertainties involved in estimating the timing and
amount of future payments, significant estimates are required to calculate
pension expense and liabilities related to the Company's plans. The Company
utilizes the services of several independent actuaries, whose models are used to
facilitate these calculations.
Several key assumptions are used in actuarial models to calculate pension
expense and liability amounts recorded in the financial statements. Management
believes the three most significant variables in the models are expected
long-term rate of return on plan assets, the discount rate, and the expected
rate of compensation increase. The actuarial models also use assumptions for
various other factors including employee turnover, retirement age and mortality.
The Company's management believes the assumptions used in the actuarial
calculations are reasonable and are within accepted practices in each of the
respective geographic locations in which the Company operates.
The expected long-term rates of return on pension plan assets were 8.00% for
U.S. plans and 2.0% to 7.0% for international plans at March 31, 2003. These
rates are determined annually by management based on a weighted average of
current and historical market trends, historical portfolio performance and the
portfolio mix of investments.
The discount rates for pension plan liabilities were 6.75% for U. S. plans and
5.75% to 6.0% for international plans at March 31, 2003. These rates are used to
calculate the present value of plan liabilities and are determined annually by
management based on market yields for high-quality fixed income investments on
the measurement date.
The expected rates of compensation increase for the Company's pension plans were
5.0% for U.S. plans and 3.75% to 4.25% for international plans at March 31,
2003. These estimated annual compensation increases are determined by management
every year and are based on historical trends and market indices.
Income Taxes - At March 31, 2003 the Company had deferred tax assets of $197.8
million, net of valuation allowances. Income tax expense was $4.9 million for
the three months ended March 31, 2003. The Company estimates income taxes based
on diverse and complex regulations that exist in various jurisdictions where it
conducts business. Deferred income tax assets and liabilities represent tax
benefits or obligations that arise from temporary timing differences due to
differing treatment of certain items for accounting and income tax purposes. The
Company evaluates deferred tax assets each period to ensure that estimated
future taxable income will be sufficient in character (e.g., capital gain versus
ordinary income treatment), amount and timing to result in their recovery. To
the extent that the Company estimates recovery is not likely, then the Company
establishes a valuation allowance to reduce the assets to their realizable
value. Considerable judgments are required in establishing deferred tax
valuation allowances and in assessing possible exposures related to tax matters.
Tax returns are subject to audit and local taxing authorities could challenge
tax positions. The Company's practice is to review tax-filing positions by
jurisdiction and to record provisions for probable tax assessments, including
interest and penalties, if applicable. The Company believes it records and/or
discloses such potential tax liabilities as appropriate and has reasonably
estimated its income tax liabilities and recoverable tax assets.
38
LIQUIDITY AND CAPITAL RESOURCES
Net cash of $114.9 million was provided by operating activities during the three
months ended March 31, 2003. Reduced working capital needs provided
approximately $90 million of cash. The Company defines working capital as the
sum of accounts receivable and inventory less accounts payable. Net cash used in
investing activities was $14.5 million during the three months ended March 31,
2003, primarily related to the acquisition of Commercial Body and capital
expenditures. Net cash used in financing activities was $35.6 million during the
three months ended March 31, 2003. In addition, the Company had $215.2 million
available for borrowing under its revolving credit facilities at March 31, 2003.
Therefore, total liquidity available to the Company at March 31, 2003 was
approximately $635.1 million.
Including the February 2003 acquisition of Commercial Body and Combatel, since
the beginning of 1995 Terex has invested approximately $1.9 billion to
strengthen and expand its core businesses through more than 25 strategic
acquisitions. Acquisitions and new product development have been important
components of the Company's growth strategy. Although the Company may make
additional acquisitions in the future, particularly those that would complement
the Company's existing operations, the Company is currently focused on
completing the integration of its recent acquisitions.
Debt reduction and an improved capital structure are major focal points for the
Company. The Company regularly reviews its alternatives to improve its capital
structure and to reduce debt service through debt refinancings, debt repurchases
and redemptions, issuances of equity, asset sales, including strategic
dispositions of business units, or any combination thereof. On April 23, 2002,
the Company issued approximately 5.3 million shares of its common stock in a
public offering with net proceeds to the Company of $113.3 million. On July 3,
2002, the Company entered into an amended and restated credit facility with its
bank lending group. The revised agreement provides for $375 million of term debt
maturing in June 2009 and a revolving credit facility of $300 million that is
available through June 2007. The facility also included provisions for an
additional $250 million of term borrowing by the Company on terms similar to the
current term loan debt under the facility. On September 13, 2002, the Company
consummated an incremental term loan borrowing of $210 million maturing in
December 2009 under this facility to acquire Genie, to refinance some of Genie's
debt and for other general corporate purposes. In addition to providing the
Company with additional funds, the revised credit agreement also amended certain
covenants and other provisions to allow the Company greater flexibility. This
added flexibility included changes to increase the Company's ability to make
acquisitions, participate in joint ventures and take other corporate actions.
Adjustments were also made to financial covenant ratios, including the Company's
consolidated total leverage ratio, consolidated interest coverage ratio and
consolidated senior leverage ratio, that permit the Company to maintain
additional debt for a longer period of time.
Additionally, in January 2002, March 2002, September 2002 and February 2003, the
Company issued approximately 0.5 million shares, 0.3 million shares, 3.2 million
shares and 0.6 million shares of its common stock in connection with the
acquisition of Utility Equipment, Telelect Southeast, Genie and Commercial Body,
respectively. The Company also sold approximately 1.3 million shares of its
common stock for $17.3045 per share, or approximately $23 million in total, to
certain former shareholders of Schaeff in January 2002. In each instance, the
number of shares of common stock issued was determined based on the average
price of the common stock on the New York Stock Exchange for a specified time
period prior to the date of issuance.
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 trade
financing for receivables from customers and dealers. The Company has
significant debt service requirements, including semi-annual interest payments
on its senior subordinated notes and monthly interest payments on its bank
credit facilities. Other than default under the terms of the Company's debt
instruments, there are no other events that would accelerate the repayment of
the Company's debt. In the event of default, these borrowings could become
payable on demand.
Management believes that cash generated from operations, together with the
Company's bank credit facilities and cash on hand, provides the Company with
adequate liquidity to meet the Company's operating and debt service
requirements.
The Company's main sources of funding are cash generated from operations and
access to the Company's bank credit facilities, as well as the Company's ability
to access the capital markets. Additionally, the Company sells customer accounts
receivable, substantially all of which are insured, to third party institutions
to accelerate the collection of cash.
39
Cash generated from operations is directly tied to the Company's sales. A
decrease in sales will have a negative impact on the Company's ability to derive
liquidity from its operations. Sales are subject to decline for a number of
reasons, including economic conditions, weather, competition and foreign
currency fluctuations. A significant portion of sales are financed by third
party finance companies in reliance on the credit worthiness of the Company's
customers and the estimated residual value of its equipment. Deterioration in
the credit quality of the Company's customers or the estimated residual value of
its equipment could negatively impact the ability of such customers to obtain
the resources needed to make purchases from the Company and could have a
material adverse impact on results of operations or financial condition of the
Company. The recent economic climate has had a negative effect on cash generated
from operations, as consumer confidence remains fragile, many of the Company's
customers have delayed purchasing decisions and the availability of third party
financing has become more limited.
The Company's ability to borrow under its existing bank credit facilities is
subject to the Company's ability to comply with a number of covenants. The
Company's bank credit facilities include covenants that require the Company to
meet certain financial tests, including a pro forma consolidated leverage ratio
test, a consolidated interest ratio test, a consolidated fixed charge ratio
test, a pro forma consolidated senior secured debt leverage ratio test and a
capital expenditures test. These covenants require quarterly compliance and
become more restrictive periodically. Maintaining compliance with these ratios
depends on the future performance of the Company and the achievement of cost
savings and earning levels anticipated in acquisitions. The Company is currently
in compliance with its financial covenants under its bank credit facilities. The
Company's ability to remain compliant with its covenants in the future is
dependent on its ability to maintain its earnings, including its ability to
generate cash flow from working capital reductions, realize cost savings at
recently acquired units, realize the benefit of its restructuring programs and
maintain an appropriate level of operating profits. The interest rates charged
are subject to adjustment based on the Company's consolidated leverage ratio.
The weighted average interest rate on the outstanding portion of the revolving
credit component of the Company's bank credit facility was 4.29% at March 31,
2003.
The Company's ability to access the capital markets to raise funds, through the
sale of equity or debt securities, is subject to various factors, some specific
to the Company and some impacted by general economic and/or financial market
conditions. These include results of operations, projected operating results for
future periods and debt to equity leverage.
At March 31, 2003, the Company had outstanding letters of credit that totaled
$87.5 million and had issued $297.2 million in guarantees of customer financing
to purchase equipment, $35.3 million in residual value guarantees and $35.1
million in buyback guarantees.
In April 2001, Genie entered into a joint venture arrangement with a European
financial institution whereby Genie maintains a forty-nine percent (49%)
ownership interest in the joint venture, Genie Financial Solutions Holding B.V.
("GFSH B.V."). Prior to the Company's acquisition of Genie, Genie had
contributed $5.3 million in cash in exchange for its ownership interest in GFSH
B.V. During January 2003, Genie contributed an additional $0.8 million in cash
to GFSH B.V. The Company applies the equity method of accounting for its
investment in GFSH B.V., as the Company does not control the operations of GFSH
B.V.
GFSH B.V. was established to facilitate the financing of Genie's products sold
in Europe. As of March 31, 2003, the joint venture's total assets were $119.4
million and consisted primarily of financing receivables and lease related
equipment; total liabilities were $106.2 million and consisted primarily of debt
payable to the fifty-one percent (51%) joint venture partner. The Company
provided guarantees related to potential losses arising from shortfalls in the
residual values of financed equipment or credit defaults by the joint venture's
customers. As of March 31, 2003, the maximum exposure to loss under these
guarantees is approximately $7 million. Additionally, the Company is required to
maintain a capital account balance in GFSH B.V., pursuant to the terms of the
joint venture, which could result in the reimbursement to GFSH B.V. by the
Company of losses to the extent of the Company's ownership percentage.
CONTINGENCIES AND UNCERTAINTIES
Foreign Currencies and Interest Rate Risk
The Company's products are sold in over 100 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 Euro, the British Pound, the Australian Dollar and the
South African Rand. The Company may, from time to time, hedge specifically
identified committed cash flows in foreign currencies using forward currency
sale or purchase contracts. At March 31, 2003, the Company had foreign exchange
contracts with a notional value of $158.5 million.
40
The Company manages exposure to fluctuating interest rates with interest
protection arrangements. Certain of the Company's obligations, including
indebtedness under the Company's bank credit facility, bear interest at floating
rates, and as a result an increase in interest rates could adversely affect,
among other things, the results of operations of the Company. The Company has
entered into interest protection arrangements with respect to approximately $100
million of the principal amount of its indebtedness under its bank credit
facility, fixing interest at 6.51% for the period from July 1, 2004 through June
30, 2009.
Certain of the Company's obligations, including its senior subordinated notes,
bear interest at a fixed interest rate. The Company has entered into interest
rate agreements to convert these fixed rates to floating rates with respect to
approximately $75 million of the principal amount of its indebtedness under its
8-7/8% Senior Subordinated Notes and approximately $79 million of capital
leases. The floating rates are based on a spread of 3.69% to 4.50% over LIBOR.
At March 31, 2003, the floating rates ranged between 4.95% and 5.83%.
Other
The Company is subject to a number of contingencies and uncertainties including,
without limitation, 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, 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 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, 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, such
as discharges to air and water, and also require compliance with certain
practices when handling and disposing of hazardous and non-hazardous 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, should any of such events occur. No such incidents have
occurred which required the Company to pay material amounts to comply with such
laws and regulations. Compliance with such laws and regulations has required,
and will continue to 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.
On March 11, 2002, an action was commenced in the United States District Court
for the Southern District of Florida, Miami Division by Ursula Ungaro-Benages
and Ursula Ungaro-Benages as Attorney-in-fact for Peter C. Ungaro, M.D., in
which the plaintiffs alleged that ownership of O&K Orenstein & Koppel AG ("O&K
AG") was illegally taken from the plaintiffs' ancestors by German industry
during the Nazi era. The plaintiffs alleged that the Company was liable for
conversion and unjust enrichment as the result of its purchase of the shares of
the mining shovel subsidiary O&K Mining GmbH from O&K AG, and were claiming
restitution of a 25% interest in O&K Mining GmbH and monetary damages. On June
12, 2002, the United States Department of Justice filed a Statement of Interest
in the action that expressed the foreign policy interests of the United States
in dismissal of the case. At the request of the Company, on October 8, 2002, the
Federal Judicial Panel on Multi-district Litigation ordered that the action be
transferred to the District of New Jersey and assigned the case to the Honorable
William G. Bassler for inclusion in the coordinated or consolidated pretrial
proceedings established in that court. On April 21, 2003 the plaintiffs
voluntarily dismissed the action against the Company.
RECENT ACCOUNTING PRONOUNCEMENTS
SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13, and Technical Corrections as of April 2002," was issued in May
2002. SFAS No. 145 became effective for certain leasing transactions occurring
after May 15, 2002 and became effective for the Company on January 1, 2003 with
respect to reporting gains and losses from extinguishments of debt. The adoption
of SFAS No. 145 will result in the Company reporting most gains and losses from
extinguishments of debt as a component of income or loss from continuing
operations before income taxes and extraordinary items; there will be no effect
on the Company's net income or loss. Prior period amounts will be reclassified.
SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities," was issued in June 2002. SFAS No. 146 became effective for exit or
disposal activities that are initiated after December 31, 2002. Under SFAS No.
146, a liability for a cost associated with an exit or disposal activity is
recognized when the liability is incurred. Under previous accounting principles,
a liability for an exit cost would be recognized at the date of an entity's
commitment to an exit plan. Adoption of SFAS No. 146 has been applied
prospectively and has not had a material effect on the Company's consolidated
financial position or results of operations.
41
In November 2002, the Financial Accounting Standard Board (the "FASB") issued
FASB Interpretation No. ("FIN") 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others, an interpretation of Statement of Financial Accounting Standards Nos. 5,
57, and 107 and rescission of FIN 34." FIN 45 extends the disclosures to be made
by a guarantor about its obligations under certain guarantees that it has
issued. It also clarifies that a guarantor is required to recognize, at the
inception of a guarantee, a liability for the fair value of its obligations
under certain guarantees. The disclosure provisions of FIN 45 were effective for
financial statements for periods ending after December 15, 2002. The provisions
for initial recognition and measurement of guarantees are effective on a
prospective basis for guarantees that are issued or modified after December 31,
2002. The application of FIN 45 has not had a material impact on the Company's
consolidated financial position or results of operations.
In December 2002, SFAS No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure as amendment of FASB Statement No. 123," was issued.
SFAS No. 148, which became effective for fiscal years ended after December 15,
2002, provides alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based employee compensation. In
addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123. The
adoption of SFAS No. 148 has not had, and will not have, a material impact on
the Company's financial statements, since the Company will continue to follow
the method in APB Opinion No. 25.
During January 2003 the FASB issued FIN 46, "Consolidation of Variable Interest
Entities" which is effective for the Company on July 1, 2003 for any existing
entities and to any variable interest entities created after January 31, 2003. A
variable interest entity ("VIE") is a corporation, partnership, trust or other
legal entity that does not have equity investors with voting rights or has
equity investors that do not provide sufficient financial resources for the
entity to support its own activities. This interpretation requires a company to
consolidate a VIE when the company has a majority of the risk of loss from the
VIE's activities or is entitled to receive a majority of the entity's residual
returns or both. The Company is currently evaluating the provisions of FIN 46 to
determine its impact on the Company's consolidated financial position or results
of operations.
In January 2003, the Emerging Issues Task Force (the "EITF") released EITF
00-21, "Accounting for Revenue Arrangements with Multiple Deliverables." EITF
00-21 clarifies the timing and recognition of revenue from certain transactions
that include the delivery and performance of multiple products or services. EITF
00-21 is effective for revenue arrangements entered into in fiscal periods
beginning after June 15, 2003. The Company is currently reviewing the impact of
EITF 00-21 on the Company's consolidated financial position or results of
operations.
During April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." This statement amends and
clarifies financial accounting and reporting for derivative instruments and
hedging activities, resulting primarily from decisions reached by the FASB
Derivatives Implementation Group subsequent to the original issuance of SFAS No.
133. This statement is generally effective prospectively for contracts and
hedging relationships entered into after June 30, 2003. The adoption of SFAS No.
149 will not have a material impact on the Company's consolidated financial
position or results of operations.
42
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: March 12, 2004 /s/ Phillip C. Widman
Phillip C. Widman
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: March 12, 2004 /s/ Mark T. Cohen
Mark T. Cohen
Vice President and Controller
(Principal Accounting Officer)
43
EXHIBIT INDEX
12 Calculation of Ratio of Earnings to Fixed Charges. *
31.1 Chief Executive Officer Certification pursuant to Rule
13a-14(a)/15d-14(a)*
31.2 Chief Financial Officer Certification pursuant to Rule
13a-14(a)/15d-14(a)*
32 Chief Executive Officer and Chief Financial Officer Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
* * - Exhibit filed with this document
44