10-Q 1 f10q0602.txt FORM 10-Q 6/30/02 TEREX CORPORATION UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 F O R M 10 - Q (Mark One) |X| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 2002 |_| 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 ------- ------- Number of outstanding shares of common stock: 44.1 million as of August 6, 2002. The Exhibit Index begins on page 42. INDEX TEREX CORPORATION AND SUBSIDIARIES GENERAL This 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 except PPM Cranes, Inc.) which are guarantors (the "Guarantors") of the Company's $300 million principal amount of 10-3/8% Senior Subordinated Notes due 2011 (the "10-3/8% Notes") and $250 million principal amount of 8-7/8% Senior Subordinated Notes due 2008 (the "8-7/8% Notes"). The following subsidiaries, with the exception of PPM Cranes, Inc., are also guarantors of the Company's $200 million principal amount of 9-1/4% Senior Subordinated Notes due 2011 (the "9-1/4% Notes"). See Note L to the Company's June 30, 2002 Condensed Consolidated Financial Statements included in this Quarterly Report. State or other jurisdiction of I.R.S. employer Guarantor incorporation or organization identification number --------- ----------------------------- --------------------- Terex Cranes, Inc. Delaware 06-1513089 PPM Cranes, Inc. Delaware 39-1611683 Koehring Cranes, Inc. Delaware 06-1423888 Terex-Telelect, Inc. Delaware 41-1603748 Terex-RO Corporation Kansas 44-0565380 Payhauler Corp. Illinois 36-3195008 O & K Orenstein & Koppel, Inc. Delaware 58-2084520 The American Crane Corporation North Carolina 56-1570091 Amida Industries, Inc. South Carolina 57-0531390 Cedarapids, Inc. Iowa 42-0332910 Standard Havens, Inc Delaware 43-0913249 Standard Havens Products, Inc. Delaware 43-1435208 BL-Pegson USA, Inc. Connecticut 31-1629830 Benford America, Inc. Delaware 76-0522879 Coleman Engineering, Inc. Tennessee 62-0949893 EarthKing, Inc. Delaware 06-1572433 Finlay Hydrascreen USA, Inc. New Jersey 22-2776883 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 Royer Industries, Inc. Pennsylvania 24-0708630 Terex Bartell, Inc. Delaware 34-1325948 Terex Mining Equipment, Inc. Delaware 06-1503634 CMI Terex Corporation Oklahoma 73-0519810 Page No. PART I FINANCIAL INFORMATION Item 1 Condensed Consolidated Financial Statements TEREX CORPORATION Condensed Consolidated Statement of Operations -- Three months and six months ended June 30, 2002 and 2001.......3 Condensed Consolidated Balance Sheet - June 30, 2002 and December 31, 2001......................................4 Condensed Consolidated Statement of Cash Flows -- Six months ended June 30, 2002 and 2001........................5 Notes to Condensed Consolidated Financial Statements -- June 30, 2002...........................................6 PPM CRANES, INC. Condensed Consolidated Statement of Operations -- Three months and six months ended June 30, 2002 and 2001......22 Condensed Consolidated Balance Sheet - June 30, 2002 and December 31, 2001.....................................23 Condensed Consolidated Statement of Cash Flows -- Six months ended June 30, 2002 and 2001.......................24 Notes to Condensed Consolidated Financial Statements -- June 30, 2002..........................................25 1 Page No. PART I FINANCIAL INFORMATION (continued) Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations......................................27 Item 3 Quantitative and Qualitative Disclosures About Market Risk.........37 PART II OTHER INFORMATION Item 1 Legal Proceedings..................................................38 Item 2 Changes in Securities and Use of Proceeds..........................38 Item 3 Defaults Upon Senior Securities....................................38 Item 4 Submission of Matters to a Vote of Security Holders................38 Item 5 Other Information..................................................39 Item 6 Exhibits and Reports on Form 8-K...................................40 SIGNATURES....................................................................41 EXHIBIT INDEX.................................................................42 2
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 For the Six Months Ended June 30, Ended June 30, --------------------------- --------------------------- 2002 2001 2002 2001 ------------- ------------- ------------- ------------- Net sales.....................................................$ 690.2 $ 439.3 $ 1,272.2 $ 916.7 Cost of goods sold............................................ 578.3 359.1 1,069.0 757.9 ------------- ------------- ------------- ------------- Gross profit............................................. 111.9 80.2 203.2 158.8 Selling, general and administrative expenses.................. 73.3 41.0 133.1 81.6 ------------- ------------- ------------- ------------- Income from operations................................... 38.6 39.2 70.1 77.2 Other income (expense): Interest income.......................................... 2.1 1.8 2.9 3.8 Interest expense......................................... (22.6) (23.2) (44.6) (44.2) Other income (expense) - net............................. (10.4) (0.1) (11.6) (0.9) ------------- ------------- ------------- ------------- Income before income taxes and extraordinary items....... 7.7 17.7 16.8 35.9 Provision for income taxes.................................... (2.5) (5.7) (5.4) (11.5) ------------- ------------- ------------- ------------- Income before extraordinary items........................ 5.2 12.0 11.4 24.4 Extraordinary loss on retirement on debt...................... --- --- --- (2.3) Cumulative effect of change in accounting principle........... --- --- (113.4) --- ------------- ------------- ------------- ------------- Net income (loss).............................................$ 5.2 $ 12.0 $ (102.0) $ 22.1 ============= ============= ============= ============= Per common share: Basic: Income before extraordinary items.......................$ 0.12 $ 0.45 $ 0.28 $ 0.91 Extraordinary loss on retirement of debt................ --- --- --- (0.09) Cumulative effect of change in accounting principle..... --- --- (2.80) --- ------------- ------------- ------------- ------------- Net income (loss).....................................$ 0.12 $ 0.45 $ (2.52) $ 0.82 ============= ============= ============= ============= Diluted: Income before extraordinary items.......................$ 0.12 $ 0.43 $ 0.28 $ 0.88 Extraordinary loss on retirement of debt................ --- --- --- (0.08) Cumulative effect of change in accounting principle..... --- --- (2.76) --- ------------- ------------- ------------- ------------- Net income (loss).....................................$ 0.12 $ 0.43 $ (2.48) $ 0.80 ============= ============= ============= ============= Weighted average number of shares outstanding in per share calculation: Basic................................................. 42.7 26.9 40.4 26.8 Diluted............................................... 43.6 27.8 41.2 27.6
The accompanying notes are an integral part of these financial statements. 3
TEREX CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (in millions, except par value) June 30, 2002 December 31, (unaudited) 2001 ----------------- ----------------- Assets Current assets Cash and cash equivalents........................................................ $ 280.9 $ 250.4 Trade receivables (net of allowance of $9.4 at June 30, 2002 and $8.6 at December 31, 2001)................................................. 493.0 351.1 Inventories...................................................................... 780.6 704.8 Deferred taxes................................................................... 25.3 23.7 Other current assets............................................................. 75.9 53.0 ----------------- ----------------- Total current assets......................................................... 1,655.7 1,383.0 Long-term assets Property, plant and equipment.................................................... 179.2 173.9 Goodwill......................................................................... 596.4 620.1 Deferred taxes................................................................... 90.7 75.4 Other assets..................................................................... 149.8 134.6 ----------------- ----------------- Total assets.......................................................................... $ 2,671.8 $ 2,387.0 ================= ================= Liabilities and Stockholders' Equity Current liabilities Notes payable and current portion of long-term debt.............................. $ 65.8 $ 34.7 Trade accounts payable........................................................... 412.1 291.0 Accrued compensation and benefits................................................ 46.9 37.4 Accrued warranties and product liability......................................... 62.6 62.7 Other current liabilities........................................................ 184.0 201.3 ----------------- ----------------- Total current liabilities.................................................... 771.4 627.1 Non-current liabilities Long-term debt, less current portion............................................. 1,032.1 1,020.7 Other............................................................................ 155.5 143.8 Commitments and contingencies Stockholders' equity Equity rights.................................................................... --- 0.5 Common stock, $.01 par value - authorized 150.0 shares; issued 45.3 and 37.5 shares at June 30, 2002 and December 31, 2001, respectively.................... 0.5 0.4 Additional paid-in capital....................................................... 691.5 532.4 Retained earnings................................................................ 97.9 199.9 Accumulated other comprehensive income........................................... (59.3) (120.3) Less cost of shares of common stock in treasury - 1.2 and 1.1 shares at June 30, 2002 and December 31, 2001, respectively....................................... (17.8) (17.5) ----------------- ----------------- Total stockholders' equity................................................... 712.8 595.4 ----------------- ----------------- Total liabilities and stockholders' equity............................................ $ 2,671.8 $ 2,387.0 ================= =================
The accompanying notes are an integral part of these financial statements. 4
TEREX CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited) (in millions) For the Six Months Ended June 30, --------------------------- 2002 2001 -------------- ----------- Operating Activities Net income (loss)............................................................. $ (102.0) $ 22.1 Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities: Depreciation............................................................. 15.7 11.0 Amortization............................................................. 2.8 8.4 Impairment charges and asset write downs................................. 140.8 --- Restructuring charges.................................................... 3.5 --- Gain on foreign exchange currency futures................................ (3.8) --- Extraordinary loss on retirement of debt................................. --- 2.3 Gain on sale of fixed assets............................................. --- (0.7) Changes in operating assets and liabilities (net of effects of acquisitions): Trade receivables...................................................... (90.0) (25.3) Inventories............................................................ (14.2) (69.9) Trade accounts payable................................................. 79.9 4.5 Other, net............................................................. (24.1) (42.1) -------------- ------------- Net cash provided by (used in) operating activities................. 8.6 (89.7) -------------- ------------- Investing Activities Acquisition of businesses, net of cash acquired............................... (89.5) (7.7) Capital expenditures.......................................................... (10.1) (7.3) Proceeds from sale of assets.................................................. 2.6 3.4 -------------- ------------- Net cash used in investing activities............................... (97.0) (11.6) -------------- ------------- Financing Activities Issuance of common stock...................................................... 113.3 --- Proceeds from issuance of long-term debt, net of issuance costs............... --- 287.9 Principal borrowing (repayments) of long-term debt............................ 0.7 (194.2) Net borrowings (repayments) under revolving line of credit agreements......... 0.2 27.8 Other......................................................................... (0.4) (0.8) -------------- ------------- Net cash provided by financing activities........................... 113.8 120.7 -------------- ------------- Effect of Exchange Rate Changes on Cash and Cash Equivalents..................... 5.1 (2.3) -------------- ------------- Net Increase in Cash and Cash Equivalents........................................ 30.5 17.1 Cash and Cash Equivalents at Beginning of Period................................. 250.4 181.4 -------------- ------------- Cash and Cash Equivalents at End of Period....................................... $ 280.9 $ 198.5 ============== =============
The accompanying notes are an integral part of these financial statements. 5 TEREX CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2002 (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 June 30, 2002 and for the three months and six months ended June 30, 2002 and 2001 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, 2001 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 and six months ended June 30, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. 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, 2001. Cash and cash equivalents at June 30, 2002 and December 31, 2001 include $1.9 and $7.6, respectively, which was not immediately available for use. 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 in 2002. 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 becomes effective for certain leasing transactions occurring after May 15, 2002 and shall be applied by the Company from January 1, 2003 with respect to reporting gains and losses from extinguishments of debt. The Company is currently evaluating the provisions of SFAS No. 145 to determine its impact on the Company's financial statements. SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," was issued in June 2002. SFAS No. 146 becomes 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 current accounting principles, a liability for an exit cost is recognized at the date of an entity's commitment to an exit plan. The Company is currently evaluating the provisions of SFAS No. 146 to determine its impact on the Company's financial statements. NOTE B -- ACQUISITIONS On January 14, 2002, the Company completed the acquisition of the Schaeff Group of Companies ("Schaeff"). Schaeff is a German manufacturer of compact construction equipment and a full range of scrap material handlers. Schaeff's annual revenues for 2001 were approximately $220. Total cash consideration paid for Schaeff was approximately $62, subject to adjustment. In a separate transaction, certain former shareholders of Schaeff purchased approximately 1.3 million shares of Common Stock from the Company in January 2002 for approximately $23. On January 15, 2002, the Company completed the acquisition of Utility Equipment, Inc., which does business as Pacific Utility Equipment Co. ("Utility Equipment"). Utility Equipment, headquartered in Oregon with locations in various states, distributes, assembles, rents and provides service of products for the utility, telecommunications and municipal markets. In connection with 6 the acquisition, the Company issued approximately 455 thousand shares of Common Stock, subject to adjustment. On March 26, 2002, the Company acquired EPAC Holdings, Inc., which does business under the names Telelect East and Eusco ("EPAC"). EPAC, headquartered in Tennessee 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 300 thousand shares of Common Stock and $1.1 cash. On April 11, 2002, the Company acquired certain assets and liabilities of Advance Mixer, Inc. ("Advance Mixer") in the bankruptcy proceedings of Advance Mixer for $12.5 cash. Advance Mixer manufactures and markets cement mixer trucks at its facilities in Fort Wayne, Indiana. On May 17, 2002, the Company announced that it had entered into an agreement to acquire Demag Mobile Cranes GmbH & Co. KG ("Demag") for approximately 160 million Euros. Demag, headquartered in Zweibrucken, Germany, manufactures and distributes telescopic and lattice boom cranes, and had 2001 revenues of approximately $360. The transaction is subject to customary closing conditions, including regulatory approval, and is anticipated to close in the third quarter of 2002. See Note M - - " Subsequent Events" for information on the Company's announcement to acquire Genie Holdings, Inc. The operating results of the acquired businesses are included in the Company's consolidated results of operations since their respective dates of acquisition. 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 $10.7 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. The Company's initial impairment test was required to be performed on all reporting units by June 30, 2002. 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. Under the SFAS No. 142 approach, the Company estimated the fair value of each of its reporting units using a discounted cash flow methodology and utilized the assistance of independent valuation experts to fair value the tangible and intangible assets. As a result, an impairment loss of $132.2 ($124.1, net of income taxes) was recorded in the first quarter of 2002. This charge relates to the Company's following reporting units: Mining Group (Terex Mining Segment) $105.7 ($105.7, net of income taxes), Light Construction Group (Terex Americas Segment) $26.2 ($18.1, net of income taxes) and EarthKing Subsidiary (Terex Americas Segment) $0.3 ($0.3, net of income taxes). The adjustment from the adoption of SFAS No. 142 has been recorded as a cumulative effect of change in accounting principle adjustment as of January 1, 2002. The charge associated with the adoption of SFAS No. 142 takes into account the current economic conditions in these industries as well as management's estimates for the future. The write-down for the Mining Group relates primarily to the underperformance of the mining truck business. The write-down in the Light Construction Group relates to the difficult market conditions of that 7 business, management will continue to evaluate the long-term strategic role of this operation. The write-down for the EarthKing Subsidiary relates to the underperformance of the underlying businesses. The table below illustrates the Company's reported results after applying SFAS No. 142.
For the Three Months For the Six Months Ended June 30, Ended June 30, ------------------------- ------------------------- 2002 2001 2002 2001 ------------ ------------ ----------- ------------ Goodwill amortization......................................... $ --- $ 3.0 $ --- $ 6.2 ============ ============ =========== ============ Reported net income (loss).................................... $ 5.2 $ 12.0 $ (102.0) $ 22.1 Add back: Goodwill amortization, net of income taxes.......... --- 2.0 --- 4.2 ------------ ------------ ----------- ------------ Adjusted net income (loss).................................... $ 5.2 $ 14.0 $ (102.0) $ 26.3 ============ ============ =========== ============ Per common share: Basic: Reported net income (loss)................................ $ 0.12 $ 0.45 $ (2.52) $ 0.82 Add back: Goodwill amortization, net of income taxes...... --- 0.07 --- 0.16 ------------ ------------ ----------- ------------ Adjusted net income (loss)................................ $ 0.12 $ 0.52 $ (2.52) $ 0.98 ============ ============ =========== ============ Diluted: Reported net income (loss)................................ $ 0.12 $ 0.43 $ (2.48) $ 0.80 Add back: Goodwill amortization, net of income taxes...... --- 0.07 --- 0.15 ------------ ------------ ----------- ------------ Adjusted net income (loss)................................ $ 0.12 $ 0.50 $ (2.48) $ 0.95 ============ ============ =========== ===========
An analysis of changes in the Company's goodwill by business segment is as follows: Terex Americas Terex Europe Terex Mining Total ---------- ------------ ------------ --------- Balance at December 31, 2001..... $ 238.5 $ 281.9 $ 99.7 $ 620.1 Impairment due to adoption of SFAS No. 142................... (26.5) --- (105.7) (132.2) Write-off of negative goodwill due to adoption of SFAS No. 142........................ --- 10.7 --- 10.7 Acquisitions..................... 33.2 40.2 --- 73.4 Other............................ 3.4 15.0 6.0 24.4 ---------- ------------ ------------ -------- Balance at June 30, 2002......... $ 248.6 $ 347.8 $ --- $ 596.4 ========== ============ ============ ======== Other includes changes due to foreign exchange rates and disposals of assets. NOTE D -- DERIVATIVE FINANCIAL INSTRUMENTS Effective January 1, 2001, the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," and its related amendment, SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities." These standards require that all derivative financial instruments be recorded on the consolidated balance sheet at their fair value as either assets or liabilities. Changes in the fair value of derivatives will be recorded each period in earnings or accumulated other comprehensive income, depending on whether a derivative is designated and effective as part of a hedge transaction and, if it is, the type of hedge transaction. Gains and losses on derivative instruments reported in accumulated other comprehensive income will be included in earnings in the periods in which earnings are affected by the hedged item. As of January 1, 2001, the adoption of these new standards resulted in no cumulative effect of an accounting change on net earnings. The cumulative effect of the accounting change increased accumulated other comprehensive income by $0.9, net of income taxes. Prior years' financial statements were not restated for this change. 8 Under SFAS No. 133, 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. 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 inter-company 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 U.S. prime rate and 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 has entered into interest rate swap agreements that effectively convert variable rate interest payments into fixed rate interest payments. At June 30, 2002, the Company had $65.0 notional amount of these interest rate swap agreements outstanding, all of which mature in 2002. The fair market value of these swaps at June 30, 2002 was a loss of $0.7. These swap agreements have been designated as, and are effective as, cash flow hedges of outstanding debt instruments. During the three months and six months ended June 30, 2002 and 2001, 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 convert fixed rated interest payments into variable rate interest payments. At June 30, 2002, the Company had $429.0 notional amount of such interest rate swap agreements outstanding, all of which mature in 2006 through 2011. The fair market value of these swaps at June 30, 2002 was a gain of $3.7 which is recorded in other non-current assets and is offset by a $3.7 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 June 30, 2002, the Company had $146.4 of notional amount of currency exchange forward contracts outstanding, all of which mature in 2002. The fair market value of these swaps at June 30, 2002 was a gain of $10.0. A portion of these swap agreements ($67.1) have been designated as, and are effective as, cash flow hedges of specifically identified assets and liabilities. The remaining $79.3 represents a foreign currency exchange forward contract entered into to hedge a portion of the purchase price of Demag. The purchase price for Demag is denominated in Euros. The Company has recorded a gain of $5.5 in the second quarter of 2002 related to this transaction since it does not qualify as a hedge under SFAS No. 133. 9 During the three months and six months ended June 30, 2002 and 2001, 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 June 30, 2002, the fair value of all derivative instruments has been recorded in the Condensed Consolidated Balance Sheet as a net asset of $13.0. Counterparties to interest rate derivative contracts and currency exchange forward contracts are major financial institutions with credit ratings of investment grade or better and no collateral is required. There are no significant risk concentrations. Management believes the risk of incurring losses on derivative contracts related to credit risk is remote and any losses would be immaterial. Unrealized net gains (losses) included in Other Comprehensive Income are as follows: Three Months Ended Six Months Ended June 30, June 30, -------------------- --------------------- 2002 2001 2002 2001 ---------- --------- ---------- ---------- Balance at beginning of period (upon adoption of SFAS No. 133 for 2001)..$ (0.9) $ (2.1) $ (0.8) $ 0.9 Additional gains (losses)............. 0.2 0.4 --- (2.6) Amounts reclassified to earnings...... 1.3 0.4 1.4 0.4 ---------- --------- ---------- ---------- Balance at end of period..............$ 0.6 $ (1.3) $ 0.6 $ (1.3) ========== ========= ========== ========== For further information on accounting policies related to derivative financial instruments, refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2001. NOTE E -- RESTRUCTURING AND OTHER CHARGES In the first quarter of 2002, the Company recorded a charge of $1.2 in connection with the relocation of the Cedarapids hot mix asphalt plant facility to the Company's Oklahoma City facility. Approximately $0.7 of this charge relates to severance costs, with the remainder related to non-cash closure costs. Approximately 92 employees were terminated in connection with this action. As of June 30, 2002, $0.7 of expense had been incurred in connection with this action. In the second quarter of 2002, the Company announced that its mining truck production facility in Tulsa, Oklahoma would be closed. The Company recorded a charge of $4.2 related to the Tulsa closure. Approximately $1.0 of this charge relates 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 remainder of the cost accrued relates to the Tulsa building closure costs and occupancy costs expected to be incurred after production is ended. Approximately 93 positions will be eliminated as a result of this action. The Company also recorded a charge of $0.9 in the second quarter of 2002 in connection with an adjustment to the Cedarapids workforce to implement a more variable cost-oriented business structure. The charge recorded in connection with the Cedarapids restructuring is for employee severance costs. Approximately 42 employees are being terminated as a result of this action. The Tulsa and Cedarapids restructurings are both expected to be completed by December 31, 2002. During the third and fourth quarters of 2001, the Company recorded $29.9 of restructuring costs in connection with the consolidation of seven facilities throughout the world and headcount reductions of approximately 725 employees. The majority of the effected facilities have been closed as of June 30, 2002. As of June 30, 2002 the Company's future cash payments related to 2001 and 2002 restructuring initiatives are approximately $9.9 and all cash payments are expected to be made by the end of 2002. Given the performance of the Light Construction Group and management's projections of the future results, the Company performed a review under SFAS No. 144. SFAS No. 144 provides new guidance on the recognition of impairment losses on long-lived assets to be held and used. The result of this review was a write-down of fixed assets within the Light Construction Group, a component of the Terex Americas Segment. A charge of $7.9 ($5.4, net of tax) was recorded in the second quarter of 2002 in connection with this write-down. Additionally, the Company wrote down the value of notes receivable and certain investments in its European Lifting business. This write down reflects current market conditions and management's future expectation of cash flows from the underlying assets. Net of tax, a write-down of $8.4 was recorded in the second quarter of 2002. In the second quarter of 2002, the Company wrote down certain 10 investments it held in technology businesses related to its EarthKing subsidiary. These investments were no longer economically viable and resulted in a write-down of $1.8, net of tax. This write-down, as well as the write down related to the European Lifting business, were reported in "Other income (expense) - net." NOTE F -- INVENTORIES Inventories consist of the following: June 30, December 31, 2002 2001 ---------------- --------------- Finished equipment............................ $ 238.1 $ 236.4 Replacement parts............................. 222.5 195.0 Work-in-process............................... 138.9 90.5 Raw materials and supplies.................... 181.1 182.9 ---------------- --------------- Inventories................................... $ 780.6 $ 704.8 ================ =============== NOTE G -- PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of the following: June 30, December 31, 2002 2001 ---------------- --------------- Property....................................... $ 31.3 $ 20.9 Plant.......................................... 113.0 108.9 Equipment...................................... 131.6 126.9 ---------------- --------------- 275.9 256.7 Less: Accumulated depreciation................ (96.7) (82.8) ---------------- --------------- Net property, plant and equipment.............. $ 179.2 $ 173.9 ================ =============== 11 NOTE H -- EARNINGS PER SHARE
Three Months Ended June 30, (in millions, except per share data) --------------------------------------------------------------------- 2002 2001 ---------------------------------- ---------------------------------- Per-Share Per-Share Income Shares Amount Income Shares Amount ---------- ---------- ------------ ---------- ----------- ----------- Basic earnings per share Income before extraordinary items.... $ 5.2 42.7 $ 0.12 $ 12.0 26.9 $ 0.45 Effect of dilutive securities Stock Options........................ --- 0.9 --- 0.8 Equity Rights........................ --- --- --- 0.1 --------- ---------- --------- ---------- Income before extraordinary items - diluted............................ $ 5.2 43.6 $ 0.12 $ 12.0 27.8 $ 0.43 ========= ========== ============ ========= ============ ==========
Six Months Ended June 30, (in millions, except per share data) -------------------------------------------------------------------- 2002 2001 ---------------------------------- --------------------------------- Per-Share Per-Share Income Shares Amount Income Shares Amount ---------- ---------- ------------ ---------- ----------- ---------- Basic earnings per share Income before extraordinary items... $ 11.4 40.4 $ 0.28 $ 24.4 26.8 $ 0.91 Effect of dilutive securities Stock Options....................... --- 0.8 --- 0.7 Equity Rights....................... --- --- --- 0.1 --------- ---------- ----------- ---------- Income before extraordinary items - diluted........................... $ 11.4 41.2 $ 0.28 $ 24.4 27.6 $ 0.88 ========= ========== =========== =========== =========== ==========
Options to purchase 367 thousand, 556 thousand, 530 thousand and 548 thousand shares of common stock were outstanding during the three months and six months ended June 30, 2002 and 2001, respectively, but were not included in the computation of diluted earnings per share because the exercise price of these options was greater than the average market price of the common stock and, therefore, the effect would be anti-dilutive. NOTE I -- 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, deferred gains and losses resulting from derivative hedging transactions and minimum pension liability adjustments. Total non-shareowner changes in equity were as follows.
For the Three Months For Six Months Ended June 30, Ended June 30, -------------------------------- --------------------------- 2002 2001 2002 2001 --------------- ---------------- ------------- ------------- Net income (loss).............................$ 5.2 $ 12.0 $ (102.0) $ 22.1 Other comprehensive income: Translation adjustment................... 59.5 (11.3) 53.6 (49.5) Pension liability adjustment............. --- --- --- --- Derivative hedging adjustment............ 1.5 0.8 1.4 (1.3) --------------- ---------------- ------------- ------------- Comprehensive income(loss)....................$ 66.2 $ 1.5 $ (47.0) (28.7) =============== ================ ============= =============
On April 23, 2002, the Company issued 5.3 million shares of its Common Stock in a public offering with net proceeds to the Company of $113.3. 12 NOTE J -- LITIGATION AND CONTINGENCIES In the Company's lines of business numerous suits have been filed alleging damages for accidents that have arisen in the normal course of operations involving the Company's products. The Company is self-insured, up to certain limits, for these product liability exposures, as well as for certain exposures related to general, workers' compensation and automobile liability. Insurance coverage is obtained for catastrophic losses as well as those risks required to be insured by law or contract. The Company has recorded and maintains an estimated liability in the amount of management's estimate of the Company's aggregate exposure for such self-insured risks. The Company is involved in various other legal proceedings which have arisen in the normal course of its operations. The Company has recorded provisions for estimated losses in circumstances where a loss is probable and the amount or range of possible amounts of the loss is estimable. The Company's outstanding letters of credit totaled $54.1 at June 30, 2002. 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 previously reported that it was a party to an action commenced in the United States District Court for the District of Delaware by the End of the Road Trust, a creditor liquidating trust formed to liquidate the assets of Fruehauf Trailer Corporation ("Fruehauf"), a former subsidiary of the Company and currently a reorganized debtor in bankruptcy, and Pension Transfer Corporation, as sponsor and administrator for certain Fruehauf pension plans against the Company and certain former officers and directors of Fruehauf and Terex. This matter has been resolved and the action has been dismissed. 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. The Company is a defendant in an action commenced in the United States District Court for the Southern District of Florida, Miami Division, in which the plaintiff alleges that ownership of O&K Orenstein & Koppel AG ("O&K AG") was illegally taken from the plaintiff's ancestors by German industry during the Nazi era. The plaintiff alleges that the Company is liable for conversion and unjust enrichment as the result of its purchase of the shares of its mining shovel subsidiary, O&K Mining GmbH, from O&K AG, and is claiming a return of a 25% interest in O&K Mining GmbH and monetary damages. The Company believes that the action is without merit as to the Company. As of the date hereof, the Company has not filed an answer in the action and the plaintiff is considering a request to dismiss the Company from the action. The Company has made a claim for indemnification with respect to the action pursuant to the Share Purchase Agreement dated December 18, 1997 between the Company and O&K AG. In addition, the United States Department of Justice has filed a Statement of Interest in the action that recommends dismissal of the action for foreign policy interests of the United States. NOTE K -- BUSINESS SEGMENT INFORMATION 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 has operated in three business segments: (i) Terex Americas; (ii) Terex Europe; and (iii) Terex Mining. Previously, the Company had reported its operations as Terex Earthmoving and Terex Lifting. All prior periods have been restated to reflect results based on these three business segments. Terex Americas includes the results of all business units located in North and South America, Australia and Asia, with the exception of those business units included within Terex Mining. Terex Europe includes the results of all business units located in Europe with the exception of those business units included within Terex Mining. Terex Mining includes the results of the Terex Mining operations in Tulsa, Oklahoma, the O&K Mining business located in Dortmund, Germany and Terex Mining sales offices in Australia, South America and Africa. 13 Included in Eliminations/Corporate are the eliminations among the three segments, as well as general and corporate items for the three months and six months ended June 30, 2002 and 2001. Business segment information is presented below:
Three Months Ended Six Months Ended June 30, June 30, --------------------------------------------------------- 2002 2001 2002 2001 ------------- -------------- ------------ ------------- Sales Terex Americas..................................... $ 322.8 $ 235.5 $ 612.8 $ 473.8 Terex Europe....................................... 386.6 231.0 680.7 454.9 Terex Mining....................................... 73.2 30.7 138.5 91.7 Eliminations/Corporate............................. (92.4) (57.9) (159.8) (103.7) -------------- -------------- ------------- ------------- Total............................................ $ 690.2 $ 439.3 $ 1,272.2 $ 916.7 ============== ============== ============= ============= Income (Loss) from Operations Terex Americas..................................... $ 15.0 $ 17.8 $ 28.9 $ 36.9 Terex Europe....................................... 28.5 23.2 46.7 39.2 Terex Mining....................................... (3.1) (0.9) (1.5) 2.1 Eliminations/Corporate............................. (1.8) (0.9) (4.0) (1.0) -------------- -------------- ------------- ------------- Total............................................ $ 38.6 $ 39.2 $ 70.1 $ 77.2 ============== ============== ============= =============
June 30, December 31, 2002 2001 --------------- --------------- Identifiable Assets Terex Americas................................ $ 975.5 $ 855.9 Terex Europe.................................. 1,531.7 1,183.1 Terex Mining.................................. 269.1 386.0 Corporate..................................... 931.3 825.2 Eliminations.................................. (1,035.8) (863.2) --------------- --------------- Total....................................... $ 2,671.8 $ 2,387.0 =============== =============== NOTE L -- CONSOLIDATING FINANCIAL STATEMENTS 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 June 30, 2002, 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., 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. and CMI Terex Corporation. As of June 30, 2002, the 10-3/8% Notes and the 8-7/8% Notes are also jointly and severally guaranteed by PPM Cranes, Inc., which is 92.4% owned by Terex. No subsidiaries of the Company except the Wholly-owned Guarantors and PPM Cranes, Inc. have provided a guarantee of the 10-3/8% Notes and the 8-7/8% Notes. No subsidiaries of the Company except the Wholly-owned Guarantors have provided a guarantee of 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. and the Non-guarantor Subsidiaries. Terex Corporation consists of parent company operations. Subsidiaries of the parent company are reported on the equity basis. 14 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. 15
TEREX CORPORATION CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2002 (in millions) Wholly- Non- Terex owned PPM guarantor Intercompany Corporation Guarantors Cranes, Inc. Subsidiaries Eliminations Consolidated ------------- ------------- ------------- ------------- ------------- ------------- Net sales............................... $ 57.2 $ 220.7 $ 5.1 $ 486.0 $ (78.8) $ 690.2 Cost of goods sold................... 57.5 204.0 4.8 390.0 (78.0) 578.3 ------------- ------------- ------------- ------------- ------------- ------------- Gross profit............................ (0.3) 16.7 0.3 96.0 (0.8) 111.9 Selling, general & administrative expenses........................... 6.0 21.1 0.4 45.8 --- 73.3 ------------- ------------- ------------- ------------- ------------- ------------- Income (loss) from operations........... (6.3) (4.4) (0.1) 50.2 (0.8) 38.6 Interest income....................... 1.1 --- --- 1.0 --- 2.1 Interest expense...................... (1.9) (6.2) (0.7) (13.8) --- (22.6) Income (loss) from equity investees... 22.2 --- --- --- (22.2) --- Other income (expense) - net.......... (20.0) 11.8 --- (2.2) --- (10.4) ------------- ------------- ------------- ------------- ------------- ------------- Income (loss) before income taxes and (4.9) 1.2 (0.8) 35.2 (23.0) 7.7 extraordinary items................... Provision for income taxes............ (0.3) (0.1) --- (2.1) --- (2.5) ------------- ------------- ------------- ------------- ------------- ------------- Income (loss) before extraordinary items (5.2) 1.1 (0.8) 33.1 (23.0) 5.2 Extraordinary loss on retirement of debt --- --- --- --- --- --- Cumulative effect of change in accounting principle................. --- --- --- --- --- --- ------------- ------------- ------------- ------------- ------------- ------------- Net income (loss)....................... $ (5.2) $ 1.1 $ (0.8) $ 33.1 $ (23.0) $ 5.2 ============= ============= ============= ============= ============= =============
TEREX CORPORATION CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2001 (in millions) Wholly- Non- Terex owned PPM guarantor Intercompany Corporation Guarantors Cranes, Inc. Subsidiaries Eliminations Consolidated ------------- ------------- ------------- ------------- ------------- ------------- Net sales............................... $ 32.2 $ 128.5 $ 14.3 $ 305.2 $ (40.9) $ 439.3 Cost of goods sold................... 32.3 104.0 11.7 252.0 (40.9) 359.1 ------------- ------------- ------------- ------------- ------------- ------------- Gross profit............................ (0.1) 24.5 2.6 53.2 --- 80.2 Selling, general & administrative expenses........................... 4.6 8.4 3.4 24.6 --- 41.0 ------------- ------------- ------------- ------------- ------------- ------------- Income (loss) from operations........... (4.7) 16.1 (0.8) 28.6 --- 39.2 Interest income....................... 0.7 --- --- 1.1 --- 1.8 Interest expense...................... (7.2) (3.6) (1.2) (11.2) --- (23.2) Income (loss) from equity investees... 24.2 --- --- --- (24.2) --- Other income (expense) - net.......... 0.2 (0.2) (0.1) --- --- (0.1) ------------- ------------- ------------- ------------- ------------- ------------- Income (loss) before income taxes and extraordinary items................... 13.2 12.3 (2.1) 18.5 (24.2) 17.7 Provision for income taxes............ (1.2) (0.4) --- (4.1) --- (5.7) ------------- ------------- ------------- ------------- ------------- ------------- Income (loss) before extraordinary items................................... 12.0 11.9 (2.1) 14.4 (24.2) 12.0 Extraordinary loss on retirement of debt --- --- --- --- --- --- Cumulative effect of change in accounting principle................. --- --- --- --- --- --- ------------- ------------- ------------- ------------- ------------- ------------- Net income (loss)....................... $ 12.0 $ 11.9 $ (2.1) $ 14.4 $ (24.2) $ 12.0 ============= ============= ============= ============= ============= =============
16
TEREX CORPORATION CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS SIX MONTHS ENDED JUNE 30, 2002 (in millions) Wholly- Non- Terex owned PPM guarantor Intercompany Corporation Guarantors Cranes, Inc. Subsidiaries Eliminations Consolidated ------------- ------------- ------------- ------------- ------------- ------------- Net sales............................... $ 127.1 $ 434.4 $ 11.0 $ 847.3 $ (147.6) $ 1,272.2 Cost of goods sold................... 126.1 387.7 10.3 692.5 (147.6) 1,069.0 ------------- ------------- ------------- ------------- ------------- ------------- Gross profit............................ 1.0 46.7 0.7 154.8 --- 203.2 Selling, general & administrative 12.3 39.6 0.8 80.4 --- 133.1 expenses ------------- ------------- ------------- ------------- ------------- ------------- Income (loss) from operations........... (11.3) 7.1 (0.1) 74.4 --- 70.1 Interest income....................... 1.4 --- --- 1.5 --- 2.9 Interest expense...................... (12.4) (8.5) (1.4) (22.3) --- (44.6) Income (loss) from equity investees... (58.2) --- --- --- 58.2 --- Other income (expense) - net.......... (20.7) 11.6 --- (2.5) --- (11.6) ------------- ------------- ------------- ------------- ------------- ------------- Income (loss) before income taxes....... (101.2) 10.2 (1.5) 51.1 58.2 16.8 Provision for income taxes............ (0.8) (0.1) --- (4.5) --- (5.4) ------------- ------------- ------------- ------------- ------------- ------------- Income (loss) before extraordinary items.............................. (102.0) 10.1 (1.5) 46.6 58.2 11.4 Extraordinary loss on retirement of debt --- --- --- --- --- --- Cumulative effect of change in accounting principle ................. --- (18.4) --- (95.0) --- (113.4) ------------- ------------- ------------- ------------- ------------- ------------- Net income (loss)....................... $ (102.0) $ (8.3) $ (1.5) $ (48.4) $ 58.2 $ (102.0) ============= ============= ============= ============= ============= =============
TEREX CORPORATION CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS SIX MONTHS ENDED JUNE 30, 2001 (in millions) Wholly- Non- Terex owned PPM guarantor Intercompany Corporation Guarantors Cranes, Inc. Subsidiaries Eliminations Consolidated ------------- ------------- ------------- ------------- ------------- ------------- Net sales............................... $ 80.4 $ 321.7 $ 26.6 $ 528.9 $ (40.9) $ 916.7 Cost of goods sold................... 79.0 268.0 22.6 429.2 (40.9) 757.9 ------------- ------------- ------------- ------------- ------------- ------------- Gross profit............................ 1.4 53.7 4.0 99.7 --- 158.8 Selling, general & administrative expenses........................... 9.8 19.1 5.6 47.1 --- 81.6 ------------- ------------- ------------- ------------- ------------- ------------- Income (loss) from operations........... (8.4) 34.6 (1.6) 52.6 --- 77.2 Interest income....................... 2.1 0.2 --- 1.5 --- 3.8 Interest expense...................... (11.4) (6.5) (2.8) (23.5) --- (44.2) Income (loss) from equity investees... 45.8 --- -- (0.1) (45.7) --- Other income (expense) - net.......... 0.8 (0.5) (0.1) (1.1) --- (0.9) ------------- ------------- ------------- ------------- ------------- ------------- Income (loss) before income taxes and extraordinary items................... 28.9 27.8 (4.5) 29.4 (45.7) 35.9 Provision for income taxes............ (5.8) (0.4) --- (5.3) --- (11.5) ------------- ------------- ------------- ------------- ------------- ------------- Income (loss) before extraordinary items................................. 23.1 27.4 (4.5) 24.1 (45.7) 24.4 Extraordinary loss on retirement of debt (1.0) (0.6) --- (0.7) --- (2.3) Cumulative effect of change in accounting principle ................. --- --- --- --- --- --- ------------- ------------- ------------- ------------- ------------- ------------- Net income (loss)....................... $ 22.1 $ 26.8 $ (4.5) $ 23.4 $ (45.7) $ 22.1 ============= ============= ============= ============= ============= =============
17
TEREX CORPORATION CONDENSED CONSOLIDATING BALANCE SHEET JUNE 30, 2002 (in millions) Wholly- Non- Terex owned PPM guarantor Intercompany Corporation Guarantors Cranes, Inc. Subsidiaries Eliminations Consolidated ---------------------------- ------------- ------------ ------------- --------------- Assets Current assets Cash and cash equivalents.......... $ 112.8 $ 1.6 $ 0.1 $ 166.4 $ --- $ 280.9 Trade receivables.................. 44.3 134.4 3.3 311.0 --- 493.0 Intercompany receivables........... 9.7 (0.3) 1.3 58.5 (69.2) --- Inventories........................ 88.6 222.8 10.3 457.2 1.7 780.6 Deferred taxes..................... 22.4 0.4 --- 2.5 --- 25.3 Other current assets............... 16.5 1.9 0.1 57.4 --- 75.9 ------------- ------------- ------------- ------------- ------------- ------------- Total current assets............. 294.3 360.8 15.1 1,053.0 (67.5) 1,655.7 Long-term assets Property, plant and equipment...... 8.0 62.9 0.3 108.0 --- 179.2 Investment in and advances to (from) subsidiaries.............. 762.9 (260.8) (1.4) (456.2) (44.5) --- Goodwill........................... 2.7 245.8 10.6 337.3 --- 596.4 Deferred taxes..................... 74.7 8.9 --- 7.1 --- 90.7 Other assets....................... 44.8 52.3 0.7 52.0 --- 149.8 ------------- ------------- ------------- ------------- ------------- ------------- Total assets............................ $ 1,187.4 $ 469.9 $ 25.3 $ 1,101.2 $ (112.0) $ 2,671.8 ============= ============= ============= ============= ============= ============= Liabilities and stockholders' equity (deficit) Current liabilities Notes payable and current portion of long-term debt................ $ 0.1 $ 3.1 $ 0.4 $ 62.2 $ --- $ 65.8 Trade accounts payable............. 33.1 70.7 3.1 305.2 --- 412.1 Intercompany payables.............. 23.1 25.9 0.3 19.9 (69.2) --- Accruals and other current liabilities...................... 79.7 44.5 6.2 163.1 --- 293.5 ------------- ------------- ------------- ------------- ------------- ------------- Total current liabilities........ 136.0 144.2 10.0 550.4 (69.2) 771.4 Non-current liabilities Long-term debt, less current portion 307.4 188.1 62.4 474.2 --- 1,032.1 Other.............................. 31.2 15.4 0.6 108.3 --- 155.5 Stockholders' equity (deficit)....... 712.8 122.2 (47.7) (31.7) (42.8) 712.8 ------------- ------------- ------------- ------------- ------------- ------------- Total liabilities and stockholders' equity (deficit)..................... $ 1,187.4 $ 469.9 $ 25.3 $ 1,101.2 $ (112.0) $ 2,671.8 ============= ============= ============= ============= ============= =============
18
TEREX CORPORATION CONDENSED CONSOLIDATING BALANCE SHEET DECEMBER 31, 2001 (in millions) Wholly- Non- Terex Owned PPM guarantor Intercompany Corporation Guarantors Cranes, Inc. Subsidiaries Eliminations Consolidated ------------- ------------- ------------- ------------- ------------- ------------- Assets Current assets Cash and cash equivalents.......... $ 144.2 $ 3.9 $ 0.1 $ 102.2 $ --- $ 250.4 Trade receivables.................. 23.1 94.6 3.9 229.5 --- 351.1 Intercompany receivables........... 14.2 18.7 --- 66.2 (99.1) --- Net inventories.................... 76.1 254.2 14.5 361.8 (1.8) 704.8 Deferred taxes..................... 22.5 0.4 --- 0.8 --- 23.7 Other current assets............... 13.2 2.7 0.1 37.0 --- 53.0 ------------- ------------- ------------- ------------- ------------- ------------- Total current assets............. 293.3 374.5 18.6 797.5 (100.9) 1,383.0 Property, plant & equipment - net.... 8.4 66.2 0.2 99.1 --- 173.9 Investment in and advances to (from) subsidiaries.............. 647.2 (245.2) (0.2) (295.4) (106.4) --- Goodwill............................. 2.7 252.1 10.6 354.7 --- 620.1 Deferred taxes....................... 74.7 --- --- 0.7 --- 75.4 Other assets......................... 33.4 44.6 0.7 55.9 --- 134.6 ------------- ------------- ------------- ------------- ------------- ------------- Total assets............................ $ 1,059.7 $ 492.2 $ 29.9 $ 1,012.5 $ (207.3) $ 2,387.0 ============= ============= ============= ============= ============= ============= Liabilities and stockholders' equity (deficit) Current liabilities Notes payable and current portion of long-term debt................ $ 0.4 $ 2.6 $ 0.4 $ 31.3 $ --- $ 34.7 Trade accounts payable............. 33.4 54.0 3.3 200.3 --- 291.0 Intercompany payables.............. 23.1 21.1 2.2 52.7 (99.1) --- Accruals and other current 70.3 87.6 7.0 136.5 --- 301.4 liabilities...................... ------------- ------------- ------------- ------------- ------------- ------------- Total current liabilities........ 127.2 165.3 12.9 420.8 (99.1) 627.1 Non current liabilities Long-term debt less current portion 298.6 185.8 62.4 473.9 --- 1,020.7 Other............................. 38.5 10.6 0.8 93.9 --- 143.8 Stockholders' equity (deficit)....... 595.4 130.5 (46.2) 23.9 (108.2) 595.4 ------------- ------------- ------------- ------------- ------------- ------------- Total liabilities and stockholders' equity (deficit)..................... $ 1,059.7 $ 492.2 $ 29.9 $ 1,012.5 $ (207.3) $ 2,387.0 ============= ============= ============= ============= ============= =============
19
TEREX CORPORATION CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 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................. $ (137.4) $ (0.7) $ --- $ 146.7 $ --- $ 8.6 ------------- ------------- ------------- ------------- ------------- ------------- Investing activities Acquisition of businesses, net of cash acquired...................... (7.3) --- --- (82.2) --- (89.5) Capital expenditures................. --- (2.8) --- (7.3) --- (10.1) Proceeds from sale of assets......... --- 2.3 --- 0.3 --- 2.6 ------------- ------------- ------------- ------------- ------------- ------------- Net cash provided by (used in) investing activities........... (7.3) (0.5) --- (89.2) --- (97.0) ------------- ------------- ------------- ------------- ------------- ------------- Financing activities Issuance of common stock ............ 113.3 --- --- --- --- 113.3 Proceeds from issuance of long-term debt, net of issuance costs....... --- --- --- --- --- --- Principal borrowings (repayments) of long-term debt.................... --- --- --- 0.7 --- 0.7 Net borrowings (repayments) under revolving line of credit agreements --- (1.1) --- 1.3 --- 0.2 Other................................ --- --- --- (0.4) --- (0.4) ------------- ------------- ------------- ------------- ------------- ------------- Net cash provided by (used in) financing activities............ 113.3 (1.1) --- 1.6 --- 113.8 ------------- ------------- ------------- ------------- ------------- ------------- Effect of exchange rates on cash and cash equivalents..................... --- --- --- 5.1 --- 5.1 ------------- ------------- ------------- ------------- ------------- ------------- Net increase (decrease) in cash and cash equivalents.......................... (31.4) (2.3) --- 64.2 --- 30.5 Cash and cash equivalents, beginning of period............................... 144.2 3.9 0.1 102.2 --- 250.4 ------------- ------------- ------------- ------------- ------------- ------------- Cash and cash equivalents, end of period........................ $ 112.8 $ 1.6 $ 0.1 $ 166.4 $ --- $ 280.9 ============= ============= ============= ============= ============= =============
20
TEREX CORPORATION CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 2001 (in millions) Wholly- Non- Terex owned PPM guarantor Intercompany Corporation Guarantors Cranes, Inc. Subsidiaries Eliminations Consolidated ----------------------------------------- ------------------------------------------ Net cash provided by (used in) operating activities................. $ (66.1) $ (17.9) $ 0.6 $ (6.3) $ --- $ (89.7) ------------- ------------- ------------- ------------- ------------- ------------- Cash flows from investing activities Acquisition of businesses, net of cash acquired...................... (2.6) --- --- (5.1) --- (7.7) Capital expenditures................. (0.9) (2.7) --- (3.7) --- (7.3) Proceeds from sale of assets......... 0.3 --- --- 3.1 --- 3.4 ------------- ------------- ------------- ------------- ------------- ------------- Net cash provided by (used in) investing activities.............. (3.2) (2.7) --- (5.7) --- (11.6) ------------- ------------- ------------- ------------- ------------- ------------- Cash flows from financing activities Proceeds from issuance of long-term debt, net of issuance costs....... 123.8 74.9 --- 89.2 --- 287.9 Principal repayments of long-term debt (38.5) (53.4) (0.5) (101.8) --- (194.2) Net borrowings (repayments) under revolving line of credit agreements --- --- --- 27.8 --- 27.8 Other................................ (0.2) (0.1) --- (0.5) --- (0.8) ------------- ------------- ------------- ------------- ------------- ------------- Net cash provided by (used in) financing activities............. 85.1 21.4 (0.5) 14.7 --- 120.7 ------------- ------------- ------------- ------------- ------------- ------------- Effect of exchange rates on cash and cash equivalents..................... --- --- --- (2.3) --- (2.3) ------------- ------------- ------------- ------------- ------------- ------------- Net increase (decrease) in cash and cash equivalents.......................... 15.8 0.8 0.1 0.4 --- 17.1 Cash and cash equivalents, beginning of period............................... 108.7 0.3 0.1 72.3 --- 181.4 ------------- ------------- ------------- ------------- ------------- ------------- Cash and cash equivalents, end of period........................ $ 124.5 $ 1.1 $ 0.2 $ 72.7 $ --- $ 198.5 ============= ============= ============= ============= ============= =============
21 NOTE M - SUBSEQUENT EVENTS 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 of term debt maturing in June 2009 and a revolving credit facility of $300 that is available through June 2007. The facility also includes provisions for an additional $250 of term borrowing by the Company on terms similar to the current term loan debt under the facility. As part of the revised credit agreement, amendments were made to certain covenants and other provisions to allow the Company greater flexibility. On July 19, 2002, the Company announced it had signed an Agreement and Plan of Merger with Genie Holdings, Inc. ("Genie"), a global manufacturer of aerial work platforms with 2001 revenues of approximately $575. The purchase consideration will be $75, consisting of approximately $65 in Terex common stock and $10 in cash, subject to adjustment. In addition, the Company will assume and refinance approximately $195 of Genie's debt. In accordance with the agreement, the exchange ratio of Terex common shares for Genie shares will be based upon the average closing price for Terex common stock for the ten consecutive trading days prior to the closing date. Based on the share price of Terex common stock on the date of the agreement, the Company would issue approximately 3.2 million shares of its common stock to the Genie shareholders. The transaction is subject to customary closing conditions, including regulatory approval, and is anticipated to close in the third quarter of 2002. 22 PPM CRANES, INC. CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (unaudited) (in millions)
For the Three Months Ended For the Six Months June 30, Ended June 30, --------------------------- ---------------------------- 2002 2001 2002 2001 ------------- ------------ ------------- ------------- Net sales............................................$ 5.1 $ 14.3 $ 11.0 $ 26.6 Cost of goods sold................................... 4.8 11.7 10.3 22.6 ------------- ------------- ------------- -------------- Gross profit.................................... 0.3 2.6 0.7 4.0 Selling, general and administrative expenses......... 0.4 3.4 0.8 5.6 ------------- ------------- ------------- -------------- Income (loss) from operations................... (0.1) (0.8) (0.1) (1.6) Other income (expense): Interest expense................................ (0.7) (1.2) (1.4) (2.8) Amortization of debt issuance costs............. --- (0.1) --- (0.1) ------------- ------------- ------------- ------------- Loss before income taxes............................. (0.8) (2.1) (1.5) (4.5) Provision for income taxes........................... --- --- --- --- ------------- ------------- ------------- ------------- Net loss.............................................$ (0.8) $ (2.1) $ (1.5) $ (4.5) ============= ============= ============= ==============
The accompanying notes are an integral part of these financial statements. 23
PPM CRANES, INC. CONDENSED CONSOLIDATED BALANCE SHEET (in millions, except share amounts) June 30, December 31, 2002 (unaudited) 2001 ---------------- --------------- ASSETS Current assets: Cash and cash equivalents........................................... $ 0.1 $ 0.1 Trade accounts receivables (net of allowance of $0.6 at June 30, 2002 and $0.7 at December 31, 2001)............................... 3.3 3.9 Inventories......................................................... 10.3 14.5 Due from affiliates................................................. 1.3 0.7 Other current assets ............................................... 0.1 0.1 ---------------- ----------------- Total current assets.............................................. 15.1 19.3 Long-term assets: Property, plant and equipment....................................... 0.3 0.3 Goodwill............................................................ 10.6 10.6 Other assets........................................................ 0.7 0.7 ---------------- ----------------- Total assets........................................................... $ 26.7 $ 30.9 ================ ================= LIABILITIES AND SHAREHOLDERS' DEFICIT Current liabilities: Trade accounts payable.............................................. $ 3.1 $ 3.3 Accrued warranties and product liability............................ 4.1 4.8 Accrued expenses.................................................... 2.1 2.4 Due to affiliates................................................... 0.3 2.2 Due to Terex Corporation............................................ 1.4 0.9 Current portion of long-term debt................................... 0.4 0.4 ---------------- ----------------- Total current liabilities......................................... 11.4 14.0 Non-current liabilities: Long-term debt, less current portion................................ 62.4 62.4 Other............................................................... 0.6 0.7 Commitments and contingencies Shareholders' deficit Common stock, Class A, $.01 par value - authorized 8,000 shares; issued and outstanding 5,000 shares...... --- --- Common stock, Class B, $.01 par value - authorized 2,000 shares; issued and outstanding 413 shares........ --- --- Accumulated deficit................................................. (47.7) (46.2) ---------------- ----------------- Total shareholders' deficit...................................... (47.7) (46.2) ---------------- ----------------- Total liabilities and shareholders' deficit............................ $ 26.7 $ 30.9 ================ =================
The accompanying notes are an integral part of these financial statements. 24 PPM CRANES, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited) (in millions)
For the Six Months Ended June 30, -------------------------- 2002 2001 ------------- ------------ OPERATING ACTIVITIES Net loss..................................................................... $ (1.5) $ (4.5) Adjustments to reconcile net loss to cash provided by operating activities: Depreciation and amortization............................................ --- 0.8 Changes in operating assets and liabilities: Trade accounts receivable.............................................. 0.6 (2.8) Inventories............................................................ 4.2 (3.3) Trade accounts payable................................................. (0.2) 0.6 Net amounts due to affiliates.......................................... (1.9) 9.5 Other, net............................................................. (1.2) 0.3 ------------- -------------- Net cash provided by operating activities............................ --- 0.6 ------------- -------------- INVESTING ACTIVITIES Net cash used in investing activities...................................... --- --- ------------- -------------- FINANCING ACTIVITIES Principal repayments of long-term debt..................................... --- (0.5) ------------- -------------- Net cash used in financing activities................................... --- (0.5) EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS.................................................... --- --- ------------- -------------- NET INCREASE IN CASH AND CASH EQUIVALENTS....................................... --- 0.1 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD................................ 0.1 0.1 ------------- -------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD...................................... $ 0.1 $ 0.2 ============= ==============
The accompanying notes are an integral part of these financial statements. 25 PPM CRANES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2002 (unaudited) (dollar amounts in millions, unless otherwise noted) NOTE 1 -- Description of the Business and Basis of Presentation PPM Cranes, Inc. (the "Company" or "PPM") is engaged in the design, manufacture, marketing and worldwide distribution and support of construction equipment, primarily hydraulic cranes and related spare parts. On May 9, 1995, Terex Corporation, through its wholly-owned subsidiary Terex Cranes, Inc., a Delaware corporation, completed the acquisition of all of the capital stock of Legris Industries, Inc., a Delaware corporation, which then owned 92.4% of the capital stock of PPM Cranes, Inc. The condensed consolidated financial statements reflect Terex Corporation's basis in the assets and liabilities of the Company which was accounted for as a purchase transaction. As a result, the debt and goodwill associated with the acquisition have been "pushed down" to the Company's financial statements. In the opinion of management, all adjustments considered necessary for a fair statement have been made. Such adjustments consist only of those of a normal recurring nature. Operating results for the three months and six months ended June 30, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. For further information, refer to the Company's consolidated financial statements and footnotes thereto for the year ended December 31, 2001. The condensed consolidated financial statements include the accounts of the Company and its wholly owned inactive subsidiary, PPM Far East Pte. Ltd. All material intercompany transactions and profits have been eliminated. NOTE 2 - 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. 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, effective January 1, 2002, goodwill is no longer being amortized. Under this standard, goodwill and indefinite life intangible assets are to be reviewed for impairment at least annually and written down in the period in which the recorded value of such assets exceed their fair value. The Company's initial impairment test was required to be performed by June 30, 2002. Under the transitional provisions of SFAS No. 142, the Company performed its impairment tests on the net goodwill and other intangible assets, using a valuation date of January 1, 2002. As a result of the tests, no impairment loss was recorded. During the three months and six months ended June 30, 2001, the Company recorded goodwill amortization expense of $0.3 and $0.6, respectively. The Company's net loss for the three months and six months ended June 30, 2001 excluding amortization of goodwill was $1.8 and $3.9, respectively. NOTE 3 - RESTRUCTURING AND OTHER CHARGES During the third quarter of 2001, Terex Corporation announced that a number of its production facilities would be consolidated, some facilities would be closed (including PPM's Conway facility) and that other additional non-recurring expenses would be incurred. These actions were designed to maximize factory utilization by taking advantage of recently acquired factories and to leverage common purchasing, engineering and marketing operations. The PPM facility closed in the first quarter of 2002 and production was relocated to the Terex Corporation facility in Waverly, Iowa. 26 PPM recorded costs of $2.7 during 2001 for severance and closing costs related to these actions as well as other non-recurring expenses. The severance costs, totaling $0.5, were for the elimination of approximately 42 positions in connection with the plant closure. Other costs, totaling $2.2, include asset write-offs and plant closing costs of which approximately $1.4 represents non-cash charges. As of June 30, 2002, all of these costs have been accrued; cash payments took place primarily in the fourth quarter of 2001 and were completed during the first quarter of 2002. NOTE 4 -- Inventories Inventories consist of the following: June 30, December 31, 2002 2001 ----------------- ---------------- Finished equipment..................... $ 1.1 $ 4.5 Replacement parts...................... 5.3 5.9 Work in process........................ 0.2 1.2 Raw materials and supplies............. 3.7 2.9 ---------------- ----------------- Inventories............................ $ 10.3 $ 14.5 ================ ================= note 5 -- Property, Plant and Equipment Property, plant and equipment consists of the following: June 30, December 31, 2002 2001 ----------------- ---------------- Property, plant and equipment.............. $ 0.8 $ 0.8 Less: Accumulated depreciation............ (0.5) (0.5) ----------------- ---------------- Net property, plant and equipment.......... $ 0.3 $ 0.3 ================= ================ NOTE 6 - COMMITMENTS AND Contingencies The Company is involved in product liability and other lawsuits incident to the operation of its business. Insurance with third parties is maintained for certain of these items. It is management's opinion that none of these lawsuits will have a material adverse effect on the Company's financial position. On March 29, 2001, Terex Corporation sold and issued $300 aggregate principal amount of 10-3/8% Senior Subordinated Notes due 2011 (the "10-3/8% Notes"). On March 31, 1998 and March 9, 1999, Terex Corporation issued and sold $150.0 and $100.0 aggregate principal amount, respectively, of 8-7/8% Senior Subordinated Notes due 2008 (the "8-7/8% Notes"). The 10-3/8% Notes and the 8-7/8% Notes are each jointly and severally guaranteed by certain domestic subsidiaries of Terex Corporation, including PPM. NOTE 7 - RELATED PARTY TRANSACTIONS During the three months and six months ended June 30, 2002 and 2001, the Company had transactions with various unconsolidated affiliates as follows: Three Months Ended Six Months Ended June 30, June 30, -------------------- ------------------- 2002 2001 2002 2001 ---------- --------- --------- --------- Product sales and service revenues $ 0.4 $ --- $ 0.4 $ --- Management fee expense $ --- $ 0.3 $ --- $ 0.5 Interest expense $ 0.9 $ 1.2 $ 1.7 $ 2.3 Included in management fee expenses are expenses paid by Terex Corporation on behalf of the Company (e.g. legal, treasury and tax services expense). 27 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ----------------------------------------------------------- AND RESULTS OF OPERATIONS ------------------------- 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 has operated in three business segments: (i) Terex Americas; (ii) Terex Europe; and (iii) Terex Mining. Previously, the Company had reported its operations as Terex Earthmoving and Terex Lifting. All prior periods have been restated to reflect results based on these three business segments. Terex Americas includes the results of all business units located in North and South America, Australia and Asia, with the exception of those business units included within Terex Mining. The 2001 results for Terex Americas include the operations of Jaques International and its affiliates (collectively the "Jaques Group") since January 24, 2001, its date of acquisition. The 2001 results for Terex Americas do not include the operations of CMI Corporation (now CMI Terex Corporation) and its affiliates (collectively, "CMI"), since they were acquired on October 1, 2001. The 2002 results for Terex Americas include the operations of Utility Equipment, Inc., which does business as Pacific Utility Equipment Co. ("Utility Equipment"), EPAC Holdings, Inc., which does business under the names Telelect East and Eusco ("EPAC"), and Advance Mixer, since January 15, 2002, March 26, 2002 and April 11, 2002, their respective dates of acquisition. The 2002 results for Terex Americas also include the U.S. operations of the Schaeff Group of Companies ("Schaeff") since January 14, 2002, its date of acquisition. Terex Europe includes the results of all business units located in Europe with the exception of those business units included within Terex Mining. The 2002 results for Terex Europe include the operations of Terex Atlas GmbH ("Atlas"), as it was acquired on December 28, 2001. The 2002 results for Terex Europe also include the operations of Schaeff since January 14, 2002, its date of acquisition, with the exception of those U.S. operations of Schaeff included in the results for Terex Americas. Terex Mining includes the results of the Terex Mining operations in Tulsa, Oklahoma, the O&K Mining business located in Germany and Terex Mining sales offices in Australia, South America and Africa. Included in Eliminations/Corporate are the eliminations among the segments, as well as general and corporate items for the three months and six months ended June 30, 2002 and 2001. 28 Three Months Ended June 30, 2002 Compared with the Three Months Ended June 30, 2001 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 June 30, 2002 and 2001.
Three Months Ended June 30, Increase --------------------------- 2002 2001 (Decrease) ------------- ------------- -------------- (amounts in millions) NET SALES Terex Americas....................................$ 322.8 $ 235.5 $ 87.3 Terex Europe...................................... 386.6 231.0 155.6 Terex Mining...................................... 73.2 30.7 42.5 Eliminations/Corporate............................ (92.4) (57.9) (34.5) ------------- ------------- -------------- Total...........................................$ 690.2 $ 439.3 $ 250.9 ============= ============= ============== GROSS PROFIT Terex Americas....................................$ 45.2 $ 34.6 $ 10.6 Terex Europe...................................... 61.9 38.9 23.0 Terex Mining...................................... 4.2 7.8 (3.6) Eliminations/Corporate............................ 0.6 (1.1) 1.7 ------------- ------------- -------------- Total...........................................$ 111.9 $ 80.2 $ 31.7 ============= ============= ============== SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Terex Americas....................................$ 30.2 $ 16.8 $ 13.4 Terex Europe...................................... 33.4 15.7 17.7 Terex Mining...................................... 7.3 8.7 (1.4) Eliminations/Corporate............................ 2.4 (0.2) 2.6 ------------- ------------- -------------- Total...........................................$ 73.3 $ 41.0 $ 32.3 ============= ============= ============== INCOME FROM OPERATIONS Terex Americas....................................$ 15.0 $ 17.8 $ (2.8) Terex Europe...................................... 28.5 23.2 5.3 Terex Mining...................................... (3.1) (0.9) (2.2) Eliminations/Corporate............................ (1.8) (0.9) (0.9) ------------- ------------- -------------- Total...........................................$ 38.6 $ 39.2 $ (0.6) ============= ============= ==============
Net Sales Sales increased $250.9 million, or approximately 57%, to $690.2 million for the three months ended June 30, 2002 from $439.3 million for the comparable 2001 period. The primary reason for the increase in sales was the impact of businesses acquired since the first quarter of 2001. Excluding the impact of the acquisitions, net sales increased approximately 11% during the three months ended June 30, 2002 from the comparable 2001 period. Terex Americas' sales were $322.8 million for the three months ended June 30, 2002, an increase of $87.3 million or approximately 37% from $235.5 million for the three months ended June 30, 2001. Excluding the impact of acquisitions, sales decreased approximately $8 million, due primarily to a decline in the mobile hydraulic crane and the Cedarapids businesses. Backlog was $165.7 million at June 30, 2002 compared to $86.3 million at June 30, 2001. The increase in backlog is due to the impact of the businesses acquired since June 30, 2001. The sales mix was approximately 18% parts for the three months ended June 30, 2002 as compared to 17% in the three months ended June 30, 2001. Terex Europe's sales were $386.6 million for the three months ended June 30, 2002, an increase of $155.6 million or approximately 67% from $231.0 million for the three months ended June 30, 2001. Excluding the impact of the companies acquired since June 30, 2001, net sales in the second quarter of 2002 were up approximately 20% from the second quarter of 2001, reflecting the strong performance at the Benford and Powerscreen group businesses and improvements within the lifting businesses. Terex Europe's backlog was $189.3 million at June 30, 2002 and $95.5 million at June 30, 2001. The increase in backlog is due primarily to the businesses acquired as well as the backlog at the Powerscreen business, which at June 30, 2002 had increased over 60% from that of the prior 29 year. Backlog does not include any significant parts orders, which are normally filled in the period ordered. The sales mix was approximately 9% parts for the three months ended June 30, 2002 as compared to the 12% in the comparable 2001 period. Terex Mining's sales were $73.2 million for the three months ended June 30, 2002, an increase of $42.5 million or approximately 138% from the same period in the prior year. Included in the results for the three months ended June 30, 2001 was a credit of $11.8 million for the return of five mining trucks. The hydraulic shovel business was responsible for most of the increase in sales. Terex Mining's backlog was $40.5 million at June 30, 2002 and $24.2 million at June 30, 2001. The increase in backlog was due primarily to an increase in orders for large hydraulic mining shovels. The sales mix was approximately 47% parts for the three months ended June 30, 2002 as compared to 60% for the comparable 2001 period, excluding the effect of the mining truck return. Net sales for Eliminations/Corporate in the three months ended June 30, 2002 primarily consists of the elimination of sales among the three segments. The primary reason for the increase in the second quarter of 2002 from the second quarter of 2001 is the increase in sales of crushing and screening products and loader backhoes from Terex Europe to Terex Americas. Gross Profit Gross profit for the three months ended June 30, 2002 increased approximately 40%, or $31.7 million, to $111.9 million from $80.2 million in the comparable 2001 period. The increase in gross profit is primarily due to the impact of businesses acquired since the second quarter of 2001. Gross profit as a percentage of sales decreased to 16.2% in the three months ended June 30, 2002 as compared to 18.3% in the prior year period, due primarily to the impact of the businesses acquired since the second quarter of 2001 and restructuring charges of $12.4 million recorded in the second quarter of 2002. Terex Americas' gross profit increased approximately 31%, or $10.6 million, to $45.2 million for the three months ended June 30, 2002, compared to $34.6 million for the three months ended June 30, 2001. The increase in gross profit is due primarily to the impact of businesses acquired, offset partially by a decline in sales in the Cedarapids and the mobile hydraulic crane businesses. The gross margin percentage decreased to 14.0% in the three months ended June 30, 2002 as compared to 14.7% in 2001. Excluding the impact of acquisitions, gross margin percentage was constant at 14.7% in the three months ended June 30, 2002. Impacting gross margins were $8.2 million in special charges primarily related to the write-down of certain assets within the Company's Light Construction Group as well as double digit revenue declines in the mobile hydraulic crane and Cedarapids businesses. Terex Europe's gross profit increased $23.0 million, or approximately 59%, to $61.9 million for the three months ended June 30, 2002, compared to $38.9 million for the three months ended June 30, 2001. The increase in gross profit was a result primarily of the inclusion of businesses acquired. Gross profit as a percentage of sales decreased to 16.0% in 2002 from 16.8% in 2001. Excluding the impact of acquisitions, gross profit increased slightly to $41.9 million in the three months ended June 30, 2002, reflecting improvements within the lifting business. Terex Mining's gross profit decreased $3.6 million, or approximately 46%, to $4.2 million for the three months ended June 30, 2002, compared to $7.8 million for the three months ended June 30, 2001. The decrease in gross profit was a result primarily of product mix, as the higher margin parts sales decreased. Gross profit as a percentage of sales decreased to 5.7% from 25.4% in 2001. Excluding the impact of the $4.2 million restructuring charge for the closure of the Tulsa manufacturing facility recorded in the three months ended June 30, 2002 and the return of five mining trucks in 2001, the gross profit margins were 11.5% and 11.9%, respectively. Selling, General and Administrative Expenses Selling, general and administrative expenses increased to $73.3 million, or 10.6% of sales, for the three months ended June 30, 2002 from $41.0 million, or 9.3% of sales, for the three months ended June 30, 2001, principally due to the impact of businesses acquired. Excluding the impact of the businesses acquired since June 30, 2001, selling, general and administrative expenses in the three months ended June 30, 2002 were 8.9% of sales, a slight decrease from 9.3% in the comparable 2001 period, reflecting management's continued focus on cost control. Terex Americas' selling, general and administrative expenses increased to $30.2 million, or 9.4% of sales, for the three months ended June 30, 2002, from $16.8 million, or 7.1% of sales, for the comparable period in 2001, principally due to the impact of businesses acquired. Excluding the impact of the acquisitions, selling, general and administrative expenses in the three months ended June 30, 2002 decreased to $16.5 million as compared to $16.8 million for the comparable period in 2001, or 7.2% and 7.1% as a percentage of sales, respectively. 30 Terex Europe's selling, general and administrative expenses increased to $33.4 million, or 8.6% of sales, for the three months ended June 30, 2002 from $15.7 million, or 6.8% of sales, for the three months ended June 30, 2001. This increase in selling, general and administrative expenses was principally due to the impact of businesses acquired. Excluding the impact of the businesses acquired, selling, general and administrative expenses in the three months ended June 30, 2002 decreased to 6.1% of sales. Terex Mining's selling, general and administrative expenses decreased to $7.3 million for the three months ended June 30, 2002 as compared to $8.7 million for the three months ended June 30, 2001. As a percentage of sales, selling, general and administrative expenses decreased to 10.0% in the three months ended June 30, 2002 as compared to 28.3% in the prior year's period. The primary reason for the decline was the inclusion in the three months ended June 30, 2001 of an $11.8 million sales credit for the return of five mining trucks and the reclassification of certain service expenses to cost of sales in 2002. Income from Operations On a consolidated basis, the Company had income from operations of $38.6 million, or 5.6% of sales, for the three months ended June 30, 2002, compared to income from operations of $39.2 million, or 8.9% of sales, for the three months ended June 30, 2001. The primary reasons for the decline in income from operations were the inclusion in the three months ended June 30, 2002 of special charges for the write-down of certain assets at the Light Construction Group and restructuring charges related to the closure of the Tulsa facility, as well as double digit revenue declines in the North American mobile hydraulic crane and Cedarapids businesses, a shift in product mix and a competitive pricing environment in some end markets. Terex Americas' income from operations decreased by $2.8 million to $15.0 million, or 4.6% of sales, for the three months ended June 30, 2002 from $17.8 million, or 7.6% of sales, for the three months ended June 30, 2001. The decrease in income from operations and operating margins was primarily due to the inclusion in the three months ended June 30, 2002 of special charges for the write-down of certain assets at the Light Construction Group ($7.9 million) and restructuring charges related to the Cedarapids facility ($0.9 million), as well as declines in sales in the mobile hydraulic crane and Cedarapids businesses. Excluding the impact of the businesses acquired after the second quarter of 2001 and the special and restructuring charges, operating margin was 7.5% for the three months ended June 30, 2002, as compared to 7.6% in the prior year period. Terex Europe's income from operations of $28.5 million for the three months ended June 30, 2002 was an increase of $5.3 million from income of $23.2 million for the three months ended June 30, 2001. The increase was primarily due to the impact of the businesses acquired since June 30, 2001, as well as improvements in the lifting business. Income from operations as a percentage of sales decreased to 7.4% for the three months ended June 30, 2002 from 10.0% for the comparable 2001 period. Excluding the impact of the business acquired and divested since June 30, 2001, operating margin was 9.2% for the three months ended June 30, 2002, as compared to 10.4% in the prior year period. Terex Mining's income from operations decreased to a loss of $3.1 million for the three months ended June 30, 2002, as compared to a loss of $0.9 million for the three months ended June 30, 2001. As a percentage of sales, operating income was a loss of 4.2% in the three months ended June 30, 2002 as compared to a loss of 2.9% in the comparable 2001 period. The primary reason for the decrease in income from operations and operating margins was a result of product mix within the hydraulic shovel business as well as the $4.2 million restructuring charge related to the closure of the Tulsa manufacturing facility. Net Interest Expense During the three months ended June 30, 2002, the Company's net interest expense decreased $0.9 million to $20.5 million from $21.4 million for the comparable 2001 period. This decrease was primarily due to the effects of lower interest rates, offset somewhat by higher average debt balances in the three months ended June 30, 2002 versus the comparable period in 2001. Other Income (Expense) - net During the three months ended June 30, 2002, the Company's other income (expense) - net increased to $10.4 million net expense from $0.1 million net expense for the comparable period in 2001. The primary reasons for the increase were the write-down of notes receivable and certain investments in the Company's European Lifting business and certain investments the Company held in technology businesses related to its EarthKing Subsidiary ($15.0 million), offset partially by the foreign exchange gain on a foreign currency exchange forward contract ($5.5 million). 31 Six Months Ended June 30, 2002 Compared with the Six Months Ended June 30, 2001 The table below is a comparison of net sales, gross profit, selling, general and administrative expenses, and income from operations, by segment, for the six months ended June 30, 2002 and 2001.
Six Months Ended June 30, Increase --------------------------- 2002 2001 (Decrease) ------------- ------------- -------------- (amounts in millions) NET SALES Terex Americas....................................$ 612.8 $ 473.8 $ 139.0 Terex Europe...................................... 680.7 454.9 225.8 Terex Mining...................................... 138.5 91.8 46.7 Eliminations/Corporate............................ (159.8) (103.8) (56.0) ------------- ------------- -------------- Total...........................................$ 1,272.2 $ 916.7 $ 355.5 ============= ============= ============== GROSS PROFIT Terex Americas....................................$ 84.8 $ 70.0 $ 14.8 Terex Europe...................................... 106.2 70.6 35.6 Terex Mining...................................... 12.3 19.5 (7.2) Eliminations/Corporate............................ (0.1) (1.3) 1.2 ------------- ------------- -------------- Total...........................................$ 203.2 $ 158.8 $ 44.4 ============= ============= ============== SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Terex Americas....................................$ 55.9 $ 33.1 $ 22.8 Terex Europe...................................... 59.5 31.4 28.1 Terex Mining...................................... 13.8 17.4 (3.6) Eliminations/Corporate............................ 3.9 (0.3) 4.2 ------------- ------------- -------------- Total...........................................$ 133.1 $ 81.6 $ 51.5 ============= ============= ============== INCOME FROM OPERATIONS Terex Americas....................................$ 28.9 $ 36.9 $ (8.0) Terex Europe...................................... 46.7 39.2 7.5 Terex Mining...................................... (1.5) 2.1 (3.6) Eliminations/Corporate............................ (4.0) (1.0) (3.0) ------------- ------------- -------------- Total...........................................$ 70.1 $ 77.2 $ (7.1) ============= ============= ==============
Net Sales Sales increased $355.5 million, or approximately 39%, to $1,272.2 million for the six months ended June 30, 2002 from $916.7 million for the comparable 2001 period. The primary reason for the increase in sales was the impact of businesses acquired since the second quarter of 2001. Excluding the impact of the acquisitions, net sales increased approximately 3% during the six months ended June 30, 2002 from the comparable 2001 period. Terex Americas' sales were $612.8 million for the six months ended June 30, 2002, an increase of $139.0 million or approximately 29% from $473.8 million for the six months ended June 30, 2001. Excluding the impact of acquisitions, sales decreased approximately $17 million, due primarily to the decline in the mobile hydraulic crane and the Cedarapids businesses. Backlog was $165.7 million at June 30, 2002 compared to $86.3 million at June 30, 2001. The increase in backlog is primarily due to the impact of the businesses acquired since June 30, 2001, offset partially by the decline in the mobile hydraulic crane, the Cedarapids and the Light Construction Group. The sales mix was approximately 17% parts for the six months ended June 30, 2002 and 2001. Terex Europe's sales were $680.7 million for the six months ended June 30, 2002, an increase of $225.8 million or approximately 50% from $454.9 million for the six months ended June 30, 2001. Excluding the impact of the companies acquired since June 30, 2001, net sales in the six months ended June 30, 2002 were up approximately 13% from the comparable period in 2001, reflecting the strong performance at the Benford and Powerscreen group businesses and improvements within the lifting businesses. Terex Europe's backlog was $189.3 million at June 30, 2002 and $95.7 million at June 30, 2001. The increase in backlog was due 32 primarily to the businesses acquired as well as the backlog at the Powerscreen business, which at June 30, 2002 was approximately $10 million more than the prior year. Backlog does not include any significant parts orders, which are normally filled in the period ordered. The sales mix was approximately 11% parts for the six months ended June 30, 2002 and 12% for the comparable period in 2001. Terex Mining's sales were $138.5 million for the six months ended June 30, 2002, an increase of $46.7 million or approximately 51% from the same period in the prior year. Excluding the impact of the $11.8 million return of five mining trucks in the six months ended June 30, 2001, net sales in 2002 increased $34.9 million, or approximately 34%, from the comparable period in 2001. Terex Mining's backlog was $40.5 million at June 30, 2002 and $24.2 million at June 30, 2001. The increase in backlog was due primarily to an increase in orders for large hydraulic mining shovels. The sales mix was approximately 45% parts for the six months ended June 30, 2002 as compared to 54% for the comparable 2001 period. Net sales for Eliminations/Corporate in the six months ended June 30, 2002 primarily consist of the elimination of sales among the three segments. The primary reason for the increase in the six months ended June 30, 2002 from the six months ended June 30, 2001 is the increase in sales of crushing and screening products and loader backhoes from Terex Europe to Terex Americas. Gross Profit Gross profit for the six months ended March 31, 2002 increased approximately 28%, or $44.4 million, to $203.2 million from $158.8 million in the comparable 2001 period. The increase in gross profit is primarily due to the impact of businesses acquired since the second quarter of 2001 partially offset by restructuring charges of $13.6 million recorded in the six months ended June 30, 2002. Gross profit as a percentage of sales decreased to 16.0% in the six months ended June 30, 2002 as compared to 17.3% in the prior year period. Excluding the impact of businesses acquired, gross profit was 16.2% of net sales for the six months ended June 30, 2002. Terex Americas' gross profit increased approximately 21%, or $14.8 million, to $84.8 million for the six months ended June 30, 2002, compared to $70.0 million for the six months ended June 30, 2001. The increase in gross profit is due primarily to the impact of businesses acquired, offset by the impact of the special charges for the write down of certain assets in the light construction group ($7.9 million) and restructuring at Standard Havens and Cedarapids ($1.5 million), as well as a decline in sales in the Cedarapids and the mobile hydraulic crane businesses. The gross margin percentage decreased to 13.8% in the six months ended June 30, 2002 as compared to 14.8% in 2001. Excluding the impact of acquisitions, gross margin percentage decreased to 13.4% in the six months ended June 30, 2002 from 14.8% for the comparable 2001 period. Terex Europe's gross profit increased $35.6 million, or approximately 50%, to $106.2 million for the six months ended June 30, 2002, compared to $70.6 million for the six months ended June 30, 2001. The increase in gross profit was a result primarily of the inclusion of businesses acquired. Gross profit as a percentage of sales increased slightly to 15.6% in 2002 from 15.5% in 2001. Excluding the impact of acquisitions, gross profit increased to approximately $74 million. However, as a percentage of net sales, gross profit decreased to 14.9% in the six months ended June 30, 2002 as compared to 15.5% in the comparable period in 2001. Terex Mining's gross profit decreased $7.2 million, or approximately 37%, to $12.3 million for the six months ended June 30, 2002, compared to $19.5 million for the six months ended June 30, 2001. The decrease in gross profit was a result primarily of product mix within the hydraulic shovel business, as well as the reclassification in 2002 of certain service expenses to cost of sales from selling, general and administrative expenses. Gross profit as a percentage of sales decreased to 8.9% from 21.2% in 2001. Selling, General and Administrative Expenses Selling, general and administrative expenses increased to $133.1 million, or 10.5% of sales, for the six months ended June 30, 2002 from $81.6 million, or 8.9% of sales, for the six months ended June 30, 2001, principally due to the impact of businesses acquired. Excluding the impact of the businesses acquired since June 30, 2001, selling, general and administrative expenses in the six months ended June 30, 2002 were 8.7% of sales, a slight decrease from the comparable 2001 period, reflecting management's continued focus on cost control. Terex Americas' selling, general and administrative expenses increased to $55.9 million, or 9.1% of sales, for the six months ended June 30, 2002, from $33.1 million, or 7.0% of sales, for the comparable period in 2001, principally due to the impact of businesses acquired. Excluding the impact of the acquisitions, selling, general and administrative expenses in the six months ended June 30, 2002 decreased to approximately $32 million and remained constant at 7.0% as a percentage of sales. 33 Terex Europe's selling, general and administrative expenses increased to $59.5 million, or 8.7% of sales, for the six months ended June 30, 2002 from $31.4 million, or 6.9% of sales, for the six months ended June 30, 2001. This increase in selling, general and administrative expenses was principally due to the impact of businesses acquired. Excluding the impact of the businesses acquired, selling, general and administrative expenses in the six months ended June 30, 2002 remained constant at $31.4 million, but decreased to 6.3% as a percentage of net sales. Terex Mining's selling, general and administrative expenses decreased to $13.8 million for the six months ended June 30, 2002 as compared to $17.4 million for the six months ended June 30, 2001. As a percentage of sales, selling, general and administrative expenses decreased to 10.0% in the six months ended June 30, 2002 as compared to 19.0% in the prior year's period. The primary reason for the decline was the reclassification of certain service expenses to cost of sales in 2002. Income from Operations On a consolidated basis, the Company had income from operations of $70.1 million, or 5.5% of sales, for the six months ended June 30, 2002, compared to income from operations of $77.2 million, or 8.4% of sales, for the six months ended June 30, 2001. The primary reasons for the decline in income from operations were the inclusion in the six months ended June 30, 2002 of restructuring and other charges of $14.2 million, double digit revenue declines in the North American mobile hydraulic crane and Cedarapids businesses, a shift in product mix and a competitive pricing environment in some end markets. Terex Americas' income from operations decreased by $8.0 million to $28.9 million, or 4.7% of sales, for the six months ended June 30, 2002 from $36.9 million, or 7.8% of sales, for the six months ended June 30, 2001. The decrease in income from operations and operating margins is primarily due to the decline in sales in the mobile hydraulic crane and Cedarapids businesses, as well as $10.0 million of special and restructuring charges related to the consolidation of the Company's hot mix asphalt plant businesses and the write-down of certain assets in the light construction group. Excluding the impact of the businesses acquired in late 2001 and early 2002 and the restructuring charges, operating margin was 8.7% for the six months ended June 30, 2002, as compared to 7.8% in the prior year period. Terex Europe's income from operations of $46.7 million for the six months ended June 30, 2002 was an increase of $7.5 million from income of $39.2 million for the six months ended June 30, 2001. The increase was primarily due to the impact of the businesses acquired since June 30, 2001, as well as improvements in the lifting business. Income from operations as a percentage of sales decreased to 6.9% for the six months ended June 30, 2002 from 8.6% for the comparable 2001 period. Excluding the impact of the business acquired since June 30, 2001, operating margin was constant at 8.6% for the six months ended June 30, 2002 and 2001. Terex Mining's income from operations decreased $3.6 million to a loss of $1.5 million for the six months ended June 30, 2002, as compared to income of $2.1 million for the six months ended June 30, 2001. As a percentage of sales, operating income was a loss of 1.1% in the six months ended June 30, 2002 as compared to income of 2.3% in the comparable 2001 period. The primary reasons for the decrease in income from operations and operating margins was a result of product mix within the hydraulic shovel business and the $4.2 million restructuring charge related to the closure of the Tulsa manufacturing facility. Net Interest Expense During the six months ended June 30, 2002, the Company's net interest expense increased $1.3 million to $41.7 million from $40.4 million for the comparable 2001 period. This increase was primarily due to higher average debt balances that more than offset the effects of lower interest rates in the six months ended June 30, 2002 versus the comparable period in 2001. Other Income (Expense) - net During the six months ended June 30, 2002, the Company's other income (expense) - net increased to $11.6 million net expense from $0.9 million net expense for the comparable period in 2001. The primary reasons for the increase were the write-down of notes receivable and certain investments in the Company's European Lifting business and certain investments the Company held in technology businesses related to its EarthKing Subsidiary ($15.0 million), offset partially by the foreign exchange gain on a foreign currency exchange forward contract ($5.5 million). 34 Extraordinary Item During the six months ended June 30, 2001, the Company recorded a charge of $2.3 million, net of income taxes, to recognize a loss on the write-off of unamortized debt acquisition costs for the early extinguishment of debt in connection with the prepayment of principal of certain term loans under the Company's bank credit facilities. 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 six months ended June 30, 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, net of income taxes, and the Light Construction Group (Terex Americas Segment) $18.1 million, net of income taxes. The charge was partially offset by the write-off of negative goodwill at January 1, 2002 from the acquisition of Fermec Manufacturing Limited in December 2000. CRITICAL ACCOUNTING POLICIES In the six months ended June 30, 2002, the Company recorded a charge for the cumulative effect of change in accounting principle of $113.4 million. This was in accordance with the requirements of the Financial Accounting Standards Board as set out in its SFAS No. 141 "Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets." SFAS No. 141 addresses financial accounting and reporting for business combinations and requires all business combinations be accounted for using the purchase method, including eliminating any previously recorded negative goodwill. Accordingly, the Company recorded a cumulative effect of an accounting change of $10.7 million 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 details 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 by the Company after June 30, 2001 was not amortized in 2001 or 2002 and, beginning on January 1, 2002, goodwill related to acquisitions completed by the Company prior to July 1, 2001 is no longer being amortized. Under SFAS No. 142, 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. The Company's initial impairment test was required to be performed on all reporting units by June 30, 2002. 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 was determined to be less than book value, a second step was performed to compute the amount of impairment. In the second step, the implied fair value of goodwill was 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 exceeded its implied fair market value, an impairment loss was recognized in an amount equal to that excess. The Company estimated the fair value of each of its reporting units using a discounted cash flow methodology and utilized the assistance of independent valuation experts to value the tangible and intangible assets. As a result, an impairment loss of $132.2 million ($124.1 million, net of income taxes) was recorded in the first quarter of 2002. This charge relates to the Company's Mining Group (Terex Mining Segment) $105.7 million ($105.7 million, net of income taxes), Light Construction Group (Terex Americas Segment) $26.2 million ($18.1 million, net of income taxes) and EarthKing Subsidiary (Terex Americas Segment) $0.3 million ($0.3 million, net of income taxes). The adjustment from the adoption of SFAS No. 142 has been recorded as a cumulative effect of change in accounting principle adjustment as of January 1, 2002. The charge associated with the adoption of SFAS No. 142 takes into account the current economic conditions in these industries as well as management's estimates for the future. The write-down for the Mining Group relates primarily to the underperformance of the mining truck business. The write-down in the Light Construction Group relates to the difficult market conditions of that business. Management will continue to evaluate the long-term strategic role of this operation. The write-down for the Earthking Subsidiary relates to the underperformance of the underlying businesses. 35 LIQUIDITY AND CAPITAL RESOURCES Net cash of $8.6 million was provided by operating activities during the six months ended June 30, 2002. Approximately $24 million was used for working capital. Net cash used in investing activities was $97.0 million during the six months ended June 30, 2002 and primarily represents the acquisitions of Schaeff, Utility Equipment, EPAC and Advance Mixer and capital expenditures. Net cash provided by financing activities was $113.8 million during the six months ended June 30, 2002, which primarily represents the proceeds from the issuance in a public offering of 5.3 million shares of the Company's common stock on April 23, 2002. Cash and cash equivalents totaled $280.9 million at June 30, 2002. In addition, the Company had approximately $229 million available for borrowing under its revolving credit facilities at June 30, 2002. Therefore, total liquidity available to the Company at June 30, 2002 was approximately $510 million. Including the January 2002 acquisitions of Schaeff and Utility Equipment, the March 2002 acquisition of EPAC, the April 2002 acquisition of Advance Mixer, and the 2001 acquisitions of the Jaques Group, CMI and Atlas, since the beginning of 1995 Terex has invested approximately $1.4 billion to strengthen and expand its core businesses through more than 25 strategic acquisitions. As demonstrated by the recent announcements of the Company's plans to acquire Demag Mobile Cranes GmbH & Co. KG ("Demag") and Genie Holdings, Inc. ("Genie") (see Item 5 - "Other Information"), Terex expects that acquisitions and new product development will continue to be important components of its growth strategy and is continually reviewing acquisition opportunities. The Company will continue to pursue strategic acquisitions, some of which could individually or in the aggregate be material, which complement the Company's operations and offer cost reduction opportunities, distribution and purchasing synergies and product diversification. 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, issuance 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 includes provisions for an additional $250 million of term borrowing by the Company on terms similar to the current term loan debt under the facility. As part of the revised credit agreement, amendments were made to certain covenants and other provisions to allow the Company greater flexibility. During 2001, the Company successfully executed three capital market transactions raising $500 million in senior subordinated notes, expanding its revolving credit facilities to $300 million and raising $96 million from the issuance of common stock. Additionally, in October 2001, January 2002 and March 2002, the Company issued approximately 3.6 million shares, 0.5 million shares and 0.3 million shares of its common stock in connection with the acquisition of CMI, Utility Equipment and EPAC, respectively, as a means of acquiring businesses. The Company also sold approximately 1.3 million shares of its common stock to certain former shareholders of Schaeff in January 2002. The Company intends to issue shares of its common stock to Genie's shareholders in connection with its planned acquisition of Genie (see Item 5 -- "Other Information"). The Company's businesses are working capital intensive and require funding for purchases of production and replacement parts inventories, capital expenditures for repair, replacement and upgrading of existing facilities, as well as financing of receivables from customers and dealers. The Company has significant debt service requirements, including semi-annual interest payments on its senior subordinated notes and monthly interest payments on its bank credit facilities. Other than default under the terms of the Company's debt instruments, there are no other events that would accelerate the repayment of the Company's debt. The Company's contractual long-term debt future cash obligations pursuant to the July 3, 2002 amended and restated credit facility are as follows: Long-term debt -------------- (in millions) Payments due by year: 2002............................$. 32.7 2003.............................. 9.1 2004.............................. 19.5 2005.............................. 7.9 2006.............................. 6.0 2007.............................. 30.9 Thereafter........................ 1,114.4 ---------------- Total......................$. 1,220.5 ================ 36 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. 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 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 regarding interest coverage, fixed charge coverage and leverage, among others. These covenants require quarterly compliance and become more restrictive annually. 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'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. CONTINGENCIES AND UNCERTAINTIES Euro In 1999, 12 of the 15 member countries of the European Union established fixed conversion rates between their existing currencies ("legacy currencies") and one common currency, the Euro. Since 1999 the Euro has traded on currency exchanges and could be used in business transactions. Beginning in January 2002, new Euro-denominated bills and coins were issued, and legacy currencies began to be withdrawn from circulation. The Company's operating subsidiaries affected by the Euro conversion previously assessed the systems and business issues raised by the Euro currency conversion. These issues included, among others, (1) the need to adapt computer and other business systems and equipment to accommodate Euro-denominated transactions and (2) the competitive impact of cross-border price transparency, which may make it more difficult for businesses to charge different prices for the same products on a country-by-country basis, since the Euro currency was issued in 2002. To date, the Euro conversion has not had a material adverse impact on the Company's financial condition or results of operations. 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 and the Australian Dollar. The Company may, from time to time, hedge specifically identified committed cash flows in foreign currencies using forward currency sale or purchase contracts. Such foreign currency contracts have not historically been material in amount. 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 $65 million of the principal amount of its indebtedness under its bank credit facility, fixing interest at various rates between 9.23% and 9.32%. Certain of the Company's obligations, including its senior subordinated notes, bear interest at fixed interest rates from 8-7/8% to 10-3/8%. The Company has entered into interest rate agreements to convert these fixed rates to floating rates with respect to approximately $350 million of the principal amount of its indebtedness under its 8-7/8% Senior Subordinated Notes and its 10-3/8% Senior Subordinated Notes. The floating rates are based on a spread of 2.91% to 4.94% over London Interbank Offer Rate ("LIBOR"). At June 30, 2002, the floating rates ranged between 4.80% and 6.90%. 37 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 nonhazardous wastes in the normal course of its manufacturing operations. As a result, Terex is subject to a wide range of federal, state, local and foreign environmental laws and regulations. These laws and regulations govern actions that may have adverse environmental effects and also require compliance with certain practices when handling and disposing of hazardous and nonhazardous wastes. These laws and regulations also impose liability for the costs of, and damages resulting from, cleaning up sites, past spills, disposals and other releases of hazardous substances. Compliance with these laws and regulations has, and will continue 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. The Company previously reported that it was a party to an action commenced in the United States District Court for the District of Delaware by the End of the Road Trust, a creditor liquidating trust formed to liquidate the assets of Fruehauf Trailer Corporation ("Fruehauf"), a former subsidiary of the Company and currently a reorganized debtor in bankruptcy, and Pension Transfer Corporation, as sponsor and administrator for certain Fruehauf pension plans against the Company and certain former officers and directors of Fruehauf and Terex. This matter has been resolved and the action has been dismissed. The Company is a defendant in an action commenced in the United States District Court for the Southern District of Florida, Miami Division, in which the plaintiff alleges that ownership of O&K Orenstein & Koppel AG ("O&K AG") was illegally taken from the plaintiff's ancestors by German industry during the Nazi era. The plaintiff alleges that the Company is liable for conversion and unjust enrichment as the result of its purchase of the shares of its mining shovel subsidiary, O&K Mining GmbH, from O&K AG, and is claiming a return of a 25% interest in O&K Mining GmbH and monetary damages. The Company believes that the action is without merit as to the Company. As of the date hereof, the Company has not filed an answer in the action and the plaintiff is considering a request to dismiss the Company from the action. The Company has made a claim for indemnification with respect to the action pursuant to the Share Purchase Agreement dated December 18, 1997 between the Company and O&K AG. In addition, the United States Department of Justice has filed a Statement of Interest in the action that recommends dismissal of the action for foreign policy interests of the United States. 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 becomes effective for certain leasing transactions occurring after May 15, 2002 and shall be applied by the Company from January 1, 2003 with respect to reporting gains and losses from extinguishments of debt. The Company is currently evaluating the provisions of SFAS No. 145 to determine the impact on its financial statements. SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," was issued in June 2002. SFAS No. 146 becomes 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 current accounting principles, a liability for an exit cost is recognized at the date of an entity's commitment to an exit plan. The Company is currently evaluating the provisions of SFAS No. 146 to determine its impact on its financial statements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ------------------------------------------------------------------ The Company is exposed to certain market risks which exist as part of its ongoing business operations and the Company uses derivative financial instruments, where appropriate, to manage these risks. The Company, as a matter of policy, does not engage in trading or speculative transactions. For further information on accounting policies related to derivative financial instruments, refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2001. Foreign Exchange Risk The Company is exposed to fluctuations in foreign currency cash flows related to third party purchases and sales, intercompany product shipments and intercompany loans. The Company is also exposed to fluctuations in the value of foreign 38 currency investments in subsidiaries and cash flows related to repatriation of these investments. Additionally, the Company is exposed to volatility in the translation of foreign currency earnings to U.S. Dollars. Primary exposures include the U.S. Dollars versus functional currencies of the Company's major markets which include the Euro, the British Pound and the Australian Dollar. The Company assesses foreign currency risk based on transactional cash flows and identifies naturally offsetting positions and purchases hedging instruments to protect anticipated exposures. At June 30, 2002, the Company had foreign currency contracts with a notional value of $146.4 million. The fair market value of these arrangements, which represents the cost to settle these contracts, was an asset of approximately $10.0 million at June 30, 2002. Interest Rate Risk The Company is exposed to interest rate volatility with regard to future issuances of fixed rate debt and existing issuances of variable rate debt. Primary exposure includes movements in the U.S. prime rate and LIBOR. The Company uses interest rate swaps to reduce interest rate volatility. At June 30, 2002, the Company had approximately $65 million of interest rate swaps fixing interest rates between 9.23% and 9.32%. The fair market value of these arrangements, which represents the cost to settle these contracts, was a liability of approximately $0.7 million at June 30, 2002. At June 30, 2002, the Company had approximately $429 million of interest rate swaps that converted fixed rates to floating rates. The floating rates ranged between 4.80% and 6.90% at June 30, 2002. The fair market value of these arrangements, which represent the cost to settle these contracts, was an asset of approximately $3.7 million. At June 30, 2002, the Company performed a sensitivity analysis for the Company's derivatives and other financial instruments that have interest rate risk. The Company calculated the pretax earnings effect on its interest sensitive instruments. Based on this sensitivity analysis, the Company has determined that an increase of 10% in the Company's weighted average interest rates at June 30, 2002 would have increased interest expense by approximately $2 million in the six months ended June 30, 2002. 39 PART II OTHER INFORMATION Item 1. Legal Proceedings The Company is involved in certain claims and litigation arising in the ordinary course of business, which are not considered material to the financial operations or cash flow of the Company. For information concerning litigation and other contingencies see "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Contingencies and Uncertainties." Item 2. Changes in Securities and Use of Proceeds On June 5, 2002, the Company issued 19,581 shares of its common stock that were not registered under the Securities Act of 1933, as amended (the "Securities Act"). These shares were issued to a holder of the Company's equity rights issued May 9, 1995 ("Equity Rights") in connection with the exercise of 38,000 Equity Rights by such holder. Pursuant to the terms of the Equity Rights exercised by such holder, the holder was entitled to receive payment of $455,565 in cash or shares of common stock. The Company elected to make such payment by issuance of shares of common stock having a then-current market value equal to the payment amount. The issuance was made pursuant to an exemption from registration provided by Section 4(2) of the Securities Act, as this issuance of common stock did not involve a "public offering" pursuant to the Securities Act given the limited number and scope of persons to whom the securities were issued. Item 3. Defaults Upon Senior Securities Not applicable. Item 4. Submission of Matters to a Vote of Security Holders At the annual meeting of stockholders held May 16, 2002, Terex stockholders holding a majority of the shares of Common Stock outstanding as of the close of business on March 28, 2002 voted to approve each of the three proposals included in the Company's proxy statement as follows:
Affirmative Negative Abstentions Unvoted ----------------- ------------------ ----------------- ----------------- Proposal 1: To elect seven directors to hold office for one year or until their successors are duly elected and qualified: Ronald M. DeFeo 33,217,765 659,123 --- --- G. Chris Andersen 33,218,664 658,224 --- --- Don DeFossett 33,214,723 662,165 --- --- William H. Fike 33,214,223 662,665 --- --- Dr. Donald P. Jacobs 29,040,068 4,836,819 --- --- Marvin B. Rosenberg 33,207,719 669,169 --- --- David A. Sachs 33,052,908 824,790 --- --- Proposal 2: To ratify the selection of PricewaterhouseCoopers LLP as independent accountants of the Company for 2002: 33,120,805 668,481 87,602 --- . Proposal 3: To approve an amendment to the Company's 2000 Incentive Plan to increase the number of shares of the Company's common stock available for grant thereunder: 29,608,802 3,675,005 595,073 ---
40 Item 5. Other Information On April 23, 2002, the Company issued 5.3 million shares of its common stock in a public offering with net proceeds to the Company of $113.3 million. On May 17, 2002, the Company announced that that it had entered into an agreement to acquire Demag for approximately 160 million Euros. Demag, headquartered in Zweibrucken, Germany, manufactures and distributes telescopic and lattice boom cranes, and had 2001 revenues of approximately $360 million. The transaction is subject to customary closing conditions, including regulatory approval, and is anticipated to close in the third quarter of 2002. 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 includes provisions for an additional $250 million of term borrowing by the Company on terms similar to the current term loan debt under the facility. As part of the revised credit agreement, amendments were made to certain covenants and other provisions to allow the Company greater flexibility. On July 19, 2002, the Company announced it had signed an Agreement and Plan of Merger with Genie, a global manufacturer of aerial work platforms with 2001 revenues of approximately $575 million. The purchase consideration will be $75 million, consisting of approximately $65 million in Terex common stock and $10 million in cash, subject to adjustment. In addition, the Company will assume and refinance approximately $195 million of Genie's debt. In accordance with the agreement, the exchange ratio of Terex common shares for Genie shares will be based upon the average closing price for Terex common stock for the ten consecutive trading days prior to the closing date. Based on the share price of Terex common stock on the date of the agreement, the Company would issue approximately 3.2 million shares of its common stock to the Genie shareholders. The transaction is subject to customary closing conditions including regulatory approval, and is anticipated to close in the third quarter of 2002. Forward Looking Information Certain information in this Quarterly Report includes forward-looking statements regarding future events or the future financial performance of the Company that involve certain contingencies and uncertainties, including those discussed above in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Contingencies and Uncertainties." In addition, when included in this Quarterly Report or in documents incorporated herein by reference, the words "may," "expects," "intends," "anticipates," "plans," "projects," "estimates" and the negatives thereof and analogous or similar expressions are intended to identify forward-looking statements. However, the absence of these words does not mean that the statement is not forward-looking. The Company has based these forward-looking statements on current expectations and projections about future events. These statements are not guarantees of future performance. Such statements are inherently subject to a variety of risks and uncertainties that could cause actual results to differ materially from those reflected in such forward-looking statements. Such risks and uncertainties, many of which are beyond the Company's control, include, among others: the Company's business is highly cyclical and weak general economic conditions may affect the sales of its products and its financial results; the sensitivity of construction and mining activity to interest rates, government spending and general economic conditions; the ability to successfully integrate acquired businesses; the retention of key management personnel; foreign currency fluctuations; the Company's businesses are very competitive and may be affected by pricing, product initiatives and other actions taken by competitors; the effects of changes in laws and regulations; the Company's business is international in nature and is subject to changes in exchange rates between currencies, as well as international politics; the ability of suppliers to timely supply the Company parts and components at competitive prices; the financial condition of suppliers and customers, and their continued access to capital; the Company's ability to timely manufacture and deliver products to customers; the Company's substantial amount of debt and its need to comply with restrictive covenants contained in the Company's debt agreements; compliance with applicable environmental laws and regulations; and other factors. Actual events or the actual future results of the Company may differ materially from any forward-looking statement due to these and other risks, uncertainties and significant factors. The forward-looking statements contained herein speak only as of the date of this Quarterly Report and the forward-looking statements contained in documents incorporated herein by reference speak only as of the date of the respective documents. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained or incorporated by reference in this Quarterly Report to reflect any change in the Company's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. 41 Item 6. Exhibits and Reports on Form 8-K (a) The exhibits set forth on the accompanying Exhibit Index have been filed as part of this Form 10-Q. (b) Reports on Form 8-K. - During the quarter ended June 30, 2002, the Company filed the following Current Reports on Form 8-K: - A report on Form 8-K dated April 18, 2002 was filed on April 18, 2002 announcing the Company had entered into an underwriting agreement with Credit Suisse First Boston relating to the sale and issuance of 5,000,000 shares of the Company's Common Stock, plus up to 750,000 additional shares which may be issued to cover over allotments. - A report on Form 8-K dated May 16, 2002 was filed on May 17, 2002 announcing the Company had entered into an agreement to acquire Demag Mobile Cranes GmbH & Co. KG. 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: August 9, 2002 /s/ Joseph F. Apuzzo --------------------- Joseph F. Apuzzo Chief Financial Officer (Principal Financial Officer) Date: August 9, 2002 /s/ Mark T. Cohen --------------------- Mark T. Cohen Controller (Principal Accounting Officer) 43 EXHIBIT INDEX 3.1 Restated Certificate of Incorporation of Terex Corporation (incorporated by reference to Exhibit 3.1 to the Form S-1 Registration Statement of Terex Corporation, Registration No. 33-52297). 3.2 Certificate of Elimination with respect to the Series B Preferred Stock (incorporated by reference to Exhibit 4.3 to the Form 10-K for the year ended December 31, 1998 of Terex Corporation, Commission File No. 1-10702). 3.3 Certificate of Amendment to Certificate of Incorporation of Terex Corporation dated September 5, 1998 (incorporated by reference to Exhibit 3.3 to the Form 10-K for the year ended December 31, 1998 of Terex Corporation, Commission File No. 1-10702). 3.4 Amended and Restated Bylaws of Terex Corporation (incorporated by reference to Exhibit 3.2 to the Form 10-K for the year ended December 31, 1998 of Terex Corporation, Commission File No. 1-10702). 4.1 Indenture dated as of September 30, 1998 among Terex Corporation, the Guarantors named therein and United States Trust Company of New York, as Trustee (incorporated by reference to Exhibit 4.6 of Amendment No. 1 to the Form S-4 Registration Statement of Terex Corporation, Registration No. 333-53561). 4.2 First Supplemental Indenture, dated as of September 23, 1998, between Terex Corporation and United States Trust Company of New York, as Trustee (to Indenture dated as of September 30, 1998) (incorporated by reference to Exhibit 4.4 to the Form 10-Q for the quarter ended September 30, 1999 of Terex Corporation, Commission File No. 1-10702). 4.3 Second Supplemental Indenture, dated as of April 1, 1999, between Terex Corporation and United States Trust Company of New York, as Trustee (to Indenture dated as of September 30, 1998) (incorporated by reference to Exhibit 4.5 to the Form 10-Q for the quarter ended September 30, 1999 of Terex Corporation, Commission File No. 1-10702). 4.4 Third Supplemental Indenture, dated as of July 29, 1999, between Terex Corporation and United States Trust Company of New York, as Trustee (to Indenture dated as of September 30, 1998) (incorporated by reference to Exhibit 4.6 to the Form 10-Q for the quarter ended September 30, 1999 of Terex Corporation, Commission File No. 1-10702). 4.5 Fourth Supplemental Indenture, dated as of August 26, 1999, between Terex Corporation and United States Trust Company of New York, as Trustee (to Indenture dated as of September 30, 1998) (incorporated by reference to Exhibit 4.7 to the Form 10-Q for the quarter ended September 30, 1999 of Terex Corporation, Commission File No. 1-10702). 4.6 Fifth Supplemental Indenture, dated as of March 29, 2001, between Terex Corporation and United States Trust Company of New York, as Trustee (to Indenture dated as of September 30, 1998) (incorporated by reference to Exhibit 4.6 to the Form 10-Q for the quarter ended March 31, 2001 of Terex Corporation, Commission File No. 1-10702). 4.7 Sixth Supplemental Indenture, dated as of October 1, 2001, between Terex Corporation and United States Trust Company of New York, as Trustee (to Indenture dated as of September 30, 1998) (incorporated by reference to Exhibit 4.7 to the Form 10-Q for the quarter ended September 30, 2001 of Terex Corporation, Commission File No. 1-10702). 4.8 Indenture dated as of March 9, 1999 among Terex Corporation, the Guarantors named therein and United States Trust Company of New York, as Trustee (incorporated by reference to Exhibit 4.4 to the Form 10-K for the year ended December 31, 1998 of Terex Corporation, Commission File No. 1-10702). 4.9 First Supplemental Indenture, dated as of April 1, 1999, between Terex Corporation and United States Trust Company of New York, as Trustee (to Indenture dated as of March 9, 1999) (incorporated by reference to Exhibit 4.8 to the Form 10-Q for the quarter ended September 30, 1999 of Terex Corporation, Commission File No. 1-10702). 4.10 Second Supplemental Indenture, dated as of July 30, 1999, between Terex Corporation and United States Trust Company of New York, as Trustee (to Indenture dated as of March 9, 1999) (incorporated by reference to Exhibit 4.9 to the Form 10-Q for the quarter ended September 30, 1999 of Terex Corporation, Commission File No. 1-10702). 44 4.11 Third Supplemental Indenture, dated as of August 26, 1999, between Terex Corporation and United States Trust Company of New York, as Trustee (to Indenture dated as of March 9, 1999) (incorporated by reference to Exhibit 4.11 to the Form 10-Q for the quarter ended September 30, 1999 of Terex Corporation, Commission File No. 1-10702). 4.12 Fourth Supplemental Indenture, dated as of March 29, 2001, between Terex Corporation and United States Trust Company of New York, as Trustee (to Indenture dated as of March 9, 1999) (incorporated by reference to Exhibit 4.11 to the Form 10-Q for the quarter ended March 31, 2001 of Terex Corporation, Commission File No. 1-10702). 4.13 Fifth Supplemental Indenture, dated as of October 1, 2001, between Terex Corporation and United States Trust Company of New York, as Trustee (to Indenture dated as of March 9, 1999) (incorporated by reference to Exhibit 4.13 to the Form 10-Q for the quarter ended September 30, 2001 of Terex Corporation, Commission File No. 1-10702). 4.14 Indenture, dated as of March 29, 2001, between Terex Corporation and United States Trust Company of New York, as Trustee (incorporated by reference to Exhibit 4.12 to the Form 10-Q for the quarter ended March 31, 2001 of Terex Corporation, Commission File No. 1-10702). 4.15 First Supplemental Indenture, dated as of October 1, 2001, between Terex Corporation and United States Trust Company of New York, as Trustee (to Indenture dated as of March 29, 2001) (incorporated by reference to Exhibit 4.15 to the Form 10-Q for the quarter ended September 30, 2001 of Terex Corporation, Commission File No. 1-10702). 4.16 Indenture, dated as of December 17, 2001, between Terex Corporation, the Guarantors named therein and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4.16 to Form S-4 Registration Statement of Terex Corporation, Registration No. 333-75700). 10.1 Terex Corporation Incentive Stock Option Plan, as amended (incorporated by reference to Exhibit 4.1 to the Form S-8 Registration Statement of Terex Corporation, Registration No. 33-21483). 10.2 1994 Terex Corporation Long Term Incentive Plan (incorporated by reference to Exhibit 10.2 to the Form 10-K for the year ended December 31, 1994 of Terex Corporation, Commission File No. 1-10702). 10.3 Terex Corporation Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.3 to the Form 10-K for the year ended December 31, 1994 of Terex Corporation, Commission File No. 1-10702). 10.4 1996 Terex Corporation Long Term Incentive Plan (incorporated by reference to Exhibit 10.1 to Form S-8 Registration Statement of Terex Corporation, Registration No. 333-03983). 10.5 Amendment No. 1 to 1996 Terex Corporation Long Term Incentive Plan (incorporated by reference to Exhibit 10.5 to the Form 10-K for the year ended December 31, 1999 of Terex Corporation, Commission File No. 1-10702). 10.6 Amendment No. 2 to 1996 Terex Corporation Long Term Incentive Plan (incorporated by reference to Exhibit 10.6 to the Form 10-K for the year ended December 31, 1999 of Terex Corporation, Commission File No. 1-10702). 10.7 Terex Corporation 1999 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.7 to the Form 10-Q for the quarter ended September 30, 2000 of Terex Corporation, Commission File No. 1-10702). 10.8 Terex Corporation 2000 Incentive Plan, as amended. * 10.9 Amended and Restated Credit Agreement, dated as of July 3, 2002, among Terex Corporation, certain of its Subsidiaries, the Lenders named therein, and Credit Suisse First Boston, as Administrative Agent. * 10.10 Guarantee Agreement dated as of March 6, 1998 of Terex Corporation and Credit Suisse First Boston, as Collateral Agent (incorporated by reference to Exhibit 10.14 to the Form 10-K for the year ended December 31, 1998 of Terex Corporation, Commission File No. 1-10702). 10.11 Guarantee Agreement dated as of March 6, 1998 of Terex Corporation, each of the subsidiaries of Terex Corporation listed therein and Credit Suisse First Boston, as Collateral Agent (incorporated by reference to Exhibit 10.15 to the Form 10-K for the year ended December 31, 1998 of Terex Corporation, Commission File No. 1-10702). 10.12 Security Agreement dated as of March 6, 1998 of Terex Corporation, each of the subsidiaries of Terex Corporation listed therein and Credit Suisse First Boston, as Collateral Agent (incorporated by reference to Exhibit 10.16 to the Form 10-K for the year ended December 31, 1998 of Terex Corporation, Commission File No. 1-10702). 10.13 Pledge Agreement dated as of March 6, 1998 of Terex Corporation, each of the subsidiaries of Terex Corporation listed therein and Credit Suisse First Boston, as Collateral Agent (incorporated by reference to Exhibit 10.17 to the Form 10-K for the year ended December 31, 1998 of Terex Corporation, Commission File No. 1-10702). 45 10.14 Form Mortgage, Leasehold Mortgage, Assignment of Leases and Rents, Security Agreement and Financing entered into by Terex Corporation and certain of the subsidiaries of Terex Corporation, as Mortgagor, and Credit Suisse First Boston, as Mortgagee (incorporated by reference to Exhibit 10.18 to the Form 10-K for the year ended December 31, 1998 of Terex Corporation, Commission File No. 1-10702). 10.15 Purchase Agreement dated as of March 22, 2001 among the Company and the Purchasers, as defined therein (incorporated by reference to Exhibit 10.27 to the Form 10-Q for the quarter ended March 31, 2001 of Terex Corporation, Commission File No. 1-10702). 10.16 Registration Rights Agreement dated as of March 29, 2001 among the Company and the Initial Purchasers, as defined therein (incorporated by reference to Exhibit 10.28 to the Form 10-Q for the quarter ended March 31, 2001 of Terex Corporation, Commission File No. 1-10702). 10.17 Agreement and Plan of Merger, dated as of June 27, 2001, by and among CMI Corporation, Terex Corporation and Claudius Acquisition Corp. (incorporated by reference to Exhibit 2.1 of the Form 8-K Current Report, Commission File No. 1-10702, dated June 27, 2001 and filed with the Commission on June 28, 2001). 10.18 Underwriting Agreement, dated as of December 5, 2001, between Terex Corporation and Salomon Smith Barney Inc. (incorporated by reference to Exhibit 1 of the Form 8-K Current Report, Commission File No. 1-10702, dated December 5, 2001 and filed with the Commission on December 6, 2001). 10.19 Purchase Agreement, dated as of December 10, 2001, among Terex Corporation and the Purchasers, as defined therein (incorporated by reference to Exhibit 10.32 to Form S-4 Registration Statement of Terex Corporation, Registration No. 333-75700). 10.20 Registration Rights Agreement, dated as of December 17, 2001, among Terex Corporation and the Initial Purchasers, as defined therein (incorporated by reference to Exhibit 10.33 to Form S-4 Registration Statement of Terex Corporation, Registration No. 333-75700). 10.21 Agreement on the Sale and Purchase of Shares of the Schaeff Group of Companies, dated as of November 26, 2001, among Terex Corporation, its wholly-owned subsidiary and the parties named therein (incorporated by reference to Exhibit 10.1 of the Form 8-K Current Report, Commission File No. 1-10702, dated December 28, 2001 and filed with the Commission on January 15, 2002). 10.22 Stock Purchase Agreement Concerning the Acquisition of Terex Common Stock, dated as of November 26, 2001, among Terex Corporation, its wholly-owned subsidiary and the parties named therein (incorporated by reference to Exhibit 10.2 of the Form 8-K Current Report, Commission File No. 1-10702, dated December 28, 2001 and filed with the Commission on January 15, 2002). 10.23 Underwriting Agreement, dated as of April 18, 2002 between Terex Corporation and Credit Suisse First Boston Corporation (incorporated by reference to Exhibit 1.1 of the Form 8-K Current Report, Commission File No. 1-10702, dated April 18, 2002 and filed with the Commission on April 18, 2002). 10.24 Sale and Purchase Agreement, dated May 16, 2002, among Terex Corporation, Terex Germany GmbH & Co. KG and Demag Mobile Cranes GmbH (incorporated by reference to Exhibit 1 of the Form 8-K Current Report, Commission File No. 1-10702, dated May 16, 2002 and filed with the Commission on May 17, 2002). 10.25 Agreement and Plan of Merger, dated July 19, 2002, among Terex Corporation, Magic Acquisition Corp., Genie Holdings, Inc., Robert Wilkerson, S. Ward Bushnell, F. Roger Brown, Wilkerson Limited Partnership, Bushnell Limited Partnership and R. Brown Limited Partnership (incorporated by reference to Exhibit 1 of the Form 8-K Current Report, Commission File No. 1-10702, dated July 19, 2002 and filed with the Commission on July 22, 2002). 10.26 Contract of Employment, dated as of September 1, 1999, between Terex Corporation and Filip Filipov (incorporated by reference to Exhibit 10.29 to the Form 10-Q for the quarter ended September 30, 1999 of Terex Corporation, Commission File No. 1-10702). 10.27 Supplement to Contract of Employment, dated as of April 1, 2000, between Terex Corporation and Filip Filipov (incorporated by reference to Exhibit 10.37 to the Form 10-Q for the quarter ended September 30, 2000 of Terex Corporation, Commission File No. 1-10702). 10.28 Second Amended and Restated Employment and Compensation Agreement, dated as of January 1, 2002, between Terex Corporation and Ronald M. DeFeo (incorporated by reference to Exhibit 10.34 to the Form 10-K for the year ended December 31, 2001 of Terex Corporation, Commission File No. 1-10702). 46 10.29 Form of Amended and Restated Change in Control and Severance Agreement dated as of April 1, 2002 between Terex Corporation and certain executive officers (incorporated by reference to Exhibit 10.36 to the Form 10-Q for the quarter ended March 31, 2002 of Terex Corporation, Commission File No. 1-10702). 12 Calculation of Ratio of Earnings to Fixed Charges. * 99.1 Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes -Oxley Act of 2002. * 99.2 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. 47