-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Dtl+yHINEbAoBscAygKxRiYOqsEpvEXtPj7kovpFr2bY1Yy6+l5vhZhvdC5BDGGk TLk7L+Bg+X46PymIMbFhsg== 0000097216-04-000127.txt : 20040315 0000097216-04-000127.hdr.sgml : 20040315 20040315144825 ACCESSION NUMBER: 0000097216-04-000127 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20040315 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TEREX CORP CENTRAL INDEX KEY: 0000097216 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL TRUCKS TRACTORS TRAILERS & STACKERS [3537] IRS NUMBER: 341531521 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10702 FILM NUMBER: 04669076 BUSINESS ADDRESS: STREET 1: 500 POST ROAD EAST STREET 2: STE 320 CITY: WESTPORT STATE: CT ZIP: 06880 BUSINESS PHONE: 2032227170 MAIL ADDRESS: STREET 1: 500 POST ROAD EAST STREET 2: STE 320 CITY: WESTPORT STATE: CT ZIP: 06880 FORMER COMPANY: FORMER CONFORMED NAME: BLACK MAMMOTH CONSOLIDATED MINING CO DATE OF NAME CHANGE: 19671002 10-K 1 f10k2003final.txt TEREX CORPORATION 2003 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K FOR ANNUAL AND TRANSITIONAL REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) |X| OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2003 or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) |_| OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________. Commission File Number 1-10702 TEREX CORPORATION (Exact Name of Registrant as Specified in Charter) Delaware 34-1531521 (State of incorporation) (I.R.S. Employer Identification No.) 500 Post Road East, Suite 320, Westport, Connecticut 06880 (Address of principal executive offices) (Zip Code) Registrant's Telephone Number, including area code: (203) 222-7170 Securities registered pursuant to Section 12(b) of the Act: Common Stock, $.01 par value (Title of Class) New York Stock Exchange (Name of Exchange on which Registered) Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |_| Indicate by check mark whether the Registrant is an accelerated filers (as defined in Exchange Act Rule 12b -2). YES X NO ----- ----- The aggregate market value of the voting and non-voting common equity stock held by non-affiliates of the Registrant was approximately $890 million based on the last sale price on June 30, 2003. The number of shares of the Registrant's Common Stock outstanding was 49,128,386 as of March 1, 2004. DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Terex Corporation Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after the year covered by this Form 10-K with respect to the 2004 Annual Meeting of Stockholders are incorporated by reference into Part III hereof. TEREX CORPORATION AND SUBSIDIARIES Index to Annual Report on Form 10-K For the Year Ended December 31, 2003 Page ---- PART I Item 1 Business....................................................... 3 Item 2 Properties..................................................... 28 Item 3 Legal Proceedings.............................................. 30 Item 4 Submission of Matters to a Vote of Security Holders............ 30 PART II Item 5 Market for Registrant's Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities............ 31 Item 6 Selected Financial Data........................................ 32 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations.................................... 33 Item 7A Quantitative and Qualitative Disclosure about Market Risk...... 57 Item 8 Financial Statements and Supplementary Data.................... 58 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure......................................... 59 Item 9A Controls and Procedures........................................ 59 PART III Item 10 Directors and Executive Officers of the Registrant............. 59 Item 11 Executive Compensation......................................... 59 Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.............................. 59 Item 13 Certain Relationships and Related Transactions................. 59 Item 14 Principal Accountant Fees and Services......................... 60 PART IV Item 15 Exhibits, Financial Statement Schedules and Reports on Form 8-K.................................................. 61 - 2 - As used in this Annual Report on Form 10-K, unless otherwise indicated, Terex Corporation, together with its consolidated subsidiaries, is hereinafter referred to as "Terex," the "Registrant," or the "Company." PART I ITEM 1. BUSINESS General Terex is a diversified global manufacturer of a broad range of equipment primarily for the construction, infrastructure and surface mining industries. The Company is building a growing franchise under the Terex brand name. The Company remains focused on its mission of delivering products that are reliable and cost-effective and producing equipment that improves its customers' return on invested capital. The Company's products are manufactured at plants in the United States, Canada, Europe, Australia, Asia and South America, and are sold primarily through a worldwide distribution network serving the global construction, infrastructure and surface mining markets. Over the past several years, the Company has implemented a series of interrelated operational and strategic initiatives designed to create a competitive advantage in the marketplace. These initiatives include: (i) providing customers with products that increase their return on invested capital through lower life cycle costs; (ii) implementing a variable cost structure with over 70% of cost of sales from purchased components; (iii) reducing selling expense and eliminating non-value-added functions throughout the organization; and (iv) increasing product and geographic diversity through internal development and acquisitions. Additionally, the Company recently announced an internal improvement process focusing on matters that are intended to benefit the Company's customers, investors and employees. The Company operates in five business segments: Terex Construction, Terex Cranes, Terex Aerial Work Platforms, Terex Mining and Terex Roadbuilding, Utility Products and Other. For financial information about the Company's industry and geographic segments, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note T -- "Business Segment Information" in the Notes to the Consolidated Financial Statements. Terex Construction The Terex Construction segment designs, manufactures and markets three primary categories of equipment and their related components and replacement parts: heavy construction equipment (including off-highway trucks and scrapers), compact equipment (including loader backhoes, compaction equipment, mini and midi excavators, loading machines, site dumpers, telehandlers and wheel loaders); and mobile crushing and screening equipment (including jaw crushers, cone crushers, washing screens and trommels). These products are primarily used by construction, logging, mining, industrial and government customers in construction and infrastructure projects and supplying coal, minerals, sand and gravel. Terex Construction products are currently marketed principally under the following brand names: Terex, Atlas, Benford, Fermec, Finlay, Fuchs, Pegson, Powerscreen, Schaeff and TerexLift. The Company's strategy going forward is to build the Terex brand. As part of that effort, Terex will, over time, be migrating historic brand names to Terex, and may include the use of the historic brand name in conjunction with the Terex brand name for a transitional period of time. Terex Construction has 17 significant manufacturing operations: o Atlas Terex GmbH ("Atlas Terex"), located in Delmenhorst, Ganderkasee, Loeningen and Vechta, Germany, at which excavators and truck mounted articulated hydraulic cranes are manufactured under the ATLAS and TEREX brand names; o Atlas Terex UK Limited ("Atlas UK"), located in Hamilton, Scotland, at which truck mounted articulated hydraulic cranes are manufactured under the ATLAS and TEREX trade names; o BL-Pegson Ltd. ("B.L. Pegson"), located in Coalville, England, which manufactures crushers under the PEGSON brand name; o Finlay Hydrascreens (Omagh) Limited ("Finlay"), located in Omagh, Northern Ireland, at which crushers, washing systems, screens and trommels are manufactured under the FINLAY brand name; - 3 - o Fuchs-Bagger GmbH & Co. KG ("Fuchs"), located in Bad Schoenborn, Germany, at which loading machines are manufactured under the FUCHS and TEREX brand names; o Powerscreen International Distribution Ltd. and Powerscreen Limited ("Powerscreen"), located in Dungannon, Northern Ireland, manufacture and sell washing systems, screens and trommels under the POWERSCREEN brand name; o The Schaeff Group of Companies ("Schaeff"), located in Langenburg, Gerabron, Rothenburg, Crailsheim and Clausnitz, Germany, at which small wheel loaders, mini excavators and midi excavators are manufactured under the SCHAEFF, ATLAS and TEREX brand names; o Terex Compact Equipment, located in Coventry, England, at which Benford Limited ("Benford") manufactures dumpers, compaction equipment and material handlers under the Company's AMIDA, BENFORD and TEREX brand names, and Fermec Manufacturing Limited ("Fermec") manufactures loader backhoes under the TEREX and FERMEC brand names; o Terex Equipment Limited ("TEL"), located in Motherwell, Scotland, which manufactures off-highway rigid haul trucks and articulated haul trucks, having capacities ranging from 25 to 100 tons, and scrapers under the TEREX brand name; and o TerexLift S.r.l. ("TerexLift"), located near Perugia, Italy, at which rough terrain telescopic material handlers (also known as telehandlers) are manufactured under the TEREXLIFT and TEREX brand names. Terex Cranes The Terex Cranes segment designs, manufactures and markets mobile telescopic cranes, tower cranes, lattice boom crawler cranes, truck mounted cranes (boom trucks) and telescopic container stackers, as well as their related replacements parts and components. These products are used primarily for construction, repair and maintenance of infrastructure, building and manufacturing facilities. Currently, Terex Cranes products are marketed principally under the following brand names: Terex, American, Bendini, Comedil, Demag, Franna, Lorain, P&H, Peiner, PPM and RO-Stinger. The Company's strategy going forward is to build the Terex brand. As part of that effort, Terex will, over time, be migrating historic brand names to Terex, and may include the use of the historic brand name in conjunction with the Terex brand name for a transitional period of time. Terex Cranes has 11 significant manufacturing operations: o The American Crane Corporation ("American Crane") located in Wilmington, North Carolina, at which lattice boom crawler cranes and tower cranes are manufactured under the AMERICAN, TEREX TOWER and DEMAG trade names; o Demag Mobile Cranes GmbH & Co. KG ("Demag") located in Zweibrucken, Wallerscheid and Bierbach, Germany, and Pecs, Hungary, at which lattice boom crawler cranes and mobile telescopic cranes are manufactured under the DEMAG, PEINER and TEREX trade names, and at which large tower cranes are manufactured under the PEINER and TEREX brand names; o Gru Comedil S.r.l. ("Comedil"), located in Fontanafredda and Milan, Italy, at which tower cranes are manufactured under the COMEDIL and TEREX trade names; o PPM S.A.S., located in Montceau-les-Mines, France, at which mobile cranes and container stackers under the brand names TEREX and PPM are manufactured; o Terex Italia S.r.l. ("Terex Italia"), located in Crespellano, Italy, at which mobile telescopic cranes are manufactured under the TEREX and BENDINI brand names; o Terex Lifting Australia Pty. Ltd. ("Terex Lifting Australia"), located in Brisbane, Australia, at which lift and carry cranes are manufactured under the FRANNA trade name; and o Terex Cranes - Waverly, located in Waverly, Iowa, at which rough terrain hydraulic telescoping mobile cranes and truck cranes are manufactured under the brand names TEREX, LORAIN and P&H (a licensed - 4 - trademark of Joy Global Inc.), and at which truck mounted cranes are manufactured under the RO-STINGER brand name. Terex Aerial Work Platforms The Terex Aerial Work Platforms segment was formed upon the completion of the acquisition of Genie Holdings, Inc. and its affiliates ("Genie") on September 18, 2002. The Terex Aerial Work Platforms segment designs, manufactures and markets aerial work platform equipment and telehandlers. Products include material lifts, portable aerial work platforms, trailer mounted booms, articulating booms, stick booms, scissor lifts, telehandlers, related components and replacement parts, and other products. Terex Aerial Work Platforms products currently are marketed principally under the GENIE and TEREX brand names. These products are used primarily by customers in the construction and building maintenance industries to lift people and/or equipment as required to build and/or maintain large physical assets and structures. Terex Aerial Work Platforms has three significant manufacturing operations located in Redmond and Moses Lake, Washington, at which aerial work platform equipment is manufactured, and a manufacturing location in Baraga, Michigan, at which rough terrain telescopic boom material handlers (also known as telehandlers) are manufactured. Terex Mining The Terex Mining segment designs, manufactures and markets large hydraulic excavators and high capacity surface mining trucks, related components and replacement parts, and other products. These products are used primarily by construction, mining, quarrying and government customers in construction, excavation and supplying coal and minerals. Currently, Terex Mining products are marketed principally under the following brand names: O&K, PAYHAULER, TEREX and UNIT RIG. The Company's strategy going forward is to build the Terex brand. As part of that effort, Terex will, over time, be migrating historic brand names to Terex, and may include the use of the historic brand name in conjunction with the Terex brand name for a transitional period of time. Terex Mining has one significant manufacturing operation, located in Dortmund, Germany, at which it manufactures large hydraulic mining excavators under the Terex and O&K brand names. Terex Mining markets high capacity surface mining trucks that are manufactured for Terex Mining by a third party supplier. Terex Roadbuilding, Utility Products and Other The Terex Roadbuilding, Utility Products and Other segment designs, manufactures and markets fixed installation crushing and screening equipment (including crushers, impactors, screens and feeders), asphalt and concrete equipment (including pavers, plants, mixers, reclaimers, stabilizers and profilers), utility equipment (including digger derricks, aerial devices and cable placers), light construction equipment (including light towers, trowels, power buggies, generators and arrow boards), construction trailers and on/off road heavy-duty vehicles, as well as related components and replacement parts. These products are used primarily by government, utility and construction customers to build roads, maintain utility lines, trim trees and for commercial and military applications. These products are currently marketed principally under the following brand names: Terex, Advance, American Truck Company, Amida, ATC, Bartell, Benford, Bid-Well, Canica, Cedarapids, Cedarapids/Standard Havens, CMI Johnson Ross, CMI Terex, CMI-Cifali, Grayhound, Hi-Ranger, Jaques, Load King, Morrison, Re-Tech, Royer, Simplicity, Tatra, Terex Power, Terex Recycling and Terex Telelect. The Company's strategy going forward is to build the Terex brand. As part of that effort, Terex will, over time, be migrating historic brand names to Terex, and may include the use of the historic brand name in conjunction with the Terex brand name for a transitional period of time. Terex also owns much of the North American distribution channel for the utility products group through the distributors Terex Utilities South and Terex Utilities West. Terex also owns 40% of Intercontinental Equipment Company ("INECO"), another distributor of utility products. These operations distribute and install the Company's utility aerial devices as well as other products that service the utility industry. The Company also operates a fleet of rental utility products under the name Terex Utilities Rental. Terex is a majority shareholder of Tatra a.s. ("Tatra"), a company incorporated under the laws of the Czech Republic. Tatra, which is located in Koprivnice, Czech Republic, manufactures a range of 4x4 to 12x12 heavy-duty on and off-road vehicles for military and commercial applications under the Tatra brand name. The Company also participates in a joint venture under the name American Truck Company ("ATC"). ATC assembles vehicles based on the Tatra design and technology incorporating U.S. components under the following brand names: Terex, American Truck and ATC. ATC manufactures its products at the Company's Terex Advance Mixer facility in Fort Wayne, Indiana. The Company also leases and rents a variety of heavy equipment to third parties under the Terex Re-Rentals brand name. - 5 - In January 2003, the Company launched the operations of Terex Financial Services, Inc. ("TFS"). TFS offers customers a complete line of loans and leases to assist in the acquisition of all of the Company's products. In North America, TFS, the Company and the Company's other domestic subsidiaries have entered into an arrangement with General Electric Capital Corporation Vendor Financial Services ("GE Capital"), whereby GE Capital acts as the preferred provider of all such loans and leases and provides a dedicated team to work with TFS and the Company's customers. All such loans and leases are originated by GE Capital on a non-recourse private label basis under the licensed trade name "TFS Capital Funding" and GE Capital bears all credit risk in connection with such loans and leases. Terex receives fee and expense reimbursements from GE Capital, and TFS shares in the profitability of the loan and lease portfolio originated by GE Capital to purchasers of Terex products. As a result, TFS participates in the benefits associated with the financing of the Company's products with marginal expense and without adding any additional debt or credit risk to Terex. Terex Roadbuilding, Utility Products and Other has 15 significant manufacturing operations: o Amida Industries, Inc. ("Amida") located in Rock Hill, South Carolina, which manufactures and sells portable floodlighting systems, concrete power trowels, concrete placement systems, concrete finishing systems, concrete mixers, generators and traffic control products under the AMIDA, BARTELL, MORRISON, BENFORD, TEREX and TEREX POWER brand names; o Bid-Well, located in Canton, South Dakota, at which concrete pavers are manufactured under the BID-WELL brand name; o Cedarapids, Inc. ("Cedarapids") located in Cedar Rapids, Iowa, which manufactures crushing and screening equipment, trommels, and asphalt pavers under the CEDARAPIDS, GRAYHOUND, ROYER and RE-TECH brand names; o CMI-Cifali Equipmentamentos, Ltda. ("CMI-Cifali"), located in Cachoeirinha, Brazil, which manufactures asphalt pavers and asphalt plants under the CMI-CIFALI brand name; o CMI Terex Corporation ("CMI"), located in Oklahoma City, Oklahoma, at which pavement profilers, reclaimers/trimmers, asphalt plants, concrete plants and concrete pavers are manufactured under the CMI TEREX, CMI JOHNSON-ROSS and CEDARAPIDS/STANDARD HAVENS brand names; o Jaques International ("Jaques"), located in Melbourne, Australia, which manufactures crushing and screening equipment under the JAQUES brand name; o Jaques International Sdn Bhd ("Jaques Malaysia"), located in Subang Jaya, Malaysia, which manufactures crushing and screening equipment under the JAQUES brand name; o Jaques (Thailand) Limited ("Jaques Thailand"), located in Chomburi, Thailand, which manufactures crushing and screening equipment under the JAQUES brand name; o Load King, located in Elk Point, South Dakota, at which construction trailers are manufactured under the LOAD KING brand name; o Simplicity Engineering ("Simplicity"), located in Durand, Michigan, at which crushing and screening equipment and recycling systems are manufactured under the SIMPLICITY, CANICA and TEREX RECYCLING brand names; o Tatra, located in Koprivnice, Czech Republic, at which a range of 4x4 to 12x12 heavy duty on and off-road vehicles for military and commercial applications are manufactured under the TATRA brand name; o Terex Advance Mixer, Inc. ("Terex Advance Mixer"), located in Fort Wayne, Indiana, which manufactures and sells front and rear discharge concrete mixer trucks under the TEREX and ADVANCE brand names, and at which ATC manufactures heavy-duty on and off-road vehicles for military and commercial applications under the TEREX, ATC and AMERICAN TRUCK brand names; o Terex Bartell, Ltd. ("Bartell"), located in Brampton, Ontario, Canada, which manufactures and sells concrete power trowels and concrete finishing systems under the BARTELL brand name; and - 6 - o Terex-Telelect, Inc. ("Telelect"), located in Watertown and Huron, South Dakota, at which utility aerial devices and digger derricks are manufactured under the TEREX TELELECT and HI-RANGER brand names. Other Businesses Terex has a minority interest in Inner Mongolia North Hauler Joint Stock Company Limited ("North Hauler"), a company incorporated under the laws of China, which manufactures rigid and articulated haulers in China. Trucks manufactured by North Hauler, which is located in Baotou, Inner Mongolia, are principally used in the People's Republic of China under the TEREX brand name. As discussed in Note J - "Investment in Joint Venture" in the Notes to the Consolidated Financial Statements, the Company has a 49% ownership interest in a joint venture, Genie Financial Solutions Holding B.V. ("GFSH B.V."). The other 51% of GFSH B.V. is owned by a European financial institution. GFSH B.V. was established to facilitate the financing of Genie's products sold in Europe by offering loans and leases to purchasers of Genie products. The Company has an interest in a joint venture in India under the name Terex Vectra Equipment Pvt. Ltd., which will manufacture and market compact construction equipment. Production is expected to begin in the first half of 2004. Terex also participates in joint ventures in China under the names Wieland International Trading (Shanghai) Co. Ltd. and Shanghai Wieland Engineering Co. Ltd., which manufacture replacement and wear parts for crushing equipment. The Company owns an interest in DuvalPilot Equipment Outfitters, LLC, a distributor of the Company's products and other light construction equipment located in Florida. Business Strategy Over the past several years, Terex has implemented a series of interrelated operational and strategic initiatives designed to create a competitive advantage in the marketplace and maximize its financial performance. These initiatives include: (i) providing customers with lower cost products that increase their return on invested capital through a lower life cycle cost; (ii) implementing a variable cost structure with over 70% of cost of sales from purchased components; (iii) reducing selling expense and eliminating non-value-added functions throughout the organization; and (iv) increasing product and geographic diversity through internal development and acquisitions. Additionally, the Company recently announced an internal improvement process, known as the Terex Improvement Process or "TIP", focusing on matters that are intended to benefit the Company's customers, investors and employees. Increase Sales and Market Share Through Best Value Strategy Terex has increased its sales and gained market share by pursuing its best value strategy of providing comparable or superior products at a lower total cost of ownership and with higher returns on invested capital as compared to its competitors. Terex typically prices its products aggressively relative to its competition while providing the same level of functionality. Reduce Costs and Improve Manufacturing Efficiency The Company's best value strategy is supported by ongoing efforts to reduce costs and improve manufacturing efficiency. Over the past few years, it has initiated several programs to consolidate manufacturing operations, minimize selling costs, outsource non-critical manufacturing processes and rationalize product lines in order to increase profitability and reduce fixed costs. The Company believes its focus on reducing costs and improving manufacturing efficiency has yielded significantly more efficient and flexible operations than its competitors as measured by its comparatively low selling, general and administrative expense-to-sales ratio, significantly higher sales per employee, and greater capital efficiency (based on the ratio of capital expenditures to sales). Focus on Geographic, Product and End-Market Diversification Over the past several years, the Company has focused on growing and improving the operations of its core business segments. The Company also has expanded the size and scope of its core businesses both through acquisitions and through development of new products in order to increase its market share. Management believes that these initiatives have helped to reduce the effect of potential cyclical changes in any one product category or geographic market. These initiatives have also expanded the Company's product lines within its core - 7 - businesses, added new technology and improved its distribution network. As a result, the Company has developed a geographically diverse revenue base with approximately 61% of its revenues derived outside the United States and Canada, and has built a diverse product portfolio addressing a range of end-markets as illustrated by the Company's sales by product category in: Percentage of Sales ------------------- Product Category 2003 2002 2001 ---------------- ---- ---- ---- Hydraulic Mobile Cranes 18 16 13 Compact Construction Equipment 17 18 9 Crushing, Screening & Paving Equipment 15 20 23 Aerial Work Platforms 14 5 3 Surface Mining Equipment 8 9 14 Off-Highway Construction Trucks 6 9 11 Utility Equipment 6 7 7 Lattice Boom & Tower Cranes 6 6 7 Boom Trucks 3 2 3 Material Handlers & Container Stackers 2 5 7 On/Off Road Heavy Duty Vehicles 2 --- --- Other 3 3 3 ------- ------- ------ Total 100% 100% 100% ======= ======= ====== Grow through Acquisitions Since 1995, the Company has invested over $1.9 billion to strengthen its core business segments and complementary businesses through over 25 strategic acquisitions. Acquisitions and new product development have been important components of the Company's growth strategy. The Company is currently focused on completing the integration of its recent acquisitions and growing organically by turning its portfolio of individual businesses into an integrated franchise. The Company may make additional acquisitions in the future, particularly those that would complement the Company's existing operations, and expects acquisitions to be part of the Company's future. The Company feels that any future acquisitions would need to be of significant strategic importance, such as expanding the Company's geographic range or product diversity. Some recent examples of the Company's acquisition strategy include: o The acquisition during 2003 of the utility products distributors Commercial Body Corporation ("Commercial Body") and Combatel Distribution, Inc. ("Combatel") (now part of Terex Utilities South) and the majority interests in Tatra and ATC. o The acquisition during 2002 of Genie, Demag, Schaeff (including Fuchs), Terex Advance Mixer, and the utility product distributors Pacific Utility Equipment Company ("Pacific Utility") (now part of Terex Utilities West) and Telelect Southeast Distribution, Inc. ("Telelect Southeast") (now part of Terex Utilities South). o The acquisition during 2001 of Jaques (including Jaques Malaysia and Jaques Thailand), CMI (including Bid-Well, Load King and CMI-Cifali) and Atlas Terex (including Atlas UK). Internal Improvement Process Terex recently launched a series of initiatives intended to transform the Company over the next several years. The Terex Improvement Process ("TIP") will focus on improving the Company's internal processes and helping the Company become more customer-centric. The Company has created several TIP teams of cross-functional and operational managers to build the Terex of tomorrow. The teams will focus on leadership and talent development, the customer experience, the Company's product value proposition and returns delivered to the Company's investors. Some areas of concentration include improving the workplace, better management of the Company's assets, improving operating margins, making Terex an easier partner to do business with, and new branding and marketing strategies. - 8 - Terex's goal is to become the most customer responsive company in its industry and a preferred place to work. Products Terex Construction Heavy Construction Equipment. Terex Construction manufactures off-highway trucks and scrapers, and also markets excavators and wheel loaders, used in earthmoving applications. [Graphic] Articulated off-highway trucks are three-axle, six-wheel drive machines with a capacity range of 25 to 40 tons. An oscillating connection between the cab and body allows the cab and body to move independently, enabling all six tires to maintain ground contact for traction on rough terrain. This allows the truck to move effectively through extremely rough or muddy off-road conditions. Articulated off-highway trucks are typically used together with an excavator or wheel loader to move dirt in connection with road, tunnel or other infrastructure construction and commercial, industrial or major residential construction projects. Terex articulated off-highway trucks are manufactured in Motherwell, Scotland, under the brand name TEREX. [Graphic] Rigid off-highway trucks are two axle machines which generally have larger capacities than articulated off-highway trucks, but can operate only on improved or graded surfaces. The capacities of rigid off-highway trucks range from 35 to 100 tons, and are used in large construction or infrastructure projects, aggregates and smaller surface mines. Terex's rigid trucks are manufactured in Motherwell, Scotland, under the TEREX brand name. [Graphic] Scrapers move dirt by elevating it from the ground to a bowl located between the two axles of the machine. Scrapers are used most often in relatively dry, flat terrains. Terex scrapers are manufactured in Motherwell, Scotland, under the TEREX brand name. [Graphic] Excavators are used for a wide variety of construction applications, including non-residential construction (such as commercial sites and road construction) and residential construction. These machines are crawler type excavators ranging in size from 13 to 47 tons. They are manufactured for Terex in South Korea and are sold under the TEREX brand name. [Graphic] Wheel Loaders are used for loading and unloading materials. Applications include mining and quarrying, non-residential construction, airport and industrial snow removal, waste management and general construction. These machines range in size from three to five cubic yards capacity, and are manufactured for Terex in South Korea and are sold under the TEREX brand name. - 9 - Compact Equipment. Terex Construction manufactures a wide variety of compact equipment used primarily in the construction and rental industries. Products include loader backhoes, compaction equipment, excavators, loading machines, site dumpers, European telehandlers and wheel loaders. [Graphic] Loader backhoes incorporate a front-end loader and rear excavator arm. They are used for loading, excavating and lifting in many construction and agricultural related applications. Terex offers four models of loader backhoes, ranging from 69 to 90 horsepower. Terex loader backhoes are currently manufactured under the TEREX and FERMEC brand names in Coventry, England. [Graphic] Compaction equipment manufactured by Terex ranges from small portable plates to heavy duty ride-on rollers. Single and reversible direction plates are used in the compaction of trench backfill material, paths and driveways. A range of tandem rollers from 1.5 to 10 tons covers larger applications, including road formation, construction and asphalt surfacing. Self-propelled rollers from six to 12 tons are used in landfill site construction and on soil and sub-base materials. Included in the range are sophisticated infrared trench compactors that enable the operator to use the machine at a distance. Terex compaction equipment is currently manufactured in Coventry, England, under the TEREX and BENFORD brand names. [Graphic] Excavators in the compact equipment category include mini and midi excavators used in the general construction, landscaping and rental businesses. Mini excavators are crawler type excavators ranging in size from 1.6 tons to 5.5 tons. These machines are equipped with either rubber or steel tracks. Midi excavators are manufactured in a mobile (wheeled) version in the six to 11 ton sizes for the European market. These excavators are commonly used for excavation and lifting in confined areas in communities and in rental businesses. Midi excavators are also manufactured as crawler excavators in sizes between 5.5 tons and 11.0 tons. In the six to eight ton sizes Terex offers standard steel tracks and optional rubber tracks. These excavators are manufactured in Germany under the TEREX, ATLAS and SCHAEFF brand names. [Graphic] Loading machines are designed for handling logs, scrap and other bulky materials with clamshell, magnet or grapple attachments. There are stationary and mobile models for loading barges and various operations in scrap, manufacturing and materials handling. Terex produces loading machines ranging from 11 tons to 66 tons at its facilities in Bad Schoenborn and Ganderkasee, Germany, under the TEREX, FUCHS and ATLAS brand names. - 10 - [Graphic] Site dumpers are used to move smaller quantities of materials from one location to another, and are primarily used for landscaping and concrete applications. Terex offers a variety of two wheel and four wheel drive models. Site dumpers are manufactured in Coventry, England, under the BENFORD and TEREX brand names. [Graphic] Wheel Loaders are used for loading and unloading materials. Due to the large variety of attachments, these machines are also multi-equipment carriers used not only in the field of construction but also in industrial, rental and landscaping business. Terex wheel loaders are manufactured under the brand names of SCHAEFF and TEREX at its facility in Crailsheim, Germany. Crushing and Screening Equipment. Crushing and screening equipment offered by Terex Construction is used in the quarry, demolition and recycling industries. Crushing and screening plants can be either stationary or portable. Portable crushing and screening plants are configured with a variety of components to provide easy site-to-site mobility, application versatility, flexible on-demand finished product and reduced set-up time. Terex Construction manufactures crushing equipment under the PEGSON brand name in Coalville, England. [Graphic] Jaw crushers are primary crushers with reduction ratios of 6:1 for crushing larger rock. Applications include hard rock, sand and gravel and recycled materials. Models offered yield a range of production capacities: up to 265 tons per hour for the smallest unit, and up to 1,700 tons per hour for the largest. [Graphic] Cone crushers are used in secondary and tertiary applications to reduce a number of materials, including quarry rock and riverbed gravel. High production, low maintenance and enhanced final material cubicle shape are the principal features of these compression-type roller bearing crushers. Terex Construction manufactures screening equipment in Dungannon, Northern Ireland and Omagh, Northern Ireland under the brand names POWERSCREEN and FINLAY. [Graphic] Dry screening is used to process materials such as sand, gravel, quarry rock, coal, construction and demolition waste, soil, compost and wood chips. - 11 - [Graphic] Washing screens are used to separate, wash, scrub, dewater and stockpile sand and gravel. Products manufactured by Terex include a completely mobile single chassis washing plant incorporating separation, washing, dewatering and stockpiling, mobile and stationary screening rinsers, bucket-wheel dewaterers, scrubbing devices for aggregate, a mobile cyclone for maximum retention of sand particles, silt extraction systems, stockpiling conveyors and a sand screw system as an alternative option to the bucket-wheel dewaterers. [Graphic] Trommels are used in the recycling of construction and demolition waste materials, as well as soil, compost and wood chips. Trommels incorporate conveyors and variable speed fingertip control of the belts and rotating drum to separate the various materials. Terex manufactures a range of trommel and soil shredding equipment. Trommels are also used to process construction and demolition waste, as well as decasing, segmenting and processing empty bottles. The soil shredding units are mainly used by landscape contractors and provide a high specification end product. Terex Cranes Terex Cranes offers a wide variety of cranes, including mobile telescopic cranes, tower cranes, lattice boom crawler cranes, boom trucks and telescopic container stackers. Mobile Telescopic Cranes. Mobile telescopic cranes are used primarily for industrial applications, in commercial and public works construction and in maintenance applications, to lift equipment or material to heights in excess of 490 feet. Terex Cranes offers a complete line of mobile telescopic cranes, including rough terrain cranes, truck cranes, all terrain cranes, and lift and carry cranes. [Graphic] All terrain cranes were developed in Europe as a cross between rough terrain and truck cranes, and are designed to travel across both rough terrain and highways. All terrain cranes manufactured by Terex have lifting capacities of up to 800 tons and maximum tip heights of up to 490 feet. Terex manufactures all terrain cranes at its Montceau-les-Mines, France, and Zweibrucken and Wallerscheid, Germany, facilities under the brand names TEREX, PPM and DEMAG. [Graphic] Rough terrain cranes move materials and equipment on rough or uneven terrain, and are often located on a single construction or work site such as a building site, a highway or a utility project for long periods of time. Rough terrain cranes cannot be driven on highways and accordingly must be transported by truck to the work site. Terex offers rough terrain cranes with lifting capacities ranging from 20 to 100 tons and maximum tip heights of up to 195 feet. Terex - 12 - manufactures its rough terrain cranes at its facilities located in Waverly, Iowa, and Crespellano, Italy, under the brand names TEREX, LORAIN, P&H and BENDINI. [Graphic] Truck cranes have two cabs and can travel rapidly from job site to job site at highway speeds. Truck cranes are often used for multiple local jobs, primarily in urban or suburban areas. Truck cranes manufactured by Terex have maximum lifting capacities of up to 90 tons and maximum tip heights of up to 202 feet. Terex manufactures truck cranes at its Waverly, Iowa, facility under the brand names TEREX, P&H and LORAIN. [Graphic] Lift and carry cranes are designed primarily for site work, such as at mine sites, big fabrication yards and building and construction sites. Terex offers five models of lift and carry cranes with lifting capacities ranging from 11 to 22 tons. Lift and carry cranes are manufactured in Terex's Brisbane, Australia, facility under the brand name FRANNA. Tower Cranes. Tower cranes are often used in urban areas where space is constrained and in long-term or very high building sites. Tower cranes lift construction material and place the material at the point where it is being used. They include a vertical tower with a horizontal jib with a counterweight at the top (except for self-erecting tower cranes where the counter weight is at the bottom and the entire tower rotates). On the jib is a trolley through which runs a load carrying cable and which moves the load along the jib length. On larger cranes, the operator is located above the work site where the tower and jib meet, providing superior visibility. The jib also rotates 360 degrees, creating a large working area equal to twice the jib length. Tower cranes are currently produced by Terex in Fontanafredda and Milan, Italy, under the COMEDIL and TEREX brand names, and in Zweibrucken, Germany, under the PEINER and TEREX brand names. Terex produces the following types of tower cranes: [Graphic] Self-erecting tower cranes are trailer-mounted and unfold from four sections (two for the tower and two for the jib); certain larger models have a telescopic tower and folding jib. These cranes can be assembled on site in a few hours. Applications include residential and small commercial construction. Crane heights range from 50 feet to 90 feet and jib lengths from 60 feet to 125 feet. [Graphic] Hammerhead tower cranes have a tower and a horizontal jib assembled from sections. The tower extends above the jib to which suspension cables supporting the jib are attached. These cranes are assembled on-site in one to three days depending on height, and can increase in height with the project; they have a maximum free-standing height of 250 feet to 300 feet and a maximum jib length of 240 feet. - 13 - [Graphic] Flat top tower cranes have a tower and a horizontal jib assembled from sections. There is no A-frame above the jib, which reduces cost and facilities assembly; the jib is self-supporting and consists of reinforced jib sections. These cranes are assembled on site in one to two days, and can increase in height with the project; they have a maximum freestanding height of 305 feet and a maximum jib length of 280 feet. [Graphic] Luffing jib tower cranes have a tower and an angled jib assembled from sections. There is one A-frame above the jib to which suspension cables supporting the jib are attached. Unlike other tower cranes, there is no trolley to control lateral movement of the load, which is accomplished by changing the jib angle. These cranes are assembled on site in two to three days, and can increase in height with the project; they have a maximum freestanding height of 185 feet and a maximum jib length of 200 feet. Luffing jib tower cranes operate like a traditional lattice boom crane mounted on a tower. Lattice Boom Crawler Cranes. Lattice boom crawler cranes are designed to lift material on rough terrain and can maneuver while bearing a load. The boom is made of tubular steel sections, which are transported to and erected, together with the base unit, at a construction site. [Graphic] Hydraulic lattice boom crawler cranes manufactured in Wilmington, North Carolina, under the TEREX and AMERICAN brand names have lifting capacities from 50 to 275 tons. Larger crawler cranes manufactured in Zweibrucken, Germany, under the DEMAG and TEREX brand names have lifting capacities ranging from 300 to 1750 tons. Truck Mounted Cranes (Boom Trucks). Terex Cranes manufactures telescopic boom cranes for mounting on commercial truck chassis. Truck mounted cranes are used primarily in the construction industry to lift equipment or materials to various heights. Boom trucks are generally lighter and have less lifting capacity than truck cranes, and are used for many of the same applications when lower lifting capabilities are required. An advantage of a boom truck is that the equipment or material to be lifted by the crane can be transported by the truck, which can travel at highway speeds. Applications include the installation of air conditioners and other roof equipment. Terex Cranes manufactures both telescopic and articulated boom truck mounted cranes. [Graphic] Telescopic boom truck mounted cranes enable an operator to reach heights of up to 166 feet and have a maximum lifting capacity of up to 35 tons. Terex manufactures its telescopic boom truck mounted cranes at its Waverly, Iowa facility under the brand names RO-STINGER and TEREX. - 14 - Telescopic Container Stackers. Telescopic container stackers are used to pick up and stack containers at dock and terminal facilities. At the end of a telescopic container stacker's boom is a spreader which enables it to attach to containers of varying lengths and weights and to rotate the container up to 360 degrees. [Graphic] Telescopic container stackers manufactured by Terex have lifting capacities up to 49.5 tons, can stack up to five full or eight empty containers and are able to maneuver through very narrow areas. Terex manufactures its telescopic container stackers under the brand names PPM and TEREX at its Montceau-les-Mines, France, facility. Terex Aerial Work Platforms Aerial work platforms are pieces of equipment that position workers and materials easily and quickly to elevated work areas. These products have developed over the past twenty years as alternatives to scaffolding and ladders. Terex offers a variety of aerial lifts that are categorized into six product families: material lifts; portable aerial work platforms; trailer mounted booms; articulating booms; stick booms; and scissor lifts. All of these aerial lifts are manufactured under the brand name GENIE in Redmond and Moses Lake, Washington. The Aerial Work Platforms segment also manufactures and markets rough terrain telescopic boom material handlers (also known as telehandlers) under the TEREX brand name at its facility in Baraga, Michigan. [Graphic] Material lifts are used primarily indoors in the construction, industrial and home owner markets. They safely and easily lift up to 1,000 pounds from ground level to heights of up to 26 feet. [Graphic] Portable aerial work platforms are used primarily indoors in a variety of markets to perform overhead maintenance. These aerial work platforms lift one or two people to working heights up to 46 feet. Most models will roll through a standard doorway and can be transported in the back of a pick-up truck. Some models are drivable when fully elevated. [Graphic] Trailer mounted booms are used outdoors and provide the same versatile reach of an articulating boom, plus the ability to be towed. Terex trailer mounted booms have lift capacities of 500 pounds and a working height of up to 56 feet. [Graphic] Articulating booms are primarily used in construction and industrial applications, both indoors and out. They feature lifting versatility with up, out and over position capabilities to access difficult to reach overhead areas that typically cannot be reached with a scissor lift or straight boom. Many options are available, including: two- and four-wheel drive; rough terrain models; narrow access - 15 - models that roll through standard double doorways; gas/LPG, diesel, electric, and hybrid capabilities. Models have working heights from 26 feet to 86 feet and horizontal reach up to 60 feet. [Graphic] Stick booms are used outdoors in commercial and industrial new construction and highway and bridge maintenance projects. Terex stick booms offer working heights from 46 feet to 131 feet, articulated jibs on some models, and options including two- and four-wheel drive, rough terrain packages and multi-power capabilities. [Graphic] Scissor lifts are used in outdoor and indoor applications in a variety of construction, industrial and commercial settings. Terex scissor lifts are offered in slab or rough terrain models. Some of their features are narrow access capability, slide-out platform extension, quiet electric drives, rough terrain models, and working heights from 21 feet to 59 feet. [Graphic] Telehandlers are used to move and place materials on new residential and commercial job sites. Terex manufactures telehandlers with load capacities of up to 11,000 pounds and with a maximum extended reach of up to 62 feet and lift capabilities of up to 78 feet. Terex Mining Terex Mining offers high capacity surface mining trucks and large hydraulic excavators used in the surface mining industry. [Graphic] Large hydraulic excavators in shovel or backhoe versions are primarily used to dig overburden and minerals and load it into trucks. These excavators are utilized in quarries, surface mines and large construction sites around the world. Terex Mining excavators have operating weights ranging from 58 to 1000 tons and bucket sizes ranging from six to 60 cubic yards. They are manufactured under the O&K and TEREX brand names in Dortmund, Germany. [Graphic] High capacity surface mining trucks are off-road dump trucks with capacities in excess of 120 tons. They are powered by a diesel engine driving an electric alternator that provides power to individual electric motors in each of the rear wheels. Terex's product line consists of a series of rear dump trucks with payload capabilities ranging from 120 to 360 tons, and bottom dump trucks with payload capacities ranging from 180 to 300 tons. Terex's high capacity surface mining trucks are manufactured under the UNIT RIG and TEREX brand names. - 16 - [Graphic] Terex also offers an all wheel drive, rear dump truck with 55 ton payload capacity that can operate in adverse conditions. With high traction force and low ground bearing pressure, this truck is found on construction sites, in special applications and smaller mines. The Terex special all wheel drive rear dump truck is manufactured under the PAYHAULER brand name. Terex Roadbuilding, Utility Products and Other Terex offers a diverse range of products for the roadbuilding, utility and construction industries and governments. Products in this group include crushing and screening equipment, asphalt and concrete equipment, utility equipment, light construction equipment, construction trailers and on/off road heavy-duty vehicles. Crushing and Screening Equipment. Crushing and screening equipment is used in processing aggregate materials for roadbuilding materials. Typical crushing and screening operations utilize a combination of components in reducing virgin aggregate materials to required product sizes for final usage in road building and related applications. Terex Roadbuilding manufactures crushing equipment under the CEDARAPIDS, CANICA and JAQUES brand names in Cedar Rapids, Iowa; Durand, Michigan; Melbourne, Australia; and Subang Jaya, Malaysia. Crushing equipment manufactured by Terex Roadbuilding includes jaw crushers, horizontal shaft impactors, vertical shaft impactors and cone crushers. [Graphic] Jaw crushers are primary crushers with reduction ratios of 6:1 for crushing larger rock. Applications include hard rock, sand and gravel and recycled materials. Models offered yield a range of production capacities: up to 265 tons per hour for the smallest unit, and up to 1,700 tons per hour for the largest. [Graphic] Horizontal shaft impactors are secondary crushers which utilize rotor impact bars and breaker plates to achieve high production tonnages and improved aggregate particle shape. They are typically applied to reduce soft to medium hard materials. [Graphic] Vertical shaft impactors are tertiary crushers which reduce material utilizing various rotor configurations and are highly adaptable to any application. Vertical shaft impactors can be customized to material conditions and desired product size/shape. A full range of models provides customers with increased tonnages, better circuit balance and screen efficiency. - 17 - [Graphic] Cone crushers are used in secondary and tertiary applications to reduce a number of materials, including quarry rock and riverbed gravel. High production, low maintenance and enhanced final material cubicle shape are the principal features of these compression-type roller bearing crushers. Terex Roadbuilding manufactures screening equipment in Durand, Michigan; Cedar Rapids, Iowa; Melbourne, Australia; Subang Jaya, Malaysia; and Chomburi, Thailand, under the brand names SIMPLICITY, CEDARAPIDS, ROYER, RE-TECH and JAQUES. [Graphic] Heavy duty inclined screens and feeders are found in high tonnage applications. These units are typically custom designed to meet the needs of each customer. Although primarily found in stationary installations, Terex supplies a variety of screens and feeders for use on heavy duty portable crushing and screening spreads. [Graphic] Inclined screens are used in all phases of plant design from handling quarried material to fine screening. Capable of handling much larger capacity than a flat screen, inclined screens are most commonly found in large stationary installations where maximum output is required. This requires the ability to custom design and manufacture units that meet both the engineering and application requirements of the end user. [Graphic] Feeders are generally situated at the primary end of the processing facility, requiring rugged design in order to handle the impact of the material being fed from front end loaders, excavators, etc. The feeder moves material to the crushing and screening equipment in a controlled fashion. [Graphic] Flat screens combine the high efficiency of a horizontal screen with the capacity, bearing life and low maintenance of an inclined screen. They are adaptable for heavy scalping, standard duty and fine screening applications and are engineered for durability and user friendliness. Asphalt and Concrete Equipment. Terex Roadbuilding manufactures asphalt mixing plants, asphalt pavers, concrete production plants, concrete pavers, profilers, stabilizers and reclaimers at its facilities in Cedar Rapids, Iowa; Oklahoma City, Oklahoma; and Cachoeirinha, Brazil. [Graphic] Asphalt pavers are available in rubber tire and steel or rubber track designs. Terex sells asphalt pavers with maximum widths from 18 feet to 30 feet. The smaller units have a maximum paving width of 18 feet and are used for commercial work such as parking lots, development streets and construction overlay projects. Mid-sized pavers are used for mainline and commercial projects and have maximum paving widths ranging from 24 to 28 feet. High production pavers are engineered and built for heavy-duty, mainline paving and are capable of 30 foot maximum paving widths. All of the above feature direct hydrostatic drive for maximum uptime, patented frame raise for maneuverability and three-point - 18 - suspension for smooth, uniform mats. Terex asphalt pavers are manufactured under the CEDARAPIDS and GRAYHOUND brand names in Cedar Rapids, Iowa, and under the CMI-CIFALI brand name in Cachoeirinha, Brazil. [Graphic] Asphalt mixing plants are used by road construction companies to produce hot mix asphalt. The mixing plants are available in portable, relocatable and stationary configurations. Associated plant components and control systems are manufactured to offer customers a wide variety of equipment to meet individual production requirements. Asphalt mixing plants are manufactured under the CMI and CEDARAPIDS/STANDARD HAVENS brand names in Oklahoma City, Oklahoma, and under the CMI-CIFALI brand name in Cachoeirinha, Brazil. [Graphic] Concrete production plants are used in residential, commercial, highway, airport and other markets. Terex products include a full range of portable and stationary transit mix and central mix production facilities. They are manufactured in Oklahoma City, Oklahoma, and sold worldwide under the CMI JOHNSON-ROSS brand name. [Graphic] Concrete mixers are machines with a large revolving drum in which cement is mixed with other materials to make concrete. Terex offers models mounted on trucks with three, four, five, six or seven axles. They are manufactured in Fort Wayne, Indiana, under the brand name TEREX ADVANCE MIXER. [Graphic] Concrete pavers produced by Terex are used by paving contractors to place and finish concrete streets, highways and airport surfaces. Terex manufactures slipform pavers, which pave widths ranging from two feet to 35 feet in a single pass. Terex also produces concrete pavers which require paving forms, usually metal, to contain the paving material. These pavers are used on bridge decks, elevated highways and for general conduction paving needs. Concrete pavers are manufactured under the CMI TEREX and BID-WELL brand names in Oklahoma City, Oklahoma, and Canton, South Dakota. [Graphic] Reclaimers/Stabilizers produced by Terex are used to add load-bearing strength to the base structures of new highways and new building sites. They are also used for in-place reclaiming of deteriorated asphalt pavement. Terex's reclaimers/stabilizers are manufactured in Oklahoma City, Oklahoma, under the CMI TEREX brand name. - 19 - [Graphic] Pavement profilers produced by Terex mill and reclaim deteriorated asphalt pavement, leaving a level, textured surface upon which new paving material is placed. The process is less costly than complete removal, and produces a by-product, RAP (Recycled Asphalt Product) that can be processed through Terex hot mix asphalt plants to produce lower cost paving materials. Terex produces pavement profilers in Oklahoma City, Oklahoma, under the CMI TEREX brand name. Utility Equipment. Terex utility products include digger derricks, aerial devices and cable placers. These products are used by electric utilities, tree care companies, telecommunications companies, and the electric construction industry as well as government organizations. The products are mounted on commercial truck chassis. Digger derricks and aerial devices are primarily used for the construction and maintenance of electric utility lines. [Graphic] Digger derricks are used to dig holes and set utility poles. They include a telescopic boom with an auger mounted on the boom, which digs the hole, and a winch and devices to lift, maneuver and set the pole. Digger derricks available from Terex have sheave heights up to 95 feet and lifting capacities up to 48,000 pounds. Terex digger derricks are manufactured in Watertown, South Dakota, under the brand name TEREX TELELECT. [Graphic] Aerial devices are used to elevate workers and may handle material to work areas at the top of utility poles or trimming trees away from electrical lines as well as miscellaneous purposes such as sign maintenance. Aerial devices available from Terex include telescopic, non-overcenter and overcenter models that range in working heights from 34 to 105 feet and material handling capacity up to 2,000 pounds. Terex aerial devices are manufactured at the Watertown, South Dakota, facility under the brand names TEREX TELELECT and HI-RANGER. [Graphic] Cable placers are used to install fiber optic, copper and strand telephone and cable lines. The cable placer includes a man basket with working height of 37 feet. They are manufactured in Watertown, South Dakota, under the brand name TEREX TELELECT. Light Construction Equipment. Light construction equipment produced by Terex includes mobile and portable light towers, concrete power trowels, concrete placement systems, concrete finishing systems, generators and traffic control products. [Graphic] Light towers are used primarily to light work areas for night construction activity. They are towed to the work-site where the telescopic tower is extended and outriggers are deployed for stability. They are diesel powered and provide adequate light for construction activity for a radius of approximately 300 feet from the tower. Light towers are manufactured under the AMIDA and TEREX brand names in Rock Hill, South Carolina. - 20 - [Graphic] Power trowels are used to provide a smooth finish on concrete surfaces. They are used on soft cement as the concrete hardens. The power trowels are manufactured as walk-behind and ride-on models. Trowels are typically used in conjunction with other products manufactured by Terex, including light towers, power buggies, screed, and material spreaders. Power trowels are manufactured under the BARTELL brand name in Brampton, Ontario, Canada. [Graphic] Power buggies are used primarily to transport concrete from the mixer to the pouring site. Terex power buggies include dump capacities from 10 to 21 cubic feet with both walk-behind and ride-on models. Terex manufactures power buggies under the AMIDA, MORRISON and TEREX brand names in Rock Hill, South Carolina. [Graphic] Generators are used to provide electric power on construction sites and other remote locations. Generators up to 2,000 kilowatt are manufactured under the TEREX brand name in Rock Hill, South Carolina. [Graphic] Arrow boards (or detour lights) are used to direct traffic around road construction sites. They are primarily solar powered, with solar panels continuously recharging batteries which provide power during night hours. Terex arrow boards include 15 and 25 light configurations, and are manufactured under the TEREX and AMIDA brand names in Rock Hill, South Carolina. Construction Trailers. Terex produces construction trailers at its facility in Elk Point, South Dakota under the LOAD KING brand name. Construction trailers manufactured by Terex are used in the construction industry to haul materials and equipment. Bottom dump material trailers are used to transport raw aggregates, crushed aggregates and finished hot mix asphalt paving material. Lowbed trailers have capacities from 25 tons to 100 tons and are designed with several gooseneck systems and are used primarily to transport construction equipment. - 21 - On/Off Road Heavy Duty Vehicles. Terex produces, through its majority ownership of Tatra, a range of 4x4 to 12x12 heavy duty on and off-road vehicles for military and commercial applications at its facility in Koprivnice, Czech Republic under the TATRA brand name. ATC manufactures vehicles based on the Tatra design and technology incorporating U.S. components at the Company's Terex Advance Mixer facility in Fort Wayne, Indiana. [Graphic] On/off road heavy duty vehicles are produced for military and commercial use with axle configurations of 4x4 up to 12x12. The main features of the vehicle design include an air cooled engine, a sturdy central load-carrying tube and a swinging half axle design that controls the independent movement of each wheel. The kinematics of the axles, together with the backbone tube, make a stable base to which a body can be mounted that limits extreme side rocking, making it possible for the truck to go off-road at high speeds. Backlog The Company's backlog as of December 31, 2003 and 2002 was as follows: December 31, ---------------------------- 2003 2002 -------------- ------------- (in millions) Terex Construction.................$ 109.0 $ 75.9 Terex Cranes....................... 138.8 146.2 Terex Aerial Work Platforms........ 22.2 10.0 Terex Mining....................... 33.6 47.8 Terex Roadbuilding, Utility Products and Other.............. 164.7 120.0 Eliminations....................... (5.7) --- -------------- ------------- Total.........................$ 462.6 $ 399.9 ============== ============= Substantially all of the Company's backlog orders are expected to be filled within one year, although there can be no assurance that all such backlog orders will be filled within that time period. The Company's backlog orders represent primarily new equipment orders. Parts orders are generally filled on an as-ordered basis. Terex Construction's backlog at December 31, 2003 increased $33.1 million to $109.0 million, as compared to $75.9 million at December 31, 2002. The increase in backlog was due primarily to increased customer orders at Atlas prior to a model change scheduled for the first quarter of 2004. Additionally, backlog increased significantly at Fuchs, Schaeff and Benford. The backlog at Terex Cranes decreased $7.4 million to $138.8 million at December 31, 2003 from $146.2 million at December 31, 2002, principally due to the reduction of backlog at Demag, which was partially offset by increased backlog at the North American crane businesses. The reduction in Demag's backlog was due to improvements in production and shipping efficiencies implemented after Demag's acquisition by Terex. The increase in the backlog at Terex Aerial Work Platforms to $22.2 million at December 31, 2003 from $10.0 million at December 31, 2002 was due to increased sales in the United States, particularly to the rental customer market. Terex Mining's backlog at December 31, 2003 decreased $14.2 million to $33.6 million, as compared to $47.8 million at December 31, 2002. The decrease was primarily due to a decrease in orders for surface mining trucks. The backlog at Terex Roadbuilding, Utility Products and Other increased $44.7 million to $164.7 million at December 31, 2003 from $120.0 million at December 31, 2002, primarily as a result of the acquisitions during 2003 of Commercial Body, Combatel, Tatra and ATC. Distribution Terex distributes its products through a global network of dealers, major accounts and direct sales to customers. - 22 - Terex Construction Terex distributes heavy construction equipment manufactured by TEL (trucks, scrapers and replacement parts) primarily through worldwide dealership networks. TEL's truck dealers are independent businesses, which generally serve the construction, mining, timber and/or scrap industries. Although these dealers may carry products from a variety of manufacturers, they generally carry only one manufacturer's "brand" of each particular type of product. Excavators and wheel loaders manufactured for Terex in South Korea are sold in North America, only, through Terex's existing heavy construction equipment dealer network. Terex distributes compact equipment primarily through a network of independent dealers and distributors throughout the world. Although some dealers represent only one of the Terex brands (such as Schaeff, Atlas, Fuchs or Fermec), the Company has recently focused on developing the dealer network to represent the full range of compact equipment under the TEREX brand name in both Europe and North America. In addition, Terex has begun to distribute its compact equipment in North America through the Terex Aerial Work Platforms segment's sales staff. Mobile crushing and screening equipment is distributed separately by Powerscreen, B.L. Pegson and Finlay. Each business maintains a global network of dealers, predominantly in Europe and the United States. All three brands are supported in North America by a distribution center located in Louisville, Kentucky. Terex Cranes Terex Cranes markets its products globally, optimizing assorted channel marketing systems including a distribution network and a direct sales force. Direct sales are done in certain crane markets like the United States, United Kingdom, Germany, Spain, Italy, France and Scandinavia to offer comprehensive service and support to customers. Distribution via a dealer network is often utilized in other geographic areas. Terex Aerial Work Platforms Terex aerial work platform products are distributed under the GENIE and TEREX brand names principally through a global network of independent dealers, rental houses and to a lesser extent, national accounts. Terex employs sales representatives who service these dealers from offices located throughout the world. Terex Mining Terex Mining distributes Unit Rig products and services directly to customers through its own sales organization, as well as through independent dealers. Payhauler products are distributed primarily through a dealership network. O&K hydraulic excavators and after-market parts and services are sold primarily through an export sales department in Dortmund, Germany, through a global network of wholly-owned subsidiaries and through dealership networks. Terex Roadbuilding, Utility Products and Other Crushing and screening equipment and asphalt pavers are distributed principally through a worldwide network of independent distributors and dealers. CMI asphalt reclaimers, stabilizers, profilers and asphalt plants are principally sold direct to end user customers by the CMI sales force and, to a lesser extent, through independent dealers and distributors. Terex sells utility equipment to the utility and municipal markets through a network of primarily company-owned distributors in North America, including Terex Utilities South and Terex Utilities West. Terex sells concrete mixers primarily direct to customers, but concrete mixers are also available through several dealers in the United States. Terex light construction products are distributed through a global network of dealers and national accounts. Terex employs sales representatives who service these dealers throughout the world. Construction trailers are distributed primarily through dealers in the United States and are also sold directly to users when local dealers are not available. On/off-road heavy duty vehicles for commercial applications are sold in Eastern Europe, the Middle East and Asia through a network of existing dealers and joint venture partners. Vehicles sold for military purposes are sold directly to governments and may include a lengthy direct negotiation process. - 23 - Research and Development The Company maintains engineering staffs at several of its locations who design new products and improvements in existing product lines. The Company's engineering expenses are primarily incurred in connection with the improvements of existing products, efforts to reduce costs of existing products and, in certain cases, the development of products which may have additional applications or represent extensions of the existing product line. Such costs incurred in the development of new products, cost reductions, or improvements to existing products of continuing operations amounted to $38.6 million, $24.7 million and $6.2 million in 2003, 2002 and 2001, respectively. The increase is mainly due to the inclusion of Demag and Genie for a full twelve months in 2003. Both Demag and Genie design and manufacture products which require more extensive engineering input than many of the Company's other products. Materials Principal materials used by the Company in its various manufacturing processes include steel, castings, engines, tires, hydraulic cylinders, drive trains, electric controls and motors, and a variety of other commodities and fabricated or manufactured items. The Company's performance may be impacted from extreme movements in material pricing and from availability of these materials. For example, steel prices have increased and steel availability has decreased in response to higher demand caused from a recovering end-market and higher consumption of emerging market countries, such as China. In the absence of labor strikes or other unusual circumstances, substantially all materials are normally available from multiple suppliers. Current and potential suppliers are evaluated on a regular basis on their ability to meet the Company's requirements and standards. The Company actively manages its material supply sourcing and prices, and may employ various methods to limit risk associated with commodity pricing and availability. Competition The Company faces a competitive global manufacturing market for each of its products. The Company competes with other manufacturers based on many factors, in particular the price, performance and reliability of its products. The Company operates under a best value strategy, where it generally attempts to offer its customers lower cost products or products that have enhanced performance characteristics to improve the customer's return on invested capital. However, in some instances, customers may prefer the pricing, performance or reliability aspects of a competitor's product despite the Company's product pricing or performance. The following table shows the primary competitors for the Company's products in the following categories: - 24 -
- ------------------------------- ------------------------------------- ------------------------------------------------ Business Segment Products Primary Competitors - ------------------------------- ------------------------------------- ------------------------------------------------ Terex Construction Articulated off-highway trucks & Volvo, Caterpillar, Moxy, John Deere and Bell Rigid off-highway trucks Scrapers Caterpillar and John Deere Excavators Caterpillar, Komatsu, Volvo, John Deere, Hitachi and CNH Loader Backhoes Caterpillar, CNH (Case and New Holland brands), JCB, Komatsu, Volvo and John Deere Compaction Equipment Ingersoll-Rand, Caterpillar, Bomag, Amman, Dynapac and Hamm Mini Excavators Bobcat (Ingersoll-Rand), Yanmar, Volvo, Takeuchi, IHI, CNH, Caterpillar, John Deere, Neuson and Kubota Midi Excavators Komatsu, Fiat-Hitachi, Volvo and Yanmar Loading Machines Liebherr, Sennebogen and Caterpillar Site Dumpers Thwaites and AUSA Wheel Loaders Caterpillar, Volvo, Kubota, Kawasaki, John Deere, Komatsu, Hitachi and CNH Mobile Crushing and Screening Metso Corporation, Extec, McClusky Brothers, Equipment Parker Plant and Viper International - ------------------------------- ------------------------------------- ------------------------------------------------ Terex Cranes Mobile Telescopic Cranes Liebherr, Grove Worldwide (Manitowoc), Tadano-Faun, Link-Belt (Sumitomo Corporation) and Kato Tower Cranes Liebherr, Potain (Manitowoc) and MAN Wolff Lattice Boom Crawler Cranes Manitowoc, Link-Belt (Sumitomo Corporation), Liebherr, Hitachi and Kobelco Boom Trucks National Crane (Manitowoc), Palfinger, Hiab, Fassi and PM Telescopic Container Stackers Kalmar-Sisu, SMV, CVS Ferrari, Fantuzzi and Linde - ------------------------------- ------------------------------------- ------------------------------------------------ Terex Aerial Work Platforms Boom Lifts JLG and Haulotte Scissor Lifts JLG, Skyjack and Haulotte Telehandlers Skytrak (JLG), Lull (JLG), Caterpillar, Gradall (JLG), Bobcat (Ingersoll-Rand), JCB, CNH and Manitou
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- ------------------------------- ------------------------------------- ------------------------------------------------ Terex Mining Large Hydraulic Excavators Hitachi, Komatsu, Liebherr and Caterpillar High Capacity Surface Mining Trucks Caterpillar, Komatsu, Liebherr and Euclid/Hitachi - ------------------------------- ------------------------------------- ------------------------------------------------ Terex Roadbuilding, Utility Fixed Installation Crushing and Metso Corporation, Astec Industries, Ohio Products & Other Screening Equipment Screen and Parker Plant Asphalt Pavers Blaw-Knox (Ingersoll-Rand), Caterpillar and Roadtec (Astec Industries) Asphalt Mixing Plants Astec Industries, Gencor Corporation, All-Mix, Dillman Equipment and ADM Concrete Production Plants Con-E-Co, Erie Strayer, Helco, Hagen and Stephens Concrete Mixers McNeilus, Oshkosh, London and Continental Manufacturing Concrete Pavers Gomaco Reclaimers/Stabilizers Caterpillar, Wirtgen and Bomag Pavement Profilers Caterpillar, Wirtgen and Roadtec (Astec Industries) Utility Equipment Altec and Time Manufacturing Light Towers Allmand Bros., Magnum and Ingersoll-Rand Power Trowels Multiquip, Allen Engineering and Wacker Power Buggies Multiquip, Allen Engineering and Wacker Generators Ingersoll-Rand and Multiquip Arrow Boards (Detour Lights) Ingersoll-Rand and Multiquip Construction Trailers Trail King, Talbert, Fontaine, Rogers, Etnyre, Ranco, Clement, CPS, as well as regional suppliers On/Off Road Heavy Duty Vehicles Oshkosh, Stewart and Stevenson - ------------------------------- ------------------------------------- ------------------------------------------------
Employees As of December 31, 2003, the Company had approximately 15,050 employees. The Company considers its relations with its personnel to be good. Approximately 55% of the Company's employees are represented by labor unions or similar employee organizations outside the United States which have entered into various separate collective bargaining agreements with the Company. - 26 - Patents, Licenses and Trademarks The Company makes use of proprietary materials such as patents, trademarks and trade names in its operations and takes action to protect these rights. The Company makes use of several significant trademarks and trade names, including the TEREX, ADVANCE, AMERICAN TRUCK COMPANY, AMERICAN, AMIDA, ATLAS, BARTELL, BENDINI, BENFORD, BID-WELL, CANICA, CEDARAPIDS, CMI, CMI-CIFALI, COMEDIL, DEMAG, FERMEC, FINLAY, FRANNA, FUCHS, GENIE, GRAYHOUND, HI-RANGER, JAQUES, JOHNSON-ROSS, LOAD KING, LORAIN, MORRISON, O&K, P&H, PAYHAULER, PEGSON, PEINER, POWERSCREEN, PPM, RE-TECH, ROYER, SCHAEFF, SIMPLICITY, STANDARD HAVENS, TATRA, TELELECT, and UNIT RIG trademarks. The P&H trademark is a registered trademark of Joy Global, Inc. that a subsidiary of the Company has the right to use for certain products until 2011 pursuant to a license agreement. The Company also has the right to use the O&K and Orenstein & Koppel names (which are registered trademarks of O&K Orenstein & Koppel AG) for most applications in the mining business for an unlimited period of time. All other trademarks and trade names of the Company referred to in this Annual Report are registered trademarks of Terex Corporation or its subsidiaries. The Company has many patents that it uses in connection with its operations, and most of the Company's products contain some proprietary components. Many of these patents and related proprietary technology are important to the production of particular products of the Company; however, on the whole, the Company's patents, individually and in the aggregate, are not material to the business of the Company or its financial results nor does the Company's proprietary technology provide it with a competitive advantage over its competitors. The Company protects its patent, trademark and trade name proprietary rights through registration, confidentiality agreements and litigation to the extent the Company deems appropriate. The Company owns and maintains trademark registrations and patents in countries where it conducts business, and monitors the status of its trademark registrations and patents to maintain them in force and renew them as required. The duration of these registrations is the maximum permitted under the law and varies based upon the relevant statutes in the applicable jurisdiction. The Company also takes further actions to protect its trademark, trade name and patent rights when circumstances warrant, including the initiation of legal proceedings if necessary. Environmental Considerations The Company generates hazardous and non-hazardous wastes in the normal course of its manufacturing operations. As a result, the Company is subject to a wide range of federal, state, local and foreign environmental laws and regulations. These laws and regulations govern actions that may have adverse environmental effects, such as discharges to air and water, and also require compliance with certain practices when handling and disposing of hazardous and non-hazardous wastes. These laws and regulations would also impose liability for the costs of, and damages resulting from, cleaning up sites, past spills, disposals and other releases of hazardous substances, should any of such events occur. No such incidents have occurred which required the Company to pay material amounts to comply with such laws and regulations. Compliance with such laws and regulations has required, and will continue to require, the Company to make expenditures. The Company does not expect that these expenditures will have a material adverse effect on its business or profitability. Financial Information about Industry Segments, Geographic Areas, Export Sales and Major Customers Information regarding foreign and domestic operations, export sales, segment information and major customers is included in Note T -- "Business Segment Information" in the Notes to the Consolidated Financial Statements. Seasonal Factors The Company's sales are seasonal, with more than half of the Company's sales being generated in the first two quarters of a calendar year. This seasonality is a result of the need of the Company's customers to have new equipment available for the spring, summer and fall construction season. As a result, the Company tends to use cash to fund its operations during the first half of a calendar year and generate cash from operations during the second half of the year. Working Capital The Company's businesses are working capital intensive and require funding for - 27 - purchases of production and replacement parts inventories, capital expenditures for repair, replacement and upgrading of existing facilities, as well as trade financing for receivables from customers and dealers. The Company has significant debt service requirements, including semi-annual interest payments on its senior subordinated notes and monthly interest payments on its bank credit facilities. Management believes that cash generated from operations, together with availability under the Company's bank credit facilities and cash on hand, provide the Company with adequate liquidity to meet the Company's operating and debt service requirements. For more detail on working capital matters, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." Available Information The Company maintains a website at www.terex.com. The Company makes available on its website under "Investors" - "SEC Filings", free of charge, its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after it electronically files or furnishes such material with the Securities and Exchange Commission. In addition, the Company makes available on its website under "Investors" - "Corporate Governance," free of charge, its Audit Committee Charter, Compensation Committee Charter, Governance and Nominating Committee Charter, Corporate Governance Guidelines and Code of Ethics and Conduct. In addition, the foregoing information is available in print, without charge, to any stockholder who requests these materials from the Company. ITEM 2. PROPERTIES The following table outlines the principal manufacturing, warehouse and office facilities owned or leased (as indicated below) by the Company and its subsidiaries:
Business Unit Facility Location Type and Size of Facility ------------- ----------------- ------------------------- Terex (Corporate Offices)...................Westport, Connecticut (1) Office; 19,898 sq. ft. Terex Construction Atlas Terex.................................Delmenhorst, Germany Office, manufacturing and warehouse; 224,255 sq. ft. Atlas Terex.................................Ganderkasee, Germany Office, manufacturing and warehouse; 362,281 sq. ft. Atlas Terex.................................Loeningen, Germany Manufacturing and warehouse; 130,254 sq. ft. Atlas Terex.................................Vechta, Germany Manufacturing and warehouse; 280,238 sq. ft. Atlas UK....................................Hamilton, Scotland Office, manufacturing and warehouse; 118,486 sq. ft. B. L. Pegson................................Coalville, England Office, manufacturing and warehouse; 204,486 sq. ft. Finlay......................................Omagh, Northern Ireland (1) Office, manufacturing and warehouse; 152,863 sq. ft. Fuchs.......................................Bad Schoenborn, Germany Office, manufacturing and warehouse; 237,839 sq. ft. Powerscreen.................................Dungannon, Northern Ireland (1) Office, manufacturing and warehouse; 330,000 sq. ft. Schaeff ....................................Langenburg, Germany Office, manufacturing and warehouse; 102,102 sq. ft. Schaeff ....................................Gerabronn, Germany Office, manufacturing and warehouse; 146,842 sq. ft. Schaeff ....................................Rothenburg, Germany (2) Office, manufacturing and warehouse; 97,303 sq. ft. Schaeff ....................................Crailsheim, Germany Office, manufacturing and warehouse; 185,384 sq. ft. Schaeff.....................................Clausnitz, Germany Office, manufacturing and warehouse; 83,573 sq. ft. TEL.........................................Motherwell, Scotland (1) Office, manufacturing and warehouse; 473,000 sq. ft.
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Terex Compact Equipment, Benford & Fermec..........................Coventry, England (1) Office, manufacturing and warehouse; 326,000 sq. ft. TerexLift...................................Perugia, Italy Office, manufacturing and warehouse; 113,834 sq. ft. Terex Parts Distribution Center.............Southaven, Mississippi (1) Office and warehouse; 505,000 sq. ft. Terex Cranes American Crane..............................Wilmington, North Carolina Office, manufacturing and warehouse; 572,200 sq. ft. Comedil ...................................Fontanafredda, Italy Office, manufacturing and warehouse; 100,682 sq. ft. Comedil ...................................Milan, Italy (1) Manufacturing and warehouse; 27,000 sq. ft. Demag.......................................Bierbach, Germany (1) Warehouse and manufacturing; 186,676 sq. ft. Demag.......................................Pecs, Hungary (1) Office and manufacturing; 75,987 sq. ft. Demag.......................................Wallerscheid, Germany (1) Office, warehouse and manufacturing; 350,336 sq. ft. Demag.......................................Zweibrucken, Germany Office, manufacturing and warehouse; 445,203 sq. ft. PPM S.A.S. .................................Montceau-les-Mines, France Office, manufacturing and warehouse; 418,376 sq. ft. Terex Cranes - Waverly......................Waverly, Iowa Office, manufacturing and warehouse; 311,920 sq. ft. Terex Italia................................Crespellano, Italy Office, manufacturing and warehouse; 68,501 sq. ft. Terex Lifting Australia.....................Brisbane, Australia (1) Office, manufacturing and warehouse; 42,495 sq. ft. Terex Aerial Work Platforms Genie.......................................Redmond, Washington (1) Office, manufacturing and warehouse; 1,012,052 sq. ft. (3) Genie.......................................Moses Lake, Washington (1) Office, manufacturing and warehouse; 422,334 sq. ft. (4) Terex Handlers..............................Baraga, Michigan Office, manufacturing and warehouse; 53,620 sq. ft. Terex Mining O&K Mining..................................Dortmund, Germany (1) Office, manufacturing and warehouse; 775,000 sq. ft. Unit Rig & Payhauler........................Tulsa, Oklahoma Office and warehouse; 375,587 sq.ft. Terex Roadbuilding, Utility Products and Other Amida.......................................Rock Hill, South Carolina. Office, manufacturing and warehouse; 121,020 sq. ft. Bartell.....................................Brampton, Ontario, Canada Office, manufacturing and warehouse; 32,509 sq. ft. Bid-Well....................................Canton, South Dakota Office, manufacturing and warehouse; 70,760 sq. ft. Cedarapids..................................Cedar Rapids, Iowa Office, manufacturing and warehouse; 608,423 sq. ft. CMI.........................................Oklahoma City, Oklahoma Office, manufacturing and warehouse; 634,592 sq. ft.
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CMI--Cifali.................................Cachoeirinha, Brazil Office, manufacturing and warehouse; 83,000 sq. ft. Jaques......................................Melbourne, Australia (1) Office, manufacturing and warehouse; 36,000 sq. ft. Jaques Malaysia.............................Subang Jaya, Malaysia (1) Manufacturing and warehouse; 111,200 sq. ft. Jaques Thailand.............................Chomburi, Thailand Manufacturing; 79,500 sq. ft. Load King...................................Elk Point, South Dakota Office, manufacturing and warehouse; 92,700 sq. ft. Simplicity..................................Durand, Michigan Office, manufacturing and warehouse; 167,000 sq. ft. Tatra.......................................Koprivnice, Czech Republic Office, manufacturing and warehouse; 4,886,907 sq. ft. Telelect....................................Watertown, South Dakota Office, manufacturing and warehouse; 219,350 sq. ft. Telelect (Terex Manufacturing)..............Huron, South Dakota Manufacturing; 88,000 sq. ft. Terex Advance Mixer & ATC...................Fort Wayne, Indiana Office, manufacturing and warehouse; 160,000 sq. ft.
(1) These facilities are either leased or subleased by the indicated entity. (2) Includes 54,134 sq.ft. which are leased by the indicated entity. (3) Includes 122,944 sq.ft. of warehouse space subleased to others. (4) Includes 105,584 sq. ft. of warehouse space subleased to others. The Company also has numerous owned or leased locations for new machine and parts sales and distribution and rebuilding of components located worldwide. In 2002 and 2003, the Company acquired the utility equipment distributors Pacific Utility, Telelect Southeast, Commercial Body and Combatel (which now operate under the names Terex Utilities South and Terex Utilities West). These distributors have sales locations throughout the United States. Management believes that the properties listed above are suitable and adequate for the Company's use. The Company has determined that certain of its properties in the United States and elsewhere exceed its requirements. Such properties may be sold, leased or utilized in another manner and have been excluded from the above list. The Company is actively marketing a number of these properties. The majority of the Company's U.S. properties are subject to mortgages in favor of its bank lenders in connection with its bank credit facilities. ITEM 3. LEGAL PROCEEDINGS As described in Note R -- "Litigation and Contingencies" in the Notes to the Consolidated Financial Statements, the Company is involved in various legal proceedings, including product liability and workers' compensation liability, which have arisen in the normal course of its operations and to which the Company is self-insured for up to $5.0 million and $250 thousand per incident, respectively. Management believes that the final outcome of such matters will not have a material adverse effect on the Company's consolidated financial position. For information concerning other contingencies and uncertainties, see "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Contingencies and Uncertainties." ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. - 30 - PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES (a) The Company's Common Stock is listed on the New York Stock Exchange (the "NYSE") under the symbol "TEX." The high and low stock prices for the Company's Common Stock on the NYSE Composite Tape (for the last two completed years) are as follows:
2003 2002 -------------------------------------- --------------------------------------- Fourth Third Second First Fourth Third Second First High........................................ $29.63 $23.50 $21.25 $13.43 $17.82 $22.49 $27.40 $23.79 Low......................................... $18.65 $16.53 $12.34 $9.50 $9.90 $16.33 $21.20 $15.00
No dividends were declared or paid in 2003 or in 2002. Certain of the Company's debt agreements contain restrictions as to the payment of cash dividends. In addition, payment of dividends is limited by Delaware law. The Company intends generally to retain earnings, if any, to fund the development and growth of its business and to pay down debt. The Company does not plan on paying dividends on the Common Stock in the near term. Any future payments of cash dividends will depend upon the financial condition, capital requirements and earnings of the Company, as well as other factors that the Board of Directors may deem relevant. As of March 1, 2004, there were 1,397 stockholders of record of the Company's Common Stock. On October 21, 2003, the Company issued 98,287 shares of its common stock that were not registered under the Securities Act of 1933, as amended (the "Securities Act"). These shares, having a value of approximately $2 million at the time of issuance, were issued to the five former shareholders of Genie in connection with the Company's acquisition of all of the outstanding stock of Genie. The issuance was made pursuant to an exemption from registration provided by Section 4(2) of the Securities Act, as this issuance of common stock did not involve a "public offering" pursuant to the Securities Act given the limited number and scope of persons to whom the securities were issued. - 31 - ITEM 6. SELECTED FINANCIAL DATA (in millions except per share amounts and employees)
As of or for the Year Ended December 31, ----------------------------------------------------------------- 2003 2002 2001 2000 1999 ----------------------------------------------------------------- Summary of Operations Net sales...................................................$ 3,897.1 $ 2,797.4 $ 1,812.5 $ 2,068.7 $ 1,856.6 Income from operations....................................... 73.5 68.6 104.2 198.3 178.3 Income (loss) from continuing operations before cumulative effect of change in accounting principle................... (25.5) (19.1) 12.8 102.4 172.9 Income (loss) from discontinued operations................... --- --- --- (7.3) --- Income (loss) before cumulative effect of change in accounting principle....................................... (25.5) (19.1) 12.8 95.1 172.9 Net income (loss)............................................ (25.5) (132.5) 12.8 95.1 172.9 Goodwill amortization after tax.............................. --- --- 9.7 9.9 8.1 Net income (loss) excluding goodwill amortization (a)........ (25.5) (132.5) 22.5 105.0 181.0 Per Common and Common Equivalent Share: Basic Income (loss) from continuing operations................$ (0.53) $ (0.44) $ 0.46 $ 3.77 $ 7.14 Income (loss) from discontinued operations............... --- --- --- (0.27) --- Income (loss) before cumulative effect of change in accounting principle.................................... (0.53) (0.44) 0.46 3.50 7.14 Net income (loss)........................................ (0.53) (3.07) 0.46 3.50 7.14 Goodwill amortization after tax........................... --- --- 0.34 0.36 0.34 Net income (loss) excluding goodwill amortization (a)..... (0.53) (3.07) 0.80 3.86 7.48 Diluted Income (loss) from continuing operations................$ (0.53) $ (0.44) $ 0.44 $ 3.67 $ 6.75 Income (loss) from discontinued operations............... --- --- --- (0.26) --- Income (loss) before cumulative effect of change in accounting principle.................................... (0.53) (0.44) 0.44 3.41 6.75 Net income (loss)........................................ (0.53) (3.07) 0.44 3.41 6.75 Goodwill amortization after tax.......................... --- --- 0.34 0.35 0.32 Net income (loss) excluding goodwill amortization (a).... (0.53) (3.07) 0.78 3.76 7.07 Current Assets and Liabilities Current assets..............................................$ 2,194.0 $ 2,221.1 $ 1,383.0 $ 1,242.4 $ 1,315.3 Current liabilities.......................................... 1,159.4 1,106.2 627.1 575.6 579.5 Property, Plant and Equipment Net property, plant and equipment...........................$ 370.1 $ 309.4 $ 173.9 $ 153.9 $ 172.8 Capital expenditures......................................... 27.1 29.2 13.5 24.2 21.4 Depreciation................................................. 55.2 35.9 22.5 23.0 17.6 Total Assets..................................................$ 3,723.8 $ 3,625.7 $ 2,387.0 $ 1,983.7 $ 2,177.5 Capitalization Long-term debt and notes payable, including current maturities................................................$ 1,361.6 $ 1,561.2 $ 1,055.4 $ 902.5 $ 1,156.4 Stockholders' equity ........................................ 876.7 769.2 595.4 451.5 432.8 Dividends per share of Common Stock.......................... --- --- ---- --- --- Shares of Common Stock outstanding at year end............... 48.8 47.4 36.4 26.8 27.5 Employees...................................................... 15,050 11,975 7,363 6,150 6,650
(a) Net income (loss) excluding goodwill amortization excludes the goodwill amortization expense, net of income tax, for periods prior to 2002. See Note C - "Accounting Change -- Business Combinations and Goodwill" to the Consolidated Financial Statements. (b) See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Notes to the Consolidated Financial Statements for a discussion of "Acquisitions," "Accounting Change - Business Combinations and Goodwill," "Restructuring and Other Charges," "Long-Term Obligations" and "Stockholders' Equity." - 32 - ITEM 7. 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 primarily for the construction, infrastructure and surface mining industries. On April 23, 2001, the Company announced that it was implementing a modified organizational structure effective May 1, 2001. On May 1, 2001, the Company began operating primarily in two business segments: (i) Terex Americas and Mining and (ii) Terex Europe. Previously, the Company had reported its operations as Terex Earthmoving and Terex Lifting. On August 28, 2001, the Company announced that the Terex Americas and Mining group was being divided into two separate business segments: (i) Terex Americas and (ii) Terex Mining. From July 1, 2001 through June 30, 2002, the Company operated in three business segments: (i) Terex Americas; (ii) Terex Europe; and (iii) Terex Mining. From July 1, 2002 through September 18, 2002, the Company operated in four business segments: (i) Terex Construction; (ii) Terex Cranes; (iii) Terex Roadbuilding, Utility Products and Other; and (iv) Terex Mining, and upon the acquisition of Genie on September 18, 2002, the Company added the Terex Aerial Work Platforms segment. On July 1, 2003, the Company announced an agreement in principle to sell its worldwide electric drive mining truck business, and ceased reporting Terex Mining as a separate financial reporting segment. On December 10, 2003, Terex terminated the negotiation for the sale of the electric drive mining truck business, and has reinstated reporting of the Terex Mining segment. The Company now operates in five business segments: (i) Terex Construction; (ii) Terex Cranes; (iii) Terex Aerial Work Platforms; (iv) Terex Mining; and (v) Terex Roadbuilding, Utility Products and Other. All prior periods have been restated to reflect results based on these five business segments. The Terex Construction segment designs, manufactures and markets three primary categories of equipment and their related components and replacement parts: heavy construction equipment (including off-highway trucks and scrapers), compact equipment (including loader backhoes, compaction equipment, mini and midi excavators, loading machines, site dumpers, telehandlers and wheel loaders); and mobile crushing and screening equipment (including jaw crushers, cone crushers, washing screens and trommels). These products are primarily used by construction, logging, mining, industrial and government customers in construction and infrastructure projects and supplying coal, minerals, sand and gravel. Terex Construction products are currently marketed principally under the following brand names: Terex, Atlas, Benford, Fermec, Finlay, Fuchs, Pegson, Powerscreen, Schaeff, and TerexLift. The Company's strategy going forward is to build the Terex brand. As part of that effort, Terex will, over time, be migrating historic brand names to Terex, and may include the use of the historic brand name in conjunction with the Terex brand name for a transitional period of time. The Company acquired Atlas Weyhausen GmbH and its affiliates ("Atlas"), including Atlas Terex and Atlas UK, on December 28, 2001 and Schaeff, including Fuchs, on January 14, 2002. The results of Atlas and Schaeff are included in the Terex Construction segment since their respective dates of acquisition. The Terex Cranes segment designs, manufactures and markets mobile telescopic cranes, tower cranes, lattice boom crawler cranes, truck mounted cranes (boom trucks) and telescopic container stackers, as well as their related replacements parts and components. These products are used primarily for construction, repair and maintenance of infrastructure, building and manufacturing facilities. Currently, Terex Cranes products are marketed principally under the following brand names: Terex, American, Bendini, Comedil, Demag, Franna, Lorain, P&H, Peiner, PPM and RO-Stinger. The Company's strategy going forward is to build the Terex brand. As part of that effort, Terex will, over time, be migrating historic brand names to Terex, and may include the use of the historic brand name in conjunction with the Terex brand name for a transitional period of time. The Company acquired Demag and its affiliates on August 30, 2002. The results of Demag are included in the Terex Cranes segment since its date of acquisition. The Terex Aerial Work Platforms segment was formed upon the completion of Terex's acquisition of Genie and its affiliates on September 18, 2002. The Terex Aerial Work Platforms segment designs, manufactures and markets aerial work platform equipment and telehandlers. Products include material lifts, portable aerial work platforms, trailer mounted booms, articulating booms, stick booms, scissor lifts, telehandlers, related components and replacement parts, and other products. These products are used primarily by customers in the construction and building maintenance industries to lift people and/or equipment as required to build and/or maintain large physical assets and structures. Terex Aerial Work Platforms products currently are marketed principally under the Genie and Terex brand names. The Terex Mining segment designs, manufactures and markets large hydraulic excavators and high capacity surface mining trucks, related components and replacement parts, and other products. These products are used primarily by construction, mining, quarrying and government customers in construction, excavation and supplying coal and minerals. Currently, Terex Mining products are marketed principally under the following brand names: O&K, Payhauler, Terex and Unit Rig. The Company's strategy going forward is to build the Terex brand. As - 33 - part of that effort, Terex will, over time, be migrating historic brand names to Terex, and may include the use of the historic brand name in conjunction with the Terex brand name for a transitional period of time. The Terex Roadbuilding, Utility Products and Other segment designs, manufactures and markets fixed installation crushing and screening equipment (including crushers, impactors, screens and feeders), asphalt and concrete equipment (including pavers, plants, mixers, reclaimers, stabilizers and profilers), utility equipment (including digger derricks, aerial devices and cable placers), light construction equipment (including light towers, trowels, power buggies, generators and arrow boards), construction trailers and on/off road heavy-duty vehicles, as well as related components and replacement parts. These products are used primarily by government, utility and construction customers to build roads, maintain utility lines, trim trees and for commercial and military operations. These products are currently marketed principally under the following brand names: Terex, Advance, American Truck Company, Amida, ATC, Bartell, Benford, Bid-Well, Canica, Cedarapids, Cedarapids/Standard Havens, CMI Johnson Ross, CMI Terex, CMI-Cifali, Grayhound, Hi-Ranger, Jaques, Load King, Morrison, Re-Tech, Royer, Simplicity, Tatra, Terex Power, Terex Recycling and Terex Telelect. The Company's strategy going forward is to build the Terex brand. As part of that effort, Terex will, over time, be migrating historic brand names to Terex, and may include the use of the historic brand name in conjunction with the Terex brand name for a transitional period of time. Terex also owns much of the North American distribution channel for the utility products group through the distributors Terex Utilities South and Terex Utilities West. These operations distribute and install the Company's utility aerial devices as well as other products that service the utility industry. The Company also operates a fleet of rental utility products under the name Terex Utilities Rental. The Company also leases and rents a variety of heavy equipment to third parties under the Terex Re-Rentals brand name. The Company, through TFS, also offers customers loans and leases originated by GE Capital to assist in the acquisition of all of the Company's products. Jaques International Holdings Pty. Ltd. and its affiliates (collectively, the "Jaques Group"), including Jaques, Jaques Malaysia and Jaques Thailand, were acquired on January 24, 2001. On October 1, 2001, the Company acquired CMI and its affiliates, including CMI-Cifali, Bid-Well and Load King. The Company acquired Pacific Utility on January 15, 2002, Telelect Southeast on March 26, 2002 and certain assets and liabilities of Terex Advance Mixer on April 11, 2002. On February 14, 2003, the Company acquired Commercial Body and Combatel. On August 28, 2003 the Company acquired an additional 51% of the outstanding shares of Tatra, for a total of 71% ownership, and acquired a controlling interest in ATC. The results of the Jaques Group, CMI, Pacific Utility, Telelect Southeast, Terex Advance Mixer, Commercial Body, Combatel, Tatra and ATC are included in the results of the Terex Roadbuilding, Utility Products and Other segment from their respective dates of acquisition. Included in Eliminations/Corporate are the eliminations among the five segments, as well as general and corporate items. Overview - -------- The Company is a diversified global manufacturer of capital equipment serving the construction, infrastructure and surface mining markets. Terex's strategy is to use its position as a low fixed and total cost manufacturer to provide its customers with the best return on their capital investment. In 2003, the Company continued to operate under challenging market conditions. Recent acquisitions, such as Genie and Demag, made positive contributions, while tight end markets and currency moves (particularly the weakness of the U.S. dollar relative to other currencies in which the Company does business) negatively impacted the Company's financial performance. The Company's focus during 2003 was on generating cash and reducing working capital invested in its businesses. The Company generated $384.1 million in cash from operating activities in 2003, as compared to $70.3 million generated in 2002 and a usage of $5.5 million in 2001. The Company was able to make use of this increased cash flow to reduce its long term debt, less current portion, to $1,274.8 million at the end of 2003 from $1,487.1 million at the end of 2002. The Company anticipates a mix of end market conditions in 2004, with certain products anticipating recovering markets and others expecting continued sluggish markets. For example, the Company sees opportunities for growth in the Construction business resulting from initial signs of economic recovery and in the Mining business based on recovering commodity prices; however, the Company envisions a continued weak North American crane market and difficult end markets for the Roadbuilding business. Overall, an economic recovery in the markets served by the Company's businesses would have a beneficial impact on the Company's performance. A significant area of uncertainty for 2004 remains the impact of currency moves, particularly the relative strength of the U.S. dollar. During 2004, the Company will continue to focus on cash generation, debt reduction and margin improvement initiatives. The Company recently initiated its TIP program aimed at improving the Company's internal processes and benefiting the Company's customers, investors and employees. As part of the TIP objectives, Terex management will have a particular focus on achieving a number of key - 34 - objectives including revenue growth, through a combination of expansion into markets not currently served and by increasing market share in existing products, and improving the Company's return on invested capital, through reducing working capital requirements as a percentage of sales and by improving operating margins through reducing the total cost of manufacturing products. Restructuring - ------------- The Company has initiated numerous restructuring programs since 2000. These programs were initiated in response to a slowing economy, to reduce duplicative operating facilities, including those arising from the Company's acquisitions, and to respond to specific market conditions. Restructuring programs were initiated within the Company's Terex Construction, Terex Cranes, Terex Mining and Terex Roadbuilding, Utility Products and Other segments. The Company's programs have been designed to minimize the impact of any program on future operating results and the Company's liquidity. To date, these restructuring programs have not negatively impacted operating results or the Company's liquidity. These initiatives are intended to generate a reduction in ongoing labor and factory overhead expense as well as to reduce overall material costs by leveraging the purchasing power of the consolidated facilities. See Note F - "Restructuring and Other Charges" in the Company's Consolidated Financial Statements for a detailed description of the Company's restructuring programs, including the reasons, timing and costs associated with each such program. 2003 Compared with 2002 - ----------------------- Terex Consolidated
2003 2002 --------------------- -------------------------- % of % % Change In Sales of Sales Reported Amounts --------- -------------- -------------------- ($ amounts in millions) Net Sales $ 3,897.1 $ 2,797.4 +39.3% Gross Profit 518.5 13.3% 356.7 12.8% +45.4% SG&A 393.7 10.1% 288.1 10.3% +36.7% Goodwill Impairment 51.3 1.3% --- --- --- Income from Operations $ 73.5 1.9% $ 68.6 2.5% +7.1%
During 2003, the Company successfully completed the integration of both the Demag and Genie acquisitions and successfully completed many of the restructuring programs launched in 2002 to reduce production costs and rationalize product offerings. The Company also generated approximately $384 million of cash from operations and reduced its net debt (defined as total debt less cash) by $314.9 million during 2003. In addition, the Company acquired a majority interest in Tatra, ATC, Commercial Body and Combatel, and launched TFS to offer financial solutions to its customers in the United States and Europe. Total net sales for 2003 were $3,897.1 million, an increase of $1,099.7 million when compared to the same period in 2003. The acquisitions of Demag, Genie, Commercial Body, Combatel, Tatra, ATC and Terex Advance Mixer increased sales in 2003 by a total of $928.6 million. Approximately 61% of the Company's sales in 2003 were made by businesses that operate primarily in currencies other than the U.S. dollar. During 2003, the value of the U.S. dollar declined relative to many of these foreign currencies. As a result, when these sales denominated in foreign currencies were translated into U.S. dollars, there was an increase in net sales of $222 million when compared to 2002 due to the variation of the exchange rates. Total gross profit for 2003 was $518.5 million, an increase of $161.8 million when compared to 2002. Gross profit increased by approximately $164 million as a result of the Genie, Demag, Tatra, ATC, Commercial Body, Combatel and Terex Advance Mixer acquisitions. Gross profit increases in the Mining business were offset by lower margins earned during 2003 in the North American cranes business as well as in the Utility and Roadbuilding businesses. During 2003, the Company incurred approximately $83 million of restructuring and other costs (excluding a $51.3 million goodwill impairment charge), an increase of $7 million over the prior year, primarily related to: o Efforts associated with restructuring the Roadbuilding business to operate profitably in light of the continuing weakness in demand for its products; o Costs incurred in the Cranes segment to complete projects initiated in 2002; o Costs to complete the exit of product lines and consolidate manufacturing facilities in the Construction group; o Costs related to the extinguishment of debt; and o Costs related to the Company's deferred compensation plan. - 35 - During 2002, the Company incurred approximately $76 million of restructuring and other costs, primarily as a result of: o Eliminating duplicate production capacity, distribution and products created by the acquisition of Genie and Demag; o Costs incurred with rightsizing the Roadbuilding business; and o Facility consolidations in the Construction and Mining businesses. During the second quarter of 2003, the Company recorded a charge of $51.3 million for the impairment of goodwill in the Roadbuilding unit of the Terex Roadbuilding, Utility Products and Other segment. Total selling, general and administrative costs ("SG&A") increased by $105.6 million when compared to the same period in 2002. The acquisitions of Demag, Genie, Commercial Body, Combatel, Terex Advance Mixer, Tatra and ATC increased SG&A by approximately $82 million when compared to 2002. The impact of a weaker dollar relative to the British Pound and Euro accounted for the majority of the remaining increase in SG&A in 2003 when compared to 2002. Terex Construction
2003 2002 ----------------------- ----------------------- % of % of % Change In Sales Sales Reported Amounts ----------- ---------- ---------------------- ($ amounts in millions) Net Sales $ 1,359.5 $ 1,174.5 +15.8% Gross Profit 172.4 12.7% 164.7 14.0% +4.7% SG&A 118.1 8.7% 107.7 9.2% +9.7% Income from Operations $ 54.3 4.0% $ 57.0 4.9% (4.7%)
Net sales in the Terex Construction segment increased by $185.0 million for 2003 when compared to 2002 and totaled $1,359.5 million. Approximately 64% of the increase in sales over 2002 was due to the translation effect from a weaker U.S. dollar relative to the British Pound and Euro. Excluding the impact of foreign exchange translation, sales increased in the heavy construction equipment product category as well as in the Powerscreen mobile crushing and screening product category when compared to 2002. In the heavy construction equipment product category, sales increased relative to 2002 as a result of better performance across all products in the United States as well as improved sales of articulated trucks and Atlas and Fuchs products in Europe. These gains were partially offset by lower sales relative to 2002 of compact construction equipment. The Company continues to focus on increasing sales in North America by expanding its presence in the compact equipment market and by using the Genie sales force to penetrate the North American rental markets. Gross profit in the Terex Construction segment increased by $7.7 million in 2003 when compared to 2002 and totaled $172.4 million. Restructuring and other charges decreased by $5.3 million for 2003 when compared to 2002 and totaled $6.6 million. Included in gross profit for 2003 are charges related to the closure of the Company's pressure vessel container business, consolidation of its Powerscreen facilities and period costs related to the consolidation of its compact construction equipment and loader backhoe facilities in the United Kingdom. Gross profit as a percentage of sales has been unfavorably impacted by the continued weakening of the U.S. dollar relative to the Euro and British Pound in 2003. Gross profit as a percentage of sales fell to 12.7% in 2003 as compared to 14.0% in 2002. Restructuring and other costs fell to 0.5% of sales for 2003 when compared to 1.0% for 2002, as the Company completed the majority of its facility consolidations launched in 2002. Gross profit as a percentage of sales improved in the Atlas business in 2003, as sales expanded in Europe and the business realized improved selling margins relative to 2002 levels. Gross profit relative to 2002 increased as a result of improved sales of Fuchs products in the United States and from improved selling margins realized in Spain. Overall gross profit was negatively impacted by the impact of the weak U. S. dollar on products exported from Europe into the United States. SG&A costs increased by 9.7% in 2003 when compared to 2002 and totaled $118.1 million. The increase in SG&A costs was due primarily to the impact of a weaker U.S. dollar on SG&A costs reported in Euro and British Pounds and an increase in bad debt charges. These costs, while relatively unchanged when expressed in Euro and British Pounds, increased when translated to U.S. dollars. Lower restructuring costs offset the unfavorable impact of a weaker U.S. dollar relative to these currencies and other charges incurred in 2003 relative to 2002. In 2003, the Terex Construction segment incurred $1.3 million of restructuring and other charges as compared to $4.2 million in 2002. Income from operations in 2003 fell to $54.3 million or 4% of sales when compared to operating profit of $57.0 million or 4.9% in 2002. - 36 - Terex Cranes
2003 2002 ----------------------- ----------------------- % of % of % Change In Reported Sales Sales Amounts ----------- ---------- -------------------------- ($ amounts in millions) Net Sales $ 1,005.1 $717.9 +40.0% Gross Profit 102.5 10.2% 57.1 8.0% +79.5% SG&A 86.6 8.6% 55.1 7.7% +57.2% Income from Operations $ 15.9 1.6% $ 2.0 0.3% +695.0%
Net sales for the Terex Cranes segment in 2003 increased by $287.2 million and totaled $1,005.1 million when compared to $717.9 million in 2002. The increase was due to the acquisition of Demag, acquired on August 30, 2002. Sales of tower cranes increased by approximately 29% relative to 2002, primarily as a result of a weaker U.S. dollar relative to the Euro. Sales of cranes and boom trucks in the United States declined by approximately 24% relative to 2002 as a result of continued weakness in the construction and rental equipment markets. The Company continues to focus on expanding sales by expanding its market share and distribution throughout Europe. In North America, the Company continues to focus on maintaining market share while the overall market for its products remains flat. Gross profit in 2003 increased by $45.4 million relative to 2002 and totaled $102.5 million. Restructuring charges and other non-recurring items totaled $14.6 million in 2003. These costs were primarily related to the closure of the Peiner tower crane facility in Trier, Germany and rationalization of products offered under the Peiner name, costs associated with the closure of the boom truck facility in Olathe, Kansas and inventory value adjustments related to discontinuance of products offered under the PPM brand that duplicated products added through the acquisition of Demag. Restructuring and other costs totaled $31.3 million in 2002. These costs related primarily to the elimination of duplicate products created by the acquisition of Demag and Genie and from facility consolidation and down sizing programs launched in response to current and expected market demand. Gross profit earned in 2003 increased relative to 2002 primarily due to the acquisition of Demag and reduced restructuring charges. Gross profits were also favorably impacted in 2003 relative to 2002 from improved volumes and selling margins in the European crane businesses. These gains were partially offset by an 88% decline in gross profit in the North American crane businesses in 2003 from 2002. This decline was a result of weak demand for cranes and boom trucks in the United States and the resulting impact on selling margins and factory productivity. SG&A costs in 2003 totaled $86.6 million, an increase of 57.2% over the same period in 2002. Restructuring and other charges included in SG&A costs totaled $1.1 million in 2003 compared to $2.5 million in 2002. SG&A costs in the North American cranes businesses fell by approximately 14%, as the Company completed its facility consolidation and reduced spending in response to weak market demand. The full year effect of the Demag acquisition accounted for the majority of the remaining increase in SG&A costs in 2003 when compared to 2002. Income from operations for the twelve months ending December 31, 2003 totaled $15.9 million compared to $2.0 million for the same period in 2002. Terex Aerial Work Platforms
2003 2002 ----------------------- --------------------- % of % of % Change in Reports Sales Sales Amount ----------- --------- -------------------- ($ amounts in millions) Net Sales $ 583.6 $ 149.4 +290.6% Gross Profit 127.2 21.8% 21.2 14.2% +500.0% SG&A 59.4 10.2% 17.0 11.4% +249.4% Income from Operations $ 67.8 11.6% $ 4.2 2.8% +1,514.3%
The Terex Aerial Work Platforms segment was formed upon the completion of Terex's acquisition of Genie and its affiliates on September 18, 2002. As a result, the 2003 performance of this segment reflects twelve months of operations, while the 2002 performance reflects less than four months of operations for the majority of this segment's operations. Accordingly, comparisons between the years must be reviewed in this context. Total sales for the Terex Aerial Work Platforms segment in 2003 were $583.6 million, an increase of $434.2 million when compared to 2002. The increase is due to the inclusion of Genie for the full year ending December 31, 2003. Genie - 37 - was acquired on September 18, 2002. When compared to 2002, Genie's sales were positively impacted by increased demand from rental customers. In addition, Genie's export business has benefited from a weaker U.S. dollar relative to the Euro and British Pound as Genie's manufacturing costs are primarily denominated in U.S. dollars. Total gross profit for the Terex Aerial Work Platforms segment for 2003 was $127.2 million, an increase of $106.0 million when compared to 2002. The increase is primarily due to the inclusion of Genie for the full year ending December 31, 2003. Gross margins in the Genie business were positively impacted by improvements in the North American rental markets as well as by the benefit of the weaker U.S. dollar on Genie's export business. Gross profit realized by the U.S. telehandler business also improved relative to 2002, as better selling margins were realized. Total SG&A costs for 2003 totaled $59.4 million, an increase of $42.4 million from 2002. The increase is due primarily to the inclusion of Genie for the full year ending December 31, 2003. Income from operations for the Terex Aerial Work Platforms segment for 2003 was $67.8 million, an increase of $63.6 million from 2002. The increase is due primarily to the inclusion of Genie for the full year ending December 31, 2003. Terex Mining
2003 2002 ----------------------- ---------------------- % of % of % Change In Reported Sales Sales Amounts ----------- ---------- ----------------------- ($ amounts in millions) Net Sales $ 294.5 $ 282.8 +4.1% Gross Profit 48.7 16.5% 22.9 8.1% +112.7% SG&A 34.3 11.6% 27.3 9.7% +25.6% Income from Operations $ 14.4 4.9% $ (4.4) (1.6%) ---
Net sales in the Terex Mining segment increased by $11.7 million to $294.5 million in 2003 compared to $282.8 million in 2002. Parts sales were positively impacted by foreign currency fluctuations in Europe, Australia and South Africa as well as an increase in demand in the United States. These gains were partially offset by continued weakness in demand for mining trucks and a decrease in shovel sales in Canada. Demand for the Terex Mining segment's products is dependent on expectations within the mining industry of future commodity prices, including those for coal and iron ore. Gross profit increased by $25.8 million relative to 2002 and totaled $48.7 million. Gross profit in 2003 benefited from reduced warranty expenses ($3.6 million) and improved manufacturing efficiencies related to the closure of the Unit Rig facility in Tulsa, Oklahoma, as well as improved sales margins in the Terex Mining segment's South Africa facility. In addition, gross profit in 2002 included $6.8 million in restructuring charges related to the closure of the Tulsa, Oklahoma mining truck production facility ($4.2 million) and costs related to the exit of the rental of mining equipment and the production of large scrapers ($2.6 million) as well as an inventory valuation adjustment at the Unit Rig facility ($3.6 million). SG&A expense increased by $7.0 million in 2003 relative to 2002, to a total of $34.3 million. This increase is primarily attributed to the weakening of the U.S. Dollar relative to the Euro, South African Rand and the Australian Dollar. Income from operations for the Terex Mining segment was $14.4 million in 2003 or 4.9% of sales, an increase of $18.8 million from an operating loss of $4.4 million in 2002. This improvement in operating income is a result of foreign currency fluctuations, the increase of gross profit at Unit Rig as discussed above, improved margins in South Africa and the impact of restructuring and other charges on 2002 operating income. Terex Roadbuilding, Utility Products and Other
2003 2002 ----------------------- --------------------- % of % of % Change In Reported Sales Sales Amounts ---------- --------- ------------------------ ($ amounts in millions) Net Sales $ 711.9 $ 562.4 +26.6% Gross Profit 68.3 9.6% 91.4 16.3% (25.3%) SG&A 79.2 11.1% 73.0 13.0% +8.5% Goodwill Impairment 51.3 7.2% --- --- --- Income (Loss) from Operations $ (62.2) (8.7%) $ 18.4 3.3% ---
- 38 - Total sales for the Terex Roadbuilding, Utility Products and Other segment for 2003 were $711.9 million, an increase of $149.5 million when compared to 2002. The acquisitions of Tatra, ATC, Commercial Body, Combatel and Terex Advance Mixer increased sales relative to 2002 by $144.1 million. Sales of roadbuilding products in 2003 declined relative to 2002 levels due to continued uncertainty regarding state and federal funding levels for road construction and repair projects in the United States. This decline was partially offset by rental revenues generated by Terex's rental business in the United States. With the acquisition of Commercial Body and Combatel in 2003, the Company is positioned to focus on expanding into the investor owned utility market. This provides an opportunity to sell both Terex Utility Products and Terex compact construction equipment to a previously underserved market. In addition, the Company continues to identify new market opportunities for its off-road trucks manufactured by Tatra and ATC. Gross profit for 2003 totaled $68.3 million, a decrease of $23.1 million when compared to 2002. Total restructuring and other charges for 2003 totaled $30.3 million, or 4.4% of sales, and relate primarily to inventory reductions to reflect a decrease in forecasted demand and to exit certain economically unviable niche product lines. Restructuring and other charges for the same period in 2002 totaled $16.4 million or 2.9% of sales. Gross profit from the acquisition of Tatra, ATC, Commercial Body, Combatel and Terex Advance Mixer increased 2003 gross profit by $13.4 million when compared to 2002. Gross profit earned by the Light Construction business increased by 47%. This increase is attributable to higher sales volume relative to 2002 as well as the savings realized during 2003 associated with the October 2002 closure of the Memphis, Tennessee production facility. These gains were offset by lower margins realized in the Roadbuilding businesses in 2003 when compared to 2002. SG&A costs for the Terex Roadbuilding, Utility Products and Other segment for 2003 totaled $79.2 million, an increase of $6.2 million when compared to 2002. Restructuring and other charges in 2003 totaled $2.1 million, primarily as a result of the product line exits described above. Restructuring and other charges in 2002 totaled $1.3 million. The acquisitions of Tatra, ATC, Commercial Body, Combatel and Terex Advance Mixer increased SG&A costs by $10.7 million in 2003 relative to 2002. TFS, the Company's subsidiary that arranges financing for customers, began operations on January 1, 2003 and increased SG&A costs by $5.0 million compared to 2002. These increases were partially offset by lower costs incurred in the Roadbuilding businesses, where the Company has reduced costs in response to continued weak demand, by lower costs arising from the Light Construction facility consolidation initiated in 2002 and by lower costs resulting from the Company's exit from the business of its EarthKing Internet subsidiary in late 2002. During the second quarter of 2003, the Company determined that the business performance during the first six months of 2003 in the Roadbuilding reporting unit would not meet the Company's 2003 performance expectations that were used when goodwill was last reviewed for impairment as of October 1, 2002. As of December 31, 2003, funding for road projects have remained at historically low levels as federal and state budgets have been negatively impacted by a weak economy and costs related to the U.S. efforts in Iraq. In response to the revised business outlook, management initiated several changes to address the expected market conditions, including a change in business management, discontinuance of several non-core products, work force furloughs and reductions, and an inventory write-down based on anticipated lower sales volume. Based on the continued weakness in the reporting unit, the Company initiated a review of the long-term outlook for the reporting unit. The revised outlook for the reporting unit assumed that funding levels for domestic road projects will not improve significantly in the short term. In addition, the outlook assumed that the Company will continue to reduce working capital invested in the reporting unit to better match revenue expectations. Based on this review, the Company determined the fair value of the Roadbuilding reporting unit using the present value of the cash flow expected to be generated by the reporting unit. The cash flow was determined based on the expected revenues, after tax profits, working capital levels and capital expenditures for the reporting unit. The present value was calculated by discounting the cash flow by the Company's weighted average cost of capital. The Company, with the assistance of a third-party, also reviewed the market value of the Roadbuilding reporting unit's tangible and intangible assets. These values were included in the determination of the carrying value of the Roadbuilding reporting unit. Based on the revised fair value of the reporting unit, a goodwill impairment of $51.3 million was recognized during the second quarter of 2003. Income (loss) from operations for the Terex Roadbuilding, Utility Products and Other segment for 2003 was a loss of $62.2 million compared to a profit of $18.4 million for 2002. The aforementioned goodwill impairment reduced operating profit in 2003 by $51.3 million when compared to 2002. In addition, restructuring and other charges totaled $32.4 million in 2003 and were related primarily to product rationalization and a reduction of inventory in certain niche product lines due to a decrease in demand. Restructuring and other one-time charges totaled $17.2 million in 2002 or 3.1% of sales. Operating profit from the acquisition of Tatra, ATC, Commercial Body, Combatel and Terex Advance Mixer increased operating profit in 2003 when compared to 2002 by $2.7 million. This increase was offset by losses incurred by TFS during its first - 39 - year of operations and by operating losses generated by the Company's re-rental business. Net Interest Expense Net interest expense for 2003 totaled $ 92.8 million, an increase of $7.4 million when compared to 2002. This increase is primarily due to higher average bank debt balances related to the acquisitions of Demag and Genie in 2002 and a reduction in the benefits recognized related to interest rate hedges. Other Income (Expense) - Net Other income (expense) for 2003 was income of $0.4 million compared to an expense of $4.2 million for 2002. During 2002, the Company recorded a loss of $2.6 million related to its Internet commerce investments, a loss of $1.7 million related to its equity investment in Tatra (which reflects the Company's share of Tatra's operating loss) and a loss of $12.4 million related to the divestiture of its Holland Lift and Brimont businesses, which divested businesses were included in the Terex Cranes segment and manufactured and distributed products the Company deemed to be non-strategic. Partially offsetting these expenses were a $9.5 million benefit associated with a favorable judgment on appeal as the defendant in a patent infringement case brought against the Terex Construction segment's Powerscreen business and a $5.5 million gain on a foreign currency hedge initiated in connection with the acquisition of Demag. Loss on Retirement of Debt The Company initiated two debt reductions during 2003. On June 30, 2003, the Company redeemed $50.0 million aggregate principal amount of its 8-7/8% Senior Subordinated Notes due 2008 (the "8-7/8% Notes"). In connection with this redemption the Company recognized a loss of $1.9 million. The loss was comprised of the payment of an early redemption premium ($2.2 million), the write-off of unamortized original issuance discount ($1.6 million) and the write-off of unamortized debt acquisition costs ($0.2 million), which were partially offset by the recognition of deferred gains related to fair value interest rate swaps previously closed on this debt ($2.1 million). On November 25, 2003, the Company sold and issued $300 million principal amount of 7-3/8% Senior Subordinated Notes due 2014 (the "7-3/8% Notes"). The net proceeds from the issuance of the 7-3/8% Notes, together with cash on hand of approximately $119 million, were used to retire the remaining $200 million aggregate principal amount of the 8-7/8% Notes and prepay approximately $200 million of the Company's existing bank term loans. In connection with these retirements of debt, the Company recognized a loss of $9.0 million. The loss was comprised of the payment of an early redemption premium, the write-off of unamortized debt acquisition costs and original issue discount, which were partially offset by gains related to fair value interest rate swaps. Income Taxes During 2003, the Company recognized a benefit from income taxes of $9.8 million on a loss before income taxes of $35.3 million, an effective rate of 28%, as compared to income tax benefit of $9.1 million on loss from continuing operations before income taxes of $28.2 million, an effective rate of 32%, in the prior year. The 2003 effective tax rate differs from the prior period primarily due to a goodwill impairment charge recorded during the second quarter of 2003 that is partially non-deductible for income tax purposes and a change in the source of earnings among various jurisdictions with different tax rates. 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 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 Roadbuilding, Utility Products and Other Segment) ($26.2 million, or $18.1 million, net of income taxes). This charge was partially offset by a one-time gain ($17.8 million, $10.7 million net of income taxes) recognized on January 1, 2002 in the Fermec business. The purchase price paid by the Company to acquire Fermec was less than the net assets acquired in the transaction. Prior to January 1, 2002, the difference was recorded as a deferred credit in goodwill. As required by SFAS No. 141, this credit balance was recognized as a cumulative effect adjustment on January 1, 2002. - 40 - 2002 Compared with 2001 - ----------------------- Terex Consolidated
2002 2001 --------------------- ---------------------- % of % of % Change In Sales Sales Reported Amounts --------- ---------- --------------------- ($ amounts in millions) Net Sales $ 2,797.4 $ 1,812.5 +54.3% Gross Profit 356.7 12.8% 272.4 15.0% +30.9% SG&A 288.1 10.3% 168.2 9.3% +71.3% Income from Operations $ 68.6 2.5% $ 104.2 5.7% (34.2%)
Total sales for 2002 were $2,797.4 million, an increase of $984.9 million relative to 2001 performance. Acquisitions in 2001 and 2002, net of divested businesses, increased sales in 2002 by $961.0 million. Sales showed improvement in 2002 relative to 2001 in the Company's Mining segment and the Construction segment, excluding the 2002 acquisitions. The Mining segment's sales increased due to higher demand for large mining shovels. The Construction segment's product sales increased as the Company expanded its presence in the United States and continued to see a shift in customer preference towards the Company's mobile crushing and screening products. Sales in the Company's Roadbuilding business during 2002 were negatively impacted by ongoing uncertainty surrounding federal and state government funding of road projects. Sales of mobile cranes in the United States remained weak relative to prior year levels as demand has been negatively impacted by weakness in non-residential construction and overcapacity in rental fleets. Gross profit in 2002 totaled $356.7 million, an increase of $84.3 million over 2001. Businesses acquired in 2001 and 2002 added $138.6 million to gross profit in 2002. During 2002, the Company initiated a series of restructuring programs aimed at addressing declining market demand in the Crane and Roadbuilding businesses and at reducing product, production and distribution overlaps created by the acquisition of Genie and Demag. The cost of these projects as well as other non-recurring items was $63.4 million in 2002, an increase of $34.2 million over 2001 levels. SG&A expense increased to $288.1 million in 2002 from $168.2 million in 2001. Businesses acquired in 2001 and 2002 added $106.4 million of SG&A expense in 2002. Restructuring and other one-time costs, as described above and more fully in Note F - "Restructuring and Other Charges" to the Consolidated Financial Statements, increased by $6.2 million in 2002 and totaled $12.9 million. Income from operations fell to $68.6 million in 2002, a reduction of $35.6 million from 2001. Restructuring and other one-time costs incurred in 2002 totaled $76.3 million, an increase of $40.4 million over 2001. Businesses acquired in 2001 and 2002 increased income from operations by $29.5 million in 2002. As of January 1, 2002, the Company ceased amortization of goodwill, consistent with the requirements of SFAS No. 142. The resulting benefit realized in income from operations in 2002 was $14.2 million. The Mining segment generated a loss from operations in 2002 as a result of reduced parts gross profit. Income from operations in the mobile crane business declined relative to 2001 due to weakness in customer demand. Income from operations in the European tower crane business also declined as the stability of its customers' finances deteriorated. Continued weakness in the Roadbuilding segment also unfavorably impacted year over year income from operations. - 41 - Terex Construction
2002 2001 ----------------------- ----------------------- % of % of % Change In Reported Sales Sales Amounts ----------- ---------- ----------------------- ($ amounts in millions) Net Sales $ 1,174.5 $ 702.1 +67.3% Gross Profit 164.7 14.0% 101.7 14.5% +61.9% SG&A 107.7 9.2% 53.0 7.5% +103.2% Income from Operations $ 57.0 4.9% $ 48.7 6.9% +17.0%
Sales in the Terex Construction segment increased by 67% to $1,174.5 million in 2002 from $702.1 million in 2001. Excluding the impact of acquisitions in 2001 and 2002, sales increased by 9% to $806.0 million from $739.1 million in 2001. Sales of loader backhoes increased by 16% or $16.2 million in 2002 as the Company continued to expand distribution in the United States. Sales of Benford's line of compaction equipment increased by 29% or $21.8 million as a result of continued strong fleet purchases in Europe. Sales of Powerscreen products increased by 20% or $45.3 million over 2001 levels as end users continued a shift in demand towards mobile crushing and screening units away from fixed plants. Sales of articulated trucks declined by 4% or $7.3 million due to decreased demand in the United States and Europe. Sales of Atlas (acquired December 28, 2001) and Schaeff (acquired January 14, 2002) products totaled $401.1 million in 2002. Gross profit in the Terex Construction segment increased by $63.0 million to $164.7 million in 2002 relative to 2001's gross profit of $101.7 million. During 2002, several restructuring programs were initiated to consolidate production facilities and exit non-core lines of business. In 2002, restructuring charges included in gross profit totaled $11.9 million or a $5.7 million increase in restructuring costs over 2001 levels. Gross profit in 2002 was positively impacted by the acquisition of Schaeff and Atlas. These businesses contributed $57.3 million of gross profit during 2002. Gross profit in 2002 was favorably impacted by $5.2 million due to growth in the Fermec and Benford businesses. Fermec benefited from increased penetration into the U.S. market and Benford benefited from stronger rental fleet purchases in Europe. Gross profit in the U.K. material handlers business increased by $1.0 million as the Company realized the benefit of a factory consolidation initiated in late 2001. Gross profit in the Powerscreen businesses increased as a result of growth in new markets such as India as well as continued demand for the business's mobile crushing products. These positive trends were partially offset by a decline in gross profit earned in the articulated truck business, where the Company continues to adjust production to reflect a general reduction in demand. Gross profit was unfavorably impacted in 2002 by weakness seen in the UK based equipment rental business. During the fourth quarter of 2002, the Company initiated a restructuring program to exit certain non-core rental businesses and continues to explore options to improve the overall profitability of the European rental business. SG&A expense in the Terex Construction segment increased by $54.7 million from 2001 and totaled $107.7 million in 2002. Acquisitions in 2001 and 2002 accounted for the majority of the increase. SG&A expense for the Schaeff and Atlas businesses totaled $42.9 million in 2002. In addition, the Company initiated several restructuring programs during 2002 to respond to market conditions. The cost of these programs, $4.1 million, is an increase of $2.9 million over 2001's restructuring activities. SG&A expense in the Powerscreen business increased by approximately $3 million in 2002 due to higher sales levels in 2002. As a percentage of revenue, Powerscreen's SG&A expense declined slightly. Income from operations for the Terex Construction segment increased by $8.3 million in 2002 and totaled $57.0 million. Restructuring activities in 2002 totaled $16.0, an increase of $8.6 million. Income from operations for the Atlas and Schaeff business, acquired on December 25, 2001 and January 14, 2002, respectively totaled $14.3 million. As of January 1, 2002, the Company ceased amortization of goodwill, consistent with the requirements of SFAS No. 142. The resulting benefit realized in income from operations in 2002 was $5.1 million. - 42 - Terex Cranes
2002 2001 ----------------------- ----------------------- % of % of % Change In Reported Sales Sales Amounts ----------- ---------- -------------------------- ($ amounts in millions) Net Sales $ 717.9 $ 492.5 +45.8% Gross Profit 57.1 8.0% 56.1 11.4% +1.8% SG&A 55.1 7.7% 43.8 8.9% +25.8% Income from Operations $ 2.0 0.3% $ 12.3 2.5% (83.7%)
Sales in the Terex Cranes segment increased by 46% to $717.9 million in 2002 from $492.5 million in 2001. Excluding the impact of acquisitions, net of divestitures, sales in the Terex Cranes segment increased by 6% to $499.2 million in 2002 from sales of $471.1 million in 2001. In 2002, the Cranes segment sold a large, first time order of material handlers to the United States Marine Corps with a value of approximately $33 million. This contract was completed in the third quarter of 2002. Sales were also favorably impacted by increased demand for the segment's truck mounted cranes as well as by increased demand for its Italian produced mobile cranes. Sales were negatively impacted by continued weak demand for mobile and rough terrain cranes in the United States as these products contributed to a sales decline of 18% in 2002 or $31.5 million relative to 2001 sales levels. Demag sales since its date of acquisition (August 30, 2002) totaled $201.8 million. Gross profit in the Terex Cranes segment increased by $1.0 million in 2002 relative to 2001 and totaled $57.1 million. Businesses acquired during 2002, net of divestitures, increased gross profit relative to 2001 by approximately $21.5 million. Gross profit earned by Demag since its date of acquisition totaled $20.8 million. Included in 2002's gross profit is a $3.6 million non-recurring reduction of gross profit related to fair-value accounting at Demag. The fair value adjustments relate to the acquired inventory of Demag. A total of $2.1 million of the fair value adjustment remains in inventory at December 31, 2002 and will be recognized in cost of goods sold in 2003. Restructuring and other one-time charges included in gross profit in 2002 totaled $27.7 million, an increase of $11.0 million from 2001 levels. Gross profits in the mobile crane businesses in the United States declined by $11.1 million as a result of an 18% decline in sales. A general slow down in the construction industry has depressed sales of mobile cranes. Gross profit increased in the European crane business by $5.2 million relative to 2001 due to improved margins at the Bendini business. Gross profits earned in the European tower crane business declined by $2.4 million on relatively flat sales in 2002 due to increased pricing pressure resulting from financial difficulties experienced by large European rental customers. During the fourth quarter of 2002, the Company announced a plan to reduce the number of tower crane products offered and reduce manufacturing capacity in Germany due to the difficult market conditions seen in the European tower crane business. SG&A expense in the Terex Cranes segment increased by $11.3 million versus 2001 to a total of $55.1 million. SG&A expense in 2002 included a restructuring charge of $2.5 million. The acquisition of Demag increased SG&A expense in 2002 by $16.5 million. Excluding the acquisition of Demag, operating expense decreased by $3.0 million. A significant portion of the reduction is a result of consolidating the mobile crane facility in Conway, South Carolina into the Waverly, Iowa facility during the fourth quarter of 2001. Further cost savings were realized in connection with the closure of the Cork, Ireland scissor lift facility. These initiatives were launched in response to a continued decline in demand for mobile cranes with less than 50 tons in capacity that materialized in late 2000 and continued through 2002. Income from operations for the Terex Cranes segment declined by $10.3 million in 2002 and totaled $2.0 million. The acquisition of Demag increased income from operations by $7.9 million, including the impact of non-recurring fair value adjustments related to the value of acquired inventories of $3.6 million. Restructuring and other non-recurring charges totaled $30.2 million in 2002, an increase of $10.0 million from 2001. These projects were initiated in response to slowing demand for mobile cranes in North America and weakness in the financial health of large rental customers in Europe. The restructuring charge also reflects the consolidation of production and distribution facilities as the result of the Demag acquisition. Income from operations benefited by restructuring activities launched in late 2001 in response to a slowing demand for mobile cranes in the United States. As of January 1, 2002, the Company ceased amortization of goodwill, consistent with the requirements of SFAS No. 142. The resulting benefit realized in income from operations in 2002 was $4.1 million. - 43 - Terex Aerial Work Platforms
2002 2001 ----------------------- ----------------------- % of % of Change in Reported Sales Sales Amounts ----------- ----------- --------------------- ($ amounts in millions) Net Sales $ 149.4 $ 37.0 +303.8% Gross Profit 21.2 14.2% 3.2 8.6% +562.5% SG&A 17.0 11.4% 2.5 6.8% +580.0% Income from Operations $ 4.2 2.8% $ 0.7 1.9% +500.0%
The Terex Aerial Work Platforms segment was formed upon the completion of Terex's acquisition of Genie and its affiliates on September 18, 2002. As a result, the 2002 performance of this segment includes more than three months of operations of the Genie group, while the 2001 performance does not include any results from the Genie group. Accordingly, comparisons between the years must be reviewed in this context. Sales in the Terex Aerial Work Platforms segment totaled $149.4 million in 2002 and represent the impact of Genie since its date of acquisition by the Company, September 18, 2002. The period that corresponds with post-acquisition activity has typically been the weakest sales period of the year; however, in 2002 sales were marginally above the level of the comparative prior year period. Gross profit in the Terex Aerial Work Platforms segment totaled $21.2 million in 2002 or 14.2% of sales. Included in the gross profit of $21.2 is a non-recurring reduction of gross profit of $4.1 million related to the effects of the required fair-value accounting of Genie. The fair value adjustments relate to acquired inventory. As of December 31, 2002, the remaining fair value adjustment in inventory was $0.8 million. The remaining fair value adjustment will be charged to cost of sales in 2003 as the associated inventory is sold to customers. SG&A expense in the Terex Aerial Work Platforms segment totaled $17.0 million in 2002, resulting in operating profit of $4.2 million (or 2.8% of sales) in 2002. The Terex Aerial Work Platforms segment's gross profit and operating profit margins have improved over the prior period annual margins of approximately 9% and 2%, respectively. This improvement represents the impact of global restructuring activities and cost control initiatives initiated prior to acquisition by the Company as well as the consolidation of additional domestic production facilities subsequent to the acquisition. Terex Mining
2002 2001 ------------------------- ---------------------- % of % of % Change In Reported Sales Sales Amounts ------------- ---------- ----------------------- ($ amounts in millions) Net Sales $ 282.8 $ 266.2 +6.2% Gross Profit 22.9 8.1% 40.2 15.1% (43.0%) SG&A 27.3 9.7% 25.7 9.7% +6.2% Income (Loss) from Operations $ (4.4) (1.6%) $ 14.5 5.4% ---
Net sales in the Terex Mining segment increased by 6.2% to $282.8 million in 2002 relative to 2001 sales volume of $266.2 million. Sales of mining shovels increased by approximately 14% or $16.4 million due to increased demand in Australia and Canada. Sales of mining shovels in Canada were favorably impacted by higher oil prices. These gains were partially offset by continued weakness in demand for mining trucks. Gross profit in the Terex Mining segment declined by $17.3 million relative to 2001 and totaled $22.9 million. Gross profit in 2002 includes one-time charges related to the closure of the Tulsa, Oklahoma mining truck production facility ($4.2 million) and costs related to the exit of the rental of mining equipment and the production of large scrapers ($2.6 million) as well as inventory valuation adjustments at the Unit Rig facility ($3.6 million). Gross profit earned on the sale of replacement parts declined by $10 million in 2002 when compared to 2001 levels. The decline is a result of selling an increased portion of replacement parts through dealers in an effort to minimize working capital requirements for the business. Margins earned on new machines sold in 2002 declined slightly from levels realized in 2001 as competitive pricing pressures were partially offset by the benefit of closing the Tulsa production facility. - 44 - SG&A expense in the Terex Mining segment increased by $1.6 million in 2002 relative to 2001, to a total of $27.3 million, primarily due to higher expenditures on product engineering as well as on increased administrative costs. Income from operations for the Terex Mining segment resulted in a loss of $4.4 million in 2002, a reduction of $18.9 million from an operating profit of $14.5 million in 2001. One-time costs related to restructuring activities initiated in 2002 totaled $6.8 million. These projects were launched to address continued weakness in demand for the Mining segment's mining trucks and to exit non-core activities. A decline in margins earned on replacement parts negatively impacted earnings by $10 million relative to 2001. The decline in parts margin is primarily due to lower prices realized and a shift to selling parts through distributors to reduce working capital levels. As of January 1, 2002, the Company ceased amortization of goodwill, consistent with the requirements of SFAS No. 142. The benefit realized income from operations in 2002 was $2.9 million. Terex Roadbuilding, Utility Products and Other
2002 2001 ----------------------- --------------------- % of % of % Change In Reported Sales Sales Amounts ---------- ---------- ------------------------ ($ amounts in millions) Net Sales $ 562.4 $ 365.5 +53.9% Gross Profit 91.4 16.3% 66.5 18.2% +37.4% SG&A 73.0 13.0% 40.5 11.1% +80.2% Income (Loss) from Operations $ 18.4 3.3% $ 26.0 7.1% (29.2%)
Sales in the Terex Roadbuilding, Utility Products and Other segment increased by 54% or $196.9 million in 2002 from $365.5 million in 2001. Excluding the impact of acquisitions in 2001 and 2002, sales decreased by 15% to $279.8 million in 2002 from sales of $328.7 million in 2001. Sales were negatively impacted by continued weak demand for asphalt and cement pavers along with hot mix asphalt plants. Demand for these products has been negatively impacted by uncertainty surrounding state and federal funding for road improvements. Sales of these products decreased by approximately 13% in 2002 relative to 2001. Demand for utility products, excluding the acquisition of Pacific Utility and Telelect Southeast, declined by 14% or $16.6 million in 2002 relative to 2001. Demand for the Company's products that serve the telecommunications industry remained weak in 2002 as a result of overcapacity in the telecommunications sector. During 2002 the Company acquired Pacific Utility and Telelect Southeast to expand Company owned distribution for Telelect's products. Sales from these businesses totaled $78.5 million from their respective dates of acquisitions in 2002. Sales of light construction products continued to decline as customer consolidation and slowing end market demand negatively impacted sales. Sales of light construction products decreased by 21% or $11.0 million in 2002 relative to 2001 levels. Sales from Terex Advance Mixer, a producer of front discharge cement mixers, totaled $49.9 million from its date of acquisition of April 11, 2002. Gross profit in the Terex Roadbuilding, Utility Products and Other segment increased to $91.4 million in 2002 from $66.5 million in 2001. Businesses acquired in 2001 and 2002 increased gross profit by $45.1 million in 2002 relative to 2001. Restructuring and other one-time charges negatively impacted earnings by $14.0 million in 2002 relative to 2001 and totaled $16.4 million. Gross profit in the Utility business, excluding acquisitions, declined by $3.5 million in 2002 relative to 2001 levels. Gross profit declined primarily due to the reduction in sales volume, as the utility business was able to maintain margins by implementing effective cost controls. Gross profit in 2002 in the Light Construction business declined relative to 2001 as a result of a 21% decline in demand. The impact of declining sales was partially offset by the benefit of a facility consolidation initiated in 2002. Gross profit in the Cedarapids business was negatively impacted by continued weak demand, driven by uncertainty around funding levels for roadbuilding projects in the United States. Margins in the Jaques business, providers of crushing & screening products, increased on stronger sales in Asian markets. SG&A expense in the Terex Roadbuilding, Utility Products and Other segment increased by $32.5 million in 2002 relative to 2001 to a total of $73.0 million. The acquisition of Terex Advance Mixer, Pacific Utility and Telelect Southeast increased SG&A expense by $9.3 million in 2002 when compared to 2001. The inclusion of a full year of expense for CMI, acquired on October 1, 2001, increased 2002 SG&A expense by $24.3 million when compared to 2001. Restructuring costs in 2002 totaled $1.3 million, an increase of $0.8 million from $0.5 million in 2001. In late 2001, the Company decided to significantly reduce its level of activity at its Internet business to match the level of revenue it was expected to generate. This accounted for a $3.1 million reduction in operating expense in 2002 relative to 2001. Income from operations in the Terex Roadbuilding, Utility Products and Other segment was $18.4 in 2002, a reduction of $7.6 million from 2001. During 2002 the Company initiated $9.8 million of restructuring projects aimed at addressing - 45 - continued weakness in demand for light construction and roadbuilding products. These projects were completed by the end of 2002. The restructuring charge of $9.8 million represents an increase of $6.9 million over 2001. During 2002, the Company reviewed the operating performance of its Light Construction business. Based on management's expectation for future cash flow, the Company determined the carrying value of Light Construction long-term assets was impaired and recorded a charge of $7.9 million in 2002. Business acquired in 2002 increased income from operations by $8.4 million relative to 2001. As of January 1, 2002, the Company ceased amortization of goodwill, consistent with the requirements of SFAS No. 142. The resulting benefit realized in income from operations in 2002 was $2.9 million. Net Interest Expense During 2002, the Company's net interest expense increased $6.4 million to $85.4 million from $79.0 million for 2001. The increase was due to the overall increase in bank debt used to finance acquisitions in 2002. The impact of increased net debt has been partially offset by more favorable interest rates and the use of interest rate derivatives to convert fixed rate debt to floating rate debt. Other Income (Expense) - Net Other income (expense) - net for 2002 was an expense of $4.2 million as compared to income of $3.2 million for 2001. During 2002, the Company recorded a loss of $2.6 million related to its internet commerce investments, a loss of $1.7 million related to its equity investment in Tatra (which reflects the Company's share of Tatra's operating loss) and a loss of $12.4 million related to the divestiture of its Holland Lift and Brimont businesses, which divested businesses were included in the Terex Cranes segment and manufactured and distributed products the Company deemed to be non-strategic. Partially offsetting these expenses were a $9.5 million benefit associated with a favorable judgment on appeal as the defendant in a patent infringement case brought against the Terex Construction segment's Powerscreen business and a $5.5 million gain on a foreign currency hedge initiated in connection with the acquisition of Demag. Loss on Retirement of Debt During 2002, the Company recorded a charge of $2.4 million to recognize a loss on the write-off of unamortized debt acquisition costs for the early extinguishment of debt in connection with the refinancing of loans under the Company's bank credit facilities on July 3, 2002. During 2001, the Company recorded a charge of $5.7 million to recognize a loss on the write-off of unamortized debt acquisition costs for the early extinguishments 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 2002. See "Critical Accounting Policies," below, for additional information on these charges. This charge represents the write-off of $132.2 million of goodwill ($124.1 million, net of income taxes) principally in the Mining Group (Terex Mining Segment) ($105.7 million, or $105.7 million, net of income taxes), and the Light Construction Group (Terex Roadbuilding, Utility Products and Other Segment) ($26.2 million, or $18.1 million, net of income taxes). This charge was partially offset by a one-time gain ($17.8 million, $10.7 million net of income taxes) recognized on January 1, 2002 in the Fermec business. The purchase price paid by the Company to acquire Fermec was less than the net assets acquired in the transaction. Prior to January 1, 2002, the difference was recorded as a deferred credit in goodwill. As required by SFAS No. 141, this credit balance was recognized as a cumulative effect adjustment on January 1, 2002. CRITICAL ACCOUNTING POLICIES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Changes in the estimates and assumptions used by management could have significant impact on the Company's financial results. Actual results could differ from those estimates. The Company believes that the following are among its most significant accounting polices which are important in determining the reporting of - 46 - transactions and events and which utilize estimates about the effect of matters that are inherently uncertain and therefore are based on management judgment. Please refer to Note A - "Significant Accounting Policies" in the accompanying consolidated financial statements for a complete listing of the Company's accounting policies. Inventories - Inventories are stated at the lower of cost or market value. Cost is determined by the first-in, first-out ("FIFO") method. In valuing inventory, management is required to make assumptions regarding the level of reserves required to value potentially obsolete or over-valued items at the lower of cost or market. The valuation of used equipment taken in trade from customers requires the Company to use the best information available to determine the value of the equipment to potential customers. This value is subject to change based on numerous conditions. Inventory reserves are established taking into account age, frequency of use, or sale, and in the case of repair parts, the installed base of machines. While calculations are made involving these factors, significant management judgment regarding expectations for future events is involved. Future events which could significantly influence management's judgment and related estimates include general economic conditions in markets where the Company's products are sold, new equipment price fluctuations, competitive actions including the introduction of new products and technological advances, as well as new products and design changes introduced by the Company. At December 31, 2003, reserves for excess and obsolete inventory totaled $59.4 million. Accounts Receivable - Management is required to make judgments relative to the Company's ability to collect accounts receivable from the Company's customers. Valuation of receivables includes evaluating customer payment histories, customer leverage, availability of third party financing, political and exchange risks and other factors. Many of these factors, including the assessment of a customer's ability to pay, are influenced by economic and market factors which cannot be predicted with certainty. At December 31, 2003, reserves for potentially uncollectible accounts receivable totaled $38.2 million. Guarantees - The Company has issued guarantees of customer financing to purchase equipment as of December 31, 2003. The Company must assess the probability of losses or non-performance in ways similar to the evaluation of accounts receivable, including consideration of a customer's payment history, leverage, availability of third party finance, political and exchange risks and other factors. Many of these factors, including the assessment of a customer's ability to pay, are influenced by economic and market factors that cannot be predicted with certainty. To date, losses related to guarantees have been negligible. Customers of the Company from time to time may fund the acquisition of the Company's equipment through third-party finance companies. In certain instances, the Company may provide a credit guarantee to the finance company, by which the Company agrees to make payments to the finance company should the customer default. The maximum liability of the Company is limited to the remaining payments due to the finance company at the time of default. In the event of customer default, the Company is generally able to dispose of the equipment with the Company realizing the benefits of any net proceeds in excess of the remaining payments due to the finance company. As of December 31, 2003, the Company's maximum exposure to such credit guarantees is $328.2 million, including total guarantees issued by Demag and Genie of $216.4 million and $58.8 million, respectively. The terms of these guarantees coincide with the financing arranged by the customer and generally does not exceed five years. Given the Company's position as the original equipment manufacturer and its knowledge of end markets, the Company, when called upon to fulfill a guarantee, generally has been able to liquidate the financed equipment at a minimal loss, if any, to the Company. The Company, through its Genie subsidiary, issues residual value guarantees under sales-type leases. A residual value guarantee involves a guarantee that a piece of equipment will have a minimum fair market value at a future point in time. As described in Note L - "Net Investment in Sales-Type Leases" in the Notes to the Consolidated Financial Statements, the Company's maximum exposure related to residual value guarantees at December 31, 2003 is $36.5 million. The Company is able to mitigate the risk associated with these guarantees because the maturity of the guarantees is staggered, which limits the amount of used equipment entering the marketplace at any one time. The Company from time to time guarantees that it will buy equipment from its customers in the future at a stated price if certain conditions are met by the customer. Such guarantees are referred to as buyback guarantees. These conditions generally pertain to the functionality and state of repair of the machine. As of December 31, 2003, the Company's maximum exposure pursuant to buyback guarantees is $45.7 million. The Company is able to mitigate the risk of these guarantees by staggering the timing of the buybacks and through leveraging its access to the used equipment markets provided by the Company's original equipment manufacturer status. Beginning in 2003 the Company recorded a liability for the estimated fair value of guarantees issued. - 47 - The Company recognizes a loss under a guarantee when the Company's obligation to make payment under the guarantee is probable and the amount of the loss can be estimated. A loss would be recognized if the Company's payment obligation under the guarantee exceeds the value the Company can expect to recover to offset such payment, primarily through the sale of the equipment underlying the guarantee. Revenue Recognition -- Revenue and costs are generally recorded when products are shipped and invoiced to either independently owned and operated dealers or to customers. Certain new units may be invoiced prior to the time customers take physical possession. Revenue is recognized in such cases only when the customer has a fixed commitment to purchase the units, the units have been completed, tested and made available to the customer for pickup or delivery, and the customer has requested that the Company hold the units for pickup or delivery at a time specified by the customer. In such cases, the units are invoiced under the Company's customary billing terms, title to the units and risks of ownership pass to the customer upon invoicing, the units are segregated from the Company's inventory and identified as belonging to the customer and the Company has no further obligations under the order. Revenue generated in the United States is recognized when title and risk of loss pass from the Company to its customers which occurs upon shipment when terms are FOB shipping point (which is customary for the Company) and upon delivery when terms are FOB destination. The Company also has a policy requiring it to meet certain criteria in order to recognize revenue, including satisfaction of the following requirements: a) Persuasive evidence that an arrangement exists; b) The price to the buyer is fixed or determinable; c) Collectibility is reasonably assured; and d) The Company has no significant obligations for future performance. In the United States, the Company has the ability to enter into a security agreement and receive a security interest in the product by filing an appropriate Uniform Commercial Code ("UCC") financing statement. However, a significant portion of the Company's revenue is generated outside of the United States. In many countries outside of the United States, as a matter of statutory law, a seller retains title to a product until payment is made. The laws do not provide for a seller's retention of a security interest in goods in the same manner as established in the UCC. In these countries, the Company retains title to goods delivered to a customer until the customer makes payment so that the Company can recover the goods in the event of customer default on payment. In these circumstances, where the Company only retains title to secure its recovery in the event of customer default, the Company also has a policy which requires it to meet certain criteria in order to recognize revenue, including satisfaction of the following requirements: a) Persuasive evidence that an arrangement exists; b) Delivery has occurred or services have been rendered; c) The price to the buyer is fixed or determinable; d) Collectibility is reasonably assured; e) The Company has no significant obligations for future performance; and f) The Company is not entitled to direct the disposition of the goods, cannot rescind the transaction, cannot prohibit the customer from moving, selling, or otherwise using the goods in the ordinary course of business and has no other rights of holding title that rest with a titleholder of property that is subject to a lien under the UCC. In circumstances where the sales transaction requires acceptance by the customer for items such as testing on site, installation, trial period or performance criteria, revenue is not recognized unless the following criteria have been met: a) Persuasive evidence that an arrangement exists; b) Delivery has occurred or services have been rendered; c) The price to the buyer is fixed or determinable; d) Collectibility is reasonably assured; and e) The customer has given their acceptance, the time period for acceptance has elapsed or the Company has otherwise objectively demonstrated that the criteria specified in the acceptance provisions have been satisfied. In addition to performance commitments, the Company analyzes factors such as the reason for the purchase to determine if revenue should be recognized. This analysis is done before the product is shipped and includes the evaluation of factors that may affect the conclusion related to the revenue recognition criteria as follows: a) Persuasive evidence that an arrangement exists; - 48 - b) Delivery has occurred or services have been rendered; c) The price to the buyer is fixed or determinable; and d) Collectibility is reasonably assured. Goodwill & Acquired Intangible Assets - Goodwill represents the difference between the total purchase price paid in the acquisition of a business and the fair value of the assets, both tangible and intangible, and liabilities acquired by the Company. Acquired intangible assets generally include trade names, technology and customer relationships and are amortized over their estimated useful lives. The Company is required annually to review the value of its recorded goodwill and intangible assets to determine if either is potentially impaired. The initial recognition of intangible assets, as well as the annual review of the carrying value of goodwill and intangible assets, requires that the Company develop estimates of future business performance. These estimates are used to derive expected cash flow and include assumptions regarding future sales levels, the impact of cost reduction programs, and the level of working capital needed to support a given business. The Company relies on data developed by business segment management as well as macroeconomic data in making these calculations. The estimate also includes a determination of the reporting units' weighted average cost of capital. The cost of capital is based on assumptions about interest rates as well as a risk-adjusted rate of return required by the Company's equity investors. Changes in these estimates can impact the present value of the expected cash flow that is used in determining the fair value of acquired intangible assets as well as the overall expected value of a given business. Impairment of Long Lived Assets - The Company's policy is to assess its ability to realize on its long lived assets and to evaluate such assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets (or group of assets) may not be recoverable. Impairment is determined to exist if the estimated future undiscounted cash flows is less than its carrying value. Future cash flow projections include assumptions regarding future sales levels, the impact of cost reduction programs, and the level of working capital needed to support each business. The Company relies on data developed by business segment management as well as macroeconomic data in making these calculations. There are no assurances that future cash flow assumptions will be achieved. The amount of any impairment then recognized would be calculated as the difference between estimated fair value and the carrying value of the asset. Accrued Warranties - The Company records accruals for unasserted warranty claims based on the Company's prior claim experience. Warranty costs are accrued at the time revenue is recognized. However, adjustments to the initial warranty accrual are recorded if actual claim experience indicates that adjustments are necessary. These warranty costs are based upon management's assessment of past claims and current experience. However, actual claims could be higher or lower than amounts estimated, as the amount and value of warranty claims are subject to variation as a result of many factors that cannot be predicted with certainty, including the performance of new products, models and technology, changes in weather conditions for product operation, different uses for products and other similar factors. Accrued Product Liability - The Company records accruals for product liability claims based on the Company's prior claim experience. Accruals for product liability claims are valued based upon the Company's prior claims experience, including consideration of the jurisdiction, circumstances of the accident, type of loss or injury, identity of plaintiff, other potential responsible parties, analysis of outside legal counsel, analysis of internal product liability counsel and the experience of the Company's director of product safety. The Company provides accruals for estimated product liability experience on known claims. Actual product liability costs could be different due to a number of variables such as the decisions of juries or judges. Pension Benefits - Pension benefits represent financial obligations that will be ultimately settled in the future with employees who meet eligibility requirements. Because of the uncertainties involved in estimating the timing and amount of future payments, significant estimates are required to calculate pension expense and liabilities related to the Company's plans. The Company utilizes the services of several independent actuaries, whose models are used to facilitate these calculations. Several key assumptions are used in actuarial models to calculate pension expense and liability amounts recorded in the financial statements. Management believes the three most significant variables in the models are expected long-term rate of return on plan assets, the discount rate, and the expected rate of compensation increase. The actuarial models also use assumptions for various other factors including employee turnover, retirement age and mortality. The Company's management believes the assumptions used in the actuarial calculations are reasonable and are within accepted practices in each of the respective geographic locations in which the Company operates. The expected long-term rates of return on pension plan assets were 8.00% for U.S. plans and 2.0% to 7.0% for international plans at December 31, 2003. These rates are determined annually by management based on a weighted average of current and historical market trends, historical portfolio performance and the portfolio mix of investments. The discount rates for pension plan liabilities were 6.0% for U. S. plans and 5.5% to 6.0% for international plans at December 31, 2003. These rates are used - 49 - to calculate the present value of plan liabilities and are determined annually by management based on market yields for high-quality fixed income investments on the measurement date. The expected rates of compensation increase for the Company's pension plans were 4.0% for U.S. plans and 2.75% to 4.25% for international plans at December 31, 2003. These estimated annual compensation increases are determined by management every year and are based on historical trends and market indices. Income Taxes - At December 31, 2003 the Company had net deferred tax assets of $454.2 million ($218.4 million, net of valuation allowances). Income tax benefit was $9.8 million for the year ended December 31, 2003. The Company estimates income taxes based on diverse and complex regulations that exist in various jurisdictions where it conducts business. Deferred income tax assets and liabilities represent tax benefits or obligations that arise from temporary timing differences due to differing treatment of certain items for accounting and income tax purposes. The Company evaluates deferred tax assets each period to ensure that estimated future taxable income will be sufficient in character, amount and timing to result in the utilization of its deferred tax assets. "Character" refers to the type (capital gain vs. ordinary income) as well as the source (foreign vs. domestic) of the income generated by the Company. "Timing" refers to the period in which future income is expected to be generated and is important because certain of the Company's net operating losses expire if not used within an established time frame based on the jurisdiction in which they were generated. A significant portion of the Company's deferred tax assets are comprised of net operating loss ("NOL") generated in the United States by the Company. The Company has had a history of generating tax losses in the United States and has accumulated net operating losses of $332.0 million as of December 31, 2003. During the fourth quarter of 2003, the Company evaluated its ability to utilize its NOLs generated in the United States. The Company included the following information in its analysis: o The acquisitions of Genie and Terex Advance Mixer in 2002 adds significantly to the Company's U.S. based income generation. In addition, the Company had begun to see an increase in demand for Genie products in the United States relative to 2002. o The Company continues to reduce its long-term debt through the generation of operating cash flow, reducing interest expense in the United States relative to prior periods. o The Company has undergone significant restructuring in the United States to address market conditions in its North American crane business as well as its Roadbuilding businesses. The Company believes that these businesses are now properly sized for current business volumes and that their respective end markets have stabilized. o The Company has not yet taken advantage of several tax strategies that would allow it to accelerate the utilization of accumulated NOLs. Based on these facts, the Company has determined that it is more likely than not that expected future U.S. earnings are sufficient to fully utilize the Company's U.S. deferred tax assets. In addition to its domestic NOLs, the Company has accumulated $645.8 million of foreign NOLs at December 31, 2003. During the fourth quarter of 2003, the Company also evaluated its ability to utilize these NOLs on a country-by-country and entity-by-entity basis. In performing this analysis, the Company reviewed the past and anticipated future earnings for each foreign entity, and, where necessary, a valuation allowance was provided for foreign NOLs which the Company believed were not more likely than not to be realized in the future. As of December 31, 2003, the total valuation allowance provided for foreign deferred tax assets was $149.4 million. Considerable judgments are required in establishing deferred tax valuation allowances and in assessing possible exposures related to tax matters. Tax returns are subject to audit and local taxing authorities could challenge tax positions. The Company's practice is to review tax-filing positions by jurisdiction and to record provisions for probable tax assessments, including interest and penalties, if applicable. The Company believes it records and/or discloses such potential tax liabilities as appropriate and has reasonably estimated its income tax liabilities and recoverable tax assets. RECENT ACCOUNTING PRONOUNCEMENTS SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections as of April 2002," was issued in May 2002. SFAS No. 145 became effective for certain leasing transactions occurring after May 15, 2002 and is being applied by the Company from January 1, 2003 with respect to reporting gains and losses from extinguishments of debt. The adoption of SFAS No. 145 has resulted in the Company reporting gains and losses from - 50 - extinguishments of debt as a component of income or loss from continuing operations before income taxes and extraordinary items; there has been no effect on the Company's net income or loss. Prior period amounts have been reclassified. SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," was issued in June 2002. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002. Under SFAS No. 146, a liability for a cost associated with an exit or disposal activity is recognized when the liability is incurred. Under previous accounting principles, a liability for an exit cost would be recognized at the date of an entity's commitment to an exit plan. Adoption of SFAS No. 146 has been applied prospectively and has not had a material effect on the Company's consolidated financial position or results of operations. In November 2002, the FASB issued FASB Interpretation No. ("FIN") 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an interpretation of Statement of Financial Accounting Standards Nos. 5, 57, and 107 and rescission of FIN 34." FIN 45 extends the disclosures to be made by a guarantor about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of its obligations under certain guarantees. The disclosure provisions of FIN 45 are effective for financial statements for periods ending after December 15, 2002. The provisions for initial recognition and measurement of guarantees are effective on a prospective basis for guarantees that are issued or modified after December 31, 2002. The application of FIN 45 has not had a material impact on the Company's consolidated financial position or results of operations. In January 2003 the FASB issued FIN 46, "Consolidation of Variable Interest Entities." A variable interest entity ("VIE") is a corporation, partnership, trust or other legal entity that does not have equity investors with voting rights or has equity investors that do not provide sufficient financial resources for the entity to support is own activities. The interpretation requires a company to consolidate a VIE when the company has a majority of the risk of loss from the VIE's activities or is entitled to receive a majority of the entity's residual returns or both. In December 2003, the FASB revised FIN 46 ("FIN 46R") and modified its effective date. The Company is required to adopt the provisions of FIN 46R, for special purpose entities and VIEs created on or after February 1, 2003, effective December 31, 2003. As of December 31, 2003, there were no such entities which would require the Company to include its financial results in the Company's consolidated financial statements. For all other entities, the Company will adopt the provisions of FIN 46R on March 31, 2004. As discussed in Footnote J - "Investment in Joint Venture", the Company is still evaluating the future impact of FIN 46R on its statements of operations and financial position. In January 2003, the Emerging Issues Task Force (the "EITF") released EITF 00-21, "Accounting for Revenue Arrangements with Multiple Deliverables." EITF 00-21 clarifies the timing and recognition of revenue from certain transactions that include the delivery and performance of multiple products or services. EITF 00-21 is effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The adoption of EITF 00-21 has not had a material impact on the Company's consolidated financial position or results of operations. During April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." This statement amends and clarifies financial accounting and reporting for derivative instruments and hedging activities, resulting primarily from decisions reached by the FASB Derivatives Implementation Group subsequent to the original issuance of SFAS No. 133. This statement is generally effective prospectively for contracts and hedging relationships entered into after June 30, 2003. The adoption of SFAS No. 149 has not had a material impact on the Company's consolidated financial position or results of operations. On May 15, 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." This statement establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. SFAS No. 150 must be applied immediately to instruments entered into or modified after May 31, 2003 and to all other instruments that exist as of the beginning of the first interim financial reporting period beginning after June 15, 2003. The adoption of SFAS No. 150 has not had a material impact on the Company's consolidated financial position or results of operation. LIQUIDITY AND CAPITAL RESOURCES The Company's main sources of funding are cash generated from operations, use of the Company's bank credit facilities and access to capital markets. 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 had - 51 - cash and cash equivalents of $467.5 million at December 31, 2003. In addition, the Company had $217.8 million available for borrowing under its revolving credit facilities at December 31, 2003. Cash from operations is dependent on the Company's ability to generate net income through the sales of the Company's products and by reducing its investment in working capital. During 2003, the Company's focus shifted from a largely acquisition oriented growth approach to improving its operating performance. The Company recently initiated a series of programs, collectively known as TIP, aimed at improving operating earnings and net income as a percentage of sales and at reducing the relative level of working capital needed to operate the business. The Company is improving its liquidity through the collection of receivables in a more timely manner. Consistent with past practice, each quarter the Company sells receivables to various third party financial institutions through a series of established pre-arranged facilities. During the fourth quarter of 2003 and 2002, the Company sold, without recourse, accounts receivable approximating 24% and 23% of its fourth quarter revenue in 2003 and 2002, respectively, to provide additional liquidity. The Company is reducing inventory requirements by sharing, throughout the Company, many of the lean manufacturing processes that Genie has successfully utilized. These initiatives are expected to reduce the levels of raw materials and work in process needed to support the business and enable the Company to reduce its manufacturing lead times, thereby reducing the Company's working capital requirements. The Company's ability to generate cash from operations is subject to the following factors: o A substantial number of the Company's customers fund their purchases through third party finance companies. Finance companies extend credit to customers based on the credit worthiness of the customers and the expected residual value of the Company's equipment. Changes in either the customers' credit rating or in used equipment values may impact the ability of customers to purchase equipment. o As the Company's sales levels increase, the absolute amount of working capital needed to support the business may increase with a corresponding reduction in cash generated by operations. The TIP initiatives described above are intended to reduce the relative increase in working capital. o As described above, the Company insures and sells a portion of its accounts receivable to third party finance companies. Changes in customers' credit worthiness, in the market for credit insurance or in the willingness of third party finance companies to purchase accounts receivable from the Company can impact the Company's cash flow from operations. o The Company purchases material and services from its suppliers on terms extended based on the Company's overall credit rating. Changes in the Company's credit rating may impact suppliers' willingness to extend terms and increase the cash requirements of the business. o Sales of the Company's products are subject to general economic conditions, weather, competition and foreign currency fluctuations, and other such factors that in many cases are outside the Company's direct control. For example, during periods of economic uncertainty, many of the Company's customers have tended to delay purchasing decisions, which has had a negative impact on cash generated from operations. The Company's sales are seasonal, with more than half of the Company's sales being generated in the first two quarters of a calendar year. This seasonality is a result of the needs of the Company's customers to have new equipment available for the spring, summer and fall construction season. As a result, the Company tends to use cash to fund its operations during the first half of a calendar year and generate cash from operations during the second half of the year. To help fund this seasonal cash pattern, the Company maintains a significant cash balance and a revolving line of credit in addition to term borrowings from its bank group. The Company maintains a bank credit facility that originally provided for $375 million of term debt maturing in July 2009 and a revolving credit facility of $300 million that is available through July 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, of which the Company has utilized $210 million of additional term borrowings. During 2003, the Company prepaid $200 million principal amount of its bank term loans. The Company's ability to borrow under its existing bank credit facilities is subject to the Company's ability to comply with a number of covenants. The Company's bank credit facilities include covenants that require the Company to meet certain financial tests, including a pro forma consolidated leverage ratio test, a consolidated interest ratio test, a consolidated fixed charge ratio test, a pro forma consolidated senior secured debt leverage ratio test and a capital expenditures test. These covenants require quarterly compliance and become more restrictive through the third quarter of 2005. The Company has significant debt service requirements, including semi-annual interest payments on its senior subordinated notes and monthly interest payments on its bank credit facilities. Other than default under the terms of the Company's debt instruments, there are no other events that would accelerate the repayment of the Company's debt. In the event of default, these borrowings would become payable on demand. The Company is currently in compliance with all of its financial covenants under its bank credit facilities. The Company's future compliance with its covenants will depend on its ability to generate earnings, cash flow from working capital reductions, other asset sales and cost reductions from its restructuring programs. The interest rates charged are subject to adjustment based on the - 52 - Company's consolidated pro forma leverage ratio. The weighted average interest rate on the outstanding portion of the revolving credit component of the Company's bank credit facility was 4.40% at December 31, 2003. During 2003, the Company changed its debt profile by using cash generated from operations to reduce its debt, extending the maturities of its term debt and thereby reducing the rate of interest on its debt. On June 30, 2003, the Company redeemed $50 million of its 8-7/8% Notes. On November 25, 2003, the Company sold and issued $300 million of its 7-3/8% Notes using the proceeds from such sale plus $119 million of available cash to prepay the remaining $200 million outstanding principal amount of its 8-7/8% Notes and $200 million principal amount of its bank term loans. The Company manages its interest rate risk by maintaining a balance between fixed and floating rate debt through interest rate derivatives. Over the long term, the Company believes this mix will produce lower interest cost than a purely fixed rate mix without substantially increasing risk. At the same time that it issued its 7-3/8% Notes, the Company negotiated an amendment to certain of the financial covenants under its bank credit facilities, described above, to extend the rate at which the pro forma consolidated leverage ratio and the pro forma consolidated senior secured debt leverage ratio are reduced in 2004 and 2005. The Company continues to review its alternatives to improve its capital structure and to reduce debt service costs through a combination of debt refinancing, issuing equity, asset sales and the sale of non-strategic businesses. 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. In addition, the terms of the Company's bank credit facility and senior subordinated notes restrict the Company's ability to make further borrowings and to sell substantial portions of its assets. Cash From Operations - 2003 vs. 2002 - ------------------------------------ Cash from operations for the twelve months ended December 31, 2003 totaled $384.1 million, approximately $267 million of which came from reductions in working capital. Cash from operations increased by $313.8 million in 2003 when compared to 2002. During 2003, the Company reduced the working capital in the Construction, Cranes, Aerial Work Platforms and Roadbuilding, Utility Products and Other segments. A significant portion of the Cranes reduction was due to improvements realized at Demag, which was acquired in August 2002 with a high level of working capital. Cash used in investing activities in 2003 was $28.7 million, $411.9 million less than cash used in investing activities in 2002. The reduction in cash usage is a direct result of the number and size of acquisitions completed in 2003 when compared to 2002. The Company used cash for financing activities of $269.6 million in 2003, compared to cash provided by financing activities in 2002 of $460.0 million. During 2003, the Company utilized cash from operations to reduce its debt by approximately $262 million. During 2002, a significant use of the Company's cash was to fund the acquisition of Demag and to pay indebtedness assumed in the Genie acquisition. Contractual Obligations - ----------------------- The following table sets out specified contractual obligations of the Company at December 31, 2003:
Payments due by year ------------------------------------------------------------------------------- Total 2004 2005 2006 2007 2008 Thereafter Committed --------------- ------------ ---------- ----------- ---------- --------- --------------- Long-term debt obligations $ 1,333.3 $ 79.2 $ 25.4 $ 7.7 $ 40.5 $ 89.9 $ 1,090.6 Capital lease obligations 20.9 8.1 3.6 3.2 2.1 1.4 2.5 Operating lease obligations 399.3 63.5 55.1 46.7 41.8 34.7 157.5 --------------- ------------ -------- ----------- ---------- --------- --------------- Total $ 1,753.5 $ 150.8 $ 84.1 $ 57.6 $ 84.4 $ 126.0 $ 1,250.6 =============== ============ ========== =========== ========== ========= ===============
Additionally, at December 31, 2003, the Company had outstanding letters of credit that totaled $76.2 million and had issued $328.2 million in guarantees of customer financing to purchase equipment, $36.5 million in residual value guarantees and $45.7 million in buyback guarantees. The Company maintains defined benefit pension plans for some of its operations in the United States and Europe. It is the Company's policy to fund the pension plans at the minimum level required by applicable regulations. In 2003, cash contributions to the pension plans by the Company were $9.3 million, and the Company estimates that its pension plan contributions will be approximately $13 million in 2004. - 53 - Genie participates in a joint venture arrangement with a European financial institution as described below in "Off-Balance Sheet Arrangements--Variable Interest Entities." OFF-BALANCE SHEET ARRANGEMENTS Guarantees Customers of the Company from time to time may fund the acquisition of the Company's equipment through third-party finance companies. In certain instances, the Company may provide a credit guarantee to the finance company, by which the Company agrees to make payments to the finance company should the customer default. The maximum liability of the Company is limited to the remaining payments due to the finance company at the time of default. In the event of customer default, the Company is generally able to dispose of the equipment with the Company realizing the benefits of any net proceeds in excess of the remaining payments due to the finance company. As of December 31, 2003, the Company's maximum exposure to such credit guarantees was $328.2 million, including total credit guarantees issued by Demag and Genie of $216.4 million and $58.8 million, respectively. The terms of these guarantees coincide with the financing arranged by the customer and generally does not exceed five years. Given the Company's position as the original equipment manufacturer and its knowledge of end markets, the Company, when called upon to fulfill a guarantee, generally has been able to liquidate the financed equipment at a minimal loss, if any, to the Company. The Company, through its Genie subsidiary, issues residual value guarantees under sales-type leases. A residual value guarantee involves a guarantee that a piece of equipment will have a minimum fair market value at a future point in time. As described in Note L - "Net Investment in Sales-Type Leases" in the Notes to the Consolidated Financial Statements, the Company's maximum exposure related to residual value guarantees under sales-type leases was $36.5 million at December 31, 2003. The Company is able to mitigate the risk associated with these guarantees because the maturity of the guarantees is staggered, which limits the amount of used equipment entering the marketplace at any one time. The Company from time to time guarantees that it will buy equipment from its customers in the future at a stated price if certain conditions are met by the customer. Such guarantees are referred to as buyback guarantees. These conditions generally pertain to the functionality and state of repair of the machine. As of December 31, 2003, the Company's maximum exposure pursuant to buyback guarantees was $45.7 million. The Company is able to mitigate the risk of these guarantees by staggering the timing of the buybacks and through leveraging its access to the used equipment markets provided by the Company's original equipment manufacturer status. Variable Interest Entities In April 2001, Genie entered into a joint venture arrangement with a European financial institution whereby Genie maintains a forty-nine percent (49%) ownership interest in the joint venture, Genie Financial Solutions Holding B.V. ("GFSH B.V."). Genie contributed $4.7 million in cash in exchange for its ownership interest in GFSH B.V. During January 2003 and 2002, Genie contributed an additional $0.8 million and $0.6 million, respectively, in cash to GFSH B.V. The Company applies the equity method of accounting for its investment in GFSH B.V., as the Company does not control the operations of GFSH B.V. GFSH B.V. was established to facilitate the financing of Genie's products sold in Europe. As of December 31, 2003, the joint venture's total assets were $161.4 million and consisted primarily of financing receivables and lease related equipment; total liabilities were $145.3 million and consisted primarily of debt issued by the fifty-one percent (51%) joint venture partner. The Company provided guarantees related to potential losses arising from shortfalls in the residual values of financed equipment or credit defaults by the joint venture's customers. As of December 31, 2003 the maximum exposure to loss under these guarantees was approximately $10 million. Additionally, the Company is required to maintain a capital account balance in GFSH B.V., pursuant to the terms of the - 54 - joint venture, which could result in the reimbursement to GFSH B.V. by the Company of losses to the extent of the Company's ownership percentage. Based on the legal and operating structure of GFSH B.V., it is possible that the Company will be required to consolidate the results of GFSH B.V. in its March 31, 2004 financial statements. The Company is in the process of negotiating changes to the ownership and operating structure of GFSH B.V. with its joint venture partner, with the intended result that GFSH B.V. could continue to be accounted for under the equity method; however, there can be no assurance that an agreement on these terms will be reached. Sale-Leaseback Transactions The Company's rental business typically rents equipment to customers for periods of no less than three months. To better match cash outflows in the rental business to cash inflows from customers, the Company finances the equipment through a series of sale-leasebacks which are classified as operating leases. The leaseback period is typically 60 months in duration. At December 31, 2003, the historical cost of equipment being leased back from the financing companies was approximately $95 million and the minimum lease payment in 2004 will be approximately $18 million. CONTINGENCIES AND UNCERTAINTIES Foreign Currencies and Interest Rate Risk The Company's products are sold in over 100 countries around the world and, accordingly, revenues of the Company are generated in foreign currencies, while the costs associated with those revenues are only partly incurred in the same currencies. The major foreign currencies, among others, in which the Company does business, are the Euro, the British Pound, the Australian Dollar and the Czech Koruna. The Company may, from time to time, hedge specifically identified committed cash flows or forecasted cash flows in foreign currencies using forward currency sale or purchase contracts. At December 31, 2003, the Company had foreign exchange contracts with a notional value of $155.1 million. 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. As of December 31, 2003, the Company has entered into interest protection arrangements with respect to approximately $100 million of the principal amount of its indebtedness under its bank credit facility, fixing interest at 6.51% for the period from July 1, 2004 through June 30, 2009. Certain of the Company's obligations, including its senior subordinated notes, bear interest at a fixed interest rate. The Company has entered into interest rate agreements to convert these fixed rates to floating rates with respect to approximately $200 million of the principal amount of its indebtedness under its 7-3/8% Senior Subordinated Notes and approximately $79 million of leases. The floating rates are based on a spread of 2.45% to 4.50% over LIBOR. At December 31, 2003, the floating rates ranged between 3.68% and 5.61%. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," which established a new model for accounting for derivative and hedging activities and supersedes and amends a number of existing standards. Upon initial application, all derivatives were required to be recognized in the statement of financial position as either assets or liabilities and measured at fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. In addition, all hedging relationships must be reassessed and documented pursuant to the provisions of SFAS No. 133. SFAS No. 133 became effective for the Company beginning in 2001. Upon adoption of this statement on January 1, 2001, the Company did not experience a significant impact on its financial position or results of operations. 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. - 55 - The Company generates hazardous and non-hazardous wastes in the normal course of its manufacturing operations. As a result, Terex is subject to a wide range of federal, state, local and foreign environmental laws and regulations. These laws and regulations govern actions that may have adverse environmental effects, such as discharges to air and water, and also require compliance with certain practices when handling and disposing of hazardous and non-hazardous wastes. These laws and regulations also impose liability for the costs of, and damages resulting from, cleaning up sites, past spills, disposals and other releases of hazardous substances, should any of such events occur. No such incidents have occurred which required the Company to pay material amounts to comply with such laws and regulations. Compliance with such laws and regulations has required, and will continue to require, the Company to make expenditures. The Company does not expect that these expenditures will have a material adverse effect on its business or profitability. Transactions with Former Employees Atlas Terex, which the Company acquired in December 2001, was previously owned by David Langevin, a former executive officer of the Company, and GKM Value Partners L.P. ("GKM"), of which Mr. Langevin is a general partner. Mr. Langevin left the Company to pursue other interests in 1998. In July 2001, the Company entered into an agreement with GKM and Mr. Langevin whereby the Company was granted an option to purchase all of the share capital of Atlas Terex for $750 thousand. The Company and Atlas Terex also entered into an agreement for the Company to lend Atlas Terex funds for working capital purposes. During the option period, the Company provided Atlas Terex with certain management consulting services for which the Company received compensation. The Company exercised its option to acquire Atlas Terex from GKM and Mr. Langevin for $750 thousand and completed the acquisition on December 28, 2001. The terms of the transactions between the Company, Mr. Langevin, GKM and Atlas Terex are similar to terms that the Company believes would have been agreed upon in an arm's length transaction. During 2002, the Company and Quantum Value Partners, L.P., a partnership formed by Mr. Langevin and certain individuals affiliated with Mr. Langevin and/or GKM ("Quantum") formed GT Distribution, LLC ("GT Distribution"), a limited liability company in which the Company and such partnership were the only members. On April 10, 2002, GT Distribution completed the acquisition of Crane & Machinery, Inc. ("C&M"), a distributor of crane products, for an aggregate purchase price of $2.7 million. In connection with this transaction, the Company acquired from an unaffiliated financial institution outstanding loans in the amount of approximately $5.9 million owed by C&M to that financial institution. On November 10, 2003, the Company sold its entire interest in GT Distribution to Quantum. Also on November 10, 2003, C&M purchased substantially all of the assets of Schaeff Incorporated, a subsidiary of the Company, in consideration of C&M assuming approximately $3.1 million of Schaeff Incorporated's indebtedness to other Terex subsidiaries. C&M remains obligated to make payment to the Company pursuant to the terms of this indebtedness and the remaining outstanding loans acquired by the Company, which in the aggregate totaled approximately $8.6 million. This indebtedness is secured by a pledge of the assets of C&M, which were valued at approximately $10 million on November 10, 2003, and a guarantee by Quantum with respect to $5.5 million of these obligations. The results of C&M were consolidated in the Company's financial results from December 1, 2002 through November 10, 2003. The terms of the transactions among the Company, Mr. Langevin, Quantum, GT Distribution and C&M are similar to terms that the Company believes would have been agreed upon in an arm's length transaction. On November 13, 2003, the Company entered into an agreement with FIVER S.A. ("FIVER"), an entity affiliated with Fil Filipov, the President of the Company's Terex Cranes segment until his retirement from the Company effective January 1, 2004. Pursuant to this agreement, FIVER provides consulting services to Terex as assigned by the Chief Executive Officer of Terex, including an initial assignment to assist with the operations of Tatra. The term of the agreement is for three years commencing January 1, 2004, with an initial base consulting fee of $0.5 million per year, subject to adjustment based on usage of FIVER's services and FIVER's performance (determined at the discretion of the Company), plus reimbursement of certain expenses. The terms of the agreement between the Company and FIVER are similar to terms that the Company believes would have been agreed upon in an arm's length transaction. Forward-Looking Information Certain information in this Annual Report includes forward looking statements regarding future events or the future financial performance of the Company that involve certain contingencies and uncertainties, including those discussed above in the section entitled "Contingencies and Uncertainties". In addition, when included in this Annual Report or in documents incorporated herein by reference, the words "may," "expects," "intends," "anticipates," "plans," "projects," "estimates" and the negatives thereof and analogous or similar expressions are intended to identify forward-looking statements. 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 - 56 - beyond the Company's control, include, among others: o the Company's business is highly cyclical and weak general economic conditions may affect the sales of its products and its financial results; o the sensitivity of construction, infrastructure and mining activity and products produced for the military to interest rates and government spending; o the ability to successfully integrate acquired businesses; o the retention of key management personnel; o the Company's businesses are very competitive and may be affected by pricing, product initiatives and other actions taken by competitors; o the effects of changes in laws and regulations; o the Company's business is international in nature and is subject to changes in exchange rates between currencies, as well as international politics; o the ability of suppliers to timely supply the Company parts and components at competitive prices; o the financial condition of suppliers and customers, and their continued access to capital; o the Company's ability to timely manufacture and deliver products to customers; o the Company's significant amount of debt and its need to comply with restrictive covenants contained in the Company's debt agreements; o compliance with applicable environmental laws and regulations; and o other factors. Actual events or the actual future results of the Company may differ materially from any forward looking statement due to these and other risks, uncertainties and significant factors. The forward-looking statements contained herein speak only as of the date of this Annual Report and the forward-looking statements contained in documents incorporated herein by reference speak only as of the date of the respective documents. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained or incorporated by reference in this Annual Report to reflect any change in the Company's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 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. See Note E - "Derivative Financial Instruments" to the Consolidated Financial Statements for further information on accounting policies related to derivative financial instruments. 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 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, the Australian Dollar and the Czech Koruna. 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 December 31, 2003, the Company had foreign exchange contracts with a notional value of $155.1 million. The fair market value of these arrangements, which represents the cost to settle these contracts, was an asset of approximately $12 million at December 31, 2003. Interest Rate Risk The Company is exposed to interest rate volatility with regard to future issuances of fixed rate debt and existing issuances of variable rate debt. Primary exposure includes movements in the U.S. prime rate and London Interbank Offer Rate ("LIBOR"). The Company uses interest rate swaps to manage its interest rate risk. At December 31, 2003, approximately 50% of the Company's debt was floating rate debt and the weighted average interest rate for all debt was approximately 6.4%. At December 31, 2003, the Company had approximately $100 million of interest rate swaps fixing interest rates at 6.51% for the period from July 1, 2004 through June 30, 2009. The fair market value of these arrangements, which represents the cost to settle these contracts, was a liability of approximately $2 million at December 31, 2003. - 57 - At December 31, 2003, the Company had approximately $279 million of interest rate swaps that converted fixed rates to floating rates. The floating rates ranged between 3.68% and 5.61% at December 31, 2003. The fair market value of these arrangements, which represent the cost to settle these contracts, was an asset of approximately $4 million. At December 31, 2003, 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 December 31, 2003 would have increased interest expense by approximately $2 million in 2003. Commodities Risk The Company purchases many of the components included in its products. Component prices and availability are linked to market conditions. The Company sources its products from numerous suppliers throughout the world in order to mitigate the risk of unfavorable component pricing or availability. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Unaudited Quarterly Financial Data Summarized quarterly financial data for 2003 and 2002 are as follows (in millions, except per share amounts):
2003 2002 ------------------------------------------------------------------------------------ Fourth Third Second First Fourth Third Second First ------------------------------------------------------------------------------------ Net sales ..................................$ 1,014.3 $ 906.3 $ 1,048.8 $927.7 $ 851.1 $ 674.1 $ 690.2 $ 582.0 Gross profit................................ 138.5 133.5 116.8 129.7 64.8 88.7 111.9 91.3 Income (loss) before cumulative effect of change in accounting principle............ (0.6) 14.9 (51.8) 12.0 (40.3) 9.8 5.2 6.2 Net income (loss)........................... (0.6) 14.9 (51.8) 12.0 (40.3) 9.8 5.2 (107.2) Per share: Basic Income (loss) before cumulative effect of change in accounting principle.....$ (0.01) $ 0.31 $ (1.09) $ 0.25 $ (0.85) $ 0.22 $ 0.12 $ 0.16 Net income (loss) .................... (0.01) 0.31 (1.09) 0.25 (0.85) 0.22 0.12 (2.82) Diluted Income (loss) before cumulative effect of change in accounting principle.....$ (0.01) $ 0.30 $ (1.09) $ 0.24 $ (0.85) $ 0.22 $ 0.12 $ 0.16 Net income (loss) ...................... (0.01) 0.30 (1.09) 0.24 (0.85) 0.22 0.12 (2.77)
The accompanying unaudited quarterly financial data of the Company have been prepared in accordance with generally accepted accounting principles for interim financial information and with Item 302 of Regulation S-K. In the opinion of management, all adjustments considered necessary for a fair presentation have been made and were of a normal recurring nature except for those discussed below. During the second quarter of 2003, the Company recorded restructuring and other one-time charges of $30.3 million in its Roadbuilding, Utility Products and Other segment. These charges were recorded primarily to reduce inventory to reflect downward forecasted demand and to exit certain economically unviable niche product lines. In addition, during the second quarter, the Company recorded expenses of $51.3 million for the impairment of goodwill. During the second quarter of 2003, the Company announced an agreement in principle to sell its worldwide electric drive mining truck operation. Accordingly, during the second and third quarters of 2003, the Company reported its worldwide electric drive mining truck operation as a discontinued operation. On December 10, 2003, the Company terminated the negotiation for the sale of the electric drive mining truck business. The quarterly presentation above reflects the electric drive mining truck business as a continuing operation in all quarters. During the fourth quarter of 2002, the Company recorded expenses of $52.9 million for restructuring projects with the goal of eliminating products, adjusting capacity to meet market conditions and eliminating overlap related to the Company's recent acquisitions. - 58 - During the first quarter of 2002, the Company recorded a charge for the cumulative effect of change in accounting principle of $113.4 million. This charge represents the write-off of $132.2 million of goodwill ($124.1 million, net of income taxes), principally in the Mining Group (Terex Mining Segment) ($105.7 million or $105.7 million, net of income taxes), and the Light Construction Group (Terex Roadbuilding, Utility Products and Other Segment) ($26.2 million, or $18.1 million, net of income taxes). This charge was partially offset by a one-time gain ($17.8 million, $10.7 million net of income taxes) recognized on January 1, 2002 in the Fermec business. The purchase price paid by the Company to acquire Fermec was less than the net assets acquired in the transaction. Prior to January 1, 2002, the difference was recorded as a deferred credit in goodwill. As required by SFAS No. 141, this credit balance was recognized as a cumulative effect adjustment on January 1, 2002. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. ITEM 9A: CONTROLS AND PROCEDURES The Company carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the fiscal year covered by this Annual Report on Form 10-K pursuant to the requirements of the Securities Exchange Act of 1934 (the "Exchange Act"), under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial Officer. Based on that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of December 31, 2003 to ensure that information required to be disclosed in the Company's reports filed or submitted pursuant to the Exchange Act is recorded, processed, summarized and reported within the appropriate time periods. There has been no change to the Company's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the Company's fiscal quarter ended December 31, 2003, that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by Item 10 is incorporated by reference to the definitive Terex Corporation Proxy Statement to be filed with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K. ITEM 11. EXECUTIVE COMPENSATION The information required by Item 11 is incorporated by reference to the definitive Terex Corporation Proxy Statement to be filed with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required by Item 12 is incorporated by reference to the definitive Terex Corporation Proxy Statement to be filed with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by Item 13 is incorporated by reference to the definitive Terex Corporation Proxy Statement to be filed with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K. - 59 - ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required by Item 14 is incorporated by reference to the definitive Terex Corporation Proxy Statement to be filed with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K. - 60 - PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) and (2) Financial Statements and Financial Statement Schedules. See "Index to Consolidated Financial Statements and Financial Statement Schedule" on Page F-1. (3) Exhibits See "Exhibit Index" on Page E-1. (b) Reports on Form 8-K During the quarter ended December 31, 2003, the Company filed the following Current Reports on Form 8-K: - A report on Form 8-K was filed on October 8, 2003, announcing a conference call to review the Company's third quarter 2003 financial results. - A report on Form 8-K was furnished on October 22, 2003, providing the Company's press release reviewing the Company's financial results for its fiscal quarter ended September 30, 2003. - A report on Form 8-K/A was furnished on October 23, 2003, providing corrected information with respect to the Company's financial results for its fiscal quarter ended September 30, 2003. - A report on Form 8-K was filed on November 10, 2003, announcing the Company's intention to issue approximately $300 million of senior subordinated notes. - A report on Form 8-K was filed on November 12, 2003, announcing the Company's pricing of its new senior subordinated notes and its intention to amend its existing bank credit facility. - A report on Form 8-K was filed on November 17, 2003, announcing the retirement of Fil Filipov, the president and CEO of Terex Cranes, effective January 1, 2004. - A report on Form 8-K was filed on November 26, 2003, announcing the completion of the Company's issuance of its new senior subordinated notes and the redemption date for the Company's 8-7/8% Senior Subordinated Notes. - A report on Form 8-K was filed on December 10, 2003, announcing the termination of discussions between the Company and Caterpillar Inc. regarding the sale of the Company's mining truck business to Caterpillar and the Company's acquisition of Caterpillar's mining shovel intellectual property. - 61 - SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TEREX CORPORATION By: /s/ Ronald M. DeFeo March 15, 2004 ---------------------------------------- Ronald M. DeFeo, Chairman, Chief Executive Officer and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Name Title Date /s/ Ronald M. DeFeo Chairman, Chief Executive Officer, March 15, 2004 - ------------------------- and Director Ronald M. DeFeo (Principal Executive Officer) /s/ Phillip C. Widman Senior Vice President-Chief Financial March 15, 2004 - ------------------------- Officer Phillip C. Widman (Principal Financial Officer) /s/ Mark T. Cohen Vice President and Controller March 15, 2004 - ------------------------- (Principal Accounting Officer) Mark T. Cohen /s/ G. Chris Andersen Director March 15, 2004 - ------------------------- G. Chris Andersen /s/ Don DeFosset Director March 15, 2004 - ------------------------- Don DeFosset /s/ Donald P. Jacobs Director March 15, 2004 - ------------------------- Donald P. Jacobs /s/ William H. Fike Director March 15, 2004 - ------------------------- William H. Fike /s/ David A. Sachs Director March 15, 2004 - ------------------------- David A. Sachs /s/ J. C. Watts, Jr. Director March 15, 2004 - ------------------------- J. C. Watts, Jr. /s/ Helge H. Wehmeier Director March 15, 2004 - ------------------------- Helge H. Wehmeier - 62 - THIS PAGE IS INTENTIONALLY BLANK NEXT PAGE IS NUMBERED "F-1" - 63 - TEREX CORPORATION AND SUBSIDIARIES Index to Consolidated Financial Statements and Financial Statement Schedule Page ---- TEREX CORPORATION CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2003 AND 2002 AND FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2003 Report of independent auditors......................................F - 2 Consolidated statement of income ...................................F - 3 Consolidated balance sheet..........................................F - 4 Consolidated statement of changes in stockholders' equity...........F - 5 Consolidated statement of cash flows................................F - 6 Notes to consolidated financial statements..........................F - 7 FINANCIAL STATEMENT SCHEDULE Schedule II -- Valuation and Qualifying Accounts and Reserves........F - 56 All other schedules for which provision is made in the applicable regulations of the Securities and Exchange Commission are not required under the related instructions or are not applicable, and therefore have been omitted. F - 1 REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Stockholders of Terex Corporation In our opinion, the consolidated financial statements listed in the accompanying index on page F-1 present fairly, in all material respects, the financial position of Terex Corporation and its subsidiaries (the "Company") at December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index on page F-1 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As described in Note C to the consolidated financial statements, the Company adopted Statements of Financial Accounting Standards No.141, "Business Combinations," and No. 142, "Goodwill and Other Intangible Assets," effective January 1, 2002. PricewaterhouseCoopers LLP Stamford, Connecticut March 5, 2004 F - 2 TEREX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (in millions, except per share amounts) `
Year Ended December 31, ------------------------------------ 2003 2002 2001 ----------- ----------- ------------ NET SALES.......................................................................... $ 3,897.1 $ 2,797.4 $ 1,812.5 COST OF GOODS SOLD................................................................. 3,378.6 2,440.7 1,540.1 ----------- ----------- ------------ GROSS PROFIT.................................................................... 518.5 356.7 272.4 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES....................................... (393.7) (288.1) (168.2) GOODWILL IMPAIRMENT................................................................ (51.3) --- --- ----------- ----------- ------------ INCOME FROM OPERATIONS.......................................................... 73.5 68.6 104.2 OTHER INCOME (EXPENSE) Interest income................................................................. 7.1 7.5 7.7 Interest expense................................................................ (99.9) (92.9) (86.7) Loss on retirement of debt...................................................... (10.9) (2.4) (5.7) Amortization of debt issuance costs............................................. (5.5) (4.8) (3.8) Other income (expense) - net.................................................... 0.4 (4.2) 3.2 ----------- ----------- ------------ INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTINGPRINCIPLE................................................. (35.3) (28.2) 18.9 BENEFIT FROM (PROVISION FOR) INCOME TAXES.......................................... 9.8 9.1 (6.1) ----------- ----------- ------------ INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE........ (25.5) (19.1) 12.8 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (net of income tax expense of $1.0 in 2002)........................................................ --- (113.4) --- ----------- ----------- ------------ NET INCOME (LOSS)............................................................... $ (25.5) $ (132.5) $ 12.8 =========== =========== ============ PER COMMON SHARE: Basic Income (loss) before cumulative effect of change in accounting principle....... $ (0.53) $ (0.44) $ 0.46 Cumulative effect of change in accounting principle............................ --- (2.63) --- ----------- ----------- ------------ Net income (loss)............................................................. $ (0.53) $ (3.07) $ 0.46 =========== =========== ============ Diluted Income (loss) before cumulative effect of change in accounting principle....... $ (0.53) $ (0.44) $ 0.44 Cumulative effect of change in accounting principle............................ --- (2.63) --- ----------- ----------- ------------ Net income (loss)............................................................ $ (0.53) $ (3.07) $ 0.44 =========== =========== ============ WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING IN PER SHARE CALCULATION: Basic...................................................................... 47.7 43.2 28.1 Diluted.................................................................... 47.7 43.2 28.9
The accompanying notes are an integral part of these financial statements. F - 3
TEREX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (in millions, except par value) December 31, ------------------------ 2003 2002 ----------- ------------ CURRENT ASSETS Cash and cash equivalents................................................................... $ 467.5 $ 352.2 Trade receivables (less allowance of $38.2 and $19.6 as of December 31, 2003 and 2002, respectively)............................................................................. 540.2 578.6 Net inventories............................................................................. 1,009.7 1,106.3 Deferred taxes.............................................................................. 53.9 46.9 Other current assets........................................................................ 122.7 137.1 ------------- ----------- Total Current Assets..................................................... 2,194.0 2,221.1 LONG-TERM ASSETS Property, plant and equipment - net......................................................... 370.1 309.4 Goodwill.................................................................................... 603.5 622.9 Deferred taxes.............................................................................. 238.9 153.5 Other assets................................................................................ 317.3 318.8 ------------- ----------- TOTAL ASSETS................................................................................... $ 3,723.8 $ 3,625.7 ============= =========== CURRENT LIABILITIES Notes payable and current portion of long-term debt......................................... $ 86.8 $ 74.1 Trade accounts payable...................................................................... 608.6 542.9 Accrued compensation and benefits........................................................... 94.5 74.0 Accrued warranties and product liability.................................................... 88.5 86.0 Other current liabilities................................................................... 281.0 329.2 ------------- ----------- Total Current Liabilities................................................. 1,159.4 1,106.2 NON CURRENT LIABILITIES Long-term debt, less current portion........................................................ 1,274.8 1,487.1 Other....................................................................................... 412.9 263.2 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Common Stock, $0.01 par value -- authorized 150.0 shares; issued 50.0 and 48.6 shares at December 31, 2003 and 2002, respectively............................................................................... 0.5 0.5 Additional paid-in capital.................................................................. 795.1 772.7 Retained earnings........................................................................... 41.9 67.4 Accumulated other comprehensive income (loss)............................................... 57.0 (53.6) Less cost of shares of common stock in treasury 1.2 shares at December 31, 2003 and 2002... (17.8) (17.8) ------------- ----------- Total Stockholders' Equity................................................ 876.7 769.2 ------------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY..................................................... $ 3,723.8 $ 3,625.7 ============= ===========
The accompanying notes are an integral part of these financial statements. F - 4
TEREX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (in millions) Accumulated Other Additional Comprehen- Common Equity Common Paid-in Retained sive Income Stock in Rights Stock Capital Earnings (Loss) Treasury Total ----------- ----------- ----------- ------------ ------------ ----------- ---------- BALANCE AT DECEMBER 31, 2000....... $ 0.7 $ 0.3 $ 358.9 $ 187.1 $ (78.5) $ (17.0) $ 451.5 Net Income (Loss)......... --- --- --- 12.8 --- --- 12.8 Other Comprehensive Income (Loss): Translation adjustment. --- --- --- --- (37.7) --- (37.7) Pension liability adjustment............. --- --- --- --- (3.3) --- (3.3) Derivative hedging adjustment............ --- --- --- --- (0.8) --- (0.8) ---------- Comprehensive Income (Loss) (29.0) ---------- Issuance of Common Stock... --- 0.1 98.4 --- --- --- 98.5 Acquisition of Businesses.. --- --- 74.9 --- --- (0.5) 74.4 Exercise of Equity Rights.. (0.2) --- 0.2 --- --- --- --- ----------- ----------- ----------- ------------ ------------ ----------- ---------- BALANCE AT 0.5 0.4 532.4 199.9 (120.3) (17.5) 595.4 DECEMBER 31, 2001....... Net Income (Loss)......... --- --- --- (132.5) --- --- (132.5) Other Comprehensive Income (Loss): Translation adjustment --- --- --- --- 90.6 --- 90.6 Pension liability adjustment........... --- --- --- --- (26.8) --- (26.8) Derivative hedging adjustment........... --- --- --- --- 2.9 --- 2.9 ---------- Comprehensive Income (Loss) (65.8) ---------- Exercise of Equity Rights.. (0.5) --- 0.5 --- --- --- --- Issuance of Common Stock... --- 0.1 119.0 --- --- --- 119.1 Acquisition of Treasury Shares................... --- --- 0.3 --- --- (0.3) --- Acquisition of Businesses.. --- --- 120.5 --- --- --- 120.5 ----------- ----------- ----------- ------------ ------------ ----------- ---------- BALANCE AT DECEMBER 31, 2002....... --- 0.5 772.7 67.4 (53.6) (17.8) 769.2 Net Income (Loss)......... --- --- --- (25.5) --- --- (25.5) Other Comprehensive Income (Loss): Translation adjustment --- --- --- --- 104.9 ---- 104.9 Pension liability adjustment............ --- --- --- --- 1.3 ---- 1.3 Derivative hedging adjustment............ --- --- --- --- 4.4 ---- 4.4 ---------- Comprehensive Income (Loss) 85.1 ---------- Issuance of Common Stock.. --- --- 7.8 --- --- --- 7.8 Acquisition of Businesses.. --- --- 14.6 --- --- --- 14.6 ----------- ----------- ----------- ------------ ------------ ----------- ---------- BALANCE AT DECEMBER 31, 2003 $ --- $ 0.5 $ 795.1 $ 41.9 $ 57.0 $ (17.8) $ 876.7 =========== =========== =========== ============ ============ =========== ==========
The accompanying notes are an integral part of these financial statements. F - 5
TEREX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (in millions) Year Ended December 31, ----------------------------------------- 2003 2002 2001 ------------------------------------------ OPERATING ACTIVITIES Net income (loss).........................................................$ (25.5) $ (132.5) $ 12.8 Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities: Depreciation ......................................................... 55.2 35.9 22.5 Amortization.............................................................. 15.2 9.1 17.8 Deferred taxes........................................................ (31.8) (24.6) (8.4) Loss on retirement of debt............................................ 10.9 1.6 3.9 Gain on sale of fixed assets.......................................... (4.5) (0.7) (1.5) Gain on foreign currency forwards..................................... --- (3.8) --- Restructuring charges................................................. --- 50.9 19.5 Impairment charges and asset writedowns............................... 72.5 140.8 --- Changes in operating assets and liabilities (net of effects of acquisitions): Trade receivables.................................................. 83.3 11.6 28.1 Net inventories.................................................... 189.0 (52.7) (19.6) Trade accounts payable............................................. (4.6) 86.5 (40.5) Other.............................................................. 24.4 (51.8) (40.1) --------------- ------------- ------------- Net cash provided by (used in) operating activities.............. 384.1 70.3 (5.5) --------------- ------------- ------------- INVESTING ACTIVITIES Acquisition of businesses, net of cash acquired........................ (7.7) (445.9) (130.8) Capital expenditures................................................... (27.1) (29.2) (13.5) Proceeds from sale of assets........................................... 6.1 34.5 8.0 --------------- ------------- ------------- Net cash provided by (used in) investing activities.............. (28.7) (440.6) (136.3) --------------- ------------- ------------- FINANCING ACTIVITIES Proceeds from issuance of long-term debt, net of issuance costs........ 290.4 572.0 481.4 Issuance of common stock............................................... --- 113.3 96.3 Principal repayments of long-term debt................................. (454.5) (219.6) (388.5) Net borrowings (repayments) under revolving line of credit agreements.. (65.0) (0.8) 23.6 Payment of premium on early retirement of debt......................... (11.1) --- --- Other.................................................................. (29.4) (4.9) (1.3) --------------- ------------- ------------- Net cash provided by (used in) financing activities.............. (269.6) 460.0 211.5 --------------- ------------- ------------- 29.5 12.1 (0.7) EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS.............. --------------- ------------- ------------- NET INCREASE IN CASH AND CASH EQUIVALENTS................................. 115.3 101.8 69.0 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.......................... 352.2 250.4 181.4 --------------- ------------- ------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD................................$ 467.5 $ 352.2 $ 250.4 =============== ============= =============
The accompanying notes are an integral part of these financial statements. F - 6 TEREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2003 (dollar amounts in millions, unless otherwise noted, except per share amounts) NOTE A -- SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation. The Consolidated Financial Statements include the accounts of Terex Corporation and its majority owned subsidiaries ("Terex" or the "Company"). All material intercompany balances, transactions and profits have been eliminated. The equity method is used to account for investments in affiliates in which the Company has an ownership interest between 20% and 50%. Investments in entities in which the Company has an ownership interest of less than 20% are accounted for on the cost method or at fair value in accordance with Statement of Financial Accounting Standards ("SFAS") No. 115 "Accounting for Certain Investments in Debt and Equity Securities." Reclassification. Certain prior year amounts have been reclassified to conform with the current year's presentation. Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from those estimates. Cash and Cash Equivalents. Cash equivalents consist of highly liquid investments with original maturities of three months or less. The carrying amount of cash and cash equivalents approximates their fair value. Cash and cash equivalents at December 31, 2003 and 2002 include $10.9 and $4.5, respectively, which was not immediately available for use. These consist primarily of cash balances held in escrow to secure various obligations of the Company. Inventories. Inventories are stated at the lower of cost or market value. Cost is determined by the first-in, first-out ("FIFO") method. In valuing inventory, management is required to make assumptions regarding the level of reserves required to value potentially obsolete or over-valued items at the lower of cost or market. The valuation of used equipment taken in trade from customers requires the Company to use the best information available to determine the value of the equipment to potential customers. This value is subject to change based on numerous conditions. Inventory reserves are established taking into account age, frequency of use, or sale, and in the case of repair parts, the installed base of machines. While calculations are made involving these factors, significant management judgment regarding expectations for future events is involved. Future events which could significantly influence management's judgment and related estimates include general economic conditions in markets where the Company's products are sold, new equipment price fluctuations, competitive actions including the introduction of new products and technological advances, as well as new products and design changes introduced by the Company. At December 31, 2003, reserves for excess and obsolete inventory totaled $59.4 million. Debt Issuance Costs. Debt issuance costs incurred in securing the Company's financing arrangements are capitalized and amortized over the term of the associated debt. Capitalized debt issuance costs related to debt that is retired early are charged to other expense at the time of retirement. Debt issuance costs before amortization totaled $39.7 and $41.9 at December 31, 2003 and 2002, respectively. Intangible Assets. Intangible assets include purchased patents, trademarks and other specifically identifiable assets and are amortized on a straight-line basis over the respective estimated useful lives, which range from three to twelve years. Goodwill. In July 2001, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standard ("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 to 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 142, goodwill related to acquisitions completed after June 30, 2001, has not been amortized and, effective January 1, 2002, goodwill related to acquisitions completed prior to July 1, 2001 is no longer amortized. Under this standard, goodwill and indefinite life intangible assets will be reviewed for impairment and written down only in the period in which the recorded value of such assets exceed their fair value. The initial impairment test was performed as of January 1, 2002, which resulted in an impairment charge of $113.4, net of income taxes, reported as a cumulative effect of change in accounting principle. During the F - 7 second quarter of 2003, the Company identified indicators of goodwill impairment in its Roadbuilding, Utility Products and Other segment. As discussed in Note C - - "Accounting Changes - Business Combinations and Goodwill," the Company performed an impairment test, which resulted in a pretax charge of $51.3. The Company selected October 1 as the date for the required annual impairment test. The impairment test performed as of October 1, 2003 resulted in no impairment charge. Subsequent impairment tests will be performed effective October 1 of each year and more frequently if circumstances warrant. The initial recognition of intangible assets, as well as the annual review of the carrying value of goodwill and intangible assets, requires that the Company develop estimates of future business performance. These estimates are used to derive expected cash flow and include assumptions regarding future sales levels, the impact of cost reduction programs, and the level of working capital needed to support a given business. The Company relies on data developed by business segment management as well as macroeconomic data in making these calculations. The estimate also includes a determination of the Company's weighted average cost of capital. The cost of capital is based on assumptions about interest rates as well as a risk-adjusted rate of return required by the Company's equity investors. Changes in these estimates can impact the present value of the expected cash flow that is used in determining the fair value of acquired intangible assets as well as the overall expected value of a given business. Goodwill, representing the difference between the total purchase price and the fair value of assets (tangible and intangible) and liabilities at the date of acquisition, for all acquisitions prior to July 1, 2001, was being amortized on a straight-line basis over between fifteen and forty years. Accumulated amortization is $30.2 and $36.8 at December 31, 2003 and 2002, respectively. During the year ended December 31, 2001, the Company incurred goodwill amortization expense of $14.2. Property, Plant and Equipment. Property, plant and equipment are stated at cost. Expenditures for major renewals and improvements are capitalized while expenditures for maintenance and repairs not expected to extend the life of an asset beyond its normal useful life are charged to expense when incurred. Plant and equipment are depreciated over the estimated useful lives (5-40 years and 3-20 years, respectively) of the assets under the straight-line method of depreciation for financial reporting purposes and both straight-line and other methods for tax purposes. Impairment of Long-Lived Assets. The Company's policy is to assess the realizability of its long-lived assets and to evaluate such assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets (or group of assets) may not be recoverable. Impairment is determined to exist if the estimated future undiscounted cash flows are less than the carrying value. The amount of any impairment then recognized would be calculated as the difference between estimated fair value and the carrying value of the asset. 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 matters being reported as discontinued operations in the future. Refer to Note F - "Restructuring and Other Charges" for information on the recognition of impairment losses in 2002. Revenue Recognition. Revenue and costs are generally recorded when products are shipped and invoiced to either independently owned and operated dealers or to customers. Certain new units may be invoiced prior to the time customers take physical possession. Revenue is recognized in such cases only when the customer has a fixed commitment to purchase the units, the units have been completed, tested and made available to the customer for pickup or delivery, and the customer has requested that the Company hold the units for pickup or delivery at a time specified by the customer. In such cases, the units are invoiced under the Company's customary billing terms, title to the units and risks of ownership pass to the customer upon invoicing, the units are segregated from the Company's inventory and identified as belonging to the customer and the Company has no further obligations under the order. Revenue generated in the United States is recognized when title and risk of loss pass from the Company to its customers which occurs upon shipment when terms are FOB shipping point (which is customary for the Company) and upon delivery when terms are FOB destination. The Company also has a policy which requires it to meet certain criteria in order to recognize revenue, including satisfaction of the following requirements: F - 8 a) Persuasive evidence that an arrangement exists; b) The price to the buyer is fixed or determinable; c) Collectibility is reasonably assured; and d) The Company has no significant obligations for future performance. In the United States, the Company has the ability to enter into a security agreement and receive a security interest in the product by filing an appropriate Uniform Commercial Code ("UCC") financing statement. However, a significant portion of the Company's revenue is generated outside of the United States. In many countries outside of the United States, as a matter of statutory law, a seller retains title to a product until payment is made. The laws do not provide for a seller's retention of a security interest in goods in the same manner as established in the UCC. In these countries, the Company retains title to goods delivered to a customer until the customer makes payment so that the Company can recover the goods in the event of customer default on payment. In these circumstances, where the Company only retains title to secure its recovery in the event of customer default, the Company also has a policy requiring it to meet certain criteria in order to recognize revenue, including satisfaction of the following requirements: a) Persuasive evidence that an arrangement exists; b) Delivery has occurred or services have been rendered; c) The price to the buyer is fixed or determinable; d) Collectibility is reasonably assured; e) The Company has no significant obligations for future performance; and f) The Company is not entitled to direct the disposition of the goods, cannot rescind the transaction, cannot prohibit the customer from moving, selling, or otherwise using the goods in the ordinary course of business and has no other rights of holding title that rest with a titleholder of property that is subject to a lien under the UCC. In circumstances where the sales transaction requires acceptance by the customer for items such as testing on site, installation, trial period or performance criteria, revenue is not recognized unless the following criteria have been met: a) Persuasive evidence that an arrangement exists; b) Delivery has occurred or services have been rendered; c) The price to the buyer is fixed or determinable; d) Collectibility is reasonably assured; and e) The customer has signed off on the acceptance, the time period has elapsed or the Company has otherwise objectively demonstrated that the criteria specified in the acceptance provisions have been satisfied. In addition to performance commitments, the Company analyzes factors such as the reason for the purchase to determine if revenue should be recognized. This analysis is done before the product is shipped and includes the evaluation of factors that may affect the conclusion related to the revenue recognition criteria as follows: a) Persuasive evidence that an arrangement exists; b) Delivery has occurred or services have been rendered; c) The price to the buyer is fixed or determinable; and d) Collectibility is reasonably assured. Revenue recognition - lease transactions. Revenue from sales-type leases is recognized at the inception of the lease. Income from operating leases is recognized ratably over the term of the lease. The Company routinely sells equipment subject to operating leases and the related lease payments. If the Company does not retain a substantial risk of ownership in the equipment, the transaction is recorded as a sale. If the Company does retain a substantial risk of ownership, the transaction is recorded as a borrowing and the operating lease payments are recognized as revenue over the term of the lease and the debt is amortized over a similar period. Accrued Warranties. The Company records accruals for potential warranty claims based on the Company's claim experience. The Company's products are typically sold with a standard warranty covering defects that arise during a fixed period of time. Each business provides a warranty specific to the products it offers. The specific warranty offered by a business is a function of customer expectations and competitive forces. The length of warranty is generally a fixed period of time, a fixed number of operating hours, or both. A liability for estimated warranty claims is accrued at the time of sale. The liability is established using a historical warranty claim experience for each product sold. The historical claim experience may be adjusted for known design improvements or for the impact of unusual product quality issues. Warranty reserves are reviewed quarterly to ensure that critical assumptions are updated for known events that may impact the potential warranty liability. F - 9 The following table summarizes the changes in the aggregate product warranty liability: Balance as of December 31, 2001...................... $ 33.0 Businesses acquired.................................. 22.3 Accruals for warranties issued ...................... 42.5 Changes in estimates................................. 5.5 Settlements during the year.......................... (45.5) Foreign exchange effect.............................. 1.3 ------------ Balance as of December 31, 2002...................... 59.1 Businesses acquired.................................. 5.7 Accruals for warranties issued during the year....... 60.4 Changes in estimates................................. 3.0 Settlements during the year.......................... (67.5) Foreign exchange effect.............................. 7.7 ------------ Balance as of December 31, 2003...................... $ 68.4 ============ Accrued Product Liability. The Company records accruals for product liability claims based on the Company's claim experience. Non Pension Postretirement Benefits. The Company provides postretirement benefits to certain former salaried and hourly employees and certain hourly employees covered by bargaining unit contracts that provide such benefits and has elected the delayed recognition method of adoption of the accounting standard related to the benefits. See Note Q -- "Retirement Plans and Other Benefits." Stock-Based Compensation. At December 31, 2003, the Company has stock-based employee compensation plans which are described more fully in Note P - "Stockholders' Equity." The Company accounts for those plans under the recognition and measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income (loss) and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," to stock-based employee compensation.
For the Year Ended December 31, ------------------------------------------- 2003 2002 2001 -------------- ------------- ------------- Reported net income (loss).................................... $ (25.5) $ (132.5) $ 12.8 Deduct: Total stock-based employee compensation expense determined under fair value based methods for all awards, net of related income tax effects............................ (4.2) (3.3) (3.4) -------------- ------------- ------------- Proforma net income (loss).................................... $ (29.7) $ (135.8) $ 9.4 ============== ============= ============= Per common share: Basic: Reported net income (loss)................................ $ (0.53) $ (3.07) $ 0.46 ============== ============= ============= Proforma net income (loss)................................ $ (0.62) $ (3.14) $ 0.34 ============== ============= ============= Diluted: Reported net income (loss)................................ $ (0.53) $ (3.07) $ 0.44 ============== ============= ============= Proforma net income (loss)................................ $ (0.62) $ (3.14) $ 0.32 ============== ============= =============
F - 10 The fair value of these options was estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions for 2003, 2002 and 2001, respectively: dividend yields of 0%, 0% and 0%; expected volatility of 51.10%, 51.24% and 51.28%; risk-free interest rates of 4.41%, 5.42% and 5.63%; and expected life of 9.8 years, 9.9 years and 9.9 years. The aggregate fair value of options granted during 2003, 2002 and 2001 for which the exercise price equals the market price on the grant date was $5.4, $8.4 and $9.9, respectively. The weighted average fair value at date of grant for options granted during 2003, 2002 and 2001 was $8.14, $14.97 and $11.68, respectively. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. Foreign Currency Translation. Assets and liabilities of the Company's international operations are translated at year-end exchange rates. Income and expenses are translated at average exchange rates prevailing during the year. For operations whose functional currency is the local currency, translation adjustments are accumulated in the Cumulative Translation Adjustment component of Stockholders' Equity. Gains or losses resulting from foreign currency transactions are recorded in the accounts based on the underlying transaction. Derivatives. 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." Derivative financial instruments are recorded on the consolidated balance sheet at their fair value as either assets or liabilities. Changes in the fair value of derivatives are 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 are 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 have not been restated for this change. See Note E - "Derivative Financial Instruments." Environmental Policies. Environmental expenditures that relate to current operations are either expensed or capitalized depending on the nature of the expenditure. Expenditures relating to conditions caused by past operations that do not contribute to current or future revenue generation are expensed. Liabilities are recorded when environmental assessments and/or remedial actions are probable, and the costs can be reasonably estimated. Such amounts were not material at December 31, 2003 and 2002. Research and Development Costs. Research and development costs are expensed as incurred. Such costs incurred in the development of new products or significant improvements to existing products are included in Selling, General and Administrative Expenses. Research and development costs were $38.6, $24.7 and $6.2 during 2003, 2002, and 2001, respectively. Income Taxes. The Company accounts for income taxes using the asset and liability method. This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. See Note O -- "Income Taxes". Earnings Per Share. Basic earnings per share is computed by dividing net income (loss) for the period by the weighted average number of shares of Terex common stock, par value $0.01 ("Common Stock"), outstanding. Diluted earnings per share is computed by dividing net income (loss) for the period by the weighted average number of shares of Common Stock outstanding and potential dilutive common shares. Recent Accounting Pronouncements. SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections as of April 2002," was issued in May 2002. SFAS No. 145 became effective for certain leasing transactions occurring after May 15, 2002 and is being applied by the Company from January 1, 2003 with respect to reporting gains and losses from extinguishments of debt. The adoption of SFAS No. 145 has resulted in the F - 11 Company reporting gains and losses from extinguishments of debt as a component of income or loss from continuing operations before income taxes and extraordinary items; there has been no effect on the Company's net income or loss. In accordance with SFAS No. 145, losses on the extinguishment of debt of $2.4 in 2002 and $5.7 in 2001 have been reclassified. SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," was issued in June 2002. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002. Under SFAS No. 146, a liability for a cost associated with an exit or disposal activity is recognized when the liability is incurred. Under previous accounting principles, a liability for an exit cost would be recognized at the date of an entity's commitment to an exit plan. Adoption of SFAS No. 146 has been applied prospectively and has not had a material effect on the Company's consolidated financial position or results of operations. In November 2002, the FASB issued FASB Interpretation No. ("FIN") 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an interpretation of Statement of Financial Accounting Standards Nos. 5, 57, and 107 and rescission of FIN 34." FIN 45 extends the disclosures to be made by a guarantor about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of its obligations under certain guarantees. The disclosure provisions of FIN 45 are effective for financial statements for periods ending after December 15, 2002. The provisions for initial recognition and measurement of guarantees are effective on a prospective basis for guarantees that are issued or modified after December 31, 2002. The application of FIN 45 has not had a material impact on the Company's consolidated financial position or results of operations. In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest Entities." A variable interest entity ("VIE") is a corporation, partnership, trust or other legal entity that does not have equity investors with voting rights or has equity investors that do not provide sufficient financial resources for the entity to support its own activities. The interpretation requires a company to consolidate a VIE when the company has a majority of the risk of loss from the VIE's activities or is entitled to receive a majority of the entity's residual returns or both. In December 2003, the FASB revised FIN 46 ("FIN 46R") and modified its effective date. The Company is required to adopt the provisions of FIN 46R, for special purpose entities and VIEs created on or after February 1, 2003, effective December 31, 2003. As of December 31, 2003, there were no such entities that are required to be consolidated by the Company. For all other entities, the Company will adopt the provisions of FIN 46R on March 31, 2004. As discussed in Footnote J - "Investment in Joint Venture," the Company is still evaluating the future impact of FIN 46R on its statements of operations and financial position. In January 2003, the Emerging Issues Task Force (the "EITF") released EITF 00-21, "Accounting for Revenue Arrangements with Multiple Deliverables." EITF 00-21 clarifies the timing and recognition of revenue from certain transactions that include the delivery and performance of multiple products or services. EITF 00-21 is effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The adoption of EITF 00-21 has not had a material impact on the Company's consolidated financial position or results of operations. During April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." This statement amends and clarifies financial accounting and reporting for derivative instruments and hedging activities, resulting primarily from decisions reached by the FASB Derivatives Implementation Group subsequent to the original issuance of SFAS No. 133. This statement is generally effective prospectively for contracts and hedging relationships entered into after June 30, 2003. The adoption of SFAS No. 149 has not had a material impact on the Company's consolidated financial position or results of operations. On May 15, 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." This statement establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. SFAS No. 150 must be applied immediately to instruments entered into or modified after May 31, 2003 and to all other instruments that exist as of the beginning of the first interim financial reporting period beginning after June 15, 2003. The adoption of SFAS No. 150 has not had a material impact on the Company's consolidated financial position or results of operation. F - 12 NOTE B -- ACQUISITIONS 2003 Acquisitions - ----------------- On February 14, 2003, the Company completed the acquisition of Commercial Body Corporation ("Commercial Body"). Commercial Body, headquartered in San Antonio, Texas with locations in various states, distributes, assembles, rents and provides service of products for the utility, telecommunications and municipal markets. In connection with the acquisition, the Company issued approximately 600 thousand shares of Common Stock and paid $3.7 cash. In addition, the Company may be required to pay cash or issue additional shares of Common Stock (at the Company's option) if, on the second anniversary of the Commercial Body acquisition, the Common Stock is not trading on the New York Stock Exchange at a price at least 50% higher than it was at the time of the acquisition, up to a maximum number of shares of Common Stock having a value of $3.4. At the time of Terex's acquisition of Commercial Body, Commercial Body had a 50% equity interest in Combatel Distribution, Inc. ("Combatel"). The remaining 50% of Combatel was owned by Terex and, prior to the Commercial Body acquisition, had been accounted for under the equity method of accounting. During the second quarter of 2003, Commercial Body and Combatel merged to form Terex Utilities South, Inc. ("Utilities South"). Utilities South is included in the Terex Roadbuilding, Utility Products and Other segment. The operating results of Commercial Body and Combatel are included in the Company's consolidated results of operations since February 14, 2003 (date of acquisition). The Company is in the process of completing certain valuations for purposes of determining the respective fair values of tangible and intangible assets used in the allocation of purchase consideration for the acquisitions of Commercial Body and Combatel. The Company does not anticipate that the final results of these valuations will have a material impact on its financial position or its results of operations. The Company may revise its preliminary allocations as additional information is obtained. The Company is in the process of evaluating various alternatives to integrate the activities of Commercial Body and Combatel into the Company, including alternatives to exit or consolidate certain facilities and/or activities and restructure certain functions and reduce the related headcount. These alternatives could impact the acquired businesses or existing businesses, and the Company intends to finalize its plans by the first anniversary of the date of acquisition. The Company does not believe that these restructuring activities by themselves will have an adverse impact on the Company's ability to meet customer requirements for the Company's products. On August 28, 2003 the Company acquired an additional 51% of the outstanding shares of TATRA a.s. ("Tatra") from SDC Prague s.r.o., a subsidiary of SDC International, Inc. Tatra is located in the Czech Republic and is a manufacturer of on/off road heavy-duty vehicles for commercial and military applications. Consideration for the acquisition was comprised of debt forgiveness totaling $8.1, cash of $0.2 and approximately 209 thousand shares of Terex common stock. The acquisition brings Terex's total ownership interest in Tatra to approximately 71%. Tatra's results have been included in the Company's consolidated financial statements since August 28, 2003. Upon the initial consolidation of Tatra into the Company's consolidated financial results, Tatra's debt totaled approximately $33. This debt primarily consisted of notes payable to financial institutions. Tatra is part of the Company's Roadbuilding, Utility Products and Other segment. The Company owns an approximately 33% interest in American Truck Company ("ATC"). ATC is located in the United States and manufactures heavy-duty off-road trucks for military and severe duty commercial applications. Tatra also owns an approximately 33% interest in ATC. As a result of the Company's August 28, 2003 acquisition of additional ownership of Tatra, the results of ATC also have been included in the Company's consolidated financials statements since August 28, 2003. The Company is in the process of completing certain valuations, appraisals and other studies for purposes of determining the respective fair values of tangible and intangible assets used in the allocation of purchase consideration for the acquisition of Tatra. The Company does not anticipate that the final results of these valuations will have a material impact on its financial position, operations or cash flows. On December 19, 2003, the Company completed the acquisition of substantially all of the assets comprising the business of Compass Equipment Leasing ("CEL") and Asplundh Canada. Both businesses rent digger dereks, aerial devices and other related equipment to contractors and utility customers in the United States and Canada, respectively. The purchase consideration was $0.1 plus the assumption of CEL's and Asplundh Canada's operating lease obligations. Both businesses are included in the Terex Roadbuilding, Utility Products and Other segment. The Company is in the process of completing certain appraisals and other studies for the purpose of determining the respective fair value of the assets and liabilities acquired. This information will be used to allocate the purchase consideration. The Company does not anticipate that the final results of these studies will have a material impact on its financial position, results from operations, or cash flow. F - 13 2002 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 $17.3045 per share, or approximately $23 in total. The per share purchase price was based on the average price of the Common Stock on the New York Stock Exchange ("NYSE") for a twenty day trading period prior to the sale. Schaeff is included in the Terex Construction segment. In addition, as consideration for this Common Stock purchase, the Company may be required to pay cash or issue additional shares of Common Stock (at the Company's option) if, at each of eighteen, twenty four, thirty and thirty six months following such stock purchase, the Common Stock is not trading on the NYSE at a price at least 28% higher than the purchase price, up to a maximum number of shares of Common Stock having a value of $3.2. The amount of the eighteen-month contingent purchase price payment, if any, has not been finally determined as of December 31, 2003. On January 15, 2002, the Company completed the acquisition of Utility Equipment, Inc., which does business as Pacific Utility Equipment Co. and Terex Utilities West ("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 the acquisition, the Company issued approximately 455 thousand shares of Common Stock, subject to adjustment. One of such adjustments may have required the Company to pay cash or issue additional shares of Common Stock (at the Company's option) if, on the second anniversary of the Utility Equipment acquisition, the Common Stock was not trading on the NYSE at a price at least 25% higher than it was at the time of the acquisition, up to a maximum number of shares of Common Stock having a value of $2.0. However, no adjustment was required, as the price of the Common Stock on the second anniversary of the acquisition was greater than 25% higher than it was at the time of the acquisition. Utility Equipment is included in the Terex Roadbuilding, Utility Products and Other segment. On March 26, 2002, the Company acquired EPAC Holdings, Inc., which did business under the names Telelect East and Eusco ("Telelect Southeast"). Telelect Southeast, headquartered in Richmond, Virginia 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. In addition, the Company may be required to pay cash or issue additional shares of Common Stock (at the Company's option) if, on the second anniversary of the Telelect Southeast acquisition, the Common Stock is not trading on the NYSE at a price at least 25% higher than it was at the time of the acquisition, up to a maximum number of shares of Common Stock having a value of $1.7. Telelect Southeast is included in the Terex Roadbuilding, Utility Products and Other segment. Effective January 1, 2004, Telelect Southeast merged into Utilities South. 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. Advance Mixer is included in the Terex Roadbuilding, Utility Products and Other segment. On August 30, 2002, the Company completed the acquisition of Demag Mobile Cranes GmbH & Co. KG and its affiliates ("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. Demag is included in the Terex Cranes segment. On September 18, 2002, the Company completed the acquisition of Genie Holdings, Inc. and its affiliates ("Genie"), a global manufacturer of aerial work platforms with 2001 revenues of approximately $575 (the "Genie Acquisition"). The purchase consideration was approximately $75, consisting of $64.9 in Common Stock (approximately 3.2 million shares of Common Stock) and $10.1 in cash, subject to adjustment. In addition, the Company assumed and refinanced approximately $168 of Genie's debt. The number of shares of Common Stock issued in the Genie Acquisition was determined based on the average price of the Common Stock on the NYSE for a ten day trading period prior to the closing of the transaction. In addition, one of the purchase consideration adjustments may require the Company to issue additional shares of Common Stock if, at each of twelve, eighteen and twenty four months following the Genie acquisition, the Common Stock is not trading on the NYSE at a price at least 15% higher than the price at the time of the acquisition, up to a maximum number of shares of Common Stock having a value of approximately $9.7 in the aggregate. On September 18, 2002, the twelve month measuring date, the Company's Common Stock was not trading at least 15% higher than the price at the time of acquisition. As a F - 14 result, the Company issued 98 thousand shares of Common Stock to the selling shareholders in October 2003. The Company initiated the Genie Acquisition as an opportunity to diversify its product offering with the addition of a complete line of aerial work platforms with a strong global brand and significant market share. The Genie Acquisition is also intended to provide operational and marketing synergies and cost savings, such as allowing the Genie product line to expand the reach of its distribution through the Company's existing sales base, particularly in Europe. Genie is included in the Terex Aerial Work Platforms segment. The following pro forma summary presents the consolidated results of operations as though the Company completed the Genie Acquisition as of the beginning of the respective period, after giving effect to certain adjustments for interest expense, amortization of debt issuance costs and other expenses related to the transaction: Pro Forma for the Year Ended December 31, -------------------------- 2002 2001 ---- ---- Net sales.............................................$ 3,182.7 $2,407.2 Income from operations................................$ 77.9 $ 109.8 Income (loss) before extraordinary items..............$ (23.5) $ 6.9 Income (loss) before extraordinary items, per share: Basic..............................................$ (0.52) $ 0.22 Diluted............................................$ (0.52) $ 0.21 The pro forma information is not necessarily indicative of what the actual results of operations of the Company would have been for the periods indicated, nor does it purport to represent the results of operations for future periods. The estimated fair values of assets and liabilities acquired by the Company in the Genie Acquisition are summarized as follows: Cash ...............................................$ 14.5 Net trade receivables................................ 111.3 Inventories.......................................... 87.9 Other current assets................................. 83.2 Property, plant and equipment........................ 49.6 Goodwill............................................. 51.0 Other non-current assets............................. 167.0 Accounts payable..................................... (83.7) Other current liabilities............................ (60.0) Current portion of long-term debt.................... (59.5) Long-term debt, less current portion................. (28.5) Other liabilities.................................... (76.2) ------------ $ 256.6 ============ The Company has evaluated various alternatives to integrate the activities of certain of the businesses acquired in 2002 into the Company, including alternatives to exit or consolidate certain facilities and/or activities and restructure certain functions and reduce the related headcount. These alternatives have impacted the acquired businesses and existing businesses, and the Company finalized its plans prior to December 31, 2002. The Company does not believe that these restructuring activities by themselves will have an adverse impact on the Company's ability to meet customer requirements for the Company's products. See Note F - "Restructuring and Other Charges" for a description of these restructuring activities. The Company recorded approximately $28 of liabilities under EITF 95-3, "Recognition of Liabilities in Connection with a Purchase Business Combination," for the businesses acquired in 2002. Approximately $22 of these recorded liabilities were related to severance and relocation costs for employees at acquired businesses. These employees' positions were deemed duplicative and eliminated as a direct result of these acquisitions. The remainder of liabilities under EITF 95-3 related to plant closings of approximately $6. As noted earlier, in certain of the acquisition agreements pursuant to which the Company consummated its acquisitions in 2003 and 2002, the Company guaranteed the future market value, at various future dates, of Common Stock issued in F - 15 connection with such acquisitions. To the extent that these market values are not reached, additional consideration in cash or additional Common Stock will be required to be paid, up to pre-established maximums. Based on the $28.48 per share market value of the Company's Common Stock at December 31, 2003, additional consideration of $6.9 would be payable, none of which must be settled with additional Common Stock. Any additional consideration may be settled with cash or additional Common Stock and would be due in 2004. 2001 Acquisitions - ----------------- On January 24, 2001, the Company completed the acquisition of Jaques International Holdings Pty. Ltd. and its affiliates (collectively the "Jaques Group"), manufacturers of crushing equipment in Australia, Asia and North America. The Jaques Group is included in the Company's Terex Roadbuilding, Utility Products and Other segment. On October 1, 2001, the Company acquired 100% of the equity of CMI Corporation and its affiliates ("CMI"). CMI manufactures and markets a wide variety of mobile equipment and materials processing equipment for the road building and heavy construction industry. The acquisition of CMI complements the Company's existing infrastructure business and significant cost savings are anticipated. CMI's operating results are included in the Company's results from October 1, 2001. CMI is included in the Company's Terex Roadbuilding, Utility Products and Other segment. The cost to acquire CMI was $145.5, including the issuance of approximately 3.6 million shares of the Company's common stock with a value of approximately $75 based on the average market value of the Company's stock for the period of three days before and three days after June 28, 2001, the date the acquisition was announced. No contingent payments are provided for under the terms of the CMI acquisition agreement. On December 28, 2001, the Company acquired 100% of the equity of Atlas Weyhausen GmbH and its affiliates ("Atlas"), a manufacturer of wheeled excavators and truck-mounted articulated cranes with facilities in Germany and Scotland. Atlas' operating results for 2001 are not included in the Company's consolidated statement of income due to its December 28, 2001 acquisition date. The cost to acquire Atlas was $41.1. Atlas is part of the Company's Terex Construction segment. The Jaques Group, CMI and Atlas acquisitions (the "2001 Acquired Businesses") are being accounted for using the purchase method, with the purchase price allocated to the assets acquired and the liabilities assumed based upon their respective estimated fair values at their respective dates of acquisition. The excess of purchase price over the net assets acquired ($139.4) in connection with the 2001 Acquired Businesses was recorded as goodwill. In accordance with SFAS No. 142, goodwill related to the CMI and Atlas acquisitions was not amortized. 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." One requirement of SFAS No. 141 is that previously recorded negative goodwill be eliminated. Accordingly, the Company recorded a cumulative effect of an accounting change of $17.8, $10.7, net of income tax, related to the write-off of negative goodwill at January 1, 2002 from the acquisition of Fermec 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 performed on all reporting units prior to June 30, 2002, as required. 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 F - 16 value of the reporting unit used in the first step less the fair values of all other tangible and intangible assets of the reporting unit. If the carrying amount of goodwill exceeds its implied fair market value, an impairment loss is recognized in an amount equal to that excess. Consistent with the approach required under SFAS No. 142, the Company estimated the fair value of each of its ten reporting units existing as of January 1, 2002. Fair value was determined using a projection of undiscounted cash flow for each reporting unit. Undiscounted cash flow was calculated using projected after tax operating earnings, adding back depreciation and amortization, deducting projected capital expenditures and also including the net change in working capital employed. The assumptions were based on the Company's 2002 operating plan. The present value of the undiscounted cash flows were calculated using each reporting unit's weighted cost of capital. The Company used an explicit five-year projection of cash flow along with a terminal value based on the fifth year's projected cash flow. The Company created these models. The total fair value of the Company, as determined above, as of January 1, 2002, was approximately equal to the market value of the Company at the same date, as determined by the market value of the Company's equity and debt. Upon adoption of SFAS No. 142, the Company performed the test described in SFAS No. 142 for all units where the Company's carrying amount for such unit was below the fair value of that unit as calculated by the method described above. SFAS No. 142 defines how a company determines the implied fair value of goodwill. The Terex Mining segment's carrying value exceeded the present value of the cash flow expected to be generated by the segment. Future cash flow expectations have been reduced due to the continued weakness in mineral commodity prices which are a major determinant of the overall demand for mining equipment. The Company calculated the fair market value of the Terex Mining segment's fixed assets and intangible assets. Given the specialized nature of this calculation, the Company employed a third party to assist in the determination of the fair value of intangible assets at the Terex Mining reporting unit. The appraiser helped determine the value for the Terex Mining unit's intangible assets, which included trade names, customer relationships, backlog and technology, as defined in SFAS No. 141. An income-based approach was used to determine the market value of these intangible assets. A market comparable approach was used to determine appropriate royalty rates. In addition, the fair value of the Terex Mining unit's plant, property and equipment was calculated using a cost approach. The Company provided guidance to the appraiser related to assumptions and methodologies used in valuation and took responsibility for determining the goodwill impairment charge. The results of this valuation work were used in the determination of the implied value of the Mining unit's goodwill as of January 1, 2002, which resulted in a goodwill impairment of $105.7 ($105.7, net of income taxes). The Light Construction reporting unit, a component of the Terex Roadbuilding, Utility Products and Other segment, also was determined to have a carrying value in excess of its projected discounted cash flow. The market for the unit's products, primarily light towers, has been negatively impacted by the consolidation of distribution outlets for the unit's products, which has reduced demand for these products, and the increasing preference of end users of the unit's products to rent, rather than purchase, equipment. The analysis resulted in a goodwill impairment of $26.2 ($18.1, net of income taxes). The EarthKing reporting unit, a component of the Terex Roadbuilding, Utility Products and Other segment, was also determined to have a carrying value in excess of its projected discounted cash flow. EarthKing was created to provide on-line training and web based procurement services. Several businesses within EarthKing were unsuccessful in gaining customer acceptance and were generating revenue at levels insufficient to warrant anticipated growth, which substantially reduced the value of EarthKing. A goodwill impairment of $0.3 ($0.3, net of income taxes) was recorded. The Company did not require the assistance of a third party when determining the goodwill impairment associated with the Light Construction and EarthKing reporting units, whose carrying amount exceeded their fair value, as it was evident that the fair value of net tangible assets at these units was greater than the estimated fair value of the reporting units, and that 100% of the related goodwill was impaired. The adjustment from the adoption of SFAS No. 142, an impairment loss of $132.2 ($124.1, net of income taxes) was recorded as a cumulative effect of change in accounting principle adjustment as of January 1, 2002. Business performance during the first six months of 2003 in the Roadbuilding reporting unit had not met the expectations of the Company that were used when goodwill was last reviewed for impairment as of October 1, 2002. To date, funding for road projects have remained at historically low levels, as federal and state budgets have been negatively impacted by a weak economy and the war in Iraq. In response to the revised business outlook, management initiated several changes to address the expected market conditions, including a change in business management, discontinuance of several non-core products, work force F - 17 furloughs and reductions, and an inventory write-down based on anticipated lower sales volume. Based on the continued weakness in the Roadbuilding reporting unit, the Company initiated a review of the long-term outlook for the Roadbuilding reporting unit. The revised outlook for the Roadbuilding reporting unit assumes that funding levels for domestic road projects will not improve significantly in the short term. In addition, the outlook assumes that the Company will continue to reduce working capital invested in the reporting unit to better match revenue expectations. Based on this review during the second quarter of 2003, the Company determined the fair value of the Roadbuilding reporting unit in accordance with the SFAS No. 142 approach used during the initial review. The SFAS No. 142 approach uses the present value of the cash flow expected to be generated by the reporting unit. The cash flow was determined based on the expected revenues, after tax profits, working capital levels and capital expenditures for the Roadbuilding reporting unit. The present value was calculated by discounting the cash flow by the Company's weighted average cost of capital. The Company, with the assistance of a third-party, also reviewed the market value of the Roadbuilding reporting unit's tangible and intangible assets. These values were included in the determination of the carrying value of the Roadbuilding reporting unit. Based on the revised fair value of the Roadbuilding reporting unit, a goodwill impairment of $51.3 was recognized during the three months ended June 30, 2003. A portion of the goodwill impairment ($27.3) is non-deductible for income tax purposes. The Company performed its last annual review of the carrying value of its goodwill, as required by SFAS No. 142, as of October 1, 2003, which resulted in no additional impairment. Subsequent impairment tests will be performed effective October 1 of each year and more frequently as circumstances warrant. On April 1, 2003 the Company changed the composition of its reporting units and segments when it moved the North American operations of its telehandlers business from the Terex Construction segment to the Terex Aerial Work Platforms segment due to a change in the way the Company's operating decision makers view the business. The goodwill balance at December 31, 2002 and 2001 has been reclassified within the two segments to reflect this change in the Company's reportable segments. The table below illustrates the Company's reported results after applying SFAS No. 142.
For the Year Ended December 31, -------------------------------------------- 2003 2002 2001 -------------- ------------- -------------- Goodwill amortization......................................... $ --- $ --- $ 14.2 ============== ============= ============== Reported net income (loss).................................... $ (25.5) $ (132.5) $ 12.8 Add back: Goodwill amortization, net of income taxes.......... --- --- 9.7 -------------- ------------- -------------- Adjusted net income (loss).................................... $ (25.5) $ (132.5) $ 22.5 ============== ============= ============== Per common share: Basic: Reported net income (loss)................................ $ (0.53) $ (3.07) $ 0.46 Add back: Goodwill amortization, net of income taxes...... --- --- 0.34 -------------- ------------- -------------- Adjusted net income (loss)................................ $ (0.53) $ (3.07) $ 0.80 ============== ============= ============== Diluted: Reported net income (loss)................................ $ (0.53) $ (3.07) $ 0.44 Add back: Goodwill amortization, net of income taxes...... --- --- 0.34 -------------- ------------- -------------- Adjusted net income (loss)................................ $ (0.53) $ (3.07) $ 0.78 ============== ============= ==============
F - 18 An analysis of changes in the Company's goodwill by business segment is as follows:
Terex Terex Roadbuilding, Aerial Terex Terex Utility Products Work Terex Construction Cranes and Other Platforms Mining Total --------------- ------------ ------------------ ------------ ------------- ------------ Balance at December 31, 2001.... $ 237.6 $ 90.2 $ 188.1 $ 4.5 $ 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....................... 17.8 --- --- --- --- 17.8 Acquisitions.................... 47.3 1.8 26.0 43.3 --- 118.4 Utilization of tax net operating losses............. (0.1) (2.3) (10.1) --- --- (12.5) Foreign exchange effect......... 4.7 0.6 --- --- 6.0 11.3 --------------- ------------ ------------------ ------------ ------------ ------------ Balance at December 31, 2002.... $ 307.3 $ 90.3 $ 177.5 $ 47.8 $ --- $ 622.9 Impairment...................... --- --- (51.3) --- --- (51.3) Acquisitions.................... --- 3.5 11.6 2.2 --- 17.3 Disposals....................... --- (3.1) --- --- --- (3.1) Utilization of tax net operating losses............. --- (2.7) (2.5) --- --- (5.2) Foreign exchange effect......... 21.1 1.7 0.1 --- --- 22.9 --------------- ------------ ------------------ ------------ ------------ ------------ Balance at December 31, 2003.... $ 328.4 $ 89.7 $ 135.4 $ 50.0 $ --- $ 603.5 =============== ============ ================== ============ ============ ============
The goodwill recognized for the acquisition of Tatra as of December 31, 2003 is not final, as the Company has not yet completed its valuations of its tangible and intangible assets. NOTE D - SALE OF BUSINESSES In 2002, the Company acquired an interest in Crane & Machinery, Inc. ("C&M"), which distributes, rents and provides service for crane products, including those products manufactured by the Company. During 2002, the Company acquired from an unaffiliated financial institution outstanding loans in the amount of approximately $5.9 owed by C&M to that financial institution, and C&M was obligated to make payments to the Company pursuant to the terms of such loans. The results of C&M were consolidated in the Company's financial results from December 31, 2002 through November 10, 2003. On November 10, 2003, the Company sold its interest in C&M, and obtained a third party guarantee of the loans payable by C&M to the Company, as well as a pledge of the assets of C&M as security for the payment of such loans. As a result, the Company ceased to consolidate C&M's results as of November 10, 2003. In addition, on November 10, 2003, the Company sold substantially all of the assets of its Schaeff Incorporated subsidiary (a manufacturer of forklifts) to C&M, in consideration of C&M assuming approximately $3.1 of Schaeff Incorporated's indebtedness to the Company, with such indebtedness secured by the guarantee and pledge described above. The results of Schaeff Incorporated and C&M were included in the Terex Cranes segment prior to the November 10, 2003 transactions. NOTE E -- DERIVATIVE FINANCIAL INSTRUMENTS The Company enters into two types of derivatives: 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 uses 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 F - 19 assessing hedge effectiveness. Additionally, for hedges of forecasted transactions, the significant characteristics and expected terms of a forecasted transaction must be specifically identified, and it must be probable that each forecasted transaction will occur. If it were deemed probable that the forecasted transaction will not occur, the gain or loss would be recognized in earnings currently. Financial instruments qualifying for hedge accounting must maintain a specified level of effectiveness between the hedging instrument and the item being hedged, both at inception and throughout the hedged period. The Company does not engage in trading or other speculative use of financial instruments. The Company uses forward contracts and options to mitigate its exposure to changes in foreign currency exchange rates on third-party and intercompany forecasted transactions. The primary currencies to which the Company is exposed include the Euro, British Pound, Australian Dollar and Czech Koruna. When using options as a hedging instrument, the Company excludes the time value from the assessment of effectiveness. The effective portion of unrealized gains and losses associated with forward contracts and the intrinsic value of option contracts are deferred as a component of accumulated other comprehensive income (loss) until the underlying hedged transactions are reported on the Company's consolidated statement of operations. The Company uses interest rate swaps to mitigate its exposure to changes in interest rates related to existing issuances of variable rate debt and to fair value changes of fixed rate debt. Primary exposure includes movements in the London Interbank Offer Rate ("LIBOR"). Changes in the fair value of derivatives that are designated as fair value hedges are recognized in earnings as offsets to the changes in fair value of exposures being hedged. The change in fair value of derivatives that are designated as cash flow hedges are deferred in accumulated other comprehensive income (loss) and are recognized in earnings as the hedged transactions occur. Any ineffectiveness is recognized in earnings immediately. The Company records hedging activity related to debt instruments in interest expense and hedging activity related to foreign currency and lease obligations in operating profit. On the consolidated statement of cash flows, the Company records cash flows from hedging activities in the same manner as it records the underlying item being hedged. The Company entered into interest rate swap agreements that effectively converted variable rate interest payments into fixed rate interest payments. At December 31, 2003, the Company had $100.0 notional amount of such interest rate swap agreements outstanding, all of which mature in 2009. The fair market value of these swaps at December 31, 2003 was a loss of $2.4. These swap agreements have been designated as, and are effective as, cash flow hedges of outstanding debt instruments. During 2003, 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 converted fixed rated interest payments into variable rate interest payments. At December 31, 2003, the Company had $279.0 notional amount of such interest rate swap agreements outstanding, all of which mature in 2006 through 2014. The fair market value of these swaps at December 31, 2003 was a gain of $3.9, which is recorded in other non-current assets. During 2002, the Company exited an interest rate swap agreement in the notional amount of $100.0 with a 2011 maturity that converted fixed rate interest payments into variable rate interest payments. The Company received $5.6 upon exiting this swap agreement. This gain is being amortized over the original maturity and, combined with the market value of the swap agreements held at December 31, 2003, is offset by an $8.9 addition in the carrying value of the long-term obligations being hedged. On March 31, 2003, the Company exited certain interest rate swap agreements in the notional amount of $175.0 with a 2011 maturity that converted fixed rate interest payments into variable rate interest payments. The Company received $7.8 upon exiting these swap agreements. The gain was being amortized over the original maturity of the Company's 8-7/8% Senior Subordinated Notes due 2008, the debt being hedged, prior to the retirement in June 2003 and December 2003 of that debt. At the time of the retirement of the debt being hedged the unamortized gain was recorded as an offset to the loss on the retirement of the debt. See Note M - "Long-Term Obligations" for additional information on the retirement of debt. 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 December 31, 2003, the Company had $155.1 of notional amount of currency exchange forward contracts outstanding, all of which mature on or before December 31, 2004. The fair market value of these swaps at December 31, 2003 was a gain of $11.5. All of these swap agreements have been designated as, and are effective as, cash flow hedges of specifically identified assets and liabilities. On May 23, 2002, the Company entered a swap agreement in the notional amount of $79.3. This represented a foreign currency exchange forward contract entered into to hedge a portion of the purchase price of Demag. The purchase price for F - 20 Demag was denominated in Euro. The Company recorded a gain of $5.5 in the second quarter of 2002 related to this transaction since it did not qualify as a hedge under SFAS No. 133. This swap agreement matured on July 1, 2002. During 2003, 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 December 31, 2003, the fair value of all derivative instruments has been recorded in the Consolidated Balance Sheet as a net asset of $10.5, net of income taxes. Counterparties to interest rate derivative contracts and currency exchange forward contracts are major financial institutions with credit ratings of investment grade or better and no collateral is required. There are no significant risk concentrations. Management believes the risk of incurring losses on derivative contracts related to credit risk is remote and any losses would be immaterial. Unrealized net gains (losses) included in Other Comprehensive Income (Loss) are as follows:
Year Ended December 31, ---------------------------------------------------- 2003 2002 2001 ----------------- ---------------------------------- Balance at beginning of period (upon $ 2.1 $ (0.8) $ 0.9 adoption of SFAS No. 133 for 2001).... Additional gains (losses)............... 13.1 7.3 1.2 Amounts reclassified to earnings........ (8.7) (4.4) (2.9) ----------------- ---------------------------------- Balance at end of period................ $ 6.5 $ 2.1 $ (0.8) ================= ==================================
NOTE F - RESTRUCTURING AND OTHER CHARGES The Company continually evaluates its cost structure to ensure that it is appropriately positioned to respond to changing market conditions. During 2003, 2002 and 2001, the Company experienced declines in several markets. In addition, the Company's recent acquisitions have created product, production and selling and administrative overlap with existing businesses. In response to changing market demand and to optimize the impact of recently acquired businesses, the Company has initiated the restructuring programs described below. There have been no material changes relative to the initial plans established by the Company for the restructuring activities discussed below. The Company does not believe that these restructuring activities by themselves will have an adverse impact on the Company's ability to meet customer requirements for the Company's products. 2003 Programs - ------------- In the first quarter of 2003, the Company recorded a charge of $0.7 related to restructuring at its CMI Terex facility in Oklahoma City, Oklahoma. Due to the continued poor performance in the Roadbuilding business, the Company reduced employment by approximately 146 employees at its CMI Terex facility. As of June 30, 2003, all of the employees had ceased employment with the Company. The program was substantially complete at June 30, 2003. CMI Terex is included in the Terex Roadbuilding, Utility Products and Other segment. Also in the first quarter of 2003, the Company recorded charges of $0.3 for restructuring at its Terex-RO facility in Olathe, Kansas. As a result of weak demand in the Company's North American crane business, the Terex-RO facility has been closed and the production performed at that facility has been consolidated into the Company's hydraulic crane production facility in Waverly, Iowa. The program has reduced employment by approximately 50 employees and was substantially completed at September 30, 2003. Booms for the Terex-RO product were already being produced in the Waverly facility; accordingly, no production problems are anticipated in connection with this consolidation. Terex-RO is included in the Terex Cranes segment. The Company recorded a charge of $1.5 in the first quarter of 2003 for the exit of all activities at its EarthKing e-commerce subsidiary. The $1.5 charge is for non-cash closure costs and has been recorded in cost of goods sold. EarthKing is included in the Terex Roadbuilding, Utility Products and Other segment. The F - 21 program was completed as of September 30, 2003. Additionally, during the first quarter of 2003, the Company wrote down certain investments it held in technology businesses related to its EarthKing subsidiary. These investments were no longer economically viable, as these businesses were unsuccessful in gaining customer acceptance and were generating revenue at levels insufficient to warrant anticipated growth, and resulted in a write-down of $0.8. This write-down was reported in "Other income (expense) - net." During the second quarter of 2003, the Company recorded a severance charge of $3.1 for future cash expenditures related to restructuring at its Terex Peiner tower crane manufacturing facility in Trier, Germany. This charge is a result of the Company's decision to consolidate its German tower crane manufacturing into its Demag facilities in an effort to lower fixed overhead and improve manufacturing efficiencies and profitability. As a result of this restructuring, the Company has accrued for a headcount reduction of 65 employees. As of December 31, 2003, 62 of the employees had ceased employment with the Company. The program is expected to be completed by April 30, 2004. Terex Peiner is included in the Terex Cranes segment. During the three months ended June 30, 2003, $2.6 and $0.5 were recorded in cost of goods sold and selling, general and administrative expenses, respectively. The Terex Peiner closing is expected to reduce annual operating costs by $3.4 once the program is fully implemented. The Company also recorded a restructuring charge in the second quarter of 2003 of $1.9 for future cash expenditures related to the closure of its Powerscreen facility in Kilbeggan, Ireland. The $1.9 was comprised of $1.0 of severance charges and $0.9 of accruable exit costs. This charge is a result of the Company's decision to consolidate its European Powerscreen business at its facility in Dungannon, Northern Ireland. This consolidation will lower the Company's cost structure for this business and better utilize manufacturing capacity. As a result of the restructuring, the Company has accrued for a headcount reduction of 121 employees at the Kilbeggan facility. As of September 30, 2003, all of the employees had ceased employment with the Company. The program was substantially complete at December 31, 2003, except for the disposal of the real property, which is expected to be finalized in 2004. The Powerscreen Kilbeggan facility is included in the Terex Construction segment. During the three months ended June 30, 2003, $1.8 and $0.1 were recorded in cost of goods sold and selling, general and administrative expenses, respectively. The Kilbeggan facility closing is expected to generate annual cost savings of approximately $3. In addition, during the second quarter of 2003, the Company recorded restructuring charges of $4.7 in the Terex Roadbuilding, Utility Products and Other segment. These restructuring charges are the result of continued poor performance in the Roadbuilding business and the Company's efforts to streamline operations and improve profitability. The $4.7 restructuring charge is comprised of the following components: o A $2.8 charge related to exiting the bio-grind recycling business, with $2.5 recorded in cost of goods sold and $0.3 recorded in selling, general and administrative expenses. o A charge of $1.8 related to the exiting of the screening and shredder-mixer business operated at its Durand, Michigan facility, with $1.7 recorded in cost of goods sold and $0.1 recorded in selling, general and administrative expenses. o A $0.1 charge was recorded in selling, general and administrative expenses related to the headcount reduction of 17 employees at the Company's Cedarapids facility. During the third quarter of 2003, the Company recorded a severance charge of $0.1 for future cash expenditures at its hydraulic crane production facility in Waverly, Iowa. The Company has terminated six employees due to the integration of the Terex-RO facility into Waverly. This charge has been recorded in cost of goods sold. All of the 2003 projects are expected to reduce annual operating costs by approximately $15 in the aggregate when fully implemented. 2002 Programs - ------------- During 2002, the Company initiated a series of restructuring projects that related to productivity and business rationalization. In the first quarter of 2002, the Company recorded a charge of $1.2 in connection with the closure and subsequent relocation of the Cedarapids hot mix asphalt plant facility to the Company's CMI Terex facility in Oklahoma City, Oklahoma. The consolidation of duplicative CMI Terex and Cedarapids production facilities and support functions was intended to lower the Company's operating costs. Approximately $0.7 of this charge related to severance costs which have been paid, with the remainder related to non-cash closure costs. Approximately 92 employees were terminated in connection with this action. This restructuring was complete as of September 30, 2002. F - 22 In the second quarter of 2002, the Company announced that its surface mining truck production facility in Tulsa, Oklahoma would be closed and the production activities outsourced to a third party supplier. The Company recorded a charge of $4.2 related to the Tulsa closure. The closure was in response to continued weakness in demand for the Company's mining trucks. Demand for mining trucks is closely related to commodity prices, which have been declining in real terms over recent years. Approximately $1.0 of this charge related to severance and other employee related charges, while $2.2 of this charge relates to inventory deemed uneconomical to relocate to other distribution facilities. The remaining $1.0 of the cost accrued related to the Tulsa building closure costs and occupancy costs expected to be incurred after production is ended. Approximately 93 positions have been eliminated as a result of this action. The transfer of production activities to a third party was completed prior to December 31, 2002 and the Company is currently marketing the Tulsa property for sale. The Company also recorded a charge of $0.9 in the second quarter of 2002 in connection with a reduction to the Cedarapids workforce in response to adverse market conditions and resulting decreased demand for Cedarapids products. The charge recorded in connection with this reduction to the Cedarapids workforce is for employee severance costs. Approximately 42 employees have been terminated as a result of this action. The Cedarapids restructuring was complete as of December 31, 2002. In the third quarter of 2002, the Company announced restructuring charges of $3.5 in connection with the consolidation of facilities in the Light Construction group and staff reductions at its CMI Terex Roadbuilding operation and in the Terex Cranes segment. The restructuring charges at the Light Construction group were $2.6, of which $0.2 was for severance in relation to the elimination of approximately 71 positions. The remaining $2.4 was for costs associated with the termination of leases and the write-down of inventory. Demand for the Light Construction group's products has been negatively impacted by the consolidation of distribution outlets for the unit's products and a change in end user preference from direct ownership of the unit's products to rental of such equipment. These changes have made it uneconomical to maintain numerous separate production facilities. The restructuring charges at CMI Terex were $0.7 for severance in connection with the elimination of approximately 146 positions. CMI Terex's roadbuilding business has faced slow market conditions and reduced demand, due in large part to delays in government funding for roadbuilding projects, resulting in a need for staff reductions. Additionally, the Terex Cranes segment recorded restructuring charges of $0.2 for severance in connection with the elimination of approximately 35 positions at three of its North American facilities due to reduced demand for the products manufactured at these facilities. These restructurings were completed by December 31, 2002. Projects initiated in the fourth quarter of 2002 related to productivity and business rationalization include the following: o The closure of the Company's pressurized vessel container business. This business, located in Clones, Ireland, provides pressurized containers to the transportation industry. The business, acquired as part of the Powerscreen acquisition in 1999, is part of the Company's Construction segment and is not core to the Company's overall strategy. The Company recorded a charge of $5.4, of which $1.2 was for severance, $2.5 for the write down of inventory, and $1.2 for facility closing costs. The remaining $0.5 relates to the repayment of a local government work grant. The business has faced declining demand over the past few years and, as it is not integral to the Construction business. This restructuring program reduced headcount by 137 positions and was completed as of June 30, 2003. o The consolidation of several Terex Construction segment facilities in the United Kingdom. The Company has consolidated several compact equipment production facilities into a single location in Coventry, England. The Company moved the production of mini-dumpers, rollers, soil compactors and loader backhoes into the new facility. The Company recorded a charge of $7.2, of which $6.1 was for severance and $1.1 was for the costs associated with exiting the facilities. The consolidation has reduced total employment by 269 and was substantially complete as of September 30, 2003. o The exit of certain heavy equipment businesses related to mining products. During the fourth quarter of 2002, the Company conducted a review of its rental equipment businesses in both its Mining and Construction segments. The Company's review indicated that it was not economical to continue its mining equipment rental business due to the high cost of moving mining equipment between customers and given the continued weak demand for mining products. In addition, the Company decided to rationalize its large scraper offering in its Mining segment given the weak demand for related mining products. The Company recorded a charge of $6.9 associated with the write down of inventory. The Company expects to complete this process during 2004. o The exit of certain non-core tower cranes produced by the Terex Cranes segment under the Peiner brand in Germany. The European tower crane business has been negatively impacted by reduced demand from large rental customers who are undergoing financial difficulties. This has resulted in reduced demand and deterioration in margins recognized in F - 23 the tower crane business. The Company conducted a review of its offering of tower cranes produced under the Peiner brand and eliminated certain models that overlap with models produced at Gru Comedil S.r.l., the Company's tower crane facility in Italy. The Company recorded a charge of $3.9, of which $1.0 was for severance and $2.9 for inventory write-downs on discontinued product lines. The program has reduced employment by 47 and was complete at September 30, 2003. o The elimination of the Standard Havens portable hot mix asphalt product. The Company performed marketing and engineering analysis that indicated that the Standard Havens product line did not meet current customer expectations. As a result, the Company opted to discontinue the Standard Havens portable hot mix asphalt product. The Company recorded a charge of $1.8 to write-down the discontinued inventory. The program was completed prior to December 31, 2002. The Standard Havens product line was part of the Terex Roadbuilding, Utility Products and Other segment. o The severance costs incurred in re-aligning the Company's management structure. The Company eliminated an executive position and recorded a charge of $1.5. The Company paid $0.4 prior to December 31, 2002 and an additional $0.8 in 2003. The Company expects to pay the remaining balance during the first half of 2004. o The elimination of the rotating telehandler product in North America by the Terex Construction segment. It was determined that the product, although popular in Europe as a multi-purpose machine, was not gaining customer acceptance in North America. The Company recorded a charge of $0.7 to write-down the rotating telehandler inventory in North America. The program was completed prior to December 31, 2002. During 2003, the Company recorded an additional $4.9 of charges ($2.4 recorded in cost of goods sold and $2.5 in selling, general and administrative expenses) relating to programs begun in 2002. These period charges primarily related to facility closure costs, inventory write-downs, severance and the effect of changes in foreign exchange and were consistent with the initial restructuring plans established by the Company. The following table sets forth the components and status of the restructuring charges recorded in 2003 and 2002 that related to productivity and business rationalization:
Employee Facility Termination Asset Exit Costs Disposals Costs Other Total -------------- ----------- ------------- --------------- -------------- Restructuring charges.......... $ 13.1 $ 19.3 $ 2.9 $ 2.0 $ 37.3 Cash expenditures.............. (3.0) --- (0.5) (0.6) (4.1) Non-cash write-offs............ (0.4) (19.3) --- --- (19.7) -------------- ----------- ------------- --------------- -------------- Accrued restructuring charges at December 31, 2002........ 9.7 --- 2.4 1.4 13.5 Restructuring charges.......... 5.2 10.5 0.4 1.1 17.2 Cash expenditures.............. (14.8) (1.0) (0.6) (0.9) (17.3) Non-cash write-offs............ --- (9.5) (0.8) (0.3) (10.6) -------------- ----------- ------------- --------------- -------------- Accrued restructuring charges at December 31, 2003......... $ 0.1 $ --- $ 1.4 $ 1.3 $ 2.8 ============== ============ ============= =============== ==============
In aggregate, the restructuring charges described above incurred during 2003 and 2002 were included in cost of goods sold ($15.8 and $25.8) and selling, general and administrative expenses ($1.4 and $11.5), respectively. Demag and Genie Acquisition Related Projects - -------------------------------------------- During 2002, the Company also initiated a series of restructuring projects aimed at addressing product, channel and production overlap created by the acquisition of Demag and Genie in 2002. F - 24 Projects initiated in the Terex Cranes segment in the fourth quarter of 2002 related to the acquisition of Demag consist of: o The elimination of certain PPM branded 3, 4 and 5 axle cranes produced at the Company's Montceau, France facility. The Company determined that the products produced under the PPM brand were similar to products produced by Demag and has opted to eliminate these PPM models in favor of the similar Demag products, which the Company believes have superior capabilities. As a result, employment levels in Montceau were reduced. As of June 30, 2003, 102 employees had ceased employment with the Company. In addition, the Company also recognized a loss in value on the affected PPM branded cranes inventory in France and Spain. The Company recorded a charge of $15.3, of which $5.4 was for severance, $9.6 was associated with the write down of inventory and $0.3 was for claims related to exiting the sales function of the discontinued products. This program was completed during the second quarter of 2003. o The closure of the Company's existing crane distribution center in Germany. Prior to the acquisition of Demag, the Company distributed mobile cranes under the PPM brand from a facility in Dortmund, Germany. The acquisition of Demag provided an opportunity to consolidate distribution and reduce the overall cost to serve customers in Germany. The Company recorded a charge of $2.5, of which $0.7 was for severance, $1.2 was for inventory write-downs, and $0.6 for lease termination costs. Eleven employees were terminated as a result of these actions. As of June 30, 2003, all of the employees had ceased employment with the Company. The Company expects this program to be completed by June 30, 2004. o The rationalization of certain crawler crane products sold under the American Crane brand in the United States. The acquisition of Demag created an overlap with certain large crawler cranes produced in the Company's Wilmington, North Carolina facility. Certain cranes produced in the North Carolina facility will be rated for reduced lifting capacity and marketed to a different class of user. This change in marketing strategy, triggered by the acquisition of Demag, negatively impacted inventory values. The Company recorded a charge of $3.2 associated with the write down of inventory. The Company completed the sale of such inventory during the fourth quarter of 2003. o In addition, the acquisition of Demag created an overlap of small, mobile cranes marketed for use in urban work places. As a result, the Company opted to cease production of this style of crane, produced under license from another company, and replace them with cranes produced by Demag. As a result of this decision, a charge of $1.8 was recorded to terminate the license agreement. Projects initiated in the Terex Cranes segment in the fourth quarter of 2002 related to the acquisition of Genie consist of: o The elimination of Terex branded aerial work platforms. The Company determined that the acquisition of Genie created product and distribution overlap with its existing Terex branded aerial work platforms businesses in the United States and Europe. After a review of products produced by the Company and Genie, the Company decided to discontinue the Terex branded products. As a result, the Company reduced the carrying values of the affected inventories to recognize the loss in value created by the decision to discontinue these models of aerial work platforms. As a result of this decision, a charge of $1.9 was recorded to write down inventory. During 2003, the Company recorded an additional $4.0 of charges related to programs begun in 2002. These period charges primarily related to inventory write-downs and plant and equipment disposals and were consistent with the initial restructuring plans established by the Company. The following table sets forth the components and status of the restructuring charges recorded in the fourth quarter of 2002 that relate to addressing product, channel and production overlaps created by the acquisition of the Demag and Genie businesses: F - 25
Employee Termination Asset Facility Costs Disposals Exit Costs Other Total -------------- ------------ ------------ --------------- ------------- Restructuring Charges............ $ 6.1 $ 15.9 $ 0.6 $ 2.1 $ 24.7 Cash expenditures................ (1.0) --- --- --- (1.0) Non-cash write-offs.............. --- (15.9) --- (1.8) (17.7) -------------- ------------ ------------ --------------- ------------- Accrued restructuring charges at December 31, 2002............. 5.1 --- 0.6 0.3 6.0 Restructuring Charges............ --- 4.0 --- --- 4.0 Cash expenditures................ (4.1) --- --- (0.3) (4.4) Non-cash write-offs.............. --- (4.0) --- --- (4.0) -------------- ------------ ------------ --------------- ------------- Accrued restructuring charges at December 31, 2003............. $ 1.0 $ --- $ 0.6 $ --- $ 1.6 ============== ============ ============ =============== =============
The restructuring charges described above were included in cost of goods sold ($4.0 and $22.7) and selling, general and administrative expenses ($0.0 and $2.0) in 2003 and 2002, respectively. Asset Impairment - ---------------- Given the poor performance of the Light Construction group in 2002 and management's projections of future results, the Company performed an impairment review of fixed assets under SFAS No. 144. The market for this group's products, primarily light towers, has been negatively impacted by the consolidation of distribution outlets for the group's products, which has reduced demand for these products, and the increasing preference of end users of the group's products to rent, rather than purchase, equipment. This review took into account expected future cash flow to be generated by the business given management's assessment of market conditions. The result of this review was a write-down of fixed assets within the Light Construction group, a component of the Terex Roadbuilding, Utility Products and Other segment, to their estimated fair values based primarily on discounted cash flow analysis. A charge of $7.9 was recorded as cost of goods sold in the second quarter of 2002 in connection with this write-down. Other Items - ----------- In the second quarter of 2002, the Company wrote down the value of notes receivable and certain investments in the Terex Cranes segment in Europe. This write-down reflects current difficult market conditions at certain divested businesses and management's future expectation of cash flows from the underlying assets. A write-down of $12.4 was recorded in the second quarter of 2002. Additionally, the Company wrote down certain investments it held in technology businesses related to its EarthKing subsidiary. These investments were no longer economically viable, as these businesses were unsuccessful in gaining customer acceptance and were generating revenue at levels insufficient to warrant anticipated growth, and resulted in a write-down of $2.6. In the fourth quarter of 2002, the Company wrote down its investment in SDC International, Inc. ("SDC") by $3.4 due to the decline in market value of SDC. These write-downs, as well as the write down related to the Terex Cranes segment in Europe, were reported in "Other income (expense) - net." 2001 Programs - ------------- 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. This restructuring was initiated to take advantage of recent acquisitions and in expectation of a continued weak global economy. As of December 31, 2003, these seven facilities have been closed. The restructuring and other non-recurring costs in the third and fourth quarters of 2001 include: $5 related to headcount reductions, $2 related to facility closure costs, $13 related to inventory write-off costs, $3 related to receivable write-off costs, $2 related to goodwill associated with the Cork, Ireland aerials facility, $2 related to facility rationalization in the Australian lifting business and $3 for other activities. F - 26 The 2001 restructuring charges were included in cost of goods sold ($26.0) and selling, general and administrative expenses ($3.9) in 2001. NOTE G -- EARNINGS PER SHARE
(in millions, except per share data) -------------------------------------------------------------------------------------------------- 2003 2002 2001 ------------------------------ ------------------------------ --------------------------------- Per- Per- Per- Share Share Share Income Shares Amount Income Shares Amount Income Shares Amount -------- -------- ------------ -------- -------- ------------ ---------- -------- ---------- Basic earnings per share Income (loss) before cumulative effect of change in accounting principle................ $(25.5) 47.7 $ (0.53) $(19.1) 43.2 $(0.44) $ 12.8 28.1 $ 0.46 Effect of dilutive securities Stock Options.............. --- --- --- --- --- 0.7 Equity Rights.............. --- --- --- --- --- 0.1 -------- -------- -------- -------- ---------- -------- Income (loss) before cumulative effect of change in accounting principle..... $(25.5) 47.7 $ (0.53) $(19.1) 43.2 $(0.44) $ 12.8 28.9 $ 0.44 ======== ======== ======== ======== ========== ========
Had the Company recognized income before cumulative effect of change in accounting principle in 2003 and 2002, then the incremental shares attributable to the assumed exercise of outstanding stock options, the effect of Common Stock to be issued at December 31, 2003 and 2002 for the Company's contingent obligation to make additional payments for the acquisition of Genie and the effect of Common Stock held by the Company's deferred compensation plan would have increased diluted shares outstanding by 0.9 million, 0.4 million and 0.6 million shares in 2003 and by 0.7 million, 0.2 million and 0.0 million shares in 2002, respectively. Options to purchase 1,087 thousand, 956 thousand, and 738 thousand shares of Common Stock were outstanding during 2003, 2002, 2001 respectively, but were not included in the computation of diluted earnings per share because the exercise price of the options was greater than the average market price of the common shares and therefore, the effect would be antidilutive. As discussed in Note B - "Acquisitions", the Company has a contingent obligation to make additional payments in cash or Common Stock based on provisions of certain acquisition agreements. The Company's policy and past practice has been generally to settle such obligations in cash. Accordingly, contingently issuable Common Stock under these arrangements totaling 319 thousand and 639 thousand shares for the years ended December 31, 2003 and 2002, respectively, are not included in the computation of diluted earnings per share. NOTE H -- INVENTORIES Inventories consist of the following: December 31, ------------------------------ 2003 2002 --------------- -------------- Finished equipment........................ $ 365.7 $ 437.2 Replacement parts......................... 251.3 225.0 Work-in-process........................... 187.4 225.5 Raw materials and supplies................ 205.3 218.6 --------------- -------------- Net inventories......................... $ 1,009.7 $ 1,106.3 =============== ============== At December 31, 2003 and 2002, the Company had inventory reserves of $59.4 and $36.7, respectively, for excess and obsolete inventory. F - 27 NOTE I -- PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following: December 31, -------------------------------- 2003 2002 -------------- ----------------- Property.................................... $ 51.9 $ 43.0 Plant....................................... 233.4 173.4 Equipment................................... 249.9 197.6 -------------- ----------------- 535.2 414.0 Less: Accumulated depreciation............. (165.1) (104.6) -------------- ----------------- Net property, plant and equipment......... $ 370.1 $ 309.4 ============== ================= NOTE J -- INVESTMENT IN JOINT VENTURE In April 2001, Genie entered into a joint venture arrangement with a European financial institution whereby Genie maintains a forty-nine percent (49%) ownership interest in the joint venture, Genie Financial Solutions Holding B.V. ("GFSH B.V."). Genie contributed $4.7 in cash in exchange for its ownership interest in GFSH B.V. During January 2003 and 2002, Genie contributed an additional $0.8 and $0.6, respectively, in cash to GFSH B.V. The Company applies the equity method of accounting for its investment in GFSH B.V., as the Company does not control the operations of GFSH B.V. GFSH B.V. was established to facilitate the financing of Genie's products sold in Europe. As of December 31, 2003, the joint venture's total assets were $161.4 and consisted primarily of financing receivables and lease related equipment; total liabilities were $145.3 and consisted primarily of debt issued by the fifty-one percent (51%) joint venture partner. The Company provided guarantees related to potential losses arising from shortfalls in the residual values of financed equipment or credit defaults by the joint venture's customers. As of December 31, 2003 the maximum exposure to loss under these guarantees is approximately $10. Additionally, the Company is required to maintain a capital account balance in GFSH B.V., pursuant to the terms of the joint venture, which could result in the reimbursement to GFSH B.V. by the Company of losses to the extent of the Company's ownership percentage. As defined by FIN 46R, GFSH B.V. is a VIE. For entities created prior to February 1, 2003, FIN 46R requires the application of its provisions effective the first reporting period after March 15, 2004. Based on the legal and operating structure of GFSH B.V., it is possible that the Company will be required to consolidate the results of GFSH B.V. in its March 31, 2004 financial statements. The Company is in the process of negotiating changes to the ownership and operating structure of GFSH B.V. with its joint venture partner, with the intended result that GFSH B.V. could continue to be accounted for under the equity method; however, there can be no assurance that an agreement on these terms will be reached. NOTE K-- EQUIPMENT SUBJECT TO OPERATING LEASES Operating leases arise from the leasing of the Company's products to customers. Initial noncancellable lease terms range up to 84 months. The net book value of equipment subject to operating leases was approximately $126 and $140 at December 31, 2003 and 2002, respectively, and are included in "Other Assets" on the Company's Consolidated Balance Sheet. The equipment is depreciated on the straight-line basis over the shorter of the estimated useful life or the estimated amortization period of any borrowings secured by the asset to its estimated salvage value. Future minimum lease payments to be received under noncancelable operating leases with lease terms in excess of one year are as follows: Years ending December 31, 2004...................... $9.2 2005...................... 3.7 2006 ..................... 2.3 2007 ..................... 1.1 2008...................... 0.3 Thereafter................ 0.6 ------------- $17.2 ============= F - 28 The Company received approximately $14 and $5 of rental income from assets subject to operating leases with lease terms greater than one year during 2003 and 2002, respectively, none of which represented contingent rental payments. NOTE L -- NET INVESTMENT IN SALES-TYPE LEASES The Company leases new and used products manufactured and sold by the Company to domestic and foreign distributors, end users and rental companies. The Company provides specialized financing alternatives that include sales-type leases, operating leases, conditional sales contracts, and short-term rental agreements. At the time a sales-type lease is consummated, the Company records the gross finance receivable, unearned finance income and the estimated residual value of the leased equipment. Unearned finance income represents the excess of the gross minimum lease payments receivable plus the estimated residual value over the fair value of the equipment. Residual values represent the estimate of the values of the equipment at the end of the lease contracts and are initially recorded based on industry data and management's estimates. Realization of the residual values is dependent on the Company's future ability to market the equipment under then prevailing market conditions. Management reviews residual values periodically to determine that recorded amounts are appropriate. Unearned finance income is recognized as financing income using the interest method over the term of the transaction. The allowance for future losses is established through charges to the provision for credit losses. Prior to its acquisition by the Company on September 18, 2002, Genie had a number of domestic agreements with financial institutions to provide financing of new and eligible products to distributors and rental companies. Under these programs, Genie originated leases with distributors and rental companies and the resulting lease receivables were either sold to a financial institution with limited recourse to Genie or used as collateral for borrowings. The aggregate unpaid sales-type lease payments previously transferred was $23.5 and $72.5 at December 31, 2003 and 2002, respectively. Under these agreements, the Company's recourse obligation is limited to credit losses up to the first 5%, in any given year, of the remaining discounted rental payments due, subject to certain minimum and maximum recourse liability amounts. The Company's maximum credit recourse exposure was $15.0 at December 31, 2003, representing a contingent liability under the limited recourse provisions. During 2001, 2002 and 2003, Genie entered into a number of arrangements with financial institutions to provide financing of new and eligible Genie products to distributors and rental companies. Under these programs, Genie originates leases or leasing opportunities with distributors and rental companies. If Genie originates the lease with a distributor or rental company, the financial institution will purchase the equipment and take assignment of the lease contract from Genie. If Genie originates a lease opportunity, the financial institution will purchase the equipment from Genie and execute a lease contract directly with the distributor or rental company. In some instances, the Company retains certain credit and/or residual recourse in these transactions. The Company's maximum exposure, representing a contingent liability, under these transactions reflects a $43.8 credit risk and a $36.5 residual risk at December 31, 2003. The Company's contingent liabilities previously referred to have not taken into account various mitigating factors. These factors include the staggered timing of maturity of lease transactions, resale value of the underlying equipment, lessee return penalties and annual loss caps on credit loss pools. Further, the credit risk contingent liability assumes that the individual leases were to all default at the same time and that the repossessed equipment has no market value. The components of net investment in sales-type leases, which are included in Other Assets on the Company's consolidated Balance Sheet, consisted of the following at December 31, 2003: Gross minimum lease payments receivable ................... $ 29.4 Estimated residual values.................................. 18.9 Allowance for future losses................................ (3.3) Unearned finance income.................................... (7.7) ---------------- Net investment in sales-type leases..................... 37.3 Less: Current portion..................................... (21.4) ---------------- Non-current net investment in sales-type leases......... $ 15.9 ================ F - 29 Scheduled future gross minimum lease payments receivable are as follows: Years ending December 31, 2004..................................$ 11.1 2005.................................. 10.3 2006.................................. 5.0 2007.................................. 2.3 2008.................................. 0.7 ------------------ $ 29.4 ================== NOTE M -- LONG-TERM OBLIGATIONS Long-term debt is summarized as follows:
December 31, ----------------------------- 2003 2002 --------------- ------------- 7-3/8 % Senior Subordinated Notes due January 15, 2014................................. $ 297.3 $ --- 9-1/4 % Senior Subordinated Notes due July 15, 2011.................................... 200.0 200.0 10-3/8% Senior Subordinated Notes due April 11, 2011................................... 300.0 300.0 8-7/8% Senior Subordinated Notes due April 1, 2008..................................... -- 246.2 2002 Bank Credit Facility - term debt.................................................. 378.2 582.6 2002 Bank Credit Facility - revolving credit facility.................................. 35.1 55.3 Notes payable.......................................................................... 26.4 17.6 Capital lease obligations.............................................................. 19.4 15.9 Other.................................................................................. 105.2 143.6 --------------- ------------- Total long-term debt................................................................. 1,361.6 1,561.2 Less: Current portion of long-term debt.............................................. (86.8) (74.1) --------------- ------------- Long-term debt, less current portion................................................. $ 1,274.8 $ 1,487.1 =============== =============
Certain prior year amounts in the table above have been reclassified to conform with the current year's presentation. The 7-3/8% Senior Subordinated Notes - ------------------------------------ On November 25, 2003, the Company sold and issued $300 aggregate principal amount of 7-3/8% Senior Subordinated Notes Due 2014 discounted to yield 7-1/2% (the "7-3/8% Notes"). The 7-3/8% Notes are jointly and severally guaranteed by certain domestic subsidiaries of the Company (see Note U - "Consolidating Financial Statements"). The Company used the approximately $290 net proceeds from the offering of the 7-3/8% Notes, together with approximately $119 of cash on hand, to prepay approximately $200 of its existing term loans and to retire $200 of aggregate principal of its 8-7/8% Senior Subordinated Notes due 2008 (the "8-7/8% Notes"). The Company recorded a charge of $10.9 to recognize a loss on the payment of a premium and on the write-off of unamortized debt acquisition costs and original issue discount for the early extinguishment of debt in connection with the prepayment of such existing term loans and the 8-7/8% Notes, partially offset by a gain on related interest rate hedges. The 7-3/8% Notes were issued in a private placement made in reliance upon an exemption from registration under the Securities Act of 1933, as amended (the "Securities Act"). The 7-3/8% Notes are redeemable by the Company beginning in January 2009 at an initial redemption price of 103.688% of principal amount. The 9-1/4% Senior Subordinated 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"). The 9-1/4% Notes are jointly and severally guaranteed by certain domestic subsidiaries of the Company (see Note U - "Consolidating Financial Statements"). The Company used approximately $194 of the net proceeds from the offering of the 9-1/4% Notes to prepay a portion of its existing term loans. The Company recorded a charge of $2.3 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 such existing term loans. The 9-1/4% Notes were issued in a private placement made in reliance upon an exemption from registration under the Securities Act. During the first quarter of 2002, the outstanding unregistered 9-1/4% Notes were exchanged for 9-1/4% Notes registered under the Securities Act. The 9-1/4% Notes are redeemable by the Company beginning in January 2007 at an initial redemption price of 104.625% of principal amount. F - 30 The 10-3/8% Senior Subordinated Notes - ------------------------------------- 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"). Additionally, on March 29, 2001, the Company increased its availability under its revolving bank credit facilities, described below, from $125 to $300. The 10-3/8% Notes are jointly and severally guaranteed by certain domestic subsidiaries of the Company (see Note U - "Consolidating Financial Statements"). The Company used approximately $194 of the net proceeds from the offering of the 10-3/8% Notes to prepay a portion of its existing term loans. The Company recorded a charge of $3.4 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 such existing term loans. The 10-3/8% Notes were issued in a private placement made in reliance upon an exemption from registration under the Securities Act. During the third quarter of 2001, the outstanding unregistered 10-3/8% Notes were exchanged for 10-3/8% Notes registered under the Securities Act. The 10-3/8% Notes are redeemable by the Company beginning in April 2006 at an initial redemption price of 105.188% of principal amount. The 8-7/8% Senior Subordinated Notes - ------------------------------------ On March 9, 1999 and March 31, 1998, the Company sold and issued $100.0 and $150.0 aggregate principal amount of the 8-7/8% Notes discounted to yield 9.73% and 8.94%, respectively. The 8-7/8% Notes were jointly and severally guaranteed by certain domestic subsidiaries of the Company (see Note U - "Consolidating Financial Statements"). The net proceeds from the offerings were used to repay a portion of the outstanding indebtedness under Terex's credit facilities, to fund a portion of the aggregate consideration for the acquisition of O&K Mining GmbH and for other acquisitions. In June 2003, the Company retired $50.0 principal amount of the 8-7/8% Notes and incurred a loss on the retirement of debt of $1.9. In December 2003, the Company retired the remaining $200.0 principal amount of the 8-7/8% Notes and incurred a loss on the retirement of debt of $9.0. The 2002 Bank Credit Facility - ----------------------------- On July 3, 2002, the Company entered into an amended and restated credit agreement (the "2002 Bank Credit Facility") with its bank lending group, which replaced the Company's previous 1999 Bank Credit Facility and 1998 Bank Credit Facility, described below. The 2002 Bank Credit Facility provided for $375 of term debt maturing on July 3, 2009 and a revolving credit facility of $300 that is available through July 3, 2007. The proceeds of the term debt were used to repay amounts outstanding under the 1999 Bank Credit Facility and 1998 Bank Credit Facility (approximately $288), for the acquisition of Demag and for general corporate purposes. A loss for the write-off of unamortized debt acquisition costs of $2.4 was recorded in connection with this transaction. The revolving credit facility is used for working capital and general corporate purposes, including acquisitions. The 2002 Bank Credit Facility also includes provisions for an additional $250 of term borrowing by the Company on terms similar to the current term loan debt under this facility. On September 13, 2002, the Company consummated a $210 incremental term loan borrowing under this provision of the 2002 Bank Credit Facility, the net proceeds of which were used to acquire Genie (approximately $10), to refinance some of Genie's debt (approximately $168) and for other general corporate purposes. On November 25, 2003, the Company entered into an amendment of its 2002 Bank Credit Facility that permitted the redemption of the 8-7/8% Notes with proceeds from the offering of the 7-3/8% Notes. The amendment, among other things, will also permit the repurchase of $200 principal amount of the Company's 10-3/8% Notes on or after April 1, 2006 and extended the period of time until the maximum consolidated leverage ratio covenant and maximum senior secured debt leverage ratio covenant adjust downward until later in 2004 and 2005, respectively, in order to provide the Company greater flexibility. In connection with this amendment and the issuance and sale of the 7-3/8% Notes, the Company prepaid $200 of the term loans outstanding under the 2002 Bank Credit Facility. As of December 31, 2003, the Company had $378.2 of term loans outstanding under the 2002 Bank Credit Facility. Term loans under the 2002 Bank Credit Facility bear interest at a rate of 2.0% to 2.5% per annum in excess of the adjusted Eurodollar rate. The weighted average interest rate on the term loans under the 2002 Bank Credit Facility at December 31, 2003 was 3.45%. As of December 31, 2003, the Company had a balance of $35.1 outstanding under the revolving credit component of the 2002 Bank Credit Facility, letters of credit issued under the 2002 Bank Credit Facility totaled $47.3, and the additional amount the Company could have borrowed under the revolving credit component of the 2002 Bank Credit Facility was $217.8. The outstanding principal amount of loans under the revolving credit portion of the 2002 Bank Credit F - 31 Facility bears interest, at the Company's option, at an all-in drawn cost of 1.75% per annum in excess of the adjusted eurocurrency rate or, with respect to U.S. dollar denominated alternate base rate loans, at an all-in drawn cost of 0.75% per annum above the prime rate. These rates are subject to change based on the Company's consolidated leverage ratio as defined under the 2002 Bank Credit Facility. The weighted average interest rate on the outstanding portion of the 2002 Bank Credit Facility revolving credit component was 4.40% at December 31, 2003. With limited exceptions, the obligations of the Company under the 2002 Bank Credit Facility are secured by a pledge of all of the capital stock of domestic subsidiaries of the Company, a pledge of 65% of the stock of the foreign subsidiaries of the Company and a first priority security interest in, and mortgages on, substantially all of the assets of Terex and its domestic subsidiaries. The 2002 Bank Credit Facility contains covenants limiting the Company's activities, including, without limitation, limitations on dividends and other payments, liens, investments, incurrence of indebtedness, mergers and asset sales, related party transactions and capital expenditures. The 2002 Bank Credit Facility also contains certain financial and operating covenants, including financial covenant ratios such as a maximum consolidated leverage ratio, a minimum consolidated interest coverage ratio, a maximum senior secured debt leverage ratio and a minimum consolidated fixed charge coverage ratio. The Company was in compliance with its covenants under the 2002 Bank Credit Facility at December 31, 2003. The 1999 Bank Credit Facility - ----------------------------- On July 2, 1999, the Company entered into a credit agreement (the "1999 Bank Credit Facility") for a term loan of up to $325 to provide the funds necessary to acquire the outstanding share capital of Powerscreen and for other general corporate purposes. The 1999 Bank Credit Facility was subsequently amended and restated on August 23, 1999 to provide an additional term loan of up to $125 to acquire Cedarapids. The 1999 Bank Credit Facility was further amended and restated on March 29, 2001 to provide an additional $175 revolving credit facility (the "1999 Revolving Credit Facility") for working capital and general corporate purposes, including acquisitions. All amounts outstanding under the 1999 Bank Credit Facility, including the term loans and the 1999 Revolving Credit Facility, were repaid upon the Company's entry into the 2002 Bank Credit Facility. During 2002 and 2001, the Company made principal prepayments of $152.9 and $246.0, respectively, on the term loans under the 1999 Bank Credit Facility. The 1998 Bank Credit Facility - ----------------------------- On March 6, 1998, the Company refinanced its then outstanding credit facility and redeemed or defeased all of its $166.7 principal amount of its then outstanding 13-1/4% Senior Secured Notes due 2002. The refinancing included effectiveness of a revolving credit facility aggregating up to $125 for working capital and general corporate purposes, including acquisitions, and term loan facilities providing for loans in an aggregate principal amount of up to approximately $375 (collectively, the "1998 Bank Credit Facility"). Pursuant to the term loan component of the 1998 Bank Credit Facility, the Company borrowed (i) $175 in aggregate principal amount pursuant to a Term Loan A due March 2004 (the "Term A Loan") and (ii) $200 in aggregate principal amount pursuant to a Term Loan B due March 2005 (the "Term B Loan"). At December 31, 2003, there is no outstanding principal amount for the Term A Loan, as the Term A Loan was repaid in full during 2001, nor the Term B Loan, as the Term B Loan was repaid in full during 2002 in connection with the Company's entry into the 2002 Bank Credit Facility. During 2002 and 2001, the Company made principal prepayments of $65.0 and $142.4, respectively, on the Term A Loan and Term B Loan. In connection with the Company's entry into the 2002 Bank Credit Facility, the Company also repaid all amounts outstanding under the revolving loan component of the 1998 Bank Credit Facility in 2002. The Letter of Credit Facility - ----------------------------- In conjunction with the 1999 Bank Credit Facility, in July 1999 the Company received a separate letter of credit facility of up to $50. In conjunction with the July 3, 2002 amendment to the 1999 Bank Credit Facility, this letter of credit facility was increased to up to $200. The 2002 Bank Credit Facility incorporates a letter of credit facility of up to $200 in place of the facility included in the 1999 Bank Credit Facility (the "Letter of Credit Facility"). Under the 2002 Bank Credit Facility, the Company may arrange with lenders for the issuance of up to $200 of letters of credit, which may be issued either under the revolving credit component of the 2002 Bank Credit Facility or under the separate Letter of Credit Facility contained within the 2002 Bank Credit Facility. Letters of credit issued under the revolving credit facility decrease availability under the $300 revolving credit component of the 2002 Bank Credit Facility; however, letters of credit issued under the Letter of Credit Facility F - 32 do not decrease availability under the revolving credit component of the 2002 Bank Credit Facility. As of December 31, 2003, the Company has received commitments to issue letters of credit under the Letter of Credit Facility of $33.4, and at December 31, 2003, letters of credit issued under the Letter of Credit Facility totaled $19.0. Other - ----- Included in Other is $8.9 for a fair value adjustment increasing the carrying value of debt. This adjustment is a result of the application of accounting for fair value hedges with respect to fixed interest rate to floating interest rate swaps on the 10-3/8% Notes and the 7-3/8% Notes. See Note E - "Derivative Financial Instruments." Schedule of Debt Maturities - --------------------------- Scheduled annual maturities of long-term debt outstanding at December 31, 2003 in the successive five-year period are summarized below. Amounts shown are exclusive of minimum lease payments disclosed in Note N -- "Lease Commitments": 2004................................... $ 79.2 2005................................... 25.4 2006................................... 7.7 2007................................... 40.5 2008................................... 89.9 Thereafter............................. 1,090.6 ------------- Total.............................. $ 1,333.3 ============= Total long-term debt at December 31, 2003 is $1,342.2. The $8.9 difference is due to the fair value adjustment increasing the carrying value of debt as a result of accounting for fair value hedges for the fixed interest rate to floating interest rate swaps on the 10-3/8% Notes and the 7-3/8% Notes. See Note E - "Derivative Financial Instruments." Based on quoted market values, the Company believes that the fair values of the 7-3/8% Notes, the 9-1/4% Notes and the 10-3/8% Notes were approximately $303, $220 and $336, respectively as of December 31, 2003. The Company believes that the carrying value of its other borrowings approximates fair market value, based on discounting future cash flows using rates currently available for debt of similar terms and remaining maturities. The Company paid $103.6, $83.1 and $95.6 of interest in 2003, 2002 and 2001, respectively. NOTE N -- LEASE COMMITMENTS The Company leases certain facilities, machinery and equipment, and vehicles with varying terms. Under most leasing arrangements, the Company pays the property taxes, insurance, maintenance and expenses related to the leased property. Certain of the equipment leases are classified as capital leases and the related assets have been included in Property, Plant and Equipment. Net assets under capital leases were $10.7 and $8.7, net of accumulated amortization of $6.3 and $9.6, at December 31, 2003 and 2002, respectively. Future minimum capital and noncancelable operating lease payments and the related present value of capital lease payments at December 31, 2003 are as follows: Capital Operating Leases Leases ------------- ------------- 2004............................................ $ 8.1 $ 63.5 2005............................................ 3.6 55.1 2006............................................ 3.2 46.7 2007............................................ 2.1 41.8 2008............................................ 1.4 34.7 Thereafter...................................... 2.5 157.5 ------------- ------------- Total minimum obligations .................. 20.9 $ 399.3 ============= Less amount representing interest............... (1.5) ------------- Present value of net minimum obligations.... 19.4 Less current portion............................ (7.6) ------------- Long-term obligations....................... $ 11.8 ============= F - 33 Most of the Company's operating leases provide the Company with the option to renew the leases for varying periods after the initial lease terms. These renewal options enable the Company to renew the leases based upon the fair rental values at the date of expiration of the initial lease. Total rental expense under operating leases was $55.6, $31.3 and $13.2 in 2003, 2002 and 2001 respectively. NOTE O -- INCOME TAXES The components of Income (Loss) From Continuing Operations Before Income Taxes and Extraordinary Items are as follows:
Year ended December 31, ----------------------------------------- 2003 2002 2001 ------------- ------------- ------------- United States.................................................... $ (53.9) $ (27.4) $ 5.5 Foreign.......................................................... 18.6 (0.8) 13.4 ------------- ------------- ------------- Income (loss) from continuing operations before income taxes and extraordinary items...................................... $ (35.3) $ (28.2) $ 18.9 ============= ============= =============
The major components of the Company's (benefit from) provision for income taxes are summarized below:
Year ended December 31, ----------------------------------------- 2003 2002 2001 ------------- ------------- ------------- Current: Federal........................................................ $ --- $ (4.7) $ 4.3 State.......................................................... 0.8 0.6 1.3 Foreign........................................................ 21.2 19.6 8.9 ------------- ------------- ------------- Current income tax provision............................... 22.0 15.5 14.5 ------------- ------------- ------------- Deferred: Federal........................................................ (17.7) (10.9) (6.0) State.......................................................... (0.3) (2.4) 1.6 Foreign........................................................ (13.8) (11.3) (4.0) ------------- ------------- ------------- Deferred income tax provision (31.8) (24.6) (8.4) ------------- ------------- ------------- Total (benefit from) provision for income taxes......... $ (9.8) $ (9.1) $ 6.1 ============= ============= =============
Deferred tax assets and liabilities result from differences in the basis of assets and liabilities for tax and financial statement purposes. The tax effects of the basis differences and net operating loss carryforward as of December 31, 2003 and 2002 are summarized below for major balance sheet captions:
2003 2002 ------------- ------------- Fixed assets............................... $ (63.5) $ (46.0) Intangibles................................ --- (14.1) Other...................................... (10.9) --- ------------- ------------- Total deferred tax liabilities........ (74.4) (60.1) ------------- ------------- Receivables................................ 5.8 5.2 Net inventories............................ 22.0 7.6 Fixed assets............................... --- --- Workers' compensation...................... 2.3 2.0 Warranties and product liability........... 20.3 15.9 Net operating loss carryforwards........... 282.1 247.1 Pension.................................... 22.6 22.9 Equipment lease revenue.................... 54.1 32.5 Other...................................... 45.0 8.2 ------------- ------------- Total deferred tax assets............. 454.2 341.4 ------------- ------------- Deferred tax assets valuation allowance.... (161.4) (141.0) ------------- ------------- Net deferred tax assets............... $ 218.4 $ 140.3 ============= =============
F - 34 Deferred tax liabilities are included in current liabilities and non-current liabilities on the consolidated balance sheet. The current portion is $10.9 and the non-current portion is $63.5. The valuation allowance for deferred tax assets as of January 1, 2002 was $56.2. The net change in the total valuation allowance for the years ended December 31, 2003 and 2002 were increases of $20.4 and $84.8, respectively. The increase in valuation allowance for the years ended December 31, 2003 and 2002 were primarily due to an increase in foreign net operating loss carryforwards, for which the Company has provided a valuation allowance. Approximately $101.8 of the valuation allowance relates to acquired deferred tax assets for which subsequently recognized tax benefits will be allocated to reduce goodwill of the acquired entity. The Company provides valuation allowances for deferred tax assets whose realization is not more likely than not based on estimated future taxable income in the carryforward period. To the extent that estimates of future taxable income decrease or do not materialize, potentially significant additional valuation allowances may be required. The Company's Provision for Income Taxes is different from the amount that would be provided by applying the statutory federal income tax rate to the Company's Income From Continuing Operations Before Income Taxes and Extraordinary Items. The reasons for the difference are summarized below:
Year ended December 31, ------------------------------------------ 2003 2002 2001 -------------- ------------- ------------- Tax at statutory federal income tax rate.......................... $ (12.3) $ (9.9) $ 6.6 State taxes....................................................... (0.1) (1.8) 1.5 Change in valuation allowance relating to NOL and temporary differences.................................................... (6.4) 6.0 (6.3) Foreign tax differential on income/losses of foreign subsidiaries. (1.8) --- 3.8 Non-deductible goodwill charges................................... 9.6 --- 0.4 Federal tax credits............................................... --- (1.3) --- Other............................................................. 1.2 (2.1) 0.1 -------------- ------------- ------------- Total (benefit) provision for income taxes................... $ (9.8) $ (9.1) $ 6.1 ============== ============= =============
United States income taxes have not been provided on undistributed earnings of foreign subsidiaries. The Company's intention is to reinvest these earnings indefinitely or to repatriate earnings when it is tax effective to do so. If such earnings were not considered indefinitely reinvested, deferred U.S. and foreign income taxes would have been provided, after consideration of estimated foreign tax credits. However, determination of the amount of deferred Federal and Foreign income taxes is not practical. At December 31, 2003, the Company had domestic federal net operating loss carryforwards of $332.0. The tax basis of U. S. federal net operating loss carryforwards expire as follows: Tax Basis Net Operating Loss Carryforwards ---------------- 2004................................. $ 5.8 2005................................. 0.8 2006................................. 5.8 2007................................. 8.5 2008................................. 56.4 2009................................. 35.8 2010................................. 43.6 2011-2019............................ 3.6 2020................................. 22.3 2021................................. 92.4 2022................................. 25.6 2023................................. 31.4 ---------------- Total............................ $ 332.0 ================ F - 35 If a change of control of the Company, as defined by the Tax Reform Act of 1986, were to occur, the Company's utilization of the U.S. net operating loss and credit carryforwards would be subject to annual limitation in future periods. The Company also has various state net operating loss carryforwards available to reduce future state taxable income and income taxes. These net operating loss carryforwards expire at various dates beginning in 2004 through 2023. In addition, the Company's foreign subsidiaries have approximately $645.8 of loss carryforwards, $163.5 in the United Kingdom, $64.2 in France, $379.8 in Germany and $38.3 in other countries, which are available to offset future foreign taxable income. These foreign tax loss carryforwards are available without expiration. The Company made income tax payments of $8.5, $14.2 and $14.8 in 2003, 2002 and 2001, respectively. NOTE P -- STOCKHOLDERS' EQUITY Common Stock. The Company's certificate of incorporation was amended in June 1998 to increase the number of authorized shares of Common Stock to 150.0 million. On April 23, 2002, the Company issued 5.3 million shares of Common Stock in a public offering with net proceeds to the Company of $113.3. As disclosed in "Note B - Acquisitions," the Company also issued approximately 0.9 million shares of Common Stock in connection with the acquisitions of Commercial Body, Tatra and Genie during 2003 and the Company issued 5.3 million shares of Common Stock during 2002 in connection with the acquisitions of Schaeff, Utility Equipment, Telelect Southeast and Genie. On October 1, 2001, the Company issued 3.6 million shares of Common Stock in exchange for the common stock of CMI. Additionally, on December 10, 2001, the Company issued 5.8 million shares of Common Stock in a public offering for net proceeds to the Company of $96.3. On December 31, 2003, there were 50.0 million shares of Common Stock issued and 48.8 million shares of Common Stock outstanding. Of the 101.2 million unissued shares of Common Stock at that date, 3.2 million shares of Common Stock were reserved for issuance for the exercise of stock options and the vesting of restricted stock. Common Stock in Treasury. The Company values treasury stock on an average cost basis. In March 2000, the Company's Board of Directors authorized the purchase of up to 2.0 million shares of the Company's outstanding Common Stock over the following twelve months. As of December 31, 2003, the Company had acquired 1.4 million shares of Common Stock at a total cost of $20.5. During the fourth quarter of 2000, the Company reissued 0.2 million shares of Common Stock as partial payment for an acquired company. As of December 31, 2003, the Company held 1.2 million shares of Common Stock in treasury. Preferred Stock. The Company's certificate of incorporation was amended in June 1998 to authorize 50.0 million shares of preferred stock, $0.01 par value per share. As of December 31, 2003, no shares of preferred stock were outstanding. Equity Rights. On May 9, 1995, the Company sold one million equity rights securities (the "Equity Rights") along with a $250 debt offering. During 2002 and 2001, holders exercised 44.8 thousand and 72.0 thousand rights, respectively. Also, during 2002, 103 thousand rights were exchanged for approximately 65 thousand shares of Common Stock pursuant to an offer of accommodation made by the Company. As of December 31, 2003, there were no Equity Rights outstanding, as all Equity Rights were either exercised or expired. Long-Term Incentive Plans. In May 2000, the stockholders approved the Terex Corporation 2000 Incentive Plan (the "2000 Plan"). The purpose of the 2000 Plan is to assist the Company in attracting and retaining selected individuals to serve as directors, officers, consultants, advisors and employees of the Company and its subsidiaries and affiliates who will contribute to the Company's success and to achieve long-term objectives which will inure to the benefit of all stockholders of the Company through the additional incentive inherent in the ownership of the Common Stock. The 2000 Plan authorizes the granting of (i) options ("Options") to purchase shares of Common Stock, (ii) stock appreciation rights ("SARs"), (iii) stock purchase awards, (iv) restricted stock awards and (v) performance awards. In May 2002, the stockholders approved an increase in the number of shares of Common Stock authorized for issuance under the 2000 Plan from 2.0 million shares to 3.5 million. As of December 31, 2003, 655 thousand shares were available for grant under the 2000 Plan. In May 1996, the stockholders approved the 1996 Terex Corporation Long-Term Incentive Plan (the "1996 Plan"). The 1996 Plan authorizes the granting, among other things, of (i) Options to purchase shares of Common Stock, (ii) shares of F - 36 Common Stock, including restricted stock, and (iii) cash bonus awards based upon a participant's job performance. In May 1999, the stockholders approved an increase in the aggregate number of shares of Common Stock (including restricted stock, if any) optioned or granted under the 1996 Plan to 2.0 million shares. At December 31, 2003, 195 thousand shares were available for grant under the 1996 Plan. The 1996 Plan also provides for automatic grants of Options to non-employee directors. In 1994, the stockholders approved the 1994 Terex Corporation Long-Term Incentive Plan (the "1994 Plan") covering certain managerial, administrative and professional employees and outside directors. The 1994 Plan provides for awards to employees, from time to time and as determined by a committee of outside directors, of cash bonuses, stock options, stock and/or restricted stock. The total number of shares of the Company's Common Stock available to be awarded under the 1994 Plan is 750 thousand, subject to certain adjustments. At December 31, 2003, 10 thousand shares were available for grant under the 1994 Plan. The Company maintains the Terex Corporation Incentive Stock Option Plan (the "1988 Plan"). The 1988 Plan is a qualified incentive stock option ("ISO") plan covering certain officers and key employees. The exercise price of the ISO is the fair market value of the shares at the date of grant. An ISO allows the holder to purchase shares of Common Stock, commencing one year after grant. An ISO expires after ten years. In accordance with the terms of the 1988 Plan, no additional stock options are available for grant under the 1988 Plan at December 31, 2003, since grants under the 1988 Plan could only be made within ten years of the date of the 1988 Plan's adoption. Substantially all stock option grants under the 2000 Plan, the 1996 Plan, the 1994 Plan and the 1988 Plan vest over a four year period, with 25% of each grant vesting on each of the first four anniversary dates of the grant. The following table is a summary of stock options under all of the Company's plans. Weighted Number of Average Exercise Price Options per Share ------------- ------------------------ Outstanding at December 31, 2000......... 1,297,397 $ 17.29 Granted............................... 852,000 $ 16.90 Exercised............................. (154,650) $ 7.59 Canceled or expired................... (43,985) $ 13.62 ------------- Outstanding at December 31, 2001......... 1,950,762 $ 17.96 Granted............................... 608,341 $ 21.80 Exercised............................. (221,383) $ 14.48 Canceled or expired................... (49,450) $ 12.90 ------------- Outstanding at December 31, 2002......... 2,288,270 $ 19.43 Granted............................... 726,773 $ 12.30 Exercised............................. (201,975) $ 15.33 Canceled or expired................... (272,578) $ 22.28 ------------- Outstanding at December 31, 2003......... 2,540,490 $ 17.41 ============= ======================== Exercisable at December 31, 2003......... 1,059,721 $ 18.96 ============= ======================== Exercisable at December 31, 2002......... 969,281 $ 19.56 ============= ======================== Exercisable at December 31, 2001......... 761,688 $ 18.52 ============= ======================== F - 37 The following table summarizes information about stock options outstanding and exercisable at December 31, 2003:
Options Outstanding Options Exercisable ----------------------------------------- ------------------------------- Weighted Weighted Weighted Average Average Average Exercise Range of Number of Life Exercise Price Number of Price per Exercise Prices Options (in years) per Share Options Share - ---------------------------- ------------- ----------- --------------- ------------------------------- $ 3.50 - $ 6.00 42,587 1.9 $ 4.37 42,587 $ 4.37 $ 6.01 - $ 10.00 6,900 2.3 $ 6.75 6,900 $ 6.75 $ 10.01 - $ 15.00 845,108 7.7 $ 11.81 219,420 $ 13.03 $ 15.01 - $ 20.00 752,341 6.9 $ 16.90 350,091 $ 16.83 $ 20.01 - $ 25.00 629,700 7.6 $ 22.37 199,950 $ 22.39 $ 25.01 - $ 30.00 258,131 4.0 $ 27.13 235,050 $ 27.28 $ 30.01 - $ 42.58 5,723 0.7 $ 39.18 5,723 $ 39.18 ------------- ---------------- 2,540,490 7.0 $ 17.41 1,059,721 $ 18.96 ============= ================
Comprehensive Income (Loss). The following table reflects the accumulated balances of other comprehensive income (loss).
Accumulated Pension Cumulative Derivative Other Liability Translation Hedging Comprehensive Adjustment Adjustment Adjustment Income (Loss) ----------------- -------------- ----------------- -------------------- Balance at December 31, 2000.... (0.3) (78.2) --- (78.5) Current year change............. (3.3) (37.7) (0.8) (41.8) ----------------- -------------- ----------------- -------------------- Balance at December 31, 2001 (3.6) (115.9) (0.8) (120.3) Current year change............. (26.8) 90.6 2.9 66.7 ----------------- -------------- ----------------- -------------------- Balance at December 31, 2002 (30.4) (25.3) 2.1 (53.6) Current year change............. 1.3 104.9 4.4 110.6 ----------------- -------------- ----------------- -------------------- Balance at December 31, 2003....$ (29.1) $ 79.6 $ 6.5 $ 57.0 ================= ============== ================= ====================
NOTE Q -- RETIREMENT PLANS AND OTHER BENEFITS Pension Plans - ------------- US Plans - As of December 31, 2003, the Company maintained four defined benefit pension plans covering certain domestic employees (the "Terex Plans"). The benefits for the plans covering the salaried employees are based primarily on years of service and employees' qualifying compensation during the final years of employment. Participation in the plans for salaried employees was frozen on or before October 15, 2000, and no participants will be credited with service following such dates except that participants not fully vested were credited with service for purposes of determining vesting only. The benefits for the plans covering the hourly employees are based primarily on years of service and a flat dollar amount per year of service. It is the Company's policy generally to fund the Terex Plans based on the minimum requirements of the Employee Retirement Income Security Act of 1974 ("ERISA"). Plan assets consist primarily of common stocks, bonds, and short-term cash equivalent funds. At December 31, 2003 and 2002, the Terex Plans held 0.2 million shares of the Company's Common Stock, with market values of $5.7 and $2.2, respectively. The Company adopted a Supplemental Executive Retirement Plan ("SERP") effective October 1, 2002. The SERP provides retirement benefits to certain senior executives of the Company. Generally, the SERP provides a benefit based on average total compensation and years of service reduced by benefits earned under other Company funded retirement programs, including Social Security. The SERP is unfunded. F - 38 Other Postemployment Benefits - ----------------------------- The Company provides postemployment health and life insurance benefits to certain former salaried and hourly employees of Terex Cranes - Waverly Operations (also known as Koehring Cranes, Inc.), Cedarapids and Simplicity Engineering. The Company adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions," on January 1, 1993. This statement requires accrual of postretirement benefits (such as health care benefits) during the years an employee provides service. Terex adopted the provisions of SFAS No. 106 using the delayed recognition method, whereby the amount of the unrecognized transition obligation at January 1, 1993 is recognized prospectively as a component of future years' net periodic postretirement benefit expense. The unrecognized transition obligation at January 1, 1993 was $4.5. Terex is amortizing this transition obligation over 12 years, the average remaining life expectancy of the participants. The Company uses a December 31 measurement date for its U.S. plans. The liability of the Company's U.S. plans, including the SERP, as of December 31, was as follows:
Pension Benefits Other Benefits --------------------------- --------------------------- 2003 2002 2003 2002 Change in benefit obligation: Benefit obligation at beginning of year $ 109.4 $ 99.1 $ 9.0 $ 6.7 Service cost.......................... 1.4 0.5 0.1 0.1 Interest cost......................... 7.3 7.1 0.7 0.6 Impact of plan amendments............. --- 3.5 --- --- Actuarial (gain) loss................. 11.9 6.5 2.5 2.5 Benefits paid......................... (7.4) (7.3) (1.1) (0.9) ------------- ------------- ------------- ------------- Benefit obligation end of year.......... 122.6 109.4 11.2 9.0 ------------- ------------- ------------- ------------- Change in plan assets: Fair value of plan assets at beginning of year.............................. 86.0 97.6 --- --- Actual return on plan assets.......... 16.3 (6.6) --- --- Employer contribution................. 1.3 2.3 1.1 0.9 Benefits paid......................... (7.4) (7.3) (1.1) (0.9) ------------- ------------- ------------- ------------- Fair value of plan assets at end of year 96.2 86.0 --- --- ------------- ------------- ------------- ------------- Funded status........................... (26.4) (23.4) (11.2) (9.0) Unrecognized actuarial (gain) loss..... 48.0 49.4 3.7 1.4 Unrecognized prior service cost......... 7.4 7.0 0.8 0.9 Unrecognized transition obligation...... --- --- 0.3 0.6 ------------- ------------- ------------- ------------- Net amount recognized................... $ 29.0 $ 33.0 $ (6.4) $ (6.1) ============= ============= ============= ============= Amounts recognized in the Consolidated Balance Sheet consist of: Accrued benefit liability............ $ (18.0) $ (16.1) $ (6.4) $ (6.1) Accumulated other comprehensive income (loss)....................... 47.0 49.1 --- --- ------------- ------------- ------------- ------------- Net amount recognized................... $ 29.0 $ 33.0 $ (6.4) $ (6.1) ============= ============= ============= =============
Pension Benefits Other Benefits ------------------------------------------------------- 2003 2002 2003 2002 ------------- ------------- ------------- ------------- Weighted-average assumptions as of December 31: Discount rate........................ 6.00% 6.75% 6.00% 6.75% Expected return on plan assets....... 8.00% 8.00% --- --- Rate of compensation increase........ 4.00% 5.00% --- ---
F - 39
Pension Benefits Other Benefits --------------------------------------- ------------------------------------- 2003 2002 2001 2003 2002 2001 ------------ ------------ ----------- ------------ ------------ --------- Components of net periodic cost: Service cost.......................... $ 1.4 $ 0.5 $ 0.7 $ 0.1 $ 0.1 $ 0.2 Interest cost......................... 7.3 7.1 7.1 0.7 0.6 0.5 Expected return on plan assets........ (6.6) (8.6) (9.0) --- --- --- Amortization of prior service cost.... 0.7 0.4 0.4 0.4 0.1 0.1 Amortization of transition obligation. --- --- --- --- 0.3 0.3 Recognized actuarial (gain) loss...... 2.5 1.0 0.5 0.2 --- (0.2) ------------ ------------ ----------- ------------ ------------ --------- Net periodic cost (benefit)............. $ 5.3 $ 0.4 $ (0.3) $ 1.4 $ 1.1 $ 0.9 ============ ============ =========== ============ ============ =========
The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the U.S. pension plans, including the SERP, with accumulated benefit obligations in excess of plan assets were $122.6, $120.8 and $96.2, respectively, as of December 31, 2003, and $109.4, $107.9 and $86.0, respectively, as of December 31, 2002. Consistent with the Company's investment strategy, the rate used for the expected return on plan assets is based on a number of different factors. Both the historical and prospective long-term expected asset performances are considered in determining the rate of return. While the Company examines performance and future expectations annually, it also views historic asset portfolios and performance over a long period of years before recommending a change. In the short term there will be positive and negative yields which are recognized as gains or losses. These fluctuations versus the expected return are expected to average to zero over the long term. At December 31, 2003 and 2002, the Terex Plans held the Company's Common Stock. These shares represented 6.0% and 2.7%, respectively, of the Terex Plans' assets. The asset allocation, excluding the Company's Common Stock, for the Company's U.S. defined benefit pension plans at December 31, 2003, 2002 and target allocation for 2004 are as follows:
Percentage of Plan Assets at December 31, Target Allocation ---------------------------- -------------------- 2003 2002 2004 ------------- ------------- -------------------- Equity Securities, excluding Terex Common Stock 42.0% 39.1% 32.0% - 48.0% Fixed Income............................ 58.0% 60.9% 54.0% - 66.0% ------------- ------------- Total, excluding Terex Common Stock.. 100.0% 100.0% ============= =============
The Company plans to contribute approximately $3 to its U.S. defined benefit pension plans in 2004. The Company's estimated future benefit payments under our U.S. defined benefit pension plans are as follows: Year Ending December 31, ----------------------------- 2004......................$ 7.2 2005......................$ 7.3 2006......................$ 7.5 2007......................$ 7.8 2008......................$ 8.0 2009-2013.................$ 44.0 F - 40 The Company has five nonpension postretirement benefit plans. The health care plans are contributory with participants' contributions adjusted annually; the life insurance plan is noncontributory. For measurement purposes, a 6.47 percent annual rate of increase in the per capita cost of covered health care benefits was assumed for 2003. The rate was assumed to decrease gradually to 5.75 percent for 2005 and remain at that level thereafter. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan. A one-percentage-point change in assumed health care cost trend rates would have the following effects:
1-Percentage- 1-Percentage- Point Increase Point Decrease -------------------- --------------------- Effect on total service and interest cost components 6.39% (4.35)% Effect on postretirement benefit obligation 5.63% (3.59)%
International Plans - Terex Equipment Limited maintains a government-required defined benefit plan (which includes certain defined contribution elements) covering substantially all of its management employees. Terex Aerials Limited (Ireland) maintains two voluntary defined benefit plans covering its employees. PPM SAS maintains an unfunded noncontributory defined benefit plan covering substantially all of its employees. O&K Mining maintains an unfunded noncontributory defined benefit plan covering substantially all of its employees. Fermec maintains a voluntary defined benefit pension plan covering substantially all of its employees. Atlas, which was acquired on the December 28, 2001, maintains an unfunded noncontributory defined benefit plan covering substantially all of its employees in Germany. Additionally, Atlas maintains a government required defined benefit plan for its employees in Scotland. Demag, which was acquired on August 30, 2002, maintains two unfunded noncontributory defines benefit plans covering substantially all of its employees in Germany. The Company uses a December 31 measurement date for its international plans. The liability of the Company's international plans as of December 31, was as follows:
Pension Benefits ---------------------------- 2003 2002 ------------- -------------- Change in benefit obligation: Benefit obligation at beginning of year.................$ 171.5 $ 123.7 Benefit obligation of plans acquired during the year.... --- 21.8 Service cost............................................ 4.6 4.2 Interest cost........................................... 10.5 7.9 Actuarial (gain) loss................................... 0.3 --- Benefits paid........................................... (8.2) (6.5) Foreign exchange effect................................. 28.4 20.4 ------------- -------------- Benefit obligation end of year............................ 207.1 171.5 ------------- -------------- Change in plan assets: Fair value of plan assets at beginning of year.......... 49.6 53.1 Actual return on plan assets............................ 8.8 (7.8) Employer contribution................................... 8.0 5.7 Benefits paid........................................... (8.2) (6.5) Foreign exchange effect................................. 6.3 5.1 ------------- -------------- Fair value of plan assets at end of year.................. 64.5 49.6 ------------- -------------- Funded status............................................. (142.6) (121.9) Unrecognized actuarial (gain) loss....................... 49.9 33.4 Unrecognized transition obligation........................ (0.1) (0.1) ------------- -------------- Net amount recognized.....................................$ (92.8) $ (88.6) ============= ============== Amounts recognized in the Consolidated Balance Sheet consist of: Prepaid benefit cost...................................$ --- $ 0.6 Accrued benefit liability.............................. (92.8) (89.2) ---------------------------- Net amount recognized.....................................$ (92.8) $ (88.6) ============================
F - 41 Pension Benefits -------------------------------- 2003 2002 --------------- ---------------- The range of assumptions as of December 31: Discount rate........................ 5.50%-6.00% 5.75%-6.00% Expected return on plan assets....... 2.00%-7.00% 2.00%-7.00% Rate of compensation increase........ 2.75%-4.00% 3.75%-4.25% Pension Benefits ----------------------------------- 2003 2002 2001 ----------- ----------- ---------- Components of net periodic cost: Service cost.......................... $ 4.6 $ 4.2 $ 2.4 Interest cost......................... 10.5 7.9 3.2 Expected return on plan assets........ (3.8) (3.6) (3.7) Curtailment (gain) loss............... 0.3 --- --- Recognized actuarial (gain) loss...... 0.5 0.2 --- ------------ ----------- ---------- Net periodic cost....................... $ 12.1 $ 8.7 $ 1.9 ============ =========== ========== The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were $207.1, $196.4 and $64.5, respectively, as of December 31, 2003, and $170.6, $160.8 and $48.1, respectively, as of December 31, 2002. Savings Plans - ------------- The Company maintains a deferred compensation plan (the "Deferred Compensation Plan") for participating employees that, prior to January 1, 2004, permitted participants to transfer funds between investment options, one of which is an option to invest in shares of the Company's Common Stock. It has been the practice of the Deferred Compensation Plan to purchase shares of the Company's Common Stock on an ongoing basis as participants contribute to the Company's Common Stock fund, in order to eliminate the risk associated with fluctuations in the price of the Company's Common Stock. Due to the ability of the Deferred Compensation Plan participants to transfer their investments between the Deferred Compensation Plan investment options, the Company has recorded obligations to the Deferred Compensation Plan participants invested in the Company's Common Stock at the fair value of the Company's Common Stock (without making a corresponding adjustment for any change in value of the shares of the Company's Common Stock held by the Deferred Compensation Plan). Effective January 1, 2004, the Deferred Compensation Plan has been revised to prohibit transfers between investment options, thereby eliminating the need for future adjustments based on the changes in fair value of the Company's Common Stock. In addition to the Company's Deferred Compensation Plan, the Company sponsors various tax deferred savings plans into which eligible employees may elect to contribute a portion of their compensation. The Company may, but is not obligated to, contribute to certain of these plans. The Company's obligation to participants in the Deferred Compensation Plan who are invested in the Company's common stock has been offset by the shares held by the Deferred Compensation Plan for such purposes and are not separately presented as components of Stockholders' Equity. Charges recognized for the Deferred Compensation Plan and these other savings plans were $13.3, $4.2, and $2.8 for the years ended December 31, 2003, 2002 and 2001 respectively. NOTE R -- LITIGATION AND CONTINGENCIES In the Company's lines of business numerous suits have been filed alleging damages for accidents that have arisen in the normal course of operations involving the Company's products. The Company is self-insured, up to certain limits, for these product liability exposures, as well as for certain exposures related to general, workers' compensation and automobile liability. Insurance coverage is obtained for catastrophic losses as well as those risks required to be insured by law or contract. The Company has recorded and maintains an estimated liability in the amount of management's estimate of the Company's aggregate exposure for such self-insured risks. For self-insured risks, the F - 42 Company determines its exposure based on probable loss estimations, which requires such losses to be both probable and the amount or range of possible loss to be estimable. Management does not believe that the final outcome of such matters will have a material adverse effect on the Company's consolidated financial position. 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 $76.2 at December 31, 2003. The letters of credit generally serve as collateral for certain liabilities included in the Condensed Consolidated Balance Sheet. Certain of the letters of credit serve as collateral guaranteeing the Company's performance under contracts. The Company has a letter of credit outstanding covering losses related to two former subsidiaries' worker compensation obligations. The Company has recorded liabilities for these contingent obligations representing management's estimate of the potential losses which the Company might incur. On March 11, 2002, an action was commenced in the United States District Court for the Southern District of Florida, Miami Division by Ursula Ungaro-Benages and Ursula Ungaro-Benages as Attorney-in-fact for Peter C. Ungaro, M.D., in which the plaintiffs allege that ownership of O&K Orenstein & Koppel AG ("O&K AG") was illegally taken from the plaintiffs' ancestors by German industry during the Nazi era. The plaintiffs alleged that the Company was liable for conversion and unjust enrichment as the result of its purchase of the shares of the mining shovel subsidiary O&K Mining GmbH from O&K AG, and were claiming restitution of a 25% interest in O&K Mining GmbH and monetary damages. On June 12, 2002, the United States Department of Justice filed a Statement of Interest in the action that expressed the foreign policy interests of the United States in the dismissal of the case. At the request of the Company, on October 8, 2002, the Federal Judicial Panel on Multi-district Litigation ordered that the action be transferred to the District of New Jersey and assigned the case to the Honorable William G. Bassler for inclusion in the coordinated or consolidated pretrial proceedings established in that court. On April 21, 2003, the plaintiffs voluntarily dismissed the action against the Company. In the third quarter of 2002, the Company obtained a favorable court judgment on appeal as the defendant in a patent infringement case brought against the Terex Construction segment's Powerscreen business. This favorable court judgment reversed a lower court decision for which the Company had previously recorded a liability. As a result of this favorable judgment, the Company recorded $9.5 of income in "Other income (expense) - net" in the Condensed Consolidated Statement of Operations during 2002 and an additional $2.4 during 2003. Credit Guarantees - ----------------- Customers of the Company from time to time may fund the acquisition of the Company's equipment through third-party finance companies. In certain instances, the Company may provide a credit guarantee to the finance company, by which the Company agrees to make payments to the finance company should the customer default. The maximum liability of the Company is limited to the remaining payments due to the finance company at the time of default. In the event of customer default, the Company is generally able to dispose of the equipment with the Company realizing the benefits of any net proceeds in excess of the remaining payments due to the finance company. As of December 31, 2003, the Company's maximum exposure to such credit guarantees is $328.2, including total guarantees issued by Demag and Genie of $216.4 and $58.8, respectively. The terms of these guarantees coincide with the financing arranged by the customer and generally does not exceed five years. Given the Company's position as the original equipment manufacturer and its knowledge of end markets, the Company, when called upon to fulfill a guarantee, generally has been able to liquidate the financed equipment at a minimal loss, if any, to the Company. Residual Value and Buyback Guarantees - ------------------------------------- The Company, through its Genie subsidiary, issues residual value guarantees under sales-type leases. A residual value guarantee involves a guarantee that a piece of equipment will have a minimum fair market value at a future point in time. As described in Note L - "Net Investment in Sales-Type Leases," the Company's maximum exposure related to residual value guarantees under sales-type leases is $36.5 at December 31, 2003. The Company is able to mitigate the risk associated with these guarantees because the maturity of the guarantees is staggered, which limits the amount of used equipment entering the marketplace at any one time. F - 43 The Company from time to time guarantees that it will buy equipment from its customers in the future at a stated price if certain conditions are met by the customer. Such guarantees are referred to as buyback guarantees. These conditions generally pertain to the functionality and state of repair of the machine. As of December 31, 2003, the Company's maximum exposure pursuant to buyback guarantees is $45.7. The Company is able to mitigate the risk of these guarantees by staggering the timing of the buybacks and through leveraging its access to the used equipment markets provided by the Company's original equipment manufacturer status. NOTE S -- RELATED PARTY TRANSACTIONS On March 2, 2000, Terex made a loan to Ronald M. DeFeo, the Chairman, Chief Executive Officer, President and Chief Operating Officer of the Company, in the amount of $3.0. The purpose of the loan was to enable Mr. DeFeo to purchase a house at a time when he was not permitted to sell any shares of his Common Stock. Further, at such time, the Board of Directors determined that it did not desire that Mr. DeFeo be required to sell his Common Stock when he was able to do so in order to satisfy his other obligations, and preferred instead to grant him this loan, secured by his shares of Common Stock and amounts earned by Mr. DeFeo under the Company's 1999 Long-Term Incentive Plan ("LTIP"). The loan currently bears interest at 4.5% per annum and matures on March 31, 2005. Mr. DeFeo prepaid $1.0 of the principal amount of the loan in October 2000. The loan is fully recourse to Mr. DeFeo and is secured by shares of Common Stock owned by Mr. DeFeo and by payment of amounts earned by Mr. DeFeo under the LTIP. The terms of the loan require prepayment by Mr. DeFeo of some or all of the loan's outstanding balance upon the occurrence of certain events, including Mr. DeFeo's ceasing to be employed by the Company for any reason (including death or disability), Mr. DeFeo's failing to pay any amounts due under the loan, the attainment of certain Common Stock price targets and the payment to Mr. DeFeo of amounts under the LTIP. Certain former executive officers and directors of the Company, including Marvin B. Rosenberg, who retired as a director of the Company at the end of 2002, were named along with the Company in a private litigation initiated by the End of the Road Trust, the successor to certain of the assets of the bankruptcy estate of Fruehauf Trailer Corporation, a former subsidiary of the Company. The Company expended approximately $0.1 and $2.4 for legal fees and expenses in 2002 and 2001, respectively, for this matter, which included the defense of Mr. Rosenberg, as well as other former executive officers and directors of the Company. The Company is unable to separately determine the portion of these legal fees and expenses allocable to Mr. Rosenberg individually. The Company has settled this matter in a manner that did not have a material adverse effect on the Company's operations. The Company acquired Genie on September 18, 2002. Prior to the acquisition, Genie, which became part of the Terex Aerial Work Platforms segment, had entered into long-term operating leases for two buildings and a parcel of land with partnerships in which Robert R. Wilkerson, President of the Terex Aerial Work Platforms segment and former president of Genie, is a partner. These leases continued in effect following the acquisition. The buildings are used for office and production purposes, and the land is used for a parking lot. In November 2003, the partnership in which Mr. Wilkerson is a partner sold the properties to an unrelated third party. During 2003 and 2002, the Company paid a total of approximately $1.9 and $0.5, respectively, under these leases. These leases were based on the then-current market rates in effect at the time the leases were executed. On November 13, 2003, the Company entered into an agreement with FIVER S.A. ("FIVER"), an entity affiliated with Fil Filipov, the President of the Company's Terex Cranes segment until his retirement from the Company effective January 1, 2004. Pursuant to this agreement, FIVER provides consulting services to Terex as assigned by the Chief Executive Officer of Terex, including an initial assignment to assist with the operations of Tatra. The term of the agreement is for three years commencing January 1, 2004, with an initial base consulting fee of $0.5 per year, subject to adjustment based on usage of FIVER's services and FIVER's performance (determined at the discretion of the Company), plus reimbursement of certain expenses. The Company requires that all transactions with affiliates be on terms no less favorable to the Company than could be obtained in comparable transactions with an unrelated person. The Board of Directors is advised in advance of any such proposed transaction or agreement and utilizes such procedures in evaluating their terms and provisions as are appropriate in light of the Board's fiduciary duties under Delaware law. In addition, the Company has an Audit Committee consisting solely of independent directors. One of the responsibilities of the Audit Committee is to review related party transactions. F - 44 NOTE T-- BUSINESS SEGMENT INFORMATION Terex is a diversified global manufacturer of a broad range of equipment primarily for the construction, infrastructure and surface mining industries. On April 23, 2001, the Company announced that it was implementing a modified organizational structure effective May 1, 2001. On May 1, 2001, the Company began operating primarily in two business segments: (i) Terex Americas and Mining and (ii) Terex Europe. Previously, the Company had reported its operations as Terex Earthmoving and Terex Lifting. On August 28, 2001, the Company announced that the Terex Americas and Mining group was being divided into two separate business segments: (i) Terex Americas and (ii) Terex Mining. From July 1, 2001 through June 30, 2002, the Company operated in three business segments: (i) Terex Americas; (ii) Terex Europe; and (iii) Terex Mining. From July 1, 2002 through September 18, 2002, the Company operated in four business segments: (i) Terex Construction; (ii) Terex Cranes; (iii) Terex Roadbuilding, Utility Products and Other; and (iv) Terex Mining, and upon the acquisition of Genie on September 18, 2002, the Company added the Terex Aerial Work Platforms segment. On July 1, 2003, the Company announced an agreement in principle to sell its worldwide electric drive mining truck business, and ceased reporting Terex Mining as a separate financial reporting segment. On December 10, 2003, Terex terminated the negotiation for the sale of the electric drive mining truck business, and has reinstated reporting of the Terex Mining segment. The Company now operates in five business segments: (i) Terex Construction; (ii) Terex Cranes; (iii) Terex Roadbuilding, Utility Products and Other; (iv) Terex Aerial Work Platforms; and (v) Terex Mining. All prior periods have been restated to reflect results based on these five business segments. The Terex Construction segment designs, manufactures and markets three primary categories of equipment and their related components and replacement parts: heavy construction equipment (including off-highway trucks and scrapers), compact equipment (including loader backhoes, compaction equipment, mini and midi excavators, loading machines, site dumpers, telehandlers and wheel loaders); and mobile crushing and screening equipment (including jaw crushers, cone crushers, washing screens and trommels). These products are primarily used by construction, logging, mining, industrial and government customers in construction and infrastructure projects and supplying coal, minerals, sand and gravel. Terex Construction products are currently marketed principally under the following brand names: Terex, Atlas, Finlay, Fuchs, Pegson, Powerscreen, Benford, Fermec, Terex Handlers, Schaeff, and TerexLift. The Company's strategy going forward is to build the Terex brand. As part of that effort, Terex will, over time, be migrating historic brand names to Terex and may include the use of the historic brand name in conjunction with the Terex brand for a transitional period of time. The Terex Cranes segment designs, manufactures and markets mobile telescopic cranes, tower cranes, lattice boom crawler cranes, truck mounted cranes (boom trucks) and telescopic container stackers, as well as their related replacements parts and components. These products are used primarily for construction, repair and maintenance of infrastructure, building and manufacturing facilities. Currently, Terex Cranes products are marketed principally under the following brand names: Terex, American, Bendini, Comedil, Demag, Franna, Lorain, P&H, Peiner, PPM and RO-Stinger. The Company's strategy going forward is to build the Terex brand. As part of that effort, Terex will, over time, be migrating historic brand names to Terex and may include the use of the historic brand name in conjunction with the Terex brand for a transitional period of time. The Terex Roadbuilding, Utility Products and Other segment designs, manufactures and markets fixed installation crushing and screening equipment (including crushers, impactors, screens and feeders), asphalt and concrete equipment (including pavers, plants, mixers, reclaimers, stabilizers and profilers), utility equipment (including digger derricks, aerial devices and cable placers), light construction equipment (including light towers, trowels, power buggies, generators and arrow boards), construction trailers and on/off road heavy-duty vehicles, as well as related components and replacement parts. These products are used primarily by government, utility and construction customers to build roads, maintain utility lines, trim trees and for commercial and military applications. These products are currently marketed principally under the following brand names: Terex, Advance, American Truck Company, Amida, ATC, Bartell, Benford, Bid-Well, Canica, Cedarapids, Cedarapids/Standard Havens, CMI Johnson Ross, CMI Terex, CMI-Cifali, Grayhound, Hi-Ranger, Jaques, Load King, Morrison, Re-Tech, Royer, Simplicity, Tatra, Terex Power, Terex Recycling and Terex Telelect. The Company's strategy going forward is to build the Terex brand. As part of that effort, Terex will, over time, be migrating historic brand names to Terex and may include the use of the historic brand name in conjunction with the Terex brand for a transitional period of time. Terex also owns much of the North American distribution channel for the utility products group through the distributors Terex Utilities South and Terex Utilities West. These operations distribute and install the Company's utility aerial devices as well as other products that service the utility industry. The Company also operates a fleet of rental utility products under the name of Terex Utilities Rental. The Company also leases and rents a variety of heavy equipment to third parties under the Terex Re-Rentals brand name. The Company, through, Terex Financial Services, Inc. also offers customers loans and leases originated by General Electric Capital Corporation Vendor Financial Services to assist in the acquisition of the Company's products. F - 45 The Terex Aerial Work Platforms segment was formed upon the completion of Terex's acquisition of Genie and its affiliates on September 18, 2002. The Terex Aerial Work Platforms segment designs, manufactures and markets aerial work platform equipment and telehandlers. Products include material lifts, portable aerial work platforms, trailer mounted booms, articulating booms, stick booms, scissor lifts, telehandlers, related components and replacement parts, and other products. These products are used primarily by customers in the construction and building maintenance industries to lift people and/or equipment as required to build and/or maintain large physical assets and structures. Terex Aerial Work Platforms products currently are marketed principally under the Genie and Terex brand names. The Terex Mining segment designs, manufactures and markets large hydraulic excavators and high capacity surface mining trucks, related components and replacement parts, and other products. These products are used primarily used by construction, mining, quarrying and government customers in construction, excavation and supplying coal and minerals. Currently, Terex Mining products are marketed principally under the following brand names: O&K, Payhauler, Terex and Unit Rig. The Company's strategy going forward is to build the Terex brand. As part of that effort, Terex will, over time, be migrating historic brand names to Terex and may include the use of the historic brand name in conjunction with the Terex brand for a transitional period of time. On April 1, 2003 the Company changed the composition of its segments when it moved the North American operations of its telehandlers business from the Terex Construction segment to the Terex Aerial Work Platforms segment due to a change in the way the Company's operating decision makers view the business. The results by segment have been reclassified within the two segments to reflect this change in the Company's segments. The results of businesses acquired during 2003, 2002 and 2001 are included from the dates of their respective acquisitions. F - 46 Included in Eliminations/Corporate are the eliminations among the five segments, as well as general and corporate items. Business segment information is presented below:
Year Ended December 31, ------------------------------------------ 2003 2002 2001 ----------- ------------ -------------- Sales Terex Construction................................. $ 1,359.5 $ 1,174.5 $ 702.1 Terex Cranes....................................... 1,005.1 717.9 492.5 Terex Roadbuilding, Utility Products and Other..... 711.9 562.4 365.5 Terex Aerial Work Platforms........................ 583.6 149.4 37.0 Terex Mining....................................... 294.5 282.8 266.2 Eliminations/Corporate............................. (57.5) (89.6) (50.8) ----------- ------------ -------------- Total............................................ $ 3,897.1 $ 2,797.4 $ 1,812.5 =========== ============ ============== Income (Loss) from Operations Terex Construction................................. $ 54.3 $ 57.0 $ 48.7 Terex Cranes....................................... 15.9 2.0 12.3 Terex Roadbuilding, Utility Products and Other..... (62.2) 18.4 26.0 Terex Aerial Work Platforms........................ 67.8 4.2 0.7 Terex Mining....................................... 14.4 (4.4) 14.5 Eliminations/Corporate............................. (16.7) (8.6) 2.0 ----------- ------------ -------------- Total............................................ $ 73.5 $ 68.6 $ 104.2 =========== ============ ============== Depreciation and Amortization Terex Construction................................. $ 18.6 $ 13.6 $ 11.6 Terex Cranes....................................... 10.2 6.0 9.0 Terex Roadbuilding, Utility Products and Other..... 10.7 11.1 9.8 Terex Aerial Work Platforms........................ 23.4 7.3 0.3 Terex Mining....................................... 1.6 1.7 5.3 Corporate.......................................... 5.9 5.3 4.3 ----------- ------------ -------------- Total............................................ $ 70.4 $ 45.0 $ 40.3 =========== ============ ============== Amortization of Goodwill Terex Construction................................. $ --- $ --- $ 5.0 Terex Cranes....................................... --- --- 2.1 Terex Roadbuilding, Utility Products and Other..... --- --- 4.1 Terex Aerial Work Platforms........................ --- --- 0.1 Terex Mining....................................... --- --- 2.9 Corporate.......................................... --- --- --- ----------- ------------ -------------- Total............................................ $ --- $ --- $ 14.2 =========== ============ ============== Capital Expenditures Terex Construction................................. $ 14.1 $ 12.9 $ 4.8 Terex Cranes....................................... 4.0 5.9 3.8 Terex Roadbuilding, Utility Products and Other..... 5.4 5.3 4.3 Terex Aerial Work Platforms........................ 2.1 2.7 --- Terex Mining....................................... 1.0 0.8 0.5 Corporate.......................................... 0.5 1.6 0.1 ----------- ------------ -------------- Total............................................ $ 27.1 $ 29.2 $ 13.5 =========== ============ ==============
F - 47
December 31, ------------------------------------------ 2003 2002 2001 ------------- ------------ --------------- Identifiable Assets Terex Construction................................. $ 1,394.1 $ 1,326.6 $ 996.1 Terex Cranes....................................... 890.4 937.9 457.4 Terex Roadbuilding, Utility Products and Other..... 641.2 602.7 533.8 Terex Aerial Work Platforms........................ 456.4 469.9 13.5 Terex Mining....................................... 443.0 330.4 386.0 Corporate.......................................... 1,971.7 1,895.8 825.2 Eliminations....................................... (2,073.0) (1,937.6) (825.0) ------------- ------------ --------------- Total............................................ $ 3,723.8 $ 3,625.7 $ 2,387.0 ============= ============ ===============
Sales between segments are generally priced to recover costs plus a reasonable markup for profit. Geographic segment information is presented below: Year Ended December 31, ------------------------------------------ 2003 2002 2001 ------------ ------------- --------------- Sales United States.................. $ 1,519.8 $ 1,146.5 $ 873.7 United Kingdom................. 433.6 323.5 216.6 Germany........................ 343.5 284.2 51.2 Other European countries....... 965.8 541.1 331.5 All other...................... 634.4 502.1 339.5 ------------ ------------- --------------- Total........................ $ 3,897.1 $ 2,797.4 $ 1,812.5 ============ ============= =============== December 31, ------------ ----------------------------- 2003 2002 2001 ------------ ------------- --------------- Long-lived Assets United States.................. $ 106.5 $ 140.7 $ 77.1 United Kingdom................. 38.9 32.9 52.6 Germany........................ 143.4 120.6 21.7 Other European Countries....... 75.8 10.4 17.1 All other...................... 5.5 4.8 5.4 ------------ ------------- --------------- Total........................ $ 370.1 $ 309.4 $ 173.9 ============ ============= =============== The Company attributes sales to unaffiliated customers in different geographical areas on the basis of the location of the customer. Long-lived assets include net fixed assets which can be attributed to the specific geographic regions. The Company is not dependent upon any single customer. NOTE U -- CONSOLIDATING FINANCIAL STATEMENTS On November 25, 2003, the Company sold and issued $300 aggregate principal amount of the 7-3/8% Notes. On March 29, 2001, the Company sold and issued $300 aggregate principal amount of the 10-3/8% Notes. On December 17, 2001, the Company sold and issued $200 aggregate principal amount of 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 the 8-7/8% Notes. As of December 31, 2003, the 7-3/8% Notes, the 10-3/8% Notes and the 9-1/4% Notes were each F - 48 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., CMI Terex Corporation, CMI Dakota Company, CMIOIL Corporation, Product Support, Inc., Schaeff Incorporated, Fuchs Terex, Inc., Utility Equipment, Inc., Terex Advance Mixer, Inc., Terex Utilities, Inc., Terex Utilities South, Inc., Spinnaker Insurance Company, Terex Financial Services, Inc., Genie Holdings, Inc., Genie Access Services, Inc., Genie Industries, Inc., Genie Financial Services, Inc., GFS National, Inc., Genie Manufacturing, Inc., Genie China, Inc., Genie International, Inc., Lease Servicing & Funding Corporation, GFS Commercial LLC, and Go Credit Corporation. As of December 31, 2003, the 7-3/8% Notes, the 10-3/8% Notes and the 9-1/4% Notes are also jointly and severally guaranteed by PPM Cranes, Inc. Prior to December 2002, PPM Cranes, Inc. was 92.4% owned by Terex. In December 2002, the Company acquired the remaining minority interest in the equity of PPM Cranes, Inc. The 2003 and 2002 results include PPM Cranes, Inc. with the Wholly-owned Guarantors; for prior periods PPM Cranes, Inc. is provided under a separate column. All of the guarantees are full and unconditional. No subsidiaries of the Company except the Wholly-owned Guarantors and, for periods prior to 2002, PPM Cranes, Inc. have provided a guarantee of the 7-3/8% Notes, the 10-3/8% Notes and the 9-1/4% Notes. The following summarized condensed consolidating financial information for the Company segregates the financial information of Terex Corporation, the Wholly-owned Guarantors, PPM Cranes, Inc. (for periods prior to 2002) and the Non-guarantor Subsidiaries. Terex Corporation consists of parent company operations. Subsidiaries of the parent company are reported on the equity basis. Wholly-owned Guarantors combine the operations of the Wholly-owned Guarantor subsidiaries. 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 subsidiaries are reported on an equity basis. Non-guarantor Subsidiaries combine the operations of subsidiaries which have not provided a guarantee of the obligations of Terex Corporation under the 7-3/8% Notes, 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. F - 49
TEREX CORPORATION CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 2003 (in millions) Wholly- Non- Terex owned guarantor Intercompany Corporation Guarantors Subsidiaries Eliminations Consolidated ------------- ------------- ------------- ------------- ------------- Net sales...............................$ 295.9 $ 1,346.1 $ 2,479.8 $ (224.7) $ 3,897.1 Cost of goods sold.................... 275.5 1,188.1 2,139.7 (224.7) 3,378.6 ------------- ------------- ------------- ------------- ------------- Gross profit............................ 20.4 158.0 340.1 --- 518.5 Selling, general & administrative expenses................................ (32.9) (130.7) (230.1) --- (393.7) Goodwill impairment................... --- (51.3) --- --- (51.3) ------------- ------------- ------------- ------------- ------------- Income (loss) from operations........... (12.5) (24.0) 110.0 --- 73.5 Interest income....................... 1.2 3.7 2.2 --- 7.1 Interest expense...................... (32.1) (24.3) (43.5) --- (99.9) Income (loss) from equity investees... 36.6 --- --- (36.6) --- Other income (expense) - net.......... (15.1) 4.7 (5.6) --- (16.0) ------------- ------------- ------------- ------------- ------------- Income (loss) before income taxes and cumulative effect of change in accounting principle.................. (21.9) (39.9) 63.1 (36.6) (35.3) Benefit from (provision for) income taxes................................... (3.6) (3.7) 17.1 --- 9.8 ------------- ------------- ------------- ------------- ------------- Income (loss) before cumulative effect of change in accounting principle.... (25.5) (43.6) 80.2 (36.6) (25.5) Cumulative effect of change in accounting principle.................. --- --- --- --- --- ------------- ------------- ------------- ------------- ------------- Net income (loss).......................$ (25.5) $ (43.6) $ 80.2 $ (36.6) $ (25.5) ============= ============= ============= ============= =============
TEREX CORPORATION CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 2002 (in millions) Wholly- Non- Terex owned guarantor Intercompany Corporation Guarantors Subsidiaries Eliminations Consolidated ------------- ------------- ------------- ------------- ------------- Net sales...............................$ 252.9 $ 1,014.2 $ 1,656.7 $ (126.4) $ 2,797.4 Cost of goods sold.................... 260.4 918.7 1,388.0 (126.4) 2,440.7 ------------- ------------- ------------- ------------- ------------- Gross profit............................ (7.5) 95.5 268.7 --- 356.7 Selling, general & administrative expenses................................ (28.7) (95.6) (163.8) --- (288.1) Goodwill impairment................... --- --- --- --- --- ------------- ------------- ------------- ------------- ------------- Income (loss) from operations........... (36.2) (0.1) 104.9 --- 68.6 Interest income....................... 3.0 1.6 2.9 --- 7.5 Interest expense...................... (23.8) (20.2) (48.9) --- (92.9) Income (loss) from equity investees... (75.8) --- --- 75.8 --- Other income (expense) - net.......... (21.8) (18.0) 28.4 --- (11.4) ------------- ------------- ------------- ------------- ------------- Income (loss) before income taxes and extraordinary items................... (154.6) (36.7) 87.3 75.8 (28.2) Benefit from (provision for) income taxes................................... 22.1 (0.3) (12.7) --- 9.1 ------------- ------------- ------------- ------------- ------------- Income (loss) before cumulative effect (132.5) (37.0) 74.6 75.8 (19.1) of change in accounting principle.... Cumulative effect of change in accounting principle ................. --- (18.4) (95.0) --- (113.4) ------------- ------------- ------------- ------------- ------------- Net income (loss).......................$ (132.5) $ (55.4) $ (20.4) $ 75.8 $ (132.5) ============= ============= ============= ============= =============
F - 50
TEREX CORPORATION CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 2001 (in millions) Wholly- Non- Terex owned PPM guarantor Intercompany Corporation Guarantors Cranes, Inc. Subsidiaries Eliminations Consolidated ------------- ------------- ------------- ------------- ------------- -------------- Net sales...............................$ 233.4 $ 654.8 $ 46.0 $ 1,070.1 $ (191.8) $ 1,812.5 Cost of goods sold.................... 226.1 559.6 40.6 905.6 (191.8) 1,540.1 ------------- ------------- ------------- ------------- ------------- -------------- Gross profit............................ 7.3 95.2 5.4 164.5 --- 272.4 Selling, general & administrative expenses................................ (20.9) (47.4) (10.4) (89.5) --- (168.2) Goodwill impairment................... --- --- --- --- --- --- ------------- ------------- ------------- ------------- ------------- -------------- Income (loss) from operations........... (13.6) 47.8 (5.0) 75.0 --- 104.2 Interest income....................... 3.4 0.2 --- 4.1 --- 7.7 Interest expense...................... (28.0) (12.7) (4.5) (41.5) --- (86.7) Income (loss) from equity investees... 44.2 --- --- --- (44.2) --- Other income (expense) - net.......... (0.8) (5.2) (0.1) (0.2) --- (6.3) ------------- ------------- ------------- ------------- ------------- -------------- Income (loss) before income taxes and extraordinary items................... 5.2 30.1 (9.6) 37.4 (44.2) 18.9 Benefit from (provision for) income taxes................................... 7.6 (0.6) --- (13.1) --- (6.1) ------------- ------------- ------------- ------------- ------------- -------------- Income (loss) before cumulative effect of change in accounting principle..... 12.8 29.5 (9.6) 24.3 (44.2) 12.8 Cumulative effect of change in accounting principle................ --- --- --- --- --- --- ------------- ------------- ------------- ------------- ------------- -------------- Net income (loss).......................$ 12.8 $ 29.5 $ (9.6) $ 24.3 $ (44.2) $ 12.8 ============= ============= ============= ============= ============= ==============
F - 51
TEREX CORPORATION CONDENSED CONSOLIDATING BALANCE SHEET DECEMBER 31, 2003 (in millions) Wholly- Non- Terex Owned Guarantor Intercompany Corporation Guarantors Subsidiaries Eliminations Consolidated ------------- ------------- ------------- ------------- ------------- Assets Current assets Cash and cash equivalents..........$ 148.7 $ 2.9 $ 315.9 $ --- $ 467.5 Trade receivables - net............ 32.1 119.9 388.2 --- 540.2 Intercompany receivables........... 11.7 14.0 18.0 (43.7) --- Net inventories.................... 81.8 250.2 659.3 18.4 1,009.7 Current deferred tax assets........ 50.0 0.7 3.2 --- 53.9 Other current assets............... 17.1 25.2 80.4 --- 122.7 ------------- ------------- ------------- ------------- ------------- Total current assets............. 341.4 412.9 1,465.0 (25.3) 2,194.0 Property, plant & equipment - net.... 7.3 101.6 261.2 --- 370.1 Investment in and advances to (from) subsidiaries.............. 859.3 (209.4) (464.8) (185.1) --- Goodwill - net....................... (9.8) 244.5 368.8 --- 603.5 Deferred taxes....................... 118.6 82.3 38.0 --- 238.9 Other assets - net................... 5.0 140.2 172.1 --- 317.3 ------------- ------------- ------------- ------------- ------------- Total assets............................$ 1,321.8 $ 772.1 $ 1,840.3 $ (210.4) $ 3,723.8 ============= ============= ============= ============= ============= Liabilities and stockholders' equity (deficit) Current liabilities Notes payable and current portion of long-term debt................$ 0.1 $ 35.6 $ 51.1 $ --- $ 86.8 Trade accounts payable............. 31.3 124.2 453.1 --- 608.6 Intercompany payables.............. 20.6 21.3 1.8 (43.7) --- Accruals and other current liabilities...................... 42.8 101.8 319.4 --- 464.0 ------------- ------------- ------------- ------------- ------------- Total current liabilities........ 94.8 282.9 825.4 (43.7) 1,159.4 Long-term debt less current portion.. 272.1 404.8 597.9 --- 1,274.8 Other long-term liabilities.......... 78.2 99.1 235.6 --- 412.9 Stockholders' equity (deficit)....... 876.7 (14.7) 181.4 (166.7) 876.7 ------------- ------------- ------------- ------------- ------------- Total liabilities and stockholders' equity (deficit).....................$ 1,321.8 $ 772.1 $ 1,840.3 $ (210.4) $ 3,723.8 ============= ============= ============= ============= =============
F - 52
TEREX CORPORATION CONDENSED CONSOLIDATING BALANCE SHEET DECEMBER 31, 2002 (in millions) Wholly- Non- Terex Owned Guarantor Intercompany Corporation Guarantors Subsidiaries Eliminations Consolidated ------------- ------------- ------------- ------------- ------------- Assets Current assets Cash and cash equivalents..........$ 134.0 $ 6.2 $ 212.0 $ --- $ 352.2 Trade receivables - net............ 45.7 189.8 343.1 --- 578.6 Intercompany receivables........... 13.4 6.7 14.4 (34.5) --- Net inventories.................... 101.1 324.9 645.6 34.7 1,106.3 Current deferred tax assets........ 24.3 18.2 4.4 --- 46.9 Other current assets............... 16.8 36.4 83.9 --- 137.1 ------------- ------------- ------------- ------------- ------------- Total current assets............. 335.3 582.2 1,303.4 0.2 2,221.1 Property, plant & equipment - net.... 7.4 128.0 174.0 --- 309.4 Investment in and advances to (from) subsidiaries.............. 818.0 (520.9) (237.2) (59.9) --- Goodwill - net....................... (9.8) 284.7 348.0 --- 622.9 Deferred taxes....................... 113.0 17.0 23.5 --- 153.5 Other assets - net................... 27.0 127.7 164.1 318.8 ------------- ------------- ------------- ------------- ------------- Total assets............................$ 1,290.9 $ 618.7 $ 1,775.8 $ (59.7) $ 3,625.7 ============= ============= ============= ============= ============= Liabilities and stockholders' equity (deficit) Current liabilities Notes payable and current portion of long-term debt................$ 0.4 $ 40.7 $ 33.0 $ --- $ 74.1 Trade accounts payable............. 39.2 149.3 354.4 --- 542.9 Intercompany payables.............. 23.4 (127.8) 138.9 (34.5) --- Accruals and other current liabilities...................... 68.0 98.5 322.7 --- 489.2 ------------- ------------- ------------- ------------- ------------- Total current liabilities........ 131.0 160.7 849.0 (34.5) 1,106.2 Long-term debt less current portion.. 335.7 386.4 765.0 --- 1,487.1 Other long-term liabilities.......... 55.0 42.7 165.5 --- 263.2 Stockholders' equity (deficit)....... 769.2 28.9 (3.7) (25.2) 769.2 ------------- ------------- ------------- ------------- ------------- Total liabilities and stockholders' equity (deficit).....................$ 1,290.9 $ 618.7 $ 1,775.8 $ (59.7) $ 3,625.7 ============= ============= ============= ============= =============
F - 53
TEREX CORPORATION CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 2003 (in millions) Wholly- Non- Terex owned guarantor Intercompany Corporation Guarantors Subsidiaries Eliminations Consolidated ------------- ------------- --------------- -------------------------------- Net cash provided by (used in) operating activities ................ $ 23.0 $ (0.4) $ 361.5 $ --- $ 384.1 ------------- ------------- --------------- ---------------- ------------- Cash flows from investing activities: Acquisition of business, net of cash acquired............................. --- (7.9) 0.2 --- (7.7) Capital expenditures.................. (0.9) (6.4) (19.8) --- (27.1) Proceeds from sale of assets.......... --- 1.6 4.5 --- 6.1 ------------- ------------- --------------- ---------------- ------------- Net cash provided by (used in) investing activities............... (0.9) (12.7) (15.1) --- (28.7) ------------- ------------- --------------- ---------------- ------------- Cash flows from financing activities: Proceeds from issuance of long-term debt, net of issuance costs.......... 49.3 46.5 194.6 --- 290.4 Principal repayments of long-term debt (53.0) (15.6) (385.9) --- (454.5) Net borrowings (repayments) under revolving line of credit agreements.. --- (1.7) (63.3) --- (65.0) Payment of premium on early retirement of debt................... (3.7) (1.4) (6.0) --- (11.1) Other................................. --- (18.0) (11.4) --- (29.4) ------------- ------------- --------------- ---------------- ------------- Net cash provided by (used in) financing activities............... (7.4) 9.8 (272.0) --- (269.6) ------------- ------------- ------------- ---------------- ------------- --- Effect of exchange rates on cash and cash equivalents...................... --- --- 29.5 --- 29.5 ------------- ------------- --------------- ---------------- ------------- --- --- Net (decrease) increase in cash and cash equivalents...................... 14.7 (3.3) 103.9 --- 115.3 Cash and cash equivalents, beginning of period................................ 134.0 6.2 212.0 --- 352.2 ------------- ------------- --------------- ---------------- ------------- Cash and cash equivalents,end of period $ 148.7 $ 2.9 $ 315.9 $ --- $ 467.5 ============= ============= =============== ================ =============
TEREX CORPORATION CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 2002 (in millions) Wholly- Non- Terex owned guarantor Intercompany Corporation Guarantors Subsidiaries Eliminations Consolidated ------------- ------------- ------------- ------------- ------------- Net cash provided by (used in) operating activities................. $ (109.5) $ 103.5 $ 76.3 $ --- $ 70.3 ------------- ------------- ------------- ------------- ------------- Cash flows from investing activities: Proceeds from sale of business........ --- --- --- --- --- Acquisition of business, net of cash acquired............................. (11.3) (191.5) (243.1) --- (445.9) Capital expenditures.................. (1.7) (10.3) (17.2) --- (29.2) Proceeds from sale of assets.......... 0.5 3.5 30.5 --- 34.5 ------------- ------------- ------------- ------------- ------------- Net cash provided by (used in) investing activities............... (12.5) (198.3) (229.8) --- (440.6) ------------- ------------- ------------- ------------- ------------- Cash flows from financing activities: Proceeds from issuance of long-term debt, net of issuance costs.......... --- 204.8 367.2 --- 572.0 Issuance of common stock.............. 113.3 --- --- --- 113.3 Principal repayments of long-term debt (1.5) (101.8) (116.3) --- (219.6) Net borrowings (repayments) under revolving line of credit agreements.. --- (1.1) 0.3 --- (0.8) Other................................. --- (4.9) --- --- (4.9) ------------- ------------- ------------- ------------- ------------- Net cash provided by (used in) financing activities............... 111.8 97.0 251.2 --- 460.0 ------------- ------------- ------------- ------------- ------------- Effect of exchange rates on cash and cash equivalents...................... --- --- 12.1 --- 12.1 ------------- ------------- ------------- ------------- ------------- Net (decrease) increase in cash and cash equivalents...................... (10.2) 2.2 109.8 --- 101.8 Cash and cash equivalents, beginning of period................................ 144.2 4.0 102.2 --- 250.4 ------------- ------------- ------------- ------------- ------------- Cash and cash equivalents,end of period $ 134.0 $ 6.2 $ 212.0 $ --- $ 352.2 ============= ============= ============= ============= =============
F - 54
TEREX CORPORATION CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 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................. $ (223.0) $ 41.3 $ 0.5 $ 175.7 $ --- $ (5.5) ------------- ------------- ------------- ------------- ------------- -------------- Cash flows from investing activities: Proceeds from sale of business........ --- --- --- --- --- --- Acquisition of business, net of cash acquired............................. (5.3) (68.7) --- (56.8) --- (130.8) Capital expenditures.................. (1.1) (5.1) --- (7.3) --- (13.5) Proceeds from sale of assets.......... 0.3 1.0 --- 6.7 --- 8.0 ------------- ------------- ------------- ------------- ------------- -------------- Net cash provided by (used in) investing activities............... (6.1) (72.8) --- (57.4) --- (136.3) ------------- ------------- ------------- ------------- ------------- -------------- Cash flows from financing activities: Proceeds from issuance of long-term debt, net of issuance costs.......... 207.0 125.2 --- 149.2 --- 481.4 Issuance of common stock.............. 96.3 --- --- --- --- 96.3 Principal repayments of long-term debt (38.5) (90.0) (0.5) (259.5) --- (388.5) Net borrowings (repayments) under revolving line of credit agreements.. --- --- --- 23.6 --- 23.6 Other................................. (0.2) (0.1) --- (1.0) --- (1.3) ------------- ------------- ------------- ------------- ------------- -------------- Net cash provided by (used in) financing activities............... 264.6 35.1 (0.5) (87.7) --- 211.5 ------------- ------------- ------------- ------------- ------------- -------------- Effect of exchange rates on cash and cash equivalents...................... --- --- --- (0.7) --- (0.7) ------------- ------------- ------------- ------------- ------------- -------------- Net (decrease) increase in cash and cash equivalents...................... 35.5 3.6 --- 29.9 --- 69.0 Cash and cash equivalents, beginning of period................................ 108.7 0.3 0.1 72.3 --- 181.4 ------------- ------------- ------------- ------------- ------------- -------------- Cash and cash equivalents,end of period $ 144.2 $ 3.9 $ 0.1 $ 102.2 $ --- $ 250.4 ============= ============= ============= ============= ============= ==============
F - 55
TEREX CORPORATION AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (Amounts in millions) Additions --------------------------- Balance Beginning Charges to Balance End of Year Earnings Other(1) Deductions (2) of Year ------------- ------------- ------------- ----------------- ------------- Year ended December 31, 2003 Deducted from asset accounts: Allowance for doubtful accounts............. $ 19.6 $ 32.7 $ 1.1 $ (15.2) $ 38.2 Reserve for excess and obsolete inventory... 36.7 52.8 7.7 (37.8) 59.4 ------------- ------------- ------------- ----------------- ------------- Totals..................................... $ 56.3 $ 85.5 $ 8.8 $ (53.0) $ 97.6 ============= ============= ============= ================= ============= Year ended December 31, 2002 Deducted from asset accounts: Allowance for doubtful accounts............. $ 8.6 $ 31.6 $ 2.0 $ (22.6) $ 19.6 Reserve for excess and obsolete inventory... 27.1 43.5 3.4 (37.3) 36.7 ------------- ------------- ------------- ----------------- ------------- Totals..................................... $ 35.7 $ 75.1 $ 5.4 $ (59.9) $ 56.3 ============= ============= ============= ================= ============= Year ended December 31, 2001 Deducted from asset accounts: Allowance for doubtful accounts............. $ 6.3 $ 7.4 $ --- $ (5.1) $ 8.6 Reserve for excess and obsolete inventory... 26.1 7.6 --- (6.6) 27.1 ------------- ------------- ------------- ----------------- ------------- Totals..................................... $ 32.4 $ 15.0 $ --- $ (11.7) $ 35.7 ============= ============= ============= ================= =============
(1) Primarily represents the impact of foreign currency exchange. (2) Primarily represents the utilization of established reserves, net of recoveries. F - 56 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 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). 4.2 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). 4.3 Second Supplemental Indenture, dated as of September 30, 2002, between Terex Corporation and Bank of New York (as successor trustee to United States Trust Company of New York), as Trustee (to Indenture dated as of March 29, 2001) (incorporated by reference to Exhibit 4.18 to the Form 10-K for the year ended December 31, 2002 of Terex Corporation, Commission File No. 1-10702). 4.4 Third Supplemental Indenture, dated as of March 31, 2003, between Terex Corporation and Bank of New York (as successor to United States Trust Company of New York), as Trustee (to Indenture dated as of March 29, 2001) (incorporated by reference to Exhibit 4.21 to the Form 10-Q for the quarter ended March 31, 2003 of Terex Corporation, Commission File No. 1-10702). 4.5 Fourth Supplemental Indenture, dated as of November 25, 2003, among Terex Corporation, the Subsidiary Guarantors named therein and The Bank of New York (as successor to United States Trust Company of New York), as Trustee (to Indenture dated as of March 29, 2001).* 4.6 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). 4.7 First Supplemental Indenture, dated as of September 30, 2002, between Terex Corporation and Bank of New York (as successor trustee to United States Trust Company of New York), as Trustee (to Indenture dated as of December 17, 2001) (incorporated by reference to Exhibit 4.20 to the Form 10-K for the year ended December 31, 2002 of Terex Corporation, Commission File No. 1-10702). 4.8 Second Supplemental Indenture, dated as of March 31, 2003, between Terex Corporation and Bank of New York (as successor to United States Trust Company of New York), as Trustee (to Indenture dated as of December 17, 2001) (incorporated by reference to Exhibit 4.24 to the Form 10-Q for the quarter ended March 31, 2003 of Terex Corporation, Commission File No. 1-10702). 4.9 Third Supplemental Indenture, dated as of November 25, 2003, among Terex Corporation, the Subsidiary Guarantors named therein and The Bank of New York (as successor to United States Trust Company of New York), as Trustee (to Indenture dated as of December 17, 2001).* 4.10 Indenture, dated as of November 25, 2003, between Terex Corporation, the Guarantors named therein and HSBC Bank USA, as Trustee (incorporated by reference to Exhibit 4.10 to Form S-4 Registration Statement of Terex Corporation, Registration No. 333-112097). 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). E-1 10.3 Terex Corporation Employee Stock Purchase Plan, as amended.* 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 (incorporated by reference to Exhibit 10.8 to the Form 10-Q for the quarter ended June 30, 2002 of Terex Corporation, Commission File No. 1-10702). 10.9 Terex Corporation Supplemental Executive Retirement Plan, effective October 1, 2002 (incorporated by reference to Exhibit 10.9 to the Form 10-K for the year ended December 31, 2002 of Terex Corporation, Commission File No. 1-10702). 10.10 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 (incorporated by reference to Exhibit 10.9 to the Form 10-Q for the quarter ended June 30, 2002 of Terex Corporation, Commission File No. 1-10702). 10.11 Incremental Term Loan Assumption Agreement, dated as of September 13, 2002, relating to the Amended and Restated Credit Agreement dated as of July 3, 2002, among Terex Corporation, certain of its subsidiaries, the lenders party thereto and Credit Suisse First Boston, as administrative agent (incorporated by reference to Exhibit 2 of the Form 8-K Current Report, Commission File No. 1-10702, dated September 13, 2002 and filed with the Commission on September 20, 2002). 10.12 Amendment No. 1 and Agreement, dated as of November 25, 2003, to the 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 (incorporated by reference to Exhibit 10.12 to Form S-4 Registration Statement of Terex Corporation, Registration No. 333-112097). 10.13 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). 10.14 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). 10.15 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). 10.16 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). 10.17 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). 10.18 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). 10.19 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). 10.20 Agreement and Plan of Merger, dated July 19, 2002, among Terex E-2 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). 10.21 First Amendment to Agreement and Plan of Merger, dated as of September 18, 2002, by and among Terex Corporation, Magic Acquisition Corp., Genie Holdings, Inc. and Robert Wilkerson, S. Ward Bushnell and F. Roger Brown and certain limited partnerships (incorporated by reference to Exhibit 1 of the Form 8-K Current Report, Commission File No. 1-10702, dated September 13, 2002 and filed with the Commission on September 20, 2002). 10.22 Purchase Agreement, dated as of November 10, 2003, among Terex Corporation and the Initial Purchasers, as defined therein Agent (incorporated by reference to Exhibit 10.22 to Form S-4 Registration Statement of Terex Corporation, Registration No. 333-112097). 10.23 Registration Rights Agreement, dated as of November 25, 2003, among Terex Corporation and the Initial Purchasers, as defined therein (incorporated by reference to Exhibit 10.23 to Form S-4 Registration Statement of Terex Corporation, Registration No. 333-112097). 10.24 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). 10.25 Amended and Restated Promissory Note, dated October 26, 2001, by Ronald M. DeFeo in favor of Terex Corporation (incorporated by reference to Exhibit 10.32 to the Form 10-K for the year ended December 31, 2002 of Terex Corporation, Commission File No. 1-10702). 10.26 Pledge and Assignment Agreement dated as of March 2, 2000 between Ronald M. DeFeo and Terex Corporation (incorporated by reference to Exhibit 10.33 to the Form 10-K for the year ended December 31, 2002 of Terex Corporation, Commission File No. 1-10702). 10.27 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). 10.28 Form of Change in Control and Severance Agreement between Terex Corporation and certain executive officers (incorporated by reference to Exhibit 10.35 to the Form 10-K for the year ended December 31, 2002 of Terex Corporation, Commission File No. 1-10702). 10.29 Retirement Agreement dated as of November 13, 2003 between Terex Corporation and Filip Filipov (incorporated by reference to Exhibit 10.29 to Form S-4 Registration Statement of Terex Corporation, Registration No. 333-112097). 10.30 Consulting Agreement dated as of November 13, 2003 between Terex Corporation and Fiver S.A. (incorporated by reference to Exhibit 10.30 to Form S-4 Registration Statement of Terex Corporation, Registration No. 333-112097). 10.31 Termination, Severance, General Release and Waiver Agreement between Terex Corporation and Matthys de Beer dated as of February 1, 2004 (incorporated by reference to Exhibit 99.1 of the Form 8-K Current Report, Commission File No. 1-10702, dated February 1, 2004 and filed with the Commission on February 4, 2004). 12 Calculation of Ratio of Earnings to Fixed Charges. * 21.1 Subsidiaries of Terex Corporation.* 23.1 Consent of Independent Accountants - PricewaterhouseCoopers LLP, Stamford, Connecticut.* 24.1 Power of Attorney.* 31.1 Chief Executive Officer Certification pursuant to Rule 13a-14(a)/15d-14(a).* 31.2 Chief Financial Officer Certification pursuant to Rule 13a-14(a)/15d-14(a).* 32 Chief Executive Officer and Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes -Oxley Act of 2002. * * Exhibit filed with this document. E-3 EX-4 3 exh4-5.txt EXH 4.5 - 4TH SUPP INDENDUTURE DATED 11/25/03 ============================================================================ TEREX CORPORATION, as Issuer THE SUBSIDIARY GUARANTORS NAMED HEREIN, as Subsidiary Guarantors and THE BANK OF NEW YORK, (as successor trustee to United States Trust Company of New York) --------------------------------- FOURTH SUPPLEMENTAL INDENTURE Dated as of November 25, 2003 -------------------------------- ============================================================================ FOURTH SUPPLEMENTAL INDENTURE FOURTH SUPPLEMENTAL INDENTURE, dated as of November 25, 2003, among TEREX CORPORATION, a Delaware corporation (the "Company"), the Subsidiary Guarantors listed on the signature pages hereto and THE BANK OF NEW YORK (AS SUCCESSOR TRUSTEE TO UNITED STATES TRUST COMPANY OF NEW YORK), a New York corporation, as trustee (the "Trustee"). WHEREAS, the Company, and Terex Cranes, Inc., Koehring Cranes, Inc., PPM Cranes, Inc., Payhauler Corp., Terex-Telelect Inc., Terex Aerials, Inc., Terex-Ro Corporation, Terex Mining Equipment, Inc. and The American Crane Corporation, as guarantors (collectively, the "Original Guarantors"), and the Trustee are parties to an Indenture, dated as of March 29, 2001, as amended by First Supplemental Indenture dated as of October 1, 2001 as amended by Second Supplemental Indenture dated as of September 30, 2002 and as further amended by Third Supplemental Indenture dated as of March 31, 2003 (said Indenture, as it may heretofore or hereafter from time to time be amended, the "Indenture") providing for the issuance of the Company's 10-3/8% Senior Subordinated Notes due 2011 (the "Notes"); WHEREAS, the Company has acquired all of the outstanding capital stock of Terex Financial Services, Inc., Terex Utilities South, Inc. and Spinnaker Insurance Company (collectively referred to as the "New Guarantors" and individually as a "New Guarantor"); WHEREAS, pursuant to the terms of the Indenture, the New Guarantors have become Restricted Subsidiaries organized under the laws of the United States and, as such, the Company is required to cause the New Guarantors to execute and deliver a supplemental indenture and the Subsidiary Guarantee endorsed on the Notes; and WHEREAS, the Company, the Original Guarantors and the Trustee desire to amend the Indenture to add each of the New Guarantors as a Subsidiary Guarantor under the Indenture. NOW, THEREFORE, the Company, the Original Guarantors, the New Guarantors and the Trustee agree as follows for the equal and ratable benefit of the Holders of the Notes. Article 1 AMENDMENT TO THE INDENTURE Section 1.01 . Each New Guarantor shall hereby become a Subsidiary Guarantor under the Indenture effective as of the date hereof, and as such shall be entitled to all the benefits and be subject to all the obligations, of a Subsidiary Guarantor thereunder. Each New Guarantor agrees to be bound by all those provisions of the Indenture binding upon a Subsidiary Guarantor. Article 2 MISCELLANEOUS Section 2.01 . The supplement to the Indenture effected hereby shall be binding upon all Holders of the Notes, their transferees and assigns. All Notes issued and outstanding on the date hereof shall be deemed to incorporate by reference or include the supplement to the Indenture effected hereby. 2 Section 2.02 . All terms used in this Fourth Supplemental Indenture which are defined in the Indenture shall have the meanings specified in the Indenture, unless the context of this Fourth Supplemental Indenture otherwise requires. Section 2.03 . This Fourth Supplemental Indenture shall become a binding agreement between the parties when counterparts hereof shall have been executed and delivered by each of the parties hereto. Section 2.04 . This Fourth Supplemental Indenture shall be construed, interpreted and the rights of the parties determined in accordance with the laws of the State of New York, as applied to contracts made and performed within the State of New York, without regard to principles of conflicts of law. Section 2.05 . This Fourth Supplemental Indenture may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same amendment. Section 2.06 . The recitals contained in this Fourth Supplemental Indenture are made by the Company and not by the Trustee and all of the provisions contained in the Indenture, in respect of the rights, privileges, immunities, powers and duties of the Trustee shall be applicable in respect thereof as fully and with like effect as if set forth herein in full. IN WITNESS WHEREOF, the parties hereto have caused this Fourth Supplemental Indenture to be duly executed as of the date first above written. ATTEST: TEREX CORPORATION - ----------------------------- By:----------------------------- Jeffrey A. Gershowitz Name: Eric I Cohen Assistant Secretary Title: Senior Vice President THE BANK OF NEW YORK, AS SUCCESSOR TRUSTEE TO UNITED STATES TRUST ATTEST: COMPANY OF NEW YORK - ----------------------------- By:----------------------------- Name: Title: 3 (Signature Page to Fourth Supplemental Indenture) SUBSIDIARY GUARANTORS: KOEHRING CRANES, INC. By:_____________________ Name: Eric I Cohen Title: Vice President PAYHAULER CORP. By:_____________________ Name: Eric I Cohen Title: Vice President PPM CRANES, INC. By:_____________________ Name: Eric I Cohen Title: Vice President TEREX CRANES, INC. By:_____________________ Name: Eric I Cohen Title: Vice President TEREX MINING EQUIPMENT, INC. By:_____________________ Name: Eric I Cohen Title: Vice President 4 (Signature Page to Fourth Supplemental Indenture) TEREX-RO CORPORATION By:_____________________ Name: Eric I Cohen Title: Vice President TEREX-TELELECT, INC. By:_____________________ Name: Eric I Cohen Title: Vice President THE AMERICAN CRANE CORPORATION By:_____________________ Name: Eric I Cohen Title: Vice President O&K ORENSTEIN & KOPPEL, INC. By:_____________________ Name: Eric I Cohen Title: Vice President AMIDA INDUSTRIES, INC. By:_____________________ Name: Eric I Cohen Title: Vice President CEDARAPIDS, INC. By:_____________________ Name: Eric I Cohen Title: Vice President 5 (Signature Page to Fourth Supplemental Indenture) STANDARD HAVENS, INC. By:_____________________ Name: Eric I Cohen Title: Senior Vice President STANDARD HAVENS PRODUCTS, INC. By:_____________________ Name: Eric I Cohen Title: Vice President BL-PEGSON (USA), INC. By:_____________________ Name: Eric I Cohen Title: Vice President BENFORD AMERICA, INC. By:_____________________ Name: Eric I Cohen Title: Vice President COLEMAN ENGINEERING, INC. By:_____________________ Name: Eric I Cohen Title: Vice President EARTHKING, INC. By:_____________________ Name: Eric I Cohen Title: Secretary 6 (Signature Page to Fourth Supplemental Indenture) FINLAY HYDRASCREEN USA, INC. By:_____________________ Name: Eric I Cohen Title: Vice President POWERSCREEN HOLDINGS USA, INC. By:_____________________ Name: Eric I Cohen Title: Vice President POWERSCREEN INTERNATIONAL LLC by Powerscreen North America, Inc., its Managing Member By:_____________________ Name: Eric I Cohen Title: Vice President POWERSCREEN NORTH AMERICA, INC. By:_____________________ Name: Eric I Cohen Title: Vice President POWERSCREEN USA, LLC by Powerscreen Holding USA Inc., its Managing Member By:_____________________ Name: Eric I Cohen Title: Vice President ROYER INDUSTRIES, INC. By:_____________________ Name: Eric I Cohen Title: Secretary 7 (Signature Page to Fourth Supplemental Indenture) TEREX BARTELL, INC. By:_____________________ Name: Eric I Cohen Title: Vice President CMI TEREX CORPORATION By:_____________________ Name: Eric I Cohen Title: Vice President CMIOIL CORPORATION By:_____________________ Name: Eric I Cohen Title: Vice President PRODUCT SUPPORT, INC. By:_____________________ Name: Eric I Cohen Title: Vice President SCHAEFF INCORPORATED By:_____________________ Name: Eric I Cohen Title: Vice President FUCHS TEREX, INC. By:_____________________ Name: Eric I Cohen Title: Vice President TELELECT SOUTHEAST DISTRIBUTION,INC. By:_____________________ Name: Eric I Cohen Title: Vice President 8 (Signature Page to Fourth Supplemental Indenture) UTILITY EQUIPMENT, INC. By:_____________________ Name: Eric I Cohen Title: Vice President TEREX ADVANCE MIXER, INC. By:_____________________ Name: Eric I Cohen Title: Vice President TEREX UTILITIES, INC. By:_____________________ Name: Eric I Cohen Title: Vice President GENIE HOLDINGS, INC. By:_____________________ Name: Eric I Cohen Title: Vice President GENIE ACCESS SERVICES, INC. By:_____________________ Name: Eric I Cohen Title: Vice President GENIE INDUSTRIES, INC. By:_____________________ Name: Eric I Cohen Title: Vice President GENIE FINANCIAL SERVICES, INC. By:_____________________ Name: Eric I Cohen Title: Vice President 9 (Signature Page to Fourth Supplemental Indenture) GFS NATIONAL, INC. By:_____________________ Name: Eric I Cohen Title: Vice President GENIE MANUFACTURING, INC. By:_____________________ Name: Eric I Cohen Title: Vice President GENIE CHINA, INC. By:_____________________ Name: Eric I Cohen Title: Vice President GENIE INTERNATIONAL, INC. By:_____________________ Name: Eric I Cohen Title: Vice President LEASE SERVICING & FUNDING CORP. By:_____________________ Name: Eric I Cohen Title: Vice President GFS COMMERCIAL LLC by GFS National, Inc., its Managing Member By:_____________________ Name: Eric I Cohen Title: Vice President 10 (Signature Page to Fourth Supplemental Indenture) GO CREDIT CORPORATION By:_____________________ Name: Eric I Cohen Title: Vice President CMI DAKOTA COMPANY By:_____________________ Name: Eric I Cohen Title: Vice President TEREX FINANCIAL SERVICES, INC. By:_____________________ Name: Eric I Cohen Title: Vice President TEREX UTILITIES SOUTH, INC. By:_____________________ Name: Eric I Cohen Title: Vice President SPINNAKER INSURANCE COMPANY By:_____________________ Name: Eric I Cohen Title: Vice President 11 EX-4 4 exh4-9.txt EXH 4.9 - 3RD SUPPL INDENTURE DATED 11/25/03 ====================================================================== TEREX CORPORATION, as Issuer THE SUBSIDIARY GUARANTORS NAMED HEREIN, as Subsidiary Guarantors and THE BANK OF NEW YORK, (as successor trustee to United States Trust Company of New York) --------------------------------- THIRD SUPPLEMENTAL INDENTURE Dated as of November 25, 2003 -------------------------------- ====================================================================== THIRD SUPPLEMENTAL INDENTURE THIRD SUPPLEMENTAL INDENTURE, dated as of November 25, 2003, among TEREX CORPORATION, a Delaware corporation (the "Company"), the Subsidiary Guarantors listed on the signature pages hereto and THE BANK OF NEW YORK (AS SUCCESSOR TRUSTEE TO UNITED STATES TRUST COMPANY OF NEW YORK), a New York corporation, as trustee (the "Trustee"). WHEREAS, the Company, and Terex Cranes, Inc., Koehring Cranes, Inc., PPM Cranes, Inc., Payhauler Corp., Terex-Telelect Inc., Terex Aerials, Inc., Terex-Ro Corporation, Terex Mining Equipment, Inc., The American Crane Corporation and CMI Corporation, as guarantors (collectively, the "Original Guarantors"), and the Trustee are parties to an Indenture, dated as of December 17, 2001, as amended by First Supplemental Indenture dated as of September 30, 2002 and as further amended by Second Supplemental Indenture dated as of March 31, 2003 (said Indenture, as it may heretofore or hereafter from time to time be amended, the "Indenture") providing for the issuance of the Company's 9-1/4% Senior Subordinated Notes due 2011 (the "Notes"); WHEREAS, the Company has acquired all of the outstanding capital stock of Terex Financial Services, Inc., Terex Utilities South, Inc. and Spinnaker Insurance Company (collectively referred to as the "New Guarantors" and individually as a "New Guarantor"); WHEREAS, pursuant to the terms of the Indenture, the New Guarantors have become Restricted Subsidiaries organized under the laws of the United States and, as such, the Company is required to cause the New Guarantors to execute and deliver a supplemental indenture and the Subsidiary Guarantee endorsed on the Notes; and WHEREAS, the Company, the Original Guarantors and the Trustee desire to amend the Indenture to add each of the New Guarantors as a Subsidiary Guarantor under the Indenture. NOW, THEREFORE, the Company, the Original Guarantors, the New Guarantors and the Trustee agree as follows for the equal and ratable benefit of the Holders of the Notes. ARTICLE 1. AMENDMENT TO THE INDENTURE Section 1.01. Each New Guarantor shall hereby become a Subsidiary Guarantor under the Indenture effective as of the date hereof, and as such shall be entitled to all the benefits and be subject to all the obligations, of a Subsidiary Guarantor thereunder. Each New Guarantor agrees to be bound by all those provisions of the Indenture binding upon a Subsidiary Guarantor. ARTICLE 2. MISCELLANEOUS Section 2.01. The supplement to the Indenture effected hereby shall be binding upon all Holders of the Notes, their transferees and assigns. All Notes issued and outstanding on the date hereof shall be deemed to incorporate by reference or include the supplement to the Indenture effected hereby. 2 Section 2.02. All terms used in this Third Supplemental Indenture which are defined in the Indenture shall have the meanings specified in the Indenture, unless the context of this Third Supplemental Indenture otherwise requires. Section 2.03. This Third Supplemental Indenture shall become a binding agreement between the parties when counterparts hereof shall have been executed and delivered by each of the parties hereto. Section 2.04. This Third Supplemental Indenture shall be construed, interpreted and the rights of the parties determined in accordance with the laws of the State of New York, as applied to contracts made and performed within the State of New York, without regard to principles of conflicts of law. Section 2.05. This Third Supplemental Indenture may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same amendment. Section 2.06. The recitals contained in this Third Supplemental Indenture are made by the Company and not by the Trustee and all of the provisions contained in the Indenture, in respect of the rights, privileges, immunities, powers and duties of the Trustee shall be applicable in respect thereof as fully and with like effect as if set forth herein in full. IN WITNESS WHEREOF, the parties hereto have caused this Third Supplemental Indenture to be duly executed as of the date first above written. ATTEST: TEREX CORPORATION _____________________ By: --------------------- Jeffrey A. Gershowitz Name: Eric I Cohen Assistant Secretary Title: Senior Vice President THE BANK OF NEW YORK, AS SUCCESSOR TRUSTEE TO UNITED STATES TRUST ATTEST: COMPANY OF NEW YORK _____________________ By: ------------------- Name: Title: 3 (Signature Page to Third Supplemental Indenture) SUBSIDIARY GUARANTORS: KOEHRING CRANES, INC. By:___________________________ Name: Eric I Cohen Title: Vice President PAYHAULER CORP. By:___________________________ Name: Eric I Cohen Title: Vice President PPM CRANES, INC. By:___________________________ Name: Eric I Cohen Title: Vice President TEREX CRANES, INC. By:___________________________ Name: Eric I Cohen Title: Vice President TEREX MINING EQUIPMENT, INC. By:___________________________ Name: Eric I Cohen Title: Vice President 4 (Signature Page to Third Supplemental Indenture) TEREX-RO CORPORATION By:___________________________ Name: Eric I Cohen Title: Vice President TEREX-TELELECT, INC. By:___________________________ Name: Eric I Cohen Title: Vice President THE AMERICAN CRANE CORPORATION By:___________________________ Name: Eric I Cohen Title: Vice President O&K ORENSTEIN & KOPPEL, INC. By:___________________________ Name: Eric I Cohen Title: Vice President AMIDA INDUSTRIES, INC. By:___________________________ Name: Eric I Cohen Title: Vice President 5 (Signature Page to Third Supplemental Indenture) CEDARAPIDS, INC. By:___________________________ Name: Eric I Cohen Title: Vice President STANDARD HAVENS, INC. By:___________________________ Name: Eric I Cohen Title: Senior Vice President STANDARD HAVENS PRODUCTS, INC. By:___________________________ Name: Eric I Cohen Title: Vice President BL-PEGSON (USA), INC. By:___________________________ Name: Eric I Cohen Title: Vice President BENFORD AMERICA, INC. By:___________________________ Name: Eric I Cohen Title: Vice President 6 (Signature Page to Third Supplemental Indenture) COLEMAN ENGINEERING, INC. By:___________________________ Name: Eric I Cohen Title: Vice President EARTHKING, INC. By:___________________________ Name: Eric I Cohen Title: Secretary FINLAY HYDRASCREEN USA, INC. By:___________________________ Name: Eric I Cohen Title: Vice President POWERSCREEN HOLDINGS USA, INC. By:___________________________ Name: Eric I Cohen Title: Vice President POWERSCREEN INTERNATIONAL LLC by Powerscreen North America, Inc., its Managing Member By:___________________________ Name: Eric I Cohen Title: Vice President 7 (Signature Page to Third Supplemental Indenture) POWERSCREEN NORTH AMERICA, INC. By:___________________________ Name: Eric I Cohen Title: Vice President POWERSCREEN USA, LLC by Powerscreen Holding USA Inc., its Managing Member By:___________________________ Name: Eric I Cohen Title: Vice President ROYER INDUSTRIES, INC. By:___________________________ Name: Eric I Cohen Title: Secretary TEREX BARTELL, INC. By:___________________________ Name: Eric I Cohen Title: Vice President CMI TEREX CORPORATION By:___________________________ Name: Eric I Cohen Title: Vice President CMIOIL CORPORATION By:___________________________ Name: Eric I Cohen Title: Vice President 8 (Signature Page to Third Supplemental Indenture) PRODUCT SUPPORT, INC. By:___________________________ Name: Eric I Cohen Title: Vice President SCHAEFF, INCORPORATED By:___________________________ Name: Eric I Cohen Title: Vice President FUCHS TEREX, INC. By:___________________________ Name: Eric I Cohen Title: Vice President TELELECT SOUTHEAST DISTRIBUTION, INC. By:___________________________ Name: Eric I Cohen Title: Vice President UTILITY EQUIPMENT, INC. By:___________________________ Name: Eric I Cohen Title: Vice President TEREX ADVANCE MIXER, INC. By:___________________________ Name: Eric I Cohen Title: Vice President TEREX UTILITIES, INC. By:___________________________ Name: Eric I Cohen Title: Vice President 9 (Signature Page to Third Supplemental Indenture) GENIE HOLDINGS, INC. By:___________________________ Name: Eric I Cohen Title: Vice President GENIE ACCESS SERVICES, INC. By:___________________________ Name: Eric I Cohen Title: Vice President GENIE INDUSTRIES, INC. By:___________________________ Name: Eric I Cohen Title: Vice President GENIE FINANCIAL SERVICES, INC. By:___________________________ Name: Eric I Cohen Title: Vice President GFS NATIONAL, INC. By:___________________________ Name: Eric I Cohen Title: Vice President GENIE MANUFACTURING, INC. By:___________________________ Name: Eric I Cohen Title: Vice President GENIE CHINA, INC. By:___________________________ Name: Eric I Cohen Title: Vice President 10 (Signature Page to Third Supplemental Indenture) GENIE INTERNATIONAL, INC. By:___________________________ Name: Eric I Cohen Title: Vice President LEASE SERVICING & FUNDING CORP. By:___________________________ Name: Eric I Cohen Title: Vice President GFS COMMERCIAL LLC by GFS National, Inc., its Managing Member By:___________________________ Name: Eric I Cohen Title: Vice President GO CREDIT CORPORATION By:___________________________ Name: Eric I Cohen Title: Vice President CMI DAKOTA COMPANY By:___________________________ Name: Eric I Cohen Title: Vice President TEREX FINANCIAL SERVICES, INC. By:___________________________ Name: Eric I Cohen Title: Vice President 11 TEREX UTILITIES SOUTH, INC. By:___________________________ Name: Eric I Cohen Title: Vice President SPINNAKER INSURANCE COMPANY By:___________________________ Name: Eric I Cohen Title: Vice President 12 EX-10 5 exh10-3.txt EXH 10.3 - EMPL STOCK PURCH PLAN - AMENDED TEREX CORPORATION EMPLOYEE STOCK PURCHASE PLAN As Amended and Restated Effective January 1, 2004 TEREX CORPORATION EMPLOYEE STOCK PURCHASE PLAN Table of Contents ----------------- Page ---- Section 1. PURPOSE........................................................1 Section 2. TERM OF THE PLAN...............................................1 Section 3. ELIGIBLE EMPLOYEES.............................................1 Section 4. PARTICIPATION..................................................1 Section 5. HOLDING PERIOD.................................................4 Section 6. COMPANY CONTRIBUTIONS/DISCOUNTS................................4 Section 7. PARTICIPANTS' ACCOUNTS.........................................4 Section 8. PURCHASE OF THE COMPANY'S COMMON STOCK.........................5 Section 9. DIVIDENDS......................................................7 Section 10. CHANGES IN SHARES OF THE COMPANY'S COMMON STOCK...............7 Section 11. EQUAL RIGHTS AND PRIVILEGES...................................8 Section 12. LIMITATIONS ON TRANSFER.......................................8 Section 13. ADMINISTRATION OF THE PLAN....................................8 Section 14. EXPENSES......................................................8 Section 15. DESIGNATION OF CUSTODIAN......................................9 Section 16. PURCHASE OF SHARES FOLLOWING TERMINATION OF PARTICIPATION.....9 Section 17. AMENDMENT OR TERMINATION OF PLAN.............................10 Section 18. RESPONSIBILITY...............................................11 Section 19. DEFINITIONS..................................................11 Account................................................................11 Administrative Committee...............................................11 Base Pay...............................................................11 Board..................................................................11 Company................................................................11 Custodian..............................................................12 Eligible Employee......................................................12 Outside Director.......................................................12 Participants...........................................................12 Plan...................................................................12 i TEREX CORPORATION EMPLOYEE STOCK PURCHASE PLAN Section 1. PURPOSE - --------- ------- The purpose of the Terex Corporation Employee Stock Purchase Plan (the "Plan") is to provide Eligible Employees and Outside Directors (the "Participants") of Terex Corporation (the "Company") a means to purchase shares of the common stock of the Company on favorable terms, based upon a determination by the Administrative Committee that ownership by Participants of the Company's common stock will provide them with investment opportunities and increase their interest in the welfare of the Company. Participants may purchase the Company's common stock under the Plan using the payroll-deducted investments method described in Section 4A or the strategic-timed investments method described in Section 4B. Section 2. TERM OF THE PLAN - --------- ---------------- The Plan became effective August 1, 1994. The Plan will terminate on the date as of which the Board votes to terminate the Plan. Section 3. ELIGIBLE EMPLOYEES - ---------- ------------------ All Eligible Employees of the Company, as defined in Section 19, may participate in the Plan. All Outside Directors are also eligible to participate in the Plan. Section 4. PARTICIPATION - ---------- ------------- A. Payroll-Deducted Investments. ----------------------------- 1. Automatic payroll deductions. Subject to the limitations of subsection 2 below, any Eligible Employee may begin to make payroll-deducted investments in the Company's common stock through automatic payroll deductions if he or she enrolls in the Plan and completes a payroll deduction election. Any enrollment or payroll deduction election (or payroll deduction election change) must be completed online through the Custodian's website, or by phone through the Custodian's customer service department. 1 2. Pay periods to which payroll deduction election, change, or revocation applies. The completion, change or revocation of any payroll deduction election (under subsections 1, 6, or 7, respectively) shall apply to each pay period that begins at least two weeks after the date the election is completed, changed, or revoked but, if it is not administratively possible for the payroll deduction election, change or revocation to apply on that date, the election, change, or revocation shall apply as soon as administratively possible thereafter. A payroll deduction election shall remain in effect until it is either changed or revoked. 3. Deduction of whole dollar amounts only. Any payroll deduction election that an Eligible Employee completes, under subsection 1 above, shall specify the whole dollar amount that will be deducted from his or her Base Pay each pay period and deposited into his or her Account under the Plan. 4. Minimum dollar amount of payroll deductions per pay period. The minimum dollar amount that an Eligible Employee may contribute, by payroll deduction, to his or her Account under the Plan for each pay period shall be the amount that the Company specifies, in its sole discretion, from time to time during the term of the Plan. 5. Maximum dollar amount of Participant contributions per calendar year. The maximum total dollar amount that an Eligible Employee may contribute to his or her Account under the Plan for any calendar year through automatic payroll deductions shall be the amount that the Company specifies, in its sole discretion, from time to time during the term of the Plan. 6. Change of payroll deduction election. Any Eligible Employee who has elected, under subsection 1 above, to make payroll deduction contributions to his or her Account under the Plan may change the rate of his or her payroll deduction contributions (subject to the limitations in subsections 2 through 5 above) at any time during the 2 calendar year by completing a new payroll deduction election. The change shall remain in effect until it is either further changed (pursuant to this subsection) or revoked, under subsection 7 below. 7. Revocation of payroll deduction election. Any Eligible Employee who has elected, under subsection 1 above, to make payroll deduction contributions to his or her Account under the Plan may revoke his or her payroll deduction election at any time during the calendar year (subject to the limitations of subsection 2). Any Eligible Employee who revokes his or her payroll deduction election, under this subsection 7, may enter into a new payroll deduction election at any subsequent time, in accordance with subsections 1 and 2 above. 8. Suspension of payroll deductions if Base Pay for any pay period is insufficient. If an Eligible Employee's Base Pay for any pay period to which a payroll deduction election applies is less than his or her payroll deduction amount for that period, the deduction for that period will not be taken, and, if necessary, deduction(s) for any future pay period(s) to which such payroll deduction election would otherwise apply will be suspended until the first pay period for which the Eligible Employee's Base Pay equals or exceeds the payroll deduction amount he or she had elected. B. Strategic-Timed Investments. Any Participant may make strategic-timed investments in the Company's common stock under the Plan, either in addition to or in lieu of any payroll-deducted investments he or she makes in such stock under subsection A above. An Eligible Employee or Outside Director may make strategic-timed investments at any time during the calendar year in at least the minimum dollar amount that the Company specifies, in its sole discretion, from time to time during the term of the Plan, by purchasing shares of the Company's common stock through the Custodian designated by the Company. Shares of the Company's common stock that a Participant purchases through strategic-timed investments, pursuant to this subsection B, as well as any such shares that he or she purchases 3 through payroll deduction contributions, under subsection A above, shall be credited to his or her Account under the Plan in the manner described in Section 7 below. Section 5. HOLDING PERIOD - ---------- -------------- If any share purchased by a Participant is not held for a period of at least six (6) months before it is sold, the Participant's ability to make payroll deduction contributions under subsection A above will be suspended for a period of three (3) months. No Company contributions or cash discounts described in Section 6 below will be made for such Participant during this three-month suspension period. In addition, the Company will not reimburse any brokerage account fees related to a strategic-timed investment under the Plan by the Participant during this suspension period. Section 6. COMPANY CONTRIBUTIONS/DISCOUNTS - ---------- ------------------------------- The Company may, in its sole discretion, make Company contributions or cash discounts to the Accounts of Participants who contribute to their Accounts under Section 4A or 4B above, or it may pay a cash discount directly to such Participants. The Company shall determine, in its sole discretion, the amount of any such Company contribution or discount. Any contribution that the Company makes to the Account of any such Participant shall be credited to his or her Account under Section 7A below and shall be applied to the purchase of shares of the Company's common stock under Section 8 below, and any cash discount shall be paid directly to the Participant. Section 7. PARTICIPANTS' ACCOUNTS - ---------- ---------------------- A. Establishment of Account. An Account will be established for each Participant who makes contributions under Section 4A or 4B above. The Participant's Account will be credited with (1) the contributions he or she makes under Section 4A or 4B above, (2) any contributions that the Company makes on his or her behalf under Section 6 above, and (3) the shares of the 4 Company's common stock that are purchased with his or her and the Company's contributions under Section 8 below. No interest shall be credited to the contributions that are held in any such Account for the period of time between the date they are credited to the Account and the date they are applied to the purchase of such shares. B. Account Statements. Each Participant who makes contributions under the Plan will receive periodic Account statements from the Custodian in such form as may be agreed upon by the Company and the Custodian; provided, however, that the Custodian shall furnish an Account statement to each such Participant no less frequently than semi-annually. Section 8. PURCHASE OF THE COMPANY'S COMMON STOCK - --------- -------------------------------------- A. Time of purchase. 1. Under the Payroll-Deducted Investments Method. Any contribution that a Participant makes to his or her Account under the payroll-deducted investments method for a payroll period dated between the first and fifteenth day of a calendar month, plus any contribution that the Company makes with respect to the Participant's contribution for that period under Section 6 above, shall be applied to the purchase of shares of the Company's common stock on the business day that is closest to the last day of that month or as soon as administratively possible thereafter. Any Participant contribution (and any accompanying Company contribution) that is made for a payroll period dated between the sixteenth and last day of a calendar month shall be applied to the purchase of shares of Company stock on the business day that is closest to the fifteenth day of the following month or as soon as administratively possible thereafter. 2. Strategic-Timed Investments Method. Any strategic-timed investment that a Participant makes shall be applied to the purchase of shares of the Company's common stock in accordance with rules set forth by the Custodian. Company contributions with respect to 5 strategic-timed investments shall be made as soon as administratively possible following the Company's receipt from the Participant of proof that the strategic-timed investment was made; provided, however, that the Company contribution will not be made any earlier than the last day of the payroll period which includes the day on which the Company receives proof that the strategic-timed investment was made. B. Purchase Price of the Company's Common Stock. The purchase price that shall be paid, under subsection A above, for each share of the Company's common stock that is purchased under this Plan on behalf of any Participant shall be the price per share actually paid for the shares on the New York Stock Exchange. The Company may also satisfy its obligations under the Plan through the issuance of additional shares of Company common stock. C. Stock Credited to Participant's Account. The shares of the Company's common stock that are purchased under subsection A above on behalf of any Participant shall be credited to his or her Account under the Plan as soon as administratively possible after the date the shares have been purchased. As soon as such shares have been credited to the Participant's Account, he or she shall have all of the rights and privileges afforded to any other holder of the Company's common stock. D. Issuance of Stock Certificates. A stock certificate will not be issued automatically to a Participant after shares of the Company's common stock have been credited to his or her Account under subsection C above. However, the Participant may ask the Custodian to issue a stock certificate representing any or all of the shares then credited to his or her Account. Any such request must be directed to the Custodian or its agent(s). The Custodian or its agent(s) shall issue a stock certificate to the Participant promptly after it receives his or her request. Any such stock certificate shall be issued to the Participant in his or her own name; provided, however, that if the Participant is married, the 6 stock certificate may be issued jointly to the Participant and his or her spouse, either as joint tenants with the right of survivorship or as tenants in common, as the Participant may elect. If the Participant has not secured a stock certificate from the Custodian and the Participant wishes to sell any shares of the Company's common stock from his or her Account through the Custodian or its agent(s), he or she will not be required to secure a stock certificate from the Custodian for the sale to be executed. However, if the sale is to be executed by person(s) other than the Custodian or its agent(s), or if the Participant has already secured a stock certificate from the Custodian for shares of the Company's common stock, then the Participant must produce the stock certificate for the sale of those shares to be executed. Section 9. DIVIDENDS - --------- --------- Dividends that the Company declares on shares of its common stock will be credited to each Participant's Account in proportion to the number of whole and fractional shares of such stock that are credited to the Participant's Account on the record date for the payment of such dividends. If the Participant elects to reinvest the dividends in shares of Company stock, the Custodian shall reinvest such dividends as soon as administratively possible after the Custodian receives the election at the price per share then prevailing on the New York Stock Exchange. Section 10. CHANGES IN SHARES OF THE COMPANY'S COMMON STOCK - ---------- ----------------------------------------------- If the shares of the Company's common stock are subdivided or combined or if the Company declares a stock dividend, the maximum number of shares of the Company's common stock which may thereafter be purchased under the Plan will be proportionately increased or decreased, as the case may be, the terms relating to the price at which such shares may be purchased and the amount of contributions necessary to purchase them will be adjusted appropriately, and such other action(s) will be taken as the Administrative Committee determines to be necessary or appropriate under the circumstances. 7 Section 11. EQUAL RIGHTS AND PRIVILEGES - ---------- --------------------------- All Participants who have purchased shares of the Company's common stock under this Plan shall have the same rights and privileges as any other holder of such shares. Section 12. LIMITATIONS ON TRANSFER - ---------- ----------------------- The right granted to any Participant under this Plan to purchase shares of the Company's common stock is not transferable by such individual other than by will or the laws of descent and distribution, and during the Participant's lifetime, the right to purchase shares of the Company's common stock under this Plan shall be exercisable only by him or her. Section 13. ADMINISTRATION OF THE PLAN - ---------- -------------------------- This Plan shall be administered by the Administrative Committee, which shall consist of at least three (3) persons from time to time appointed by the Board and serving at the pleasure of the Board. Any vacancies on the Administrative Committee, whether caused by death, resignation, removal or other reason, shall be promptly filled by the Board, but shall not affect the Administrative Committee's authority to act hereunder pending such Board action. The Administrative Committee may appoint such agent(s) as it deems necessary or appropriate to assist it with the operation and administration of the Plan. Section 14. EXPENSES - ---------- -------- The Company shall pay all of the Custodian's fees, and all of the administrative costs associated with a Participant's payroll-deducted investment. With respect to a Participant's strategic-timed investment, the Company may reimburse the Participant's Account for a portion of the brokerage expenses incurred in connection with the broker-dealer's purchase (but not the sale) of shares of the Company's common stock, but only if the Participant provides the Company with evidence of the strategic-timed investment. The amount of the reimbursement, if any, shall be determined pursuant to such guidelines as 8 the Company may establish from time to time. Section 15. DESIGNATION OF CUSTODIAN - ---------- ------------------------ Subject to its right to terminate the designation at any time, the Company has designated the Custodian as the custodian, recordkeeper and transfer agent for purposes of this Plan. The Company shall also designate the broker-dealer selected for administration of the strategic-timed investments, under Section 4B above. The terms and conditions of the parties' relationship for this purpose shall be set forth in a separate written agreement between them. Section 16. PURCHASE OF SHARES FOLLOWING TERMINATION OF PARTICIPATION - ---------- --------------------------------------------------------- If a Participant terminates his or her participation under this Plan, either by ceasing to make contributions to his or her Account under the Plan, under Section 4 above, or by terminating his employment or service as an Outside Director, as applicable, with the Company for any reason (including death), or resigning as a member of the Board of Directors for any reason (including death), then any contributions that are held in his or her Account as of the effective date of such termination of participation will be applied to the purchase of shares of the Company's common stock. If the termination of participation occurs between the first and fifteenth day of a calendar month, then the remaining contributions in the Participant's Account will be applied to the purchase of shares of the Company's common stock on the business day that is closest to the last day of that month or as soon as administratively possible thereafter. If the termination of participation occurs between the sixteenth and the last day of a calendar month, the remaining contributions in the Participant's Account shall be applied to the purchase of shares of Company stock on the business day that is closest to the fifteenth day of the following month or as soon as administratively possible thereafter. 9 Section 17. AMENDMENT OR TERMINATION OF PLAN - ---------- -------------------------------- A. Amendment. The Company reserves the power at any time to amend this Plan through action of its Board; provided, however, that the Company shall not have the power to amend the Plan in any manner that would increase the duties or liabilities of the Custodian or affect its fees for services required under the Plan unless the Custodian consents thereto in writing. B. Termination. This Plan shall continue in effect until it terminates pursuant to Section 2 above. C. Additional Purchases of Shares and Issuance of Stock Certificates Upon Plan Termination. If the Plan is terminated for any reason, then: 1. a. if the Plan is terminated between the first and fifteenth day of a calendar month, any contributions that are held in any Participant's Account as of the effective date of the Plan's termination will be applied to the purchase of shares of the Company's common stock on or before the business day that is closest to the last day of that month or as soon as administratively possible thereafter; and b. if the Plan is terminated between the fifteenth and last day of a calendar month, any contributions that are held in any Participant's Account as of the effective date of the Plan's termination will be applied to the purchase of shares of the Company's common stock on or before the business day that is closest to the fifteenth day of the following month, or as soon as administratively possible thereafter; and 2. the Participant shall have exclusive authority over his Account free of the rights and restrictions of this Plan. 10 Section 18. RESPONSIBILITY - ----------- -------------- Neither the Company, any member of the Board or Administrative Committee, the Custodian nor any broker through whom purchases or sales of stock are executed pursuant to this Plan shall have any responsibility or liability other than liabilities arising under applicable federal or state securities laws for any act or omission to act, including, without limitation, any action taken with respect to the price, time, quantity, or other terms and conditions of the purchase of shares of the Company's common stock under the Plan. The Administrative Committee's determination as to any issue that may arise regarding the conduct or operation of the Plan shall be final. Section 19. DEFINITIONS - ----------- ----------- A. "Account" means the account established by the Company under Section 7A of the Plan on behalf of each Participant who makes contributions under Section 4. B. "Administrative Committee" means the Administrative Committee appointed by the Board to administer the Plan in accordance with Section 13. C. "Base Pay" means, with respect to each Eligible Employee and for each pay period, his or her regular compensation (including commissions) earned from the Company during such period, before any deductions or withholding of income or employment taxes and exclusive of (1) overtime pay, (2) bonuses, (3) expense reimbursements and (4) any other additional compensation. D. "Board" means the Board of Directors of the Company, as constituted from time to time. E. "Company" means Terex Corporation, a Delaware corporation, and any successor to all or a major portion of its assets or business which assumes the Company's obligations under this Plan. 11 F. "Custodian" means the entity serving as custodian of the Plan on December 31, 2003, or such other bank, trust company, or other financial institution, appointed by the Administrative Committee under Section 15, that is qualified, under applicable federal and state laws, including federal and state securities laws, to serve as the custodian, recordkeeper, and transfer agent of shares of the Company's common stock under this Plan. G. "Eligible Employee" means any individual who is actively employed by the Company, but excluding any employee of the Company (1) who is included in a collective bargaining unit unless the relevant collective bargaining agreement with that unit specifically provides that such unit's members shall be covered by the Plan, (2) who is a leased employee [as defined in Internal Revenue Code Section 414(n)(2)], or (3) whose employment has been classified as temporary by the Company. Any individual whom the Company determines is not an Eligible Employee shall not be treated as an Eligible Employee under the Plan solely because he or she has been classified or reclassified by any governmental entity as an employee of the Company. H. "Outside Director" means any individual who is actively serving as a member of the Board of Directors of the Company who is not also an employee of the Company. I. "Participants" shall mean Eligible Employees and Outside Directors. J. "Plan" means the Terex Corporation Employee Stock Purchase Plan, as set forth in this instrument and any amendments or supplements hereto. 12 EX-12 6 exh12.txt EXH 12 - CALC OF RATIO EARNINGS TO FIXED CHARGES EXHIBIT 12
TEREX CORPORATION CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES (amounts in millions) -------------------------------------------------------- Year Ended December 31, 2003 2002 2001 2000 1999 --------------------------------------------------------- Earnings Income (loss) from continuing operations before taxes and cumulative effect of change in accounting principle.............$ (35.3) $ (28.2) $ 18.9 $ 161.8 $ 98.4 Adjustments: Minority interest in losses of consolidated subsidiaries................ --- --- --- --- --- Undistributed (income) loss of less than 50% owned investments.................... --- --- --- --- --- Distributions from less than 50% owned investments.............................. --- --- --- --- --- Fixed charges.............................. 123.7 108.0 94.8 106.2 88.4 ---------- ---------- --------- ---------- ---------- Earnings..................................... 88.4 79.8 113.7 268.0 186.8 ---------- ---------- --------- ---------- ---------- Combined fixed charges, including preferred accretion Interest expense, including debt discount amortization............................... 99.9 92.9 86.7 99.8 82.8 Accretion of redeemable convertible preferred stock....................................... --- --- --- --- --- Amortization of debt issuance costs.......... 5.5 4.8 3.8 3.5 2.6 Portion of rental expense representative of interest factor (assumed to be 33%)........ 18.3 10.3 4.3 2.9 3.0 ---------- ---------- --------- ---------- ---------- Fixed charges................................$ 123.7 $ 108.0 $ 94.8 $ 106.2 $ 88.4 ---------- ---------- --------- ---------- ---------- Ratio of earnings to combined fixed charges.... ---(1) ---(1) 1.2x 2.5x 2.1x ========== ========== ========= ========== ========== Amount of earnings deficiency for coverage of combined fixed charges......................$ 35.3 $ 28.2 $ --- $ --- $ --- ========== ========== ========= ========== ==========
(1) Less than 1.0x EX-21 7 exh21-1.txt EXH 21.1 - SUBSIDIARIES OF TEREX CORP CONSOLIDATED SUBSIDIARIES OF TEREX CORPORATION Name of Subsidiary Jurisdiction of Incorporation The American Crane Corporation North Carolina American Truck Company LLC Delaware Amida Industries, Inc. South Carolina Atlas Terex GmbH Germany Atlas Terex UK Limited United Kingdom Atlas Weyhausen Norge A/S Norway Atlasquip Ltee. Canada BCP Construction Products, Inc. Delaware Benford America, Inc. Delaware Benford Limited United Kingdom BHS Baumaschinen Handelsund Service GmbH Germany BL - Pegson Limited United Kingdom BL - Pegson USA, Inc. Connecticut Brown Lenox & Co. Limited United Kingdom Bucyrus Construction Products, Inc. Delaware Cedarapids, Inc. Iowa Cliffmere Limited United Kingdom CMI Belgium NV Belgium CMI Dakota Company South Dakota CMIOIL Corporation Oklahoma CMI Terex Corporation Oklahoma CMI-Cifali Equipamentos, Ltda. Brazil CMP Limited United Kingdom Comet Coalification Limited United Kingdom Crookhall Coal Company Limited United Kingdom Demag Mobile Cranes AB/AB Grundstenen 95480 Sweden Demag Mobile Cranes Gepgyarto Kft. Hungary Demag Mobile Cranes Spain, S.A. Spain Demag Mobile Cranes Verwaltungsgesellschaft mbH Germany Demag Mobile Cranes, Inc. Delaware Dematic Japan Co., Ltd Japan Drion Constructie B.V. B.A. Belgium EarthKing, Inc. Delaware Energetika TATRA, a.s. Czech Republic Energy and Mineral Processing Limited Scotland Fairfield Insurance Limited N. Ireland Fermec Holding Ltd. United Kingdom Fermec International Ltd. United Kingdom Fermec Manufacturing Ltd. United Kingdom Fermec North America Ltd. United Kingdom Fermec S.A. France Fermec Trustees Ltd. United Kingdom Finlay (Site Handlers) Limited N. Ireland Finlay Block Machinery Limited N. Ireland Finlay Hydrascreen USA, Inc. Michigan Finlay Hydrascreens (Omagh) Limited N. Ireland Finlay Plant (UK) Ltd. United Kingdom Foray 827 Limited United Kingdom Fuchs Terex, Inc. Delaware Fuchs-Bagger GmbH & Co. KG Germany Fuchs-Bagger Verwaltungs GmbH Germany Fyne Limited United Kingdom 1 Fyne Machineries Limited United Kingdom Gatewood Engineers Limited United Kingdom Genie Access Services International Limited United Kingdom Genie Access Services, Inc. Washington Genie Australia Wholesale Pty. Ltd. Australia Genie Australia Pty. Ltd. Australia Genie Brasil LTDA Brazil Genie Cayman Holdings Cayman Islands Genie China, Inc. Washington Genie Financial Services Europe Limited United Kingdom Genie Financial Services, Inc. Washington Genie Financial Solutions, Inc. United Kingdom Genie France S.A.R.L. France Genie Germany GmbH Germany Genie Holdings, Inc. Washington Genie Industries Iberica, S.L. Spain Genie Industries, B.V. Netherlands Genie Industries, Inc. Washington Genie International Holdings, Ltd. United Kingdom Genie International, Inc. Washington Genie Korea Ltd. Korea Genie Lease Management LLC Delaware Genie Manufacturing, Inc. Washington Genie Portfolio Management LLC Delaware Genie UK Limited United Kingdom Gen-National Insurance Co. Ltd. Bermuda GFS Commercial LLC Washington GFS National, Inc. Washington Go Credit Corporation Washington Gru Comedil S.r.l. Italy Horsky Hotel TATRA, spol. s.r.o Czech Republic HFM Hohenloher Fahrzeuge-und Maschinenteile GmbH Germany IMACO Blackwood Hodge Group Limited United Kingdom IMACO Blackwood Hodge Limited United Kingdom IMACO Trading Limited United Kingdom Industrial Conveyor's Sdn Bhd Malaysia International Machinery Company Limited United Kingdom J.C. Abbott & Co. Ltd. United Kingdom Jaques (Singapore) Pte Ltd Singapore Jaques (Thailand) Limited Thailand Jaques International Holdings Pty. Ltd. Australia Jaques International Limited Hong Kong Jaques International Sdn Bhd Malaysia John Finlay (Engineering) Limited N. Ireland Keir & Cawder (Engineering) Limited Scotland Koehring Cranes, Inc. Delaware Kueken (UK) Ltd. United Kingdom Lease Servicing & Funding Corp. Washington Matbro (N.I.) Limited N. Ireland Metra Metaalwerken BVBA Belgium Moffett Iberica S.A. Spain New Terex Holdings UK Limited United Kingdom NGW Supplies Limited United Kingdom Nihon Genie K.K. Japan Nippon Schaeff K.K. Japan O & K Orenstein & Koppel (South Africa) Pty. Ltd. South Africa 2 O & K Orenstein & Koppel Inc. Canada O & K Orenstein & Koppel, Inc. Delaware O & K Orenstein & Koppel Limited United Kingdom Orenstein & Koppel Australia Pty Ltd. Australia P.P.M. S.A.S. France Payhauler Corp. Illinois Pegson Group Limited United Kingdom Potratz - Terex GmbH Germany Potratz Baumaschinen GmbH & Co. KG Germany Powerscreen (G.B.) Limited United Kingdom Powerscreen Holdings USA Inc. Delaware Powerscreen International (Canada) ULC Canada Powerscreen International (UK) Limited United Kingdom Powerscreen International Distribution Limited N. Ireland Powerscreen International Limited United Kingdom Powerscreen International LLC Delaware Powerscreen Limited Ireland Powerscreen Manufacturing Limited N. Ireland Powerscreen North America Inc. Delaware Powerscreen USA LLC Kentucky Powerscreen USC Inc. Delaware Powersizer Limited United Kingdom PPM Cranes, Inc. Delaware PPM Deutschland GmbH Terex Cranes Germany Precision Powertrain (UK) Limited United Kingdom Product Support, Inc. Oklahoma R&R Limited United Kingdom Rhaeader Colliery Co. Limited United Kingdom Royer Industries, Inc. Pennsylvania Schaeff & Co. United Kingdom Schaeff Ersatzteile-Service GmbH & Co. KG Germany Schaeff Ersatzteile Service Beteilgungs GmbH Germany Schaeff France SARL France Schaeff Gesellschaft fur Auslandsbeteiligungen GmbH Germany Schaeff Grundbesitz GmbH & Co. Gbr Germany Schaeff Holding GmbH & Co. KG Germany Schaeff Holding Verwaltungs GmbH Germany Schaeff Komponenten Beteiligungs GmbH Germany Schaeff Komponenten GmbH & Co. KG Germany Schaeff Limited United Kingdom Schaeff Machinery (Shanghai) Co., Ltd. China Schaeff of North America, Inc. Delaware Schaeff Service Limited United Kingdom Schaeff Incorporated Iowa Schaeff-Terex Beteiligungs-GmbH Germany Schaeff-Terex GmbH & Co. KG Germany Sempurna Enterprise (Malaysia) Sdn Bhd Malaysia Simplicity Material Handling, Ltd. Canada Sim-Tech Management Limited Hong Kong Spinnaker Insurance Company Vermont Standard Havens Products, Inc. Delaware Standard Havens, Inc. Delaware Sure Equipment (Sales) Limited United Kingdom Sure Equipment (Scotland) Limited United Kingdom Sure Equipment (Southern) Limited United Kingdom Sure Equipment Group Limited United Kingdom Tafonco a.s. Czech Republic 3 Taforge a.s. Czech Republic Tatra, a.s. Czech Republic Tatra ND, spol. s.r.o v likvidaci Czech Republic Tatrarest, spol. s.r.o Czech Republic Tatra Slovensko, Spol. s.r.o Slovakia Tatra Udyog Ltd India Tatra USA Inc. Delaware Tawesco s.r.o Czech Republic Telelect Canada, Ltd. Canada Terex Advance Mixer, Inc. Delaware Terex Aerials Limited Ireland Terex Aerials, Inc. Wisconsin Terex Asia Mauritius Terex Australia Pty. Ltd. Australia Terex Aviation Ground Equipment, Inc. Delaware Terex Bartell, Inc. Delaware Terex Bartell, Ltd. Canada Terex Cranes (Australia) Pty. Ltd. Australia Terex Cranes (UK) Ltd. United Kingdom Terex Cranes, Inc. Delaware Terex Czech s.r.o. Czech Republic Terex-Demag GmbH & Co. KG Germany Terex-Demag Limited United Kingdom Terex Demag S.A.S. France Terex Equipment & Machinery Espana S.L.U. Spain Terex Equipment Limited United Kingdom Terex European Holdings B.V. The Netherlands Terex Financial Services, Inc. Delaware Terex Germany GmbH & Co. K.G. Germany Terex International Financial Services Company N. Ireland Terex Italia S.r.l. Italy Terex Lifting Australia Pty. Ltd. Australia Terex Lifting U.K. Limited United Kingdom Terex Mining (Botswana) (Pty) Ltd. Botswana Terex Mining Australia Pty. Ltd. Australia Terex Mining Equipment, Inc. Delaware Terex Netherlands Holdings B.V. The Netherlands Terex Utilities Canada, Inc. Canada Terex Peiner GmbH Germany Terex Real Property, Inc. Pennsylvania Terex (Tianjin) Co., Ltd. China Terex UK Limited United Kingdom Terex Utilities, Inc. Delaware Terex Utilities South, Inc. Delaware Terex Verwaltungs GmbH Germany TerexLift S.r.l. Italy Terex-RO Corporation Kansas Terex-Telelect, Inc. Delaware Unit Rig (Canada) Ltd. Delaware Unit Rig (South Africa) Pty. Ltd. South Africa Utility Equipment, Inc. Oregon Webster Schaeff & Co. United Kingdom Domestic Companies: 56 Foreign Companies: 159 Total: 215 4 EX-23 8 exh23-1.txt EXH 23.1 - CONSENT OF INDEPENDANT ACCOUNTANTS Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 33-21483, 33-65255, 333-00949, 333-03983, 333-82751, 333-37262, 333-88510 and 333-70856) and on Form S-3 (Nos. 333-74840, 333-52933 33-52297, 333-108985 and 333-100299) of Terex Corporation of our report dated March 5, 2004 relating to the financial statements and financial statement schedule, listed in the index which appears on page F-1 of this Form 10-K. PricewaterhouseCoopers LLP Stamford, Connecticut March 12, 2004 EX-24 9 exh24-1.txt EXH 24.1 POWER OF ATTORNEY Exhibit 24.1 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears below hereby constitutes and appoints Ronald M. DeFeo and Eric I Cohen, or either of them, as his true and lawful attorneys-in-fact and agents with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Terex Corporation Annual Report on Form 10-K for the year ended December 31, 2003 (including, without limitation, amendments), and to file the same with all exhibits thereto, and all document in connection therewith, with the Securities and Exchange Commission, granting said attorney-in-fact and agent, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Signature Title Date - --------- ----- ---- /s/ Ronald M. DeFeo Chairman, Chief Executive Officer Ronald M. DeFeo and Director March 15, 2004 (Principal Executive Officer) /s/ Phillip C. Widman Senior Vice President - Phillip C. Widman Chief Financial Officer March 15, 2004 (Principal Financial Officer) /s/ Mark T. Cohen Vice President and Controller March 15, 2004 Mark T. Cohen (Principal Accounting Officer) /s/ G. Chris Andersen Director March 15, 2004 G. Chris Andersen /s/ Don DeFosset Director March 15, 2004 Don DeFosset /s/ William H. Fike Director March 15, 2004 William H. Fike /s/ Donald P. Jacobs Director March 15, 2004 Donald P. Jacobs /s/ David A. Sachs Director March 15, 2004 David A. Sachs /s/ J. C. Watts, Jr. Director March 15, 2004 J. C. Watts, Jr. /s/ Helge H. Wehmeier Director March 15, 2004 Helge H. Wehmeier EX-31 10 exh31-1.txt EXH 31.1 CERTIFICATION - CEO Exhibit 31.1 CERTIFICATION I, Ronald M. DeFeo, Chairman, President and Chief Executive Officer of Terex Corporation, certify that: 1. I have reviewed this report on Form 10-K of Terex Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 15, 2004 /s/ Ronald M. DeFeo Ronald M. DeFeo Chairman, President and Chief Executive Officer EX-31 11 exh31-2.txt EXH 31.2 CERTIFICATION CFO Exhibit 31.2 CERTIFICATION I, Phillip C. Widman, Senior Vice President and Chief Financial Officer of Terex Corporation, certify that: 1. I have reviewed this report on Form 10-K of Terex Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 15, 2004 /s/ Phillip C. Widman Phillip C. Widman Senior Vice President and Chief Financial Officer EX-32 12 exh32.txt EXH 32 - CERTIFICATION CEO & CFO Exhibit 32 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the annual report of Terex Corporation (the "Company") on Form 10-K for the period ended December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), we, Ronald M. DeFeo, Chairman, President and Chief Executive Officer of the Company, and Phillip C. Widman, Senior Vice President and Chief Financial Officer of the Company, certify, to the best of our knowledge, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Ronald M. DeFeo Ronald M. DeFeo Chairman, President and Chief Executive Officer Terex Corporation March 15, 2004 /s/ Phillip C. Widman Phillip C. Widman Senior Vice President and Chief Financial Officer March 15, 2004 A signed original of this written statement required by Section 906, or other document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Terex Corporation and will be retained by Terex Corporation and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----