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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-------------------------------------
F O R M 10 - Q
(Mark One)
|X| Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2003
-------------------------------------------------
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-10702
Terex Corporation
(Exact name of registrant as specified in its charter)
Delaware 34-1531521
(State of Incorporation) (IRS Employer Identification No.)
500 Post Road East, Suite 320, Westport, Connecticut 06880
(Address of principal executive offices)
(203) 222-7170
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
--- ---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b -2).
YES X NO
--- ---
Number of outstanding shares of common stock: 48.7 million as of November 6,
2003.
The Exhibit Index begins on page 55.
INDEX
TEREX CORPORATION AND SUBSIDIARIES
GENERAL
This Quarterly Report on Form 10-Q filed by Terex Corporation ("Terex" or the
"Company") includes financial information with respect to the following
subsidiaries of the Company (all of which are wholly-owned) which are guarantors
(the "Guarantors") of the Company's $300 million principal amount of 10-3/8%
Senior Subordinated Notes due 2011 (the "10-3/8% Notes"), $200 million principal
amount of 8-7/8% Senior Subordinated Notes due 2008 (the "8-7/8% Notes") and
$200 million principal amount of 9-1/4% Senior Subordinated Notes due 2011 (the
"9-1/4% Notes"). See Note P to the Company's September 30, 2003 Condensed
Consolidated Financial Statements included in this Quarterly Report.
State or other I.R.S.
jurisdiction of employer
incorporation identification
Guarantor or organization number
--------- ---------------- --------------
Amida Industries, Inc. South Carolina 57-0531390
Benford America, Inc. Delaware 76-0522879
BL-Pegson USA, Inc. Connecticut 31-1629830
Cedarapids, Inc. Iowa 42-0332910
CMI Dakota Company South Dakota 46-0440642
CMI Terex Corporation Oklahoma 73-0519810
CMIOIL Corporation Oklahoma 73-1125438
Coleman Engineering, Inc. Tennessee 62-0949893
EarthKing, Inc. Delaware 06-1572433
Finlay Hydrascreen USA, Inc. New Jersey 22-2776883
Fuchs Terex, Inc. Delaware 06-1570294
Genie Access Services, Inc. Washington 91-2073567
Genie China, Inc. Washington 91-1973009
Genie Financial Services, Inc. Washington 91-1712115
Genie Holdings, Inc. Washington 91-1666966
Genie Industries, Inc. Washington 91-0815489
Genie International, Inc. Washington 91-1975116
Genie Manufacturing, Inc. Washington 91-1499412
GFS Commercial LLC Washington n/a
GFS National, Inc. Washington 91-1959375
Go Credit Corporation Washington 91-1563427
Koehring Cranes, Inc. Delaware 06-1423888
Lease Servicing & Funding Corp. Washington 91-1808180
O & K Orenstein & Koppel, Inc. Delaware 58-2084520
Payhauler Corp. Illinois 36-3195008
Powerscreen Holdings USA Inc. Delaware 61-1265609
Powerscreen International LLC Delaware 61-1340898
Powerscreen North America Inc. Delaware 61-1340891
Powerscreen USA, LLC Kentucky 31-1515625
PPM Cranes, Inc. Delaware 39-1611683
Product Support, Inc. Oklahoma 73-1488926
Royer Industries, Inc. Pennsylvania 24-0708630
Schaeff Incorporated Iowa 42-1097891
Standard Havens, Inc. Delaware 43-0913249
Standard Havens Products, Inc. Delaware 43-1435208
Telelect Southeast Distribution, Inc. Tennessee 02-0560744
Terex Advance Mixer, Inc. Delaware 06-1444818
Terex Bartell, Inc. Delaware 34-1325948
Terex Cranes, Inc. Delaware 06-1513089
Terex Financial Services, Inc. Delaware 45-0497096
Terex Mining Equipment, Inc. Delaware 06-1503634
Terex Utilities, Inc. Delaware 04-3711918
Terex Utilities South, Inc. Delaware 74-3075523
Terex-RO Corporation Kansas 44-0565380
Terex-Telelect, Inc. Delaware 41-1603748
The American Crane Corporation North Carolina 56-1570091
Utility Equipment, Inc. Oregon 93-0557703
1
Page No.
--------
PART I FINANCIAL INFORMATION
---------------------
Item 1 Condensed Consolidated Financial Statements
-------------------------------------------
TEREX CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Operations --
Three months and nine months ended September 30, 2003 and 2002......................................3
Condensed Consolidated Balance Sheet - September 30, 2003 and December 31, 2002.........................4
Condensed Consolidated Statement of Cash Flows --
Three months and nine months ended September 30, 2003 and 2002......................................5
Notes to Condensed Consolidated Financial Statements -- September 30, 2003..............................6
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations.....................32
Item 3 Quantitative and Qualitative Disclosures About Market Risk................................................51
Item 4 Controls and Procedures...................................................................................52
PART II OTHER INFORMATION
------------------
Item 1 Legal Proceedings.........................................................................................52
Item 2 Changes in Securities and Use of Proceeds.................................................................52
Item 3 Defaults Upon Senior Securities...........................................................................52
Item 4 Submission of Matters to a Vote of Security Holders.......................................................52
Item 5 Other Information.........................................................................................52
Item 6 Exhibits and Reports on Form 8-K..........................................................................53
SIGNATURES .........................................................................................................54
- ----------
EXHIBIT INDEX .......................................................................................................55
- -------------
2
PART 1. FINANCIAL INFORMATION
-----------------------------
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------
TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
(in millions, except per share data)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
--------------------------- -----------------------------
2003 2002 2003 2002
------------- ------------- -------------- --------------
Net sales.......................................................$ 872.3 $ 644.0 $ 2,759.0 $ 1,843.6
Cost of goods sold.............................................. 743.5 556.8 2,393.2 1,550.2
------------- ------------- -------------- --------------
Gross profit................................................ 128.8 87.2 365.8 293.4
Selling, general and administrative expenses.................... (86.5) (51.5) (264.1) (177.6)
Goodwill impairment............................................. --- --- (51.3) ---
------------- ------------- -------------- --------------
Income from operations.................................... 42.3 35.7 50.4 115.8
Other income (expense):
Interest income............................................ 1.6 1.8 5.2 4.5
Interest expense........................................... (23.0) (22.1) (74.8) (65.9)
Loss on retirement of debt................................. --- (2.4) (1.9) (2.4)
Other income (expense) - net............................... (1.9) 3.4 (4.6) (8.6)
------------- ------------- -------------- --------------
Income (loss) from continuing operations before income
taxes and cumulative effect of change in accounting
principle................................................ 19.0 16.4 (25.7) 43.4
Benefit from (provision for) income taxes....................... (5.3) (5.1) 1.5 (13.8)
------------- ------------- -------------- --------------
Income (loss) from continuing operations and before
cumulative effect of change in accounting principle....... 13.7 11.3 (24.2) 29.6
Income (loss) from discontinued operations (net of income tax
benefit (expense) of $(0.3), $0.6, $(0.7) and $3.9,
respectively)................................................. 0.8 (1.5) 2.1 (8.4)
------------- ------------- -------------- --------------
Income (loss) before cumulative effect of change in accounting
principle..................................................... 14.5 9.8 (22.1) 21.2
Cumulative effect of change in accounting principle (net of
income tax expense of $1.0 in 2002)........................... --- --- --- (113.4)
------------- ------------- -------------- --------------
Net income (loss)...............................................$ 14.5 $ 9.8 $ (22.1) $ (92.2)
============= ============= ============== ==============
Per common share:
Basic:
Income (loss) from continuing operations..................$ 0.28 $ 0.25 $ (0.50) $ 0.71
Income (loss) from discontinued operations................ 0.02 (0.03) 0.04 (0.20)
------------- ------------- -------------- --------------
Income (loss) before cumulative effect of change in
accounting principle..................................... 0.30 0.22 (0.46) 0.51
Cumulative effect of change in accounting principle....... --- --- --- (2.71)
------------- ------------- -------------- --------------
Net income (loss).......................................$ 0.30 $ 0.22 $ (0.46) $ (2.20)
============= ============= ============== ==============
Diluted:
Income (loss) from continuing operations..................$ 0.27 $ 0.25 $ (0.50) $ 0.70
Income (loss) from discontinued operations................ 0.02 (0.03) 0.04 (0.20)
------------- ------------- -------------- --------------
Income (loss) before cumulative effect of change in
accounting principle..................................... 0.29 0.22 (0.46) 0.50
Cumulative effect of change in accounting principle....... --- --- --- (2.67)
------------- ------------- -------------- --------------
Net income (loss).......................................$ 0.29 $ 0.22 $ (0.46) $ (2.17)
============= ============= ============== ==============
Weighted average number of shares outstanding in per share calculation:
Basic................................................... 48.4 44.5 48.1 41.8
Diluted................................................. 49.7 45.2 48.1 42.5
The accompanying notes are an integral part of these financial statements.
3
TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited)
(in millions, except par value)
September 30, December 31,
2003 2002
---------------- -----------------
Assets
Current assets
Cash and cash equivalents........................................................ $ 430.9 $ 352.2
Trade receivables (net of allowance of $25.0 at September 30, 2003
and $19.6 at December 31, 2002)................................................ 528.9 578.6
Inventories...................................................................... 963.9 1,106.3
Other current assets............................................................. 301.9 184.0
----------------- -----------------
Total current assets......................................................... 2,225.6 2,221.1
Long-term assets
Property, plant and equipment.................................................... 355.2 309.4
Goodwill......................................................................... 605.1 622.9
Deferred taxes................................................................... 224.4 153.5
Other assets..................................................................... 342.1 318.8
----------------- -----------------
Total assets.......................................................................... $ 3,752.4 $ 3,625.7
================= =================
Liabilities and Stockholders' Equity
Current liabilities
Notes payable and current portion of long-term debt.............................. $ 95.1 $ 74.1
Trade accounts payable........................................................... 572.1 542.9
Accrued compensation and benefits................................................ 84.7 74.0
Accrued warranties and product liability......................................... 86.8 86.0
Other current liabilities........................................................ 351.0 329.2
----------------- -----------------
Total current liabilities.................................................... 1,189.7 1,106.2
Non-current liabilities
Long-term debt, less current portion............................................. 1,389.0 1,487.1
Other............................................................................ 365.8 263.2
Commitments and contingencies
Stockholders' equity
Common stock, $.01 par value - authorized 150.0 shares; issued 49.8 and 48.6
shares at September 30, 2003 and December 31, 2002, respectively............... 0.5 0.5
Additional paid-in capital....................................................... 791.7 772.7
Retained earnings................................................................ 45.3 67.4
Accumulated other comprehensive income (loss).................................... (11.8) (53.6)
Less cost of shares of common stock in treasury - 1.2 shares at September 30,
2003 and December 31, 2002..................................................... (17.8) (17.8)
----------------- -----------------
Total stockholders' equity................................................... 807.9 769.2
----------------- -----------------
Total liabilities and stockholders' equity............................................ $ 3,752.4 $ 3,625.7
================= =================
The accompanying notes are an integral part of these financial statements.
4
TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
(in millions)
For the Nine Months
Ended September 30,
-----------------------------
2003 2002
--------------- -------------
Operating Activities
Net loss...................................................................... $ (22.1) $ (92.2)
Adjustments to reconcile net loss to cash provided by (used in) operating
activities:
Depreciation............................................................. 40.6 23.1
Amortization............................................................. 9.5 6.0
Impairment charges and asset write downs................................. 72.5 140.8
Restructuring charges.................................................... --- 5.4
Loss on retirement of debt............................................... 1.4 1.6
Gain on sale of fixed assets............................................. (2.4) (0.3)
Changes in operating assets and liabilities (net of effects of
acquisitions):
Trade receivables...................................................... 50.9 (45.8)
Inventories............................................................ 112.1 (61.4)
Trade accounts payable................................................. 3.7 84.8
Other, net............................................................. (50.7) (53.7)
-------------- -------------
Net cash provided by operating activities........................... 215.5 8.3
-------------- -------------
Investing Activities
Acquisition of businesses, net of cash acquired............................... (8.7) (440.7)
Capital expenditures.......................................................... (19.7) (16.4)
Proceeds from sale of assets.................................................. 4.5 3.6
-------------- -------------
Net cash used in investing activities............................... (23.9) (453.5)
-------------- -------------
Financing Activities
Proceeds from issuance of long-term debt, net of issuance costs............... --- 572.0
Principal repayments of long-term debt........................................ (54.5) (218.1)
Net borrowings (repayments) under revolving line of credit agreements......... (43.5) 60.4
Issuance of common stock...................................................... --- 113.3
Payment of premium on early retirement of debt................................ (2.2) ---
Other......................................................................... (26.0) (1.3)
-------------- -------------
Net cash provided by (used in) financing activities................. (126.2) 526.3
-------------- -------------
Effect of Exchange Rate Changes on Cash and Cash Equivalents..................... 13.3 6.1
-------------- -------------
Net Increase in Cash and Cash Equivalents........................................ 78.7 87.2
Cash and Cash Equivalents at Beginning of Period................................. 352.2 250.4
-------------- -------------
Cash and Cash Equivalents at End of Period....................................... $ 430.9 $ 337.6
============== =============
The accompanying notes are an integral part of these financial statements.
5
TEREX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2003
(unaudited)
(dollar amounts in millions, unless otherwise noted, except per share amounts)
NOTE A -- BASIS OF PRESENTATION
Basis of Presentation. The accompanying unaudited condensed consolidated
financial statements of Terex Corporation and subsidiaries as of September 30,
2003 and for the three months and nine months ended September 30, 2003 and 2002
have been prepared in accordance with accounting principles generally accepted
in the United States of America for interim financial information and the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by accounting
principles generally accepted in the United States of America to be included in
full year financial statements. The accompanying condensed consolidated balance
sheet as of December 31, 2002 has been derived from the audited consolidated
balance sheet as of that date.
The condensed consolidated financial statements include the accounts of Terex
Corporation and its majority owned subsidiaries ("Terex" or the "Company"). All
material intercompany balances, transactions and profits have been eliminated.
In the opinion of management, all adjustments considered necessary for a fair
statement have been made. Except as otherwise disclosed, all such adjustments
consist only of those of a normal recurring nature. Operating results for the
three months and nine months ended September 30, 2003 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2003. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 2002.
Cash and cash equivalents at September 30, 2003 and December 31, 2002 include
$9.3 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.
Certain prior period amounts have been reclassified to conform with the current
period presentation.
Recent Accounting Pronouncements. Statement of Financial Accounting Standards
("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets," was issued in October 2001. SFAS No. 144 became effective for the
Company on January 1, 2002 and provides new guidance on the recognition of
impairment losses on long-lived assets to be held and used or to be disposed of
and also broadens the definition of what constitutes a discontinued operation
and how the results of a discontinued operation are to be measured and
presented. The adoption of the standard has not materially changed the methods
used by the Company to determine impairment losses on long-lived assets, but may
result in additional items being reported as discontinued operations in the
future. See Note B - "Discontinued Operations" for information on discontinued
operations. Refer to Note F - "Restructuring and Other Charges" for information
on the recognition of impairment losses.
SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13, and Technical Corrections as of April 2002," was issued in May
2002. SFAS No. 145 became effective for certain leasing transactions occurring
after May 15, 2002 and became effective for the Company on January 1, 2003 with
respect to reporting gains and losses from extinguishments of debt. The adoption
of SFAS No. 145 has resulted in the Company reporting most gains and losses from
extinguishments of debt as a component of income or loss from continuing
operations before income taxes and extraordinary items; there has been no effect
on the Company's net income or loss. Prior period amounts have been
reclassified.
On June 30, 2003, the Company redeemed $50.0 aggregate principal amount of its
8-7/8% Senior Subordinated Notes due 2008. In connection with this redemption
the Company recognized a loss of $1.9 before income taxes. The loss was
comprised of the payment of an early redemption premium ($2.2), the write off of
unamortized original issuance discount ($1.6) and the write off of unamortized
debt acquisition costs ($0.2), which were partially offset by the recognition of
deferred gains related to previously closed fair value interest rate swaps on
this debt ($2.1).
In the third quarter of 2002, the Company entered into an amended and restated
credit facility with its bank lending group. The Company used a portion of the
net proceeds from the term debt under the credit facility to pay down a portion
of its outstanding balances under its revolving credit facility. A loss for the
write-off of unamortized debt acquisition costs of $2.4 was recorded in
connection with this refinancing.
6
SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities," was issued in June 2002. SFAS No. 146 became effective for exit or
disposal activities that are initiated after December 31, 2002. Under SFAS No.
146, a liability for a cost associated with an exit or disposal activity is
recognized when the liability is incurred. Under previous accounting principles,
a liability for an exit cost would be recognized at the date of an entity's
commitment to an exit plan. Adoption of SFAS No. 146 has been applied
prospectively and has not had a material effect on the Company's consolidated
financial position or results of operations.
In November 2002, the Financial Accounting Standards Board (the "FASB") issued
FASB Interpretation No. ("FIN") 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others, an interpretation of Statement of Financial Accounting Standards Nos. 5,
57, and 107 and rescission of FIN 34." FIN 45 extends the disclosures to be made
by a guarantor about its obligations under certain guarantees that it has
issued. It also clarifies that a guarantor is required to recognize, at the
inception of a guarantee, a liability for the fair value of its obligations
under certain guarantees. The disclosure provisions of FIN 45 were effective for
financial statements for periods ending after December 15, 2002. The provisions
for initial recognition and measurement of guarantees are effective on a
prospective basis for guarantees that are issued or modified after December 31,
2002. The application of FIN 45 has not had a material impact on the Company's
consolidated financial position or results of operations.
During January 2003 the FASB issued FIN 46, "Consolidation of Variable Interest
Entities". 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, as
amended on October 9, 2003, requires a company to consolidate a VIE at December
31, 2003 when the company has a majority of the risk of loss from the VIE's
activities or is entitled to receive a majority of the entity's residual returns
or both. The Company does not expect the adoption of FIN 46 to have a material
impact on the Company's consolidated financial position or results of
operations.
In January 2003, the Emerging Issues Task Force (the "EITF") released EITF
00-21, "Accounting for Revenue Arrangements with Multiple Deliverables." EITF
00-21 clarifies the timing and recognition of revenue from certain transactions
that include the delivery and performance of multiple products or services. EITF
00-21 is effective for revenue arrangements entered into in fiscal periods
beginning after June 15, 2003. The 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.
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.
7
The following table summarizes the changes in the aggregate product warranty
liability:
Nine Months Ended
September 30, 2003
--------------------
Balance at beginning of period.............................$ 59.1
Business acquired........................................... 5.5
Accruals for warranties issued during the period............ 40.1
Changes in estimates........................................ (0.8)
Settlements during the period............................... (45.4)
Foreign exchange effect..................................... 2.7
--------------------
Balance at end of period...................................$ 61.2
====================
Stock-Based Compensation. At September 30, 2003, the Company has stock-based
employee compensation plans. The Company accounts for those plans under the
recognition and measurement principles of APB Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. No employee
compensation cost is reflected in net income for the granting of employee stock
options, as all options granted under those plans had an exercise price equal to
the market value of the underlying common stock on the date of grant. The
following table illustrates the effect on net income (loss) and earnings per
share if the Company had applied the fair value recognition provisions of SFAS
No. 123, "Accounting for Stock-Based Compensation," to stock-based employee
compensation.
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------------------ ------------------------------
2003 2002 2003 2002
--------------- -------------- -------------- ---------------
Reported net income (loss)............................... $ 14.5 $ 9.8 $ (22.1) $ (92.2)
Deduct: Total stock-based employee compensation expense
determined under fair value based methods for all
awards, net of related income tax effects............... (1.0) (0.9) (3.1) (2.5)
------------- -------------- -------------- ---------------
Pro forma net income (loss).............................. $ 13.5 $ 8.9 $ (25.2) $ (94.7)
============= ============== ============== ===============
Per common share:
Basic:
Reported net income (loss)........................... $ 0.30 $ 0.22 $ (0.46) $ (2.20)
============= ============== ============== ===============
Pro forma net income (loss).......................... $ 0.28 $ 0.20 $ (0.52) $ (2.27)
============= ============== ============== ===============
Diluted:
Reported net income (loss)........................... $ 0.29 $ 0.22 $ (0.46) $ (2.17)
============= ============== ============== ===============
Pro forma net income (loss).......................... $ 0.27 $ 0.20 $ (0.52) $ (2.23)
============= ============== ============== ===============
The fair value for these options was estimated at the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
----------------------------- ------------------------------
2003 2002 2003 2002
-------------- -------------- -------------- ---------------
Dividend yields......................................... 0.0% 0.0% 0.0% 0.0%
Expected volatility..................................... 52.82% 51.24% 52.82% 51.24%
Risk-free interest rates................................ 4.89% 5.42% 4.89% 5.42%
Expected life (in years)................................ 10.0 10.0 9.8 9.9
Aggregate fair value of options granted................. $ 0.6 $ 0.4 $ 5.2 $ 8.3
Weighted average fair value at date of grant for
options granted........................................ $ 13.24 $ 13.60 $ 7.99 $ 15.16
8
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.
In December 2002, SFAS No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure as amendment of FASB Statement No. 123," was issued.
SFAS No. 148, which became effective for fiscal years ended after December 15,
2002, provides alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based employee compensation. In
addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123. The
adoption of SFAS No. 148 has not had, and will not have, a material impact on
the Company's financial statements, since the Company expects to continue to
follow the method in APB Opinion No. 25.
NOTE B -- DISCONTINUED OPERATIONS
The Company has entered into a non-binding agreement in principle to sell its
surface mining truck design and manufacturing business to Caterpillar Inc.
("Caterpillar"). In addition to the sale of the mining truck business, the
non-binding agreement also contemplates the sale of the Company's mining truck
and shovel product support businesses to Caterpillar dealers. The Company will
retain its mining shovel manufacturing business located in Dortmund, Germany and
intends to purchase the intellectual property rights for certain models of
Caterpillar hydraulic excavating mining shovels. The Company expects the
transactions to close by March 31, 2004. As a result, the Company has classified
its mining truck business as a business held for sale. The Company has restated
all periods presented to reclassify the results of the business held for sale as
a discontinued operation in accordance with SFAS No. 144. The effect of the
discontinued operation on revenue and income from operations for the three and
nine months ended September 30, 2003 and 2002 is as follows:
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
---------------------- -------------------
2003 2002 2003 2002
--------- ----------- -------- ----------
Net sales........................... $ 34.0 $ 30.1 $ 123.8 $ 102.7
Income (loss) from operations....... $ 1.4 $ (1.7) $ 3.6 $ (11.7)
NOTE C -- ACQUISITIONS
On February 14, 2003, the Company completed the acquisition of Commercial Body
Corporation ("Commercial Body"). Commercial Body, headquartered in San Antonio,
Texas with locations in various states, distributes, assembles, rents and
provides service of products for the utility, telecommunications and municipal
markets. In connection with the acquisition, the Company issued approximately
600 thousand shares of Common Stock and paid $4.5 cash, subject to adjustment.
One of such adjustments may require the Company to pay cash or issue additional
shares of Common Stock (at the Company's option) if, on the second anniversary
of the Commercial Body acquisition, the Common Stock is not trading on the New
York Stock Exchange at a price at least 50% higher than it was at the time of
the acquisition, up to a maximum number of shares of Common Stock having a value
of $3.4. At the time of Terex's acquisition of Commercial Body, Commercial Body
had a 50% equity interest in Combatel Distribution, Inc. ("Combatel"). The
remaining 50% of Combatel was owned by Terex and prior to the acquisition had
been accounted for under the equity method of accounting. 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
Mining, Roadbuilding, Utility Products and Other segment.
The operating results of Commercial Body and Combatel are included in the
Company's consolidated results of operations since February 14, 2003 (date of
acquisition).
The Company is in the process of completing certain valuations, appraisals and
actuarial and other studies for purposes of determining the respective fair
values of tangible and intangible assets used in the allocation of purchase
consideration for the acquisitions of Commercial Body and Combatel. The Company
does not anticipate that the final results of these valuations will have a
material impact on its financial position 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 December 31, 2003.
9
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. Tatra is part of the
Company's Mining, Roadbuilding, Utilities 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.
On September 18, 2002, the Company completed the acquisition of Genie Holdings,
Inc. and its affiliates ("Genie"), a global manufacturer of aerial work
platforms (the "Genie Acquisition"). The Company initiated the Genie Acquisition
as an opportunity to diversify its product offering with the addition of a
complete line of aerial work platforms with a strong global brand and
significant market share. The Genie Acquisition was also intended to provide
operational and marketing synergies and cost savings, such as allowing the Genie
product line to expand the reach of its distribution through the Company's
existing sales base, particularly in Europe. Genie is included in the Terex
Aerial Work Platforms segment.
The following pro forma summary presents the consolidated results of operations
as though the Company completed the Genie Acquisition as of the beginning of the
respective period, after giving effect to certain adjustments for interest
expense, amortization of debt issuance costs and other expenses related to the
transaction:
Pro Forma for the Pro Forma for the
Three Months Ended Nine Months Ended
September 30, 2002 September 30, 2002
------------------------- -------------------------
Net sales.............................................$ 754.4 $ 2,228.9
Income from operations................................$ 40.9 $ 125.1
Income from continuing operations before cumulative
effect of change in accounting principle............$ 9.8 $ $ 18.8
Income from continuing operations before cumulative
effect of change in accounting principle, per share:
Basic.............................................$ 0.21 $ 0.42
Diluted...........................................$ 0.20 $ 0.41
The pro forma information is not necessarily indicative of what the actual
results of operations of the Company would have been for the period indicated,
nor does it purport to represent the results of operations for future periods.
NOTE D - ACCOUNTING CHANGE - BUSINESS COMBINATIONS AND GOODWILL
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141
"Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets."
SFAS No. 141, effective July 1, 2001, addresses financial accounting and
reporting for business combinations and requires all business combinations be
accounted for using the purchase method. One requirement of SFAS No. 141 is that
previously recorded negative goodwill be eliminated. Accordingly, the Company
recorded a cumulative effect of an accounting change of $17.8, $10.7, net of
income tax, related to the write-off of negative goodwill at January 1, 2002
from the acquisition of Fermec Manufacturing Limited in December 2000.
SFAS No. 142 addresses financial accounting for acquired goodwill and other
intangible assets and how such assets should be accounted for in financial
statements upon their acquisition and after they have been initially recognized
in the financial statements. In accordance with SFAS No. 142, goodwill related
to acquisitions completed after June 30, 2001 was not amortized in 2001 or 2002
and, effective January 1, 2002, goodwill related to acquisitions completed prior
to July 1, 2001 is no longer being amortized. Under this standard, goodwill and
indefinite life intangible assets are to be reviewed at least annually for
10
impairment and written down only in the period in which the recorded value of
such assets exceed their fair value.
Under the transitional provisions of SFAS No. 142, the Company identified its
reporting units and performed impairment tests on the net goodwill and other
intangible assets associated with each of the reporting units, using a valuation
date of January 1, 2002. The SFAS No. 142 impairment test is a two-step process.
First, it requires comparison of the book value of net assets to the fair value
of the related reporting units. If the fair value is determined to be less than
book value, a second step is performed to compute the amount of impairment. In
the second step, the implied fair value of goodwill is estimated as the fair
value of the reporting unit used in the first step less the fair values of all
other tangible and intangible assets of the reporting unit. If the carrying
amount of goodwill exceeds its implied fair market value, an impairment loss is
recognized in an amount equal to that excess.
Consistent with the approach required under SFAS No. 142, the Company estimated
the fair value of each of its ten reporting units existing as of January 1,
2002. Fair value was determined using a projection of undiscounted cash flow for
each reporting unit. Undiscounted cash flow was calculated using projected after
tax operating earnings, adding back depreciation and amortization, deducting
projected capital expenditures and also including the net change in working
capital employed. The assumptions were based on the Company's 2002 operating
plan. The present value of the undiscounted cash flows were calculated using the
Company's weighted cost of capital. The Company used an explicit five-year
projection of cash flow along with a terminal value based on the fifth year's
projected cash flow. The Company created these models. The total fair value of
the Company, as determined above, as of January 1, 2002, was approximately equal
to the market value of the Company at the same date, as determined by the market
value of the Company's equity and debt.
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 carrying value of the Terex Mining reporting unit, a component of the Terex
Mining, Roadbuilding, Utility Products and Other segment, exceeded the present
value of the cash flow expected to be generated by that reporting unit. Future
cash flow expectations had 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
reporting unit'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 the 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 Terex 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 Mining,
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) upon adoption of
SFAS No. 142.
The EarthKing reporting unit, a component of the Terex Mining, Roadbuilding,
Utility Products and Other segment, was also determined to have a carrying value
in excess of its projected discounted cash flow. EarthKing was created to
provide web based procurement services and complimentary products and services.
Several businesses in which EarthKing invested were unsuccessful in gaining
customer acceptance and were generating revenue at levels insufficient to
warrant anticipated growth, which substantially reduced its value. A goodwill
impairment of $0.3 ($0.3, net of income taxes) was recorded upon adoption of
SFAS No. 142.
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.
11
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. The Company performed its
last annual review of the carrying value of its goodwill, as required by SFAS
No. 142, as of October 1, 2002. Subsequent impairment tests will be performed
effective October 1 of each year and more frequently as circumstances warrant.
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
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.
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 has been reclassified
within the two segments to reflect this change in the Company's reportable
segments.
An analysis of changes in the Company's goodwill by business segment is as
follows:
Terex Mining,
Roadbuilding, Terex
Utility Aerial
Terex Terex Products and Work
Construction Cranes Other segment Platforms Total
---------------- ---------- ---------------- ------------- ---------
Balance at December 31, 2002..... $ 307.3 $ 90.3 $ 177.5 $ 47.8 $ 622.9
Acquisitions..................... --- 3.5 8.8 7.6 19.9
Impairment....................... --- --- (51.3) --- (51.3)
Foreign exchange effect.......... 12.5 1.0 0.1 --- 13.6
---------------- ---------- ---------------- ------------- ---------
Balance at September 30, 2003.... $ 319.8 $ 94.8 $ 135.1 $ 55.4 $ 605.1
================ ========== ================ ============= =========
The goodwill recognized for the acquisitions of Commercial Body, Combatel and
Tatra as of September 30, 2003 is not final.
NOTE E - DERIVATIVE FINANCIAL INSTRUMENTS
There are two types of derivatives that the Company enters into: hedges of fair
value exposures and hedges of cash flow exposures. Fair value exposures relate
to recognized assets or liabilities and firm commitments, while cash flow
exposures relate to the variability of future cash flows associated with
recognized assets or liabilities or forecasted transactions.
The Company operates internationally, with manufacturing and sales facilities in
various locations around the world, and utilizes certain financial instruments
to manage its foreign currency, interest rate and fair value exposures. To
qualify a derivative as a hedge at inception and throughout the hedge period,
the Company formally documents the nature and relationships between the hedging
instruments and hedged items, as well as its risk-management objectives,
strategies for undertaking the various hedge transactions and method of
assessing hedge effectiveness. Additionally, for hedges of forecasted
12
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, the British Pound, the Czech Koruna and the Australian Dollar.
When using options as a hedging instrument, the Company excludes the time value
from the assessment of effectiveness. The effective portion of unrealized gains
and losses associated with forward contracts and the intrinsic value of option
contracts are deferred as a component of accumulated other comprehensive income
(loss) until the underlying hedged transactions are reported on the Company's
consolidated statement of operations. The Company uses interest rate swaps to
mitigate its exposure to changes in interest rates related to existing issuances
of variable rate debt and to fair value changes of fixed rate debt. Primary
exposure includes movements in the London Interbank Offer Rate ("LIBOR").
Changes in the fair value of derivatives that are designated as fair value
hedges are recognized in earnings as offsets to the changes in fair value of
exposures being hedged. The change in fair value of derivatives that are
designated as cash flow hedges are deferred in accumulated other comprehensive
income (loss) and are recognized in earnings as the hedged transactions occur.
Any ineffectiveness is recognized in earnings immediately.
The Company records hedging activity related to debt instruments in interest
expense and hedging activity related to foreign currency and lease obligations
in operating profit.
The Company entered into interest rate swap agreements that effectively
converted variable rate interest payments into fixed rate interest payments. At
September 30, 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 September 30, 2003 was a loss of $3.0, which is recorded in
other non-current liabilities. These swap agreements have been designated as,
and are effective as, cash flow hedges of outstanding debt instruments. During
the three months and nine months ended September 30, 2003 and 2002, the Company
recorded the change in fair value to accumulated other comprehensive income
(loss) and reclassified to earnings a portion of the deferred loss from
accumulated other comprehensive income (loss) as the hedged transactions
occurred and were recognized in earnings.
The Company has entered into a series of interest rate swap agreements that
converted fixed rated interest payments into variable rate interest payments. At
September 30, 2003, the Company had $154.0 notional amount of such interest rate
swap agreements outstanding, all of which mature in 2006 through 2008. The fair
market value of these swaps at September 30, 2003 was a gain of $8.8, which is
recorded in other non-current assets. These swap agreements have been designated
as, and are effective as, fair value hedges of outstanding debt instruments.
During March 2003 and December 2002, the Company exited interest rate swap
agreements in the notional amount of $275.0 with maturities from 2008 through
2011 that converted fixed rate interest payments into variable rate interest
payments. The Company received $13.4 upon exiting these swap agreements. These
gains are being amortized over the original maturity and, combined with the
market value of the swap agreements held at September 30, 2003, are offset by an
$18.9 addition in the carrying value of the long-term obligations being hedged.
The Company is also a party to currency exchange forward contracts to manage its
exposure to changing currency exchange rates that mature within 15 months. At
September 30, 2003, the Company had $165.4 of notional amount of currency
exchange forward contracts outstanding, all of which mature on or before
December 29, 2004. The fair market value of these swaps at September 30, 2003
was a gain of $6.5. At September 30, 2003, $131.0 notional amount of these swap
agreements have been designated as, and are effective as, cash flow hedges of
specifically identified assets and liabilities.
During the three months and nine months ended September 30, 2003 and 2002, the
Company recorded the change in fair value to accumulated other comprehensive
income (loss) and reclassified to earnings a portion of the deferred loss from
accumulated other comprehensive income (loss) as the hedged transactions
occurred and were recognized in earnings.
At September 30, 2003, the fair value of all derivative instruments has been
recorded in the Condensed Consolidated Balance Sheet as a net asset of $10.2,
net of income taxes.
Counterparties to interest rate derivative contracts and currency exchange
forward contracts are major financial institutions with credit ratings of
investment grade or better and no collateral is required. There are no
13
significant risk concentrations. Management believes the risk of incurring
losses on derivative contracts related to credit risk is remote and any losses
would be immaterial.
Unrealized net gains (losses) included in Other Comprehensive Income (Loss) are
as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------------- -------------------------------
2003 2002 2003 2002
- ------------------------------------------------------------------------------------------------------------
Balance at beginning of period..........$ (3.8) $ 0.6 $ 2.1 $ (0.8)
Additional gains (losses)............... 3.9 0.1 (4.1) 0.1
Amounts reclassified to earnings........ 1.3 1.0 3.4 2.4
---------------- ---------------- -------------- ----------------
Balance at end of period................$ 1.4 $ 1.7 $ 1.4 $ 1.7
================ ================ ============== ================
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
and 2002, the Company experienced declines in several markets. In addition, the
Company's recent acquisitions have created product, production and selling and
administrative overlap with existing businesses. In response to changing market
demand and to optimize the impact of recently acquired businesses, the Company
has initiated the restructuring programs described below. For further
information on restructuring programs initiated prior to 2002, refer to the
Company's Annual Report on Form 10-K for the year ended December 31, 2002.
There have been no material changes relative to the initial plans established by
the Company for the restructuring activities discussed below. The Company does
not believe that these restructuring activities by themselves will have an
adverse impact on the Company's ability to meet customer requirements for the
Company's products.
2003 Programs
In the first quarter of 2003, the Company recorded a charge of $0.7 related to
restructuring at its CMI Terex facility in Oklahoma City, Oklahoma. Due to the
continued poor performance in the Roadbuilding business, the Company reduced
employment by approximately 146 employees at its CMI Terex facility. As of 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 Mining, 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 sales. EarthKing is
included in the Terex Mining, Roadbuilding, Utility Products and Other segment.
The 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 the restructuring,
the Company has accrued for a headcount reduction of 65 employees. As of
September 30, 2003, 54 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 sales 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.
14
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 is 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 is expected to be completed by December 31, 2003. 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 sales
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 Mining, 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 sales 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 sales 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 plans to terminate 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.
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. As disclosed
in Note B - "Discontinued Operations," the Company has entered into a
non-binding agreement in principle to sell its surface mining truck design and
manufacturing business to Caterpillar.
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.
15
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 unit and
Construction segment. The Company's review indicated that it was not
economical to continue its mining equipment rental business due to the
high cost of moving mining equipment between customers and given the
continued weak demand for mining products. In addition, the Company
decided to rationalize its large scraper offering in its Mining
segment given the weak demand for related mining products. The Company
recorded a charge of $6.9 associated with the write down of inventory.
The Company expects to complete this process by December 31, 2003.
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
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 Mining, Roadbuilding,
Utility Products and Other segment.
o The severance costs incurred in re-aligning the Company's management
structure. The Company eliminated an executive position and recorded a
charge of $1.5. The Company paid $0.4 prior to December 31, 2002 and
expects to pay remaining severance by December 31, 2003.
o The elimination of the rotating telehandler product in North America
by the Terex Construction segment. It was determined that the product,
although popular in Europe as a multi-purpose machine, was not gaining
customer acceptance in North America. The Company recorded a charge of
$0.7 to write-down the rotating telehandler inventory in North
America. The program was completed prior to December 31, 2002.
16
These 2002 programs are expected to reduce operating costs by approximately $27
in the aggregate when fully implemented in 2004.
During the nine months ended September 30, 2003, the Company recorded an
additional $0.6 of changes relating to programs begun in 2002. These period
charges primarily related to facility closure costs and were consistent with the
initial restructuring plans established by the Company.
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
------------- ------------ ----------- ------------- --------------
Accrued restructuring charges
at December 31, 2002.......... $ 9.7 $ --- $ 2.4 $ 1.4 $ 13.5
Restructuring charges........... 5.2 6.2 0.4 1.1 12.9
Cash expenditures............... (11.8) (1.0) (0.3) (1.1) (14.2)
Non-cash write-offs............. --- (5.2) (0.1) --- (5.3)
------------- ------------ ----------- ------------- --------------
Accrued restructuring charges
at September 30, 2003......... $ 3.1 $ --- $ 2.4 $ 1.4 $ 6.9
============= ============ =========== ============= ==============
In aggregate, the restructuring charges described above incurred during the nine
months ended September 30, 2003 and 2002 were included in cost of goods sold
($11.5 and $9.2) and selling, general and administrative expenses ($1.4 and
$0.6), respectively.
Demag and Genie Acquisition Related Projects
During 2002, the Company also initiated a series of restructuring projects aimed
at addressing product, channel and production overlap created by the acquisition
of Demag and Genie in 2002.
Projects initiated in the Terex Cranes segment in the fourth quarter of 2002
related to the acquisition of Demag consist of:
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 December 31, 2003.
o The rationalization of certain crawler crane products sold under the
American Crane brand in the United States. The acquisition of Demag
created an overlap with certain large crawler cranes produced in the
Company's Wilmington, North Carolina facility. Certain cranes produced
in the North Carolina facility will be rated for reduced lifting
capacity and marketed to a different class of user. This change in
marketing strategy, triggered by the acquisition of Demag, negatively
impacted inventory values. The Company recorded a charge of $3.2
associated with the write down of inventory. The Company expects to
complete the sale of such inventory by December 31, 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
17
under license from another company, and replace them with cranes
produced by Demag. As a result of this decision, a charge of $1.8 was
recorded to terminate the license agreement.
Projects initiated in the Terex Cranes segment in the fourth quarter of 2002
related to the acquisition of Genie consist of:
o The elimination of Terex branded aerial work platforms. The Company
determined that the acquisition of Genie created product and
distribution overlap with its existing Terex branded aerial work
platforms businesses in the United States and Europe. After a review
of products produced by the Company and Genie, the Company decided to
discontinue the Terex branded products. As a result, the Company
reduced the carrying values of the affected inventories to recognize
the loss in value created by the decision to discontinue these models
of aerial work platforms. As a result of this decision, a charge of
$1.9 was recorded to write down inventory.
The following table sets forth the components and status of the restructuring
charges recorded in the fourth quarter of 2002 that relate to addressing
product, channel and production overlaps created by the acquisition of the Demag
and Genie businesses:
Employee Facility
Termination Asset Exit
Costs Disposals Costs Other Total
------------- ------------ ----------- ------------ ------------
Accrued restructuring charges at
December 31, 2002...............$ 5.1 $ --- $ 0.6 $ 0.3 $ 6.0
Restructuring charges............. --- --- --- --- ---
Cash expenditures................. (3.4) --- --- (0.3) (3.7)
Non-cash write-offs............... --- --- --- --- ---
------------- ------------ ----------- ------------ ------------
Accrued restructuring charges at
September 30, 2003.............$ 1.7 $ --- $ 0.6 $ --- $ 2.3
============= ============ =========== ============ ============
These programs related to the Demag and Genie acquisitions are expected to
reduce annual operating costs by approximately $8 in the aggregate in 2004.
NOTE G -- INVENTORIES
Inventories consist of the following:
September 30, December 31,
2003 2002
----------------- ---------------
Finished equipment........................... $ 370.1 $ 437.2
Replacement parts............................ 183.4 225.0
Work-in-process.............................. 213.9 225.5
Raw materials and supplies................... 196.5 218.6
----------------- ---------------
Inventories.................................. $ 963.9 $ 1,106.3
================= ===============
NOTE H -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
September 30, December 31,
2003 2002
---------------- -----------------
Property................................... $ 49.5 $ 43.0
Plant...................................... 208.0 173.4
Equipment.................................. 235.4 197.6
---------------- -----------------
492.9 414.0
Less: Accumulated depreciation............ (137.7) (104.6)
---------------- -----------------
Net property, plant and equipment.......... $ 355.2 $ 309.4
================ =================
18
NOTE I -- INVESTMENT IN JOINT VENTURE
In April 2001, Genie entered into a joint venture arrangement with a European
financial institution whereby Genie maintains a forty-nine percent (49%)
ownership interest in the joint venture, Genie Financial Solutions Holding B.V.
("GFSH B.V."). Prior to the Company's acquisition of Genie, Genie had
contributed $5.3 in cash in exchange for its ownership interest in GFSH B.V.
During January 2003, Genie contributed an additional $0.8 in cash to GFSH B.V.
The Company applies the equity method of accounting for its investment in GFSH
B.V., as the Company does not control the operations of GFSH B.V.
GFSH B.V. was established to facilitate the financing of Genie's products sold
in Europe. As of September 30, 2003, the joint venture's total assets were
$146.1 and consisted primarily of financing receivables and lease related
equipment; total liabilities were $131.3 and consisted primarily of debt payable
to the fifty-one percent (51%) joint venture partner. The Company provided
guarantees related to potential losses arising from shortfalls in the residual
values of financed equipment or credit defaults by the joint venture's
customers. As of September 30, 2003 the maximum exposure to loss under these
guarantees is approximately $8. Additionally, the Company is required to
maintain a capital account balance in GFSH B.V., pursuant to the terms of the
joint venture, which could result in the reimbursement to GFSH B.V. by the
Company of losses to the extent of the Company's ownership percentage.
As defined by FIN 46, GFSH B.V. is a variable interest entity. For entities
created prior to February 1, 2003, FIN 46, as amended, requires the application
of its provisions effective December 31, 2003. Based on the legal and operating
structure of GFSH B.V., it is probable that the Company will be required to
consolidate the results of GFSH B.V. in its December 31, 2003 financial
statements. However, the Company also is currently evaluating possible changes
to the operating structure of GFSH B.V. that would result in GFSH B.V.
continuing to be accounted for under the equity method.
NOTE J -- EQUIPMENT SUBJECT TO OPERATING LEASES
Operating leases arise from the leasing of the Company's products to customers.
Initial noncancellable lease terms typically range up to 60 months. The cost of
equipment subject to operating leases was approximately $149 at September 30,
2003. The equipment is depreciated on the straight-line basis over the shorter
of the estimated useful life or the estimated amortization period of any
borrowings secured by the asset to its estimated salvage value.
NOTE K -- 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 $32.4 at September
30, 2003. Under these agreements, the Company's recourse obligation is limited
to credit losses up to the first 5%, in any given year, of the remaining
discounted rental payments due, subject to certain minimum and maximum recourse
liability amounts. The Company's maximum credit recourse exposure was $15.0 at
September 30, 2003, representing a contingent liability under the limited
recourse provisions.
During 2003, 2002 and 2001, domestically and globally, Genie entered into a
number of arrangements with financial institutions to provide financing of new
and eligible Genie products to distributors and rental companies. Under these
programs, Genie originates leases or leasing opportunities with distributors and
rental companies. If Genie originates the lease with a distributor or rental
company, the financial institution will purchase the equipment and take
assignment of the lease contract from Genie. If Genie originates a lease
19
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 $43.9 credit risk and a $44.6
residual risk at September 30, 2003.
The Company's contingent liabilities previously referred to have not taken into
account various mitigating factors. These factors include the staggered timing
of maturity of lease transactions, resale value of the underlying equipment,
lessee return penalties and annual loss caps on credit loss pools. Further, the
credit risk contingent liability assumes that the individual leases were to all
default at the same time and that the repossessed equipment has no market value.
NOTE L-- EARNINGS PER SHARE
Three Months Ended September 30,
(in millions, except per share data)
-------------------------------------------------------------
2003 2002
-------------------------------------------------------------
Per-Share Per-Share
Income Shares Amount Income Shares Amount
-------- --------- ----------- -------- --------- -----------
Basic earnings per share
Income (loss) from continuing
operations before cumulative effect of
change in accounting principle......... $ 13.7 48.4 $ 0.28 $ 11.3 44.5 $ 0.25
Effect of dilutive securities
Stock Options........................... --- 1.0 --- 0.6
Contingently issuable shares for
acquisitions......................... --- 0.3 --- 0.1
-------- --------- -------- ---------
Income (loss) from continuing operations
before cumulative effect of change in
accounting principle - diluted........... $ 13.7 49.7 $ 0.27 $ 11.3 45.2 $ 0.25
======== ========= =========== ======== ========= ===========
Nine Months Ended September 30,
(in millions, except per share data)
-------------------------------------------------------------
2003 2002
-------------------------------------------------------------
Per-Share Per-Share
Income Shares Amount Income Shares Amount
-------- --------- ----------- -------- --------- -----------
Basic earnings per share
Income (loss) from continuing
operations before cumulative effect of
change in accounting principle......... $(24.2) 48.1 $ (0.50) $ 29.6 41.8 $ 0.71
Effect of dilutive securities
Stock Options........................... --- --- --- 0.7
Contingently issuable shares for
acquisitions......................... --- --- --- ---
-------- --------- -------- ---------
Income (loss) from continuing operations
before cumulative effect of change in
accounting principle - diluted.......... $(24.2) 48.1 $ (0.50) $ 29.6 42.5 $ 0.70
======== ========= =========== ======== ========= ===========
Had the Company recognized income (versus a loss) from continuing operations
before cumulative effect of change in accounting principle in the nine months
ended September 30, 2003, incremental shares attributable to (i) the assumed
exercise of outstanding stock options and (ii) the effect of Common Stock to be
issued at September 30, 2003 for the Company's contingent obligation to make
additional payments for the acquisition of Genie would have increased diluted
shares outstanding by 0.8 million and 0.4 million shares, respectively.
Options to purchase 895 thousand, and 670 thousand shares of Common Stock during
the three months ended September 30, 2003 and 2002 and 1,360 thousand and 577
thousand shares of Common Stock during the nine months ended September 30, 2003
20
and 2002, respectively, were outstanding but were not included in the
computation of diluted shares. These options were excluded because the exercise
price of these options was greater than the average market price of the Common
Stock during such periods and, therefore, the effect would be anti-dilutive. As
discussed in the Company's Annual Report on Form 10-K for the year ended
December 31, 2002 and in Note C - "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 280
thousand and 254 thousand shares for the three months and 426 thousand and 133
thousand shares of Common Stock during the nine months ended September 30, 2003
and 2002, respectively, are not included in the computation of diluted earnings
per share.
NOTE M -- STOCKHOLDERS' EQUITY
Total non-shareowner changes in equity (comprehensive income) include all
changes in equity during a period except those resulting from investments by,
and distributions to, shareowners. The specific components include: net income,
deferred gains and losses resulting from foreign currency translation, minimum
pension liability adjustments, deferred gains and losses resulting from
derivative hedging transactions and deferred gains and losses resulting from
debt and equity securities classified as available for sale. Total
non-shareowner changes in equity were as follows.
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
----------------------------------- -------------- ----------------
2003 2002 2003 2002
------------------ ---------------- -------------- ----------------
Net income (loss)........................ $ 14.5 $ 9.8 $ (22.1) $ (92.2)
Other comprehensive income:
Translation adjustment.............. (15.9) (10.5) 23.9 43.1
Derivative hedging adjustment....... 5.2 1.1 (0.7) 2.5
Debt and equity securities
adjustment........................ --- (3.4) --- (3.4)
------------------ ---------------- -------------- ----------------
Comprehensive income (loss).............. $ 3.8 $ (3.0) $ 1.1 $ (50.0)
================== ================ ============== ================
As disclosed in "Note C - Acquisitions", the Company also issued approximately
0.2 million shares and 0.6 million shares of its Common Stock during the three
months ended September 30, 2003 and March 31, 2003 in connection with the
acquisitions of Tatra and Commercial Body, respectively.
NOTE N -- LITIGATION AND CONTINGENCIES
In the Company's lines of business numerous suits have been filed alleging
damages for accidents that have arisen in the normal course of operations
involving the Company's products. The Company is self-insured, up to certain
limits, for these product liability exposures, as well as for certain exposures
related to general, workers' compensation and automobile liability. Insurance
coverage is obtained for catastrophic losses as well as those risks required to
be insured by law or contract. The Company has recorded and maintains an
estimated liability in the amount of management's estimate of the Company's
aggregate exposure for such self-insured risks. For self-insured risks, the
Company determines its exposure based on probable loss estimations, which
requires such losses to be both probable and the amount or range of possible
loss to be estimable.
The Company is involved in various other legal proceedings which have arisen in
the normal course of its operations. The Company has recorded provisions for
estimated losses in circumstances where a loss is probable and the amount or
range of possible amounts of the loss is estimable.
The Company's outstanding letters of credit totaled $85.0 at September 30, 2003.
The letters of credit generally serve as collateral for certain liabilities
included in the Condensed Consolidated Balance Sheet. Certain of the letters of
credit serve as collateral guaranteeing the Company's performance under
contracts.
The Company has a letter of credit outstanding covering losses related to a
former subsidiary's worker compensation obligations. The Company has recorded
liabilities for these contingent obligations representing management's estimate
of the potential losses which the Company might incur.
On March 11, 2002, an action was commenced in the United States District Court
for the Southern District of Florida, Miami Division by Ursula Ungaro-Benages
and Ursula Ungaro-Benages as Attorney-in-fact for Peter C. Ungaro, M.D., in
which the plaintiffs alleged that ownership of O&K Orenstein & Koppel AG ("O&K
21
AG") was illegally taken from the plaintiffs' ancestors by German industry
during the Nazi era. The plaintiffs alleged that the Company was liable for
conversion and unjust enrichment as the result of its purchase of the shares of
the mining shovel subsidiary O&K Mining GmbH from O&K AG, and were claiming
restitution of a 25% interest in O&K Mining GmbH and monetary damages. On June
12, 2002, the United States Department of Justice filed a Statement of Interest
in the action that expressed the foreign policy interests of the United States
in dismissal of the case. At the request of the Company, on October 8, 2002, the
Federal Judicial Panel on Multi-district Litigation ordered that the action be
transferred to the District of New Jersey and assigned the case to the Honorable
William G. Bassler for inclusion in the coordinated or consolidated pretrial
proceedings established in that court. On April 21, 2003 the plaintiffs
voluntarily dismissed the action against the Company.
In the third quarter of 2002, the Company obtained a favorable court judgment on
appeal as the defendant in a patent infringement case brought against the Terex
Construction segment's Powerscreen business. This favorable court judgment
reversed a lower court decision for which the Company had previously recorded a
liability. During the first quarter of 2003, amounts previously paid for the
litigation were returned to the Company. As a result, the Company recorded $2.4
of income in "Other income (expense) - net" in the Condensed Consolidated
Statement of Operations during the first quarter of 2003.
Credit Guarantees
Customers of the Company from time to time may fund the acquisition of the
Company's equipment through third-party finance companies. In certain instances,
the Company may pro