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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 June 30, 2004
--------------------------------------------
|_| 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: 49.4 million as of August 4, 2004.
The Exhibit Index begins on page 61.
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 were
guarantors on June 30, 2004 (the "Guarantors") of the Company's $300 million
principal amount of 7-3/8% Senior Subordinated Notes due 2014 (the "7-3/8%
Notes"), $300 million principal amount of 10-3/8% Senior Subordinated Notes due
2011 (the "10-3/8% Notes"), and $200 million principal amount of 9-1/4% Senior
Subordinated Notes due 2011 (the "9-1/4% Notes"). See Note R to the Company's
June 30, 2004 Condensed Consolidated Financial Statements included in this
Quarterly Report.
State or other
jurisdiction of
incorporation or I.R.S. employer
Guarantor organization identification number
- --------- ----------------- ---------------------
Amida Industries, Inc. South Carolina 57-0531390
Benford America, Inc. Delaware 76-0522879
BL-Pegson USA, Inc. Connecticut 31-1629830
Cedarapids, Inc. Iowa 42-0332910
CMI Dakota Company South Dakota 46-0440642
CMI Terex Corporation Oklahoma 73-0519810
CMIOIL Corporation Oklahoma 73-1125438
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
Spinnaker Insurance Company Vermont 03-0372517
Standard Havens, Inc. Delaware 43-0913249
Standard Havens Products, Inc. Delaware 43-1435208
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 six months ended June 30, 2004 and 2003............................................3
Condensed Consolidated Balance Sheet - June 30, 2004 and December 31, 2003..............................4
Condensed Consolidated Statement of Cash Flows --
Six months ended June 30, 2004 and 2003.............................................................5
Notes to Condensed Consolidated Financial Statements - June 30, 2004....................................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................................................54
Item 4 Controls and Procedures...................................................................................55
PART II OTHER INFORMATION
Item 1 Legal Proceedings.........................................................................................56
Item 2 Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities..........................56
Item 3 Defaults Upon Senior Securities...........................................................................56
Item 4 Submission of Matters to a Vote of Security Holders.......................................................57
Item 5 Other Information.........................................................................................58
Item 6 Exhibits and Reports on Form 8-K..........................................................................59
SIGNATURES...........................................................................................................60
EXHIBIT INDEX........................................................................................................61
2
PART 1. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
(in millions, except per share data)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------------------ ----------------------------
2004 2003 2004 2003
-------------- -------------- ------------ --------------
Net sales...........................................................$ 1,336.4 $ 1,048.8 $ 2,380.2 $ 1,976.5
Cost of goods sold.................................................. 1,141.4 932.1 2,024.9 1,730.1
-------------- -------------- ------------ --------------
Gross profit.................................................... 195.0 116.7 355.3 246.4
Selling, general and administrative expenses........................ (119.2) (100.9) (231.2) (190.1)
Goodwill impairment................................................. --- (51.3) --- (51.3)
-------------- -------------- ------------ --------------
Income (loss) from operations................................. 75.8 (35.5) 124.1 5.0
Other income (expense):
Interest income................................................ 1.4 2.1 2.4 3.8
Interest expense............................................... (23.4) (26.6) (45.9) (52.5)
Other income (expense) - net................................... 19.8 (4.9) 17.4 (4.6)
-------------- -------------- ------------ --------------
Income before income taxes..................................... 73.6 (64.9) 98.0 (48.3)
(Provision for) benefit from income taxes........................... (14.5) 13.1 (21.9) 8.5
-------------- -------------- ------------ --------------
Net income (loss) ..................................................$ 59.1 $ (51.8) $ 76.1 $ (39.8)
============== ============== ============ ==============
Per common share:
Basic...........................................................$ 1.20 $ (1.09) $ 1.55 $ (0.84)
============== ============== ============ ==============
Diluted.........................................................$ 1.17 $ (1.09) $ 1.50 $ (0.84)
============== ============== ============ ==============
Weighted average number of shares outstanding in per share
calculation:
Basic....................................................... 49.3 47.6 49.1 47.4
Diluted..................................................... 50.7 47.6 50.6 47.4
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)
June 30, December 31,
2004 2003
------------------ -----------------
Assets
Current assets
Cash and cash equivalents........................................................ $ 454.5 $ 467.5
Trade receivables (net of allowance of $36.2 at June 30, 2004
and $38.2 at December 31, 2003)................................................ 660.9 540.2
Inventories...................................................................... 1,075.9 1,009.7
Deferred taxes................................................................... 55.4 53.9
Other current assets............................................................. 124.3 122.7
----------------- -----------------
Total current assets......................................................... 2,371.0 2,194.0
Long-term assets
Property, plant and equipment.................................................... 354.2 370.1
Goodwill......................................................................... 615.9 603.5
Deferred taxes................................................................... 227.2 238.9
Other assets..................................................................... 298.2 317.3
----------------- -----------------
Total assets.......................................................................... $ 3,866.5 $ 3,723.8
================= =================
Liabilities and Stockholders' Equity
Current liabilities
Notes payable and current portion of long-term debt.............................. $ 75.7 $ 86.8
Trade accounts payable........................................................... 776.7 608.6
Accrued compensation and benefits................................................ 100.8 94.5
Accrued warranties and product liability......................................... 84.6 88.5
Other current liabilities........................................................ 284.1 281.0
----------------- -----------------
Total current liabilities.................................................... 1,321.9 1,159.4
Non-current liabilities
Long-term debt, less current portion............................................. 1,187.1 1,274.8
Other............................................................................ 425.5 412.9
Commitments and contingencies
Stockholders' equity
Common stock, $.01 par value - authorized 150.0 shares; issued 50.5 and 50.0
shares at June 30, 2004 and December 31, 2003, respectively.................... 0.5 0.5
Additional paid-in capital....................................................... 802.9 795.1
Retained earnings................................................................ 118.0 41.9
Accumulated other comprehensive income .......................................... 29.3 57.0
Less cost of shares of common stock in treasury - 1.2 shares at June 30, 2004
and December 31, 2003.......................................................... (18.7) (17.8)
----------------- -----------------
Total stockholders' equity................................................... 932.0 876.7
----------------- -----------------
Total liabilities and stockholders' equity............................................ $ 3,866.5 $ 3,723.8
================= =================
The accompanying notes are an integral part of these financial statements.
4
TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
(in millions)
For the Six Months
Ended June 30,
--------------------------
2004 2003
--------------------------
Operating Activities
Net income (loss)............................................................. $ 76.1 $ (39.8)
Adjustments to reconcile net income (loss) to cash provided by operating
activities:
Depreciation............................................................. 29.1 27.5
Amortization............................................................. 8.0 5.9
Impairment charges and asset write downs................................. --- 72.5
Loss on retirement of debt............................................... 1.5 1.4
Gain on sale of fixed assets............................................. (19.0) (2.9)
Changes in operating assets and liabilities (net of effects of
acquisitions):
Trade receivables...................................................... (125.5) 3.4
Inventories............................................................ (78.7) 82.8
Trade accounts payable................................................. 174.1 42.0
Other, net............................................................. 4.3 (9.1)
-------------- -----------
Net cash provided by operating activities........................... 69.9 183.7
-------------- -----------
Investing Activities
Acquisition of businesses, net of cash acquired............................... (1.1) (8.7)
Capital expenditures.......................................................... (15.7) (14.1)
Proceeds from sale of assets.................................................. 24.0 3.5
-------------- -----------
Net cash provided by (used in) investing activities................. 7.2 (19.3)
-------------- -----------
Financing Activities
Principal repayments of long-term debt........................................ (75.0) (53.0)
Proceeds from stock options exercised......................................... 5.5 0.7
Net borrowings (repayments) under revolving line of credit agreements......... (2.2) (36.5)
Payment of premium on early retirement of debt................................ --- (2.2)
Other, net.................................................................... (15.1) (16.4)
-------------- -----------
Net cash used in financing activities............................... (86.8) (107.4)
-------------- -----------
Effect of Exchange Rate Changes on Cash and Cash Equivalents..................... (3.3) 11.2
-------------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents............................. (13.0) 68.2
Cash and Cash Equivalents at Beginning of Period................................. 467.5 352.2
-------------- -----------
Cash and Cash Equivalents at End of Period....................................... $ 454.5 $ 420.4
============== ===========
The accompanying notes are an integral part of these financial statements.
5
TEREX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004
(unaudited)
(dollar amounts in millions, unless otherwise noted, except per share amounts)
NOTE A -- BASIS OF PRESENTATION
Basis of Presentation. The accompanying unaudited condensed consolidated
financial statements of Terex Corporation and subsidiaries as of June 30, 2004
and for the three months and six months ended June 30, 2004 and 2003 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, 2003 has been derived from the audited consolidated balance sheet as of that
date.
The condensed consolidated financial statements include the accounts of Terex
Corporation and its majority owned subsidiaries ("Terex" or the "Company"). All
material intercompany balances, transactions and profits have been eliminated.
In the opinion of management, all adjustments considered necessary for a fair
presentation of these interim financial statements have been made. Except as
otherwise disclosed, all such adjustments consist only of those of a normal
recurring nature. Operating results for the three months and six months ended
June 30, 2004 are not necessarily indicative of the results that may be expected
for the year ending December 31, 2004. 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, 2003.
Cash and cash equivalents at June 30, 2004 and December 31, 2003 include $2.0
and $10.9, respectively, which was not immediately available for use. These
consist primarily of cash balances held in escrow to secure various obligations
of the Company.
The results for prior periods have been reclassified to conform to the current
periods' presentation. The Terex Mining segment is included as a continuing
operation.
Recent Accounting Pronouncements. In January 2003, the Financial Accounting
Standards Board (the "FASB") issued FASB Interpretation No. ("FIN") 46,
"Consolidation of Variable Interest Entities." A variable interest entity
("VIE") is a corporation, partnership, trust or other legal entity that does not
have equity investors with voting rights or has equity investors that do not
provide sufficient financial resources for the entity to support its own
activities. The interpretation requires a company to consolidate a VIE when the
company has a majority of the risk of loss from the VIE's activities or is
entitled to receive a majority of the entity's residual returns or both. In
December 2003, the FASB revised FIN 46 ("FIN 46R") and modified its effective
date. The Company adopted the provisions of FIN 46R, for special purpose
entities and VIEs created on or after February 1, 2003, effective December 31,
2003. As of June 30, 2004, there were no such entities that are required to be
consolidated by the Company. For all other entities, the Company has adopted the
provisions of FIN 46R effective March 31, 2004. The adoption of FIN 46R has not
had a material impact on the Company's consolidated financial position, results
of operations or cash flows.
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, results of operations
or cash flows.
During April 2003, the FASB issued Statement of Financial Accounting Standard
("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, results of operations or cash
flows.
6
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, results of operations or cash flows
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
non-current portion of the warranty accrual is included in Other Non-current
liabilities. The liability is established using a historical warranty claim
experience for each product sold. The historical claim experience may be
adjusted for known design improvements or for the impact of unusual product
quality issues. Warranty reserves are reviewed quarterly to ensure that critical
assumptions are updated for known events that may impact the potential warranty
liability.
The following table summarizes the changes in the consolidated product warranty
liability:
Six Months Ended
June 30, 2004
------------------
Balance at beginning of period.............................$ 68.4
Accruals for warranties issued during the period............ 36.0
Changes in estimates........................................ (1.9)
Settlements during the period............................... (36.6)
Foreign exchange effect..................................... (1.2)
------------------
Balance at end of period...................................$ 64.7
==================
Stock-Based Compensation. At June 30, 2004, the Company had 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 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 Six Months
Ended June 30, Ended June 30,
--------------------------- ----------------------------
2004 2003 2004 2003
------------ -------------- ------------- --------------
Reported net income (loss) .............................. $ 59.1 $ (51.8) $ 76.1 (39.8)
Deduct: Total stock-based employee compensation expense
determined under fair value based methods for all
awards, net of related income tax effects............... (1.2) (1.0) (2.5) (2.1)
------------ -------------- ------------- --------------
Pro forma net income (loss) ............................ $ 57.9 $ (52.8) $ 73.6 (41.9)
============ ============== ============= ==============
Per common share:
Basic:
Reported net income (loss) ......................... $ 1.20 $ (1.09) $ 1.55 (0.84)
============ ============== ============= ==============
Pro forma net income (loss) ........................ $ 1.17 $ (1.11) $ 1.50 (0.88)
============ ============== ============= ==============
Diluted:
Reported net income (loss) ......................... $ 1.17 $ (1.09) $ 1.50 (0.84)
============ ============== ============= ==============
Pro forma net income (loss) ........................ $ 1.14 $ (1.11) $ 1.45 (0.88)
============ ============== ============= ==============
7
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 Six Months
Ended June 30, Ended June 30,
--------------------------- --------------------------------
2004 2003 2004 2003
------------ -------------- -------------- ---------------
Dividend yields................................. 0.0% 0.0% 0.0% 0.0%
Expected volatility............................. 51.10% 52.16% 51.10% 52.16%
Risk-free interest rates........................ 4.04% 4.59% 4.04% 4.59%
Expected life (in years)........................ 10.0 10.0 10.0 9.7
Aggregate fair value of options granted.......... $ 1.1 $ 0.1 $ 7.1 $ 4.6
Weighted average fair value at date of grant
for options granted............................. $ 21.39 $ 12.22 $ 22.42 $ 7.61
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.
NOTE B - ACQUISITIONS AND DIVESTITURES
Acquisitions
- ------------
On February 14, 2003, the Company completed the acquisition of Commercial Body
Corporation ("Commercial Body"). Commercial Body, headquartered in San Antonio,
Texas with locations in various states, distributes, assembles, rents and
provides service of products for the utility, telecommunications and municipal
markets. In connection with the acquisition, the Company issued approximately
600 thousand shares of Common Stock and paid $3.7 cash. In addition, the Company
may be required to pay cash or issue additional shares of Common Stock (at the
Company's option) if, on the second anniversary of the Commercial Body
acquisition, the Common Stock is not trading on the New York Stock Exchange at a
price at least 50% higher than it was at the time of the acquisition, up to a
maximum number of shares of Common Stock having a value of $3.4. At the time of
Terex's acquisition of Commercial Body, Commercial Body had a 50% equity
interest in Combatel Distribution, Inc. ("Combatel"). The remaining 50% of
Combatel was owned by Terex and prior to the Commercial Body acquisition had
been accounted for under the equity method of accounting. During the second
quarter of 2003, Commercial Body and Combatel merged to form Terex Utilities
South, Inc. ("Utilities South"). Utilities South is included in the Terex
Roadbuilding, Utility Products and Other segment. The operating results of
Commercial Body and Combatel are included in the Company's consolidated results
of operations since February 14, 2003, its date of acquisition.
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.
On April 22, 2004, the Company purchased an additional 10% of the outstanding
shares of Tatra for $1.2 in cash. These acquisitions bring Terex's total
ownership interest in Tatra to approximately 81%. Tatra's results have been
included in the Company's consolidated financial statements since August 28,
2003. Upon the initial consolidation of Tatra into the Company's consolidated
financial results, Tatra's debt totaled approximately $33. This debt primarily
consisted of notes payable to financial institutions. Tatra is part of the
Company's Roadbuilding, Utility Products and Other segment.
The Company owns an approximately 67% 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. The
Company and Tatra each owned approximately a one-third interest in ATC at August
28, 2003. 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. Prior to this date the
Company accounted for its investment in ATC under the equity method of
accounting. The Company subsequently acquired Tatra's interest in ATC on June
14, 2004 for approximately $1.4, which was used to repay certain indebtedness of
Tatra to the Company.
8
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 and liabilities used in the allocation of purchase
consideration for the acquisition of Tatra. The Company does not anticipate that
the final results of these valuations will have a material impact on its
financial position, results of operations or cash flows.
On December 19, 2003, the Company completed the acquisition of substantially all
of the assets comprising the business of Compass Equipment Leasing ("CEL") and
Asplundh Canada. Both businesses rent digger derricks, aerial devices and other
related equipment to contractors and utility customers in the United States and
Canada, respectively. The purchase consideration was $0.1 plus the assumption of
CEL's and Asplundh Canada's operating lease obligations. Both businesses are
included in the Terex Roadbuilding, Utility Products and Other segment.
The Company is in the process of completing certain appraisals and other studies
for the purpose of determining the respective fair value of the tangible and
intangible assets acquired. This information will be used to allocate the
purchase consideration. The Company does not anticipate that the final results
of these studies will have a material impact on its financial position, results
of operations or cash flows.
Divestitures
- ------------
During the second quarter of 2004, the Company sold certain legacy parts
businesses for $2.5 in cash and promissory notes, as the Company's strategy is
to focus on supporting core Terex products. These legacy parts businesses were
included in the Terex Cranes and Terex Mining segments prior to their sale. In
addition, the Company entered into a 10 year non-compete agreement with the
purchaser of these businesses for a $0.8 promissory note.
In 2002, the Company acquired an interest in Crane & Machinery, Inc. ("C&M"),
which distributed, rented and serviced crane products, including those products
manufactured by the Company. During 2002, the Company acquired from an
unaffiliated financial institution outstanding loans in the amount of
approximately $5.9 owed by C&M to that financial institution, and C&M was
obligated to make payments to the Company pursuant to the terms of such loans.
The results of C&M were consolidated in the Company's financial results from
December 31, 2002 through November 10, 2003. On November 10, 2003, the Company
sold its interest in C&M, and obtained a third party guarantee of the loans
payable by C&M to the Company, as well as a pledge of the assets of C&M as
security for the payment of such loans. As a result, the Company ceased to
consolidate C&M's results as of November 10, 2003. In addition, on November 10,
2003, the Company sold substantially all of the assets of its Schaeff
Incorporated subsidiary (a manufacturer of forklifts) to C&M, in consideration
of C&M assuming approximately $3.1 of Schaeff Incorporated's indebtedness to the
Company, with such indebtedness secured by the guarantee and pledge described
above. The results of Schaeff Incorporated and C&M were included in the Terex
Cranes segment prior to the November 10, 2003 transactions.
NOTE C - GOODWILL
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.
An analysis of changes in the Company's goodwill by business segment is as
follows:
Terex
Terex Roadbuilding,
Aerial Utility
Terex Terex Work Terex Products and
Construction Cranes Platforms Mining Other Total
---------------- ------------ --------------- ------------- ----------------- --------------
Balance at December 31, 2003..... $ 328.4 $ 89.7 $ 50.0 $ --- $ 135.4 $ 603.5
Acquisitions..................... --- --- 8.5 --- 6.4 14.9
Foreign exchange effect.......... (1.9) (0.7) --- --- 0.1 (2.5)
---------------- ------------ --------------- ------------- ----------------- ---------------
Balance at June 30, 2004......... $ 326.5 $ 89.0 $ 58.5 $ --- $ 141.9 $ 615.9
================ ============ =============== ============= ================= ===============
In April 2004 the Company made an $8.5 cash payment to the previous owners of
Genie Holdings, Inc. and its affiliates ("Genie"). The payment was related to a
contingent deferred purchase price adjustment, and was based on the collection
of certain trade receivables which were outstanding on the acquisition date.
Genie is included in the Terex Aerial Work Platforms segment.
9
The goodwill recognized for the acquisitions of Tatra, CEL and Asplundh Canada
as of June 30, 2004 is not final as the Company has not yet completed its
valuations of the acquired tangible and intangible assets.
NOTE D - DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into two types of derivatives: hedges of fair value exposures
and hedges of cash flow exposures. Fair value exposures relate to recognized
assets or liabilities and firm commitments, while cash flow exposures relate to
the variability of future cash flows associated with recognized assets or
liabilities or forecasted transactions.
The Company operates internationally, with manufacturing and sales facilities in
various locations around the world, and uses certain financial instruments to
manage its foreign currency, interest rate and fair value exposures. To qualify
a derivative as a hedge at inception and throughout the hedge period, the
Company formally documents the nature and relationships between the hedging
instruments and hedged items, as well as its risk-management objectives,
strategies for undertaking the various hedge transactions and method of
assessing hedge effectiveness. Additionally, for hedges of forecasted
transactions, the significant characteristics and expected terms of a forecasted
transaction must be specifically identified, and it must be probable that each
forecasted transaction will occur. If it were deemed probable that the
forecasted transaction will not occur, the gain or loss would be recognized in
earnings currently. Financial instruments qualifying for hedge accounting must
maintain a specified level of effectiveness between the hedging instrument and
the item being hedged, both at inception and throughout the hedged period. The
Company does not engage in trading or other speculative use of financial
instruments.
The Company uses forward contracts and options to mitigate its exposure to
changes in foreign currency exchange rates on third-party and intercompany
forecasted transactions. The primary currencies to which the Company is exposed
include the Euro, 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. On the Consolidated Statement of Cash Flows, the Company
records cash flows from hedging activities in the same manner as it records the
underlying item being hedged.
The Company entered into interest rate swap agreements that effectively
converted variable rate interest payments into fixed rate interest payments. At
June 30, 2004, 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 June 30, 2004 was a loss of $1.1, 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 six months ended June 30, 2004 and 2003, 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
June 30, 2004, the Company had $279.0 notional amount of such interest rate swap
agreements outstanding, all of which mature in 2006 through 2014. The fair
market value of these swaps at June 30, 2004 was a loss of $4.1, which is
recorded in other non-current liabilities. These swap agreements have been
designated as, and are effective as, fair value hedges of outstanding debt
instruments. During December 2002, the Company exited an interest rate swap
agreement in the notional amount of $100.0 with a 2011 maturity that converted
fixed rate interest payments into variable rate interest payments. The Company
received $5.6 upon exiting this swap agreement. These gains are being amortized
over the original maturity and, netted against the market value of the swap
agreements held at June 30, 2004, are offset by a $0.5 addition in the carrying
value of the long-term obligations being hedged.
10
The Company is also a party to currency exchange forward contracts, that mature
within 15 months, to manage its exposure to changing currency exchange rates. At
June 30, 2004, the Company had $270.8 of notional amount of currency exchange
forward contracts outstanding, all of which mature on or before September 30,
2005. The fair market value of these swaps at June 30, 2004 was a gain of $7.2.
At June 30, 2004, $261.8 notional amount of these swap agreements have been
designated as, and are effective as, cash flow hedges of specifically identified
assets and liabilities. For these cash flow hedges, during the three months and
six months ended June 30, 2004 and 2003, the Company recorded the change in fair
value to accumulated other comprehensive income (loss) and reclassified to
earnings a portion of the deferred loss from accumulated other comprehensive
income (loss) as the hedged transactions occurred and were recognized in
earnings.
At June 30, 2004, the fair value of all derivative instruments designated as
cash flow hedges and fair value hedges have been recorded in the Condensed
Consolidated Balance Sheet as a net asset of $6.1 and 4.1, respectively.
Counterparties to interest rate derivative contracts and currency exchange
forward contracts are major financial institutions with credit ratings of
investment grade or better and no collateral is required. There are no
significant risk concentrations. Management believes the risk of incurring
losses on derivative contracts related to credit risk is remote and any losses
would be immaterial.
Unrealized net gains (losses) included in Other Comprehensive Income (Loss) are
as follows:
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- -------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
Balance at beginning of period.......... $ 2.7 $ 0.8 $ 6.5 $ 2.1
Additional gains (losses)............... 5.8 (1.3) 5.3 (3.8)
Amounts reclassified to earnings........ (4.1) (3.3) (7.4) (2.1)
------------ ------------ ------------ ------------
Balance at end of period................ $ 4.4 $ (3.8) $ 4.4 $ (3.8)
============ ============ ============ ============
NOTE E -- RESTRUCTURING AND OTHER CHARGES
The Company continually evaluates its cost structure to ensure that it is
appropriately positioned to respond to changing market conditions. During 2003
and 2002, the Company experienced declines in several markets. In addition, the
Company's recent acquisitions have created product, production and selling and
administrative overlap with existing businesses. In response to changing market
demand and to optimize the impact of recently acquired businesses, the Company
has initiated the restructuring programs described below. For further
information on restructuring programs, refer to the Company's Annual Report on
Form 10-K for the year ended December 31, 2003.
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.
2004 Programs
In the second quarter of 2004, the Company recorded a charge of $2.7 related to
restructuring at its Atlas Terex facility in Loenigen, Germany, of which $2.2
has been recorded in cost of goods sold and $0.5 has been recorded in selling,
general and administrative expenses. The Company implemented this restructuring
because it had concluded that it is more cost-effective to outsource the
activities that have been performed at the Loenigen facility. The closure of
this facility will reduce employment by approximately 40 employees and is
expected to be completed by September 30, 2004. As of June 30, 2004, 28
employees have ceased working for the Company. The cash impact of the program
will be approximately $2, excluding any proceeds that may be received from the
sale of the facility. The results of Atlas Terex are reported in the Terex
Construction segment. The Loenigen closure is expected to generate annual cost
savings of approximately $1.2 when fully implemented.
Also in the second quarter of 2004, the Company recorded a charge of $4.3 in
cost of goods sold for restructuring related to the closure of its Atlas Terex
truck-mounted crane facility in Hamilton, Scotland. The charge is a result of
the Company's decision to consolidate production at the Atlas Terex facility in
Delmenhorst, Germany, which already manufactures truck-mounted cranes. The
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 approximately 90 employees at
the Hamilton facility, which is expected to be completed by September 30, 2004.
The cash impact of the program will be approximately $1.7, excluding any
proceeds that may be received from the sale of the facility. The Hamilton
facility closing is expected to reduce annual operating expenses by
approximately $5 when fully implemented.
11
In addition, during the second quarter of 2004, the Company established a
restructuring program, recorded in cost of goods sold, to move its pump
manufacturing business from its B.L. Pegson facility in Coalville, England to
another Terex Construction segment component manufacturing facility in Scotland.
The non-cash charge to cost of goods sold was $0.3. The Company anticipates it
will complete the relocation of this manufacturing line by September 30, 2004 in
order to free needed capacity at the B.L. Pegson facility for crushing equipment
production.
In the second quarter of 2004, the Company created a restructuring program to
reduce the number of installation facilities in its Terex Utilities South
business unit from four facilities to three facilities. Headcount related to
this program was reduced by 20 employees. The Company recorded a $0.3 charge to
cost of goods sold related to this program. This charge consists of $0.2 cash
and a $0.1 non-cash component. This program is expected to be completed during
the third quarter of 2004. Terex Utilities South is part of the Terex
Roadbuilding, Utility Products and Other Segment.
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, the program was substantially complete and all employees had ceased
working for the Company. CMI Terex is included in the Terex Roadbuilding,
Utility Products and Other segment.
Also in the first quarter of 2003, the Company recorded charges of $0.3 for
restructuring at its Terex-RO facility in Olathe, Kansas. As a result of weak
demand in the Company's North American crane business, the Terex-RO facility has
been closed and the production performed at that facility has been consolidated
into the Company's hydraulic crane production facility in Waverly, Iowa. The
program reduced employment by approximately 50 employees and was substantially
completed at September 30, 2003. Booms for the Terex-RO product were already
being produced in the Waverly facility; accordingly, no production problems are
anticipated in connection with this consolidation. Terex-RO is included in the
Terex Cranes segment.
The Company recorded a charge of $1.5 in the first quarter of 2003 for the exit
of all activities at its EarthKing e-commerce subsidiary. The $1.5 charge is for
non-cash closure costs and has been recorded in cost of goods sold. EarthKing is
included in the Terex Roadbuilding, Utility Products and Other segment. The
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 German 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 June
30, 2004, all of the employees had ceased employment with the Company and the
program was completed. Terex Peiner is included in the Terex Cranes segment. The
Terex Peiner closing is expected to reduce annual operating costs by $3.4.
The Company also recorded a restructuring charge in the second quarter of 2003
of $1.9 for future cash expenditures related to the closure of its Powerscreen
facility in Kilbeggan, Ireland. The $1.9 was comprised of $1.0 of severance
charges and $0.9 of accruable exit costs. This charge is a result of the
Company's decision to consolidate its European Powerscreen business at its
facility in Dungannon, Northern Ireland. This consolidation will lower the
Company's cost structure for this business and better utilize manufacturing
capacity. As a result of the restructuring, the Company has accrued for a
headcount reduction of 121 employees at the Kilbeggan facility. As of September
30, 2003, all of the employees had ceased employment with the Company. The
program was substantially complete at March 31, 2004, except for the disposal of
certain real property which is expected to be finalized in 2004. The Powerscreen
Kilbeggan facility is included in the Terex Construction segment. During the
three months ended June 30, 2003, $1.8 and $0.1 were recorded in cost of goods
sold and selling, general and administrative expenses, respectively. The
Kilbeggan facility closing is expected to generate annual cost savings of
approximately $3.
In addition, during the second quarter of 2003, the Company recorded
restructuring charges of $4.7 in the Terex Roadbuilding, Utility Products and
Other segment. These restructuring charges are the result of continued poor
12
performance in the Roadbuilding business and the Company's efforts to streamline
operations and improve profitability. The $4.7 restructuring charge is comprised
of the following components:
o A $2.8 charge related to exiting the bio-grind recycling business,
with $2.5 recorded in cost of goods sold and $0.3 recorded in selling,
general and administrative expenses.
o A charge of $1.8 related to the exiting of the screening and
shredder-mixer business operated at its Durand, Michigan facility,
with $1.7 recorded in cost of goods sold and $0.1 recorded in selling,
general and administrative expenses.
o A $0.1 charge was recorded in selling, general and administrative
expenses related to the headcount reduction of 17 employees at the
Company's Cedarapids facility.
During the third quarter of 2003, the Company recorded a severance charge of
$0.1 for future cash expenditures at its hydraulic crane production facility in
Waverly, Iowa. The Company has terminated six employees due to the integration
of the Terex-RO facility into Waverly. This charge has been recorded in cost of
goods sold.
All of the 2003 projects are expected to reduce annual operating costs by
approximately $15 in the aggregate when fully implemented.
2002 Programs
During 2002, the Company initiated a series of restructuring projects that
related to productivity and business rationalization. Restructuring programs
which began in 2002, but which were not completed prior to January 1, 2003,
include:
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.
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, provided pressurized
containers to the transportation industry. The business, acquired as
part of the Powerscreen acquisition in 1999, was part of the Company's
Construction segment and was 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 had faced declining demand over
the past few years and was not integral to the Construction business.
This restructuring program reduced headcount by 137 positions and was
completed as of June 30, 2003.
o The consolidation of several Terex Construction segment facilities in
the United Kingdom. The Company has consolidated several compact
equipment production facilities into a single location in Coventry,
England. The Company moved the production of mini-dumpers, rollers,
soil compactors and loader backhoes into the new facility. The Company
recorded a charge of $7.2, of which $6.1 was for severance and $1.1
was for the costs associated with exiting the facilities. The
consolidation has reduced total employment by 269 and was
substantially complete as of September 30, 2003.
o The exit of certain heavy equipment businesses related to mining
products. During the fourth quarter of 2002, the Company conducted a
review of its rental equipment businesses in both its Mining and
Construction segments. The Company's review indicated that it was not
economical to continue its mining equipment rental business due to the
high cost of moving mining equipment between customers and given the
continued weak demand for mining products. In addition, the Company
decided to rationalize its large scraper offering in its Mining
segment given the weak demand for related mining products. The Company
recorded a charge of $6.9 associated with the write down of inventory.
The Company expects to complete this project during 2004.
o The exit of certain non-core tower cranes produced by the Terex Cranes
segment under the Peiner brand in Germany. The European tower crane
business had been negatively impacted by reduced demand from large
rental customers who are undergoing financial difficulties. This has
13
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 reduced employment by 47 and was complete at September 30,
2003.
o The severance costs incurred in re-aligning the Company's management
structure. The Company eliminated an executive position and recorded a
charge of $1.5. The Company paid $0.4 prior to December 31, 2002 and
an additional $0.8 in 2003. This program was completed as of June 30,
2004.
During the first quarter of 2004, the Company recorded an additional $2.7 of
charges in cost of goods sold related to programs begun in 2003 and 2002. These
period charges related to inventory write-downs and the effect of changes in
foreign exchange and were consistent with the initial restructuring plans
established by the Company.
The following table sets forth the components and status of the restructuring
charges recorded in the six months ended June 30, 2004 that related to
productivity and business rationalization:
Employee
Termination Asset Facility
Costs Disposals Exit Costs Other Total
--------------- ------------ ------------- --------------- --------------
Accrued restructuring charges
at December 31, 2003.......... $ 0.1 $ --- $ 1.4 $ 1.3 $ 2.8
Restructuring charges........... 3.9 4.6 1.0 --- 9.5
Cash expenditures............... --- --- (0.8) (0.3) (1.1)
Non-cash write-offs............. --- (4.6) --- --- (4.6)
--------------- ------------ ------------- --------------- --------------
Accrued restructuring charges
at June 30, 2004.............. $ 4.0 $ --- $ 1.6 $ 1.0 $ 6.6
=============== ============ ============= =============== ==============
In the aggregate, the restructuring charges described above incurred during the
six months ended June 30, 2004 and 2003 were included in cost of goods sold
($8.2 and $11.4) and selling, general and administrative expenses ($1.3 and
$1.4), 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
acquisitions of Demag Mobile Cranes GmbH & Co. KG and its affiliates ("Demag")
and Genie in 2002.
Projects initiated in the Terex Cranes segment in the fourth quarter of 2002,
but which were not completed prior to January 1, 2003, 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 during 2004.
14
o The rationalization of certain crawler crane products sold under the
American Crane brand in the United States. The acquisition of Demag
created an overlap with certain large crawler cranes produced in the
Company's Wilmington, North Carolina facility. Certain cranes produced
in the North Carolina facility will be rated for reduced lifting
capacity and marketed to a different class of user. This change in
marketing strategy, triggered by the acquisition of Demag, negatively
impacted inventory values. The Company recorded a charge of $3.2
associated with the write down of inventory. The Company completed the
sale of such inventory during the fourth quarter of 2003.
During the three months ended March 31, 2004 and June 30, 2004, the Company
recorded an additional $0.8 and $0.2, respectively, of charges related to
programs begun in 2002. These period charges related to inventory write-downs
and the effect of changes in foreign exchange and were consistent with the
initial restructuring plans established by the Company.
The following table sets forth the components and status of the restructuring
charges recorded in the six months ended June 30, 2004 that relate to addressing
product, channel and production overlaps created by the acquisition of the Demag
and Genie businesses:
Employee
Termination Asset Facility
Costs Disposals Exit Costs Other Total
-------------- ------------ ------------ --------------- -------------
Accrued restructuring charges at
December 31, 2003............... $ 1.0 $ --- $ 0.6 $ --- $ 1.6
Restructuring charges............. --- 0.8 --- --- 0.8
Cash expenditures................. (0.5) --- (0.6) --- (1.1)
Non-cash write-offs............... --- (0.8) --- --- (0.8)
-------------- ------------ ------------ --------------- -------------
Accrued restructuring charges at
June 30, 2004.................. $ 0.5 $ --- $ --- $ --- $ 0.5
============== ============ ============ =============== =============
In the aggregate, the restructuring charges described above incurred during the
six months ended June 30, 2004 and 2003 were included in cost of goods sold
($0.8 and $0).
NOTE F -- INVENTORIES
Inventories consist of the following:
June 30, December 31,
2004 2003
----------------- ---------------
Finished equipment...................... $ 352.8 $ 365.7
Replacement parts....................... 255.3 251.3
Work-in-process......................... 236.6 187.4
Raw materials and supplies.............. 231.2 205.3
---------------- ---------------
Inventories............................. $ 1,075.9 $1,009.7
================ ===============
NOTE G -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
June 30, December 31,
2004 2003
---------------- ----------------
Property..................................$ 51.3 $ 51.9
Plant..................................... 231.7 233.4
Equipment................................. 256.4 249.9
---------------- ----------------
539.4 535.2
Less: Accumulated depreciation........... (185.2) (165.1)
---------------- ----------------
Net property, plant and equipment.........$ 354.2 $ 370.1
================ ================
15
NOTE H -- INVESTMENT IN JOINT VENTURE
In April 2001, Genie entered into a joint venture arrangement with a European
financial institution, pursuant to which Genie maintained a forty-nine percent
(49%) ownership interest in the joint venture, Genie Financial Services Holding
B.V. ("GFSH"). GFSH was established to facilitate the financing of Genie's
products sold in Europe. Genie contributed $4.7 in cash in exchange for its
ownership interest in GFSH. During January 2003 and 2002, Genie contributed an
additional $0.8 and $0.6, respectively, in cash to GFSH.
On January 1, 2004, the Company and its joint venture partner revised the
co-operation agreement and operating relationship with respect to GFSH. As part
of the reorganization, the name of the joint venture was changed to Terex
Financial Services Holding B.V. ("TFSH"), Genie's ownership interest in TFSH was
reduced to forty percent (40%) in exchange for consideration of $1.2 from the
joint venture partner, and Genie transferred its interest to another Company
subsidiary. In addition, the scope of TFSH's operations was broadened, as it was
granted the right to facilitate the financing of all of the Company's products
sold in Europe.
As of June 30, 2004, TFSH had total assets of $170.7, consisting primarily of
financing receivables and lease related equipment, and total liabilities of
$154.3, consisting primarily of debt issued by the joint venture partner. From
time to time, the Company has 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. Additionally, the Company is required
to maintain a capital account balance in TFSH, pursuant to the terms of the
joint venture, which could result in the reimbursement to TFSH by the Company of
losses to the extent of the Company's ownership percentage. As a result of the
capital account balance requirements for TFSH, in June 2004 the Company
contributed an additional $1.9 in cash to TFSH.
As defined by FIN 46R, TFSH is a VIE. For entities created prior to February 1,
2003, FIN 46R requires the application of its provisions effective the first
reporting period after March 15, 2004. Based on the legal, financial and
operating structure of TFSH, the Company has concluded that it is not the
primary beneficiary of TFSH and that it does not control the operations of TFSH.
Accordingly, the Company does not consolidate the results of TFSH into its
consolidated financial results. The Company applies the equity method of
accounting for its investment in TFSH.
NOTE I -- EQUIPMENT SUBJECT TO OPERATING LEASES
Operating leases arise from the leasing of the Company's products to customers.
Initial noncancellable lease terms typically range up to 84 months. The net book
value of equipment subject to operating leases was approximately $109 at June
30, 2004 and is included in "Other Assets" on the Company's Condensed
Consolidated Balance Sheet. The equipment is depreciated on the straight-line
basis over the shorter of the estimated useful life or the estimated
amortization period of any borrowings secured by the asset to its estimated
salvage value.
NOTE J -- NET INVESTMENT IN SALES-TYPE LEASES
From time to time, 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 $15.9 at June 30,
2004. 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
16
rental payments due, subject to certain minimum and maximum recourse liability
amounts. The Company's maximum credit recourse exposure was $15.0 at June 30,
2004, representing a contingent liability under the limited recourse provisions.
During 2003, Genie entered into a number of arrangements with financial
institutions to provide financing of new and eligible Genie products to
distributors and rental companies. Under these programs, Genie originates leases
or leasing opportunities with distributors and rental companies. If Genie
originates the lease with a distributor or rental company, the financial
institution will purchase the equipment and take assignment of the lease
contract from Genie. If Genie originates a lease opportunity, the financial
institution will purchase the equipment from Genie and execute a lease contract
directly with the distributor or rental company. In some instances, the Company
retains certain credit and/or residual recourse in these transactions. The
Company's maximum exposure, representing a contingent liability, under these
transactions reflects a $35.6 credit risk and a $41.5 residual value risk at
June 30, 2004.
The Company's contingent liabilities previously referred to have not taken into
account various mitigating factors. These factors include the staggered timing
of maturity of lease transactions, resale value of the underlying equipment,
lessee return penalties and annual loss caps on credit loss pools. Further, the
credit risk contingent liability assumes that the individual leases were to all
default at the same time and that the repossessed equipment has no market value.
NOTE K-- EARNINGS PER SHARE
Three Months Ended June 30,
(in millions, except per share data)
--------------------------------------------------------------------------
2004 2003
-------------------------------------- -----------------------------------
Income Shares Per-Share Income Shares Per-Share
(Loss) Amount (Loss) Amount
------------- ------------ ----------- ----------- ----------- -----------
Basic earnings per share
Net income (loss)...........................$ 59.1 49.3 $ 1.20 $ (51.8) 47.6 $ (1.09)
Effect of dilutive securities:
Stock options............................... --- 1.4 --- ---
Shares held by deferred compensation plan... --- --- --- ---
Contingently issuable shares for
acquisitions............................. --- --- --- ---
------------- ------------ ----------- -----------
Net income (loss)..............................$ 59.1 50.7 $ 1.17 $ (51.8) 47.6 $ (1.09)
============= ============ =========== =========== =========== ===========
Six Months Ended June 30,
(in millions, except per share data)
--------------------------------------------------------------------------
2004 2003
-------------------------------------- -----------------------------------
Income Shares Per-Share Income Shares Per-Share
(Loss) Amount (Loss) Amount
------------- ------------ ----------- ----------- ----------- -----------
Basic earnings per share
Net income (loss)...........................$ 76.1 49.1 $ 1.55 $ (39.8) 47.4 $ (0.84)
Effect of dilutive securities:
Stock Options............................... --- 1.5 --- ---
Shares held by deferred compensation plan... --- --- --- ---
Contingently issuable shares for
acquisitions............................. --- --- --- ---
------------- ------------ ----------- -----------
Net income (loss)..............................$ 76.1 50.6 $ 1.50 $ (39.8) 47.4 $ (0.84)
============= ============ =========== =========== =========== ===========
Had the Company recognized income (versus a loss) from continuing operations
before cumulative effect of change in accounting principle in the three months
ended June 30, 2003, diluted shares outstanding would have increased by 0.8
million for the assumed exercise of stock options, 0.6 million for the effect of
Common Stock held by the Company's deferred compensation plan and 0.5 million
for the Company's contingent obligation to make additional payments for the
acquisition of Genie. For the six months ended June 30, 2003, diluted shares
outstanding would have increased by 0.7 million for the assumed exercise of
stock options, 0.6 million for the effect of Common Stock held by the Company's
deferred compensation plan and 0.6 million for the Company's contingent
obligation to make additional payments for the acquisition of Genie.
17
Options to purchase 245 thousand, 1,017 thousand, 230 thousand and 1,593
thousand shares of Common Stock were outstanding during the three months and six
months ended June 30, 2004 and 2003, respectively, 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, 2003 and in Note B - "Acquisitions", the Company has a contingent
obligation to make additional payments in cash or Common Stock based on
provisions of certain acquisition agreements. The Company's policy and past
practice has been generally to settle such obligations in cash. Accordingly,
contingently issuable Common Stock under these arrangements totaling 226
thousand and 499 thousand shares for the three months and six months ended June
30, 2003, respectively, are not included in the computation of diluted earnings
per share. At June 30, 2004, due to the market price of the Company's Common
Stock, there were no contingently issuable shares under these arrangements
included in the computation of diluted earnings per share for the three months
and six months ended June 30, 2004.
NOTE L - INCOME TAXES
The effective tax rate for the three months and six months ended June 30, 2004
was 19.7% and 22.3%, respectively, as compared to an effective rate of
approximately 28% for the twelve months ended December 31, 2003. The effective
tax rate for the three months and six months ended June 30, 2004 is lower than
the prior year's effective tax rate due to the strong financial performance of
the Company's Fermec business, where recent performance indicated that it was
more likely than not that the Company would be able to realize the benefits of
certain tax assets, and, therefore, the valuation allowance held for this
business was released. The financial impact of this item was recognized in the
second quarter, resulting in a three month and six month tax rate that is
significantly lower than the full year's tax rate in 2003.
The effective tax rate for the three and six months ended June 30, 2003 was
20.2% and 17.6%, respectively, as compared to the effective rate of
approximately 28% for the year ended December 31, 2003. The lower effective tax
rate during the first two quarters of 2003 was due to a goodwill impairment
related to the Company's roadbuilding reporting unit recorded during the second
quarter of 2003. This goodwill impairment charge was only partially deductible
for income tax purposes.
NOTE M - EARLY EXTINGUISHMENT OF DEBT
During the second quarter of 2004, the Company prepaid $75.0 of term debt under
its bank credit facility and recorded a related non-cash charge of $1.5. The
non-cash charge related to the write-off of unamortized debt acquisition costs.
During the second quarter of 2003, the Company redeemed $50.0 aggregate
principal amount of its 8-7/8% Senior Subordinated Notes due 2008 and recognized
a non-cash charge of $1.9. The charge 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 ($2.1).
NOTE N - STOCKHOLDERS' EQUITY
Total non-stockowner changes in equity (comprehensive income) include all
changes in equity during a period except those resulting from investments by,
and distributions to, stockowners. The specific components include: net income,
deferred gains and losses resulting from foreign currency translation, minimum
pension liability adjustments, deferred gains and losses resulting from
derivative hedging transactions and deferred gains and losses resulting from
debt and equity securities classified as available for sale. Total
non-stockowner changes in equity were as follows.
For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------------- --------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
Net income (loss) .......................$ 59.1 $ (51.8) $ 76.1 $ (39.8)
Other comprehensive income (loss):
Translation adjustment.............. (13.2) 29.7 (25.6) 39.8
Derivative hedging adjustment....... 1.7 (4.6) (2.1) (5.9)
------------ ------------ ------------ ------------
Comprehensive income (loss)..............$ 47.6 $ (26.7) $ 48.4 $ (5.9)
============ ============ ============ ============
As disclosed in "Note B - 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. On April 7, 2004,
Ronald M. DeFeo, the Company's Chairman, Chief Executive Officer and President,
delivered 22,429 shares of Common Stock to the Company in connection with his
18
repayment of a loan made by the Company to Mr. DeFeo on March 2, 2000. The loan
was repaid in full by Mr. DeFeo, through this Common Stock payment and
additional cash payments, in April 2004.
NOTE O -- 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 a
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. Management does not believe that the final outcome of such matters
will have a material adverse effect on the Company's financial position.
The Company is involved in various other legal proceedings which have arisen in
the normal course of its operations. The Company has recorded provisions for
estimated losses in circumstances where a loss is probable and the amount or
range of possible amounts of the loss is estimable.
The Company's outstanding letters of credit totaled $93.2 at June 30, 2004. The
letters of credit generally serve as collateral for certain liabilities included
in the Condensed Consolidated Balance Sheet. Certain of the letters of credit
serve as collateral guaranteeing the Company's performance under contracts.
The Company has a letter of credit outstanding covering losses related to two
former subsidiaries' worker compensation obligations. The Company has recorded
liabilities for these contingent obligations representing management's estimate
of the potential losses which the Company might incur.
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.
In the second quarter of 2004, the Company settled an outstanding litigation
matter related to the Company's acquisition of O&K Mining in 1998. In connection
with the settlement, the Company recognized a gain of $5.8, which was recorded
in "Other income (expense) - net" in the Condensed Consolidated Statement of
Operations during the second quarter of 2004.
Credit Guarantees
Customers of the Company from time to time may fund the acquisition of the
Company's equipment through third-party finance companies. In certain instances,
the Company may provide a credit guarantee to the finance company, by which the
Company agrees to make payments to the finance company should the customer
default. The maximum liability of the Company is limited to the remaining
payments due to the finance company at the time of default. In the event of a
customer default, the Company is generally able to dispose of the equipment with
the Company realizing the benefits of any net proceeds in excess of the
remaining payments due to the finance company.
As of June 30, 2004, the Company's maximum exposure to such credit guarantees
was $289.5. The terms of these guarantees coincide with the financing arranged
by the customer and generally does not exceed five years. Given the Company's
position as the original equipment manufacturer and its knowledge of end
markets, the Company, when called upon to fulfill a guarantee, generally has
been able to liquidate the financed equipment at a minimal loss, if any, to the
Company.
Residual Value and Buyback Guarantees
The Company issues residual value guarantees under sales-type leases. A residual
value guarantee involves a guarantee that a piece of equipment will have a
minimum fair market value at a future point in time. As described in Note J -
"Net Investment in Sales-Type Leases," the Company's maximum exposure related to
residual value guarantees under sales-type leases was $41.5 at June 30, 2004.
The Company is able to mitigate the risk associated with these guarantees
because the maturity of these guarantees is staggered, which limits the amount
of used equipment entering the marketplace at any one time.
19
The Company from time to time guarantees that it will buy equipment from its
customers in the future at a stated price if certain conditions are met by the
customer. These conditions generally pertain to the functionality and state of
repair of the machine. Such guarantees are referred to as buyback guarantees. As
of June 30, 2004, the Company's maximum exposure to buyback guarantees was
$43.4. The Company is able to mitigate the risk of these guarantees by
staggering the timing of the buybacks and through leveraging its access to the
used equipment markets provided by the Company's original equipment manufacturer
status.
NOTE P -- RETIREMENT PLANS AND OTHER BENEFITS
Pension Plans
- -------------
U.S. Plans - As of June 30, 2004, the Company maintained four defined benefit
pension plans covering certain domestic employees (the "Terex Plans"). The
benefits for the plans covering the salaried employees are based primarily on
years of service and employees' qualifying compensation during the final years
of employment. Participation in the plans for salaried employees was frozen on
or before October 15, 2000, and no participants will be credited with service
following such dates except that participants not fully vested were credited
with service for purposes of determining vesting only. The benefits for the
plans covering the hourly employees are based primarily on years of service and
a flat dollar amount per year of service. It is the Company's policy generally
to fund the Terex Plans based on the minimum requirements of the Employee
Retirement Income Security Act of 1974 ("ERISA"). Plan assets consist primarily
of common stocks, bonds, and short-term cash equivalent funds.
The Company adopted a Supplemental Executive Retirement Plan ("SERP") effective
October 1, 2002. The SERP provides retirement benefits to certain senior
executives of the Company. Generally, the SERP provides a benefit based on
average total compensation and years of service reduced by benefits earned under
other Company funded retirement programs, including Social Security. The SERP is
unfunded.
Other Postemployment Benefits
- -----------------------------
The Company has five nonpension postretirement benefit programs. The health care
programs are contributory with participants' contributions adjusted annually;
the life insurance plan is noncontributory. The Company provides postemployment
health and life insurance benefits to certain former salaried and hourly
employees of Terex Cranes - Waverly Operations (also known as Koehring Cranes,
Inc.) and Terex Corporation. The Company provides post-employment health
benefits for certain employees at Cedarapids and Simplicity Engineering. The
Company adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other than Pensions," on January 1, 1993. This statement requires accrual of
postretirement benefits (such as health care benefits) during the years an
employee provides service. Terex adopted the provisions of SFAS No. 106 using
the delayed recognition method, whereby the amount of the unrecognized
transition obligation at January 1, 1993 is recognized prospectively as a
component of future years' net periodic postretirement benefit expense. The
unrecognized transition obligation at January 1, 1993 was $4.5. Terex is
amortizing this transition obligation over 12 years, the average remaining life
expectancy of the participants.
Pension Benefits
--------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ---------------------------
2004 2003 2004 2003
-------------- ------------- ------------- -------------
Weighted-average assumptions:
Discount rate........................ 6.00% 6.75% 6.00% 6.75%
Expected return on plan assets....... 8.00% 8.00% 8.00% 8.00%
Rate of compensation increase........ 4.00% 5.00% 4.00% 5.00%
20
Pension Benefits
---------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
2004 2003 2004 2003
-------------- ------------ ------------ --------------
Components of net periodic cost:
Service cost..........................$ 0.4 $ 0.1 $ 0.7 $ 0.3
Interest cost......................... 1.7 1.7 3.5 3.5
Expected return on plan assets........ (1.9) (1.6) (3.8) (3.3)
Amortization of prior service cost.... 0.2 0.2 0.4 0.3
Recognized actuarial (gain) loss...... 0.5 0.6 1.1 1.2
-------------- ------------ ------------ --------------
Net periodic cost (benefit).............$ 0.9 $ 1.0 $ 1.9 $ 2.0
============== ============ ============ ==============
Other Benefits
---------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
2004 2003 2004 2003
-------------- ------------ ------------ --------------
Weighted-average assumptions:
Discount rate........................ 6.00% 6.75% 6.00% 6.75%
Expected return on plan assets....... --- --- --- ---
Rate of compensation increase........ --- --- --- ---
Other Benefits
---------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
2004 2003 2004 2003
-------------- ------------ ------------ --------------
Components of net periodic cost:
Service cost.........................$ 0.1 $ 0.1 $ 0.1 $ 0.1
Interest cost......................... 0.2 0.1 0.4 0.3
Amortization of prior service cost.... --- 0.1 --- 0.1
Amortization of transition obligation. --- 0.1 0.1 0.2
Recognized actuarial (gain) loss...... 0.2 --- 0.3 0.1
-------------- ------------ ------------ --------------
Net periodic cost (benefit)............$ 0.5 $ 0.4 $ 0.9 $ 0.8
============== ============ ============ ==============
The Company plans to contribute approximately $3 to its U.S. defined benefit
pension plans in 2004. During the three months and six months ended June 30,
2004, the Company contributed $1.6 and $1.8, respectively, to its U.S. defined
benefit pension plans.
International Plans - The Company maintains defined benefit plans in Germany,
France, Ireland and the United Kingdom for some of its subsidiaries. The plans
in Germany and France are unfunded plans.
Pension Benefits
--------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------- ---------------------------------
2004 2003 2004 2003
---------------- ----------------- -------------- ------------------
Weighted-average assumptions:
Discount rate...................... 5.50%-6.00% 5.75%-6.00% 5.50%-6.00% 5.75%-6.00%
Expected return on plan assets..... 2.00%-6.50% 2.00%-7.00% 2.00%-6.50% 2.00%-7.00%
Rate of compensation increase...... 2.75%-4.00% 3.75%-4.25% 2.75%-4.00% 3.75%-4.25%
Pension Benefits
---------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------------------------------------------
2004 2003 2004 2003
----------------- ----------------- -------------- ------------------
Components of net periodic cost:
Service cost....................... $ 1.0 $ 1.0 $ 2.0 $ 1.9
Interest cost...................... 3.0 2.8 6.1 5.5
Expected return on plan assets..... (1.1) (1.0) (2.2) (1.9)
Recognized actuarial (gain) loss... 0.1 0.2 0.2 0.4
----------------- ----------------- -------------- ------------------
Net periodic cost (benefit)........... $ 3.0 $ 3.0 $ 6.1 $ 5.9
================= ================= ============== ==================
21
The Company plans to contribute approximately $12 to its international defined
benefit pension plans in 2004. During the three months and six months ended June
30, 2004, the Company contributed $2.5 and $6.0, respectively, to its
international defined benefit pension plans.
NOTE Q -- BUSINESS SEGMENT INFORMATION
Terex is a diversified global manufacturer of a broad range of equipment
primarily for the construction, infrastructure and surface mining industries.
The Company operates in five business segments: (i) Terex Construction; (ii)
Terex Cranes; (iii) Terex Aerial Work Platforms; (iv) Terex Mining; and (v)
Terex Roadbuilding, Utility Products and Other. The Company's strategy going
forward is to build the Terex brand. As part of that effort, Terex will, over
time, be migrating historic brand names to Terex and may include the use of the
historic brand name in conjunction with the Terex brand for a transitional
period of time.
The Terex Construction segment designs, manufactures and markets three primary
categories of equipment and their related components and replacement parts:
heavy construction equipment (including off-highway trucks and scrapers),
compact equipment (including loader backhoes, compaction equipment, mini and
midi excavators, loading machines, site dumpers, telehandlers and wheel
loaders); and mobile crushing and screening equipment (including jaw crushers,
cone crushers, washing screens and trommels). These products are primarily used
by construction, logging, mining, industrial and government customers in
construction and infrastructure projects and supplying coal, minerals, sand and
gravel. Terex Construction products are currently marketed principally under the
following brand names: Terex, Atlas, Finlay, Fuchs, Pegson, Powerscreen,
Benford, Fermec, Schaeff and TerexLift.
The Terex Cranes segment designs, manufactures and markets mobile telescopic
cranes, tower cranes, lattice boom crawler cranes, truck mounted cranes (boom
trucks) and telescopic container stackers, as well as their related replacement
parts and components. These products are used primarily for construction, repair
and maintenance of infrastructure, building and manufacturing facilities.
Currently, Terex Cranes products are marketed principally under the following
brand names: Terex, American, Bendini, Comedil, Demag, Franna, Peiner, PPM and
RO-Stinger.
The Terex Aerial Work Platforms segment was formed upon the completion of
Terex's acquisition of Genie and its affiliates on September 18, 2002. The Terex
Aerial Work Platforms segment designs, manufactures and markets aerial work
platform equipment and telehandlers. Products include material lifts, portable
aerial