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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
|X| OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the Fiscal Year Ended December 31, 1996
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
|_| OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from __________ to __________.
Commission File Number 1-10702
TEREX CORPORATION
(Exact Name of Registrant as Specified in Charter)
Delaware 34-1531521
(State of incorporation) (I.R.S. Employer
Identification No.)
500 Post Road East, Suite 320, Westport, Connecticut 06880 (203) 222-7170
(Address of principal executive offices) (Telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $.01 par value
(Title of Class)
New York Stock Exchange
(Name of Exchange on which Registered)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
YES X NO____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was approximately $85.4 million based on the last sale price on
February 28, 1997.
The number of shares of the Registrant's Common Stock outstanding was 13,294,502
as of February 28, 1997.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the 1997 Terex Corporation Proxy Statement to be filed with the
Securities and Exchange Commission within 120 days after the year covered by
this Form 10-K with respect to the 1997 Annual Meeting of Stockholders are
incorporated by reference into Part III .
TEREX CORPORATION AND SUBSIDIARIES
Index to Annual Report on Form 10-K
For the Year Ended December 31, 1996
Page
PART I
Item 1 Business......................................................... 3
Item 2 Properties....................................................... 8
Item 3 Legal Proceedings................................................ 8
Item 4 Submission of Matters to a Vote of Security Holders.............. 8
PART II
Item 5 Market for Registrant's Common Stock and
Related Stockholder Matters.................................... 9
Item 6 Selected Financial Data.......................................... 10
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations.................. 11
Item 8 Financial Statements and Supplementary Data...................... 19
Item 9 Changes in and Disagreements With Accountants
on Accounting and Financial Disclosures........................ 19
PART III
Item 10 Directors and Executive Officers of the Registrant............... *
Item 11 Executive Compensation........................................... *
Item 12 Security Ownership of Certain Beneficial Owners and Management... *
Item 13 Certain Relationships and Related Transactions................... *
PART IV
Item 14 Exhibits, Financial Statement Schedule and Reports on Form 8-K... 20
* Incorporated by reference from Terex Corporation Proxy Statement.
Terex Corporation, together with its consolidated subsidiaries, is hereinafter
referred to as "Terex," the "Registrant," or the "Company." Dollar amounts
except per share are in millions unless otherwise designated.
PART I
ITEM 1. BUSINESS
General
Terex is a global provider of capital goods and equipment used in the
manufacturing, mining, construction and infrastructure industries.
The Company's operations began in 1983 with the purchase of Northwest
Engineering Company, the Company's original business and name. Since 1983,
management has expanded and changed the Company's business through a series of
acquisitions and dispositions. In 1988, Northwest Engineering Company merged
into a subsidiary acquired in 1986 named Terex Corporation, with Terex
Corporation as the surviving corporation. As a result of the completion of a
significant acquisition in 1995 (see "Terex Cranes" below), the Company's
operations were divided into three principal segments: Material Handling and
Heavy Equipment and Mobile Cranes. As a result of the disposition of its
Material Handling segment in November 1996 (see "Discontinued Operations"
below), the Company currently operates in two business segments: Terex Cranes
and Terex Trucks. For 1996, consolidated revenues for continuing operations of
the Company amounted to approximately $678.5.
Terex Cranes (formerly known as the Company's Mobile Cranes Segment) designs,
manufactures and markets mobile cranes, aerial platforms and lifts, container
stackers and scrap handlers and related components and replacements parts. These
products are primarily used by construction and industrial customers. Mobile
cranes and container stackers are sold under the TEREX, PPM, BENDINI, LORAIN,
KOEHRING and P&H (a licensed trademark of Harnischfeger Corporation) brand
names. Aerial lifts are sold under the MARKLIFT brand name. Terex Cranes is
headquartered in Conway, South Carolina.
Terex Trucks (formerly known as the Company's Heavy Equipment Segment) designs,
manufactures and markets heavy-duty, off-highway rigid and articulated trucks
and scrapers and related components and replacement parts. These products are
used primarily by construction, mining, logging, industrial and government
customers in building roads, dams and commercial and residential buildings, and
in supplying coal, minerals, sand and gravel. Terex Trucks is headquartered in
Motherwell, Scotland.
For financial information about the Company's industry and geographic segments,
see Note O --- "Business Segment Information" in the Notes to the Consolidated
Financial Statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The Company's long term strategy has been, and continues to be, to seek out
acquisitions in the capital goods industry where aggressive management can
achieve substantial improvements in profitability and cash flow.
Recent Developments
On November 27, 1996, the Company and certain of its subsidiaries completed the
sale of the Company's worldwide material handling business ("CMHC") for $139.5
in cash (subject to certain adjustments) to CLARK Material Handling Company
(formerly known as CMHC Acquisition Corporation), a company formed by Citicorp
Venture Capital Ltd. and certain members of CMHC's management. CMHC is a leading
North American and European designer, manufacturer and marketer of a complete
line of lift trucks, electric walkies and related components and replacement
parts under the Clark trademark. CMHC is headquartered in Lexington, Kentucky
and its manufacturing facilities are located in Lexington, Kentucky and
Mulheim-Ruhr, Germany.
Following the sale of CMHC, the Company offered to repurchase (the "Offer") $100
principal amount of its 13.25% Senior Secured Notes due 2002 (the "Senior
Secured Notes"), in accordance with the terms of the Senior Secured Note
Indenture. The Offer expired on December 27, 1996, but no Senior Secured Notes
were tendered for repurchase. As a result, the $100 of sale proceeds were
available for other corporate purposes.
The Company's Series A Cumulative Redeemable Convertible Preferred Stock, par
value $.01 per share (the "Series A Preferred Stock") had a 13% dividend rate,
which was to increase to 18% at the end of 1998. In light of the foregoing, and
to improve the Company's capital structure, on December 30, 1996, Terex called
its Series A Preferred Stock for redemption on January 29, 1997. The aggregate
redemption price for the 1,200,000 shares, comprising the entire issue of the
Series A Preferred Stock, was approximately $45.4.
On February 24, 1997, the Company executed an Agreement of Purchase and Sale
with Simon Engineering plc and certain subsidiaries (collectively, "Simon
Engineering") pursuant to which the Company has agreed to acquire the industrial
businesses of Simon Access division ("Simon Access Division") from Simon
Engineering for the sum of $90.
The Simon Access Division to be acquired consists principally of several
business units in the United States and Europe which are engaged in the
manufacture and sale of access equipment designed to position people and
materials to work at heights. The Simon Access Division products include truck
mounted aerial devices, aerial work platforms and truck mounted cranes (boom
trucks) which are sold to customers in the industrial and construction markets
and utility companies. Specifically, Terex has agreed to acquire 100% of the
outstanding common stock of (i) Simon-Telelect Inc., a Delaware corporation,
(ii) Simon Aerials, Inc., a Wisconsin corporation and parent company of Simon
RO, (iii) Sim-Tech Management Limited, a private limited company incorporated
under the laws of Hong Kong, (iv) Simon Cella, S.r.l., a company incorporated
under the laws of Italy, and (v) Simon Aerials Limited, a company incorporated
under the laws of Ireland; and 60% of the outstanding common stock of
Simon-Tomen Engineering Company Limited, a limited liability stock company
organized under the laws of Japan. Not included in the businesses to be acquired
are the Simon Access Division's fire fighting equipment businesses.
The consummation of the acquisition is expected to take place in April 1997 and
is subject principally to the approval of the transactions by the shareholders
of Simon Engineering plc. Upon consummation of the acquisition, the purchased
business units will become a part of the Terex Cranes segment.
In conjunction with the acquisition of Simon Access Division, the Company has
received a commitment for financing from a financial institution. The commitment
is for a three year period for a $125.0 credit facility (the "New Credit
Facility") to be secured by the Company's domestic receivables and inventories.
The New Credit Facility will replace the Company's $100 current revolving credit
facility that matures in May 1998.
Terex Cranes
Terex Cranes was established as a separate business segment as a result of an
acquisition (the "PPM Acquisition") in May 1995 of substantially all of the
shares of PPM S.A. and certain of its subsidiaries, including PPM SpA, Brimont
Agraire S.A., a specialized trailer manufacturer in France, PPM Krane GmbH, a
sales organization in Germany, and Baulift Baumaschinen Und Krane Handels GmbH,
a parts distributor in Germany (collectively, "PPM Europe") from Potain S.A.,
and all of the capital stock of Legris Industries, Inc., which owned 92.4% of
the capital of PPM Cranes, Inc., ("PPM North America" and PPM Europe and PPM
North America are collectively referred to herein as "PPM") from Legris
Industries, S.A. Concurrently with the completion of the PPM Acquisition, the
Company contributed the assets (subject to liabilities) of its Koehring Cranes
and Excavators and Mark Industries division to Terex Cranes, Inc. The former
division now operates as Koehring Cranes, Inc. ("Koehring"), a wholly owned
subsidiary of Terex Cranes, Inc. Koehring and PPM comprise the Company's Terex
Cranes segment.
Terex Cranes has four significant manufacturing operations: (i) PPM S.A. located
in Montceau Les Mines, France, at which mobile cranes and container stackers
under the brand name PPM are manufactured, (ii) PPM SpA, located in Crespellano,
Italy, at which mobile cranes are manufactured under the BENDINI and PPM brand
names, (iii) Terex Cranes, located in Conway, South Carolina, at which mobile
cranes are manufactured under the P&H (a licensed trademark of Harnischfeger
Corporation) and TEREX brand names, and (iv) Terex Cranes - Waverly Operations
(sometimes referred to as "Koehring") located in Waverly, Iowa, at which rough
terrain hydraulic telescoping mobile cranes, truck cranes and material handlers
are manufactured under the brand names TEREX, KOEHRING and LORAIN, and aerial
lift equipment is manufactured under the brand name MARKLIFT.
Throughout the world market, mobile cranes are principally sold to rental
companies and dealers with rental fleets. Terex Cranes' mobile crane market
share varies dramatically by geographical area; however, the Company believes it
is the leading manufacturer of mobile cranes in France and Italy and is the
second largest manufacturer in North America. Terex Cranes' principal worldwide
mobile crane competitors are Grove Manufacturing, Liebherr Werk Ehingen, Link
Belt (Sumitomo), and Tadano; Terex Cranes competes with several smaller
specialty companies in North America and with Grove Cranes Ltd. (including the
recently acquired Krupp Mobilkran), Liebherr Werk Ehingen and DeMag in Europe.
Terex Cranes maintains a meaningful niche market share in the large scrap
handler industry, in which the Company's principal customers are master dealers
and the largest competitor is Libherr Werk Ehingen. Terex Cranes' major
competitors in the container stacker market are Kalmar, Valmet Belloti and
Taylor. Terex Cranes is currently not a dominant competitor in the aerial lift
industry; however, when the purchase of the Simon Access division is
consummated, the Company believes it will become a more meaningful competitor in
the aerial lift industry. Currently, the leading competitor in the aerial lift
industry is JLG Industries, followed by Grove Manufacturing, Skyjack, Snorkel,
Genie and Upright.
Terex Trucks
Terex Trucks has two manufacturing operations: (i) Terex Equipment Limited
("TEL"), located at Motherwell, Scotland, which manufactures off-highway rigid
haulers and articulated haulers and scrapers, each sold under the TEREX brand
name and to other truck manufacturers on a private label basis; and (ii) the
Unit Rig Division of Terex Trucks, located in Tulsa, Oklahoma, which
manufactures electric rear and bottom dump haulers principally sold to the
copper, gold and coal mining industry customers in North and South America,
Asia, Africa and Australia. Unit Rig's products are sold under the Company's
TEREX, UNIT RIG, and LECTRA HAUL trademarks. TEL's North, Central and South
American sales and distribution are managed by Terex Americas, a division of the
Company, located in Tulsa, Oklahoma.
A "hauler" is an off-road dump truck with a capacity in excess of 25 tons.
Haulers produced by TEL have capacities ranging from 25 to 100 tons. The
"scrapers" manufactured by TEL are off-road vehicles, commonly referred to as
"earth movers," that load, move and unload large quantities of soil for site
preparations, including roadbeds. The Unit Rig hauler is powered by a diesel
engine driving an electric generator that provides power to individual electric
motors in each of the rear wheels. Unit Rig's current LECTRA HAUL product line
consists of a series of rear dump hauler trucks with payload capacities ranging
from 100 to 260 tons, and bottom dump haulers with capacities ranging from 180
to 270 tons.
In addition to its two wholly owned manufacturing operations, Terex Trucks has
an interest in North Hauler Limited Liability Company, a corporation
incorporated under the laws of China. In 1987, TEL entered into a joint venture
agreement with Second Inner Mongolia Machinery Company for the production of
haulers in China. The joint venture company, North Hauler Limited Liability
Company, manufactures heavy trucks, principally used in mining, at a facility in
Baotou, Inner Mongolia, People's Republic of China.
Terex Trucks is recognized as a significant competitor in the market for large
capacity off highway haulers and scrapers. However, the Company is not a
dominant manufacturer in the heavy equipment industry, which is dominated in
most segments by large, diversified firms, such as Caterpillar, Volvo Group and
Komatsu with respect to the TEL products and Caterpillar, Komatsu, Liebherr Werk
Ehingen and Euclid with respect to Unit Rig products.
Discontinued Operations
On November 27, 1996, the Company sold substantially all the assets and
liabilities of its worldwide material handling business ("CMHC") for an
aggregate cash purchase price, subject to adjustments, of $139.5. Prior to the
disposition on November 27, 1996, CMHC consisted of Clark Material Handling
Company and certain affiliated companies which were acquired by the Company in
July 1992 from Clark Equipment Company. CMHC designed, manufactured and marketed
a complete line of internal combustion and electric lift trucks, electric
walkies and related components and replacement parts under the CLARK trademark.
Environmental Considerations
The Company generates hazardous and nonhazardous wastes in the normal course of
its operations. As a result, the Company is subject to a wide range of federal,
state, local and foreign environmental laws and regulations, including the
Comprehensive Environmental Response, Compensation and Liability Act, that (i)
govern activities or operations that may have adverse environmental effects,
such as discharges to air and water, as well as handling and disposal practices
for hazardous and nonhazardous wastes, and (ii) impose liability for the costs
of cleaning up, and certain damages resulting from, sites of past spills,
disposals or other releases of hazardous substances. Compliance with such laws
and regulations has, and will, require expenditures by the Company on a
continuing basis.
Research and Development
The Company maintains engineering staffs at several of its locations which
design new products and improvements in existing product lines. Such costs
incurred in the development of new products or significant improvements to
existing products of continuing operations amounted to $6.1, $5.0 and $2.1 in
1996, 1995 and 1994, respectively.
Materials
Principal materials used by the Company in its various manufacturing processes
include steel, castings, engines, tires, hydraulic cylinders, electric controls
and motors, and a variety of other fabricated or manufactured items. In the
absence of labor strikes or other unusual circumstances, substantially all
materials are normally available from multiple suppliers. Current and potential
suppliers are evaluated on a regular basis on their ability to meet the
Company's requirements and standards. Electric wheel motors and controls used in
the Unit Rig product line are currently supplied exclusively by General Electric
Company.
Working Capital Items
The Company, in the normal course of business, does not provide right of return
on merchandise sold, nor does it provide extended payment terms to customers.
Seasonal Factors
The Company markets a large portion of its products in North America and Europe,
and its sales of heavy equipment and cranes during the fourth quarter of each
year (i.e., October through December) to the construction industry are usually
lower than sales of such equipment during each of the first three quarters of
the year because of the normal winter slowdown of construction activity.
However, sales of heavy equipment to the mining industry are generally less
affected by such seasonal factors.
Distribution
Terex Cranes distributes its products primarily through a global network of over
300 independent dealers organized by product line. With respect to mobile
cranes, in North America, Terex Cranes maintains extensive dealer networks. The
geographic strength of Terex Cranes' mobile cranes marketed under the LORAIN
brand name, centers in the midwest and mid-Atlantic regions of the U.S. and the
geographic strength of mobile cranes marketed under the P&H (a licensed
trademark of Harnischfeger Corporation) brand, centers in the southern and
western regions of the U.S. Terex Cranes European distribution is carried out
primarily under three brand names, TEREX, PPM and BENDINI, through a single
distribution network comprised of both distributors and a direct sales force.
TEL markets original equipment and repair parts primarily through worldwide
dealership networks. Terex Americas manages the sales activity and distribution
of TEL products in North, Central and South America. TEL's heavy equipment
dealers are independent businesses which generally serve the construction,
mining, timber and/or scrap industries. Although these dealers carry products of
a variety of manufacturers, and may or may not carry more than one of the
Company's products, each dealer generally carries only one manufacturer's
"brand" of each particular type of product. The Company employs sales
representatives who service these dealers from offices located throughout the
world. Unit Rig distributes its products and services directly to customers
primarily through its own distribution system.
Backlog
The Company's backlog as of December 31, 1996 and 1995 was as follows:
December 31,
---------------------------
1996 1995
------------- -------------
Terex Trucks....................... $ 53.4 $ 88.8
Terex Cranes....................... 67.2 85.3
------------- -------------
Total......................... $ 120.6 $ 174.1
============= =============
Substantially all of the Company's backlog orders are expected to be filled
within one year, although there can be no assurance that all such backlog orders
will be filled within that time period. The Company's backlog orders represent
primarily new equipment orders. Parts orders are generally filled on an
as-ordered basis. The backlog for the Terex Trucks' segment was unusually high
at year end in 1995 as a result of a large order for Unit Rig equipment which
was placed late in 1995. Average backlog at Terex Trucks for 1996 was $68.1 as
compared to $57.0 for 1995. Accordingly, average backlog in the Terex Trucks
segment remained constant. Backlog in Terex Cranes decreased in 1996 primarily
due to the sale of a business unit in 1996. Excluding the backlog at the sold
unit, the decrease in backlog at Terex Cranes was $10.2, primarily in Europe.
Patents, Licenses and Trademarks
Several of the trademarks and trade names of the Company, in particular the
TEREX, KOEHRING, LORAIN, UNIT RIG, MARKLIFT, P&H (licensed from Harnischfeger
Corporation), PPM and BENDINI trademarks, are important to the business of the
Company. The Company owns and maintains trademark registrations and patents in
countries where it conducts business, and monitors the status of its trademark
registrations and patents to maintain them in force and renews them as required.
The Company also protects its trademark, trade name and patent rights when
circumstances warrant such action, including the initiation of legal proceedings
if necessary.
Employees
As of December 31, 1996, the Company had approximately 2,270 employees. The
Company considers its relations with its personnel to be good. Approximately 44%
of the Company's employees are represented by labor unions which have entered
into or are in the process of entering into various separate collective
bargaining agreements with the Company. The Company experienced a labor strike
at its parts distribution center in Southaven, Mississippi during the second
quarter of 1995 which was settled in February 1997. The strike at Southaven had
no appreciable effect on the conduct of business or financial results of that
operation as a whole, although individual product line sales growth may have
been hindered. The National Labors Relations Board has filed an unfair labor
practice charge against the Company's Terex Cranes' operation in Conway, South
Carolina. The Company does not anticipate that the outcome of such charge will
have a material impact on the Company.
Financial Information about Industry and Geographic Segments, Export Sales and
Major Customers
Information regarding foreign and domestic operations, export sales, segment
information and major customers is included in Note O -- "Business Segment
Information" in the Notes to the Consolidated Financial Statements.
ITEM 2. PROPERTIES
The following table outlines the principal manufacturing, warehouse and office
facilities owned or leased by the Company and its subsidiaries:
Entity Facility Location Type and Size of Facility
Terex
(Corporate Offices).....Westport, Connecticut (1) Office 14,898 sq. ft.
Terex
(Distribution Center)..Southaven, Mississippi (1) Warehouse and light
manufacturing
505,000 sq. ft. (2)
Terex Trucks
Unit Rig.................Tulsa, Oklahoma Manufacturing, warehouse
and office
375,587 sq. ft.
TEL......................Motherwell, Scotland Manufacturing, warehouse
and office
473,000 sq. ft.
Terex Cranes
Terex Cranes -
Waverly Operations......Waverly, Iowa (3) Office, manufacturing and
warehouse
383,000 sq. ft.
Terex Cranes ............Conway, South Carolina (1) Office, manufacturing and
warehouse
257,040 sq. ft.
PPM S.A. ................Montceau les Mines, France Office, manufacturing and
warehouse
419,764 sq. ft.
PPM SpA ................Crespellano, Italy Office, manufacturing and
warehouse
79,900 sq. ft.
PPM Europe Subsidiary....Dortmund, Germany (1) Office and warehouse
129,180 sq. ft.
PPM Europe Subsidiary....Rethel, France Office, manufacturing and
warehouse
215,300 sq. ft.
- ------------------------------
(1) These facilities are either leased or subleased by the indicated entity.
(2) Includes 239,400 sq. ft. of warehouse space currently leased to others.
(3) The Company also owns a 66,000 sq. ft. facility in Waterloo, Iowa which is
currently leased to others.
Unit Rig also has 10 owned or leased locations for parts distribution and
rebuilding of components, of which two are in the United States, two are in
Canada and six are abroad.
The properties listed above are suitable and adequate for the Company's use. The
Company has determined that certain of its properties exceed its requirements.
Such properties may be sold, leased or utilized in another manner and have been
excluded from the above list.
ITEM 3. LEGAL PROCEEDINGS
As described in Note M -- "Litigation and Contingencies" in the Notes to the
Consolidated Financial Statements, the Company is involved in various legal
proceedings, including product liability and workers' compensation liability
matters, which have arisen in the normal course of its operations and to which
the Company is self-insured for up to $2.0. Management believes that the final
outcome of such matters will not have a material adverse effect on the Company's
consolidated financial position.
For information concerning other contingencies and uncertainties, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Contingencies and Uncertainties."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is listed on the NYSE under the symbol "TEX."
Quarterly Market Prices
1996 1995
--------------------------------------- ---------------------------------------
Fourth Third Second First Fourth Third Second First
--------- --------- --------- --------- --------- --------- --------- ---------
High... $ 10.13 $ 9.38 $ 9.25 $ 7.13 $ 5.50 $ 5.75 $ 6.75 $ 7.13
Low.... 6.63 6.50 6.38 4.13 4.00 3.13 4.50 5.88
No dividends were declared or paid in 1995 or in 1996. Certain of the Company's
debt agreements contain restrictions as to the payment of cash dividends. Under
the most restrictive of these agreements, $3.0 was available for dividends at
December 31, 1996. In addition, the Company's debt agreements generally limit
payment of cash dividends by the Company in excess of $3.0 to 40% of the
Company's net income, if any. The terms of the Company's outstanding Series B
Cumulative Redeemable Convertible Preferred Stock, par value $.01 per share (the
"Series B Preferred Stock") also restrict the Company's ability to pay cash
dividends on the Common Stock. The Company intends generally to retain earnings,
if any, to fund the development and growth of its business. The Company does not
plan on paying dividends on the Common Stock in the foreseeable future. Any
future payments of cash dividends will depend upon the financial condition,
capital requirements and earnings of the Company, as well as other factors that
the Board of Directors may deem relevant.
As of February 28, 1997, there were 763 stockholders of record of the Company's
Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
(in millions except per share amounts and employees)
As of or for the Year Ended December 31,
-------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ------------ ------------ -----------
Summary of Operations
Net sales....................................................$ 678.5 $ 501.4 $ 314.1 $ 274.7 $ 282.4
Operating income (loss) from continuing operations........... 5.1 12.8 10.4 (8.2) (6.7)
Income (loss) from continuing operations before
extraordinary items........................................ (54.3) (32.1) 4.9 (40.7) 0.7
Income (loss) from discontinued operations................... 102.0 4.4 (3.7) (24.3) 2.2
Income (loss) before extraordinary items..................... 47.7 (27.7) 1.2 (65.0) 2.9
Net income (loss)............................................ 47.7 (35.2) 0.5 (66.5) 2.9
Income (loss) applicable to common stock..................... 24.8 (42.5) (5.5) (66.7) 2.9
Per Common and Common Equivalent Share:
Income (loss) from continuing operations................... (5.81) (3.79) (0.10) (4.11) 0.07
Income (loss) from discontinued operations................. 7.67 0.42 (0.36) (2.44) 0.22
Income (loss) before extraordinary items................... 1.86 (3.37) (0.46) (6.55) 0.29
Net income (loss).......................................... 1.86 (4.09) (0.53) (6.70) 0.29
Working Capital
Current assets...............................................$ 390.2 $ 312.0 $ 278.1 $ 257.3 $ 319.2
Current liabilities.......................................... 195.0 196.3 221.6 187.8 222.0
Working capital.............................................. 195.2 115.7 56.5 69.5 97.2
Property, Plant and Equipment
Net property, plant and equipment............................$ 31.7 $ 40.1 $ 86.2 $ 97.5 $ 116.3
Capital expenditures......................................... 8.1 5.2 12.7 11.5 5.4
Depreciation................................................. 7.0 7.4 13.7 12.1 7.1
Total Assets...................................................$ 471.2 $ 478.9 $ 401.6 $ 390.7 $ 477.3
Capitalization
Long-term debt and notes payable, including current
maturities.................................................$ 281.3 $ 329.9 $ 190.9 $ 218.0 $ 217.6
Minority interest, including redeemable preferred stock of a
subsidiary................................................ 10.0 9.4 --- --- ---
Redeemable convertible preferred stock....................... 46.2 24.6 17.3 10.5 ---
Stockholders' deficit........................................ (71.7) (96.9) (55.7) (62.3) (9.1)
Dividends per share of Common Stock..........................$ --- $ --- $ --- $ --- $ ---
Shares of Common Stock outstanding at year end............... 13.2 10.6 10.3 10.3 9.9
Employees
Continuing operations........................................ 2,270 2,614 1,549 1,520 1,436
Discontinued operations (Material Handling).................. --- 986 1,302 1,410 1,620
Total...................................................... 2,270 3,600 2,851 2,930 3,056
The Selected Financial Data include the results of operations of PPM from May 9,
1995, the date of its acquisition. See Note C -- "Acquisitions" in the Notes to
the Consolidated Financial Statements for further information.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company currently operates in two industry segments: Terex Cranes and Terex
Trucks. The Company previously operated a third industry segment, the Material
Handling segment, the results of which are now accounted for as Income (Loss)
from Discontinued Operations. The Terex Cranes segment results for periods prior
to May 1995 consist solely of Terex Cranes - Waverly Operations. Subsequent to
that date, Terex Cranes' results include the results of the PPM business
acquired in May of 1995. Terex Trucks consists of TEL and Unit Rig.
1996 Compared with 1995
The table below is a comparison of net sales, gross profit, engineering, selling
and administrative expenses, income (loss) from operations, and income (loss)
from discontinued operations, by segment, for 1996 and 1995. The 1996 amounts
include $30.0 in special charges comprised of $18.4 at Terex Cranes ($16.8 gross
profit; $1.6 engineering, selling and administrative expenses), $10.4 at Terex
Trucks (gross profit), and $1.2 General/Corporate (engineering, selling and
administrative expenses).
Year Ended December 31,
------------------------- Increase
1996 1995 (Decrease)
----------- ------------ ------------
(in millions of dollars)
NET SALES
Terex Cranes..................... $ 363.9 $ 252.3 $ 111.6
Terex Trucks..................... 314.9 250.3 64.6
Eliminations..................... (0.3) (1.2) 0.9
----------- ------------ ------------
Total......................... $ 678.5 $ 501.4 $ 177.1
=========== ============ ============
GROSS PROFIT
Terex Cranes..................... $ 38.1 $ 35.2 $ 2.9
Terex Trucks..................... 31.3 35.9 (4.6)
Eliminations..................... (0.2) (0.7) 0.5
----------- ------------ ------------
Total......................... $ 69.2 $ 70.4 $ (1.2)
=========== ============ ============
ENGINEERING, SELLING AND
ADMINISTRATIVE EXPENSES
Terex Cranes..................... $ 33.3 $ 28.0 $ 5.3
Terex Trucks..................... 25.7 22.9 2.8
General/Corporate................ 5.1 6.7 (1.6)
----------- ------------ ------------
Total......................... $ 64.1 $ 57.6 $ 6.5
=========== ============ ============
INCOME (LOSS) FROM OPERATIONS
Terex Cranes..................... $ 4.8 $ 7.2 $ (2.4)
Terex Trucks..................... 5.6 13.0 (7.4)
General/Corporate................ (5.3) (7.4) 2.1
----------- ------------ ------------
Total......................... $ 5.1 $ 12.8 $ (7.7)
=========== ============ ============
INCOME (LOSS) FROM
DISCONTINUED OPERATIONS........... $ 102.0 $ 4.4 $ 97.6
=========== ============ ============
Net Sales
Sales increased $177.1, or approximately 35.3%, to $678.5 from $501.4 in 1995,
reflecting the acquisition of PPM in the second quarter of 1995.
Terex Cranes sales were $363.9 for 1996, an increase of $111.6, or 44.2%, from
$252.3 in 1995 which did not include the PPM business prior to its acquisition
in May 1995. Machine sales increased $94.9 to $291.8 in 1996. Part sales
increased $11.4 to $64.3 in 1996. The increase in sales was due to the addition
of the PPM business, growth in sales at the PPM business, and continued strong
performance by Terex Cranes - Waverly Operations. Terex Cranes bookings were
$356.1 for 1996, compared to $236.7 for 1995 an increase of $119.4.
Terex Trucks sales increased $64.6 in 1996 to $314.9. Machines sales increased
36.2% primarily due to increased presence in the Asia market and the U.S. rental
market, and parts sales increased 8.5% in 1996. The sales mix was approximately
29% parts in 1996 compared to 34.6% parts in 1995. Terex Trucks bookings for
1996 were $277.9, a decrease of $3.0, or 1.1%, from 1995. Backlog decreased to
$53.4 at December 31, 1996 from $88.8 in 1995 as a result of a large order which
was placed late in 1995. However, the average backlog increased slightly to
$68.1 for 1996 as compared to $57.0 for 1995.
Gross Profit
Gross profit for 1996 decreased $1.2 to $69.2. The decline in the gross profit
was primarily due to the $16.8 write down of goodwill and other long lived
assets at Terex Cranes and $10.4 of special charges recorded at Terex Trucks in
the fourth quarter of 1996. These charges substantially offset the increased
gross profit from increased net sales during 1996 as compared to 1995. Gross
profit as a percentage of net sales for 1996 decreased to 10% as compared to 14%
for 1995 as a result of the special charges. However, excluding these $27.2
charges in 1996, gross profit as a percentage of sales remained at 14% and
increased from $70.4 to $96.4.
Terex Cranes gross profit increased $2.9 to $38.1 for 1996, compared to $35.2
for 1995, reflecting the PPM Acquisition, the effect of cost reduction actions
put in place at PPM, and improved performance at Terex Cranes - Waverly
Operations. These improvements were substantially offset by an impairment charge
which resulted from a detailed analysis of future cash flows from operations
primarly at Terex Cranes' Conway, South Carolina, facility. (See Note D --
"Impairment of Long Lived Assets" in the Notes to the Consolidated Financial
Statements for further information.) Excluding the impairment charge, Terex
Cranes gross profit in 1996 increased $19.7 as compared to 1995 and the gross
profit percentage increased to 15.1% as compared to 14.0% in 1995.
Terex Trucks gross profit decreased $4.6 to $31.3 in 1996 compared to $35.9 for
1995. Excluding the $10.4 special charges noted above, Terex Trucks gross profit
increased $5.8 in 1996 as compared to 1995. The $10.4 special charges are
comprised mainly of $7.9 at Unit Rig for the reduction in value of the Unit Rig
Tulsa facility, due to changes in production methods and $1.9 of goodwill
associated with TEL's acquisition of its UK distributor, IMACO, which was
written off and recorded as an impairment charge in 1996. Exclusive of these
special charges, the gross profit percentage in 1996 decreased to 13.1% from
14.3% in 1995 due to an increase in the proportion of unit sales versus part
sales. Part sales have higher margins than unit sales.
Engineering, Selling and Administrative Expenses
Engineering, selling and administrative expenses increased to $64.1 in 1996 from
$57.6 for 1995, reflecting the effects of the PPM Acquisition in May 1995.
However, engineering, selling and administrative expenses as a percentage of net
sales decreased to 9.4% for 1996 from 11.5% for 1995. Terex Trucks engineering,
selling and administrative expenses increased to $25.7 for 1996 from $22.9 for
1995 primarily due to costs associated with a new parts sales office and a new
U.K. dealership. Terex Cranes engineering, selling and administrative expenses
increased to $33.3 for 1996 from $28.0 for 1995, reflecting the PPM Acquisition
in May 1995 and special charges of $1.6.
Income (Loss) from Operations
Terex Cranes' income from operations of $4.8 for 1996 decreased by $2.4 over
1995, primarily due to the impairment charges at the Terex Cranes' Conway, South
Carolina, facility, which were offset somewhat by the increased net sales and
the effect of cost control initiatives implemented at all PPM operations since
they were acquired by the Company, and continued strong performance by Terex
Cranes - Waverly Operations.
Terex Trucks income from operations decreased by $7.4 to $5.6 for 1996 from
$13.0 in 1995, primarily due to the special charges mentioned above under "Gross
Profit." Excluding these charges, income from operations increased to $16.0.
On a consolidated basis, the Company had operating income of $5.1 for 1996,
compared to operating income of $12.8 for 1995, for the reasons mentioned above.
Other Income (Expense)
Net interest expense increased to $43.6 for 1996 from $38.0 in 1995 as a result
of incremental borrowings associated with the PPM acquisition in May 1995. The
Company realized gains in 1996 of $3.3 from the sale of excess property
principally in Scotland and Italy.
During 1996 the Company recorded a provision for income taxes of $12.1; in 1995,
the Company recorded no provision for income taxes. The 1996 provision for
income taxes primarily relates to $11.3 tax expense recognized at PPM in Europe
in connection with its recapitalization which required the Company to utilize a
net operating loss carryforward. The additional $0.8 provision relates to taxes
due on the sale of property in Europe.
In 1995, the Company had a gain of $1.0 from the sale of stock of a former
subsidiary and recorded a charge of $0.5 to recognize the impairment in value of
certain properties held for sale.
Income (Loss) from Discontinued Operations
Income from discontinued operations in the Company's Material Handling Segment
increased $97.6 to $102.0 for 1996 as compared to $4.4 in 1995. The increased
income was primarily due to the gain realized on the sale of the Material
Handling Segment of $84.5. Gross profit for 1996 (through November 27, 1996, the
date of the sale of the Material Handling Segment) increased $1.4 to $46.0 as
compared to 1995 even though net sales decreased $45.9 or 17%. Additionally, in
1995 the Material Handling Segment recorded charges of $6.0 related to charges
for severance costs, exit costs and the impairment in value of certain
properties held for sale.
Extraordinary Items
The Company recorded a charge of $7.5 in 1995 to recognize a loss on the early
extinguishment of debt in connection with its debt refinancing in May 1995.
1995 Compared with 1994
The table below is a comparison of net sales, gross profit, engineering, selling
and administrative expenses, income (loss) from operations and income (loss)
from discontinued operations, by segment, for 1995 and 1994.
Year Ended December 31,
------------------------- Increase
1995 1994 (Decrease)
----------- ------------ -------------
(in millions of dollars)
NET SALES
Terex Cranes.......................$ 252.3 $ 90.4 $ 161.9
Terex Trucks....................... 250.3 226.8 23.5
Eliminations....................... (1.2) (3.1) 1.9
----------- ------------ -------------
Total...........................$ 501.4 $ 314.1 $ 187.3
=========== ============ =============
GROSS PROFIT
Terex Cranes ......................$ 35.2 $ 14.2 $ 21.0
Terex Trucks....................... 35.9 33.9 2.0
Eliminations....................... (0.7) --- (0.7)
----------- ------------ -------------
Total...........................$ 70.4 $ 48.1 $ 22.3
=========== ============ =============
ENGINEERING, SELLING AND
ADMINISTRATIVE EXPENSES
Terex Cranes.......................$ 28.0 $ 6.3 $ 21.7
Terex Trucks....................... 22.9 22.7 0.2
General/Corporate.................. 6.7 8.7 (2.0)
----------- ------------ -------------
Total...........................$ 57.6 $ 37.7 $ 19.9
=========== ============ =============
INCOME (LOSS) FROM OPERATIONS
Terex Cranes.......................$ 7.2 $ 7.9 $ (0.7)
Terex Trucks....................... 13.0 11.2 1.8
General/Corporate.................. (7.4) (8.7) 1.3
----------- ------------ -------------
Total...........................$ 12.8 $ 10.4 $ 2.4
=========== ============ =============
INCOME (LOSS) FROM
DISCONTINUED OPERATIONS
Material Handling....................$ 4.4 $ (3.7) $ 8.1
----------- ------------ -------------
Total...........................$ 4.4 $ (3.7) $ 8.1
=========== ============ =============
Net Sales
Sales increased $187.3 to $501.4, or approximately 60%, for 1995 versus 1994.
Terex Cranes sales were $252.3 for 1995, an increase of $161.9 from $90.4 in
1994 due primarily to the PPM Acquisition in May 1995. Terex Cranes backlog was
$85.3 at December 31, 1995, reflecting the additional PPM backlog, compared to
$11.7 at December 31, 1994.
Terex Trucks sales increased $23.5 for 1995 over 1994. Machines sales increased
8%, and parts sales increased 7%. The sales mix was approximately 35% parts for
1995 compared to 36% parts for 1994. Terex Trucks parts sales were adversely
affected by the strike at the Company's parts distribution center.
Terex Trucks bookings for 1995 were $271.3, an increase of $39.1, or 17%, from
1994. Terex Trucks backlog was $88.8 at December 31, 1995 compared to $67.8 at
December 31, 1994.
Gross Profit
Gross profit of $70.4 for 1995 was $22.3, or 46%, higher than gross profit of
$48.1 for 1994.
Terex Cranes gross profit increased $21.0 to $35.2 for 1995, compared to $14.2
for 1994, primarily reflecting the addition of the May through December 1995
results of the PPM businesses. The gross profit percentage for Terex Cranes was
14% for 1995 and 16% for 1994. The gross profit percentage decrease was
primarily due to costs related to integrating the PPM Acquisition into Terex
Cranes.
Terex Trucks gross profit increased $2.0 to $35.9 for 1995 compared to $33.9 for
1994. The gross profit percentage in the Terex Trucks was 14% for 1995 and 15%
for 1994.
Engineering, Selling and Administrative Expenses
Engineering, selling and administrative expenses increased to $57.6 for 1995
from $37.7 for 1994. Terex Cranes engineering, selling and administrative
expenses increased to $28.0 for 1995 from $6.3 for 1994 reflecting the PPM
Acquisition in May 1995. Terex Trucks engineering, selling and administrative
expenses increased to $22.9 for 1995 from $22.7 for 1994 as a result of costs
associated with the start-up of a new parts service business, which
substantially offset the cost savings at other operations. Corporate
administrative expenses in 1994 included a charge of $2.2 in connection with the
termination of a management contract with KCS Industries, L.P. ("KCS"), a
Connecticut limited partnership principally owned by certain present and former
officers of the Company, offset by allocations to operating segments.
Income (Loss) from Operations
Terex Cranes income from operations of $7.2 for 1995 decreased by $0.7 versus
1994, primarily due to losses at the PPM businesses acquired in May 1995. As a
result of cost reductions, improvements in inventory management and
consolidation of model offerings, PPM Cranes - Waverly Operations was profitable
in 1994 and 1995 after several years of losses.
Terex Trucks income from operations improved by $1.8 to $13.0 for 1995 from
$11.2 in 1994, primarily as a result of reduced costs, offset by costs
associated with the start up of a new parts service business.
On a consolidated basis, the Company realized operating income of $12.8 for
1995, compared to $10.4 for 1994.
Other Income (Expense)
Net interest expense increased to $38.0 for 1995 from $27.8 in 1994 as a result
of incremental borrowings associated with the PPM Acquisition in May 1995. The
Company realized gains of $1.0 and $26.0 from sales of common stock of a former
subsidiary during 1995 and 1994, respectively.
The Company recorded a charge of $0.5 in 1995 to recognize the impairment in
value of certain properties held for sale.
The Company also incurred net foreign exchange losses of $1.9, trademark-related
expenses of $1.3, and $0.6 of group retiree expenses during 1995.
The Company recorded a charge of $2.5 in 1995 for payments related to the
retirement of its former Chairman of the Board in August 1995, and future
payments related to the consulting obligations under the retirement agreement of
the former Chairman.
During 1995 and 1994, the Company recorded no provision for income taxes.
Extraordinary Items
The Company recorded a charge of $7.5 in 1995 to recognize a loss on the early
extinguishment of debt in connection with the May 1995 refinancing. During 1994,
the Company recognized extraordinary losses totaling $0.7 to write-off
unamortized discount and debt issuance costs when it repurchased $27.3 of its
old senior secured debt.
Income (Loss) from Discontinued Operations
Income from discontinued operations in the Company's Material Handling Segment
increased $8.1 to $4.4 for 1995 as compared to a loss of $3.7 for 1994. The
increased income was primarily due to increased sales and to the success of the
cost reduction programs put in place in the latter half of 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's businesses are working capital intensive and require funding for
purchases of production and replacement parts inventories, capital expenditures
for repair, replacement and upgrading of existing facilities as well as
financing of receivables from customers and dealers. The Company has significant
debt service requirements including semi-annual interest payments on senior debt
and upon completion of its acquisition of Simon Access Division (see "Recent
Developments" for further discussion) will have monthly interest payments on the
New Credit Facility which will replace the existing credit facility, which also
has monthly interest payments.
Debt reduction and an improved capital structure are major focal points for the
Company. In this regard, the Company regularly reviews its alternatives to
improve its capital structure and to reduce debt service through debt
refinancings, issuance of equity, assets sales, including the sale of business
units, or any combination thereof. As part of its strategy to strengthen its
capital structure and reduce debt, the Company sold its worldwide Material
Handling business on November 27, 1996 for an aggregate cash purchase price,
subject to adjustments, of $139.5. Upon closing, the Company immediately paid
down its outstanding credit facility. In accordance with the Indenture governing
the Company's 13.25% Senior Secured Notes, the Company offered to repurchase
(the "Offer") $100 principal amount of the Senior Secured Notes. The Offer
expired on December 27, 1996, but no Senior Secured Notes were tendered for
repurchase.
The Company's Series A Cumulative Redeemable Convertible Preferred Stock, par
value $.01 per share (the "Series A Preferred Stock") had a 13% dividend rate,
which was to increase to 18% at the end of 1998. Consistent with its strategy to
strengthen its capital structure, on December 30, 1996, the Company called its
Series A Preferred Stock for redemption on January 29, 1997 (the "Redemption
Date"). All 1,200,000 shares of the Series A Preferred Stock outstanding on the
Redemption Date were redeemed at a redemption price of $37.80 per share, or
approximately $45.4 in aggregate.
Net cash of $17.6 was used in operating activities during 1996 primarily due to
an increase in working capital at year end for the expansion of the business.
Net cash provided by investing activities was $135.7 during 1996 principally due
to the sale of the Company's worldwide Material Handling business for $139.5,
subject to certain adjustments. Net cash used by financing activities during
1996 was principally due to the repayment of the Credit Facility ($70.0) with
the proceeds from the sale of the Company's Material Handling business, offset
partially by the use of the lending facilities in the U.K. Cash and cash
equivalents totaled $72.0 at December 31, 1996.
As of December 31, 1996, the Company did not have any balance outstanding under
the Credit Facility, letters of credit issued under the Credit Facility totaled
$7.8, and the additional amount the Company could have borrowed was $45.3 as of
that date. TEL entered into a new bank working capital facility in 1995, and PPM
Europe received an initial credit facility of $3.0 in 1996. Management intends
to seek additional working capital financing facilities for the Company's
international operations to provide additional liquidity worldwide.
Factors affecting future liquidity
The Company currently has $250 of the Senior Secured Notes outstanding. The
Indenture for the Senior Secured Notes places certain limits on the Company's
ability to incur additional indebtedness; permit the existence of liens; issue,
pay dividends on or redeem equity securities; utilize the proceeds of assets
sales; consolidate, merge or transfer assets to another entity; and enter into
transactions with affiliates.
In connection with the PPM Acquisition, the Company issued redeemable preferred
stock of Terex Cranes, Inc., a wholly owned subsidiary of the Company
established to complete the PPM Acquisition, having an aggregate liquidation
preference of approximately $21.4, subject to adjustment. The purchase price is
subject to adjustment calculated by reference to Western European crane demand
in 1996 and 1997. The preferred stock does not bear a dividend and, accordingly,
the Company has valued this stock at approximately $8.8 (discounted at 15%) and
will reflect dividend accretion.
The Company's Credit Facility provides the Company with the ability to borrow
(in the form of revolving loans and up to $15 in outstanding letters of credit)
up to $100. The Credit Facility is secured by substantially all of the Company's
domestic receivables and inventory. The amount of borrowings is limited to the
sum of the following: (i) 75% of the net amount of eligible receivables, as
defined, of the Company's U.S. businesses, plus (ii) the lesser of 45% of the
value of eligible inventory, as defined, or 80% of the appraised orderly
liquidation value of eligible inventory less (iii) any availability reserves
established by the lenders. The Credit Facility expires May 9, 1998 unless
extended by the lenders for one additional year. At the option of the Company,
revolving loans may be in the form of prime rate loans initially bearing
interest at the rate of 1.75% per annum in excess of the prime rate or
Eurodollar rate loans initially bearing interest at the rate of 3.75% per annum
in excess of the adjusted Eurodollar rate.
On February 24, 1997 the Company agreed to buy the Simon Access Division. (See
Note Q -- "Subsequent Events" in the Notes to the Consolidated Financial
Statements for further information.) In connection with the acquisition, the
Company has received a commitment for financing from a financial institution.
The commitment for the New Credit Facility is for a three year period for
$125.0. The New Credit Facility will replace the Company's $100.0 Credit
Facility and will bear interest at the Company's option of 2.5% per annum above
the LIBOR rate or 1% per annum above the prime rate. The Company expects to
complete the Simon acquisition by using $70.0 of the New Credit Facility and to
have approximately $30 million in availability after the Simon acquisition
The Company's debt service obligations for 1997 include approximately $16.6 on
May 15 and November 15, 1997 on the Senior Secured Notes and variable monthly
payments on the credit facilities, as applicable. Management believes that cash
generated from operations, together with the New Credit Facility, the Company
has adequate liquidity to meet the Company's operating and debt service
requirements.
Foreign Currencies and Interest Rate Risk
The Company's products are sold in over 50 countries around the world and,
accordingly, revenues of the Company are generated in foreign currencies, while
the costs associated with those revenues are only partly incurred in the same
currencies. The major foreign currencies, among others, in which the Company
does business are the German Mark, the Pound Sterling, and the French Franc. The
Company may, from time to time, hedge specifically identified committed cash
flows in foreign currencies using forward currency sale or purchase contracts.
[Such foreign currency contracts have not historically been material in amount.]
The Company's borrowings are at both fixed and floating rates of interest. For
the floating rate portion of the borrowings, the Company is at risk for
fluctuations in interest rates. The Company does not currently hedge any
interest rate risk.
CONTINGENCIES AND UNCERTAINTIES
The Internal Revenue Service is currently examining the Company's federal tax
returns for the years 1987 through 1989. In December 1994, the Company received
an examination report from the IRS proposing a substantial tax deficiency based
on this examination. The examination report raises a variety of issues,
including the Company's substantiation for certain deductions taken during this
period, the Company's utilization of certain net operating loss carryovers
("NOL's") and the availability of such NOL's to offset future taxable income. If
the IRS were to prevail on all the issues raised, the amount of the tax
assessment would be approximately $56 plus interest and penalties. If the
Company were required to pay a significant portion of the assessment, it could
have a material adverse impact on the Company and could exceed the Company's
resources. The Company filed its administrative appeal to the examination report
in April of 1995. As a result of a meeting with the Manhattan division of the
IRS in July 1995, in June 1996 the Company was advised that the matter was being
referred back to the Milwaukee audit division of the IRS. The Milwaukee audit
division of the IRS is currently reviewing information provided by the Company
over the past 18 months. Although management believes that the Company will be
able to provide adequate documentation for a substantial portion of the
deductions questioned by the IRS and that there is substantial support for the
Company's past and future utilization of the NOL's, the ultimate outcome of this
matter is subject to the resolution of significant legal and factual issues. If
the Company's positions prevail on the most significant issues, management
believes that the amounts due would not exceed amounts previously paid or
provided; however, even under such circumstances, it is possible that the
Company's NOL's could be reduced to some extent. No additional accruals have
been made for any amounts which might be due as a result of this matter because
the possible loss ranges from zero to $56 plus interest and penalties and the
ultimate outcome cannot presently be determined or estimated. A change in
control of the Company for tax purposes could possibly result in a significant
reduction in the amount of NOL's available to the Company to offset future
taxable income.
The Securities and Exchange Commission (the "Commission") in March of 1994
initiated a private investigation, which included the Company and certain of its
affiliates, to determine whether violations of certain aspects of the Federal
securities laws have taken place. The Company is cooperating with the Commission
in its investigation and it is not possible at this time to determine the
outcome of the Commission's investigation. During 1996 the Company incurred $0.3
of legal fees and expenses on behalf of the Company, directors and executives of
the Company and KCS. In general, under the Company's by-laws, the Company is
obligated to indemnify officer and directors, for all liabilities arising in the
course of their duties on behalf of the Company. To date, no officer or director
has had legal representation separate from the Company's legal representation,
and no allocation of the legal fees for such representation has been made.
The Company received a letter from the Department of Labor (the "DOL") in May of
1995, alleging that the Company's former Chairman of the Board, at the time a
fiduciary for the Company's retirement plans, violated certain provisions of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") in making
certain investments which may have been imprudent and by possibly engaging in
prohibited transactions under ERISA. On January 31, 1997, the DOL and the
Company's former chairman entered into a settlement agreement, which, among
other things, obligated the Company's former chairman to pay certain amounts to
the Terex Corporation Master Retirement Plan Trust and to the DOL. In connection
with the DOL investigation and settlement, the Company has incurred expenses
(including legal fees) of $0.2.
The Company is subject to a number of contingencies and uncertainties including
product liability claims, self-insurance obligations, tax examinations and
guarantees. Many of the exposures are unasserted or proceedings are at a
preliminary stage, and it is not presently possible to estimate the amount or
timing of any cost to the Company. However, management does not believe that
these contingencies and uncertainties will, in the aggregate, have a material
effect on the Company. When it is probable that a loss has been incurred and
possible to make reasonable estimates of the Company's liability with respect to
such matters, a provision is recorded for the amount of such estimate or for the
minimum amount of a range of estimates when it is not possible to estimate the
amount within the range that is most likely to occur.
The Company generates hazardous and nonhazardous wastes in the normal course of
its operations. As a result, the Company is subject to a wide range of federal,
state, local and foreign environmental laws and regulations, including the
Comprehensive Environmental Response, Compensation and Liability Act, that (i)
govern activities or operations that may have adverse environmental effects,
such as discharges to air and water, as well as handling and disposal practices
for hazardous and nonhazardous wastes, and (ii) impose liability for the costs
of cleaning up, and certain damages resulting from, sites of past spills,
disposals or other releases of hazardous substances. Compliance with such laws
and regulations has, and will, require expenditures by the Company on a
continuing basis.
FORWARD LOOKING INFORMATION
Certain information in this Annual Report includes forward looking statements
regarding future events or the future financial performance of the Company that
involve certain contingencies and uncertainties, including those discussed above
in the section entitled Contingencies and Uncertainties. In addition, the
Company's expectations are predominantly based on what it considers key economic
assumptions. Construction and mining activity are sensitive to interest rates,
government spending and general economic conditions. Some of the other
significant factors for the Company include foreign currency movements,
political uncertainty in various areas of the world, pricing, product
initiatives and other actions taken by competitors, disruptions in production
capacity, excess inventory levels, the effects of changes in laws and
regulations, employee relations and other factors. Actual events or the actual
future results of the Company may differ materially from any forward looking
statement due to such risks, uncertainties and significant factors.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Unaudited Quarterly Financial Data
Summarized quarterly financial data for 1996 and 1995 are as follows (in
millions, except per share amounts):
1996 1995
----------------------------------------------------------------------------
Fourth Third Second First Fourth Third Second First
----------------------------------------------------------------------------
Net sales ................................... $ 156.8 $ 165.7 $ 182.8 $ 173.2 $ 139.1 $ 148.8 $ 133.3 $ 80.2
Gross profit ................................ (4.9) 23.7 27.0 23.4 20.9 19.9 17.6 12.0
Income (loss) from continuing operations
before extraordinary items ................ (46.5) (3.4) (1.7) (2.7) (7.3) (12.3) (9.4) (3.1)
Income (loss) from discontinued operations .. 87.8 4.8 6.2 3.2 5.5 4.5 (6.8) 1.2
Income (loss) before extraordinary items ... 41.3 1.4 4.5 0.5 (1.8) (7.8) (16.2) (1.9)
Net income (loss) ........................... 41.3 1.4 4.5 0.5 (1.8) (7.8) (23.7) (1.9)
Income (loss) applicable to common stock .... 24.4 (0.9) 2.6 (1.4) (3.9) (9.6) (25.5) (3.5)
Per share:
Primary
Income (loss) before extraordinary items $ 1.71 $ (0.06) $ 0.18 $ (0.13) $ (0.35) $ (0.93) $ (1.76) $ (0.35)
Net income (loss) ....................... 1.71 (0.06) 0.18 (0.13) (0.35) (0.93) (2.48) (0.35)
Fully diluted
Income (loss) before extraordinary items $ 1.71 $ (0.06) $ 0.18 $ (0.13) $ (0.35) $ (0.93) $ (1.76) $ (0.35)
Net income (loss) ....................... 1.71 (0.06) 0.18 (0.13) (0.35) (0.93) (2.48) (0.35)
The accompanying unaudited quarterly financial data of the Company have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with Item 302 of Regulation S-K. In the opinion of
management, all adjustments considered necessary for a fair presentation have
been made and were of a normal recurring nature except for those discussed
below. Certain 1995 amounts have been reclassified to conform with the 1996
presentation.
The results of the Material Handling business have been accounted for as
discontinued operations for all periods presented. See Item 1. - Business.
In 1996, the Company recognized a gain of $2.4 in the first quarter from the
sale of excess property in Scotland. In 1996 Income (loss) from discontinued
operations includes the gain, net of income taxes, of $84.5 on the sale of the
Material Handling business in the fourth quarter. In the fourth quarter of 1996
the Company recorded special charges of $45.1, including impairment charges of
$18.7 (see Note D -- "Impairment of Long Lived Assets"), a reduction in the
value of certain assets of $8.6, $2.0 related to pre-purchase tax contingencies
at PPM, $3.0 of other one-time accruals, and income tax expense of $12.1 (see
Note I -- "Income Taxes"). Net income (loss) has been reduced by Preferred Stock
accretion for purposes of calculating earnings per share amounts. See Note J --
"Preferred Stock" in the Notes to the Company's Consolidated Financial
Statements. In the fourth quarter of 1996 preferred stock accretion was $16.9,
which included $14.5 of additional accretion due to the redemption of the Series
A Preferred Stock on January 29, 1997.
In 1995, the Company recognized a gain of $1.0 in the first quarter as a result
of the sale of 486.6 thousand shares of common stock of a former subsidiary,
recorded severance and exit costs of $3.5 and an extraordinary loss of $7.5 on
the retirement of debt in the second quarter.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Items 10 through 13 is incorporated by reference to
the definitive Terex Corporation Proxy Statement to be filed with the Securities
and Exchange Commission not later than 120 days after the end of the fiscal year
covered by this Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) and (2) Financial Statements and Financial Statement Schedules.
See "Index to Consolidated Financial Statements and Financial Statement
Schedule" on Page F-1.
(3) Exhibits
See "Index to Exhibits" on Page E-1.
(b) Reports on Form 8-K
A report on Form 8-K dated November 27, 1996 was filed December 11, 1996
reporting the sale of the Company's worldwide material handling business.
A report on Form 8-K dated December 30, 1996 was filed January 10, 1997
reporting the Company's calling for redemption its Series A Preferred Stock on
January 29, 1997.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TEREX CORPORATION
By: /s/ Ronald M. DeFeo March 28, 1997
Ronald M. DeFeo,
President, Chief Executive Officer
and Chief Operating Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Name Title Date
/s/ Ronald M. DeFeo President, Chief Executive March 28, 1997
Ronald M. DeFeo Officer, Director and Chief
Operating Officer
(Principal Executive Officer)
/s/ David J. Langevin Executive Vice President March 28, 1997
David J. Langevin (Acting Principal Financial Officer)
/s/ Marvin B. Rosenberg Senior Vice President, March 28, 1997
Marvin B. Rosenberg General Counsel, Secretary
and Director
/s/ Joseph F. Apuzzo Vice President Finance March 28, 1997
Joseph F. Apuzzo and Controller
(Principal Accounting Officer)
/s/ G. Chris Andersen * Director March 28, 1997
G. Chris Andersen
/s/ William H. Fike * Director March 28, 1997
William H. Fike
/s/ Bruce I. Raben * Director March 28, 1997
Bruce I. Raben
/s/ David A. Sachs * Director March 28, 1997
David A. Sachs
/s/ Adam E. Wolf * Director March 28, 1997
Adam E. Wolf
* By: /s/ Marvin B. Rosenberg
Marvin B. Rosenberg
Attorney-in-fact
THIS PAGE IS INTENTIONALLY BLANK
NEXT PAGE IS NUMBERED "F-1"
TEREX CORPORATION AND SUBSIDIARIES
Index to Consolidated Financial Statements and Financial Statement Schedules
Page
TEREX CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996
AND 1995 AND FOR EACH OF THE THREE YEARS
IN THE PERIOD ENDED DECEMBER 31, 1996
Report of independent accountants.........................................F - 2
Consolidated statement of operations .....................................F - 3
Consolidated balance sheet................................................F - 4
Consolidated statement of changes in stockholders' deficit................F - 5
Consolidated statement of cash flows......................................F - 6
Notes to consolidated financial statements................................F - 7
PPM CRANES, INC.
CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996 AND 1995
AND FOR THE YEAR ENDED DECEMBER 31, 1996
AND FOR THE EIGHT MONTHS ENDED DECEMBER 31, 1995
Report of independent accountants........................................F - 33
Consolidated statement of operations ....................................F - 34
Consolidated balance sheet...............................................F - 35
Consolidated statement of shareholders' deficit..........................F - 36
Consolidated statement of cash flows.....................................F - 37
Notes to consolidated financial statements...............................F - 38
PPM CRANES, INC.
CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEAR ENDED DECEMBER 31, 1994
Report of independent auditors............................................F - 45
Consolidated statement of operations .....................................F - 46
Consolidated statement of changes in shareholders' equity.................F - 47
Consolidated statement of cash flows......................................F - 48
Notes to consolidated financial statements................................F - 49
PPM CRANES, INC.
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF MAY 9, 1995
AND FOR THE PERIOD FROM JANUARY 1 THROUGH MAY 9, 1995
Unaudited condensed consolidated statement of operations .................F - 55
Unaudited condensed consolidated balance sheet............................F - 56
Unaudited condensed consolidated statement of cash flows..................F - 57
Notes to unaudited condensed consolidated financial statements............F - 58
FINANCIAL STATEMENT SCHEDULES
Schedule II -- Valuation and Qualifying Accounts and Reserves.............F - 60
Schedule IV -- Indebtedness of and to Related Parties -- Not Current......F - 61
All other schedules for which provision is made in the applicable regulations of
the Securities and Exchange Commission are not required under the related
instructions or are not applicable, and therefore have been omitted.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of Terex Corporation
In our opinion, the Terex Corporation consolidated financial statements listed
in the accompanying index on page F-1 present fairly, in all material respects,
the financial position of Terex Corporation and its subsidiaries at December 31,
1996 and 1995, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Stamford, Connecticut
March 6, 1997
TEREX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(in millions except per share amounts)
Year Ended December 31,
---------------------------
1996 1995 1994
------- ------- -------
NET SALES ....................................... $ 678.5 $ 501.4 $ 314.1
COST OF GOODS SOLD .............................. 609.3 431.0 266.0
------- ------- -------
Gross Profit ................................. 69.2 70.4 48.1
ENGINEERING, SELLING AND ADMINISTRATIVE EXPENSES 64.1 57.6 37.7
------- ------- -------
Income from operations ....................... 5.1 12.8 10.4
OTHER INCOME (EXPENSE)
Interest income .............................. 1.2 0.7 0.5
Interest expense ............................. (44.8) (38.7) (28.3)
Amortization of debt issuance costs .......... (2.6) (2.3) (2.3)
Gain on sale of stock of former subsidiary ... -- 1.0 26.0
Other income (expense) - net ................. (1.1) (5.6) (1.4)
------- ------- -------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES AND EXTRAORDINARY ITEMS ....... (42.2) (32.1) 4.9
PROVISION FOR INCOME TAXES ...................... (12.1) -- --
------- ------- -------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
EXTRAORDINARY ITEMS .......................... (54.3) (32.1) 4.9
INCOME (LOSS) FROM DISCONTINUED OPERATIONS
(net of tax expense of $2.6, $0.0 and $0.8,
in 1996, 1995 and 1994, respectively) ...... 102.0 4.4 (3.7)
------- ------- -------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS ...... 47.7 (27.7) 1.2
EXTRAORDINARY LOSS ON RETIREMENT OF DEBT ........ -- (7.5) (0.7)
------- ------- -------
NET INCOME (LOSS) ............................ 47.7 (35.2) 0.5
LESS PREFERRED STOCK ACCRETION .................. (22.9) (7.3) (6.0)
------- ------- -------
INCOME (LOSS) APPLICABLE TO COMMON STOCK ..... $ 24.8 $ (42.5) $ (5.5)
======= ======= =======
PER COMMON AND COMMON EQUIVALENT SHARE:
Income (loss) from continuing operations ..... $ (5.81) $ (3.79) $ (0.10)
Income (loss) from discontinued operations ... 7.67 0.42 (0.36)
------- ------- -------
Loss before extraordinary items ........... 1.86 (3.37) (0.46)
Extraordinary loss on retirement of debt ..... -- (0.72) (0.07)
------- ------- -------
Net income (loss) ............................ $ 1.86 $ (4.09) $ (0.53)
======= ======= =======
AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING IN PER SHARE CALCULATION ....... 13.3 10.4 10.3
======= ======= =======
The accompanying notes are an integral part of these financial statements.
TEREX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in millions)
December 31,
--------------------
1996 1995
--------- ----------
CURRENT ASSETS
Cash and cash equivalents......................$ 72.0 $ 7.0
Cash securing letters of credit................ 3.4 6.9
Trade receivables (less allowance of
$7.0 in 1996 and $7.4 in 1995)............... 110.3 87.7
Customer deposit............................... --- 19.1
Net inventories................................ 190.6 180.8
Other current assets........................... 13.9 10.5
--------- ----------
Total Current Assets........ 390.2 312.0
LONG-TERM ASSETS
Property, plant and equipment - net............ 31.7 40.1
Goodwill - net................................. 32.4 61.3
Debt issuance costs - net...................... 12.7 14.5
Net assets of discontinued operations.......... --- 41.8
Other assets................................... 4.2 9.2
--------- ----------
TOTAL ASSETS......................................$ 471.2 $ 478.9
========= ==========
CURRENT LIABILITIES
Notes payable and current portion of
long-term debt...............................$ 19.2 $ 5.7
Trade accounts payable......................... 104.4 99.5
Accrued compensation and benefits.............. 15.8 12.2
Accrued warranties and product liability....... 19.4 19.6
Customer deposit............................... --- 19.1
Other current liabilities...................... 36.2 40.2
--------- ----------
Total Current Liabilities.... 195.0 196.3
NON CURRENT LIABILITIES
Long-term debt, less current portion........... 262.1 324.2
Other.......................................... 29.6 21.3
MINORITY INTEREST, INCLUDING REDEEMABLE
PREFERRED STOCK OF A SUBSIDIARY
Liquidation preference $21.4 in 1996 and
$26.1 in 1995, subject to adjustment......... 10.0 9.4
REDEEMABLE CONVERTIBLE PREFERRED STOCK
Liquidation preference $46.2 in 1996
and $41.2 in 1995............................ 46.2 24.6
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Warrants to purchase common stock.............. 3.2 17.2
Common Stock, $0.01 par value--
authorized 30.0 shares; issued and
outstanding 13.2 in 1996 and 10.6 in 1995... 0.1 0.1
Additional paid-in capital..................... 55.8 40.5
Accumulated deficit............................ (126.1) (150.9)
Pension liability adjustment................... (2.0) (2.7)
Unrealized holding gain on equity securities... --- 1.0
Cumulative translation adjustment.............. (2.7) (2.1)
--------- ----------
Total Stockholders' Deficit.... (71.7) (96.9)
--------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT.......$ 471.2 $ 478.9
========= ==========
The accompanying notes are an integral part of these financial statements.
TEREX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
(in millions)
Additional Pension Unrealized Cumulative
Common Paid-in Accumulated Liability Holding Translation
Warrants Stock Capital Deficit Adjustment Gain Adjustment Total
----------- -----------------------------------------------------------------------------------
BALANCE AT DECEMBER 31,
1993....................$ 16.9 $ 0.1 $ 40.1 $ (102.9) $ (4.2) $ --- $ (12.2) $ (62.2)
Issuance of Warrants..... 0.7 --- --- --- --- --- --- 0.7
Net income............... --- --- --- 0.5 --- --- --- 0.5
Accretion of carrying
value of redeemable
preferred stock to
redemption value........ --- --- --- (6.0) --- --- --- (6.0)
Pension liability
adjustment.............. --- --- --- --- 2.4 --- --- 2.4
Unrealized holding gain
on equity securities.... --- --- --- --- --- 1.8 --- 1.8
Translation adjustment... --- --- --- --- --- --- 7.1 7.1
----------- ----------- ----------- ------------ ---------- ----------- ----------- -----------
BALANCE AT DECEMBER 31,
1994.................... 17.6 0.1 40.1 (108.4) (1.8) 1.8 (5.1) (55.7)
Conversion of Warrants... (0.4) --- 0.4 --- --- --- --- ---
Net loss................. --- --- --- (35.2) --- --- --- (35.2)
Accretion of carrying
value of redeemable
preferred stock to
redemption value........ --- --- --- (7.3) --- --- --- (7.3)
Pension liability
adjustment.............. --- --- --- --- (0.9) --- --- (0.9)
Unrealized holding gain
on equity securities.... --- --- --- --- --- (0.8) --- (0.8)
Translation adjustment... --- --- --- --- --- --- 3.0 3.0
----------- ----------- ----------- ------------ ---------- ----------- ----------- -----------
BALANCE AT DECEMBER 31,
1995.................... 17.2 0.1 40.5 (150.9) (2.7) 1.0 (2.1) (96.9)
Conversion of Warrants... (14.0) --- 14.0 --- --- --- --- ---
Issuance of Common Stock. --- --- 1.3 --- --- --- --- 1.3
Net income............... --- --- --- 47.7 --- --- --- 47.7
Accretion of carrying
value of redeemable
preferred stock to
redemption value........ --- --- --- (22.9) --- --- --- (22.9)
Pension liability
adjustment.............. --- --- --- --- 0.7 --- --- 0.7
Unrealized holding loss
on equity securities.... --- --- --- --- --- (1.0) --- (1.0)
Translation adjustment... --- --- --- --- --- --- (0.6) (0.6)
----------- ----------- ----------- ------------ ---------- ----------- ----------- -----------
BALANCE AT DECEMBER 31,
1996....................$ 3.2 $ 0.1 $ 55.8 $ (126.1) $ (2.0) $ --- $ (2.7) $ (71.7)
=========== =========== =========== ============ ========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
TEREX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
Year Ended December 31,
-------------------------
1996 1995 1994
-------- -------- -------
OPERATING ACTIVITIES
Net Income (Loss)....................................$ 47.7 $ (35.2) $ 0.5
Adjustments to reconcile net
income (loss) to cash used in
operating activities:
Depreciation ..................................... 7.0 7.4 13.7
Amortization ..................................... 6.7 5.5 3.4
Extraordinary loss on retirement of debt.......... --- 7.5 0.7
Gain on sale of discontinued operations........... (84.5) --- ---
Gain on sale of stock of former subsidiary........ --- (1.0) (26.0)
Impairment charges and asset writedowns........... 33.8 --- ---
Deferred taxes ................................... 11.3 --- ---
Other............................................. (2.9) 0.1 (5.8)
Changes in operating assets and
liabilities (net of effects of
acquisitions):
Restricted cash............................... 3.5 (0.5) (0.4)
Trade receivables............................. (23.7) 7.0 (17.6)
Net inventories............................... (12.7) (7.9) 0.1
Net assets of discontinued operations......... (5.4) 2.0 ---
Trade accounts payable........................ 4.9 (2.3) 24.4
Accrued compensation and benefits............. 3.3 5.6 3.3
Other, net.................................... (6.6) (16.8) (5.6)
-------- -------- -------
Net cash used in operating activities....... (17.6) (28.6) (9.3)
-------- -------- -------
INVESTING ACTIVITIES
Net proceeds from sale of discontinued operations 137.2 --- ---
Acquisition of businesses, net of cash acquired... --- (92.4) ---
Capital expenditures.............................. (8.1) (5.2) (12.7)
Proceeds from sale of excess assets............... 6.5 0.6 3.3
Proceeds from sale of stock of former subsidiary.. --- 2.7 24.9
Proceeds from sale of Drexel business............. --- --- 10.3
Proceeds from sale-leaseback of Saarn property.... --- --- 10.0
Other............................................. 0.1 0.2 1.0
-------- -------- -------
Net cash provided by (used in)
investing activities.............. ........ 135.7 (94.1) 36.8
-------- -------- -------
FINANCING ACTIVITIES
Net borrowings (repayments) under revolving
line of credit agreements.. ..................... (55.0) 35.9 13.0
Principal repayments of long-term debt............ (1.0) (153.9) (41.5)
Proceeds from issuance of long-term debt,
net of issuance costs........ ................... --- 239.8 ---
Other............................................. 5.6 --- 0.2
-------- -------- -------
Net cash provided by (used in)
financing activities.............. ........ (50.4) 121.8 (28.3)
-------- -------- -------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS.............. ............ (2.7) (0.3) 1.3
-------- -------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS. 65.0 (1.2) 0.5
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD..... 7.0 8.2 9.2
-------- -------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD...........$ 72.0 $ 7.0 $ 9.7
======== ======== =======
The accompanying notes are an integral part of these financial statements.
TEREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
(dollar amounts in millions, unless otherwise noted, except per share amounts)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. As set forth in Note B below, the Company sold its
Material Handling business on November 27, 1996. The sale resulted in a gain of
$84.5. The Material Handling business is accounted for as a discontinued
operation in the December 31, 1995 consolidated balance sheet, and in the
consolidated statement of operations for the years ended December 31, 1996, 1995
and 1994.
Generally accepted accounting principles permit, but do not require, the
allocation of interest expense between continuing and discontinued operations.
Because the methods allowed under generally accepted accounting principles for
calculating interest expense to be allocated to discontinued operations are not
necessarily indicative of the use of proceeds from the sale of the Material
Handling business by the Company, and the effect on interest expense of the
continuing operations of the Company, the Company has elected not to allocate
interest expense to discontinued operations. The results of this election is
that loss from continuing operations includes substantially all of the interest
expense of the Company, and income from discontinued operations does not include
any material interest expense.
The assets and liabilities of the Material Handling business as of December 31,
1995 have been segregated in the consolidated balance sheet and are shown under
"Net assets of discontinued operations."
Principles of Consolidation. The Consolidated Financial Statements include the
accounts of Terex Corporation and its majority owned subsidiaries ("Terex" or
the "Company"). All material intercompany balances, transactions and profits
have been eliminated. The equity method is used to account for investments in
affiliates in which the Company has an ownership interest between 20% and 50%.
Investments in entities in which the Company has an ownership interest of less
than 20% are accounted for on the cost method or at fair value in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 115 "Accounting
for Certain Investments in Debt and Equity Securities."
Use of Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents. Cash equivalents consist of highly liquid investments
with original maturities of three months or less. The carrying amount of cash
and cash equivalents approximates their fair value.
Cash Securing Letters of Credit. The Company has certain cash and cash
equivalents that are not available for use in its operations. Certain
international operations collateralize letters of credit and performance bonds
with cash deposits.
Customer Deposits. The customer deposit asset and liability in 1995 represent a
deposit made by an Australian customer on a large order placed with Unit Rig.
Inventories. Inventories are stated at the lower of cost or market value. Cost
is determined by the last-in, first-out ("LIFO") method for certain domestic
inventories and by the first-in, first-out ("FIFO") method for inventories of
international subsidiaries and certain domestic inventories. Approximately 5%
and 19% of consolidated inventories at December 31, 1996 and 1995, respectively,
are accounted for under the LIFO method.
Debt Issuance Costs. Debt issuance costs incurred in securing the Company's
financing arrangements are capitalized and amortized over the term of the
associated debt. Capitalized debt issuance costs related to debt that is retired
early are charged to expense at the time of retirement. Debt issuance costs
before amortization totaled $16.9 and $16.1 at December 31, 1996 and 1995,
respectively. During 1996, 1995 and 1994, the Company amortized $2.6, $2.3 and
$2.3, respectively, of capitalized debt issuance costs; in addition, $7.5 and
$0.7 of such costs were charged to extraordinary loss on retirement of debt in
1995 and 1994, respectively.
Intangible Assets. Intangible assets include purchased patents and trademarks.
Costs allocated to patents, trademarks and other specifically identifiable
assets arising from business combinations are amortized on a straight-line basis
over the respective estimated useful lives not exceeding seven years.
Goodwill. Goodwill, representing the difference between the total purchase price
and the fair value of assets (tangible and intangible) and liabilities at the
date of acquisition, is being amortized on a straight-line basis over between
fifteen and forty years. Accumulated amortization is $5.6 and $3.2 at December
31, 1996 and 1995, respectively.
Property, Plant and Equipment. Property, plant and equipment are stated at cost.
Expenditures for major renewals and improvements are capitalized while
expenditures for maintenance and repairs not expected to extend the life of an
asset beyond its normal useful life are charged to expense when incurred. Plant
and equipment are depreciated over the estimated useful lives of the assets
under the straight-line method of depreciation for financial reporting purposes
and both straight-line and other methods for tax purposes.
Impairment of Long Lived Assets. The Company's policy is to assess the
realizability of its long lived assets and to evaluate such assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of such assets (or group of assets) may not be recoverable.
Impairment is determined to exist if the estimated future undiscounted cash
flows is less than its carrying value. The amount of any impairment then
recognized would be calculated as the difference between estimated future
discounted cash flows and the carrying value of the asset. (See Note D --
"Impairment of Long Lived Assets.")
Revenue Recognition. Revenue and costs are generally recorded when products are
shipped and invoiced to either independently owned and operated dealers or to
customers. Certain new units may be invoiced prior to the time customers take
physical possession. Revenue is recognized in such cases only when the customer
has a fixed commitment to purchase the units, the units have been completed,
tested and made available to the customer for pickup or delivery, and the
customer has requested that the Company hold the units for pickup or delivery at
a time specified by the customer in the sales documents. In such cases, the
units are invoiced under the Company's customary billing terms, title to the
units and risks of ownership pass to the customer upon invoicing, the units are
segregated from the Company's inventory and identified as belonging to the
customer and the Company has no further obligations under the order.
Accrued Warranties and Product Liability. The Company records accruals for
potential warranty and product liability claims based on the Company's claim
experience. Warranty costs are accrued at the time revenue is recognized. The
Company provides self-insurance accruals for estimated product liability
experience on known claims and for claims anticipated to have been incurred
which have not yet been reported. The Company's product liability accruals are
presented on a gross settlement basis.
Non Pension Postretirement Benefits. The Company provides postretirement
benefits to certain former salaried and hourly employees and certain hourly
employees covered by bargaining unit contracts that provide such benefits and
has elected the delayed recognition method of adoption of the new standard
related to the benefits. (See Note L -- "Retirement Plans.")
Foreign Currency Translation. Assets and liabilities of the Company's
international operations are translated at year-end exchange rates. Income and
expenses are translated at average exchange rates prevailing during the year.
For operations whose functional currency is the local currency, translation
adjustments are accumulated in the Cumulative Translation Adjustment component
of Stockholders' Deficit. Gains or losses resulting from foreign currency
transactions are included in Other income (expense) -- net.
Foreign Exchange Contracts. The Company uses foreign exchange contracts to hedge
recorded balance sheet amounts related to certain international operations and
firm commitments that create currency exposures. The Company does not enter into
speculative contracts. Gains and losses on hedges of assets and liabilities are
recognized in income as offsets to the gains and losses from the underlying
hedged amounts. Gains and losses on hedges of firm commitments are recorded on
the basis of the underlying transaction. At December 31, 1996 and 1995 the
Company had foreign exchange contracts, which were hedges of firm commitments,
totaling $29.4 and $21.8, respectively whose fair value approximates its
carrying value. In 1995, these contracts related primarily to the customer
deposit discussed above.
Environmental Policies. Environmental expenditures that relate to current
operations are either expensed or capitalized depending on the nature of the
expenditure. Expenditures relating to conditions caused by past operations that
do not contribute to current or future revenue generation are expensed.
Liabilities are recorded when environmental assessments and/or remedial actions
are probable, and the costs can be reasonably estimated. Such amounts were not
material at December 31, 1996 and 1995.
Research and Development Costs. Research and development costs are expensed as
incurred. Such costs incurred in the development of new products or significant
improvements to existing products are included in Engineering, Selling and
Administrative Expenses.
Income Taxes. The Company records deferred tax assets and liabilities based upon
the difference between the tax bases of assets and liabilities and their
carrying amounts for financial reporting purposes. The Company records a
valuation allowance for deferred tax assets if realization of such assets is
dependent on future taxable income. (See Note I -- "Income Taxes.")
Net Income (Loss) Per Share. Net income (loss) per share is based on the
weighted average number of common and common equivalent shares outstanding
during the year. The dilutive effect of common stock equivalents (if applicable)
is calculated using the treasury stock method.
Reclassifications. Certain amounts shown for 1994 and 1995 have been
reclassified to conform to the 1996 presentation.
NOTE B -- DISCONTINUED OPERATIONS
The Company sold its worldwide Material Handling business ("CMHC") on November
27, 1996 for $139.5 in cash, subject to certain adjustments. The sale resulted
in a $84.5 gain net of $2.6 of income taxes. CMHC comprised the Company's
Material Handling Segment. The accompanying Consolidated Statement of Operations
for the years ended December 31, 1996, 1995 and 1994 include the results of CMHC
in "Income (Loss) from Discontinued Operations." Net assets of the discontinued
operations at December 31, 1995 have been segregated in the Consolidated Balance
Sheet. Please refer to Note A - Basis of Presentation for a discussion of
allocation of interest expense. Summary operating results of discontinued
operations are as follows:
Year Ended December 31,
---------------------------------
1996 1995 1994
--------- --------- ---------
Net Sales ................................. $ 404.6 $ 528.8 $ 472.7
Income (loss) before income taxes ......... 17.5 4.4 (2.9)
Provision for income taxes ................ -- -- (0.8)
Income (loss) from operations
of discontinued operations ............... $ 17.5 $ 4.4 $ (3.7)
Gain on sale of discontinued operations.... 84.5 -- --
--------- --------- ---------
Income (loss) from discontinued operations. $ 102.0 $ 4.4 $ (3.7)
========= ========= =========
Net assets of the discontinued operations at December 31, 1995 were as follows:
Assets:
Current assets...................... $ 114.1
Non-current assets.................. 75.6
-----------
Total assets...................... 189.7
-----------
Liabilities:
Current liabilities................. 98.3
Non-current liabilities............. 51.5
-----------
Total liabilities................. 149.8
-----------
Cumulative translation adjustment...... (1.9)
-----------
Net assets........................ $ 41.8
===========
NOTE C -- ACQUISITIONS
PPM, Inc. - On May 9, 1995, the Company, through Terex Cranes, Inc., a wholly
owned subsidiary of the Company ("Terex Cranes, Inc."), completed the
acquisition (the "PPM Acquisition") of substantially all of the shares of PPM
S.A. ("PPM Europe"), from Potain S.A., and all of the capital stock of Legris
Industries, Inc., which owns 92.4% of the capital stock of PPM Cranes, Inc.
("PPM North America;" and PPM North America together with PPM Europe
collectively referred to as "PPM") from Legris Industries S.A. PPM designs,
manufactures and markets mobile cranes and container stackers primarily in North
America and Western Europe under the brand names of PPM, P&H (trademark of
Harnischfeger Corporation) and BENDINI. Concurrently with the completion of the
PPM Acquisition, the Company contributed the assets (subject to liabilities) of
its Koehring Cranes and Excavators and Marklift division to Terex Cranes. The
former division now operates as Koehring Cranes, Inc., a wholly owned subsidiary
of Terex Cranes Inc. ("Koehring"). Koehring manufactures mobile cranes under the
LORAIN brand name and aerial lift equipment under the MARKLIFT brand name. PPM
and Koehring comprise the Company's Terex Cranes segment.
The purchase price of PPM, including acquisition costs, was approximately
$104.5. Approximately $92.6 of the purchase price was paid in cash, including
the repayment of certain indebtedness of PPM required to be repaid in connection
with the acquisition. The remainder of the purchase price consisted of the
issuance of redeemable preferred stock of Terex Cranes having an aggregate
liquidation preference of approximately $21.4, subject to adjustment. The
purchase price is subject to adjustment calculated by reference to Western
European crane demand in 1996 and 1997. The preferred stock does not bear a
dividend and, accordingly, the Company has valued this stock at approximately
$10.0 (discounted at 15%).
The PPM Acquisition was accounted for as a purchase, with the purchase price
allocated to the assets acquired and liabilities assumed based upon their
respective estimated fair values at the date of acquisition. The excess of
purchase price over the net assets acquired is being amortized on a
straight-line basis over 15 years. The estimated fair values of assets and
liabilities acquired in the PPM Acquisition are summarized as follows:
Cash............................................... $ 1.0
Accounts receivable................................ 33.8
Inventories........................................ 69.1
Other current assets............................... 11.9
Property, plant and equipment...................... 20.5
Other assets....................................... 0.3
Goodwill........................................... 68.0
Accounts payable and other current liabilities..... (86.6)
Other liabilities.................................. (13.5)
------------
$ 104.5
============
The operating results of PPM are included in the Company's consolidated results
of operations since May 9, 1995. The following pro forma summary presents the
consolidated results of operations as though the Company completed the PPM
Acquisition on January 1, 1994, after giving effect to certain adjustments,
including amortization of goodwill, interest expense and amortization of debt
issuance costs on the debt issued in the Refinancing:
Unaudited Pro Forma for
the Year Ended December 31,
---------------------------
1995 1994
------------ -------------
Net sales........................................ $ 566.3 $ 493.8
Income (loss) from operations.................... (3.7) (5.9)
Loss before extraordinary items.................. (53.0) (19.3)
Loss before extraordinary items, per share....... $ (5.89) $ (2.45)
The pro forma information is not necessarily indicative of what the actual
results of operations of the Company would have been for the periods indicated,
nor does it purport to represent the results of operations for future periods.
NOTE D -- IMPAIRMENT OF LONG LIVED ASSETS AND OTHER SPECIAL CHARGES
The Company adopted SFAS No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of" in 1996. This statement
establishes accounting standards for determining impairment of long-lived assets
and long-lived assets to be disposed of. The Company assesses the realizability
of its long-lived assets and evaluates such assets for