SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
F O R M 10 - Q
(Mark One)
x Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 1994
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission file number 1-10702
Terex Corporation
(Exact name of registrant as specified in its charter)
Delaware 34-1531521
(State of Incorporation) (IRS Employer Identification No.)
500 Post Road East, Suite 320, Westport, Connecticut 06880
(Address of principal executive offices)
(203) 222-7170
(Registrant's telephone number)
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 NO X
Number of outstanding shares of common stock: 10,303,067 as of June 30, 1994.
The Exhibit Index appears on page 21.
INDEX
TEREX CORPORATION AND SUBSIDIARIES
Page No.
PART I FINANCIAL INFORMATION
Item 1 Condensed Consolidated Financial Statements
Terex Corporation (the "Company") has not yet filed its Annual Report on Form
10-K for the year ended December 31, 1993. The Company's auditors, Price
Waterhouse, have advised the Company that they are unable to issue an
accountants' report on the Company's consolidated financial statements for
inclusion in such Form 10-K until Deloitte & Touche, the Company's former
auditors, are able to reissue their accountants' reports on the consolidated
financial statements of Fruehauf Trailer Corporation ("Fruehauf", formerly a
consolidated subsidiary of the Company) and the Company for the year ended
December 31, 1991. Deloitte & Touche have advised the Company that they will
be unable to reissue such reports until they have completed their
reconsideration of certain items affecting the 1991 financial statements of
Fruehauf which, in turn, also affects the financial statements of the Company
for the year ended December 31, 1991. The accompanying condensed consolidated
financial statements of Terex Corporation and Subsidiaries as of June 30, 1994
and for the three and six month periods ended June 30, 1994 and 1993 have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles.
However, the Company's report on Form 10-Q for the quarter ended March 31, 1994
includes certain additional disclosures as of December 31, 1993 which
management believes to be useful for a complete understanding of the financial
statements.
Condensed Consolidated Statement
of Operations -- Three months and
six months ended June 30, 1994 and 1993 3
Condensed Consolidated Balance Sheet --
June 30, 1994 and December 31, 1993 4
Condensed Consolidated Statement of Cash Flows --
Six months ended June 30, 1994 and 1993 5
Notes to Condensed Consolidated Financial
Statements -- June 30, 1994 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 19
SIGNATURE 20
PART 1. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1994 1993 1994 1993
Net sales $ 198,249 $ 172,261 $ 366,287 $ 355,458
Cost of goods sold 177,945 157,940 330,697 323,538
Gross profit 20,304 14,321 35,590 31,920
Engineering, selling and
administrative expenses:
Third parties 17,516 20,795 37,827 40,736
Related parties --- 875 2,245 1,750
Total engineering, selling
and administrative expenses 17,516 21,670 40,072 42,486
Severance charge 4,549 --- 4,549 ---
Loss from operations (1,761) (7,349) (9,031) (10,566)
Other income (expense):
Interest income 126 265 317 675
Interest expense (7,892) (8,223) (15,443) (15,848)
Equity in net loss of
Fruehauf --- (181) --- (677)
Gain on sale of Fruehauf
stock 15,486 --- 20,106 ---
Gain on sale of Drexel
business 4,244 --- 4,244 ---
Gain (loss) on sale of
property, plant and
equipment 10 42 (50) 256
Amortization of debt
issuance costs (617) (489) (1,237) (1,823)
Amortization of goodwill and
other intangibles (190) (860) (379) (1,326)
Other income (expense) 1,664 1,006 1,737 1,341
Income (loss) before income
taxes and extraordinary
items 11,070 (15,789) 264 (27,968)
Income tax (provision) benefit (816) 142 (834) (78)
Income (loss) before
extraordinary items $ 10,254 $ (15,647) $ (570) $ (28,046)
Extraordinary losses on
retirement of debt (233) (2,003) (233) (2,003)
NET INCOME (LOSS) 10,021 (17,650) (803) (30,049)
Less preferred stock accretion (1,444) --- (2,824) ---
Income (loss) applicable to
common stock $ 8,577 $ (17,650) $ (3,627) $ (30,049)
Earnings (loss) on common stock
Primary:
Before extraordinary items $ 0.64 $ (1.57) $ (0.33) $ (2.82)
Extraordinary items (0.02) (0.20) (0.02) (0.20)
Total $ 0.62 $ (1.77) $ (0.35) $ (3.02)
Fully diluted:
Before extraordinary items $ 0.60 $ (1.57) $ (0.33) $ (2.82)
Extraordinary items (0.01) (0.20) $ (0.02)
(0.20)
Total $ 0.59 $ (1.77) $ (0.35) $ (3.02)
Weighted average common shares
outstanding including
dilutive securities
See Exhibit 11.1)
Primary 13,839 9,953 10,303 9,952
Fully diluted 16,961 9,953 10,303 9,952
The accompanying notes are an integral part of these financial statements.
TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
June 30, December 31,
1994 1993
ASSETS
Current assets
Cash and cash equivalents $ 1,449 $ 9,183
Cash securing letters of credit 7,961 6,263
Trade receivables (less allowance of
$5,644 in 1994 and $6,335 in 1993 83,608 74,326
Net inventories 163,415 164,343
Other current assets 14,584 4,016
Total current assets 271,017 258,131
Property, plant and equipment - net 98,831 97,537
Debt issuance costs and intangible assets 10,944 12,645
Investment in Fruehauf (Note B) 8,443 ---
Other assets 22,391 23,192
Total assets $ 411,626 $ 391,505
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities
Notes payable $ 3,322 $ 2,909
Current portion of long-term debt 27,370 19,799
Trade accounts payable 95,497 82,270
Accrued compensation and benefits 9,842 8,162
Accrued warranties and product liability 27,918 27,226
Accrued interest 10,519 10,698
Accrued income taxes 1,835 1,415
Accrued costs to consolidate operations 9,154 8,384
Other current liabilities 23,412 23,837
Total current liabilities 208,869 184,700
Long-term debt less current portion 177,381 195,331
Accrued warranties and
product liability - long-term 35,054 33,959
Accrued pension 21,712 20,270
Other long-term liabilities 4,175 5,217
Redeemable convertible preferred stock 13,304 10,480
Commitments and contingencies (Note F)
Stockholders' investment
Warrants to purchase common stock 16,851 16,851
Common stock, $.01 par value -
authorized 30,000 shares;
issued and outstanding 10,303 at
June 30, 1994 and 10,303 at
December 31, 1993 103 103
Additional paid-in capital 40,127 40,127
Accumulated deficit (102,671) (99,044)
Pension liability adjustment (4,173) (4,173)
Unrealized holding gain on equity
securities 8,443 ---
Cumulative translation adjustment (7,549) (12,316)
Total stockholders' investment (48,869) (58,452)
Total liabilities and stockholders'
investment $ 411,626 $ 391,505
The accompanying notes are an integral part of these financial statements.
TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
For the Six Months
Ended June 30,
1994 1993
OPERATING ACTIVITIES
Net loss $ (803) $ 30,049)
Adjustments to reconcile net loss to
cash used in operating activities:
Depreciation 6,452 7,895
Amortization 1,902 5,449
(Gain) loss on sale of property,
plant and equipment 50 (256)
Equity in net loss of Fruehauf --- 677
Gain on sale of Fruehauf stock (20,106) ---
Gain on sale of Drexel business (4,244) ---
Other 62 148
Changes in operating assets and
liabilities:
Restricted cash (1,698) (344)
Trade receivables (10,052) 4,577
Net inventories (32) 13,783
Trade accounts payable 13,446 519
Accrued compensation and benefits 1,531 (244)
Accrued warranties and product
liability 2,011 (2,419)
Accrued interest (179) (427)
Accrued income taxes 429 (596)
Accrued costs to consolidate
operations 454 (13,585)
Other (1,504) 3,660
Net cash used in operating
activities (12,281) (11,212)
INVESTING ACTIVITIES
Capital expenditures, net of
dispositions (7,021) (5,989)
Proceeds from sale of property, plant
and equipment 106 256
Proceeds from refinancing note
receivable 1,000 ---
Advances to Fruehauf ---
(622)
Proceeds from sale of Fruehauf stock 11,349 ---
Proceeds from sale of Drexel business 10,289 ---
Other 5 556
Net cash from (used in) investing
activities 15,728 (5,799)
FINANCING ACTIVITIES
Net borrowings under revolving line of
credit agreements 11,508 14,979
Principal repayments of long-term debt (22,281) (8,175)
Other (380) 373
Net cash from (used in) financing
activities (11,153) 7,177
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS (28) (358)
NET DECREASE IN CASH AND CASH EQUIVALENTS (7,734) (10,192)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 9,183 25,671
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,449 $ 15,479
The accompanying notes are an integral part of these financial statements.
TEREX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, unless otherwise denoted)
June 30, 1994
NOTE A -- BASIS OF PRESENTATION
Basis of Presentation. The accompanying condensed consolidated financial
statements of Terex Corporation and Subsidiaries as of June 30, 1994 and
December 31, 1993 and for the three and six months ended June 30, 1994 and 1993
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles.
The accompanying condensed consolidated balance sheet as of December 31, 1993,
has been derived from the unaudited consolidated balance sheet as of that date.
The condensed consolidated financial statements include the accounts of Terex
Corporation and its majority owned subsidiaries ("Terex" or the "Company").
All 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%. The cost method or fair
value method as discussed in Note B -- "Accounting Changes" is used to account
for investments in affiliates in which the Company has an ownership interest of
less than 20%.
In the opinion of management, all adjustments considered necessary for a fair
presentation have been made. Such adjustments consist only of those of a
normal recurring nature, except for the impact of the accounting changes
discussed in Note B -- "Accounting Changes." Operating results for the three
months and six months ended June 30, 1994 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1994. For
further information, refer to the condensed consolidated financial statements
and footnotes thereto included in the Company's report on Form 10-Q for the
quarter ended March 31, 1994.
NOTE B -- ACCOUNTING CHANGES
Employers' Accounting for Postemployment Benefits
The Company adopted SFAS No. 112, "Employers' Accounting for Postemployment
Benefits," on January 1, 1994. This statement establishes accounting and
reporting for the estimated cost of benefits provided by an employer to former
or inactive employees after employment but before retirement. The Company
already accounts for substantially all of such benefits on an accrual basis and
the effect of adoption of the new standard was not material to the Company's
financial statements.
Accounting for Certain Investments in Debt and Equity Securities
The Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," on January 1, 1994. This statement requires the use of
fair value accounting for investments in certain debt and equity securities,
with changes in fair value recorded in income or as a separate component of
stockholders' investment depending on whether the securities are considered
trading securities or securities available for sale. The statement does not
apply to investments in equity securities accounted for under the equity method
of accounting.
During 1993, the Company accounted for its investment in Fruehauf Trailer
Corporation ("Fruehauf") using the equity method. Subsequent to the Company's
February 1994 sale of 1,000,000 shares of Fruehauf common stock, the Company's
remaining ownership interest in Fruehauf was 19.1% and management concluded,
after consultation with the Company's auditors, that use of the equity method
was no longer appropriate for the Company's investment in Fruehauf. All of the
shares of Fruehauf common stock held by the Company, which had a carrying value
of zero as of December 31, 1993, are classified as securities available for
sale under SFAS No. 115. Accordingly, as of February 28, 1994, the Company
recorded an initial increase in stockholders' investment of approximately
$36,360 to adjust the carrying value of such shares of Fruehauf common stock to
fair value upon initial application of SFAS No. 115. Subsequent unrealized
holding gains and losses are recorded as adjustments to stockholders'
investment. As a result of the sale of an aggregate of 3,400,000 shares of
Fruehauf common stock in May and June 1994, the Company's remaining ownership
interest in Fruehauf is 1,986,622 shares of common stock or approximately 6.5%
of Fruehauf's outstanding common stock.
NOTE C -- INVENTORIES
Net inventories consist of the following:
June 30, December 31,
1994 1993
New machines $ 17,805 $ 26,317
Used machines 1,019 1,345
Replacement parts 64,704 62,150
Work-in-process 13,787 14,351
Raw materials and supplies 70,374 65,165
167,689 169,328
Less: Excess of FIFO inventory value
over LIFO cost (4,274) (4,985)
Net inventories $ 163,415 $ 164,343
NOTE D -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
June 30, December 31,
19941993
Property $ 10,304 $ 10,119
Plant 41,120 38,398
Equipment 84,074 79,270
135,498 127,787
Less: Accumulated depreciation (36,667) (30,250)
Net property, plant and equipment $ 98,831 $ 97,537
NOTE E -- LONG-TERM OBLIGATIONS
Senior Secured Notes and Subordinated Notes
The financial covenants of the indentures governing the Company's 13% Senior
Secured Notes due August 1, 1996 (the "Senior Secured Notes") and 13.5% Secured
Senior Subordinated Notes due July 1, 1997 (the "Subordinated Notes")
(together, the "Notes") require, among other things, that the Company maintain
certain levels of tangible net worth (the "Net Worth Covenants") and collateral
coverage (the "Collateral Covenants"). In the event that the Company's net
worth is not in excess of the amount required under the Net Worth Covenants for
any two consecutive quarters, the Company must offer to repurchase, at par plus
accrued interest, 20% of the outstanding principal amount of the Notes. In
the event the Company is not in compliance with the Collateral Covenants at the
end of any calendar quarter, the Company must offer to repurchase, at par plus
accrued interest, $16,000 principal amount of the Senior Secured Notes or such
greater amount as would be necessary to bring the Company into compliance with
the Collateral Covenants. If the Company were not to be in compliance with
such covenants, there could result a material adverse impact on the Company and
its financial position.
The Company was in compliance with the Net Worth Covenants and the
Collateral Covenants at June 30, 1994. The Company believes that, based on
management's current estimates, it will be in compliance with its covenants
with respect to the Senior Secured Notes and Subordinated Notes over the next
twelve months. As described in Note G -- "Liquidity and Financing," the
Company has taken actions to maintain compliance with the Net Worth Covenants
and Collateral Covenants, including the sale of its Drexel subsidiary, shares
of Fruehauf common stock and other assets, and plans to take additional
actions, if needed, to continue in compliance.
Lending Facility
In 1993, Terex entered into an agreement with a lender which provides for up to
$20,000 of cash advances and guarantees of bank letters of credit and is
secured by substantially all the Company's domestic receivables and proceeds
thereof (the "Lending Facility"). Interest on the Lending Facility is payable
monthly at 2.75% above the Reference Rate, as such term is defined in such
agreement. In June 1994, the agreement was amended to provide for up to
$25,000 of cash advances and guarantees through July 31, 1994 and in August
1994, the agreement was further amended to extend the $25,000 limit until
October 31, 1994, at which time the limit will revert to $20,000. The
agreement was also amended in July 1994 to extend the maturity date from August
24, 1995 to August 24, 1997. Accordingly, up to $20,000 of such borrowings
are classified as Long Term Debt in the accompanying Balance Sheet. The
balance outstanding under the Lending Facility at June 30, 1994 was $21,296.
Secured Term Note
A portion of the acquisition of Clark Material Handling Company and certain
affiliated companies (together, "CMH") in July 1992, (the "CMH Acquisition")
was financed through a note to the seller in the amount of $6,090 due July 31,
1994. The seller note was secured by certain property, plant and equipment.
This note was paid by the Company in May 1994 and the Seller's security
interest in the underlying collateral was released. A security interest in
this property was granted to the holders of the Senior Secured Notes and
Subordinated Notes as additional collateral.
NOTE F -- LITIGATION AND CONTINGENCIES
General
In December 1992, a Class Action complaint was filed against Fruehauf, the
Company and certain of Fruehauf's present and former officers, directors and
investment bankers, in the United States District Court for the Eastern
District of Michigan, Southern Division, alleging, among other things,
violations of certain provisions of the federal securities laws, and seeking
unspecified compensatory and punitive damages. A motion to dismiss the action
filed by the defendants has been denied and discovery has begun. This action
is at a very early stage; however, the Company believes that meritorious
defenses exist to the claims made. The Company has not recorded any loss
provision for this litigation.
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 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.
Fruehauf is contingently liable for portions of remedial costs at numerous
off-site waste disposal sites, including those previously used by operations of
Fruehauf's predecessor, and is directly liable for remedial costs at a number
of other locations. If Fruehauf fails to discharge its environmental
obligations, to the extent that such liabilities arose during the time period
during which Terex was the controlling stockholder of Fruehauf, Terex might be
contingently liable for such obligations. The Company believes, however, that
Fruehauf's significant environmental liabilities predate Terex's acquisition of
Fruehauf, and therefore any contingent responsibility of the Company is not
expected to have a material adverse effect on the Company.
NOTE G - LIQUIDITY AND FINANCING
The Company experienced significant operating losses in the first quarter of
1994. Results have improved in the second quarter of 1994 and the Company has
taken significant actions to reduce its overall cost structure and improve
liquidity, which will improve the Company's ability to take advantage of
improved market conditions, especially in the Company's Material Handling
Segment. Management believes that the Company's lending facilities, together
with the additional financing and cash generating activities described below,
will allow the Company to meet its operating payment obligations, including
payments to vendors, on a timely basis and to meet its scheduled interest and
principal repayment requirements as they come due. The Company is also
generating cash by selling certain real estate and other assets and continuing
corporate wide cost containment efforts.
In June 1994, the Company announced personnel reductions in plant supervision,
engineering, marketing and administration totaling approximately 160 employees
in the Material Handling Segment's North American and European operations, of
which approximately 39% were effective in July 1994 with the remainder to be
effective before the end of 1994. The Company will also reorganize certain
marketing activities and close several of its regional sales offices in the
United States. The Company recorded a $4.5 million charge in the second
quarter of 1994 for severance costs associated with these actions. When fully
implemented, the Company expects that these actions will reduce operating
expenses in the Material Handling Segment by approximately $9 million annually.
On April 15, 1994, the Company completed the sale of 100% of the stock of
Drexel Industries, Inc. ("Drexel"), pursuant to an agreement to sell entered
into in March 1994, for total proceeds of $12,521, of which $12,197 was in cash
and $324 was in the form of a note due December 15, 1994 and bearing interest
at 6%. The Company retained certain past-due receivables and certain
obligations of Drexel, including environmental cleanup costs at Drexel's
facility in Horsham, Pennsylvania and state and federal income taxes, and
recognized a gain of approximately $4,244 as a result of the sale. Drexel
operated in the Material Handling Segment and manufactures very narrow-aisle
lift trucks. Drexel's net sales and income from operations totaled $4,325 and
$35, respectively, in the first quarter of 1994. Pursuant to the terms of the
indentures for the Company's Senior Secured Notes, the Company intends to
reinvest the net proceeds of the sale of Drexel in the Company's business.
The Company sold 1,000,000 shares of Fruehauf common stock for aggregate
proceeds of $3,009 in December 1993 and 4,400,000 shares of Fruehauf common
stock for aggregate proceeds of $20,106 during the first half of 1994. The
Company repurchased $3,000 of the Senior Secured Notes in May 1994 and $4,806
of the Senior Secured Notes in June 1994, pursuant to the indenture for the
Senior Secured Notes, and will make similar offers to repurchase a total of
$15,287 of the Senior Secured Notes in the third and fourth quarters of 1994.
In addition to such offers to repurchase, the Company repaid approximately
$8,333 in May 1994 for a required sinking fund payment on the Subordinated
Notes and $6,090 in May 1994 for the maturity of the note issued to the seller
in connection with the CMH Acquisition. The Company's interest payment
requirements in 1994 include approximately $27,600 of interest on the Senior
Secured Notes, Subordinated Notes and the Lending Facility, of which amount
approximately $26,300 has been paid as of August 1, 1994.
Concurrent with the infusion of working capital into the Company from its
private placement of preferred stock and warrants to purchase common stock in
December 1993, CMH entered into agreements with approximately 225 of its
vendors to freeze the balances due such vendors as of November 1993 (totaling
approximately $12,900) and establish normal credit terms for new purchases.
CMH agreed to pay the frozen balances in monthly installments for periods of up
to twelve months from December 1993 through November 1994, but may prepay the
remaining balance to any or all of the vendors at any time. In December 1994,
CMH will make an additional payment to each vendor equivalent to 1/12 of the
frozen balance, but only to such vendors that have not been prepaid. Through
June 30, 1994, CMH paid approximately $8,000 to vendors under these agreements,
and the Company expects to fund the remaining payments from operations.
The Company was in compliance with the Net Worth Covenants and the
Collateral Covenants with respect to the Senior Secured Notes and Subordinated
Notes at June 30, 1994. Noncompliance with these covenants could result in a
material adverse impact on the Company and its financial position.
Management believes that the Company will be able to maintain compliance with
the Net Worth Covenants and Collateral Covenants by selling certain
non-strategic assets, including without limitation the Company's investment in
Fruehauf common stock, and by achieving consistent profitability. As described
above, the Company sold a total of 4,400,000 shares of Fruehauf common stock
during the first six months of 1994 for aggregate proceeds of approximately
$20,106 and recognized a gain of that amount. At June 30, 1994 the Company
continued to hold 1,986,622 shares of Fruehauf common stock. The Company
believes that, based on management's current estimates, it will be in
compliance with the Net Worth Covenants and the Collateral Covenants over the
next twelve months.
NOTE H -- LONG-TERM INCENTIVE PLAN
In June 1994, the Company's board of directors approved a Long-Term Incentive
Plan (the "Plan") covering certain managerial, administrative and professional
employees and outside directors. The Plan provides for awards to employees,
from time to time and as determined by a committee of outside directors, of
cash bonuses, stock options, stock and/or restricted stock. The total number
of shares of the Company's common stock available to be awarded under the Plan
is 750,000, subject to certain adjustments. In June 1994, options to purchase
a total of 308,800 shares of common stock at $5.50 per share and a total of
129,400 shares of restricted common stock were granted to employees and outside
directors. The Plan, and the options and restricted stock granted thereunder,
are subject to approval by the Company's shareholders. Accordingly, these
shares and options are not considered to be outstanding and are not included in
calculations of earnings per share.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Quarter Ended June 30, 1994
The table below is a comparison of net sales, gross profit, selling, general
and administrative expenses, severance charge and income (loss) from
operations, by segment, for the three months ended June 30, 1994 and 1993.
Three Months Ended June 30, Increase
1994 1993 Decrease)
(in millions of dollars)
NET SALES
Material Handling $ 116.6 $ 102.3 $ 14.3
Heavy Equipment 82.4 70.0 12.4
Eliminations (0.8) --- (0.8)
Total $ 198.2 $ 172.3 $ 25.9
GROSS PROFIT
Material Handling $ 8.4 $ 6.2 $ 2.2
Heavy Equipment 11.9 8.1 3.8
Total $ 20.3 $ 14.3 $ 6.0
ENGINEERING, SELLING AND
ADMINISTRATIVE EXPENSES
Material Handling $ 11.1 $ 13.2 $ (2.1)
Heavy Equipment 6.6 7.3 (0.7)
General/Corporate (0.2) 1.2 (1.4)
Total $ 17.5 $ 21.7 $ (4.2)
SEVERANCE CHARGE
Material Handling $ 4.3 $ --- $ 4.3
Heavy Equipment 0.2 --- 0.2
Total $ 4.5 $ --- $ 4.5
INCOME (LOSS) FROM OPERATIONS
Material Handling $ (7.0) $ (7.0) $ ---
Heavy Equipment 5.1 0.8 4.3
General/Corporate 0.2 (1.2) 1.4
Total $ (1.7) $ (7.4) $ 5.7
Net Sales
Sales increased $25.9 million, or approximately 15%, for the three months ended
June 30, 1994 over the comparable 1993 period.
Material Handling Segment sales were $116.6 million for the three months ended
June 30, 1994, an increase of $14.3 million from $102.3 million in the year
earlier period. Machine sales increased $12.1 million and parts sales
increased $2.2 million due to increased industry demand and the easing of
capital constraints and the resultant problems caused by lack of production
supplies and materials that occurred during the last half of 1993 and the
opening months of 1994. Production improved because a working capital infusion
in December 1993 from the proceeds of the issuance of preferred stock and
warrants to purchase common stock allowed management to improve relations and
schedule payment terms with its key suppliers. Management is continuing
negotiations with critical suppliers to move production of Material Handling
Segment parts and supplies to a higher priority and is developing alternate
suppliers where necessary to keep up with production demands. Parts sales
improved as difficulties in assimilating the Material Handling Segment's parts
business into the Terex Parts Distribution Center were resolved and parts
availability continued to increase.
Material Handling Segment bookings for the three months ended June 30, 1994
were $104.1 million, a decrease of $20.9 million, or 16%, from the year earlier
period. Bookings for parts sales for the three months ended June 30, 1994,
from which the Company generally realizes higher margins than machine sales,
decreased $5.3 million, or 20%, from the year earlier period. Machine order
bookings for the three months ended June 30, 1994 decreased $15.7 million, or
16%, from the year earlier period. Material Handling Segment backlog was
$141.1 million at June 30, 1994 compared to $168.3 million at March 31, 1994
and $82.6 million at June 30, 1993. This change reflects the improved second
quarter sales resulting from the increases in production levels discussed
above. Management expects that the backlog of both machines orders and parts
orders will be reduced during the remainder of 1994 as the Company restores
full production in the Material Handling Segment United States operations and
as parts availability is restored to historical levels.
Heavy Equipment Segment sales increased $12.4 million for the three months
ended June 30, 1994 from the three months ended June 30, 1993. Machines and
contract sales increased $11.9 million and parts sales increased by $0.5
million. Machine sales increased at all of the Heavy Equipment Segment
divisions, reflecting general improvement in the United States economy,
increased industry demand and the success of new business initiatives outside
the United States.
Heavy Equipment Segment bookings for the three months ended June 30, 1994 were
$92.7 million, an increase of $30.2 million, or 48%, from the year earlier
period. Bookings for parts sales, from which the Company generally realizes
higher margins than machine sales, decreased $5.5 million, or 19%, from the
three months ended June 30, 1993. Machine and contract bookings for the three
months ended June 30, 1994 increased $37.2 million, or 116%, from the prior
year period, reflecting sharp increases at the Company's Koehring Cranes and
Excavators ("Koehring") and Unit Rig divisions. Heavy Equipment Segment
backlog was $77.4 million at June 30, 1994 compared to $67.0 million at March
31, 1994 and $106.9 million at June 30, 1993, reflecting the increases in
second quarter 1994 sales. Parts backlog was $7.9 million at June 30, 1994
compared to $11.2 million at March 31, 1994 and $9.9 million at June 30, 1993.
As a result of the working capital infusion in December 1993, the inventory
availability for parts sales continued to increase during the quarter and
management expects that the backlog of parts orders will be reduced as working
capital continues to be applied to build parts inventory.
Gross Profit
Gross profit for the three months ended June 30, 1994 increased $6.0 million
compared to the three months ended June 30, 1993.
The Material Handling Segment's gross profit increased $2.2 million to $8.4
million for the three months ended June 30, 1994 compared to $6.2 million for
the prior year's period. The gross profit percentage in the Material Handling
Segment increased to 7.2% for the three months ended June 30, 1994 from 6.0%
for the prior year's period. The increase in gross profit percentage reflects
comparatively higher sales and increased manufacturing efficiency due to
improvements in the flow of manufacturing supplies and materials as well as
cost reduction initiatives.
The Heavy Equipment Segment's gross profit increased $3.4 million to $11.9
million for the three months ended June 30, 1994 compared to $8.1 million for
the prior year's period. Improved gross profit from machines and contract
sales accounted for substantially all of the increase, reflecting the increase
in sales and continuing effects of cost reduction initiatives implemented
during 1992 and 1993. The gross profit percentage in the Heavy Equipment
Segment increased to 14.4% for the three months ended June 30, 1994 from 11.6%
for the three months ended June 30, 1993, reflecting improved manufacturing
efficiency and increased absorption of fixed costs due to higher levels of
production.
Engineering, Selling and Administrative Expenses
Engineering, selling and administrative expenses decreased to $17.5 million for
the three months ended June 30, 1994 from $21.6 million for the three months
ended June 30, 1993. Material Handling Segment engineering, selling and
administrative expenses totaled $11.1 million for the three months ended June
30, 1994 compared to $13.2 million for the prior year's period. Heavy
Equipment Segment engineering, selling and administrative expenses decreased to
$6.6 million for the three months ended June 30, 1994 from $7.3 million for the
prior year's period as a result of cost reduction initiatives.
Severance Charge
During the second quarter of 1994, the Company recorded a charge of $4.5
million principally related to severance costs in the Material Handling
Segment's North American and European operations. In June 1994, the Company
announced personnel reductions in plant supervision, engineering, marketing and
administration totaling approximately 160 employees, of which approximately 39%
were effective in July 1994 with the remainder to be effective before the end
of 1994. The Company will also reorganize certain marketing activities and
close several of its regional sales offices in the United States. The $4.5
million charge represents severance costs associated with these actions. When
fully implemented, the Company expects that these actions will reduce operating
expenses in the Material Handling Segment by approximately $9 million annually.
Income (Loss) from Operations
The Material Handling Segment incurred a loss from operations of $2.7 million,
excluding the severance charge discussed above, for the three months ended June
30, 1994 ($7.0 million including the severance charge) compared to a loss of
$7.0 million for the three months ending June 30, 1993. Management expects
that the Material Handling Segment will continue to make improvements in the
level of production during the second half of 1994. Because of the production
improvements and the reduced operating expenses resulting from the
restructuring actions described above, management expects substantial
improvement in the Material Handling Segment's income from operations in the
second half of 1994.
Heavy Equipment Segment income from operations improved by $4.3 million to $5.1
million for the three months ended June 30, 1994 from $0.8 million in the prior
year's period. This improvement resulted from the increase in gross profit and
the decrease in engineering, selling and administrative expenses. The losses
at Koehring experienced during 1993 have been reversed as a result of
continuing cost reductions, improvements in inventory management and
consolidation of model offerings.
On a consolidated basis, the Company experienced operating income of $2.8
million, excluding the severance charge of $4.5 million discussed above, for
the three months ended June 30, 1994 (operating loss of $1.7 million including
the severance charge) compared to an operating loss of $7.4 million for the
prior year's period.
Other Income (Expense)
As described in Note B -- "Accounting Changes" in the Notes to the Condensed
Consolidated Financial Statements, the Company presently accounts for its
investment in Fruehauf in accordance with the provisions of SFAS 115 and the
Company does not expect to recognize any significant additional gains or losses
with respect to its investment in Fruehauf except as realized on transactions
in Fruehauf common stock. The Company recognized a loss on its investment in
Fruehauf of $0.2 million for the three months ended June 30, 1993. In May and
June of 1994, the Company sold an aggregate of 3,400,000 shares of Fruehauf
common stock and realized a gain totaling $15.5 million in the three months
ended June 30, 1994.
As described in Note G -- "Liquidity and Financing," in April 1994 the Company
sold 100% of the stock of Drexel Industries, Inc. The Company realized a gain
on the transaction of $4.2 million in the second quarter of 1994.
The provision for income taxes generally represents taxes withheld on foreign
royalties and dividends, and the fluctuation in the provision for income tax is
due to fluctuations in these items.
Six Months Ended June 30, 1994
The table below is a comparison of net sales, gross profit, selling, general
and administrative expenses, severance charge and income (loss) from
operations, by segment, for the six months ended June 30, 1994 and 1993.
Six Months Ended June 30, Increase
1994 1993 (Decrease)
(in millions of dollars)
NET SALES
Material Handling $ 207.5 $ 221.0 $ (13.5)
Heavy Equipment 160.4 134.5 25.9
Eliminations (1.6) --- (1.6)
Total $ 366.3 $ 355.5 $ 10.8
GROSS PROFIT
Material Handling $ 12.9 $ 17.0 $ (4.1)
Heavy Equipment 22.7 14.9 7.8
Total $ 35.6 $ 31.9 $ 3.7
ENGINEERING, SELLING AND
ADMINISTRATIVE EXPENSES
Material Handling $ 24.6 $ 25.6 $ (1.0)
Heavy Equipment 13.6 15.5 (1.9)
General/Corporate 1.9 1.4 0.5
Total $ 40.1 $ 42.5 $ (2.4)
SEVERANCE CHARGE
Material Handling $ 4.3 $ --- $ 4.3
Heavy Equipment 0.2 --- 0.2
Total 4.5 $ --- $ 4.5
INCOME (LOSS) FROM OPERATIONS
Material Handling $ (16.0) $ (8.6) $ (7.4)
Heavy Equipment 8.9 (0.6) 9.5
General/Corporate (1.9) (1.4) (0.5)
Total $ (9.0) $ (10.6) $ 1.6
Net Sales
Sales increased $10.8 million, or approximately 3%, for the six months ended
June 30, 1994 over the comparable 1993 period.
Material Handling Segment sales were $207.5 million for the six months ended
June 30, 1994, a decrease of $13.5 million from $221.0 million in the year
earlier period. Machine sales decreased $7.8 million and parts sales decreased
$5.7 million. Machine sales were adversely affected by lack of supplies and
materials necessary to restore full production and meet increased industry
demand. The lack of production supplies and materials resulted from a
deterioration in supplier relations that occurred during the last half of 1993
because of liquidity constraints, as well as from capacity shortages at several
suppliers due to increased industry demand for their products. As a result of
the working capital infusion in December 1993, management was able to improve
relations and schedule payment terms with its key suppliers. Management is
negotiating with critical suppliers to move production of Material Handling
Segment parts and supplies to a higher priority and is developing alternate
suppliers where necessary to keep up with production demands. Parts sales were
affected by the cash difficulties previously discussed and by difficulties in
assimilating the Material Handling Segment's parts business into the Terex
Parts Distribution Center leading to decreased parts availability compared to
the six months ended June 30, 1993.
Material Handling Segment bookings for the six months ended June 30, 1994 were
$210.7 million, a decrease of $9.7 million, or 4%, from the year earlier
period. Bookings for parts sales for the six months ended June 30, 1994, from
which the Company generally realizes higher margins than machine sales,
decreased $9.6 million, or 18%, from the year earlier period. Machine order
bookings for the six months ended June 30, 1994 of $166.9 million were
comparable to $167.0 million in the year earlier period. Material Handling
Segment backlog was $141.1 million at June 30, 1994 compared to $152.7 million
at December 31, 1993 and $82.6 million at June 30, 1993. This change reflects
the improvement in second quarter sales resulting from the upward trend in
production supplies and materials and parts availability levels. Management
expects that the backlog of both machines orders and parts orders will be
reduced during the remainder of 1994 as the Company restores full production in
the Material Handling Segment United States operations and as parts
availability is restored to historical levels.
Heavy Equipment Segment sales increased $25.9 million, or 19%, for the six
months ended June 30, 1994 from the six months ended June 30, 1993. Machines
and contract sales increased $27.7 million, partially offset by a parts sales
decrease of $1.5 million. Machine sales increased at all of the Heavy
Equipment Segment divisions, reflecting general improvement in the United
States economy, increased industry demand and the success of new business
initiatives outside the United States Heavy Equipment Segment parts sales
decreased $1.5 million for the six months ended June 30, 1994 from the year
earlier period. Sales were adversely impacted by lower parts availability and
the assimilation of the Material Handling Segment's parts business into the
Company's Southaven, Mississippi Parts Distribution Center.
Heavy Equipment Segment bookings for the six months ended June 30, 1994 were
$156.9 million, an increase from bookings levels of $147.1 for the comparable
1993 period. Bookings for parts sales, from which the Company generally
realizes higher margins than machine sales, decreased $6.6 million, or 12.2%,
from the six months ended June 30, 1993. Machine and contract bookings for the
six months ended June 30, 1994 increased $16.4 million, or 17.6%, from the
prior year period, reflecting the factors discussed above. Heavy Equipment
Segment backlog was $77.4 million at June 30, 1994 compared to $80.9 million at
December 31, 1993 and $98.1 million at June 30, 1993, reflecting the increases
in first half 1994 sales. Parts backlog was $8.0 million at June 30, 1994
compared to $10.0 million at December 31, 1993 and $9.9 million at June 30,
1993. This decrease resulted from the decrease in bookings and from increased
parts availability during 1994. As a result of the working capital infusion in
December 1993, the inventory availability for parts sales increased during the
first half of 1994 and management expects that the backlog of parts orders will
continue to be reduced as working capital continues to be applied to build
parts inventory.
Gross Profit
Gross profit for the six months ended June 30, 1994 increased $3.7 million
compared to the six months ended June 30, 1993.
The Material Handling Segment's gross profit decreased $4.1 million to $12.9
million for the six months ended June 30, 1994 compared to $17.0 million for
the prior year's period. The gross profit percentage in the Material Handling
Segment decreased to 6.2% for the six months ended June 30, 1994 from 7.7% for
the prior year's period, reflecting comparatively lower sales and decreased
manufacturing efficiency due to shortages in manufacturing supplies and
materials during the first quarter of the year, somewhat offset by cost
reduction initiatives and production improvements in the second quarter of
1994.
The Heavy Equipment Segment's gross profit increased $7.8 million to $22.7
million for the six months ended June 30, 1994 compared to $14.9 million for
the prior year's period. Improved gross profit from machines and contract
sales accounted for substantially all of the increase, reflecting the increase
in sales and continuing effects of cost reduction initiatives implemented
during 1992 and 1993. The gross profit percentage in the Heavy Equipment
Segment increased to 14.2% for the six months ended June 30, 1994 from 11.1%
for the six months ended June 30, 1993, reflecting improved manufacturing
efficiency and increased absorption of fixed costs due to higher levels of
production.
Engineering, Selling and Administrative Expenses
Engineering, selling and administrative expenses decreased to $40.1 million for
the six months ended June 30, 1994 from $42.5 million for the six months ended
June 30, 1994. Material Handling Segment engineering, selling and
administrative expenses totaled $24.6 million for the six months ended June 30,
1994 compared to $25.6 million for the prior year's period. Heavy Equipment
Segment engineering, selling and administrative expenses decreased to $13.6
million for the six months ended June 30, 1994 from $15.5 million for the prior
year's period as a result of cost reduction initiatives. Corporate
administrative expense in 1994 includes a charge of $2.2 million in connection
with the proposed termination of the Company's management contract with KCS
Industries, L.P. ("KCS"), a Connecticut limited partnership principally owned
by certain officers of the Company. Charges under such contract would have
totaled approximately $1.8 million for the six months ended June 30, 1994, and
would have continued at such rate until at least June 30, 1995.
Severance Charge
During the second quarter of 1994, the Company recorded a charge of $4.5
million principally related to severance costs in the Material Handling
Segment's North American and European operations. In June 1994, the Company
announced personnel reductions in plant supervision, engineering, marketing and
administration totaling approximately 160 employees, of which approximately 39%
were effective in July 1994 with the remainder to be effective before the end
of 1994. The Company will also reorganize certain marketing activities and
close several of its regional sales offices in the United States. The $4.5
million charge represents severance costs associated with these actions. When
fully implemented, the Company expects that these actions will reduce operating
expenses in the Material Handling Segment by approximately $9 million annually.
Income (Loss) from Operations
The Material Handling Segment incurred a loss from operations of $11.7 million,
excluding the severance charge discussed above, for the six months ended June
30, 1994 ($16.0 million including the severance charge) compared to a loss of
$8.6 million for the six months ending June 30, 1993. As discussed above, the
decreases in sales and gross profit in 1994 reflect the difficulties in
restoring full production due to supplier problems. Management expects that
the Material Handling Segment will continue the improvements in the level of
production made during the second quarter for the remainder of 1994. Because
of the production improvements and the reduced operating expenses resulting
from the restructuring actions described above, management expects substantial
improvement in the Material Handling Segment's income from operations in the
second half of 1994.
Heavy Equipment Segment income (loss) from operations improved by $9.5 million
to $8.9 million of net income for the six months ended June 30, 1994 from a
$0.6 million loss in the prior year's period. This improvement resulted from
the increase in gross profit and the decrease in engineering, selling and
administrative expenses. All of the businesses comprising the Heavy Equipment
Segment reported income from operations for the six months ended June 30, 1994.
The losses at Koehring experienced during 1993 have been reversed as a result
of continuing cost reductions, improvements in inventory management and
consolidation of model offerings.
On a consolidated basis, the Company experienced an operating loss of $4.5
million, excluding the severance charge discussed above, for the six months
ended June 30, 1994 ($9.0 million including the severance charge) compared to
an operating loss of $10.6 million for the prior year's period.
Other Income (Expense)
As described in Note B -- "Accounting Changes" in the Notes to the Condensed
Consolidated Financial Statements, the Company presently accounts for its
investment in Fruehauf in accordance with the provisions of SFAS 115 and the
Company does not expect to recognize any significant additional gains or losses
with respect to its investment in Fruehauf except as realized on transactions
in Fruehauf common stock. The Company recognized a loss on its investment in
Fruehauf of $0.7 million for the three months ended June 30, 1993. In the
first half of 1994, the Company sold an aggregate of 4,400,000 shares of
Fruehauf common stock and realized a gain totaling $20.1 million in the six
months ended June 30, 1994.
As described in Note G -- "Liquidity and Financing," in April 1994 the Company
sold 100% of the stock of Drexel Industries, Inc. The Company realized a gain
on the transaction of $4.2 million in the second quarter of 1994.
The provision for income taxes generally represents taxes withheld on foreign
royalties and dividends, and the fluctuation in the provision for income tax is
due to fluctuations in these items.
Liquidity and Capital Resources
Net cash of $12.3 million was used in operating activities during the six
months ended June 30, 1994, principally to fund operating losses and interest
payments.
Net cash provided by investing activities of $15.7 million during the six
months ended June 30, 1994 principally resulted from the sale of Fruehauf
common stock and proceeds from the sale of the Drexel business, offset by cash
used to finance capital expenditures. Proceeds from the sale of Fruehauf
common stock were approximately $11.3 million, reflecting sales of 4,400,000
shares in February through June 1994 for approximately $20.1 million (less $9.3
million that settled in July 1994) and the settlement of a December 1993 trade
in January 1994 for approximately $0.6 million. Proceeds from refinancing a
note receivable were $1.0 million. Capital expenditures in the six months
ended June 30, 1994 were $7.0 million.
Net cash used by financing activities of $11.2 million during the six months
ended June 30, 1994 resulted from the principal repayment of debt offset by
borrowings of $11.5 million under the Lending Facility entered into during
1993. Payments of debt during the six months ended June 30, 1994 included
$7.8 million for repurchases of Senior Secured Notes, an $8.3 million sinking
fund payment of Subordinated Notes, and the repayment of a $6.1 million note
due in July 1994.
The balance outstanding under the Lending Facility was $21.3 million as of June
30, 1994, and the additional amount the Company could have borrowed was $2.5
million as of that date. The balance discounted under the credit facility of
the Company's Terex Equipment Limited ("TEL") subsidiary was $3.0 million at
June 30, 1994, and the additional amount TEL could have discounted was $8.6
million as of that date.
Debt covenants and other liquidity restrictions
The indentures governing the Senior Secured Notes and Subordinated Notes
require, among other things, that the Company comply with the Net Worth
Covenants and the Collateral Covenants. In the event that the Company's net
worth is not in excess of the amount required under the Net Worth Covenants for
any two consecutive quarters, the Company must offer to repurchase, at par plus
accrued interest, 20% of the outstanding principal amount of the Notes. In
the event the Company is not in compliance with the Collateral Covenants at the
end of any calendar quarter, the Company must offer to repurchase, at par plus
accrued interest, $16.0 million principal amount of the Senior Secured Notes or
such greater amount as would be necessary to bring the Company into compliance
with the Collateral Covenants. If the Company were not to be in compliance
with such covenants, there could result a material adverse impact on the
Company and its financial position.
The Company was in compliance with the Net Worth Covenants and the
Collateral Covenants at June 30, 1994. The Company believes that, based on
management's current estimates, it will be in compliance with its covenants
with respect to the Senior Secured Notes and Subordinated Notes over the next
twelve months. As described below, the Company has taken actions to maintain
compliance with the Net Worth Covenants and Collateral Covenants, including the
sale of its Drexel subsidiary, shares of Fruehauf common stock and other
assets, and plans to take additional actions, if needed, to continue in
compliance.
In addition to the financial covenants discussed above, the indentures
governing the Notes limit, among other things, Terex's ability to incur
additional indebtedness, consummate mergers and acquisitions, pay dividends,
sell business segments and enter into transactions with affiliates, and place
limitations on change in control of Terex.
Cash and cash equivalents totaled $1.4 million and $9.2 million at June 30,
1994 and December 31, 1993, respectively. Cash securing letters of credit
represents the amount required to cash collateralize letters of credit and
performance bonds issued for various business purposes and is not fully
available for use in the Company's operations. At June 30, 1994 and December
31, 1993 the unexpired letters of credit were cash collateralized by a total of
$8.0 million and $6.3 million in cash collateral accounts. These cash balances
will be made available to the Company as the underlying letters of credit
expire.
Liquidity requirements and actions taken and to be taken in 1994
The Company experienced significant operating losses in the first quarter of
1994. Results have improved in the second quarter of 1994 and the Company has
taken significant actions to reduce its overall cost structure and improve
liquidity, which will improve the Company's ability to take advantage of
improved market conditions, especially in its Material Handling Segment.
Management believes that the Company's lending facilities, together with the
additional financing and cash generating activities described below, will allow
the Company to meet its operating payment obligations, including payments to
vendors, on a timely basis and to meet its scheduled interest and principal
repayment requirements as they come due.
In June 1994, the Company announced personnel reductions in plant supervision,
engineering, marketing and administration totaling approximately 160 employees
in the Material Handling Segment's North American and European operations, of
which approximately 39% were effective in July 1994 with the remainder to be
effective before the end of 1994. The Company will also reorganize certain
marketing activities and close several of its regional sales offices in the
United States The Company recorded a $4.5 million charge in the second quarter
of 1994 for severance costs associated with these actions. When fully
implemented, the Company expects that these actions will reduce operating
expenses in the Material Handling Segment by approximately $9 million annually.
The Company is also generating cash by selling certain real estate and other
assets and continuing corporate wide cost containment efforts.
On April 15, 1994, the Company completed the sale of 100% of the stock of
Drexel, pursuant to an agreement to sell entered into in March 1994, for total
proceeds of $12.5 million, of which $12.2 million was in cash and $0.3 million
was in the form of a note due December 15, 1994 and bearing interest at 6%.
The Company retained certain past-due receivables and certain obligations of
Drexel, including environmental cleanup costs at Drexel's facility in Horsham,
Pennsylvania and state and federal income taxes, and recognized a gain of
approximately $4.2 million as a result of the sale. Pursuant to the terms of
the indentures for the Company's Senior Secured Notes, the Company intends to
reinvest the net proceeds of the sale of Drexel in the Company's business.
The Company sold 1,000,000 shares of Fruehauf common stock for aggregate
proceeds of $3.0 million in December 1993 and 4,400,000 shares of Fruehauf
common stock for aggregate proceeds of $20.1 million during the first half of
1994. The Company repurchased $3.0 million of the Senior Secured Notes in May
1994 and $4.8 million of the Senior Secured Notes in June 1994, pursuant to the
indenture for the Senior Secured Notes, and will make similar offers to
repurchase a total of $15.3 million of the Senior Secured Notes in the third
and fourth quarters of 1994.
In addition to such offers to repurchase, the Company repaid approximately
$8.3 million in May 1994 for a required sinking fund payment on the
Subordinated Notes and $6.1 million in May 1994 for the maturity of the note
issued to the seller in connection with the CMH Acquisition. The Company's
interest payment requirements in 1994 include approximately $27.6 million of
interest on the Senior Secured Notes, Subordinated Notes and the Lending
Facility, of which amount approximately $26.3 million has been paid as of
August 1, 1994.
Concurrent with the infusion of working capital into the Company from its
private placement of preferred stock and warrants to purchase common stock in
December 1993, CMH entered into agreements with approximately 225 of its
vendors to freeze the balances due such vendors as of November 1993 (totaling
approximately $12.9 million) and establish normal credit terms for new
purchases. CMH agreed to pay the frozen balances in monthly installments for
periods of up to twelve months from December 1993 through November 1994, but
may prepay the remaining balance to any or all of the vendors at any time. In
December 1994, CMH will make an additional payment to each vendor equivalent to
1/12 of the frozen balance, but only to such vendors that have not been
prepaid. Through June 30, 1994, CMH paid approximately $8.0 million to vendors
under these agreements, and the Company expects to fund the remaining payments
from operations.
Contingencies and Uncertainties
The Company has not yet filed its Annual Report on Form 10-K for the year ended
December 31, 1993. The Company's auditors, Price Waterhouse, have advised the
Company that they are unable to issue an accountants' report on the Company's
consolidated financial statements for inclusion in Form 10-K until Deloitte &
Touche, the Company's former auditors, are able to reissue their accountants'
reports on the consolidated financial statements of Fruehauf Trailer
Corporation ("Fruehauf", formerly a consolidated subsidiary of the Company) and
the Company for the year ended December 31, 1991. Deloitte & Touche have
advised the Company that they are unable to reissue such reports until they
have completed their reconsideration of certain items affecting the 1991
financial statements of Fruehauf which, in turn, also affects the financial
statements of the Company for the year ended December 31, 1991. In their
previously issued opinion on the Company's consolidated financial statements
for December 31, 1992, Price Waterhouse indicated that there are matters,
including recurring losses from operations and a net capital deficiency, which
raise substantial doubt about the Company's ability to continue as a going
concern. During 1993, the Company entered into the Lending Facility, which
currently provides up to $25.0 million in revolving credit loans and guarantees
of letters of credit, and has arranged similar financing for TEL. The Company
also completed a private placement of preferred stock and warrants to purchase
common stock in December 1993, which provided aggregate net proceeds to the
Company of $27.2 million for working capital. The Company is also generating
cash by selling certain real estate and other assets and continuing corporate
wide cost containment efforts. In April 1994, the Company sold Drexel for net
proceeds of approximately $10.9 million. Management believes that the Lending
Facility and other financing and cash generating activities will allow the
Company to meet its obligations on a timely basis.
As a result of the introduction of the Material Handling Segment's new line of
internal combustion lift trucks, planned for the fourth quarter of 1994, the
Material Handling Segment's subsidiary in Korea will no longer be strategic to
the Company's business. Management is evaluating a number of alternatives with
respect to the Korean operations, including sale or discontinuance of the
operations, and the Company may realize a loss as a result of such actions.
The amount of such loss, if any, cannot presently be estimated because the
course of action has not been determined.
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 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.
Fruehauf is contingently liable for portions of remedial costs at numerous
off-site waste disposal sites, including those previously used by operations of
Fruehauf's predecessor, and is directly liable for remedial costs at a number
of other locations. If Fruehauf fails to discharge its environmental
obligations, to the extent that such liabilities arose during the time period
during which Terex was the controlling stockholder of Fruehauf, Terex might be
contingently liable for such obligations. The Company believes, however, that
Fruehauf's significant environmental liabilities predate Terex's acquisition of
Fruehauf, and therefore any contingent responsibility of the Company is not
expected to have a material adverse effect on the Company.
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits have been filed as part of this Form 10-Q:
Exhibit No.
11.1 Computation of earnings per share
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended June 30,
1994.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TEREX CORPORATION
(Registrant)
Date August 12, 1994 /s/ RALPH T. BRANDIFINO
Ralph T. Brandifino
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date August 12, 1994 /s/ RICHARD L. EVANS
Richard L. Evans, Controller
(Principal Accounting Officer)
EXHIBIT INDEX
Exhibit No. Page No.
11.1 Computation of earnings per share 22
EXHIBIT 11.1
(Page 1 of 2)
TEREX CORPORATION AND SUBSIDIARIES
Computation of Earnings per Common Share
In Thousands except per share amounts
Three Months Ended Six Months Ended
June 30, June 30,
1994 1993 1994 1993
PRIMARY:
Income (loss) before
extraordinary item 10,254 (15,647) (570) (28,046)
Less: Accretion of Preferred
Stock (1,444) 0 (2,824) 0
Income (loss) before extraordinary
item applicable to common stock 8,810 (15,647) (3,394) (28,046)
Extraordinary gain (loss) on retirement
of debt (233) (2,003) (233) (2,003)
Net income applicable to common stock 8,577 (17,650) (3,627) (30,049)
Weighted average shares outstanding
during the period 10,303 9,953 10,303 9,952
Assumed exercise of warrants at
ratio determined as of
June 30, 1994 3,536 0(b) 0(a) 0(b)
Assumed exercise of stock options 0(a) 0(a) 0(a) 0(a)
Primary shares outstanding 13,839 9,953 10,303 9,952
Primary Income per common share
Income before extraordinary item $ 0.64 ($1.57) ($0.33) ($2.82)
Extraordinary gain (loss) (0.02) (0.20) (0.02) (0.20)
Net income $ 0.62 ($1.77) ($0.35) ($3.02)
(a) Excluded from the computation because the effect is anti-dilutive.
(b) Not issued or outstanding during these periods.
EXHIBIT 11.1
(Page 2 of 2)
TEREX CORPORATION AND SUBSIDIARIES
Computation of Earnings per Common Share
In Thousands except per share amounts
Three Months Ended Six Months Ended
June 30, June 30,
1994 1993 1994 1993
FULLY DILUTED:
Income (loss) before extraordinary
item 10,254 (15,647) (570) (28,046)
Less: Accretion of Preferred
Stock (1,444) 0 (2,824) 0
Income (loss) before extraordinary
item applicable to common stock 8,810 (15,647) (3,394) (28,046)
Add: Accretion of Preferred stock
assumed converted at beginning of
period 1,444 0(b) 0(a) 0(b)
10,254 (15,647) (3,394) (28,046)
Extraordinary gain (loss) on
retirement of debt (233) (2,003) (233) (2,003)
Net income (loss) applicable to
common stock 10,021 (17,650) (3,627) (30,049)
Weighted average shares outstanding
during the period 10,303 9,953 10,303 9,952
Assumed exercise of warrants at
ratio reflecting maximum dilution 3,958 0(b) 0(a) 0(b)
Assumed conversion of Preferred Stock 2,700 0(b) 0(a) 0(b)
Assumed exercise of stock options 0(a) 0(a) 0(a) 0(a)
Fully diluted shares outstanding 16,961 9,953 10,303 9,952
Fully Diluted Income per common share
Income before extraordinary item $0.60 ($1.57) ($0.33) ($2.82)
Extraordinary gain (loss) (0.01) (0.20) (0.02) (0.20)
Net Income $0.59 ($1.77) ($0.35) ($3.02)
(a) Excluded from the computation because the effect is anti-dilutive.
(b) Not issued or outstanding during these periods.
