As filed with the Securities and Exchange Commission on March 17, 1994.
Registration No. 33-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
TEREX CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 3550 34-1531521
(State or other (Primary standard industrial (I.R.S. employer
jurisdiction of classification code number) identification no.)
incorporation or
organization)
500 Post Road East
Westport, Connecticut 06880
(203) 222-7008
(Address, including zip code, and telephone number,
including area code, of Registrants' principal executive offices)
Marvin B. Rosenberg, Esq.
TEREX CORPORATION
500 Post Road East
Westport, Connecticut 06880
(203) 222-7170
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies To:
Robinson Silverman Pearce Skadden, Arps, Slate, Meagher & Flom
Aronsohn & Berman 300 South Grand Avenue
1290 Avenue of the Americas Los Angeles, California 90071
New York, New York 10104 Attention: Michael A. Woronoff, Esq.
Attention: Stuart A. Gordon, Esq.
Eric I Cohen, Esq.
Approximate date of commencement of proposed sale to public: From time to time
after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1993, check the following box: x
CALCULATION OF REGISTRATION FEE
Title of Each Class of Amount to be Proposed Proposed Amount of
Securities to be Registered Maximum Maximum Registration
Registered Offering Price Aggregate Fee
per Share(1) Offering
Price(1)
Series A Cumulative 1,200,000 $23.00 $27,600,000 $9,517.24
Redeemable Convertible
Preferred Stock,
par value $.01
Common Stock, 2,700,000 --- (2) --- (2) --- (2)
par value $.01 (3)
(1) Estimated solely for purposes of
calculation of the registration fee.
(2)Pursuant to Rule 457(i), no separate registration fee is required for the
Common Stock when the Preferred Stock convertible into such Common Stock is
being registered at the same time.
(3)Represents shares of Common Stock which may be received upon conversion of
the Preferred Stock. Pursuant to Rule 416, there are also being registered
such additional shares of Common Stock which may become issuable pursuant to
the anti-dilution provisions of such Preferred Stock.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
TEREX CORPORATION
Cross Reference Sheet
Pursuant to Item 501(b) of Regulation S-K Showing
Location in Prospectus of Information Required by Items in Form S-1
1. Forepart of Registration
Statement and Outside Front
Cover Page of Prospectus Outside Front Cover Page of the
Prospectus
2. Inside Front and Outside
Back Cover Pages of Prospectus Inside Front and Outside Back Cover
Pages of the Prospectus, Additional
Information
3. Summary Information/Risk Factors/
Ratio of Earnings to
Fixed Charges Prospectus Summary/Investment
Considerations/Not Applicable
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Plan of Distribution
6. Dilution Not Applicable
7. Selling Security Holders Selling Security Holders
8. Plan of Distribution Outside Front Cover Page of the
Prospectus; Plan of Distribution
9. Description of Securities
to Be Registered Description of Securities
10. Interests of Named Experts
and Counsel Legal Matters; Auditors
11. Information with Respect
to the Registrant Outside Front Cover Page of the
Prospectus; Prospectus Summary; The
Company; Investment Considerations;
Market for Common Stock and Dividend
Policy; Capitalization; Selected
Consolidated Financial Information;
Management's Discussion and Analysis
of
Financial Condition and Results of
Operations; Business; Principal
Stockholders; Management; Certain
Transactions; Description of
Securities
12. Disclosure of Commission
Position on Indemnification
for Securities Act Liabilities Not Applicable
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MARCH 17, 1994
1,200,000 Shares of Preferred Stock
2,700,000 Shares of Common Stock
TEREX CORPORATION
Preferred Stock and Common Stock
This Prospectus relates to the registration of (i) 1,200,000 shares of Series A
Cumulative Redeemable Convertible Preferred Stock, par value $.01 per share
(the "Preferred Stock"), of Terex Corporation (the "Company") and (ii) the
shares of common stock, par value $.01 per share (the "Common Stock"), issuable
upon the conversion of the Preferred Stock (the "Conversion Shares"). The
Preferred Stock was issued by the Company, together with 1,300,000 of the
Company's common stock purchase warrants (the "Warrants"), in a private
placement effected on December 20, 1993 (the "Issue Date"). All of the
Preferred Stock and Conversion Shares are being registered for resale by the
holders thereof (the "Selling Security Holders") and the Conversion Shares are
also being registered for their issuance to the Selling Security Holders upon
their conversion of the Preferred Stock. See "Selling Security Holders." The
Company will not receive any of the proceeds from the resale by the Selling
Security Holders of the Preferred Stock or the Conversion Shares nor from the
issuance of Conversion Shares upon conversion of the Preferred Stock.
Each share of Preferred Stock may be converted, at any time or from time to
time, at the option of the holder of such share, into that number of fully paid
and nonassessable Conversion Shares determined by dividing (i) $25.00 by (ii) a
price (the "Conversion Price") initially equal to $11.11 and subject to
adjustment upon the occurrence of certain dilutive events. The Company has
reserved 2,700,000 shares of Common Stock for issuance upon conversion of the
Preferred Stock, being the number of shares of Common Stock that will be
issuable based upon the initial Conversion Price. See "Description of
Securities -- Preferred Stock."
The Preferred Stock is entitled to receive, when and as declared by the Board
of Directors of the Company, cumulative cash dividends on March 31, June 30,
September 30 and December 31 of each year (each a "Dividend Payment Date") at a
rate of (a) 13% per annum from the first Dividend Payment Date on which the
Company is permitted to declare and pay cash dividends on the Preferred Stock
under the indentures and loan agreements of the Company as in effect on the
Issue Date (the "Accretion Termination Date") through December 20, 1998, and
(b) 18% thereafter.
Upon a liquidation of the Company, the holders of the Preferred Stock shall be
entitled to be paid out of the assets of the Company, subject to the prior
preferences and rights of any stock ranking senior to the Preferred Stock, a
liquidation preference (the "Liquidation Preference"), initially equal to
$25.00 per share, plus all accrued and unpaid dividends to such date. During
the period commencing on the Issue Date and ending on the Dividend Payment Date
immediately preceding the Accretion Termination Date, the Liquidation
Preference will accrete at the rate of 13% per annum, compounded quarterly,
until December 20, 1998, and at the rate of 18% per annum, compounded
quarterly, thereafter.
Prior to December 31, 1994, the Preferred Stock may be redeemed in whole, but
not in part, at a per share redemption price equal to the Liquidation
Preference per share on the date of redemption plus all accrued but unpaid
dividends thereon (the "Redemption Price"), provided that concurrently with
such redemption the Company redeems all Warrants then outstanding. On and
after December 31, 1994, the Preferred Stock may be redeemed by the Company at
any time in whole or in part at the Redemption Price on such date. The Company
is required to redeem all of the then outstanding shares of Preferred Stock on
or prior to December 31, 2000.
The Common Stock is listed on the New York Stock Exchange (the "NYSE") under
the trading symbol "TEX." On March 15, 1994, the closing price of the Common
Stock on the NYSE was $8.25 per share. See "Market for Common Stock and
Dividend Policy." The Conversion Shares have been approved for listing on the
NYSE, subject to issuance.
(continued on next page)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is _______, 1994.
- -------------------------------------------------------------------------------
Prior to this offering, there has been no public market for the Preferred
Stock. The Company does not intend to list the Preferred Stock on any
securities exchange or to seek approval for quotation of the Preferred Stock
through any automated quotation system. There can be no assurance that an
active market for the Preferred Stock will develop.
The Selling Security Holders directly, through agents designated from time to
time, or through dealers or underwriters also to be designated, may sell the
Preferred Stock and Conversion Shares from time to time on terms to be
determined at the time of sale through customary brokerage channels or private
sales at market prices then prevailing or at negotiated prices then obtainable.
To the extent required, the specific Preferred Stock or Conversion Shares to be
sold, names of the selling security holders, purchase price, public offering
price, the names of any such agent, dealer or underwriter, amount of expenses
of the offering and any applicable commission or discount with respect to a
particular offer will be set forth in an accompanying Prospectus Supplement.
Each of the Selling Security Holders reserves the sole right to accept and,
together with its agents from time to time, to reject in whole or in part any
proposed purchase of Preferred Stock or Conversion Shares to be made directly
or through agents.
See "Plan of Distribution" for indemnification arrangements among the Company
and the Selling Security Holders.
For a discussion of certain matters which should be considered by prospective
investors, see "Investment Considerations."
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith is required to file reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy statements and other information can be inspected and copied at the
public reference facilities maintained by the Commission at its offices at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the regional offices of the Commission located at Seven World Trade Center,
13th Floor, New York, New York 10048 and at Northwestern Atrium Center, 500
West Madison Street, 14th Floor, Chicago, Illinois 60661-2511. Copies of such
materials can be obtained by mail from the Public Reference Section of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates.
The Common Stock is listed on the NYSE and reports, proxy statements and other
information concerning the Company may also be inspected at the NYSE.
The Company has filed with the Commission a Registration Statement on Form S-1
under the Securities Act with respect to the Preferred Stock and Conversion
Shares offered hereby. The Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in
the Registration Statement and the exhibits and schedules thereto, as permitted
by the rules and regulations of the Commission. For further information with
respect to the Company and the Preferred Stock and Conversion Shares offered
hereby, reference is made to the Registration Statement, including the exhibits
thereto and the financial statements, notes and schedules filed as a part
thereof, which may be inspected and copied at the public reference facilities
of the Commission referred to above. Statements contained in this Prospectus
as to the contents of any contract or other document are not necessarily
complete, and in each instance reference is made to the full text of such
contract or document filed as an exhibit to the Registration Statement, each
such statement being qualified in all respects by such reference.
The Company furnishes stockholders with annual reports containing audited
financial statements. The Company also furnishes its stockholders with proxy
material for its annual meetings complying with the proxy requirements of the
Exchange Act.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements and
notes thereto appearing elsewhere in this Prospectus. Investors should
carefully consider the information set forth under the caption "Investment
Considerations."
The Company
Terex Corporation ("Terex" or the "Company") is a global provider of capital
goods and equipment used in the mining, commercial building, infrastructure,
manufacturing and construction industries. Through the Company's Heavy
Equipment Segment, the Company designs, manufactures and markets heavy-duty,
off-highway, earthmoving, construction, lifting, material handling and aerial
lift equipment and related components and replacement parts. Through its
Material Handling Segment, the Company is engaged in designing, manufacturing
and marketing a complete line of internal combustion ("IC") and electric lift
trucks, electric walkies, automated pallet trucks, industrial tow tractors and
related components and replacement parts. Terex also owns an approximate 19.1%
equity interest in Fruehauf Trailer Corporation ("Fruehauf"). Fruehauf
designs, manufactures and markets truck trailers, making a wide range of van,
refrigerated, platform, tank, dump trailer and other models, and related parts
and accessories. See "The Company" and "Business."
The Offering
On December 20, 1993 (the "Issue Date"), the Company completed the private
placement of (i) 1,200,000 shares of the Company's Series A Cumulative
Redeemable Convertible Preferred Stock, par value $.01 per share (the
"Preferred Stock"), and (ii) 1,300,000 common stock purchase warrants (the
"Warrants") exercisable for shares of common stock, par value $.01 per share
(the "Common Stock"), of the Company, to institutional investors for aggregate
gross proceeds to the Company of $30.2 million. Jefferies & Company, Inc.
("Jefferies") was the placement agent for the sale of the Preferred Stock and
Warrants.
In connection with the sale of the Preferred Stock, the Company and the
purchasers of the Preferred Stock entered into a Registration Rights Agreement
dated as of December 20, 1993 (the "Preferred Stock Registration Rights
Agreement") relating to the Preferred Stock and the shares of Common Stock
issuable upon conversion of the Preferred Stock (the "Conversion Shares").
Pursuant to the terms of the Preferred Stock Registration Rights Agreement, the
Company agreed to file the Registration Statement of which this Prospectus
forms a part and is required to maintain the effectiveness of this Registration
Statement for 36 months from the date this Registration Statement is declared
effective or, if shorter, until all Preferred Stock and Conversion Shares have
been sold pursuant to an effective registration statement.
Summary of Terms of the Preferred Stock
Issuer Terex Corporation.
Issue Series A Cumulative Redeemable Convertible
Preferred Stock, convertible into shares of
Common Stock.
Aggregate Number of Shares 1,200,000.
Conversion Each share of Preferred Stock may be converted,
at any time or from time to time, at the option
of the holder of such share, into that number of
fully paid and nonassessable Conversion Shares
determined by dividing (i) $25.00 by (ii) a
price (the "Conversion Price") initially equal
to $11.11 and subject to adjustment upon the
occurrence of certain dilutive events. See
"Description of Securities -- Preferred Stock --
Conversion Right."
Dividends The Preferred Stock is entitled to receive, when
and as declared by the Board of Directors of the
Company, cumulative cash dividends on March 31,
June 30, September 30 and December 31 of each year
(each a "Dividend Payment Date") at a rate of (a)
13% per annum from the first Dividend Payment Date
on which the Company is permitted to declare and
pay cash dividends on the Preferred Stock under
the indentures and loan agreements of the Company
as in effect on the Issue Date (the "Accretion
Termination Date") through December 20, 1998, and
(b) 18% thereafter. See "Description of
Securities -- Preferred Stock -- Dividends."
Liquidation Preference Upon a liquidation of the Company, the holders of
the Preferred Stock shall be entitled to be paid
out of the assets of the Company, subject to the
prior preferences and rights of any stock ranking
senior to the Preferred Stock, a liquidation
preference (the "Liquidation Preference"),
initially equal to $25.00 per share, plus all
accrued and unpaid dividends to such date. During
the period commencing on the Issue Date and ending
on the Divident Payment Date immediately preceding
the Accretion Termination Date, the Liquidation
Preference will accrete at the rate of 13% per
annum, compounded quarterly, until December 20,
1998, and at the rate of 18% per annum, compounded
quarterly, thereafter. See "Description of
Securities -- Preferred Stock -- Liquidation
Preference."
Optional Redemption Prior to December 31, 1994, the Preferred Stock
may be redeemed in whole, but not in part, at a
per share redemption price equal to the
Liquidation Preference per share on the date of
redemption plus all accrued but unpaid dividends
thereon (the "Redemption Price"), provided that
concurrently with such redemption the Company
redeems all Warrants then outstanding. On and
after December 31, 1994, the Preferred Stock may
be redeemed by the Company at any time in whole or
in part at the Redemption Price on such date. See
"Description of Securities -- Preferred Stock --
Redemption."
Mandatory Redemption The Company is required to redeem all of the then
outstanding shares of Preferred Stock on or prior
to December 31, 2000 at the Redemption Price on
such redemption date. See "Description of
Securities -- Preferred Stock -- Redemption."
Voting So long as any Preferred Stock is outstanding, the
Company must obtain the approval of the holders of
not less than a majority of the then outstanding
shares of Preferred Stock to take certain actions,
including (i) authorizing or issuing any shares of
any class of stock ranking senior, or, in some
cases, on a parity with, the Preferred Stock, (ii)
authorizing or entering into any transaction that
would constitute a deemed dividend to holders of
the Preferred Stock under United States Federal
tax laws, or (iii) consolidating with or merging
into another corporation other than in a
transaction in which the Company is the surviving
corporation. See "Description of Securities --
Preferred Stock -- Voting."
In addition, from and after the Accretion
Termination Date, (i) if the Company fails to pay
the entire amount of dividends payable on the
Preferred Stock on any two Dividend Payment Dates,
the holders of the Preferred Stock, voting
separately as a class, will be entitled to elect
one director of the Company, and (ii) if the
Company fails to pay the entire amount of
dividends payable on the Preferred Stock on any
four Dividend Payment Dates, the holders of the
Preferred Stock, voting separately as a class,
will be entitled to elect two directors of the
Company. See "Description of Securities --
Preferred Stock -- Voting."
Investment Considerations
See "Investment Considerations" for a discussion of certain factors that should
be considered in connection with an investment in the Preferred Stock and the
Conversion Shares.
SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands except per share amounts)
The following summary consolidated financial data is derived from the Selected
Consolidated Financial Information appearing elsewhere in this Prospectus.
Certain prior year financial information has been adjusted to conform to the
1992 classification and restated as further discussed in Note B --
"Restatements" to the Consolidated Financial Statements for December 31, 1992.
As explained in Note B of the Notes to Consolidated Financial Statements for
December 31, 1992 and Note F of the Notes to Condensed Consolidated Financial
Statements for September 30, 1993, the financial statements and, accordingly,
the summary financial information presented herein, are presented giving effect
to the deconsolidation of Fruehauf as of January 1, 1992:
Nine Months
Ended As of and for the Year Ended December 31,
September 30,
1993 1992 1991 1990 1989 1988
Summary of
Operations (1)
Net Sales $519,510 $ 523,355 $784,194$1,023,178 $790,903 $343,721
Income (loss)
from operations (18,369) (4,125) (36,200) 44,386 39,397 21,994
Net income
(loss) (45,095) (57,175) (29,786) 6,053 17,772 13,418
Net income
(loss) per
share (2) (4.53) (5.75) (3.00) 0.61 1.82 1.20
Ratio of
earnings to
fixed
charges (3) (4) (4) (4) 1.1x 1.4x 2.0x
Total Assets $402,576 $477,356 $617,203 $745,065 $833,338 $287,864
Capitalization (5)
Long-term
debt and
notes payable,
including
current
maturities $ 229,115 $217,605 $216,085 $305,858 $309,796 $109,858
Stockholders'
investment (57,868) (6,168) 59,881 101,257 80,248 66,912
Book value
per share (2) $ (5.81) $(0.62) $6.03 $10.24 $8.24 $6.89
Dividends per
share (2) --- --- $0.06 $0.05 $0.04 ---
(1) The Selected Financial Data includes the results of operations of the
businesses acquired from the date of their respective acquisitions. See a
further discussion of acquisitions in Note C -- "Acquisitions" and Note D --
"Investment in Fruehauf Trailer Corporation" in the Notes to Consolidated
Financial Statements for December 31, 1992.
(2) The net income (loss) per share, book value per share and dividends per
share for all periods shown above reflect the May 1990 five-for-four stock
split.
(3) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as income from continuing operations before income taxes,
minority interest, extraordinary items and fixed charges. Fixed charges
consist of interest on indebtedness, amortization of debt issuance costs and
rental expense representative of the interest factor.
(4) The ratio of earnings to fixed charges is less than 1.0 for these periods.
The deficiency amounts are $44,225 for the nine months ended September 30,
1993, $22,130 for 1992 and $50,890 for 1991.
(5) See "The Company -- Recent Developments" and "Capitalization" for a
description of the Preferred Stock and Warrants issued in December 1993 and
presentation of resulting pro forma capitalization.
INVESTMENT CONSIDERATIONS
In addition to other matters described in this Prospectus, the following should
be carefully considered in connection with an investment in the Preferred Stock
and the Conversion Shares:
Continued Losses From Operations and Uncertainties
In their report dated April 14, 1993 on the Company's 1992 financial statements
(set forth on page F-3), the Company's independent accountants indicated in an
explanatory paragraph that there are matters which raise substantial doubt
about the Company's ability to continue as a going concern. The Company has
suffered recurring and significant losses from operations, which have continued
during 1993. The Company has also experienced cash flow difficulties and has a
net capital deficiency. On a consolidated basis, the Company experienced an
operating loss of approximately $4.1 million and a net loss of approximately
$57.2 million (approximately $22.1 million, excluding the Company's equity in
the net losses of Fruehauf) for the year ended December 31, 1992 and an
operating loss of approximately $18.4 million and a net loss of approximately
$45.1 million for the nine months ended September 30, 1993. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
High Leverage, Substantial Payment Obligations
and Compliance with Restrictions Imposed by Lenders
The Company is highly leveraged. As of September 30, 1993, the Company had
approximately $229.1 million of debt and negative stockholders' equity of $57.9
million. The Company has outstanding Senior Secured Notes due 1996 (the
"Secured Notes") in the aggregate principal amount of $160.0 million as of
September 30, 1993 and Senior Subordinated Notes due 1997 (the "Subordinated
Notes;" together with the Secured Notes, the "Notes") in the aggregate
principal amount of approximately $33.3 million as of September 30, 1993. The
Company also has outstanding as of September 30, 1993 approximately $18.7
million under a permanent lending facility of up to $20 million (the "Lending
Facility") provided by Foothill Capital Corporation ("Foothill") and
approximately $6.1 million in acquisition debt due July 1994.
This substantial leverage has several important consequences, including the
following: (i) the ability of the Company to obtain additional financing in the
future may be impaired, (ii) the significant interest expense and principal
repayment obligations will require a substantial amount of the Company's cash
flow to be expended on debt service (in 1994, approximately $27.6 million of
interest on the Secured Notes, the Subordinated Notes and the Lending Facility
(of which approximately $13.1 million has been paid as of March 1, 1994) and
approximately $14.4 million for a required sinking fund payment on the
Subordinated Notes and the maturity of the acquisition debt) and (iii) the
Company's ability to withstand competitive pressures, adverse economic
conditions and adverse changes in governmental regulation, to make
acquisitions, and to take advantage of significant business opportunities that
may arise, may be negatively impacted.
The instruments governing the Company's indebtedness contain a number of
restrictive covenants, including covenants limiting the incurrence of debt and
sales of assets and requiring the Company to maintain certain financial ratios
and specified levels of net worth. Adverse operating results, whether in the
near future or thereafter, could cause non-compliance with the instruments
governing the Company's indebtedness.
As of July 31, 1993, the Company was not in compliance with the tangible net
worth covenant under the Lending Facility. Following the closing on August 20,
1993 of Fruehauf's restructuring and financing transactions described in
"Business -- Fruehauf Trailer Corporation," Foothill agreed that the Company's
noncompliance with the tangible net worth covenant under the Lending Facility
is no longer continuing. Foothill also waived the noncompliance. The Company
believes, based on management's current estimates, that it will be in
compliance with such covenant over the next 12 months. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The indentures governing the Notes require, among other things, that the
Company maintain certain levels of tangible net worth ("Net Worth Covenants")
and collateral ("Collateral Covenant"). 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 Covenant 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 Secured Notes or such
greater amount as would be necessary to bring the Company into compliance with
the Collateral Covenant. As of September 30, 1993, the Company's tangible net
worth as defined in the Notes indentures was less than the $15 million minimum
set forth in the indentures. Management believes that the Company was in
compliance with the Net Worth Covenants and Collateral Covenant at December 31,
1993. If the Company continues to sustain losses from operations, it may not
be in compliance with the Net Worth Covenants in the future. If any offer to
repurchase Notes were required to be made, it is likely that the Company would
require additional funding to complete the offer, and if such funding were
unavailable to it, the Company would be unable to comply with the terms of the
Notes and the maturity of the Notes may be accelerated. Such circumstances
would result in a material adverse impact on the Company and its financial
position. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
On December 20, 1993, the Company completed the private placement of 1,200,000
shares of the Preferred Stock and 1,300,000 Warrants for aggregate net proceeds
to the Company of $27.2 million. See "The Company -- Recent Developments."
The proceeds of such private placement are being used by the Company for
additional working capital. In addition, in December 1993, Terex Equipment
Limited ("TEL"), a subsidiary of the Company located in Scotland, entered into
a pd28 million ($42 million) credit facility with Standard Chartered Bank
providing for a credit facility and foreign exchange and bonding lines of
credit. The Company is also generating cash through the sale of excess
inventory in the Heavy Equipment Segment, deferring certain capital
expenditures, selling certain real estate and other assets and continuing
corporate wide cost containment efforts. Management believes that the Lending
Facility together with these additional financings, new equity and other cash
generating activities, will allow the Company to meet its operating payment
obligations on a timely basis. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
Absence of Public Market
As of March 1, 1994, there were 21 holders of the Preferred Stock. There has
previously been no public market for the Preferred Stock. The Company does not
intend to list the Preferred Stock on any securities exchange or to seek
approval for quotation through any automated quotation system. There can be no
assurance that an active market for the Preferred Stock will develop. In
addition, resales of a substantial percentage of the outstanding Preferred
Stock could constrain the ability of any market maker to develop or maintain a
market for the Preferred Stock. To the extent that a market for the Preferred
Stock does develop, the market value of the Preferred Stock will depend on the
price of the Common Stock, general economic conditions, the Company's financial
condition and other conditions and may be subject to substantial price
volatility.
Future Sales of Common Stock; Control
The Company is unable to predict the effect, if any, that any future sales of
Common Stock, including the shares of Common Stock covered hereby, will have on
the market price of the Common Stock and, therefore, indirectly, the value of
the Preferred Stock, prevailing from time to time.
As of the date of this Prospectus, Randolph W. Lenz is the beneficial owner,
directly and indirectly, of approximately 49.1% of the outstanding Common Stock
of the Company. Mr. Lenz currently pledges, and intends to pledge in the
future, shares of Common Stock owned by him as collateral for loans. A
registration statement has been filed with the Commission with respect to all
of the shares of Common Stock directly owned by Mr. Lenz, and Mr. Lenz has
advised the Company that such registration is for the purpose of facilitating
financing by Mr. Lenz through the pledge of his shares of Common Stock. See
"Principal Stockholders." If Mr. Lenz does not pay such loans when due, the
pledgee may have the right to sell the shares of Common Stock pledged to it in
satisfaction of Mr. Lenz's obligations. The sale or other disposition of a
substantial amount of such shares of Common Stock in the public market could
adversely affect the prevailing market price for the Common Stock and,
therefore, indirectly, the value of the Preferred Stock. In addition, the sale
of a substantial amount of such pledged shares of Common Stock by a pledgee
could result in a change of control of the Company under the indentures
relating to the Notes, requiring the Company to offer to repurchase certain of
these securities as provided for in their respective indentures.
Pursuant to the terms of a Registration Rights Agreement dated December 20,
1993 relating to the Warrants (the "Warrant Registration Rights Agreement"),
the Company agreed to file a shelf registration statement covering the
outstanding Warrants and the 3,900,000 shares of Common Stock which may be
issuable upon exercise of the Warrants. The sale or other disposition of a
substantial number of such shares of Common Stock in the public market could
adversely affect the prevailing market price for the Common Stock and,
therefore, indirectly, the value of the Preferred Stock.
Dividend Policy
Contractual restrictions exist which limit the Company's ability to pay
dividends on its capital stock. The terms of the Preferred Stock provide that
no dividends will accrue on the Preferred Stock until the Accretion Termination
Date, the determination of which is based upon and is subject to all of such
restrictions and other provisions of the indentures and loan agreements of the
Company as in effect on December 20, 1993. The Company does not believe that
it will be able to pay dividends on the Preferred Stock in the foreseeable
future. In addition, under Delaware law the Company's ability to pay dividends
on the Preferred Stock and the Common Stock is subject to the statutory
limitation that such payment be either (i) out of its surplus (the excess of
its net assets over its total liabilities plus stated capital) or (ii) in the
event that there is no surplus, out of its net profits for the fiscal year in
which the dividend is declared and/or the preceding fiscal year. See "Market
for Common Stock and Dividend Policy." The terms of the Preferred Stock also
limit the Company's ability to pay cash dividends on any class of capital stock
of the Company junior to or on a parity with the Preferred Stock, including the
Common Stock. See "Description of Securities -- Preferred Stock."
Industry Cyclicality
The Company's Heavy Equipment and Material Handling Segments have experienced
declines in sales which are in part attributable to the overall economic
slowdown and weakness of industry demand faced both domestically and abroad.
Sales of products manufactured by the Heavy Equipment and Material Handling
Segments have historically been subject to substantial cyclical variation based
on general economic conditions. See "Selected Consolidated Financial
Information" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Environmental and Related Matters
The Company's production facilities and operations are subject to a variety of
federal, state, local and foreign environmental, health and job safety laws and
regulations. The Company believes that reserves and planned expenditures are
adequate to meet potential liabilities and costs in the next several years
attributable to applicable environmental, health and job safety requirements.
Environmental liabilities (especially those relating to discontinued production
or waste disposal practices) are very difficult to quantify, and it is possible
that litigation or regulatory action may require significant unanticipated
expenditures or otherwise adversely affect the Company. The Company is not
aware of any conditions or circumstances that, under applicable governmental
environmental, health or safety regulations or requirements, will require
expenditures by the Company which management believes would have a material
adverse effect on its businesses. The Company may have contingent
responsibility for certain environmental liabilities of Fruehauf if Fruehauf
fails to discharge its obligations, to the extent that such liabilities arose
during the time period during which Terex was the controlling stockholder of
Fruehauf. The Company believes 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. See "Business -- Environmental Considerations."
THE COMPANY
Terex is a global provider of capital goods and equipment used in the mining,
commercial building, infrastructure, manufacturing and construction industries.
Through the Company's Heavy Equipment Segment, the Company designs,
manufactures and markets heavy-duty, off-highway, earthmoving, construction,
lifting, material handling and aerial lift equipment and related components and
replacement parts. Through its Material Handling Segment, the Company is
engaged in designing, manufacturing and marketing a complete line of internal
combustion and electric lift trucks, electric walkies, automated pallet trucks,
industrial tow tractors and related components and replacement parts. Terex
also owns an approximate 19.1% equity interest in Fruehauf. Fruehauf designs,
manufactures and markets truck trailers, making a wide range of van,
refrigerated, platform, tank, dump trailer and other models, and related parts
and accessories. Fruehauf recently restructured its debt obligations and
completed new financings. See "Business -- Fruehauf Trailer Corporation."
The Company has grown through acquisitions and has had considerable experience
in restructuring and operating capital goods manufacturers, particularly in the
off-road truck and construction and industrial equipment industries. Following
an acquisition, in order to improve profitability, the Company traditionally
(i) consolidates manufacturing operations, (ii) adjusts new equipment
production capacity to meet the actual level of demand in the marketplace,
(iii) reduces corporate overhead and (iv) emphasizes that portion of the
business that yields the highest margins, particularly the replacement parts
business. More specifically, this strategy involves elimination of marginally
profitable or unprofitable product lines, closing underutilized and inefficient
plants, liquidating excess inventories and substantially reducing personnel.
The Company's management has made nine acquisitions since 1983. The following
table lists these acquisitions and their respective product lines:
Business Date of Acquisition Current Product Lines
Northwest Engineering
Company November 1983 Draglines, cranes and
replacement parts
BCP Construction
Products Division March 1985 DYNAHOE backhoe/loader and
replacement parts for
Bucyrus-Erie machines
Terex Division December 1986 Haulers, scrapers, loaders,
crawlers and replacement
parts
Koehring Cranes &
Excavators Division January 1987 Cranes, excavators, and
replacement parts
Terex Equipment Limited June 1987 Haulers, scrapers, loaders,
crawlers and replacement
parts
Unit Rig Division July 1988 Large haulers and loaders and
replacement parts
Fruehauf Trailer
Corporation July 1989 Truck trailers and related
parts and services
Mark Industries, Inc. December 1991 Aerial lift equipment and
replacement parts
Clark Material
Handling Company
and certain affiliated
entities July 1992 Internal combustion and
electric lift trucks and
replacement parts
Each of these businesses possesses three key attributes that management
believes enhance the Company's ability to improve its cash flow and
profitability: (i) a long operating history and, thus, a significant number of
units currently in the field that require replacement parts; (ii) significant
brand name recognition in the industry and a well-established distribution
network, principally through dealers, within its specialty markets; and (iii)
new machine manufacturing capabilities which can be, if appropriate, adapted to
serve specialty, higher margin markets involving products designed to address
specific user needs and manufactured in low to medium production volumes.
The principal executive offices of the Company are located at 500 Post Road
East, Westport, Connecticut 06880 and its telephone number is (203) 222-7008.
Recent Developments
The Company has continued to incur operating losses subsequent to September 30,
1993.
On December 20, 1993, the Company completed the private placement of the
Preferred Stock and the Warrants to institutional investors for aggregate net
proceeds to the Company of $27.2 million. The proceeds of such private
placement are being used by the Company for additional working capital.
Jefferies was the placement agent for the sale of the Preferred Stock and the
Warrants. In connection with the sale of the Preferred Stock and the Warrants,
the Company and the purchasers of the Preferred Stock and the Warrants entered
into the Preferred Stock Registration Rights Agreement and the Warrant
Registration Rights Agreement. See "Description of Securities -- Preferred
Stock" and "-- Warrants."
In December 1993, the Company repurchased in the open market Secured Notes in
the aggregate principal amount of $5.0 million for approximately $4.5 million,
including accrued interest, and the Company had such Secured Notes cancelled as
of December 31, 1993.
In December 1993, the Company sold 1,000,000 shares of the common stock of
Fruehauf in two separate transactions for aggregate proceeds to the Company of
approximately $3.0 million. The Company intends to make an offer to purchase
approximately $3.0 million of outstanding Secured Notes in the second quarter
of 1994 pursuant to the terms of the indenture for the Secured Notes.
In February 1994, the Company sold 1,000,000 shares of the common stock of
Fruehauf, which reduced the Company's percentage ownership interest in Fruehauf
to approximately 19.1%, for aggregate proceeds to the Company of approximately
$4.6 million. The Company intends to make an offer to purchase approximately
$4.6 million of outstanding Secured Notes in the third quarter of 1994 pursuant
to the terms of the indenture for the Secured Notes.
USE OF PROCEEDS
All Preferred Stock and Conversion Shares covered hereby being registered for
resale are being so registered for the account of the Selling Security Holders
and, accordingly, the Company will not receive any of the proceeds from the
resale of the Preferred Stock or Conversion Shares by the Selling Security
Holders. The Company will not receive any proceeds from the issuance of
Conversion Shares upon conversion of the Preferred Stock.
MARKET FOR COMMON STOCK AND DIVIDEND POLICY
Effective March 19, 1991, the Company's Common Stock was listed on the NYSE
under the symbol "TEX."
Quarterly Market Prices
1993 1992
Fourth Third Second First Fourth Third Second First
High $9.25 $ 8.13 $10.75$11.88 $12.75 $12.50 $16.25 $18.50
Low 6.38 6.25 6.63 9.13 6.63 8.13 9.50 12.75
No dividends were declared or paid in 1993 or 1992. As discussed in Note I --
"Long-Term Obligations" to the Consolidated Financial Statements, certain of
the Company's debt agreements contain restrictions as to the payment of cash
dividends. Under these agreements, no retained earnings were available for
dividends at December 31, 1993. The terms of the Preferred Stock also restrict
the Company's ability to pay cash dividends on the Common Stock. See
"Description of Securities -- Preferred 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
forseeable 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 January 1, 1994, there were 895 stockholders of record of the Common
Stock.
CAPITALIZATION
The following table sets forth the consolidated capitalization of the Company
as of September 30, 1993. The table should be read in conjunction with the
consolidated financial statements of the Company and the related notes thereto
included elsewhere in this Prospectus. The Company has continued to incur
operating losses subsequent to September 30, 1993. See "The Company -- Recent
Developments" and "Selected Consolidated Financial Information."
(In thousands)
Actual Pro Forma (1)
Notes payable and long-term debt
(including current portion):
Secured Notes $ 159,080 (2) $ 159,080
Subordinated Notes 32,633 (3) 32,633
Lending Facility 18,650 (4) 18,650
Other debt, including notes payable 18,752 (5) 18,752
Total notes payable and long term debt 229,115 229,115
Redeemable Convertible Preferred Stock --- 10,328
Stockholders' investment
Common Stock Purchase Warrants --- 16,851
Common Stock 100 100
Additional paid-in capital 37,808 37,808
Retained deficit (81,326) (81,326)
Pension liability adjustment (4,452) (4,452)
Foreign currency translation adjustment (9,998) (9,998)
Total stockholders' investment (57,868) (41,017)
Total capitalization $ 171,247 $ 198,426
(1) Presented as if 1,200,000 shares of the Preferred Stock and 1,300,000
Warrants were issued as of September 30, 1993. See "The Company -- Recent
Developments."
(2) Represents $160.0 million principal amount of Secured Notes (of which $5.0
million were repurchased subsequent to September 30, 1993) which bear interest
at 13% and are due August 1996. These notes are secured by substantially all
inventory and property, plant and equipment of the Company's Material Handling
and Heavy Equipment Segments as well as the Company's investment in common
stock of Fruehauf.
(3) Represents $33.3 million principal amount of Subordinated Notes which bear
interest at 13.5%, are payable in equal annual installments of approximately
$8.3 million and are finally due July 1997. These notes are secured by a
secondary position in substantially the same assets which collateralize the
Secured Notes.
(4) The Lending Facility bears interest at a fluctuating rate (8.75% at
September 30, 1993) based on the prime rate. The Lending Facility provides
for revolving credit loans and guarantees of letters of credit of up to $20.0
million and matures on August 24, 1995. Borrowings under the Lending Facility
are secured by a lien on substantially all of the Company's domestic cash and
accounts receivable.
(5) See Note I of the Notes to Consolidated Financial Statements for December
31, 1992, included elsewhere in this Prospectus, for a description of the
Company's other debt.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(in thousands except per share amounts and employees)
Selected Financial Data (1)
Nine Months
Ended As of and for the Year Ended December 31,
September 30,
1993 1992 1991 1990 1989 1988
Summary of
Operations (2)
Net Sales $519,510 $523,355 $784,194$1,023,178 $790,903 $343,721
Income (loss)
from operations (18,368) (4,125) $(36,200) $44,386 $39,397 $21,994
Net income
(loss) (45,095) (51,175) (29,786) 6,053 17,772 13,418
Net income
(loss) per
share (3) (4.53) (5.75) (3.00) 0.61 1.82 1.20
Ratio of
earnings to
fixed charges (4) (5) (5) (5) 1.1x 1.4x 2.0x
Working Capital
Current assets $267,589 $319,235 $361,945 $434,533 $483,736 $254,595
Current
liabilities 187,539 222,014 244,301 240,310 306,731 95,410
Working capital 80,050 97,221 117,644 194,223 177,005 159,185
Current ratio 1.4 1.4 1.5 1.8 1.6 2.7
Property, Plant
and Equipment
Net property,
plant and
equipment $101,543 $116,279 $129,560 $170,592 $179,016 $27,312
Capital
expenditures 8,529 5,382 4,098 8,707 2,934 3,263
Depreciation 11,615 7,074 11,028 10,930 7,728 3,686
Total Assets $402,576 $477,356 $617,203 $745,065 $833,338 $287,864
Capitalization (6)
Long-term debt
and notes
payable,
including
current
maturities $229,115 $217,605 $216,085 $305,858 $309,796 $109,858
Stockholders'
investment (57,868) (6,168) 59,881 101,257 80,248 66,912
Book value
per share (3) $(5.81) $(0.62) $6.03 $10.24 $8.24 $6.89
Dividends per
share (3) --- --- $0.06 $0.05 $0.04 ---
Return on average
stockholders'
investment --- --- (37.0)% 6.7% 24.2% 23.6%
Shares outstanding
at period-end (3) 9,953 9,949 9,923 9,893 9,743 9,713
Employees 3,150 3,056 6,980 8,000 9,406 2,585
(1) Certain prior year financial information has been adjusted to conform to
the 1992 classification and restated as further discussed in Note B --
"Restatements" to the Consolidated Financial Statements for December 31, 1992.
As explained in Note B of the Notes to Consolidated Financial Statements for
December 31, 1992 and Note F of the Notes to Condensed Consolidated Financial
Statements for September 30, 1993, the financial statements and, accordingly,
the summary financial information presented herein, are presented giving effect
to the deconsolidation of Fruehauf as of January 1, 1992.
(2) The Selected Financial Data includes the results of operations of the
businesses acquired from the date of their respective acquisitions. See a
further discussion of acquisitions in Note C -- "Acquisitions" and Note D --
"Investment in Fruehauf Trailer Corporation" in the Notes to Consolidated
Financial Statements for December 31, 1992.
(3) The net income (loss) per share, book value per share, dividends per
share, and shares outstanding at period-end for all periods shown above reflect
the May 1990 five-for-four stock split.
(4) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as income from continuing operations before income taxes,
minority interest, extraordinary items and fixed charges. Fixed charges
consist of interest on indebtedness, amortization of debt issuance costs and
rental expense representative of the interest factor.
(5) The ratio of earnings to fixed charges is less than 1.0 for these periods.
The deficiency amounts are $44,225 for the nine months ended September 30,
1993, $22,130 for 1992 and $50,890 for 1991.
(6) See "The Company -- Recent Developments" and "Capitalization" for a
description of the Preferred Stock and Warrants issued in December 1993 and
presentation of resulting pro forma capitalization.
Unaudited Quarterly Financial Data
Summarized quarterly financial data for the first nine months of 1993 and for
1992 and 1991 are as follows (in thousands, except per share amounts):
1993
Third Second First
Net sales $164,052 $172,261 $183,197
Gross profit 12,339 14,321 17,599
Net income (loss) (15,046) (17,650) (12,399)
Net income (loss) per
share $(1.51) $(1.77) $(1.25)
1992
Fourth Third Second First
Net sales $210,101 $145,421 $82,843 $84,990
Gross profit 25,011 12,572 6,901 9,526
Net income (loss) (18,564) (19,856) (13,605) (5,110)
Net income (loss) per
share $(1.87) $(2.00) $(1.37) $(0.51)
1991
Fourth Third Second First
Net sales $200,556 $187,430 $216,609 $179,599
Gross profit 18,502 25,611 24,390 25,378
Net income (loss) (15,821) 8,979 (10,932) (12,012)
Net income (loss) per
share $(1.59) $0.91 $(1.10) $(1.21)
The accompanying unaudited quarterly financial data of the Company has been
prepared in accordance with generally accepted accounting principles for
interim financial information. 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.
As disclosed in Note B -- "Restatements" to the Consolidated Financial
Statements for December 31, 1992, and in Note F -- "Investment in Fruehauf" to
the Condensed Consolidated Financial Statements for the nine months ended
September 30, 1993, the financial statements have been restated to give effect
to the deconsolidation of Fruehuaf as of January 1, 1992. As disclosed in Note
B -- "Restatements" to the Consolidated Financial Statements for December 31,
1992, the prior year financial statements have also been restated. The
quarterly financial data shown above reflect these restatements.
The following is a reconciliation of originally recorded financial results to
the restated results:
1993
Third Second First
Net Income (Loss)
As originally
reported $65,954 $(83,116) $(27,635)
Deconsolidation
adjustment (81,000) 65,466 15,236
Restated net
income (loss) $(15,046) $(17,650) $(12,399)
Net Income (Loss)
Per Share
As originally
reported $6.63 $(8.35) $(2.78)
Deconsolidation
adjustment (8.14) 6.58 1.53
Restated net
income (loss)
per share $(1.51) $(1.77) $(1.25)
1992
Fourth Third Second First
Net Income (Loss)
As originally
reported $(22,477) $(20,304) $(10,919) $(5,463)
Restatement
adjustment --- 408 (2,686) 353
Deconsolidation
adjustment 3,913 --- --- ---
Restated net
income (loss) $(18,564) $(19,896) $(13,605) $(5,110)
Net Income (Loss)
Per Share
As originally
reported $(2.26) $(2.04) $(1.10) $(0.55)
Restatement
adjustment --- 0.04 (0.27) 0.04
Deconsolidation
adjustment 0.39 --- --- ---
Restated net
income (loss)
per share $(1.87) $(2.00) $(1.37) $(0.51)
1991
Fourth Third Second First
Net Income (Loss)
As originally
reported $(15,717) $6,203 $(11,410) $(12,489)
Restatement
adjustment (104) 2,776 478 477
Restated net
income (loss) $(15,821) $8,979 $(10,932) $(12,012)
Net Income (Loss)
Per Share
As originally
reported $(1.58) $0.63 $(1.15) $(1.26)
Restatement
adjustment (0.01) 0.28 0.05 0.05
Restated net
income (loss)
per share $(1.59) $0.91 $(1.10) $(1.21)
In conjunction with the initial public offering of 4,000,000 shares of Fruehauf
common stock in 1991 (the "Fruehauf IPO"), the Company contemplated related
exchange transactions between certain stockholders and warrantholders of the
Company and Fruehauf. In determining the Company's net gain in 1991 on the
Fruehauf IPO, the Company considered the impact of these related exchange
transactions. The estimated impact of these exchange transactions was a loss
of approximately $7.7 million. The loss was recorded as a reduction of the
gain on the sale of Fruehauf, and a net gain of $15.0 million was recorded in
1991. During the fourth quarter of 1992, the agreements governing the exchange
transactions expired and management and the parties to the exchange concluded
that the exchange transactions originally contemplated were no longer in the
best interests of the Terex and Fruehauf stockholders. Accordingly, the $7.7
million reserve for the estimated impacts of the exchange transactions was
recorded into income in the fourth quarter of 1992. The impact of this
transaction is recorded as a component of Other Income in the Consolidated
Statement of Income for December 31, 1992.
During the fourth quarter of 1991, Fruehauf recorded restructuring costs of
$15.8 million. This charge related to the anticipated costs of implementing a
restructuring of Fruehauf's distribution system, and included other costs
related to streamlining Fruehauf's manufacturing operations.
As described in Note D -- "Investment in Fruehauf Trailer Corporation" in the
Notes to Consolidated Financial Statements for December 31, 1992, the Company
consolidated Fruehauf's financial results with those of the Company for
financial reporting purposes during 1991 and, as a result of the termination of
the voting trust during 1992, accounted for its investment in Fruehauf using
the equity method in 1992 and 1993. The Company's consolidated financial
statements contained in this Prospectus, and the above summary information, are
presented giving effect to the deconsolidation of Fruehauf as of January 1,
1992.
See the Company's Consolidated Financial Statements for December 31, 1992
included elsewhere in this Prospectus.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The Company operates in two industry segments: Heavy Equipment and Material
Handling. Prior to 1992, the Company operated in two industry segments: Heavy
Equipment and Trailer (Fruehauf). The Material Handling Segment principally
represents the operations of Clark Material Handling Company ("CMHC") and
certain affiliated companies (together with CMHC, "Clark"). On July 31, 1992,
the Company acquired the common stock of CMHC and certain affiliates (the
"Clark Acquisition") from Clark Equipment Company (see Note C -- "Acquisitions"
to the Consolidated Financial Statements for December 31, 1992). Clark
designs, manufactures and markets internal combustion and electric lift trucks,
electric walkies, tow tractors and related parts and equipment. The Clark
Acquisition was accounted for using the purchase method, therefore, the Clark
operating results have been included in the Company's consolidated results of
operations since August 1, 1992. As described in "Business -- Fruehauf Trailer
Corporation," the Company presently accounts for its investment in Fruehauf
using the equity method and the Company's consolidated financial statements are
presented giving effect to the deconsolidation of Fruehauf as of January 1,
1992.
Nine Months Ended September 30, 1993
The table below is a comparison of net sales, gross profit, engineering,
selling, and administrative expenses and loss from operations, by segment, for
the nine months ended September 30, 1993 and 1992. Amounts shown for the
Material Handling Segment for 1992 represent activity for two months subsequent
to the Clark Acquisition.
Nine Months Ended
September 30 Increase
1993 1992 (Decrease)
(in millions of dollars)
NET SALES
Heavy Equipment $205.5 $224.9 $(19.4)
Material Handling 314.0 88.4 225.6
Total $519.5 $313.3 $206.2
GROSS PROFIT
Heavy Equipment $24.7 $22.3 $2.4
Material Handling 19.6 6.7 12.9
Total $44.3 $29.0 $15.3
ENGINEERING, SELLING AND ADMINISTRATIVE
EXPENSES
Heavy Equipment $22.5 $28.4 $(5.9)
Material Handling 37.5 8.7 28.8
General/Corporate 2.6 0.5 2.1
Total $62.6 $37.6 $25.0
INCOME (LOSS) FROM OPERATIONS
Heavy Equipment $2.2 $(6.1) $8.3
Material Handling (17.9) (2.0) (15.9)
General/Corporate (2.6) (0.5) (2.1)
Total $(18.3) $(8.6) $9.7
Net Sales
Sales increased $206.2 million, or approximately 66%, for the nine months ended
September 30, 1993 over the comparable 1992 period.
Heavy Equipment Segment sales decreased $19.4 million during the nine months
ended September 30, 1993 compared to the nine months ended September 30, 1992.
This decrease reflects the effects during the first half of 1993 of worldwide
economic conditions on the construction and mining industries, the Heavy
Equipment Segment's principal markets. Machines and contract sales represented
$15.8 million of the decrease and parts sales represented $3.6 million of the
decrease, as the sales mix changed to 38% parts in 1993 from 36% parts in 1992.
The Unit Rig division ("Unit Rig"), the Heavy Equipment Segment division that
principally serves the mining industry, experienced a decrease in sales of
$10.3 million to $47.0 million for the nine months ended September 30, 1993
from $57.3 million in the nine months ended September 30, 1992. This decrease
was primarily a result of reduced sales in the first half of 1993 due to
continued low bookings in the second half of 1992 as the mining industry
continued to operate at reduced levels. Several completed trucks in inventory
as of September 30, 1993 were not shipped due to delays in completion of final
purchaser financing arrangements, also contributing to the decrease. Koehring
Cranes and Excavators ("Koehring"), the Heavy Equipment Segment division that
serves the construction market, experienced a decrease in sales of $12.8
million to $57.9 million for the nine months ended September 30, 1993 from
$70.7 million for the first nine months of 1992. Koehring sales in 1992 were
higher due to sales of slow moving inventory and product lines at low margins
to reduce inventory and more effectively utilize working capital. The
decreased sales at Koehring and Unit Rig were partially offset by a $3.4
million increase in sales by the Company's Terex division and TEL, to $99.7
million for the nine months ended September 30, 1993.
Heavy Equipment Segment bookings during the first nine months of 1993 were
$209.6 million, a decrease of $10.9 million, or 5% from the same period in
1992. Booking for parts sales, from which the Company realizes higher margins
than machine sales, increased $1.7 million or 2% for the first nine months of
1993 over the year earlier period. Machine and contract bookings decreased
$12.6 million or 9%, reflecting continuing weakness in the Segment's principal
markets during the first half of 1993 as well as more aggressive pricing and
financing by the Company's competitors. The slow recovery in the construction
industry has also made the Koehring and Terex division distributor networks
more cautious in their acquisition of new equipment, especially for machines to
be used in the rental market. Heavy Equipment Segment backlog was $89.0
million at September 30, 1993 compared to $85.4 million at December 31, 1992
and $47.7 million at September 30, 1992.
Material Handling Segment sales were $314.0 million for the nine months ended
September 30, 1993 compared to $88.4 million for August and September 1992, an
increase of $225.6 million. On a pro forma basis, giving effect to the Clark
Acquisition as of January 1, 1992, sales decreased $62.9 million for the nine
months ended September 30, 1993 from $376.9 million for the nine months ended
September 30, 1992. Management believes that Material Handling Segment dealers
increased orders during the fourth quarter of 1992 to ensure adequate inventory
levels during the first quarter of 1993 while the company transferred certain
Material Handling Segment production from Korea to the U.S. and Germany,
resulting in lower sales in the first quarter of 1993. This transfer of
production continued during 1993, but was not completed by September due to
delays in establishing replacement lines of credit similar to those previously
existing in Korea. In addition, the Material Handling Segment experienced
working capital constraints during the third quarter of 1993 which have limited
the Company's ability to obtain materials and maintain production, adversely
affecting sales. Management expects Material Handling Segment sales volume to
remain at third quarter levels during the fourth quarter of 1993 until
completion of the working capital equity infusion as discussed below under
"Liquidity and Capital Resources." Bookings have remained strong because of
improved demand in the North American forklift industry. As a result of these
factors, the Material Handling Segment backlog was $127.0 million at September
30, 1993 compared to $83.2 million at December 31, 1992 and $80.8 million at
the July 31, 1992 acquisition date.
Gross Profit
Gross profit for the nine months ended September 30, 1993 increased $15.3
million compared to the nine months ended September 30, 1992. The Material
Handling Segment contributed gross profit of $19.6 million for the nine months
ended September 30, 1993 compared to $6.7 million for August and September
1992, an increase of $12.9 million.
The Heavy Equipment Segment's gross profit increased $2.4 million to $24.7
million in the first nine months of 1993 compared to $22.3 million in the year
earlier period. Improved gross profit from machines and contract sales
accounted for substantially all of the increase, reflecting the positive
effects of cost reduction initiatives implemented in 1992 and throughout 1993.
Gross profit for the 1993 period includes a $2.2 million provision for
write-down of certain inventory at Koehring in connection with management's
decision to cease new machine production for certain products. The gross
profit percentage in the Heavy Equipment Segment increased to 12.0% for the
nine months ended September 30, 1993 compared to 10.0% for the nine months
ended September 30, 1992 reflecting the increased percentage of parts sales,
from which the Company realizes higher margins, and improved manufacturing
efficiency.
Engineering, Selling and Administrative Expenses
Engineering, selling and administrative expenses increased to $62.6 million for
the nine months ended September 30, 1993 from $37.6 million for the nine months
ended September 30, 1992. The Material Handling Segment engineering, selling
and administrative expenses totaled $37.5 million for the nine months ended
September 30, 1993 compared to $8.7 million for August and September, 1992 and
compared to $36.6 million for the nine months ended September 30, 1992 on a pro
forma basis. Heavy Equipment Segment engineering, selling and administrative
expenses decreased from $28.4 million for the nine months ended September 30,
1992 to $22.5 million for the nine months ended September 30, 1993 as a result
of cost reduction initiatives including headcount reductions and the
consolidation of certain administrative functions into the Heavy Equipment
Segment's administrative offices in Tulsa, Oklahoma. Corporate expenses
increased $2.1 million primarily as a result of increased legal and accounting
expenses.
Income (Loss) from Operations
The Heavy Equipment Segment income from operations increased $8.3 million from
a $6.1 million loss in the 1992 period to $2.2 million income in the 1993
period. This improvement resulted from the increase in gross profit and the
decrease in engineering, selling and administrative expenses, offset by the
$2.2 million provision for write-down of inventory. Except for the Koehring
division, the businesses comprising the Heavy Equipment Segment reported income
from operations for the nine months ended September 30, 1993. The losses at
Koehring have been reduced as a result of continuing cost reductions,
improvements in inventory management and elimination of certain low-volume
products, and the Company continues to consider additional actions necessary to
return that operation to consistent profitability, including a continuing
evaluation of facilities, products and inventories. In addition, in March 1992
the Company sold Benton Harbor Engineering ("Benton Harbor"), which had
experienced a loss from operations in the first quarter of 1992.
The Material Handling Segment incurred a loss from operations of $17.9 million
for the nine months ended September 30, 1993, compared to an operating loss of
$2.0 million for August and September, 1992 and compared to an operating loss
of $12.3 million for the nine months ended September 30, 1992 on a pro forma
basis, primarily as a result of decreased sales.
On a consolidated basis, the Company experienced an operating loss of $18.3
million for the nine months ended September 30, 1993, compared to an operating
loss of $8.6 million for the nine months ended September 30, 1992.
Income (loss) from operations before depreciation is as follows:
Nine Months Ended September 30,
1993 1992
(in millions of dollars)
INCOME (LOSS) FROM OPERATIONS
BEFORE DEPRECIATION
Heavy Equipment $ 5.1 $ (4.3)
Material Handling (9.3) (0.6)
General/Corporate (2.5) (0.6)
Total $(6.7) $ (5.5)
Other Income (Expense)
Interest expense on a consolidated basis was $23.8 million for the nine months
ended September 30, 1993 compared to $15.6 million for the nine months ended
September 30, 1992. Terex sold $160 million principal amount of the Secured
Notes on July 31, 1992. The proceeds of the Secured Notes were used for the
cash portion of the Clark Acquisition ($85 million), the payment of all amounts
outstanding under Terex's previous credit and letter of credit agreement ($58
million), and for working capital and transaction costs. The increase in Terex
interest expense for the nine months ended September 30, 1993 over the nine
months ended September 30, 1992 is primarily the result of incremental
borrowings to finance the Clark Acquisition (incremental interest expense of
approximately $6.7 million) and higher interest rates on new borrowings used to
refinance the previous credit and letter of credit agreement, as well as
additional costs related to establishing and utilizing a new credit and letter
of credit agreement.
The Company recognized equity in the net loss of Fruehauf of $0.7 million for
the nine months ended September 30, 1993 compared to equity in the net loss of
Fruehauf of $14.6 million for the nine months ended September 30, 1992. As
described in Note F of the Notes to Condensed Consolidated Financial Statements
for September 30, 1993, the Company does not expect to recognize any
significant additional losses with respect to its investment in Fruehauf.
The provision for income taxes generally represents taxes withheld on foreign
royalties and dividends. As such, any fluctuation in the provision for income
tax is due to fluctuations in these items. The Company adopted SFAS No. 109,
"Accounting for Income Taxes" on January 1, 1993. The new pronouncement
retains the basic concepts of SFAS No. 96, but generally simplifies its
application. The adoption of this new pronouncement did not have a material
impact on the Company's operating results and financial position.
Extraordinary Item
In connection with terminating its previous bank lending agreement as described
below under "Liquidity and Capital Resources," the Company recognized a charge
of approximately $2.0 million in the second quarter of 1993 to write off
unamortized debt issuance costs.
1992 Compared with 1991
The table below is a comparison of net sales, gross profit, engineering,
selling and administrative expenses and income (loss) from operations, by
segment, for the years ended December 31, 1992 and 1991:
Year Ended
December 31, Increase
1992 1991 (Decrease)
(in millions of dollars)
NET SALES
Heavy Equipment $282.4 $271.5 $ 10.9
Material Handling 241.0 --- 241.0
Trailer --- 512.7 (512.7)
Total $523.4 $784.2 $(260.8)
GROSS PROFIT
Heavy Equipment $ 29.6 $ 26.3 $ 3.3
Material Handling 24.4 --- 24.4
Trailer --- 67.6 (67.6)
Total $ 54.0 $ 93.9 $ (39.9)
ENGINEERING, SELLING AND
ADMINISTRATIVE EXPENSES
Heavy Equipment $ 35.6 $ 37.6 $ (2.0)
Material Handling 22.2 --- 22.2
Trailer --- 90.8 (90.8)
General/Corporate 0.3 1.7 (1.4)
Total $ 58.1 $130.1 $ (72.0)
INCOME (LOSS) FROM OPERATIONS
Heavy Equipment $ (6.0) $(11.3) $ 5.3
Material Handling 2.2 --- 2.2
Trailer --- (23.2) 23.2
General/Corporate (0.3) (1.7) 1.4
Total $ (4.1) $(36.2) $ 32.1
Operating Results
Net Sales
Sales decreased $260.8 million or approximately 33%, during 1992 compared to
1991. Material Handling Segment sales were $241.0 million for the year ended
December 31, 1992 representing the Clark sales since the acquisition date.
Trailer Segment sales were $512.7 million in 1991. Heavy Equipment Segment
sales increased $10.9 million during 1992 compared to the 1991 period. Mark
Industries ("Mark"), an operating unit of the Heavy Equipment Segment, was
acquired in December 1991. Excluding Mark, Heavy Equipment Segment fiscal 1992
sales decreased $9.4 million in relation to the comparable 1991 period. This
decrease reflects the continuing effects of the worldwide recession on the
construction and mining industries, the Heavy Equipment Segment's principal
markets. Heavy Equipment Segment bookings during 1992 were $315.9 million, an
increase of $56 million, or 22% over 1991. The majority of this increase
occurred in the fourth quarter. Fourth quarter 1992 Heavy Equipment Segment
bookings were $95.4 million, an increase of $43 million over the comparable
1991 period. Heavy Equipment Segment backlog was $85.4 million at December 31,
1992, an increase of $33.4 million over the comparable amount at December 31,
1991.
The overall Heavy Equipment Segment sales mix of equipment sales as a
percentage of total net sales increased slightly during 1992 in relation to
1991. Equipment sales represented 61% of total Heavy Equipment Segment sales
in 1992, while equipment sales represented 57% of total Heavy Equipment Segment
sales in 1991. This relationship is consistent with the relationship of Heavy
Equipment Segment bookings for 1992 in relation to 1991. Generally, the Heavy
Equipment Segment realizes lower gross margin percentages on new equipment than
its other revenue, principally parts.
The Material Handling Segment backlog was $83.2 million at December 31, 1992
compared to backlog at the July 31, 1992 acquisition date of $80.8 million. On
September 2, 1992, the Company announced that certain of its production of its
2,000 and 10,000 lb. capacity trucks would be brought back to the U.S. and
Germany beginning in the fourth quarter of 1992. Management believes that
Material Handling Segment dealers increased order activity during the fourth
quarter to ensure adequate inventory levels during the repatriation. The
increased fourth quarter 1992 sales volume will result in somewhat lower sales
volume throughout the first quarter of 1993 as the Material Handling Segment
completes the final stages of the repatriation of production of its light IC to
the U.S. during the second quarter of 1993.
Gross Profit
Gross profit for the year ended December 31, 1992 decreased $39.9 million over
1991. The Material Handling Segment contributed gross profit of $24.4 million
to the 1992 gross profit of $94.7 million. Heavy Equipment Segment 1992 gross
profit increased $3.3 million over the comparable 1991 period. Mark 1992 gross
profit represented $1.4 million of the Heavy Equipment Segment increase. The
Trailer Segment gross profit was $40.7 million in 1991.
Excluding Mark, the Heavy Equipment Segment's gross profit increased $1.9
million over 1991. Gross profit percentage increased to 10.8% in 1992 from
9.7% in 1991. Gross profit from parts sales decreased $2.5 million as a result
of the change in sales mix from parts to machines. Gross profit from machines
and other sales increased $4.4 million, principally as a result of cost
reduction initiatives implemented in the latter part of 1991 and throughout
1992 to reduce the fixed overhead cost base and as a result of a reduced
provision for inventory obsolescence in 1992. The cost reduction initiatives
accounted for approximately $2.4 million of the increase in gross profit and
included headcount reductions primarily at Koehring and consolidation of
manufacturing operations to reduce excess capacity at TEL. The reduced
provision for inventory obsolescence accounted for approximately $2.0 million
of the increase in gross profit and resulted from improvements in inventory
management which have reduced the amount of inventory entering the excess and
obsolete classification. During the second quarter of 1992, the Company
substantially reduced inventory to more effectively utilize working capital.
However, this reduction occurred at gross margins which were lower than
normally achieved in routine sales of such products, and, as a result, the
incremental sales had only a minor impact on gross profit. The sale of the
Benton Harbor operation in March 1992 also contributed to the improvement in
gross profit from machines and other sales. Benton Harbor incurred a loss at
the gross profit line of $0.8 million in 1991 on sales of $8.5 million.
Engineering, Selling and Administrative Expenses
Engineering, selling and administrative expenses decreased to $58.1 million in
1992 from $114.3 million in 1991. The Material Handling Segment engineering,
selling and administrative expenses totaled $22.2 million for the five months
ended December 31, 1992. These incremental engineering, selling and
administrative expenses were offset by reduced Heavy Equipment Segment and
corporate engineering, selling and administrative expenses of $3.4 million
resulting from cost reduction initiatives including headcount reductions and
the consolidation of certain administrative functions into the Heavy Equipment
Segment's administrative offices in Tulsa, Oklahoma.
Trailer Segment engineering, selling and administrative expenses were $90.8
million in 1991, including restructuring costs of $15.8 million representing
provisions for the anticipated future costs of implementing a restructuring of
Fruehauf's distribution system and other non-recurring costs, as more fully
described in Note D of the Notes to Consolidated Financial Statements for
December 31, 1992.
Income (Loss) From Operations
On a consolidated basis, the Company experienced an operating loss of $4.1
million for the year ended December 31, 1992, compared to an operating loss of
$36.2 million for the year ended December 31, 1991. The improvement resulted
from, among other items, the contribution of operating profit of $2.2 million
by the Material Handling Segment for the five months ended December 31, 1992
(since its acquisition), the positive impact of cost reduction and cost
containment initiatives implemented in the latter part of 1991 and throughout
1992, and the sale of Benton Harbor in March 1992 which experienced an
operating loss in the 1991 period. The Trailer Segment's operating loss was
$23.2 million for 1991.
Income (loss) from operations before depreciation is as follows:
Year Ended December 31,
1992 1991
(in millions of dollars)
INCOME (LOSS) FROM OPERATIONS
BEFORE DEPRECIATION
Heavy Equipment $(2.7) $(7.2)
Material Handling 5.9 ---
Trailer --- (16.3)
General/Corporate (0.3) (1.7)
Total $2.9 $(25.2)
Other Income (Expense)
Interest expense decreased on a consolidated basis from $31.2 million in 1991
to $23.3 million in 1992. Interest expense related to Fruehauf debt totaled
$17.6 million in 1991. Interest expense related to Terex debt increased $9.8
million in 1992.
As discussed further under the caption "Liquidity and Capital Resources," Terex
sold $160 million principal amount of the Secured Notes on July 31, 1992. The
proceeds of the Secured Notes were used for the cash portion of the Clark
Acquisition ($85 million), the payment of all amounts outstanding under Terex's
previous credit and letter of credit agreement ($58 million), and for working
capital and transaction costs. The increase in Terex interest expense over
1991 is primarily the result of (a) incremental borrowings to finance the Clark
Acquisition (incremental interest expense of approximately $4.6 million), (b)
higher interest rates on new borrowings used to refinance the previous credit
and letter of credit agreement, as well as additional costs related to
establishing and utilizing a new credit and letter of credit agreement, and (c)
a $2.7 million amendment and renewal fee charged by Terex's previous bank
consortium prior to the refinancing.
As described in "Business -- Fruehauf Trailer Corporation," the Company
presently accounts for its investment in Fruehauf using the equity method. The
Company recognized an equity loss of $35.0 million in 1992 from its investment
in Fruehauf. Fruehauf reported a loss of $65.2 million for 1992 as a result of
reduced sales because of the closure or conversion of 26 sales and service
branches as part of Fruehauf's branch restructuring program, a change in
Fruehauf's sales mix to lower-margin new trailer and fleet sales and
unfavorable manufacturing variances and lost sales of used trailers and parts
because of the effects of liquidity problems experienced by Fruehauf during
1992 and which continued into 1993.
In conjunction with the Fruehauf IPO, the Company contemplated related exchange
transactions between certain stockholders and warrantholders of the Company and
Fruehauf. In determining the Company's net gain in 1991 on the Fruehauf IPO,
the Company considered the impact of these related exchange transactions. The
estimated impact of these exchange transactions was a loss of approximately
$7.7 million. The loss was recorded as a reduction of the gain on the sale of
Fruehauf of $22.7 million, for a net gain of $15.0 million in 1991. During the
fourth quarter of 1992, the exchange agreement expired and management and the
parties to the exchange concluded that the exchange transactions originally
contemplated were no longer in the best interests of the Terex and Fruehauf
stockholders. Accordingly, the $7.7 million reserve for the estimated impacts
of the exchange transactions was recorded into income in the fourth quarter of
1992. The impact of this transaction is recorded as a component of Other
Income in the Consolidated Statement of Income for December 31, 1992.
In 1991, Fruehauf recognized equity in net income of affiliated companies of
$4.2 million and a $7.5 million gain on the sale of excess assets, including a
$6.6 million gain on the sale of Coast Engineering and Manufacturing Company's
("CEMCO") operating assets.
Other income (expense) in 1992 included foreign exchange losses of $2.4 million
and other miscellaneous items. Other income (expense) in 1991 included a $3.3
million loss on the sale by Fruehauf of stock in Societe Europeene de
Semi-Remorques S.A. ("SESR"), Europe's largest trailer manufacturer.
1991 Compared with 1990
The table below is a comparison of net sales, gross profit and income (loss)
from operations for the years ended December 31, 1991 and 1990 and reflect the
restatements as described in Note B -- "Restatement of Prior Period Results" to
the Consolidated Financial Statements for December 31, 1992:
Year Ended
December 31, Increase
1991 1990 (Decrease)
(in millions of dollars)
NET SALES
Heavy Equipment $271.5 $433.7 $(162.2)
Trailer 512.7 589.5 (76.8)
Total $784.2 $1,023.2$(239.0)
GROSS PROFIT
Heavy Equipment $26.3 $ 72.2 $(45.9)
Trailer 67.6 93.9 (26.3)
Total $93.9 $166.1 $(72.2)
ENGINEERING, SELLING AND
ADMINISTRATIVE EXPENSES
Heavy Equipment $37.6 $ 48.9 $(11.3)
Trailer 90.8 74.6 16.2
General/Corporate 1.7 (1.8) 3.5
Total $130.1 $121.7 $ 8.4
INCOME (LOSS) FROM OPERATIONS
Heavy Equipment $(11.3)$ 23.3 $(34.6)
Trailer (23.2) 19.3 (42.5)
General/Corporate (1.7) 1.8 (3.5)
Total $(36.2) $44.4 $(80.6)
Net Sales
Net sales were $239.0 million lower in 1991 than in 1990. This 23.4% decrease
is largely attributable to the overall economic slowdown and weakness of
industry demand faced both domestically and abroad in the Heavy Equipment and
Trailer Segments principal markets.
Gross Profit
The gross profit percentage of the Heavy Equipment Segment decreased from 16.6%
in 1990 to 9.7% in 1991. The decrease in gross profit and the related gross
profit percentage was the result of the lower sales volume which resulted in
substantially underutilized manufacturing capacity. In addition, the provision
for excess and obsolete inventory increased approximately $1.7 million over the
1990 provision of $9.7 million. The principal factors contributing to the
increased provision are a decline in net realizable value of certain excess
finished goods inventory, as well as certain parts inventory. The reserve for
excess and obsolete inventory as a percentage of gross inventory increased to
10.5% at December 31, 1991 as compared to 7.3% at December 31, 1990. This
increase as a percentage of gross inventory is a result of the following
factors: (i) management efforts to reduce working capital employed to finance
inventory levels, (ii) higher reserve requirements resulting from reduced net
realizable values to facilitate the movement of certain excess finished goods
inventory and (iii) an increased aging of parts inventory. First, management
focused its efforts during 1991 to improve inventory turns as a means to
improve working capital utilization. Inventory minimization continued to be a
high priority of management into 1992. Second, the significant economic
downturn faced by the Company resulted in lower sales volume as discussed
previously. In addition, the Company experienced a substantial increase in
certain finished goods inventory. As part of management's ongoing evaluation
of potentially excess and obsolete inventory including current and future
market and economic factors, together with working capital utilization
objectives, provisions to record the excess finished goods inventory at net
realizable value were required. Lastly, the Company has experienced an
increased aging of parts inventory due to declining sales volume and the
consequent decline in machine populations in the field. As part of
management's ongoing evaluation of parts excess and obsolete reserve
requirements, management evaluated current part inventory quantities in
comparison to current and future market and economic conditions. The
evaluation indicated an impairment of the net realizable value of certain
quantities of parts inventory. Machine population is expected to decline over
the next several years and, as a result, management plans to focus substantial
attention on the parts inventory control.
The Trailer Segment's gross margin percentage decreased to 13.2% in 1991 from
15.9% in 1990. The decrease was a result of lower new trailer demand and
substantially underutilized manufacturing capacity. Sales mix was virtually
unchanged from 1990 to 1991, and therefore did not impact the overall gross
margin percentage comparison. Due to the underutilized manufacturing capacity
in the domestic trailer manufacturing industry and reduced demand for new
trailers, price competition was severe on new trailers. As a result, the gross
profit percentage realized on new trailer sales was much lower than that on
used trailers, replacement parts and service.
Unit sales of new truck trailers in the United States have historically
experienced significant short-term fluctuations due to changing economic
conditions. However, over the longer term, new truck trailer unit sales have
exhibited growth generally in line with increases in the U.S. gross national
product. Due to the poor economic conditions in the United States during 1990
and 1991, unit sales of new truck trailers were at their lowest levels since
1983 and in 1991 were approximately 32% below unit sales in 1988, the last full
year before the Fruehauf acquisition.
The Trailer Segment's provision for excess and obsolete inventory increased by
approximately $3.9 million over 1990. The principal factor contributing to the
increased provision was the decline in the net realizable value of certain new
and used trailer inventory, as well as certain parts inventory. The used
trailer market continued to soften in the latter part of 1991, resulting in
market prices falling below Fruehauf's carrying value of the related used
trailers. In other cases certain used trailers remained in inventory for
extended periods of time and aged by one model year. This aging adversely
impacted the net realizable value of such trailers. Additionally, Fruehauf
increased its reserves for replacement parts inventory. Due to the existence
of quantities of seasonal products and truck equipment that were over one
model-year old, a provision to record the reduction of the parts inventory to
its lower net realizable value was required.
Income (Loss) From Operations
Operating earnings (losses) for the Heavy Equipment Segment were ($11.3)
million in 1991, as compared to $23.3 million in 1990 for the Heavy Equipment
Segment. While engineering, selling, and administrative expenses decreased for
the Heavy Equipment Segment from 1990 to 1991, the aforementioned reductions in
sales and gross profit led to the operating profit decline.
Fruehauf's operating income was $19.3 million for the year ended December 31,
1990. During 1991, Fruehauf had an operating loss of $23.2 million. While
engineering, selling, and administrative expenses remained stable from 1990 to
1991, the aforementioned reductions in sales and gross profit led to the
operating profit decline. Additionally, a nonrecurring restructuring charge of
$15.8 million recorded in the fourth quarter of 1991 contributed significantly
to the decline in operating profit. These restructuring costs represented
provisions for the anticipated future cost of implementing a restructuring of
Fruehauf's distribution system and other nonrecurring costs related to
streamlining Fruehauf's manufacturing operations.
Other Income (Expense)
Interest income decreased $1.6 million in 1991 as compared to 1990 due to
reduced average cash balances in 1991 and lower interest rates throughout the
year. The lower cash balances resulted largely from the repayment of debt.
Interest expense decreased $16.4 million in 1991 as compared to 1990, primarily
as a result of lower debt outstanding and reduced interest rates on the
borrowings. The reduction in debt outstanding was achieved by generation of
cash from operations, continued efforts to dispose of excess facilities and
assets held for sale, as well as from proceeds of the Fruehauf IPO. The lower
interest rates were achieved by modification of some of the Company's debt
facilities in September 1990 and elimination of certain debt facilities with
high rates in conjunction with the aforementioned public offering.
The Company's share of earnings from unconsolidated affiliates was $4.2
million in 1991, down from $7.5 million in 1990. Royalty income earned during
the year from licensees of Fruehauf totaled $3.2 million in 1991 as compared to
$5.2 million in 1990. The decrease in the earnings from unconsolidated
affiliates and royalty income is largely due to the worldwide economic slowdown
faced by the trailer segment's licensees and affiliates as well as a sale of a
portion of the Company's share of its largest unconsolidated affiliate in mid
1991. The decrease in royalty income was also due to a new trademark and
licensing agreement entered into in the second quarter of 1991.
The Company recorded a $15.0 million gain as a result of the Fruehauf IPO and
the completion of certain of Fruehauf's recapitalization transactions.
The Company recognized a $7.2 million gain in 1991 on the sale of excess
assets, including a $6.6 million gain on the sale of CEMCO's operating assets.
Other expense of $2.4 million and $0.4 million for 1991 and 1990, respectively,
includes the loss on sale of affiliate stock in 1991 and various other
immaterial items.
The Company's provision for income taxes generally represents taxes withheld on
foreign royalties. As such, any fluctuation in the provision for income tax is
due to fluctuations in foreign royalties.
Minority interest is reflected as a result of the July 1991 Fruehauf IPO and
certain recapitalization transactions.
On September 30, 1990, Fruehauf refinanced the majority of its then outstanding
long-term debt. A onetime extraordinary loss of $2.2 million was recorded to
write-off the unamortized debt issue costs relating to the refinanced debt.
Liquidity and Capital Resources
Terex owns approximately 19.1% of the outstanding common stock of Fruehauf and
presently accounts for its investment using the equity method (see Note A --
"Significant Accounting Policies" and Note D -- "Investment in Fruehauf Trailer
Corporation" to the Consolidated Financial Statements for December 31, 1992).
By the terms of debt agreements of both companies, neither company may
participate in the debt service of the other. Generally, funds cannot be
transferred between the companies except for the reimbursement of reasonable
expenses incurred on the other's behalf.
On May 20, 1993, Terex entered into the Lending Facility with Foothill. An
interim facility provided for cash advances to the Company of up to $17.5
million. A permanent facility became effective as of August 24, 1993 which
provides for up to $20 million of cash advances and guarantees of bank letters
of credit and is secured by substantially all domestic cash and receivables of
the Material Handling and Heavy Equipment Segments. The balance outstanding
under the Lending Facility was $18.7 million as of September 30, 1993. As of
July 31, 1993, the Company was not in compliance with the tangible net worth
covenant under the Lending Facility. Following the closing on August 20, 1993
of Fruehauf's restructuring and financing transactions described in "Business -
Fruehauf Trailer Corporation," Foothill agreed that the Company's noncompliance
with the tangible net worth covenant under the Lending Facility was no longer
continuing. Foothill also waived the noncompliance. The Company believes,
based on management's current estimates, that it will be in compliance with
such covenant over the next twelve months.
In addition to the Lending Facility, the Company has arranged similar financing
for TEL, in the form of a pd28.0 million ($42.0 million) credit facility
including up to pd13.0 million ($19.5 million) non-recourse discounting of TEL
accounts receivable which meet certain credit criteria plus additional
facilities for tender and performance bonds and foreign exchange contracts.
During 1993, the Company experienced liquidity constraints, primarily because
of continuing operating losses. During this period, a significant amount of
accounts payable were aged 60 days or more and certain vendors required COD or
advance cash payments before shipping materials. As a result, the Company's
manufacturing facilities operated at less than optimal levels, and the
availability of inventory for parts sales, on which the Company generally
realizes higher gross margins, was adversely affected.
On December 20, 1993, in order to provide additional liquidity to the Company,
the Company completed the private placement of 1,200,000 shares of the
Preferred Stock and 1,300,000 Warrants for aggregate net proceeds to the
Company of $27.2 million. The proceeds of such private placement are being
used by the Company for additional working capital. The Company is also
generating cash through the sale of excess inventory in the Heavy Equipment
Segment, deferring certain capital expenditures, selling certain real estate
and other assets and continuing corporate wide cost containment efforts.
Management believes that the Lending Facility together with these additional
financing and cash generating activities will allow the Company to meet its
operating payment obligations, including payments to vendors, on a timely
basis which will improve the Company's ability to take advantage of improved
market conditions, especially in the Material Handling Segment.
In December 1993, the Company repurchased $5.0 million principal amount of the
Secured Notes for approximately $4.5 million, including accrued interest. In
addition, in December 1993, the Company sold 1,000,000 shares of Fruehauf
common stock for aggregate proceeds of approximately $3.0 million and will
offer to repurchase approximately $3.0 million of the Secured Notes in the
second quarter of 1994, as required by the indenture for the Secured Notes. In
February 1994, the Company sold an additional 1,000,000 shares of Fruehauf
common stock for aggregate proceeds to the Company of approximately $4.6
million and will offer to repurchase approximately $4.6 million of the Secured
Notes in the third quarter of 1994, as required by the indenture for the
Secured Notes. See "The Company - Recent Developments." In addition to such
repurchase obligations, the Company's debt service requirements for 1994
include approximately $27.6 million of interest on the Secured Notes,
Subordinated Notes and Lending Facility (of which approximately $13.1 million
has been paid as of March 1, 1994), and approximately $14.4 million in July
1994 for a required sinking fund payment on the Subordinated Notes and the
maturity of a note issued to the seller in connection with the Clark
Acquisition. Management believes that selling certain real estate and other
assets and other cash generating activities discussed above will allow the
Company to meet these requirements as they come due. Management is also
considering other actions, including the sale of certain non-strategic
businesses and additional sales of other assets, which may be necessary for the
Company to meet its operating and debt service obligations.
The indentures governing the Notes require among other things that the Company
maintain the Net Worth Covenants and Collateral Covenant. 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 Covenant 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 Secured Notes or such greater amount as would be necessary to bring the
Company into compliance with the Collateral Covenant. As of September 30,
1993, the Company's tangible net worth as defined in the Note indentures was
less than the $15 million minimum set forth in the indentures. Management
believes that the Company was in compliance with the Net Worth and Collateral
Covenants at December 31, 1993. If the Company continues to sustain losses
from operations, it may not be in compliance with the Net Worth Covenants in
the future. If any offer to repurchase Notes were required to be made, it is
likely that the Company would require additional funding to complete the offer,
and if such funding were unavailable to it, the Company would be unable to
comply with the terms of the Notes and the maturity of the Notes may be
accelerated. Such circumstances would result in a material adverse impact on
the Company and its financial position.
Terex cash and cash equivalents, including restricted cash and investments,
totaled $13.5 million and $37.2 million at September 30, 1993 and December 31,
1992, respectively. Certain provisions of the Company's previous lending
arrangement with a commercial bank (the "Bank Lending Agreement") required
specified amounts of cash to be deposited in a cash collateral account when
certain conditions exist. Restricted cash and investments held in such
collateral accounts totaled $11.5 million at December 31, 1992, which are
presented as "Restricted Cash" in the Condensed Consolidated Balance Sheet for
December 31, 1992. Terex has entered into the new Lending Facility which
replaced the Bank Lending Agreement. In connection therewith, Terex will
continue to utilize letters of credit previously issued under the former Bank
Lending Agreement until their expiration. At September 30, 1993 the unexpired
letters of credit are cash collateralized by a total of $4.6 million in a cash
collateral account. These cash balances will be made available to the Company
as the underlying letters of credit expire.
Terex used cash for operating activities of $28.0 million during the nine
months ended September 30, 1993, and generated cash from operating activities
of $22.7 million in 1992. Such cash was principally used to fund operating
losses, interest payments and costs of restructuring the Material Handling
Segment's operations partially offset by reductions in receivables and
inventory. The reductions in receivables and inventory result from the
Company's focused efforts to more effectively utilize working capital.
Management expects to continue the Company's efforts to reduce receivables and
inventory during 1994 as part of the Company's cash generating activities
discussed above. In particular, management believes that required inventory
levels in the Material Handling Segment have been reduced as a result of return
of certain production to the United States and Germany from Korea during 1993
because the Company will no longer experience the significant lead times
associated with the shipping of product from Korea.
Net cash provided by Terex from investing activities of $0.9 million during the
nine months ended September 30, 1993 principally reflects the sale of surplus
assets in Germany offset by cash used to finance capital expenditures. Net
cash used by Terex for investing activities of $94.8 million in 1992
principally reflects cash used to finance the Clark Acquisition, net of cash
acquired, and capital expenditures. Cash flow from investing activities in
1992 also included $4.6 million of payments on behalf of and advances to
Fruehauf. Proceeds from the sale of surplus assets in Germany in 1993 were
approximately $10.1 million. Capital expenditures were $8.5 million during the
nine months ended September 30, 1993, including approximately $5.3 million to
prepare production lines in the U.S. and Germany for the production of lift
trucks formerly produced in Korea, and $5.4 million during 1992. The purchase
price of the Clark Acquisition was approximately $91.1 million, which was
funded by $85 million in cash and a $6.1 million seller note. In connection
with the Clark Acquisition, the Company established reserves for restructuring
costs expected to be incurred in connection with the Company's plans to
reorganize the operations of Clark by consolidating manufacturing and
distribution operations. As of December 31, 1992, the remaining reserves
totalled approximately $30.0 million, substantially all of which have been
expended during 1993.
Terex generated cash of $10.7 million and $89.3 million from financing
activities during the nine months ended September 30, 1993 and the year ended
December 31, 1992, respectively. As described above, the Company entered into
the Lending Facility in May 1993 and had borrowed $18.7 million under this
facility as of September 30, 1993. In conjunction with the Clark Acquisition
in 1992, the Company refinanced a major component of its previously outstanding
bank debt (the "Refinancing"). The Refinancing included the issuance of the
Secured Notes and establishment of the $60 million Bank Lending Agreement.
Proceeds from the issuance of the Secured Notes were used for the cash portion
of the Clark Acquisition purchase price ($85 million), for the settlement of
all amounts outstanding under its previous credit facility ($58 million), and
for working capital and transaction costs. The Secured Notes are secured by
substantially all inventory and property, plant and equipment of the Company's
Material Handling and Heavy Equipment Segments, as well as the Company's
investment in Fruehauf common stock. The Subordinated Notes holders have a
secondary secured position in certain of the Company's assets.
In connection with the sale of the Secured Notes and obtaining the consent of
the holders of the Company's existing Subordinated Notes to modification of the
Subordinated Notes, the Company issued 658,409 common stock appreciation rights
("SAR's"). As of September 30, 1993 there were 639,794 SAR's outstanding. Of
the outstanding SAR's, 567,000 may be exercised at the option of the holder
thereof at any time on or after January 27, 1993, but not later than July 31,
1996, and the remaining 72,794 SAR's may be exercised not later than July 1,
1997. The SAR's entitle the holder to receive, in cash, an amount equal to the
market appreciation in the Company's Common Stock between $11.00 per share,
subject to adjustment, and the average price per share for the 30 consecutive
trading days prior to the date of exercise.
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, as well as
place limitations on change in control of Terex.
Contingencies and Uncertainties
In their opinion on the Company's Consolidated Financial Statements for
December 31, 1992 included in this Prospectus, the Company's independent
accountants have indicated that there are matters, including recurring losses
from operations and a net capital deficiency, lack of availability of
additional borrowings under the Company's Bank Lending Agreements and
uncertainties with respect to future compliance with covenants of certain other
debt agreements, which raise substantial doubt about the Company's ability to
continue as a going concern. As described above under "Liquidity and Capital
Resources," the Company has entered into the Lending Facility which provides up
to $20.0 million in revolving credit loans and guarantees of letters of credit,
and has arranged similar financing for TEL. The Company also completed the
private placement of Preferred Stock and Warrants, which provided aggregate net
proceeds to the Company of $27.2 million for working capital. The Company is
also generating cash through the sale of excess inventory in the Heavy
Equipment Segment, deferring capital expenditures, selling certain real estate
and other assets and continuing corporate wide cost containment efforts.
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.
Terex has facilities at numerous geographic locations, which are subject to a
range of federal, state, local and foreign environmental laws and regulations.
Compliance with these laws has, and will, require expenditures on a continuing
basis. See "Business -- Environmental Considerations."
As described in "Business -- Environmental Considerations," Fruehauf has
identified environmental exposures at a number of Superfund and other sites,
and is currently participating in administrative or court proceedings involving
a number of these sites. Many of the proceedings are at a preliminary stage,
and the total cost of remediation, the timing and extent of remedial actions
which may be required, and the amount of Fruehauf's liability, if any, with
respect to these sites can not presently be estimated. The Company believes
that it could have contingent responsibility for certain of Fruehauf's
liabilities with respect to Fruehauf's environmental matters if Fruehauf fails
to discharge its obligations, but only to the extent that such liabilities
arose during the time period during which Terex was the controlling stockholder
of Fruehauf. The Company believes 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.
Foreign Operations
The Heavy Equipment Segment of the Company operates its TEL subsidiary in
Motherwell, Scotland. Equipment manufactured by TEL is distributed in the
United States and around the world. Unit Rig maintains nine owned or leased
locations outside of the United States for parts distribution. The Heavy
Equipment Segment also imports certain new equipment from Japan for sale in the
U.S.
The Material Handling Segment operates divisions in Mulheim, Germany and Seoul,
Korea. The German facility manufactures forklifts for sale in the European
market. The Seoul facility primarily manufactures light IC transaxles which
are shipped to the Lexington, Kentucky facility, completed and sold in the U.S.
Fruehauf's international operations include affiliates and licensees located
worldwide.
Export sales from the Company's domestic operations were $92.3 million, $83.3
million, and $117.3 million in 1992, 1991, and 1990, respectively. See Note P
- -- "Business Segment Information" in the Company's Consolidated Financial
Statements for December 31, 1992.
Recent Pronouncements
In November 1992, the FASB issued SFAS No. 112, "Employers' Accounting for
Postemployment Benefits." This pronouncement establishes accounting and
reporting for the estimated cost of benefits provided by an employer to former
or inactive employees after employment but before retirement. In most cases,
the Company believes that it already accounts for such benefits on an accrual
basis. Therefore, the impact of adoption is not anticipated to have a
significant effect on the Company's financial position or results of
operations. The Company will adopt this standard during the first quarter of
1994.
BUSINESS
General
Terex is a global provider of capital goods and equipment used in the mining,
commercial building, infrastructure, manufacturing and construction industries.
Through its Heavy Equipment Segment, the Company designs, manufactures and
markets heavy-duty, off-highway earthmoving, construction, lifting, material
handling and aerial lift equipment, and related components and replacement
parts. Such products are used primarily by construction, mining, logging,
industrial and government customers in the building of roads, dams and
commercial and residential buildings; supplying coal, minerals, sand and
gravel; and the handling of materials in the scrap, refuse and lumber
industries.
Through its Material Handling Segment, the Company is engaged in designing,
manufacturing and marketing a complete line of internal combustion and
electric lift trucks, electric walkies, automated pallet trucks, industrial tow
tractors and related replacement parts. Material Handling Segment products are
used in material handling applications in a broad array of manufacturing,
distribution and transportation industries. The Material Handling Segment
consists of CMHC and certain affiliate companies which were acquired by the
Company on July 31, 1992 from Clark Equipment Company pursuant to the Clark
Acquisition.
Terex also owns an approximate 19.1% equity interest in Fruehauf. Fruehauf
designs, manufactures and markets truck trailers, making a wide range of van,
refrigerated, platform, tank, dump trailer and other models, and related parts
and accessories. Such products are used principally in the trucking and
transport industries. This business was acquired in 1989.
For financial information about the Company's industry and geographic segments,
see Note P -- "Business Segment Information" of the Company's Consolidated
Financial Statements for December 31, 1992 as well as "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.
In an effort to reduce costs and facilitate administrative functions, the
Company's administrative office in Green Bay, Wisconsin was closed during the
second quarter of 1993 and relocated to offices in Westport, Connecticut.
Material Handling Segment
Clark was acquired by the Company on July 31, 1992. Clark is a leading North
American and European designer, manufacturer and marketer of a complete line of
IC and electric lift trucks, electric walkies, automated pallet trucks,
industrial tow tractors and related replacement parts. Clark's U.S. operations
are located in Lexington, Kentucky, Danville, Kentucky and Horsham,
Pennsylvania. Clark's international operations are located in Mulheim-Ruhr,
Germany and Seoul, Korea. Clark also owns a state-of-the-art training and
research center in Lexington, Kentucky. Clark's products are distributed
through an established global dealer network which includes more than 440
locations. Clark has what management believes is the largest installed fleet
in North America, with over 250,000 units. It is estimated that in excess of
320,000 Clark trucks are presently in operation worldwide. Historically, 80%
of Clark's revenues have been derived from new product sales and 20% of
revenues have been derived from supplying replacement parts to the lift truck
aftermarket. Clark and its independent dealers sell to a diversified base of
customers in a variety of industries. Clark has 108 independent North
American dealers who operate 252 outlets, with all 252 dealer outlets providing
both sales and servicing. Clark's European distribution network consists of
106 independent dealers and three company-owned dealers operating in 52
countries.
Clark products are sold through a system which enables customers to design a
truck which meets their particular materials handling needs. Customers can add
attachments such as container handlers, side shifters, roll clamps, block
handlers, carton clamps, push-pulls (slip-sheet) and fork positioners. Clark
also offers advanced electronics and software which enables on-line inventory
control and instantaneous truck diagnosis. Clark and its dealers sell to a
diversified customer base with no single customer accounting for more than 2%
of Clark's revenues.
Clark currently offers 116 basic truck designs within six major product lines:
light IC trucks (1.0 to 5.0 tons), heavy IC trucks (5.5 to 47.5 tons),
narrow-aisle and very narrow-aisle trucks, electric counterbalanced trucks (1.3
to 6.0 tons), electric walkies and tow tractors.
Light IC trucks are used for general warehousing needs and are generally
powered by liquid propane and well suited for manufacturing and distribution
applications which require a high degree of maneuverability. Heavy IC trucks
are specialty products designed for use in more demanding situations such as
heavy manufacturing or container handling applications. Narrow-aisle and very
narrow-aisle trucks provide solutions for high density storage needs and
operate in six-to-eight foot aisles and reach heights of more than 30 feet.
Electric counterbalanced trucks are designed for indoor use in warehousing,
manufacturing, distribution and other applications and are powered by a
rechargeable electric battery. For environmental reasons, electric trucks are
becoming more popular. Electric walkies are generally used in transporting and
order-selecting. Tow tractors are units designed to pull one or more trailers.
The largest market for tow tractors is for airport baggage handling.
The CLARK tradename is the leading North American brand of IC and electric lift
trucks, with major competitive brands offered by Hyster-Yale, Toyota,
Caterpillar, Crown and Raymond. Clark's major European competitors are Linde
Group, Toyota, Fiat, Jungheinrich, Hyster-Yale and Caterpillar.
Clark's major suppliers include Samsung, Prime Mover, Mitsubishi, Hydroelectric
Lift Truck, General Electric, Kurdziel Iron and Lufkin Industries. Current and
potential suppliers are evaluated on a regular basis on their ability to meet
Clark requirements and standards.
Following the Clark Acquisition in July 1992, Clark began implementing
initiatives intended to reduce its manufacturing and operating costs. These
initiatives have included and will continue to include consolidation of
engineering, manufacturing and parts facilities. Clark transferred production
of its light IC lift truck chassis from Korea to Lexington, Kentucky during
1993.
Heavy Equipment Segment
Terex Division and Terex Equipment Limited
The historical business of Terex Division and TEL evolved during more than 25
years of ownership by General Motors Corporation prior to 1981. The Terex
Division and TEL are jointly hereinafter referred to as the "Terex Business."
Terex Division's marketing efforts in the United States serve the needs of
North, Central and South America, while TEL serves the remainder of the
international market. TEL manufactures the products of the Terex Business.
There are three principal product lines of the Terex Business: off-highway
rigid and articulated haulers, scrapers and wheel loaders. A "hauler" is an
off-road dump truck with a capacity in excess of 25 tons. Haulers produced in
the Terex Business have capacities up to 120 tons. A "scraper" is an off-road
vehicle, commonly referred to as an "earth mover," that loads, moves and
unloads large quantities of soil for site preparations, including roadbeds. A
"wheel loader" is a vehicle that loads materials onto trucks, conveyors and
similar equipment. These products perform a wide range of earthmoving
functions in open pit mining and in many types of heavy construction, including
highway, dam and waterway construction; commercial and industrial site
preparation; general land improvement and real estate development; and
structural renovation and replacement. The Terex Business's main competitors
are Caterpillar, VME Group, Komatsu and Dresser.
The Company has substantially restructured the Terex Business operations by:
(i) eliminating all manufacturing operations at the Hudson, Ohio facility that
it formerly leased; (ii) consolidating virtually all manufacturing operations
into TEL's manufacturing facility in Motherwell, Scotland; and (iii) selling
excess inventory. The Company has increased production of the Terex Business
since its acquisition in 1987 without expanding the Motherwell facility or
significantly increasing administrative costs.
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. The joint venture began producing units in late 1990.
Unit Rig
On July 15, 1988, the Company purchased certain domestic and foreign assets and
operations of Unit Rig & Equipment Co. ("URECO"), primarily through Unit Rig,
Inc., a wholly-owned subsidiary of the Company. Unit Rig, Inc. was
subsequently merged into Terex, and now operates as the Unit Rig Division.
Unit Rig is headquartered in Tulsa, Oklahoma.
URECO pioneered the development of the diesel electric drive, rear dump hauling
truck for use in open pit mining operations. Extensive experience acquired in
applications of high horsepower diesel engines and electric machinery on
drilling rigs encouraged URECO to develop a new line of mining trucks. The
trucks' power came from a diesel engine driving a generator which, in turn,
provided power for individual electric motors in each of the rear wheels. The
prototype truck was completed in 1960 and the first production models entered
service in 1963. The truck gained market share steadily because of its greater
capacity and reliability over conventional mechanical power-train trucks.
While mechanical trucks were limited by the capacity of their transmissions and
axles to loads of 65 tons, Unit Rig's trucks could at that time carry loads up
to 85 tons. Unit Rig's current LECTRA HAUL product line consists of a series
of rear dump hauler trucks, with current payload capacities ranging from 100 to
240 tons, and bottom dump haulers with capacities of 180 to 270 tons.
In 1984, URECO purchased the Dart line of wheel loaders and mechanical drive
haulers. This product line consists of the Dart 600C mechanical drive wheel
loader which has a bucket capacity up to 23 cubic yards and rear dump trucks
ranging in capacity from 85 to 130 tons. The Dart line also includes a
tractor-trailer bottom dump hauler with capacities from 120 to 160 tons.
The present principal markets for Unit Rig products are copper, gold, coal and
iron mines. Currently, Unit Rig's major customers are mining companies in
North and South America, Africa, Australia and other countries overseas, with
Unit Rig's foreign sales, including those in Canada, accounting for over 70% of
its revenues.
Unit Rig's largest competitors are Caterpillar, Komatsu and Dresser.
Koehring Cranes & Excavators
Koehring Cranes & Excavators, Inc. was established as a wholly-owned subsidiary
of the Company to acquire certain assets and operations included in the
construction equipment group of AMCA International Limited. This subsidiary
was merged into Terex and now operates as the Koehring Cranes & Excavators
Division. Koehring, headquartered in Waverly, Iowa, designs, manufactures and
markets a broad line of hydraulic excavators and hydraulic telescoping cranes
sold under the well recognized trade names of KOEHRING and LORAIN. Koehring's
hydraulic excavators are used for certain sewer, water and underground
excavation applications, as well as certain specialty applications in the
logging and scrap industries. Hydraulic telescoping cranes are primarily used
for construction and industrial applications.
Koehring's largest competitors in the hydraulic excavator market are Komatsu
and Caterpillar. Koehring has two principal competitors in the hydraulic crane
market -- Grove Manufacturing and PPM Cranes.
Mark Industries
On December 10, 1991, the Company acquired substantially all operating assets
of Mark Industries. Mark was subsequently merged into Terex and operates as a
division of Terex. Mark was relocated to the Koehring facilities in Waverly,
Iowa during 1992 in order to more effectively utilize existing capabilities and
manufacturing facilities at the Waverly location. Mark is engaged in the
manufacture and sale of aerial lift equipment: scissor lifts, boom lifts and a
full line of replacement parts. Scissor lifts and boom lifts are used for
repair, maintenance and construction of buildings, manufacturing facilities and
equipment. These lifts are used for a wide spectrum of industrial
applications, such as installation and repair of electrical and plumbing
fixtures, drywall and ceiling installation, cleaning, repair and painting of
production equipment, refineries, chemical plants and aircraft maintenance, in
addition to common construction tasks such as siding, insulation and structural
member installation.
Mark's largest competitor in the aerial lift industry is JLG Industries.
Northwest Engineering Company
The Company's Northwest Engineering Company ("Northwest Engineering"), is
located in Waverly, Iowa, and is operated by Koehring. The Company continues
to sell the products that established it in the construction machinery industry
over 70 years ago. Northwest Engineering's products are considered
"duty-cycle" machines, designed and constructed for constant heavy-duty
operation under demanding conditions in applications such as scrap processing,
material handling, dredging and aggregate mining, using magnets, clam shell
buckets and drag bucket options. Dragline operations usually consist of a
large scoop type bucket being dragged across the bottom of a pit to load the
bucket with sand, gravel or other material. The material is then either
stockpiled for later use or sale or loaded for transportation. Clamshell
operations consist of a large bucket with two halves that can be opened or
closed with use of a cable. Material can be mined, moved to or from a
stockpile, or loaded to or from transportation utilizing a clamshell. The sale
of replacement parts for Northwest Engineering products constitutes an
important part of the Northwest Engineering business. Because of the
durability and relatively high cost of replacing such machines, many users seek
to repair rather than replace them.
Northwest Engineering's competitors include Link Belt, American and Manitowoc.
BCP Construction Products
The Company's BCP Construction Products Division, located in Waverly, Iowa and
operated by Koehring, is engaged in the sale of replacement parts for
construction machinery formerly produced by Bucyrus-Erie Company
("Bucyrus-Erie"). A significant portion of the Company's acquisition of
certain assets of the Construction Machinery Division of Bucyrus-Erie (the
"Bucyrus Acquisition") related to this replacement parts business. For many
years, Bucyrus-Erie produced a variety of construction machinery products,
including hydraulic truck cranes, draglines, clamshells and other products
which continue in active use today.
Additionally, the Company acquired the right to produce the DYNAHOE in the
Bucyrus Acquisition. The DYNAHOE models 290K and 490K backhoe / loader will
dig up to 19 feet, which is the deepest in the industry. The DYNAHOE is used
primarily for underground excavation in connection with water, sewer and
electrical utility installations. The DYNAHOE offers a major benefit in large
metropolitan markets because, as opposed to excavators, it operates without a
tail swing, the absence of which permits the DYNAHOE to operate in restricted
space. Similar, although smaller, excavating units are produced by
competitors such as J. I. Case Company (a subsidiary of Tenneco), John Deere
and Caterpillar.
Fruehauf Trailer Corporation
On July 14, 1989, the Company, through Fruehauf, acquired certain assets and
assumed certain liabilities related to the trailer and maritime businesses of
Fruehauf Corporation. Fruehauf is a Delaware corporation which, prior to July
1991, was wholly-owned by Terex Holdings Corporation ("Terex Holdings"), a
Delaware corporation which, in turn, was wholly-owned by the Company. In July
1991, Fruehauf completed a recapitalization and consummated the Fruehauf IPO.
Because Terex Holdings and Fruehauf were wholly-owned prior to the Fruehauf
IPO, the Company consolidated the financial results of Fruehauf in its
financial statements. Following the Fruehauf IPO and as of December 31, 1991,
the Company owned approximately 42% of the outstanding Fruehauf common stock,
and retained voting control of more than 50% of Fruehauf's outstanding common
stock through a voting trust with the Company's principal stockholder and
certain individuals, who together owned approximately 21% of Fruehauf's
outstanding common stock. As a result, the Company consolidated Fruehauf's
financial results with those of the Company for financial reporting purposes
during 1991, and the financial interests of Fruehauf's minority stockholders
were reflected on the financial statements of the Company. The voting trust
terminated during 1992 and, as a result of the Fruehauf Restructuring described
below, the Company's direct ownership of Fruehauf was reduced to approximately
26% and, accordingly, the Company accounted for its ownership interest in
Fruehauf using the equity method in 1992 and 1993. The Company's consolidated
financial statements contained in this Prospectus are presented giving effect
to the deconsolidation of Fruehauf as of January 1, 1992.
Fruehauf is headquartered in Southfield, Michigan and is a United States
manufacturer and marketer of truck trailers and related parts and has an
international presence through its foreign license arrangements and export
sales. Fruehauf currently markets its products through a distribution network
of 32 company-owned branches dedicated to new trailer and replacement part
sales, purchasing and selling used trailers, and performing maintenance and
repair services, and a network of approximately 250 independent dealers. In
addition, Fruehauf currently owns various interests in foreign trailer
manufacturers, including an equity interest in SESR, Europe's largest trailer
manufacturer, as well as interests in trailer manufacturers in Japan, South
Africa and Mexico. Fruehauf generates royalty income from licensing trademark
and patent rights to foreign trailer manufacturers, including those in which
Fruehauf has an equity interest.
On August 20, 1993, Fruehauf entered into agreements with its existing lenders,
a new lender and a number of investors which resulted in a restructuring of
existing debt, and provided for a new $25.0 million credit facility and $20.5
million of new equity (the "Fruehauf Restructuring"). The $25.0 million of new
credit is in the form of an inventory and receivables revolving credit facility
provided by Congress Financial Corporation. The $20.5 million of new equity
arose from the private placement of approximately 7,841,000 shares of Fruehauf
common stock at $1.50 per share and approximately $8,783,000 of convertible
subordinated debt. The convertible subordinated debt has since been converted
into approximately 5,855,000 additional shares of Fruehauf common stock. As
part of the restructuring, Terex agreed with Fruehauf to accept approximately
2,251,000 shares of Fruehauf common stock in satisfaction of approximately
$13.5 million of indebtedness of Fruehauf owed to Terex, which shares were
issued to the Company on December 23, 1993. As a result of the restructuring
and financing transactions, Terex's ownership of Fruehauf decreased to
approximately 26%. In December 1993 the Company sold 1,000,000 shares of
Fruehauf common stock and in February 1994 the Company sold an additional
1,000,000 shares of Fruehauf common stock, reducing its ownership of Fruehauf
to approximately 19.1%. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
The Fruehauf Restructuring was completed following a period of severe liquidity
constraints which adversely affected Fruehauf's operations. The Fruehauf
Restructuring was consummated to fund its turnaround plan (the "Turnaround
Plan"). Key elements of the Turnaround Plan which Fruehauf is implementing
include reductions of fixed costs to lower Fruehauf's break-even levels,
obtaining access to sufficient working capital and vendor credit and
restructuring of bank credit facilities. Actions contemplated by the
Turnaround Plan include further reduction of excess manufacturing capacity,
deemphasis of vertical integration and rationalization of Fruehauf's management
infrastructure to levels more appropriate for Fruehauf's current business
volume.
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 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. Fruehauf has received notice that it is considered a
"Potentially Responsible Party" under the Comprehensive Environmental Response,
Compensation, and Liability Act or other similar state laws at approximately 20
Superfund sites and has also identified environmental exposures at
approximately 26 other sites not designated as Superfund sites. The Company
believes that it could have contingent responsibility for certain of Fruehauf's
liabilities with respect to Fruehauf's environmental matters if Fruehauf fails
to discharge its obligations, to the extent that such liabilities arose during
the time period during which Terex was the controlling stockholder of Fruehauf.
The Company believes 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.
Research and Development
The Company maintains an engineering staff at several of its locations which
designs new products and improvements in existing product lines. Such costs
incurred in the development of new products or significant improvements to
existing products amounted to $11.8 million, $6.7 million and $4.0 million in
1993, 1992 and 1991, respectively.
Materials
Principal materials used by the Company in its various manufacturing processes
include steel, castings, engines, tires, 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 such materials are
normally available from multiple suppliers.
Seasonal Factors
Given that the Company markets a large portion of its products in North America
and Europe, its sales of heavy equipment 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 adverse effect of inclement winter weather. However,
sales of heavy equipment to the mining industry, as well as sales of lift
trucks, are generally less affected by such seasonal factors.
Distribution
The Heavy Equipment Segment, other than Unit Rig, markets its products, both
original equipment and repair parts, generally through a worldwide dealership
network. Unit Rig distributes its products and services directly to customers
through its own distribution system.
The Company'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.
Clark markets both original equipment and parts through a worldwide dealer
network. Clark dealers generally market the full Clark product line and
maintain comprehensive service capabilities. Clark dealers do not offer
products competitive with any Clark product. Clark operates a dealer service
organization designed to coordinate sales and promotional activities, provide
ongoing dealer training and facilitate dealer communications.
Backlog
The Company's backlog as of December 31, 1993 and 1992 was as follows:
December 31,
1993 1992
(in millions of dollars)
Heavy Equipment $ 80.7 $ 85.4
Material Handling 152.7 83.2
Total $ 233.4 $ 168.6
As described above under "Material Handling Segment," Clark was acquired by the
Company on July 31, 1992.
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
pertain primarily to new equipment orders. Parts orders are primarily filled
on an as-ordered basis.
Competition
The Company is recognized as a significant competitor in the market for cranes,
scrapers, large capacity haulers, and aerial lift equipment, but the Company is
not a dominant manufacturer in the heavy equipment industry. The heavy
equipment industry is dominated in most segments by large, diversified firms
with much broader product lines and greater financial resources such as
Caterpillar, Dresser Industries and Komatsu. The Company also competes with a
number of specialty firms. The products of such specialty firms generally
compete directly with one or more of the Company's product lines.
Clark produces the leading lift truck brand in North America, although the
brand names of Hyster and Yale combined produce more lift trucks annually.
Other major North American competitors include Toyota, Caterpillar and Komatsu
in both IC and electric riders, and Crown and Raymond in electric riders alone.
In Europe, Clark competes with Linde Group, the European market leader, as well
as Hyster-Yale, Toyota and Fiat. Clark also competes with a number of
specialty firms.
Patents, Licenses and Trademarks
Several of the trademarks and trade names of the Company, in particular the
TEREX, KOEHRING, LORAIN, UNIT RIG, MARKLIFT, DYNAHOE, CLARK, DREXEL, and
POWRWORKER trademarks, are important to the business of the Company. The
Company owns and maintains trademark registrations in countries where it
conducts business, and monitors the status of its trademark registrations to
maintain them in force and to renew them as required. The Company also takes
steps, including legal action, to protect its trademark and trade name rights
when circumstances warrant such action.
Employees
As of December 31, 1993, the Company had approximately 2,930 employees.
Approximately 40% of the Company's employees are represented by labor unions
which have entered into various separate collective bargaining agreements with
the Company. Although the Company has experienced labor strikes in the past,
the Company considers its relations with its personnel to be good.
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 P -- "Business Segment
Information" in the Notes to the Consolidated Financial Statements for December
31, 1992.
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 * Office 9,400 sq. ft.
The Heavy Equipment Segment
Terex
(Distribution Center) Southaven, Mississippi *
Warehouse and light
manufacturing
505,000 sq. ft.
Unit Rig ** Tulsa, Oklahoma Manufacturing and office
325,000 sq. ft.
Koehring Waverly, Iowa Manufacturing, warehouse and
office 383,000 sq. ft.
Koehring Waterloo, Iowa Manufacturing and office
66,000 sq. ft.
TEL Motherwell, Scotland Manufacturing, warehouse and
office 714,000 sq. ft.
The Material Handling Segment
CMHC Lexington, Kentucky * Manufacturing, warehouse and
office 372,600 sq. ft.
CMHC Lexington, Kentucky Training and research and
development 43,000 sq. ft.
CMHC Danville, Kentucky Manufacturing, utility and
office 84,800 sq. ft.
Drexel Industries *** Horsham, Pennsylvania Manufacturing 55,000 sq. ft.
CMHC Danville, Kentucky**** Manufacturing, utility and
office 84,800 sq. ft.
CMHC Lexington, Kentucky* Office 64,600 sq. ft.
CMHC Lexington, Kentucky* Manufacturing, warehouse and
test facilities
59,500 sq. ft.
CMHC Chicago, Illinois* Office 9,100 sq. ft.
Clark Germany Mulheim-Ruhr, Germany Manufacturing, engineering,
power generation,
maintenance
and office
255,430 sq. ft.
Clark Germany Saarn, Germany Warehouse 430,000 sq. ft.
Clark Forklift Korea
Incorporated Seoul, South Korea Manufacturing and office
13,764 sq. ft.
Clark Forklift Korea
Incorporated Banwael, Korea Manufacturing and office
40,000 sq. ft.
* This facility is either leased or subleased by the indicated entity.
** 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.
*** Drexel Industries, Inc. is an indirect subsidiary of Terex and an
affiliate of CMHC.
**** To be closed in the second quarter of 1994 and held for sale.
Clark also operates seven sales and service branch locations, all of which are
leased. The branch facilities consist of office and service space and
generally range in size from 1,500 to 3,100 square feet per facility. Such
branch facilities are suitable and adequate for Clark's use.
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.
Legal Proceedings
In October 1992, a Class Action complaint was filed purportedly on behalf of
all persons who purchased Terex Common Stock during the period from January 2,
1990 through October 5, 1992 (the "Period") against the Company and its
Chairman. This suit sought unspecified compensatory and punitive damages and
alleged, among other things, that (i) the Company engaged in fraudulent
accounting practices, improper reporting of taxes and the illegal manufacture
of missile launchers for Iraq and (ii) the Company's Annual Report to
Shareholders and its Commission reports on Forms 10-K and 10-Q issued during
the Period contained materially false figures for assets, liabilities and/or
shareholders' equity. A motion to dismiss the action filed by the Company was
granted in September 1993. The plaintiff was granted an extension of time to
file an amended complaint; however, the plaintiff determined not to proceed
with the action. As a result, this action is no longer pending.
In December 1992, a separate Class Action complaint was filed purportedly on
behalf of all persons who purchased Fruehauf common stock during the period
from June 28, 1991 through December 4, 1992 against Fruehauf, the Company,
certain of Fruehauf's officers and directors, namely, Randolph W. Lenz,
Marvin B. Rosenberg, Arthur E. Rowe, G. Chris Andersen and Raymond J. Dempsey,
and certain of the underwriters of the Fruehauf IPO, namely, PaineWebber
Incorporated, Alex. Brown & Sons, Incorporated and Wertheim Schroeder & Co.,
Incorporated, in the United States District Court, Eastern District of
Michigan, Southern Division, seeking unspecified compensatory and punitive
damages. The complaint alleges, among other things, that, in connection with
the Fruehauf IPO, the defendants misrepresented Fruehauf's liquidity and the
status of compliance with Fruehauf's credit facilities at the time of the
Fruehauf IPO. This action is at a very early stage; however, the Company
believes that the claims are without merit and that they have valid defenses to
the claims made. The Company has not recorded any loss provision for this
litigation.
The Company is involved in other various legal proceedings, including product
liability and workers' compensation liability matters, which have arisen in the
normal course of its operations. Management believes that the final outcome of
such matters will not have a material adverse effect on the Company's
consolidated financial position.
MANAGEMENT
Executive Officers and Directors
The following individuals are currently directors of the Company:
Positions and First Year
Name Age Offices with Company Elected Director
Randolph W. Lenz 47 Chairman of the Board, 1983
Chief Executive Officer
and Director
Ronald M. DeFeo 41 President, Chief Operating 1993
Officer and Director
Marvin B.
Rosenberg 53 Senior Vice President, 1992
General Counsel, Secretary
and Director
G. Chris Andersen 55 Director 1992
Bruce I. Raben 40 Director 1992
David A. Sachs 34 Director 1992
Adam E. Wolf 80 Director 1983
Mr. Lenz joined the Company as Chairman of the Board and a director in 1983.
Mr. Lenz also served as Chairman of the Board and a director of Fruehauf from
its acquisition in 1989 until August 1993. He joined Terex's predecessor,
Northwest Engineering, as Chairman of the Board and a director in 1983 and
continues to serve in such capacities with Terex. In addition, Mr. Lenz has
also been the Chairman of the Board and a director of CBC Bancorp, Inc., a bank
holding company, since 1992.
Ronald M. DeFeo became a director of the Company in 1993 and was appointed
President and Chief Operating Officer of the Company on October 4, 1993. He
has also served as the President of Clark since May 1993. Prior to joining
Terex on May 1, 1992 and serving as President of Terex's Heavy Equipment
Segment, Mr. DeFeo was a Senior Vice President of J.I. Case Company, the farm
and construction equipment division of Tenneco Inc., and also served as a
Managing Director of Case Construction Equipment throughout Europe. While at
J.I. Case, Mr. DeFeo was also a Vice President of North American Construction
Equipment Sales and General Manager of Retail Operations.
Mr. Rosenberg was appointed a director of the Company in 1992 and was appointed
as Senior Vice President of the Company effective January 1, 1994. He has
served as Secretary and General Counsel of the Company since 1987. Mr.
Rosenberg was also appointed a director of Fruehauf in 1992 and served as
Secretary of Fruehauf since it was organized in March 1989 until August 1993.
Since 1987, he has also been General Counsel of KCS Industries, L.P., a
Connecticut limited partnership ("KCS"), an entity that, until December 31,
1993, provided administrative, financial, marketing, technical, real estate and
legal services to the Company and its subsidiaries. Previously, for 15 years,
he had been General Counsel for, and a partner of, Cambridge Research and
Development Group, a company engaged in the commercialization of new technology
and the acquisition and operation of industrial companies.
Mr. Andersen was appointed director of the Company in 1992 and served as a
director of Fruehauf from July 1991 until August 1993. Mr. Andersen has been
Vice Chairman of PaineWebber Incorporated ("PaineWebber") since March 1990.
Prior to joining PaineWebber, Mr. Andersen was Managing Director for nine years
of Drexel Burnham Lambert Incorporated ("Drexel Burnham"), an investment
banking firm which filed for protection under Chapter 11 of the United States
Bankruptcy Code in 1990. Mr. Andersen is a director of Sunshine Mining
Company.
Mr. Raben was appointed director of the Company in 1992. Since 1990, Mr. Raben
has been an Executive Vice President and Co-Head of the Corporate Finance
Department at Jefferies. Mr. Raben was employed by Drexel Burnham from 1978 to
1990 where he served in various capacities including Managing Director.
Mr. Sachs was appointed director of the Company in 1992 and served as a
director of Fruehauf from November 1992 to March 1993. Mr. Sachs is employed
at TMT-FW, Inc., an affiliate of Taylor & Co., a private investment firm based
in Fort Worth, Texas. TMT-FW, Inc. is one of two general partners of EBD,
L.P., which is the sole general partner of The Airlie Group L.P. ("Airlie").
At TMT-FW, Inc., Mr. Sachs is engaged in the investment activities of both
Airlie and Taylor & Co. Prior to joining TMT-FW, Inc. in 1990, Mr. Sachs was
employed by Columbia Savings and Loan Association from 1984 to 1990 where he
served in various capacities, including Executive Vice President.
Mr. Wolf became a director of the Company in 1983. Mr. Wolf has been
principally self-employed as an attorney throughout his career. He has
previously served on several boards of directors, including those of a
telephone company, a bank and a hospital.
The following table sets forth, as of January 1, 1994, the respective names and
ages of the Company's executive officers indicating all positions and offices
held by each such person.
Name Age Positions and Offices Held
Randolph W. Lenz 47 Chairman of the Board and
Chief Executive Officer
Ronald M. DeFeo 41 President and Chief Operating
Officer
David J. Langevin 42 Executive Vice President
Marvin B. Rosenberg 53 Senior Vice President, General
Counsel and Secretary
Ralph T. Brandifino 48 Senior Vice President and Chief
Financial Officer
For information regarding Messrs. Lenz, DeFeo and Rosenberg, refer to the table
listing directors above.
David J. Langevin became Executive Vice President of the Company effective
January 1, 1994 and had been appointed Acting Chief Financial Officer of the
Company on March 9, 1993. He has been employed as a Vice President of KCS
since 1988. Prior to KCS, Mr. Langevin was an employee of Ernst & Whinney
(currently Ernst & Young) where he became a partner in 1986.
Ralph T. Brandifino was appointed to the position of Senior Vice President and
Chief Financial Officer on December 6, 1993. Mr. Brandifino was previously the
Chief Financial Officer at the Long Island Lighting Company from 1987 through
1993, previous to which he served as Chief Financial Officer at Chicago
Pneumatic Tool Company, a capital goods manufacturer.
Executive Compensation
Summary Compensation Table
The Summary Compensation Table below shows the compensation for the past three
fiscal years of the Company's Chief Executive Officer and its executive
officers with 1993 earned qualifying compensation in excess of $100,000.
Annual Compensation Long-Term
Compensation
Name and Options/ All Other
Principal Year Salary Bonus Other SARS Compensation
Position ($) ($) ($) (#) ($)
Randolph W. Lenz, 1993 483,508 - - - -
Chairman of 1992 486,000 - - - -
the Board and 1991 473,262 - - - -
Chief
Executive
Officer(1)
Ronald M. DeFeo, 1993 237,500 60,000 214,604(5) 10,000 3,148(6)
President and 1992 135,385 66,666 - 20,000 -
Chief Operating 1991 - - - - -
Officer (2)
Ralph T. 1993 16,913 - 648(7) - -
Brandifino 1992 - - - - -
Senior Vice 1991 - - - - -
President
and Chief
Financial
Officer (3)
Gary D. Bello, 1993 125,000 - - - 284,664 (8)
President, 1992 122,500 125,100 - - 710 (6)
Material 1991 - - - - -
Handling
Segment (4)
(1) In conjunction with the proposed termination of the Company's management
agreement with KCS, Mr. Lenz, together with Messrs. Langevin and Rosenberg (who
became employees of the Company on January 1, 1994), will receive certain
securities of the Company, subject to the approval of the Company's
stockholders. See "Certain Transactions."
(2) Mr. DeFeo joined Terex on May 1, 1992.
(3) Mr. Brandifino joined Terex on December 6, 1993.
(4) Mr. Bello joined Terex as an executive officer on July 31, 1992 when the
Company completed the Clark Acquisition. Mr. Bello terminated his service with
the Company effective May 7, 1993. CMHC and Mr. Bello entered into a
termination agreement which provided for a lump sum termination payment to Mr.
Bello by CMHC of $300,000 and which provided Mr. Bello with certain benefits,
including medical benefits, life insurance coverage, use of an automobile and
outplacement services, through May 7, 1994.
(5) Relocation payments.
(6) Company's matching contribution to defined contribution plan account.
(7) Automobile allowance.
(8) Includes $281,538 termination payment (net of certain reimbursements to
the Company) and $3,126 Company's matching contributions to defined
contribution plan account.
Option Grants in 1993
The table below summarizes options granted during 1993 to the named executive
officers listed in the Summary Compensation Table.
Potential Realizable
Value at Assumed
Annual Rates
of Stock Price
Appreciation for
Individual Grants Option Term
Name Options % of Total Exercise Expiration 5%($) 10%($)
Granted (#) Options Price Date
Granted ($/SH)
to
Employees
Randolph
W. Lenz - - - - - -
Ronald M.
DeFeo 10,000 42% $8.375 11/30/03 52,670 133,476
Ralph T.
Brandifino - - - - - -
Gary D.
Bello - - - - - -
In May 1986, the stockholders approved an incentive stock option plan covering
key management employees. As further amended by action of the stockholders and
the Board of Directors, 395,354 shares of the Company's Common Stock were
available for purchase pursuant to options granted or to be granted under the
plan. The exercise price approximates the current market price at the time of
the grant. Employees vest in options granted ratably over three years from the
date of grant.
Aggregated Option Exercises in 1993 and Year-End Option Values
The table below summarizes options exercised during 1993 and year-end option
values of the named executive officers listed in the Summary Compensation
Table.
Number of Value of
Unexercised Unexercised
Options at In-the-Money
Year-end (#) Options at
Year-end
($)
Name Shares
Acquired on Value Realized Exercisable/ Exercisable/
Exercise (#) ($) Unexercisable Unexercisable
Randolph W. Lenz - - - -
Ronald M. DeFeo - - 6,667/23,333 - / -
Ralph T. Brandifino - - - -
Gary D. Bello - - - -
Pension Plans
The Company maintains numerous defined benefit pension plans covering most
domestic employees, including certain officers of the Company. Retirement
benefits for the plans covering the salaried employees are based primarily on
years of service and employees' qualifying compensation during the final years
of employment.
Mr. Lenz and Mr. DeFeo participate in the Terex Corporation Salaried Employees'
Retirement Plan (the "Plan"). Mr. Brandifino does not participate because
participation in the Plan was frozen as of May 7, 1993, prior to Mr.
Brandifino's employment with the Company. Mr. Bello, as an employee of Clark,
a subsidiary of the Company, was not a participant in the Plan nor is any other
employee of Clark. Clark employees do not participate in a defined benefit
retirement plan.
Participants of the Plan with five or more years of eligible service are fully
vested and entitled to annual pension benefits beginning at age 65. Retirement
benefits under the Plan are determined based on 1.02% of final average earnings
plus .71% of such compensation in excess of amounts shown on the applicable
Social Security Integration Table for participants born prior to 1938. For
participants born during 1938-1954, the formula is modified by replacing the
1.02% and .71% figures with 1.08% and .65%, respectively. For participants
born after 1954, the formula is modified by replacing the 1.02% and .71%
figures with 1.13% and .60%, respectively. Service in excess of 25 years is
not recognized. There is no offset for primary Social Security.
Participation in the Plan was frozen as of May 7, 1993, and no participants,
including Mr. Lenz and Mr. DeFeo, will be credited with service following such
date, except that participants not fully vested, including Mr. DeFeo, will be
credited with service for purposes of determining vesting only. Mr. Lenz is
already fully vested. The annual retirement benefits payable at normal
retirement age under the Plan will be $31,530 for Mr. Lenz and $4,503 for Mr.
DeFeo (assuming full vesting).
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock by each person known by the Company to own
beneficially more than 5% of the Company's Common Stock, each director and
executive officer of the Company, and all directors and executive officers as a
group, as of January 1, 1994.
Amount Percent
Name and Address Beneficially of
of Beneficial Owner Owned Class
Randolph W. Lenz(1) 5,061,537 (3) 49.13%
c/o Terex Corporation
500 Post Road East
Westport, CT 06880
The Airlie Group L.P.(2) 965,000 (4) 9.29%
201 Main Street
Fort Worth, TX 76102
Dort A. Cameron, III(2) 971,000 (4) 9.34%
c/o The Airlie Group, L.P.
201 Main Street
Fort Worth, TX 76102
Thomas M. Taylor(2) 1,270,500 (4) 12.22%
c/o The Airlie Group, L.P.
201 Main Street
Fort Worth, TX 76102
EBD L.P. (2) 965,000 (4) 9.29%
c/o The Airlie Group, L.P.
201 Main Street
Forth Worth, TX 76102
TMT-FW, Inc. (2) 965,000 (4) 9.29%
c/o The Airlie Group, L.P.
201 Main Street
Forth Worth, TX 76102
The Prudential Insurance 554,500 (4) 5.38%
Company of America (5)
Prudential Plaza
Newark, NJ 07102-3777
Society Corporation (6) 531,695 5.16%
127 Public Square
Cleveland, OH 44114-1306
G. Chris Andersen 0 *
1285 Avenue of the Americas
New York, NY 10019
Ronald M. DeFeo 9,667 (7) *
c/o Terex Corporation
500 Post Road East
Westport, CT 06880
Bruce I. Raben 11,000 *
11100 Santa Monica Boulevard
Suite 1000
Los Angeles, CA 90025
Marvin B. Rosenberg 0 *
c/o Terex Corporation
500 Post Road East
Westport, CT 06880
David A. Sachs 10,000 *
201 Main Street
Suite 3200
Fort Worth, TX 76102
Adam E. Wolf 7,400 *
875 East Donges Lane
Milwaukee, WI 53217
David J. Langevin 5,400 *
c/o Terex Corporation
500 Post Road East
Westport, CT 06880
Ralph T. Brandifino 0 *
c/o Terex Corporation
500 Post Road East
Westport, CT 06880
All directors and officers 5,105,004 (7) 49.55%
as a group (9 persons)
* Amount owned does not exceed one percent (1%) of the class so owned.
(1) Mr. Lenz currently pledges, and intends to pledge in the future, shares of
the Common Stock owned by him as collateral for loans. If Mr. Lenz does not
pay such loans when due, the pledgee may have the right to sell the shares of
the Common Stock pledged to it in satisfaction of Mr. Lenz's obligations. The
sale of a significant amount of such pledged shares could result in a change of
control of the Company and may require the Company to make an offer to purchase
certain of its outstanding debt instruments.
(2) Dort A. Cameron, III and TMT-FW, Inc., a Texas corporation, are general
partners of EBD L.P., a Delaware limited partnership which is the sole general
partner of Airlie. Thomas M. Taylor is the President, sole director and sole
stockholder of TMT-FW, Inc. By reason of such relationships, Messrs. Cameron
and Taylor may each be deemed the beneficial owner of the shares deemed
beneficially owned by Airlie. On December 22, 1993, each of the indicated
individuals, together with certain other persons, filed Amendment No. 9 to a
Schedule 13D Statement filed pursuant to Section 13(d) of the Exchange Act
reflecting the ownership of an aggregate of 1,255,5000 shares of Common Stock,
40,000 shares of Preferred Stock and 40,000 Warrants, or approximately 13.7% to
14.4% of all outstanding Common Stock, assuming the conversion of such shares
of Preferred Stock and the exercise of such Warrants (but not the conversion of
any Preferred Stock or the exercise of any Warrants by any other holder).
Except as otherwise reflected in this table or the footnotes thereto, each of
the indicated individuals disclaims the beneficial ownership of any shares held
by any other party to such Schedule 13D filing.
(3) Mr. Lenz is the direct owner of 4,984,337 shares of Common Stock,
representing approximately 48.38% of the outstanding Common Stock. In
addition, Mr. Lenz is the indirect beneficial owner of 77,200 shares of Common
Stock through a corporation that he indirectly owns and controls.
(4) For each of Airlie, Dort A. Cameron, III, Thomas M. Taylor, EBD L.P.,
TMT-TW, Inc. and The Prudential Insurance Company of America ("Prudential"),
the amount shown assumes the conversion of the shares of Preferred Stock owned
by such beneficial owner (but not by any other holder of Preferred Stock), but
does not assume the exercise of any Warrants owned by such beneficial owner,
since the Warrants are not currently exercisable.
(5) Prudential filed a Schedule 13G Statement, dated January 31, 1994, with
the Commission pursuant to Section 13(g) of the Exchange Act reflecting the
ownership of an aggregate of 554,500 shares of Common Stock and 14,149
Warrants, or approximately 5.52% to 5.79% of all outstanding Common Stock,
assuming the exercise of such Warrants (but not the exercise of any Warrants by
any other holder). Such securities are held for the benefit of Prudential's
clients by Prudential's registered investment companies and its subsidiary
Prudential Securities Incorporated, and Prudential disclaims the beneficial
ownership of such shares.
(6) Society Corporation ("Society") filed a Schedule 13G Statement, dated
February 8, 1994, with the Commission pursuant to Section 13(g) of the Exchange
Act reflecting the ownership of an aggregate of 531,695 shares of Common Stock
by its subsidiaries Society National Bank and Schaenen Wood & Associates.
Persons other than Society have the right to receive or the power to direct the
receipt of dividends or the proceeds from the sale of these securities.
Society disclaims the beneficial ownership of such shares.
(7) Includes 6,667 shares issuable upon the exercise of currently exercisable
options held by Mr. DeFeo. See "Management -- Executive Compensation."
SELLING SECURITY HOLDERS
The following table sets forth certain information, as of March 1, 1994,
regarding the Preferred Stock held by the Selling Security Holders covered by
this Prospectus. The exact number of Conversion Shares issuable upon
conversion of a share of Preferred Stock cannot be determined until the date of
such conversion, as the Conversion Price is subject to adjustment upon the
occurrence of certain dilutive events. See "Description of Securities --
Preferred Stock -- Conversion Right." At the initial Conversion Price of
$11.11, each share of Preferred Stock can be converted into 2.25 Conversion
Shares. Because the Selling Security Holders may offer all or some part of the
Preferred Stock and Conversion Shares which they hold from time to time
pursuant to the offering contemplated by this Prospectus, and because this
offering is not being underwritten on a firm commitment basis, no estimate can
be given as to the amount of Preferred Stock or Conversion Shares that will be
held by the Selling Security Holders upon termination of this offering. See
"Plan of Distribution."
Number of
Name of Selling Shares of
Security Holder Preferred Stock Held
Atwell & Co. 40,000
Auer & Co. 25,000
Cerberus International 20,000
Elliott Associates, L.P. 25,000
FAMCO Income Partners, L.P. 80,000
Gamcan Limited 1,400
Gerlach & Co. 350,000
Hare & Co. 60,000
Institutional Partners, L.P. 14,100
JEFCO 180,000
Lewco Securities Corp. 75,000
Paresco, Inc. 40,000
SC Fundamental
Value Fund, L.P. 40,000
SP Investors International NV 23,000
Steinhardt Overseas Fund, Ltd. 25,500
Steinhardt Partners, L.P. 16,000
Strome Offshore, Ltd. 90,000
Strome Susskind
Hedgecap Fund, L.P. 80,000
Taft Securities 5,000
The Value Realization
Fund, L.P. 10,000
The Preferred Stock and Conversion Shares are being registered for resale
solely for the account of the Selling Security Holders. None of the Selling
Security Holders and none of their respective officers, directors or
stockholders has had any material relationship with the Company within the past
three years, except as set forth in "Certain Transactions."
It is anticipated that each of the Selling Security Holders named herein will
offer and sell the Preferred Stock which may be sold by such person hereunder
from time to time in ordinary transactions to or through one or more brokers or
dealers in the over-the-counter market or in private transactions at such
prices as may be obtainable. Any such person may be deemed to be an
"underwriter" as that term is defined by the Securities Act. However, the
Company and such persons disclaim that any such person is an underwriter of the
Preferred Stock.
CERTAIN TRANSACTIONS
Under a contract dated July 1, 1987, KCS, principally owned by Randolph W.
Lenz, Chairman of the Board and Chief Executive Officer of the Company, until
December 31, 1993 provided administrative, financial, marketing, technical,
real estate and legal services to the Company and its subsidiaries. KCS also
provided assistance in the evaluation, negotiation and consummation of
potential acquisitions of other companies, products and processes, as well as
the development of new areas of business for the Company.
For the services of KCS, the Company paid KCS an annual fee plus the
reimbursement for all out-of-pocket expenses incurred by KCS in fulfilling the
contract, including travel and similar expenses and fees for professional and
other services provided by third parties. Each year the contract was in
effect, the annual fee increased by the greater of 10% or the increase in the
Consumer Price Index, subject to limitations imposed by the Company's debt
agreements. During 1993, the Company made payments to KCS for fees and
out-of-pocket expenses of $2.9 million and $0.1 million respectively.
During 1993, the Board of Directors of the Company concluded that it would be
in the Company's best interest to terminate the Company's contract with KCS and
integrate the management services of KCS directly into the Company. Pursuant
to an agreement between the Company and KCS, the contract between the Company
and KCS was suspended as of the close of business on December 31, 1993, with
the contract to be terminated upon the consent of the Company's stockholders to
a proposed issuance of securities to certain executives of KCS, as discussed
below. David J. Langevin and Marvin B. Rosenberg, employees of KCS, became
salaried employees of the Company effective January 1, 1994, with the titles of
Executive Vice President and Senior Vice President, respectively. In addition,
in consideration of the proposed termination of the contract, the Company has
agreed, subject to the approval of the stockholders of the Company, to issue
89,800 shares of the Company's Series B Cumulative Redeemable Convertible
Preferred Stock and 89,800 common stock purchase warrants to certain executives
of KCS, the terms of which will be substantially similar to the terms of the
Preferred Stock and the Warrants, respectively. Of such amounts, Messrs.
Langevin and Rosenberg would each receive 25,500 shares of preferred stock and
warrants and Mr. Lenz would receive 38,800 shares of preferred stock and
warrants. Upon stockholder approval, the contract will terminate and such
securities will be issued to Messrs. Langevin, Rosenberg and Lenz. Absent such
stockholder approval, the suspension will terminate and the contract will be
restored in full force and effect, although the Company will continue to
endeavor to achieve an alternate agreement with KCS to terminate the contract.
The Company, certain directors and executives of the Company, and KCS are named
parties in various legal proceedings. During 1993, the Company incurred $0.4
million of legal fees and expenses on behalf of the Company, directors and
executives of the Company, and KCS named in the lawsuits.
David A. Sachs, a director of the Company, is affiliated with Airlie, a limited
partnership which owns approximately 9.29% of the Company's Common Stock
(including Common Stock issuable upon conversion of Preferred Stock) and 40,000
Warrants. Mr. Sachs is an employee of the investment firm of TMT-FW, Inc.
which is one of two general partners of the general partner of Airlie. On
December 20, 1993, Airlie purchased 40,000 Warrants and 40,000 shares of
Preferred Stock from the Company as part of the Company's private placement.
Prior to 1992, the Company charged Fruehauf for management services and for
interest on amounts owed to Terex. As of January 1, 1992, the Company no
longer charges Fruehauf for management expenses and interest on amounts due the
Company. However, the Company and Fruehauf continue to charge one another for
payments made on each other's behalf in the normal course of business. The
outstanding balance owed by Fruehauf to the Company was $13.6 million at
September 30, 1993, $12.9 million at December 31, 1992 and $10.2 million at
December 31, 1991. As part of the Fruehauf Restructuring, the Company accepted
in December 1993 approximately 2,251,000 shares of Fruehauf common stock in
satisfaction of approximately $13.5 million of indebtedness of Fruehauf to the
Company.
As part of the Fruehauf Restructuring, the Company agreed to vote its shares of
Fruehauf common stock in favor of, or consent to, an amendment to Fruehauf's
Certificate of Incorporation to authorize additional shares of Fruehauf capital
stock and the issuance of a portion of such stock to purchasers of Fruehauf's
convertible subordinated notes and to the Company, in satisfaction of
Fruehauf's indebtedness to the Company. The Company also agreed, for a period
of 18 months beginning July 26, 1993, generally to vote its shares of Fruehauf
common stock in any other matter in such proportion as the other stockholders
of Fruehauf entitled to vote on such matter shall vote their shares of Fruehauf
common stock. In addition, at the time of the Fruehauf Restructuring, the
Company entered into an agreement with IBJ Schroder Bank & Trust Company ("IBJ
Schroder"), on behalf of a group of commercial bank lenders, pursuant to which
the Company is obligated to pay a fee of $1,000,000 on or before December 31,
1994 in consideration of the assistance of the banks in evaluating the
feasibility of Fruehauf's proposed Turnaround Plan and to induce the banks to
consent to certain requests by the Company. Mr. Lenz pledged certain of his
shares of Common Stock to IBJ Schroder, as agent for such lenders, as security
for the payment of such amount by the Company.
On January 25, 1993, Terex entered into an agreement whereby KCS borrowed $1.7
million from Terex (the "KCS/Terex Note"). The KCS/Terex Note bore interest at
prime. The loan represented by the KCS/Terex Note may have constituted a
default under the Secured Notes, the Subordinated Notes and the Bank Lending
Agreement. The entire balance was repaid to Terex on February 1, 1993, six
days after the initial borrowing, thereby curing any default which may have
occurred.
The Company's Board of Directors approved a program to consolidate Fruehauf's
parts warehousing and administration functions with the Company. During the
fourth quarter of 1992, Fruehauf announced its intention to close its parts
warehouse in Westerville, Ohio and transfer its replacement parts inventory to
the Terex distribution center near Memphis, Tennessee. As a result of the
Fruehauf Restructuring, the proposed arrangement will not be effectuated. In
November 1992, in contemplation of this agreement, Terex had transferred $2.0
million to Fruehauf. The $2.0 million transfer constituted a default
("November Default") under the Secured Notes, the Subordinated Notes and the
Bank Lending Agreement. Subsequently in May 1993, Terex entered into an
agreement with an operating unit of Fruehauf, whereby such operating unit will
provide products and manufacturing services to Terex. This agreement required
Terex to make a $2.0 million payment to such operating unit, which Terex
effected on May 11, 1993 by instructing Fruehauf to transfer the $2.0 million
Fruehauf owed to Terex directly to such operating unit. This transfer also
satisfied Fruehauf's $2.0 million obligation to Terex so that the events which
gave rise to the November Default no longer exist. The Company is in
discussions with Fruehauf concerning the satisfaction of Fruehauf's obligations
under the May 1993 agreement.
In August 1992, Clark purchased certain assets of a subsidiary of Fruehauf for
$0.8 million. This constituted a default under the Secured Notes, the
Subordinated Notes and the Bank Lending Agreement because the purchase did not
have prior approval of the independent members of the Company's Board of
Directors. The approval was subsequently obtained; therefore, the events which
gave rise to such default no longer exist.
In conjunction with the Clark Acquisition, the Company financed the acquisition
and refinanced a major component of its previously outstanding bank debt
through a private placement of Secured Notes and SAR's, and the establishment
of a revolving credit facility with a commercial bank. Mr. Raben, a director
of the Company, is an employee and officer of Jefferies, the investment banking
firm which acted as an exclusive placement agent for the Company in the
offering of the Secured Notes and SAR's. Jefferies was paid in total fees of
$6.5 million in 1992 for services performed as placement agent. Jefferies was
also the Company's placement agent for the December 1993 sale of the Preferred
Stock and Warrants for which Jefferies received fees totalling $2.5 million in
1993. Jefferies was also the agent for the Company for certain sales by the
Company of its common stock of Fruehauf in 1993. Jefferies purchased 250,000
Warrants and 180,000 shares of Preferred Stock from the Company in connection
with the Company's private placement on December 20, 1993.
During 1993, Fruehauf retained PaineWebber as a financial advisor to explore
opportunities to maximize stockholder value in Fruehauf. G. Chris Andersen, a
member of the Company's Board of Directors, is an executive with PaineWebber.
The Company intends that all transactions with affiliates are on terms no less
favorable to the Company than could be obtained in comparable transactions with
an unrelated person. The Board will be advised in advance of any such proposed
transaction or agreement and will utilize such procedures in evaluating their
terms and provisions as are appropriate in light of the Board's fiduciary
duties under Delaware law. In addition, the Company has an Audit Committee
consisting solely of independent directors. One of the responsibilities of the
Audit Committee is to review related party transactions.
DESCRIPTION OF SECURITIES
The Company's authorized capital stock consists of 40,000,000 shares of capital
stock, $.01 par value, consisting of 30,000,000 shares of Common Stock and
10,000,000 shares of preferred stock. As of January 1, 1994, 10,303,067 shares
of Common Stock and 1,200,000 shares of preferred stock were issued and
outstanding.
Common Stock
Each outstanding share of Common Stock entitles the holder to one vote, either
in person or by proxy, on all matters submitted to a vote of stockholders,
including the election of directors. There is no cumulative voting in the
election of directors, which means that the holders of a majority of the
outstanding shares of Common Stock can elect all of the directors then standing
for election. Subject to preferences which may be applicable to any
outstanding shares of preferred stock, holders of Common Stock have equal
ratable rights to such dividends as may be declared from time to time by the
Board of Directors out of funds legally available thereof. See "Market for
Common Stock and Dividend Policy."
Holders of Common Stock have no conversion, redemption or preemptive rights to
subscribe to any securities of the Company. All outstanding shares of Common
Stock are fully paid and nonassessable. In the event of any liquidation,
dissolution or winding-up of the affairs of the Company, holders of Common
Stock will be entitled to share ratably in the assets of the Company remaining
after provision for payment of liabilities to creditors and preferences
applicable to outstanding shares of preferred stock. The rights, preferences
and privileges of holders of Common Stock are subject to the rights of the
holders of any outstanding shares of preferred stock. See "-- Preferred
Stock."
The Certificate of Incorporation provides that directors of the Company shall
not be personally liable to the Company or its stockholders for monetary
damages for breach of fiduciary duties as a director except to the extent
otherwise required by Delaware law. The by-laws of the Company provide for
indemnification of the officers and directors of the Company to the fullest
extent permitted by Delaware law.
The transfer agent and registrar for the Common Stock is Mellon Securities
Transfer Services, 111 Founders Plaza, Suite 1100, East Hartford, Connecticut
06108.
Preferred Stock
The Board of Directors of the Company is authorized to issue up to 10,000,000
shares of preferred stock, par value $.01 per share, in one or more series,
with such designations, powers, preferences and rights of such series and the
qualifications, limitations or restrictions thereon, including, but not limited
to, the fixing of dividend rights, dividend rates, conversion rights, voting
rights, rights and terms of redemption (including sinking fund provisions), the
redemption price or prices, and the liquidation preferences, in each case, if
any, as the Board of Directors of the Company may by resolution determine,
without any further vote or action by the Company's stockholders.
By resolution adopted December 17, 1993, the Board of Directors of the Company
authorized the issuance of a series of preferred stock consisting of 1,200,000
shares, designated Series A Cumulative Redeemable Convertible Preferred Stock,
par value $.01 per share, and fixed the terms of such Preferred Stock. The
following summary of the terms and provisions of the Preferred Stock does not
purport to be complete and is qualified in its entirety by reference to the
relevant sections of the Company's Restated Certificate of Incorporation, a
copy of which is filed as an exhibit to the Registration Statement.
The registrar and transfer agent for the Preferred Stock is Mellon Securities
Trust Company.
Liquidation Preference. In the event of the voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Company (a
"Liquidation"), subject to the prior preferences and other rights of any stock
ranking senior to the Preferred Stock in respect of the right to receive assets
upon liquidation, but before any distribution or payment shall be made to the
holders of Common Stock or any other stock ranking junior to the Preferred
Stock upon liquidation, the holders of the Preferred Stock shall be entitled to
be paid, out of the assets of the Company available for distribution to its
stockholders, a liquidation preference, initially equal to $25.00 per share,
plus all accrued and unpaid dividends thereon to such date, in cash. During
the period commencing on the Issue Date and ending on the Dividend Payment Date
immediately preceding the Accretion Termination Date, the Liquidation
Preference will accrete at the rate of 13% per annum, compounded quarterly,
until December 20, 1998, and at the rate of 18% per annum, compounded
quarterly, thereafter.
Dividends. Subject to the prior preferences and other rights of any stock
ranking senior to the Preferred Stock with respect to the payment of dividends,
holders of shares of the Preferred Stock are entitled to receive, when and as
declared by the Board of Directors, out of funds legally available for the
payment of dividends, cumulative cash dividends that will accrue from the
Accretion Termination Date at the rate of (a) 13% per annum from the Accretion
Termination Date through December 20, 1998 and (b) 18% per annum thereafter.
In the event that (i) the shelf Registration Statement of which this Prospectus
is a part shall not become effective on or prior to the 150th day following the
Issue Date or (ii) prior to the end of the period during which a registration
statement relating to the shares of Preferred Stock and Common Stock issuable
upon conversion of the Preferred Stock is required to be maintained effective
pursuant to the Preferred Stock Registration Rights Agreement, the Commission
issues a stop order suspending the effectiveness of the shelf Registration
Statement, then for each day on which any of the foregoing events occurred and
are continuing, the dividend rate will increase by (a) 0.25% per annum if such
day is on or prior to the 180th day following the Issue Date and (b) 0.50% per
annum if such day is after the 180th day following the Issue Date. Such
dividends are cumulative and shall be payable in cash, quarterly, in arrears,
when and as declared by the Board of Directors, on March 31, June 30, September
30 and December 31 of each year commencing on the first Dividend Payment Date
following the Accretion Termination Date. Each such dividend shall be paid to
the holders of record of the Preferred Stock as their names appear on the share
register of the Company at the close of business on the applicable record date,
which shall be the 15th day of the calendar month in which the applicable
Dividend Payment Date falls or such other record date designated by the Board
of Directors of the Company with respect to the dividend payable on such
respective Dividend Payment Date.
If full cash dividends are not paid or made available to the holders of all
outstanding shares of Preferred Stock and of any stock ranking on a parity with
the Preferred Stock in respect of the right to receive dividends, and funds
available are insufficient to permit payment in full in cash to all such
holders of the preferential amounts to which they are then entitled, the entire
amount available for payment of cash dividends shall be distributed among the
holders of the Preferred Stock and of any such parity stock, ratably in
proportion to the full amount to which they would otherwise be respectively
entitled, and any remainder not paid in cash to the holders of the Preferred
Stock shall cumulate, whether or not earned or declared, with additional
dividends thereon for each succeeding full quarterly dividend period during
which such dividends shall remain unpaid. Unpaid dividends for any period less
than a full quarterly dividend period shall cumulate on a day-to-day basis and
shall be computed on the basis of a 360-day year.
So long as any shares of Preferred Stock shall be outstanding, the Company
shall not declare or pay on any stock ranking junior to the Preferred Stock in
respect of the right to receive dividends any dividend whatsoever, whether in
cash, property or otherwise (other than dividends payable in shares of the
class or series upon which such dividends are declared or paid), nor shall the
Company make any distribution on any such junior stock, nor shall any such
junior stock be purchased or redeemed by the Company or any subsidiary of the
Company, nor shall any monies be paid or made available for a sinking fund for
the purchase or redemption of any such junior stock; provided that from and
after the Accretion Termination Date, the Company may declare and pay cash
dividends on such junior stock so long as (i) all dividends to which the
holders of Preferred Stock shall have been entitled for all previous dividend
periods shall have been declared and paid and (ii) on or prior to the later of
(x) the first anniversary of the Accretion Termination Date and (y) the third
anniversary of the Issue Date, the Company will not pay dividends on the Common
Stock during any 12 month period exceeding 4% of the Current Market Price (as
defined below in "-- Warrants -- Warrant Ratio") per share of the Common Stock
on the trading day immediately prior to the declaration of any cash dividend.
Redemption. Prior to December 31, 1994, the Preferred Stock may be redeemed in
whole, but not in part, at a per share redemption price equal to the
Liquidation Preference per share on the date of redemption plus all accrued but
unpaid dividends thereon to and including the date of redemption; provided,
that concurrently with such redemption the Company redeems all Warrants then
outstanding. See "--Warrants."
On and after December 31, 1994, the Preferred Stock may be redeemed by the
Company at any time in whole or (except as noted below) from time to time, in
part, at the option of the Company, at a per share redemption price equal to
the Liquidation Preference per share on the date of redemption plus all accrued
but unpaid dividends thereon to and including the date of redemption. If less
than all of the outstanding shares of Preferred Stock are to be redeemed, such
shares shall be redeemed pro rata or by lot as determined by the Board of
Directors in its sole discretion. The Company shall not redeem less than all
of the outstanding shares of Preferred Stock unless all cumulative dividends on
the Preferred Stock for all previous dividend periods have been paid or
declared and funds therefor set apart for payment.
The Company is required to redeem all of the then outstanding shares of
Preferred Stock on or prior to December 31, 2000 at a per share redemption
price equal to the Liquidation Preference per share on the date of redemption
plus all accrued but unpaid dividends thereon to and including the date of
redemption.
Notice of every proposed redemption of Preferred Stock shall be sent by or on
behalf of the Company, by first class mail, postage prepaid, to the holders of
record of the shares of Preferred Stock so to be redeemed at their respective
addresses as they shall appear on the records of the Company, not less than
thirty (30) days nor more than sixty (60) days prior to the date fixed for
redemption (the "Redemption Date") (i) notifying such holders of the election
or obligation of the Company to redeem such shares of Preferred Stock and of
the Redemption Date, (ii) stating the place or places at which the shares of
Preferred Stock called for redemption shall, upon presentation and surrender of
the certificates evidencing such shares of Preferred Stock, be redeemed, and
the redemption price therefor, and (iii) stating the name and address of any
redemption agent selected by the Company and the name and address of the
Corporation's transfer agent for the Preferred Stock.
Voting. Except as set forth below or as otherwise required by law, the holders
of the issued and outstanding shares of Preferred Stock shall have no voting
rights.
So long as any Preferred Stock is outstanding, the Company, without first
obtaining the affirmative vote or written consent of the holders of not less
than a majority of the then outstanding shares of Preferred Stock, voting
separately as a class, will not: (i) amend or repeal any provision of, or add
any provision to, the Company's Certificate of Incorporation or By-laws if such
action would alter adversely or change the preferences, rights, privileges or
powers of, or the restrictions provided for the benefit of, any Preferred
Stock, or increase or decrease the number of shares of Preferred Stock
authorized; (ii) authorize or issue shares of any class or series of stock
ranking senior to the Preferred Stock (or, prior to the Warrant Ratio
Determination Date (as defined below in "-- Warrants -- Term"), any stock
ranking on a parity with the Preferred Stock) in respect of the right to
receive dividends or assets upon liquidation; (iii) reclassify any class or
series of any junior stock into such parity stock or senior stock or reclassify
any series of parity stock into senior stock; (iv) authorize, enter into, or
consummate any transaction that would constitute a deemed dividend to holders
of the Preferred Stock under United States Federal tax laws; or (v) consolidate
with or merge with or into another corporation, other than in a transaction in
which the Company is the surviving corporation.
From and after the Accretion Termination Date, (i) if and whenever the Company
fails to declare and pay in cash the entire amount of dividends payable on the
Preferred Stock on any two Dividend Payment Dates, then the holders of the
Preferred Stock, voting separately as a class, will be entitled at the next
annual meeting of the stockholders of the Company or at any special meeting to
elect one director, and (ii) if and whenever the Company shall have failed to
declare and pay in cash the entire amount of dividends payable on the Preferred
Stock on any four Dividend Payment Dates, then the holders of the Preferred
Stock, voting separately as a class, will be entitled at the next annual
meeting of the stockholders of the Company or at any special meeting to elect
two directors. Upon election, such directors will become additional directors
of the Company and the authorized number of directors of the Company will
thereupon be automatically increased by such number of directors. Such right
of the holders of Preferred Stock to elect directors may be exercised until all
dividends in default on the Preferred Stock have been paid in full, and
dividends for the current dividend period declared and funds therefor set apart
or paid, and when so paid and set apart or paid, the right of the holders of
Preferred Stock to elect such number of directors shall cease and the term of
such directors shall terminate, but subject always to the same provisions for
the vesting of such special voting rights in the case of any such future
dividend default or defaults.
Conversion Right. Each holder of shares of Preferred Stock has the right, at
such holder's option, at any time or from time to time, to convert any of such
shares of Preferred Stock into the number fully paid and nonassessable shares
of Common Stock determined by dividing (i) $25.00 by (ii) the Conversion Price,
initially $11.11 and subject to adjustment as set forth below, in effect on the
date of conversion. The Conversion Price is subject to adjustment to prevent
dilution in the event of (i) dividends or other distributions of Common Stock,
(ii) subdivision and combinations of outstanding shares of Common Stock, (iii)
dividends or other distributions of rights or warrants entitling the holders
thereof to subscribe for or purchase, during a period not exceeding 45 days
from the date of such dividend or other distribution, Common Stock at a price
per share less than the Current Market Price of the Common Stock, (iv)
dividends or other distributions of other securities, evidences of its
indebtedness or other assets, excluding any cash dividend or cash distribution
payable out of earned surplus of the Company if the per share amount of such
dividend or distribution, together with the aggregate per share amount of all
other cash dividends and cash distributions declared or paid during the one
year period ending on the date such dividend is declared (the "Declaration
Date") does not exceed 4% of the Current Market Price per share of Common Stock
on the trading day immediately prior to the Declaration Date, or (v) issuances
by the Company of any Common Stock (or securities convertible into or
exercisable for Common Stock) for a consideration per share less than the
Current Market Price per share of Common Stock on the date of such issuance,
subject to certain exceptions.
Reorganizations. In case of (a) any consolidation with or merger of the
Company with or into another corporation, (b) the occurrence of any other
transaction or event pursuant to which all or substantially all of the Common
Stock is exchanged for, converted into, or acquired for, or constitutes solely
the right to receive, cash securities, property or other assets (whether by
exchange offer, liquidation, tender offer or otherwise) or (c) the sale, lease
or other transfer of all or substantially all of the assets of the Company,
each share of Preferred Stock shall after the date of such transaction be
convertible into the number of shares of stock or other securities or property
(including cash) to which the Common Stock issuable (at the time of such
transaction) upon conversion of such share of Preferred Stock would have been
entitled upon such transaction.
Reservation of Shares; Valid Issuance; Approvals. The Company shall (i)
reserve at all times so long as any shares of Preferred Stock remain
outstanding, free from preemptive rights, out of its treasury stock (if
applicable) or its authorized but unissued shares of Common Stock, or both,
solely for the purpose of effecting the conversion of the shares of Preferred
Stock, sufficient shares of Common Stock to provide for the conversion of all
outstanding shares of Preferred Stock, (ii) take all necessary action so that
all shares of Common Stock that are issued upon conversion of the shares of the
Preferred Stock will, upon issuance, be duly and validly issued, fully paid and
nonassessable, and (iii) take no action which will cause a contrary result
(including, without limitation, any action that would cause the Conversion
Price to be less than the par value, if any, of the Common Stock).
If any shares of Common Stock reserved for the purpose of conversion of shares
of Preferred Stock require registration with or approval of any governmental
authority under any Federal or state law before such shares may be validly
issued or delivered upon conversion, then the Corporation will in good faith
and as expeditiously as possible endeavor to secure such registration or
approval, as the case may be. If, and so long as, any Common Stock into which
the shares of Preferred Stock are then convertible is listed on any national
securities exchange, the Corporation will, if permitted by the rules of such
exchange, list and keep listed on such exchange, upon official notice of
issuance, all shares of such Common Stock issuable upon conversion.
Warrants
In addition to the Common Stock and Preferred Stock, the Company has
outstanding 1,300,000 of the Warrants. The following is a summary of the terms
and provisions of the Warrants. This summary does not purport to be complete
and is qualified in its entirety by reference to the detailed provisions of the
Warrants and the Warrant Agreement, the forms of which are filed as exhibits to
the Registration Statement.
Term. Each Warrant may be exercised by the registered holder thereof at any
time in whole and from time to time in part, at the option of the holder,
commencing at the opening of business on the day following the Warrant Ratio
Determination Date until 5:00 p.m. New York time on December 31, 2000 (the
"Expiration Date"). "Warrant Ratio Determination Date" means the date
designated as such by the Board of Directors of the Company pursuant to a duly
adopted resolution of the Board, which date shall be a trading day during the
12 month period beginning on the Issue Date or, if no such date is designated,
the last day of such 12 month period; provided, that if the Board of Directors
has not yet designated a Warrant Ratio Determination Date and the Current
Market Price (as hereinafter defined) of a share of Common Stock equals or
exceeds $18.00 per share on any date during such 12 month period, the "Warrant
Ratio Determination Date" will be such date.
A Warrant may be exercised upon (i) surrender of the Warrant certificate at the
principal office of the Warrant Agent, with the form of election to purchase on
the reverse thereof duly completed and signed and (ii) payment of the exercise
price of $.01 per share with respect to the shares of Common Stock being
purchased, payable by certified or bank check to the order of the Company. The
shares of Common Stock issuable upon exercise or redemption of the Warrants
shall be the "Warrant Shares."
Warrant Ratio. Upon the exercise or redemption (see "--Redemption" below) of a
Warrant, the holder thereof shall be entitled to receive the number of Warrant
Shares and other consideration, if any (the "Warrant Ratio"), equal to (a) 3.0
shares of Common Stock if the Current Market Price of a share of Common Stock
on the Warrant Ratio Determination Date is $5.00 or less; (b) a number of
Warrant Shares which decreases from 3.0 shares to 1.0 share with the increase
in such Current Market Price per share from $5.00 to $18.00, if such Current
Market Price per share is greater than $5.00 but less than $18.00, as set forth
in the schedule below; and (c) 1.0 Warrant Share if such Current Market Price
per share is $18.00 or more.
Current Market Price Warrant Ratio
$ 5.00 or less 3.00
$ 5.50 2.75
$ 6.00 2.53
$ 6.50 2.36
$ 7.00 2.20
$ 7.50 2.07
$ 8.00 1.95
$ 8.50 1.85
$ 9.00 1.76
$ 9.50 1.68
$10.00 1.60
$10.50 1.54
$11.00 1.48
$11.50 1.42
$12.00 1.37
$12.50 1.33
$13.00 1.28
$13.50 1.24
$14.00 1.21
$14.50 1.17
$15.00 1.14
$15.50 1.11
$16.00 1.08
$16.50 1.06
$17.00 1.03
$17.50 1.01
$18.00 or more 1.00
"Current Market Price" per share of Common Stock on any day means the average
of the daily closing prices with respect to the Common Stock for the 30
consecutive trading days ending on such date (or, if such date is not a trading
day, on the trading day immediately preceding such date); provided, that if the
Common Stock is not publicly traded, the Current Market Price per share shall
be determined by a nationally recognized investment banking firm selected by
the Board of Directors of the Company.
In the event that (i) a shelf registration statement with respect to the
Warrants shall not have become effective on or prior to the 90th day following
the Issue Date, or (ii) prior to the end of the period during which a
registration statement relating to the Warrants is required to be maintained
effective pursuant to the Warrant Registration Rights Agreement, the Commission
shall have issued a stop order suspending the effectiveness of the shelf
registration statement, then for each 30 consecutive day period (without
duplication) during which either of the foregoing events has occurred and is
continuing, the Warrant Ratio will increase by 0.5%.
Exercise Price. The Warrants are exercisable for $.01 per Warrant Share in the
case of Common Stock and in the case of all other securities issuable upon
exercise of the Warrants, for the lowest exercise price permitted by law.
Redemption. The Warrants may be redeemed by the Company in whole, but not in
part, in exchange for Warrant Shares at any time on or after the Warrant Ratio
Determination Date; provided, that concurrently with such redemption the
Company redeems all then outstanding shares of Preferred Stock. Each Warrant
will be redeemable for a number of Warrant Shares equal to the Warrant Ratio on
the date of redemption.
Notice of redemption of the Warrants shall be sent by or on behalf of the
Company to the holders not less than 30 days nor more than 60 days prior to the
date fixed for redemption (i) notifying the holders of the election of the
Company to redeem the Warrants and of the date of redemption, (ii) stating the
place or places at which the Warrants shall, upon presentation and surrender of
certificates evidencing such Warrants, be redeemed, and the number of Warrant
Shares deliverable upon the redemption thereof, and (iii) stating the name and
address of the warrant agent for the Warrants (the "Warrant Agent") and the
redemption agent.
Adjustments. The Warrants contain certain provisions that, commencing with the
occurrence of the Warrant Ratio Determination Date, protect the holders thereof
against dilution by adjustment of the Warrant Ratio in the event of (i)
dividends or other distributions of Common Stock, (ii) subdivisions and
combinations of outstanding shares of Common Stock, (iii) dividends or other
distributions of rights or warrants entitling the holders thereof to subscribe
for or purchase, during a period not exceeding 45 days from the date of such
dividend or other distribution, shares of Common Stock at a price per share
less than the Current Market Price per share of Common Stock, or (iv) issuances
by the Company of any Common Stock (or securities convertible into or
exercisable for Common Stock) for a consideration per share less than the
Current Market Price of the Common Stock on the date of such issuance, subject
to certain exceptions.
In addition, if the Company shall declare a dividend or other distribution on
its Common Stock that would not cause such an adjustment consisting of (i)
securities other than Common Stock, (ii) evidences of its indebtedness, or
(iii) assets (including cash dividends or distributions) (collectively,
"Assets"), then in each such case adequate provision shall be made so that each
holder of Warrants shall receive, without charge, concurrently with the making
of such dividend or distribution, the amount and kind of such Assets that such
holder would have received if such holder had, immediately prior to the
relevant record date, exercised its Warrants.
On or prior to each day on which the Warrant Ratio is adjusted, the Company
shall promptly direct the Warrant Agent, and the Warrant Agent shall send to
each holder, notice of such adjustment and shall deliver to the Warrant Agent a
certificate of a firm of independent public accountants selected by the Board
of Directors (who may be the regular accountants employed by the Company)
setting forth the Warrant Shares purchasable upon the exercise of each Warrant
and the Warrant Ratio after such adjustment, a brief statement of the facts
requiring such adjustment, and the computation by which such adjustment was
made.
Reorganizations. In case of (a) any consolidation or merger of the Company
with or into another corporation, (b) the occurrence of any other transaction
or event pursuant to which all or substantially all of the Common Stock is
exchanged for, converted into, or acquired for, or constitutes solely the right
to receive, cash securities, property or other assets (whether by exchange
offer, liquidation, tender offer or otherwise) or (c) the sale, lease or other
transfer of all or substantially all of the assets of the Company, there shall
thereafter be deliverable upon exercise of each Warrant (in lieu of the Warrant
Shares theretofore deliverable), at the lowest exercise price permitted by law,
the number of shares of stock or other securities or property to which a holder
of the Warrant Shares that would otherwise have been deliverable upon the
exercise of such Warrant would have been entitled upon such transaction if such
Warrant had been exercised in full immediately prior to such transaction.
No Rights as Stockholders. Nothing contained in the Warrant Agreement or in
any of the Warrants confers upon the holders thereof or their transferees the
right to vote or to receive dividends or to consent or to receive notice as
stockholders in respect of any meeting of stockholders for the election of
directors of the Company or any other matter, or any rights whatsoever as
stockholders of the Company.
Transfer. The Warrants shall be transferable only on the Warrant register
maintained by the Warrant Agent, upon delivery thereof, accompanied by a
written instrument or instruments of transfer in form reasonably acceptable to
the Warrant Agent, duly executed by the registered holder or holders thereof or
by the duly appointed legal representative thereof or by a duly authorized
attorney. Upon any registration of transfer, the Warrant Agent shall (a)
countersign and deliver a new Warrant certificate evidencing the Warrant or
Warrants to the persons entitled thereto and (b) cancel the surrendered Warrant
certificate.
Reservation of Shares; Governmental Approvals and Stock Exchange Listings. The
Company shall reserve at all times so long as any Warrants remain outstanding,
free from preemptive rights, out of its treasury stock (if applicable) or its
authorized but unissued shares of Common Stock, or both, solely for the purpose
of effecting the exercise of the Warrants, sufficient Warrant Shares to provide
for the exercise of all outstanding Warrants, and take all necessary action so
that all Warrant Shares that are issued upon exercise of the Warrants will,
upon issuance, be duly and validly issued, fully paid and nonassessable.
The Company will use its best efforts to (a) obtain and keep effective any and
all permits, consents and approvals of governmental agencies and authorities
and to make securities acts filing under federal and state laws, that are
required in connection with the issuance, sale, transfer and delivery of the
Warrant certificates, the exercise or conversion of the Warrants, and the
issuance, sale, transfer and delivery of the Warrant Shares issued upon
exercise or conversion of the Warrants, and (b) have the Warrant Shares,
immediately upon their issuance, listed on such securities exchange on which
the Common Stock is then listed.
The Warrant Agent for the Warrants is Mellon Securities Trust Company, 111
Founders Plaza, Suite 1100, East Hartford, Connecticut 06108.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes certain Federal income tax consequences to
the initial holders of the Preferred Stock under existing Federal income tax
law, which is subject to change, possibly retroactively. This summary does not
discuss all aspects of Federal income taxation that may be relevant to a
particular investor in light of his personal investment circumstances or to
certain types of investors subject to special treatment under the Federal
income tax laws (for example, financial institutions, insurance companies,
tax-exempt organizations, broker-dealers, and foreign taxpayers), and it does
not discuss any aspects of state, local, or foreign tax laws. This summary
assumes that investors will hold their Preferred Stock as a "capital asset"
(generally property held for investment) under the Internal Revenue Code of
1986, as amended (the "Code"). Holders are urged to consult their tax advisors
as to the specific tax consequences of holding and disposing of the Preferred
Stock, including the application and effect of Federal, state, local and
foreign income and other tax laws.
Dividends
Accretions on the liqudation preference of, and distributions (including
constructive distributions) with respect to, the Preferred Stock will be
treated as dividends for Federal income tax purposes to the extent of the
current and accumulated earnings and profits of the Company, and such dividends
will be subject to tax as ordinary income. The amount included in income for
accreted amounts should equal the fair market value of such amounts at the time
such amounts accrete, which will require the holder to include in income the
accreted amounts prior to the date in which any cash is paid. To the extent
that the amount of a distribution, whether paid in cash or through accretion,
exceeds a holder's allocable share of current and accumulated earnings and
profits, such excess will be treated as a non-taxable return of capital to the
extent of a holder's basis in the Preferred Stock and thereafter as a gain from
the sale or exchange of a capital asset. For Federal income tax purposes,
earnings and profits will be allocated to distributions with respect to the
Preferred Stock before they are allocated to distrubtions with respect to the
Common Stock.
Distributions out of current and accumulated earnings and profits paid to a
corporate holder will generally qualify for the 70% intercorporate
dividends-received deduction provided that such holder satisfies certain
minimum holding period requirements and other applicable requirements. The
intercorporate dividends-received deduction will be reduced to the extent that
the holder of the Preferred Stock has incurred indebtedness to finance its
purchase. Generally, regular quarterly dividends on the Preferred Stock will
not be subject to the extraordinary dividend provisions of section 1059 of the
Code.
The amount of the Company's earnings and profits for Federal income tax
purposes will depend upon, among other things, the Company's future financial
performance. Accordingly, no assurances can be given that the Company will
have earnings and profits over the life of the Preferred Stock sufficient to
assure that distributions paid thereon will be treated as dividends for Federal
income tax purposes.
The Preferred Stock was issued with an "unreasonable redemption premium" and
holders will be required to include a portion of such premium in ordinary
income for each taxable year during which such stock is held to the extent of
the Company's current and accumulated earnings and profits. The portion of the
redemption premium included in income for each taxable year will be determined
on the basis of a constant yield to maturity method, which will result in a
greater portion of such premium being included in income in the later part of
the term of the Preferred Stock. If the Internal Revenue Service were to
assert successfully that the amount of the aggregate purchase price of the
Preferred Stock and Warrants that is allocable to the Warrants is greater than
the amount allocated in the Purchase Agreement, the Preferred Stock could be
deemed to be issued with a greater amount of an unreasonable redemption
premium.
Conversion of the Preferred Stock
If shares of the Preferred Stock are converted into shares of Common Stock, no
gain or loss will generally be recognized for Federal income tax purposes,
except as set forth below. The tax basis for the Common Stock received upon
conversion will be equal to the tax basis of the Preferred Stock converted
(reduced by the portion of such basis allocable to any fractional interest
exchanged for cash). The holding period of the Common Stock will include the
holding period of the Preferred Stock converted. Gain or loss may be
recognized at the time of conversion, however, upon the receipt of cash paid in
lieu of fractional shares of the Common Stock or in respect of constructive
dividends. See "Constructive Dividends" below.
Redemption or Sale of the Preferred Stock
A redemption or sale of shares of the Preferred Stock will be a taxable
transaction for the holders of the Preferred Stock. Assuming that, after the
redemption or sale, the holder has no other direct or indirect stock interest
in the Company, such a redemption or sale will result in the recognition of
gain or loss equal to the difference between the amount received and the
holder's tax basis in the Preferred Stock that is redeemed or sold. Such gain
or loss will be a capital gain or loss, unless it is determined that a portion
of the proceeds is attributable to a constructive dividend. Such a gain or
loss will be long-term if the Preferred Stock has been held for more than one
year.
Constructive Dividends
Under section 305 of the Code, adjustments in the Conversion Price of the
Preferred Stock to reflect distributions to holders of Common Stock, or the
omission to make such adjustments, may in certain circumstances result in
constructive distributions to holders of the Preferred Stock that could be
subject to tax as dividends to the extent of the Company's current and
accumulated earnings and profits.
PLAN OF DISTRIBUTION
The Company will issue Conversion Shares upon the conversion of Preferred Stock
by Selling Security Holders from time to time pursuant to the terms of the
Preferred Stock. See "Description of Securities -- Preferred Stock." The
Company will receive no proceeds from the issuance of Conversion Shares upon
conversion of Preferred Stock nor from the resale of the Preferred Stock and
the Conversion Shares by the Selling Security Holders pursuant to this
offering. The Preferred Stock and Conversion Shares offered for resale hereby
may be sold from time to time by the Selling Security Holders. Any such
distribution of the Preferred Stock or Conversion Shares by the Selling
Security Holders, or by transferees or other successors-in-interest of the
Selling Security Holders, may be effected from time to time in one or more
transactions (which may involve block transactions) on the NYSE or in the
over-the-counter market (to the extent that such securities are listed or
traded on such markets), in negotiated transactions or in a combination of such
methods of sale, at fixed prices, at market prices prevailing at the time of
sale, at prices relating to prevailing market prices or at negotiated prices.
The Selling Security Holders may effect such transactions directly to
purchasers or to or through broker-dealers which may act as agents or
principals. Such broker-dealers may receive compensation in the form of
underwriting discounts, concessions or commissions from the Selling Security
Holders and/or the purchasers of Preferred Stock and Conversion Shares for
which broker-dealers may act as agent or to whom they may sell as principal or
both (which compensation as to a particular broker-dealer may be less than or
in excess of customary commissions). In addition, any Common Stock covered by
this Prospectus that subsequently qualifies for sale pursuant to Rule 144 of
the Securities Act may be sold under Rule 144 rather than pursuant to this
Prospectus.
The Preferred Stock was issued to the original purchasers on December 20, 1993
in a private placement. Pursuant to the Preferred Stock Registration Rights
Agreement, the Company agreed to file the Registration Statement of which this
Prospectus forms a part with the Commission, and to keep the Registration
Statement effective for 36 months from the date the Registration Statement is
declared effective, or, if shorter, until all of the Preferred Stock and
Conversion Shares are sold pursuant to an effective registration statement.
There is no established trading market for the Preferred Stock. The Company
does not intend to list the Preferred Stock on any securities exchange or to
seek approval for quotation through any automated quotation system. There is
no dealer which is obligated to make a market in the Preferred Stock and, if
any dealer or dealers should do so, they may discontinue any market making at
any time without notice. No assurance can be given as to the liquidity of any
trading market for the Preferred Stock.
As of the date of this Prospectus, the Company understands that the Selling
Security Holders do not have any agreement, arrangement or understanding
concerning the distribution of the Preferred Stock and Conversion Shares
offered hereby.
At the time a particular offer of Preferred Stock or Conversion Shares is made,
a Prospectus Supplement, to the extent required, will be distributed which will
set forth the Preferred Stock or Conversion Shares being offered, the names of
the selling security holders, the purchase price, the amount of expenses of the
offering and the terms of the offering, including the name or names of any
underwriters, dealers or agents, any discounts, commissions and other items
constituting compensation from such selling security holders and any discounts,
commissions or concessions allowed or reallowed or paid to dealers.
To comply with certain states' securities laws, if applicable, the Preferred
Stock and Conversion Shares will be sold in such states only through brokers or
dealers. In addition, in certain states the Preferred Stock and Conversion
Shares may not be sold unless they have been registered or qualify for sale in
such states or an exemption from registration or qualification is available and
is complied with. The Company is obligated pursuant to the Preferred Stock
Registration Rights Agreement to use its best efforts to register or qualify
the Preferred Stock and Conversion Shares under the securities or blue sky laws
of such jurisdictions as any Selling Security Holder reasonably requests.
The Selling Security Holders and any broker-dealers who participate in a sale
of their Preferred Stock and Conversion Shares may be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act, and
any commissions received by them, and proceeds of any such sales as principal,
may be deemed to be underwriting discounts and commissions under the Securities
Act.
Since the Selling Security Holders will be subject to the antimanipulation
rules promulgated under the Exchange Act, including Rule 10b-2, 10b-6 and
10b-7, in connection with transactions in the Preferred Stock and Conversion
Shares during the effectiveness of the Registration Statement of which this
Prospectus is a part, the Company advises the Selling Security Holders to
consult competent securities counsel prior to initiating any such transaction.
Pursuant to the Preferred Stock Registration Rights Agreement, the Company has
paid or will pay any and all expenses incident to the performance of such
agreement including filing fees, fees and expenses incurred in connection with
compliance with the securities or blue sky laws of the applicable states, and
fees and disbursements of counsel and independent public accounts for the
Company and the reasonable fees and disbursements of one counsel retained by
the Selling Security Holders in connection with the Registration Statement.
Such expenses are estimated to be approximately $____________. As and when the
Company is required to update this Prospectus, it may incur additional expenses
in excess of this estimated amount. Normal commission expenses and brokerage
fees, as well as any applicable underwriting discounts or transfer taxes, are
payable individually by the Selling Security Holders.
In the Preferred Stock Registration Rights Agreement, the Company agreed to
indemnify and hold harmless, to the extent permitted by law, the Selling
Security Holders, the officers, directors, shareholders, agents, affiliates and
partners of the Selling Security Holders, any person who participates as an
underwriter in the offering and sale of the Preferred Stock and Conversion
Shares and any person who controls any of such sellers or any of such
underwriters against losses, claims and expenses arising out of any false or
misleading statements contained in this Prospectus or the Registration
Statement of which it is a part. The Selling Security Holders have agreed to
indemnify the Company against certain liabilities and expenses arising out of
statements made by them for reliance by the Company in connection with the
Registration Statement or this Prospectus.
LEGAL MATTERS
Certain legal matters in connection with the sale of the Preferred Stock and
the Conversion Shares offered hereby will be passed upon for the Company by
Robinson Silverman Pearce Aronsohn & Berman, 1290 Avenue of the Americas, New
York, New York 10104.
AUDITORS
The Consolidated Financial Statements of the Company as of December 31, 1992
and for the year then ended included in this Prospectus and the related
financial statement schedules included elsewhere in the Registration Statement
of which this Prospectus is a part have been audited by Price Waterhouse.
Their report, dated April 14, 1993, except as to Notes I and O, which are as of
May 11, 1993, contains an explanatory paragraph that certain matters identified
raise substantial doubt about the Company's ability to continue as a going
concern, an explanatory paragraph that in their determination of the Company's
compliance with the covenants in the agreements governing the Secured Notes and
the Subordinated Notes, and the resultant classification of such obligations as
long term, legal opinions were obtained supporting the Company's interpretation
of certain covenants related to the maintenance of net worth and curing of any
defaults which may have existed, and an explanatory paragraph that makes
reference to the contingent liabilities discussed in Notes D and N in the Notes
to the Company's Consolidated Financial Statements. However, Price Waterhouse
has advised the Company that they are unable to issue an updated accountants
report until Deloitte & Touche, which was dismissed as the Company's and
Fruehauf's auditors on October 2, 1992, is able to issue an updated accountants
report as described below. Accordingly, this Prospectus does not include a
copy of Price Waterhouse's audit report on the Company's Consolidated Financial
Statements and the Registration Statement of which this Prospectus is a part
does not include a consent of Price Waterhouse.
The combined financial statements of the Business Acquired from Clark Equipment
Company by Terex Corporation as of December 31, 1991 and for each of the two
years in the period ended December 31, 1991 included in this Prospectus have
been audited by Price Waterhouse. Their report, dated September 25, 1992, was
unqualified. However, Price Waterhouse has advised the Company that they are
unable to issue an updated accountants report until Deloitte & Touche is able
to issue an updated accountants report as described below. Accordingly, this
Prospectus does not include a copy of Price Waterhouse's audit report on the
combined financial statements of the Business Acquired from Clark Equipment
Company by Terex Corporation and the Registration Statement of which this
Prospectus is a part does not include a consent of Price Waterhouse.
The Consolidated Financial Statements of Fruehauf Trailer Corporation as of
December 31, 1992 and for the year then ended included in this Prospectus and
the related financial statement schedules included elsewhere in the
Registration Statement of which this Prospectus is a part have been audited by
Price Waterhouse. Their report, dated April 14, 1993, contains an explanatory
paragraph that certain matters identified raise substantial doubt about the
Company's ability to continue as a going concern, and an explanatory paragraph
that makes reference to the contingent liabilities discussed in Note L in the
Notes to the Company's Consolidated Financial Statements. However, Price
Waterhouse has advised the Company that they are unable to issue an updated
accountants report until Deloitte & Touche is able to issue an updated
accountants report as described below. Accordingly, this Prospectus does not
include a copy of Price Waterhouse's audit report on Fruehauf's Consolidated
Financial Statements and the Registration Statement of which this Prospectus is
a part does not include a consent of Price Waterhouse.
The Consolidated Financial Statements of the Company as of December 31, 1991
and for each of the two years in the period ended December 31, 1991 included in
this Prospectus and the related financial statement schedules included
elsewhere in the Registration Statement of which this Prospectus is a part have
been audited by Deloitte & Touche. Their report, dated March 30, 1992 (April
14, 1993 as to Note B and the first and second paragraphs of Note N), expressed
an unqualified opinion and include explanatory paragraphs relating to the
restatement of prior period financial statements and an uncertainty relating to
the outcome of certain litigation. However, Deloitte & Touche has advised
the Company that they are currently unable to issue an updated accountants
report until consideration has been completed of certain items which may affect
the financial statements of Fruehauf and, as a result, may also affect the
financial statements of the Company. Accordingly, this Prospectus does not
include a copy of Deloitte & Touche's audit report on the Company's
Consolidated Financial Statements and the Registration Statement of which this
Prospectus is a part does not include a consent of Deloitte & Touche.
The Consolidated Financial Statements of Fruehauf Trailer Corporation as of
December 31, 1991 and for each of the two years in the period ended December
31, 1991 included in this Prospectus and the related financial statement
schedules included elsewhere in the Registration Statement of which this
Prospectus is a part have been audited by Deloitte & Touche. Their report,
dated March 20, 1992 (April 14, 1993 as to Note P and the ninth paragraph of
Note L), expressed an unqualified opinion and include explanatory paragraphs
relating to the restatement of prior period financial statements and an
uncertainty relating to the outcome of certain litigation. However, Deloitte
& Touche has advised the Company that they are currently unable to issue an
updated accountants report until consideration has been completed of certain
items which may affect the financial statements of Fruehauf. Accordingly, this
Prospectus does not include a copy of Deloitte & Touche's audit report on
Fruehauf's Consolidated Financial Statements and the Registration Statement of
which this Prospectus is a part does not include a consent of Deloitte &
Touche.
At this time, the Company does not know when Deloitte & Touche and, therefore,
Price Waterhouse will be in a position to issue their updated accountants
reports, and there can be no assurances that they will reissue any or all such
reports in their original form. In the opinion of the Company, all significant
transactions, subsequent events and other matters have been properly disclosed
pursuant to relevant reporting requirements in the Company's financial
statements and elsewhere in this Prospectus and the Registration Statement of
which this Prospectus is a part.
Until the Company is furnished with updated audit reports manually signed by
Deloitte & Touche and by Price Waterhouse and files such reports with the
Commission along with consents of Deloitte & Touche and Price Waterhouse , the
Company will not request that the Commission declare the Registration Statement
effective.
With the concurrence of its Audit Committee, the Company engaged Price
Waterhouse as its independent accountants effective October 1992. Prior to
that date, Deloitte & Touche had been the Company's independent accountants.
The change in independent accountants was reported on Form 8-K, dated October
8, 1992. The following is an excerpt from Deloitte & Touche's response to the
Form 8-K, as included in the Company's Form 8 dated October 23, 1992:
"On August 24 and 28, 1992, a representative of Deloitte & Touche discussed
with the Company's Chief Financial Officer the relationship between Deloitte &
Touche and the Company. On September 14 and 17, 1992, representatives of
Deloitte & Touche had further discussions with Company officials, including its
Chairman, Chief Financial Officer, and Secretary, regarding the auditor-client
relationship. These discussions focused on certain changes that Deloitte &
Touche believed needed to occur in order for Deloitte & Touche to be willing to
continue to serve as the Company's auditor. The matters discussed included
changes requested by Deloitte & Touche relating to the financial reporting
process and the role of the Audit Committee in overseeing that process,
performance of timely quarterly reviews by Deloitte & Touche and timely
discussions with Deloitte & Touche of proposed significant transactions.
Deloitte & Touche believed, based on those discussions, that the Company was in
agreement with the matters discussed, which was the basis for Deloitte & Touche
agreeing to continue as the Company's independent auditor. On October 2, 1992,
we were advised by the Company's Chief Financial Officer that we were dismissed
as auditors."
In connection with its audits for the years ended December 31, 1991 and 1990
and through the date of this Prospectus, there have been no disagreements with
Deloitte & Touche on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements if not resolved to the satisfaction of Deloitte & Touche would
have caused them to make a reference thereto in their report on the financial
statements for such years. The reports of Deloitte & Touche on the
aforementioned financial statements contained no adverse opinion or disclaimer
of opinion and were not qualified as to audit scope or accounting principle.
There have been no disagreements with Price Waterhouse on accounting or
financial disclosure.
TEREX CORPORATION
INDEX TO FINANCIAL STATEMENTS
Page
TEREX CORPORATION (REGISTRANT)
CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1992
AND 1991 AND FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
DECEMBER 31, 1992
Reports of independent accountants F - 3 **
Consolidated statement of income F - 5
Consolidated balance sheet F - 6
Consolidated statement of stockholders' investment F - 7
Consolidated statement of cash flows F - 8
Notes to consolidated financial statements F - 9
TEREX CORPORATION (REGISTRANT)
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1993 AND FOR THE NINE MONTH PERIODS ENDED
SEPTEMBER 30, 1993 AND 1992
Condensed consolidated statement of income F - 36
Condensed consolidated balance sheet F - 37
Condensed consolidated statement of cash flows F - 39
Notes to condensed consolidated financial statements F - 40
BUSINESS ACQUIRED FROM CLARK EQUIPMENT COMPANY
BY TEREX CORPORATION
COMBINED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1991
AND FOR EACH OF THE TWO YEARS IN THE PERIOD ENDED DECEMBER 31, 1991
Report of independent accountants F - 45**
Combined statement of operating revenues and expenses F - 46
Combined statement of assets and liabilities F - 47
Combined statement of cash flows F - 48
Notes to combined financial statements F - 49
BUSINESS ACQUIRED FROM CLARK EQUIPMENT COMPANY
BY TEREX CORPORATION
UNAUDITED COMBINED FINANCIAL STATEMENTS
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1992
Combined statement of operating revenues and expenses F - 56
Combined statement of cash flows F - 57
Notes to combined financial statements F - 58
PRO FORMA FINANCIAL INFORMATION
UNAUDITED CONDENSED CONSOLIDATED INCOME STATEMENT FOR
THE YEAR ENDED DECEMBER 31, 1992 F - 59
FRUEHAUF TRAILER CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1992
AND 1991 AND FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1992
Reports of independent accountants F - 62**
Consolidated statement of income F - 64
Consolidated balance sheet F - 65
Consolidated statement of stockholders' investment F - 67
Consolidated statement of cash flows F - 68
Notes to consolidated financial statements F - 69
FRUEHAUF TRAILER CORPORATION
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1993 AND FOR THE NINE MONTH PERIODS ENDED
SEPTEMBER 30, 1993 AND 1992
Condensed consolidated statement of income F - 85
Condensed consolidated balance sheet F - 86
Condensed consolidated statement of cash flows F - 87
Notes to condensed consolidated financial statements F - 88
** To be filed by amendment.
REPORT OF INDEPENDENT ACCOUNTANTS
To be filed by amendment.
REPORT OF INDEPENDENT ACCOUNTANTS
To be filed by amendment.
TEREX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(in thousands except per share amounts)
Year Ended December 31,
1992 * 1991 * 1990 *
NET SALES $523,355 $ 784,194 $ 1,023,178
COST OF GOODS SOLD 469,345 690,313 857,119
Gross profit 54,010 93,881 166,059
ENGINEERING, SELLING AND ADMINISTRATIVE EXPENSES
Third parties 55,287 108,425 116,354
Related parties 2,848 5,831 5,319
58,135 114,256 121,673
RESTRUCTURING COSTS --- 15,825 ---
Income (loss) from operations (4,125) (36,200) 44,386
OTHER INCOME (EXPENSE)
Interest income 1,666 2,862 4,412
Interest expense to third parties (23,320) (27,422) (42,112)
Interest expense to related parties --- (3,743) (5,495)
Equity in net income (loss)
of affiliate companies (35,045) 4,209 7,480
Royalty income from affiliates --- 2,518 4,221
Royalty income from third parties 67 654 938
Gain on sale of subsidiary stock
and related recapitalization 7,759 15,017 ---
Gain (loss) on sale of property,
plant and equipment --- 7,150 1,163
Amortization / write-off of
debt issuance costs (1,694) (1,304) (3,954)
Other expense -net (2,416) (2,381) (433)
Income (loss) before income taxes,
minority interest and extraordinary loss (57,108) (38,640) 10,606
PROVISION FOR INCOME TAXES 67 868 2,361
MINORITY INTEREST IN NET LOSS OF SUBSIDIARY --- 9,722 ---
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS (57,175) (29,786) 8,245
EXTRAORDINARY LOSS ON RETIREMENT OF DEBT --- --- (2,192)
NET INCOME (LOSS) $(57,175) $(29,786) $ 6,053
NET INCOME (LOSS) PER SHARE
Income (loss) before extraordinary loss $(5.75) $(3.00) $.83
Extraordinary loss on retirement of debt --- --- (.22)
Net income (loss) per share $(5.75) $(3.00) $.61
DIVIDENDS PER COMMON SHARE $--- $0.06 $0.05
AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES CONSIDERED OUTSTANDING
IN PER SHARE CALCULATION 9,945 9,914 9,889
* Results of Fruehauf consolidated for the years ended December 31, 1991 and
1990 and deconsolidated for the year ended December 31, 1992. See Note D.
The accompanying notes are an integral part of these financial statements.
TEREX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in thousands)
ASSETS
December 31,
1992* 1991*
CURRENT ASSETS
Cash and cash equivalents $ 25,671 $ 13,877
Restricted cash 11,479 ---
Marketable securities --- 1,080
Trade receivables
(less allowance of $6,348 in 1992
and $4,142 in 1991) 78,277 91,624
Net inventories 197,136 252,574
Other current assets 6,672 2,790
Total Current Assets 319,235 361,945
LONG-TERM ASSETS
Other assets 36,971 42,251
Assets held for sale 1,000 43,301
Investment in affiliate companies 3,871 40,146
Property, plant and equipment - net 116,279 129,560
TOTAL ASSETS $ 477,356 $ 617,203
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES
Notes payable $ 1,573 $ ---
Trade accounts payable 91,268 90,649
Accrued compensation and benefits 9,594 29,290
Accrued warranties and product liability 32,431 18,965
Accrued interest 11,819 5,285
Accrued income taxes 2,043 902
Restructuring reserve 30,600 21,252
Other current liabilities 31,143 54,322
Current portion of long-term debt 11,543 23,636
Total Current Liabilities 222,014 244,301
LONG-TERM LIABILITIES
Long-term debt, less current portion 204,489 184,952
Long-term debt, less current portion
- related party --- 7,497
Accrued warranties and product liability
- long-term 35,910 19,160
Postretirement health benefits --- 34,939
Other long-term liabilities 21,111 40,271
MINORITY INTEREST --- 26,202
COMMITMENTS AND CONTINGENCIES (Note N)
STOCKHOLDERS' INVESTMENT
Common Stock, $0.01 par value
--authorized 20,000 shares in 1992 and 1991;
issued and outstanding 9,949 in 1992
and 9,923 in 1991 99 99
Additional paid-in capital 37,770 37,496
Retained earnings (deficit) (36,231) 20,944
Pension liability adjustment (4,452) (8,233)
Foreign currency translation adjustment (3,354) 9,575
Total Stockholders' Investment (6,168) 59,881
TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $ 477,356 $ 617,203
* Fruehauf consolidated at December 31, 1991 and deconsolidated at December 31,
1992. See Note D.
The accompanying notes are an integral part of these financial statements.
TEREX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' INVESTMENT
(in thousands)
Additional Retained Pension Cumulative
Common Paid-in Earnings Liability Translation
Stock Capital (Deficit) Adjustment Adjustment Total
BALANCE AT DECEMBER 31,
1989
As previously reported $ 98 $ 36,188 $ 48,361 $ --- $ (1,782) $82,865
Prior period
adjustment (Note B) --- --- (2,617) --- --- (2,617)
As restated 98 36,188 45,744 --- (1,782) 80,248
Exercise of stock
options 1 730 --- --- --- 731
Redemption of
stock warrants --- 320 --- --- --- 320
Cash dividend --- --- (472) --- --- (472)
Net income --- --- 6,053 --- --- 6,053
Pension liability
adjustment --- --- --- (6,960) --- (6,960)
Translation adjustment --- --- --- --- 21,337 21,337
BALANCE AT DECEMBER 31,
1990 99 37,238 51,325 (6,960) 19,555 101,257
Exercise of stock
options --- 258 --- --- --- 258
Cash dividend --- --- (595) --- --- (595)
Net loss --- --- (29,786) --- --- (29,786)
Pension liability
adjustment --- --- --- (1,273) --- (1,273)
Translation adjustment --- --- --- --- (9,980) (9,980)
BALANCE AT DECEMBER 31,
1991 99 37,496 20,944 (8,233) 9,575 59,881
Exercise of stock
options --- 274 --- --- --- 274
Net loss --- --- (57,175) --- --- (57,175)
Pension liability
adjustment --- --- --- 3,781 --- 3,781
Translation adjustment --- --- --- --- (12,929) (12,929)
BALANCE AT DECEMBER 31,
1992 $ 99 $ 37,770 $(36,231) $(4,452) $(3,354) $(6,168)
The accompanying notes are an integral part of these financial statements.
TEREX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Year Ended December 31,
1992* 1991* 1990 *
OPERATING ACTIVITIES
Net income (loss) $(57,175) $(29,786) $6,053
Adjustments to reconcile net income
(loss) to net cash from (used in)
operating activities:
Depreciation 7,074 11,028 10,930
Amortization and write-off
of deferred costs 2,619 2,440 10,139
Noncash extraordinary loss --- --- 2,192
Unremitted (earnings) loss
from equity affiliates 35,045 (2,528) (6,748)
Loss on sale of affiliate stock --- 3,312 ---
Gain on sale of subsidiary stock (7,759) (15,017) ---
Minority interest --- (9,722) ---
Interest paid-in-kind --- 3,302 5,657
Gain on sale of property, plant
and equipment (363) (7,584) (1,163)
Noncash restructuring costs --- 15,825 ---
Other noncash charges 1,796 1,492 1,130
Increase (decrease) in cash due to
changes in operating assets and
liabilities net of the effects of
acquisitions of businesses:
Trade receivables 18,806 30,314 9,173
Net inventories 49,176 46,297 23,285
Other current assets (455) 8,207 (3,323)
Trade accounts payable 7,187 10,309 2,112
Accrued compensation and benefits (6,821) 206 (5,939)
Accrued interest 7,763 (623) (3,348)
Accrued warranties and
product liabilities 4,590 (2,153) 363
Accrued income taxes 940 29 813
Other assets (19,280) 4,664 (579)
Other liabilities (20,443) (62,717) (64,709)
Net cash from (used in)
operating activities 22,700 7,295 (13,962)
INVESTING ACTIVITIES
Acquisitions of businesses,
net of cash acquired (86,544) (5,865) ---
Capital expenditures (5,382) (4,098) (8,707)
Advances to equity affiliates (4,646) --- ---
Proceeds from sale of excess assets 1,513 40,156 20,503
Proceeds from sale of affiliate stock --- 8,739 ---
(Increase) decrease in marketable securities 42 (558) 7,274
Other 206 462 ---
Net cash from (used in)
investing activities (94,811) 38,836 19,070
FINANCING ACTIVITIES
Net repayments under revolving line
of credit agreements (55,753) (195) (3,968)
Principal repayments of long-term debt (9,109) (96,726)(136,454)
Proceeds from issuance of long-term debt 151,890 16,285 122,055
Proceeds from sale of minority interest
in subsidiary --- 41,040 ---
Other 2,258 (1,091) (2,165)
Net cash from (used in)
financing activities 89,286 (40,687) (20,532)
Effect of exchange rate changes on
cash and cash equivalents (2,396) (521) (135)
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 14,779 4,923 (15,559)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 13,877 8,954 24,513
LESS: FRUEHAUF CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR (2,985) --- ---
CASH AND CASH EQUIVALENTS AT END OF YEAR $25,671 $13,877 $8,954
* Results of Fruehauf consolidated for the years ended December 31, 1991 and
1990, and deconsolidated for the year ended December 31, 1992. See Note D.
The accompanying notes are an integral part of these financial statements.
TEREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1992
(dollar amounts in thousands, unless otherwise noted,
except per share amounts)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation. The Consolidated Financial Statements include the
accounts of Terex Corporation and its majority controlled 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%,
with the exception of the Company's 42% investment in the outstanding common
stock of Fruehauf Trailer Corporation ("Fruehauf"). Because of the existence
of a voting trust among Terex and certain individuals, the Company continued to
have voting control of Fruehauf after Fruehauf's initial public offering
("IPO") and, accordingly, continued to account for Fruehauf as a consolidated
subsidiary in 1991. The voting trust terminated during 1992 and, accordingly,
the Company presently accounts for its 42% ownership interest in Fruehauf using
the equity method. The Company's consolidated financial statements are
presented giving effect to the deconsolidation of Fruehauf as of January 1,
1992 (see Note D -- "Investment in Fruehauf Trailer Corporation"). The cost
method is used to account for investments in affiliates in which the Company
has an ownership interest of less than 20%.
Cash and Cash Equivalents. All short-term investments, which consist of highly
liquid investments with original maturities of three months or less, are
considered to be cash equivalents. The carrying amount of cash and cash
equivalents approximates fair value because of the short maturity of those
instruments.
Restricted Cash. The Company has classified as restricted, certain cash and
cash equivalents that are not fully available for use in its operations.
Provisions of certain of the Company's lending agreements require that amounts
be deposited in a cash collateral account when specified conditions exist.
Access by the Company to such amounts is restricted by the terms of the lending
agreement. Restricted cash at December 31, 1992 and 1991 totaled $11,479 and
$0, respectively. The balance at December 31, 1992 represented the highest
amount required to be deposited in the cash collateral account during 1992.
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 foreign subsidiaries and certain domestic inventories.
Approximately 52% and 49% of consolidated inventories at December 31, 1992 and
1991, respectively are accounted for under the LIFO method.
Debt Issuance Costs. Debt issuance costs represent costs associated with
securing the Company's financing arrangements. Such amounts are presented as a
component of Other Assets in the Consolidated Balance Sheet. Capitalized debt
issuance costs are amortized over the life of the respective debt agreement.
Unamortized debt issuance costs totaled $10,614 and $5,077 at December 31, 1992
and 1991, respectively. During 1992, 1991 and 1990, the Company amortized
$1,694, $1,304 and $2,814, respectively, of capitalized debt issuance costs.
Intangible Assets. Intangible assets include the excess of purchase price over
the fair value of identifiable net assets of acquired companies and are being
amortized on a straight-line basis over periods ranging from 12-15 years.
Other intangible assets include costs allocated to patents, trademarks and
other specifically identifiable assets arising from business combinations.
Such amounts are amortized on a straight-line basis over the respective
estimated useful lives not exceeding seven years. Included as a component of
Other Assets in the Consolidated Balance Sheet at December 31, 1992 and 1991,
are unamortized intangible assets of $10,938 and $1,120, respectively.
Accumulated amortization at December 31, 1992 and 1991 was $599 and $0,
respectively. Amortization of intangible assets was $599, $0 and $0 in 1992,
1991 and 1990, 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. Certain
property, plant and equipment held for sale is included in Assets Held For Sale
(see Note H -- "Assets and Business Held for Sale"), and is carried at the
lower of cost or net realizable value. The cost of assets and the related
amounts of accumulated depreciation are eliminated from the accounts when the
assets are retired or sold.
Revenue Recognition. Revenue and costs are generally recorded when products
are shipped and invoiced to either independently owned and operated dealers or
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 (generally within two weeks) specified by the customer at
the time the customer is notified that the unit is completed or specified in
the sales agreement. In such cases, the units are invoiced under the Company's
customary billing terms, title to the units and risks of ownership passes 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's financial statements
reflect 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 reserves for estimated
product liability experience on known claims and for claims anticipated to have
been incurred which have not yet been reported. Certain of the Company's
product liability accruals, principally related to the forklift business
acquired during 1992 (see Note C -- "Acquisitions"), are presented on a
discounted basis. The related discount of $8,567 at December 31, 1992,
computed at 8.0%, is recorded as a direct reduction of gross product liability
claims and is amortized using the effective interest rate method. Interest
expense attributable to the amortization of the discount aggregated $1,250 in
1992. The remainder of the Company's product liability accruals are presented
on a gross settlement basis.
Foreign Currency Translation. The majority of the 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' Investment. Gains or losses resulting
from foreign currency transactions are included in Other Expense. Net foreign
exchange losses were $2,413, $211 and $173 in 1992, 1991 and 1990,
respectively.
Environmental Policies. Environmental expenditures that relate to current
operations are either expensed or capitalized. 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. Generally, the timing of these accruals coincides
with completion of a feasibility study or the Company's commitment to a formal
plan of action.
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 amounted to $3,814 in 1992,
$4,034 in 1991, and $7,982 in 1990.
Income Taxes. The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standard ("SFAS") No. 96, "Accounting For
Income Taxes" (see Note K -- "Income Taxes"), which requires the Company to
follow the liability method. The liability method provides that deferred tax
assets and liabilities be recorded based upon the difference between the tax
bases of assets and liabilities and their carrying amounts for financial
reporting purposes.
Stock Split. The Company's Board of Directors declared a five-for-four stock
split of the Company's common stock on May 24, 1990 to shareholders of record
on May 11, 1990. Except as otherwise stated, all reference to numbers of
shares and to per share information in the consolidated financial statements
have been adjusted to reflect the stock split on a retroactive basis.
Issuance of Stock by a Subsidiary. The Company accounts for increases and
decreases in its proportionate share of a subsidiary's equity arising from the
issuance of stock by the subsidiary and related transactions as gains and
losses in the Consolidated Statement of Income (see Note D -- "Investment in
Fruehauf Trailer Corporation").
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 1990 and 1991 have been
reclassified to conform to the 1992 presentation.
Recent Pronouncements. In December 1990, the Financial Accounting Standards
Board ("FASB") issued SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions", which covers health care and other welfare
benefits provided to retirees. The statement, among other things, requires an
accrual of the obligation to provide future benefits to employees during the
years that the employees provide service. The Company will adopt this
standard during the first quarter of 1993 using the delayed recognition method
provided for in SFAS 106. The Company's Heavy Equipment Segment has an
estimated unfunded accumulated postretirement transition obligation ranging
from $4 million to $5 million. No change in the Company's current practice of
funding these benefits on a pay-as-you-go basis is currently anticipated.
In February, 1992, the FASB issued SFAS No. 109, "Accounting For Income Taxes"
to supersede SFAS No. 96, "Accounting For Income Taxes". The Company has
reflected its tax provisions and liabilities using the principles of SFAS No.
96. The new pronouncement retains certain concepts of SFAS No. 96, but
generally simplifies its application. The Company will adopt this standard
during the first quarter of 1993. The impact of adoption is not anticipated to
have a significant effect on the Company's financial position or results of
operations.
In November, 1992, the FASB issued SFAS No. 112, "Employers' Accounting for
Postemployment Benefits". This pronouncement establishes accounting and
reporting for the estimated cost of benefits provided by an employer to former
or inactive employees after employment but before retirement. For the most
part, the Company already accounts for such benefits on an accrual basis.
Therefore, the impact of adoption is not anticipated to have a significant
effect on the Company's financial position or results of operations. The
Company will adopt this standard during the first quarter of 1994.
NOTE B -- RESTATEMENTS
The accompanying financial statements reflect restatement for current year and
prior years activity and transactions as described below:
Restatement of the year ended December 31, 1992.
As described in Note D - "Investment in Fruehauf Trailer Corporation," after
an initial public offering of Fruehauf common stock in July 1991 the Company
owned approximately 42% of the outstanding common stock of Fruehauf. Due to
additional control factors, including shares owned by certain officers of
Terex, the presence of three Terex directors on Fruehauf's board, the service
of two Terex executive officers as executive officers of Fruehauf, and the
existence of a voting trust among Terex and certain individuals, the Company
concluded it had a controlling financial interest in Fruehauf. Accordingly, in
the Company's Annual Report on Form 10-K for the year ended December 31, 1992
as originally filed, Fruehauf's results were included in the Company's
consolidated financial statements for the years ended December 31, 1991 and
1992.
After consultation with the Securities and Exchange Commission staff,
management subsequently decided that despite the control factors described
above, assurance of strict numerical voting control of Fruehauf by Terex was
eliminated as a result of the termination of the voting trust between Terex and
certain individuals in July 1992 and, therefore, Terex should not consolidate
Fruehauf in its 1992 financial statements. Accordingly, management has
restated the financial statements for the year ended December 31, 1992 to
account for the Company's investment in Fruehauf on the equity method effective
January 1, 1992.
The following table sets forth selected information as originally reported and
as restated for the year ended December 31, 1992:
Year Ended
December 31,
1992
Net Sales
As Originally Reported 1,012,253
As Restated 523,355
Net Income (Loss)
As Originally Reported (61,088)
As Restated (57,175)
Net Income (Loss) Per Share
As Originally Reported (6.14)
As Restated (5.75)
Average Number of Common and
Common Equivalent Shares Outstanding 9,945
Restatement of the years ended December 31, 1987 through 1991
As a result of inquiries by its current independent accountants, the Company
reviewed its accounting treatment for certain prior year transactions and
concluded that the financial statements for the years ended December 31, 1987
through 1991 required restatement with respect to the accounting for the
refinancing of debt, detachable warrants issued with debt, certain property,
plant and equipment transactions and other miscellaneous items.
Terex Corporation
The Company issued debt with detachable warrants in 1987. A nominal value was
initially assigned to the warrants and the incremental cost of redeeming the
warrants over the initial value assigned was originally classified as a
deferred charge and was to be amortized over the life of the debt agreement.
In 1992, management concluded that the initial value assigned to the warrants
at the date of issuance did not reflect fair value. Management obtained an
estimate of the fair value of the warrants at the date of issuance and
concluded that the fair value of the warrants at date of issuance should have
been recorded as debt discount and amortized to interest expense over the life
of the debt and that the cost of redeeming the warrants in excess of the
revised value of the warrants at the time of issuance should be charged to
retained earnings. Retained earnings as of December 31, 1989 was reduced by
$1,432 to reflect this revised accounting. Income before extraordinary items
and net income were increased by $146 in 1990 and net income was increased by
$100 in 1991.
In 1992, management concluded that the carrying value of certain properties
were adjusted to amounts in excess of lower of cost or market during 1990 and
1991 by $6,403 and $434, respectively. Therefore, management has restated its
financial statements for the years ended December 31, 1990 and 1991 to
appropriately account for the property, plant and equipment.
The impact of the revised accounting for the Fruehauf debt transaction and the
Fruehauf warrants, as discussed below, resulted in an incremental gain of
$2,453 in 1991 related to the initial public offering of Fruehauf common stock
and related recapitalization.
Fruehauf Trailer Corporation
Fruehauf issued debt with detachable warrants in 1989. A nominal value was
initially assigned to the warrants and the incremental cost of redeeming the
warrants over the initial value assigned was originally classified as a
deferred charge and was to be amortized over the life of the debt agreement.
In 1992, management concluded that the initial value assigned to the warrants
at the date of issuance did not reflect fair value. Management obtained an
estimate of the fair value of the warrants at the date of issuance and
concluded that the fair value should have been recorded as debt discount. In
addition, management concluded that the cost of redeeming the warrants in
excess of the revised value of the warrants at the time of issuance should be
charged to earnings as interest cost.
In 1990, Fruehauf accounted for a debt transaction as a modification to an
existing debt instrument as opposed to an extinguishment of debt and the
issuance of new debt. In accounting for the transaction as a modification,
Fruehauf continued to defer and amortize the existing deferred debt issuance
costs over the life of the modified debt instrument. Had Fruehauf accounted
for the transaction as an extinguishment of debt, all unamortized debt issuance
costs would have been written off at that time as an extraordinary charge to
earnings. Management concluded after review, that it was not appropriate for
Fruehauf to continue to defer debt issuance costs associated with the
previously outstanding long-term debt upon the refinancing and, therefore, has
restated its financial statements for the years ended December 31, 1990 and
1991 to reflect the revised accounting treatment for the debt issuance costs.
The revised accounting treatment for the Fruehauf warrants and debt issuance
costs resulted in a reduction of retained earnings as of December 31, 1989 of
$1,185, a reduction in income before extraordinary items of $2,308 and a
reduction in net income of $4,500 in 1990, and an increase to net income of
$815 in 1991. A one-time extraordinary loss of $2,192, or $(.22) per share,
has been recorded in 1990 to write-off the unamortized debt issuance costs
relating to the refinanced debt.
The following table sets forth selected information as originally reported and
as restated for the years ended December 31, 1991 and 1990:
Year Ended December 31,
1991 1990
Income (Loss) Before Extraordinary Loss
As Originally Reported (33,413) 15,483
As Restated (29,786) 8,245
Net Income (Loss)
As Originally Reported (33,413) 15,483
As Restated (29,786) 6,053
Income (Loss) Per Share Before Extraordinary Loss
As Originally Reported (3.37) 1.57
As Restated (3.00) .83
Net Income (Loss) Per Share
As Originally Reported (3.37) 1.57
As Restated (3.00) .61
Average Number of Common and Common
Equivalent Shares Outstanding 9,914 9,889
NOTE C -- ACQUISITIONS
Clark Material Handling Company - On July 31, 1992, the Company completed the
acquisition of the common stock of Clark Material Handling Company and certain
affiliate companies ("Clark") from Clark Equipment Company (the "Clark
Acquisition"). Clark is engaged in the design, manufacture and marketing of
internal combustion and electric forklift and lift trucks and related parts and
equipment. The purchase price of the Clark Acquisition was $91,090, which was
funded by $85,000 of cash and a $6,090 seller note.
The acquisition was accounted for using the purchase method with the purchase
price of the acquisition allocated to assets acquired and liabilities assumed
based upon their respective estimated fair value at the date of the
acquisition. Purchase price allocations were based on evaluations,
estimations, appraisals, actuarial studies and other studies performed by the
Company. The excess of purchase price over the net assets acquired ($3,090)
is included in other assets and is being amortized on a straight-line basis
over 15 years.
The estimated fair values of assets and liabilities acquired on July 31, 1992,
net of cash acquired of $4,546, are summarized as follows:
Accounts receivable $ 47,291
Inventories 100,450
Other current assets 2,519
Property, plant and equipment 95,284
Other assets 22,568
Goodwill 3,090
Accounts payable and other
current liabilities (139,063)
Noncurrent liabilities (45,595)
$ 86,544
The operating results of this acquisition are included in the Company's
consolidated results of operations since August 1, 1992. The following
unaudited pro forma summary presents the consolidated results of operations as
though the Company completed the Clark Acquisition on January 1, 1991, after
giving effect to certain adjustments, including amortization of goodwill and
intangible assets, increased depreciation resulting from the revaluation of
property, plant and equipment, interest expense and amortization of debt
issuance costs on the acquisition debt, and reduced operating costs related to
recurring cost savings which are directly attributable to the Clark
Acquisition.
Pro Forma
For the Year
Ended December 31,
1992 1991
Net sales $811,859 $1,286,942
Loss from operations (14,452) (62,888)
Net loss (76,513) (70,309)
Net loss per share $(7.69) $(7.09)
The unaudited pro forma consolidated results do not represent actual operating
results. The pro forma amounts were prepared by management and should not be
interpreted as predictive of the Company's future results of operations. The
Company is actively reorganizing the operations of Clark by consolidating
manufacturing and distribution operations. Consequently, management does not
view the combination of the historical financial results of the Company and
Clark as a meaningful representation of the Company's future operations.
Mark Industries - In December 1991, the Company purchased substantially all
operating assets of Mark Industries ("Mark"), a leader in the manufacture and
sale of aerial lift equipment, for $5,865. The fair values of the assets
acquired, net of liabilities assumed, was approximately $315. The Company
continues to use the purchased assets for the manufacture and sale of aerial
lift equipment. The results of operations of Mark since December 31, 1991 have
been included in the accompanying consolidated financial statements.
The acquisition was accounted for using the purchase method with the purchase
price of the acquisition allocated to assets acquired and liabilities assumed
based upon their respective estimated fair value at the date of the
acquisition. Purchase price allocations were based on evaluations, estimations
and other studies performed by the Company. The final allocation of the Mark
purchase price allocation was completed in 1992. The excess of the purchase
price over the net assets acquired ($5,550) is included in Other Assets and is
being amortized on a straight-line basis over 12 years.
NOTE D-- INVESTMENT IN FRUEHAUF TRAILER CORPORATION
Initial Public Offering and Recapitalization
On July 8, 1991, Fruehauf completed an initial public offering ("IPO") of
4,000,000 shares of Fruehauf common stock at a price of $11 per share.
Fruehauf applied all of the net proceeds of the offering to repay indebtedness.
In conjunction with Fruehauf's IPO, the Company contemplated related exchange
transactions between certain stockholders and warrantholders of the Company and
Fruehauf. In determining the Company's net gain in 1991 on the Fruehauf IPO,
the Company considered the impact of these related exchange transactions. The
estimated impact of these exchange transactions was a loss of approximately
$7,759. The loss was recorded as a reduction of the gain on the sale of
Fruehauf of $22,776, for a net gain of $15,017 in 1991. During the fourth
quarter of 1992, the exchange agreement expired and management and the parties
to the exchange concluded that the exchange transactions originally
contemplated were no longer in the best interests of the Terex and Fruehauf
stockholders. Accordingly, the $7,759 reserve for the estimated impacts of the
exchange transactions was recorded into income in the fourth quarter of 1992.
The impact of this transaction is recorded as a component of Other Income in
the Consolidated Statement of Income. Prior to the IPO, Fruehauf was a
wholly-owned subsidiary of the Company. Following the IPO and as of December
31, 1992, the Company owns approximately 42% of the outstanding common stock of
Fruehauf. Pending the consummation of the exchange transactions, Terex's
principal shareholder and certain other individuals placed 956,000 shares of
Fruehauf common stock in a voting trust to enable the Company to retain voting
control of more than 50% of Fruehauf's outstanding common stock. Because the
voting trust allowed the Company to retain a controlling financial interest in
Fruehauf, the Company included Fruehauf in its consolidated financial
statements for 1991. The voting trust terminated during 1992 and, accordingly,
the Company presently accounts for its 42% ownership interest in Fruehauf using
the equity method. The Company's consolidated financial statements are
presented giving effect to the deconsolidation of Fruehauf as of January 1,
1992.
Minority interest, representing other stockholders' interest in Fruehauf, is
classified between noncurrent liabilities and stockholders' investment in the
Consolidated Balance Sheet. The minority interest share in the net loss of
Fruehauf's operations was $9,722 in 1991.
Unaudited pro forma consolidated results of operations for 1991 and 1990, as
though the Company completed the Fruehauf IPO, recapitalization, and related
transactions on January 1, 1990 and excluding the nonrecurring gain of $15,017
recorded by the Company in 1991, are as follows:
Year Ended December 31,
1991 1990
Net sales $784,194 $1,023,178
Income (loss) from operations (36,200) 44,386
Net income (loss) before extraordinary loss (36,594) 12,811
Net income (loss) (36,594) 10,619
Net income (loss) per share $(3.69) $1.07
These unaudited pro forma consolidated results have been prepared pursuant to
Article 11 of Securities and Exchange Commission Regulation S-X and are not
necessarily representative of the operating results or financial position the
Company would have achieved had the events reflected therein occurred at the
dates assumed. Additionally, these financial statements are not representative
of the future results or financial position that the Company will record.
These pro forma consolidated results should be read in conjunction with the
audited historical consolidated financial statements of the Company and the
notes thereto.
Restructuring Costs
During 1991, Fruehauf recorded the impact of a restructuring plan designed to
increase the overall profitability of Fruehauf by closing or selling certain
operations that have not met profitability expectations. Restructuring costs
of $15,825 represent provisions for the anticipated future cost of implementing
a restructuring of Fruehauf's distribution system and other nonrecurring costs
related to streamlining Fruehauf's manufacturing operations. The components of
the restructuring costs are as follows:
Branch conversion costs $ 5,700
During 1992, Fruehauf recorded additional restructuring costs of $15,500,
representing revisions of the estimates relating to the restructuring plan in
1991, which are included in determining the Company's equity in the net loss of
Fruehauf for 1992.
Plan of Restructuring and Refinancing
In the fourth quarter of 1991, Fruehauf had taken significant actions to reduce
its overall cost structure and improve liquidity. As discussed above, Fruehauf
implemented a restructuring program affecting its distribution system and
certain of its manufacturing operations. This program continued through 1992
with additional actions, including, among others, temporary plant shutdowns,
salary reductions and reductions in fringe benefits.
As a result of the continuing losses, which have continued through the first
quarter of 1993, Fruehauf was not in compliance with certain financial
covenants at December 31, 1992. On March 15, 1993, Fruehauf and its lenders
amended the terms of its Bank Credit Facility. Fruehauf is attempting to
secure alternative financing which would provide incremental borrowing and
enable it to extinguish all amounts owed under the Bank Credit Facility.
Additionally, the Company and Fruehauf announced on January 12, 1993 that a
number of unsolicited inquiries had been received from qualified parties
expressing an interest in purchasing the Fruehauf business. As a result of
this interest, a financial advisor was retained to explore opportunities for
maximizing Fruehauf's stockholder value. Given the uncertainty of the
transaction, the Company has not recorded the Fruehauf operating results in
accordance with Accounting Principles Board Opinion No. 30 "Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions". The impact of any consummated transactions will be recorded at
the time the transaction is completed.
Summary Financial Information
Assets of the Fruehauf operation totaled $276,658 at December 31, 1992
consisting of current assets of $102,715 and noncurrent assets of $173,943.
Current assets consist primarily of cash, receivables, inventories and prepaid
expenses which management believes will be disposed in the normal business
cycle, while noncurrent assets consist primarily of property, plant and
equipment, investments in affiliates, assets held for sale, a facility leased
to a Fruehauf affiliate and certain other noncurrent assets. Liabilities of
the Fruehauf operation are $294,176 at December 31, 1992 consisting of current
liabilities of $196,641 and noncurrent liabilities (exclusive of a $14,890
long-term payable to Terex) of $82,645. Current liabilities include trade
payables, accrued compensation and benefits, the current portion of long-term
debt and other accruals. Noncurrent liabilities include the noncurrent portion
of postretirement health care costs, product liability, environmental
obligations and other long-term reserve requirements. Sales of Fruehauf were
$489 million, $513 million and $589 million in 1992, 1991 and 1990,
respectively, and net loss (100% basis) of the Fruehauf operation was $65,160,
$28,876 and $2,176 in 1992, 1991 and 1990, respectively.
Because Fruehauf has experienced significant losses since 1991 and continues to
have a stockholders' deficit after the new equity investment, Terex's carrying
value for its investment in Fruehauf has been reduced to zero. Terex has also
recognized a contingent obligation of approximately $3 million, with respect to
guaranties by Terex of certain obligations of Fruehauf. Until such time as
Fruehauf returns to profitability and achieves a positive net worth, the
Company does not expect to recognize any additional losses or income with
respect to its investment in Fruehauf.
NOTE E -- INVESTMENTS IN AFFILIATE COMPANIES
The Company has a less than 50% investment in North Hauler Limited Liability
Company ("North Hauler") which was acquired in 1987. North Hauler, located in
Baotou, Inner Mongolia, People's Republic of China, is engaged in the
manufacturing and marketing of off-highway trucks for use in mining, road
construction and other heavy industries. The carrying value of this investment
is $-0- at December 31, 1992.
In March 1992, the Company sold an 80% interest in Benton Harbor Engineering,
Inc. for a purchase price of $4,300. No gain or loss was recorded on the
disposal. The Company financed the sale through the issuance of a $4,300
seller note ("BHE Note"). The note is payable in annual installments on
December 31, 1993 and December 31, 1994 and semiannually thereafter through
June 2003. The interest rate is initially at the rate of prime plus 2%, with
such rate increasing by one percent on each anniversary of the date the first
interest payment is due to a maximum of five percent over the then prime rate.
The note is secured by the purchased assets, as well as all assets subsequently
acquired. There is no quoted market value for this note, therefore, a precise
estimate of the fair value could not be made without incurring excessive costs.
However, given that the note originated in March 1992, management believes that
the carrying value approximates fair value. The carrying value of this
investment is $3,871 at December 31, 1992.
Fruehauf has less than 50% investments in three foreign corporations engaged in
the design, manufacture and marketing of truck trailers. Fruehauf's investment
in Societe Europeenne de Semi-Remorques, S.A. ("SESR"), Europe's leading
trailer manufacturer, is the largest equity investment with a recorded value at
December 31, 1991 of $30,072. The book value of Fruehauf's investment in SESR
exceeds Fruehauf's proportionate share of the underlying equity in net assets.
The related excess purchase price of $8,010 at December 31, 1991, is being
amortized on a straight-line basis over 20 years. During 1991, Fruehauf sold a
portion of its investment in SESR, which was in turn sold to SESR, reducing its
ownership from approximately one-third to approximately 23%. In addition to
the $8,739 of cash received upon the sale of SESR shares, 1) certain litigation
between SESR and Fruehauf was settled, 2) Fruehauf shares of SESR and related
accumulated dividends previously held in escrow as a result of the
aforementioned litigation were released to Fruehauf, 3) Fruehauf
representatives to the SESR Board of Directors were reinstated, 4) and expiring
royalty and trademark and license agreements between SESR and Fruehauf were
renegotiated. As a net result of these transactions, Fruehauf recorded a loss
of $3,312.
The carrying value of Fruehauf's other affiliate accounted for under the equity
method is $7,557 at December 31, 1991. The carrying value of Fruehauf's two
affiliates accounted for under the cost method is $2,516 at December 31, 1991.
Summarized financial data (100% basis) for Fruehauf's affiliates accounted for
under the equity method is as follows:
Year Ended December 31,
1991 1990
Net sales $822,045 $831,372
Gross profit 133,190 139,600
Net income (loss) 15,238 24,594
December 31,
1991 1990
Current assets $424,405 $401,483
Noncurrent assets 212,428 182,118
Current liabilities 283,690 246,141
Noncurrent liabilities and deferred taxes 190,013 169,665
Fruehauf's share of the net income (loss) of affiliate companies accounted for
using the equity method was $4,209 and $7,480 for the years ended December 31,
1991 and 1990, respectively. Dividends received from such companies totaled
$1,681 for 1991, and $732 for 1990. Dividends received from affiliated
companies accounted for under the equity method are applied as a reduction of
the carrying value of the investments.
Fruehauf received dividends from its affiliates accounted for using the cost
method totaling $130 and $146 in 1991 and 1990, respectively. Such dividends
are included in Other income (expense) in the Consolidated Statement of Income.
Fruehauf sold material to its less than 50% equity affiliates totaling
approximately $5,688 and $6,761 for the years ended December 31, 1991 and 1990,
respectively. Such sales were made on the same terms and conditions as with
other customers. In addition, Fruehauf received amounts pursuant to royalty
and trademark and license agreements from its less than 50% owned equity
affiliates totaling $2,518 and $4,221 for the years ended December 31, 1991 and
1990, respectively. Amounts receivable from such affiliates at December 31,
1991 and 1990 totaled $2,040 and $2,352, respectively.
NOTE F -- INVENTORIES
Inventories consist of the following:
December 31,
1992 1991
New equipment $50,689 $64,875
Used equipment 1,495 19,761
Work-in-process and finished parts 83,090 99,879
Raw materials and supplies 67,014 63,078
Long-term contract costs in excess of
customer advances of $0 in 1992 and
$4,749 in 1991 --- 3,422
Gross inventories 202,288 251,015
Add: Excess of LIFO inventory value
over (under) FIFO costs (5,152) 1,559
Net inventories $197,136 $252,574
Adequate provisions have been recorded for all inventory determined to be
surplus or obsolete. That determination incorporates management's best
estimate of the Company's future operations and the economic conditions in the
industries served by the Company.
NOTE G -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at:
December 31,
1992 1991
Property $14,434 $35,897
Plant 54,662 59,716
Equipment 73,021 77,250
142,117 172,863
Less: Accumulated depreciation 25,838 43,303
Net property, plant and equipment $116,279 $129,560
NOTE H -- ASSETS AND BUSINESS HELD FOR SALE
Fruehauf is holding for sale certain excess real estate, facilities and other
assets, as well as the Decatur Business, which are included in the December 31,
1991 consolidated balance sheet under the caption "Assets Held for Sale."
The Decatur Business consists of Fruehauf's wholly-owned aluminum extrusion
business and a 50% equity interest in Decatur Aluminum Company, a corporation
engaged in the production of aluminum sheeting. The Decatur Business supplies
aluminum sheeting and extrusions to Fruehauf's trailer manufacturing plants.
Fruehauf acquired the Decatur Business as part of the Fruehauf acquisition and
has announced its intention to divest this business. The Decatur Business is
included in the Consolidated Balance Sheet for ($1,077) at December 31, 1991.
Changes in the carrying value of the Decatur Business result from the net cash
used in (generated from ) the Decatur Business. The operating results of the
Decatur Business are not included in the Consolidated Statement of Income.
The Decatur Business experienced losses of approximately $900, and $800 in 1991
and 1990, respectively, which were excluded from the Consolidated Statement of
Income. Reserves were established at the Fruehauf acquisition to absorb
operating results until the Decatur Business is divested. Revenues from the
Decatur Business (on a 100% basis) were $62,538 in 1992, $55,055 in 1991, and
$57,204 in 1990. The majority of these revenues were intercompany sales which
would have been eliminated in consolidation.
Fruehauf previously announced its intention to divest Jacksonville, its
wholly-owned ship repair subsidiary, at the time of the Fruehauf acquisition in
1989. Jacksonville's primary floating dry-docks were sold in September, 1991
for $28,750, and the proceeds were applied against the repayment of
Jacksonville's $29,600 of Industrial Development Revenue Bonds. Substantially
all remaining operations at Jacksonville ceased in 1992, and a program was
implemented to liquidate the remaining assets, consisting primarily of real
estate and receivables. Fruehauf recorded a $11,551 charge in 1992, relating
to the closure and liquidation of Jacksonville, which is included in
determining the Company's equity in the net loss of Fruehauf for 1992.
The results of Jacksonville are not included in the Consolidated Statement of
Income. Jacksonville revenues were $40,700 in 1991 and $31,400 in 1990 and
losses were $3,400 in 1991 and $2,500 in 1990. Jacksonville's assets and
liabilities are included in the December 31, 1991 Consolidated Balance Sheet
under the respective captions.
In December 1991, Fruehauf sold substantially all the operating assets of CEMCO
for $6,150 and recorded a gain of $6,599. CEMCO had been in the business of
manufacturing cranes. The net proceeds of the sale were used to reduce
Fruehauf's outstanding indebtedness. The remaining assets and liabilities of
CEMCO, consisting primarily of receivables and warranties, are included in the
December 31, 1991 Consolidated Balance Sheet. The operating results of CEMCO
are not included in the Consolidated Statement of Income because reserves were
established at the time of the Fruehauf acquisition to absorb such operating
losses.
In addition to the Decatur Business and Jacksonville's real estate, Fruehauf
holds for sale other idle facilities. As a result of manufacturing and
distribution restructuring programs, certain facilities were added to the
Assets Held for Sale in 1991. Fruehauf is actively marketing all excess
properties, and in certain instances, is leasing them in order to generate
funds to help cover holding costs. These nonoperating properties are carried
on a lower of cost or market basis. In the opinion of management, adequate
reserves have been established to absorb holding costs until disposition. As
previously discussed in Note D -- "Investment in Fruehauf Trailer Corporation",
Fruehauf wrote-down certain assets held for sale and recorded provisions for
related holding costs in 1991.
Excluding the proceeds generated from the sale of CEMCO's operating assets and
Jacksonville's floating dry-docks, Fruehauf generated proceeds from the sale of
excess assets of $4,785 and $18,919 in the years ended December 31, 1991 and
1990, respectively. All proceeds generated from the sale of excess Fruehauf
assets are required to be applied against the outstanding indebtedness under
Fruehauf's Bank Credit Facility (see Note I -- "Long-Term Obligations").
NOTE I -- LONG-TERM OBLIGATIONS
Long-term debt is summarized as follows:
December 31,
1992 1991
Terex and Clark Debt:
Senior Secured Notes bearing interest at 13%,
due August 1, 1996 $158,895 $ ---
Secured Senior Subordinated Notes bearing
interest at 13.5% payable in equal annual
principal installments, due July, 1997 40,725 48,700
Secured promissory note bearing interest
at prime rate, due July 31, 1994 6,090 ---
Unsecured term note bearing interest at 9.0%
payable in equal semiannual installments
from August, 1994 to February, 1998 757 935
Unsecured term notes bearing interest at prime
rate plus 0.5%, due June, 1993 --- 20,000
Unsecured term notes bearing interest from
6.5% - 7.0%, due June, 1993 --- 42,000
Unsecured noninterest bearing term note with
an imputed interest rate of 10.3% payable
in equal annual installments of $2,000 from
January, 1990 to January, 1992 --- 1,991
Other 123 ---
Capital lease obligations (Note J) 9,442 5,455
Total Terex and Clark 216,032 119,081
Fruehauf debt:
Secured Bank Credit Agreement bearing interest
at prime plus 2.25% in 1993, prime plus 2.0%
in 1992, prime plus 1.5% prior thereto,
due June, 1993 --- 85,128
Mortgage note bearing interest at 9.625%
collateralized by an idle plant,
due September, 2001 --- 4,379
Unsecured promissory note held by a related
party bearing interest at 14% in 1992 and
12% in 1991, due March, 1996 --- 7,497
Total Fruehauf debt 0 97,004
Total long-term debt 216,032 216,085
Current portion of long-term debt 11,543 23,636
Long-term debt, less current portion $204,489 $192,449
In conjunction with the Clark Acquisition, the Company refinanced a major
component of its previously outstanding bank debt (the "Refinancing"). The
Refinancing included the issuance of $160 million, 13% senior secured notes,
due August 1, 1996 (the "Senior Secured Notes"), establishment of a $60 million
credit agreement with a commercial bank (the "Bank Lending Agreement") and
amendments to its existing $50 million Secured Senior Subordinated Notes (the
"Subordinated Notes"). Proceeds from the issuance of the Senior Secured Notes
were used for the cash portion of the Clark Acquisition purchase price ($85
million), for the settlement of all amounts outstanding under its previous
credit facility ($58 million), and for working capital and transaction costs.
Terex and Clark Debt
Senior Secured Notes and Subordinated Notes
In connection with the sale of the Senior Secured Notes and obtaining the
consent of the holders of the Company's existing $50 million, 13.5%
Subordinated Notes due July 1, 1997 to modification of the Subordinated Notes,
the Company issued 658,409 common stock appreciation rights ("SAR's"). As of
December 31, 1992 there were 639,794 SAR's outstanding. Of the outstanding
SAR's, 567,000 may be exercised at the option of the holder thereof at any time
on or after January 27, 1993, but not later than July 31, 1996. The remaining
72,794 SAR's may be exercised through July 1, 1997. The SAR's entitle the
holder to receive, in cash, an amount equal to the market appreciation in the
Company's common stock between $11 per share, subject to adjustment, and the
average price per share for the 30 consecutive trading days prior to the date
of exercise. The Company also amended its Subordinated Notes by granting the
holders of the notes a secondary secured position in certain of the Company's
assets.
The provisions of the Senior Secured Notes agreement required that the Company
register the notes with the Securities and Exchange Commission by November 30,
1992 which registration was to become effective no later than March 1, 1993.
As of May 12, 1993, Terex has not completed the required filing with the
Securities and Exchange Commission. As a result, Terex is incurring liquidated
damages of $8 per week for the first thirteen weeks and $16 per week thereafter
until such filing becomes effective. Interest on the Senior Secured Notes is
due semiannually on February 1 and August 1.
In June 1987, the Company initially issued the $50 million unsecured
Subordinated Notes for net proceeds of $48,801. The notes, due in 1997, have
annual sinking fund requirements of $8,333 due July 1 which commenced in 1992.
Interest on the Subordinated Notes is due semiannually on January 2 and July 1.
As discussed above, the holders were granted a secondary secured position in
certain of the Company's assets during 1992. Also, the Company agreed to
repurchase $7.5 million of Subordinated Notes on May 28, 1993, approximately 30
days in advance of the date of the required sinking fund payment of $8.3
million and to apply those notes against the sinking fund payment. The Company
expects to have adequate liquidity to effect such repurchase. However, without
the consummation of the Lending Facilities (see the Lending Facilities
discussion below), the Company would have difficulty in meeting its debt
obligations on May 28, 1993 without taking steps which might impair its
business. If the Lending Facilities are not consummated by May 28, 1993,
management may conclude that the best interests of the Company may be served by
not effecting its debt repurchase obligations on May 28, 1993. In such event,
the Company will be exposed to legal action by the holders of the Subordinated
Notes to be repurchased for any losses they incur.
The Senior Secured Notes are secured by substantially all inventory and
property, plant and equipment of the Company's Material Handling and Heavy
Equipment Segments, as well as the Company's investment in Fruehauf common
stock. The Subordinated Notes holders have a secondary secured position in
certain of the Company's assets. The indentures governing the Senior Secured
Notes and the Subordinated Notes require, among other things, that the Company
maintain certain levels of tangible net worth and collateral coverage. In the
event that the Company is not in compliance with its tangible net worth
covenant for two consecutive quarters or its collateral coverage covenant, the
Company must offer to repurchase, at par plus accrued interest, specified
portions of the principal amount of long-term debt.
The Company believes that, based on management's current estimates, it will be
in compliance with its covenants with respect to its Senior Secured Notes and
Subordinated Notes throughout 1993. However, certain future events could
affect the Company's continuing compliance with such covenants. In particular,
in computing tangible net worth under the covenants of the Senior Secured Notes
and the Subordinated Notes, the Company is allowed to maintain a defined value
for its investment in Fruehauf. At December 31, 1992, the defined value
approximated $51.0 million. At December 31, 1992, the market value of the
Company's investment in Fruehauf was $24.4 million. As discussed in Note D -
"Investment in Fruehauf Trailer Corporation" to the Consolidated Financial
Statements, the Company is evaluating alternatives relating to its investment
in Fruehauf, including selling Terex's shares of Fruehauf common stock. If, as
a result of any transactions affecting its investment in Fruehauf, or any other
reason, the Company is not in compliance with certain of its covenants, the
Company may be required to offer to repurchase 20% of the outstanding notes.
If such offer were to be made, it is likely that the Company would require
additional funding to complete the offer, and if such funding were unavailable
to it, the Company would be unable to comply with the terms of the notes and
the notes may be accelerated. Such circumstances could result in a material
adverse impact on the Company and its financial position.
In addition to the financial covenants discussed above, the indentures
governing the Senior Secured Notes and Subordinated 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, as well as place limitations on change of
control.
Certain defaults under the Bank Lending Agreement, the Senior Secured Notes and
the Subordinated Notes, which existed at December 31, 1992 have been waived or
cured as of May 11, 1993.
Bank Lending Agreement
Immediately following the Clark Acquisition and Refinancing and through May 12,
1993, no cash amounts were outstanding under the Bank Lending Agreement. The
Bank Lending Agreement is currently utilized only for outstanding letters of
credit. The Bank Lending Agreement is secured by all cash and receivables of
the Company's Material Handling and Heavy Equipment Segments. The Bank Lending
Agreement originally provided for cash advances or for the issuance of bank
letters of credit up to the $60 million commitment subject to the available
collateral.
The Bank Lending Agreement provided for adjustments to the $60 million
commitment amount based upon Terex's compliance with base financial ratios. On
December 31, 1992, Terex's financial ratios (based upon November 30, 1992
financial data) did not meet the base financial ratios; as a result, the
commitment amount under the Bank Lending Agreement was reduced to $33,762. At
December 31, 1992, the revolving credit facility was limited to the lesser of
the commitment amount ($33,762) or the available borrowing base. The total
borrowing base available under the Bank Lending Agreement is based upon the
application of prescribed advance ratios against eligible receivable balances.
Available borrowing base ranged from $26,135 to $38,332 since the inception of
the Bank Lending Agreement on July 31, 1992 through December 31, 1992. At
December 31, 1992, the available borrowing base was $27,444. There were no
cash advances under the Bank Lending Agreement at December 31, 1992;
outstanding letters of credit under the Bank Lending Agreement totaled $38,923
at December 31, 1992. Given that outstanding letters of credit were in excess
of the lender determined available borrowing base, Terex was required to
maintain, in its operating account, a minimum balance equal to the difference
between the balance of outstanding letters of credit and available borrowing
base. Such amount is presented as Restricted Cash on the Consolidated Balance
Sheet.
The Bank Lending Agreement, among other things, requires that the Company
maintain certain financial covenants contained in the agreement. Such
covenants relate to minimum profitability ratios and levels of tangible net
worth, as well as maximum levels of leverage and capital expenditures. In
addition to the financial covenants, the Bank Lending Agreement limits, among
other things, Terex's ability to incur additional indebtedness, consummate
mergers and acquisitions, pay dividends, and enter into transactions with
affiliates as well as places limitations on change in control. The Bank
Lending Agreement defines "a material adverse change or an event which would
have a material adverse effect" as an event of default.
The Company was not in compliance with certain financial covenants in the Bank
Lending Agreement at December 31, 1992. Terex has since received waivers for
the noncompliance and the financial covenants in the Bank Lending Agreement
have been revised. The revised lending agreement allows no cash borrowing
availability and states that beginning April 21, 1993, the Company must
commence increasing the amount of the cash collateral at specified increments
such that by June 30, 1993 all letters of credit are cash collateralized. The
Company is attempting to secure alternative financing which would provide
adequate liquidity and working capital for the Company's future needs. The
Company has received preliminary credit approval from a financial institution
to provide short-term financing ("Short-term Agreement") by about May 21, 1993,
and a permanent financing facility ("Permanent Lending Agreement") shortly
thereafter (together "The Lending Facilities"). The Short-term Agreement only
provides cash advances of $15 million and will be secured by all domestic
receivables of the Company. The Permanent Lending Agreement is expected to
replace the Short-term Agreement and provide up to $45 million for cash
advances and guarantees of bank letters of credit and will be secured by all
domestic receivables of the Company. The Company believes that the Short-term
and Permanent Lending Agreements can be completed in sufficient time to allow
the Company to meet all of its debt service and debt payment obligations on a
timely basis. However, if such financing is not available or if it is
significantly delayed, the Company may not be able to meet its debt and other
obligations on a timely basis. If such event were to occur, the Company would
be in a payment default which would give the holders of such obligations the
right to accelerate their indebtedness which could result in a material adverse
effect on the Company. As of April 15, 1993, the noncash collateralized
letters of credit were $5.9 million, while accounts receivable remained
substantially unchanged from the December 31, 1992 balance of $78.3 million.
Other Long-Term Obligations
A portion of the Clark purchase price was financed through a seller note in the
amount of $6,090 due July 31, 1994. Interest accrues at prime rate and is due
quarterly. The seller note is secured by certain property, plant and
equipment.
TEL entered into a revolving credit facility with a group of banks in January,
1989. The facility is secured by a letter of credit from the Bank Lending
Agreement and provides for up to approximately $4.6 million of multi-currency
loans on a revolving basis. The interest rates vary depending on the currency.
There were no amounts outstanding under the facility at December 31, 1992 and
1991.
Fruehauf Debt
As more fully described in Note D - "Investment in Fruehauf Trailer
Corporation," the Company presently accounts for its 42% ownership interest in
Fruehauf using the equity method, and the consolidated financial statements are
presented giving effect to the deconsolidation of Fruehauf as of January 1,
1992. By the terms of debt agreements of both companies, neither company is
obligated for, or may participate in, the debt service of the other. Fruehauf
debt as described below is included in the consolidated balance sheet at
December 31, 1991.
Fruehauf Secured Bank Credit Agreement
The Secured Bank Credit Agreement (the "Bank Credit Facility") constitutes
Fruehauf's primary lending facility and is secured by substantially all of the
assets of Fruehauf. The Bank Credit Facility provides both a term loan and a
revolving credit facility. Amounts outstanding under the term loan were
$70,128 at December 31, 1991. At December 31, 1991, the revolving credit
facility was limited to the lesser of $45,000 or the available borrowing base,
and the maximum cash advance availability was $20,000. The available borrowing
base is calculated by applying prescribed advance ratios against eligible
receivable and inventory balances, in accordance with the Bank Credit Facility.
Outstanding cash advances totaled $15,000 at December 31, 1991. Outstanding
letters of credit totaled $20,520 at December 31, 1991.
All proceeds from the sale of collateralized assets must be applied against the
outstanding Bank Credit Facility indebtedness, including proceeds from the sale
of most of the properties included in noncurrent Assets Held for Sale on the
Consolidated Balance Sheet. As a result, Fruehauf cannot sell excess
properties for the purpose of generating working capital.
A commitment fee of 1/2 of 1% per annum is payable on any unused portion of the
revolving credit and letter of credit facility. Total unused credit under the
revolving credit facility was $9,480 at December 31, 1991. The actual
borrowing rate was 8.0% at December 31, 1991.
The Bank Credit Facility restricts the payment of dividends and requires, among
other things, that Fruehauf maintain certain levels of tangible net worth and
working capital, meet certain current and debt to equity ratios, and achieve
certain levels of operating performance and interest coverage. While Fruehauf
remained current in all of its payment obligations under the Bank Credit
Facility, Fruehauf was not in compliance with certain financial covenants at
December 31, 1991.
In September, 1990, Fruehauf entered into the Bank Credit Facility and
refinanced the majority of its then outstanding long-term debt. A one-time
extraordinary loss of $2,192, or ($.22) per share, was recorded to write-off
the unamortized debt issuance costs relating to the refinanced debt. The
income tax provision (benefit) on the extraordinary loss was zero. See Note B
- -- "Restatement of Prior Period Results".
Mortgage Note
The mortgage collateralized by an idle plant (the "Fresno Mortgage") was
assumed in the Fruehauf acquisition. The Fresno Mortgage is collateralized by
Fruehauf's Fresno, California manufacturing plant, which was closed in early
1992. The interest rate on the Fresno Mortgage is 9.625%, and combined
principal and interest payments of $345 are payable semiannually until
September, 2001. Fruehauf is actively attempting to sell the former Fresno
manufacturing plant, and is required to extinguish the Fresno Mortgage with
such proceeds.
Unsecured Promissory Note Held by a Related Party
In conjunction with the Fruehauf initial public offering and recapitalization
in 1991, Fruehauf extinguished all of its then outstanding Series B Promissory
Notes and all but $7,497 of the Series A Promissory Notes. The $7,497 of
Series A Notes not extinguished were held by The Airlie Group L.P. and Trailer
Partners (collectively "Airlie") and were exchanged for Fruehauf Notes totaling
$7,497. The Fruehauf Notes initially bore interest at the rate of 12% per
annum, and matured July 1, 1992. The Fruehauf Notes are subordinated to the
Bank Credit Facility. Payment of the Fruehauf Notes can only be accelerated in
the event that the indebtedness under the Bank Credit Agreement has been
accelerated or extinguished.
Schedule of Debt Maturities
Scheduled annual maturities of long-term debt outstanding at December 31, 1992
in the successive five-year period are summarized below:
1993$ 8,333
1994 14,518
1995 8,522
1996 167,417
1997 7,582
Thereafter 218
Total $206,590
Amounts shown are exclusive of minimum lease payments disclosed in Note J --
"Lease Commitments".
The Company believes that the carrying value of its borrowings approximates
fair market value. Such fair values were estimated by discounting future cash
flows using rates currently available for debt of similar terms and remaining
maturities.
The Company paid $15,602, $26,591, and $39,572 of interest in 1992, 1991 and
1990, respectively.
NOTE J -- LEASE COMMITMENTS
The Company leases certain facilities, machinery and equipment, and vehicles
with varying terms. Under most leasing arrangements, the Company pays the
property taxes, insurance, maintenance and expenses related to the leased
property. Certain of the equipment leases are classified as capital leases and
the related assets have been included in Property, Plant and Equipment in Note
G -- "Property, Plant and Equipment". Net assets under capital leases were
$6,777 and $5,229 at December 31, 1992 and 1991, respectively. Those assets
are net of accumulated amortization of $2,721 and $2,353 at December 31, 1992
and 1991, respectively. Such amortization is included in Accumulated
Depreciation in Note G -- "Property, Plant and Equipment".
Future minimum capital and noncancelable operating lease payments and the
related present value of capital lease payments at December 31, 1992 are as
follows:
Capital Operating
Leases Leases
1993 $3,854 $6,232
1994 2,759 4,056
1995 1,987 3,462
1996 1,402 2,744
1997 1,074 2,023
Thereafter 678 2,103
Total minimum obligations $11,754 $20,620
Less amount representing interest 2,312
Present value of net minimum obligations 9,442
Less current portion 3,210
Long-term obligations $6,232
Noncash investing and financing activities include capital lease obligations of
$2,150, $2,705, and $841 incurred in 1992, 1991, and 1990, respectively, when
the Company entered into leases for new equipment.
Most of the Company's operating leases provide the Company with the option to
renew the leases for varying periods after the initial lease terms. These
renewal options enable the Company to renew the leases based upon the fair
rental values at the date of expiration of the initial lease.
Total rental expense under operating leases was $6,601, $9,443, and $7,819 in
1992, 1991, and 1990, respectively.
The Company's Material Handling Segment also routinely enters into
sale-leaseback arrangements with regards to certain equipment, which is later
sold to third-party customers under sales-type lease agreements. The Company
maintains a net investment in these leases, represented by the present value of
payments due under the leases of $8,888 of which $2,263 is current at December
31, 1992. The net investment is included in Other Assets in the Consolidated
Balance Sheet. The total lease payments related to the net investment is
$10,294 at December 31, 1992.
In connection with the original sale-leaseback arrangements underlying the
customer leasing program, the Company has an outstanding rental installment
obligation. Consistent with the nature of the capital leases, the obligation
reflects the present value of minimum payments due under the leases. The
current portion of this obligation is included in Current Portion of Long-term
Debt in the Consolidated Balance Sheet.
NOTE K -- INCOME TAXES
The components of Income (Loss) Before Income Taxes, Minority Interest and
Extraordinary Loss are as follows:
Year ended December 31,
1992 1991 1990
United States $(59,921)$(34,874) $11,633
Foreign 2,813 (3,766) (1,027)
Income (loss) before income taxes,
minority interest and extraordinary loss $(57,108)$(38,640) $10,606
The major components of the Company's provision for income taxes is summarized
below:
Year ended December 31,
1992 1991 1990
Current:
Federal $--- $--- $820
State --- --- 573
Foreign 167 868 865
Current income tax provision 167 868 2,258
Deferred:
Federal (100) --- 103
State --- --- ---
Foreign --- --- ---
Deferred income tax provision (benefit) (100) --- 103
Total provision for income taxes $67 $868 $2,361
The Company's Provision for Income Taxes is different from the amount which
would be provided by applying the statutory federal income tax rate to the
Company's Income (Loss) Before Income Taxes, Minority Interest and
Extraordinary Loss. The reasons for the difference are summarized below:
Year ended December 31,
1992 1991 1990
% $ % $ % $
Statutory federal income
tax rate (34)% $(19,417)(34)% $(13,138) 34% $3,606
Future potential benefit from
current NOL 35 20,274 31 11,858 --- ---
Federal alternative minimum tax --- --- --- --- 3 337
Foreign tax differential on
income/losses of foreign
subsidiaries (1) (856) 4 1,432 1 145
Utilization of federal net
operating loss carryforwards --- --- --- --- (18) (1,842)
State income tax net of
federal benefit --- --- --- --- 3 378
Other --- 66 1 716 (1) (263)
Provision for income taxes 0% $67 2% $868 22% $2,361
At December 31, 1992, the Company had domestic federal tax basis net operating
loss and tax credit carryforwards of $151,003 and $369, respectively.
Approximately $93,000 of the remaining net operating loss carryforwards and all
of tax credit carryforwards are attributed to Terex prior to its 1986
acquisition by Northwest Engineering Company ("Northwest" - Now called Terex).
These net operating loss and tax credit carryforwards have special limitations
placed on them under the Internal Revenue Code. In accordance with SFAS No.
96, "Accounting for Income Taxes", the tax benefits of the unused net operating
loss and tax credit carryforwards have not been recognized in the Consolidated
Financial Statements, except by reducing deferred taxes, as the recognition of
these benefits is dependent on future taxable income.
The tax basis net operating loss and tax credit carryforwards expire as
follows:
Tax Basis Net
Operating Loss Tax
Carryforwards Credits
1993 $--- $69
1994 --- 140
1995 24,041 63
1996 45,231 29
1997 8,004 38
1998 11,908 17
1999 --- 13
2000 4,581 ---
2006 20,689 ---
2007 36,549 ---
Total $151,003 $369
Additionally, the Company has an alternative minimum tax credit carryforward of
$580 available to offset future regular income taxes.
The Company also has various state net operating loss and tax credit
carryforwards expiring at various dates through 2007 available to reduce future
state taxable income and income taxes, respectively. In addition, the
Company's foreign subsidiaries have approximately $52,657 of tax basis loss
carryforwards which may be available to offset future foreign taxable income,
$4,735 expiring in the years 1993 through 1997, and the remainder generally
remain available without expiration dates.
The Company made income tax payments of $66, $731 and $1,491 in 1992, 1991 and
1990, respectively.
NOTE L -- STOCKHOLDERS' INVESTMENT
Stock Options. The Company maintains a qualified stock option plan ("ISO")
covering certain officers and key employees. The exercise price of the ISO
stock option is the fair market value of the shares at the date of grant. The
ISO allows the holder to purchase shares of common stock, commencing one year
after grant. ISO options expire after ten years. At December 31, 1992, 52,312
of the 395,354 stock options were available for grant.
The following table is a summary of stock options:
Number Exercise Price
of Options per Option
Outstanding at December 31, 1989 199,500 $4.00 to 18.50
Granted 18,000 20.50
Exercised (118,292) 4.00 to 16.25
Canceled or expired (2,000) 12.75
Five-for-four stock split adjustment 34,542 ---
Outstanding at December 31, 1990 131,750 $6.40 to 20.50
Granted 6,000 10.00 to 12.75
Exercised (29,917) 6.40 to 10.60
Canceled or expired (29,250) 6.40 to 20.50
Outstanding at December 31, 1991 78,583 $6.40 to 14.80
Granted 20,000 13.25
Exercised (25,917) 6.40 to 14.80
Canceled or expired (13,000) 10.20 to 14.80
Outstanding at December 31, 1992 59,666 $6.40 to 14.80
Exercisable at December 31, 1992 37,666 $6.40 to 14.80
Stock Appreciation Rights. In connection with the sale of the Senior Secured
Notes and obtaining the consent of the holders of the Company's existing
Subordinated Notes to modify the Subordinated Notes, the Company issued 658,409
common stock appreciation rights. As of December 31, 1992, there were 639,794
SAR's outstanding. The SAR's entitle the holder to receive the market
appreciation in the Company's common stock between $11 per share, subject to
adjustment, and the average price per share for the 30 consecutive trading days
prior to the date of exercise. At December 31, 1992, there was no reserve
requirement necessary as the Company's common stock price was below $11 per
share.
Stock Split. In May 1990, the Company declared a five-for-four stock split in
the form of a stock dividend. All option data subsequent to this date has been
adjusted to properly reflect the split.
Dividends. No dividends were declared or paid in 1992. In 1991 and 1990, the
Company declared and paid an annual dividend of six cents and five cents per
share, respectively, on its outstanding common stock at each record date. As
discussed in Note I -- "Long-Term Obligations", certain of the Company's debt
agreements contain restrictions as to the payment of cash dividends. Under the
most restrictive of these agreements, no retained earnings were available for
dividends at December 31, 1992.
NOTE M -- RETIREMENT PLANS
The Company maintains numerous defined benefit pension plans covering most
domestic employees. The benefits for the plans covering the salaried employees
are based primarily on years of service and employees' qualifying compensation
during the final years of employment. The benefits for the plans covering the
hourly employees are based primarily on years of service and a flat dollar
amount per year of service. It is the Company's policy to fund these plans
based on the minimum requirements of the Employee Retirement Income Security
Act of 1974 (ERISA). Plan assets consist primarily of common stocks, bonds,
and short-term cash equivalent funds.
Pension expense includes the following components for 1992, 1991, and 1990:
Year Ended December 31,
1992 1991 1990
Service cost for benefits earned
during period $499 $1,399 $2,150
Interest cost on projected benefit
obligation 2,378 7,377 7,009
Actual (return) loss on plan assets (3,052) (12,680) 14,827
Net amortization and deferral 1,870 6,140 (22,966)
Curtailment loss 58 17 207
Net pension expense $1,753 $2,253 $1,227
The following table sets forth the plans' funded status and the amounts
recognized in the Company's financial statements at December 31:
1992 1991
Underfunded Overfunded Underfunded
Plans Plans Plans
Actuarial present value of:
Vested benefits $27,249 $69,587 $26,331
Accumulated benefits $27,637 $70,705 $26,858
Projected benefits $29,602 $70,705 $29,163
Fair value of plan assets 19,929 73,744 13,919
Projected benefit obligation
(in excess of) less than
plan assets (9,673) 3,039 (15,244)
Unrecognized net loss from past
experience different than assumed 6,328 11,756 7,963
Unrecognized prior service cost 920 (5,691) 1,121
Unrecognized transition (asset) (324) --- (450)
Adjustment to recognize minimum
liability (4,988) --- (9,354)
Pension asset (liability)
recognized in the balance sheet $(7,737) $9,104 $(15,964)
The expected long-term rate of return on plan assets was 9% for the periods
presented. The discount rate assumption was 8.25% for 1992, 8.5% for 1991 and
9.0% in 1990. The assumption for the rate of compensation increase if
applicable per plan provisions, was 5.5% for each year presented.
In accordance with the provisions of the SFAS No. 87, "Employers' Accounting
for Pensions", the Company has recorded an adjustment to recognize a minimum
pension liability of $4,988 and $9,354 at December 31, 1992 and 1991,
respectively. This liability is offset by an intangible asset of $536 and
$1,121 and a direct reduction of shareholders' equity of $4,452 and $8,233 at
December 31, 1992 and 1991, respectively.
Clark's German employees are also covered by a defined benefit pension plan as
required by German law. At December 31, 1992, the Company has accrued
approximately $11.2 million related to the benefits earned by active and
retired participants as of that date. The plan is unfunded. Pension expense
relating to this plan was approximately $636 for the five months ended December
31, 1992.
In addition to providing pension benefits, the Company provides health care and
life insurance benefits for certain former domestic employees who retired prior
to December 31, 1990. The majority of the cost of retiree health care is
charged against reserves previously established in purchase accounting for
business combinations. Retiree health payments totaled $235, $3,919, and
$3,439 for the years ended December 31, 1992, 1991, and 1990, respectively.
The Company sponsors various tax deferred savings plans into which eligible
employees may elect to contribute a portion of their compensation. The Company
contributes to certain of these plans.
NOTE N -- LITIGATION AND CONTINGENCIES
General
In October 1992, a Class Action complaint was filed against the Company and its
Chairman, alleging, among other things, violation of certain provisions of the
federal securities laws. This suit seeks unspecified compensatory and punitive
damages and is pending in the United States District Court, District of
Connecticut. This action is at a very early stage; however, the Company
believes that the claims asserted are without merit and that it has valid
defenses to the claims made. A motion to dismiss the action has been filed by
the Company, and this motion is currently pending. The Company has not
recorded any loss provision for this litigation.
In December 1992, a separate Class Action complaint was filed against Fruehauf,
the Company and certain of Fruehauf's officers, directors and investment
bankers, in the United States District Court, 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. This action is at a very early stage; however, Fruehauf
and the Company believe that the claims asserted are without merit and that
they have valid defenses to the claims made. Fruehauf and the Company have
not recorded any loss provision for this litigation.
Terex has facilities at numerous geographic locations, which are subject to a
range of federal, state and local environmental laws and regulations.
Compliance with these laws has, and will, require expenditures on a continuing
basis.
Fruehauf has been identified as a "Potentially Responsible Party" at
approximately 19 multi-party Superfund sites, and has also identified
environmental exposures at approximately 21 other sites not designated as
superfund sites. The Company believes that it could have contingent
responsibility for certain of Fruehauf's liabilities with respect to Fruehauf's
environmental matters if Fruehauf fails to discharge its obligations, but only
to the extent that such liabilities arose during the period during which Terex
was the controlling stockholder of Fruehauf. The Company believes that
Fruehauf's significant environmental liabilities predate Terex's acquisition of
Fruehauf, and therefore any contingent responsibility is not expected to have a
material adverse effect on the Company.
As disclosed in Note I -- "Long-Term Obligations", Terex's outstanding letters
of credit totaled $38,923 at December 31, 1992. The letters of credit
generally serve as collateral for certain liabilities included in the
Consolidated Balance Sheet. Certain of the letters of credit serve as
collateral guaranteeing the Company's performance under contracts.
In the Company's lines of business, but primarily in the Material Handling
Segment, numerous suits have been filed alleging damages for injuries or deaths
from accidents involving the Company's products that have arisen in the normal
course of operations. As part of the acquisition of Clark, the Company and
Clark assumed both the outstanding and future product liability exposures
related to such operations. As of December 31, 1992, Clark had approximately
170 lawsuits outstanding alleging damages for injuries or deaths arising from
accidents involving Clark products. Most of the foregoing suits are in various
stages of pretrial completion, and certain plaintiffs are seeking punitive as
well as compensatory damages. In the aggregate, these claims could be material
to the Company. With respect to these product liability exposures, as well as
for certain exposures related to general, workers compensation and automobile
liability, the Company is self-insured up to certain limits. Insurance
coverage is obtained for catastrophic losses as well as those risks required to
be insured by law or contract. The Company has recorded and maintains an
estimated liability, based in part upon actuarial determinations, for such
uninsured risks and claims incurred, in the amount of management's estimate of
the Company's aggregate exposure for self-insured risks.
The Company is involved in various other legal proceedings which have arisen
in the normal course of its operations. The Company has recorded provisions
for estimated losses in circumstances where a loss is probable and the amount
or range of possible amounts of the loss is estimable.
The Internal Revenue Service is currently in various stages of examination of
the Company's Federal tax returns. Liability, if any, resulting from the
examinations cannot be determined at present. The Company believes it that its
positions for issues raised in these audits are correct and that it would
prevail if the taxing authorities were to propose adjustments. In any event,
management believes that the outcome of these examinations will not have a
material impact on the consolidated financial statements because the Company
has significant net operating loss carryovers. No accruals have been made for
any taxes which might result from these examinations.
The Company is contingently liable as a guarantor for certain customers' floor
plan obligations with financial institutions. As a guarantor, the Company is
obligated to purchase equipment which has been repossessed by the financial
institution based upon the unamortized principal balance outstanding. The
Company records the repossessed inventory at its estimated net realizable
value. Any resultant losses are charged against related reserves. The related
inventory is presented as a component of used equipment in Note F -
Inventories. The guarantee under such floor plans aggregated $19.2 million at
December 31, 1992. Adequate reserves, giving consideration to the collateral
related to the contingent liabilities, have been recorded for potential losses
arising from these guarantees. Losses, if any, under these arrangements are
not expected to be significant.
Clark has also given guarantees arising out of the ordinary conduct of its
business. These guarantees are to financial institutions and generally relate
to capital loans, residual guarantees and other dealer and customer
obligations, and approximated $44.9 million at December 31, 1992. Potential
losses on such guarantees are accrued as a component of the Allowance for
Doubtful Accounts.
To enhance its marketing effort and ensure continuity of its dealer network,
Clark has also agreed as part of its dealer sales agreements to repurchase
certain new and unused products and parts inventory and certain products used
as dealer rental assets in the event of a dealer termination. Through this
arrangement, Clark has been able to maintain dealer networks based on
operational standards and marketing requirements. Repurchase agreements
included in operating agreements with an independent financial institution have
been patterned after those included in the dealer sales agreements. Dealer
inventory and rental asset financing of approximately $253.9 million at
December 31, 1992 are covered by those operating agreements. It is not
practicable to determine the additional amount subject to repurchase solely
under the dealer sales agreements. Under these agreements, when dealer
terminations do occur, a newly selected dealer generally assumes the assets of
the prior dealer and any related financial obligations. Historically, Clark
has incurred only immaterial losses relating to these arrangements. For the
five months ended December 31, 1992, one dealer was terminated and the related
losses were negligible.
Terex has agreed to indemnify certain outside parties for losses related to
Fruehauf's worker compensation obligations. Some of the claims for which Terex
is contingently obligated are also covered by bonds issued by an insurance
company. Management is unable to estimate the amount or timing of losses, if
any, which might arise from claims for which Terex might be contingently
liable, and, accordingly, is unable to conclude that the amount would not be
material to the Company. As of December 31, 1992, in accordance with
Accounting Principles Board Opinion 18, Terex has recognized liabilities for
these contingent obligations in the aggregate amount of $3.0 million,
representing management's estimate of the maximum potential losses which the
Company might incur.
NOTE O -- RELATED PARTY TRANSACTIONS
KCS
The Company's Chairman and President is the controlling shareholder of KCS
Industries, Inc. ("KCS"), a corporation which provides legal, financial and
management services to the Company and Fruehauf under management contracts.
Pursuant to certain restrictions in Fruehauf's Bank Credit Facility, Fruehauf
was prohibited from paying management fees to KCS in excess of $2,300 in 1992
and is prohibited from making any payments in 1993 until all indebtedness under
the Bank Credit Facility is repaid. Payments to KCS by Terex and Fruehauf for
services rendered and for out-of-pocket expenses amounted to $5,148 in 1992 and
$5,831 in 1991, and $5,319 in 1990.
In addition to the 42% of the outstanding common stock of Fruehauf owned by the
Company, KCS and its shareholders own approximately 21.5% of Fruehauf's
outstanding common stock.
In conjunction with the Fruehauf acquisition, KCS purchased $7,500 of the
Series A Notes and $4,500 of the Series B Notes. During 1991, as part of the
recapitalization of Fruehauf in connection with its IPO, the warrants acquired
by KCS with the Series A Notes were exercised for Fruehauf common stock and the
Series B Notes were exchanged for Fruehauf common stock. At December 31, 1991,
Fruehauf no longer had debt payable to KCS. Interest and other expenses on
debt issued to KCS aggregated $1,651 and $2,746 in 1991 and 1990, respectively.
On January 25, 1993, Terex entered into an agreement whereby KCS borrowed $1.7
from Terex ("the KCS/Terex Note"). The KCS/Terex Note bore interest at prime.
The loan represented by the KCS/Terex Note may have constituted a default under
the Senior Secured Notes, the Subordinated Notes and the Bank Lending
Agreement. The entire balance was repaid to Terex on February 1, 1993, six
days after the initial borrowing, thereby curing any default which may have
occurred.
Fruehauf Trailer Corporation
Three members of the Company's Board of Directors also serve as directors for
Fruehauf Trailer Corporation.
Fruehauf has filed a consent solicitation with the Securities and Exchange
Commission to authorize the issuance of up to 2,500,000 shares of preferred
stock. A portion of these shares would be issued to the Company in exchange
for $11,587 of the long-term payable to the Company. The proposed transaction
would require ratification by the Fruehauf's stockholders prior to completion.
The consent solicitation was pending at December 31, 1992. The completion of
this transaction is uncertain.
The Company's Board of Directors approved a program to consolidate Fruehauf's
parts warehousing and administration functions with the Company. During the
fourth quarter of 1992, Fruehauf announced its intention to close its parts
warehouse in Westerville, Ohio and transfer its replacement parts inventory to
the Terex distribution center near Memphis, Tennessee. Under the proposed
arrangement, Terex will perform purchasing and warehousing functions for
Fruehauf in exchange for monthly parts warehousing fees. This relocation has
not yet been implemented and is dependent upon the eventual outcome of the
Fruehauf restructuring plan. In November 1992, in contemplation of this
agreement, Terex transferred $2,000 to Fruehauf. The $2,000 transfer
constituted a default ("November Default") under the Senior Secured Notes, the
Subordinated Notes and the Bank Lending Agreement. Subsequently in May 1993,
Terex entered into an agreement with Delphos Axle Corporation ("Delphos"), an
operating unit of Fruehauf, whereby Delphos will provide products and
manufacturing services to Terex. The agreement with Delphos required Terex to
make a $2,000 payment to Delphos, which Terex effected on May 11, 1993 by
instructing Fruehauf to transfer the $2,000 Fruehauf owed to Terex directly to
Delphos. This transfer also satisfied Fruehauf's $2,000 obligation to Terex so
that the events which gave rise to the November Default no longer exist.
In August, 1992, Clark purchased certain assets of a subsidiary of Fruehauf for
$790. This constituted a default under the Senior Secured Notes, the
Subordinated Notes and the Bank Lending Agreement because the purchase did not
have prior approval of the independent members of the Company's Board of
Directors. The approval was subsequently obtained; therefore, the events which
gave rise to such default no longer exist.
Terex Corporation Master Retirement Plan Trust
In conjunction with the financing of the Clark Acquisition and the refinancing
of certain of the existing debt, $4,000 of the Senior Secured Notes were issued
to the Trust. The Trust later purchased an additional $2,002 of the Senior
Secured Notes. At December 31, 1992, debt payable to the Trust was $6,002.
Interest on debt issued to the Trust aggregated $232 in 1992.
Other
A director of the Company is affiliated with Airlie, and one director was
formerly affiliated with Airlie, a limited partnership which owns approximately
9% of the Company's common stock. An additional 3.6% of the Company's Common
Stock is owned by individuals related to Airlie. In addition, Airlie owned
approximately 3.3% of Fruehauf's outstanding common stock. In conjunction with
the Fruehauf Acquisition, $7,497 of the Series A Notes and $4,500 of the Series
B Notes were issued to Airlie. During 1991, as a part of the Fruehauf
recapitalization, the Series A Notes were exchanged for the Fruehauf Notes
bearing an interest rate of 12% and the Series B Notes were exchanged for
Fruehauf common stock (see Note I -- "Long-Term Obligations"). Debt payable to
Airlie of $7,497 is included in the Consolidated balance sheet at December 31,
1991. Interest and other expenses on debt issued to Airlie of $2,092 and
$2,749 in 1991 and 1990, respectively, is included in the Consolidated
Statement of Income. Assuming Airlie exercised the Fruehauf Warrant it
received with the Fruehauf Notes in the Recapitalization, it would own
approximately 18.2% of Fruehauf's common stock.
Fruehauf owns a manufacturing facility in Germany that it leases to SESR
pursuant to a lease agreement assumed in the Fruehauf acquisition. The carrying
value of this asset was $18,955 at December 31, 1991. The facility is reported
as a component of Other Assets in the December 31, 1991 Consolidated Balance
Sheet. Fruehauf received rental revenue of $657 and $665 from SESR in 1991 and
1990, respectively. Rental revenue is recorded as other income in the
Consolidated Statement of Income and is reduced by depreciation expense on the
facility. SESR is responsible for paying the property taxes, insurance,
maintenance and expenses related to the leased property.
NOTE P -- BUSINESS SEGMENT INFORMATION
The Company's operations are structured into two industry segments, heavy
equipment and material handling. Prior to 1992, the Company's operations were
structured into two industry segments; trailer and heavy equipment. The
Material Handling Segment principally represents the operations of Clark which
was acquired during 1992 (see "Note C -- Acquisitions").
The Company's Heavy Equipment Segment includes operations engaged in the
design, manufacture and marketing of heavy-duty, off-highway earthmoving and
lifting equipment. Products include haulers, scrapers, loaders, crawlers,
cranes, excavators, draglines and aerial lifts. The Heavy Equipment Segment
also manufactures and markets a wide range of accessories and replacement parts
for its products. The principal markets served by the Heavy Equipment Segment
include the construction, mining, and industrial markets.
The Company's Material Handling Segment is engaged in the design, manufacture
and marketing of internal combustion and electric forklifts and related parts
and equipment. The principal markets served by the Material Handling Segment
include distribution and manufacturing operations and the food, canning and
bottling industry.
Through its former consolidated subsidiary, Fruehauf, the Company was also
engaged in the design, manufacture and marketing of truck trailers, including
vans, refrigerated vans, dump trailers, platform trailers, liquid and bulk
tanks, and components (the "Trailer Segment") from 1989 through 1991. In
addition, the Trailer Segment sold used trailers, some of which had been
accepted as trade-ins in connection with the sale of its new trailers. The
Trailer Segment also performed service work on trailers and markets trailer
parts and equipment. The principal markets served by the Trailer Segment were
the trucking and transport industries. As explained in Note D -- "Investment
in Fruehauf Trailer Corporation," the Company accounts for Fruehauf using the
equity method as of January 1, 1992.
Industry segment information is presented below:
1992 1991 1990
Sales
Material Handling $240,940 $--- $---
Trailer --- 512,689 589,441
Heavy Equipment 282,415 271,505 433,737
Total $523,355 $784,194 $1,023,178
Income (Loss) From Operations
Material Handling $2,177 $--- $---
Trailer --- (23,153) 19,274
Heavy Equipment (5,929) (11,279) 23,287
General/Corporate (373) (1,768) 1,825
Total $(4,125) $(36,200) $44,386
Depreciation and Amortization
Material Handling $4,042 $--- $---
Trailer --- 8,449 15,037
Heavy Equipment 5,610 3,575 4,628
General/Corporate 41 1,444 1,404
Total $9,693 $13,468 $21,069
Capital Expenditures
Material Handling $3,129 $--- $---
Trailer --- 2,510 3,565
Heavy Equipment 2,238 1,554 5,130
General/Corporate 15 34 12
Total $5,382 $4,098 $8,707
Identifiable Assets
Material Handling $247,813 $--- $---
Trailer --- 359,928 458,001
Heavy Equipment 229,042 256,071 286,384
General/Corporate 501 1,204 680
Total $477,356 $617,203 $745,065
Geographical segment information is presented below:
1992 1991 1990
Sales
North America $369,394 $708,854 $906,981
Europe 149,970 84,680 143,980
All other 30,780 23,070 29,011
Eliminations (26,789) (32,410) (56,794)
Total $523,355 $784,194 $1,023,178
Income (Loss) From Operations
North America $(11,968) $(35,456) $40,595
Europe 5,453 (2,131) 4,365
All other 1,351 392 284
Eliminations 1,039 995 (858)
Total $(4,125) $(36,200) $44,386
Identifiable Assets
North America $363,252 $556,165 $674,591
Europe 122,877 105,090 112,808
All other 8,664 2,226 4,659
Eliminations (17,437) (46,278) (46,993)
Total $477,356 $617,203 $745,065
Intersegment sales were immaterial in all years presented. Sales between
geographic areas are generally priced to recover costs plus a reasonable markup
for profit. Operating income equals net sales less direct and allocated
operating expenses, excluding interest and other nonoperating items. Corporate
assets are principally cash, marketable securities and administration
facilities.
The majority of the Material Handling Segment operations market their product
through independent distributors. The majority of the Heavy Equipment Segment
operations market their products through independent distributors, while
certain other operations market their products directly to the end user.
Trailers and related service, parts and accessories were marketed through
Fruehauf's sales and service branches, as well as through an existing
nationwide dealership network which consists of over 200 independent businesses
which generally serve the trucking and transport industries.
The Company is not dependent upon any single customer. No single customer
accounted for more than 10% of 1992, 1991 or 1990 consolidated net sales.
Export sales from U.S. operations were $92,347, $83,324 and $117,320 in 1992,
1991 and 1990, respectively.
NOTE Q - LIQUIDITY AND REFINANCING PLANS
As a result of significant operating losses which have continued through the
first quarter of 1993, and cash flow difficulties, the Company has taken
significant actions to reduce its overall cost structure and improve liquidity.
The Company intends to augment its top management during 1993, with the
addition of a new Chief Executive Officer and a Chief Financial Officer. In
addition, the Company has announced that it is formulating a plan to integrate
the management services of KCS into the Company. These changes will allow the
Company to deal more efficiently with its increased complexity and
globalization due to the July, 1992 acquisition of Clark.
The Company was not in compliance with certain financial covenants in the Bank
Lending Agreement at December 31, 1992. Terex has since received waivers for
the noncompliance and the financial covenants in the Bank Lending Agreement
have been revised. The revised lending agreement allows no cash borrowing
availability and states that beginning April 21, 1993, the Company must
commence increasing the amount of the cash collateral at specified increments
such that by June 30, 1993 all letters of credit are cash collateralized. The
Company is attempting to secure alternative financing which would provide
adequate liquidity and working capital for the Company's future needs. The
Company has received preliminary credit approval from a financial institution
to provide short-term financing by about May 21, 1993, and a permanent
financing facility shortly thereafter. The Short-term Agreement only provides
cash advances of $15 million and will be secured by all domestic receivables of
the Company. The Permanent Lending Agreement is expected to replace the
Short-term Agreement and provide up to $45 million for cash advances and
guarantees of bank letters of credit and will be secured by all domestic
receivables of the Company. The Company believes that the Short-term and
Permanent Lending Agreements can be completed in sufficient time to allow the
Company to meet all of its debt service and debt payment obligations on a
timely basis. However, if such financing is not available or if it is
significantly delayed, the Company may not be able to meet its debt and other
obligations on a timely basis. If such event were to occur, the Company would
be in a payment default which would give the holders of such obligations the
right to accelerate their indebtedness which could result in a material adverse
effect on the Company. As of April 15, 1993, the noncash collateralized
letters of credit were $5.9 million, while accounts receivable remained
substantially unchanged from the December 31, 1992 balance of $78.3 million.
The Company believes that, based on management's current estimates, it will be
in compliance with its covenants with respect to its Senior Secured Notes and
Subordinated Notes throughout 1993. However, certain future events could
affect the Company's continuing compliance with such covenants. In particular,
in computing tangible net worth under the covenants of the Senior Secured Notes
and the Subordinated Notes, the Company is allowed to maintain a defined value
for its investment in Fruehauf. At December 31, 1992, the defined value
approximated $51.0 million. At December 31, 1992, the market value of the
Company's investment in Fruehauf was $24.4 million. As discussed in Note D -
"Investment in Fruehauf Trailer Corporation" to the Consolidated Financial
Statements, the Company is evaluating alternatives relating to its investment
in Fruehauf, including selling Terex's shares of Fruehauf common stock. If, as
a result of any transactions affecting its investment in Fruehauf, or any other
reason, the Company is not in compliance with certain of its covenants, the
Company may be required to offer to repurchase 20% of the outstanding notes.
If such offer were to be made, it is likely that the Company would require
additional funding to complete the offer, and if such funding were unavailable
to it, the Company would be unable to comply with the terms of the notes and
the notes may be accelerated. Such circumstances could result in a material
adverse impact on the Company and its financial position.
In addition to its refinancing efforts, the Company is generating cash through
the sale of excess inventory in the Heavy Equipment and Material Handling
Segments, eliminating nonessential capital expenditures, and continuing
corporate wide cost containment efforts. Also, during 1992, the Heavy
Equipment Segment significantly reduced its engineering, selling and
administrative expenses through headcount reductions and consolidation of
certain administrative functions.
TEREX CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF INCOME
(in thousands, except per share data)
For the Nine Months
Ended September 30,
1993 1992
Net Sales $519,510 $313,254
Cost of goods sold 475,251 284,255
Gross profit 44,259 28,999
Engineering, selling and administrative expenses:
Third parties 60,313 35,661
Related parties 2,314 1,973
Total engineering, selling and
administrative expenses 62,627 37,634
Loss from operations (18,368) (8,635)
Other income (expense):
Interest income 945 1,973
Interest expense (23,849) (15,575)
Equity in net loss of Fruehauf (Note F) (677) (14,631)
Other income (expense) (950) (1,741)
Loss before income taxes and
extraordinary item (42,899) (38,609)
Provision for income taxes 193 2
Loss before extraordinary item $(43,092) $(38,611)
Exraordinary item - loss on
extinguishment of debt (Note E) (2,003) ---
Net loss $(45,095) $(38,611)
Net loss per share:
Loss before extraordinary item $ (4.33) $(3.88)
Extraordinary item (.20) ---
Net loss $(4.53) $(3.88)
Dividends per share $ --- $ ---
Weighted average common shares outstanding
including dilutive options and warrants
(see Exhibit 11.1) 9,952 9,944
@Body Single@
The accompanying notes are an integral part of these financial statements.
TEREX CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
September 30,
1993
ASSETS
Current assets
Cash and cash equivalents $ 8,887
Restricted cash 4,633
Net receivables 78,645
Net inventories 168,446
Other current assets 6,978
Total current assets 267,589
Property, plant and equipment
Property, plant and equipment 137,765
Less - accumulated depreciation 36,222
Net property, plant and equipment 101,543
Investments in affiliate companies 3,343
Other assets 30,101
Total assets $ 402,576
The accompanying notes are an integral part of these financial statements.
TEREX CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET (Continued)
(in thousands)
September 30,
1993
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities
Notes payable $ 2,476
Trade accounts payable 83,323
Accrued compensation and benefits 10,937
Accrued warranties and product liability 28,288
Accrued interest 4,811
Accrued income taxes 1,582
Restructuring reserve 14,097
Other current liabilities 24,234
Current portion of long-term debt 17,791
Total current liabilities 187,539
Long-term debt less current portion 208,848
Accrued warranties and product liability
- long-term 39,850
Accrued pension 16,984
Postretirement health benefits (Note B) 428
Other long-term liabilities 6,795
Stockholders' investment
Common stock, $.01 par value
- authorized 20,000 shares;
issued and outstanding 9,953 shares 100
Additional paid-in capital 37,808
Accumulated deficit (81,326)
Pension liability adjustment (4,452)
Foreign currency translation adjustment (9,998)
Total stockholders' investment (57,868)
Total liabilities and stockholders' investment $ 402,576
The accompanying notes are an integral part of these financial statements.
TEREX CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
For the Nine Months
Ended September 30,
1993 1992
OPERATING ACTIVITIES
Net loss $(45,095) $(38,611)
Adjustments to reconcile net loss to
cash flows from operating activities:
Depreciation 11,615 3,102
Amortization 5,979 2,939
(Gain) loss on sale of property,
plant and equipment (2,029) (36)
Unremitted (earnings) loss from
equity affiliates (Fruehauf) 677 14,631
Other (221) 1,693
Changes in operating assets and liabilities:
Restricted cash 6,846 ---
Net receivables (782) 18,270
Net inventories 28,223 29,834
Trade accounts payable (8,340) 885
Accrued compensation and benefits (229) 1,785
Accrued warranties and product liability(3,835) 3,393
Accrued interest (7,008) 1,342
Accrued income taxes (441) 333
Restructuring reserve (16,503) (2,500)
Other 3,135 (14,529)
Net cash from (used in)
operating activities (28,008) 22,531
INVESTING ACTIVITIES
Acquisition of Business --- (80,454)
Capital expenditures, net of dispositions (8,529) (2,513)
Advances to Fruehauf (622) (2,802)
Proceeds from sale of property,
plant and equipment 10,377 ---
Other (337) (352)
Net cash from (used in) investing
activities 889 (86,121)
FINANCING ACTIVITIES
Net borrowings (repayments) under
revolving line of credit agreements 674 (62,161)
Proceeds from long-term debt 18,650 158,800
Principal repayments of long-term debt (8,175) (10,333)
Other (443) (4,427)
Net cash from (used in)
financing activities 10,706 81,879
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS (371) 503
NET (DECREASE) INCREASE IN
CASH AND CASH EQUIVALENTS (16,784) 18,792
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 25,671 10,892
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,887 $29,684
The accompanying notes are an integral part of these financial statements.
TEREX CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, unless otherwise denoted)
September 30, 1993
NOTE A - BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of Terex
Corporation and Subsidiaries (the "Company") as of September 30, 1993 and for
the nine month periods ended September 30, 1993 and 1992 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 for annual reporting.
The condensed consolidated financial statements include the accounts of Terex
Corporation and its majority controlled subsidiaries. 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%, including Fruehauf Trailer Corporation
("Fruehauf"). The cost method 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 nine
months ended September 30, 1993 are not necessarily indicative of the results
that may be expected for the year ended December 31, 1993. For further
information, refer to the consolidated financial statements for the year ended
December 31, 1992.
NOTE B - ACCOUNTING CHANGES
Employers' Accounting for Postretirement Benefits Other than Pensions
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
106, "Employers' Accounting for Postretirement Benefits Other than Pensions" on
January 1, 1993. This statement requires accrual of postretirement benefits
(such as health care benefits) during the years an employee provides service.
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.
Terex adopted the provisions of SFAS No. 106 using the delayed recognition
method, whereby the amount of the unrecognized transition obligation at January
1, 1993 is recognized prospectively as a component of future years' net
periodic postretirement benefit expense. The unrecognized transition
obligation at January 1, 1993 was approximately $4,476. Terex is amortizing
this transition obligation over 12 years, the average remaining life expectancy
of the participants.
Currently, the Company's postretirement benefit obligations are not funded.
The liability of the Company, as of January 1, 1993, was as follows:
Actuarial present value of accumulated
postretirement benefit obligation:
Retirees $ 4,476
Active participants ---
Total accumulated postretirement
benefit obligation 4,476
Unamortized transition obligation (4,476)
Liability recognized in the balance sheet -0-
Less: Current portion -0-
Accumulated postretirement
benefit obligation - long term $-0-
Health care trend rates used in the actuarial assumptions range from 12.3% to
13.5%. These rates decrease to 6.75% over a period of 9 to 11 years. The
effect of a one percentage-point change in the health care cost trend rates
would change the accumulated postretirement benefit obligation approximately
5%. The discount rate used in determining the accumulated postretirement
benefit obligation is 8.25%.
Net periodic postretirement benefit expense for the nine month period ended
September 30, 1993 includes the following components:
Service cost $ 0
Interest cost 277
Net amortization 280
$ 557
The difference between Terex's net periodic postretirement benefit expense on a
cash basis versus accrual basis was approximately $387 for the nine months
ended September 30, 1993.
Accounting for Income Taxes
The Company adopted SFAS No. 109, "Accounting for Income Taxes" on January 1,
1993. The new pronouncement retains the basic concepts of SFAS No. 96, but
generally simplifies its application. The adoption of this new pronouncement
did not have a material impact on the Company's operating results and financial
position.
Deferred tax assets and liabilities result from differences in the basis of
assets and liabilities for tax and financial statement purposes. The tax
effects of the basis differences and net operating loss carryforwards on
January 1, 1993 are summarized below for major balance sheet captions:
Net inventories $(1,623)
Fixed assets and assets held for sale (23,635)
Other assets and deferred charges 664
Other current and long-term liabilities 44,497
All other items (173)
Benefit of net operating
loss carryforward 76,200
Valuation allowance (93,930)
Total deferred tax liability $ 0
At December 31, 1992, the Company had domestic federal tax basis net operating
loss carryforwards of approximately $151,000 and foreign net operating loss
carryforwards of approximately $ 52,000. Certain of the domestic net operating
loss carryforwards have limitations placed on them under the Internal Revenue
Code. The Internal Revenue Service is currently in various stages of
examination of the Company's federal tax returns. The results of such audits
could change the availability of the net operating loss carryforwards.
In accordance with SFAS No. 109, "Accounting for Income Taxes", the tax
benefits of the unused net operating loss carryforwards have been recognized in
the Consolidated Financial Statements. As further required by SFAS No. 109,
the Company has recorded a valuation allowance for deferred tax assets
including the benefits of net operating loss carryforwards because their
realization is dependent on future taxable income.
NOTE C - ACQUISITIONS
On July 31, 1992, the Company completed the acquisition of the common stock of
Clark Material Handling Company and certain affiliate companies ("Clark") from
Clark Equipment Company (the "Clark Acquisition"). Clark is engaged in the
design, manufacture and marketing of internal combustion and electric lift
trucks and related parts and equipment.
The operating results of this acquisition are included in the Company's
consolidated results of operations since August 1, 1992. The following
unaudited pro forma summary presents the consolidated results of operations for
the nine months ended September 30, 1992 as though the Company completed the
Clark Acquisition on January 1, 1992, after giving effect to certain
adjustments, including amortization of goodwill and intangible assets,
increased depreciation resulting from the revaluation of property, plant and
equipment, interest expense and amortization of debt issuance costs on the
acquisition debt, and reduced operating costs related to recurring cost savings
which are directly attributable to the Clark Acquisition.
Pro Forma
For the Nine Months
Ended September 30, 1992
Net sales $ 601,758
Loss from operations (18,962)
Net loss (57,949)
Net loss per share $ (5.83)
The unaudited pro forma consolidated results do not represent actual operating
results. The pro forma amounts were prepared by management and should not be
interpreted as predictive of the Company's future results of operations. The
Company is actively reorganizing the operations of Clark by consolidating
manufacturing and distribution operations. Consequently, management does not
view the combination of the historical financial results of the Company and
Clark as a meaningful representation of the Company's future operations.
NOTE D - INVENTORIES
The components of net inventories consist of the following at September 30,
1993:
New equipment $ 36,580
Used equipment 1,552
Work-in-process and finished parts 86,634
Raw materials and supplies 47,498
Gross inventories 172,264
Less: Excess of FIFO costs
over LIFO inventory value (3,818)
Net inventories $ 168,446
NOTE E - LONG TERM DEBT
Covenant Compliance
The indentures governing the Company's Senior Secured Notes and Subordinated
Notes (together, the "Notes") require, among other things, that the Company
maintain certain levels of tangible net worth and collateral coverage. As of
September 30, 1993, the Company's tangible net worth as defined in the Note
indentures was less than the $15 million minimum required by the indentures.
Based on management's current estimates, the Company is expected to continue to
experience losses from operations subsequent to September 30, 1993. As a
result, absent a capital infusion, the Company's tangible net worth will be
less than required under the tangible net worth covenants as of December 31,
1993. In the event the Company's tangible net worth is not in excess of the
amount required under the tangible net worth covenants for two consecutive
quarters, the Company must offer to repurchase, at par plus accrued interest,
20% of the outstanding principal amount of the Notes. If such an offer were to
be made, it is likely that the Company would require additional funding to
complete the offer, and if such funding were unavailable to it, the Company
would be unable to comply with the terms of the Notes and the Notes may be
accelerated. Such circumstances could result in a material adverse impact on
the Company and its financial position. In an effort to raise additional
capital and increase the Company's net worth, the Company is currently seeking
to effect the sale of preferred stock in a private placement. Management is
also considering other actions, including the sale of assets such as a portion
of the Company's stock holdings and investments, which, at any time, may be
necessary for the Company to remain in compliance with the tangible net worth
and collateral coverage covenants.
Permanent Facility
On May 20, 1993, Terex entered into an agreement with a financial institution
which initially provided short-term financing ("Interim Facility"), and
currently provides permanent financing ("Permanent Facility") (together the
"Lending Facilities"). The Interim Facility provided for cash advances to the
Company of up to $17.5 million. The Permanent Facility became effective and
replaced the Interim Facility as of August 24, 1993 and provides for up to $20
million of cash advances and guarantees of bank letters of credit and is
secured by all domestic receivables of the Material Handling and Heavy
Equipment Segments.
Borrowings under the permanent facility mature in two years from the August 24,
1993 effective date. Accordingly, all such borrowings, including former short
term interim facility borrowings outstanding at the effective date, are
classified as Long Term Debt in the accompanying Balance Sheet.
Extraordinary Item
In connection with entering into the Lending Facilities, the Company terminated
its previous bank lending agreement with a commercial bank. The Company
recognized, as an extraordinary item, a charge of approximately $2.0 million in
the second quarter of 1993 to write off unamortized debt issuance costs.
NOTE F - INVESTMENT IN FRUEHAUF
Following an initial public offering of 4,000,000 shares of Fruehauf common
stock in July 1991, the Company owned approximately 42% of the outstanding
common stock of Fruehauf. The Company presently accounts for its investment in
Fruehauf using the equity method. On August 20, 1993, Fruehauf entered into
agreements with its existing lenders, a new lender and a number of investors
which resulted in a restructuring of existing debt, and provided for a new $25
million credit facility and $20.5 million of new equity (the "Fruehauf
Restructuring"). The $25 million of new credit is in the form of an inventory
and receivables revolving credit facility provided by Congress Financial
Corporation. The $20.5 million of new equity arose from the private placement
of approximately 7,841,000 shares of Fruehauf common stock at $1.50 per share
and approximately $8,783,000 of convertible subordinated debt. The convertible
subordinated debt will be converted into approximately 5,855,000 additional
shares of Fruehauf common stock as soon as Fruehauf's Certificate of
Incorporation is amended to increase the number of shares authorized following
appropriate Fruehauf stockholder approval and approval of such shares for
listing on the New York Stock Exchange. As part of the restructuring, Terex
agreed with Fruehauf to accept approximately 2,251,000 shares of Fruehauf
common stock in satisfaction of approximately $13.5 million of indebtedness of
Fruehauf owed to Terex. As a result of the restructuring and financing
transactions, Terex's ownership of Fruehauf decreased to approximately 26%.
Because Fruehauf has experienced significant losses since 1991 and continues to
have a stockholders' deficit after the new equity investment, Terex's carrying
value for its investment in Fruehauf has been reduced to zero. Terex has also
recognized a contingent obligation of approximately $3 million with respect to
guaranties by Terex of certain obligations of Fruehauf. Until such time as
Fruehauf returns to profitability and achieves a positive net worth, the
Company does not expect to recognize any additional losses or income with
respect to its investment in Fruehauf.
Summarized income statement information of Fruehauf for the first nine months
of 1993 and 1992 is as follows:
1993 1992
Net sales $ 196,994 $ 388,552
Gross profit 10,498 38,196
Net loss (93,104) (34,635)
Restatement of financial statements for the period ended September 30, 1993
As described above, after an initial public offering of Fruehauf common stock
in July 1991 the Company owned approximately 42% of the outstanding common
stock of Fruehauf. Due to additional control factors, including shares owned
by certain officers of Terex, the presence of three Terex directors on
Fruehauf's board, the service of two Terex executive officers as executive
officers of Fruehauf, and the existence of a voting trust among Terex and
certain individuals, the Company concluded it had a controlling financial
interest in Fruehauf until the closing of the Fruehauf Restructuring.
Accordingly, in the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1993 as originally filed, Fruehauf's results were included
in the Company's consolidated financial statements on a consolidated basis for
the periods ended September 30, 1992 and deconsolidated as of January 1, 1993.
After consultation with the Securities and Exchange Commission staff,
management subsequently decided that despite the control factors described
above, assurance of strict numerical voting control of Fruehauf by Terex was
eliminated as a result of the termination of the voting trust between Terex and
certain individuals in July 1992 and, therefore, Terex should not consolidate
Fruehauf in its 1992 financial statements. Accordingly, management has
restated the financial statements for the periods ended September 30, 1993 and
1992 to account for the Company's investment in Fruehauf on the equity method
effective January 1, 1992.
The following table sets forth selected information as originally reported and
as restated for the nine months ended September 30, 1993 and 1992:
Nine Months Ended Nine Months Ended
September 30, 1993September 30, 1992
Net Sales
As Originally Reported $519,510 $701,806
As Restated 519,510 313,254
Net Income (Loss)
As Originally Reported (44,797) (38,611)
As Restated (45,095) (38,611)
Net Income (Loss) Per Share
As Originally Reported (4.50) (3.88)
As Restated (4.53) (3.88)
Average Number of Common and
Common Equivalent Shares Outstanding 9,952 9,944
NOTE G - CONTINGENCIES AND UNCERTAINTIES
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.
Fruehauf has identified environmental exposures at a number of Superfund and
other sites, and is currently participating in administrative or court
proceedings involving a number of these sites. Many of the proceedings are at
a preliminary stage, and the total cost of remediation, the timing and extent
of remedial actions which may be required, and the amount of Fruehauf's
liability, if any, with respect to these sites cannot presently be estimated.
The Company believes that it could have contingent responsibility for certain
of Fruehauf's liabilities with respect to Fruehauf's environmental matters if
Fruehauf fails to discharge its obligations, but only to the extent that such
liabilities arose during the time period during which Terex was the controlling
stockholder of Fruehauf. The Company believes 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.
REPORT OF INDEPENDENT ACCOUNTANTS
To be filed by amendment.
BUSINESS ACQUIRED FROM CLARK
EQUIPMENT COMPANY BY TEREX CORPORATION
COMBINED STATEMENT OF OPERATING
REVENUES AND EXPENSES
(amounts in thousands)
Year Ended December 31,
1991 1990
NET SALES $502,748 $632,733
COST OF GOODS SOLD 472,175 550,985
Gross profit 30,573 81,748
ENGINEERING, SELLING AND ADMINISTRATIVE
EXPENSES 60,553 64,112
RESTRUCTURING CHARGE 7,180 ---
Income (loss) from operations (37,160) 17,636
INTEREST EXPENSE (1,660) (1,961)
OTHER INCOME - NET 1,100 1,386
EQUITY IN NET INCOME (LOSS) OF DEALERSHIPS 70 (70)
INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING (37,650) 16,991
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING - POSTRETIREMENT BENEFITS
(SEE NOTE G) (8,532) ---
INCOME (LOSS), EXCLUSIVE OF TAXES $(46,182) $16,991
The accompanying notes are an integral part of these financial statements.
BUSINESS ACQUIRED FROM CLARK
EQUIPMENT COMPANY BY TEREX CORPORATION
COMBINED STATEMENT OF ASSETS AND LIABILITIES
(amounts in thousands)
December 31, 1991
ASSETS
CURRENT ASSETS
Cash and cash equivalents $1,629
Trade and notes receivable, less allowance of $3,568 42,244
Accounts due from related parties 1,678
Net inventories 75,445
Other current assets 4,712
Total current assets 125,708
LONG-TERM ASSETS
Property 4,750
Plant 49,824
Equipment 62,708
117,282
Less-Accumulated depreciation (67,234)
Net property, plant and equipment 50,048
Goodwill, net of amortization of $796 18,728
Investment in dealerships 1,995
Other assets 11,697
Total assets 208,176
LIABILITIES
CURRENT LIABILITIES
Trade accounts payable 42,955
Accounts due to related parties 2,479
Other current liabilities 49,621
Total current liabilities 95,055
RENTAL INSTALLMENT OBLIGATIONS 5,817
OTHER LONG-TERM LIABILITIES 49,886
Total liabilities 150,758
NET ASSETS OF BUSINESS ACQUIRED $57,418
The accompanying notes are an integral part of these financial statements.
BUSINESS ACQUIRED FROM CLARK
EQUIPMENT COMPANY BY TEREX CORPORATION
COMBINED STATEMENT OF CASH FLOWS
(amounts in thousands)
Year Ended December 31,
1991 1990
OPERATING ACTIVITIES
Income (loss), exclusive of taxes $(46,182) $16,991
Adjustments to reconcile loss, exclusive of taxes,
to net cash from (used in) operating activities:
Depreciation 8,410 7,991
Amortization and write-off of
deferred costs 478 318
Noncash restructuring charge 7,180 ---
Effect of accounting change 8,532 ---
Equity (income) loss (70) 70
Increase (decrease) in cash due to changes in operating
assets and liabilities, net of the effects of
business acquisitions:
Trade receivables 1,974 6,598
Accounts due from related parties (982) 14
Net inventories 17,144 (5,865)
Other current assets 405 (180)
Trade accounts payable (4,098) (11,277)
Accounts due to related parties (1,402) (3,250)
Accrued warranties and product
liabilities 2,370 2,440
Other current liabilities 7,531 1,507
Other assets (1,016) (227)
Other liabilities 167 (3,608)
Net cash from (used in) operating
activities 441 11,522
INVESTING ACTIVITIES
Acquisition of business, net of cash acquired --- (19,810)
Sale of properties 1,202 131
Capital expenditures (8,640) (9,881)
Other (1,352) (958)
Net cash used in investing activities (8,790) (30,518)
FINANCING ACTIVITIES
Net borrowings from parent 8,261 19,729
Decrease in rental obligations (528) (120)
Net cash from (used in) financing
activities 7,733 19,609
EFFECT OF EXCHANGE RATE CHANGES ON CASH 968 (101)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 352 512
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,277 765
CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,629 $1,277
The accompanying notes are an integral part of these financial statements.
BUSINESS ACQUIRED FROM CLARK
EQUIPMENT COMPANY BY TEREX CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1991
(dollar amounts in thousands, unless otherwise denoted)
NOTE A--REPORTING ENTITY AND BASIS OF PRESENTATION
On July 31, 1992, Terex Corporation ("Terex") completed the acquisition of
the common stock of Clark Material Handling Company and certain sister
companies (herein referred to as the "Business") from Clark Equipment Company
("CECO" or the "Seller") (the "Clark Acquisition"). The purchase price of the
common stock acquired was approximately $90.0 million.
The combined financial statements include the combined accounts of the
Business acquired. The Combined Statement of Operating Revenues and Expenses
include revenues and expenses directly related to the Business and exclude
income taxes.
NOTE B--SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination - All material intercompany balances, transactions
and profits have been eliminated. The equity method is used to account for
investments in which the Business has an ownership interest between 20% and
50%. All majority-owned subsidiaries have been consolidated.
Foreign Currency Translation - Financial statements of subsidiaries operating
outside of the United States are translated into U.S. dollar equivalents in
accordance with FAS No. 52. Foreign currency translation adjustments are
generally excluded from the Combined Statement of Operating Revenues and
Expenses. Such adjustments are inherently included as a component of Net Assets
of Business Acquired in the Combined Statement of Assets and Liabilities.
Foreign currency exchange losses, resulting primarily from foreign currency
transactions, of $0.8 million and $0.5 million in 1991 and 1990, respectively,
are included in Other Income.
Cash and Cash Equivalents - The Company considers all highly liquid
investments with a maturity of three months or less to be cash equivalents.
Inventories - Inventories are stated at the lower of cost or market. The
last-in-first out (LIFO) method is used to value substantially all U.S.
inventories. All other inventories are valued using the first-in, first-out
(FIFO) method.
Property, Plant and Equipment - Property, plant and equipment are stated at
cost. Plant and equipment are depreciated over the estimated useful lives of
the assets, ranging from three years for certain equipment to a maximum of 50
years for some buildings, under the straight-line method of depreciation for
financial reporting purposes. Depreciation expense reflected in these
financial statements for 1991 and 1990 approximated $8.4 million and $8.0
million, respectively. Expenditures for maintenance and repairs not expected
to extend the useful life of an asset beyond its normal useful life are charged
to expense as incurred. The cost of assets and related accumulated deprecation
that are retired or sold are removed from the accounts, with corresponding
gains or losses on disposal included in income.
Costs and Expenses - Provisions are made for the estimated future costs that
will be incurred under product warranty claims based on the Company's claims
experience. Such costs are accrued at the time revenue is recognized.
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 amounted to $11.2 million in
1991 and 12.4 million in 1990.
Restructuring Charge - During 1991, the Business recorded the impact of a
restructuring plan designed to increase the overall profitability of the
Business by streamlining and consolidating certain operations. Restructuring
costs of $7.2 million represent provisions for the anticipated future costs of
implementing reductions in both domestic and foreign manufacturing capacity, as
well as streamlining manufacturing processes. The restructuring charge
included the following items:
Employment Reduction Costs $ 4,680
Plant Consolidation and
Rationalization 2,500
$ 7,180
Income Taxes - Prior to the acquisition, the Business was included in the
consolidated federal tax return of CECO. Given the complexity of segregating
the tax attributes of the Business from Consolidated CECO and the cumulative
operating losses incurred by the Business in recent years, the presentation of
tax accounts for the Business would not be meaningful. Accordingly, the
combined financial statements exclude income tax effects.
The Seller has agreed to idemnify Terex for any costs arising in future
periods related to income tax effects of the Business's operations prior to the
acquisition.
Guarantees and Contingencies - Guarantees and other contingencies are accrued
when a loss is considered probable and the amount is reasonably measurable.
NOTE C--ACQUISITION ACTIVITIES
On April 30, 1990, the Business acquired the common stock of Drexel
Industries, Inc. ("Drexel") for approximately $20 million in cash. The
acquisition was accounted for using the purchase method; accordingly, the
assets acquired and the liabilities assumed were recorded at their estimated
fair value at the date of acquisition. The excess of purchase price over the
estimated value of the net assets acquired of approximately $19.5 million is
being amortized on a straight-line basis over 40 years. Drexel operations have
been included in the Combined Statement of Operating Revenues and Expenses
since the date of acquisition.
Unaudited pro forma combined sales and income before taxes for 1990, assuming
the Business completed the Drexel acquisition on January 1, 1990, would have
increased by approximately $4.0 million and $0.5 million, respectively. The
pro forma combined results do not represent actual operating results. The
Business is actively reorganizing all its operations, including the integration
of Drexel operations with existing manufacturing operations, and adjusting
production capacity to meet actual demand in the marketplace. Consequently,
management does not view pro forma information as a meaningful representation
of the Business's future operations.
NOTE D--INVENTORIES
Inventories, net of valuation reserves of $7.5 million consist of the
following:
December 31,
1991
Finished products $ 29,405
Work-in-process and finished parts 29,511
Raw material and supplies` 43,386
102,302
Less: Excess of FIFO costs
over stated LIFO value 26,857
$ 75,445
Inventories valued using the LIFO method represented approximately 60% of
combined inventories at December 31, 1991. In 1991 and 1990, certain inventory
quantities were reduced, resulting in liquidations of LIFO inventory quantities
carried at lower costs prevailing in prior years. The effect was to decrease
cost of goods sold by $4.2 million and $0.7 million in 1991 and 1990,
respectively.
NOTE E--BALANCE SHEET AND INCOME STATEMENT INFORMATION
Other current liabilities include the following:
December 31, 1991
Accrued payroll and related taxes $ 7,076
Accrued product liability 9,700
Accrued warranties 8,531
Accrued product discounts 5,025
Accrued restructuring costs 8,708
Other 10,581
$ 49,621
Other long-term liabilities include the following:
December 31, 1991
Accrued pension $ 11,141
Accrued product liability 36,423
Other 2,322
$ 49,886
Supplementary income statement information
Year Ended December 31,
1991 1990
Maintenance and repairs $ 2,557 $ 2,349
Rent 4,192 4,560
Advertising costs 4,200 4,226
NOTE F--PENSION COSTS
Essentially all of the Business's U.S. employees were covered by a defined
benefit pension plan sponsored by the previous employer. The Seller has
retained the responsibility after the Clark Acquisition for this plan and
another plan covering retirees. Therefore, the impacts of these plans have not
been included in the Combined Statement of Assets and Liabilities. The
operating expense impact of pension programs related to former operations of
the Business which were not acquired by Terex have been eliminated from the
Combined Statement of Operating Revenues and Expenses. Provisions related to
active employees, however, have been included inasmuch as it is anticipated
that the Business will maintain a similar plan after the sale. Pension expense
related to active employees was $1.5 million in 1991 and $1.3 million in 1990.
CECO also sponsored defined contribution plans in the United States and
Korea. Costs associated with these plans were $0.7 million in 1991 and $0.6
million in 1990.
The Business's German employees are covered by a defined benefit pension
plan. At December 31, 1991, the Business has accrued approximately $11.1
million related to the benefits earned by active and retired participants as of
that date. The plan is unfunded. Annual pension expense relating to this plan
approximated $0.8 million in 1991 and $1.0 million in 1990.
NOTE G--POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
CECO provided certain health care and life insurance benefits for retired
employees of the Business. Substantially all U.S. employees of the Business
became eligible for these benefits upon retirement. Contributory requirements
for retirees under the Plan varied based upon the actual retirement date.
Effective January 1, 1991, CECO changed its method of accounting for
postretirement benefits by adopting the accrual method, as prescribed by
Statement of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." In making this change, the
Business gave immediate recognition to a $72.2 million provision to accrue the
total estimated amount of the Accumulated Postretirement Benefit Obligation
related to current and former operations of the Business. This charge was
recorded as a cumulative effect of an accounting change.
Under terms of the agreement between CECO and Terex related to the
acquisition of the Business, CECO maintains responsibility for the obligations
due under the above referenced plan. Therefore, the impacts of the related
obligations have not been reflected in the Combined Statement of Assets and
Liabilities. Virtually all operating expense impacts, including both the
annual provisions expensed on a pay-as-you-go basis prior to the change in
accounting and the cumulative effect of the change in accounting, have also
been eliminated from the Combined Statement of Operating Revenues and Expenses.
These impacts have been removed inasmuch as the related provisions related
almost entirely to former operations of the Business which were not acquired by
Terex. The remaining portion of the cumulative effect of the change in
accounting of $8.5 million included in the Combined Statement of Operating
Revenues and Expenses represents the charge associated with active employees
and retirees of the Business acquired.
In terms of future periods, Terex has no benefit program which provides
retiree health or life insurance benefits to retirees of the Business.
NOTE H--PRODUCT LIABILITY AND OTHER INSURANCE COSTS
Domestically, the Business is self-insured up to certain limits for product
liability exposures. The Business provides self-insurance reserves for
estimated losses on known claims and for claims anticipated to have been
incurred which have not yet been reported. Reserves for product liability
losses are generally of a long-term nature and are presented on a projected
gross settlement basis.
The Business has suits pending alleging damages for injuries or deaths from
accidents involving the Business's products that have arisen in the normal
course of its operations. Although the ultimate exposure to the Company from
these and any similar subsequent suits, relating to accidents which have
occurred, is subject to a high degree of estimation and cannot be determined
with complete precision, the Business believes that potential damages are
adequately provided for by insurance and product liability reserves.
The Business is also self-insured with respect to various other risks,
including workers' compensation, general, and automobile liability. Insurance
coverage for product liability and these other risks is obtained for
catastrophic losses as well as those risks required to be insured by law or
contract. The Business has recorded an estimated liability, based upon
actuarial determination, for all uninsured risks and claims incurred. However,
future periods could be affected if uninsured losses in excess of amounts
provided were incurred.
NOTE I--GUARANTEES AND REPURCHASE ARRANGEMENTS
The Business has given guarantees arising out of the ordinary conduct of its
business. These guarantees generally relate to financial institutions for the
collectibility of certain third party receivables. These normally relate to
capital loans and other dealer and customer obligations, and approximated $37
million at December 31, 1991. Potential losses on such guarantees are accrued
as a component of the Allowance for Doubtful Accounts.
To enhance its marketing efforts and ensure continuity of its dealer network,
the Business has also agreed as part of its dealer sales agreements to
repurchase certain new and unused products and parts inventory and certain
products used as dealer rental assets in the event of a dealer termination.
Through this arrangement, the Business has been able to maintain its dealer
network based on operational standards and marketing requirements. Repurchase
agreements included in operating agreements with an independent financial
institution have been patterned after those included in the dealer sales
agreements. Dealer inventory and rental asset financings approximately $235
million at December 31, 1991, are covered by those operating agreements. It is
not practicable to determine the additional amount subject to repurchase solely
under the dealer sales agreements. Under these arrangements, when dealer
terminations do occur, a newly selected dealer generally assumes the assets of
the prior dealer and any related financial obligations. Accordingly, the risk
of loss to the Business is minimal, and historically it has incurred only
immaterial losses relating to these arrangements. In 1991, four dealers were
terminated and the related losses incurred were negligible.
NOTE J--LEASE COMMITMENTS
The Business leases certain office and manufacturing facilities as well as
certain other equipment. Future rental commitments relating to leases with a
term in excess of one year are as follows:
1992 $ 3,256
1993 2,648
1994 2,065
1995 1,295
1996 1,058
Thereafter 957
$ 11,279
The Business also routinely enters into sales-leaseback arrangements with
regards to certain equipment, which is later sold to third-party customers
under sales-type lease agreements. The Business maintains a net investment in
these leases, represented by the present value of payments due under the
leases, which is included in the Other Current Asset and Other Asset captions
of the Combined Statement of Assets and Liabilities. The total net investment
in such leases approximated $8.2 million at December 31, 1991.
In connection with the original sale-leaseback arrangements underlying the
customer leasing program, the Business has an outstanding rental installment
obligation. Consistent with the nature of the capital leases, the obligation
reflects the present value of the minimum payments due under the leases. The
current portion of this obligation is included in Other Current Liabilities in
the Combined Statement of Assets and Liabilities.
The average term of each of the leasing arrangements outlined above is five
years. Additional information related to both the net investment in leases and
the rental obligation are as follows:
Investment Rental
In Leases Obligation
Total minimum obligations $9,688 $8,516
Less amount representing
interest 1,440 1,256
Present value of net
minimum obligations 8,248 7,260
Less current portion 1,625 1,443
Long-term obligations $6,623 $5,817
Pursuant to the terms of the Stock Purchase Agreement between CECO and Terex,
CECO has agreed to fully reimburse Terex for the present value of all payments
due under the rental installment obligation as of the date of acquisition.
NOTE K--SEGMENT INFORMATION
The Business operates in one industry segment, that being the design,
manufacture and sale of forklift trucks. There was no single customer from
which 10% or more of total revenue was derived during the years 1989-1991.
Export sales of U.S. manufactured products and parts sold to customers and
dealers located outside of the United States were $34.8 million and $38.3
million in 1991 and 1990. These sales were principally to Europe and Canada.
Sales to the U.S. government accounted for less than 2% of total sales in each
year.
In 1989, the Business began producing transaxle components in Korea for use
in forklift trucks produced in conjunction with a joint-venture with Samsung
Heavy Industries (See Note L - Related Party Transactions). Transfers of
transaxle components to the joint-venture are not reflected as sales for
financial reporting purposes. As these components are included in the finished
products supplied by the venture, the sales are recognized upon sale of the
forklift trucks to third party customers.
For geographic segment reporting, sales and operating profit (loss) reflect
amounts sourced from the identified geographic area. Information on geographic
segments is as follows:
December 31,
1991 1990
Amounts in millions
Sales:
North America $326.8 $422.1
Europe 173.1 209.8
Pacific Rim 2.8 .8
Transfers between areas:
North America 11.5 10.1
Europe 8.3 5.4
Pacific Rim 3.2 .1
Eliminations (23.0) (15.6)
Total $502.7 $632.7
Operating profit (loss):
North America $(23.6) $9.5
Europe (11.5) 10.5
Pacific Rim (1.0) (.9)
(36.1) 19.1
Interest expense (1.7) (2.0)
Combined operations (37.8) 17.1
Equity investments .1 (.1)
Total $(37.7) $17.0
December 31,
1991 1990
Amounts in millions
Identifiable assets:
North America $105.9 $106.2
Europe 81.8 102.1
Pacific Rim 18.5 19.6
Combined operations 206.2 227.9
Equity investments 2.0 1.9
Total $208.2 $229.8
NOTE L--RELATED PARTY TRANSACTIONS
The Business, as a part of CECO, had entered into transactions with CECO
affiliates. While certain of the transactions may continue for a period of
time subsequent to the Clark Acquisition, such transactions are not related
party transactions of Terex. A discussion of major transactions follows.
Service Arrangements
The Business has entered into service arrangements with various operations of
CECO. Under one such arrangement, Clark Distribution Services (CDS), a
wholly-owned subsidiary of CECO, provides warehousing and shipping services
related to the Business's North American after-market parts business. Fees
relating to this operation were based on negotiated contracts and approximated
$7.5 million in 1991 and $7.4 million in 1990. CDS continues to provide
services under the terms of the most recent contract subsequent to the
acquisition by Terex. The Business provides a similar service for the
distribution of parts for other business units of CECO in Europe. Service
revenues under this arrangement included in these financial statements
approximated $2.5 million in 1991 and $2.5 million in 1990. This arrangement
is based on negotiated contracts with indefinite terms, which can be cancelled
with 12 months written notice. The Business also contracted with an operation
of CECO which provided its data processing resources for its North American
operations. Fees of approximately $1.5 million in 1991 and $2.2 million in
1990 were charged under this arrangement. Pursuant to the terms of the Stock
Purchase Agreement between Terex and CECO, CECO will continue to provide such
data processing services through December 31, 1992.
Purchases from CECO Affiliates
The Business purchased forklift truck componentry from Clark-Hurth Components
(CHC), a business unit of CECO. The pricing of such purchases were determined
as nearly as possible on the basis of normal commercial relationships.
Aggregate purchases from CHC were $20.9 million in 1991 and $46.8 million in
1990. Net accounts payable to CHC were $0.9 million in 1991, and are reflected
in Accounts Due From Related Parties in these financial statements.
Joint Venture with Samsung Heavy Industries
The Business has a cooperative agreement with Samsung Heavy Industries (SHI)
which began in 1987. The agreement requires that SHI manufacture product
based upon the engineering technology provided by the Business. Purchases from
SHI were $84.9 million in 1991 and $108.0 million in 1990. Accounts payable to
SHI were $16.3 million at December 31, 1991, and are reflected in Trade
Payables in these financial statements
The Business has an agreement to purchase a specified number of internal
combustion lift-trucks from SHI. If this commitment is not honored, the
Business may be subject to a penalty. On September 2, 1992, the Business
announced that certain of its production of its 2,000 to 10,000 lb. capacity
trucks will be brought back to the U.S. and Germany beginning in the fourth
quarter of 1992. Negotiations related to the future supplier relationship,
including the manufacturing of certain I.C. trucks and uprights, are continuing
at the current time. Management believes that continuing supplier relations
will negate any penalty.
BUSINESS ACQUIRED FROM CLARK
EQUIPMENT COMPANY BY TEREX CORPORATION
UNAUDITED COMBINED STATEMENT OF OPERATING
REVENUES AND EXPENSES
(amounts in thousands)
For the Six Months
Ended
June 30,
1992
NET SALES $ 249,539
COST OF GOODS SOLD 237,180
Gross profit 12,359
ENGINEERING, SELLING AND ADMINISTRATIVE
EXPENSES 25,750
Loss from operations (13,391)
OTHER INCOME (EXPENSE)
Interest expense (601)
Other expense, net (494)
LOSS, EXCLUSIVE OF TAXES $(14,486)
The accompanying notes are an integral part of these financial statements.
BUSINESS ACQUIRED FROM CLARK
EQUIPMENT COMPANY BY TEREX CORPORATION
UNAUDITED COMBINED STATEMENT OF CASH FLOWS
(amounts in thousands)
For the Six Months
Ended
June 30,
1992
OPERATING ACTIVITIES
Loss, exclusive of taxes $(14,486)
Adjustments to reconcile loss, exclusive of taxes,
to net cash from (used in) operating activities:
Depreciation 4,522
Amortization and write-off of deferred costs 237
Noncash restructuring charge 582
Increase (decrease) in cash due to changes in operating
assets and liabilities, net of the effects of
business acquisitions:
Trade receivables (1,433)
Accounts due from related parties 537
Net inventories (2,783)
Other current assets 171
Trade accounts payable 6,548
Accounts due to related parties (505)
Accrued warranties and product liabilities 3,673
Other current liabilities (2,416)
Other assets (563)
Other liabilities 146
Net cash from (used in) operating activities (5,770)
INVESTING ACTIVITIES
Sale of properties 26
Capital expenditures (1,783)
Other (98)
Net cash used in investing activities (1,855)
FINANCING ACTIVITIES
Net borrowings (repayments) to parent 6,110
Decrease in rental obligations 602
Net cash from (used in) financing activities 6,712
EFFECT OF EXCHANGE RATE CHANGES ON CASH (72)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (985)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,629
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 644
The accompanying notes are an integral part of these financial statements.
BUSINESS ACQUIRED FROM CLARK EQUIPMENT COMPANY
by TEREX CORPORATION
NOTES TO UNAUDITED COMBINED STATEMENT OF
OPERATING REVENUES AND EXPENSES
June 30, 1992
(Amounts in thousands)
Note 1 - Basis of Presentation
Terex completed the Clark Acquisition on July 31, 1992 and, accordingly,
financial statements of the Business Acquired from Clark Equipment Company by
Terex Corporation (the "Business") do not exist as of September 30, 1992 The
accompanying unaudited Combined Statement of Operating Revenues and Expenses
is presented for the six months ended June 30, 1992.
The Combined Statement of Operating Revenues and Expenses has been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, it does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been made. Operating results for the six months ended June
30, 1992, are not necessarily indicative of the results that may be expected
for the year ended December 31, 1992. For further information, refer to the
audited combined financial statements and footnotes thereto of the Business
Acquired from Clark Equipment Company by Terex Corporation for the years ended
December 31, 1991, 1990 and 1989.
The Combined Statement of Operating Revenues and Expenses includes revenues and
expenses directly related to the Business and excludes income taxes. In light
of the nature of operations of the Business presented herein, a statement of
cash flows has not been presented as such information would not be meaningful.
TEREX CORPORATION
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated income statement of
the Company gives effect to the Clark acquisition on July 31, 1992 (as
described in Note C - Acquisitions, of the Notes to Consolidated Financial
Statements for the year ended December 31, 1992 included in this Prospectus).
The pro forma information is based on the historical income statement of the
Company for the period ended December 31, 1992, giving effect to the Clark
acquisition and financing transactions and adjustments as reflected in the
accompanying notes.
On July 31, 1992, the Company completed the Clark acquisition. A private
placement of $160 million of the Secured Notes and a seller note due Clark
Equipment Company (the "Seller Note") of approximately $6.1 million provided
the financing for the aggregate purchase price of approximately $91.1 million.
Proceeds of the Secured Notes also provided funds for the refinancing of
certain existing Company debt (the "Refinancing"), for transaction and
acquisition costs and for working capital purposes. The Company financed the
entire purchase price of the Clark acquisition through proceeds of debt.
The acquisition was accounted for using the purchase method, with the purchase
price of the Clark acquisition allocated to the assets acquired and liabilities
assumed based upon their respective estimated fair values at the date of
acquisition. Purchase price allocations were based on evaluations,
estimations, appraisals, actuarial studies and other studies performed by the
Company.
The unaudited pro forma consolidated results do not represent actual operating
results. The pro forma amounts were prepared by management of the Company and
should not be interpreted as predictive of the Company's future results of
operations. The Company is actively reorganizing the operations of Clark by
consolidating manufacturing and distribution operations. Consequently,
management does not view the combination of historical financial results as a
meaningful representation of the Company's future operations.
TEREX CORPORATION
UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1992
(in thousands except per share amounts)
Terex
Corporation Pro Forma Pro Forma
and Business Acquisition Refinancing
Subsidiaries Acquired Adjustments Adjustments Pro Forma
NET SALES $523,355 $288,504 $0 $0 $811,859
COST OF GOODS SOLD 469,345 275,065 (4,124) (3b,c,d) 0 740,286
Gross Profit 54,010 13,439 4,124 0 71,573
ENGINEERING, SELLING
AND ADMINISTRATIVE
EXPENSES 58,135 29,873 (1,983) (3d) 0 86,025
Loss from
operations (4,125) (16,434) 6,107 0 (14,452)
OTHER INCOME (EXPENSE):
Interest income 1,666 0 0 0 1,666
Interest expense (23,320) (689) (6,752) (3a) (435) (3a) (31,196)
Equity income
(loss) (35,045) 0 0 0 (35,045)
Royalty income 67 0 0 0 67
Gain on sale of
subsidiary stock
and related
recapitalization 7,759 0 0 0 7,759
Other - net (4,110) (537) (1,033) (3a) (915) (3a) (6,595)
Loss before income
taxes (57,108) (17,660) (1,678) (1,350) (77,796)
PROVISION FOR INCOME
TAXES 67 0 0 0 67
Net loss $(57,175)$(17,660) $(1,678) $(1,350) $(77,863)
NET LOSS PER SHARE $(6.14) $(8.22)
AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT
SHARES CONSIDERED
OUTSTANDING IN PER
SHARE CALCULATION 9,945 9,945
TEREX CORPORATION
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED INCOME STATEMENT
1) The unaudited pro forma condensed consolidated income statement is
presented for the year ended December 31, 1992. The pro forma statement
reflects the operations of the Company combined with those of the acquired
business assuming the Clark acquisition and the related refinancings were
consummated on January 1, 1992.
2) For purposes of preparing the unaudited pro forma condensed consolidated
income statement of the Company, all financial information of foreign
operations has been translated into U.S. dollars in accordance with Statement
of Financial Accounting Standards No. 52.
3) The pro forma income statement adjustments are summarized as follows:
a) The Secured Notes and the Seller Note provided the funds to finance the
Clark acquisition, as well as funds to refinance certain existing Company debt
and pay refinancing and acquisition costs. The Secured Notes bear interest at
13% and are due August 1, 1996. The Seller Note bears interest at the prime
rate as defined in the related agreement and is due July 31, 1994.
Pro forma interest expense increased $6.8 million and $0.4 million due to
acquisition and refinancing pro forma adjustments, respectively, for the year
ended December 31, 1992.
Pro forma adjustment to Other - Net represents amortization of debt issuance
costs of $1.9 million for the year ended December 31, 1992.
b) Depreciation expense increases on a pro forma basis by $1.6 million for the
year ended December 31, 1992. The adjustments are due to the revaluation of
plant and equipment in connection with the Clark acquisition in accordance with
APB 16.
c) Pro forma adjustments reflect the intangible assets amortization expense of
$1.3 million for the year ended December 31, 1992.
d) Pro forma adjustments reflect reduced cost of goods sold of $7.0 million
and reduced engineering, selling and administrative expenses of $2.0 million
for the year ended December 31, 1992. The reduced expenses relate to recurring
cost savings to be derived which are directly attributable to the Clark
acquisition.
REPORT OF INDEPENDENT ACCOUNTANTS
To be filed by amendment.
REPORT OF INDEPENDENT ACCOUNTANTS
To be filed by amendment.
FRUEHAUF TRAILER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(in thousands, except per share amounts)
Year ended December 31,
1992 1991 1990
NET SALES $ 488,898 $ 512,689 $ 589,452
COST OF GOODS SOLD 448,215 445,040 495,599
Gross margin 40,683 67,649 93,853
ENGINEERING, SELLING AND
ADMINISTRATIVE EXPENSES
Third parties 60,562 69,412 68,757
Parent company - 1,932 2,500
Other related party 2,300 3,633 3,322
Total 62,862 74,977 74,579
RESTRUCTURING COSTS 15,500 15,825 -
Income (loss) from operations (37,679) (23,153) 19,274
OTHER INCOME (EXPENSE)
Interest income 1,201 1,294 2,824
Interest expense - third parties (9,261) (12,283) (24,035)
Interest expense - parent company - (1,612) (1,562)
Interest expense
- other related parties (975) (3,743) (5,495)
Equity in net income (loss)
of affiliates (5,714) 4,209 7,480
Royalty income - third parties 342 638 939
Royalty income - affiliates 2,557 2,518 4,221
Gain (loss) on sale of excess assets (22) 7,484 -
Amortization/write-off of
debt issue costs (4,967) (867) (3,329)
Adjustments of estimated realizable value
of Jacksonville (11,551) - -
Other income (expense) - net (2,241) (2,495) 678
Income (loss) before income taxes (68,310) (28,010) 995
PROVISION (BENEFIT) FOR INCOME TAXES (3,150) 866 979
NET INCOME (LOSS) BEFORE
EXTRAORDINARY LOSS (65,160) (28,876) 16
EXTRAORDINARY LOSS ON RETIREMENT OF DEBT - - (2,192)
NET LOSS $(65,160) $(28,876) $ (2,176)
NET INCOME (LOSS) PER SHARE
Net income (loss) before
extraordinary loss $ (5.36) $ (3.50) $ 0.00
Extraordinary loss on retirement of debt - - (0.47)
Net loss per share $ (5.36) $ (3.50) $ (0.47)
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 12,159 8,260 4,590
The accompanying notes are an integral part of these statements.
FRUEHAUF TRAILER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in thousands, except per share amounts)
ASSETS
December 31,
1992 1991
CURRENT ASSETS
Cash and cash equivalents $ 3,023 $ 2,985
Marketable securities - 1,038
Trade receivables (less allowance
of $2,048 in 1992
and $2,210 in 1991) 39,387 35,716
Net inventories 54,893 98,570
Note receivable from related party 1,622 -
Other current assets 3,790 1,187
Total Current Assets 102,715 139,496
LONG-TERM ASSETS
Prepaid pension cost 7,795 9,104
Facility leased to affiliate 14,000 18,955
Investment in affiliate companies 33,745 40,145
Assets held for sale 50,772 43,301
Other assets 1,364 6,049
PROPERTY, PLANT AND EQUIPMENT
Property 17,265 35,281
Plant 26,287 39,910
Equipment 40,296 45,914
83,848 121,105
Less - Accumulated depreciation (17,581) (18,227)
Net Property, Plant and Equipment 66,267 102,878
TOTAL ASSETS $ 276,658 $ 359,928
The accompanying notes are an integral part of these statements.
FRUEHAUF TRAILER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in thousands, except per share amounts)
LIABILITIES AND STOCKHOLDERS' INVESTMENT
December 31,
1992 1991
CURRENT LIABILITIES
Notes payable $ 2,963 $ -
Trade accounts payable 47,373 50,033
Accrued compensation and benefits 12,389 16,245
Accrued warranties 7,417 7,439
Accrued workers compensation 5,670 9,207
Accrued cost of facility realignment 6,548 16,701
Other current liabilities 16,990 28,767
Current portion of long-term debt
to related party 7,497 -
Current portion of long-term debt
to third parties 89,794 12,177
Total Current Liabilities 196,641 140,569
LONG-TERM LIABILITIES
Long-term debt to third parties,
less current portion 3,798 77,330
Long-term debt to related party,
less current portion - 7,497
Postretirement health benefits 38,885 34,939
Long-term payable to parent 14,890 10,244
Other long-term liabilities 39,962 40,944
STOCKHOLDERS' INVESTMENT
Common stock, $0.01 par value -
authorized 20,000 shares;
issued and outstanding 12,159 shares 122 122
Additional paid-in capital 71,881 71,881
Retained deficit (96,403) (31,243)
Foreign currency translation adjustment 6,882 7,645
Total Stockholders' Investment (17,518) 48,405
TOTAL LIABILITIES AND
STOCKHOLDERS' INVESTMENT $276,658 $359,928
The accompanying notes are an integral part of these statements.
FRUEHAUF TRAILER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' INVESTMENT
(in thousands)
Retained Foreign
Additional Earnings Currency
Common Paid-in (AccumulatedTranslation
Stock Capital Deficit) Adjustment Total
BALANCE AT
DECEMBER 31, 1989
As previously reported $ 46 $ 9,959 $ 994 $ 340 $ 11,339
Restatement (Note P) - - (1,185) - (1,185)
AS RESTATED
- DECEMBER 31, 1989 46 9,959 (191) 340 10,154
Net loss - - (2,176) - (2,176)
Translation adjustment - - - 13,989 13,989
BALANCE AT
DECEMBER 31, 1990 46 9,959 (2,367) 14,329 21,967
Net loss - - (28,876) - (28,876)
Translation adjustment - - - (6,684) (6,684)
Net effect of
recapitalization 36 22,462 - - 22,498
Issuance of common stock
in initial public
offering 40 39,460 - - 39,500
BALANCE AT
DECEMBER 31, 1991 122 71,881 (31,243) 7,645 48,405
Net loss - - (65,160) - (65,160)
Translation adjustment - - - (763) (763)
BALANCE AT
DECEMBER 31, 1992 $122 $71,881 $(96,403) $6,882 $(17,518)
The accompanying notes are an integral part of these statements.
FRUEHAUF TRAILER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Year ended December 31,
1992 1991 1990
OPERATING ACTIVITIES
Net loss $(65,160) $(28,876) $ (2,176)
Adjustments to reconcile net loss
to net cash from (used in)
operating activities:
Depreciation 4,071 6,882 6,336
Amortization and write-off of
deferred costs 4,967 1,567 8,701
Non-cash extraordinary loss - - 2,192
Unremitted (earnings) loss from
affiliate companies 6,862 (2,528) (6,748)
Loss on sale of affiliate stock - 3,312 -
Interest paid-in-kind - 4,128 7,036
(Gain) loss on sale of excess assets 22 (7,484) -
Non-cash restructuring costs 15,500 15,825 -
Non-cash liquidation costs
of Jacksonville 11,551 - -
Other non-cash charges 8,120 - -
Increase (decrease) in cash
due to changes in operating
assets and liabilities:
Trade receivables (3,671) 12,359 13,492
Net inventories 43,677 20,309 20,717
Other current assets (836) 8,758 (5,586)
Trade accounts payable (2,660) 10,521 2,765
Long-term payable to parent 4,646 3,932 5,931
Accrued compensation and benefits (3,856) (5,156) (6,044)
Accrued warranties (22) 123 (2,103)
Other liabilities (34,278) (56,498) (59,711)
Other assets (1,895) 73 (8,108)
Net cash used in operating
activities (12,962) (12,753) (23,306)
INVESTING ACTIVITIES
Capital expenditures (1,937) (2,510) (3,565)
Proceeds from sale of excess assets 10,174 39,685 18,919
Proceeds from sale of affiliate stock - 8,739 -
Proceeds from sale of
marketable securities 1,038 - 7,975
Purchase of marketable securities - (538) (970)
Other - 462 -
Net cash from investing
activities 9,275 45,838 22,359
FINANCING ACTIVITIES
Proceeds from issuance of
long-term debt 13,000 15,000 120,000
Proceeds from issuance of
notes payable 2,963 - -
Principal repayments of
long-term debt (12,177) (89,748) (134,161)
Proceeds from issuance of common stock - 41,040 -
Other (38) (660) (1,135)
Net Cash from (used in) financing
activities 3,748 (34,368) (15,296)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS (23) (186) (89)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 38 (1,469) (16,332)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 2,985 4,454 20,786
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 3,023 $ 2,985 $ 4,454
The accompanying notes are an integral part of these statements.
FRUEHAUF TRAILER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1992
(dollar amounts in thousands, except per share data)
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The Consolidated Financial Statements include the
accounts of Fruehauf Trailer Corporation and its majority-owned subsidiaries
("Fruehauf" or the "Company"). The Company was incorporated in 1989 for the
purpose of acquiring certain assets and assuming certain liabilities of
Fruehauf Corporation (the "Fruehauf Acquisition"). The Company is consolidated
with Terex Corporation ("Terex") for financial reporting purposes.
All intercompany balances, transactions and profits have been eliminated. The
equity method is used to account for investments in affiliates in which
Fruehauf has an ownership interest between 20% and 50%. The cost method is
used to account for investments in affiliates in which Fruehauf has an
ownership interest of less than 20%.
Cash and Cash Equivalents: The Company considers all highly liquid marketable
securities with original maturities of 30 days or less to be cash equivalents.
Marketable Securities: Marketable securities include investments in equity
securities, commercial paper, notes and bonds. Marketable equity securities
and other marketable securities are carried at the lower of cost or market
value. The Company held no marketable equity securities at December 31, 1992
and 1991. Net realized gains and losses on security transactions are
determined on a specific identification basis.
Inventories: Inventories are stated at the lower of cost or market.
Substantially all inventories are valued on the last-in, first-out ("LIFO")
method.
Debt Issuance Costs: Costs incurred upon the issuance of debt are deferred in
the Consolidated Balance Sheet and amortized over the life of the underlying
debt.
Property, Plant and Equipment: Property, plant and equipment are stated at
cost. 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.
Expenditures for maintenance and repairs not expected to extend the life of an
asset beyond its normal useful life are expensed. The cost of assets and the
related amounts of accumulated depreciation are eliminated from the accounts
when the assets are retired or sold. Certain property, plant and equipment
held for sale are included in Assets Held for Sale (see Note F - "Assets and
Businesses Held For Sale"), and are carried at the lower of cost or net
realizable value.
Revenue Recognition: Revenues and costs are generally recognized as the
related products are shipped or picked-up. New trailers 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 (generally within two weeks) specified by the
customer at the time the customer is notified that the unit is completed or as
specified in the sales agreement. In such cases, the units are invoiced under
the Company's customary billing terms, title to the units and risk of ownership
passes 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 obligation under the order.
Accrued Warranties: The Consolidated Financial Statements reflect accruals for
potential product liability and warranty claims based on the Company's claim
experience.
Foreign Currency Translation: Foreign currency translation adjustments are
generally excluded from the Consolidated Statement of Income and are included
in Foreign Currency Translation Adjustment in the Consolidated Balance Sheet.
Gains or losses resulting from foreign currency transactions are included in
Other Income (Expense).
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 totalled approximately $1,827,
$1,422 and $2,078 during 1992, 1991 and 1990, respectively.
Income Taxes: The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standard ("SFAS") No. 96, "Accounting For
Income Taxes" (see Note I - "Income Taxes").
Net Income (Loss) Per Common 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.
Environmental Policies: Environmental expenditures that relate to current
operations are either expensed or capitalized. 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. Generally, the timing of these accruals coincides
with completion of a feasibility study or the Company's commitment to a formal
plan of action.
Reclassifications: Certain amounts shown for 1990 and 1991 have been
reclassified to conform to the 1992 presentation. As discussed in Note F -
"Assets and Businesses Held for Sale", the Company ceased all operations at
Jacksonville Shipyards, Inc. and Coast Engineering & Manufacturing Company in
1992 and 1991, respectively. The remaining assets and liabilities of these
operations are included in the Consolidated Balance Sheet in the respective
captions.
Recent Pronouncements: In December 1990, the Financial Accounting Standards
Board ("FASB") issued SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions". This statement requires accrual of
postretirement benefits (such as health care benefits) during the years an
employee provides services. The Company does not anticipate that its planned
January 1, 1993 implementation of this pronouncement will have a significant
effect on operating results or financial position. For further information,
refer to Note K - "Retirement Plans."
In February, 1992, the FASB issued SFAS No. 109, "Accounting for Income Taxes"
to supersede SFAS No. 96, "Accounting for Income Taxes". The Company has
reflected its deferred taxes using the principles of SFAS No. 96. The new
pronouncement retains the basic concepts of SFAS No. 96, but generally
simplifies its application. Based upon preliminary analysis, the Company does
not expect the future implementation of this pronouncement to have a
significant effect on its operating results or financial position. The Company
intends to adopt this Standard on January 1, 1993.
In November, 1992 the FASB issued SFAS No. 112 "Employers' Accounting for
Postemployment Benefits". This pronouncement establishes accounting and
reporting for the estimated cost of benefits provided by an employer to former
or inactive employees after employment but before retirement. For the most
part, the Company already accounts for such benefits on an accrual basis.
Therefore, the impact of adoption is not anticipated to have a material effect
on the Company's financial position or results of operations.
NOTE B - INITIAL PUBLIC OFFERING AND RECAPITALIZATION
On July 8, 1991, the Company (formerly wholly-owned by Terex Holdings
Corporation ("Terex Holdings"), in turn a wholly-owned subsidiary of Terex)
completed an initial public offering ("IPO") of 4,000,000 shares of common
stock at a price of $11.00 per share. Fruehauf common stock is traded on the
New York Stock Exchange under the symbol "FTC".
To prepare the Company for public ownership, Fruehauf's certificate of
incorporation was amended to increase the authorized number of shares of common
stock to 20,000,000 and to reduce the par value per share from $1.00 to $0.01.
The Terex Holdings Warrant (see Note J - "Stockholders' Investment") issued in
the Fruehauf Acquisition to KCS Industries, Inc. ("KCS") was exercised in full
by KCS for 245,000 shares of Terex Holdings common stock. KCS applied the
$7,497 outstanding principal balance of its initial Series A Note in payment of
the exercise price of the Terex Holdings Warrant. Immediately thereafter,
Terex Holdings was merged (the "Merger") into Fruehauf, with Fruehauf
continuing as the surviving corporation. In the Merger, (i) each outstanding
share of Terex Holdings common stock was converted into nine shares of Fruehauf
common stock, (ii) Series A Notes in the aggregate principal amount of $7,497
held by The Airlie Group L.P. and Trailer Partners (collectively "Airlie") were
exchanged for notes from the Company (the "Fruehauf Notes") in the same
principal amount as the Series A Notes surrendered by Airlie, and the Terex
Holdings Warrant issued to Airlie in the Fruehauf Acquisition was also
exchanged for a new warrant (the "Fruehauf Warrant") to purchase up to an
aggregate 2,205,000 shares of the Company's common stock at an exercise price
of $3.40 per share, and (iii) the Preferred Stock of the Company, which was
previously held by Terex Holdings, was canceled (the foregoing transactions
being collectively referred to as the "Recapitalization"). Terex, KCS, and
Airlie then exchanged the $15,000 of Series B Notes purchased by them in the
Fruehauf Acquisition for 1,363,637 shares of the Company's common stock.
The net proceeds received by the Company in connection with the IPO were
$41,040. Of this amount, approximately $25,673 was used to reduce Fruehauf's
outstanding borrowings under its primary credit facility and approximately
$13,827 was used to pay the remaining balance and accrued interest on the
Series A and Series B Notes. After the application of the net proceeds of the
IPO and the completion of the Recapitalization, the Company's debt was reduced
by $61,998.
Unaudited pro forma consolidated results of operations for 1991 and 1990, as
though the Company completed the IPO, Merger, Recapitalization, and related
transactions on January 1, 1990, is as follows:
Year ended December 31,
1991 1990
Net sales $ 512,689 $ 589,452
Income (loss) from operations (23,153) 19,274
Net income (loss) before
extraordinary loss (23,154) 11,337
Extraordinary loss on
retirement of debt - (2,192)
Net income (loss) (23,154) 9,145
Net income (loss) per common share
before extraordinary loss $ (1.90) $ 0.85
Extraordinary loss per common share - (0.15)
Net income (loss) per common share $ (1.90) $ 0.70
These unaudited pro forma consolidated results have been prepared pursuant to
Article 11 of the SEC Regulation S-X and are not necessarily representative of
the actual operating results or financial position the Company would have
achieved had the events reflected therein occurred at the dates assumed. These
financial statements are not representative of the future results or financial
position that the Company will record. These unaudited pro forma consolidated
results should be read in conjunction with the audited historical Consolidated
Financial Statements of the Company and the notes thereto.
NOTE C - INVESTMENTS IN AFFILIATE COMPANIES
The Company has less than 50% equity investments in three foreign corporations
engaged in the design, manufacture and marketing of truck trailers.
The Company's investment in Societe Europeenne de Semi-Remorques, S.A. ("SESR")
is the largest equity investment with a carrying value of $23,296 and $30,072
at December 31, 1992 and 1991, respectively. SESR is Europe's largest trailer
manufacturer. The book value of the Company's investment in SESR exceeds the
Company's proportionate share of SESR's underlying equity. The related excess
purchase price of $7,640 and $8,010 at December 31, 1992 and 1991, respectively
is being amortized on a straight-line basis over 20 years.
During 1991 the Company sold a portion of its investment in SESR, which was in
turn sold to SESR, thereby reducing the Company's ownership from approximately
one-third to approximately 23%. In addition to the $8,739 of cash received
upon the sale of the SESR shares, 1) certain litigation between the Company and
SESR was settled, 2) Company shares of SESR and related accumulated dividends
previously held in escrow as a result of the litigation were released to the
Company, 3) Company representatives to the SESR Board of Directors were
reinstated and 4) the expiring royalty and trademark and license agreements
between the Company and SESR were renegotiated. As a net result of these
transactions, the Company recorded a loss of $3,312.
The carrying value of the Company's other affiliate accounted for under the
equity method, Henred Fruehauf Trailers Pty. Ltd., is $7,933 at December 31,
1992 and $7,557 at December 31, 1991. The carrying value of the Company's
affiliate accounted for under the cost method, Nippon Fruehauf Company, Ltd.,
is $2,516 at both December 31, 1992 and 1991.
Summarized financial data (100% basis) for the Company's two affiliates
accounted for under the equity method is as follows:
Years ended December 31,
1992 1991 1990
Net sales $ 915,622 $ 822,045 $ 831,372
Gross profit 129,473 133,190 139,600
Net income (loss) (22,674) 15,238 24,594
December 31,
1992 1991 1990
Current assets 347,236 424,405 401,483
Noncurrent assets 193,417 212,428 182,118
Current liabilities 249,133 283,690 246,141
Noncurrent liabilities & deferred taxes 208,603 190,013 169,665
The Company's share of the net income (loss) of affiliate companies, accounted
for using the equity method, was ($5,714), $4,209 and $7,480 for the years
ended December 31, 1992, 1991 and 1990, respectively. Dividends received from
such companies totalled $1,148 in 1992, $1,681 in 1991 and $732 in 1990.
Dividends received from affiliates that are accounted for using the equity
method are applied as a reduction of the carrying value of the investments.
The Company received dividends from its affiliate accounted for using the cost
method totalling $143, $130 and $146 in 1992, 1991 and 1990, respectively.
Such dividends are included in Other Income (expense) in the Consolidated
Statement of Income.
Trailer components sold by the Company to its less than 50% equity affiliates
totalled $2,808, $5,688 and $6,761 in 1992, 1991 and 1990, respectively. Such
sales were made on the same terms and conditions as with other customers. In
addition, the Company received amounts pursuant to royalty and trademark and
license agreements from its less than 50% owned equity affiliates totalling
$2,557, $2,518 and $4,221 in 1992, 1991 and 1990, respectively. Amounts
receivable from such affiliates at December 31, 1992, 1991 and 1990 totalled
$1,384, $2,040 and $2,352, respectively.
NOTE D - RESTRUCTURING COSTS
The Company recorded a $15,825 charge in 1991 to accrue for a restructuring
program designed to improve profitability. The restructuring provision
represented the estimated cost of restructuring the Company's distribution
system and consolidating certain of the Company's manufacturing operations.
During 1992, the Company recorded additional restructuring costs of $15,500
representing revisions of the estimates relating to the restructuring plan in
1991. The cost of restructuring the Company's distribution system by
converting company-owned sales and service branches to independent dealers
exceeded original estimates. Additionally, due to continuing poor economic and
commercial real estate market conditions, excess asset sales have not occurred
as rapidly as expected and the proceeds have been lower than anticipated. As a
result, the Company recorded the 1992 restructuring provision to absorb such
additional costs and valuation adjustments. The idled facilities are included
in the Consolidated Balance Sheet in Assets Held for Sale, and are carried on a
lower of cost or net realizable value basis, including costs through the date
of expected disposition.
The components of the restructuring costs are as follows:
Year ended December 31,
1992 1991
Branch conversion costs $ 7,800 $ 5,700
Plant closing costs - 900
Excess asset valuation adjustment 5,100 5,500
Idle facility holding costs 2,600 3,725
Total $ 15,500 $ 15,825
NOTE E - INVENTORIES
Inventories consist of the following:
December 31,
1992 1991
Used trailers $ 4,385 $ 18,520
New trailers 12,993 25,055
Work-in-process and finished parts 17,366 25,421
Raw materials and supplies 18,013 24,335
Gross inventories 52,757 93,331
Excess of LIFO inventory value
over FIFO costs 2,136 5,239
Net inventories $ 54,893 $ 98,570
NOTE F - ASSETS AND BUSINESSES HELD FOR SALE
The Company is holding for sale certain excess real estate, facilities and
other assets, as well as the Decatur Business.
The Decatur Business consists of the Company's wholly-owned aluminum extrusion
operation and a 50% equity interest in Decatur Aluminum Company, a corporation
engaged in the production of aluminum sheeting. The Decatur Business supplies
aluminum sheeting and extrusions to the Company's trailer manufacturing plants.
The Company has previously announced its intention to divest the Decatur
Business. The Decatur Business is included in the Consolidated Balance Sheet
for $3,578 and ($1,077) at December 31, 1992 and 1991, respectively. Changes
in the carrying value of the Decatur Business result from the net cash used in
(generated from) the Decatur Business. The operating results of the Decatur
Business are not included in the Consolidated Statement of Income. The Decatur
Business experienced losses of $1,500, $900 and $800 in 1992, 1991 and 1990,
respectively, which were excluded from the Consolidated Statement of Income.
Reserves were established at the Fruehauf Acquisition to absorb operating
results until the Decatur Business is divested. Revenues of the Decatur
Business (on a 100% basis) were $62,538 in 1992, $55,055 in 1991 and $57,204 in
1990. The majority of these revenues were intercompany sales which would have
been eliminated in consolidation. The Decatur Business' total assets were
approximately $12,746 at December 31, 1992.
The Company announced its intentions to divest Jacksonville Shipyards, Inc.
("Jacksonville"), its wholly-owned ship repair subsidiary at the time of the
Fruehauf Acquisition in 1989. Jacksonville's primary floating drydocks were
sold in September 1991 for $28,750, and the proceeds were applied against the
repayment of Jacksonville's $29,600 of Industrial Development Revenue Bonds.
Substantially all remaining operations at Jacksonville ceased in 1992, and a
program was implemented to liquidate the remaining assets, consisting primarily
of real estate and receivables. The Company recorded a $11,551 charge in 1992
relating to the closure, liquidation and future costs of Jacksonville.
The components of the adjustment to the net realizable value of Jacksonville
are summarized as follows:
Revision of pre-disposition
operating results and shutdown $ 5.3
Environmental obligations 2.4
Employee related liabilities 1.8
Revision of net realizable value
of fixed assets 1.1
Other 1.0
$11.6
The results of Jacksonville are not included in the Consolidated Statement of
Income, other than the $11,551 charge recorded in 1992. Jacksonville revenues
were $16,700 in 1992, $40,700 in 1991 and $31,400 in 1990. Jacksonville
experienced losses of $1,200, $3,400 and $2,500 in 1992, 1991 and 1990,
respectively, which were excluded from the Consolidated Statement of Income.
Jacksonville's assets and liabilities are included in the Consolidated Balance
Sheet in the respective captions.
In December of 1991, the Company sold substantially all of the operating assets
of Coast Engineering & Manufacturing Company ("CEMCO") for $6,150 and recorded
a gain of $6,599. CEMCO had been in the business of manufacturing cranes. The
proceeds from this sale were used to reduce the Company's outstanding
indebtedness. The remaining assets and liabilities of CEMCO, consisting
primarily of receivables and warranties, are included in the Consolidated
Balance Sheet. The operating results of CEMCO are not included in the
Consolidated Statement of Income as reserves were established at acquisition to
absorb such operating losses.
In addition to the Decatur Business and Jacksonville's real estate, the Company
holds for sale other idle facilities. As a result of manufacturing and
distribution restructuring programs, certain facilities were added to Assets
Held for Sale in 1991 and 1992. The Company is actively marketing all excess
properties, and in certain instances, is leasing them in order to generate
funds to help cover holding costs. These non-operating properties are included
in the Consolidated Balance Sheet in Assets Held for Sale, and are carried on a
lower of cost or market basis. Adequate reserves have been established to
absorb holding costs until disposition. As previously discussed in Note D -
"Restructuring Costs", the Company recorded writedowns on certain assets held
for sale and provisions for related holding costs in 1991 and 1992.
Excluding the proceeds generated from the sale of CEMCO's operating assets and
Jacksonville's floating drydocks, the Company generated proceeds from the sale
of excess assets of $10,174, $4,785 and $18,919 in the years ended December 31,
1992, 1991 and 1990, respectively. All proceeds generated from the sale of
excess assets are required to be applied against the outstanding indebtedness
under the Company's Credit Agreement (See Note G - "Long-term Debt").
The U.S. Environmental Protection Agency (the "EPA") placed a lien in excess of
$15,000 on the Company's former manufacturing facility in Harrisburg,
Pennsylvania. The facility is included in Assets Held for Sale for $8,250 at
December 31, 1992. A small portion of the excess land at this facility
contains a landfill established by the Army Air Corp when the property was part
of a former military base. The Department of Defense has acknowledged
responsibility for the landfill and has appropriated funds for remedial
actions. The Company did not operate or contribute any waste to the landfill.
The Company believes it may have an "innocent landowner" defense to any claim
for remedial action. The Company has repeatedly requested the EPA to remove
the lien on this property, which the Company believes was filed improperly
without a hearing or an opportunity for the Company to contest it. To date,
the Company has had no success in obtaining a lien release. Without a release,
the Company will be unable to sell the facility and use the proceeds to reduce
outstanding indebtedness. However, the Company is leasing out a portion of
this facility on a short-term basis to enhance cash flow. The Company believes
it will be successful in obtaining a release for the lien, although no
assurances can be given.
NOTE G - LONG-TERM DEBT
Long-term debt is summarized as follows:
December 31,
1992 1991
Secured bank credit agreement bearing
interest at prime plus 2.25% in 1993,
prime plus 2.0% in 1992,
prime plus 1.5% prior thereto,
due June, 1993 $ 86,228 $ 85,128
Mortgage note bearing interest
at 9.625% collateralized by an idle plant,
due September, 2001 4,102 4,379
Unsecured promissory notes
held by a related party bearing
interest at 14% in 1992
and 12% in 1991, due March, 1996 7,497 7,497
Other 3,262 -
Total long-term debt 101,089 97,004
Less: Current portion of long-term debt
to related party 7,497 -
Less: Current portion of long-term debt
to third party 89,794 12,177
Long-term debt, less current portion $ 3,798 $ 84,827
The secured bank credit agreement (the "Credit Agreement") is secured by
substantially all of the assets of the Company. The Credit Agreement provides
for both a term loan and a revolving credit facility. Amounts outstanding
under the term loan were $58,228 and $70,128 at December 31, 1992 and 1991,
respectively. As of December 31, 1992, the revolving credit facility was
limited to the lesser of $45,000 or the available borrowing base, which absent
the covenant violations discussed below, could have been used in any
combination of cash advances or bank letters of credit. At December 31, 1991,
the revolving credit facility was limited to the lesser of $45,000 or the
available borrowing base, and the maximum cash advance availability was
$20,000. The available borrowing base is calculated by applying prescribed
advance ratios against eligible receivable and inventory balances, in
accordance with the terms of the Credit Agreement. Outstanding cash advances
totalled $28,000 and $15,000 at December 31, 1992 and December 31, 1991,
respectively. Outstanding letters of credit totalled $11,322 at December 31,
1992 and $20,520 at December 31, 1991.
All proceeds from the sale of collateralized assets are to be applied against
outstanding Credit Agreement indebtedness, including proceeds from the sale of
the properties included in Assets Held For Sale on the Consolidated Balance
Sheet. As a result, the Company cannot sell excess properties for the purpose
of generating working capital.
A commitment fee of 0.5% per annum is payable on any unused portion of the
revolving credit facility. Total unused credit under the revolving credit
facility was zero at December 31, 1992 and $9,480 at December 31, 1991. The
actual borrowing rate under the Credit Agreement was 8.0% at both December 31,
1992 and 1991.
The Credit Agreement restricts the payment of dividends and requires, among
other things, that the Company maintain certain levels of tangible net worth
and working capital, meet certain current and debt to equity ratios, and
achieve certain levels of operating performance and interest coverage. While
the Company has remained current in all of its payment obligations under the
Credit Agreement through December 31, 1992, it was not in compliance with
certain financial covenants at December 31, 1992 or 1991.
As described in Note Q - "Plan of Restructuring and Refinancing", the Company
and its lenders amended the terms of the Credit Agreement on March 15, 1993.
The amendment provides an additional $6.6 million of borrowing availability to
the Company, waives past covenant violations, increases the interest rate to
prime plus 2.25% effective January 1, 1993 and changes the maturity of the debt
from December 31, 1995 to June 30, 1993. The Company has included all
outstanding loans under the Credit Agreement in current liabilities in the
Consolidated Balance Sheet to reflect the new maturity date. The Company is
attempting to secure alternative financing which would provide incremental
borrowing and enable it to extinguish all amounts owed under the Credit
Agreement. The Company wrote off the remaining $3,942 of capitalized debt
issuance costs relating to the Credit Agreement in the fourth quarter of 1992.
The mortgage collateralized by the idle plant (the "Fresno Mortgage") was
assumed in the Fruehauf Acquisition. The Fresno Mortgage is collateralized by
the Company's Fresno, California manufacturing plant, which was closed in early
1992. The interest rate on the Fresno Mortgage is 9.625%, and combined
principal and interest payments of $345 are payable semiannually until
September, 2001. The Company is actively attempting to sell the former Fresno
manufacturing plant, and is required to extinguish the Fresno Mortgage with
such proceeds.
As discussed in Note B - "Initial Public Offering and Recapitalization," the
Company extinguished all of its then-outstanding Series B Promissory Notes and
all but $7,497 of the Series A Promissory Notes in 1991 in the Recapitalization
and with funds generated from the IPO. The $7,497 of Series A Notes not
extinguished were held by Airlie and were exchanged for Fruehauf Notes
totalling $7,497. The Fruehauf Notes initially bore interest at the rate of
12% per annum, and matured July 1, 1992. However, the Company extended the
maturity to March 31, 1996 in exchange for a $56 fee and an increase in the
annual interest rate from 12% to 14%.
The Fruehauf Notes are subordinated to the Credit Agreement. Payment of the
Fruehauf Notes can only be accelerated in the event that the indebtedness under
the Credit Agreement has been accelerated or extinguished. The Fruehauf Notes
have been classified as a current liability at December 31, 1992 as a result of
the change in the maturity of the obligations under the Credit Agreement to
June 30, 1993. In accordance with the terms of the Credit Agreement, the
Company is not allowed to make interest payments on the Fruehauf Notes while in
violation of its covenants under the Credit Agreement. Therefore, the Company
did not make the scheduled semiannual interest payment on December 31, 1992 on
the Fruehauf Notes. The interest accrued on such debt at December 31, 1992
totalled $528, and is included in Other Current Liabilities in the Consolidated
Balance Sheet.
The Company's Mexican subsidiary borrowed $2,963 in 1992. Such short term
notes payable are secured by certain of the subsidiary's assets.
The following table sets forth the scheduled annual maturities of the long-term
debt outstanding at December 31, 1992, after giving effect to the Credit
Agreement modifications discussed above.
1993 $ 89,794
1994 334
1995 367
1996 7,900
1997 442
Thereafter 2,252
Total $ 101,089
Amounts shown are exclusive of minimum lease payments disclosed in Note H -
"Operating Lease Commitments".
The Company paid $10,166, $11,353 and $23,804 of interest in 1992, 1991 and
1990, respectively.
The Company believes that the carrying value of its borrowings approximates
fair market value. Such fair values were estimated by discounting future cash
flows using rates currently available for debt of similar terms and remaining
maturities.
In September, 1990, the Company entered into the Credit Agreement and
refinanced the majority of its then-outstanding long-term debt. A one-time
extraordinary loss of $2,192, or $(0.47) per share, was recorded to write-off
the unamortized debt issuance costs relating to the refinanced debt. The
income tax provision (benefit) on the extraordinary loss was zero. See Note P
- - "Restatement of Prior Year Results" for further information.
NOTE H - OPERATING LEASE COMMITMENTS
The Company leases certain facilities, vehicles, machinery and equipment with
varying terms. Under most arrangements, the Company pays the property taxes,
insurance, maintenance and expenses related to the leased property. Fruehauf
has no capital leases.
Future obligations on non-cancelable operating leases in effect at December 31,
1992 are:
1993 $ 4,975
1994 3,498
1995 3,188
1996 2,246
1997 1,392
Thereafter 9,627
Total $ 24,926
The majority of the Company's operating leases provide the Company with the
option to renew the leases for varying periods after the initial lease terms.
These renewal options enable the Company to renew the leases based upon the
fair rental values at the date of expiration of the initial lease.
Total rental expense under operating leases was $3,930, $4,163 and $2,802 for
the years ended December 31, 1992, 1991 and 1990, respectively.
NOTE I - INCOME TAXES
The components of Income (loss) Before Income Taxes are as follows:
Year ended December 31,
1992 1991 1990
United States $(70,502) $(29,336) $ (921)
Foreign 2,192 1,326 1,916
Income (loss) before income taxes $(68,310) $(28,010) $ 995
Foreign income tax provisions totalled $950 in 1992, $866 in 1991 and $879 in
1990, the majority of which were taxes withheld on royalty and dividend
payments to the Company. In 1990, the Company had a deferred federal tax
provision of $100. In 1992, the Company recorded a $4,100 income tax benefit
relating to the reversal of federal deferred tax liabilities no longer required
due to continued losses.
The Company's Provision (benefit) for Income Taxes is different from the amount
which would be provided by applying the statutory federal income tax rate to
the Company's Income (loss) Before Income Taxes. The reasons for the
difference are summarized below:
Year ended December 31,
1992 1991 1990
% $ % $ % $
Statutory federal income
tax rate (34%) $(23,225)(34%) $(9,523) 34% $338
Future potential benefit
from current NOL 29 19,870 36 9,974 - -
Foreign tax differential
on income/losses of
foreign subsidiaries (1) (516) (1) (301) (56) (561)
Other 1 721 2 716 120 1,202
Provision (benefit) for
income taxes (5%) $(3,150) 3% $866 98% $979
Deferred tax assets and liabilities result from differences in the basis of
assets and liabilities for tax and financial statement purposes. The tax
effects of the basis differences are summarized below for major balance sheet
captions:
December 31,
1992 1991 1990
Net inventories $(9,030) $(19,528) $(24,302)
Assets held for sale (6,475) (6,456) (6,456)
Fixed assets (12,766) (18,388) (20,068)
Other assets and deferred charges 600 (1,313) (5,598)
Investments in affiliate companies (11,740) (8,403) (11,041)
Other current liabilities &
long-term liabilities 36,632 41,980 62,298
All other items - 1,151 (1,036)
Benefit from NOL carryforward 2,779 6,857 2,103
Total deferred tax liability $ 0 $(4,100) $(4,100)
At December 31, 1992, the Company had domestic federal tax basis net operating
loss carryforwards available to offset future taxable income of $148,466. The
Company's domestic federal tax basis net operating loss carryforwards exceed
the book basis net operating loss carryforwards by approximately $50,323. In
accordance with SFAS 96, "Accounting for Income Taxes", the tax benefits of the
unused loss and tax credit carryforwards have not been recognized in the
Consolidated Financial Statements, except by reducing the deferred taxes, as
the realization of these benefits is dependent on future taxable income.
The tax basis net operating loss carryforwards expire as follows:
Tax Basis Net
Operating Loss
Carryforwards
2004 $ 3,641
2005 70,011
2006 33,809
2007 41,005
Total $ 148,466
The Company also has various state net operating loss carryforwards expiring at
various dates through 2007 available to reduce future state taxable income and
income taxes. In addition, one of the Company's foreign subsidiaries has
approximately $332 of tax basis loss carryforwards, expiring in 1995, which may
be available to offset future foreign taxable income.
Provision has not been made for U.S. or additional foreign taxes on
undistributed earnings of international subsidiaries as those earnings have
been, and will continue to be, permanently reinvested. No U.S. income taxes
would be payable in the event of distribution of such earnings. However, on
remittance, certain foreign countries impose withholding taxes that are then
available for use as credits against U.S. tax liabilities, if any, subject to
certain limitations. The amount of withholding tax that would be payable on
remittance of the entire amount of undistributed earnings would approximate
$689.
The Company made income tax payments of $721, $716 and $788 in 1992, 1991 and
1990, respectively.
NOTE J - STOCKHOLDERS' INVESTMENT
Stock Issuance: The Company was capitalized in 1989 upon the issuance of
510,000 shares of Terex Holdings Common Stock for $10,000. On June 14, 1991
the authorized number of shares of Fruehauf Common Stock was increased to
20,000,000. Each share of Terex Holdings Common Stock outstanding was
converted into nine shares of Fruehauf Common Stock on July 8, 1991 in
conjunction with the Initial Public Offering and Recapitalization (see Note B -
"Initial Public Offering and Recapitalization"). The per share calculation
described below, as well as the issued and outstanding shares indicated on the
Consolidated Balance Sheet, take the conversion into account.
The Company completed the IPO by issuing 4,000,000 shares of Fruehauf Common
Stock at a price of $11 per share. The Company's common stock is traded on the
New York Stock Exchange under the symbol "FTC" (see Note B - "Initial Public
Offering and Recapitalization").
Stock Warrants: The Company issued two warrants (the "Terex Holdings
Warrants") to related parties in conjunction with the issuance of the Series A
Notes in 1989. As discussed in Note B - "Initial Public Offering and
Recapitalization," one Terex Holdings Warrant was exercised in 1991, and the
other was exchanged for a Fruehauf Warrant in 1991. The Fruehauf Warrant
enables the holder to purchase up to an aggregate 2,205,000 shares of Fruehauf
Common Stock at an exercise price of $3.40 per share. The Fruehauf Warrant was
not exercised as of December 31, 1992.
Dividends: As discussed in Note G - "Long-Term Debt", the Credit Agreement
contains restrictions as to the payment of cash dividends. As a result of
these restrictions, no dividends could have been paid based on the Company's
financial position as of December 31, 1990, 1991 or 1992.
Net Income (Loss) Per Common and Common Equivalent Share: Net income (loss)
per common and common equivalent share was computed by dividing the net loss by
the average number of dilutive shares of common stock and common stock
equivalents outstanding during the period after the conversion described above.
Stock Option Plan: The Board of Directors has approved a stock option plan for
certain key employees and the directors of the Company. The number of shares
of Common Stock to be made available under the proposed stock option plan total
200,000 shares for key employees and 50,000 for directors. The proposed stock
option plan is subject to stockholder approval.
Preferred Stock: The Company has filed a consent solicitation with the
Securities and Exchange Commission to authorize the issuance of up to 2,500,000
shares of preferred stock. A portion of these shares would be issued to Terex
in exchange for $11,587 of the long term payable due Terex. The proposed
transaction would require ratification by the Company's stockholders prior to
completion. The consent solicitation was pending at December 31, 1992. The
completion of this transaction is uncertain.
NOTE K - RETIREMENT PLANS
Prior to 1990, Fruehauf's trailer operations had multiple defined benefit
pension plans covering most domestic employees. During 1990, Fruehauf's
salaried, nonunion hourly and union hourly plans were merged into a single
plan. A separate plan exists for Jacksonville's hourly employees. Benefits
for the salaried employees are based primarily on years of service and
employees' qualifying compensation during the final years of employment. The
benefits for hourly employees are based primarily on years of service and a
fixed dollar amount per year of service.
Effective October 1, 1990, the Company amended the pension benefits for certain
employees. The plan amendment increased the projected benefit obligation by
approximately $2.7 million. The impact on pension expense was not material.
It is the Company's policy to fund its pension plans based on the minimum
requirements of the Employee Retirement Income Security Act of 1974 ("ERISA").
Plan assets consist primarily of common stocks, bonds and short-term cash
equivalent funds. Assets of Fruehauf's merged plan and the Jacksonville Hourly
plan were combined with the assets of Terex's pension plans into a master trust
(the "Master Trust") effective January 1, 1992.
The following table summarizes the components of pension expense:
Year ended December 31,
1992 1991 1990
Service cost for benefits earned
during the period $ 962 $ 893 $ 1,507
Interest cost on projected
benefit obligation 5,109 5,025 4,540
Actual (return) loss
on plan assets (13,098) (10,315) 5,945
Net amortization and deferral 8,357 5,400 (11,598)
Curtailment loss - 17 -
Net pension expense $ 1,330 $ 1,020 $ 394
The expected long-term rate of return on plan assets was 9.0% for the periods
presented. The discount rate assumption was 8.25% for 1992, 8.5% for 1991 and
9.0% for 1990. Consistent with the provisions of the plan, the actuarial
assumption for the rate of compensation increase was 5.5% for plan years ending
on or prior to December 31, 1991 and zero thereafter.
The following table sets forth the plans' funded status and amounts recognized
in the Consolidated Balance Sheet:
December 31,
1992 1991
Actuarial present value of:
Vested benefits $ 72,226 $ 69,587
Accumulated benefits $ 72,705 $ 70,705
Projected benefits $ 72,705 $ 70,705
Fair value of plan assets 81,795 73,744
Plan assets in excess of
projected benefit obligation 9,090 3,039
Unrecognized net loss from
past experience different
than assumed 3,816 11,756
Unrecognized prior service cost (5,111) (5,691)
Prepaid pension cost $ 7,795 $ 9,104
The Master Trust is a participant in the Credit Agreement, and also has
investments in Terex securities. The rights of the Master Trust are equivalent
to those of the other lenders and investors. Included in the fair value of the
Company's plan assets at December 31, 1992 and December 31, 1991 are
approximately $6,445 and $2,365 of such investments.
In addition to providing pension benefits, the Company provides health care
benefits for certain retired employees. Certain domestic union employees may
become eligible for those benefits if they reach the required years of service
and retirement age while working for the Company. Certain of the Company's
former domestic salaried employees who retired prior to December 31, 1990
receive company-provided health care benefits. Domestic salaried employees
retiring after December 31, 1990 are not eligible for such benefits.
In December 1990, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions". This statement requires accrual of postretirement benefits (such as
health care benefits) during the years an employee provides services. Reserves
for past service costs of then-retired employees were established in the
purchase price allocation for the Fruehauf Acquisition in 1989. The Company
discontinued providing postretirement health benefits for salaried employees
retiring after December 31, 1990, and such benefits have been eliminated for
future retirees of certain hourly plans since the Fruehauf Acquisition. As a
result, the Company has adequate reserves for such obligations at December 31,
1992. Accordingly, the Company does not anticipate the implementation of this
pronouncement to have a significant effect on its operating results or
financial position. The Company paid retiree health claims totalling $3,101 in
1992, $3,438 in 1991 and $3,161 during 1990.
The Company sponsors various tax deferred savings plans into which eligible
employees may elect to contribute a portion of their compensation. The Company
contributes to certain of these plans.
NOTE L - CONTINGENCIES & LITIGATION
The Company is contingently liable for a portion of the losses incurred on new
trailer loans written by a finance company (the "Finance Company") to the
Company's customers. In the event a customer defaults on a loan, the
underlying trailers are repossessed by the Finance Company and sold. The
Company absorbs 50% of the difference between the remaining loan balance and
the proceeds from the sale of the trailer(s), up to an aggregate annual maximum
of $750. The Finance Company's portfolio subject to this arrangement totalled
$104,136 at December 31, 1992 and $129,520 at December 31, 1991. The average
life of the loans in the portfolio is approximately 2 - 3 years. Total losses
incurred by the Company under this arrangement were $750 in 1992, $708 in 1991
and $635 in 1990. Reserves have been recorded for potential losses.
The Company is obligated to reimburse the Finance Company for shortfalls in
guaranteed residual values of certain leased trailers. All obligations under
this arrangement are anticipated to cease prior to December 31, 1993. The
Company's total payments to the Finance Company pursuant to these guarantees
were $38 in 1992, $664 in 1991 and $1,135 in 1990, respectively. Reserves have
been recorded for potential losses.
The Company is contingently liable to various customers and other finance
companies as a guarantor of the residual values of certain trailers sold by the
Company. The Company's loss exposure on such trailers is the difference
between the fair market values of the trailers at a predetermined rate and
predetermined values. The Company's contingent liability on such agreements
totalled approximately $9,356 and $6,115 at December 31, 1992 and December 31,
1991, respectively. The Company has not experienced any losses under such
guarantees in the three years ended December 31, 1992.
As part of the Fruehauf Acquisition, the Company assumed a Fruehauf Corporation
guarantee of a customer's trailer loan. The outstanding loan balance was
approximately $993 and $2,882 at December 31, 1992 and December 31, 1991,
respectively. The loan is scheduled to be extinguished prior to December 31,
1993, at which time the guarantee will cease.
Fruehauf is a party to an agreement with the Finance Company in which the
Finance Company purchases certain pools of customer receivables for cash, with
recourse to the Company. Under the agreement, the Company acts as an agent for
the Finance Company by performing recordkeeping and collection functions on the
receivables sold. The outstanding principal balance on open account
receivables purchased by the Finance Company totaled $4,300 at December 31,
1992. The Company's losses under this arrangement have been, and are expected
to continue to be, immaterial.
As disclosed in Note G - "Long-term Debt," outstanding letters of credit
totalled $11,322 and $20,520 at December 31, 1992 and December 31, 1991,
respectively. The letters of credit generally serve as collateral for certain
liabilities included in the Consolidated Balance Sheet.
The Company has facilities at numerous geographic locations, which are subject
to a range of federal, state and local environmental laws and regulations.
Compliance with these laws has, and will, require expenditures on a continuing
basis. The Company has been identified as a "Potentially Responsible Party" at
approximately 19 multi-party Superfund sites, and has also identified
environmental exposures at approximately 21 other sites not designated as
Superfund sites. The Company is currently participating in administrative or
court proceedings involving a number of these sites. Many of the proceedings
are at a preliminary stage, and the total cost of remediation, the timing and
extent of remedial actions which may be required, and the amount of the
Company's liability with respect to those sites cannot presently be estimated.
When it is possible to make reasonable estimates of the Company's liability
with respect to such matters, a provision is recorded. When it is possible to
estimate a range of liability but management is unable to determine the amount
within the range that is the best estimate, a provision is recorded for the
minimum amount of the range. The Company's policy is to record liabilities for
environmental exposures on a gross basis without consideration of possible
recoveries from third parties. The Company is self-insured with respect to
environmental exposures. The Company's reserves for Superfund sites and other
environmental projects and contingencies totaled $12.3 million at December 31,
1992 relating to 7 Superfund sites and 20 other sites for which the Company has
been able to make estimates. The amount of possible loss, if any, in excess of
the amounts recorded cannot presently be estimated. If the amount of payments
required in respect of these sites exceeds the Company's available cash
resources, there could be a material adverse effect on the Company.
The Internal Revenue Service is currently in the early stages of examination of
the Company's federal tax return for the period July 14, 1989 through December
31, 1989. In addition, SESR is currently under audit by France's taxing
authorities for 1988, 1989 and 1990. The Company believes that its positions
for issues raised in these audits are correct and that it would prevail if the
taxing authorities would propose adjustments. In any event, management
believes that the outcome of these examinations will not have a material impact
on the consolidated financial statements because the Company has significant
net operating loss carryovers. No accruals have been established for these
contingencies.
In December 1992, a Class Action Complaint was filed purportedly on behalf of
all persons who purchased Fruehauf common stock during the period June 28, 1991
through December 4, 1992 (the "Period") against the Company, Terex, certain of
the Company's officers and directors, namely, Randolph W. Lenz, Marvin B.
Rosenberg, Arthur E. Rowe, G. Chris Andersen, Raymond J. Dempsey and certain of
the underwriters of the Company's initial public offering ("IPO"), namely,
PaineWebber Incorporated, Alex Brown & Sons, Incorporated and Wertheim
Schroeder & Co., Incorporated, in the United States District Court, Eastern
Michigan, Southern Division, seeking unspecified compensatory and punitive
damages. The complaint alleges, among other things, that in connection with
the IPO, the defendants misrepresented the Company's liquidity and status of
compliance with the Company's credit facilities at the time of the IPO. The
Company believes that the claims are without merit and that it has valid
defenses to the claims made. This action is at a very early stage and the
ultimate resolution of the claim cannot be predicted with complete certainty.
The Company is involved in other various legal proceedings which have arisen in
the normal course of its business. Most of these legal proceedings involve
product liability claims for which the Company is principally self insured.
Although the Company has established reserves for loss contingencies based on
the Company's historical record of payments on product liability claims, the
Company is at risk of being obligated to pay substantial damages to product
liability claimants.
NOTE M - RELATED PARTY TRANSACTIONS
The Chairman of the Board is the controlling shareholder of Terex, Fruehauf's
parent company, and KCS, a corporation which provides legal, financial and
management services to the Company and Terex under separate management
contracts. Pursuant to certain restrictions in the Credit Agreement, the
Company was prohibited from paying management fees to KCS in excess of $2,300
in 1992 and is prohibited from making any payments in 1993 until all
indebtedness under the Credit Agreement is repaid. Payments to KCS for
services rendered and out-of-pocket expenses amounted to $2,300 in 1992, $3,633
in 1991 and $3,322 in 1990. KCS and its shareholders own approximately 21.5%
of Fruehauf's outstanding Common Stock.
See Note B - "Initial Public Offering and Recapitalization" for a description
of transactions with KCS in the Recapitalization. Interest on the Series A and
B Notes issued to KCS aggregated zero in 1992, $1,651 in 1991 and $2,746 in
1990.
KCS and the Company entered into an agreement (the "KCS Note") whereby KCS
borrowed $1,000 on an unsecured basis from the Company during 1992. These
funds were to be used by KCS as an advance in connection with the KCS-owned
insurance company through which the Company would obtain coverage, as approved
by the Company's Board of Directors. These funds were utilized by KCS, pending
implementation of the insurance program, which is not yet complete. KCS
borrowed an additional $622 from Fruehauf during 1992. The KCS obligations
bear interest at prime. The entire $1,622 balance owed by KCS was repaid on
January 25, 1993.
Terex directly owns approximately 42.2% of Fruehauf's outstanding Common Stock.
See Note B - "Initial Public Offering and Recapitalization" for a description
of transactions with Terex in the Recapitalization. Terex charged Fruehauf for
management services totaling zero in 1992, $1,932 in 1991 and $2,500 in 1990.
Terex also charged Fruehauf interest of zero in 1992, $1,612 in 1991 and $1,562
in 1990 on amounts owed Terex, including the $6.0 million Series B Note held by
Terex. As of January 1, 1992, Terex no longer charges Fruehauf for management
expenses and interest on amounts due Terex. However, Terex and Fruehauf
continue to charge one another for payments made on each other's behalf in the
normal course of business. The outstanding balance owed by Fruehauf to Terex
was $14,890 at December 31, 1992 and $10,244 at December 31, 1991. As
disclosed in Note J - "Stockholders' Investment", the Company filed a consent
solicitation with the Securities and Exchange Commission in 1992, which
contemplates converting $11,587 of the balance due Terex into preferred stock.
The Company's Board of Directors approved a program to consolidate the
Company's parts warehousing and administration functions with Terex. This
consolidation has not yet been fully implemented. In November, 1992, in
contemplation of this agreement, Terex advanced $2,000 to Fruehauf.
On January 12, 1993, Terex and the Company announced that an investment banking
firm had been retained to explore opportunities to maximize stockholder value.
A member of the Company's Board of Directors is an executive with the
investment banking firm. See Note Q - "Plan of Restructuring and Refinancing"
for further information regarding this action.
At December 31, 1992, Airlie owned approximately 3.3% of Fruehauf's outstanding
Common Stock. See Note B - "Initial Public Offering and Recapitalization" for
a description of transactions with Airlie in the Recapitalization. Assuming
Airlie exercised the Fruehauf Warrant it received in the Recapitalization, it
would own approximately 18.2% of the Company's Common Stock. Interest on the
Series A and B Notes and the Fruehauf Notes aggregated $975 in 1992, $2,092 in
1991 and $2,749 in 1990.
The Master Trust is a participant in the Credit Agreement, and also has
investments in Terex securities. The rights of the Master Trust are equivalent
to those of the other lenders and investors. See Note K - "Retirement Plans,"
for further information.
The Company rents a facility in Germany to SESR, as disclosed in Note O -
"Facility Leased to Affiliate". Additionally, the Company sells trailer
components to its equity investees and licensees, as further described in Note
C - "Investments in Affiliate Companies."
NOTE N - INDUSTRY SEGMENT INFORMATION
The Company operates principally in the trailer manufacturing industry.
Trailer operations consist primarily of the manufacture and sale of trailers
and replacement parts. The Company also performs maintenance and repair work
on trailers, and purchases and sells used trailers. With the exception of
export parts sales and international license, trademark and royalty
arrangements, substantially all of the trailer segment's business is conducted
in North America.
Jacksonville and CEMCO (collectively, the "Maritime Business") were acquired in
the Fruehauf Acquisition, at which time the Company announced its intention to
divest such operations. Substantially all of the operating assets of CEMCO
were sold in 1991. As a result of its inability to sell Jacksonville as a
business, the Company ceased operations in 1992, and a program was implemented
to liquidate the remaining assets, consisting primarily of the real estate and
receivables. For more information, see Note F - "Assets and Businesses Held
for Sale." The assets and liabilities of the Maritime Business are included in
the Consolidated Balance Sheet. The operating results of the Maritime Business
are not included in the Consolidated Statement of Income other than the $6,599
gain recognized in 1991 on the sale of CEMCO's operating assets and the $11,551
provision recorded in 1992 relating to Jacksonville liquidation costs.
Export sales from U.S. operations were $18,257, $18,576 and $12,818 for 1992,
1991 and 1990, respectively.
The Company is not dependent upon any single customer. No single customer
accounted for more than 10% of consolidated net sales during 1992, 1991 or
1990.
NOTE O - FACILITY LEASED TO AFFILIATE
The Company owns a manufacturing facility in Germany that it leases to SESR,
pursuant to a lease agreement assumed in the Fruehauf Acquisition. SESR has
the option to purchase the facility from the Company at an amount approximating
book value any time prior to December 31, 1997. The carrying value of this
asset was $14,000 and $18,955 at December 31, 1992 and 1991, respectively. The
facility is reported as "Facility Leased to Affiliate" in the Consolidated
Balance Sheet. In 1992, the Company was refunded a $3,155 purchase deposit
made on a property adjoining the facility leased to SESR. The deposit was
acquired by the Company in the Fruehauf Acquisition. The Company received
rental revenue of $811, $657 and $665 from SESR in 1992, 1991 and 1990,
respectively. Rental revenue is recorded in Other Income (Expense) in the
Consolidated Statement of Income and is reduced by depreciation expense on the
facility. SESR is responsible for paying the property taxes, insurance,
maintenance and expenses related to the leased property.
The future rental revenues under this non-cancelable operating lease, as of
December 31, 1992, are as follows:
1993 $ 956
1994 1,200
1995 1,288
1996 1,288
1997 1,288
Total $ 6,020
NOTE P - RESTATEMENT OF PRIOR YEAR RESULTS
As a result of inquiries by its current independent accountants, the Company
reviewed its accounting treatment for certain prior year transactions and
concluded that restatements were required to be made to the previously issued
financial statements for the years ended December 31, 1990 and 1991.
The Company issued increasing rate debt with detachable warrants in the
Fruehauf Acquisition, and redeemed the warrants in 1990. The amount paid to
redeem the warrants was deferred, to be amortized over the life of the debt.
The fair value of the warrants at the date of issue should have been initially
recorded as a debt discount and amortized as interest expense over the life of
the debt. Subsequent increases in their fair value should have been recorded
as additional interest cost in 1989 and 1990. Additionally, it has been
determined that the interest expense recognized on the increasing rate debt in
1989 and 1990 was not properly recorded.
In 1990, the Company accounted for a debt transaction as a modification to an
existing debt instrument as opposed to an extinguishment of debt and the
issuance of new debt. In accounting for the transaction as a modification, the
Company continued to amortize the remaining deferred debt issue costs incurred
on the old debt over the term of the new debt. Had the transaction been
properly accounted for as an extinguishment of debt, all unamortized debt issue
costs would have been written off in 1990 as an extraordinary loss.
The Consolidated Statement of Income, Consolidated Balance Sheet, Consolidated
Statement of Cash Flows and Consolidated Statement of Stockholders' Investment
have been restated to reflect the foregoing items. The following table sets
forth selected information as originally reported and as restated for the years
ended December 31, 1991 and 1990.
Year ended December 31,
1991 1990
Net Income (Loss) before Extraordinary Loss:
As originally reported $ (30,022) $ 2,324
Restatement adjustment 1,146 (2,308)
Restated Net Income (loss) before
Extraordinary Loss $ (28,876) $ 16
Net Income (Loss):
As originally reported $ (30,022) $ 2,324
Restatement adjustment 1,146 (4,500)
Restated Net Income (loss) $ (28,876) $(2,176)
Net Income (Loss) per Share before
Extraordinary Loss:
As originally reported $ (3.63) $ 0.51
Restatement adjustment 0.13 (0.51)
Restated Net Income (loss)
per share before
Extraordinary Loss $ (3.50) $ 0.00
Net Income (Loss) per Share:
As originally reported $ (3.63) $ 0.51
Restatement adjustment 0.13 (0.98)
Restated Net Income (loss)
per share $ (3.50) $ (0.47)
Weighted Average Common and Common Equivalent
Shares Outstanding 8,260 4,590
NOTE Q - PLAN OF RESTRUCTURING AND REFINANCING
As a result of significant operating losses which have continued through the
first quarter of 1993, and cash flow difficulties, the Company has taken
significant actions to reduce its overall cost structure and improve liquidity.
As described in Note D - "Restructuring Costs," in 1991 the Company implemented
a restructuring program affecting its distribution system and certain of its
manufacturing operations. This program continued through 1992 with additional
actions, including, among others, temporary plant shutdown, salary reductions
and reductions in fringe benefits.
On March 15, 1993, the Company and its lenders amended the terms of the Credit
Agreement. The amendment provides up to $6.6 million of additional borrowing
availability to the Company, and waives past covenant violations. The interest
rate under the Credit Agreement was increased to prime plus 2.25% effective
January 1, 1993. Additionally, the maturity of the Credit Agreement was
changed from December 31, 1995 to June 30, 1993. The Company has included all
outstanding loans under the Credit Agreement in current liabilities in the
Consolidated Balance Sheet to reflect the new maturity date.
The Company is attempting to secure alternative financing which would provide
incremental borrowing and enable it to extinguish all amounts owed under the
Credit Agreement. Additionally, the Company and Terex are reviewing various
proposals to maximize stockholder value, including potential equity infusions
and other financing transactions. The Company and Terex are conducting
discussions with interested parties. However, no definitive agreements, terms
or structures have been reached, and there are no assurances that any
transactions will be consummated. If the Company is unable to secure
additional financial resources and refinance the credit agreement, there could
be a material adverse impact on the Company's financial position and results of
operations.
FRUEHAUF TRAILER CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share data)
For the Nine Months
Ended September 30,
1993 1992
Net Sales $ 196,994 $ 388,552
Cost of goods sold 186,496 350,356
Gross profit 10,498 38,196
Engineering, selling and
administrative expenses
Third parties 38,635 44,325
Related parties --- 2,300
38,635 46,625
Restructuring provision 39,417 15,500
Loss from operations (67,554) (23,929)
Other income (expense):
Interest expense (8,395) (7,561)
Equity in net loss of affiliate
companies (10,079) (1,281)
Royalty income 2,233 2,205
Adjustments of net realizable
value of Jacksonville --- (7,441)
Debt issue/modification costs (3,177) (754)
Other income (expense) - net (4,917) 1,423
Loss before income taxes (91,889) (37,338)
Provision (benefit) for income taxes 508 (2,703)
Net Loss $(92,397) $(34,635)
Loss per share $ (6.93) $ (2.85)
Weighted average common shares
outstanding (see Exhibit 11) 13,341 12,159
The accompanying notes are an integral part of these statements.
FRUEHAUF TRAILER CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands, except per share data)
September 30,
1993
ASSETS
Current assets
Cash and cash equivalents $ 10,206
Net receivables 19,721
Net inventories 27,160
Other current assets 1,444
Total current assets 58,531
Restricted cash 40
Prepaid pension cost 7,063
Assets held for sale 82,168
Other assets 2,873
Property, plant and equipment
Property, plant and equipment 60,296
Less - accumulated depreciation 14,399
Net property, plant and equipment 45,897
Total Assets $ 196,572
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities
Notes payable $ 2,268
Trade accounts payable 29,609
Accrued compensation and benefits 15,268
Accrued warranties 9,514
Accrued workers compensation 5,403
Accrued restructuring costs 32,615
Other current liabilities 14,796
Current portion of long-term debt 7,576
Total current liabilities 117,049
Long-term debt, less current portion 97,551
Postretirement health insurance,
less current portion 40,232
Long-term payable to Terex Corporation 13,507
Other long-term liabilities 35,325
Stockholders' investment
Common stock, $0.01 par value -- authorized
20,000 shares; issued and outstanding
20,000 as of September 30, 1993 and
12,159 shares as of December 31, 1992 200
Additional paid-in capital 81,683
Accumulated deficit (188,800)
Foreign currency translation adjustment (175)
Total stockholders' investment (107,092)
Total liabilities and stockholders' investment $ 196,572
The accompanying notes are an integral part of these statements.
FRUEHAUF TRAILER CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands of dollars)
For the Nine Months
Ended September 30,
1993 1992
OPERATING ACTIVITIES
Net loss $(92,397) $ (34,637)
Adjustments to reconcile net loss to
cash flows from operating activities:
Depreciation and amortization 3,787 3,450
(Gain) loss on sale of property,
plant and equipment (453) 35
Net unremitted equity loss
in affiliates 10,684 1,281
Restructuring provision 39,417 15,500
Noncash liquidation costs
of Jacksonville 0 7,441
Increase (decrease) in cash due to changes
in operating assets and liabilities:
Net receivables 19,666 2,423
Net inventories 25,091 28,760
Other current assets 1,363 (1,164)
Trade accounts payable (17,764) (2,193)
Payable to Terex Corporation 617 2,802
Accrued compensation and benefits (991) (4,788)
Accrued workers compensation (267) (7,887)
Accrued warranties 2,097 (104)
Other current liabilities (3,237) (22,118)
Other long-term assets (5,692) 1,868
Other long-term liabilities (1,290) (9,337)
Net cash used in
operating activities (19,369) (18,668)
INVESTING ACTIVITIES
Capital expenditures (461) (1,467)
Proceeds from sale of property,
plant and equipment 11,229 7,903
Increase in restricted cash (40) 0
Decrease in marketable securities 0 457
Net cash from investing activities 10,728 6,893
FINANCING ACTIVITIES
Proceeds from issuance of common stock 9,880 0
Net borrowings under revolving
line of credit agreements 6,259 15,014
Proceeds from issuance of convertible
subordinated notes 8,783 0
Principal repayment of long-term debt (8,399) (6,042)
Net borrowings (repayments) under
short-term notes payable (695) 1,928
Net cash from (used) in
financing activities 15,828 10,900
Effect of exchange rate changes on
cash and cash equivalents (4) 12
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 7,183 (863)
Cash and cash equivalents at
beginning of period 3,023 2,985
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 10,206 $ 2,122
The accompanying notes are an integral part of these statements.
FRUEHAUF TRAILER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, unless otherwise denoted)
September 30,1993
NOTE A - BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of Fruehauf
Trailer Corporation and subsidiaries (the "Company") as of September 30, 1993
and for the nine months ended September 30, 1993 and 1992 have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
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, other than those adjustments discussed in Notes B, F
and G. Operating results for the nine months ended September 30, 1993 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1993. For further information, refer to the consolidated
financial statements for the year ended December 31, 1992.
NOTE B - RESTRUCTURING PROVISION
As discussed more fully in Note E - "Long-Term Debt", the Company completed a
series of transactions (the "Restructuring") In August 1993 with its existing
lenders, a new lender and equity investors which provided for (i) the issuance
of common stock (the "Common Stock") and certain convertible notes (the
"Convertible Notes") of the Company for approximately $20.5 million, (ii) the
establishment of revolving credit facility (the 'Revolving Credit Facility")
providing borrowing capacity of up to $25 million, (iii) in amendment and
restatement of the Company's existing bank credit facility (as amended and
restated, the "Restructured Credit Agreement"), (iv) the issuance of 2,251,167
shares of Common Stock to Terex Corporation ("Terex") in satisfaction (the
"Satisfaction") of $13.5 million of indebtedness owed to Terex by the Company
and (v) an amendment to the Company's outstanding unsecured promissory notes
hold by certain holders of warrants to purchase Common Stock ("Warrant Note")
by adding approximately $1.2 million of accrued interest to principal and by
extending the maturity (the "Note Amendment"). These transactions were
consummated with a view to fund the Company's turnaround plan (the "Turnaround
Plan"). Key elements of the Turnaround Plan include reductions of fixed costs
to lower the Company's breakeven levels, obtaining of access to sufficient
working capital and vendor credit, and restructuring of existing bank debt.
Specific actions contemplated in the Turnaround Plan include further reductions
in excess manufacturing capacity, deemphasizing vertical Integration from both
the perspective of the manufacture of component parts, as well as reaffirming
previous decisions concerning the branch restructuring program, and
rationalization of the Company's current management infrastructure to levels
more appropriate for current business levels. As a result of the approval of
the Turnaround Plan by the Company's Board of Directors and management's
commitment to its lenders to implement the Turnaround Plan, the Company
provided a restructuring provision of $39.4 million in the second quarter of
1993 to cover the anticipated costs and writedowns involved in implementing the
Turnaround Plan. The components of the restructuring provision (in millions)
are as follows:
Inventory liquidation and transfer $ 2.7
Asset held for sale valuation adjustments 14.0
Idle facility holding costs 14.6
Reduction in force costs 4.0
Other 4.1
$ 39.4
NOTE C - INVENTORIES
Inventories consist of the following at September 30, 1993:
New trailers $ 5,314
Used trailers 913
Replacement parts 7,842
Work-in-process 3,606
Raw materials and supplies 8,249
Gross inventories 25,924
Excess of LIFO inventory value
over FIFO costs. 1,236
Net inventories $ 27,160
NOTE D - ASSETS HELD FOR SALE
At December 31, 1992, the Company was holding for sale certain excess real
estate, facilities and other assets, as well as its Decatur Business. As a
result of the further actions to be taken pursuant to the Turnaround Plan as
discussed in Note B - "Restructuring Provision", additional excess real estate,
facilities and machinery and equipment, as well as the Company's investment in
non-consolidated affiliates are held for sale. The Company is actively
marketing all excess properties, and in certain instances, is leasing them in
order to mitigate idle facility holding costs. These properties are included
in the Condensed Consolidated Balance Sheet in Assets Held for Sale, and are
carried on a lower of cost or net realizable value basis. Adequate reserves
have been established to absorb the holding costs until anticipated
disposition. As a result of the Company's decision to sell the remaining
investments in non-consolidated affiliates, the Company recorded a provision to
reduce the carrying values of investments in non-consolidated affiliates to
their not realizable value.
Assets held for sale consist of the following components at September 30, 1993
(in millions):
Former manufacturing facilities and land $ 49.5
Former branch facilities 9.2
Investments in non-consolidated affiliates 17.9
Decatur Business 5.6
$ 82.2
Former Manufacturing and Branch Facilities
The Company has consolidated excess manufacturing capacity over the past
several years. In addition, the Company has begun the implementation of the
restructuring of the company-owned distribution network. The branch
restructuring program principally consists of converting company-owned branches
into independent dealers. As a result of these restructuring efforts, the
Company holds for sale certain idle facilities. The Company is actively
marketing all excess properties, and in certain instances, is leasing them in
order to generate funds to help cover holding costs. These non-operated
properties are included in the Consolidated Balance Sheet in Assets Held for
Sale, and are carried on a lower of cost or market basis. Adequate reserves
have been established to absorb holding costs until disposition and are
recorded as liabilities in the Condensed Consolidated Balance Sheet.
The U. S. Environmental Protection Agency (the "EPA") placed a lien in excess
of $15,000 on the Company's former manufacturing facility in Harrisburg,
Pennsylvania. The facility is included in Assets Held for Sale for $8,250 at
September 30, 1993. A small portion of the excess land at this facility
contains a landfill established by the Army Air Corps when the property was
part of a former military base. The Department of Defense has acknowledged
responsibility for the landfill and has appropriated funds for remedial
actions. The Company did not operate or contribute any waste to the landfill.
The Company believes it may have an "innocent landowner" defense to any claim
for remedial action. The Company has repeatedly requested the EPA to remove
the lien on the property, which the Company believes was filed improperly
without a hearing or opportunity for the Company to contest it. To date, the
Company has had no success in obtaining a lien release. Without a release, the
Company will likely be unable to sell the facility and use the proceeds to
reduce outstanding indebtedness. However, the Company is leasing out a portion
of this facility on a short-term basis to enhance cash flow. The Company
believes it will be successful in obtaining a release for the lien, although no
assurances can be given.
Investments in Affiliate Companies
The Company has less than 50% equity investments in three foreign corporations
engaged in the design, manufacture and marketing of truck trailers. The
Company accounts for the two investments in which the Company's equity interest
exceeds 20% on the equity method and the investment with less than a 20% on the
cost method. Summarized income statement information (100% basis) of such
affiliates accounted for on the equity method for the first nine months of 1993
and 1992 are as follows:
Net Sales $527,037 $583,300
Gross Profit 57,210 88,323
Net Loss (22,884) 3,963
A key element of the Company's Turnaround Plan is the disposition of excess,
assets, including the Company's investments in affiliate companies. The less
than 50% equity investments are carried at approximately $17.9 million in the
Condensed Consolidated Balance Sheet at September 30, 1993
Decatur Business
The Decatur Business consists of the Company's wholly-owned aluminum extrusion
operation and a 50% equity interest in Decatur Aluminum Company, a corporation
engaged in the production of aluminum sheeting. The Decatur Business supplies
aluminum sheeting and extrusions to the Company's trailer manufacturing plants.
The Company has previously announced its intentions to divest the Decatur
Business. The Decatur Business is included in the Consolidated Balance Sheet
for $5.6 million at September 30 1993. Changes in the net carrying value of
the Decatur Business result from the net cash used in (generated from) the
Decatur Business.
Limitations on Use of Proceeds from the Sale of Assets held for Sale
Prior to the Restructuring, all proceeds from the sale of collateralized assets
were applied against outstanding indebtedness under the Company's then existing
bank credit facility (the "Prior Credit Agreement") including proceeds from the
sale of properties included in Assets Held for Sale on the Consolidated Balance
Sheet. As part of the Restructured Credit Agreement, the Company is allowed to
retain specified percentages ranging from 10% to 44% of certain properties
included in Assets Held for Sale for purposes other than debt repayment. The
remaining proceeds are required to be deposited into an account solely for the
purpose of repayment of indebtedness under the Restructured Credit Agreement.
Generally, the Company retains approximately 44% of the proceeds of those
excess assets identified as Assets Held for Sale prior to the Restructuring.
Such assets total approximately $44.5 million of the total Assets Held for Sale
of $82.2 million. The Company generally retains 10% of the net proceeds of the
remaining assets held for sale including the investments in non-consolidated
affiliates. Given that certain of the proceeds are restricted for purposes of
debt repayment, Assets Held for Sale are presented as noncurrent in the
Consolidated Balance Sheet.
NOTE E - LONG-TERM DEBT
Long-term debt consists of the following at September 30, 1993:
Restructured Credit Agreement bearing interest
at prime plus 2.25%, due August 20, 1998 $ 83,103
Revolving Credit Facility bearing interest at
prime plus 2.5%, due August 1995 ---
Convertible Subordinated Notes 8,783
Unsecured promissory notes bearing interest
at 14%, due October 31, 1998 8,692
Mortgage note bearing interest at 9.625%
collateralized by an idle plant, due
September, 2001 3,891
Other 658
Total long-term debt 105,127
Less: Current portion of long-term debt 7,576
Long-term debt, less current portion $ 97,551
On August 20, 1993, the Company completed the Restructuring which provided for
(i) the issuance of Common Stock and Convertible Notes for approximately $20.5
million, (ii) the establishment of the Revolving Credit Facility, (iii) a
restructuring of the Prior Credit Agreement, (iv) the entry into an agreement
to effect the Satisfaction, and (v) the Note Amendment.
New Equity Funding
As part of the Restructuring, the Company sold 7,841,326 shares of Common Stock
and approximately $8.8 million of Convertible subordinated Notes (collectively
the "New Equity"). Proceeds to the Company, net of issuance and estimated
registration costs, were approximately $18.7 million. The Convertible Notes
and, at the Company's option, any additional Convertible Notes issued in
payment of interest thereon are convertible into Common Stock at the rate of
one share of Common Stock for each $1.50 in principal amount of and accrued
interest on the Convertible Notes. The Convertible Notes accrue interest at 6%
through March 31, 1994. Such rate increases to 10% as of April 1, 1994 and
increases by one percentage point every six months, thereafter, it the
Convertible Notes are not converted by April 1, 1994. Interest accrued through
March 31, 1994 can, at the Company's option, be paid through the issuance of
additional Convertible Notes. Subsequent interest accrued is payable in cash.
On October 1, 1993, the Company made an interest payment in kind on the
Convertible Notes aggregating $.1 million in additional Convertible Notes. The
Convertible Notes are due and payable on December 31, 1998, with no prior
amortization of principal, and are subordinate to all other indebtedness of the
Company.
The sale of the Common Stock pursuant to the Restructuring brought the total of
issued and outstanding shares of Common Stock as of August 20, 1993 to
19,999,983. Currently, the Company's certificate of incorporation provides for
the issuance of 20 million shares. The Company has prepared a consent
solicitation statement seeking shareholder approval of an amendment to the
Company's certificate of incorporation to increase the number of shares of
Common Stock issuable thereunder to 50 million shares which would result in the
issuance of Common Stock for mandatory conversion of the Convertible Notes, and
the issuance of 2,251,167 shares of Common Stock to Terex in the Satisfaction.
On October 29, 1993, the Company filed the preliminary consent solicitation
statement with the Securities and Exchange Commission. The agreement governing
the Satisfaction requires Terex to consent or vote in favor of such amendment.
In addition, the agreements governing the sale of the New Equity require the
purchasers thereof to consent to or vote in favor of such amendment. Given
these requirements, the Company believes that such matters will be approved by
the stockholders of the Company. The Company is also obligated to register the
Common Stock issued in the Restructuring and the Common Stock issuable upon the
conversion of the shares issued upon the Convertible Notes with the Securities
and Exchange Commission.
Revolving Credit Facility
As part of the Restructuring, the Company entered into the Revolving Credit
Facility with a financial institution to be used for working capital purposes.
The Revolving Credit Facility provides for borrowings limited to the lesser of
$25 million or the available borrowing bass. The available borrowing base is
calculated by applying prescribed advance ratios against eligible receivables
(ranging from 50% to 85%) and inventory balances (ranging from 35% to 65%), in
accordance with the terms of the Revolving Credit Facility. On August 20,
1993, the Company borrowed $1 million under the Revolving Credit Facility. The
interest rate on loans pursuant to the Revolving Credit Facility is prime rate,
as defined, plus an applicable margin of 2.5% per annum, so long as there is no
event of default, and at the prime rate plus 4.5% upon the occurrence of an
event of default. Interest is payable monthly. The loans under the Revolving
Credit Facility are due August 20, 1995. The Revolving Credit Facility is
secured by liens on all accounts receivable and inventory of the Company and
certain other assets. At September 30,1993, no amounts were outstanding under
the Revolving Credit Facility. As of November 11, 1993, outstanding borrowings
under the Revolving Credit Facility totaled $6.2 million.
Restructured Credit Agreement
The Prior Credit Agreement became due and payable on June 30, 1993 which was
subsequently extended to July 9, 1993. As part of management's overall plan of
recapitalization and restructuring, the Company's lenders under the Prior
Credit Agreement agreed to restructure the terms of the Prior Credit Agreement
and waive past events of default pursuant to the Restructured Credit Agreement.
The Prior Credit Agreement consisted of a term loan and a revolving credit and
letter of credit facility. Amounts outstanding under the term loan at the time
of the Restructuring totaled approximately $51.5 million, while amounts
outstanding under the revolving credit facility totaled approximately $30.6
million. Outstanding letters of credit totaled $7.0 million. In addition,
letter of credit reimbursement liabilities totaled $2.5 million with respect to
draws on previously outstanding letters of credit. The terms of the
Restructured Credit Agreement provided for the conversion of the amounts owed
pursuant to the Prior Credit Agreement into term loans (the "Term Loans") in
the amount of $84.6 million.
The Term Loans are payable (i) in twelve consecutive monthly installments of
approximately $538 each payable on the last day of each calendar month,
commencing July 31, 1994, (ii) in thirty-seven consecutive monthly installments
of approximately $1,077 each payable on the last day of each calendar month,
commencing on July 31, 1995, and (iii) in the following six installments
payable on the dates set forth and in the amounts set forth: February 28, 1994
in the amount of $2 million; August 31, 1994 in the amount of $3 million,
February 28, 1995, June 30, 1995 and September 30, 1995 in the amount of $5
million on each date; with the balance of the Term Loans due on August 20,
1998. In addition to the principal amortizations set forth above, the Term
Loans must be mandatorily prepaid upon the occurrence of certain events
including asset sales and any new equity offering. In addition, the Company is
required to apply 50% of its "excess cash flow" (as defined) to prepay the Term
Loans. The Term Loans bear interest at the rate of the base rate (generally
prime rate) plus a margin of 2.25%, so long as there is no event of default,
and at the rate of Base Rate plus 5.75% upon the occurrence of an event of
default, in each case payable monthly in arrears.
Letters of Credit
The Restructured Credit Agreement does not provide for the issuance of any new
letters of credit. Existing letters of credit issued for the benefit of the
Company (totaling $7.0 million) may be renewed or extended, if appropriately
cash collateralized as provided for in the Restructured Credit Agreement. In
the event of a drawing on a letter of credit, the Company must Immediately
reimburse the lenders. In the event of a refinancing of the Term Loans, the
letters of credit will terminate.
Collateral and Financial Covenants
The Term Loans issued pursuant to the Restructured Credit Agreement are secured
by substantially all of the assets of the Company subject to the first priority
lien on accounts receivable and inventories held by the lender under the
Revolving Credit Facility lender and the right of such lenders to look to other
assets of the Company for any deficiency suffered in the event of liquidation.
The Restructured Credit Agreement provides for financial covenants related
to tangible net worth and interest coverage. The minimum levels set forth
in the Restructured Credit Agreement are specifically based upon the Turnaround
Plan.
Note Amendment
The Prior Credit Agreement prohibited the Company from making required
principal and interest payments on the Warrant Note as a result of
noncompliance with certain financial covenants contained in the Prior Credit
Agreement. Accordingly, the Company did not make required interest payments
and was in default through August 19, 1993 with respect to this Warrant Note.
As part of the Restructuring, the holders of the Warrant Note agreed to
restructure the terms of the Warrant Notes whereby accrued interest at August
20, 1993 of $1.2 million was added to the principal balance bringing the
outstanding principal balance to $8.7 million. In addition, the interest rate
on the Warrant Note was increased from 14% to 15% after August 20, 1994 and the
maturity date of the Warrant Notes was extended from March 31, 1996 to October
31, 1998.
Satisfaction
As discussed above, Terex has agreed to accept 2,251,167 shares of Common Stock
of the Company in satisfaction of $13.5 million of certain non-interest bearing
debt owing from the Company to Terex. As discussed previously, consummation of
the Satisfaction Is subject to stockholder approval. The Company has prepared
and filed a preliminary consent solicitation statement with the Securities and
Exchange Commission.
The following table sets forth the scheduled maturities of the long-term debt
outstanding at September 30, 1993 after giving effect to the Restructuring and
assuming the conversion of the Convertible Subordinated Notes:
Remainder of fiscal 1993 $ 1.2
1994 8.6
1995 25.1
1996 13.3
1997 13.4
Thereafter 34.7
$ 96.3
NOTE F - POSTRETIREMENT BENEFITS
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
106, "Employers' Accounting for Postretirement Benefits Other than Pensions" on
January 1, 1993. This statement requires accrual of postretirement benefits
(such as health care benefits) during the years an employee provides service.
The Company provides health care benefits to former salaried employees who
retired prior to December 31, 1990, and certain hourly employees covered by
bargaining unit contracts that provide such benefits. Reserves for past
service costs of employees were established in the purchase price allocation
relating to the Company's acquisition of its businesses from Fruehauf
Corporation in 1989 (the "Fruehauf Acquisition"). As a result, at the time of
adopting SFAS No. 106 the Company had an adequate reserve on its Consolidated
Balance Sheet for such benefits based upon actuarial studies and reports.
Thus, the Company did not require a one-time charge to reflect the adoption of
the new accounting pronouncement, nor does the Company have an unrecognized
transition obligation to recognize in future periods related to the adoption of
SFAS No. 106. The obligation for such benefits is reported on a present value
basis on the Company's Consolidated Balance Sheet.
Net periodic postretirement benefit expense for the nine months ended September
30, 1 993 includes the following components:
Service Cost $ 495
Interest Cost on projected benefit obligation. 3,161
Amortization of unrecognized transition obligation 0
Net periodic postretirement benefit expense $ 3,656
The difference between the net periodic postretirement benefit expense on a
cash basis versus accrual basis was not material for the nine months ended
September 30, 1993 nor is it expected to be material for the year ended
December 31, 1993.
Currently, the Company's postretirement benefit obligations are not funded.
The liability of the Company, as of January 1, 1993, was as follows:
Actuarial present value of accumulated postretirement benefit obligation:
Retirees $ 37,482
Active participants 4,853
Total accumulated postretirement
benefit obligation 42,335
Less: Current portion 3,450
Accumulated postretirement benefit
obligation - noncurrent $ 38,885
Health care cost trends in the actuarial assumptions range from 2% to 14% based
on the employee group involved. These rates decrease to 0% to 7%,
respectively, over a period of 5 to 12 years, depending on the group involved.
The discount rate used in determining the accumulated postretirement benefit
obligation is 8.5%. The effect of a one percentage-point change in the health
care cost trend rates would change the accumulated postretirement benefit
obligation by approximately 5% to 10%.
NOTE G - ACCOUNTING FOR INCOME TAXES
The Company adopted SFAS No. 109, "Accounting for Income Taxes" on January 1,
1993. The new pronouncement retains the basic concepts of SFAS No. 96, but
generally simplifies its application. The adoption of this new pronouncement
did not have an impact on the Company's operating results or financial
position.
At September 30, 1993, the Company had domestic federal tax basis net operating
loss carryforwards of approximately $185 million. In accordance with the
provisions of the Internal Revenue Code, the Restructuring described in Note E
- - "Long-Term Debt" will likely result in a significant limitation on the use of
the losses in future years. The Company continues to assess the extent of such
limitations in light of the complex structure of the Restructuring. Although
applying the provisions of the Internal Revenue Code to the Restructuring will
limit the utilization of the not operating loss carryforwards, the limitation
does not currently result In the recording of a deferred tax liability.
NOTE H - CONTINGENCIES AND LITIGATION
The Company's new management team, with the assistance of new outside counsel,
has recently initiated a review of the pending shareholder class action suit
and the products liability and other cases that have arisen in the normal
course of the Company's business. As a result of this review, which is
ongoing, the Company has evaluated the possible impact of this litigation,
including in the products cases the uncertainties as to the timing of
expenditures for settlements and/or bonding on appeal, on the Company in light
of current circumstances. The Company is currently unable to determine whether
these matters, individually or in the aggregate, will have a material adverse
effect on the Company. The Company's present liquidity situation may make
settlements in one or more of these cases difficult. Existing or potential
judgments against the Company in one or more of these cases could require
expenditure of funds beyond the Company's available cash resources and could,
depending upon their size, result in the violation of certain covenants
contained in the Restructured Credit Agreement and the Revolving Credit
Facility. In the event that judgments either require the expenditure of funds
beyond the Company's available cash resources or result in covenant violations
that are not waived or otherwise cured, those judgments could jeopardize the
Turnaround Plan and could have a material adverse effect on the Company.
No dealer, salesman or other person has been authorized to give any information
or to make any representations other than those contained in this Prospectus
and, if given or made, such information or representations must not be relied
upon as having been authorized by the Company. Neither the delivery of this
Prospectus nor any sale hereunder shall, under any circumstances, create any
implication that the information contained herein is correct as of any time
subsequent to its date. This Prospectus does not constitute an offer or
solicitation by anyone in any jurisdiction in which such offer or solicitation
is not authorized or in which the person making such offer or solicitation is
not qualified to do so or to anyone to whom it is unlawful to make such offer
or solicitation.
Page
Available Information 2
Prospectus Summary 3
Investment Considerations 6
The Company 8
Use of Proceeds 10
Market for Common Stock and Dividend Policy 10
Capitalization 11
Selected Consolidated Financial Information 12
Management's Discussion and Analysis of
Financial Condition and Results of Operations 16
Business 28
Management 36
Principal Stockholders 40
Selling Security Holders 42
Certain Transactions 43
Description of Securities 45
Certain Federal Income Tax Considerations 51
Plan of Distribution 52
Legal Matters 53
Auditors 54
Index to Consolidated Financial Statements F-1
Until __________ __, 1994, all dealers effecting transactions in the Preferred
Stock and Conversion Shares, whether or not participating in this offering, may
be required to deliver a Prospectus.
1,200,000 Shares of Preferred Stock
2,700,000 Shares of Common Stock
of
TEREX CORPORATION
Preferred Stock
and
Common Stock
_____________
PROSPECTUS
_____________
, 1994
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table itemizes the expenses incurred by the Company in connection
with the offering of the shares of Preferred Stock and shares of Common Stock
being registered. All the amounts shown are estimates except the SEC
registration fee.
Item Amount
Registration Fee - SEC $ 9,517.24
Transfer Agent Fees and Expenses *
Printing and Engraving Expenses *
Legal Fees and Expenses *
Accounting Fees and Expenses *
Blue Sky Fees and Expenses *
Miscellaneous Expenses *
TOTAL $ *
* To be completed by amendment.
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law ("DGCL") and Article IX of
the Company's By-laws provide for the indemnification of the Company's
directors and officers in a variety of circumstances, which may include
liabilities under the Securities Act of 1933, as amended (the "Securities
Act").
Article IX of the Company's By-laws generally requires the Company to indemnify
its directors and officers against all liabilities (including judgments,
settlements, fines and penalties) and reasonable expenses incurred in
connection with the investigation, defense, settlement or appeal of any type of
action, whether instituted by a third party or a stockholder (either directly
or derivatively) and including specifically, but without limitation, actions
brought under the Securities Act and/or the Securities Exchange Act of 1934, as
amended (the "Exchange Act"); provided that no such indemnification will be
allowed if such director or officer was not successful in defending against any
such action and it is determined that the director or officer engaged in
misconduct which constitutes (i) a willful breach of his or her "duty of
loyalty" (as further defined therein) to the Company or its stockholders; (ii)
acts or omissions not in "good faith" (as further defined therein) or which
involve intentional misconduct or a knowing violation of law; (iii) the payment
of an illegal dividend or the authorization of an unlawful stock repurchase in
violation of Delaware law; or (iv) a transaction from which the executive
derived a material improper personal financial profit.
Finally, the Company's Certificate of Incorporation, as amended, contains a
provision which eliminates the personal liability of a director to the Company
and its stockholders for certain breaches of his or her fiduciary duty of care
as a director. This provision does not, however, eliminate or limit the
personal liability of a director (i) for any breach of such director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under the Delaware statutory provision making directors personally
liable, under a negligence standard, for unlawful dividends of unlawful stock
repurchases or redemptions, or (iv) for any transaction from which the director
derived an improper personal benefit. This provision offers persons who serve
on the Board of Directors of the Company protection against awards of monetary
damages resulting from negligent (except as indicated above) and "grossly"
negligent actions taken in the performance of their duty of care, including
grossly negligent business decisions made in connection with takeover proposals
for the Company. As a result of this provision, the ability of the Company or
a stockholder thereof to successfully prosecute an action against a director
for a breach of his duty of care has been limited. However, the provision does
not affect the availability of equitable remedies such as an injunction or
rescission based upon a director's breach of his duty of care. Although the
validity and scope of the new statute has not been tested in court, the
Securities and Exchange Commission (the "Commission") has taken the position
that the provision will have no effect on claims arising under the Federal
securities laws.
Item 15. Recent Sales of Unregistered Securities
On July 31, 1992, the Company completed the private placement of $160 million
aggregate principal amount of its 13% Senior Secured Notes due 1996 and 576,000
of its common stock appreciation rights ("CSARs") to institutional investors.
The Company also issued 82,409 CSARs to holders of its 13-1/2% Senior
Subordinated Notes due 1997 in consideration for their consent to issuance of
the Senior Secured Notes. This private placement was effected pursuant to
Section 4(2) of the Securities Act.
On December 20, 1993, the Company completed the private placement of (i)
1,300,000 common stock purchase warrants and (ii) the 1,200,000 shares of
Preferred Stock being registered hereby to 22 institutional investors for
aggregate proceeds to the Company of $30.2 million. This private placement was
effected pursuant to Section 4(2) of the Securities Act.
On December 29, 1993, the Company issued and contributed 350,000 shares of its
Common Stock to the Terex Corporation Master Retirement Plan Trust (the "Plan")
in satisfaction of certain outstanding obligations of the Company to the Plan.
This private placement was effected pursuant to Section 4(2) of the Securities
Act.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
3.1 Restated Certificate of Incorporation of Terex Corporation
(incorporated by reference to Exhibit 3.1 to the Form S-1 Registration
Statement of Terex Corporation, Registration No. 33-52297).
3.2 Restated Bylaws of Terex Corporation (incorporated by reference to
Exhibit 3.2 to the Form S-1 Registration Statement of Terex Corporation,
Registration No. 33-52297).
4.1 Indenture dated as of June 30, 1987 regarding Terex Corporation, as
Obligor, and Northwest Engineering Company, as Guarantor, with respect to Terex
Corporation's 13-1/2% Senior Subordinated Notes due July 1, 1997 (incorporated
by reference to Exhibit 4.2 to the Form 8-K dated June 30, 1987 of Northwest
Engineering Company, Commission File No. 0-572).
4.2 First Supplemental Indenture dated as of August 24, 1988 relating
to Terex Corporation's 13-1/2% Senior Subordinated Notes due July 1, 1997
(incorporated by reference to Exhibit 4.5 to Amendment No. 1 to the Form S-2
Registration Statement of Terex Corporation, Registration No. 33-23832).
4.3 Second Supplemental Indenture dated as of July 31, 1992 relating to
Terex Corporation's 13-1/2% Senior Subordinated Notes due July 1, 1997
(incorporated by reference to Exhibit 4.28 to the Form 10-K for the year ended
December 31, 1992 of Terex Corporation, Commission File No. 1-10702).
4.4 Third Supplemental Indenture dated as of April 20, 1993 relating to
Terex Corporation's 13-1/2% Senior Subordinated Notes due July 1, 1997
(incorporated by reference to Exhibit 4.4 to the Form S-1 Registration
Statement of Terex Corporation, Registration No. 33-52297).
4.5 Fourth Supplemental Indenture dated as of August 25, 1993 relating
to Terex Corporation's 13-1/2% Senior Subordinated Notes due July 1, 1997
(incorporated by reference to Exhibit 4.5 to the Form S-1 Registration
Statement of Terex Corporation, Registration No. 33-52297).
4.6 Indenture dated as of July 31, 1992 between Terex Corporation, as
Obligor, and United States Trust Company of New York, as Trustee, with respect
to the 13% Senior Secured Notes due 1996 (incorporated by reference to Exhibit
4.16 to the Form 10-K for the year ended December 31, 1992 of Terex
Corporation, Commission File No. 1-10702).
4.7 First Supplemental Indenture dated as of November 1, 1992 relating
to the 13% Senior Secured Notes due 1996 (incorporated by reference to Exhibit
4.27 to the Form 10-K for the year ended December 31, 1992 of Terex
Corporation, Commission File No. 1-10702).
4.8 Second Supplemental Indenture dated as of April 20, 1993 relating
to the 13% Senior Secured Notes due 1996 (incorporated by reference to Exhibit
4.8 to the Form S-1 Registration Statement of Terex Corporation, Registration
No. 33-52297).
4.9 Security and Pledge Agreement dated as of July 31, 1992 between
Terex Corporation and United States Trust Company of New York, as Collateral
Agent (incorporated by reference to Exhibit 10.38 to the Form 10-K for the year
ended December 31, 1992 of Terex Corporation, Commission File No. 1-10702).
4.10 Bond and Floating Charge, dated as of July 31, 1992, executed by
Terex Corporation in favor of United States Trust Company of New York, as
Collateral Agent (incorporated by reference to Exhibit 4.18 to the Form 10-K
for the year ended December 31, 1992 of Terex Corporation, Commission File No.
1-10702).
4.11 Guarantee and Bond and Floating Charge, dated July 31, 1992,
executed by Terex Equipment Limited in favor of United States Trust Company of
New York, as Collateral Agent (incorporated by reference to Exhibit 4.19 to the
Form 10-K for the year ended December 31, 1992 of Terex Corporation, Commission
File No. 1-10702).
4.12 Bond and Floating Charge, dated as of July 31, 1992, executed by
Terex Corporation in favor of Continental Bank, N.A. (incorporated by reference
to Exhibit 4.29 to the Form 10-K for the year ended December 31, 1992 of Terex
Corporation, Commission File No. 1-10702).
4.13 Guarantee and Bond and Floating Charge dated July 31, 1992,
executed by Terex Equipment Limited in favor of Continental Bank, N.A.
(incorporated by reference to Exhibit 4.30 to the Form 10-K for the year ended
December 31, 1992 of Terex Corporation, Commission File No. 1-10702).
4.14 Mortgage, Assignment of Rents and Fixture Filing dated as of July
31, 1992 from Terex Corporation in favor of United States Trust Company of New
York, as collateral agent, affecting Koehring Machinery Center, Waterloo, Iowa
(incorporated by reference to Exhibit 4.20 to the Form 10-K for the year ended
December 31, 1992 of Terex Corporation, Commission File No. 1-10702).
4.15 Mortgage, Assignment of Rents and Fixture Filing dated as of July
31, 1992 from Terex Corporation in favor of United States Trust Company of New
York, as collateral agent, affecting Unit Rig, Tulsa, Oklahoma (incorporated by
reference to Exhibit 4.21 to the Form 10-K for the year ended December 31, 1992
of Terex Corporation, Commission File No. 1-10702).
4.16 Mortgage, Assignment of Rents and Fixture Filing dated as of July
31, 1992 from Terex Corporation in favor of United States Trust Company of New
York, as collateral agent, affecting Unit Rig Parts Depot, Gillette, Wyoming
(incorporated by reference to Exhibit 4.22 to the Form 10-K for the year ended
December 31, 1992 of Terex Corporation, Commission File No. 1-10702).
4.17 Mortgage, Assignment of Rents and Fixture Filing dated as of July
31, 1992 from Clark Material Handling Company in favor of United States Trust
Company of New York, as collateral agent, affecting Danville Plant, Danville,
Kentucky, Engineering and Training Center, Lexington, Kentucky and Lees Town
Plant, Lexington, Kentucky (incorporated by reference to Exhibit 4.23 to the
Form 10-K for the year ended December 31, 1992 of Terex Corporation, Commission
File No. 1-10702).
4.18 Mortgage, Assignment of Rents and Fixture Filing dated as of July
31, 1992 from Drexel Industries, Inc. in favor of United States Trust Company
of New York, as collateral agent, affecting Drexel Plant, Horsham, Pennsylvania
(incorporated by reference to Exhibit 4.24 to the Form 10-K for the year ended
December 31, 1992 of Terex Corporation, Commission File No. 1-10702).
4.19 Gesellschaft (mortgage) dated as of July 31, 1992 from Clark
Equipment GmbH in favor of United States Trust Company of New York and
Continental Bank, N.A. as collateral agents, affecting Mulheim-Ruhr, Germany
(incorporated by reference to Exhibit 4.25 to the Form 10-K for the year ended
December 31, 1992 of Terex Corporation, Commission File No. 1-10702).
4.20 Mortgage, Assignment of Rents and Fixture Filing dated as of July
31, 1992 from Terex Corporation in favor of United States Trust Company of New
York, as collateral agent, affecting Distribution Center, Southaven,
Mississippi (incorporated by reference to Exhibit 4.26 to the Form 10-K for the
year ended December 31, 1992 of Terex Corporation, Commission File No.
1-10702).
4.21 Junior Mortgage, Assignment of Rents and Fixture Filing dated as of
July 31, 1992 from Terex Corporation in favor of Continental Bank, N.A., as
collateral agent, affecting Koehring Machinery Center, Waterloo, Iowa
(incorporated by reference to Exhibit 4.31 to the Form 10-K for the year ended
December 31, 1992 of Terex Corporation, Commission File No. 1-10702).
4.22 Junior Mortgage, Assignment of Rents and Fixture Filing dated as of
July 31, 1992 from Terex Corporation in favor of Continental Bank, N.A., as
collateral agent, affecting Unit Rig, Tulsa, Oklahoma (incorporated by
reference to Exhibit 4.32 to the Form 10-K for the year ended December 31, 1992
of Terex Corporation, Commission File No. 1-10702).
4.23 Junior Mortgage, Assignment of Rents and Fixture Filing dated as of
July 31, 1992 from Terex Corporation in favor of Continental Bank, N.A., as
collateral agent, affecting Unit Rig Parts Depot, Gillette, Wyoming
(incorporated by reference to Exhibit 4.33 to the Form 10-K for the year ended
December 31, 1992 of Terex Corporation, Commission File No. 1-10702).
4.24 Junior Mortgage, Assignment of Rents and Fixture Filing dated as of
July 31, 1992 from Clark Material Handling Company in favor of Continental
Bank, N.A., as collateral agent, affecting Danville Plant, Danville, Kentucky,
Engineering and Training Center, Lexington, Kentucky and Lees Town Plant,
Lexington, Kentucky (incorporated by reference to Exhibit 4.34 to the Form 10-K
for the year ended December 31, 1992 of Terex Corporation, Commission File No.
1-10702).
4.25 Junior Mortgage, Assignment of Rents and Fixture Filing dated as of
July 31, 1992 from Drexel Industries, Inc. in favor of Continental Bank, N.A.,
as collateral agent, affecting Drexel Plant, Horsham, Pennsylvania
(incorporated by reference to Exhibit 4.35 to the Form 10-K for the year ended
December 31, 1992 of Terex Corporation, Commission File No. 1-10702).
4.26 Junior Mortgage, Assignment of Rents and Fixture Filing dated as of
July 31, 1992 from Terex Corporation in favor of Continental Bank, N.A., as
collateral agent, affecting Distribution Center, Southaven, Mississippi
(incorporated by reference to Exhibit 4.36 to the Form 10-K for the year ended
December 31, 1992 of Terex Corporation, Commission File No. 1-10702).
4.27 Security Agreement dated as of July 31, 1992 between Clark Material
Handling Company and United States Trust Company of New York, as collateral
agent (incorporated by reference to Exhibit 10.39 to the Form 10-K for the year
ended December 31, 1992 of Terex Corporation, Commission File No. 1-10702).
4.28 Security Agreement dated as of July 31, 1992 between Clark Lift of
Western Michigan, Inc. and United States Trust Company of New York, as
collateral agent (incorporated by reference to Exhibit 10.40 to the Form 10-K
for the year ended December 31, 1992 of Terex Corporation, Commission File No.
1-10702).
4.29 Security Agreement dated as of July 31, 1992 between Clark
Components International, Inc. and the United States Trust Company of New York,
as collateral agent (incorporated by reference to Exhibit 10.41 to the Form
10-K for the year ended December 31, 1992 of Terex Corporation, Commission File
No. 1-10702).
4.30 Security Agreement dated as of July 31, 1992 between Drexel
Industries, Inc. and United States Trust Company of New York, as collateral
agent (incorporated by reference to Exhibit 10.45 to the Form 10-K for the year
ended December 31, 1992 of Terex Corporation, Commission File No. 1-10702).
4.31 Security and Pledge Agreement dated as of July 31, 1992 between
Terex Corporation and Continental Bank, N.A., as collateral agent (incorporated
by reference to Exhibit 10.42 to the Form 10-K for the year ended December 31,
1992 of Terex Corporation, Commission File No. 1-10702).
4.32 Security Agreement dated as of July 31, 1992 between Clark Material
Handling Company and Continental Bank, N.A., as collateral agent (incorporated
by reference to Exhibit 10.43 to the Form 10-K for the year ended December 31,
1992 of Terex Corporation, Commission File No. 1-10702).
4.33 Security Agreement dated as of July 31, 1992 between Drexel
Industries, Inc. and Continental Bank, N.A., as collateral agent (incorporated
by reference to Exhibit 10.44 to the Form 10-K for the year ended December 31,
1992 of Terex Corporation, Commission File No. 1-10702).
4.34 Security Agreement dated as of July 31, 1992 between Clark Lift of
Western Michigan, Inc. and Continental Bank, N.A., as collateral agent
(incorporated by reference to Exhibit 10.46 to the Form 10-K for the year ended
December 31, 1992 of Terex Corporation, Commission File No. 1-10702).
4.35 Security Agreement dated as of July 31, 1992 between Clark
Components International, Inc. and Continental Bank, N.A., as collateral agent
(incorporated by reference to Exhibit 10.47 to the Form 10-K for the year ended
December 31, 1992 of Terex Corporation, Commission File No. 1-10702).
4.36 First Amendment, dated as of January 1, 1993, to Security Agreement
between Clark Material Handling Company and United States Trust Company of New
York, as Collateral Agent, dated as of July 31, 1992 (incorporated by reference
to Exhibit 4.36 to the Form S-1 Registration Statement of Terex Corporation,
Registration No. 33-52297).
4.37 First Amendment, dated as of January 1, 1993, to Security Agreement
between Clark Lift of Western Michigan, Inc. and United States Trust Company of
New York, as Collateral Agent, dated as of July 31, 1992 (incorporated by
reference to Exhibit 4.37 to the Form S-1 Registration Statement of Terex
Corporation, Registration No. 33-52297).
4.38 First Amendment, dated as of January 1, 1993, to Security Agreement
between Clark Components International, Inc. and United States Trust Company of
New York, as Collateral Agent, dated as of July 31, 1992 (incorporated by
reference to Exhibit 4.38 to the Form S-1 Registration Statement of Terex
Corporation, Registration No. 33-52297).
4.39 First Amendment, dated as of January 1, 1993, to Security Agreement
between Drexel Industries, Inc. and United States Trust Company of New York, as
Collateral Agent, dated as of July 31, 1992 (incorporated by reference to
Exhibit 4.39 to the Form S-1 Registration Statement of Terex Corporation,
Registration No. 33-52297).
4.40 Warrant Agreement dated as of December 20, 1993 between Terex
Corporation and Mellon Securities Trust Company, as Warrant Agent (incorporated
by reference to Exhibit 4.40 to the Form S-1 Registration Statement of Terex
Corporation, Registration No. 33-52297).
4.41 Form of Warrant (incorporated by reference to Exhibit 4.41 to the
Form S-1 Registration Statement of Terex Corporation, Registration No.
33-52297).
4.42 Form of Preferred Stock certificate.*
5.1 Opinion of Robinson Silverman Pearce Aronsohn & Berman as to
legality of securities being registered.**
10.1 Terex Corporation Incentive Stock Option Plan, as amended
(incorporated by reference to Exhibit 4.1 to the Form S-8 Registration
Statement of Terex Corporation, Registration No. 33-21483).
10.2 Purchase Agreement dated June 30, 1987, with respect to Terex
Corporation's 13-1/2% Senior Subordinated Notes due July 1, 1997 between Terex
Corporation and the original purchasers of the Notes (incorporated by reference
to Exhibit 4.2 to the Form S-4 Registration Statement of Terex Corporation,
Registration No. 33-20737).
10.3 Purchase Agreement dated July 31, 1992 between Terex Corporation
and the original purchasers of the Notes with respect to Terex Corporation's
13% Senior Secured Notes due 1996 (incorporated by reference to Exhibit 10.35
to the Form 10-K for the year ended December 31, 1992 of Terex Corporation,
Commission file No. 1-10702).
10.4 Debt Registration Rights Agreement dated as of July 31, 1992
between Terex Corporation and the purchasers who are signatories thereto
(incorporated by reference to Exhibit 4.17 to the Form 10-K for the year ended
December 31, 1992 of Terex Corporation, Commission File No. 1-10702).
10.5 Common Stock Appreciation Rights Agreement dated as of July 31,
1992 between Terex Corporation and United States Trust Company of New York, as
SAR Agent (incorporated by reference to Exhibit 10.36 to the Form 10-K for the
year ended December 31, 1992 of Terex Corporation, Commission file No.
1-10702).
10.6 SAR Registration Rights Agreement dated as of July 31, 1992 between
Terex Corporation and the purchasers who are signatories thereto (incorporated
by reference to Exhibit 10.37 to the Form 10-K for the year ended December 31,
1992 of Terex Corporation, Commission file No. 1-10702).
10.7 Stock Purchase Agreement dated as of May 27, 1992 between Clark
Equipment Company and Terex Corporation (incorporated by reference to Exhibit
10.27 to the Form 10-K for the year ended December 31, 1992 of Terex
Corporation, Commission File No. 1-10702).
10.8 First Amendment to Stock Purchase Agreement dated as of July 31,
1992 between Terex Corporation and Clark Equipment Company (incorporated by
reference to Exhibit 10.28 to the Form 10-K for the year ended December 31,
1992 of Terex Corporation, Commission File No. 1-10702).
10.9 Promissory Note dated as of July 31, 1992 executed by Terex
Corporation in favor of Clark Equipment Company (incorporated by reference to
Exhibit 10.29 to the Form 10-K for the year ended December 31, 1992 of Terex
Corporation, Commission File No. 1-10702).
10.10 Tax Agreement dated as of July 31, 1992 between Terex Corporation
in favor of Clark Equipment Company (incorporated by reference to Exhibit 10.30
to the Form 10-K for the year ended December 31, 1992 of Terex Corporation,
Commission File No. 1-10702).
10.11 Trademark Assignment Agreement dated as of July 31, 1992 between
Clark Equipment Company and Clark Material Handling Company (incorporated by
reference to Exhibit 10.31 to the Form 10-K for the year ended December 31,
1992 of Terex Corporation, Commission File No. 1-10702).
10.12 Trademark Assignment dated as of July 31, 1992 executed by Clark
Equipment Company in favor of Clark Material Handling Company (incorporated by
reference to Exhibit 10.32 to the Form 10-K for the year ended December 31,
1992 of Terex Corporation, Commission File No. 1-10702).
10.13 License Agreement dated as of July 31, 1992 between Clark Equipment
Company and Clark Material Handling Company (incorporated by reference to
Exhibit 10.33 to the Form 10-K for the year ended December 31, 1992 of Terex
Corporation, Commission File No. 1-10702).
10.14 Mortgage dated as of July 31, 1992 by Clark Equipment GmbH for the
benefit of Clark Equipment Company (incorporated by reference to Exhibit 10.34
to the Form 10-K for the year ended December 31, 1992 of Terex Corporation,
Commission File No. 1-10702).
10.15 Loan and Security Agreement dated as of May 20, 1993 between
Foothill Capital Corporation and Terex Corporation (incorporated by reference
to Exhibit 10.1 to the Form S-3 Registration Statement of Terex Corporation
Registration No. 33-56924).
10.16 Loan and Security Agreement dated as of May 20, 1993 between
Foothill Capital Corporation and Clark Material Handling Company (incorporated
by reference to Exhibit 10.2 to the Form S-3 Registration Statement of Terex
Corporation, Registration No. 33-56924).
10.17 Continuing Guaranty dated as of May 20, 1993 of Terex Corporation
(incorporated by reference to Exhibit 10.3 to the Form S-3 Registration
Statement of Terex Corporation, Registration No. 33-56924).
10.18 Continuing Guaranty dated as of May 20, 1993 of Clark Material
Handling Company (incorporated by reference to Exhibit 10.4 to the Form S-3
Registration Statement of Terex Corporation, Registration No. 33-56924).
10.19 Amendment Number One dated as of August 24, 1993 to Loan and
Security Agreement dated as of May 20, 1993 between Foothill Capital
Corporation and Terex Corporation (incorporated by reference to Exhibit 10.19
to the Form S-1 Registration Statement of Terex Corporation, Registration No.
33-52297).
10.20 Amendment Number One dated as of August 24, 1993 to Loan and
Security Agreement dated as of May 20, 1993 between Foothill Capital
Corporation and Clark Material Handling Company (incorporated by reference to
Exhibit 10.20 to the Form S-1 Registration Statement of Terex Corporation,
Registration No. 33-52297).
10.21 Termination, General Release and Waiver Agreement, dated as of June
29, 1993, between Clark Material Handling Company and Gary D. Bello
(incorporated by reference to Exhibit 10.21 to the Form S-1 Registration
Statement of Terex Corporation, Registration No. 33-52297).
10.22 Form of Purchase Agreement dated as of December 20, 1993 between
Terex Corporation and the purchasers of Warrants and shares of Preferred Stock
of Terex Corporation (incorporated by reference to Exhibit 10.22 to the Form
S-1 Registration Statement of Terex Corporation, Registration No. 33-52297).
10.23 Registration Rights Agreement dated as of December 20, 1993 between
Terex Corporation and the purchasers of Warrants (incorporated by reference to
Exhibit 10.23 to the Form S-1 Registration Statement of Terex Corporation,
Registration No. 33-52297).
10.24 Registration Rights Agreement dated as of December 20, 1993 between
Terex, Corporation and the purchasers of shares of Preferred Stock of Terex
Corporation (incorporated by reference to Exhibit 10.24 to the Form S-1
Registration Statement of Terex Corporation, Registration No. 33-52297).
10.25 Agreement dated July 1, 1987, between KCS Industries, Inc. and
Northwest Engineering Company (incorporated by reference to Exhibit 10.2 to the
Form S-4 Registration Statement of Terex Corporation, Registration No.
33-20737).
10.26 Management Agreement Amendment, dated January 1, 1993, between KCS
Industries, Inc. and Terex Corporation (incorporated by reference to Exhibit
10.26 to the Form S-1 Registration Statement of Terex Corporation, Registration
No. 33-52297).
10.27 Management Agreement Termination Agreement, dated January 1, 1994,
between KCS Industries, L.P. and Terex Corporation (incorporated by reference
to Exhibit 10.27 to the Form S-1 Registration Statement of Terex Corporation,
Registration No. 33-52297).
10.28 Credit Facility, dated December 23, 1993, among Terex Equipment
Limited, Terex Corporation and Standard Chartered Bank (incorporated by
reference to Exhibit 10.28 to the Form S-1 Registration Statement of Terex
Corporation, Registration No. 33-52297).
11.1 Computation of per share earnings.*
12.1 Computation of ratio of earnings to fixed charges.*
21.1 Subsidiaries of Terex Corporation (incorporated by reference to
Exhibit 21.1 to the Form S-1 Registration Statement of Terex Corporation,
Registration No. 33-52297).
23.1 Consent of Robinson Silverman Pearce Aronsohn & Berman (included as
part of Exhibit 5.1).**
23.2 Independent Accountants' Consent of Price Waterhouse - Milwaukee,
Wisconsin. **
23.3 Independent Accountants' Consent of Deloitte & Touche - Detroit,
Michigan. **
23.4 Independent Accountants' Consent of Price Waterhouse - South Bend,
Indiana. **
23.5 Independent Accountants' Consent of Price Waterhouse - Milwaukee,
Wisconsin. **
23.6 Independent Accountants' Consent of Deloitte & Touche - Detroit,
Michigan. **
24.1 Power of Attorney (included on signature pages).*
____________________
* Filed herewith.
** To be filed by amendment.
(b) Financial Statement Schedules Page
Terex Corporation
Report of Price Waterhouse (included as part of Exhibit 23.2)
Report of Deloitte & Touche (included as part of Exhibit 23.3)
Schedule II - Amounts Receivable From Related Parties and
Underwriters, Promoters, and Employees Other Than
Related Parties S-1
Schedule IV - Indebtedness of and to
Related Parties - Not Current S-1
Schedule VIII - Valuation and Qualifying Accounts and Reserves S-2
Schedule X - Supplementary Income Statement Information S-2
Fruehauf Trailer Corporation
Schedule II - Amounts Receivable from Related Parties
and Underwriters, Promoters, and Employees
Other Than Related Parties S-3
Schedule IV - Indebtedness of and to
Related Parties - Not Current S-4
Schedule V - Property, Plan and Equipment S-5
Schedule VI - Accumulated Depreciation, Depletion
and Amortization of Property, Plant and Equipment S-5
Schedule VIII - Valuation and Qualifying Accounts and Reserves S-6
Schedule X - Supplementary Income Statement Information S-6
All other schedules are omitted as the required information is inapplicable or
the information is presented in the consolidated financial statements or
related notes.
Item 17. Undertakings
The Company hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement: (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act; (ii) to reflect
in the prospectus any facts or events arising after the effective date of the
Registration Statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement; (iii) to include any
material information with respect to the plan of distribution not previously
disclosed in the Registration Statement or any material change to such
information in the Registration Statement.
(b) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Westport,
State of Connecticut, on March 17, 1994.
TEREX CORPORATION
By: /s/ Randolph W. Lenz
Randolph W. Lenz,
Chairman of the Board
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
hereby constitutes and appoints Randolph W. Lenz or Marvin B. Rosenberg his
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to this registration statement, and to file the same, with exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact
and agent or either of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
registration statement has been signed by the following persons in the
capacities and on the date(s) indicated.
Name Title Date
/s/ Randolph W. Lenz Chairman of the Board, March 17, 1994
Randolph W. Lenz Chief Executive Officer
and Director
(Principal Executive Officer)
/s/ Ronald M. DeFeo President, Chief Operating March 17, 1994
Ronald M. DeFeo Officer and Director
/s/ Ralph T. Brandifino Senior Vice President and March 17, 1994
Ralph T. Brandifino Chief Financial Officer
(Principal Financial Officer)
/s/ Richard L. Evans Controller March 17, 1994
Richard L. Evans (Principal Accounting Officer)
/s/ Marvin B. Rosenberg Senior Vice President, March 17, 1994
Marvin B. Rosenberg General Counsel, Secretary
and Director
/s/ Adam E. Wolf Director March 17, 1994
Adam E. Wolf
/s/ David A. Sachs Director March 17, 1994
David A. Sachs
Director March __, 1994
G. Chris Andersen
/s/ Bruce I. Raben Director March 17, 1994
Bruce I. Raben
TEREX CORPORATION AND SUBSIDIARIES
SCHEDULE II--AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
(Amounts in thousands)
Balance at
Beginning Amounts Balance at End of Period
Name of Debtor of Period Additions Collected Current Not Current
Year ended
December 31, 1992 $ --- $ --- $ --- $ --- $---
Year ended
December 31, 1991 $ --- $ --- $ --- $ --- $---
Year ended
December 31, 1990
L. De Rubbo,
non-interest
bearing account
receivable $120 $ --- $120 $ --- $ ---
TEREX CORPORATION AND SUBSIDIARIES
SCHEDULE IV--INDEBTEDNESS OF AND TO RELATED PARTIES--NOT CURRENT
(Amounts in thousands)
Indebtedness to
Balance at
Beginning Balance at
Name of Person of Year Additions Deductions End of Year
Year ended
December 31, 1992
Receivable:
Fruehauf Trailer
Corporation --
Long-term receivable $ --- $14,890 (2)$(14,890) (3) $ ---
Payable:
The Airlie Group L. P.
-- Promissory note $ 7,497 $ --- $ 7,497 (1) $ ---
Year ended
December 31, 1991
Payable:
The Airlie Group L. P.
-- Promissory note $ 15,875 $ 1,651 $ 10,029 $ 7,497
KCS Industries, Inc.
-- Promissory note 15,875 1,651 17,526 ---
Totals $ 31,750 $ 3,302 $ 27,555 $ 7,497
Year ended
December 31, 1990
Payable:
The Airlie Group L. P.
-- Promissory note $ 13,129 $ 2,746 $ --- $15,875
KCS Industries, Inc.
-- Promissory note 13,129 2,746 --- 15,875
Totals $ 26,258 $ 5,492 $ --- $31,750
(1) As a result of the deconsolidation of Fruehauf as of January 1, 1992,
this note is no longer included in the Company's consolidated financial
statements.
(2) Includes $10,244 balance at beginning of year previously eliminated in
consolidation of Fruehauf.
(3) Carrying value adjusted to $-0- by a charge to "Equity in net income
(loss) of a ffiliate companies."
TEREX CORPORATION AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(Amounts in thousands)
Balance Additions
Beginning Charges to Balance End
of Year Earnings Other Deductions(1) of Year
Year ended
December 31, 1992:
Deducted from
asset accounts:
Allowance for
doubtful accounts $4,142 $642 $4,462 (2) $(2,898)(4) $6,348
Reserve for
excess and
obsolete inventory 26,999 2,545 691 (3) (8,093)(4) 22,142
Reserve for
assets held
for sale 4,293 --- --- (4,293) (4) ---
Totals $35,434 $3,187 $5,153 $(15,284) (4) $28,490
Year ended
December 31, 1991:
Deducted from
asset accounts:
Allowance for
doubtful accounts $3,632 $821 $272 (3) $(583) $4,142
Reserve for
excess and obsolete
inventory 17,654 11,394 --- (2,049) 26,999
Reserve for assets
held for sale 2,895 3,725 --- (2,327) 4,293
Totals $24,181 $15,940 $272 $(4,959) $35,434
Year ended
December 31, 1990:
Deducted from
asset accounts:
Allowance for
doubtful accounts $3,768 $622 $--- $(758) $3,632
Reserve for excess
and obsolete
inventory 10,330 9,670 --- (2,346) 17,654
Reserve for assets
held for sale 4,774 --- --- (1,879) 2,895
Totals $18,872 $10,292 $--- $(4,983) $24,181
(1) Utilization of established reserves, net of recoveries.
(2) Added with the acquisition of businesses.
(3) Includes balances reclassified to other accounts.
(4) Includes reductions resulting from the deconsolidation of Fruehauf as of
January 1, 1992 as follows:
Allowance for doubtful accounts $(2,210)
Reserve for excess and obsolete inventory (6,864)
Reserve for assets held for sale (4,293)
TEREX CORPORATION AND SUBSIDIARIES
SCHEDULE X--SUPPLEMENTARY INCOME STATEMENT INFORMATION
(Amounts in thousands)
1992 1991 1990
Maintenance and repairs $ 3,130 $10,120 $12,321
FRUEHAUF TRAILER CORPORATION AND SUBSIDIARIES
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES
AND UNDERWRITERS, PROMOTERS, AND EMPLOYEES
OTHER THAN RELATED PARTIES
(Amounts in thousands)
Balance at Balance
Beginning at End
Name of Debtor of Year Additions Deductions of Year
Year ended
December 31, 1992:
KCS Industries, Inc.,
Promissory notes,
interest at prime,
due March 31, 1993 $ - $ 1,622 $ - $ 1,622(1)
- $1,622 $ - $ 1,622
Year ended
December 31, 1991:
Promissory notes $ - $ - $ - $ -
$ - $ - $ - $ -
Year ended
December 31, 1990:
Promissory notes $ - $ - $ - $ -
$ - $ - $ - $ -
(1) Entire amount repaid on January 25, 1993.
FRUEHAUF TRAILER CORPORATION AND SUBSIDIARIES
SCHEDULE IV - INDEBTEDNESS OF AND TO RELATED PARTIES - NOT CURRENT
(Amounts in thousands)
Balance at Balance
Beginning at End
Name of Debtor of Year Additions Deductionsof Year
Year ended
December 31, 1992:
Airlie Group
Promissory notes 7,497 - 7,497 (1) -
Terex Corporation
Long-term payable 10,244 4,646 - 14,890
$ 17,741 $ 4,646 $ 7,497 $ 14,890
Year ended
December 31, 1991:
KCS Industries, Inc.
Promissory notes $15,875 $1,651 $17,526 $-
Airlie Group
Promissory notes 15,875 1,651 10,029 7,497
Terex Corporation
Promissory notes 7,944 825 8,769 -
Terex Corporation
Long-term payable 6,309 3,935 - 10,244
$ 46,003 $ 8,062 $ 36,324 $ 17,741
Year ended December
31, 1990:
KCS Industries, Inc.
Promissory notes $13,129 $2,746 $- $15,875
Airlie Group
Promissory notes 13,129 2,746 - 15,875
Terex Corporation
Promissory notes 6,565 1,379 - 7,944
Terex Corporation
Long-term payable 214 6,095 - 6,309
$ 33,037 $ 12,966 $ - $ 46,003
The Company held no long-term amounts receivable from related parties during
any of the periods presented.
(1) As a result of a default on the Company's credit facility, the related
party long-term payable has also been classified as current.
FRUEHAUF TRAILER CORPORATION AND SUBSIDIARIES
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
(Amounts in thousands)
Balance at Balance
Beginning Additions at End
of Period at Cost Retirements Other of Period
YEAR ENDED December 31, 1992:
Property $35,281 $- $(713) $(17,303)(1) $17,265
Plant 39,910 1,165 (1,945) (12,843)(1) 26,287
Equipment 45,914 772 (1,638) (4,752)(1) 40,296
Total $121,105 $1,937 $(4,296) $(34,898) $83,848
YEAR ENDED December 31, 1991:
Property $38,648 $71 $(2,764) $(674)(1) $35,281
Plant 68,586 610 (27,511) (1,775)(1) 39,910
Equipment 53,585 1,829 (2,730) (6,770)(1) 45,914
Total $160,819 $2,510 $(33,005) $(9,219) $121,105
YEAR ENDED December 31, 1990:
Property $38,304 $412 $(68) $- $38,648
Plant 68,596 139 (149) - 68,586
Equipment 50,894 3,014 (336) 13 53,585
Total $157,794 $3,565 $(553) $13 $160,819
(1) Includes the write-down of equipment due to the restructuring charge as
well as transfers to and from assets held for sale.
FRUEHAUF TRAILER CORPORATION AND SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
(Amounts in thousands)
Additions
Balance at Charged to Balance
Beginning Costs & at End
of Period Earnings Retirements Other of Period
YEAR ENDED December 31, 1992:
Plant $4,289 $906 $(339)$(1,842)(1) $3,014
Equipment 13,938 3,165 (948) (1,588)(1) 14,567
Total $18,227 $4,071 $(1,287) $(3,430) $17,581
YEAR ENDED December 31, 1991:
Plant $7,246 $1,520 $(6,716) $2,239(1) $ 4,289
Equipment 9,494 5,362 (1,936) 1,018(1) 13,938
Total $16,740 $6,882 $(8,652) $3,257 $18,227
YEAR ENDED December 31, 1990:
Plant $2,914 $1,186 $- $3,146 $ 7,246
Equipment 3,078 5,150 - 1,266 9,494
Total $5,992 $6,336 $- $4,412 $16,740
(1) Includes transfers to and from assets held for sale.
FRUEHAUF TRAILER CORPORATION AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(Amounts in thousands)
Balance at Additions Balance
Beginning Charges to at End
of Period Earnings Other Deductions of Period
YEAR ENDED December 31, 1992:
Deducted from
asset accounts:
Allowance
for doubtful
accounts $2,210 $44 $- $(206) $2,048
Reserve for
excess and
obsolete
inventory 6,864 3,244 - (4,969) 5,139
Reserve for
assets held
for sale 4,293 7,700 - (2,347) 9,646
Total $13,367 $10,988 $ - $(7,522) $16,833
YEAR ENDED December 31, 1991:
Deducted from
asset accounts:
Allowance for
doubtful
accounts $1,973 $151 $272 $(186) $2,210
Reserve for
excess and
obsolete
inventory 2,478 6,421 - (2,035) 6,864
Reserve for
assets held
for sale 2,895 3,725 - (2,327) 4,293
Total $7,346 $10,297 $272 $(4,548) $13,367
YEAR ENDED December 31, 1990:
Deducted from
asset accounts:
Allowance for
doubtful
accounts $2,000 $170 $- $(197) $1,973
Reserve for
excess and
obsolete
inventory - 2,478 - - 2,478
Reserve for
assets held
for sale 4,774 - - (1,879) 2,895
Total $6,774 $2,648 $ - $(2,076) $7,346
FRUEHAUF TRAILER CORPORATION AND SUBSIDIARIES
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
(Amounts in thousands)
Year ended December 31,
1992 1991 1990
Maintenance and repairs $5,480 $7,421 $8,318
X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X
X
X (CORPORATE LOGO) X
X X
X NUMBER SHARES X
PA X
X X
TEREX CORPORATION CUSIP 880 779 20 2 X
X X
X INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE X
X X
X THIS CERTIFICATE IS TRANSFERABLE IN NEW YORK X
X X
X X
X X
X This Certifies that X
X X
X X
X X
X is the owner of X
X X
X X
X fully paid and non-assessable shares of Series A Cumulative Redeemable X
X Convertible Preferred Stock with one cent par value of Terex Corporation X
X transferable on the books of the Corporation by the holder hereof in X
X person or by duly authorized attorney upon surrender of this certificate X
X properly endorsed. This certificate and the shares represented hereby X
X are issued and shall be held subject to all the provisions of the X
X Certificate of Incorporation and the By-Laws of the Corporation and all X
X amendments thereto, copies of which are kept on file with the Transfer X
X Agent to all of which the holder by acceptance hereof assents. This X
X certificate is not valid until countersigned by the Transfer Agent and X
X registered by the Registrar. X
X (CORPORATE SEAL) Witness the seal of the Corporation and the signatures X
X of its duly authorized officers. X
X Dated: X
X X
X /s/ Marvin B. Rosenberg /s/ Randolph W. Lenz X
X SECRETARY CHAIRMAN OF THE BOARD X
X X
X X
X (margin text) COUNTERSIGNED AND REGISTERED: X
X MELLON SECURITIES TRUST COMPANY X
X TRANSFER AGENT X
X AND REGISTRAR, X
X BY X
X X
X AUTHORIZED SIGNATURE. X
X X
X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X
(verso text)
TEREX CORPORATION
THE CORPORATION IS AUTHORIZED TO ISSUE MORE THAN ONE CLASS OF STOCK. THE
CORPORATION WILL FURNISH WITHOUT CHARGE, TO EACH STOCKHOLDER WHO SO REQUESTS,
THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR
OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF OF THE
CORPORATION AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH
PREFERENCES AND/OR RIGHTS. SUCH REQUEST MAY BE MADE TO THE OFFICE OF THE
SECRETARY OF THE CORPORATION OR TO THE TRANSFER AGENT.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM -- as tenants in common UNIF GIFT MIN ACT --
TEN ENT -- as tenants by the entireties _________ Custodian ________
JT TEN -- as joint tenants with right of (Cust) (Minor)
survivorship and not as under Uniform Gifts to Minors
tenants in common Act _______________
(State)
Additional abbreviations may also be used though not in the above list.
For value received, ________ hereby sell, assign and tranfer unto
PLEASE INSERT SOCIAL SECURITY OF OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________/________________________________________________
_______________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS
INCLUDING POSTAL ZIP CODE OF ASSIGNEE.
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________ Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint ____________________________________________
_______________________________________________________________________________
Attorney to transfer the said stock on the books of the within-named
Corporation with full power of substitution in the premises.
Dated, ________________________
_______________________________
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SECURITIES MAY NOT BE OFFERED,
SOLD, OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT PURSUANT TO (i)
A REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES THAT IS EFFECTIVE
UNDER SUCH ACT, (ii) RULE 144 OR RULE 144A UNDER SUCH ACT, OR (iii) ANY OTHER
EXEMPTION FROM REGISTRATION UNDER SUCH ACT RELATING TO THE DISPOSITION OF
SECURITIES.
(margin text) NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE
IN EVERY PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATEVER.
Exhibit 11.1
TEREX CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
Year Ended December 31,
1992 1991 1990
PRIMARY
Average shares outstanding 9,945,484 9,913,517 9,849,311
Net effect of dilutive stock options
based on the treasury stock method
using average market price --- (1) --- (1) 39,404
Totals 9,945,484 9,913,517 9,888,715
Income (loss) before
extraordinary loss $(57,175,000) $(29,786,000) $8,245,000
Extraordinary loss on
retirement of debt --- --- (2,192,000)
Net income (loss) $(57,175,000) $(29,786,000) $6,053,000
Income (loss) per share before
extraordinary loss $(5.75) $(3.00) $0.83
Extraordinary loss per share on
retirement of debt --- --- (.22)
Net income (loss) per share $(5.75) $(3.00) $0.61
FULLY DILUTED
Average shares outstanding 9,945,484 9,913,517 9,849,311
Net effect of dilutive stock
options based on the treasury
stock method using year-end market
price when it is greater than
average market price --- (1) --- (1) 39,404
Totals 9,945,484 9,913,517 9,888,715
Income (loss) before
extraordinary loss $(57,175,000) $(29,786,000) $8,245,000
Extraordinary loss on
retirement of debt --- --- (2,192,000)
Net income (loss) $(57,175,000) $(29,786,000) $6,053,000
Income (loss) per share before
extraordinary loss $(5.75) $(3.00) $0.83
Extraordinary loss per share on
retirement of debt --- --- (.22)
Net income (loss) per share $(5.75) $(3.00) $0.61
(1) Not applicable as inclusion is anti-dilutive.
EXHIBIT 11.1
(continued)
TEREX CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
Nine Months Ended
September 30,
1993 1992
PRIMARY:
Average shares outstanding 9,952,147 9,944,197
Net effect of dilutive stock options
based on the treasury stock method
using average market price (1) --- ---
Total 9,952,147 9,944,197
Income (loss) before
extraordinary loss $(43,092,000) $(38,611,000)
Extraordinary loss on
retirement of debt (2,003,000) ---
Net income (loss) $(45,095,000) $(38,611,000)
Per share, primary:
Income (loss) before extraordinary loss $(4.33) $(3.88)
Extraordinary loss on retirement of debt (.20) ---
Net income (loss) $(4.53) $(3.88)
FULLY DILUTED:
Average shares outstanding 9,952,147 9,944,197
Net effect of dilutive stock options
based on the treasury stock method
using period-end marketprice when
it is greater than averag price (1) --- ---
Total 9,952,147 9,944,197
Income (loss) before
extraordinary loss $(43,092,000) $(38,611,000)
Extraordinary loss on
retirement of debt (2,003,000) ---
Net income (loss) $(45,095,000) $(38,611,000)
Per share, fully diluted:
Income (loss) before extraordinary loss $(4.33) $(3.88)
Extraordinary loss on retirement of debt (.20) ---
Net income (loss) $(4.53) $(3.88)
(1) Not applicable as inclusion is anti-dilutive.
Exhibit 12.1
TEREX CORPORATION
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
9 months Ended
September 30, Year Ended December 31,
1993* 1992* 1991 1990 1989 1988
EARNINGS
Income before
taxes and
minority interest (44,902) (57,175) (38,640) 10,606 20,161 14,522
Adjustments:
Minority interest
in losses of
consolidated
subsidiaries (9,722)
Undistributed
(income) loss of
less than 50% owned
investments 677 35,045 (4,209) (7,480) (5,555)
Distributions from
less than 50% owned
investments 1,681 732 100
Fixed charges 30,165 27,214 35,617 54,167 39,120 15,016
Earnings (14,060) 5,084 (15,273) 58,025 53,826 29,538
FIXED CHARGES
Interest expense,
including debt discount
amortization 23,849 23,320 31,165 47,607 33,597 13,508
Amortization/writeoff
of debt
issuance costs 4,758 1,694 1,304 3,954 3,296 303
Portion of rental
expense representative
of interest factor 1,558 2,200 3,148 2,606 2,227 1,205
Fixed charges 30,165 27,214 35,617 54,167 39,120 15,016
RATIO OF EARNINGS
TO FIXED CHARGES (1) (1) (1) 1.1 1.4 2.0
AMOUNT OF EARNINGS
DEFICIENCY FOR
COVERAGE OF
FIXED CHARGES 44,225 22,130 50,890 0 0 0
(1) Less than 1.0x.
* Fruehauf deconsolidated as of January 1, 1992
