SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
F O R M 10 - Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission file number 1-10702
Terex Corporation
(Exact name of registrant as specified in its charter)
Delaware 34-1531521
(State of Incorporation) (IRS Employer Identification No.)
500 Post Road East, Suite 320, Westport, Connecticut 06880
(Address of principal executive offices)
(203) 222-7170
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Number of outstanding shares of common stock: 10.3 million as of September
30, 1995.
The Exhibit Index appears on page 20.
INDEX
TEREX CORPORATION AND SUBSIDIARIES
Page No.
PART I FINANCIAL INFORMATION
Item 1 Condensed Consolidated Financial Statements
Condensed Consolidated Statements of Operations --
Three months and nine months ended
September 30, 1995 and 1994 3
Condensed Consolidated Balance Sheets --
September 30, 1995 and December 31, 1994 4
Condensed Consolidated Statements of Cash Flows --
Nine months ended September 30, 1995 and 1994 5
Notes to Condensed Consolidated Financial Statements --
September 30, 1995 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II OTHER INFORMATION
Item 1 Legal Proceedings 18
Item 5 Other Information 18
Item 6 Exhibits and Reports on Form 8-K 18
SIGNATURES 19
PART 1. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
Net sales $ 283,304 $ 207,063 $ 766,789 $ 573,350
Cost of goods sold 252,490 184,282 690,529 515,889
Gross profit 30,814 22,781 76,260 57,461
Engineering, selling and
administrative expenses:
Third parties 23,001 16,657 61,401 53,574
Related parties --- --- --- 2,245
Total engineering, selling
and administrative
expenses 23,001 16,657 61,401 55,819
Severance and exit costs --- --- 3,478 4,549
Income (loss)
from operations 7,813 6,124 11,381 (2,907)
Other income (expense):
Interest income 574 83 1,073 400
Interest expense (11,834) (7,855) (28,416) (23,298)
Gain on sale of
Fruehauf stock --- 4,255 1,032 24,361
Gain on sale of
Drexel business --- --- --- 4,742
Property impairment charge --- --- (3,000) ---
Amortization of debt
issuance costs (619) (598) (1,672) (1,835)
Other income (expense)
- other (3,702) (818) (6,352) (8)
Income (loss) before
income taxes and
extraordinary items (7,768) 1,191 (25,954) 1,455
Income tax provision (18) 18 (133) (816)
Income (loss) before
extraordinary items (7,786) 1,209 (26,087) 639
Extraordinary losses on
retirement of debt --- (164) (7,452) (397)
NET INCOME (LOSS) (7,786) 1,045 (33,539) 242
Less preferred stock
accretion (1,853) (1,517) (5,200) (4,341)
Income (loss) applicable
to common stock $ (9,639) $ (472) $(38,739) $ (4,099)
PER COMMON AND
COMMON EQUIVALENT SHARE:
Primary:
Income (loss) before
extraordinary items $ (0.93) $ (0.03) $ (3.02) $ (0.36)
Extraordinary items --- (0.02) (0.73) (0.04)
Net income (loss) $ (0.93) $ (0.05) $ (3.75) $ (0.40)
Fully diluted:
Income (loss) before
extraordinary items $ (0.93) $ (0.03) $ (3.02) $ (0.36)
Extraordinary items --- (0.02) (0.73) $ (0.04)
Net income (loss) $ (0.93) $ (0.05) $ (3.75) $ (0.40)
Weighted average common
shares outstanding including
dilutive securities
(See Exhibit 11.1)
Primary (in millions) 10.3 10.3 10.3 10.3
Fully diluted (in millions) 10.3 10.3 10.3 10.3
The accompanying notes are an integral part of these financial statements.
TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30, December 31,
1995 1994
ASSETS
Current assets
Cash and cash equivalents $ 12,482 $ 9,727
Cash securing letters of credit 3,695 6,688
Trade receivables (less allowance
of $9,486 at September 30 and
$6,114 at December 31) 147,210 91,717
Net inventories 248,666 164,245
Other current assets 18,279 5,775
Total current assets 430,332 278,152
Property, plant and equipment - net 111,817 86,160
Goodwill - net 70,343 5,222
Debt issuance costs - net 15,110 3,382
Other assets 18,332 28,700
Total assets $ 645,934 $ 401,616
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities
Notes payable $ 6,575 $ 2,078
Current portion of long-term debt 12,298 25,806
Trade accounts payable 146,464 112,213
Accrued compensation and benefits 16,226 10,823
Accrued warranties and
product liability 38,488 27,629
Accrued interest 16,426 8,969
Accrued income taxes 3,827 1,328
Other current liabilities 62,951 32,732
Total current liabilities 303,255 221,578
Long-term debt less current portion 337,039 162,987
Accrued warranties and
product liability - long-term 35,110 31,846
Accrued pension 18,562 16,456
Other long-term liabilities 13,635 7,225
Total liabilities 707,601 440,092
Minority interest, including
redeemable preferred stock of a
subsidiary (liquidation preference
$26,051, subject to adjustment)
(Note B) 10,028 ---
Redeemable convertible preferred stock
(liquidation preference $39,083 at
September 30 and $36,578 at
December 31) 22,462 17,262
Commitments and contingencies (Note E)
Stockholders' investment
Warrants to purchase common stock 17,240 17,564
Common stock, $.01 par value
- authorized 30,000,000 shares;
issued and outstanding 10,359 at
September 30 and 10,303 at
December 31 104 103
Additional paid-in capital 40,451 40,127
Accumulated deficit (147,872) (108,395)
Pension liability adjustment (1,778) (1,778)
Unrealized holding gain on
equity securities 938 1,825
Cumulative translation adjustment (3,240) (5,184)
Total stockholders' investment (94,157) (55,738)
Total liabilities and
stockholders' investment $ 645,934 $ 401,616
The accompanying notes are an integral part of these financial statements.
TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
For the Nine Months
Ended September 30,
1995 1994
OPERATING ACTIVITIES
Net loss $(33,539) $ 242
Adjustments to reconcile net loss to
cash used in operating activities:
Depreciation 13,265 10,053
Amortization 7,873 3,207
(Gain) loss on sale of property,
plant and equipment (173) (115)
Gain on sale of Fruehauf stock (1,032) (24,361)
Gain on sale of Drexel business --- (4,742)
Property impairment charge 3,000 ---
Other 337 (647)
Changes in operating assets
and liabilities:
Restricted cash 2,993 (781)
Trade receivables (15,504) (18,201)
Net inventories (4,598) (1,043)
Trade accounts payable (20,553) 15,488
Accrued compensation and benefits 4,866 1,616
Accrued warranties and
product liability 2,275 3,251
Accrued interest 7,571 (5,842)
Accrued income taxes 537 242
Other 4,737 3,883
Net cash used in operating activities (27,945) (17,750)
INVESTING ACTIVITIES
Acquisition of businesses,
net of cash acquired (92,429) ---
Capital expenditures (7,128) (9,853)
Proceeds from sale of property,
plant and equipment 872 483
Proceeds from refinancing
note receivable --- 1,000
Proceeds from sale of Fruehauf stock 2,714 24,916
Proceeds from sale of Drexel business --- 10,289
Other 185 535
Net cash from (used in) investing
activities (95,786) 27,370
FINANCING ACTIVITIES
Net borrowings under revolving
line of credit agreements 42,107 11,916
Principal repayments of long-term debt (153,947) (28,275)
Issuance of long-term debt, net of
issuance costs 239,800 ---
Other (446) (124)
Net cash from (used in)
financing activities 127,514 (16,483)
EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND CASH EQUIVALENTS (1,028) 435
NET DECREASE IN CASH AND CASH EQUIVALENTS 2,755 (6,428)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 9,727 (9,183)
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 12,482 $ 2,755
The accompanying notes are an integral part of these financial statements.
TEREX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, unless otherwise denoted)
September 30, 1995
NOTE A -- BASIS OF PRESENTATION
Basis of Presentation. The accompanying condensed consolidated financial
statements of Terex Corporation and subsidiaries as of September 30, 1995 and
for the three and nine months ended September 30, 1995 and 1994 have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles.
The accompanying condensed consolidated balance sheet as of December 31, 1994,
has been derived from the audited consolidated balance sheet as of that date.
The condensed consolidated financial statements include the accounts of Terex
Corporation and its majority owned subsidiaries ("Terex" or the "Company").
All material intercompany balances, transactions and profits have been
eliminated. The equity method is used to account for investments in affiliates
in which the Company has an ownership interest between 20% and 50%.
Investments in affiliates in which the Company has an ownership interest of
less than 20% are accounted for on the cost method or at fair value in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
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. Operating results for the three and nine months ended
September 30, 1995 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1995. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1994.
NOTE B -- REFINANCING AND ACQUISITION
On May 9, 1995, the Company completed the refinancing of substantially all of
its outstanding debt (the "Refinancing") and, through Terex Cranes, Inc.
("Terex Cranes"), a newly formed subsidiary, completed the acquisition of
substantially all of the outstanding stock of P.P.M., S.A. and Legris
Industries, Inc. (together, "PPM") (the "PPM Acquisition"). PPM designs,
manufactures and markets mobile cranes and container stackers primarily in
North America and Western Europe.
The Refinancing included the private placement to institutional investors of
$250,000 of 13.25% Senior Secured Notes due May 15, 2002 (the "New Senior
Secured Notes"), repayment of the Company's old senior secured notes and senior
subordinated notes, totaling approximately $152,600 principal amount, and entry
into a new Credit Facility to replace the Company's existing lending facility
in the U. S. Until such time as the Company completes an exchange of the New
Senior Secured Notes for an equivalent issue of registered notes, or a shelf
registration statement for the New Senior Secured Notes is effective, the
interest rate on the New Senior Secured Notes will be 13.75%. The Indenture
for the New Senior Secured Notes places certain limits on the Company's ability
to incur additional indebtedness; permit the existence of liens; issue, pay
dividends on or redeem equity securities; utilize the proceeds of asset sales;
consolidate, merge or transfer assets to another entity; and enter into
transactions with affiliates. In connection with the issuance of the New
Senior Secured Notes, the Company issued 1,000,000 stock appreciation rights
("SAR") entitling the holders to receive cash or Terex Corporation common
stock, at the option of the Company, in an amount equal to the average closing
sale price of the common stock for 60 trading days prior to the date of
exercise less $7.288 for each SAR.
The Company's new Credit Facility provides that the Company will be able to
borrow (in the form of revolving loans and up to $15,000 in outstanding letters
of credit) up to $100,000, subject to borrowing base limitations. The Credit
Facility is secured by substantially all of the Company's domestic receivables
and inventory. The amount of borrowings is limited to the sum of the
following: (i) 75% of the net amount of eligible receivables, as defined, of
the Company's U.S. businesses other than Clark Material Handling Company
("CMHC"), plus (ii) 70% of the net amount of CMHC eligible receivables, plus
(iii) the lesser of 45% of the value of eligible inventory, as defined, or 80%
of the appraised orderly liquidation value of eligible inventory, less (iv) any
availability reserves established by the lenders. The new Credit Facility
expires May 9, 1998 unless extended by the lenders for one additional year. At
the option of the Company, revolving loans may be in the form of prime rate
loans bearing interest at the rate of 1.75% per annum in excess of the prime
rate and eurodollar rate loans bearing interest at the rate of 3.75% per annum
in excess of the adjusted eurodollar rate.
Approximately $92,612 of the proceeds of the New Senior Secured Notes was used
for the PPM Acquisition, including the repayment of certain indebtedness of PPM
required to be repaid in connection with the acquisition. In addition, the
Company estimates that the acquisition costs incurred will total approximately
$3,000. The remainder of the purchase price consisted of the issuance of
redeemable preferred stock of Terex Cranes having an aggregate liquidation
preference of 127 million French francs (approximately $26,051), subject to
adjustment. The purchase price is subject to adjustment calculated by
reference to the consolidated net asset value of PPM as determined by an audit
as of the date of closing. The preferred stock does not bear a dividend and,
accordingly, the Company has valued this stock at approximately $8,840
(discounted at 15%). The Company has not yet reached agreement with the
sellers about the amount of purchase price adjustment but, based on work
performed, the Company believes that the amount of the preferred stock could
ultimately be reduced.
The PPM Acquisition is being accounted for using the purchase method, with the
purchase price allocated to the assets acquired and liabilities assumed based
upon their respective estimated fair values at the date of acquisition. The
excess of purchase price over the net assets acquired (approximately $65,864)
is being amortized on a straight-line basis over 15 years. The estimated fair
values of assets and liabilities acquired in the PPM Acquisition are summarized
as follows:
Cash $ 974
Accounts receivable 33,816
Inventories 69,107
Other current assets 11,866
Property, plant and equipment 20,516
Other assets 268
Goodwill 65,864
Accounts payable and other
current liabilities (84,458)
Other liabilities (13,501)
$ 104,452
The Company is in the process of obtaining certain evaluations, estimations,
appraisals and actuarial and other studies for purposes of determining certain
values. The Company has also estimated costs related to plans to integrate the
activities of PPM into the Company, including plans to terminate excess
employees, exit certain activities and consolidate and restructure certain
functions. The Company may revise the estimates as additional information is
obtained.
The operating results of PPM are included in the Company's consolidated results
of operations since May 9, 1995. The following pro forma summary presents the
consolidated results of operations as though the Company completed the PPM
Acquisition on January 1, 1994, after giving effect to certain adjustments,
including amortization of goodwill, interest expense and amortization of debt
issuance costs on the debt issued in the Refinancing:
Pro Forma for the
Nine Months ended Year ended
September 30, 1995 December 31, 1994
Net sales $831,629 $966,476
Loss from operations (5,122) (12,904)
Loss before extraordinary items (51,297) (19,321)
Loss before extraordinary items,
per share $(5.55) $(2.45)
The pro forma information is not necessarily indicative of what the actual
results of operations of the Company would have been for the periods indicated,
nor does it purport to represent the results of operations for future periods.
NOTE C -- INVENTORIES
Net inventories consist of the following:
September 30, December 31,
1995 1994
Finished Equipment $ 55,676 $ 26,812
Replacement parts 88,381 68,932
Work-in-process 25,351 13,520
Raw materials and supplies 82,171 57,894
251,579 167,158
Less: Excess of FIFO inventory value
over LIFO cost (2,913) (2,913)
Net inventories $ 248,666 $ 164,245
NOTE D -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
September 30, December 31,
1995 1994
Property $ 10,733 $ 8,335
Plant 44,575 32,249
Equipment 102,884 83,419
158,192 124,003
Less: Accumulated depreciation (46,375) (37,843)
Net property, plant and equipment $ 111,817 $ 86,160
NOTE E -- LITIGATION, CONTINGENCIES AND RELATED PARTY TRANSACTIONS
The Company is subject to a number of contingencies and uncertainties including
product liability claims, self-insurance obligations, tax examinations and
other contingencies. Many of the exposures are unasserted or proceedings are
at a preliminary stage, and it is not presently possible to estimate the amount
or timing of any cost to the Company. However, management does not believe
that these contingencies and uncertainties will, in the aggregate, have a
material effect on the Company. When it is probable that a loss has been
incurred and possible to make reasonable estimates of the Company's liability
with respect to such matters, a provision is recorded for the amount of such
estimate or for the minimum amount of a range of estimates when it is not
possible to estimate the amount within the range that is most likely to occur.
The Company generates hazardous and nonhazardous wastes in the normal course of
its operations. As a result, the Company is subject to a wide range of
federal, state, local and foreign environmental laws and regulations, including
the Comprehensive Environmental Response, Compensation and Liability Act, that
(i) govern activities or operations that may have adverse environmental
effects, such as discharges to air and water, as well as handling and disposal
practices for hazardous and nonhazardous wastes, and (ii) impose liability for
the costs of cleaning up, and certain damages resulting from, sites of past
spills, disposals or other releases of hazardous substances. Compliance with
such laws and regulations has, and will, require expenditures by the Company on
a continuing basis.
On August 28, 1995, the Company announced that its Chairman, Randolph W. Lenz,
had retired from his position with the Company and its Board of Directors. In
connection with his retirement, the Company (acting through a committee
comprised of its independent Directors and represented by independent counsel)
and Mr. Lenz have executed a retirement agreement providing certain benefits
to Mr. Lenz and the Company. The agreement provides, among other things, for a
five-year consulting engagement requiring Mr. Lenz to make himself available to
the Company to provide consulting services for certain portions of his time. Mr
Lenz, or his designee, will receive a fee for consulting services which will
include payments in an amount, and a rate, equal to his 1995 base salary until
December 31, 1996. The agreement also provides for the granting of a five-year
$1.8 million loan bearing interest at 6.56% per annum which is subject to being
forgiven in increments over the five-year term of the agreement upon certain
conditions and equity grants having a maximum potential of 200,000 shares of
Terex common stock conditioned upon the Company achieving certain financial
performance objectives in the future. In contemplation of the execution of this
retirement agreement, the Company advanced to Mr. Lenz the principal amount of
the forgivable loan. Mr. Lenz has also agreed not to compete with the Company,
to vote his Terex shares in the manner recommended by the Company's Board of
Directors, not to acquire any additional shares of the Company's common stock,
and, except under certain circumstances, not to sell his shares of common
stock. The Company recorded a charge of $1.8 million to Other Income/Expense
during the three and nine months ended September 30, 1995 in connection with
the retirement.
The Internal Revenue Service is currently examining the Company's federal tax
returns for the years 1987 through 1989. In December 1994, the Company
received an examination report from the IRS proposing a substantial tax
deficiency based on this examination. The examination report raises a variety
of issues, including the Company's substantiation for certain deductions taken
during this period, the Company's utilization of certain net operating loss
carryovers ("NOL's") and the availability of such NOL's to offset future
taxable income. If the IRS were to prevail on all the issues raised, the
amount of the tax assessment would be approximately $56,000 plus interest and
penalties. If the Company were required to pay a significant portion of the
assessment, it could have a material adverse impact on the Company and could
exceed the Company's resources. The Company has filed its administrative
appeal to the examination report. Although management believes that the
Company will be able to provide adequate documentation for a substantial
portion of the deductions questioned by the IRS and that there is substantial
support for the Company's past and future utilization of the NOL's, the
ultimate outcome of this matter is subject to the resolution of significant
legal and factual issues. If the Company's positions prevail on the most
significant issues, management believes that the amounts due would not exceed
amounts previously paid or provided; however, even under such circumstances, it
is possible that the Company's NOL's could be reduced to some extent. No
additional accruals have been made for any amounts which might be due as a
result of this matter because the possible loss ranges from zero to $56,000
plus interest and penalties and the ultimate outcome cannot presently be
determined or estimated. As discussed above, Mr. Lenz has retired as Chairman
of the Company. Although his retirement agreement places certain restrictions
on his ability to sell his shares of Common Stock in the Company, in the event
that Mr. Lenz is able to sell a substantial portion of his shares in the
Company before December 20, 1996, such sale, in combination with the issuance
of the Warrants in December 20, 1993 and subject to the effects of other
changes in share ownership of the Company, could result in a change in control
for tax purposes. Such a change in control for tax purposes could possibly
result in a significant reduction in the amount of NOL's available to the
Company to offset future taxable income.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Prior to the PPM Acquisition on May 9, 1995, the Company operated in two
industry segments during the periods presented herein: material handling and
heavy equipment. The addition of the PPM business to the Company's existing
crane and aerial lift business ("Koehring") has created combined mobile crane
operations sufficient in size to constitute a third industry segment referred
to herein as "Mobile Cranes." The comparisons presented below have been
reclassified to a three segment basis for consistency. The Mobile Cranes
segment results for periods prior to May 1995 consist solely of Koehring's
operations which were formerly included in the results of the Heavy Equipment
Segment.
Quarter Ended September 30, 1995
The table below is a comparison of net sales, gross profit, selling, general
and administrative expenses, severance and exit costs and income (loss) from
operations, by segment, for the three months ended September 30, 1995 and 1994.
Three Months Ended September 30, Increase
1995 1994 (Decrease)
(in millions of dollars)
NET SALES
Material Handling $134.5 $ 128.3 $ 6.2
Heavy Equipment 64.8 57.2 7.6
Mobile Cranes 84.0 22.4 61.6
Eliminations --- (0.8) 0.8
Total $283.3 $ 207.1 $ 76.2
GROSS PROFIT
Material Handling $ 10.8 $ 10.8 $ ---
Heavy Equipment 9.2 8.3 0.9
Mobile Cranes 10.9 3.7 7.2
Eliminations (0.1) --- (0.1)
Total $ 30.8 $ 22.8 $ 8.0
ENGINEERING, SELLING AND ADMINISTRATIVE
EXPENSES
Material Handling $ 7.6 $ 9.8 $ (2.2)
Heavy Equipment 5.7 5.1 0.6
Mobile Cranes 9.4 1.6 7.8
General/Corporate 0.3 0.2 0.1
Total $ 23.0 $ 16.7 $ 6.3
INCOME (LOSS) FROM OPERATIONS
Material Handling $ 3.2 $ 1.0 $ 2.2
Heavy Equipment 3.5 3.2 0.3
Mobile Cranes 1.5 2.1 (0.6)
General/Corporate (0.4) (0.2) (0.2)
Total $ 7.8 $ 6.1 $ 1.7
Net Sales
Sales increased $76.2 million, or approximately 37%, to $283.3 million for the
three months ended September 30, 1995 over the comparable 1994 period.
Material Handling Segment sales were $134.5 million for the three months ended
September 30, 1995, an increase of $6.2 million from $128.3 million in the year
earlier period. The sales mix was approximately 21% parts in the three months
ended September 30, 1995 compared to 19% in the comparable 1994 period.
Machine sales increased 4%, primarily because of increased output resulting
from actions taken by management during 1994 and shipments of the new Genesis
line. Parts sales from which the Company generally realizes higher margins
than machine sales, increased 3% because of improved parts inventory
availability. The labor strike at the Company's parts distribution center has
not had a material continuing effect on parts sales.
Material Handling Segment bookings for the three months ended September 30,
1995 were $111.0 million, a decrease of $23.4 million, or 17%, from the year
earlier period, as customer demand, especially in North America, began to
soften. Bookings for parts sales for the three months ended September 30, 1995
decreased 4% from the year earlier period. Machine order bookings for the
three months ended September 30, 1995 decreased 25% from the year earlier
period, reflecting reduced industry demand in the North American markets.
Material Handling Segment backlog was $100.1 million at September 30, 1995
compared to $135.9 million at December 31, 1994 and $119.8 million at September
30, 1994.
Heavy Equipment Segment sales increased $7.6 million for the three months ended
September 30, 1995 from the three months ended September 30, 1994. Machines
sales increased 15%, and parts sales increased 4%. The sales mix was
approximately 37% parts for the three months ended September 30, 1995 compared
to 41% parts for the comparable 1994 period.
Heavy Equipment Segment bookings for the three months ended September 30, 1995
were $81.0 million, an increase of $42 million, or 108%, from the year earlier
period. Bookings for parts sales, from which the Company generally realizes
higher margins than machine sales, decreased 7% from the three months ended
September 30, 1994. Machine bookings for the three months ended September 30,
1995 increased $44.0 million from the comparable 1994 period reflecting higher
international orders, including a large Australian order received by the
Company's Unit Rig business. Heavy Equipment Segment backlog was $55.2 million
at September 30, 1995 compared to $67.8 million at December 31, 1994 and $48.2
million at September 30, 1994.
Mobile Crane Segment sales were $84.0 million for the three months ended
September 30, 1995, an increase of $61.6 million from $22.4 million in the year
earlier period reflecting operations of the PPM businesses acquired in May
1995. Mobile Crane Segment backlog was $81.6 million at September 30, 1995,
reflecting the additional PPM backlog acquired, compared to $11.7 million at
December 31, 1994 and $11.9 million at September 30, 1994.
Gross Profit
Gross profit for the three months ended September 30, 1995 increased $8.0
million compared to the three months ended September 30, 1994.
The Material Handling Segment's gross profit of $10.8 million for the three
months ended September 30, 1995 was even with $10.8 million for the prior
year's period. The gross profit percentage in the Material Handling Segment
was 8% for the three months ended September 30, 1995 and for the comparable
1994 period. Lower overall margins caused by increased material prices and
manufacturing inefficiencies related to vendors' continuing inability to meet
demand were offset by cost reduction initiatives.
The Heavy Equipment Segment's gross profit increased $0.9 million to $9.2
million for the three months ended September 30, 1995 compared to $8.3 million
for the comparable 1994 period. The gross profit percentage in the Heavy
Equipment Segment decreased to 14% for the three months ended September 30,
1995 from 15% for the three months ended September 30, 1994, reflecting
continuing improvements in manufacturing efficiency, offset by a decrease in
the sales mix of higher margin parts sales during the three months ended
September 30, 1995.
Mobile Crane Segment's gross profit increased $7.2 million to $10.9 million for
the three months ended September 30, 1995, compared to $3.7 million for the
prior year's period, reflecting the PPM Acquisition and improved performance at
Koehring.
Engineering, Selling and Administrative Expenses
Engineering, selling and administrative expenses increased to $23.0 million for
the three months ended September 30, 1995 from $16.7 million for the three
months ended September 30, 1994, reflecting the PPM Acquisition in May 1995.
Material Handling Segment engineering, selling and administrative expenses
decreased to $7.6 million for the three months ended September 30, 1995 from
$9.8 million for the comparable 1994 period, primarily as a result of severance
actions taken by management during the second half of 1994 and the first half
of 1995. Heavy Equipment Segment engineering, selling and administrative
expenses increased to $5.7 million for the three months ended September 30,
1995 from $5.1 million for the comparable 1994 period primarily due to costs
associated with a new parts sales office and a new U.K. dealership. Mobile
Crane Segment engineering, selling and administrative expenses increased to
$9.4 million for the three months ended September 30, 1995 from $1.6 million
for the comparable 1994 period, reflecting the PPM Acquisition in May 1995.
Income (Loss) from Operations
The Material Handling Segment income from operations of $3.2 million for the
three months ended September 30, 1995 represents a $2.2 million improvement
over the $1.0 million income in the comparable 1994 period. As discussed
above, increased sales and reduced costs contributed to the increase in income
from operations for the three months ended September 30, 1995.
Heavy Equipment Segment income from operations increased by $0.3 million to
$3.5 million for the three months ended September 30, 1995 from $3.2 million in
the comparable 1994 period, primarily due to increased sales.
Mobile Crane Segment income from operations of $1.5 million for the three
months ended September 30, 1995 decreased by $0.6 million over the comparable
1994 period, primarily due to losses of the PPM businesses acquired in May
1995.
On a consolidated basis, the Company realized operating income of $7.8 million
for the three months ended September 30, 1995, compared to operating income of
$6.1 million for the comparable 1994 period.
Other Income (Expense)
Net interest expense increased to $11.2 million for the three months ended
September 30, 1995 from $7.7 million in the comparable 1994 period as a result
of incremental borrowings associated with the PPM Acquisition in May 1995. The
Company realized gains in the three months ended September 30, 1994 of $4.3
million from the sale of shares of common stock of its former subsidiary,
Fruehauf Trailer Corporation ("Fruehauf"). The Company owns 250,000 shares of
Fruehauf common stock which it received in settlement of certain obligations of
Fruehauf. The Company recorded a charge of $1.8 million in the three months
ended September 30, 1995 for payments related to the retirement of its former
chairman, as described more fully in "Item 5 -- Other Information" in Part II
of this form 10-Q.
The balance of the provision for income taxes generally represents taxes
withheld on foreign royalties and dividends, and the fluctuation in the
provision for income tax is due to fluctuations in these items.
Nine Months Ended September 30, 1995
The table below is a comparison of net sales, gross profit, selling, general
and administrative expenses, severance and exit costs, and income (loss) from
operations, by segment, for the nine months ended September 30, 1995 and 1994.
Nine Months Ended September 30, Increase
1995 1994 (Decrease)
(in millions of dollars)
NET SALES
Material Handling $404.4 $ 335.7 $ 68.7
Heavy Equipment 190.5 173.1 17.4
Mobile Cranes 172.7 66.9 105.8
Eliminations (0.8) (2.3) 1.5
Total $766.8 $ 573.4 $ 193.4
GROSS PROFIT
Material Handling $ 26.7 $ 22.4 $ 4.3
Heavy Equipment 26.4 24.6 1.8
Mobile Cranes 23.2 10.4 12.8
Total $ 76.3 $ 57.4 $ 18.9
ENGINEERING, SELLING AND ADMINISTRATIVE
EXPENSES
Material Handling $ 24.6 $ 33.2 $ (8.6)
Heavy Equipment 17.1 15.7 1.4
Mobile Cranes 18.7 4.9 13.8
General/Corporate 1.0 2.0 (1.0)
Total $ 61.4 $ 55.8 $ 5.6
SEVERANCE AND EXIT COSTS
Material Handling $ 3.5 $ 4.3 $ (0.8)
Heavy Equipment --- 0.2 (0.2)
Total $ 3.5 $ 4.5 $ (1.0)
INCOME (LOSS) FROM OPERATIONS
Material Handling $ (1.4) $ (15.1) $ 13.7
Heavy Equipment 9.3 8.7 0.6
Mobile Cranes 4.5 5.5 (1.0)
General/Corporate (1.0) (2.0) 1.0
Total $ 11.4 $ (2.9) $ 14.3
Net Sales
Sales increased $193.4 million to $766.8, or approximately 34%, for the nine
months ended September 30, 1995 over the comparable 1994 period.
Material Handling Segment sales were $404.4 million for the nine months ended
September 30, 1995, an increase of $68.7 million from $335.7 million in the
year earlier period. The sales mix was approximately18% parts in the nine
months ended September 30, 1995 compared to 20% in the comparable 1994 period.
Machine sales increased 22%, primarily because of increased output resulting
from actions taken by management during 1994 and shipments of the new Genesis
line. Parts sales increased 7% because of improved parts inventory
availability partially offset by the adverse effects of a labor strike at the
Company's parts distribution center during the second quarter. The strike has
not had a material continuing effect on parts sales.
Material Handling Segment bookings for the nine months ended September 30, 1995
were $368.7 million, an increase of $59.8 million, or 19%, from the year
earlier period, on strong customer demand early in the year for the new Genesis
line. Bookings for parts sales for the nine months ended September 30, 1995,
from which the Company generally realized higher margins than machine sales,
increased 6% from the year earlier period. Machine order bookings for the nine
months ended September 30, 1995 increased 17% from the year earlier period,
reflecting the favorable acceptance of the Company's new Genesis line of IC
trucks, introduced in December 1994. Material Handling Segment backlog was
$100.1 million at September 30, 1995 compared to $135.9 million at December 31,
1994 and $119.8 million at September 30, 1994.
Heavy Equipment Segment sales increased $17.4 million for the nine months ended
September 30, 1995 from the nine months ended September 30, 1994. Machines
sales increased 9%, and parts sales increased 10%. The sales mix was
approximately 35% parts for the nine months ended September 30, 1995 compared
to 35% parts for the comparable 1994 period. Heavy Equipment Segment parts
sales were also adversely affected by the strike at the parts distribution
center early in the period, to a lesser degree than the Material Handling
Segment.
Heavy Equipment Segment bookings for the nine months ended September 30, 1995
were $171.3 million, an increase of $12.3 million, or 8%, from the year earlier
period. Bookings for parts sales, from which the Company generally realizes
higher margins than machine sales, increased 12% from the nine months ended
September 30, 1994. Machine bookings for the nine months ended September 30,
1995 increased 5% from the comparable 1994 period. Heavy Equipment Segment
backlog was $55.2 million at September 30, 1995 compared to $67.8 million at
December 31, 1994 and $48.2 million at September 30, 1994.
Mobile Crane segment sales were $172.7 million for the nine months ended
September 30, 1995, an increase of $105.8 million from $66.9 million in the
year earlier period due to the PPM Acquisition in May 1995. Mobile Crane
Segment backlog was $81.6 million at September 30, 1995, reflecting the
additional PPM backlog acquired, compared to $11.7 million at December 31, 1994
and $11.9 million at September 30, 1994.
Gross Profit
Gross profit of $76.3 million for the nine months ended September 30, 1995 was
$18.9 million, or 33%, higher than gross profit of $57.5 million for the nine
months ended September 30, 1994.
The Material Handling Segment's gross profit increased $4.3 million to $26.7
million for the nine months ended September 30, 1995 compared to $22.4 million
for the prior year's period. The gross profit percentage in the Material
Handling Segment was 7% for the nine months ended September 30, 1995 and for
the comparable 1994 period. Favorable efficiencies due to higher production
and sales volumes and the effects of 1994 severance actions were offset by
additional costs associated with the start-up of production of the new Genesis
product line and manufacturing inefficiencies related to vendors' continuing
inability to meet demand.
The Heavy Equipment Segment's gross profit increased $1.8 million to $26.4
million for the nine months ended September 30, 1995 compared to $24.6 million
for the comparable 1994 period. The gross profit percentage in the Heavy
Equipment Segment was 14% for the nine months ended September 30, 1995 and for
the nine months ended September 30, 1994.
Mobile Crane Segment's gross profit increased $12.8 million to $23.2 million
for the nine months ended September 30, 1995, compared to $10.4 million for the
prior year's period reflecting the addition of the May through September 1995
results of the PPM businesses.
Engineering, Selling and Administrative Expenses
Engineering, selling and administrative expenses increased to $61.4 million
for the nine months ended September 30, 1995 from $55.8 million for the nine
months ended September 30, 1994. Material Handling Segment engineering,
selling and administrative expenses decreased to $24.6 million for the nine
months ended September 30, 1995 from $33.2 million for the comparable 1994
period, primarily as a result of severance actions taken by management during
the second half of 1994. Heavy Equipment Segment engineering, selling and
administrative expenses increased to $17.1 million for the nine months ended
September 30, 1995 from $15.7 million for the comparable 1994 period as a
result of costs associated with the new parts service business. Mobile Crane
Segment engineering, selling and administrative expenses increased to $18.7
million for the nine months ended September 30, 1995 from $4.9 million for the
comparable 1994 period reflecting the PPM business acquired in May 1995.
Corporate administrative expenses in 1994 included a charge of $2.2 million in
connection with the termination of a management contract with a related party.
Severance and Exit Costs
The Company announced personnel reductions totaling approximately 134 employees
in the Material Handling Segment's North American operations during the second
quarter of 1995 as a continuation of the Company's programs to increase
manufacturing efficiency, reduce costs and improve liquidity. The Company
recorded a combined charge of $3.5 million in the second quarter of 1995 for
severance costs associated with these actions and additional costs associated
with the closing of certain administrative and warehouse facilities.
During the second quarter of 1994, the Company recorded a charge of $4.5
million principally related to severance costs in the Material Handling
Segment's North American and European operations. In June 1994, the Company
announced personnel reductions in plant supervision, engineering, marketing and
administration totaling approximately 160 employees. The $4.5 million charge
represents severance costs associated with these actions.
Income (Loss) from Operations
The Material Handling Segment loss from operations of $1.4 million for the nine
months ended September 30, 1995 represents a $13.7 million improvement over the
$15.1 million loss in the comparable 1994 period. As discussed above,
increased sales and reduced costs contributed to the improvement in income from
operations for the nine months ended September 30, 1995.
Heavy Equipment Segment income from operations improved by $0.6 million to $9.3
million for the nine months ended June 30, 1995 from $8.7 million in the
comparable 1994 period, primarily as a result of reduced costs, offset by costs
associated with the start up of a new parts service business.
Mobile Crane Segment income from operations of $4.5 million for the nine months
ended September 30, 1995 decreased by $1.0 over the comparable 1994 period,
primarily due to losses of the PPM businesses acquired in May 1995.
On a consolidated basis, the Company realized operating income of $11.4 million
for the nine months ended September 30, 1995, compared to an operating loss of
$2.9 million for the comparable 1994 period.
Other Income (Expense)
Net interest expense increased to $27.3 million for the nine months ended
September 30, 1995 from $22.9 million in the comparable 1994 period as a result
of incremental borrowings associated with the PPM Acquisition in May 1995. The
Company realized gains of $24.4 million. The Company owns 250,000 shares of
Fruehauf common stock which it received in settlement of certain obligations of
Fruehauf.
The Company recorded a charge of $3.0 million in the nine months ended
September 30, 1995 to recognize the impairment in value of certain properties
held for sale.
The Company recorded a charge of $1.8 million in the nine months ended
September 30, 1995 for payments related to the retirement of its former
chairman in August 1995, as described more fully in "Item 5 -- Other
Information" in Part II of this Form 10-Q. The balance of the provision for
income taxes generally represents taxes withheld on foreign royalties and
dividends, and the fluctuation in the provision for income tax is due to
fluctuations in these items.
LIQUIDITY AND CAPITAL RESOURCES
The Company's businesses are working capital intensive and require funding for
purchases of production and replacement parts inventories, capital expenditures
for repair, replacement and upgrading of existing facilities as well as
financing of receivables from customers and dealers. The Company has
significant debt service requirements including semi-annual interest payments
on senior debt and monthly interest payments on its credit facility.
Net cash of $27.9 million was used in operating activities during the nine
months ended September 30, 1995. Net cash used by investing activities was
$95.8 million during the nine months ended September 30, 1995 principally due
to the PPM Acquisition as described below. Net cash provided by financing
activities during the nine months ended September 30, 1995 was $127.5 million,
primarily from the Refinancing discussed below. Cash and cash equivalents
totaled $12.5 million at September 30, 1995.
Factors affecting future liquidity
The Company announced personnel reductions totaling approximately 134 employees
in the Material Handling Segment's North American operations during the second
quarter of 1995 as a continuation of the Company's programs to increase
manufacturing efficiency, reduce costs and improve liquidity. The Company
recorded a combined charge of $3.5 million in the second quarter of 1995 for
severance costs associated with these actions and additional costs associated
with the closing of certain administrative and warehouse facilities.
As discussed below, the Company has refinanced its senior and subordinated
debt, established new credit facilities and borrowed additional funds to
complete the PPM Acquisition which will impact future operating results,
sources of liquidity and debt service requirements.
On May 9, 1995, the Company completed the Refinancing and the PPM Acquisition.
The Refinancing included the private placement to institutional investors of
$250 million of 13.25% Senior Secured Notes due May 15, 2002 (the "New Senior
Secured Notes"), repayment of the Company's old senior secured notes and senior
subordinated notes, totaling approximately $152.6 million principal amount, and
entry into a new Credit Facility to replace the Company's existing lending
facility in the U.S. Until such time as the Company completes an exchange of
the New Senior Secured Notes for an equivalent issue of registered notes, or a
shelf registration statement for the New Senior Secured Notes is effective, the
interest rate on the New Senior Secured Notes will be 13.75%. The Indenture
for the New Senior Secured Notes places certain limits on the Company's ability
to incur additional indebtedness; permit the existence of liens; issue, pay
dividends on or redeem equity securities; utilize the proceeds of assets sales;
consolidate, merge or transfer assets to another entity; and enter into
transactions with affiliates. In connection with the issuance of the New
Senior Secured Notes, the Company issued 1,000,000 stock appreciation rights
("SAR") entitling the holders to receive cash or Common Stock, at the option of
the Company, in an amount equal to the average closing sale price of the common
stock for 60 trading days prior to the date of exercise less $7.288 for each
SAR.
Approximately $92.6 million of the proceeds of the New Senior Secured Notes was
used for the PPM Acquisition, including the repayment of certain indebtedness
of PPM required to be repaid in connection with the acquisition. In addition,
the Company estimates that the acquisition costs incurred will total
approximately $3.0 million. The remainder of the purchase price consisted of
the issuance of redeemable preferred stock of Terex Cranes having an aggregate
liquidation preference of 127 million French francs (approximately $26.1
million), subject to adjustment. The purchase price is subject to adjustment
calculated by reference to the consolidated net asset value of PPM as
determined by an audit as of the date of closing. The preferred stock does not
bear a dividend and, accordingly, the Company has valued this stock at
approximately $8.8 million (discounted at 15%). The Company has not yet
reached agreement with the sellers about the amount of purchase price
adjustment but, based on work performed, the Company believes that the amount
of the preferred stock could ultimately be reduced.
The Company's Credit Facility provides that the Company will be able to borrow
(in the form of revolving loans and up to $15 million in outstanding letters of
credit) up to $100 million. The Credit Facility is secured by substantially
all of the Company's domestic receivables and inventory (including PPM). The
amount of borrowings is limited to the sum of the following: (i) 75% of the
net amount of eligible receivables, as defined, of the Company's U.S.
businesses other than CMHC, plus (ii) 70% of the net amount of CMHC eligible
receivables, plus (iii) the lesser of 45% of the value of eligible inventory,
as defined, or 80% of the appraised orderly liquidation value of eligible
inventory less (iv) any availability reserves established by the lenders. The
Credit Facility expires May 9, 1998 unless extended by the lenders for one
additional year. At the option of the Company, revolving loans may be in the
form of prime rate loans initially bearing interest at the rate of 1.75% per
annum in excess of the prime rate and eurodollar rate loans initially bearing
interest at the rate of 3.75% per annum in excess of the adjusted eurodollar
rate.
The Company's debt service obligations for the remainder of 1995 include an
interest payment of $17.7 million on November 15, 1995 on the New Senior
Secured Notes which amount has been deposited with the Trustee for payment to
the holders, as well as interest payments of approximately $0.6 million monthly
on the Credit Facility. Management believes that, together with cash generated
from operations, the Refinancing provides the Company with adequate liquidity
to meet the Company's operating and debt service requirements. The balance
outstanding under the Credit Facility as of October 31, 1995 was $60.6 million,
and the additional amount the Company could have borrowed was $23.0 million as
of that date. Management intends to seek additional working capital financing
facilities for the Company's international operations to provide additional
liquidity worldwide, but there can be no assurances whether, or under what
terms, such additional facilities can be obtained.
CONTINGENCIES AND UNCERTAINTIES
The Internal Revenue Service is currently examining the Company's federal tax
returns for the years 1987 through 1989. In December 1994, the Company
received an examination report from the IRS proposing a substantial tax
deficiency based on this examination. The examination report raises a variety
of issues, including the Company's substantiation for certain deductions taken
during this period, the Company's utilization of certain net operating loss
carryovers ("NOL's") and the availability of such NOL's to offset future
taxable income. If the IRS were to prevail on all the issues raised, the
amount of the tax assessment would be approximately $56,000 plus interest and
penalties. If the Company were required to pay a significant portion of the
assessment, it could have a material adverse impact on the Company and could
exceed the Company's resources. The Company has filed its administrative
appeal to the examination report. Although management believes that the
Company will be able to provide adequate documentation for a substantial
portion of the deductions questioned by the IRS and that there is substantial
support for the Company's past and future utilization of the NOL's, the
ultimate outcome of this matter is subject to the resolution of significant
legal and factual issues. If the Company's positions prevail on the most
significant issues, management believes that the amounts due would not exceed
amounts previously paid or provided; however, even under such circumstances, it
is possible that the Company's NOL's could be reduced to some extent. No
additional accruals have been made for any amounts which might be due as a
result of this matter because the possible loss ranges from zero to $56,000
plus interest and penalties and the ultimate outcome cannot presently be
determined or estimated. As discussed below (see "Part II -- Other Information
- - -- Item 5"), Mr. Lenz has retired as Chairman of the Company. Although his
retirement agreement places certain restrictions on his ability to sell his
shares of Common Stock in the Company, in the event that Mr. Lenz is able to
sell a substantial portion of his shares in the Company before December 20,
1996, such sale, in combination with the issuance of the Warrants in December
20, 1993 and subject to the effects of other changes in share ownership of the
Company, could result in a change in control for tax purposes. Such a change
in control for tax purposes could possibly result in a significant reduction in
the amount of NOL's available to the Company to offset future taxable income.
The Securities and Exchange Commission (the "Commission") in March of 1994
initiated a private investigation, which included the Company and certain of
its affiliates, to determine whether violations of certain aspects of the
Federal securities laws have taken place. The Company is cooperating with the
Commission in its investigation and it is not possible at this time to
determine the outcome of the Commission's investigation.
The Company is subject to a number of contingencies and uncertainties including
product liability claims, self-insurance obligations, tax examinations and
guarantees. Many of the exposures are unasserted or proceedings are at a
preliminary stage, and it is not presently possible to estimate the amount or
timing of any cost to the Company. However, management does not believe that
these contingencies and uncertainties will, in the aggregate, have a material
effect on the Company. When it is probable that a loss has been incurred and
possible to make reasonable estimates of the Company's liability with respect
to such matters, a provision is recorded for the amount of such estimate or for
the minimum amount of a range of estimates when it is not possible to estimate
the amount within the range that is most likely to occur.
The Company generates hazardous and nonhazardous wastes in the normal course of
its operations. As a result, the Company is subject to a wide range of
federal, state, local and foreign environmental laws and regulations, including
the Comprehensive Environmental Response, Compensation and Liability Act, that
(i) govern activities or operations that may have adverse environmental
effects, such as discharges to air and water, as well as handling and disposal
practices for hazardous and nonhazardous wastes, and (ii) impose liability for
the costs of cleaning up, and certain damages resulting from, sites of past
spills, disposals or other releases of hazardous substances. Compliance with
such laws and regulations has, and will, require expenditures by the Company on
a continuing basis.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
In December 1992, a Class Action complaint was filed against Fruehauf Trailer
Corporation ("Fruehauf," a former subsidiary of the Company), the Company,
certain of Fruehauf's then officers and directors and certain of the
underwriters of the initial public offering of Fruehauf, in the United States
District Court for the Eastern District of Michigan, Southern Division,
alleging, among other things, violations of certain provisions of the federal
securities laws, and seeking unspecified compensatory and punitive damages.
The Company has settled the plaintiffs' claims with court approval for the sum
of $0.25 million, and thus this litigation is no longer pending with respect to
the Company.
For information concerning other contingencies see "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Contingencies
and Uncertainties."
Item 5. Other Information
On August 28, 1995, the Company announced that its Chairman, Randolph W. Lenz,
had retired from his position with the Company and its Board of Directors. In
connection with his retirement, the Company (acting through a committee
comprised of its independent Directors and represented by independent counsel)
and Mr. Lenz have executed a retirement agreement providing certain benefits to
Mr. Lenz and the Company. The agreement provides, among other things, for a
five-year consulting engagement requiring Mr. Lenz to make himself available to
the Company to provide consulting services for certain portions of his time. Mr
Lenz, or his designee, will receive a fee for consulting services which will
include payments in an amount, and a rate, equal to his 1995 base salary until
December 31, 1996. The agreement also provides for the granting of a five-year
$1.8 million loan bearing interest at 6.56% per annum which is subject to being
forgiven in increments over the five-year term of the agreement upon certain
conditions and equity grants having a maximum potential of 200,000 shares of
Terex common stock conditioned upon the Company achieving certain financial
performance objectives in the future. In contemplation of the execution of this
retirement agreement, the Company advanced to Mr. Lenz the principal amount of
the forgivable loan. Mr. Lenz has also agreed not to compete with the Company,
to vote his Terex shares in the manner recommended by the Company's Board of
Directors, not to acquire any additional shares of the Company's common stock,
and, except under certain circumstances, not to sell his shares of common
stock.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits have been filed as part of this Form
10-Q:
Exhibit No.
10 Agreement dated as of November 2, 1995 between Terex
Corporation, a Delaware corporation, and
Randolph W. Lenz
11.1 Computation of earnings per share
27 Financial data schedule
(b) Reports on Form 8-K.
Amendment number 1 to a report on Form 8-K dated May 9, 1995
was filed on August 28, 1995. The amendment provided
financial statements and pro forma financial information
required to be filed in connection with the acquisition of
99.18% of the shares of PPM S.A. and 100% of the capital stock
of Legris Industries, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TEREX CORPORATION
(Registrant)
Date November 14, 1995 /s/ Ralph T. Brandifino
Ralph T. Brandifino
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
EXHIBIT INDEX
Exhibit No.
10 Agreement dated as of November 2, 1995 between
Terex Corporation, a Delaware corporation, and
Randolph W. Lenz
11.1 Computation of Earnings per Share
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE TEREX
CORPORATION SEPTEMBER 30, 1995 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 12,482
<SECURITIES> 0
<RECEIVABLES> 156,696
<ALLOWANCES> 9,486
<INVENTORY> 248,666
<CURRENT-ASSETS> 430,332
<PP&E> 158,192
<DEPRECIATION> 46,375
<TOTAL-ASSETS> 645,934
<CURRENT-LIABILITIES> 303,255
<BONDS> 337,039
<COMMON> 104
22,462
0
<OTHER-SE> 94,261
<TOTAL-LIABILITY-AND-EQUITY> 645,934
<SALES> 766,789
<TOTAL-REVENUES> 766,789
<CGS> 690,529
<TOTAL-COSTS> 690,529
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,416
<INCOME-PRETAX> (25,954)
<INCOME-TAX> 133
<INCOME-CONTINUING> (26,087)
<DISCONTINUED> 0
<EXTRAORDINARY> (7,452)
<CHANGES> 0
<NET-INCOME> (33,539)
<EPS-PRIMARY> (3.75)
<EPS-DILUTED> (3.75)
</TABLE>
EXHIBIT 11.1
(Page 1 of 2)
TEREX CORPORATION AND SUBSIDIARIES
Computation of Earnings per Common Share
In Thousands except per share amounts
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
PRIMARY:
Income (loss) before
extraordinary item (7,786) 1,209 (26,087) 639
Less: Accretion of
Preferred Stock (1,853) (1,517) (5,200) (4,341)
Income (loss) before
extraordinary item
applicable to common stock (9,639) (308) (31,287) (3,702)
Extraordinary gain (loss)
on retirement of debt --- (164) (7,452) (397)
Net income applicable to
common stock (9,639) (472) (38,739) (4,099)
Weighted average shares
outstanding during the
period (in millions) 10.3 10.3 10.3 10.3
Assumed exercise of warrants
at ratio determined as of
September 30, 1994 0 (a) 0 (a) 0 (a) 0 (a)
Assumed exercise of stock options 0 (a) 0 (a) 0 (a) 0 (a)
Primary shares outstanding
(in millions) 10.3 10.3 10.3 10.3
Primary income (loss) per
common share
Income (loss) before
extraordinary item $(0.93) $(0.03) $(3.02) ($0.36)
Extraordinary gain (loss) --- (0.02) (0.73) (0.04)
Net income (loss) $(0.93) $(0.05) $(3.75) ($0.40)
(a) Excluded from the computation because the effect is anti-dilutive.
EXHIBIT 11.1
(Page 2 of 2)
TEREX CORPORATION AND SUBSIDIARIES
Computation of Earnings per Common Share
In Thousands except per share amounts
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
FULLY DILUTED:
Income (loss) before
extraordinary item (7,786) 1,209 (26,087) 639
Income (loss) before
extraordinary item (7,786) 1,209 (26,087) 639
Less: Accretion of
Preferred Stock (1,853) (1,517) (5,200) (4,341)
Income (loss) before
extraordinary item applicable
to common stock (9,639) (308) (31,287) (3,702)
Add: Accretion of Preferred
stock assumed converted at
beginning of period 0 0 0 0
Extraordinary gain (loss)
on retirement of debt --- (164) (7,452) (397)
Net income (loss) applicable
to common stock (9,639) (472) (38,739) (4,099)
Weighted average shares
outstanding during the
period (in millions) 10.3 10.3 10.3 10.3
Assumed exercise of warrants
at ratio reflecting maximum
dilution 0 (a) 0 (a) 0 (a) 0 (a)
Assumed conversion of
Preferred Stock 0 (a) 0 (a) 0 (a) 0 (a)
Assumed exercise of stock options 0 (a) 0 (a) 0 (a) 0 (a)
Fully diluted shares
outstanding (in millions) 10.3 10.3 10.3 10.3
Fully diluted income (loss)
per common share
Income (loss) before
extraordinary item $(0.93) ($0.03) $(3.02) ($0.36)
Extraordinary gain (loss) --- (0.02) (0.73) (0.04)
Net income (loss) $(0.93) $(0.05) $(3.75) ($0.40)
(a) Excluded from the computation because the effect is anti-dilutive.
AGREEMENT
AGREEMENT dated as of November 2, 1995 between Terex Corporation, a Delaware
corporation (the "Company"), and Randolph W. Lenz (the "Retiring Chairman").
W I T N E S S E T H:
WHEREAS, the Retiring Chairman has served for more than twelve years as the
Chairman of the Board of Directors of the Company (the "Board");
WHEREAS, the Company and the Retiring Chairman have agreed that the Retiring
Chairman shall take early retirement and step down from his positions as
Chairman and a member of the Board, and, accordingly, the Retiring Chairman has
relinquished his position as Chairman and his membership on the Board in
contemplation of this Agreement;
WHEREAS, the Retiring Chairman and the Company desire to enter into certain
agreements regarding the Retiring Chairman's stock holdings in the Company;
WHEREAS, the Company wishes to utilize the Retiring Chairman's experience and
abilities and has offered to engage him as a consultant to advise the Company;
and
WHEREAS, the Retiring Chairman desires to accept such engagement and assume his
other obligations hereunder upon the terms and conditions hereinafter set
forth;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and
agreements herein contained, and intending to be legally bound hereby, the
Company and the Retiring Chairman hereby agree as follows:
1. Retirement. The Retiring Chairman has retired as Chairman of the Board
and from all other offices and directorships that he currently holds with the
Company or any of its subsidiaries or affiliates, and has ceased to be an
employee of the Company effective as of August 28, 1995.
2. Consulting Engagement. Effective as of the date hereof (the "Effective
Date"), the Company hereby engages the Retiring Chairman, and the Retiring
Chairman hereby accepts such engagement upon the terms and conditions
hereinafter set forth in this Agreement, to perform such consulting, advisory
and other services for the Company during the Term (as defined in Section 3
below) as the Company may reasonably request. Such services shall include, but
not be limited to, advice to the Board regarding strategic planning,
acquisitions and divestitures and financing. From the Effective Date until the
third anniversary of the Effective Date, the Retiring Chairman shall be
available to devote approximately 50% of his time to provide such services to
the Company. From the third anniversary of the Effective Date until the fourth
anniversary of the Effective Date, the Retiring Chairman shall be available to
devote approximately 25% of his time to provide such services to the Company.
From the fourth anniversary of the Effective Date until the Termination Date
(as defined below), the Retiring Chairman shall be available to devote
approximately 12.5% of his time to provide such services to the Company. The
Company shall provide the Retiring Chairman with an office and secretarial
assistance from the Effective Date through December 31, 1996.
3. Consulting Term; Effect of Death or Disability. The Retiring Chairman's
engagement under this Agreement shall be effective as of the Effective Date and
shall continue until the fifth anniversary of the Effective Date (the
"Termination Date"). The period beginning on the Effective Date and ending on
the Termination Date shall be referred to herein as the "Term". On the
Termination Date, the Company's obligation to pay or provide any compensation,
except for compensation accrued hereunder prior to the Termination Date, shall
terminate. Notwithstanding the foregoing, upon the Retiring Chairman's death
or Disability (as defined below), the Retiring Chairman or, if applicable, his
estate or beneficiary, as the case may be, shall remain subject to the
provisions of Section 7 of this Agreement, but shall not be required to perform
any services pursuant to Section 2 of this Agreement; provided, however, that
if the Retiring Chairman's incapacity that resulted in a Disability no longer
exists, he shall be required to perform services under Section 2 for the
balance, if any, of the Term. In the event of the Retiring Chairman's death or
Disability, and subject to the continued compliance with the provisions of
Section 7 of this Agreement by the Retiring Chairman or, if applicable, his
estate or beneficiary, as the case may be, the Company shall continue to
perform its obligations under Sections 4(a), 4(e) and 4(g) of this Agreement.
For purposes of this Agreement, "Disability" shall mean the inability of the
Retiring Chairman to perform his services as required under this Agreement due
to physical or mental incapacity or illness for more than six consecutive
months or for shorter periods aggregating six months during any 12-month
period. The Retiring Chairman shall use reasonable best efforts to cooperate
with any physician engaged by the Company to determine whether or not
Disability exists, and the determination of such physician made in writing to
the Company and the Retiring Chairman shall be final and conclusive for all
purposes of this Agreement.
4. Compensation. Provided that the Retiring Chairman has performed all of
his obligations under this Agreement, he shall be entitled to the following:
(a) Fee. From August 28, 1995 until December 31, 1996, the Company shall
pay the Retiring Chairman or the Pre-approved Delegatee (as such term is
defined in Section 13 below) a fee at a rate equal to the Retiring Chairman's
base salary in effect immediately prior to his retirement, payable in
accordance with standard payroll practices of the Company.
(b) Benefits; Perquisites. From August 28, 1995 until December 31, 1996,
the Retiring Chairman shall be eligible to continue to participate in the
Company's insurance or health and welfare programs in which he was
participating immediately prior to his retirement, on the same terms and with
the same contribution rates as in effect immediately prior to his retirement.
If the Retiring Chairman's participation is not permitted under the terms of
such plans, the Company will provide the Retiring Chairman with substantially
equivalent benefits with the same contribution rates as are currently in
effect. The Retiring Chairman shall also receive such ordinary and customary
benefits as may be generally made available from time to time to the senior
executives of the Company.
(c) Automobile. The Company shall arrange to transfer title to the
Retiring Chairman of the automobile that the Company provided for his use
immediately prior to his retirement.
(d) Reimbursement. The Retiring Chairman shall be reimbursed by the
Company for travel and business expenses reasonably incurred in performing his
duties under this Agreement, in accordance with the usual policies of the
Company.
(e) Loan. As soon as practicable following the Effective Date, the
Company shall lend to the Retiring Chairman $1,800,000, which amount shall be
inclusive of any prior advances paid by the Company to the Retiring Chairman or
his Pre-approved Delegatee, in exchange for the execution of a five-year
forgivable note (the "Note"), in substantially the form attached hereto as
Exhibit A. Subject in each case to the Retiring Chairman's continued
compliance with the terms of, and his obligations under, this Agreement, 4/15
of the face amount of the Note (together with accrued interest) shall be
forgiven on each of the first three anniversaries of the Effective Date, 2/15
of the face amount of the Note (together with accrued interest) shall be
forgiven on the fourth anniversary of the Effective Date and 1/15 of the face
amount of the Note (together with accrued interest) shall be forgiven on the
Termination Date. In the event that the Retiring Chairman breaches in any
material respect any of the provisions of this Agreement, the remaining amount
of the Note shall be due and payable immediately.
(f) Existing Options. The Company hereby agrees that, so long as the
Retiring Chairman is in compliance with the terms of, and his obligations
under, this Agreement, any options to purchase shares of stock of the Company
held by the Retiring Chairman as of the Effective Date (the "Existing Options")
shall continue to vest and be exercisable in accordance with the terms of the
grant of such Existing Options as if the Retiring Chairman were an active
employee of the Company during the Term.
(g) Equity Grants.
(i) Price-Based Stock Awards. Subject in each case to the
Retiring Chairman's continued compliance with the terms of, and his obligations
under, this Agreement, and subject to the terms set forth below being met for
each award period, the Company shall grant to the Retiring Chairman the
following numbers of shares of the common stock, par value $.01 per share, of
the Company ("Common Stock"): (x) 33,333 if the average closing sales price of
the Common Stock on the New York Stock Exchange (the "NYSE") during any period
of 30 consecutive trading days is $8.00 or more per share prior to May 15,
1997; (y) 33,333 shares if the average closing sales price of the Common Stock
on the NYSE during any period of 30 consecutive trading days is $10.00 or more
per share prior to May 15, 1998; and (z) 33,334 shares if the average closing
sales price of the Common Stock on the NYSE during any period of 30 consecutive
trading days is $12.00 or more per share prior to May 15, 1999. If any award
of Common Stock is not granted during one of the above award periods because
the applicable average closing sales price target is not achieved during such
award period, the number of ungranted shares of Common Stock for such award
period shall roll forward to the subsequent award period, and if the applicable
average closing sales price target for the subsequent award period is met, then
the Retiring Chairman shall be granted the number of shares of Common Stock for
the subsequent award period in addition to the number of shares for the
previous award period.
(ii) Performance-Based Stock Awards. Subject in each case to the
Retiring Chairman's continued compliance with the terms of, and his obligations
under, this Agreement, the Company shall grant to the Retiring Chairman the
following number of shares of Common Stock: (x) 50,000 shares of Common Stock
if, in the 18-month period following the Effective Date, (1) Clark Material
Handling Company's ("CMHC") earnings before interest, taxes, depreciation and
amortization ("EBITDA") is at least $32 million during any 12 consecutive month
period within such 18-month period or (2) the Company has realized an annual
return at a rate of at least 20% per annum from the date of acquisition on its
Invested Capital in CMHC; and (y) 50,000 shares of Common Stock if, in the
18-month period following the Effective Date, (1) the Terex Cranes Division
("TC") achieves EBITDA of at least $36 million within any 12 consecutive month
period during such 18-month period or (2) the Company has realized an annual
return at a rate of at least 20% per annum from the date of acquisition on its
Invested Capital in TC. The term "Invested Capital" shall have the meaning
indicated in Exhibit B attached hereto.
(iii) Stockholder Rights. The Retiring Chairman shall have no
rights as a stockholder with respect to any shares of Common Stock issuable
hereunder until the Retiring Chairman shall have received such shares, and no
adjustment shall be made for dividends or distributions or other rights in
respect of any share for which the record date is prior to the date upon which
the Retiring Chairman shall become the holder of record of such shares of
Common Stock.
(iv) Dilution and Other Adjustments. In the event of a stock
dividend, stock split or similar transaction, the Board shall make any or all
of the following adjustments as are necessary or advisable (the form of which
shall be determined by the Board in its sole discretion) to provide the
Retiring Chairman with a benefit equivalent to that to which he would have been
entitled had such event not occurred: (i) adjust the number of shares of
Common Stock to be granted to the Retiring Chairman or (ii) make any other
adjustments, or take such action, as the Board, in its reasonable discretion,
deems appropriate. Such adjustments shall be conclusive and binding for all
purposes.
(v) Effect of Reorganization. In the event that (i) the Company
is merged or consolidated with another corporation, (ii) all or substantially
all the assets of the Company are acquired by another corporation, person or
entity, (iii) the Company is reorganized, dissolved or liquidated (each such
event in (i), (ii) or (iii) being hereinafter referred to as a "Reorganization
Event") or (iv) the Board shall propose that the Company enter into a
Reorganization Event, then the Board shall make upon consummation of such
Reorganization Event any or all of the adjustments described in Section
4(g)(iv) as are necessary or advisable (the form of which shall be determined
by the Board in its sole discretion) to provide the Retiring Chairman with a
benefit equivalent to that to which he would have been entitled had such event
not occurred.
5. Independent Contractor. The Retiring Chairman hereby acknowledges that he
or his Pre-approved Delegatee is being retained by the Company as an
independent contractor and not as an employee. Accordingly, the Retiring
Chairman hereby acknowledges that: (i) he or his Pre-approved Delegatee is
solely responsible for and shall file, on a timely basis, tax returns and
payments required to be filed with or made to any relevant tax authorities with
respect to his performance of consulting services hereunder; and (ii) the
Company will not withhold any taxes from any compensation paid by the Company
to the Retiring Chairman or his Pre-approved Delegatee hereunder unless legally
required to do so.
6. Company Property. The Retiring Chairman hereby agrees that, after the
Termination Date, he shall return all Company property, including, without
limitation, all computer hardware, software, diskettes and files, all business
records, papers and documents kept or made by him relating to the business of
the Company and its subsidiaries and affiliates, any written materials not
previously made available to the public, and any and all records and documents
made by him or coming into his possession concerning the business or affairs of
the Company and its subsidiaries and affiliates. In addition, the Retiring
Chairman hereby agrees that he shall not retain any copies of any of the items
referred to in this Section 6.
7. Standstill Agreement.
(a) Representations. The Retiring Chairman hereby represents that, since
August 25, 1995, he has not (i) engaged in any purchase, sale or other transfer
of any shares of the capital stock of the Company or (ii) entered into any
agreement or arrangement with respect to any shares of capital stock of the
Company (whether or not beneficially owned by him) or any rights appurtenant
thereto, except as identified in Exhibit C hereto.
(b) Corporate Governance Matters. For a period of three years from the
Effective Date (the "Standstill Period"), the Retiring Chairman covenants and
agrees that he shall:
(i) be present, in person or by proxy, at all meetings of
stockholders of the Company, so that all shares of the capital stock of the
Company entitled to vote beneficially owned by the Retiring Chairman may be
counted for the purpose of determining the presence of a quorum at such
meetings;
(ii) vote or cause to be voted at all meetings of the stockholders
of the Company all shares of the capital stock of the Company entitled to vote
beneficially owned by the Retiring Chairman in favor of nominees unanimously
approved by the Board's Nominating Committee and with respect to all other
matters in such manner as is recommended to the stockholders of the Company by
the Board;
(iii) not make, or in any way participate in, directly or
indirectly, any solicitation of proxies, or become a "participant" in any
"solicitation" or "election contest" (as such terms are defined or used in
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), or seek to influence any person or group (within the meaning
of Section 13(d)(3) of the Exchange Act) with respect to the voting of any
shares of the capital stock of the Company entitled to vote, or execute any
written consent in lieu of a meeting of the stockholders of the Company, with
respect to any matter in opposition to the recommendation of the Board; or
(iv) vote or cause to be voted all shares of the capital stock of
the Company entitled to vote beneficially owned by the Retiring Chairman in
favor of the creation of a Nominating Committee and a Compensation Committee of
the Board.
(c) Restrictions on Acquisitions. The Retiring Chairman agrees that
during the Standstill Period he shall not, without the prior written consent of
the Board, directly or indirectly purchase, acquire or own, offer or agree to
purchase, acquire or own, or join in any group (within the meaning of Section
13(d)(3) of the Exchange Act) formed for the purpose of purchasing, acquiring
or owning any shares of the capital stock of the Company or direct or indirect
rights or options to acquire any shares of the capital stock of the Company,
other than (a) shares of capital stock of the Company beneficially owned by the
Retiring Chairman on the date of this Agreement, (b) shares of Common Stock
awarded to the Retiring Chairman pursuant to Section 4(f) of this Agreement and
(c) shares of capital stock of the Company acquired in connection with (i) a
stock split, reverse split or other reclassification affecting outstanding
securities of the Company or (ii) a stock dividend or other pro rata
distribution by the Company to holders of its outstanding securities; provided,
however, that the Retiring Chairman shall be entitled to purchase or otherwise
acquire in ordinary course open market transactions up to that number of shares
of Common Stock which, when added to (x) all shares of Common Stock then
beneficially owned by him and (y) all shares of Common Stock issuable or
potentially issuable to him under any options, warrants or other rights to
acquire Common Stock, whether or not at the time vested or exercisable,
including without limitation, all of the shares of Common Stock contemplated by
Section 4(g) above, shall in the aggregate not result in the Retiring Chairman
beneficially owning 50% or more of the outstanding shares of Common Stock.
(d) Restrictions on Sales and Encumbrances.
(i) The Retiring Chairman agrees that during the Standstill
Period, without the prior written consent of the Board, he shall not, directly
or indirectly:
(x) make any sale, assignment, transfer, distribution or
other disposition (each, a "Sale") of any shares of the capital stock of the
Company other than any Sales made in ordinary course open market transactions
complying with the quantity and other restrictions embodied in Rule 144 under
the Securities Act (other than the prohibition of solicitations contained in
such rule); or
(y) make any Sale of any shares of the capital stock of the
Company if, as a result of such Sale any person or group (within the meaning of
Section 13(d)(3) of the Exchange Act) would own 10% or more of the then
outstanding shares of Common Stock (on a fully diluted basis), unless prior to
the completion of any such Sale, the proposed purchaser of such shares has
commenced a tender offer to purchase from the public stockholders of the
Company the Pro Rata Portion of the shares of Common Stock held by the public
stockholders at the same price being paid to the Retiring Chairman, where "Pro
Rata Portion" means the number of shares of Common Stock equal to the product
of (A) the total number of shares of Common Stock then owned by the public
stockholders and (B) a fraction, the numerator of which shall be the total
number of shares proposed to be sold by the Retiring Chairman, and the
denominator of which shall be the total number of shares of Common Stock then
beneficially owned by the Retiring Chairman (on a fully diluted basis);
provided, however, that this Section 7(d)(i) shall not prohibit any
Sales of shares of the capital stock of the Company owned by the Retiring
Chairman made pursuant to the terms of existing financing arrangements or
substitute financing arrangements approved by the Board, such approval not to
be unreasonably withheld (it being understood that the Board would routinely
approve a substitution of a standard margin account at a given major
broker-dealer for that at another major broker-dealer).
(ii) The restrictions on Sales provided by Section 7(d)(i) shall
terminate in the event that the average closing sales price of shares of Common
Stock on the NYSE during any 30 consecutive trading day period equals or
exceeds:
(x) $9 per share prior to May 15, 1997;
(y) $11 per share prior to May 15, 1998; or
(z) $13 per share prior to the termination of the Standstill
Period.
(e) Incidental Registration Rights. If the Company at any time proposes
to register any securities under the Securities Act of 1933, as amended (other
than a registration on Form S-4 or S-8, or any successor or similar forms), it
will at such time promptly give notice to the Retiring Chairman of its
intention to do so (the "Registration Notice"). The Company will use its
reasonable best efforts to include in the proposed registration statement, at
the Retiring Chairman's expense (insofar as such inclusion results in any
incremental expenses), all shares of Common Stock held by the Retiring Chairman
that the Company is requested in writing, within 15 calendar days after the
Registration Notice is given, to register by the Retiring Chairman; provided,
however, that the incidential registration rights of this Section 7(e) shall
only be applicable, if (x) such inclusion is not restricted by any agreement,
covenant or undertaking to which the Company is then subject and (y) any sales
of shares by the Retiring Chairman pursuant to such registration are effected
in compliance with the restrictions of Section 7(d) above; provided further,
that, if the managing underwriter for a registration pursuant to this Section
7(e) shall advise the Company that, in its judgment, the number of securities
requested to be included in such registration exceeds the number of shares of
Common Stock (the "Permitted Sale Number") that can be sold in an orderly
manner in such offering within a price range acceptable to the Company, or that
inclusion of any of the Retiring Chairman's shares of Common Stock would
otherwise be detrimental to the effectuation of the Company's offering on a
basis satisfactory to the Company, the Company shall include in such offering
(i) first, all the securities the Company proposes to register for its own
account and (ii) second, to the extent that the shares of Common Stock to be
included by the Company are less than the Permitted Sale Number, or to the
extent that such shares of the Retiring Chairman can be included without having
such detrimental effect, all shares of Common Stock requested to be included by
the Retiring Chairman. The Retiring Chairman agrees to take such actions or
refrain from taking such actions as may be reasonably requested by the Company
to effect the registered offerings described in this Section 7(e).
8. Confidentiality. The Retiring Chairman hereby covenants and agrees that
he will not at any time, except with the prior written consent of the Company
pursuant to authority granted by a resolution of the Board, directly or
indirectly, disclose any secret or confidential information that he learned by
reason of his association with the Company or any if its subsidiaries and
affiliates. The term "confidential information" includes, without limitation,
information not previously disclosed to the public or to the trade by the
Company's management with respect to the Company's or any of its affiliates or
subsidiaries' products, facilities and methods, trade secrets and other
intellectual property, systems, procedures, manuals, confidential reports,
product price lists, customer lists, financial information (including the
revenues, costs or profits associated with any of the Company's products),
business plans, prospects or opportunities, but shall exclude any information
already in the public domain.
9. Noncompetition and Nonsolicitation. In consideration for the payments
provided under Section 4 of this Agreement, the Retiring Chairman agrees that
during the Term, neither he nor any affiliate shall, either on his own behalf
or as a partner, officer, director, employee, agent or shareholder, engage in,
invest in (except as a holder of less than 5% of the outstanding capital of any
corporation with a class of equity security registered under the Securities Act
of 1934, as amended) or render services to any person or entity engaged in the
primary businesses in which the Company is then engaged and situated or
operating within the United States of America ("Competitive Business"). The
Retiring Chairman agrees that, during the Term, neither he nor any affiliate
shall, either alone or on behalf of any business engaged in a Competitive
Business, solicit or induce, or in any manner attempt to solicit or induce, any
person employed by, or an agent of, the Company to terminate his or her
contract or employment or agency, as the case may be, with the Company.
10. Injunctive Relief. Without intending to limit the remedies available to
the Company, the Retiring Chairman acknowledges that a breach of any of the
covenants contained in Section 9 may result in material and irreparable injury
to the Company for which there is no adequate remedy at law, that it will not
be possible to measure damages for such injuries precisely and that, in the
event of such a breach or threat thereof, the Company shall be entitled to
obtain a temporary restraining order and/or a preliminary or permanent
injunction restraining the Retiring Chairman from engaging in activities
prohibited by Section 9 or such other relief as may be required specifically to
enforce any of the covenants in Section 9. If for any reason a final decision
of any court determines that the restrictions under Section 9 are not
reasonable or that consideration therefor is inadequate, such restrictions
shall be interpreted, modified or rewritten by such court to include as much of
the duration and scope identified in Section 9 as will render such restriction
valid and enforceable.
11. Preservation of Indemnification and Other Rights; General Release. In
consideration of the payments and covenants herein, and except with respect to
(i) the Company's obligation to pay the Retiring Chairman his earned and unpaid
base compensation through the Effective Date, (ii) any benefits to which the
Retiring Chairman is entitled under any ERISA plan accrued as of the date
hereof, (iii) the Company's obligations under this Agreement, and (iv) the
Company's pre-existing obligation to indemnify the Retiring Chairman in
accordance with the Company's Certificate of Incorporation and By Laws as in
effect on August 25, 1995, the Retiring Chairman hereby releases and forever
discharges the Company, its subsidiaries and affiliates, including both current
and future, and each of their respective officers, employees, directors and
agents from any and all claims, actions and causes of action that he may have,
or in the future may possess, arising out of his relationship with the Company
or any of its subsidiaries or affiliates, his service as an officer, director
or employee of the Company or any of its subsidiaries or affiliates and the
termination of such relationship or service, including, without limitation, any
claims arising under any applicable federal, state, local or foreign law. The
Retiring Chairman further agrees that the payments and benefits described in
this Agreement will be in full satisfaction of any and all claims for payment
or benefits that he may have against the Company, its subsidiaries or
affiliates arising out of his employment relationship, his service as an
officer, director or employee of the Company or any of its subsidiaries or
affiliates and the termination thereof.
12. Notices. All notices and communications hereunder shall be in writing,
addressed as follows:
To the Company:
Terex Corporation
500 Post Road East, Suite 320
Westport, CT 06880
Attention: Marvin B. Rosenberg
To the Retiring Chairman:
Mr. Randolph W. Lenz
30 Compass Point
Fort Lauderdale, FL 33308
Any such notice or communication shall be delivered in person, by cable, by
telecopy (with confirmation copy of such telecopied material delivered in
person or by registered or certified mail, return receipt requested) or by
certified or registered mail, return receipt requested, addressed as above (or
to such other address as such party may designate in writing from time to
time), and the actual date of receipt, as shown by the receipt therefor, shall
determine the time at which notice was given.
13. Assignment. Except as expressly permitted in this Section 13, the
Retiring Chairman shall not assign this Agreement or his interest herein nor
delegate any obligation hereunder without the prior written consent of the
Company. The Retiring Chairman may assign, in his absolute discretion and
without the prior written consent of the Company, his right to receive all or
any portion of the compensation set forth in Sections 4(a) and 4(e) hereof to a
corporation, partnership, limited liability company or other entity in which
the Retiring Chairman owns, directly or indirectly, a majority of the voting
securities or partnership interests of such entity. In addition, the Retiring
Chairman may delegate in his absolute discretion and without the prior approval
of the Company, his duties under this Agreement to a corporation, partnership,
limited liability company or other entity designated by him (a, "Pre-approved
Delegatee") provided that during the period in which the services are to be
rendered to the Company (i) the Retiring Chairman provides the consulting
services required under this Agreement on behalf of the Pre-approved Delegatee,
(ii) the Retiring Chairman is an officer, director, general partner or manager
of the Pre-approved Delegatee providing such services to the Company, (iii) the
Retiring Chairman owns, directly or indirectly, a majority of the voting
securities or partnership interests of the Pre-approved Delegatee and (iv) the
Pre-approved Delegatee, and all of its directors, officers or other affiliates,
shall act exclusively in the interest of the Company and shall be bound by this
Agreement, including, but not limited to, Section 8 hereof. The Retiring
Chairman's delegation of all or any part of his duties hereunder shall not
relieve him of liability to the Company for the performance of the duties and
responsibilities required under this Agreement.
14. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware.
15. Amendment. This Agreement may be changed only by an agreement in writing
signed by the parties hereto,and, in the case of the Company, upon approval of
the Board.
16. Headings. The section headings in this Agreement are for purposes of
reference only and shall not limit or otherwise affect any of the terms hereof.
17. Severability. If a court of competent jurisdiction determines that any
term or provision hereof is invalid and unenforceable, (a) the remaining terms
and provisions hereof shall be unimpaired and (b) such court shall have the
authority to replace such invalid or unenforceable term or provision with a
term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision.
18. Entire Agreement. This Agreement represents the entire agreement of the
parties and shall supersede any and all previous contracts, arrangements or
understandings between the Company and the Retiring Chairman.
19. Counterparts. This Agreement may be executed by either of the parties
hereto in counterparts, each of which shall be deemed to be an original, but
all such counterparts shall together constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first written above.
TEREX CORPORATION
/s/ Ronald M. DeFeo
Name: Ronald M. DeFeo
Title: President, CEO, COO
Accepted and Agreed:
/s/ Randolph W. Lenz
Randolph W. Lenz
- - ------------------------------------------------------------------------------
EXHIBIT A
PROMISSORY NOTE
$1,800,000.00 _________ __, 1995
FOR VALUE RECEIVED, the undersigned, Randolph W. Lenz (the "Retiring
Chairman"), hereby promises to pay to the order of Terex Corporation, a
Delaware corporation (the "Company"), one million eight hundred thousand
dollars ($1,800,000.00) on the fifth anniversary of the date of this Note,
together with interest on the principal amount remaining unpaid hereunder from
the date hereof until such principal amount is paid in full, payable in arrears
on each anniversary of the date of this Note during the term hereof, and on the
final day when such principal amount becomes due, at an interest rate per annum
of 6.56%.
Subject in each case to the Retiring Chairman's continued compliance with the
terms of, and his obligations under, the agreement (the "Agreement") dated
_______ __, 1995 between the Retiring Chairman the Company, the Company shall
forgive and shall deem the Retiring Chairman to have paid the following
amounts: (i) the principal sum of four hundred eighty thousand dollars
($480,000) plus accrued interest at the rate of 6.56% on the principal amount
remaining unpaid immediately prior to such forgiveness on the first anniversary
of the date of this Note; (ii) the principal sum of four hundred eighty
thousand dollars ($480,000) plus accrued interest at the rate of 6.56% on the
principal amount remaining unpaid immediately prior to such forgiveness on the
second anniversary of the date of this Note; (iii) the principal sum of four
hundred eighty thousand dollars ($480,000) plus accrued interest at the rate of
6.56% on the principal amount remaining unpaid immediately prior to such
forgiveness on the third anniversary of the date of this Note; (iv) the
principal sum of two hundred forty thousand dollars ($240,000) plus accrued
interest at the rate of 6.56% on the principal amount remaining unpaid
immediately prior to such forgiveness on the fourth anniversary of the date of
this Note; and (v) the principal sum of one hundred twenty thousand dollars
($120,000) plus accrued interest at the rate of 6.56% on the principal amount
remaining unpaid immediately prior to such forgiveness on the fifth anniversary
of the date of this Note.
If the date set for payment or forgiveness of principal and interest hereunder
is a Saturday, Sunday or legal holiday, then such payment or forgiveness shall
be made on the next succeeding business day.
This Note is given as consideration for the loan by the Company of
$1,800,000.00 pursuant to the provisions of the Agreement and is subject to the
conditions of the Agreement.
This Note is subject to the following further terms and conditions:
Section 1. Mandatory Prepayment Upon Breach of Agreement. Notwithstanding
anything to the contrary contained herein, all outstanding principal and
accrued but unpaid interest on this Note shall become due and payable on the
sixtieth day after the breach by the Retiring Chairman in any material respect
of any of the provisions of the Agreement.
Section 2. Effect of Death or Disability. Notwithstanding anything to the
contrary contained herein, upon the Retiring Chairman's death or Disability (as
defined in the Agreement), subject to the continued compliance with the
provisions of Section 7 of the Agreement by the Retiring Chairman or, if
applicable, his estate or beneficiary, as the case may be, the Company shall
continue to abide by the second paragraph of this Note in accordance with the
terms of such paragraph.
Section 3. Events of Default. Upon the occurrence of any of the following
events ("Events of Default"):
(a) Failure to pay any principal of this Note when due that shall remain
unremedied for ten days following the receipt by the Retiring Chairman of
written notice from the Company;
(b) Failure to pay any interest installment due under this Note that
shall remain unremedied for ten days following the receipt by the Retiring
Chairman of written notice from the Company stating the date when such
installment was originally due hereunder; or
(c) Failure of the Retiring Chairman to perform his obligations under the
Agreement;
then, and in any such event, the holder of this Note may declare, by notice of
default given to the Retiring Chairman, the entire principal amount of this
Note to be forthwith due and payable, whereupon the entire principal amount of
this Note outstanding and any accrued and unpaid interest hereunder shall
become due and payable without presentment, demand, protest, notice of dishonor
and all other demands and notices of any kind, all of which are hereby
expressly waived. Upon the occurrence of an Event of Default, the accrued and
unpaid interest hereunder shall thereafter bear the same rate of interest as on
the principal hereunder, but in no event shall interest be charged that would
violate any applicable usury law. If an Event of Default shall occur
hereunder, the Retiring Chairman shall pay costs of collection, including
reasonable attorneys' fees, incurred by the holder in the enforcement hereof.
No delay or failure by the holder of this Note in the exercise of any right or
remedy shall constitute a waiver thereof, and no single or partial exercise by
the holder hereof of any right or remedy shall preclude other or future
exercise thereof or the exercise of any other right or remedy.
Section 4. Miscellaneous.
(a) The provisions of this Note shall be governed by and construed in
accordance with the laws of the State of Delaware.
(b) The headings contained in this Note are for reference purposes only
and shall not affect in any way the meaning or interpretation of the provisions
hereof.
(c) All notices and other communications hereunder shall be in writing
and will be deemed to have been duly given if delivered or mailed in accordance
with the Agreement.
IN WITNESS WHEREOF, this Note has been duly executed and delivered by the
Retiring Chairman on the date first above written.
Witness:
TEREX CORPORATION Randolph W. Lenz
- - -----------------------------------------------------------------------------
EXHIBIT B
Invested Capital
Invested Capital with respect to Clark Material Handling Company ("CMHC") and
Terex Cranes Division ("TC") means 20% of the average Cash Investment by the
Company in each of CMHC and TC, respectively, determined on a quarterly basis.
Cash Investment is calculated, at the end of each quarter, pursuant to the
following formula:
Cash Investment = Purchase Price
+ Intercompany Account
+ quarterly Interest Allocation
---------------------------
Cash Investment
===========================
Interest Allocation for each quarter equals the prior Cash Investment
multiplied by the Company's average interest cost for the preceding quarter.
Intercompany Account means all cash flows between CMHC or TC, respectively, and
the Company, including intercompany charges for an allocation of corporate
costs, except for the initial purchase price. Intercompany Accounts reflect
Terex Corporate's MicroControl financial reporting system.
All of the above without duplication.
Example:
(The following numbers are used for illustration purposes only and do not
represent acutal numbers)
Assumptions: Average cash invested over term of ownership = $100,000,000
Term of ownership = 3.5 years through third quarter 1995
Average invested capital = 20% of $100,000,000 = $20,000,000
Minimum return on invested capital = 20%
Minimum cumulative return
on invested capital = $20,000,000 x .2 x 3.5 = $14,000,000
Ending cash invested = $126,000,000
Minimum proceeds from disposition equals:
Ending Cash Invested $126,000,000
Plus: Minimum Return on Invested Capital 14,000,000
------------
Minimum Proceeds $140,000,000
============
- - -----------------------------------------------------------------------------
EXHIBIT C
Randolph W. Lenz
TEREX CORPORATION TRANSACTIONS
Since August 25, 1995
October 17, 1995 Chase Manhattan sold 165,000 shares of Terex Corporation
Common Stock from the account of Randolph W. Lenz.
- - ------------------------------------------------------------------------------
PROMISSORY NOTE
$1,800,000.00 November 2, 1995
FOR VALUE RECEIVED, the undersigned, Randolph W. Lenz (the "Retiring
Chairman"), hereby promises to pay to the order of Terex Corporation, a
Delaware corporation (the "Company"), one million eight hundred thousand
dollars ($1,800,000.00) on the fifth anniversary of the date of this Note,
together with interest on the principal amount remaining unpaid hereunder from
the date hereof until such principal amount is paid in full, payable in arrears
on each anniversary of the date of this Note during the term hereof, and on the
final day when such principal amount becomes due, at an interest rate per annum
of 6.56%.
Subject in each case to the Retiring Chairman's continued compliance with the
terms of, and his obligations under, the agreement (the "Agreement") dated
November 2, 1995 between the Retiring Chairman the Company, the Company shall
forgive and shall deem the Retiring Chairman to have paid the following
amounts: (i) the principal sum of four hundred eighty thousand dollars
($480,000) plus accrued interest at the rate of 6.56% on the principal amount
remaining unpaid immediately prior to such forgiveness on the first anniversary
of the date of this Note; (ii) the principal sum of four hundred eighty
thousand dollars ($480,000) plus accrued interest at the rate of 6.56% on the
principal amount remaining unpaid immediately prior to such forgiveness on the
second anniversary of the date of this Note; (iii) the principal sum of four
hundred eighty thousand dollars ($480,000) plus accrued interest at the rate of
6.56% on the principal amount remaining unpaid immediately prior to such
forgiveness on the third anniversary of the date of this Note; (iv) the
principal sum of two hundred forty thousand dollars ($240,000) plus accrued
interest at the rate of 6.56% on the principal amount remaining unpaid
immediately prior to such forgiveness on the fourth anniversary of the date of
this Note; and (v) the principal sum of one hundred twenty thousand dollars
($120,000) plus accrued interest at the rate of 6.56% on the principal amount
remaining unpaid immediately prior to such forgiveness on the fifth anniversary
of the date of this Note.
If the date set for payment or forgiveness of principal and interest hereunder
is a Saturday, Sunday or legal holiday, then such payment or forgiveness shall
be made on the next succeeding business day.
This Note is given as consideration for the loan by the Company of
$1,800,000.00 pursuant to the provisions of the Agreement and is subject to the
conditions of the Agreement.
This Note is subject to the following further terms and conditions:
Section 1. Mandatory Prepayment Upon Breach of Agreement.
Notwithstanding anything to the contrary contained herein, all outstanding
principal and accrued but unpaid interest on this Note shall become due and
payable on the sixtieth day after the breach by the Retiring Chairman in any
material respect of any of the provisions of the Agreement.
Section 2. Effect of Death or Disability. Notwithstanding anything to
the contrary contained herein, upon the Retiring Chairman's death or Disability
(as defined in the Agreement), subject to the continued compliance with the
provisions of Section 7 of the Agreement by the Retiring Chairman or, if
applicable, his estate or beneficiary, as the case may be, the Company shall
continue to abide by the second paragraph of this Note in accordance with the
terms of such paragraph.
Section 3. Events of Default. Upon the occurrence of any of the
following events ("Events of Default"):
(a) Failure to pay any principal of this Note when due that shall
remain unremedied for ten days following the receipt by the Retiring Chairman
of written notice from the Company;
(b) Failure to pay any interest installment due under this Note
that shall remain unremedied for ten days following the receipt by the Retiring
Chairman of written notice from the Company stating the date when such
installment was originally due hereunder; or
(c) Failure of the Retiring Chairman to perform his obligations
under the Agreement;
then, and in any such event, the holder of this Note may declare, by notice of
default given to the Retiring Chairman, the entire principal amount of this
Note to be forthwith due and payable, whereupon the entire principal amount of
this Note outstanding and any accrued and unpaid interest hereunder shall
become due and payable without presentment, demand, protest, notice of dishonor
and all other demands and notices of any kind, all of which are hereby
expressly waived. Upon the occurrence of an Event of Default, the accrued and
unpaid interest hereunder shall thereafter bear the same rate of interest as on
the principal hereunder, but in no event shall interest be charged that would
violate any applicable usury law. If an Event of Default shall occur
hereunder, the Retiring Chairman shall pay costs of collection, including
reasonable attorneys' fees, incurred by the holder in the enforcement hereof.
No delay or failure by the holder of this Note in the exercise of any right or
remedy shall constitute a waiver thereof, and no single or partial exercise by
the holder hereof of any right or remedy shall preclude other or future
exercise thereof or the exercise of any other right or remedy.
Section 4. Miscellaneous.
(a) The provisions of this Note shall be governed by and construed
in accordance with the laws of the State of Delaware.
(b) The headings contained in this Note are for reference purposes
only and shall not affect in any way the meaning or interpretation of the
provisions hereof.
(c) All notices and other communications hereunder shall be in
writing and will be deemed to have been duly given if delivered or mailed in
accordance with the Agreement.
IN WITNESS WHEREOF, this Note has been duly executed and delivered by the
Retiring Chairman on the date first above written.
Witness:
/s/ Ronald M. DeFeo /s/ Randolph W. Lenz
TEREX CORPORATION Randolph W. Lenz
