UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
F O R M 10 - Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
|_| 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: 19.7 million as of October 31,
1997.
The Exhibit Index appears on page 33.
<PAGE>
2
INDEX
TEREX CORPORATION AND SUBSIDIARIES
GENERAL
This Quarterly Report on Form 10-Q filed by Terex Corporation (the "Company")
includes financial information with respect to the following subsidiaries of the
Company, all of which are wholly-owned except PPM Cranes, Inc., which are
guarantors (the "Guarantors") of the Company's $250 million original principal
amount of 13.25% Senior Secured Notes due 2002 (the "Senior Secured Notes"). See
Note J -- Consolidating Financial Statements.
State or other jurisdiction
of incorporation or I.R.S. employer
Guarantor organization identification number
Terex Cranes, Inc. Delaware 06-1423889
PPM Cranes, Inc. Delaware 39-1611683
Koehring Cranes, Inc. Delaware 06-1423888
Terex Aerials, Inc. Wisconsin 39-1028686
Terex-RO Corporation Kansas 44-0565380
Terex Aviation Ground Equipment, Inc. Delaware 48-1082328
Terex-Telelect, Inc. Delaware 41-1603748
Terex West Coast, Inc. South Dakota 93-0824202
Terex Atlantico, Inc. Pennsylvania 23-2166805
Terex Baraga Products, Inc. Michigan 38-2489906
M&M Enterprises of Baraga, Inc. Michigan 38-3185260
Page No.
PART I FINANCIAL INFORMATION
Item 1 Condensed Consolidated Financial Statements
TEREX CORPORATION
Condensed Consolidated Statement of Operations --
Three and nine months ended September 30, 1997 and 1996...........3
Condensed Consolidated Balance Sheet --
September 30, 1997 and December 31, 1996..........................4
Condensed Consolidated Statement of Cash Flows --
Nine months ended September 30, 1997 and 1996.....................5
Notes to Condensed Consolidated Financial Statements --
September 30, 1997................................................6
PPM CRANES, INC.
Condensed Consolidated Statement of Operations --
Three and nine months ended September 30, 1997 and 1996..........18
Condensed Consolidated Balance Sheet --
September 30, 1997 and December 31, 1996.........................19
Condensed Consolidated Statement of Cash Flows --
Nine months ended September 30, 1997 and 1996....................20
Notes to Condensed Consolidated Financial Statements --
September 30, 1997...............................................21
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations..............................................23
PART II OTHER INFORMATION
Item 1 Legal Proceedings......................................31
Item 5 Other Information......................................31
Item 6 Exhibits and Reports on Form 8-K.......................31
SIGNATURES ..................................................................32
<PAGE>
3
PART 1. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in millions, except per share data)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
--------------------------- ---------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales..............................................................$ 214.1 $ 165.7 $ 622.6 $ 521.7
Cost of goods sold..................................................... 177.1 142.0 519.8 447.6
------------- ------------- ------------- -------------
Gross profit...................................................... 37.0 23.7 102.8 74.1
Engineering, selling and administrative expenses....................... 17.8 14.8 51.1 47.3
------------- ------------- ------------- -------------
Income from operations............................................ 19.2 8.9 51.7 26.8
Other income (expense):
Interest income................................................... 0.1 0.5 0.8 0.6
Interest expense.................................................. (9.6) (11.8) (30.3) (34.6)
Other income (expense) - net...................................... (1.0) (1.0) (1.5) (0.6)
------------- ------------- ------------- -------------
Income (loss) from continuing operations before income taxes and
extraordinary items............................................... 8.7 (3.4) 20.7 (7.8)
Provision for income taxes............................................. --- --- (0.4) ---
------------- ------------- ------------- -------------
Income (loss) from continuing operations before extraordinary items.... 8.7 (3.4) 20.3 (7.8)
Income from discontinued operations.................................... --- 4.8 --- 14.2
------------- ------------- ------------- -------------
Income before extraordinary items...................................... 8.7 1.4 20.3 6.4
Extraordinary loss on retirement of debt............................... (12.2) --- (14.8) ---
------------- ------------- ------------- -------------
Net income (loss)...................................................... (3.5) 1.4 5.5 6.4
Less preferred stock accretion......................................... (0.4) (2.3) (1.2) (6.0)
------------- ------------- ------------- -------------
Income (loss) applicable to common stock...............................$ (3.9) $ (0.9) $ 4.3 $ 0.4
============= ============= ============= =============
PER COMMON AND COMMON EQUIVALENT SHARE:
Income (loss) from continuing operations..........................$ 0.43 $ (0.40) $ 1.16 $ (1.06)
Income from discontinued operations............................... --- 0.34 --- 1.09
------------- ------------- ------------- -------------
Income (loss) before extraordinary items........................ 0.43 (0.06) 1.16 0.03
Extraordinary loss on retirement of debt.......................... (0.63) --- (0.90) ---
------------- ------------- ------------- -------------
Net income (loss)...............................................$ (0.20) $ (0.06) $ 0.26 $ 0.03
============= ============= ============= =============
Weighted average common shares outstanding including dilutive
securities (See Exhibit 11.1)..................................... 19.4 14.2 16.4 13.0
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
4
TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(in millions)
September 30, December 31,
1997 1996
----------------- -----------------
ASSETS
Current assets
<S> <C> <C>
Cash and cash equivalents..........................................................$ 6.7 $ 72.0
Trade receivables (less allowance of $4.6 at September 30, 1997
and $7.0 at December 31, 1996)................................................... 155.9 110.3
Net inventories.................................................................... 226.9 190.6
Other current assets............................................................... 17.2 17.3
----------------- -----------------
Total current assets........................................................... 406.7 390.2
Long-term assets
Property, plant and equipment - net................................................ 50.7 31.7
Goodwill - net..................................................................... 86.2 32.4
Debt issuance costs - net.......................................................... 8.7 12.7
Other assets....................................................................... 18.3 4.2
----------------- -----------------
Total assets $ 570.6 $ 471.2
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Notes payable and current portion of long-term debt................................$ 28.1 $ 19.2
Trade accounts payable............................................................. 123.2 104.4
Accrued compensation and benefits.................................................. 15.7 15.8
Accrued warranties and product liability........................................... 26.5 19.4
Other current liabilities.......................................................... 41.0 36.2
----------------- -----------------
Total current liabilities...................................................... 234.5 195.0
Non current liabilities
Long-term debt, less current portion............................................... 265.0 262.1
Other.............................................................................. 25.9 29.6
Minority interest, including redeemable preferred stock of a subsidiary................. 11.0 10.0
Redeemable convertible preferred stock.................................................. 1.0 46.2
Commitments and contingencies
Stockholders' equity (deficit)
Warrants to purchase common stock.................................................. 0.8 3.2
Equity rights...................................................................... 3.2 ---
Common stock, $.01 par value - authorized 30.0 shares;
issued and outstanding 19.7 at September 30, 1997 and 13.2 at December
31, 1996..
0.2 0.1
Additional paid-in capital......................................................... 164.1 55.8
Accumulated deficit................................................................ (121.8) (126.1)
Pension liability adjustment....................................................... (2.0) (2.0)
Cumulative translation adjustment.................................................. (11.3) (2.7)
----------------- -----------------
Total stockholders' equity (deficit)........................................... 33.2 (71.7)
----------------- -----------------
Total liabilities and stockholders' equity (deficit)....................................$ 570.6 $ 471.2
================= =================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
5
TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
For the Nine Months
Ended September 30,
---------------------------
1997 1996
------------- -------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income......................................................................$ 5.5 $ 6.4
Adjustments to reconcile net income to cash used in operating activities:
Depreciation............................................................... 5.8 5.8
Amortization............................................................... 4.6 5.8
Other...................................................................... 5.0 (2.0)
Changes in operating assets and liabilities:
Trade receivables........................................................ (21.9) (32.5)
Net inventories.......................................................... (6.3) 1.3
Net assets of discontinued operations.................................... --- (5.6)
Trade accounts payable................................................... (8.4) 2.1
Accrued compensation and benefits........................................ (3.3) 8.1
Other, net............................................................... (0.8) 3.8
------------- -------------
Net cash used in operating activities................................. (19.8) (6.8)
------------- -------------
INVESTING ACTIVITIES
Acquisition of businesses, net of cash acquired................................. (97.2) ---
Capital expenditures............................................................ (9.1) (2.2)
Proceeds from sale of excess assets............................................. 6.7 4.5
------------- -------------
Net cash provided by (used in) investing activities................... (99.6) 2.3
------------- -------------
FINANCING ACTIVITIES
Issuance of common stock........................................................ 104.6 ---
Redemption of preferred stock................................................... (45.4) ---
Principal repayments of long-term debt.......................................... (83.9) (1.0)
Net incremental borrowings under revolving line of credit agreements............ 87.0 4.8
Other........................................................................... (1.5) 1.6
------------- -------------
Net cash provided by financing activities............................. 60.8 5.4
------------- -------------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS.......................................................
(6.7) 1.1
------------- -------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................................................................ (65.3) 2.0
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD................................... 72.0 7.0
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.........................................$ 6.7 $ 9.0
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
6
TEREX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
(in millions, unless otherwise denoted)
NOTE A -- BASIS OF PRESENTATION
Basis of Presentation. The accompanying unaudited condensed consolidated
financial statements of Terex Corporation and subsidiaries as of September 30,
1997 and for the three months and nine months ended September 30, 1997 and 1996
have been prepared in accordance with generally accepted accounting principles
for interim financial information and the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles to be
included in full year financial statements. The accompanying condensed
consolidated balance sheet as of December 31, 1996, has been derived from the
audited consolidated balance sheet as of that date.
As set forth in Note B below, the Company sold its worldwide Material Handling
business ("CMHC") on November 27, 1996. CMHC is accounted for as a discontinued
operation.
The condensed consolidated financial statements include the accounts of Terex
Corporation and its majority owned subsidiaries ("Terex" or the "Company"). All
material intercompany balances, transactions and profits have been eliminated.
In the opinion of management, all adjustments considered necessary for a fair
presentation have been made. Such adjustments consist only of those of a normal
recurring nature. Operating results for the three months and nine months ended
September 30, 1997 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1997. 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, 1996.
NOTE B -- DISCONTINUED OPERATIONS
The Company sold CMHC on November 27, 1996. The accompanying condensed
consolidated statement of operations for the three months and nine months ended
September 30, 1996 includes the results of CMHC in "Income (Loss) from
Discontinued Operations." Generally accepted accounting principles permit, but
do not require, the allocation of interest expense between continuing and
discontinued operations. Because the methods allowed under generally accepted
accounting principles for calculating interest expense to be allocated to
discontinued operations are not necessarily indicative of the use of proceeds
from the sale of CMHC by the Company, and the effect on interest expense of the
continuing operations of the Company, the Company has elected not to allocate
interest expense to discontinued operations. The results of this election are
that loss from continuing operations includes substantially all of the interest
expense of the Company, and income from discontinued operations does not include
any material interest expense. Summary operating results of discontinued
operations are as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
1996 1996
----------------- -----------------
<S> <C> <C>
Net sales............................................$ 110.7 $ 334.9
Income before income taxes........................... 4.8 14.2
Provision for income taxes........................... --- ---
Income from discontinued operations.................. 4.8 14.2
</TABLE>
<PAGE>
7
NOTE C -- ACQUISITIONS
On April 7, 1997, the Company completed the purchase of the industrial
businesses of Simon Access division ("Simon Access") of Simon Engineering plc
for $90 in cash, subject to adjustment.
Simon Access consists principally of several business units in the United States
and Europe which are engaged in the manufacture and sale of access equipment
designed to position people and materials to work at heights. Simon Access
products include truck mounted aerial devices, aerial work platforms and truck
mounted cranes (boom trucks) which are sold to utility companies as well as to
customers in the industrial and construction markets. Specifically, the Company
acquired 100% of the outstanding common stock of (i) Simon-Telelect Inc. (now
named Terex-Telelect, Inc.), a Delaware corporation, (ii) Simon Aerials, Inc.
(now named Terex Aerials, Inc.), a Wisconsin corporation, (iii) Sim-Tech
Management Limited, a private limited company incorporated under the laws of
Hong Kong, (iv) Simon-Cella, S.r.l., a company incorporated under the laws of
Italy, and (v) Simon Aerials Limited, a company incorporated under the laws of
Ireland; and 60% of the outstanding common stock of Simon-Tomen Engineering
Company Limited, a limited liability stock company organized under the laws of
Japan. Not included in the businesses acquired were Simon Access' fire fighting
equipment business. The Company obtained the funds necessary to complete the
transaction from its cash on hand and borrowings under a new revolving credit
facility (see description below).
Also on April 7, 1997, the Company and certain of its domestic subsidiaries
(collectively, the "Borrowers") entered a Revolving Credit Agreement with a
financial institution, as agent (the "Agent"), pursuant to which the Agent and
other financial institutions party thereto have provided the Borrowers with a
line of credit of up to $125 secured by accounts receivable and inventory (the
"New Credit Facility"). The New Credit Facility replaced the Company's $100
revolving credit facility (the "Old Credit Facility"). The Company paid a fee of
$2.0 upon termination of the Old Credit Facility. Additionally, $0.6 of
unamortized debt acquisition costs related to the Old Credit Facility were
written off at the termination of the Old Credit Facility. These expenses are
reflected as extraordinary items in the second quarter of 1997.
Loans made under the New Credit Facility (a) bear interest, based on the
Company's fixed charge coverage ratio, at a rate between 0.5% and 1.5% per annum
in excess of the prime rate or at a rate between 2.0% and 3.0% per annum in
excess of the eurodollar rate, at the election of the Company, (b) mature on
April 7, 2000, (c) were used by the Borrowers to repay the Old Credit Facility,
and (d) are to be used for working capital and other general corporate purposes,
including acquisitions.
On April 14, 1997 the Company completed the purchase of Baraga Products, Inc.
and M&M Enterprises of Baraga, Inc. (collectively, "Baraga", or the "Square
Shooter Business"). Baraga manufactures rough terrain telescopic boom forklifts.
The Simon Access and Baraga (the "Acquired Businesses") acquisitions are being
accounted for using the purchase method, with the purchase price allocated to
the assets acquired and the 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 $51.5) is being amortized on a
straight-line basis over 40 years.
The estimated fair values of assets and liabilities acquired in the Simon Access
and Baraga acquisitions are summarized as follows:
Accounts receivable..................................$ 23.1
Inventories.......................................... 38.8
Other current assets................................. 0.9
Property, plant and equipment........................ 21.1
Goodwill............................................. 51.5
Other assets......................................... 11.8
Accounts payable and other current liabilities....... (42.1)
Long-term debt....................................... (4.9)
Other non-current liabilities........................ (1.5)
===============
$ 98.7
===============
The Company is in the process of completing evaluations and estimates for
purposes of determining certain values. The Company has also estimated costs
related to plans to integrate the activities of the Acquired Businesses into the
Company, including plans to exit certain activities and consolidate and
restructure certain functions. The Company may revise the estimates as
additional information is obtained.
The operating results of the Acquired Businesses are included in the Company's
consolidated results of operations since April 7, 1997 and April 14, 1997,
respectively. The following pro forma summary presents the consolidated results
<PAGE>
8
of operations as though the Company completed the acquisition of the Acquired
Businesses on January 1, 1996, after giving effect to certain adjustments,
including amortization of goodwill, interest expense and amortization of debt
issuance costs on the New Credit Facility:
<TABLE>
<CAPTION>
Pro Forma for the
---------------------------------------------
Nine Months Ended Year Ended
September 30, 1997 December 31, 1996
---------------------- ----------------------
<S> <C> <C>
Net sales.....................................................$ 459.5 $ 887.1
Income from operations........................................ 32.8 20.2
Income (loss) before discontinued operations and
extraordinary items........................................ 10.5 (45.3)
Income (loss) before discontinued operations and
extraordinary items, per share.............................$ 0.65 $ (5.13)
</TABLE>
The pro forma information is not necessarily indicative of what the actual
results of operations of the Company would have been for the periods indicated,
nor does it purport to represent the results of operations for future periods.
NOTE D -- INVENTORIES
Net inventories consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
----------------- ----------------
<S> <C> <C>
Finished equipment............................................$ 61.1 $ 46.5
Replacement parts............................................. 76.1 68.0
Work-in-process............................................... 19.4 19.8
Raw materials and supplies.................................... 70.4 56.3
----------------- ----------------
Net inventories...............................................$ 226.9 $ 190.6
================= ================
</TABLE>
NOTE E -- PROPERTY, PLANT AND EQUIPMENT
Net property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
----------------- ----------------
<S> <C> <C>
Property, plant and equipment.................................$ 87.9 $ 65.4
Less: Accumulated depreciation............................... (37.2) (33.7)
----------------- ----------------
Net property, plant and equipment.............................$ 50.7 $ 31.7
================= ================
</TABLE>
NOTE F -- LITIGATION AND CONTINGENCIES
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
adverse 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.
<PAGE>
9
The Internal Revenue Service (the "IRS") 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. 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 ("NOLs") and the
availability of such NOLs to offset future taxable income. The Company filed an
administrative appeal to the examination report in April 1995. As a result of a
meeting with the Manhattan division of the IRS in July 1995, in June 1996 the
Company was advised that the matter was being referred back to the Milwaukee
audit division of the IRS. The Milwaukee audit division of the IRS is currently
reviewing information provided by the Company over the past 18 months. The
ultimate outcome of this matter is subject to the resolution of significant
legal and factual issues. Given the stage of the audit, and the number and
complexity of the legal and administrative proceedings involved in reaching a
resolution of this matter, it is unlikely that the ultimate outcome, if
unfavorable to the Company, will be determined for at least several years. If
the IRS were to prevail on all the issues raised, the amount of the tax
assessment would be approximately $56.0 plus penalties of approximately $12.8
and interest through September 30, 1997 of approximately $90.0. The penalties
asserted by the IRS are calculated as 20% of the amount of the tax assessed for
fiscal year 1987 and 25% of the tax assessed for each of fiscal years 1988 and
1989. Interest on the amount of tax assessed and penalties is currently accruing
at a rate of 11% per annum. The applicable annual rate of interest has
historically varied from 7% to 12%.
If the Company were required to pay a significant portion of the assessment with
related interest and penalties, such payment would exceed the Company's
resources. In such event, the viability of the Company would be placed in
jeopardy, and it is uncertain that the Company could, through financing or
otherwise, obtain the funds required to pay such assessment, interest, and
applicable penalties. Management believes, however, 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 NOLs. Based upon consultation with
its tax advisors, management believes that the Company's position will prevail
on the most significant issues. Accordingly, management believes that the
outcome of the examination will not have a material adverse effect on its
financial condition or results of operations, but may result in some reduction
in the amount of the NOLs available to the Company. 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 $56.0 plus interest and penalties, and the
ultimate outcome cannot be determined or estimated at this time. No reserves are
being expensed to cover the potential liability.
Under the terms of the Company's New Credit Facility, an event of default will
occur if the Company incurs any liability for federal income taxes which results
in an expenditure of cash of more than $15.0 in excess of the amounts shown as
owed on tax returns filed by the Company prior to April 7, 1997. If this were to
occur, the maturity of the New Credit Facility may be accelerated and recourse
may be taken against the accounts receivable and inventory securing advances
under the New Credit Facility. In such event, the Company would seek to
refinance the indebtedness outstanding under the New Credit Facility. There can
be no assurance, however, that any refinancing would be obtainable or, if
obtainable, that the terms of such refinancing would be acceptable to the
Company.
NOTE G -- EQUITY RIGHTS
On May 9, 1995, the Company sold one million equity rights securities (the
"Equity Rights") along with $250 of the 13.25% Senior Secured Notes. A portion
of the proceeds ($3.2) of the sale of the Senior Secured Notes and the Equity
Rights was allocated to the Equity Rights. The portion of the proceeds related
to the Equity Rights has been reclassified from other non-current liabilities to
the stockholders' deficit section of the balance sheet, because they can be
satisfied in Common Stock or cash at the option of the Company. The Equity
Rights entitle the holders, upon exercise at any time on or prior to May 15,
2002, to receive cash or, at the election of the Company, Common Stock in an
amount equal to the average closing sale price of the Common Stock for the 60
consecutive trading days prior to the date of exercise (the "Current Price"),
less $7.288 per share, subject to adjustment in certain circumstances. Changes
in the Current Price do not affect the net income or loss reported by the
Company; however, changes in the Current Price vary the amount of cash that the
Company would have to pay or the number of Shares of Common Stock that would
have to be issued in the event holders exercise the Equity Rights. As of
September 30, 1997, the Current Price of the Common Stock was $21.317, which
would have required the Company to either pay $14.0 or issue 676,096 shares of
Common Stock, at the Company's option, in the event that all of the holders had
exercised their Equity Rights.
<PAGE>
10
NOTE H -- LONG-TERM DEBT AND STOCKHOLDERS' EQUITY (DEFICIT)
On July 28, 1997 and August 7, 1997, the Company issued an additional 5,000,000
shares and 700,000 shares, respectively, of its common stock in a public stock
offering. The shares were issued at a price to the public of $19.50 per share.
The net proceeds received by the Company after deduction of underwriting
discounts, commissions and other expenses was $104.6. On September 4, 1997, the
Company used a portion of the proceeds to redeem $83.3 in principal of the
Company's 13.25% Secured Senior Notes due 2002. In accordance with the terms of
the Senior Secured Notes Indenture, the redemption of the Senior Secured Notes
was at a 9.46% redemption premium. The redemption premium plus the pro-rata
share of unamortized debt origination costs totaled $12.2 and have been
reflected as extraordinary items in the third quarter of 1997.
NOTE I -- EARNINGS PER SHARE
Earnings per share is computed by dividing net income for the period by the
weighted average number of common shares outstanding and common stock
equivalents. Weighted average common shares and common stock equivalents used to
compute earnings per share amounts were as follows:
1997 1996
----------------- -----------------
Three months ended September 30,............ 19.4 14.2
Nine months ended September 30,............. 16.4 13.0
Recently Issued Accounting Standard on Earnings per Share. Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share," issued in
February 1997, establishes new standards for computing and presenting earnings
per share ("EPS") effective for December 31, 1997 reporting. At that time, all
previous EPS disclosures will be restated to comply with the new standard. SFAS
No. 128 requires a dual presentation of basic and diluted EPS and a
reconciliation of the numerator and denominator amounts used in the
computations. Basic EPS is new for the Company and is essentially net income
divided by the weighted average common shares outstanding during the period.
Diluted EPS is consistent with the Company's current EPS disclosures which
reflects the potential dilution of the outstanding stock options and other
common stock equivalents.
The basic and diluted EPS using the new standard for the three months and nine
months ended September 30, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------ -------------------------------
1997 1996 1997 1996
--------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Basic EPS...........................$ 0.33 $ 0.19 $ 0.57 $ 0.10
Diluted EPS.........................$ 0.31 $ 0.18 $ 0.55 $ 0.10
</TABLE>
NOTE J -- CONSOLIDATING FINANCIAL STATEMENTS
The Senior Secured Notes are jointly and severally guaranteed by the following
subsidiaries of the Company: Terex Cranes, Inc., PPM Cranes, Inc., Koehring
Cranes, Inc., Terex Aerials, Inc., Terex-RO Corporation, Terex Aviation Ground
Equipment, Inc., Terex-Telelect, Inc., Terex West Coast, Inc., Terex Atlantico,
Inc., Terex Baraga Products, Inc. and M&M Enterprises of Baraga, Inc.
(collectively the "Guarantors"). With the exception of PPM Cranes, Inc., which
is 92.4% owned by Terex, each of the Guarantors is a wholly-owned subsidiary of
the Company.
The following summarized condensed consolidating financial information for the
Company segregates the financial information of Terex Corporation, the
Wholly-owned Guarantors, PPM Cranes, Inc. and the Non-guarantor Subsidiaries.
Terex Corporation consists of parent company operations. Subsidiaries of the
parent company are reported on the equity basis.
Wholly-owned Guarantors combine the operations of Terex Cranes, Inc., Koehring
Cranes, Inc., Terex Aerials, Inc., Terex-RO Corporation, Terex Aviation Ground
Equipment, Inc., Terex-Telelect, Inc., Terex West Coast, Inc., Terex Atlantico,
Inc., Terex Baraga Products, Inc. and M&M Enterprises of Baraga, Inc.
(collectively, "Wholly-owned Guarantors"). Non-guarantor subsidiaries of
Wholly-owned Guarantors are reported on the equity basis. PPM Cranes, Inc.
presents the operations of PPM Cranes, Inc. and its subsidiaries (PPM of
Australia Pty Ltd and PPM Far East Private Ltd) reported on an equity basis.
<PAGE>
11
Non-Guarantor Subsidiaries combine the operations of subsidiaries which have not
provided a guarantee of the obligations of Terex Corporation under the Senior
Secured Notes. These subsidiaries include Terex Equipment Limited, Unit Rig
Australia (Pty) Ltd., Unit Rig South Africa (Pty) Ltd., Unit Rig (Canada) Ltd.,
P.P.M. S.A., P.P.M. S.p.A., Brimont Agraire, PPM Deutschland GmbH, PPM Pty Ltd.,
and PPM Far East Ltd. Terex Aerials Limited, Simon-Cella, S.r.l., Sim-Tech
Management Limited and Simon-Tomen Engineering Company Limited are included in
the results of the Non-Guarantor Subsidiaries since April 7, 1997.
Debt and Goodwill allocated to subsidiaries are presented on an accounting
"push-down" basis.
<PAGE>
12
TEREX CORPORATION
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1997
(in millions)
<TABLE>
<CAPTION>
Wholly- Non-
Terex owned PPM guarantor Intercompany
Corporation Guarantors Cranes, Inc. Subsidiaries Eliminations Consolidated
------------- ------------- ------------- ------------- ------------- -------------
<S> <C>
Net sales............................... $ $ $ $ $ $ 214.1
Cost of goods sold................... 177.1
------------- ------------- ------------- ------------- ------------- -------------
Gross profit............................ 37.0
Engineering, selling & administrative
expenses........................... --- 17.8
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) from operations........... 19.2
Interest income....................... --- --- --- --- 0.1
Interest expense...................... --- (9.6)
Income (loss) from equity investees... --- ---
Other income (expense) - net.......... --- (1.0)
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) from continuing operations
before income taxes and extraordinary
items................................. 8.7
Provision for income taxes............ --- --- --- --- --- ---
------------- ------------- ------------- ------------- ------------- -------------
Income from continuing operations before
extraordinary items.................. 8.7
Extraordinary loss on retirement of debt (12.2) --- --- --- --- (12.2)
------------- ------------- ------------- ------------- ------------- -------------
Net income (loss)....................... (21.1) (3.5)
Less preferred stock accretion........ (0.1) (0.3) --- --- --- (0.4)
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) applicable to common stock $ $ $ $ $ $ (3.9)
============= ============= ============= ============= ============= =============
</TABLE>
TEREX CORPORATION
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996
(in millions)
<TABLE>
<CAPTION>
Wholly- Non-
Terex owned PPM guarantor Intercompany
Corporation Guarantors Cranes, Inc. Subsidiaries Eliminations Consolidated
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net sales............................... $ 48.2 $ 29.4 $ 19.4 $ 89.9 $ (21.2) $ 165.7
Cost of goods sold................... 42.3 24.7 15.8 79.2 (20.0) 142.0
------------- ------------- ------------- ------------- ------------- -------------
Gross profit............................ 5.9 4.7 3.6 10.7 (1.2) 23.7
Engineering, selling & administrative
expenses........................... 4.5 1.6 1.7 7.1 (0.1) 14.8
------------- ------------- ------------- ------------- ------------- -------------
Income from operations.................. 1.4 3.1 1.9 3.6 (1.1) 8.9
Interest income....................... 0.5 --- --- --- --- 0.5
Interest expense...................... (6.0) (0.5) (1.7) (3.6) --- (11.8)
Income (loss) from equity investees... 16.2 0.3 0.3 --- (16.8) ---
Other income (expense) - net.......... (0.4) (0.3) (0.2) (0.2) 0.1 (1.0)
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) from continuing operations
before income taxes................... 11.7 2.6 0.3 (0.2) (17.8) (3.4)
Provision for income taxes............ --- --- --- --- --- ---
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) from continuing operations 11.7 2.6 0.3 (0.2) (17.8) (3.4)
Income (loss) from discontinued --- 4.3 --- 0.5 --- 4.8
operations
------------- ------------- ------------- ------------- ------------- -------------
Net income (loss)....................... 11.7 6.9 0.3 0.3 (17.8) 1.4
Less preferred stock accretion........ (2.1) (0.2) --- --- --- (2.3)
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) applicable to common stock $ 9.6 $ 6.7 $ 0.3 $ 0.3 $ (17.8) $ (0.9)
============= ============= ============= ============= ============= =============
</TABLE>
<PAGE>
13
TEREX CORPORATION
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997
(in millions)
<TABLE>
<CAPTION>
Wholly- Non-
Terex owned PPM guarantor Intercompany
Corporation Guarantors Cranes, Inc. Subsidiaries Eliminations Consolidated
------------- ------------- ------------- ------------- ------------- -------------
<S> <C>
Net sales............................... $ $ $ $ $ $ 622.6
Cost of goods sold................... 519.8
------------- ------------- ------------- ------------- ------------- -------------
Gross profit............................ 102.8
Engineering, selling & administrative
expenses........................... --- 51.1
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) from operations........... 51.7
Interest income....................... --- 0.8
Interest expense...................... --- (30.3)
Income (loss) from equity investees... ---
Other income (expense) - net.......... --- (1.5)
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) from continuing operations
before income taxes and
extraordinary items................... 20.7
Provision for income taxes............ --- --- --- --- (0.4)
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) from continuing operations
before extraordinary items............ 20.3
Extraordinary loss on retirement of debt (14.8) --- --- --- --- (14.8)
------------- ------------- ------------- ------------- ------------- -------------
Net income (loss)....................... 5.5
Less preferred stock accretion........ (0.2) (1.0) --- --- --- (1.2)
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) applicable to common stock $ $ $ $ $ $ 4.3
============= ============= ============= ============= ============= =============
</TABLE>
TEREX CORPORATION
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(in millions)
<TABLE>
<CAPTION>
Wholly- Non-
Terex owned PPM guarantor Intercompany
Corporation Guarantors Cranes, Inc. Subsidiaries Eliminations Consolidated
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net sales............................... $ 133.8 $ 105.3 $ 65.8 $ 276.3 $ (59.5) $ 521.7
Cost of goods sold................... 118.7 89.4 55.9 241.6 (58.0) 447.6
------------- ------------- ------------- ------------- ------------- -------------
Gross profit............................ 15.1 15.9 9.9 34.7 (1.5) 74.1
Engineering, selling & administrative
expenses........................... 13.5 5.3 5.5 23.0 --- 47.3
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) from operations........... 1.6 10.6 4.4 11.7 (1.5) 26.8
Interest income....................... 0.6 --- --- --- --- 0.6
Interest expense...................... (18.3) (1.5) (4.9) (9.9) --- (34.6)
Income (loss) from equity investees... 32.4 (0.4) 0.4 --- (32.4) ---
Other income (expense) - net.......... (0.8) (1.1) (0.3) 1.6 --- (0.6)
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) from continuing operations
before income taxes................... 15.5 7.6 (0.4) 3.4 (33.9) (7.8)
Provision for income taxes............ --- --- --- --- --- ---
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) from continuing operations 15.5 7.6 (0.4) 3.4 (33.9) (7.8)
Income (loss) from discontinued --- 12.2 --- 2.1 (0.1) 14.2
operations
------------- ------------- ------------- ------------- ------------- -------------
Net income (loss)....................... 15.5 19.8 (0.4) 5.5 (34.0) 6.4
Less preferred stock accretion........ (5.8) (0.2) --- --- --- (6.0)
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) applicable to common stock $ 9.7 $ 19.6 $ (0.4) $ 5.5 $ (34.0) $ 0.4
============= ============= ============= ============= ============= =============
</TABLE>
<PAGE>
14
TEREX CORPORATION
UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 1997
(in millions)
<TABLE>
<CAPTION>
Wholly- Non-
Terex owned PPM guarantor Intercompany
Corporation Guarantors Cranes, Inc. Subsidiaries Eliminations Consolidated
------------- ------------- ------------- ------------- ------------- -------------
ASSETS
Current Assets
<S> <C> <C>
Cash and cash equivalents.......... $ $ $ $ $ --- $ 6.7
Trade receivables - net............ --- 155.9
Intercompany receivables........... ---
Net inventories.................... 226.9
Other current assets............... --- 17.2
------------- ------------- ------------- ------------- ------------- -------------
Total current assets............. 406.7
Long-Term Assets
Property, plant & equipment - net.. --- 50.7
Investment in and advances
to (from) subsidiaries.......... ---
Goodwill - net..................... --- 86.2
Debt issuance costs - net.......... --- 8.7
Other assets....................... --- 18.3
------------- ------------- ------------- ------------- ------------- -------------
TOTAL ASSETS............................ $ $ $ $ $ $ 570.6
============= ============= ============= ============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current Liabilities
Notes payable and current portion
of long-term debt................ $ $ $ $ $ --- $ 28.1
Trade accounts payable............. --- 123.2
Intercompany payables.............. ---
Accruals and other current --- 83.2
liabilities......................
------------- ------------- ------------- ------------- ------------- -------------
Total current liabilities........ 234.5
Non-Current Liabilities
Long-term debt less current portion --- 265.0
Other long-term liabilities........ --- 25.9
Minority interest and redeemable
preferred stock.................... --- --- 11.0
Redeemable convertible preferred stock --- --- 1.0
Stockholders' equity (deficit)....... 33.2
------------- ------------- ------------- ------------- ------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT).....................
$ $ $ $ $ $ 570.6
============= ============= ============= ============= ============= =============
</TABLE>
<PAGE>
15
TEREX CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1996
(in millions)
<TABLE>
<CAPTION>
Wholly- Non-
Terex owned PPM guarantor Intercompany
Corporation Guarantors Cranes, Inc. Subsidiaries Eliminations Consolidated
------------- ------------- ------------- ------------- ------------- -------------
ASSETS
Current Assets
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents.......... $ 53.5 $ --- $ --- $ 18.5 $ --- $ 72.0
Trade receivables - net............ 21.8 10.1 12.8 65.6 --- 110.3
Intercompany receivables........... 4.7 2.8 8.6 26.6 (42.7) ---
Net inventories.................... 44.9 25.3 27.9 93.8 (1.3) 190.6
Other current assets............... 2.9 --- 0.1 14.3 --- 17.3
------------- ------------- ------------- ------------- ------------- -------------
Total current assets............. 127.8 38.2 49.4 218.8 (44.0) 390.2
Long-Term Assets
Property, plant & equipment - net.. 3.5 4.5 --- 23.7 --- 31.7
Investment in and advances to
(from) subsidiaries.............. 27.9 (70.2) (5.4) (89.7) 137.4 ---
Goodwill - net..................... --- --- 15.5 16.9 --- 32.4
Debt issuance - net................ 6.4 0.9 2.3 3.1 --- 12.7
Other assets....................... 3.0 --- 0.1 1.1 --- 4.2
------------- ------------- ------------- ------------- ------------- -------------
TOTAL ASSETS............................ $ 168.6 $ (26.6) $ 61.9 $ 173.9 $ 93.4 $ 471.2
============= ============= ============= ============= ============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Notes payable and current portion of
long-term debt................... $ --- $ --- $ 0.8 $ 18.4 $ --- $ 19.2
Trade accounts payable............. 13.3 11.7 5.0 74.4 --- 104.4
Intercompany payables.............. 10.8 7.6 10.7 13.6 (42.7) ---
Accruals and other current 35.2 3.6 10.1 22.5 --- 71.4
liabilities......................
------------- ------------- ------------- ------------- ------------- -------------
Total current liabilities........ 59.3 22.9 26.6 128.9 (42.7) 195.0
Non-Current Liabilities
Long-term debt less current portion 119.1 17.8 51.7 73.5 --- 262.1
Other long-term liabilities........ 14.3 1.8 1.2 12.3 --- 29.6
Minority interest and redeemable
preferred stock.................... --- 9.4 0.6 --- --- 10.0
Redeemable convertible preferred stock 46.2 --- --- --- --- 46.2
Stockholders' deficit................ (70.3) (78.5) (18.2) (40.8) 136.1 (71.7)
------------- ------------- ------------- ------------- ------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIT.............................. $ 168.6 $ (26.6) $ 61.9 $ 173.9 $ 93.4 $ 471.2
============= ============= ============= ============= ============= =============
</TABLE>
<PAGE>
16
TEREX CORPORATION
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997
(in millions)
<TABLE>
<CAPTION>
Wholly- Non-
Terex owned PPM guarantor Intercompany
Corporation Guarantors Cranes, Inc. Subsidiaries Eliminations Consolidated
------------- ------------- ------------- ------------- ------------- -------------
Net cash provided by (used in)
<S> <C> <C>
operating activities................. $ $ $ $ $ --- $ (14.8)
------------- ------------- ------------- ------------- ------------- -------------
Cash flows from investing activities
Acquisition of businesses, net of
cash acquired...................... (97.2) --- --- --- --- (97.2)
Capital expenditures................. --- (9.1)
Proceeds from sale of excess assets.. --- --- --- --- 1.7
------------- ------------- ------------- ------------- ------------- -------------
Net cash provided by (used in)
investing activities.............. (97.4) 0.2 (0.1) (1.3) --- (104.6)
------------- ------------- ------------- ------------- ------------- -------------
Cash flows from financing activities
Issuance of common stock............. 104.6 --- --- --- --- 104.6
Redemption of preferred stock........ (45.4) --- --- --- --- (45.4)
Principal repayments of long-term debt --- --- (0.6) --- --- (83.9)
Net incremental borrowings
(repayments) under revolving line of --- --- 87.0
credit agreements
Other................................ --- --- --- (1.5)
------------- ------------- ------------- ------------- ------------- -------------
Net cash provided by (used in)
financing activities............. --- 60.8
------------- ------------- ------------- ------------- ------------- -------------
Effect of exchange rates on cash and
cash equivalents..................... --- --- --- (6.7) --- (6.7)
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in cash and cash
equivalents.......................... --- --- (65.3)
Cash and cash equivalents, beginning of
period............................... 53.4 0.1 --- 18.5 --- 72.0
------------- ------------- ------------- ------------- ------------- ------------
Cash and cash equivalents,
end of period........................ $ $ $ --- $ $ --- $ 6.7
============= ============= ============= ============= ============= =============
</TABLE>
TEREX CORPORATION
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(in millions)
<TABLE>
<CAPTION>
Wholly- Non-
Terex owned PPM guarantor Intercompany
Corporation Guarantors Cranes, Inc. Subsidiaries Eliminations Consolidated
------------- ------------- ------------- ------------- ------------- -------------
Net cash provided by (used in)
<S> <C> <C> <C> <C> <C> <C>
operating activities................. $ 5.9 $ --- $ 0.9 $ (13.6) $ --- $ (6.8)
------------- ------------- ------------- ------------- ------------- -------------
Cash flows from investing activities
Capital expenditures................. (0.4) (0.1) (0.3) (1.4) --- (2.2)
Proceeds from sale of excess assets.. 0.3 0.1 0.1 4.0 --- 4.5
------------- ------------- ------------- ------------- ------------- -------------
Net cash provided by (used in)
investing activities.............. (0.1) --- (0.2) 2.6 --- 2.3
------------- ------------- ------------- ------------- ------------- -------------
Cash flows from financing activities
Net incremental borrowings
(repayments)under revolving line of
credit agreement..................... (2.6) --- --- 7.4 --- 4.8
Principal repayments of long-term debt --- --- (1.0) --- --- (1.0)
Other................................ --- --- --- 1.6 --- 1.6
------------- ------------- ------------- ------------- ------------- -------------
Net cash provided by (used in)
financing activities............. (2.6) --- (1.0) 9.0 --- 5.4
------------- ------------- ------------- ------------- ------------- -------------
Effect of exchange rates on cash and
cash equivalents..................... 0.3 --- --- 0.8 --- 1.1
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in cash and cash
equivalents.......................... 3.5 --- (0.3) (1.2) --- 2.0
Cash and cash equivalents, beginning of
period............................... 3.1 --- 0.3 3.6 --- 7.0
------------- ------------- ------------- ------------- ------------- -------------
Cash and cash equivalents,
end of period........................ $ 6.6 $ --- $ --- $ 2.4 $ --- $ 9.0
============= ============= ============= ============= ============= =============
</TABLE>
<PAGE>
17
NOTE K -- SUBSEQUENT EVENT
The Company has announced its intention to merge Terex Cranes, Inc. into the
Company. As a result of such merger, the preferred stock of Terex Cranes, Inc.
will be exchanged for newly issued shares of Terex common stock. As a result of
the retirement of the preferred stock of Terex Cranes, Inc., the Company will
recognize a one-time charge of approximately $3.5 of additional accretion during
the quarter that the merger occurs.
<PAGE>
18
PPM CRANES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in millions)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months
September 30, Ended September 30,
--------------------------------------------------------
1997 1996 1997 1996
------------- ------------------------------------------
<S> <C> <C> <C> <C>
Net sales............................................$ 21.8 $ 20.4 $ 66.3 $ 71.1
Cost of goods sold................................... 19.0 17.0 57.9 61.6
------------- ------------- -------------- -------------
Gross profit.................................... 2.8 3.4 8.4 9.5
Engineering, selling and administrative expenses..... 1.1 1.9 3.6 6.2
------------- ------------- -------------- -------------
Income from operations.......................... 1.7 1.5 4.8 3.3
Other income (expense):
Interest expense................................ (1.9) (1.9) (5.5) (5.7)
Amortization of debt issuance costs............. (0.1) (0.1) (0.3) (0.3)
Other, net...................................... 0.2 --- 0.2 ---
------------- ------------- -------------- -------------
Loss before income taxes............................. (0.1) (0.5) (0.8) (2.7)
Provision for income taxes........................... --- --- --- ---
------------- ------------- -------------- -------------
Net loss.............................................$ (0.1) $ (0.5) $ (0.8) $ (2.7)
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
19
PPM CRANES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(in millions, except share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---------------- -----------------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents...........................................$ 0.3 $ 0.4
Trade accounts receivables
(less allowance of $0.9 at September 30, 1997
and $0.6 at December 31,1996)..................................... 21.2 14.4
Net inventories..................................................... 29.2 29.2
Due from affiliates................................................. 12.8 10.2
Prepaid expenses.................................................... 0.2 0.1
---------------- ----------------
Total current assets.............................................. 63.7 54.3
Property, plant and equipment - net................................. 0.1 0.1
Goodwill - net...................................................... 16.1 17.0
Other assets - net.................................................. 2.0 2.4
---------------- ----------------
Total assets...........................................................$ 81.9 $ 73.8
================ ================
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Trade accounts payable..............................................$ 8.8 $ 5.0
Accrued warranties and product liability............................ 7.6 7.5
Accrued expenses.................................................... 2.9 2.9
Due to affiliates................................................... 17.8 12.3
Due to Terex Corporation............................................ 10.2 8.9
Current portion of long-term debt................................... 0.9 1.3
------------------ ---------------
Total current liabilities......................................... 48.2 37.9
------------------ ---------------
Non-current liabilities:
Long-term debt, less current portion................................ 53.7 54.2
Other non-current liabilities....................................... 1.3 1.9
------------------ ---------------
Total non-current liabilities..................................... 55.0 56.1
------------------ ---------------
Commitments and contingencies
Shareholders' deficit
Common stock, Class A, $.01 par value -
authorized 8,000 shares; issued and outstanding 5,000 shares...... --- ---
Common stock, Class B, $.01 par value -
authorized 2,000 shares; issued and outstanding 413 shares........ --- ---
Accumulated deficit................................................. (21.1) (20.3)
Foreign currency translation adjustment............................. (0.2) 0.1
----------------- ----------------
Total shareholders' deficit....................................... (21.3) (20.2)
----------------- ----------------
Total liabilities and shareholders' deficit............................$ 81.9 $ 73.8
================= =================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
20
PPM CRANES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
---------------------------
1997 1996
------------- -------------
OPERATING ACTIVITIES
<S> <C> <C>
Net loss.....................................................................$ (0.8) $ (2.7)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization............................................ 0.9 2.4
Changes in operating assets and liabilities:
Trade accounts receivable.............................................. (4.6) (3.1)
Net inventories........................................................ 2.9 (9.4)
Prepaid expenses and other current assets.............................. --- 0.1
Trade accounts payable................................................. 2.1 3.1
Net amounts due to affiliates.......................................... 1.1 9.6
Other, net............................................................. (0.6) 0.8
------------- -------------
Net cash provided by operating activities............................ 1.1 0.8
------------- -------------
INVESTING ACTIVITIES
Capital expenditures......................................................... (0.1) (0.2)
Proceeds from sale of property, plant and equipment.......................... --- 0.1
------------- -------------
Net cash used in investing activities...................................... (0.1) (0.1)
------------- -------------
FINANCING ACTIVITIES
Net borrowings under revolving line of credit agreements..................... --- 0.4
Principal repayments of long-term debt....................................... (0.6) (1.0)
Net cash used in financing activities...................................... (0.6) (0.6)
------------- -------------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS.................................................... (0.2) (0.1)
------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............................ (0.1) ---
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD................................ 0.4 0.5
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD......................................$ 0.3 $ 0.5
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
21
PPM CRANES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
(in millions unless otherwise denoted)
NOTE A -- DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION
PPM Cranes, Inc. (sometimes referred to as Terex Cranes - Conway Operations)
(the "Company" or "PPM") is engaged in the design, manufacture, marketing and
worldwide distribution and support of construction equipment, primarily
hydraulic cranes and related spare parts.
On May 9, 1995 (the "date of acquisition"), Terex Corporation, through its
wholly-owned subsidiary Terex Cranes, Inc., completed the acquisition of all of
the capital stock of Legris Industries, Inc., a Delaware Corporation which owns
92.4% of the capital stock of PPM Cranes, Inc. Terex Corporation and Terex
Cranes, Inc., are both Delaware corporations.
The unaudited condensed consolidated financial statements reflect Terex
Corporation's basis in the assets and liabilities of the Company which was
accounted for as a purchase transaction. As a result, the debt and goodwill
associated with the acquisition have been "pushed down" to the Company's
financial statements.
In the opinion of management, all adjustments considered necessary for a fair
presentation have been made. Such adjustments consist only of those of a normal
recurring nature. Operating results for the three months and nine months ended
September 30, 1997 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1997. For further information, refer
to the Company's consolidated financial statements and footnotes thereto
included in Terex Corporation's Annual Report on Form 10-K for the year ended
December 31, 1996.
The condensed consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All material intercompany
transactions and profits have been eliminated.
NOTE B -- INVENTORIES
Net inventories consist of the following:
September 30, December 31,
1997 1996
--------------- ---------------
Finished equipment............................ $ 8.0 $ 4.9
Replacement parts............................. 9.3 7.9
Work in process............................... 1.3 3.0
Raw materials and supplies.................... 10.6 13.4
=============== ===============
$ 29.2 $ 29.2
=============== ===============
NOTE C -- PROPERTY, PLANT AND EQUIPMENT
Net property, plant and equipment consists of the following:
September 30, December 31,
1997 1996
---------------- ---------------
Property, plant and equipment..................$ 0.1 $ 0.1
Less: Accumulated depreciation................ --- ---
================ ===============
Net property, plant and equipment..............$ 0.1 $ 0.1
================ ===============
<PAGE>
21
NOTE D -- CONTINGENCIES
The Company is involved in product liability and other lawsuits incident to the
operation of its business. Insurance with third parties is maintained for
certain of these items. It is management's opinion that none of these lawsuits
will have a materially adverse effect on the Company's financial position.
<PAGE>
22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Dollar amounts are in millions, unless otherwise noted.)
Results of Operations
The Company currently operates in two industry segments: Terex Trucks and Terex
Cranes. The Company previously operated a third industry segment, the Material
Handling Segment, the results of which are accounted for as Income from
Discontinued Operations.
The Months Ended September 30, 1997 Compared with the Three Month
Ended September 30, 1996
The table below is a comparison of net sales, gross profit, engineering, selling
and administrative expenses, income from operations and income from discontinued
operations, by segment, for the three months ended September 30, 1997 and 1996.
Three Months Ended
September 30, Increase
------------- --------------
1997 1996 (Decrease)
------------- -------------- ------------
NET SALES
Terex Cranes......................$ 140.7 $ 82.5 $ 58.2
Terex Trucks...................... 71.9 83.4 (11.5)
General/Corporate/Eliminations.... 1.5 (0.2) 1.7
------------- -------------- -------------
Total...........................$ 214.1 $ 165.7 $ 48.4
============= ============== =============
GROSS PROFIT
Terex Cranes......................$ 24.0 $ 12.4 $ 11.6
Terex Trucks...................... 12.2 11.2 1.0
General/Corporate/Eliminations.... 0.8 0.1 0.7
------------- ------------- --------------
Total...........................$ 37.0 $ 23.7 $ 13.3
============= ============= ==============
ENGINEERING, SELLING AND
ADMINISTRATIVE EXPENSES
Terex Cranes......................$ 10.8 $ 7.0 $ 3.8
Terex Trucks...................... 6.1 6.7 (0.6)
General/Corporate/Eliminations.... 0.9 1.1 (0.2)
------------- -------------- -------------
Total...........................$ 17.8 $ 14.8 $ 3.0
============= ============== =============
INCOME FROM OPERATIONS
Terex Cranes......................$ 13.2 $ 5.4 $ 7.8
Terex Trucks...................... 6.1 4.5 1.6
General/Corporate/Eliminations.... (0.1) (1.0) 0.9
------------- -------------- -------------
Total...........................$ 19.2 $ 8.9 $ 10.3
============= ============== =============
INCOME FROM
DISCONTINUED OPERATIONS...........$ --- $ 4.8 $ (4.8)
============= ============== =============
<PAGE>
24
Net Sales
Sales increased $48.4, or approximately 29%, to $214.1 for the three months
ended September 30, 1997 over the comparable 1996 period, reflecting the sales
of the Acquired Businesses, partially offset by a decrease in sales for Terex
Trucks.
Terex Cranes' sales were $140.7 for the three months ended September 30, 1997,
an increase of $58.2 from $82.5 for the three months ended September 30, 1996. A
significant portion of the increase in sales was due to the results of the
Acquired Businesses. Sales increased at Terex Cranes - Waverly Operations, and
were offset slightly by weaker sales at PPM Europe. Terex Cranes' backlog was
approximately $122 at September 30, 1997, compared to $67 at December 31, 1996
and $53 at September 30, 1996. Of the total backlog at September 30, 1997,
approximately 33% was at the Acquired Businesses. The sales mix was
approximately 13% parts for the three months ended September 30, 1997 compared
to 20% parts for the comparable 1996. The decrease in parts sales as a
percentage of total sales was principally due to temporarily lower parts sales
at PPM Europe as they relocated their parts distribution facility in June 1997.
Terex Trucks' sales decreased $11.5 to $71.9 for the three months ended
September 30, 1997 from $83.4 for the three months ended September 30, 1996. The
decrease in sales was primarily machine sales in the Unit Rig product line,
which decreased $15.5 in the three months ended September 30, 1997 as compared
with the comparable 1996 period. Sales in Europe were lower than the 1996
quarter, reflecting continued weakness in the European construction sector. This
weakness was partially offset by sales growth in North America and the
developing regions of Southeast Asia. Machine sales decreased 13.4%, and parts
sales decreased 12.0%. The decrease in sales of machines and parts is primarily
due to Unit Rig sales declines. Parts sales generally have higher gross margins
than machine sales. The sales mix was approximately 31% parts for the three
months ended September 30, 1997 compared to 30% parts for the comparable 1996
period. Backlog was approximately $33 at September 30, 1997 compared to $53 at
December 31, 1996 and $59 at September 30, 1996. Backlog at Unit Rig at
September 30, 1997 declined by approximately $20 and $13 as compared to
September 30, 1996 and December 31, 1996, respectively.
Net sales for corporate in the three months ended September 30, 1997 are service
revenues of $1.5 generated by Terex's parts distribution center for services
provided to a third party.
Gross Profit
Gross profit for the three months ended September 30, 1997 increased $13.3, or
56%, to $37.0 as compared to $23.7 for the three months ended September 30,
1996. The gross profit increased at both Terex Cranes and Terex Trucks.
Terex Cranes' gross profit increased $11.6 to $24.0 for the three months ended
September 30, 1997, compared to $12.4 for the three months ended September 30,
1996. The increase was due to the increase in sales, principally from the
Acquired Businesses. The gross margin percentage at Terex Cranes was 17.1% for
the three months ended September 30, 1997 versus 15.0% for the comparable 1996
period.
Terex Trucks' gross profit increased $1.0 to $12.2 for the three months ended
September 30, 1997 compared to $11.2 for the three months ended September 30,
1996. The increase in gross profit was primarily due to increased manufacturing
efficiencies and a relatively increased share of higher margin TEL machines. The
gross margin percentage at Terex Trucks was 17.0% for the three months ended
September 30, 1997 as compared to 13.4% for the three months ended September 30,
1996. The gross margin percentage increased on TEL products as well as at Unit
Rig. Gross profit as a percentage of sales increased during the three months
ended September 30, 1997, as compared to the comparable 1996 period at Unit Rig,
due to the increase in parts sales as a percentage of total sales and as a
result of cost savings from the outsourcing of certain manufacturing operations.
Engineering, Selling and Administrative Expenses
Engineering, selling and administrative expenses increased to $17.8 for the
three months ended September 30, 1997 from $14.8 for the three months ended
September 30, 1996, reflecting the effect of the Acquired Businesses, partially
offset by cost reductions at the corporate level and at Terex Cranes.
Terex Cranes' engineering, selling and administrative expenses as a percentage
of sales decreased to 7.7% for the three months ended September 30, 1997 as
compared to 8.5% for the comparable 1996 period. The engineering, selling and
administrative expenses increased to $10.8 for the three months ended
<PAGE>
25 September 30, 1997 from $7.0 for the three months ended September 30, 1996,
reflecting expenses at the Acquired Businesses which were partially offset by
the effect of cost reduction actions at Terex Cranes - Waverly Operations, PPM
Europe and Terex Cranes - Conway Operations.
Terex Trucks' engineering, selling and administrative expenses decreased $0.6 to
$6.1 for the three months ended September 30, 1997 as compared to $6.7 for the
same period in 1996. Most of the decrease relates to cost reduction actions at
Unit Rig.
Income from Operations
On a consolidated basis, the Company had operating income from continuing
operations of $19.2, or 9.0% of sales, for the three months ended September 30,
1997, compared to operating income of $8.9, or 5.4% of sales, for the three
months ended September 30, 1996, for the reasons mentioned below. For the three
months ended September 30, 1997, unallocated corporate expense declined by $0.9
versus the three months ended September 30, 1996.
Terex Cranes' income from operations of $13.2 for the three months ended
September 30, 1997 increased by $7.8 over the three months ended September 30,
1996, primarily due to the results of the newly Acquired Businesses and the
effect of cost control initiatives implemented at PPM Europe and Terex Cranes -
Conway Operations and continued strong performance by Terex Cranes - Waverly
Operations.
Terex Trucks' income from operations increased by $1.6 to $6.1 for the three
months ended September 30, 1997 from $4.5 for the three months ended September
30, 1996, primarily due to improved gross margin percentages. Improved gross
margin percentages were seen in the TEL product line due to manufacturing
efficiencies at the Motherwell, Scotland facility.
Other Income (Expense)
During the three months ended September 30, 1997, the Company's interest expense
decreased $2.2 to $9.6 from $11.8 for the comparable 1996 period. This decrease
was primarily due to lower debt levels in the three months ended September 30,
1997 versus the comparable period in 1996. The proceeds from the issuance of the
common stock in July 1997 were used to reduce the average balance borrowed under
the New Credit Facility and then on September 4, 1997 the Company retired $83.3
of the Senior Secured Notes due 2002. Additionally, the decrease in interest
expense for the quarter ended September 30, 1997 was partially due to the
reduction in the interest rate from 13.75% to 13.25% charged on the Company's
$250 Senior Secured Notes when the debt was registered in October 1996.
Other income (expense) for the three months ended June 30, 1997 was primarily
amortization of debt issue costs, which was partially offset by the gain on the
sale of excess equipment.
Income from Discontinued Operations
As a result of selling its Material Handling Segment in 1996, the Company did
not have any income from discontinued operations for the three months ended
September 30, 1997 compared to $4.8 for the comparable period in the prior year.
Extraordinary Items
The Company recorded a charge of $12.2 in the three months ended September 30,
1997 to recognize a loss on the early extinguishment of debt in connection with
the redemption of $83.3 of its 13.25% Senior Secured Notes due 2002.
<PAGE>
26
Nine Months Ended September 30, 1997 Compared with the Nine Months Ended
September 30, 1996
The table below is a comparison of net sales, gross profit, engineering, selling
and administrative expenses, income from operations and income from discontinued
operations, by segment, for the nine months ended September 30, 1997 and 1996.
Nine Months Ended
September 30, Increase
------------- -------------
1997 1996 (Decrease)
------------- ------------- -------------
NET SALES
Terex Cranes.....................$ 393.1 $ 286.0 $ 107.1
Terex Trucks..................... 225.0 236.3 (11.3)
General/Corporate/Eliminations... 4.5 (0.6) 5.1
------------- ------------- -------------
Total..........................$ 622.6 $ 521.7 $ 100.9
============= ============== =============
GROSS PROFIT
Terex Cranes.....................$ 63.4 $ 43.1 $ 20.3
Terex Trucks..................... 37.8 31.5 6.3
General/Corporate/Eliminations... 1.6 (0.5) 2.1
------------- -------------- -------------
Total..........................$ 102.8 $ 74.1 $ 28.7
============= ============== =============
ENGINEERING, SELLING AND
ADMINISTRATIVE EXPENSES
Terex Cranes.....................$ 29.9 $ 24.7 $ 5.2
Terex Trucks..................... 19.0 19.0 ---
General/Corporate/Eliminations... 2.2 3.6 (1.4)
------------- -------------- -------------
Total..........................$ 51.1 $ 47.3 $ 3.8
============= ============== =============
INCOME FROM OPERATIONS
Terex Cranes.....................$ 33.5 $ 18.4 $ 15.1
Terex Trucks..................... 18.8 12.5 6.3
General/Corporate/Eliminations... (0.6) (4.1) 3.5
------------- ------------- -------------
Total..........................$ 51.7 $ 26.8 $ 24.9
============= ============= =============
INCOME FROM
DISCONTINUED OPERATIONS..........$ --- $ 14.2 $ (14.2)
============= ============= =============
Net Sales
Sales increased $100.9, or approximately 19%, to $622.6 for the nine months
ended September 30, 1997 over the comparable 1996 period, primarily reflecting
the sales of the Acquired Businesses.
Terex Cranes' sales were $393.1 for the nine months ended September 30, 1997, an
increase of $107.1 from $286.0 for the nine months ended September 30, 1996. The
increase in sales was due to the results of the Acquired Businesses, and the
continued strong sales at Terex Cranes - Waverly Operations. The sales increases
were partially offset by weaker sales at PPM Europe, particularly in Europe, and
Terex Cranes - Conway Operations. Terex Cranes' backlog was approximately $122
at September 30, 1997, compared to $67 at December 31, 1996 and $53 at September
30, 1996. Of the total backlog at September 30, 1997, approximately 33% was at
the Acquired Businesses. The sales mix was approximately 14% parts for the nine
months ended September 30, 1997 compared to 18% parts for the comparable 1996
period. The decrease in parts sales as a percentage of total sales was
principally due to temporarily lower parts sales at PPM Europe as they relocated
their parts distribution facility in June 1997.
Terex Trucks' sales decreased $11.3 for the nine months ended September 30, 1997
as compared to the nine months ended September 30, 1996. In the TEL product
line, sales grew in North America and the developing regions of Southeast Asia
but were offset by continued weakness in the European construction sector. Sales
for machines in the Unit Rig product line for the nine months ended September
30, 1997 decreased approximately $22.8 as compared to the comparable period in
1996. Terex Trucks' parts sales decreased 1.9%, and machine sales decreased
4.7%. The sales mix was approximately 31% parts for the nine months ended
September 30, 1997 compared to 30% parts for the comparable 1996 period. Parts
<PAGE>
27
Sales generally have higher gross margins than machine sales. Backlog was
approximately $33 at September 30, 1997 compared to $53.0 at December 31, 1996
and $59 at September 30, 1996. Backlog at Unit Rig at September 30, 1997
declined by approximately $20 and $13 as compared to September 30, 1996 and
December 31, 1996, respectively.
Net sales for corporate for the nine months ended September 30, 1997 are service
revenues of $4.5 generated by Terex's parts distribution center for services
provided to a third party.
Gross Profit
Gross profit for the nine months ended September 30, 1997 was $102.8 as compared
to $74.1 for the nine months ended September 30, 1996, an increase of $28.7, or
approximately 39%.
Terex Cranes' gross profit was $63.4 for the nine months ended September 30,
1997, compared to $43.1 for the nine months ended September 30, 1996, an
increase of $20.3, or 47%. The increase was due to the increase in sales,
principally at the Acquired Businesses. The gross margin percentage at Terex
Cranes was 16.1% for the nine months ended September 30, 1997 versus 15.1% for
the comparable 1996 period.
Terex Trucks' gross profit was $37.8 for the nine months ended September 30,
1997 compared to $31.5 for the nine months ended September 30, 1996, an increase
of $6.3. The increase in gross profit was primarily due to increased
manufacturing efficiencies and a relatively increased share of higher margin TEL
machines. Unit Rig's gross profit for the nine months ended September 30, 1997
increased even though sales decreased during the period, as a result of
outsourcing certain manufacturing processes, and due to the sales mix between
parts and machines. The gross margin percentage at Terex Trucks was 16.8% for
the nine months ended September 30, 1997 as compared to 13.3% for the nine
months ended September 30, 1996. This increase in gross margin percentage was
primarily due to the decrease of Unit Rig machine sales as a percentage of total
sales.
Engineering, Selling and Administrative Expenses
Engineering, selling and administrative expenses as a percent of sales declined
to 8.2% for the first nine months of 1997 versus 9.1% for 1996. In dollars,
engineering, selling and administrative expenses increased to $51.1 for the nine
months ended September 30, 1997 from $47.3 for the nine months ended September
30, 1996, reflecting the effect of the newly Acquired Businesses at Terex Cranes
which were partially offset by cost reductions at the corporate level and at
Terex Cranes.
Terex Cranes' engineering, selling and administrative expenses as a percentage
of sales decreased to 7.6% for the nine months ended September 30, 1997 as
compared to 8.6% for the comparable 1996 period. The engineering, selling and
administrative expenses increased to $29.9 for the nine months ended September
30, 1997 from $24.7 for the nine months ended September 30, 1996, due to the
addition of the Acquired Businesses which were partially offset by the effect of
cost reduction actions at PPM Europe and Terex Cranes - Conway Operations.
Terex Trucks' engineering, selling and administrative expenses for the nine
months ended September 30, 1997 remained flat at $19.0 as compared to the same
period in 1996. However, engineering, selling and administrative expenses as a
percentage of sales increased to 8.4% for the nine months ended September 30,
1997 from 8.0% for the comparable 1996 period, due to the decrease in sales.
Income from Operations
Consolidated operating income from continuing operations was $51.7, or 8.3% of
sales, for the nine months ended September 30, 1997, compared to operating
income of $26.8, or 5.1% of sales, for the nine months ended September 30, 1996,
for the reasons mentioned below.
Terex Cranes' income from operations of $33.5 for the nine months ended
September 30, 1997 increased by $15.1 over the nine months ended September 30,
1996, primarily due to the results of the Acquired Businesses, the effect of
cost control initiatives implemented at PPM Europe and Terex Cranes - Conway
Operations, and continued strong performance by Terex Cranes - Waverly
Operations.
Terex Trucks' income from operations increased by $6.3 to $18.8 for the nine
months ended September 30, 1997 from $12.5 for the nine months ended September
30, 1996, primarily due to improved gross margin percentages, and level
engineering, selling and administrative charges. Improved gross margin
percentages were seen at Unit Rig, as a result of outsourcing certain
<PAGE>
28
manufacturing processes, and in the TEL product line due to manufacturing
efficiencies at the Motherwell, Scotland facility.
For the nine months ended September 30, 1997, unallocated corporate expense
declined by $3.5 versus the nine months ended September 30, 1996.
Other Income (Expense)
During the nine months ended September 30, 1997, the Company's interest expense
decreased $4.3 to $30.3 from $34.6 for the comparable 1996 period primarily due
to lower average debt levels. A portion of this decrease was due to the $139.5
cash provided from the sale of the Company's Materials Handling Segment in
November 1996, which allowed the Company to eliminate borrowings under its
revolving credit facility prior to the acquisition of Simon Access on April 7,
1997. Furthermore, the proceeds from the issuance of the common stock in July
1997 were used to reduce the average balance borrowed under the New Credit
Facility and then on September 4, 1997 the Company redeemed $83.3 of the Senior
Secured Notes due 2002. Additionally, the decrease in interest expense for the
nine months ended September 30, 1997 was partially due to the reduction in the
interest rate from 13.75% to 13.25% charged on the Company's $250 Senior Secured
Notes when the debt was registered in October 1996.
Other income (expense) for the nine months ended September 30, 1997 was
primarily amortization of debt issue costs partially offset by a $1.0 net gain
on sales of excess assets. During the nine months ended September 30, 1996 the
Company realized a gain of $2.4 on the sale of excess property in Scotland.
Income from Discontinued Operations
As a result of selling its Material Handling Segment in 1996, the Company did
not have any income from discontinued operations for the nine months ended
September 30, 1997 compared to $14.2 for the comparable period in the prior
year.
Extraordinary Items
During the nine months ended September 30, 1997, the Company recorded a charge
of $12.2 to recognize a loss on the early extinguishment of debt in commection
with the redemption of $83.3 of its 13.25% Senior Secured Notes due 2002 and
also recorded a charge of $2.6 to recognize a loss on the early extinguishment
of debt in connection with the refinancing of its working capital facility and
the purchase of the Simon Access companies.
LIQUIDITY AND CAPITAL RESOURCES
Net cash of $19.8 was used by operating activities during the nine months ended
September 30, 1997. $60.0 was provided by operating results plus depreciation
and amortization, and approximately $39.9 was invested in working capital during
the period to support the increase in business activity. The remaining effect on
cash from operations for the period was due to the costs of financing. Net cash
used in investing activities was $104.6 during the nine months ended September
30, 1997, primarily related to the purchase of the Acquired Businesses. Net cash
provided by financing activities was $60.8 during the nine months ended
September 30, 1997. Cash was provided by the net proceeds from the issuance of
the common stock and additional borrowings primarily related to the purchase of
the Acquired Businesses. Cash was used in the redemption of the Series A
Preferred Stock and the redemption of a portion of the Senior Secured Notes due
2002. Cash and cash equivalents totaled $6.7 at September 30, 1997.
Debt reduction and an improved capital structure are major focal points for the
Company. In this regard, the Company regularly reviews its alternatives to
improve its capital structure and to reduce debt service through debt
refinancings, issuance of equity, assets sales, including the sale of business
units, or any combination thereof.
As discussed in Note H of the notes to the interim condensed consolidated
financial statements, the Company issued an additional 5,000,000 and 700,000
shares of common stock on July 28, 1997 and August 7, 1997, respectively. These
shares were issued at a price to the public of $19.50 per share. The Company
received $104.6, net of underwriting discounts, commissions and other expenses.
A portion of the proceeds from the stock offering were initially used to reduce
borrowings under the Company's revolving credit facility on July 28, 1997. On
September 4, 1997, the Company used a portion of the proceeds from the stock
offering to redeem $83.3 of the Company's 13.25% Senior Secured Notes. The total
funds paid at the redemption were $94.6 ($83.3 principal, $7.9 redemption
premium and $3.4 accrued interest). As a result of the redemption of the Senior
<PAGE>
29
Secured Notes, the annual interest payments on these Senior Secured Notes
decreases from $33.1 to $22.1, a savings of $11.0 per year.
As discussed in Note C of the notes to the interim condensed consolidated
financial statements, on April 7, 1997 the Company acquired Simon Access for
$90. Concurrently with the Simon Access acquisition, the Company entered into
the New Credit Facility. The New Credit Facility provides the Company with the
ability to borrow (in the form of revolving loans and up to $20 in outstanding
letters of credit) up to $125. The New Credit Facility is secured by
substantially all of the Company's domestic receivables and inventory. The
amount of borrowings available under the New Credit Facility is limited to
established percentages of eligible receivables and eligible inventory of
certain of the Company's domestic subsidiaries. The New Credit Facility matures
on April 7, 2000. At the option of the Company, revolving loans may be in the
form of prime rate loans bearing interest at a rate of between 0.5% and 1.5% per
annum in excess of the prime rate or eurodollar rate loans bearing interest at a
rate of between 2.0% and 3.0% per annum in excess of the adjusted eurodollar
rate. The margin over the prime rate or eurodollar rate paid by the Company is
based upon the Company's fixed charge coverage ratio from time to time.
As of September 30, 1997, the Company's balance outstanding under the New Credit
Facility totaled $78.9, letters of credit issued under the New Credit Facility
totaled $8.7, and the additional amount the Company could have borrowed under
the New Credit Facility was $21.3.
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 the New Credit Facility. Management believes
that cash generated from operations, together with the New Credit Facility,
provides the Company adequate liquidity to meet the Company's operating and debt
service requirements.
CONTINGENCIES AND UNCERTAINTIES
The Internal Revenue Service (the "IRS") 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. 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 ("NOLs") and the
availability of such NOLs to offset future taxable income. The Company filed an
administrative appeal to the examination report in April 1995. As a result of a
meeting with the Manhattan division of the IRS in July 1995, in June 1996 the
Company was advised that the matter was being referred back to the Milwaukee
audit division of the IRS. The Milwaukee audit division of the IRS is currently
reviewing information provided by the Company over the past 18 months. The
ultimate outcome of this matter is subject to the resolution of significant
legal and factual issues. Given the stage of the audit, and the number and
complexity of the legal and administrative proceedings involved in reaching a
resolution of this matter, it is unlikely that the ultimate outcome, if
unfavorable to the Company, will be determined for at least several years. If
the IRS were to prevail on all the issues raised, the amount of the tax
assessment would be approximately $56.0 plus penalties of approximately $12.8
and interest through September 30, 1997 of approximately $90.0. The penalties
asserted by the IRS are calculated as 20% of the amount of the tax assessed for
fiscal year 1987 and 25% of the tax assessed for each of fiscal years 1988 and
1989. Interest on the amount of tax assessed and penalties is currently accruing
at a rate of 11% per annum. The applicable annual rate of interest has
historically varied from 7% to 12%.
If the Company were required to pay a significant portion of the assessment with
related interest and penalties, such payment would exceed the Company's
resources. In such event, the viability of the Company would be placed in
jeopardy, and it is uncertain that the Company could, through financing or
otherwise, obtain the funds required to pay such assessment, interest, and
applicable penalties. Management believes, however, 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 NOLs. Based upon consultation with
its tax advisors, management believes that the Company's position will prevail
on the most significant issues. Accordingly, management believes that the
outcome of the examination will not have a material adverse effect on its
financial condition or results of operations, but may result in some reduction
in the amount of the NOLs available to the Company. 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 $56.0 plus interest and penalties, and the
ultimate outcome cannot be determined or estimated at this time. No reserves are
being expensed to cover the potential liability.
<PAGE>
30
Under the terms of the Company's New Credit Facility, an event of default will
occur if the Company incurs any liability for federal income taxes which results
in an expenditure of cash of more than $15.0 in excess of the amounts shown as
owed on tax returns filed by the Company prior to April 7, 1997. If this were to
occur, the maturity of the New Credit Facility may be accelerated and recourse
may be taken against the accounts receivable and inventory securing advances
under the New Credit Facility. In such event, the Company would seek to
refinance the indebtedness outstanding under the New Credit Facility. There can
be no assurance, however, that any refinancing would be obtainable or, if
obtainable, that the terms of such refinancing would be acceptable to the
Company.
In March of 1994 the Securities and Exchange Commission (the "Commission")
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. In general, under the Company's
by-laws, the Company is obligated to indemnify officers and directors for all
liabilities arising in the course of their duties on behalf of the Company. To
date, no officer or director has had legal representation separate from the
Company's legal representation, and no allocation of the legal fees for such
representation has been made.
The Company 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 ("CERCLA"),
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. The Company does not expect that these expenditures will
have a material adverse effect on its financial condition or results of
operations.
<PAGE>
31
PART II OTHER INFORMATION
(Dollar amounts are in millions, unless otherwise noted.)
Item 1. Legal Proceedings
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
Recent Developments
The Company has announced its intention to merge Terex Cranes, Inc. into the
Company. As a result of such merger, the preferred stock of Terex Cranes, Inc.
will be exchanged for newly issued shares of Terex common stock. As a result of
the retirement of the preferred stock of Terex Cranes, Inc., the Company will
recognize a one-time charge of approximately $3.5 of additional accretion during
the quarter that the merger occurs.
The Company issued an additional 5,000,000 and 700,000 shares of common stock on
July 28, 1997 and August 7, 1997, respectively. These shares were issued at a
price to the public of $19.50 per share. The Company received $104.6, net of
underwriting discounts, commissions and other expenses. A portion of the
proceeds from the stock offering were used by the Company to redeem $83.3 of the
Company's 13.25% Senior Secured Notes plus $7.9 of redemption premium. As a
result of the redemption of the Senior Secured Notes, the annual interest
payments on these Senior Secured Notes will decrease from $33.1 to $22.1, a
savings of $11.0 per year.
Forward Looking Information
Certain information in this report includes forward looking statements regarding
future events or the future financial performance of the Company that involve
certain risks and uncertainties, including, but not limited to, those discussed
in "Management's Discussion and Analysis of Financial Condition and Results of
Operations." In addition, the Company's expectations are predominantly based on
what it considers key economic assumptions. Construction and mining activity are
sensitive to interest rates, government spending and general economic
conditions. Some of the other significant factors for the Company include
integration of acquired businesses, retention of key management, foreign
currency movements, pricing, product initiatives and other actions taken by
competitors, the effects of changes in laws and regulations, continued use of
net operating loss carryovers and other factors. Actual events or the actual
future results of the Company may differ materially from any forward looking
statement due to these and other risks, uncertainties and significant factors.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits have been filed as part of this
Form 10-Q.
Exhibit No.
11.1 Computation of earnings per share
27 Financial data schedule
(b) Reports on Form 8-K.
A report on Form 8-K dated July 25, 1997 was filed reporting
the Company's execution of an Underwriting Agreement
providing for the sale of up to 5,700,000 shares of the
Company's common stock.
<PAGE>
32
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, 1997 /s/ Joseph F. Apuzzo
Joseph F. Apuzzo
Vice President Finance and Controller
(Principal Accounting Officer)
<PAGE>
EXHIBIT INDEX
Exhibit No.
11.1 Computation of Earnings per Share
27 Financial Data Schedule
EXHIBIT 11.1
(Page 1 of 2)
<TABLE>
<CAPTION>
TEREX CORPORATION AND SUBSIDIARIES
Computation of Earnings per Common Share
(in millions except per share amounts)
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------ -----------------------
1997 1996 1997 1996
----------- ------------ ----------- -----------
PRIMARY:
<S> <C> <C> <C> <C>
Income (loss) from continuing operations...............................$ 8.7 $ (3.4) $ 20.3 $ (7.8)
Income from discontinued operations.................................... --- 4.8 --- 14.2
------------ ----------- ----------- -----------
Income before extraordinary items...................................... 8.7 1.4 20.3 6.4
Less: Accretion of Preferred Stock................................ (0.4) (2.3) (1.2) (6.0)
------------ ----------- ----------- -----------
Income (loss) before extraordinary items applicable to common stock.... 8.3 (0.9) 19.1 0.4
Extraordinary loss on retirement of debt........................... (12.2) --- (14.8) ---
----------- ------------ ----------- -----------
Net income (loss) applicable to common stock...........................$ (3.9) $ (0.9) $ 4.3 $ 0.4
=========== ============ =========== ===========
Weighted average shares outstanding during the period.................. 17.7 12.7 14.9 11.3
Assumed exercise of warrants........................................... 0.2 1.0 0.4 1.4
Assumed exercise of stock options...................................... 0.9 0.5 0.7 0.3
Assumed exercise of equity rights...................................... 0.6 --- 0.4 ---
----------- ------------ ----------- -----------
Primary shares outstanding............................................. 19.4 14.2 16.4 13.0
=========== ============ =========== ===========
Primary income (loss) per common share
Income (loss) from continuing operations...........................$ 0.43 $ (0.40) $ 1.16 $ (1.06)
Income from discontinued operations................................ --- 0.34 --- 1.09
----------- ------------ ----------- -----------
Income (loss) before extraordinary items........................... 0.43 (0.06) 1.16 0.03
Extraordinary loss on retirement of debt........................ (0.63) --- (0.90) ---
----------- ------------ ----------- -----------
Net income (loss)..................................................$ (0.20) $ (0.06) $ 0.26 $ 0.03
=========== ============ =========== ===========
</TABLE>
<PAGE>
EXHIBIT 11.1
(Page 2 of 2)
<TABLE>
<CAPTION>
TEREX CORPORATION AND SUBSIDIARIES
Computation of Earnings per Common Share
(in millions except per share amounts)
Three Months Nine Months
Ended September 30, Ended September 30,
---------------------- ------------------------
1997 1996 1997 1996
----------- ---------- ------------ -----------
FULLY DILUTED:
<S> <C> <C> <C> <C>
Income (loss) from continuing operations...............................$ 8.7 $ (3.4) $ 20.3 $ (7.8)
Income from discontinued operations.................................... --- 4.8 --- 14.2
----------- ---------- ----------- -----------
Income before extraordinary items...................................... 8.7 1.4 20.3 6.4
Less: Accretion of Preferred Stock............................... (0.4) (2.3) (1.2) (6.0)
----------- ---------- ----------- -----------
Income (loss) before extraordinary items applicable to common stock.... 8.3 (0.9) 19.1 0.4
Extraordinary loss on retirement of debt.......................... (12.2) --- (14.8) ---
----------- ---------- ------------ -----------
Income (loss) applicable to common stock............................... (3.9) (0.9) 4.3 0.4
Add: Accretion of Preferred Stock assumed converted
at beginning of period.............................................. --- (a) --- (a) --- (a) --- (a)
----------- ----------- ----------- -----------
Net income (loss) applicable to common stock...........................$ (3.9) $ (0.9) $ 4.3 $ 0.4
=========== =========== =========== ===========
Weighted average shares outstanding during the period.................. 17.7 12.7 14.9 11.3
Assumed exercise of warrants........................................... 0.2 1.0 0.4 1.4
Assumed conversion of Preferred Stock.................................. --- (a) --- (a) --- (a) --- (a)
Assumed exercise of stock options...................................... 0.9 0.5 0.7 0.3
Assumed exercise of equity rights...................................... 0.6 --- 0.4 ---
=========== ========== =========== ===========
Fully diluted shares outstanding....................................... 19.4 14.2 16.4 13.0
=========== ========== =========== ===========
Fully diluted income (loss) per common share
Income (loss) from continuing operations..........................$ 0.43 $ (0.40) $ 1.16 $ (1.06)
Income from discontinued operations............................... --- 0.34 --- 1.09
----------- ---------- ----------- -----------
Income (loss) before extraordinary items.......................... 0.43 (0.06) 1.16 0.03
Extraordinary loss on retirement of debt........................ (0.63) --- (0.90) ---
----------- ---------- ----------- -----------
Net income (loss).................................................$ (0.20) $ (0.06) $ 0.26 $ 0.03
=========== ========== =========== ===========
</TABLE>
(a) Excluded from the computation because the effect is anti-dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-Mos
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 6,700
<SECURITIES> 0
<RECEIVABLES> 160,500
<ALLOWANCES> 4,600
<INVENTORY> 226,900
<CURRENT-ASSETS> 406,700
<PP&E> 87,900
<DEPRECIATION> 37,200
<TOTAL-ASSETS> 570,600
<CURRENT-LIABILITIES> 234,500
<BONDS> 265,000
1,000
0
<COMMON> 200
<OTHER-SE> 33,000
<TOTAL-LIABILITY-AND-EQUITY> 570,600
<SALES> 622,600
<TOTAL-REVENUES> 622,600
<CGS> 519,800
<TOTAL-COSTS> 519,800
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,300
<INCOME-PRETAX> 20,700
<INCOME-TAX> 400
<INCOME-CONTINUING> 20,300
<DISCONTINUED> 0
<EXTRAORDINARY> (14,800)
<CHANGES> 0
<NET-INCOME> 5,500
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.26
</TABLE>
