<PAGE>
1
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, 1998
|_| 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: 20.8 million as of
November 2, 1998.
The Exhibit Index appears on page 33.
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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 $150 million principal amount of
8-7/8% Senior Subordinated Notes due 2008 (the "Senior Subordinated Notes"). See
Note G -- Consolidating Financial Statements.
State or other jurisdiction of I.R.S. employer
Guarantor incorporation or organization identification number
Terex Cranes, Inc. Delaware 06-1513089
PPM Cranes, Inc. Delaware 39-1611683
Koehring Cranes, Inc. Delaware 06-1423888
Terex-Telelect, Inc. Delaware 41-1603748
Terex-RO Corporation Kansas 44-0565380
Terex Aerials, Inc. Wisconsin 39-1028686
Terex Mining Equipment, Inc. Delaware 06-1503634
Payhauler Corp. Illinois 36-3195008
American Crane Corporation North Carolina 56-1570091
Page No.
PART I FINANCIAL INFORMATION
Item 1 Condensed Consolidated Financial Statements
TEREX CORPORATION
Condensed Consolidated Statement of Operations --
Three months and nine months ended
September 30, 1998 and 1997........................................3
Condensed Consolidated Balance Sheet --
September 30, 1998 and December 31, 1997.............................4
Condensed Consolidated Statement of Cash Flows --
Nine months ended September 30, 1998 and 1997........................5
Notes to Condensed Consolidated Financial Statements --
September 30, 1998...................................................6
PPM CRANES, INC.
Condensed Consolidated Statement of Operations --
Three and nine months ended September 30, 1998 and 1997.............17
Condensed Consolidated Balance Sheet -- September 30, 1998
and December 31, 1997...............................................18
Condensed Consolidated Statement of Cash Flows --
Nine months ended September 30, 1998 and 1997.......................19
Notes to Condensed Consolidated Financial Statements --
September 30, 1998..................................................20
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................22
PART II OTHER INFORMATION
Item 1 Legal Proceedings..................................................30
Item 2 Changes in Securities and Use of Proceeds..........................30
Item 3 Defaults Upon Senior Securities....................................30
Item 4 Submission of Matters to a Vote of Security Holders................30
Item 5 Other Information..................................................30
Item 6 Exhibits and Reports on Form 8-K...................................31
SIGNATURES ................................................................32
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3
PART 1. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in millions, except per share data)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
--------------------------- ---------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales.....................................................$ 318.7 $ 214.1 $ 912.8 $ 622.6
Cost of goods sold............................................ 260.0 177.1 748.7 519.8
------------- ------------- ------------- -------------
Gross profit............................................. 58.7 37.0 164.1 102.8
Engineering, selling and administrative expenses.............. 26.0 17.8 74.4 51.1
------------- ------------- ------------- -------------
Income from operations................................... 32.7 19.2 89.7 51.7
Other income (expense):
Interest income.......................................... 0.7 0.1 1.5 0.8
Interest expense......................................... (12.6) (9.6) (33.6) (30.3)
Other income (expense) - net............................. (0.8) (1.0) (2.0) (1.5)
------------- ------------- ------------- -------------
Income before income taxes and extraordinary items............ 20.0 8.7 55.6 20.7
Provision for income taxes.................................... (0.3) --- (0.9) (0.4)
------------- ------------- ------------- -------------
Income before extraordinary items............................. 19.7 8.7 54.7 20.3
Extraordinary loss on retirement of debt...................... --- (12.2) (38.3) (14.8)
------------- ------------- ------------- -------------
Net income (loss)............................................. 19.7 (3.5) 16.4 5.5
Less preferred stock accretion................................ --- (0.4) --- (1.2)
------------- ------------- ------------- -------------
Income (loss) applicable to common stock......................$ 19.7 $ (3.9) $ 16.4 $ 4.3
============= ============= ============= =============
EARNINGS PER SHARE:
Basic
Income before extraordinary items.......................$ 0.95 $ 0.47 $ 2.64 $ 1.28
Extraordinary loss on retirement of debt................ --- (0.68) (1.85) (0.99)
------------- ------------- ------------- -------------
Net income (loss).....................................$ 0.95 $ (0.21) $ 0.79 $ 0.29
============= ============= ============= =============
Diluted
Income before extraordinary items.......................$ 0.88 $ 0.43 $ 2.44 $ 1.16
Extraordinary loss on retirement of debt................ --- (0.63) (1.71) (0.90)
------------- ------------- ------------- -------------
Net income (loss).....................................$ 0.88 $ (0.20) $ 0.73 $ 0.26
============= ============= ============= =============
Weighted average number of common and common equivalent
shares outstanding in per share calculation
(See Exhibit 11.1)
Basic................................................. 20.8 17.8 20.7 14.9
Diluted............................................... 22.5 19.4 22.4 16.4
</TABLE>
The accompanying notes are an integral part of these financial statements.
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4
TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(in millions)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
---------------- ----------------
ASSETS
Current assets
<S> <C> <C>
Cash and cash equivalents..........................................................$ 38.8 $ 28.7
Trade receivables (net of allowance of $5.7 at September 30, 1998
and $4.5 at December 31, 1997)................................................... 278.5 139.3
Net inventories.................................................................... 430.5 232.1
Other current assets............................................................... 23.2 26.4
----------------- -----------------
Total current assets........................................................... 771.0 426.5
Long-term assets
Property, plant and equipment - net................................................ 89.6 47.8
Goodwill - net..................................................................... 171.5 88.4
Other assets - net................................................................. 38.7 25.8
----------------- -----------------
Total assets $ 1,070.8 $ 588.5
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable and current portion of long-term debt................................$ 36.9 $ 26.6
Trade accounts payable............................................................. 196.1 138.1
Accrued compensation and benefits.................................................. 20.6 16.4
Accrued warranties and product liability........................................... 37.5 25.3
Other current liabilities.......................................................... 79.7 29.7
----------------- -----------------
Total current liabilities...................................................... 370.8 236.1
Non current liabilities
Long-term debt, less current portion............................................... 576.8 273.5
Other.............................................................................. 42.1 19.3
Commitments and contingencies
Stockholders' equity
Warrants to purchase common stock.................................................. 0.8 0.8
Equity rights...................................................................... 3.1 3.2
Common stock, $.01 par value - authorized 30.0 shares;
issued and outstanding 20.8 at September 30, 1998 and 20.5
at December 31, 1997............................................................. 0.2 0.2
Additional paid-in capital......................................................... 178.9 178.7
Accumulated deficit................................................................ (99.0) (115.4)
Pension liability adjustment....................................................... (1.8) (1.8)
Cumulative translation adjustment.................................................. (1.1) (6.1)
----------------- -----------------
Total stockholders' equity..................................................... 81.1 59.6
----------------- -----------------
Total liabilities and stockholders' equity..............................................$ 1,070.8 $ 588.5
================= =================
</TABLE>
The accompanying notes are an integral part of these financial statements.
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5
TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
---------------------------
1998 1997
------------- -------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss)...............................................................$ 16.4 $ 5.5
Adjustments to reconcile net income to cash used in operating activities:
Depreciation............................................................... 7.4 5.8
Amortization............................................................... 5.1 4.6
Extraordinary loss on retirement of debt................................... 38.3 ---
Other, net................................................................. --- 5.0
Changes in operating assets and liabilities (net of effects of
acquisitions):
Trade receivables........................................................ (78.0) (21.9)
Net inventories.......................................................... (55.8) (6.3)
Trade accounts payable................................................... 18.1 (8.4)
Accrued compensation and benefits........................................ 5.5 (3.3)
Other, net............................................................... 3.9 (0.8)
------------- -------------
Net cash provided by (used in) operating activities................... (39.1) (19.8)
------------- -------------
INVESTING ACTIVITIES
Acquisition of businesses, net of cash acquired................................. (184.9) (97.2)
Capital expenditures............................................................ (7.3) (9.1)
Proceeds from sale of excess assets............................................. 2.0 6.7
------------- -------------
Net cash provided by (used in) investing activities................... (190.2) (99.6)
------------- -------------
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt, net of issuance costs................. 513.6 ---
Redemption of preferred stock................................................... --- (45.4)
Principal repayments of long-term debt.......................................... (170.3) (83.9)
Net incremental borrowings under revolving line of credit agreements............ (71.6) 87.0
Payment of premiums on early extinguishment of debt............................. (29.0) ---
Issuance of common stock........................................................ --- 104.6
Other........................................................................... (1.8) (1.5)
------------- -------------
Net cash provided by (used in) financing activities................... 240.9 60.8
------------- -------------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS....................................................... (1.5) (6.7)
------------- -------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................................................................ 10.1 (65.3)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD................................... 28.7 72.0
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.........................................$ 38.8 $ 6.7
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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6
TEREX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
(in millions, unless otherwise noted)
NOTE A -- BASIS OF PRESENTATION
Basis of Presentation. The accompanying unaudited condensed consolidated
financial statements of Terex Corporation and subsidiaries as of September 30,
1998 and for the three and nine months ended September 30, 1998 and 1997 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, 1997, has been derived from the audited consolidated
balance sheet as of that date.
The condensed consolidated financial statements include the accounts of Terex
Corporation and its majority owned subsidiaries ("Terex" or the "Company"). All
material intercompany balances, transactions and profits have been eliminated.
In the opinion of management, all adjustments considered necessary for a fair
presentation have been made. Such adjustments consist only of those of a normal
recurring nature. Operating results for the three and nine months ended
September 30, 1998 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1998. 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, 1997.
In the first quarter of 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income." SFAS
No. 130 requires disclosure of total non-shareowner changes in equity in interim
periods and additional disclosures of the components of non-shareowner changes
in equity on an annual basis. Total non-shareowner changes in equity include all
changes in equity during a period except those resulting from investments by,
and distributions to, shareowners. The specific components include: net income,
deferred gains and losses resulting from foreign currency translation, and
minimum pension liability adjustments. For the three months ended September 30,
1998 and September 30, 1997, and the nine months ended September 30, 1998 and
September 30, 1997, total non-shareowner changes in equity were $35.5, $(6.0),
$21.4 and $(4.3), respectively.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
establishes a new model for accounting for derivative and hedging activities and
supersedes and amends a number of existing standards. SFAS No. 133 is effective
for fiscal years beginning after June 15, 1999. Upon initial application, all
derivatives are required to be recognized in the statement of financial position
as either assets or liabilities and measured at fair value. Changes in the fair
value of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as part of
a hedge transaction and, if it is, the type of hedge transaction. In addition,
all hedging relationships must be reassessed and documented pursuant to the
provisions of SFAS No. 133. The Company does not expect adoption of this
statement to have a significant impact on its financial position or results of
operations.
NOTE B -- ACQUISITIONS
On January 5, 1998, the Company completed the purchase of Payhauler Corp.
("Payhauler"). Payhauler, which is part of the Terex Earthmoving segment,
manufactures four-wheel drive off-highway trucks at its facility in Batavia,
Illinois.
On March 31, 1998, the Company purchased all of the outstanding shares of O&K
Mining GmbH ("O&K Mining") from O&K Orenstein & Koppel AG ("Orenstein & Koppel")
for net aggregate consideration of approximately $168, subject to certain
post-closing adjustments. The transaction was financed through the issuance of
the Company's New Senior Subordinated Notes (as defined in Note C below) and
borrowings under the Company's New Bank Credit Facility (as defined in Note C
below). O&K Mining, which is part of the Terex Earthmoving segment, is
headquartered in Dortmund, Germany, and has operations in the United States, the
United Kingdom, Australia, Canada, South Africa and Singapore. O&K Mining
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7
markets a complete range of large hydraulic mining shovels serving the global
surface mining industry and the global construction and infrastructure
development markets.
On May 4, 1998, the Company completed the purchase of Holland Lift International
B.V. ("Holland Lift"). Holland Lift, which is part of the Terex Lifting segment,
manufactures aerial work platforms at its facility in the Netherlands.
On July 31, 1998, the Company completed the acquisition of American Crane
Corporation ("American Crane"). American Crane, which is part of the Terex
Lifting segment, manufactures lattice boom cranes at its facility in Wilmington,
North Carolina.
The Payhauler, O&K Mining, Holland Lift and American Crane acquisitions (the
"Acquired Businesses") 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 $83.8)
is being amortized on a straight-line basis over 40 years.
The estimated fair values of assets and liabilities of the Acquired Businesses
are summarized as follows:
Cash.................................................$ 4.0
Accounts receivable.................................. 40.5
Inventories.......................................... 142.6
Other current assets................................. 10.0
Property, plant and equipment........................ 37.5
Goodwill............................................. 83.8
Other assets......................................... 4.1
Accounts payable and other current liabilities....... (104.2)
Other non-current liabilities........................ (22.4)
---------------
$ 195.9
===============
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 the date of acquisition. The following
pro forma summary presents the consolidated results of operations as though the
Company completed the acquisition of the Acquired Businesses as of the beginning
of the respective period, after giving effect to certain adjustments, including
amortization of goodwill, interest expense and amortization of debt issuance
costs on the New Senior Subordinated Notes:
Pro Forma for the
-----------------------------------------
Nine Months Ended Year Ended
September 30, 1998 December 31, 1997
-------------------- --------------------
Net sales..............................$ 986.2 $ 1,185.2
Income from operations................. 87.6 82.5
Income before extraordinary items...... 47.5 18.4
Income before extraordinary items,
per share:
Basic...............................$ 2.29 $ 0.84
Diluted.............................$ 2.12 $ 0.77
The pro forma information is not necessarily indicative of what the actual
results of operations of the Company would have been for the periods indicated,
nor does it purport to represent the results of operations for future periods.
NOTE C -- REFINANCING
On March 6, 1998, the Company redeemed or defeased all of its $166.7 principal
amount of its then outstanding 13-1/4% Senior Secured Notes due 2002 (the
"Senior Secured Notes"). Concurrently therewith, the Company also refinanced
substantially all of its then existing domestic and foreign revolving credit
debt. The proceeds for the offer to purchase and the repayment of its then
existing revolving credit facility were obtained from borrowings under the
Company's new $500.0 global bank credit facility ("New Bank Credit Facility").
In connection with the refinancing of the Company's then existing credit
facility and the repurchase of the Senior Secured Notes, the Company incurred
extraordinary losses of $1.9 and $36.4, respectively. These extraordinary losses
were recorded in the first quarter of 1998.
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8
The New Bank Credit Facility consists of a new secured global revolving credit
facility aggregating up to $125.0 (the "New Revolving Credit Facility") and two
term loan facilities (collectively, the "Term Loan Facilities") providing for
loans in an aggregate principal amount of up to approximately $375.0. The New
Revolving Credit Facility is used for working capital and general corporate
purposes, including acquisitions. With limited exceptions, the obligations of
the Borrowers under the New Bank Credit Facility are secured by a pledge of all
of the capital stock of domestic subsidiaries of the Company, a pledge of 65% of
the stock of the foreign subsidiaries of the Company and a first priority
security interest in, and mortgages on, substantially all of the assets of Terex
and its domestic subsidiaries. The New Bank Credit Facility contains covenants
limiting the Borrowers' activities, including, without limitation, limitations
on dividends and other payments, liens, investments, incurrence of indebtedness,
mergers and asset sales, related party transactions and capital expenditures.
The New Bank Credit Facility also contains certain financial and operating
covenants, including a maximum leverage ratio, a minimum interest coverage ratio
and a minimum fixed charge coverage ratio.
Pursuant to the Term Loan Facilities, the Borrowers have borrowed $175.0 in
aggregate principal amount pursuant to a Term Loan A due March 2004 (the "Term A
Loan") and $200.0 in aggregate principal amount pursuant to a Term Loan B due
March 2005 (the "Term B Loan"). The outstanding principal amount of the Term A
Loan currently bears interest, at the applicable Borrower's option, at an all-in
drawn cost of 2.00% per annum in excess of the adjusted eurodollar rate or, with
respect to U.S. dollar denominated alternate based rate loans, at an all-in
drawn cost of 1.00% per annum in excess of the prime rate. The outstanding
principal amount of the Term B Loan currently bears interest, at the Company's
option, at a rate of 2.50% per annum in excess of the adjusted eurodollar rate
or, with respect to U.S. Dollar denominated alternate base rate loans, 1.50% in
excess of the prime rate. The Term A Loan amortizes on a quarterly basis, in the
annual percentages of 0%, 16%, 16%, 21%, 21% and 26%, respectively, during the
six-year term of the loan. The Term B Loan amortizes in an annual percentage of
1% during each of the first six years of the term of the loan and 94% in the
seventh year of the term of the loan. The Term A Loan and Term B Loan are
subject to mandatory prepayment in certain circumstances and are voluntarily
prepayable without payment of a premium (subject to reimbursement of the
lenders' costs in case of prepayment of eurodollar loans other than on the last
day of an interest period).
Pursuant to the New Revolving Credit Facility, the Borrowers have available an
aggregate amount of up to $125.0. The outstanding principal amount of loans
under the New Revolving Credit Facility bears interest, at the applicable
Borrower's option, at an all-in drawn cost of 2.00% per annum in excess of the
adjusted eurocurrency rate or, with respect to U.S. dollar denominated alternate
base rate loans, at an all-in drawn cost of 1.00% per annum in excess of the
prime rate. The New Revolving Credit Facility will terminate on the sixth
anniversary thereof.
On March 31, 1998, the Company issued and sold $150.0 aggregate principal amount
of 8-7/8% Senior Subordinated Notes due 2008 (the "New Senior Subordinated
Notes"). The New Senior Subordinated Notes were issued in a private placement
made in reliance upon an exemption from registration under the Securities Act of
1933, as amended. The net proceeds from the offering were used to fund a portion
of the aggregate consideration of the acquisition of O&K Mining and for general
working capital purposes. During the third quarter of 1998, the New Senior
Subordinated Notes were exchanged for New Senior Subordinated Notes registered
under the Securities Act of 1933, as amended.
NOTE D -- INVENTORIES
Net inventories consist of the following:
September 30, December 31,
1998 1997
----------------- ---------------
Finished equipment....................... $ 135.1 $ 54.1
Replacement parts........................ 129.8 82.8
Work-in-process.......................... 51.5 22.4
Raw materials and supplies............... 114.1 72.8
----------------- ---------------
Net inventories.......................... $ 430.5 $ 232.1
================= ===============
NOTE E -- PROPERTY, PLANT AND EQUIPMENT
Net property, plant and equipment consists
of the following: September 30, December 31,
1998 1997
---------------- ----------------
Property, plant and equipment..................$ 127.5 $ 83.0
Less: Accumulated depreciation................ (37.9) (35.2)
---------------- ----------------
Net property, plant and equipment..............$ 89.6 $ 47.8
================ ================
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9
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 ("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 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 raised 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. In June 1996, the
Company was advised that the matter was being referred back to the audit
division of the IRS. The IRS is currently reviewing information provided by the
Company. 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, 1998 of approximately $107.6. 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 10% 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 might 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.
NOTE G -- CONSOLIDATING FINANCIAL STATEMENTS
The New Senior Subordinated Notes are jointly and severally guaranteed by the
following subsidiaries of the Company: Terex Cranes, Inc., PPM Cranes, Inc.,
Koehring Cranes, Inc., Terex-Telelect, Inc., Terex-RO Corporation, Terex
Aerials, Inc., Terex Mining Equipment, Inc., Payhauler Corp. and American Crane
Corporation (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.
<PAGE>
10
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-Telelect,
Inc., Terex Aerials, Inc., Terex-RO Corporation, Terex Mining Equipment, Inc.,
Payhauler Corp. and American Crane Corporation (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.
Non-Guarantor Subsidiaries combine the operations of subsidiaries which have not
provided a guarantee of the obligations of Terex Corporation under the New
Senior Subordinated 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 of Australia Pty Ltd., PPM Far East Private Ltd., O&K Mining GmbH, O&K
Orenstein & Koppel Limited, O&K Orenstein & Koppel, Inc. (United States), O&K
Orenstein & Koppel (South Africa) (Proprietary) Limited, O&K Orenstein & Koppel,
Inc. (Canada), Orenstein & Koppel Australia Pty Ltd., O&K Far East Pte. Ltd. and
Holland Lift International B.V.
Debt and goodwill allocated to subsidiaries are presented on an accounting
"push-down" basis.
<PAGE>
11
TEREX CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998
(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............................... $ 57.2 $ 125.0 $ 17.8 $ 180.1 $ (61.4) $ 318.7
Cost of goods sold.................... 48.7 101.5 16.5 154.7 (61.4) 260.0
------------- ------------- ------------- ------------- ------------- -------------
Gross profit............................ 8.5 23.5 1.3 25.4 --- 58.7
Engineering, selling & administrative
expenses........................... 5.3 6.0 1.0 13.7 --- 26.0
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) from operations........... 3.2 17.5 0.3 11.7 --- 32.7
Interest income....................... 0.4 --- --- 0.3 --- 0.7
Interest expense...................... (2.2) (2.1) (1.2) (7.1) --- (12.6)
Income (loss) from equity investees... 18.4 (23.2) 0.1 --- 4.7 ---
Other income (expense) - net.......... (0.1) (0.1) (0.1) (0.5) --- (0.8)
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) before income taxes and
extraordinary items.................... 19.7 (7.9) (0.9) 4.4 4.7 20.0
Provision for income taxes............ --- --- --- (0.3) --- (0.3)
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) before extraordinary items 19.7 (7.9) (0.9) 4.1 4.7 19.7
Extraordinary loss on retirement of debt --- --- --- --- --- ---
------------- ------------- ------------- ------------- ------------- -------------
Net income (loss)....................... 19.7 (7.9) (0.9) 4.1 4.7 19.7
Less preferred stock accretion........ --- --- --- --- --- ---
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) applicable to common stock $ 19.7 $ (7.9) $ (0.9) $ 4.1 $ 4.7 $ 19.7
============= ============= ============= ============= ============= =============
</TABLE>
TEREX CORPORATION
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> <C> <C> <C> <C> <C>
Net sales............................... $ 32.9 $ 82.4 $ 20.3 $ 104.0 $ (25.5) $ 214.1
Cost of goods sold.................... 26.4 67.2 17.9 90.9 (25.3) 177.1
------------- ------------- ------------- ------------- ------------- -------------
Gross profit............................ 6.5 15.2 2.4 13.1 (0.2) 37.0
Engineering, selling & administrative
expenses........................... 3.8 5.3 1.0 7.7 --- 17.8
------------- ------------- ------------- ------------- ------------- -------------
Income from operations.................. 2.7 9.9 1.4 5.4 (0.2) 19.2
Interest income....................... --- 0.1 --- --- --- 0.1
Interest expense...................... (2.8) (1.8) (1.7) (3.3) --- (9.6)
Income (loss) from equity investees... 9.0 (5.7) 0.2 --- (3.5) ---
Other income (expense) - net.......... (0.6) --- --- (0.4) --- (1.0)
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) before income taxes and
extraordinary items.................... 8.3 2.5 (0.1) 1.7 (3.7) 8.7
Provision for income taxes............ --- --- --- --- --- ---
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) before extraordinary items 8.3 2.5 (0.1) 1.7 (3.7) 8.7
Extraordinary loss on retirement of debt (12.2) --- --- --- --- (12.2)
------------- ------------- ------------- ------------- ------------- -------------
Net income (loss)....................... (3.9) 2.5 (0.1) 1.7 (3.7) (3.5)
Less preferred stock accretion........ --- (0.4) --- --- --- (0.4)
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) applicable to common stock $ (3.9) $ 2.1 $ (0.1) $ 1.7 $ (3.7) $ (3.9)
============= ============= ============= ============= ============= =============
</TABLE>
<PAGE>
12
TEREX CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998
(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............................... $ 164.7 $ 345.5 $ 66.0 $ 489.7 $ (153.1) $ 912.8
Cost of goods sold.................... 139.5 280.9 59.6 419.6 (150.9) 748.7
------------- ------------- ------------- ------------- ------------- -------------
Gross profit............................ 25.2 64.6 6.4 70.1 (2.2) 164.1
Engineering, selling & administrative
expenses........................... 14.8 18.7 2.7 38.2 --- 74.4
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) from operations........... 10.4 45.9 3.7 31.9 (2.2) 89.7
Interest income....................... 0.9 --- --- 0.6 --- 1.5
Interest expense...................... (5.9) (6.2) (4.1) (17.4) --- (33.6)
Income (loss) from equity investees... 20.3 (16.3) (0.1) --- (3.9) ---
Other income (expense) - net.......... (0.7) (0.1) (0.2) (1.0) --- (2.0)
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) before income taxes and
extraordinary items................... 25.0 23.3 (0.7) 14.1 (6.1) 55.6
Provision for income taxes............ (0.1) --- --- (0.8) --- (0.9)
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) before extraordinary items 24.9 23.3 (0.7) 13.3 (6.1) 54.7
Extraordinary loss on retirement of debt (8.5) (5.0) (10.4) (14.4) --- (38.3)
------------- ------------- ------------- ------------- ------------- -------------
Net income (loss)....................... 16.4 18.3 (11.1) (1.1) (6.1) 16.4
Less preferred stock accretion........ --- --- --- --- --- ---
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) applicable to common stock $ 16.4 $ 18.3 $ (11.1) $ (1.1) $ (6.1) $ 16.4
============= ============= ============= ============= ============= =============
</TABLE>
TEREX CORPORATION
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> <C> <C> <C> <C> <C>
Net sales............................... $ 128.2 $ 216.4 $ 59.6 $ 298.9 $ (80.5) $ 622.6
Cost of goods sold.................... 109.1 177.4 52.8 259.5 (79.0) 519.8
------------- ------------- ------------- ------------- ------------- -------------
Gross profit............................ 19.1 39.0 6.8 39.4 (1.5) 102.8
Engineering, selling & administrative
expenses........................... 11.5 13.2 2.9 23.5 --- 51.1
------------- ------------- ------------- ------------- ------------- -------------
Income from operations.................. 7.6 25.8 3.9 15.9 (1.5) 51.7
Interest income....................... 0.5 0.1 --- 0.2 --- 0.8
Interest expense...................... (11.6) (4.4) (5.1) (9.2) --- (30.3)
Income (loss) from equity investees... 24.2 (6.8) 0.5 --- (17.9) ---
Other income (expense) - net.......... (1.5) 0.2 (0.1) (0.1) --- (1.5)
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) before income taxes and
extraordinary items................... 19.2 14.9 (0.8) 6.8 (19.4) 20.7
Provision for income taxes............ --- --- --- (0.4) --- (0.4)
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) before extraordinary items 19.2 14.9 (0.8) 6.4 (19.4) 20.3
Extraordinary loss on retirement of debt (14.8) --- --- --- --- (14.8)
------------- ------------- ------------- ------------- ------------- -------------
Net income (loss)....................... 4.4 14.9 (0.8) 6.4 (19.4) 5.5
Less preferred stock accretion........ (0.1) (1.1) --- --- --- (1.2)
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) applicable to common stock $ 4.3 $ 13.8 $ (0.8) $ 6.4 $ (19.4) $ 4.3
============= ============= ============= ============= ============= =============
</TABLE>
<PAGE>
13
TEREX CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 1998
(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.......... $ 28.6 $ 1.1 $ 0.1 $ 9.0 $ --- $ 38.8
Trade receivables - net............ 24.6 67.3 19.3 167.3 --- 278.5
Intercompany receivables........... 9.4 16.8 12.8 110.5 (149.5) ---
Net inventories.................... 92.3 86.9 30.0 224.1 (2.8) 430.5
Other current assets............... 5.3 2.8 0.1 15.0 --- 23.2
------------- ------------- ------------- ------------- ------------- -------------
Total current assets............. 160.2 174.9 62.3 525.9 152.3 771.0
Long-Term Assets
Property, plant & equipment - net.. 14.8 28.7 --- 46.1 --- 89.6
Investment in and advances
to (from) subsidiaries........... 97.2 (121.1) (3.7) (75.1) 102.7 ---
Goodwill - net..................... 20.5 72.9 14.1 64.0 --- 171.5
Other assets - net................. 9.4 15.2 1.4 12.7 --- 38.7
------------- ------------- ------------- ------------- ------------- -------------
Total Assets............................ $ 302.1 $ 170.6 $ 74.1 $ 573.6 $ (49.6) $ 1,070.8
============= ============= ============= ============= ============= =============
Liabilities And Stockholders' Equity
(Deficit)
Current Liabilities
Notes payable and current portion
of long-term debt................ $ 9.1 $ 5.9 $ 1.4 $ 20.5 $ --- $ 36.9
Trade accounts payable............. 26.3 58.5 8.4 102.9 --- 196.1
Intercompany payables.............. 50.1 18.3 26.5 54.6 (149.5) ---
Accruals and other current
liabilities...................... 43.6 20.2 9.3 64.7 --- 137.8
------------- ------------- ------------- ------------- ------------- -------------
Total current liabilities........ 129.1 102.9 45.6 242.7 (149.5) 370.8
Non-Current Liabilities
Long-term debt less current portion 74.4 100.2 60.2 342.0 --- 576.8
Other long-term liabilities........ 17.5 3.2 0.6 20.8 --- 42.1
Stockholders' equity (deficit)....... 81.1 (35.7) (32.3) (31.9) 99.5 81.1
------------- ------------- ------------- ------------- ------------- -------------
Total Liabilities And Stockholders'
Equity (Deficit)..................... $ 302.1 $ 170.6 $ 74.1 $ 573.6 $ (49.6) $ 1,070.8
============= ============= ============= ============= ============= =============
</TABLE>
<PAGE>
14
TEREX CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 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> <C> <C> <C> <C>
Cash and cash equivalents.......... $ 5.6 $ 0.1 $ --- $ 23.0 $ --- $ 28.7
Trade receivables - net............ 10.6 40.8 20.5 67.4 --- 139.3
Intercompany receivables........... 4.3 19.5 12.6 45.6 (82.0) ---
Inventories - net.................. 55.7 59.7 27.8 92.4 (3.5) 232.1
Other current assets............... 3.5 2.5 0.1 20.3 --- 26.4
------------- ------------- ------------- ------------- ------------- -------------
Total current assets............. 79.7 122.6 61.0 248.7 (85.5) 426.5
Property, plant & equipment - net.... 5.2 18.5 --- 24.1 --- 47.8
Investment in and advances to
(from) subsidiaries................ 110.2 (99.6) (9.7) (115.7) 114.8 ---
Goodwill - net....................... --- 53.9 14.9 19.6 --- 88.4
Other assets - net................... 5.7 15.9 2.0 2.2 --- 25.8
------------- ------------- ------------- ------------- ------------- -------------
Total Assets............................ $ 200.8 $ 111.3 $ 68.2 $ 178.9 $ 29.3 $ 588.5
============= ============= ============= ============= ============= =============
Liabilities And Stockholders' Equity
(Deficit)
Current Liabilities
Notes payable and current portion
of long-term debt................ $ 0.5 $ 3.0 $ 0.8 $ 22.3 $ --- $ 26.6
Trade accounts payable............. 24.3 37.8 7.4 68.6 --- 138.1
Intercompany payables.............. 21.0 21.3 19.9 19.8 (82.0) ---
Accruals and other current 26.0 14.8 9.6 21.0 --- 71.4
liabilities......................
------------- ------------- ------------- ------------- ------------- -------------
Total current liabilities........ 71.8 76.9 37.7 131.7 (82.0) 236.1
Long-term debt less current portion.. 62.6 82.3 51.3 77.3 --- 273.5
Other long-term liabilities.......... 6.8 6.1 0.9 5.5 --- 19.3
Stockholders' equity (deficit)....... 59.6 (54.0) (21.7) (35.6) 111.3 59.6
------------- ------------- ------------- ------------- ------------- -------------
Total Liabilities And Stockholders'
Equity (Deficit)..................... $ 200.8 $ 111.3 $ 68.2 $ 178.9 $ 29.3 $ 588.5
============= ============= ============= ============= ============= =============
</TABLE>
<PAGE>
15
TEREX CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998
(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................. $ 17.3 $ (1.6) $ (1.9) $ (52.9) $ --- $ (39.1)
------------- ------------- ------------- ------------- ------------- -------------
Cash flows from investing activities
Acquisition of businesses, net of
cash acquired...................... (184.9) --- --- --- --- (184.9)
Capital expenditures................. (0.9) (2.7) (0.1) (3.6) --- (7.3)
Proceeds from sale of excess assets.. --- 1.9 --- 0.1 --- 2.0
------------- ------------- ------------- ------------- ------------- -------------
Net cash provided by (used in)
investing activities.............. (185.8) (0.8) (0.1) (3.5) --- (190.2)
------------- ------------- ------------- ------------- ------------- -------------
Cash flows from financing activities
Proceeds from issuance of long-term
debt, net of issuance costs....... 254.4 90.8 58.6 109.8 --- 513.6
Principal repayments of long-term debt (38.8) (20.1) (47.9) (63.5) --- (170.3)
Net incremental borrowings (repayments)
under revolving line of credit
agreements......................... (17.6) (64.1) --- 10.1 --- (71.6)
Payment of premiums on early
extinguishment of debt............. (6.0) (3.7) (8.6) (10.7) --- (29.0)
Other................................ --- --- --- (1.8) --- (1.8)
------------- ------------- ------------- ------------- ------------- -------------
Net cash provided by (used in)
financing activities............. 192.0 2.9 2.1 43.9 --- 240.9
------------- ------------- ------------- ------------- ------------- -------------
Effect of exchange rates on cash and
cash equivalents..................... (0.5) 0.5 --- (1.5) --- (1.5)
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in cash and cash
equivalents.......................... 23.0 1.0 0.1 (14.0) --- 10.1
Cash and cash equivalents, beginning of
period............................... 5.6 0.1 --- 23.0 --- 28.7
------------- ------------- ------------- ------------- ------------ -------------
Cash and cash equivalents,
end of period........................ $ 28.6 $ 1.1 $ 0.1 $ 9.0 $ --- $ 38.8
============= ============= ============= ============= ============= =============
</TABLE>
<PAGE>
16
TEREX CORPORATION
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> <C> <C> <C> <C>
operating activities................. $ (5.5) $ (4.1) $ 1.1 $ (11.3) $ --- $ (19.8)
------------- ------------- ------------- ------------- ------------- -------------
Cash flows from investing activities
Acquisition of businesses, net
of cash acquired................... (97.2) --- --- --- --- (97.2)
Capital expenditures................. (1.6) (0.4) (0.6) (6.5) --- (9.1)
Proceeds from sale of excess assets.. 0.1 5.9 0.6 0.1 --- 6.7
------------- ------------- ------------- ------------- ------------- -------------
Net cash provided by (used in)
investing activities.............. (98.7) 5.5 --- (6.4) --- (99.6)
------------- ------------- ------------- ------------- ------------- -------------
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 (83.3) --- (0.6) --- --- (83.9)
Net incremental borrowings
(repayments) under revolving line
of credit agreement................ 78.9 --- (0.5) 8.6 --- 87.0
Other................................ (1.1) --- --- (0.4) --- (1.5)
------------- ------------- ------------- ------------- ------------- -------------
Net cash provided by (used in)
financing activities............. 53.7 --- (1.1) 8.2 --- 60.8
------------- ------------- ------------- ------------- ------------- -------------
Effect of exchange rates on cash and
cash equivalents..................... --- --- --- (6.7) --- (6.7)
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in cash and cash
equivalents.......................... (50.5) 1.4 --- (16.2) --- (65.3)
Cash and cash equivalents, beginning of
period............................... 53.4 0.1 --- 18.5 --- 72.0
Cash and cash equivalents,
end of period........................ $ 2.9 $ 1.5 $ --- $ 2.3 $ --- $ 6.7
============= ============= ============= ============= ============= =============
</TABLE>
<PAGE>
17
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,
------------- ------------- ------------- --------------
1998 1997 1998 1997
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Net sales............................................$ 19.1 $ 21.8 $ 72.4 $ 66.3
Cost of goods sold................................... 17.3 19.0 64.4 57.9
------------- ------------- ------------ --------------
Gross profit.................................... 1.8 2.8 8.0 8.4
Engineering, selling and administrative expenses..... 1.2 1.1 3.5 3.6
------------- ------------- ------------- -------------
Income from operations.......................... 0.6 1.7 4.5 4.8
Other income (expense):
Interest expense................................ (1.4) (1.9) (4.4) (5.5)
Amortization of debt issuance costs............. (0.1) (0.1) (0.3) (0.3)
Other, net...................................... --- 0.2 --- 0.2
------------- ------------- ------------- --------------
Income (loss) before income taxes and extraordinary
items.............................................. (0.9) (0.1) (0.2) (0.8)
Provision for income taxes........................... --- --- --- ---
------------- ------------- ------------- --------------
Income (loss) before extraordinary items............. (0.9) (0.1) (0.2) (0.8)
Extraordinary loss on retirement of debt............. --- --- (10.9) ---
------------- ------------- ------------- --------------
Net loss.............................................$ (0.9) $ (0.1) $ (11.1) $ (0.8)
============= ============= ============= ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
18
PPM CRANES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(in millions, except share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
---------------- -----------------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents...........................................$ 0.3 $ 0.2
Trade accounts receivables (net of allowance of $0.8 at September
30, 1998 and $0.7 at December 31,1997)............................ 20.6 21.4
Net inventories..................................................... 32.6 29.7
Due from affiliates................................................. 14.2 14.0
Prepaid expenses and other current assets........................... 0.1 0.2
---------------- -----------------
Total current assets.............................................. 67.8 65.5
Property, plant and equipment - net................................. --- ---
Goodwill - net...................................................... 14.8 15.7
Other assets - net.................................................. 1.3 1.9
---------------- -----------------
Total assets...........................................................$ 83.9 $ 83.1
================ =================
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Trade accounts payable..............................................$ 8.5 $ 7.4
Accrued warranties and product liability............................ 8.2 7.5
Accrued expenses.................................................... 1.3 2.3
Due to affiliates................................................... 27.2 22.0
Due to Terex Corporation............................................ 5.6 9.8
Current portion of long-term debt................................... 0.8 1.0
----------------------------------
Total current liabilities......................................... 51.6 50.0
----------------------------------
Non-current liabilities:
Long-term debt, less current portion................................ 63.7 53.8
Other non-current liabilities....................................... 0.9 1.0
----------------------------------
Total non-current liabilities..................................... 64.6 54.8
----------------------------------
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, $.01 par value -
authorized 2,000 shares; issued and outstanding 413 shares........ --- ---
Accumulated deficit................................................. (32.5) (21.4)
Foreign currency translation adjustment............................. 0.2 (0.3)
----------------------------------
Total shareholders' deficit....................................... (32.3) (21.7)
----------------------------------
Total liabilities and shareholders' deficit............................$ 83.9 $ 83.1
==================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
19
PPM CRANES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
-------------------
1998 1997
--------- --------
OPERATING ACTIVITIES
<S> <C> <C>
Net loss..................................................$ (11.1) $ (0.8)
Adjustments to reconcile net loss to cash used
in operating activities:
Depreciation and amortization......................... 1.4 1.2
Extraordinary loss on retirement of debt.............. 10.9 ---
Other................................................. 0.2 ---
Changes in operating assets and liabilities:
Trade accounts receivable........................... 0.8 (6.8)
Net inventories..................................... (2.9) ---
Prepaid expenses and other current assets........... 0.1 (0.1)
Trade accounts payable.............................. 1.1 3.8
Net amounts due to affiliates....................... 0.8 4.2
Other, net.......................................... (0.5) (0.4)
--------- ---------
Net cash provided by operating activities......... 0.8 1.1
--------- ---------
INVESTING ACTIVITIES
Capital expenditures...................................... (0.1) (0.6)
Proceeds from sale of property, plant and equipment....... --- 0.6
--------- --------
Net cash used in investing activities................... (0.1) ---
--------- --------
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt, net of
issuance costs.......................................... 60.0 ---
Net repayments under revolving line of credit
agreements.............................................. (0.2) (0.4)
Principal repayments of long-term debt.................... (50.8) (0.6)
Payment of premiums on early extinguishment of debt....... (8.6) ---
Other..................................................... (1.5) ---
--------- --------
Net cash used in financing activities................... (1.1) (1.0)
--------- --------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS................................. 0.5 (0.2)
--------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......... 0.1 (0.1)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............. 0.2 0.4
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD...................$ 0.3 $ 0.3
========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
20
PPM CRANES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
(in millions unless otherwise denoted)
NOTE 1 -- 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., a Delaware Corporation, completed
the acquisition of all of the capital stock of Legris Industries, Inc., a
Delaware Corporation, which then owned 92.4% of the capital stock of PPM Cranes,
Inc.
The 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 and nine months ended
September 30, 1998 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1998. For further information, refer
to the Company's consolidated financial statements and footnotes thereto for the
year ended December 31, 1997.
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 2 -- INVENTORIES
Net inventories consist of the following:
September 30, December 31,
1998 1997
----------------- -----------------
Finished equipment.........................$ 8.7 $ 10.7
Replacement parts.......................... 11.0 9.7
Work in process............................ 0.1 0.3
Raw materials and supplies................. 12.8 9.0
----------------- -----------------
$ 32.6 $ 29.7
================= =================
NOTE 3 -- PROPERTY, PLANT AND EQUIPMENT
Net property, plant and equipment consists of the following:
September 30, December 31,
1998 1997
----------------- -----------------
Property, plant and equipment..............$ 0.1 $ 0.1
Less: Accumulated depreciation............ (0.1) (0.1)
----------------- -----------------
Net property, plant and equipment..........$ --- $ ---
================= =================
<PAGE>
21
NOTE 4 - REFINANCING
On March 6, 1998, Terex Corporation redeemed or defeased all of its $166.7
principal amount of its then outstanding 13-1/4% Senior Secured Notes due 2002
(the "Senior Secured Notes"). The Company had $50.0 in principal of the Senior
Secured Notes that were redeemed. Concurrently therewith, Terex Corporation also
refinanced substantially all of its then existing domestic and foreign revolving
credit debt. The proceeds for the offer to purchase and the repayment of its
then existing revolving credit facility were obtained from borrowings under
Terex Corporation's new $500.0 global bank credit facility ("New Bank Credit
Facility"). In connection with the repurchase of the Senior Secured Notes, the
Company incurred an extraordinary loss of $10.9 in the first quarter of 1998.
The New Bank Credit Facility consists of a new secured global revolving credit
facility up to $125.0 (the "New Revolving Credit Facility") and two term loan
facilities (collectively, the "Term Loan Facilities") providing for loans in an
aggregate principal amount of up to approximately $375.0. With limited
exceptions, the obligations under the New Bank Credit Facility are secured by a
pledge of all of the capital stock of domestic subsidiaries of Terex
Corporation, a pledge of 65% of the stock of the foreign subsidiaries of Terex
Corporation and a first priority security interest in, and mortgages on,
substantially all of the assets of Terex and its domestic subsidiaries. The New
Bank Credit Facility contains covenants limiting Terex Corporation's activities,
including, without limitation, limitations on dividends and other payments,
liens, investments, incurrence of indebtedness, mergers and asset sales, related
party transactions and capital expenditures. The New Bank Credit Facility also
contains certain financial and operating covenants, including a maximum leverage
ratio, a minimum interest coverage ratio and a minimum fixed charge coverage
ratio.
Pursuant to the Term Loan Facilities, Terex Corporation has borrowed $175.0 in
aggregate principal amount pursuant to a Term Loan A due March 2004 (the "Term A
Loan") and $200.0 in aggregate principal amount pursuant to a Term Loan B due
March 2005 (the "Term B Loan"). As of September 30, 1998, the Company has $60.0
of borrowings outstanding pursuant to the Term B Loan. The outstanding principal
amount of the Term A Loan currently bears interest, at Terex Corporation's
option, at an all-in drawn cost of 2.00% per annum in excess of the adjusted
eurodollar rate or, with respect to U.S. dollar denominated alternate based rate
loans, at an all-in drawn cost of 1.00% per annum in excess of the prime rate.
The outstanding principal amount of the Term B Loan currently bears interest, at
Terex Corporation's option, at a rate of 2.50% per annum in excess of the
adjusted eurodollar rate or, with respect to U.S. Dollar denominated alternate
base rate loans, 1.50% in excess of the prime rate. The Term A Loan amortizes on
a quarterly basis, in the annual percentages of 0%, 16%, 16%, 21%, 21% and 26%,
respectively, during the six-year term of the loan. The Term B Loan amortizes in
an annual percentage of 1% during each of the first six years of the term of the
loan and 94% in the seventh year of the term of the loan. The Term A Loan and
Term B Loan are subject to mandatory prepayment in certain circumstances and are
voluntarily prepayable without payment of a premium (subject to reimbursement of
the lenders' costs in case of prepayment of eurodollar loans other than on the
last day of an interest period).
NOTE 5 - COMMITMENTS AND 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.
On March 31, 1998, Terex Corporation issued and sold $150.0 aggregate principal
amount of 8-7/8% Senior Subordinated Notes due 2008, which notes were exchanged
by Terex Corporation for 8-7/8% Senior Subordinated Notes due 2008 registered
under the Securities Act of 1933, as amended (the "New Senior Subordinated
Notes"). The New Senior Subordinated Notes are jointly and severally guaranteed
by certain domestic subsidiaries of Terex Corporation, including PPM.
<PAGE>
22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Dollar amounts are in millions, unless otherwise noted.)
Results of Operations
The Company currently operates in two industry segments: Terex Lifting and Terex
Earthmoving.
Three Months Ended September 30, 1998 Compared with the Three Months
Ended September 30, 1997
The table below is a comparison of net sales, gross profit, engineering, selling
and administrative expenses, and income from operations, by segment, for the
three months ended September 30, 1998 and 1997.
Three Months Ended
September 30,
----------------------- Increase
1998 1997 (Decrease)
----------- ----------- -----------
NET SALES
Terex Lifting.............................$ 187.2 $ 140.7 $ 46.5
Terex Earthmoving......................... 130.0 71.9 58.1
General/Corporate/Eliminations............ 1.5 1.5 ---
----------- ----------- -----------
Total...................................$ 318.7 $ 214.1 $ 104.6
=========== =========== ===========
GROSS PROFIT
Terex Lifting.............................$ 30.9 $ 24.0 $ 6.9
Terex Earthmoving......................... 27.6 12.2 15.4
General/Corporate/Eliminations............ 0.2 0.8 (0.6)
----------- ----------- -----------
Total...................................$ 58.7 $ 37.0 $ 21.7
=========== =========== ===========
ENGINEERING, SELLING AND ADMINISTRATIVE
EXPENSES
Terex Lifting.............................$ 10.4 $ 10.8 $ (0.4)
Terex Earthmoving......................... 15.2 6.1 9.1
General/Corporate/Eliminations............ 0.4 0.9 (0.5)
----------- ----------- -----------
Total...................................$ 26.0 $ 17.8 $ 8.2
=========== =========== ===========
INCOME FROM OPERATIONS
Terex Lifting.............................$ 20.5 $ 13.2 $ 7.3
Terex Earthmoving......................... 12.4 6.1 6.3
General/Corporate/Eliminations............ (0.2) (0.1) (0.1)
----------- ----------- -----------
Total...................................$ 32.7 $ 19.2 $ 13.5
=========== =========== ===========
Net Sales
Sales increased $104.6, or approximately 49%, to $318.7 for the three months
ended September 30, 1998 over the comparable 1997 period, primarily reflecting
the sales at the businesses acquired in 1998, and increased sales for Terex
Lifting.
Terex Lifting's sales were $187.2 for the three months ended September 30, 1998,
an increase of $46.5 from $140.7 for the three months ended September 30, 1997.
A significant amount of the increased sales were from the Terex Cranes-Waverly
Operations and in Europe in both cranes and aerial devices. Additionally,
approximately $10 of the increased sales were at the businesses acquired in
1998. Terex Lifting's backlog was approximately $170 at September 30, 1998 and
$122 at September 30, 1997. Backlog does not include any significant parts
orders which are normally filled in the period ordered. The sales mix was
approximately 12% parts for the three months ended September 30, 1998 compared
to approximately 13% parts for the comparable 1997 period. The decrease in parts
sales as a percentage of total sales was principally due to higher machine
sales.
<PAGE>
23
Terex Earthmoving's sales increased $58.1 to $130.0 for the three months ended
September 30, 1998 from $71.9 for the three months ended September 30, 1997,
substantially all of which related to sales at businesses acquired in 1998.
Backlog was approximately $62 at September 30, 1998 compared to $33 at September
30, 1997. The sales mix remained consistent at 30% parts for the three months
ended September 30, 1998 and 1997.
Net sales for corporate in the three months ended September 30, 1998 and 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, 1998 increased $21.7, or
59%, to $58.7 as compared to $37.0 for the three months ended September 30,
1997, with increases at both Terex Lifting and Terex Earthmoving.
Terex Lifting's gross profit increased $6.9 to $30.9 for the three months ended
September 30, 1998, compared to $24.0 for the three months ended September 30,
1997, which was the direct result of the increase in sales. The gross margin
percentage at Terex Lifting was 16.5% for the three months ended September 30,
1998 versus 17.1% for the comparable 1997 period, primarily due to sales mix.
Terex Earthmoving's gross profit increased $15.4 to $27.6 for the three months
ended September 30, 1998 compared to $12.2 for the three months ended September
30, 1997. The increase in gross profit was primarily due to the increased sales
during the 1998 third quarter and to an increase in gross profit percentage,
principally from the results of the acquired businesses in 1998. The gross
margin percentage at Terex Earthmoving was 21.2% for the three months ended
September 30, 1998 as compared to 17.0% for the three months ended September 30,
1997.
Engineering, Selling and Administrative Expenses
Engineering, selling and administrative expenses increased to $26.0 for the
three months ended September 30, 1998 from $17.8 for the three months ended
September 30, 1997, reflecting the effect of the businesses acquired in 1998.
Terex Lifting's engineering, selling and administrative expenses as a percentage
of sales decreased to 5.6% for the three months ended September 30, 1998 as
compared to 7.7% for the comparable 1997 period. The engineering, selling and
administrative expenses decreased to $10.4 for the three months ended September
30, 1998 from $10.8 for the three months ended September 30, 1997, reflecting
the results of cost savings initiatives implemented at businesses acquired in
1997 as well as increased efficiency at the existing facilities, offset somewhat
by an increase in engineering, selling and administrative expenses from
businesses acquired in 1998.
Terex Earthmoving's engineering, selling and administrative expenses increased
$9.1 to $15.2 for the three months ended September 30, 1998, as compared to $6.1
for the same period in 1997. Engineering, selling and administrative expenses as
percentage of sales increased to 11.7% for the three months ended September 30,
1998, from 8.5% for the comparable 1997 period, principally due to the effect of
the businesses acquired in 1998.
Income from Operations
On a consolidated basis, the Company had operating income of $32.7, or 10.3% of
sales, for the three months ended September 30, 1998, compared to operating
income of $19.2, or 9.0% of sales, for the three months ended September 30,
1997, for the reasons mentioned above.
Terex Lifting's income from operations of $20.5 for the three months ended
September 30, 1998 increased by $7.3 over the three months ended September 30,
1997, primarily due to increased revenues, the effect of cost control
initiatives implemented at the businesses acquired in 1997, and continued strong
performance by PPM Europe and Terex Cranes - Waverly Operations.
Terex Earthmoving's income from operations increased by $6.3 to $12.4 for the
three months ended September 30, 1998 from $6.1 for the three months ended
September 30, 1997, primarily due to the results of the 1998 acquisitions of O&K
Mining and Payhauler.
<PAGE>
24
Other Income (Expense)
During the three months ended September 30, 1998, the Company's interest expense
increased $3.0 to $12.6 from $9.6 for the comparable 1997 period. This increase
was primarily due to higher debt levels in the three months ended September 30,
1998 versus the comparable period in 1997, primarily related to the acquisition
of O&K Mining. Although debt levels increased during the three months ended
September 30, 1998 as compared to the three months ended September 30, 1997, the
average interest rate on the debt declined due to the redemption of the
Company's 13-1/4% Senior Secured Notes due 2002 (the "Senior Secured Notes") and
the refinancing of the Company's bank credit facilities.
Other income (expense) for the three months ended September 30, 1998 was
primarily amortization of debt issue costs.
Nine Months Ended September 30, 1998 Compared with the Nine Months
Ended September 30, 1997
The table below is a comparison of net sales, gross profit, engineering, selling
and administrative expenses, and income from operations, by segment, for the
nine months ended September 30, 1998 and 1997.
Nine Months Ended
September 30,
----------------------- Increase
1998 1997 (Decrease)
----------- ----------- -------------
NET SALES
Terex Lifting...........................$ 560.9 $ 393.1 $ 167.8
Terex Earthmoving....................... 347.4 225.0 122.4
General/Corporate/Eliminations.......... 4.5 4.5 ---
----------- ----------- ------------
Total.................................$ 912.8 $ 622.6 $ 290.2
=========== =========== ============
GROSS PROFIT
Terex Lifting...........................$ 93.5 $ 63.4 $ 30.1
Terex Earthmoving....................... 69.8 37.8 32.0
General/Corporate/Eliminations.......... 0.8 1.6 (0.8)
----------- ----------- -------------
Total.................................$ 164.1 $ 102.8 $ 61.3
=========== =========== =============
ENGINEERING, SELLING AND ADMINISTRATIVE
EXPENSES
Terex Lifting...........................$ 33.1 $ 29.9 $ 3.2
Terex Earthmoving....................... 38.8 19.0 19.8
General/Corporate/Eliminations.......... 2.5 2.2 0.3
----------- ----------- -------------
Total.................................$ 74.4 $ 51.1 $ 23.3
=========== =========== =============
INCOME FROM OPERATIONS
Terex Lifting...........................$ 60.4 $ 33.5 $ 26.9
Terex Earthmoving....................... 31.0 18.8 12.2
General/Corporate/Eliminations.......... (1.7) (0.6) (1.1)
----------- ----------- -------------
Total.................................$ 89.7 $ 51.7 $ 38.0
=========== =========== =============
Net Sales
Sales increased $290.2, or approximately 47%, to $912.8 for the nine months
ended September 30, 1998 over the comparable 1997 period. Internally-generated
growth represented approximately $100 of this increase while acquired companies
contributed approximately $190.
Terex Lifting's sales were $560.9 for the nine months ended September 30, 1998,
an increase of $167.8 from $393.1 for the nine months ended September 30, 1997,
reflecting approximately $65 from businesses acquired in 1998 and 1997 and
approximately $100 from internal growth, primarily from the Terex Cranes-Waverly
Operations and in Europe in both cranes and aerial devices. The sales mix was
approximately 11% parts for the nine months ended September 30, 1998 compared to
approximately 14% parts for the comparable 1997 period. The decrease in parts
sales as a percentage of total sales was principally due to higher machine
sales.
<PAGE>
25
Terex Earthmoving's sales increased $122.4 to $347.4 for the nine months ended
September 30, 1998 from $225.0 for the nine months ended September 30, 1997. The
increase in sales was primarily due to the results of the businesses acquired in
1998. The sales mix was approximately 30% parts for the nine months ended
September 30, 1998 compared to 31% parts for the comparable 1997 period.
Net sales for corporate in the nine months ended September 30, 1998 and 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, 1998 increased $61.3, or
60%, to $164.1 as compared to $102.8 for the nine months ended September 30,
1997. The gross profit increased at both Terex Lifting and Terex Earthmoving.
Terex Lifting's gross profit increased $30.1 to $93.5 for the nine months ended
September 30, 1998, compared to $63.4 for the nine months ended September 30,
1997. The increase was due to the increase in sales, and to an increase in gross
margin percentage. The gross margin percentage at Terex Lifting was 16.7% for
the nine months ended September 30, 1998 versus 16.1% for the comparable 1997
period, primarily due to increased manufacturing efficiencies.
Terex Earthmoving's gross profit increased $32.0 to $69.8 for the nine months
ended September 30, 1998 compared to $37.8 for the nine months ended September
30, 1997. The increase in gross profit was primarily due to the increased sales
during the nine months ended September 30, 1998 and to an increase in gross
profit percentage, principally from the results of the acquired businesses in
1998. The gross margin percentage at Terex Earthmoving was 20.1% for the nine
months ended September 30, 1998 as compared to 16.8% for the nine months ended
September 30, 1997.
Engineering, Selling and Administrative Expenses
Engineering, selling and administrative expenses increased to $74.4 for the nine
months ended September 30, 1998 from $51.1 for the nine months ended September
30, 1997, reflecting the effect of the businesses acquired in 1997 and 1998.
Terex Lifting's engineering, selling and administrative expenses as a percentage
of sales decreased to 5.9% for the nine months ended September 30, 1998 as
compared to 7.6% for the comparable 1997 period. The engineering, selling and
administrative expenses increased to $33.1 for the nine months ended September
30, 1998 from $29.9 for the nine months ended September 30, 1997, due to the
effect of the businesses acquired in 1997 and 1998, which were partially offset
by cost savings initiatives implemented at businesses acquired in 1997 as well
as increased efficiency at the existing facilities.
Terex Earthmoving's engineering, selling and administrative expenses increased
$19.8 to $38.8 for the nine months ended September 30, 1998, as compared to
$19.0 for the same period in 1997. Engineering, selling and administrative
expenses as a percentage of sales increased to 11.2% for the nine months ended
September 30, 1998, from 8.4% for the comparable 1997 period. The increase both
in dollars and as a percent relates substantially to the acquisitions of O&K
Mining and Payhauler in 1998.
Income from Operations
On a consolidated basis, the Company had operating income of $89.7, or 9.8% of
sales, for the nine months ended September 30, 1998, compared to operating
income of $51.7, or 8.3% of sales, for the nine months ended September 30, 1997,
for the reasons mentioned above.
Terex Lifting's income from operations of $60.4 for the nine months ended
September 30, 1998 increased by $26.9 over the nine months ended September 30,
1997, primarily due to increased revenues, the effect of cost control
initiatives implemented at the businesses acquired in 1997, and continued strong
performance by PPM Europe and Terex Cranes - Waverly Operations.
Terex Earthmoving's income from operations increased by $12.2 to $31.0 for the
nine months ended September 30, 1998 from $18.8 for the nine months ended
September 30, 1997, primarily due to the 1998 acquisitions of O&K Mining and
Payhauler.
<PAGE>
26
Other Income (Expense)
During the nine months ended September 30, 1998, the Company's interest expense
increased slightly to $33.6 from $30.3 for the comparable 1997 period. This
increase was primarily due to higher debt levels, related to the March 31, 1998
acquisition of O&K Mining, in the nine months ended September 30, 1998 versus
the comparable period in 1997. Although debt levels increased during the nine
months ended September 30, 1998 as compared to the nine months ended September
30, 1997, the average interest rate on the debt declined due to the redemption
of the Company's 13-1/4% Senior Secured Notes due 2002 (the "Senior Secured
Notes") and the refinancing of the Company's bank credit facilities.
Other income (expense) for the nine months ended September 30, 1998 was
primarily amortization of debt issue costs.
Extraordinary Items
The Company recorded a charge of $38.3 in the nine months ended September 30,
1998 to recognize a loss on the early extinguishment of debt in connection with
the redemption of its 13-1/4% Senior Secured Notes due 2002 (the "Senior Secured
Notes") and the refinancing of the Company's bank credit facilities.
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 connection
with the redemption of $83.3 of the Senior Secured Notes 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.
LIQUIDITY AND CAPITAL RESOURCES
Net cash of $39.1 was used by operating activities during the nine months ended
September 30, 1998. During this period, $67.2 was provided by operating results
before depreciation and amortization, and approximately $106 was invested in
working capital. The investment in working capital was made primarily as a
result of several large orders received in the Earthmoving segment, the decision
to invest in the Aerials business in Europe, and to support the general increase
in business activity. Net cash used in investing activities was $190.2 during
the nine months ended September 30, 1998, primarily related to the purchases of
O&K Mining, Payhauler, Holland Lift and American Crane. Net cash provided by
financing activities was $240.9 during the nine months ended September 30, 1998.
Cash was provided by the net proceeds from the issuance of the New Senior
Subordinated Notes and additional borrowings from the New Bank Credit Facility.
Cash was used in the redemption or defeasance of the remainder of the Senior
Secured Notes. Cash and cash equivalents totaled $38.8 at September 30, 1998.
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.
Including the acquisitions of O&K Mining, American Crane, Holland Lift and
Payhauler, since the beginning of 1995 the Company has invested approximately
$394 to strengthen its core businesses through seven strategic acquisitions. The
Company expects that acquisitions and new product development will continue to
be important components of its growth strategy and is continually reviewing
acquisition opportunities. As with its previous acquisitions, Terex will
continue to pursue strategic acquisitions which complement the Company's core
operations, offer cost reduction opportunities as well as distribution and
purchasing synergies and provide product diversification. In line with this
strategy, on November 3, 1998 the Company acquired Italmacchine, S.p.A., a
manufacturer and marketer of telescopic material handlers for construction and
agricultural applications, based near Perugia, Italy. In addition, on November
12, 1998, the Company announced that it agreed to purchase Peiner HTS and Gru
Comedil SpA, each a manufacturer and marketer of tower cranes for construction
use, based in Trier, Germany and near Pordenone, Italy, respectively.
On October 15, 1998, the Company, through its Unit Rig division, was awarded a
$157 order for the construction and delivery of 160 rigid off-highway haul
trucks from Coal India, the government agency for coal management in India. As
part of the contract, the Company will receive a down payment of 10% of the
total contract value and will be required to post approximately $30 in letters
of credit related to certain performance guarantees and to the 10% down payment.
It is anticipated that all trucks will be delivered during calendar year 1999.
<PAGE>
27
As discussed in Note C of the notes to the interim condensed consolidated
financial statements, on March 6, 1998 the Company refinanced its then existing
credit facility and redeemed or defeased all of its $166.7 principal amount of
its then outstanding 13-1/4% Senior Secured Notes. The proceeds for the offer to
purchase and the repayment of its then existing revolving credit facility were
obtained from borrowings under the Company's New Bank Credit Facility. In
connection with the refinancing of the Company's then existing credit facility
and the repurchase of the Senior Secured Notes, the Company incurred
extraordinary losses of $1.9 and $36.4, respectively. These extraordinary
charges were recorded in the first quarter of 1998. The total funds paid at the
redemption were $202.2 ($166.7 principal, $28.7 redemption premium and $6.8
accrued interest).
Also as discussed in Note B of the notes to the interim condensed consolidated
financial statements, on March 31, 1998 the Company acquired O&K Mining GmbH for
a net aggregate consideration of approximately $168. Concurrently with the O&K
Mining acquisition, the Company issued $150.0 of 8-7/8% Senior Subordinated
Notes due 2008.
As of September 30, 1998, the Company's balance outstanding under the New Credit
Facility totaled $37.2, letters of credit issued under the New Credit Facility
totaled $21.3, and the additional amount the Company could have borrowed under
the New Credit Facility was $66.5.
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 the New
Senior Subordinated Notes 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
Internal Revenue Service
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 raised 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. In June 1996 the
Company was advised that the matter was being referred back to the audit
division of the IRS. The IRS is currently reviewing information provided by the
Company. 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, 1998 of approximately $107.6. 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 10% 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 might 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.
<PAGE>
28
Securities and Exchange Commission
In March 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 had occurred. To date, the inquiry of the Commission has
primarily focused on accounting treatment and reporting matters relating to
various transactions which took place in the late 1980s and early 1990s. The
Company is cooperating with the Commission in its investigation. The Company has
been advised by the Staff of the Commission that it has been authorized by the
Commission to institute an administrative proceeding against the Company and
certain of its present and former officers and affiliates. Based on information
currently available to the Company, it is the Company's understanding that if a
proceeding were to be brought, the Staff intends to seek an order to cease and
desist violations of the Federal securities laws (without monetary penalties)
based on claims relating to accounting treatment and reporting matters with
respect to the Company's financial statements for the years ended December 31,
1990 and 1991, as well as the Company's Proxy Statement covering the 1992 fiscal
year. It is not possible at this time to determine the outcome of the
Commission's investigation.
Year 2000 Issue
The Year 2000 ("Y2K") problem is the result of computer programs being written
using two digits rather than four to define the applicable year. Thus, the year
1998 is represented by the number "98" in many legacy software applications.
Consequently, on January 1, 2000 the year will jump back to "00" in accordance
with many non-Y2K compliant applications. To systems that are non-Y2K compliant,
the time will seem to have reverted back 100 years. So, when computing basic
lengths of time, the Company's computer programs, certain building
infrastructure components (including elevators, alarm systems, telephone
networks, sprinkler systems, security access systems and certain HVAC systems)
and any additional time-sensitive software that are non-Y2K compliant may
recognize a date using "00" as the Year 1900. This could result in system
failures or miscalculations which could cause personal injury, property damage,
disruption of operations, and/or delays in payments from the Company's
customers, any or all of which could materially adversely effect the Company's
business, financial condition, or results of operations.
The Company in is the process of conducting a company-wide assessment of its
computer systems, product lines and operations infrastructure to identify
computer hardware, software, and process control systems that are not Y2K
compliant. The Company believes that it has identified those business-critical
computer systems which are not presently Y2K-compliant, and has instituted a
plan to replace, upgrade or modify these business-critical computer systems by
mid-1999. The total cost associated with required modifications to become Y2K
compliant is not expected to exceed $5 and a significant portion of these costs
were planned upgrades to the current financial and operating systems.
The Company has also initiated communications with third parties whose computer
systems' functionality could impact the Company. These communications will
facilitate coordination of Y2K solutions and will permit the Company to
determine the extent to which the Company may be vulnerable to failures of third
parties to address their own Y2K issues. To date, the Company has not identified
any significant issues with respect to third parties.
The failure to correct a material Y2K problem could result in an interruption
in, or a failure of, certain normal business activities or operations. Such
failures could materially and adversely affect the Company's results of
operations, liquidity and financial condition. Due to the general uncertainty
inherent in the Y2K problem, resulting in part from the uncertainty of the year
2000 readiness of third-party suppliers and customers, the Company is unable to
determine at this time whether the consequences of Y2K failures will have a
material impact on the Company's results of operations, liquidity or financial
condition, and as such, has not yet established a contingency plan to handle the
most reasonably likely worst case scenario. The Y2K Project is expected to
significantly reduce the Company's level of uncertainty about the Y2K problems
and, in particular, about the Y2K compliance and readiness of its material
suppliers and customers. The Company believes that, with the implementation of
new business systems and completion of the Y2K Project as scheduled, the
possibility of significant interruptions of normal operations should be reduced.
Euro
On January 1, 1999, 11 of the 15 member countries of the European Union are
scheduled to establish fixed conversion rates between their existing currencies
("legacy currencies") and one common currency - the euro. The euro will then
trade on currency exchanges and may be used in business transactions. Beginning
in January 2002, new euro-denominated bills and coins will be issued, and legacy
currencies will be withdrawn from circulation. The Company's operating
subsidiaries affected by the euro conversion are assessing the systems and
business issues raised by the euro currency conversion. These issues include,
<PAGE>
29
among others, (1) the need to adapt computer and other business systems and
equipment to accommodate euro-denominated transactions; and (2) the competitive
impact of cross-border price transparency, which may make it more difficult for
businesses to charge different prices for the same products on a
country-by-country basis particularly once the euro currency is issued in 2002.
The Company anticipates that the euro conversion will not have a material
adverse impact on its financial condition or results of operations.
Other
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>
30
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 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Shareholder Proposals
Any shareholder proposal submitted outside the processes of Rule 14a-8 under the
Securities Exchange Act of 1934 for presentation to the Company's 1999 Annual
Meeting of Shareholders will be considered untimely for purposes of Rules 14a-4
and 14a-5 if notice thereof is received by the Company after February 22, 1999.
Forward Looking Information
Certain information in this Quarterly Report includes forward-looking statements
regarding future events or the future financial performance of the Company that
involve certain contingencies and uncertainties, including those discussed above
in the section entitled Contingencies and Uncertainties. In addition, when
included in this Quarterly Report or in documents incorporated herein by
reference, the words "may," "expects," "intends," "anticipates," "plans,"
"projects," "estimates" and the negatives thereof and analogous or similar
expressions are intended to identify forward-looking statements. Such statements
are inherently subject to a variety of risks and uncertainties that could cause
actual results to differ materially from those reflected in such forward-looking
statements. Such risks and uncertainties, many of which are beyond the Company's
control, include, among others, the sensitivity of construction and mining
activity to interest rates, government spending and general economic conditions;
the success of the integration of acquired businesses; the retention of key
management; foreign currency fluctuations; the ability to meet production and
delivery schedules; the ability of suppliers to provide componenets on a timely
basis; pricing, product initiatives and other actions taken by competitors; the
effects of changes in laws and regulations; the national and international
political climate; 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. The forward-looking statements contained
herein speak only as of the date of this Quarterly Report and the
forward-looking statements contained in documents incorporated herein by
reference speak only as of the date of the respective documents. The Company
expressly disclaims any obligation or undertaking to release publicly any
updates or revisions to any forward-looking statement contained or incorporated
by reference in this Quarterly Report to reflect any changes in the Company's
expectations with regard thereto or any changes in events, conditions or
circumstances on which any such statement is based.
<PAGE>
31
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 16, 1998 was filed on July 16,
1998, including certain financial statements of Terex Corporation
and PPM Cranes, Inc.
<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 16, 1998 /s/ Joseph F. Apuzzo
Joseph F. Apuzzo
Vice President-Corporate Finance
(Principal Financial Officer)
<PAGE>
33
EXHIBIT INDEX
Exhibit No.
------------
Exhibit 11.1 Computation of Earnings per Share
Exhibit 27 Financial Data Schedule
<PAGE>
34
EXHIBIT 11.1
(Page 1 of 2)
TEREX CORPORATION AND SUBSIDIARIES
Computation of Earnings per Common Share
(in millions except per share amounts)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------ -----------------------
1998 1997 1998 1997
----------- ------------ ----------- -----------
BASIC:
<S> <C> <C> <C> <C>
Income before extraordinary items.............................$ 19.7 $ 8.7 $ 54.7 $ 20.3
Less: Accretion of Preferred Stock....................... --- (0.4) --- (1.2)
----------- ------------ ----------- -----------
Income before extraordinary items applicable to
common stock................................................ 19.7 8.3 54.7 19.1
Extraordinary loss on retirement of debt.................. --- (12.2) (38.3) (14.8)
----------- ------------ ----------- -----------
Net income (loss) applicable to common stock..................$ 19.7 $ (3.9) $ 16.4 $ 4.3
=========== ============ =========== ===========
Weighted average shares outstanding........................... 20.8 17.8 20.7 14.9
=========== =========== =========== ===========
Basic income (loss) per common share
Income before extraordinary items.........................$ 0.95 $ 0.47 $ 2.64 $ 1.28
Extraordinary loss on retirement of debt............... --- (0.68) (1.85) (0.99)
----------- ------------ ----------- -----------
Net income (loss).........................................$ 0.95 $ (0.21) $ 0.79 $ 0.29
=========== ============ =========== ===========
</TABLE>
<PAGE>
35
EXHIBIT 11.1
(Page 2 of 2)
TEREX CORPORATION AND SUBSIDIARIES
Computation of Earnings per Common Share
(in millions except per share amounts)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------ -----------------------
1998 1997 1998 1997
----------- ------------ ----------- -----------
DILUTED:
<S> <C> <C> <C> <C>
Income before extraordinary items.............................$ 19.7 $ 8.7 $ 54.7 $ 20.3
Less: Accretion of Preferred Stock...................... --- (0.4) --- (1.2)
----------- ------------ ----------- -----------
Income before extraordinary items applicable to common stock..
19.7 8.3 54.7 19.1
Extraordinary loss on retirement of debt................. --- (12.2) (38.3) (14.8)
----------- ------------ ----------- -----------
Income (loss) applicable to common stock...................... 19.7 (3.9) 16.4 4.3
Add: Accretion of Preferred Stock assumed converted
at beginning of period..................................... --- ---(a) --- ---(a)
----------- ------------ ----------- -----------
Net income (loss) applicable to common stock..................$ 19.7 $ (3.9) $ 16.4 $ 4.3
=========== ============ =========== ===========
Weighted average shares outstanding during the period......... 20.8 17.8 20.7 14.9
Assumed exercise of warrants.................................. 0.1 0.1 0.1 0.4
Assumed conversion of Preferred Stock......................... --- ---(a) --- ---(a)
Assumed exercise of stock options............................. 0.7 0.8 0.8 0.7
Assumed exercise of equity rights............................. 0.9 0.7 0.8 0.4
----------- ------------ ----------- -----------
Diluted shares outstanding.................................... 22.5 19.4 22.4 16.4
=========== ============ =========== ===========
Diluted income (loss) per common share:
Income before extraordinary items........................$ 0.88 $ 0.43 $ 2.44 $ 1.16
Extraordinary loss on retirement of debt............... --- (0.63) (1.71) (0.90)
----------- ------------ ----------- -----------
Net income (loss)........................................$ 0.88 $ (0.20) $ 0.73 $ 0.26
=========== ============ =========== ===========
</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-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 38,800
<SECURITIES> 0
<RECEIVABLES> 284,200
<ALLOWANCES> 5,700
<INVENTORY> 430,500
<CURRENT-ASSETS> 771,000
<PP&E> 127,500
<DEPRECIATION> 37,900
<TOTAL-ASSETS> 1,070,800
<CURRENT-LIABILITIES> 370,800
<BONDS> 576,800
0
0
<COMMON> 200
<OTHER-SE> 80,900
<TOTAL-LIABILITY-AND-EQUITY> 1,070,800
<SALES> 912,800
<TOTAL-REVENUES> 912,800
<CGS> 748,700
<TOTAL-COSTS> 748,700
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,600
<INCOME-PRETAX> 55,600
<INCOME-TAX> 900
<INCOME-CONTINUING> 54,700
<DISCONTINUED> 0
<EXTRAORDINARY> (38,300)
<CHANGES> 0
<NET-INCOME> 16,400
<EPS-PRIMARY> 0.79
<EPS-DILUTED> 0.73
</TABLE>
