(Mark One)
|X| Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2004
--------------------------------------------
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
|
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, including area code)
Number of outstanding shares of common stock: 49.4 million as of August 4, 2004.
The Exhibit Index begins on page 61.
INDEX
TEREX CORPORATION AND SUBSIDIARIES
GENERAL
This Quarterly Report on Form 10-Q filed by Terex Corporation ("Terex" or the "Company") includes financial information with respect to the following subsidiaries of the Company (all of which are wholly-owned) which were guarantors on June 30, 2004 (the "Guarantors") of the Company's $300 million principal amount of 7-3/8% Senior Subordinated Notes due 2014 (the "7-3/8% Notes"), $300 million principal amount of 10-3/8% Senior Subordinated Notes due 2011 (the "10-3/8% Notes"), and $200 million principal amount of 9-1/4% Senior Subordinated Notes due 2011 (the "9-1/4% Notes"). See Note R to the Company's June 30, 2004 Condensed Consolidated Financial Statements included in this Quarterly Report.
State or other
jurisdiction of
incorporation or I.R.S. employer
Guarantor organization identification number
--------- ----------------- ---------------------
Amida Industries, Inc. South Carolina 57-0531390
Benford America, Inc. Delaware 76-0522879
BL-Pegson USA, Inc. Connecticut 31-1629830
Cedarapids, Inc. Iowa 42-0332910
CMI Dakota Company South Dakota 46-0440642
CMI Terex Corporation Oklahoma 73-0519810
CMIOIL Corporation Oklahoma 73-1125438
EarthKing, Inc. Delaware 06-1572433
Finlay Hydrascreen USA, Inc. New Jersey 22-2776883
Fuchs Terex, Inc. Delaware 06-1570294
Genie Access Services, Inc. Washington 91-2073567
Genie China, Inc. Washington 91-1973009
Genie Financial Services, Inc. Washington 91-1712115
Genie Holdings, Inc. Washington 91-1666966
Genie Industries, Inc. Washington 91-0815489
Genie International, Inc. Washington 91-1975116
Genie Manufacturing, Inc. Washington 91-1499412
GFS Commercial LLC Washington n/a
GFS National, Inc. Washington 91-1959375
Go Credit Corporation Washington 91-1563427
Koehring Cranes, Inc. Delaware 06-1423888
Lease Servicing & Funding Corp. Washington 91-1808180
O & K Orenstein & Koppel, Inc. Delaware 58-2084520
Payhauler Corp. Illinois 36-3195008
Powerscreen Holdings USA Inc. Delaware 61-1265609
Powerscreen International LLC Delaware 61-1340898
Powerscreen North America Inc. Delaware 61-1340891
Powerscreen USA, LLC Kentucky 31-1515625
PPM Cranes, Inc. Delaware 39-1611683
Product Support, Inc. Oklahoma 73-1488926
Royer Industries, Inc. Pennsylvania 24-0708630
Schaeff Incorporated Iowa 42-1097891
Spinnaker Insurance Company Vermont 03-0372517
Standard Havens, Inc. Delaware 43-0913249
Standard Havens Products, Inc. Delaware 43-1435208
Terex Advance Mixer, Inc. Delaware 06-1444818
Terex Bartell, Inc. Delaware 34-1325948
Terex Cranes, Inc. Delaware 06-1513089
Terex Financial Services, Inc. Delaware 45-0497096
Terex Mining Equipment, Inc. Delaware 06-1503634
Terex Utilities, Inc. Delaware 04-3711918
Terex Utilities South, Inc. Delaware 74-3075523
Terex-RO Corporation Kansas 44-0565380
Terex-Telelect, Inc. Delaware 41-1603748
The American Crane Corporation North Carolina 56-1570091
Utility Equipment, Inc. Oregon 93-0557703
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Page No.
PART I FINANCIAL INFORMATION
Item 1 Condensed Consolidated Financial Statements
TEREX CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Operations --
Three months and six months ended June 30, 2004 and 2003............................................3
Condensed Consolidated Balance Sheet - June 30, 2004 and December 31, 2003..............................4
Condensed Consolidated Statement of Cash Flows --
Six months ended June 30, 2004 and 2003.............................................................5
Notes to Condensed Consolidated Financial Statements - June 30, 2004....................................6
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations.....................32
Item 3 Quantitative and Qualitative Disclosures About Market Risk................................................54
Item 4 Controls and Procedures...................................................................................55
PART II OTHER INFORMATION
Item 1 Legal Proceedings.........................................................................................56
Item 2 Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities..........................56
Item 3 Defaults Upon Senior Securities...........................................................................56
Item 4 Submission of Matters to a Vote of Security Holders.......................................................57
Item 5 Other Information.........................................................................................58
Item 6 Exhibits and Reports on Form 8-K..........................................................................59
SIGNATURES...........................................................................................................60
EXHIBIT INDEX........................................................................................................61
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PART 1. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
(in millions, except per share data)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------------------ ----------------------------
2004 2003 2004 2003
-------------- -------------- ------------ --------------
Net sales...........................................................$ 1,336.4 $ 1,048.8 $ 2,380.2 $ 1,976.5
Cost of goods sold.................................................. 1,141.4 932.1 2,024.9 1,730.1
-------------- -------------- ------------ --------------
Gross profit.................................................... 195.0 116.7 355.3 246.4
Selling, general and administrative expenses........................ (119.2) (100.9) (231.2) (190.1)
Goodwill impairment................................................. --- (51.3) --- (51.3)
-------------- -------------- ------------ --------------
Income (loss) from operations................................. 75.8 (35.5) 124.1 5.0
Other income (expense):
Interest income................................................ 1.4 2.1 2.4 3.8
Interest expense............................................... (23.4) (26.6) (45.9) (52.5)
Other income (expense) - net................................... 19.8 (4.9) 17.4 (4.6)
-------------- -------------- ------------ --------------
Income before income taxes..................................... 73.6 (64.9) 98.0 (48.3)
(Provision for) benefit from income taxes........................... (14.5) 13.1 (21.9) 8.5
-------------- -------------- ------------ --------------
Net income (loss) ..................................................$ 59.1 $ (51.8) $ 76.1 $ (39.8)
============== ============== ============ ==============
Per common share:
Basic...........................................................$ 1.20 $ (1.09) $ 1.55 $ (0.84)
============== ============== ============ ==============
Diluted.........................................................$ 1.17 $ (1.09) $ 1.50 $ (0.84)
============== ============== ============ ==============
Weighted average number of shares outstanding in per share
calculation:
Basic....................................................... 49.3 47.6 49.1 47.4
Diluted..................................................... 50.7 47.6 50.6 47.4
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The accompanying notes are an integral part of these financial statements.
TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited)
(in millions, except par value)
June 30, December 31,
2004 2003
------------------ -----------------
Assets
Current assets
Cash and cash equivalents........................................................ $ 454.5 $ 467.5
Trade receivables (net of allowance of $36.2 at June 30, 2004
and $38.2 at December 31, 2003)................................................ 660.9 540.2
Inventories...................................................................... 1,075.9 1,009.7
Deferred taxes................................................................... 55.4 53.9
Other current assets............................................................. 124.3 122.7
----------------- -----------------
Total current assets......................................................... 2,371.0 2,194.0
Long-term assets
Property, plant and equipment.................................................... 354.2 370.1
Goodwill......................................................................... 615.9 603.5
Deferred taxes................................................................... 227.2 238.9
Other assets..................................................................... 298.2 317.3
----------------- -----------------
Total assets.......................................................................... $ 3,866.5 $ 3,723.8
================= =================
Liabilities and Stockholders' Equity
Current liabilities
Notes payable and current portion of long-term debt.............................. $ 75.7 $ 86.8
Trade accounts payable........................................................... 776.7 608.6
Accrued compensation and benefits................................................ 100.8 94.5
Accrued warranties and product liability......................................... 84.6 88.5
Other current liabilities........................................................ 284.1 281.0
----------------- -----------------
Total current liabilities.................................................... 1,321.9 1,159.4
Non-current liabilities
Long-term debt, less current portion............................................. 1,187.1 1,274.8
Other............................................................................ 425.5 412.9
Commitments and contingencies
Stockholders' equity
Common stock, $.01 par value - authorized 150.0 shares; issued 50.5 and 50.0
shares at June 30, 2004 and December 31, 2003, respectively.................... 0.5 0.5
Additional paid-in capital....................................................... 802.9 795.1
Retained earnings................................................................ 118.0 41.9
Accumulated other comprehensive income .......................................... 29.3 57.0
Less cost of shares of common stock in treasury - 1.2 shares at June 30, 2004
and December 31, 2003.......................................................... (18.7) (17.8)
----------------- -----------------
Total stockholders' equity................................................... 932.0 876.7
----------------- -----------------
Total liabilities and stockholders' equity............................................ $ 3,866.5 $ 3,723.8
================= =================
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The accompanying notes are an integral part of these financial statements.
TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
(in millions)
For the Six Months
Ended June 30,
--------------------------
2004 2003
--------------------------
Operating Activities
Net income (loss)............................................................. $ 76.1 $ (39.8)
Adjustments to reconcile net income (loss) to cash provided by operating
activities:
Depreciation............................................................. 29.1 27.5
Amortization............................................................. 8.0 5.9
Impairment charges and asset write downs................................. --- 72.5
Loss on retirement of debt............................................... 1.5 1.4
Gain on sale of fixed assets............................................. (19.0) (2.9)
Changes in operating assets and liabilities (net of effects of
acquisitions):
Trade receivables...................................................... (125.5) 3.4
Inventories............................................................ (78.7) 82.8
Trade accounts payable................................................. 174.1 42.0
Other, net............................................................. 4.3 (9.1)
-------------- -----------
Net cash provided by operating activities........................... 69.9 183.7
-------------- -----------
Investing Activities
Acquisition of businesses, net of cash acquired............................... (1.1) (8.7)
Capital expenditures.......................................................... (15.7) (14.1)
Proceeds from sale of assets.................................................. 24.0 3.5
-------------- -----------
Net cash provided by (used in) investing activities................. 7.2 (19.3)
-------------- -----------
Financing Activities
Principal repayments of long-term debt........................................ (75.0) (53.0)
Proceeds from stock options exercised......................................... 5.5 0.7
Net borrowings (repayments) under revolving line of credit agreements......... (2.2) (36.5)
Payment of premium on early retirement of debt................................ --- (2.2)
Other, net.................................................................... (15.1) (16.4)
-------------- -----------
Net cash used in financing activities............................... (86.8) (107.4)
-------------- -----------
Effect of Exchange Rate Changes on Cash and Cash Equivalents..................... (3.3) 11.2
-------------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents............................. (13.0) 68.2
Cash and Cash Equivalents at Beginning of Period................................. 467.5 352.2
-------------- -----------
Cash and Cash Equivalents at End of Period....................................... $ 454.5 $ 420.4
============== ===========
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The accompanying notes are an integral part of these financial statements.
TEREX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004
(unaudited)
(dollar amounts in millions, unless otherwise noted, except per share amounts)
NOTE A -- BASIS OF PRESENTATION
Basis of Presentation. The accompanying unaudited condensed consolidated financial statements of Terex Corporation and subsidiaries as of June 30, 2004 and for the three months and six months ended June 30, 2004 and 2003 have been prepared in accordance with accounting principles generally accepted in the United States of America 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 accounting principles generally accepted in the United States of America to be included in full year financial statements. The accompanying condensed consolidated balance sheet as of December 31, 2003 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 of these interim financial statements have been made. Except as otherwise disclosed, all such adjustments consist only of those of a normal recurring nature. Operating results for the three months and six months ended June 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. 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, 2003.
Cash and cash equivalents at June 30, 2004 and December 31, 2003 include $2.0 and $10.9, respectively, which was not immediately available for use. These consist primarily of cash balances held in escrow to secure various obligations of the Company.
The results for prior periods have been reclassified to conform to the current periods' presentation. The Terex Mining segment is included as a continuing operation.
Recent Accounting Pronouncements. In January 2003, the Financial Accounting Standards Board (the "FASB") issued FASB Interpretation No. ("FIN") 46, "Consolidation of Variable Interest Entities." A variable interest entity ("VIE") is a corporation, partnership, trust or other legal entity that does not have equity investors with voting rights or has equity investors that do not provide sufficient financial resources for the entity to support its own activities. The interpretation requires a company to consolidate a VIE when the company has a majority of the risk of loss from the VIE's activities or is entitled to receive a majority of the entity's residual returns or both. In December 2003, the FASB revised FIN 46 ("FIN 46R") and modified its effective date. The Company adopted the provisions of FIN 46R, for special purpose entities and VIEs created on or after February 1, 2003, effective December 31, 2003. As of June 30, 2004, there were no such entities that are required to be consolidated by the Company. For all other entities, the Company has adopted the provisions of FIN 46R effective March 31, 2004. The adoption of FIN 46R has not had a material impact on the Company's consolidated financial position, results of operations or cash flows.
In January 2003, the Emerging Issues Task Force (the "EITF") released EITF 00-21, "Accounting for Revenue Arrangements with Multiple Deliverables." EITF 00-21 clarifies the timing and recognition of revenue from certain transactions that include the delivery and performance of multiple products or services. EITF 00-21 is effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The adoption of EITF 00-21 has not had a material impact on the Company's consolidated financial position, results of operations or cash flows.
During April 2003, the FASB issued Statement of Financial Accounting Standard ("SFAS") No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." This statement amends and clarifies financial accounting and reporting for derivative instruments and hedging activities, resulting primarily from decisions reached by the FASB Derivatives Implementation Group subsequent to the original issuance of SFAS No. 133. This statement is generally effective prospectively for contracts and hedging relationships entered into after June 30, 2003. The adoption of SFAS No. 149 has not had a material impact on the Company's consolidated financial position, results of operations or cash flows.
On May 15, 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." This statement establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. SFAS No. 150 must be applied immediately to instruments entered into or modified after May 31, 2003 and to all other instruments that exist as of the beginning of the first interim financial reporting period beginning after June 15, 2003. The adoption of SFAS No. 150 has not had a material impact on the Company's consolidated financial position, results of operations or cash flows
Accrued Warranties. The Company records accruals for potential warranty claims based on the Company's claim experience. The Company's products are typically sold with a standard warranty covering defects that arise during a fixed period of time. Each business provides a warranty specific to the products it offers. The specific warranty offered by a business is a function of customer expectations and competitive forces. The length of warranty is generally a fixed period of time, a fixed number of operating hours, or both.
A liability for estimated warranty claims is accrued at the time of sale. The non-current portion of the warranty accrual is included in Other Non-current liabilities. The liability is established using a historical warranty claim experience for each product sold. The historical claim experience may be adjusted for known design improvements or for the impact of unusual product quality issues. Warranty reserves are reviewed quarterly to ensure that critical assumptions are updated for known events that may impact the potential warranty liability.
The following table summarizes the changes in the consolidated product warranty liability:
Six Months Ended
June 30, 2004
------------------
Balance at beginning of period.............................$ 68.4
Accruals for warranties issued during the period............ 36.0
Changes in estimates........................................ (1.9)
Settlements during the period............................... (36.6)
Foreign exchange effect..................................... (1.2)
------------------
Balance at end of period...................................$ 64.7
==================
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Stock-Based Compensation. At June 30, 2004, the Company had stock-based employee compensation plans. The Company accounts for those plans under the recognition and measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. No employee compensation cost is reflected in net income for the granting of employee stock options, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," to stock-based employee compensation.
For the Three Months For the Six Months
Ended June 30, Ended June 30,
--------------------------- ----------------------------
2004 2003 2004 2003
------------ -------------- ------------- --------------
Reported net income (loss) .............................. $ 59.1 $ (51.8) $ 76.1 (39.8)
Deduct: Total stock-based employee compensation expense
determined under fair value based methods for all
awards, net of related income tax effects............... (1.2) (1.0) (2.5) (2.1)
------------ -------------- ------------- --------------
Pro forma net income (loss) ............................ $ 57.9 $ (52.8) $ 73.6 (41.9)
============ ============== ============= ==============
Per common share:
Basic:
Reported net income (loss) ......................... $ 1.20 $ (1.09) $ 1.55 (0.84)
============ ============== ============= ==============
Pro forma net income (loss) ........................ $ 1.17 $ (1.11) $ 1.50 (0.88)
============ ============== ============= ==============
Diluted:
Reported net income (loss) ......................... $ 1.17 $ (1.09) $ 1.50 (0.84)
============ ============== ============= ==============
Pro forma net income (loss) ........................ $ 1.14 $ (1.11) $ 1.45 (0.88)
============ ============== ============= ==============
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The fair value for these options was estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:
For the Three Months For the Six Months
Ended June 30, Ended June 30,
--------------------------- --------------------------------
2004 2003 2004 2003
------------ -------------- -------------- ---------------
Dividend yields................................. 0.0% 0.0% 0.0% 0.0%
Expected volatility............................. 51.10% 52.16% 51.10% 52.16%
Risk-free interest rates........................ 4.04% 4.59% 4.04% 4.59%
Expected life (in years)........................ 10.0 10.0 10.0 9.7
Aggregate fair value of options granted.......... $ 1.1 $ 0.1 $ 7.1 $ 4.6
Weighted average fair value at date of grant
for options granted............................. $ 21.39 $ 12.22 $ 22.42 $ 7.61
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The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.
NOTE B - ACQUISITIONS AND DIVESTITURES
On August 28, 2003, the Company acquired an additional 51% of the outstanding shares of TATRA a.s. ("Tatra") from SDC Prague s.r.o., a subsidiary of SDC International, Inc. Tatra is located in the Czech Republic and is a manufacturer of on/off road heavy-duty vehicles for commercial and military applications. Consideration for the acquisition was comprised of debt forgiveness totaling $8.1, cash of $0.2 and approximately 209 thousand shares of Terex Common Stock. On April 22, 2004, the Company purchased an additional 10% of the outstanding shares of Tatra for $1.2 in cash. These acquisitions bring Terex's total ownership interest in Tatra to approximately 81%. Tatra's results have been included in the Company's consolidated financial statements since August 28, 2003. Upon the initial consolidation of Tatra into the Company's consolidated financial results, Tatra's debt totaled approximately $33. This debt primarily consisted of notes payable to financial institutions. Tatra is part of the Company's Roadbuilding, Utility Products and Other segment.
The Company owns an approximately 67% interest in American Truck Company ("ATC"). ATC is located in the United States and manufactures heavy-duty off-road trucks for military and severe duty commercial applications. The Company and Tatra each owned approximately a one-third interest in ATC at August 28, 2003. As a result of the Company's August 28, 2003 acquisition of additional ownership of Tatra, the results of ATC also have been included in the Company's consolidated financials statements since August 28, 2003. Prior to this date the Company accounted for its investment in ATC under the equity method of accounting. The Company subsequently acquired Tatra's interest in ATC on June 14, 2004 for approximately $1.4, which was used to repay certain indebtedness of Tatra to the Company.
The Company is in the process of completing certain valuations, appraisals and other studies for purposes of determining the respective fair values of tangible and intangible assets and liabilities used in the allocation of purchase consideration for the acquisition of Tatra. The Company does not anticipate that the final results of these valuations will have a material impact on its financial position, results of operations or cash flows.
On December 19, 2003, the Company completed the acquisition of substantially all of the assets comprising the business of Compass Equipment Leasing ("CEL") and Asplundh Canada. Both businesses rent digger derricks, aerial devices and other related equipment to contractors and utility customers in the United States and Canada, respectively. The purchase consideration was $0.1 plus the assumption of CEL's and Asplundh Canada's operating lease obligations. Both businesses are included in the Terex Roadbuilding, Utility Products and Other segment.
The Company is in the process of completing certain appraisals and other studies for the purpose of determining the respective fair value of the tangible and intangible assets acquired. This information will be used to allocate the purchase consideration. The Company does not anticipate that the final results of these studies will have a material impact on its financial position, results of operations or cash flows.
In 2002, the Company acquired an interest in Crane & Machinery, Inc. ("C&M"), which distributed, rented and serviced crane products, including those products manufactured by the Company. During 2002, the Company acquired from an unaffiliated financial institution outstanding loans in the amount of approximately $5.9 owed by C&M to that financial institution, and C&M was obligated to make payments to the Company pursuant to the terms of such loans. The results of C&M were consolidated in the Company's financial results from December 31, 2002 through November 10, 2003. On November 10, 2003, the Company sold its interest in C&M, and obtained a third party guarantee of the loans payable by C&M to the Company, as well as a pledge of the assets of C&M as security for the payment of such loans. As a result, the Company ceased to consolidate C&M's results as of November 10, 2003. In addition, on November 10, 2003, the Company sold substantially all of the assets of its Schaeff Incorporated subsidiary (a manufacturer of forklifts) to C&M, in consideration of C&M assuming approximately $3.1 of Schaeff Incorporated's indebtedness to the Company, with such indebtedness secured by the guarantee and pledge described above. The results of Schaeff Incorporated and C&M were included in the Terex Cranes segment prior to the November 10, 2003 transactions.
NOTE C - GOODWILL
On April 1, 2003 the Company changed the composition of its reporting units and segments when it moved the North American operations of its telehandlers business from the Terex Construction segment to the Terex Aerial Work Platforms segment due to a change in the way the Company's operating decision makers view the business.
An analysis of changes in the Company's goodwill by business segment is as
follows:
Terex
Terex Roadbuilding,
Aerial Utility
Terex Terex Work Terex Products and
Construction Cranes Platforms Mining Other Total
---------------- ------------ --------------- ------------- ----------------- --------------
Balance at December 31, 2003..... $ 328.4 $ 89.7 $ 50.0 $ --- $ 135.4 $ 603.5
Acquisitions..................... --- --- 8.5 --- 6.4 14.9
Foreign exchange effect.......... (1.9) (0.7) --- --- 0.1 (2.5)
---------------- ------------ --------------- ------------- ----------------- ---------------
Balance at June 30, 2004......... $ 326.5 $ 89.0 $ 58.5 $ --- $ 141.9 $ 615.9
================ ============ =============== ============= ================= ===============
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In April 2004 the Company made an $8.5 cash payment to the previous owners of Genie Holdings, Inc. and its affiliates ("Genie"). The payment was related to a contingent deferred purchase price adjustment, and was based on the collection of certain trade receivables which were outstanding on the acquisition date. Genie is included in the Terex Aerial Work Platforms segment.
The goodwill recognized for the acquisitions of Tatra, CEL and Asplundh Canada as of June 30, 2004 is not final as the Company has not yet completed its valuations of the acquired tangible and intangible assets.
NOTE D - DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into two types of derivatives: hedges of fair value exposures and hedges of cash flow exposures. Fair value exposures relate to recognized assets or liabilities and firm commitments, while cash flow exposures relate to the variability of future cash flows associated with recognized assets or liabilities or forecasted transactions.
The Company operates internationally, with manufacturing and sales facilities in various locations around the world, and uses certain financial instruments to manage its foreign currency, interest rate and fair value exposures. To qualify a derivative as a hedge at inception and throughout the hedge period, the Company formally documents the nature and relationships between the hedging instruments and hedged items, as well as its risk-management objectives, strategies for undertaking the various hedge transactions and method of assessing hedge effectiveness. Additionally, for hedges of forecasted transactions, the significant characteristics and expected terms of a forecasted transaction must be specifically identified, and it must be probable that each forecasted transaction will occur. If it were deemed probable that the forecasted transaction will not occur, the gain or loss would be recognized in earnings currently. Financial instruments qualifying for hedge accounting must maintain a specified level of effectiveness between the hedging instrument and the item being hedged, both at inception and throughout the hedged period. The Company does not engage in trading or other speculative use of financial instruments.
The Company uses forward contracts and options to mitigate its exposure to
changes in foreign currency exchange rates on third-party and intercompany
forecasted transactions. The primary currencies to which the Company is exposed
include the Euro, the British Pound, the Czech Koruna and the Australian Dollar.
When using options as a hedging instrument, the Company excludes the time value
from the assessment of effectiveness. The effective portion of unrealized gains
and losses associated with forward contracts and the intrinsic value of option
contracts are deferred as a component of accumulated other comprehensive income
(loss) until the underlying hedged transactions are reported on the Company's
consolidated statement of operations. The Company uses interest rate swaps to
mitigate its exposure to changes in interest rates related to existing issuances
of variable rate debt and to fair value changes of fixed rate debt. Primary
exposure includes movements in the London Interbank Offer Rate ("LIBOR").
Changes in the fair value of derivatives that are designated as fair value hedges are recognized in earnings as offsets to the changes in fair value of exposures being hedged. The change in fair value of derivatives that are designated as cash flow hedges are deferred in accumulated other comprehensive income (loss) and are recognized in earnings as the hedged transactions occur. Any ineffectiveness is recognized in earnings immediately.
The Company records hedging activity related to debt instruments in interest expense and hedging activity related to foreign currency and lease obligations in operating profit. On the Consolidated Statement of Cash Flows, the Company records cash flows from hedging activities in the same manner as it records the underlying item being hedged.
The Company entered into interest rate swap agreements that effectively converted variable rate interest payments into fixed rate interest payments. At June 30, 2004, the Company had $100.0 notional amount of such interest rate swap agreements outstanding, all of which mature in 2009. The fair market value of these swaps at June 30, 2004 was a loss of $1.1, which is recorded in other non-current liabilities. These swap agreements have been designated as, and are effective as, cash flow hedges of outstanding debt instruments. During the three months and six months ended June 30, 2004 and 2003, the Company recorded the change in fair value to accumulated other comprehensive income (loss) and reclassified to earnings a portion of the deferred loss from accumulated other comprehensive income (loss) as the hedged transactions occurred and were recognized in earnings.
The Company has entered into a series of interest rate swap agreements that converted fixed rated interest payments into variable rate interest payments. At June 30, 2004, the Company had $279.0 notional amount of such interest rate swap agreements outstanding, all of which mature in 2006 through 2014. The fair market value of these swaps at June 30, 2004 was a loss of $4.1, which is recorded in other non-current liabilities. These swap agreements have been designated as, and are effective as, fair value hedges of outstanding debt instruments. During December 2002, the Company exited an interest rate swap agreement in the notional amount of $100.0 with a 2011 maturity that converted fixed rate interest payments into variable rate interest payments. The Company received $5.6 upon exiting this swap agreement. These gains are being amortized over the original maturity and, netted against the market value of the swap agreements held at June 30, 2004, are offset by a $0.5 addition in the carrying value of the long-term obligations being hedged.
The Company is also a party to currency exchange forward contracts, that mature within 15 months, to manage its exposure to changing currency exchange rates. At June 30, 2004, the Company had $270.8 of notional amount of currency exchange forward contracts outstanding, all of which mature on or before September 30, 2005. The fair market value of these swaps at June 30, 2004 was a gain of $7.2. At June 30, 2004, $261.8 notional amount of these swap agreements have been designated as, and are effective as, cash flow hedges of specifically identified assets and liabilities. For these cash flow hedges, during the three months and six months ended June 30, 2004 and 2003, the Company recorded the change in fair value to accumulated other comprehensive income (loss) and reclassified to earnings a portion of the deferred loss from accumulated other comprehensive income (loss) as the hedged transactions occurred and were recognized in earnings.
At June 30, 2004, the fair value of all derivative instruments designated as cash flow hedges and fair value hedges have been recorded in the Condensed Consolidated Balance Sheet as a net asset of $6.1 and 4.1, respectively.
Counterparties to interest rate derivative contracts and currency exchange forward contracts are major financial institutions with credit ratings of investment grade or better and no collateral is required. There are no significant risk concentrations. Management believes the risk of incurring losses on derivative contracts related to credit risk is remote and any losses would be immaterial.
Unrealized net gains (losses) included in Other Comprehensive Income (Loss) are as follows:
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- -------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
Balance at beginning of period.......... $ 2.7 $ 0.8 $ 6.5 $ 2.1
Additional gains (losses)............... 5.8 (1.3) 5.3 (3.8)
Amounts reclassified to earnings........ (4.1) (3.3) (7.4) (2.1)
------------ ------------ ------------ ------------
Balance at end of period................ $ 4.4 $ (3.8) $ 4.4 $ (3.8)
============ ============ ============ ============
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NOTE E -- RESTRUCTURING AND OTHER CHARGES
The Company continually evaluates its cost structure to ensure that it is appropriately positioned to respond to changing market conditions. During 2003 and 2002, the Company experienced declines in several markets. In addition, the Company's recent acquisitions have created product, production and selling and administrative overlap with existing businesses. In response to changing market demand and to optimize the impact of recently acquired businesses, the Company has initiated the restructuring programs described below. For further information on restructuring programs, refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2003.
There have been no material changes relative to the initial plans established by the Company for the restructuring activities discussed below. The Company does not believe that these restructuring activities by themselves will have an adverse impact on the Company's ability to meet customer requirements for the Company's products.
2004 Programs
In the second quarter of 2004, the Company recorded a charge of $2.7 related to restructuring at its Atlas Terex facility in Loenigen, Germany, of which $2.2 has been recorded in cost of goods sold and $0.5 has been recorded in selling, general and administrative expenses. The Company implemented this restructuring because it had concluded that it is more cost-effective to outsource the activities that have been performed at the Loenigen facility. The closure of this facility will reduce employment by approximately 40 employees and is expected to be completed by September 30, 2004. As of June 30, 2004, 28 employees have ceased working for the Company. The cash impact of the program will be approximately $2, excluding any proceeds that may be received from the sale of the facility. The results of Atlas Terex are reported in the Terex Construction segment. The Loenigen closure is expected to generate annual cost savings of approximately $1.2 when fully implemented.
Also in the second quarter of 2004, the Company recorded a charge of $4.3 in cost of goods sold for restructuring related to the closure of its Atlas Terex truck-mounted crane facility in Hamilton, Scotland. The charge is a result of the Company's decision to consolidate production at the Atlas Terex facility in Delmenhorst, Germany, which already manufactures truck-mounted cranes. The consolidation will lower the Company's cost structure for this business and better utilize manufacturing capacity. As a result of the restructuring, the Company has accrued for a headcount reduction of approximately 90 employees at the Hamilton facility, which is expected to be completed by September 30, 2004. The cash impact of the program will be approximately $1.7, excluding any proceeds that may be received from the sale of the facility. The Hamilton facility closing is expected to reduce annual operating expenses by approximately $5 when fully implemented.
In addition, during the second quarter of 2004, the Company established a restructuring program, recorded in cost of goods sold, to move its pump manufacturing business from its B.L. Pegson facility in Coalville, England to another Terex Construction segment component manufacturing facility in Scotland. The non-cash charge to cost of goods sold was $0.3. The Company anticipates it will complete the relocation of this manufacturing line by September 30, 2004 in order to free needed capacity at the B.L. Pegson facility for crushing equipment production.
In the second quarter of 2004, the Company created a restructuring program to reduce the number of installation facilities in its Terex Utilities South business unit from four facilities to three facilities. Headcount related to this program was reduced by 20 employees. The Company recorded a $0.3 charge to cost of goods sold related to this program. This charge consists of $0.2 cash and a $0.1 non-cash component. This program is expected to be completed during the third quarter of 2004. Terex Utilities South is part of the Terex Roadbuilding, Utility Products and Other Segment.
2003 Programs
In the first quarter of 2003, the Company recorded a charge of $0.7 related to restructuring at its CMI Terex facility in Oklahoma City, Oklahoma. Due to the continued poor performance in the Roadbuilding business, the Company reduced employment by approximately 146 employees at its CMI Terex facility. As of June 30, 2003, the program was substantially complete and all employees had ceased working for the Company. CMI Terex is included in the Terex Roadbuilding, Utility Products and Other segment.
Also in the first quarter of 2003, the Company recorded charges of $0.3 for restructuring at its Terex-RO facility in Olathe, Kansas. As a result of weak demand in the Company's North American crane business, the Terex-RO facility has been closed and the production performed at that facility has been consolidated into the Company's hydraulic crane production facility in Waverly, Iowa. The program reduced employment by approximately 50 employees and was substantially completed at September 30, 2003. Booms for the Terex-RO product were already being produced in the Waverly facility; accordingly, no production problems are anticipated in connection with this consolidation. Terex-RO is included in the Terex Cranes segment.
The Company recorded a charge of $1.5 in the first quarter of 2003 for the exit of all activities at its EarthKing e-commerce subsidiary. The $1.5 charge is for non-cash closure costs and has been recorded in cost of goods sold. EarthKing is included in the Terex Roadbuilding, Utility Products and Other segment. The program was completed as of September 30, 2003. Additionally, during the first quarter of 2003, the Company wrote down certain investments it held in technology businesses related to its EarthKing subsidiary. These investments were no longer economically viable, as these businesses were unsuccessful in gaining customer acceptance and were generating revenue at levels insufficient to warrant anticipated growth, and resulted in a write-down of $0.8. This write-down was reported in "Other income (expense) - net."
During the second quarter of 2003, the Company recorded a severance charge of $3.1 for future cash expenditures related to restructuring at its Terex Peiner tower crane manufacturing facility in Trier, Germany. This charge is a result of the Company's decision to consolidate its German tower crane manufacturing into its German Demag facilities in an effort to lower fixed overhead and improve manufacturing efficiencies and profitability. As a result of the restructuring, the Company has accrued for a headcount reduction of 65 employees. As of June 30, 2004, all of the employees had ceased employment with the Company and the program was completed. Terex Peiner is included in the Terex Cranes segment. The Terex Peiner closing is expected to reduce annual operating costs by $3.4.
The Company also recorded a restructuring charge in the second quarter of 2003 of $1.9 for future cash expenditures related to the closure of its Powerscreen facility in Kilbeggan, Ireland. The $1.9 was comprised of $1.0 of severance charges and $0.9 of accruable exit costs. This charge is a result of the Company's decision to consolidate its European Powerscreen business at its facility in Dungannon, Northern Ireland. This consolidation will lower the Company's cost structure for this business and better utilize manufacturing capacity. As a result of the restructuring, the Company has accrued for a headcount reduction of 121 employees at the Kilbeggan facility. As of September 30, 2003, all of the employees had ceased employment with the Company. The program was substantially complete at March 31, 2004, except for the disposal of certain real property which is expected to be finalized in 2004. The Powerscreen Kilbeggan facility is included in the Terex Construction segment. During the three months ended June 30, 2003, $1.8 and $0.1 were recorded in cost of goods sold and selling, general and administrative expenses, respectively. The Kilbeggan facility closing is expected to generate annual cost savings of approximately $3.
In addition, during the second quarter of 2003, the Company recorded restructuring charges of $4.7 in the Terex Roadbuilding, Utility Products and Other segment. These restructuring charges are the result of continued poor
performance in the Roadbuilding business and the Company's efforts to streamline operations and improve profitability. The $4.7 restructuring charge is comprised of the following components:
o A $2.8 charge related to exiting the bio-grind recycling business, with $2.5 recorded in cost of goods sold and $0.3 recorded in selling, general and administrative expenses.
o A charge of $1.8 related to the exiting of the screening and shredder-mixer business operated at its Durand, Michigan facility, with $1.7 recorded in cost of goods sold and $0.1 recorded in selling, general and administrative expenses.
o A $0.1 charge was recorded in selling, general and administrative expenses related to the headcount reduction of 17 employees at the Company's Cedarapids facility.
During the third quarter of 2003, the Company recorded a severance charge of $0.1 for future cash expenditures at its hydraulic crane production facility in Waverly, Iowa. The Company has terminated six employees due to the integration of the Terex-RO facility into Waverly. This charge has been recorded in cost of goods sold.
All of the 2003 projects are expected to reduce annual operating costs by approximately $15 in the aggregate when fully implemented.
2002 Programs
During 2002, the Company initiated a series of restructuring projects that related to productivity and business rationalization. Restructuring programs which began in 2002, but which were not completed prior to January 1, 2003, include:
In the second quarter of 2002, the Company announced that its surface mining truck production facility in Tulsa, Oklahoma would be closed and the production activities outsourced to a third party supplier. The Company recorded a charge of $4.2 related to the Tulsa closure. The closure was in response to continued weakness in demand for the Company's mining trucks. Demand for mining trucks is closely related to commodity prices, which have been declining in real terms over recent years. Approximately $1.0 of this charge related to severance and other employee related charges, while $2.2 of this charge relates to inventory deemed uneconomical to relocate to other distribution facilities. The remaining $1.0 of the cost accrued related to the Tulsa building closure costs and occupancy costs expected to be incurred after production is ended. Approximately 93 positions have been eliminated as a result of this action. The transfer of production activities to a third party was completed prior to December 31, 2002 and the Company is currently marketing the Tulsa property for sale.
Projects initiated in the fourth quarter of 2002 related to productivity and business rationalization include the following:
o The closure of the Company's pressurized vessel container business.
This business, located in Clones, Ireland, provided pressurized
containers to the transportation industry. The business, acquired as
part of the Powerscreen acquisition in 1999, was part of the Company's
Construction segment and was not core to the Company's overall
strategy. The Company recorded a charge of $5.4, of which $1.2 was for
severance, $2.5 for the write down of inventory, and $1.2 for facility
closing costs. The remaining $0.5 relates to the repayment of a local
government work grant. The business had faced declining demand over
the past few years and was not integral to the Construction business.
This restructuring program reduced headcount by 137 positions and was
completed as of June 30, 2003.
o The consolidation of several Terex Construction segment facilities in
the United Kingdom. The Company has consolidated several compact
equipment production facilities into a single location in Coventry,
England. The Company moved the production of mini-dumpers, rollers,
soil compactors and loader backhoes into the new facility. The Company
recorded a charge of $7.2, of which $6.1 was for severance and $1.1
was for the costs associated with exiting the facilities. The
consolidation has reduced total employment by 269 and was
substantially complete as of September 30, 2003.
o The exit of certain heavy equipment businesses related to mining
products. During the fourth quarter of 2002, the Company conducted a
review of its rental equipment businesses in both its Mining and
Construction segments. The Company's review indicated that it was not
economical to continue its mining equipment rental business due to the
high cost of moving mining equipment between customers and given the
continued weak demand for mining products. In addition, the Company
decided to rationalize its large scraper offering in its Mining
segment given the weak demand for related mining products. The Company
recorded a charge of $6.9 associated with the write down of inventory.
The Company expects to complete this project during 2004.
o The exit of certain non-core tower cranes produced by the Terex Cranes
segment under the Peiner brand in Germany. The European tower crane
business had been negatively impacted by reduced demand from large
rental customers who are undergoing financial difficulties. This has
resulted in reduced demand and deterioration in margins recognized in
the tower crane business. The Company conducted a review of its
offering of tower cranes produced under the Peiner brand and
eliminated certain models that overlap with models produced at Gru
Comedil S.r.l., the Company's tower crane facility in Italy. The
Company recorded a charge of $3.9, of which $1.0 was for severance and
$2.9 for inventory write-downs on discontinued product lines. The
program reduced employment by 47 and was complete at September 30,
2003.
o The severance costs incurred in re-aligning the Company's management
structure. The Company eliminated an executive position and recorded a
charge of $1.5. The Company paid $0.4 prior to December 31, 2002 and
an additional $0.8 in 2003. This program was completed as of June 30,
2004.
During the first quarter of 2004, the Company recorded an additional $2.7 of charges in cost of goods sold related to programs begun in 2003 and 2002. These period charges related to inventory write-downs and the effect of changes in foreign exchange and were consistent with the initial restructuring plans established by the Company.
The following table sets forth the components and status of the restructuring charges recorded in the six months ended June 30, 2004 that related to productivity and business rationalization:
Employee
Termination Asset Facility
Costs Disposals Exit Costs Other Total
--------------- ------------ ------------- --------------- --------------
Accrued restructuring charges
at December 31, 2003.......... $ 0.1 $ --- $ 1.4 $ 1.3 $ 2.8
Restructuring charges........... 3.9 4.6 1.0 --- 9.5
Cash expenditures............... --- --- (0.8) (0.3) (1.1)
Non-cash write-offs............. --- (4.6) --- --- (4.6)
--------------- ------------ ------------- --------------- --------------
Accrued restructuring charges
at June 30, 2004.............. $ 4.0 $ --- $ 1.6 $ 1.0 $ 6.6
=============== ============ ============= =============== ==============
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In the aggregate, the restructuring charges described above incurred during the six months ended June 30, 2004 and 2003 were included in cost of goods sold ($8.2 and $11.4) and selling, general and administrative expenses ($1.3 and $1.4), respectively.
Demag and Genie Acquisition Related Projects
During 2002, the Company also initiated a series of restructuring projects aimed at addressing product, channel and production overlap created by the acquisitions of Demag Mobile Cranes GmbH & Co. KG and its affiliates ("Demag") and Genie in 2002.
Projects initiated in the Terex Cranes segment in the fourth quarter of 2002, but which were not completed prior to January 1, 2003, related to the acquisition of Demag consist of:
o The elimination of certain PPM branded 3, 4 and 5 axle cranes produced
at the Company's Montceau, France facility. The Company determined
that the products produced under the PPM brand were similar to
products produced by Demag and has opted to eliminate these PPM models
in favor of the similar Demag products, which the Company believes
have superior capabilities. As a result, employment levels in Montceau
were reduced. As of June 30, 2003, 102 employees had ceased employment
with the Company. In addition, the Company also recognized a loss in
value on the affected PPM branded cranes inventory in France and
Spain. The Company recorded a charge of $15.3, of which $5.4 was for
severance, $9.6 was associated with the write down of inventory and
$0.3 was for claims related to exiting the sales function of the
discontinued products. This program was completed during the second
quarter of 2003.
o The closure of the Company's existing crane distribution center in
Germany. Prior to the acquisition of Demag, the Company distributed
mobile cranes under the PPM brand from a facility in Dortmund,
Germany. The acquisition of Demag provided an opportunity to
consolidate distribution and reduce the overall cost to serve
customers in Germany. The Company recorded a charge of $2.5, of which
$0.7 was for severance, $1.2 was for inventory write-downs, and $0.6
for lease termination costs. Eleven employees were terminated as a
result of these actions. As of June 30, 2003, all of the employees had
ceased employment with the Company. The Company expects this program
to be completed during 2004.
o The rationalization of certain crawler crane products sold under the American Crane brand in the United States. The acquisition of Demag created an overlap with certain large crawler cranes produced in the Company's Wilmington, North Carolina facility. Certain cranes produced in the North Carolina facility will be rated for reduced lifting capacity and marketed to a different class of user. This change in marketing strategy, triggered by the acquisition of Demag, negatively impacted inventory values. The Company recorded a charge of $3.2 associated with the write down of inventory. The Company completed the sale of such inventory during the fourth quarter of 2003.
During the three months ended March 31, 2004 and June 30, 2004, the Company recorded an additional $0.8 and $0.2, respectively, of charges related to programs begun in 2002. These period charges related to inventory write-downs and the effect of changes in foreign exchange and were consistent with the initial restructuring plans established by the Company.
The following table sets forth the components and status of the restructuring charges recorded in the six months ended June 30, 2004 that relate to addressing product, channel and production overlaps created by the acquisition of the Demag and Genie businesses:
Employee
Termination Asset Facility
Costs Disposals Exit Costs Other Total
-------------- ------------ ------------ --------------- -------------
Accrued restructuring charges at
December 31, 2003............... $ 1.0 $ --- $ 0.6 $ --- $ 1.6
Restructuring charges............. --- 0.8 --- --- 0.8
Cash expenditures................. (0.5) --- (0.6) --- (1.1)
Non-cash write-offs............... --- (0.8) --- --- (0.8)
-------------- ------------ ------------ --------------- -------------
Accrued restructuring charges at
June 30, 2004.................. $ 0.5 $ --- $ --- $ --- $ 0.5
============== ============ ============ =============== =============
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In the aggregate, the restructuring charges described above incurred during the six months ended June 30, 2004 and 2003 were included in cost of goods sold ($0.8 and $0).
NOTE F -- INVENTORIES
Inventories consist of the following:
June 30, December 31,
2004 2003
----------------- ---------------
Finished equipment...................... $ 352.8 $ 365.7
Replacement parts....................... 255.3 251.3
Work-in-process......................... 236.6 187.4
Raw materials and supplies.............. 231.2 205.3
---------------- ---------------
Inventories............................. $ 1,075.9 $1,009.7
================ ===============
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NOTE G -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
June 30, December 31,
2004 2003
---------------- ----------------
Property..................................$ 51.3 $ 51.9
Plant..................................... 231.7 233.4
Equipment................................. 256.4 249.9
---------------- ----------------
539.4 535.2
Less: Accumulated depreciation........... (185.2) (165.1)
---------------- ----------------
Net property, plant and equipment.........$ 354.2 $ 370.1
================ ================
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NOTE H -- INVESTMENT IN JOINT VENTURE
In April 2001, Genie entered into a joint venture arrangement with a European financial institution, pursuant to which Genie maintained a forty-nine percent (49%) ownership interest in the joint venture, Genie Financial Services Holding B.V. ("GFSH"). GFSH was established to facilitate the financing of Genie's products sold in Europe. Genie contributed $4.7 in cash in exchange for its ownership interest in GFSH. During January 2003 and 2002, Genie contributed an additional $0.8 and $0.6, respectively, in cash to GFSH.
On January 1, 2004, the Company and its joint venture partner revised the co-operation agreement and operating relationship with respect to GFSH. As part of the reorganization, the name of the joint venture was changed to Terex Financial Services Holding B.V. ("TFSH"), Genie's ownership interest in TFSH was reduced to forty percent (40%) in exchange for consideration of $1.2 from the joint venture partner, and Genie transferred its interest to another Company subsidiary. In addition, the scope of TFSH's operations was broadened, as it was granted the right to facilitate the financing of all of the Company's products sold in Europe.
As of June 30, 2004, TFSH had total assets of $170.7, consisting primarily of financing receivables and lease related equipment, and total liabilities of $154.3, consisting primarily of debt issued by the joint venture partner. From time to time, the Company has provided guarantees related to potential losses arising from shortfalls in the residual values of financed equipment or credit defaults by the joint venture's customers. Additionally, the Company is required to maintain a capital account balance in TFSH, pursuant to the terms of the joint venture, which could result in the reimbursement to TFSH by the Company of losses to the extent of the Company's ownership percentage. As a result of the capital account balance requirements for TFSH, in June 2004 the Company contributed an additional $1.9 in cash to TFSH.
As defined by FIN 46R, TFSH is a VIE. For entities created prior to February 1, 2003, FIN 46R requires the application of its provisions effective the first reporting period after March 15, 2004. Based on the legal, financial and operating structure of TFSH, the Company has concluded that it is not the primary beneficiary of TFSH and that it does not control the operations of TFSH. Accordingly, the Company does not consolidate the results of TFSH into its consolidated financial results. The Company applies the equity method of accounting for its investment in TFSH.
NOTE I -- EQUIPMENT SUBJECT TO OPERATING LEASES
Operating leases arise from the leasing of the Company's products to customers. Initial noncancellable lease terms typically range up to 84 months. The net book value of equipment subject to operating leases was approximately $109 at June 30, 2004 and is included in "Other Assets" on the Company's Condensed Consolidated Balance Sheet. The equipment is depreciated on the straight-line basis over the shorter of the estimated useful life or the estimated amortization period of any borrowings secured by the asset to its estimated salvage value.
NOTE J -- NET INVESTMENT IN SALES-TYPE LEASES
From time to time, the Company leases new and used products manufactured and sold by the Company to domestic and foreign distributors, end users and rental companies. The Company provides specialized financing alternatives that include sales-type leases, operating leases, conditional sales contracts, and short-term rental agreements.
At the time a sales-type lease is consummated, the Company records the gross finance receivable, unearned finance income and the estimated residual value of the leased equipment. Unearned finance income represents the excess of the gross minimum lease payments receivable plus the estimated residual value over the fair value of the equipment. Residual values represent the estimate of the values of the equipment at the end of the lease contracts and are initially recorded based on industry data and management's estimates. Realization of the residual values is dependent on the Company's future ability to market the equipment under then prevailing market conditions. Management reviews residual values periodically to determine that recorded amounts are appropriate. Unearned finance income is recognized as financing income using the interest method over the term of the transaction. The allowance for future losses is established through charges to the provision for credit losses.
Prior to its acquisition by the Company on September 18, 2002, Genie had a number of domestic agreements with financial institutions to provide financing of new and eligible products to distributors and rental companies. Under these programs, Genie originated leases with distributors and rental companies and the resulting lease receivables were either sold to a financial institution with limited recourse to Genie or used as collateral for borrowings. The aggregate unpaid sales-type lease payments previously transferred was $15.9 at June 30, 2004. Under these agreements, the Company's recourse obligation is limited to credit losses up to the first 5%, in any given year, of the remaining discounted
rental payments due, subject to certain minimum and maximum recourse liability amounts. The Company's maximum credit recourse exposure was $15.0 at June 30, 2004, representing a contingent liability under the limited recourse provisions.
During 2003, Genie entered into a number of arrangements with financial institutions to provide financing of new and eligible Genie products to distributors and rental companies. Under these programs, Genie originates leases or leasing opportunities with distributors and rental companies. If Genie originates the lease with a distributor or rental company, the financial institution will purchase the equipment and take assignment of the lease contract from Genie. If Genie originates a lease opportunity, the financial institution will purchase the equipment from Genie and execute a lease contract directly with the distributor or rental company. In some instances, the Company retains certain credit and/or residual recourse in these transactions. The Company's maximum exposure, representing a contingent liability, under these transactions reflects a $35.6 credit risk and a $41.5 residual value risk at June 30, 2004.
The Company's contingent liabilities previously referred to have not taken into account various mitigating factors. These factors include the staggered timing of maturity of lease transactions, resale value of the underlying equipment, lessee return penalties and annual loss caps on credit loss pools. Further, the credit risk contingent liability assumes that the individual leases were to all default at the same time and that the repossessed equipment has no market value.
NOTE K-- EARNINGS PER SHARE
Three Months Ended June 30,
(in millions, except per share data)
--------------------------------------------------------------------------
2004 2003
-------------------------------------- -----------------------------------
Income Shares Per-Share Income Shares Per-Share
(Loss) Amount (Loss) Amount
------------- ------------ ----------- ----------- ----------- -----------
Basic earnings per share
Net income (loss)...........................$ 59.1 49.3 $ 1.20 $ (51.8) 47.6 $ (1.09)
Effect of dilutive securities:
Stock options............................... --- 1.4 --- ---
Shares held by deferred compensation plan... --- --- --- ---
Contingently issuable shares for
acquisitions............................. --- --- --- ---
------------- ------------ ----------- -----------
Net income (loss)..............................$ 59.1 50.7 $ 1.17 $ (51.8) 47.6 $ (1.09)
============= ============ =========== =========== =========== ===========
|
Six Months Ended June 30,
(in millions, except per share data)
--------------------------------------------------------------------------
2004 2003
-------------------------------------- -----------------------------------
Income Shares Per-Share Income Shares Per-Share
(Loss) Amount (Loss) Amount
------------- ------------ ----------- ----------- ----------- -----------
Basic earnings per share
Net income (loss)...........................$ 76.1 49.1 $ 1.55 $ (39.8) 47.4 $ (0.84)
Effect of dilutive securities:
Stock Options............................... --- 1.5 --- ---
Shares held by deferred compensation plan... --- --- --- ---
Contingently issuable shares for
acquisitions............................. --- --- --- ---
------------- ------------ ----------- -----------
Net income (loss)..............................$ 76.1 50.6 $ 1.50 $ (39.8) 47.4 $ (0.84)
============= ============ =========== =========== =========== ===========
|
Had the Company recognized income (versus a loss) from continuing operations before cumulative effect of change in accounting principle in the three months ended June 30, 2003, diluted shares outstanding would have increased by 0.8 million for the assumed exercise of stock options, 0.6 million for the effect of Common Stock held by the Company's deferred compensation plan and 0.5 million for the Company's contingent obligation to make additional payments for the acquisition of Genie. For the six months ended June 30, 2003, diluted shares outstanding would have increased by 0.7 million for the assumed exercise of stock options, 0.6 million for the effect of Common Stock held by the Company's deferred compensation plan and 0.6 million for the Company's contingent obligation to make additional payments for the acquisition of Genie.
Options to purchase 245 thousand, 1,017 thousand, 230 thousand and 1,593 thousand shares of Common Stock were outstanding during the three months and six months ended June 30, 2004 and 2003, respectively, but were not included in the computation of diluted shares. These options were excluded because the exercise price of these options was greater than the average market price of the Common Stock during such periods and, therefore, the effect would be anti-dilutive. As discussed in the Company's Annual Report on Form 10-K for the year ended December 31, 2003 and in Note B - "Acquisitions", the Company has a contingent obligation to make additional payments in cash or Common Stock based on provisions of certain acquisition agreements. The Company's policy and past practice has been generally to settle such obligations in cash. Accordingly, contingently issuable Common Stock under these arrangements totaling 226 thousand and 499 thousand shares for the three months and six months ended June 30, 2003, respectively, are not included in the computation of diluted earnings per share. At June 30, 2004, due to the market price of the Company's Common Stock, there were no contingently issuable shares under these arrangements included in the computation of diluted earnings per share for the three months and six months ended June 30, 2004.
NOTE L - INCOME TAXES
The effective tax rate for the three months and six months ended June 30, 2004 was 19.7% and 22.3%, respectively, as compared to an effective rate of approximately 28% for the twelve months ended December 31, 2003. The effective tax rate for the three months and six months ended June 30, 2004 is lower than the prior year's effective tax rate due to the strong financial performance of the Company's Fermec business, where recent performance indicated that it was more likely than not that the Company would be able to realize the benefits of certain tax assets, and, therefore, the valuation allowance held for this business was released. The financial impact of this item was recognized in the second quarter, resulting in a three month and six month tax rate that is significantly lower than the full year's tax rate in 2003.
The effective tax rate for the three and six months ended June 30, 2003 was 20.2% and 17.6%, respectively, as compared to the effective rate of approximately 28% for the year ended December 31, 2003. The lower effective tax rate during the first two quarters of 2003 was due to a goodwill impairment related to the Company's roadbuilding reporting unit recorded during the second quarter of 2003. This goodwill impairment charge was only partially deductible for income tax purposes.
NOTE M - EARLY EXTINGUISHMENT OF DEBT
During the second quarter of 2004, the Company prepaid $75.0 of term debt under its bank credit facility and recorded a related non-cash charge of $1.5. The non-cash charge related to the write-off of unamortized debt acquisition costs. During the second quarter of 2003, the Company redeemed $50.0 aggregate principal amount of its 8-7/8% Senior Subordinated Notes due 2008 and recognized a non-cash charge of $1.9. The charge was comprised of the payment of an early redemption premium ($2.2), the write off of unamortized original issuance discount ($1.6) and the write off of unamortized debt acquisition costs ($0.2), which were partially offset by the recognition of deferred gains related to previously closed fair value interest rate swaps on this debt ($2.1).
NOTE N - STOCKHOLDERS' EQUITY
Total non-stockowner changes in equity (comprehensive income) include all changes in equity during a period except those resulting from investments by, and distributions to, stockowners. The specific components include: net income, deferred gains and losses resulting from foreign currency translation, minimum pension liability adjustments, deferred gains and losses resulting from derivative hedging transactions and deferred gains and losses resulting from debt and equity securities classified as available for sale. Total non-stockowner changes in equity were as follows.
For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------------- --------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
Net income (loss) .......................$ 59.1 $ (51.8) $ 76.1 $ (39.8)
Other comprehensive income (loss):
Translation adjustment.............. (13.2) 29.7 (25.6) 39.8
Derivative hedging adjustment....... 1.7 (4.6) (2.1) (5.9)
------------ ------------ ------------ ------------
Comprehensive income (loss)..............$ 47.6 $ (26.7) $ 48.4 $ (5.9)
============ ============ ============ ============
|
As disclosed in "Note B - Acquisitions", the Company also issued approximately 0.2 million shares and 0.6 million shares of its Common Stock during the three months ended September 30, 2003 and March 31, 2003 in connection with the acquisitions of Tatra and Commercial Body, respectively. On April 7, 2004, Ronald M. DeFeo, the Company's Chairman, Chief Executive Officer and President, delivered 22,429 shares of Common Stock to the Company in connection with his
repayment of a loan made by the Company to Mr. DeFeo on March 2, 2000. The loan was repaid in full by Mr. DeFeo, through this Common Stock payment and additional cash payments, in April 2004.
NOTE O -- LITIGATION AND CONTINGENCIES
In the Company's lines of business numerous suits have been filed alleging damages for accidents that have arisen in the normal course of operations involving the Company's products. The Company is self-insured, up to certain limits, for these product liability exposures, as well as for certain exposures related to general, workers' compensation and automobile liability. Insurance coverage is obtained for catastrophic losses as well as those risks required to be insured by law or contract. The Company has recorded and maintains a liability in the amount of management's estimate of the Company's aggregate exposure for such self-insured risks. For self-insured risks, the Company determines its exposure based on probable loss estimations, which requires such losses to be both probable and the amount or range of possible loss to be estimable. Management does not believe that the final outcome of such matters will have a material adverse effect on the Company's financial position.
The Company is involved in various other legal proceedings which have arisen in the normal course of its operations. The Company has recorded provisions for estimated losses in circumstances where a loss is probable and the amount or range of possible amounts of the loss is estimable.
The Company's outstanding letters of credit totaled $93.2 at June 30, 2004. The letters of credit generally serve as collateral for certain liabilities included in the Condensed Consolidated Balance Sheet. Certain of the letters of credit serve as collateral guaranteeing the Company's performance under contracts.
The Company has a letter of credit outstanding covering losses related to two former subsidiaries' worker compensation obligations. The Company has recorded liabilities for these contingent obligations representing management's estimate of the potential losses which the Company might incur.
In the third quarter of 2002, the Company obtained a favorable court judgment on appeal as the defendant in a patent infringement case brought against the Terex Construction segment's Powerscreen business. This favorable court judgment reversed a lower court decision for which the Company had previously recorded a liability. During the first quarter of 2003, amounts previously paid for the litigation were returned to the Company. As a result, the Company recorded $2.4 of income in "Other income (expense) - net" in the Condensed Consolidated Statement of Operations during the first quarter of 2003.
In the second quarter of 2004, the Company settled an outstanding litigation matter related to the Company's acquisition of O&K Mining in 1998. In connection with the settlement, the Company recognized a gain of $5.8, which was recorded in "Other income (expense) - net" in the Condensed Consolidated Statement of Operations during the second quarter of 2004.
Credit Guarantees
Customers of the Company from time to time may fund the acquisition of the Company's equipment through third-party finance companies. In certain instances, the Company may provide a credit guarantee to the finance company, by which the Company agrees to make payments to the finance company should the customer default. The maximum liability of the Company is limited to the remaining payments due to the finance company at the time of default. In the event of a customer default, the Company is generally able to dispose of the equipment with the Company realizing the benefits of any net proceeds in excess of the remaining payments due to the finance company.
As of June 30, 2004, the Company's maximum exposure to such credit guarantees was $289.5. The terms of these guarantees coincide with the financing arranged by the customer and generally does not exceed five years. Given the Company's position as the original equipment manufacturer and its knowledge of end markets, the Company, when called upon to fulfill a guarantee, generally has been able to liquidate the financed equipment at a minimal loss, if any, to the Company.
Residual Value and Buyback Guarantees
The Company issues residual value guarantees under sales-type leases. A residual value guarantee involves a guarantee that a piece of equipment will have a minimum fair market value at a future point in time. As described in Note J - "Net Investment in Sales-Type Leases," the Company's maximum exposure related to residual value guarantees under sales-type leases was $41.5 at June 30, 2004. The Company is able to mitigate the risk associated with these guarantees because the maturity of these guarantees is staggered, which limits the amount of used equipment entering the marketplace at any one time.
The Company from time to time guarantees that it will buy equipment from its customers in the future at a stated price if certain conditions are met by the customer. These conditions generally pertain to the functionality and state of repair of the machine. Such guarantees are referred to as buyback guarantees. As of June 30, 2004, the Company's maximum exposure to buyback guarantees was $43.4. The Company is able to mitigate the risk of these guarantees by staggering the timing of the buybacks and through leveraging its access to the used equipment markets provided by the Company's original equipment manufacturer status.
NOTE P -- RETIREMENT PLANS AND OTHER BENEFITS
U.S. Plans - As of June 30, 2004, the Company maintained four defined benefit pension plans covering certain domestic employees (the "Terex Plans"). The benefits for the plans covering the salaried employees are based primarily on years of service and employees' qualifying compensation during the final years of employment. Participation in the plans for salaried employees was frozen on or before October 15, 2000, and no participants will be credited with service following such dates except that participants not fully vested were credited with service for purposes of determining vesting only. The benefits for the plans covering the hourly employees are based primarily on years of service and a flat dollar amount per year of service. It is the Company's policy generally to fund the Terex Plans based on the minimum requirements of the Employee Retirement Income Security Act of 1974 ("ERISA"). Plan assets consist primarily of common stocks, bonds, and short-term cash equivalent funds.
The Company adopted a Supplemental Executive Retirement Plan ("SERP") effective October 1, 2002. The SERP provides retirement benefits to certain senior executives of the Company. Generally, the SERP provides a benefit based on average total compensation and years of service reduced by benefits earned under other Company funded retirement programs, including Social Security. The SERP is unfunded.
The Company has five nonpension postretirement benefit programs. The health care programs are contributory with participants' contributions adjusted annually; the life insurance plan is noncontributory. The Company provides postemployment health and life insurance benefits to certain former salaried and hourly employees of Terex Cranes - Waverly Operations (also known as Koehring Cranes, Inc.) and Terex Corporation. The Company provides post-employment health benefits for certain employees at Cedarapids and Simplicity Engineering. The Company adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions," on January 1, 1993. This statement requires accrual of postretirement benefits (such as health care benefits) during the years an employee provides service. Terex adopted the provisions of SFAS No. 106 using the delayed recognition method, whereby the amount of the unrecognized transition obligation at January 1, 1993 is recognized prospectively as a component of future years' net periodic postretirement benefit expense. The unrecognized transition obligation at January 1, 1993 was $4.5. Terex is amortizing this transition obligation over 12 years, the average remaining life expectancy of the participants.
Pension Benefits
--------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ---------------------------
2004 2003 2004 2003
-------------- ------------- ------------- -------------
Weighted-average assumptions:
Discount rate........................ 6.00% 6.75% 6.00% 6.75%
Expected return on plan assets....... 8.00% 8.00% 8.00% 8.00%
Rate of compensation increase........ 4.00% 5.00% 4.00% 5.00%
|
Pension Benefits
---------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
2004 2003 2004 2003
-------------- ------------ ------------ --------------
Components of net periodic cost:
Service cost..........................$ 0.4 $ 0.1 $ 0.7 $ 0.3
Interest cost......................... 1.7 1.7 3.5 3.5
Expected return on plan assets........ (1.9) (1.6) (3.8) (3.3)
Amortization of prior service cost.... 0.2 0.2 0.4 0.3
Recognized actuarial (gain) loss...... 0.5 0.6 1.1 1.2
-------------- ------------ ------------ --------------
Net periodic cost (benefit).............$ 0.9 $ 1.0 $ 1.9 $ 2.0
============== ============ ============ ==============
|
Other Benefits
---------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
2004 2003 2004 2003
-------------- ------------ ------------ --------------
Weighted-average assumptions:
Discount rate........................ 6.00% 6.75% 6.00% 6.75%
Expected return on plan assets....... --- --- --- ---
Rate of compensation increase........ --- --- --- ---
|
Other Benefits
---------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
2004 2003 2004 2003
-------------- ------------ ------------ --------------
Components of net periodic cost:
Service cost.........................$ 0.1 $ 0.1 $ 0.1 $ 0.1
Interest cost......................... 0.2 0.1 0.4 0.3
Amortization of prior service cost.... --- 0.1 --- 0.1
Amortization of transition obligation. --- 0.1 0.1 0.2
Recognized actuarial (gain) loss...... 0.2 --- 0.3 0.1
-------------- ------------ ------------ --------------
Net periodic cost (benefit)............$ 0.5 $ 0.4 $ 0.9 $ 0.8
============== ============ ============ ==============
|
The Company plans to contribute approximately $3 to its U.S. defined benefit pension plans in 2004. During the three months and six months ended June 30, 2004, the Company contributed $1.6 and $1.8, respectively, to its U.S. defined benefit pension plans.
International Plans - The Company maintains defined benefit plans in Germany, France, Ireland and the United Kingdom for some of its subsidiaries. The plans in Germany and France are unfunded plans.
Pension Benefits
--------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------- ---------------------------------
2004 2003 2004 2003
---------------- ----------------- -------------- ------------------
Weighted-average assumptions:
Discount rate...................... 5.50%-6.00% 5.75%-6.00% 5.50%-6.00% 5.75%-6.00%
Expected return on plan assets..... 2.00%-6.50% 2.00%-7.00% 2.00%-6.50% 2.00%-7.00%
Rate of compensation increase...... 2.75%-4.00% 3.75%-4.25% 2.75%-4.00% 3.75%-4.25%
|
Pension Benefits
---------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------------------------------------------
2004 2003 2004 2003
----------------- ----------------- -------------- ------------------
Components of net periodic cost:
Service cost....................... $ 1.0 $ 1.0 $ 2.0 $ 1.9
Interest cost...................... 3.0 2.8 6.1 5.5
Expected return on plan assets..... (1.1) (1.0) (2.2) (1.9)
Recognized actuarial (gain) loss... 0.1 0.2 0.2 0.4
----------------- ----------------- -------------- ------------------
Net periodic cost (benefit)........... $ 3.0 $ 3.0 $ 6.1 $ 5.9
================= ================= ============== ==================
|
The Company plans to contribute approximately $12 to its international defined benefit pension plans in 2004. During the three months and six months ended June 30, 2004, the Company contributed $2.5 and $6.0, respectively, to its international defined benefit pension plans.
NOTE Q -- BUSINESS SEGMENT INFORMATION
Terex is a diversified global manufacturer of a broad range of equipment primarily for the construction, infrastructure and surface mining industries. The Company operates in five business segments: (i) Terex Construction; (ii) Terex Cranes; (iii) Terex Aerial Work Platforms; (iv) Terex Mining; and (v) Terex Roadbuilding, Utility Products and Other. The Company's strategy going forward is to build the Terex brand. As part of that effort, Terex will, over time, be migrating historic brand names to Terex and may include the use of the historic brand name in conjunction with the Terex brand for a transitional period of time.
The Terex Construction segment designs, manufactures and markets three primary
categories of equipment and their related components and replacement parts:
heavy construction equipment (including off-highway trucks and scrapers),
compact equipment (including loader backhoes, compaction equipment, mini and
midi excavators, loading machines, site dumpers, telehandlers and wheel
loaders); and mobile crushing and screening equipment (including jaw crushers,
cone crushers, washing screens and trommels). These products are primarily used
by construction, logging, mining, industrial and government customers in
construction and infrastructure projects and supplying coal, minerals, sand and
gravel. Terex Construction products are currently marketed principally under the
following brand names: Terex, Atlas, Finlay, Fuchs, Pegson, Powerscreen,
Benford, Fermec, Schaeff and TerexLift.
The Terex Cranes segment designs, manufactures and markets mobile telescopic cranes, tower cranes, lattice boom crawler cranes, truck mounted cranes (boom trucks) and telescopic container stackers, as well as their related replacement parts and components. These products are used primarily for construction, repair and maintenance of infrastructure, building and manufacturing facilities. Currently, Terex Cranes products are marketed principally under the following brand names: Terex, American, Bendini, Comedil, Demag, Franna, Peiner, PPM and RO-Stinger.
The Terex Aerial Work Platforms segment was formed upon the completion of Terex's acquisition of Genie and its affiliates on September 18, 2002. The Terex Aerial Work Platforms segment designs, manufactures and markets aerial work platform equipment and telehandlers. Products include material lifts, portable aerial work platforms, trailer mounted booms, articulating booms, stick booms, scissor lifts, telehandlers, related components and replacement parts, and other products. These products are used primarily by customers in the construction and building maintenance industries to lift people and/or equipment as required to build and/or maintain large physical assets and structures. Terex Aerial Work Platforms products currently are marketed principally under the Genie and Terex brand names.
The Terex Mining segment designs, manufactures and markets large hydraulic excavators and high capacity surface mining trucks, related components and replacement parts, and other products. These products are used primarily by construction, mining, quarrying and government customers in construction, excavation and supplying coal and minerals. Currently, Terex Mining products are marketed principally under the following brand names: O&K, Payhauler, Terex and Unit Rig.
The Terex Roadbuilding, Utility Products and Other segment designs, manufactures and markets fixed installation crushing and screening equipment (including crushers, impactors, screens and feeders), asphalt and concrete equipment (including pavers, plants, mixers, reclaimers, stabilizers and profilers), utility equipment (including digger derricks, aerial devices and cable placers), light construction equipment (including light towers, trowels, power buggies, generators and arrow boards), construction trailers and on/off road heavy-duty vehicles, as well as related components and replacement parts. These products are used primarily by government, utility and construction customers to build roads, maintain utility lines, trim trees and for commercial and military applications. These products are currently marketed principally under the following brand names: Terex, Advance, American Truck Company, Amida, ATC, Bartell, Benford, Bid-Well, Canica, Cedarapids, Cedarapids/Standard Havens, CMI Johnson Ross, CMI Terex, CMI-Cifali, Grayhound, Hi-Ranger, Jaques, Load King, Morrison, Re-Tech, Royer, Simplicity, Tatra, Terex Power, Terex Recycling and Terex Telelect. Terex also owns much of the North American distribution channel for the utility products group through the distributors Terex Utilities South and Terex Utilities West. These operations distribute and install the Company's utility aerial devices as well as other products that service the utility industry. The Company also operates a fleet of rental utility products under the name of Terex Utilities Rental. The Company also leases and rents a variety of heavy equipment to third parties under the Terex Re-Rentals brand name. The Company, through Terex Financial Services, Inc., also offers customers loans and leases underwritten by TFS Capital Funding, an affiliate of the General Electric Company, and TFSH to assist in the acquisition of the Company's products.
The results of businesses acquired during 2003 are included from the dates of their respective acquisitions.
Included in Eliminations/Corporate are the eliminations among the five segments, as well as general and corporate items for the three months and six months ended June 30, 2004 and 2003. Business segment information is presented below:
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-----------------------------------------------------------
2004 2003 2004 2003
-------------- -------------- ------------- ---------------
Sales
Terex Construction................................. $ 475.0 $ 382.7 $ 864.7 $ 700.9
Terex Cranes....................................... 276.9 273.0 486.1 510.9
Terex Aerial Work Platforms........................ 238.0 167.8 406.0 315.9
Terex Mining...................................... 99.5 75.0 169.4 155.0
Terex Roadbuilding, Utility Products and Other .... 267.7 169.3 485.1 327.4
Eliminations/Corporate............................. (20.7) (19.0) (31.1) (32.7)
-------------- -------------- ------------- ---------------
Total............................................ $ 1,336.4 $ 1,048.8 $ 2,380.2 $ 1,976.5
============== ============== ============= ===============
Income (Loss) from Operations
Terex Construction................................. $ 22.4 $ 19.0 $ 38.6 $ 33.2
Terex Cranes....................................... 10.6 1.5 17.0 8.3
Terex Aerial Work Platforms........................ 33.1 21.4 53.9 37.2
Terex Mining....................................... 6.6 4.0 8.6 8.6
Terex Roadbuilding, Utility Products and Other..... 6.3 (77.3) 11.5 (75.9)
Eliminations/Corporate............................. (3.2) (4.1) (5.5) (6.4)
-------------- -------------- ------------- ---------------
Total............................................ $ 75.8 $ (35.5) $ 124.1 $ 5.0
============== ============== ============= ===============
|
June 30, December 31,
2004 2003
------------------- -----------------
Identifiable Assets
Terex Construction.................................. $ 1,497.7 $ 1,394.1
Terex Cranes........................................ 890.1 890.4
Terex Aerial Work Platforms......................... 473.8 456.4
Terex Mining........................................ 461.4 443.0
Terex Roadbuilding, Utility Products and Other...... 718.2 641.2
Corporate........................................... 2,008.4 1,971.7
Eliminations........................................ (2,183.1) (2,073.0)
------------------- -----------------
Total............................................. $ 3,866.5 $ 3,723.8
=================== =================
|
NOTE R -- CONSOLIDATING FINANCIAL STATEMENTS
On March 29, 2001, the Company sold and issued $300 aggregate principal amount of 10-3/8% Senior Subordinated Notes due 2011 (the "10-3/8% Notes"). On December 17, 2001, the Company sold and issued $200 aggregate principal amount of 9-1/4% Senior Subordinated Notes due 2011 (the "9-1/4% Notes"). On November 25, 2003, the Company sold and issued $300 aggregate principal amount of 7-3/8% Senior Subordinated Notes due 2014 (the "7-3/8% Notes"). As of June 30, 2004, the 10-3/8% Notes, the 9-1/4% Notes and the 7-3/8% Notes were each jointly and severally guaranteed by the following wholly-owned subsidiaries of the Company (the "Wholly-owned Guarantors"): Amida Industries, Inc., Benford America, Inc., BL-Pegson USA, Inc., Cedarapids, Inc., CMI Dakota Company, CMI Terex Corporation, CMIOIL Corporation, EarthKing, Inc., Finlay Hydrascreen USA, Inc., Fuchs Terex, Inc., Genie Access Services, Inc., Genie China, Inc., Genie Financial Services, Inc., Genie Holdings, Inc., Genie Industries, Inc., Genie International, Inc., Genie Manufacturing, Inc., GFS Commercial LLC, GFS National, Inc., Go Credit Corporation, Koehring Cranes, Inc., Lease Servicing & Funding Corp., O&K Orenstein & Koppel, Inc., Payhauler Corp., Powerscreen Holdings USA Inc., Powerscreen International LLC, Powerscreen North America Inc., Powerscreen USA, LLC, PPM Cranes, Inc., Product Support, Inc., Royer Industries, Inc., Schaeff Incorporated, Spinnaker Insurance Company, Standard Havens, Inc., Standard Havens Products, Inc., Terex Advance Mixer, Inc., Terex Bartell, Inc., Terex Cranes, Inc., Terex Financial Services, Inc., Terex Mining Equipment, Inc., Terex Utilities, Inc., Terex Utilities South, Inc., Terex-RO Corporation, Terex-Telelect, Inc., The American Crane Corporation, and Utility Equipment, Inc. All of the guarantees are full and unconditional.
No subsidiaries of the Company except the Wholly-owned Guarantors have provided a guarantee of the 10-3/8% Notes, the 9-1/4% Notes and the 7-3/8% Notes.
The following summarized condensed consolidating financial information for the Company segregates the financial information of Terex Corporation, the Wholly-owned Guarantors and the Non-guarantor Subsidiaries. The results of businesses acquired during 2003 are included from the dates of their respective acquisitions.
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 the Wholly-owned Guarantor subsidiaries. Subsidiaries of Wholly-owned Guarantors that are not themselves guarantors are reported on the equity basis.
Non-guarantor Subsidiaries combine the operations of subsidiaries which have not provided a guarantee of the obligations of Terex Corporation under the 10-3/8% Notes, the 9-1/4% Notes and the 7-3/8% Notes.
Debt and goodwill allocated to subsidiaries is presented on an accounting "push-down" basis.
TEREX CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2004
(in millions)
Wholly- Non-
Terex owned guarantor Intercompany
Corporation Guarantors Subsidiaries Eliminations Consolidated
------------- ------------- ------------- -------------- --------------
Net sales............................... $ 104.8 $ 486.6 $ 788.3 $ (43.3) $ 1,336.4
Cost of goods sold.................... 95.7 422.9 666.1 (43.3) 1,141.4
------------- ------------- ------------- -------------- --------------
Gross profit............................ 9.1 63.7 122.2 --- 195.0
Selling, general & administrative
expenses............................. (7.2) (39.8) (72.2) --- (119.2)
------------- ------------- ------------- -------------- --------------
Income (loss) from operations........... 1.9 23.9 50.0 --- 75.8
Interest income....................... 0.3 (0.2) 1.3 --- 1.4
Interest expense...................... (11.0) (0.9) (11.5) --- (23.4)
Income (loss) from equity investees... 72.4 --- --- (72.4) ---
Other income (expense) - net.......... 4.5 0.1 15.2 --- 19.8
------------- ------------- ------------- -------------- --------------
Income (loss) before income taxes ...... 68.1 22.9 55.0 (72.4) 73.6
Benefit from (provision for) income
taxes................................. (9.0) (0.2) (5.3) --- (14.5)
------------- ------------- ------------- -------------- --------------
Net income (loss)....................... $ 59.1 $ 22.7 $ 49.7 $ (72.4) $ 59.1
============= ============= ============= ============== ==============
|
TEREX CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2003
(in millions)
Wholly- Non-
Terex owned guarantor Intercompany
Corporation Guarantors Subsidiaries Eliminations Consolidated
------------- ------------- ------------- ------------- -------------
Net sales............................... $ 82.8 $ 365.3 $ 655.1 $ (54.4) $ 1,048.8
Cost of goods sold................... 74.4 343.6 568.5 (54.4) 932.1
------------- ------------- ------------- ------------- -------------
Gross profit............................ 8.4 21.7 86.6 --- 116.7
Selling, general & administrative
expenses........................... (13.2) (32.1) (55.6) --- (100.9)
Goodwill impairment.................. --- (51.3) --- --- (51.3)
------------- ------------- ------------- ------------- -------------
Income (loss) from operations........... (4.8) (61.7) 31.0 --- (35.5)
Interest income....................... 0.2 2.2 (0.3) --- 2.1
Interest expense...................... (7.8) (7.2) (11.6) --- (26.6)
Income (loss) from equity investees... (53.3) --- --- 53.3 ---
Other income (expense) - net.......... (3.6) (0.1) (1.2) --- (4.9)
------------- ------------- ------------- ------------- -------------
Income (loss) before income taxes ...... (69.3) (66.8) 17.9 53.3 (64.9)
(Provision for) benefit from income
taxes................................ 17.5 (0.4) (4.0) --- 13.1
------------- ------------- ------------- ------------- -------------
Net income (loss)....................... $ (51.8) $ (67.2) $ 13.9 $ 53.3 $ (51.8)
============= ============= ============= ============= =============
|
TEREX CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2004
(in millions)
Wholly- Non-
Terex owned guarantor Intercompany
Corporation Guarantors Subsidiaries Eliminations Consolidated
------------- ------------- ------------- -------------- -------------
Net sales............................... $ 181.4 $ 867.5 $ 1,430.0 $ (98.7) $ 2,380.2
Cost of goods sold.................... 165.3 751.6 1,206.7 (98.7) 2,024.9
------------- ------------- ------------- -------------- -------------
Gross profit............................ 16.1 115.9 223.3 --- 355.3
Selling, general & administrative
expenses............................. (14.9) (72.9) (143.4) --- (231.2)
------------- ------------- ------------- -------------- -------------
Income (loss) from operations........... 1.2 43.0 79.9 --- 124.1
Interest income....................... 0.5 (0.7) 2.6 --- 2.4
Interest expense...................... (9.2) (13.8) (22.9) --- (45.9)
Income (loss) from equity investees... 88.2 --- --- (88.2) ---
Other income (expense) - net.......... 5.6 (0.7) 12.5 --- 17.4
------------- ------------- ------------- -------------- -------------
Income (loss) before income taxes ...... 86.3 27.8 72.1 (88.2) 98.0
Benefit from (provision for) income
taxes................................ (10.2) (0.6) (11.1) --- (21.9)
------------- ------------- ------------- -------------- -------------
Net income (loss)....................... $ 76.1 $ 27.2 $ 61.0 $ (88.2) $ 76.1
============= ============= ============= ============== =============
|
TEREX CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2003
(in millions)
Wholly- Non-
Terex owned guarantor Intercompany
Corporation Guarantors Subsidiaries Eliminations Consolidated
------------- ------------- ------------- ------------- -------------
Net sales............................... $ 147.1 $ 707.4 $ 1,223.4 $ (101.4) $ 1,976.5
Cost of goods sold................... 135.3 640.1 1,056.1 (101.4) 1,730.1
------------- ------------- ------------- ------------- -------------
Gross profit............................ 11.8 67.3 167.3 --- 246.4
Selling, general & administrative
expenses........................... (19.9) (62.5) (107.7) --- (190.1)
Goodwill impairment.................. --- (51.3) --- --- (51.3)
------------- ------------- ------------- ------------- -------------
Income (loss) from operations........... (8.1) (46.5) 59.6 --- 5.0
Interest income....................... 0.5 2.4 0.9 --- 3.8
Interest expense...................... (14.6) (13.7) (24.2) --- (52.5)
Income (loss) from equity investees... (35.0) --- --- 35.0 ---
Other income (expense) - net.......... (5.4) (0.9) 1.7 --- (4.6)
------------- ------------- ------------- ------------- -------------
Income (loss) before income taxes ...... (62.6) (58.7) 38.0 35.0 (48.3)
(Provision for) benefit from income
taxes................................ 22.8 (3.6) (10.7) --- 8.5
------------- ------------- ------------- ------------- -------------
Net income (loss)....................... $ (39.8) $ (62.3) $ 27.3 $ 35.0 $ (39.8)
============= ============= ============= ============= =============
|
TEREX CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
JUNE 30, 2004
(in millions)
Wholly- Non-
Terex Owned Guarantor Intercompany
Corporation Guarantors Subsidiaries Eliminations Consolidated
------------- ------------- ------------- ------------- -------------
Assets
Current assets
Cash and cash equivalents.......... $ 111.5 $ 2.7 $ 340.3 $ --- $ 454.5
Trade receivables - net............ 22.2 189.9 448.8 --- 660.9
Intercompany receivables........... 20.7 150.0 39.1 (209.8) ---
Net inventories.................... 69.0 288.7 702.3 15.9 1,075.9
Other current assets............... 63.7 25.4 90.6 --- 179.7
------------- ------------- ------------- ------------- -------------
Total current assets............. 287.1 656.7 1,621.1 (193.9) 2,371.0
Property, plant & equipment - net.... 0.1 93.9 260.2 --- 354.2
Investment in and advances to
(from) subsidiaries.............. 1,013.9 (363.1) (354.7) (296.1) ---
Goodwill - net....................... (6.4) 231.0 391.3 --- 615.9
Other assets - net................... 111.9 200.4 213.1 --- 525.4
------------- ------------- ------------- ------------- -------------
Total assets............................ $ 1,406.6 $ 818.9 $ 2,131.0 $ (490.0) $ 3,866.5
============= ============= ============= ============= =============
Liabilities and stockholders' equity
(deficit)
Current liabilities
Notes payable and current portion
of long-term debt................ $ 0.1 $ 21.9 $ 53.7 $ --- $ 75.7
Trade accounts payable............. 31.0 186.6 559.1 --- 776.7
Intercompany payables.............. 24.8 63.8 121.2 (209.8) ---
Accruals and other current
liabilities...................... 64.2 88.4 316.9 --- 469.5
------------- ------------- ------------- ------------- -------------
Total current liabilities........ 120.1 360.7 1,050.9 (209.8) 1,321.9
Long-term debt, less current portion. 266.1 342.2 578.8 --- 1,187.1
Other long-term liabilities.......... 88.4 103.5 233.6 --- 425.5
Stockholders' equity (deficit)....... 932.0 12.5 267.7 (280.2) 932.0
------------- ------------- ------------- ------------- -------------
Total liabilities and stockholders'
equity (deficit)..................... $ 1,406.6 $ 818.9 $ 2,131.0 $ (490.0) $ 3,866.5
============= ============= ============= ============= =============
|
TEREX CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2003
(in millions)
Wholly- Non-
Terex Owned Guarantor Intercompany
Corporation Guarantors Subsidiaries Eliminations Consolidated
------------- ------------- ------------- ------------- -------------
Assets
Current assets
Cash and cash equivalents..........$ 148.7 $ 2.9 $ 315.9 $ --- $ 467.5
Trade receivables - net............ 32.1 119.9 388.2 --- 540.2
Intercompany receivables........... 11.7 14.0 18.0 (43.7) ---
Net inventories.................... 81.8 250.2 659.3 18.4 1,009.7
Current deferred tax assets........ 50.0 0.7 3.2 --- 53.9
Other current assets............... 17.1 25.2 80.4 --- 122.7
------------- ------------- ------------- ------------- -------------
Total current assets............. 341.4 412.9 1,465.0 (25.3) 2,194.0
Property, plant & equipment - net.... 7.3 101.6 261.2 --- 370.1
Investment in and advances to
(from) subsidiaries.............. 859.3 (209.4) (464.8) (185.1) ---
Goodwill - net....................... (9.8) 244.5 368.8 --- 603.5
Deferred taxes....................... 118.6 82.3 38.0 --- 238.9
Other assets - net................... 5.0 140.2 172.1 --- 317.3
------------- ------------- ------------- ------------- -------------
Total assets............................$ 1,321.8 $ 772.1 $ 1,840.3 $ (210.4) $ 3,723.8
============= ============= ============= ============= =============
Liabilities and stockholders' equity
(deficit)
Current liabilities
Notes payable and current portion
of long-term debt................$ 0.1 $ 35.6 $ 51.1 $ --- $ 86.8
Trade accounts payable............. 31.3 124.2 453.1 --- 608.6
Intercompany payables.............. 20.6 21.3 1.8 (43.7) ---
Accruals and other current
liabilities...................... 42.8 101.8 319.4 --- 464.0
------------- ------------- ------------- ------------- -------------
Total current liabilities........ 94.8 282.9 825.4 (43.7) 1,159.4
Long-term debt, less current portion. 272.1 404.8 597.9 --- 1,274.8
Other long-term liabilities.......... 78.2 99.1 235.6 --- 412.9
Stockholders' equity (deficit)....... 876.7 (14.7) 181.4 (166.7) 876.7
------------- ------------- ------------- ------------- -------------
Total liabilities and stockholders'
equity (deficit).....................$ 1,321.8 $ 772.1 $ 1,840.3 $ (210.4) $ 3,723.8
============= ============= ============= ============= =============
|
TEREX CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2004
(in millions)
Wholly- Non-
Terex owned guarantor Intercompany
Corporation Guarantors Subsidiaries Eliminations Consolidated
------------- ------------- ------------- ------------- --------------
Net cash provided by (used in)
operating activities.................. $ (42.0) $ 55.9 $ 56.0 $ --- $ 69.9
------------- ------------- ------------- ------------- --------------
Cash flows from investing activities:
Acquisition of business, net of cash
acquired............................. (0.6) (0.5) --- --- (1.1)
Capital expenditures.................. (0.1) (5.2) (10.4) --- (15.7)
Proceeds from sale of assets.......... --- 1.8 22.2 --- 24.0
------------- ------------- ------------- ------------- --------------
Net cash provided by (used in)
investing activities............... (0.7) (3.9) 11.8 --- 7.2
------------- ------------- ------------- ------------- --------------
Cash flows from financing activities:
Principal repayments of long-term debt --- (39.7) (35.3) --- (75.0)
Proceeds from stock options exercised. 5.5 --- --- --- 5.5
Net borrowings (repayments) under
revolving line of credit agreements.. --- --- (2.2) --- (2.2)
Other................................. --- (12.5) (2.6) --- (15.1)
------------- ------------- ------------- ------------- --------------
Net cash provided by (used in)
financing activities............... 5.5 (52.2) (40.1) --- (86.8)
------------- ------------- ------------- ------------- --------------
Effect of exchange rates on cash and
cash equivalents...................... --- --- (3.3) --- (3.3)
------------- ------------- ------------- ------------- --------------
Net (decrease) increase in cash and cash
equivalents........................... (37.2) (0.2) 24.4 --- (13.0)
Cash and cash equivalents, beginning of
period................................ 148.7 2.9 315.9 --- 467.5
------------- ------------- ------------- ------------- --------------
Cash and cash equivalents, end of period $ 111.5 $ 2.7 $ 340.3 $ --- $ 454.5
============= ============= ============= ============= ==============
|
TEREX CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2003
(in millions)
Wholly- Non-
Terex owned guarantor Intercompany
Corporation Guarantors Subsidiaries Eliminations Consolidated
------------- ------------- ------------- -------------- ---------------
Net cash provided by (used in)
operating activities.................. $ 46.8 $ 17.0 $ 119.9 $ --- $ 183.7
------------- ------------- ------------- -------------- ---------------
Cash flows from investing activities:
Acquisition of business, net of cash (8.7)
acquired.............................. --- (8.7) --- ---
Capital expenditures.................. (0.7) (2.8) (10.6) --- (14.1)
Proceeds from sale of assets.......... --- 1.6 1.9 --- 3.5
------------- ------------- ------------- -------------- ---------------
Net cash provided by (used in)
investing activities............... (0.7) (9.9) (8.7) --- (19.3)
------------- ------------- ------------- -------------- ---------------
Cash flows from financing activities:
Principal repayments of long-term debt (51.5) (0.5) (1.0) --- (53.0)
Proceeds from stock options excercised 0.7 --- --- --- 0.7
Net borrowings (repayments) under
revolving line of credit agreements.. --- (2.0) (34.5) --- (36.5)
Payment on premium on early
retirement of debt................... (2.2) --- --- --- (2.2)
Other................................. --- (3.6) (12.8) --- (16.4)
------------- ------------- ------------- -------------- ---------------
Net cash provided by (used in)
financing activities............... (53.0) (6.1) (48.3) --- (107.4)
------------- ------------- ------------- -------------- ---------------
Effect of exchange rates on cash and
cash equivalents...................... --- --- 11.2 --- 11.2
------------- ------------- ------------- -------------- ---------------
Net (decrease) increase in cash and
cash equivalents...................... (6.9) 1.0 74.1 --- 68.2
Cash and cash equivalents, beginning of
period................................ 134.0 6.2 212.0 --- 352.2
------------- ------------- ------------- -------------- ---------------
Cash and cash equivalents, end of period$ 127.1 $ 7.2 $ 286.1 $ --- $ 420.4
============= ============= ============= ============== ===============
|
NOTE S - SUBSEQUENT EVENT
On July 21, 2004, the Company prepaid $50.0 of term debt under its bank credit facility and recorded a non-cash charge of $1.0. The non-cash charge related to the write-off of unamortized debt acquisition costs.
Results of Operations
Terex is a diversified global manufacturer of a broad range of equipment primarily for the construction, infrastructure and surface mining industries. The Company operates in five business segments: (i) Terex Construction; (ii) Terex Cranes; (iii) Terex Aerial Work Platforms; (iv) Terex Mining; and (v) Terex Roadbuilding, Utility Products and Other. The Company's strategy going forward is to build the Terex brand. As part of that effort, Terex will, over time, be migrating historic brand names to Terex and may include the use of the historic brand name in conjunction with the Terex brand for a transitional period of time.
The Terex Construction segment designs, manufactures and markets three primary
categories of equipment and their related components and replacement parts:
heavy construction equipment (including off-highway trucks and scrapers),
compact equipment (including loader backhoes, compaction equipment, mini and
midi excavators, loading machines, site dumpers, telehandlers and wheel
loaders); and mobile crushing and screening equipment (including jaw crushers,
cone crushers, washing screens and trommels). These products are primarily used
by construction, logging, mining, industrial and government customers in
construction and infrastructure projects and supplying coal, minerals, sand and
gravel. Terex Construction products are currently marketed principally under the
following brand names: Terex, Atlas, Finlay, Fuchs, Pegson, Powerscreen,
Benford, Fermec, Schaeff and TerexLift.
The Terex Cranes segment designs, manufactures and markets mobile telescopic cranes, tower cranes, lattice boom crawler cranes, truck mounted cranes (boom trucks) and telescopic container stackers, as well as their related replacement parts and components. These products are used primarily for construction, repair and maintenance of infrastructure, building and manufacturing facilities. Currently, Terex Cranes products are marketed principally under the following brand names: Terex, American, Bendini, Comedil, Demag, Franna, Peiner, PPM and RO-Stinger.
The Terex Aerial Work Platforms segment was formed upon the completion of Terex's acquisition of Genie Holdings, Inc. and its affiliates ("Genie") on September 18, 2002. The Terex Aerial Work Platforms segment designs, manufactures and markets aerial work platform equipment and telehandlers. Products include material lifts, portable aerial work platforms, trailer mounted booms, articulating booms, stick booms, scissor lifts, telehandlers, related components and replacement parts, and other products. These products are used primarily by customers in the construction and building maintenance industries to lift people and/or equipment as required to build and/or maintain large physical assets and structures. Terex Aerial Work Platforms products currently are marketed principally under the Genie and Terex brand names.
The Terex Mining segment designs, manufactures and markets large hydraulic excavators and high capacity surface mining trucks, related components and replacement parts, and other products. These products are used primarily by construction, mining, quarrying and government customers in construction, excavation and supplying coal and minerals. Currently, Terex Mining products are marketed principally under the following brand names: O&K, Payhauler, Terex and Unit Rig.
The Terex Roadbuilding, Utility Products and Other segment designs, manufactures
and markets fixed installation crushing and screening equipment (including
crushers, impactors, screens and feeders), asphalt and concrete equipment
(including pavers, plants, mixers, reclaimers, stabilizers and profilers),
utility equipment (including digger derricks, aerial devices and cable placers),
light construction equipment (including light towers, trowels, power buggies,
generators and arrow boards), construction trailers and on/off road heavy-duty
vehicles, as well as related components and replacement parts. These products
are used primarily by government, utility and construction customers to build
roads, maintain utility lines, trim trees and for commercial and military
operations. These products are currently marketed principally under the
following brand names: Terex, Advance, American Truck Company, Amida, ATC,
Bartell, Benford, Bid-Well, Canica, Cedarapids, Cedarapids/Standard Havens, CMI
Johnson Ross, CMI Terex, CMI-Cifali, Grayhound, Hi-Ranger, Jaques, Load King,
Morrison, Re-Tech, Royer, Simplicity, Tatra, Terex Power, Terex Recycling and
Terex Telelect. Terex also owns much of the North American distribution channel
for the utility products group through the distributors Terex Utilities South
and Terex Utilities West. These operations distribute, install, service and
repair the Company's utility aerial devices as well as other products that
service the utility industry. The Company also operates a fleet of rental
utility products under the name Terex Utilities Rental. The Company also leases
and rents a variety of heavy equipment to third parties under the Terex
Re-Rentals brand name. The Company, through Terex Financial Services, Inc.
("TFS"), also offers customers loans and leases underwritten by TFS Capital
Funding, an affiliate of the General Electric Company, and Terex Financial
Services Holdings B.V. ("TFSH"), a joint venture of the Company and a European
financial institution, to assist in the acquisition of all of the Company's
products. On February 14, 2003, the Company acquired Commercial Body Corporation
("Commercial Body") and Combatel Distribution, Inc. ("Combatel"). On August 28,
2003 the Company acquired an additional 51% of the outstanding shares of TATRA
a.s. ("Tatra"), and acquired a controlling interest in American Truck Company
("ATC"). On April 22, 2004, the Company acquired an additional 10% of the outstanding shares of Tatra for a total of 81% ownership. On June 14, 2004, the Company acquired the one-third interest in ATC previously held by Tatra. The results of Commercial Body, Combatel, Tatra and ATC are included in the results of the Terex Roadbuilding, Utility Products and Other segment from their respective dates of acquisition.
Included in Eliminations/Corporate are the eliminations among the five segments, as well as general and corporate items.
Overview
The Company is a diversified global manufacturer of capital equipment serving the construction, infrastructure and surface mining markets. Terex's strategy is to use its position as a low fixed and total cost manufacturer to provide its customers with the best return on their capital investment.
In the second quarter of 2004, the Company performed above expectations, despite operational challenges arising from increased steel costs and supplier issues. For the three months and six months ended June 30, 2004, the Company experienced increases in net sales, gross profit and income from operations as compared to the same periods in 2003. Net sales in the second quarter of 2004 grew 27% over the same period in the prior year and 28% over the first quarter of 2004. A large factor in the Company's performance was the improved economic condition in many of the Company's end-markets, which was also reflected in increased backlog in a majority of the Company's business segments. Backlog at June 30, 2004 was approximately $916 million, an increase of approximately $509 million, or 125%, from the level of backlog at June 30, 2003. In addition, business integration measures and cost savings initiatives put in place over the past year are beginning to yield positive results. Tight end-markets in certain of the Company's operations, particularly in the North American crane, Roadbuilding, and Utility Products businesses, and currency moves (particularly weakness of the U.S. dollar relative to the Euro and the British Pound) negatively impacted the Company's financial performance.
Based on the current trends, the Company has taken a more positive view of its expected performance for the remainder of 2004. Continued economic recovery and rising commodity prices lead the Company to be optimistic about the near term performance of its Aerial Work Platforms and Mining businesses, and to anticipate continued improvement from the Construction businesses. The Company still expects challenging end markets for the remainder of 2004 for the North American crane, Roadbuilding and Utility Products businesses. Overall, an economic recovery in the markets served by the Company's businesses would have a beneficial impact on the Company's performance. A significant area of uncertainty for 2004 remains the impact of currency moves, particularly the relative strength of the U.S. dollar.
During 2004, the Company is continuing to focus on cash generation, debt reduction and margin improvement initiatives. The Company recently initiated its Terex Improvement Process ("TIP") program aimed at improving the Company's internal processes and benefiting the Company's customers, investors and employees. As part of the TIP objectives, Terex management will have a particular focus on achieving a number of key objectives including revenue growth, through a combination of expansion into markets not currently served and by increasing market share in existing products, and improving the Company's return on invested capital, through reducing working capital requirements as a percentage of sales and by improving operating margins through reducing the total cost of manufacturing products. As part of the TIP initiative, the Company has numerous projects in process, most being pursued and implemented locally throughout the Company's business units. The Company is focusing on efforts such as the disposal of excess assets, mitigating supplier pressures resulting from improved economic conditions and higher demand, and seeking to leverage volume benefits from suppliers of common components and freight.
Restructuring
During the second quarter of 2004 and in numerous periods prior to 2004, the Company has initiated a variety of restructuring programs in response to a slowing economy, to reduce duplicative operating facilities, including those arising from the Company's acquisitions, and to respond to specific market conditions. Restructuring programs were initiated within the Company's Terex Construction, Terex Cranes, Terex Mining and Terex Roadbuilding, Utility Products and Other segments. The Company's programs have been designed to minimize the impact of any program on future operating results and the Company's liquidity. To date, these restructuring programs have not had a material negative impact on operating results or the Company's liquidity. These initiatives are intended to generate a reduction in ongoing labor and factory overhead expense as well as to reduce overall material costs by leveraging the purchasing power of the consolidated facilities. See Note E - "Restructuring and Other Charges" in the Company's Condensed Consolidated Financial Statements for a detailed description of the Company's restructuring programs, including the reasons, timing and costs associated with each such program.
Three Months Ended June 30, 2004 Compared with Three Months Ended June 30, 2003
Terex Consolidated
Three Months Ended June 30,
----------------------------------------------------
2004 2003
------------------------- -----------------------
% of % of % Change In
Sales Sales Reported Amounts
------------ ----------- ---------------------
($ amounts in millions)
Net sales $ 1,336.4 $ 1,048.8 27.4%
Gross profit 195.0 14.6% 116.7 11.1% 67.1%
SG&A 119.2 8.9% 100.9 9.6% 18.1%
Goodwill impairment --- --- 51.3 4.9% (100.0%)
Income (loss) from operations 75.8 5.7% (35.5) (3.4%) 313.5%
|
Net sales for the three months ended June 30, 2004 totaled $1,336.4 million, an increase of $287.6 million when compared to the same period in 2003. The impact of a weaker U.S. dollar relative to the British Pound and the Euro increased sales by 4.5% when compared to the second quarter of 2003. The acquisition of a majority interest in Tatra and ATC on August 28, 2003 increased sales by approximately $67 million when compared to the second quarter of 2003. Sales relative to 2003 increased in the Terex Aerial Work Platforms segment as a result of improved economic conditions in the rental equipment market. Sales in the Terex Construction segment improved relative to 2003 as a result of strong demand for its scrap handling equipment, compact construction equipment and mobile crushing and screening equipment. Sales in the Terex Mining segment benefited relative to 2003 from improvements in commodity prices for coal and iron ore. Sales in the Terex Roadbuilding, Utility Products and Other segment increased relative to 2003 across all product lines. While sales of roadbuilding products have improved over 2003 levels, they remain low relative to historic levels and future improvements are dependent on increased state and federal funding for road projects. Sales in the Terex Cranes segment were relatively unchanged from 2003 levels after adjusting for foreign exchange movements and the sale of the Crane & Machinery, Inc. ("C&M") distribution business and Schaeff Incorporated fork-lift business in the fourth quarter of 2003. During the second quarter of 2004, the Company began to realize the benefits of end market recoveries, the integration of its businesses, cost-savings initiatives put in place over the prior year, and the initial impact of TIP.
Gross profit for the three months ended June 30, 2004 totaled $195.0 million, an increase of $78.3 million when compared to the same period in 2003. Improvements relative to 2003 were realized in all segments of the Company from higher sales volumes, despite an increase in steel costs of approximately $18 million during the second quarter of 2004. The Company continues to design and implement plans to mitigate the impact of any future increases in steel prices, including the use of alternate suppliers, leveraging the Company's overall purchase volumes to obtain favorable costs and increasing the price of the Company's products. Gross profit also benefited from several of the programs initiated as part of TIP and from restructuring initiatives launched during 2003. The acquisitions of Tatra and ATC, net of the impact of the sale of the Schaeff Incorporated and C&M businesses, improved gross profit by approximately $7.5 million when compared to 2003.
During the second quarter of 2004, the Company recorded restructuring and other charges, included in gross profit, of $9.9 million, a reduction of $28.2 million when compared to 2003. Restructuring and other costs incurred in 2003 related primarily to actions taken to align the cost structure of the roadbuilding business to expected market conditions and to consolidate production facilities in the Terex Cranes segment. Restructuring and other costs incurred in 2004 related primarily to a facility consolidation and component sourcing projects in the Terex Construction segment and to the sale of certain of the Company's legacy parts businesses.
Total selling, general and administrative costs ("SG&A") increased for the three months ended June 30, 2004 by $18.3 million when compared to the same period in 2003. A weaker U.S. dollar relative to the British Pound and the Euro accounted for approximately $4 million of the increase, as costs reported in these currencies translate into more U.S. dollars than reported in 2003. The acquisitions of Tatra and ATC, net of the impact of the sale of C&M and Schaeff Incorporated, increased SG&A by approximately $4 million when compared to 2003 levels. SG&A costs also increased as a result of higher commissions and related costs due to increased sales levels during the second quarter of 2004. As a percentage of sales, SG&A fell to 8.9% in the second quarter of 2004 from 9.6% in the second quarter of 2003.
During the second quarter of 2003, the Company recorded a goodwill impairment charge of $51.3 million related to the performance of its roadbuilding business. This charge was the result, in part, of poor market demand for the business' products and is more fully described in the Terex Roadbuilding, Utility Products and Other segment discussion below.
Income from operations increased by $111.3 million for the three months ended June 30, 2004 when compared to the same period in 2003. The Terex Aerial Work Platforms and Terex Construction segments' income from operations improved relative to 2003 as a result of an improving economy in the United States and Europe. Income from operations improved in the Terex Mining segment as a result of increased demand driven by improved commodity price levels. Income from operations in the Terex Cranes segment grew as a result of increased demand for tower cranes and from cost reduction initiatives in the North American crane business. Income from operations was positively impacted by the acquisition of Tatra and ATC by approximately $2.7 million. Income from operations in the second quarter of 2004 also improved from the prior year due to decreased restructuring and other costs and no impairment charges. Restructuring and other costs in the three months ended June 30, 2004 were lower by $33.4 million when compared to the comparable period in 2003 and totaled $11.5 million in the second quarter. During the second quarter of 2003 a goodwill impairment charge of $51.3 million was recorded as a result of the performance of the roadbuilding business; no such charge was recorded in the second quarter of 2004.
Terex Construction
Three Months Ended June 30,
---------------------------------------------------
2004 2003
------------------ ----------------------------
% of % of % Change In
Sales Sales Reported Amounts
---------- ---------------- ----------------------
($ amounts in millions)
Net sales $ 475.0 $ 382.7 24.1%
Gross profit 62.5 13.2% 53.3 13.9% 17.3%
SG&A 40.1 8.4% 34.3 9.0% 16.9%
Income (loss) from operations 22.4 4.7% 19.0 5.0% 17.9%
|
Net sales in the Terex Construction segment increased by $92.3 million for the three months ended June 30, 2004 when compared to the same period in 2003 and totaled $475.0 million. A weaker U.S. dollar relative to the British Pound and the Euro increased sales by approximately 7% when compared to the second quarter of 2003. Sales improved in the crushing and screening business primarily as a result of higher demand for the Terex Pegson line of crushing equipment and from higher sales of crushing and screening products in the United States. Sales of compact construction equipment improved relative to 2003 as a result of improved economic conditions in the United States and from the focus created by the compact equipment facility consolidation completed in 2003. Sales of heavy construction equipment were driven primarily by improved demand for articulated trucks and Fuchs branded scrap-handling equipment. Sales of Fuchs scrap handling products have benefited from recent increases in the price of steel.
Gross profit increased to $62.5 million for the three months ended June 30, 2004, an increase of $9.2 million when compared to 2003 results for the same period. Gross profit was negatively impacted by recent increases in steel pricing as well as an increase in the value of the British Pound and Euro relative to the U.S. dollar when compared to 2003. The negative impact of currency movements was largest in the articulated truck business, where a higher than average level of sales in the second quarter of 2004 were priced in U.S. dollars. These unfavorable events were offset by the impact of higher sales volumes and favorable parts pricing.
Restructuring and other charges recorded in gross profit during the second quarter of 2004 totaled $8.5 million. During the second quarter of 2004, the Company decided to close its truck-mounted crane manufacturing facility in the United Kingdom and to consolidate truck-mounted crane production into a single facility in Germany. A charge of $4.3 million was recorded to reflect the cost of closing the facility in the United Kingdom. Also during the second quarter of 2004, the Company decided to close a component production facility in Germany and to outsource production of certain fabricated parts supporting the Atlas Terex business in Germany. A charge of $2.2 million was recorded in the second quarter of 2004 as a result of this decision. During the second quarter of 2004, the Company also recorded costs to relocate its pump business from its B.L. Pegson facility in Coalville, England to another facility in Scotland ($0.3 million), to record a pre-acquisition credit guarantee provided on two large hydraulic shovels sold in the United Kingdom ($1.6 million) and $0.1 related to previously announced restructuring programs. Gross profit in the second quarter of 2003 included a charge of $2.1 million, primarily related to the closure of the Kilbeggan crushing and screening facility and relocating its production of this product line to the Dungannon facility.
SG&A costs for the three months ended June 30, 2004 totaled $40.1 million, an increase of $5.8 million when compared to the same period in 2003. A weaker U.S. dollar relative to the British Pound and the Euro increased SG&A costs by approximately $2 million when compared to the second quarter of 2003. Approximately 74% of the segment's SG&A costs are incurred in either British Pounds or Euro. During the second quarter of 2004, restructuring and other charges of $0.6 million were recorded, primarily as a result of the decision to outsource production at the Atlas Terex German facility.
Income from operations for the three months ended June 30, 2004 totaled $22.4 million, an increase of $3.4 million when compared to $19.0 million for the same period in 2003. Income from operations grew in the heavy equipment and crushing and screening businesses as a result of improved volume, which helped to offset steel price increases. Charges related to restructuring and related costs were $9.1 million in the second quarter of 2004, an increase of $6.9 million when compared to the second quarter of 2003.
Terex Cranes
Three Months Ended June 30,
-------------------------------------------------------
2004 2003
-------------------- ------------------------------
% of % of % Change In
Sales Sales Reported Amounts
---------- ------------ -------------------
($ amounts in millions)
Net sales $ 276.9 273.0 1.4%
Gross profit 33.5 12.1% 21.8 8.0% 53.7%
SG&A 22.9 8.3% 20.3 7.4% 12.8%
Income (loss) from operations 10.6 3.8% 1.5 0.5% 606.7%
|
Net sales for the Terex Cranes segment for the three months ended June 30, 2004 increased by $3.9 million and totaled $276.9 million when compared to $273.0 million for the same period in 2003. The effect of a weaker U.S. dollar relative to the Euro positively impacted sales by approximately 5% when compared to 2003. Sales of tower cranes, small all-terrain cranes and stacker products improved, while sales of mobile cranes fell slightly when compared to the second quarter of 2003. Sales for the C&M and Schaeff Incorporated businesses, which were sold in the fourth quarter of 2003, were approximately $5 million in the second quarter of 2003.
Gross profit for the three months ended June 30, 2004 increased by $11.7 million relative to the same period in 2003 and totaled $33.5 million. Gross profit from mobile cranes in the three months ended June 30, 2004 improved slightly over 2003 levels, in part as a result of improved profitability realized in North America. Gross profit also improved as a result of higher sales experienced in the segment's Italian tower crane business and was favorably impacted by lower used cranes sales realized in the second quarter of 2004 when compared to the prior year period. These improvements were partially offset by the impact of steel price increases experienced during 2004.
Included in the second quarter of 2004 gross profit are restructuring and other charges totaling $0.7 million. During the quarter, the Company sold a legacy replacement parts business and recorded a loss of $1.9 million, related to inventory. The Company decided to exit this line of business to focus on supporting core Terex products. Also during the second quarter of 2004, the Company completed the closure and sale of its Cork, Ireland facility. As a result, the Company released to income the remaining restructuring reserve, which totaled $2.1 million. During the second quarter of 2004, the Company completed the consolidation of its Demag business located in Paris, France into its facility in Montceau-les-Mines, France. A charge of $0.5 million was recorded in connection with this consolidation. During the second quarter of 2003, a charge of $6.9 million was recorded, primarily related to the costs associated with consolidating the Peiner tower crane business into the segment's Demag facility in Germany.
SG&A costs for the three months ended June 30, 2004 totaled $22.9 million, an increase of $2.6 million over the same period in 2003. Contributing to the increase was higher spending levels in the tower crane business driven by higher sales volumes and from the effect of the increase in the value of the Euro relative to the U.S. dollar experienced since the second quarter of 2003. During the second quarter of 2004, the Company recorded a restructuring charge of $0.3 million related to the closure of its Demag France facility, as described above. Also during the quarter, the Company recorded costs of $0.7 million related to the Cork facility closure. Total restructuring charges included in SG&A during the second quarter of 2004 increased by $0.5 million when compared to the same period in the prior year. During the second quarter of 2003, the Company recorded a charge of $0.5 million related to the consolidation of its Peiner tower crane operations into the Demag facility.
Income from operations for the three months ended June 30, 2004 totaled $10.6 million compared to $1.5 million for the same period in 2003. Total restructuring charges recorded during the second quarter of 2004 were $1.7 million, a reduction of $5.7 million from a year ago. In addition, operating profit in 2004 benefited from strong demand for the segment's tower cranes and improvements in profitability in its North American based crane business, largely as a result of several actions put in place to address weak market conditions.
Terex Aerial Work Platforms
Three Months Ended June 30,
------------------------------------------------
2004 2003
--------------------- ----------------------
% of % of % Change In
Sales Sales Reported Amounts
----------- ----------- ---------------------
($ amounts in millions)
Net sales $ 238.0 $ 167.8 41.8%
Gross profit 48.8 20.5% 35.4 21.1% 37.9%
SG&A 15.7 6.6% 14.0 8.3% 12.1%
Income (loss) from operations 33.1 13.9% 21.4 12.8% 54.7%
|
Net sales for the Terex Aerial Work Platforms segment for the three months ended June 30, 2004 were $238.0 million, an increase of $70.2 million when compared to the same period in 2003. Sales increased when compared to the second quarter of 2003 as a result of stronger demand from the rental channel in the United States and, to a lesser extent, improved parts sales. Rental market demand increased relative to 2003 as rental channel customers continued to buy new equipment to reduce the age of their fleets. Sales of the segment's products also improved in Europe. Sales of material handler products increased when compared to the same period in 2003 as a result of marketing the product as part of the overall Genie offering to these same rental distribution channels.
Gross profit for the three months ended June 30, 2004 was $48.8 million, an increase of $13.4 million when compared to the same period in 2003. Gross profit as a percentage of sales fell slightly as the benefit of increased sales was offset by higher steel prices.
SG&A costs for the three months ended June 30, 2004 were $15.7 million, an increase of $1.7 million from the same period in 2003. The increase was due primarily to higher compensation and related costs arising from higher sales levels, in addition to the decline in the U.S. dollar relative to the British Pound and the Euro, as approximately 21% of the segment's SG&A costs are denominated in those currencies.
Income from operations for the three months ended June 30, 2004 was $33.1 million, an increase of $11.7 million from the same period in 2003. The increase was due to higher sales volumes and improved margins.
Terex Mining
Three Months Ended June 30,
--------------------------------------------------
2004 2003
----------------------- ----------------------
% of % of % Change In
Sales Sales Reported Amounts
----------- ---------- -------------------------
($ amounts in millions)
Net sales $ 99.5 $ 75.0 32.7%
Gross profit 17.7 17.8% 12.5 16.7% 41.6%
SG&A 11.1 11.2% 8.5 11.3% 30.6%
Income (loss) from operations 6.6 6.6% 4.0 5.3% 65.0%
|
Net sales in the Terex Mining segment increased by $24.5 million to $99.5 million in the second quarter of 2004 compared to $75.0 million in the comparable period in 2003. The increase in sales is primarily a result of increased customer activity in the surface mining area, which is due largely to improved prices for commodities including coal and iron ore. Order volumes in the segment increased, with a $55 million order for hydraulic shovels and mining trucks awarded from a single customer in Southeast Asia.
Gross profit increased by $5.2 million in the three months ended June 30, 2004 when compared to the comparable period in 2003 and totaled $17.7 million. Gross profit improved as a result of higher margins earned on the sale of new machines. This gain was partially offset by increased steel costs experienced during the second quarter of 2004 when compared to a year ago. Included in gross profit in 2004 is a loss of $0.4 million related to the sale of the Company's legacy replacement parts business. The Company decided to exit this line of business to focus on supporting core Terex products.
SG&A expense increased by $2.6 million in the second quarter of 2004 relative to the comparable period in 2003, to $11.1 million. The increase in SG&A was mainly due to higher selling costs associated with the 32.7% increase in sales described above.
Income from operations for the Terex Mining segment was $6.6 million in the second quarter of 2004, or 6.6% of sales, an increase of $2.6 million from $4.0 million in the comparable period in 2003. The increase was a result of higher demand for the segment's products resulting from improved commodity pricing relative to 2003.
Terex Roadbuilding, Utility Products and Other
Three Months Ended June 30,
----------------------------------------------------
2004 2003
---------------------- ------------------------
% of % of % Change In
Sales Sales Reported Amounts
--------- ------------- -- ---------------------
($ amounts in millions)
Net sales $ 267.7 $ 169.3 58.1%
Gross profit 32.7 12.2% (6.4) (3.8%) 610.9%
SG&A 26.4 9.9% 19.6 11.6% 34.7%
Goodwill impairment --- --- 51.3 30.3% (100.0%)
Income (loss) from operations 6.3 2.4% (77.3) (45.7%) 108.2%
|
Net sales for the Terex Roadbuilding, Utility Products and Other segment for the three months ended June 30, 2004 were $267.7 million, an increase of $98.4 million when compared to the same period in 2003. The acquisition of Tatra and ATC on August 28, 2003 increased sales in the second quarter of 2004 by approximately $67 million when compared to the same period a year ago. Sales of roadbuilding products increased marginally over the comparable period in 2003, with the growth driven by higher demand for concrete mixers and asphalt pavers. Sales of light towers grew as a result of increased demand from the Middle East.
Gross profit for the three months ended June 30, 2004 totaled $32.7 million, an increase of $39.1 million when compared to the same period in 2003. The acquisition of Tatra and ATC accounted for approximately $7.5 million of the gross profit in the second quarter of 2004. Gross profits generally rose in the second quarter when compared to 2003, despite recent increases in steel costs. Steel is a major material component for many of the products included in this segment and the Company continues to seek ways to mitigate steel cost increases, including the use of alternate suppliers and leveraging the Company's overall purchase volumes to obtain favorable pricing.
Gross profit reported in the second quarter of 2003 included $28.9 million of restructuring and other charges related to activities initiated in response to poor market conditions for the segment's roadbuilding products. Demand for roadbuilding products has been dampened by delays in state and federal funding for road improvement and construction projects. These actions included the exit of certain product-lines as well as inventory write-downs to reflect expected sales volumes. Gross profit reported in the second quarter of 2004 includes a $0.3 million restructuring charge to consolidate production capacity in the Utility Products businesses.
SG&A costs for the segment for the three months ended June 30, 2004 totaled $26.4 million, an increase of $6.8 million when compared to the same period in 2003. The majority of the increase was due to the acquisition of Tatra and ATC and legal costs incurred in the roadbuilding businesses.
During the second quarter of 2003, the Company determined that the business performance during the first six months of 2003 in the Roadbuilding reporting unit would not meet the Company's 2003 performance expectations that were used when goodwill was last reviewed for impairment as of October 1, 2002. As of that time funding for road projects had remained at historically low levels as federal and state budgets had been negatively impacted by a weak economy and the war in Iraq. In response to the revised business outlook, management initiated several changes to address the expected market conditions, including a change in business management, discontinuance of several non-core products, work force furloughs and reductions, and an inventory write-down based on anticipated lower sales volume. Based on the continued weakness in the reporting unit, the Company initiated a review of the long-term outlook for the reporting unit. The revised outlook for the reporting unit assumed that funding levels for domestic road projects would not improve significantly in the short term. In addition, the outlook assumed that the Company would continue to reduce working capital invested in the reporting unit to better match revenue expectations.
Based on this review, the Company determined the fair value of the Roadbuilding reporting unit using the present value of the cash flow expected to be generated by the reporting unit. The cash flow was determined based on the expected revenues, after tax profits, working capital levels and capital expenditures for the reporting unit. The present value was calculated by discounting the cash flow by the Company's weighted average cost of capital. The Company, with the assistance of a third-party, also reviewed the market value of the Roadbuilding reporting unit's tangible and intangible assets. These values were included in the determination of the carrying value of the Roadbuilding reporting unit.
Based on the revised fair value of the reporting unit, a goodwill impairment of $51.3 million was recognized during the three months ended June 30, 2003.
Income from operations for the Terex Roadbuilding, Utility Products and Other segment for the three months ended June 30, 2004 was $6.3 million, compared to a loss of $77.3 million for the same period in 2003. The improvement reflects the impact of restructuring costs incurred in 2003, the acquisition of Tatra and ATC and improved performance in the roadbuilding businesses. Income from operations declined relative to 2003 in the Utility Products business as a result of increases in steel costs and higher selling and administrative costs.
Net Interest Expense
During the three months ended June 30, 2004, the Company's net interest expense decreased $2.5 million to $22.0 million from $24.5 million for the prior year period. The decline was due to the overall decrease in the Company's level of debt in the second quarter of 2004 as compared to the same period in 2003, offset somewhat by higher average interest rates.
Other Income (Expense) - Net
Other income (expense) - net for the three months ended June 30, 2004 was income of $19.8 million as compared to a net expense of $4.9 million for the prior year period. During the second quarter of 2004, the Company recognized a net gain of $16.6 million on the sale of the former Fermec facility in Manchester, England, its former aerial platform facility in Cork, Ireland, its former tower crane facility in Trier, Germany and its former boom truck facility in Olathe, Kansas. During the quarter, the Company also settled a dispute related to the purchase price paid in connection with the O&K Mining business acquisition. The settlement, in favor of the Company, totaled $5.8 million. The Company also recorded an impairment charge of $1.0 million during the second quarter of 2004 related to its investment in a joint venture in Southeast Asia. The joint venture, which supplies components to the roadbuilding business and also distributes certain of the Company's roadbuilding products in Southeast Asia, had not been performing to expectations and as such, the Company wrote the value of the investment down to reflect actual performance trends. During the second quarter of 2004, the Company recognized a loss of $1.5 million related to the repayment of $75.0 million of term debt under its bank credit facility. The loss related to the write-off of unamortized debt acquisition costs.
During the second quarter of 2003, the Company redeemed $50.0 million aggregate principal of its 8-7/8% Senior Subordinated Notes due 2008 and recognized a loss of $1.9 million. The loss was comprised of the payment of an early redemption premium ($2.2 million), the write off of unamortized original issuance discount ($1.6 million) and the write off of unamortized debt acquisition costs ($0.2 million), which were partially offset by the recognition of deferred gains related to previously closed fair value interest rate swaps on this debt ($2.1 million). Also, during the three months ended June 30, 2003, the Company recorded an expense of $1.1 million to reduce the carrying cost of its investment in SDC International, Inc. ("SDC") to zero. This write-down reflected the current market value of SDC's stock.
Income Taxes
During the three months ended June 30, 2004, the Company recognized income tax expense of $14.5 million on income before income taxes of $73.6 million, an effective rate of 19.7%, as compared to income tax benefit of $13.1 million on a loss before income taxes of $64.9 million, an effective rate of 20.2%, in the prior year period. The effective tax rate for the three months ended June 30, 2004 was lower than the Company's 2003 full-year effective tax rate of approximately 28% primarily due to the strong financial performance of the Company's Fermec business, where recent performance indicated that the Company was more likely than not to realize the benefits of certain tax assets, and, therefore, the valuation allowance held for this business was released.
Six Months Ended June 30, 2004 Compared with Six Months Ended June 30, 2003
Terex Consolidated
Six Months Ended June 30,
------------------------------------------------------
2004 2003
--------------------------- -----------------------
% of % of % Change In
Sales Sales Reported Amounts
------------ ----------- ---------------------
($ amounts in millions)
Net sales $ 2,380.2 $ 1,976.5 20.4%
Gross profit 355.3 14.9% 246.4 12.5% 44.2%
SG&A 231.2 9.7% 190.1 9.6% 21.6%
Goodwill impairment --- --- 51.3 2.6% (100.0%)
Income (loss) from operations 124.1 5.2% 5.0 0.3% 2,382.0%
|
Net sales for the six months ended June 30, 2004 totaled $2,380.2 million, an increase of $403.7 million when compared to the same period in 2003. Sales in the Terex Aerial Work Platforms and Terex Construction segments benefited from improving economic conditions in the United States and Europe. Sales of Terex Mining products, while relatively unchanged from 2003 levels through the first six months of 2004, grew significantly in the second quarter of 2004 relative to 2003, reflecting strong commodity prices which have increased mining activity. Sales in the Terex Cranes segment fell relative to 2003 as the volume of used crane sales declined and the sale of new mobile cranes fell relative to 2003. The acquisitions of Tatra and ATC, net of the impact of the sale of the C&M and Schaeff Incorporated businesses, increased sales in the first six months of 2004 by approximately $101 million when compared to the six months ended June 30, 2003. Finally, the impact of a weaker U.S. dollar relative to the British Pound and the Euro increased sales by approximately 7% when compared to the first six months of 2003.
Gross profit for the six months ended June 30, 2004 totaled $355.3 million, an increase of $108.9 million when compared to the same period in 2003. Gross profit in all segments rose relative to 2003 levels despite the impact of increased steel costs experienced during the first half of 2004. The unfavorable movement in steel costs was offset by increased sales volumes as well as by the benefit of several TIP initiatives. Restructuring and other charges for the first half of 2004 were lower by $33.6 million when compared to 2003 and totaled $9.9 million.
SG&A expenses increased for the six months ended June 30, 2004 by $41.1 million when compared to the same period in 2003. A weaker U.S. dollar relative to the British Pound and the Euro accounted for approximately 30% of the increase, as costs reported in these currencies translate into more U.S. dollars than reported in 2003. SG&A costs also increased as a result of higher commissions and related costs due to increased sales levels during the first half of 2004. The acquisitions of the Tatra and ATC businesses accounted for approximately 20% of the increase in SG&A. During the first half of 2004, restructuring and other costs were $6.3 million lower than in 2003 and totaled $1.6 million.
During the second quarter of 2003, the Company determined that the business performance during the first six months of 2003 in the Roadbuilding reporting unit would not meet the Company's 2003 performance expectations that were used when goodwill was last reviewed for impairment. The facts and circumstances associated with this charge, which totaled $51.3 million, are described below in the Terex Roadbuilding, Utility Products and Other segment discussion.
Income from operations increased by $119.1 million for the six months ended June 30, 2004 when compared to the same period in 2003. Operating earnings grew relative to 2003 levels in the Terex Construction and Terex Aerial Work Platforms segments as a result of improved volumes despite increases in steel costs. During 2004, restructuring and other charges included in income from operations fell by $41.2 million and totaled $11.5 million. Also included in income from operations was a $51.3 million charge related to goodwill impairment in the Terex Roadbuilding, Utility Products and Other segment in June 2003.
Terex Construction
Six Months Ended June 30,
----------------------------------------------------
2004 2003
-------------------- ---------------------------
% of % of % Change In
Sales Sales Reported Amounts
---------- --------------- ----------------------
($ amounts in millions)
Net sales $ 864.7 $ 700.9 23.4%
Gross profit 114.9 13.3% 95.0 13.6% 20.9%
SG&A 76.3 8.8% 61.8 8.8% 23.5%
Income (loss) from operations 38.6 4.5% 33.2 4.7% 16.3%
|
Net sales in the Terex Construction segment increased by $163.8 million for the six months ended June 30, 2004 when compared to the same period in 2003 and totaled $864.7 million. A weaker U.S. dollar relative to the British Pound and the Euro increased sales by approximately 9% when compared to the first half of 2003. Excluding the impact of foreign exchange, sales grew relative to 2003 in the heavy and compact equipment businesses as well as in the crushing and screening businesses. Sales grew marginally over 2003 levels in the heavy equipment business with strong sales as a result of increased steel prices seen in the Fuchs scrap handling equipment business. Sales of articulated trucks improved relative to the same period in 2003 with sales denominated in U.S. dollars increasing relative to total sales when compared to 2003 levels. Sales in the compact equipment business grew relative to 2003 as the business benefited from an improved economy in North America and from the consolidation of several facilities in the United Kingdom into a single facility in Coventry, England. Sales of crushing and screening products increased relative to 2003 in part due to strong demand for Pegson branded crushing equipment.
Gross profit increased to $114.9 million for the six months ended June 30, 2004, an increase of $19.9 million when compared to 2003 results for the same period. Gross profit in 2004 included restructuring and other costs of $8.5 million, an increase of $6.4 million when compared to the same period in 2003. During the first half of 2004, the Company initiated programs to consolidate the Atlas Terex truck-mounted crane production into a single facility in Germany and to outsource certain component manufacturing performed by the Atlas business in Germany. The Terex Construction business also recognized costs related to a pre-acquisition credit guarantee provided on two large hydraulic shovels sold in the United Kingdom. During the first half of 2003, restructuring and other charges totaled $2.1 million and related primarily to the cost of consolidating facilities in the crushing and screening group. The impact of steel cost increases experienced during the first half of 2004 negatively impacted gross profit when compared to 2003. Gross profit fell relative to 2003 in the heavy equipment group in part as a result of the high percentage of U.S. dollar orders received when compared to 2003, as a majority of product cost for articulated trucks is incurred in British Pounds. Gross profit in the compact equipment and crushing and screening segment increased relative to 2003 as the benefit of increased sales volumes offset the impact of increases in the cost of steel.
SG&A costs for the six months ended June 30, 2004 totaled $76.3 million, an increase of $14.5 million when compared to the same period in 2003. Approximately 40% of the increase was due to a weaker U.S. dollar relative to the British Pound and the Euro. Restructuring and other costs included in the first half of 2004 were $0.6 million, an increase of $0.5 million over 2003 and related primarily to component sourcing activities in Germany. The remainder of the increase was due to higher spending levels to support the increase in sales.
Income from operations for the six months ended June 30, 2004 totaled $38.6 million, an increase of $5.4 million when compared to $33.2 million for the same period in 2003. Total restructuring and other costs for the first six months totaled $9.1 million compared to $2.2 million in 2003. Income from operations improved in the compact equipment and crushing and screening businesses relative to 2003 as a result of improved sales volumes. Income from operations fell in the heavy equipment business relative to 2003 as a result of a higher than average mix of U.S. dollar denominated sales.
Terex Cranes
Six Months Ended June 30,
--------------------------------------------------------
2004 2003
--------------------- ------------------------------
% of % of % Change In
Sales Sales Reported Amounts
---------- ----------- -----------------------
($ amounts in millions)
Net sales $ 486.1 $ 510.9 (4.9%)
Gross profit 63.3 13.0% 49.0 9.6% 29.2%
SG&A 46.3 9.5% 40.7 8.0% 13.8%
Income (loss) from operations 17.0 3.5% 8.3 1.6% 104.8%
|
Net sales for the Terex Cranes segment for the six months ended June 30, 2004 decreased by $24.8 million and totaled $486.1 million when compared to $510.9 million for the same period in 2003. The sale of Schaeff Incorporated and C&M in the fourth quarter of 2003 reduced sales by $8.9 million when compared to 2003. The impact of a weaker U.S. dollar relative to the British Pound and Euro increased sales by approximately 8% relative to 2003 levels. Sales declined relative to 2003 primarily as a result of lower sales of used cranes and mobile cranes. Order backlog for mobile cranes remained stable despite North American crane market demand that remained relatively unchanged from 2003 levels.
Gross profit for the six months ended June 30, 2004 increased by $14.3 million relative to the same period in 2003 and totaled $63.3 million. The sale of the Schaeff Incorporated and C&M businesses reduced gross profit by $1.5 million in 2004 when compared to the same period in 2003. Gross profit improved in the mobile crane business, in part from higher margins realized on the sale of new machines. Gross profits also improved relative to 2003 in the tower crane business as result of higher sales volumes.
Restructuring and other charges recorded in the first six months of 2004 totaled $0.7 million, a reduction of $8.6 million when compared to 2003. Restructuring and other charges in 2004 relate primarily to a loss on the sale of a replacement parts business, the consolidation of the segment's French distribution outlets and the completion of several projects initiated in 2002 and 2003. Restructuring and other charges in 2003 included the closure of the segment's German tower crane facility along with a cost related to the fair value of inventory acquired with the acquisition of the Demag mobile crane business.
SG&A costs for the six months ended June 30, 2004 totaled $46.3 million, an increase of $5.6 million over the same period in 2003. The sale of Schaeff Incorporated and C&M reduced SG&A costs in the first six months of 2004 by $1.4 million relative to the first six months of 2003. The impact of a weaker U.S. dollar relative to the Euro increased SG&A costs in 2004 relative to 2003 by $3.5 million, as the majority of the segment's SG&A expense is incurred in Euro. Restructuring and other charges recorded in SG&A in 2004 totaled $1.0 million, an increase of $0.5 million for the same period in 2003. These costs in 2004 relate to the completion of the Cork, Ireland aerials facility closure as well as the consolidation of crane distribution within France.
Income from operations for the six months ended June 30, 2004 totaled $17.0 million, compared to $8.3 million for the same period in 2003. Restructuring and other costs in 2004 were lower by $8.1 million when compared to the same period in 2003 and totaled $1.7 million. Profits in the mobile crane business fell slightly on lower sales volumes in North America. This decline was offset by the increase in profits realized in the tower crane business. The sale of C&M and Schaeff Incorporated had an insignificant impact on 2004 profitability when compared to 2003.
Terex Aerial Work Platforms
Six Months Ended June 30,
--------------------------------------------------
2004 2003
--------------------- -----------------------
% of % of % Change In
Sales Sales Reported Amounts
---------- ----------- --------------------------
($ amounts in millions)
Net sales $ 406.0 $ 315.0 28.9%
Gross profit 85.5 21.1% 64.9 20.6% 31.7%
SG&A 31.6 7.8% 27.7 8.8% 14.1%
Income (loss) from operations 53.9 13.3% 37.2 11.8% 44.9%
|
Net sales for the Terex Aerial Work Platforms segment for the six months ended June 30, 2004 were $406.0 million, an increase of $91.0 million when compared to the same period in 2003. Sales increased when compared to the first half of 2003 as a result of stronger demand from the rental channel in the United States and Europe. Rental market demand has increased as rental channel customers are experiencing increased asset utilization as a result of an improved economy and
continued to buy new equipment to reduce the age of their fleets. The segment also benefited from increased demand for material handler products.
Gross profit for the Terex Aerial Work Platforms segment for the six months ended June 30, 2004 was $85.5 million, an increase of $20.6 million when compared to the same period in 2003. Gross profit for the first half of 2003 included a $0.8 million charge related to certain fair value adjustments to Genie's inventory values recorded at the time of acquisition; no such charges were included in 2004 results. Steel cost increases experienced in the first half of 2004 negatively impacted gross profit in the segment. Gross profit benefited from the impact of the 29% increase in sales and offset the negative steel price variances.
SG&A costs for the six months ended June 30, 2004 totaled $31.6 million, an increase of $3.9 million from the same period in 2003. The increase was due primarily to higher compensation and related costs arising from higher sales levels, in addition to the decline in the U.S. dollar relative to the British Pound and the Euro, as approximately 21% of the segment's SG&A costs are denominated in those currencies.
Income from operations for the Terex Aerial Work Platforms segment for the six months ended June 30, 2004 was $53.9 million, an increase of $16.7 million from the same period in 2003. Income improved as sales volumes grew in the United States and Europe relative to 2003.
Terex Mining
Six Months Ended June 30,
------------------------------------------------
2004 2003
--------------------- ----------------------
% of % of % Change In
Sales Sales Reported Amounts
----------- ---------- --------------------------
($ amounts in millions)
Net sales $ 169.4 $ 155.0 9.3%
Gross profit 28.9 17.1% 24.4 15.7% 18.4%
SG&A 20.3 12.0% 15.8 10.2% 28.5%
Income (loss) from operations 8.6 5.1% 8.6 5.5% ---
|
Net sales in the Terex Mining segment increased by $14.4 million to $169.4 million in the six months ended June 30, 2004 compared to $155.0 million in the comparable period in 2003. Excluding the impact of a stronger Euro relative to the U.S. dollar, sales were essentially unchanged from 2003. Sales in the first quarter of 2004 were approximately $10 million lower than 2003 due to a temporary disruption in order activity created by uncertainty surrounding the attempted sale of the mining truck business. On December 10, 2003, the Company announced that it had terminated its discussions to sell the mining truck business. Sales in the second quarter of 2004 were approximately $25 million higher than in the second quarter of 2003 as a result of higher demand resulting from an increase in commodity pricing. Order activity increased within the segment as a result of the continued strength in commodity pricing.
Gross profit increased by $4.5 million in the six months ended June 30, 2004 when compared to the comparable period in 2003 and totaled $28.9 million. Gross profit increased as a result of a more favorable mix of replacement parts seen in 2004 compared to 2003, with parts making up 59% of sales in 2004 compared to 52% in 2003. Gross profit also benefited from improved selling margins from new hydraulic shovels and mining trucks. Included in gross profit for 2004 is a $0.4 million charge for the loss recognized on the sale of a legacy parts business. The Company decided to exit this line of business to focus on supporting core Terex products. Gross profit was also negatively impacted by steel costs in the first half of 2004 when compared to 2003 pricing levels.
SG&A expense increased by $4.5 million in the six months ended June 30, 2004 relative to the comparable period in 2003, to a total of $20.3 million. Approximately $1.4 million of the increase was due to the impact of foreign exchange as approximately 82% of the segment's SG&A was incurred in costs other than U.S. dollars.
Income from operations for the Terex Mining segment was $8.6 million in the six months ended June 30, 2004, unchanged from 2003. Improvements in gross profit were offset by higher SG&A costs incurred.
Terex Roadbuilding, Utility Products and Other
Six Months Ended June 30,
----------------------------------------------------
2004 2003
------------------------ -----------------------
% of % of % Change In
Sales Sales Reported Amounts
----------- ------------ ------------------------
($ amounts in millions)
Net sales $ 485.1 $ 327.4 48.2%
Gross profit 62.8 12.9% 13.3 4.1% 372.2%
SG&A 51.3 10.6% 37.9 11.6% 35.4%
Goodwill impairment --- --- 51.3 15.7% (100.0%)
Income (loss) from operations 11.5 2.4% (75.9) (23.2%) 115.2%
|
Net sales for the Terex Roadbuilding, Utility Products and Other segment for the six months ended June 30, 2004 were $485.1 million, an increase of $157.7 million when compared to the same period in 2003. The acquisition of Tatra and ATC on August 28, 2003 increased sales in the first half of 2004 by approximately $110 million when compared to the same period in 2003. Sales of roadbuilding products improved over 2003 levels as a result of higher demand for concrete mixers. Demand for roadbuilding products is linked to state and federal spending for road improvements and new construction. Given the current budget deficits impacting many state and federal governments, demand for roadbuilding products remains relatively unchanged from prior years. Sales of utility products were relatively unchanged from 2003 levels. The Terex Light Construction businesses showed year-over-year improvement in demand, partially as a result of orders shipped to the Middle East.
Gross profit for the six months ended June 30, 2004 totaled $62.8 million, an increase of $49.5 million when compared to the same period in 2003. The acquisition of a majority interest in Tatra and ATC increased gross profit by approximately $14 million when compared to 2003. Gross profit earned by the Roadbuilding and Utility Products businesses improved over 2003 levels despite the negative impact of increases in steel costs experienced during the first six months of 2004. The Company continues to focus on initiatives to mitigate future steel price increases including consolidating steel purchasing and selective price increases. Total restructuring charges incurred during the first half of 2004 were $0.3 million and related to the consolidation of facilities in the Utility Products business. The consolidation is part of an ongoing effort to eliminate duplicate facilities resulting from the acquisition of several distribution businesses over the past two years.
Gross profit for the first six months of 2003 included restructuring and other charges of $31.3 million, primarily related to activities initiated in response to poor market conditions for the segment's roadbuilding products. Demand for roadbuilding products has been dampened by delays in state and federal funding for road improvement and construction projects. These actions included the exit of certain product-lines as well as inventory write-downs to reflect expected reduced sales volumes. Also included in the restructuring and other charges during the six months ended June 30, 2003 was $1.5 million related to the closure of the Company's Earthking internet business.
SG&A costs for the segment for the six months ended June 30, 2004 totaled $51.3 million, an increase of $13.4 million when compared to the same period in 2003. The majority of the increase was due to the acquisition of Tatra and ATC. SG&A costs also increased due to an unfavorable legal settlement in the Roadbuilding business and as a result of higher selling and administrative costs in the Utility Products businesses.
During the second quarter of 2003, the Company determined that the business performance during the first six months of 2003 in the Roadbuilding reporting unit would not meet the Company's 2003 performance expectations that were used when goodwill was last reviewed for impairment as of October 1, 2002. As of that time, funding for road projects had remained at historically low levels as federal and state budgets had been negatively impacted by a weak economy and the war in Iraq. In response to the revised business outlook, management initiated several changes to address the expected market conditions, including a change in business management, discontinuance of several non-core products, work force furloughs and reductions, and an inventory write-down based on anticipated lower sales volume. Based on the continued weakness in the reporting unit, the Company initiated a review of the long-term outlook for the reporting unit. The revised outlook for the reporting unit assumed that funding levels for domestic road projects would not improve significantly in the short term. In addition, the outlook assumed that the Company would continue to reduce working capital invested in the reporting unit to better match revenue expectations.
Based on this review, the Company determined the fair value of the Roadbuilding reporting unit using the present value of the cash flow expected to be generated by the reporting unit. The cash flow was determined based on the expected revenues, after tax profits, working capital levels and capital expenditures for the reporting unit. The present value was calculated by discounting the cash flow by the Company's weighted average cost of capital. The Company, with the assistance of a third-party, also reviewed the market value of the Roadbuilding
reporting unit's tangible and intangible assets. These values were included in the determination of the carrying value of the Roadbuilding reporting unit.
Based on the revised fair value of the reporting unit, a goodwill impairment of $51.3 million was recognized during the second quarter of 2003.
Income from operations for the Terex Roadbuilding, Utility Products and Other segment for the six months ended June 30, 2004 was $11.5 million, compared to a loss of $75.9 million for the same period in 2003. Income from operations in 2003 included a goodwill impairment charge of $51.3 million. Restructuring and other costs incurred in the first six months of 2004 were $33.0 million lower than the $33.3 million incurred in the same period in 2003. The acquisition of Tatra and ATC improved income from operations by approximately $5.0 million. Income from operations in the Utility Products and Roadbuilding businesses was lower than in 2003 as a result of increases in steel costs experienced in 2004 as well as from unfavorable legal settlements seen in the first half of 2004.
Net Interest Expense
During the six months ended June 30, 2004, the Company's net interest expense decreased $5.2 million to $43.5 million from $48.7 million for the prior year period. Net interest expense declined relative to 2003 as the Company reduced total outstanding debt by approximately $204 million and increased cash on hand by approximately $34 million from June 30, 2004. The benefit of lower debt levels and higher cash balances was partially offset by higher interest rates in 2004 relative to 2003.
Other Income (Expense) - Net
Other income (expense) - net for the six months ended June 30, 2004 was income of $17.4 million as compared to an expense of $4.6 million for the prior year period. The increase in other income relative to 2003 was primarily a result of the sale of idle facilities recognized in the second quarter of 2004 along with a favorable settlement reached related to the acquisition of the O&K business.
Income Taxes
During the six months ended June 30, 2004, the Company recognized income tax expense of $21.9 million on income before income taxes of $98.0 million, an effective rate of 22.3%, as compared to an income tax benefit of $8.5 million on a loss before income taxes of $48.3 million, an effective rate of 17.6%, in the prior year period. The effective tax rate for the six months ended June 30, 2004 was lower than the Company's 2003 full year effective tax-rate of approximately 28%, primarily due to the strong financial performance of the Company's Fermec business, where recent performance indicated that the Company was more likely than not to realize the benefits of certain tax assets, and, therefore, the valuation allowance held for this business was released.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Changes in the estimates and assumptions used by management could have significant impact on the Company's financial results. Actual results could differ from those estimates.
The Company believes that the following are among its most significant accounting polices which are important in determining the reporting of transactions and events and which utilize estimates about the effect of matters that are inherently uncertain and therefore are based on management judgment. Please refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2003 for a complete listing of the Company's accounting policies.
Inventories - Inventories are stated at the lower of cost or market value. Cost is determined by the first-in, first-out ("FIFO") method. In valuing inventory, management is required to make assumptions regarding the level of reserves required to value potentially obsolete or over-valued items at the lower of cost or market. The valuation of used equipment taken in trade from customers requires the Company to use the best information available to determine the value of the equipment to potential customers. This value is subject to change based on numerous conditions. Inventory reserves are established taking into account age, frequency of use, or sale, and in the case of repair parts, the installed base of machines. While calculations are made involving these factors, significant management judgment regarding expectations for future events is involved. Future events which could significantly influence management's judgment and related estimates include general economic conditions in markets where the Company's products are sold, new equipment price fluctuations, competitive actions including the introduction of new products and technological advances, as well as new products and design changes introduced by the Company. At June 30, 2004, reserves for excess and obsolete inventory totaled $65.6 million.
Accounts Receivable - Management is required to make judgments relative to the Company's ability to collect accounts receivable from the Company's customers. Valuation of receivables includes evaluating customer payment histories, customer leverage, availability of third party financing, political and exchange risks and other factors. Many of these factors, including the assessment of a customer's ability to pay, are influenced by economic and market factors which cannot be predicted with certainty. At June 30, 2004, reserves for potentially uncollectible accounts receivable totaled $36.2 million.
Guarantees - The Company has issued guarantees of customer financing to purchase equipment. The Company must assess the probability of losses or non-performance in ways similar to the evaluation of accounts receivable, including consideration of a customer's payment history, leverage, availability of third party finance, political and exchange risks and other factors. Many of these factors, including the assessment of a customer's ability to pay, are influenced by economic and market factors that cannot be predicted with certainty. To date, losses related to guarantees made by the Company have been negligible.
Customers of the Company from time to time may fund the acquisition of the Company's equipment through third-party finance companies. In certain instances, the Company may provide a credit guarantee to the finance company, by which the Company agrees to make payments to the finance company should the customer default. The maximum liability of the Company is limited to the remaining payments due to the finance company at the time of default. In the event of customer default, the Company is generally able to dispose of the equipment with the Company realizing the benefits of any net proceeds in excess of the remaining payments due to the finance company.
As of June 30, 2004, the Company's maximum exposure to such credit guarantees was $289.5 million. The terms of these guarantees coincide with the financing arranged by the customer and generally does not exceed five years. Given the Company's position as the original equipment manufacturer and its knowledge of end markets, the Company, when called upon to fulfill a guarantee, generally has been able to liquidate the financed equipment at a minimal loss, if any, to the Company.
The Company issues residual value guarantees under sales-type leases. A residual value guarantee involves a guarantee that a piece of equipment will have a minimum fair market value at a future point in time. As described in Note J - "Net Investment in Sales-Type Leases" in the Notes to the Condensed Consolidated Financial Statements, the Company's maximum exposure related to residual value guarantees at June 30, 2004 was $41.5 million. The Company is able to mitigate the risk associated with these guarantees because the maturity of the guarantees is staggered, which limits the amount of used equipment entering the marketplace at any one time.
The Company from time to time guarantees that it will buy equipment from its customers in the future at a stated price if certain conditions are met by the customer. Such guarantees are referred to as buyback guarantees. These conditions generally pertain to the functionality and state of repair of the machine. As of June 30, 2004, the Company's maximum exposure pursuant to buyback guarantees was $43.4 million. The Company is able to mitigate the risk of these guarantees by staggering the timing of the buybacks and through leveraging its access to the used equipment markets provided by the Company's original equipment manufacturer status.
The Company recognizes a loss under a guarantee when the Company's obligation to make payment under the guarantee is probable and the amount of the loss can be estimated. A loss would be recognized if the Company's payment obligation under the guarantee exceeds the value the Company can expect to recover to offset such payment, primarily through the sale of the equipment underlying the guarantee.
Revenue Recognition -- Revenue and costs are generally recorded when products are shipped and invoiced to either independently owned and operated dealers or to customers.
Revenue generated in the United States is recognized when title and risk of loss pass from the Company to its customers which occurs upon shipment when terms are FOB shipping point (which is customary for the Company) and upon delivery when terms are FOB destination. The Company also has a policy requiring it to meet certain criteria in order to recognize revenue, including satisfaction of the following requirements:
a) Persuasive evidence that an arrangement exists;
b) The price to the buyer is fixed or determinable;
c) Collectibility is reasonably assured; and
d) The Company has no significant obligations for future performance.
In the United States, the Company has the ability to enter into a security agreement and receive a security interest in the product by filing an appropriate Uniform Commercial Code ("UCC") financing statement. However, a significant portion of the Company's revenue is generated outside of the United States. In many countries outside of the United States, as a matter of statutory law, a seller retains title to a product until payment is made. The laws do not provide for a seller's retention of a security interest in goods in the same manner as established in the UCC. In these countries, the Company retains title to goods delivered to a customer until the customer makes payment so that the Company can recover the goods in the event of customer default on payment. In these circumstances, where the Company only retains title to secure its recovery in the event of customer default, the Company also has a policy which requires it to meet certain criteria in order to recognize revenue, including satisfaction of the following requirements:
a) Persuasive evidence that an arrangement exists;
b) Delivery has occurred or services have been rendered;
c) The price to the buyer is fixed or determinable;
d) Collectibility is reasonably assured;
e) The Company has no significant obligations for future performance; and
f) The Company is not entitled to direct the disposition of the goods,
cannot rescind the transaction, cannot prohibit the customer from
moving, selling, or otherwise using the goods in the ordinary course
of business and has no other rights of holding title that rest with a
titleholder of property that is subject to a lien under the UCC.
In circumstances where the sales transaction requires acceptance by the customer for items such as testing on site, installation, trial period or performance criteria, revenue is not recognized unless the following criteria have been met:
a) Persuasive evidence that an arrangement exists;
b) Delivery has occurred or services have been rendered;
c) The price to the buyer is fixed or determinable;
d) Collectibility is reasonably assured; and
e) The customer has given their acceptance, the time period for
acceptance has elapsed or the Company has otherwise objectively
demonstrated that the criteria specified in the acceptance provisions
have been satisfied.
In addition to performance commitments, the Company analyzes factors such as the reason for the purchase to determine if revenue should be recognized. This analysis is done before the product is shipped and includes the evaluation of factors that may affect the conclusion related to the revenue recognition criteria as follows:
a) Persuasive evidence that an arrangement exists;
b) Delivery has occurred or services have been rendered;
c) The price to the buyer is fixed or determinable; and
d) Collectibility is reasonably assured.
Goodwill & Acquired Intangible Assets - Goodwill represents the difference between the total purchase price paid in the acquisition of a business and the fair value of the assets, both tangible and intangible, and liabilities acquired by the Company. Acquired intangible assets generally include trade names, technology and customer relationships and are amortized over their estimated useful lives. The Company is required annually to review the value of its recorded goodwill and intangible assets to determine if either is potentially impaired. The initial recognition of intangible assets, as well as the annual review of the carrying value of goodwill and intangible assets, requires that the Company develop estimates of future business performance. These estimates are used to derive expected cash flow and include assumptions regarding future sales levels, the impact of cost reduction programs, and the level of working capital needed to support a given business. The Company relies on data developed by business segment management as well as macroeconomic data in making these calculations. The estimate also includes a determination of the Company's weighted average cost of capital. The cost of capital is based on assumptions about interest rates, as well as a risk-adjusted rate of return required by the Company's equity investors. Changes in these estimates can impact the present value of the expected cash flow that is used in determining the fair value of acquired intangible assets, as well as the overall expected value of a given business.
Impairment of Long Lived Assets - The Company's policy is to assess its ability to realize its long lived assets and to evaluate such assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets (or group of assets) may not be recoverable. Impairment is determined to exist if the estimated future undiscounted cash flows is less than its carrying value. Future cash flow projections include assumptions regarding future sales levels, the impact of cost reduction programs, and the level of working capital needed to support each business. The Company relies on data developed by business segment management as well as macroeconomic data in making these calculations. There are no assurances that future cash flow assumptions will be achieved. The amount of any impairment then recognized would be calculated as the difference between estimated fair value and the carrying value of the asset.
Accrued Warranties - The Company records accruals for potential warranty claims based on the Company's prior claim experience. Warranty costs are accrued at the time revenue is recognized. However, adjustments to the initial warranty accrual are recorded if actual claim experience indicates that adjustments are necessary. These warranty costs are based upon management's assessment of past claims and current experience. However, actual claims could be higher or lower than amounts estimated, as the amount and value of warranty claims are subject to variation as a result of many factors that cannot be predicted with certainty, including the performance of new products, models and technology, changes in weather conditions for product operation, different uses for products and other similar factors.
Accrued Product Liability - The Company records accruals for potential product liability claims based on the Company's prior claim experience. Accruals for product liability claims are valued based upon the Company's prior claims experience, including consideration of the jurisdiction, circumstances of the accident, type of loss or injury, identity of plaintiff, other potential responsible parties, analysis of outside legal counsel, analysis of internal product liability counsel and the experience of the Company's director of product safety. The Company provides accruals for estimated product liability experience on known claims. Actual product liability costs could be different due to a number of variables such as the decisions of juries or judges.
Pension Benefits - Pension benefits represent financial obligations that will be ultimately settled in the future with employees who meet eligibility requirements. Because of the uncertainties involved in estimating the timing and amount of future payments, significant estimates are required to calculate pension expense and liabilities related to the Company's plans. The Company utilizes the services of several independent actuaries, whose models are used to facilitate these calculations.
Several key assumptions are used in actuarial models to calculate pension expense and liability amounts recorded in the financial statements. Management believes the three most significant variables in the models are expected long-term rate of return on plan assets, the discount rate, and the expected rate of compensation increase. The actuarial models also use assumptions for various other factors including employee turnover, retirement age and mortality. The Company's management believes the assumptions used in the actuarial calculations are reasonable and are within accepted practices in each of the respective geographic locations in which the Company operates.
The expected long-term rates of return on pension plan assets were 8.00% for U.S. plans and 2.00% to 6.50% for international plans at June 30, 2004. These rates are determined annually by management based on a weighted average of current and historical market trends, historical portfolio performance and the portfolio mix of investments.
The discount rates for pension plan liabilities were 6.00% for U.S. plans and 5.50% to 6.00% for international plans at June 30, 2004. These rates are used to calculate the present value of plan liabilities and are determined annually by management based on market yields for high-quality fixed income investments on the measurement date.
The expected rates of compensation increase for the Company's pension plans were 4.00% for U.S. plans and 2.75% to 4.00% for international plans at June 30, 2004. These estimated annual compensation increases are determined by management every year and are based on historical trends and market indices.
Income Taxes - At June 30, 2004, the Company had deferred tax assets of $282.6 million, net of valuation allowances. The income tax expense was $21.9 million for the six months ended June 30, 2004. The Company estimates income taxes based on diverse and complex regulations that exist in various jurisdictions where it conducts business. Deferred income tax assets and liabilities represent tax benefits and obligations, respectively, that arise from temporary timing differences due to differing treatment of certain items for accounting and income tax purposes.
The Company evaluates deferred tax assets each period to ensure that estimated future taxable income will be sufficient in character, amount and timing to result in the utilization of its deferred tax assets. "Character" refers to the type (capital gain vs. ordinary income) as well as the source (foreign vs. domestic) of the income generated by the Company. "Timing" refers to the period in which future income is expected to be generated and is important because certain of the Company's net operating losses expire if not used within an established time frame based on the jurisdiction in which they were generated.
A significant portion of the Company's deferred tax assets are comprised of net operating losses ("NOLs") generated in the United States by the Company. The Company has had a history of generating tax losses in the United States and has accumulated NOLs of $332.0 million as of December 31, 2003. During the fourth quarter of 2003, the Company evaluated its ability to utilize its NOLs generated in the United States. The Company included the following information in its analysis:
o The acquisitions of Genie and Terex Advance Mixer in 2002 add
significantly to the Company's U.S. based income generation. In
addition, the Company had begun to see an increase in demand for Genie
products in the United States relative to 2002.
o The Company continues to reduce its long-term debt through the
generation of operating cash flow, thereby reducing interest expense
in the United States relative to prior periods.
o The Company has undergone significant restructuring in the United
States to address market conditions in its North American crane
business as well as its Roadbuilding businesses. The Company believes
that these businesses are now properly sized for current business
volumes and that their respective end markets have stabilized.
o The Company has not yet taken advantage of several tax strategies that
would allow it to accelerate the utilization of accumulated NOLs.
Based on these facts, the Company has determined that it is more likely than not that expected future U.S. earnings are sufficient to fully utilize the Company's U.S. deferred tax assets.
In addition to its domestic NOLs, the Company has accumulated $645.8 million of foreign NOLs at December 31, 2003. During the fourth quarter of 2003, the Company also evaluated its ability to utilize these NOLs on a country-by-country and entity-by-entity basis. In performing this analysis, the Company reviewed the past and anticipated future earnings for each foreign entity, and, where necessary, a valuation allowance was provided for foreign NOLs which the Company believed were not more likely than not to be realized in the future. As of June 30, 2004, the total valuation allowance provided for foreign deferred tax assets was $154.7 million. During the second quarter of 2004, the strong financial performance of the Company's Fermec business' indicated that it was more likely than not that the Company would realize the benefits of certain tax assets, and, therefore, the valuation allowance held for this business was released.
Considerable judgments are required in establishing deferred tax valuation allowances and in assessing possible exposures related to tax matters. Tax returns are subject to audit and local taxing authorities could challenge tax positions. The Company's practice is to review tax-filing positions by jurisdiction and to record provisions for probable tax assessments, including interest and penalties, if applicable. The Company believes it records and/or discloses such potential tax liabilities as appropriate and has reasonably estimated its income tax liabilities and recoverable tax assets.
LIQUIDITY AND CAPITAL RESOURCES
The Company's main sources of funding are cash generated from operations, use of the Company's bank credit facilities and access to capital markets. Management believes that cash generated from operations, together with the Company's bank credit facilities and cash on hand, provides the Company with adequate liquidity to meet the Company's operating and debt service requirements. The Company had cash and cash equivalents of $454.5 million at June 30, 2004. In addition, the Company had $228.1 million available for borrowing under its revolving credit facilities at June 30, 2004.
Cash from operations is dependent on the Company's ability to generate net income through the sales of the Company's products and by reducing its investment in working capital. During 2003, the Company's focus shifted from a largely acquisition oriented growth approach to improving its operating performance. The Company recently initiated a series of programs, collectively known as TIP, aimed at improving operating earnings and net income as a percentage of sales and at reducing the relative level of working capital needed to operate the business. The Company is improving its liquidity through the collection of receivables in a more timely manner. Consistent with past practice, each quarter the Company sells receivables to various third party financial institutions through a series of established pre-arranged facilities. During the second quarter of 2004 and 2003, the Company sold, without recourse, accounts receivable approximating 18% and 22% of its second quarter revenue in 2004 and 2003, respectively, to provide additional liquidity. The Company is reducing inventory requirements by sharing, throughout the Company, many of the best practices and lean manufacturing processes that various of its business units have successfully utilized. These initiatives are expected to reduce the levels of raw materials and work in process needed to support the business and enable the Company to reduce its manufacturing lead times, thereby reducing the Company's working capital requirements.
The Company's ability to generate cash from operations is subject to the following factors:
o A substantial number of the Company's customers fund their purchases
through third party finance companies. Finance companies extend credit
to customers based on the credit worthiness of the customers and the
expected residual value of the Company's equipment. Changes in either
the customers' credit rating or in used equipment values may impact
the ability of customers to purchase equipment.
o As the Company's sales levels increase, the absolute amount of working
capital needed to support the business may increase with a
corresponding reduction in cash generated by operations. The TIP
initiatives described above are intended to reduce the relative
increase in working capital.
o As described above, the Company insures and sells a portion of its
accounts receivable to third party finance companies. Changes in
customers' credit worthiness, in the market for credit insurance or in
the willingness of third party finance companies to purchase accounts
receivable from the Company may impact the Company's cash flow from
operations.
o The Company purchases material and services from its suppliers on
terms extended based on the Company's overall credit rating. Changes
in the Company's credit rating may impact suppliers' willingness to
extend terms and increase the cash requirements of the business.
o Sales of the Company's products are subject to general economic
conditions, weather, competition and foreign currency fluctuations,
and other such factors that in many cases are outside the Company's
direct control. For example, during periods of economic uncertainty,
many of the Company's customers have tended to delay purchasing
decisions, which has had a negative impact on cash generated from
operations.
The Company's sales are seasonal, with more than half of the Company's sales typically being generated in the first two quarters of a calendar year. This seasonality is a result of the needs of the Company's customers to have new equipment available for the spring, summer and fall construction season. As a result, the Company tends to use cash to fund its operations during the first half of a calendar year and generate cash from operations during the second half of the year. For example, during the six months ended June 30, 2004, the Company used $30 million of cash for working capital. The Company defines working capital as the sum of accounts receivable and inventories, less accounts payable. Despite this, during the first six months of 2004, the Company was able to generate $69.9 million of cash from operations. This cash inflow was due primarily to improved operating profitability of the Company.
To help fund its traditional seasonal cash pattern, the Company maintains a significant cash balance and a revolving line of credit in addition to term borrowings from its bank group. The Company maintains a bank credit facility that originally provided for $375 million of term debt maturing in July 2009 and a revolving credit facility of $300 million that is available through July 2007. The facility also includes provisions for an additional $250 million of term borrowing by the Company on terms similar to the current term loan debt under the facility, of which the Company has utilized $210 million of additional term borrowings. During 2003, the Company prepaid $200 million principal amount of its bank term loans. On June 30, 2004, the Company prepaid $75 million of principal amount of its bank term loans, and on July 21, 2004, the Company prepaid an additional $50 million principal amount of its bank term loans.
The Company's ability to borrow under its existing bank credit facilities is subject to the Company's ability to comply with a number of covenants. The Company's bank credit facilities include covenants that require the Company to meet certain financial tests, including a pro forma consolidated leverage ratio test, a consolidated interest ratio test, a consolidated fixed charge ratio test, a pro forma consolidated senior secured debt leverage ratio test and a capital expenditures test. These covenants require quarterly compliance and become more restrictive through the third quarter of 2005. The Company has significant debt service requirements, including semi-annual interest payments on its senior subordinated notes and monthly interest payments on its bank credit facilities. Other than a default under the terms of the Company's debt instruments, there are no other events that would accelerate the repayment of the Company's debt. In the event of a default, these borrowings would become payable on demand.
The Company is currently in compliance with all of its financial covenants under its bank credit facilities. The Company's future compliance with its covenants will depend on its ability to generate earnings, cash flow from working capital reductions, other asset sales and cost reductions from its restructuring programs. The interest rates charged are subject to adjustment based on the Company's consolidated pro forma leverage ratio. The weighted average interest rate on the outstanding portion of the revolving credit component of the Company's bank credit facility was 4.25% at June 30, 2004.
During 2003, the Company changed its debt profile by using cash generated from operations to reduce its debt, extending the maturities of its term debt and thereby reducing the rate of interest on its debt. On June 30, 2003, the Company redeemed $50 million of its 8-7/8% Senior Subordinated Notes due 2008 (the "8-7/8% Notes"). On November 25, 2003, the Company sold and issued $300 million of its 7-3/8% Senior Subordinated Notes due 2014 (the "7-3/8% Notes") using the proceeds plus $119 million of available cash to prepay the remaining $200 million outstanding principal amount of its 8-7/8% Notes and $200 million plus accrued interest of its bank term loans.
The Company manages its interest rate risk by maintaining a balance between fixed and floating rate debt through interest rate derivatives. Over the long term, the Company believes this balance will produce lower interest cost than a purely fixed rate mix without substantially increasing risk.
At the same time that it issued its 7-3/8% Notes, the Company negotiated an amendment to certain of the financial covenants under its bank credit facilities, described above, to extend the rate at which the pro forma consolidated leverage ratio and the pro forma consolidated senior secured debt leverage ratio are reduced in 2004 and 2005.
The Company continues to review its alternatives to improve its capital structure and to reduce debt service costs through a combination of debt refinancing, issuing equity, asset sales and the sale of non-strategic businesses. The Company's ability to access the capital markets to raise funds, through the sale of equity or debt securities, is subject to various factors, some specific to the Company and others related to general economic and/or financial market conditions. These include results of operations, projected operating results for future periods and debt to equity leverage. In addition, the terms of the Company's bank credit facility and senior subordinated notes restrict the Company's ability to make further borrowings and to sell substantial portions of its assets.
Cash Flows
Net cash provided by operations for the six months ended June 30, 2004 was $69.9 million. Approximately $30 million of cash was used for working capital purposes in connection with the second quarter selling season. Net cash provided by operations decreased by $113.8 million in the six months ended June 30, 2004 when compared to the same period in 2003. During the first six months of 2003, the Company generated $128.2 million from the reduction of working capital. A significant portion of the working capital reduction in the first six months of 2003 was due to improvements realized at Demag, which was acquired in August 2002 with a high level of working capital.
Net cash provided by investing activities in the six months ended June 30, 2004 was $7.2 million, as compared to a net use of $19.3 million in the six months ended June 30, 2003. This change is a result of the Company's receipt of $24.0 million as proceeds from the sale of excess assets during the first six months of 2004 and the reduced number and size of acquisitions completed in the first six months of 2004 when compared to the same period in 2003.
Cash used in financing activities was $86.8 million in the six months ended June 30, 2004, compared to cash used in financing activities in the six months ended June 30, 2003 of $107.4 million. During the six months ended June 30, 2004, the Company used $75.0 million to prepay a portion of its bank term loans and it generated $5.5 million from the exercise of stock options. In the six months ended June 30, 2003, the Company utilized cash from operations to reduce its debt by approximately $90 million.
OFF-BALANCE SHEET ARRANGEMENTS
Guarantees
Customers of the Company from time to time may fund the acquisition of the Company's equipment through third-party finance companies. In certain instances, the Company may provide a credit guarantee to the finance company, by which the Company agrees to make payments to the finance company should the customer default. The maximum liability of the Company is limited to the remaining payments due to the finance company at the time of default. In the event of customer default, the Company is generally able to dispose of the equipment with the Company realizing the benefits of any net proceeds in excess of the remaining payments due to the finance company.
As of June 30, 2004, the Company's maximum exposure to such credit guarantees was $289.5 million, including total credit guarantees issued by Demag and Genie of $194.4 million and $55.5 million, respectively. The terms of these guarantees coincide with the financing arranged by the customer and generally does not exceed five years. Given the Company's position as the original equipment manufacturer and its knowledge of end markets, the Company, when called upon to fulfill a guarantee, generally has been able to liquidate the financed equipment at a minimal loss, if any, to the Company.
The Company, from time to time, issues residual value guarantees under sales-type leases. A residual value guarantee involves a guarantee that a piece of equipment will have a minimum fair market value at a future point in time. As described in Note J - "Net Investment in Sales-Type Leases" in the Notes to the Condensed Consolidated Financial Statements, the Company's maximum exposure related to residual value guarantees under sales-type leases was $41.5 million at June 30, 2004. Given the Company's position as the original equipment manufacturer and its knowledge of end markets, the Company is able to mitigate the risk associated with these guarantees because the maturity of the guarantees is staggered, which limits the amount of used equipment entering the marketplace at any one time.
The Company from time to time guarantees that it will buy equipment from its customers in the future at a stated price if certain conditions are met by the customer. Such guarantees are referred to as buyback guarantees. These conditions generally pertain to the functionality and state of repair of the machine. As of June 30, 2004, the Company's maximum exposure pursuant to buyback guarantees was $43.4 million. The Company is able to mitigate the risk of these guarantees by staggering the timing of the buybacks and through leveraging its access to the used equipment markets provided by the Company's original equipment manufacturer status.
Variable Interest Entities
In April 2001, Genie entered into a joint venture arrangement with a European financial institution, pursuant to which Genie maintained a forty-nine percent (49%) ownership interest in the joint venture, Genie Financial Services Holding B.V. ("GFSH"). GFSH was established to facilitate the financing of Genie's products sold in Europe. Genie contributed $4.7 in cash in exchange for its ownership interest in GFSH. During January 2003 and 2002, Genie contributed an additional $0.8 million and $0.6 million, respectively, in cash to GFSH.
On January 1, 2004, the Company and its joint venture partner revised the co-operation agreement and operating relationship with respect to GFSH. As part of the reorganization, the name of the joint venture was changed to TFSH, Genie's ownership interest in TFSH was reduced to forty percent (40%) in exchange for consideration of $1.2 million from the joint venture partner, and Genie transferred its interest to another Company subsidiary. In addition, the scope of TFSH's operations was broadened, as it was granted the right to facilitate the financing of all of the Company's products sold in Europe.
As of June 30, 2004, TFSH had total assets of $170.7 million, consisting primarily of financing receivables and lease related equipment, and total liabilities of $154.3 million, consisting primarily of debt issued by the joint venture partner. The Company has provided guarantees related to potential losses arising from shortfalls in the residual values of financed equipment or credit defaults by the joint venture's customers. Additionally, the Company is required to maintain a capital account balance in TFSH, pursuant to the terms of the joint venture, which could result in the reimbursement to TFSH by the Company of losses to the extent of the Company's ownership percentage. As a result of the capital account balance requirements for TSFH, in June 2004 the Company contributed an additional $1.9 million in cash to TFSH.
As defined by FASB Interpretation No. 46 ("FIN 46R"), TFSH is a Variable Interest Entity ("VIE"). For entities created prior to February 1, 2003, FIN 46R requires the application of its provisions effective the first reporting period after March 15, 2004. Based on the legal and operating structure of TFSH, the Company has concluded that it is not the primary beneficiary of TFSH and that it does not control the operations of TFSH. Accordingly, the Company will not consolidate the results of TFSH into its consolidated financial results. The Company applies the equity method of accounting for its investment in TFSH.
Sale-Leaseback Transactions
The Company's rental business typically rents equipment to customers for periods of no less than three months. To better match cash outflows in the rental business to cash inflows from customers, the Company finances the equipment through a series of sale-leasebacks which are classified as operating leases. The leaseback period is typically 60 months in duration. At June 30, 2004, the historical cost of equipment being leased back from the financing companies was approximately $89.2 million and the minimum lease payment for the remainder of 2004 will be approximately $9 million.
CONTINGENCIES AND UNCERTAINTIES
Foreign Currencies and Interest Rate Risk
The Company's products are sold in over 100 countries around the world and, accordingly, revenues of the Company are generated in foreign currencies, while the costs associated with those revenues are only partly incurred in the same currencies. The major foreign currencies, among others, in which the Company does business, are the Euro, the British Pound, the Australian Dollar and the Czech Koruna. The Company may, from time to time, hedge specifically identified committed and forecasted cash flows in foreign currencies using forward currency sale or purchase contracts. At June 30, 2004, the Company had foreign exchange contracts with a notional value of $270.8 million.
The Company manages exposure to fluctuating interest rates with interest protection arrangements. Certain of the Company's obligations, including indebtedness under the Company's bank credit facility, bear interest at floating rates, and as a result an increase in interest rates could adversely affect, among other things, the results of operations of the Company. The Company has entered into interest protection arrangements with respect to approximately $100 million of the principal amount of its indebtedness under its bank credit facility, fixing interest at 6.52% for the period from July 1, 2004 through June 30, 2009.
Certain of the Company's obligations, including its senior subordinated notes, bear interest at a fixed interest rate. The Company has entered into interest rate agreements to convert these fixed rates to floating rates with respect to approximately $200 million of the principal amount of its indebtedness under its 7-3/8% Senior Subordinated Notes and approximately $79 million of operating leases. The floating rates are based on a spread of 2.45% to 4.50% over the London Interbank Offer Rate ("LIBOR"). At June 30, 2004, the floating rates ranged between 4.33% and 5.60%.
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 Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities."
Other
The Company is subject to a number of contingencies and uncertainties including, without limitation, product liability claims, self-insurance obligations, tax examinations and guarantees. Many of the exposures are unasserted or the 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, the Company 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 non-hazardous wastes in the normal course of its manufacturing operations. As a result, Terex is subject to a wide range of federal, state, local and foreign environmental laws and regulations. These laws and regulations govern actions that may have adverse environmental effects, such as discharges to air and water, and also require compliance with certain practices when handling and disposing of hazardous and non-hazardous wastes. These laws and regulations also impose liability for the costs of, and damages resulting from, cleaning up sites, past spills, disposals and other releases of hazardous substances, should any of such events occur. No such incidents have occurred which required the Company to pay material amounts to comply with such laws and regulations. Compliance with such laws and regulations has required, and will continue to require, the Company to make expenditures. The Company does not expect that these expenditures will have a material adverse effect on its business or profitability.
RECENT ACCOUNTING PRONOUNCEMENTS
In January 2003, the Financial Accounting Standards Board (the "FASB") issued FIN 46, "Consolidation of Variable Interest Entities." A variable interest entity ("VIE") is a corporation, partnership, trust or other legal entity that does not have equity investors with voting rights or has equity investors that do not provide sufficient financial resources for the entity to support its own activities. The interpretation requires a company to consolidate a VIE when the company has a majority of the risk of loss from the VIE's activities or is entitled to receive a majority of the entity's residual returns or both. In December 2003, the FASB revised FIN 46 ("FIN 46R") and modified its effective date. The Company is required to adopt the provisions of FIN 46R, for special purpose entities and VIEs created on or after February 1, 2003, effective December 31, 2003. As of June 30, 2004, there were no such entities that are required to be consolidated by the Company. For all other entities, the Company has adopted the provisions of FIN 46R on March 31, 2004. The application of FIN 46R has not had a material impact on the Company's consolidated financial position or results of operations.
In January 2003, the Emerging Issues Task Force (the "EITF") released EITF 00-21, "Accounting for Revenue Arrangements with Multiple Deliverables." EITF 00-21 clarifies the timing and recognition of revenue from certain transactions that include the delivery and performance of multiple products or services. EITF 00-21 is effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The adoption of EITF 00-21 has not had a material impact on the Company's consolidated financial position or results of operations.
During April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." This statement amends and
clarifies financial accounting and reporting for derivative instruments and
hedging activities, resulting primarily from decisions reached by the FASB
Derivatives Implementation Group subsequent to the original issuance of SFAS No.
133. This statement is generally effective prospectively for contracts and
hedging relationships entered into after June 30, 2003. The adoption of SFAS No.
149 has not had a material impact on the Company's consolidated financial
position or results of operations.
On May 15, 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." This statement establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. SFAS No. 150 must be applied immediately to instruments entered into or modified after May 31, 2003 and to all other instruments that exist as of the beginning of the first interim financial reporting period beginning after June 15, 2003. The adoption of SFAS No. 150 has not had a material impact on the Company's financial position or results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to certain market risks which exist as part of its ongoing business operations and the Company uses derivative financial instruments, where appropriate, to manage these risks. The Company, as a matter of policy, does not engage in trading or speculative transactions. For further information on accounting policies related to derivative financial instruments, refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2003.
Foreign Exchange Risk
The Company is exposed to fluctuations in foreign currency cash flows related to third party purchases and sales, intercompany product shipments and intercompany loans. The Company is also exposed to fluctuations in the value of foreign currency investments in subsidiaries and cash flows related to repatriation of these investments. Additionally, the Company is exposed to volatility in the translation of foreign currency earnings to U.S. Dollars. Primary exposures include the U.S. Dollars versus functional currencies of the Company's major markets which include the Euro, the British Pound, the Czech Koruna and the Australian Dollar. The Company assesses foreign currency risk based on transactional cash flows and identifies naturally offsetting positions and purchases hedging instruments to protect anticipated exposures. At June 30, 2004, the Company had foreign currency contracts with a notional value of $270.8 million. The fair market value of these arrangements, which represents the cost to settle these contracts, was an asset of approximately $7.2 million at June 30, 2004.
Interest Rate Risk
The Company is exposed to interest rate volatility with regard to future issuances of fixed rate debt and existing issuances of variable rate debt. Primary exposure includes movements in the U.S. Prime Rate and LIBOR. The Company uses interest rate swaps to manage its interest rate risk. At June 30, 2004, approximately 47% of the Company's debt was floating rate debt and the weighted average interest rate for all debt was approximately 6.6%.
At June 30, 2004, the Company had approximately $100 million of interest rate swaps fixing interest rates at 6.52% for the period from July 1, 2004 through June 30, 2009. The fair market value of these arrangements, which represents the cost to settle these contracts, was a liability of approximately $1 million at June 30, 2004.
At June 30, 2004, the Company had approximately $279 million of interest rate swaps that converted fixed rates to floating rates. The floating rates ranged between 4.33% and 5.60% at June 30, 2004. The fair market value of these arrangements, which represent the cost to settle these contracts, was a liability of approximately $4.1 million.
At June 30, 2004, the Company performed a sensitivity analysis for the Company's derivatives and other financial instruments that have interest rate risk. The Company calculated the pretax earnings effect on its interest sensitive instruments. Based on this sensitivity analysis, the Company has determined that an increase of 10% in the Company's weighted average interest rates at June 30, 2004 would have increased interest expense by approximately $1 million in the six months ended June 30, 2004.
Commodities Risk
Principal materials used by the Company in its various manufacturing processes include steel, castings, engines, tires, hydraulic cylinders, drive trains, electric controls and motors, and a variety of other commodities and fabricated or manufactured items. The Company's performance may be impacted by extreme movements in material costs and from availability of these materials. In particular, during the first six months of 2004, the Company has been affected by increases in the cost of steel. Steel is a major material component for many of the Company's products, so as the cost of steel has increased, the cost to manufacture these products has increased. The cost of steel has increased, and the availability of steel has decreased, in response to higher demand caused by a recovering end-market and higher consumption of steel by emerging economies such as China. The Company experienced an increase in steel costs of approximately $18 million during the second quarter of 2004.
In the absence of labor strikes or other unusual circumstances, substantially all materials are normally available from multiple suppliers. Current and potential suppliers are evaluated on a regular basis on their ability to meet the Company's requirements and standards. The Company actively manages its material supply sourcing, and may employ various methods to limit risk associated with commodity cost fluctuations and availability. With respect to the recent increases in the cost of steel, for example, the Company continues to design and implement plans to mitigate the impact, including the use of alternate suppliers, leveraging the Company's overall purchase volumes to obtain favorable costs, and increasing the price of the Company's products.
The Company carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the fiscal quarter covered by this Quarterly Report on Form 10-Q pursuant to the requirements of the Securities Exchange Act of 1934 (the "Exchange Act"), under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial Officer.
Based on that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of June 30, 2004 to ensure that information required to be disclosed in the Company's reports filed or submitted pursuant to the Exchange Act is recorded, processed, summarized and reported within the appropriate time periods.
There has been no change to the Company's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the Company's fiscal quarter ended June 30, 2004, that has materially affected or is reasonably likely to materially affect the Company's internal control over financial reporting.
PART II OTHER INFORMATION
The Company is involved in certain claims and litigation arising in the ordinary course of business, which are not considered material to the financial operations or cash flow of the Company. For information concerning litigation and other contingencies see "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Contingencies and Uncertainties."
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
The following table provides information about purchases by the Company during
the quarter ended June 30, 2004 of Common Stock that is registered by the
Company pursuant to the Exchange Act.
Issuer Purchases of Equity Securities
------------------------------------------------------------------------------------------------------------------
Period (a) Total ( c) Total Number of
Number of (b) Average Shares Purchased as Part (d) Maximum Number of Shares
Shares Price Paid of Publicly Announced Plans that May Yet be Purchased
Purchased per Share or Programs Under the Plans or Programs
-----------------------------------------------------------------------------------------------------------------
April 1, 2004 -
April 30, 2004 22,429(1) $38.33 --- ---
May 1, 2004 -
May 31, 2004 --- --- --- ---
June 1, 2004 -
June 30, 2004 --- --- --- ---
Total 22,429 $38.33 --- ---
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(1) On April 7, 2004, Ronald M. DeFeo, the Company's Chairman, Chief Executive Officer and President, delivered 22,429 shares of Common Stock to the Company in connection with his repayment of a loan made by the Company to Mr. DeFeo on March 2, 2000. The loan was repaid in full by Mr. DeFeo, through this Common Stock payment and additional cash payments, in April 2004.
Not applicable.
At the annual meeting of stockholders held May 25, 2004, Terex stockholders holding a majority of the shares of Common Stock outstanding as of the close of business on March 29, 2004 voted to approve each of the seven proposals included in the Company's proxy statement as follows:
Affirmative Negative Abstentions Unvoted
Proposal 1: To elect eight directors to hold
office for one year or until their
successors are duly elected and qualified:
Ronald M. DeFeo 45,071,275 967,082 --- ---
G. Chris Andersen 45,067,655 970,702 --- ---
Don DeFosset 45,463,897 574,460 --- ---
William H. Fike 45,463,789 574,568 --- ---
Dr. Donald P. Jacobs 45,463,928 574,429 --- ---
David A. Sachs 45,067,687 970,670 --- ---
J. C. Watts, Jr. 45,464,005 574,352 --- ---
Helge H. Wehmeier 45,467,671 570,686 --- ---
Proposal 2: To ratify the selection of
PricewaterhouseCoopers LLP as independent
accountants of the Company for 2004: 45,790,022 236,256 12,079 ---
Proposal 3: To approve an amendment to the
Terex Corporation 2000 Incentive Plan to
increase the number of shares of the
Company's common stock available for
grant thereunder: 34,566,358 7,279,672 582,749 3,609,578
Proposal 4: To approve the Terex
Corporation 2004 Annual Incentive
Compensation Plan to meet the
requirements for tax deductibility
under Section 162(m) of the Internal
Revenue Code of 1986, as amended: 43,891,554 1,732,835 413,967 1
Proposal 5: To approve the existing Terex
Corporation Employee Stock Purchase
Plan to comply with newly issued New
York Stock Exchange requirements: 37,720,865 4,294,624 413,290 3,609,578
Proposal 6: To approve the existing Terex
Corporation Deferred Compensation Plan
to comply with newly issued New York
Stock Exchange requirements: 40,483,293 1,468,001 477,485 3,609,578
Proposal 7: To approve the existing
arrangement for compensation of
outside directors of Terex Corporation
to comply with newly issued New York
Stock Exchange requirements: 39,602,918 2,163,674 622,187 3,609,578
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On May 18, 2004, the Company completed the exchange of $300 million aggregate principal amount of its new 7-3/8% Senior Subordinated Notes due 2014, which have been registered under the Securities Act of 1933, for a like amount of its previously outstanding 7-3/8% Senior Subordinated Notes due 2014, which the Company issued on November 25, 2003 in a private offering.
On June 30, 2004, the Company prepaid $75.0 million of term debt under its bank credit facility and recorded a non-cash charge of $1.5 million. The non-cash charge related to the write-off of unamortized debt acquisition costs.
On July 21, 2004, the Company prepaid $50.0 million of term debt under its bank credit facility and recorded a non-cash charge of $1.0 million. The non-cash charge related to the write-off of unamortized debt acquisition costs.
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 "Management's Discussion and Analysis of Financial Condition and Results of Operations -- 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. However, the absence of these words does not mean that the statement is not forward-looking. The Company has based these forward-looking statements on current expectations and projections about future events. These statements are not guarantees of future performance. 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:
o the Company's business is highly cyclical and weak general economic
conditions may affect the sales of its products and its financial
results;
o the sensitivity of construction, infrastructure and mining activity
and products produced for the military to interest rates and
government spending;
o the ability to successfully integrate acquired businesses;
o the retention of key management personnel;
o the Company's businesses are very competitive and may be affected by
pricing, product initiatives and other actions taken by competitors;
o the effects of changes in laws and regulations;
o the Company's business is international in nature and is subject to
changes in exchange rates between currencies, as well as international
politics;
o the ability of suppliers to timely supply the Company parts and
components at competitive prices; o the financial condition of
suppliers and customers, and their continued access to capital; o the
Company's ability to timely manufacture and deliver products to
customers; o the Company's significant amount of debt and its need to
comply with restrictive covenants contained in the Company's debt
agreements;
o compliance with applicable environmental laws and regulations; and
o 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 change in the Company's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits set forth on the accompanying Exhibit Index have been filed as part of this Form 10-Q. (b) Reports on Form 8-K:
During the quarter ended June 30, 2004, the Company filed or furnished the following Current Reports on Form 8-K:
- A report on Form 8-K was filed on April 7, 2004, announcing a conference call to be held on April 22, 2004, to review the Company's first quarter 2004 financial results.
- A report on Form 8-K was furnished on April 21, 2004, providing the Company's press release reviewing the Company's financial results for the quarter ended March 31, 2004.
- A report on Form 8-K was filed on April 29, 2004, announcing the Company's participation in an upcoming conference.
- A report on Form 8-K was filed on May 24, 2004, announcing the Company's participation in an upcoming conference.
- A report on Form 8-K was filed on June 15, 2004, announcing that the Board of Directors had elected Paula Cholmondeley to serve on the Company's Board.
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.
Date: August 6, 2004 /s/ Phillip C. Widman
Phillip C. Widman
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: August 6, 2004 /s/ Mark T. Cohen
Mark T. Cohen
Vice President and Controller
(Principal Accounting Officer)
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EXHIBIT INDEX
3.1 Restated Certificate of Incorporation of Terex Corporation (incorporated by reference to Exhibit 3.1 to the Form S-1 Registration Statement of Terex Corporation, Registration No. 33-52297).
3.2 Certificate of Elimination with respect to the Series B Preferred Stock (incorporated by reference to Exhibit 4.3 to the Form 10-K for the year ended December 31, 1998 of Terex Corporation, Commission File No. 1-10702).
3.3 Certificate of Amendment to Certificate of Incorporation of Terex Corporation dated September 5, 1998 (incorporated by reference to Exhibit 3.3 to the Form 10-K for the year ended December 31, 1998 of Terex Corporation, Commission File No. 1-10702).
3.4 Amended and Restated Bylaws of Terex Corporation (incorporated by reference to Exhibit 3.2 to the Form 10-K for the year ended December 31, 1997 of Terex Corporation, Commission File No. 1-10702).
4.1 Indenture, dated as of March 29, 2001, between Terex Corporation and United States Trust Company of New York, as Trustee (incorporated by reference to Exhibit 4.12 to the Form 10-Q for the quarter ended March 31, 2001 of Terex Corporation, Commission File No. 1-10702).
4.2 First Supplemental Indenture, dated as of October 1, 2001, between Terex Corporation and United States Trust Company of New York, as Trustee (to Indenture dated as of March 29, 2001) (incorporated by reference to Exhibit 4.15 to the Form 10-Q for the quarter ended September 30, 2001 of Terex Corporation, Commission File No. 1-10702).
4.3 Second Supplemental Indenture, dated as of September 30, 2002, between Terex Corporation and Bank of New York (as successor trustee to United States Trust Company of New York), as Trustee (to Indenture dated as of March 29, 2001) (incorporated by reference to Exhibit 4.18 to the Form 10-K for the year ended December 31, 2002 of Terex Corporation, Commission File No. 1-10702).
4.4 Third Supplemental Indenture, dated as of March 31, 2003, between Terex Corporation and Bank of New York (as successor to United States Trust Company of New York), as Trustee (to Indenture dated as of March 29, 2001) (incorporated by reference to Exhibit 4.21 to the Form 10-Q for the quarter ended March 31, 2003 of Terex Corporation, Commission File No. 1-10702).
4.5 Fourth Supplemental Indenture, dated as of November 25, 2003, among Terex Corporation, the Subsidiary Guarantors named therein and The Bank of New York (as successor to United States Trust Company of New York), as Trustee (to Indenture dated as of March 29, 2001) (incorporated by reference to Exhibit 4.5 to the Form 10-K for the year ended December 31, 2003 of Terex Corporation, Commission File No. 1-10702).
4.6 Indenture, dated as of December 17, 2001, between Terex Corporation, the Guarantors named therein and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4.16 to Form S-4 Registration Statement of Terex Corporation, Registration No. 333-75700).
4.7 First Supplemental Indenture, dated as of September 30, 2002, between Terex Corporation and Bank of New York (as successor trustee to United States Trust Company of New York), as Trustee (to Indenture dated as of December 17, 2001) (incorporated by reference to Exhibit 4.20 to the Form 10-K for the year ended December 31, 2002 of Terex Corporation, Commission File No. 1-10702).
4.8 Second Supplemental Indenture, dated as of March 31, 2003, between Terex Corporation and Bank of New York (as successor to United States Trust Company of New York), as Trustee (to Indenture dated as of December 17, 2001) (incorporated by reference to Exhibit 4.24 to the Form 10-Q for the quarter ended March 31, 2003 of Terex Corporation, Commission File No. 1-10702).
4.9 Third Supplemental Indenture, dated as of November 25, 2003, among Terex Corporation, the Subsidiary Guarantors named therein and The Bank of New York (as successor to United States Trust Company of New York), as Trustee (to Indenture dated as of December 17, 2001) (incorporated by reference to Exhibit 4.9 to the Form 10-K for the year ended December 31, 2003 of Terex Corporation, Commission File No. 1-10702).
4.10 Indenture, dated as of November 25, 2003, between Terex Corporation,
the Guarantors named therein and HSBC Bank USA, as Trustee
(incorporated by reference to Exhibit 4.10 to Form S-4 Registration
Statement of Terex Corporation, Registration No. 333-112097).
10.1 Terex Corporation Incentive Stock Option Plan, as amended (incorporated
by reference to Exhibit 4.1 to the Form S-8 Registration Statement of
Terex Corporation, Registration No. 33-21483).
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10.2 1994 Terex Corporation Long Term Incentive Plan (incorporated by
reference to Exhibit 10.2 to the Form 10-K for the year ended December
31, 1994 of Terex Corporation, Commission File No. 1-10702).
10.3 Terex Corporation Employee Stock Purchase Plan, as amended.*
10.4 1996 Terex Corporation Long Term Incentive Plan (incorporated by
reference to Exhibit 10.1 to Form S-8 Registration Statement of Terex
Corporation, Registration No. 333-03983).
10.5 Amendment No. 1 to 1996 Terex Corporation Long Term Incentive Plan
(incorporated by reference to Exhibit 10.5 to the Form 10-K for the
year ended December 31, 1999 of Terex Corporation, Commission File No.
1-10702).
10.6 Amendment No. 2 to 1996 Terex Corporation Long Term Incentive Plan
(incorporated by reference to Exhibit 10.6 to the Form 10-K for the
year ended December 31, 1999 of Terex Corporation, Commission File No.
1-10702).
10.7 Terex Corporation 1999 Long-Term Incentive Plan (incorporated by
reference to Exhibit 10.7 to the Form 10-Q for the quarter ended March
31, 2000 of Terex Corporation, Commission File No. 1-10702).
10.8 Terex Corporation 2000 Incentive Plan, as amended.*
10.9 Terex Corporation Supplemental Executive Retirement Plan, effective
October 1, 2002 (incorporated by reference to Exhibit 10.9 to the Form
10-K for the year ended December 31, 2002 of Terex Corporation,
Commission File No. 1-10702).
10.10 Terex Corporation 2004 Annual Incentive Compensation Plan (incorporated
by reference to Exhibit 10.10 to the Form 10-Q for the quarter ended
March 31, 2004 of Terex Corporation, Commission File No. 1-10702).
10.11 Terex Corporation Amended and Restated Deferred Compensation Plan.*
10.12 Amended and Restated Credit Agreement, dated as of July 3, 2002, among
Terex Corporation, certain of its Subsidiaries, the Lenders named
therein, and Credit Suisse First Boston, as Administrative Agent
(incorporated by reference to Exhibit 10.9 to the Form 10-Q for the
quarter ended June 30, 2002 of Terex Corporation, Commission File No.
1-10702).
10.13 Incremental Term Loan Assumption Agreement, dated as of September 13,
2002, relating to the Amended and Restated Credit Agreement dated as of
July 3, 2002, among Terex Corporation, certain of its subsidiaries, the
lenders party thereto and Credit Suisse First Boston, as administrative
agent (incorporated by reference to Exhibit 2 of the Form 8-K Current
Report, Commission File No. 1-10702, dated September 13, 2002 and filed
with the Commission on September 20, 2002).
10.14 Amendment No. 1 and Agreement, dated as of November 25, 2003, to the
Amended and Restated Credit Agreement, dated as of July 3, 2002, among
Terex Corporation, certain of its Subsidiaries, the Lenders named
therein, and Credit Suisse First Boston, as Administrative Agent
(incorporated by reference to Exhibit 10.12 to Form S-4 Registration
Statement of Terex Corporation, Registration No. 333-112097).
10.15 Guarantee Agreement dated as of March 6, 1998 of Terex Corporation and
Credit Suisse First Boston, as Collateral Agent (incorporated by
reference to Exhibit 10.14 to the Form 10-K for the year ended December
31, 1998 of Terex Corporation, Commission File No. 1-10702).
10.16 Guarantee Agreement dated as of March 6, 1998 of Terex Corporation,
each of the subsidiaries of Terex Corporation listed therein and Credit
Suisse First Boston, as Collateral Agent (incorporated by reference to
Exhibit 10.15 to the Form 10-K for the year ended December 31, 1998 of
Terex Corporation, Commission File No. 1-10702).
10.17 Security Agreement dated as of March 6, 1998 of Terex Corporation, each
of the subsidiaries of Terex Corporation listed therein and Credit
Suisse First Boston, as Collateral Agent (incorporated by reference to
Exhibit 10.16 to the Form 10-K for the year ended December 31, 1998 of
Terex Corporation, Commission File No. 1-10702).
10.18 Pledge Agreement dated as of March 6, 1998 of Terex Corporation, each
of the subsidiaries of Terex Corporation listed therein and Credit
Suisse First Boston, as Collateral Agent (incorporated by reference to
Exhibit 10.17 to the Form 10-K for the year ended December 31, 1998 of
Terex Corporation, Commission File No. 1-10702).
10.19 Form Mortgage, Leasehold Mortgage, Assignment of Leases and Rents,
Security Agreement and Financing entered into by Terex Corporation and
certain of the subsidiaries of Terex Corporation, as Mortgagor, and
Credit Suisse First Boston, as Mortgagee (incorporated by reference to
Exhibit 10.18 to the Form 10-K for the year ended December 31, 1998 of
Terex Corporation, Commission File No. 1-10702).
10.20 Agreement and Plan of Merger, dated July 19, 2002, among Terex
Corporation, Magic Acquisition Corp., Genie Holdings, Inc., Robert
Wilkerson, S. Ward Bushnell, F. Roger Brown, Wilkerson Limited
Partnership, Bushnell Limited Partnership and R. Brown Limited
Partnership (incorporated by reference to Exhibit 1 of the Form 8-K
62
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Current Report, Commission File No. 1-10702, dated July 19, 2002 and
filed with the Commission on July 22, 2002).
10.21 First Amendment to Agreement and Plan of Merger, dated as of September
18, 2002, by and among Terex Corporation, Magic Acquisition Corp.,
Genie Holdings, Inc. and Robert Wilkerson, S. Ward Bushnell and F.
Roger Brown and certain limited partnerships (incorporated by reference
to Exhibit 1 of the Form 8-K Current Report, Commission File No.
1-10702, dated September 13, 2002 and filed with the Commission on
September 20, 2002).
10.22 Second Amendment to Agreement and Plan of Merger, dated as of April 14,
2004, by and among Terex Corporation, Robert Wilkerson, S. Ward
Bushnell and F. Roger Brown and certain limited partnerships
(incorporated by reference to Exhibit 10.22 to the Form 10-Q for the
quarter ended March 31, 2004 of Terex Corporation, Commission File No.
1-10702).
10.23 Purchase Agreement, dated as of November 10, 2003, among Terex
Corporation and the Initial Purchasers, as defined therein Agent
(incorporated by reference to Exhibit 10.22 to Form S-4 Registration
Statement of Terex Corporation, Registration No. 333-112097).
10.24 Registration Rights Agreement, dated as of November 25, 2003, among
Terex Corporation and the Initial Purchasers, as defined therein
(incorporated by reference to Exhibit 10.23 to Form S-4 Registration
Statement of Terex Corporation, Registration No. 333-112097).
10.25 Second Amended and Restated Employment and Compensation Agreement,
dated as of January 1, 2002, between Terex Corporation and Ronald M.
DeFeo (incorporated by reference to Exhibit 10.34 to the Form 10-K for
the year ended December 31, 2001 of Terex Corporation, Commission File
No. 1-10702).
10.26 Form of Amended and Restated Change in Control and Severance Agreement
between Terex Corporation and certain executive officers (incorporated
by reference to Exhibit 10.36 to the Form 10-Q for the quarter ended
March 31, 2002 of Terex Corporation, Commission File No. 1-10702).
10.27 Form of Change in Control and Severance Agreement between Terex
Corporation and certain executive officers (incorporated by reference
to Exhibit 10.35 to the Form 10-K for the year ended December 31, 2002
of Terex Corporation, Commission File No. 1-10702).
10.28 Retirement Agreement dated as of November 13, 2003 between Terex
Corporation and Filip Filipov (incorporated by reference to Exhibit
10.29 to Form S-4 Registration Statement of Terex Corporation,
Registration No. 333-112097).
10.29 Consulting Agreement dated as of November 13, 2003 between Terex
Corporation and Fiver S.A. (incorporated by reference to Exhibit 10.30
to Form S-4 Registration Statement of Terex Corporation, Registration
No. 333-112097).
10.30 Termination, Severance, General Release and Waiver Agreement between
Terex Corporation and Matthys de Beer dated as of February 1, 2004
(incorporated by reference to Exhibit 99.1 of the Form 8-K Current
Report, Commission File No. 1-10702, dated February 1, 2004 and filed
with the Commission on February 4, 2004).
12 Calculation of Ratio of Earnings to Fixed Charges.*
31.1 Chief Executive Officer Certification pursuant to Rule
13a-14(a)/15d-14(a).*
31.2 Chief Financial Officer Certification pursuant to Rule
13a-14(a)/15d-14(a).*
32 Chief Executive Officer and Chief Financial Officer Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes -Oxley Act of 2002. *
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* Exhibit filed with this document.
TEREX CORPORATION EMPLOYEE STOCK PURCHASE PLAN
As Amended and Restated Effective May 25, 2004
TEREX CORPORATION EMPLOYEE STOCK PURCHASE PLAN
Table of Contents
-----------------
Page
----
Section 1. PURPOSE........................................................1
Section 2. TERM OF THE PLAN...............................................1
Section 3. ELIGIBLE EMPLOYEES.............................................1
Section 4. PARTICIPATION..................................................1
Section 5. HOLDING PERIOD.................................................4
Section 6. COMPANY CONTRIBUTIONS/DISCOUNTS................................4
Section 7. PARTICIPANTS' ACCOUNTS.........................................4
Section 8. PURCHASE OF THE COMPANY'S COMMON STOCK.........................5
Section 9. DIVIDENDS......................................................7
Section 10. CHANGES IN SHARES OF THE COMPANY'S COMMON STOCK...............7
Section 11. EQUAL RIGHTS AND PRIVILEGES...................................8
Section 12. LIMITATIONS ON TRANSFER.......................................8
Section 13. ADMINISTRATION OF THE PLAN....................................8
Section 14. EXPENSES......................................................8
Section 15. DESIGNATION OF CUSTODIAN......................................9
Section 16. PURCHASE OF SHARES FOLLOWING TERMINATION OF PARTICIPATION.....9
Section 17. AMENDMENT OR TERMINATION OF PLAN.............................10
Section 18. RESPONSIBILITY...............................................11
Section 19. DEFINITIONS..................................................11
Account................................................................11
Administrative Committee...............................................11
Base Pay...............................................................11
Board..................................................................11
Company................................................................11
Custodian..............................................................12
Eligible Employee......................................................12
Outside Director.......................................................12
Participants...........................................................12
Plan...................................................................12
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TEREX CORPORATION EMPLOYEE STOCK PURCHASE PLAN
2. Pay periods to which payroll deduction election, change, or
revocation applies. The completion, change or revocation of any payroll
deduction election (under subsections 1, 6, or 7, respectively) shall apply to
each pay period that begins at least two weeks after the date the election is
completed, changed, or revoked but, if it is not administratively possible for
the payroll deduction election, change or revocation to apply on that date, the
election, change, or revocation shall apply as soon as administratively possible
thereafter. A payroll deduction election shall remain in effect until it is
either changed or revoked.
3. Deduction of whole dollar amounts only. Any payroll
deduction election that an Eligible Employee completes, under subsection 1
above, shall specify the whole dollar amount that will be deducted from his or
her Base Pay each pay period and deposited into his or her Account under the
Plan.
4. Minimum dollar amount of payroll deductions per pay period.
The minimum dollar amount that an Eligible Employee may contribute, by payroll
deduction, to his or her Account under the Plan for each pay period shall be the
amount that the Company specifies, in its sole discretion, from time to time
during the term of the Plan.
5. Maximum dollar amount of Participant contributions per
calendar year. The maximum total dollar amount that an Eligible Employee may
contribute to his or her Account under the Plan for any calendar year through
automatic payroll deductions shall be the amount that the Company specifies, in
its sole discretion, from time to time during the term of the Plan.
6. Change of payroll deduction election. Any Eligible Employee
who has elected, under subsection 1 above, to make payroll deduction
contributions to his or her Account under the Plan may change the rate of his or
her payroll deduction contributions (subject to the limitations in subsections 2
through 5 above) at any time during the calendar year by completing a new
payroll deduction election. The change shall remain in effect until it is either
further changed (pursuant to this subsection) or revoked, under subsection 7
below.
7. Revocation of payroll deduction election. Any Eligible
Employee who has elected, under subsection 1 above, to make payroll deduction
contributions to his or her Account under the Plan may revoke his or her payroll
deduction election at any time during the calendar year (subject to the
limitations of subsection 2). Any Eligible Employee who revokes his or her
payroll deduction election, under this subsection 7, may enter into a new
payroll deduction election at any subsequent time, in accordance with
subsections 1 and 2 above.
8. Suspension of payroll deductions if Base Pay for any pay
period is insufficient. If an Eligible Employee's Base Pay for any pay period to
which a payroll deduction election applies is less than his or her payroll
deduction amount for that period, the deduction for that period will not be
taken, and, if necessary, deduction(s) for any future pay period(s) to which
such payroll deduction election would otherwise apply will be suspended until
the first pay period for which the Eligible Employee's Base Pay equals or
exceeds the payroll deduction amount he or she had elected.
B. Strategic-Timed Investments. Any Participant may make
strategic-timed investments in the Company's common stock under the Plan, either
in addition to or in lieu of any payroll-deducted investments he or she makes in
such stock under subsection A above. An Eligible Employee or Outside Director
may make strategic-timed investments at any time during the calendar year in at
least the minimum dollar amount that the Company specifies, in its sole
discretion, from time to time during the term of the Plan, by purchasing shares
of the Company's common stock through the Custodian designated by the Company.
Shares of the Company's common stock that a Participant purchases through
strategic-timed investments, pursuant to this subsection B, as well as any such
shares that he or she purchases through payroll deduction contributions, under
subsection A above, shall be credited to his or her Account under the Plan in the manner described in Section 7 below.
common stock that are purchased with his or her and the Company's contributions
under Section 8 below. No interest shall be credited to the contributions that
are held in any such Account for the period of time between the date they are
credited to the Account and the date they are applied to the purchase of such
shares.
B. Account Statements. Each Participant who makes contributions
under the Plan will receive periodic Account statements from the Custodian in
such form as may be agreed upon by the Company and the Custodian; provided,
however, that the Custodian shall furnish an Account statement to each such
Participant no less frequently than semi-annually.
shall be made as soon as administratively possible following the Company's
receipt from the Participant of proof that the strategic-timed investment was
made; provided, however, that the Company contribution will not be made any
earlier than the last day of the payroll period which includes the day on which
the Company receives proof that the strategic-timed investment was made.
B. Purchase Price of the Company's Common Stock. The purchase
price that shall be paid, under subsection A above, for each share of the
Company's common stock that is purchased under this Plan on behalf of any
Participant shall be the price per share actually paid for the shares on the New
York Stock Exchange. The Company may also satisfy its obligations under the Plan
through the issuance of additional shares of Company common stock.
C. Stock Credited to Participant's Account. The shares of the
Company's common stock that are purchased under subsection A above on behalf of
any Participant shall be credited to his or her Account under the Plan as soon
as administratively possible after the date the shares have been purchased. As
soon as such shares have been credited to the Participant's Account, he or she
shall have all of the rights and privileges afforded to any other holder of the
Company's common stock.
D. Issuance of Stock Certificates. A stock certificate will not be
issued automatically to a Participant after shares of the Company's common stock
have been credited to his or her Account under subsection C above. However, the
Participant may ask the Custodian to issue a stock certificate representing any
or all of the shares then credited to his or her Account. Any such request must
be directed to the Custodian or its agent(s). The Custodian or its agent(s)
shall issue a stock certificate to the Participant promptly after it receives
his or her request.
Any such stock certificate shall be issued to the Participant in
his or her own name; provided, however, that if the Participant is married, the
stock certificate may be issued jointly to the Participant and his or her
spouse, either as joint tenants with the right of survivorship or as tenants in
common, as the Participant may elect.
If the Participant has not secured a stock certificate from the
Custodian and the Participant wishes to sell any shares of the Company's common
stock from his or her Account through the Custodian or its agent(s), he or she
will not be required to secure a stock certificate from the Custodian for the
sale to be executed. However, if the sale is to be executed by person(s) other
than the Custodian or its agent(s), or if the Participant has already secured a
stock certificate from the Custodian for shares of the Company's common stock,
then the Participant must produce the stock certificate for the sale of those
shares to be executed.
of the reimbursement, if any, shall be determined pursuant to such guidelines as the Company may establish from time to time.
F. "Custodian" means the entity serving as custodian of the Plan
on December 31, 2003, or such other bank, trust company, or
other financial institution, appointed by the Administrative
Committee under Section 15, that is qualified, under applicable
federal and state laws, including federal and state securities
laws, to serve as the custodian, recordkeeper, and transfer
agent of shares of the Company's common stock under this Plan.
G. "Eligible Employee" means any individual who is actively
employed by the Company, but excluding any employee of the
Company (1) who is included in a collective bargaining unit
unless the relevant collective bargaining agreement with that
unit specifically provides that such unit's members shall be
covered by the Plan, (2) who is a leased employee [as defined in
Internal Revenue Code Section 414(n)(2)], or (3) whose
employment has been classified as temporary by the Company. Any
individual whom the Company determines is not an Eligible
Employee shall not be treated as an Eligible Employee under the
Plan solely because he or she has been classified or
reclassified by any governmental entity as an employee of the
Company.
H. "Outside Director" means any individual who is actively
serving as a member of the Board of Directors of the Company who
is not also an employee of the Company.
I. "Participants" shall mean Eligible Employees and Outside
Directors.
J. "Plan" means the Terex Corporation Employee Stock
Purchase Plan, as set forth in this instrument and any
amendments or supplements hereto.
TEREX CORPORATION
2000 INCENTIVE PLAN
(as amended through May 25, 2004)
Terex Corporation (the "Company") hereby establishes and adopts the following 2000 Incentive Plan (the "Plan").
RECITALS
WHEREAS, the Company desires to encourage high levels of performance by those individuals who are key to the success of the Company, to attract new individuals who are highly motivated and who will contribute to the success of the Company and to encourage such individuals to remain as directors, officers, employees, consultants and/or advisors of the Company and its subsidiaries and affiliates by increasing their proprietary interest in the Company's growth and success.
WHEREAS, to attain these ends, the Company has formulated the Plan embodied herein to authorize the granting of incentive awards through grants of stock options, grants of stock appreciation rights, grants of share purchase awards, grants of restricted share awards and grants of performance awards to those individuals whose judgment, initiative and efforts are, have been or are expected to be responsible for the success of the Company.
NOW, THEREFORE, the Company hereby constitutes, establishes and adopts the following Plan and agrees to the following provisions:
ARTICLE I
DEFINITIONS
1.1. "Award" shall include a grant of an Option, a grant of a stock appreciation right, a grant of a Share Purchase Award, a grant of a Restricted Share Award, a grant of a Performance Award or any other award made under the terms of the Plan.
1.2. "Cause" shall mean: (i) conviction in a court of law of, or guilty
plea or no contest plea to, a felony charge or a misdemeanor charge involving
moral turpitude, (ii) willful, substantial and continued failure to perform
duties, (iii) willful engagement in conduct that is demonstrably and materially
injurious to the Company, (iv) entry by a court or quasi-judicial governmental
agency of the United States or a political subdivision thereof of an order
barring an Employee from serving as an officer or director of a public company,
(v) gross negligence resulting in material economic harm to the Company, or (vi)
a breach by an Employee of any agreement between such Employee and the Company.
For the purposes of clauses, (ii), (iii) and (v) of this definition, no act or
failure to act shall be deemed "willful" or "gross negligence" (x) if caused by
a Disability or (y) unless done, or omitted to be done, not in good faith or
without reasonable belief that such act or omission was in the best interest of
the Company.
1.3. A "Change in Control of the Company" shall mean:
(i) the sale, assignment, lease, transfer or conveyance (in one transaction or a series of transactions) of all or substantially all of the Company's assets;
(ii) the Company shall be merged or consolidated with another corporation, and as a result of such merger or consolidation either (a) the Company is not the continuing or surviving corporation or (b) less than 51% of the outstanding voting securities of the surviving or resulting corporation shall be owned directly or indirectly in the aggregate by the shareholders of the Company immediately prior to such merger or consolidation;
(iii) the liquidation or dissolution of the Company or the adoption of a plan by the stockholders of the Company relating to the dissolution or liquidation of the Company;
(iv) the acquisition by any person or group (as such term is used in Section 13(d)(3) of the Exchange Act) of a direct or indirect majority in interest (more than 50%) of the voting power of the Shares of the Company by way of purchase, merger or consolidation or otherwise, or
(v) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors of the Company (which includes any new directors whose nomination for election by such Board of Directors was approved by a vote of at least 66 2/3% of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Company.
For purposes of this Section 1.3, the term "person" shall mean any individual, corporation, partnership, joint venture, association, joint stock company, trust, unincorporated organization, government or any agency or political subdivision thereof, or any other entity.
For purposes of Section 1.3, the rules of Section 318(a) of the Code and the regulations issued thereunder shall be used to determine stock ownership.
1.4. "Code" means the Internal Revenue Code of 1986, as now or hereafter amended.
1.5. "Committee" means the committee established pursuant to Section 4.2.
1.6. "Directors" means the members of the Board of Directors of the Company.
1.7. "Disability" means a Participant's inability to engage in any substantial gainful activity because of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted, or can be expected to last, for a continuous period of twelve (12) months or longer.
1.8. "Employee" means all employees of the Company or of a subsidiary or affiliate of the Company participating in the Plan, including officers of the Company who are also directors of the Company.
1.9. "Exchange Act" means the Securities Exchange Act of 1934, as amended.
1.10. "Fair Market Value" shall have the meaning set forth in Section 10.2.
1.11. "Non-Employee Director" is a Director who is a "Non-Employee Director" within the meaning of Rule 16b-3(b)(3)(i) of the Exchange Act.
1.12. "Option" means options to purchase Shares.
1.13. "Outside Director" is a Director who is an "outside director" within the meaning of Section 162(m)(4)(C)(i) of the Code.
1.14. "Participant" means a person who receives an Award under the Plan.
1.15. "Performance Awards" means cash bonuses or other Awards under the Plan, including Options, Share Purchase Awards, Restricted Share Awards and stock appreciation rights, based on performance measures.
1.16. "Qualifying Performance Awards" means Performance Awards which the Committee intends to qualify for a tax deduction under the Code.
1.17. "Restricted Shares" shall have the meaning set forth in Section 8.1.
1.18. "Restricted Share Awards" means Shares subject to restrictions on their transfer, conditions of forfeitability, or any other limitations or restrictions as determined by the Committee.
1.19. "Shares" means shares of Common Stock, par value $.01, of the Company.
1.20. "Share Purchase Awards" shall have the meaning set forth in
Section 7.1.
ARTICLE 2
PURPOSE OF THE PLAN
2.1 Purpose. The purpose of the Plan is to assist the Company in attracting and retaining selected individuals to serve as directors, officers, consultants, advisors and Employees of the Company and its subsidiaries and affiliates who will contribute to the Company's success and to achieve long-term objectives which will inure to the benefit of all stockholders of the Company through the additional incentive inherent in the ownership of the Company's Shares. Options granted under the Plan will be either "incentive stock options," intended to qualify as such under the provisions of Section 422 of the Code, or "nonqualified stock options." For purposes of the Plan, the term "subsidiary" shall mean "subsidiary corporation," as such term is defined in Section 424(f) of the Code, and "affiliate" shall have the meaning set forth in Rule 12b-2 of the Exchange Act.
ARTICLE 3
SHARES SUBJECT TO AWARDS
3.1. Number of Shares. Subject to the adjustment provisions of Section 10.11 hereof, the maximum number of Shares that may be delivered pursuant to all Awards granted under this Plan shall be 6,000,000 Shares. This aggregate Share limit, as adjusted, shall constitute and be referred to as the "Share Limit." For purposes of this Section 3.1, the Shares that shall be counted toward the Share Limit shall include all Shares:
(1) issued or issuable pursuant to Options that have been or may be exercised;
(2) issued or issuable pursuant to Share Purchase Awards; and
(3) issued as, or subject to issuance as, a Restricted Share Award.
3.2. Shares Subject to Terminated Awards. The Shares covered by any unexercised portions of terminated or expired Options granted under the Plan, Shares covered by a Restricted Share Award that is forfeited as provided in the Plan and Shares subject to any Awards which are otherwise surrendered by the Participant without receiving any payment or other benefit with respect thereto may again be subject to new Awards under the Plan. In the event the exercise price of an Option is paid in whole or in part through the delivery of Shares, the number of Shares issuable in connection with the exercise of the Option shall not again be available for the grant of Awards under the Plan. Shares subject to Options, or portions thereof, which have been surrendered in connection with the exercise of stock appreciation rights shall not again be available for the grant of Awards under the Plan.
3.3. Character of Shares. Shares delivered under the Plan may be authorized and unissued Shares or Shares acquired by the Company, or both.
3.4. Limitations on Grants to Individual Participant. Subject to adjustments pursuant to the provisions of Section 10.11 hereof, the number of Shares which may be granted hereunder to any Employee during any fiscal year under all forms of Awards shall not exceed 750,000 Shares.
ARTICLE 4
ELIGIBILITY AND ADMINISTRATION
4.1. Awards to Employees and Directors. (a) Participants shall consist of such key officers, employees, consultants, advisors and directors of the Company or any of its subsidiaries or affiliates as the Committee shall select from time to time, provided, however, that an Option that is intended to qualify as an "incentive stock option" may be granted only to an individual that is an Employee. The Committee's designation of a Participant in any year shall not require the Committee to designate such person to receive Awards or grants in any other year. The designation of a Participant to receive Awards or grants under one portion of the Plan shall not require the Committee to include such Participant under other portions of the Plan.
(b) No Option which is intended to qualify as an "incentive stock option" may be granted to any Employee who, at the time of such grant, owns, directly or indirectly (within the meaning of Sections 422(b)(6) and 424(d) of the Code), Shares possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any of its subsidiaries or affiliates, unless at the time of such grant, (i) the exercise price is fixed at not less than 110% of the Fair Market Value of the Shares subject to such Option, determined on the date of the grant, and (ii) the exercise of such Option is prohibited by its terms after the expiration of five years from the date such Option is granted.
4.2. Administration. (a) The Plan shall be administered by a committee (the "Committee") consisting of not fewer than two Directors as designated by the Directors. The Directors may remove from, add members to, or fill vacancies in the Committee. Each member of the Committee shall be a Non-Employee Director
and an Outside Director, except that if the Directors determine that (i) the Plan cannot or need not satisfy the requirements of Rule 16b-3 of the Exchange Act (such that grants of Awards are not or need not be exempt from Section 16(b) of the Exchange Act), then there may be less than two members of the Committee and the members of the Committee need not be Non-Employee Directors or (ii) they no longer want the Plan to comply with the requirements of Section 162(m) of the Code and the regulations thereunder or the Plan need not comply with such requirements, then there may be less than two members of the Committee and the members of the Committee need not be Outside Directors. The Compensation Committee of the Board of Directors of the Company shall comprise the Committee under the Plan so long as the members of the Compensation Committee meet the requirements set forth in this clause (a).
(b) The Committee is authorized, subject to the provisions of the Plan, to establish such rules and regulations as it may deem appropriate for the conduct of meetings and proper administration of the Plan. All actions of the Committee shall be taken by majority vote of its members. Subject to the requirements of Section 16(b) of the Exchange Act and Section 162(m) of the Code (in each case to the extent applicable), the Committee in its discretion may delegate to the Chairman of the Board and/or Chief Executive Officer of the Company the right to grant Awards under the Plan on such terms and conditions as the Committee may from time to time establish.
(c) Subject to the provisions of the Plan, the Committee shall have authority, in its sole discretion, to grant Awards under the Plan, to interpret the provisions of the Plan and, subject to the requirements of applicable law, including (if applicable) Rule 16b-3 of the Exchange Act, to prescribe, amend, and rescind rules and regulations relating to the Plan or any Award thereunder as it may deem necessary or advisable. All decisions made by the Committee pursuant to the provisions of the Plan shall be final, conclusive and binding on all persons, including the Company, its stockholders, Directors and Employees, and other Plan Participants.
ARTICLE 5
OPTIONS
5.1. Grant of Options. The Committee shall determine, within the limitations of the Plan, those key individuals and the Directors and Employees to whom Options are to be granted under the Plan, the number of Shares that may be purchased under each such Option and the exercise price of each such Option, and shall designate such Options at the time of the grant as either "incentive stock options" or "nonqualified stock options"; provided, however, that Options granted to Employees of an affiliate (that is not also a subsidiary) or to non-employees of the Company may only be "nonqualified stock options."
5.2. Share Option Agreements; etc. All Options granted pursuant to the Plan (a) shall be authorized by the Committee and (b) shall be evidenced in writing by stock option agreements ("Share Option Agreements") in such form and containing such terms and conditions as the Committee shall determine which are not inconsistent with the provisions of the Plan, and, with respect to any Share Option Agreement granting Options which are intended to qualify as "incentive stock options," are not inconsistent with Section 422 of the Code. Granting of an Option pursuant to the Plan shall impose no obligation on the recipient to exercise such Option. Any individual who is granted an Option pursuant to the Plan may hold more than one Option granted pursuant to the Plan at the same time and may hold both "incentive stock options" and "nonqualified stock options" at the same time. To the extent that any Option does not qualify as an "incentive stock option" (whether because of its provisions, the time or manner of its exercise or otherwise) such Option or the portion thereof which does not so qualify shall constitute a separate "nonqualified stock option."
5.3. Option Exercise Price. Subject to Section 4.1(b), the exercise price per each Share purchasable under any Option granted pursuant to the Plan shall not be less than 100% of the Fair Market Value of such Share on the date of the grant of such Option.
5.4. Other Provisions. Options granted pursuant to this Article 5 shall be made in accordance with the terms and provisions of Article 10 hereof and any other applicable terms and provisions of the Plan.
ARTICLE 6
STOCK APPRECIATION RIGHTS
6.1. Grant and Exercise. Share appreciation rights may be granted in
conjunction with all or part of any Option granted under the Plan provided such
rights are granted at the time of the grant of such Option. A "stock
appreciation right" is a right to receive cash or Shares, as provided in this
Article 6, in lieu of the purchase of a Share under a related Option. A stock
appreciation right or applicable portion thereof shall terminate and no longer
be exercisable upon the termination or exercise of the related Option, and a
stock appreciation right granted with respect to less than the full number of
Shares covered by a related Option shall not be reduced until, and then only to
the extent that, the exercise or termination of the related Option exceeds the
number of Shares not covered by the stock appreciation right. A stock
appreciation right may be exercised by the holder thereof in accordance with
Section 6.2 by giving written notice thereof to the Company and surrendering the
applicable portion of the related Option. Upon giving such notice and surrender,
the holder shall be entitled to receive an amount determined in the manner
prescribed in Section 6.2. Options which have been so surrendered, in whole or in part, shall no longer be exercisable to the extent the related stock appreciation rights have been exercised.
6.2. Terms and Conditions. Share appreciation rights shall be subject to such terms and conditions, not inconsistent with the provisions of the Plan, as shall be determined from time to time by the Committee, including the following:
(a) Share appreciation rights shall be exercisable only at such time or times and to the extent that the Options to which they relate shall be exercisable in accordance with the provisions of the Plan.
(b) Upon the exercise of a stock appreciation right, a holder shall be entitled to receive up to, but no more than, an amount in cash or whole Shares equal to the excess of the then Fair Market Value of one Share over the exercise price per Share specified in the related Option multiplied by the number of Shares in respect of which the stock appreciation right shall have been exercised. The holder of a stock appreciation right shall specify in his written notice of exercise, whether payment shall be made in cash or in whole Shares. Each stock appreciation right may be exercised only at the time and so long as a related Option, if any, would be exercisable or as otherwise permitted by applicable law.
(c) Upon the exercise of a stock appreciation right, the Option or part thereof to which such stock appreciation right is related shall be deemed to have been exercised for the purpose of the Share Limit.
(d) With respect to stock appreciation rights granted in connection with an Option that is intended to be an "incentive stock option," the following shall apply: (i) no stock appreciation right shall be transferable otherwise than by will or by the laws of descent and distribution, and stock appreciation rights shall be exercisable, during the holder's lifetime, only by the holder; and (ii) stock appreciation rights granted in connection with an Option may be exercised only when the Fair Market Value of the Shares subject to the Option exceeds the exercise price at which Shares can be acquired pursuant to the Option.
ARTICLE 7
STOCK PURCHASE AWARDS
7.1. Grant of Share Purchase Awards. The term "Share Purchase Award" means the right to purchase Shares of the Company and to pay for such Shares through a loan made by the Company to an Employee (a "Purchase Loan") as set forth in this Article 7.
7.2. Terms of Purchase Loans. (a) Purchase Loan. Each Purchase Loan shall be evidenced by a promissory note. The term of the Purchase Loan shall be for a period of years as determined by the Committee, and the proceeds of the Purchase Loan shall be used exclusively by the Participant for purchase of Shares from the Company at a purchase price equal to their Fair Market Value on the date of the Share Purchase Award.
(b) Interest on Purchase Loan. A Purchase Loan shall be non-interest bearing or shall bear interest at whatever rate the Committee shall determine (but not in excess of the maximum rate permissible under applicable law), payable in a manner and at such times as the Committee shall determine.
Those terms and provisions as the Committee shall determine shall be incorporated into the promissory note evidencing the Purchase Loan.
(c) Forgiveness of Purchase Loan. Subject to Section 7.4 hereof, the Company may forgive the repayment of up to 100% of the principal amount of the Purchase Loan, subject to such terms and conditions as the Committee shall determine and set forth in the promissory note evidencing the Purchase Loan. A Participant's Purchase Loan can be prepaid at any time, and from time to time, without penalty.
7.3. Security for Loans. (a) Stock Power and Pledge. Purchase Loans granted to Participants shall be secured by a pledge of the Shares acquired pursuant to the Share Purchase Award. Such pledge shall be evidenced by a pledge agreement (the "Pledge Agreement") containing such terms and conditions as the Committee shall determine. Purchase Loans shall be recourse or nonrecourse with respect to a Participant, as determined from time to time by the Committee. The share certificates for the Shares purchased by a Participant pursuant to a Share Purchase Award shall be issued in the Participant's name, but shall be held by the Company as security for repayment of the Participant's Purchase Loan together with a stock power executed in blank by the Participant (the execution and delivery of which by the Participant shall be a condition to the issuance of the Share Purchase Award). The Participant shall be entitled to exercise all rights applicable to such Shares, including, but not limited to, the right to vote such Shares and the right to receive dividends and other distributions made with respect to such Shares; provided, however, that any Shares distributed as a dividend or otherwise with respect to such Shares shall be subject to the same restrictions as such Shares and held by the Company as security for repayment of the Participant's Purchase Loan as provided in this Section 7.3. When the Purchase Loan and any accrued but unpaid interest thereon has been repaid or otherwise satisfied in full, the Company shall deliver to the Participant the share certificates for the Shares purchased by a Participant under the Share Purchase Award.
(b) Release and Delivery of Share Certificates During the Term of the Purchase Loan. The Company shall release and deliver to each Participant certificates for Shares purchased by a Participant pursuant to a Share Purchase Award, in such amounts and on such terms and conditions as the Committee shall determine, which shall be set forth in the Pledge Agreement.
(c) Release and Delivery of Share Certificates Upon Repayment of the Purchase Loan. The Company shall release and deliver to each Participant certificates for the Shares purchased by the Participant under the Share Purchase Award and then held by the Company, provided the Participant has paid or otherwise satisfied in full the balance of the Purchase Loan and any accrued but unpaid interest thereon. In the event the balance of the Purchase Loan is not repaid, forgiven or otherwise satisfied within 90 days after (i) the date repayment of the Purchase Loan is due (whether in accordance with its term, by reason of acceleration or otherwise), or (ii) such longer time as the Committee, in its discretion, shall provide for repayment or satisfaction, the Company shall retain those Shares then held by the Company in accordance with the Pledge Agreement.
(d) Recourse Purchase Loans. Notwithstanding Sections 7.3(a),
(b) and (c) above, in the case of a recourse Purchase Loan, the Committee may
make a Purchase Loan on such terms as it determines, including without
limitation not requiring a pledge of the acquired Shares.
7.4. Termination of Employment. (a) Termination of Employment by Death or Disability; Change in Control of the Company; Termination of Employment Without Cause. In the event of a Participant's termination of employment by reason of death or Disability, or in the event of a Change of Control of the Company, the remaining unpaid amount (principal and interest) of any outstanding Purchase Loan shall be forgiven in whole as of the date of such occurrence.
(b) Other Termination of Employment. Subject to Section 7.4(a) above, in the event of a Participant's termination of employment for any reason, the Participant shall repay to the Company the entire balance of the Purchase Loan and any accrued but unpaid interest thereon, which amounts shall become immediately due and payable, unless otherwise determined by the Committee.
7.5. Restrictions on Transfer. No Share Purchase Award or Shares purchased through such an Award and pledged to the Company as collateral security for the Participant's Purchase Loan (and accrued and unpaid interest thereon) may be otherwise pledged, sold, assigned or transferred (other than by will or by the laws of descent and distribution).
ARTICLE 8
RESTRICTED STOCK AWARDS
8.1. Restricted Share Awards. (a) Grant. A grant of Shares made pursuant to this Article 8 is referred to as a "Restricted Share Award." The Committee may grant to any Employee an amount of Shares in such manner, and subject to such terms and conditions relating to vesting, forfeitability and restrictions on delivery and transfer (whether based on performance standards, periods of service or otherwise) as the Committee shall establish (such Shares, "Restricted Shares"). The terms of any Restricted Share Award granted under this Plan shall be set forth in a written agreement (a "Restricted Share Agreement") which shall contain provisions determined by the Committee and not inconsistent with this Plan. The provisions of Restricted Share Awards need not be the same for each Participant receiving such Awards.
(b) Issuance of Restricted Shares. As soon as practicable after the date of grant of a Restricted Share Award by the Committee, the Company shall cause to be transferred on the books of the Company, Shares registered in the name of the Company, as nominee for the Participant, evidencing the Restricted Shares covered by the Award; provided, however, such Shares shall be subject to forfeiture to the Company retroactive to the date of grant, if a Restricted Share Agreement delivered to the Participant by the Company with respect to the Restricted Shares covered by the Award is not duly executed by the Participant and timely returned to the Company. All Restricted Shares covered by Awards under this Article 8 shall be subject to the restrictions, terms and conditions contained in the Plan and the Restricted Share Agreement entered into by and between the Company and the Participant. Until the lapse or release of all restrictions applicable to an Award of Restricted Shares, the share certificates representing such Restricted Shares shall be held in custody by the Company or its designee.
(c) Shareholder Rights. Beginning on the date of grant of the Restricted Share Award and subject to execution of the Restricted Share Agreement as provided in Sections 8.1(a) and (b), the Participant shall become a stockholder of the Company with respect to all Shares subject to the Restricted Share Agreement and shall have all of the rights of a stockholder, including, but not limited to, the right to vote such Shares and the right to receive
distributions made with respect to such Shares; provided, however, that any Shares distributed as a dividend or otherwise with respect to any Restricted Shares as to which the restrictions have not yet lapsed shall be subject to the same restrictions as such Restricted Shares and shall be represented by book entry and held as prescribed in Section 8.1(b).
(d) Restriction on Transferability. None of the Restricted Shares may be assigned or transferred (other than by will or the laws of descent and distribution), pledged or sold prior to lapse or release of the restrictions applicable thereto.
(e) Delivery of Shares Upon Release of Restrictions. Upon expiration or earlier termination of the forfeiture period without a forfeiture and the satisfaction of or release from any other conditions prescribed by the Committee, the restrictions applicable to the Restricted Shares shall lapse. As promptly as administratively feasible thereafter, subject to the requirements of the Plan, the Company shall deliver to the Participant or, in case of the Participant's death, to the Participant's beneficiary, one or more stock certificates for the appropriate number of Shares, free of all such restrictions, except for any restrictions that may be imposed by law.
8.2. Terms of Restricted Shares. (a) Forfeiture of Restricted Shares. Subject to Section 8.2(b), all Restricted Shares shall be forfeited and returned to the Company and all rights of the Participant with respect to such Restricted Shares shall terminate unless the Participant continues in the service of the Company as an Employee until the expiration of the forfeiture period for such Restricted Shares and satisfies any and all other conditions set forth in the Restricted Share Agreement. The Committee in its sole discretion, shall determine the forfeiture period (which may, but need not, lapse in installments) and any other terms and conditions applicable with respect to any Restricted Share Award.
(b) Waiver of Forfeiture Period. Notwithstanding anything contained in this Article 8 to the contrary, the Committee may, in its sole discretion, waive the forfeiture period and any other conditions set forth in any Restricted Share Agreement under appropriate circumstances (including the death, Disability or retirement of the Participant or a material change in circumstances arising after the date of an Award) and subject to such terms and conditions (including forfeiture of a proportionate number of the Restricted Shares) as the Committee shall deem appropriate.
ARTICLE 9
PERFORMANCE AWARDS
The Committee may grant, either alone or in addition to other Awards granted under the Plan, Performance Awards to such Participants as the Committee authorizes on such terms as the Committee may from time to time establish. With respect to Qualifying Performance Awards, the Committee shall establish targets only in terms of one or more of the following objective measures: Share price, earnings per Share, total shareholder return, return on equity, return on investment, cost control, working capital, cash flow management, operating income, gross or operating margins, cash flow margins, revenue growth, management development, succession planning, earnings before interest and taxes, earnings before interest, taxes, depreciation and amortization, net income, market share, customer satisfaction or employee satisfaction. If the Committee does not desire the Performance Award to qualify for a tax deduction, the measures of performance or other criteria for such Performance Awards shall be established by the Committee in its absolute discretion. Performance Awards,
including Qualifying Performance Awards, may be paid in cash, by grant of Options, Share Purchase Awards, Restricted Share Awards, stock appreciation rights or any other form of property as the Committee shall determine. Performance Awards shall entitle the Participant to receive up to a maximum of 100% of the Performance Award if the measures of performance established by the Committee are met. The Committee shall determine the times at which Performance Awards are to be made and all conditions of such awards. Performance Awards shall be subject to any applicable federal, state or local withholding tax requirements. The maximum amount of Qualifying Performance Awards that may be granted to any Participant with respect to each calendar year (whether or not then vested) cannot exceed $5,000,000. Qualifying Performance Awards shall be made in a manner that satisfies Section 162(m) of the Code.
ARTICLE 10
GENERALLY APPLICABLE PROVISIONS
10.1. Option Period. Subject to Section 4.1(b), the period for which an Option is exercisable shall not exceed ten years from the date such Option is granted, provided, however, in the case of an Option that is not intended to be an "incentive stock option," the Committee may prescribe a period in excess of ten years. After the Option is granted, the option period may not be reduced, subject to expiration due to termination of employment or a Change in Control of the Company.
10.2. Fair Market Value. If the Shares are listed or admitted to trading on a securities exchange registered under the Exchange Act, the "Fair Market Value" of a Share as of a specified date shall mean the per Share closing price of the Shares for the day immediately preceding the date as of which Fair Market Value is being determined (or if there was no reported closing price on such date, on the last preceding date on which the closing price was reported) reported on the principal securities exchange on which the Shares are listed or admitted to trading. If the Shares are not listed or admitted to trading on any such exchange but are listed as a national market security on the NASDAQ Stock Market, Inc. ("NASDAQ"), traded in the over-the-counter market or listed or traded on any similar system then in use, the Fair Market Value of a Share shall be the last sales price for the day immediately preceding the date as of which the Fair Market Value is being determined (or if there was no reported sale on such date, on the last preceding date on which any reported sale occurred) reported on such system. If the Shares are not listed or admitted to trading on any such exchange, are not listed as a national market security on NASDAQ and are not traded in the over-the-counter market or listed or traded on any similar system then in use, but are quoted on NASDAQ or any similar system then in use, the Fair Market Value of a Share shall be the average of the closing high bid and low asked quotations on such system for the Shares on the date in question. If the Shares are not publicly traded, Fair Market Value shall be determined by the Committee in its sole discretion using appropriate criteria, including without limitation the respective values of other companies comparable to the Company in terms of product lines, markets, profitability, growth rates, and other considerations. The Committee may, in its sole discretion, seek the advice of outside experts in connection with any such determination. An Option shall be considered granted on the date the Committee acts to grant the Option or such later date as the Committee shall specify.
10.3. Exercise of Awards. Vested Awards granted under the Plan shall be exercised by the Participant thereof (or by his executors, administrators, guardian or legal representative, as provided in Sections 10.6 and 10.7) as to all or part of the Shares covered thereby, by the giving of written notice of exercise to the Company, specifying the number of Shares to be purchased or
stock appreciation rights to be exercised, accompanied by payment of the full purchase price for the Shares being purchased or exercise price for the stock appreciation rights being exercised. Full payment of such purchase price or exercise price shall be made at the time of exercise and shall be made (i) in cash or by certified check or bank check, (ii) with the consent of the Committee, by delivery of a promissory note in favor of the Company upon such terms and conditions as determined by the Committee, (iii) with the consent of Committee, by tendering previously acquired Shares (valued at Fair Market Value, as determined by the Committee as of the date of tender), (iv) if the Shares are traded on a national securities exchange, NASDAQ or quoted on a national quotation system sponsored by the National Association of Securities Dealers, Inc. and the Committee authorizes exercise through the delivery of irrevocable instructions to a broker, to deliver promptly to the Company an amount of Shares having a Fair Market Value equal to the purchase price, or (v) with the consent of the Committee, any combination of (i), (ii), (iii) and (iv); provided, however, that payment may not be pursuant to (iii) above unless the Participant shall have owned the Shares being tendered in payment for a period of at least six months prior to the date of exercise of the Option or stock appreciation right. In connection with a tender of previously acquired Shares pursuant to clause (iii) above, the Committee, in its sole discretion, may permit the Participant to constructively exchange Shares already owned by the Participant in lieu of actually tendering such Shares to the Company, provided that adequate documentation concerning the ownership of the Shares to be constructively tendered is furnished in form satisfactory to the Committee. The notice of exercise, accompanied by such payment, shall be delivered to the Company at its principal business office or such other office as the Committee may from time to time direct, and shall be in such form, containing such further provisions consistent with the provisions of the Plan, as the Committee may from time to time prescribe. In no event may any Award granted hereunder be exercised for a fraction of a Share. The Company shall effect the transfer of Shares purchased pursuant to an Award as soon as practicable, and, within a reasonable time thereafter, such transfer shall be evidenced on the books of the Company. No adjustment shall be made for cash dividends or other rights for which the record date is prior to the date of such issuance.
10.4. Non-Transferability of Awards. Except as provided in Section 10.12, no unvested Award or Award subject to a forfeiture period shall be assignable or transferable by the Participant, other than by will or the laws of descent and distribution.
10.5. Termination of Employment. Except with respect to Share Purchase
Awards covered by Section 7.4, in the event of the termination of employment of
a Participant or the termination or separation from service of an advisor or
consultant or a Director (who is a Participant) for any reason (other than by
reason of death, Disability or Change in Control of the Company as provided
below), the term of any Awards granted to such Participant under this Plan and
not previously exercised or expired, to the extent vested on the date of or as a
result of such termination, shall expire six (6) months after the date of such
termination or separation, provided, however, that in no instance may the term
of an Award, as so extended, exceed the maximum term established pursuant to
Section 4.1(b)(ii) or 10.1 above.
10.6. Death. Except for Share Purchase Awards covered by Section 7.4, in the event a Participant dies while employed or otherwise engaged by the Company or any of its subsidiaries or affiliates or during his term as a Director of the Company or any of its subsidiaries or affiliates, as the case may be, (i) any unvested Awards granted to such Participant under the Plan shall immediately vest and (ii) any Awards granted to such Participant not previously expired or exercised shall be exercisable by the estate of such Participant or by any person who acquired such Option by bequest or inheritance, at any time within one year after the death of such Participant, unless earlier terminated
pursuant to its terms, provided, however, that if the term of such Option would
expire by its terms within twelve (12) months after such Participant's death,
the term of such Option shall be extended until twelve (12) months after such
Participant's death, provided further, however, that in no instance may the term
of the Option, as so extended, exceed the maximum term established pursuant to
Section 4.1(b)(ii) or 10.1 above.
10.7. Disability. Except for Share Purchase Awards covered by Section
7.4, the event of the termination of employment of a Participant or the
separation from service of a Director (who is a Participant) due to Disability,
(i) any unvested Awards granted to such Participant shall immediately vest and
(ii) such Participant, or his guardian or legal representative, shall have the
unqualified right to exercise any Awards which have not been previously
exercised or expired at any time within one year after such termination or
separation, unless earlier terminated pursuant to its terms, provided, however,
that if the term of such Award would expire by its terms within twelve (12)
months after such termination or separation, the term of such Award shall be
extended until twelve (12) months after such termination or separation, provided
further, however, that in no instance may the term of the Award, as so extended,
exceed the maximum term established pursuant to Section 4.1(b)(ii) or 10.1
above.
10.8. Change in Control of the Company. Except for Share Purchase Awards covered by Section 7.4, in the event of a Change in Control of the Company, (i) any unvested Awards granted to a Participant shall immediately vest and (ii) such Participant shall have the unqualified right to exercise any Awards which have not been previously exercised or expired within three (3) years after such Change in Control of the Company, provided, however, that if the term of such Awards would expire by its terms within three (3) years after such Change in Control of the Company, the term of such Awards shall be extended until three (3) years after such Change in Control of the Company, provided further, however, that in no instance may the term of the Awards, as so extended, exceed the maximum term established pursuant to Section 4.1(b)(ii) or 10.1 above.
10.9. Six-Month Holding Period. Notwithstanding anything to the contrary in the Plan, each Option (or the Shares underlying the Option) granted to an individual who is subject to Section 16 of the Exchange Act, must be held by such individual for a combined period of at least six (6) months from the date the Option is granted (or until such earlier date as satisfies any legal requirement for exemption under Rule 16b-3 of the Exchange Act and as satisfies all other applicable law); provided that the sale, transfer or other disposition of any Shares underlying any such Option shall be permitted within such period to the extent the sale, transfer or other disposition is exempt under Rule 16b-3 of the Exchange Act and all other applicable law.
10.10 Amendment and Modification of the Plan. The Board of Directors of the Company may, from time to time, alter, amend, suspend or terminate the Plan as it shall deem advisable, subject to any requirement for stockholder approval imposed by applicable law or any rule of any stock exchange or quotation system on which Shares are listed or quoted; provided that the Board of Directors may not, without the approval of the Company's stockholders, (a) amend the Plan to increase the number of Shares that may be the subject of Awards under the Plan (except for adjustments pursuant to Section 10.11) or (b) amend the exercise price of any Option granted to an amount lower than the exercise price of such Option on the date of grant. In addition, no amendments to, or termination of, the Plan shall in any way impair the rights of a Participant under any Award previously granted without such Participant's consent.
10.11. Adjustments. In the event that the Committee shall determine that any dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Shares or other securities, the issuance of warrants or other rights to purchase Shares or other securities, or other similar corporate transaction or event affects the Shares with respect to which Awards have been or may be issued under the Plan, such that an adjustment is determined by the Committee to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee shall, in such manner as the Committee may deem equitable, adjust any or all of (i) the number and type of Shares that thereafter may be made the subject of Awards, (ii) the number and type of Shares subject to outstanding Awards, and (iii) the grant or exercise price with respect to any Award, or, if deemed appropriate, make provision for a cash payment to the holder of any outstanding Award; provided, in each case, that with respect to "incentive stock options," no such adjustment shall be authorized to the extent that such adjustment would cause such options to violate Section 422(b) of the Code or any successor provision; and provided further, that the number of Shares subject to any Award denominated in Shares shall always be a whole number. In the event of any reorganization, merger, consolidation, split-up, spin-off, or other business combination involving the Company (each, a "Reorganization"), the Committee may cause any Award outstanding as of the effective date of the Reorganization to be canceled in consideration of a cash payment or alternate Award made to the holder of such canceled Award equal in value to the fair market value of such canceled Award. The determination of fair market value shall be made by the Committee, as the case may be, in its sole discretion.
10.12. Other Provisions. Notwithstanding anything in this Plan to the contrary, if the Board of Directors determines that the Plan cannot, or that an Award need not, satisfy the requirements of Rule 16b-3 of the Exchange Act (such that grants of Awards are not or need not be exempt from Section 16(b) of the Exchange Act), then the Committee shall have the authority to waive or modify those provisions of the Plan which are intended to satisfy such Rule 16b-3 requirements. In addition, the Committee may allow a Participant who has been granted "nonqualified stock options" and any stock appreciation rights granted in tandem therewith to transfer any or all of such Options (along with any tandem stock appreciation rights) to a Family Member (defined below) in whole or in part and in such circumstances, and under such conditions as specified by the Committee. An Award that is transferred to a Family Member pursuant to the preceding sentence (i) may not be subsequently transferred otherwise than by will or by the laws of descent and distribution and (ii) remains subject to the terms of this Plan and the Award agreement. "Family Member" means, solely to the extent provided for in Securities Act Form S-8, any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing the employee's household (other than a tenant or employee), a trust in which these persons have more than 50% of the beneficial interest, a foundation in which these persons (or the employee) control the management of assets, and any other entity in which these persons (or the employee) own more than 50% of the voting interests or as otherwise defined in Securities Act Form S-8. The Company shall cooperate with a Participant's transferee and the Company's transfer agent in effectuating any transfer permitted pursuant to this Section 10.12.
ARTICLE 11
MISCELLANEOUS
11.1. Tax Withholding. The Company shall have the right to make all payments or distributions made pursuant to the Plan to a Participant (or permitted transferee) net of any applicable federal, state and local withholding taxes arising as a result of the grant of any Award, exercise of an Option or stock appreciation rights or any other event occurring pursuant to this Plan. The Company shall have the right to withhold from such Participant (or permitted transferee) such withholding taxes as may be required by law, or to otherwise require the Participant (or permitted transferee) to pay such withholding taxes. If the Participant (or permitted transferee) shall fail to make such tax payments as are required, the Company or its subsidiaries or affiliates shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to such Participant (or permitted transferee) or to take such other action as may be necessary to satisfy such withholding obligations. In satisfaction of the requirement to pay withholding taxes, the Participant (or permitted transferee) may make a written election, which may be accepted or rejected in the discretion of the Committee, to have withheld a portion of the Shares then issuable to the Participant (or permitted transferee) pursuant to the Plan, having an aggregate Fair Market Value equal to the withholding taxes.
11.2. Right of Discharge Reserved. Nothing in the Plan nor the grant of an Award hereunder shall confer upon any Employee, Director or other individual the right to continue in the employment or service of the Company or any subsidiary or affiliate of the Company or affect any right that the Company or any subsidiary or affiliate of the Company may have to terminate the employment or service of (or to demote or to exclude from future Awards under the Plan) any such Employee, Director or other individual at any time for any reason. Except as specifically provided by the Committee, the Company shall not be liable for the loss of existing or potential profit from an Award granted in the event of termination of an employment or other relationship even if the termination is in violation of an obligation of the Company or any subsidiary or affiliate of the Company to the Employee or Director.
11.3. Nature of Payments. All Awards made pursuant to the Plan are in consideration of services performed or to be performed for the Company or any subsidiary or affiliate of the Company. Any income or gain realized pursuant to Awards under the Plan constitutes a special incentive payment to the Participant and shall not be taken into account, to the extent permissible under applicable law, as compensation for purposes of any of the employee benefit plans of the Company or any subsidiary or affiliate of the Company except as may be determined by the Committee or by the Directors or directors of the applicable subsidiary or affiliate of the Company.
11.4. Severability. If any provision of the Plan shall be held unlawful or otherwise invalid or unenforceable in whole or in part, such unlawfulness, invalidity or unenforceability shall not affect any other provision of the Plan or part thereof, each of which remain in full force and effect. If the making of any payment or the provision of any other benefit required under the Plan shall be held unlawful or otherwise invalid or unenforceable, such unlawfulness, invalidity or unenforceability shall not prevent any other payment or benefit from being made or provided under the Plan, and if the making of any payment in full or the provision of any other benefit required under the Plan in full would be unlawful or otherwise invalid or unenforceable, then such unlawfulness, invalidity or unenforceability shall not prevent such payment or benefit from being made or provided in part, to the extent that it would not be unlawful, invalid or unenforceable, and the maximum payment or benefit that would not be unlawful, invalid or unenforceable shall be made or provided under the Plan.
11.5. Gender and Number; Definition of Company. In order to shorten and to improve the understandability of the Plan document by eliminating the repeated usage of such phrases as "his or her" and any masculine terminology herein shall also include the feminine, and the definition of any term herein in the singular shall also include the plural except when otherwise indicated by the context. In addition, the term Company as used herein shall include subsidiaries and affiliates of Terex Corporation where the context makes such inclusion appropriate.
11.6. Governing Law. The Plan and all determinations made and actions taken thereunder, to the extent not otherwise governed by the Code or the laws of the United States, shall be governed by the laws of the State of Delaware and construed accordingly.
11.7. Effective Date of the Plan; Termination of the Plan. (a) The Plan shall be effective on the date of the approval of the Plan by the holders of a majority of the Shares present in person or by proxy at a duly constituted meeting of the stockholders; provided, however, that the adoption of the Plan is subject to such stockholder approval within 12 months after the date of adoption of the Plan by the Board of Directors. The Plan shall be null and void and of no effect if the foregoing condition is not fulfilled and in such event any Award made under and pursuant to this Plan shall, notwithstanding any of the preceding provisions of the Plan, be null and void and of no effect.
(b) Awards may be granted under the Plan at any time and from time to time after the effective date of the Plan and on or prior to March 8, 2010, on which date the Plan will terminate except as to Awards then outstanding under the Plan. Such outstanding Awards shall remain in effect and unimpaired until they have been exercised or have terminated or expired.
11.8. Captions. The captions in this Plan are for convenience of reference only, and are not intended to narrow, limit or affect the substance or interpretation of the provisions contained herein.
TEREX CORPORATION AMENDED AND RESTATED DEFERRED COMPENSATION PLAN
THIS TEREX CORPORATION AMENDED AND RESTATED DEFERRED COMPENSATION PLAN, dated as of March 11, 2004, established by TEREX CORPORATION, a Delaware corporation authorized to do business in the State of Connecticut, 500 Post Road East, Suite 320, Westport, CT 06880 (hereinafter referred to as the "Corporation"),
WITNESSETH THAT:
WHEREAS, the Corporation established the Terex Deferred Compensation Plan effective January 1, 1997 as amended as of February 1, 1997 (the "Original Plan"), and the Original Plan provided that the Corporation may amend the Plan at any time;
WHEREAS, the Corporation amended and restated the Original Plan as of December 1, 1997, January 1, 2002 and January 1, 2004 (the Original Plan as amended and restated shall be referred to as the "Plan");
WHEREAS, the Corporation recognizes the valuable services heretofore performed for it by the employees and the outside directors participating in this Plan (the "Participants");
WHEREAS, the Corporation has established this Plan to provide retirement and death benefits, and benefits in the event of any other termination of employment or service as an outside director, as provided herein to a select group of management or highly compensated employees (the "Employees") and the outside directors;
WHEREAS, each Participant desires to receive such benefits and to defer a portion of his or her compensation;
WHEREAS, the Corporation has established a trust dated as of January 1, 1997 (the "Trust") to assist in providing the benefits under this Plan; and
WHEREAS, the Corporation desires to provide the terms and conditions upon which the Corporation shall pay such additional compensation through the Trust to the Participants;
NOW, THEREFORE, in consideration of these premises, the Corporation amends and restates the Plan as follows:
b. Name. The Plan shall be known as the "Terex Deferred Compensation Plan."
c. Purpose. The purpose of the Plan is to defer the payment of a portion of the compensation of the Participants, including the portion deferred by each Participant in accordance with an annual Deferral Election, so that such amount may be paid to the Participants (or their beneficiaries) upon retirement or death or other termination of employment as specified herein.
capital letters:
a. Beneficiary: Any person, entity, or any combination thereof designated by the Participant, on a Beneficiary Designation Form acceptable to the Corporation, to receive benefits under this Plan in the event of the Participant's death, or in the absence of any such designation, his or her estate.
b. Beneficiary Designation: The designation by the Participant of his or her Beneficiary or Beneficiaries, as amended from time to time, and in a form acceptable to the Corporation.
c. Code: The Internal Revenue Code of 1986, as amended.
d. Compensation: All wages, salaries, bonuses, director fees and Restricted Stock Awards to be paid to a Participant for services rendered to the Corporation, other than stock options issued to a Participant pursuant to a qualified stock option plan (not including any amounts deferred by the Corporation under the provisions of this Plan). Compensation may also include severance pay, pursuant to Section 2i of the Plan.
e. Deferral Election: The form or other method of deferral acceptable to the Corporation that provides for the Participant to elect to defer a portion of his or her Compensation or other amounts or items.
f. Deferred Compensation Account: Shall have the meaning set forth in
Section 4 of this Plan.
g. Earnings: The amount credited to each Participant's Deferred Compensation Account as earnings, as provided in Section 4 hereof.
h. Effective Date of the Plan: January 1, 1997.
i. Employee: An employee of the Corporation who is selected by the Corporation to participate in this Plan, and who elects to participate in this Plan by executing and delivering to the Corporation a Deferral Election which is satisfactory to the Corporation. At the discretion of the Corporation, an employee may also include an individual who is receiving severance payments from the Corporation. The ability of such an individual to make deferrals to the Plan will cease when the individual no longer receives severance payments from the Corporation.
j. Investment Designation: The provisions of the Deferral Election
providing for the investment designation by the Participant as described in
Section 4 of this Plan, as amended from time to time, and as acceptable to the
Corporation.
k. Normal Retirement Age: Fifty-five (55) years of age.
l. Plan: This Terex Deferred Compensation Plan.
m. Plan Year: January 1 through December 31.
n. Retirement: The termination of a Participant's employment with the Corporation after attaining Normal Retirement Age.
o. Year of Participation. A Plan Year during which an Employee is employed on a full-time basis with the Corporation or an outside director serves on the Corporation's Board of Directors. An Employee who is employed on a full-time basis for any portion of a Plan Year and an outside director who sits on the
Corporation's Board of Directors for any portion of a Plan Year shall be credited with a Year of Participation for that Plan Year.
a. Deferred Compensation Account. Any Compensation or other amounts or items deferred by a Participant shall be credited to a deferred compensation bookkeeping account maintained by the Plan recordkeeper for the Participant. The Plan recordkeeper shall update the Participant's Deferred Compensation Account (including Earnings) on a daily basis.
b. Earnings. Earnings with respect to each deferral shall be credited to the Participant's Deferred Compensation Account as measured by the applicable Investment Designation. The two available options for the Investment Designation shall be (i) Terex stock, and (ii) a bond index (the "Bond Index"), selected by the Corporation, which shall provide an interest rate which mirrors an investment in the corporate bonds of companies rated Baa or higher. The Corporation may change the options available and the applicable bond index from time to time. With respect to a Bond Index designation, any interest rate credited to the Participant's Deferred Compensation Account in any given month shall be the interest rate for the penultimate month. With respect to a Terex stock designation, the deemed purchase price for measuring Earnings hereunder will be the closing price of Terex stock listed in The Wall Street Journal on the day it is posted to the Participant's Deferred Compensation Account. All designations of a particular Investment Designation must constitute at least ten percent (10%) of the deferral. The Earnings credited to the Deferred Compensation Account shall be an amount equal to the amount which would have been earned if the Participant's Deferred Compensation Account had been applied or invested in accordance with the Investment Designation. In the event of any losses based on an Investment Designation, the Participant's Deferred Compensation Account shall be reduced accordingly, and the Corporation shall have no obligation or responsibility with respect to any such losses.
c. Corporation's Matching Contributions.
(1) In addition, the Corporation shall match twenty-five percent (25%) of the Participant's deferrals for which the Participant's Investment Designation is Terex stock (herein the "Terex Matching Contributions"). This is the only matching contribution the Corporation shall make.
Notwithstanding any contrary provision contained herein, Terex Matching Contributions shall not apply to Restricted Stock (as such term is defined in any Terex Incentive Compensation Plan) deferred by a Participant in accordance with the provisions of this Plan.
(2) Terex Matching Contributions will cease to be made after March 10, 2014.
d. Change of Control. In the event of a "Change of Control" as such term is defined in Section 13(d) of the Trust, the Corporation shall make contributions to the Trust in connection with such Change of Control so that the Trust will have sufficient funds to pay all benefits earned or accrued as of such date and all benefits reasonably expected to be earned or accrued thereafter as calculated by the Corporation based on reasonable assumptions.
e. No Rights in Specific Assets. The Corporation, in its sole and absolute discretion, may (or may not) acquire any item indicated in the Participant's Investment Designation, and any investment product or other item so acquired for the convenience of the Corporation shall be the sole and exclusive property of the Corporation (or a trust established by the Corporation) with the Corporation (or a trust established by the Corporation) named as owner and beneficiary thereof. To the extent that a Participant or his or her Beneficiary acquires a right to receive payments from the Corporation under the provisions hereof, such right shall be no greater than the right of any unsecured general creditor of the Corporation.
f. Change in Investment Designations. A Participant may not change his or her Investment Designation with respect to any portion of the Participant's Deferred Compensation Account.
(1) Retirement or Termination of Employment After Five Years of Participation. If the Participant's employment or service as an outside director terminates after he or she attains Normal Retirement Age or after he or she has attained five Years of Participation, such Participant shall receive payments:
(i) as designated in his or her Deferral Elections as applicable; provided, however, that any changes shall be effective only if received prior to the last day of the Plan Year in which the employment terminates, or
(ii) if such Participant has failed to make any such designation for any amount, with respect to such amount, such Participant shall receive the amount of his or her Deferred Compensation Account balance, payable in a lump sum in the Plan Year following his or her Retirement.
The Participant may request to receive such payments in (i) a lump sum, based on the value of the Participant's Deferred Compensation Account on the last business day of the year in which the termination or retirement occurs, or (ii) in five (5), ten (10) or fifteen (15) substantially equal annual payments, provided that such payment terms shall only apply if the Corporation and Participant enter into a bona fide agreement regarding such payment terms, and further provided that if the Employee becomes a full-time employee for any other entity or individual within a reasonable time after the termination of the Employee's employment with the Corporation, the payments hereunder shall not commence until the Employee is no longer a full-time employee for any entity or individual. Any installment payment hereunder shall equal the quotient determined by dividing the Participant's remaining Deferred Compensation Account
balance at the time of payment by the number of remaining installments (including the current installment), provided that in the event of an Investment Designation of the Bond Index, the portion relating to the Bond Index designation shall be paid assuming level remaining payments at the prevailing year-end rates.
(2) Termination of Employment Before Attaining Normal Retirement Age and Five Years of Participation. In the event that the Participant's employment or service as an outside director with the Corporation terminates before he or she attains Normal Retirement Age, and before he or she has attained five Years of Participation, the Corporation shall pay, in a lump sum to the Participant, the entire amount of his or her Deferred Compensation Account in the Plan Year after the Participant's employment terminates. The Corporation shall have no further liability hereunder to the Participant or his or her Beneficiary, assigns or other successors after making any lump sum payment under this Section 5a(2).
(3) Pre-Retirement. A Participant may elect to receive payment of all or a portion of a deferral before the Participant retires. Except as provided in Sections 5c and 5d, all deferrals must remain in the Participant's Deferred Compensation Account for at least portions of three Plan Years. The Participant may make the election to receive a pre-retirement payment when the Participant completes the Deferral Election for the given Plan Year. The pre-retirement payment may be paid in a lump sum or in a four (4) year stream, which will be paid in the same manner as an installment payment payable under Section 5a(1).
(4) Death. In the event of the Participant's death before he or she has received all amounts under his or her Deferred Compensation Account, upon the Participant's death, any benefits payable in the year of death will remain payable in that year. The remaining balance in the Participant's Deferred Compensation Account shall be paid to the Participant's Beneficiary in the Plan Year after the Participant's death in a lump sum, or in accordance with new written payment instructions established by the Beneficiary, at the Beneficiary's option. If the Beneficiary files new written payment instructions, the Beneficiary may choose among any distribution schedule that was available to the Participant at the time of the Participant's death. To be effective, any distribution schedule established by the Beneficiary must be received by the Trustee prior to the last business day of the year in which the Participant dies. After the payment of the distribution(s), the Corporation shall have no further obligations hereunder to the Participant or his or her Beneficiary, assigns or other successors.
(5) Corporation's Lump Sum Payment Option. Notwithstanding any other provision herein, in all cases whenever benefits are payable hereunder, the Corporation, at its option, may elect to pay the entire remaining balance of the Participant's Deferred Compensation Account at any time (whether or not any installment or other payments have already been made), and upon making such lump sum payment, the Corporation shall have no further obligation to such Participant or his or her Beneficiary or assigns or other successors hereunder.
b. Form of Distribution. Any portion of a Participant's Deferred Compensation Account that has an Investment Designation of Terex stock will be distributed in Terex shares, except for fractional shares, which will distributed in cash. Any portion of a Participant's Deferred Compensation Account that has an Investment Designation of the Bond Index shall be paid in cash.
c. Hardship Withdrawals. A Participant may request a distribution hereunder in response to an "unforeseeable emergency," defined herein as an unanticipated emergency that is caused by an event beyond the control of the Participant and that would result in severe financial hardship to the individual if early withdrawal were not permitted. Any early withdrawal on account of hardship shall be paid in the form described in Section 5b and limited to the amount necessary to meet the emergency, and the amount otherwise payable hereunder shall be reduced accordingly. The purchase of a primary residence or tuition payments by
themselves would not qualify as an "unforeseeable emergency" and, therefore, no hardship distribution would be made in such events. A request for a hardship withdrawal must be reviewed and approved by the administrative committee represented by Corporate Human Resources, Legal and Finance departments of the Corporation, before a hardship distribution shall be made hereunder. A hardship distribution shall be made as soon as practicable following the approval of the distribution by the administrative committee.
d. Acceleration of Distribution. In the absence of an "unforeseeable emergency," a Participant or Beneficiary may still accelerate a distribution. Any acceleration of a distribution under this subsection will be paid in the form described in Section 5b, shall result in a forfeiture of 10% of the amount of the distribution, and such forfeiture shall default to the Corporation. The Participant or Beneficiary will also forfeit any matching contribution which is attributable to any deferral that, due to the acceleration of a distribution, stays in the Plan for less than one full Plan Year. For these purposes, deferrals will be treated as distributed on a "first in, first out" basis. In addition, any Participant who receives an accelerated distribution shall be prohibited from making further deferrals under the Plan until the annual enrollment period which next follows the expiration of twelve months from the date on which the Participant requested the accelerated distribution. An accelerated distribution shall be made as soon as practicable following the date on which the Corporation receives the request for the accelerated distribution.
e. Payment Only from Corporation Assets. Any payment of benefits to a Participant or his or her Beneficiary shall be made from assets which shall continue, for all purposes, to be a part of the general assets of the Corporation; no person shall have or acquire any interest in such assets by virtue of the provisions of this Plan. To the extent that a Participant or his or her Beneficiary acquires a right to receive payments from the Corporation under the provisions hereof, such right shall be no greater than the right of any unsecured general creditor of the Corporation.
f. Beneficiaries. A Participant may designate his or her Beneficiary or Beneficiaries to receive the amounts as provided herein after his or her death in accordance with the Beneficiary Designation. In the absence of such a designation, the Corporation shall pay any such amount to the Participant's estate.
g. No Trust. Nothing contained in this Plan, and no action taken pursuant to its provisions shall create, or be construed to create, a trust of any kind.
b. Interpretation. Subject to the foregoing: (i) the Corporation shall have
full power and authority to interpret, construe and administer this Plan; and
(ii) the interpretation and construction of this Plan by the Corporation, and
any action taken hereunder, shall be binding and conclusive upon all parties in
interest.
c. Reports. The Corporation shall have the Plan recordkeeper provide the Participant with a statement reflecting the amount of the Participant's Deferred Compensation Account and a projection of benefits using the current
earning(s) rates, on a quarterly basis.
d. No Liability. No employee, agent, officer, trustee or director of the Corporation shall incur any liability for the breach of any responsibility, obligation or duty in connection with any act done or omitted to be done in good faith in the interpretation, construction, administration or management of the Plan and shall be indemnified and held harmless by the Corporation from and against any such liability, including all expenses reasonably incurred in their defense if the Corporation fails to provide such defense.
IN WITNESS WHEREOF, the Corporation has executed and adopted this Plan as of the date first above written.
EXHIBIT 12
TEREX CORPORATION
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
(amounts in millions)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------------ -----------------------------------
2004 2003 2004 2003
---------------- ------------------ ------------------ ---------------
Earnings:
Income (loss) before income taxes............... $ 73.6 $ (64.9) $ 98.0 $ (48.3)
Adjustments:
Minority interest in losses of consolidated
subsidiaries................................ --- --- --- ---
Undistributed (income) loss of less than
50% owned investments....................... --- --- --- ---
Distributions from less than 50% owned
investments................................. --- --- --- ---
Fixed charges............................... 29.3 32.8 58.1 64.2
---------------- ------------------ ------------------ ---------------
Earnings...................................... 102.9 (32.1) 156.1 15.9
---------------- ------------------ ------------------ ---------------
Fixed charges, including preferred accretion:
Interest expense, including debt discount
amortization................................ 23.4 26.6 45.9 52.5
Accretion of redeemable convertible preferred
stock...................................... --- --- --- ---
Amortization of debt issuance costs........... 1.3 1.4 2.7 2.7
Portion of rental expense representative of
interest factor (assumed to be 33%)......... 4.6 4.8 9.5 9.0
---------------- ------------------ ------------------ ---------------
Fixed charges................................. $ 29.3 $ 32.8 $ 58.1 $ 64.2
---------------- ------------------ ------------------ ---------------
Ratio of earnings to fixed charges.............. 3.5x --- 2.7x ---
================ ================== ================== ===============
Amount of earnings deficiency for coverage of
fixed charges................................. $ --- $ 64.9 $ --- $ 48.3
================ ================== ================== ===============
|
Exhibit 31.1
CERTIFICATION
I, Ronald M. DeFeo, Chairman, President and Chief Executive Officer of Terex Corporation, certify that:
1. I have reviewed this report on Form 10-Q of Terex Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: August 6, 2004 /s/ Ronald M. DeFeo Ronald M. DeFeo Chairman, President and Chief Executive Officer |
Exhibit 31.2
CERTIFICATION
I, Phillip C. Widman, Senior Vice President and Chief Financial Officer of Terex Corporation, certify that:
1. I have reviewed this report on Form 10-Q of Terex Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: August 6, 2004 /s/ Phillip C. Widman Phillip C. Widman Senior Vice President and Chief Financial Officer |
Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Terex Corporation (the "Company") on Form 10-Q for the period ended June 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), we, Ronald M. DeFeo, Chairman, President and Chief Executive Officer of the Company, and Phillip C. Widman, Senior Vice President and Chief Financial Officer of the Company, certify, to the best of our knowledge, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Ronald M. DeFeo Ronald M. DeFeo Chairman, President and Chief Executive Officer Terex Corporation August 6, 2004 /s/ Phillip C. Widman Phillip C. Widman Senior Vice President and Chief Financial Officer August 6, 2004 |
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Terex Corporation and will be retained by Terex Corporation and furnished to the Securities and Exchange Commission or its staff upon request.