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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF
Date of report (Date of earliest event reported) September 13, 2002
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TEREX CORPORATION
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(Exact Name of Registrant as Specified in Charter)
Delaware 1-10702 34-1531521
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(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
500 Post Road East, Suite 320, Westport, Connecticut 06880
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (203) 222-7170
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NOT APPLICABLE
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(Former Name or Former Address, if Changed Since Last Report)
- 1 -
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As previously reported on a Current Report on Form 8-K dated September
13, 2002, Terex Corporation (the "Company" or the "Registrant") announced: (i)
that it completed its previously announced acquisition of Genie Holdings, Inc
("Genie"); and (ii) that it consummated a $210 million incremental term loan
borrowing under the Company's existing secured bank facility.
The Registrant hereby amends Item 7 of its Current Report on Form 8-K
dated September 13, 2002 as follows:
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
The following financial statements and pro forma financial information
are hereto attached and filed as part of the report:
(a)Financial Statements of Business Acquired.
Audited Consolidated Financial Statements of Genie Holdings, Inc. ........4
Report of Independent Accountants......................................5
Consolidated Statement of Operations --
Year ended December 31, 2001.......................................6
Consolidated Balance Sheet - December 31, 2001.........................7
Consolidated Statement of Changes in Stockholders' Equity -
Year ended December 31, 2001.......................................8
Consolidated Statement of Cash Flows --
Year ended December 31, 2001.......................................9
Notes to Consolidated Financial Statements -- December 31, 2001.......10
Unaudited Condensed Consolidated Financial Statements
of Genie Holdings, Inc. ................................................23
Condensed Consolidated Statement of Operations --
January 1 through September 18, 2002..............................24
Condensed Consolidated Balance Sheet - September 18, 2002.............25
Condensed Consolidated Statement of Cash Flows --
January 1 through September 18, 2002..............................26
Notes to Condensed Consolidated Financial Statements -
September 18, 2002..................................................27
(b)Pro Forma Financial Information.
Terex Corporation Pro Forma Financial Information.....................32
Unaudited Pro Forma Condensed Consolidated Statement of Operations
of Terex Corporation and Subsidiaries for the year ended
December 31, 2001..................................................33
Unaudited Pro Forma Condensed Consolidated Statement of Operations
of Terex Corporation and Subsidiaries for the nine months ended
September 30, 2002.................................................34
Notes to Unaudited Pro Forma Condensed Consolidated
Financial Information................................................35
(c)Exhibits.
a. 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 Form
8-K Current Report, Commission File No. 1-10702, dated
September 13, 2002 and filed with the Commission on
September 20, 2002).
b. 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 Form
8-K Current Report, Commission File No. 1-10702, dated
September 13, 2002 and filed with the Commission on
September 20, 2002).
- 2 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: November 26, 2002
TEREX CORPORATION
By: /s/ Phillip C. Widman
Phillip C. Widman
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
- 3 -
Audited Consolidated Financial Statements
of Genie Holdings, Inc. as of December 31, 2001
and for the year then ended.
- 4 -
Report of Independent Accountants
To the Board of Directors of
Genie Holdings, Inc., and Subsidiaries
Redmond, Washington
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Genie Holdings, Inc., and Subsidiaries ("the Company") at December 31, 2001, and
the results of their operations and their cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audit of these statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company is in violation of certain
restrictive covenants as of December 31, 2001, and the Company's revolving
credit facility will expire in November 2002, both of which raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 2. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
PricewaterhouseCoopers LLP
Seattle, Washington
July 10, 2002
- 5 -
Genie Holdings, Inc. and Subsidiaries
Consolidated Statement of Operations
Year Ended December 31, 2001
(in millions)
Net sales $ 559.9
Cost of sales 487.2
--------
Gross profit 72.7
--------
Other leasing income:
Rental income 34.4
Equipment depreciation and rent expense (23.7)
Interest earned on sales-type leases 4.0
Gain on sale of equipment subject to operating leases 0.3
Other leasing expense (3.5)
--------
Total leasing income 11.5
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General and administrative costs:
Selling 34.0
Administrative 25.6
Research and development 13.2
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Total general and administrative costs 72.8
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Restructuring expense (Note 12) 4.5
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Operating income 6.9
--------
Other income (expenses):
Interest expense (26.9)
Equity in loss of joint venture (0.2)
Interest income 0.4
Other 1.2
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Total other expenses (25.5)
--------
Loss before income taxes and minority interests (18.6)
Benefit from income taxes (Note 10) 7.8
Minority interests in consolidated joint ventures, net ---
--------
Net loss $ (10.8)
========
The accompanying notes are an integral part of these consolidated
financial statements.
- 6 -
Genie Holdings, Inc. and Subsidiaries
Consolidated Balance Sheet
December 31, 2001
(in millions, except share data)
Assets
Current assets:
Cash and cash equivalents $ 6.9
Accounts receivable, net (Note 3) 106.5
Net investment in sales-type leases, current-portion (Note 4) 7.4
Other receivables 45.2
Inventories, net (Note 5) 122.8
Deferred tax assets (Note 10) 15.9
Prepaid expenses and other (Note 6) 26.1
-------
Total current assets 330.8
Equipment subject to operating leases (Note 13) 140.8
Net investment in sales-type leases, long-term (Note 4) 44.5
Property and equipment, net (Note 7) 65.0
Investment in joint venture (Note 8) 3.3
Other assets 13.7
-------
Total assets $598.1
=======
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of revolving credit facility
and long-term debt (Note 9) $ 174.1
Secured accounts receivable program (Note 3) 18.3
Current portion of long-term debt (Note 9) 73.6
Accounts payable 70.0
Accrued expenses (Note 11) 38.0
Income taxes payable 7.8
--------
Total current liabilities 381.8
Revolving credit facility and long-term debt,
net of current portion (Note 9) 122.7
Deferred gross profit (Note 14) 0.3
Deferred tax liabilities (Note 10) 21.8
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Total liabilities 526.6
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Minority interest 0.8
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Commitments and contingencies (Note 18)
Stockholders' equity:
Common stock, $10 par value; 100,000 shares authorized,
3,333 issued ---
Additional paid-in capital 0.3
Retained earnings 83.0
Accumulated other comprehensive loss (12.6)
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Total stockholders' equity 70.7
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Total liabilities and stockholders' equity $ 598.1
========
The accompanying notes are an integral part of these consolidated
financial statements.
- 7 -
Genie Holdings, Inc. and Subsidiaries
Consolidated Statement of Changes in Stockholders' Equity
Year Ended December 31, 2001
(in millions, except share data)
Accumulated
Common stock Additional other
-------------------- paid-in Retained comprehensive
Shares Amount capital earnings loss Total
-------- ---------- ---------- --------- ------------- ----------
Balance, December 31, 2000 3,333 $ --- $ 0.3 $ 93.8 $ (7.2) $ 86.9
----------
Comprehensive loss
Net loss --- --- --- (10.8) --- (10.8)
Foreign currency translation adjustment,
net of tax of $1.6 - - - - (5.4) (5.4)
----------
Total comprehensive loss (16.2)
--------- ---------- ---------- --------- ------------- ----------
Balance, December 31, 2001 3,333 $ --- $ 0.3 $ 83.0 $ (12.6) $ 70.7
========= ========== ========== ========= ============= ==========
The accompanying notes are an integral part of these consolidated
financial statements.
- 8 -
Genie Holdings, Inc. and Subsidiaries
Consolidated Statement of Cash Flows
Year Ended December 31, 2001
(in millions)
Cash flows from operating activities
Net loss $ (10.8)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 29.6
Restructuring expense 2.2
Equity in loss of joint venture 0.2
Deferred income taxes (12.0)
Minority interest 0.1
Proceeds from sale of receivables 27.7
Loss on sale of equipment 0.2
Accounts receivable 21.4
Net investment in sales-type capital leases (13.4)
Other receivables (5.2)
Inventories 14.2
Prepaid expenses and other (14.1)
Accounts payable (0.2)
Accrued expenses 4.9
Income taxes payable (0.8)
Other, net (3.4)
----------------
Net cash provided by operating activities 40.6
----------------
Cash flows from investing activities
Purchase of property and equipment (7.3)
Proceeds from the sale of equipment 7.2
Contribution to joint venture (4.7)
Cost of assets subject to operating leases (88.7)
----------------
Net cash used in investing activities (93.5)
----------------
Cash flows from financing activities
Net change in note payable (27.3)
Net increase in secured accounts receivable program 18.3
Proceeds from long-term debt 85.3
Payments on long-term debt (18.3)
----------------
Net cash provided by financing activities 58.0
----------------
Effect of exchange rate changes on cash (5.4)
----------------
Net decrease in cash and cash equivalents (0.3)
Cash and cash equivalents
Beginning of year 7.2
----------------
End of year $ 6.9
================
Cash paid during the year for:
Interest $ 14.8
Income taxes $ 4.3
The accompanying notes are an integral part of these consolidated
financial statements.
- 9 -
Genie Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements December 31, 2001 (dollar amounts in
millions, unless otherwise noted, except per share amounts)
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1. Summary of significant accounting policies
Nature of business and basis of presentation
Genie Holdings, Inc. and Subsidiaries (the "Company") manufactures and
distributes portable material lifts and aerial work platforms and provides
financing for its manufactured equipment. The Company's manufacturing facilities
and headquarters are located in the state of Washington, with distribution of
products worldwide through various sales offices located primarily in Europe,
Asia and South America.
The consolidated financial statements include the accounts of Genie Holdings,
Inc., its wholly owned subsidiaries, and two 80% owned domestic joint ventures
as well as one 49% owned United Kingdom joint venture. The consolidated joint
ventures have been classified as special purpose entities as a result of their
business activities and the fact that they have less than 3% initial capital at
risk from the other joint venture partners. An investment in one 49% owned joint
venture in which the Company has the ability to exercise significant influence,
but not control, is accounted for using the equity method. All significant
intercompany transactions and balances have been eliminated in consolidation.
Use of estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
certain estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Cash and cash equivalents
The Company considers all money market funds and debt instruments purchased with
a maturity of three months or less to be cash equivalents.
Other receivables
Other receivables primarily represent Company-originated leases which have been
sold and assigned to independent financial institutions.
Inventories
Inventories are stated at the lower of first-in, first-out cost or market. Costs
included in inventories consist of materials, labor and manufacturing overhead,
which are related to the purchase or production of inventories.
Property and equipment
Property and equipment, including significant improvements thereto, are stated
at cost less accumulated depreciation and amortization. Cost includes
expenditures for major improvements, replacements and renewals, and the net
amount of interest cost associated with significant capital additions during
periods of construction. Capitalized interest was approximately $0 in 2001.
Maintenance and repairs are charged to expense as incurred.
When assets are sold, retired or otherwise disposed of, the cost and accumulated
depreciation or amortization are removed from the accounts and any resulting
gain or loss is reflected in the consolidated statement of income. Depreciation
and amortization are provided using the straight-line method over the estimated
useful lives of the assets, ranging from three to ten years. Amortization of
- 10 -
leasehold improvements is recorded using the shorter of the remaining lease term
or the estimated economic lives of the respective assets.
Equipment returned from leases
The Company records equipment returned at the expiration of a lease as either
inventory or equipment held for lease in the accompanying consolidated balance
sheet. If the equipment is intended to be resold, the equipment is recorded as
used inventory at the lower of cost or market. If the equipment is intended to
be re-leased, the equipment is recorded as equipment held for lease at its net
book value.
Foreign currency translation
Sales to foreign customers are primarily denominated in US dollars, the
Company's functional currency, with the exception of sales generated through the
Company's international distribution operations. Sales in these countries are
denominated in the local currency.
The Company re-measures the assets and liabilities of its foreign operations at
rates of exchange in effect at year-end for monetary assets and liabilities and
at historical rates of exchange for nonmonetary assets and liabilities. Revenues
and expenses are translated at the average rate of exchange during the year.
Gains and losses resulting from the re-measurement of foreign currency amounts
to the functional currency are included in the consolidated statement of income.
Gains and losses resulting from translating assets and liabilities from the
functional currency to US dollars are included in accumulated other
comprehensive income (loss).
Derivative instruments
Effective January 1, 2001, in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 133 "Accounting for Derivative Instruments and Hedging
Activities," the Company recognizes all derivative instruments as assets or
liabilities in the accompanying consolidated balance sheet and measures those
instruments at fair value. Depending on the nature of the derivative, changes in
fair value will be either offset against the change in fair value of the hedged
assets, liabilities or firm commitments through earnings, or is recognized in
accumulated other comprehensive income (loss) in the consolidated statement of
changes in stockholders' equity until the hedged item is recognized in earnings.
The Company enters into a number of forward exchange contracts that qualify as
cash flow hedges. These hedges are intended to offset the effect of exchange
rate fluctuations on intercompany sales denominated in foreign currencies.
Derivative financial instruments are not used for trading or speculative
purposes. Counterparties to the Company's derivative financial instruments are
credit worthy major financial institutions. The Company has not experienced any
losses due to counterparty default.
Gains and losses on these instruments are deferred in accumulated other
comprehensive income (loss) until the underlying transaction is reported in
earnings. The Company had outstanding forward exchange contracts with notional
amounts of approximately $12.7 at December 31, 2001. The fair value of these
contracts at December 31, 2001 was not significant. The adoption of SFAS No. 133
did not have a material impact on the Company's 2001 consolidated financial
statements.
Revenue recognition
Revenue related to the sale of equipment and service parts is recognized when
earned and the risks of ownership have been transferred to the buyer, which is
generally upon delivery to the customer. Shipping revenues and costs are
included in net sales and cost of sales, respectively.
Revenue from sales-type leases is generally recognized at the inception of the
lease. Income from operating leases is recognized ratably over the term of the
lease. The Company routinely sells equipment subject to operating leases and the
related lease payments. If the Company does not retain a substantial risk of
ownership in the equipment, the transaction is recorded as a sale. If the
Company does retain a substantial risk of ownership, the transaction is recorded
- 11 -
as a borrowing and the operating lease payments are recognized as revenue over
the term of the lease and the debt is amortized over a similar period.
Advertising costs
The Company expenses the costs of advertising and promotion as incurred. The
Company incurred and expensed approximately $4.5 during 2001.
Warranty claims
Estimated warranty claims are provided for at the time of sale as a component of
cost of sales with warranties covering the products from one to five years. The
Company adjusts its warranty provision based on actual warranty claims
experience.
Income taxes
Deferred taxes are recognized based on the differences between the financial
statement and tax bases of assets and liabilities at enacted tax rates in effect
in the years in which the differences are expected to reverse. Deferred tax
expense or benefit represents the change in deferred tax asset or liability
balances. A valuation allowance is established for deferred tax assets when it
is more likely than not that the deferred tax asset will not be realized.
Concentration of risk
The Company's business activity is primarily with distributors and equipment
rental companies located throughout the United States and various foreign
countries. The Company generally does not require collateral in normal trade.
Ten customers accounted for 52% of net sales during 2001. A significant portion
of the Company's sales are to customers located outside the United States. In
addition, the Company maintains its cash and cash equivalents in bank accounts
with various financial institutions and, at times, balances may exceed federally
insured limits.
In connection with the Company's receivables and sales-type capital leases, the
Company performs a periodic evaluation of the adequacy of the allowance for
doubtful accounts and future losses. The evaluation includes historical loss
experience, the nature and volume of the Company's portfolios, adverse
situations that may affect a customer's ability to repay, estimated value of the
underlying collateral (if any) and prevailing economic conditions. If the
evaluation of reserve requirements differs from the actual aggregate reserve,
adjustments are made to the reserve. This evaluation is inherently subjective,
as it requires estimates that are susceptible to revision as more information
becomes available.
Self-insured risks and captive insurance company
The Company self-insures substantially all of its business liability risks,
including general liability, product liability, workers' compensation and
employee medical benefit plans.
Genie Industries, Inc., a wholly owned subsidiary of Genie Holdings, Inc., holds
excess product liability insurance contracts from independent insurance
companies in the amount of $26.0. The first $4.0 of each claim is the
responsibility of the Company.
The Company's provision for losses for these self-insured risks is based upon
historical loss experience. The provision for losses and loss expenses are based
on estimates of final settlement and expected trends in claim severity,
frequency and other factors that may vary significantly as claims are settled.
Accordingly, ultimate losses may vary significantly from amounts recorded in the
accompanying consolidated balance sheets.
- 12 -
Recent accounting pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
142, "Goodwill and Other Intangible Assets." Under SFAS No. 142, goodwill and
other intangible assets deemed to have indefinite useful lives are not amortized
but will be periodically tested for impairment. Other identifiable intangible
assets will continue to be amortized over their useful lives. The Company is
required to adopt SFAS No. 142 during fiscal 2002 and does not expect adoption
to have a significant impact on the Company's financial position or results of
operations.
The FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" in October 2001, which is effective for fiscal years
beginning after December 15, 2001. This statement supercedes FASB Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." However, it retains the fundamental provisions of
SFAS No. 121 for the recognition and measurement of the impairment of long-lived
assets to be held and used and the measurement of long-lived assets to be
disposed of by sale. Under SFAS No. 144, long-lived assets are to be measured at
the lower of carrying amount or fair value less cost to sell, whether reported
in continuing or discontinued operations. The Company will be required to adopt
this statement during fiscal 2002. The Company is currently analyzing the impact
the adoption of this pronouncement may have on its consolidated financial
statements.
In November 2001, the Emerging Issues Task Force ("EITF") issued EITF No. 01-09,
"Accounting for Consideration Given by a Vendor to a Customer or a Reseller of
the Vendor's Products". EITF 01-09 is effective in fiscal 2002 and requires that
certain incentives paid by the Company to its customers be recognized at the
time an obligation is incurred, usually at the later of the date the sales
incentive is offered or the date when the related revenue is recognized. In
addition, volume discounts would be classified as a reduction in revenue. The
Company does not expect adoption of this guidance to have a significant impact
on its consolidated financial statements.
Other pronouncements issued by the Financial Accounting Standards Board adopted
during the year are not material to the Company's consolidated financial
statements. Further, pronouncements with future effective dates are either not
applicable or not material to the Company's consolidated financial statements.
2. Liquidity
The consolidated financial statements have been prepared assuming that the
Company will continue as a going concern, which contemplates the realization of
assets and liquidation of liabilities in the ordinary course of business. The
Company is in violation of certain restrictive covenants as of December 31,
2001, and has not obtained waivers for those areas of noncompliance. In
addition, the Company's revolving credit facility will expire in November 2002.
Both of these conditions raise substantial doubt about the Company's ability to
continue as a going concern. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
The Company is seeking a waiver for the covenant violation and a replacement
credit facility, but to date no such arrangement has been consummated. Although
the Company continued to generate positive cash flows from operations in 2001,
its ability to continue through December 31, 2002 is dependent upon the ability
to replace the revolving credit facility, generate sufficient operating cash
flow, and/or raise additional capital. Management expects that the Company's
projected cash flow from operations and a new credit facility will be sufficient
to fund projected operating, capital expenditure and debt service requirements
during 2002. Despite the conditions noted above, management believes that it has
developed a business plan that, if successfully funded and executed, will allow
the Company to continue as a going concern through December 31, 2002.
There can be no assurance that such efforts will be successful, particularly
that credit facilities will be available to the Company or if such funding will
be available on acceptable terms.
- 13 -
3. Accounts receivable
Accounts receivable consists of the following at December 31, 2001:
Receivables - trade $ 107.8
Allowance for doubtful accounts (1.3)
----------
$ 106.5
----------
Approximately 74% of trade receivables are due from foreign customers at
December 31, 2001.
The Company has, on occasion, sold selected receivables. The Company follows
SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," when accounting for its sale of receivables.
All assets obtained or liabilities incurred in consideration are recognized as
proceeds from the sale and any gain or loss on the sale is recognized in
earnings.
In accordance with two non-recourse sales programs (one domestic and one
international), the Company sells certain trade receivables to two independent
financial institutions. In aggregate, the Company can maintain up to $40 of
trade receivables outstanding under these agreements, and there was $29.7
outstanding at December 31, 2001. Under the terms of both agreements, the
Company is responsible for collecting the outstanding receivables and remitting
the proceeds to the financial institutions. The Company has retained interests
in the receivables related to a $1.0 deductible for an insurance policy under
each agreement covering 90% of the outstanding trade receivables, where the
financial institutions are the named beneficiaries. On foreign trade
receivables, the Company bears the foreign currency exchange risk to convert the
balances into US dollars. Under the terms of the domestic sales program, the
Company has an additional 10% retained interest related to proceeds withheld by
one financial institution until all outstanding receivables are collected.
Amounts outstanding under the international agreement will be repaid based upon
the underlying terms of the accounts receivable sold under this program. The
underlying maturities total $15.1, $3.0 and $0.1 in the three month periods
ended March 31, June 30 and September 30, 2002, respectively. Because of a
change in application of the international program, the Company re-characterized
the international program from an off-balance sheet financing program to a
secured lending program at December 31, 2001 and has notified the financial
institution that it will not renew the maturing international program.
Sales of accounts receivable under the domestic agreement totaling $11.2 at
December 31, 2001 are reflected as a reduction of accounts receivable in the
consolidated balance sheet and the proceeds are included in cash flows from
operating activities in the consolidated statement of cash flows.
4. Net investment in sales-type leases
Genie Financial Services ("GFS"), a wholly owned subsidiary of Genie Holdings,
Inc., leases new and used products manufactured and sold by Genie Industries,
Inc. to domestic and foreign distributors and rental companies. GFS 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 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
sales price 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 managements 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 and is included in other leasing income in the
consolidated statements of income. The allowance for future losses is
- 14 -
established through charges to the provision for credit losses. Receivables are
charged to the allowance for credit losses after collection efforts are
exhausted and the account is deemed uncollectible.
In prior years, GFS 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, GFS originated leases with
distributors and rental companies and the resulting lease receivables were
either transferred to a financial institution with limited recourse to GFS or
used as collateral for borrowings. The aggregate unpaid sales-type lease
payments previously transferred was $122.4 at December 31, 2001. 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 December 31, 2001,
representing a contingent liability under the limited recourse provisions.
During 2001, domestically and globally, GFS entered into a number of
arrangements with financial institutions to provide financing of new and
eligible products to distributors and rental companies. Under these programs,
GFS originates leases or leasing opportunities with distributors and rental
companies. If GFS originates the lease with a distributor or rental company, the
financial institution will purchase the equipment and take assignment of the
lease contract from GFS. If GFS originates a lease opportunity, the financial
institution will purchase the equipment from GFS and execute a lease contract
directly with the distributor or rental company. In some instances, GFS retains
certain credit and/or residual recourse in these transactions. The Company's
maximum exposure, representing a contingent liability, under these transactions
reflects a $43.8 credit risk and a $46.4 residual risk at December 31, 2001.
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 a market value
of $0.
The components of net investment in sales-type leases consisted of the following
at December 31, 2001:
Gross minimum lease payments receivable $ 45.1
Estimated residual values 24.0
Allowance for future losses (0.9)
Unearned finance income (16.3)
--------
Net investment in sales-type leases 51.9
Less: Current portion (7.4)
--------
$ 44.5
--------
Scheduled future gross minimum lease payments receivable are as follows:
Years ending December 31,
2002 $ 8.2
2003 13.0
2004 6.8
2005 10.5
2006 4.2
Thereafter 2.4
--------
$ 45.1
--------
- 15 -
5. Inventories
Inventories consist of the following at December 31, 2001:
Finished goods $ 81.0
Used equipment 20.2
Service parts 10.2
Raw materials and work in process 11.4
-------
$122.8
-------
6. Prepaid expenses and other
Prepaid expenses and other consists of the following at December 31, 2001:
Restricted cash $ 4.4
Prepaid expenses 4.0
Value added tax recoverable 3.5
Prepaid inventory 1.9
Finance fees and deposits 1.6
Employee advances 1.0
Other 9.7
-------
$ 26.1
-------
7. Property and equipment
Property and equipment consist of the following at December 31:
Plant equipment $ 46.9
Leasehold improvements 43.6
Furniture and fixtures 9.2
Tooling 2.0
Vehicles 1.3
-------
103.0
Less: Accumulated depreciation and amortization (38.0)
-------
$ 65.0
-------
8. Investment in joint venture
In April 2001, the Company entered into a joint venture arrangement with a
European financial institution whereby the Company maintained a forty-nine
percent (49%) ownership interest. The Company contributed $4.7 in cash in
exchange for its ownership interest. The Company applies the equity method of
accounting for its investment in the joint venture, as the Company does not
control the operations of the joint venture.
9.
- 16 -
Revolving credit facility and long-term debt
The Company has a three-year, syndicated revolving credit facility, which will
expire on November 30, 2002 and has been classified as a current note payable in
the accompanying consolidated balance sheet. The facility permits borrowings up
to $250, subject to available collateral. The facility permits various borrowing
options, at rates between LIBOR (1.88% at December 31, 2001) plus a margin
ranging between 0.80% and 1.55% depending on the Company's ratio of funded debt
and Earnings Before Interest, Tax, Depreciation and Amortization Expense
("EBITDA"), and the prime rate (4.75% at December 31, 2001). In addition, the
Company pays an annual facility fee ranging from 0.20% to 0.35 %. The
outstanding borrowings under this facility were $174.1 at December 31, 2001.
The facility contains affirmative and negative covenants including the following
financial covenants: Debt to cash flow, interest coverage ratio, capitalization
ratio and a tangible net worth test. On October 31, 2001, the revolving credit
facility was amended and various financial covenants were modified through
December 31, 2001. The Company was in violation of the covenants, as amended, at
December 31, 2001 and had not obtained waivers for the current violations
Long-term debt consists of the following at December 31, 2001:
Secured borrowings, interest rates ranging from 6.36% to 10.71%, monthly payments totaling
$2.1, maturing from April 2002 to July 2008, secured by equipment subject to operating
leases (in technical default at December 31, 2001, therefore $7 thousand which is
scheduled to be repaid after December 31, 2002 is classified as current in the
Consolidated Balance Sheet at December 31, 2001) $ 129.3
Secured borrowings, interest rates ranging from 6.22% to 10.5%, interest accrues until
maturity in April 2002 through July 2007, collateralized by fixed purchase options in
sales-type capital leases (in technical default at December 31, 2001, therefore $18
thousand which is scheduled to be repaid after December 31, 2002 is classified as current
in the Consolidated Balance Sheet at December 31, 2001) 49.5
Notes payable to various United Kingdom financial institutions, interest rates ranging from
6.89% to 9.32%, monthly payments totaling $0.7, maturing from January 2002 to April 2005,
secured by equipment subject to operating leases (in technical default at December 31,
2001, therefore $11 thousand which is scheduled to be repaid after December 31, 2002 is
classified as current in the Consolidated Balance Sheet at December 31, 2001) 15.4
Notes payable to an Australian financial institution, interest at 7.47%,
quarterly payment of $0.1, maturing March 2004, collateralized by equipment
subject to operating leases 1.2
Notes payable to an Australian financial institution, interest rates ranging from 8.21% to
12.02%, monthly payments totaling $5 thousand, maturing from March 2001 through April
2004, collateralized by automobiles and office equipment 0.1
Other 0.8
--------
Total long-term debt 196.3
Less: Current portion (73.6)
--------
$ 122.7
--------
- 17 -
Aggregate future maturities of long-term debt are as follows:
Years ending December 31,
2002 $ 73.6
2003 36.3
2004 34.4
2005 21.1
2006 24.6
Thereafter 6.3
----------
$ 196.3
----------
10. Income taxes
The components of the income tax provision (benefit) are as follows for the year
ended December 31, 2001:
Domestic:
Current expense $ 3.6
Deferred benefit (11.3)
----------
Total domestic (7.7)
----------
Foreign:
Current expense 0.5
Deferred benefit (0.6)
----------
Total foreign (0.1)
----------
Total income tax provision (benefit) $ (7.8)
----------
The reconciliation of the income tax provision (benefit) at the U.S. federal
statutory rate to the Company's effective income tax rate is as follows for the
year ended December 31, 2001:
Expected U.S. federal income taxes at statutory rates $ (6.5)
State and local income taxes, net of federal effect (1.0)
Benefit of foreign sales corporation ---
Foreign taxes and rate differential 0.6
Other (0.9)
----------
$ (7.8)
----------
- 18 -
The components of the current deferred tax assets and net long-term deferred tax
liabilities at December 31, 2001 are:
Current deferred tax assets:
Unrealized profit excluded from inventories $ 3.9
Employee benefits 4.4
Accrued liabilities 4.1
Inventory capitalization 1.6
Current portion of long-term debt 0.8
Bad debt reserves 0.4
Other receivables 0.3
Other 0.4
----------
Total current deferred tax assets 15.9
----------
Long-term deferred tax assets (liabilities):
Property and equipment (21.2)
Equipment subject to operating leases (4.2)
Long-term debt, net of current portion 4.4
AMT credit carryforwards 1.2
Other (2.0)
----------
Total long-term deferred tax liabilities (21.8)
----------
Net deferred tax liability $ (5.9)
----------
11. Accrued expenses
Accrued expenses and other consists of the following at December 31, 2001:
Equipment warranty and related reserves $ 10.7
Accrued payroll 4.1
Workers' compensation 3.2
Deferred compensation 4.0
Restructuring accrual 2.2
Promotional allowances 1.8
Customer deposits 1.9
Medical benefits 1.5
Other 8.6
----------
$ 38.0
----------
- 19 -
12. Restructuring expense
In October 2001, the Company announced a plan to restructure its operations,
which resulted in the recording of a non-recurring charge to expense totaling
approximately $4.5. The charge primarily consisted of employee termination costs
($2.6) related to the approximately 450 administrative, customer service and
manufacturing positions eliminated throughout the Company's worldwide operations
prior to December 31, 2001. In addition, the Company will incur incremental
costs and contractual obligations for building leases ($0.8), and losses on
abandoned equipment and leasehold improvements ($1.1) associated with the
Company's consolidation of certain manufacturing operations in the United
States. At December 31, 2001, approximately $2.3 of the total restructuring
charge had been paid, primarily related to employee termination benefits.
In May 2002, as part of continuing restructuring activities, the Company
recorded a nonrecurring charge to expense of $3.0 related primarily to employee
termination costs and certain contractual obligations for building leases.
13. Equipment subject to operating leases
Operating leases arise from the leasing of Genie products to customers in the
United States of America, Europe and Australia. Initial noncancelable lease
terms range from 12 to 84 months. The cost of equipment subject to operating
leases was approximately $176 at December 31, 2001. 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. The accumulated depreciation on this equipment was
approximately $35 at December 31, 2001.
Future minimum lease payments to be received under noncancelable operating
leases with lease terms in excess of one year are as follows:
Years ending December 31,
2002 $ 37.9
2003 36.3
2004 27.5
2005 19.0
2006 13.5
Thereafter 2.7
---------
$ 136.9
---------
The Company received approximately $30.0 of rental income from assets subject to
operating leases during 2001, of which approximately $0, represented contingent
rental payments.
14. Sale - leaseback transactions
In prior years, the Company entered into sale-leaseback transactions. The
Company recognized approximately $1.2 of deferred profit associated with these
transactions during 2001.
15. Related party transactions
The Company leases a significant portion of its manufacturing equipment under
noncancelable operating leases from Go Credit Corporation, a related party
S-Corporation owned by the Company's stockholders as well as two other officers
of the Company. The future minimum payments under these noncancelable leases are
included in the amounts presented in Note 18. The Company also leases its
principal office, manufacturing and warehouse space and certain equipment
pursuant to month-to-month leases from entities controlled by its stockholders.
Aggregate rental expense pursuant to all related party leases was approximately
$8.3 for 2001. Future minimum lease payments to related parties are
approximately $48.9 at December 31, 2001.
- 20 -
16. Fair value of financial instruments
The carrying amounts of cash and cash equivalents, accounts receivable, accounts
payable, accrued expenses and forward contracts approximate fair value because
of the short-term nature of these instruments. The carrying value of notes
payable and long-term debt approximates fair value as the debt bears interest
that adjusts based upon market interest rates. The fair value of forward
contracts is based upon quoted exchange rates.
17. Employee benefit plans
The Company has a 401(k) plan and a noncontributory profit sharing plan covering
all eligible employees. Contributions to the profit sharing plan are determined
annually by the Board of Directors. Profit sharing contributions were
approximately $0.9 for 2001. Employer contributions to the 401(k) plan were
approximately $3.3 million during 2001.
18. Commitments and contingencies
Commitments
The Company leases manufacturing and warehouse space from unrelated parties. The
leases expire through May 2017.
Future minimum payments under noncancelable operating leases with lease terms in
excess of one year, including leases discussed in Notes 14 and 15, are as
follows:
Years ending December 31,
2001 $ 15.0
2002 14.4
2003 12.9
2004 7.3
2005 7.4
Thereafter 55.5
----------
$ 112.5
----------
Rental expense for all leases, including month-to-month rentals and related
party leases, was approximately $16.4 for 2001.
Contingencies
In addition to the contingent liabilities included in Note 4, the Company is
involved in various matters of litigation, including product liability issues,
arising in the ordinary course of business. In the opinion of management, the
outcome of these matters is not expected to have a material adverse effect on
the consolidated financial position or results of operations of the Company.
19. Segment reporting
Operating segments are defined as components of an enterprise for which separate
financial information is available and regularly reviewed by the Company's
senior management. The Company's business consists of two principal operating
segments, referred to as aerial work platforms and financial services.
Aerial work platforms - The aerial work platform operating segment designs,
manufactures and distributes aerial work platform and material lifting devices.
The Company's design and manufacturing activities take place at its principal
business locations in the state of Washington. Included in this operating
segment are the parent company, Genie Holdings, Inc., and the related
subsidiaries and sales offices in the United Kingdom, Australia, France,
Germany, Brazil, Korea, Spain, China, Japan, Sweden, South Africa and Mexico.
Gen-National Insurance Company, Ltd. is included as a component of the aerial
work platform line of business since its primary business purpose is to manage
- 21 -
various risks associated with design, manufacture and distribution of the
Company's products.
Financial services - The financial services operating segment provides its
customers with the alternative of financing the purchase of Genie products
through captive finance subsidiaries of the Company.
The accounting policies of the reportable segments are the same as those
described in the summary of significant accounting policies.
Segment data includes intersegment revenues, as well as a charge allocating all
corporate-headquarters costs to each of the two operating segments. The
Company's operations are highly integrated, particularly with respect to overall
management resources. The accompanying information reflects general and
administrative expenses for the financial services operating segment on the
basis of transactions that are specifically identifiable to activities of the
captive financial services subsidiaries. Management believes that substantially
all of the remaining selling, general and administrative expenses are
attributable to its activities in the aerial work platform operating segment and
accordingly have not attempted to allocate additional corporate costs to its
financial services operating segment. The Company evaluates the performance of
its segments and allocates resources to them based on income before taxes.
Interest expense by operating segment is determined on the basis of which entity
is the primary obligor on the debt obligation. Interest incurred as a result of
borrowings on the Company's operating line of credit is reflected as an expense
of the aerial work platform-operating segment. Management has not attempted to
allocate a portion of the revolving line of credit obligation or associated
interest expense to the financial services operating segment.
Operating segment information for the year ended December 31, 2001 is presented
below:
Aerial work Financial
platforms services Total
-------------- ---------- ------------
Product sales $ 559.9 - $ 559.9
Interest income 0.5 4.0 4.5
Interest expense 14.6 12.3 26.9
Depreciation and amortization expense 12.7 16.9 29.6
Segment profit (loss) (10.7) (7.9) (18.6)
Segment assets 347.1 251.0 598.1
Expenditures for segment assets 7.3 88.7 96.0
Enterprise wide disclosures
-------------------------------------------
United States Foreign Total
-------------- ---------- ------------
Revenues from external customers $ 331.2 $ 228.7 $ 559.9
Long-lived assets 177.4 28.4 205.8
- 22 -
Unaudited Condensed Consolidated Financial
Statements of Genie Holdings, Inc. as
of September 18, 2002 and for the period
from January 1 through September 18, 2002
- 23 -
GENIE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
January 1 through September 18, 2002
(unaudited)
(in millions)
Net sales $ 361.2
Cost of sales 301.5
----------
Gross profit 59.7
----------
Other leasing income:
Rental income 32.5
Equipment depreciation and rent expense (25.9)
Interest earned on sales-type leases 2.2
Gain on sale of equipment subject to operating leases 0.1
Other leasing expense (1.0)
----------
Total leasing income 7.9
----------
Selling, general and administrative expenses 73.4
----------
Income from operations (5.8)
----------
Other income (expenses):
Interest expense (21.8)
Interest income 0.1
Other (2.9)
----------
Loss before income taxes and minority interests (30.4)
Provision for income taxes 8.6
Minority interests in consolidated joint ventures, net (0.3)
----------
Net loss $ (22.1)
==========
The accompanying notes are an integral part of
these financial statements.
- 24 -
GENIE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
September 18, 2002
(unaudited)
(dollars in millions, except share data)
Assets
Current assets:
Cash and cash equivalents $ 10.3
Accounts receivable, net 110.6
Net investment in sales-type leases, current-portion 9.0
Other receivables 24.4
Inventories, net 93.4
Deferred tax assets 22.2
Prepaid expenses and other 18.7
--------
Total current assets 288.6
Equipment subject to operating leases 191.8
Net investment in sales-type leases, long-term 53.6
Property and equipment, net 57.8
Other assets 20.1
--------
Total assets $ 611.9
========
Liabilities and Stockholders' Equity
Current liabilities:
Note payable $ 159.1
Current portion of long-term debt 73.3
Accounts payable 82.9
Accrued expenses 53.4
Income taxes payable 11.3
--------
Total current liabilities 380.0
Long-term debt, net of current portion 160.5
Other 13.9
--------
Total liabilities 554.4
--------
Minority interest 1.1
--------
Commitments and contingencies
Stockholders' equity:
Common stock, $10 par value; 100,000 shares authorized, 3,333 issued ---
Additional paid-in capital 0.3
Retained earnings 60.9
Accumulated other comprehensive loss (4.8)
--------
Total stockholders' equity 56.4
--------
Total liabilities and stockholders' equity $ 611.9
========
The accompanying notes are an integral part of
these financial statements.
- 25 -
GENIE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
January 1 through September 18, 2002
(unaudited)
(in millions)
Cash flows from operating activities
Net loss $ (22.1)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 33.2
Restructuring expense 0.6
Equity in loss of joint venture ---
Deferred income taxes (14.3)
Minority interest 0.3
Loss on sale of equipment 0.4
Accounts receivable (4.1)
Net investment in sales-type capital leases (10.7)
Other receivables 20.8
Inventories 29.4
Prepaid expenses and other 7.6
Accounts payable 12.9
Accrued expenses 18.9
Other, net (0.4)
----------
Net cash provided by operating activities 72.5
----------
Cash flows from investing activities
Purchase of property and equipment (2.3)
Proceeds from the sale of equipment 6.6
Contribution to joint venture (0.6)
Cost of assets subject to operating leases (81.8)
----------
Net cash used in investing activities (78.1)
----------
Cash flows from financing activities
Net change in note payable (15.0)
Net decrease in secured accounts receivable program (18.3)
Proceeds from long-term debt 54.7
Payments on long-term debt (20.2)
----------
Net cash provided by financing activities 1.2
----------
Effect of exchange rate changes on cash 7.8
----------
Net increase in cash and cash equivalents 3.4
Cash and cash equivalents
Beginning of period 6.9
----------
End of period $ 10.3
==========
The accompanying notes are an integral part of
these financial statements.
- 26 -
GENIE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 18, 2002
(unaudited)
(dollar amounts in millions, unless otherwise noted)
NOTE A -- BASIS OF PRESENTATION
Basis of Presentation. The accompanying unaudited consolidated financial
statements of Genie Holdings, Inc. and subsidiaries (the "Company") as of
September 18, 2002 and for the period from January 1 through September 18, 2002
have been prepared in accordance with accounting principles generally accepted
in the United States of America for interim financial information and the
instructions to 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 consolidated financial statements include the accounts of Genie Holdings,
Inc., its wholly owned subsidiaries, and two 80% owned domestic joint ventures
as well as one 49% owned United Kingdom joint venture. All material intercompany
balances, transactions and profits have been eliminated.
In the opinion of management, all adjustments considered necessary for a fair
statement have been made. Except as otherwise disclosed, all such adjustments
consist only of those of a normal recurring nature. Operating results for the
period from January 1 through September 18, 2002 are not necessarily indicative
of the results that may be expected for the year ending December 31, 2002. For
further information, refer to the consolidated financial statements and
footnotes thereto for the year ended December 31, 2001.
Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets," was issued in October 2001.
SFAS No. 144 became effective for the Company on January 1, 2002 and provides
new guidance on the recognition of impairment losses on long-lived assets to be
held and used or to be disposed of and also broadens the definition of what
constitutes a discontinued operation and how the results of a discontinued
operation are to be measured and presented. The adoption of the standard has not
materially changed the methods used by the Company to determine impairment
losses on long-lived assets, but may result in additional items being reported
as discontinued operations in the future.
SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13, and Technical Corrections as of April 2002," was issued in May
2002. SFAS No. 145 becomes effective for certain leasing transactions occurring
after May 15, 2002 and shall be applied by the Company from January 1, 2003 with
respect to reporting gains and losses from extinguishments of debt. The Company
is currently evaluating the provisions of SFAS No. 145 to determine its impact
on the Company's financial statements.
SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities," was issued in June 2002. SFAS No. 146 becomes effective for exit or
disposal activities that are initiated after December 31, 2002. Under SFAS No.
146 a liability for a cost associated with an exit or disposal activity is
recognized when the liability is incurred. Under current accounting principles,
a liability for an exit cost is recognized at the date of an entity's commitment
to an exit plan. The Company is currently evaluating the provisions of SFAS No.
146 to determine its impact on the Company's financial statements.
NOTE B -- RESTRUCTURING AND OTHER CHARGES
In October 2001, the Company announced a plan to restructure its operations,
which resulted in the recording of a restructuring charge to expense totaling
approximately $4.5. The charge primarily consisted of severance costs for 450
employees, with the remainder related to costs associated with abandoned
buildings on consolidation of certain manufacturing operations in the United
- 27 -
States. The majority of the effected facilities have been closed as of June 30,
2002.
In May 2002, the Company recorded a restructuring charge to expense of $3.0. The
charge primarily consisted of severance costs for 296 employees, with the
remainder related to costs associated with the closure of the Company's
distribution center based in Germany. In September 2002, the Company recorded a
restructuring charge to expense of $0.5 consisting of severance costs for 144
employees. As of September 18, 2002 the Company's future cash payments related
to 2001 and 2002 restructuring initiatives are approximately $2.8.
NOTE C -- INVENTORIES
Inventories consist of the following at September 18, 2002:
Finished goods................................................ $ 53.0
Used equipment................................................ 22.9
Service parts................................................. 9.1
Raw materials and work-in-process............................. 8.4
----------
Inventories................................................... $ 93.4
==========
NOTE D - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at September 18, 2002:
Plant equipment............................................... $ 46.9
Leasehold improvements........................................ 43.8
Furniture and fixtures........................................ 10.9
Tooling....................................................... 1.8
Vehicles...................................................... 1.0
----------
104.4
Less: Accumulated depreciation and amortization.............. (46.6)
----------
Net property and equipment.................................... $ 57 .8
==========
NOTE E -- STOCKHOLDERS' EQUITY
Total non-stockholder changes in equity (comprehensive income) include all
changes in equity during a period except those resulting from investments by,
and distributions to, stockholders. The specific components include: net income
and deferred gains and losses resulting from foreign currency translation. Total
non-stockholder changes in equity for the period from January 1 through
September 18, 2002 were as follows.
Net loss...................................... $ (22.1)
Other comprehensive income:
Translation adjustment................... 7.8
----------
Comprehensive income.......................... $ (14.3)
==========
NOTE F - LITIGATION AND CONTINGENCIES
The Company is involved in various matters of litigation, including product
liability issues, arising in the ordinary course of business. 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
- 28 -
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 an estimated liability in the amount of management's
estimate of the Company's aggregate exposure for such self-insured risks. The
Company is involved in various other legal proceedings which have arisen in the
normal course of its operations. The Company has recorded provisions for
estimated losses in circumstances where a loss is probable and the amount or
range of possible amounts of the loss is estimable.
NOTE G - RELATED PARTY TRANSACTIONS
During the period from January 1 through September 18, 2002, the Company had
transactions with various unconsolidated affiliates as follows:
Rental expense for manufacturing equipment $ 4.5
Rental expense for building leases $ 1.3
NOTE H -- BUSINESS SEGMENT INFORMATION
Operating segments are defined as components of an enterprise for which separate
financial information is available and regularly reviewed by the Company's
senior management. The Company's business consists of two principal operating
segments, referred to as aerial work platforms and financial services.
Aerial work platforms - The aerial work platform operating segment designs,
manufactures and distributes aerial work platform and material lifting devices.
The Company's design and manufacturing activities take place at its principal
business locations in the state of Washington. Included in this operating
segment are the parent company, Genie Holdings, Inc., and the related
subsidiaries and sales offices in the United Kingdom, Australia, France,
Germany, Brazil, Korea, Spain, China, Japan, Sweden, South Africa and Mexico.
Gen-National Insurance Company, Ltd. is included as a component of the aerial
work platform line of business since its primary business purpose is to manage
various risks associated with design, manufacture and distribution of the
Company's products.
Financial services - The financial services operating segment provides its
customers with the alternative of financing the purchase of Genie products
through captive finance subsidiaries of the Company.
- 29 -
Business segment information is presented below:
January 1 through
September 18,
2002
------------------
Sales
Aerial work platforms............................... $ 361.0
Financial services.................................. 0.2
------------------
Total............................................ $ 361.2
==================
Income from Operations
Aerial work platforms.............................. $ (13.5)
Financial services................................. 7.7
------------------
Total............................................ $ (5.8)
==================
September 18,
2002
------------------
Identifiable Assets
Aerial work platforms............................... $ 326.2
Financial services.................................. 285.7
------------------
Total........................................... $ 611.9
==================
Enterprise wide disclosures are presented below:
January 1 through
September 18, 2002
------------------
Sales
United States....................................... $ 237.6
Foreign............................................. 123.6
------------------
Total............................................ $ 361.2
==================
September 18,
2002
------------------
Identifiable Assets
United States........................................ $ 404.0
Foreign.............................................. 207.9
------------------
Total.............................................. $ 611.9
==================
NOTE I -CHANGE IN OWNERSHIP
On July 19, 2002, Terex Corporation ("Terex"), a publicly traded diversified
global manufacturer involved in a broad range of construction, infrastructure,
recycling and mining-related capital equipment, announced it had signed an
Agreement and Plan of Merger with the Company. The purchase consideration will
be $85, consisting of approximately $75 in Terex common stock and $10 in cash,
subject to adjustment. In addition, Terex will assume and refinance
approximately $168 of the Company's debt. In accordance with the agreement, the
exchange ratio of Terex common shares for Company shares will be based upon the
average closing price of Terex common stock for the ten consecutive trading days
prior to the closing date. Based on the share price of Terex common stock on the
date of the agreement, Terex would issue approximately 3.2 million shares of
common stock to the Company's shareholders. The transaction closed on September
18, 2002.
- 30 -
During the period, the Company established a deferred stock incentive plan under
which certain employees were granted deferred stock units that vested with the
change in control. Under the plan, deferred stock units were exchangeable into
an equivalent number of Terex common shares that had an aggregate value of
approximately $12.0 at September 18, 2002 for which the Company recognized
compensation expense and an accrued expense. The Company also incurred
approximately $4.2 in costs related to the change in control that were recorded
in the period.
- 31 -
TEREX CORPORATION
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial information of Terex
Corporation ("Terex" or the "Company") gives effect to the acquisition by the
Company of all the common stock of Genie Holdings, Inc. ("Genie"), on September
18, 2002. The pro forma information is based on the historical statement of
operations of the Company for the year ended December 31, 2001 and the nine
months ended September 30, 2002 and the historical statement of operations of
Genie for the year ended December 31, 2001 and for the period from January 1
through September 18, 2002, as if the acquisition of Genie ("Genie Acquisition")
had occurred on January 1, 2001 and January 1, 2002, respectively. Additionally,
a pro forma balance sheet has not been presented herein because the September
30, 2002 condensed consolidated balance sheet as filed in the Company's
September 30, 2002 Report on Form 10-Q includes the Genie acquisition. The pro
forma statements of operations give effect to the Genie Acquisition and the $210
million bank credit facility maturing December 2009 used to finance the
transaction and to refinance certain obligations of Genie.
The Genie Acquisition was accounted for using the purchase method, with the
purchase price of Genie allocated to the assets acquired and liabilities assumed
based upon their respective estimated fair values at the date of acquisition.
The Company is in the process of completing certain valuations, appraisals and
other studies for the purpose of determining the respective fair values of
tangible and intangible assets acquired. Accordingly, the pro forma consolidated
financial information reflects the Company's initial estimates of the purchase
price allocation. Furthermore, the Company is in the process of evaluating
various alternatives to integrate certain activities of Genie into the Company,
including alternatives to exit or consolidate certain facilities and/or
activities and restructure certain functions and reduce the related headcount.
The finalization of these plans could have an impact on the purchase price
allocation. However, management does not believe that there will be any changes
which will have a material effect on the pro forma information.
The unaudited pro forma consolidated financial information is not necessarily
indicative of what the actual results of operations of the Company would have
been for the period indicated, nor does it purport to represent the results of
operations for future periods.
- 32 -
TEREX CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2001
(in millions except per share amounts)
Terex Corporation
and Pro Forma
Subsidiaries Genie Sub-Total Adjustments Pro Forma
---------------- --------- ----------- -------------- ------------
NET SALES.....................................$ 1,812.5 $ 598.6 $ 2,411.1 $ --- $ 2,411.1
COST OF GOODS SOLD............................ 1,535.9 518.0 2,053.9 1.3 (2a) 2,055.2
---------------- --------- ----------- -------------- ------------
Gross Profit............................... 276.6 80.6 357.2 (1.3) 355.9
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.. 172.4 73.7 246.1 --- 246.1
---------------- --------- ----------- -------------- ------------
Income from operations..................... 104.2 6.9 111.1 (1.3) 109.8
OTHER INCOME (EXPENSE)
Interest income............................ 7.7 0.4 8.1 --- 8.1
Interest expense........................... (86.7) (26.9) (113.6) 3.7 (2c) (109.9)
Other income (expense) - net............... (0.6) 1.0 0.4 (0.9) (2d) (0.5)
---------------- --------- ----------- -------------- ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND EXTRAORDINARY
ITEMS.................................... 24.6 (18.6) 6.0 1.5 7.5
(PROVISION FOR) BENEFIT FROM INCOME TAXES..... (7.9) 7.8 (0.1) (0.5) (2e) (0.6)
---------------- --------- ----------- -------------- ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE EXTRAORDINARY ITEMS............... $ 16.7 $ (10.8) $ 5.9 $ 1.0 $ 6.9
================ ========= =========== ============== ============
PER COMMON AND COMMON EQUIVALENT SHARE:
Basic.................................$ 0.60 $ 0.22
Diluted...............................$ 0.58 $ 0.21
AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING IN PER SHARE
CALCULATION
Basic................................. 28.1 --- 28.1 3.2 (2f) 31.3
Diluted............................... 28.9 --- 28.9 3.2 (2f) 32.1
The accompanying notes are an integral part of
these financial statements.
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TEREX CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2002
(in millions except per share amounts)
Terex
Corporation
and Pro Forma
Subsidiaries Genie Sub-Total Adjustments Pro Forma
-------------- ------------ ----------- ------------- --------------
NET SALES $ 1,946.3 $ 396.0 $ 2,342.3 $ --- $ 2,342.3
COST OF GOODS SOLD 1,654.4 328.4 1,982.8 1.1 (2a) 1,983.9
-------------- ------------ ----------- ------------- -------------
Gross Profit 291.9 67.6 359.5 (1.1) 358.4
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 187.8 73.4 261.2 (16.2) (2b) 245.0
-------------- ------------ ----------- ------------- -------------
Income from operations 104.1 (5.8) 98.3 15.1 113.4
OTHER INCOME (EXPENSE)
Interest income 4.7 0.1 4.8 --- 4.8
Interest expense (66.9) (21.8) (88.7) 3.0 (2c) (85.7)
Other income (expense) - net (8.4) (3.2) (11.6) (0.7) (2d) (12.3)
-------------- ------------ ----------- ------------- -------------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND EXTRAORDINARY
ITEMS 33.5 (30.7) 2.8 17.4 20.2
(PROVISION FOR) BENEFIT FROM INCOME TAXES (10.7) 8.6 (2.1) (6.1) (2e) (8.2)
-------------- ------------ ----------- ------------- -------------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE EXTRAORDINARY ITEMS
$ 22.8 $ (22.1) $ 0.7 $ 11.3 $ 12.0
============== ============ =========== ============= =============
PER COMMON AND COMMON EQUIVALENT SHARE:
Basic $ 0.55 $ 0.27
Diluted $ 0.54 $ 0.26
AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING IN PER SHARE
CALCULATION
Basic 41.8 --- 41.8 3.1 (2f) 44.9
Diluted 42.5 --- 42.5 3.1 (2f) 45.6
- 34 -
TEREX CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(amounts in millions)
1) The unaudited pro forma condensed consolidated financial information is
presented for the year and nine months ended December 31, 2001 and
September 30, 2002, respectively. The pro forma statements of
operations reflect the consolidated operations of the Company combined
with those of the acquired business assuming the Genie Acquisition was
consummated on January 1, 2001 and 2002 for the year ended December 31,
2001 and the nine months ended September 30, 2002, respectively.
Certain reclassifications have been made to the Genie historical
financial statements to conform to the Terex presentation. "Lease
income" was reclassified into "Net sales" ($38.7 in 2001 and $34.8 in
the period ended September 18, 2002) and "Cost of goods sold" ($27.2 in
2001 and $26.9 in the period ended September 18, 2002). "Restructuring
expense was reclassified into "Cost of goods sold" ($3.6 in 2001) and
"Selling, General and Administrative Expenses" ($0.9 in 2001).
2) The pro forma statement of operations adjustments are summarized as
follows:
a) Pro forma adjustments to "Cost of goods sold" represent the
recognition of depreciation expense on machinery and equipment
acquired from an affiliate at the time of the Genie Acquisition, net
of the rent expense paid to the affiliated company previously.
b) Pro forma adjustments to "Selling, General and Administrative
Expenses" represent the elimination of deferred compensation expense
earned by employees of Genie due to the acquisition of Genie by Terex
($12.0) and expenses incurred by Genie in connection with its
acquisition by Terex ($4.2).
c) Borrowings under the Incremental Term Loan under Company's Credit
Agreement, (the "Incremental Term Loan") were used to finance a
portion of the Genie Acquisition, including the refinancing of a
portion of Genie's existing debt. The Incremental Term Loan bears
interest at 2.5% per annum in excess of the eurodollar rate. The
Incremental Term Loan expires December 31, 2009. The pro forma
adjustments to "Interest expense" represent the net effect of(3)) the
elimination of the interest expense and related fees on the refinanced
Genie debt, and ii) the interest on the Incremental Term Loan
(interest rate of 4.3% for year ended December 31, 2001 and nine
months ended September 30, 2002, assumed for pro forma presentation).
The effect of a 1/8% change in interest rates would result in a change
in interest expense of approximately $0.3 and $0.2 for the year ended
December 31, 2001 and the nine months ended September 30, 2002,
respectively.
d) The pro forma adjustments to "Other income (expense) - net" represent
the amortization of the debt issuance costs resulting from the
borrowings under the Incremental Term Loan.
e) Pro forma adjustments to "Provision for income taxes" represent the
35% statutory income tax rate applied to the pro forma adjustments.
f) Pro forma adjustments to "Average Number of Common and Common
Equivalent Shares Outstanding in Per Share Calculation" represent the
effect of the issuance of 3.2 million shares of the Company's common
shares to the Genie selling shareholders, assuming these issued shares
were outstanding from January 1 of the period presented.
- 35 -
3) The estimated fair values of assets and liabilities acquired by the
Company in the Genie Acquisition are summarized as follows:
Cash ...............................................$ 14.4
Net trade receivables................................ 121.0
Inventories.......................................... 95.3
Other current assets................................. 59.1
Property, plant and equipment........................ 64.5
Other non-current assets............................. 142.2
Accounts payable..................................... (82.7)
Other current liabilities............................ (47.9)
Current portion of long-term debt.................... (59.5)
Long-term debt, less current portion................. (24.7)
Other liabilities.................................... (27.2)
------------
$ 254.5
============
The aggregate purchase consideration was approximately $85, consisting of 3.2
million shares of Terex common stock, which have a minimum guaranteed value of
approximately $75 and $10.1 in cash to Genie's selling shareholders.
Additionally, the Company had other acquisition costs of $1.5. Based on the
purchase consideration and approximately $168 in debt acquired that was
immediately refinanced, no goodwill has been recorded.
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 used in the allocation of purchase
consideration for the Genie Acquisition. The Company may revise the estimates
as additional information is obtained. Furthermore, the Company is in the
process of evaluating various alternatives to integrate certain activities of
Genie into the Company, including alternatives to exit or consolidate certain
facilities and/or activities and restructure certain functions and reduce the
related headcount. The finalization of these plans could have an impact on the
purchase price allocation. However, management does not believe that there
will be any changes which will have a material effect on the pro forma
information.
- 36 -