UNAUDITED PRO FORMA FINANCIAL STATEMENTS
Exhibit 99.3
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
On July 21, 2024, Terex Corporation (“Terex”) entered into a Transaction Agreement (the “Transaction Agreement”) with Dover Corporation (“Dover”). Pursuant to the Transaction Agreement, Terex will acquire the subsidiaries and assets of Dover that own and operate Dover’s Environmental Solutions Group (“ESG”), a fully integrated equipment group serving the solid waste and recycling industry, along with associated intellectual property and other assets used in the ESG business, for consideration of $2.0 billion (the “Acquisition”). ESG designs and manufactures refuse collection vehicles, waste compaction equipment, and associated parts and digital solutions. The consideration will be paid in cash and Terex has received committed debt financing for the Acquisition, as described below. The purchase price is subject to post-closing adjustments based upon the level of net working capital, cash and debt in the ESG business on the closing date. The Acquisition, which is subject to the satisfaction of customary non-regulatory closing conditions, is anticipated to close later this year.
The Unaudited Pro Forma Condensed Combined Balance Sheet as of June 30, 2024 is intended to present the combined balance sheet of Terex after giving effect to the Acquisition and the related financing transactions described in Note 3 to the Unaudited Pro Forma Financial Statements (the “Financing Transactions”) as if they had occurred on June 30, 2024. The Unaudited Pro Forma Condensed Combined Statements of Operations for the twelve months ended June 30, 2024 are intended to present the combined statements of operations of Terex after giving effect to the Acquisition and the Financing Transactions as if they had occurred on July 1, 2023. The Unaudited Pro Forma Condensed Combined Statements of Operations for the six months ended June 30, 2024 and the year ended December 31, 2023 are intended to present the combined statements of operations of Terex after giving effect to the Acquisition and the Financing Transactions as if they had occurred on January 1, 2023.
The Unaudited Pro Forma Condensed Combined Statements of Operations for the twelve months ended June 30, 2024 combines the amounts in our Unaudited Condensed Consolidated Statement of Operations for the twelve months ended June 30, 2024 with the amounts in the Unaudited Statement of Operations of ESG for the twelve months ended June 30, 2024. Our Unaudited Consolidated Statement of Operations for the twelve months ended June 30, 2024 is derived by adding the amounts in our Unaudited Condensed Consolidated Statement of Operations for the six months ended June 30, 2024 to the amounts in our audited Condensed Consolidated Statement of Operations for the year ended December 31, 2023 and subtracting the amounts in our Unaudited Condensed Consolidated Statement of Operations for the six months ended June 30, 2023. The Unaudited Statement of Operations of ESG for the twelve months ended June 30, 2024 is derived by adding the amounts in the Unaudited Statement of Operations of ESG for the six months ended June 30, 2024 to the amounts in the audited Statement of Operations of ESG for the year ended December 31, 2023 and subtracting the amounts in the Unaudited Statement of Operations of ESG for the six months ended June 30, 2023. The financial statements of ESG have been carved out of the financial statements of Dover, and may not necessarily be indicative of the amounts that would have been reflected in ESG's financial statements had ESG operated independently of Dover.
The Unaudited Pro Forma Condensed Combined Financial Statements were prepared using the purchase method of accounting with Terex treated as the acquiring entity. Accordingly, the aggregate value of the consideration to be paid by Terex to complete the Acquisition will be allocated to the assets acquired and liabilities assumed in the Acquisition based upon their estimated fair values as of the date of the Acquisition. Terex has not completed the detailed valuations necessary to estimate the fair value of the assets acquired and the liabilities assumed in the Acquisition and the related allocations of purchase price, nor has Terex identified all adjustments necessary to conform ESG’s accounting policies to Terex’s accounting policies. Additionally, a final determination of the fair value of assets acquired and liabilities assumed in the Acquisition will be based on the actual net tangible and intangible assets and liabilities of ESG that exist as of the date of the Acquisition. Accordingly, the pro forma purchase price adjustments are preliminary, are subject to further adjustments as additional information becomes available and as additional analyses are performed and have been made solely for the purpose of providing the Unaudited Pro Forma Condensed Combined Financial Statements. Terex estimated the fair value of ESG’s assets and liabilities based on discussion with ESG’s management, due diligence, benchmarking against peer data, and information presented in public filings. As the final valuations are performed, increases or decreases in the fair value of relevant balance sheet amounts and their useful lives will result in adjustments, which may be material, to the balance sheet and/or the statement of income.
The unaudited pro forma adjustments are based upon currently available information, estimates and assumptions that Terex’s management believes are reasonable as of the date hereof. The pro forma adjustments and related assumptions are described in the accompanying notes presented on the following pages, which should be read together with the Unaudited Pro Forma Condensed Combined Financial Statements. Additionally, Terex is still in the process of identifying and evaluating any accounting policy differences that would require conformity of policy and any pro forma adjustments needed to reflect the same. Following the Acquisition, we will conduct a review of ESG’s accounting policies in an effort to determine if differences in accounting policies require reclassification of ESG’s results of operations or reclassification of assets or liabilities to conform to our accounting policies and classifications. As a result of that review, we may identify differences between the accounting policies of the two companies that, when conformed, could have a material impact on these Unaudited Pro Forma Condensed Combined Financial Statements. We are not currently aware of any material difference between the accounting policies of the two companies, and, accordingly, these Unaudited Pro Forma Condensed Combined Financial Statements do not assume any material difference in accounting policies between the two companies.
1
These Unaudited Pro Forma Condensed Combined Financial Statements have been developed from and should be read in conjunction with (1) the unaudited condensed consolidated financial statements of Terex contained in Terex’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2024, filed with the SEC on July 31, 2024, (2) the audited consolidated financial statements of Terex contained in Terex’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on February 9, 2024, (3) the unaudited condensed combined financial statements of ESG for the six-month periods ended June 30, 2024 and June 30, 2023 contained in Terex’s Current Report on Form 8-K filed with the SEC on September 30, 2024 and (4) the audited combined financial statements of ESG for the fiscal year ended December 31, 2023 contained in Terex’s Current Report on Form 8-K filed with the SEC on September 30, 2024. The Unaudited Pro Forma Condensed Combined Financial Statements are provided for illustrative purposes only and do not purport to represent Terex consolidated results of operations or consolidated financial position had the Acquisition and the Financing Transactions occurred on the dates assumed, nor are these financial statements necessarily indicative of the future consolidated results of operations or consolidated financial position of Terex. The actual results may differ materially from those reflected in the Unaudited Pro Forma Condensed Combined Financial Statements for a number of reasons, including, but not limited to, differences between the assumptions used to prepare the Unaudited Pro Forma Condensed Combined Financial Statements and actual amounts. We will be required to prepare final pro forma financial statements in accordance with Article 11 of Regulation S-X following the consummation of the Financing Transactions and the Acquisition. No assurance can be made that differences may not exist.
Except as expressly set forth in the Notes thereto, the Unaudited Pro Forma Condensed Combined Financial Statements do not reflect the costs or benefits that may result from the Acquisition.
2
Unaudited
Pro Forma Condensed Combined Balance Sheet
June 30, 2024
(dollars in millions)
| Historical | Pro Forma | |||||||||||||||||||||
| Terex | ESG | Financing Transactions Adjustments | Purchase Accounting Adjustments | Pro Forma | ||||||||||||||||||
| (a) | (b) | |||||||||||||||||||||
| Assets | ||||||||||||||||||||||
| Current assets | ||||||||||||||||||||||
| Cash and cash equivalents | $ | 319.3 | $ | — | $ | (45.7 | ) | (c) | $ | (27.3 | ) | (j) | $ | 246.3 | ||||||||
| Receivables | 719.4 | 117.1 | 836.5 | |||||||||||||||||||
| Inventories | 1,232.8 | 76.5 | 7.0 | (h) | 1,316.3 | |||||||||||||||||
| Prepaid and other current assets | 130.1 | 2.4 | 0.4 | (c) | 132.9 | |||||||||||||||||
| Total current assets | 2,401.6 | 196.0 | (45.3 | ) | (20.3 | ) | 2,532.0 | |||||||||||||||
| Non-current assets | ||||||||||||||||||||||
| Property, plant and equipment – net | 574.5 | 62.3 | 43.3 | (g) | 680.1 | |||||||||||||||||
| Goodwill | 291.3 | 130.3 | 876.8 | (f), (k) | 1,298.4 | |||||||||||||||||
| Intangible assets – net | 14.1 | 36.0 | 844.5 | (e) | 894.6 | |||||||||||||||||
| Other assets | 498.0 | 8.9 | 1.8 | (c) | 2.7 | (k) | 511.4 | |||||||||||||||
| Total assets | $ | 3,779.5 | $ | 433.5 | $ | (43.5 | ) | $ | 1,747.0 | $ | 5,916.5 | |||||||||||
| Liabilities and Stockholders’ Equity | ||||||||||||||||||||||
| Current liabilities | ||||||||||||||||||||||
| Current portion of long-term debt | $ | 3.4 | $ | 50.8 | $ | (50.8 | ) | (d) | $ | 3.4 | ||||||||||||
| Trade accounts payable | 703.7 | 115.7 | (2.2 | ) | (j) | 817.2 | ||||||||||||||||
| Accrued compensation and benefits | 98.6 | 14.5 | 113.1 | |||||||||||||||||||
| Deferred revenue | — | 12.9 | 12.9 | |||||||||||||||||||
| Other current liabilities | 282.2 | 20.0 | 302.2 | |||||||||||||||||||
| Total current liabilities | 1,087.9 | 213.9 | — | (53.0 | ) | 1,248.8 | ||||||||||||||||
| Non-current liabilities | ||||||||||||||||||||||
| Long-term debt, less current portion | 662.2 | 241.4 | 1,956.5 | (c) | (241.4 | ) | (d) | 2,618.7 | ||||||||||||||
| Other non-current liabilities | 205.5 | 38.2 | 243.7 | |||||||||||||||||||
| Total liabilities | 1,955.6 | 493.5 | 1,956.5 | (294.4 | ) | 4,111.2 | ||||||||||||||||
| Commitments and contingencies | ||||||||||||||||||||||
| Stockholders’ equity | ||||||||||||||||||||||
| Common stock, $0.01 par value – authorized 300.0 shares; issued 85.1 shares at June 30, 2024 | 0.9 | 0.9 | ||||||||||||||||||||
| Additional paid-in capital | 909.0 | (2,000.0 | ) | (c) | 2,000.0 | (c) | 909.0 | |||||||||||||||
| Retained earnings | 1,900.8 | (60.0 | ) | 41.4 | (i), (j), (k) | 1,882.2 | ||||||||||||||||
| Accumulated other comprehensive income (loss) | (342.7 | ) | (342.7 | ) | ||||||||||||||||||
| Less cost of shares of common stock in treasury – 18.8 shares at June 30, 2024 | (644.1 | ) | (644.1 | ) | ||||||||||||||||||
| Total stockholders’ equity | 1,823.9 | (60.0 | ) | (2,000.0 | ) | 2,041.4 | 1,805.3 | |||||||||||||||
| Total liabilities and stockholders’ equity | $ | 3,779.5 | $ | 433.5 | $ | (43.5 | ) | $ | 1,747.0 | $ | 5,916.5 | |||||||||||
See accompanying notes to the unaudited pro forma condensed combined financial statements.
3
Unaudited
Pro Forma Condensed Combined Statements of Operations
For the Twelve Months Ended June 30,
2024
(dollars in millions)
| Historical | Pro Forma | |||||||||||||||||||||
| Terex | ESG | Financing Transactions Adjustments | Purchase Accounting Adjustments | Pro Forma | ||||||||||||||||||
| (l) | (m) | |||||||||||||||||||||
| Net sales | $ | 5,186.9 | $ | 835.5 | $ | 6,022.4 | ||||||||||||||||
| Cost of goods sold | (4,006.2 | ) | (600.5 | ) | (12.4 | ) | (n), (o) | (4,619.1 | ) | |||||||||||||
| Gross profit | 1,180.7 | 235.0 | — | (12.4 | ) | 1,403.3 | ||||||||||||||||
| Selling, general and administrative expenses | (550.4 | ) | (90.9 | ) | (50.8 | ) | (o), (p) | (692.1 | ) | |||||||||||||
| Income (loss) from operations | 630.3 | 144.1 | — | (63.2 | ) | 711.2 | ||||||||||||||||
| Other income (expense) | ||||||||||||||||||||||
| Interest income | 10.1 | — | 10.1 | |||||||||||||||||||
| Interest expense | (63.6 | ) | (24.7 | ) | (128.7 | ) | (r), (s), (t) | 24.7 | (w) | (192.3 | ) | |||||||||||
| Other income (expense) – net | (11.5 | ) | — | (25.0 | ) | (q), (u) | (36.5 | ) | ||||||||||||||
| Income (loss) from continuing operations before income taxes | 565.3 | 119.4 | (128.7 | ) | (63.5 | ) | 492.5 | |||||||||||||||
| (Provision for) benefit from income taxes | (69.1 | ) | (28.8 | ) | 30.9 | (v) | 15.2 | (v) | (51.8 | ) | ||||||||||||
| Income (loss) from continuing operations | 496.2 | 90.6 | (97.8 | ) | (48.3 | ) | 440.7 | |||||||||||||||
| Gain (loss) on disposition of discontinued operations – net of tax | (1.0 | ) | — | (1.0 | ) | |||||||||||||||||
| Net income (loss) | $ | 495.2 | $ | 90.6 | $ | (97.8 | ) | $ | (48.3 | ) | $ | 439.7 | ||||||||||
| Basic earnings (loss) per share: | ||||||||||||||||||||||
| Income (loss) from continuing operations | $ | 7.39 | $ | 6.57 | ||||||||||||||||||
| Gain (loss) on disposition of discontinued operations – net of tax | (0.01 | ) | (0.02 | ) | ||||||||||||||||||
| Net income (loss) | $ | 7.38 | $ | 6.55 | ||||||||||||||||||
| Diluted earnings (loss) per share: | ||||||||||||||||||||||
| Income (loss) from continuing operations | $ | 7.32 | $ | 6.50 | ||||||||||||||||||
| Gain (loss) on disposition of discontinued operations – net of tax | (0.02 | ) | (0.01 | ) | ||||||||||||||||||
| Net income (loss) | $ | 7.30 | $ | 6.49 | ||||||||||||||||||
| Weighted average number of shares outstanding in per share calculation | ||||||||||||||||||||||
| Basic | 67.1 | 67.1 | ||||||||||||||||||||
| Diluted | 67.8 | 67.8 | ||||||||||||||||||||
See accompanying notes to the unaudited pro forma condensed combined financial statements.
4
Unaudited
Pro Forma Condensed Combined Statements of Operations
For the Six Months Ended June 30,
2024
(dollars in millions)
| Historical | Pro Forma | |||||||||||||||||||||
| Terex | ESG | Financing Transactions Adjustments | Purchase Accounting Adjustments | Pro Forma | ||||||||||||||||||
| (l) | (m) | |||||||||||||||||||||
| Net sales | $ | 2,674.2 | $ | 439.7 | $ | 3,113.9 | ||||||||||||||||
| Cost of goods sold | (2,048.5 | ) | (311.5 | ) | (2.7 | ) | (o) | (2,362.7 | ) | |||||||||||||
| Gross profit | 625.7 | 128.2 | — | (2.7 | ) | 751.2 | ||||||||||||||||
| Selling, general and administrative expenses | (274.3 | ) | (48.4 | ) | (25.4 | ) | (o), (p) | (348.1 | ) | |||||||||||||
| Income (loss) from operations | 351.4 | 79.8 | — | (28.1 | ) | 403.1 | ||||||||||||||||
| Other income (expense) | ||||||||||||||||||||||
| Interest income | 5.6 | — | 5.6 | |||||||||||||||||||
| Interest expense | (30.6 | ) | (12.4 | ) | (64.3 | ) | (r), (s), (t) | 12.4 | (w) | (94.9 | ) | |||||||||||
| Other income (expense) – net | (15.8 | ) | (0.4 | ) | 2.3 | (u) | (13.9 | ) | ||||||||||||||
| Income (loss) from continuing operations before income taxes | 310.6 | 67.0 | (64.3 | ) | (13.4 | ) | 299.9 | |||||||||||||||
| (Provision for) benefit from income taxes | (61.4 | ) | (16.4 | ) | 15.4 | (v) | 3.2 | (v) | (59.2 | ) | ||||||||||||
| Income (loss) from continuing operations | 249.2 | 50.6 | (48.9 | ) | (10.2 | ) | 240.7 | |||||||||||||||
| Gain (loss) on disposition of discontinued operations – net of tax | — | — | — | |||||||||||||||||||
| Net income (loss) | $ | 249.2 | $ | 50.6 | $ | (48.9 | ) | $ | (10.2 | ) | $ | 240.7 | ||||||||||
| Basic earnings (loss) per share: | ||||||||||||||||||||||
| Income (loss) from continuing operations | $ | 3.71 | $ | 3.59 | ||||||||||||||||||
| Gain (loss) on disposition of discontinued operations – net of tax | – | – | ||||||||||||||||||||
| Net income (loss) | $ | 3.71 | $ | 3.59 | ||||||||||||||||||
| Diluted earnings (loss) per share: | ||||||||||||||||||||||
| Income (loss) from continuing operations | $ | 3.68 | $ | 3.55 | ||||||||||||||||||
| Gain (loss) on disposition of discontinued operations – net of tax | – | – | ||||||||||||||||||||
| Net income (loss) | $ | 3.68 | $ | 3.55 | ||||||||||||||||||
| Weighted average number of shares outstanding in per share calculation | ||||||||||||||||||||||
| Basic | 67.1 | 67.1 | ||||||||||||||||||||
| Diluted | 67.8 | 67.8 | ||||||||||||||||||||
See accompanying notes to the unaudited pro forma condensed combined financial statements.
5
Unaudited Pro Forma Condensed Combined Statements
of Operations
For the Year Ended December 31, 2023
(dollars in millions)
| Historical | Pro Forma | |||||||||||||||||||||
| Terex | ESG | Financing Transactions Adjustments | Purchase Accounting Adjustments | Pro Forma | ||||||||||||||||||
| (l) | (m) | |||||||||||||||||||||
| Net sales | $ | 5,151.5 | $ | 753.6 | $ | 5,905.1 | ||||||||||||||||
| Cost of goods sold | (3,974.9 | ) | (550.2 | ) | (12.4 | ) | (n), (o) | (4,537.5 | ) | |||||||||||||
| Gross profit | 1,176.6 | 203.4 | — | (12.4 | ) | 1,367.6 | ||||||||||||||||
| Selling, general and administrative expenses | (540.1 | ) | (84.2 | ) | (49.9 | ) | (o), (p) | (674.2 | ) | |||||||||||||
| Income (loss) from operations | 636.5 | 119.2 | — | (62.3 | ) | 693.4 | ||||||||||||||||
| Other income (expense) | ||||||||||||||||||||||
| Interest income | 7.6 | — | 7.6 | |||||||||||||||||||
| Interest expense | (63.3 | ) | (23.6 | ) | (128.7 | ) | (r), (s), (t) | 23.6 | (w) | (192.0 | ) | |||||||||||
| Other income (expense) – net | (1.1 | ) | 0.6 | (27.3 | ) | (q) | (27.8 | ) | ||||||||||||||
| Income (loss) from continuing operations before income taxes | 579.7 | 96.2 | (128.7 | ) | (66.0 | ) | 481.2 | |||||||||||||||
| (Provision for) benefit from income taxes | (63.0 | ) | (23.0 | ) | 30.9 | (v) | 15.8 | (v) | (39.3 | ) | ||||||||||||
| Income (loss) from continuing operations | 516.7 | 73.2 | (97.8 | ) | (50.2 | ) | 441.9 | |||||||||||||||
| Gain (loss) on disposition of discontinued operations – net of tax | 1.3 | — | 1.3 | |||||||||||||||||||
| Net income (loss) | $ | 518.0 | $ | 73.2 | $ | (97.8 | ) | $ | (50.2 | ) | $ | 443.2 | ||||||||||
| Basic earnings (loss) per share: | ||||||||||||||||||||||
| Income (loss) from continuing operations | $ | 7.65 | $ | 6.55 | ||||||||||||||||||
| Gain (loss) on disposition of discontinued operations – net of tax | 0.02 | 0.02 | ||||||||||||||||||||
| Net income (loss) | $ | 7.67 | $ | 6.57 | ||||||||||||||||||
| Diluted earnings (loss) per share: | ||||||||||||||||||||||
| Income (loss) from continuing operations | $ | 7.56 | $ | 6.47 | ||||||||||||||||||
| Gain (loss) on disposition of discontinued operations – net of tax | 0.02 | 0.02 | ||||||||||||||||||||
| Net income (loss) | $ | 7.58 | $ | 6.49 | ||||||||||||||||||
| Weighted average number of shares outstanding in per share calculation | ||||||||||||||||||||||
| Basic | 67.5 | 67.5 | ||||||||||||||||||||
| Diluted | 68.3 | 68.3 | ||||||||||||||||||||
See accompanying notes to the unaudited pro forma condensed combined financial statements.
6
Notes to the Unaudited Pro Forma Condensed Combined Financial Statements
Note 1 - Basis of Presentation
The Unaudited Pro Forma Condensed Combined Balance Sheet as of June 30, 2024 and the Unaudited Pro Forma Condensed Combined Statements of Operations for the twelve months ended June 30, 2024, the six months ended June 30, 2024 and the year ended December 31, 2023 were prepared in accordance with the U.S. Securities and Exchange Commission Regulation S-X Article 11 and Accounting Standards Codification 805, “Business Combinations". These rules require adjustments to the assets and liabilities acquired based on their fair values, identification and measurement of intangible assets and related changes in depreciation and amortization expense. Pro forma adjustments are also required to reflect the effects of debt issuance and the use of cash to fund the Acquisition. The historical audited consolidated financial statements and unaudited condensed consolidated financial statements of Terex and ESG were prepared in accordance with US GAAP.
The accompanying Unaudited Pro Forma Condensed Combined Financial Statements present the pro forma consolidated financial position and results of operations of Terex based upon the historical financial statements of Terex and ESG, after giving effect to the Acquisition, the Financing Transactions and the other adjustments described in these notes, and are intended to reflect the impact of the Acquisition and the Financing Transactions on Terex’s consolidated financial statements.
The accompanying Unaudited Pro Forma Condensed Combined Financial Statements are presented for illustrative purposes only and do not reflect the costs of any integration activities or benefits that may result from the Acquisition or what the Terex consolidated results of operations or consolidated financial position would have been had the Acquisition and the Financing Transactions occurred on the dates assumed, nor are they indicative of the future consolidated results of operations or financial position of Terex and they are based on the information available at the time of their preparation. Actual results may differ materially from those reflected in the Unaudited Pro Forma Condensed Combined Financial Statements for a number of reasons, including, but not limited to, differences between the assumptions used to prepare the Unaudited Pro Forma Condensed Combined Financial Statements and actual amounts.
The Unaudited Pro Forma Condensed Combined Balance Sheet as of June 30, 2024 is intended to present the combined balance sheet of Terex after giving effect to the Acquisition and the Financing Transactions as if they had occurred on June 30, 2024 and includes estimated pro forma adjustments for the preliminary valuations of net assets acquired and liabilities assumed. These adjustments are subject to further revision as additional information becomes available and additional analyses are performed. The Unaudited Pro Forma Condensed Combined Statements of Operations for the twelve months ended June 30, 2024 are intended to present the combined statements of operations of Terex after giving effect to the Acquisition and the Financing Transactions as if they had closed on July 1, 2023. The Unaudited Pro Forma Condensed Combined Statements of Operations for the six months ended June 30, 2024 and the year ended December 31, 2023 are intended to present the combined statements of operations of Terex after giving effect to the Acquisition and the Financing Transactions as if they had occurred on January 1, 2023.
The Unaudited Pro Forma Condensed Combined Balance Sheet has been adjusted to reflect the identifiable assets acquired, and liabilities assumed of the acquiree. The purchase price allocation in these Unaudited Pro Forma Condensed Combined Financial Statements is based upon a purchase price of approximately $2.0 billion.
7
Note 2 - Preliminary Purchase Price Allocation
As described elsewhere herein, the aggregate purchase price for the Acquisition was $2 billion in cash, subject to customary escrow arrangements and a purchase price adjustment related to, among other things, the amount of ESG working capital.
The Acquisition is accounted for as a business combination in accordance with the Financial Accounting Standards Board Accounting Standards Codification ("ASC") 805, Business Combinations, which requires the establishment of a new basis of accounting for all identifiable assets acquired and liabilities assumed at fair value as of the Acquisition completion date. Accordingly, the cost to acquire such interests will be allocated to the underlying net assets based on their respective fair values. Any excess of the purchase price over the estimated fair value of the net assets acquired will be recorded as goodwill. The allocation of the purchase price to all identifiable tangible and intangible assets acquired and liabilities assumed reflected in the Unaudited Pro Forma Condensed Combined Financial Statements is based on preliminary estimates of fair value as of June 30, 2024 using assumptions that our management believes are reasonable based on currently available information. The amounts set forth in the table below are preliminary and subject to revision based on the final determinations of the purchase price following any post-closing adjustment and of fair value and the final allocation of the purchase price to the assets and liabilities of ESG, and the revisions could be material. We have one year from the closing date of the Acquisition to finalize these amounts.
The following table summarizes the fair values of the ESG assets acquired and liabilities assumed from ESG based on the preliminary estimate by Terex of their respective fair values as of September 13, 2024.
| (in millions) | ||||
| Current Assets | $ | 203.0 | ||
| Property, plant & equipment | 105.7 | |||
| Identified intangibles subject to amortization | 880.5 | |||
| Goodwill | 1,003.3 | |||
| Other non-current assets | 8.8 | |||
| Liabilities assumed | (201.3 | ) | ||
| Net Assets acquired | $ | 2,000.0 | ||
Upon completion of the fair value assessment, Terex anticipates that the net assets acquired will differ from the preliminary assessment outlined above. Any changes to the initial estimates of fair value of the assets and liabilities will be recorded as adjustments to those assets and liabilities and residual amounts will be allocated to goodwill.
Note 3 - Financing Transactions and Offering Adjustments
Contemporaneous with entering into the Transaction Agreement, Terex entered into (1) a commitment letter (the “Original Commitment Letter”), dated July 21, 2024, with UBS Securities LLC (“UBS Securities”) and UBS AG, Stamford Branch (“UBS AG” and, together with UBS Securities and their respective affiliates, “UBS”), pursuant to which and upon the terms and subject to the conditions set forth in such letter, UBS agreed to provide committed debt financing in an aggregate principal amount of up to $1,545.0 million (the “Original Commitment”), including a senior unsecured bridge loan facility (the “Bridge Facility”) of up to $750.0 million in the aggregate for the purpose of providing the financing necessary to fund a portion of the consideration to be paid pursuant to the Transaction Agreement and to pay related fees, costs and expenses (the “Bridge Loan Commitment”), and (2) an Incremental Assumption and Amendment Agreement and Amendment with UBS AG (the “Incremental Agreement”) relating to our credit agreement, which (a) established delayed draw term loan commitments (the “Delayed Draw Facility”) in the amount of $455.0 million to be provided by UBS AG as the initial delayed draw term lender and (b) concurrently amended our credit agreement to establish the delayed draw term loan commitments and to provide that the Acquisition be considered a limited condition acquisition thereunder. The Bridge Loan Commitment will be reduced on a dollar-for-dollar basis by 100% of the gross cash proceeds from the notes offering.
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Contemporaneously with the consummation of the Acquisition, Terex expects to amend the credit agreement (i) to increase the size of the revolving credit facility to $800.0 million from $600.0 million and to extend the maturity of the revolving credit facility to 2029 (as so amended, the “New Revolving Credit Facility”) and (ii) to provide for a new term loan facility (the “Acquisition Term Facility” and, together with the New Revolving Credit Facility, the “Acquisition Facilities”) which will mature in 2031 and pursuant to which we may incur term loans in an aggregate amount of up to $1,250.0 million (the “Acquisition Term Loans”). Upon closing of the Acquisition, Terex expects to incur $1,250.0 million of Acquisition Term Loans under the Acquisition Term Facility and to reduce the commitments under the Delayed Draw Facility to zero. For the purposes of preparing these Pro Forma Combined Condensed Financial Statements, Terex has assumed that the Acquisition Term Loans were borrowed at an initial price of 99.5% of the aggregate principal amount thereof and that the notes were issued at par.
Terex intends to use the proceeds from the offering of the notes together with borrowings under the Acquisition Term Facility and cash on hand, to consummate the Acquisition and to pay related fees, costs and expenses. The $40.0 million of outstanding borrowings under Terex’s existing revolving credit facilities as of June 30, 2024 is no longer outstanding as of September 30, 2024.
Note 4 - Pro Forma Adjustments
Adjustments to the Unaudited Pro Forma Condensed Combined Balance Sheet as of June 30, 2024
| (a) | Represents Terex’s historical unaudited condensed consolidated balance sheet as of June 30, 2024, included in Terex’s Form 10-Q filed with the SEC on July 31, 2024. |
| (b) | Represents ESG’s historical unaudited condensed combined balance sheet as of June 30, 2024, included in Terex’s Current Report on Form 8-K filed with the SEC on September 30, 2024. |
| (c) | Adjustment to reflect the cash expected to be paid to acquire ESG of $2,000.0 million, which is comprised of $1,243.7 million in proceeds from issuance of the Acquisition Term Loans (net of original issue discount of $6.3 million) and $750.0 million in gross proceeds from the offering of the notes. Adjustments to reduce cash by (x) $39.4 million paid related to debt issuance costs (which were capitalized as $37.2 million in Long term debt, $1.8 million in Other assets and $0.4 million in Prepaid and other current assets) and (y) $6.3 million of original issue discount in respect of the Acquisition Term Loans. |
| (d) | Represents the settlement of ESG Notes payable to Dover that will not be transferred at closing pursuant to the terms of the Transaction Agreement. |
| (e) | Represents the elimination of historical values of the ESG intangibles of $36.0 million and preliminary recognition of $880.5 million of identifiable intangible assets attributable to the Acquisition. |
| (f) | Represents the elimination of $130.3 million of historical goodwill of ESG and the preliminary recognition of $1,003.3 million of goodwill pertaining to this Acquisition. As negotiated and agreed to with Dover, Terex intends to make a 338(h)(10) election under the Code, which will treat the stock purchase of ESG as an asset purchase for U.S. federal tax purposes, resulting in tax-deductible goodwill amortized over 15 years. Tax deductible goodwill is preliminary and will be adjusted upon finalization of purchase price allocation under Section 338 of the Code, including an analysis of transaction costs capitalized for tax purposes and contingent liabilities. |
| (g) | Represents fair value step up adjustment of $43.3 million to existing property, plant and equipment. |
| (h) | Represents fair value step up adjustment of $7.0 million to existing inventory. |
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| (i) | Reflects elimination of the historical ESG’s stockholders’ deficit of $60.0 million, which represented ESG’s retained earnings. |
| (j) | Represents the payment of the estimated Acquisition costs of $27.3 million as a reduction to Cash and Retained earnings (representing $20.8 million, net of tax benefits of $6.5 million). Refer to footnote (k) for further details regarding the adjustment described in the preceding sentence. Also includes an adjustment to, and release of the accrual of, $2.2 million of Acquisition costs recorded during the period as a decrease to Trade accounts payable and an increase to Retained earnings. For tax purposes, the estimated Acquisition costs are expected to be capitalized and tax-deductible (refer to footnote (q) for further details). |
| (k) | Represents $2.7 million of net increase in deferred tax assets recorded as an increase to Other Assets, resulting from the elimination of $3.8 million of historical net deferred tax assets of ESG recorded as an increase to Goodwill and the recognition of a $6.5 million deferred tax asset related to transaction costs recorded as an increase to Retained earnings (refer to footnote (q) for further details). For the elimination of the ESG deferred tax assets, Terex estimated the elimination amount based on the audited combined financial statements of ESG for the fiscal year ended December 31, 2023. Terex assumes adjustments to uncertain tax positions acquired will be immaterial and therefore, no pro forma adjustments have been presented. Unrecognized tax benefits are subject to further analysis post-closing. |
Adjustments to the Unaudited Pro Forma Condensed Combined Statement of Operations
| (l) | Represents Terex’s historical statement of operations for the twelve months ended June 30, 2024, the six months ended June 30, 2024, and the year ended December 31, 2023. The historical unaudited statement of operations for the six months ended June 30, 2024 is included in Terex’s Form 10-Q filed with the SEC on July 31, 2024 and the audited statement of operations for the year ended December 31, 2023 is included in Terex’s Form 10-K filed with the SEC on February 9, 2024. The historical statements of operations for the twelve months ended June 30, 2024 have been derived by taking the December 31, 2023 historical information, subtracting the six months ended June 30, 2023 historical information and then adding the six months ended June 30, 2024 historical information. |
| (m) | Represents ESG’s historical consolidated statement of operations for the twelve months ended June 30, 2024, the six months ended June 30, 2024, and the year ended December 31, 2023. The historical unaudited statement of operations for the six months ended June 30, 2024 and the historical audited statement of operations for the year ended December 31, 2023 are included in Terex’s Current Report on Form 8-K filed with the SEC on September 30, 2024. The historical statements of operations for the twelve months ended June 30, 2024 have been derived by taking the December 31, 2023 historical information, subtracting the six months ended June 30, 2023 historical information and then adding the six months ended June 30, 2024 historical information. |
| (n) | Represents adjustment to increase cost of goods sold by $7.0 million for the twelve months ended June 30, 2024 and $7.0 million for the year ended December 31, 2023. It is expected that the fair value step-up of the existing inventory will result in an increase to cost of goods sold as the existing inventory is expected to be sold within one year of the Acquisition. |
| (o) | Represents incremental depreciation expense of $6.0 million ($5.4 million to Cost of goods sold and $0.6 million to Selling, general and administrative expenses), $3.0 million ($2.7 million to Cost of goods sold and $0.3 million to Selling, general and administrative expenses), and $6.0 million ($5.4 million to Cost of goods sold and $0.6 million to Selling, general and administrative expenses) for the twelve months ended June 30, 2024, the six months ended June 30, 2024, and the year ended December 31, 2023, respectively. These expenses are a result of the fair value increases to the carrying value of property, plant and equipment. Referring to footnote (n), the total adjustments to Cost of goods sold are $12.4 million, $2.7 million, and $12.4 million for the twelve months ended June 30, 2024, the six months ended June 30, 2024, and the year ended December 31, 2023, respectively. Referring to footnote (p), the total adjustments to Selling, general and administrative expense are $50.8 million, $25.4 million, and $49.9 million for the twelve months ended June 30, 2024, the six months ended June 30, 2024, and the year ended December 31, 2023, respectively. |
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| (p) | Represents incremental amortization expense of $50.2 million, $25.1 million, and $49.3 million for the twelve months ended June 30, 2024, the six months ended June 30, 2024, and the year ended December 31, 2023, respectively. These expenses are a result of the recognition and measurement of identified intangible assets. The incremental amortization expense is recorded in Selling, general and administrative expenses. |
| (q) | Reflects the estimated Acquisition costs of $27.3 million for the twelve months ended June 30, 2024 and the year ended December 31, 2023, for the Acquisition of ESG. For tax purposes, Terex expects to capitalize and amortize the Acquisition costs of $27.3 million over 15 years. |
| (r) | Interest expense of $122.4 million, $61.2 million, and $122.4 million for the twelve months ended June 30, 2024, the six months ended June 30, 2024, and the year ended December 31, 2023, respectively, related to debt incurred or outstanding pursuant to the Financing Transactions. The interest rate used for this calculation was 6.12%, which represents Terex’s estimated weighted average interest rate on debt incurred, issued or otherwise outstanding as described in Note 2. Each one-eighth percentage increase in interest rate would result in an increase of approximately $2.5 million in annual interest expense on a pro forma basis. |
| (s) | Amortization of debt issuance costs of $5.4 million ($3.6 million with respect to the Acquisition Term Loans, $1.4 million with respect to the notes offering and $0.4 million with respect to the New Revolving Credit Facilities), $2.7 million ($1.8 million with respect to the Acquisition Term Loans, $0.7 million with respect to the notes offering and $0.2 million with respect to the New Revolving Credit Facilities) and $5.4 million ($3.6 million with respect to the Acquisition Term Loans, $1.4 million with respect to the notes offering and $0.4 million with respect to the New Revolving Credit Facilities) for the twelve months ended June 30, 2024, the six months ended June 30, 2024, and the year ended December 31, 2023, respectively, related to the Financing Transactions. |
| (t) | Amortization of original issue discount of $0.9 million, $0.4 million, and $0.9 million for the twelve months ended June 30, 2024, the six months ended June 30, 2024, and the year ended December 31, 2023, respectively, related to the Acquisition Term Loans incurred to fund the Acquisition. |
| (u) | Acquisition related costs of $2.3 million incurred in the second quarter of 2024 were removed from the six months ended June 30, 2024. This charge was adjusted to be included in the twelve months ended June 30, 2024 and the year ended December 31, 2023. |
| (v) | A statutory tax rate of 24% was used to estimate the income tax effects of the pro forma adjustments. |
| (w) | Represents removal of interest expense related to ESG Notes payable to Dover of $24.7 million, $12.4 million, and $23.6 million for the twelve months ended June 30, 2024, the six months ended June 30, 2024, and the year ended December 31, 2023, which notes are required to be terminated on or prior to the consummation of the Acquisition pursuant to the terms of the Transaction Agreement. |
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