Terex Corporation — 2011 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2011; filed February 29, 2012. Terex is a global equipment manufacturer reporting five segments: Aerial Work Platforms (AWP), Construction, Cranes, Material Handling & Port Solutions (MHPS), and Materials Processing (MP).
Financial performance
| Metric | 2011 | 2010 |
|---|---|---|
| Net sales | $6,504.6 million | $4,418.2 million |
| Gross profit / margin | $960.3 million / 14.8% | $602.9 million / 13.6% |
| Operating income (loss) / margin | $81.2 million / 1.2% | $(73.8) million / (1.7)% |
| Income (loss) from continuing operations | $34.1 million | $(211.5) million |
| Net income attributable to Terex | $45.2 million | $358.5 million |
| Diluted earnings per share | $0.41 | $3.30 |
| Cash provided by (used in) operating activities | $19.1 million | $(610.1) million |
| Capital expenditures | $79.1 million | $55.0 million |
Sales rose 47.2% as reported; excluding foreign exchange and MHPS, sales increased approximately 29%. Each segment reported higher sales. Operating results improved by $155.0 million, led by higher volume and production, though higher input costs and selling, general and administrative expenses partly offset the gains.
Net income fell sharply from 2010 despite the return to operating profitability. The prior-year result included a $589.3 million after-tax gain on disposition of discontinued operations. In 2011, other income included a $167.8 million gain on the sale of Bucyrus shares; the sale generated $531.8 million of proceeds.
Fourth-quarter 2011 sales were $1,956.6 million and gross profit was $302.6 million. Terex reported a $4.2 million loss from continuing operations attributable to common stockholders and a $2.9 million net loss attributable to Terex, compared with fourth-quarter 2010 sales of $1,326.6 million and net loss of $45.3 million.
Liquidity, debt, and balance sheet
- At year-end, cash and cash equivalents were $774.1 million; current assets were $4,013.5 million and current liabilities were $1,891.7 million.
- Total debt was $2,300.4 million, up from $1,686.3 million. Terex reported $438.2 million available under its revolving credit facilities and stated total liquidity of $1,270.2 million.
- Operating cash flow improved substantially from 2010 but remained modestly positive at $19.1 million. Fourth-quarter free cash flow, a company-defined non-GAAP measure, was $168.0 million.
- Terex acquired approximately 81% of Demag Cranes AG in August for approximately $1.1 billion, bringing its ownership to about 82%. The acquisition was principally funded with new term loans and cash. The company also repaid $297.6 million principal of its 7⅜% notes in January.
- Working capital remained a significant funding need: year-end inventory was $1,758.1 million and trade receivables were $1,178.1 million. Approximately $133 million of Demag cash was restricted to supporting its operations pending the DPLA.
Changes by segment and other notable items
- AWP: Sales rose 62.6% to $1,750.0 million; operating income increased to $86.3 million. Backlog more than doubled, supported by fleet replacement demand.
- Construction: Sales rose 39.3% to $1,505.6 million, but the segment remained loss-making, with an operating loss of $18.4 million. Roadbuilding demand remained weak.
- Cranes: Sales increased 12.3% to $1,999.7 million, but operating results shifted to a $19.8 million loss from $33.5 million income. Higher material costs, unfavorable mix, and restructuring weighed on results.
- MHPS: Included only from the Demag acquisition date; reported sales of $617.0 million and an operating loss of $19.2 million. Results included approximately $41 million of acquisition-date inventory revaluation charges.
- MP: Sales rose 28.1% to $682.8 million and operating income increased to $59.5 million.
- Year-end total backlog was $2,160.7 million, up from $1,298.0 million, including $468.5 million from MHPS. Backlog represents firm orders expected to be filled within one year and is not a guarantee of future sales.
Outlook, risks, and contingencies
Management forecast 2012 sales of $7.5–$8.0 billion, approximately 15%–20% above 2011 and about 5% higher excluding acquisitions; operating income of $475–$525 million; and adjusted EPS of $1.65–$1.85, excluding restructuring and unusual items. The forecast assumed no material worsening of the European debt crisis. Expected capital expenditures were approximately $140 million, interest expense approximately $145 million, and effective tax rate 38%. These are management estimates, not guarantees.
Management emphasized profit improvement and cash generation over sales growth, with Demag integration a priority. Segment operating-margin expectations were 10%–11% for AWP, 2%–3% for Construction, 5%–6% for Cranes, 4.5%–5.5% for MHPS, and 10%–11% for MP. MHPS guidance included approximately $60 million of purchase-accounting and corporate-allocation expense and excluded integration benefits.
- Key risks include cyclical demand, the European debt crisis, government infrastructure spending, customer financing and credit quality, supplier availability and input-cost inflation, foreign exchange, and debt covenant compliance. About 63% of debt was floating-rate; management estimated a 10% increase in average floating rates would add approximately $7 million of annual interest expense.
- Credit, residual-value, and buyback guarantees had maximum exposures of $126.4 million, $13.5 million, and $103.4 million, respectively; the recorded liability for all guarantees was approximately $12 million.
- A Bucyrus post-closing dispute seeks approximately $149 million from Terex; Terex contests the claim, and the matter was pending adjudication.
- Metso obtained a patent-infringement judgment relating to older Powerscreen screening-plant designs. Additional damages and doubled amounts were awarded, but the final monetary total was not yet determined. Terex appealed; the affected designs had been updated.
- Securities, ERISA, and derivative lawsuits remained pending; Terex said it could not estimate a loss or range. Management also identified an approximately $160 million tax payment due in the first quarter of 2012.
- The Demag acquisition’s purchase-price allocation remained provisional. Management and the auditor excluded Demag from their 2011 internal-control assessment because of the timing of the acquisition; Demag represented approximately 9% of consolidated revenue and 15% of assets.
Important facts for investors to verify
- Whether 2012 sales, operating-income, EPS, and segment-margin guidance was achieved, and how much resulted from acquisition effects versus underlying growth.
- Cash conversion and working-capital trends, given positive but low full-year operating cash flow, high inventories, and the company’s stated focus on cash generation.
- Debt, covenant headroom, floating-rate exposure, and liquidity after Demag-related funding needs, the DPLA, and scheduled tax payments.
- Final outcomes and financial effects of the Bucyrus dispute, Metso appeal, and securities-related lawsuits; also monitor Demag integration and completion of its purchase accounting.