Terex Corporation — FY 2009 Form 10-K
Reporting period: Year ended December 31, 2009; filed February 24, 2010. The filing also reports unaudited quarterly results, including Q4 2009. Terex manufactures equipment across Aerial Work Platforms, Construction, Cranes and Materials Processing. Mining and construction trailer operations are reported as discontinued operations; the Mining sale closed February 19, 2010, after year-end.
Financial performance and liquidity
| Metric | FY 2009 | FY 2008 |
|---|---|---|
| Continuing-operations net sales | $4.043 billion | $8.387 billion |
| Gross profit / margin | $274.9 million / 6.8% | $1.571 billion / 18.7% |
| Operating income (loss) / margin | $(459.9) million / (11.4)% | $174.5 million / 2.1% |
| Income (loss) from continuing operations | $(449.6) million | $(70.2) million |
| Net income (loss) attributable to Terex | $(398.4) million | $71.9 million |
| Diluted EPS | $(3.88) | $0.73 |
| Cash from continuing operations | $(68.6) million | $151.0 million |
| Capital expenditures | $51.4 million | $106.1 million |
| Debt, including current portion | $1.966 billion | $1.436 billion |
| Cash and cash equivalents, continuing operations | $929.5 million | $450.4 million |
Quarterly data show Q4 2009 sales of $1.058 billion and a net loss attributable to Terex of $142.8 million, compared with Q4 2008 sales of $1.656 billion and a loss of $421.5 million. The Q4 2008 result included a $459.9 million goodwill impairment charge.
Working-capital reductions generated $537.7 million of cash in 2009, including a $537.7 million inventory cash-flow benefit; receivables also released $321.0 million, partly offset by a $428.8 million cash use from lower trade payables. Cash used in investing activities was $55.1 million; financing activities provided $558.8 million, mainly from debt and equity offerings. The current ratio was approximately 2.5 based on reported current assets of $3.915 billion and current liabilities of $1.555 billion; both include discontinued-operation balances.
At year-end, $481.1 million was available under revolving facilities, with no revolving borrowings outstanding. The company reported no significant scheduled debt maturities until 2013, although contractual debt obligations, including expected interest, totaled $2.878 billion. After the Mining sale, Terex reported more than $1.9 billion in cash, including amounts expected to be payable for income taxes; sale consideration included approximately $1 billion cash and 5.81 million Bucyrus shares valued at approximately $300 million.
Material changes and segment results
- Continuing-operations sales fell 51.8% year over year. Management attributed the decline principally to deferred customer purchases amid the global recession; unfavorable currency translation reduced sales by approximately $269 million.
- Gross margin fell to 6.8% from 18.7%, reflecting lower volume, production under-absorption and restructuring charges. SG&A declined 21.6% to $734.8 million, but rose to 18.2% of sales from 11.2% as revenue contracted.
- Aerial Work Platforms: sales of $838.1 million, down 64.9%; operating loss of $154.0 million. Construction: sales of $951.9 million, down 55.2%; operating loss of $282.9 million. Cranes: sales of $1.964 billion, down 33.7%; operating income of $80.4 million. Materials Processing: sales of $353.6 million, down 64.2%; operating loss of $49.3 million.
- Year-end backlog declined to $1.300 billion from $2.401 billion, mainly due to Construction and Cranes; Cranes backlog was $974.1 million versus $1.938 billion. Management said large-capacity cranes remained comparatively resilient, while several other product categories faced weak demand.
- Terex raised capital in June 2009 through an $300 million 10⅞% senior-note issuance, $172.5 million of 4% convertible notes and a common-stock offering that generated $156.3 million net proceeds. Total debt increased, and net interest expense rose to $114.5 million from $81.5 million.
- The July 2009 acquisition of the Port Equipment Business added to Cranes and broadened the portfolio. Terex also recorded $92.2 million of expected restructuring costs, including 3,284 workforce reductions reported for 2009.
Outlook, risks and unusual items
- Management forecast 2010 sales of approximately $5 billion, about 24% above 2009, with roughly one-quarter of the increase attributed to currency translation and one-third to a full year of Port Equipment. It expected substantially break-even operating earnings but a net loss after interest expense. Management did not expect a significant end-market demand increase in 2010 and anticipated market recovery in 2011 and beyond.
- Longer-term stated goals included potentially doubling sales by 2013, a 12% operating margin and at least a 20% after-tax return on invested capital. These are targets, not assurances.
- The SEC settlement resulted in an $8 million penalty and an injunction, without admission or denial of allegations. For three years, absent an earlier waiver, Terex said it could not rely on the Exchange Act forward-looking-statement safe harbor and was no longer a well-known seasoned issuer. The DOJ continued a criminal antitrust investigation concerning U.S. rock-crushing and screening equipment pricing.
- Six securities- and benefits-related class-action complaints were disclosed; Terex disputed the allegations. Other exposures include product liability, customer-financing guarantees, residual-value and buyback guarantees, and tax audits. Maximum disclosed exposures at year-end included $236.3 million of credit guarantees, $26.7 million of residual-value guarantees and $138.6 million of buyback guarantees; the recorded aggregate liability for guarantees was approximately $21 million.
- Unrecognized tax benefits were $151.1 million. The filing said up to $50 million of tax payments in 2010 was reasonably possible. IRS proposed adjustments for 2005–2007 included an aggregate $427.6 million increase to taxable income; Terex disagreed and was in discussions with the IRS.
- Terex disclosed that internal and disclosure controls were effective as of December 31, 2009; the acquired Port Equipment business was excluded from management’s internal-control assessment. Implementation of a global enterprise system remained a potential operational and reporting risk.
Key facts for investors to verify
- Whether the forecast $5 billion of 2010 sales and near break-even operating result were achieved, and how much growth came from currency and the Port Equipment acquisition.
- Post-sale liquidity after taxes and required debt-agreement reinvestment or repayment deadlines; also check covenant compliance, including the $250 million minimum liquidity requirement through June 30, 2011.
- Cash generation excluding working-capital releases, particularly inventory reductions, and whether margins recover as production aligns with demand.
- Backlog conversion, cancellations and order trends by segment, especially in Cranes and Aerial Work Platforms.
- Resolution and financial effects of the DOJ investigation, class actions, tax audits and guarantee exposures; assess Bucyrus-share price risk and the effectiveness of related hedges.