Terex Corporation — 2010 Form 10-K
Reporting period: Fiscal year ended December 31, 2010; the filing also provides fourth-quarter results. Terex is a global equipment manufacturer reporting Aerial Work Platforms (AWP), Construction, Cranes and Materials Processing (MP). The year included significant portfolio changes, most notably the sale of its Mining business.
Financial performance and liquidity
| Metric | 2010 | 2009 |
|---|---|---|
| Net sales | $4,418.2 million | $3,858.4 million |
| Gross profit / margin | $602.9 million / 13.6% | $297.0 million / 7.7% |
| Operating loss / margin | $73.8 million / 1.7% | $401.7 million / 10.4% |
| Continuing-operations loss | $211.5 million | $406.4 million |
| Net income (loss) attributable to Terex | $358.5 million | $(398.4) million |
| Diluted EPS | $3.30 | $(3.88) |
| Cash used in operating activities | $610.1 million | $40.6 million |
| Capital expenditures | $55.0 million | $50.4 million |
| Cash and cash equivalents at year-end | $894.2 million | $929.5 million |
| Total debt, including current portion | $1,686.3 million | $1,966.4 million |
2010 net income was substantially affected by a $589.3 million after-tax gain on dispositions of discontinued operations, principally the Mining sale; it does not represent profitable continuing operations. Fourth-quarter 2010 sales were $1,326.6 million, gross profit was $185.6 million, and Terex reported a $32.5 million continuing-operations loss attributable to common stockholders and a $45.3 million total net loss attributable to Terex.
Year-end current assets were $3,968.9 million and current liabilities were $1,674.2 million. Management reported liquidity of $1,397.6 million, comprising cash and $503.4 million of available revolving credit. The $550 million revolver was available through July 2012; no revolving borrowings were outstanding at year-end. The company repaid $270.2 million of term debt in October 2010 and repaid the remaining $297.6 million principal of its 7-3/8% notes in January 2011.
Changes versus 2009
- Sales rose 14.5%; gross profit more than doubled, and the operating loss narrowed by $327.9 million. Management attributed the improvement mainly to higher volume and factory utilization, prior cost reductions, and lower restructuring and inventory charges.
- AWP sales increased 27.6% to $1,069.6 million and operating results improved to $3.4 million income from a $154.0 million loss. Construction sales rose 29.5% to $1,087.9 million, while its operating loss narrowed to $52.6 million from $244.1 million.
- MP sales increased 50.8% to $533.1 million and operating results improved to $24.5 million income from a $49.3 million loss. Cranes sales fell 5.8% to $1,780.6 million and operating income declined to $33.5 million from $103.6 million.
- Operating cash use increased to $610.1 million, reflecting working-capital investment and increased funding of financial-services activity. Investing activities provided $903.8 million, principally from Mining-sale proceeds; financing activities used $315.7 million, largely reflecting debt repayment.
- Year-end backlog increased 4.6% to $1,298.0 million. AWP, Construction and MP backlog grew; Cranes backlog declined to $773.8 million from $958.0 million.
Outlook, risks and notable items
- 2011 outlook: Management forecast net sales of $5.0–$5.4 billion, operating income of $220–$250 million, and EPS of $0.60–$0.75, excluding restructuring and unusual items. It expected a first-quarter loss of $0.10–$0.15 per share, with a return to profitability in the second quarter. These are management expectations, not guarantees.
- Management expected continued strengthening in AWP, Construction and MP; Cranes remained uncertain, with significant large orders expected to ship later in 2011. The Port Equipment business was expected to remain loss-making in 2011 and return to profitability in 2012.
- Terex planned approximately $150 million of additional net funding for TFS in 2011 and intended to monetize its 5.8 million Bucyrus shares, valued at approximately $519 million at year-end. A post-closing dispute remains: Bucyrus seeks approximately $149 million based on its net-asset calculation; Terex contests the claim.
- Operating risks include cyclical demand, customer financing and credit availability, working-capital needs, debt covenants, foreign exchange, commodity costs and supply availability. Management noted potential 2011 increases in steel, tires and component costs. The company’s consolidated cash-flow coverage ratio was below 2.0:1, restricting additional indebtedness; management expected it to exceed 2.0:1 by year-end 2011.
- Other exposures include securities, ERISA and derivative lawsuits, which Terex says it will defend; and an adverse Metso patent-infringement jury verdict for certain Powerscreen screening-plant models, which Terex planned to appeal and did not expect to materially affect results. A separate SEC settlement subjects the company to an injunction and temporarily limits certain capital-markets and forward-looking-statement safe-harbor benefits.
- Terex recorded $22.3 million of restructuring charges in 2010 and expected remaining restructuring programs to be completed in 2011. It reported no goodwill impairment in 2010, but identified the Cranes unit as more sensitive: its estimated fair value exceeded carrying value by approximately 18% at the October 2010 test.
- PwC issued an unqualified opinion on the consolidated financial statements and internal control over financial reporting; management also concluded controls were effective as of December 31, 2010.
Most important facts for investors to verify
- How much of reported 2010 earnings came from the Mining and other divestiture gains, versus the continuing-operations loss.
- Whether operating cash flow improves as production and sales recover, given the $610.1 million operating cash outflow and higher working-capital investment.
- Progress against 2011 sales, operating-income and EPS guidance, including the timing and conversion of Cranes backlog into shipments.
- Debt-covenant headroom, liquidity requirements and the effect of the January 2011 note repayment on cash and debt.
- Resolution of Bucyrus’s approximately $149 million claim, the Metso appeal and the securities and ERISA litigation.
- Whether assumptions supporting deferred tax assets and Cranes goodwill remain achievable; the filing reports a $157.6 million valuation allowance for deferred tax assets.