Terex Corporation — 2015 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2015; includes unaudited fourth-quarter results. Terex is a global manufacturer of lifting and material-handling equipment, reporting in Aerial Work Platforms (AWP), Cranes, Material Handling & Port Solutions (MHPS), Materials Processing (MP), and Construction.
Key financial results
| Metric | 2015 | 2014 |
|---|---|---|
| Net sales | $6.543 billion | $7.309 billion |
| Gross profit / margin | $1.309 billion / 20.0% | $1.454 billion / 19.9% |
| Operating income / margin | $355.2 million / 5.4% | $423.1 million / 5.8% |
| Continuing-operations income attributable to common stockholders | $142.5 million; diluted EPS $1.30 | $259.0 million; diluted EPS $2.27 |
| Net income attributable to Terex | $145.9 million | $319.0 million |
| Cash from operating activities | $212.9 million | $410.7 million |
| Free cash flow (non-GAAP) | $289.6 million | Not provided in the supplied filing text |
2015 net income included a $3.4 million after-tax gain on dispositions of discontinued operations. The 2014 comparison included a $58.6 million after-tax disposition gain, principally related to the truck-business sale.
Balance sheet, debt and liquidity
- At year-end, cash and cash equivalents were $466.5 million; total debt was $1.831 billion, implying approximately $1.365 billion of debt net of cash.
- Current assets were $3.144 billion and current liabilities were $1.459 billion. Trade receivables were $939.2 million and inventory was $1.446 billion.
- The company reported $600 million available under its revolving credit facilities and no revolving borrowings. It also had $206.5 million outstanding under a securitization facility with $350 million capacity.
- Working capital was $1.505 billion, or 23.8% of trailing three-month annualized sales. Management said cash, operating cash generation and available credit were adequate for operating and debt-service needs.
- Capital expenditures were $103.8 million. Contractual obligations totaled $3.056 billion, including $2.286 billion of long-term debt obligations (including expected interest) and $541.9 million of purchase obligations.
Material changes and segment performance
- Consolidated sales fell 10.5%; foreign exchange reduced sales by approximately $573 million, or 8%, and business dispositions reduced them by approximately $110 million. Sales declined across all segments.
- Gross margin edged up to 20.0%, but operating margin fell to 5.4% and operating income declined 16.0%, reflecting weaker performance, particularly in AWP and Cranes.
- AWP sales declined 6.6% and operating income fell 11.1%, amid softer North American demand and pricing pressure. Cranes sales fell 5.1% and operating income declined 33.1%, with weak mobile-crane demand and lower factory utilization.
- MHPS sales fell 18.9%; its operating loss improved to $8.6 million from $17.2 million, partly because 2014 included restructuring costs and a sale loss. MP sales declined 2.5%, while operating income fell 5.8%; acquired businesses and cost savings partly offset lower volume and currency effects. Construction sales declined 19.5%, and the segment moved to a $10.2 million operating loss.
- Year-end backlog was $1.738 billion, down $262.7 million (about 13%) from 2014, primarily due to lower AWP and Cranes orders and foreign exchange effects.
Outlook, transactions and notable items
- Management forecast 2016 adjusted EPS of $1.30–$1.60, excluding restructuring and other unusual items, on sales approximately 10% below 2015. It expected softer AWP demand in North America and continued Crane weakness, partly offset by stronger European conditions; MHPS was expected to be relatively stable and MP to remain profitable.
- Management said the operating environment weakened during 2015, particularly in the second half, and planned general and administrative expense reductions, footprint reviews and changes to underperforming businesses.
- The proposed Konecranes merger would exchange 0.8 Konecranes share for each Terex share; Terex shareholders were expected to own about 60% of the combined company. Closing was expected in the first half of 2016, subject to shareholder, regulatory and other approvals.
- Terex was also reviewing an unsolicited, non-binding Zoomlion proposal to acquire its shares for $30 each, subject to approvals. The filing does not say the proposal had been accepted.
- Terex recorded $34.7 million of non-cash MHPS impairments: $11.3 million of goodwill and $23.4 million of tradenames. Merger-related costs were $13.8 million. Fourth-quarter results included $4.2 million of prior-period expense adjustments, which the company considered immaterial to current and prior periods.
- Risk factors include cyclical end markets, oil and gas weakness, currency movements, competition, customer financing and credit exposure, supplier disruption, debt covenants and cash generation, integration and transaction uncertainty, litigation, and possible further goodwill or intangible impairments. The company disclosed two lawsuits challenging the proposed merger and existing securities and derivative litigation; outcomes were uncertain.
Important facts for investors to verify
- Progress and final terms of the Konecranes transaction, the status of the Zoomlion proposal, required approvals, and any merger-related financing or termination costs.
- Whether 2016 sales and adjusted EPS guidance was achieved, particularly given weaker North American AWP demand, Crane-market softness and planned cost actions.
- Cash conversion and working-capital trends, including inventory levels, receivable collections, and the continuing use and terms of receivables sales and securitization financing.
- Debt maturities, covenant compliance, refinancing implications of any merger, and the sensitivity of earnings to floating rates and foreign exchange.
- Further impairment risk in MHPS and any material changes in customer guarantees, tax exposures or litigation. The filing disclosed $39.8 million of credit guarantees, $6.9 million of buyback guarantees, and possible 2016 tax-audit payments up to $25.8 million.