Click here to view our revised third quarter earnings results.
- Sales increased to $1,252 million, up 38% over the prior year
- Net income of $0.62 per share
- Backlog is $824.6 million, up 100% as compared with third
quarter 2003
- Commences review to resolve imbalance in intercompany
transactions
WESTPORT, Conn.--(BUSINESS WIRE)--Oct. 27, 2004--Terex Corporation
(NYSE: TEX) today announced net income for the
third quarter of 2004 of $31.4 million, or $0.62 per share, compared
to net income of $14.9 million, or $0.30 per share, for the third
quarter of 2003. Excluding the impact of special items in both
periods, net income for the quarter was $33.0 million, or $0.65 per
share, compared to $16.5 million, or $0.33 per share, for the third
quarter of 2003. Special items will be explained in more detail later
in this release and a reconciliation to generally accepted accounting
principles (GAAP) by business segment is also attached. The effective
tax rate for the third quarter of 2004 was 16.0%.
Net sales increased to $1,251.8 million in the third quarter of
2004, an increase of 38% from $906.3 million in the third quarter of
2003. Cash flow from operations was a use of $9.4 million and net debt
(consisting of long-term debt, including the current portion of
long-term debt, less cash and cash equivalents) increased by $15.7
million during the third quarter of 2004.
For the nine months ended September 30, 2004, net sales increased
to $3,632.0 million, an increase of 26% from $2,882.8 million for the
nine months ended September 30, 2003. Net income for the first nine
months of 2004 was $107.5 million, or $2.12 per share, compared to a
net loss of $24.9 million, or $0.52 per share, for the first nine
months of 2003. Net income, excluding special items, was $102.3
million, or $2.02 per share, for the first nine months of 2004,
compared to net income, excluding special items, of $56.8 million, or
$1.20 per share, for the first nine months of 2003. Cash flow from
operations was $60.5 million and net debt decreased by $70.1 million
in the nine months ended September 30, 2004.
"Our team delivered a quarter of solid results, continuing the
upward momentum we see in our business," commented Ronald M. DeFeo,
Terex's Chairman and Chief Executive Officer. "Many of our businesses
are experiencing a sharp increase in demand, and we continue to tackle
the challenges that arise in meeting this strong demand acceleration.
That being said, we still have a sizable percentage of our businesses
that have not yet actively participated in the economic recovery, as
they are typically later-cycle businesses." Mr. DeFeo continued, "Our
roadbuilding, heavy construction, utility and North American cranes
businesses, which account for approximately 35% of our revenues year
to date, but very little of our profits, are poised to meaningfully
contribute in 2005 and beyond."
"But as I have previously stated, these times are not without
their challenges," added Mr. DeFeo. "Supplier issues, particularly
steel, continue to have an impact on our business. We estimate that
steel cost increases alone negatively affected our operating results
by roughly $31 million in the third quarter. That equates to a margin
impact of 2.5% overall. We are behind the curve in certain businesses
from a pricing perspective, but we have aggressive plans to catch up.
We are expecting to see the impact of some already announced increases
in the near term, and between increased prices and better purchasing,
we expect 2005 will be a more normal year where volume leverage can be
turned into margin improvements."
"This continues to be a year of progress for Terex," continued Mr.
DeFeo, "as we stay focused on the Terex Improvement Process or TIP. We
recently completed a corporate-wide review of our Human Resource needs
and have determined several improvement steps that will be announced
in the coming months. We have reduced our relative asset base, but
still feel our inventory is too high. We have positioned Terex for
much better collaboration across each business, but we are still in
the early stages of this activity. While we still have a lot more work
ahead of us, we remain dedicated to deliver on our goals for 2004,
2005 and 2006."
As part of the continual review process of its accounts (in
accordance with its financial and internal controls) during the
preparation of its interim financial reports for the third quarter of
2004, Terex focused on resolving an imbalance in certain intercompany
accounts. Upon a more detailed examination of intercompany
transactions in an effort to reconcile the account balances, Terex has
identified several entries to the accounts giving rise to the
imbalance that require reclassification. Since several of the entries
in question occurred as far back as the mid-1990s, the process of
verifying the transactions in question is still ongoing. While Terex
has not concluded its examination, at this stage Terex believes the
potential for adjustments to its financial statements primarily
relates to periods in 2002 and earlier. A more detailed discussion of
this matter is set forth later in this press release under the heading
"Prior Period Accounts Review."
In this press release Terex refers to various non-GAAP financial
measures. These measures may not be comparable to similarly titled
measures being disclosed by other companies. The table below and the
tables included elsewhere in this press release provide a
reconciliation of the reported GAAP numbers for the third quarters and
first nine months of 2004 and 2003 and the reported numbers excluding
special items. Terex believes that this information is useful to
understanding its operating results and the ongoing performance of its
underlying businesses without the impact of special items. Terex also
discloses EBITDA and net debt, as they are commonly referred to
financial metrics used in the investing community. Terex believes that
disclosure of EBITDA and net debt will be helpful to those reviewing
its performance and that of other comparable companies, as EBITDA and
net debt provide information on Terex's leverage position, ability to
meet debt service and capital expenditure and working capital
requirements, and EBITDA is also an indicator of profitability.
A financial summary is shown below:
Three months ended September 30,
------------------------------------------------------------
2004 2003
------------------------------ -----------------------------
(in millions, except per share amounts)
Special Excluding Special Excluding
Items Special Items Special
Reported (2) Items Reported (3) Items
--------- -------- ---------- --------- -------- ----------
Net sales $1,251.8 $ --- $ 1,251.8 $ 906.3 $ --- $ 906.3
========= ======== ========== ========= ======== ==========
Gross
profit $ 172.9 $ 0.9 $ 173.8 $ 133.5 $ 1.3 $ 134.8
SG&A (113.6) --- (113.6) (89.1) --- (89.1)
--------- -------- ---------- --------- -------- ----------
Income
(loss)
from
operations 59.3 0.9 60.2 44.4 1.3 45.7
Other
income
(expense) (21.9) 1.0 (20.9) (23.6) 0.8 (22.8)
Benefit
from/
(provision
for)
income
taxes (6.0) (0.3) (6.3) (5.9) (0.5) (6.4)
--------- -------- ---------- --------- -------- ----------
Net income
(loss) $ 31.4 $ 1.6 $ 33.0 $ 14.9 $ 1.6 $ 16.5
========= ======== ========== ========= ======== ==========
Earnings
per share $ 0.62 $ 0.65 $ 0.30 $ 0.33
EBITDA (1) $ 72.9 $ 73.8 $ 59.9 $ 61.2
Backlog $ 824.6 $ 0.9 $ 824.6 $ 412.6 $ 1.3 $ 412.6
Average
diluted
shares
Outstanding 50.9 50.9 49.7 49.7
(1) EBITDA is calculated as income from operations plus depreciation
and amortization included in income from operations.
(2) Special items, net of tax, relate to previously announced
restructuring initiatives ($0.3 million), the accelerated
amortization arising from the early retirement of debt ($0.8
million), costs associated with the restructuring of the compact
equipment parts business ($0.4 million) and businesses held for
sale or to be closed ($1.6 million), offset by a gain on the sale
of a facility ($1.5 million).
(3) Special items, net of tax, relate to previously announced
restructuring initiatives ($0.7 million) and businesses held for
sale or to be closed ($1.3 million), partially offset by income
related to the Company's deferred compensation plan ($0.4
million).
Nine months ended September 30,
----------------------------------------------------------
2004 2003
---------------------------- -----------------------------
(in millions, except per share amounts)
Special Excluding Special Excluding
Items Special Items Special
Reported (2) Items Reported (3) Items
--------- -------- ---------- --------- -------- ----------
Net sales $3,632.0 $ --- $ 3,632.0 $2,882.8 $ --- $ 2,882.8
========= ======== ========== ========= ======== ==========
Gross
profit $ 528.2 $ 10.8 $ 539.0 $ 379.9 $ 45.0 $ 424.9
SG&A (344.8) 1.6 (343.2) (279.2) (7.9) (271.3)
Goodwill
impairment --- --- --- (51.3) 51.3 ---
--------- -------- ---------- --------- -------- ----------
Income from
operations 183.4 12.4 195.8 49.4 104.2 153.6
Other
income
(expense) (48.0) (18.9) (66.9) (76.9) 2.2 (74.7)
Benefit
from/
(provision
for)
income
taxes (27.9) 1.3 (26.6) 2.6 (24.7) (22.1)
--------- -------- ---------- --------- -------- ----------
Net income
(loss) $ 107.5 $ (5.2) $ 102.3 $ (24.9) $ 81.7 $ 56.8
========= ======== ========== ========= ======== ==========
Earnings
per share $ 2.12 $ 2.02 $ (0.52) $ 1.20
EBITDA (1) $ 231.4 $ 240.1 $ 95.5 $ 183.9
Backlog $ 824.6 $ 8.7 $ 824.6 $ 412.6 $ 88.4 $ 412.6
Average
diluted
shares
Outstanding 50.7 50.7 47.5 47.5
(1) EBITDA is calculated as income from operations plus depreciation
and amortization included in income from operations.
(2) Special items, net of tax, relate to the gain on the sale of
facilities ($14.9 million), costs associated with restructuring
activities, mainly in the Terex-Atlas businesses ($6.5 million),
the net gain related to the favorable settlement of litigation
proceedings regarding the O&K acquisition ($3.4 million), the loss
on the sale of discontinued business activities ($3.8 million),
the write-down of investments ($0.8 million), and the accelerated
amortization arising from the early retirement of debt ($2.0
million).
(3) Special items, net of tax, relate to goodwill impairment for the
Roadbuilding group ($42.5 million), exiting certain businesses and
product rationalization within the Roadbuilding group ($22.0
million), restructuring activities ($9.0 million), loss on
retirement of debt ($1.4 million), write-off of remaining
investment in SDC International ($0.8 million), write-down of
certain assets within the EarthKing business ($1.7 million), Genie
and Demag inventory fair value accounting treatment ($2.1
million), charges related to the Company's deferred compensation
plan ($2.6 million), and businesses held for sale or to be closed
($1.3 million), offset partially by a favorable ruling on a legal
claim ($1.7 million).
Segment Performance
Effective for the third quarter of 2004, Terex has realigned
certain operations in an effort to strengthen its ability to service
customers and to recognize certain organizational efficiencies.
The Materials Processing Group, formerly part of the Roadbuilding,
Utility Products and Other Segment, is now consolidated with the Terex
Mining Group under the Terex Materials Processing & Mining Segment.
The Terex Light Construction and Load King businesses, formerly part
of the Roadbuilding, Utility Products and Other Segment, are now part
of the Aerial Work Platforms Segment.
The comparative segment performance data below reflects this
current organization, and prior period amounts have been reclassified
to conform with this presentation. Comparative segment performance
data also excludes special items. See Table I included later in this
press release for the reconciliation to the reported GAAP numbers.
Terex Construction
Third Quarter Year-to-Date
----------------------------- -------------------------------
(dollars in millions)
2004 2003 2004 2003
-------------- -------------- --------------- ---------------
% of % of % of % of
sales sales sales Sales
----- ----- ----- -----
Net
sales $ 418.5 $ 307.2 $1,283.2 $1,008.1
======== ======== ========= =========
Gross
profit $ 56.5 13.5% $ 39.7 12.9% $ 179.9 14.0% $ 136.8 13.6%
SG&A 35.8 8.6% 24.6 8.0% 111.5 8.7% 86.3 8.6%
-------- -------- --------- ---------
Operating
profit $ 20.7 4.9% $ 15.1 4.9% $ 68.4 5.3% $ 50.5 5.0%
======== ======== ========= =========
Backlog $ 162.8 $ 89.4 $ 162.8 $ 89.4
Net sales in the Terex Construction group for the third quarter of
2004 increased $111.3 million to $418.5 million from $307.2 million in
the third quarter of 2003. The increase in sales was driven primarily
by stronger end market demand and benefits from foreign exchange
movements among the Euro, British Pound and U.S. dollar. Excluding the
translation impact of foreign exchange movements, sales for Terex
Construction increased 28.1% over the prior year period. SG&A expenses
for the third quarter of 2004 were $35.8 million, or 8.6% of sales,
compared to $24.6 million, or 8.0% of sales, for the third quarter of
2003, reflecting costs associated with investments made in sales and
marketing activities, as well as some unfavorable effects from foreign
currency translation. Income from operations for the quarter was $20.7
million, or 4.9% of sales, compared to $15.1 million, or 4.9% of
sales, for the third quarter of 2003.
"Our various product lines, and especially the compact equipment
lines, continue to show impressive growth," commented Colin Robertson,
President-Terex Construction. "Our compact equipment business grew by
almost 50% when compared to 2003, directly benefiting from the early
stages of the recovery, as well as better cross marketing of the
product line to key customers. Additionally, the mobile crushing and
screening businesses continued their steady year over year
improvement, consistently showing both double digit revenue growth and
operating margins."
"All of our businesses, however, continue to face competitive end
markets and margin pressure from both steel costs and foreign exchange
movements, mainly the British Pound and Euro, as much of the equipment
sold into North America is manufactured in the United Kingdom and
Germany," Mr. Robertson added. "Cost savings and supplier
rationalization opportunities exist, and we are aggressively pursuing
those opportunities to ensure that many of them are in place for the
2005 fiscal year." Mr. Robertson continued, "In the near term, we will
continue to realign our prices to ensure that supply pressures we, and
the industry in general, are experiencing are addressed."
Terex Cranes
Third Quarter Year-to-Date
----------------------------- -----------------------------
(dollars in millions)
2004 2003 2004 2003
-------------- -------------- -------------- --------------
% of % of % of % of
sales sales Sales sales
----- ----- ----- -----
Net sales $ 269.3 $ 234.1 $ 755.4 $ 745.0
======== ======== ======== ========
Gross
profit $ 29.0 10.8% $ 26.8 11.4% $ 93.0 12.3% $ 85.1 11.4%
SG&A 24.7 9.2% 19.9 8.5% 70.0 9.3% 60.1 8.1%
-------- -------- -------- --------
Operating
profit $ 4.3 1.6% $ 6.9 2.9% $ 23.0 3.0% $ 25.0 3.4%
======== ======== ======== ========
Backlog $ 243.8 $ 125.6 $ 243.8 $ 125.6
Net sales in the Terex Cranes group for the third quarter of 2004
increased $35.2 million to $269.3 million from $234.1 million in the
third quarter of 2003. Excluding the impact of foreign exchange
movements, net sales for the quarter increased 9.4%, reflecting a
better tower crane and boom truck market, as well as some benefit from
price increases introduced earlier in the year in reaction to
increasing cost pressures. SG&A expenses increased to $24.7 million,
or 9.2% of sales, in the third quarter of 2004 compared to $19.9
million, or 8.5% of sales, for the third quarter of 2003, mainly due
to foreign currency translation, as well as investment in new product
engineering and administrative costs. Income from operations for the
quarter was $4.3 million, or 1.6% of sales, compared to $6.9 million,
or 2.9% of sales, in the third quarter of 2003, as margins continue to
be under pressure from competitive pricing on certain products, as
well as steel and component cost increases.
"The Terex Cranes group continues to operate in a challenging
global market," commented Steve Filipov, President - Terex Cranes.
"While our tower crane business has demonstrated significant year over
year growth in revenue and profit, our North American crane business
remains difficult. We have seen demand in certain crane products begin
to return, and are generally optimistic about the longer term
prospects of the crane business."
Mr. Filipov added, "However, our near term challenge is to work
through supplier issues, most notably with respect to steel and tires.
In order to offset the pressure from vendor pricing, we will be
initiating a 4% to 6% price increase (depending on make and model)
effective November 1 for all product lines worldwide in order to
offset these costs. In addition, we will be adding a surcharge for
certain components such as unusual counterweights, where we have seen
a 50% or more increase in prices from our vendors. We will continue to
focus on cost containment and are positioning our franchise to be a
major participant in the future crane market recovery."
Terex Aerial Work Platforms
Third Quarter Year-to-Date
----------------------------- -----------------------------
(dollars in millions)
2004 2003 2004 2003
-------------- -------------- -------------- --------------
% of % of % of % of
sales sales Sales sales
----- ----- ----- -----
Net sales $ 235.8 $ 150.7 $ 677.9 $ 493.4
======== ======== ======== ========
Gross
profit $ 41.7 17.7% $ 33.8 22.4% $ 133.9 19.8% $ 105.1 21.3%
SG&A 16.4 7.0% 16.2 10.7% 52.5 7.7% 47.3 9.6%
-------- -------- -------- --------
Operating
profit $ 25.3 10.7% $ 17.6 11.7% $ 81.4 12.0% $ 57.8 11.7%
======== ======== ======== ========
Backlog $ 118.5 $ 20.2 $ 118.5 $ 20.2
Net sales in the Terex Aerial Work Platforms group for the third
quarter of 2004 increased $85.1 million to $235.8 million from $150.7
million in the third quarter of 2003, driven by a growth in sales to
rental customers, who continue to see their own business fundamentals
improve. SG&A expenses increased to $16.4 million, or 7.0% of sales,
in the third quarter of 2004 compared to $16.2 million, or 10.7% of
sales, for the third quarter of 2003. Income from operations for the
quarter was $25.3 million, or 10.7% of sales, compared to $17.6
million, or 11.7% of sales, in the third quarter of 2003.
"We continue to see strong demand for our products across the
board," said Bob Wilkerson, Terex Executive Vice President and
President - Terex Aerial Work Platforms. "Our sales were up
meaningfully compared to the third quarter of 2003. Again, we
experienced cost pressures from many of our suppliers, particularly
steel, which negatively impact our gross margin. We also continue to
experience strong top-line growth in the material handler product,
demonstrating some early success of the realignment that had the Genie
management team taking responsibility for this product line. This
success has us excited about the prospect of assuming management
responsibility for the Light Construction and Load King businesses.
These most recent business additions primarily sell to the same end
customer we already deal with for aerial work platforms, which creates
the opportunity for us to significantly increase customer penetration
with these products."
Mr. Wilkerson added, "We continue to look forward with optimism,
and we expect our favorable performance trend to continue, especially
given the continued strengthening of order backlog. Many of our
customers have reported meaningful rental rate and utilization rate
increases, both key drivers of our demand and a very positive backdrop
for our optimistic outlook. We have honored our pricing agreements
with our customers for 2004, prices that were negotiated in good faith
back in the fall of 2003. We are again discussing pricing with our
customers, and have announced our intention to initiate price
increases of 6% for all products in our portfolio shipped on or after
January 1, 2005. The industry as a whole is dealing with margin
pressure as a result of the sharp increase in steel pricing, and we
expect our relative pricing position to remain about the same."
Terex Materials Processing & Mining
Third Quarter Year-to-Date
----------------------------- -----------------------------
(dollars in millions)
2004 2003 2004 2003
-------------- -------------- -------------- --------------
% of % of % of % of
sales sales sales sales
----- ----- ----- -----
Net sales $ 160.4 $ 93.8 $ 389.7 $ 298.8
======== ======== ======== ========
Gross
profit $ 23.1 14.4% $ 17.6 18.8% $ 61.8 15.9% $ 64.0 21.4%
SG&A 14.1 8.8% 13.2 14.1% 40.3 10.3% 32.3 10.8%
-------- -------- -------- --------
Operating
profit $ 9.0 5.6% $ 4.4 4.7% $ 21.5 5.5% $ 31.7 10.6%
======== ======== ======== ========
Backlog $ 124.6 $ 56.5 $ 124.6 $ 56.5
Net sales for the Terex Materials Processing & Mining group for
the third quarter of 2004 increased $66.6 million to $160.4 million
from $93.8 million for the third quarter of 2003, reflecting an
increase in surface mining customer activity. SG&A expenses for the
third quarter of 2004 were $14.1 million, or 8.8% of sales, compared
to $13.2 million, or 14.1% of sales, in the third quarter of 2003.
Income from operations increased to $9.0 million, or 5.6% of sales, in
the third quarter of 2004 from $4.4 million, or 4.7% of sales, in the
third quarter of 2003.
"The Terex Materials Processing & Mining group had a solid
quarter," commented Rick Nichols, President - Terex Materials
Processing & Mining. "The Terex O&K shovel business continues its
impressive growth, benefiting from both the end-market recovery and
the recently signed agreement with Caterpillar providing us access to
their dealership network. With regard to the Materials Processing
business, we continue to see strong demand for the tracked crusher and
stationary vibratory screener product lines."
Mr. Nichols continued, "Similar to last quarter, we continue to
emphasize and concentrate on ensuring that the growth in our business
is profitable growth. Steel pricing has negatively impacted our
margins and the benefits of volume in our factories. On the other
hand, we recently purchased the factory in Mexico that has been
producing our mining trucks on an outsourced basis, and we expect real
cost benefits from this addition, not only in our Mining business, but
longer term this facility can and will be used as a low cost
fabrication source for several other Terex operations. We remain
focused and on track with our previously stated objective of operating
margins in excess of 10% in 2006."
Terex Roadbuilding, Utility Products and Other
Third Quarter Year-to-Date
----------------------------- ------------------------------
(dollars in millions)
2004 2003 2004 2003
-------------- -------------- -------------- ---------------
% of % of % of % of
sales sales Sales sales
----- ----- ----- -----
Net sales $ 190.4 $ 120.5 $ 579.5 $ 370.2
======== ======== ======== ========
Gross
profit $ 23.6 12.4% $ 16.9 14.0% $ 70.6 12.2% $ 34.1 9.2%
SG&A 20.6 10.8% 13.7 11.4% 61.5 10.6% 42.9 11.6%
-------- -------- -------- --------
Operating
profit $ 3.0 1.6% $ 3.2 2.7% $ 9.1 1.6% $ (8.8) (2.4)%
======== ======== ======== ========
Backlog $ 188.4 $ 124.9 $ 188.4 $ 124.9
Net sales for the Terex Roadbuilding, Utility Products and Other
group for the third quarter of 2004 increased $69.9 million to $190.4
million from $120.5 million for the third quarter of 2003, driven
substantially by the acquisition of Tatra and the American Truck
Company ("ATC") and growth in the concrete mixing truck business.
Excluding Tatra and ATC, net sales increased 31% over the prior year
period. SG&A expenses for the third quarter of 2004 were $20.6
million, or 10.8% of sales, compared to $13.7 million, or 11.4% of
sales, in the third quarter of 2003. The increase in SG&A expenses
largely reflects the inclusion of Tatra and ATC and an increase in
commissions due to higher sales volume. Income from operations
decreased to $3.0 million, or 1.6% of sales, in the third quarter of
2004, from $3.2 million, or 2.7% of sales, in the third quarter of
2003.
"The Roadbuilding, Utility Products and Other group continues to
struggle, a direct result of a lack of end-market demand for these
product categories and some internal issues that are being addressed,"
commented Chris Ragot, President of Terex Roadbuilding and Utilities.
"We have been able to increase our revenues slightly, but the
additional contribution margin was more than offset with supplier
pricing issues. The Utility business remains particularly price and
cost sensitive today. We continue to review our organizational
structure, and recently completed a restructuring of our Utility
Products and Roadbuilding groups, which will allow us to streamline
the organization and improve performance."
Mr. Ragot continued, "Our expectations for the Roadbuilding
business for 2005 remains somewhat muted, as the industry awaits the
passage of the six-year funding bill that we anticipate will be
approved during the spring of 2005. Utility Products are reflecting
the impact of weak end demand, as utility companies have continued to
restrict capital spending in the face of higher fuel costs as they
relate to energy generation and increased line maintenance costs. One
bright spot was Terex Advance Mixer, which was able to achieve over
30% revenue growth with profitable results. Consistent with our views
heading into this year, however, we fully expect that all these
businesses will benefit from an external market recovery and internal
TIP initiatives, such as the implementation of lean manufacturing
concepts and component purchasing initiatives, which should be
reflected in 2005 operating results."
Special Items
Included in special items for the third quarter of 2004 were: (1)
costs associated with the closure of previously announced
restructuring activities ($0.4 million); (2) costs associated with the
restructuring of the compact equipment parts business ($0.5 million);
(3) write-down of certain assets associated with a discontinued parts
business ($1.7 million); (4) accelerated amortization arising from the
early retirement of debt ($1.0 million); and (5) gain on the sale of
facilities ($1.7 million).
For the third quarter of 2003, special items were: (1) costs
associated with previously announced restructuring initiatives ($1.0
million); (2) costs associated with businesses held for sale or to be
closed ($1.6 million); and (3) a gain related to the Company's
deferred compensation plan ($0.5 million).
Capital Structure
"Cash flow from operations for the third quarter of 2004 was a use
of $9.4 million, bringing the cumulative cash generation for the first
nine months of 2004 to $60.5 million," commented Phil Widman, Senior
Vice President and Chief Financial Officer. "In the quarter, we used
$81.4 million in cash from increased working capital (defined as the
sum of accounts receivable plus inventory less accounts payable),
bringing the total increase for the first nine months of 2004 to
$111.5 million. As we previously indicated, our challenge this year
was to deliver increased volume with the same or reduced levels of
working capital as compared to our 2003 results. The results of this
effort can be seen in our working capital as a percent of trailing
three month annualized sales, which decreased to a level of 21% at the
end of the third quarter of 2004 compared to 28% at the end of the
third quarter of 2003."
Net debt (defined as total debt less cash) at the end of the third
quarter of 2004 increased $16 million to $824 million from $808
million at the end of the second quarter of 2004, which still reflects
a decrease of $70 million from the net debt balance at the end of
2003. Mr. Widman added, "In July 2004, we repaid $50 million of bank
debt, which, in addition to other general debt reduction activities in
the quarter, resulting in a total quarterly paydown of $46 million,
bringing the total gross debt reduction year to date to $144 million,
well on the way toward our goal of $200 million for the year."
Taxes
Commenting on the effective tax rate, Mr. Widman stated, "Terex's
effective tax rate is influenced by various factors including, but not
limited to, the mix of income between jurisdictions, changes in tax
asset valuation allowances, and the resolution of tax audits." Mr.
Widman continued, "The effective tax rate for the quarter was 16.0%,
as compared to 28.3% for the third quarter of 2003. The effective tax
rate for the third quarter is lower than the anticipated annual
effective tax rate due to the successful resolution of a tax audit
covering multiple reporting periods and release of valuation
allowances based on the profitability of our businesses in certain
jurisdictions. The financial impact of the tax audit resolution is
recognized in the third quarter, resulting in a quarterly effective
tax rate that is lower than the anticipated annual tax rate, and the
valuation allowance is considered in the full year effective tax rate
calculation. We expect the full year 2004 effective tax rate to be
approximately 25%. It is important for us to re-emphasize, however,
that as our profitability continues to grow, the effective tax rate,
excluding the impact of discrete items, will move closer to the
statutory rate."
TIP Update
This year, Terex launched a series of initiatives known as the
Terex Improvement Process, or TIP, intended to transform the Company
over the next several years. "This is a change process that will
improve our operational execution and help Terex become more
customer-focused," Mr. DeFeo stated. "Improvements at all of our
locations are being made each and every day, and we feel it is
important to continue to discuss our opportunities and successes as we
move towards our future vision of Terex."
"We continue to improve in areas that affect the way we face the
customer. This will be our primary theme in 2005 as we plan to make
'Customer Drive in 2005' our major focus. This will require further
improvements in product and parts support, plus improving our sales
execution and building a more cohesive market based business strategy
that combines the superb product lines that are now in the Terex
family."
Mr. DeFeo continued, "Although it is difficult to quantify all of
the benefits of TIP, there are certain areas that lend themselves to
measurement. For example, in the third quarter we reduced our idle and
underutilized assets, mainly used, rental and demo equipment, by $76
million, which includes approximately $22 million of acquisition costs
associated with operating lease commitments, bringing our year to date
total for asset reduction activities to approximately $129 million.
Our vision remains to have Terex grow to over $6 billion of revenue in
2006 with a 10% operating margin, working capital levels of 15% of
revenue and a 20% or greater return on invested capital (defined as
operating profit excluding special items divided by the sum of average
book equity and average net debt), thus providing superior returns to
our owners. We will continue to update our stakeholders on this
journey, and remain fully committed to the goal of making Terex a
world class, franchise player with great returns to owners, customers
and employees."
Outlook
"Looking forward, we remain optimistic about our earnings outlook.
For 2004 we are forecasting the full year earnings per share ("EPS")
to be in the range of $2.40 to $2.50, as compared to our prior
guidance of $2.25 to $2.45, both before special items," stated Mr.
DeFeo. "Revenues will be better than we expected, costs higher and
taxes lower. As we reflect on the full year, earnings per share should
be 66% to 74% above 2003 EPS, excluding special items. We continue to
believe that there are significantly better days ahead for Terex, and
our focus will be on doing those things necessary to drive results and
deliver shareholder value."
"We see no change to our momentum going into the fourth quarter
and 2005," continued Mr. DeFeo. "We feel that there are specific
issues affecting 2004 results that will be addressed and minimized
going forward. The impact of steel and other components certainly took
away some of the upside from our near term results. We continue to see
steel prices at historically high levels, and have factored this into
our outlook for the balance of 2004 and beyond."
"We continue to see order activity building, with backlog
indicating that 2004 and 2005 performance will remain strong. We are
currently in the middle of 2005 budget reviews, and as such we can not
give specific guidance at this time, but we expect the next year will
be substantially better in regard to revenues, margins and cash flow
when compared to 2004."
Prior Period Accounts Review
As part of the continual review process of its accounts (in
accordance with its financial and internal controls) during the
preparation of its interim financial reports for the third quarter of
2004, Terex focused on resolving an imbalance in certain intercompany
accounts. To reconcile the accounts, Terex commenced a more detailed
examination of intercompany entries that may have given rise to the
imbalance and has identified several entries that may require
reclassification. Due to the fact that several of these entries
occurred as long as 10 years ago, the process of verifying the entries
in question is still ongoing.
While the examination is continuing, at this stage Terex believes
that the potential for adjustments to its financial statements
primarily relates to periods in 2002 and earlier. As of September 30,
2004, the net imbalance in the subject accounts was approximately $11
million. Certain of the significant items identified to date that have
contributed to the imbalance and the expected financial statement
impact of these items are summarized below. The ultimate resolution of
the items comprising the net imbalance of $11 million could have
impacts greater or lesser than $11 million on individual line items of
any impacted financial statements.
-- Intercompany notes associated with the Schaeff business were
incorrectly recorded and consequently caused the value of the
goodwill of the Schaeff companies to be overstated by
approximately $23.5 million. The Company believes that the
adjustment of this item will impact the balance sheet by
decreasing the Company's goodwill and equity as of December
31, 2002 by that amount.
-- An amount in the range of $12 million to $18 million that
contributed to the account imbalance the Company believes to
be due to currency translation and should have no impact on
the financial statements of the Company.
-- Adjustments to certain balance sheet items, mainly working
capital and warranty, related to the O&K Mining business will
affect periods from 1998 (acquisition) to 2002. At this time,
the Company has not determined that the net impact of the
foregoing items on the financial statements for such periods.
-- Other items indicating deficiency in the reconciliation of
working capital and certain other accounts, which contributed
to the intercompany imbalance, indicate adjustments that may
reduce pretax income primarily in the years from 2000 through
2002 in the range of approximately $10 million cumulatively.
As noted above, until examination by Terex is concluded, the
amounts and the related period for any adjustments cannot be finally
determined. In addition, until the review is completed, there can be
no assurance that additional adjustments will not be identified. Any
final adjustments to Terex's financial statements as a result of the
examination of the accounts in question are subject to the completion
of audit and review procedures by Terex's independent auditors,
PricewaterhouseCoopers LLP.
Terex is continually reviewing its financial and internal
processes to assure the accuracy of its financial reports. In the
latter part of 2003, an improved financial reporting system was put in
place, allowing for a more detailed and thorough review of accounts on
a timely basis through analytical report writing functions as well as
automated back office functions. Additionally, internal controls are
being modified to require, among other things, monthly activity
balancing and the requirement that any reconciling item that is not
resolved within a specified period of time be expensed to the income
statement, which is intended to deter this type of situation from
occurring in the future.
Safe Harbor Statement
The above contains forward-looking statements based on Terex's
current expectations and projections about future events. Because
forward-looking statements involve risks and uncertainties, actual
results could differ materially. Such risks and uncertainties, many of
which are beyond Terex's control, include among others: Terex's
business is highly cyclical and weak general economic conditions may
affect the sales of its products and its financial results; the
sensitivity of construction, infrastructure and mining activity and
products produced for the military to interest rates and government
spending; the ability to successfully integrate acquired businesses;
the retention of key management personnel; Terex's businesses are very
competitive and may be affected by pricing, product initiatives and
other actions taken by competitors; the effects of changes in laws and
regulations; Terex's business is international in nature and is
subject to changes in exchange rates between currencies, as well as
international politics; the ability of suppliers to timely supply
Terex parts and components at competitive prices; the financial
condition of suppliers and customers, and their continued access to
capital; Terex's ability to timely manufacture and deliver products to
customers; Terex's significant amount of debt and its need to comply
with restrictive covenants contained in Terex's debt agreements;
compliance with applicable environmental laws and regulations; until
the review by Terex is concluded, no assurance can be given that the
financial statement adjustments, impacts and periods described in this
press release are final or that there may not be additional
adjustments to the financial statements identified; and other factors,
risks, uncertainties more specifically set forth in Terex's public
filings with the SEC. Actual events or the actual future results of
Terex may differ materially from any forward looking statement due to
those and other risks, uncertainties and significant factors. The
forward-looking statements herein speak only as of the date of this
release. Terex expressly disclaims any obligation or undertaking to
release publicly any updates or revisions to any forward-looking
statement included in this release to reflect any changes in Terex's
expectations with regard thereto or any changes in events, conditions,
or circumstances on which any such statement is based.
Terex Corporation is a diversified global manufacturer with 2003
net sales of $3.9 billion. The Company operates in five business
segments: Terex Construction, Terex Cranes, Terex Aerial Work
Platforms, Terex Materials Processing & Mining, and Terex
Roadbuilding, Utility Products and Other. Terex manufactures a broad
range of equipment for use in various industries, including the
construction, infrastructure, quarrying, recycling, surface mining,
shipping, transportation, refining, utility and maintenance
industries. Terex offers a complete line of financial products and
services to assist in the acquisition of Terex equipment through Terex
Financial Services. More information on Terex can be found at
www.terex.com.
TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in millions, except per share data)
(unaudited)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
--------------------- ---------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
Net sales $ 1,251.8 $ 906.3 $ 3,632.0 $ 2,882.8
Cost of goods sold 1,078.9 772.8 3,103.8 2,502.9
---------- ---------- ---------- ----------
Gross profit 172.9 133.5 528.2 379.9
Selling, general and
administrative expenses (113.6) (89.1) (344.8) (279.2)
Goodwill impairment --- --- --- (51.3)
---------- ---------- ---------- ----------
Income (loss) from
operations 59.3 44.4 183.4 49.4
Other income (expense):
Interest income 1.8 1.6 4.2 5.4
Interest expense (23.2) (23.3) (69.1) (75.8)
Other income (expense) -
net (0.5) (1.9) 16.9 (6.5)
---------- ---------- ---------- ----------
Income (loss) before income
taxes 37.4 20.8 135.4 (27.5)
Benefit from (provision
for) income taxes (6.0) (5.9) (27.9) 2.6
---------- ---------- ---------- ----------
Net income (loss) $ 31.4 $ 14.9 $ 107.5 $ (24.9)
========== ========== ========== ==========
Per common share:
Basic $ 0.64 $ 0.31 $ 2.18 $ 0.52
========== ========== ========= ==========
Diluted $ 0.62 $ 0.30 $ 2.12 $ 0.52
========== ========== ========= ==========
Weighted average number of
common and common
equivalent shares
outstanding in per share
calculation:
Basic 49.4 47.8 49.2 47.5
Diluted 50.9 49.7 50.7 47.5
TEREX CORPORATION AND SUBSIDIARIES
SELECTED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 2004*
(in millions, except par value)
(unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 393.2
Trade receivables 669.9
Inventories 1,141.9
Other current assets 193.7
---------------
Total Current Assets 2,398.7
LONG-TERM ASSETS
Property, plant and equipment 353.1
Goodwill Not Provided*
Other assets 518.8
CURRENT LIABILITIES
Notes payable and current portion of long-term debt $ 74.1
Trade accounts payable 759.4
Accrued compensation and benefits 108.1
Accrued warranties and product liability 85.9
Other current liabilities 319.6
---------------
Total Current Liabilities 1,347.1
NON CURRENT LIABILITIES
Long-term debt, less current portion 1,143.1
Other 422.4
COMMITMENTS AND CONTINGENCIES
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ Not Provided*
===============
* Pending completion of the ongoing review of intercompany
transactions described earlier in the body of this press release,
Terex is only providing selected consolidated balance sheet
information as of September 30, 2004.
TEREX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
(unaudited)
For the Nine
Months Ended
September 30,
---------------------
2004 2003
---------- ----------
OPERATING ACTIVITIES
Net income (loss) $ 107.5 $ (24.9)
Adjustments to reconcile net income (loss) to
cash provided by (used in) operating
activities:
Depreciation 40.1 40.6
Amortization 11.6 9.5
Impairment charges and asset write downs --- 72.5
Loss on retirement of debt 2.4 1.4
Gain on sale of fixed assets (20.5) (2.4)
Changes in operating assets and liabilities
(net of effects of acquisitions):
Trade receivables (128.7) 50.9
Inventories (131.9) 112.1
Trade accounts payable 149.1 3.7
Other, net 30.9 (47.9)
---------- ----------
Net cash provided by operating activities 60.5 215.5
---------- ----------
INVESTING ACTIVITIES
Acquisition of businesses, net of cash acquired (6.1) (8.7)
Capital expenditures (21.5) (19.7)
Proceeds from sale of assets 31.8 4.5
---------- ----------
Net cash provided by (used in)
investing activities 4.2 (23.9)
---------- ----------
FINANCING ACTIVITIES
Principal repayments of long-term debt (125.0) (54.5)
Net repayments under revolving line of credit
agreements (6.6) (43.5)
Stock options exercised 8.3 ---
Payment of premium on early retirement of
debt --- (2.2)
Other (15.5) (26.0)
---------- ----------
Net cash used in financing activities (138.8) (126.2)
---------- ----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS (0.2) 13.3
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (74.3) 78.7
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 467.5 352.2
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 393.2 $ 430.9
========== ==========
Table I
-------
TEREX CORPORATION AND SUBSIDIARIES
(in millions)
(unaudited)
For the Three Months Ended September 30,
---------------------------------------------------
2004 2003
-------------------------- ------------------------
Excluding Excluding
Special Special Special Special
GAAP Items Items GAAP Items Items
-------------------------- ------------------------
Sales
Construction
(1) $ 418.5 $ --- $ 418.5 $307.2 $ --- $ 307.2
Cranes (2) 269.3 --- 269.3 234.1 --- 234.1
Aerial Work
Platforms 235.8 --- 235.8 150.7 --- 150.7
Materials
Processing &
Mining 160.4 --- 160.4 93.8 --- 93.8
Roadbuilding,
Utility
Products &
Other 190.4 --- 190.4 120.5 --- 120.5
Corp /
Eliminations (22.6) --- (22.6) --- --- ---
-------- ------- --------- ------ ------- ---------
Total $1,251.8 $ --- $ 1,251.8 $906.3 $ --- $ 906.3
======== ======= ========= ====== ======= =========
Gross Profit
Construction
(1) $ 55.4 $ 1.1 $ 56.5 $ 39.7 $ --- $ 39.7
Cranes (2) 29.2 (0.2) 29.0 25.5 1.3 26.8
Aerial Work
Platforms 41.7 --- 41.7 33.8 --- 33.8
Materials
Processing &
Mining 23.1 --- 23.1 17.6 --- 17.6
Roadbuilding,
Utility
Products &
Other 23.6 --- 23.6 16.9 --- 16.9
Corp /
Eliminations (0.1) --- (0.1) --- --- ---
-------- ------- --------- ------ ------- ---------
Total $ 172.9 $ 0.9 $ 173.8 $133.5 $ 1.3 $ 134.8
======== ======= ========= ====== ======= =========
SG&A
Construction
(1) $ 35.8 $ --- $ 35.8 $ 25.1 $ (0.5)$ 24.6
Cranes (2) 24.7 --- 24.7 20.1 (0.2) 19.9
Aerial Work
Platforms 16.4 --- 16.4 16.2 --- 16.2
Materials
Processing &
Mining 14.1 --- 14.1 13.2 --- 13.2
Roadbuilding,
Utility
Products &
Other 20.6 --- 20.6 13.7 --- 13.7
Corp /
Eliminations 2.0 --- 2.0 0.8 0.7 1.5
-------- ------- --------- ------ ------- ---------
Total $ 113.6 $ --- $ 113.6 $ 89.1 $ --- $ 89.1
======== ======= ========= ====== ======= =========
Income (Loss) from
Operations
Construction
(1) $ 19.6 $ 1.1 $ 20.7 $ 14.6 $ 0.5 $ 15.1
Cranes (2) 4.5 (0.2) 4.3 5.4 1.5 6.9
Aerial Work
Platforms 25.3 --- 25.3 17.6 --- 17.6
Materials
Processing &
Mining 9.0 --- 9.0 4.4 --- 4.4
Roadbuilding,
Utility
Products &
Other 3.0 --- 3.0 3.2 --- 3.2
Corp /
Eliminations (2.1) --- (2.1) (0.8) (0.7) (1.5)
-------- ------- --------- ------ ------- ---------
Total $ 59.3 $ 0.9 $ 60.2 $ 44.4 $ 1.3 $ 45.7
======== ======= ========= ====== ======= =========
(1) Special items relate primarily to period costs associated with the
restructuring of previously announced restructuring programs and
the write-down of certain assets in conjunction with a
divestiture.
(2) Special items relate to the completion of the costs associated
with the closure and sale of the RO boom truck facility
Table I (continued)
-------------------
TEREX CORPORATION AND SUBSIDIARIES
(in millions)
(unaudited)
For the Nine Months Ended September 30,
-----------------------------------------------------
2004 2003
-------------------------- --------------------------
Excluding Excluding
Special Special Special Special
GAAP Items Items GAAP Items Items
-------------------------- --------------------------
Sales
Construction
(1) $1,283.2 $ --- $ 1,283.2 $1,008.1 $ --- $ 1,008.1
Cranes (2) 755.4 --- 755.4 745.0 --- 745.0
Aerial Work
Platforms 677.9 --- 677.9 493.4 --- 493.4
Materials
Processing &
Mining (3) 389.7 --- 389.7 298.8 --- 298.8
Roadbuilding,
Utility
Products &
Other (4) 579.5 --- 579.5 370.2 --- 370.2
Corp /
Eliminations (53.7) --- (53.7) (32.7) --- (32.7)
-------- ------- --------- -------- ------- ---------
Total $3,632.0 $ --- $ 3,632.0 $2,882.8 $ --- $ 2,882.8
======== ======= ========= ======== ======= =========
Gross Profit
Construction
(1) $ 170.3 $ 9.6 $ 179.9 $ 134.7 $ 2.1 $ 136.8
Cranes (2) 92.5 0.5 93.0 74.5 10.6 85.1
Aerial Work
Platforms 133.9 --- 133.9 104.3 0.8 105.1
Materials
Processing &
Mining (3) 61.4 0.4 61.8 49.8 14.2 64.0
Roadbuilding,
Utility
Products &
Other (4) 70.3 0.3 70.6 16.8 17.3 34.1
Corp /
Eliminations (0.2) --- (0.2) (0.2) --- (0.2)
-------- ------- --------- -------- ------- ---------
Total $ 528.2 $ 10.8 $ 539.0 $ 379.9 $ 45.0 $ 424.9
======== ======= ========= ======== ======= =========
SG&A
Construction
(1) $ 112.1 $ (0.6)$ 111.5 $ 86.9 $ (0.6)$ 86.3
Cranes (2) 71.0 (1.0) 70.0 60.8 (0.7) 60.1
Aerial Work
Platforms 52.5 --- 52.5 47.3 --- 47.3
Materials
Processing &
Mining (3) 40.3 --- 40.3 34.0 (1.7) 32.3
Roadbuilding,
Utility
Products &
Other (4) 61.5 --- 61.5 43.2 (0.3) 42.9
Corp /
Eliminations 7.4 --- 7.4 7.0 (4.6) 2.4
-------- ------- --------- -------- ------- ---------
Total $ 344.8 $ (1.6)$ 343.2 $ 279.2 $ (7.9)$ 271.3
======== ======= ========= ======== ======= =========
Income (Loss)
from Operations
Construction
(1) $ 58.2 $ 10.2 $ 68.4 $ 47.8 $ 2.7 $ 50.5
Cranes (2) 21.5 1.5 23.0 13.7 11.3 25.0
Aerial Work
Platforms 81.4 --- 81.4 57.0 0.8 57.8
Materials
Processing &
Mining (3) 21.1 0.4 21.5 15.8 15.9 31.7
Roadbuilding,
Utility
Products &
Other (4) 8.8 0.3 9.1 (77.7) 68.9 (8.8)
Corp /
Eliminations (7.6) --- (7.6) (7.2) 4.6 (2.6)
-------- ------- --------- -------- ------- ---------
Total $ 183.4 $ 12.4 $ 195.8 $ 49.4 $ 104.2 $ 153.6
======== ======= ========= ======== ======= =========
(1) Special items relate primarily to period costs associated with the
restructuring of previously announced restructuring programs,
write-down of certain assets in conjunction with a divestiture, as
well as a liability associated with a pre-acquisition commitment
at O&K
(2) Special items relate primarily to the costs associated with the
sale of discontinued parts business activities, the gain
associated with the closure and sale of the Aerials Ireland
facility and costs associated with a previously announced Crane
group restructuring program
(3) Special items relate primarily to the costs associated with the
sale of discontinued parts business activities
(4) Special items relate primarily to the restructuring of a Terex
Utilities distribution location
CONTACT: Terex Corporation
Tom Gelston, 203-222-5943
Director, Investor Relations
SOURCE: Terex Corporation