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| TEX > SEC Filings for TEX > Form 10-Q on 6-Aug-2004 | All Recent SEC Filings |
6-Aug-2004
Quarterly Report
Results of Operations
Terex is a diversified global manufacturer of a broad range of equipment primarily for the construction, infrastructure and surface mining industries. The Company operates in five business segments: (i) Terex Construction; (ii) Terex Cranes; (iii) Terex Aerial Work Platforms; (iv) Terex Mining; and (v) Terex Roadbuilding, Utility Products and Other. The Company's strategy going forward is to build the Terex brand. As part of that effort, Terex will, over time, be migrating historic brand names to Terex and may include the use of the historic brand name in conjunction with the Terex brand for a transitional period of time.
The Terex Construction segment designs, manufactures and markets three primary
categories of equipment and their related components and replacement parts:
heavy construction equipment (including off-highway trucks and scrapers),
compact equipment (including loader backhoes, compaction equipment, mini and
midi excavators, loading machines, site dumpers, telehandlers and wheel
loaders); and mobile crushing and screening equipment (including jaw crushers,
cone crushers, washing screens and trommels). These products are primarily used
by construction, logging, mining, industrial and government customers in
construction and infrastructure projects and supplying coal, minerals, sand and
gravel. Terex Construction products are currently marketed principally under the
following brand names: Terex, Atlas, Finlay, Fuchs, Pegson, Powerscreen,
Benford, Fermec, Schaeff and TerexLift.
The Terex Cranes segment designs, manufactures and markets mobile telescopic cranes, tower cranes, lattice boom crawler cranes, truck mounted cranes (boom trucks) and telescopic container stackers, as well as their related replacement parts and components. These products are used primarily for construction, repair and maintenance of infrastructure, building and manufacturing facilities. Currently, Terex Cranes products are marketed principally under the following brand names: Terex, American, Bendini, Comedil, Demag, Franna, Peiner, PPM and RO-Stinger.
The Terex Aerial Work Platforms segment was formed upon the completion of Terex's acquisition of Genie Holdings, Inc. and its affiliates ("Genie") on September 18, 2002. The Terex Aerial Work Platforms segment designs, manufactures and markets aerial work platform equipment and telehandlers. Products include material lifts, portable aerial work platforms, trailer mounted booms, articulating booms, stick booms, scissor lifts, telehandlers, related components and replacement parts, and other products. These products are used primarily by customers in the construction and building maintenance industries to lift people and/or equipment as required to build and/or maintain large physical assets and structures. Terex Aerial Work Platforms products currently are marketed principally under the Genie and Terex brand names.
The Terex Mining segment designs, manufactures and markets large hydraulic excavators and high capacity surface mining trucks, related components and replacement parts, and other products. These products are used primarily by construction, mining, quarrying and government customers in construction, excavation and supplying coal and minerals. Currently, Terex Mining products are marketed principally under the following brand names: O&K, Payhauler, Terex and Unit Rig.
The Terex Roadbuilding, Utility Products and Other segment designs, manufactures
and markets fixed installation crushing and screening equipment (including
crushers, impactors, screens and feeders), asphalt and concrete equipment
(including pavers, plants, mixers, reclaimers, stabilizers and profilers),
utility equipment (including digger derricks, aerial devices and cable placers),
light construction equipment (including light towers, trowels, power buggies,
generators and arrow boards), construction trailers and on/off road heavy-duty
vehicles, as well as related components and replacement parts. These products
are used primarily by government, utility and construction customers to build
roads, maintain utility lines, trim trees and for commercial and military
operations. These products are currently marketed principally under the
following brand names: Terex, Advance, American Truck Company, Amida, ATC,
Bartell, Benford, Bid-Well, Canica, Cedarapids, Cedarapids/Standard Havens, CMI
Johnson Ross, CMI Terex, CMI-Cifali, Grayhound, Hi-Ranger, Jaques, Load King,
Morrison, Re-Tech, Royer, Simplicity, Tatra, Terex Power, Terex Recycling and
Terex Telelect. Terex also owns much of the North American distribution channel
for the utility products group through the distributors Terex Utilities South
and Terex Utilities West. These operations distribute, install, service and
repair the Company's utility aerial devices as well as other products that
service the utility industry. The Company also operates a fleet of rental
utility products under the name Terex Utilities Rental. The Company also leases
and rents a variety of heavy equipment to third parties under the Terex
Re-Rentals brand name. The Company, through Terex Financial Services, Inc.
("TFS"), also offers customers loans and leases underwritten by TFS Capital
Funding, an affiliate of the General Electric Company, and Terex Financial
Services Holdings B.V. ("TFSH"), a joint venture of the Company and a European
financial institution, to assist in the acquisition of all of the Company's
products. On February 14, 2003, the Company acquired Commercial Body Corporation
("Commercial Body") and Combatel Distribution, Inc. ("Combatel"). On August 28,
2003 the Company acquired an additional 51% of the outstanding shares of TATRA
a.s. ("Tatra"), and acquired a controlling interest in American Truck Company
("ATC"). On April 22, 2004, the Company acquired an additional 10% of the outstanding shares of Tatra for a total of 81% ownership. On June 14, 2004, the Company acquired the one-third interest in ATC previously held by Tatra. The results of Commercial Body, Combatel, Tatra and ATC are included in the results of the Terex Roadbuilding, Utility Products and Other segment from their respective dates of acquisition.
Included in Eliminations/Corporate are the eliminations among the five segments, as well as general and corporate items.
Overview
The Company is a diversified global manufacturer of capital equipment serving the construction, infrastructure and surface mining markets. Terex's strategy is to use its position as a low fixed and total cost manufacturer to provide its customers with the best return on their capital investment.
In the second quarter of 2004, the Company performed above expectations, despite operational challenges arising from increased steel costs and supplier issues. For the three months and six months ended June 30, 2004, the Company experienced increases in net sales, gross profit and income from operations as compared to the same periods in 2003. Net sales in the second quarter of 2004 grew 27% over the same period in the prior year and 28% over the first quarter of 2004. A large factor in the Company's performance was the improved economic condition in many of the Company's end-markets, which was also reflected in increased backlog in a majority of the Company's business segments. Backlog at June 30, 2004 was approximately $916 million, an increase of approximately $509 million, or 125%, from the level of backlog at June 30, 2003. In addition, business integration measures and cost savings initiatives put in place over the past year are beginning to yield positive results. Tight end-markets in certain of the Company's operations, particularly in the North American crane, Roadbuilding, and Utility Products businesses, and currency moves (particularly weakness of the U.S. dollar relative to the Euro and the British Pound) negatively impacted the Company's financial performance.
Based on the current trends, the Company has taken a more positive view of its expected performance for the remainder of 2004. Continued economic recovery and rising commodity prices lead the Company to be optimistic about the near term performance of its Aerial Work Platforms and Mining businesses, and to anticipate continued improvement from the Construction businesses. The Company still expects challenging end markets for the remainder of 2004 for the North American crane, Roadbuilding and Utility Products businesses. Overall, an economic recovery in the markets served by the Company's businesses would have a beneficial impact on the Company's performance. A significant area of uncertainty for 2004 remains the impact of currency moves, particularly the relative strength of the U.S. dollar.
During 2004, the Company is continuing to focus on cash generation, debt reduction and margin improvement initiatives. The Company recently initiated its Terex Improvement Process ("TIP") program aimed at improving the Company's internal processes and benefiting the Company's customers, investors and employees. As part of the TIP objectives, Terex management will have a particular focus on achieving a number of key objectives including revenue growth, through a combination of expansion into markets not currently served and by increasing market share in existing products, and improving the Company's return on invested capital, through reducing working capital requirements as a percentage of sales and by improving operating margins through reducing the total cost of manufacturing products. As part of the TIP initiative, the Company has numerous projects in process, most being pursued and implemented locally throughout the Company's business units. The Company is focusing on efforts such as the disposal of excess assets, mitigating supplier pressures resulting from improved economic conditions and higher demand, and seeking to leverage volume benefits from suppliers of common components and freight.
Restructuring
During the second quarter of 2004 and in numerous periods prior to 2004, the Company has initiated a variety of restructuring programs in response to a slowing economy, to reduce duplicative operating facilities, including those arising from the Company's acquisitions, and to respond to specific market conditions. Restructuring programs were initiated within the Company's Terex Construction, Terex Cranes, Terex Mining and Terex Roadbuilding, Utility Products and Other segments. The Company's programs have been designed to minimize the impact of any program on future operating results and the Company's liquidity. To date, these restructuring programs have not had a material negative impact on operating results or the Company's liquidity. These initiatives are intended to generate a reduction in ongoing labor and factory overhead expense as well as to reduce overall material costs by leveraging the purchasing power of the consolidated facilities. See Note E - "Restructuring and Other Charges" in the Company's Condensed Consolidated Financial Statements for a detailed description of the Company's restructuring programs, including the reasons, timing and costs associated with each such program.
Three Months Ended June 30, 2004 Compared with Three Months Ended June 30, 2003
Terex Consolidated
<CAPTION>
Three Months Ended June 30,
----------------------------------------------------
2004 2003
------------------------- -----------------------
% of % of % Change In
Sales Sales Reported Amounts
------------ ----------- ---------------------
($ amounts in millions)
<S> <C> <C> <C> <C> <C>
Net sales $ 1,336.4 $ 1,048.8 27.4%
Gross profit 195.0 14.6% 116.7 11.1% 67.1%
SG&A 119.2 8.9% 100.9 9.6% 18.1%
Goodwill impairment --- --- 51.3 4.9% (100.0%)
Income (loss) from operations 75.8 5.7% (35.5) (3.4%) 313.5%
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Net sales for the three months ended June 30, 2004 totaled $1,336.4 million, an increase of $287.6 million when compared to the same period in 2003. The impact of a weaker U.S. dollar relative to the British Pound and the Euro increased sales by 4.5% when compared to the second quarter of 2003. The acquisition of a majority interest in Tatra and ATC on August 28, 2003 increased sales by approximately $67 million when compared to the second quarter of 2003. Sales relative to 2003 increased in the Terex Aerial Work Platforms segment as a result of improved economic conditions in the rental equipment market. Sales in the Terex Construction segment improved relative to 2003 as a result of strong demand for its scrap handling equipment, compact construction equipment and mobile crushing and screening equipment. Sales in the Terex Mining segment benefited relative to 2003 from improvements in commodity prices for coal and iron ore. Sales in the Terex Roadbuilding, Utility Products and Other segment increased relative to 2003 across all product lines. While sales of roadbuilding products have improved over 2003 levels, they remain low relative to historic levels and future improvements are dependent on increased state and federal funding for road projects. Sales in the Terex Cranes segment were relatively unchanged from 2003 levels after adjusting for foreign exchange movements and the sale of the Crane & Machinery, Inc. ("C&M") distribution business and Schaeff Incorporated fork-lift business in the fourth quarter of 2003. During the second quarter of 2004, the Company began to realize the benefits of end market recoveries, the integration of its businesses, cost-savings initiatives put in place over the prior year, and the initial impact of TIP.
Gross profit for the three months ended June 30, 2004 totaled $195.0 million, an increase of $78.3 million when compared to the same period in 2003. Improvements relative to 2003 were realized in all segments of the Company from higher sales volumes, despite an increase in steel costs of approximately $18 million during the second quarter of 2004. The Company continues to design and implement plans to mitigate the impact of any future increases in steel prices, including the use of alternate suppliers, leveraging the Company's overall purchase volumes to obtain favorable costs and increasing the price of the Company's products. Gross profit also benefited from several of the programs initiated as part of TIP and from restructuring initiatives launched during 2003. The acquisitions of Tatra and ATC, net of the impact of the sale of the Schaeff Incorporated and C&M businesses, improved gross profit by approximately $7.5 million when compared to 2003.
During the second quarter of 2004, the Company recorded restructuring and other charges, included in gross profit, of $9.9 million, a reduction of $28.2 million when compared to 2003. Restructuring and other costs incurred in 2003 related primarily to actions taken to align the cost structure of the roadbuilding business to expected market conditions and to consolidate production facilities in the Terex Cranes segment. Restructuring and other costs incurred in 2004 related primarily to a facility consolidation and component sourcing projects in the Terex Construction segment and to the sale of certain of the Company's legacy parts businesses.
Total selling, general and administrative costs ("SG&A") increased for the three months ended June 30, 2004 by $18.3 million when compared to the same period in 2003. A weaker U.S. dollar relative to the British Pound and the Euro accounted for approximately $4 million of the increase, as costs reported in these currencies translate into more U.S. dollars than reported in 2003. The acquisitions of Tatra and ATC, net of the impact of the sale of C&M and Schaeff Incorporated, increased SG&A by approximately $4 million when compared to 2003 levels. SG&A costs also increased as a result of higher commissions and related costs due to increased sales levels during the second quarter of 2004. As a percentage of sales, SG&A fell to 8.9% in the second quarter of 2004 from 9.6% in the second quarter of 2003.
During the second quarter of 2003, the Company recorded a goodwill impairment charge of $51.3 million related to the performance of its roadbuilding business. This charge was the result, in part, of poor market demand for the business' products and is more fully described in the Terex Roadbuilding, Utility Products and Other segment discussion below.
Income from operations increased by $111.3 million for the three months ended June 30, 2004 when compared to the same period in 2003. The Terex Aerial Work Platforms and Terex Construction segments' income from operations improved relative to 2003 as a result of an improving economy in the United States and Europe. Income from operations improved in the Terex Mining segment as a result of increased demand driven by improved commodity price levels. Income from operations in the Terex Cranes segment grew as a result of increased demand for tower cranes and from cost reduction initiatives in the North American crane business. Income from operations was positively impacted by the acquisition of Tatra and ATC by approximately $2.7 million. Income from operations in the second quarter of 2004 also improved from the prior year due to decreased restructuring and other costs and no impairment charges. Restructuring and other costs in the three months ended June 30, 2004 were lower by $33.4 million when compared to the comparable period in 2003 and totaled $11.5 million in the second quarter. During the second quarter of 2003 a goodwill impairment charge of $51.3 million was recorded as a result of the performance of the roadbuilding business; no such charge was recorded in the second quarter of 2004.
Terex Construction
<CAPTION>
Three Months Ended June 30,
---------------------------------------------------
2004 2003
------------------ ----------------------------
% of % of % Change In
Sales Sales Reported Amounts
---------- ---------------- ----------------------
($ amounts in millions)
<S> <C> <C> <C> <C> <C>
Net sales $ 475.0 $ 382.7 24.1%
Gross profit 62.5 13.2% 53.3 13.9% 17.3%
SG&A 40.1 8.4% 34.3 9.0% 16.9%
Income (loss) from operations 22.4 4.7% 19.0 5.0% 17.9%
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Net sales in the Terex Construction segment increased by $92.3 million for the three months ended June 30, 2004 when compared to the same period in 2003 and totaled $475.0 million. A weaker U.S. dollar relative to the British Pound and the Euro increased sales by approximately 7% when compared to the second quarter of 2003. Sales improved in the crushing and screening business primarily as a result of higher demand for the Terex Pegson line of crushing equipment and from higher sales of crushing and screening products in the United States. Sales of compact construction equipment improved relative to 2003 as a result of improved economic conditions in the United States and from the focus created by the compact equipment facility consolidation completed in 2003. Sales of heavy construction equipment were driven primarily by improved demand for articulated trucks and Fuchs branded scrap-handling equipment. Sales of Fuchs scrap handling products have benefited from recent increases in the price of steel.
Gross profit increased to $62.5 million for the three months ended June 30, 2004, an increase of $9.2 million when compared to 2003 results for the same period. Gross profit was negatively impacted by recent increases in steel pricing as well as an increase in the value of the British Pound and Euro relative to the U.S. dollar when compared to 2003. The negative impact of currency movements was largest in the articulated truck business, where a higher than average level of sales in the second quarter of 2004 were priced in U.S. dollars. These unfavorable events were offset by the impact of higher sales volumes and favorable parts pricing.
Restructuring and other charges recorded in gross profit during the second quarter of 2004 totaled $8.5 million. During the second quarter of 2004, the Company decided to close its truck-mounted crane manufacturing facility in the United Kingdom and to consolidate truck-mounted crane production into a single facility in Germany. A charge of $4.3 million was recorded to reflect the cost of closing the facility in the United Kingdom. Also during the second quarter of 2004, the Company decided to close a component production facility in Germany and to outsource production of certain fabricated parts supporting the Atlas Terex business in Germany. A charge of $2.2 million was recorded in the second quarter of 2004 as a result of this decision. During the second quarter of 2004, the Company also recorded costs to relocate its pump business from its B.L. Pegson facility in Coalville, England to another facility in Scotland ($0.3 million), to record a pre-acquisition credit guarantee provided on two large hydraulic shovels sold in the United Kingdom ($1.6 million) and $0.1 related to previously announced restructuring programs. Gross profit in the second quarter of 2003 included a charge of $2.1 million, primarily related to the closure of the Kilbeggan crushing and screening facility and relocating its production of this product line to the Dungannon facility.
SG&A costs for the three months ended June 30, 2004 totaled $40.1 million, an increase of $5.8 million when compared to the same period in 2003. A weaker U.S. dollar relative to the British Pound and the Euro increased SG&A costs by approximately $2 million when compared to the second quarter of 2003. Approximately 74% of the segment's SG&A costs are incurred in either British Pounds or Euro. During the second quarter of 2004, restructuring and other charges of $0.6 million were recorded, primarily as a result of the decision to outsource production at the Atlas Terex German facility.
Income from operations for the three months ended June 30, 2004 totaled $22.4 million, an increase of $3.4 million when compared to $19.0 million for the same period in 2003. Income from operations grew in the heavy equipment and crushing and screening businesses as a result of improved volume, which helped to offset steel price increases. Charges related to restructuring and related costs were $9.1 million in the second quarter of 2004, an increase of $6.9 million when compared to the second quarter of 2003.
Terex Cranes
<CAPTION>
Three Months Ended June 30,
-------------------------------------------------------
2004 2003
-------------------- ------------------------------
% of % of % Change In
Sales Sales Reported Amounts
---------- ------------ -------------------
($ amounts in millions)
<S> <C> <C> <C> <C> <C>
Net sales $ 276.9 273.0 1.4%
Gross profit 33.5 12.1% 21.8 8.0% 53.7%
SG&A 22.9 8.3% 20.3 7.4% 12.8%
Income (loss) from operations 10.6 3.8% 1.5 0.5% 606.7%
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Net sales for the Terex Cranes segment for the three months ended June 30, 2004 increased by $3.9 million and totaled $276.9 million when compared to $273.0 million for the same period in 2003. The effect of a weaker U.S. dollar relative to the Euro positively impacted sales by approximately 5% when compared to 2003. Sales of tower cranes, small all-terrain cranes and stacker products improved, while sales of mobile cranes fell slightly when compared to the second quarter of 2003. Sales for the C&M and Schaeff Incorporated businesses, which were sold in the fourth quarter of 2003, were approximately $5 million in the second quarter of 2003.
Gross profit for the three months ended June 30, 2004 increased by $11.7 million relative to the same period in 2003 and totaled $33.5 million. Gross profit from mobile cranes in the three months ended June 30, 2004 improved slightly over 2003 levels, in part as a result of improved profitability realized in North America. Gross profit also improved as a result of higher sales experienced in the segment's Italian tower crane business and was favorably impacted by lower used cranes sales realized in the second quarter of 2004 when compared to the prior year period. These improvements were partially offset by the impact of steel price increases experienced during 2004.
Included in the second quarter of 2004 gross profit are restructuring and other charges totaling $0.7 million. During the quarter, the Company sold a legacy replacement parts business and recorded a loss of $1.9 million, related to inventory. The Company decided to exit this line of business to focus on supporting core Terex products. Also during the second quarter of 2004, the Company completed the closure and sale of its Cork, Ireland facility. As a result, the Company released to income the remaining restructuring reserve, which totaled $2.1 million. During the second quarter of 2004, the Company . . .
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