UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
10-K
FOR
ANNUAL AND TRANSITIONAL REPORTS PURSUANT TO
SECTIONS
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark
One)
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x
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For
the Fiscal Year Ended December 31,
2008
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or
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¨
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from __________ to
__________.
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Commission
File Number 1-10702
TEREX
CORPORATION
(Exact
Name of Registrant as Specified in Charter)
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DELAWARE
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34-1531521
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(State
of incorporation)
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(I.R.S.
Employer Identification No.)
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200
NYALA FARM ROAD, WESTPORT, CONNECTICUT
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06880
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
Telephone Number, including area code: (203) 222-7170
Securities
registered pursuant to Section 12(b) of the Act:
COMMON
STOCK, $.01 PAR VALUE
(Title of
Class)
NEW
YORK STOCK EXCHANGE
(Name of
Exchange on which Registered)
Securities
registered pursuant to Section 12(g) of the Act: NONE
Indicate
by check mark if the Registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
YES x NO ¨
Indicate
by check mark if the Registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Securities Act.
YES ¨ NO x
Indicate
by check mark whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months and (2) has been subject to such filing requirements for the
past 90 days.
YES x NO ¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of Registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. x
Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, non-accelerated filer or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
| Large Accelerated Filer x | Accelerated Filer ¨ | Non-accelerated Filer ¨ | Smaller Reporting Company ¨ |
Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
YES ¨ NO x
The
aggregate market value of the voting and non-voting common equity stock held by
non-affiliates of the Registrant was approximately $4,987 million based on the
last sale price on June 30, 2008.
THE
NUMBER OF SHARES OF THE REGISTRANT’S COMMON STOCK OUTSTANDING WAS
95.0
MILLION AS OF FEBRUARY 19, 2009.
DOCUMENTS
INCORPORATED BY REFERENCE:
Portions
of the Terex Corporation Proxy Statement to be filed with the Securities and
Exchange Commission within 120 days after the year covered by this Form 10-K
with respect to the 2009 Annual Meeting of Stockholders are incorporated by
reference into Part III hereof.
TEREX
CORPORATION AND SUBSIDIARIES
Index to
Annual Report on Form 10-K
For the
Year Ended December 31, 2008
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PAGE
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PART
I
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Item
1.
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Business
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4
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Item
1A.
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Risk
Factors
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23
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Item
1B.
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Unresolved
Staff Comments
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27
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Item
2.
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Properties
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28
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Item
3.
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Legal
Proceedings
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30
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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30
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PART
II
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Item
5.
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Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
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31
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Item
6.
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Selected
Financial Data
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34
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Item
7.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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35
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Item
7A.
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Quantitative
and Qualitative Disclosures about Market Risk
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63
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Item
8.
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Financial
Statements and Supplementary Data
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64
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Item
9.
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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65
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Item
9A.
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Controls
and Procedures
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65
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Item
9B.
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Other
Information
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66
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PART
III
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Item
10.
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Directors,
Executive Officers and Corporate Governance
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66
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Item
11.
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Executive
Compensation
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66
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Item
12.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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66
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Item
13.
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Certain
Relationships and Related Transactions, and Director
Independence
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66
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Item
14.
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Principal
Accountant Fees and Services
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67
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PART
IV
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Item
15.
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Exhibits
and Financial Statement Schedules
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67
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-2-
As used
in this Annual Report on Form 10-K, unless otherwise indicated, Terex
Corporation, together with its consolidated subsidiaries, is hereinafter
referred to as “Terex,” the “Registrant,” “us,” “we,” “our” or the
“Company.” This Annual Report on Form 10-K generally speaks as of
December 31, 2008, unless specifically noted otherwise.
Forward-Looking
Information
Certain
information in this Annual Report includes forward-looking statements (within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934) regarding future events or our future financial
performance that involve certain contingencies and uncertainties, including
those discussed below in the section entitled “Management’s Discussion and
Analysis of Financial Condition and Results of Operations - Contingencies and
Uncertainties.” In addition, when included in this Annual Report or
in documents incorporated herein by reference, the words “may,” “expects,”
“intends,” “anticipates,” “plans,” “projects,” “estimates” and the negatives
thereof and analogous or similar expressions are intended to identify
forward-looking statements. However, the absence of these words does not mean
that the statement is not forward-looking. We have based these forward-looking
statements on current expectations and projections about future events. These
statements are not guarantees of future performance. Such statements are
inherently subject to a variety of risks and uncertainties that could cause
actual results to differ materially from those reflected in such forward-looking
statements. Such risks and uncertainties, many of which are beyond our control,
include, among others:
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·
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Our
business is cyclical and weak general economic conditions may affect the
sales of our products and financial
results;
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our
ability to access the capital markets to raise funds and provide
liquidity;
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our
business is sensitive to fluctuations in government
spending;
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our
business is very competitive and may be affected by our cost structure,
pricing, product initiatives and other actions taken by
competitors;
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a
material disruption to one of our significant
facilities;
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our
retention of key management
personnel;
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the
financial condition of suppliers and customers, and their continued access
to capital;
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our
ability to obtain parts and components from suppliers on a timely basis at
competitive prices;
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our
ability to timely manufacture and deliver products to
customers;
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the
need to comply with restrictive covenants contained in our debt
agreements;
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our
business is global and subject to changes in exchange rates between
currencies, as well as international politics, particularly in developing
markets;
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·
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the
effects of changes in laws and
regulations;
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possible
work stoppages and other labor
matters;
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compliance
with applicable environmental laws and
regulations;
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litigation
and product liability claims and other
liabilities;
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investigations
by the United States Securities and Exchange Commission (“SEC”) and the
Department of Justice (“DOJ”);
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our
implementation of a global enterprise system and its performance;
and
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other
factors.
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Actual
events or our actual future results may differ materially from any
forward-looking statement due to these and other risks, uncertainties and
significant factors. The forward-looking statements contained herein speak only
as of the date of this Annual Report and the forward-looking statements
contained in documents incorporated herein by reference speak only as of the
date of the respective documents. We expressly disclaim any obligation or
undertaking to release publicly any updates or revisions to any forward-looking
statement contained or incorporated by reference in this Annual Report to
reflect any change in our expectations with regard thereto or any change in
events, conditions or circumstances on which any such statement is
based.
-3-
PART
I
ITEM
1.
BUSINESS
GENERAL
Terex is
a diversified global manufacturer of capital equipment focused on delivering
reliable, customer relevant solutions for the construction, infrastructure,
quarrying, surface mining, shipping, transportation, power and energy
industries. Through December 31, 2008, we operated in five reportable
segments: (i) Terex Aerial Work Platforms, (ii) Terex Construction, (iii) Terex
Cranes, (iv) Terex Materials Processing & Mining and (v) Terex Roadbuilding,
Utility Products and Other.
We view
our purpose as making products that will be used to improve the lives of people
around the world. Our mission is to delight our current and future
customers with value added offerings that exceed their current and future
needs. Our vision focuses on our commitments to our core
constituencies of customers, stakeholders and team members by providing our
customers with a superior ownership experience, our stakeholders with a
profitable enterprise that increases value, and our team members with a
preferred place to work.
Our
Company was incorporated in Delaware in October 1986 as Terex U.S.A.,
Inc. We have grown tremendously since that time, achieving $9.9
billion of net sales in 2008, up from $9.1 billion of net sales in
2007. While much of our historic growth had been achieved through
acquisitions, a majority of our recent growth has been generated from existing
operations. Since 2004, we have focused on becoming a superb
operating company under the Terex franchise.
As we
have grown, our business has become increasingly international in scope, with
products manufactured in North and South America, Europe, Australia and Asia and
sold worldwide. We are focusing
on expanding our business globally, with an increased emphasis on developing
markets such as China, India, Russia, the Middle East and Latin
America.
Effective
January 1, 2009, we realigned certain operations in an effort to capture market
synergies and streamline our cost structure. Our Roadbuilding
businesses, formerly part of our Roadbuilding, Utility Products and Other
segment, will now be consolidated within our Construction
segment. Our Utility Products businesses, formerly part of our
Roadbuilding, Utility Products and Other segment, will now be consolidated
within our Aerial Work Platforms segment. Certain other businesses
that were included in the Roadbuilding, Utility Products and Other segment will
now be reported in Corporate and Other, which includes eliminations among our
segments. Additionally, our truck-mounted articulated hydraulic crane
line of business produced in Delmenhorst and Vechta, Germany, formerly part of
our Construction segment, will now be consolidated within our Cranes
segment. The segment disclosures included herein do not reflect these
realignments. We will give effect to these realignments in our
segment reporting for financial reporting periods beginning January 1, 2009, at
which point the Roadbuilding, Utility Products and Other segment will cease to
be a reportable segment.
For
financial information about our industry and geographic segments, see
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and Note B - “Business Segment Information” in the Notes to the
Consolidated Financial Statements.
AERIAL
WORK PLATFORMS
Our
Aerial Work Platforms segment designs, manufactures, refurbishes and markets
aerial work platform equipment, telehandlers, power products and construction
trailers. Products include material lifts, portable aerial work platforms,
trailer-mounted articulating booms, self-propelled articulating and telescopic
booms, scissor lifts, telehandlers, construction trailers, trailer-mounted light
towers, power buggies, portable generators, related components and replacement
parts, and other products. Customers use our products to construct and maintain
industrial, commercial and residential buildings and facilities, as well as in a
wide range of infrastructure projects. We market our Aerial Work
Platforms products principally under the Terex® and
Genie® brand
names and the Terex® name in
conjunction with certain historic brand names.
Aerial
Work Platforms has the following significant manufacturing
operations:
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Aerial
work platform equipment is manufactured in Redmond and Moses Lake,
Washington, Perugia, Italy and Coventry,
England;
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Construction
trailers are manufactured in Elk Point, South
Dakota;
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Telehandlers
are manufactured in Baraga, Michigan and Perugia, Italy;
and
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Trailer-mounted
light towers, trailer-mounted articulated booms, power buggies and
generators are manufactured in Rock Hill, South
Carolina.
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-4-
We have
aerial work platform refurbishment facilities located in Waco, Texas and
Modesto, California.
We are in
the process of developing a facility in Changzhou, China for the manufacture of
aerial work platform equipment.
CONSTRUCTION
Our
Construction segment designs, manufactures and markets two primary categories of
construction equipment and their related components and replacement
parts:
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Heavy
construction equipment, including off-highway trucks, scrapers, hydraulic
excavators, large wheel loaders and material handlers;
and
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Compact
construction equipment, including loader backhoes, truck-mounted
articulated hydraulic cranes, compaction equipment, mini and midi
excavators, site dumpers, compact track loaders, skid steer loaders and
wheel loaders.
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Construction,
forestry, rental, mining, industrial and government customers use these products
in construction and infrastructure projects and in coal, minerals, sand and
gravel operations. We market our Construction products principally under the
Terex® brand
name and the Terex® name in
conjunction with certain historic brand names.
Construction
has the following significant manufacturing operations:
Heavy Construction
Equipment
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Off-highway
rigid haul trucks and articulated haul trucks and scrapers are
manufactured in Motherwell,
Scotland;
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Wheel
loaders are manufactured in Crailsheim,
Germany;
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Excavators and
material handlers are manufactured in Ganderkesee, Germany;
and
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Material
handlers are manufactured in Bad Schoenborn,
Germany.
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Compact Construction
Equipment
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Compact
track loaders are manufactured in Grand Rapids, Minnesota, chassis
components for compact track loaders are manufactured in Cohasset,
Minnesota and crawler conversion parts for compact track loaders and
aerial work platform products are manufactured in Casselton, North
Dakota;
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Site
dumpers, compaction equipment and loader backhoes, as well as equipment
for the Terex Aerial Work Platforms segment, are manufactured in Coventry,
England;
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Small
and midsized wheel loaders, mini excavators and midi excavators are
manufactured in Langenburg, Gerabronn, Rothenburg, Crailsheim and
Clausnitz, Germany;
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Truck-mounted
articulated hydraulic cranes are manufactured in Delmenhorst and Vechta,
Germany;
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Loader
backhoes and skid steer loaders are manufactured for the Indian market in
Greater Noida, Utter Pradesh, India;
and
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Mini
excavators are manufactured for the Chinese market in Sanhe,
China.
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Construction’s
North American distribution center is in Southaven, Mississippi and serves as a
parts center for Construction and other Terex operations.
We have a
minority interest in Inner Mongolia North Hauler Joint Stock Company Limited
(“North Hauler”), a company incorporated under the laws of China, which
manufactures rigid and articulated haulers in China. Trucks
manufactured by North Hauler, which is located in Baotou, Inner Mongolia, are
principally used in China under the Terex® brand
name. We also have a minority interest in Atlas Construction
Machinery Company Ltd., a company incorporated under the laws of China, which
manufactures excavators in China.
-5-
CRANES
Our
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 commercial buildings, manufacturing facilities and
infrastructure. We market our Cranes products principally under the
Terex® brand
name and the Terex® name in
conjunction with certain historic brand names.
Cranes
has the following significant manufacturing operations:
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Rough
terrain cranes are manufactured in Crespellano,
Italy;
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All
terrain cranes, truck cranes and telescopic container stackers are
manufactured in Montceau-les-Mines,
France;
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Rough
terrain cranes, truck cranes and truck-mounted cranes are manufactured in
Waverly, Iowa;
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Truck
cranes are manufactured in Luzhou,
China;
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Lift
and carry cranes are manufactured in Brisbane,
Australia;
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Tower
cranes are manufactured in Fontanafredda and Cusano Milanino,
Italy;
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Lattice
boom crawler cranes and tower cranes are manufactured in Wilmington, North
Carolina; and
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Lattice
boom crawler and wheel-mounted cranes, as well as all terrain cranes, are
manufactured in Zweibruecken, Wallerscheid and Bierbach, Germany and Pecs,
Hungary.
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We plan
to begin the manufacture of tower crane components at our facility in Tianjin,
China.
MATERIALS
PROCESSING & MINING
Our
Materials Processing & Mining segment designs, manufactures and markets
materials processing equipment (including crushers, impactors, washing systems,
screens and feeders), hydraulic mining excavators, highwall mining equipment,
high capacity surface mining trucks, drilling equipment, related components and
replacement parts, and other products. Construction, mining,
quarrying and government customers use these products in construction and
infrastructure projects and commodity mining. We market our Materials
Processing & Mining products principally under the Terex® and
Powerscreen® brand
names and the Terex® name in
conjunction with certain historic brand names.
Materials
Processing & Mining has the following significant manufacturing
operations:
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Hydraulic
mining excavators are manufactured in Dortmund,
Germany;
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Drilling
equipment and tools are manufactured in Denison, Texas and Halifax,
England;
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High
capacity surface mining trucks are manufactured, and components for other
Terex businesses are fabricated, in Acuña,
Mexico;
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Highwall
mining equipment is manufactured in Beckley, West
Virginia;
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Materials
processing equipment is manufactured in Melbourne, Australia, Subang Jaya,
Malaysia, Chomburi, Thailand, Durand, Michigan, Coalville, England, Omagh,
Northern Ireland, and Dungannon, Northern Ireland;
and
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·
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Materials
processing equipment, along with asphalt pavers for the Terex
Roadbuilding, Utility Products and Other segment, are manufactured in
Cedar Rapids, Iowa.
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We have a
North American distribution center for materials processing products in
Louisville, Kentucky.
We own a
controlling 50% interest in Terex NHL Equipment Co., Ltd., a company
incorporated under the laws of China, which was formed to provide manufacturing
capability for surface mining trucks in China.
We also
participate in joint ventures in China under the names Wieland International
Trading (Shanghai) Co. Ltd. and Shanghai Wieland Engineering Co. Ltd., which
manufacture replacement and wear parts for crushing equipment.
We are in
the process of developing a facility in Hosur, India for the manufacture of
crushing and screening equipment. We plan to begin the manufacture of
hydraulic mining excavators at our facility in Tianjin, China.
-6-
ROADBUILDING,
UTILITY PRODUCTS AND OTHER
Our
Roadbuilding, Utility Products and Other segment designs, manufactures and
markets asphalt and concrete equipment (including pavers, transfer devices,
plants, mixers, reclaimers/stabilizers, placers and cold planers), landfill
compactors, bridge inspection and utility equipment (including digger derricks,
aerial devices and cable placers), as well as related components and replacement
parts. Government, utility, infrastructure and construction customers
use these products to build roads and bridges, construct and maintain utility
lines, trim trees and for other commercial operations. We market our
Roadbuilding, Utility Products and Other products principally under the
Terex® brand
name and the Terex® name in
conjunction with certain historic brand names.
Roadbuilding,
Utility Products and Other has the following significant manufacturing
operations:
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Cold
planers, reclaimers/stabilizers, asphalt plants, concrete plants, concrete
pavers, concrete placers and landfill compactors are manufactured in
Oklahoma City, Oklahoma;
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Asphalt
pavers and transfer devices are manufactured in Cedar Rapids,
Iowa;
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Asphalt
pavers and asphalt plants are manufactured in Cachoeirinha,
Brazil;
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Concrete
pavers are manufactured in Canton, South Dakota and Opglabbeek,
Belgium;
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Bridge
inspection equipment is manufactured in Rock Hill, South
Carolina;
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Front
and rear discharge concrete mixer trucks are manufactured in Fort Wayne,
Indiana; and
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Utility
aerial devices and digger derricks are manufactured in Watertown, South
Dakota.
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We also
own much of the North American distribution channel for the utility products
group. These operations sell, service and rent our utility aerial
devices and digger derricks as well as other products that service the utility
industry. They also provide parts and service support for a variety
of other Terex®
products, including concrete mixers and aerial devices. We also
operate a fleet of rental utility products in the United States and
Canada.
We also
assist customers in their rental, leasing and acquisition of our
products. We facilitate loans and leases between our customers and
various financial institutions under the name Terex Financial Services (“TFS”)
in the United States, Europe and elsewhere.
BUSINESS
STRATEGY
Successful
companies in challenging times balance the short-term needs of cash generation
and reducing costs with the long-term needs of investing in and strengthening
their core businesses. This will continue to be our focus throughout
this demanding economic environment.
Short-Term
We
believe that the coming year will be challenging. In an environment
of tight credit, declining economic activity and constrained access to
investment capital, disciplined management of cash flow will be critical to our
business success. While we do not anticipate significant difficulties
with overall liquidity, we do believe that sound management of day-to-day
operations and sound decision-making about business investments will improve our
overall liquidity and increase our flexibility to make value-adding investments
in our future. While cash management is always a focus for our
Company, it will be even more so in the current environment.
We
believe that the present environment may offer opportunities to strengthen and
improve on our business positions around the world. Disciplined cash
management and our continued, although more limited, access to external capital
during these challenging times could provide opportunities to invest in our
businesses in ways that will strengthen us for the market
recovery. We continually manage a pipeline of both internal and
external investment opportunities and, although our investment thresholds will
be higher, we will continue to act when the right opportunities present
themselves.
Long-Term
Despite
these challenging times, our purpose remains to
improve the lives of people around the world. Our mission is to delight
our current and future construction, infrastructure, mining and other customers
with value added offerings that exceed their current and future
needs. To achieve our mission we must attract the best people by
creating a Terex culture that is safe, exciting, creative, fun and embraces
continuous improvement.
-7-
Our vision focuses on the
Company’s core constituencies of customers, stakeholders and team
members:
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Customers: We
aim to be the most customer responsive company in the industry as
determined by our customers.
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Stakeholders: We
aim to be the most profitable company in the industry as measured by
return on invested capital.
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Team
Members: We aim to be the best place to work in the
industry as determined by our team
members.
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We
operate our business based on our value system, “The Terex Way,” that helps
define our culture. The Terex Way is based on six key
values:
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Integrity: Integrity reflects
honesty, ethics, transparency and accountability. We are
committed to maintaining high ethical standards in all of our business
dealings.
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Respect: Respect
incorporates concern for safety, health, teamwork, diversity, inclusion
and performance. We treat all our team members, customers and
suppliers with respect and dignity.
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Improvement: Improvement
encompasses quality, problem-solving systems, continuous improvement
culture and collaboration. We continuously search for new and
better ways of doing things, focusing on the elimination of waste and
continuous improvement.
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Servant
Leadership: Servant leadership requires service to
others, humility, authenticity and leading by example. We work
to serve the needs of our customers, investors and team
members.
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Courage: Courage
entails willingness to take risks, responsibility, action and
empowerment. We have the courage to make a difference even when
it is difficult.
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Citizenship: Citizenship means
social responsibility and environmental stewardship. We respect
all people’s values and cultures and are good global, national and local
citizens.
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One
example of how The Terex Way improves our business is our commitment to safety
both for our team members in the workplace and for the operators of our
equipment. We strive to design and manufacture quality products that
are safe to use and operate in an environmentally conscious
manner. We are dedicated to ensuring that the safety and health of
our team members is protected through appropriate work practices, training and
procedures. In 2008, we implemented a new process to investigate
accidents and put into place corrective measures to help ensure that similar
accidents do not occur anywhere else in our Company. As a result of
this and other safety initiatives, we reduced Terex lost time injuries in 2007
and 2008 by approximately 25% each year and our goal in 2009 is to further
reduce Terex lost time injuries by another 25%.
Our
operational principles are based on the “Terex Business System,” or
“TBS.” The Terex Business System is the framework around which we are
building our capabilities as a superb operating company to achieve our long-term
goals. The key elements of the Terex Business System are illustrated
by the following “TBS House” diagram:
-8-
The three
foundational elements of the Terex Business System are:
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Leadership
Commitment for Competitive
Advantage;
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Superb
Human Resource Practices; and
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Customer
Driven Business Processes, evidenced by continuous improvement in quality,
speed and simplicity.
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Leadership Commitment for
Competitive Advantage is the first foundational element for the Terex
Business System. The commitment of our leaders to the Terex Business
System and its principles is the best way to increase our chances of success
going forward. Our leaders set a compelling vision about an exciting,
shared future and work to foster trust and teamwork among our team
members.
Superb Human Resource
Practices is the second foundational element in the Terex Business
System. Our team members are the Company’s most valuable
asset. We are committed to making Terex a preferred place to work
filled with energized people who share the Terex values and
culture. We aim to acquire, develop and retain diverse and agile team
members.
Customer Driven Business
Processes is the third foundational element in the Terex Business System
and deals with how we conduct our business by focusing on our
customer. We endeavor to engage in activities across Terex, which
deliver value to our customers and constantly work to eliminate the waste of
non-value added activities. We strive to create and improve our
business processes in a way that is organized around the
customer. Our process initiatives focus on continuous improvement,
quality, speed and simplicity.
The
foundation of the TBS House supports the four pillars of the Terex Business
System:
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Achieving
Intense Customer Focus;
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Planning
Excellence and Annual Deployment;
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Developing
Operational Excellence Across the Entire Value Chain;
and
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Rapidly
Delivering New Products and
Services.
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Achieving Intense Customer
Focus represents the importance of our customer to our business
success. Terex is committed to being customer-centric, to meet or
exceed customer needs in all aspects of our products and
services. This requires an intense understanding of what our
customers need and striving to satisfy them. We aim to build
relationships with our customers that they can depend on and that makes it
easier for our customers to do their jobs. We understand that our
success will flow from our customers’ success, and that the value of our
products is defined and determined by our customers.
Planning Excellence and
Annual Deployment recognizes that we must have well defined initiatives
and action plans in order to achieve our objectives. This requires
dedication to planning to achieve the strategic intent of our business, based on
quality information about our customers, competitors, markets, economic trends
and technological developments. We must deploy our assets
appropriately to align our business performance with our
objectives. In the spirit of continuous improvement, we are committed
to reviewing our performance based on critical metrics and improving our
planning based on our progress.
Developing Operational
Excellence Across the Entire Value Chain is vital to our delivering high
quality, reliable products on time and at a low cost to our
customers. This means working with our suppliers to cut lead times
and increase inventory turnover, improving the quality of our existing and new
products, improving our order entry and scheduling activities, and developing
effective management systems for all of our processes, products and
people. To achieve operational excellence in the supply chain, in
design and in manufacturing, we apply lean principles and lean thinking to every
aspect of our business. The core applications of the lean approach
involve our promoting a culture of continuous improvement and removing waste
(anything that does not add value) at every organizational level of the
Company.
Rapidly Delivering New
Products and Services means acting on the voice of the customer and
quickly moving to develop products and services that better meet and exceed
customer expectations. It involves listening to the customer’s needs
and wants, understanding them, and then optimizing design and production efforts
to best deliver new products. This requires innovation and
efficiency, and a commitment beyond providing products to also providing the
services that are an important part of the overall customer
experience.
With our
purpose, mission and vision in mind, using the Terex Business System as our
framework, and operating based on the values of The Terex Way, we have launched
key strategic initiatives to drive our future success. Some of these
initiatives on which we will focus in the coming year include:
-9-
Strategic
Sourcing. We are in the process of developing and implementing
best in class capability in supply chain management, logistics and global
purchasing. We are focused on gaining efficiencies with suppliers
based on our global purchasing power and resources. These efforts, if
successful, will result in material savings across the entire Terex
organization. We are developing a world-class global supply base,
with better delivery, improved quality and net cost savings for
Terex. Through mid-2008, our sourcing efforts helped to mitigate, to
some extent, rising costs in commodities and components. Over the
coming years, we see an opportunity to reduce costs through a combination of
improved pricing, consolidated spending, and changes in internal processes and
practices.
Customer
Satisfaction. We have implemented a customer satisfaction
measurement and improvement process to understand the current level of our
customer’s satisfaction. Through this process, which is based on the
Net Promoter Score methodology, we have gained significant insights regarding
customer priorities and customer perceptions. Numerous actions are
underway or planned for 2009, as a direct result of the input received from our
customers, including implementing changes to improve initial product quality and
after market support of our products. We believe these actions will
significantly improve the effectiveness of our businesses, as we continue on our
journey of continuous improvement in delighting our customers and providing our
customers with the value they desire in the products they purchase.
Developing
Markets. We remain focused on expanding the geographic reach
of our businesses, emphasizing developing areas, including China, Russia, India,
the Middle East, Africa and Latin America, which accounted for more than 23% of
our sales in 2008. While no market is immune to the effects of the
current global financial and economic situation, we believe that developing
markets will prove to be attractive places in which to operate and do business
in the decades to come. In 2008, we established plans for each major
developing market and have put team members in place to facilitate and support
the execution of these plans. These efforts will evolve over the next
several years as we look to grow our business, sales and profits in some of the
world’s most important long-term equipment markets.
While we
have developed a geographically diverse revenue base with approximately 38% of
our revenues derived from the Americas, 42% from Europe, Africa and the Middle
East and 20% from Asia and Australia, our long-term goal is a revenue base of
1/3 of revenue from the Americas, 1/3 from Europe, Africa and the Middle East
and 1/3 from Asia and Australia.
New Product Identification
and Development Process. We introduced a new common product
development process across all of our businesses in 2008. This
process is focused on ensuring that we design our new products to best meet
customer needs and that the quality, cost and delivery of our new products meet
customer and our expectations. The process starts with the voice of
the customer and will help ensure that we identify and develop the right
products and launch them successfully to retain existing and attract new
customers. We anticipate improved productivity and reduced
engineering costs through the implementation of this process. More
than 1,200 team members have been trained as part of this new process and there
are over 60 significant projects currently being managed.
Terex Management System
(“TMS”). We are in the early stages of a multi-year
implementation of a worldwide enterprise resource-planning system. In
2008, we implemented TMS at three businesses in three different
countries. TMS has already produced tangible benefits by eliminating
duplicate data entry and providing near real-time information. We
believe these improvements will result in long-term cost savings and increased
productivity. As we further implement TMS, we believe the magnitude
of realized benefits will increase. We expect TMS to drive
significant integration within our Company, improving information for decision
support, reducing complexity and improving accuracy, thereby improving the
customer experience and realizing improved supply chain economies through the
greater visibility into our business that this system will
provide. In 2009, TMS will be implemented at several additional
businesses as part of a multi-year implementation program.
Diversity and
Inclusion. We are committed to having a diverse and inclusive
work force that will help us consistently achieve our business results in
culturally conscious, ethical and appropriate ways. Increased
diversity and inclusion will allow us to respond to rapidly changing global
demographics and a global market for talent, aid us in opening new markets,
improve our ability to innovate and to solve problems and make our organization
more productive. In 2008, we trained over 800 of our top leaders
about the importance of diversity and inclusion, with a particular focus on
developing a workforce that understands, appreciates and leverages the unique
skills and experiences of people from different cultures. We also
created diversity and inclusion plans at 10 of our largest facilities around the
world, and in 2009, we will continue to enhance our focus on diversifying our
leadership teams and increasing diversity training throughout the
Company.
-10-
TBS Assessment and
Education. In 2008, we introduced an operational diagnostic
tool to measure and assess how well we are implementing our TBS lean
manufacturing program, with an aim of identifying our current situation and the
gaps we need to address in order to create a mature enterprise-wide operating
system at Terex. In addition, we aim to establish and nurture a
problem solving culture within Terex, focused on development of leaders who
promote learning, business process thinking by all team members and a continuous
improvement mindset. Assessments were performed in over 75% of our
businesses in 2008 and a multi-phased training program was launched to reinforce
TBS principles in our Company. In 2009, we will, based on the results
of our assessment, begin to address the critical areas for improvement and will
continue to deploy TBS training to advance the understanding and capabilities of
all team members in key TBS concepts.
PRODUCTS
AERIAL
WORK PLATFORMS
AERIAL
WORK PLATFORMS. Aerial work platform equipment safely positions
workers and materials easily and quickly to elevated work areas to enhance
productivity. These products have developed as alternatives to scaffolding and
ladders. We offer a variety of aerial lifts that are categorized into six
product families: material lifts; portable aerial work platforms;
trailer-mounted articulating booms; self-propelled articulating booms;
self-propelled telescopic booms; and scissor lifts.
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Material
lifts are used primarily indoors in the construction, industrial and
theatrical markets.
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Portable
aerial work platforms are used primarily indoors in a variety of markets
to perform overhead maintenance.
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Trailer-mounted
articulating booms are used both indoors and outdoors. They
provide versatile reach, and have the ability to be towed between job
sites.
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Self-propelled
articulating booms are primarily used in construction and industrial
applications, both indoors and outdoors. They feature lifting
versatility with up, out and over position capabilities to access
difficult to reach overhead areas.
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Self-propelled
telescopic booms are used outdoors in commercial and industrial
construction, as well as highway and bridge maintenance
projects.
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Scissor
lifts are used in outdoor and indoor applications in a variety of
construction, industrial and commercial
settings.
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CONSTRUCTION
TRAILERS. Construction trailers are used in the construction and
rental industries to haul materials and equipment. We also produce
trailers used by the United States military for critical hauling
applications. Bottom dump material trailers are used to transport raw
aggregates, crushed aggregates and finished hot mix asphalt paving
material. Lowbed trailers are used primarily to transport
construction equipment.
TELEHANDLERS. Telehandlers
are used to move and place materials on residential and commercial job sites and
are used in the landscaping, recycling and agricultural industries.
POWER
PRODUCTS. We produce equipment for delivering power, including trailer-mounted
light towers, power buggies and portable generators.
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Trailer-mounted
light towers are used primarily to light work areas for night construction
activity.
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Power
buggies are used primarily to transport concrete from the mixer to the
pouring site.
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Generators
are used to provide electric power on construction sites and other remote
locations.
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-11-
CONSTRUCTION
HEAVY
CONSTRUCTION EQUIPMENT. We manufacture and/or market off-highway
trucks, scrapers, excavators, wheel loaders and material handlers.
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Articulated
off-highway trucks are three-axle, six-wheel drive machines with an
articulating connection between the cab and body that allows the cab and
body to move independently, enabling all six tires to maintain ground
contact for traction on rough
terrain.
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Rigid
off-highway trucks are two-axle machines, which generally have larger
capacities than articulated off-highway trucks, but can operate only on
improved or graded surfaces, and are used in large construction or
infrastructure projects, aggregates and smaller surface
mines.
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Scrapers
move dirt by elevating it from the ground to a bowl located between the
two axles of the machine. Scrapers are used most often in relatively dry,
flat terrains.
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Excavators
are used for a wide variety of construction applications, including
non-residential construction (such as commercial sites and road
construction) and residential
construction.
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Wheel
loaders are used for loading and unloading
materials. Applications include mining and quarrying,
non-residential construction, airport and industrial snow removal, waste
management and general
construction.
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Material
handlers are designed for handling logs, scrap and other bulky materials
with clamshell, magnet or grapple
attachments.
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COMPACT
CONSTRUCTION EQUIPMENT. We manufacture a wide variety of compact
construction equipment used primarily in the construction and rental industries.
Products include compact track loaders, loader backhoes, compaction equipment,
excavators, site dumpers, skid steer loaders, wheel loaders and truck-mounted
articulated hydraulic cranes.
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Loader
backhoes incorporate a front-end loader and rear excavator arm. They are
used for loading, excavating and lifting in many construction and
agricultural related applications.
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Our
compaction equipment ranges from small portable plates to heavy duty
ride-on rollers.
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Excavators
in the compact equipment category include mini and midi excavators used in
the general construction, landscaping and rental
businesses.
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Site
dumpers are used to move smaller quantities of materials from one location
to another, and are primarily used for construction
applications.
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Compact
track loaders, skid steer loaders and wheel loaders are used for loading
and unloading materials in construction, industrial, rental, agricultural
and landscaping businesses.
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Truck-mounted
articulated hydraulic cranes are available in two product categories. The
“knuckle boom” crane can be mounted on either the front or the rear of
commercial trucks and is folded within the width of the truck while in
transport. The “V-boom” crane is also mounted on the front or
the rear of the truck and spans the length of the truck while
folded.
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CRANES
We offer
a wide variety of cranes, including mobile telescopic cranes, tower cranes,
lattice boom crawler cranes, boom trucks and telescopic container
stackers.
MOBILE
TELESCOPIC CRANES. Mobile telescopic cranes are used primarily for
industrial applications, in commercial and public works construction and in
maintenance applications to lift equipment or material. We offer a
complete line of mobile telescopic cranes, including rough terrain cranes, truck
cranes, all terrain cranes and lift and carry cranes.
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Rough
terrain cranes move materials and equipment on rough or uneven terrain,
and are often located on a single construction or work site such as a
building site, a highway or a utility project for long
periods. Rough terrain cranes cannot be driven on highways and
accordingly must be transported by truck to the work
site.
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Truck
cranes have two cabs and can travel rapidly from job site to job site at
highway speeds. Truck cranes are often used for multiple local jobs,
primarily in urban or suburban
areas.
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All
terrain cranes were developed in Europe as a cross between rough terrain
and truck cranes, and are designed to travel across both rough terrain and
highways.
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Lift
and carry cranes are designed primarily for site work, such as at mine
sites, large fabrication yards and building and construction sites, and
combine high road speed and all terrain capability without the need for
outriggers.
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-12-
TOWER
CRANES. Tower cranes are often used in urban areas where space is
constrained and in long-term or very high building sites. Tower
cranes lift construction material and place the material at the point where it
is being used. We produce the following types of tower
cranes:
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Self-erecting
tower cranes are trailer-mounted and unfold from four sections (two for
the tower and two for the jib); certain larger models have a telescopic
tower and folding jib. These cranes can be assembled on site in a few
hours. Applications include residential and small commercial
construction.
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Hammerhead
tower cranes have a tower and a horizontal jib assembled from sections.
The tower extends above the jib to which suspension cables supporting the
jib are attached. These cranes are assembled on-site in one to
three days depending on height, and can increase in height with the
project.
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Flat
top tower cranes have a tower and a horizontal jib assembled from
sections. There is no A-frame above the jib, which is self-supporting and
consists of reinforced jib sections. These cranes are assembled on site in
one to two days, and can increase in height with the
project.
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Luffing
jib tower cranes have a tower and an angled jib assembled from sections.
There is one A-frame above the jib to which suspension cables supporting
the jib are attached. Unlike other tower cranes, there is no
trolley to control lateral movement of the load, which is accomplished by
changing the jib angle. These cranes are assembled on site in
two to three days, and can increase in height with the
project.
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LATTICE
BOOM CRAWLER AND WHEEL-MOUNTED CRANES. Lattice boom crawler and
wheel-mounted cranes are designed to lift material on rough terrain and can
maneuver while bearing a load. The boom is made of tubular steel
sections, which, together with the base unit, are transported to and erected at
a construction site.
TRUCK-MOUNTED
CRANES (BOOM TRUCKS). We manufacture telescopic boom cranes for
mounting on commercial truck chassis. Truck-mounted cranes are used primarily in
the construction industry to lift equipment or materials to various heights.
Boom trucks are generally lighter and have less lifting capacity than truck
cranes, and are used for many of the same applications when lower lifting
capabilities are sufficient. An advantage of a boom truck is that the
equipment or material to be lifted by the crane can be transported by the truck,
which can travel at highway speeds. Applications include the
installation of commercial air conditioners and other roof-mounted
equipment.
TELESCOPIC
CONTAINER STACKERS. Telescopic container stackers are used to pick up
and stack containers at dock and terminal facilities. At the end of a
telescopic container stacker’s boom is a spreader, which enables it to attach to
containers of varying lengths and weights and to rotate the
container.
MATERIALS
PROCESSING & MINING
MINING
EQUIPMENT. We offer high capacity surface mining trucks, hydraulic
mining excavators and highwall mining equipment used in the surface mining
industry.
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High
capacity surface mining trucks are off-road dump trucks. They are powered
by a diesel engine driving an electric alternator that provides power to
individual electric motors in each of the rear wheels. Our
product line consists of a series of rear dump trucks ranging in size from
150 tons to 400 tons.
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Hydraulic
mining excavators in shovel or backhoe versions are primarily used to dig
overburden and minerals and load them into trucks. These
excavators are utilized in surface mines, quarries and large construction
sites around the world.
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Highwall
mining equipment is a self-contained coal mining system that remotely
mines underground coal from the surface of a strip mining operation to
predetermined depths.
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DRILLING
EQUIPMENT. We offer a wide selection of drilling equipment and tools
for surface and underground mining, quarrying, construction and utility
applications. Our drilling equipment includes jumbo drills used in underground
hard rock mining and tunneling, hydraulic track drills for quarrying,
construction, and mining, rotary drills for open pit mining and auger drills
used in construction and foundation applications. Drilling tools also
include a broad line of auger tools. We also design, manufacture and
distribute down-the-hole drill bits and hammers for drills.
MATERIALS
PROCESSING EQUIPMENT. Materials processing equipment is used in
processing aggregate materials for roadbuilding applications and is also used in
the quarrying, demolition and recycling industries. Our materials
processing equipment includes crushers, screens and feeders.
-13-
We
manufacture
a range of track-mounted jaw, impactor and cone crushers as well as base
crushers for integration within static plants. Our crushing equipment
also includes horizontal and vertical shaft impactors.
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Jaw
crushers are used for crushing larger rock, primarily at the quarry face
or on recycling duties. Applications include hard rock, sand
and gravel and recycled materials.
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Impactor
crushers are used in quarries for primary and secondary applications as
well as in recycling. Generally, they are better suited for
larger reduction on materials with low to medium
abrasiveness.
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Cone
crushers are used in secondary and tertiary applications to reduce a
number of materials, including quarry rock and riverbed
gravel.
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Horizontal
shaft impactors are primary and secondary crushers, which utilize rotor
impact bars and breaker plates to achieve high production tonnages and
improved aggregate particle shape. They are typically applied
to reduce soft to medium hard materials, as well as recycled
materials.
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Vertical
shaft impactors are secondary and tertiary crushers that reduce material
utilizing various rotor configurations and are highly adaptable to any
application. Vertical shaft impactors can be customized to
material conditions and desired product
size/shape.
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Our
screening equipment includes:
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Heavy
duty inclined screens and feeders are used in high tonnage
applications. These units are typically custom designed to meet
the needs of each customer. Although primarily found in stationary
installations, we supply a variety of screens and feeders for use on
heavy-duty portable crushing and screening
spreads.
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Inclined
screens are used in all phases of plant design from handling quarried
material to fine screening. Capable of handling much larger
capacity than a flat screen, inclined screens are most commonly found in
large stationary installations where maximum output is
required.
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Dry
screening is used to process materials such as sand, gravel, quarry rock,
coal, construction and demolition waste, soil, compost and wood
chips.
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Washing
screens are used to separate, wash, scrub, dewater and stockpile sand and
gravel. Our products include a completely mobile single chassis
washing plant incorporating separation, washing, dewatering and
stockpiling. We also manufacture mobile and stationary
screening rinsers, bucket-wheel dewaterers, scrubbing devices for
aggregate, a mobile cyclone for maximum retention of sand particles, silt
extraction systems, stockpiling conveyors and a sand screw system as an
alternative to bucket-wheel
dewaterers.
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Horizontal
screens combine high efficiency with the capacity, bearing life and low
maintenance of an inclined screen. They are adaptable for heavy scalping,
standard duty and fine screening
applications.
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Feeders
are generally situated at the primary end of the processing facility, and have a
rugged design in order to handle the impact of the material being fed from
front-end loaders and excavators. The feeder moves material to the
crushing and screening equipment in a controlled fashion.
-14-
ROADBUILDING,
UTILITY PRODUCTS AND OTHER
We offer
a diverse range of products for the roadbuilding, utility and construction
industries and governments.
ROADBUILDING
EQUIPMENT. We manufacture asphalt pavers, transfer devices, asphalt
plants, concrete production plants, concrete mixers, concrete pavers, concrete
placers, cold planers, reclaimers/stabilizers, bridge inspection equipment and
landfill compactors.
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Asphalt
pavers are available in a variety of sizes and designs. Smaller units are
used for commercial work such as parking lots, development streets and
construction overlay projects. Mid-sized pavers are used for
mainline and commercial projects. High production pavers are
engineered and built for heavy-duty, mainline
paving.
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Asphalt
transfer devices are available in both self-propelled and paver pushed
designs and are intended to reduce segregation in the paver to create a
smoother roadway.
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Asphalt
plants are used to produce hot mix asphalt and are available in portable,
relocatable and stationary
configurations.
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Concrete
production plants are used in residential, commercial, highway, airport
and other markets. Our products include a full range of
portable and stationary transit mix and central mix production
facilities.
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Concrete
mixers are machines with a large revolving drum in which cement is mixed
with other materials to make concrete. We offer models mounted
on trucks with three, four, five, six or seven axles and other front and
rear discharge models.
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Our
concrete pavers are used to place and finish concrete streets, highways
and airport surfaces.
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Concrete
placers transfer materials from trucks in preparation for
paving.
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Cold
planers mill and reclaim deteriorated asphalt pavement, leaving a level,
textured surface upon which new paving material is
placed.
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Our
reclaimers/stabilizers are used to add load-bearing strength to the base
structures of new highways and new building sites. They are
also used for in-place reclaiming of deteriorated asphalt
pavement.
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Our
bridge inspection equipment allows access to many under bridge related
tasks, including inspections, painting, sandblasting, repairs, general
maintenance, installation and maintenance of under bridge pipe and cables,
stripping operations and replacement and maintenance of
bearings.
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We
produce landfill compactors used to compact refuse at landfill
sites.
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UTILITY
EQUIPMENT. Our utility products include digger derricks, insulated
aerial devices and cable placers. These products are used by electric utilities,
tree care companies, telecommunications and cable companies and the related
construction industries, as well as by government organizations.
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Digger
derricks are used to dig holes, hoist and set utility poles, as well as
lift transformers and other materials at job
sites.
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Insulated
aerial devices are used to elevate workers and material to work areas at
the top of utility poles, energized transmission lines and for trimming
trees away from energized electrical lines, as well as for miscellaneous
purposes such as sign maintenance.
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Cable
placers are used to install fiber optic, copper and strand telephone and
cable lines.
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The
following table lists our main product categories and their percentage of our
total sales.
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PERCENTAGE OF SALES
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PRODUCT
CATEGORY
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2008
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2007
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2006
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Mobile
Telescopic & Truck Cranes
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20 | % | 17 | % | 16 | % | ||||||
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Aerial
Work Platforms
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18 | 21 | 21 | |||||||||
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Mining
& Drilling Equipment
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14 | 12 | 9 | |||||||||
|
Heavy
Construction Equipment
|
11 | 12 | 11 | |||||||||
|
Lattice
Boom Crawler & Tower Cranes and Telescopic Container
Stackers
|
11 | 9 | 8 | |||||||||
|
Materials
Processing Equipment
|
10 | 11 | 10 | |||||||||
|
Compact
Construction Equipment
|
6 | 6 | 8 | |||||||||
|
Telehandlers,
Construction Trailers & Light Construction Equipment
|
3 | 4 | 7 | |||||||||
|
Roadbuilding
Equipment
|
3 | 3 | 5 | |||||||||
|
Utility
Equipment
|
3 | 2 | 4 | |||||||||
|
Other
|
1 | 3 | 1 | |||||||||
|
TOTAL
|
100 | % | 100 | % | 100 | % | ||||||
-15-
BACKLOG
Our
backlog as of December 31, 2008 and 2007 was as follows:
|
December 31,
|
||||||||
|
2008
|
2007
|
|||||||
|
(in
millions)
|
||||||||
|
Aerial
Work Platforms
|
$ | 83.1 | $ | 652.4 | ||||
|
Construction
|
240.2 | 682.2 | ||||||
|
Cranes
|
1,925.3 | 2,005.5 | ||||||
|
Materials
Processing & Mining
|
595.7 | 692.9 | ||||||
|
Roadbuilding,
Utility Products and Other
|
111.3 | 147.9 | ||||||
|
Total
|
$ | 2,955.6 | $ | 4,180.9 | ||||
Substantially
all of our backlog orders are expected to be filled within one year, although
there can be no assurance that all such backlog orders will be filled within
that time. Our backlog orders represent primarily new equipment
orders. Parts orders are generally filled on an as-ordered
basis.
Our
management views backlog as one of many indicators of the performance of our
business. Because many variables can cause changes in backlog, and
these changes may or may not be of any significance, we consequently view
backlog as an important, but not necessarily determinative, indicator of future
results. High backlogs can indicate a high level of future sales;
however, when backlogs are high, this may also reflect a high level of
production delays, which may result in future order cancellations from
disappointed customers. Small backlogs may indicate a low level of
future sales; however, they may also reflect a rapid ability to fill orders that
is appreciated by our customers.
Our
overall backlog amounts at December 31, 2008 decreased by $1,225.3 million from
our backlog amounts at December 31, 2007. However, the U.S. dollar
strengthened relative to many other foreign currencies during
2008. The translation effect of foreign currency exchange rate
changes accounted for approximately $366 million of the decrease in backlog from
December 31, 2007.
Our
Aerial Work Platforms segment backlog decreased $569.3 million to $83.1 million
at December 31, 2008 from $652.4 million at December 31, 2007, primarily due to
softening demand, particularly in North America and Western Europe. Our
customers for aerial work platforms are primarily rental
companies. Historically, these customers have placed annual orders
early in the New Year to prepare for their busy season during the Northern
Hemisphere summer. At December 31, 2007, demand was strong in Europe
and our customers there placed their annual orders earlier than they have
historically. Backlog at December 31, 2008 is lower because
construction activity has dramatically slowed, with many of our end markets
experiencing 40%-50% declines in demand. As a result, our customers
are waiting to place orders until there is greater clarity regarding demand
during this unsettled economic period. The translation effect of
foreign currency exchange rate changes accounted for approximately $118 million
of the decrease from December 31, 2007.
Our
Construction segment backlog at December 31, 2008 decreased $442.0 million to
$240.2 million, as compared to $682.2 million at December 31, 2007.
Backlog at December 31, 2008 was lower primarily due to a significant reduction
in construction activity in most end markets for the segment’s products. The
translation effect of foreign currency exchange rate changes accounted for
approximately $79 million of the decrease in backlog from December 31,
2007.
The
backlog at our Cranes segment decreased $80.2 million to $1,925.3 million at
December 31, 2008 from $2,005.5 million at December 31, 2007. Backlog at
December 31, 2008 was slightly lower because, although global demand continued
for crawler and all-terrain cranes, demand slowed considerably in the fourth
quarter of 2008 for rough terrain cranes. Demand for tower cranes, as
well as smaller capacity cranes, particularly boom trucks and truck cranes, has
also weakened. We have also begun to recover from supplier
constraints, which has converted previously reported backlog into
sales. The translation effect of foreign currency exchange rate
changes accounted for approximately $67 million of the decrease in backlog from
December 31, 2007.
Our
Materials Processing & Mining segment backlog at December 31, 2008 decreased
$97.2 million to $595.7 million compared to $692.9 million at December 31,
2007. Backlog at December 31, 2008 was lower primarily due to the
translation effect of foreign currency exchange rates changes, which accounted
for approximately $101 million of the decrease from December 31,
2007. Weak demand for materials processing products was partially a
driver of lower backlog. However, global commodity demand continued to
support mining equipment backlog, although there are signs of increasing
weakness due to the recent softening of commodity prices.
-16-
The
backlog at our Roadbuilding, Utility Products and Other segment decreased $36.6
million to $111.3 million at December 31, 2008 from $147.9 million at December
31, 2007, mainly due to reduced demand for North American asphalt plants and
concrete mixer trucks.
DISTRIBUTION
We
distribute our products through a global network of dealers, rental companies,
major accounts and direct sales to customers.
AERIAL
WORK PLATFORMS
Our
aerial work platform, telehandler and power products are distributed principally
through a global network of rental companies, independent dealers and, to a
lesser extent, strategic accounts. We employ sales representatives
who service these channel partners from offices located throughout the
world.
Construction
trailers are distributed primarily through dealers in the United States and are
sold directly to users when local dealers are not available.
CONSTRUCTION
We
distribute heavy construction equipment and replacement parts primarily through
a network of independent dealers and distributors throughout the world. Our
dealers are independent businesses, which generally serve the construction,
mining, forestry and/or scrap industries. Although these dealers may carry
products from a variety of manufacturers, they generally carry only one
manufacturer’s “brand” of each particular type of product.
We
distribute compact construction equipment primarily through a network of
independent dealers and distributors throughout the world. Although
some dealers represent only one of our product lines, we have recently focused
on developing the dealer network to represent our complete range of compact
equipment.
We
distribute loader backhoes and skid steer loaders manufactured in India through
a network of approximately forty dealers located in India, Nepal and neighboring
countries.
CRANES
We market
our crane products globally, optimizing assorted channel marketing systems
including a distribution network and a direct sales force. We have
direct sales, primarily to specialized crane rental companies, in certain crane
markets such as the United Kingdom, Germany, Spain, Belgium, Italy, France and
Scandinavia to offer comprehensive service and support to
customers. Distribution via a dealer network is often utilized in
other geographic areas, including the United States.
MATERIALS
PROCESSING & MINING
We
distribute surface mining products and services through a global network of
wholly owned subsidiaries, regional sales and support offices, joint venture
partners and through independent dealership networks. In addition,
our excavators may be sold and serviced through authorized Caterpillar
dealers.
Highwall
mining systems are sold through independent dealers and directly to end user
customers.
Materials
processing equipment is distributed principally through a worldwide network of
independent distributors and dealers.
ROADBUILDING,
UTILITY PRODUCTS AND OTHER
We sell
asphalt pavers, transfer devices, reclaimers/stabilizers, cold planers, concrete
pavers, concrete placers, concrete plants and landfill compactors to end user
customers principally through independent dealers and distributors and, to a
lesser extent, on a direct basis in areas where distributors are not
established. We sell asphalt plants and concrete roller pavers
primarily direct to end user customers.
We sell
bridge inspection equipment and concrete mixers primarily direct to customers,
but concrete mixers are also available through distributors in certain regions
of the United States.
We sell
utility equipment to the utility and municipal markets through a network of both
company-owned and independent distributors in North America.
-17-
RESEARCH
AND DEVELOPMENT
We
maintain engineering staff at most of our locations. Our engineering
expenses are primarily incurred in connection with enhancements of existing
products, cost improvements of existing products and, in certain cases, the
development of additional applications or extensions of our existing product
lines.
We are
adjusting our engineering initiatives commensurate with the business priorities
of expanding into global markets, product standardization, component
rationalization and strategic alignment with global suppliers, while remaining
customer focused. Product change driven by regulations requiring Tier 4 emission
compliant engines in most of our machinery starting in 2010 is an important part
of our engineering priorities.
We have
targeted greater effectiveness and efficiency in our engineering spending by
improving our processes, upgrading our capabilities and leveraging more readily
available engineering resources in lower cost countries. For example, we are
establishing engineering capabilities in India to support our engineering
organization worldwide and to develop products for the local
market.
Our costs
incurred in the development of new products, cost reductions, or improvements to
existing products of continuing operations amounted to $71.2 million, $69.5
million and $52.6 million in 2008, 2007 and 2006, respectively. The increase
from 2007 to 2008 was primarily due to our expanded product portfolio and
investments in the engineering priorities described above. The
increase from 2006 to 2007 was mainly due to new product development and quality
control of our sourced materials in our Cranes and Materials Processing &
Mining segments.
MATERIALS
Principal
materials and components that we use in our various manufacturing processes
include steel, castings, engines, tires, hydraulics, cylinders, drive trains,
electric controls and motors, and a variety of other commodities and fabricated
or manufactured items. Extreme movements in the cost and availability
of these materials and components may affect our
performance. Worldwide steel prices rose for most of 2008 in response
to higher demand caused by continued higher consumption in developing market
countries such as China. Due to the continued high demand for steel
in 2008, many suppliers of steel, castings and other products increased prices
or added surcharges to the price of their products. A weakening of
steel prices at the end of 2008, particularly in the commodity grades, will
likely result in lower steel costs in 2009. However, we will not
realize a significant improvement in our steel costs until later in 2009, when
we will have utilized material already in our inventory.
In the
absence of labor strikes or other unusual circumstances, substantially all
materials and components are normally available from multiple
suppliers. However, certain of our businesses receive materials and
components from a sole supplier, although alternative suppliers of such
materials are generally available. Current and potential suppliers
are evaluated on a regular basis on their ability to meet our requirements and
standards. We actively manage our material supply sourcing, and may
employ various methods to limit risk associated with commodity cost fluctuations
and availability. The inability of suppliers, especially any sole
suppliers for a particular business, to deliver materials and components
promptly could result in production delays and increased costs to manufacture
our products. As a result of the macro-economic challenges currently
affecting the economy of the U.S. and other parts of the world, our suppliers
may experience serious cash flow problems, and as a result, could seek to
significantly and quickly increase their prices or reduce their
output. We have designed and implemented plans to mitigate the impact
of these risks by using alternate suppliers, leveraging our overall purchasing
volumes to obtain favorable quantities and developing a closer working
relationship with key suppliers. We continue to search for acceptable
alternative supply sources and less expensive supply options on a regular basis,
including by improving the globalization of our supply base and using suppliers
in China and India. One key Terex Business System initiative has been
developing and implementing world-class capability in supply chain management,
logistics and global purchasing. We are focusing on gaining
efficiencies with suppliers based on our global purchasing power and
resources.
-18-
COMPETITION
We face a
competitive global manufacturing market for all of our products. We
compete with other manufacturers based on many factors, particularly price,
performance and product reliability. We generally operate under a
best value strategy, where we attempt to offer our customers products that are
designed to improve the customer’s return on invested
capital. However, in some instances, customers may prefer the
pricing, performance or reliability aspects of a competitor’s product despite
our product pricing or performance. We do not have a single
competitor across all business segments. The following table shows
the primary competitors for our products in the following
categories:
|
BUSINESS
SEGMENT
|
PRODUCTS
|
PRIMARY
COMPETITORS
|
|
Aerial
Work Platforms
|
Boom
Lifts
|
Oshkosh
(JLG), Haulotte, Linamar (Skyjack), Tanfield (Snorkel and Upright) and
Aichi
|
|
Scissor
Lifts
|
Oshkosh
(JLG), Linamar (Skyjack), Haulotte, Tanfield (Snorkel and
Upright)
|
|
|
Construction
Trailers
|
Trail
King, Talbert, Fontaine, Rogers, Etnyre, Ranco, Clement, CPS, as well as
regional suppliers
|
|
|
Telehandlers
|
Oshkosh
(JLG, Skytrak, Caterpillar, Gradall and Lull brands), JCB, CNH, Merlo and
Manitou (Gehl)
|
|
|
Trailer-mounted
Light Towers
|
Allmand
Bros., Magnum and Doosan (Ingersoll-Rand)
|
|
|
Power
Buggies
|
Multiquip
and Stone
|
|
|
Generators
|
Doosan
(Ingersoll-Rand), Multiquip, Magnum, Wacker and
Caterpillar
|
|
|
Construction
|
Articulated
Off-highway Trucks & Rigid Off-highway Trucks
|
Volvo,
Caterpillar, Moxy, John Deere, Bell and Komatsu
|
|
Scrapers
|
Caterpillar
|
|
|
Excavators
|
Caterpillar,
Komatsu, Volvo, John Deere, Hitachi, CNH, Sumitomo
(Link-Belt), Doosan, Hyundai and Liebherr
|
|
|
Truck-mounted
Articulated Hydraulic Cranes
|
Palfinger,
HIAB, HMF, Effer and Fassi
|
|
|
Material
Handlers
|
Liebherr,
Sennebogen and Caterpillar
|
|
|
Wheel
Loaders
|
Caterpillar,
Volvo, Kubota, Kawasaki, John Deere, Komatsu, Hitachi, CNH, Liebherr and
Doosan
|
|
|
Loader
Backhoes
|
Caterpillar,
CNH, JCB, Komatsu, Volvo and John Deere
|
|
|
Compaction
Equipment
|
Doosan
(Ingersoll-Rand), Caterpillar, Bomag, Amman, Dynapac and
Hamm
|
|
|
Mini
Excavators
|
Doosan
(Bobcat), Yanmar, Volvo, Takeuchi, IHI, CNH, Caterpillar, John Deere,
Neuson and Kubota
|
|
|
Midi
Excavators
|
Komatsu,
Hitachi, Volvo and Yanmar
|
|
|
Site
Dumpers
|
Thwaites
and AUSA
|
|
|
Skid
Steer Loaders
|
Doosan
(Bobcat), CNH and JCB
|
|
|
Compact
Track Loaders
|
Doosan
(Bobcat), Caterpillar, CNH, John Deere, Takeuchi and
Gehl
|
-19-
|
BUSINESS
SEGMENT
|
PRODUCTS
|
PRIMARY
COMPETITORS
|
|
Cranes
|
Mobile
Telescopic Cranes
|
Liebherr,
Manitowoc (Grove), Tadano-Faun, Sumitomo (Link-Belt), Kato, XCMG and
Sany
|
|
Tower
Cranes
|
Liebherr,
Manitowoc (Potain), Comansa and MAN Wolff
|
|
|
Lattice
Boom Crawler Cranes
|
Manitowoc,
Sumitomo (Link-Belt), Liebherr, Hitachi, Kobelco, XCMG and
Sany
|
|
|
Boom
Trucks
|
Manitowoc
(National Crane), Palfinger, Hiab, Altec, Fassi, Manitex and
PM
|
|
|
Telescopic
Container Stackers
|
Kalmar,
SMV, CVS Ferrari, Fantuzzi, Liebherr and Linde
|
|
|
Materials
Processing & Mining
|
Hydraulic
Mining Excavators
|
Hitachi,
Komatsu and Liebherr
|
|
High
Capacity Surface Mining Trucks
|
Caterpillar,
Komatsu, Liebherr and Euclid/Hitachi
|
|
|
Highwall
Mining Equipment
|
ICG
Addcar Systems and American Highwall Systems
|
|
|
Drilling
Equipment
|
Sandvik,
Atlas Copco, Furukawa and Altec
|
|
|
Materials
Processing Equipment
|
Metso,
Astec Industries, Sandvik, Komatsu, Deister Machine and McCloskey
Brothers
|
|
|
Roadbuilding,
Utility Products & Other
|
Asphalt
Pavers and Transfer Devices
|
Volvo
(Blaw-Knox), Fayat (Bomag), Caterpillar, Wirtgen (Ciber), Atlas Copco
(Dynapac), Astec (Roadtec) and Wirtgen (Vogele)
|
|
Asphalt
Plants
|
Astec
Industries, Gencor Corporation, All-Mix, Ciber and
ADM
|
|
|
Bridge
Inspection Equipment
|
Moog
USA and Barin
|
|
|
Cold
Planers
|
Fayat
(Bomag), Caterpillar, Atlas Copco (Dynapac), Wirtgen and Astec
(Roadtec)
|
|
|
Concrete
Production Plants
|
Con-E-Co,
Erie Strayer, Helco, Hagen and Stephens
|
|
|
Concrete
Pavers
|
Gomaco,
Wirtgen, Power Curbers and Guntert & Zimmerman
|
|
|
Concrete
Placers
|
Gomaco,
Wirtgen and Guntert & Zimmerman
|
|
|
Concrete
Mixers
|
McNeilus,
Oshkosh, London and Continental Manufacturing
|
|
|
Landfill
Compactors
|
Al-Jon,
Fayat (Bomag) and Caterpillar
|
|
|
Reclaimers/Stabilizers
|
Caterpillar,
Wirtgen and Fayat (Bomag),
|
|
|
Utility
Equipment
|
Altec
and Time Manufacturing
|
-20-
MAJOR
CUSTOMERS
None of
our customers accounted for more than 10% of our consolidated sales in
2008. We are not dependent upon any single customer.
EMPLOYEES
As of
December 31, 2008, we had approximately 20,000 employees, including
approximately 7,000 employees in the U.S. Approximately 12% of our
employees in the U.S. are represented by labor unions. Outside of the
U.S., we enter into employment contracts and collective agreements in those
countries in which such relationships are mandatory or customary. The
provisions of these agreements correspond in each case with the required or
customary terms in the subject jurisdiction. We generally consider
our relations with our employees to be good.
PATENTS,
LICENSES AND TRADEMARKS
We use
proprietary materials such as patents, trademarks, trade secrets and trade names
in our operations and take actions to protect these rights.
We use
several significant trademarks and trade names, most notably the Terex®,
Bid-Well®,
Genie® and
Powerscreen®
trademarks. The P&H trademark is a registered trademark of Joy
Global Inc. that a subsidiary of the Company has the right to use for certain
products until 2011 pursuant to a license agreement. We also have the
right to use the O&K and Orenstein & Koppel names (which are registered
trademarks of O&K Orenstein & Koppel AG) for most applications in the
mining business for an unlimited period. The other trademarks and
trade names of the Company referred to in this Annual Report include registered
trademarks of Terex Corporation or its subsidiaries.
We have
many patents that we use in connection with our operations, and most of our
products contain some proprietary components. Many of these patents
and related proprietary technology are important to the production of particular
products; however, overall, our patents, taken together, are not material to our
business or our financial results, nor does our proprietary technology provide
us with a competitive advantage over our competitors.
We
protect our proprietary rights through registration, agreements and litigation
to the extent we deem appropriate. We own and maintain trademark
registrations and patents in countries where we conduct business, and monitor
the status of our trademark registrations and patents to maintain them in force
and renew them as appropriate. The duration of active registrations
varies based upon the relevant statutes in the applicable
jurisdiction. We also take further actions to protect our proprietary
rights when circumstances warrant, including the initiation of legal proceedings
if necessary.
Currently,
we are engaged in various legal proceedings with respect to intellectual
property rights, both as a plaintiff and as a defendant. While the
final outcome of these matters cannot be predicted with certainty, we believe
the outcome of such matters will not have a material adverse effect,
individually or in the aggregate, on our business or operating
performance.
SAFETY
AND ENVIRONMENTAL CONSIDERATIONS
As part
of The Terex Way, we are committed to provide a safe and healthy environment for
our team members, and strive to provide quality products that are safe to use
and operate in an environmentally conscious and respectful manner.
All of
our employees are required to obey all applicable national, local or other
health, safety and environmental laws and regulations and must observe the
proper safety rules and environmental practices in work
situations. We are committed to complying with these standards and
monitoring our workplaces to determine if equipment, machinery and facilities
meet specified safety standards. We are dedicated to seeing that
safety and health hazards are adequately addressed through appropriate work
practices, training and procedures.
-21-
We
generate hazardous and non-hazardous wastes in the normal course of our
manufacturing operations. As a result, we are subject to a wide range
of federal, state, local and foreign environmental laws and
regulations. These laws and regulations govern actions that may have
adverse environmental effects, such as discharges to air and water, and require
compliance with certain practices when handling and disposing of hazardous and
non-hazardous wastes. These laws and regulations would also impose
liability for the costs of, and damages resulting from, cleaning up sites, past
spills, disposals and other releases of hazardous substances, should any of such
events occur. No such incidents have occurred which required us to
pay material amounts to comply with such laws and regulations.
Compliance
with laws and regulations regarding safety and the environment has required, and
will continue to require, us to make expenditures. We do not expect
that these expenditures will have a material adverse effect on our business or
profitability.
FINANCIAL
INFORMATION ABOUT INDUSTRY SEGMENTS, GEOGRAPHIC AREAS AND EXPORT
SALES
Information
regarding foreign and domestic operations, export sales and segment information
is included in Note B - “Business Segment Information” in the Notes to the
Consolidated Financial Statements.
SEASONAL
FACTORS
Over the
past several years, our business has become less seasonal. As we have
grown, diversified our product offerings and expanded the geographic reach of
our products, our sales have become less dependent on construction products and
sales in the United States and Europe. As we enter 2009, the negative
economic environment will be more of a factor on our sales than historical
seasonal trends, depressing sales in most of our businesses, and will likely
dampen demand until credit markets improve.
WORKING
CAPITAL
Our
businesses are working capital intensive and require funding for purchases of
production and replacement parts inventories, capital expenditures for repair,
replacement and upgrading of existing facilities, as well as trade financing for
receivables from customers and dealers. We have debt service
requirements, including semi-annual interest payments on our senior subordinated
notes and monthly interest payments on our bank credit facility. We
believe that cash generated from operations, together with availability under
our bank credit facility and cash on hand, provide us with adequate liquidity to
meet our operating and debt service requirements. We have increased
our focus on internal cash flow generation to facilitate execution of operating
strategies in a time when access to external capital markets is less
certain. Our actions include delaying certain capital spending
projects, suspending our share repurchase program, reducing production levels
and working with our strategic supply partners to reschedule incoming raw
materials in an effort to maintain liquidity in view of current conditions in
the economy and credit markets. For more detail on working capital
matters, see “Management’s Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources.”
AVAILABLE
INFORMATION
We
maintain a website at www.terex.com. We
make available on our website under “About Terex” - “Investor Relations” - “SEC
Filings,” free of charge, our annual reports on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon
as reasonably practicable after we electronically file or furnish such material
with the Securities and Exchange Commission (“SEC”). In addition, we
make available on our website under “About Terex” - “Investor Relations” -
“Corporate Governance,” free of charge, our Audit Committee Charter,
Compensation Committee Charter, Corporate Responsibility and Strategy Committee
Charter, Governance and Nominating Committee Charter, Corporate Governance
Guidelines and Code of Ethics and Conduct. In addition, the foregoing
information is available in print, without charge, to any stockholder who
requests these materials from us.
NYSE
AND SEC CERTIFICATIONS
Our Chief
Executive Officer certified to the New York Stock Exchange (“NYSE”) in 2008 that
he was not aware of any violation by the Company of NYSE corporate governance
listing standards. Furthermore, our Chief Executive Officer and Chief
Financial Officer filed with the SEC, as an exhibit to this Annual Report on
Form 10-K, the certification required under Section 302 of the Sarbanes Oxley
Act. In addition, our Chief Executive Officer and Chief Financial
Officer filed with the SEC, as an exhibit to our 2007 Annual Report on Form
10-K, the certification required under Section 302 of the Sarbanes Oxley
Act.
-22-
ITEM
1A. RISK
FACTORS
You
should carefully consider the following risks, together with the cautionary
statement under the caption “Forward-Looking Information” above and the other
information included in this report. The risks described below are
not the only ones we face. Additional risks that are currently
unknown to us or that we currently consider to be immaterial may also impair our
business or adversely affect our financial condition or results of
operations. If any of the following risks actually occurs, our
business, financial condition or results of operation could be adversely
affected.
Our
business is affected by the cyclical nature of the markets we
serve.
Demand
for our products depends upon general economic conditions in the markets in
which we compete. Our sales depend in part upon our customers’
replacement or repair cycles. Adverse economic conditions, including
a decrease in commodity prices, the recent deterioration in the worldwide
financial markets and decreasing global economic activity, have caused and may
continue to cause customers to forego or postpone new purchases in favor of
repairing existing machinery. If our customers are not successful in
generating sufficient revenue or are precluded from securing financing, they may
not be able to pay, or may delay payment of, accounts receivable that are owed
to us. Any inability of current and/or potential customers to pay us for our
products will adversely affect our earnings and cash flow.
We are in
a period in which global economic conditions and key commodity prices have
continued to decline significantly, and if economic conditions in the U.S. and
other key markets deteriorate further or do not show improvement, we may
experience negative impacts to our financial condition, profitability and/or
cash flows. Given the uncertainty around the depth and duration of
the current recession, we may experience continued reductions in sales of our
products and/or the carrying value of our assets, which may reduce our
profits. We have taken a number of steps and will continually review
our operations to reduce our costs, including but not limited to downsizing our
employee base, exiting certain facilities and diversifying our business to
decrease the negative impact of these cycles. There can be no
assurance, however, that these steps will mitigate the negative impact of the
recent deterioration in economic conditions.
Our
access to borrowing capacity has been and could continue to be affected by the
uncertainty impacting credit markets generally.
Our
ability to access the capital markets to raise funds through the sale of equity
or debt securities is subject to various factors, including general economic
and/or financial market conditions. As a result of current economic
conditions, including turmoil and uncertainty in the capital markets, credit
markets have tightened significantly, which makes obtaining new capital more
challenging and more expensive. The current conditions of the financial
markets have adversely affected the availability of credit and liquidity
resources and our access to capital markets is limited and subject to increased
costs until stability re-emerges.
In
addition, several large financial institutions have either recently failed or
been dependent on the assistance of the U.S. federal government to continue
to operate as a going concern. Although we believe that the banks participating
in our credit facility have adequate capital and resources, we can provide no
assurance that all of these banks will continue to operate as a going concern in
the future. If any of the banks in our lending group were to fail, it is
possible that the borrowing capacity under our credit facility would be reduced.
In the event that the availability under our credit facility was reduced
significantly, we could be required to obtain capital from alternate sources in
order to finance our capital needs. Our options for addressing such capital
constraints would include, but not be limited to (i) obtaining commitments
from the remaining banks in the lending group or from new banks to fund
increased amounts under the terms of our credit facility, or (ii) accessing
the public capital markets. If it becomes necessary to access additional
capital, it is likely that any such alternatives in the current market would be
on terms less favorable than under our existing credit facility terms, which
could have a negative impact on our consolidated financial position, results of
operations, or cash flows.
Our
business is sensitive to government spending.
Many of
our customers depend substantially on government funding of highway
construction, maintenance and other infrastructure projects. In
addition, we sell products to governments and government agencies in the U.S.
and other nations. Any decrease or delay in government funding of
highway construction and maintenance, other infrastructure projects and overall
government spending could cause our revenues and profits to
decrease.
Many
governments around the world, including the U.S., are proposing various stimulus
packages that are intended to increase business activity and in particular
infrastructure spending. There is no guarantee that any such programs
will be enacted, and if enacted, that they will have a material positive impact
on our revenues and profits.
-23-
We
operate in a highly competitive industry.
Our
industry is highly competitive. To compete successfully, our products
must excel in terms of quality, price, features, ease of use, safety and
comfort, and we must also provide excellent customer service. The
greater financial resources of certain of our competitors may put us at a
competitive disadvantage. If competition in our industry intensifies
or if our current competitors enhance their products or lower their prices for
competing products, we may lose sales or be required to lower the prices we
charge for our products. This may reduce revenue from our products
and services, lower our gross margins or cause us to lose market
share.
A
material disruption to one of our significant manufacturing plants could
adversely affect our ability to generate revenue.
We
produce most of our machines and aftermarket parts for each product type at one
manufacturing facility. If operations at a significant facility were to be
disrupted as a result of equipment failures, natural disasters, work stoppages,
power outages or other reasons, our business, financial conditions and results
of operations could be adversely affected. Interruptions in production could
increase costs and delay delivery of units in production. Production capacity
limits could cause us to reduce or delay sales efforts until production capacity
is available.
We
rely on key management.
We rely
on the management and leadership skills of Ronald M. DeFeo, our Chairman of the
Board and Chief Executive Officer. Mr. DeFeo has been with us since
1992, serving as Chief Executive Officer since 1995 and Chairman since 1998,
guiding the transformation of Terex during that time. We have an
employment agreement with Mr. DeFeo, which expires on December 31,
2012. The loss of his services could have a significant, negative
impact on our business. In addition, we rely on the management and
leadership skills of our other senior executives who are not bound by employment
agreements. We could be harmed by the loss of any of these senior
executives or other key personnel in the future.
Some
of our customers rely on financing with third parties to purchase our
products.
We rely
on sales of our products to generate cash from operations. A
significant portion of our sales are financed by third party finance companies
on behalf of our customers. The availability of financing by third
parties is affected by general economic conditions, the credit worthiness of our
customers and the estimated residual value of our
equipment. Deterioration in the credit quality of our customers or
the estimated residual value of our equipment could negatively impact the
ability of our customers to obtain the resources they need to make purchases of
our equipment. Given the current economic conditions and the lack of
liquidity in the global credit markets, there can be no assurance third party
finance companies will continue to extend credit to our customers.
Due to
the significant global economic decline and the resulting widening credit
spreads, as well as significant declines in the availability of credit, some of
our customers have been unable to obtain the credit they need to buy our
equipment. As a result, we have begun to experience an increase in
customer order cancellations. Given the lack of liquidity, our
customers may be compelled to sell their equipment at less than fair value to
raise cash, which could have a negative impact on residual values of our
equipment. These economic conditions could have a material adverse
effect on demand for our products and on our financial condition and operating
results.
We
provide financing for some of our customers.
We
provide financing for some of our customers, primarily in the U.S., to purchase
our equipment. For the most part, this financing represents sales
type leases and operating leases. It has been our policy to provide
such financing to our customers in situations where we anticipate that we will
be able to sell the financing obligations to a third party financial institution
within a short period. However, until such financing obligations are
sold to a third party or if we are unable to sell such obligations to a third
party, we retain the risks resulting from such customer
financing. Our results could be adversely affected if such customers
default on their contractual obligations to us. Our results also
could be adversely affected if the residual values of such leased equipment
decline below their original estimated values and we subsequently sell such
equipment at a loss.
We insure
and sell a portion of our accounts receivable to third party finance
companies. These third party finance companies are not obligated to
purchase accounts receivable from us, and may choose to limit or discontinue
further purchases from us at any time. Changes in our customers’
credit worthiness, the market for credit insurance or the willingness of third
party finance companies to purchase accounts receivable from us could impact our
cash flow from operations.
-24-
We
are dependent upon third-party suppliers, making us vulnerable to supply
shortages and price increases.
We obtain
materials and manufactured components from third-party suppliers. In
the absence of labor strikes or other unusual circumstances, substantially all
materials and components are normally available from multiple
suppliers. However, certain of our businesses receive materials and
components from a sole supplier, although alternative suppliers of such
materials are generally available. Delays in our suppliers’
abilities, especially any sole suppliers for a particular business, to provide
us with necessary materials and components may delay production at a number of
our manufacturing locations, or may require us to seek alternative supply
sources. Delays in obtaining supplies may result from a number of
factors affecting our suppliers, including capacity constraints, labor disputes,
impaired supplier financial condition, suppliers’ allocations to other
purchasers, weather emergencies or acts of war or terrorism. Any
delay in receiving supplies could impair our ability to deliver products to our
customers and, accordingly, could have a material adverse effect on our
business, results of operations and financial condition.
As a
result of the macro-economic challenges currently affecting the economy of the
U.S. and other parts of the world, our suppliers may experience serious cash
flow problems, and as a result, could seek to significantly and quickly increase
their prices or reduce their output. Worldwide steel prices rose for
most of 2008 in response to higher demand caused by continued higher consumption
in developing market countries such as China. Due to the continued
high demand for steel in 2008, many suppliers of steel, castings and other
products increased prices or added surcharges to the price of their
products. While we have been able to pass a portion of such increased
costs to our customers by way of surcharges and price increases, there is no
assurance that increasing costs can continue to be addressed by increases in
pricing. Continued increases in material prices could negatively
impact our gross margins and financial results.
In
addition, we purchase material and services from our suppliers on terms extended
based on our overall credit rating. Deterioration in our credit
rating may impact suppliers’ willingness to extend terms and in turn increase
the cash requirements of our business.
We
have debt outstanding and must comply with restrictive covenants in our debt
agreements.
Our
existing debt agreements contain a number of significant covenants, which limit
our ability to, among other things, borrow additional money, make capital
expenditures, pay dividends, dispose of assets and acquire new
businesses. These covenants also require us to meet certain financial
tests, specifically a consolidated leverage ratio test and a consolidated fixed
charge coverage ratio test, as such tests are defined in our debt
agreements. While we were in compliance with both of the foregoing
tests as of December 31, 2008, we sought and received an amendment to our credit
agreement on February 24, 2009. This amendment was necessary because
of continued deteriorating business conditions in certain of our operating
segments and the impact of historical fixed charges incurred on a trailing
twelve months basis (for example, interest expense, cash taxes, share
repurchases and capital expenditures) causing us to believe there was a
likelihood that we would be in violation of the consolidated fixed charge
coverage ratio covenant under our credit agreement as early as the end
of the first quarter of 2009 without such an
amendment. Increases in our debt, increases in our fixed
charges, decreases in our earnings or any combination of the above, could cause
us to be in default of our amended financial covenants during 2009 or
beyond. If we are unable to comply with these covenants, there would
be a default under these debt agreements. In addition, changes in
economic or business conditions, results of operations or other factors could
cause us to default under our debt agreements. A default, if not
waived by our lenders, could result in acceleration of our debt and possibly
bankruptcy.
We
are subject to currency fluctuations.
Our
products are sold in over 100 countries around the world. Our
revenues are generated in U.S. dollars and foreign currencies, including the
Euro and British Pound Sterling, while costs incurred to generate our revenues
are only partly incurred in the same currencies. Since our financial
statements are denominated in U.S. Dollars, changes in currency exchange rates
between the U.S. Dollar and other currencies, such as the Euro and British Pound
Sterling, have had, and will continue to have, an impact on our earnings. To
reduce this currency exchange risk, we may buy protecting or offsetting
positions (known as “hedges”) in certain currencies to reduce the risk of an
adverse currency exchange movement. We have not engaged in any speculative
hedging activities. Although we partially hedge our revenues and costs, currency
fluctuations may impact our financial performance in the future.
-25-
We
are exposed to political, economic and other risks that arise from operating a
multinational business.
Our
international operations are subject to a number of potential risks. Such risks
principally include:
|
|
·
|
trade
protection measures and currency exchange
controls;
|
|
|
·
|
labor
unrest;
|
|
|
·
|
regional
economic conditions;
|
|
|
·
|
political
instability;
|
|
|
·
|
terrorist
activities and the U.S. and international response
thereto;
|
|
|
·
|
restrictions
on the transfer of funds into or out of a
country;
|
|
|
·
|
export
duties and quotas;
|
|
|
·
|
domestic
and foreign customs and tariffs;
|
|
|
·
|
current
and changing regulatory
environments;
|
|
|
·
|
difficulties
protecting our intellectual
property;
|
|
|
·
|
costs
and difficulties in integrating, staffing and managing international
operations, especially in developing markets such as China, India, Russia,
the Middle East, Africa and Latin
America;
|
|
|
·
|
difficulty
in obtaining distribution support;
and
|
|
|
·
|
current
and changing tax laws.
|
In
addition, many of the nations in which we operate have developing legal and
economic systems, adding greater uncertainty to our operations in those
countries than would be expected in North America and Western
Europe. These factors may have an adverse effect on our international
operations in the future.
Difficulties
in managing and expanding into developing markets could divert management's
attention from our existing operations.
We plan
to increase our presence in developing markets such as China, India, Russia, the
Middle East and Latin America. Increasing these sales efforts will require us to
hire, train and retain qualified personnel in countries where language, cultural
or regulatory barriers may exist. Any difficulties in expanding our sales in
developing markets may divert management's attention from our existing
operations.
We
may be adversely impacted by work stoppages and other labor
matters.
As of
December 31, 2008, we employed approximately 20,000 people worldwide,
including approximately 7,000 employees in the U.S. Approximately 12% of
our employees in the U.S. are represented by labor unions. Outside of
the U.S., we enter into employment contracts and collective agreements in those
countries in which such relationships are mandatory or customary. The
provisions of these agreements correspond in each case with the required or
customary terms in the subject jurisdiction. While we have no reason
to believe that we will be impacted by work stoppages or other labor matters, we
cannot assure that future issues with our labor unions will be resolved
favorably or that we will not encounter future strikes, further unionization
efforts or other types of conflicts with labor unions or our
employees. Any of these factors may have an adverse effect on us or
may limit our flexibility in dealing with our workforce.
Compliance
with environmental regulations could be costly and require us to make
significant expenditures.
We
generate hazardous and nonhazardous wastes in the normal course of our
manufacturing operations. As a result, we are subject to a wide range
of federal, state, local and foreign environmental laws and
regulations. These laws and regulations govern actions that may have
adverse environmental effects and require compliance with certain practices when
handling and disposing of hazardous and nonhazardous wastes. These
laws and regulations also impose liability for the costs of, and damages
resulting from, cleaning up sites, past spills, disposals and other releases of
hazardous substances, should any of such events occur. No such
incidents have occurred which required us to pay material amounts to comply with
such laws and regulations.
Compliance
with these laws and regulations has required, and will continue to require, us
to make expenditures that we do not expect to have a material adverse effect on
our business or profitability.
-26-
We
face litigation and product liability claims and other liabilities.
In our
lines of business, numerous suits have been filed alleging damages for accidents
that have occurred during the use or operation of our products. We
are self-insured, up to certain limits, for these product liability exposures,
as well as for certain exposures related to general, workers’ compensation and
automobile liability. Insurance coverage is obtained for catastrophic
losses as well as those risks required to be insured by law or
contract. We do not believe that the outcome of such matters will
have a material adverse effect on our consolidated financial position; however,
any significant liabilities not covered by insurance could have an adverse
effect on our financial condition. We are involved in various other
legal proceedings, including an arbitration proceeding initiated by Fantuzzi
Industries S.a.r.l. (“Fantuzzi”) in Italy on December 24, 2008 claiming that we
improperly terminated the agreements to purchase the port equipment businesses
of Fantuzzi. While we believe we have a valid position, the risks of
arbitration in Italy are uncertain and, if determined adversely, could
ultimately result in us incurring significant liabilities.
We
are currently the subject of government investigations.
We have
received a Formal Order of Private Investigation from the SEC advising us that
they have commenced an investigation of our accounting. We also
received subpoenas and requests for information from the SEC and the U.S.
Attorney’s office in an investigation entitled “In the Matter of United Rentals,
Inc.” The requested information generally relates to four
transactions during 2000 and 2001 involving United Rentals, on the one hand, and
us and our subsidiaries, on the other. We have been cooperating with
the requests of the SEC and the U.S. Attorney in these matters to provide the
information needed to complete their investigations. The Company is
in settlement discussions with the SEC. We are not able to predict
the outcome of the SEC’s investigation at this time, and such outcome could be
material to our operating results.
We have
also received subpoenas and requests for information from the DOJ, with respect
to an investigation by the DOJ into pricing practices in the rock crushing and
screening equipment industry. In connection with this investigation, the
DOJ has convened a grand jury. We have been cooperating with the DOJ
to furnish information needed to complete its investigation. Until
the DOJ investigation is complete, we are not able to predict its
outcome.
We
are in the process of implementing a global enterprise system.
We are
implementing a global enterprise resource planning system to replace many of our
existing operating and financial systems. Such an implementation is a
major undertaking both financially and from a management and personnel
perspective. Should the system not be implemented successfully and
within budget, or if the system does not perform in a satisfactory manner, it
could disrupt and might adversely affect our operations and results of
operations, including our ability to report accurate and timely financial
results.
ITEM
1B. UNRESOLVED
STAFF COMMENTS
Not
applicable.
-27-
ITEM
2. PROPERTIES
The
following table outlines the principal manufacturing, warehouse and office
facilities owned or leased (as indicated below) by the Company and its
subsidiaries as of December 31, 2008:
|
BUSINESS
UNIT
|
FACILITY
LOCATION
|
TYPE AND APPROXIMATE
SIZE OF FACILITY
|
|
Terex
(Corporate Offices)
|
Westport,
Connecticut (1)
|
Office;
|
|
174,000
sq. ft.
|
||
|
Aerial
Work Platforms
|
Redmond,
Washington (1)
|
Office,
manufacturing and warehouse;
|
|
750,000
sq. ft.
|
||
|
Moses
Lake, Washington (1)
|
Office,
manufacturing and warehouse;
|
|
|
422,000
sq. ft.
|
||
|
Elk
Point, South Dakota
|
Office,
manufacturing and warehouse;
|
|
|
93,000
sq. ft.
|
||
|
Baraga,
Michigan
|
Office,
manufacturing and warehouse;
|
|
|
54,000
sq. ft.
|
||
|
Rock
Hill, South Carolina
|
Office,
manufacturing and warehouse;
|
|
|
121,000
sq. ft.
|
||
|
Perugia,
Italy
|
Office,
manufacturing and warehouse;
|
|
|
114,000
sq. ft.
|
||
|
Grantham,
England (1)
|
Warehouse;
|
|
|
136,000
sq. ft.
|
||
|
Newark,
England (1)
|
Office
and warehouse;
|
|
|
61,000
sq. ft.
|
||
|
Darra,
Australia (1)
|
Warehouse;
|
|
|
56,000
sq. ft.
|
||
|
Maddington,
Australia (1)
|
Warehouse;
|
|
|
54,000
sq. ft.
|
||
|
Construction
|
Motherwell,
Scotland (1)
|
Office,
manufacturing and warehouse;
|
|
473,000
sq. ft.
|
||
|
Delmenhorst,
Germany
|
Office,
manufacturing and warehouse;
|
|
|
216,000
sq. ft.
|
||
|
Ganderkesee,
Germany
|
Office,
manufacturing and warehouse;
|
|
|
362,000
sq. ft.
|
||
|
Vechta,
Germany
|
Manufacturing
and warehouse;
|
|
|
267,000
sq. ft.
|
||
|
Bad
Schoenborn, Germany
|
Office,
manufacturing and warehouse;
|
|
|
238,000
sq. ft.
|
||
|
Grand
Rapids, Minnesota
|
Office,
manufacturing and warehouse;
|
|
|
199,000
sq. ft.
|
||
|
Cohasset,
Minnesota
|
Manufacturing
and warehouse;
|
|
|
102,000
sq. ft.
|
||
|
Casselton,
North Dakota
|
Office,
manufacturing and warehouse;
|
|
|
42,000
sq. ft.
|
||
|
Coventry,
England (1)
|
Office,
manufacturing and warehouse;
|
|
|
326,000
sq. ft.
|
||
|
Langenburg,
Germany
|
Office,
manufacturing and warehouse;
|
|
|
102,000
sq. ft.
|
||
|
Gerabronn,
Germany
|
Office
and manufacturing;
|
|
|
147,000
sq. ft.
|
||
|
Rothenburg,
Germany (2)
|
Office,
manufacturing and warehouse;
|
|
|
97,000
sq. ft.
|
||
|
Crailsheim,
Germany
|
Office
and manufacturing;
|
|
|
185,000
sq. ft.
|
||
|
Clausnitz,
Germany
|
Office
and manufacturing;
|
|
|
84,000
sq. ft.
|
||
|
Sanhe,
China
|
Office
and manufacturing;
|
|
|
60,000
sq. ft.
|
||
|
Southaven,
Mississippi (1)
|
Office
and warehouse;
|
|
|
505,000
sq. ft.
|
||
|
Greater
Noida, Utter Pradesh, India (1)
|
Office,
manufacturing and warehouse;
|
|
|
155,000
sq. ft.
|
-28-
|
BUSINESS
UNIT
|
FACILITY
LOCATION
|
TYPE AND APPROXIMATE
SIZE OF FACILITY
|
|
Cranes
|
Crespellano,
Italy
|
Office,
manufacturing and warehouse;
|
|
66,000 sq.
ft.
|
||
|
Montceau-les-Mines,
France
|
Office,
manufacturing and warehouse;
|
|
|
418,000 sq.
ft.
|
||
|
Waverly,
Iowa
|
Office,
manufacturing and warehouse;
|
|
|
312,000 sq.
ft.
|
||
|
Brisbane,
Australia (1)
|
Office,
manufacturing and warehouse;
|
|
|
42,000 sq.
ft.
|
||
|
Fontanafredda,
Italy
|
Office,
manufacturing and warehouse;
|
|
|
101,000 sq.
ft.
|
||
|
Cusano
Milanino, Italy (1)
|
Office,
manufacturing and warehouse;
|
|
|
175,000 sq.
ft.
|
||
|
Wilmington,
North Carolina
|
Office,
manufacturing and warehouse;
|
|
|
559,000 sq.
ft.
|
||
|
Zweibruecken,
Germany
|
Office,
manufacturing and warehouse;
|
|
|
483,000 sq.
ft.
|
||
|
Wallerscheid,
Germany (1)
|
Office,
manufacturing and warehouse;
|
|
|
336,000 sq.
ft.
|
||
|
Bierbach,
Germany (1)
|
Warehouse
and manufacturing;
|
|
|
198,000 sq.
ft.
|
||
|
Pecs,
Hungary (1)
|
Office
and manufacturing;
|
|
|
82,000 sq.
ft.
|
||
|
Luzhou,
China
|
Office,
manufacturing and warehouse;
|
|
|
1,100,000
sq. ft.
|
||
|
Tianjin,
China
|
Office
and manufacturing;
|
|
|
50,000
sq. ft.
|
||
|
Long
Crendon, England
|
Office
and warehouse
|
|
|
140,000
sq. ft.
|
||
|
Materials
Processing & Mining
|
Dortmund,
Germany (1)
|
Office,
manufacturing and warehouse;
|
|
775,000 sq.
ft.
|
||
|
Cedar
Rapids, Iowa
|
Office,
manufacturing and warehouse;
|
|
|
608,000 sq.
ft.
|
||
|
Denison,
Texas
|
Office,
manufacturing and warehouse;
|
|
|
244,000 sq.
ft.
|
||
|
Acuña,
Mexico
|
Office,
manufacturing and warehouse;
|
|
|
225,000 sq.
ft.
|
||
|
Melbourne,
Australia (1)
|
Office,
manufacturing and warehouse;
|
|
|
29,000 sq.
ft.
|
||
|
Subang
Jaya, Malaysia (1)
|
Manufacturing
and warehouse;
|
|
|
111,000 sq.
ft.
|
||
|
Chomburi,
Thailand
|
Manufacturing;
|
|
|
80,000
sq. ft.
|
||
|
Durand,
Michigan
|
Office,
manufacturing and warehouse;
|
|
|
114,000 sq.
ft.
|
||
|
Coalville,
England
|
Office,
manufacturing and warehouse;
|
|
|
204,000 sq.
ft.
|
||
|
Omagh,
Northern Ireland (1)
|
Office,
manufacturing and warehouse;
|
|
|
153,000 sq.
ft.
|
||
|
Dungannon,
Northern Ireland (1)
|
Office,
manufacturing and warehouse;
|
|
|
330,000 sq.
ft.
|
||
|
Halifax,
England
|
Office,
manufacturing and warehouse;
|
|
|
70,000 sq.
ft.
|
||
|
Beckley,
West Virginia
|
Office,
manufacturing and warehouse;
|
|
|
113,500 sq.
ft
|
-29-
|
BUSINESS
UNIT
|
FACILITY
LOCATION
|
TYPE AND APPROXIMATE
SIZE OF FACILITY
|
|
Roadbuilding,
Utility Products and Other
|
Cachoeirinha,
Brazil
|
Office,
manufacturing and warehouse;
|
|
78,000 sq.
ft.
|
||
|
Oklahoma
City, Oklahoma
|
Office,
manufacturing and warehouse;
|
|
|
620,000 sq.
ft.
|
||
|
Canton,
South Dakota
|
Office,
manufacturing and warehouse;
|
|
|
71,000 sq.
ft.
|
||
|
Opglabbeek,
Belgium
|
Office,
manufacturing and warehouse;
|
|
|
54,000 sq.
ft.
|
||
|
Rock
Hill, South Carolina
|
Office,
manufacturing and warehouse;
|
|
|
46,900 sq.
ft.
|
||
|
Fort
Wayne, Indiana
|
Office,
manufacturing and warehouse;
|
|
|
178,000 sq.
ft.
|
||
|
Watertown,
South Dakota
|
Office,
manufacturing and warehouse;
|
|
|
261,000 sq.
ft.
|
||
|
Huron,
South Dakota
|
Office
and manufacturing;
|
|
|
88,000 sq.
ft.
|
|
(1)
|
These
facilities are either leased or
subleased.
|
|
(2)
|
Includes
approximately 54,000 sq. ft., which are
leased.
|
We also
have numerous owned or leased locations for new machine and parts sales and
distribution and rebuilding of components located worldwide. Our Terex Utilities
distribution network has sales locations throughout the southern and western
United States.
We
believe that the properties listed above are suitable and adequate for our use.
From time to time, we may determine that certain of our properties exceed our
requirements. Such properties may be sold, leased or utilized in another
manner.
ITEM
3. LEGAL
PROCEEDINGS
As
described in Note T - “Litigation and Contingencies” in the Notes to the
Consolidated Financial Statements, we are involved in various legal proceedings,
including product liability, workers’ compensation liability and intellectual
property litigation, which have arisen in the normal course of
operations. We are insured for product liability, general liability,
workers’ compensation, employer’s liability, property damage and other insurable
risk required by law or contract with retained liability to us or
deductibles. We believe that the outcome of such matters will not have a
material adverse effect on our consolidated financial position.
As
disclosed in our prior filings, the SEC has been conducting a private
investigation with respect to our accounting. We received a copy of a
written order of this private investigation from the SEC on February 1, 2006,
and we have been cooperating with the SEC and furnishing the SEC staff with
information needed to complete their investigation. We have
also received subpoenas and requests for information from the SEC and the
U.S. Attorney’s office commencing on May 9, 2005 with respect to a matter
entitled “In the Matter of United Rentals, Inc.” The requested
information generally relates to four transactions involving us and our
subsidiaries, on the one hand, and United Rentals, Inc., on the other, in 2000
and 2001. We have been cooperating with the requests of the SEC and the U.S.
Attorney in this matter. The Company is in settlement discussions
with the SEC. We are not able to predict the outcome of the SEC’s
investigation at this time, and such outcome could be material to our operating
results.
As
disclosed in our prior filings, commencing on November 2, 2006, we have received
subpoenas from the DOJ with respect to its investigation into pricing practices
in the rock crushing and screening equipment industry. In connection with
this investigation, the DOJ has convened a grand jury. We have been
cooperating with the DOJ in this investigation. Until the DOJ
investigation is complete, we are not able to predict its outcome.
As
disclosed earlier, Fantuzzi initiated an arbitration proceeding against us in
Italy on December 24, 2008. While we believe we have a valid
position, the risks of arbitration in Italy are uncertain and, if determined
adversely, could ultimately result in us incurring significant
liabilities.
For
information concerning other contingencies and uncertainties, see “Management’s
Discussion and Analysis of Financial Condition and Results of Operations -
Contingencies and Uncertainties.”
ITEM
4. SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not
applicable.
-30-
PART
II
|
ITEM
5.
|
MARKET
FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
|
|
(a) Our
common stock, par value $.01 per share (“Common Stock”) is listed on the NYSE
under the symbol “TEX.” On December 19, 2006, our Common Stock was
added to the Standard & Poor’s (“S&P”) 500 Index. On November
5, 2008, our Common Stock was removed from the S&P 500 Index and was added
to the S&P MidCap 400 Index. The high and low stock prices for
our Common Stock on the NYSE Composite Tape (for the last two completed years)
are as follows:
|
2008
|
2007
|
|||||||||||||||||||||||||||||||
|
Fourth
|
Third
|
Second
|
First
|
Fourth
|
Third
|
Second
|
First
|
|||||||||||||||||||||||||
|
High
|
$ | 30.44 | $ | 54.19 | $ | 76.25 | $ | 72.15 | $ | 90.75 | $ | 96.94 | $ | 86.99 | $ | 73.25 | ||||||||||||||||
|
Low
|
$ | 8.97 | $ | 28.22 | $ | 50.46 | $ | 46.50 | $ | 56.20 | $ | 66.24 | $ | 70.60 | $ | 54.75 | ||||||||||||||||
No
dividends were declared or paid in 2008 or 2007. Certain of our debt
agreements contain restrictions as to the payment of cash dividends to
stockholders. In addition, Delaware law limits payment of
dividends. We intend generally to retain earnings, if any, to fund
the development and growth of our business, pay down debt or repurchase stock.
We may consider paying dividends on the Common Stock at some point in the
future, subject to the limitations described above. Any future payments of cash
dividends will depend upon our financial condition, capital requirements and
earnings, as well as other factors that the Board of Directors may deem
relevant.
As of
February 19, 2009, there were 1,112 stockholders of record of our Common
Stock.
-31-
Performance
Graph
The
following stock performance graph is intended to show our stock performance
compared with that of comparable companies. The stock performance
graph shows the change in market value of $100 invested in our Common Stock, the
Standard & Poor’s 500 Stock Index and a peer group of comparable companies
(“Peer Group”) for the period commencing December 31, 2003 through December 31,
2008. The cumulative total stockholder return assumes dividends are
reinvested. The stockholder return shown on the graph below is not
indicative of future performance.
The Peer
Group consists of the following companies, which are in similar lines of
business to Terex: Astec Industries, Inc., Caterpillar Inc., CNH
Global N.V., Deere & Co., JLG Industries, Inc. (ending December 6, 2006),
Joy Global Inc., Manitowoc Co. and Oshkosh Corporation (since December 7,
2006). The companies in the Peer Group are weighted by market
capitalization.
| 12/03 | 12/04 | 12/05 | 12/06 | 12/07 | 12/08 | |||||||||||||||||||
|
Terex
Corporation
|
100.00 | 167.31 | 208.57 | 453.51 | 460.46 | 121.63 | ||||||||||||||||||
|
S&P
500
|
100.00 | 110.88 | 116.33 | 134.70 | 142.10 | 89.53 | ||||||||||||||||||
|
Peer
Group
|
100.00 | 120.05 | 140.25 | 165.10 | 247.09 | 112.83 | ||||||||||||||||||
|
Copyright
© 2009 Standard & Poor's, a division of The McGraw-Hill Companies Inc.
All rights reserved.
(www.researchdatagroup.com/S&P.htm)
|
||||||||||||||||||||||||
(b) Not
applicable.
(c) The
following table provides information about our purchases during the quarter
ended December 31, 2008 of Common Stock that is registered by the Company
pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange
Act”).
-32-
|
Issuer
Purchases of Equity Securities
|
||||||||||||||||
|
Period
|
(a)
Total Number of Shares Purchased
|
(b)
Average Price Paid per Share
|
(c)
Total Number of Shares Purchased as Part of Publicly Announced Plans or
Programs (1)
|
(d)
Approximate Dollar Value of Shares that May Yet be Purchased
Under
the Plans or Programs (in thousands) (1)
|
||||||||||||
|
October
1, 2008 - October 31, 2008
|
- | - | - | $ | 637,974 | |||||||||||
|
November
1, 2008 - November 30, 2008
|
- | - | - | $ | 637,974 | |||||||||||
|
December
1, 2008 - December 31, 2008
|
- | - | - | $ | 637,974 | |||||||||||
|
Total
|
- | - | - | $ | 637,974 | |||||||||||
|
(1)
|
In
December 2006, our Board of Directors authorized the repurchase of up to
$200 million of the Company’s outstanding common shares through June 30,
2008. In December 2007, our Board of Directors increased the
authorization for repurchase of the Company’s outstanding common shares by
$500 million for a total at that time of $700 million. The
program was also extended to allow for repurchases through June 30,
2009. In July 2008, our Board of Directors increased the share
repurchase program by $500 million, bringing the total amount that may be
repurchased under the program to $1,200 million. The expiration
date for the program remains June 30,
2009.
|
-33-
ITEM
6. SELECTED
FINANCIAL DATA
FIVE-YEAR
SELECTED FINANCIAL DATA
The
following table summarizes our selected financial data and should be read in
conjunction with the more detailed Consolidated Financial Statements and related
notes and Management’s Discussion and Analysis of Financial Condition and
Results of Operation.
(in
millions, except per share amounts and employees)
|
AS OF OR FOR THE YEAR ENDED DECEMBER
31,
|
||||||||||||||||||||
|
2008
|
2007
|
2006
|
2005
|
2004
|
||||||||||||||||
|
SUMMARY
OF OPERATIONS
|
||||||||||||||||||||
|
Net
sales
|
$ | 9,889.6 | $ | 9,137.7 | $ | 7,647.6 | $ | 6,156.5 | $ | 4,799.3 | ||||||||||
|
Goodwill
impairment
|
459.9 | — | — | 3.3 | — | |||||||||||||||
|
Income
from operations
|
402.6 | 961.4 | 709.5 | 370.4 | 211.6 | |||||||||||||||
|
Income
from continuing operations
|
71.9 | 613.9 | 396.5 | 187.6 | 320.6 | |||||||||||||||
|
Income
from discontinued operations – net of tax
|
— | — | 11.1 | 0.9 | 3.5 | |||||||||||||||
|
Loss
on disposition of discontinued operations – net of tax
|
— | — | (7.7 | ) | — | — | ||||||||||||||
|
Net income
|
71.9 | 613.9 | 399.9 | 188.5 | 324.1 | |||||||||||||||
|
Per
Common and Common Equivalent Share:
|
||||||||||||||||||||
|
Basic
|
||||||||||||||||||||
|
Income
from continuing operations
|
0.73 | $ | 6.00 | $ | 3.94 | $ | 1.89 | $ | 3.26 | |||||||||||
|
Income
from discontinued operations – net of tax
|
— | — | 0.11 | 0.01 | 0.04 | |||||||||||||||
|
Loss
on disposition of discontinued operations – net of tax
|
— | — | (0.08 | ) | — | — | ||||||||||||||
|
Net
income
|
0.73 | 6.00 | 3.97 | 1.90 | 3.30 | |||||||||||||||
|
Diluted
|
||||||||||||||||||||
|
Income
from continuing operations
|
0.72 | $ | 5.85 | $ | 3.85 | $ | 1.84 | $ | 3.14 | |||||||||||
|
Income
from discontinued operations – net of tax
|
— | — | 0.10 | — | 0.03 | |||||||||||||||
|
Loss
on disposition of discontinued operations – net of tax
|
— | — | (0.07 | ) | — | — | ||||||||||||||
|
Net
income
|
0.72 | 5.85 | 3.88 | 1.84 | 3.17 | |||||||||||||||
|
CURRENT
ASSETS AND LIABILITIES
|
||||||||||||||||||||
|
Current
assets
|
$ | 4,040.9 | $ | 4,776.9 | $ | 3,432.8 | $ | 2,903.5 | $ | 2,647.1 | ||||||||||
|
Current
liabilities
|
1,824.6 | 2,175.3 | 2,027.2 | 1,524.6 | 1,529.5 | |||||||||||||||
|
PROPERTY,
PLANT AND EQUIPMENT
|
||||||||||||||||||||
|
Net
property, plant and equipment
|
$ | 481.5 | $ | 419.4 | $ | 338.5 | $ | 329.9 | $ | 362.6 | ||||||||||
|
Capital
expenditures
|
120.8 | 111.5 | 78.9 | 48.6 | 35.5 | |||||||||||||||
|
Depreciation
|
75.0 | 63.4 | 61.2 | 61.4 | 60.1 | |||||||||||||||
|
TOTAL
ASSETS
|
$ | 5,445.4 | $ | 6,316.3 | $ | 4,785.9 | $ | 4,200.3 | $ | 4,179.1 | ||||||||||
|
CAPITALIZATION
|
||||||||||||||||||||
|
Long-term
debt and notes payable (includes capital leases)
|
$ | 1,396.4 | $ | 1,319.5 | $ | 536.1 | $ | 1,075.8 | $ | 1,114.2 | ||||||||||
|
Stockholders’
equity
|
1,721.7 | 2,343.2 | 1,751.0 | 1,161.0 | 1,135.2 | |||||||||||||||
|
Dividends
per share of Common Stock
|
— | — | — | — | — | |||||||||||||||
|
Shares
of Common Stock outstanding at year end
|
94.0 | 100.3 | 101.1 | 99.8 | 98.8 | |||||||||||||||
|
EMPLOYEES
|
20,400 | 20,600 | 18,200 | 17,600 | 16,800 | |||||||||||||||
See
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and the Notes to the Consolidated Financial Statements for a
discussion of “Acquisitions,” “Goodwill,” “Long-Term Obligations” and
“Stockholders’ Equity.”
-34-
|
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
BUSINESS
DESCRIPTION
Terex is
a diversified global manufacturer of capital equipment focused on delivering
reliable, customer relevant solutions for the construction, infrastructure,
quarrying, surface mining, shipping, transportation, power and energy
industries. Through December 31, 2008, we operated in five reportable
segments: (i) Terex Aerial Work Platforms; (ii) Terex Construction; (iii) Terex
Cranes; (iv) Terex Materials Processing & Mining; and (v) Terex
Roadbuilding, Utility Products and Other.
Our
Aerial Work Platforms segment designs, manufactures, refurbishes and markets
aerial work platform equipment, telehandlers, power equipment and construction
trailers. Customers in the construction and building maintenance
industries use these products to build and/or maintain large physical assets and
structures.
Our
Construction segment designs, manufactures and markets two primary categories of
construction equipment: heavy construction and compact construction
equipment. Construction, logging, mining, industrial and government
customers use these products in construction and infrastructure projects and in
coal, minerals, sand and gravel operations. We acquired A.S.V., Inc.
(“ASV”) on February 26, 2008. The results of ASV are included in the
Construction segment from its date of acquisition.
Our
Cranes segment designs, manufactures and markets mobile telescopic cranes, tower
cranes, lattice boom crawler cranes, truck-mounted cranes (boom trucks) and
telescopic container stackers. These products are used primarily for
construction, repair and maintenance of infrastructure, building and
manufacturing facilities. We acquired Power Legend International
Limited (“Power Legend”) and its affiliates, including a controlling 50%
ownership interest in Sichuan Changjiang Engineering Crane Co., Ltd. (“Sichuan
Crane”), on April 4, 2006. The results of Power Legend and Sichuan
Crane are included in the Cranes segment from their date of
acquisition.
Our
Materials Processing & Mining segment designs, manufactures and markets
crushing and screening equipment, hydraulic mining excavators, highwall mining
equipment, high capacity surface mining trucks, drilling equipment and other
products. Construction, mining, quarrying and government customers
use these products in construction and infrastructure projects and commodity
mining. We acquired Halco Holdings Limited and its affiliates
(“Halco”) on January 24, 2006, established the Terex NHL Mining Equipment
Company Ltd. (“Terex NHL”) joint venture on March 9, 2006, and acquired Superior
Highwall Miners Inc. and its affiliates (“SHM”) on November 6, 2007. The
results of Halco, Terex NHL and SHM are included in the Materials Processing
& Mining segment from their respective dates of acquisition or
formation.
Our
Roadbuilding, Utility Products and Other segment designs, manufactures and
markets asphalt and concrete equipment, landfill compactors, bridge inspection
and utility equipment. Government, utility and construction customers
use these products to build roads, construct and maintain utility lines, trim
trees and for other commercial operations. Additionally, we own a
majority of the North American distribution channel for our utility products
group, operate a fleet of rental utility products in the United States and
Canada and own a distributor of our equipment and other products. We
also assist customers in their rental, leasing and acquisition of our products
through TFS.
Effective
January 1, 2009, we realigned certain operations in an effort to capture market
synergies and streamline our cost structure. Our Roadbuilding
businesses, formerly part of our Roadbuilding, Utility Products and Other
segment, will now be consolidated within our Construction
segment. Our Utility Products businesses, formerly part of our
Roadbuilding, Utility Products and Other segment, will now be consolidated
within our Aerial Work Platforms segment. Certain other businesses
that were included in the Roadbuilding, Utility Products and Other segment will
now be reported in Corporate and Other, which includes eliminations among our
segments. Additionally, our truck-mounted articulated hydraulic crane
line of business produced in Delmenhorst and Vechta, Germany, formerly part of
our Construction segment, will now be consolidated within our Cranes
segment. The segment disclosures included herein do not reflect
these realignments. We will give effect to these realignments in our
segment reporting for financial reporting periods beginning January 1, 2009, at
which point the Roadbuilding, Utility Products and Other segment will cease to
be a reportable segment.
Included
in Eliminations/Corporate are the eliminations among the five segments, as well
as certain general and corporate expenses that have not been allocated to the
segments.
-35-
Overview
Our
overall financial performance during 2008 was mixed. Very strong
performance in the first half of 2008 gave way to significantly weaker
performance in the second half of the year, as the deterioration in the
fundamentals of the global economy took an increasing toll on our
business. For the full year, favorable results in our Cranes and
Materials Processing & Mining (“MPM”) segments were more than offset by
unfavorable results in our Aerial Work Platforms (“AWP”), Construction and
Roadbuilding, Utility Products and Other (“RBUO”) segments. The
challenges in the current operating environment, particularly in the U.S. and
Western Europe, have been compounded by the unprecedented levels of instability
in the financial markets that have resulted from the ongoing global credit
crisis. The AWP and Construction segments and the materials
processing business have all experienced weakness for many of their products in
these markets. Construction activity has dramatically slowed and many
of our end markets have seen significant declines.
We have
seen a credit crisis that initially appeared limited to the U.S. intensify into
a worldwide financial crisis in the second half of 2008. The causes
of this financial and economic turbulence differ from past downturns, thus there
is no historical precedent with which to compare. The global economy
remains under stress and our expectations for 2009 have
deteriorated. The depth and duration of the global economic decline
are not known; however, we expect 2009 to be a very challenging
year. The current environment is one of a global slowdown, where the
product and geographic diversity we have built has little ability to mitigate
the market pressure we are experiencing at the moment. While we
remain confident that our strategy of product and geographic diversity is the
right one to deliver positive shareholder returns in the long term, we know that
the current environment presents unique challenges.
In
response to the present economic environment, we have taken and will continue to
take aggressive actions to reduce costs and preserve cash in all of our
businesses. These actions include the following:
|
|
·
|
since
June 2008, reducing our workforce, including temporary and contract
workers;
|
· the
AWP global workforce has been reduced by approximately 34%;
· the
Construction global workforce has been reduced by approximately 8%;
· the
Materials Processing global workforce has been reduced by approximately
22%;
· the
Roadbuilding global workforce has been reduced by approximately
18%;
· additional
reductions in our workforce will continue across all segments in
2009;
|
|
·
|
temporary
shutdowns of manufacturing facilities and shortened work weeks were
implemented and will continue to be used to reduce production output as
necessary;
|
|
|
·
|
review
of existing facilities for potential consolidation, transfer or
sale;
|
|
|
·
|
cutting
production levels;
|
|
|
·
|
eliminating
salary increases in 2009 for management-level team members and
significantly reducing executive long-term compensation from 10% to
50%;
|
|
|
·
|
delaying
or cutting capital expenditures;
|
|
|
·
|
reducing
discretionary spending; and
|
|
|
·
|
identifying
and improving process and system
efficiencies.
|
The
marketplace for each of our businesses is somewhat different, but there is a
common approach we are taking throughout the Company. In 2009, we
will be managing our business even more aggressively than normal for
cash. Most of our businesses are experiencing continued reductions in
incoming orders, with orders in backlog being cancelled or
deferred. We are intensely focused in each of our businesses in
managing our sales, inventory and operations planning process to quickly adjust
our production rate and material ordering in line with this rapidly changing
market.
Our
Construction and Roadbuilding businesses are experiencing a number of
significant challenges in this very difficult environment and we need to make
changes to build and improve these businesses to meet these
challenges. While we would prefer to implement the necessary changes
to overcome these obstacles, if different ownership would grow one or more of
these businesses faster than we could, then we will consider those
alternatives.
Although
we continued to see reasonable demand for cranes and mining equipment, we are
now experiencing increasing cancellations in our backlog for crane and mining
products, as well as delays in acceptance of deliveries, as our customers for
these products are not immune to the effects of the economic
downturn. Demand in these businesses has been driven by global
infrastructure development and maintenance, as well as commodity and energy
prices that were at levels which supported continued investment in capital
equipment. Commodities and energy pricing generally have been
weakening, so we are cautious in our expectations of future demand.
-36-
We are
making select capital investments in our AWP, Cranes and MPM segments to more
effectively and efficiently respond to anticipated market demand. For
example, we are developing new facilities in India for material processing
equipment and in China for cranes, hydraulic excavators, portable products and
scissor and boom lifts to reduce manufacturing costs and to meet the demand for
these products in these developing regions.
Year-over-year
backlog for all of our segments is down, with AWP and Construction backlogs down
significantly. We have also seen recent softening demand for our
materials processing, cranes and mining products. During 2008, the
AWP and Construction segments experienced declines in net sales and operating
income due to continued weakness in the U.S. and Western European
markets.
The RBUO
segment showed modest improvements in sales, as well as profitability, when
compared to the prior year period. Stronger demand for utility
products, coupled with cost reduction efforts in the roadbuilding business,
resulted in improved profits.
Input
costs affected operating results in 2008, but were in part offset by higher
pricing to our customers. Input costs continue to present challenges,
although they have recently moderated. At this time, our price
increases have not yet fully offset our total input cost
increases. Rising input costs have had the most effect on the AWP
segment, with a lesser impact on the Cranes and MPM segments, as these
businesses tend to have longer supply contracts as well as cost escalation
clauses in certain contracts with our customers. Most of our steel
and other input costs have fallen from recent peak levels, but we are still
experiencing higher material costs than last year. We will not see a
significant improvement in cost until later in 2009, when we will have utilized
material already in our inventory.
Uncertainty
around the depth and duration of the current economic decline makes it difficult
to forecast our expectations for 2009 with a reasonable degree of
certainty. However, we are planning for continued softness in
demand. We expect that Western European and U.S. markets will remain
soft for our aerial work platforms, construction and materials processing
businesses well into 2009. We expect that for 2009, net sales for our
AWP segment will be down 35%-45%, net sales for our Construction segment will be
down 25%-35%, net sales for our Cranes segment will be down 25%-35%, and net
sales for our MPM segment will be down 25%-35%, versus 2008
results. We expect our overall 2009 net sales to decline in the range
of 30%-35% as compared to 2008, approximately 13% of which is the estimated
translation effect of foreign currency exchange rate changes.
Given
that external access to credit remains uncertain in the current financial
environment, we are focusing on improving liquidity by aggressively reducing
costs and working capital and slowing capital spending. We are
currently not purchasing shares under our previously announced share repurchase
program. However, during 2008, we repurchased $395.5 million, or 7.4
million shares, of our common stock.
TFS
provides assistance to our customers in financing purchases of our equipment,
largely through the use of financial partners. We have used the
flexibility, expertise and capacity of multiple sources to secure financing in
this difficult market. In certain cases, TFS will also originate and
sell financing transactions to these same financial institutions to increase
velocity of transaction processing and maintain our customer
linkage. As of December 31, 2008, TFS retained approximately $3
million of these assets on our balance sheet.
We have
also accelerated several internal initiatives to reduce inventory, including
significantly limiting raw material receipts, particularly in the aerial work
platforms, construction and materials processing businesses, while carefully
managing incoming inventory in our cranes and mining businesses. We
are adjusting production levels as appropriate in relation to slowing end market
demand for our products. With the actions we are taking to reduce
costs and increase liquidity, we expect to have sufficient flexibility to
execute our key business plans.
After tax
Return on Invested Capital (“ROIC”) continues to be the unifying metric we use
to measure our operating performance. ROIC measures how effectively
we utilize the capital invested in our operations. After tax ROIC is
determined by dividing the sum of Net Operating Profit After Tax (as defined
below) for each of the previous four quarters by the average of the sum of Total
stockholders’ equity plus Debt (as defined below) less Cash and cash equivalents
for the previous five quarters. Net Operating Profit After Tax
(“NOPAT”), which is a non-GAAP measure, for each quarter is calculated by
multiplying Income from operations by a figure equal to one minus the effective
tax rate of the Company. The effective tax rate is equal to the
(Provision for) benefit from income taxes divided by Income before income taxes
for the respective quarter. Debt is calculated using the amounts for
Notes payable and current portion of long-term debt plus Long-term debt, less
current portion. We calculate ROIC using the last four quarters’
NOPAT as this represents the most recent twelve month period at any given point
of determination. In order for the denominator of the ROIC ratio to
properly match the operational period reflected in the numerator, we include the
average of five quarter’s ending balance sheet amounts so that the denominator
includes the average of the opening through ending balances (on a quarterly
basis) over the same time period as the numerator (four quarters of average
invested capital).
-37-
We use
ROIC as a unifying metric because we feel that it measures how effectively we
invest our capital and provides a better measure to compare ourselves to peer
companies to assist in assessing how we drive operational
improvement. We believe that ROIC measures return on the full
enterprise-wide amount of capital invested in our business, as opposed to
another metric such as return on shareholder’s equity that only incorporates
book equity, and is thus a more accurate and descriptive measure of our
performance. We also believe that adding Debt less Cash and cash
equivalents to Total stockholders’ equity provides a better comparison across
similar businesses regarding total capitalization, and ROIC highlights the level
of value creation as a percentage of capital invested. Consistent
with this belief, we use ROIC in evaluating executive performance and
compensation, as we have disclosed in the Compensation Discussion and Analysis
in our proxy statement for the 2008 annual meeting of
stockholders. As of October 1, 2008, we performed our annual goodwill
impairment test, which resulted in a non-cash impairment charge for goodwill of
$459.9 million, which represented all of the goodwill recorded in the
Construction and RBUO segments. However, we do not believe that
non-cash impairment charges are indicative of returns on our invested
capital. Therefore, we have excluded the effect of these impairment
charges from the metrics used in our calculation of ROIC. As the
tables below show, our ROIC at December 31, 2008 was 19.2%, down from 28.9% at
December 31, 2007. The decrease reflects reduced NOPAT performance
from approximately $641 million to approximately $601 million and the increased
invested capital impact of recent acquisitions of approximately $482
million.
The
amounts described below are reported in millions of U.S. dollars, except for the
effective tax rates.
|
Dec
‘08
|
Sep
‘08
|
Jun
‘08
|
Mar
‘08
|
Dec
‘07
|
||||||||||||||||
|
(Benefit
from) Provision for income taxes as adjusted
|
$ | (1.0 | ) | $ | 44.9 | $ | 116.8 | $ | 83.2 | |||||||||||
|
Divided
by: Income before income taxes as adjusted
|
35.7 | 138.7 | 353.1 | 246.5 | ||||||||||||||||
|
Effective
tax rate as adjusted
|
(2.8 | )% | 32.4 | % | 33.1 | % | 33.8 | % | ||||||||||||
|
Income
from operations as adjusted
|
$ | 68.1 | $ | 167.2 | $ | 370.9 | $ | 256.3 | ||||||||||||
|
Multiplied
by: 1 minus Effective tax rate as adjusted
|
102.8 | % | 67.6 | % | 66.9 | % | 66.2 | % | ||||||||||||
|
Adjusted
net operating profit after tax
|
$ | 70.0 | $ | 113.0 | $ | 248.1 | $ | 169.7 | ||||||||||||
|
Debt
(as defined above)
|
$ | 1,435.8 | $ | 1,568.2 | $ | 1,355.9 | $ | 1,373.4 | $ | 1,352.0 | ||||||||||
|
Less:
Cash and cash equivalents
|
(484.4 | ) | (487.9 | ) | (590.0 | ) | (604.2 | ) | (1,272.4 | ) | ||||||||||
|
Debt
less Cash and cash equivalents
|
$ | 951.4 | $ | 1,080.3 | $ | 765.9 | $ | 769.2 | $ | 79.6 | ||||||||||
|
Total
stockholders’ equity as adjusted
|
$ | 2,179.9 | $ | 2,302.9 | $ | 2,664.6 | $ | 2,538.1 | $ | 2,343.2 | ||||||||||
|
Debt
less Cash and cash equivalents plus Total stockholders’ equity as
adjusted
|
$ | 3,131.3 | $ | 3,383.2 | $ | 3,430.5 | $ | 3,307.3 | $ | 2,422.8 | ||||||||||
|
2008
ROIC
|
19.2 | % | ||
|
Adjusted
net operating profit after tax (last 4 quarters)
|
$ | 600.8 | ||
|
Average
Debt less Cash and cash equivalents plus Total stockholders’ equity as
adjusted (5 quarters)
|
$ | 3,135.0 |
-38-
|
Reconciliation
of ROIC table amounts adjusted for impairment
|
||||
|
Three
months ended 12/31/08
|
||||
|
Loss
before income taxes as reported
|
$ | (424.2 | ) | |
|
Less:
Goodwill impairment
|
(459.9 | ) | ||
|
Income
before income taxes as adjusted
|
$ | 35.7 | ||
|
Benefit
from income taxes as reported
|
$ | 2.7 | ||
|
Less:
Benefit from income taxes on impairment
|
1.7 | |||
|
Benefit
from income taxes as adjusted
|
$ | 1.0 | ||
|
Income
before income taxes as adjusted
|
$ | 35.7 | ||
|
Plus:
Benefit from income taxes as adjusted
|
1.0 | |||
|
Net
income as adjusted
|
$ | 36.7 | ||
|
Loss
from operations as reported
|
$ | (391.8 | ) | |
|
Less:
Goodwill impairment
|
(459.9 | ) | ||
|
Income
from operations as adjusted
|
$ | 68.1 | ||
|
Total
stockholders' equity as reported
|
$ | 1,721.7 | ||
|
Less:
Net loss as reported
|
(421.5 | ) | ||
|
Add:
Net income as adjusted
|
36.7 | |||
|
Total
stockholders' equity as adjusted
|
$ | 2,179.9 | ||
|
Effective
tax rate reconciliation excluding impairment
|
||||||||||||
|
Three
months ended 12/31/08
|
||||||||||||
|
As
reported
|
Impairment
|
As
adjusted
|
||||||||||
|
(Loss)
income before income taxes
|
$ | (424.2 | ) | $ | (459.9 | ) | $ | 35.7 | ||||
|
Benefit
from income taxes
|
2.7 | 1.7 | 1.0 | |||||||||
|
Net
(loss) income
|
$ | (421.5 | ) | $ | 36.7 | |||||||
|
Effective
tax rate
|
0.6 | % | 0.4 | % | (2.8 | )% | ||||||
|
Dec
‘07
|
Sep
‘07
|
Jun
‘07
|
Mar
‘07
|
Dec
‘06
|
||||||||||||||||
|
Provision
for income taxes
|
$ | 62.0 | $ | 78.5 | $ | 96.7 | $ | 68.2 | ||||||||||||
|
Divided
by: Income before income taxes
|
236.0 | 230.0 | 271.3 | 182.0 | ||||||||||||||||
|
Effective
tax rate
|
26.3 | % | 34.1 | % | 35.6 | % | 37.5 | % | ||||||||||||
|
Income
from operations
|
$ | 239.9 | $ | 236.3 | $ | 284.5 | $ | 200.7 | ||||||||||||
|
Multiplied
by: 1 minus Effective tax rate
|
73.7 | % | 65.9 | % | 64.4 | % | 62.5 | % | ||||||||||||
|
Net
operating profit after tax
|
$ | 176.8 | $ | 155.7 | $ | 183.2 | $ | 125.4 | ||||||||||||
|
Debt
(as defined above)
|
$ | 1,352.0 | $ | 705.6 | $ | 651.7 | $ | 678.4 | $ | 763.1 | ||||||||||
|
Less:
Cash and cash equivalents
|
(1,272.4 | ) | (516.6 | ) | (453.4 | ) | (405.2 | ) | (676.7 | ) | ||||||||||
|
Debt
less Cash and cash equivalents
|
$ | 79.6 | $ | 189.0 | $ | 198.3 | $ | 273.2 | $ | 86.4 | ||||||||||
|
Total
stockholders’ equity
|
$ | 2,343.2 | $ | 2,254.4 | $ | 2,073.4 | $ | 1,851.9 | $ | 1,751.0 | ||||||||||
|
Debt
less Cash and cash equivalents plus Total stockholders’
equity
|
$ | 2,422.8 | $ | 2,443.4 | $ | 2,271.7 | $ | 2,125.1 | $ | 1,837.4 | ||||||||||
|
2007
ROIC
|
28.9 | % | ||
|
Net
operating profit after tax (last 4 quarters)
|
$ | 641.1 | ||
|
Average
Debt less Cash and cash equivalents plus Total stockholders’ equity (5
quarters)
|
$ | 2,220.1 |
-39-
RESULTS
OF OPERATIONS
2008 COMPARED WITH
2007
Terex
Consolidated
|
2008
|
2007
|
|||||||||||||||||||
|
%
of
Sales
|
%
of
Sales
|
%
Change In
Reported
Amounts
|
||||||||||||||||||
|
($
amounts in millions)
|
||||||||||||||||||||
|
Net
sales
|
$ | 9,889.6 | - | $ | 9,137.7 | - | 8.2 | % | ||||||||||||
|
Gross
profit
|
$ | 1,927.7 | 19.5 | % | $ | 1,882.0 | 20.6 | % | 2.4 | % | ||||||||||
|
SG&A
|
$ | 1,065.2 | 10.8 | % | $ | 920.6 | 10.1 | % | 15.7 | % | ||||||||||
|
Goodwill
impairment
|
$ | 459.9 | 4.7 | % | $ | - | - | - | ||||||||||||
|
Income
from operations
|
$ | 402.6 | 4.1 | % | $ | 961.4 | 10.5 | % | (58.1 | )% | ||||||||||
Net sales
for the year ended December 31, 2008 increased $751.9 million when compared to
the same period in 2007. The favorable translation effect of foreign
currency exchange rate changes contributed approximately $234 million of the net
sales increase. Acquisitions, particularly ASV and SHM, contributed
approximately $265 million to the increase in net sales. Excluding
the favorable translation effect of foreign currency exchange rate changes and
acquisitions, our MPM and Cranes segments were the primary drivers of the
remaining increase in net sales and, combined, contributed approximately $806
million to the increase, as worldwide infrastructure and commodity needs
continued to provide significant demand for our products. Excluding
the favorable translation effect of foreign currency exchange rate changes and
acquisitions, our AWP and Construction segments declined by approximately $557
million from the prior year. We had moderate net sales growth in the
RBUO segment. While we experienced growth in net sales in the first
half of 2008 of approximately 22% over the same period in 2007, during the
second half of 2008, net sales decreased approximately 4% over the same period
in 2007. This sharp decline was due to the significant weakening of
many of our end markets in the second half of 2008.
Gross
profit for the year ended December 31, 2008 increased $45.7 million when
compared to the same period in 2007. The favorable translation effect
of foreign currency exchange rate changes contributed approximately $98 million
to gross profit. The increase in gross profit in 2008 was driven by
the strong sales in the MPM and Cranes segments, which, excluding the favorable
translation effect of foreign currency exchange rate changes, combined to
increase gross profit by approximately $246 million over the prior
year. However, the AWP and Construction segments had lower combined
gross profit of approximately $305 million, excluding the favorable translation
effect of foreign currency exchange rate changes. The RBUO segment
did not provide significant contribution to the increase in gross profit due to
increasing costs.
Selling,
general and administrative (“SG&A”) costs increased for the year ended
December 31, 2008 by $144.6 million when compared to the same period in
2007. The unfavorable translation effect of foreign currency exchange
rate changes accounted for approximately $19 million of the SG&A
increase. Most of the rise in SG&A costs was due to our continued
investment in operational improvement initiatives, including supply chain
management, global sales and service capabilities in developing markets,
marketing, implementation of our enterprise resource management system, and
strategic sourcing initiatives.
As of
October 1, 2008, we performed our annual goodwill impairment test, which
resulted in a non-cash impairment charge for goodwill of $459.9 million and
represented all of the goodwill recorded in the Construction and RBUO
segments. This goodwill impairment charge was necessary, as the fair
value of the reporting units within these segments had significantly declined,
reflecting reduced estimated future cash flows for these businesses based on
lower expectations for growth and profitability, primarily as a result of the
current global economic downturn.
Income
from operations decreased by $558.8 million for the year ended December 31, 2008
over the comparable period in 2007. The decrease was primarily due to
$459.9 million of impairment charges. Although, we experienced
improvement in operating profit due to higher volume, pricing actions and the
favorable translation effect of foreign currency exchange rate changes, these
were more than offset by transactional foreign currency losses and higher
SG&A costs. While we experienced an increase in operating profit
in the first half of 2008 of approximately 29% over the same period in 2007,
during the second half of 2008, excluding the impairment charges, operating
profit decreased approximately 51% over the same period in 2007. This
sharp deterioration was primarily due to the significant declines in many of our
end markets and higher input costs incurred in the second half of
2008.
-40-
Aerial
Work Platforms
|
2008
|
2007
|
|||||||||||||||||||
|
%
of
Sales
|
%
of
Sales
|
%
Change In
Reported
Amounts
|
||||||||||||||||||
|
($
amounts in millions)
|
||||||||||||||||||||
|
Net
sales
|
$ | 2,074.1 | - | $ | 2,337.8 | - | (11.3 | )% | ||||||||||||
|
Gross
profit
|
$ | 475.0 | 22.9 | % | $ | 647.9 | 27.7 | % | (26.7 | )% | ||||||||||
|
SG&A
|
$ | 228.6 | 11.0 | % | $ | 194.8 | 8.3 | % | 17.4 | % | ||||||||||
|
Income
from operations
|
$ | 246.4 | 11.9 | % | $ | 453.1 | 19.4 | % | (45.6 | )% | ||||||||||
Net sales
for the AWP segment for the year ended December 31, 2008 decreased $263.7
million when compared to the same period in 2007. The favorable
translation effect of foreign currency exchange rate changes increased net sales
by approximately $45 million. This increase in net sales was offset
by approximately $274 million due to lower volume for most
products. Additionally, approximately $40 million of the decrease was
due to an increased sales mix to high volume customers and competition in
certain markets, which negatively affected average pricing.
Gross
profit for the year ended December 31, 2008 decreased $172.9 million from the
comparable period in 2007. The favorable translation effect of
foreign currency exchange rate changes positively affected gross profit by
approximately $29 million. The impact of lower sales volumes
decreased gross profit by approximately $76 million. Gross profit
decreased approximately $40 million due to an increased sales mix to high volume
customers and competition in certain markets, which negatively affected average
pricing. Higher input costs, primarily for steel, negatively affected
gross profit by approximately $70 million. Costs related to headcount
reductions decreased gross profit by approximately $5 million. Other
costs, primarily associated with warranty, product liability and distribution,
decreased gross profit by approximately $13 million.
SG&A
costs for the year ended December 31, 2008 increased $33.8 million when compared
to the same period in 2007. The increase resulted from expansion of
our international sales distribution infrastructure, higher marketing costs
associated with trade show activities, and increased product line management,
consulting and engineering costs, which combined to increase SG&A costs by
approximately $10 million. Additionally, corporate cost allocation
increased approximately $13 million over the prior year. Higher
bad debt expenses of approximately $4 million were incurred in the current year.
Approximately $4 million of the increase was due to costs related to headcount
reductions.
Income
from operations for the year ended December 31, 2008 decreased $206.7 million
when compared to the same period in 2007. The decrease was due to the
items noted above, particularly lower net sales volume, continued higher input
costs not recovered in pricing and higher SG&A costs.
Construction
|
2008
|
2007
|
|||||||||||||||||||
|
%
of
Sales
|
%
of
Sales
|
%
Change In
Reported
Amounts
|
||||||||||||||||||
|
($
amounts in millions)
|
||||||||||||||||||||
|
Net
sales
|
$ | 1,887.3 | - | $ | 1,908.5 | - | (1.1 | )% | ||||||||||||
|
Gross
profit
|
$ | 165.7 | 8.8 | % | $ | 250.3 | 13.1 | % | (33.8 | )% | ||||||||||
|
SG&A
|
$ | 240.2 | 12.7 | % | $ | 194.2 | 10.2 | % | 23.7 | % | ||||||||||
|
Goodwill
impairment
|
$ | 364.4 | 19.3 | % | $ | - | - | - | ||||||||||||
|
(Loss)
income from operations
|
$ | (438.9 | ) | (23.3 | )% | $ | 56.1 | 2.9 | % | (882.4 | )% | |||||||||
Net sales
in the Construction segment decreased by $21.2 million for the year ended
December 31, 2008 when compared to the same period in 2007. The
favorable translation effect of foreign currency exchange rate changes increased
net sales by approximately $49 million. Acquisitions, primarily ASV,
increased net sales by approximately $166 million. These increases
were more than offset by lower net sales volume of approximately $240 million in
the Americas and the Europe, Middle East and Africa regions across most product
lines.
-41-
Gross
profit for the year ended December 31, 2008 decreased $84.6 million when
compared to 2007 results for the same period. Lower net sales volume
decreased gross profit by approximately $41 million. Higher input
costs, particularly for steel, as well as transactional foreign currency losses,
decreased gross profit by approximately $63 million. Additionally,
due to lower production levels, manufacturing overhead represented a greater
percentage of production costs, resulting in a reduction to gross profit of
approximately $23 million. Costs related to headcount reductions
decreased gross profit by approximately $4 million. These decreases
were partially offset by the favorable translation effect of foreign currency
exchange rate changes of approximately $19 million, which had a positive effect
on gross profit. Acquisitions, primarily ASV, improved gross profit
by approximately $14 million. Higher parts sales and decreased other
costs of sales improved gross profit by approximately $16 million.
SG&A
costs for the year ended December 31, 2008 increased $46.0 million from the
comparable period in 2007. Approximately $3 million of the increase
was due to the unfavorable translation effect of foreign currency exchange rate
changes. Approximately $18 million of the increase was due to
acquisitions, primarily ASV. Approximately $15 million of higher
SG&A costs were related to selling, engineering and other manufacturing
initiatives. Additionally, corporate cost allocation increased
approximately $10 million over the prior year period.
As of
October 1, 2008, we performed our annual goodwill impairment test, which
resulted in a non-cash impairment charge for goodwill of $364.4 million and
represented all of the goodwill recorded in this segment. This
goodwill impairment charge was necessary, as the fair value of the reporting
unit within this segment significantly declined, reflecting reduced estimated
future cash flows for this business based on lower expectations for growth and
profitability, primarily as a result of the current global economic
downturn.
Income
from operations for the year ended December 31, 2008 decreased $495.0 million
when compared to the same period in 2007, resulting primarily from impairment
charges and lower net sales volume combined with higher production and SG&A
costs.
Cranes
|
2008
|
2007
|
|||||||||||||||||||
|
%
of
Sales
|
%
of
Sales
|
%
Change In
Reported
Amounts
|
||||||||||||||||||
|
($
amounts in millions)
|
||||||||||||||||||||
|
Net
sales
|
$ | 2,888.8 | - | $ | 2,234.9 | - | 29.3 | % | ||||||||||||
|
Gross
profit
|
$ | 629.8 | 21.8 | % | $ | 448.2 | 20.1 | % | 40.5 | % | ||||||||||
|
SG&A
|
$ | 228.3 | 7.9 | % | $ | 191.5 | 8.6 | % | 19.2 | % | ||||||||||
|
Income
from operations
|
$ | 401.5 | 13.9 | % | $ | 256.7 | 11.5 | % | 56.4 | % | ||||||||||
Net sales
for the Cranes segment for the year ended December 31, 2008 increased by $653.9
million when compared to the same period in 2007. The favorable
translation effect of foreign currency exchange rate changes on sales
contributed approximately $135 million of the net sales
increase. Increased price realization added approximately $171
million to the increase. Approximately $359 million of the increase
in net sales resulted from improvement in our product mix due to a demand shift
towards rough-terrain cranes, and larger capacity crawler and all-terrain
cranes, as well as from higher sales volume. Parts sales grew by
approximately $27 million because of a larger installed base of our
cranes. These increases were partially offset by approximately $38
million of lower net sales from used cranes and rental equipment, primarily in
Europe.
Gross
profit for the year ended December 31, 2008 increased $181.6 million relative to
the same period in 2007. The favorable translation effect of foreign
currency exchange rate changes improved gross profit by approximately $34
million from the prior year period. Gross profit increased
approximately $171 million from the effect of pricing realization. An
advantageous sales mix of crawler, rough-terrain, tower cranes and parts added
approximately $101 million to the increase. These favorable trends
were partially offset by higher input and warranty costs of approximately $109
million. Additionally, charges for a previously announced crane
repair program of approximately $15 million lowered gross profit.
SG&A
costs for the year ended December 31, 2008 increased $36.8 million over the same
period in 2007. Approximately $13 million of the increase was due to
the unfavorable translation effect of foreign currency exchange rate
changes. We also incurred higher selling costs due to increased sales
volume, engineering costs for product development, certain bad debt costs and
increased administrative costs, which combined to increase SG&A costs by
approximately $24 million.
-42-
Income
from operations for the year ended December 31, 2008 increased $144.8 million
over the comparable period in 2007. Income from operations in 2008
increased because of the positive translation effect of foreign currency
exchange rate changes, higher sales volume and favorable product mix, and the
impact of pricing actions.
Materials
Processing & Mining
|
2008
|
2007
|
|||||||||||||||||||
|
%
of
Sales
|
%
of
Sales
|
%
Change In
Reported
Amounts
|
||||||||||||||||||
|
($
amounts in millions)
|
||||||||||||||||||||
|
Net
sales
|
$ | 2,457.1 | - | $ | 2,092.1 | - | 17.4 | % | ||||||||||||
|
Gross
profit
|
$ | 555.0 | 22.6 | % | $ | 442.4 | 21.1 | % | 25.5 | % | ||||||||||
|
SG&A
|
$ | 235.8 | 9.6 | % | $ | 196.7 | 9.4 | % | 19.9 | % | ||||||||||
|
Income
from operations
|
$ | 319.2 | 13.0 | % | $ | 245.7 | 11.7 | % | 29.9 | % | ||||||||||
Net sales
in the MPM segment increased by $365.0 million in the year ended December 31,
2008 over the comparable period in 2007. Approximately $52 million of
the increase was due to increased net sales volume from continued solid demand
for our mining products, particularly large excavators. This demand
was driven by sustained relative strength of some commodity prices, combined
with increased global mining operations. European and developing market demand
for crushing and screening products increased, with an increased mix of crushing
equipment, including new products in this line, adding approximately $71 million
to the increase. Pricing actions improved our sales by approximately
$60 million. We also had approximately $104 million of higher parts
and service sales in the current year because of a higher installed base of our
products. Approximately $80 million of the increase was attributable
to the acquisition of SHM in the fourth quarter of 2007.
Gross
profit increased by $112.6 million in the year ended December 31, 2008 over the
comparable period in 2007. The favorable translation effect of
foreign currency exchange rate changes accounted for approximately $14 million
of the increase. The increase was also due to the impact of pricing
actions of approximately $60 million, as well as approximately $123 million from
the volume increase in net sales, including parts, the impact of the SHM
acquisition and more profitable product mix changes. These increases
were offset in part by higher input costs, particularly steel, of approximately
$26 million. Other costs for foreign currency transaction losses,
warranty, service and distribution decreased gross profit by approximately $56
million.
SG&A
costs increased by $39.1 million in the year ended December 31, 2008 relative to
the comparable period in 2007. The increase in SG&A costs was
partially due to approximately $9 million of selling and marketing expenses
resulting from continued growth, investment in service and support capabilities
and certain trade show activities. Additionally, we incurred
approximately $6 million of higher engineering costs for new product
development. Other general and administrative costs increased
approximately $23 million due to higher legal expenses, additional staffing to
support growth, and higher allocation of corporate costs.
Income
from operations for the year ended December 31, 2008 increased $73.5 million
over the comparable period in 2007. The increase was a result of the
items noted above, particularly higher sales volume and the impact of pricing
actions, partially offset by higher SG&A costs associated with the segment’s
growth.
-43-
Roadbuilding,
Utility Products and Other
|
2008
|
2007
|
|||||||||||||||||||
|
%
of
Sales
|
%
of
Sales
|
%
Change In
Reported
Amounts
|
||||||||||||||||||
|
($
amounts in millions)
|
||||||||||||||||||||
|
Net
sales
|
$ | 717.9 | - | $ | 675.8 | - | 6.2 | % | ||||||||||||
|
Gross
profit
|
$ | 104.9 | 14.6 | % | $ | 91.1 | 13.5 | % | 15.1 | % | ||||||||||
|
SG&A
|
$ | 91.2 | 12.7 | % | $ | 91.8 | 13.6 | % | (0.7 | )% | ||||||||||
|
Goodwill
impairment
|
$ | 95.5 | 13.3 | % | $ | - | - | - | ||||||||||||
|
Loss
from operations
|
$ | (81.8 | ) | (11.4 | )% | $ | (0.7 | ) | (0.1 | )% | (11,585.7 | )% | ||||||||
Net sales
for the RBUO segment for the year ended December 31, 2008 increased $42.1
million when compared to the same period in 2007. Approximately $22
million of the increase in net sales was due to increased net sales to the U.S.
government in the current year. The favorable translation effect of
foreign currency exchange rate changes accounted for approximately $7 million of
the net sales increase. We experienced improved demand for our
roadbuilding products manufactured in Latin America, which contributed
approximately $43 million to net sales. These positive results were
partially offset by lower demand for concrete mixer trucks and related parts, as
well as other mobile roadbuilding products, of approximately $37 million,
resulting from the downturn in North American residential construction
market. Our utility products business contributed approximately $27
million to the net sales increase. Net sales in the prior year
included approximately $18 million for activities related to our re-rental
fleet, which was wound down in that period, and a former truck manufacturing
business that was sold in 2007, which were included within this
segment.
Gross
profit for the year ended December 31, 2008 increased $13.8 million when
compared to the same period in 2007. Gross profit in the prior year
was negatively impacted by approximately $5 million for costs related to the
wind-down of our re-rental fleet. Gross profit in the roadbuilding
business improved approximately $7 million over the prior year due to increased
sales of our products manufactured in Latin America. Higher sales in
our utility products business increased gross profit by approximately $1
million.
SG&A
costs for the year ended December 31, 2008 decreased $0.6 million over the
comparable period in 2007. The roadbuilding and utilities businesses
incurred approximately $4 million in higher costs for increased selling,
engineering, bad debt and trade show expenses in the current year
period. These were offset by approximately $6 million of
non-recurring charges in the prior year related to the wind-down of our
re-rental business.
As of
October 1, 2008, we performed our annual goodwill impairment test, which
resulted in a non-cash impairment charge for goodwill of $95.5 million, which
represented all of the goodwill recorded in this segment. This
goodwill impairment charge was necessary, as the fair value of the reporting
units within this segment had significantly declined, reflecting reduced
estimated future cash flows for these businesses based on lower expectations for
growth and profitability, primarily as a result of the current global economic
downturn.
Loss from
operations for the year ended December 31, 2008 increased $81.1 million when
compared to the same period in 2007. This decrease was primarily due
to goodwill impairment charges, partially offset by the items noted above,
including improved profitability in the roadbuilding and utility product
businesses, as well as the negative impact in the prior year related to the
wind-down of our re-rental business.
-44-
Corporate/Eliminations
|
2008
|
2007
|
|||||||||||||||||||
|
%
of
Sales
|
%
of
Sales
|
%
Change In
Reported
Amounts
|
||||||||||||||||||
|
($
amounts in millions)
|
||||||||||||||||||||
|
Net
sales
|
$ | (135.6 | ) | - | $ | (111.4 | ) | - | (21.7 | )% | ||||||||||
|
Loss
from operations
|
$ | (43.8 | ) | 32.3 | % | $ | (49.5 | ) | 44.4 | % | 11.5 | % | ||||||||
Our
consolidated results include the elimination of intercompany sales activity
among segments. Corporate costs before allocations to the business
segments increased, as we continued to invest in Company-wide initiatives,
including the multi-year implementation of our global enterprise resource
management system, marketing programs, the people, systems and support to create
leading supply chain management and manufacturing capabilities, and the
necessary training to maximize the impact of the Terex Business
System. Legal costs also increased in 2008 compared to
2007. These initiatives, coupled with infrastructure investments to
handle growth in developing markets, contributed approximately $28 million of
costs incurred in the current year. These charges were more than
offset by an increase of approximately $34 million in corporate costs allocated
to the business segments in 2008 versus the prior year.
Interest
Expense, Net of Interest Income
During
the year ended December 31, 2008, our interest expense net of interest income
was $80.7 million, or $34.0 million higher than the prior year. This
increase was primarily related to the full year effect of an increase of $871.8
million in our Debt less Cash and cash equivalents balance from December 31,
2007, resulting from $800.0 million of senior subordinated notes issued in
November 2007, which increased interest expense and was partially
offset by increased interest income from higher average cash
balances. This increase in our cash balance was lowered by the
acquisition of ASV and the share repurchase program.
Other
Income (Expense) – Net
Other
income (expense) – net for the year ended December 31, 2008 was expense of $7.8
million, a decrease of $24.9 million when compared to income of
$17.1 million in the prior year. This was primarily due to
approximately $5 million of foreign currency translation losses in the current
year compared to gains of approximately $12 million in the prior
year. These losses and gains were due to foreign denominated balances
that were revalued in the functional currencies of the entities that hold them
as foreign exchange rates changed. Additionally, gains on the sale of
assets were approximately $10 million lower in 2008 than in 2007.
Income
Taxes
During
the year ended December 31, 2008, we recognized income tax expense of
$242.2 million on income from continuing operations before income taxes of
$314.1 million, an effective rate of 77.1%, as compared to income tax
expense of $305.4 million on income from continuing operations before income
taxes of $919.3 million, an effective rate of 33.2%, in the prior
year. The effective tax rate for 2008 was higher than in the prior
year, primarily due to the non-deductibility of goodwill impairment charges. The
effect of reduced statutory rates in certain European countries and discrete
items partially offset the tax impact of the goodwill impairment
charges.
2007 COMPARED WITH
2006
Terex
Consolidated
|
2007
|
2006
|
|||||||||||||||||||
|
%
of
Sales
|
%
of
Sales
|
%
Change In
Reported
Amounts
|
||||||||||||||||||
|
($
amounts in millions)
|
||||||||||||||||||||
|
Net
sales
|
$ | 9,137.7 | - | $ | 7,647.6 | - | 19.5 | % | ||||||||||||
|
Gross
profit
|
$ | 1,882.0 | 20.6 | % | $ | 1,443.1 | 18.9 | % | 30.4 | % | ||||||||||
|
SG&A
|
$ | 920.6 | 10.1 | % | $ | 733.6 | 9.6 | % | 25.5 | % | ||||||||||
|
Income
from operations
|
$ | 961.4 | 10.5 | % | $ | 709.5 | 9.3 | % | 35.5 | % | ||||||||||
Net sales
for the year ended December 31, 2007 increased $1,490.1 million when compared to
the same period in 2006. Our sales increased across all segments,
with the exception of RBUO, due to strong global demand across many product
categories. Increased sales volume and pricing actions contributed
approximately $818 million of the increase. Additionally, the
favorable translation effect of foreign currency exchange rate changes
contributed approximately 32% of the net sales increase.
-45-
Gross
profit for the year ended December 31, 2007 increased $438.9 million when
compared to the same period in 2006. Gross profit
increased across all segments, with the exception of
RBUO. Approximately $320 million of the increase in gross profit was
the result of the combination of increased volume, particularly international
sales, a more favorable product mix in certain businesses and the positive
impact of pricing initiatives. Additionally, the favorable
translation effect of foreign currency exchange rate changes contributed
approximately 21% of the increase.
SG&A
costs increased for the year ended December 31, 2007 by $187.0 million when
compared to the same period in 2006. Each segment’s SG&A costs
rose due to its portion of the increased selling, engineering and administrative
infrastructure investment of approximately $105 million
Company-wide. The unfavorable translation effect of foreign currency
exchange rate changes also accounted for approximately 24% of the
increase.
Income
from operations increased by $251.9 million for the year ended December 31, 2007
over the comparable period in 2006. We experienced improvement in
operating profit due to the higher volume and pricing actions and the favorable
translation effect of foreign currency exchange rate changes, offset by the
higher SG&A costs described above.
Aerial
Work Platforms
|
2007
|
2006
|
|||||||||||||||||||
|
%
of
Sales
|
%
of
Sales
|
%
Change In
Reported
Amounts
|
||||||||||||||||||
|
($
amounts in millions)
|
||||||||||||||||||||
|
Net
sales
|
$ | 2,337.8 | - | $ | 2,090.3 | - | 11.8 | % | ||||||||||||
|
Gross
profit
|
$ | 647.9 | 27.7 | % | $ | 525.5 | 25.1 | % | 23.3 | % | ||||||||||
|
SG&A
|
$ | 194.8 | 8.3 | % | $ | 152.9 | 7.3 | % | 27.4 | % | ||||||||||
|
Income
from operations
|
$ | 453.1 | 19.4 | % | $ | 372.6 | 17.8 | % | 21.6 | % | ||||||||||
Net sales
for the AWP segment for the year ended December 31, 2007 increased $247.5
million when compared to the same period in 2006. Markets in Europe,
Latin America and Asia/Pacific continued to drive the increase in net sales,
with sales in these regions increasing by approximately 47%, while sales in
North America decreased approximately 6%, primarily in our telehandler product
line. Included in our increased net sales is approximately $58
million resulting from price increases as well as approximately $79 million due
to the favorable translation effect of foreign currency exchange rate
changes.
Gross
profit for the year ended December 31, 2007 increased $122.4 million from the
comparable period in 2006. Gross profit improved approximately $58
million due to price increases. Additionally, approximately $35
million of the gross profit increase was due to the increased sales noted
above. This improvement was partially offset by approximately $17
million in higher costs for material used in
production. Approximately 9% of the increase in gross profit resulted
from the favorable translation effect of foreign currency exchange rate changes
on products made in the U.S. and sold into markets elsewhere throughout the
world.
SG&A
costs for the year ended December 31, 2007 increased $41.9 million when compared
to the same period in 2006. The expansion of our international sales
and distribution infrastructure accounted for approximately $14 million of the
increase. Additionally, due to our significant growth, we had
approximately $16 million higher costs for other sales and marketing,
engineering, information technology and personnel related
expenses. Corporate cost allocation increased approximately $7
million over the prior year and approximately 13% of the increase was due to the
favorable translation effect of foreign currency exchange rate
changes.
Income
from operations for the year ended December 31, 2007 increased $80.5 million
when compared to the same period in 2006. The increase was due to the
items noted above, particularly continued higher volume in European and other
international markets and the favorable translation effect of foreign currency
exchange rate changes, partially offset by costs related to our investment in
new markets.
-46-
Construction
|
2007
|
2006
|
|||||||||||||||||||
|
%
of
Sales
|
%
of
Sales
|
%
Change In
Reported
Amounts
|
||||||||||||||||||
|
($
amounts in millions)
|
||||||||||||||||||||
|
Net
sales
|
$ | 1,908.5 | - | $ | 1,582.4 | - | 20.6 | % | ||||||||||||
|
Gross
profit
|
$ | 250.3 | 13.1 | % | $ | 179.1 | 11.3 | % | 39.8 | % | ||||||||||
|
SG&A
|
$ | 194.2 | 10.2 | % | $ | 163.1 | 10.3 | % | 19.1 | % | ||||||||||
|
Income
from operations
|
$ | 56.1 | 2.9 | % | $ | 16.0 | 1.0 | % | 250.6 | % | ||||||||||
Net sales
in the Construction segment increased by $326.1 million for the year ended
December 31, 2007 when compared to the same period in
2006. Approximately $200 million of the increase was due to increased
product volume, particularly loader backhoes, material handlers, mini and midi
excavators and large trucks. Regionally, growth was predominantly in
Europe due to continued strong demand, partially offset by lower U.S. sales due
to the downturn in the U.S. economy. Additionally, the favorable
translation effect of foreign currency exchange rate changes accounted for
approximately 41% of the net sales increase.
Gross
profit increased $71.2 million when compared to 2006 results for the same
period. This improvement was driven primarily by the combination of
higher sales volume and increased pricing of approximately $53
million. The favorable translation effect of foreign currency
exchange rate changes also added approximately 26% of the increase.
SG&A
costs for the year ended December 31, 2007 increased $31.1 million from the
comparable period in 2006. The increase was due to higher selling
costs of approximately $8 million associated with improving our global sales
network and certain promotional programs and trade show activities, while
increased engineering costs of approximately $3 million for product improvements
also contributed to the increase. Additionally, the unfavorable
translation effect of foreign currency exchange rate changes accounted for
approximately 48% of the increase.
Income
from operations for the year ended December 31, 2007 increased $40.1 million
when compared to the same period in 2006, resulting primarily from the items
noted above, particularly improved sales and the translation effect of foreign
currency exchange rate changes, offset in part by higher SG&A
costs.
Cranes
|
2007
|
2006
|
|||||||||||||||||||
|
%
of
Sales
|
%
of
Sales
|
%
Change In
Reported
Amounts
|
||||||||||||||||||
|
($
amounts in millions)
|
||||||||||||||||||||
|
Net
sales
|
$ | 2,234.9 | - | $ | 1,740.1 | - | 28.4 | % | ||||||||||||
|
Gross
profit
|
$ | 448.2 | 20.1 | % | $ | 293.0 | 16.8 | % | 53.0 | % | ||||||||||
|
SG&A
|
$ | 191.5 | 8.6 | % | $ | 138.5 | 8.0 | % | 38.3 | % | ||||||||||
|
Income
from operations
|
$ | 256.7 | 11.5 | % | $ | 154.5 | 8.9 | % | 66.1 | % | ||||||||||
Net sales
for the Cranes segment for the year ended December 31, 2007 increased by $494.8
million when compared to the same period in 2006. The increase in net
sales was due to higher unit volume, which accounted for approximately $100
million of the increase. Approximately $121 million of the increase
resulted from improvement in our product mix due to higher sales of crawler and
rough-terrain cranes. These offset lower sales of boom trucks in the
U.S. market. Increased pricing at certain facilities and sales of
products with enhanced features added approximately $113 million to the
increase. The favorable translation effect of foreign currency
exchange rate changes on Euro denominated sales contributed approximately 28% of
the net sales increase.
Gross
profit for the year ended December 31, 2007 increased $155.2 million relative to
the same period in 2006. Gross profit benefited approximately $30
million from the effect of prior pricing actions flowing through our order
backlog, coupled with a higher mix of crawler and rough terrain cranes, which
added approximately $77 million. The favorable translation effect of
foreign currency exchange rate changes on Euro denominated sales improved gross
margin by approximately 12% from the prior year.
-47-
SG&A
costs for the year ended December 31, 2007 increased $53.0 million over the same
period in 2006. The increase was driven by higher sales costs of
approximately $14 million due to increased volume and increased allocation of
corporate costs of approximately $18 million. Approximately 24% of
the increase was due to the unfavorable translation effect of foreign currency
exchange rate changes.
Income
from operations for the year ended December 31, 2007 increased $102.2 million
over the comparable period in 2006. Income from operations in 2007
benefited from higher sales volume and product mix, the translation effect of
foreign currency exchange rate changes and the impact of prior pricing actions,
offset in part by higher SG&A expenses.
Materials
Processing & Mining
|
2007
|
2006
|
|||||||||||||||||||
|
%
of
Sales
|
%
of
Sales
|
%
Change In
Reported
Amounts
|
||||||||||||||||||
|
($
amounts in millions)
|
||||||||||||||||||||
|
Net
sales
|
$ | 2,092.1 | - | $ | 1,625.0 | - | 28.7 | % | ||||||||||||
|
Gross
profit
|
$ | 442.4 | 21.1 | % | $ | 341.0 | 21.0 | % | 29.7 | % | ||||||||||
|
SG&A
|
$ | 196.7 | 9.4 | % | $ | 151.0 | 9.3 | % | 30.3 | % | ||||||||||
|
Income
from operations
|
$ | 245.7 | 11.7 | % | $ | 190.0 | 11.7 | % | 29.3 | % | ||||||||||
Net sales
in the MPM segment increased $467.1 million over the comparable period in
2006. Approximately $247 million of the increase was due to continued
solid demand for our products, particularly large mining trucks, excavators and
crushing and screening products. This demand was driven by continued
high commodity prices combined with increased global mining operations, as well
as European and Indian demand for crushing and screening
products. Pricing actions improved our sales by approximately $36
million. Strong parts revenue also contributed approximately $64
million of the increase. Additionally, the favorable translation
effect of foreign currency exchange rate changes accounted for approximately 25%
of the net sales increase.
Gross
profit increased by $101.4 million in the year ended December 31, 2007 over the
comparable period in 2006. The increase was due to higher sales
volume, including increased parts sales, and product mix, which contributed
approximately $51 million, combined with the impact of prior pricing actions of
approximately $36 million, offset in part by approximately $5 million in higher
costs for material and component purchases and approximately $9 million in
higher warranty costs. As a percentage of sales, gross profit was
unfavorably impacted by a higher proportion of mining truck sales, which have
lower margin than other products in this category. Additionally, the
favorable translation effect of foreign currency exchange rate changes accounted
for approximately 29% of the increase.
SG&A
costs increased by $45.7 million relative to the comparable period in
2006. The increase in SG&A expense was due to approximately $4
million of additional staffing costs to support sales growth, engineering costs
of approximately $5 million for product development and supplier qualification
activity, approximately $7 million in legal costs associated with claims and
investigations, as well as an additional allocation of corporate costs of $11
million. Approximately $10 million of higher administration costs
were incurred in support of business growth. The unfavorable translation effect
of foreign currency exchange rate changes added approximately 23% of the
increase.
Income
from operations for the MPM segment increased $55.7 million over the comparable
period in 2006. The increase was a result of the items noted above,
particularly higher sales volume and the impact of pricing actions, partially
offset by higher SG&A costs associated with the segment’s
growth.
-48-
Roadbuilding,
Utility Products and Other
|
2007
|
2006
|
|||||||||||||||||||
|
%
of
Sales
|
%
of
Sales
|
%
Change In
Reported
Amounts
|
||||||||||||||||||
|
($
amounts in millions)
|
||||||||||||||||||||
|
Net
sales
|
$ | 675.8 | - | $ | 746.0 | - | (9.4 | )% | ||||||||||||
|
Gross
profit
|
$ | 91.1 | 13.5 | % | $ | 102.4 | 13.7 | % | (11.0 | )% | ||||||||||
|
SG&A
|
$ | 91.8 | 13.6 | % | $ | 77.2 | 10.3 | % | 18.9 | % | ||||||||||
|
(Loss)
income from operations
|
$ | (0.7 | ) | (0.1 | )% | $ | 25.2 | 3.4 | % | (102.8 | )% | |||||||||
Net sales
for the RBUO segment for the year ended December 31, 2007 decreased $70.2
million when compared to the same period in 2006. The decrease in net
sales was primarily due to lower demand for concrete mixer trucks and other
concrete products of approximately $83 million resulting from the downturn in
North American residential construction markets, offset partially by improved
sales penetration in Latin America of approximately $18 million. Our
utility products also experienced lower sales volume of approximately $28
million, offset by an improved product mix and pricing increases that totaled
approximately $19 million and additional improvement of approximately $5 million
from used equipment, rental and parts sales.
Gross
profit for the year ended December 31, 2007 decreased $11.3 million when
compared to the same period in 2006. This decrease was directly
correlated with the impact of lower sales volume in concrete products that
affected gross profit by approximately $10 million, offset by approximately $5
million due to the impact of increased Latin American sales in our roadbuilding
business. Lower sales volume and product mix in our utilities
business affected gross profit by approximately $9 million, offset by
approximately $6 million due to the impact of used equipment and parts sales as
well as improvements in other cost of sales.
SG&A
costs for the year ended December 31, 2007 increased $14.6 million over the
comparable period in 2006. The increase was due to approximately $4
million in higher corporate charges to the segment and approximately $2 million
of increased selling costs incurred to expand opportunities in undeveloped
territories. We incurred write-downs of approximately $6 million
primarily related to one defaulting customer of our re-rental business that was
wound down.
Income
from operations for the RBUO segment for the year ended December 31, 2007
decreased $25.9 million when compared to the same period in 2006. The
decrease reflects the items noted above, particularly lower concrete mixer truck
volume combined with higher SG&A costs.
Corporate/Eliminations
|
2007
|
2006
|
|||||||||||||||||||
|
%
of
Sales
|
%
of
Sales
|
%
Change In
Reported
Amounts
|
||||||||||||||||||
|
($
amounts in millions)
|
||||||||||||||||||||
|
Net
sales
|
$ | (111.4 | ) | - | $ | (136.2 | ) | - | 18.2 | % | ||||||||||
|
Loss
from operations
|
$ | (49.5 | ) | 44.4 | % | $ | (48.8 | ) | 35.8 | % | (1.4 | )% | ||||||||
Our
consolidated results include the elimination of intercompany sales activity
among segments. Corporate costs before allocations to the business
segments increased, as we continued to invest in Company-wide initiatives,
including supply management, manufacturing strategy, the Terex Management
System, marketing, and TBS. These initiatives, coupled with
infrastructure investments to handle growth in developing markets, contributed
to approximately $49 million of costs incurred in the current
year. These charges were partially offset by an increase of
approximately $48 million in corporate costs allocated to the business segments
in 2007 versus the prior year.
Interest
Expense, Net of Interest Income
During
the year ended December 31, 2007, our interest expense net of interest income
was $46.7 million, or $28.5 million lower than the same period in the prior
year. This decrease was primarily due to lower average borrowings
outstanding during the year, resulting in lower interest expense, combined with
higher average cash balances yielding higher interest income.
-49-
Loss
on Early Extinguishment of Debt
We
recorded a pre-tax charge on early extinguishment of debt of $12.5 million in
the year ended December 31, 2007, which included a $9.3 million expense
associated with the call premium for the repayment of $200 million of
outstanding debt on January 15, 2007 and $3.2 million of amortization of debt
acquisition costs accelerated because of this debt repayment.
During
the year ended December 31, 2006, we recorded a charge on early extinguishment
of debt of $23.3 million, including a $15.6 million expense associated with the
call premiums for the repayment of $300 million of outstanding debt in June and
August 2006. In addition, we recorded $7.7 million of amortization of
debt acquisition costs accelerated because of this debt repayment and the
replacement of our previous credit facility.
Other
Income (Expense) – Net
Other
income (expense) – net for the year ended December 31, 2007 was income of $17.1
million, an increase of $13.4 million when compared to the same period in the
prior year, primarily due to an increase of approximately $11 million in foreign
exchange translation gains in 2007.
Income
Taxes
During
the year ended December 31, 2007, we recognized income tax expense of $305.4
million on income from continuing operations before income taxes of $919.3
million, an effective rate of 33.2%, as compared to income tax expense of $218.2
million on income from continuing operations before income taxes of $614.7
million, an effective rate of 35.5%, in the prior year. The effective
tax rate for 2007 was lower than in the prior year, primarily due to incremental
manufacturing and export incentives of $9.6 million and the completion of the
worldwide accrual to income tax return reconciliation, which revised and further
validated our income tax balances and included an immaterial out of period
adjustment of $10.9 million.
CRITICAL
ACCOUNTING POLICIES
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Changes in the estimates and assumptions used by management could have
significant impact on our financial results. Actual results could differ from
those estimates.
We
believe that the following are among our most significant accounting polices
which are important in determining the reporting of transactions and events and
which utilize estimates about the effect of matters that are inherently
uncertain and therefore are based on management judgment. Please refer to Note A
- “Basis of Presentation” in the accompanying Consolidated Financial Statements
for a complete listing of our accounting policies.
Inventories - Inventories are
stated at the lower of cost or market (“LCM”) value. Cost is
determined principally by the first-in, first-out (“FIFO”) method and the
average cost method (approximately 45% and 55%, respectively). In
valuing inventory, we are required to make assumptions regarding the level of
reserves required to value potentially obsolete or over-valued items at the
lower of cost or market. The valuation of used equipment taken in trade from
customers requires us to use the best information available to determine the
value of the equipment to potential customers. This value is subject to change
based on numerous conditions. Inventory reserves are established taking into
account age, frequency of use, or sale, and in the case of repair parts, the
installed base of machines. While calculations are made involving
these factors, significant management judgment regarding expectations for future
events is involved. Future events that could significantly influence
our judgment and related estimates include general economic conditions in
markets where our products are sold, new equipment price fluctuations,
competitive actions, including the introduction of new products and
technological advances, as well as new products and design changes we
introduce. At December 31, 2008, reserves for LCM, excess and
obsolete inventory totaled $121.0 million.
Accounts
Receivable - We
are required to judge our ability to collect accounts receivable from our
customers. Valuation of receivables includes evaluating customer payment
histories, customer leverage, availability of third party financing, political
and exchange risks and other factors. Many of these factors,
including the assessment of a customer’s ability to pay, are influenced by
economic and market factors that cannot be predicted with
certainty. At December 31, 2008, reserves for potentially
uncollectible accounts receivable totaled $62.8 million. Given
current economic conditions, there can be no assurance that our historical
accounts receivable collection experience will be indicative of future
results.
-50-
Guarantees - We have issued
guarantees to financial institutions of customer financing to purchase equipment
as of December 31, 2008. We must assess the probability of losses or
non-performance in ways similar to the evaluation of accounts receivable,
including consideration of a customer’s payment history, leverage, availability
of third party financing, political and exchange risks and other
factors. Many of these factors, including the assessment of a
customer’s ability to pay, are influenced by economic and market factors that
cannot be predicted with certainty. To date, losses related to
guarantees have been negligible.
Our
customers, from time to time, may fund acquisition of our equipment through
third-party finance companies. In certain instances, we may provide a credit
guarantee to the finance company, by which we agree to make payments to the
finance company should the customer default. Our maximum liability is limited to
the remaining payments due to the finance company at the time of default. In the
event of customer default, we have generally been able to recover and dispose of
the equipment at a minimum loss, if any, to us.
As of
December 31, 2008, our maximum exposure to such credit guarantees was $238.3
million, including total guarantees issued by Terex Demag GmbH, part of the
Cranes segment, and Genie Holdings, Inc. and its affiliates (“Genie”), part of
the Aerial Work Platforms segment, of $156.1 million and $46.1 million,
respectively. The terms of these guarantees coincide with the financing arranged
by the customer and generally do not exceed five years. Given our position as
the original equipment manufacturer and our knowledge of end markets, when
called upon to fulfill a guarantee, we have generally been able to liquidate the
financed equipment at a minimal loss, if any.
Given
current economic conditions, there can be no assurance that our historical
credit default experience will be indicative of future results. Our ability to
recover losses experienced from our guarantees may be affected by economic
conditions in effect at the time of loss.
We issue
residual value guarantees under sales-type leases. A residual value guarantee
involves a guarantee that a piece of equipment will have a minimum fair market
value at a future point in time. As described in Note T - “Litigations and
Contingencies” in the Notes to the Consolidated Financial Statements, our
maximum exposure related to residual value guarantees under sales-type leases
was $35.1 million at December 31, 2008. We are able to mitigate the risk
associated with these guarantees because the maturity of the guarantees is
staggered, which limits the amount of used equipment entering the marketplace at
any one time.
We
guarantee, from time to time, that we will buy equipment from our customers in
the future at a stated price if certain conditions are met by the
customer. Such guarantees are referred to as buyback
guarantees. These conditions generally pertain to the functionality
and state of repair of the machine. As of December 31, 2008, our maximum
exposure pursuant to buyback guarantees was $145.7 million, including total
guarantees issued by Genie, of $140.4 million. We are able to mitigate the risk
of these guarantees by staggering the timing of the buybacks and through
leveraging our access to the used equipment markets provided by our original
equipment manufacturer status.
We record
a liability for the estimated fair value of guarantees issued pursuant to
Financial Accounting Standards Board (“FASB”) Interpretation (“FIN”) No. 45,
“Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, an interpretation of Statement of
Financial Accounting Standards Nos. 5, 57 and 107 and rescission of FIN 34”
(“FIN No. 45”). We recognize a loss under a guarantee when our obligation to
make payment under the guarantee is probable and the amount of the loss can be
estimated. A loss would be recognized if our payment obligation under
the guarantee exceeds the value we can expect to recover to offset such payment,
primarily through the sale of the equipment underlying the
guarantee.
We have
recorded an aggregate liability within Other current liabilities and Retirement
plans and other in the Consolidated Balance Sheet of approximately $19 million
for the estimated fair value of all guarantees provided as of December 31,
2008.
Given
current economic conditions, there can be no assurances that our historical
experience in used equipment markets will be indicative of future
results. Our ability to recover losses experienced from our
guarantees may be affected by economic conditions in the used equipment markets
at the time of loss.
Revenue
Recognition - Revenue and costs are generally recorded when products are
shipped and invoiced to either independently owned and operated dealers or to
customers.
Revenue
generated in the United States is recognized when title and risk of loss pass
from us to our customers, which occurs upon shipment when terms are FOB shipping
point (which is customary) and upon delivery when terms are FOB destination. We
also have a policy requiring that certain criteria be met in order to recognize
revenue, including satisfaction of the following requirements:
|
|
a)
|
Persuasive
evidence that an arrangement
exists;
|
|
|
b)
|
The
price to the buyer is fixed or
determinable;
|
|
|
c)
|
Collectibility
is reasonably assured; and
|
|
|
d)
|
We
have no significant obligations for future
performance.
|
-51-
In the
United States, we have the ability to enter into a security agreement and
receive a security interest in the product by filing an appropriate Uniform
Commercial Code (“UCC”) financing statement. However, a significant portion of
our revenue is generated outside of the United States. In many
countries outside of the United States, as a matter of statutory law, a seller
retains title to a product until payment is made. The laws do not
provide for a seller’s retention of a security interest in goods in the same
manner as established in the UCC. In these countries, we retain title to goods
delivered to a customer until the customer makes payment so that we can recover
the goods in the event of customer default on payment. In these circumstances,
where we only retain title to secure our recovery in the event of customer
default, we also have a policy, which requires meeting certain criteria in order
to recognize revenue, including satisfaction of the following
requirements:
|
|
a)
|
Persuasive
evidence that an arrangement
exists;
|
|
|
b)
|
Delivery
has occurred or services have been
rendered;
|
|
|
c)
|
The
price to the buyer is fixed or
determinable;
|
|
|
d)
|
Collectibility
is reasonably assured;
|
|
|
e)
|
We
have no significant obligations for future performance;
and
|
|
|
f)
|
We
are not entitled to direct the disposition of the goods, cannot rescind
the transaction, cannot prohibit the customer from moving, selling, or
otherwise using the goods in the ordinary course of business and have no
other rights of holding title that rest with a titleholder of property
that is subject to a lien under the
UCC.
|
In
circumstances where the sales transaction requires acceptance by the customer
for items such as testing on site, installation, trial period or performance
criteria, revenue is not recognized unless the following criteria have been
met:
|
|
a)
|
Persuasive
evidence that an arrangement
exists;
|
|
|
b)
|
Delivery
has occurred or services have been
rendered;
|
|
|
c)
|
The
price to the buyer is fixed or
determinable;
|
|
|
d)
|
Collectibility
is reasonably assured; and
|
|
|
e)
|
The
customer has given their acceptance, the time period for acceptance has
elapsed or we have otherwise objectively demonstrated that the criteria
specified in the acceptance provisions have been
satisfied.
|
In
addition to performance commitments, we analyze factors such as the reason for
the purchase to determine if revenue should be recognized. This
analysis is done before the product is shipped and includes the evaluation of
factors that may affect the conclusion related to the revenue recognition
criteria as follows:
|
|
a)
|
Persuasive
evidence that an arrangement
exists;
|
|
|
b)
|
Delivery
has occurred or services have been
rendered;
|
|
|
c)
|
The
price to the buyer is fixed or determinable;
and
|
|
|
d)
|
Collectibility
is reasonably assured.
|
Revenue
from sales-type leases is recognized at the inception of the
lease. Income from operating leases is recognized ratably over the
term of the lease. We routinely sell equipment subject to operating
leases and the related lease payments. If we do not retain a
substantial risk of ownership in the equipment, the transaction is recorded as a
sale. If we do retain a substantial risk of ownership, the
transaction is recorded as a borrowing, the operating lease payments are
recognized as revenue over the term of the lease and the debt is amortized over
a similar period.
We, from
time to time, issue buyback guarantees in conjunction with certain sales
agreements. These primarily relate to trade value agreements (“TVAs”)
in which a customer may trade-in equipment in the future at a stated
price/credit, if certain conditions are met by the customer. The
trade in price/credit is determined at the time of the original sale of
equipment. In conjunction with the trade-in, these conditions include
a requirement to purchase new equipment at fair market value at the time of
trade-in, which fair value is required to be of equal or greater value than the
original equipment cost. Other conditions also include the general
functionality and state of repair of the machine. We have concluded
that any credit provided to customers under a TVA/buyback guarantee, which is
expected to be equal to or less than the fair value of the equipment returned on
the trade-in date, is a guarantee to be accounted for in accordance with FIN No.
45.
The
original sale of equipment, accompanied by a buyback guarantee, is a multiple
element transaction wherein we offer our customer the right, after some period
of time, for a limited period of time, to exchange purchased equipment for a
fixed price trade-in credit toward another of our products. The fixed
price trade-in credit is accounted for under the guidance provided by FIN No.
45. Pursuant to this right, we have agreed to make a payment (in the form of a
trade-in credit) to the customer contingent upon the customer exercising its
right to trade-in the original purchased equipment. Under the guidance of FIN
No. 45, we record the fixed price trade-in credit at its fair
value. Accordingly, as noted above, we have accounted for the
trade-in credit as a separate deliverable in a multiple element
arrangement.
-52-
Goodwill -
Goodwill, representing the difference between the total purchase price and the
fair value of assets (tangible and intangible) and liabilities at the date of
acquisition, is reviewed for impairment annually, and more frequently as
circumstances warrant, and written down only in the period in which the recorded
value of such assets exceed their fair value. We do not amortize
goodwill, in accordance with FASB Statement of Financial Accounting Standards
(“SFAS”) No. 142 “Goodwill and Other Intangible Assets.” We selected
October 1 as the date for our required annual impairment test.
Goodwill
is tested for impairment at the reporting unit level, which is defined as an
operating segment or a component of an operating segment that constitutes a
business for which discrete financial information with similar economic
characteristics is available and the operating results are regularly reviewed by
our management. Our seven reporting units are contained within the five
operating segments. Our MPM and RBUO segments each include two reporting units
for goodwill impairment testing purposes.
The
goodwill impairment analysis is a two-step process. The first step used to
identify potential impairment involves comparing each reporting unit’s estimated
fair value to its carrying value, including goodwill. We use an income approach
derived from the discounted cash flow model to estimate the fair value of our
reporting units. The aggregate fair value of our reporting units is
compared to our market capitalization on the valuation date to assess its
reasonableness. The initial recognition of goodwill, as well as the annual
review of the carrying value of goodwill, requires that we develop estimates of
future business performance. These estimates are used to derive expected cash
flow and include assumptions regarding future sales levels, the impact of cost
reduction programs, and the level of working capital needed to support a given
business. We rely on data developed by business segment management as well as
macroeconomic data in making these calculations. The discounted cash flow model
also includes a determination of our weighted average cost of capital. The cost
of capital is based on assumptions about interest rates as well as a
risk-adjusted rate of return required by our equity investors. Changes in these
estimates can impact the present value of the expected cash flow that is used in
determining the fair value of acquired intangible assets as well as the overall
expected value of a given business.
The
second step of the process involves the calculation of an implied fair value of
goodwill for each reporting unit for which step one indicated impairment. The
implied fair value of goodwill is determined by measuring the excess of the
estimated fair value of the reporting unit over the estimated fair values of the
individual assets, liabilities and identifiable intangibles as if the reporting
unit was being acquired in a business combination. If the implied fair value of
goodwill exceeds the carrying value of goodwill assigned to the reporting unit,
there is no impairment. If the carrying value of goodwill assigned to a
reporting unit exceeds the implied fair value of the goodwill, an impairment
charge is recorded for the excess. An impairment loss cannot exceed the carrying
value of goodwill assigned to a reporting unit and subsequent reversal of
goodwill impairment losses is not permitted.
There
were no indicators of goodwill impairment in the tests performed as of October
1, 2007 and 2006. As a result of our annual impairment test in the
fourth quarter of 2008, our Construction and RBUO segments recorded non-cash
charges of $459.9 million to reflect impairment of goodwill in these reporting
units, which represented all of the goodwill recorded in the Construction and
RBUO segments. See Note L – “Goodwill” in the Notes to the
Consolidated Financial Statements. In order to evaluate the
sensitivity of the fair value calculations on the goodwill impairment
test, the Company applied a hypothetical 10% decrease to the fair values of each
reporting unit. This hypothetical 10% decrease would result in excess fair value
over carrying value for the remaining reporting units not impaired as of
December 31, 2008.
Impairment of
Long Lived Assets - Our policy is to assess the realizability of our
long-lived assets, including intangible assets, and to evaluate such assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of such assets (or group of assets) may not be
recoverable. Impairment is determined to exist if the estimated
future undiscounted cash flows are less than the asset’s carrying
value. Future cash flow projections include assumptions regarding
future sales levels, the impact of cost reduction programs, and the level of
working capital needed to support each business. We rely on data developed by
business segment management as well as macroeconomic data in making these
calculations. There are no assurances that future cash flow assumptions will be
achieved. The amount of any impairment then recognized would be
calculated as the difference between the estimated fair value and the carrying
value of the asset. Due to adverse market conditions and the lower
expectations for growth and profitability in the Construction and RBUO segments,
we performed an evaluation of our long-lived assets as of December 31,
2008. We did not have any impairment for the years ended December 31,
2008, 2007 and 2006.
Accrued
Warranties - We record accruals for unasserted warranty claims based on
our prior claim experience. Warranty costs are accrued at the time revenue is
recognized. However, adjustments to the initial warranty accrual are
recorded if actual claim experience indicates that adjustments are
necessary. These warranty costs are based upon management’s
assessment of past claims and current experience. However, actual
claims could be higher or lower than amounts estimated, as the amount and value
of warranty claims are subject to variation as a result of many factors that
cannot be predicted with certainty, including the performance of new products,
models and technology, changes in weather conditions for product operation,
different uses for products and other similar factors.
-53-
Accrued Product
Liability - We
record accruals for product liability claims when deemed probable and estimable
based on facts and circumstances, and our prior claim
experience. Accruals for product liability claims are valued based
upon our prior claims experience, including consideration of the jurisdiction,
circumstances of the accident, type of loss or injury, identity of plaintiff,
other potential responsible parties, analysis of outside legal counsel, analysis
of internal product liability counsel and the experience of our director of
product safety. Actual product liability costs could be different due
to a number of variables such as the decisions of juries or judges.
Defined Benefit
Plans - Pension benefits represent financial obligations that will be
ultimately settled in the future with employees who meet eligibility
requirements. As of December 31, 2008, we maintained one qualified
defined benefit pension plan and one nonqualified plan covering certain U.S.
employees. The benefits covering salaried employees are based
primarily on years of service and employees’ qualifying compensation during the
final years of employment. The benefits covering bargaining unit
employees are based primarily on years of service and a flat dollar amount per
year of service. Participation in the qualified plan is frozen and
participants are only credited with post-freeze service for purposes of
determining vesting and retirement eligibility. It is our policy,
generally, to fund the qualified U.S. plan based on the minimum requirements of
the Employee Retirement Income Security Act of 1974. The nonqualified
plan provides retirement benefits to certain senior executives of the Company
and is unfunded. Generally, the nonqualified plan provides a benefit based on
average total compensation earned over a participant’s final five years of
employment and years of service reduced by benefits earned under any Company
retirement program excluding salary deferrals and matching contributions.
Participation in the nonqualified plan was frozen effective December 31, 2008;
however, eligible participants are credited with post-freeze service for
purposes of determining vesting and the amount of benefits. We maintain defined
benefit plans in Germany, France, China, India and the United Kingdom for some
of our subsidiaries. The plans in Germany, France, India and China are unfunded
plans. Plan assets consist primarily of common stocks, bonds, and
short-term cash equivalent funds. For the U.S. plans, approximately
41% of the assets are in equity securities and 59% are in fixed income
securities. For the U.K. funded plans, approximately 39% of the
assets are in equity securities, 58% are in fixed income securities and 3% in
real estate. This allocation is reviewed periodically and updated to
meet the long-term goals of the plan.
Determination
of defined benefit pension and postretirement plan obligations and their
associated expenses requires the use of actuarial valuations to estimate the
benefits that employees earn while working, as well as the present value of
those benefits. We use the services of independent actuaries to assist with
these calculations. Inherent in these valuations are economic
assumptions including expected returns on plan assets, discount rates at which
liabilities may be settled, rates of increase of health care costs, rates of
future compensation increases as well as employee demographic assumptions such
as retirement patterns, mortality and turnover. The actuarial assumptions used
may differ materially from actual results due to changing market and economic
conditions, higher or lower turnover rates or longer or shorter life spans of
participants. Actual results that differ from the actuarial assumptions used are
recorded as unrecognized gains and losses. Unrecognized gains and
losses that exceed 10 percent of the greater of the plan's projected benefit
obligations or the market-related value of assets are amortized to earnings over
the shorter of the estimated future service period of the plan participants or
the period until any anticipated final plan settlements. The assumptions used in
the actuarial models are evaluated periodically and are updated to reflect
experience. We believe the assumptions used in the actuarial
calculations are reasonable and are within accepted practices in each of the
respective geographic locations in which we operate.
Expected
long-term rates of return on pension plan assets were 8.00% for the U.S. plan
and 6.00% for the U.K. plans at December 31, 2008. Our strategy with
regard to the investments in the pension plans is to earn a rate of return
sufficient to match or exceed the long-term growth of pension
liabilities. The expected rate of return of plan assets represents an
estimate of long-term returns on the investment portfolio. These
rates are determined annually by management based on a weighted average of
current and historical market trends, historical portfolio performance and the
portfolio mix of investments. The expected long-term rate of return
on plan assets at December 31 is used to measure the earnings effects for
the subsequent year. The difference between the expected return and
the actual return on plan assets affects the calculated value of plan assets
and, ultimately, future pension expense (income).
The
discount rates for pension plan liabilities were 6.25% for U.S. plans and 5.00%
to 9.50% for international plans at December 31, 2008. The discount
rate enables us to estimate the present value of expected future cash flows on
the measurement date. The rate used reflects a rate of return on high-quality
fixed income investments that match the duration of expected benefit payments at
the December 31 measurement date. The discount rate at December 31 is
used to measure the year-end benefit obligations and the earnings effects on the
subsequent year. A higher discount rate decreases the present value
of benefit obligations and increases pension expense.
The
expected rates of compensation increase for our international pension plans were
2.00% to 10.00% at December 31, 2008. These estimated annual compensation
increases are determined by management every year and are based on historical
trends and market indices.
-54-
We have
recorded the underfunded status on our balance sheet as a liability and the
unrecognized prior service costs and actuarial gains/losses as a reduction in
Stockholders’ Equity on the Consolidated Balance Sheet. The change in
assumptions from the previous year, primarily increases in the discount rate,
resulted in a net decrease in the projected benefit obligation of $29.4
million.
Actual
results in any given year will often differ from actuarial assumptions because
of demographic, economic and other factors. The market value of plan
assets can change significantly in a relatively short period of
time. Additionally, the measurement of plan benefit obligations is
sensitive to changes in interest rates. As a result, if the equity market
declines and/or interest rates decrease, the plans’ estimated benefit
obligations could increase, causing an increase in liabilities and a reduction
in Stockholders’ Equity.
We expect
that any future obligations under our plans that are not currently funded will
be funded from future cash flows from operations. If our
contributions are insufficient to adequately fund the plans to cover our future
obligations, or if the performance of the assets in our plans does not meet
expectations, or if our assumptions are modified, contributions could be higher
than expected, which would reduce the cash available for our
business. Changes in U.S. or foreign laws governing these plans could
require additional contributions. In addition, changes in generally accepted
accounting principles in the United States could require the recording of
additional liabilities and costs related to these plans.
The
assumptions used in computing our net pension expense and projected benefit
obligation have a significant effect on the amounts reported. A 0.25% change in
each of the assumptions below would have the following effects upon net pension
expense and projected benefit obligation, respectively, as of and for the year
ended December 31, 2008:
|
Increase
|
Decrease
|
|||||||||||||||
|
Discount
Rate
|
Expected
long-
term
rate of return
|
Discount
Rate
|
Expected
long-
term
rate of return
|
|||||||||||||
|
($
amounts in millions)
|
||||||||||||||||
|
U.
S. Plans:
|
||||||||||||||||
|
Net
pension expense
|
$ | 0.2 | $ | (0.3 | ) | $ | (0.2 | ) | $ | 0.3 | ||||||
|
Projected
benefit obligation
|
$ | (3.9 | ) | $ | — | $ | 4.1 | $ | — | |||||||
|
Foreign
Plans:
|
||||||||||||||||
|
Net
pension expense
|
$ | 0.3 | $ | (0.2 | ) | $ | (0.3 | ) | $ | 0.2 | ||||||
|
Projected
benefit obligation
|
$ | (9.7 | ) | $ | — | $ | 11.1 | $ | — | |||||||
Income
Taxes - We estimate income taxes based on enacted tax laws in the various
jurisdictions where we conduct business. We recognize deferred income tax assets
and liabilities, which represent future tax benefits or obligations of the
Company. These deferred income tax balances arise from temporary differences due
to divergent treatment of certain items for accounting and income tax
purposes.
We
evaluate deferred tax assets each period to ensure that estimated future taxable
income will be sufficient in character, amount and timing to result in the use
of our deferred tax assets. “Character” refers to the type (capital gain vs.
ordinary income) as well as the source (foreign vs. domestic) of the income we
generate. “Timing” refers to the period in which future income is expected to be
generated. Timing is important because net operating losses (“NOLs”)
in certain jurisdictions expire if not used within an established statutory time
frame. Based on these evaluations, we have determined that it is more
likely than not that expected future earnings will be sufficient to use most of
our deferred tax assets.
We do not
provide for U.S. federal income taxes or tax benefits on the undistributed
earnings or losses of our international subsidiaries because such earnings are
reinvested and, in our opinion, will continue to be reinvested
indefinitely. If earnings of foreign subsidiaries were not considered
indefinitely reinvested, deferred U.S. income taxes and foreign withholding
taxes may have to be provided. However, determination of the amount
of deferred federal and foreign income taxes is not practical.
Judgments
and estimates are required to determine tax expense and deferred tax valuation
allowances and in assessing exposures related to tax matters. Tax
returns are subject to audit and local taxing authorities could challenge
tax-filing positions we take. Our practice is to file income tax
returns that conform to the requirements of each jurisdiction and to record
provisions for tax liabilities, including interest and penalties in accordance
with FIN No. 48, “Accounting for Uncertainty in Income Taxes—an interpretation
of FASB Statement No. 109” (“FIN No. 48”). As our business
has grown in geographic scope, size and complexity, so has our potential
exposure to uncertain tax positions. Given the subjective nature of
applicable tax law, the results of an audit of any tax return could have a
significant impact on our financial statements.
-55-
RECENT
ACCOUNTING PRONOUNCEMENTS
In
September 2006, the FASB issued Statement of Financial Accounting Standard
(“SFAS”) No. 157, “Fair Value Measurements” (“SFAS No. 157”), which is
effective for fiscal years beginning after November 15, 2007 and for
interim periods within those years. This statement defines fair value,
establishes a framework for measuring fair value and expands the related
disclosure requirements. This statement applies under other accounting
pronouncements that require or permit fair value measurements. The
statement indicates, among other things, that a fair value measurement assumes
that the transaction to sell an asset or transfer a liability occurs in the
principal market for the asset or liability or, in the absence of a principal
market, the most advantageous market for the asset or liability. SFAS No. 157
defines fair value based upon an exit price model. In February 2008, the
FASB issued FASB Staff Positions (“FSP”) No. 157-1, “Application of FASB
Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements
That Address Fair Value Measurements for Purposes of Lease Classification or
Measurement under Statement 13” and FSP No. 157-2, “Effective Date of FASB
Statement No. 157.” FSP No. 157-1 amends SFAS No. 157 to exclude SFAS
No. 13, “Accounting for Leases” and its related interpretive accounting
pronouncements that address leasing transactions, while FSP No. 157-2 delays the
effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial
liabilities, except those that are recognized or disclosed at fair value in the
financial statements on a recurring basis (at least annually) until the
beginning of the first quarter of 2009. Effective January 1, 2009, the provisions of
SFAS No. 157 were applied to non-financial assets and non-financial
liabilities. The adoption of SFAS No. 157 did not have a significant
impact on the determination or reporting of our financial results.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities – Including an amendment of FASB
Statement No. 115,” which is effective for fiscal years beginning after
November 15, 2007. This statement permits entities to choose to
measure many financial instruments and certain other items at fair
value. This statement also establishes presentation and disclosure
requirements designed to facilitate comparisons between entities that choose
different measurement attributes for similar types of assets and
liabilities. Unrealized gains and losses on items for which the fair
value option is elected would be reported in earnings. We have not
elected to apply this provision to our existing financial instruments as of
December 31, 2008.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations” (“SFAS No. 141R”), which replaces SFAS No. 141, “Business
Combinations” (“SFAS No. 141”). SFAS No. 141R retains the underlying
concepts of SFAS No. 141 in that all business combinations are still required to
be accounted for at fair value under the acquisition method of accounting, but
SFAS No. 141R changes the application of the acquisition method in a number of
significant aspects. Acquisition costs will generally be expensed as
incurred; noncontrolling interests will be valued at fair value at the
acquisition date; in-process research and development will be recorded at fair
value as an indefinite-lived intangible asset at the acquisition date;
restructuring costs associated with a business combination will generally be
expensed subsequent to the acquisition date; and changes in deferred tax asset
valuation allowances and income tax uncertainties after the acquisition date
generally will affect income tax expense. SFAS No. 141R is effective
on a prospective basis for all business combinations for which the acquisition
date is on or after the beginning of the first annual period subsequent to
December 15, 2008. Early adoption was prohibited. The
effects of SFAS No. 141R will depend on future acquisitions.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51” (“SFAS No.
160”). This statement is effective for fiscal years, and interim periods within
those fiscal years, beginning on or after December 15, 2008, with earlier
adoption prohibited. This statement requires the recognition of a
noncontrolling interest (minority interest) as equity in the consolidated
financial statements and separate from the parent’s equity. The
amount of net income attributable to the noncontrolling interest will be
included in consolidated net income on the face of the income
statement. It also amends certain of ARB No. 51’s consolidation
procedures for consistency with the requirements of SFAS No.
141R. This statement also includes expanded disclosure requirements
regarding the interests of the parent and its noncontrolling
interest. We have evaluated the new statement and have determined
that it will not have a significant impact on the determination or reporting of
our financial results.
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities – an amendment of FASB Statement No. 133” (“SFAS No.
161”). This statement is effective for fiscal years, and interim
periods within those fiscal years, beginning after November 15, 2008, with
early application encouraged. SFAS No. 161 is intended to improve
financial reporting by requiring transparency about the nature, purpose,
location and amounts of derivative instruments in an entity’s financial
statements; how derivative instruments and related hedged items are accounted
for under SFAS No. 133, “Accounting for Derivative Instruments and Hedging
Activities;” and how derivative instruments and related hedged items affect its
financial position, financial performance and cash flows. We have
evaluated the new statement and have determined that it will not have a
significant impact on the determination or reporting of our financial
results.
-56-
In April
2008, the FASB issued FSP No. 142-3, “Determination of the Useful Life of
Intangible Assets” (“FSP No. 142-3”). FSP No. 142-3 amends the factors
that should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under SFAS No. 142,
“Goodwill and Other Intangible Assets.” FSP No. 142-3 is effective on a
prospective basis to all intangible assets acquired and for disclosures on all
intangible assets recognized on or after the beginning of the first annual
period subsequent to December 15, 2008. Early adoption is
prohibited. We have evaluated the new statement and have determined that
it will not have a significant impact on the determination or reporting of our
financial results.
In
May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally
Accepted Accounting Principles” (“SFAS No. 162”). SFAS No. 162
identifies a consistent framework, or hierarchy, for selecting accounting
principles to be used in preparing financial statements that are presented in
conformity with U.S. generally accepted accounting principles for
nongovernmental entities (the “Hierarchy”). The Hierarchy within SFAS
No. 162 is similar to the definition in the American Institute of Certified
Public Accountants Statement on Auditing Standards No. 69, “The Meaning of
Present Fairly in Conformity With Generally Accepted Accounting Principles”
(“SAS No. 69”). SFAS No. 162 was effective 60 days following the SEC
approval of the Public Company Accounting Oversight Board amendments to AU
Section 411, “The Meaning of Present Fairly in Conformity With Generally
Accepted Accounting Principles,” which occurred in September
2008. The adoption of SFAS No. 162 did not have a material effect on
our financial statements.
In
December 2008, the FASB issued FSP No. FAS 132(R)-1, “Employers’
Disclosures about Postretirement Benefit Plan Assets” (“FSP FAS No.
132(R)-1”). FSP FAS No. 132(R)-1 amends SFAS No. 132 (revised
2003), Employers’ Disclosures about Pensions and Other Postretirement Benefits,”
to provide guidance on an employer’s disclosures about plan assets of a defined
benefit pension or other postretirement plan. FSP FAS No.
132(R)-1 requires additional disclosure on benefit plan investment allocation
decision making process, the fair value of each major category of plan assets,
the valuation techniques used to measure fair value of the plan assets and any
significant concentrations of risk within plan assets. This FSP is
effective for fiscal years ending after December 15, 2009, with early
application permitted. We do not expect that FSP FAS No.
132(R)-1 will have a significant impact on the determination or reporting of our
financial results.
LIQUIDITY
AND CAPITAL RESOURCES
Our main
sources of funding are cash generated from operations, loans from our bank
credit facility and funds raised in capital markets. We believe that
cash generated from our operations, together with access to our bank credit
facility and our cash on hand, provide adequate liquidity to meet our operating
and debt service requirements. We had cash and cash equivalents of
$484.4 million at December 31, 2008. In addition, we had $582.8 million
available for borrowing under our revolving credit facility at December 31,
2008. We have no significant debt maturities until 2012; however, we
have increased our focus on internal cash flow generation in a time when access
to external capital markets is less certain. Our actions include
reducing costs and working capital and suspending our share repurchase program
in an effort to maintain liquidity in view of current conditions in the economy
and credit markets. We believe these measures, in conjunction with
our actions to delay certain capital spending projects, will provide us with
sufficient liquidity to execute our key business plans and comply with our
financial covenants under our bank credit facility. However, if we
were unable to comply with these covenants, there would be a default under our
bank credit facility and, if such default was not waived by our lenders, this
could result in acceleration of the amounts owed under the bank credit
facility. In such event, we would have to repay or refinance such
debt. At December 31, 2008, we had sufficient cash to pay such debt;
however, such payment would have a significant adverse impact on our
liquidity. If we were unable to repay or refinance such debt, this
could possibly result in acceleration of the payment obligation for our other
long-term debt.
-57-
In 2009,
we will be managing our business even more aggressively than normal for
cash. Most of our businesses are experiencing continued reductions in
incoming orders, with orders in backlog being cancelled or
deferred. We are intensely focused in each of our businesses in
managing our sales, inventory and operations planning process to quickly adjust
our production rate and material ordering in line with this rapidly changing
market. Generating cash from operations depends primarily on our
ability to earn net income through sales of our products and manage our
investment in working capital. We continue to focus on collecting
receivables in a timely manner. Consistent with past practice, each
quarter we sell receivables to various third party financial institutions
through several pre-arranged facilities. During the fourth quarter of
2008 and 2007, we sold, without recourse, accounts receivable approximating 10%
and 9% of our fourth quarter revenue, respectively, to provide additional
liquidity. The discontinuance of these facilities could reduce our
liquidity.
Even
though inventory levels have risen, we remain focused on increasing inventory
turns by sharing, throughout our Company, many of the best practices and lean
manufacturing processes that several of our business units have implemented
successfully. Despite high current levels of inventory, substantial
effort has gone into reviewing and improving our materials planning and
forecasting methods. We expect these initiatives to reduce the level
of inventory needed to support our business and allow us to reduce our
manufacturing lead times, thereby reducing our working capital
requirements.
We are
currently adjusting production and incoming material levels as appropriate to
reflect slowing end market demand for our products. Actions have been
taken to slow, and in some cases stop, production in response to declining
demand. We believe adjusting production levels and curtailing
incoming material in our aerial work platforms, construction and materials
processing businesses will reduce inventory levels further, and we will
carefully manage incoming material in the cranes and mining businesses as well
to match the demand expectations of these businesses. However, in
these uncertain economic times, we will remain vigilant of our inventory levels
and are prepared to take additional actions if the above actions do not result
in a reduction in our inventory.
Our
ability to generate cash from operations is subject to numerous factors,
including the following:
|
·
|
Many
of our customers fund their purchases through third party finance
companies that extend credit based on the credit worthiness of the
customers and the expected residual value of our
equipment. Changes either in the customers’ credit profile or
in used equipment values may impact the ability of customers to purchase
equipment. Given current economic conditions and the lack of
liquidity in the global credit markets, there can be no assurance that
third party finance companies will continue to extend credit to our
customers as they have in the past.
|
|
·
|
As
our sales levels change, the absolute amount of working capital needed to
support our business may change.
|
|
·
|
We
insure and sell a portion of our accounts receivable to third party
finance companies that are not obligated to purchase accounts receivable
from us, and may choose to limit or discontinue further purchases from us
at any time. Changes in customers’ credit worthiness, the
market for credit insurance or the willingness of third party finance
companies to purchase accounts receivable from us may impact our cash flow
from operations.
|
|
·
|
Our
suppliers extend payment terms to us based on our overall credit
rating. Declines in our credit rating may impact suppliers’
willingness to extend terms and in turn increase the cash requirements of
our business.
|
|
·
|
Sales
of our products are subject to general economic conditions, weather,
competition and the translation effect of foreign currency exchange rate
changes, and other factors that in many cases are outside our direct
control. For example, during periods of economic uncertainty,
our customers may delay purchasing decisions, which could have a negative
impact on cash generated from operations. Currently, the
financial markets are experiencing significant turbulence, and we expect
that this will continue to slow world economic growth over the near
term. While we believe the actions taken by governments and
central banks will eventually lead to an economic recovery, the depth and
duration of the economic decline and the timing and strength of the
recovery are very uncertain. Many of our customers have delayed
or cancelled orders and we anticipate that they may continue to delay
capital spending over the near
term.
|
We
negotiate, when possible, advance payments from our customers for products with
long lead times to help fund the substantial working capital investment in these
products.
In 2008,
we used cash from operations in the first quarter and generated cash from
operations in the rest of the year. We expect our cash flow
performance for 2009 to be heavily influenced by our ability to reduce working
capital, driven by efficiency improvements, easing of supplier constraints and
reductions of incoming materials and finished goods inventory.
To help
fund our significant cash expenditures during the year, we have maintained cash
balances and a revolving line of credit in addition to term borrowings from our
bank group. Our bank credit facility provides us with a revolving
line of credit of up to $700 million that is available through July 14, 2012 and
term debt of $200 million that will mature on July 14, 2013. The
revolving line of credit consists of $500 million of available domestic
revolving loans and $200 million of available multicurrency revolving
loans. The credit facility also provides for incremental loan
commitments of up to $300 million, which may be extended at the option of the
lenders, in the form of revolving credit loans, term loans or a combination of
both.
-58-
Although
we believe that the banks under our credit facility have adequate capital and
resources, we can provide no assurance that all of these banks will continue to
operate as a going concern in the future. If any of the banks in our lending
group were to fail, it is possible that the borrowing capacity under our credit
facility would be reduced. In the event that the availability under our credit
facility was reduced significantly, we could be required to obtain capital from
alternate sources in order to finance our capital needs.
Our bank
credit facility requires compliance with a number of covenants. These
covenants require us to meet certain financial tests, namely (a) to maintain a
consolidated leverage ratio not in excess of 3.75 to 1.00 on the last day of any
fiscal quarter, and (b) to maintain a consolidated fixed charge coverage ratio
of not less than 1.25 to 1.00 (excluding share repurchases made in 2008) for the
period of four consecutive fiscal quarters ending on March 31, 2009 and a
consolidated fixed charge coverage ratio of not less than 1.10 to 1.00
(excluding share repurchases made in 2008) for the period of four consecutive
fiscal quarters ending on June 30, 2009. The consolidated fixed
charge coverage ratio threshold lowers to 0.80 to 1.00 for any period of four
consecutive fiscal quarters ending between July 1, 2009 and March 31, 2010 and
increases to 1.25 to 1.00 for any period of four consecutive fiscal quarters
ending on or after April 1, 2010. The covenants also limit, in
certain circumstances, our ability to take a variety of actions,
including: incur indebtedness; create or maintain liens on our
property or assets; make investments, loans and advances; engage in
acquisitions, mergers, consolidations and asset sales; and pay dividends and
distributions, including share repurchases. Our bank credit facility
also contains customary events of default.
While we
complied with all of our financial covenants under the bank credit facility as
of December 31, 2008, we sought and received an amendment to our credit facility
on February 24, 2009. This amendment was necessary because of
continued deteriorating business conditions in certain of our operating segments
and the impact of historical fixed charges incurred on a trailing twelve months
basis (for example, interest expense, cash taxes, share repurchases and capital
expenditures) causing us to believe there was a likelihood that we would be in
violation of the consolidated fixed charge coverage
ratio covenant under our credit facility as early as the end of the
first quarter of 2009 without such an amendment. The amendment
revises the threshold of the consolidated fixed charge coverage ratio from 1.25
to 1.00 to the ratios described above and generally caps at $5 million the
amount of share repurchases we can make in each of the first two quarters of
2009. The amendment also raises the interest rates charged under our
bank credit facility by 100 basis points and includes a provision that would
increase the interest rates charged under our bank credit facility by an
additional 100 basis points if we fail to achieve a consolidated fixed charge
coverage ratio of at least 1.00 to 1.00 for certain quarterly periods in 2009
and 2010. The amendment also includes certain other technical
changes.
Our
future compliance with our financial covenants under the bank credit facility
will depend on our ability to generate earnings and manage our assets
effectively. Our bank credit facility also has various non-financial
covenants, requiring us to refrain from taking certain actions (as described
above) and requiring us to take certain actions, such as keeping in good
standing our corporate existence, maintaining insurance, and providing our bank
lending group with financial information on a timely basis.
The
interest rates charged under our bank credit facility are subject to adjustment
based on our consolidated leverage ratio and our consolidated fixed charge
coverage ratio. The weighted average interest rate on the outstanding
portion of the revolving credit component under our bank credit facility was
3.25% on the $35 million balance at December 31, 2008. We did not
have any outstanding borrowings under our revolver at December 31,
2007. The weighted average interest rate on the term loans under the
bank credit facility was 3.21% and 6.58% at December 31, 2008 and 2007,
respectively.
We manage
our interest rate risk by maintaining a balance between fixed and floating rate
debt, including the use of interest rate derivatives when appropriate. Over the
long term, we believe this mix will produce lower interest cost than a purely
fixed rate mix without substantially increasing risk.
We
anticipate that acquisitions will be a part of our long-term growth strategy,
but recent volatility in the financial markets, the downturn in global economic
conditions and limited access to capital may slow acquisition activity in the
near term. We intend to use a portion of our liquidity to judiciously
fund internal expansion activities, including capital
expenditures. On February 26, 2008, we acquired ASV for an aggregate
purchase price of approximately $457 million, net of cash
acquired. We also completed smaller acquisitions during 2008 that,
taken together, had an aggregate purchase price of less than $30
million.
-59-
In
December 2006, our Board of Directors authorized the repurchase of up to $200
million of our outstanding common shares through June 30, 2008. In
December 2007, our Board of Directors increased the share repurchase program by
$500 million, bringing the total amount that may be repurchased to $700 million,
and extended the expiration date for the program through June 30,
2009. In July 2008, our Board of Directors increased the program by
$500 million, bringing the total amount that may be repurchased through June 30,
2009, to $1.2 billion. During 2008, we repurchased 7.4 million shares
for $395.5 million under this program. In total, we have repurchased
9.7 million shares for approximately $562 million through December 31, 2008,
under this program. We are not currently purchasing shares due to
volatility in the credit markets and our desire to maintain
liquidity.
Recent
deterioration in the securities markets has reduced the value of certain assets
included in our defined benefit pension plans, the effect of which has not been
reflected in the accompanying condensed consolidated financial statements.
There is the potential that the assumptions we have used will differ
materially from actual results. Declines in the value of plan assets
could impact Stockholders’ Equity and result in increased total pension costs
for 2009 as compared to total pension costs incurred during
2008. Further declines in the value of plan assets may result in the
need for additional cash contributions during 2009 in accordance with funding
requirements.
Our
ability to access the capital markets to raise funds, through the sale of equity
or debt securities, is subject to various factors, some specific to us, and
others related to general economic and/or financial market conditions. These
include results of operations, projected operating results for future periods
and debt to equity leverage. In July 2007, we filed a shelf
registration statement with the SEC to allow for easier access to the capital
markets. Currently, due to the high degree of uncertainty in capital
markets, our access to these markets is limited, and will likely continue to be
limited until market stability re-emerges. Our ability to access the
capital markets is also subject to our timely filing of periodic reports with
the SEC. In addition, the terms of our bank credit facility and
senior subordinated notes restrict our ability to make further borrowings and to
sell substantial portions of our assets.
Cash Flows - 2008 vs.
2007
Cash
provided by operations for the year ended December 31, 2008 totaled $183.7
million, compared to $361.4 million for the year ended December 31,
2007. In 2008, we used approximately $12 million more cash for
working capital than we did in 2007. In 2008, we received
approximately $140 million less cash for customer advance payments than we did
in 2007, which included several large prepayments of equipment orders, which
were delivered in the current year. In 2008, we had approximately
$542 million lower net income than in 2007, primarily due to non-cash impairment
charges of $459.9 million.
Cash used
in investing activities for the year ended December 31, 2008 was $579.3 million
or $327.8 million more than cash used in investing activities for the year ended
December 31, 2007. This increase was primarily due to the acquisition
of ASV for approximately $457 million net of cash acquired, as well as higher
capital expenditures partially supporting capacity expansion. In
2007, we acquired SHM for approximately $146 million.
We used
cash from financing activities of $349.2 million for the year ended
December 31, 2008, compared to cash provided by financing activities for the
year ended December 31, 2007 of $431.1 million. We used $228.9
million more cash during 2008 than in 2007 to purchase shares of our common
stock pursuant to our $1,200 million share repurchase program. In
2007, we issued $800 million principal amount of long-term debt, which was
partially offset by the redemption of $200 million principal amount of
long-term
debt.
Contractual
Obligations
The
following table sets out our specified contractual obligations at December 31,
2008:
|
Payments due by period
|
||||||||||||||||||||
|
Total
Committed
|
< 1 year
|
1-3 years
|
3-5 years
|
> 5 years
|
||||||||||||||||
|
Long-term
debt obligations
|
$ | 2,005.6 | $ | 118.0 | $ | 179.3 | $ | 394.4 | $ | 1,313.9 | ||||||||||
|
Capital
lease obligations
|
6.9 | 1.7 | 2.9 | 1.6 | 0.7 | |||||||||||||||
|
Operating
lease obligations
|
358.0 | 65.9 | 101.3 | 69.2 | 121.6 | |||||||||||||||
|
Purchase
commitments (1)
|
1,344.0 | 1,290.9 | 52.0 | 1.1 | - | |||||||||||||||
|
Total
|
$ | 3,714.5 | $ | 1,476.5 | $ | 335.5 | $ | 466.3 | $ | 1,436.2 | ||||||||||
|
(1)
|
Purchase
commitments include non-cancellable and cancellable
commitments. In many cases, cancellable commitments contain
penalty provisions for
cancellation.
|
-60-
Long-term
debt obligations include expected interest expense. Interest expense is
calculated using fixed interest rates for indebtedness that has fixed rates and
the implied forward rates as of December 31, 2008 for indebtedness that has
floating interest rates.
As of
December 31, 2008, our liability for uncertain income tax positions was $118.8
million. We expect to pay approximately $12 million of this liability
during 2009. Due to the high degree of uncertainty regarding the
timing of potential future cash flows associated with the remaining liabilities,
we are unable to make a reasonable estimate of the amount and period in which
these remaining liabilities might be paid.
Additionally,
at December 31, 2008, we had outstanding letters of credit that totaled $155.3
million and had issued $238.3 million in credit guarantees of customer financing
to purchase equipment, $35.1 million in residual value guarantees and $145.7
million in buyback guarantees.
We
maintain defined benefit pension plans for some of our operations in the United
States and Europe. It is our policy to fund the retirement plans at the minimum
level required by applicable regulations. In 2008, we made cash contributions
and payments to the retirement plans of $22.2 million, and we estimate that our
retirement plan contributions will be approximately $19 million in
2009.
OFF-BALANCE
SHEET ARRANGEMENTS
Guarantees
Our
customers, from time to time, may fund the acquisition of our equipment through
third-party finance companies. In certain instances, we may provide a credit
guarantee to the finance company, by which we agree to make payments to the
finance company should the customer default. Our maximum liability is limited to
the remaining payments due to the finance company at the time of default. In the
event of customer default, we have generally been able to recover and dispose of
the equipment at a minimum loss, if any, to us.
As of
December 31, 2008, our maximum exposure to such credit guarantees was $238.3
million including total credit guarantees issued by Terex Demag GmbH, part of
our Cranes segment, and Genie, part of our Aerial Work Platforms segment, of
$156.1 million and $46.1 million, respectively. The terms of these guarantees
coincide with the financing arranged by the customer and generally do not exceed
five years. Given our position as the original equipment manufacturer and our
knowledge of end markets, when called upon to fulfill a guarantee, we have
generally been able to liquidate the financed equipment at a minimal loss, if
any.
Given
current financial and economic conditions, there can be no assurance that
historical credit default experience will be indicative of future
results. Our ability to recover losses experienced from our
guarantees may be affected by economic conditions in effect at the time of
loss.
We issue,
from time to time, residual value guarantees under sales-type leases. A residual
value guarantee involves a guarantee that a piece of equipment will have a
minimum fair market value at a future point in time. As described in Note T -
“Litigation and Contingencies” in the Notes to the Consolidated Financial
Statements, our maximum exposure related to residual value guarantees under
sales-type leases was $35.1 million at December 31, 2008. We are able to
mitigate the risk associated with these guarantees because the maturity of the
guarantees is staggered, which limits the amount of used equipment entering the
marketplace at any one time.
We
guarantee, from time to time, that we will buy equipment from our customers in
the future at a stated price if certain conditions are met by the
customer. Such guarantees are referred to as buyback
guarantees. These conditions generally pertain to the functionality
and state of repair of the machine. As of December 31, 2008, our maximum
exposure pursuant to buyback guarantees was $145.7 million. We are able to
mitigate the risk of these guarantees by staggering the timing of the buybacks
and through leveraging our access to the used equipment markets provided by our
original equipment manufacturer status.
We have
recorded an aggregate liability within Other current liabilities and Retirement
plans and other in the Consolidated Balance Sheet of approximately $19 million
for the estimated fair value of all guarantees provided as of December 31,
2008.
Given
current economic conditions, there can be no assurance that our historical
experience in used equipment markets will be indicative of future
results. Our ability to recover losses experienced from our
guarantees may be affected by economic conditions in the used equipment markets
at the time of loss.
-61-
Variable
Interest Entities
On
September 30, 2008, we sold our forty percent (40%) interest in Terex Financial
Services Holding B.V. (“TFSH”), our joint venture originally entered into on
September 18, 2002, to the European financial institution which owned the
majority sixty percent (60%) interest in TFSH. TFSH facilitated the
financing of our products sold in certain areas of Europe. As defined
by FASB Interpretation No. 46R, “Consolidation of Variable Interest Entities, an
interpretation of ARB No. 51,” TFSH was a variable interest
entity. Based on the legal, financial and operating structure of
TFSH, we had concluded that we were not the primary beneficiary of TFSH and that
we did not control the operations of TFSH. Accordingly, we did not
consolidate the results of TFSH into our consolidated financial
results. We applied the equity method of accounting for our
investment in TFSH. The sale of TFSH resulted in a loss of $0.7
million, which was recorded in Other income (expense).
Sale-Leaseback
Transactions
Our
rental business typically rents equipment to customers for periods of no less
than three months. To better match cash outflows in the rental business to cash
inflows from customers, we finance the equipment through a series of
sale-leasebacks, which are classified as operating leases. The
leaseback period is typically 60 months in duration. At December 31, 2008, the
historical cost of equipment being leased back from the financing companies was
approximately $35 million and the minimum lease payment in 2009 will be
approximately $6 million.
CONTINGENCIES
AND UNCERTAINTIES
Foreign
Currencies and Interest Rate Risk
Our
products are sold in over 100 countries around the world and, accordingly, our
revenues are generated in foreign currencies, while the costs associated with
those revenues are only partly incurred in the same currencies. The
major foreign currencies, among others, in which we do business are the Euro and
British Pound. We may, from time to time, hedge specifically
identified committed cash flows or forecasted cash flows in foreign currencies
using forward currency sale or purchase contracts. At December 31,
2008, we had foreign exchange contracts with a notional value of $1,185.5
million.
We manage
exposure to interest rates by incurring a mix of indebtedness bearing interest
at both floating and fixed rates at inception and maintaining an on-going
balance between floating and fixed rates on this mix of indebtedness using
interest rate swaps when necessary.
See
“Quantitative and Qualitative Disclosures About Market Risk” below, for a
discussion of the impact that changes in foreign currency exchange rates and
interest rates may have on our financial performance.
Certain
of our obligations, including our senior subordinated notes, bear interest at a
fixed interest rate. In November 2007, we entered into an interest rate
agreement to convert $400 million of the principal amount of our 8% Senior
Subordinated Notes Due 2017 (the “8% Notes”) to floating rates. The floating
rate is based on a spread of 2.81% over LIBOR. At December 31, 2008,
the floating rate was 4.96%. In a prior year, we entered into an
interest rate agreement to convert a fixed rate to a floating rate with respect
to $200 million of the principal amount of our 7-3/8% Senior Subordinated Notes
Due 2014 (the “7-3/8% Notes”). To maintain an appropriate balance
between floating and fixed rate obligations on our mix of debt, we exited this
interest rate swap agreement on January 15, 2007 and paid $5.4
million. We recorded this loss as an adjustment to the carrying value
of the hedged debt and are amortizing it through the debt maturity
date.
Other
We are
subject to a number of contingencies and uncertainties including, without
limitation, product liability claims, self-insurance obligations, tax
examinations, guarantees and the matters described above in Item 3 – “Legal
Proceedings.” Many of the exposures are unasserted or proceedings are
at a preliminary stage, and it is not presently possible to estimate the amount
or timing of any of our costs. However, we do not believe that these
contingencies and uncertainties will, in the aggregate, have a material adverse
effect on us. When it is probable that a loss has been incurred and
possible to make reasonable estimates of our liability with respect to such
matters, a provision is recorded for the amount of such estimate or for the
minimum amount of a range of estimates when it is not possible to estimate the
amount within the range that is most likely to occur.
-62-
We
generate hazardous and non-hazardous wastes in the normal course of our
manufacturing operations. As a result, we are subject to a wide range of
federal, state, local and foreign environmental laws and regulations. These laws
and regulations govern actions that may have adverse environmental effects, such
as discharges to air and water, and also require compliance with certain
practices when handling and disposing of hazardous and non-hazardous
wastes. These laws and regulations also impose liability for the
costs of, and damages resulting from, cleaning up sites, past spills, disposals
and other releases of hazardous substances, should any of such events
occur. No such incidents have occurred which required us to pay
material amounts to comply with such laws and regulations. Compliance with such
laws and regulations has required, and will continue to require, us to make
expenditures. We do not expect that these expenditures will have a material
adverse effect on our business or profitability.
ITEM
7A. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are
exposed to certain market risks that exist as part of our ongoing business
operations and we use derivative financial instruments, where appropriate, to
manage these risks. As a matter of policy, we do not engage in
trading or speculative transactions. See Note M - “Derivative Financial
Instruments” to the Consolidated Financial Statements for further information on
accounting policies related to derivative financial instruments.
Foreign
Exchange Risk
We are
exposed to fluctuations in foreign currency cash flows related to third party
purchases and sales, intercompany product shipments and intercompany
loans. We are also exposed to fluctuations in the value of foreign
currency investments in subsidiaries and cash flows related to repatriation of
these investments. Additionally, we are exposed to volatility in the
translation of foreign currency earnings to U.S. Dollars. Primary
exposures include the U.S. Dollar versus functional currencies of our major
markets, which include the Euro and British Pound. We assess foreign
currency risk based on transactional cash flows, identify naturally offsetting
positions and purchase hedging instruments to protect anticipated exposures. At
December 31, 2008, we had foreign exchange contracts with a notional value of
approximately $1,185.5 million. The fair market value of these arrangements,
which represents the cost to settle these contracts, was a net loss of $4.4
million at December 31, 2008.
At
December 31, 2008, we performed a sensitivity analysis on the effect that
aggregate changes in the translation effect of foreign currency exchange rate
changes would have on our operating income. Based on this sensitivity
analysis, we have determined that an increase in the value of the U.S. dollar
relative to currencies outside the U.S. by 10% to amounts already incorporated
in the financial statements for the year ended December 31, 2008, would have
decreased the translation effect of foreign currency exchange rate changes
already included in our reported operating income by approximately $6 million in
2008.
Interest
Rate Risk
We are
exposed to interest rate volatility with regard to future issuances of fixed
rate debt and existing issuances of variable rate debt. Primary
exposure includes movements in the U.S. prime rate and LIBOR. We manage interest
rate risk by incurring a mix of indebtedness bearing interest at both floating
and fixed rates at inception and maintain an on-going balance between floating
and fixed rates on this mix of indebtedness through the use of interest rate
swaps when necessary. At December 31, 2008, approximately 48% of our
debt was floating rate debt and the weighted average interest rate for all debt
was 6.12%.
Certain
of our obligations, including our senior subordinated notes, bear interest at a
fixed interest rate. In November 2007, we entered into an interest rate
agreement to convert $400 million of the principal amount of our 8% Notes to
floating rates. The floating rate is based on a spread of 2.81% over
LIBOR. At December 31, 2008, the floating rate was
4.96%. In a prior year, we entered into an interest rate agreement to
convert a fixed rate to a floating rate with respect to $200 million of the
principal amount of our 7-3/8% Notes. To maintain an appropriate
balance between floating and fixed rate obligations on our mix of debt, we
exited this interest rate swap agreement on January 15, 2007 and paid $5.4
million. We recorded this loss as an adjustment to the carrying value
of the hedged debt and are amortizing it through the debt maturity
date.
At
December 31, 2008, we performed a sensitivity analysis for our derivatives and
other financial instruments that have interest rate risk. We calculated the
pretax earnings effect on our interest sensitive instruments. Based on this
sensitivity analysis, we have determined that an increase of 10% in our average
floating interest rates at December 31, 2008 would have increased interest
expense by approximately $3 million in 2008.
-63-
Commodities
Risk
Principal
materials and components that we use in our various manufacturing processes
include steel, castings, engines, tires, hydraulics, cylinders, drive trains,
electric controls and motors, and a variety of other commodities and fabricated
or manufactured items. Extreme movements in the cost and availability
of these materials and components may affect our
performance. Worldwide steel prices rose for most of 2008 in response
to higher demand caused by continued higher consumption in developing market
countries such as China. Due to the continued high demand for steel
in 2008, many suppliers of steel, castings and other products increased prices
or added surcharges to the price of their products. A weakening of
steel prices at the end of 2008, particularly in the commodity grades, will
likely result in lower steel costs in 2009. However, we will not
realize a significant improvement in our costs until later in 2009, when we will
have utilized material already in our inventory.
In the
absence of labor strikes or other unusual circumstances, substantially all
materials and components are normally available from multiple
suppliers. However, certain of our businesses receive materials and
components from a sole supplier, although alternative suppliers of such
materials are generally available. Current and potential suppliers
are evaluated on a regular basis on their ability to meet our requirements and
standards. We actively manage our material supply sourcing, and may
employ various methods to limit risk associated with commodity cost fluctuations
and availability. The inability of suppliers, especially any sole
suppliers for a particular business, to deliver materials and components
promptly could result in production delays and increased costs to manufacture
our products. As a result of the macro-economic challenges currently
affecting the economy of the U.S. and other parts of the world, our suppliers
may experience serious cash flow problems, and as a result, could seek to
significantly and quickly increase their prices or reduce their
output. We have designed and implemented plans to mitigate the impact
of these risks by using alternate suppliers, leveraging our overall purchasing
volumes to obtain favorable quantities and developing a closer working
relationship with key suppliers. We continue to search for acceptable
alternative supply sources and less expensive supply options on a regular basis,
including by improving the globalization of our supply base and using suppliers
in China and India. One key Terex Business System initiative has been
developing and implementing world-class capability in supply chain management,
logistics and global purchasing. We are focusing on gaining
efficiencies with suppliers based on our global purchasing power and
resources.
ITEM
8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
The
report of independent registered public accounting firm and our Consolidated
Financial Statements and Financial Statement Schedule are filed pursuant to this
Item 8 and are included later in this report. See Index to
Consolidated Financial Statements and Financial Statement Schedule on page
F-1.
Unaudited
Quarterly Financial Data
Summarized
quarterly financial data for 2008 and 2007 are as follows (in millions, except
per share amounts).
|
2008
|
2007
|
|||||||||||||||||||||||||||||||
|
Fourth
|
Third
|
Second
|
First
|
Fourth
|
Third
|
Second
|
First
|
|||||||||||||||||||||||||
|
Net
sales
|
$ | 2,076.4 | $ | 2,514.6 | $ | 2,935.9 | $ | 2,362.7 | $ | 2,586.3 | $ | 2,196.5 | $ | 2,342.2 | $ | 2,012.7 | ||||||||||||||||
|
Gross
profit
|
316.3 | 446.2 | 651.2 | 514.0 | 498.6 | 464.3 | 507.1 | 412.0 | ||||||||||||||||||||||||
|
Goodwill
impairment
|
(459.9 | ) | - | - | - | - | - | - | - | |||||||||||||||||||||||
|
Net
(loss) income
|
(421.5 | ) | 93.8 | 236.3 | 163.3 | 174.0 | 151.5 | 174.6 | 113.8 | |||||||||||||||||||||||
|
Per
share:
|
||||||||||||||||||||||||||||||||
|
Basic
|
||||||||||||||||||||||||||||||||
|
Net
(loss) income
|
$ | (4.46 | ) | $ | 0.98 | $ | 2.35 | $ | 1.62 | $ | 1.71 | $ | 1.48 | $ | 1.70 | $ | 1.11 | |||||||||||||||
|
Diluted
|
||||||||||||||||||||||||||||||||
|
Net
(loss) income
|
$ | (4.46 | ) | $ | 0.96 | $ | 2.32 | $ | 1.59 | $ | 1.67 | $ | 1.45 | $ | 1.66 | $ | 1.09 | |||||||||||||||
The
accompanying unaudited quarterly financial data has been prepared in accordance
with generally accepted accounting principles in the United States for interim
financial information and with Item 302 of Regulation S-K. In our opinion, all
adjustments considered necessary for a fair statement have been made and were of
a normal recurring nature.
During
the quarter ended December 31, 2008, we recorded an out of period adjustment,
arising in 2007, which decreased the Provision for income taxes by $11.4
million. During the quarter ended December 31, 2007, we recorded an
out of period adjustment, arising in the years 2002 through 2006, which
decreased the Provision for income taxes by $10.9 million. We did not
adjust the prior periods as we concluded that such adjustments were not material
to the prior periods’ consolidated financial statements.
-64-
|
ITEM
9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
Not
applicable.
|
ITEM
9A.
|
CONTROLS
AND PROCEDURES
|
EVALUATION OF DISCLOSURE
CONTROLS AND PROCEDURES
We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in the reports we file under the Exchange
Act are recorded, processed, summarized and reported within the time periods
specified in the SEC’s rules and forms, and that such information is accumulated
and communicated to our management, including our Chief Executive Officer
(“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely
decisions regarding required financial disclosure. In connection with the
preparation of this Annual Report on Form 10-K, our management carried out an
evaluation, under the supervision and with the participation of our management,
including the CEO and CFO, as of December 31, 2008, of the effectiveness of the
design and operation of our disclosure controls and procedures, as such term is
defined under Rule 13a-15(e) under the Exchange Act. Based upon this
evaluation, our CEO and CFO concluded that our disclosure controls and
procedures were effective as of December 31, 2008.
MANAGEMENT’S ANNUAL REPORT
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management
is responsible for establishing and maintaining adequate internal control over
financial reporting for the Company, as such term is defined in Rules 13a-15(f)
and 15d-15(f) under the Exchange Act. Our internal control over
financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external reporting purposes in accordance with
generally accepted accounting principles. Internal control over financial
reporting includes those policies and procedures that: pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of our assets; provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that
our receipts and expenditures are being made only in accordance with
authorizations of our management and directors; and provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use or
disposition of our assets that could have a material effect on our financial
statements. Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
Management
has conducted an assessment, including testing, of the effectiveness of our
internal control over financial reporting as of December 31, 2008. In making its
assessment of internal control over financial reporting, management used the
criteria in Internal Control —
Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (“COSO”). Based on this assessment, the
Company’s management has concluded that, as of December 31, 2008, the Company’s
internal control over financial reporting was effective.
The
effectiveness of our internal control over financial reporting as of December
31, 2008 has been audited by PricewaterhouseCoopers LLP, an independent
registered public accounting firm, as stated in their report which appears in
this Annual Report on Form 10-K.
CHANGES IN INTERNAL CONTROL
OVER FINANCIAL REPORTING
There
were no changes in our internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during our
quarter ended December 31, 2008, that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
During
2008, we implemented an integrated suite of enterprise software at three
businesses as part of a multi-year global implementation program. The
implementation has involved changes to certain processes and related internal
controls over financial reporting. We have reviewed the system and
the controls affected and made appropriate changes as necessary.
The
effectiveness of any system of controls and procedures is subject to certain
limitations, and, as a result, there can be no assurance that our controls and
procedures will detect all errors or fraud. A control system, no
matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system will be
attained.
-65-
|
ITEM
9B.
|
OTHER
INFORMATION
|
None.
PART
III
|
ITEM
10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
|
The
information required by Item 10 is incorporated by reference to the definitive
Terex Corporation Proxy Statement to be filed with the Securities and Exchange
Commission not later than 120 days after the end of the fiscal year covered by
this Annual Report on Form 10-K.
|
ITEM
11.
|
EXECUTIVE
COMPENSATION
|
The
information required by Item 11 is incorporated by reference to the definitive
Terex Corporation Proxy Statement to be filed with the Securities and Exchange
Commission not later than 120 days after the end of the fiscal year covered by
this Annual Report on Form 10-K.
|
ITEM
12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
|
Equity
Compensation Plan Information
The
following table summarizes information about the Company’s equity compensation
plans as of December 31, 2008.
|
Plan
Category
|
Number
of securities to be issued upon exercise of outstanding options, warrants
and rights (a)
|
Weighted
average exercise price of outstanding options, warrants and rights
(b)
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column (a))
(c)
|
|||||||||
|
Equity
compensation plans approved by shareholders
|
1, 211,035 | (1) | $ | 18.58 | 1,687,688 | |||||||
|
Equity
compensation plans not approved by shareholders
|
- | - | - | |||||||||
|
Total
|
1,211,035 | (1) | $ | 18.58 | 1,687,688 | |||||||
|
(1)
|
This
does not include 2,304,762 of restricted stock awards, which are also not
included in the calculation of weighted average exercise price of
outstanding options, warrants and rights in column (b) of this
table.
|
The other
information required by Item 12 is incorporated by reference to the definitive
Terex Corporation Proxy Statement to be filed with the Securities and Exchange
Commission not later than 120 days after the end of the fiscal year covered by
this Annual Report on Form 10-K.
Security
Ownership of Management and Certain Beneficial Owners
The
information required by Item 12 is incorporated by reference to the definitive
Terex Corporation Proxy Statement to be filed with the Securities and Exchange
Commission not later than 120 days after the end of the fiscal year covered by
this Annual Report on Form 10-K.
|
ITEM
13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
The
information required by Item 13 is incorporated by reference to the definitive
Terex Corporation Proxy Statement to be filed with the Securities and Exchange
Commission not later than 120 days after the end of the fiscal year covered by
this Annual Report on Form 10-K.
-66-
|
ITEM
14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
The
information required by Item 14 is incorporated by reference to the definitive
Terex Corporation Proxy Statement to be filed with the Securities and Exchange
Commission not later than 120 days after the end of the fiscal year covered by
this Annual Report on Form 10-K.
PART
IV
|
ITEM
15.
|
EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
|
(a)
(1) and (2) Financial Statements and Financial Statement Schedules.
See
“Index to Consolidated Financial Statements and Financial Statement Schedule” on
Page F-1.
(3)
Exhibits
See
“Exhibit Index” on Page E-1.
-67-
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
TEREX
CORPORATION
|
By:
|
/s/
Ronald M. DeFeo
|
February
26, 2009
|
|
|
Ronald
M. DeFeo,
Chairman,
Chief Executive Officer
and
Director
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
|
NAME
|
TITLE
|
DATE
|
||
|
/s/ Ronald M. DeFeo
|
Chairman,
Chief Executive Officer,
|
February
26, 2009
|
||
|
Ronald
M. DeFeo
|
and
Director
|
|||
|
(Principal
Executive Officer)
|
||||
|
/s/ Phillip C. Widman
|
Senior
Vice President - Chief Financial
|
February
26, 2009
|
||
|
Phillip
C. Widman
|
Officer
|
|||
|
(Principal
Financial Officer)
|
||||
|
/s/ Jonathan D. Carter
|
Vice
President, Controller and Chief
|
February
26, 2009
|
||
|
Jonathan
D. Carter
|
Accounting
Officer
|
|||
|
(Principal
Accounting Officer)
|
||||
|
/s/ G. Chris Andersen
|
Director
|
February
26, 2009
|
||
|
G.
Chris Andersen
|
||||
|
/s/ Paula H. J.
Cholmondeley
|
Director
|
February
26, 2009
|
||
|
Paula
H. J. Cholmondeley
|
||||
|
/s/ Don DeFosset
|
Director
|
February
26, 2009
|
||
|
Don
DeFosset
|
||||
|
/s/ William H. Fike
|
Director
|
February
26, 2009
|
||
|
William
H. Fike
|
||||
|
/s/ Thomas J. Hansen
|
Director
|
February
26, 2009
|
||
|
Thomas
J. Hansen
|
||||
|
/s/ Donald P. Jacobs
|
Director
|
February
26, 2009
|
||
|
Donald
P. Jacobs
|
||||
|
/s/ David A. Sachs
|
Director
|
February
26, 2009
|
||
|
David
A. Sachs
|
||||
|
/s/ Oren G. Shaffer
|
Director
|
February
26, 2009
|
||
|
Oren
G. Shaffer
|
||||
|
/s/ David C. Wang
|
Director
|
February
26, 2009
|
||
|
David
C. Wang
|
||||
|
/s/ Helge H. Wehmeier
|
Director
|
February
26, 2009
|
||
|
Helge
H. Wehmeier
|
-68-
THIS
PAGE IS INTENTIONALLY BLANK
NEXT
PAGE IS NUMBERED “E-1”
-69-
EXHIBIT
INDEX
|
3.1
|
Restated
Certificate of Incorporation of Terex Corporation (incorporated by
reference to Exhibit 3.1 of the Form S-1 Registration Statement of Terex
Corporation, Registration No.
33-52297).
|
|
3.2
|
Certificate
of Elimination with respect to the Series B Preferred Stock (incorporated
by reference to Exhibit 4.3 of the Form 10-K for the year ended
December 31, 1998 of Terex Corporation, Commission File No.
1-10702).
|
|
3.3
|
Certificate
of Amendment to Certificate of Incorporation of Terex Corporation dated
September 5, 1998 (incorporated by reference to Exhibit 3.3 of the Form
10-K for the year ended December 31, 1998 of Terex Corporation, Commission
File No. 1-10702).
|
|
3.4
|
Certificate
of Amendment of the Certificate of Incorporation of Terex Corporation
dated July 17, 2007 (incorporated by reference to Exhibit 3.1 of the Form
8-K Current Report, Commission File No. 1-10702, dated July 17, 2007 and
filed with the Commission on July 17,
2007).
|
|
3.5
|
Amended
and Restated Bylaws of Terex Corporation (incorporated by reference to
Exhibit 3.1 of the Form 8-K Current Report, Commission File No.
1-10702, dated March 4, 2008 and filed with the Commission on March 10,
2008).
|
|
4.1
|
Indenture,
dated as of November 25, 2003, between Terex Corporation, the Guarantors
named therein and HSBC Bank USA, as Trustee (incorporated by reference to
Exhibit 4.10 of the Form S-4 Registration Statement of Terex Corporation,
Registration No. 333-112097).
|
|
4.2
|
Indenture,
dated July 20, 2007, between Terex Corporation and HSBC Bank USA, National
Association, as Trustee, relating to senior debt securities (incorporated
by reference to Exhibit 4.1 of the Form S-3 Registration Statement of
Terex Corporation, Registration No.
333-144796).
|
|
4.3
|
Indenture,
dated July 20, 2007, between Terex Corporation and HSBC Bank USA, National
Association, as Trustee, relating to subordinated debt securities
(incorporated by reference to Exhibit 4.2 of the Form S-3 Registration
Statement of Terex Corporation, Registration No.
333-144796).
|
|
4.4
|
Supplemental
Indenture, dated November 13, 2007, between Terex Corporation and HSBC
Bank USA, National Association relating to 8% Senior Subordinated Notes
due 2017 (incorporated by reference to Exhibit 4.1 of the Form 8-K Current
Report, Commission File No. 1-10702, dated November 13, 2007 and filed
with the Commission on December 14,
2007).
|
|
4.5
|
Supplemental
Indenture, dated June 25, 2008, between Terex Corporation and HSBC Bank
USA, National Association relating to 7-3/8% Senior Subordinated Notes due
2014 (incorporated by reference to Exhibit 4.5 of the Form 10-Q for the
quarter ended June 30, 2008 of Terex Corporation, Commission File No.
1-10702).
|
|
10.1
|
1994
Terex Corporation Long Term Incentive Plan (incorporated by reference to
Exhibit 10.2 of the Form 10-K for the year ended December 31, 1994 of
Terex Corporation, Commission File No.
1-10702).
|
|
10.2
|
Terex
Corporation Amended and Restated Employee Stock Purchase Plan
(incorporated by reference to Exhibit 10.2 of the Form 10-Q for the
quarter ended June 30, 2007 of Terex Corporation, Commission File No.
1-10702).
|
|
10.3
|
1996
Terex Corporation Long Term Incentive Plan (incorporated by reference to
Exhibit 10.1 of the Form S-8 Registration Statement of Terex Corporation,
Registration No. 333-03983).
|
|
10.4
|
Amendment
No. 1 to 1996 Terex Corporation Long Term Incentive Plan (incorporated by
reference to Exhibit 10.5 of the Form 10-K for the year ended December 31,
1999 of Terex Corporation, Commission File No.
1-10702).
|
|
10.5
|
Amendment
No. 2 to 1996 Terex Corporation Long Term Incentive Plan (incorporated by
reference to Exhibit 10.6 of the Form 10-K for the year ended December 31,
1999 of Terex Corporation, Commission File No.
1-10702).
|
|
10.6
|
Terex
Corporation 1999 Long-Term Incentive Plan (incorporated by reference to
Exhibit 10.7 of the Form 10-Q for the quarter ended March 31, 2000 of
Terex Corporation, Commission File No.
1-10702).
|
|
10.7
|
Terex
Corporation Amended and Restated 2000 Incentive Plan (incorporated by
reference to Exhibit 10.3 of the Form 8-K Current Report, Commission File
No. 1-10702, dated October 14, 2008 and filed with the Commission on
October 17, 2008).
|
|
10.8
|
Form
of Restricted Stock Agreement under the Terex Corporation 2000 Incentive
Plan between Terex Corporation and participants of the 2000 Incentive Plan
(incorporated by reference to Exhibit 10.4 of the Form 8-K Current Report,
Commission File No. 1-10702, dated January 1, 2005 and filed with the
Commission on January 5, 2005).
|
E-1
|
10.9
|
Form
of Option Agreement under the Terex Corporation 2000 Incentive Plan
between Terex Corporation and participants of the 2000 Incentive Plan
(incorporated by reference to Exhibit 10.5 of the Form 8-K Current Report,
Commission File No. 1-10702, dated January 1, 2005 and filed with the
Commission on January 5, 2005).
|
|
10.10
|
Terex
Corporation Amended and Restated Supplemental Executive Retirement Plan.
*
|
|
10.11
|
Terex
Corporation Amended and Restated 2004 Annual Incentive Compensation Plan
(incorporated by reference to Exhibit 10.4 of the Form 8-K Current Report,
Commission File No. 1-10702, dated October 14, 2008 and filed with the
Commission on October 17, 2008).
|
|
10.12
|
Summary
of material terms of non-CEO 2007 performance targets under the Terex
Corporation 2004 Annual Incentive Compensation Plan (incorporated by
reference to the Form 8-K Current Report, Commission File No. 1-10702,
dated December 13, 2006 and filed with the Commission on December 19,
2006).
|
|
10.13
|
Summary
of material terms of CEO 2007 performance targets under the Terex
Corporation 2004 Annual Incentive Compensation Plan (incorporated by
reference to the Form 8-K Current Report, Commission File No. 1-10702,
dated March 29, 2007 and filed with the Commission on April 4,
2007).
|
|
10.14
|
Summary
of material terms of non-CEO 2008 performance targets under the Terex
Corporation 2004 Annual Incentive Compensation Plan (incorporated by
reference to the Form 8-K Current Report, Commission File No. 1-10702,
dated December 13, 2007 and filed with the Commission on December 19,
2007).
|
|
10.15
|
Summary
of material terms of CEO 2008 performance targets under the Terex
Corporation 2004 Annual Incentive Compensation Plan (incorporated by
reference to the Form 8-K Current Report, Commission File No. 1-10702,
dated March 4, 2008 and filed with the Commission on March 10,
2008).
|
|
10.16
|
Terex
Corporation Amended and Restated Deferred Compensation Plan (incorporated
by reference to Exhibit 10.11 of the Form 10-Q for the quarter ended
June 30, 2004 of Terex Corporation, Commission File No.
1-10702).
|
|
10.17
|
Amendment
to the Terex Corporation Amended and Restated Deferred Compensation Plan
(incorporated by reference to Exhibit 10.1 of the Form 8-K Current Report,
Commission File No. 1-10702, dated October 14, 2008 and filed with the
Commission on October 17, 2008).
|
|
10.18
|
Terex
Corporation 2005 Deferred Compensation Plan (incorporated by reference to
Exhibit 10.2 of the Form 8-K Current Report, Commission File No. 1-10702,
dated October 14, 2008 and filed with the Commission on October 17,
2008).
|
|
10.19
|
Amendment
to the Terex Corporation 2005 Deferred Compensation Plan (incorporated by
reference to Exhibit 10.2 of the Form 8-K Current Report, Commission File
No. 1-10702, dated December 12, 2008 and filed with the Commission on
December 16, 2008).
|
|
10.20
|
Summary
of material terms of Terex Corporation Outside Directors’ Compensation
Program (incorporated by reference to Exhibit 10.2 of the Form 8-K Current
Report, Commission File No. 1-10702, dated December 13, 2006 and filed
with the Commission on December 19,
2006).
|
|
10.21
|
Credit
Agreement dated as of July 14, 2006, among Terex Corporation, certain of
its subsidiaries, the Lenders named therein and Credit Suisse, as
Administrative Agent and Collateral Agent (incorporated by reference to
Exhibit 10.1 of the Form 8-K Current Report, Commission File No. 1-10702,
dated July 14, 2006 and filed with the Commission on July 17,
2006).
|
|
10.22
|
Amendment
No. 1, dated January 11, 2008, to the Credit Agreement dated as of July
14, 2006, among Terex Corporation, certain of its subsidiaries, the
Lenders named therein and Credit Suisse, as Administrative Agent and
Collateral Agent (incorporated by reference to Exhibit 10.1 of the Form
8-K Current Report, Commission File No. 1-10702, dated January 11, 2008
and filed with the Commission on January 11,
2008).
|
|
10.23
|
Amendment
No. 2, dated February 24, 2009, to the Credit Agreement dated as of July
14, 2006, among Terex Corporation, certain of its subsidiaries, the
Lenders named therein and Credit Suisse, as Administrative Agent and
Collateral Agent (incorporated by reference to Exhibit 10.1 of the Form
8-K Current Report, Commission File No. 1-10702, dated February 24, 2009
and filed with the Commission on February 25,
2009).
|
|
10.24
|
Guarantee
and Collateral Agreement dated as of July 14, 2006 among Terex
Corporation, certain of its subsidiaries and Credit Suisse, as Collateral
Agent (incorporated by reference to Exhibit 10.2 of the Form 8-K Current
Report, Commission File No. 1-10702, dated July 14, 2006 and filed with
the Commission on July 17, 2006).
|
E-2
|
10.25
|
Supplement
No. 1, dated June 25, 2008, to the Guarantee and Collateral Agreement
dated July 14, 2006 among Terex Corporation, certain of its subsidiaries
and Credit Suisse, as Collateral Agent (incorporated by reference to
Exhibit 10.21 of the Form 10-Q for the quarter ended June 30, 2008 of
Terex Corporation, Commission File No.
1-10702).
|
|
10.26
|
Underwriting
Agreement, dated November 7, 2007, among Terex Corporation and Credit
Suisse Securities (USA) LLC, Citigroup Global Markets Inc. and UBS
Securities LLC, as representatives for the several underwriters named
therein (incorporated by reference to Exhibit 1.1 of the Form 8-K Current
Report, Commission File No. 1-10702, dated November 7, 2007 and filed with
the Commission on November 8,
2007).
|
|
10.27
|
Amended
and Restated Employment and Compensation Agreement, dated October 14,
2008, between Terex Corporation and Ronald M. DeFeo (incorporated by
reference to Exhibit 10.5 of the Form 8-K Current Report, Commission File
No. 1-10702, dated October 14, 2008 and filed with the Commission on
October 17, 2008).
|
|
10.28
|
Life
Insurance Agreement, dated as of October 13, 2006, between Terex
Corporation and Ronald M. DeFeo (incorporated by reference to Exhibit 10.1
of the Form 8-K Current Report, Commission File No. 1-10702, dated October
13, 2006 and filed with the Commission on October 16,
2006).
|
|
10.29
|
Form
of Change in Control and Severance Agreement between Terex Corporation and
certain executive officers (incorporated by reference to Exhibit 10.1 of
the Form 8-K Current Report, Commission File No. 1-10702, dated March 4,
2008 and filed with the Commission on March 10,
2008).
|
|
10.30
|
Form
of Change in Control and Severance Agreement between Terex Corporation and
certain executive officers (incorporated by reference to Exhibit 10.2 of
the Form 8-K Current Report, Commission File No. 1-10702, dated March 4,
2008 and filed with the Commission on March 10,
2008).
|
|
10.31
|
Employment
Letter dated as of November 8, 2006 between Terex Corporation and Thomas
J. Riordan (incorporated by reference to Exhibit 10.1 of the Form 8-K
Current Report, Commission File No. 1-10702, dated November 13, 2006 and
filed with the Commission on November 13,
2006).
|
|
10.32
|
Employment
Memo dated March 6, 2008, between Terex Corporation and Steve Filipov
(incorporated by reference to Exhibit 10.1 of the Form 8-K Current Report,
Commission File No. 1-10702, dated July 14, 2008 and filed with the
Commission on July 17, 2008).
|
|
12
|
Calculation
of Ratio of Earnings to Fixed Charges.
*
|
|
21.1
|
Subsidiaries
of Terex Corporation. *
|
|
23.1
|
Consent
of Independent Registered Public Accounting Firm – PricewaterhouseCoopers
LLP, Stamford, Connecticut. *
|
|
24.1
|
Power
of Attorney. *
|
|
31.1
|
Chief
Executive Officer Certification pursuant to Rule 13a-14(a)/15d-14(a).
*
|
|
31.2
|
Chief
Financial Officer Certification pursuant to Rule 13a-14(a)/15d-14(a).
*
|
|
32
|
Chief
Executive Officer and Chief Financial Officer Certification pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes
–Oxley Act of 2002. *
|
|
*
|
Exhibit
filed with this document.
|
E-3
TEREX
CORPORATION AND SUBSIDIARIES
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULE
TEREX
CORPORATION
CONSOLIDATED
FINANCIAL STATEMENTS AS OF DECEMBER 31, 2008 AND 2007
AND FOR
EACH OF THE THREE YEARS
IN THE
PERIOD ENDED DECEMBER 31, 2008
|
Page
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
Consolidated
Statement of Income
|
F-3
|
|
Consolidated
Balance Sheet
|
F-4
|
|
Consolidated
Statement of Changes in Stockholders’ Equity
|
F-5
|
|
Consolidated
Statement of Cash Flows
|
F-6
|
|
Notes
to Consolidated Financial Statements
|
F-7
|
FINANCIAL
STATEMENT SCHEDULE
|
Schedule
II – Valuation and Qualifying Accounts and Reserves
|
F-49
|
All other
schedules for which provision is made in the applicable regulations of the
Securities and Exchange Commission are not required under the related
instructions or are not applicable, and therefore have been
omitted.
F-1
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors
and
Stockholders of Terex Corporation
In our
opinion, the consolidated financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of Terex
Corporation and its subsidiaries at December 31, 2008 and 2007, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2008 in conformity with accounting principles
generally accepted in the United States of America. In addition, in
our opinion, the financial statement schedule listed in the accompanying
index presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. Also
in our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2008, based on
criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Company's management is responsible for these
financial statements and financial statement schedule, for maintaining effective
internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in
Management's Annual Report on Internal Control over Financial Reporting
appearing under Item 9A. Our responsibility is to express opinions on
these financial statements, on the financial statement schedule, and on the
Company's internal control over financial reporting based on our integrated
audits. We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement and whether effective internal control over financial reporting was
maintained in all material respects. Our audits of the financial
statements included examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. Our audit of internal control over
financial reporting included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audits also included
performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis
for our opinions.
As
disclosed in Note A, the Company changed the manner in which it accounts for
uncertain tax positions upon adoption of the accounting guidance of Financial
Accounting Standards Board Interpretation No. 48 on January 1,
2007.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of
the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and
(iii) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
/s/PricewaterhouseCoopers
LLP
Stamford,
Connecticut
February
26, 2009
F-2
TEREX
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENT OF INCOME
(in
millions, except per share amounts)
|
Year Ended December 31,
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
Net
sales
|
$ | 9,889.6 | $ | 9,137.7 | $ | 7,647.6 | ||||||
|
Cost
of goods sold
|
(7,961.9 | ) | (7,255.7 | ) | (6,204.5 | ) | ||||||
|
Gross
profit
|
1,927.7 | 1,882.0 | 1,443.1 | |||||||||
|
Selling,
general and administrative expenses
|
(1,065.2 | ) | (920.6 | ) | (733.6 | ) | ||||||
|
Goodwill
impairment
|
(459.9 | ) | — | — | ||||||||
|
Income
from operations
|
402.6 | 961.4 | 709.5 | |||||||||
|
Other
income (expense):
|
||||||||||||
|
Interest
income
|
22.4 | 19.1 | 15.5 | |||||||||
|
Interest
expense
|
(103.1 | ) | (65.8 | ) | (90.7 | ) | ||||||
|
Loss
on early extinguishment of debt
|
— | (12.5 | ) | (23.3 | ) | |||||||
|
Amortization
of debt issuance costs
|
(3.2 | ) | (2.1 | ) | (3.2 | ) | ||||||
|
Other
income (expense) - net
|
(4.6 | ) | 19.2 | 6.9 | ||||||||
|
Income
from continuing operations before income taxes
|
314.1 | 919.3 | 614.7 | |||||||||
|
Provision
for income taxes
|
(242.2 | ) | (305.4 | ) | (218.2 | ) | ||||||
|
Income
from continuing operations
|
71.9 | 613.9 | 396.5 | |||||||||
|
Income
from discontinued operations – net of tax
|
— | — | 11.1 | |||||||||
|
Loss
on disposition of discontinued operations – net of tax
|
— | — | (7.7 | ) | ||||||||
|
Net
income
|
$ | 71.9 | $ | 613.9 | $ | 399.9 | ||||||
|
PER
COMMON SHARE:
|
||||||||||||
|
Basic
|
||||||||||||
|
Income
from continuing operations
|
$ | 0.73 | $ | 6.00 | $ | 3.94 | ||||||
|
Income
from discontinued operations
|
— | — | 0.11 | |||||||||
|
Loss
on disposition of discontinued operations
|
— | — | (0.08 | ) | ||||||||
|
Net
income
|
$ | 0.73 | $ | 6.00 | $ | 3.97 | ||||||
|
Diluted
|
||||||||||||
|
Income
from continuing operations
|
$ | 0.72 | $ | 5.85 | $ | 3.85 | ||||||
|
Income
from discontinued operations
|
— | — | 0.10 | |||||||||
|
Loss
on disposition of discontinued operations
|
— | — | (0.07 | ) | ||||||||
|
Net
income
|
$ | 0.72 | $ | 5.85 | $ | 3.88 | ||||||
|
Weighted
average number of shares outstanding in per share
calculation
|
||||||||||||
|
Basic
|
98.1 | 102.4 | 100.7 | |||||||||
|
Diluted
|
99.7 | 104.9 | 103.0 | |||||||||
The
accompanying notes are an integral part of these financial
statements.
F-3
TEREX
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEET
(in
millions, except par value)
|
December 31,
|
||||||||
|
2008
|
2007
|
|||||||
|
ASSETS
|
||||||||
|
CURRENT
ASSETS
|
||||||||
|
Cash
and cash equivalents
|
$ | 484.4 | $ | 1,272.4 | ||||
|
Trade
receivables (net of allowance of $62.8 and $62.5 as of December
31, 2008 and 2007, respectively)
|
967.5 | 1,195.8 | ||||||
|
Inventories
|
2,234.8 | 1,934.3 | ||||||
|
Deferred
taxes
|
139.0 | 166.3 | ||||||
|
Other
current assets
|
215.2 | 208.1 | ||||||
|
Total
Current Assets
|
4,040.9 | 4,776.9 | ||||||
|
LONG-TERM
ASSETS
|
||||||||
|
Property,
plant and equipment - net
|
481.5 | 419.4 | ||||||
|
Goodwill
|
457.0 | 699.0 | ||||||
|
Deferred
taxes
|
84.5 | 143.1 | ||||||
|
Other
assets
|
381.5 | 277.9 | ||||||
|
TOTAL ASSETS
|
$ | 5,445.4 | $ | 6,316.3 | ||||
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
|
CURRENT
LIABILITIES
|
||||||||
|
Notes
payable and current portion of long-term debt
|
$ | 39.4 | $ | 32.5 | ||||
|
Trade
accounts payable
|
983.9 | 1,212.9 | ||||||
|
Accrued
compensation and benefits
|
169.3 | 194.8 | ||||||
|
Accrued
warranties and product liability
|
149.3 | 132.0 | ||||||
|
Customer
advances
|
119.3 | 181.8 | ||||||
|
Other
current liabilities
|
363.4 | 421.3 | ||||||
|
Total
Current Liabilities
|
1,824.6 | 2,175.3 | ||||||
|
NON-CURRENT
LIABILITIES
|
||||||||
|
Long-term
debt, less current portion
|
1,396.4 | 1,319.5 | ||||||
|
Retirement
plans and other
|
502.7 | 478.3 | ||||||
|
TOTAL
LIABILITIES
|
3,723.7 | 3,973.1 | ||||||
|
COMMITMENTS
AND CONTINGENCIES
|
||||||||
|
STOCKHOLDERS’
EQUITY
|
||||||||
|
Common
Stock, $0.01 par value - authorized 300.0 shares; issued 107.1
and
106.2 shares at December 31, 2008 and 2007, respectively
|
1.1 | 1.1 | ||||||
|
Additional
paid-in capital
|
1,046.2 | 1,004.1 | ||||||
|
Retained
earnings
|
1,356.6 | 1,284.7 | ||||||
|
Accumulated
other comprehensive (loss) income
|
(82.3 | ) | 256.6 | |||||
|
Less
cost of shares of common stock in treasury 13.1 and 5.9 shares at
December
31, 2008 and 2007, respectively
|
(599.9 | ) | (203.3 | ) | ||||
|
Total
Stockholders’ Equity
|
1,721.7 | 2,343.2 | ||||||
|
TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY
|
$ | 5,445.4 | $ | 6,316.3 | ||||
The
accompanying notes are an integral part of these financial
statements.
F-4
TEREX
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(in
millions)
|
Outstanding
Shares
|
Common
Stock
|
Additional
Paid-in
Capital
|
Retained
Earnings
|
Accumulated
Other
Comprehen-
sive
Income
(Loss)
|
Common
Stock
in
Treasury
|
Total
|
||||||||||||||||||||||
|
BALANCE
AT JANUARY 1, 2006
|
98.7 | $ | 0.5 | $ | 861.9 | $ | 307.4 | $ | 26.2 | $ | (35.0 | ) | $ | 1,161.0 | ||||||||||||||
|
Net
Income
|
— | — | — | 399.9 | — | — | 399.9 | |||||||||||||||||||||
|
Other
Comprehensive Income (Loss):
|
||||||||||||||||||||||||||||
|
Translation
adjustment
|
— | — | — | — | 137.7 | — | 137.7 | |||||||||||||||||||||
|
Pension
liability adjustment
|
— | — | — | — | 5.6 | — | 5.6 | |||||||||||||||||||||
|
Derivative
hedging adjustment
|
— | — | — | — | 4.0 | — | 4.0 | |||||||||||||||||||||
|
Comprehensive
Income
|
547.2 | |||||||||||||||||||||||||||
|
Impact
of FAS No. 158 adoption
|
— | — | — | — | (18.3 | ) | — | (18.3 | ) | |||||||||||||||||||
|
Effect
of stock split
|
0.5 | (0.5 | ) | — | — | — | — | |||||||||||||||||||||
|
Issuance
of Common Stock
|
2.1 | — | 46.2 | — | — | — | 46.2 | |||||||||||||||||||||
|
Compensation
under Stock-based Plans - net
|
0.3 | — | 15.6 | — | — | 5.6 | 21.2 | |||||||||||||||||||||
|
Acquisition
of Treasury Stock
|
— | — | 0.5 | — | — | (6.8 | ) | (6.3 | ) | |||||||||||||||||||
|
BALANCE
AT DECEMBER 31, 2006
|
101.1 | 1.0 | 923.7 | 707.3 | 155.2 | (36.2 | ) | 1,751.0 | ||||||||||||||||||||
|
Net
Income
|
— | — | — | 613.9 | — | — | 613.9 | |||||||||||||||||||||
|
Other
Comprehensive Income (Loss):
|
||||||||||||||||||||||||||||
|
Translation
adjustment
|
— | — | — | — | 96.9 | — | 96.9 | |||||||||||||||||||||
|
Pension
liability adjustment
|
— | — | — | — | 10.5 | — | 10.5 | |||||||||||||||||||||
|
Derivative
hedging adjustment
|
— | — | — | — | (6.0 | ) | — | (6.0 | ) | |||||||||||||||||||
|
Comprehensive
Income
|
715.3 | |||||||||||||||||||||||||||
|
Impact
of FIN No. 48 adoption
|
— | — | — | (36.5 | ) | — | — | (36.5 | ) | |||||||||||||||||||
|
Issuance
of Common Stock
|
1.5 | 0.1 | 42.6 | — | — | — | 42.7 | |||||||||||||||||||||
|
Compensation
under Stock-based Plans - net
|
— | — | 37.8 | — | — | 1.3 | 39.1 | |||||||||||||||||||||
|
Acquisition
of Treasury Stock
|
(2.3 | ) | — | — | — | — | (168.4 | ) | (168.4 | ) | ||||||||||||||||||
|
BALANCE
AT DECEMBER 31, 2007
|
100.3 | 1.1 | 1,004.1 | 1,284.7 | 256.6 | (203.3 | ) | 2,343.2 | ||||||||||||||||||||
|
Net
Income
|
— | — | — | 71.9 | — | — | 71.9 | |||||||||||||||||||||
|
Other
Comprehensive Income (Loss):
|
||||||||||||||||||||||||||||
|
Translation
adjustment
|
— | — | — | — | (332.2 | ) | — | (332.2 | ) | |||||||||||||||||||
|
Pension
liability adjustment
|
— | — | — | — | (10.7 | ) | — | (10.7 | ) | |||||||||||||||||||
|
Derivative
hedging adjustment
|
— | — | — | — | 4.0 | — | 4.0 | |||||||||||||||||||||
|
Comprehensive
Income (Loss)
|
(267.0 | ) | ||||||||||||||||||||||||||
|
Issuance
of Common Stock
|
0.9 | — | 44.0 | — | — | — | 44.0 | |||||||||||||||||||||
|
Compensation
under Stock-based Plans - net
|
0.2 | — | (2.3 | ) | — | — | 3.6 | 1.3 | ||||||||||||||||||||
|
Acquisition
of Treasury Stock
|
(7.4 | ) | — | 0.4 | — | — | (400.2 | ) | (399.8 | ) | ||||||||||||||||||
|
BALANCE
AT DECEMBER 31, 2008
|
94.0 | $ | 1.1 | $ | 1,046.2 | $ | 1,356.6 | $ | (82.3 | ) | $ | (599.9 | ) | $ | 1,721.7 | |||||||||||||
The
accompanying notes are an integral part of these financial
statements.
F-5
TEREX
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENT OF CASH FLOWS
(in
millions)
|
Year Ended December 31,
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
OPERATING
ACTIVITIES
|
||||||||||||
|
Net
income
|
$ | 71.9 | $ | 613.9 | $ | 399.9 | ||||||
|
Adjustments
to reconcile net income to cash provided by operating
activities:
|
||||||||||||
|
Depreciation
|
75.0 | 63.4 | 61.2 | |||||||||
|
Amortization
|
22.7 | 12.8 | 11.8 | |||||||||
|
Deferred
taxes
|
20.5 | 2.8 | 65.9 | |||||||||
|
Loss
on early extinguishment of debt
|
— | 3.2 | 7.2 | |||||||||
|
Gain
on sale of assets
|
(1.5 | ) | (11.3 | ) | (2.5 | ) | ||||||
|
Goodwill
impairment
|
459.9 | — | — | |||||||||
|
Loss
on disposition of discontinued operations
|
— | — | 6.5 | |||||||||
|
Stock-based
compensation expense
|
58.2 | 64.9 | 43.5 | |||||||||
|
Excess
tax benefit from stock-based compensation
|
(8.9 | ) | (22.9 | ) | (16.9 | ) | ||||||
|
Changes
in operating assets and liabilities (net of effects of acquisitions and
divestitures):
|
||||||||||||
|
Trade
receivables
|
143.6 | (182.8 | ) | (214.2 | ) | |||||||
|
Inventories
|
(404.9 | ) | (326.3 | ) | (168.5 | ) | ||||||
|
Trade
accounts payable
|
(137.5 | ) | 122.5 | 103.0 | ||||||||
|
Accrued
compensation and benefits
|
(43.3 | ) | 1.2 | 32.6 | ||||||||
|
Accrued
warranties and product liability
|
25.4 | 13.6 | 21.7 | |||||||||
|
Customer
advances
|
(46.7 | ) | 93.7 | 43.2 | ||||||||
|
Other
|
(50.7 | ) | (87.3 | ) | 97.9 | |||||||
|
Net
cash provided by operating activities
|
183.7 | 361.4 | 492.3 | |||||||||
|
INVESTING
ACTIVITIES
|
||||||||||||
|
Acquisition
of businesses, net of cash acquired
|
(481.5 | ) | (154.4 | ) | (33.2 | ) | ||||||
|
Capital
expenditures
|
(120.8 | ) | (111.5 | ) | (78.9 | ) | ||||||
|
Investments
in and advances to affiliates
|
— | (0.9 | ) | (7.1 | ) | |||||||
|
Proceeds
from disposition of discontinued operations – net of cash
divested
|
— | — | 55.2 | |||||||||
|
Proceeds
from sale of assets
|
23.0 | 15.3 | 12.1 | |||||||||
|
Net
cash used in investing activities
|
(579.3 | ) | (251.5 | ) | (51.9 | ) | ||||||
|
FINANCING
ACTIVITIES
|
||||||||||||
|
Principal
repayments of long-term debt
|
— | (200.0 | ) | (300.0 | ) | |||||||
|
Proceeds
from issuance of long-term debt
|
— | 800.0 | — | |||||||||
|
Payment
of debt issuance costs
|
— | (10.7 | ) | (7.9 | ) | |||||||
|
Excess
tax benefit from stock-based compensation
|
8.9 | 22.9 | 16.9 | |||||||||
|
Net
borrowings (repayments) under revolving line of credit
agreements
|
36.7 | (29.0 | ) | (73.4 | ) | |||||||
|
Share
repurchases
|
(395.5 | ) | (166.6 | ) | — | |||||||
|
Proceeds
from stock options exercised
|
2.5 | 10.4 | 15.3 | |||||||||
|
Other
|
(1.8 | ) | 4.1 | (3.6 | ) | |||||||
|
Net
cash (used in) provided by financing activities
|
(349.2 | ) | 431.1 | (352.7 | ) | |||||||
|
Effect
of Exchange Rate Changes on Cash and Cash Equivalents
|
(43.2 | ) | 54.7 | 35.4 | ||||||||
|
Net
(Decrease) Increase in Cash and Cash Equivalents
|
(788.0 | ) | 595.7 | 123.1 | ||||||||
|
Cash
and Cash Equivalents at Beginning of Period
|
1,272.4 | 676.7 | 553.6 | |||||||||
|
Cash
and Cash Equivalents at End of Period
|
$ | 484.4 | $ | 1,272.4 | $ | 676.7 | ||||||
The
accompanying notes are an integral part of these financial
statements.
F-6
TEREX
CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008
(dollar
amounts in millions, unless otherwise noted, except per share
amounts)
NOTE
A – BASIS OF PRESENTATION
Principles of
Consolidation. The
Consolidated Financial Statements include the accounts of Terex Corporation and
its majority owned subsidiaries (“Terex” or the “Company”). The Company
consolidates all majority-owned and controlled subsidiaries, applies the equity
method of accounting for investments in which the Company is able to exercise
significant influence, and applies the cost method for all other
investments. All material intercompany balances, transactions and
profits have been eliminated.
Reclassification
and Out of Period Adjustment. Certain prior year amounts have been
reclassified to conform to the current year’s presentation.
During
the year ended December 31, 2008, the Company recorded an out of period
adjustment, arising in 2007, which decreased the Provision for income taxes by
$11.4. During the year ended December 31, 2007, the Company recorded
an out of period adjustment, arising in the years 2002 through 2006, which
decreased the Provision for income taxes by $10.9. The Company did
not adjust the prior periods as it concluded that such adjustments were not
material to the prior periods’ consolidated financial statements.
Use of Estimates.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual amounts could differ from those estimates.
Cash and Cash
Equivalents. Cash equivalents consist of highly liquid investments with
original maturities of three months or less. The carrying amount of
cash and cash equivalents approximates their fair value. Cash and
cash equivalents at December 31, 2008 and 2007 include $6.7 and $3.7,
respectively, which were not immediately available for use. These
consist primarily of cash balances held in escrow to secure various obligations
of the Company.
Inventories. Inventories
are stated at the lower of cost or market (“LCM”) value. Cost is determined
principally by the first-in, first-out (“FIFO”) and the average cost method
(approximately 45% and 55%, respectively). In valuing inventory,
management is required to make assumptions regarding the level of reserves
required to value potentially obsolete or over-valued items at the lower of cost
or market. The valuation of used equipment taken in trade from customers
requires the Company to use the best information available to determine the
value of the equipment to potential customers. This value is subject to change
based on numerous conditions. Inventory reserves are established taking into
account age, frequency of use, or sale, and in the case of repair parts, the
installed base of machines. While calculations are made involving
these factors, significant management judgment regarding expectations for future
events is involved. Future events which could significantly influence
management’s judgment and related estimates include general economic conditions
in markets where the Company’s products are sold, new equipment price
fluctuations, competitive actions including the introduction of new products and
technological advances, as well as new products and design changes introduced by
the Company. At December 31, 2008 and 2007, reserves for LCM, excess
and obsolete inventory totaled $121.0 and $105.5, respectively.
Debt Issuance
Costs. Debt issuance costs incurred in securing the Company’s financing
arrangements are capitalized and amortized over the term of the associated debt.
Capitalized debt issuance costs related to debt that is extinguished early are
charged to expense at the time of retirement. Debt issuance costs were $18.4 and
$20.9 (net of accumulated amortization of $8.2 and $5.0) at December 31, 2008
and 2007, respectively.
Intangible
Assets. Intangible assets include purchased patents, trademarks and other
specifically identifiable assets and are amortized on a straight-line basis over
the respective estimated useful lives, which range from three to nineteen
years. Intangible assets are reviewed for impairment when
circumstances warrant.
Goodwill.
Goodwill, representing the difference
between the total purchase price and the fair value of assets (tangible and
intangible) and liabilities at the date of acquisition, is reviewed for
impairment annually, and more frequently as circumstances warrant, and written
down only in the period in which the recorded value of such assets exceed their
fair value. The Company does not amortize goodwill, in accordance
with Financial Accounting Standards Board (the “FASB”) Statement of Financial
Accounting Standards (“SFAS”) No. 142 “Goodwill and Other Intangible Assets”
(“SFAS No. 142”). The Company selected October 1 as the date for the
required annual impairment test.
F-7
Goodwill
is tested for impairment at the reporting unit level, which is defined as an
operating segment or a component of an operating segment that constitutes a
business for which discrete financial information with similar economic
characteristics is available and the operating results are regularly reviewed by
the Company’s management. The Company’s seven reporting units are contained
within its five operating segments. The Company’s Materials
Processing & Mining and its Roadbuilding, Utility Products and Other
segments each include two reporting units for goodwill impairment testing
purposes.
The
goodwill impairment analysis is a two-step process. The first step used to
identify potential impairment involves comparing each reporting unit’s estimated
fair value to its carrying value, including goodwill. The Company uses an income
approach derived from a discounted cash flow model to estimate the fair value of
its reporting units. The aggregate fair value of the Company’s
reporting units is compared to the Company’s market capitalization on the
valuation date to assess its reasonableness. The initial recognition of
goodwill, as well as the annual review of the carrying value of goodwill,
requires that the Company develop estimates of future business performance.
These estimates are used to derive expected cash flow and include assumptions
regarding future sales levels, the impact of cost reduction programs, and the
level of working capital needed to support a given business. The Company relies
on data developed by business segment management as well as macroeconomic data
in making these calculations. The discounted cash flow model also includes a
determination of the Company’s weighted average cost of capital. The cost of
capital is based on assumptions about interest rates as well as a risk-adjusted
rate of return required by the Company’s equity investors. Changes in these
estimates can impact the present value of the expected cash flow that is used in
determining the fair value of acquired intangible assets as well as the overall
expected value of a given business.
The
second step of the process involves the calculation of an implied fair value of
goodwill for each reporting unit for which step one indicated impairment. The
implied fair value of goodwill is determined by measuring the excess of the
estimated fair value of the reporting unit over the estimated fair values of the
individual assets, liabilities and identifiable intangibles as if the reporting
unit was being acquired in a business combination. If the implied fair value of
goodwill exceeds the carrying value of goodwill assigned to the reporting unit,
there is no impairment. If the carrying value of goodwill assigned to a
reporting unit exceeds the implied fair value of the goodwill, an impairment
charge is recorded for the excess. An impairment loss cannot exceed the carrying
value of goodwill assigned to a reporting unit and subsequent reversal of
goodwill impairment losses is not permitted.
There
were no indicators of goodwill impairment in the tests performed as of October
1, 2007 and 2006. As a result of the Company’s annual impairment test
performed as of October 1, 2008, the Company’s Construction and Roadbuilding,
Utility Products and Other segments recorded non-cash charges of $459.9 to
reflect impairment of all of the goodwill in these reporting
units. See Note L – “Goodwill.”
Property, Plant
and Equipment.
Property, plant and equipment are stated at cost. Expenditures for major
renewals and improvements are capitalized while expenditures for maintenance and
repairs not expected to extend the life of an asset beyond its normal useful
life are charged to expense when incurred. Plant and equipment are depreciated
over the estimated useful lives (5-40 years and 3-20 years, respectively) of the
assets under the straight-line method of depreciation for financial reporting
purposes and both straight-line and other methods for tax purposes.
Impairment of
Long-Lived Assets. The Company’s policy is to assess the realizability of
its long-lived assets, including intangible assets, and to evaluate such assets
for impairment whenever events or changes in circumstances indicate that the
carrying amount of such assets (or group of assets) may not be recoverable.
Impairment is determined to exist if the estimated future undiscounted cash
flows are less than the carrying value. Future cash flow projections include
assumptions for future sales levels, the impact of cost reduction programs, and
the level of working capital needed to support each business. The Company uses
data developed by business segment management as well as macroeconomic data in
making these calculations. The amount of any impairment then
recognized would be calculated as the difference between estimated fair value
and the carrying value of the asset. Due to adverse market conditions
and the lower expectations for growth and profitability in the Construction and
Roadbuilding, Utility Products and Other segments, the Company performed an
evaluation of its long-lived assets as of December 31, 2008. The
Company did not have any impairment for the years ended December 31, 2008, 2007
and 2006.
Accounts
Receivable and Allowance for Doubtful Accounts. Trade accounts receivable
are recorded at the invoiced amount and do not bear interest. The allowance for
doubtful accounts is the Company’s best estimate of the amount of probable
credit losses in its existing accounts receivable. The Company determines the
allowance based on historical customer review and current financial conditions.
The Company reviews its allowance for doubtful accounts at least quarterly. Past
due balances over 90 days and over a specified amount are reviewed individually
for collectibility. All other balances are reviewed on a pooled basis by type of
receivable. Account balances are charged off against the allowance when the
Company determines it is probable the receivable will not be
recovered. Given current economic conditions, there can be no
assurance that the Company’s historical accounts receivable collection
experience will be indicative of future results. The Company has
off-balance-sheet credit exposure related to guarantees provided to financial
institutions as disclosed in Note T - “Litigation and Contingencies.”
Substantially all receivables were trade receivables at December 31, 2008 and
2007.
F-8
Revenue
Recognition. Revenue and related costs are generally recorded
when products are shipped and invoiced to either independently owned and
operated dealers or to customers. Shipping and handling charges are
recorded in Cost of goods sold.
Revenue
generated in the United States is recognized when title and risk of loss pass
from the Company to its customers which occurs upon shipment when terms are FOB
shipping point (which is customary for the Company) and upon delivery when terms
are FOB destination. The Company also has a policy which requires it to meet
certain criteria in order to recognize revenue, including satisfaction of the
following requirements:
|
a)
|
Persuasive
evidence that an arrangement
exists;
|
|
b)
|
The
price to the buyer is fixed or
determinable;
|
|
c)
|
Collectibility
is reasonably assured; and
|
|
d)
|
The
Company has no significant obligations for future
performance.
|
In the
United States, the Company has the ability to enter into a security agreement
and receive a security interest in the product by filing an appropriate Uniform
Commercial Code (“UCC”) financing statement. However, a significant portion of
the Company’s revenue is generated outside of the United States. In many
countries outside of the United States, as a matter of statutory law, a seller
retains title to a product until payment is made. The laws do not provide for a
seller’s retention of a security interest in goods in the same manner as
established in the UCC. In these countries, the Company retains title to goods
delivered to a customer until the customer makes payment so that the Company can
recover the goods in the event of customer default on payment. In these
circumstances, where the Company only retains title to secure its recovery in
the event of customer default, the Company also has a policy requiring it to
meet certain criteria in order to recognize revenue, including satisfaction of
the following requirements:
|
a)
|
Persuasive
evidence that an arrangement
exists;
|
|
b)
|
Delivery
has occurred or services have been
rendered;
|
|
c)
|
The
price to the buyer is fixed or
determinable;
|
|
d)
|
Collectibility
is reasonably assured;
|
|
e)
|
The
Company has no significant obligations for future performance;
and
|
|
|
f)
|
The
Company is not entitled to direct the disposition of the goods, cannot
rescind the transaction, cannot prohibit the customer from moving,
selling, or otherwise using the goods in the ordinary course of business
and has no other rights of holding title that rest with a titleholder of
property that is subject to a lien under the
UCC.
|
In
circumstances where the sales transaction requires acceptance by the customer
for items such as testing on site, installation, trial period or performance
criteria, revenue is not recognized unless the following criteria have been
met:
|
a)
|
Persuasive
evidence that an arrangement
exists;
|
|
b)
|
Delivery
has occurred or services have been
rendered;
|
|
c)
|
The
price to the buyer is fixed or
determinable;
|
|
d)
|
Collectibility
is reasonably assured; and
|
|
|
e)
|
The
customer has signed off on the acceptance, the time period has elapsed or
the Company has otherwise objectively demonstrated that the criteria
specified in the acceptance provisions have been
satisfied.
|
In
addition to performance commitments, the Company analyzes factors such as the
reason for the purchase to determine if revenue should be recognized. This
analysis is done before the product is shipped and includes the evaluation of
factors that may affect the conclusion related to the revenue recognition
criteria as follows:
|
a)
|
Persuasive
evidence that an arrangement
exists;
|
|
b)
|
Delivery
has occurred or services have been
rendered;
|
|
c)
|
The
price to the buyer is fixed or determinable;
and
|
|
d)
|
Collectibility
is reasonably assured.
|
Revenue
from sales-type leases is recognized at the inception of the lease. Income from
operating leases is recognized ratably over the term of the lease. The Company
routinely sells equipment subject to operating leases and the related lease
payments. If the Company does not retain a substantial risk of ownership in the
equipment, the transaction is recorded as a sale. If the Company does retain a
substantial risk of ownership, the transaction is recorded as a borrowing, the
operating lease payments are recognized as revenue over the term of the lease
and the debt is amortized over a similar period.
F-9
The
Company, from time to time, issues buyback guarantees in conjunction with
certain sales agreements. These primarily relate to trade value
agreements (“TVAs”) in which a customer may trade-in equipment in the future at
a stated price/credit, if certain conditions are met by the
customer. The trade in price/credit is determined at the time of the
original sale of equipment. In conjunction with the trade-in, these
conditions include a requirement to purchase new equipment at fair market value
at the time of trade-in, which fair value is required to be of equal or greater
value than the original equipment cost. Other conditions also include
the general functionality and state of repair of the machine. The
Company has concluded that any credit provided to customers under a TVA/buyback
guarantee, which is expected to be equal to or less than the fair value of the
equipment returned on the trade-in date, is a guarantee to be accounted for in
accordance with FASB Interpretation (“FIN”) No. 45, “Guarantor’s Accounting and
Disclosure Requirements for Guarantees, including Indirect Guarantees of
Indebtedness of Others” (“FIN No. 45”).
The
original sale of equipment, accompanied by a buyback guarantee, is a multiple
element transaction wherein the Company offers its customer the right, after
some period of time, for a limited period of time, to exchange purchased
equipment for a fixed price trade-in credit toward another of our
products. The fixed price trade-in credit is accounted for under the
guidance provided by FIN No. 45. Pursuant to this right, the Company has agreed
to make a payment (in the form of a trade-in credit) to the customer contingent
upon the customer exercising its right to trade-in the original purchased
equipment. Under the guidance of FIN No. 45, the Company records the fixed price
trade-in credit at its fair value. Accordingly, as noted above, the
Company has accounted for the trade-in credit as a separate deliverable in a
multiple element arrangement.
Guarantees. The Company
records a liability for the estimated fair value of guarantees issued pursuant
to FIN No. 45. The Company recognizes a loss under a guarantee when
its obligation to make payment under the guarantee is probable and the amount of
the loss can be estimated. A loss would be recognized if the
Company’s payment obligation under the guarantee exceeds the value it can expect
to recover to offset such payment, primarily through the sale of the equipment
underlying the guarantee.
Accrued
Warranties. The
Company records accruals for potential warranty claims based on its claim
experience. The Company’s products are typically sold with a standard warranty
covering defects that arise during a fixed period of time. Each
business provides a warranty specific to the products it offers. The
specific warranty offered by a business is a function of customer expectations
and competitive forces. Length of warranty is generally a fixed
period of time, a fixed number of operating hours, or both.
A
liability for estimated warranty claims is accrued at the time of sale. The
non-current portion of the warranty accrual is included in Retirement plans and
other in the Company’s Consolidated Balance Sheet. The liability is established
using historical warranty claim experience for each product
sold. Historical claim experience may be adjusted for known design
improvements or for the impact of unusual product quality issues. Warranty
reserves are reviewed quarterly to ensure critical assumptions are updated for
known events that may impact the potential warranty liability.
The
following table summarizes the changes in the consolidated current and
non-current product warranty liability:
|
Balance
as of December 31, 2006
|
$ | 120.0 | ||
|
Accruals
for warranties issued during the year
|
140.7 | |||
|
Changes
in estimates
|
(11.1 | ) | ||
|
Settlements
during the year
|
(111.6 | ) | ||
|
Foreign
exchange effect
|
7.4 | |||
|
Balance
as of December 31, 2007
|
145.4 | |||
|
Accruals
for warranties issued during the year
|
185.6 | |||
|
Changes
in estimates
|
8.8 | |||
|
Settlements
during the year
|
(161.0 | ) | ||
|
Foreign
exchange effect
|
(10.4 | ) | ||
|
Balance
as of December 31, 2008
|
$ | 168.4 |
Accrued Product
Liability. The Company records accruals for product liability claims when
deemed probable and estimable based on facts and circumstances, and prior claim
experience. Accruals for product liability claims are valued based
upon the Company’s prior claims experience, including consideration of the
jurisdiction, circumstances of the accident, type of loss or injury, identity of
plaintiff, other potential responsible parties, analysis of outside legal
counsel, analysis of internal product liability counsel and the experience of
the Company’s director of product safety. Actual product liability
costs could be different due to a number of variables such as the decisions of
juries or judges.
F-10
Defined Benefit
Pension and Other Postretirement Benefits. The Company provides
postretirement benefits to certain former salaried and hourly employees and
certain hourly employees covered by bargaining unit contracts that provide such
benefits. The Company accounts for these benefits under SFAS
No. 87, “Employers’ Accounting for Pensions,” SFAS
No. 88, “Employers’ Accounting for Settlements and Curtailments of
Defined Benefit Pension Plans and for Termination Benefits,” SFAS
No. 106, “Employers’ Accounting for Postretirement Benefits Other
Than Pensions” and SFAS No. 158, “Employer’s Accounting for Defined Benefit
Pension and Other Postretirement Plans – an amendment of FASB Statements
No. 87, 88, 106, and 132(R)” (“SFAS No. 158”). SFAS No. 158
requires balance sheet recognition of the overfunded or underfunded status of
pension and postretirement benefit plans. Under SFAS No. 158,
actuarial gains and losses, prior service costs or credits, and any remaining
transition assets or obligations that have not been recognized under previous
accounting standards must be recognized in Accumulated other comprehensive
income, net of tax effects, until they are amortized as a component of net
periodic benefit cost. See Note R – “Retirement Plans and Other
Benefits.”
Deferred
Compensation. The Company maintains a Deferred Compensation
Plan, which is described more fully in Note R - “Retirement Plans and Other
Benefits.” The Company’s common stock, par value $.01 per share (“Common Stock”)
held in a rabbi trust pursuant to the Company’s Deferred Compensation Plan is
treated in a manner similar to treasury stock and is recorded at cost within
Stockholders’ Equity as of December 31, 2008 and 2007. The plan
obligations for participant deferrals in the Company’s Common Stock are
classified as Additional paid-in capital within Stockholders’
Equity. The total of the Company’s Common Stock required to settle
this deferred compensation obligation is included in the denominator in both
basic and diluted earnings per share calculations.
Stock-Based
Compensation. At December 31,
2008, the Company had stock-based employee compensation plans, which are
described more fully in Note S - “Stockholders’ Equity.” The Company
accounts for those plans under the recognition and measurement principles of
SFAS No. 123R, “Share-Based Payment” (“SFAS No. 123R”). SFAS No. 123R
requires that expense resulting from all share-based payment transactions be
recognized in the financial statements at fair value.
Foreign Currency
Translation. Assets and liabilities of the Company’s
international operations are translated at year-end exchange
rates. Income and expenses are translated at average exchange rates
prevailing during the year. For operations whose functional currency
is the local currency, translation adjustments are recorded in the Accumulated
other comprehensive income component of Stockholders’ Equity. Gains
or losses resulting from foreign currency transactions are recorded in the
accounts based on the underlying transaction.
Derivatives. Derivative
financial instruments are recorded in the Consolidated Balance Sheet at their
fair value as either assets or liabilities. Changes in the fair value
of derivatives are recorded each period in earnings or Accumulated other
comprehensive income, depending on whether a derivative is designated and
effective as part of a hedge transaction and, if it is, the type of hedge
transaction. Gains and losses on derivative instruments reported in
Accumulated other comprehensive income are included in earnings in the periods
in which earnings are affected by the hedged item. See Note M -
“Derivative Financial Instruments.”
Environmental
Policies. Environmental expenditures that relate to current
operations are either expensed or capitalized depending on the nature of the
expenditure. Expenditures relating to conditions caused by past
operations that do not contribute to current or future revenue generation are
expensed. Liabilities are recorded when environmental assessments
and/or remedial actions are probable and the costs can be reasonably
estimated. Such amounts were not material at December 31, 2008 and
2007.
Research and
Development Costs. Research and development costs are expensed
as incurred. Such costs incurred in the development of new products
or significant improvements to existing products are included in Selling,
general and administrative expenses. Research and development costs
were $71.2, $69.5 and $52.6 during 2008, 2007 and 2006,
respectively.
Income
Taxes. The Company
accounts for income taxes using the asset and liability method. This
approach requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the carrying
amounts and the tax bases of assets and liabilities. See Note C –
“Income Taxes.”
Earnings Per
Share. Basic earnings per share is computed by dividing Net
Income (Loss) for the period by the weighted average number of shares of Common
Stock outstanding. Diluted earnings per share is computed by dividing
net income (loss) for the period by the weighted average number of shares of
Common Stock outstanding and potential dilutive common shares. See
Note E – “Earnings Per Share.”
F-11
Recent Accounting
Pronouncements. In September 2006, the FASB issued SFAS
No. 157, “Fair Value Measurements” (“SFAS No. 157”), which is effective for
fiscal years beginning after November 15, 2007 and for interim periods
within those years. This statement defines fair value, establishes a
framework for measuring fair value and expands the related disclosure
requirements. This statement applies under other accounting pronouncements
that require or permit fair value measurements. The statement indicates,
among other things, that a fair value measurement assumes that the transaction
to sell an asset or transfer a liability occurs in the principal market for the
asset or liability or, in the absence of a principal market, the most
advantageous market for the asset or liability. SFAS No. 157 defines fair value
based upon an exit price model. In February 2008, the FASB issued FASB
Staff Positions (“FSP”) No. 157-1, “Application of FASB Statement No. 157 to
FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair
Value Measurements for Purposes of Lease Classification or Measurement under
Statement 13” and FSP No. 157-2, “Effective Date of FASB Statement No.
157.” FSP No. 157-1 amends SFAS No. 157 to exclude SFAS No. 13,
“Accounting for Leases” and its related interpretive accounting pronouncements
that address leasing transactions, while FSP No. 157-2 delays the effective date
of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities, except
those that are recognized or disclosed at fair value in the financial statements
on a recurring basis (at least annually) until the beginning of the first
quarter of 2009. Effective January 1, 2009 the provisions of
SFAS No. 157 were applied to non-financial assets and non-financial
liabilities. The adoption of SFAS No. 157 did not have a
significant impact on the determination or reporting of the Company’s financial
results.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities – Including an amendment of FASB
Statement No. 115,” which is effective for fiscal years beginning after
November 15, 2007. This statement permits entities to choose to
measure many financial instruments and certain other items at fair
value. This statement also establishes presentation and disclosure
requirements designed to facilitate comparisons between entities that choose
different measurement attributes for similar types of assets and
liabilities. Unrealized gains and losses on items for which the fair
value option is elected would be reported in earnings. The Company
has not elected to apply this provision to its existing financial instruments as
of December 31, 2008.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations” (“SFAS No. 141R”), which replaces SFAS No. 141, “Business
Combinations” (“SFAS No. 141”). SFAS No. 141R retains the underlying
concepts of SFAS No. 141 in that all business combinations are still required to
be accounted for at fair value under the acquisition method of accounting, but
SFAS No. 141R changes the application of the acquisition method in a number of
significant aspects. Acquisition costs will generally be expensed as
incurred; noncontrolling interests will be valued at fair value at the
acquisition date; in-process research and development will be recorded at fair
value as an indefinite-lived intangible asset at the acquisition date;
restructuring costs associated with a business combination will generally be
expensed subsequent to the acquisition date; and changes in deferred tax asset
valuation allowances and income tax uncertainties after the acquisition date
generally will affect income tax expense. SFAS No. 141R is effective
on a prospective basis for all business combinations for which the acquisition
date is on or after the beginning of the first annual period subsequent to
December 15, 2008. Early adoption was prohibited. The
effects of SFAS No. 141R will depend on any future acquisitions the Company may
complete.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51” (“SFAS No.
160”). This statement is effective for fiscal years, and interim periods within
those fiscal years, beginning on or after December 15, 2008, with earlier
adoption prohibited. This statement requires the recognition of a
noncontrolling interest (minority interest) as equity in the consolidated
financial statements and separate from the parent’s equity. The
amount of net income attributable to the noncontrolling interest will be
included in consolidated net income on the face of the income
statement. It also amends certain of ARB No. 51’s consolidation
procedures for consistency with the requirements of SFAS No.
141R. This statement also includes expanded disclosure requirements
regarding the interests of the parent and its noncontrolling
interest. The Company has evaluated the new statement and has
determined that it will not have a significant impact on the determination or
reporting of its financial results.
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities – an amendment of FASB Statement No. 133” (“SFAS No.
161”). This statement is effective for fiscal years, and interim
periods within those fiscal years, beginning after November 15, 2008, with
early application encouraged. SFAS No. 161 is intended to improve
financial reporting by requiring transparency about the nature, purpose,
location and amounts of derivative instruments in an entity’s financial
statements; how derivative instruments and related hedged items are accounted
for under SFAS No. 133, “Accounting for Derivative Instruments and Hedging
Activities;” and how derivative instruments and related hedged items affect its
financial position, financial performance and cash flows. The Company
has evaluated the new statement and has determined that it will not have a
significant impact on the determination or reporting of its financial
results.
F-12
In April
2008, the FASB issued FASB Staff Position No. 142-3, “Determination of the
Useful Life of Intangible Assets” (“FSP No. 142-3”). FSP No. 142-3 amends
the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized intangible asset
under SFAS No. 142, “Goodwill and Other Intangible Assets.” FSP No. 142-3
is effective on a prospective basis to all intangible assets acquired and for
disclosures on all intangible assets recognized on or after the beginning of the
first annual period subsequent to December 15, 2008. Early adoption
is prohibited. The Company has evaluated the new statement and has
determined that it will not have a significant impact on the determination or
reporting of its financial results.
In
May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting
Principles” (“SFAS No. 162”). SFAS No. 162 identifies a consistent
framework, or hierarchy, for selecting accounting principles to be used in
preparing financial statements that are presented in conformity with U.S.
generally accepted accounting principles for nongovernmental entities (the
“Hierarchy”). The Hierarchy within SFAS No. 162 is similar to the
definition in the American Institute of Certified Public Accountants Statement
on Auditing Standards No. 69, “The Meaning of Present Fairly in Conformity
With Generally Accepted Accounting Principles” (“SAS No. 69”). SFAS
No. 162 was effective 60 days following the United States Securities and
Exchange Commission’s (“SEC”) approval of the Public Company Accounting
Oversight Board amendments to AU Section 411, “The Meaning of Present
Fairly in Conformity With Generally Accepted Accounting Principles,” which
occurred in September 2008. The adoption of SFAS No. 162 did not have
a material effect on the Company’s financial statements because the Company has
utilized the guidance within SAS No. 69.
In
September 2008, the FASB issued FSP No. FAS 133-1 and FIN No. 45-4,
“Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of
FASB Statement No. 133 and FASB Interpretation No. 45; and
Clarification of the Effective Date of FASB Statement No. 161” (“FSP FAS No.
133-1 and FIN No. 45-4”). FSP FAS No. 133-1 and FIN No. 45-4 amends SFAS No. 133
to require disclosures by sellers of credit derivatives, including credit
derivatives embedded in a hybrid instrument; amends FIN No. 45 to require
additional disclosure about the current status of the payment/performance risk
of a guarantee; and clarifies the FASB’s intent about the effective date of
SFAS No. 161. FSP FAS No. 133-1 and FIN No. 45-4 is effective
for fiscal years ending after November 15, 2008. The Company
adopted the new pronouncement and has determined that it did not have a
significant impact on the determination or reporting of its financial
results.
In
December 2008, the FASB issued FSP No. FAS 132(R)-1, “Employers’
Disclosures about Postretirement Benefit Plan Assets” (“FSP FAS No.
132(R)-1”). FSP FAS No. 132(R)-1 amends SFAS No. 132 (revised
2003), “Employers’ Disclosures about Pensions and Other Postretirement
Benefits,” to provide guidance on an employer’s disclosures about plan assets of
a defined benefit pension or other postretirement plan. FSP
FAS No. 132(R)-1 requires additional disclosure on benefit plan investment
allocation decision making process, the fair value of each major category of
plan assets, the valuation techniques used to measure fair value of the plan
assets and any significant concentrations of risk within plan
assets. This FSP is effective for fiscal years ending after December
15, 2009, with early application permitted. The Company does not
expect that FSP FAS No. 132(R)-1 will have a significant impact on the
determination or reporting of its financial results.
NOTE
B - BUSINESS SEGMENT INFORMATION
Terex is
a diversified global manufacturer of capital equipment focused on delivering
reliable, customer relevant solutions for the construction, infrastructure,
quarrying, surface mining, shipping, transportation, power and energy
industries. Through December 31, 2008, the Company operated in five
reportable segments: (i) Terex Aerial Work Platforms, (ii) Terex Construction,
(iii) Terex Cranes, (iv) Terex Materials Processing & Mining and (v) Terex
Roadbuilding, Utility Products and Other.
The
Aerial Work Platforms segment designs, manufactures, refurbishes and markets
aerial work platform equipment, telehandlers, power equipment and construction
trailers. Customers in the construction and building maintenance
industries use these products to build and/or maintain large physical assets and
structures.
The
Construction segment designs, manufactures and markets two primary categories of
construction equipment: heavy construction and compact construction
equipment. Construction, logging, mining, industrial and government
customers use these products in construction and infrastructure projects and in
coal, minerals, sand and gravel operations. The Company acquired
A.S.V., Inc. (“ASV”) on February 26, 2008. The results of ASV are included in
the Construction segment from its date of acquisition.
The
Cranes segment designs, manufactures and markets mobile telescopic cranes, tower
cranes, lattice boom crawler cranes, truck-mounted cranes (boom trucks) and
telescopic container stackers. These products are used primarily for
construction, repair and maintenance of infrastructure, building and
manufacturing facilities. The Company acquired Power Legend
International Limited (“Power Legend”) and its affiliates, including a
controlling 50% ownership interest in Sichuan Changjiang Engineering Crane Co.,
Ltd. (“Sichuan Crane”), on April 4, 2006. The results of Power Legend
and Sichuan Crane are included in the Cranes segment from their date of
acquisition.
F-13
The
Materials Processing & Mining segment designs, manufactures and markets
crushing and screening equipment, hydraulic mining excavators, highwall mining
equipment, high capacity surface mining trucks, drilling equipment and other
products. Construction, mining, quarrying and government customers
use these products in construction and infrastructure projects and commodity
mining. The Company acquired Halco Holdings Limited and its
affiliates (“Halco”) on January 24, 2006, established the Terex NHL Mining
Equipment Company Ltd. (“Terex NHL”) joint venture on March 9, 2006, and
acquired Superior Highwall Miners, Inc. and its affiliates (“SHM”) on November
6, 2007. The results of Halco, Terex NHL and SHM are included in the Materials
Processing & Mining segment from their respective dates of acquisition or
formation.
The
Roadbuilding, Utility Products and Other segment designs, manufactures and
markets asphalt and concrete equipment, landfill compactors, bridge inspection
and utility equipment. Government, utility and construction customers
use these products to build roads, construct and maintain utility lines, trim
trees and for other commercial operations. Additionally, the Company
owns much of the North American distribution channel for its utility products
group, operates a fleet of rental utility products in the United States and
Canada and owns a distributor of its equipment and other
products. The Company also assists customers in their rental, leasing
and acquisition of its products through Terex Financial Services,
Inc.
Effective
January 1, 2009, the Company realigned certain operations in an effort to
capture market synergies and streamline its cost structure. The
Roadbuilding businesses, formerly part of the Company’s Roadbuilding, Utility
Products and Other segment, will now be consolidated within the Construction
segment. The Utility Products businesses, formerly part of the
Roadbuilding, Utility Products and Other segment, will now be consolidated
within the Aerial Work Platforms segment. Certain other businesses
that were included in the Roadbuilding, Utility Products and Other segment will
now be reported in Corporate and Other, which includes eliminations among our
segments. Additionally, the Company’s truck-mounted articulated
hydraulic crane line of business produced in Delmenhorst and Vechta, Germany,
formerly part of the Construction segment, will now be consolidated within the
Cranes segment. The segment disclosures included herein do not
reflect these realignments. The Company will give effect to these
realignments in its segment reporting for financial reporting periods beginning
January 1, 2009, at which point the Roadbuilding, Utility Products and Other
segment will cease to be a reportable segment.
The
Company has no customers that accounted for more than 10% of consolidated sales
in 2008. The results of businesses acquired during 2008, 2007 and
2006 are included from the dates of their respective acquisitions.
F-14
Included
in Eliminations/Corporate are the eliminations among the five segments, as well
as general and corporate items. Business segment information is
presented below:
|
Year Ended December 31,
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
Net
Sales
|
||||||||||||
|
Aerial
Work Platforms
|
$ | 2,074.1 | $ | 2,337.8 | $ | 2,090.3 | ||||||
|
Construction
|
1,887.3 | 1,908.5 | 1,582.4 | |||||||||
|
Cranes
|
2,888.8 | 2,234.9 | 1,740.1 | |||||||||
|
Materials
Processing & Mining
|
2,457.1 | 2,092.1 | 1,625.0 | |||||||||
|
Roadbuilding,
Utility Products and Other
|
717.9 | 675.8 | 746.0 | |||||||||
|
Eliminations/Corporate
|
(135.6 | ) | (111.4 | ) | (136.2 | ) | ||||||
|
Total
|
$ | 9,889.6 | $ | 9,137.7 | $ | 7,647.6 | ||||||
|
Income
(Loss) from Operations
|
||||||||||||
|
Aerial
Work Platforms
|
$ | 246.4 | $ | 453.1 | $ | 372.6 | ||||||
|
Construction (3)
|
(438.9 | ) | 56.1 | 16.0 | ||||||||
|
Cranes
|
401.5 | 256.7 | 154.5 | |||||||||
|
Materials
Processing & Mining
|
319.2 | 245.7 | 190.0 | |||||||||
|
Roadbuilding,
Utility Products and Other (3)
|
(81.8 | ) | (0.7 | ) | 25.2 | |||||||
|
Eliminations/Corporate
|
(43.8 | ) | (49.5 | ) | (48.8 | ) | ||||||
|
Total (3)
|
$ | 402.6 | $ | 961.4 | $ | 709.5 | ||||||
|
Depreciation
and Amortization
|
||||||||||||
|
Aerial
Work Platforms
|
$ | 13.4 | $ | 13.9 | $ | 15.3 | ||||||
|
Construction
|
28.2 | 16.8 | 16.6 | |||||||||
|
Cranes
|
18.2 | 17.2 | 14.6 | |||||||||
|
Materials
Processing & Mining
|
18.1 | 12.4 | 10.1 | |||||||||
|
Roadbuilding,
Utility Products and Other (1)
|
12.3 | 11.0 | 10.3 | |||||||||
|
Corporate
|
7.5 | 4.9 | 3.6 | |||||||||
|
Total
(1)
|
$ | 97.7 | $ | 76.2 | $ | 70.5 | ||||||
|
Capital
Expenditures
|
||||||||||||
|
Aerial
Work Platforms
|
$ | 18.7 | $ | 23.5 | $ | 11.4 | ||||||
|
Construction
|
14.5 | 11.3 | 10.7 | |||||||||
|
Cranes
|
26.5 | 21.3 | 9.3 | |||||||||
|
Materials
Processing & Mining
|
26.2 | 27.0 | 19.4 | |||||||||
|
Roadbuilding, Utility Products
and Other (2)
|
7.3 | 4.3 | 5.7 | |||||||||
|
Corporate
|
27.6 | 24.1 | 12.2 | |||||||||
|
Total (2)
|
$ | 120.8 | $ | 111.5 | $ | 68.7 | ||||||
|
(1)
|
Amounts
exclude discontinued operations Depreciation and Amortization of $2.5 for
the year ended December 31, 2006.
|
|
(2)
|
Amounts
exclude discontinued operations Capital Expenditures of $10.2 for the year
ended December 31, 2006.
|
|
(3)
|
Amounts
include goodwill impairment of $364.4 and $95.5 in the Construction and
Roadbuilding, Utility Products and Other segments,
respectively.
|
|
December 31,
|
||||||||
|
2008
|
2007
|
|||||||
|
Identifiable
Assets
|
||||||||
|
Aerial
Work Platforms
|
$ | 758.9 | $ | 894.5 | ||||
|
Construction
|
1,375.6 | 1,559.1 | ||||||
|
Cranes
|
1,721.8 | 1,597.7 | ||||||
|
Materials
Processing & Mining
|
2,204.6 | 2,243.6 | ||||||
|
Roadbuilding,
Utility Products and Other
|
298.6 | 436.4 | ||||||
|
Eliminations/Corporate
|
(914.1 | ) | (415.0 | ) | ||||
|
Total
|
$ | 5,445.4 | $ | 6,316.3 | ||||
Sales
between segments are generally priced to recover costs plus a reasonable markup
for profit, which is eliminated in consolidation.
F-15
Geographic
segment information is presented below:
|
Year Ended December
31,
|
||||||||||||
|
Net
Sales
|
2008
|
2007
|
2006
|
|||||||||
|
United
States
|
$ | 2,971.6 | $ | 2,775.5 | $ | 2,911.9 | ||||||
|
United
Kingdom
|
621.7 | 693.5 | 614.0 | |||||||||
|
Germany
|
724.4 | 679.8 | 551.9 | |||||||||
|
Other
European countries
|
2,270.3 | 2,401.9 | 1,930.3 | |||||||||
|
All
other
|
3,301.6 | 2,587.0 | 1,639.5 | |||||||||
|
Total
|
$ | 9,889.6 | $ | 9,137.7 | $ | 7,647.6 | ||||||
|
|
December 31,
|
||||||||
|
2008
|
2007
|
||||||||
|
Long-lived
Assets
|
|||||||||
|
United
States
|
$ | 201.6 | $ | 143.9 | |||||
|
United
Kingdom
|
47.4 | 55.8 | |||||||
|
Germany
|
152.5 | 146.4 | |||||||
|
Other
European Countries
|
37.2 | 32.5 | |||||||
|
All
other
|
42.8 | 40.8 | |||||||
|
Total
|
$ | 481.5 | $ | 419.4 | |||||
The
Company attributes sales to unaffiliated customers in different geographical
areas based on the location of the customer. Long-lived assets
consist of net fixed assets, which can be attributed to the specific geographic
regions.
NOTE
C – INCOME TAXES
The
components of Income from continuing operations before income taxes are as
follows:
|
Year Ended December 31,
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
United
States
|
$ | (99.5 | ) | $ | 453.6 | $ | 309.6 | |||||
|
Foreign
|
413.6 | 465.7 | 305.1 | |||||||||
|
Income
from continuing operations before income taxes
|
$ | 314.1 | $ | 919.3 | $ | 614.7 | ||||||
Total
income before income taxes including income from discontinued operations was
$314.1, $919.3 and $619.3 for the years ended December 31, 2008, 2007 and 2006,
respectively.
The major
components of the Company’s Provision for income taxes on continuing operations
before income taxes are summarized below:
|
Year Ended December 31,
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
Current:
|
||||||||||||
|
Federal
|
$ | 54.8 | $ | 176.5 | $ | 56.5 | ||||||
|
State
|
4.9 | 8.0 | 7.1 | |||||||||
|
Foreign
|
162.0 | 118.1 | 88.7 | |||||||||
|
Current
income tax provision
|
221.7 | 302.6 | 152.3 | |||||||||
|
Deferred:
|
||||||||||||
|
Federal
|
16.2 | (20.6 | ) | 45.7 | ||||||||
|
State
|
(1.9 | ) | 6.0 | (5.0 | ) | |||||||
|
Foreign
|
6.2 | 17.4 | 25.2 | |||||||||
|
Deferred
income tax provision
|
20.5 | 2.8 | 65.9 | |||||||||
|
Total
provision for income taxes
|
$ | 242.2 | $ | 305.4 | $ | 218.2 | ||||||
Including
discontinued operations, the total provision for income taxes was $242.2, $305.4
and $219.5 for the years ended December 31, 2008, 2007 and 2006,
respectively.
F-16
Deferred
tax assets and liabilities result from differences in the bases of assets and
liabilities for tax and financial statement purposes. The tax effects of the
basis differences and net operating loss carry forwards as of December 31, 2008
and 2007 are summarized below for major balance sheet captions:
|
2008
|
2007
|
|||||||
|
Property,
plant and equipment
|
$ | (19.4 | ) | $ | (0.1 | ) | ||
|
Intangibles
|
(31.6 | ) | (6.4 | ) | ||||
|
Trade
receivables
|
36.8 | 15.3 | ||||||
|
Inventories
|
32.2 | 37.1 | ||||||
|
Accrued
warranties and product liability
|
31.1 | 24.0 | ||||||
|
Net
operating loss carry forwards
|
111.1 | 146.3 | ||||||
|
Retirement
plans and other
|
33.8 | 29.8 | ||||||
|
Accrued
compensation and benefits
|
25.8 | 38.8 | ||||||
|
Other
|
28.7 | 3.6 | ||||||
|
Deferred
tax assets valuation allowance
|
(65.9 | ) | (56.5 | ) | ||||
|
Net
deferred tax assets
|
$ | 182.6 | $ | 231.9 | ||||
Deferred
tax assets total $289.4 before valuation allowances of $65.9. Total
deferred tax liabilities of $40.9 include $20.9 in current liabilities and $20.0
in non-current liabilities on the Consolidated Balance
Sheet. Included in net deferred tax assets are income taxes paid on
intercompany transactions of $26.8 and $15.2 for the years ended December 31,
2008 and 2007, respectively.
The
Company provides valuation allowances for deferred tax assets where realization
is not more likely than not based on estimated future taxable income in the
carryforward period. To the extent that estimates of future taxable
income decrease or do not materialize, potentially significant additional
valuation allowances may be required. The valuation allowance for deferred tax
assets as of January 1, 2007 was $58.7. The net change in the total
valuation allowance for the years ended December 31, 2008 and 2007 was an
increase of $9.4 in 2008 and a decrease of $2.2 in 2007. For the year
ended December 31, 2008, approximately $17.5 of the valuation allowance related
to acquired deferred tax assets. Pursuant to SFAS No. 141R, any
future release of these valuation allowances will be recorded to the provision
for income taxes.
The
Company’s Provision for income taxes is different from the amount that would be
provided by applying the statutory federal income tax rate to the Company’s
Income from continuing operations before income taxes. The reasons for the
difference are summarized as:
|
Year Ended December 31,
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
Tax
at statutory federal income tax rate
|
$ | 109.9 | $ | 321.8 | $ | 215.2 | ||||||
|
State
taxes (net of Federal benefit)
|
(4.6 | ) | 2.5 | (0.1 | ) | |||||||
|
Change
in valuation allowance relating to NOL and temporary
differences
|
10.0 | (3.6 | ) | 1.2 | ||||||||
|
Foreign
tax differential on income/losses of foreign subsidiaries
|
(28.7 | ) | (2.8 | ) | (9.8 | ) | ||||||
|
Non-deductible
goodwill charges
|
155.4 | — | — | |||||||||
|
U.S.
tax on multi-national operations
|
6.3 | 2.4 | 4.1 | |||||||||
|
Change
in foreign statutory rates
|
(1.7 | ) | 11.8 | — | ||||||||
|
U.S.
manufacturing and export incentives
|
(4.7 | ) | (16.1 | ) | (6.5 | ) | ||||||
|
Other
|
0.3 | (10.6 | ) | 14.1 | ||||||||
|
Total
provision for income taxes
|
$ | 242.2 | $ | 305.4 | $ | 218.2 | ||||||
Including
the tax on discontinued operations, the total tax expense was $219.5 in
2006. The effective tax rate on income from discontinued operations
in 2006 differs from the statutory rate due primarily to $1.3 of current U.S.
income taxes not previously provided on the excess of the amount for financial
reporting over the tax basis in the Company’s investment in the shares of its
Tatra subsidiary.
The
Company does not provide for income taxes or tax benefits on temporary
differences related to its investments in foreign subsidiaries. These
temporary differences are comprised principally of undistributed earnings, which
are indefinitely reinvested. At December 31, 2008, these unremitted
earnings totaled approximately $1,200. If earnings of foreign
subsidiaries were not considered indefinitely reinvested, deferred U.S. and
foreign taxes would have to be provided. At this time, determination
of the amount of deferred U.S. and foreign income taxes is not
practical.
F-17
At
December 31, 2008, the Company had domestic federal net operating loss carry
forwards of $23.4. None of the U.S. federal net operating loss carry
forwards expire before 2011. The Company also has various state net
operating loss carry forwards available to reduce future state taxable income
and income taxes. These net operating loss carry forwards expire at various
dates through 2028.
In
addition, the Company’s foreign subsidiaries have approximately $254.9 of loss
carry forwards, consisting of $116.2 in the United Kingdom, $31.4 in the
Netherlands, $27.5 in Ireland and $79.8 in other countries, which are available
to offset future foreign taxable income. The majority of these foreign tax loss
carry forwards are available without expiration.
The
Company made net income tax payments of $190.7, $308.8 and $120.3 in 2008, 2007
and 2006, respectively.
The
Company adopted the provisions of FIN No. 48 on January 1, 2007. The
cumulative effect of the change on retained earnings as of January 1, 2007 as a
result of the adoption of FIN No. 48 was a reduction of $36.5. As of
December 31, 2008 and 2007, the Company had $118.8 and $122.6, respectively, of
unrecognized tax benefits. Of the $118.8 at December 31, 2008,
$104.0, if recognized, would affect the effective tax rate. The
Company continues to classify interest and penalties associated with uncertain
tax positions as income tax expense. As of December 31, 2008 and
2007, the liability for potential penalties and interest was $12.1 and $5.8,
respectively. During the years ended December 31, 2008 and 2007, the
Company recognized tax expense of $6.3 and $0.2, respectively, for interest and
penalties.
The
following table summarizes the activity related to the company’s unrecognized
tax benefits:
|
Balance
as of January 1, 2007
|
$ | 87.2 | ||
|
Additions
for current year tax positions
|
18.8 | |||
|
Additions
for prior year tax positions
|
27.3 | |||
|
Reductions
for prior year tax positions
|
(5.2 | ) | ||
|
Settlements
|
(4.5 | ) | ||
|
Reductions
related to expirations of statute of limitations
|
(1.0 | ) | ||
|
Balance
as of December 31, 2007
|
122.6 | |||
|
Additions
for current year tax positions
|
6.9 | |||
|
Additions
for prior year tax positions
|
18.9 | |||
|
Reductions
for prior year tax positions
|
(31.2 | ) | ||
|
Settlements
|
(0.5 | ) | ||
|
Acquired
balances
|
2.1 | |||
|
Balance
as of December 31, 2008
|
$ | 118.8 |
The
Company believes that it is reasonably possible that the total amount of
unrecognized tax benefit will decrease within the next twelve months. The
nature of the uncertainty with respect to the uncertain tax positions relates
primarily to intercompany transactions and acquisitions. The event
that could cause a reduction in unrecognized tax benefits is a potential
settlement of tax audits in certain foreign jurisdictions. The reasonably
possible change in unrecognized tax benefits is a reduction of approximately
$12. The Company does not expect changes in the reserve balance described
above to have a material impact on income tax expense or cash
flow. With few exceptions, including net operating loss carry
forwards in the U.S. and Australia, the Company and its subsidiaries are
generally no longer subject to U.S. federal, state and local, or non-U.S.,
income tax examinations for years before 1999.
The
Company conducts business globally and, as a result, the Company or one or more
of its subsidiaries files income tax returns in the U.S. and various state and
foreign jurisdictions. In the normal course of business, the Company
is subject to examination by taxing authorities throughout the world, including
such major jurisdictions as Australia, France, Germany, the United Kingdom and
the U.S. Certain subsidiaries of the Company are currently under
audit in France, Germany, the United Kingdom and the U.S. It is
reasonably possible that these audits may be completed during the next twelve
months.
NOTE
D – DISCONTINUED OPERATIONS
On
September 29, 2006, the Company completed the sale of Tatra Czech s.r.o. and
Tatra a.s. (collectively “Tatra”) to a group of private equity
investors. Tatra is located in the Czech Republic and is a
manufacturer of on/off road heavy-duty vehicles for commercial and military
applications. The Company received $26.2 in cash consideration for
the shares of Tatra. Additionally, $31.6 in cash was received in
satisfaction of all intercompany note receivable balances from
Tatra. The Company had previously disclosed that it did not consider
Tatra to be a core business. The Company recorded an after-tax loss
of $7.7 on the disposition of Tatra for the year ended December 31,
2006. Results of Tatra, through the date of its disposition, are
presented as Income from discontinued operations - net of tax in the
Consolidated Statements of Income for 2006. Tatra was previously
included in the Roadbuilding, Utility Products and Other segment.
F-18
The
Consolidated Statement of Income for the year ended December 31, 2006 shows a
$7.7 loss on disposition of discontinued operations, while the Company’s
Consolidated Statement of Cash flows for this period reflected a loss of
$6.5. This is because the loss shown on the Consolidated Statement of
Income included both a $6.5 loss, representing the difference between purchase
price received and the carrying amount of the net assets of the discontinued
operation, and a $1.2 tax provision recorded on the disposition because for tax
purposes the cash received was greater than our tax basis, both of which were
included in the calculation of Net Income. For the Consolidated
Statement of Cash Flows, only the loss of $6.5 is added back to Net Income to
appropriately reflect cash flow in this line item, while the $1.2 is a non-cash
item that is already included as part of the deferred taxes line item within Net
Cash Provided by Operating Activities.
NOTE
E – EARNINGS PER SHARE
|
(in
millions, except per share data)
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
Income
from continuing operations
|
$ | 71.9 | $ | 613.9 | $ | 396.5 | ||||||
|
Income
from discontinued operations-net of tax
|
- | - | 11.1 | |||||||||
|
Loss
on disposition of discontinued operations-net of tax
|
- | - | (7.7 | ) | ||||||||
|
Net
income
|
$ | 71.9 | $ | 613.9 | $ | 399.9 | ||||||
|
Basic
Shares:
|
||||||||||||
|
Weighted
average shares outstanding
|
98.1 | 102.4 | 100.7 | |||||||||
|
Earnings
per share - basic:
|
||||||||||||
|
Income
from continuing operations
|
$ | 0.73 | $ | 6.00 | $ | 3.94 | ||||||
|
Income
from discontinued operations-net of tax
|
- | - | 0.11 | |||||||||
|
Loss
on disposition of discontinued operations-net of tax
|
- | - | (0.08 | ) | ||||||||
|
Net
income
|
$ | 0.73 | $ | 6.00 | $ | 3.97 | ||||||
|
Diluted
shares:
|
||||||||||||
|
Weighted
average shares outstanding
|
98.1 | 102.4 | 100.7 | |||||||||
|
Effect
of dilutive securities:
|
||||||||||||
|
Stock
options and restricted stock awards
|
1.6 | 2.5 | 2.3 | |||||||||
|
Diluted
weighted average shares outstanding
|
99.7 | 104.9 | 103.0 | |||||||||
|
Earnings
per share - diluted:
|
||||||||||||
|
Income
from continuing operations
|
$ | 0.72 | $ | 5.85 | $ | 3.85 | ||||||
|
Income
from discontinued operations-net of tax
|
- | - | 0.10 | |||||||||
|
Loss
on disposition of discontinued operations-net of tax
|
- | - | (0.07 | ) | ||||||||
|
Net
income
|
$ | 0.72 | $ | 5.85 | $ | 3.88 | ||||||
Options
to purchase 178 thousand and 177 thousand shares of Common Stock were
outstanding during 2008 and 2006 respectively, but were not included in the
computation of diluted shares as the exercise price of these awards exceeded the
average market price for the period and the effect would have been
anti-dilutive. There were no anti-dilutive stock options during 2007.
Restricted stock awards of 463 thousand, 7 thousand and 972 thousand were
outstanding during 2008, 2007 and 2006, respectively, but were not included in
the computation of diluted shares because the effect would be anti-dilutive or
because performance targets were not yet achieved for awards contingent upon
performance. SFAS No. 128, “Earnings per Share” requires that
employee stock options and non-vested restricted shares granted by the Company
be treated as potential common shares outstanding in computing diluted earnings
per share. Under the treasury stock method, the amount the employee must pay for
exercising stock options, the amount of compensation cost for future services
that the Company has not yet recognized and the amount of tax benefits that
would be recorded in additional paid-in capital when the award becomes
deductible are assumed to be used to repurchase shares. The Company
includes the impact of pro forma deferred tax assets in determining the amount
of tax benefits for potential windfalls and shortfalls (the differences between
tax deductions and book expense) in this calculation.
F-19
NOTE
F – INVENTORIES
Inventories
consist of the following:
|
December 31,
|
||||||||
|
2008
|
2007
|
|||||||
|
Finished
equipment
|
$ | 673.8 | $ | 638.2 | ||||
|
Replacement
parts
|
395.3 | 368.7 | ||||||
|
Work-in-process
|
435.2 | 337.9 | ||||||
|
Raw
materials and supplies
|
730.5 | 589.5 | ||||||
|
Inventories
|
$ | 2,234.8 | $ | 1,934.3 | ||||
At
December 31, 2008 and 2007, the Company had inventory reserves of $121.0 and
$105.5, respectively, for LCM, excess and obsolete inventory.
NOTE
G – PROPERTY, PLANT AND EQUIPMENT
Property,
plant and equipment consist of the following:
|
December 31,
|
||||||||
|
2008
|
2007
|
|||||||
|
Property
|
$ | 54.3 | $ | 56.0 | ||||
|
Plant
|
211.8 | 197.8 | ||||||
|
Equipment
|
522.6 | 451.0 | ||||||
| 788.7 | 704.8 | |||||||
|
Less: Accumulated
depreciation
|
(307.2 | ) | (285.4 | ) | ||||
|
Net
property, plant and equipment
|
$ | 481.5 | $ | 419.4 | ||||
NOTE
H – EQUIPMENT SUBJECT TO OPERATING LEASES
Operating
leases arise from leasing the Company’s products to
customers. Initial noncancellable lease terms typically range up to
84 months. The net book value of equipment subject to operating
leases was approximately $79 and $73 (net of accumulated depreciation of
approximately $35 and $35) at December 31, 2008 and 2007, respectively, and is
included in Other assets on the Company’s Consolidated Balance
Sheet. The equipment is depreciated on the straight-line basis over
the shorter of the estimated useful life or the estimated amortization period of
any borrowings secured by the asset to its estimated salvage value.
Future
minimum lease payments to be received under noncancellable operating leases with
lease terms in excess of one year are as follows:
|
Years
ending December 31,
|
||||
|
2009
|
$ | 4.5 | ||
|
2010
|
3.2 | |||
|
2011
|
2.6 | |||
|
2012
|
1.8 | |||
|
2013
|
1.1 | |||
|
Thereafter
|
0.9 | |||
| $ | 14.1 | |||
The
Company received approximately $3 and $5 of rental income from assets subject to
operating leases with lease terms greater than one year during 2008 and 2007,
respectively, none of which represented contingent rental payments.
NOTE
I – NET INVESTMENT IN SALES-TYPE LEASES
From time
to time, the Company leases new and used products manufactured and sold by the
Company to domestic and foreign distributors, end users and rental
companies. The Company provides specialized financing alternatives
that include sales-type leases, operating leases and short-term rental
agreements.
F-20
At the
time a sales-type lease is consummated, the Company records the gross finance
receivable, unearned finance income and the estimated residual value of the
leased equipment. Unearned finance income represents the excess of
the gross minimum lease payments receivable plus the estimated residual value
over the fair value of the equipment. Residual values represent the
estimate of the values of the equipment at the end of the lease contracts and
are initially recorded based on industry data and management’s
estimates. Realization of the residual values is dependent on the
Company’s future ability to market the equipment under then prevailing market
conditions. Management reviews residual values periodically to
determine that recorded amounts are appropriate. Unearned finance
income is recognized as financing income using the interest method over the term
of the transaction. The allowance for future losses is established
through charges to the provision for credit losses.
During
2008, 2007 and 2006, Genie Holdings, Inc. and its affiliates (“Genie”), part of
the Aerial Work Platforms segment, entered into a number of arrangements with
financial institutions to provide financing of new and eligible Genie products
to distributors and rental companies. Under these programs, Genie
originates leases or leasing opportunities with distributors and rental
companies. If Genie originates the lease with a distributor or rental
company, the financial institution will purchase the equipment and take
assignment of the lease contract from Genie. If Genie originates a
lease opportunity, the financial institution will purchase the equipment from
Genie and execute a lease contract directly with the distributor or rental
company. In some instances, Genie retains certain credit and/or
residual recourse in these transactions. Genie’s maximum exposure,
representing a contingent liability, under these transactions reflects a $46.1
credit risk and a $34.0 residual risk at December 31, 2008.
The
Company’s contingent liabilities previously referred to have not taken into
account various mitigating factors. These factors include the
staggered timing of maturity of lease transactions, resale value of the
underlying equipment, lessee return penalties and annual loss caps on credit
loss pools. Further, the contingent liability related to credit risk
assumes that the individual leases were to all default at the same time and that
the repossessed equipment has no market value.
The
components of net investment in sales-type leases, which are included in Other
assets on the Company’s Consolidated Balance Sheet, consisted of the following
at December 31, 2008:
|
Gross
minimum lease payments receivable
|
$ | 3.2 | ||
|
Estimated
residual values
|
0.3 | |||
|
Allowance
for future losses
|
(1.0 | ) | ||
|
Unearned
finance income
|
(0.5 | ) | ||
|
Net
investment in sales-type leases
|
2.0 | |||
|
Less:
Current portion
|
(1.3 | ) | ||
|
Non-current
net investment in sales-type leases
|
$ | 0.7 |
Scheduled
future gross minimum lease payments receivable are as follows:
|
Years
ending December 31,
|
||||
|
2009
|
$ | 1.8 | ||
|
2010
|
0.6 | |||
|
2011
|
0.5 | |||
|
2012
|
0.3 | |||
|
2013
|
— | |||
|
Total
|
$ | 3.2 | ||
NOTE
J - ACQUISITIONS
2008
Acquisitions
On August
11, 2008, the Company announced that its subsidiaries, Terex Italia S.r.l.
(“Terex Italia”) and Terex Germany GmbH & Co. KG (“Terex Germany”) had
reached definitive agreements to acquire the port equipment businesses of
Fantuzzi Industries S.a.r.l. (“Fantuzzi”) for total consideration of
approximately €215. On December 15, 2008, Terex Italia and Terex
Germany advised Fantuzzi that they were terminating the Fantuzzi agreements
effective immediately due to (i) failure to obtain all necessary competition
authority approvals without conditions, (ii) existence of a material adverse
change, and (iii) other reasons. Fantuzzi initiated an arbitration
proceeding against the Company in Italy on December 24, 2008. In
addition, discussions between the parties continue and the final outcome of this
matter cannot be determined at this time. While the Company believes
that it has a valid position, the risks of arbitration in Italy are uncertain
and, if determined adversely, could ultimately result in the Company incurring
significant liabilities.
F-21
On
February 26, 2008, the Company acquired approximately 98% of the outstanding
common stock of ASV through a tender offer. This was followed by a
merger that was completed on March 3, 2008, pursuant to which the Company
acquired all of the remaining outstanding common stock of ASV. The
results of ASV are included in the Construction segment from the date of
acquisition. Headquartered in Grand Rapids, Minnesota, ASV is a
manufacturer of compact rubber track loaders and related accessories,
undercarriages and traction products. The acquisition enhances the
Company’s product line for smaller construction equipment and provides
opportunities for expanding the customer base of ASV and the
Company. The Company intends to expand ASV product sales outside the
U.S.
The
aggregate purchase price for ASV was approximately $457, net of cash
acquired. The Company issued 24 thousand restricted shares of the
Company’s Common Stock valued at $1.7, of which $0.8 was allocated to the
purchase price and the remaining $0.9 will be recorded as expense for the
Company over the remaining service period. On the date of
acquisition, ASV had approximately $47 in cash.
Although
the acquisition of ASV was not material to the Company, given the relative
significance of the goodwill originally recorded, the following table provides
information summarizing the fair values of the assets acquired and liabilities
assumed at February 26, 2008, the date of acquisition:
|
Current
assets
|
$ | 164 | ||
|
Property,
plant and equipment – net
|
31 | |||
|
Intangible
assets
|
106 | |||
|
Goodwill
|
254 | |||
|
Other
assets
|
8 | |||
|
Total
assets acquired
|
563 | |||
|
Current
liabilities
|
21 | |||
|
Non-current
liabilities
|
38 | |||
|
Total
liabilities assumed
|
59 | |||
|
Net
assets acquired
|
$ | 504 |
Of the
approximately $106 of acquired intangible assets, approximately $74 was assigned
to customer relationships with useful lives of 10-15 years, approximately $30 to
patents with useful lives of 10-19 years and approximately $2 was assigned to
trademarks and trade names with useful lives of 5 years.
Goodwill
of $295 was initially recognized on the date of acquisition and purchase
accounting adjustments of $41 were recorded through September 30, 2008,
primarily related to adjustments to customer relationships, patents and deferred
taxes. Goodwill of approximately $254 represented the excess of the
purchase price over the fair values of net assets acquired, as determined at
that time. None of the goodwill assigned to ASV was expected to be
deductible for tax purposes. As a result of the annual impairment
test for goodwill performed as of October 1, 2008, all of the goodwill recorded
for ASV was deemed impaired. See Note L – “Goodwill.”
The
Company also completed smaller acquisitions during 2008 in the Aerial Work
Platforms and Roadbuilding, Utility Products and Other segments that, taken
together, had an aggregate purchase price of less than $30. These
acquisitions did not have a material impact on the Company’s financial results
either individually or in the aggregate.
2007
Acquisitions
On
November 6, 2007, the Company acquired SHM, which is headquartered in Beckley,
West Virginia, a leading manufacturer of highwall mining equipment for use in
trench mining, open pit mining, contour mining and auger hole mining
applications. The total consideration for the transaction was
approximately $146 in cash. The purchase price for the acquisition
was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values at the
acquisition date. Goodwill of approximately $71 was
recorded, which represented the excess of the purchase price over the estimated
fair values of net assets acquired. Approximately $25 of the goodwill
assigned to SHM is expected to be deductible for tax purposes. The
results of SHM are included in the Materials Processing & Mining segment
from the date of acquisition.
2006
Acquisitions
On
January 24, 2006, the Company acquired Halco for approximately $15 in cash, plus
assumption of certain capitalized leases and pension
liabilities. Halco is headquartered in Halifax, England, with
operations also in the United States, Ireland and Australia. Halco
designs, manufactures and distributes down-the-hole drill bits and hammers for
drills. The results of Halco are included in the Materials Processing
& Mining segment from the date of acquisition.
F-22
On March
9, 2006, Terex’s Unit Rig mining truck business entered into a joint venture
with Inner Mongolia North Hauler Joint Stock Company Limited to produce high
capacity surface mining trucks in China. Terex owns a controlling 50%
interest in this joint venture, Terex NHL, a company incorporated under the laws
of China. The results of Terex NHL are included in the Materials
Processing & Mining segment from the date of formation.
On April
4, 2006, the Company acquired Power Legend and its affiliates, including a
controlling 50% ownership interest in Sichuan Crane, for approximately $25 in
cash. Sichuan Crane is headquartered in Luzhou, China and designs,
manufactures, sells and repairs cranes and other construction equipment and
components. The results of Power Legend and Sichuan Crane are
included in the Cranes segment from their date of acquisition.
NOTE
K – INVESTMENT IN JOINT VENTURE
On
September 30, 2008, the Company sold its forty percent (40%) interest in Terex
Financial Services Holding B.V. (“TFSH”), its joint venture originally entered
into on September 18, 2002, to the European financial institution which owned
the majority sixty percent (60%) interest in TFSH. TFSH facilitated
the financing of Company products sold in certain areas of
Europe. Through the date of disposition, the Company applied the
equity method of accounting for its investment in TFSH. The sale of
TFSH resulted in a loss of $0.7, which was recorded in Other income
(expense).
NOTE
L - GOODWILL
Goodwill,
representing the difference between the total purchase price and the fair value
of assets (tangible and intangible) and liabilities at the date of acquisition,
is reviewed for impairment annually, and more frequently as circumstances
warrant, and is written down only in the period in which the recorded value of
such assets exceed their fair value. There were no indicators of
goodwill impairment in the tests performed as of October 1, 2007 and
2006. The Company performed its most recent annual review of the
carrying value of its goodwill, as required by SFAS No. 142, as of October 1,
2008. As a result of the Company’s annual impairment test performed
as of October 1, 2008, the Company’s Construction and Roadbuilding, Utility
Products and Other segments recorded non-cash charges totaling $459.9 to reflect
impairment of all of the goodwill in their reporting units. As part
of the Company’s impairment analysis for its reporting units, management
determined the fair value of each of its reporting units based on estimates of
their respective future cash flows. The fair value of certain
reporting units reflected reductions in the estimated future cash flows of the
reporting units based on lower expectations for growth and profitability
resulting primarily from the downturn in the economy. In comparing the
Company’s market capitalization to the sum of the fair value of the reporting
units, an implied control premium was applied based on a review of
comparable transactions within the industries the Company operates. A
control premium represents the value an investor would pay above minority
interest transaction prices in order to obtain a controlling interest in the
respective company. For the reporting units where the fair value of the
reporting units was below their respective carrying amounts including goodwill,
the implied fair value of the reporting units’ goodwill was compared to the
actual carrying amounts of goodwill to determine the amount of the impairment
charge. The impairment charges were included in Goodwill impairment in the
Consolidated Statement of Income for the year ended December 31,
2008.
An
analysis of changes in the Company’s goodwill by business segment is as
follows:
|
Aerial
Work
Platforms
|
Construction
|
Cranes
|
Materials
Processing
&
Mining
|
Roadbuilding,
Utility
Products
and
Other
|
Total
|
|||||||||||||||||||
|
Balance
at December 31, 2006
|
$ | 104.2 | $ | 113.7 | $ | 115.2 | $ | 221.7 | $ | 78.0 | $ | 632.8 | ||||||||||||
|
Acquisitions
|
— | 11.7 | (6.2 | ) | 54.2 | — | 59.7 | |||||||||||||||||
|
Deferred
tax liability (1)
|
(9.7 | ) | — | — | — | — | (9.7 | ) | ||||||||||||||||
|
Foreign
exchange effect and other
|
2.2 | 4.0 | 7.0 | 2.9 | 0.1 | 16.2 | ||||||||||||||||||
|
Balance
at December 31, 2007
|
96.7 | 129.4 | 116.0 | 278.8 | 78.1 | 699.0 | ||||||||||||||||||
|
Acquisitions
|
5.1 | 254.2 | — | 16.3 | 5.4 | 281.0 | ||||||||||||||||||
|
Impairment
|
— | (364.4 | ) | — | — | (95.5 | ) | (459.9 | ) | |||||||||||||||
|
Reclassifications
and adjustments (2)
|
7.2 | (6.3 | ) | 0.3 | (10.5 | ) | 12.2 | 2.9 | ||||||||||||||||
|
Foreign
exchange effect and other
|
(1.4 | ) | (12.9 | ) | (1.6 | ) | (49.9 | ) | (0.2 | ) | (66.0 | ) | ||||||||||||
|
Balance
at December 31, 2008
|
$ | 107.6 | $ | — | $ | 114.7 | $ | 234.7 | $ | — | $ | 457.0 | ||||||||||||
|
|
(1)
|
Reflects
deferred tax liabilities related to temporary differences established in
purchase accounting.
|
|
|
(2)
|
Revisions
of tax amounts established in purchase accounting resulted in balance
sheet reclassifications and an insignificant increase to Other income
(expense) of $1.8 for year ended December 31,
2008. Additionally, a ruling in a certain tax jurisdiction
resulted in a decrease in non-current deferred tax assets of $1.1 related
to a change in the expected realization of certain pre-acquisition net
operating loss carry forwards.
|
F-23
NOTE
M – DERIVATIVE FINANCIAL INSTRUMENTS
The
Company enters into two types of derivatives: hedges of fair value exposures and
hedges of cash flow exposures. Fair value exposures relate to
recognized assets or liabilities and firm commitments, while cash flow exposures
relate to the variability of future cash flows associated with recognized assets
or liabilities or forecasted transactions.
The
Company operates internationally, with manufacturing and sales facilities in
various locations around the world, and uses certain financial instruments to
manage its foreign currency, interest rate and fair value
exposures. To qualify a derivative as a hedge at inception and
throughout the hedge period, the Company formally documents the nature and
relationships between hedging instruments and hedged items, as well as its
risk-management objectives, strategies for undertaking various hedge
transactions and method of assessing hedge
effectiveness. Additionally, for hedges of forecasted transactions,
the significant characteristics and expected terms of a forecasted transaction
must be specifically identified, and it must be probable that each forecasted
transaction will occur. If it is deemed probable that the forecasted
transaction will not occur, the gain or loss is recognized in current
earnings. Financial instruments qualifying for hedge accounting must
maintain a specified level of effectiveness between the hedging instrument and
the item being hedged, both at inception and throughout the hedged
period. The Company does not engage in trading or other speculative
use of financial instruments.
The
Company has used and may use forward contracts and options to mitigate its
exposure to changes in foreign currency exchange rates on third party and
intercompany forecasted transactions. The primary currencies to which
the Company is exposed are the Euro and British Pound. The effective
portion of unrealized gains and losses associated with forward contracts are
deferred as a component of Accumulated other comprehensive income until the
underlying hedged transactions are reported in the Company’s Consolidated
Statement of Income. The Company uses interest rate swaps to mitigate
its exposure to changes in interest rates related to existing issuances of
variable rate debt and to fair value changes of fixed rate
debt. Primary exposure includes movements in the London Interbank
Offer Rate (“LIBOR”).
Changes
in the fair value of derivatives designated as fair value hedges are recognized
in earnings as offsets to changes in fair value of exposures being
hedged. The change in fair value of derivatives designated as cash
flow hedges are deferred in Accumulated other comprehensive income and are
recognized in earnings as hedged transactions occur. Transactions
deemed ineffective are recognized in earnings immediately.
In the
Consolidated Statement of Income, the Company records hedging activity related
to debt instruments in interest expense and hedging activity related to foreign
currency in the accounts for which the hedged items are recorded. On
the Consolidated Statement of Cash Flows, the Company records cash flows from
hedging activities in the same manner as it records the underlying item being
hedged.
In
November 2007, the Company entered into an interest rate swap agreement that
converted a fixed rate interest payment into a variable rate interest
payment. At December 31, 2008, the Company had $400.0 notional amount
of this interest rate swap agreement outstanding, which matures in
2017. The fair market value of this swap at December 31, 2008 was a
gain of $56.4, which is recorded in Other assets.
The
Company had entered into a prior interest rate swap agreement that converted a
fixed rate interest payment into a variable rate interest payment. At
December 31, 2006, the Company had $200.0 notional amount of this interest rate
swap agreement outstanding, which matured in 2014. To maintain an
appropriate balance between floating and fixed rate obligations on its mix of
indebtedness, the Company exited this interest rate swap agreement on January
15, 2007 and paid $5.4. This loss is recorded as an adjustment to the
carrying value of the hedged debt and will be amortized through the original
debt maturity date of 2014.
During
December 2002, the Company exited an interest rate swap agreement in the
notional amount of $100.0 with an original maturity date in 2011 that converted
fixed rate interest payments into variable rate interest
payments. The Company received $5.6 upon exiting this swap
agreement. This gain was recorded as an adjustment to the carrying
value of the hedged debt and was being amortized through the debt maturity
date. On June 30, 2006, the Company repaid one-third of the hedged
debt and, therefore, $1.1 of the unamortized gain was recognized as interest
income in the second quarter of 2006. On August 14, 2006, the Company
redeemed the remaining $200 outstanding principal amount of the hedged debt and,
therefore, the remaining unamortized gain of $2.0 was recognized as interest
income in the third quarter of 2006.
F-24
The
Company is also a party to currency exchange forward contracts that generally
mature within one year to manage its exposure to changing currency exchange
rates. At December 31, 2008, the Company had $1,185.5 of notional
amount of currency exchange forward contracts outstanding, most of which mature
on or before December 31, 2009. The fair market value of these
contracts at December 31, 2008 was a net loss of $4.4. At December
31, 2008, $763.3 notional amount ($2.3 of fair value gains) of these contracts
have been designated as, and are effective as, cash flow hedges of specifically
identified transactions. During 2008, 2007 and 2006, the Company
recorded the change in fair value for these effective cash flow hedges to
Accumulated other comprehensive income, and recognized in earnings a portion of
the deferred gain or loss from Accumulated other comprehensive income as the
hedged transactions occurred.
At
December 31, 2008, the fair value of all derivative instruments designated as
cash flow hedges and fair value hedges has been recorded in the Consolidated
Balance Sheet as an asset of $90.8 and as a liability of $35.4.
Counterparties
to the Company’s interest rate swap agreement and currency exchange forward
contracts are major financial institutions with credit ratings of investment
grade or better and no collateral is required. There are no
significant risk concentrations. Management continues to monitor
counterparty risk and believes the risk of incurring losses on derivative
contracts related to credit risk is unlikely and any losses would be
immaterial.
Unrealized
net gains (losses) included in Accumulated Other Comprehensive Income are as
follows:
|
Year Ended December 31,
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
Balance
at beginning of period
|
$ | (5.0 | ) | $ | 1.0 | $ | (3.0 | ) | ||||
|
Additional
(losses) gains
|
(13.6 | ) | (4.3 | ) | (6.0 | ) | ||||||
|
Amounts
reclassified to earnings
|
17.6 | (1.7 | ) | 10.0 | ||||||||
|
Balance
at end of period
|
$ | (1.0 | ) | $ | (5.0 | ) | $ | 1.0 | ||||
The
estimated amount of existing net losses for derivative contracts in Accumulated
other comprehensive income as of December 31, 2008 that are expected to be
reclassified into earnings during the year ending December 31, 2009 is
$1.0.
NOTE
N – FAIR VALUE MEASUREMENTS
Assets
and liabilities measured at fair value on a recurring basis under the provisions
of SFAS No. 157 included interest rate swap and foreign currency forward
contracts discussed in Note M - “Derivative Financial
Instruments.” These contracts are valued using a market approach,
which uses prices and other relevant information generated by market
transactions involving identical or comparable assets or
liabilities. As discussed in Note A – “Basis of Presentation,” the
Company has only adopted the provisions of SFAS No. 157 with respect to its
financial assets and liabilities that are measured at fair value within the
consolidated financial statements. In accordance with FSP No. 157-2,
the Company has deferred the application of the provisions of this statement to
its non-financial assets and liabilities measured at fair value on a
non-recurring basis, such as the fair value measurements used in the Company’s
annual goodwill impairment assessment and business combination related fair
value measurements. SFAS No. 157 establishes a fair value hierarchy
for those instruments measured at fair value that distinguishes between
assumptions based on market data (observable inputs) and the Company’s
assumptions (unobservable inputs). The hierarchy consists of three
levels:
|
|
Level
1 - Unadjusted quoted prices in active markets that are accessible at the
measurement date for identical, unrestricted assets or
liabilities;
|
|
|
Level
2 - Quoted prices in markets that are not active, or inputs which are
observable, either directly or indirectly, for substantially the full term
of the asset or liability; and
|
|
|
Level
3 - Prices or valuation techniques that require inputs that are both
significant to the fair value measurement and unobservable (e.g.,
supported by little or no market
activity).
|
Determining
which category an asset or liability falls within this hierarchy requires
judgment. The Company evaluates its hierarchy disclosures each
quarter. As discussed in Note M - “Derivative Financial Instruments,”
the Company has two types of derivative instruments that it records at fair
value on a recurring basis, the interest rate swap and foreign exchange
contracts. The interest rate swap is categorized under Level 2 of the
hierarchy above and is recorded at December 31, 2008 as an asset of
$56.4. The foreign exchange contracts are categorized under Level 1
of the hierarchy above and are recorded at December 31, 2008 as a liability of
$2.3. The fair value of the interest rate swap agreement is based on
LIBOR yield curves at the reporting date. The fair values of the
foreign exchange forward contracts are based on quoted forward foreign exchange
prices at the reporting date.
F-25
NOTE
O - RESTRUCTURING AND OTHER CHARGES
The
Company continually evaluates its cost structure to ensure that it is
appropriately positioned to respond to changing market
conditions. Given recent economic trends, in 2008 the Company
initiated certain restructuring programs across all segments to better utilize
its workforce to match the decreased demand for its products. These
restructuring activities reduced the number of team members and caused the
Company to incur costs for one-time employee termination benefits related to the
team member reductions. For the year ended December 31, 2008, the
costs incurred equal the expected costs for these programs. The
existing reserve balance as of December 31, 2008, is expected to be paid in the
first quarter of 2009. During the first quarter of 2009, the Company
initiated additional restructuring activities related to certain of its
businesses. These activities include the rationalization of certain
facilities and additional planned headcount reductions. The following
table provides a roll forward of the restructuring reserve by segment and the
line items in the Consolidated Statement of Income, Cost of good sold (“COGS”)
or Selling, general and administrative expense (“SG&A”), in which these
activities were recorded:
|
Number of headcount
|
Restructuring reserve at
December 31,
|
Restructuring
charges
|
Cash
|
Restructuring reserve at
December 31,
|
||||||||||||||||||||
|
reductions (1)
|
2007
|
COGS
|
SG&A
|
expenditures
|
2008
|
|||||||||||||||||||
|
Aerial
Work Platforms
|
1,012 | $ | — | $ | 5.2 | $ | 3.7 | $ | (5.3 | ) | $ | 3.6 | ||||||||||||
|
Construction
|
496 | — | 4.0 | 1.1 | (1.1 | ) | 4.0 | |||||||||||||||||
|
Cranes
|
45 | — | — | 0.2 | (0.1 | ) | 0.1 | |||||||||||||||||
|
Materials
Processing & Mining
|
125 | — | — | 0.6 | (0.6 | ) | — | |||||||||||||||||
|
Roadbuilding,
Utility Products and Other
|
243 | — | 1.1 | 1.2 | (1.2 | ) | 1.1 | |||||||||||||||||
|
Corporate
|
19 | — | — | 0.5 | (0.5 | ) | — | |||||||||||||||||
|
Total
|
1,940 | $ | — | $ | 10.3 | $ | 7.3 | $ | (8.8 | ) | $ | 8.8 | ||||||||||||
|
(1)
|
(Unaudited)
Headcount data not in millions
|
NOTE
P – LONG-TERM OBLIGATIONS
Long-term
debt is summarized as follows:
|
December 31,
|
||||||||
|
2008
|
2007
|
|||||||
|
7-3/8%
Senior Subordinated Notes due January 15, 2014
|
$ | 298.7 | $ | 298.4 | ||||
|
8%
Senior Subordinated Notes due November 15, 2017
|
800.0 | 800.0 | ||||||
|
2006
Credit Agreement - term debt
|
195.0 | 197.0 | ||||||
|
2006
Credit Agreement - revolving credit facility
|
35.0 | - | ||||||
|
Notes
payable
|
8.6 | 1.9 | ||||||
|
Capital
lease obligations
|
6.5 | 8.6 | ||||||
|
Other
|
92.0 | 46.1 | ||||||
|
Total
debt
|
1,435.8 | 1,352.0 | ||||||
|
Less:
Notes payable and current portion of long-term debt
|
(39.4 | ) | (32.5 | ) | ||||
|
Long-term
debt, less current portion
|
$ | 1,396.4 | $ | 1,319.5 | ||||
The
Company’s main sources of funding are cash generated from operations, loans
under the 2006 Credit Agreement (as defined below) and funds raised in capital
markets. The Company believes that cash generated from its
operations, together with access to the 2006 Credit Agreement and cash on hand,
provide adequate liquidity to meet its operating and debt service
requirements. The Company had cash and cash equivalents of $484.4 at
December 31, 2008. In addition, the Company had $582.8 available for
borrowing under the 2006 Credit Agreement at December 31, 2008. The
Company has no significant debt maturities until 2012; however, the Company has
increased its focus on internal cash flow generation in a time when access to
external capital markets is less certain. The Company’s actions
include reducing costs and working capital and suspending its share repurchase
program in an effort to maintain liquidity in view of current conditions in the
economy and credit markets. The Company believes these measures, in
conjunction with its actions to delay certain capital spending projects, will
provide it with sufficient liquidity to execute its key business plans and
comply with its financial covenants under the 2006 Credit
Agreement. However, if the Company were unable to comply with these
covenants, there would be a default under the 2006 Credit Agreement and, if such
default was not waived by its lenders, this could result in acceleration of the
amounts owed under the 2006 Credit Agreement. In such event, the
Company would have to repay or refinance such debt. At December 31,
2008, the Company had sufficient cash to pay such debt; however, such payment
would have a significant adverse impact on its liquidity. If the
Company were unable to repay or refinance such debt, this could possibly result
in acceleration of the payment obligation for its other long-term
debt.
F-26
2006 Credit
Agreement
On July
14, 2006, the Company and certain of its subsidiaries entered into a Credit
Agreement (the “2006 Credit Agreement”) with the lenders party thereto (the “New
Lenders”) and Credit Suisse, as administrative and collateral agent. The
2006 Credit Agreement provides the Company with a revolving line of credit of up
to $700 available through July 14, 2012 and term debt of $200 that will mature
on July 14, 2013. The revolving line of credit consists of $500 of
domestic revolving loans and $200 of multicurrency revolving
loans. The 2006 Credit Agreement also provides for incremental loan
commitments of up to $300, which may be extended at the option of the New
Lenders, in the form of revolving credit loans, term loans or a combination of
both.
As of
December 31, 2008 and 2007, the Company had $195.0 and $197.0, respectively, of
term loans outstanding under the 2006 Credit Agreement. Term loans
under the 2006 Credit Agreement bear interest at a rate of LIBOR plus
1.75%. The weighted average interest rate on the term loans under the
2006 Credit Agreement at December 31, 2008 and 2007 was 3.21% and 6.58%,
respectively.
As of
December 31, 2008, the Company had a balance of $35.0 outstanding under the
revolving credit component of the 2006 Credit Agreement. The weighted
average interest rate on the outstanding portion of the 2006 Credit Agreement
revolving credit component was 3.25% at December 31, 2008. The
Company did not have an outstanding balance under the revolving credit component
of the 2006 Credit Agreement at December 31, 2007.
The 2006
Credit Agreement incorporates facilities for issuance of letters of credit up to
$250. Letters of credit issued under the 2006 Credit Agreement letter
of credit facility decrease availability under the $700 revolving line of
credit. As of December 31, 2008 and 2007, the Company had letters of
credit issued under the 2006 Credit Agreement that totaled $82.2 and $101.8,
respectively. The 2006 Credit Agreement also permits the Company to
have additional letter of credit facilities up to $100, and letters of credit
issued under such additional facilities do not decrease availability under the
revolving line of credit. As of December 31, 2008 and 2007, the
Company had letters of credit issued under the additional letter of credit
facilities of the 2006 Credit Agreement that totaled $13.9 and $16.3,
respectively. The Company also has bilateral arrangements to issue
letters of credit with various other financial institutions. These
additional letters of credit do not reduce our availability under the 2006
Credit Agreement. The Company had letters of credit issued under
these additional arrangements of $59.2 and $17.9 as of December 31, 2008 and
2007, respectively. In total, as of December 31, 2008 and 2007, the
Company had letters of credit outstanding of $155.3 and $136.1.
The 2006
Credit Agreement requires the Company to comply with a number of
covenants. These covenants require the Company to meet certain
financial tests, namely (a) a requirement that the Company maintain a
consolidated leverage ratio, as defined in the 2006 Credit Agreement, not in
excess of 3.75 to 1.00 on the last day of any fiscal quarter, and (b) a
requirement that the Company maintain a consolidated fixed charge coverage
ratio, as defined in the 2006 Credit Agreement, of not less than 1.25 to 1.00
(excluding share repurchases made in 2008) for the period of four
consecutive fiscal quarters ending on March 31, 2009 and a consolidated
fixed charge coverage ratio, as defined in the 2006 Credit Agreement, of not
less than 1.10 to 1.00 (excluding share repurchases made in 2008) for the period
of four consecutive fiscal quarters ending on June 30, 2009. The
consolidated fixed charge coverage ratio threshold lowers to 0.80 to 1.00 for
any period of four consecutive fiscal quarters ending between July 1, 2009 and
March 31, 2010 and increases to 1.25 to 1.00 for any period of four consecutive
fiscal quarters ending on or after April 1, 2010. The covenants also limit, in
certain circumstances, Terex’s ability to take a variety of actions,
including: incur indebtedness; create or maintain liens on its
property or assets; make investments, loans and advances; engage in
acquisitions, mergers, consolidations and asset sales; and pay dividends and
distributions, including share repurchases. The 2006 Credit Agreement
also contains customary events of default.
F-27
While the
Company was in compliance with all of its financial covenants under the 2006
Credit Agreement as of December 31, 2008, the Company sought and received an
amendment to the 2006 Credit Agreement on February 24,
2009. This amendment was necessary because of continued
deteriorating business conditions in certain of the Company’s operating segments
and the impact of historical fixed charges incurred on a trailing twelve months
basis (for example, interest expense, cash taxes, share repurchases and capital
expenditures) causing the Company to believe there was a likelihood that
it would be in violation of the consolidated fixed charge coverage
ratio covenant under the 2006 Credit Agreement as early as the end of
the first quarter of 2009 without such an amendment. The amendment revises
the threshold of the consolidated fixed charge coverage ratio from 1.25 to 1.00
to the ratios described above and generally caps at $5, the amount of share
repurchases the Company can make in each of the first two quarters of
2009. The amendment also raises the interest rates charged under the
2006 Credit Agreement by 100 basis points and includes a provision that would
increase the interest rates charged under the 2006 Credit Agreement by an
additional 100 basis points if Terex fails to achieve a consolidated fixed
charge coverage ratio of at least 1.00 to 1.00 for certain quarterly periods in
2009 and 2010. The amendment also includes certain other technical
changes. The Company’s future compliance with its financial covenants
under the 2006 Credit Agreement will depend on its ability to generate earnings
and manage its assets effectively. The 2006 Credit Agreement also has
various non-financial covenants, both requiring the Company to refrain from
taking certain actions (as described above) and requiring the Company to take
certain actions, such as keeping in good standing its corporate existence,
maintaining insurance, and providing its bank lending group with financial
information on a timely basis. The Company’s future ability to
provide its bank lending group with financial information on timely basis will
depend on its ability to file its periodic reports with the SEC in a timely
manner.
The
Company and certain of its subsidiaries agreed to take certain actions to secure
borrowings under the 2006 Credit Agreement. As a result, on July 14,
2006, the Company and certain of its subsidiaries entered into a Guarantee and
Collateral Agreement with Credit Suisse, as collateral agent for the New
Lenders, granting security to the New Lenders for amounts borrowed under the
2006 Credit Agreement. The security granted by the Company under the
2006 Credit Agreement is tied to the Company’s credit ratings. If the
credit ratings of the Company’s debt under the 2006 Credit Agreement are lower
than BB and Ba2 by Standard & Poor’s and Moody’s, respectively,
with no negative outlook (the “Initial Ratings Threshold”), then the Company is
required to (a) pledge as collateral the capital stock of the Company’s material
domestic subsidiaries and 65% of the capital stock of certain of the Company’s
material foreign subsidiaries (the “Stock Collateral”) and (b) provide a first
priority security interest in, and mortgages on, substantially all of the
Company’s domestic assets (the “Non-Stock Collateral”). If the credit
ratings of the Company’s debt under the 2006 Credit Agreement exceed the Initial
Ratings Threshold for a period of 90 consecutive days, then the Company is no
longer required to pledge the Non-Stock Collateral. Further, if the
credit ratings of the Company’s debt under the 2006 Credit Agreement are higher
than BBB- and Baa3 by Standard & Poor’s and Moody’s, respectively, with
no negative outlook (the “Investment Grade Threshold”), for a period of 90
consecutive days, then the Company also is no longer required to pledge the
Stock Collateral.
These
security triggers operate in both directions. Should the Company
exceed the Investment Grade Threshold, but subsequently decline in ratings below
the Investment Grade Threshold for a period longer than 30 consecutive days, the
Company would once again need to pledge the Stock
Collateral. Similarly, if the Company exceeds the Initial Ratings
Threshold and subsequently declines below the Initial Ratings Threshold for a
period longer than 30 consecutive days, the Company may again need to grant
security in the Non-Stock Collateral.
At the
time the 2006 Credit Agreement was executed, the Company was below the Initial
Ratings Threshold, and had to pledge as security the Stock Collateral and the
Non-Stock Collateral. As of December 31, 2008, the ratings of the
Company’s debt under the 2006 Credit Agreement were BBB- from
Standard & Poor’s and Baa2 from Moody’s, which was above the Investment
Grade Threshold. On February 26, 2009, Standard & Poor’s
lowered its outlook for the Company to BBB- with a negative outlook,
causing the Company to be below the Investment Grade Threshold but above the
Initial Ratings Threshold. As a result, if Standard & Poor’s
outlook for the Company is not increased in the next thirty days, the Company
may be required to repledge the Stock Collateral as security.
On
January 11, 2008, Terex and the New Lenders entered into an amendment of the
2006 Credit Agreement. The amendment enables Terex and certain of its
subsidiaries to sell accounts receivable of up to $250 at any time through a
program utilizing a special purpose subsidiary of Terex. The
amendment also allows Terex and certain of its subsidiaries to enter into
purchase money loan and lease financing transactions with their customers in an
aggregate amount not to exceed $500 at any time, and provides Terex and its
subsidiaries the ability to sell such loans and leases to third
parties. The amendment also removes from the definition of permitted
acquisition a previous prohibition on an acquisition of a company that is
preceded by an unsolicited tender offer for the equity interests of such
company. Finally, the amendment makes a number of technical changes
to reflect the impact of these substantive revisions.
On June
25, 2008, Terex, certain of its domestic subsidiaries and Credit Suisse entered
into Supplement No. 1 to the Guarantee and Collateral Agreement under the 2006
Credit Agreement, joining other domestic subsidiaries of Terex as additional
guarantors of amounts borrowed under the 2006 Credit Agreement pursuant to the
terms of the 2006 Credit Agreement.
F-28
In
connection with the 2006 Credit Agreement, the Company terminated its existing
amended and restated credit agreement, dated as of July 3, 2002, as amended (the
“2002 Credit Agreement”), among the Company and certain of its subsidiaries, the
lenders thereunder and Credit Suisse, as administrative agent and collateral
agent, and related agreements and documents. The Company used the
proceeds from $200 of term loans under the 2006 Credit Agreement and cash on
hand to pay in full all amounts outstanding under the 2002 Credit Agreement at
the date of termination. In connection with the termination of the
2002 Credit Agreement, the Company recorded pre-tax charges of $3.4 for the
accelerated amortization of debt acquisition costs as a loss on early
extinguishment of debt in the Consolidated Statement of Income.
8% Senior Subordinated
Notes
On
November 13, 2007, the Company sold and issued $800 aggregate principal amount
of 8% Senior Subordinated Notes Due 2017 (“8% Notes”). The 8% Notes
are not currently guaranteed by any of the Company’s subsidiaries, but under
specified limited circumstances could be guaranteed by certain domestic
subsidiaries of the Company in the future. The 8% Notes were issued
under an indenture, dated as of July 20, 2007, and supplemental indenture, dated
as of November 13, 2007, between the Company and HSBC Bank USA, National
Association, as trustee. The 8% Notes are redeemable by the Company
beginning in November 2012 at an initial redemption price of 104.000% of
principal amount.
7-3/8% Senior Subordinated
Notes
On
November 25, 2003, the Company sold and issued $300 aggregate principal amount
of 7-3/8% Senior Subordinated Notes Due 2014 discounted to yield 7-1/2% (“7-3/8%
Notes”). The 7-3/8% Notes are jointly and severally guaranteed by
certain domestic subsidiaries of the Company (see Note V - “Consolidating
Financial Statements”). The 7-3/8% Notes were issued in a private
placement made in reliance upon an exemption from registration under the
Securities Act of 1933, as amended (the “Securities Act”). During the
second quarter of 2004, the outstanding unregistered 7-3/8% Notes were exchanged
for 7-3/8% Notes registered under the Securities Act. The 7-3/8%
Notes are redeemable by the Company beginning in January 2009 at an initial
redemption price of 103.688% of principal amount.
9-1/4% Senior Subordinated
Notes
On
December 17, 2001, the Company sold and issued $200 aggregate principal amount
of 9-1/4% Senior Subordinated Notes Due 2011 (“9-1/4% Notes”). The
9-1/4% Notes were issued in a private placement made in reliance upon an
exemption from registration under the Securities Act. During the
first quarter of 2002, the outstanding unregistered 9-1/4% Notes were exchanged
for 9-1/4% Notes registered under the Securities Act. The 9-1/4%
Notes were redeemable by the Company beginning in January 2007 at an initial
redemption price of 104.625% of principal amount.
On
January 15, 2007, the Company redeemed the outstanding $200 principal amount of
9-1/4% Notes. The total cash paid was $218.5, and included a call premium of
4.625% as set forth in the indenture for the 9-1/4% Notes plus accrued interest
of $46.25 per $1,000 principal amount at the redemption date. The
Company recorded pre-tax charges of $12.5 in the first quarter of 2007 for the
call premium and accelerated amortization of debt acquisition costs as a loss on
early extinguishment of debt.
The
amounts in the Consolidated Statement of Income for the year ended December 31,
2007 showed $12.5 for loss on early extinguishment of debt while the
Consolidated Statement of Cash Flows for this period showed $3.2. The
$12.5 in the Consolidated Statement of Income include (a) cash payments of $9.3
for call premiums associated with the repayment of $200 of outstanding debt and
(b) $3.2 of non-cash charges for accelerated amortization of debt acquisition
costs associated with the outstanding debt, which together flow into the
calculation of Net Income. In preparing the Consolidated Statement of
Cash Flows, the non-cash item (b) was added to Net Income to reflect cash flow
appropriately.
10-3/8% Senior Subordinated
Notes
On March
29, 2001, the Company sold and issued $300 aggregate principal amount of 10-3/8%
Senior Subordinated Notes Due 2011 (“10-3/8% Notes”). The 10-3/8%
Notes were issued in a private placement made in reliance upon an exemption from
registration under the Securities Act. During the third quarter of
2001, the outstanding unregistered 10-3/8% Notes were exchanged for 10-3/8%
Notes registered under the Securities Act. The 10-3/8% Notes were
redeemable by the Company beginning in April 2006 at an initial redemption price
of 105.188% of principal amount.
F-29
On June
30, 2006, the Company completed the redemption of $100 principal amount of the
$300 principal amount outstanding under the 10-3/8% Notes. The total
cash paid was $107.8, and included a call premium of 5.188% as set forth in the
indenture for the 10-3/8% Notes plus accrued interest of $25.65 per $1,000
principal amount at the redemption date. The Company recorded pre-tax
charges of $6.7 in the second quarter of 2006 for the call premium and
accelerated amortization of debt acquisition costs as a loss on early
extinguishment of debt.
On August
14, 2006, the Company redeemed the remaining $200 outstanding principal amount
of the 10-3/8% Notes. The total cash paid was $218.0, and included a
call premium of 5.188% as set forth in the indenture for the 10-3/8% Notes plus
accrued interest of $38.33 per $1,000 principal amount at the redemption
date. The Company recorded pre-tax charges of $13.2 in the third
quarter of 2006 for the call premium and accelerated amortization of debt
acquisition costs as a loss on early extinguishment of debt.
The
amounts in the Consolidated Statement of Income for the year ended December 31,
2006 showed $23.3 for loss on early extinguishment of debt while the
Consolidated Statement of Cash Flows for this period showed $7.2. The
$23.3 in the Consolidated Statement of Income include (a) cash payments of $15.6
for call premiums associated with the repayment of $300 of outstanding debt, (b)
$7.2 of non-cash charges for accelerated amortization of debt acquisition costs
associated with the outstanding debt and (c) cash payments of $0.5 for expenses
related to the termination of the Company’s previous credit facility, which all
flow into the calculation of Net Income. In preparing the
Consolidated Statement of Cash Flows, the non-cash item (b) was added to Net
Income to reflect cash flow appropriately.
Schedule of Debt
Maturities
Scheduled
annual maturities of the principal portion of long-term debt outstanding at
December 31, 2008 in the successive five-year period are summarized below.
Amounts shown are exclusive of minimum lease payments for capital lease
obligations disclosed in Note Q – “Lease Commitments:”
|
2009
|
$ | 32.9 | ||
|
2010
|
5.4 | |||
|
2011
|
12.5 | |||
|
2012
|
38.8 | |||
|
2013
|
188.4 | |||
|
Thereafter
|
1,098.7 | |||
|
Total
|
$ | 1,376.7 |
The total
carrying value of long-term debt excluding capital lease obligations at December
31, 2008 was $1,429.3. The $52.6 difference is due to the fair value adjustment
increasing the carrying value of debt as a result of accounting for fair value
hedges for the fixed interest rate to floating interest rate swaps on the 7-3/8%
and 8% Notes. See Note M - “Derivative Financial
Instruments.”
Based on
quoted market values and indicative price quotations from financial
institutions, the Company estimates that the fair values of the 7-3/8% Notes, 8%
Notes and the term debt under the 2006 Credit Agreement were approximately $264,
$680 and $156, respectively as of December 31, 2008 and approximately $301, $808
and $195, respectively as of December 31, 2007. The Company believes that the
carrying value of its other borrowings approximates fair market value, based on
discounted future cash flows using rates currently available for debt of similar
terms and remaining maturities.
The
Company paid $104.0, $75.8 and $117.0 of interest in 2008, 2007 and 2006,
respectively.
F-30
NOTE
Q – LEASE COMMITMENTS
The
Company leases certain facilities, machinery, equipment and vehicles with
varying terms. Under most leasing arrangements, the Company pays the property
taxes, insurance, maintenance and expenses related to the leased property.
Certain of the equipment leases are classified as capital leases and the related
assets have been included in Property, Plant and Equipment. Net assets under
capital leases were $12.5 and $14.0 net of accumulated amortization of $4.1 and
$8.3, at December 31, 2008 and 2007, respectively.
Future
minimum capital and noncancellable operating lease payments and the related
present value of capital lease payments at December 31, 2008 are as
follows:
|
Capital
Leases
|
Operating
Leases
|
|||||||
|
2009
|
$ | 1.7 | $ | 65.9 | ||||
|
2010
|
1.5 | 56.5 | ||||||
|
2011
|
1.4 | 44.8 | ||||||
|
2012
|
1.1 | 36.9 | ||||||
|
2013
|
0.5 | 32.3 | ||||||
|
Thereafter
|
0.7 | 121.6 | ||||||
|
Total
minimum obligations
|
6.9 | $ | 358.0 | |||||
|
Less:
amount representing interest
|
(0.4 | ) | ||||||
|
Present
value of net minimum obligations
|
6.5 | |||||||
|
Less:
current portion
|
(1.6 | ) | ||||||
|
Long-term
obligations
|
$ | 4.9 | ||||||
Most of
the Company’s operating leases provide the Company with the option to renew the
leases for varying periods after the initial lease terms. These renewal options
enable the Company to renew the leases based upon the fair rental values at the
date of expiration of the initial lease. Total rental expense under operating
leases was $66.2, $70.0, and $65.6 in 2008, 2007 and 2006,
respectively.
NOTE
R – RETIREMENT PLANS AND OTHER BENEFITS
Pension
Plans
U.S. Plans - As of December
31, 2008, the Company maintained one qualified defined benefit pension plan
covering certain domestic employees (the “Terex Plan”). Participation
in the plan for all employees has been frozen. Participants are only
credited with post-freeze service for purposes of determining vesting and
retirement eligibility only. The benefits covering salaried employees
are based primarily on years of service and employees’ qualifying compensation
during the final years of employment. The benefits covering
bargaining unit employees are based primarily on years of service and a flat
dollar amount per year of service. It is the Company’s policy
generally to fund the Terex Plan based on the minimum requirements of the
Employee Retirement Income Security Act of 1974. Plan assets consist
primarily of common stocks, bonds, and short-term cash equivalent
funds.
Prior to
December 31, 2008, the Company maintained four qualified plans, which were
merged into one plan during 2008. A curtailment was recognized during
2006 for two of the former plans due to the freezing of benefits. Unrecognized
prior service cost without future economic benefit was recognized as a
loss.
The
Company adopted a nonqualified Supplemental Executive Retirement Plan (“SERP”)
effective October 1, 2002. The SERP provides retirement benefits to certain
senior executives of the Company. Generally, the SERP provides a benefit based
on average total compensation earned over a participant’s final five years of
employment and years of service reduced by benefits earned under any Company
retirement program excluding salary deferrals and matching contributions. In
addition, benefits are reduced by Social Security Primary Insurance Amounts
attributable to Company contributions. The SERP is
unfunded. Effective December 31, 2008, participation in the SERP was
frozen and a defined contribution plan was established for certain senior
executives of the Company.
Other Postemployment
Benefits
The
Company has several non-pension post-retirement benefit programs. The health
care programs are contributory, with participants’ contributions adjusted
annually, and the life insurance plan is non-contributory. The Company provides
postemployment health and life insurance benefits to certain former salaried and
hourly employees of Terex Cranes - Waverly Operations and Terex
Corporation. The Company provides postemployment health benefits for
certain former employees at its Cedarapids and Simplicity Engineering
operations.
F-31
The
liability of the Company’s U.S. plans, including the SERP, as of December 31,
was as follows:
|
Pension Benefits
|
Other Benefits
|
|||||||||||||||
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||
|
Accumulated
benefit obligation at end of year
|
$ | 133.2 | $ | 134.0 | ||||||||||||
|
Change
in benefit obligation:
|
||||||||||||||||
|
Benefit
obligation at beginning of year
|
$ | 139.9 | $ | 136.6 | $ | 13.5 | $ | 15.8 | ||||||||
|
Service
cost
|
2.0 | 2.1 | 0.1 | 0.1 | ||||||||||||
|
Interest
cost
|
8.3 | 7.9 | 0.7 | 0.8 | ||||||||||||
|
Impact
of plan amendments
|
— | — | — | — | ||||||||||||
|
Acquisition
|
0.6 | 0.1 | — | — | ||||||||||||
|
Actuarial
loss
|
(1.0 | ) | 2.0 | (1.5 | ) | (1.9 | ) | |||||||||
|
Benefits
paid
|
(9.0 | ) | (8.8 | ) | (1.1 | ) | (1.3 | ) | ||||||||
|
Benefit
obligation at end of year
|
140.8 | 139.9 | 11.7 | 13.5 | ||||||||||||
|
Change
in plan assets:
|
||||||||||||||||
|
Fair
value of plan assets at beginning of year
|
113.3 | 112.4 | — | — | ||||||||||||
|
Actual
return on plan assets
|
(23.9 | ) | 6.3 | — | — | |||||||||||
|
Employer
contribution
|
3.4 | 3.4 | 1.1 | 1.3 | ||||||||||||
|
Benefits
paid
|
(9.0 | ) | (8.8 | ) | (1.1 | ) | (1.3 | ) | ||||||||
|
Fair
value of plan assets at end of year
|
83.8 | 113.3 | — | — | ||||||||||||
|
Funded
status
|
$ | (57.0 | ) | $ | (26.6 | ) | $ | (11.7 | ) | $ | (13.5 | ) | ||||
|
Amounts
recognized in the statement of financial position consist
of:
|
||||||||||||||||
|
Current
liabilities
|
$ | — | $ | — | $ | 1.3 | $ | 1.5 | ||||||||
|
Non-current
liabilities
|
57.0 | 26.6 | 10.4 | 12.0 | ||||||||||||
|
Total
liabilities
|
$ | 57.0 | $ | 26.6 | $ | 11.7 | $ | 13.5 | ||||||||
|
Amounts
recognized in accumulated other comprehensive income consist
of:
|
||||||||||||||||
|
Actuarial
net loss
|
$ | 72.7 | $ | 43.3 | $ | 3.8 | $ | 5.5 | ||||||||
|
Prior
service cost
|
2.2 | 2.4 | — | 0.1 | ||||||||||||
|
Total
amounts recognized in accumulated other comprehensive
income
|
$ | 74.9 | $ | 45.7 | $ | 3.8 | $ | 5.6 | ||||||||
|
Pension Benefits
|
Other Benefits
|
|||||||||||||||||||||||
|
2008
|
2007
|
2006
|
2008
|
2007
|
2006
|
|||||||||||||||||||
|
Weighted-average
assumptions as of December 31:
|
||||||||||||||||||||||||
|
Discount
rate
|
6.25 | % | 6.00 | % | 5.75 | % | 6.25 | % | 6.00 | % | 5.75 | % | ||||||||||||
|
Expected
return on plan assets
|
8.00 | % | 8.00 | % | 8.00 | % | N/A | N/A | N/A | |||||||||||||||
|
Rate
of compensation increase
|
3.75 | % | 3.75 | % | 3.75 | % | N/A | N/A | N/A | |||||||||||||||
|
Pension Benefits
|
Other Benefits
|
|||||||||||||||||||||||
|
2008
|
2007
|
2006
|
2008
|
2007
|
2006
|
|||||||||||||||||||
|
Components
of net periodic cost:
|
||||||||||||||||||||||||
|
Service
cost
|
$ | 2.0 | $ | 2.1 | $ | 1.5 | $ | 0.1 | $ | 0.1 | $ | 0.2 | ||||||||||||
|
Interest
cost
|
8.3 | 7.9 | 7.6 | 0.7 | 0.8 | 0.8 | ||||||||||||||||||
|
Expected
return on plan assets
|
(8.8 | ) | (8.7 | ) | (8.0 | ) | — | — | — | |||||||||||||||
|
Amortization
of prior service cost
|
0.2 | 0.4 | 0.6 | 0.1 | 0.1 | 0.1 | ||||||||||||||||||
|
Curtailment
|
— | — | 5.2 | — | — | — | ||||||||||||||||||
|
Recognized
actuarial loss
|
2.3 | 2.2 | 2.5 | 0.2 | 0.3 | 0.6 | ||||||||||||||||||
|
Net
periodic cost
|
$ | 4.0 | $ | 3.9 | $ | 9.4 | $ | 1.1 | $ | 1.3 | $ | 1.7 | ||||||||||||
F-32
|
Pension Benefits
|
Other Benefits
|
|||||||||||||||
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||
|
Other
Changes in Plan Assets and Benefit Obligations Recognized in Other
Comprehensive Income:
|
||||||||||||||||
|
Net
loss (gain)
|
$ | 31.8 | $ | 4.4 | $ | (1.5 | ) | $ | (1.9 | ) | ||||||
|
Amortization
of actuarial losses
|
(2.4 | ) | (2.2 | ) | (0.2 | ) | (0.3 | ) | ||||||||
|
Amortization
of prior service cost
|
(0.2 | ) | (0.4 | ) | (0.1 | ) | (0.1 | ) | ||||||||
|
Total
recognized in other comprehensive income
|
$ | 29.2 | $ | 1.8 | $ | (1.8 | ) | $ | (2.3 | ) | ||||||
|
Amounts
expected to be recognized as components of net periodic cost for the year
ending December 31, 2009:
|
Pension Benefits
|
Other Benefits
|
||||||
|
Actuarial
net loss
|
$ | 5.0 | $ | 0.2 | ||||
|
Prior
service cost
|
0.2 | 0.1 | ||||||
|
Total
amount expected to be recognized as components of net periodic cost for
the year ending December 31, 2009
|
$ | 5.2 | $ | 0.3 | ||||
The
projected benefit obligation, accumulated benefit obligation, and fair value of
plan assets for the U.S. pension plans, including the SERP, with accumulated
benefit obligations in excess of plan assets were $140.8, $133.2 and $83.8,
respectively, as of December 31, 2008, and $139.9, $134.0 and $113.3,
respectively, as of December 31, 2007.
The
discount rate enables the Company to estimate the present value of expected
future cash flows on the measurement date. The rate used reflects a rate of
return on high-quality fixed income investments that match the duration of
expected benefit payments at the December 31 measurement date.
Consistent
with the Company’s investment strategy, the rate used for the expected return on
plan assets is based on a number of different factors. Both the
historical and prospective long-term expected asset performances are considered
in determining the rate of return. While the Company examines
performance and future expectations annually, it also views historic asset
portfolios and performance over a long period of years before recommending a
change. In the short term there may be fluctuations of positive and negative
yields year over year, but over the long-term, the return is expected to be
approximately 8%.
The asset
allocation for the Company’s U.S. defined benefit pension plan at December 31,
2008 and 2007 and target allocation for 2009 are as follows:
|
Percentage
of Plan Assets
at December 31,
|
Target Allocation
|
|||||||||||
|
2008
|
2007
|
2009
|
||||||||||
|
Equity
Securities
|
41.2 | % | 41.2 | % | 32% - 48 | % | ||||||
|
Fixed
Income
|
58.8 | % | 58.8 | % | 54% - 66 | % | ||||||
|
Total
|
100.0 | % | 100.0 | % | ||||||||
The
Company plans to contribute approximately $5 to its U.S. defined benefit pension
and post-retirement plans in 2009. The Company’s estimated future benefit
payments under its U.S. plans are as follows:
|
Year Ending December 31,
|
|
Pension Benefits
|
Other Benefits
|
||||||
|
2009
|
$ | 9.2 | $ | 1.3 | |||||
|
2010
|
$ | 9.3 | $ | 1.4 | |||||
|
2011
|
$ | 9.5 | $ | 1.4 | |||||
|
2012
|
$ | 9.7 | $ | 1.3 | |||||
|
2013
|
$ | 9.7 | $ | 1.2 | |||||
|
2014-2018
|
$ | 52.2 | $ | 4.8 | |||||
F-33
For
measurement purposes, a 9.00% annual rate of increase in the per capita cost of
covered health care benefits was assumed for 2008. The rate was
assumed to decrease gradually to 4.75% for 2011 and remain at that level
thereafter. Assumed health care cost trend rates have a significant
effect on the amounts reported for the health care plan. A one-percentage-point
change in assumed health care cost trend rates would have the following
effects:
|
1-Percentage-
Point Increase
|
1-Percentage-
Point Decrease
|
|||||||
|
Effect
on total service and interest cost components
|
$ | 0.1 | $ | — | ||||
|
Effect
on postretirement benefit obligation
|
$ | 0.6 | $ | (0.5 | ) | |||
International Plans - As part
of the acquisition of Power Legend and its affiliates, including a 50%
controlling ownership interest in Sichuan Crane, on April 4, 2006, the Company
acquired a pension plan in China. As part of the acquisition of
Halco, the Company acquired a pension plan in the United Kingdom. The
funded status and activity from date of acquisition is included in the table
below.
The
Company also maintains defined benefit plans in Germany, France, China, India
and the United Kingdom for some of its subsidiaries. The plans in
Germany, China, India and France are unfunded plans. For the
Company’s operations in Italy and Thailand, there are mandatory termination
indemnity plans providing a benefit that is payable upon termination of
employment in substantially all cases of termination. The Company
records this obligation based on the mandated requirements. The
measure of the current obligation is not dependent on the employees’ future
service and therefore is measured at current value.
The
liability of the Company’s international plans as of December 31 was as
follows:
|
Pension Benefits
|
||||||||
|
2008
|
2007
|
|||||||
|
Accumulated
benefit obligation at end of year
|
$ | 269.7 | $ | 328.0 | ||||
|
Change
in benefit obligation:
|
||||||||
|
Benefit
obligation at beginning of year
|
$ | 339.4 | $ | 326.7 | ||||
|
Service
cost
|
7.5 | 7.6 | ||||||
|
Interest
cost
|
17.8 | 15.7 | ||||||
|
Acquisitions
|
3.6 | 0.8 | ||||||
|
Actuarial
(gain) loss
|
(28.0 | ) | (20.0 | ) | ||||
|
Benefits
paid
|
(16.5 | ) | (13.0 | ) | ||||
|
Foreign
exchange effect
|
(45.0 | ) | 21.6 | |||||
|
Benefit
obligation at end of year
|
278.8 | 339.4 | ||||||
|
Change
in plan assets:
|
||||||||
|
Fair
value of plan assets at beginning of year
|
125.7 | 118.7 | ||||||
|
Actual
return on plan assets
|
(19.4 | ) | 4.2 | |||||
|
Employer
contribution
|
17.7 | 13.2 | ||||||
|
Employee
contribution
|
0.9 | 0.9 | ||||||
|
Acquisitions
|
- | - | ||||||
|
Benefits
paid
|
(16.5 | ) | (13.0 | ) | ||||
|
Foreign
exchange effect
|
(29.6 | ) | 1.7 | |||||
|
Fair
value of plan assets at end of year
|
78.8 | 125.7 | ||||||
|
Funded
status
|
$ | (200.0 | ) | $ | (213.7 | ) | ||
|
Amounts
recognized in the statement of financial position consist
of:
|
2008
|
2007
|
||||||
|
Current
liabilities
|
|
$ | 8.6 | $ | 8.4 | |||
|
Non-current
liabilities
|
191.4 | 205.3 | ||||||
|
Total
liabilities
|
$ | 200.0 | $ | 213.7 | ||||
|
Amounts
recognized in accumulated other comprehensive income consist
of:
|
||||||||
|
Actuarial
net loss
|
$ | 20.2 | $ | 29.8 | ||||
|
Prior
service cost
|
5.8 | 7.0 | ||||||
|
Total
amounts recognized in accumulated other comprehensive
income
|
$ | 26.0 | $ | 36.8 | ||||
F-34
|
Pension Benefits
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
The
range of assumptions as of December 31:
|
||||||||||||
|
Discount
rate
|
5.00%
-9.50
|
% |
5.25%
- 9.00
|
% |
4.00%
- 5.25
|
% | ||||||
|
Expected
return on plan assets
|
6.00
|
% |
6.50
|
% |
6.50
|
% | ||||||
|
Rate
of compensation increase
|
2.00%
-10.00
|
% |
2.00%
- 10.00
|
% |
2.20%
- 10.00
|
% | ||||||
|
Pension Benefits
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
Components
of net periodic cost:
|
||||||||||||
|
Service
cost
|
$ | 7.5 | $ | 7.6 | $ | 6.4 | ||||||
|
Interest
cost
|
17.8 | 15.7 | 13.0 | |||||||||
|
Expected
return on plan assets
|
(7.5 | ) | (7.5 | ) | (6.2 | ) | ||||||
|
Amortization
of prior service cost
|
4.6 | 0.9 | 0.9 | |||||||||
|
Employee
contributions
|
(0.9 | ) | (0.9 | ) | (0.8 | ) | ||||||
|
Recognized
actuarial loss
|
1.1 | 1.8 | 2.3 | |||||||||
|
Net
periodic cost
|
$ | 22.6 | $ | 17.6 | $ | 15.6 | ||||||
|
Pension Benefits
|
||||||||
|
2008
|
2007
|
|||||||
|
Other
Changes in Plan Assets and Benefit Obligations Recognized in Other
Comprehensive Income:
|
||||||||
|
Net
loss (gain)
|
$ | 2.5 | $ | (15.4 | ) | |||
|
Amortization
of actuarial losses
|
(1.1 | ) | (1.8 | ) | ||||
|
Amortization
of prior service cost
|
(4.6 | ) | (0.9 | ) | ||||
|
Foreign
exchange effect
|
(7.6 | ) | 2.1 | |||||
|
Total
recognized in other comprehensive income
|
$ | (10.8 | ) | $ | (16.0 | ) | ||
|
Amounts
expected to be recognized as components of net periodic cost for the year
ending December 31, 2009:
|
||||
|
Actuarial
net loss
|
$ | 1.0 | ||
|
Prior
Service cost
|
1.0 | |||
|
Total
amount expected to be recognized as components of net periodic cost for
the year ending December 31, 2009
|
$ | 2.0 | ||
The
projected benefit obligation, accumulated benefit obligation, and fair value of
plan assets for the international defined benefit pension plans with accumulated
benefit obligations in excess of plan assets were $278.8, $269.7 and $78.8,
respectively, as of December 31, 2008, and $339.4, $328.0 and $125.7,
respectively, as of December 31, 2007.
The
assumed discount rate reflects the rates at which the pension benefits could
effectively be settled. The Company looks at redemption yields of a
range of high quality corporate bonds of suitable term in each of the countries
specific to the plan.
The
methodology used to determine the rate of return on pension plan assets in the
foreign plans was based on average rate of earnings on funds invested and to be
invested. Based on historical returns and future expectations, the
Company believes the investment return assumptions are
reasonable. The Company’s strategy with regard to the investments in
the pension plan assets is to earn a rate of return sufficient to match or
exceed the long-term growth of pension liabilities. The expected rate
of return of plan assets represents an estimate of long-term returns on the
investment portfolio. This is reviewed by the trustees and varies
with each plan.
F-35
The asset
allocation and target allocation for 2009 for the Company’s international
defined benefit pension plans at December 31, 2008 and 2007 is as
follows:
|
Percentage
of Plan Assets
at December 31,
|
Target Allocation
|
|||||||||||
|
2008
|
2007
|
2009
|
||||||||||
|
Equity
Securities
|
39.2 | % | 53.9 | % |
30%
- 60%
|
|||||||
|
Fixed
Income
|
57.5 | % | 41.8 | % |
35%
- 65%
|
|||||||
|
Real
Estate
|
3.3 | % | 4.3 | % |
5%
|
|||||||
|
Total
|
100.0 | % | 100.0 | % | ||||||||
The
Company plans to contribute approximately $14 to its foreign defined benefit
pension plans in 2009. The Company’s estimated future benefit payments under its
international defined benefit pension plans are as follows:
|
Year Ending December 31,
|
||||
|
2009
|
$ | 11.2 | ||
|
2010
|
$ | 11.8 | ||
|
2011
|
$ | 12.5 | ||
|
2012
|
$ | 13.1 | ||
|
2013
|
$ | 14.0 | ||
|
2014-2018
|
$ | 84.3 | ||
Savings
Plans
The
Company sponsors various tax deferred savings plans into which eligible
employees may elect to contribute a portion of their compensation. The Company
may, but is not obligated to, contribute to certain of these plans. The
Company’s Common Stock held in a rabbi trust pursuant to the Deferred
Compensation Plan is treated in a manner similar to treasury
stock. The number of shares of the Company’s Common Stock held in the
rabbi trust at December 31, 2008 and 2007 totaled 0.9 million and 1.1 million,
respectively.
Charges
recognized for the Deferred Compensation Plan and these other savings plans were
$15.6, $13.4 and $9.5 for the years ended December 31, 2008, 2007 and 2006,
respectively.
NOTE
S – STOCKHOLDERS’ EQUITY
On
December 31, 2008, there were 107.1 million shares of Common Stock issued and
94.0 million shares of Common Stock outstanding. Of the 192.9 million unissued
shares of Common Stock at that date, 3.5 million shares of Common Stock were
reserved for issuance for the exercise of stock options and the vesting of
restricted stock.
Common Stock in
Treasury. The Company values treasury stock on an average cost
basis. As of December 31, 2008, the Company held 13.1 million shares of
Common Stock in treasury totaling $599.9, including 0.9 million shares held in a
trust for the benefit of the Company’s Deferred Compensation Plan at a total of
$18.0. On December 15, 2006, the Company announced a share repurchase
program, under which the Company may purchase up to $200 of the Company’s
outstanding common shares through June 30, 2008. In December 2007,
this program was increased by an additional $500 for a total of $700 and
extended through June 30, 2009. In July 2008, the Board of Directors
of the Company increased the share repurchase program by an additional $500,
bringing the total amount that may be repurchased under the program to
$1,200. The expiration date for the program remains June 30,
2009. Purchases may be made at the Company’s discretion from time to
time in open market transactions at prevailing prices or through privately
negotiated transactions as conditions permit. During the year ended
December 31, 2008, the Company repurchased 7.4 million shares for $395.5 under
this program. In total, the Company has purchased 9.7 million shares under this
program for approximately $562 through December 31, 2008.
Preferred
Stock. The Company’s certificate of incorporation was amended
in June 1998 to authorize 50.0 million shares of preferred stock, $0.01 par
value per share. As of December 31, 2008 and 2007, there were no
shares of preferred stock outstanding.
F-36
Long-Term Incentive
Plans. In May 2000, the stockholders approved the Terex
Corporation 2000 Incentive Plan (the “2000 Plan”). The purpose of the
2000 Plan is to assist the Company in attracting and retaining selected
individuals to serve as directors, officers, consultants, advisors and employees
of the Company and its subsidiaries and affiliates who will contribute to the
Company’s success and to achieve long-term objectives which will inure to the
benefit of all stockholders of the Company through the additional incentive
inherent in the ownership of the Common Stock. The 2000 Plan
authorizes the granting of (i) options to purchase shares of Common Stock, (ii)
stock appreciation rights, (iii) stock purchase awards, (iv) restricted stock
awards and (v) performance awards. In May 2002, the stockholders
approved an increase in the number of shares of Common Stock authorized for
issuance under the 2000 Plan from 4.0 million shares to 7.0 million
shares. In May 2004, the stockholders approved an increase in the
number of shares of Common Stock authorized for issuance under the 2000 Plan
from 7.0 million shares to 12.0 million shares. The 2000 Plan has a
term of ten years from the date of its adoption. As of December 31, 2008, 1.7
million shares were available for grant under the 2000 Plan.
In May
1996, the stockholders approved the 1996 Terex Corporation Long-Term Incentive
Plan (the “1996 Plan”). The 1996 Plan authorizes the granting, among
other things, of (i) options to purchase shares of Common Stock, (ii) shares of
Common Stock, including restricted stock, and (iii) cash bonus awards based upon
a participant’s job performance. In May 1999, the stockholders
approved an increase in the aggregate number of shares of Common Stock
(including restricted stock, if any) optioned or granted under the 1996 Plan to
4.0 million shares. As of December 31, 2008, 23 thousand shares were
available for grant under the 1996 Plan.
Effective
January 1, 2006, the Company adopted SFAS No. 123R, using the modified
prospective method. SFAS No. 123R requires the recognition of all
stock-based payments in the financial statements based on the fair value of the
award on the grant date. Under the modified prospective method, the
Company is required to record stock-based compensation expense for all awards
granted after the date of adoption and for the unvested portion of previously
granted awards outstanding as of the date of adoption. In
November 2005, the FASB issued FSP No. SFAS 123R-3, “Transition Election
Related to Accounting for Tax Effects of Share-Based Payment Awards” (“FSP No.
123R-3”). FSP No. 123R-3 provides an elective alternative transition
method related to accounting for the tax effects of stock-based payments to
employees, which is different from the transition method prescribed by SFAS No.
123R. The alternative method includes simplified methods to establish the
beginning balance of additional paid-in capital related to the tax effects of
employee stock-based compensation (the APIC pool), and to determine the
subsequent impact on the APIC pool and the Company’s Consolidated Statement of
Cash Flows of the tax effects of employee stock-based compensation awards that
were outstanding upon adoption of SFAS No. 123R. The Company elected to
adopt the alternative transition method provided in FSP No. 123R-3 for
calculating the tax effects of stock-based compensation pursuant to SFAS No.
123R.
Substantially
all stock option grants under the 2000 Plan and the 1996 Plan vest over a four
year period, with 25% of each grant vesting on each of the first four
anniversary dates of the grant, and have a contractual life of ten
years.
As of
December 31, 2008, unrecognized compensation costs related to stock options
totaled approximately $0.5, which will be expensed over a weighted average
period of less than one year.
The
Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options. Management uses the Black-Scholes
option valuation model to provide the best estimate of the fair value of its
employee stock options. However, the Company’s employee stock options
may have characteristics significantly different from those of traded options,
and changes in the subjective input assumptions can materially affect the fair
value estimate.
The
expected life of stock options is the period of time the stock options are
expected to be outstanding. Estimated future exercise behavior is
based upon the Company’s historical patterns of exercise
data. Expected volatility is based on the historical price volatility
of the Company’s common stock over the expected life of the
option. The risk-free interest rate represents the U.S. Treasury
security yields at the time of grant for the expected life of the related stock
options. No dividend yield was incorporated in the calculation of
fair value as the Company has not historically paid dividends and, at the time
of the grant for the options currently outstanding, dividends were not expected
to be paid over the life of the options granted.
F-37
The fair
value of the options granted during the years ended December 31, 2008, 2007 and
2006 was estimated at the date of grant using the Black-Scholes option valuation
model with the assumptions included in the following tables:
|
Year
Ended
December
31, 2008
|
Year
Ended
December
31, 2007
|
Year
Ended
December
31, 2006
|
||||||||||
|
Dividend
yields
|
0.00
|
% |
0.00
|
% |
0.00
|
% | ||||||
|
Expected
volatility
|
38.60
|
% |
39.29
|
% |
42.73
- 43.76
|
% | ||||||
|
Risk-free
interest rates
|
3.23
|
% |
4.20
|
%
|
4.36
- 4.91
|
% | ||||||
|
Expected
life (in years)
|
5.3
|
5.3
|
5.3
- 5.7
|
|||||||||
|
Weighted
average fair value at date of grant for options granted (per
share)
|
$ |
25.05
|
$ |
27.24
|
$ |
21.69
|
||||||
|
|
|
|||||||||||
|
Total
intrinsic value of options exercised
|
$ |
11.3
|
|
$ |
61.0
|
|
$
|
60.4
|
||||
The
following table is a summary of stock options under all of the Company’s
plans.
|
Number
of Options
|
Weighted
Average
Exercise
Price
per
Share
|
Weighted
Average
Remaining
Contractual
Life
(in
years)
|
Aggregate
Intrinsic
Value
|
|||||||
|
Outstanding
at December 31, 2007
|
1,462,060
|
$
|
17.41
|
|||||||
|
Granted
|
10,348
|
$
|
65.57
|
|
||||||
|
Exercised
|
(238,071
|
) |
$
|
11.92
|
|
|||||
|
Canceled
or
expired
|
(23,302
|
) |
$
|
34.00
|
||||||
|
Outstanding
at December 31, 2008
|
1,211,035
|
$
|
18.58
|
4.8
|
$
|
5.7
|
||||
|
Exercisable
at December 31, 2008
|
1,140,311
|
$
|
16.92
|
4.6
|
$
|
5.7
|
||||
|
Expected
to vest at December 31, 2008
|
1,208,385
|
$
|
18.52
|
4.8
|
$
|
5.7
|
||||
Under the
2000 Plan and the 1996 Plan, approximately 59% of all restricted stock awards
vest over a four year period, with 25% of each grant vesting on each of the
first four anniversary dates of the grant; and approximately 41% of all
restricted stock awards vest over a three year period with 42% of these awards
vesting on the first three anniversary dates and 58% vesting at the end of the
three year period. Approximately 18% of the outstanding restricted stock
awards are subject to performance targets that may or may not be met and for
which the performance period has not yet been completed. The fair
value of the restricted stock awards is based on the market price at date of
grant except for 96 thousand shares of performance grants based on a market
condition. The Company used the Monte Carlo method to provide grant date
fair value for the awards with a market condition determined to be $69.71 per
share. The Monte Carlo method is a statistical simulation technique used
to provide the grant date fair value of an award. The following table
presents the weighted-average assumptions used in the valuation:
|
Dividend
yields
|
0.00%
|
|
Expected
volatility
|
41.80%
|
|
Risk
free interest rate
|
1.86%
|
|
Expected
life (in years)
|
3
|
As of December 31, 2008, unrecognized
compensation costs related to restricted stock totaled approximately $81.6,
which will be expensed over a weighted average period of 2.0 years. The
weighted average fair value at date of grant for restricted stock awards was
$64.19, $64.74 and $47.80 for the years ended December 31, 2008, 2007 and 2006,
respectively. The total fair value of shares vested for restricted stock
awards was $56.6, $24.1 and $17.6 for the years ended December 31, 2008, 2007
and 2006, respectively.
F-38
The
following table is a summary of restricted stock awards under all of the
Company’s plans:
|
Restricted
Stock
Awards
|
Weighted
Average
Grant
Date
Fair
Value
|
|||||||
|
Nonvested
at December 31, 2007
|
2,435,355 | $ | 52.15 | |||||
|
Granted
|
1,135,679 | $ | 64.19 | |||||
|
Vested
|
1,140,689 | $ | 49.61 | |||||
|
Canceled
or
expired
|
(125,583 | ) | $ | 51.68 | ||||
|
Nonvested
at December 31, 2008
|
2,304,762 | $ | 59.51 | |||||
Compensation
expense recognized under all stock-based compensation arrangements was $61.0,
$67.8 and $45.3 for the fiscal years ended December 31, 2008, 2007 and 2006,
respectively. The stock-based compensation expense was included in
Selling, general and administrative expenses in the Consolidated Statements of
Income. The related tax benefit reflected in the provision was $19.6,
$21.4 and $14.8 for the years ended December 31, 2008, 2007 and 2006,
respectively.
Cash
received from option exercises under all stock-based compensation arrangements
and the excess tax benefit realized for the tax deductions from all stock-based
compensation arrangements totaled $2.5 and $5.1, respectively.
The
excess tax benefit for all stock-based compensation is included in the
Consolidated Statement of Cash Flows as an operating cash outflow and a
financing cash inflow.
Comprehensive Income
(Loss). The following table reflects the accumulated balances
of other comprehensive income (loss).
|
Pension
Liability
Adjustment
|
Cumulative
Translation
Adjustment
|
Derivative
Hedging
Adjustment
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|||||||||||||
|
Balance
at January 1, 2006
|
$ | (56.1 | ) | $ | 85.3 | $ | (3.0 | ) | $ | 26.2 | ||||||
|
Current
year change
|
5.6 | 137.7 | 4.0 | 147.3 | ||||||||||||
|
Impact
of SFAS No. 158 adoption
|
(18.3 | ) | - | - | (18.3 | ) | ||||||||||
|
Balance
at December 31, 2006
|
(68.8 | ) | 223.0 | 1.0 | 155.2 | |||||||||||
|
Current
year change
|
10.5 | 96.9 | (6.0 | ) | 101.4 | |||||||||||
|
Balance
at December 31, 2007
|
(58.3 | ) | 319.9 | (5.0 | ) | 256.6 | ||||||||||
|
Current
year change
|
(10.7 | ) | (332.2 | ) | 4.0 | (338.9 | ) | |||||||||
|
Balance
at December 31, 2008
|
$ | (69.0 | ) | $ | (12.3 | ) | $ | (1.0 | ) | $ | (82.3 | ) | ||||
As of
December 31, 2008, other accumulated comprehensive income for the pension
liability adjustment and the derivative hedging adjustment are net of a tax
benefit of $35.7 and a tax liability of $3.3, respectively.
NOTE
T – LITIGATION AND CONTINGENCIES
In the
Company’s lines of business, numerous suits have been filed alleging damages for
accidents that have occurred during the use or operation of the Company’s
products. The Company is insured for product liability, general
liability, workers’ compensation, employer’s liability, property damage and
other insurable risk required by law or contract with retained liability to the
Company or deductibles. The Company has recorded and maintains an
estimated liability in the amount of management’s estimate of the Company’s
aggregate exposure for such retained liabilities and deductibles. For such
retained liabilities and deductibles, the Company determines its exposure based
on probable loss estimations, which requires such losses to be both probable and
the amount or range of possible loss to be estimable. Management does not
believe that the final outcome of such matters will have a material adverse
effect on the Company’s consolidated financial position.
As
disclosed in the Company’s prior filings, the SEC has been conducting a private
investigation with respect to the Company’s accounting. The Company
received a copy of a written order of this private investigation from the SEC on
February 1, 2006, and has been cooperating with the SEC and furnishing the SEC
staff with information needed to complete their investigation. The
Company has also received subpoenas and requests for information from the SEC
and the U.S. Attorney’s office commencing on May 9, 2005 with respect to a
matter entitled “In the Matter of United Rentals, Inc.” The requested
information generally relates to four transactions involving the Company and its
subsidiaries, on the one hand, and United Rentals, Inc., on the other, in 2000
and 2001. The Company has been cooperating with the requests of the SEC and the
U.S. Attorney in these matters. The Company is in settlement
discussions with the SEC. The Company is not able to predict the
outcome of the SEC’s investigation at this time, and such outcome could be
material to its operating results.
F-39
The
Company is involved in various other legal proceedings, including workers’
compensation liability and intellectual property litigation, which have arisen
in the normal course of its operations. The Company has recorded provisions for
estimated losses in circumstances where a loss is probable and the amount or
range of possible amounts of the loss is estimable.
The
Company’s outstanding letters of credit totaled $155.3 at December 31, 2008. The
letters of credit generally serve as collateral for certain liabilities included
in the Consolidated Balance Sheet. Certain of the letters of credit serve as
collateral guaranteeing the Company’s performance under contracts.
The
Company has a letter of credit outstanding covering losses related to two former
subsidiaries’ workers’ compensation obligations. The Company has recorded
liabilities for these contingent obligations in circumstances where a loss is
probable and the amount or range of possible amounts of the loss is
estimable.
Credit
Guarantees
Customers
of the Company from time to time may fund the acquisition of the Company’s
equipment through third-party finance companies. In certain instances, the
Company may provide a credit guarantee to the finance company, by which the
Company agrees to make payments to the finance company should the customer
default. The maximum liability of the Company is limited to the remaining
payments due to the finance company at the time of default. In the event of
customer default, the Company is generally able to recover and dispose of the
equipment at a minimum loss, if any, to the Company.
As of
December 31, 2008 and 2007, the Company’s maximum exposure to such credit
guarantees was $238.3 and $220.0, respectively, including total guarantees
issued by Terex Demag GmbH, part of the Cranes segment, of $156.1 and $150.6,
respectively, and Genie of $46.1 and $38.6, respectively. The terms of these
guarantees coincide with the financing arranged by the customer and generally do
not exceed five years. Given the Company’s position as the original equipment
manufacturer and its knowledge of end markets, the Company, when called upon to
fulfill a guarantee, generally has been able to liquidate the financed equipment
at a minimal loss, if any, to the Company.
Given
current financial and economic conditions, there can be no assurance that
historical credit default experience will be indicative of future
results. The Company’s ability to recover losses experienced from its
guarantees may be affected by economic conditions in effect at the time of
loss.
Residual Value and Buyback
Guarantees
The
Company issues residual value guarantees under sales-type leases. A residual
value guarantee involves a guarantee that a piece of equipment will have a
minimum fair market value at a future date. The maximum exposure for
residual value guarantees issued by the Company totaled $35.1 and $41.3 as of
December 31, 2008 and 2007, respectively. The Company is able to
mitigate some of the risk associated with these guarantees because the maturity
of the guarantees is staggered, limiting the amount of used equipment entering
the marketplace at any one time.
The
Company from time to time guarantees that it will buy equipment from its
customers in the future at a stated price if certain conditions are met by the
customer. Such guarantees are referred to as buyback
guarantees. These conditions generally pertain to the functionality
and state of repair of the machine. As of December 31, 2008 and 2007, the
Company’s maximum exposure pursuant to buyback guarantees was $145.7 and $132.6,
including total guarantees issued by Genie of $140.4 and $124.4, respectively.
The Company is able to mitigate some of the risk of these guarantees by
staggering the timing of the buybacks and through leveraging its access to the
used equipment markets provided by the Company’s original equipment manufacturer
status.
See Note
A – “Basis of Presentation – Revenue Recognition,” for a discussion of revenue
recognition on arrangements with buyback guarantees.
As of
December 31, 2008 and 2007, the Company has recorded an aggregate liability
within Other current liabilities and Retirement plans and other in the
Consolidated Balance Sheet of approximately $19, for the estimated fair value of
all guarantees provided.
Given
current economic conditions, there can be no assurance that our historical
experience in used equipment markets will be indicative of future
results. Our ability to recover losses experienced from our
guarantees may be affected by economic conditions in the used equipment markets
at the time of loss.
F-40
NOTE
U – RELATED PARTY TRANSACTIONS
On
November 13, 2003, the Company entered into an agreement with FILVER S.A.
(“FILVER”), an entity affiliated with Fil Filipov, the President of the
Company’s Cranes segment until his retirement from the Company effective January
1, 2004. Pursuant to this agreement, FILVER provided consulting services to
Terex as assigned by the Chief Executive Officer of Terex. The term of the
agreement was for three years commencing January 1, 2004, with an initial base
consulting fee of $0.5 per year, subject to adjustment based on usage of
FILVER’s services and FILVER’s performance (determined at the discretion of the
Company), plus reimbursement of certain expenses. During 2006, the Company
incurred a total cost of $0.5 under this contract. This contract
expired on December 31, 2006.
In 2005
and 2006, Phillip Widman, Senior Vice President and Chief Financial Officer of
the Company, received a housing allowance for seven months from the Company for
an apartment that he rented in Westport, Connecticut, close to the Company’s
headquarters. In connection with this apartment rental, Mr. Widman paid
the landlord a security deposit in the amount of six thousand dollars and was
reimbursed by the Company for this deposit. Upon the conclusion of the
lease, Mr. Widman received the return of the security deposit and subsequently
repaid this money to the Company. It is possible that this arrangement
could have constituted an inadvertent non-permissible extension of credit under
Section 402 of the Sarbanes-Oxley Act of 2002, and, accordingly, the Company
will no longer enter into arrangements of these types on behalf of executive
officers of the Company.
The Board
of Directors is advised in advance of all transactions or agreements with
affiliates of the Company, and utilizes such procedures in evaluating their
terms and provisions as are appropriate in light of the Board’s fiduciary duties
under Delaware law. In addition, the Company has an Audit Committee
consisting solely of independent directors. One of the responsibilities of the
Audit Committee is to review related party transactions.
NOTE
V – CONSOLIDATING FINANCIAL STATEMENTS
On
November 25, 2003, the Company sold and issued $300 aggregate principal amount
of the 7-3/8% Notes. As of December 31, 2008, the 7-3/8% Notes were
jointly and severally guaranteed by the following wholly-owned subsidiaries of
the Company (the “Wholly-owned Guarantors”): Amida Industries, Inc., A.S.V.,
Inc., CMI Terex Corporation, Duvalpilot Equipment Outfitters, LLC, Genie
Financial Services, Inc., Genie Holdings, Inc., Genie Industries, Inc., Genie
International, Inc., Genie Manufacturing, Inc., GFS National, Inc., Halco
America Inc., Hydra Platforms Mfg. Inc., Koehring Cranes, Inc., Loegering Mfg.
Inc., Powerscreen Holdings USA Inc., Powerscreen International LLC, Powerscreen
North America Inc., Powerscreen USA, LLC, Powerscreen USC Inc., PPM Cranes,
Inc., Schaeff Incorporated, Schaeff of North America, Inc., Spinnaker Insurance
Company, Superior Highwall Holding, Inc., Superior Highwall Miners, Inc., Terex
Advance Mixer, Inc., Terex Aerials, Inc., Terex Cranes, Inc., Terex Cranes
Wilmington, Inc., Terex Financial Services, Inc., Terex Mexico, LLC, Terex
Mining Equipment, Inc., Terex Utilities, Inc., Terex USA, LLC, Terex-RO
Corporation and Terex-Telelect, Inc. All of the guarantees are full
and unconditional. No subsidiaries of the Company except the
Wholly-owned Guarantors have provided a guarantee of the 7-3/8%
Notes.
The
following summarized condensed consolidating financial information for the
Company segregates the financial information of Terex Corporation, the
Wholly-owned Guarantors and the non-guarantor subsidiaries. The
results and financial position of businesses acquired are included from the
dates of their respective acquisitions.
Terex
Corporation consists of parent company operations. Subsidiaries of
the parent company are reported on the equity basis. Wholly-owned
Guarantors combine the operations of the Wholly-owned Guarantor
subsidiaries. Subsidiaries of Wholly-owned Guarantors that are not
themselves guarantors are reported on the equity basis. Non-guarantor
subsidiaries combine the operations of subsidiaries which have not provided a
guarantee of the obligations of Terex Corporation under the 7-3/8%
Notes. Debt and goodwill allocated to subsidiaries are presented on a
“push-down” accounting basis. In 2007, the Company changed the
methodology to allocate tax expense between Terex Corporation and the
Wholly-owned Guarantors using the Company’s consolidated current year U.S.
effective tax rate applied to Income from continuing operations before income
taxes. On June 25, 2008, Terex and certain of its domestic
subsidiaries entered into a First Supplemental Indenture for the 7-3/8% Notes,
joining other domestic subsidiaries of Terex as Wholly-owned Guarantors pursuant
to the terms of the Indenture for the 7-3/8% Notes. These additional
subsidiaries are included in the current period financial statements as
Wholly-owned Guarantors. Prior period financial statements have been
recast to include the additional subsidiaries as Wholly-owned Guarantors for all
periods presented.
F-41
TEREX
CORPORATION
CONDENSED
CONSOLIDATING STATEMENT OF INCOME
YEAR
ENDED DECEMBER 31, 2008
(in
millions)
|
Terex
Corporation
|
Wholly-
owned
Guarantors
|
Non-
guarantor
Subsidiaries
|
Intercompany
Eliminations
|
Consolidated
|
||||||||||||||||
|
Net
sales
|
$ | 679.5 | $ | 3,465.0 | $ | 7,051.5 | $ | (1,306.4 | ) | $ | 9,889.6 | |||||||||
|
Cost
of goods sold
|
(606.9 | ) | (2,808.7 | ) | (5,852.7 | ) | 1,306.4 | (7,961.9 | ) | |||||||||||
|
Gross
profit
|
72.6 | 656.3 | 1,198.8 | - | 1,927.7 | |||||||||||||||
|
Selling,
general & administrative expenses
|
(108.2 | ) | (314.4 | ) | (642.6 | ) | - | (1,065.2 | ) | |||||||||||
|
Goodwill
impairment
|
(4.1 | ) | (349.4 | ) | (106.4 | ) | - | (459.9 | ) | |||||||||||
|
Income
(loss) from operations
|
(39.7 | ) | (7.5 | ) | 449.8 | - | 402.6 | |||||||||||||
|
Interest
income
|
4.1 | 0.6 | 17.7 | - | 22.4 | |||||||||||||||
|
Interest
expense
|
(63.1 | ) | (13.2 | ) | (26.8 | ) | - | (103.1 | ) | |||||||||||
|
Income
from subsidiaries
|
191.5 | - | - | (191.5 | ) | - | ||||||||||||||
|
Other
income (expense) - net
|
(28.4 | ) | 27.7 | (7.1 | ) | - | (7.8 | ) | ||||||||||||
|
Income
from continuing operations before income taxes
|
64.4 | 7.6 | 433.6 | (191.5 | ) | 314.1 | ||||||||||||||
|
(Provision
for) benefit from income taxes
|
7.5 | (81.4 | ) | (168.3 | ) | - | (242.2 | ) | ||||||||||||
|
Net
income
|
$ | 71.9 | $ | (73.8 | ) | $ | 265.3 | $ | (191.5 | ) | $ | 71.9 | ||||||||
TEREX
CORPORATION
CONDENSED
CONSOLIDATING STATEMENT OF INCOME
YEAR
ENDED DECEMBER 31, 2007
(in
millions)
|
Terex
Corporation
|
Wholly-
owned
Guarantors
|
Non-
guarantor
Subsidiaries
|
Intercompany
Eliminations
|
Consolidated
|
||||||||||||||||
|
Net
sales
|
$ | 798.6 | $ | 3,034.5 | $ | 6,258.5 | $ | (953.9 | ) | $ | 9,137.7 | |||||||||
|
Cost
of goods sold
|
(695.3 | ) | (2,310.2 | ) | (5,204.1 | ) | 953.9 | (7,255.7 | ) | |||||||||||
|
Gross
profit
|
103.3 | 724.3 | 1,054.4 | - | 1,882.0 | |||||||||||||||
|
Selling,
general & administrative expenses
|
(111.8 | ) | (265.2 | ) | (543.6 | ) | - | (920.6 | ) | |||||||||||
|
Income
(loss) from operations
|
(8.5 | ) | 459.1 | 510.8 | - | 961.4 | ||||||||||||||
|
Interest
income
|
4.0 | 0.6 | 14.5 | - | 19.1 | |||||||||||||||
|
Interest
expense
|
(16.4 | ) | (18.3 | ) | (31.1 | ) | - | (65.8 | ) | |||||||||||
|
Loss
on early extinguishment of debt
|
(12.5 | ) | - | - | - | (12.5 | ) | |||||||||||||
|
Income
from subsidiaries
|
610.8 | - | - | (610.8 | ) | - | ||||||||||||||
|
Other
income (expense) - net
|
31.9 | 6.9 | (21.7 | ) | - | 17.1 | ||||||||||||||
|
Income
from continuing operations before income taxes
|
609.3 | 448.3 | 472.5 | (610.8 | ) | 919.3 | ||||||||||||||
|
(Provision
for) benefit from income taxes
|
4.6 | (174.6 | ) | (135.4 | ) | - | (305.4 | ) | ||||||||||||
|
Net
income
|
$ | 613.9 | $ | 273.7 | $ | 337.1 | $ | (610.8 | ) | $ | 613.9 | |||||||||
F-42
TEREX
CORPORATION
CONDENSED
CONSOLIDATING STATEMENT OF INCOME
YEAR
ENDED DECEMBER 31, 2006
(in
millions)
|
Terex
Corporation
|
Wholly-
owned
Guarantors
|
Non-
guarantor
Subsidiaries
|
Intercompany
Eliminations
|
Consolidated
|
||||||||||||||||
|
Net
sales
|
$ | 648.9 | $ | 3,022.1 | $ | 4,849.4 | $ | (872.8 | ) | $ | 7,647.6 | |||||||||
|
Cost
of goods
sold
|
(569.9 | ) | (2,431.0 | ) | (4,076.4 | ) | 872.8 | (6,204.5 | ) | |||||||||||
|
Gross
profit
|
79.0 | 591.1 | 773.0 | - | 1,443.1 | |||||||||||||||
|
Selling,
general & administrative expenses
|
(99.8 | ) | (222.7 | ) | (411.1 | ) | - | (733.6 | ) | |||||||||||
|
Income
(loss) from operations
|
(20.8 | ) | 368.4 | 361.9 | - | 709.5 | ||||||||||||||
|
Interest
income
|
7.5 | 0.2 | 7.8 | - | 15.5 | |||||||||||||||
|
Interest
expense
|
(25.1 | ) | (23.4 | ) | (42.2 | ) | - | (90.7 | ) | |||||||||||
|
Loss
on early extinguishment of debt
|
(23.3 | ) | - | - | - | (23.3 | ) | |||||||||||||
|
Income
from subsidiaries
|
553.4 | - | - | (553.4 | ) | - | ||||||||||||||
|
Other
income (expense) - net
|
26.6 | 5.0 | (27.9 | ) | - | 3.7 | ||||||||||||||
|
Income
from continuing operations before income taxes
|
518.3 | 350.2 | 299.6 | (553.4 | ) | 614.7 | ||||||||||||||
|
(Provision
for) benefit from income taxes
|
(110.7 | ) | 2.3 | (109.8 | ) | - | (218.2 | ) | ||||||||||||
|
Income from
continuing operations
|
407.6 | 352.5 | 189.8 | (553.4 | ) | 396.5 | ||||||||||||||
|
Income
from discontinued operations – net of tax
|
- | - | 11.1 | - | 11.1 | |||||||||||||||
|
Loss
on disposition of discontinued operations – net of tax
|
(7.7 | ) | - | - | - | (7.7 | ) | |||||||||||||
|
Net
income
|
$ | 399.9 | $ | 352.5 | $ | 200.9 | $ | (553.4 | ) | $ | 399.9 | |||||||||
F-43
TEREX
CORPORATION
CONDENSED
CONSOLIDATING BALANCE SHEET
DECEMBER
31, 2008
(in
millions)
|
Terex
Corporation
|
Wholly-
Owned
Guarantors
|
Non-
Guarantor
Subsidiaries
|
Intercompany
Eliminations
|
Consolidated
|
||||||||||||||||
|
Assets
|
||||||||||||||||||||
|
Current
assets
|
||||||||||||||||||||
|
Cash
and cash equivalents
|
$ | 1.5 | $ | 5.8 | $ | 477.1 | $ | - | $ | 484.4 | ||||||||||
|
Trade
receivables - net
|
53.5 | 274.4 | 639.6 | - | 967.5 | |||||||||||||||
|
Intercompany
receivables
|
15.6 | 89.1 | 194.9 | (299.6 | ) | - | ||||||||||||||
|
Inventories
|
265.7 | 495.2 | 1,473.9 | - | 2,234.8 | |||||||||||||||
|
Other
current assets
|
150.1 | 19.6 | 184.5 | - | 354.2 | |||||||||||||||
|
Total
current assets
|
486.4 | 884.1 | 2,970.0 | (299.6 | ) | 4,040.9 | ||||||||||||||
|
Property,
plant & equipment - net
|
59.9 | 147.7 | 273.9 | - | 481.5 | |||||||||||||||
|
Investment
in and advances to (from) subsidiaries
|
2,412.6 | (131.2 | ) | (226.3 | ) | (2,055.1 | ) | - | ||||||||||||
|
Goodwill
|
4.5 | 214.6 | 237.9 | - | 457.0 | |||||||||||||||
|
Other
assets
|
98.3 | 204.4 | 163.3 | - | 466.0 | |||||||||||||||
|
Total
assets
|
$ | 3,061.7 | $ | 1,319.6 | $ | 3,418.8 | $ | (2,354.7 | ) | $ | 5,445.4 | |||||||||
|
Liabilities
and stockholders’ equity
|
||||||||||||||||||||
|
Current
liabilities
|
||||||||||||||||||||
|
Notes
payable and current portion of long-term debt
|
$ | 2.3 | $ | 9.5 | $ | 27.6 | $ | - | $ | 39.4 | ||||||||||
|
Trade
accounts payable
|
91.1 | 207.6 | 685.2 | - | 983.9 | |||||||||||||||
|
Intercompany
payables
|
45.5 | 14.1 | 240.0 | (299.6 | ) | - | ||||||||||||||
|
Accruals
and other current liabilities
|
150.4 | 126.0 | 524.9 | - | 801.3 | |||||||||||||||
|
Total
current liabilities
|
289.3 | 357.2 | 1,477.7 | (299.6 | ) | 1,824.6 | ||||||||||||||
|
Long-term
debt, less current portion
|
938.3 | 150.6 | 307.5 | - | 1,396.4 | |||||||||||||||
|
Retirement
plans and other long-term liabilities
|
112.4 | 76.4 | 313.9 | - | 502.7 | |||||||||||||||
|
Stockholders’
equity
|
1,721.7 | 735.4 | 1,319.7 | (2,055.1 | ) | 1,721.7 | ||||||||||||||
|
Total
liabilities and stockholders’ equity
|
$ | 3,061.7 | $ | 1,319.6 | $ | 3,418.8 | $ | (2,354.7 | ) | $ | 5,445.4 | |||||||||
F-44
TEREX
CORPORATION
CONDENSED
CONSOLIDATING BALANCE SHEET
DECEMBER
31, 2007
(in
millions)
|
Terex
Corporation
|
Wholly-
Owned
Guarantors
|
Non-
Guarantor
Subsidiaries
|
Intercompany
Eliminations
|
Consolidated
|
||||||||||||||||
|
Assets
|
||||||||||||||||||||
|
Current
assets
|
||||||||||||||||||||
|
Cash
and cash equivalents
|
$ | 573.2 | $ | 12.3 | $ | 686.9 | $ | - | $ | 1,272.4 | ||||||||||
|
Trade
receivables - net
|
62.6 | 266.1 | 867.1 | - | 1,195.8 | |||||||||||||||
|
Intercompany
receivables
|
113.5 | 55.9 | 187.1 | (356.5 | ) | - | ||||||||||||||
|
Inventories
|
208.6 | 350.0 | 1,375.7 | - | 1,934.3 | |||||||||||||||
|
Other
current assets
|
149.5 | 16.1 | 208.8 | - | 374.4 | |||||||||||||||
|
Total
current assets
|
1,107.4 | 700.4 | 3,325.6 | (356.5 | ) | 4,776.9 | ||||||||||||||
|
Property,
plant & equipment - net
|
43.8 | 103.0 | 272.6 | - | 419.4 | |||||||||||||||
|
Investment
in and advances to (from) subsidiaries
|
2,273.0 | 106.7 | (848.3 | ) | (1,531.4 | ) | - | |||||||||||||
|
Goodwill
|
8.6 | 290.9 | 399.5 | - | 699.0 | |||||||||||||||
|
Other
assets
|
52.1 | 139.8 | 229.1 | - | 421.0 | |||||||||||||||
|
Total
assets
|
$ | 3,484.9 | $ | 1,340.8 | $ | 3,378.5 | $ | (1,887.9 | ) | $ | 6,316.3 | |||||||||
|
Liabilities
and stockholders’ equity
|
||||||||||||||||||||
|
Current
liabilities
|
||||||||||||||||||||
|
Notes
payable and current portion of long-term debt
|
$ | 2.0 | $ | 10.7 | $ | 19.8 | $ | - | $ | 32.5 | ||||||||||
|
Trade
accounts payable
|
60.6 | 275.8 | 876.5 | - | 1,212.9 | |||||||||||||||
|
Intercompany
payables
|
15.6 | (135.5 | ) | 476.4 | (356.5 | ) | - | |||||||||||||
|
Accruals
and other current liabilities
|
115.4 | 158.8 | 655.7 | - | 929.9 | |||||||||||||||
|
Total
current
liabilities
|
193.6 | 309.8 | 2,028.4 | (356.5 | ) | 2,175.3 | ||||||||||||||
|
Long-term
debt, less current portion
|
853.3 | 154.9 | 311.3 | - | 1,319.5 | |||||||||||||||
|
Retirement
plans and other long-term liabilities
|
94.8 | 66.9 | 316.6 | - | 478.3 | |||||||||||||||
|
Stockholders’
equity
|
2,343.2 | 809.2 | 722.2 | (1,531.4 | ) | 2,343.2 | ||||||||||||||
|
Total
liabilities and stockholders’ equity
|
$ | 3,484.9 | $ | 1,340.8 | $ | 3,378.5 | $ | (1,887.9 | ) | $ | 6,316.3 | |||||||||
F-45
TEREX
CORPORATION
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR
ENDED DECEMBER 31, 2008
(in
millions)
|
Terex
Corporation
|
Wholly-
owned
Guarantors
|
Non-
guarantor
Subsidiaries
|
Intercompany
Eliminations
|
Consolidated
|
||||||||||||||||
|
Net
cash provided by (used in) operating activities
|
$ | (198.3 | ) | $ | 497.5 | $ | (115.5 | ) | $ | - | $ | 183.7 | ||||||||
|
Cash
flows from investing activities
|
||||||||||||||||||||
|
Acquisition
of businesses, net of cash acquired
|
- | (481.5 | ) | - | - | (481.5 | ) | |||||||||||||
|
Capital
expenditures
|
(24.2 | ) | (35.5 | ) | (61.1 | ) | - | (120.8 | ) | |||||||||||
|
Investments
in and advances to affiliates
|
- | - | - | - | - | |||||||||||||||
|
Proceeds
from sale of assets
|
1.9 | 18.7 | 2.4 | - | 23.0 | |||||||||||||||
|
Net
cash used in investing activities
|
(22.3 | ) | (498.3 | ) | (58.7 | ) | - | (579.3 | ) | |||||||||||
|
Cash
flows from financing activities
|
||||||||||||||||||||
|
Excess
tax benefit from stock-based compensation
|
8.9 | - | - | - | 8.9 | |||||||||||||||
|
Proceeds
from stock options exercised
|
2.5 | - | - | - | 2.5 | |||||||||||||||
|
Net
borrowings (repayments) under revolving line of credit
agreement
|
33.0 | (5.3 | ) | 9.0 | - | 36.7 | ||||||||||||||
|
Share
repurchases
|
(395.5 | ) | - | - | - | (395.5 | ) | |||||||||||||
|
Other
– net
|
- | (0.3 | ) | (1.5 | ) | - | (1.8 | ) | ||||||||||||
|
Net
cash provided by (used in) financing activities
|
(351.1 | ) | (5.6 | ) | 7.5 | - | (349.2 | ) | ||||||||||||
|
Effect
of exchange rate changes on cash and cash equivalents
|
- | (0.1 | ) | (43.1 | ) | - | (43.2 | ) | ||||||||||||
|
Net
decrease in cash and cash equivalents
|
(571.7 | ) | (6.5 | ) | (209.8 | ) | - | (788.0 | ) | |||||||||||
|
Cash
and cash equivalents, beginning of period
|
573.2 | 12.3 | 686.9 | - | 1,272.4 | |||||||||||||||
|
Cash
and cash equivalents, end of period
|
$ | 1.5 | $ | 5.8 | $ | 477.1 | $ | - | $ | 484.4 | ||||||||||
F-46
TEREX
CORPORATION
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR
ENDED DECEMBER 31, 2007
(in
millions)
|
Terex
Corporation
|
Wholly-
owned
Guarantors
|
Non-
guarantor
Subsidiaries
|
Intercompany
Eliminations
|
Consolidated
|
||||||||||||||||
|
Net
cash (used in) provided by operating activities
|
$ | (132.6 | ) | $ | 228.9 | $ | 265.1 | $ | - | $ | 361.4 | |||||||||
|
Cash
flows from investing activities
|
||||||||||||||||||||
|
Acquisition
of businesses, net of cash acquired
|
- | (143.2 | ) | (11.2 | ) | - | (154.4 | ) | ||||||||||||
|
Capital
expenditures
|
(22.4 | ) | (31.9 | ) | (57.2 | ) | - | (111.5 | ) | |||||||||||
|
Investments
in and advances to affiliates
|
- | - | (0.9 | ) | - | (0.9 | ) | |||||||||||||
|
Proceeds
from sale of assets
|
(0.2 | ) | 6.8 | 8.7 | - | 15.3 | ||||||||||||||
|
Net
cash used in investing activities
|
(22.6 | ) | (168.3 | ) | (60.6 | ) | - | (251.5 | ) | |||||||||||
|
Cash
flows from financing activities
|
||||||||||||||||||||
|
Principal
repayments of long-term debt
|
(86.0 | ) | (52.0 | ) | (62.0 | ) | (200.0 | ) | ||||||||||||
|
Proceeds
from issuance of long-term debt
|
800.0 | - | - | - | 800.0 | |||||||||||||||
|
Payment
of debt issuance costs
|
(10.7 | ) | - | - | - | (10.7 | ) | |||||||||||||
|
Excess
tax benefit from stock-based compensation
|
22.9 | - | - | - | 22.9 | |||||||||||||||
|
Proceeds
from stock options exercised
|
10.4 | - | - | - | 10.4 | |||||||||||||||
|
Net
borrowings (repayments) under revolving line of credit
agreement
|
2.0 | (1.0 | ) | (30.0 | ) | - | (29.0 | ) | ||||||||||||
|
Share
repurchases
|
(166.6 | ) | - | - | - | (166.6 | ) | |||||||||||||
|
Other
– net
|
- | (0.1 | ) | 4.2 | - | 4.1 | ||||||||||||||
|
Net
cash provided by (used in) financing activities
|
572.0 | (53.1 | ) | (87.8 | ) | - | 431.1 | |||||||||||||
|
Effect
of exchange rate changes on cash and cash equivalents
|
- | - | 54.7 | - | 54.7 | |||||||||||||||
|
Net
increase in cash and cash equivalents
|
416.8 | 7.5 | 171.4 | - | 595.7 | |||||||||||||||
|
Cash
and cash equivalents, beginning of period
|
156.4 | 4.8 | 515.5 | - | 676.7 | |||||||||||||||
|
Cash
and cash equivalents, end of period
|
$ | 573.2 | $ | 12.3 | $ | 686.9 | $ | - | $ | 1,272.4 | ||||||||||
F-47
TEREX
CORPORATION
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR
ENDED DECEMBER 31, 2006
(in
millions)
|
Terex
Corporation
|
Wholly-
owned
Guarantors
|
Non-
guarantor
Subsidiaries
|
Intercompany
Eliminations
|
Consolidated
|
||||||||||||||||
|
Net
cash provided by operating activities
|
$ | 77.0 | $ | 115.8 | $ | 299.5 | $ | - | $ | 492.3 | ||||||||||
|
Cash
flows from investing activities
|
||||||||||||||||||||
|
Acquisition
of businesses, net of cash acquired
|
- | (6.6 | ) | (26.6 | ) | - | (33.2 | ) | ||||||||||||
|
Capital
expenditures
|
(14.6 | ) | (23.2 | ) | (41.1 | ) | - | (78.9 | ) | |||||||||||
|
Investments
in and advances to affiliates
|
- | - | (7.1 | ) | - | (7.1 | ) | |||||||||||||
|
Proceeds
from disposition of discontinued operations – net of cash
divested
|
- | - | 55.2 | - | 55.2 | |||||||||||||||
|
Proceeds
from sale of assets
|
- | - | 12.1 | - | 12.1 | |||||||||||||||
|
Net
cash used in investing activities
|
(14.6 | ) | (29.8 | ) | (7.5 | ) | - | (51.9 | ) | |||||||||||
|
Cash
flows from financing activities
|
||||||||||||||||||||
|
Principal
repayments of long-term debt
|
(129.0 | ) | (78.0 | ) | (93.0 | ) | - | (300.0 | ) | |||||||||||
|
Payment
of debt issuance costs
|
(7.9 | ) | - | - | - | (7.9 | ) | |||||||||||||
|
Excess
tax benefit from stock-based compensation
|
16.9 | - | - | - | 16.9 | |||||||||||||||
|
Proceeds
from stock options exercised
|
15.3 | - | - | - | 15.3 | |||||||||||||||
|
Net
borrowings (repayments) under revolving line of credit
agreement
|
(30.2 | ) | (5.5 | ) | (37.7 | ) | - | (73.4 | ) | |||||||||||
|
Other
- net
|
- | (0.3 | ) | (3.3 | ) | - | (3.6 | ) | ||||||||||||
|
Net
cash provided by (used in) financing activities
|
(134.9 | ) | (83.8 | ) | (134.0 | ) | - | (352.7 | ) | |||||||||||
|
Effect
of exchange rate changes on cash and cash equivalents
|
- | - | 35.4 | - | 35.4 | |||||||||||||||
|
Net
(decrease) increase in cash and cash equivalent
|
(72.5 | ) | 2.2 | 193.4 | - | 123.1 | ||||||||||||||
|
Cash
and cash equivalents, beginning of period
|
228.9 | 2.6 | 322.1 | - | 553.6 | |||||||||||||||
|
Cash
and cash equivalents, end of period
|
$ | 156.4 | $ | 4.8 | $ | 515.5 | $ | - | $ | 676.7 | ||||||||||
F-48
TEREX
CORPORATION AND SUBSIDIARIES
SCHEDULE
II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(Amounts
in millions)
|
Additions
|
||||||||||||||||||||
|
Balance
Beginning
of Year
|
Charges
to
Earnings
|
Other (1)
|
Deductions (2)
|
Balance
End
of Year
|
||||||||||||||||
|
Year
ended December 31, 2008
|
||||||||||||||||||||
|
Deducted
from asset accounts:
|
||||||||||||||||||||
|
Allowance
for doubtful accounts
|
$ | 62.5 | $ | 19.9 | $ | (5.7 | ) | $ | (13.9 | ) | $ | 62.8 | ||||||||
|
Reserve
for inventory
|
105.5 | 44.2 | (10.4 | ) | (18.3 | ) | 121.0 | |||||||||||||
|
Valuation
allowances for deferred tax assets
|
56.5 | 10.0 | (0.6 | ) | — | 65.9 | ||||||||||||||
|
Totals
|
$ | 224.5 | $ | 74.1 | $ | (16.7 | ) | $ | (32.2 | ) | $ | 249.7 | ||||||||
|
Year
ended December 31, 2007
|
||||||||||||||||||||
|
Deducted
from asset accounts:
|
||||||||||||||||||||
|
Allowance
for doubtful accounts
|
$ | 60.3 | $ | 18.4 | $ | 3.4 | $ | (19.6 | ) | $ | 62.5 | |||||||||
|
Reserve
for inventory
|
97.9 | 28.9 | 4.1 | (25.4 | ) | 105.5 | ||||||||||||||
|
Valuation
allowances for deferred tax assets
|
58.7 | 1.7 | 1.4 | (5.3 | ) | 56.5 | ||||||||||||||
|
Totals
|
$ | 216.9 | $ | 49.0 | $ | 8.9 | $ | (50.3 | ) | $ | 224.5 | |||||||||
|
Year
ended December 31, 2006
|
||||||||||||||||||||
|
Deducted
from asset accounts:
|
||||||||||||||||||||
|
Allowance
for doubtful accounts
|
$ | 48.7 | $ | 16.0 | $ | 5.0 | $ | (9.4 | ) | $ | 60.3 | |||||||||
|
Reserve
for inventory
|
79.9 | 37.1 | 9.9 | (29.0 | ) | 97.9 | ||||||||||||||
|
Valuation
allowances for deferred tax assets
|
112.3 | 1.2 | (54.8 | ) | — | 58.7 | ||||||||||||||
|
Totals
|
$ | 240.9 | $ | 54.3 | $ | (39.9 | ) | $ | (38.4 | ) | $ | 216.9 | ||||||||
|
(1)
|
Primarily
represents the impact of foreign currency exchange, release of valuation
allowance initially recorded in goodwill in 2006, and the disposition of
Tatra in 2006.
|
|
(2)
|
Primarily
represents the utilization of established reserves, net of
recoveries.
|
F-49