(Source: Business Wire)
Terex Corporation (NYSE: TEX) today announced a net loss for the second quarter of 2009 of $77.6 million, or $0.78 per share, compared to net income of $236.3 million, or $2.32 per share, for the second quarter of 2008. Net sales were $1,320.2 million in the second quarter of 2009, a decrease of 55.0% from $2,935.9 million in the second quarter of 2008. Adjusting for the translation effect of foreign currency exchange rate changes, net sales decreased approximately 49% from the comparable prior year period. During the second quarter of 2009, the Company incurred after-tax charges of $31.4 million, or $0.32 per share, associated with restructuring programs and a continued reduction in production levels. Additionally, as previously disclosed, the Company and the U.S. Securities and Exchange Commission ("SEC") Staff have reached a tentative agreement in principle to resolve the SEC's concerns which would require, among other things, that the Company pay a penalty. Accordingly, a charge of $8.0 million, or $0.08 per share, was taken during the second quarter of 2009 in anticipation of the proposed settlement with the SEC, which is still subject to SEC and court approval. All per share amounts are on a fully diluted basis.
"The turmoil from the ongoing recession continues to deeply impact sales for our industry," commented Ron DeFeo, Terex Chairman and Chief Executive Officer. "Certain markets have stabilized, but at low levels, such as Aerial Work Platforms ("AWP") and Materials Processing. Other markets, such as Mining and large capacity cranes, have begun to weaken, but at less dramatic rates. We are responding by aggressively reducing costs. Manufacturing spending in the second quarter of 2009 was down 49% from the second quarter of 2008 and 16% sequentially from the first quarter. When combined with further reductions of selling, general and administrative expenses ("SG&A"), these actions resulted in a $246 million quarterly run-rate spending reduction in the second quarter of 2009 versus spending levels in the second quarter of 2008. We continue to target a $300 million quarterly run-rate reduction by year end."
"We are still managing the company for cash, and we made good progress this quarter," Mr. DeFeo continued. "Our capital markets activity this quarter, plus cash generated from operations, resulted in an improved liquidity position with cash and borrowing availability of approximately $939 million and $486 million, respectively, at June 30, 2009. We believe that we are increasingly well positioned to weather the current economic storm."
Tom Riordan, Terex President and Chief Operating Officer, commented, "We are continuing to operate through some very challenging times. Our factories are working on reduced schedules, with a build-to-order approach, as we aggressively manage our business to further reduce inventory levels. During the second quarter, inventory reductions generated cash of approximately $278 million, and we are working toward exceeding our $500 million target for the year. We anticipate that further cost savings initiatives will need to be undertaken in order to eliminate operating losses by the end of 2009 in our most challenged businesses. However, for our AWP business specifically, we may not see operating profitability until the demand environment improves, which in our estimate may not occur for another 12 months."
Mr. Riordan added, "The Construction segment generated a large operating loss during the second quarter, as additional restructuring activities resulted in substantial charges. We are addressing the problems of dramatic net sales reductions as rapidly as possible. At some operating locations, headcount reductions have taken longer to implement than we would have liked, but we will make the necessary changes in the near term. Many of the headcount actions for which restructuring charges have already been incurred will be made effective during the third quarter, and should result in improved income statement performance through the balance of 2009 and into 2010."
Mr. Riordan continued, "The balance of our businesses posted mixed results in the second quarter, with Mining and Cranes generating modest profitability. The large crane business remains generally healthy, with the large crawler crane business being the most stable. The Mining business began to see a rebound in parts and service activity in June, which was a favorable development not experienced in recent quarters. While the overall environment remains difficult for Materials Processing, we are excited by the startup of our Hosur, India facility and its successful launch of production in July. With the commitment of the Indian government to infrastructure investment, the opportunity for crushing and screening sales in that market over the next few years is expected to be substantial."
Highlights for the Second Quarter of 2009
In this press release, Terex refers to various GAAP (U.S. generally accepted accounting principles) and non-GAAP financial measures. These non-GAAP measures may not be comparable to similarly titled measures being disclosed by other companies. Terex believes that this non-GAAP information is useful to understanding its operating results and the ongoing performance of its underlying businesses. Certain financial measures are shown in italics the first time referenced and are described in a Glossary at the end of this press release.
Net Sales: Net sales were $1,320.2 million in the second quarter of 2009, a decrease of $1,615.7 million, or 55.0%, from $2,935.9 million in the second quarter of 2008. Each of the Company's segments experienced lower net sales due to the global economic uncertainty that has caused customers to remain very cautious about purchasing equipment. Approximately $175 million of the net sales decrease was due to the translation effect of foreign currency exchange rate changes, primarily the strength of the U.S. Dollar relative to the Euro, British Pound and Australian Dollar.
(Loss)/Income from Operations and Operating Margin: Loss from operations was $85.7 million in the second quarter of 2009, as compared to income from operations of $370.9 million in the second quarter of 2008. The second quarter of 2009 operating margin was negative 6.5%, versus the operating margin from the second quarter of 2008 of 12.6%. Lower total net sales negatively impacted profitability by approximately $501 million. Costs, primarily related to reductions in production levels and headcount, negatively impacted profitability by approximately $44 million. Additionally, the previously mentioned $8.0 million charge taken in anticipation of the proposed SEC settlement (which remains subject to SEC and court approval) also negatively impacted profitability, as did manufacturing underabsorption of $42 million. Offsetting these negative results was a reduction in SG&A and other costs by approximately $138 million.
Interest and Other Income/Expense: Higher debt levels from the Company's recent capital markets activity, described below, increased interest expense for the second quarter of 2009 by $1.0 million compared to the prior year period, while interest income decreased $4.1 million due to lower interest rates. Other income increased for the second quarter of 2009 by $2.6 million, due primarily to foreign currency translation gains. The Company also incurred a $3.3 million charge related to a loss on the early extinguishment of debt.
Taxes: The effective tax rate for the second quarter of 2009 was 28.4%, compared to the effective tax rate of 33.0% for the second quarter of 2008. The decrease in tax rates between the second quarter of 2009 and the second quarter of 2008 was principally due to the relative impact of accruals and releases for uncertain tax positions, the tax treatment of the proposed SEC settlement (which remains subject to SEC and court approval) and changes in the jurisdictional mix of income.
Capital Structure: During the second quarter of 2009, the Company raised approximately $608 million of total net proceeds from three capital markets issuances: 1) $300 million principal amount of 10.875% Senior Notes due 2016 at an issue price of 97.633%; 2) 12.65 million shares of common stock, priced at $13.00 per share; and 3) $172.5 million principal amount of 4.00% Convertible Senior Subordinated Notes due 2015. A portion of these proceeds was used to pre-pay $58.4 million of the Company's term loans and to repay borrowings of revolving loans under the Company's credit facility.
Upon completion of the financing, the Company's credit facility was amended to eliminate financial covenants based on the Company's consolidated leverage ratio and consolidated fixed charge coverage ratio, and instead added requirements that the Company maintain liquidity of not less than $250 million on the last day of each fiscal quarter through June 30, 2011, and thereafter, maintain a specified senior secured debt leverage ratio.
The Company has no material debt maturities until 2012. Total debt of $1,736.6 million at the end of the second quarter of 2009 was comprised of $136.2 million of senior bank debt, $1,510.5 million of notes and $89.9 million of other debt.
The Company's liquidity at June 30, 2009 totaled $1,424.4 million, which was comprised of cash balances of $938.5 million and borrowing availability under the Company's revolving credit facility of $485.9 million. Liquidity at June 30, 2009 increased by $525.1 million as compared to March 31, 2009 levels of $899.3 million, reflecting the proceeds from the capital markets transactions combined with cash generation from working capital reductions, partially offset by operating losses incurred during the second quarter of 2009.
Phil Widman, Terex Senior Vice President and Chief Financial Officer, commented, "Through our recent capital markets activity, we have strengthened our balance sheet and our liquidity position while removing the uncertainty associated with the earnings-based financial covenants under our credit agreement. We were pleased with the level of investor interest in the offerings. We will continue to aggressively pursue cash generation opportunities, including reductions in costs and working capital, reviewing alternatives for under-utilized assets, and remaining selective with investments in our business."
Return on Invested Capital (ROIC) was 2.2% for the trailing twelve months ended June 30, 2009, compared to 11.8% for the trailing twelve months ended March 31, 2009, mainly due to the operating losses and cash flow from operations in the recent periods. Cash flow from operations in the second quarter of 2009 totaled $102.9 million, as working capital reductions more than offset the net loss. For the comparable period in 2008, cash flow from operations was $134.3 million. Debt, less cash and cash equivalents, decreased $340.4 million in the second quarter of 2009 to $798.1 million, compared to the first quarter of 2009, due to the previously discussed capital markets activity and operating cash flow generation. This results in a ratio of Debt, less cash and cash equivalents, to Total Capitalization of 30.0% at the end of the second quarter of 2009, versus 42.0% at the end of the first quarter of 2009.
Working capital: Working Capital as a percent of Trailing Three Month Annualized Sales was 40.2% at June 30, 2009, as compared to 22.1% at June 30, 2008. Continued weak end market demand has resulted in net sales slowing more quickly than working capital has been reduced. Excluding the translation effect of foreign currency exchange rate changes, cash generated from working capital was $219.1 million during the second quarter of 2009.
The continued focus on reducing inventory resulted in cash generation of $278.3 million during the second quarter of 2009, excluding the translation effect of foreign currency exchange rate changes. Year to date, the Company has generated approximately $304 million in cash from inventory, with the full year goal to exceed $500 million.
Days sales outstanding decreased to 44 days at June 30, 2009 from 49 days at March 31, 2009 as the Company continued to focus on collection activities and cautious credit practices. Cash generated from trade receivables was $122.1 million during the second quarter of 2009, excluding the translation effect of foreign currency exchange rate changes.
The continued curtailment of raw material deliveries resulted in a use of cash from accounts payable of $181.3 million during the second quarter of 2009, excluding the translation effect of foreign exchange rate changes. Days payable outstanding of 40 days at June 30, 2009 declined as compared to 51 days at March 31, 2009, as the level of incoming material was significantly reduced relative to the outflow of finished goods.
Backlog: Backlog for orders deliverable during the next twelve months was $1,651.2 million at June 30, 2009, a decrease of 60.9% from June 30, 2008, and a decrease of 16.7% from March 31, 2009. The decrease in backlog reflects lower net order intake across each of the Company's segments. Excluding the translation effect of foreign currency exchange rate changes, backlog decreased 56.5% year-over-year.
2009 Update:
The Company currently expects its 2009 net sales to decline approximately 50% when compared with 2008, approximately 7% of which is due to the estimated translation effect of foreign currency exchange rate changes. Previous guidance was for 2009 net sales to decline in the range of 40-45%, which included an estimated translation effect of foreign currency exchange rate changes of approximately 14%. The anticipated further decline in net sales reflects weak global end-markets combined with continued constrained credit availability worldwide.
The impact of restructuring activities is expected to result in improved financial results for the second half of 2009; however, the current end-market demand for machinery in general makes it unlikely that the Company will be profitable, excluding charges relating to ongoing restructuring activities, in the second half of 2009.
As illustrated below, manufacturing and SG&A spending are being reduced to realign the cost structure with lower net sales, and further actions are underway that are not yet fully reflected in the Company's run rate of spending.
(USD millions) Terex Corporation Terex AWP Terex Construction Terex Cranes Terex MPM Q2 2009vs Q1 2009 Q2 2009vs Q2 2008 Q2 2009 vs Q1 2009 Q2 2009vs Q2 2008 Q2 2009vs Q1 2009 Q2 2009vs Q2 2008 Q2 2009vs Q1 2009 Q2 2009vs Q2 2008 Q2 2009vs Q1 2009 Q2 2009vs Q2 2008 Net Sales Percentage Change 1% (55 %) (8 %) (72 %) (16 %) (68 %) 6 % (41 %) 12 % (39 %) Dollar Change $ 18 (1,616 ) $ (19 ) (545 ) $ (42 ) (471 ) $ 30 (343 ) $ 43 (265 ) Manufacturing spending (1) Percentage Change (16%) (49 %) (23 %) (59 %) (17 %) (58 %) (8 %) (22 %) (23 %) (58 %) Dollar Change $ (35) (170 ) $ (14 ) (67 ) $ (7 ) (48 ) $ (6 ) (20 ) $ (7 ) (34 ) SG&A less restructuring Percentage Change (2%) (27 %) (7 %) (35 %) (8 %) (35 %) (6 %) (19 %) (4 %) (21 %) Dollar Change $ (3) (76 ) $ (3 ) (23 ) $ (4 ) (26 ) $ (3 ) (11 ) $ (2 ) (12 ) Total Manf. Spending + SG&A less restructuring Percentage Change (9%) (39 %) (16 %) (50 %) (12 %) (47 %) (7 %) (21 %) (12 %) (39 %) Dollar Change $ (38) (246 ) $ (17 ) (90 ) $ (12 ) (74 ) $ (9 ) (32 ) $ (9 ) (47 ) -------------------------------------------------------------------------------
(1) Manufacturing spending includes manufacturing salaries, wages, fixed and variable overhead costs; totals for Terex Corporation include the impact of Corporate/eliminations.
Additional commentary regarding cost reduction actions will be provided in the presentation that will accompany the earnings release conference call that is scheduled for 8:30 am, Thursday, July 23, 2009 and will be available at the Investor Relations section of the Terex website, www.terex.com.
Second Quarter Segment Performance Review
Aerial Work Platforms: Net sales for the AWP segment for the second quarter of 2009 decreased $545.5 million, or 72.2%, to $209.9 million versus the second quarter of 2008. Excluding the translation effect of foreign currency exchange rate changes, net sales decreased 70.5%. Rental customers continue to age and reduce their fleets, and as a result, are deferring the purchase of new aerial and telehandler products. The core markets for aerials in North America and Europe remain at very depressed levels. The Utility business is continuing to see similar levels of order inquiries when compared with the comparable period in 2008.
An operating loss of $32.8 million was incurred during the second quarter of 2009 as compared to an operating profit of $131.4 million earned during the second quarter of 2008, primarily driven by lower net sales. The negative impact on profitability stemming from lower net sales when compared with the prior year period was approximately $188 million. Costs, primarily related to reductions in production levels and restructuring, negatively impacted profitability by approximately $13 million. Due to the significant production volume reduction, net manufacturing unabsorbed costs for the period increased by approximately $22 million. These negative factors continued to be partially offset by reductions in SG&A and other costs of approximately $25 million and $38 million, respectively.
