UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

________________________________________

 

F O R M 10 – Q

 

(Mark One)

 

x

Quarterly Report Pursuant to Section 13 or 15(d)

 

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2009

 

        

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission file number 1-10702

 

Terex Corporation

(Exact name of registrant as specified in its charter)

 

 

Delaware

34-1531521

 

(State of Incorporation)

(IRS Employer Identification No.)

 

200 Nyala Farm Road, Westport, Connecticut 06880

(Address of principal executive offices)

 

(203) 222-7170

(Registrant’s telephone number, including area code)

 

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        o

 

Indicate by check mark whether the registrant has submitted electronically filed and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES       o

 

NO        o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a 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.

Large accelerated filer x

 

 

Accelerated filer o

 

Non-accelerated filer o

Smaller Reporting Company  o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES o

 

NO x

 

Number of outstanding shares of common stock: 95.3 million as of April 29, 2009.

 

The Exhibit Index begins on page 49.

 


INDEX

 

TEREX CORPORATION AND SUBSIDIARIES

 

GENERAL

 

This Quarterly Report on Form 10-Q filed by Terex Corporation generally speaks as of March 31, 2009 unless specifically noted otherwise, and includes financial information with respect to the subsidiaries of the Company listed below (all of which are wholly-owned) which were guarantors on March 31, 2009 (the “Guarantors”) of the Company’s 7-3/8% Senior Subordinated Notes due 2014. See Note P – “Consolidating Financial Statements” to the Company’s March 31, 2009 Condensed Consolidated Financial Statements included in this Quarterly Report. Unless otherwise indicated, Terex Corporation, together with its consolidated subsidiaries, is hereinafter referred to as “Terex,” the “Registrant,” “us,” “we,” “our” or the “Company.”

 

Guarantor Information

 

Guarantor

State or other jurisdiction of

incorporation or organization

I.R.S. employer

identification number

Amida Industries, Inc.

South Carolina

57-0531390

A.S.V., Inc.

Minnesota

41-1459569

CMI Terex Corporation

Oklahoma

73-0519810

Duvalpilot Equipment Outfitters, LLC

Florida

22-3886719

Genie Financial Services, Inc.

Washington

91-1712115

Genie Holdings, Inc.

Washington

91-1666966

Genie Industries, Inc.

Washington

91-0815489

Genie International, Inc.

Washington

91-1975116

Genie Manufacturing, Inc.

Washington

91-1499412

GFS National, Inc.

Washington

91-1959375

Halco America Inc.

Georgia

58-1851191

Hydra Platforms Mfg. Inc.

North Carolina

56-1714789

Koehring Cranes, Inc.

Delaware

06-1423888

Loegering Mfg. Inc.

North Dakota

45-0310755

Powerscreen Holdings USA Inc.

Delaware

61-1265609

Powerscreen International LLC

Delaware

61-1340898

Powerscreen North America Inc.

Delaware

61-1340891

Powerscreen USA, LLC

Kentucky

31-1515625

Powerscreen USC Inc.

Delaware

23-2846987

PPM Cranes, Inc.

Delaware

39-1611683

Schaeff Incorporated

Iowa

42-1097891

Schaeff of North America, Inc.

Delaware

75-2852436

Spinnaker Insurance Company

Vermont

03-0372517

Superior Highwall Holding, Inc.

Delaware

20-4694546

Superior Highwall Miners, Inc.

Delaware

20-4694797

Terex Advance Mixer, Inc.

Delaware

06-1444818

Terex Aerials, Inc.

Wisconsin

39-1028686

Terex Cranes, Inc.

Delaware

06-1513089

Terex Cranes Wilmington, Inc.

North Carolina

56-1570091

Terex Financial Services, Inc.

Delaware

45-0497096

Terex Mexico, LLC

Delaware

81-0586645

Terex Mining Equipment, Inc.

Delaware

06-1503634

Terex USA, LLC

Delaware

75-3262430

Terex Utilities, Inc.

Oregon

93-0557703

Terex-RO Corporation

Kansas

44-0565380

Terex-Telelect, Inc.

Delaware

41-1603748

 

 


Forward-Looking Information

 

Certain information in this Quarterly 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 Quarterly 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:

 

 

Our business is cyclical and weak general economic conditions may affect the sales of our products and financial results;

 

our ability to access the capital markets to raise funds and provide liquidity;

 

our business is sensitive to fluctuations in government spending;

 

our business is very competitive and may be affected by our cost structure, pricing, product initiatives and other actions taken by competitors;

 

a material disruption to one of our significant facilities;

 

our retention of key management personnel;

 

the financial condition of suppliers and customers, and their continued access to capital;

 

our ability to obtain parts and components from suppliers on a timely basis at competitive prices;

 

our ability to timely manufacture and deliver products to customers;

 

the need to comply with restrictive covenants contained in our debt agreements;

 

our business is global and subject to changes in exchange rates between currencies, as well as international politics, particularly in developing markets;

 

the effects of changes in laws and regulations;

 

possible work stoppages and other labor matters;

 

compliance with applicable environmental laws and regulations;

 

litigation and product liability claims and other liabilities;

 

investigations by the United States Securities and Exchange Commission (“SEC”) and the Department of Justice (“DOJ”);

 

our implementation of a global enterprise system and its performance; and

 

other factors.

 

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 Quarterly 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 Quarterly 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.

 

2

 

 


                                                                                                                                                                                                                          

 

 

Page No.

PART I

FINANCIAL INFORMATION

 

 

 

 

Item 1

Condensed Consolidated Financial Statements

 

 

 

 

 

TEREX CORPORATION AND SUBSIDIARIES

 

 

Condensed Consolidated Statement of Income – Three months ended March 31, 2009 and 2008

4

 

Condensed Consolidated Balance Sheet – March 31, 2009 and December 31, 2008

5

 

Condensed Consolidated Statement of Cash Flows - Three months ended March 31, 2009 and 2008

6

 

Notes to Condensed Consolidated Financial Statements – March 31, 2009

7

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

29

Item 3

Quantitative and Qualitative Disclosures About Market Risk

44

Item 4

Controls and Procedures

46

 

 

 

PART II

OTHER INFORMATION

 

 

 

 

Item 1

Legal Proceedings

46

Item 1A

Risk Factors

46

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

47

Item 3

Defaults Upon Senior Securities

47

Item 4

Submission of Matters to a Vote of Security Holders

47

Item 5

Other Information

47

Item 6

Exhibits

47

 

 

 

SIGNATURES

48

 

 

 

EXHIBIT INDEX

49

 

 

3

 

 


PART I.

FINANCIAL INFORMATION

 

ITEM 1.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

TEREX CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF INCOME

(unaudited)

(in millions, except per share amounts)

 

 

Three Months
Ended March 31,

 

 

 

2009

 

 

2008

 

 

 

 

 

 

 

 

Net sales

$

1,302.6

 

$

2,362.7

 

Cost of goods sold

 

(1,158.1)

 

 

(1,848.7)

 

Gross profit

 

144.5

 

 

514.0

 

Selling, general and administrative expenses

 

(217.0)

 

 

(257.7)

 

(Loss) income from operations

 

(72.5)

 

 

256.3

 

Other income (expense)

 

 

 

 

 

 

Interest income

 

1.2

 

 

9.1

 

Interest expense

 

(23.5)

 

 

(25.5)

 

Other (expense) income – net

 

(3.7)

 

 

7.6

 

(Loss) income before income taxes

 

(98.5)

 

 

247.5

 

Benefit from (provision for) income taxes

 

24.0

 

 

(83.2)

 

Net (loss) income

 

(74.5)

 

 

164.3

 

Less: Net income attributable to non-controlling interest

 

(0.4)

 

 

(1.0)

 

Net (loss) income attributable to Terex Corporation

$

(74.9)

 

$

163.3

 

(Loss) Earnings Per Share Attributable to Terex Corporation Common Stockholders:

 

 

 

 

 

 

Basic

$

(0.79)

 

$

1.62

 

 

 

 

 

 

 

 

Diluted

$

(0.79)

 

$

1.59

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding in per share calculation

 

 

 

 

 

 

Basic

 

94.8

 

 

101.1

 

Diluted

 

94.8

 

 

103.0

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4

 

 


TEREX CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET

(unaudited)

(in millions, except par value)

 

 

 

March 31,

2009

 

December 31,

2008

 

Assets

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

344.3

 

$

484.4

 

 

Trade receivables (net of allowance of $60.7 and $62.8 at March 31, 2009 and

December 31, 2008, respectively)

 

 

701.8

 

 

967.5

 

 

Inventories

 

 

2,151.9

 

 

2,234.8

 

 

Deferred taxes

 

 

140.8

 

 

139.0

 

 

Other current assets

 

 

184.4

 

 

215.2

 

 

Total current assets

 

 

3,523.2

 

 

4,040.9

 

 

Long-term assets

 

 

 

 

 

 

 

 

Property, plant and equipment - net

 

 

475.6

 

 

481.5

 

 

Goodwill

 

 

451.1

 

 

457.0

 

 

Deferred taxes

 

 

93.7

 

 

84.5

 

 

Other assets

 

 

377.2

 

 

381.5

 

 

Total assets

 

$

4,920.8

 

$

5,445.4

 

Liabilities and Stockholders’ Equity

 

Current liabilities

 

 

 

 

 

 

 

Notes payable and current portion of long-term debt

 

$

37.6

 

$

39.4

 

Trade accounts payable

 

 

647.5

 

 

983.9

 

Accrued compensation and benefits

 

 

156.2

 

 

169.3

 

Accrued warranties and product liability

 

 

138.0

 

 

149.3

 

Customer advances

 

 

103.4

 

 

119.3

 

Other current liabilities

 

 

344.0

 

 

363.4

 

Total current liabilities

 

 

1,426.7

 

 

1,824.6

 

Non-current liabilities

 

 

 

 

 

 

 

Long-term debt, less current portion

 

 

1,445.2

 

 

1,396.4

 

Retirement plans and other

 

 

459.4

 

 

480.5

 

Total liabilities

 

 

3,331.3

 

 

3,701.5

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

Common stock, $.01 par value – authorized 300.0 shares; issued 107.5 and

107.1 shares at March 31, 2009 and December 31, 2008, respectively

 

 

1.1

 

 

1.1

 

Additional paid-in capital

 

 

1,042.4

 

 

1,046.2

 

Retained earnings

 

 

1,281.8

 

 

1,356.6

 

Accumulated other comprehensive loss

 

 

(156.7)

 

 

(82.3)

 

Less: Cost of shares of common stock in treasury – 13.1 shares at March 31, 2009 and December 31, 2008

 

 

(598.8)

 

 

(599.9)

 

Total Terex Corporation stockholders’ equity

 

 

1,569.8

 

 

1,721.7

 

Noncontrolling interest

 

 

19.7

 

 

22.2

 

Total equity

 

 

1,589.5

 

 

1,743.9

 

Total liabilities and equity

 

$

4,920.8

 

$

5,445.4

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

 

 


TEREX CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(unaudited)

(in millions)

                                                                                    

 

Three Months

Ended March 31,

 

2009

 

2008

 

Operating Activities

 

 

 

 

 

 

Net (loss) income

$

(74.5)

 

$

164.3

 

Adjustments to reconcile net (loss) income to cash used in operating activities:

 

 

 

 

 

 

Depreciation

 

19.3

 

 

17.2

 

Amortization

 

5.3

 

 

5.2

 

Deferred taxes

 

(21.5)

 

 

23.2

 

Gain on sale of assets

 

(0.3)

 

 

(0.8)

 

Stock-based compensation expense

 

9.2

 

 

17.0

 

Excess tax benefit from stock-based compensation

 

-

 

 

(6.0)

 

Changes in operating assets and liabilities (net of effects of acquisitions):

 

 

 

 

 

 

Trade receivables

 

243.4

 

 

(133.8)

 

Inventories

 

26.1

 

 

(289.4)

 

Trade accounts payable

 

(309.6)

 

 

112.3

 

Accrued compensation and benefits

 

(14.6)

 

 

(28.4)

 

Income taxes payable

 

(18.7)

 

 

46.5

 

Accrued warranties and product liability

 

(11.7)

 

 

(0.7)

 

Customer advances

 

(12.8)

 

 

(48.1)

 

Other, net

 

21.2

 

 

(68.9)

 

Net cash used in operating activities

 

(139.2)

 

 

(190.4)

 

Investing Activities

 

 

 

 

 

 

Acquisition of businesses, net of cash acquired

 

-

 

 

(439.1)

 

Capital expenditures

 

(20.7)

 

 

(24.8)

 

Proceeds from sale of assets

 

0.5

 

 

2.0

 

Net cash used in investing activities

 

(20.2)

 

 

(461.9)

 

Financing Activities

 

 

 

 

 

 

Payment of debt issuance costs

 

(3.0)

 

 

-

 

Excess tax benefit from stock-based compensation

 

-

 

 

6.0

 

Proceeds from stock options exercised

 

-

 

 

0.7

 

Net borrowings (repayments) under revolving line of credit agreements

 

45.3

 

 

(6.6)

 

Share repurchases

 

-

 

 

(44.4)

 

Acquisition of noncontrolling interest

 

(1.7)

 

 

-

 

Other, net

 

(0.4)

 

 

(0.6)

 

Net cash provided by (used in) financing activities

 

40.2

 

 

(44.9)

 

Effect of Exchange Rate Changes on Cash and Cash Equivalents

 

(20.9)

 

 

29.0

 

Net Decrease in Cash and Cash Equivalents

 

(140.1)

 

 

(668.2)

 

Cash and Cash Equivalents at Beginning of Period

 

484.4

 

 

1,272.4

 

Cash and Cash Equivalents at End of Period

$

344.3

 

$

604.2

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

 

 


TEREX CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2009

(unaudited)

(currency amounts in millions, unless otherwise noted, except per share amounts)

 

NOTE A – BASIS OF PRESENTATION

 

Basis of Presentation. The accompanying unaudited Condensed Consolidated Financial Statements of Terex Corporation and subsidiaries as of March 31, 2009 and for the three months ended March 31, 2009 and 2008 have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America to be included in full year financial statements. The accompanying Condensed Consolidated Balance Sheet as of December 31, 2008 has been derived from the audited Consolidated Balance Sheet as of that date. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

 

The Condensed Consolidated Financial Statements include the accounts of Terex Corporation, its majority-owned subsidiaries and other controlled 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.

 

In the opinion of management, all adjustments considered necessary for fair statement of these interim financial statements have been made. Except as otherwise disclosed, all such adjustments consist only of those of a normal recurring nature. Operating results for the three months ended March 31, 2009 are not necessarily indicative of results that may be expected for the year ending December 31, 2009.

 

Cash and cash equivalents at March 31, 2009 and December 31, 2008 include $5.7 and $6.7, respectively, which was not immediately available for use. These consist primarily of cash balances held in escrow to secure various obligations of the Company.

 

Certain prior period amounts in the Condensed Consolidated Financial Statements have been reclassified to conform to current period presentation, including the segment realignment discussion in Note B – “Business Segment Information.” In connection with the adoption of Statement of Financial Accounting Standards (“SFAS”) No. 160, “Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51” (“SFAS No. 160”), amounts reported in prior year periods have been retroactively adjusted to conform with the presentation requirements of SFAS No. 160 discussed below in “Recent Accounting Pronouncements.”

 

Recent Accounting Pronouncements. In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”), which was 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. FAS 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. FAS 157-2, “Effective Date of FASB Statement No. 157.” FSP No. FAS 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. FAS 157-2 delayed 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 nonfinancial assets and nonfinancial liabilities. The adoption of SFAS No. 157 did not have a significant impact on the determination or reporting of the Company’s financial results.

 

7

 

 


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. In April 2009, the FASB issued FSP No. FAS 141R-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies” (“FSP No. FAS 141R-1”), which clarifies the initial and subsequent recognition, subsequent accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. FSP No. FAS 141R-1 carries forward the requirements in SFAS No. 141 for acquired contingencies, thereby requiring that such contingencies be recognized at fair value on the acquisition date if fair value can be reasonably estimated during the allocation period. If the acquisition date fair value of an asset or liability cannot be reasonably estimated, the asset or liability would be measured at the amount that would be recognized in accordance with FASB Statement No. 5, “Accounting for Contingencies.” SFAS No. 141R and FSP No. FAS 141R-1 were 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, which, for the Company, was January 1, 2009. Adoption of SFAS No. 141R and FSP No. FAS 141R-1 did not have a material impact on the determination or reporting of the Company’s financial results. However, the future effects of SFAS No. 141R and FSP No. FAS 141R-1 will depend on any future acquisitions completed by the Company.

 

In December 2007, the FASB issued SFAS No. 160. This statement was effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008, which, for the Company, was January 1, 2009. 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 is included in consolidated net income on the face of the income statement. It also amends certain Accounting Research Bulletin No. 51,

“Consolidated Financial Statements” 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. Adoption of SFAS No. 160 did not have a material impact on the determination or reporting of the Company’s 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 was effective for fiscal years, and interim periods within those fiscal years, beginning after November 15, 2008, which, for the Company, was January 1, 2009. 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. Adoption of SFAS No. 161 did not have a material impact on the determination or reporting of the Company’s financial results. See Note I – “Derivative Financial Instruments.”

 

In April 2008, the FASB issued FSP No. FAS 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP No. FAS 142-3”).  FSP No. FAS 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. FAS 142-3 was 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, which, for the Company, was January 1, 2009.   The Company has evaluated the new statement and has determined that it did 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”). 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.

 

8

 

 


In November 2008, the FASB ratified EITF Issue No. 08-6, “Equity Method Investment Accounting Considerations” (“EITF 08-6”).  EITF 08-6 applies to all investments accounted for under the equity method.  It states that an entity shall measure its equity investment initially at cost.  Contingent consideration should only be included in the initial measurement of the equity method investment if it is required to be recognized by specific authoritative guidance other than SFAS No. 141R.  However, if any equity method investment agreement involves a contingent consideration arrangement in which the fair value of the investor’s share of the investee’s net assets exceeds the investor’s initial cost, a liability should be recognized.  An equity method investor is required to recognize other-than-temporary impairments of an equity method investment and shall account for a share issuance by an investee as if the investor had sold a proportionate share of its investment.  Any gain or loss to the investor resulting from an investee’s share issuance shall be recognized in earnings. EITF 08-6 shall be effective in fiscal years beginning on or after December 15, 2008, and interim periods within those fiscal years and shall be applied prospectively.  Adoption of EITF 08-6 did not have a material impact on the determination or reporting of the Company’s financial results.

 

In December 2008, the FASB issued FSP No. FAS 132R-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets”(“FSP No. FAS 132R-1”). FSP No. FAS 132R-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 No. FAS 132R-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 No. FAS 132R-1 will have a significant impact on the determination or reporting of its financial results.

 

In April 2009, the FASB issued FSP No. FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (“FSP No.

FAS 157-4”). FSP No. FAS 157-4 amends SFAS No. 157 and provides additional guidance for estimating fair value in accordance with SFAS No. 157 when the volume and level of activity for the asset or liability have significantly decreased and also includes guidance on identifying circumstances that indicate a transaction is not orderly for fair value measurements. The scope of FSP No. FAS 157-4 does not include assets and liabilities measured under level 1 inputs.  FSP No. FAS 157-4 shall be applied prospectively with retrospective application not permitted. This FSP shall be effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company is currently evaluating this FSP but does not expect that it will have a significant impact on the determination or reporting of its financial results.

 

In April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP No. FAS 107-1 and APB 28-1”). FSP No. FAS 107-1 and APB 28-1 enhances consistency in financial reporting by increasing the frequency of fair value disclosures. FSP No. FAS 107-1 and APB 28-1 relates to fair value disclosures for any financial instruments that are not currently reflected on a company’s balance sheet at fair value. Prior to the effective date, fair values for these assets and liabilities have only been disclosed once a year. FSP No. FAS 107-1 and APB 28-1 will now require these disclosures on a quarterly basis, providing qualitative and quantitative information about fair value estimates for all those financial instruments not measured on the balance sheet at fair value. This FSP is effective for interim and annual periods ending after June 15, 2009, with early application permitted for periods ending after March 15, 2009. The Company does not expect that FSP No. FAS 107-1 and APB 28-1 will have a significant impact on the determination or reporting of its financial results.

 

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. 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 that 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 N - “Litigation and Contingencies.” Substantially all receivables were trade receivables at March 31, 2009 and December 31, 2008.

 

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. 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.

 

9

 

 


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 Condensed 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 affect the potential warranty liability.

 

The following table summarizes the changes in the consolidated product warranty liability:

 

 

Three Months Ended

March 31, 2009

Balance at beginning of period

$

168.4

Accruals for warranties issued during the period

 

31.9

Changes in estimates

 

(0.2)

Settlements during the period

 

(44.0)

Foreign exchange effect/other

 

(5.0)

Balance at end of period

$

151.1

 

NOTE B – BUSINESS SEGMENT INFORMATION

 

Terex is a diversified global manufacturer of capital equipment with a mission to deliver value-added offerings that meet or exceed the Company’s customers’ current and future needs.  Terex manufactures a broad range of equipment for use in the construction, infrastructure, quarrying, recycling, mining, shipping, transportation, refining, utility and maintenance industries. The Company operates in four reportable segments: (i) Terex Aerial Work Platforms; (ii) Terex Construction; (iii) Terex Cranes; and (iv) Terex Materials Processing & Mining.

 

The Aerial Work Platforms segment designs, manufactures, markets and refurbishes aerial work platform equipment, telehandlers, power equipment, construction trailers and utility equipment. Construction, building maintenance, government and utility customers use these products to build and/or maintain large physical assets and structures, 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 and operates a fleet of rental utility products in the United States and Canada.

 

The Construction segment designs, manufactures and markets heavy and compact construction equipment, asphalt and concrete equipment, landfill compactors and bridge inspection equipment. Construction, logging, mining, industrial and government customers use these products in construction and infrastructure projects, in coal, minerals, sand and gravel operations and to build roads. 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 loading cranes) and telescopic container stackers. These products are used primarily for construction, repair and maintenance of infrastructure, building and manufacturing facilities.

 

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 commodity mining.

 

The Company also assists customers in their rental, leasing and acquisition of its products through Terex Financial Services, Inc.

 

10

 

 


On 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, are now consolidated within the Construction segment. The Utility Products businesses, formerly part of the Roadbuilding, Utility Products and Other segment, are now consolidated within the Aerial Work Platforms segment. Additionally, the Company’s truck-mounted articulated hydraulic crane line of business produced in Delmenhorst and Vechta, Germany, formerly part of the Construction segment, is now consolidated within the Cranes segment. Certain other businesses that were included in the Roadbuilding, Utility Products and Other segment are now reported in Corporate and Other, which includes eliminations among the Company’s segments, as well as general and corporate items that have not been allocated to business segments for the three months ended March 31, 2009 and 2008. Business segment information is presented below, and prior period amounts have been retrospectively adjusted to conform to this presentation:

 

 

Three Months
Ended March 31,

 

 

2009

 

 

2008

Net Sales

 

 

 

 

 

Aerial Work Platforms

$

228.5

 

$

664.7

Construction

 

261.7

 

 

500.6

Cranes

 

461.4

 

 

648.9

Materials Processing & Mining

 

373.1

 

 

564.3

Corporate and Other

 

(22.1)

 

 

(15.8)

Total

$

1,302.6

 

$

2,362.7

 

 

 

 

 

 

(Loss) Income from Operations

 

 

 

 

 

Aerial Work Platforms

$

(41.0)

 

$

108.7

Construction

 

(83.6)

 

 

4.5

Cranes

 

25.4

 

 

83.6

Materials Processing & Mining

 

35.7

 

 

68.7

Corporate and Other

 

(9.0)

 

 

(9.2)

Total

$

(72.5)

 

$

256.3

 

 

 

March 31,

2009

 

 

December 31,

2008

Identifiable Assets

 

 

 

 

 

Aerial Work Platforms

$

804.4

 

$

889.5

Construction

 

1,360.1

 

 

1,480.7

Cranes

 

1,624.2

 

 

1,769.2

Materials Processing & Mining

 

2,081.2

 

 

2,204.6

Corporate and Other

 

(949.1)

 

 

(898.6)

Total

$

4,920.8

 

$

5,445.4

 

NOTE C – INCOME TAXES

 

The effective tax rate for the three months ended March 31, 2009 was 24.4%, as compared to an effective tax rate of 33.6% for the three months ended March 31, 2008. The lower tax rate for the three months ended March 31, 2009 was primarily due to the impact of losses incurred in jurisdictions in which the Company does not recognize a tax benefit due to a lack of evidence supporting sufficient future taxable income, adjustments for estimates and settlements of certain income tax audit exposures, and decreased earnings for such period. As earnings decrease, the items that affect income tax expense have a more significant impact on the effective tax rate.  When the results are losses instead of profits, the affect of items on the effective tax rate have an opposite impact.

 

11

 

 


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. federal jurisdiction 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, Germany, the United Kingdom and the U.S. Certain subsidiaries of the Company are currently under audit in Germany and the United Kingdom. It is reasonably possible that these audits may be completed during the next 12 months. While the amount of uncertain tax benefits with respect to these audits may change within this period, it is not anticipated that any of the changes will be significant. 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.

 

NOTE D – EARNINGS PER SHARE

 

 

 

Three Months Ended March 31,

(in millions, except

per share data)

 

 

2009

 

2008

 

 

 

 

 

 

 

Net (loss) income attributable to Terex Corporation common stockholders

 

$

(74.9)

 

$

163.3

 

 

 

 

 

 

 

Basic Shares:

 

 

 

 

 

 

Weighted average shares outstanding

 

 

94.8

 

 

101.1

 

 

 

 

 

 

 

(Loss) earnings per share – basic:

 

$

(0.79)

 

$

1.62

 

 

 

 

 

 

 

Diluted shares:

 

 

 

 

 

 

Weighted average shares outstanding

 

 

94.8

 

 

101.1

Effect of dilutive securities:

 

 

 

 

 

 

Stock options and restricted stock awards

 

 

-

 

 

1.9

 

 

 

 

 

 

 

Diluted weighted average shares outstanding

 

 

94.8

 

 

103.0

 

 

 

 

 

 

 

(Loss) earnings per share – diluted:

 

$

(0.79)

 

$

1.59

 

 

 

 

 

 

 

 

Weighted average options to purchase 775 thousand and 16 thousand shares of Common Stock were outstanding during the three months ended March 31, 2009 and 2008, respectively, but were not included in the computation of diluted shares as the effect would be anti-dilutive. Weighted average restricted stock awards of 1,612 thousand and 562 thousand were outstanding during the three months ended March 31, 2009 and 2008, respectively, but were not included in the computation of diluted shares because the effect would be anti-dilutive.  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.

 

NOTE E – INVENTORIES

 

Inventories consist of the following:

 

 

 

March 31, 2009

 

December 31, 2008

Finished equipment

 

$

682.7

 

$

673.8

Replacement parts

 

 

410.1

 

 

395.3

Work-in-process

 

 

437.3

 

 

435.2

Raw materials and supplies

 

 

621.8

 

 

730.5

Inventories

 

$

2,151.9

 

$

2,234.8

 

Reserves for lower of cost or market value, excess and obsolete inventory were $128.3 and $121.0 at March 31, 2009 and December 31, 2008, respectively.

 

12

 

 


 

NOTE F – PROPERTY, PLANT AND EQUIPMENT

 

Property, plant and equipment – net consist of the following:

 

 

 

March 31, 2009

 

December 31, 2008

Property

 

$

52.6

 

$

54.3

Plant

 

 

209.7

 

 

211.8

Equipment

 

 

526.7

 

 

522.6

 

 

 

789.0

 

 

788.7

Less: Accumulated depreciation

 

 

(313.4)

 

 

(307.2)

Property, plant and equipment – net

 

$

475.6

 

$

481.5

 

NOTE G – ACQUISITIONS

 

On April 1, 2009, the Company announced that it had entered into a term sheet to acquire the port equipment businesses of Fantuzzi Industries S.a.r.l. and Noell Crane (collectively, “Fantuzzi”) for total consideration of approximately €175. Fantuzzi designs, manufactures and services port equipment, with factories in Italy, Germany and China, as well as sales and service branches around the world. Term sheets have also been agreed to with the existing financial creditors to the Fantuzzi group for long-term financing to provide substantially all of the funds necessary to complete the transaction. The term sheets are non-binding and it is the intention of the parties to work to enter into agreements and complete the transaction during the second quarter of 2009.

 

Terex initially announced the acquisition of Fantuzzi in August 2008 for total consideration of approximately €215 and subsequently announced in December 2008 that it was terminating the acquisition due to the existence of a material adverse change in the Fantuzzi business. After the termination, Fantuzzi disputed the Company’s determination and initiated arbitration proceedings against Terex in Italy. However, the parties, together with the lenders to Fantuzzi, continued to engage in discussions to resolve the matter.

 

2008 Acquisitions

 

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 an expense of 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:

 

At February 26, 2008:

 

 

 

 

 

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

 

 

13

 

 


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.

 

The Company also completed smaller acquisitions during 2008 in the Aerial Work Platforms and Construction 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.

 

NOTE H – GOODWILL

 

An analysis of changes in the Company’s goodwill by business segment is as follows:

 

 

 

 

Aerial Work Platforms

 

 

Construction

 

 

Cranes

 

 

Materials Processing & Mining

 

 

Total

Balance at December 31, 2008

 

$

107.6

 

$

-

 

$

114.7

 

$

234.7

 

$

457.0

Acquisitions

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

Foreign exchange effect and other

 

 

(0.7)

 

 

-

 

 

(2.8)

 

 

(2.4)

 

 

(5.9)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2009

 

$

106.9

 

$

-

 

$

111.9

 

$

232.3

 

$

451.1

 

Due to a number of factors, including the Company’s realignment of certain operations within reporting units, continued weakness in the macroeconomic environment and a decline in forecasted business performance used in the annual goodwill impairment test as of October 1, 2008, the Company performed an interim goodwill impairment test as of March 31, 2009. 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.  These estimates that are used to derive expected cash flow 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.

 

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.   While the Company believes it has made reasonable estimates and assumptions to calculate the fair value of its reporting units, it is possible that a material change could occur.  If the actual results are not consistent with the estimates and assumptions used to calculate the fair value of this reporting unit, then a material impairment of goodwill could result.

 

Although the interim impairment testing performed in the first quarter of 2009 resulted in the fair value of the reporting units exceeding their carrying value thereby indicating no impairment, the Company’s market capitalization has been significantly impacted by the extreme volatility in the U.S. equity and credit markets and has traded below the book value of its stockholders’ equity.  In a volatile market, the observed market prices of individual trades of a company’s shares (and consequently the market capitalization calculated) may not be representative of the fair value of the company as a whole.  Management believes the recent decline in the Company’s market capitalization may not be representative of the fair value of the Company as a whole due to the current economic downturn.

 

Due to the ongoing uncertainty in market conditions, which may negatively impact the performance of the Company’s reporting units, the Company will continue to monitor the estimated fair value of its reporting units for purposes of determining whether an impairment is evidenced.

 

14

 

 


NOTE I – 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, then the gain or loss would be 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 and the intrinsic value of option contracts are deferred as a component of Accumulated other comprehensive income (loss) until the underlying hedged transactions are reported in the Company’s Condensed 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 (loss) and are recognized in earnings as hedged transactions occur. Transactions deemed ineffective are recognized in earnings immediately.

 

In the Condensed 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 Condensed 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 March 31, 2009, 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 March 31, 2009 was a gain of $59.8, which is recorded in Other assets and as an adjustment to the carrying value of the hedged debt.

 

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. The net adjustment to the carrying value of the hedged debt for the two interest swap agreements is a gain of $56.1.

 

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 March 31, 2009, the Company had $866.6 notional amount of currency exchange forward contracts outstanding, most of which mature on or before March 31, 2010. The fair market value of these contracts at March 31, 2009 was a net loss of $12.3. At March 31, 2009, $595.5 notional amount ($7.1 of fair value losses) of these swap agreements have been designated as, and are effective as, cash flow hedges of specifically identified transactions. During 2009 and 2008, the Company recorded the change in fair value for these cash flow hedges to Accumulated other comprehensive income (loss), and reclassified to earnings a portion of the deferred gain or loss from Accumulated other comprehensive income (loss) as the hedged transactions occurred and were recognized in earnings.

 

15

 

 


The following table provides the location and fair value amounts of derivative instruments designated as hedging instruments under SFAS No. 133 that are reported in the Condensed Consolidated Balance Sheet as of March 31, 2009:

 

Asset Derivatives

Balance Sheet Location

Fair Value

 

 

 

 

Foreign exchange contracts

Other current assets

$

36.2

Interest rate contract

Other assets

 

59.8

Total asset derivatives

 

$

96.0

 

 

 

 

Liability Derivatives

 

 

 

 

 

 

 

Foreign exchange contracts

Other current liabilities

$

48.5

Interest rate contract

Long-term debt, less current portion

 

56.1

Total liability derivatives

 

$

104.6

 

 

 

 

Total Derivatives

 

$

(8.6)

 

Counterparties to 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.

 

The following tables provide the effect of derivative instruments on the Condensed Consolidated Statement of Income and Accumulated Other Comprehensive Income (Loss) (“OCI”) for the three months ended March 31, 2009:

 

Gain or (Loss) Recognized on Derivatives in Income

Fair Value Derivatives

Location

 

Amount

Interest rate contract

Interest expense

$

3.5

 

 

Gain or (Loss) Recognized on Derivatives in OCI

Cash flow Derivatives

 

Amount

Foreign exchange contracts

$

6.4

 

Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective)

Location

 

Amount

Cost of goods sold

$

4.7

Other income (expense)

 

(1.7)

Total

$

3.0

 

 

Gain or (Loss) Recognized on Derivatives (Ineffective) in Income

Location

 

Amount

Other income (expense)

$

1.5

 

Unrealized net gains (losses), net of tax, included in Accumulated Other Comprehensive Income (Loss) are as follows:

 

 

Three Months Ended
March 31,

 

 

2009

 

 

2008

Balance at beginning of period

$

(1.0)

 

$

(5.0)

Additional gains (losses)

 

(3.7)

 

 

(1.4)

Amounts reclassified to earnings

 

(1.7)

 

 

1.1

Balance at end of period

$

(6.4)

 

$

(5.3)

 

The estimated amount of existing pre-tax net losses for derivative contracts recorded in Accumulated other comprehensive income (loss) as of March 31, 2009 that are expected to be reclassified into earnings in the next twelve months is $6.4.

 

16

 

 


NOTE J – FAIR VALUE MEASUREMENTS

 

Assets and liabilities measured at fair value on a recurring basis under the provisions of SFAS No. 157 include interest rate swap and foreign currency forward contracts discussed in Note I - “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. These approaches often use market multiples derived from a set of comparables. 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 our own 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 (i.e., 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 I - “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 March 31, 2009 as an asset of $59.8. The foreign exchange contracts are categorized under Level 1 of the hierarchy above and are recorded at March 31, 2009 as a net liability of $7.1. 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.

 

NOTE K – 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 and continuing in the first quarter of 2009, 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 at all levels and caused the Company to incur costs for employee termination benefits related to the team member reductions. For the three months ended March 31, 2009, the costs incurred equal the expected costs for these programs. The existing reserve balance as of March 31, 2009 is expected to be paid primarily in the second quarter of 2009. The following table provides a roll forward of the restructuring reserve by segment and the line items in the Condensed 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 reductions (1)

 

Restructuring reserve at December 31, 2008

 

Restructuring charges

 

Cash expenditures

 

Restructuring reserve at
March 31, 2009

COGS

 

SG&A

Aerial Work Platforms

       456

$

4.0

$

3.3

$

0.7

$

(3.1)

$

4.9

Construction

       164

 

4.7

 

15.1

 

7.5

 

(2.4)

 

24.9

Cranes

       151

 

0.1

 

 

0.3

 

(0.1)

 

0.3

Materials Processing & Mining

         92

 

 

0.7

 

0.1

 

(0.4)

 

0.4

Corporate and Other

           2

 

 

 

1.4

 

 

1.4

Total

       865

$

8.8

$

19.1

$

10.0

$

(6.0)

$

31.9

(1)

Headcount data not in millions

 

During the second quarter of 2009, the Company initiated additional restructuring activities related to certain of its businesses, which will result in additional charges. These activities include the rationalization of certain facilities and additional planned headcount reductions.

 

17

 

 


NOTE L – LONG-TERM OBLIGATIONS

 

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 $344.3 at March 31, 2009. In addition, the Company had $555.0 available for borrowing under the 2006 Credit Agreement at March 31, 2009. 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 March 31, 2009, 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 inability could possibly result in acceleration of the payment obligation for its other long-term debt.

 

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 initial 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 March 31, 2009 and December 31, 2008, the Company had $194.5 and $195.0, 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 2.75%. The weighted average interest rate on the term loans under the 2006 Credit Agreement at March 31, 2009 and December 31, 2008 was 3.97% and 3.21%, respectively.

 

As of March 31, 2009 and December 31, 2008, the Company had a balance of $81.5 and $35.0, respectively, 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 4.25% and 3.25% at March 31, 2009 and December 31, 2008, respectively.

 

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 March 31, 2009 and December 31, 2008, the Company had letters of credit issued under the 2006 Credit Agreement that totaled $63.6 and $82.2, 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 March 31, 2009 and December 31, 2008, the Company had letters of credit issued under the additional letter of credit facilities of the 2006 Credit Agreement that totaled $7.5 and $13.9, 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 $50.9 and $59.2 as of March 31, 2009 and December 31, 2008, respectively. In total, as of March 31, 2009 and December 31, 2008, the Company had letters of credit outstanding of $122.0 and $155.3, respectively.

 

18

 

 


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.

 

On February 24, 2009, the Company sought and received an amendment to the 2006 Credit Agreement. 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 future 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 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 may be 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, then the Company may 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, then 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 March 31, 2009, the ratings of the Company’s debt under the 2006 Credit Agreement were BBB- from Standard & Poor’s and Baa3 from Moody’s. Both rating agencies have the Company on negative outlook, which, combined with the ratings, causes the Company to be below the Investment Grade Threshold, but above the Initial Ratings Threshold. As a result, the Company may be required to repledge the Stock Collateral as security.

 

19

 

 


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

 

As of March 31, 2009, the Company had $298.7 aggregate principal amount of 7-3/8% Senior Subordinated Notes Due 2014 (“7-3/8% Notes”) outstanding. The 7-3/8% Notes are jointly and severally guaranteed by certain domestic subsidiaries of the Company (see Note P - “Consolidating Financial Statements”). The 7-3/8% Notes were redeemable by the Company beginning in January 2009 at an initial redemption price of 103.688% of principal amount. The Company does not currently plan to redeem these notes.

 

NOTE M – RETIREMENT PLANS AND OTHER BENEFITS

 

Pension Plans

 

U.S. Plans - As of March 31, 2009, the Company maintained one qualified defined benefit pension plan covering certain domestic employees (the “Terex Plan”). Prior to December 31, 2008, the Company maintained four qualified plans, which were merged into one plan during 2008. Participation in the plan for all employees has been frozen. Participants are 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.

 

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 noncontributory. 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 post-employment health benefits for certain former employees at its Cedarapids and Simplicity Engineering operations.

 

 

 

Pension Benefits

Other Benefits

 

Three Months Ended

March 31,

 

Three Months Ended

March 31,

 

2009

 

2008

 

2009

 

2008

Components of net periodic cost:

 

 

 

 

 

 

 

 

 

 

 

Service cost

$

0.5

 

$

0.5

 

$

-

 

$

-

Interest cost

 

2.1

 

 

2.0

 

 

0.2

 

 

0.2

Expected return on plan assets

 

(1.6)

 

 

(2.2)

 

 

-

 

 

-

Recognized actuarial loss

 

1.3

 

 

0.6

 

 

0.1

 

 

0.1

Net periodic cost

$

2.3

 

$

0.9

 

$

0.3

 

$

0.3

 

 

20

 

 


The Company plans to contribute approximately $5 to its U.S. defined benefit pension and post-retirement plans for the year ending December 31, 2009. During the three months ended March 31, 2009, the Company contributed $0.6 to its U.S. defined benefit pension plans.

 

International Plans – The Company 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.

 

 

Pension Benefits

 

Three Months Ended
March 31,

 

2009

 

2008

Components of net periodic cost:

 

 

 

 

 

Service cost

$

1.2

 

$

2.0

Interest cost

 

3.8

 

 

4.5

Expected return on plan assets

 

(1.2)

 

 

(2.0)

Amortization of prior service cost

 

0.2

 

 

0.3

Recognized actuarial loss

 

0.2

 

 

0.3

Net periodic cost

$

4.2

 

$

5.1

 

The Company plans to contribute approximately $14 to its international defined benefit pension plans for the year ending December 31, 2009. During the three months ended March 31, 2009, the Company contributed $4.1 to its international defined benefit pension plans.

 

NOTE N – LITIGATION AND CONTINGENCIES

 

In the Company’s lines of business, a number of 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 as 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 outcome of such matters will have a material adverse effect on the Company’s consolidated financial statements.

 

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.

 

On April 1, 2009, the Company entered into a non-binding term sheet to acquire the port equipment businesses of Fantuzzi. Pending completion of this acquisition, the previously disclosed arbitration proceeding initiated by Fantuzzi against the Company in Italy on December 24, 2008 remains outstanding.

 

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 $122.0 at March 31, 2009. The letters of credit generally serve as collateral for certain liabilities included in the Condensed Consolidated Balance Sheet. Certain of the letters of credit serve as collateral guaranteeing the Company’s performance under contracts.

 

21

 

 


 

The Company has a letter of credit outstanding covering losses related to two former subsidiaries’ worker 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 generally is limited to the finance company’s net exposure to the customer 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 March 31, 2009 and December 31, 2008, the Company’s maximum exposure to such credit guarantees was $226.2 and $238.3, respectively, including total guarantees issued by Terex Demag GmbH, part of the Cranes segment, of $143.6 and $156.1, respectively, and Genie Holdings, Inc. and its affiliates, part of the Aerial Work Platforms segment, of $46.7 and $46.1, 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 $36.0 and $35.1 as of March 31, 2009 and December 31, 2008, 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 March 31, 2009 and December 31, 2008, the Company’s maximum exposure pursuant to buyback guarantees was $148.2 and $145.7, respectively, including total guarantees issued by Genie of $137.3 and $140.4, 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.

 

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.

 

As of March 31, 2009 and December 31, 2008, the Company has recorded an aggregate liability within Other current liabilities and Retirement plans and other in the Consolidated Balance Sheet of approximately $20 and $19, respectively, for the estimated fair value of all guarantees provided.

 

22

 

 


NOTE O – STOCKHOLDERS’ EQUITY

 

Total non-stockholder changes in equity (comprehensive income) include all changes in equity during a period except those resulting from investments by, and distributions to, stockholders. The specific components include: net income, deferred gains and losses resulting from foreign currency translation, pension liability adjustments and deferred gains and losses resulting from derivative hedging transactions. Total non-stockholder changes in equity were as follows:

 

 

Three Months

Ended March 31,

 

2009

 

2008

Net (loss) income

$

(74.5)

 

$

164.3

Other comprehensive income (loss):

 

 

 

 

 

Pension liability adjustment

 

1.1

 

 

0.1

Translation adjustment

 

(70.1)

 

 

80.9

Derivative hedging adjustment

 

(5.4)

 

 

(0.3)

Comprehensive income (loss)

 

(148.9)

 

 

245.0

Comprehensive income attributable to noncontrolling interest

 

(0.4)

 

 

(1.0)

Comprehensive income (loss) attributable to Terex Corporation

$

(149.3)

 

$

244.0

 

During the three months ended March 31, 2009, the Company purchased the remaining 20% of noncontrolling interest in two of its subsidiaries in the Aerial Work Platforms segment.  The result of the transaction was a decrease in Noncontrolling interest of $2.9 and an increase in Additional paid-in capital of $1.2 in the Condensed Consolidated Balance Sheet as of March 31, 2009.

 

During the first quarter of 2009, the Company granted 1,564 thousand shares of restricted stock to its employees with a weighted average grant date fair value of $7.86 per share.  Approximately 63% of these restricted stock awards vest ratably over a three-year period and 37% cliff vest at the end of a three-year period.  139 thousand of these shares are based on performance targets, with 105 thousand of these performance grants containing a market condition. The Company used the Monte Carlo method to determine a grant date fair value of $5.74 per share for the awards with a market condition. 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

71.93%

Risk free interest rate

1.38%

Expected life (in years)

3

 

 

In December 2006, the Board of Directors of the Company authorized the repurchase of up to $200 of the Company’s outstanding common shares through June 30, 2008. In December 2007, the Board of Directors of the Company increased the share repurchase program by $500, bringing the total amount that may be repurchased under the program to $700, and extended the expiration date for the program 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. During the first quarter of 2009, the Company did not acquire any shares pursuant to the share repurchase program.  In total, the Company has purchased approximately 9.7 million shares under this program for approximately $562 through March 31, 2009.

 

23

 

 


NOTE P – 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 USA, LLC, Terex Utilities, Inc., 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 and non-guarantor subsidiaries directly owned by the parent company. 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. 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.

 

24

 

 


TEREX CORPORATION

CONDENSED CONSOLIDATING STATEMENT OF INCOME

THREE MONTHS ENDED MARCH 31, 2009

(in millions)

 

 

Terex Corporation

 

Wholly-owned Guarantors

 

Non-

guarantor Subsidiaries

 

Intercompany Eliminations

 

Consolidated

Net sales

$

138.4

 

$

394.8

 

$

957.6

 

$

(188.2)

 

$

1,302.6

Cost of goods sold

 

(123.1)

 

 

(377.2)

 

 

(846.0)

 

 

188.2

 

 

(1,158.1)

Gross profit

 

15.3

 

 

17.6

 

 

111.6

 

 

-

 

 

144.5

Selling, general and administrative expenses

 

(17.9)

 

 

(61.9)

 

 

(137.2)

 

 

-

 

 

(217.0)

Loss from operations

 

(2.6)

 

 

(44.3)

 

 

(25.6)

 

 

-

 

 

(72.5)

Interest income

 

0.1

 

 

0.1

 

 

1.0

 

 

-

 

 

1.2

Interest expense

 

(14.3)

 

 

(2.5)

 

 

(6.7)

 

 

-

 

 

(23.5)

Income from subsidiaries

 

(70.6)

 

 

-

 

 

-

 

 

70.6

 

 

-

Other (expense) income – net

 

5.2

 

 

(0.1)

 

 

(8.8)

 

 

-

 

 

(3.7)

Loss before income taxes

 

(82.2)

 

 

(46.8)

 

 

(40.1)

 

 

70.6

 

 

(98.5)

Benefit from income taxes

 

7.3

 

 

11.7

 

 

5.0

 

 

-

 

 

24.0

Net loss

 

(74.9)

 

 

(35.1)

 

 

(35.1)

 

 

70.6

 

 

(74.5)

Less: Net income attributable to noncontrolling  

   interest

 

-

 

 

-

 

 

(0.4)

 

 

-

 

 

(0.4)

Net loss attributable to Terex Corporation

$

(74.9)

 

$

(35.1)

 

$

(35.5)

 

$

70.6

 

$

(74.9)

 

 

 

TEREX CORPORATION

CONDENSED CONSOLIDATING STATEMENT OF INCOME

THREE MONTHS ENDED MARCH 31, 2008

(in millions)

 

 

 

Terex Corporation

 

Wholly-owned Guarantors

 

Non-

guarantor Subsidiaries

 

Intercompany Eliminations

 

Consolidated

Net sales

$

168.6

 

$

830.5

 

$

1,658.1

 

$

(294.5)

 

$

2,362.7

Cost of goods sold

 

(150.6)

 

 

(633.5)

 

 

(1,359.1)

 

 

294.5

 

 

(1,848.7)

Gross profit

 

18.0

 

 

197.0

 

 

299.0

 

 

-

 

 

514.0

Selling, general and administrative expenses

 

(22.2)

 

 

(82.2)

 

 

(153.3)

 

 

-

 

 

(257.7)

Income (loss) from operations

 

(4.2)

 

 

114.8

 

 

145.7

 

 

-

 

 

256.3

Interest income

 

3.6

 

 

0.2

 

 

5.3

 

 

-

 

 

9.1

Interest expense

 

(16.6)

 

 

(2.7)

 

 

(6.2)

 

 

-

 

 

(25.5)

Income from subsidiaries

 

169.0

 

 

-

 

 

-

 

 

(169.0)

 

 

-

Other income (expense) – net

 

11.5

 

 

0.4

 

 

(4.3)

 

 

-

 

 

7.6

Income before income taxes

 

163.3

 

 

112.7

 

 

140.5

 

 

(169.0)

 

 

247.5

Provision for income taxes

 

-

 

 

(38.3)

 

 

(44.9)

 

 

-

 

 

(83.2)

Net income

 

163.3

 

 

74.4

 

 

95.6

 

 

(169.0)

 

 

164.3

Less: Net income attributable to noncontrolling

   interest

 

 

 

 

(0.1)

 

 

(0.9)

 

 

-

 

 

(1.0)

Net income attributable to Terex Corporation

$

163.3

 

$

74.3

 

$

94.7

 

$

(169.0)

 

$

163.3

 

 

25

 

 


TEREX CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEET

MARCH 31, 2009

(in millions)

 

 

 

Terex Corporation

 

Wholly-

Owned Guarantors

 

Non-

Guarantor Subsidiaries

 

 

Intercompany Eliminations

 

Consolidated

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

1.0

 

$

3.6

 

$

339.7

 

$

-

 

$

344.3

Trade receivables – net

 

40.7

 

 

163.4

 

 

497.7

 

 

-

 

 

701.8

Intercompany receivables

 

19.1

 

 

69.1

 

 

152.0

 

 

(240.2)

 

 

-

Inventories

 

272.6

 

 

459.8

 

 

1,419.5

 

 

-

 

 

2,151.9

Other current assets

 

137.6

 

 

16.5

 

 

171.1

 

 

-

 

 

325.2

Total current assets

 

471.0

 

 

712.4

 

 

2,580.0

 

 

(240.2)

 

 

3,523.2

Property, plant & equipment – net

 

60.9

 

 

146.4

 

 

268.3

 

 

-

 

 

475.6

Investment in and advances to (from) subsidiaries

 

2,273.9

 

 

(105.8)

 

 

(113.4)

 

 

(2,054.7)

 

 

-

Goodwill

 

4.5

 

 

214.6

 

 

232.0

 

 

-

 

 

451.1

Other assets

 

94.2

 

 

203.7

 

 

173.0

 

 

-

 

 

470.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

$

2,904.5

 

$

1,171.3

 

$

3,139.9

 

$

(2,294.9)

 

$

4,920.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes payable and current portion of long-term debt

$

2.2

 

$

8.5

 

$

26.9

 

$

-

 

$

37.6

Trade accounts payable

 

67.7

 

 

119.9

 

 

459.9

 

 

-

 

 

647.5

Intercompany payables

 

49.8

 

 

1.6

 

 

188.8

 

 

(240.2)

 

 

-

Accruals and other current liabilities

 

115.2

 

 

120.8

 

 

505.6

 

 

-

 

 

741.6

Total current liabilities

 

234.9

 

 

250.8

 

 

1,181.2

 

 

(240.2)

 

 

1,426.7

Long-term debt, less current portion

 

988.4

 

 

150.1

 

 

306.7

 

 

-

 

 

1,445.2

Retirement plans and other

 

111.4

 

 

69.3

 

 

278.7

 

 

-

 

 

459.4

Stockholders’ equity

 

1,569.8

 

 

701.1

 

 

1,373.3

 

 

(2,054.7)

 

 

1,589.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

$

2,904.5

 

$

1,171.3

 

$

3,139.9

 

$

(2,294.9)

 

$

4,920.8

 

 

26

 

 


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

 

112.4

 

 

72.7

 

 

295.4

 

 

-

 

 

480.5

Stockholders’ equity

 

1,721.7

 

 

739.1

 

 

1,338.2

 

 

(2,055.1)

 

 

1,743.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

$

3,061.7

 

$

1,319.6

 

$

3,418.8

 

$

(2,354.7)

 

$

5,445.4

 

 

 

27

 

 


TEREX CORPORATION

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

THREE MONTHS ENDED MARCH 31, 2009

(in millions)

 

 

Terex Corporation

 

Wholly-

owned Guarantors

 

Non-

guarantor Subsidiaries

 

Intercompany Eliminations

 

Consolidated

Net cash (used in) provided by operating activities

$

(40.6)

 

$

4.8

 

$

(103.4)

 

$

-

 

$

(139.2)

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

(2.9)

 

 

(4.8)

 

 

(13.0)

 

 

-

 

 

(20.7)

Proceeds from sale of assets

 

-

 

 

-

 

 

0.5

 

 

-

 

 

0.5

Net cash used in investing activities

 

(2.9)

 

 

(4.8)

 

 

(12.5)

 

 

-

 

 

(20.2)

Cash flows from financing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment of debt issuance costs

 

(3.0)

 

 

-

 

 

-

 

 

-

 

 

(3.0)

Net borrowings (repayments) under revolving line of credit agreements

 

46.0

 

 

(0.4)

 

 

(0.3)

 

 

-

 

 

45.3

Acquisition of noncontrolling interest

 

-

 

 

(1.7)

 

 

-

 

 

-

 

 

(1.7)

Other, net

 

-

 

 

(0.1)