Terex's Q2 net loss narrows to US$500,000, versus US$40.2M loss a year ago, with US$26M after tax gain from sale of Bucyrus International shares; net sales up 38% to US$1.49B on solid sales growth in materials processing, aerial work platforms segments

WESTPORT, Connecticut , July 21, 2011 (press release) – Terex Corporation (NYSE: TEX) today announced income from continuing operations for the second quarter of 2011 of $0.9 million, or $0.01 per share, compared to a loss from continuing operations of $13.1 million, or $0.12 per share, in the second quarter of 2010. The second quarter results were favorably impacted by an after-tax gain of approximately $26 million, or $0.22 per share, on the sale of approximately 1.4 million shares of Bucyrus International, Inc. common stock, and were negatively impacted by restructuring and related after-tax charges of approximately $33 million, or $0.29 per share, relating to the Cranes segment, where the Company continues its cost reduction and manufacturing footprint rationalization. There were also after-tax charges related to the pending acquisition of Demag Cranes AG of approximately $3 million. Adjusting for these items, income from continuing operations would have been approximately $11 million, or $0.10 per share. Net sales from continuing operations were $1,488.2 million in the second quarter of 2011, an increase of 37.8% from $1,079.9 million in the second quarter of 2010. Adjusting for the translation effect of foreign currency exchange rate changes, net sales increased approximately 30% from the comparable prior year period. Income from operations was $6.8 million in the second quarter of 2011, as compared to a loss from operations of $10.4 million in the second quarter of 2010, an improvement of $17.2 million. Excluding the impact of certain items in both periods, income from operations as adjusted would be approximately $43 million in the second quarter of 2011 compared to approximately $8 million in the second quarter of 2010. The Glossary at the end of this press release contains further details regarding these items.

All results are for continuing operations, unless stated otherwise. Discontinued operations include the Mining, Atlas and Powertrain businesses. All per share amounts are on a fully diluted basis.

“We have made progress during the first six months of 2011, but there is still significant work in front of us,” commented Ronald M. DeFeo, Terex’s Chairman and Chief Executive Officer. “We had strong performance in terms of order and sales activity in the second quarter but supplier constraints on component deliveries and other operational challenges caused operating margins to be below expectations. Our sales grew by 38% over the prior year period and 18% over the first quarter of 2011. Overall, our Materials Processing (MP) segment performance not only had solid growth in sales, but also made excellent progress in terms of increased operating margins. Our Aerial Work Platforms (AWP) segment also made progress, but not at the operating margins we expected. Our Cranes segment continued to adjust to the softer European market demand and has taken and continues to initiate substantial cost reductions. Our suppliers have struggled in some areas to keep up with our requirements. This was particularly an issue for our Construction segment, but deliveries from component suppliers had improved by the end of the quarter.”

“We anticipate that Cranes restructuring actions will improve that segment’s performance, particularly in 2012. In total, we expect approximately $70 million in annualized benefit from the actions that have and will be taken in that segment. These changes reflect headcount and facility adjustments, and, while painful, we anticipate a stronger and better franchise in the future. Terex Port Equipment made substantial progress in the quarter. While this business was not yet profitable, losses excluding restructuring and related costs were cut in half from the first quarter. As a result of the improving demand environment and the restructuring actions that have been and will be taken, we expect this business to exit 2011 at a break even rate or better. AWP costs, both material and headcount, caused some disappointment in our margin performance for this segment. Our previously announced 4.5% price increase in AWP should begin helping our performance in the second half of 2011. Now that the net sales and order rates have moderated somewhat we think the stability of the workforce can be driven to higher productivity. Construction performance is expected to progress as supply shortages diminish and prior restructuring yield improved results. Roadbuilding product demand did slow, particularly in Brazil, which we had not anticipated.”

"The Demag Cranes AG purchase offer has met our expectations and progressed well. At the end of the extended offer period, preliminary results indicate that approximately 82% of the outstanding shares were tendered for purchase or are already owned by Terex. Demag Cranes AG will add a new business segment to Terex with world-class products in industrial cranes and hoists, port technology and service. Demag Cranes AG’s business is highly complementary to the existing Terex business, and the combination has compelling industrial logic. The addition of Demag Cranes AG is expected to add approximately $1.7 billion annually in net sales with a strong footprint in Europe and emerging markets. The completion of the offer still remains subject to merger control clearance by the European Commission. We expect that this transaction will close in the third quarter of 2011."

“We anticipate that our full year performance will be near the top of our range for net sales. Our prior expectation for full year 2011 was for net sales to be between $5.2 billion and $5.5 billion, resulting in EPS, excluding restructuring and other items, between $0.60 and $0.75. Current expectations are for full year 2011 net sales to be between $5.4 billion and $5.6 billion. Our full year earnings guidance reflects our first half performance, as well as input cost concerns that are slowly moderating. We anticipate EPS for the full year 2011 to be between $0.40 and $0.60 per share, excluding restructuring and other items. We also expect the remainder of 2011 to deliver positive free cash flow in the range of $350 million to $400 million. The above guidance excludes any impact from the Demag Cranes AG transaction.”

Second Quarter Performance Review

In this press release, Terex refers to various GAAP (U.S. generally accepted accounting principles) and non-GAAP financial measures. These non-GAAP measures may not be comparable to similarly titled measures being disclosed by other companies. Terex believes that this non-GAAP information is useful to understanding its operating results and the ongoing performance of its underlying businesses. Certain financial measures are shown in italics the first time referenced and are described in a Glossary at the end of this press release.

Aerial Work Platforms: Net sales for the AWP segment for the second quarter of 2011 increased $251.7 million, or 108.3%, to $484.1 million versus the second quarter of 2010. Adjusting for the translation effect of foreign currency exchange rate changes, net sales increased approximately 105% from the comparable prior year period. The North American and Brazilian markets continued to show strong growth and Western European market demand has continued to strengthen from last quarter. Booms and telehandlers demonstrated particular sales strength and significant growth was seen across all product lines. Additionally, price increases were implemented late in the quarter in all geographies, with the benefits expected to be seen in the second half of the year. Also contributing to the increase in segment sales was the disposition of the remainder of the segment’s utility rental fleet, the first portion of which was sold in late 2010.

Income from operations in the second quarter of 2011 was $28.2 million, or 5.8% of net sales, as compared to a loss from operations of $2.3 million, or 1.0% of net sales, during the second quarter of 2010. Operating profit benefited mainly from increased sales volumes and product mix, partially offset by under-absorption in some facilities due to manufacturing inefficiencies, supplier shortages and increased costs from suppliers, all of which can occur with rapid increases in production levels.

Construction: Net sales for the Construction segment for the second quarter of 2011 increased $82.3 million, or 29.5%, to $361.3 million versus the second quarter of 2010. Adjusting for the translation effect of foreign currency exchange rate changes, net sales increased approximately 23% from the comparable prior year period. The improvement in net sales was again driven by strong demand for material handlers and increased demand for trucks, especially in developing markets like Russia and Latin America. Higher demand in North America relating to increased mining activity also led to higher truck sales in Canada. Also contributing to the increase in net sales was demand for backhoe loaders in Northern Europe and Russia, increased interest in compact equipment in both rental outlets and the distribution network throughout the Americas and strong parts sales driven by aging fleets and higher utilization. This increase was offset by a sharp decrease in Roadbuilding products, predominantly in Brazil, where some tightening in government sponsored financing programs constrained demand.

Loss from operations in the second quarter of 2011 was $6.8 million, or 1.9% of net sales, as compared to a loss from operations of $16.8 million, or 6.0% of net sales, during the second quarter of 2010. Operating results benefited from increased sales volumes, selling, general and administrative (SG&A) savings and improved operating performance due to restructuring that has taken place over the past few years. This was offset by component shortages which caused missed shipments and under-absorption at some facilities, lower volumes in Roadbuilding products and an unfavorable product mix in the North American operations. Operating results included a pre-tax charge for a long-standing dispute settled in arbitration for $2.0 million.

Cranes: Net sales for the Cranes segment for the second quarter of 2011 increased $15.0 million, or 3.3%, to $464.1 million versus the second quarter of 2010. Adjusting for the translation effect of foreign currency exchange rate changes, net sales decreased approximately 5% from the comparable prior year period. Rough terrain cranes, truck cranes and mobile port equipment demonstrated the most significant contribution to sales growth this quarter, especially in North America, where rough terrain and truck cranes have shown particular strength. Tower cranes and some of the large crawler cranes have also experienced positive trends this quarter and the segment is seeing some renewed interest in tower cranes from very low 2009 demand levels. All-terrain cranes have rebounded a bit from soft first quarter levels, although still significantly lower than a year ago. Shifting delivery dates for orders in backlog and order cancellations continue to disrupt current shipment expectations in the German cranes business.

Loss from operations in the second quarter of 2011 was $34.0 million, or 7.3% of net sales, as compared with income from operations of $17.0 million, or 3.8% of net sales, during the second quarter of 2010. Operating results were negatively affected by under-absorption, SG&A costs and restructuring charges. The pre-tax restructuring and other charges of approximately $36 million related to cost reduction and manufacturing footprint rationalization. These were partially offset by higher net sales, decreased warranty expense and a favorable adjustment related to a prior acquisition of approximately $3 million.

Materials Processing: Net sales for the MP segment for the second quarter of 2011 increased $53.2 million, or 39.3%, to $188.7 million versus the second quarter of 2010. Adjusting for the translation effect of foreign currency exchange rate changes, net sales increased approximately 30% from the comparable prior year period. Machine sales continued to show strength worldwide, particularly in Australia, South Africa and the Americas, primarily due to dealer restocking ahead of anticipated orders driven by early cycle demand and an increasing need for higher productivity and larger capacity machines. Northern and Eastern European markets have continued to recover with strong sales both sequentially and year-over-year partially driven by growth in the UK and Germany.

Income from operations in the second quarter of 2011 was $21.1 million, or 11.2% of net sales, compared to income from operations of $9.2 million, or 6.8% of net sales, during the second quarter of 2010. The primary drivers of the improved operating performance were better manufacturing utilization and product mix and pricing.

Corporate and Other / Eliminations: The loss from operations of $1.7 million during the second quarter of 2011 improved by $15.8 million compared to the prior year period, mainly due to the impact of a higher allocation of expenses to the business segments, less restructuring and increased government sales in the current year period.

Interest and Other Income (Expense): Interest expense, net of interest income in the second quarter of 2011 decreased $8.5 million when compared to the second quarter of 2010, primarily driven by reduced interest expense due to the retirement of debt over the past year. Other income in the second quarter of 2011 included a pre-tax gain of approximately $40 million related to the sales of a portion of the Company’s shares of Bucyrus International common stock. The Company will be receiving $92 per share during the third quarter of 2011 for the remaining 2.6 million shares of Bucyrus International common stock it holds, as Caterpillar, Inc. completed its acquisition of Bucyrus International in early July. Other expense included pre-tax acquisition related charges for Demag Cranes AG and mark to market charges on derivative contracts related to that transaction totaling approximately $3 million. Additionally, approximately $2 million of charges related to prior acquisition settlements are included in other expense.

Taxes: The effective tax rate for the second quarter of 2011 was approximately 99% compared to an effective tax rate of approximately 67% for the second quarter of 2010. The higher tax rate in the second quarter of 2011 compared to the statutory rate was mainly due to the Company’s inability to record tax benefits on losses in certain jurisdictions partially offset by a reduction in the provision for uncertain tax positions.

Capital Structure: The Company’s liquidity at June 30, 2011 totaled $1,197.1 million, which comprised cash balances of $702.0 million and borrowing availability under the Company’s revolving credit facility of $495.1 million. Liquidity at June 30, 2011 decreased by $21.9 million compared to March 31, 2011 levels of $1,219.0 million, predominantly from increased working capital investment in light of demand expectations, partially offset by proceeds from the sale of a portion of the Company’s shares of Bucyrus International common stock that contributed approximately $127 million to overall liquidity. In the second quarter, the Company also invested approximately $42 million in additional financing receivables as part of its initiatives to provide solutions to its customers and help accelerate the growth of the Company’s businesses.

“We expect our current cash position, coupled with our updated credit facility and improving cash flow outlook, to provide sufficient liquidity to complete the Demag Cranes AG acquisition and continue to progress our internal operating initiatives,” commented Phil Widman, Terex’s Senior Vice President and Chief Financial Officer.

Return on Invested Capital (ROIC) was 0.5% for the trailing twelve months ended June 30, 2011, reflecting the relatively low operating income generated during the period. Cash used in operations in the first six months of 2011 was approximately $219 million, mainly driven by cash used for working capital of approximately $289 million. For the comparable period in 2010, cash used in operations was approximately $240 million. Debt, less cash and cash equivalents, increased approximately $31 million in the second quarter of 2011, compared to the first quarter of 2011, to approximately $725 million.

Working Capital: Working Capital as a percent of Trailing Three Month Annualized Net Sales was 33.2% at June 30, 2011, as compared to 36.5% at March 31, 2011, mainly influenced by increased production in anticipation of increased demand in the recovering segments and the impact of seasonal demand. The Company’s percentage of sales target for working capital of below 30% by year end is expected to come largely from reductions in the Cranes segment as deliveries of several large orders are scheduled to occur and the Company works to better plan its production and delivery schedules in line with demand. The Company continued to take advantage of early payment discounts from its suppliers where the returns were significantly greater than the amount received from short-term bank deposits.

Backlog: Backlog for orders deliverable during the next twelve months was approximately $1,761 million at June 30, 2011, an increase of approximately 57% from June 30, 2010 and a decrease of approximately 2% from March 31, 2011.

AWP segment backlog increased approximately 137% and 1% as compared to June 30, 2010 and March 31, 2011, respectively. Continued replacement of aging fleets was the primary driver of the year-over-year increase. Backlog was essentially flat sequentially as orders were placed earlier in the year than normal by large national accounts. Order activity was strong across most models in the boom, scissor and telehandler categories, with particular increases in Europe and Asia.

Construction segment backlog increased approximately 155% and 25% as compared to June 30, 2010 and March 31, 2011, respectively, due to high demand for material handlers, compact equipment, backhoe loaders and trucks. Isolated supplier shortages for certain products in the second quarter pushed some deliveries into the third quarter.

Cranes segment backlog increased approximately 33% and decreased approximately 9% as compared to June 30, 2010 and March 31, 2011, respectively. Although order trends are still hard to predict for the largest port equipment products such as ship-to-shore cranes, the business has gained further clarity in its backlog for these products as more significant deliveries are expected to occur in the second half of this year. During the second quarter, the removal of orders from a customer in bankruptcy proceedings, the removal of orders for a newly developed all terrain crane that is not yet ready for introduction and order cancellations, reduced backlog by approximately $219 million.

MP segment backlog decreased approximately 23% and 9% as compared to June 30, 2010 and March 31, 2011, respectively. MP backlog decreased from the prior year primarily due to improved on-time deliveries of products and declined sequentially, as expected, due to some seasonality in the timing of orders.

The Glossary contains further details regarding backlog.

                   
TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(unaudited)

(in millions, except per share data)

                   
        Three Months

Ended June 30,

        Six Months

Ended June 30,

        2011         2010         2011         2010
Net sales       $ 1,488.2           $ 1,079.9           $ 2,744.4           $ 2,015.8  
Cost of goods sold         (1,273.3 )           (925.0 )           (2,362.3 )           (1,762.4 )
Gross profit         214.9             154.9             382.1             253.4  
Selling, general and administrative expenses         (208.1 )           (165.3 )           (384.6 )           (330.3 )
Income (loss) from operations         6.8             (10.4 )           (2.5 )           (76.9 )
Other income (expense)                                                      
Interest income         3.0             2.0             5.1             3.1  
Interest expense         (27.9 )           (35.4 )           (56.1 )           (71.3 )
Loss on early extinguishment of debt         -             -             (6.3 )           -  
Other income (expense) – net         34.6             8.5             86.5             (4.4 )
Income (loss) from continuing operations before income taxes         16.5             (35.3 )           26.7             (149.5 )
(Provision for) benefit from income taxes         (16.3 )           23.6             (22.3 )           60.5  
Income (loss) from continuing operations         0.2             (11.7 )           4.4             (89.0 )
(Loss) income from discontinued operations – net of tax         (0.6 )           (2.2 )           5.8             (3.7 )
(Loss) gain on disposition of discontinued operations- net of tax         (0.8 )           (25.0 )           (0.5 )           595.4  
Net (loss) income         (1.2 )           (38.9 )           9.7             502.7  
Net loss (income) attributable to noncontrolling interest         0.7             (1.4 )           1.5             (3.1 )
Net (loss) income attributable to Terex Corporation       $ (0.5 )         $ (40.3 )         $ 11.2           $ 499.6  
Amounts attributable to Terex Corporation common stockholders:                                                      
Income (loss) from continuing operations         0.9             (13.1 )           5.9             (92.1 )
(Loss) income from discontinued operations – net of tax         (0.6 )           (2.2 )           5.8             (3.7 )
(Loss) gain on disposition of discontinued operations – net of tax         (0.8 )           (25.0 )           (0.5 )           595.4  
Net (loss) income attributable to Terex Corporation       $ (0.5 )         $ (40.3 )         $ 11.2           $ 499.6  
Basic Earnings (loss) Per Share Attributable to Terex Corporation Common Stockholders:                                                      
Income (loss) from continuing operations       $ 0.01           $ (0.12 )         $ 0.05           $ (0.85 )
(Loss) income from discontinued operations – net of tax         -             (0.02 )           0.05             (0.03 )
(Loss) gain on disposition of discontinued operations – net of tax         (0.01 )           (0.23 )           -             5.48  
Net income (loss) attributable to Terex Corporation       $ -           $ (0.37 )         $ 0.10           $ 4.60  
Diluted Earnings (loss) Per Share Attributable to Terex Corporation Common Stockholders:                                                      
Income (loss) from continuing operations       $ 0.01           $ (0.12 )         $ 0.05           $ (0.85 )
(Loss) income from discontinued operations – net of tax         -             (0.02 )           0.05             (0.03 )
(Loss) gain on disposition of discontinued operations – net of tax         (0.01 )           (0.23 )           -             5.48  
Net income (loss) attributable to Terex Corporation       $ -           $ (0.37 )         $ 0.10           $ 4.60  
Weighted average number of shares outstanding in per share calculation                                    

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