Annual Reports

  • 10-K (Feb 25, 2014)
  • 10-K (Feb 28, 2013)
  • 10-K (Feb 29, 2012)
  • 10-K (Feb 18, 2011)
  • 10-K (Feb 24, 2010)
  • 10-K (Feb 27, 2009)

 
Quarterly Reports

 
8-K

 
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Terex 10-K 2010

Table of Contents

 

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-K

 

FOR ANNUAL AND TRANSITIONAL REPORTS PURSUANT TO

SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

(Mark One)

 

x

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Fiscal Year Ended December 31, 2009

 

or

 

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                      to                     .

 

Commission File Number 1-10702

 

TEREX CORPORATION

(Exact Name of Registrant as Specified in Charter)

 

DELAWARE

 

34-1531521

(State of incorporation)

 

(I.R.S. Employer Identification No.)

 

 

 

200 NYALA FARM ROAD, WESTPORT, CONNECTICUT

 

06880

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s Telephone Number, including area code: (203) 222-7170

 

Securities registered pursuant to Section 12(b) of the Act:

 

COMMON STOCK, $.01 PAR VALUE

(Title of Class)

 

NEW YORK STOCK EXCHANGE

(Name of Exchange on which Registered)

 

Securities registered pursuant to Section 12(g) of the Act: NONE

 

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES  o    NO  x

 

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Act. YES  o    NO  x

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. YES  x    NO  o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES  x    NO  o

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

 

Large Accelerated Filer  x

Accelerated Filer  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

 

The aggregate market value of the voting and non-voting common equity stock held by non-affiliates of the Registrant was approximately $1,264 million based on the last sale price on June 30, 2009.

 

THE NUMBER OF SHARES OF THE REGISTRANT’S COMMON STOCK OUTSTANDING WAS
108.3 MILLION AS OF FEBRUARY 18, 2010.

 

DOCUMENTS INCORPORATED BY REFERENCE:

 

Portions of the Terex Corporation Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after the year covered by this Form 10-K with respect to the 2010 Annual Meeting of Stockholders are incorporated by reference into Part III hereof.

 

 

 



Table of Contents

 

TEREX CORPORATION AND SUBSIDIARIES

Index to Annual Report on Form 10-K

For the Year Ended December 31, 2009

 

 

 

PAGE

 

PART I

 

 

 

 

Item 1.

Business

4

Item 1A.

Risk Factors

21

Item 1B.

Unresolved Staff Comments

26

Item 2.

Properties

27

Item 3.

Legal Proceedings

29

Item 4.

Submission of Matters to a Vote of Security Holders

29

 

 

 

 

PART II

 

 

 

 

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

30

Item 6.

Selected Financial Data

32

Item 7.

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

33

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

59

Item 8.

Financial Statements and Supplementary Data

62

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

62

Item 9A.

Controls and Procedures

63

Item 9B.

Other Information

64

 

 

 

 

PART III

 

 

 

 

Item 10.

Directors, Executive Officers and Corporate Governance

64

Item 11.

Executive Compensation

64

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

64

Item 13.

Certain Relationships and Related Transactions, and Director Independence

64

Item 14.

Principal Accountant Fees and Services

64

 

 

 

 

PART IV

 

 

 

 

Item 15.

Exhibits and Financial Statement Schedules

65

 

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As used in this Annual Report on Form 10-K, unless otherwise indicated, Terex Corporation, together with its consolidated subsidiaries, is hereinafter referred to as “Terex,” the “Registrant,” “us,” “we,” “our” or the “Company.”  This Annual Report generally speaks as of December 31, 2009, unless specifically noted otherwise.

 

Forward-Looking Information

 

Certain information in this Annual Report includes forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934) regarding future events or our future financial performance that involve certain contingencies and uncertainties, including those discussed below in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Contingencies and Uncertainties.”  In addition, when included in this Annual Report or in documents incorporated herein by reference, the words “may,” “expects,” “intends,” “anticipates,” “plans,” “projects,” “estimates” and the negatives thereof and analogous or similar expressions are intended to identify forward-looking statements. However, the absence of these words does not mean that the statement is not forward-looking. We have based these forward-looking statements on current expectations and projections about future events. These statements are not guarantees of future performance. Such statements are inherently subject to a variety of risks and uncertainties that could cause actual results to differ materially from those reflected in such forward-looking statements. Such risks and uncertainties, many of which are beyond our control, include, among others:

 

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

·                  the impact of the sale of our Mining business, including our ability to use the proceeds of this transaction for acquisitions;

·                  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 is affected by our cost structure, pricing, product initiatives and other actions taken by competitors;

·                  the effects of operating losses;

·                  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, product liability claims, class action lawsuits and other liabilities;

·                  our ability to comply with an injunction and related obligations resulting from the settlement of an investigation by the United States Securities and Exchange Commission (“SEC”);

·                  investigation by the United States 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 Annual Report and the forward-looking statements contained in documents incorporated herein by reference speak only as of the date of the respective documents. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained or incorporated by reference in this Annual Report to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

 

As a result of the final court decree in August 2009 that formalized the settlement of an investigation of Terex by the SEC, for a period of three years, or such earlier time as we are able to obtain a waiver from the SEC, we cannot rely on the safe harbor provisions regarding forward-looking statements provided by the regulations issued under the Securities Exchange Act of 1934.

 

The forward-looking statements and prospective financial information included in this Form 10-K have been prepared by, and are the responsibility of, Terex's management. PricewaterhouseCoopers LLP (“PwC”) has neither examined, compiled nor performed any procedures with respect to the accompanying forward-looking statements and prospective financial information and, accordingly, PwC does not express an opinion or any other form of assurance with respect thereto. The PwC report included in this Form 10-K relates to the Company's historical financial information. It does not extend to the forward-looking statements and prospective financial information and should not be read to do so.

 

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PART I

 

ITEM 1.  BUSINESS

 

GENERAL

 

Terex is a diversified global equipment manufacturer of a variety of machinery products.  We are focused on delivering reliable, customer-driven solutions for a wide range of commercial applications, including the construction, infrastructure, quarrying, shipping, transportation, power and energy industries.  We operate in four reportable segments: (i) Aerial Work Platforms; (ii) Construction; (iii) Cranes; and (iv) Materials Processing.

 

On December 20, 2009, we signed a definitive agreement for the divestiture of our Mining business, and as a result, this business is reflected as a discontinued operation in this Annual Report.  With the completion of the divestiture on February 19, 2010, we have completed the first step in our strategy to transform Terex from what has historically been predominately a construction and mining equipment company to a manufacturer of more diverse niche machinery and industrial products.

 

We view our purpose as making products that will be used to improve the lives of people around the world.  Our mission is to delight our customers with value added offerings that exceed their current and future needs.  Our vision focuses on our commitments to our core constituencies of customers, stakeholders and team members by providing our customers with a superior ownership experience, our stakeholders with a profitable enterprise that increases value, and our team members with a preferred place to work.

 

Our Company was incorporated in Delaware in October 1986 as Terex U.S.A., Inc.  We have changed significantly since that time, achieving $4.0 billion of net sales in 2009.  Much of our historic growth has been achieved through acquisitions, and, over the past five years, we increased our focus on becoming a superb operating company under the Terex franchise.  Now, following consummation of the sale of our Mining business, we foresee increasing our acquisition activity through targeted transactions intended to broaden our businesses and product categories.

 

As we have grown, our business has become increasingly international in scope, with our products manufactured in North and South America, Europe, Australia and Asia and sold worldwide.  We are focusing on expanding our business globally, with an increased emphasis on developing markets such as China, India, Russia, the Middle East and Latin America.

 

For financial information about our industry and geographic segments, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note B - “Business Segment Information” in the Notes to the Consolidated Financial Statements.

 

AERIAL WORK PLATFORMS

 

Our Aerial Work Platforms segment designs, manufactures, refurbishes and markets aerial work platform equipment, telehandlers, light towers and utility equipment.  Products include material lifts, portable aerial work platforms, trailer-mounted articulating booms, self-propelled articulating and telescopic booms, scissor lifts, telehandlers, trailer-mounted light towers and utility equipment (including truck-mounted digger derricks, aerial devices and cable placers) as well as their related components and replacement parts. Customers use our products to construct and maintain industrial, commercial and residential buildings and facilities, construct and maintain utility and telecommunication lines, trim trees and for other commercial operations, as well as in a wide range of infrastructure projects.  We market our Aerial Work Platforms products principally under the Terex® and Genie® brand names and the Terex® name in conjunction with certain historic brand names.

 

Aerial Work Platforms has the following significant manufacturing operations:

 

·                  Aerial work platform equipment is manufactured in Redmond and Moses Lake, Washington, Perugia, Italy and Coventry, England;

 

·                  Telehandlers are manufactured in  Moses Lake, Washington and Perugia, Italy;

 

·                  Trailer-mounted light towers and trailer-mounted articulated booms are manufactured in Rock Hill, South Carolina; and

 

·                  Utility products are manufactured in Watertown and Huron, South Dakota.

 

We have aerial work platform refurbishment facilities located in Waco, Texas and Modesto, California.

 

We recently opened a new parts and logistic center located in North Bend, Washington for our aerial work platform equipment.  In 2009, we consolidated our European parts and logistics operations to an out-sourced facility in Roosendaal, the Netherlands.

 

We are in the process of constructing a facility in Changzhou, China for the manufacture of aerial work platform equipment.

 

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We also own much of the North American distribution channel for the utility products group.  These operations sell, service and rent our utility products as well as other products that service the utility industry.  They also provide parts and service support for a variety of other Terex® products, including aerial devices.  We also maintain a fleet of rental utility products available for rental in the United States and Canada.

 

Our auger machines and auger tools product lines, which had been part of our Mining business, have been retained by Terex and became part of our Aerial Work Platforms segment upon the conclusion of the disposition of our Mining business.  Our auger equipment is used in construction and foundation drilling applications.

 

In December 2009, we completed the sale of our power buggy product line, and in January 2010, we completed the sale of our generator product line.  Both of these product lines were included in our Aerial Work Platforms segment.

 

CONSTRUCTION

 

Our Construction segment designs, manufactures and markets three primary categories of construction equipment and their related components and replacement parts:

 

·                  Heavy construction equipment, including off-highway trucks, scrapers, hydraulic excavators, large wheel loaders and material handlers;

·                  Compact construction equipment, including loader backhoes, compaction equipment, mini and midi excavators, site dumpers, compact track loaders, skid steer loaders and wheel loaders; and

·                  Roadbuilding equipment, including asphalt and concrete equipment (including pavers, transfer devices, plants, mixers, reclaimers/stabilizers, placers and cold planers), landfill compactors and bridge inspection equipment.

 

Construction, forestry, rental, mining, industrial and government customers use these products in construction and infrastructure projects, to build roads and bridges and in coal, minerals, sand and gravel operations.  We market our Construction products principally under the Terex® brand name and the Terex® name in conjunction with certain historic brand names.

 

Construction has the following significant manufacturing operations:

 

Heavy Construction Equipment

 

·                  Off-highway rigid haul trucks and articulated haul trucks and scrapers are manufactured in Motherwell, Scotland;

 

·                  Wheel loaders are manufactured in Crailsheim, Germany;

 

·                  Excavators and material handlers are manufactured in Ganderkesee, Germany; and

 

·                  Material handlers are manufactured in Bad Schoenborn, Germany.

 

Compact Construction Equipment

 

·                  Compact track loaders are manufactured in Grand Rapids, Minnesota and undercarriage components for compact track loaders and crawler conversion parts for compact skid steer loaders and aerial work platform products are manufactured in Cohasset, Minnesota;

 

·                  Site dumpers, compaction equipment and loader backhoes, as well as products for our Aerial Work Platforms segment, are manufactured in Coventry, England;

 

·                  A range of wheel loaders are manufactured in Crailsheim, Germany, mini excavators and midi excavators are manufactured in Rothenburg, Germany, and parts for the above-referenced products are manufactured in Langenburg and Gerabronn, Germany.  In addition, specialized tunneling machines are manufactured in Langenburg, Germany;

 

·                  Loader backhoes and skid steer loaders are manufactured for markets in India and neighboring countries in Greater Noida, Uttar Pradesh, India; and

 

·                  Mini excavators are manufactured for the Chinese market in Sanhe, China.

 

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Roadbuilding Equipment

 

·                  Cold planers, reclaimers/stabilizers, asphalt plants, asphalt pavers, concrete plants, concrete pavers, concrete placers, transfer devices and landfill compactors, as well as products for our Materials Processing segment, are manufactured in Oklahoma City, Oklahoma;

 

·                  Asphalt plants, asphalt pavers, soil plants, cold planers, and micropaving and asphalt distributor equipment are manufactured in Cachoeirinha, Brazil;

 

·                  Concrete pavers are manufactured in Canton, South Dakota;

 

·                  Bridge inspection equipment is manufactured in Rock Hill, South Carolina; and

 

·                  Front and rear discharge concrete mixer trucks are manufactured in Fort Wayne, Indiana.

 

Construction’s North American distribution center is in Southaven, Mississippi and serves as a parts center for Construction and other Terex operations.

 

We have a minority interest in Inner Mongolia North Hauler Joint Stock Company Limited (“North Hauler”), a company incorporated under the laws of China, which manufactures rigid haulers in China.  Trucks manufactured by North Hauler, which is located in Baotou, Inner Mongolia, are principally used in China under the Terex® brand name.  We also have a minority interest in Atlas Construction Machinery Company Ltd., a company incorporated under the laws of China, which manufactures excavators in China.

 

CRANES

 

Our Cranes segment designs, manufactures, services and markets mobile telescopic cranes, tower cranes, lattice boom crawler cranes, truck-mounted cranes (boom trucks and loading cranes) and specialized port and rail equipment including straddle carriers, gantry cranes, mobile harbor cranes, ship-to-shore cranes, telescopic container stackers, lift trucks and forklifts, as well as their related replacement parts and components.  These products are used primarily for construction, repair and maintenance of commercial buildings, manufacturing facilities and infrastructure, as well as for material handling at port and railway facilities.  We market our Cranes products principally under the Terex® brand name and the Terex® name in conjunction with certain historic brand names.

 

Cranes has the following significant manufacturing operations:

 

·                  Rough terrain and telescopic crawler cranes are manufactured in Crespellano, Italy;

 

·                  All terrain cranes, truck cranes and telescopic container stackers are manufactured in Montceau-les-Mines, France;

 

·                  Rough terrain cranes, truck cranes and truck-mounted cranes are manufactured in Waverly, Iowa;

 

·                  Truck cranes are manufactured in Luzhou, China;

 

·                  Truck-mounted articulated hydraulic cranes are manufactured in Delmenhorst and Vechta, Germany;

 

·                  Lift and carry cranes are manufactured in Brisbane, Australia;

 

·                  Tower cranes are manufactured in Fontanafredda, Italy;

 

·                  Lattice boom crawler cranes and tower cranes are manufactured in Wilmington, North Carolina;

 

·                  Lattice boom crawler and lattice boom truck cranes, as well as all terrain cranes, are manufactured in Zweibruecken, Wallerscheid and Bierbach, Germany and Pecs, Hungary;

 

·                  Ship-to-shore, rubber tired gantry, rail mounted gantry cranes and mobile harbor cranes are manufactured in Monfalcone, Italy;

 

·                  Mobile harbor cranes, gantry cranes and telescopic container stackers are manufactured in Xiamen, China;

 

·                  Straddle carriers and gantry cranes are manufactured in Wurzburg, Germany; and

 

·                  Lift trucks and forklifts are manufactured in Lentigione, Italy.

 

We plan to begin the manufacture of tower crane components at our facilities in Tianjin, China and Hosur, India.

 

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MATERIALS PROCESSING

 

Our Materials Processing segment designs, manufactures and markets materials processing equipment, including crushers, washing systems, screens, apron feeders and related components and replacement parts.  Construction, quarrying, mining and government customers use these products in construction and infrastructure projects, as well as in various quarrying and mining applications.  We market our Materials Processing products principally under the Terex® and Powerscreen® brand names and the Terex® name in conjunction with certain historic brand names.

 

Materials Processing has the following significant manufacturing operations:

 

·                  Mobile crushers and mobile screens are manufactured in Omagh and Dungannon, Northern Ireland;

 

·                  Mobile crushers and mobile screens are manufactured in Hosur, India;

 

·                  Base crushers and base screens are manufactured in Subang Jaya, Malaysia; and

 

·                  Screening equipment is manufactured in Durand, Michigan.

 

We have a North American distribution center in Louisville, Kentucky.  We have four distribution facilities in Australia.

 

We participate in joint ventures in China under the names Wieland International Trading (Shanghai) Co. Ltd. and Shanghai Wieland Engineering Co. Ltd., which manufacture replacement and wear parts for crushing equipment.

 

OTHER

 

We also assist customers in their rental, leasing and acquisition of our products.  We facilitate loans and leases between our customers and various financial institutions under the name Terex Financial Services (“TFS”) in the United States, Europe and elsewhere.

 

DISCONTINUED OPERATIONS

 

On December 20, 2009, we entered into a definitive agreement to sell our Mining business to Bucyrus International, Inc. (“Bucyrus”), and on February 19, 2010, we completed this disposition.  The business divested in the transaction includes the manufacture of hydraulic mining excavators, high capacity surface mining trucks, track and rotary blasthole drills, drill tools and highwall mining equipment, as well as the related parts and aftermarket service businesses, including company-owned distribution locations.  Our auger machines and auger tools product lines were not sold as part of this disposition and instead will be consolidated within our Aerial Work Platforms segment.

 

On December 31, 2009, we sold the assets of our construction trailer business.  The results of this business were formerly consolidated within our Aerial Work Platforms segment.

 

See Note D — “Discontinued Operations” in the Notes to our Consolidated Financial Statements for more information on our discontinued operations.

 

BUSINESS STRATEGY

 

General

 

For Terex, 2009 was an extremely challenging year.  We saw net sales from continuing operations decrease from $8.4 billion in 2008 to $4.0 billion in 2009, and our income from operations of $174.5 million in 2008 turned to a loss from operations of $459.9 million in 2009.  No part of our business was immune from this downturn, as net sales declined in 2009 when compared to 2008 levels by 64.9% for Aerial Work Platforms, 55.2% for Construction, 33.7% for Cranes and 64.2% for Materials Processing.

 

Successful companies in challenging times balance the short-term needs of cash generation and reducing costs with the long-term needs of investing in and strengthening their core businesses.  Achieving this balance will continue to be our focus throughout this demanding economic environment.

 

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During 2009, we focused on cash generation and cash management, taking quick and aggressive actions and making difficult choices to reduce operating costs.  Our actions included, among other initiatives, closing certain of our facilities, reducing our work force at all levels, shortening workweeks and freezing and reducing the salaries of our team members.  In an environment of tight credit, declining economic activity and constrained access to investment capital, we strongly believed that disciplined management of cash flow was critical to our sustainability in the short term and to our ultimate long-term success.  As a result of our successful implementation of working capital and cost control measures, as well as our capital markets funding transactions executed in 2009, we enter 2010 with a strong balance sheet and we are well positioned to capitalize on the market recovery that we expect to experience in 2011 and beyond.

 

As we enter 2010, we expect the challenging business environment to continue.  We do not anticipate a significant increase in end market demand for our products in 2010, but we will continue to focus on those things that we can control, such as investments in growing markets, managing internal costs and optimizing our product development.  We expect that our manufacturing production rates in 2010 will more closely match end market demand, as we have reduced our inventory to appropriate levels so that our facilities can once again operate efficiently.

 

We believe that the present environment offers us the opportunity to strengthen and improve our business position around the world.  These challenging times can provide opportunities to invest in our businesses in ways that will strengthen us for the market recovery.

 

We approach the long term with the goal of transforming Terex from what has historically been predominately a construction and mining equipment company to a more diverse manufacturer of a variety of machinery and industrial products.  We aim to re-focus Terex on being a manufacturer of highly successful niche products with leading positions in their specialty areas.  We strive to be one of the top two performers in each of our business areas, with the highest Return on Invested Capital when compared with our competition over a business cycle.

 

We are seeking to expand through internal growth and incremental acquisitions, with our Company’s transformation to be built upon our current foundation of market leading franchises coupled with new investment opportunities.  We have strong existing core businesses in the product areas of aerial work platforms, compact construction equipment, tower and mobile cranes, port equipment and mobile material processing equipment.  It is our goal to build on the leading positions of our current businesses to potentially double our net sales by 2013, achieve a 12% operating profit margin, and generate at least a 20% after-tax return on invested capital.

 

As part of our strategy to transform our portfolio of businesses, we made the decision in 2009 to sell our Mining business for approximately $1 billion in cash and approximately 5.8 million shares of Bucyrus common stock.  As of the completion of the sale of our Mining business, we had over $1.9 billion in cash on hand with no scheduled significant debt maturities until 2013.  We intend to utilize our financial resources to both grow our existing franchises and to leverage our existing portfolio to acquire other leading niche machinery and industrial businesses.

 

We are actively pursuing possible acquisition opportunities in the global equipment and machinery industries, evaluating a wide range of alternatives for future investment, both within and outside our traditional areas of operation.  We will investigate potential acquisitions that complement our existing strengths and expand and diversify our range of product offerings, with a target threshold for potential investment opportunities of at least a 20% after-tax return on invested capital in the second year after acquisition and beyond.

 

Aerial Work Platforms

 

Our Aerial Work Platforms segment remains one of our key businesses. It is our intent to provide our customers with the best return on their investment through the acquisition, maintenance and disposition cycle of our equipment.  Our strengths include manufacturing expertise in lean practices, intense focus on the customer experience, quality products, the safety of our team members and customers, and superior service and support.  During the low demand period we are currently experiencing, we continue to work to improve the business in these critical areas and thereby position the business for profitability when global growth returns.  As examples, we are investing in our Terex Management System (TMS), a global enterprise system, and we are expanding our global service and support offerings and footprint.

 

The business historically has been dependent on the North American and Western European markets for the vast majority of it sales.  Going forward, we expect increased global acceptance and demand for the portfolio of our products based on improved productivity and safety for potential customers as compared to alternative methods such as ladders and scaffolding.  In addition, to reduce our dependence on and exposure to non-residential construction for these products, we will focus on market expansion, such as industrial or shipyard applications.  We are working to localize our products for introduction to the various global markets. For example, we are currently investing in the construction of a manufacturing facility in Changzhou, China, which is scheduled to start production in the fourth quarter of 2010.

 

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Construction

 

Our Construction segment has been negatively affected by the significant reduction of industrial, commercial and residential building projects over the past few years.  During 2009, our focus was on cash generation, bringing costs in line with the current global demand environment, and reducing inventory stock levels to better position this business for efficient manufacturing practices at the reduced demand levels.  Going forward, the focus will be on successful growth in markets and product niches where Terex can operate from a position of strength, such as the North American compact construction equipment line of products, and the western European home markets for many of the construction products and certain niche products such as the material handler business.  We will continue to focus on improving manufacturing practices through the implementation of lean manufacturing processes, leveraging the current business infrastructure for economies of scale and carefully approaching investment in non-traditional markets.

 

Cranes

 

Our Cranes segment features a diversified range of products with several strong core businesses.  In 2009, we significantly expanded our range of products through our acquisition of the port equipment businesses of Reggiane Cranes and Plants S.p.A. and Noell Crane Holding GmbH (collectively, “Terex Port Equipment” or the “Port Equipment Business”).

 

The effects of the global economic downturn have been felt quite differently throughout our cranes product line.  Certain products, such as large capacity crawler cranes and all-terrain cranes, continue to have significant demand globally, while other products are down over 80% from peak net sales levels achieved during the past few years.  However, throughout the portfolio of Cranes products, we will continue to emphasize building world-class, safe products, while continuing to reduce our cost structure to ensure long-term competitiveness.  Additionally, as part of our customer value proposition, we will continue to invest in our global sales and support infrastructure.  For our newly acquired Port Equipment Business, our initial focus has been to complete the required restructuring actions to bring the cost structure of this business in line with the current demand environment.

 

Materials Processing

 

Our Materials Processing segment has at its core our industry leading mobile crushing and screening products.  Despite our leading position in the mobile materials processing market, the past 12-18 months were extremely challenging.  We experienced rapid deterioration in market conditions due to the softening of the global economy and the related credit market crisis.  We reacted quickly by dramatically reducing our production output and, in an effort to manage the total supply chain of inventory.  Inventory at our dealer locations was sold through and not replaced. Costs and headcount were significantly reduced to realign the size of the business infrastructure with the current net sales levels.

 

We continue to see some encouraging signs that developing markets may be leading the way in global economic growth, and we continue to position this business to take advantage of such growth opportunities.  Additionally, continued urbanization, global concern for the recycling of waste, and the continued shift to mobile equipment solutions over static equipment in many applications are trends that we believe will have a positive effect on our business prospects.

 

The Terex Way

 

When considering our strategy and future, we constantly keep in mind our purpose, mission, vision and our core values, all of which combine to create a culture that makes Terex what it is.

 

Our purpose remains to improve the lives of people around the world.  Our mission is to delight our customers with value added offerings that exceed their current and future needs.

 

Our vision focuses on the Company’s core constituencies of customers, stakeholders and team members:

 

·                  Customers:  We aim to be the most customer responsive company in the industry as determined by our customers.

·                  Stakeholders:  We aim to be the most profitable company in the industry as measured by Return on Invested Capital.

·                  Team Members:  We aim to be the best place to work in the industry as determined by our team members.

 

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We operate our business based on our value system, “The Terex Way.”  The Terex Way defines our essence and culture as a company and our collective commitment to what it means to be a part of Terex.  The Terex Way is based on six key values:

 

·

Integrity: Integrity reflects honesty, ethics, transparency and accountability. We are committed to maintaining high ethical standards in all of our business dealings.

·

Respect: Respect incorporates concern for safety, health, teamwork, diversity, inclusion and performance. We treat all our team members, customers and suppliers with respect and dignity.

·

Improvement: Improvement encompasses quality, problem-solving systems, a continuous improvement culture and collaboration. We continuously search for new and better ways of doing things, focusing on continuous improvement and the elimination of waste.

·

Servant Leadership: Servant leadership requires service to others, humility, authenticity and leading by example. We work to serve the needs of our customers, investors and team members.

·

Courage: Courage entails willingness to take risks, responsibility, action and empowerment. We have the courage to make a difference even when it is difficult.

·

Citizenship: Citizenship means social responsibility and environmental stewardship. We comply with all laws and respect all people’s values and cultures and are good global, national and local citizens.

 

 

The Terex Business System

 

Our operational principles are based on the “Terex Business System,” or “TBS.”  The Terex Business System is the framework around which we are building our capabilities as a superb operating company to achieve our long-term goals.  The key elements of the Terex Business System are illustrated by the following “TBS House” diagram:

 

 

The three foundational elements of the Terex Business System are:

 

·

Leadership Commitment for Competitive Advantage;

·

Superb Human Resource Practices; and

·

Customer Driven Business Processes, evidenced by continuous improvement in quality, speed and simplicity.

 

 

The foundation of the TBS House supports the four pillars of the Terex Business System:

 

·

Achieving Intense Customer Focus;

·

Planning Excellence and Annual Deployment;

·

Developing Operational Excellence Across the Entire Value Chain; and

·

Rapidly Delivering New Products and Services.

 

 

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With our purpose, mission and vision in mind, using the Terex Business System as our framework, and operating based on the values of The Terex Way, we strive to grow and expand our Company.

 

PRODUCTS

 

AERIAL WORK PLATFORMS

 

AERIAL WORK PLATFORMS.  Aerial work platform equipment safely positions workers and materials easily and quickly to elevated work areas to enhance productivity.  These products have developed as alternatives to scaffolding and ladders.  We offer a variety of aerial lifts that are categorized into six product families: material lifts; portable aerial work platforms; trailer-mounted articulating booms; self-propelled articulating booms; self-propelled telescopic booms; and scissor lifts.

 

·

Material lifts are used primarily indoors in the construction, industrial and theatrical markets.

·

Portable aerial work platforms are used primarily indoors in a variety of markets to perform overhead maintenance.

·

Trailer-mounted articulating booms are used both indoors and outdoors. They provide versatile reach, and have the ability to be towed between job sites.

·

Self-propelled articulating booms are primarily used in construction and industrial applications, both indoors and outdoors. They feature lifting versatility with up, out and over position capabilities to access difficult to reach overhead areas.

·

Self-propelled telescopic booms are used outdoors in commercial and industrial construction, as well as highway and bridge maintenance projects.

·

Scissor lifts are used in outdoor and indoor applications in a variety of construction, industrial and commercial settings.

 

 

TELEHANDLERS.  Telehandlers are used to move and place materials on residential and commercial construction sites and are used in the energy, infrastructure and agricultural industries.

 

LIGHT TOWERS.  Trailer-mounted light towers are used primarily to light work areas for night construction, entertainment, emergency assistance, security and for other nighttime or low light applications.

 

UTILITY EQUIPMENT.  Our utility products include digger derricks, insulated and non-insulated aerial devices and cable placers. These products are used by electric utilities, tree care companies, telecommunications and cable companies, and the related construction industries, as well as by government organizations.

 

·

Digger derricks are used to dig holes, hoist and set utility poles, as well as lift transformers and other materials at job sites.

·

Insulated aerial devices are used to elevate workers and material to work areas at the top of utility poles, energized transmission lines and for trimming trees near energized electrical lines, as well as for miscellaneous purposes such as sign maintenance. Non-insulated aerials are used in applications where energized electrical lines are not a hazard.

·

Cable placers are used to install fiber optic, copper and strand telephone and cable lines.

 

 

CONSTRUCTION

 

HEAVY CONSTRUCTION EQUIPMENT.  We manufacture and/or market off-highway trucks, scrapers, excavators, wheel loaders and material handlers.

 

·

Articulated off-highway trucks are three-axle, six-wheel drive machines with an articulating connection between the cab and body that allows the cab and body to move independently, enabling all six tires to maintain ground contact for traction on rough terrain.

·

Rigid off-highway trucks are two-axle machines, which generally have larger capacities than articulated off-highway trucks, but can operate only on improved or graded surfaces, and are used in large construction or infrastructure projects, aggregates and smaller surface mines.

·

Scrapers move dirt by elevating it from the ground to a bowl located between the two axles of the machine. Scrapers are used most often in relatively dry, flat terrains.

·

Excavators are used for a wide variety of construction applications, including non-residential construction (such as commercial sites and road construction) and residential construction.

·

Wheel loaders are used for loading and unloading materials. Applications include mining and quarrying, non-residential construction, airport and industrial snow removal, waste management and general construction.

·

Material handlers are designed for handling logs, scrap and other bulky materials with clamshell, magnet or grapple attachments.

 

 

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COMPACT CONSTRUCTION EQUIPMENT.  We manufacture a wide variety of compact construction equipment used primarily in the construction and rental industries. Products include compact track loaders, loader backhoes, compaction equipment, excavators, site dumpers, skid steer loaders, wheel loaders and truck-mounted articulated hydraulic cranes.

 

·

Loader backhoes incorporate a front-end loader and rear excavator arm. They are used for loading, excavating and lifting in many construction and agricultural related applications.

·

Our compaction equipment ranges from small portable plates to heavy duty ride-on rollers.

·

Excavators in the compact equipment category include mini and midi excavators used in the general construction, landscaping and rental businesses.

·

Site dumpers are used to move smaller quantities of materials from one location to another, and are primarily used for construction applications.

·

Compact track loaders, skid steer loaders and wheel loaders are used for loading and unloading materials in construction, industrial, rental, agricultural and landscaping businesses.

 

 

ROADBUILDING EQUIPMENT.  We manufacture asphalt pavers, transfer devices, asphalt plants, concrete production plants, concrete mixers, concrete pavers, concrete placers, cold planers, reclaimers/stabilizers, bridge inspection equipment and landfill compactors.

 

·

Asphalt pavers are available in a variety of sizes and designs. Smaller units are used for commercial work such as parking lots, development streets and construction overlay projects. Mid-sized pavers are used for mainline and commercial projects. High production pavers are engineered and built for heavy-duty, mainline paving.

·

Asphalt transfer devices are available in both self-propelled and paver pushed designs and are intended to reduce segregation in the paver to create a smoother roadway.

·

Asphalt plants are used to produce hot mix asphalt and are available in portable, relocatable and stationary configurations.

·

Concrete production plants are used in residential, commercial, highway, airport and other markets. Our products include a full range of portable and stationary transit mix and central mix production facilities.

·

Concrete mixers are machines with a large revolving drum in which cement is mixed with other materials to make concrete. We offer models mounted on trucks with three, four, five, six or seven axles and other front and rear discharge models.

·

Our concrete pavers are used to place and finish concrete streets, highways and airport surfaces.

·

Concrete placers transfer materials from trucks in preparation for paving.

·

Cold planers mill and reclaim deteriorated asphalt pavement, leaving a level, textured surface upon which new paving material is placed.

·

Our reclaimers/stabilizers are used to add load-bearing strength to the base structures of new highways and new building sites. They are also used for in-place reclaiming of deteriorated asphalt pavement.

·

Our bridge inspection equipment allows access to many under bridge related tasks, including inspections, painting, sandblasting, repairs, general maintenance, installation and maintenance of under bridge pipe and cables, stripping operations and replacement, and maintenance of bearings.

·

We produce landfill compactors used to compact refuse at landfill sites.

 

 

CRANES

 

We offer a wide variety of cranes, including mobile telescopic cranes, tower cranes, lattice boom crawler cranes, boom trucks, as well as specialty cranes and machinery designed specifically for port and railway facility use such as mobile harbor cranes, gantry cranes and telescopic container stackers.

 

MOBILE TELESCOPIC CRANES.  Mobile telescopic cranes are used primarily for industrial applications, in commercial and public works construction, and in maintenance applications to lift equipment or material.  We offer a complete line of mobile telescopic cranes, including rough terrain cranes, truck cranes, all terrain cranes and lift and carry cranes.

 

·

Rough terrain cranes move materials and equipment on rough or uneven terrain, and are often located on a single construction or work site such as a building site, a highway or a utility project for long periods. Rough terrain cranes cannot be driven on highways and accordingly must be transported by truck to the work site.

·

Truck cranes have two cabs and can travel rapidly from job site to job site at highway speeds. Truck cranes are often used for multiple local jobs, primarily in urban or suburban areas.

·

All-terrain cranes were developed in Europe as a cross between rough terrain and truck cranes, and are designed to travel across both rough terrain and highways.

·

Lift and carry cranes are designed primarily for site work, such as at mine sites, large fabrication yards, building and construction sites, and combine high road speed and all terrain capability without the need for outriggers.

 

 

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TOWER CRANES.  Tower cranes are often used in urban areas where space is constrained and in long-term or very high building sites.  Tower cranes lift construction material and place the material at the point where it is being used.  We produce the following types of tower cranes:

 

·      Self-erecting tower cranes are trailer-mounted and unfold from four sections (two for the tower and two for the jib); certain larger models have a telescopic tower and folding jib. These cranes can be assembled on site in a few hours.  Applications include residential and small commercial construction.

·      Hammerhead tower cranes have a tower and a horizontal jib assembled from sections. The tower extends above the jib to which suspension cables supporting the jib are attached.  These cranes are assembled on-site in one to three days depending on height, and can increase in height with the project.

·      Flat top tower cranes have a tower and a horizontal jib assembled from sections. There is no A-frame above the jib, which is self-supporting and consists of reinforced jib sections. These cranes are assembled on-site in one to two days, and can increase in height with the project.

·      Luffing jib tower cranes have a tower and an angled jib assembled from sections. There is one A-frame above the jib to which suspension cables supporting the jib are attached.  Unlike other tower cranes, there is no trolley to control lateral movement of the load, which is accomplished by changing the jib angle.  These cranes are assembled on-site in two to three days, and can increase in height with the project.

 

LATTICE BOOM CRAWLER AND WHEEL-MOUNTED CRANES.  Lattice boom crawler and wheel-mounted cranes are designed to lift material on rough terrain and can maneuver while bearing a load.  The boom is made of tubular steel sections, which, together with the base unit, are transported to and erected at a construction site.

 

TRUCK-MOUNTED CRANES (BOOM TRUCKS).  We manufacture telescopic boom cranes and articulated hydraulic cranes for mounting on a commercial truck chassis. Truck-mounted cranes are used primarily in the construction and maintenance industries to lift equipment or materials to various heights. Boom trucks are generally lighter and have less lifting capacity than truck cranes, and are used for many of the same applications when lower lifting capabilities are sufficient.  An advantage of a boom truck is that the equipment or material to be lifted by the crane can be transported by the truck, which can travel at highway speeds.  Applications include delivery of building materials and the installation of commercial air conditioners and other roof-mounted equipment.

 

TELESCOPIC CONTAINER STACKERS.  Telescopic container stackers are used to pick up and stack shipping containers at port and railway facilities.  At the end of a telescopic container stacker’s boom is a spreader, which enables it to attach to shipping containers of varying lengths and weights and to rotate the container.

 

MOBILE HARBOR CRANES.  Mobile harbor cranes are used for material handling at ports, including general cargo handling and shipping containers.  Mobile harbor cranes can travel around the port as needed and have the capability to move large loads.  Mobile harbor cranes can be fitted with a variety of attachments for handling different types of cargo.

 

SHIP-TO-SHORE GANTRY CRANES.  Ship-to-shore gantry cranes are used to load and unload container vessels at ports.

 

RUBBER TIRED AND RAIL MOUNTED GANTRY CRANES.  Rubber tired and rail mounted gantry cranes are used for space intensive shipping container stacking at port and railway facilities.

 

STRADDLE CARRIERS.  Straddle carriers pick up and carry shipping containers while straddling their load.  Straddle carriers have the capability to stack up to four shipping containers on top of each other.  Straddle carriers are used in port and railway facilities to move shipping containers and to load and unload shipping containers from on-highway trucks.

 

LIFT TRUCKS AND FORKLIFTS.  Lift trucks and forklifts are small to medium-sized highly mobile trucks for use with a variety of general cargo lifting and handling applications at port and railway facilities.

 

MATERIALS PROCESSING

 

MATERIALS PROCESSING EQUIPMENT.  Materials processing equipment is used in processing aggregate materials for roadbuilding applications and is also used in the quarrying, mining, demolition and recycling industries.  Our materials processing equipment includes crushers, screens and feeders.

 

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We manufacture a range of track-mounted jaw, impactor and cone crushers, as well as base crushers for integration within static plants.  Our crushing equipment also includes horizontal and vertical shaft impactors.

 

·      Jaw crushers are used for crushing larger rock, primarily at the quarry face or on recycling duties.  Applications include hard rock, sand and gravel and recycled materials. Impactor crushers are used in quarries for primary and secondary applications, as well as in recycling.  Cone crushers are used in secondary and tertiary applications to reduce a number of materials, including quarry rock and riverbed gravel.

·      Horizontal shaft impactors are primary and secondary crushers.  They are typically applied to reduce soft to medium hard materials, as well as recycled materials.  Vertical shaft impactors are secondary and tertiary crushers that reduce material utilizing various rotor configurations and are highly adaptable to any application.

 

Our screening and feeder equipment includes:

 

·      Heavy duty inclined screens and feeders are used in high tonnage applications and are available as either stationary or heavy-duty mobile equipment.  Inclined screens are used in all phases of plant design from handling quarried material to fine screening.

·      Dry screening is used to process materials such as sand, gravel, quarry rock, coal, construction and demolition waste, soil, compost and wood chips.

·      Washing screens are used to separate, wash, scrub, dewater and stockpile sand and gravel.  Our products include a completely mobile single chassis washing plant incorporating separation, washing, dewatering and stockpiling.  We also manufacture mobile and stationary screening rinsers, bucket-wheel dewaterers, scrubbing devices for aggregate, a mobile cyclone for maximum retention of sand particles, silt extraction systems, stockpiling conveyors and a sand screw system as an alternative to bucket-wheel dewaterers.

·      Apron feeders are generally situated at the primary end of the processing facility, and have a rugged design in order to handle the impact of the material being fed from front-end loaders and excavators.  The feeder moves material to the crushing and screening equipment in a controlled fashion.

 

PRODUCT CATEGORY SALES

 

The following table lists our main product categories and their percentage of our total sales:

 

 

 

PERCENTAGE OF SALES

 

PRODUCT CATEGORY

 

2009

 

2008

 

2007

 

Mobile Telescopic & Truck Cranes

 

30

%

23

%

19

%

Lattice Boom Crawler & Tower Cranes

 

15

 

12

 

9

 

Aerial Work Platforms

 

12

 

20

 

24

 

Heavy Construction Equipment

 

11

 

13

 

14

 

Materials Processing Equipment

 

9

 

12

 

12

 

Utility Equipment

 

6

 

4

 

2

 

Compact Construction Equipment

 

6

 

7

 

7

 

Roadbuilding Equipment

 

4

 

3

 

4

 

Port Equipment

 

4

 

1

 

1

 

Telehandlers & Light Construction Equipment

 

2

 

3

 

4

 

Other

 

1

 

2

 

4

 

TOTAL

 

100

%

100

%

100

%

 

BACKLOG

 

Our backlog as of December 31, 2009 and 2008 was as follows:

 

 

 

December 31,

 

 

 

2009

 

2008

 

 

 

(in millions)

 

Aerial Work Platforms

 

$

156.7

 

$

170.3

 

Construction

 

111.1

 

250.0

 

Cranes

 

974.1

 

1,937.8

 

Materials Processing

 

58.5

 

42.4

 

Total

 

$

1,300.4

 

$

2,400.5

 

 

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We define backlog as firm orders that are expected to be filled within one year, although there can be no assurance that all such backlog orders will be filled within that time. Our backlog orders represent primarily new equipment orders.  Parts orders are generally filled on an as-ordered basis.

 

Our management views backlog as one of many indicators of the performance of our business.  Because many variables can cause changes in backlog, and these changes may or may not be of any significance, we consequently view backlog as an important, but not necessarily determinative, indicator of future results.  High backlog can indicate a high level of future sales; however, when backlogs are high, this may also reflect a high level of production delays, which may result in future order cancellations from disappointed customers.  Small backlog may indicate a low level of future sales; however, they may also reflect a rapid ability to fill orders that is appreciated by our customers.

 

Our overall backlog amounts at December 31, 2009 decreased by $1,100.1 million from our backlog amounts at December 31, 2008, primarily due to the decrease in backlog at our Construction and Cranes segments.

 

Our Aerial Work Platforms segment backlog decreased $13.6 million from December 31, 2008, due to continued soft demand, particularly in North America and Western Europe. Our customers for aerial work platforms are primarily rental companies.  Our rental company customers have been actively shrinking the size of their aerial equipment fleet during 2009 due to sluggish rental demand.  Based on discussions with our customers, we believe that this trend is slowing and nearing an end, but orders remain low as our customers are waiting to place orders until there is greater clarity regarding utilization of their rental fleets.

 

Our Construction segment backlog at December 31, 2009 decreased $138.9 million from December 31, 2008, as demand for construction equipment continued to weaken.  In particular, demand for heavy trucks and material handlers had weakened by the end of 2009, whereas both product categories had stronger demand as of the end of 2008.  As existing construction projects are completed, the global economic recession and lack of credit availability are inhibiting the commencement of new construction projects.  This slowing of new construction projects has resulted in a continued softening of demand for construction equipment, particularly in North America and Western Europe.

 

The backlog at our Cranes segment decreased $963.7 million from December 31, 2008.  Excluding the impact of acquisitions, backlog decreased approximately $1,167 million from December 31, 2008.  The decrease in backlog reflected a significant drop in demand for rough terrain cranes during early 2009, combined with a softening in demand for lower capacity all-terrain cranes.  Demand for large capacity cranes with lifting capacity of 300 tons and greater remains stable, including demand for large capacity crawler cranes and all-terrain cranes.  Demand for tower cranes, as well as smaller capacity cranes, particularly boom trucks and truck cranes, remains weak.  To a lesser extent, the decrease in backlog from year-end 2008 levels also reflects the favorable impact of productivity enhancements.  Also, supplier constraints at the end of 2008 that were still being resolved increased year-end 2008 backlog, whereas there were no material supplier constraints as of the end of 2009.

 

Our Materials Processing segment backlog at December 31, 2009 increased $16.1 million from December 31, 2008.  Demand remains soft for materials processing equipment in general, continuing a trend that began in mid-2008.  Some customers placed year-end orders at the end of 2009, driving a modest increase in backlog as compared to year-end 2008 levels.

 

DISTRIBUTION

 

We distribute our products through a global network of dealers, rental companies, major accounts and direct sales to customers.

 

AERIAL WORK PLATFORMS

 

Our aerial work platform, telehandler and light tower products are distributed principally through a global network of rental companies, independent dealers and, to a lesser extent, strategic accounts.  We employ sales representatives who service these channel partners from offices located throughout the world.

 

We sell utility equipment to the utility and municipal markets through a network of both company-owned and independent distributors in North America.  Outside of North America, independent dealers sell our utility equipment directly to customers.

 

CONSTRUCTION

 

We distribute heavy construction equipment and replacement parts primarily through a network of independent dealers and distributors throughout the world. Our dealers are independent businesses, which generally serve the construction, mining, forestry and/or scrap industries. Although these dealers may carry products from a variety of manufacturers, they generally carry only one manufacturer’s “brand” of each particular type of product.

 

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Table of Contents

 

We distribute compact construction equipment primarily through a network of independent dealers and distributors throughout the world.  Although some dealers represent only one of our product lines, we have recently focused on developing the dealer network to represent our complete range of compact equipment.

 

We distribute loader backhoes and skid steer loaders manufactured in India through a network of approximately fifty dealers located in India, Nepal and neighboring countries.

 

We sell asphalt pavers, transfer devices, reclaimers/stabilizers, cold planers, concrete pavers, concrete placers, concrete plants and landfill compactors to end user customers principally through independent dealers and distributors and, to a lesser extent, on a direct basis in areas where distributors are not established.  We sell asphalt plants and concrete roller pavers primarily direct to end user customers.

 

We sell bridge inspection equipment and concrete mixers primarily direct to customers, but concrete mixers are also available through distributors in certain regions of the United States.

 

CRANES

 

We market our crane products globally, optimizing assorted channel marketing systems including a distribution network and a direct sales force.  We have direct sales, primarily to specialized crane rental companies, in certain crane markets such as the United Kingdom, Germany, Spain, Belgium, Italy, France and Scandinavia to offer comprehensive service and support to customers.  Distribution via a dealer network is often utilized in other geographic areas, including the United States.

 

MATERIALS PROCESSING

 

We distribute our products through a global network of dealers, rental companies, major accounts and direct sales to customers.

 

RESEARCH AND DEVELOPMENT

 

We maintain engineering staff at most of our locations.  In addition, we have established an engineering center in India to support our engineering organization worldwide and to develop products for the local market.  Our engineering expenses are primarily incurred in connection with enhancements of existing products, cost improvements of existing products and, in certain cases, the development of additional applications or extensions of our existing product lines.

 

We are adjusting our engineering initiatives commensurate with the business priorities of expanding into global markets, product standardization, component rationalization and strategic alignment with global suppliers, while remaining customer focused. Product change driven by regulations requiring Tier 4 emission compliant engines in most of our machinery starting in 2010 is an important part of our engineering priorities.

 

We have targeted greater effectiveness and efficiency in our engineering spending by improving our processes, upgrading our capabilities and leveraging more readily available engineering resources in lower cost countries.

 

Our costs incurred in the development of new products, cost reductions, or improvements to existing products of continuing operations were consistent over the past three years amounting to $65.2 million, $66.3 million and $65.5 million in 2009, 2008 and 2007, respectively.  The costs incurred for research and development in 2009 decreased slightly from 2008 primarily due to some of the cost cutting measures taken in our businesses experiencing the most significant net sales declines.  The increase from 2007 to 2008 was primarily due to our expanded product portfolio and investments in the engineering priorities described above.  Even though sales decreased in 2009 from prior years, we have maintained our commitment to engineering spend because we believe this investment will provide returns going forward.

 

MATERIALS

 

Principal materials and components that we use in our various manufacturing processes include steel, castings, engines, tires, hydraulics, cylinders, drive trains, electric controls and motors, and a variety of other commodities and fabricated or manufactured items.  Extreme movements in the cost and availability of these materials and components may affect our performance.  Worldwide steel prices rose for most of 2008 in response to higher demand caused by continued higher consumption in developing market countries such as China.  Due to the continued high demand for steel in 2008, many suppliers of steel, castings and other products increased prices or added surcharges to the price of their products.  Then, the abrupt decline in world markets in 2009 led to a significant slowing of inventory in our supply chain.  The supply and demand dynamics are moving closer to historical equilibrium as we enter 2010. Most of our steel costs are back to 2007 levels and other component costs are decreasing as well.  In 2009, we experienced some benefit from lower input costs as our existing raw material inventory was utilized.

 

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Table of Contents

 

In the absence of labor strikes or other unusual circumstances, substantially all materials and components are normally available from multiple suppliers.  However, certain of our businesses receive materials and components from a sole supplier, although alternative suppliers of such materials are generally available.  Current and potential suppliers are evaluated on a regular basis on their ability to meet our requirements and standards.  We actively manage our material supply sourcing, and may employ various methods to limit risk associated with commodity cost fluctuations and availability.  The inability of suppliers, especially any sole suppliers for a particular business, to deliver materials and components promptly could result in production delays and increased costs to manufacture our products.  As a result of the macro-economic challenges currently affecting the economy of the U.S. and other parts of the world, our suppliers may experience serious cash flow problems, and as a result, could seek to significantly and quickly increase their prices or reduce their output.  We have designed and implemented plans to mitigate the impact of these risks by using alternate suppliers, expanding our supply base to include Asian suppliers (which use steel from markets where prices are more stable), leveraging our overall purchasing volumes to obtain favorable quantities, and developing a closer working relationship with key suppliers.  We continue to search for acceptable alternative supply sources and less expensive supply options on a regular basis, including by improving the globalization of our supply base and using suppliers in China and India.  One key Terex Business System initiative has been developing and implementing world-class capability in supply chain management, logistics and global purchasing.  We are focusing on gaining efficiencies with suppliers based on our global purchasing power and resources.

 

COMPETITION

 

We face a competitive global manufacturing market for all of our products.  We compete with other manufacturers based on many factors, particularly price, performance and product reliability.  We generally operate under a best value strategy, where we attempt to offer our customers products that are designed to improve the customer’s return on invested capital.  However, in some instances, customers may prefer the pricing, performance or reliability aspects of a competitor’s product despite our product pricing or performance.  We do not have a single competitor across all business segments.  The following table shows the primary competitors for our products in the following categories:

 

BUSINESS SEGMENT

 

PRODUCTS

 

PRIMARY COMPETITORS

Aerial Work Platforms

 

Boom Lifts

 

Oshkosh (JLG), Haulotte, Linamar (Skyjack), Tanfield (Snorkel and Upright) and Aichi

 

 

 

 

 

 

 

Scissor Lifts

 

Oshkosh (JLG), Linamar (Skyjack), Haulotte, Tanfield (Snorkel and Upright)

 

 

 

 

 

 

 

Telehandlers

 

Oshkosh (JLG, Skytrak, Caterpillar, Gradall and Lull brands), JCB, CNH, Merlo and Manitou (Gehl)

 

 

 

 

 

 

 

Trailer-mounted Light Towers

 

Allmand Bros., Magnum and Doosan

 

 

 

 

 

 

 

Utility Equipment

 

Altec and Time Manufacturing (Versalift)

 

 

 

 

 

Construction

 

Articulated Off-highway Trucks & Rigid Off-highway Trucks

 

Volvo, Caterpillar, Moxy, John Deere, Bell and Komatsu

 

 

 

 

 

 

 

Scrapers

 

Caterpillar

 

 

 

 

 

 

 

Excavators

 

Caterpillar, Komatsu, Volvo, John Deere, Hitachi, CNH, Sumitomo (Link-Belt), Doosan, Hyundai and Liebherr

 

 

 

 

 

 

 

Material Handlers

 

Liebherr, Sennebogen and Caterpillar

 

 

 

 

 

 

 

Wheel Loaders

 

Caterpillar, Volvo, Kubota, Kawasaki, John Deere, Komatsu, Hitachi, CNH, Liebherr and Doosan

 

 

 

 

 

 

 

Loader Backhoes

 

Caterpillar, CNH, JCB, Komatsu, Volvo and John Deere

 

 

 

 

 

 

 

Compaction Equipment

 

Caterpillar, Bomag, Amman, Dynapac and Hamm

 

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Table of Contents

 

BUSINESS SEGMENT

 

PRODUCTS

 

PRIMARY COMPETITORS

 

 

Mini Excavators

 

Doosan (Bobcat), Yanmar, Volvo, Takeuchi, IHI, CNH, Caterpillar, John Deere, Neuson and Kubota

 

 

 

 

 

 

 

Midi Excavators

 

Komatsu, Hitachi, Volvo and Yanmar

 

 

 

 

 

 

 

Site Dumpers

 

Thwaites and AUSA

 

 

 

 

 

 

 

Skid Steer Loaders

 

Doosan (Bobcat), CNH and JCB

 

 

 

 

 

 

 

Compact Track Loaders

 

Doosan (Bobcat), Caterpillar, CNH, John Deere, Takeuchi and Gehl

 

 

 

 

 

 

 

Asphalt Pavers and Transfer Devices

 

Volvo (Blaw-Knox), Fayat (Bomag), Caterpillar, Wirtgen (Ciber), Atlas Copco (Dynapac), Astec (Roadtec) and Wirtgen (Vogele)

 

 

 

 

 

 

 

Asphalt Plants

 

Astec Industries, Gencor Corporation, All-Mix, Ciber and ADM

 

 

 

 

 

 

 

Bridge Inspection Equipment

 

Moog USA and Barin

 

 

 

 

 

 

 

Cold Planers

 

Fayat (Bomag), Caterpillar, Atlas Copco (Dynapac), Wirtgen and Astec (Roadtec)

 

 

 

 

 

 

 

Concrete Production Plants

 

Con-E-Co, Erie Strayer, Helco, Hagen and Stephens

 

 

 

 

 

 

 

Concrete Pavers

 

Gomaco, Wirtgen, Power Curbers and Guntert & Zimmerman

 

 

 

 

 

 

 

Concrete Placers

 

Gomaco, Wirtgen and Guntert & Zimmerman

 

 

 

 

 

 

 

Concrete Mixers

 

Oshkosh, London and Continental Manufacturing

 

 

 

 

 

 

 

Landfill Compactors

 

Al-Jon, Fayat (Bomag) and Caterpillar

 

 

 

 

 

 

 

Reclaimers/Stabilizers

 

Caterpillar, Wirtgen and Fayat (Bomag),

 

 

 

 

 

Cranes

 

Mobile Telescopic Cranes

 

Liebherr, Manitowoc (Grove), Tadano-Faun, Sumitomo (Link-Belt), XCMG, Kato, Zoomlion and Sany

 

 

 

 

 

 

 

Tower Cranes

 

Liebherr, Manitowoc (Potain), Comansa and Wolffkran

 

 

 

 

 

 

 

Lattice Boom Crawler Cranes

 

Manitowoc, Sumitomo (Link-Belt), Liebherr, Hitachi, Kobelco, XCMG, Zoomlion, Fushun and Sany

 

 

 

 

 

 

 

Truck-Mounted Cranes

 

Manitowoc (National Crane), Palfinger, Cargotec (Hiab), Altec, Fassi, Manitex, HMF, Effer and PM

 

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BUSINESS SEGMENT

 

PRODUCTS

 

PRIMARY COMPETITORS

 

 

Telescopic Container Stackers

 

Cargotec (Kalmar), Hyster, Konecranes (SMV), Taylor, Dalian, CVS Ferrari and Liebherr

 

 

 

 

 

 

 

Straddle Carriers

 

Cargotec (Kalmar), CVS Ferrari, Konecranes, Gottwald and TCM

 

 

 

 

 

 

 

Rubber Tired and Rail Mounted Gantry Cranes

 

Zhenua Port Machinery, Liebherr, Konecranes, Cargotec (Kalmar), Doosan, Hyundai and Mitsui Engineering & Shipbuilding

 

 

 

 

 

 

 

Mobile Harbor Cranes

 

Gottwald, Italgru and Liebherr

 

 

 

 

 

 

 

Ship-to-Shore Gantry Cranes

 

Zhenua Port Machinery, Liebherr, Konecranes, Cargotec (Kalmar), Samsung, Doosan, Hyundai and Mitsui Engineering & Shipbuilding

 

 

 

 

 

 

 

Lift Trucks and Forklifts

 

Cargotec (Kalmar), Hyster, Linde, CVS Ferrari, Konecranes (SMV), Svetruck and Sany

 

 

 

 

 

Materials Processing

 

Crushing Equipment

 

Metso, Astec Industries, Sandvik, Komatsu and Kleemann

 

 

 

 

 

 

 

Screening Equipment

 

Metso, Astec Industries and Sandvik

 

MAJOR CUSTOMERS

 

None of our customers accounted for more than 10% of our consolidated sales in 2009.  We are not dependent upon any single customer.

 

EMPLOYEES

 

As of December 31, 2009, we had approximately 15,900 employees, including approximately 5,000 employees in the U.S.  Approximately 11% of our employees in the U.S. are represented by labor unions.  Outside of the U.S., we enter into employment contracts and collective agreements in those countries in which such relationships are mandatory or customary.  The provisions of these agreements correspond in each case with the required or customary terms in the subject jurisdiction.  We generally consider our relations with our employees to be good.

 

PATENTS, LICENSES AND TRADEMARKS

 

We use proprietary materials such as patents, trademarks, trade secrets and trade names in our operations and take actions to protect these rights.

 

We use several significant trademarks and trade names, most notably the Terex®, Genie® and Powerscreen® trademarks.  The P&H trademark is a registered trademark of Joy Global Inc. that a subsidiary of the Company has the right to use for certain products until 2011 pursuant to a license agreement.  The other trademarks and trade names of the Company referred to in this Annual Report include registered trademarks of Terex Corporation or its subsidiaries.

 

We have many patents that we use in connection with our operations, and most of our products contain some proprietary components.  Many of these patents and related proprietary technology are important to the production of particular products; however, overall, our patents, taken together, are not material to our business or our financial results, nor does our proprietary technology provide us with a competitive advantage over our competitors.

 

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We protect our proprietary rights through registration, agreements and litigation to the extent we deem appropriate.  We own and maintain trademark registrations and patents in countries where we conduct business, and monitor the status of our trademark registrations and patents to maintain them in force and renew them as appropriate.  The duration of active registrations varies based upon the relevant statutes in the applicable jurisdiction.  We also take further actions to protect our proprietary rights when circumstances warrant, including the initiation of legal proceedings, if necessary.

 

Currently, we are engaged in various legal proceedings with respect to intellectual property rights, both as a plaintiff and as a defendant.  While the final outcome of these matters cannot be predicted with certainty, we believe the outcome of such matters will not have a material adverse effect, individually or in the aggregate, on our business or operating performance.

 

SAFETY AND ENVIRONMENTAL CONSIDERATIONS

 

As part of The Terex Way, we are committed to provide a safe and healthy environment for our team members, and strive to provide quality products that are safe to use and operate in an environmentally conscious and respectful manner.

 

All of our employees are required to obey all applicable national, local or other health, safety and environmental laws and regulations and must observe the proper safety rules and environmental practices in work situations.  We are committed to complying with these standards and monitoring our workplaces to determine if equipment, machinery and facilities meet specified safety standards.  We are dedicated to seeing that safety and health hazards are adequately addressed through appropriate work practices, training and procedures.  Over the past three years, we have made it a goal to reduce lost time injuries in the workplace by 25% annually.  We have been able to successfully reach and exceed this three-year target.

 

We generate hazardous and non-hazardous wastes in the normal course of our manufacturing operations.  As a result, we are subject to a wide range of federal, state, local and foreign environmental laws and regulations.  These laws and regulations govern actions that may have adverse environmental effects, such as discharges to air and water, and require compliance with certain practices when handling and disposing of hazardous and non-hazardous wastes.  These laws and regulations would also impose liability for the costs of, and damages resulting from, cleaning up sites, past spills, disposals and other releases of hazardous substances, should any of such events occur.  No such incidents have occurred which required us to pay material amounts to comply with such laws and regulations.

 

We are dedicated to product safety when designing and manufacturing our equipment.  Our equipment is designed to meet all applicable laws, regulations and industry standards for use in their markets.  We continually incorporate safety improvements in our products.  We maintain an internal product safety team that is dedicated to improving safety and investigating and resolving any product safety issues that may arise.

 

The use and operation of our equipment in an environmentally conscious manner is a growing concern for Terex.  We are aware of the global discussions regarding climate change and the impact of greenhouse gas emissions on global warming.  We are increasing our production of products that have lower greenhouse gas emissions in response to both regulatory initiatives and anticipated market demand trends.  For example, starting in 2010, one of our most significant design priorities is for inclusion of Tier 4 emission compliant engines in most of our machinery.  We have also begun to utilize plug-in electric hybrid technology to produce a utility truck that saves fuel, reduces emissions and eliminates noise in residential areas.

 

Compliance with laws and regulations regarding safety and the environment has required, and will continue to require, us to make expenditures.  We do not expect that these expenditures will have a material adverse effect on our business or results of operations.

 

FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS, GEOGRAPHIC AREAS AND EXPORT SALES

 

Information regarding foreign and domestic operations, export sales and segment information is included in Note B - “Business Segment Information” in the Notes to the Consolidated Financial Statements.

 

SEASONAL FACTORS

 

Over the past several years, our business has become less seasonal.  As we have grown, diversified our product offerings and expanded the geographic reach of our products, our sales have become less dependent on construction products and sales in the United States and Europe.  As we enter 2010, the overall economic environment will be more of a factor on our sales than historical seasonal trends.

 

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WORKING CAPITAL

 

Our businesses are working capital intensive and require funding for purchases of production and replacement parts inventories, capital expenditures for repair, replacement and upgrading of existing facilities, as well as trade financing for receivables from customers and dealers.  We have debt service requirements, including semi-annual interest payments on our outstanding notes and monthly interest payments on our bank credit facility.  We believe that cash generated from operations, together with availability under our bank credit facility and cash on hand, provide us with adequate liquidity to meet our operating and debt service requirements.  We have no significant debt maturities until 2013; however, we will continue our focus on internal cash flow generation.  With the actions we are taking to reduce costs, delay certain capital spending projects and increase cash generated from operations, along with our strengthened balance sheet and proceeds from the sale of our Mining business, we expect to have sufficient liquidity to execute our key business plans.  Upon the completion of the disposition of our Mining business, we received cash proceeds of approximately $1 billion.  For more detail on working capital matters, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources.”

 

AVAILABLE INFORMATION

 

We maintain a website at www.terex.com.  We make available on our website under “About Terex” - “Investor Relations” - “SEC Filings,” free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after we electronically file or furnish such material with the SEC.  In addition, we make available on our website under “About Terex” - “Investor Relations” - “Corporate Governance,” free of charge, our Audit Committee Charter, Compensation Committee Charter, Corporate Responsibility and Strategy Committee Charter, Governance and Nominating Committee Charter, Corporate Governance Guidelines and Code of Ethics and Conduct.  In addition, the foregoing information is available in print, without charge, to any stockholder who requests these materials from us.

 

ITEM 1A.               RISK FACTORS

 

You should carefully consider the following risks, together with the cautionary statement under the caption “Forward-Looking Information” above and the other information included in this report.  The risks described below are not the only ones we face.  Additional risks that are currently unknown to us or that we currently consider immaterial may also impair our business or adversely affect our financial condition or results of operations.  If any of the following risks actually occurs, our business, financial condition or results of operation could be adversely affected.

 

Our business is affected by the cyclical nature of the markets we serve.

 

Demand for our products depends upon general economic conditions in the markets in which we compete.  Our sales depend in part upon our customers’ replacement or repair cycles.  Adverse economic conditions, including the severe global recession in 2009, have caused and may continue to cause customers to forego or postpone new purchases in favor of reducing their existing fleets or refurbishing or repairing existing machinery.  If our customers are not successful in generating sufficient revenue or are precluded from securing financing, they may not be able to pay, or may delay payment of, accounts receivable that are owed to us. Any inability of current and/or potential customers to pay us for our products will adversely affect our earnings and cash flow.

 

We are in a period in which economic conditions have declined significantly in many key markets, and if economic conditions in the U.S. and other key markets deteriorate further or do not show improvement, we expect to experience further negative impacts to our financial condition, profitability and/or cash flows.  Given the uncertainty around the depth and duration of the current recession, we may experience continued reductions in sales of our products and/or the carrying value of our assets, which would reduce our profitability.  We have taken a number of steps and will continually review our operations to manage our working capital and reduce our costs, including but not limited to reducing headcount, exiting certain facilities and diversifying our business to decrease the negative impact of these cycles.  There can be no assurance, however, that these steps will mitigate the negative impact of the recent deterioration in economic conditions.

 

The sale of our Mining business will have an impact on our Company.

 

On December 20, 2009, we entered into an agreement to sell our Mining business to Bucyrus and on February 19, 2010, we completed this disposition.  Our Mining business accounted for an average of approximately 12% of our net sales and 14% of our operating profits annually during the period from 2004 to 2008.  The Mining business also accounted for approximately 19% of our working capital investment during this period.  The sale of this business reduces the diversity of the portfolio of businesses that make up Terex, and our Company is therefore more sensitive to changes in any of our remaining business segments and is more prone to risks affecting these operations.

 

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We anticipate using a portion of the proceeds of the sale of the Mining business to fund acquisitions.  We believe that current economic conditions have made it possible to find attractive businesses where we can re-deploy these proceeds in complementary product and market areas.  However, the successful integration of any new businesses we purchase depends on our ability to manage these new businesses and coordinate their activities with those of other Terex operations to realize expected synergies.  In addition, to the extent that we are seeking acquisitions in machinery and industrial businesses that are significantly different from our existing operations, there will be added risks and challenges for managing and integrating these businesses.  We cannot ensure that newly acquired companies will operate profitably or that the intended beneficial effect from these acquisitions will be realized.  Further, in connection with acquisitions, we may need to consolidate or restructure our acquired or existing facilities, which may require expenditures related to reductions in workforce and other charges resulting from the consolidations or restructurings, such as the write-down of inventory and lease termination costs.  In addition, it is possible that we will not be able to find attractive businesses to acquire at reasonable prices.  If we cannot utilize the proceeds of the Mining business sale for acquisitions or to invest in our current operations, we are required to use these funds to retire a portion of our existing indebtedness.

 

We received approximately $300 million of the proceeds from the sale of the Mining business in the stock of the acquiring company, Bucyrus, in the form of 5,809,731 shares of Bucyrus common stock.  Our agreement with Bucyrus restricts our ability to directly or indirectly sell or otherwise transfer our economic interest in these shares of Bucyrus stock for a period of one year, although Bucyrus has agreed to provide us with registration rights, including demand registration and shelf registration rights, to facilitate our sale of the shares of Bucyrus stock after the initial one-year holding period.  We will have significant financial exposure to the price of Bucyrus stock until we sell the shares, as we will own more than 5% of the total outstanding number of shares of Bucyrus common stock.  Bucyrus stock is traded on NASDAQ and is subject to substantial price fluctuation and volatility.  Our obligation to hold these shares for a one-year period leaves us exposed to these price movements.  We have analyzed a number of alternatives to hedge our financial exposure in the Bucyrus shares in compliance with our stockholders’ agreement.  Accordingly, in 2010 we have entered into a series of derivatives contracts to hedge a portion of the risk using a basket of stocks in companies in a similar industry to Bucyrus, and may increase or decrease these hedges over time.  These stocks have historically been highly correlated to the Bucyrus stock price.  If the correlations remain at their historic levels, we believe these derivatives will hedge a portion of our economic risk of ownership of the Bucyrus stock.  However, there can be no assurances that these correlations will continue during the term of the derivative contracts and, as a result, these derivatives may not hedge our entire economic risk.  Any decline in the value of the Bucyrus stock that is not adequately hedged may reduce our income.

 

Our access to borrowing capacity has been and could continue to be affected by the uncertainty impacting credit markets generally.

 

Our access to capital markets to raise funds through the sale of equity or debt securities is subject to various factors, including general economic and/or financial market conditions.  As a result of current economic conditions, including turmoil and uncertainty in the capital markets, credit markets have tightened significantly, which makes obtaining new capital more challenging and more expensive.  Current conditions in the financial markets have reduced the availability of credit and liquidity resources and our access to capital markets is limited and subject to increased costs.

 

In addition, several large financial institutions have either failed or relied on the assistance of sovereign governments to continue to operate as a going concern.  Although we believe that the banks participating in our credit facility have adequate capital and resources, we can provide no assurance that all of these banks will continue to operate as a going concern in the future.  If any of the banks in our lending group were to fail, it is possible that the borrowing capacity under our credit facility would be reduced.  If the availability under our credit facility was reduced significantly, we could be required to obtain capital from alternate sources to finance our capital needs.  Our options for addressing such capital constraints would include, but not be limited to (i) obtaining commitments from the remaining banks in the lending group or from new banks to fund increased amounts under the terms of our credit facility, or (ii) accessing the public capital markets.  If it becomes necessary to access additional capital, it is likely that any such alternatives in the current market would be on terms less favorable than under our existing credit facility terms, which could have a negative impact on our consolidated financial position, results of operations or cash flows.

 

Our business is sensitive to government spending.

 

Many of our customers depend substantially on government funding of highway construction, maintenance and other infrastructure projects.  In addition, we sell products to governments and government agencies in the U.S. and other nations.  Any decrease or delay in government funding of highway construction and maintenance, other infrastructure projects and overall government spending could cause our revenues and profits to decrease.

 

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We operate in a highly competitive industry.

 

Our industry is highly competitive.  To compete successfully, our products must excel in terms of quality, price, features, ease of use, safety and comfort, and we must also provide excellent customer service.  The greater financial resources of certain of our competitors may put us at a competitive disadvantage.  If competition in our industry intensifies or if our current competitors enhance their products or lower their prices for competing products, we may lose sales or be required to lower the prices we charge for our products.  This may reduce revenue from our products and services, lower our gross margins or cause us to lose market share.

 

We have suffered and may suffer further losses from operations.

 

Terex had a loss from operations of $459.9 million for the year ended December 31, 2009.  We expect approximately break-even operating earnings for the Company for the 2010 fiscal year, and anticipate that net interest expense will result in a net loss for the year.  Although we have taken substantial steps to improve our operating performance, there can be no assurances that we will not suffer a loss in the 2010 fiscal year or in any future years.  If we remain unable to generate sufficient revenues to become profitable, this can have a number of negative impacts on the Company.  For example, continued losses may require us to record goodwill impairments in some of our reporting units or impair the value of some of our long-lived assets.  Sustained operating losses may also impact our compliance with our covenants under our bank credit facility and the indentures for our various outstanding debt securities.

 

A material disruption to one of our significant manufacturing plants could adversely affect our ability to generate revenue.

 

We produce most of our machines and aftermarket parts for each product type at one manufacturing facility.  If operations at a significant facility were to be disrupted as a result of equipment failures, natural disasters, work stoppages, power outages or other reasons, our business, financial conditions and results of operations could be adversely affected.  Interruptions in production could increase costs and delay delivery of units in production.  Production capacity limits could cause us to reduce or delay sales efforts until production capacity is available.

 

We rely on key management.

 

We rely on the management and leadership skills of our senior management team, particularly Ronald M. DeFeo, our Chairman of the Board and Chief Executive Officer.  Mr. DeFeo has been with us since 1992, serving as Chief Executive Officer since 1995 and Chairman since 1998, guiding the transformation of Terex during that time.  We have an employment agreement with Mr. DeFeo, which expires on December 31, 2012.  The loss of his services could have a significant impact on our business.  Our other senior executives are not bound by employment agreements.  We could be harmed by the loss of any of these senior executives or other key personnel in the future.

 

Some of our customers rely on financing with third parties to purchase our products.

 

We rely on sales of our products to generate cash from operations.  Significant portions of our sales are financed by third party finance companies on behalf of our customers.  The availability of financing by third parties is affected by general economic conditions, the credit worthiness of our customers and the estimated residual value of our equipment.  Deterioration in the credit quality of our customers or the estimated residual value of our equipment could negatively impact the ability of our customers to obtain the resources they need to purchase our equipment.  Given the current economic conditions and the lack of liquidity in the global credit markets, there can be no assurance that third party finance companies will continue to extend credit to our customers.

 

Due to the significant global economic decline and the resulting widening credit spreads, as well as significant declines in the availability of credit, some of our customers have been unable to obtain the credit they need to buy our equipment.  As a result, some of our customers may need to cancel existing orders.  Given the lack of liquidity, our customers may be compelled to sell their equipment at less than fair value to raise cash, which could have a negative impact on residual values of our equipment.  These economic conditions could have a material adverse effect on demand for our products and on our financial condition and operating results.

 

We provide financing for some of our customers.

 

We provide financing for some of our customers, primarily in the U.S., to purchase our equipment.  For the most part, this financing represents sales-type leases and operating leases.  It has been our policy to provide such financing to our customers in situations where we anticipate that we will be able to sell the financing obligations to a third-party financial institution within a short period.  However, until such financing obligations are sold to a third party or if we are unable to sell such obligations to a third party, we retain the risks resulting from such customer financing.  Our results could be adversely affected if such customers default on their contractual obligations to us.  Our results also could be adversely affected if the residual values of such leased equipment decline below their original estimated values and we subsequently sell such equipment at a loss.

 

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We are dependent upon third-party suppliers, making us vulnerable to supply shortages and price increases.

 

We obtain materials and manufactured components from third-party suppliers.  In the absence of labor strikes or other unusual circumstances, substantially all materials and components are normally available from multiple suppliers.  However, certain of our businesses receive materials and components from a sole supplier, although alternative suppliers of such materials are generally available.  Delays in our suppliers’ abilities, especially any sole suppliers for a particular business, to provide us with necessary materials and components may delay production at a number of our manufacturing locations, or may require us to seek alternative supply sources.  Delays in obtaining supplies may result from a number of factors affecting our suppliers, including capacity constraints, labor disputes, impaired supplier financial condition, suppliers’ allocations to other purchasers, weather emergencies or acts of war or terrorism.  Any delay in receiving supplies could impair our ability to deliver products to our customers and, accordingly, could have a material adverse effect on our business, results of operations and financial condition.

 

In addition, we purchase material and services from our suppliers on terms extended based on our overall credit rating.  Deterioration in our credit rating may impact suppliers’ willingness to extend terms and in turn increase the cash requirements of our business.

 

We have debt outstanding and must comply with restrictive covenants in our debt agreements.

 

Our existing debt agreements contain a number of significant covenants, which limit our ability to, among other things, borrow additional money, make capital expenditures, pay dividends, dispose of assets and acquire new businesses.  These covenants also require us to maintain liquidity of not less than $250 million on the last day of each fiscal quarter through June 30, 2011 and, thereafter, maintain a specified senior secured debt leverage ratio.  If we are unable to comply with these covenants, there would be a default under these debt agreements.  Changes in economic or business conditions, results of operations or other factors could cause us to default under its debt agreements.  A default, if not waived by our lenders, could result in acceleration of our debt and possibly bankruptcy.

 

We may be unable to generate sufficient cash flow to service our debt obligations.

 

Servicing our debt will require a significant amount of cash.  Our ability to generate sufficient cash depends on numerous factors beyond our control and our business may not generate sufficient cash flow from operating activities.  Our ability to make payments on and to refinance our debt and to fund planned capital expenditures will depend on our ability to generate cash in the future.  To some extent, this is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Lower revenues, or uncollectible receivables, generally will reduce our cash flow.

 

We cannot assure that our business will generate sufficient cash flow from operations, or that future borrowings will be available to us under our credit facility or otherwise, in an amount sufficient to fund our liquidity needs.

 

If our cash flows and capital resources are insufficient to service our indebtedness, we may be forced to reduce or delay capital expenditures, sell assets, seek additional capital or restructure or refinance our indebtedness.  These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations.  Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time.  Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations.

 

We are subject to currency fluctuations.

 

Our products are sold in over 100 countries around the world.  Our revenues are generated in U.S. dollars and foreign currencies, including the Euro and British Pound Sterling, while costs incurred to generate our revenues are only partly incurred in the same currencies.  Since our financial statements are denominated in U.S. Dollars, changes in currency exchange rates between the U.S. Dollar and other currencies, such as the Euro and British Pound Sterling, have had, and will continue to have, an impact on our earnings.  To reduce this currency exchange risk, we may buy protecting or offsetting positions (known as “hedges”) in certain currencies to reduce the risk of an adverse currency exchange movement.  We have not engaged in any speculative hedging activities.  Although we partially hedge our revenues and costs, currency fluctuations may impact our financial performance in the future.

 

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We are exposed to political, economic and other risks that arise from operating a multinational business.

 

Our international operations are subject to a number of potential risks. Such risks principally include:

 

·                trade protection measures and currency exchange controls;

·                labor unrest;

·                regional economic conditions;

·                political instability;

·                terrorist activities and the U.S. and international response thereto;

·                restrictions on the transfer of funds into or out of a country;

·                export duties and quotas;

·                domestic and foreign customs and tariffs;

·                current and changing regulatory environments;

·                difficulties protecting our intellectual property;

·                costs and difficulties in integrating, staffing and managing international operations, especially in developing markets such as China, India, Russia, the Middle East, Africa and Latin America;

·                difficulty in obtaining distribution support; and

·                current and changing tax laws.

 

In addition, many of the nations in which we operate have developing legal and economic systems adding greater uncertainty to our operations in those countries than would be expected in North America and Western Europe.  These factors may have an adverse effect on our international operations in the future.

 

Difficulties in managing and expanding into developing markets could divert management’s attention from our existing operations.

 

We plan to increase our presence in developing markets such as China, India, Russia, the Middle East and Latin America.  Increasing these sales efforts will require us to hire, train and retain qualified personnel in countries where language, cultural or regulatory barriers may exist.  Any significant difficulties in expanding our sales in developing markets may divert management’s attention from our existing operations.

 

We may be adversely impacted by work stoppages and other labor matters.

 

As of December 31, 2009, we employed approximately 15,900 people worldwide, including approximately 5,000 employees in the U.S.  Approximately 11% of our employees in the U.S. are represented by labor unions.  Outside of the U.S., we enter into employment contracts and collective agreements in those countries in which such relationships are mandatory or customary.  The provisions of these agreements correspond in each case with the required or customary terms in the subject jurisdiction.  While we have no reason to believe that we will be impacted by work stoppages or other labor matters, we cannot assure that future issues with our labor unions will be resolved favorably or that we will not encounter future strikes, further unionization efforts or other types of conflicts with labor unions or our employees.  Any of these factors may have an adverse effect on us or may limit our flexibility in dealing with our workforce.

 

Compliance with environmental regulations could be costly and require us to make significant expenditures.

 

We generate hazardous and nonhazardous wastes in the normal course of our manufacturing operations.  As a result, we are subject to a wide range of federal, state, local and foreign environmental laws and regulations.  These laws and regulations govern actions that may have adverse environmental effects and require compliance with certain practices when handling and disposing of hazardous and nonhazardous wastes.  These laws and regulations also impose liability for the costs of, and damages resulting from, cleaning up sites, past spills, disposals and other releases of hazardous substances, should any of such events occur.  No such incidents have occurred which required us to pay material amounts to comply with such laws and regulations.

 

In addition, increasing laws and regulations dealing with the environmental aspects of the products we manufacture can result in significant expenditures in designing and manufacturing new forms of equipment that satisfy such new laws and regulations.  Government policies limiting greenhouse gas emissions of our products, for example, will require compliance expenditures on our part to produce compliant products.

 

Compliance with these laws and regulations has required, and will continue to require, us to make expenditures that we do not expect to have a material adverse effect on our business or results of operations.

 

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We face litigation and product liability claims, class action lawsuits and other liabilities.

 

In our lines of business, numerous suits have been filed alleging damages for accidents that have occurred during the use or operation of our products.  We are self-insured, up to certain limits, for these product liability exposures, as well as for certain exposures related to general, workers’ compensation and automobile liability.  Insurance coverage is obtained for catastrophic losses as well as those risks required to be insured by law or contract.  We do not believe that the outcome of such matters will have a material adverse effect on our consolidated financial position; however, any significant liabilities not covered by insurance could have an adverse effect on our financial condition.

 

We are the subject of several class action lawsuits.  These lawsuits generally cover the same time periods and allege, among other things, that certain of our SEC filings and other public statements contained false and misleading statements which resulted in damages to the plaintiffs and the members of the purported class when they purchased our securities and that there were breaches of fiduciary duties and of disclosure requirements under the Employee Retirement Income Security Act of 1974 (“ERISA”).  We believe that the allegations in the suits are completely without merit, and Terex and the named executives will vigorously defend against them. We believe that we have acted, and continue to act, in compliance with federal securities laws and ERISA law.  However, the outcome of the lawsuits cannot be predicted and, if determined adversely, could ultimately result in us incurring significant liabilities.

 

We must comply with an injunction and related obligations resulting from the settlement of an SEC investigation.

 

In August 2009, a final court decree formalized the settlement that was entered into to resolve the previously disclosed SEC investigation of Terex related mainly to (1) certain transactions between us and United Rentals, Inc. that took place in 2000 and 2001, and one transaction between United Rentals, Inc. and one of our subsidiaries that took place in 2001 before that subsidiary was acquired by Terex, and (2) the circumstances of the restatement of certain of our financial statements for the years 2000-2004.  The settlement resolved all matters relating to the potential liability of Terex, but did not address our current or former employees.

 

Under the terms of the settlement, we consented, without admitting or denying the SEC’s allegations, to the entry of a judgment which enjoins us from committing or aiding and abetting any future violations of the anti-fraud, books and records, reporting and internal control provisions of the federal securities laws and related SEC rules.  We also paid a civil penalty of $8 million in August 2009, for which we recorded a charge in the quarter ended June 30, 2009.

 

As a result, we and our directors, officers and employees are required to comply at all times with the terms of this injunction.  If we commit or aid or abet any future violations of the anti-fraud, books and records, reporting and internal control provisions of the federal securities laws and related SEC rules, we are likely to suffer severe penalties, financial and otherwise, that could have a material negative impact on our business and results of operations.

 

Further, as a result of the settlement and final court decree, for a period of three years, or such earlier time as we are able to obtain a waiver from the SEC, (i) we are no longer qualified as a “well known seasoned issuer” (“WKSI”) as defined in Rule 405 of the Securities Act of 1933, and cannot take advantage of the benefits available to a WKSI, (ii) we cannot rely on the safe harbor provisions regarding forward-looking statements provided by the regulations issued under the Securities Exchange Act of 1934 and (iii) we cannot utilize Regulation A or D.  Taken together, these rules limit our ability to access the capital markets and utilize certain provisions available generally to other U.S. public companies.

 

We are currently the subject of a Department of Justice investigation.

 

We have received subpoenas and requests for information from the DOJ with respect to a criminal antitrust investigation by the DOJ into pricing practices in the U.S. rock crushing and screening equipment industry.  In connection with this investigation, the DOJ has convened a grand jury.  We have been cooperating with the DOJ to furnish information needed to complete its investigation.  Until the DOJ investigation is complete, we are not able to predict its outcome.

 

We are in the process of implementing a global enterprise system.

 

We are implementing a global enterprise resource planning system to replace many of our existing operating and financial systems.  Such an implementation is a major undertaking, both financially and from a management and personnel perspective.  Should the system not be implemented successfully and within budget, or if the system does not perform in a satisfactory manner, it could disrupt and might adversely affect our operations and results of operations, including our ability to report accurate and timely financial results.

 

ITEM 1B.               UNRESOLVED STAFF COMMENTS

 

Not applicable.

 

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Table of Contents

 

ITEM 2. PROPERTIES

 

The following table outlines the principal manufacturing, warehouse and office facilities owned or leased (as indicated below) by the Company and its subsidiaries:

 

BUSINESS UNIT

 

FACILITY LOCATION

 

TYPE AND APPROXIMATE SIZE OF FACILITY

Terex (Corporate Offices)

 

Westport, Connecticut (1)

 

Office
167,000 sq. ft.

Aerial Work Platforms

 

Redmond, Washington (1)

 

Office, manufacturing and warehouse
750,000 sq. ft.

 

 

Moses Lake, Washington (1)

 

Office, manufacturing and warehouse
422,000 sq. ft.

 

 

North Bend, Washington (1)

 

Manufacturing and warehouse
192,000 sq. ft

 

 

Rock Hill, South Carolina

 

Office, manufacturing and warehouse
121,000 sq. ft.

 

 

Perugia, Italy

 

Office, manufacturing and warehouse
114,000 sq. ft.

 

 

Darra, Australia (1)

 

Warehouse
56,000 sq. ft.

 

 

Maddington, Australia (1)

 

Warehouse
54,000 sq. ft.

 

 

Watertown, South Dakota

 

Office, manufacturing and warehouse
250,000 sq. ft.

 

 

Huron, South Dakota

 

Office and manufacturing
88,000 sq. ft.

Construction

 

Motherwell, Scotland (1)

 

Office, manufacturing and warehouse
473,000 sq. ft.

 

 

Ganderkesee, Germany

 

Office, manufacturing and warehouse
362,000 sq. ft.

 

 

Bad Schoenborn, Germany

 

Office, manufacturing and warehouse
238,000 sq. ft.

 

 

Grand Rapids, Minnesota

 

Office, manufacturing and warehouse
199,000 sq. ft.

 

 

Cohasset, Minnesota

 

Manufacturing and warehouse
102,000 sq. ft.

 

 

Coventry, England (1)

 

Office, manufacturing and warehouse
326,000 sq. ft.

 

 

Langenburg, Germany

 

Office, manufacturing and warehouse
102,000 sq. ft.

 

 

Gerabronn, Germany

 

Office and manufacturing
147,000 sq. ft.

 

 

Rothenburg, Germany (2)

 

Office, manufacturing and warehouse
97,000 sq. ft.

 

 

Crailsheim, Germany

 

Office and manufacturing
185,000 sq. ft.

 

 

Sanhe, China

 

Office and manufacturing
60,000 sq. ft.

 

 

Southaven, Mississippi (1)

 

Office and warehouse
505,000 sq. ft.

 

 

Greater Noida, Uttar Pradesh, India (1)

 

Office, manufacturing and warehouse
155,000 sq. ft.

 

 

Cachoeirinha, Brazil

 

Office, manufacturing and warehouse
78,000 sq. ft.

 

 

Oklahoma City, Oklahoma

 

Office, manufacturing and warehouse
620,000 sq. ft.

 

 

Canton, South Dakota

 

Office, manufacturing and warehouse
71,000 sq. ft.

 

 

Rock Hill, South Carolina

 

Office, manufacturing and warehouse
46,900 sq. ft.

 

 

Fort Wayne, Indiana

 

Office, manufacturing and warehouse
178,000 sq. ft.

 

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Table of Contents

 

BUSINESS UNIT

 

FACILITY LOCATION

 

TYPE AND APPROXIMATE SIZE OF FACILITY

Cranes

 

Crespellano, Italy

 

Office, manufacturing and warehouse
66,000 sq. ft.

 

 

Montceau-les-Mines, France

 

Office, manufacturing and warehouse
418,000 sq. ft.

 

 

Waverly, Iowa

 

Office, manufacturing and warehouse
312,000 sq. ft.

 

 

Brisbane, Australia (1)

 

Office, manufacturing and warehouse
42,000 sq. ft.

 

 

Fontanafredda, Italy

 

Office, manufacturing and warehouse
101,000 sq. ft.

 

 

Wilmington, North Carolina

 

Office, manufacturing and warehouse
559,000 sq. ft.

 

 

Delmenhorst, Germany

 

Office, manufacturing and warehouse
216,000 sq. ft.

 

 

Vechta, Germany

 

Manufacturing and warehouse
267,000 sq. ft.

 

 

Zweibruecken, Germany

 

Office, manufacturing and warehouse
483,000 sq. ft.

 

 

Wallerscheid, Germany (1)

 

Office, manufacturing and warehouse
336,000 sq. ft.

 

 

Bierbach, Germany (1)

 

Warehouse and manufacturing
198,000 sq. ft.

 

 

Pecs, Hungary (1)

 

Office and manufacturing
82,000 sq. ft.

 

 

Luzhou, China

 

Office, manufacturing and warehouse
1,100,000 sq. ft.

 

 

Tianjin, China

 

Office and manufacturing
43,000 sq. ft.

 

 

Long Crendon, England

 

Office and warehouse
140,000 sq. ft.

 

 

Lentigione, Italy

 

Office, manufacturing and warehouse
323,000 sq. ft

 

 

Monfalcone, Italy

 

Office, manufacturing and warehouse
538,000 sq. ft.

 

 

Würzburg, Germany

 

Office, manufacturing and warehouse
323,000 sq. ft.

 

 

Xiamen, China

 

Office, manufacturing and warehouse
538,000 sq. ft.

Materials Processing

 

Subang Jaya, Malaysia (1)

 

Manufacturing and warehouse
111,000 sq. ft.

 

 

Hosur, India

 

Manufacturing
215,000 sq. ft.

 

 

Durand, Michigan

 

Office, manufacturing and warehouse
114,000 sq. ft.

 

 

Omagh, Northern Ireland (1)

 

Office, manufacturing and warehouse
153,000 sq. ft.

 

 

Dungannon, Northern Ireland (1)

 

Office, manufacturing and warehouse
330,000 sq. ft.

 


(1)                                These facilities are either leased or subleased.

(2)                                Includes approximately 54,000 sq. ft., which are leased.

 

We also have numerous owned or leased locations for new machine and parts sales and distribution and rebuilding of components located worldwide.  Our Terex Utilities distribution network has sales locations throughout the southern and western United States.

 

We believe that the properties listed above are suitable and adequate for our use.  We have determined that certain of our other properties in the United States and elsewhere exceed our requirements.  Such properties may be sold, leased or utilized in another manner and have been excluded from the above list.  We are actively marketing some of these properties for sale.

 

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Table of Contents

 

ITEM 3. LEGAL PROCEEDINGS

 

As described in Note R - “Litigation and Contingencies” in the Notes to the Consolidated Financial Statements, we are involved in various legal proceedings, including product liability, general liability, workers’ compensation liability, employment, commercial and intellectual property litigation, which have arisen in the normal course of operations.  We are insured for product liability, general liability, workers’ compensation, employer’s liability, property damage and other insurable risk required by law or contract with retained liability to us or deductibles.  We believe that the outcome of such matters will not have a material adverse effect on our consolidated financial position.

 

We have recently been named in a number of class action lawsuits, set out below, which generally cover the period from February 2008 to February 2009 and allege, among other things, that certain of our SEC filings and other public statements contained false and misleading statements which resulted in damages to the plaintiffs and the members of the purported class when they purchased our securities and that there were breaches of fiduciary duties and of ERISA disclosure requirements.  These actions are at the very early stages and we have no information other than as set forth in the complaints.  The complaints all seek unspecified compensatory damages, costs and expenses. We believe that the allegations in the suits are completely without merit, and Terex and the named executives will vigorously defend against them. We believe that we have acted, and continue to act, in compliance with federal securities laws and ERISA law.

 

These class action complaints, all filed in the United States District Court, District of Connecticut, are:

 

·                Sheet Metal Workers Local 32 Pension Fund, individually and on behalf of all others similarly situated v. Terex Corporation, Ronald M. DeFeo, Thomas J. Riordan and Phillip C. Widman, filed December 21, 2009;

·                Kenneth M. Lipman, on behalf of himself and a class of persons similarly situated v. Terex Corporation, the Administrative Committee of the Terex Corporation 401(k) Retirement Savings Plan, Ronald M. DeFeo, Phillip C. Widman and the Board of Directors of Terex Corporation, filed January 7, 2010;

·                Michael Glassman, Trustee on behalf of the Kathleen & Michael Glassman Family Trust, individually and on behalf of itself and all others similarly situated v. Terex Corporation, Ronald M. DeFeo, Phillip C. Widman and Thomas J. Riordan, filed January 15, 2010;

·                Eddie Webb and Binyam Ghebreghiorgis, individually and on behalf of all others similarly situated  v. Terex Corporation, Ronald M. DeFeo, G. Chris Andersen, Paula H. J. Cholmondeley, Donald DeFosset, William H. Fike, Thomas J. Hansen, Donald P. Jacobs, David A. Sachs, Oren G. Shaffer, David C. Wang, Helge H. Wehmeier, Phillip C. Widman, Administrative Committee of the Terex Corporation 401(k) Retirement Savings Plan and Does 1-10, filed February 3, 2010;

·                James C. Hays, individually and on behalf of himself and all others similarly situated v. Terex Corporation, Ronald M. DeFeo, Phillip C. Widman and Thomas J. Riordan, filed February 4, 2010; and

·                Scott Hollander, on behalf of himself and all others similarly situated v. Terex Corporation, Ronald DeFeo, G. Chris Andersen, Paula Cholmondeley, Donald DeFosset, William Fike, Thomas Hansen, Donald Jacobs, David Sachs, Oren Shaffer, David Wang, Helge Wehmeier, the Administrative Committee of The Terex Corporation and Affiliates’ 401 (k) Retirement Savings Plan, Phillip Widman and Does 1-20, filed February 8, 2010.

 

As disclosed in our prior filings, commencing on November 2, 2006, we have received subpoenas from the DOJ with respect to its criminal antitrust investigation into pricing practices in the U.S. rock crushing and screening equipment industry.  In connection with this investigation, the DOJ has convened a grand jury.  We have been cooperating with the DOJ in this investigation.  Until the DOJ investigation is complete, we are not able to predict its outcome.

 

In August 2009, a final court decree formalized the settlement that was entered into to resolve the previously disclosed SEC investigation of Terex related mainly to (1) certain transactions between us and United Rentals, Inc. that took place in 2000 and 2001, and one transaction between United Rentals, Inc. and one of our subsidiaries that took place in 2001 before that subsidiary was acquired by Terex, and (2) the circumstances of the restatement of certain of our financial statements for the years 2000-2004.  The settlement resolved all matters relating to the potential liability of Terex.  Under the terms of the settlement, we consented, without admitting or denying the SEC’s allegations, to the entry of a judgment which enjoins us from committing or aiding and abetting any future violations of the anti-fraud, books and records, reporting and internal control provisions of the federal securities laws and related SEC rules.  We also paid a civil penalty of $8 million in August 2009, for which we recorded a charge in the year ended December 31, 2009.  The SEC Staff has also advised counsel for each of the current employees of Terex involved in the investigation, including our Chief Executive Officer, Ronald M. DeFeo, that it has completed its investigation with respect to these matters and that, based upon its investigation, the Staff does not intend to recommend that the SEC take any enforcement action against them.

 

For information concerning other contingencies and uncertainties, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Contingencies and Uncertainties.”

 

ITEM 4.                 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

 

Not applicable.

 

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Table of Contents

 

PART II

 

ITEM 5.  MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

(a) Our common stock, par value $.01 per share (“Common Stock”) is listed on the NYSE under the symbol “TEX.”  The high and low quarterly stock prices for our Common Stock on the NYSE Composite Tape (for the last two completed years) are as follows:

 

 

 

2009

 

2008

 

 

 

Fourth

 

Third

 

Second

 

First

 

Fourth

 

Third

 

Second

 

First

 

High

 

$

25.61

 

$

21.27

 

$

17.92

 

$

21.11

 

$

30.44

 

$

54.19

 

$

76.25

 

$

72.15

 

Low

 

$

18.08

 

$

10.24

 

$

8.90

 

$

7.34

 

$

8.97

 

$

28.22

 

$

50.46

 

$

46.50

 

 

No dividends were declared or paid in 2009 or 2008.  Certain of our debt agreements contain restrictions as to the payment of cash dividends to stockholders. In addition, Delaware law limits payment of dividends.  We intend generally to retain earnings, if any, to fund the development and growth of our business, pay down debt or repurchase stock.  We may consider paying dividends on the Common Stock at some point in the future, subject to the limitations described above.  Any future payments of cash dividends will depend upon our financial condition, capital requirements and earnings, as well as other factors that the Board of Directors may deem relevant.

 

As of February 18, 2010, there were 1,108 stockholders of record of our Common Stock.

 

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Table of Contents

 

Performance Graph

 

The following stock performance graph is intended to show our stock performance compared with that of comparable companies.  The stock performance graph shows the change in market value of $100 invested in our Common Stock, the Standard & Poor’s 500 Stock Index and a peer group of comparable companies (“Peer Group”) for the period commencing December 31, 2004 through December 31, 2009.  The cumulative total stockholder return assumes dividends are reinvested.  The stockholder return shown on the graph below is not indicative of future performance.

 

The Peer Group consists of the following companies, which are in similar lines of business to Terex: Astec Industries, Inc., Caterpillar Inc., CNH Global N.V., Deere & Co., JLG Industries, Inc. (ended December 6, 2006), Joy Global Inc., Manitowoc Co. and Oshkosh Corporation (since December 7, 2006).  The companies in the Peer Group are weighted by market capitalization.

 

COMPARISON OF 5 YEARS CUMULATIVE TOTAL RETURN*

Among Terex Corporation, The S&P 500 Index

And A Peer Group

 

 

*$100 invested on 12/31/04 in stock or index, including reinvestment of dividends.

Fiscal year ending December 31.

 

copyright© 2010 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.

 

 

 

 

12/04

 

12/05

 

12/06

 

12/07

 

12/08

 

12/09

 

Terex Corporation

 

100.00

 

124.66

 

271.06

 

275.22

 

72.70

 

83.15

 

S&P 500

 

100.00

 

104.91

 

121.48

 

128.16

 

80.74

 

102.11

 

Peer Group

 

100.00

 

116.82

 

141.63

 

211.96

 

96.79

 

141.19

 

 

Copyright © 2010 Standard & Poor’s, a division of The McGraw-Hill Companies Inc. All rights reserved. (www.researchdatagroup.com/S&P.htm)

 

(b) Not applicable.

 

(c) Not applicable.

 

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Table of Contents

 

ITEM 6.  SELECTED FINANCIAL DATA

 

FIVE-YEAR SELECTED FINANCIAL DATA

 

The following table summarizes our selected financial data and should be read in conjunction with the more detailed Consolidated Financial Statements and related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operation.

 

(in millions, except per share amounts and employees)

 

 

 

AS OF OR FOR THE YEAR ENDED DECEMBER 31,

 

 

 

2009

 

2008

 

2007

 

2006

 

2005

 

SUMMARY OF OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

4,043.1

 

$

8,387.0

 

$

7,976.1

 

$

6,773.6

 

$

5,413.7

 

Goodwill impairment

 

 

(459.9

)

 

 

(3.3

)

(Loss) income from operations

 

(459.9

)

174.5

 

832.2

 

608.8

 

305.4

 

(Loss) income from continuing operations

 

(449.6

)

(70.2

)

534.3

 

343.1

 

148.9

 

Income from discontinued operations — net of tax

 

64.9

 

145.9

 

84.9

 

68.2

 

40.1

 

Loss on disposition of discontinued operations — net of tax

 

(12.6

)

 

 

(7.7

)

 

Net (loss) income attributable to common stockholders

 

(398.4

)

71.9

 

613.9

 

399.9

 

188.5

 

Per Common and Common Equivalent Share:

 

 

 

 

 

 

 

 

 

 

 

Basic attributable to common stockholders (Loss) income from continuing operations

 

$

(4.39

)

$

(0.75

)

$

5.17

 

$

3.37

 

$

1.49

 

Income from discontinued operations — net of tax

 

0.63

 

1.48

 

0.83

 

0.68

 

0.41

 

Loss on disposition of discontinued operations — net of tax

 

(0.12

)

 

 

(0.08

)

 

Net (loss) income attributable to common stockholders

 

(3.88

)

0.73

 

6.00

 

3.97

 

1.90

 

Diluted attributable to common stockholders

 

 

 

 

 

 

 

 

 

 

 

(Loss) income from continuing operations

 

$

(4.39

)

$

(0.75

)

$

5.04

 

$

3.29

 

$

1.45

 

Income from discontinued operations — net of tax

 

0.63

 

1.48

 

0.81

 

0.66

 

0.39

 

Loss on disposition of discontinued operations — net of tax

 

(0.12

)

 

 

(0.07

)

 

Net (loss) income attributable to common stockholders

 

(3.88

)

0.73

 

5.85

 

3.88

 

1.84

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS AND LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

$

3,914.6

 

$

4,040.9

 

$

4,776.9

 

$

3,432.8

 

$

2,903.5

 

Current liabilities

 

1,554.7

 

1,824.6

 

2,175.3

 

2,027.2

 

1,524.6

 

PROPERTY, PLANT AND EQUIPMENT

 

 

 

 

 

 

 

 

 

 

 

Net property, plant and equipment

 

$

629.9

 

$

435.0

 

$

375.6

 

$

310.8

 

$

264.9

 

Capital expenditures

 

51.4

 

106.1

 

96.3

 

57.6

 

39.4

 

Depreciation

 

73.6

 

66.9

 

56.0

 

52.6

 

52.1

 

TOTAL ASSETS

 

$

5,713.8

 

$

5,445.4

 

$

6,316.3

 

$

4,785.9

 

$

4,200.3

 

 

 

 

 

 

 

 

 

 

 

 

 

CAPITALIZATION

 

 

 

 

 

 

 

 

 

 

 

Long-term debt and notes payable (includes capital leases)

 

$

1,966.4

 

$

1,435.5

 

$

1,351.2

 

$

755.3

 

$

1,086.0

 

Total Terex Corporation Stockholders’ equity

 

1,650.2

 

1,721.7

 

2,343.2

 

1,751.0

 

1,161.0

 

Dividends per share of Common Stock

 

 

 

 

 

 

Shares of Common Stock outstanding at year end

 

107.3

 

94.0

 

100.3

 

101.1

 

99.8

 

EMPLOYEES

 

15,900

 

17,600

 

18,600

 

16,500

 

12,700

 

 

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Notes to the Consolidated Financial Statements for a discussion of “Discontinued Operations,” “Acquisitions,” “Goodwill,” “Long-Term Obligations” and “Stockholders’ Equity.”

 

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ITEM 7.                                                     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

BUSINESS DESCRIPTION

 

Terex is a diversified global equipment manufacturer of a variety of machinery products.  We are focused on delivering reliable, customer-driven solutions for a wide range of commercial applications, including the construction, infrastructure, quarrying, shipping, transportation, power and energy industries.  We operate in four reportable segments: (i) Aerial Work Platforms; (ii) Construction; (iii) Cranes; and (iv) Materials Processing.

 

On December 20, 2009, we signed a definitive agreement for the divestiture of our Mining business, and as a result, this business is reflected as a discontinued operation in this Annual Report.  With the completion of the divestiture on February 19, 2010, we have completed the first step in our strategy to transform Terex from what has historically been predominately a construction and mining equipment company to a manufacturer of more diverse niche machinery and industrial products.

 

Our Aerial Work Platforms (“AWP”) segment designs, manufactures, refurbishes and markets aerial work platform equipment, telehandlers, light towers and utility equipment.  Customers use our products to construct and maintain industrial, commercial and residential buildings and facilities, construct and maintain utility and telecommunication lines, trim trees and for other commercial operations, as well as in a wide range of infrastructure projects.  Additionally, we own much of the North American distribution channel for our utility products group and operate a fleet of rental utility products in the United States and Canada.

 

Our Construction segment designs, manufactures and markets heavy and compact construction equipment, asphalt and concrete equipment, landfill compactors and bridge inspection equipment.  Construction, forestry, rental, mining, industrial and government customers use these products in construction and infrastructure projects, to build roads and bridges and in coal, minerals, sand and gravel operations.  We acquired A.S.V., Inc. (“ASV”) on February 26, 2008. The results of ASV are included in the Construction segment from its date of acquisition.

 

Our Cranes segment designs, manufactures, services and markets mobile telescopic cranes, tower cranes, lattice boom crawler cranes, truck-mounted cranes (boom trucks and loading cranes), and specialized port and rail equipment including straddle carriers, gantry cranes, mobile harbor cranes, ship-to-shore cranes, telescopic container stackers, lift trucks and forklifts, as well as their related replacement parts and components.  These products are used primarily for construction, repair and maintenance of commercial buildings, manufacturing facilities and infrastructure, and material handling at port and railway facilities.  The Company acquired the port equipment businesses of Reggiane Cranes and Plants S.p.A. and Noell Crane Holding GmbH (collectively, “Terex Port Equipment” or the “Port Equipment Business”) from Fantuzzi Industries S.a.r.l on July 23, 2009.  The results of Terex Port Equipment are included in the Cranes segment from its date of acquisition.

 

Our Materials Processing segment designs, manufactures and markets materials processing equipment, including crushers, washing systems, screens, apron feeders, and related components and replacement parts.  Construction, quarrying, mining and government customers use these products in construction and infrastructure projects and various quarrying and mining applications.

 

We also assist customers in their rental, leasing and acquisition of our products through Terex Financial Services.

 

On January 1, 2009, we realigned certain operations in an effort to capture market synergies and streamline our cost structure.  The Roadbuilding businesses, formerly part of our Roadbuilding, Utility Products and Other (“RBUO”) segment, are now consolidated within the Construction segment.  The Utility Products businesses, formerly part of the RBUO segment, are now consolidated within the Aerial Work Platforms segment.  Additionally, our 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 RBUO segment are now reported in Corporate and Other, which includes eliminations among our segments, and prior period amounts have been retrospectively adjusted to conform to this presentation.

 

On December 20, 2009, we signed an agreement to sell our Mining business, formerly part of the Materials Processing & Mining segment, to Bucyrus for $1.3 billion with the right under the agreement to request that $300 million of the purchase price be paid in the form of shares of Bucyrus common stock.  On February 19, 2010, we completed the disposition of the Mining business and received approximately $1 billion in cash and approximately 5.8 million shares of Bucyrus common stock.  The products divested in the transaction include hydraulic mining excavators, high capacity surface mining trucks, track and rotary blasthole drills, drill tools and highwall mining equipment, as well as the related parts and aftermarket service businesses, including Company-owned distribution locations.  Our auger machines and auger tools product lines were not sold as part of this disposition and instead will be consolidated within our AWP segment.

 

On December 31, 2009, we sold the assets of our construction trailer business.  The results of this business were formerly consolidated within our AWP segment.

 

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See Note D — “Discontinued Operations” in the Notes to our Consolidated Financial Statements for more information on our discontinued operations.

 

In December 2009, we completed the sale of our power buggy product line, and in January 2010, we completed the sale of our generator product line.  Both of these product lines were not significant to our operations and were included in our AWP segment.

 

Included in Eliminations/Corporate are the eliminations among the four segments, as well as certain general and corporate expenses that have not been allocated to the segments.

 

Overview

 

For Terex, and for our broader industry, 2009 was a year of significant challenges, changes and transformation.  It was a year that saw our net sales fall 52% in continuing operations and profitability quickly swing from an operating profit of $174.5 million in 2008 to a $459.9 million loss in 2009.  Our efforts during 2009 were clearly focused on cash generation and cost reduction to position us to take advantage of our strengthened core businesses as we look forward to 2010 and beyond.  To that end, we were pleased that during 2009, we generated $538 million in cash from inventory reductions.  It was a year that saw us realign our businesses to reduce capacity, cut costs and substantially decrease the number of global team members in our organization, a necessary step to size the organization for the current environment.  It was a very difficult year, but we expect to emerge as a stronger and more focused Company as a result.

 

As we enter 2010, we are beginning to see reasons for optimism.  Our factories have begun to produce close to end market demand on a more consistent basis, with this fact alone driving significant improvement in year over year operating results.  Our customers are seeing their current situations stabilize, and some are increasingly more positive about the future.  We believe this will begin to favorably influence our short cycle product categories, as we begin to see a pickup in activity in our compact construction and materials processing businesses, for example.  While not the most reliable indicator of the future, we did see sequential improvement in our backlog in three of our four segments, which is a favorable sign.

 

In the short term, we expect the challenging environment to continue.  However, we also believe that the present situation offers us the opportunity to strengthen and improve on our business positions around the world.  We approach the future with the goal of transforming Terex from what historically has been predominately a construction and mining equipment company to a more diverse manufacturer of a variety of machinery and industrial products.  The recently completed divestiture of the Mining business is an example of this portfolio management strategy, that is, doing what is right for the business, our customers and our shareholders, while unlocking significant value for Terex.  This will allow us to redeploy the capital into new opportunities that fit our desired high return on capital profile.  Our acquisition strategy will include a focus on product niches with leading market positions.  Our new venture into the Port Equipment Business is an example of acquiring a leader in a niche category that diversifies our end market exposure away from construction building cycles.

 

Our 2009 performance reflected both the continued soft demand environment and our ongoing global restructuring effort.  Most of our factories worked on reduced schedules during 2009, continuing with a build-to-order approach targeted at reducing inventory levels.  Overall, we have made significant progress in reducing our inventory Company wide, generating $538 million in cash flows from inventory reductions during 2009.  Looking forward, we are targeting appropriate working capital levels to meet future sales levels.  We will need to produce for new orders in 2010, which will lead to significant year over year improvement in profitability, as we will be better positioned to absorb the fixed costs and overhead of our businesses.

 

Additionally, during 2009, we announced the closure of several facilities as we strived to lower costs and consolidate capacity.  While closing an operation is always a difficult decision, these actions were necessary steps to reduce our operating costs in line with our current net sales level.  We continue to look to improve our global manufacturing footprint through consolidation of capacity, as well as developing new facilities in growth markets, such as India, China and Brazil.  Our expansion capital will primarily focus on strengthening our franchise in the developing markets around the world, as these markets continue to lead recovery in the global economy and are anticipated to grow for years to come.

 

The Construction segment, while evidencing improved performance over recent financial quarters, still generated a large operating loss during 2009.  Finished goods levels for our Construction segment, and the construction industry as a whole, continue to decline, which should help to lessen pricing pressure in 2010, as 2009 results for this segment were negatively impacted by pricing pressures.  The balance of our businesses posted mixed results in 2009, with the Cranes segment generating modest profitability.  The Crane business remains generally healthy, with high capacity crane products continuing to generate orders, but with some softening expected year-over-year as we look into 2010.  The AWP segment continues to feel pressure from the fleet reduction actions of its rental customer base, and we expect that this trend will continue until utilization rates improve.  The Materials Processing (“MP”) segment’s bookings continue to improve slightly when compared to recent activity levels, with expectations for modest recovery in the second half of 2010.

 

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Table of Contents

 

Given current market conditions, it is difficult to project 2010 performance with any reasonable degree of certainty.  However, we are planning for flat to slightly improved demand in most of our product categories, with the exception of some softening in the large crane business.  Our backlog has stabilized, and our order inquiry rate has picked up.  Based on what we see today, we expect our net sales for 2010 to increase to approximately $5 billion, an increase of approximately 24% from 2009.  The translation effect of foreign currency exchange rate changes is expected to contribute approximately one-quarter of this improvement, however recent currency exchange rate volatility makes this difficult to predict, and the inclusion of the Port Equipment Business for the full fiscal year will account for approximately one-third of this growth.  We expect 2010 to result in substantially break-even operating earnings for the Company, although the impact of net interest expense will likely result in a net loss for the year.

 

Our restructuring activities should result in improved financial results for 2010 and beyond.  See Note M —“Restructuring and Other Charges” in our Consolidated Financial Statements for a detailed description of our restructuring activities, including the reasons, timing and costs associated with such activities.

 

After tax return on invested capital (“ROIC”) continues to be the unifying metric that we use to measure our operating performance.  ROIC measures how effectively we utilize the capital invested in our operations.  After tax ROIC is determined by dividing the sum of Net Operating Profit After Tax (“NOPAT”) (as defined below) for each of the previous four quarters by the average of the sum of Total stockholders’ equity plus Debt (as defined below) less Cash and cash equivalents for the previous five quarters.  NOPAT, which is a non-GAAP measure, for each quarter is calculated by multiplying Income (loss) from continuing and discontinued operations by a figure equal to one minus the effective tax rate of the Company.  We believe that earnings from discontinued operations, as well as the net assets that comprise that operations invested capital, should be included in this calculation because it captures the financial returns on our capital allocation decisions for the measured periods.  For comparative purposes, ROIC for 2008 is presented as it was reported and not adjusted for the changes based on discontinued operations.  The effective tax rate is equal to the (Provision for) benefit from income taxes divided by Income (loss) before income taxes for the respective quarter.  Debt is calculated using the amounts for Notes payable and current portion of long-term debt plus Long-term debt, less current portion.  We calculate ROIC using the last four quarters’ NOPAT as this represents the most recent twelve-month period at any given point of determination.  In order for the denominator of the ROIC ratio to properly match the operational period reflected in the numerator, we include the average of five quarters’ ending balance sheet amounts so that the denominator includes the average of the opening through ending balances (on a quarterly basis) over the same time period as the numerator (four quarters of average invested capital).

 

We use ROIC as a unifying metric because we believe that it measures how effectively we invest our capital and provides a better measure to compare ourselves to peer companies to assist in assessing how we drive operational improvement.  We believe that ROIC measures return on the full enterprise-wide amount of capital invested in our business, as opposed to another metric such as return on stockholders’ equity that only incorporates book equity, and is thus a more accurate and descriptive measure of our performance.  We also believe that adding Debt less Cash and cash equivalents to Total stockholders’ equity provides a better comparison across similar businesses regarding total capitalization, and ROIC highlights the level of value creation as a percentage of capital invested.  Consistent with this belief, we use ROIC in evaluating executive performance and compensation, as we have disclosed in the Compensation Discussion and Analysis in our proxy statement for the 2009 annual meeting of stockholders.  In 2008, we performed our annual goodwill impairment test, which resulted in a non-cash impairment charge for goodwill of $459.9 million, which represented all of the goodwill recorded in the Construction segment and all of the goodwill originally in the Utilities reporting unit, which is now part of the AWP segment.  However, we do not believe that non-cash impairment charges are indicative of returns on our invested capital.  Therefore, we have excluded the effect of these impairment charges from the metrics used in our calculation of ROIC.  As the tables below show, our ROIC at December 31, 2009 was negative 9.6%, down from positive 19.2% at December 31, 2008, mainly due to the operating losses and cash flow from operations in the recent periods.

 

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Table of Contents

 

The amounts described below are reported in millions of U.S. dollars, except for the effective tax rates.

 

 

 

Dec ‘09

 

Sep ‘09

 

Jun ‘09

 

Mar ‘09

 

Dec ‘08

 

Provision for (benefit from) income taxes as adjusted

 

$

21.8

 

$

(24.5

)

$

(30.8

)

$

(24.0

)

 

 

Divided by: Loss before income taxes as adjusted

 

(121.6

)

(126.9

)

(108.5

)

(98.5

)

 

 

Effective tax rate as adjusted

 

(17.9

)%

19.3

%

28.4

%

24.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations as adjusted

 

$

(62.6

)

$

(94.5

)

$

(85.7

)

$

(72.5

)

 

 

Multiplied by: 1 minus Effective tax rate as adjusted

 

117.9

%

80.7

%

71.6

%

75.6

%

 

 

Adjusted net operating loss after tax

 

$

(73.8

)

$

(76.3

)

$

(61.4

)

$

(54.8

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt (as defined above)

 

$

1,966.4

 

$

2,002.9

 

$

1,736.6

 

$

1,482.8

 

$

1,435.8

 

Less: Cash and cash equivalents as adjusted

 

(971.2

)

(1,033.2

)

(938.5

)

(344.3

)

(484.4

)

Debt less Cash and cash equivalents as adjusted

 

$

995.2

 

$

969.7

 

$

798.1

 

$

1,138.5

 

$

951.4

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Terex Corporation stockholders’ equity as adjusted

 

$

1,650.2

 

$

1,819.5

 

$

1,860.2

 

$

1,569.8

 

$

2,181.2

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt less Cash and cash equivalents plus Total Terex Corporation stockholders’ equity as adjusted

 

$

2,645.4

 

$

2,789.2

 

$

2,658.3

 

$

2,708.3

 

$

3,132.6

 

 

2009 ROIC

 

(9.6)%

 

Adjusted net operating loss after tax (last 4 quarters)

 

$

(266.3

)

Average Debt less Cash and cash equivalents plus Total Terex Corporation stockholders’ equity as adjusted (5 quarters)

 

$

2,786.8

 

 

 

 

Three months
ended
12/31/09

 

Reconciliation of Loss before Income Taxes:

 

 

 

Loss from continuing operations before income taxes

 

$

(129.7

)

Income from discontinued operations before income taxes

 

27.6

 

Loss on disposition of discontinued operations before income taxes

 

(19.5

)

Loss before income taxes as adjusted

 

$

(121.6

)

 

 

 

Three months
ended
12/31/09

 

Reconciliation of loss from operations:

 

 

 

Loss from operations as reported

 

$

(89.6

)

Income from operations for discontinued operations

 

27.0

 

Loss from operations as adjusted