Terex Announces Third Quarter 2014 Results

Terex Corporation (NYSE:TEX) today announced income from continuing operations of $58.7 million, or $0.51 per share for the third quarter of 2014, and excluding certain items, income from continuing operations as adjusted was $67.8 million, or $0.59 per share. This compared to income from continuing operations of $84.5 million, or $0.73 per share for the third quarter of 2013. The Glossary at the end of the release contains more details on these items.

Net sales were $1,809.8 million in the third quarter of 2014, 3.0% higher than net sales of $1,757.0 million in the third quarter of 2013. Income from operations was $116.8 million in the third quarter of 2014 and excluding certain items, income from operations as adjusted was $127.5 million. This compared to income from operations of $138.6 million in the third quarter of 2013.

“Our results for the third quarter were in line with the revised guidance communicated in mid-September,” commented Ron DeFeo, Terex Chairman and Chief Executive Officer. “Our Cranes segment met our lowered expectations for the quarter as end markets remain challenged. However, despite continued market environment challenges, we are anticipating sequential improvement from Cranes in the fourth quarter. While our AWP business is performing well, we had planned for a stronger second half of 2014 than has materialized which has put pressure on margins. AWP profitability was further negatively affected by currency movements late in the quarter, primarily the Brazilian Real, higher commodity costs and continued manufacturing startup costs related to the production of telehandlers at our Oklahoma City facility. As a result, we removed approximately 500 team members from AWP in the third quarter, which will aid in the return to more normal mid-teens margins within the next 12 months. Our MHPS segment had a strong improvement in profitability, excluding the reserve we booked related to the planned closure of a manufacturing facility and production relocation. We are taking this action to improve the efficiency of our manufacturing footprint. Our Construction segment performed as we expected. Our Materials Processing segment had a weak margin quarter as it experienced unfavorable geographic and product mix and our investments in new growth initiatives have yet to deliver increased net sales.”

Outlook: “Predicting market improvements has been challenging and in the near term we will be assuming flat markets and only performance improvements that we can control,” Mr. DeFeo added. “Consequently, we now expect our annual outlook for earnings per share to be at or near the bottom of our previously announced range of $2.35 to $2.50, excluding restructuring and other unusual items, on net sales of between $7.3 billion and $7.5 billion. Looking forward, we have identified improvement opportunities from cost reduction actions, interest expense declines and tax rate improvements. We think we can accomplish these in the next two years to provide meaningful improvement in our earnings per share even in a flat market.”

Capital Structure: “During the quarter we completed the refinancing of our senior credit facility, allowing us to lower our borrowing cost, extend the maturity dates substantially, and increase our liquidity,” commented Kevin Bradley, Terex Senior Vice President and Chief Financial Officer. “In addition, we generated $70.8 million in free cash flow in the quarter. Although we have more work in front of us, we still believe we will meet our free cash flow target although at or near the lower end of the range which is $200 million. We repurchased $11 million of our shares within the quarter for a cumulative total of $95 million since the inception of the program in December 2013."

The Company’s liquidity at September 30, 2014 was $894.5 million, which was comprised of cash balances of $344.5 million and borrowing availability under the Company’s revolving credit facilities of $550.0 million.

Return on Invested Capital (ROIC) was 9.8% for the trailing twelve months ended September 30, 2014.

Taxes: The effective tax rate for the third quarter of 2014 was 32.1% as compared to an effective tax rate of 21.4% for the third quarter of 2013. The higher effective tax rate for the third quarter of 2014 was primarily due to the reduced benefit from the release of uncertain tax positions partially offset by a more favorable geographic mix of earnings when compared to the prior year quarter.

Backlog: Backlog for orders deliverable during the next twelve months was $1,704.3 million at September 30, 2014, a decrease of 5.1% from September 30, 2013 and a decrease of 22.5% from June 30, 2014. The Glossary contains further details regarding backlog.

All results are for continuing operations. All per share amounts are on a fully diluted basis. A comprehensive review of the quarterly financial performance is contained in the presentation that will accompany the Company’s earnings conference call.

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

Conference call

The Company has scheduled a one hour conference call to review the financial results on Thursday, October 30, 2014 at 8:30 a.m. EDT. Ronald M. DeFeo, Chairman and CEO, will host the call. A simultaneous webcast of this call will be available on the Company’s website, www.terex.com. To listen to the call, select “Investor Relations” in the “About Terex” section on the home page and then click on the webcast microphone link. Participants are encouraged to access the call 10 minutes prior to the starting time. The call will also be archived on the Company’s website under “Audio Archives” in the “Investor Relations” section of the website.

Forward-Looking Statements

This press release contains forward-looking information regarding future events or the Company’s future financial performance based on the current expectations of Terex Corporation. In addition, when included in this press release, 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. The Company has based these forward-looking statements on current expectations and projections about future events. These statements are not guarantees of future performance.

Because forward-looking statements involve risks and uncertainties, actual results could differ materially. Such risks and uncertainties, many of which are beyond the control of Terex, include among others: Our business is cyclical and weak general economic conditions affect the sales of our products and financial results; our ability to successfully integrate acquired businesses; the need to comply with restrictive covenants contained in our debt agreements; our ability to generate sufficient cash flow to service our debt obligations and operate our business; our ability to access the capital markets to raise funds and provide liquidity; our business is sensitive to government spending; our business is very competitive and is affected by our cost structure, pricing, product initiatives and other actions taken by competitors; our ability to timely manufacture and deliver products to customers; our retention of key management personnel; the financial condition of suppliers and customers, and their continued access to capital; our providing financing and credit support for some of our customers; we may experience losses in excess of recorded reserves; impairment in the carrying value of goodwill and other indefinite-lived intangible assets; our ability to obtain parts and components from suppliers on a timely basis at competitive prices; our business is global and subject to changes in exchange rates between currencies, regional economic conditions and trade restrictions; our operations are subject to a number of potential risks that arise from operating a multinational business, including compliance with changing regulatory environments, the Foreign Corrupt Practices Act and other similar laws and political instability; a material disruption to one of our significant facilities; possible work stoppages and other labor matters; compliance with changing laws and regulations, particularly environmental and tax laws and regulations; litigation, product liability claims, patent 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”); our implementation of a global enterprise resource planning system and its performance; and other factors, risks and uncertainties that are more specifically set forth in our public filings with the SEC.

Actual events or the actual future results of Terex may differ materially from any forward-looking statement due to these and other risks, uncertainties and significant factors. The forward-looking statements speak only as of the date of this release. Terex expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement included in this release to reflect any changes in expectations with regard thereto or any changes in events, conditions, or circumstances on which any such statement is based.

Terex Corporation is a lifting and material handling solutions company reporting in five business segments: Aerial Work Platforms, Construction, Cranes, Material Handling & Port Solutions and Materials Processing. Terex manufactures a broad range of equipment for use in various industries, including the construction, infrastructure, manufacturing, shipping, transportation, refining, energy, utility, quarrying and mining industries. Terex offers financial products and services to assist in the acquisition of Terex equipment through Terex Financial Services. Terex uses its website (www.terex.com) and its Facebook page (www.facebook.com/TerexCorporation) to make information available to its investors and the market.

GLOSSARY

In an effort to provide investors with additional information regarding the Company’s results, Terex refers to various GAAP (U.S. generally accepted accounting principles) and non-GAAP financial measures which management believes provides useful information to investors. These non-GAAP measures may not be comparable to similarly titled measures being disclosed by other companies. In addition, the Company believes that non-GAAP financial measures should be considered in addition to, and not in lieu of, GAAP financial measures. Terex believes that this non-GAAP information is useful to understanding its operating results and the ongoing performance of its underlying businesses. Management of Terex uses both GAAP and non-GAAP financial measures to establish internal budgets and targets and to evaluate the Company’s financial performance against such budgets and targets.

The amounts described below are unaudited, are reported in millions of U.S. dollars (except per share data and percentages), and are as of or for the period ended September 30, 2014, unless otherwise indicated.

As changes in foreign currency exchange rates have a non-operating impact on the translation of our financial results, we believe excluding the effect of these changes assists in the assessment of our business results between periods. We calculate the translation effect of foreign currency exchange rate changes by translating the current period results at the rates that the comparable prior periods were translated to isolate the foreign exchange component of the fluctuation from the operational component. Similarly, the impact of changes in our results from acquisitions that were not included in comparable prior periods is subtracted from the absolute change in results to allow for better comparability of results between periods.

Backlog is defined as firm orders that are expected to be filled within one year. The disclosure of backlog aids in the analysis of the Company’s customers’ demand for product, as well as the ability of the Company to meet that demand. The backlog of the various Terex businesses is not necessarily indicative of sales to be recognized in a specified future period.

EBITDA is defined as earnings, before interest, taxes, depreciation and amortization. The Company calculates this by adding the amount of depreciation and amortization expenses that have been deducted from income from operations back into income from operations to arrive at EBITDA. Depreciation and amortization amounts reported in the Consolidated Statement of Cash Flows include amortization of debt issuance costs that are recorded in Other income (expense) - net and, therefore, are not included in EBITDA. Terex believes that disclosure of EBITDA will be helpful to those reviewing its performance, as EBITDA provides information on Terex’s ability to meet debt service, capital expenditure and working capital requirements, and is also an indicator of profitability.

Free cash flow is defined as net cash provided by (used in) operating activities less capital expenditures.

Income (loss) from operations as adjusted / Income (loss) from continuing operations as adjusted - The Company assesses the impact of certain items when discussing Income (loss) from operations and Income (loss) from continuing operations and adjusts for items it believes are not reflective of operating activities in the periods. The impact of these adjustments are provided below.

Return on Invested Capital (“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 Terex Corporation stockholders’ equity plus Debt (as defined below) less Cash and cash equivalents for the previous five quarters. Debt is calculated using the Consolidated Balance Sheet amounts for Notes payable and current portion of long-term debt plus Long-term debt, less current portion. NOPAT for each quarter is calculated by multiplying Income (loss) from operations by a figure equal to one minus the effective tax rate of the Company. The Company believes that returns on capital deployed in Terex Financial Services (“TFS”) does not represent its primary operations and, therefore, TFS finance receivable assets and results from operations have been excluded from the calculation below. The effective tax rate is equal to the (Provision for) benefit from income taxes divided by Income (loss) from continuing operations before income taxes for the respective quarter. Total Terex Corporation stockholders’ equity is adjusted to include redeemable non-controlling interest as this item is deemed to be temporary equity and therefore should be included in the denominator of the ROIC ratio. The Company calculates ROIC using the last four quarters’ NOPAT as this represents the most recent 12-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, the Company includes 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) thereby providing, over the same time period as the numerator, four quarters of average invested capital.

Terex management and the Board of Directors use ROIC as one of the primary measures to assess operational performance and in connection with certain compensation programs. Terex utilizes ROIC as a unifying metric because management believes that it measures how effectively the Company invests its capital and provides a better measure to compare the Company to peer companies to assist in assessing how it drives operational improvement. ROIC measures return on the amount of capital invested in the Company’s primary businesses, excluding TFS, as opposed to another metric such as return on Terex Corporation stockholders’ equity that only incorporates book equity, and is thus a more accurate and descriptive measure of the Company’s performance. Terex also believes that adding Debt less Cash and cash equivalents to Total Terex Corporation stockholders’ equity provides a better comparison across similar businesses regarding total capitalization, and those ROIC highlights the level of value creation as a percentage of capital invested.

See reconciliation of adjusted amounts below on table following ROIC table. Amounts are as of and for the three months ended for the periods referenced in the table below.

Trailing Three Month Annualized Net Sales is calculated using the net sales for the quarter multiplied by four.

Working Capital is calculated using the Consolidated Balance Sheet amounts for Trade receivables (net of allowance) plus Inventories less Trade accounts payable and customer advances. The Company views excessive working capital as an inefficient use of resources, and seeks to minimize the level of investment without adversely impacting the ongoing operations of the business. For the periods below, working capital was: