Terex Releases Third Quarter Results
Excluding the impact of special items, net income for the third quarter of 2005 was $56.1 million, or $1.10 per share, compared to net income of $47.8 million, or $0.93 per share, for the third quarter of 2004. Special items for the third quarter of 2005 included charges for investigation costs associated with the company's internal review and restatement of its financial statements for the fiscal years 2000, 2001, 2002, 2003, and the first and second quarters of 2004, charges relating to previously announced restructuring programs, an asset impairment charge for the company's American Truck Company joint venture, and the gain on the sale of a facility in the Czech Republic. Special items for the third quarter of 2004 primarily included costs associated with announced restructuring activities, costs associated with the restructuring of the compact equipment parts business, write-down of certain assets associated with a discontinued parts business, accelerated amortization arising from the early retirement of debt, and gain on the sale of facilities. The estimated effective tax rate for the third quarter of 2005 was 34.8%, as compared with 6.9% for the third quarter of 2004.
Net sales increased to $1,528.3 million in the third quarter of 2005, an increase of 22% from $1,251.8 million in the third quarter of 2004. Net debt (consisting of long-term debt, including current portion of long-term debt, less cash and cash equivalents) at
"Overall, Terex had a strong third quarter," said Ronald M. DeFeo, Terex's chairman and chief executive officer. "We are pleased with our operational and financial performance, which reflects continued positive end-market trends for many of our products and builds on the operational improvements we have undertaken to date. We are seeing more meaningful signs that the struggling businesses in our portfolio are in the early stages of recovery, while at the same time our stronger businesses continue to post even better results than originally anticipated."
DeFeo added that the company is still in the early stages of many initiatives. "The metric that we will continue to use to measure our business performance is return on invested capital (ROIC), and this is the measure for which we would expect our shareholders to hold us accountable,” he said. “We define ROIC as the last 12 months operating profit excluding special items divided by the sum of average book equity and average net debt over the same twelve month period. Despite being an industry leader with regard to performance in this area and a substantially reduced asset base compared to prior years, we still feel our operating margin is too low and our working capital (defined as the sum of accounts receivable and inventory less accounts payable) is too high as measured as a percentage of revenue. Our percentage of working capital to the trailing three months sales annualized at the end of the third quarter was approximately 21%, and we continue to target 18% and 15% for the end of 2005 and 2006, respectively. This effort to control working capital investment relative to our pre-tax earnings stream will drive cash flow, and enable the company to pay down its high cost debt, most notably the $300 million of 10 3/8% bonds callable in April 2006."
