Form 10-K Terex Corporation
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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) ⌧ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2005 or 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.) 500 POST ROAD EAST, SUITE 320, 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 NO ⌧ 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 NO ⌧ 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 NO ⌧ 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. ⌧ Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one): Large Accelerated Filer ⌧ Accelerated Filer Non-accelerated Filer Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES NO ⌧ The aggregate market value of the voting and non-voting common equity stock held by non-affiliates of the Registrant was approximately $1,879 million based on the last sale price on June 30, 2005. THE NUMBER OF SHARES OF THE REGISTRANT’S COMMON STOCK OUTSTANDING WAS 50.2 MILLION AS OF APRIL 21, 2006. DOCUMENTS INCORPORATED BY REFERENCE: NONE TEREX CORPORATION AND SUBSIDIARIES Index to Annual Report on Form 10-K For the Year Ended December 31, 2005 PAGE PART I Item 1 Business 3 Item 1A Risk Factors 24 Item 1B Unresolved Staff Comments 28 Item 2 Properties 29 Item 3 Legal Proceedings 31 Item 4 Submission of Matters to a Vote of Security Holders 31 PART II Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 32 Item 6 Selected Financial Data 33 Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations 34 Item 7A Quantitative and Qualitative Disclosure about Market Risk 58 Item 8 Financial Statements and Supplementary Data 59 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 59 Item 9A Controls and Procedures 59 Item 9B Other Information 64 PART III Item 10 Directors and Executive Officers of the Registrant 65 Item 11 Executive Compensation 70 Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 81 Item 13 Certain Relationships and Related Transactions 83 Item 14 Principal Accountant Fees and Services 83 PART IV Item 15 Exhibits and Financial Statement Schedules 84 -2- 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,” or the “Company.” This Annual Report on Form 10-K generally speaks as of December 31, 2005, unless specifically noted otherwise. PART I ITEM 1. BUSINESS GENERAL Terex is a diversified global manufacturer of capital equipment focused on delivering reliable, customer relevant solutions for the construction, infrastructure, quarry, mining, shipping, transportation, refining and utility industries. The Company operates in five business segments: (i) Terex Construction, (ii) Terex Cranes, (iii) Terex Aerial Work Platforms, (iv) Terex Materials Processing & Mining and (v) Terex Roadbuilding, Utility Products and Other. The Company remains focused on delivering products that are reliable and cost-effective and producing equipment that improves its customers’ return on invested capital. The Company’s products are manufactured at plants in North America, Europe, Australia, Asia and South America, and are sold primarily through dealers and distributors worldwide. The Company was originally incorporated in Delaware in October 1986 as Terex U.S.A., Inc. The Company has grown a tremendous amount in this time, achieving $6.4 billion in net sales in 2005. Historically, much of this growth was achieved through acquisitions. More recently, most of this growth has been achieved organically. The Company continues to focus on integrating the various companies it has acquired over the past ten years. In the past, the Company has operated in a decentralized manner. However, the Company has increasingly coordinated its operations in an effort to position itself to improve and streamline its business. Terex is moving towards a unified operating company, one which combines the strengths of many different people, products and technology under one global umbrella. The Company has concentrated on improving its financial reporting and will continue to focus on integrating other aspects of the Company’s business as well. In 2005, the Company announced an internal improvement plan, the “Terex Business System” or “TBS.” The Terex Business System is based on lean principles and lean thinking as applied to every aspect of business. Additionally, the system focuses on streamlining the Company’s interface with its customers, and gaining efficiencies with suppliers based on the Company’s global purchasing power and resources. This project will be the cornerstone of the Company’s activities for years to come. The metric which the Company is using to measure the effectiveness of these initiatives is return on invested capital (“ROIC”), and Terex has established the goal of delivering an average of 20% or greater returns on invested capital through an economic cycle. ROIC is defined as income from operations divided by the sum of average book equity and average net debt. For financial information about the Company’s industry and geographic segments, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note T - “Business Segment Information” in the Notes to the Consolidated Financial Statements. TEREX CONSTRUCTION The Terex 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, loading machines and truck mounted articulated hydraulic cranes; • Compact construction equipment, including loader backhoes, compaction equipment, mini and midi excavators, site dumpers, telehandlers and wheel loaders; and • Mobile crushing and screening equipment, including jaw crushers, cone crushers, washing systems, screens and trommels. These products are primarily used by construction, logging, mining, industrial and government customers in construction and infrastructure projects and supplying coal, minerals, sand and gravel. Terex Construction products are currently marketed principally under the TEREX brand name and the TEREX name in conjunction with these historic brand names: Atlas, Benford, Fermec, Finlay, Fuchs, Pegson, Powerscreen, Schaeff and TerexLift. Effective January 1, 2006, the mobile crushing and screening equipment group became a part of the Terex Materials Processing & Mining Segment and the European telehandlers business became part of the Terex Aerial Work Platforms Segment. See “Subsequent Segment Events” below. -3- Terex Construction has 17 significant manufacturing operations: Heavy Construction Equipment • Off-highway rigid haul trucks and articulated haul trucks, having capacities ranging from 25 to 100 tons, and scrapers are manufactured in Motherwell, Scotland; • Εxcavators, wheel loaders and truck mounted articulated hydraulic cranes are manufactured in Delmenhorst, Ganderkesee and Vechta, Germany; and • Loading machines are manufactured in Bad Schoenborn, Germany. Compact Construction Equipment • Site dumpers, compaction equipment, material handlers and loader backhoes are manufactured in Coventry, England; • Small and midsized wheel loaders, mini excavators and midi excavators are manufactured in Langenburg, Gerabronn, Rothenburg, Crailsheim and Clausnitz, Germany; and Sanhe and Tianjin, China; and • Rough terrain telescopic material handlers (also known as telehandlers) are manufactured near Perugia, Italy. Mobile Crushing and Screening Equipment • Crushers, washing systems, screens and trommels are manufactured in Coalville, England;