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Focus. Simplify. Execute To Win.
2016 A N NUA L REPO RT
The Terex Way—The Value and Beliefs
That Guide Our Actions and Behaviors
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 we respect all peoples’ values and cultures and are good global,
national and local citizens.
FOCUS
FOCUS THE PORTFOLIO
Taking Action:
• Completed sale of Material Handling &
Port Solutions segment
• Completed sale of German Compact
Construction business
STRATEGY
SIMPLIFY
SIMPLIFY THE COMPANY
Taking Action:
• Reduced segments from five to three
• Executing footprint rationalization
• Reducing administrative cost structure
EXECUTE
TO WIN
EXECUTE TO WIN
Strengthen Core Management Processes:
• Strategy development
• Talent management
• Operational execution
• Drive greater accountability and
process discipline
1
“ We are transforming Terex by executing a strategy based on three
cross-cutting themes: Focus, Simplify and Execute To Win.”
John L. Garrison | President and Chief Executive Officer
Dear Fellow Shareholders:
Last year marked the beginning of our transformation. It is a journey to create a high performance enter-
prise that delivers superior value to our customers, shareholders and team members. It is a great privilege
to lead Terex as President and CEO, and today I am even more excited about our prospects than I was
when I began a little over a year ago. Why am I excited? Because after my first year of strategic and
team member reviews, I saw up close the talent and energy of our team, our outstanding products, our
deep manufacturing and engineering capabilities, and our commitment to the Terex Way values. These
are the critical factors we need to win in our highly competitive markets. I also see the opportunity to
lead substantial improvement in operating performance, and 2016 marked the beginning of our journey
to capture that opportunity.
We are transforming Terex by executing a strategy based on three cross-cutting themes: Focus, Simplify
and Execute To Win. We will Focus our portfolio on businesses with the potential to produce the highest
returns on invested capital (ROIC), we will Simplify our administrative structure and manufacturing footprint,
and we will Execute To Win by implementing business processes that consistently deliver desired outcomes
with clear accountability for results. Our journey is underway, and our direction and destination are set.
Terex will become a high performance enterprise that delivers superior value to customers, that exceeds
our cost of capital (~10%) throughout the economic cycle, and that rewards team members for consis-
tently high performance.
2
CEO Graphs
45%
Aerial Work
Platforms
29%
Cranes
51%
USA/Canada
27%
Western Europe
5%
Corp./Other
Terex Financial
HIGHLIGHTS
from 2016
21%
Materials
Processing
22%
Rest of
the World
CONSOLIDATED
NET SALES
(USD IN BILLIONS)
6
5
4
3
2
1
0
5.34
5.48
5.02
4.44
2013
2014
2015
2016
NET SALES
BY SEGMENT
45%
Aerial Work
Platforms
29%
Cranes
5%
Corp./Other
21%
Materials
Processing
NET SALES
BY GEOGRAPHY
2013
2014
2015
2016
CEO Graphs
6
5
4
3
2
1
0
6
5
4
3
2
1
0
CEO Graphs
45%
Aerial Work
Platforms
29%
Cranes
51%
USA/Canada
CONSOLIDATED
27%
Western Europe
NET SALES
(USD IN BILLIONS)
5.34
5.48
6
5
4
22%
Rest of
3
the World
2
1
0
5%
Corp./Other
21%
Materials
Processing
2013
2014
2015
CONSOLIDATED
NET SALES
2016
(USD IN BILLIONS)
5.34
5.48
5.02
4.44
6
5
4
3
2
1
0
2013
2014
2015
2016
2013
2014
2015
2016
6
5
4
3
2
1
0
Focus
During the past year, we made significant progress in focusing our
portfolio. In one of the largest transactions in our history, we entered
into an agreement in May to divest our Material Handling and Port
Solutions (MHPS) segment to Konecranes Plc for $1.28 billion in
cash and stock. The industrial logic of this business combination
was compelling, and as a result significant value was created for both
Konecranes and Terex shareholders. In fact, when the transaction
closed on January 4, 2017, its value to Terex had grown from $1.28
billion to $1.54 billion as a result of Konecranes stock price appreci-
ation. We greatly value the contributions of all MHPS team members
during our ownership of this segment, and would particularly like to
thank the MHPS leadership team that guided the business through
both challenging market conditions and the transition period between
the announcement of the sale and closing.
In addition to the MHPS divestiture, we sold our German compact
construction equipment business and signed a contract to divest our
UK site dumper and loader backhoe business. Both counterparties
are strategic buyers who can bring greater growth and value to
these businesses, benefiting customers and team members. With
the completion of these transactions, the Focus element of our
transformation strategy is largely complete.
The operations that remain are global businesses with strong brands
and leading market positions as evidenced by their long and success-
ful histories. In fact, two of our segments’ flagship brands, Genie and
Powerscreen, celebrated 50-year anniversaries in 2016. Today both
brands have global presence and large machine populations delivering
value for customers. They, together with our flagship Demag Mobile
Cranes brand, represent a solid foundation upon which to build value
for all of our stakeholders.
27%
Western Europe
51%
USA/Canada
22%
Rest of
the World
Simplify
Terex executed more than 50 acquisitions over the last 20 years,
helping to create the global enterprise we are today. Our history of
acquisitions also added significant administrative and manufacturing
complexity that made our company expensive to operate. During
2016, we disclosed the sale or consolidation of 14 of 38 factories
(excluding MHPS), 8 of which were completed during the year. These
actions will improve manufacturing efficiency while maintaining ade-
quate capacity to accommodate significant future growth. We have
also addressed our overhead burden by reducing administrative
complexity and streamlining our internal reporting structure. These
initiatives will lower administrative spending and create opportunities
to increase investment in engineering, sales and marketing, where
returns on investment are higher. Over the medium term, I expect
these actions will lead to improved competitiveness, profitability
and ROIC.
5.02
4.44
Execute To Win
Execute To Win centers on three core management processes:
strategy development, talent management and operational execution.
The strategy development and talent management processes at
Terex are fairly well defined and provide a solid foundation to build
2013
2014
2015
2016
3
Forbes Magazine—December 20, 2016
The Just 100: America’s Best Corporate Citizens
Terex Ranked #2 of 32 in the Machinery Category
Recognized for Worker Treatment and Safety, Corporate Integrity and
Product Quality and Benefits
upon. Operational execution is our biggest improvement opportunity, particularly in the areas of supply
chain, parts and service delivery, and sales management and planning. We have created improvement
initiatives in these three areas, appointed leaders responsible for results, and formed a program man-
agement office to track results and drive accountability. I believe these initiatives will lead to an improved
Terex customer experience, greater working capital efficiency, and substantial cost reductions. The
improvement opportunities I see in Execute To Win, as well as in our continuing drive to Simplify, are
what make me excited about Terex’s future.
Capital Allocation
One of our foundational commitments to shareholders is to deliver greater than 10% ROIC throughout
the economic cycle. A key to delivering on our ROIC commitment is our well-defined capital allocation
strategy, which helps us maintain the appropriate level of invested capital. Our primary sources of capital
are cash generated from operations and after-tax cash from divestitures, including the divestiture of
MHPS. Our plan for the application of that capital is to 1) repay debt to an optimal net debt to EBITDA
leverage ratio of approximately 2.5 times; 2) invest in organic growth (our highest return investment); 3)
invest in restructuring actions, and 4) efficiently return capital to shareholders through dividends and
share repurchases. For the next several years, it is our intention to de-emphasize acquisitions. When we
complete our transformation to a high performance enterprise, we will then have the processes in place
necessary to create high returns from future acquisitions. By adhering to this disciplined capital alloca-
tion plan in the near term, while executing our strategy of Focus, Simplify and Execute To Win to drive
operating earnings, we expect to generate high and sustainable ROIC for our owners.
I would like to thank our team members around the world for their hard work and dedication. It is their
energy and creativity that will drive the Terex transformation. I would also like to highlight that in December
2016 Terex was named to the inaugural top 100 list of “Just” companies as compiled by non-profit
organization Just Capital and published in Forbes magazine. In developing the list, close to 900 of the
largest U.S. public companies were measured in several areas including corporate integrity, worker
treatment and safety, and product quality and benefits. Terex ranked as the number two “Just” company
among 32 in the Machinery category, an impressive result that reflects the commitment of our team
members to the Terex Way values.
On behalf of our Leadership Team and the Board of Directors, I would like to thank you for your interest
in and support of Terex Corporation. Be assured, we remain firmly committed to meeting or exceeding
your expectations.
Sincerely,
John L. Garrison
President and Chief Executive Officer
4
Aerial Work Platforms
Terex Business
SEGMENTS
At-A-Glance
NET SALES
BY PRODUCT
46%
Boom Lifts
33%
Scissor Lifts
NET SALES
BY GEOGRAPHY
60%
USA/Canada
20%
Western Europe
8%
Small Aerials,
Light Towers & Other
13%
Telehandlers
20%
Rest of the World
Cranes
AERIAL WORK
PLATFORMS
2.5
Aerial Work Platforms
61%
2.40
Mobile Cranes
2.17
2.5
NET SALES
BY PRODUCT
NET SALES
(USD IN BILLIONS)
2013
2014
2015
2016
0
2013
2014
2015
2016
2.0
1.5
1.0
0.5
0.0
CRANES
Materials Processing
2.0
1.5
1.0
0.5
0.0
2013
2014
2015
2016
MATERIALS
PROCESSING
1.0
0.8
0.6
0.4
0.2
0.0
2013
2014
2015
2016
2.0
1.5
1.0
0.5
1.5
1.0
0.5
0.86
1.0
0.8
0.6
0.4
0.2
31%
Utilities
2.25
1.98
8%
Tower Cranes
NET SALES
NET SALES
BY GEOGRAPHY
BY PRODUCT
40%
USA/Canada
46%
Boom Lifts
28%
Western Europe
33%
Scissor Lifts
NET SALES
BY GEOGRAPHY
60%
USA/Canada
20%
Western Europe
8%
Small Aerials,
Light Towers & Other
32%
Rest of the World
13%
Telehandlers
20%
Rest of the World
Cranes
NET SALES
BY PRODUCT
NET SALES
(USD IN BILLIONS)
62%
Crushing &
Screening
1.66
1.79
2.0
NET SALES
(USD IN BILLIONS)
NET SALES
NET SALES
BY GEOGRAPHY
BY PRODUCT
49%
USA/Canada
61%
2.40
Mobile Cranes
2.17
26%
Western Europe
31%
Utilities
2.25
1.98
2.5
1.27
2.0
NET SALES
BY GEOGRAPHY
40%
USA/Canada
28%
Western Europe
20%
Concrete
1.57
7%
Environmental
0
2013
2014
2015
2016
1.5
1.0
11%
Material
0.5
Handlers
25%
Rest of the World
8%
Tower Cranes
32%
Rest of the World
2013
2014
2015
2016
0
2013
2014
2015
2016
NET SALES
(USD IN BILLIONS)
Materials Processing
0.94
0.94
0.94
NET SALES
BY GEOGRAPHY
49%
USA/Canada
26%
Western Europe
NET SALES
BY PRODUCT
NET SALES
(USD IN BILLIONS)
62%
Crushing &
Screening
1.66
1.79
2.0
20%
Concrete
1.57
1.27
1.5
1.0
0.5
7%
Environmental
11%
Material
Handlers
25%
Rest of the World
0
2013
2014
2015
2016
2013
2014
2015
2016
0
2013
2014
2015
2016
NET SALES
(USD IN BILLIONS)
0.94
0.94
0.94
0.86
1.0
0.8
0.6
0.4
0.2
5
2013
2014
2015
2016
0
2013
2014
2015
2016
2.5
2.0
1.5
1.0
0.5
0.0
2.0
1.5
1.0
0.5
0.0
1.0
0.8
0.6
0.4
0.2
0.0
Disciplined Capital Allocation Strategy
OPTIMAL CAPITAL
STRUCTURE
• Debt Repayment
~2.5X Net Debt to EBITDA
RESTRUCTURING
INVESTMENTS
• Administrative Cost Reduction
• Footprint Rationalization
CASH GENERATED FROM
OPERATIONS +
DIVESTITURE PROCEEDS
• Process Driven
• Focused Portfolio
ORGANIC GROWTH
INVESTMENTS
• Product and Service Development
• Targeted Geographic Expansion
EFFICIENT RETURN
OF CAPITAL TO
SHAREHOLDERS
• Dividends
• Share Repurchases
“ …disciplined capital allocation…while executing our strategy of
Focus, Simplify and Execute To Win to drive operating earnings…
to generate high and sustainable ROIC for our owners.”
6
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, 2016
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-10702
TEREX CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State of Incorporation)
200 Nyala Farm Road, Westport, Connecticut
(Address of principal executive offices)
34-1531521
(IRS Employer Identification No.)
06880
(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 (or for such shorter period that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days.
YES
NO
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
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, 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
Accelerated Filer
Non-accelerated Filer
Smaller Reporting Company
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 $2,156
million based on the last sale price on June 30, 2016.
THE NUMBER OF SHARES OF THE REGISTRANT’S COMMON STOCK OUTSTANDING WAS 105.9 MILLION AS OF
February 21, 2017.
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 2017 Annual Meeting of Stockholders are incorporated by reference into Part III hereof.
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, 2016, 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 and the Private Securities Litigation Reform Act of 1995)
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,” “should,” “intends,” “anticipates,” “believes,” “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;
our 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 highly competitive and is affected by our cost structure, pricing, product initiatives and other actions
taken by competitors;
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;
•
•
•
the carrying value of our goodwill could become impaired;
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, commodity price changes, 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, intellectual property claims, class action lawsuits and other liabilities;
our ability to comply with an injunction and related obligations imposed by the United States Securities and Exchange
Commission (“SEC”);
disruption or breach in our information technology systems; 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.
2
TEREX CORPORATION AND SUBSIDIARIES
Index to Annual Report on Form 10-K
For the Year Ended December 31, 2016
PART I
PAGE
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosure
PART II
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
PART IV
Exhibits and Financial Statement Schedules
Form 10-K Summary
4
17
23
24
25
25
25
28
29
52
53
54
54
54
55
55
55
55
55
56
56
3
PART I
ITEM 1.
BUSINESS
GENERAL
Terex is a global manufacturer of lifting and material processing products and services that deliver lifecycle solutions to maximize
customer return on investment. The Company delivers lifecycle solutions to a broad range of industries, including the construction,
infrastructure, manufacturing, shipping, transportation, refining, energy, utility, quarrying and mining industries. We report in
three business segments: (i) Aerial Work Platforms (“AWP”); (ii) Cranes; and (iii) Materials Processing (“MP”).
Our Company was incorporated in Delaware in October 1986 as Terex U.S.A., Inc. We have changed significantly since that time,
and much of this change has been historically accomplished through acquisitions and managing our portfolio of companies by
divestiture of non-core businesses and products. We also continue to focus on becoming an industry leading operating company.
Our business is international in scope, with our products manufactured in North and South America, Europe, Australia and Asia
and sold worldwide.
For financial information about our industry and a description of recent business reorganizations and segment descriptions, including
geographic information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note
C – “Business Segment Information” in the Notes to the Consolidated Financial Statements.
AERIAL WORK PLATFORMS
Our AWP segment designs, manufactures, services and markets aerial work platform equipment, telehandlers and light towers.
Products include portable material lifts, portable aerial work platforms, trailer-mounted articulating booms, self-propelled
articulating and telescopic booms, scissor lifts, telehandlers and trailer-mounted light towers as well as their related components
and replacement parts. Customers use these products to construct and maintain industrial, commercial and residential buildings
and facilities and for other commercial operations, as well as in a wide range of infrastructure projects. We market aerial work
platform products principally under the Terex® and Genie® brand names.
AWP has the following significant manufacturing operations:
• Aerial work platform equipment is manufactured in Redmond and Moses Lake, Washington, Rock Hill, South Carolina,
Umbertide, Italy and Changzhou, China;
• Telehandlers are manufactured in Oklahoma City, Oklahoma and Umbertide, Italy; and
• Trailer-mounted light towers are manufactured in Rock Hill, South Carolina.
We have a parts and logistics center located in North Bend, Washington for our aerial work platform equipment. Additionally, a
portion of our aerial work platform parts business is conducted at a shared Terex facility in Southaven, Mississippi. Our European,
Asian Pacific and Latin American parts and logistics operations are conducted through out-sourced facilities.
CRANES
Our Cranes segment designs, manufactures, services, refurbishes and markets mobile telescopic cranes (all terrain cranes, rough
terrain cranes, truck-mounted cranes (boom trucks), truck cranes, and pick and carry cranes), lattice boom crawler cranes, tower
cranes, and utility equipment, as well as their related components and replacement parts. Customers use these products primarily
for construction, repair and maintenance of commercial buildings, manufacturing facilities, energy related projects, construction
and maintenance of utility and telecommunication lines, tree trimming, certain construction and foundation drilling applications
and a wide range of infrastructure projects. We market our Cranes products principally under the Terex® and Demag® brand names.
4
Cranes has the following significant manufacturing operations:
• Rough terrain cranes are manufactured in Crespellano, Italy and Oklahoma City, Oklahoma;
• All-terrain cranes are manufactured in Montceau-les-Mines, France, and Zweibrücken, Germany;
• Truck cranes are manufactured in Oklahoma City, Oklahoma;
• Truck-mounted cranes are manufactured in Oklahoma City, Oklahoma;
• Tower cranes are manufactured in Fontanafredda, Italy;
• Lattice boom crawler cranes are manufactured in Oklahoma City, Oklahoma, Jinan, China, and Zweibrücken, Germany;
•
•
• Utility products are manufactured in Watertown and Huron, South Dakota and Betim, Brazil.
Pick and carry cranes are manufactured in Brisbane, Australia;
Steel assemblies for cranes are manufactured in Bierbach-Homburg, Germany and Pecs, Hungary; and
We also provide service and support for utility and aerial products in the U.S. through a network of service branches and field
service operations. We have announced plans to exit and sell our facilities in Bierbach-Homburg, Germany, Pecs, Hungary, Jinan,
China and Betim, Brazil.
We have a minority interest in a Chinese company which manufactures truck cranes and truck-mounted cranes in China.
MATERIALS PROCESSING
Our MP segment designs, manufactures and markets materials processing and specialty equipment, including crushers, washing
systems, screens, apron feeders, material handlers, wood processing, biomass and recycling equipment, concrete mixer trucks and
concrete pavers, and their related components and replacement parts. Customers use these products in construction, infrastructure
and recycling projects, in various quarrying and mining applications, as well as in landscaping and biomass production industries,
material handling applications, and in building roads and bridges. We market our MP products principally under the Terex®,
Powerscreen®, Fuchs® and CBI® brand names and the Terex® name in conjunction with certain historic brand names.
MP has the following significant manufacturing operations:
• Mobile crushers, mobile screens and washing systems are manufactured in Omagh and Dungannon, Northern Ireland;
• Mobile crushers, mobile screens, base crushers, base screens, modular and wheeled crushing and screening plants, track
conveyors and washing systems are manufactured in Hosur, India, primarily for the Indian market and for export in Asia,
Middle East and East Africa Regions;
Screening equipment is manufactured in Durand, Michigan;
• Base crushers and base screens are manufactured in Subang Jaya, Malaysia and Oklahoma City, Oklahoma;
•
• Base crushers are manufactured in Coalville, England;
• Wood processing, biomass and recycling equipment systems are manufactured in Newton, New Hampshire, and
Dungannon, Northern Ireland.
• Material handlers are manufactured in Bad Schönborn, Germany;
• Concrete pavers are manufactured in Canton, South Dakota; and
•
Front and rear discharge concrete mixer trucks are manufactured in Fort Wayne, Indiana.
We have a North American distribution center in Louisville, Kentucky and service centers in Australia, Thailand, Turkey and
Malaysia.
OTHER
We may assist customers in their rental, leasing and acquisition of our products through Terex Financial Services (“TFS”). TFS
uses its equipment financing experience to provide financing solutions to our customers who purchase our equipment. TFS provides
financing support primarily: (i) in the United States and on a limited basis in China, originating, underwriting, documenting,
funding and servicing financing transactions directly with end-user customers, distributors and rental companies; and (ii) by
facilitating loans and leases between our customers and third party financial institutions. Most of the transactions are fixed and
floating rate loans. However, TFS also provides sales-type leases, operating leases and rentals. TFS, in the normal course of
business, also sells loans and leases to financial institutions with which it has established relationships.
The on-book financing activities of TFS have primarily been limited to the United States and China. Additionally, in those countries
in which TFS engages in on-book financing, TFS continually evaluates the level to which it utilizes third party funding versus
direct customer financing to meet its business objectives.
5
TFS continually monitors used equipment values of Terex equipment in the secondary market sales channels for all of our equipment
categories. This provides a basis for TFS to project future values of equipment for the underwriting of leases or loans. These re-
marketing channels are also used if equipment is returned at end of lease, or is repossessed in case of a customer default. TFS uses
the resale channel which maximizes proceeds and/or mitigates risk for Terex and our funding partners.
DISCONTINUED OPERATIONS
Material Handling and Port Solutions (“MHPS”)
On January 4, 2017, the Company completed the disposition of its MHPS business (the “Disposition”) to Konecranes Plc, a Finnish
public company limited by shares (“Konecranes”) pursuant to a Stock and Asset Purchase Agreement (the “SAPA”). In connection
with the Disposition, we received 19.6 million newly issued Class B shares of Konecranes and approximately $832 million in cash
after adjustments for estimated cash, debt and net working capital at closing and the divestiture of Konecranes’ Stahl Crane Systems
business (“Stahl”), which was undertaken by Konecranes in connection with the Disposition. The final transaction consideration
is subject to post-closing adjustments for the actual cash, debt and net working capital at closing, the 2016 performance of the
MHPS business and Konecranes business, and the closing of the sale of Stahl. The sale of the Company’s MHPS business to
Konecranes represents a significant strategic shift in the Company’s business away from universal, process, mobile harbor and
ship-to-shore cranes that will have a major effect on the Company’s future operating results, primarily because the MHPS business
represented the entirety of one of the Company’s five previous reportable operating segments and comprised two of the Company’s
six previous reporting units, representing a significant portion of the Company’s revenues and assets, and is therefore accounted
for as a discontinued operation. MHPS products include universal cranes, process cranes and components, such as rope hoists,
chain hoists, light crane systems, travel units and electric motors, primarily for industrial applications, and mobile harbor cranes,
ship-to-shore gantry cranes, rubber tired and rail mounted gantry cranes, straddle carriers, sprinter carriers, reach stackers, container
handlers, general cargo lift trucks, automated stacking cranes, automated guided vehicles and software solutions for logistics
terminals. On February 15, 2017, Terex sold approximately 7.5 million Konecranes shares for net proceeds of approximately $268
million. Following the sale of shares, Terex owns approximately 15.5% of the outstanding shares of Konecranes and has two
director representatives on the Konecranes Board.
See Note A – “Sale of MHPS Business” in the Notes to the Consolidated Financial Statements for further information regarding
the sale of the MHPS business.
Truck Business
On May 30, 2014, the Company sold its truck business, which was consolidated in its former Construction segment, to Volvo
Construction Equipment for approximately $160 million. The truck business manufactured and sold off-highway rigid and
articulated haul trucks. Included in the transaction was the manufacturing facility in Motherwell, Scotland. As a result, the reporting
of the truck business has been included in discontinued operations for all applicable periods presented.
See Note E – “Discontinued Operations and Assets and Liabilities Held for Sale” in the Notes to our Consolidated Financial
Statements for more information on our discontinued operations.
BUSINESS STRATEGY
Terex is a specialized manufacturer of capital equipment and related services. Our goal is to design, manufacture and market
equipment and services that provide superior life-cycle return on invested capital to our customers (“Customer ROIC”). Customer
ROIC is a primary focus of our organization and is central to our ability to generate returns for investors.
6
We operate our business based on our value system, “The Terex Way.” The Terex Way values shape the culture of our Company
and reflect 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 and we never sacrifice our integrity for profit.
• 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, respect
all people’s values and cultures, and are good global, national and local citizens.
During 2016, Terex began implementing a strategic transformation strategy that has three principal elements:
1. Focus the portfolio on businesses best positioned to generate returns above the cost of capital through the cycle.
2. Simplify company structure, systems and footprint to improve efficiency and enhance global competitiveness.
3. Execute to Win, driving process discipline, execution rigor, and accountability in core processes.
The “Focus” element of this strategy is to concentrate our business portfolio in product categories where we are among the top
three competitors and a market leader. Where we are not among the market leaders our strategy has been to either divest those
product lines or pursue a business strategy which we believe will enable us to become a market leader. Being among the leaders
in a category is important as it implies a product offering that customers respect and an ability to generate returns that exceed our
cost of capital. Work related to this strategic theme involves ongoing review of all businesses in the portfolio from the perspectives
of market attractiveness and competitive position.
In pursuit of the focus element of our business strategy, our product portfolio has undergone significant change in recent years.
We took several actions to focus the business portfolio. In particular, we strategically divested our former MHPS segment and
we have also divested many of the businesses that comprised our former Construction segment.
Following the Disposition and sales of our former Construction segment product lines, Terex is a smaller company whose revenue
is more concentrated in terms of both geographic and end market exposures. Our 2016 revenues, excluding divested businesses,
were 51% North America, 27% Western Europe, and 22% other geographies. End-use mix is weighted towards construction and
maintenance end-uses which represented more than 80% of 2016 revenue. Given anticipated economic conditions in the U.S. and
Europe over the next several years, we believe that this mix of products offers meaningful near term opportunity for our Company.
We do not currently anticipate major portfolio actions over the near term that would significantly alter our current business mix.
The “Simplify” element of the Terex strategy is centered on complexity reduction and cost management. Historically, Terex has
grown through acquisitions and our businesses were generally operated autonomously. This resulted in a complex legal entity
structure, multiple financial systems, and high organizational complexity. As part of our transformational strategy, we are addressing
these issues and are implementing strategic initiatives to simplify our structure, footprint and processes. We are working to flatten
and streamline the organization. We have undertaken a financial transformation that will simplify the way that we measure and
manage the Company day-to-day. We are also simplifying the Company’s manufacturing footprint by reducing the number of
production facilities, sharing facilities across businesses, and driving aggressive productivity improvement within the facilities
that we operate. While the actions required to achieve these improvements are difficult, the benefits to both customers and
shareholders are significant.
7
The third major theme of the Terex strategy is “Execute to Win” (“ETW”), which is a focus on three key management processes:
Talent development, strategy development and deployment, and operational excellence. ETW represents a major change in the
philosophy of our Company in terms of where and how work is done. Our goal is to become operationally excellent, balancing
desire for business autonomy with the need for overall efficiency and relying on process excellence as a critical enabler of both
business and company performance. We have identified three specific near-term transformational priorities in our implementation
of Execute to Win.
1. Lifecycle Solutions are comprehensive solutions that include our equipment and other offerings such as financing, spare
parts, technical and repair services, operator training, and technology solutions that drive Customer ROIC.
2. Commercial Excellence is about driving process discipline and execution in our commercial operations, such as sales,
pricing, marketing, and sales support.
3. Strategic Sourcing will involve implementing a standard, Terex-wide strategic sourcing process that will help us leverage
our spending, thereby achieving lower costs from suppliers.
Each of these activities is being managed as a company-wide priority, with leadership from the center and support from within
Terex businesses. Implementation involves a wide-ranging set of actions that are intended to deliver step-change performance
improvement. These actions appropriately balance the unique needs of specific businesses with overall potential for efficiency
and for leverage on investments. We are expecting major contributions in these three areas over the next one to three years as well
as improved processes that will become foundational drivers for differentiating Terex in the years ahead.
Capital allocation is the final element of our overall strategy. We view capital allocation priorities (in order) as follows:
1. Maintain an optimal capital structure (~2.5 x average net debt to EBITDA over the cycle)
2. Organic growth investments (product & service development, maintenance capex, geographic expansion)
3. Restructuring investments (general & administrative cost reduction, footprint rationalization)
4. Efficient return of capital to shareholders (dividends and share repurchases)
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: portable material lifts; portable aerial work platforms; trailer-
mounted articulating booms; self-propelled articulating and self-propelled telescopic booms; and scissor lifts.
Portable 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 indoor and outdoor applications in a variety of construction, industrial and commercial settings.
•
•
•
TELEHANDLERS. Telehandlers move and place materials on residential and commercial construction sites and are used in the
energy and infrastructure industries.
LIGHT TOWERS. Trailer-mounted light towers are used primarily to light work areas for construction, entertainment, emergency
assistance and security during nighttime or low light applications.
8
CRANES
We offer a wide variety of cranes, including mobile telescopic cranes, lattice boom crawler cranes, tower cranes, and utility
equipment.
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, truck-mounted cranes (boom trucks), all terrain cranes and pick
and carry cranes.
• Rough terrain cranes move materials and equipment on rugged or uneven terrain and are often located on a single
construction or work site for long periods. Rough terrain cranes cannot be driven on highways (other than in Italy) 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.
• 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 capacities 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, and the erection of transmission towers and substation equipment in the
electrical grids.
• All-terrain cranes are a cross between rough terrain and truck cranes, and are designed to travel across both rough terrain
•
and highways.
Pick and carry cranes are designed for a wide variety of applications, including use at mine sites, large fabrication yards,
building and construction sites and in machinery maintenance and installation. They combine high road speed with all-
terrain capability.
LATTICE BOOM CRAWLER CRANES. Lattice boom crawler and lattice boom pedestal cranes are designed to lift material on
rough terrain. The boom is made of tubular steel sections, which, together with the base unit, are transported to and erected at a
construction site. Applications include infrastructure building, wind turbine erection, construction of nuclear power and
petrochemical plants and heavy lifting within oil refineries and the construction industry.
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 of use. We produce the following types of tower
cranes:
•
Self-erecting tower cranes unfold from sections and can be trailer mounted; 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 linear
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.
9
UTILITY EQUIPMENT. Our utility products include digger derricks, auger drills, 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 insulated products used to dig holes, hoist and set utility poles, as well as lift transformers and other
materials at job sites near energized power lines. Auger drills are used to dig holes for utility poles or construction
foundations requiring larger diameter holes in difficult soil conditions.
Insulated aerial devices are used to elevate workers and material to work areas at the top of utility poles near energized
transmission and distribution 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.
SERVICES. We offer a range of services for aerial work platform and utility equipment consisting of inspections, preventative
maintenance, general repairs, reconditioning, refurbishment, modernization and spare parts, as well as consultancy and training
services. Our services are provided on our own products and on third-party products and related equipment.
MATERIALS PROCESSING
Materials processing equipment is used in processing aggregate materials for building applications and is also used in the quarrying,
mining, demolition, recycling, landscaping and biomass production industries. Our materials processing equipment includes
crushers, screens and feeders, washing systems as well as wood and biomass chippers.
We manufacture a range of jaw, impactor (both horizontal and vertical shaft) and cone crushers, as well as base crushers for
integration within mobile, modular and static plants.
•
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. 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 and horizontal screens and feeders, which are used in low to high tonnage applications and are
available as either stationary or heavy-duty mobile equipment. 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,
ore, construction and demolition waste, soil, compost and wood chips.
Feeders are used to unload materials from hoppers and bulk material storage at controlled rates. They are available for
applications ranging from primary feed hoppers to fine material bin unloading. Our range includes apron feeders, grizzly
feeders and pan feeders.
•
Washing system products include mobile and static wash plants incorporating separation, washing, scrubbing, dewatering and
stockpiling. We manufacture mobile and stationary rinsing screens, scrubbing systems, sand screw dewaterers, bucket-wheel
dewaterers, hydrocyclone plants for efficient silt extraction and a range of stockpiling conveyors. Washing systems operate in the
aggregates, recycling, mining and industrial sands segments.
Wood processing biomass and recycling equipment includes grinders, chippers, compost turners, shredders, and de-barker
systems. This equipment is used in, among other things, the pulp and paper, wood energy, green waste/construction and
demolition recycling industries.
10
SPECIALTY EQUIPMENT. We manufacture material handlers, concrete mixer trucks and concrete pavers.
• Material handlers are designed for handling logs, scrap, recycling and other bulky materials with clamshell, magnet or
grapple attachments.
• Concrete mixer trucks are machines with a large revolving drum in which cement is mixed with other materials to make
concrete. We offer models with custom chassis as well as rear discharge models mounted on commercial chassis, both
with configurations from three to seven axles.
• Our concrete pavers are used to finish bridges, concrete streets, highways and airport surfaces.
PRODUCT CATEGORY SALES
The following table lists our main product categories and their percentage of our total sales:
PRODUCT CATEGORY
Aerial Work Products
Mobile & Tower Cranes
Materials Processing Equipment
Specialty Equipment
Utility Equipment
Telehandlers & Light Construction Equipment
Compact Construction Equipment (1)
Services
PERCENTAGE OF SALES
2016
2015
2014
37%
19
14
9
7
6
6
2
35%
22
13
7
7
8
6
2
34%
23
12
6
6
8
9
2
TOTAL
100%
100%
100%
(1) During the fourth quarter of 2016, we sold the majority of the business that manufactured our compact construction equipment.
BACKLOG
Our backlog for continuing operations as of December 31, 2016 and 2015 was as follows:
AWP
Cranes
MP
Corporate and other
Total
December 31,
2016
2015
(in millions)
$
506.1
323.4
215.6
27.4
$
569.7
407.4
148.5
51.6
$
1,072.5
$
1,177.2
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. Low backlog may indicate less future sales; however, they may also reflect a rapid ability to fill orders
that is appreciated by our customers.
11
Our overall backlog amounts at December 31, 2016 decreased $104.7 million from our backlog amounts at December 31, 2015,
primarily due to lower orders in AWP and Cranes and disposition of certain construction equipment product lines. The translation
effect of foreign exchange rates negatively impacted backlog year-over-year by approximately 2%.
AWP segment backlog at December 31, 2016 decreased approximately 11% from our backlog amounts at December 31, 2015.
This decrease from the prior year was primarily due to lower fleet orders from large North American rental customers.
The backlog at our Cranes segment decreased approximately 21% from December 31, 2015. This decrease from the prior year
was driven by the impact of low oil prices in North America and Middle East and caution in Europe tied to reduced wind power
subsidies in Germany. Foreign exchange negatively impacted 2016 backlog by approximately 1% when compared to 2015.
Our MP segment backlog at December 31, 2016 increased approximately 45% from December 31, 2015. The increase in backlog
over the prior year was primarily due to strong demand for concrete products in the U.S. and timing of orders for crushing and
screening products. Foreign exchange negatively impacted 2016 backlog by approximately 7% when compared to 2015.
Corporate and other backlog at December 31, 2016 decreased approximately 47% from December 31, 2015, primarily due to
disposition of our midi/mini excavators, wheeled excavators, compact wheel loaders, and components product lines in 2016.
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 distributors and, to a lesser extent, strategic accounts. We employ sales representatives who service these
channel partners from offices located throughout the world.
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 Australia,
the United Kingdom, Germany, Spain, Belgium, Italy, France, Scandinavia and China to offer comprehensive service and support
to customers. Distribution via a distributor network is often utilized in other geographic areas, including the United States and
Canada where we also sell directly to key accounts.
We sell utility equipment to the utility and municipal markets through a direct sales effort in certain territories and through
independent distributors in North America. Outside of North America, independent distributors sell our utility equipment directly
to customers.
MATERIALS PROCESSING
We distribute our products through a global network of independent distributors, rental companies, major accounts and direct
sales to customers.
RESEARCH, DEVELOPMENT AND ENGINEERING
We maintain engineering staff primarily at our manufacturing locations to conduct research, development and engineering for site-
specific products. We have also established competency centers that support entire segments from single locations in certain fields
such as control systems. Our businesses also assess global trends to understand future needs of our customers and help us decide
which technologies to implement in future development projects. In addition, our engineering center in India supports our
engineering teams worldwide through new product design, existing product design improvement and development of products for
local markets. Continually monitoring our materials, manufacturing and engineering costs is essential to identify possible savings,
then leverage those savings to improve our competitiveness and our customers’ return on investment. Our research, development
and engineering expenses are primarily incurred to develop (i) additional applications and extensions of our existing product lines
to meet customer needs and take advantage of growth opportunities, and (ii) customer responsive enhancements and continuous
cost improvements of existing products.
12
Our engineering focus mirrors the business priorities of delivering customer responsive solutions, growing in developing markets,
complying with evolving regulatory standards in our global markets and applying our lean manufacturing principles by
standardizing products, rationalizing components and strategically aligning with select global suppliers. Our engineering teams
in China and India represent our commitment to engineering products for developing markets. They take equipment technology
from the developed markets and translate it to appropriate technology for developing markets using the experience and cultural
understanding of engineering teams native to those markets.
Product change driven by regulations requiring Tier 4 emissions compliance in most of our diesel engine powered machinery has
been an important part of our engineering priorities over the last several years and will continue to play a role in product development
programs through 2017, although such role will be increasingly diminished as we move forward. We have increased our emphasis
on creating new models and meeting the demands of our customers. We have also focused on producing more cost-effective
product solutions across various segments.
Costs incurred to develop new products and improve existing products remained relatively flat in 2016 as compared to 2015, but
decreased in 2015 as compared to 2014 due to completion of much of our Tier 4 conversion work, fewer project bids and the
positive effects of changes in foreign exchange rates. We will continue our commitment to appropriate levels of research,
development and engineering spending in order to meet our customer needs, uphold competitive functionality of our products and
maintain regulatory compliance in all the markets that we serve.
MATERIALS
Information regarding principal materials, components and commodities and any risks associated with these items are included
in Item 7A. – “Quantitative and Qualitative Disclosures about Market Risk – Commodities Risk.”
13
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 customers’ 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
Aerial Work Platforms
PRODUCTS
Portable Material Lifts and Portable Aerial
Work Platforms
PRIMARY COMPETITORS
Oshkosh (JLG), Vestil, Sumner and Wesco
Boom Lifts
Scissor Lifts
Telehandlers
Oshkosh (JLG), Haulotte, Linamar (Skyjack), Xtreme/
Tanfield (Snorkel) and Aichi
Oshkosh (JLG), Linamar (Skyjack), Haulotte, Manitou
and Xtreme/Tanfield (Snorkel)
Oshkosh (JLG, Skytrak, Caterpillar and Lull brands),
JCB, CNH, Merlo and Manitou (Gehl)
Trailer-mounted Light Towers
Allmand Bros., Generac, Wacker Neuson
and Doosan
Cranes
Mobile Telescopic Cranes
Tower Cranes
Lattice Boom Crawler Cranes
Liebherr, Manitowoc (Grove), Tadano-Faun, Sumitomo
(Link-Belt), XCMG, Kato, Zoomlion and Sany
Liebherr, Manitowoc
Zoomlion, XCMG and Wolffkran
(Potain), Comansa,
Jaso,
Manitowoc, Sumitomo (Link-Belt), Liebherr, Hitachi,
Kobelco, XCMG, Zoomlion, Fushun and Sany
Lattice Boom Truck Cranes
Liebherr
Truck-Mounted Cranes
Manitowoc (National Crane), Altec and Manitex
Utility Equipment
Altec and Time Manufacturing
Materials Processing
Crushing Equipment
Screening Equipment
Metso, Astec Industries, Sandvik, McCloskey, Komatsu
and Kleemann
Metso, Astec Industries, McCloskey, Kleemann and
Sandvik
Washing systems
McLanahan, Astec Industries and CDE Global
Wood processing biomass and recycling
Vermeer, Bandit, Morbark, Astec Industries, Doppstadt,
Komptech and Hammell
Material Handlers
Liebherr, Sennebogen, Linkbelt, Exodus and Caterpillar
Concrete Pavers
Gomaco, Wirtgen, Power Curbers and Guntert &
Zimmerman
Concrete Mixer Trucks
Oshkosh, Kimble and Continental Manufacturing
MAJOR CUSTOMERS
None of our customers individually accounted for more than 10% of our consolidated net sales in 2016. In 2016, our largest
customer accounted for less than 5% of our consolidated net sales and our top ten customers in the aggregate accounted for less
than 19% of our consolidated net sales.
14
EMPLOYEES
As of December 31, 2016, we had approximately 11,300 employees (excluding approximately 6,800 MHPS employees); including
approximately 4,900 employees in the U.S. Approximately one percent 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®, Demag® and Powerscreen® trademarks.
The other trademarks and trade names that we use include registered trademarks of Terex Corporation or its subsidiaries. Demag®
is a registered trademark of Demag IP Holdings GmbH, which is a joint venture owned 50% by Terex and 50% by Konecranes.
We have many patents that we use in connection with our operations, and most of our products contain some proprietary technology.
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 overall financial results.
Currently, we are engaged in various legal proceedings with respect to intellectual property rights. While the 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. For more detail, see “Item 3 – Legal Proceedings.”
SAFETY AND ENVIRONMENTAL CONSIDERATIONS
As part of The Terex Way, we are committed to providing 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.
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 environmental laws and regulations. All of our employees are required to obey all applicable health, safety and
environmental laws and regulations and must observe proper safety rules and environmental practices in work situations. 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 costs of, and damages resulting from, cleaning up sites, past spills, disposals and other releases of
hazardous substances, should any of such events occur. We are committed to complying with these standards and monitoring our
workplaces to determine if equipment, machinery and facilities meet specified safety standards. Each of our manufacturing facilities
is subject to an environmental audit at least once every five years to monitor compliance and no incidents have occurred which
required us to pay material amounts to comply with such laws and regulations. We are dedicated to seeing that safety and health
hazards are adequately addressed through appropriate work practices, training and procedures. For example, we continue to reduce
lost time injuries in the workplace and work toward a world-class level of safety practices in our industry.
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 arise.
The use and operation of our equipment in an environmentally conscious manner is a priority for us. We are aware of 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 was to include Tier 4 emission compliant
diesel engines in our machinery. This continued to be a priority in 2016 and will continue to play a role in our product development
programs through 2017 (although such role will be diminished going forward) as we move through the engine-horsepower dependent
phase-in of Tier 4 regulations across our diesel-engine equipped products. We manufacture a utility truck that uses plug-in electric
hybrid technology to save fuel, reduce emissions and reduce noise in residential areas.
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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. Compliance
with laws and regulations regarding safety and the environment has required, and will continue to require, us to make expenditures.
We currently do not expect these expenditures to 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 C – “Business
Segment Information” in the Notes to the Consolidated Financial Statements.
SEASONAL FACTORS
Terex is a globally diverse company, supporting multiple end uses. Seasonality is a factor in some businesses, where annual
purchasing patterns are impacted by the seasonality of downstream project spending. Specifically, our businesses can experience
stronger demand during the second quarter, as customers in the northern hemisphere make investments in time for the annual
construction season (April to October).
Non-seasonal macro factors are also important, however, and can surpass seasonal influences in importance in some years. Entering
2017, for example, we would expect the overall economic environment to have greater influence on our sales than historical
seasonal trends. Industry-specific factors, like the AWP replacement cycle, will also be an important, non-seasonal driver of
customer demand.
WORKING CAPITAL
Our businesses are working capital intensive and require funding to purchase production and replacement parts inventories, capital
expenditures to repair, replace and upgrade existing facilities, as well as funding to finance receivables from customers and dealers.
We have debt service requirements, including semi-annual interest payments on our outstanding notes and quarterly interest
payments on our bank credit facility. We believe 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. See Item 1A
“Risk Factors” for a detailed description of the risks resulting from our debt and our ability to generate sufficient cash flow to
operate our business. We will continue to pursue cash generation opportunities, including reducing costs and working capital,
reviewing alternatives for under-utilized assets, and selectively investing in our businesses to promote growth opportunities.
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.
References to our website in this report are provided as a convenience, and the information on our website is not, and shall not be
deemed to be a part of this report or incorporated into any other filings we make with the SEC. The public may read and copy
any materials the Company has filed with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC
20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at (800) SEC-0330.
The SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other information
regarding issuers that file electronically 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,
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.
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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 markets we serve.
Demand for our products tends to be cyclical and is affected by the general strength of the economies in which we sell our products,
prevailing interest rates, residential and non-residential construction spending, capital expenditure allocations of our customers
and other factors. The global economy has continued to experience uneven recovery and financial uncertainty continues to exist,
including as it relates to oil and gas prices. We cannot provide any assurance the global economic weakness of the recent past
will not recur. Uncertainty related to the withdrawal of the United Kingdom (“U.K.”) from the European Union (“E.U.”) could
also negatively impact the global economy, particularly many important European economies. Given the lack of comparable
precedent, it is unclear what financial, trade and legal implications the withdrawal of the U.K. from the E.U. would have and how
such withdrawal would affect us. Further, certain countries in Asia and Latin America have experienced slower growth rates and
the Australian market has experienced declines. If the global economy weakens, it may cause customers to continue to forego or
postpone new purchases in favor of reducing their existing fleets or refurbishing or repairing existing machinery.
Our sales depend in part upon our customers’ replacement or repair cycles, which is impacted in part by historical purchase levels.
It is anticipated there will be reduced replacement demand in certain of our businesses, such as AWP, resulting from very low
industry purchases in 2009 and 2010. In addition, 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 owed to us. If the
global economic weakness of the past several years continues or becomes more severe, or if any economic recovery progresses
more slowly than our market expectations, then there could be an adverse effect on our net sales, financial condition, profitability
and/or cash flow and could result in the need for us to record impairments.
We have a significant amount of debt outstanding and must comply with restrictive covenants in our debt agreements.
Our total debt at December 31, 2016 was approximately $1.6 billion and after our announced debt repayments in 2017, our total
debt will be approximately $1.0 billion. Our credit agreement and other debt agreements contain financial and restrictive covenants
that may limit our ability to, among other things, borrow additional funds or take advantage of business opportunities. While we
are currently in compliance with the financial covenants, increases in our debt or decreases in our earnings could cause us to fail
to comply with these financial covenants. Failing to comply with such covenants could result in an event of default that, if not
cured or waived, could result in the acceleration of all our indebtedness or otherwise have a material adverse effect on our financial
position, results of operations and debt service capability.
Our level of debt and the financial and restrictive covenants contained in our credit agreement could have important consequences
on our financial position and results of operations, including increasing our vulnerability to increases in interest rates because debt
under our credit agreement bears interest at variable rates.
We may be unable to generate sufficient cash flow to service our debt obligations.
Servicing our debt requires 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 refinance, our debt and 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 sales, or uncollectible receivables, generally will reduce our cash flow.
We cannot assure our business will generate sufficient cash flow from operations, or future borrowings will be available to us
under our credit facility or otherwise, in an amount sufficient to fund our liquidity needs.
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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.
Our access to capital markets and borrowing capacity could be limited in certain circumstances.
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. Significant changes in market liquidity conditions could impact access to
funding and associated funding costs, which could reduce our earnings and cash flows. If our consolidated cash flow coverage
ratio is less than 2.0 to 1.0, we are subject to significant restrictions on the amount of indebtedness we can incur. Although our
cash flow coverage ratio was greater than 2.0 to 1.0 at the end of 2016, there can be no assurance this will continue to occur.
Our access to debt financing at competitive risk-based interest rates is partly a function of our credit ratings. A downgrade to our
credit ratings could increase our interest rates, could limit our access to public debt markets, could limit the institutions willing to
provide us credit facilities, and could make any future credit facilities or credit facility amendments more costly and/or difficult
to obtain.
Although we believe 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 or be unwilling to renew our credit facility at or prior to its expiration, it is possible that the borrowing capacity under our
current or any future 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 possible that any such alternatives in the current market could 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. Policies of
governments attempting to address local deficit or structural economic issues could have a material impact on our customers and
markets. 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.
We operate in a highly competitive industry.
Our industry is highly competitive. To compete successfully, our products must excel in terms of quality, reliability, productivity,
price, features, ease of use, safety and comfort, and we must provide excellent customer service. The greater financial resources
of certain of our competitors may put us at a competitive disadvantage. Low-cost competition from China and other developing
markets could also result in decreased demand for our products. If competition in our industry intensifies or if our current
competitors lower their prices for competing products, we may lose sales or be required to lower the prices we charge for our
products. If we are unable to provide continued technological improvements in our equipment that meet our customers’
expectations, or the industry’s expectations, the demand for our equipment could be substantially adversely affected. Our ability
to match new product offerings to diverse global customers’ anticipated preferences for different types and sizes of equipment
and various equipment features and functionality, at affordable prices, is critical to our success. This requires a thorough
understanding of our existing and potential customers on a global basis, particularly in developing markets, including Brazil, China
and India. Failure to compete effectively with our competitors could result in lower revenues from our products and services,
lower gross margins or cause us to lose market share.
We rely on key management.
We rely on the management and leadership skills of our senior management team, particularly those of the Chief Executive Officer.
The loss of the services of key employees or senior officers, or the inability to identify, hire and retain other highly qualified
personnel in the future, could adversely affect the quality and profitability of our business operations.
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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, credit worthiness of our customers and estimated residual value of our equipment. Deterioration in credit quality of
our customers or estimated residual value of our equipment could negatively impact the ability of our customers to obtain resources
they need to purchase our equipment. Given current economic conditions, there can be no assurance third party finance companies
will continue to extend credit to our customers.
Due to ongoing uncertainty in certain global economies, 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 and credit support for some of our customers.
We assist customers in their rental, leasing and acquisition of our products through TFS. We provide financing for some of our
customers, primarily in the U.S., to acquire and use our equipment through loans, sales-type leases, and operating leases. TFS
enters into these financing agreements with the intent either to hold the financing until maturity or to sell the financing to a third
party within a short time period. Until such financing obligations are satisfied through either customer payments or a third party
sale, we retain the risks associated with such customer financing. Our results could be adversely affected if such customers default
on their contractual obligations to us, if residual values of such equipment on these transactions decline below original estimated
values or we are unable to sell the financing receivable to a third party.
As described above, our customers, from time to time, may fund acquisition of our equipment through third-party finance companies.
In certain instances, we may provide credit guarantees, residual value guarantees or buyback guarantees. With these guarantees,
we must assess the probability of losses or non-performance in ways similar to the evaluation of accounts receivable, including
consideration of a customer’s payment history, leverage, availability of third party financing, political and currency exchange
risks, and other factors. Many of these factors, including assessment of a customer’s ability to pay, are influenced by economic
and market factors that cannot be predicted with certainty. In circumstances where we believe it is probable that a specific customer
will have difficulty meeting its financial obligations, a specific reserve is recorded to recognize a liability for a guarantee we expect
to pay, taking into account any amounts that we would anticipate realizing if we are forced to repossess the equipment that supports
the customer’s financial obligations to us. During periods of economic weakness, collateral underlying our guarantees of
indebtedness of customers or receivables can decline sharply, thereby increasing our exposure to losses. In the future, we may
incur losses in excess of our recorded reserves if the financial condition of our customers were to deteriorate further or the full
amount of any anticipated proceeds from the sale of the collateral supporting our customers’ financial obligations is not realized.
To date, losses related to guarantees have been negligible; however, there can be no assurance that our historical experience with
respect to guarantees will be indicative of future results.
We may experience losses in excess of our recorded reserves for trade receivables.
As of December 31, 2016, we had trade receivables of $512.5 million. We evaluate the collectability of open accounts, finance
receivables and note receivables based on a combination of factors and establish reserves based on our estimates of probable
losses. In circumstances where we believe it is probable that a specific customer will have difficulty meeting its financial obligations,
a specific reserve is recorded to reduce the net recognized receivable to the amount we expect to recover. We also establish
additional reserves based upon our perception of the quality of the current receivables, the current financial position of our customers
and past collections experience. Continued economic uncertainty could result in additional requirements for specific reserves,
which could have a negative impact on our consolidated financial position.
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Impairment in the carrying value of goodwill could negatively affect our operating results.
We have a significant amount of goodwill on our balance sheet as a result of acquisitions we have completed. Carrying value of
goodwill represents fair value of an acquired business in excess of identifiable assets and liabilities as of the acquisition date. We
evaluate goodwill for impairment at least annually, or more frequently if potential interim indicators exist that could result in
impairment. In testing for impairment, if we believe, as a result of a qualitative assessment, that it is more likely than not that fair
value of a reporting unit is less than its carrying amount, a quantitative two-step goodwill impairment test is required. In a two-
step goodwill impairment test, if carrying value of a reporting unit exceeds its current fair value as determined based on the
discounted future cash flows of the reporting unit and market comparable sales and earnings multiples, the goodwill is considered
impaired and is reduced to fair value via a non-cash charge to earnings. Events and conditions that could result in impairment
include a prolonged period of global economic weakness and tight credit markets, further decline in economic conditions or a
slow, weak economic recovery, as well as sustained declines in the price of our common stock, adverse changes in interest rates,
or other factors leading to reductions in the long-term sales or profitability that we expect. Determination of fair value of a reporting
unit includes developing estimates which are highly subjective and incorporate calculations that are sensitive to minor changes
in underlying assumptions. Management’s assumptions change as more information becomes available. Changes in these
assumptions could result in additional impairment charges in the future, which could have a significant adverse impact on our
reported earnings. In 2016, we recorded a $176.0 million impairment charge in our Cranes segment’s results to write down
goodwill. For more information, see Note L – “Goodwill and Intangible Assets, Net” in the Notes to the Consolidated Financial
Statements.
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 single source 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, suppliers’ impaired 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.
Principal materials and components used 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 of these materials and components may affect our financial performance. If we are not able to
recover increased raw material or component costs from our customers, our margins could be adversely affected.
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 are subject to currency fluctuations.
Our products are sold in over 100 countries around the world. The reporting currency for our consolidated financial statements
is the U.S. dollar. Certain of our assets, liabilities, expenses, revenues and earnings are denominated in other countries’ currencies,
including the euro, British Pound and Australian dollar. Those assets, liabilities, expenses, revenues and earnings are translated
into U.S. dollars at the applicable exchange rates to prepare our consolidated financial statements. Therefore, increases or decreases
in exchange rates between the U.S. dollar and those other currencies affect the value of those items as reflected in our consolidated
financial statements, even if their value remains unchanged in their original currency. Due to the continued volatility of foreign
currency exchange rates to the U.S. dollar, fluctuations in currency exchange rates may have an impact on the accuracy of our
financial guidance. Such fluctuations in foreign currency rates relative to the U.S. dollar may cause our actual results to differ
materially from those anticipated in our guidance and have a material adverse effect on our business or results of operations. In
addition, as a result of the withdrawal of the U.K. from the E.U., the value of the British Pound has sharply declined as compared
to the U.S. dollar and other currencies. This increased volatility in foreign currencies may continue as the U.K. negotiates and
executes its exit from the E.U., but it is uncertain over what time period this will occur.
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 operations are subject to a number of potential risks. Such risks principally include:
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trade protection measures and currency exchange controls;
labor unrest;
global and 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;
transportation delays and interruptions;
costs and difficulties in integrating, staffing and managing international operations, especially in developing markets such as
China, India, Brazil, Russia and the Middle East;
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.
We must comply with all applicable laws, including the Foreign Corrupt Practices Act (“FCPA”) and other laws that prohibit
engaging in corruption for the purpose of obtaining or retaining business. These anti-corruption laws prohibit companies and their
intermediaries from making improper payments or providing anything of value to improperly influence government officials or
private individuals for the purpose of obtaining or retaining a business advantage regardless of whether those practices are legal
or culturally expected in a particular jurisdiction. Our global activities and distribution model are subject to risk of corruption by
our employees and in addition, our sales agents, distributors, dealers and other third parties that transact Terex business particularly
because these parties are generally not subject to our control. We have an internal policy that expressly prohibits engaging in any
commercial bribery and public corruption, including facilitation payments. We conduct corruption risk assessments, we have
implemented training programs for our employees with respect to the Company’s prohibition against public corruption and
commercial bribery, and we perform reputational due diligence on certain third parties that transact Terex business. In addition,
we conduct transaction testing to assess compliance with our internal anti-corruption policy and procedures. However, we cannot
assure you that our policies, procedures and programs always will protect us from reckless or criminal acts committed by our
employees or third parties that transact Terex business. We have a zero tolerance policy for violations of anti-corruption laws and
our anti-corruption policy. In the event we believe or have reason to believe our employees, agents, representatives, dealers or
distributors or other third parties that transact Terex business have or may have violated applicable anti-corruption laws, including
the FCPA, we investigate or have outside counsel investigate relevant facts and circumstances. Although we have a compliance
program in place designed to reduce the likelihood of potential violations of such laws, any violations of the FCPA or other anti-
corruption laws could result in significant fines, criminal sanctions against us or our employees, prohibitions on the conduct of
our business including our business with the U.S. government, an adverse effect on our reputation, business and results of operations
and financial condition and a violation of our injunction or cease and desist order with the SEC. See Risk Factor entitled, “We
must comply with an injunction and related obligations resulting from the settlement of an SEC investigation.”
We continue to focus on operational improvement in developing markets such as China, India, Brazil and the Middle East. These
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 continuing to improve or expand our operations in developing markets may divert
management’s attention from our existing operations and require a greater level of resources than we plan to commit.
Expansion into developing markets may require modification of products to meet local requirements or preferences. Modification
to the design of our products to meet local requirements and preferences may take longer or be more costly than we anticipate and
could have a material adverse effect on our ability to achieve international sales growth.
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A material disruption to one of our significant manufacturing plants could adversely affect our ability to generate revenue.
We produce most of our machines for each product type at one manufacturing facility. If operations at a significant facility were
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 may be adversely impacted by work stoppages and other labor matters.
As of December 31, 2016, we employed approximately 11,300 people worldwide in our continuing operations businesses. 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 team members or 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 team members. 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 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. Some environmental laws impose strict, retroactive and joint and several liability for the remediation of the release of
hazardous substances, which could subject us to liability without regard to whether we were negligent or at fault. Failure to comply
with environmental laws could expose us to substantial fines or penalties and to civil and criminal liability. These liabilities,
sanctions, damages and remediation efforts related to any non-compliance with such laws and regulations could have a material
adverse effect on our business or results of operations. 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 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. In
particular, climate change is receiving increasing attention worldwide. Many scientists, legislators and others attribute climate
change to increased levels of greenhouse gases, including carbon dioxide, which has led to significant legislative and regulatory
efforts to limit greenhouse gas emissions. While additional regulation of emissions in the future appears likely, it is too early to
predict how new regulations would ultimately affect our business, operations or financial results, although government policies
limiting greenhouse gas emissions of our products will likely require increased compliance expenditures on our part.
We are also continuing the transition to Tier 4 power systems. While plans are in place to comply with the phase-in of Tier 4
regulations, we are dependent on our engine suppliers to continue to timely deliver. A failure to timely receive appropriate engines
from our suppliers could result in our being placed in uncompetitive positions or without finished product when needed. Compliance
with environmental laws and regulations has required, and will continue to require, us to make expenditures, however we do not
expect these expenditures to have a material adverse effect on our business or results of operations.
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 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. We obtain insurance coverage for catastrophic losses as well
as those risks where insurance is required 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 a securities class action lawsuit and a stockholder derivative lawsuit. These lawsuits generally cover the
time 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. We believe that the allegations in the
suits are without merit, and Terex, its directors 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 with respect to these matters. However, the outcome
of the lawsuits cannot be predicted and, if determined adversely, could ultimately result in us incurring significant liabilities.
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In connection with the Company’s purchase of Demag Cranes AG (a component of MHPS), certain former shareholders of Demag
Cranes AG initiated proceedings relating to (i) a domination and profit loss transfer agreement between Demag Cranes AG and
Terex Germany GmbH & Co. KG (the “DPLA Proceeding”) and (ii) the squeeze out of the former Demag Cranes AG shareholders
(the “Squeeze out Proceeding”) against the Company alleging that the Company did not pay fair value for the shares of Demag
Cranes AG. The Company believes it did pay fair value for the shares of Demag Cranes AG and that no further payment from the
Company to any former shareholders of Demag Cranes AG is required. The initial court ruling in the DPLA Proceeding was in
favor of the Company and against the claimants ( i.e. no increase in compensation was owed to the former shareholders). However,
the court did rule that the costs of the proceedings, including legal costs for both parties, would need to be borne by Terex. This
initial court ruling in the DPLA Proceeding is being appealed. The Squeeze out Proceeding is still in the relatively early stages.
While the Company believes the position of the former shareholders of Demag Cranes AG is without merit and is vigorously
opposing it, no assurance can be given as to the final resolution of these disputes or that the Company will not ultimately be
required to make an additional payment as a result of such disputes, which amount could be material.
We must comply with an injunction and related obligations imposed by the SEC.
We and our directors, officers and employees are required to comply at all times with the terms of a settlement with the SEC that
includes an injunction barring 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. In addition, regarding a separate
and unrelated SEC matter, we consented to the entry of an administrative cease and desist order prohibiting future violations of
certain provisions of the federal securities laws. As a result, 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.
We may be adversely affected by disruption in, or breach in security of, our information technology systems.
We rely on information technology systems, some of which are managed by third parties, to process, transmit and store electronic
information (including sensitive data such as confidential business information and personally identifiable data relating to
employees, customers and other business partners), and to manage or support a variety of critical business processes and activities.
These systems may be damaged, disrupted or shut down due to attacks by computer hackers, computer viruses, employee error
or malfeasance, power outages, hardware failures, telecommunication or utility failures, catastrophes or other unforeseen events,
and in any such circumstances our system redundancy and other disaster recovery planning may be ineffective or inadequate. A
failure of or breach in information technology security could expose us and our customers, distributors and suppliers to risks of
misuse of information or systems, the compromise of confidential information, manipulation and destruction of data, defective
products, production downtimes and operations disruptions. In addition, such breaches in security could result in litigation,
regulatory action and potential liability, as well as the costs and operational consequences of implementing further data protection
measures, each of which could have a material adverse effect on our business or results of operations.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
Not applicable.
23
ITEM 2.
PROPERTIES
As of December 31, 2016, our principal manufacturing, warehouse, service and office facilities comprised a total of approximately
9 million square feet of space worldwide. The following table outlines the principal manufacturing, warehouse, service and office
facilities owned or leased (as indicated below) by the Company and its subsidiaries in relation to our continuing businesses:
BUSINESS UNIT
FACILITY LOCATION
BUSINESS UNIT
FACILITY LOCATION
Terex (Corporate Offices) Westport, Connecticut (1)
MP
AWP
Cranes
Schaeffhausen, Switzerland
Oklahoma City, Oklahoma
Rock Hill, South Carolina
Moses Lake, Washington (1)
North Bend, Washington (1)
Redmond, Washington (1)
Darra, Australia (1)
Changzhou, China
Umbertide, Italy
Watertown, South Dakota (1)
Huron, South Dakota
Brisbane, Australia (1)
Betim, Brazil (1) (2)
Jinan, China (2)
Long Crendon, England (1)
Montceau-les-Mines, France (3)
Bierbach-Homburg, Germany (1) (2)
Zweibrücken-Dinglerstrasse, Germany(1)
Zweibrücken-Wallerscheid, Germany (1)
Pecs, Hungary (1) (2)
Crespellano, Italy
Fontanafredda, Italy
Corporate/Other
Louisville, Kentucky
Durand, Michigan
Coalville, England
Hosur, India
Subang Jaya, Malaysia (1)
Omagh, Northern Ireland (1)
Dungannon, Northern Ireland (1)
Newton, New Hampshire
Ballymoney, Northern Ireland
Canton, South Dakota
Fort Wayne, Indiana
Bad Schönborn, Germany
Southaven, Mississippi (1)
Coventry, England (1) (2)
Greater Noida, Uttar Pradesh, India (1) (2)
(1) These facilities are either leased or subleased.
(2) Plans have been announced to exit the business associated with these facilities.
(3) This is a shared facility between Cranes and MHPS that was included in the Disposition.
We also have numerous owned or leased locations for new machine and parts sales and distribution and rebuilding of components
located worldwide.
We believe the properties listed above are suitable and adequate for our use. We have determined that certain of our other properties
exceed our requirements. Such properties may be sold, leased or utilized in another manner and have been excluded from the
above list.
24
ITEM 3.
LEGAL PROCEEDINGS
General
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 the outcome of such matters, individually and
in aggregate, will not have a material adverse effect on our consolidated financial position. However, the outcomes of lawsuits
cannot be predicted and, if determined adversely, could ultimately result in us incurring significant liabilities which could have a
material adverse effect on our results of operations.
For information concerning litigation and other contingencies and uncertainties, including our securities class action and
stockholder derivative lawsuits as well as proceedings involving certain former shareholders of Demag Cranes AG, see Note S –
“Litigation and Contingencies,” in the Notes to the Consolidated Financial Statements.
ITEM 4.
MINE SAFETY DISCLOSURE
Not applicable.
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:
Fourth
Third
Second
First
Fourth
Third
Second
First
2016
2015
High
Low
$
$
33.17
21.88
$
$
25.66
19.49
$
$
25.57
18.91
$
$
25.38
13.62
$
$
22.76
17.29
$
$
27.11
16.54
$
$
29.32
22.25
$
$
28.53
22.01
We declared and paid a $0.07 per share dividend during each quarter of 2016 and $0.06 during each quarter of 2015. 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 declared a dividend of $0.08 per share in the first quarter of 2017, which will be paid in March 2017.
However, any additional 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 21, 2017, there were 758 stockholders of record of our Common Stock.
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, the 2016 Peer Group (as defined below) and the 2015 Peer Group (as defined below) for the period commencing
December 31, 2011 through December 31, 2016. The cumulative total stockholder return assumes dividends are reinvested. The
stockholder return shown on the graph below is not indicative of future performance. The companies in the 2016 Peer Group and
2015 Peer Group are weighted by market capitalization. We have revised our peer group to match the peer group that is used by
our Compensation Committee in benchmarking our executive officer’s compensation.
25
The 2015 Peer Group, used in last year’s Annual Report on Form 10-K, consists of the following companies that are in our same
industry, of comparable revenue size to us and/or other manufacturing companies: AGCO Corporation, Cameron International
Corporation, Carlisle Companies Inc., Crane Company, Cummins Inc., Dover Corporation, Flowserve Corporation, FMC
Technologies, Inc., Hubbell Inc., Illinois Tool Works Inc., Ingersoll-Rand Plc, Joy Global Inc., Lennox International Inc., The
Manitowoc Company, Inc., Meritor Inc., Navistar International Corporation, Oshkosh Corporation, Paccar Inc., Parker-Hannifin
Corporation, Pentair Ltd., Rockwell Automation, Inc., Roper Technologies Inc., SPX Corporation, Textron Inc., Timken Company
and Trinity Industries Inc.
The 2016 Peer Group consists of the same companies in the 2015 Peer Group with the following exceptions: Cameron International
Corporation, Cummins Inc., Illinois Tool Works Inc., Ingersoll-Rand Plc, Paccar Inc., Parker-Hannifin Corporation, SPX
Corporation and Textron Inc. were removed and Dana Incorporated and Westinghouse Air Brake Technologies Corporation were
added.
Terex Corporation
S&P 500
2015 Peer Group
2016 Peer Group
12/11
100.00
100.00
100.00
100.00
12/12
208.07
116.00
122.22
115.28
12/13
311.22
153.58
173.30
161.82
12/14
207.78
174.60
176.80
155.66
12/15
139.16
177.01
148.72
132.86
12/16
240.39
198.18
197.76
166.85
Copyright© 2016 Standard & Poor's, a division of The McGraw-Hill Companies Inc. All rights reserved. (www.researchdatagroup.com/S&P.htm)
(b) Not applicable.
26
(c) The following table provides information about purchases during the quarter ended December 31, 2016 of our common stock
that is registered by us pursuant to the Exchange Act.
Issuer Purchases of Equity Securities
Period
October 1, 2016 – October 31, 2016
November 1, 2016 – November 30, 2016
December 1, 2016 – December 31, 2016
Total
(a) Total Number of
Shares Purchased
(b) Average Price
Paid per Share
—
78,760 (2)
—
78,760
$—
$22.69
$—
$22.69
(c) Total Number
of Shares
Purchased as Part
of Publicly
Announced Plans
or Programs (1)
—
74,760
—
74,760
(d) Approximate
Dollar Value of
Shares that May
Yet be Purchased
Under the Plans
or Programs (in
thousands) (1)
$70,402
$68,729
$68,729
$68,729
(1)
In February 2015, our Board of Directors authorized and the Company publicly announced the repurchase of up to $200 million of the Company’s outstanding
common shares.
(2)
In November 2016, the Company purchased 4,000 shares of common stock to satisfy requirements under its deferred compensation obligations to employees.
27
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 Operations. This selected
financial data includes comparative income statement data whose presentation has been retrospectively adjusted for the effects of discontinued
operations. All periods are presented on a consistent basis.
(in millions, except per share amounts and employees)
AS OF OR FOR THE YEAR ENDED DECEMBER 31,
2016
2015
2014
2013
2012
$ 4,443.1
$ 5,021.7
$ 5,484.0
$ 5,344.5
$ 5,217.4
SUMMARY OF OPERATIONS
Net sales
Income (loss) from operations
Income (loss) from continuing operations
Income (loss) from discontinued operations – net of tax
Gain (loss) on disposition of discontinued operations – net of tax
Net income (loss) attributable to common stockholders
Per Common and Common Equivalent Share:
Basic attributable to common stockholders
(147.8)
(193.3)
14.3
3.5
(176.1)
Income (loss) from continuing operations
$
(1.79) $
Income (loss) from discontinued operations – net of tax
Gain (loss) on disposition of discontinued operations – net of tax
Net income (loss) attributable to common stockholders
0.13
0.03
(1.63)
Diluted attributable to common stockholders
Income (loss) from continuing operations
$
(1.79) $
Income (loss) from discontinued operations – net of tax
Gain (loss) on disposition of discontinued operations – net of tax
Net income (loss) attributable to common stockholders
0.13
0.03
(1.63)
323.7
128.2
17.4
3.4
145.9
1.20
0.13
0.03
1.36
1.17
0.13
0.03
1.33
$
$
400.0
252.0
8.9
58.6
319.0
2.31
0.06
0.54
2.91
2.22
0.06
0.51
2.79
418.6
222.1
(3.8)
2.6
327.3
70.5
32.7
0.4
226.0
105.8
$
2.04
$
(0.03)
0.02
2.03
$
1.94
$
(0.03)
0.02
1.93
0.67
0.29
—
0.96
0.65
0.28
—
0.93
CURRENT ASSETS AND LIABILITIES
(1)
Current assets (1)
Current liabilities
PROPERTY, PLANT AND EQUIPMENT
Net property, plant and equipment
Capital expenditures
Depreciation
TOTAL ASSETS (1)
CAPITALIZATION
$ 2,700.5
$ 3,140.2
$ 3,352.3
$ 3,633.9
$ 3,791.4
1,407.0
1,458.6
1,643.0
1,724.7
1,708.8
$
304.6
$
371.9
$
339.7
$
373.2
$
382.3
(58.1)
65.5
(81.5)
63.9
(58.3)
70.4
(55.4)
68.9
(48.1)
64.7
$ 5,006.8
$ 5,616.0
$ 5,903.3
$ 6,511.2
$ 6,712.9
Long-term debt and notes payable (includes capital leases) (1)
Total Terex Corporation Stockholders’ Equity
$ 1,575.8
$ 1,796.2
$ 1,754.8
$ 1,922.5
$ 1,984.4
1,484.7
1,877.4
2,005.9
2,190.1
2,007.7
Dividends per share of Common Stock
Shares of Common Stock outstanding at year end
EMPLOYEES
(2)
0.28
105.0
0.24
107.7
0.20
105.4
0.05
109.9
11,300
13,700
13,400
13,100
—
109.9
13,300
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,” “Dispositions,” “Goodwill,” “Long-Term Obligations” and “Stockholders’ Equity.”
(1) We adopted ASU 2015-03, “Imputation of Interest: Simplifying the Presentation of Debt Issuance Cost,” as of January 1, 2016 on a retrospective basis, by recasting all prior periods shown to
reflect the effect of adoption on Current assets, Total assets and Long-term debt and notes payable (includes capital leases) in the above table, the effect of which is not material.
(2) Excludes approximately 6,800, 6,700, 7,000, 7,400 and 7,600 MHPS employees in years 2016, 2015, 2014, 2013 and 2012, respectively.
28
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
BUSINESS DESCRIPTION
Terex is a global manufacturer of lifting and material processing products and services that deliver lifecycle solutions to maximize
customer return on investment. The Company delivers lifecycle solutions to a broad range of industries, including the construction,
infrastructure, manufacturing, shipping, transportation, refining, energy, utility, quarrying and mining industries. We report in
three business segments: (i) AWP; (ii) Cranes; and (iii) MP. Please refer to Note B - “Basis of Presentation” and Note C - “Business
Segment Information” in the accompanying Consolidated Financial Statements for a description of recent business reorganizations
and segment descriptions.
Non-GAAP Measures
In this document, we refer 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 disclosed by other companies. We present non-
GAAP financial measures in reporting our financial results to provide investors with additional analytical tools which we believe
are useful in evaluating our operating results and the ongoing performance of our underlying businesses. We do not, nor do we
suggest that investors consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information
prepared in accordance with GAAP.
Non-GAAP measures we may use include translation effect of foreign currency exchange rate changes on net sales, gross profit,
selling, general & administrative (“SG&A”) costs and operating profit, as well as the net sales, gross profit, SG&A costs and
operating profit excluding the impact of acquisitions.
As changes in foreign currency exchange rates have a non-operating impact on our financial results, we believe excluding effect
of these changes assists in assessment of our business results between periods. We calculate the translation effect of foreign
currency exchange rate changes by translating current period results at rates that the comparable prior periods were translated at
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 may be subtracted from the absolute change
in results to allow for better comparability of results between periods.
We calculate a non-GAAP measure of free cash flow. We define free cash flow as Net cash provided by (used in) operating
activities, plus (minus) increases (decreases) in Terex Financial Services (“TFS”) assets, plus (minus) decreases (increases) in
cash balances held for settlement on securitized assets, less Capital expenditures. We believe that this measure of free cash flow
provides management and investors further useful information on cash generation or use in our primary operations.
We discuss forward looking information related to expected earnings per share (“EPS”) excluding restructuring charges and other
items. The Company’s 2017 outlook for earnings per share is a non-GAAP financial measure because it excludes items such as
restructuring and other related charges, deal related costs, the impact of the release of tax valuation allowances and gains and
losses on divestitures. The Company is not able to reconcile these forward-looking non-GAAP financial measures to their most
directly comparable forward-looking GAAP financial measures without unreasonable efforts because the Company is unable to
predict with a reasonable degree of certainty the exact timing and impact of such items. The unavailable information could have
a significant impact on the Company’s full-year 2017 GAAP financial results. Adjusted EPS provides guidance to investors about
our EPS expectations excluding restructuring and other charges that we do not believe are reflective of our ongoing operations.
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. We view excessive working capital as an inefficient use of
resources, and seek to minimize the level of investment without adversely impacting the ongoing operations of the business.
Trailing three month annualized net sales is calculated using the net sales for the most recent quarter end multiplied by four. The
ratio calculated by dividing working capital by trailing three months annualized net sales, is a non-GAAP measure that we believe
measures our resource use efficiency.
Non-GAAP measures we use also include Net Operating Profit After Tax (“NOPAT”) as adjusted, income (loss) before income
taxes as adjusted, income (loss) from operations as adjusted, (benefit from) provision for income taxes as adjusted and stockholders’
equity as adjusted, which are used in the calculation of our after tax return on invested capital (“ROIC”) (collectively the “Non-
GAAP Measures”), which are discussed in detail below.
29
Overview
We continue to work towards transforming Terex into a more focused company. We completed the sale of our German compact
construction business during 2016 and the sale of our MHPS business in January 2017. We have also announced the sale of our
dumper and backhoe loader business in Coventry, England. Recently, we announced that we have designated our Brazilian utilities
and Indian loader backhoe businesses as held for sale. With these actions, we are nearing completion of the “Focus” phase of our
strategy deployment.
Operationally, we had mixed results across our businesses in 2016. Our AWP and MP segments performed in line with our
expectations, while our Cranes segment performance was impacted by more challenging markets than we anticipated. The overall
market dynamic for large capital equipment continues to be challenging, and we do not see market conditions improving in the
near future. Our overall 2016 results were negatively impacted by margin declines in our AWP and Cranes segments mostly due
to sales volume reductions.
We continue to review all aspects of our cost structure and have continued to take actions throughout the entire Company to reduce
costs, with emphasis on functional general and administrative costs. These actions have resulted in savings which have been
critical to at least partially offset challenging market conditions. We have also taken actions to continue to rationalize our
manufacturing footprint, consolidating facilities across all three of our segments. Since the beginning of 2016, we have either
closed or sold eight facilities. We have also announced plans to sell or close an additional six locations and are in the process of
reducing our footprint at our manufacturing complexes in Redmond, Washington and Zweibrucken, Germany. Leveraging our
existing capacity is necessary for the market environment we are in and will help us become more globally cost competitive. We
are also reducing our headcount in our global cranes business as we adjust to lower production volumes. See Note N - “Restructuring
and Other Charges” in our Consolidated Financial Statements for more information on these actions.
Our AWP segment’s net sales and profitability declined year over year as the North American market declined on softer rental
demand for aerials and telehandlers, while Europe was up modestly for the year. Sales volumes increased in the Asia Pacific region
and the Latin American market was extremely weak. Operating margins in our AWP segment were lower primarily as a result of
lower net sales volumes and global pricing dynamics, which were partially offset by manufacturing and SG&A cost reduction
actions and geographical mix of sales. Looking ahead to 2017, the most influential market dynamic will continue to be the North
American replacement cycle. While there is growth in non-residential construction in North America, this is more than offset by
the dip in replacement demand as a result of the 2008 to 2010 market decline which is negatively impacting our sales and backlog.
We expect Western Europe to remain fairly stable and believe the cost reduction actions we took in 2016, and the planned actions
for 2017, will help align costs with the lower volumes expected in 2017.
Net sales and profitability in our Cranes segment declined year over year as the global crane market remains challenging for nearly
all products and regions. The North American market remained weak, as low oil, gas and commodity prices continued to impact
the sale of mobile cranes. The European market was hurt by changes in subsidies in the wind power market in Germany resulting
in fewer large crawler crane sales. The Latin American, Australian and other commodity-driven markets were very weak and are
expected to remain weak in 2017. Although our utilities products were down compared to last year, sales were profitable and we
believe the North American utilities market is relatively stable. As described above, we have taken actions to improve the Cranes
business, including reducing the Cranes footprint and cost structure and restructuring our Cranes leadership team in the fourth
quarter of 2016. We do not expect the Cranes markets to improve in 2017.
Our MP segment’s operating profit improved on essentially flat net sales. Concrete equipment sales were up compared to last
year. Crushing and screening equipment sales remained relatively flat, with the aggregates market growing slightly, and the mining-
related market remaining weak. Our Fuchs scrap handling business was down, as was the market, driven by low steel scrap metal
prices. Backlog for the segment is up compared to the prior year period, primarily due to strength in the mobile crushing and
screening and North American concrete markets. Our mobile crushing and screening business is expected to remain stable and
we continue to anticipate growth in our concrete products.
Geographically, our largest market remains North America, which now represents approximately 51% of our global sales in
continuing operations. However, our North American sales declined 13% on a year-over-year basis, driven by softness in our
AWP and mobile crane product categories. While the Asian/Pacific market grew, our other markets were generally down, with
Latin America down significantly.
30
Net cash provided by operating activities was $367.0 million in 2016. We generated $189.3 million in free cash flow in 2016 (see
reconciliation of net cash provided by operating activities to free cash flow in Liquidity and Capital Resources). In January 2017,
we issued $600 million of 8-year senior unsecured notes and also refinanced our credit facility. As a result of these actions and
our MHPS sale, we are in the process of repaying our higher cost long-term debt. This will result in debt reductions of approximately
$600 million, interest rate reductions and extensions of debt maturities. In total, these actions will lower our interest run-rate by
approximately $35 million annually. See “Liquidity and Capital Resources” for a detailed description of liquidity and working
capital levels, including the primary factors affecting such levels.
We believe our liquidity continues to be sufficient to meet our business plans. See “Liquidity and Capital Resources” for a detailed
description of liquidity and working capital levels, including the primary factors affecting such levels.
Looking ahead to 2017, we expect 2017 earnings per share (“EPS”) to be between $0.60 and $0.80, excluding restructuring and
other unusual items on net sales of approximately $3.9 billion. Our EPS guidance assumes stock repurchases to cover equity
compensation and no impact from our ownership interest in Konecranes.
ROIC
ROIC continues to be a metric we use to measure our performance. ROIC and Non-GAAP Measures assist in showing how
effectively we utilize capital invested in our operations. After-tax ROIC is determined by dividing the sum of NOPAT 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 (as defined below) for the previous five quarters. NOPAT 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 those operations’
invested capital, should be included in this calculation because it captures the financial returns on our capital allocation decisions
for the measured periods.
Furthermore, we believe returns on capital deployed in TFS do not represent our primary operations and, therefore, TFS assets
and results from operations have been excluded from the Non-GAAP Measures. 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.
Debt is calculated using 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’ adjusted 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, 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) thereby providing, over the same time period as the numerator, four
quarters of average invested capital.
31
Terex management and Board of Directors use ROIC as one of the primary measures to assess operational performance, including
in connection with certain compensation programs. We use ROIC as a metric because we believe 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 ROIC measures return on the amount of capital invested in our primary businesses, excluding
TFS, 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 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. As the tables below show, our ROIC at December 31, 2016 was
17.7%.
Amounts described below are reported in millions of U.S. dollars, except for the effective tax rates. Amounts are as of and for
the three months ended for the periods referenced in the tables below.
Provision for (benefit from) income taxes as adjusted $
Divided by: Income (loss) before income taxes as
adjusted
Effective tax rate
Income (loss) from operations as adjusted
Multiplied by: 1 minus Effective tax rate
Adjusted net operating income (loss) after tax
Debt (as defined above) as adjusted
Less: Cash and cash equivalents as adjusted
Debt less Cash and cash equivalents as adjusted
Total Terex Corporation stockholders’ equity as
adjusted
Dec ’16
Sep '16
Jun '16
Mar '16
Dec ’15
(3.5) $
(7.6)
$
(61.4)
$
5.0
(269.9)
1.3%
(228.0) $
98.7%
(225.0) $
89.7
3.1
(8.5)% (1,980.6)%
$
118.9
108.5 % 2,080.6 %
30.8
129.0
$
640.8
$
$
(69.4)
(7.2)%
(43.4)
107.2 %
(46.5)
$
$
$ 1,592.6
(501.9)
$ 1,090.7
$ 1,688.0
$ 1,709.0
$ 1,830.9
(343.7)
(298.1)
(323.6)
$ 1,344.3
$ 1,410.9
$ 1,507.3
$ 1,246.2
$ 1,588.1
$ 1,527.2
$ 1,501.0
$
$
$
$
1,810.1
(466.5)
1,343.6
1,528.0
2,871.6
Debt less Cash and cash equivalents plus Total Terex
Corporation stockholders’ equity as adjusted
$ 2,336.9
$ 2,932.4
$ 2,938.1
$ 3,008.3
December 31, 2016 ROIC
NOPAT as adjusted (last 4 quarters)
Average Debt less Cash and cash equivalents plus Total Terex
Corporation stockholders’ equity as adjusted (5 quarters)
17.7%
498.3
2,817.5
$
$
32
Three
months
ended
12/31/16
Three
months
ended
9/30/16
Three
months
ended
06/30/16
Three
months
ended
03/31/16
Reconciliation of Provision for (benefit from) income
taxes:
Provision for (benefit from) income taxes from
continuing operations
Provision for (benefit from) income taxes from
discontinued operations
Provision for (benefit from) income taxes as adjusted
$
5.1
(19.3)
(67.1)
(8.6)
(3.5) $
11.7
(7.6) $
5.7
(61.4) $
3.9
1.1
5.0
Reconciliation of Income (loss) before income taxes:
Income (loss) before income taxes from continuing
operations
Income (loss) before income taxes from discontinued
operations
Income (loss) before income taxes from operations as
adjusted
Reconciliation of income (loss) from operations:
Income (loss) from operations
Income (loss) from discontinued operations
(Income) loss from operations for TFS
Income (loss) from operations as adjusted
Reconciliation of Cash and cash equivalents:
Cash and cash equivalents from continuing operations
Cash and cash equivalents in assets held for sale
Cash and cash equivalents as adjusted
Reconciliation of Debt:
Debt from continuing operations
Debt included in liabilities held for sale
Debt as adjusted
Reconciliation of Terex Corporation stockholders’ equity:
Terex Corporation stockholders’ equity as reported
TFS Assets
Terex Corporation stockholders’ equity as adjusted
Sale of MHPS Business
$
$
$
$
$
$
$
$
$
(309.0)
39.1
13.9
75.8
42.5
(39.4)
(18.1)
(51.3)
(269.9) $
89.7 $
3.1 $
(69.4)
(272.1) $
50.8
(6.7)
(228.0) $
39.6 $
79.5
(0.2)
118.9 $
73.4 $
(39.3)
(3.3)
30.8 $
11.3
(53.0)
(1.7)
(43.4)
As of
12/31/16
As of
9/30/16
As of
06/30/16
As of
03/31/16
As of
12/31/15
428.5 $
248.8 $
200.8 $
216.2 $
73.4
94.9
97.3
107.4
501.9 $
343.7 $
298.1 $
323.6 $
371.2
95.3
466.5
1,575.8 $
1,663.5 $
1,686.3 $
1,809.1 $
1,796.2
16.8
24.5
22.7
21.8
13.9
1,592.6 $
1,688.0 $
1,709.0 $
1,830.9 $
1,810.1
1,484.7 $
(238.5)
1,246.2 $
1,877.7 $
(289.6)
1,588.1 $
1,856.1 $
(328.9)
1,527.2 $
1,855.1 $
(354.1)
1,501.0 $
1,877.4
(349.4)
1,528.0
See Item 1, Business, and Note A – “Sale of MHPS Business” in the Notes to the Consolidated Financial Statements for further
information regarding the sale of our former MHPS segment to Konecranes.
33
RESULTS OF OPERATIONS
2016 COMPARED WITH 2015
Terex Consolidated
2016
2015
Net sales
Gross profit
SG&A
Goodwill impairment
Income (loss) from operations
$
$
$
$
$
4,443.1
712.4
684.2
176.0
(147.8)
*
Not meaningful as a percentage
% of
Sales
($ amounts in millions)
—
16.0 %
15.4 %
4.0 %
(3.3)%
$
$
$
$
$
5,021.7
971.2
647.5
—
323.7
% of
Sales
% Change In
Reported Amounts
—
19.3%
12.9%
—%
6.4%
(11.5)%
(26.6)%
5.7 %
*
(145.7)%
Net sales for the year ended December 31, 2016 decreased $578.6 million when compared to 2015. The decline in net sales was
driven by lower net sales in Cranes, AWP and in certain construction product lines in Corporate. Changes in foreign exchange
rates negatively impacted consolidated net sales by approximately 2%, or $80 million. These declines were partially offset by net
sales improvement in our MP segment.
Gross profit for the year ended December 31, 2016 decreased $258.8 million when compared to 2015. The decrease was primarily
due to declines in gross profit in our Cranes and AWP segments, mostly due to lower sales volume and pricing reductions and
approximately $70 million in severance expense in these two segments. We also recognized approximately $25 million of increased
expense associated with inventory and warranty reserves, primarily in Cranes and AWP. Changes in foreign exchange rates
negatively impacted gross profit in all segments, except Cranes. These decreases were partially offset by improved gross profit
in our MP segment due to improved sales volumes and manufacturing cost improvements.
SG&A costs for the year ended December 31, 2016 increased $36.7 million when compared to 2015. The majority of the increase
in SG&A costs was due to approximately $42 million of asset impairment charges in Corporate and Cranes, and approximately
$33 million of severance costs in Cranes, AWP and Corporate, partially offset by general and administrative cost reductions across
our business from actions taken in 2016 and positive impact of changes in foreign currency exchange rates.
Due to deteriorating market conditions in our Cranes segment, we recorded a non-cash impairment charge of approximately $176
million to write down the value of goodwill, which was recorded in the operating results of our Cranes segment in the year ended
December 31, 2016.
Income from operations decreased by $471.5 million for the year ended December 31, 2016 when compared to 2015. The decrease
was primarily due to the Cranes segment goodwill impairment charge, lower operating performance in the AWP and Cranes
segments, for the reasons noted above, and severance and asset impairment charges in Cranes and Corporate.
34
Aerial Work Platforms
2016
2015
% of
Sales
($ amounts in millions)
% of
Sales
% Change In
Reported Amounts
Net sales
Income (loss) from operations
$
$
1,977.8
177.4
—
9.0%
$
$
2,246.0
270.2
—
12.0%
(11.9)%
(34.3)%
Net sales for the AWP segment for the year ended December 31, 2016 decreased $268.2 million when compared to 2015. Net
sales decreased approximately $220 million due to volume declines primarily in North America and South America and pricing
declines driven by market conditions and competition. The volume decline reflected softer aerial and telehandler sales primarily
in North America, partially offset by stronger aerial volumes internationally. Approximately $26 million of the decline was due
to declines in refurbishment service activity and approximately $22 million was due to negative impact of foreign exchange rate
changes.
Income from operations for the year ended December 31, 2016 decreased $92.8 million when compared to 2015. The decrease
was primarily due to sales volume declines, unfavorable pricing and severance expense, partially offset by better product mix,
lower manufacturing costs and lower operating expenses, including selling, general and administrative expenses.
Cranes
2016
2015
% of
Sales
($ amounts in millions)
% of
Sales
% Change In
Reported Amounts
Net sales
Income (loss) from operations
$
$
1,274.5
(321.7)
—
(25.2)%
$
$
1,566.5
56.3
—
3.6%
(18.6)%
(671.4)%
Net sales for the Cranes segment for the year ended December 31, 2016 decreased by $292.0 million when compared to 2015, as
the global Cranes market remained challenging for nearly all products and regions. The North American market remained weak
as low oil, gas and commodity prices continued to impact sales of mobile cranes. The European market was hurt by changes in
subsidies in the wind power market in Germany, resulting in fewer large crawler crane sales. Latin American, Australian and other
commodity driven markets were also weak in 2016.
Loss from operations for the year ended December 31, 2016 was $321.7 million compared to income from operations of $56.3
million for the same period in 2015. The decrease in operating performance was driven by an approximately $176 million goodwill
impairment charge, approximately $82 million from sales volume declines and product mix noted above, approximately $92
million for severance and restructuring charges and approximately $20 million for asset impairment charges in Europe, Asia and
the U.S, primarily associated with manufacturing facility closures to transfer production between facilities to improve labor
efficiency and reduce overhead costs, and approximately $17 million of charges for increased warranty and inventory reserves.
This decrease was partially offset by approximately $10 million of general and administrative expense reductions compared to
the prior year period.
See Note L - “Goodwill and Intangible Assets, Net” in the accompanying Consolidated Financial Statements for more information
about the goodwill impairment charge recognized in 2016.
35
Materials Processing
2016
2015
% of
Sales
($ amounts in millions)
% of
Sales
% Change In
Reported Amounts
Net sales
Income (loss) from operations
$
$
944.5
86.3
—
9.1%
$
$
940.1
68.6
—
7.3%
0.5 %
25.8 %
Net sales for the MP segment increased by $4.4 million for the year ended December 31, 2016 when compared to 2015. Net sales
increased approximately $37 million due to the effect of an acquisition, increased volumes and favorable pricing, partially offset
by approximately $33 million of negative impact of foreign exchange rate changes. Concrete equipment sales were up significantly
compared to last year, crushing and screening equipment sales were slightly improved from the prior year, while mining-related
and scrap handling equipment sales were weaker compared to last year.
Income from operations for the year ended December 31, 2016 increased $17.7 million when compared to 2015. The increase
was driven primarily by increased sales volumes and favorable pricing, the effect of a supplier settlement and operating cost
improvements, partially offset by negative impact of foreign exchange rate changes and an acquisition.
Corporate and Other/Eliminations
2016
2015
% of
Sales
($ amounts in millions)
% of
Sales
% Change In
Reported Amounts
Net sales
Income (loss) from operations
$
$
246.3
(89.8)
—
*
$
$
269.1
(71.4)
—
*
(8.5)%
25.8 %
*
Not meaningful as a percentage
Net sales decreased by $22.8 million for the year ended December 31, 2016 when compared to 2015. The net sales amounts
include sales in various construction product lines and on-book financing of TFS, as well as elimination of intercompany sales
activity among segments. The net sales decrease is primarily attributable to product line divestitures and unfavorable foreign
currency exchange rate changes in our construction product lines.
Loss from operations increased $18.4 million for the year ended December 31, 2016 compared to 2015, primarily due to
approximately $22 million of asset impairment charges and approximately $4 million for severance expense, partially offset by
general and administrative cost reductions and the positive impact of changes in foreign currency exchange rates.
Interest Expense, Net of Interest Income
During the year ended December 31, 2016, our interest expense, net of interest income, was $97.7 million, or $6.6 million lower
than the prior year. The reduction resulted primarily from the settlement of the 4% Convertible Notes on June 1, 2015 and lower
debt balances in the current year when compared to the prior year.
Other Income (Expense) — Net
Other income (expense) — net for the year ended December 31, 2016 was expense of $25.2 million, an increase of $1.5 million
when compared to expense of $23.7 million in the prior year. During 2016, we recognized approximately $25 million for
impairments related to certain investments and approximately $20 million of merger and deal-related costs, partially offset by
approximately $19 million of foreign currency exchange gains. The 2015 expense was driven primarily by approximately $15
million of merger and deal-related costs and approximately $6 million of foreign currency exchange losses.
36
Income Taxes
During the year ended December 31, 2016, we recognized an income tax benefit of $77.4 million on a loss of $270.7 million, an
effective tax rate of 28.6%, as compared to an income tax expense of $67.5 million on income of $195.7 million, an effective tax
rate of 34.5%, for the year ended December 31, 2015. The lower effective tax rate for the year ended December 31, 2016 was
primarily due to changes caused by the Disposition in expectations concerning the indefinite reinvestment of foreign earnings and
nondeductible goodwill impairment in our Cranes segment, partially offset by tax benefits from valuation allowance releases and
prior year net operating loss carryforwards.
Income (Loss) from Discontinued Operations
Income from discontinued operations for the year ended December 31, 2016 decreased by approximately $3 million when compared
to the prior year primarily as a result of declining operating performance of our MHPS business.
Gain (Loss) on Disposition of Discontinued Operations
During the year ended December 31, 2016, we recognized a gain on disposition of discontinued operations - net of tax of $3.5
million related to the sale of our Atlas heavy construction equipment and knuckle-boom cranes businesses, due to contractual
earnout payments, and from our truck business. During the year ended December 31, 2015 we recognized a gain on disposition
of discontinued operations - net of tax of $3.4 million due primarily to a gain of $2.8 million related to the sale of our Atlas heavy
construction equipment and knuckle-boom cranes businesses based on contractual earnout payments from the purchaser, partially
offset by a loss of $1.3 million related to sale of our truck business, including settlement of certain disputes in the asset sale
agreement.
2015 COMPARED WITH 2014
Terex Consolidated
2015
2014
Net sales
Gross profit
SG&A
Income (loss) from operations
$
$
$
$
5,021.7
971.2
647.5
323.7
% of
Sales
($ amounts in millions)
—
19.3%
12.9%
6.4%
$
$
$
$
5,484.0
1,051.5
651.5
400.0
% of
Sales
% Change In
Reported Amounts
—
19.2%
11.9%
7.3%
(8.4)%
(7.6)%
(0.6)%
(19.1)%
Net sales for the year ended December 31, 2015 decreased $462.3 million when compared to 2014. The decline in net sales was
driven by lower net sales across all segments, except MP, with the largest declines coming from AWP and construction-related
product lines within Corporate and Other. Changes in foreign exchange rates negatively impacted consolidated net sales by
approximately 7% or $358 million. Net sales decreased by approximately $220 million due to the disposition of construction-
related product lines in Corporate and Other. The declines were partially offset by approximately $124 million from acquired
businesses in our MP and Cranes segments and improvements in certain product lines or regions in all of our segments.
Gross profit for the year ended December 31, 2015 decreased $80.3 million when compared to 2014. The decrease was primarily
due to declines in all segments except MP, which delivered improved margins. Changes in foreign exchange rates negatively
impacted gross profit in all segments, and sales volumes were down in all segments except for Cranes. These decreases were
partially offset by reduced material and manufacturing costs.
SG&A costs for the year ended December 31, 2015 decreased by $4.0 million when compared to 2014. The decrease was primarily
due to approximately $42 million of positive impact of changes in foreign exchange rates, partially offset by approximately $24
million of general and administrative cost increases and approximately $16 million from increased costs associated with acquired
businesses in MP and Cranes.
Income from operations decreased by $76.3 million for the year ended December 31, 2015 when compared to 2014. The decrease
was primarily due to lower operating performance in the AWP and Cranes segments.
37
Aerial Work Platforms
2015
2014
% of
Sales
($ amounts in millions)
% of
Sales
% Change In
Reported Amounts
Net sales
Income (loss) from operations
$
$
2,246.0
270.2
—
12.0%
$
$
2,403.0
304.9
—
12.7%
(6.5)%
(11.4)%
Net sales for the AWP segment for the year ended December 31, 2015 decreased $157.0 million when compared to 2014. Net
sales decreased approximately $82 million due to the negative impact of foreign exchange rate changes. North American net sales
decreased due to lower pricing and softening demand for telehandlers and aerials, which were impacted by the uncertainty
surrounding oil and gas markets. Sales in Latin America were lower due to the continuing impact of economic uncertainties in
Brazil as well as softer pricing. These decreases were partially offset by increased net sales in Europe due to robust replacement
demand and increased product adoption in China.
Income from operations for the year ended December 31, 2015 decreased $34.7 million when compared to 2014. The decrease
was due to declines in net sales noted above, as well as unfavorable pricing, and negative impact from foreign exchange rate
changes. These decreases were partially offset by lower material costs and reduced manufacturing costs associated with decreased
indirect labor.
Cranes
2015
2014
% of
Sales
($ amounts in millions)
% of
Sales
% Change In
Reported Amounts
Net sales
Income (loss) from operations
$
$
1,566.5
56.3
—
3.6%
$
$
1,656.9
83.8
—
5.1%
(5.5)%
(32.8)%
Net sales for the Cranes segment for the year ended December 31, 2015 decreased by $90.4 million when compared to 2014. Net
sales decreased approximately $172 million due to the negative impact of foreign exchange rate changes. Lower demand for
mobile cranes in North America and Australia, largely due to declines in oil, gas and commodity prices, also contributed to the
decrease in net sales. These decreases were partially offset by higher cranes product sales in Europe and Asia and the contribution
from an acquired business of approximately $73 million.
Income from operations for the year ended December 31, 2015 decreased $27.5 million when compared to 2014, resulting primarily
from approximately $16 million of foreign exchange rate changes and approximately $15 million from lower factory utilization.
38
Materials Processing
2015
2014
% of
Sales
($ amounts in millions)
% of
Sales
% Change In
Reported Amounts
Net sales
Income (loss) from operations
$
$
940.1
68.6
—
7.3%
$
$
938.9
65.6
—
7.0%
0.1%
4.6%
Net sales in the MP segment increased by $1.2 million for the year ended December 31, 2015 when compared to 2014. The
increase was primarily due to approximately $51 million from acquired businesses and increased sales in India, partially offset
by approximately $44 million from negative impact of foreign exchange rate changes. Concrete equipment sales were up
significantly in 2015 compared to 2014, but these volume increases were more than offset by weakness in product sales in mining-
related markets.
Income from operations for the year ended December 31, 2015 increased $3.0 million when compared to 2014. The increase was
driven by approximately $11 million of manufacturing cost savings, partially offset by approximately $9 million from negative
impact of foreign exchange rate changes.
Corporate and Other/Eliminations
2015
2014
% of
Sales
($ amounts in millions)
% of
Sales
% Change In
Reported Amounts
Net sales
Income (loss) from operations
$
$
269.1
(71.4)
—
*
$
$
485.2
(54.3)
—
*
*
*
* Not meaningful as a percentage
Net sales decreased by $216.1 million for the year ended December 31, 2015 when compared to 2014. Net sales amounts include
sales in various construction equipment product lines and on-book financing of TFS, as well as elimination of intercompany sales
activity among segments. Net sales decreased by approximately $220 million due to the disposition of our majority interest in
the compact track loader business in the fourth quarter of 2014, unfavorable foreign currency exchange rate changes, and reduced
compact construction sales in Germany and India. Partially offsetting these decreases were increased site dumper sales in the
U.K.
Loss from operations increased $17.1 million for the year ended December 31, 2015 compared to 2014. The increased operating
loss was primarily from lower net sales in construction product lines, which drove a reduction of approximately $15 million from
lower volume, and the business divestiture noted above, partially offset by favorable pricing and sales mix.
Interest Expense, Net of Interest Income
During the year ended December 31, 2015, our interest expense net of interest income was $104.3 million, or $12.4 million lower
than the prior year. The reduction resulted from the settlement of the 4% Convertible Notes on June 1, 2015 and lower effective
interest rates in the current year.
Other Income (Expense) — Net
Other income (expense) — net for the year ended December 31, 2015 was expense of $23.7 million, an increase of $19.0 million
when compared to expense of $4.7 million in the prior year. During 2015, we recognized approximately $15 million of merger
and deal-related costs and approximately $6 million of foreign currency exchange losses. In 2014, the expense was primarily
attributable to a loss of $2.6 million on early extinguishment of debt related to termination of our 2011 Credit Agreement and
foreign currency exchange losses.
39
Income Taxes
During the year ended December 31, 2015, we recognized income tax expense of $67.5 million on income of $195.7 million, an
effective tax rate of 34.5%, as compared to income tax expense of $26.6 million on income of $278.6 million, an effective tax rate
of 9.5%, for the year ended December 31, 2014. The higher effective tax rate for the year ended December 31, 2015 was primarily
due to tax benefits derived from divestitures in the year ended December 31, 2014, and increased losses in 2015 that did not
produce tax benefits, partially offset by a favorable geographic mix of earnings in 2015.
Income (Loss) from Discontinued Operations
Income from discontinued operations for the year ended December 31, 2015 increased by approximately $8.5 million when
compared to the prior year primarily as a result of improved operating performance of our MHPS business due to lower restructuring
charges and loss from sale of an entity, despite approximately $35 million of goodwill and intangible asset impairment charges in
2015.
Gain (Loss) on Disposition of Discontinued Operations
Gain on disposition of discontinued operations decreased by $55.2 million primarily due to the sale of the truck business in the
year ended December 31, 2014.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make
estimates and assumptions that affect reported amounts of assets and liabilities and, disclosure of contingent assets and liabilities
at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Changes in
estimates and assumptions used by management could have significant impacts on our financial results. Actual results could differ
from those estimates.
We believe that the following are among our most significant accounting policies which are important in determining the reporting
of transactions and events and which utilize estimates about the effect of matters that are inherently uncertain and therefore are
based on management judgment. Please refer to Note B – “Basis of Presentation” in the accompanying Consolidated Financial
Statements for a complete listing of our accounting policies.
Inventories – In valuing inventory, we are required to make assumptions regarding level of reserves required to value potentially
obsolete or over-valued items at the lower of cost or market. These assumptions require us to analyze the aging of and forecasted
demand for our inventory, forecast future products sales prices, pricing trends and margins, and to make judgments and estimates
regarding obsolete or excess inventory. Future product sales prices, pricing trends and margins are based on the best available
information at that time including actual orders received, negotiations with our customers for future orders, including their plans
for expenditures, and market trends for similar products. Our judgments and estimates for excess or obsolete inventory are based
on analysis of actual and forecasted usage. Valuation of used equipment taken in trade from customers requires us to use the best
information available to determine the value of the equipment to potential customers. This value is subject to change based on
numerous conditions. Inventory reserves are established taking into account age, frequency of use, or sale, and in the case of repair
parts, the installed base of machines. While calculations are made involving these factors, significant management judgment
regarding expectations for future events is involved. Future events that could significantly influence our judgment and related
estimates include general economic conditions in markets where our products are sold, new equipment price fluctuations, actions
of our competitors, including introduction of new products and technological advances, as well as new products and design changes
we introduce. We make adjustments to our inventory reserve based on the identification of specific situations and increase our
inventory reserves accordingly. As further changes in future economic or industry conditions occur, we will revise estimates that
were used to calculate our inventory reserves.
If actual conditions are less favorable than those we have projected, we will increase our reserves for lower of cost or market
(“LCM”), excess and obsolete inventory accordingly. Any increase in our reserves will adversely impact our results of operations.
Establishment of a reserve for LCM, excess and obsolete inventory establishes a new cost basis in the inventory. Such reserves
are not reduced until the product is sold.
40
Accounts Receivable – We are required to judge our ability to collect accounts receivable from our customers. Valuation of
receivables includes evaluating customer payment histories, customer leverage, availability of third-party financing, political and
exchange risks and other factors. Many of these factors, including assessment of a customer’s ability to pay, are influenced by
economic and market factors that cannot be predicted with certainty. Given current economic conditions, there can be no assurance
our historical accounts receivable collection experience will be indicative of future results.
Guarantees – As of December 31, 2016, we have issued guarantees to financial institutions related to customer financing of
equipment purchases by our customers. We must assess the probability of losses or non-performance in ways similar to the
evaluation of accounts receivable, including consideration of a customer’s payment history, leverage, availability of third party
financing, political and exchange risks, and other factors. Many of these factors, including the assessment of a customer’s ability
to pay, are influenced by economic and market factors that cannot be predicted with certainty.
Our customers, from time to time, may fund acquisition of our equipment through third-party finance companies. In certain
instances, we may provide a credit guarantee to the finance company by which we agree to make payments to the finance company
should the customer default. Our maximum liability is limited to the remaining payments due to the finance company at the time
of default. In the event of customer default, we have generally been able to recover and dispose of the equipment at a minimum
loss, if any, to us. There can be no assurance that our historical credit default experience will be indicative of future results. Our
ability to recover losses experienced from our guarantees may be affected by economic conditions in effect at time of loss.
We issue residual value guarantees under sales-type leases. A residual value guarantee involves a guarantee that a piece of equipment
will have a minimum fair market value at a future point in time. We are generally able to mitigate risk associated with these
guarantees because the maturity of the guarantees is staggered, which limits the amount of used equipment entering the marketplace
at any one time.
We guarantee, from time to time, that we will buy equipment from our customers in the future at a stated price if certain conditions
are met by the customer. Such guarantees are referred to as buyback guarantees. These conditions generally pertain to the
functionality and state of repair of the machine. We are generally able to mitigate the risk of these guarantees because maturity
of guarantees is staggered, limiting the amount of used equipment entering the marketplace at any one time, and through leveraging
our access to the used equipment markets provided by our original equipment manufacturer status.
We record a liability for the estimated fair value of guarantees issued pursuant to Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) 460, “Guarantees” (“ASC 460”). We recognize a loss under a guarantee when our
obligation to make payment under the guarantee is probable and the amount of the loss can be estimated. A loss would be recognized
if our payment obligation under the guarantee exceeds the value we could expect to recover to offset such payment, primarily
through the sale of the equipment underlying the guarantee.
There can be no assurances that our historical experience in used equipment markets will be indicative of future results. Our
ability to recover losses experienced from our guarantees may be affected by economic conditions in used equipment markets at
the time of loss.
See Note S – “Litigation and Contingencies” in the Notes to the Consolidated Financial Statements for further information regarding
our guarantees.
Revenue Recognition – Revenue and related costs are generally recorded when products are shipped and invoiced to either
independently owned and operated dealers or to end-customers.
Revenue generated in the United States is recognized when title and risk of loss pass from us to our customers, which generally
occurs upon shipment depending upon the shipping terms negotiated. We also have a policy requiring that certain criteria be met
in order to recognize revenue, including satisfaction of the following requirements:
a) Persuasive evidence that an arrangement exists;
b) The price to the buyer is fixed or determinable;
c) Collectability is reasonably assured; and
d) We have no significant obligations for future performance.
41
In the United States, we have the ability to enter into a security agreement and receive a security interest in the product by filing
an appropriate Uniform Commercial Code (“UCC”) financing statement. However, a significant portion of our revenue is generated
outside of the United States. In many countries outside of the United States, as a matter of statutory law, a seller retains title to a
product until payment is made. The laws do not provide for a seller’s retention of a security interest in goods in the same manner
as established in the UCC. In these countries, we retain title to goods delivered to a customer until the customer makes payment
so that we can recover the goods in the event of customer default on payment. In these circumstances, where we only retain title
to secure our recovery in the event of customer default, we also have a policy, which requires meeting certain criteria in order to
recognize revenue, including satisfaction of the following requirements:
a) Persuasive evidence that an arrangement exists;
b) Delivery has occurred or services have been rendered;
c) The price to the buyer is fixed or determinable;
d) Collectability is reasonably assured;
e) We have no significant obligations for future performance; and
f) We are not entitled to direct the disposition of the goods, cannot rescind the transaction, cannot prohibit the customer
from moving, selling, or otherwise using the goods in the ordinary course of business and have no other rights of holding
title that rest with a titleholder of property that is subject to a lien under the UCC.
In circumstances where the sales transaction requires acceptance by the customer for items such as testing on site, installation,
trial period or performance criteria, revenue is not recognized unless the following criteria have been met:
a) Persuasive evidence that an arrangement exists;
b) Delivery has occurred or services have been rendered;
c) The price to the buyer is fixed or determinable;
d) Collectability is reasonably assured; and
e) The customer has given their acceptance, the time period for acceptance has elapsed or we have otherwise objectively
demonstrated that the criteria specified in the acceptance provisions have been satisfied.
In addition to performance commitments, we analyze factors such as the reason for the purchase to determine if revenue should
be recognized. This analysis is done before the product is shipped and includes the evaluation of factors that may affect the
conclusion related to the revenue recognition criteria as follows:
a) Persuasive evidence that an arrangement exists;
b) Delivery has occurred or services have been rendered;
c) The price to the buyer is fixed or determinable; and
d) Collectability is reasonably assured.
Revenue from sales-type leases is recognized at the inception of the lease. Income from operating leases is recognized ratably
over the term of the lease. We routinely sell equipment subject to operating leases and related lease payments. If we do not retain
a substantial risk of ownership in the equipment, the transaction is recorded as a sale. If we do retain a substantial risk of ownership,
the transaction is recorded as a borrowing, the operating lease payments are recognized as revenue over the term of the lease and
the debt is amortized over a similar period.
We, from time to time, issue buyback guarantees in conjunction with certain sales agreements. These primarily relate to trade
value agreements (“TVAs”) in which a customer may trade in equipment in the future at a stated price/credit if the customer meets
certain conditions. The trade-in price/credit is determined at the time of the original sale of equipment. In conjunction with the
trade-in, these conditions include a requirement to purchase new equipment at fair market value at the time of trade-in, which fair
value is required to be of equal or greater value than the original equipment cost. Other conditions also include the general
functionality and state of repair of the machine. We have concluded that any credit provided to customers under a TVA/buyback
guarantee, which is expected to be equal to or less than the fair value of the equipment returned on the trade-in date, is a guarantee
to be accounted for in accordance with ASC 460.
The original sale of equipment, accompanied by a buyback guarantee, is a multiple element transaction wherein we offer our
customer the right, after some period of time, for a limited period of time, to exchange purchased equipment for a fixed price
trade-in credit toward another of our products. The fixed price trade-in credit is accounted for under the guidance provided by
ASC 460. Pursuant to this right, we have agreed to make a payment (in the form of a trade-in credit) to the customer contingent
upon the customer exercising its right to trade in the original purchased equipment. Under the guidance of ASC 460, we record
the fixed price trade-in credit at its fair value. Accordingly, as noted above, we have accounted for the trade-in credit as a separate
deliverable in a multiple element arrangement.
42
When a sales transaction includes multiple deliverables, such as sales of multiple products or sales of products and services that
are delivered over multiple reporting periods, the multiple deliverables are evaluated to determine the units of accounting, and the
entire fee from the arrangement is allocated to each unit of accounting based on the relative selling price. The selling price of a
unit of accounting is determined using a selling price hierarchy. Vendor-specific objective evidence (“VSOE”) is established based
upon the price charged for products and services that are sold separately in standalone transactions. If VSOE cannot be established,
third-party evidence (“TPE”) is evaluated based on competitor prices for similar deliverables when sold separately. If neither
VSOE nor TPE is available, management's best estimate of selling price is established based upon the price at which we would
sell the product on a standalone basis taking into consideration factors including, but not limited to, internal costs, gross margin
objectives, pricing practices and market conditions. Revenue is recognized when revenue recognition criteria for each unit of
accounting are met.
Goodwill – Goodwill, representing the difference between total purchase price and fair value of assets (tangible and intangible)
and liabilities at the date of acquisition, is reviewed for impairment annually, and more frequently as circumstances warrant, and
written down only in the period in which the recorded value of such assets and liabilities exceeds fair value. We selected October
1 as the date for our required annual impairment test.
Goodwill is tested for impairment at the reporting unit level, which is defined as an operating segment or a component of an
operating segment that constitutes a business for which discrete financial information with similar economic characteristics is
available and operating results are regularly reviewed by our chief operating decision maker. The AWP, Cranes, and MP operating
segments plus the Material Handling (“MH”) business and Port Solutions (“PS”) business of our former MHPS segment, which
is a discontinued operation, comprise the five reporting units for goodwill impairment testing purposes.
We may elect to perform a qualitative analysis for our reporting units to determine whether it is more likely than not the fair value
of the reporting unit is greater than its carrying value. If the qualitative analysis indicates that it is more likely than not the fair
value of a reporting unit is less than its carrying amount or if we elect not to perform a qualitative analysis, we perform a quantitative
analysis to determine whether a goodwill impairment exists.
The quantitative goodwill impairment analysis is a two-step process. The first step used to identify potential impairment involves
comparing each reporting unit’s estimated fair value to its carrying value, including goodwill. We use an income approach derived
from a discounted cash flow model to estimate fair value of our reporting units. The aggregate fair value of our reporting units
is compared to our market capitalization on the valuation date to assess its reasonableness. Initial recognition of goodwill, as well
as the annual review of carrying value of goodwill, requires that we develop estimates of future business performance. These
estimates are used to derive expected cash flows and include assumptions regarding future sales levels and the level of working
capital needed to support a given business. We rely on data developed by business segment management as well as macroeconomic
data in making these calculations. The discounted cash flow model also includes a determination of our weighted average cost
of capital by reporting unit. Cost of capital is based on assumptions about interest rates as well as a risk-adjusted rate of return
required by our equity investors. Changes in these estimates can impact present value of expected cash flows used in determining
fair value of a given business.
The second step of the process involves calculation of an implied fair value of goodwill for each reporting unit for which step one
indicated impairment. Implied fair value of goodwill is determined by measuring the excess of estimated fair value of the reporting
unit over estimated fair values of individual assets, liabilities and identifiable intangibles as if the reporting unit was being acquired
in a business combination. If implied fair value of goodwill exceeds carrying value of goodwill assigned to the reporting unit,
there is no impairment. If carrying value of goodwill assigned to a reporting unit exceeds implied fair value of goodwill, an
impairment loss is recorded for the excess. An impairment loss cannot exceed carrying value of goodwill assigned to a reporting
unit and subsequent reversal of goodwill impairment losses is not permitted.
As a result of our annual impairment test in the fourth quarter of 2016, we recorded a non-cash charge of $176.0 million in our
Cranes segment and in the fourth quarter of 2015, we recorded a non-cash charge of $11.3 million in our former MHPS segment,
which is a discontinued operation, to reflect impairment of goodwill in our PS reporting unit. There were no indicators of goodwill
impairment in the test performed as of October 1, 2014. See Note L – “Goodwill and Intangible Assets, Net” and Note E –
“Discontinued Operations and Assets and Liabilities Held for Sale” in the Notes to the Consolidated Financial Statements for
further information.
In order to evaluate the sensitivity of any quantitative fair value calculations on the goodwill impairment test, we applied a
hypothetical 10% decrease to the fair values of any reporting unit calculated. This hypothetical 10% decrease would still result
in excess fair value over carrying value for the reporting units tested, other than Cranes, as of October 1, 2016.
43
Further impairments may be necessary in the future if conditions differ substantially from the assumptions utilized.
Impairment of Long-Lived Assets – Our policy is to assess the realizability of our long-lived assets, including definite-lived
intangible assets, and to evaluate such assets for impairment whenever events or changes in circumstances indicate the carrying
amount of such assets (or group of assets) may not be recoverable. Impairment is determined to exist if estimated future undiscounted
cash flows are less than carrying value. If an impairment is indicated, assets are written down to their fair value, which is typically
determined by a discounted cash flow analysis. Future cash flow projections include assumptions regarding future sales levels
and the level of working capital needed to support the assets. We use data developed by business segment management as well
as macroeconomic data in making these calculations. There are no assurances that future cash flow assumptions will be achieved.
The amount of any impairment then recognized would be calculated as the difference between the estimated fair value and the
carrying value of the asset.
Accrued Warranties – We record accruals for unasserted warranty claims based on our claim experience. Warranty costs are
accrued at the time revenue is recognized. However, adjustments to the initial warranty accrual are recorded if actual claims
experience indicates that adjustments are necessary. These warranty costs are based upon management’s assessment of past claims
and current experience. However, actual claims could be higher or lower than amounts estimated, as the amount and value of
warranty claims are subject to variation as a result of many factors that cannot be predicted with certainty, including production
quality issues, performance of new products, models and technology, changes in weather conditions for product operation, different
uses for products and other similar factors.
Accrued Product Liability – We record accruals for product liability claims when deemed probable and estimable based on facts
and circumstances and our prior claims experience. Accruals for product liability claims are valued based upon our prior claims
experience, including consideration of the jurisdiction, circumstances of the accident, type of loss or injury, identity of plaintiff,
other potential responsible parties, analysis of outside legal counsel, analysis of internal product liability counsel and the experience
of our product safety team. Actual product liability costs could be different due to a number of variables such as the decisions of
juries or judges.
Defined Benefit Plans – Pension benefits represent financial obligations that will be ultimately settled in the future with employees
who meet eligibility requirements. As of December 31, 2016, we maintained one qualified defined benefit pension plan and one
nonqualified plan covering certain U.S. employees. Benefits covering salaried employees are based primarily on years of service
and employees’ qualifying compensation during final years of employment. Benefits covering bargaining unit employees are
based primarily on years of service and a flat dollar amount per year of service. Participation in the qualified plan is frozen and
participants are only credited with post-freeze service for purposes of determining vesting and retirement eligibility. It is our
policy, generally, to fund the qualified U.S. plan based on requirements of the Employee Retirement Income Security Act of 1974.
See Note Q – “Retirement Plans and Other Benefits” in the Notes to the Consolidated Financial Statements. The nonqualified
plan provides retirement benefits to certain senior executives of the Company and is unfunded. Generally, the nonqualified plan
provides a benefit based on average total compensation earned over a participant’s final five years of employment and years of
service reduced by benefits earned under any Company retirement program, excluding salary deferrals and matching contributions.
In addition, benefits are reduced by Social Security Primary Insurance Amounts attributable to Company contributions.
Participation in the nonqualified plan is frozen; however, eligible participants are credited with post-freeze service for purposes
of determining vesting and the amount of benefits.
We maintain defined benefit plans in France, Germany, India, Switzerland and the United Kingdom (“U.K.”) for some of our
subsidiaries. The plans in France, Germany and India are unfunded plans. The plan in the U.K. is frozen. Participation in the
German plans is frozen; however, eligible participants are credited with post-freeze service for purposes of determining vesting
and the amount of benefits. For our operations in Austria and Italy there are mandatory termination indemnity plans providing a
benefit payable upon termination of employment in substantially all cases of termination. We record this obligation based on the
mandated requirements. The measure of the current obligation is not dependent on the employees’ future service and therefore is
measured at current value.
Plan assets consist primarily of common stocks, bonds and short-term cash equivalent funds. For the U.S. plan, approximately
32% of the assets are in equity securities and 68% are in fixed income securities. For non-U.S. funded plans, approximately 25%
of the assets are in equity securities, 72% are in fixed income securities and 3% are in real estate investment securities. These
allocations are reviewed periodically and updated to meet the long-term goals of the plans.
44
Determination of defined benefit pension and post-retirement plan obligations and their associated expenses requires use of actuarial
valuations to estimate the benefits employees earn while working, as well as the present value of those benefits. We use the services
of independent actuaries to assist with these calculations. Inherent in these valuations are economic assumptions, including
expected returns on plan assets, discount rates at which liabilities may be settled, rates of increase of health care costs, rates of
future compensation increases as well as employee demographic assumptions such as retirement patterns, mortality and turnover.
The actuarial assumptions used may differ materially from actual results due to changing market and economic conditions, higher
or lower turnover rates, or longer or shorter life spans of participants. In 2014, the Society of Actuaries (the “Society”) issued the
RP-2014 mortality tables and improvement scale MP-2014. In 2015 and again in 2016, the Society issued improvement scales
MP-2015 and MP-2016, respectively. The improvement scales are intended to improve the accuracy of the RP-2014 mortality
tables and provide the best mortality estimates available for calculating expense and projected benefit obligations. Terex adopted
the MP-2014 mortality tables when they were issued and has also adopted each improvement scale for its U.S. pension plans when
they have become available. Actual results that differ from the actuarial assumptions used are recorded as unrecognized gains
and losses. Unrecognized gains and losses that exceed 10% of the greater of the plan’s projected benefit obligations or the market-
related value of assets are amortized to earnings over the shorter of the estimated future service period of the plan participants or
the period until any anticipated final plan settlements. The assumptions used in the actuarial models are evaluated periodically
and are updated to reflect experience. We believe the assumptions used in the actuarial calculations are reasonable and are within
accepted practices in each of the respective geographic locations in which we operate.
Expected long-term rates of return on pension plan assets were 7.00% for the U.S. plan, 4.50% for the U.K. plan and 2.00% for
the Swiss plan at December 31, 2016. Our strategy with regard to the investments in the pension plans is to earn a rate of return
sufficient to match or exceed the long-term growth of pension liabilities. The expected rate of return of plan assets represents an
estimate of long-term returns on the investment portfolio. These rates are determined annually by management based on a weighted
average of current and historical market trends, historical portfolio performance and the portfolio mix of investments. The expected
long-term rate of return on plan assets at December 31 is used to measure the earnings effects for the subsequent year. The
difference between the expected return and the actual return on plan assets affects the calculated value of plan assets and, ultimately,
future pension expense (income).
The discount rates for pension plan liabilities were 4.03% for the U.S. plan and 0.50% to 10.71% with a weighted average of
2.27% for non-U.S. plans at December 31, 2016. The discount rate enables us to estimate the present value of expected future
cash flows on the measurement date. The rate used reflects a rate of return on high-quality fixed income investments that match
the duration of expected benefit payments at the December 31 measurement date. The discount rate at December 31 is used to
measure the year-end benefit obligations and the earnings effects on the subsequent year. Typically, a higher discount rate decreases
the present value of benefit obligations.
Our U.S. pension plan is frozen so there is no expected rate of compensation increase, however, our nonqualified Supplemental
Executive Retirement Plan has an expected rate of compensation increase of 3.75%. The expected rates of compensation increase
for our non-U.S. pension plans were 1.00% to 9.00% with a weighted average of 0.89% at December 31, 2016. These estimated
annual compensation increases are determined by management every year and are based on historical trends and market indices.
We have recorded the underfunded status on our balance sheet as a liability and the unrecognized prior service costs and actuarial
gains (losses) as an adjustment to Stockholders’ equity on the Consolidated Balance Sheet. The net decrease in the liability and
funded status of $3.8 million was due to earnings on our pension assets and the positive effect of changes in foreign exchange
rates, offset by changes in assumptions from the previous year, primarily decreases in discount rates.
Actual results in any given year will often differ from actuarial assumptions because of demographic, economic and other factors.
Market value of plan assets can change significantly in a relatively short period of time. Additionally, the measurement of plan
benefit obligations is sensitive to changes in interest rates. As a result, if the equity market declines and/or interest rates decrease,
the plans’ estimated benefit obligations could increase, causing an increase in liabilities and a reduction in Stockholders’ Equity.
We expect any future obligations under our plans that are not currently funded will be funded from future cash flows from operations.
If our contributions are insufficient to adequately fund the plans to cover our future obligations, or if the performance of assets in
our plans does not meet expectations, or if our assumptions are modified, contributions could be higher than expected, which
would reduce cash available for our business. Changes in U.S. or foreign laws governing these plans could require additional
contributions. In addition, changes in generally accepted accounting principles in the U.S. could require recording additional
liabilities and costs related to these plans.
45
Assumptions used in computing our net pension expense and projected benefit obligation have a significant effect on the amounts
reported. A 25 basis point change in each assumption below would have the following effects upon net pension expense and
projected benefit obligation, respectively, as of and for the year ended December 31, 2016:
U. S. Plan:
Net pension expense
Projected benefit obligation
Non-U.S. Plans:
Net pension expense
Projected benefit obligation
Increase
Decrease
Discount Rate
Expected long-
term rate of return
Discount Rate
Expected long-
term rate of return
($ amounts in millions)
$
$
$
$
(0.2)
(4.6)
0.4
(8.9)
$
$
$
$
(0.3)
—
(0.3)
—
$
$
$
$
0.2
4.9
0.1
9.4
$
$
$
$
0.3
—
0.3
—
Income Taxes – We estimate income taxes based on enacted tax laws in the various jurisdictions where we conduct business. We
recognize deferred income tax assets and liabilities, which represent future tax benefits or obligations of our legal entities. These
deferred income tax balances arise from temporary differences due to divergent treatment of certain items for accounting and
income tax purposes.
We evaluate our deferred tax assets each period to ensure that estimated future taxable income will be sufficient in character,
amount and timing to result in the use of our deferred tax assets. “Character” refers to the type (ordinary income versus capital
gain) as well as the source (foreign vs. domestic) of the income we generate. “Timing” refers to the period in which future income
is expected to be generated. Timing is important because, in certain jurisdictions, net operating losses (“NOLs”) and other tax
attributes expire if not used within an established statutory time frame. Based on these evaluations, we have determined that it is
more likely than not that expected future earnings will be sufficient to use most of our deferred tax assets.
We do not provide for income taxes or tax benefits on differences between financial reporting basis and tax basis of our non-U.S.
subsidiaries where such differences are reinvested and, in our opinion, will continue to be indefinitely reinvested. If earnings of
foreign subsidiaries are not considered indefinitely reinvested, deferred U.S. income taxes, foreign income taxes, and foreign
withholding taxes may have to be provided. We do not record deferred income taxes on the temporary difference between the
book and tax basis in domestic subsidiaries where permissible. At this time, determination of unrecognized deferred tax liabilities
for temporary differences related to the investment in subsidiaries is not practicable.
Judgments and estimates are required to determine tax expense and deferred tax valuation allowances and in assessing uncertain
tax positions. Tax returns are subject to audit and local taxing authorities could challenge tax-filing positions we take. Our practice
is to file income tax returns that conform to requirements of each jurisdiction and to record provisions for tax liabilities, including
interest and penalties, in accordance with ASC 740, “Income Taxes.” As our business has grown in geographic scope, size and
complexity, so has our potential exposure to uncertain tax positions. Given the subjective nature of applicable tax laws, results
of an audit of some of our tax returns could have a significant impact on our financial statements.
RECENT ACCOUNTING PRONOUNCEMENTS
Please refer to Note B – “Basis of Presentation” in the accompanying Consolidated Financial Statements for a listing of recent
accounting pronouncements.
46
LIQUIDITY AND CAPITAL RESOURCES
We continue to focus on generating cash and improving margins. We generated $367.0 million in cash from operating activities
and achieved our expectations for free cash flow with $189.3 million generated for the year ended December 31, 2016. This was
primarily due to improved working capital efficiency. Our liquidity (cash and availability under our revolving credit line) increased
from December 31, 2015 to December 31, 2016 by approximately $35 million.
The following table reconciles Net cash provided by (used in) operating activities to free cash flow (in millions):
Net cash provided by (used in) operating activities
Increase (decrease) in TFS assets
(Increase) decrease in cash for securitization
settlement
Capital expenditures
Free cash flow $
Year Ended
12/31/2016
367.0
(110.9)
6.2
(73.0)
189.3
Generating cash from operations depends primarily on the Company’s ability to earn net income through the sales of its products
and to manage its investment in working capital. Pursuant to terms of the Company’s trade accounts receivable factoring
arrangements, during the year ended December 31, 2016, we sold, without recourse, approximately $620 million of trade accounts
receivable to provide additional liquidity. During the year ended December 31, 2016, we also sold approximately $291 million
of sales-type leases and commercial loans.
Our main sources of funding are cash generated from operations, loans from our bank credit facilities, and funds raised in capital
markets. We had cash and cash equivalents, including cash and cash equivalents recorded as Current assets held for sale, of $501.9
million at December 31, 2016. We seek to use cash held by our foreign subsidiaries to support our operations and continued
growth plans outside the United States through funding of capital expenditures, operating expenses or other similar cash needs of
these operations. Such cash could be used in the U.S., if necessary. Cash repatriated to the U.S. could be subject to incremental
local and U.S. taxation. Primarily as a result of the sale of the MHPS business to Konecranes, the Company has repatriated
approximately $1.3 billion of amounts invested outside the U.S. Because our expectation for changes to existing tax laws worldwide
is high, we will continue to monitor tax legislation for opportunities to tax-efficiently mobilize and redeploy funds. There are no
other trends, demands or uncertainties as a result of the Company’s cash re-investment policy that are reasonably likely to have
a material effect on us as a whole or that may be relevant to our financial flexibility.
We believe cash generated from operations together with access to our bank credit facilities and cash on hand, provide adequate
liquidity to continue to support internal operating initiatives and meet our operating and debt service requirements for at least the
next 12 months. See Item 1A “Risk Factors” for a detailed description of the risks resulting from our debt and our ability to
generate sufficient cash flow to operate our business.
Our ability to generate cash from operations is subject to numerous factors, including the following:
• Many of our customers fund their purchases through third-party finance companies that extend credit based on the credit-
worthiness of customers and expected residual value of our equipment. Changes either in customers’ credit profile or
used equipment values may affect the ability of customers to purchase equipment. There can be no assurance third-party
finance companies will continue to extend credit to our customers as they have in the past.
• As our sales change, the amount of working capital needed to support our business may change.
• Our suppliers extend payment terms to us primarily based on our overall credit rating. Declines in our credit rating may
•
influence suppliers’ willingness to extend terms and in turn increase cash requirements of our business.
Sales of our products are subject to general economic conditions, weather, competition, translation effect of foreign
currency exchange rate changes, and other factors that in many cases are outside our direct control. For example, during
periods of economic uncertainty, our customers have delayed purchasing decisions, which reduces cash generated from
operations.
• Availability and utilization of other sources of liquidity such as trade receivables sales programs.
Typically, we have invested our cash in a combination of highly rated, liquid money market funds and in short-term bank deposits
with large, highly rated banks. Our investment objective is to preserve capital and liquidity while earning a market rate of interest.
47
Our investment in financial services assets was approximately $239 million, net at December 31, 2016. We remain focused on
expanding financing solutions in key markets like the U.S. and Europe. We also anticipate using TFS to drive incremental sales
by increasing direct customer financing through TFS in certain instances.
During 2016, cash provided by reduction in inventory was approximately $97 million, which was mostly driven by inventory
reductions in our Cranes segment. Working capital as a percent of trailing three month annualized net sales was 20.8% at
December 31, 2016.
The following tables show the calculation of our working capital and trailing three months annualized sales as of December 31,
2016 (in millions):
Net Sales
Trailing Three Month Annualized Net Sales
Inventories
Trade Receivables
Less: Trade Accounts Payable
Less: Customer advances
Total Working Capital
Three
months
ended
12/31/16
x
$
974.7
4
$ 3,898.8
As of
12/31/16
$
$
853.8
512.5
(522.7)
(33.0)
810.6
On January 31, 2017, we entered into a new credit agreement (the “2017 Credit Agreement”). The 2017 Credit Agreement provides
us with a senior secured revolving line of credit of up to $450.0 million that is available through January 31, 2022 and a $400.0
million senior secured term loan, which will mature on January 31, 2024. The 2017 Credit Agreement allows unlimited incremental
commitments, which may be extended at the option of the existing or new lenders and can be in the form of revolving credit
commitments, term loan commitments, or a combination of both, with incremental amounts in excess of $300.0 million as long
as the Company satisfies a senior secured leverage ratio contained in the 2017 Credit Agreement.
Our previous credit agreement provided us with a revolving line of credit of up to $600 million. See Note O - “Long-Term
Obligations,” in our Consolidated Financial Statements for information concerning the 2017 Credit Agreement and our previous
credit agreement. Borrowings under our U.S. dollar and Euro denominated term loans were $428.6 million as of December 31,
2016.
Interest rates charged under the revolving line of credit in the 2017 Credit Agreement are subject to adjustment based on our
consolidated leverage ratio. The U.S. dollar term loan bears interest at a rate of London Interbank Offer Rate (“LIBOR”) plus
2.50%, with a floor of 0.75% on LIBOR. Under our previous credit agreement, we had a U.S. dollar term loan with interest at a
rate of LIBOR plus 2.75%, with a floor of 0.75% on LIBOR and a Euro term loan with interest at a rate of Euro Interbank Offer
Rate (“EURIBOR”) plus 2.75%, with a floor of 0.75% on EURIBOR. At December 31, 2016, the weighted average interest rate
on these term loans was 3.63%.
We manage our interest rate risk by maintaining a balance between fixed and floating rate debt, including the use of interest rate
derivatives when appropriate. Over the long term, we believe this mix will produce lower interest cost than a purely fixed rate
mix while reducing interest rate risk.
48
On January 31, 2017, the Company sold and issued $600.0 million aggregate principal amount of Senior Notes due 2025 (“5-5/8%
Notes”) at par in a private offering. The proceeds from the 5-5/8% Notes, together with cash on hand, including cash from the
sale of our MHPS business, have been and will be used: (i) to complete a tender offer for up to $550.0 million of our 6% Senior
Notes, (ii) to redeem and discharge such portion of the 6% Notes that are not purchased in the tender offer, (iii) to fund a $300.0
million partial redemption of the 6% Notes, (iv) to fund anticipated redemption, repurchase or other retirement of all $300.0 million
aggregate principal amount outstanding of our 6.5% Notes on or before April 3, 2017, (v) to pay related premiums, fees, discounts
and expenses and (vi) for general corporate purposes, including repayment of borrowings outstanding under our previous credit
agreement. The 5-5/8% Notes are jointly and severally guaranteed by certain of the Company’s domestic subsidiaries.
On May 28, 2015, we entered into a securitization facility with capacity up to $350 million secured by equipment loans and leases
to our customers originated by TFS. On May 31, 2016, we terminated the securitization facility because it was not providing us
with the flexibility needed for our portfolio of assets. See Note O - “Long-Term Obligations,” in our Consolidated Financial
Statements for information concerning this securitization facility.
We announced in February 2015 that our Board of Directors authorized the repurchase of up to $200 million of our outstanding
shares of common stock. During 2016, we repurchased 3.5 million shares for $81.3 million. We have approximately $69 million
remaining available under the 2015 share repurchase authorization. We announced in February 2017 that our Board of Directors
authorized the repurchase of up to an additional $350 million of our outstanding shares of common stock. In each quarter of 2016,
we paid a $0.07 cash dividend to our shareholders. Our Board of Directors declared a dividend of $0.08 per share in the first
quarter of 2017, which will be paid in March 2017. However, additional declarations of quarterly dividends and the establishment
of future record and payment dates are subject to the determination of our Board of Directors.
Our ability to access capital markets to raise funds, through sale of equity or debt securities, is subject to various factors, some
specific to us, and others related to general economic and/or financial market conditions. These include results of operations,
projected operating results for future periods and debt to equity leverage. Our ability to access capital markets is also subject to
our timely filing of periodic reports with the Securities and Exchange Commission (“SEC”). In addition, terms of our bank credit
facilities, senior notes and senior subordinated notes contain restrictions on our ability to make further borrowings and to sell
substantial portions of our assets.
Cash Flows
Cash provided by operations for the year ended December 31, 2016 totaled $367.0 million, compared to cash provided by operations
of $212.9 million for the year ended December 31, 2015. The change in cash from operations was primarily driven by lower cash
used in working capital in 2016.
Cash used in investing activities for the year ended December 31, 2016 was $11.8 million, compared to $172.7 million cash used
in investing activities for the year ended December 31, 2015. The decrease of cash used in investing activities was primarily due
to cash received from the sale of our compact construction business, lower cash used for acquisitions and lower capital expenditures
in 2016 compared to 2015.
Cash used in financing activities was $300.1 million for the year ended December 31, 2016, compared to cash used in financing
activities for the year ended December 31, 2015 of $14.4 million. The increase in cash used in financing activities in 2016 compared
to 2015 was primarily due to lower net borrowings and increased share repurchases in 2016 compared to 2015.
49
Contractual Obligations
The following table sets out our specified contractual obligations at December 31, 2016 (in millions):
Total
< 1 year
1-3 years
3-5 years
> 5 years
Payments due by period
Long-term debt obligations
$
1,961.7
$
101.2
$
186.7
$
1,672.4
$
Capital lease obligations
Operating lease obligations
Purchase obligations (1)
3.1
132.3
400.4
Total
$
2,497.5
$
0.2
32.5
400.4
534.3
1.2
37.4
—
1.1
21.7
—
$
225.3
$
1,695.2
$
1.4
0.6
40.7
—
42.7
(1) Purchase obligations include non-cancellable and cancellable commitments. In many cases, cancellable commitments contain penalty
provisions for cancellation.
Long-term debt obligations include expected interest expense. Interest expense is calculated using fixed interest rates for
indebtedness that has fixed rates and the implied forward rates as of December 31, 2016 for indebtedness that has floating interest
rates.
As of December 31, 2016, our liability for uncertain income tax positions was $45.4 million. With respect to our tax audits
worldwide, it is reasonably possible that we will make payments in 2017 of up to $12.2 million. Payments may be made in part
to mitigate the accrual of interest in connection with income tax audit assessments that may be issued and that we would contest,
or may in part be made to settle the matter with the tax authorities. Due to the high degree of uncertainty regarding the timing of
potential future cash flows associated with the remaining liabilities, we are unable to make a reasonable estimate of the amount
and period in which these remaining liabilities might be paid.
Additionally, at December 31, 2016, we had outstanding letters of credit that totaled $183.2 million ($121.4 million related to
discontinued operations) and had issued $42.3 million ($2.0 million related to discontinued operations) in credit guarantees of
customer financing to purchase equipment and $3.5 million ($3.2 million related to discontinued operations) in buyback guarantees.
We maintain defined benefit pension plans for some of our operations in the United States and Europe. It is our policy to fund
the retirement plans at the minimum level required by applicable regulations. In 2016, we made cash contributions and payments
to the retirement plans of $8 million, and we estimate that our retirement plan contributions will be approximately $8 million in
2017. Changes in market conditions, changes in our funding levels or actions by governmental agencies may result in accelerated
funding requirements in future periods.
OFF-BALANCE SHEET ARRANGEMENTS
Guarantees
Our customers, from time to time, fund the acquisition of our equipment through third-party finance companies. In certain instances,
we may provide a credit guarantee to the finance company by which we agree to make payments to the finance company should
the customer default. Our maximum liability is generally limited to our customer’s remaining payments due to the finance company
at the time of default. In the event of a customer default, we are generally able to recover and dispose of the equipment at a
minimum loss, if any, to us.
We issue, from time to time, residual value guarantees under sales-type leases. A residual value guarantee involves a guarantee
that a piece of equipment will have a minimum fair market value at a future date. We are generally able to mitigate the risk
associated with these guarantees because maturity of guarantees is staggered, which limits the amount of used equipment entering
the marketplace at any one time.
We guarantee, from time to time, that we will buy equipment from our customers in the future at a stated price if certain conditions
are met by the customer. Such guarantees are referred to as buyback guarantees. These conditions generally pertain to functionality
and state of repair of the machine. We are generally able to mitigate risk of these guarantees by staggering the timing of the
buybacks and through leveraging our access to used equipment markets provided by our original equipment manufacturer status.
50
See Note S – “Litigation and Contingencies” in the Notes to the Consolidated Financial Statements for further information regarding
our guarantees.
There can be no assurance our historical experience in used equipment markets will be indicative of future results. Our ability to
recover losses from our guarantees may be affected by economic conditions in used equipment markets at the time of loss.
CONTINGENCIES AND UNCERTAINTIES
Foreign Currencies and Interest Rate Risk
Our products are sold in over 100 countries around the world and, accordingly, our revenues are generated in foreign currencies,
while costs associated with those revenues are only partly incurred in the same currencies. Major foreign currencies, among others,
in which we do business are the Euro, British Pound and Australian Dollar. We may, from time to time, hedge specifically identified
committed and forecasted cash flows in foreign currencies using forward currency sale or purchase contracts. At December 31,
2016, we had foreign exchange contracts with a notional value of $245.5 million that were initially designated as hedge contracts.
Fair market value of these arrangements, which represents the cost to settle these contracts, was a net loss of $2.6 million at
December 31, 2016. See Risk Factor entitled, “We are subject to currency fluctuations,” for further information on our foreign
exchange risk.
We manage exposure to interest rates by incurring a mix of indebtedness bearing interest at both floating and fixed rates at inception
and maintaining an ongoing balance between floating and fixed rates on this mix of indebtedness using interest rate swaps when
necessary.
See “Quantitative and Qualitative Disclosures About Market Risk” below for a discussion of the impact that changes in foreign
currency exchange rates and interest rates may have on our financial performance.
Other
We are subject to a number of contingencies and uncertainties including, without limitation, product liability claims, workers’
compensation liability, intellectual property litigation, self-insurance obligations, tax examinations, guarantees, class action
lawsuits and other matters. See Note S – “Litigation and Contingencies” for more information concerning contingencies and
uncertainties, including our securities and stockholder derivative lawsuits, and our proceedings involving certain former
shareholders of Demag Cranes AG, in the Notes to the Consolidated Financial Statements. We are insured for product liability,
general liability, workers’ compensation, employer’s liability, property damage, intellectual property and other insurable risk
required by law or contract with retained liability to us or deductibles. Many of the exposures are unasserted or proceedings are
at a preliminary stage, and it is not presently possible to estimate the amount or timing of any of our costs. However, we do not
believe these contingencies and uncertainties will, individually or in the aggregate, have a material adverse effect on our operations.
For contingencies and uncertainties other than income taxes, when it is probable that a loss will be incurred and possible to make
reasonable estimates of our liability with respect to such matters, a provision is recorded for the amount of such estimate or for
the minimum amount of a range of estimates when it is not possible to estimate the amount within the range that is most likely to
occur.
See Item 1. Business – Safety and Environmental Considerations for additional discussion of safety and environmental items.
51
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to certain market risks that exist as part of our ongoing business operations and we use derivative financial
instruments, where appropriate, to manage these risks. As a matter of policy, we do not engage in trading or speculative transactions.
For further information on accounting policies related to derivative financial instruments, refer to Note M – “Derivative Financial
Instruments” in our Consolidated Financial Statements.
Foreign Exchange Risk
We are exposed to fluctuations in foreign currency cash flows related to third-party purchases and sales, intercompany product
shipments and other intercompany transactions. We are also exposed to fluctuations in the value of foreign currency investments
in subsidiaries and cash flows related to repatriation of these investments. Additionally, we are exposed to volatility in translation
of foreign currency earnings to U.S. Dollars. Primary exposures include the U.S. Dollar when compared to functional currencies
of our major markets, which include the Euro, British Pound and Australian Dollar. We assess foreign currency risk based on
transactional cash flows, identify naturally offsetting positions and purchase hedging instruments to partially offset anticipated
exposures. See Risk Factor entitled, “We are subject to currency fluctuations,” for further information on our foreign exchange
risk.
At December 31, 2016, we performed a sensitivity analysis on the impact that aggregate changes in the translation effect of foreign
currency exchange rate changes would have on our operating income. Based on this sensitivity analysis, we have determined that
a change in the value of the U.S. dollar relative to other currencies by 10% to amounts already incorporated in the financial
statements for the year ended December 31, 2016 would have had an approximately $11 million impact on the translation effect
of foreign currency exchange rate changes already included in our reported operating income for the period.
Interest Rate Risk
We are exposed to interest rate volatility with regard to future issuances of fixed rate debt and existing issuances of variable rate
debt. Primary exposure includes movements in the U.S. prime rate and LIBOR. We manage interest rate risk by incurring a mix
of indebtedness bearing interest at both floating and fixed rates at inception and maintain an ongoing balance between floating
and fixed rates on this mix of indebtedness using interest rate swaps when necessary. At December 31, 2016, approximately 27%
of our debt was floating rate debt and the weighted average interest rate for all debt was 5.46%.
At December 31, 2016, we performed a sensitivity analysis for our derivatives and other financial instruments that have interest
rate risk. We calculated the pretax earnings effect on our interest sensitive instruments. Based on this sensitivity analysis, we
have determined that an increase of 10% in our average floating interest rates at December 31, 2016 would have increased interest
expense by approximately $2 million for the year ended December 31, 2016.
Commodities Risk
Principal materials and components that we use in our 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 financial performance. In 2016,
minor, unfavorable input cost changes in some areas were more than off-set by favorable changes in other areas.
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 single source supplier,
although alternative suppliers of such materials may be generally available. Current and potential suppliers are evaluated regularly
on their ability to meet our requirements and standards. We actively manage our material supply sourcing, and employ various
methods to limit risk associated with commodity cost fluctuations and availability. The inability of suppliers, especially any single
source suppliers for a particular business, to deliver materials and components promptly could result in production delays and
increased costs to manufacture our products. We have designed and implemented plans to mitigate the impact of these risks by
using alternate suppliers, expanding our supply base globally, leveraging our overall purchasing volumes to obtain favorable
quantities and developing a closer working relationship with key suppliers. One key element of our Execute to Win strategy is to
focus on strategic sourcing to gain efficiencies using our global purchasing power, which includes building a global sourcing
organization and standardizing our sourcing processes across our businesses.
52
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The report of our independent registered public accounting firm and our Consolidated Financial Statements and Financial Statement
Schedule are filed pursuant to this Item 8 and are included later in this report. See Index to Consolidated Financial Statements
and Financial Statement Schedule on page F-1.
Unaudited Quarterly Financial Data
Certain amounts reported below have been changed from those previously reported on Forms 10-Q to reflect the impact of
discontinued operations for all periods. Summarized quarterly financial data for 2016 and 2015 are as follows (in millions, except
per share amounts):
Net sales
Gross profit
2016
2015
Fourth
Third
Second
First
Fourth
Third
Second
First
$
974.7
$ 1,056.4
$ 1,297.7
$ 1,114.3
$ 1,167.6
$ 1,255.4
$ 1,442.9
$ 1,155.8
104.7
183.9
242.1
181.7
215.3
252.4
302.2
201.3
Net income (loss) from continuing operations
attributable to common stockholders (1)
Income (loss) from discontinued operations – net of
tax
Gain (loss) on disposition of discontinued
operations – net of tax
(313.9)
46.7
—
Net income (loss) attributable to Terex Corporation
(267.2)
33.3
63.5
—
96.8
109.6
(22.0)
23.8
(44.6)
(52.2)
(9.2)
0.1
65.1
3.4
(70.8)
1.9
16.5
30.3
14.5
(1.2)
43.6
75.9
9.3
(0.4)
84.8
(1.6)
(0.5)
3.1
1.0
Per share:
Basic
Net income (loss) from continuing operations
attributable to common stockholders
Income (loss) from discontinued operations –
net of tax
Gain (loss) on disposition of discontinued
operations – net of tax
Net income (loss) attributable to Terex
Corporation
Diluted
Net income (loss) from continuing operations
attributable to common stockholders
Income (loss) from discontinued operations –
net of tax
Gain (loss) on disposition of discontinued
operations – net of tax
Net income (loss) attributable to Terex
Corporation
0.44
—
0.44
—
$
(2.96)
$
0.31
$
1.01
$
(0.20)
$
0.22
$
0.28
$
0.71
$
(0.02)
0.59
(0.41)
(0.48)
(0.09)
0.13
—
—
0.03
(2.52)
0.90
0.60
(0.65)
0.02
0.15
(0.01)
0.40
$
(2.96)
$
0.31
$
1.00
$
(0.20)
$
0.22
$
0.28
$
0.70
$
(0.02)
0.58
(0.41)
(0.48)
(0.09)
0.13
—
—
0.03
(2.52)
0.89
0.59
(0.65)
0.02
0.15
(0.01)
0.40
0.09
—
0.80
—
0.03
0.01
0.08
—
0.78
—
0.03
0.01
(1) The fourth quarter 2015 results include correcting adjustments of $4.2 million of expense related to prior periods which was identified and recorded in
this quarter, primarily related to a tax valuation allowance and excess freight reimbursement accruals. The Company believes these adjustments
are immaterial to current and prior periods.
The accompanying unaudited quarterly financial data have been prepared in accordance with generally accepted accounting
principles in the United States for interim financial information and with Item 302 of Regulation S-K. In our opinion, all adjustments
considered necessary for a fair statement have been made and were of a normal recurring nature.
53
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A.
CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in reports
we file under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated
to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow
timely decisions regarding required financial disclosure. In connection with the preparation of this Annual Report on Form 10-
K, our management carried out an evaluation, under the supervision and with the participation of our management, including the
CEO and CFO, as of December 31, 2016, of the effectiveness of the design and operation of our disclosure controls and procedures,
as such term is defined under Rule 13a-15(e) under the Exchange Act. Based upon this evaluation, our CEO and CFO concluded
that our disclosure controls and procedures were effective as of December 31, 2016.
MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company,
as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is
a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external reporting purposes in accordance with generally accepted accounting principles. Internal control over
financial reporting includes those policies and procedures that: pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of our assets; provide reasonable assurance transactions are recorded
as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that
our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that
could have a material effect on our financial statements. Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
Management has conducted an assessment, including testing, of the effectiveness of our internal control over financial reporting
as of December 31, 2016. In making its assessment of internal control over financial reporting, management used the criteria
in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this assessment, the Company’s management has concluded that, as of December 31, 2016, the Company’s
internal control over financial reporting was effective.
The effectiveness of our internal control over financial reporting as of December 31, 2016 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears in this
Annual Report on Form 10-K.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) that occurred during our quarter ended December 31, 2016, that have materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.
The effectiveness of any system of controls and procedures is subject to certain limitations, and, as a result, there can be no
assurance that our controls and procedures will detect all errors or fraud. A control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the objectives of the control system will be attained.
ITEM 9B.
OTHER INFORMATION
None.
54
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by Item 10 is incorporated by reference to the definitive Terex Corporation Proxy Statement to be filed
with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year covered by this Annual Report
on Form 10-K.
ITEM 11.
EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by reference to the definitive Terex Corporation Proxy Statement to be filed
with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year covered by this Annual Report
on Form 10-K.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Equity Compensation Plan Information
The following table summarizes information about the Company’s equity compensation plans as of December 31, 2016:
Plan Category
Equity compensation plans approved by stockholders
Equity compensation plans not approved by stockholders
Total
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights (a)
Weighted average exercise
price of outstanding options,
warrants and rights (b)
13,059 (1)
—
13,059
$65.17
—
Number of securities
remaining available for
future issuance under equity
compensation plans
(excluding securities
reflected in column (a)) (c)
2,542,645
—
2,542,645
(1) This does not include 3,531,188 shares of restricted stock awards and 851,982 shares held in a Rabbi Trust for a deferred compensation
plan, which are also not included in the calculation of the weighted average exercise price of outstanding options, warrants and rights in
column (b) of this table.
The other information required by Item 12 is incorporated by reference to the definitive Terex Corporation Proxy Statement to be
filed with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year covered by this Annual
Report on Form 10-K.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by Item 13 is incorporated by reference to the definitive Terex Corporation Proxy Statement to be filed
with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year covered by this Annual Report
on Form 10-K.
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by Item 14 is incorporated by reference to the definitive Terex Corporation Proxy Statement to be filed
with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year covered by this Annual Report
on Form 10-K.
55
PART IV
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) (1) and (2) Financial Statements and Financial Statement Schedules.
See “Index to Consolidated Financial Statements and Financial Statement Schedule” on Page F-1.
(3) Exhibits
See “Exhibit Index” on Page E-1.
ITEM 16.
FORM 10-K SUMMARY
Not applicable.
56
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned thereunto duly authorized.
TEREX CORPORATION
By:
/s/ John L. Garrison, Jr.
February 24, 2017
John L. Garrison, Jr.
President, Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.
NAME
/s/ John L. Garrison, Jr
John L. Garrison, Jr.
/s/ Kevin P. Bradley
Kevin P. Bradley
/s/ Mark I. Clair
Mark I. Clair
/s/ Paula H. J. Cholmondeley
Paula H. J. Cholmondeley
/s/ Don DeFosset
Don DeFosset
/s/ Thomas J. Hansen
Thomas J. Hansen
/s/ Matthew P. Hepler
Matthew P. Hepler
/s/ Raimund Klinkner
Raimund Klinkner
/s/ David A. Sachs
David A. Sachs
/s/ Oren G. Shaffer
Oren G. Shaffer
/s/ David C. Wang
David C. Wang
/s/ Scott W. Wine
Scott W. Wine
TITLE
President, Chief Executive Officer
and Director
(Principal Executive Officer)
Senior Vice President and Chief Financial
Officer
(Principal Financial Officer)
Vice President, Controller and Chief
Accounting Officer
(Principal Accounting Officer)
Director
Director
Director
Director
Director
DATE
February 24, 2017
February 24, 2017
February 24, 2017
February 24, 2017
February 24, 2017
February 24, 2017
February 24, 2017
February 24, 2017
Non-Executive Chairman and Director
February 24, 2017
Director
Director
Director
February 24, 2017
February 24, 2017
February 24, 2017
57
THIS PAGE IS INTENTIONALLY BLANK
NEXT PAGE IS NUMBERED “E-1”
58
EXHIBIT INDEX
2.1
2.2
3.1
3.2
3.3
3.4
3.5
4.1
4.2
4.3
4.4
4.5
4.6
4.7
Stock and Asset Purchase Agreement between Terex Corporation and Konecranes Plc (incorporated by reference to
Exhibit 2.1 of the Form 8-K Current Report, Commission File No. 1-10702, dated May 16, 2016 and filed with the
Commission on May 19, 2016).
Amendment No. 1 to the Stock and Asset Purchase Agreement between Terex Corporation and Konecranes Plc
(incorporated by reference to Exhibit 2.1 of the Form 8-K Current Report, Commission File No. 1-10702, dated June
21, 2016 and filed with the Commission on June 24, 2016).
Restated Certificate of Incorporation of Terex Corporation (incorporated by reference to Exhibit 3.1 of the Form S-1
Registration Statement of Terex Corporation, Registration No. 33-52297).
Certificate of Elimination with respect to the Series B Preferred Stock (incorporated by reference to Exhibit 4.3 of
the Form 10-K for the year ended December 31, 1997 of Terex Corporation, Commission File No. 1-10702).
Certificate of Amendment to Certificate of Incorporation of Terex Corporation dated September 5, 1998 (incorporated
by reference to Exhibit 3.3 of the Form 10-K for the year ended December 31, 1998 of Terex Corporation, Commission
File No. 1-10702).
Certificate of Amendment of the Certificate of Incorporation of Terex Corporation dated July 17, 2007 (incorporated
by reference to Exhibit 3.1 of the Form 8-K Current Report, Commission File No. 1-10702, dated July 17, 2007 and
filed with the Commission on July 17, 2007).
Amended and Restated Bylaws of Terex Corporation (incorporated by reference to Exhibit 3.1 of the Form 8-K Current
Report, Commission File No. 1-10702, dated October 15, 2015 and filed with the Commission on October 19, 2015).
Indenture, dated July 20, 2007, between Terex Corporation and HSBC Bank USA, National Association, as Trustee,
relating to senior debt securities (incorporated by reference to Exhibit 4.1 of the Form S-3 Registration Statement of
Terex Corporation, Registration No. 333-144796).
Indenture, dated July 20, 2007, between Terex Corporation and HSBC Bank USA, National Association, as Trustee,
relating to subordinated debt securities (incorporated by reference to Exhibit 4.2 of the Form S-3 Registration Statement
of Terex Corporation, Registration No. 333-144796).
Third Supplemental Indenture, dated as of March 27, 2012, to Senior Debt Indenture dated as of July 20, 2007, with
HSBC Bank USA, National Association as Trustee relating to the 6.50% Senior Notes due 2020 (incorporated by
reference to Exhibit 4.1 of the Form 8-K Current Report, Commission File No. 1-10702, dated March 27, 2012 and
filed with the Commission on March 30, 2012).
Fourth Supplemental Indenture, dated as of November 26, 2012, to the Senior Debt Indenture dated as of July 20,
2007, with HSBC Bank USA, National Association as Trustee relating to 6% Senior Notes due 2021 (incorporated
by reference to Exhibit 4.1 of the Form 8-K Current Report, Commission File No. 1-10702, dated November 26, 2012
and filed with the Commission on November 30, 2012).
Supplemental Indenture to the Third Supplemental Indenture dated as of March 27, 2012 to Senior Debt Indenture
dated as of July 20, 2007, with HSBC Bank USA, National Association as Trustee relating to the 6.50% Senior
Notes due 2020 (incorporated by reference to Exhibit 4.1 of the Form 8-K Current Report, Commission File No.
1-10702, dated September 8, 2015 and filed with the Commission on September 14, 2015).
Supplemental Indenture to the Fourth Supplemental Indenture, dated as of November 26, 2012, to the Senior Debt
Indenture dated as of July 20, 2007, with HSBC Bank USA, National Association as Trustee relating to 6% Senior
Notes due 2021 (incorporated by reference to Exhibit 4.2 of the Form 8-K Current Report, Commission File No.
1-10702, dated September 8, 2015 and filed with the Commission on September 14, 2015).
Waiver Agreement, dated September 30, 2016, to Third Supplemental Indenture, dated as of March 27, 2012, to the
Senior Debt Indenture dated as of July 20, 2007, with HSBC Bank USA, National Association as Trustee relating to
the 6.50% Senior Notes due 2020 (incorporated by reference to Exhibit 4.1 of the Form 8-K Current Report,
Commission File No. 1-10702, dated September 30, 2016 and filed with the Commission on October 5, 2016).
E-1
4.8
4.9
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
Waiver Agreement, dated September 30, 2016, to Fourth Supplemental Indenture, Dated as of November 26, 2012,
to the Senior Debt Indenture dated as of July 20, 2007, with HSBC Bank USA, National Association as Trustee relating
to the 6% Senior Notes due 2021 (incorporated by reference to Exhibit 4.2 of the Form 8-K Current Report, Commission
File No. 1-10702, dated September 30, 2016 and filed with the Commission on October 5, 2016).
Indenture, dated as of January 31, 2017, among Terex Corporation, the Guarantors and HSBC Bank USA, National
Association as Trustee relating to 5.625% Senior Notes due 2025 (incorporated by reference to Exhibit 4.1 of the
Form 8-K Current Report, Commission File No. 1-10702, dated January 31, 2017 and filed with the Commission on
February 2, 2017).
Terex Corporation Amended and Restated Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.2
of the Form 10-Q for the quarter ended June 30, 2007 of Terex Corporation, Commission File No. 1-10702). ***
1996 Terex Corporation Long Term Incentive Plan (incorporated by reference to Exhibit 10.1 of the Form S-8
Registration Statement of Terex Corporation, Registration No. 333-03983). ***
Amendment No. 1 to 1996 Terex Corporation Long Term Incentive Plan (incorporated by reference to Exhibit 10.5
of the Form 10-K for the year ended December 31, 1999 of Terex Corporation, Commission File No. 1-10702). ***
Amendment No. 2 to 1996 Terex Corporation Long Term Incentive Plan (incorporated by reference to Exhibit 10.6
of the Form 10-K for the year ended December 31, 1999 of Terex Corporation, Commission File No. 1-10702). ***
Terex Corporation Amended and Restated 2000 Incentive Plan (incorporated by reference to Exhibit 10.3 of the Form
8-K Current Report, Commission File No. 1-10702, dated October 14, 2008 and filed with the Commission on October
17, 2008). ***
Form of Restricted Stock Agreement under the Terex Corporation 2000 Incentive Plan between Terex Corporation
and participants of the 2000 Incentive Plan (incorporated by reference to Exhibit 10.4 of the Form 8-K Current Report,
Commission File No. 1-10702, dated January 1, 2005 and filed with the Commission on January 5, 2005). ***
Form of Option Agreement under the Terex Corporation 2000 Incentive Plan between Terex Corporation and
participants of the 2000 Incentive Plan (incorporated by reference to Exhibit 10.5 of the Form 8-K Current Report,
Commission File No. 1-10702, dated January 1, 2005 and filed with the Commission on January 5, 2005). ***
Terex Corporation Amended and Restated Supplemental Executive Retirement Plan (incorporated by reference to
Exhibit 10.10 of the Form 10-K for the year ended December 31, 2008 of Terex Corporation, Commission File No.
1-10702). ***
Terex Corporation Amended and Restated Deferred Compensation Plan (incorporated by reference to Exhibit 10.11
of the Form 10-Q for the quarter ended June 30, 2004 of Terex Corporation, Commission File No. 1-10702). ***
Amendment to the Terex Corporation Amended and Restated Deferred Compensation Plan (incorporated by reference
to Exhibit 10.1 of the Form 8-K Current Report, Commission File No. 1-10702, dated October 14, 2008 and filed
with the Commission on October 17, 2008). ***
Terex Corporation Deferred Compensation Plan (incorporated by reference to Exhibit 10.2 of the Form 8-K Current
Report, Commission File No. 1-10702, dated May 9, 2013 and filed with the Commission on May, 14, 2013). ***
Terex Corporation Amended and Restated 2009 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.1
of the Form 8-K Current Report, Commission File No. 1-10702, dated May 9, 2013 and filed with the Commission
on May, 14, 2013). ***
Form of Restricted Stock Agreement (time based) under the Terex Corporation Amended and Restated 2009 Omnibus
Incentive Plan between Terex Corporation and participants of the 2009 Omnibus Incentive Plan. ***
Form of Restricted Stock Agreement (performance based) under the Terex Corporation Amended and Restated 2009
Omnibus Incentive Plan between Terex Corporation and participants of the 2009 Omnibus Incentive Plan. ***
Credit Agreement dated as of August 13, 2014, among Terex Corporation, certain of its subsidiaries, the Lenders
named therein and Credit Suisse AG, as Administrative Agent and Collateral Agent (incorporated by reference to
Exhibit 10.1 of the Form 8-K Current Report, Commission File No. 1-10702, dated August 15, 2014 and filed with
the Commission August 15, 2014).
E-2
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
12
21.1
23.1
24.1
31.1
31.2
32
Guarantee and Collateral Agreement dated as of August 13, 2014, among Terex Corporation, certain of its subsidiaries,
and Credit Suisse AG, as Collateral Agent (incorporated by reference to Exhibit 10.2 of the Form 8-K Current Report,
Commission File No. 1-10702, dated August 15, 2014 and filed with the Commission August 15, 2014).
Incremental Assumption Agreement and Amendment No. 1, dated as of May 29, 2015, to the Credit Agreement
dated as of August 13, 2014, among Terex Corporation, certain of its subsidiaries, the Lenders named therein and
Credit Suisse AG, as Administrative Agent and Collateral Agent (incorporated by reference to Exhibit 10.1 of the
Form 8-K Current Report, Commission File No. 1-10702, dated May 28, 2015 and filed with the Commission June
2, 2015).
Credit Agreement dated as of January 31, 2017, among Terex Corporation, certain of its subsidiaries, the Lenders and
Issuing Banks named therein and Credit Suisse AG, Cayman Islands Branch, as Administrative Agent and Collateral
Agent (incorporated by reference to Exhibit 10.1 of the Form 8-K Current Report, Commission File No. 1-10702,
dated January 31, 2017 and filed with the Commission February 2, 2017).
Guarantee and Collateral Agreement dated as of January 31, 2017, among Terex Corporation, certain of its subsidiaries,
and Credit Suisse AG, Cayman Islands Branch, as Collateral Agent (incorporated by reference to Exhibit 10.1 of the
Form 8-K Current Report, Commission File No. 1-10702, dated January 31, 2017 and filed with the Commission
February 2, 2017).
Form of Change in Control and Severance Agreement between Terex Corporation and certain executive officers
(incorporated by reference to Exhibit 10.1 of the Form 8-K Current Report, Commission File No. 1-10702, dated
March 29, 2011 and filed with the Commission on March 31, 2011). ***
Form of Change in Control and Severance Agreement between Terex Corporation and certain executive officers
(incorporated by reference to Exhibit 10.2 of the Form 8-K Current Report, Commission File No. 1-10702, dated
March 29, 2011 and filed with the Commission on March 31, 2011). ***
Employment Letter from Terex Corporation signed by John Garrison on October 15, 2015 (incorporated by
reference to Exhibit 10.1 of the Form 8-K Current Report, Commission File No. 1-10702, dated October 15, 2015
and filed with the Commission on October 19, 2015). ***
Consulting Agreement between Terex Corporation and Ronald M. DeFeo, dated December 11, 2015 (incorporated
by reference to Exhibit 10.1 of the Form 8-K Current Report, Commission File No. 1-10702, dated December 11,
2015 and filed with the Commission on December 14, 2015). ***
Shareholders Agreement by and between Terex Corporation and Konecranes Plc, dated as of January 4, 2017
(incorporated by reference to Exhibit 10.1 of the Form 8-K Current Report, Commission File No. 1-10702, dated
January 4, 2017 and filed with the Commission on January 10, 2017).
Registration Rights Agreement by and between Terex Corporation and Konecranes Plc, dated as of January 4, 2017
(incorporated by reference to Exhibit 10.2 of the Form 8-K Current Report, Commission File No. 1-10702, dated
January 4, 2017 and filed with the Commission on January 10, 2017).
Calculation of Ratio of Earnings to Fixed Charges. *
Subsidiaries of Terex Corporation.*
Consent of Independent Registered Public Accounting Firm PricewaterhouseCoopers LLP, Stamford,
Connecticut.*
Power of Attorney.*
Chief Executive Officer Certification pursuant to Rule 13a-14(a)/15d-14(a). *
Chief Financial Officer Certification pursuant to Rule 13a-14(a)/15d-14(a). *
Chief Executive Officer and Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes –Oxley Act of 2002. **
101.INS XBRL Instance Document. *
101.SCH XBRL Taxonomy Extension Schema Document. *
E-3
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document. *
101.DEF XBRL Taxonomy Extension Definition Linkbase Document. *
101.LAB XBRL Taxonomy Extension Label Linkbase Document. *
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document. *
*
**
***
Exhibit filed with this document.
Exhibit furnished with this document.
Denotes a management contract or compensatory plan or arrangement.
E-4
TEREX CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
TEREX CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2016 AND 2015
AND FOR EACH OF THE THREE YEARS
IN THE PERIOD ENDED DECEMBER 31, 2016
Report of Independent Registered Public Accounting Firm
Consolidated Statement of Income (Loss)
Consolidated Statement of Comprehensive Income (Loss)
Consolidated Balance Sheet
Consolidated Statement of Changes in Stockholders’ Equity
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
FINANCIAL STATEMENT SCHEDULE
Schedule II – Valuation and Qualifying Accounts and Reserves
Page
F-2
F-3
F-4
F-5
F-6
F-7
F-8
F-66
All other schedules for which provision is made in the applicable regulations of the Securities and Exchange Commission are not
required under the related instructions, or are not applicable, and therefore have been omitted.
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
and Stockholders of Terex Corporation
In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the
financial position of Terex Corporation and its subsidiaries at December 31, 2016 and 2015, and the results of their operations and
their cash flows for each of the three years in the period ended December 31, 2016 in conformity with accounting principles
generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the
accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2016, based on criteria established in Internal Control - Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management
is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s
Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions
on these financial statements, on the financial statement schedule, and on the Company's internal control over financial reporting
based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance
about whether the financial statements are free of material misstatement and whether effective internal control over financial
reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over
financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.
Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our
audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/PricewaterhouseCoopers LLP
Stamford, Connecticut
February 24, 2017
F-2
TEREX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (LOSS)
(in millions, except per share data)
Net sales
Cost of goods sold
Gross profit
Selling, general and administrative expenses
Goodwill impairment
Income (loss) from operations
Other income (expense)
Interest income
Interest expense
Other income (expense) – net
Income (loss) from continuing operations before income taxes
(Provision for) benefit from income taxes
Income (loss) from continuing operations
Income (loss) from discontinued operations – net of tax
Gain (loss) on disposition of discontinued operations – net of tax
Net income (loss)
Net loss (income) from continuing operations attributable to noncontrolling interest
Net loss (income) from discontinued operations attributable to noncontrolling interest
Net income (loss) attributable to Terex Corporation
Amounts attributable to Terex Corporation common stockholders:
Income (loss) from continuing operations
Income (loss) from discontinued operations – net of tax
Gain (loss) on disposition of discontinued operations – net of tax
Net income (loss) attributable to Terex Corporation
Basic Earnings (Loss) per Share Attributable to Terex Corporation Common Stockholders:
Income (loss) from continuing operations
Income (loss) from discontinued operations – net of tax
Gain (loss) on disposition of discontinued operations – net of tax
Net income (loss) attributable to Terex Corporation
Diluted Earnings (Loss) per Share Attributable to Terex Corporation Common Stockholders:
Income (loss) from continuing operations
Income (loss) from discontinued operations – net of tax
Gain (loss) on disposition of discontinued operations – net of tax
Net income (loss) attributable to Terex Corporation
Weighted average number of shares outstanding in per share calculation
Basic
Diluted
$
$
$
$
$
$
$
$
$
Year Ended
December 31,
2015
5,021.7
(4,050.5)
971.2
(647.5)
—
323.7
2014
5,484.0
(4,432.5)
1,051.5
(651.5)
—
400.0
6.0
(122.7)
(4.7)
278.6
(26.6)
252.0
8.9
58.6
319.5
1.5
(2.0)
319.0
253.5
6.9
58.6
319.0
2.31
0.06
0.54
2.91
2.22
0.06
0.51
2.79
$
$
$
$
$
$
$
$
3.8
(108.1)
(23.7)
195.7
(67.5)
128.2
17.4
3.4
149.0
0.2
(3.3)
145.9
128.4
14.1
3.4
145.9
1.20
0.13
0.03
1.36
1.17
0.13
0.03
1.33
2016
4,443.1
(3,730.7)
712.4
(684.2)
(176.0)
(147.8)
4.3
(102.0)
(25.2)
(270.7)
77.4
(193.3)
14.3
3.5
(175.5)
0.3
(0.9)
(176.1) $
(193.0) $
13.4
3.5
(176.1) $
(1.79) $
0.13
0.03
(1.63) $
(1.79) $
0.13
0.03
(1.63) $
107.9
107.9
107.4
109.6
109.7
114.2
The accompanying notes are an integral part of these consolidated financial statements.
F-3
TEREX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(in millions)
Net income (loss)
Other comprehensive income (loss), net of tax:
Cumulative translation adjustment, net of (provision for) benefit from taxes of $14.0, $11.7
and $0.9, respectively
Derivative hedging adjustment, net of (provision for) benefit from taxes of $1.2, $(0.4) and
$1.2, respectively
Debt and equity securities adjustment, net of (provision for) benefit from taxes of $(0.1),
$0.1 and $0.0, respectively
Pension liability adjustment:
Net gain (loss), net of (provision for) benefit from taxes of $12.1, $2.6 and $11.4,
respectively
Amortization of actuarial (gain) loss, net of provision for (benefit from) taxes of $(3.1),
$(1.6) and $(1.2), respectively
Foreign exchange and other effects, net of (provision for) benefit from taxes of $(2.4),
$(1.9) and $(1.2), respectively
Total pension liability adjustment
Other comprehensive income (loss)
Comprehensive income (loss)
Comprehensive loss (income) attributable to noncontrolling interest
Year Ended December 31,
2016
2015
2014
$
(175.5) $
149.0 $
319.5
(123.0)
(247.3)
(237.7)
(4.7)
6.9
(28.3)
6.7
12.2
(9.4)
(130.2)
(305.7)
(0.2)
3.0
(7.9)
11.7
9.6
11.0
32.3
(3.4)
1.6
(94.0)
4.9
15.2
(73.9)
(219.9)
(313.4)
(70.9)
(3.0)
6.1
(0.4)
5.7
Comprehensive income (loss) attributable to Terex Corporation
$
(305.9) $
(73.9) $
The accompanying notes are an integral part of these consolidated financial statements.
F-4
TEREX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in millions, except par value)
Assets
Current assets
Cash and cash equivalents
Trade receivables (net of allowance of $16.5 and $20.4 at December 31, 2016 and 2015,
respectively)
Inventories
Prepaid and other current assets
Current assets held for sale
Total current assets
Non-current assets
Property, plant and equipment – net
Goodwill
Intangible assets – net
Other assets
Non-current assets held for sale
Total assets
Liabilities and Stockholders’ Equity
Current liabilities
Notes payable and current portion of long-term debt
Trade accounts payable
Accrued compensation and benefits
Accrued warranties and product liability
Other current liabilities
Current liabilities held for sale
Total current liabilities
Non-current liabilities
Long-term debt, less current portion
Retirement plans
Other non-current liabilities
Non-current liabilities held for sale
Total liabilities
Commitments and contingencies
Stockholders’ equity
Common stock, $.01 par value – authorized 300.0 shares; issued 129.6 and 128.8 shares at
December 31, 2016 and 2015, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive (loss) income
Less cost of shares of common stock in treasury – 24.6 and 21.1 shares at December 31, 2016 and
2015, respectively
Total Terex Corporation stockholders’ equity
Noncontrolling interest
Total stockholders’ equity
Total liabilities, noncontrolling interest and stockholders’ equity
December 31,
2016
2015
$
428.5
$
371.2
512.5
853.8
172.8
732.9
2,700.5
304.6
259.7
18.4
552.3
1,171.3
5,006.8
13.8
522.7
125.1
61.2
230.4
453.8
1,407.0
1,562.0
153.8
50.7
312.1
3,485.6
$
$
703.3
1,063.6
252.5
749.6
3,140.2
371.9
459.1
22.6
461.7
1,160.5
5,616.0
66.4
560.7
128.5
51.5
205.5
446.0
1,458.6
1,729.8
157.0
60.1
298.5
3,704.0
1.3
1,300.0
1,897.9
(779.4)
(935.1)
1,484.7
36.5
1,521.2
5,006.8
$
1.3
1,273.3
2,104.6
(649.6)
(852.2)
1,877.4
34.6
1,912.0
5,616.0
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-5
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(in millions)
Outstanding
Shares
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Common
Stock in
Treasury
Non-
controlling
Interest
Total
Balance at December 31, 2013
109.9
$
Net Income (Loss)
Other Comprehensive Income (Loss) – net
of tax
Issuance of Common Stock
Compensation under Stock-based Plans –
net
Acquisition
Dividends
Purchase of noncontrolling interest
Acquisition of Treasury Stock
Balance at December 31, 2014
Net Income (Loss)
Other Comprehensive Income (Loss) – net
of tax
Issuance of Common Stock
Compensation under Stock-based Plans –
net
Dividends
Purchase of noncontrolling interest
Acquisition of Treasury Stock
Balance at December 31, 2015
Net Income (Loss)
Other Comprehensive Income (Loss) – net
of tax
Issuance of Common Stock
Compensation under Stock-based Plans –
net
Proceeds from noncontrolling interest
Dividends
Acquisition of Treasury Stock
Balance at December 31, 2016
—
—
0.9
—
—
—
—
(5.4)
105.4
—
—
4.3
—
—
—
(2.0)
107.7
—
—
0.8
0.1
—
—
(3.6)
1.2
—
—
—
—
—
—
—
—
1.2
—
—
0.1
—
—
—
—
1.3
—
—
—
—
—
—
—
$
1,247.5
$ 1,688.1
$
(116.5) $
(630.2) $
24.7
$ 2,214.8
—
—
21.7
8.8
—
0.4
(26.9)
—
1,251.5
—
—
25.8
(4.5)
0.4
0.1
—
319.0
—
—
—
—
(22.2)
—
—
1,984.9
145.9
—
—
—
(26.2)
—
—
1,273.3
2,104.6
—
—
22.1
4.0
—
0.6
—
(176.1)
—
—
—
—
(30.6)
—
—
(313.3)
—
—
—
—
—
—
(429.8)
—
(219.8)
—
—
—
—
—
(649.6)
—
(129.8)
—
—
—
—
—
—
—
—
1.2
—
—
—
(172.9)
(801.9)
—
—
—
2.3
—
—
(52.6)
(852.2)
—
—
—
1.4
—
—
(84.3)
0.5
319.5
(0.1)
(313.4)
—
—
8.1
—
—
—
33.2
3.1
21.7
10.0
8.1
(21.8)
(26.9)
(172.9)
2,039.1
149.0
(0.1)
(219.9)
—
—
(0.3)
(1.3)
—
34.6
0.6
25.9
(2.2)
(26.1)
(1.2)
(52.6)
1,912.0
(175.5)
(0.4)
(130.2)
—
—
2.9
(1.2)
—
22.1
5.4
2.9
(31.2)
(84.3)
105.0
$
1.3
$
1,300.0
$ 1,897.9
$
(779.4) $
(935.1) $
36.5
$ 1,521.2
The accompanying notes are an integral part of these financial statements.
F-6
TEREX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
OPERATING ACTIVITIES
Net income (loss)
Adjustments to reconcile net income (loss) to cash provided by (used in) operating
activities:
Depreciation and amortization
(Gain) loss on disposition of discontinued operations
Deferred taxes
Goodwill impairment
Asset impairments
(Gain) loss on sale of assets
Stock-based compensation expense
Inventory and other non-cash charges
Changes in operating assets and liabilities (net of effects of acquisitions and
divestitures):
Trade receivables
Inventories
Trade accounts payable
Income taxes payable / receivable
Other assets and liabilities
Foreign exchange and other operating activities, net
Net cash provided by (used in) operating activities
INVESTING ACTIVITIES
Capital expenditures
Acquisitions, net of cash acquired
Other investments
Proceeds (payments) from disposition of discontinued operations
Proceeds from sale of assets
Other investing activities, net
Net cash provided by (used in) investing activities
FINANCING ACTIVITIES
Repayments of debt
Proceeds from issuance of debt
Proceeds from (purchase of) noncontrolling interest, net
Share repurchases
Dividends paid
Other financing activities, net
Net cash provided by (used in) financing activities
Effect of Exchange Rate Changes on Cash and Cash Equivalents
Net Increase (Decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents at Beginning of Period
Cash and Cash Equivalents at End of Period
Year Ended December 31,
2016
2015
2014
$
(175.5) $
149.0
$
319.5
96.7
(3.5)
(137.6)
176.0
70.0
(5.8)
37.8
60.6
33.0
97.3
(21.0)
16.9
165.6
(43.5)
367.0
(73.0)
(7.0)
—
3.5
67.2
(2.5)
(11.8)
(1,286.3)
1,097.7
2.9
(82.7)
(30.0)
(1.7)
(300.1)
(19.7)
35.4
466.5
132.4
(3.4)
(2.6)
11.3
25.4
(1.0)
38.5
32.1
74.1
(90.6)
41.7
16.1
(228.6)
18.5
212.9
(103.8)
(71.2)
—
(0.2)
3.1
(0.6)
(172.7)
(1,397.8)
1,462.8
(1.2)
(50.8)
(25.8)
(1.6)
(14.4)
(37.5)
(11.7)
478.2
$
501.9
$
466.5
$
165.5
(58.6)
(17.8)
—
3.9
16.6
46.5
21.2
(4.2)
(27.1)
85.8
(68.3)
(92.6)
20.3
410.7
(81.5)
(7.4)
(20.0)
162.2
43.3
(1.6)
95.0
(1,801.8)
1,684.2
(78.6)
(171.2)
(21.8)
(7.5)
(396.7)
(38.9)
70.1
408.1
478.2
The accompanying notes are an integral part of these consolidated financial statements.
F-7
TEREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
(dollar amounts in millions, unless otherwise noted, except per share amounts)
NOTE A – SALE OF MHPS BUSINESS
On May 16, 2016, Terex Corporation (“Terex”, the “Company”) agreed to sell its Material Handling and Port Solutions business
(“MHPS”) business to Konecranes Plc, a Finnish public company limited by shares (“Konecranes”) by entering into a Stock and
Asset Purchase Agreement, as amended (the “SAPA”), with Konecranes. As a result, the Company and Konecranes terminated
the Business Combination Agreement and Plan of Merger (the “BCA”) announced on August 11, 2015, with no penalties incurred
by either party. On January 4, 2017, the Company completed the disposition of its MHPS business to Konecranes (the
“Disposition”), pursuant to the SAPA. In connection with the Disposition, the Company received 19.6 million newly issued Class
B shares of Konecranes and approximately $832 million in cash after adjustments for estimated cash, debt and net working capital
at closing and the divestiture of Konecranes’ Stahl Crane Systems business (“Stahl”), which was undertaken by Konecranes in
connection with the Disposition. The final transaction consideration is subject to post-closing adjustments for the actual cash,
debt and net working capital at closing, the 2016 performance of the MHPS business and Konecranes business, and the closing
of the sale of Stahl.
The Company and Konecranes entered into a Stockholders Agreement (the “Stockholders Agreement”), dated as of January 4,
2017, providing certain restrictions, including Terex’s commitment that it will not directly or indirectly sell or otherwise transfer
the shares of Konecranes stock received by the Company for a period of three months, subject to certain exceptions, including
transfers to affiliates. In addition, under the Stockholders Agreement, Terex is subject to certain standstill obligations for a four-
year period, as well as some limited obligations following the initial four-year period. Terex also has customary registration rights
pursuant to a registration rights agreement between Terex and Konecranes entered into on January 4, 2017 (the “Registration
Rights Agreement”).
In connection with the Disposition, Konecranes’ articles of association were amended to create a new class of B shares. On February
15, 2017, Terex sold approximately 7.5 million Konecranes shares for net proceeds of approximately $268 million. Following
the sale of shares, Terex owns approximately 15.5% of the outstanding shares of Konecranes. Pursuant to the Stockholders
Agreement and amended articles of association, Terex has nominated two members to the Board of Directors of Konecranes.
Terex's initial Board representatives are David Sachs and Oren Shaffer.
Also in connection with the Disposition, the Company and Konecranes entered into certain ancillary agreements, including a
Transition Services Agreement, dated as of January 4, 2017, under which the parties will provide one another certain transition
services to facilitate both the separation of the MHPS business being disposed from the businesses being retained by the Company
and the interim operations of the MHPS business being acquired by Konecranes.
SAPA and BCA Related Expenses
Terex incurred transaction costs directly related to the SAPA of $14.2 million for the year ended December 31, 2016, which
amounts are recorded in Income (loss) from discontinued operations - net of tax in the Consolidated Statement of Income (Loss).
The Company incurred transaction costs directly related to the BCA of $14.0 million and $13.8 million for the year ended
December 31, 2016 and 2015, respectively, which is recorded in Other income (expense) - net in the Consolidated Statement of
Income (Loss).
F-8
NOTE B – BASIS OF PRESENTATION
Principles of Consolidation. The Consolidated Financial Statements include the accounts of Terex Corporation and its majority-
owned subsidiaries. The Company consolidates all majority-owned and controlled subsidiaries, applies the equity method of
accounting for investments in which the Company is able to exercise significant influence, and applies the cost method for all
other investments. All material intercompany balances, transactions and profits have been eliminated.
Reclassification. In conjunction with the adoption of new accounting standards, certain prior year debt issuance costs as well as
certain other amounts have been reclassified to conform to the current year’s presentation, for all periods presented.
Effective January 1, 2016, the Company reorganized the reportable segments to align with its new management reporting structure
and business activities which resulted in the scrap material handling business in its former Construction segment being reassigned
to its Materials Processing (“MP”) segment, certain non-operations related assets in the U.K. being reassigned from its former
Construction segment to Corporate and Other category, and parts of its North America services business, which was formerly part
of its Cranes segment being reassigned into its Aerial Work Platforms (“AWP”) and its former MHPS segments. Historical results
have been reclassified to give effect to these changes.
Effective as of June 30, 2016, further adjustments were made to the Company’s reportable segments as a result of definitive
agreements to sell portions of its business and reorganize the management structure of other portions of its business, as discussed
below. On May 16, 2016, the Company entered into an agreement to sell its MHPS business to Konecranes. As a result, the
former MHPS segment is reported in discontinued operations in the Consolidated Statement of Income (Loss) for all periods
presented, and in assets and liabilities held for sale in the Consolidated Balance Sheet at December 31, 2016 and 2015, and is no
longer a reportable segment. During June and July of 2016, the Company entered into agreements to sell certain portions of its
former Construction segment. As a result, concrete mixer trucks and concrete paver product lines from the former Construction
segment have been reassigned to the Company’s MP segment and remaining product lines within the former Construction segment,
such as loader backhoes and site dumpers, have been reassigned to the Corporate and Other category, as a result of changes in
management responsibilities and reporting associated with these product lines. The effect of these changes has been shown in all
periods presented.
On May 30, 2014, the Company sold its truck business, which was consolidated in its former Construction segment, to Volvo
Construction Equipment for approximately $160 million. As a result, reporting of the truck business has been included in
discontinued operations for all periods presented.
See Note A - “Sale of MHPS Business”, Note C - “Business Segment Information”, Note E - “Discontinued Operations and Assets
and Liabilities Held for Sale” and Note L - “Goodwill and Intangible Assets, Net” for further information.
Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual amounts could differ from those estimates.
Cash and Cash Equivalents. Cash equivalents consist of highly liquid investments with original maturities of three months or
less. The carrying amount of cash and cash equivalents approximates its fair value. Cash and cash equivalents at December 31,
2016 and 2015 include $6.0 million and $18.0 million, respectively, which were not immediately available for use. These consist
primarily of cash balances held in escrow to secure various obligations of the Company.
F-9
Inventories. Inventories are stated at the lower of cost or market (“LCM”) value. Cost is determined by the average cost and
first-in, first-out (“FIFO”) methods (approximately 30% and 70%, respectively). In valuing inventory, the Company is required
to make assumptions regarding the level of reserves required to value potentially obsolete or over-valued items at the lower of
cost or market. These assumptions require the Company to analyze aging of and forecasted demand for its inventory, forecast
future product sales prices, pricing trends and margins, and to make judgments and estimates regarding obsolete or excess inventory.
Future product sales prices, pricing trends and margins are based on the best available information at that time including actual
orders received, negotiations with the Company’s customers for future orders, including their plans for expenditures, and market
trends for similar products. The Company’s judgments and estimates for excess or obsolete inventory are based on analysis of
actual and forecasted usage. The valuation of used equipment taken in trade from customers requires the Company to use the best
information available to determine the value of the equipment to potential customers. This value is subject to change based on
numerous conditions. Inventory reserves are established taking into account age, frequency of use, or sale, and in the case of repair
parts, the installed base of machines. While calculations are made involving these factors, significant management judgment
regarding expectations for future events is involved. Future events that could significantly influence the Company’s judgment
and related estimates include general economic conditions in markets where the Company’s products are sold, new equipment
price fluctuations, actions of the Company’s competitors, including introduction of new products and technological advances, as
well as new products and design changes the Company introduces. The Company makes adjustments to its inventory reserves
based on the identification of specific situations and increases its inventory reserves accordingly. As further changes in future
economic or industry conditions occur, the Company may revise estimates that were used to calculate its inventory reserves. At
December 31, 2016 and 2015, reserves for LCM, excess and obsolete inventory totaled $83.3 million and $76.8 million,
respectively.
If actual conditions are less favorable than those the Company has projected, the Company will increase its reserves for LCM,
excess and obsolete inventory accordingly. Any increase in the Company’s reserves will adversely impact its results of operations.
Establishment of a reserve for LCM, excess and obsolete inventory establishes a new cost basis in the inventory. Such reserves
are not reduced until the product is sold.
Shipping and handling costs for product shipments to customers are recorded in Cost of goods sold (“COGS”).
Debt Issuance Costs. Debt issuance costs incurred in securing the Company’s financing arrangements are capitalized and amortized
over the term of the associated debt. As a result of the Company’s January 1, 2016 adoption of Accounting Standards Update
(“ASU”) 2015-03, “Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs, (“ASU 2015-03”) on a
retrospective basis, debt issuance costs related to senior notes and term loans are presented in the balance sheet as a direct deduction
from the carrying amount of the borrowing, consistent with debt discounts. Upon adoption, $21.1 million was reclassified from
Other assets to Long-term debt, less current portion at December 31, 2015. Unamortized costs related to securing our revolving
line of credit are presented in Other assets. Capitalized debt issuance costs related to debt that is extinguished early are charged
to expense at the time of retirement. Debt issuance costs were $21.2 million and $26.3 million (net of accumulated amortization
of $28.9 million and $23.5 million) at December 31, 2016 and 2015, respectively.
Intangible Assets. Intangible assets include purchased patents, trademarks, customer relationships and other specifically
identifiable assets and are amortized on a straight-line basis over the respective estimated useful lives, which range from one to
fifty-seven years. Intangible assets are reviewed for impairment when circumstances warrant.
Goodwill. Goodwill, representing the difference between total purchase price and fair value of assets (tangible and intangible)
and liabilities at date of acquisition, is reviewed for impairment annually, and more frequently as circumstances warrant, and
written down only in the period in which recorded value of such assets and liabilities exceed fair value. The Company selected
October 1 as the date for the required annual impairment test.
Goodwill is tested for impairment at the reporting unit level, which is defined as an operating segment or a component of an
operating segment that constitutes a business for which discrete financial information with similar economic characteristics is
available and the operating results are regularly reviewed by the Company’s chief operating decision maker. AWP, Cranes, and
MP operating segments, plus the Material Handling (“MH”) business and Port Solutions (“PS”) business of our former MHPS
segment, which is a discontinued operation, comprise the five reporting units for goodwill impairment testing purposes.
We may elect to perform a qualitative analysis for our reporting units to determine whether it is more likely than not that fair value
of the reporting unit is greater than its carrying value. If the qualitative analysis indicates that it is more likely than not that the
fair value of a reporting unit is less than its carrying amount, or if we elect not to perform a qualitative analysis, we perform a
quantitative analysis to determine whether a goodwill impairment exists.
F-10
The quantitative goodwill impairment analysis is a two-step process. The first step used to identify potential impairment involves
comparing each reporting unit’s estimated fair value to its carrying value, including goodwill. The Company uses an income
approach, along with other relevant market information, derived from a discounted cash flow model to estimate fair value of its
reporting units. Aggregate fair value of the Company’s reporting units is compared to the Company’s market capitalization on
the valuation date to assess its reasonableness. Initial recognition of goodwill, as well as the annual review of carrying value of
goodwill, requires that the Company develop estimates of future business performance. These estimates are used to derive expected
cash flows and include assumptions regarding future sales levels and level of working capital needed to support a given business.
The Company relies on data developed by business segment management as well as macroeconomic data in making these
calculations. The discounted cash flow model also includes a determination of the Company’s weighted average cost of capital
by reporting unit. Cost of capital is based on assumptions about interest rates as well as a risk-adjusted rate of return required by
the Company’s equity investors. Changes in these estimates can impact present value of expected cash flows that is used in
determining fair value of a given business.
The second step of the process involves calculation of an implied fair value of goodwill for each reporting unit for which step one
indicated impairment. Implied fair value of goodwill is determined by measuring excess of estimated fair value of the reporting
unit over estimated fair values of individual assets, liabilities and identifiable intangibles as if the reporting unit was being acquired
in a business combination. If implied fair value of goodwill exceeds carrying value of goodwill assigned to the reporting unit,
there is no impairment. If carrying value of goodwill assigned to a reporting unit exceeds implied fair value of goodwill, an
impairment loss is recorded for the excess. An impairment loss cannot exceed carrying value of goodwill assigned to a reporting
unit and the subsequent reversal of goodwill impairment losses is not permitted.
As a result of the goodwill impairment tests performed as of October 1, 2016, 2015 and 2014, we recorded an impairment charge
of $176.0 million in our Cranes segment during the year ended December 31, 2016 and an impairment charge of $11.3 million in
our former MHPS segment, which is a discontinued operation, during the year ended December 31, 2015. There were no goodwill
impairment charges recorded during 2014. See Note E – “Discontinued Operations and Assets and Liabilities Held for Sale” and
Note L – “Goodwill and Intangible Assets, Net”.
Property, Plant and Equipment. Property, plant and equipment are stated at cost. Expenditures for major renewals and
improvements are capitalized while expenditures for maintenance and repairs not expected to extend the life of an asset beyond
its normal useful life are charged to expense when incurred. Plant and equipment are depreciated over the estimated useful lives
(1-40 years and 2-20 years, respectively) of the assets under the straight-line method of depreciation for financial reporting purposes
and both straight-line and other methods for tax purposes.
Impairment of Long-Lived Assets. The Company’s policy is to assess the realizability of its long-lived assets, including definite-
lived intangible assets, and to evaluate such assets for impairment whenever events or changes in circumstances indicate that the
carrying amount of such assets (or group of assets) may not be recoverable. Impairment is determined to exist if estimated future
undiscounted cash flows is less than carrying value. If an impairment is indicated, the assets are written down to their fair value,
which is typically determined by a discounted cash flow analysis. Future cash flow projections include assumptions for future
sales levels and the level of working capital needed to support the assets. The Company uses data developed by business segment
management as well as macroeconomic data in making these calculations. The amount of any impairment then recognized would
be calculated as the difference between estimated fair value and carrying value of the asset. Included in Selling, general &
administrative expenses (“SG&A”) are approximately $41.2 million of asset impairments for the year ended December 31, 2016
and $1.4 million for the year ended December 31, 2015. The impairment charges recognized during 2016 include a $16.6 million
charge in Corporate and Other to write off information technology assets related to cessation of implementation efforts in several
locations and $17.4 million in the Company’s Cranes segment for restructuring and facility exit activities. The Company also
recorded a $20.5 million impairment charge in Other income (expense) - net to recognize impairment of a cost-basis investment.
See Note N – “Restructuring and Other Charges” for information on asset impairments recorded as part of restructuring activities.
Accounts Receivable and Allowance for Doubtful Accounts. Trade accounts receivable are recorded at the invoiced amount and
do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses
in its existing accounts receivable. The Company determines the allowance based on historical customer review and current
financial conditions. The Company reviews its allowance for doubtful accounts at least quarterly. Past due balances over 90 days
and over a specified amount are reviewed individually for collectability. All other balances are reviewed on a pooled basis by
type of receivable. Account balances are charged off against the allowance when the Company determines it is probable the
receivable will not be recovered. There can be no assurance that the Company’s historical accounts receivable collection experience
will be indicative of future results. The Company has off-balance sheet credit exposure related to guarantees provided to financial
institutions as disclosed in Note S – “Litigation and Contingencies.” Substantially all receivables were trade receivables at
December 31, 2016 and 2015.
F-11
Pursuant to terms of the Company’s trade accounts receivable factoring arrangements, certain of the Company’s subsidiaries may
sell their trade accounts receivable. In certain cases, the Company continues to service such accounts. These trade receivables
qualify for sales treatment under Accounting Standards Codification (“ASC”) 860, “Transfers and Servicing” (“ASC 860”) and
accordingly, the proceeds are included in net cash provided by operating activities. The gross amount of trade receivables sold
for years ended December 31, 2016 and 2015 totaled $620.4 million and $54.1 million, respectively. There were no trade
receivables sold for the year ended December 31, 2014. The factoring discount paid upon sale is recorded as interest expense in
the Consolidated Statement of Income (Loss). As of December 31, 2016, $64.3 million of receivables qualifying for sale treatment
were outstanding and will continue to be serviced by us.
Revenue Recognition. Revenue and related costs are generally recorded when products are shipped and invoiced to either
independently owned and operated dealers or to end-customers.
Revenue generated in the United States is recognized when title and risk of loss pass from the Company to its customers which
generally occurs upon shipment depending upon the shipping terms negotiated. The Company also has a policy which requires
it to meet certain criteria in order to recognize revenue, including satisfaction of the following requirements:
a) Persuasive evidence that an arrangement exists;
b) The price to the buyer is fixed or determinable;
c) Collectability is reasonably assured; and
d) The Company has no significant obligations for future performance.
In the United States, the Company has the ability to enter into a security agreement and receive a security interest in the product
by filing an appropriate Uniform Commercial Code (“UCC”) financing statement. However, a significant portion of the Company’s
revenue is generated outside of the United States. In many countries outside of the United States, as a matter of statutory law, a
seller retains title to a product until payment is made. The laws do not provide for a seller’s retention of a security interest in
goods in the same manner as established in the UCC. In these countries, the Company retains title to goods delivered to a customer
until the customer makes payment so that the Company can recover the goods in the event of customer default on payment. In
these circumstances, where the Company only retains title to secure its recovery in the event of customer default, the Company
also has a policy requiring it to meet certain criteria in order to recognize revenue, including satisfaction of the following
requirements:
a) Persuasive evidence that an arrangement exists;
b) Delivery has occurred or services have been rendered;
c) The price to the buyer is fixed or determinable;
d) Collectability is reasonably assured;
e) The Company has no significant obligations for future performance; and
f) The Company is not entitled to direct the disposition of the goods, cannot rescind the transaction, cannot prohibit
the customer from moving, selling, or otherwise using the goods in the ordinary course of business and has no
other rights of holding title that rest with a titleholder of property that is subject to a lien under the UCC.
In circumstances where the sales transaction requires acceptance by the customer for items such as testing on site, installation,
trial period or performance criteria, revenue is not recognized unless the following criteria have been met:
a) Persuasive evidence that an arrangement exists;
b) Delivery has occurred or services have been rendered;
c) The price to the buyer is fixed or determinable;
d) Collectability is reasonably assured; and
e) The customer has given their acceptance, the time period has elapsed or the Company has otherwise objectively
demonstrated that the criteria specified in the acceptance provisions have been satisfied.
In addition to performance commitments, the Company analyzes factors such as the reason for the purchase to determine if revenue
should be recognized. This analysis is done before the product is shipped and includes the evaluation of factors that may affect
the conclusion related to the revenue recognition criteria as follows:
a) Persuasive evidence that an arrangement exists;
b) Delivery has occurred or services have been rendered;
c) The price to the buyer is fixed or determinable; and
d) Collectability is reasonably assured.
F-12
Revenue from sales-type leases is recognized at the inception of the lease. Income from operating leases is recognized ratably
over the term of the lease. The Company routinely sells equipment subject to operating leases and related lease payments. If the
Company does not retain a substantial risk of ownership in the equipment, the transaction is recorded as a sale. If the Company
does retain a substantial risk of ownership, the transaction is recorded as a borrowing, the operating lease payments are recognized
as revenue over the term of the lease and the debt is amortized over a similar period.
The Company, from time to time, issues buyback guarantees in conjunction with certain sales agreements. These primarily relate
to trade value agreements (“TVAs”) in which a customer may trade in equipment in the future at a stated price/credit if the customer
meets certain conditions. The trade-in price/credit is determined at the time of the original sale of equipment. In conjunction with
the trade-in, these conditions include a requirement to purchase new equipment at fair market value at the time of trade-in, which
fair value is required to be of equal or greater value than the original equipment cost. Other conditions also include the general
functionality and state of repair of the machine. The Company has concluded that any credit provided to customers under a TVA/
buyback guarantee, which is expected to be equal to or less than the fair value of the equipment returned on the trade-in date, is
a guarantee to be accounted for in accordance with ASC 460, “Guarantees” (“ASC 460”).
The original sale of equipment, accompanied by a buyback guarantee, is a multiple element transaction wherein the Company
offers its customer the right, after some period of time, for a limited period of time, to exchange purchased equipment for a fixed
price trade-in credit toward another of our products. The fixed price trade-in credit is accounted for under the guidance provided
by ASC 460. Pursuant to this right, the Company has agreed to make a payment (in the form of a trade-in credit) to the customer
contingent upon the customer exercising its right to trade in the original purchased equipment. Under the guidance of ASC 460,
the Company records the fixed price trade-in credit at its fair value. Accordingly, as noted above, the Company has accounted for
the trade-in credit as a separate deliverable in a multiple element arrangement.
When a sales transaction includes multiple deliverables, such as sales of multiple products or sales of products and services that
are delivered over multiple reporting periods, the multiple deliverables are evaluated to determine the units of accounting, and the
entire fee from the arrangement is allocated to each unit of accounting based on the relative selling price. The selling price of a
unit of accounting is determined using a selling price hierarchy. Vendor-specific objective evidence (“VSOE”) is established based
upon the price charged for products and services that are sold separately in standalone transactions. If VSOE cannot be established,
third-party evidence (“TPE”) is evaluated based on competitor prices for similar deliverables when sold separately. If neither
VSOE or TPE is available, management's best estimate of selling price is established based upon the price at which the Company
would sell the product on a standalone basis taking into consideration factors including, but not limited to, internal costs, gross
margin objectives, pricing practices and market conditions. Revenue is recognized when revenue recognition criteria for each
unit of accounting are met.
Guarantees. The Company records a liability for the estimated fair value of guarantees issued pursuant to ASC 460. The Company
recognizes a loss under a guarantee when its obligation to make payment under the guarantee is probable and the amount of the
loss can be estimated. A loss would be recognized if the Company’s payment obligation under the guarantee exceeds the value it
can expect to recover to offset such payment, primarily through the sale of the equipment underlying the guarantee.
Accrued Warranties. The Company records accruals for potential warranty claims based on its claim experience. The Company’s
products are typically sold with a standard warranty covering defects that arise during a fixed period. Each business provides a
warranty specific to the products it offers. The specific warranty offered by a business is a function of customer expectations and
competitive forces. Warranty length is generally a fixed period of time, a fixed number of operating hours, or both.
A liability for estimated warranty claims is accrued at the time of sale. The non-current portion of the warranty accrual is included
in Other non-current liabilities in the Company’s Consolidated Balance Sheet. The liability is established using historical warranty
claims experience for each product sold. Historical claims experience may be adjusted for known design improvements or for
the impact of unusual product quality issues. Warranty reserves are reviewed quarterly to ensure critical assumptions are updated
for known events that may affect the potential warranty liability.
F-13
The following table summarizes the changes in the consolidated product warranty liability (in millions):
Balance as of December 31, 2014
Accruals for warranties issued during the period
Changes in estimates
Settlements during the year
Foreign exchange effect/other
Balance as of December 31, 2015
Accruals for warranties issued during the period
Changes in estimates
Settlements during the year
Foreign exchange effect/other
Balance as of December 31, 2016
$
$
57.2
63.2
(1.3)
(64.0)
(2.1)
53.0
72.4
(2.3)
(58.1)
(5.2)
59.8
Accrued Product Liability. The Company records accruals for product liability claims when deemed probable and estimable
based on facts and circumstances, and prior claims experience. Accruals for product liability claims are valued based upon the
Company’s prior claims experience, including consideration of the jurisdiction, circumstances of the accident, type of loss or
injury, identity of plaintiff, other potential responsible parties, analysis of outside legal counsel, analysis of internal product liability
counsel and the experience of the Company’s director of product safety. Actual product liability costs could be different due to a
number of variables such as the decisions of juries or judges.
Defined Benefit Pension and Other Post-retirement Benefits. The Company provides post-retirement benefits to certain former
salaried and hourly employees and certain hourly employees covered by bargaining unit contracts that provide such benefits. The
Company accounts for these benefits under ASC 715, “Compensation-Retirement Benefits” (“ASC 715”). ASC 715 requires
balance sheet recognition of the overfunded or underfunded status of pension and post-retirement benefit plans. Under ASC 715,
actuarial gains and losses, prior service costs or credits, and any remaining transition assets or obligations that have not been
recognized under previous accounting standards must be recognized in Accumulated other comprehensive income, net of tax
effects, until they are amortized as a component of net periodic benefit cost. See Note Q – “Retirement Plans and Other Benefits.”
Deferred Compensation. The Company maintains a Deferred Compensation Plan, which is described more fully in Note Q –
“Retirement Plans and Other Benefits.” The Company’s common stock, par value $0.01 per share (“Common Stock”) held in a
rabbi trust pursuant to the Company’s Deferred Compensation Plan, is treated in a manner similar to treasury stock and is recorded
at cost within Stockholders’ equity as of December 31, 2016 and 2015. The plan obligations for participant deferrals in the
Company’s Common Stock are classified as Additional paid-in capital within Stockholders’ equity. The total of the Company’s
Common Stock required to settle this deferred compensation obligation is included in the denominator in both basic and diluted
earnings per share calculations.
Stock-Based Compensation. At December 31, 2016, the Company had stock-based employee compensation plans, which are
described more fully in Note R – “Stockholders’ Equity.” The Company accounts for those plans under the recognition and
measurement principles of ASC 718, “Compensation–Stock Compensation” (“ASC 718”). ASC 718 requires that expense resulting
from all share-based payment transactions be recognized in the financial statements at fair value.
Foreign Currency Translation. Assets and liabilities of the Company’s non-U.S. operations are translated at year-end exchange
rates. Income and expenses are translated at average exchange rates during the year. For operations whose functional currency
is the local currency, translation adjustments are recorded in the Accumulated other comprehensive income component of
Stockholders’ equity. Gains or losses resulting from foreign currency transactions are recorded in the accounts based on the
underlying transaction.
Derivatives. Derivative financial instruments are recorded in the Consolidated Balance Sheet at their fair value as either assets
or liabilities. Changes in the fair value of derivatives are recorded each period in earnings or Accumulated other comprehensive
income, depending on whether a derivative is designated and effective as part of a hedge transaction and, if it is, the type of hedge
transaction. Gains and losses on derivative instruments reported in Accumulated other comprehensive income are included in
earnings in the periods in which earnings are affected by the hedged item. See Note M – “Derivative Financial Instruments.”
F-14
Environmental Policies. Environmental expenditures that relate to current operations are either expensed or capitalized depending
on the nature of the expenditure. Expenditures relating to conditions caused by past operations that do not contribute to current
or future revenue generation are expensed. Liabilities are recorded when environmental assessments and/or remedial actions are
probable and the costs can be reasonably estimated. Such amounts were not material at December 31, 2016 and 2015.
Research, Development and Engineering Costs. Research, development and engineering costs are expensed as incurred. Such
costs incurred in the development of new products or significant improvements to existing products are included in SG&A.
Research and development costs were $86.2 million, $89.7 million and $102.3 million during 2016, 2015 and 2014, respectively.
Income Taxes. The Company accounts for income taxes using the asset and liability method. This method requires the recognition
of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between financial statement
carrying amounts and the tax bases of assets and liabilities. See Note D – “Income Taxes.”
Earnings Per Share. Basic earnings (loss) per share is computed by dividing Net income (loss) attributable to Terex Corporation
for the period by the weighted average number of shares of Common Stock outstanding. Diluted earnings (loss) per share is
computed by dividing Net income (loss) attributable to Terex Corporation for the period by the weighted average number of shares
of Common Stock outstanding and potential dilutive common shares. See Note F – “Earnings Per Share.”
Fair Value Measurements. Assets and liabilities measured at fair value on a recurring basis under the provisions of ASC 820,
“Fair Value Measurement and Disclosure” (“ASC 820”), include interest rate swap and foreign currency forward contracts discussed
in Note M – “Derivative Financial Instruments.” These contracts are valued using a market approach, which uses prices and other
relevant information generated by market transactions involving identical or comparable assets or liabilities. ASC 820 establishes
a fair value hierarchy for those instruments measured at fair value that distinguishes between assumptions based on market data
(observable inputs) and the Company’s assumptions (unobservable inputs). The hierarchy consists of three levels:
Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted
assets or liabilities;
Level 2 – Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for
substantially the full term of the asset or liability; and
Level 3 – Prices or valuation techniques that require inputs that are both significant to the fair value measurement and
unobservable (i.e., supported by little or no market activity).
Determining which category an asset or liability falls within this hierarchy requires judgment. The Company evaluates its hierarchy
disclosures each quarter.
Recent Accounting Pronouncements. In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09,
“Revenue from Contracts with Customers (Topic 606),” (“ASU 2014-09”). ASU 2014-09 outlines a new, single comprehensive
model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue
recognition guidance, including industry-specific guidance. This new revenue recognition model provides a five-step analysis in
determining when and how revenue is recognized. The new model requires revenue recognition to depict the transfer of promised
goods or services to customers in an amount that reflects the consideration a company expects to receive. ASU 2014-09 also
requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer
contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill
a contract. In August 2015, the FASB issued ASU 2015-14, “Deferral of the Effective Date”, which amends ASU 2014-09. As
a result, the effective date will be the first quarter of fiscal year 2018 with early adoption permitted in the first quarter of fiscal
year 2017.
Subsequently, the FASB has issued the following standards related to ASU 2014-09: ASU 2016-08, “Revenue from Contracts
with Customers (Topic 606), Principal versus Agent Considerations (Reporting Revenue Gross versus Net),” (“ASU 2016-08”);
ASU 2016-10, “Revenue from Contracts with Customers (Topic 606), Identifying Performance Obligations and Licensing,” (“ASU
2016-10”); ASU 2016-12, “Revenue from Contracts with Customers (Topic 606) Narrow-Scope Improvements and Practical
Expedients,” (“ASU 2016-12”); and ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from
Contracts with Customers,” (“ASU 2016-20”), which are intended to provide additional guidance and clarity to ASU 2014-09.
The Company must adopt ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20 along with ASU 2014-09 (collectively,
the “New Revenue Standards”).
F-15
The New Revenue Standards may be applied using one of two retrospective application methods: (1) a full retrospective approach
for all periods presented, or (2) a modified retrospective approach that presents a cumulative effect as of the adoption date and
additional required disclosures. The Company expects to adopt the New Revenue Standards in the first quarter of 2018 using the
modified retrospective approach and is in the process of completing its initial analysis identifying the revenue streams that will
be impacted by the adoption of this new standard and the impact to its consolidated financial statements and footnote disclosures.
In August 2014, the FASB issued ASU 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going
Concern,” (“ASU 2014-15”). ASU 2014-15 requires management to perform interim and annual assessments of an entity’s ability
to continue as a going concern for a one year period subsequent to the date of issuance of its financial statements. An entity must
provide certain disclosures if conditions or events raise substantial doubt about the entity’s ability to continue as a going concern.
The Company adopted ASU 2014-15 during the fourth quarter of 2016. Adoption did not require additional disclosures in the
Company’s consolidated financial statements.
In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory”. The ASU simplifies the subsequent
measurement of inventory by using only the lower of cost or net realizable value. The ASU defines net realizable value as estimated
selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The
effective date will be the first quarter of fiscal year 2017 with early adoption permitted. The ASU should be applied prospectively.
The Company will adopt ASU 2015-11 in the first quarter of fiscal year 2017 and adoption is not expected to have a material effect
on the Company’s consolidated financial statements.
In November 2015, the FASB issued ASU 2015-17, "Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes".
The amendments in ASU 2015-17 eliminate the current requirement for organizations to present deferred tax liabilities and assets
as current and noncurrent in a classified balance sheet and instead require all deferred tax assets and liabilities to be classified as
noncurrent. The Company adopted ASU 2015-17 as of January 1, 2016 on a prospective basis, which resulted in the reclassification
of the Company’s current deferred tax assets and current deferred tax liabilities to non-current deferred tax assets or non-current
deferred tax liabilities on its Consolidated Balance Sheet. No prior periods were retrospectively adjusted. Included in Prepaid and
other current assets at December 31, 2015 is $49.6 million of deferred tax assets and included in Other current liabilities at December
31, 2015 is $8.5 million of deferred tax liabilities.
In January 2016, the FASB issued ASU 2016-01, "Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement
of Financial Assets and Financial Liabilities." The amendments in ASU 2016-01, among other things, require equity investments
(except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be
measured at fair value with changes in fair value recognized in net income; require public business entities to use the exit price
notion when measuring fair value of financial instruments for disclosure purposes; require separate presentation of financial assets
and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables); and eliminate
the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate fair value that
is required to be disclosed for financial instruments measured at amortized cost. The effective date will be the first quarter of
fiscal year 2018. The Company is evaluating the impact that adoption of this new standard will have on its consolidated financial
statements.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” (“ASU 2016-02”). ASU 2016-02 requires lessees to
recognize assets and liabilities on the balance sheet for leases with lease terms greater than twelve months and disclose key
information about leasing arrangements. The effective date will be the first quarter of fiscal year 2019, with early adoption permitted.
The Company is evaluating the impact that adoption of this new standard will have on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-05, “Derivatives and Hedging (Topic 815),” (“ASU 2016-05”). ASU 2016-05 provides
guidance clarifying that novation of a derivative contract (i.e., a change in counterparty) in a hedge accounting relationship does
not, in and of itself, require dedesignation of that hedge accounting relationship. The effective date will be the first quarter of fiscal
year 2017, with early adoption permitted. Adoption is not expected to have a material effect on the Company’s consolidated
financial statements.
In March 2016, the FASB issued ASU 2016-06, “Derivatives and Hedging (Topic 815),” (“ASU 2016-06”). ASU 2016-06 simplifies
the embedded derivative analysis for debt instruments containing contingent call or put options by clarifying that an exercise
contingency does not need to be evaluated to determine whether it relates to interest rates and credit risk in an embedded derivative
analysis. The effective date will be the first quarter of fiscal year 2017, with early adoption permitted. Adoption is not expected
to have a material effect on the Company’s consolidated financial statements.
F-16
In March 2016, the FASB issued ASU 2016-07, “Investments-Equity Method and Joint Ventures (Topic 323),” (“ASU 2016-07”).
ASU 2016-07 eliminates the retroactive adjustments to an investment qualifying for the equity method of accounting as a result
of an increase in the level of ownership interest or degree of influence by the investor. The effective date will be the first quarter
of fiscal year 2017. Adoption is not expected to have a material effect on the Company’s consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, “Compensation-Stock Compensation (Topic 718), Improvements to Employee
Share-Based Payment Accounting,” (“ASU 2016-09”). ASU 2016-09 is intended to simplify several aspects related to how share-
based payments are accounted for and presented in the financial statements, such as requiring all income tax effects of awards to
be recognized in the income statement when the awards vest or are settled and allowing a policy election to account for forfeitures
as they occur. In addition, all related cash flows resulting from share-based payments will be reported as operating activities on
the statement of cash flows. ASU 2016-09 could result in increased volatility of the Company’s provision for income taxes and
earnings per share, depending on the Company’s share price at exercise or vesting of share-based awards compared to grant date.
The effective date will be the first quarter of fiscal year 2017, with early adoption permitted. The Company believes that adoption
of this new standard will not be material to its consolidated financial statements; however, the impact on future effective tax rates
could be significant.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses,” (“ASU 2016-13”). ASU 2016-13 sets forth
a “current expected credit loss” model which requires the Company to measure all expected credit losses for financial instruments
held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. The guidance
in this new standard replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial
assets measured at amortized cost and applies to some off-balance sheet credit exposures. The effective date will be the first quarter
of fiscal year 2020. The Company is evaluating the impact that adoption of this new standard will have on its consolidated financial
statements.
In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts
and Cash Payments,” (“ASU 2016-15”). ASU 2016-15 reduces the existing diversity in practice in financial reporting by clarifying
existing principles in ASC 230, “Statement of Cash Flows,” and provides specific guidance on certain cash flow classification
issues. The effective date for ASU 2016-15 will be the first quarter of fiscal year 2018, with early adoption permitted. ASU
2016-15 will be applied retrospectively and may modify the Company's current disclosures and reclassifications within the
Consolidated Statement of Cash Flows, but is not expected to have a material effect on the Company’s consolidated financial
statements.
In October 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740) - Intra-Entity Transfer of Assets Other than
Inventory,” (“ASU 2016-16”). ASU 2016-16 requires recognition of current and deferred income taxes resulting from an intra-
entity transfer of any asset (excluding inventory) when the transfer occurs. This is a change from existing GAAP which prohibits
recognition of current and deferred income taxes until the asset is sold to a third party. The effective date for ASU 2016-16 will
be the first quarter of fiscal year 2018 with early adoption permitted. Adoption will be applied on a modified retrospective basis,
which could result in a cumulative-effect adjustment directly to retained earnings. The Company is evaluating the impact that
adoption of this new standard will have on its consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230) - Restricted Cash,” (“ASU 2016-18”).
ASU 2016-18 requires a statement of cash flows to explain the change during the period in the total of cash, cash equivalents, and
amounts generally described as restricted cash or restricted cash equivalents. Amounts generally described as restricted cash and
restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-
of-period total amounts shown on the statement of cash flows. The effective date will be the first quarter of fiscal year 2018.
Adoption will not have any effect on the Company’s consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a
Business,” (“ASU 2017-01”). ASU 2017-01 provides guidance in ascertaining whether a collection of assets and activities is
considered a business. The effective date will be the first quarter of fiscal year 2018, with prospective application. Adoption is
not expected to have a material effect on the Company’s consolidated financial statements.
F-17
In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment,” (“ASU 2017-04”). ASU 2017-04 eliminates Step 2 from the goodwill impairment test. Instead, an entity should
perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount.
An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair
value, if any. The loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an
entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when
measuring the goodwill impairment. The effective date will be the first quarter of fiscal year 2020, with early adoption permitted
in 2017. The Company is evaluating the impact that adoption of this new standard will have on its consolidated financial statements.
NOTE C – BUSINESS SEGMENT INFORMATION
Terex is a global manufacturer of lifting and material processing products and services that deliver lifecycle solutions to maximize
customer return on investment. The Company delivers lifecycle solutions to a broad range of industries, including the construction,
infrastructure, manufacturing, shipping, transportation, refining, energy, utility, quarrying and mining industries. Historically, the
Company operated in five reportable segments: (i) AWP; (ii) Cranes; (iii) MHPS; (iv) MP; and (v) Construction.
Subsequent to the reorganization discussed in Note B - “Basis of Presentation”, the Company now operates in three reportable
segments: (i) AWP; (ii) Cranes; and (iii) MP.
The AWP segment designs, manufactures, services and markets aerial work platform equipment, telehandlers and light towers.
Customers use these products to construct and maintain industrial, commercial and residential buildings and facilities and for other
commercial operations, as well as in a wide range of infrastructure projects.
The Cranes segment designs, manufactures, services, refurbishes and markets a wide variety of cranes, including mobile telescopic
cranes, lattice boom crawler cranes, tower cranes, and utility equipment, as well as their related components and replacement
parts. Customers use these products primarily for construction, repair and maintenance of commercial buildings, manufacturing
facilities, construction and maintenance of utility and telecommunication lines, tree trimming and certain construction and
foundation drilling applications and a wide range of infrastructure projects.
The MP segment designs, manufactures and markets materials processing and specialty equipment, including crushers, washing
systems, screens, apron feeders, material handlers, wood processing, biomass and recycling equipment, concrete mixer trucks and
concrete pavers, and their related components and replacement parts. Customers use these products in construction, infrastructure
and recycling projects, in various quarrying and mining applications, as well as in landscaping and biomass production industries,
material handling applications, and in building roads and bridges.
The Company assists customers in their rental, leasing and acquisition of its products through Terex Financial Services (“TFS”).
TFS uses its equipment financing experience to provide financing solutions to customers who purchase the Company’s equipment.
TFS is included in the Corporate and Other category.
None of our customers individually accounted for more than 10% of consolidated net sales in 2016. The results of businesses
acquired are included from the dates of their respective acquisitions.
F-18
Included in Corporate and Other / Eliminations are the eliminations among the three segments, various construction product lines
and on-book financing activities of TFS, as well as general and corporate items. Business segment information is presented below
(in millions):
Year Ended December 31,
2016
2015
2014
Net Sales
AWP
Cranes
MP
Corporate and Other / Eliminations
Total
Income (loss) from Operations
AWP
Cranes
MP
Corporate and Other / Eliminations
Total
Depreciation and Amortization
AWP
Cranes
MP
Corporate
Total
Capital Expenditures
AWP
Cranes
MP
Corporate
Total
$
1,977.8
$
2,246.0
$
1,274.5
944.5
246.3
1,566.5
940.1
269.1
4,443.1
$
5,021.7
$
$
$
$
$
$
$
$
177.4
(321.7)
86.3
(89.8)
(147.8) $
19.9
21.5
6.9
26.0
74.3
17.1
13.2
7.5
20.3
58.1
$
$
$
$
$
$
$
$
$
$
270.2
56.3
68.6
(71.4)
323.7
15.3
21.0
6.9
33.4
76.6
38.0
13.8
20.7
9.0
81.5
$
2,403.0
1,656.9
938.9
485.2
5,484.0
304.9
83.8
65.6
(54.3)
400.0
12.1
28.3
7.7
51.0
99.1
28.6
14.0
5.8
9.9
58.3
Sales between segments are generally priced to recover costs plus a reasonable markup for profit, which is eliminated in
consolidation.
Identifiable Assets
AWP
Cranes
MP
Corporate and Other / Eliminations
Assets held for sale
Total
December 31,
2016
2015
$
1,659.8
$
1,618.0
1,104.9
(1,280.1)
1,904.2
1,701.2
1,822.3
1,073.4
(891.0)
1,910.1
$
5,006.8
$
5,616.0
F-19
Geographic Net Sales information is presented below (in millions):
Net Sales
United States
United Kingdom
Germany
Other European countries
All other
Total
Long-lived Assets
United States
United Kingdom
Germany
Other European countries
All other
Total
Year Ended December 31,
2016
2015
2014
$
$
2,131.4
333.2
237.1
726.7
1,014.7
4,443.1
$
$
$
$
2,420.1
402.3
243.7
714.3
1,241.3
5,021.7
$
$
2,552.7
346.2
310.6
848.3
1,426.2
5,484.0
December 31,
2016
2015
181.1
34.9
32.4
14.8
41.4
304.6
$
$
203.8
41.2
64.0
17.5
45.4
371.9
The Company attributes sales to unaffiliated customers in different geographical areas based on the location of the customer.
Long-lived assets consist of net fixed assets, which can be attributed to the specific geographic regions.
NOTE D – INCOME TAXES
The components of income (loss) from continuing operations before income taxes are as follows (in millions):
United States
Foreign
Income (loss) from continuing operations before income taxes
Year Ended December 31,
2016
2015
2014
$
$
(29.9) $
(240.8)
(270.7) $
212.2
(16.5)
195.7
$
$
304.3
(25.7)
278.6
Income (loss) before income taxes including Income (loss) from discontinued operations and Gain (loss) from disposition of
discontinued operations attributable to the Company was $(242.0) million, $231.1 million and $365.0 million for the years ended
December 31, 2016, 2015 and 2014, respectively.
F-20
The major components of the Company’s provision for (benefit from) income taxes on continuing operations before income taxes
are summarized below (in millions):
Current:
Federal
State
Foreign
Current income tax provision (benefit)
Deferred:
Federal
State
Foreign
Deferred income tax (benefit) provision
Total provision for (benefit from) income taxes
Year Ended December 31,
2016
2015
2014
$
$
$
31.5
6.2
38.2
75.9
(27.0)
(1.4)
(124.9)
(153.3)
(77.4) $
49.2
3.1
15.6
67.9
(3.7)
—
3.3
(0.4)
67.5
$
$
1.6
7.6
30.6
39.8
9.9
(0.7)
(22.4)
(13.2)
26.6
The elimination of tax from intercompany transactions is included in current tax expense. Including discontinued operations and
disposition of discontinued operations, the total (benefit from) provision for income taxes was $(66.5) million, $82.1 million and
$45.5 million for the years ended December 31, 2016, 2015 and 2014, respectively.
Deferred tax assets and liabilities result from differences in the bases of assets and liabilities for tax and financial reporting purposes.
The tax effects of the basis differences and loss carry forwards as of December 31, 2016 and 2015 for continuing operations are
summarized below for major balance sheet captions (in millions):
Property, plant and equipment
Intangibles
Inventories
Accrued warranties and product liability
Loss carry forwards
Retirement plans
Accrued compensation and benefits
Investments
Currency translation adjustments
Credit carry forwards
Other
Deferred tax assets valuation allowance
Net deferred tax assets (liabilities)
2016
2015
(16.8) $
(7.3)
18.1
15.1
214.3
32.5
40.1
2.3
(0.6)
11.9
20.8
(148.6)
181.8
$
(36.4)
(27.6)
21.5
13.6
215.8
32.2
38.4
1.0
(0.3)
1.7
31.3
(215.1)
76.1
$
$
Deferred tax assets for continuing operations total $331.3 million before valuation allowances of $148.6 million, partially offset
by deferred tax liabilities for continuing operations of $0.9 million at December 31, 2016. There were $19.7 million total deferred
tax assets, partially offset by total deferred tax liabilities of $3.7 million for discontinued operations at December 31, 2016, and
$2.9 million total deferred tax assets, partially offset by total deferred tax liabilities of $17.1 million for discontinued operations
at December 31, 2015.
The Company evaluates the net realizable value of its deferred tax assets each reporting period. The Company must consider all
objective evidence, both positive and negative, in evaluating the future realization of its deferred tax assets, including tax loss
carry forwards. Historical information is supplemented by currently available information about future tax years. Realization of
deferred tax assets requires sufficient taxable income of the appropriate character. To the extent estimates of future taxable income
decrease or do not materialize, additional valuation allowances may be required. The Company records a valuation allowance for
each deferred tax asset for which realization is not assessed as more likely than not. The valuation allowance for deferred tax
assets as of December 31, 2016 and 2015 was $148.6 million and $215.1 million, respectively. The net change in the total valuation
allowance for the years ended December 31, 2016 and 2015 was a decrease of $66.5 million and a decrease of $28.9 million,
respectively.
F-21
During the second quarter of 2016, the Company released the valuation allowances for its German and Italian subsidiaries due to
its change in judgment regarding the realization of the deferred tax assets in Germany and Italy. The change in judgment was due
to the Disposition, recent earnings history, and expected future income supporting the more likely than not assessment that the
deferred tax assets will be realized. As of December 31, 2015, the Company determined that it was appropriate to retain its
valuation allowance on deferred tax assets of its Italian subsidiaries, although it was reasonably possible that, in the near term,
continuing improvement in operating performance and other positive evidence could change the Company’s assessment of the
realizability of the Italian deferred tax assets resulting in the reversal of all, or part of, the related valuation allowance.
The Company’s Provision for (benefit from) income taxes is different from the amount that would be provided by applying the
statutory federal income tax rate to the Company’s Income (loss) from continuing operations before income taxes. The reasons
for the difference are summarized as follows (in millions):
Tax at statutory federal income tax rate
State taxes (net of Federal benefit)
Change in valuation allowance
Foreign tax differential on income/losses of foreign subsidiaries
U.S. tax on multi-national operations
Change in foreign statutory rates
U.S. manufacturing and export incentives
Tax effect of dispositions
Impairment loss on goodwill and intangible assets
Other
Total provision for (benefit from) income taxes
Year Ended December 31,
2016
2015
2014
$
$
(94.7) $
3.1
(47.7)
(37.5)
41.9
1.9
(2.0)
2.1
52.4
3.1
(77.4) $
68.5
2.0
(22.3)
12.2
3.7
7.7
(4.3)
—
—
—
67.5
$
$
97.5
4.5
39.5
(27.0)
5.6
2.5
(6.2)
(86.8)
—
(3.0)
26.6
For the year ended December 31, 2016, the effective tax rate was reduced due to tax expense associated with the Disposition,
which changed expectations concerning the indefinite reinvestment of foreign earnings. The effective tax rate on gain (loss) on
disposition of discontinued operations in 2014 differs from the statutory rate primarily due to the majority of gains from the sale
of the truck business not being subject to tax.
The Company received tax incentives in certain jurisdictions, some of which are expected to extend through 2020. The Company
received no tax benefits in continuing operations ($0.8 million of tax benefits in discontinued operations) for the year ended
December 31, 2016, received $7.0 million and $0.8 million of tax benefits in continuing operations ($1.2 million and $0.1 million
of tax benefits in discontinued operations) for the years ended December 31, 2015 and 2014, respectively.
Except for a limited number of immaterial subsidiaries and joint ventures accounted for under the equity method, the Company
does not provide for foreign income and withholding, U.S. Federal, or state income taxes or tax benefits on the financial reporting
basis over the tax basis of its investments in foreign subsidiaries because such amounts are indefinitely reinvested to support
operations and continued growth plans outside the U.S. As a result of the Disposition, the Company repatriated approximately
$1 billion of foreign earnings that were previously intended to be permanently reinvested. At December 31, 2016, the Company’s
remaining unremitted earnings of its foreign subsidiary ownership chains that have positive retained earnings was approximately
$251 million. The Company reviews its plan to indefinitely reinvest on a quarterly basis. In making its decision to indefinitely
reinvest, the Company evaluates its plans of reinvestment, its ability to control repatriation and to mobilize funds without triggering
basis differences, and the profitability of U.S. operations and their cash requirements and the need, if any, to repatriate funds. If
the assessment of the Company with respect to earnings of foreign subsidiaries changes, deferred U.S. income taxes, foreign
income taxes, and foreign withholding taxes may have to be accrued. At this time, determination of the unrecognized deferred
tax liabilities for temporary differences related to the investment in foreign subsidiaries is not practicable.
At December 31, 2016, the Company has various state net operating loss carry forwards available to reduce future state taxable
income and income taxes. These net operating loss carry forwards expire at various dates through 2036. In addition, the gross
amount of the U.S. federal capital loss carryforward is $72.4 million which expires in 2019.
F-22
At December 31, 2016, the Company has approximately $529 million of loss carry forwards, consisting of $150 million in Germany,
$130 million in Italy, $66 million in the United Kingdom, $47 million in China, $48 million in Switzerland, and $88 million in
other countries, which are available to offset future taxable income. The majority of these tax loss carry forwards are available
without expiration. In addition, the gross amount of the Australian capital loss carryforward is $27 million, and it has an unlimited
carryforward period.
The Company had total net income tax payments including discontinued operations of $52.8 million, $67.6 million and $124.1
million in 2016, 2015 and 2014, respectively. At December 31, 2016 and 2015, Other current assets included net income tax
receivable amounts of $22.6 million and $42.7 million respectively.
The Company and its subsidiaries conduct business globally and file income tax returns in U.S. federal, state and foreign
jurisdictions, as required. From a tax perspective, major jurisdictions where the Company is often subject to examination by tax
authorities include Germany, Italy, the United Kingdom and the U.S. Currently, various entities of the Company are under audit
in Germany, Italy, the U.S. and elsewhere. With few exceptions, including certain subsidiaries in Germany that are under audit,
the statute of limitations for the Company and most of its subsidiaries has expired for tax years prior to 2011. The Company
assesses uncertain tax positions for recognition, measurement and effective settlement. Where the Company has determined that
its tax return filing position does not satisfy the more likely than not recognition threshold of ASC 740, “Income Taxes,” it has
recorded no tax benefits. Where the Company has determined that its tax return filing positions are more likely than not to be
sustained, the Company has measured and recorded the largest amount of tax benefit greater than 50% likely to be realized. The
Company recognizes accrued interest and penalties, if any, related to income taxes as (Provision for) benefit from income taxes
in its Consolidated Statement of Income (Loss).
The following table summarizes the activity related to the Company’s total (including discontinued operations) unrecognized
tax benefits (in millions). Amounts in 2014 have been adjusted to eliminate the impact of offsets, which are immaterial:
Balance as of January 1, 2014
Additions for current year tax positions
Additions for prior year tax positions
Reductions for prior year tax positions
Reductions for current year tax positions
Reductions for expiration of statute of limitations
Settlements
Acquired balances
Balance as of December 31, 2014
Additions for current year tax positions
Additions for prior year tax positions
Reductions for prior year tax positions
Reductions for current year tax positions
Reductions for expiration of statute of limitations
Settlements
Acquired balances
Balance as of December 31, 2015
Additions for current year tax positions
Additions for prior year tax positions
Reductions for prior year tax positions
Reductions for current year tax positions
Reductions for expiration of statute of limitations
Settlements
Acquired balances
Balance as of December 31, 2016
$
$
88.4
1.9
1.2
(10.9)
—
(2.4)
(0.1)
—
78.1
—
1.7
(9.3)
—
(1.1)
—
—
69.4
—
6.3
(3.1)
—
(5.0)
(7.8)
—
59.8
As a result of the Disposition, the Company expects that the ending balance of unrecognized tax benefits for the year ended
December 31, 2016 will be reduced by approximately $29 million.
F-23
The Company evaluates each reporting period whether it is reasonably possible that material changes to its uncertain tax position
liability could occur in the next 12 months. Changes may occur as a result of uncertain tax positions being considered effectively
settled, re-measured, paid, acquired or divested, as a result of a change in accounting rules, tax law or judicial decision, or due to
expiration of the relevant statute of limitations. It is not possible to predict which uncertain tax positions, if any, may be challenged
by tax authorities. The timing and impact of income tax audits and their resolution is highly uncertain. New facts, laws,
pronouncements and judicial decisions can change assessments concerning technical merit and measurement. The amounts of or
periods in which changes to reserves for uncertain tax positions will occur is rarely ascertainable. Of the balances remaining after
the Disposition, the Company believes it is reasonably possible the total amount of unrecognized tax benefits disclosed as of
December 31, 2016 may decrease approximately $21 million (approximately $2 million related to discontinued operations) in the
fiscal year ending December 31, 2017. Such possible decrease relates primarily to audit settlements, transfer pricing, deductibility
issues and expiration of statutes of limitation.
As of December 31, 2016 and 2015, the Company had $59.8 million and $69.4 million, respectively, of unrecognized tax benefits.
Of the $59.8 million at December 31, 2016, $26.5 million, if recognized, would affect the effective tax rate. As of December 31,
2016 and 2015, the liability for potential interest and penalties was $12.9 million and $13.9 million, respectively. During the years
ended December 31, 2016 and 2015, the Company recognized tax (benefit) expense of $(1.0) million and $1.0 million for interest
and penalties, respectively.
NOTE E – DISCONTINUED OPERATIONS AND ASSETS AND LIABILITIES HELD FOR SALE
MHPS
On January 4, 2017, the Company completed the disposition of its MHPS business to Konecranes. See Note A - “Sale of MHPS
Business” for further information on the Disposition. The Disposition represents a significant strategic shift in the Company’s
business away from universal, process, mobile harbor and ship-to-shore cranes that will have a major effect on the Company’s
future operating results, primarily because the MHPS business represented the entirety of one of the Company’s five previous
reportable operating segments and comprised two of the Company’s six previous reporting units, representing a significant portion
of the Company’s revenues and assets, and is therefore accounted for as a discontinued operation for all periods presented. MHPS
products include universal cranes, process cranes and components, such as rope hoists, chain hoists, light crane systems, travel
units and electric motors, primarily for industrial applications, and mobile harbor cranes, ship-to-shore gantry cranes, rubber tired
and rail mounted gantry cranes, straddle carriers, sprinter carriers, reach stackers, container handlers, general cargo lift trucks,
automated stacking cranes, automated guided vehicles and software solutions for logistics terminals.
As a result of the SAPA, the Company determined that the previously unrecognized deferred tax assets and liabilities related to
the MHPS subsidiaries are more likely than not to be realized in the foreseeable future. The effective tax rate on income from
discontinued operations in 2016 differs from the statutory rate, in part, due to the recognition of these deferred taxes.
Trucks
On May 30, 2014, the Company sold its truck business, which was previously consolidated in the Construction segment, to Volvo
Construction Equipment for approximately $160 million. The truck business manufactured and sold off-highway rigid and
articulated haul trucks. Included in the transaction was a manufacturing facility in Motherwell, Scotland.
Due to this divestiture, reporting of the truck business has been included in discontinued operations for all applicable periods
presented.
Cash flows from the Company’s discontinued operations are included in the Consolidated Statements of Cash Flows.
F-24
Income (loss) from discontinued operations
The following amounts related to discontinued operations were derived from historical financial information and have been
segregated from continuing operations and reported as discontinued operations in the Consolidated Statement of Income (Loss)
(in millions):
Net sales
Cost of sales
Selling, general and administrative
expenses
Goodwill and intangible asset
impairments
Net interest (expense)
Other income (expense)
(loss)
from
Income
discontinued
Year ended December 31,
2016
2015
2014
MHPS
$ 1,398.2
(1,090.3)
MHPS
$ 1,521.4
(1,184.1)
MHPS
Trucks
Total
$ 1,829.7 $
(1,427.8)
89.9 $ 1,919.6
(1,510.2)
(82.4)
(266.8)
(271.1)
(378.9)
(5.4)
(384.3)
(3.1)
(2.3)
(11.5)
(34.7)
(1.4)
0.8
—
(3.1)
(1.3)
—
—
(0.4)
—
(3.1)
(1.7)
operations before income taxes
(Provision for) benefit from income
taxes
24.2
30.9
18.6
1.7
20.3
(9.9)
(13.5)
(11.1)
(0.3)
(11.4)
Income
operations – net of tax
(loss)
from
discontinued
Net loss (income) attributable to
noncontrolling interest
(loss)
Income
discontinued
operations – net of tax attributable to Terex
Corporation
from
14.3
17.4
7.5
(0.9)
(3.3)
(2.0)
1.4
—
8.9
(2.0)
$
13.4
$
14.1
$
5.5 $
1.4 $
6.9
As a result of goodwill impairment tests performed as of October 1, 2016, 2015 and 2014 for the MHPS business, the Company
recorded a non-cash impairment charge of approximately $11 million during the year ended December 31, 2015. There were no
goodwill impairment charges recorded during 2016 and 2014, respectively.
As a result of impairment tests performed in 2016, 2015 and 2014 for indefinite-lived tradenames in the MHPS business, the
Company recorded non-cash impairment charges of approximately $3 million and $23 million during the years ended December
31, 2016 and 2015, respectively. The Company developed estimates of fair value using a discounted cash flow model. Assumptions
critical to the process included forecasted financial information, discount rates and royalty rates. The estimates of fair value of
indefinite-lived tradenames were based on the best information currently available. Fair value determination is categorized as
Level 3 in the fair value hierarchy. See Note B - “Basis of Presentation”, for the definition of Level 3 input. There was no indefinite-
lived tradenames impairment during 2014.
F-25
Cranes
As part of the transformation and improvement of its Cranes segment, the Company is actively seeking a buyer for a portion of
its cranes business located in South America and, accordingly, the assets and liabilities are reported as held for sale at December
31, 2016. The Company recorded a non-cash impairment charge of $1.6 million to adjust net asset value to estimated fair value.
Construction
In December 2016, the Company entered an agreement to sell its Coventry, UK-based compact construction product line. The
sale is subject to customary closing conditions and is expected to be completed in the first half of 2017. In addition, the Company
is actively seeking a buyer for certain other construction product lines and expects to reach an agreement in 2017. The Company
recorded a non-cash impairment charge of $3.5 million to adjust the net asset value of these other construction product lines to
estimated fair value. The operating results for these construction product lines are reported in continuing operations, within the
Corporate and Other category in our segment disclosures, and the assets and liabilities are reported as held for sale at December
31, 2016.
Assets and liabilities held for sale
Assets and liabilities held for sale consist of the Company’s former MHPS segment, portions of its Cranes segment and portions
of its former Construction Segment. Such assets and liabilities are classified as held for sale upon meeting the requirements of
ASC 360 - “Property, Plant and Equipment”, and are recorded at lower of carrying amount or fair value less costs to sell. Assets
are no longer depreciated once classified as held for sale.
F-26
The following table provides the amounts of assets and liabilities held for sale in the Consolidated Balance Sheet (in millions):
December 31, 2016
December 31, 2015
MHPS
Cranes Construction
Total
MHPS
Assets
Cash and cash equivalents
Trade receivables – net
Inventories
Prepaid and other current assets
Current assets held for sale
$
71.0 $
1.2 $
1.2 $
73.4
$
243.5
309.4
49.9
3.1
1.7
0.5
24.4
23.9
3.1
271.0
335.0
53.5
$ 673.8 $
6.5 $
52.6 $
732.9
$
$
95.3
236.0
382.1
36.2
749.6
303.9
564.1
226.9
—
65.6
Property, plant and equipment – net
$ 294.2 $
0.8 $
3.2 $
298.2
Goodwill
Intangible assets – net
Impairment reserve
Other assets
573.7
212.6
—
86.4
—
2.9
(1.7)
1.1
—
—
(3.5)
1.6
573.7
215.5
(5.2)
89.1
Non-current assets held for sale
$1,166.9 $
3.1 $
1.3 $ 1,171.3
$
1,160.5
Liabilities
Notes payable and current portion of long-term debt
$
13.1 $
— $
1.3 $
14.4
$
Trade accounts payable
Accruals and other current liabilities
Current liabilities held for sale
132.6
267.0
0.7
6.2
23.8
9.1
157.1
282.3
$ 412.7 $
6.9 $
34.2 $
453.8
Long-term debt, less current portion
$
2.4 $
— $
— $
2.4
Retirement plans
Other non-current liabilities
235.3
71.7
0.7
0.4
0.9
0.7
236.9
72.8
$
$
Non-current liabilities held for sale
$ 309.4 $
1.1 $
1.6 $
312.1
$
13.8
177.0
255.2
446.0
0.1
218.7
79.7
298.5
The following table provides amounts of cash and cash equivalents presented in the Consolidated Statement of Cash Flows (in
millions):
Cash and cash equivalents:
Cash and cash equivalents - continuing operations
Cash and cash equivalents - held for sale
Total cash and cash equivalents:
December 31,
2016
December 31,
2015
December 31,
2014
$
$
428.5
73.4
501.9
$
$
371.2
95.3
466.5
$
$
392.6
85.6
478.2
Cash and cash equivalents held for sale at December 31, 2016, 2015 and 2014 include $14.0 million, $9.8 million and $2.2 million,
respectively, which were not immediately available for use. These consist primarily of cash balances held in escrow to secure
various obligations of the Company.
F-27
The following table provides supplemental cash flow information related to discontinued operations (in millions):
Non-cash operating items:
Depreciation and amortization
Deferred taxes
Goodwill Impairment
Asset Impairments
Investing activities:
Capital expenditures
Other
Gain (loss) on disposition of discontinued operations
(Provision for) benefit from income taxes
Gain (loss) on disposition of discontinued operations – net of tax
Year Ended December 31,
2016
2015
2014
22.4
15.8
$
$
— $
$
3.0
55.8
$
(2.2) $
$
11.3
$
23.9
66.4
(4.5)
—
3.8
(14.9) $
(22.3) $
(21.9)
Year Ended December 31,
2016
2015
2014
4.5
(1.0)
3.5
$
$
4.5
(1.1)
3.4
$
$
66.1
(7.5)
58.6
$
$
$
$
$
$
$
During the years ended December 31, 2016, 2015, and 2014 the Company recognized a gain on disposition of discontinued
operations - net of tax of $3.5 million, $3.4 million and $58.6 million, respectively. These gains are from contractual earnout
payments related to the sale of the Company’s Atlas heavy construction equipment and knuckle-boom cranes businesses, and from
our truck and mining businesses, including settlement of certain disputes in the truck sales agreement.
F-28
NOTE F – EARNINGS PER SHARE
Income (loss) from continuing operations attributable to Terex Corporation
common stockholders
Income (loss) from discontinued operations-net of tax
Gain (loss) on disposition of discontinued operations-net of tax
Net income (loss) attributable to Terex Corporation
Basic shares:
Weighted average shares outstanding
Earnings (loss) per share - basic:
Income (loss) from continuing operations
Income (loss) from discontinued operations-net of tax
Gain (loss) on disposition of discontinued operations-net of tax
Net income (loss) attributable to Terex Corporation
Diluted shares:
Weighted average shares outstanding - basic
Effect of dilutive securities:
Stock options, restricted stock awards and convertible notes
Diluted weighted average shares outstanding
Earnings (loss) per share - diluted:
Income (loss) from continuing operations
Income (loss) from discontinued operations-net of tax
Gain (loss) on disposition of discontinued operations-net of tax
Net income (loss) attributable to Terex Corporation
For the year ended December 31,
(in millions, except per share data)
2016
2015
2014
$
$
$
$
$
$
(193.0)
13.4
3.5
(176.1)
107.9
(1.79)
0.13
0.03
(1.63)
107.9
—
107.9
(1.79)
0.13
0.03
(1.63)
$
$
$
$
$
$
128.4
$
14.1
3.4
145.9
$
107.4
1.20
0.13
0.03
1.36
107.4
2.2
109.6
1.17
0.13
0.03
1.33
$
$
$
$
253.5
6.9
58.6
319.0
109.7
2.31
0.06
0.54
2.91
109.7
4.5
114.2
2.22
0.06
0.51
2.79
The following table provides information to reconcile amounts reported on the Consolidated Statement of Income (Loss) to amounts
used to calculate earnings per share attributable to Terex Corporation common stockholders (in millions) for the year ended
December 31:
Reconciliation of amounts attributable to common stockholders:
2016
2015
2014
Income (loss) from continuing operations
Net loss (income) from continuing operations attributable to noncontrolling
interest
Income (loss) from continuing operations attributable to common
stockholders
$
$
(193.3)
$
128.2
$
252.0
0.3
0.2
1.5
(193.0)
$
128.4
$
253.5
Weighted average options to purchase 0.1 million shares of the Company’s common stock, par value $0.01 per share (“Common
Stock”), were outstanding during 2016, 2015 and 2014, but were not included in the computation of diluted shares as the effect
would be anti-dilutive. Weighted average restricted stock awards of 1.5 million shares, 0.9 million shares and 0.4 million shares
were outstanding during 2016, 2015 and 2014, respectively, but were not included in the computation of diluted shares because
the effect would be anti-dilutive or performance targets were not yet achieved for awards contingent upon performance. ASC
260, “Earnings per Share,” requires that employee stock options and non-vested restricted shares granted by the Company be
treated as potential common shares outstanding in computing diluted earnings per share. Under the treasury stock method, the
amount the employee must pay for exercising stock options, the amount of compensation cost for future services that the Company
has not yet recognized and the amount of tax benefits that would be recorded in additional paid-in capital when the award becomes
deductible are assumed to be used to repurchase shares. The Company includes the impact of pro forma deferred tax assets in
determining the amount of tax benefits for potential windfalls and shortfalls (the differences between tax deductions and book
expense) in this calculation.
F-29
In connection with settlement of the 4% Convertible Senior Subordinated Notes the Company issued 3.4 million shares of common
stock in June 2015. See Note O – “Long-Term Obligations.” Included in the computation of diluted shares for the year ended
December 31, 2015 was 1.4 million shares that were contingently issuable prior to conversion. The number of shares that were
contingently issuable for the year ended December 31, 2014 was 3.4 million.
NOTE G – FINANCE RECEIVABLES
TFS leases equipment and provides financing to customers for the purchase and use of Terex equipment. In the normal course of
business, TFS assesses credit risk, establishes structure and pricing of financing transactions, documents the finance receivable,
and records and funds the transactions. TFS bills and collects cash from the end customer.
TFS primarily conducts on-book business in the U.S., with limited business in China, the United Kingdom, and Germany. TFS
does business with various types of customers consisting of rental houses, end user customers and Terex equipment dealers.
The Company’s net finance receivable balances include both sales-type leases and commercial loans. Finance receivables that
management intends to hold until maturity are stated at their outstanding unpaid principal balances, net of an allowance for loan
losses as well as any deferred fees and costs. Finance receivables originated and intended for sale in the secondary market are
carried at the lower of cost or estimated fair value, in the aggregate. During the years ended December 31, 2016, 2015 and 2014
the Company transferred finance receivables of $290.5 million, $81.9 million and $308.2 million, respectively, to third party
financial institutions, which qualified for sales treatment under ASC 860. At December 31, 2016, the Company had $4.7 million
of held for sale finance receivables recorded in Prepaid and other current assets in the Consolidated Balance Sheet.
Revenue attributable to finance receivables management intends to hold until maturity is recognized on the accrual basis using
the effective interest method. TFS bills customers and accrues interest income monthly on the unpaid principal balance. The
accrual of interest is generally discontinued when the contractual payment of principal or interest has become 90 days past due
or management has significant doubts about further collectibility of contractual payments, even though the loan may be currently
performing. A receivable may remain on accrual status if it is in the process of collection and is either guaranteed or secured.
Interest received on non-accrual finance receivables is typically applied against principal. Finance receivables are generally restored
to accrual status when the obligation is brought current and the borrower has performed in accordance with the contractual terms
for a reasonable period of time and the ultimate collectibility of the total contractual principal and interest is no longer in doubt.
The Company has a history of enforcing the terms of these separate financing agreements.
Finance receivables, net consisted of the following (in millions):
Commercial loans
Sales-type leases
Total finance receivables, gross
Allowance for credit losses
Total finance receivables, net
December 31,
2016
December 31,
2015
$
$
226.4
16.4
242.8
(6.3)
236.5
$
$
331.4
21.9
353.3
(7.3)
346.0
Approximately $74 million of finance receivables are recorded in Prepaid and other current assets and approximately $162 million
are recorded in Other assets in the Consolidated Balance Sheet.
F-30
Credit losses are charged against the allowance for credit losses when management ceases active collection efforts. Subsequent
recoveries, if any, are credited to earnings. The allowance for credit losses is maintained at a level set by management which
represents evaluation of known and inherent risks in the portfolio at the consolidated balance sheet date. Management’s periodic
evaluation of the adequacy of the allowance is based on the Company’s past loan loss experience, market-based loss experience,
specific customer situations, estimated value of any underlying collateral, current economic conditions, and other relevant factors.
This evaluation is inherently subjective, since it requires estimates that may be susceptible to significant change. Although specific
and general loss allowances are established in accordance with management’s best estimate, actual losses are dependent upon
future events and, as such, further additions to or decreases from the level of loss allowances may be necessary.
The following table presents an analysis of the allowance for credit losses:
Year Ended December 31, 2016
Year Ended December 31, 2015
Year Ended December 31, 2014
Commercial
Loans
Sales-
Type
Leases
Total
Commercial
Loans
Sales-
Type
Leases
Total
Commercial
Loans
Sales-
Type
Leases
Total
Balance, beginning of
period
$
Provision for
credit losses
Charge offs
Recoveries
Balance, end of
period
6.5
0.2
(0.8)
—
0.8
$
7.3
$
1.9
$
1.1
$
3.0
$
1.9
$
0.4
$
(0.2)
(0.2)
—
—
(1.0)
—
4.6
—
—
(0.3)
—
—
4.3
—
—
—
—
—
0.7
—
—
$
5.9
$
0.4
$
6.3
$
6.5
$
0.8
$
7.3
$
1.9
$
1.1
$
2.3
0.7
—
—
3.0
The Company utilizes a two tier approach to set allowances: (1) identification of impaired finance receivables and establishment
of specific loss allowances on such receivables; and (2) establishment of general loss allowances on the remainder of its portfolio.
Specific loss allowances are established based on circumstances and factors of specific receivables. The Company regularly reviews
the portfolio which allows for early identification of potentially impaired receivables. The process takes into consideration, among
other things, delinquency status, type of collateral and other factors specific to the borrower.
General loss allowance levels are determined based upon a combination of factors including, but not limited to, TFS experience,
general market loss experience, performance of the portfolio, current economic conditions, and management's judgment. The two
primary risk characteristics inherent in the portfolio are (1) the customer's ability to meet contractual payment terms, and (2) the
liquidation values of the underlying primary and secondary collaterals. The Company records a general or unallocated loss
allowance that is calculated by applying the reserve rate to its portfolio, including the unreserved balance of accounts that have
been specifically reserved for. All delinquent accounts are reviewed for potential impairment. A receivable is deemed to be impaired
when based on current information and events, it is probable that the Company will be unable to collect all amounts due according
to the contractual terms of the loan agreement. The amount of impairment is measured as the difference between the balance
outstanding and the underlying collateral value of the equipment being financed, as well as any other collateral. All finance
receivables identified as impaired are evaluated individually. Generally, the Company does not change the terms and conditions
of existing finance receivables.
The following table presents individually impaired finance receivables (in millions):
Recorded investment
Related allowance
Average recorded investment
December 31, 2016
December 31, 2015
Commercial
Loans
Sales-Type
Leases
Total
Commercial
Loans
Sales-Type
Leases
$
$
1.6
1.6
1.7
— $
—
0.9
$
1.6
1.6
2.6
$
1.9
1.9
1.0
1.8
0.5
2.5
Total
$
3.7
2.4
3.5
The average recorded investment for impaired finance receivables was $1.7 million for sales-type leases at December 31, 2014,
which were fully reserved. There were no impaired finance receivables for commercial loans at December 31, 2014.
F-31
The allowance for credit losses and finance receivables by portfolio, segregated by those amounts that are individually
evaluated for impairment and those that are collectively evaluated for impairment, was as follows (in millions):
Allowance for credit losses, ending
balance:
Individually evaluated for impairment
Collectively evaluated for impairment
Total allowance for credit losses
Finance receivables, ending balance:
Individually evaluated for impairment
Collectively evaluated for impairment
Total finance receivables
December 31, 2016
December 31, 2015
Commercial
Loans
Sales-Type
Leases
Total
Commercial
Loans
Sales-Type
Leases
Total
$
$
$
$
1.6
4.3
5.9
1.6
224.8
226.4
$
$
$
$
— $
0.4
0.4
$
1.6
4.7
6.3
— $
16.4
16.4
$
1.6
241.2
242.8
$
$
$
$
1.9
4.6
6.5
1.9
329.5
331.4
$
$
$
$
0.5
0.3
0.8
1.8
20.1
21.9
$
$
$
$
2.4
4.9
7.3
3.7
349.6
353.3
Accounts are considered delinquent when the billed periodic payments of the finance receivables exceed 30 days past the due
date.
The following table presents analysis of aging of recorded investment in finance receivables (in millions):
December 31, 2016
Current
31-60 days
past due
61-90 days
past due
Greater than
90 days past
due
Total past
due
224.2
15.8
240.0
$
$
0.6
—
0.6
$
$
0.2
0.6
0.8
$
$
1.4
—
1.4
$
$
2.2
0.6
2.8
Total
Finance
Receivables
226.4
$
16.4
242.8
$
December 31, 2015
Current
31-60 days
past due
61-90 days
past due
Greater than
90 days past
due
Total past
due
329.6
20.2
349.8
$
$
0.8
0.5
1.3
$
$
— $
—
— $
1.0
1.2
2.2
$
$
1.8
1.7
3.5
Total
Finance
Receivables
331.4
$
21.9
353.3
$
Commercial loans
Sales-type leases
Total finance receivables
Commercial loans
Sales-type leases
Total finance receivables
$
$
$
$
At December 31, 2016 and 2015, $1.4 million and $1.0 million respectively, of commercial loans were 90 days or more past due.
Commercial loans in the amount of $7.4 million and $4.8 million were on non-accrual status as of December 31, 2016 and 2015,
respectively.
At December 31, 2016 there were no sales-type lease receivables that were 90 days or more past due. At December 31, 2015,
there were $1.2 million of sales-type lease receivables were 90 days or more past due. At December 31, 2016, there were no sales-
type leases on non-accrual status. There were $1.3 million of sales-type leases on non-accrual status as of December 31, 2015.
F-32
Credit Quality Information
Credit quality is reviewed periodically based on customers’ payment status. In addition to delinquency status, any information
received regarding a customer (such as bankruptcy filings, etc.) will also be considered to determine the credit quality of the
customer. Collateral asset values are also monitored regularly to determine the potential loss exposures on any given transaction.
The Company uses the following internal credit quality indicators, based on an internal risk rating system, using certain
external credit data, listed from the lowest level of risk to highest level of risk. The internal rating system considers factors
affecting specific borrowers’ ability to repay.
Finance receivables by risk rating (in millions):
Rating
Superior
Above Average
Average
Below Average
Sub Standard
December 31,
2016
December 31,
2015
$
9.6
$
64.7
111.3
53.0
4.2
21.5
159.4
117.9
44.2
10.3
Total
$
242.8
$
353.3
NOTE H – INVENTORIES
Inventories consist of the following (in millions):
Finished equipment
Replacement parts
Work-in-process
Raw materials and supplies
Inventories
December 31,
2016
2015
334.7
$
144.9
175.4
198.8
429.1
168.3
190.4
275.8
853.8
$
1,063.6
$
$
Reserves for lower of cost or market value, excess and obsolete inventory were $83.3 million and $76.8 million at December 31,
2016 and 2015, respectively.
F-33
NOTE I – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment – net consist of the following (in millions):
Property
Plant
Equipment
Property, Plant and Equipment – Gross
Less: Accumulated depreciation
Property, plant and equipment – net
December 31,
2016
2015
$
36.4
$
144.3
456.1
636.8
(332.2)
304.6
$
$
37.2
161.9
545.2
744.3
(372.4)
371.9
Depreciation expense for the years ended December 31, 2016, 2015 and 2014, was $65.5 million, $63.9 million and $70.4 million,
respectively.
NOTE J – EQUIPMENT SUBJECT TO OPERATING LEASES
Operating leases arise from leasing the Company’s products to customers. Initial non-cancellable lease terms typically range up
to 84 months. The net book value of equipment subject to operating leases was approximately $67 million and $58 million (net
of accumulated depreciation of approximately $16 million and $37 million) at December 31, 2016 and 2015, respectively, and is
included in Other assets on the Company’s Consolidated Balance Sheet. The equipment is depreciated on a straight-line basis
over its estimated useful life.
Future minimum lease payments to be received under non-cancellable operating leases with lease terms in excess of one year are
as follows (in millions):
Years ending December 31,
2017
2018
2019
2020
2021
Thereafter
$
$
9.3
4.9
3.5
1.9
1.1
0.7
21.4
The Company received approximately $14 million and $12 million of rental income from assets under operating leases during
2016 and 2015, respectively, none of which represented contingent rental payments.
NOTE K – DISPOSITIONS
Construction
During the year ended December 31, 2016, the Company sold certain portions of its former Construction segment, including the
following products: midi/mini excavators, wheeled excavators, compact wheel loaders, and components, primarily in Europe.
The Company recognized a loss of $8.1 million ($5.6 million after-tax) related to sale of its components assets, of which $4.0
million was recorded in COGS and $4.1 million was recorded in SG&A in the Consolidated Statement of Income (Loss). The
Company received total proceeds of approximately $60 million and recognized a gain of $7.2 million ($3.3 million after-tax)
within SG&A related to sale of its midi/mini excavators, wheeled excavators, and compact wheel loader business shares and assets.
The remaining unsold assets and liabilities of the Company’s former Construction segment at December 31, 2016 are reported in
the Consolidated Balance Sheet as held for sale.
F-34
A.S.V. Inc.
On December 19, 2014, the Company completed the sale of 51% of A.S.V., Inc. to Manitex International, Inc. (“Manitex”), resulting
in a joint venture in compact track loaders and skid steers that is 51% owned by Manitex and 49% owned by Terex and accounted
for the investment under the equity method of accounting. The Company recognized a gain of approximately $17 million on this
sale in SG&A on the Consolidated Statement of Income (Loss).
Demag Cranes and Components Pty. Ltd.
On December 31, 2014, the Company sold 100% of Demag Cranes and Components Pty. Ltd. (“Demag Cranes”) in Australia to
MHE-Demag (S) Pte. Ltd. (“MHE”), a 50% owned joint venture accounted for under the equity method of accounting. The
Company recorded a loss on this disposition of approximately $33 million in SG&A on the Consolidated Statement of Income
(Loss). The loss was comprised primarily of approximately $23 million of cumulative translation adjustment and approximately
$6 million of allocated goodwill. Cash received from these dispositions is included in investing activities in the Consolidated
Statement of Cash Flows.
NOTE L – GOODWILL AND INTANGIBLE ASSETS, NET
An analysis of changes in the Company’s goodwill by business segment is as follows (in millions):
Balance at December 31, 2014, gross
$
Accumulated impairment
Balance at December 31, 2014, net
Acquisitions
Foreign exchange effect and other
Balance at December 31, 2015, gross
Accumulated impairment
Balance at December 31, 2015, net
Acquisitions
Foreign exchange effect and other
Balance at December 31, 2016, gross
Accumulated impairment
AWP (1)
139.4
(38.6)
100.8
—
(1.7)
137.7
(38.6)
99.1
1.6
(1.6)
137.7
(38.6)
$
$
Cranes (1)
198.8
(4.2)
194.6
—
(15.7)
183.1
(4.2)
178.9
—
(3.8)
179.3
(179.3)
Balance at December 31, 2016, net (2)
$
99.1
$
— $
MP
Total
198.1
(23.2)
174.9
14.4
(8.2)
204.3
(23.2)
181.1
—
(20.5)
183.8
(23.2)
160.6
$
$
536.3
(66.0)
470.3
14.4
(25.6)
525.1
(66.0)
459.1
1.6
(25.9)
500.8
(241.1)
259.7
(1) Includes a $17.9 million reclassification of goodwill from Cranes to discontinued operations, and a $0.9 million reclassification of goodwill from Cranes to
AWP as a result of segment realignments. See Note C - “Business Segment Information”.
(2) During the second quarter of 2016 the Company wrote off $132.8 million of fully impaired goodwill associated with its former Construction segment.
As part of our annual impairment test performed in the fourth quarter of 2016, we elected to perform a quantitative analysis (“Step
1”) on the AWP, Cranes and MP reporting units, to determine whether it is more likely than not that fair value exceeds carrying
value for these reporting units. Based on the results of our Step 1 analysis, we determined that it is more likely than not that fair
value exceeds carrying value for the AWP and MP reporting units. However, we concluded in our Step 1 analysis that the estimated
fair value of our Cranes reporting unit was lower than carrying value.
Step 2 of the analysis requires us to perform a theoretical purchase price allocation for our Cranes reporting unit to determine
implied fair value of goodwill and to compare the implied fair value of goodwill to the recorded amount of goodwill. Upon
completion of Step 2 of the test, we recorded a non-cash goodwill impairment charge of $176.0 million. This impairment charge
is recorded in Goodwill impairment in the Consolidated Statement of Income (Loss).
The outcome of any prospective tests may result in recording additional goodwill impairment charges in future periods.
F-35
Intangible assets, net were comprised of the following as of December 31, 2016 and 2015 (in millions):
Weighted
Average
Life
(in years)
7
20
68
6
Definite-lived intangible assets:
Technology
Customer Relationships
Land Use Rights
Other
Total definite-lived intangible assets
(in millions)
Aggregate Amortization Expense
December 31, 2016
December 31, 2015
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
$
$
17.0
33.1
7.9
25.8
83.8
$
$
7.9
1.3
(15.7) $
(25.2)
(0.9)
(23.6)
2.2
(65.4) $ 18.4
7.0
$
$
17.3
34.8
8.2
28.0
88.3
$
$
(15.7) $
(24.9)
(0.9)
(24.2)
(65.7) $
1.6
9.9
7.3
3.8
22.6
For the Year Ended December 31,
2016
2015
2014
$
2.9
$
3.0
$
11.5
Estimated aggregate intangible asset amortization expense (in millions) for the next five years is as follows:
2017
2018
2019
2020
2021
$
$
$
$
$
2.1
1.9
1.8
1.8
1.7
NOTE M – DERIVATIVE FINANCIAL INSTRUMENTS
In the normal course of business, the Company enters into two types of derivatives to hedge its interest rate exposure and foreign
currency exposure: hedges of fair value exposures and hedges of cash flow exposures. Fair value exposures relate to recognized
assets or liabilities and firm commitments, while cash flow exposures relate to the variability of future cash flows associated with
recognized assets or liabilities or forecasted transactions.
The Company operates internationally, with manufacturing and sales facilities in various locations around the world, and uses
certain financial instruments to manage its foreign currency, interest rate and fair value exposures. To qualify a derivative as a
hedge at inception and throughout the hedge period, the Company formally documents the nature and relationships between
hedging instruments and hedged items, as well as its risk-management objectives and strategies for undertaking various hedge
transactions, and the method of assessing hedge effectiveness. Additionally, for hedges of forecasted transactions, significant
characteristics and expected terms of a forecasted transaction must be specifically identified, and it must be probable that each
forecasted transaction will occur. If it is deemed probable the forecasted transaction will not occur, then the gain or loss would
be recognized in current earnings. Financial instruments qualifying for hedge accounting must maintain a specified level of
effectiveness between the hedging instrument and the item being hedged, both at inception and throughout the hedged period. The
Company does not engage in trading or other speculative use of financial instruments.
The Company has used and may use forward contracts and options to mitigate its exposure to changes in foreign currency exchange
rates on third party and intercompany forecasted transactions. Primary currencies to which the Company is exposed are the Euro,
British Pound and Australian Dollar. The effective portion of unrealized gains and losses associated with forward contracts and
the intrinsic value of option contracts are deferred as a component of Accumulated other comprehensive income (“AOCI”) until
the underlying hedged transactions are reported in the Company’s Consolidated Statement of Income (Loss).
The Company has used and may use interest rate swaps to mitigate its exposure to changes in interest rates related to existing
issuances of variable rate debt and changes in the fair value of fixed rate debt. Primary exposure includes movements in the U.S.
prime rate and London Interbank Offered Rate (“LIBOR”). The effective portion of interest rate derivatives designated as cash
flow hedges is deferred in AOCI and is recognized in earnings as hedged transactions occur. Changes in fair value associated
with contracts deemed ineffective are recognized in earnings immediately.
F-36
In the Consolidated Statement of Income (Loss), the Company records hedging activity related to debt instruments and hedging
activity related to foreign currency in the accounts for which the hedged items are recorded. On the Consolidated Statement of
Cash Flows, the Company presents cash flows from hedging activities in the same manner as it records the underlying item being
hedged.
The Company is party to currency exchange forward contracts that generally mature within one year to manage its exposure to
changing currency exchange rates. At December 31, 2016, the Company had $245.5 million notional amount of currency exchange
forward contracts outstanding that were initially designated as hedge contracts, most of which mature on or before December 31,
2017. The fair market value of these contracts at December 31, 2016 was a net loss of $2.6 million. At December 31, 2016,
$194.0 million notional amount ($2.7 million of fair value losses) of these forward contracts have been designated as, and are
effective as, cash flow hedges of forecasted and specifically identified transactions. During 2016 and 2015, the Company recorded
the change in fair value for these cash flow hedges to AOCI and reclassified to earnings a portion of the deferred gain or loss from
AOCI as the hedged transactions occurred and were recognized in earnings.
The Company records foreign exchange contracts at fair value on a recurring basis. The foreign exchange contracts designated
as hedging instruments are categorized under Level 2 of the ASC 820 hierarchy and are recorded at December 31, 2016 and 2015
as a net liability of $2.6 million and a net asset of $3.1 million, respectively. See Note B – “Basis of Presentation,” for an explanation
of the ASC 820 hierarchy. Fair values of these foreign exchange forward contracts are derived using quoted forward foreign
exchange prices to interpolate values of outstanding trades at the reporting date based on their maturities.
The Company uses forward foreign exchange contracts to mitigate its exposure to changes in foreign currency exchange rates on
third party and intercompany forecasted transactions and balance sheet exposures. Certain of these contracts have not been
designated as hedging instruments. The majority of gains and losses recognized from foreign exchange contracts not designated
as hedging instruments were offset by changes in the underlying hedged items, resulting in no material net impact on earnings.
Changes in the fair value of derivative financial instruments are recognized as gains or losses in Cost of goods sold or Other income
(expense) - net in the Consolidated Statement of Income (Loss).
Concurrent with the 2014 sale of a majority stake in A.S.V., Inc. to Manitex International, Inc. (“Manitex”), the Company invested
in a subordinated convertible promissory note from Manitex, which included an embedded derivative, the conversion feature. At
the date of issuance, the embedded derivative was measured at fair value. The derivative is categorized under Level 2 of the ASC
820 hierarchy and marked-to-market each period with changes in fair value recorded in Other income (expense) - net in the
Consolidated Statement of Income (Loss).
The Company entered into certain interest rate swap agreements to offset the variability of cash flows due to changes in the floating
rate of borrowings under its Securitization Facility, which was terminated on May 31, 2016. See Note O – “Long-Term Obligations,”
for additional information on the Securitization Facility. The interest rate swaps were designated as cash flow hedges of the
changes in the cash flows of interest rate payments on debt associated with changes in floating interest rates. Changes in the fair
value of these derivative financial instruments were recognized as gains or losses in Cost of goods sold in the Consolidated
Statement of Income (Loss). The Company recorded these contracts at fair value on a recurring basis. At December 31, 2016 the
Company had no interest rate swap contracts outstanding, because it terminated the Securitization Facility and concurrently settled
its outstanding interest rate swap contracts. The interest rate swap contracts designated as hedging instruments were categorized
under Level 2 of the ASC 820 hierarchy and were recorded at December 31, 2015 as a net asset of $0.2 million. The fair value
of these contracts was derived using quoted interest rate swap prices at the reporting date based on their maturities.
During 2016, the Company entered into forward foreign currency contracts, with notional value of $100.0 million, in connection
with the sale of MHPS to Konecranes to hedge against its exposure to changes in the Euro to U.S. dollar exchange rate, as part of
the proceeds from sale was received in Euros. The derivatives are categorized under Level 2 of the ASC 820 hierarchy and fair
value is derived using quoted forward foreign exchange prices to interpolate values of outstanding trades at the reporting date
based on their maturities. Fair value measurement resulted in a gain of $2.0 million recorded in Other income (expense) - net in
the Consolidated Statement of Income (Loss).
F-37
The following table provides the location and fair value amounts of derivative instruments designated as hedging instruments that
are reported in the Consolidated Balance Sheet (in millions):
Asset Derivatives
Foreign exchange contracts
Interest rate swap
Total asset derivatives
Liability Derivatives
Foreign exchange contracts
Interest rate swap
Total liability derivatives
Total Derivatives
Balance Sheet Account
Other current assets
Other assets
Other current liabilities
Other current liabilities
December 31,
2016
December 31,
2015
$
$
$
$
4.2
—
4.2
$
$
(6.8)
—
(6.8) $
(2.6) $
4.0
0.9
4.9
(0.8)
(0.7)
(1.5)
3.4
The following table provides the location and fair value amounts of derivative instruments not designated as hedging instruments
that are reported in the Consolidated Balance Sheet (in millions):
Asset Derivatives
Foreign exchange contracts
Debt conversion feature
Total asset derivatives
Liability Derivatives
Foreign exchange contracts
Total liability derivatives
Total Derivatives
Balance Sheet Account
Other current assets
Other assets
Other current liabilities
December 31,
2016
December 31,
2015
$
$
$
$
2.6
1.1
3.7
$
$
(1.2)
(1.2) $
$
2.5
0.5
1.1
1.6
(0.2)
(0.2)
1.4
The following tables provide the effect of derivative instruments that are designated as hedges in the Consolidated Statements of
Income (Loss), Comprehensive Income (Loss) and AOCI (in millions):
Gain (Loss) Recognized on Derivatives in AOCI:
Cash Flow Derivatives
Foreign exchange contracts
Interest rate swap
Total
Gain (Loss) Reclassified from AOCI into Income (Loss) (Effective):
Account
Cost of goods sold
Gain (Loss) Recognized on Derivatives (Ineffective) in Income (Loss):
Account
Cost of goods sold
Other income (expense) – net
Total
Year Ended
December 31,
2016
2015
2014
(4.5) $
(0.2)
(4.7) $
2.8
0.2
3.0
$
$
(3.4)
—
(3.4)
Year Ended
December 31,
2016
2015
2014
(2.0) $
1.6
$
2.5
Year Ended
December 31,
2016
2015
2014
1.0
$
— $
1.0
$
$
2.3
(0.1) $
$
2.2
(1.3)
0.5
(0.8)
$
$
$
$
$
$
F-38
The following table provides the effect of derivative instruments that are not designated as hedges in the Consolidated Statements
of Income (Loss) and Comprehensive Income (Loss) (in millions):
Gain (Loss) Recognized in Income on Derivatives not designated as
hedges:
Year Ended
December 31,
Account
Other income (expense) – net
2016
2015
2014
0.9
(3.4)
0.5
Counterparties to the Company’s currency exchange forward contracts and interest rate swap agreements are major financial
institutions with credit ratings of investment grade or better and no collateral is required. There are no significant risk
concentrations. Management continues to monitor counterparty risk and believes the risk of incurring losses on derivative contracts
related to credit risk is unlikely and any losses would be immaterial.
Unrealized net gains (losses), net of tax, included in AOCI are as follows (in millions):
Balance at beginning of period
Additional gains (losses) – net
Amounts reclassified to earnings
Balance at end of period
Year Ended December 31,
2016
2015
2014
$
$
$
2.3
(5.7)
1.0
(2.4) $
(0.7) $
9.2
(6.2)
2.3
$
2.7
(1.4)
(2.0)
(0.7)
Within the unrealized net gains (losses) included in AOCI as of December 31, 2016, it is estimated that $2.4 million of losses are
expected to be reclassified into earnings in the next twelve months.
NOTE N – RESTRUCTURING AND OTHER CHARGES
The Company continually evaluates its cost structure to be appropriately positioned to respond to changing market conditions.
From time to time the Company may initiate certain restructuring programs to better utilize its workforce and optimize facility
utilization to match the demand for its products.
During the year ended December 31, 2015, the Company established a restructuring program in the MP segment to close one of
its manufacturing facilities in the U.S., consolidate production with other U.S. sites and exit the hand-fed chipper line of products.
By consolidating operations, the Company has optimized its use of resources, eliminated areas of duplication and operates more
efficiently and effectively. The program cost $0.9 million, resulted in a reduction of 38 team members and was completed in 2015.
During the year ended December 31, 2015, the Company established a restructuring program across multiple operating segments
to centralize transaction processing and accounting functions into shared service centers. The program cost $0.9 million, resulted
in the reduction of 69 team members and was completed in 2016. The segment breakdown of this program cost is as follows:
Cranes ($0.8 million) and MP ($0.1 million).
During the year ended December 31, 2016, the Company established restructuring programs in its Cranes segment to transfer
production between existing facilities and close certain facilities in order to maximize labor efficiencies and reduce overhead costs,
and incurred $76.9 million of expense. The programs are expected to cost $79.9 million, result in the reduction of approximately
1,260 team members and be completed in 2018.
During the year ended December 31, 2016, the Company established restructuring programs in Corporate and Other to consolidate
facilities, and incurred $2.9 million of expense. The programs are expected to cost $2.9 million, result in the reduction of
approximately 32 team members and be completed in 2017.
F-39
The following table provides information for all restructuring activities by segment of the amount of expense incurred during the
year ended December 31, 2016, the cumulative amount of expenses incurred for the years ended December 31, 2016, 2015 and
2014 and the total amount expected to be incurred (in millions):
AWP
Cranes
MP
Corporate and Other
Total
Amount incurred
during the year ended
December 31, 2016
Cumulative amount
incurred through
December 31, 2016
Total amount expected
to be incurred
$
$
0.9
$
0.9
$
76.9
0.4
2.9
77.7
1.4
2.9
81.1
$
82.9
$
0.9
79.9
1.4
2.9
85.1
The following table provides information by type of restructuring activity with respect to the amount of expense incurred during
the year ended December 31, 2016, the cumulative amount of expenses incurred since inception of the programs and the total
amount expected to be incurred (in millions):
Amount incurred in the year ended December 31, 2016
Cumulative amount incurred through December 31, 2016
Total amount expected to be incurred
Employee
Termination
Costs
$
$
$
61.7
62.9
64.4
$
$
$
Facility
Exit Costs
Asset Disposal
and Other Costs
Total
1.7
1.8
2.5
$
$
$
17.7
18.2
18.2
$
$
$
81.1
82.9
85.1
The following table provides a roll forward of the restructuring reserve by type of restructuring activity for the year ended
December 31, 2016 (in millions):
Restructuring reserve at December 31, 2015
Restructuring charges
Restructuring reductions (1)
Cash expenditures
Foreign exchange
Employee
Termination
Costs
$
0.9
$
Total
0.9
70.9
(9.6)
(4.7)
(0.7)
56.8
70.9
(9.6)
(4.7)
(0.7)
56.8
$
Restructuring reserve at December 31, 2016
$
(1) Primarily related to reversal of accrued severance costs associated with the Company’s change in plan from closing to selling a certain business.
During the years ended December 31, 2016, 2015 and 2014, $42.6 million, $0.3 million and $0.3 million, respectively, of
restructuring charges were included in COGS. During the years ended December 31, 2016, 2015 and 2014, $20.8 million, $1.1
million and $0.3 million, respectively, of restructuring charges were included in SG&A costs. There were $17.7 million and $0.4
million of asset impairments included in restructuring costs, recorded in SG&A, for the years ended December 31, 2016 and 2015,
respectively. There were no asset impairments included in restructuring costs for the year ended December 31, 2014.
Other
During the year ended December 31, 2016, the Company recorded approximately $21.1 million and $12.7 million as a component
of COGS and SG&A, respectively, for severance charges for structural cost reduction actions across all segments and corporate
functions.
F-40
NOTE O – LONG-TERM OBLIGATIONS
Long-term debt is summarized as follows (in millions):
6-1/2% Senior Notes due April 1, 2020, net of unamortized debt issuance costs of $2.1 and
$2.8 respectively
6% Senior Notes due May 15, 2021, net of unamortized debt issuance costs of $7.5 and $9.2,
respectively
2014 Credit Agreement – term debt, net of unamortized debt issuance costs of $7.9 and $9.1,
respectively
2015 Securitization Facility
Capital lease obligations
Other
Total debt
Less: Notes payable and current portion of long-term debt
Long-term debt, less current portion
2014 Credit Agreement
December 31,
2016
2015
$
297.9
$
297.2
842.5
840.8
420.7
—
2.9
11.8
1,575.8
(13.8)
1,562.0
$
430.1
206.5
4.9
16.7
1,796.2
(66.4)
1,729.8
$
On January 31, 2017, in connection with the 2017 Credit Agreement (as defined below), the Company terminated its 2014 Credit
Agreement (as defined below), among the Company and certain of its subsidiaries, the lenders thereunder and Credit Suisse AG,
as administrative agent and collateral agent, and related agreements and documents.
On August 13, 2014 the Company entered into a credit agreement (the “2014 Credit Agreement”), with the lenders party thereto
and Credit Suisse AG, as administrative agent and collateral agent. In connection with the 2014 Credit Agreement, the Company
terminated its existing amended and restated credit agreement, dated as of August 5, 2011, as amended (the “2011 Credit
Agreement”), among the Company and certain of its subsidiaries, the lenders thereunder and Credit Suisse AG, as administrative
agent and collateral agent, and related agreements and documents.
The 2014 Credit Agreement provided the Company with a senior secured revolving line of credit of up to $600 million that was
available through August 13, 2019, a $230.0 million senior secured term loan and a €200.0 million senior secured term loan, which
both matured on August 13, 2021. The 2014 Credit Agreement allowed unlimited incremental commitments, which could be
extended at the option of the existing or new lenders and could be in the form of revolving credit commitments, term loan
commitments, or a combination of both as long as the Company satisfied a senior secured debt financial ratio contained in the
2014 Credit Agreement.
The 2014 Credit Agreement required the Company to comply with a number of covenants. The covenants limited, in certain
circumstances, the Company’s ability to take a variety of actions, including but not limited to: incurring indebtedness; creating or
maintaining liens on its property or assets; making investments, loans and advances; repurchasing shares of its Common Stock;
engaging in acquisitions, mergers, consolidations and asset sales; redeeming debt; and paying dividends and distributions. On
May 29, 2015, the Company entered into an Incremental Assumption Agreement and Amendment No. 1 to the 2014 Credit
Agreement which lowered the interest rate on the Company’s €200.0 million Euro denominated term loan from Euro Interbank
Offered Rate (“EURIBOR”) plus 3.25% with a 0.75% EURIBOR floor to EURIBOR plus 2.75% with a 0.75% EURIBOR floor.
On September 30, 2016, the Company entered into an Amendment No. 2 (the “Amendment”) to the 2014 Credit Agreement, with
the lenders party thereto and Credit Suisse AG, as administrative agent and collateral agent. The Amendment, among other things,
waived the requirement that the Company and its restricted subsidiaries receive at least 75% of the consideration from the SAPA
in the form of cash and cash equivalents. The Amendment also provided the Company with additional flexibility to not use the
net cash proceeds from the SAPA to prepay the term loans, although it did require the Company to use $300 million of the net
cash proceeds received from the SAPA, within 60 days of receipt thereof, to reduce its outstanding senior indebtedness. During
the year ended December 31, 2016, the Company incurred approximately $0.3 million of costs related to the Amendment (see
Note A - “Sale of MHPS Business”).
F-41
If the Company’s borrowings under its revolving line of credit were greater than 30% of the total revolving credit commitments,
the 2014 Credit Agreement required the Company to comply with certain financial tests, as defined in the 2014 Credit Agreement.
If applicable, the minimum required levels of the interest coverage ratio would be 2.5 to 1.0 and the maximum permitted levels
of the senior secured leverage ratio would be 2.75 to 1.0.
The 2014 Credit Agreement contained customary default provisions and had various non-financial covenants, both requiring the
Company to refrain from taking certain future actions (as described above) and requiring the Company to take certain actions,
such as keeping its corporate existence in good standing, maintaining insurance, and providing its bank lending group with financial
information on a timely basis.
In connection with termination of the 2011 Credit Agreement, the Company recorded charges of $0.1 million and $2.6 million
for accelerated amortization of debt acquisition costs and original issue discount as a loss on early extinguishment of debt for the
years ended December 31, 2015 and 2014, respectively.
As of December 31, 2016 and 2015, the Company had $428.6 million and $439.2 million, respectively, in U.S. dollar and Euro
denominated term loans outstanding under its 2014 Credit Agreement. The weighted average interest rate on the term loans at
December 31, 2016 and 2015 was 3.63% and 3.50%, respectively. The Company had no outstanding revolving credit amounts
as of December 31, 2016 and 2015.
The 2014 Credit Agreement incorporated facilities for issuance of letters of credit up to $400 million. Letters of credit issued
under the 2014 Credit Agreement letter of credit facility decreased availability under the $600 million revolving line of credit. As
of December 31, 2016 and 2015, the Company had no letters of credit issued under the 2014 Credit Agreement. The 2014 Credit
Agreement also permitted the Company to have additional letter of credit facilities up to $300 million, and letters of credit issued
under such additional facilities did not decrease availability under the revolving line of credit. The Company had letters of credit
issued under the additional letter of credit facilities of the 2014 Credit Agreement that totaled $36.8 million and $21.2 million as
of December 31, 2016 and 2015, respectively.
The Company also has bilateral arrangements to issue letters of credit with various other financial institutions. These additional
letters of credit did not reduce the Company’s availability under the 2014 Credit Agreement. The Company had letters of credit
issued under these additional arrangements of $146.4 million ($121.4 million related to discontinued operations) and $189.7
million ($153.6 million related to discontinued operations) as of December 31, 2016 and 2015, respectively.
In total, as of December 31, 2016 and 2015, the Company had letters of credit outstanding of $183.2 million ($121.4 million
related to discontinued operations) and $210.9 million ($153.6 million related to discontinued operations), respectively. The letters
of credit generally serve as collateral for certain liabilities included in the Consolidated Balance Sheet. Certain letters of credit
serve as collateral guaranteeing the Company’s performance under contracts.
The Company and certain of its subsidiaries agreed to take certain actions to secure borrowings under the 2014 Credit
Agreement. As a result, the Company and certain of its subsidiaries entered into a Guarantee and Collateral Agreement with Credit
Suisse, as collateral agent for the lenders, granting security to the lenders for amounts borrowed under the 2014 Credit
Agreement. The Company was required to (a) pledge as collateral the capital stock of the Company’s material domestic subsidiaries
and 65% of the capital stock of certain of the Company’s material foreign subsidiaries, and (b) provide a first priority security
interest in, and mortgages on, substantially all of the Company’s domestic assets.
6-1/2% Senior Notes
On March 27, 2012, the Company sold and issued $300 million aggregate principal amount of Senior Notes Due 2020 (“6-1/2%
Notes”) at par. The proceeds from these notes were used for general corporate purposes. The 6-1/2% Notes are redeemable by
the Company beginning in April 2016 at an initial redemption price of 103.25% of principal amount. The 6-1/2% Notes are jointly
and severally guaranteed by certain of the Company’s domestic subsidiaries (see Note T – “Consolidating Financial Statements”).
On September 30, 2016, the Company obtained the requisite non-revocable consents required to grant certain waivers from the
asset sale covenants in the indenture governing the 6-1/2% Notes. The waiver agreements waive the requirement that the Company
receive at least 75% of the consideration from the SAPA in the form of cash and cash equivalents. In connection with the receipt
and effectiveness of the consents, the Company paid a total of $1.1 million as a result of the Disposition, of which $0.4 million
had been incurred as of December 31, 2016 (see Note A - “Sale of MHPS Business”).
F-42
6% Senior Notes
On November 26, 2012, the Company sold and issued $850 million aggregate principal amount of Senior Notes due 2021 (“6%
Notes”) at par. The proceeds from this offering plus other cash was used to redeem all $800 million principal amount of the
outstanding 8% Senior Subordinated Notes. The 6% Notes are redeemable by the Company beginning in November 2016 at an
initial redemption price of 103.00% of principal amount. The 6% Notes are jointly and severally guaranteed by certain of the
Company’s domestic subsidiaries (see Note T – “Consolidating Financial Statements”).
On September 30, 2016, the Company obtained the requisite non-revocable consents required to grant certain waivers from the
asset sale covenants in the indenture governing the 6% Notes. The waiver agreements waive the requirement that the Company
receive at least 75% of the consideration from the SAPA in the form of cash and cash equivalents. In connection with the receipt
and effectiveness of the consents, the Company paid a total of $3.1 million as a result of the Disposition, of which $1.1 million
had been incurred as of December 31, 2016 (see Note A - “Sale of MHPS Business”).
4% Convertible Senior Subordinated Notes
On June 3, 2009, the Company sold and issued $172.5 million aggregate principal amount of 4% Convertible Notes. At issuance,
the Company was required to separately account for the liability and equity components of the 4% Convertible Notes in a manner
that reflected the Company’s nonconvertible debt borrowing rate at the date of issuance for interest cost to be recognized in
subsequent periods. The Company allocated $54.3 million of the $172.5 million principal amount of the 4% Convertible Notes
to the equity component, which represented a discount to the debt and was amortized into interest expense using the effective
interest method through settlement. The Company recorded a related deferred tax liability of $19.4 million on the equity component.
During 2012, the Company purchased approximately 25% of the outstanding 4% Convertible Notes. The balance of the 4%
Convertible Notes was $128.8 million at settlement on June 1, 2015. The Company recognized interest expense of $5.7 million
and $13.5 million on the 4% Convertible Notes for the years ended December 31, 2015 and 2014, respectively. Interest expense
on the 4% Convertible Notes throughout its term included 4% annually of cash interest on the maturity balance of $128.8 million
plus non-cash interest expense accreted to the debt balance as described.
On June 1, 2015 the Company paid cash of $131.1 million (including accrued interest of $2.3 million) and issued 3.4 million
shares of its $.01 par value common stock to settle the 4% Convertible Notes.
2015 Securitization Facility
On May 28, 2015, the Company, through certain of its subsidiaries, entered into a Loan and Security Agreement (the “Securitization
Facility”) with lenders party thereto. The borrower under the Securitization Facility was a bankruptcy remote subsidiary of the
Company (the “Borrower”). On May 31, 2016, the Company terminated the Securitization Facility, and repaid all outstanding
loans because it was not providing the Company with the flexibility needed for its portfolio of assets. As a result of terminating
the Securitization Facility, during the year ended December 31, 2016, the Company recorded a loss on early extinguishment of
debt of $0.4 million to write-off deferred debt costs. Under the Securitization Facility, the Borrower received loans from time to
time from conduit lenders thereunder, which were secured by and payable from collateral of the Borrower (primarily equipment
loans and leases to Terex customers originated by TFS and transferred to the Borrower). The facility limit for such loans was
$350 million and contained customary representations, warranties and covenants.
At December 31, 2015, the Company had $206.5 million in loans outstanding under the Securitization Facility. The weighted
average interest rate on the Securitization Facility at December 31, 2015 was 1.46%. Interest expense on loans outstanding under
this facility was recorded to COGS in the Consolidated Statement of Income (Loss). The Company was party to certain derivative
interest rate swap agreements entered into to hedge its exposure to variable interest rates related to the Securitization Facility. The
effective interest rate on the Securitization Facility when combined with the interest rate swap agreements was 2.13% at December
31, 2015. For further information on the interest rate swap agreements see Note M – “Derivative Financial Instruments.”
Commitment Letter
On May 16, 2016, as a result of terminating the BCA, the Company and Konecranes terminated the commitment letter they entered
into on August 10, 2015 with Credit Suisse Securities (USA) LLC ("CS Securities") and Credit Suisse AG ("CS" and, together
with CS Securities and their respective affiliates, "Credit Suisse") and the commitments thereunder by Credit Suisse, the other
commitment parties and the lenders in respect of the senior secured credit facilities (the “Commitment Letter”). As the Company
and Konecranes terminated the BCA, the parties no longer needed the use of funds that would have been supplied by the senior
secured credit facilities pursuant to the Commitment Letter.
F-43
In connection with the Commitment Letter, the Company incurred fees of $7.2 million for the year ended December 31, 2016
which are included with transaction costs directly related to the BCA and are recorded in Other income (expense) - net in the
Consolidated Statement of Comprehensive Income (Loss).
5-5/8% Senior Notes
On January 31, 2017, the Company sold and issued $600.0 million aggregate principal amount of Senior Notes Due 2025 (“5-5/8%
Notes”) at par in a private offering. The proceeds from the 5-5/8% Notes, together with cash on hand, including cash from the
sale of our MHPS business, have been and will be used: (i) to complete a tender offer for up to $550.0 million of our 6% Senior
Notes, (ii) to redeem and discharge such portion of the 6% Notes that are not purchased in the tender offer, (iii) to fund a $300.0
million partial redemption of the 6% Notes, (iv) to fund anticipated redemption, repurchase or other retirement of all $300.0 million
aggregate principal amount outstanding of our 6-1/2% Notes on or before April 3, 2017, (v) to pay related premiums, fees, discounts
and expenses, and (vi) for general corporate purposes, including repayment of borrowings outstanding under the 2014 Credit
Agreement. The 5-5/8% Notes are jointly and severally guaranteed by certain of the Company’s domestic subsidiaries. The
Company expects to record a loss on early extinguishment of debt related to its 6% Senior Notes and its 6-1/2% Senior Notes of
approximately $44 million in 2017.
2017 Credit Facility Agreement
On January 31, 2017 the Company entered into a new credit agreement (the “2017 Credit Agreement”), with the lenders and
issuing banks party thereto (the “New Lenders”) and Credit Suisse AG, Cayman Islands Branch, (“CSAG”) as administrative
agent and collateral agent. In connection with the 2017 Credit Agreement, the Company terminated its 2014 Credit Agreement,
among the Company and certain of its subsidiaries, the lenders thereunder and Credit Suisse AG, as administrative agent and
collateral agent, and related agreements and documents. The 2017 Credit Agreement provides the Company with a senior secured
revolving line of credit of up to $450 million that is available through January 31, 2022 and a $400.0 million senior secured term
loan, which will mature on January 31, 2024. The 2017 Credit Agreement allows unlimited incremental commitments, which
may be extended at the option of the existing or new lenders and can be in the form of revolving credit commitments, term loan
commitments, or a combination of both, with incremental amounts in excess of $300.0 million as long as the Company satisfies
a senior secured leverage ratio contained in the 2017 Credit Agreement.
The 2017 Credit Agreement requires the Company to comply with a number of covenants, which limit, in certain circumstances,
the Company’s ability to take a variety of actions, including but not limited to: incur indebtedness; create or maintain liens on its
property or assets; make investments, loans and advances; repurchase shares of its common stock; engage in acquisitions, mergers,
consolidations and asset sales; redeem debt; and pay dividends and distributions. If the Company’s borrowings under its revolving
line of credit are greater than 30% of the total revolving credit commitments, the 2017 Credit Agreement requires the Company
to comply with certain financial tests, as defined in the 2017 Credit Agreement. If applicable, the minimum required levels of the
interest coverage ratio would be 2.5 to 1.0 and the maximum permitted levels of the senior secured leverage ratio would be 2.75
to 1.0. The 2017 Credit Agreement also contains customary default provisions.
Furthermore, the Company and certain of its subsidiaries agreed to take certain actions to secure borrowings under the 2017 Credit
Agreement. As a result, on January 31, 2017, Terex and certain of its subsidiaries entered into a Guarantee and Collateral Agreement
with CSAG, as collateral agent for the New Lenders, granting security and guarantees to the New Lenders for amounts borrowed
under the 2017 Credit Agreement. Pursuant to the Guarantee and Collateral Agreement, Terex is required to (a) pledge as collateral
the capital stock of the Company’s material domestic subsidiaries and 65% of the capital stock of certain of the Company’s material
foreign subsidiaries, and (b) provide a first priority security interest in substantially all of the Company’s domestic assets.
The Company expects to record a loss on early extinguishment of debt related to its 2014 Credit Agreement of approximately $8
million in 2017.
F-44
Schedule of Debt Maturities
Scheduled annual maturities of the principal portion of long-term debt outstanding at December 31, 2016 in the successive five-
year period and thereafter are summarized below. These amounts do not reflect the impact of the 5-5/8% Senior Notes and 2017
Credit Agreement, which were entered into in January 2017. Amounts shown are exclusive of minimum lease payments for capital
lease obligations (in millions):
2017
2018
2019
2020
2021
Thereafter
Total Debt
Less: Unamortized debt issuance costs
Net debt
$
$
$
13.6
4.7
4.4
304.0
1,262.6
1.1
1,590.4
(17.5)
1,572.9
Based on indicative price quotations from financial institutions multiplied by the amount recorded on the Company’s Consolidated
Balance Sheet, excluding debt acquisition costs (“Book Value”), the Company estimates the fair values (“FV”) of its debt set forth
below as of December 31, 2016 and 2015, as follows (in millions, except for quotes):
2016
6-1/2% Senior Notes
6% Senior Notes
2014 Credit Agreement Term Loan (net of discount) – USD
2014 Credit Agreement Term Loan (net of discount) – EUR
2015
6-1/2% Senior Notes
6% Senior Notes
2014 Credit Agreement Term Loan (net of discount) – USD
2014 Credit Agreement Term Loan (net of discount) – EUR
Book Value
300.0
850.0
223.5
205.1
Book Value
300.0
850.0
225.5
213.7
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Quote
1.02500
1.02750
1.00000
0.99500
Quote
0.96000
0.91500
0.99000
0.99750
$
$
$
$
$
$
$
$
FV
FV
308
873
224
204
288
778
223
213
The fair value of debt reported in the tables above is based on price quotations on the debt instrument in an active market and
therefore categorized under Level 1 of the ASC 820 hierarchy. See Note B – “Basis of Presentation,” for an explanation of the
ASC 820 hierarchy. The Company believes that the carrying value of its other borrowings, including amounts outstanding for the
revolving line of credit under the 2014 Credit Agreement and the Securitization Facility, approximates fair market value based on
maturities for debt of similar terms. The fair value of these other borrowings are categorized under Level 2 of the ASC 820
hierarchy.
The Company paid $96.2 million, $98.9 million and $105.9 million of interest in 2016, 2015 and 2014, respectively.
F-45
NOTE P – LEASE COMMITMENTS
Future minimum noncancellable operating lease payments at December 31, 2016 are as follows (in millions):
2017
2018
2019
2020
2021
Thereafter
Total minimum obligations
Operating
Leases
32.5
21.0
16.4
11.2
10.5
40.7
132.3
$
$
Most of the Company’s operating leases provide the Company with the option to renew the leases for varying periods after the
initial lease terms. These renewal options enable the Company to renew the leases based upon the fair rental values at the date of
expiration of the initial lease. Total rental expense under operating leases was $44.3 million, $49.6 million, and $50.4 million in
2016, 2015 and 2014, respectively.
F-46
NOTE Q– RETIREMENT PLANS AND OTHER BENEFITS
U.S. Pension Plan
As of December 31, 2016, the Company maintained one qualified defined benefit pension plan covering certain domestic employees
(the “Terex Plan”). Participation in the Terex Plan for all employees has been frozen. Participants are credited with post-freeze
service for purposes of determining vesting and retirement eligibility only. The benefits covering salaried employees are based
primarily on years of service and employees’ qualifying compensation during the final years of employment. The benefits covering
bargaining unit employees are based primarily on years of service and a flat dollar amount per year of service. It is the Company’s
policy generally to fund the Terex Plan based on the requirements of the Employee Retirement Income Security Act of 1974
(“ERISA”). Plan assets consist primarily of common stocks, bonds and short-term cash equivalent funds.
The Company maintains a nonqualified Supplemental Executive Retirement Plan (“SERP”). The SERP provides retirement
benefits to certain senior executives of the Company. Generally, the SERP provides a benefit based on average total compensation
earned over a participant’s final five years of employment and years of service reduced by benefits earned under any Company
retirement program, excluding salary deferrals and matching contributions. In addition, benefits are reduced by Social Security
Primary Insurance Amounts attributable to Company contributions. The SERP is unfunded and participation in the SERP has
been frozen. There is a defined contribution plan for certain senior executives of the Company.
During July 2012, the Moving Ahead for Progress in the 21st Century Act (“MAP 21”) was enacted in the U.S. MAP 21 provided
short-term relief of minimum contribution requirements by increasing the interest rates used to value pension liabilities beginning
January 1, 2012 and increased the premiums due to the Pension Benefit Guaranty Corporation beginning in 2013 through 2015.
On July 31, 2014, Congress passed the “Highway and Transportation Funding Act of 2014” (“HFTA-2014”). Included in
HFTA-2014 were provisions to further stabilize the interest rates used in valuing pension liabilities. As a result of the provisions
of MAP 21 and HFTA-2014, and existing funding commitments, there were no minimum contribution requirements for the 2016,
2015 and 2014 plan years.
Non-U.S. Plans
The Company maintains defined benefit plans in France, Germany, India, Switzerland and the United Kingdom for some of its
subsidiaries. Participation in the United Kingdom plan has been frozen. The United Kingdom plan is a funded plan and the
Company funds this plan in accordance with funding regulations in the United Kingdom and a negotiated agreement between the
Company and the plan’s trustees. The plans in France, Germany and India are unfunded plans. For the Company’s operations in
Italy there are mandatory termination indemnity plans providing a benefit payable upon termination of employment in substantially
all cases of termination. The Company records this obligation based on mandated requirements. The measure of current obligation
is not dependent on the employees’ future service and therefore is measured at current value.
Other Post-employment Benefits
The Company has several non-pension post-retirement benefit programs. The Company provides post-employment health and
life insurance benefits to certain former salaried and hourly employees. The health care programs are contributory, with participants’
contributions adjusted annually, and the life insurance plan is noncontributory.
Savings Plans
The Company sponsors various tax deferred savings plans into which eligible employees may elect to contribute a portion of their
compensation. The Company may, but is not obligated to, contribute to certain of these plans. The Company’s Common Stock
held in a rabbi trust pursuant to the Deferred Compensation Plan is treated in a manner similar to treasury stock. The number of
shares of the Company’s Common Stock held in the rabbi trust was 0.9 million and 0.8 million at December 31, 2016 and 2015,
respectively.
Charges recognized for the Deferred Compensation Plan and these other savings plans were $19.3 million, $20.6 million and $18.1
million for the years ended December 31, 2016, 2015 and 2014, respectively. For the years ended December 31, 2016, 2015 and
2014, Company matching contributions to tax deferred savings plans were invested at the direction of plan participants.
F-47
Information regarding the Company’s plans, including SERP, was as follows (in millions, except percent values):
U.S. Pension Benefits
Non-U.S. Pension Benefits
Other Benefits
2016
2015
2016
2015
2016
2015
Accumulated benefit obligation at end of year
Change in benefit obligation:
Benefit obligation at beginning of year
$
$
161.2
174.0
$
$
Service cost
Interest cost
Transfer to Held for Sale
Actuarial loss (gain)
Benefits paid
Foreign exchange effect
Benefit obligation at end of year
Change in plan assets:
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contribution
Employee contribution
Benefits paid
Foreign exchange effect
Fair value of plan assets at end of year
Funded status
Amounts recognized in the statement of financial
position consist of:
Current liabilities
Non-current liabilities
Total liabilities
Amounts recognized in accumulated other
comprehensive loss consist of:
Actuarial net loss
Prior service cost
Total amounts recognized in accumulated other
comprehensive loss
$
$
$
$
$
$
$
167.2
184.9
1.1
7.2
—
(7.8)
(11.4)
—
174.0
136.8
(2.4)
0.1
—
(11.4)
—
209.7
217.1
3.1
6.5
(5.5)
25.9
(9.4)
(26.2)
211.5
111.2
18.4
6.7
$
$
214.9
243.0
$
2.9
6.9
—
(9.9)
(8.8)
(17.0)
217.1
119.0
(0.3)
7.2
0.4
(9.4)
(19.0)
108.3
0.3
(8.8)
(6.2)
111.2
123.1
(50.9) $ (103.2) $ (105.9) $
$
4.9
—
0.2
—
(0.6)
(0.3)
—
4.2
—
—
0.3
—
(0.3)
—
—
(4.2) $
0.6
7.1
—
2.5
(16.6)
—
167.6
123.1
9.5
1.1
—
(16.6)
—
117.1
(50.5) $
1.2
49.3
50.5
$
$
1.0
49.9
50.9
$
$
2.4
100.8
103.2
$
$
3.1
102.8
105.9
$
$
0.5
3.7
4.2
$
$
75.6
$
78.5
$
0.3
0.4
148.5
(2.2)
$
126.5
$
— $
0.2
—
75.9
$
78.9
$
146.3
$
126.7
$
— $
5.7
—
0.2
—
(0.5)
(0.5)
—
4.9
—
—
0.5
—
(0.5)
—
—
(4.9)
0.6
4.3
4.9
0.6
—
0.6
U.S. Pension Benefits
Non-U.S.Pension Benefits
Other Benefits
2016
2015
2014
2016
2015
2014
2016
2015
2014
Weighted-average assumptions as of
December 31:
Discount rate(1)
Expected return on plan assets
Rate of compensation increase(1)
4.03% 4.20% 4.02% 2.27% 3.23% 2.97% 3.81% 3.91% 3.74%
7.00% 7.50% 7.50% 5.90% 5.93% 5.96%
3.75% 3.75% 3.75% 0.89% 0.83% 0.84%
N/A
N/A
N/A
N/A
N/A
N/A
(1) The weighted average assumptions as of December 31 are used to calculate the funded status at the end of the current year and the net periodic cost for the
subsequent year.
F-48
Components of net periodic cost:
Service cost
Interest cost
Expected return on plan assets
Recognition of prior service cost
Amortization of actuarial loss
Other
Net periodic cost
U.S. Pension Benefits
Non-U.S. Pension Benefits
Other Benefits
2016
2015
2014
2016
2015
2014
2016
2015
2014
$ 0.6
$ 1.1
$ 0.9
$ 3.1
$ 2.9
$ 1.6
$ — $ — $ —
7.1
(8.3)
0.2
4.2
—
7.2
(9.9)
0.1
3.8
—
$ 3.8
$ 2.3
7.2
(9.2)
0.1
6.5
(6.0)
—
6.9
(7.0)
—
2.1
2.5
— (0.4)
$ 5.7
$ 1.1
3.2
(0.3)
$ 5.7
8.9
(6.7)
2.0
1.8
—
0.2
—
—
—
—
0.2
—
—
0.1
—
0.2
—
—
0.1
—
$ 7.6
$ 0.2
$ 0.3
$ 0.3
Other Changes in Plan Assets and Benefit
Obligations Recognized in Other
Comprehensive Income (Loss):
Net (gain) loss
Amortization of actuarial losses
Amortization of prior service cost
Foreign exchange effect
Total recognized in other comprehensive
income (loss)
U.S. Pension Benefits
Non-U.S. Pension
Benefits
Other Benefits
2016
2015
2016
2015
2016
2015
$
$
1.3
(4.2)
(0.1)
—
4.3
(3.7)
(0.1)
—
$ 39.7
(5.6)
(2.3)
(12.2)
$ (12.9) $ (0.6) $
(7.5)
(0.1)
(12.7)
—
—
—
(0.5)
—
—
—
$ (3.0) $
0.5
$ 19.6
$ (33.2) $ (0.6) $
(0.5)
Amounts expected to be recognized as components of net periodic cost for the
year ending December 31, 2017:
Actuarial net loss
Prior service cost
Total amount expected to be recognized as components of net periodic cost for
the year ending December 31, 2017
U.S. Pension
Benefits
Non-U.S.
Pension
Benefits
Other
Benefits
$
$
$
4.1
0.1
$
3.3
—
4.2
$
3.3
$
—
—
—
For the Company’s plans, including the SERP, that have accumulated benefit obligations in excess of plan assets the projected
benefit obligation, accumulated benefit obligation and fair value of plan assets were (in millions):
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
U.S. Pension
Benefits
Non-U.S. Pension
Benefits
2016
2015
2016
2015
$ 167.6
$ 174.0
$ 211.5
$ 217.1
$ 161.2
$ 167.2
$ 209.7
$ 214.9
$ 117.1
$ 123.1
$ 108.3
$ 111.2
Determination of plan obligations and associated expenses requires the use of actuarial valuations based on certain economic
assumptions, which includes discount rates and expected rates of return on plan assets. The discount rate enables the Company
to estimate the present value of expected future cash flows on the measurement date. The rate used reflects a rate of return on
high-quality fixed income investments that matches the duration of expected benefit payments at the December 31 measurement
date.
F-49
The rate used for the expected return on plan assets for the U.S. plan is based on a review of long-term historical asset performances
aligned with the Company’s investment strategy and portfolio mix. While the Company examines performance annually, it also
views historic asset portfolios and performance over a long period of years before recommending a change. In the short term,
there may be fluctuations of positive and negative yields year-over-year, but over the long-term, the return is expected to be
approximately 7%.
The Company’s overall investment strategy for the U.S. defined benefit plan balances two objectives, investing in fixed income
securities whose maturity broadly matches the maturity of the pension liabilities and investing in equities and other assets expected
to generate higher returns. The Company invests through a number of investment funds with diversified asset types, strategies
and managers. Equity securities, including investments in large to small-cap companies in the U.S. and internationally, constitute
approximately 32% and 31% of the portfolio at December 31, 2016 and 2015, respectively. Fixed income securities including
corporate bonds of companies from diversified industries, U.S. Treasuries and other securities, which may include mortgage-
backed securities, asset-backed securities and collateralized mortgage obligations, constitute approximately 68% and 69% of the
portfolio at December 31, 2016 and 2015, respectively. The target investment allocation for 2017 is approximately 22% to 36%
for equity securities and approximately 64% to 78% for fixed income securities.
The methodology used to determine the rate of return on non-U.S. pension plan assets was based on average rate of earnings on
funds invested and to be invested. Based on historical returns and future expectations, the Company believes the investment return
assumptions are reasonable. The expected rate of return of plan assets represents an estimate of long-term returns on the investment
portfolio. This assumption is reviewed by the trustees and varies with each of the plans.
The overall investment strategy for Non-U.S. defined benefit plans is to achieve a mix of investments to support long-term growth
and minimize volatility while maximizing rates of return by diversification of asset types, fund strategies and fund managers.
Fixed income investments include investments in European government securities and European corporate bonds and constitute
approximately 72% of the portfolio at December 31, 2016 and 2015. Equity investments, multi-asset investment funds and real
estate investments that invest in a diversified range of property principally in the retail, office and industrial/warehouse sectors
constitute approximately 28% of the portfolio at December 31, 2016 and 2015. Investments of the plans primarily include
investments in companies from diversified industries with approximately 93% invested internationally and 7% invested in North
America. The target investment allocations to support our investment strategy for 2017 are approximately 65% to 66% fixed
income securities and approximately 34% to 35% equity securities, multi-asset investment funds and real estate investments.
The fair value of cash in the table below is based on price quotations in an active market and therefore categorized under Level 1
of the ASC 820 hierarchy. The fair value of the investment funds is priced on the market value of the underlying investments in
the portfolio and therefore categorized as Level 2 of the ASC 820 hierarchy. See Note B – “Basis of Presentation,” for an explanation
of the ASC 820 hierarchy.
On January 1, 2016, the Company adopted ASU 2015-07, “Fair Value Measurement (Topic 820); Disclosures for Investments in
Certain Entities That Calculate Net Asset Value Per Share (or Its Equivalent)” (“ASU 2015-07”). This ASU includes a practical
expedient to remove the requirement to categorize within the fair value hierarchy all investments for which fair value is measured
at the net asset value per share. ASU 2015-07 requires retroactive application and resulted in a reclassification of plan assets of
$119.5 million in 2015 from Level 2 to Net asset value (“NAV”).
The fair value of the Company’s plan assets at December 31, 2016 are as follows (in millions):
Cash, including money market funds
U.S. equities
Non-U.S. equities
U.S. corporate bonds
Non-U.S. corporate bonds
U.S. government securities
Non-U.S. government securities
Real estate
Other securities
Total investments measured at fair value
$
Total
2.5
28.6
8.7
56.4
—
12.7
0.3
—
7.9
$ 117.1
U.S. Pension Plan
Level 1 Level 2
$
NAV
$ — $ — $
Non-U.S. Pension Plans
Level 1 Level 2
$
2.5
—
—
—
—
—
—
—
—
2.5
—
—
—
—
—
—
—
—
28.6
8.7
56.4
—
12.7
0.3
—
7.9
$ — $ 114.6
Total
2.1
5.9
21.2
0.9
17.7
0.6
29.3
2.8
27.8
$ 108.3
$
NAV
$ — $ —
—
—
—
—
—
—
—
—
$ —
5.9
21.2
0.9
17.7
0.6
29.3
2.8
27.8
$ 106.2
2.1
—
—
—
—
—
—
—
—
2.1
$
F-50
The fair value of the Company’s plan assets at December 31, 2015 are as follows (in millions):
U.S. Pension Plan
Level 1 Level 2
$
NAV
$ — $ — $
Non-U.S. Pension Plans
Level 1 Level 2
$
Cash, including money market funds
U.S. equities
Non-U.S. equities
U.S. corporate bonds
Non-U.S. corporate bonds
U.S. government securities
Non-U.S. government securities
Real estate
Other securities
Total investments measured at fair value
$
Total
3.6
28.5
9.3
58.7
—
14.0
0.1
—
8.9
$ 123.1
3.6
—
—
—
—
—
—
—
—
3.6
—
—
—
—
—
—
—
—
28.5
9.3
58.7
—
14.0
0.1
—
8.9
$ — $ 119.5
Total
4.4
6.3
21.7
0.1
20.3
—
29.8
3.4
25.2
$ 111.2
$
$
NAV
$ — $ —
—
—
—
—
—
—
—
—
$ —
6.3
21.7
0.1
20.3
—
29.8
3.4
25.2
$ 106.8
4.4
—
—
—
—
—
—
—
—
4.4
The Company plans to contribute approximately $1 million to its U.S. defined benefit pension and post-retirement plans and
approximately $7 million to its non-U.S. defined benefit pension plans in 2017. During the year ended December 31, 2016, the
Company contributed $1.4 million to its U.S. defined benefit pension plans and post-retirement plans and $6.7 million to its non-
U.S. defined benefit pension plans.
The Company’s estimated future benefit payments under its plans are as follows (in millions):
Year Ending December 31,
U.S. Pension
Benefits
2017
2018
2019
2020
2021
2022-2026
$
$
$
$
$
$
11.6
11.4
11.3
11.4
11.2
54.5
Non-U.S.
Pension Benefits
8.4
$
6.6
$
6.9
$
7.1
$
7.6
$
41.5
$
Other Benefits
0.5
$
0.4
$
0.4
$
0.4
$
0.3
$
1.4
$
For the other benefits, for measurement purposes, a 6.50% rate of increase in the per capita cost of covered health care benefits
was assumed for 2017, decreasing one-half percentage point per year until it reaches 4.50% for 2021 and thereafter. Assumed
health care cost trend rates may have a significant effect on the amounts reported for the health care plan.
A one-percentage-point change in assumed health care cost trend rates would have the following effects (in millions):
Effect on total service and interest cost components
Effect on post-retirement benefit obligation
NOTE R– STOCKHOLDERS’ EQUITY
1-Percentage-
Point Increase
$
$
— $
$
0.2
1-Percentage-
Point Decrease
—
(0.2)
On December 31, 2016, there were 129.6 million shares of Common Stock issued and 105.0 million shares of Common Stock
outstanding. Of the 170.4 million unissued shares of Common Stock at that date, 3.5 million shares of Common Stock were
reserved for issuance for the exercise of stock options and the vesting of restricted stock.
Common Stock in Treasury. The Company values treasury stock on an average cost basis. As of December 31, 2016, the Company
held 24.6 million shares of Common Stock in treasury totaling $935.1 million, including 0.9 million shares held in a trust for the
benefit of the Company’s Deferred Compensation Plan at a total of $19.7 million.
Preferred Stock. The Company’s certificate of incorporation was amended in June 1998 to authorize 50.0 million shares of preferred
stock, $0.01 par value per share. As of December 31, 2016 and 2015, there were no shares of preferred stock outstanding.
F-51
Long-Term Incentive Plans. In May 2009, the stockholders approved the Terex Corporation 2009 Omnibus Incentive Plan (the
“2009 Plan”). The purpose of the 2009 Plan is to provide a means whereby employees, directors and third-party service providers
of the Company develop a sense of proprietorship and personal involvement in the development and financial success of the
Company, and to encourage them to devote their best efforts to the business of the Company, thereby advancing the interests of
the Company and its stockholders. The 2009 Plan provides for incentive compensation in the form of (i) options to purchase
shares of Common Stock, (ii) stock appreciation rights, (iii) restricted stock awards and restricted stock units, (iv) other stock
awards, (v) cash awards, and (vi) performance awards. The maximum number of shares available for issuance under the 2009
Plan is 8.0 million shares plus the number of shares remaining available for issuance under the Terex Corporation 2000 Incentive
Plan (the “2000 Plan”) and the 1996 Terex Corporation Long-Term Incentive Plan (the “1996 Plan”). As of December 31, 2016,
2.5 million shares were available for grant under the 2009 Plan.
In May 2000, the stockholders approved the 2000 Plan. The purpose of the 2000 Plan is to assist the Company in attracting and
retaining selected individuals to serve as directors, officers, consultants, advisers and employees of the Company and its subsidiaries
and affiliates who will contribute to the Company’s success and to achieve long-term objectives which will inure to the benefit of
all stockholders of the Company through the additional incentive inherent in the ownership of the Common Stock. The maximum
number of shares available for issuance under the 2000 Plan was 12.0 million shares plus any shares related to awards under the
2000 Plan that were not issued or were subsequently forfeited, expired or otherwise terminated.
In May 1996, the stockholders approved the 1996 Plan. The maximum number of shares available for issuance under the 1996
Plan was 4.0 million shares plus any shares related to awards under the 1996 Plan that were not issued or were subsequently
forfeited, expired or otherwise terminated.
Substantially all stock option grants under the 2000 Plan and the 1996 Plan vested over a four year period and have a contractual
life of ten years. There were no options granted during the years ended December 31, 2016, 2015 or 2014, and the intrinsic value
of all options outstanding is zero.
The following table is a summary of stock options under all of the Company’s plans.
Outstanding at December 31, 2015
Exercised
Canceled or expired
Outstanding at December 31, 2016
Exercisable at December 31, 2016
Vested at December 31, 2016
Weighted
Average
Exercise Price
per Share
Weighted
Average
Remaining
Contractual
Life (in years)
Aggregate
Intrinsic
Value
Number of
Options
141,223
$
— $
(128,164) $
$
13,059
$
13,059
$
13,059
47.50
—
45.71
65.17
65.17
65.17
0.60
0.60
0.60
$
$
$
—
—
—
Under the 2009 Plan, 2000 Plan and the 1996 Plan, approximately 11% of all restricted stock awards outstanding vest over a four
year period and approximately 89% of all restricted stock awards vest over a three year period with approximately 70% of these
awards vesting on the first three anniversary dates and approximately 30% vesting at the end of the three year period. Approximately
38% of the outstanding restricted stock awards are subject to performance targets and market conditions that may or may not be
met and for which the performance period has not yet been completed.
The fair value of restricted stock awards is based on the market price at the date of grant except for 0.9 million shares based on a
market condition. The Company uses the Monte Carlo method to provide grant date fair value for awards with a market condition.
The Monte Carlo method is a statistical simulation technique used to provide the grant date fair value of an award. The following
table presents the weighted-average assumptions used in the valuations:
Dividend yields
Expected volatility
Risk free interest rate
Expected life (in years)
Grant date fair value per share
Grant date
Grant date
Grant date
Grant date
March 3, 2016 March 5, 2015 March 5, 2015
1.22%
45.59%
0.97%
3
$29.24
0.91%
45.48%
0.98%
3
$28.10
F-52
0.91%
37.00%
0.58%
2
$25.60
February 26,
2014
0.46%
56.84%
0.63%
3
$53.17
As of December 31, 2016, unrecognized compensation costs related to restricted stock totaled approximately $40.6 million, which
will be expensed over a weighted average period of 1.8 years. The grant date weighted average fair value for restricted stock
awards during the years ended December 31, 2016, 2015 and 2014 was $23.95, $26.83 and $44.23, respectively. The total fair
value of shares vested for restricted stock awards was $35.1 million, $42.6 million and $36.2 million for the years ended
December 31, 2016, 2015 and 2014, respectively.
During the year ended December 31, 2016, the Company issued 64 thousand shares of its outstanding Common Stock which were
contributed into a deferred compensation plan under a Rabbi Trust.
The following table is a summary of restricted stock awards under all of the Company’s plans:
Nonvested at December 31, 2015
Granted
Vested
Canceled, expired or other
Nonvested at December 31, 2016
Restricted Stock
Awards
$
3,092,943
$
2,015,229
(1,034,666) $
(542,318) $
$
3,531,188
Weighted
Average Grant
Date Fair Value
30.29
23.95
33.94
29.61
25.42
Tax benefits associated with stock-based compensation were $12.6 million, $12.4 million and $14.6 million for the years ended
December 31, 2016, 2015 and 2014, respectively. The excess tax benefit for all stock-based compensation is included in the
Consolidated Statement of Cash Flows as an operating cash outflow and a financing cash inflow.
Comprehensive Income (Loss). The following table reflects the accumulated balances of other comprehensive income (loss) (in
millions):
Accumulated Other Comprehensive Income (Loss) Attributable to Terex Corporation
Balance at January 1, 2014
Current year change
Balance at December 31, 2014
Current year change
Balance at December 31, 2015
Current year change
Balance at December 31, 2016
Cumulative
Translation
Adjustment
$
$
Derivative
Hedging
Adjustment
2.7
(3.4)
(0.7)
3.0
2.3
(4.7)
(2.4) $
(7.9) $
(237.6)
(245.5)
(247.2)
(492.7)
(122.6)
(615.3) $
$
Debt & Equity
Securities
Adjustment
Pension
Liability
Adjustment
Accumulated
Other
Comprehensive
Income (Loss)
— $
1.6
1.6
(7.9)
(6.3)
6.9
0.6
$
(111.3) $
(73.9)
(185.2)
32.3
(152.9)
(9.4)
(162.3) $
(116.5)
(313.3)
(429.8)
(219.8)
(649.6)
(129.8)
(779.4)
Accumulated Other Comprehensive Income (Loss) Attributable to Noncontrolling Interest
Balance at January 1, 2014
Current year change
Balance at December 31, 2014
Current year change
Balance at December 31, 2015
Current year change
Balance at December 31, 2016
Cumulative
Translation
Adjustment
0.9
$
(0.1)
0.8
(0.1)
0.7
(0.4)
0.3
$
Derivative
Hedging
Adjustment
$
Debt & Equity
Securities
Adjustment
Pension
Liability
Adjustment
— $
—
—
—
—
—
— $
— $
—
—
—
—
—
— $
Accumulated
Other
Comprehensive
Income (Loss)
0.9
(0.1)
0.8
(0.1)
0.7
(0.4)
0.3
— $
—
—
—
—
—
— $
$
F-53
Balance at January 1, 2014
Current year change
Balance at December 31, 2014
Current year change
Balance at December 31, 2015
Current year change
Balance at December 31, 2016
Accumulated Other Comprehensive Income (Loss)
Cumulative
Translation
Adjustment
$
$
Derivative
Hedging
Adjustment
2.7
(3.4)
(0.7)
3.0
2.3
(4.7)
(2.4) $
(7.0) $
(237.7)
(244.7)
(247.3)
(492.0)
(123.0)
(615.0) $
$
Debt & Equity
Securities
Adjustment
Pension
Liability
Adjustment
Accumulated
Other
Comprehensive
Income (Loss)
— $
1.6
1.6
(7.9)
(6.3)
6.9
0.6
$
(111.3) $
(73.9)
(185.2)
32.3
(152.9)
(9.4)
(162.3) $
(115.6)
(313.4)
(429.0)
(219.9)
(648.9)
(130.2)
(779.1)
As of December 31, 2016, accumulated other comprehensive income for the pension liability adjustment and the derivative hedging
adjustment are net of a tax benefit of $59.9 million and $0.7 million, respectively.
Changes in Accumulated Other Comprehensive Income (Loss)
The table below presents changes in AOCI by component for the year ended December 31, 2016 and 2015. All amounts are net
of tax (in millions).
Year ended December 31, 2016
Year ended December 31, 2015
Beginning balance
$(492.0) $
2.3 $
Total
(6.3) $ (152.9) $ (648.9) $(244.7) $
CTA
Derivative
Hedging
Adj.
CTA
Debt &
Equity
Securities
Adj.
Pension
Liability
Adj.
Derivative
Hedging
Adj.
Debt &
Equity
Securities
Adj.
Pension
Liability
Adj.
Total
(0.7) $
1.6 $(185.2) $(429.0)
Other comprehensive
income before
reclassifications
Amounts reclassified from
AOCI
Net Other Comprehensive
Income (Loss)
Ending balance
$(615.0) $
(2.4) $
Share Repurchases and Dividends
(121.1)
(5.7)
3.9
(16.1)
(139.0)
(247.3)
9.2
(7.9)
22.7
(223.3)
(1.9)
1.0
3.0
6.7
8.8
—
(6.2)
—
9.6
3.4
(123.0)
(4.7)
(9.4)
6.9
0.6 $ (162.3) $ (779.1) $(492.0) $
(247.3)
(130.2)
3.0
2.3 $
(7.9)
(219.9)
32.3
(6.3) $(152.9) $(648.9)
In February 2015, the Company announced authorization by its Board of Directors for the repurchase of up to $200 million of the
Company’s outstanding shares of common stock. During the year ended December 31, 2016, the Company repurchased 3.5 million
shares for $81.3 million under this program. During the year ended December 31, 2015, the Company repurchased 1.9 million
shares for $50.0 million. In February 2017, the Company’s Board of Directors announced authorization for the repurchase of up
to an additional $350 million of the Company’s outstanding shares of common stock. The Company’s Board of Directors declared
and paid a dividend of $0.07 and $0.06 per share in each quarter of 2016 and 2015, respectively. Additionally, the Company’s
Board of Directors declared a dividend of $0.08 per share in the first quarter of 2017 which will be paid in March 2017.
F-54
NOTE S – LITIGATION AND CONTINGENCIES
General
The Company is 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. The Company
is 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 or deductibles. The Company records and maintains an estimated liability
in the amount of management’s estimate of the Company’s aggregate exposure for such retained liabilities and deductibles. For
such retained liabilities and deductibles, the Company determines its exposure based on probable loss estimations, which requires
such losses to be both probable and the amount or range of probable loss to be estimable. The Company believes it has made
appropriate and adequate reserves and accruals for its current contingencies and the likelihood of a material loss beyond amounts
accrued is remote. The Company believes the outcome of such matters, individually and in aggregate, will not have a material
adverse effect on its financial statements as a whole. However, outcomes of lawsuits cannot be predicted and, if determined
adversely, could ultimately result in the Company incurring significant liabilities which could have a material adverse effect on
its results of operations.
Securities and Stockholder Derivative Lawsuits
The Company has received complaints seeking certification of class action lawsuits as follows:
• A consolidated class action complaint for violations of securities laws in the securities lawsuit was filed in the United
States District Court, District of Connecticut on November 18, 2010 and is entitled Sheet Metal Workers Local 32 Pension
Fund and Ironworkers St. Louis Council Pension Fund, individually and on behalf of all others similarly situated v. Terex
Corporation, et al.
• A stockholder derivative complaint for violation of the Securities and Exchange Act of 1934, breach of fiduciary duty,
waste of corporate assets and unjust enrichment was filed on April 12, 2010 in the United States District Court, District
of Connecticut and is entitled Peter Derrer, derivatively on behalf of Terex Corporation v. Ronald M. DeFeo, Phillip C.
Widman, Thomas J. Riordan, G. Chris Andersen, Donald P. Jacobs, David A. Sachs, William H. Fike, Donald DeFosset,
Helge H. Wehmeier, Paula H.J. Cholmondeley, Oren G. Shaffer, Thomas J. Hansen, and David C. Wang, and Terex
Corporation.
These lawsuits generally cover the period from February 2008 to February 2009 and allege, among other things, that certain of
the Company’s SEC filings and other public statements contained false and misleading statements which resulted in damages to
the Company, the plaintiffs and the members of the purported class when they purchased the Company’s securities and in the
stockholder derivative complaint, that there were breaches of fiduciary duties. The stockholder derivative complaint also alleges
waste of corporate assets relating to the repurchase of the Company’s shares in the market and unjust enrichment as a result of
securities sales by certain officers and directors. The complaints seek, among other things, unspecified compensatory damages,
costs and expenses. As a result, the Company is unable to estimate a possible loss or a range of losses for these lawsuits. The
stockholder derivative complaint also seeks amendments to the Company’s corporate governance procedures in addition to
unspecified compensatory damages from the individual defendants in its favor.
The Company believes that the allegations in the suits are without merit, and Terex, its directors and the named executives will
continue to vigorously defend against them. The Company believes that it has acted, and continues to act, in compliance with
federal securities laws and Delaware law with respect to these matters. Accordingly, the Company has filed motions to dismiss
the securities lawsuit. The plaintiff in the stockholder derivative lawsuit has agreed with the Company to put this lawsuit on hold
pending the outcome of the motion to dismiss in connection with the securities lawsuit.
F-55
Demag Cranes AG Appraisal Proceedings
In connection with the Company’s purchase of Demag Cranes AG (a component of MHPS), certain former shareholders of Demag
Cranes AG initiated appraisal proceedings relating to (i) a domination and profit loss transfer agreement between Demag Cranes
AG and Terex Germany GmbH & Co. KG (the “DPLA Proceeding”) and (ii) the squeeze out of the former Demag Cranes AG
shareholders (the “Squeeze out Proceeding”) against the Company alleging that the Company did not pay fair value for the shares
of Demag Cranes AG. The Company believes it did pay fair value for the shares of Demag Cranes AG and that no further payment
from the Company to any former shareholders of Demag Cranes AG is required. The initial court ruling in the DPLA Proceeding
was in favor of the Company and against the claimants ( i.e. no increase in compensation was owed to the former shareholders).
However, the court did rule that the costs of the proceedings, including legal costs for both parties, would need to be borne by
Terex. This initial court ruling in the DPLA Proceeding is being appealed. The Squeeze out Proceeding is still in the relatively
early stages. While the Company believes the position of the former shareholders of Demag Cranes AG is without merit and is
vigorously opposing it, no assurance can be given as to the final resolution of these disputes or that the Company will not ultimately
be required to make an additional payment as a result of such disputes, which amount could be material.
Other
The Company is involved in various other legal proceedings, which have arisen in the normal course of its operations. The
Company has recorded provisions for estimated losses in circumstances where a loss is probable and the amount or range of
possible amounts of the loss is estimable.
Credit Guarantees
Customers of the Company from time to time may fund the acquisition of the Company’s equipment through third-party finance
companies. In certain instances, the Company may provide a credit guarantee to the finance company, by which the Company
agrees to make payments to the finance company should the customer default. The maximum liability of the Company is generally
limited to its customer’s remaining payments due to the finance company at the time of default. In the event of customer default,
the Company or the finance company is generally able to recover and dispose of the equipment at a minimum loss, if any, to the
Company.
As of December 31, 2016 and 2015, the Company’s maximum exposure to such credit guarantees was $42.3 million and $39.8
million, respectively, including total guarantees issued by a German subsidiary, part of the Cranes segment, of $16.3 million and
$19.0 million, respectively (credit guarantees as of December 31, 2016 and 2015 include $2.0 million and $1.7 million of guarantees
related to discontinued operations, respectively). The terms of these guarantees coincide with the financing arranged by the customer
and generally do not exceed five years. Given the Company’s position as the original equipment manufacturer and its knowledge
of end markets, the Company, when called upon to fulfill a guarantee, generally has been able to liquidate the financed equipment
at a minimal loss, if any, to the Company.
There can be no assurance that historical credit default experience will be indicative of future results. The Company’s ability to
recover losses experienced from its guarantees may be affected by economic conditions in effect at the time of loss.
Residual Value and Buyback Guarantees
The Company issues residual value guarantees under sales-type leases. A residual value guarantee involves a guarantee that a
piece of equipment will have a minimum fair market value at a future date. Maximum exposure for residual value guarantees
issued by the Company totaled $7.1 million and 3.7 million as of December 31, 2016 and 2015, respectively. The Company is
generally able to mitigate risk associated with these guarantees because the maturity of guarantees is staggered, limiting the amount
of used equipment entering the marketplace at any one time.
The Company from time to time guarantees that it will buy equipment from its customers in the future at a stated price if certain
conditions are met by the customer. Such guarantees are referred to as buyback guarantees. These conditions generally pertain
to the functionality and state of repair of the machine. As of December 31, 2016 and 2015, the Company’s maximum exposure
pursuant to buyback guarantees was $3.5 million and $6.9 million, respectively ($3.2 million and $6.6 million related to discontinued
operations, respectively). The Company is generally able to mitigate risk of these guarantees because maturity of the guarantees
is staggered, limiting the amount of used equipment entering the marketplace at any one time and through leveraging its access
to the used equipment markets provided by the Company’s original equipment manufacturer status.
See Note B – “Basis of Presentation – Revenue Recognition,” for a discussion of revenue recognition on arrangements with
buyback guarantees.
F-56
The Company has recorded an aggregate liability within Other current liabilities and Other non-current liabilities in the Consolidated
Balance Sheet of $3.8 million and $3.1 million as of December 31, 2016 and 2015, respectively, for the estimated fair value of all
guarantees provided.
There can be no assurance that the Company’s historical experience in used equipment markets will be indicative of future results.
The Company’s ability to recover losses experienced from its guarantees may be affected by economic conditions in the used
equipment markets at the time of loss.
NOTE T – CONSOLIDATING FINANCIAL STATEMENTS
During 2012, the Company sold and issued the 6% Notes and the 6-1/2% Notes (collectively the “Notes”) (see Note O – “Long-
Term Obligations”). The Notes are jointly and severally guaranteed by the following wholly-owned subsidiaries of the Company
(the “Wholly-owned Guarantors”): CMI Terex Corporation, Genie Holdings, Inc., Genie Industries, Inc., Genie International, Inc.,
Powerscreen Holdings USA Inc., Powerscreen International LLC, Powerscreen North America Inc., Powerscreen USA, LLC,
Terex Advance Mixer, Inc., Terex Aerials, Inc., Terex Financial Services, Inc., Terex South Dakota, Inc., Terex USA, LLC, Terex
Utilities, Inc. and Terex Washington, Inc. Wholly-owned Guarantors are 100% owned by the Company. All of the guarantees are
full and unconditional. The guarantees of the Wholly-owned Guarantors are subject to release in limited circumstances only upon
the occurrence of certain customary conditions. No subsidiaries of the Company except the Wholly-owned Guarantors have
provided a guarantee of the Notes.
The following summarized condensed consolidating financial information for the Company segregates the financial information
of Terex Corporation, the Wholly-owned Guarantors and the non-guarantor subsidiaries. The results and financial position of
businesses acquired are included from the dates of their respective acquisitions.
Terex Corporation consists of parent company operations. Subsidiaries of the parent company are reported on the equity
basis. Wholly-owned Guarantors combine the operations of the Wholly-owned Guarantor subsidiaries. Subsidiaries of Wholly-
owned Guarantors that are not themselves guarantors are reported on the equity basis. Non-guarantor subsidiaries combine the
operations of subsidiaries which have not provided a guarantee of the Notes. Subsidiaries of non-guarantor subsidiaries that are
guarantors are reported on the equity basis. Debt and goodwill allocated to subsidiaries are presented on a “push-down” accounting
basis.
In December 2014, the Company sold a majority interest in one of its wholly-owned guarantor subsidiaries, A.S.V. Inc. ("ASV").
As a result, ASV and its wholly-owned subsidiary were no longer guarantors of the various notes of the Company and were
deconsolidated by the Company at December 31, 2014. The changes made to wholly-owned guarantor subsidiaries did not
impact the Company's previously reported consolidated net operating results, financial position or cash flows.
The condensed consolidating statements of income (loss) and cash flows for the year ended December 31, 2014 have been
retrospectively adjusted to reflect this update to our wholly-owned guarantor subsidiaries as though ASV had been a non-
guarantor in all applicable periods presented.
F-57
TEREX CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF INCOME (LOSS)
YEAR ENDED DECEMBER 31, 2016
(in millions)
Net sales
Cost of goods sold
Gross profit
Selling, general and administrative expenses
Goodwill and intangible asset impairment
Income (loss) from operations
Interest income
Interest expense
Income (loss) from subsidiaries
Other income (expense) – net
Income (loss) from continuing operations before income
taxes
(Provision for) benefit from income taxes
Income (loss) from continuing operations
Income from discontinued operations – net of tax
Gain (loss) on disposition of discontinued operations
– net of tax
Net income (loss)
Net loss (income) from continuing operations
attributable to noncontrolling interest
Net loss (income) from discontinued operations
attributable to noncontrolling interest
Net income (loss) attributable to Terex Corporation
Comprehensive income (loss), net of tax
Comprehensive
loss
(income) attributable
to
noncontrolling interest
Comprehensive income (loss) attributable to Terex
Corporation
Terex
Corporation
5.9
$
(5.1)
0.8
(72.0)
—
(71.2)
96.9
(149.2)
43.5
(56.9)
Wholly-
owned
Guarantors
$ 2,473.6
(2,160.4)
313.2
(240.4)
(43.4)
29.4
68.7
(8.4)
8.2
49.5
Non-
guarantor
Subsidiaries
2,741.2
$
(2,324.7)
416.5
(389.9)
(132.6)
(106.0)
1.9
(107.6)
(4.1)
(17.8)
Intercompany
Eliminations
$
Consolidated
4,443.1
(3,730.7)
712.4
(684.2)
(176.0)
(147.8)
4.3
(102.0)
—
(25.2)
(777.6) $
759.5
(18.1)
18.1
—
—
(163.2)
163.2
(47.6)
—
(136.9)
(56.4)
(193.3)
14.3
0.5
(178.5)
—
147.4
43.5
190.9
6.4
—
197.3
—
(233.6)
90.3
(143.3)
13.9
3.0
(126.4)
(47.6)
—
(47.6)
(20.3)
—
(67.9)
(270.7)
77.4
(193.3)
14.3
3.5
(175.5)
0.3
—
0.3
—
(178.5) $
—
197.3
(305.9) $
195.8
$
$
$
$
(0.9)
(127.0) $
—
(67.9) $
(0.9)
(176.1)
(112.9) $
(82.7) $
(305.7)
—
—
(0.2)
—
(0.2)
$
(305.9) $
195.8
$
(113.1) $
(82.7) $
(305.9)
F-58
TEREX CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF INCOME (LOSS)
YEAR ENDED DECEMBER 31, 2015
(in millions)
Net sales
Cost of goods sold
Gross profit
Selling, general and administrative expenses
Income (loss) from operations
Interest income
Interest expense
Income (loss) from subsidiaries
Other income (expense) – net
Terex
Corporation
10.0
$
(8.0)
2.0
(26.8)
(24.8)
103.6
(155.2)
239.3
(67.7)
Wholly-
owned
Guarantors
$ 3,008.0
(2,503.5)
504.5
(260.5)
244.0
68.7
(6.5)
8.6
41.1
Non-
guarantor
Subsidiaries
2,928.0
$
(2,463.3)
464.7
(360.2)
104.5
1.9
(116.8)
(3.0)
2.9
Intercompany
Eliminations
$
Consolidated
5,021.7
(4,050.5)
971.2
(647.5)
323.7
3.8
(108.1)
—
(23.7)
(924.3) $
924.3
—
—
—
(170.4)
170.4
(244.9)
—
Income (loss) from continuing operations before income
taxes
(Provision for) benefit from income taxes
Income (loss) from continuing operations
Income (loss) from discontinued operations – net of
tax
Gain (loss) on disposition of discontinued operations
– net of tax
Net income (loss)
Net loss (income) from continuing operations
attributable to noncontrolling interest
Net loss (income) from discontinued operations
attributable to noncontrolling interest
Net income (loss) attributable to Terex Corporation
$
95.2
33.0
128.2
17.5
0.7
146.4
—
355.9
(79.5)
276.4
2.4
—
278.8
—
(10.5)
(21.0)
(31.5)
18.6
2.7
(10.2)
0.2
(244.9)
—
(244.9)
(21.1)
—
(266.0)
—
195.7
(67.5)
128.2
17.4
3.4
149.0
0.2
—
146.4
$
—
278.8
$
(3.3)
(13.3) $
—
(266.0) $
(3.3)
145.9
Comprehensive income (loss), net of tax
(73.9)
277.1
(166.3)
(107.8)
(70.9)
Comprehensive loss (income) attributable to
noncontrolling interest
Comprehensive income (loss) attributable to Terex
Corporation
—
—
(3.0)
—
(3.0)
$
(73.9) $
277.1
$
(169.3) $
(107.8) $
(73.9)
F-59
TEREX CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF INCOME (LOSS)
YEAR ENDED DECEMBER 31, 2014
(in millions)
Net sales
Cost of goods sold
Gross profit
Selling, general and administrative expenses
Income (loss) from operations
Interest income
Interest expense
Income (loss) from subsidiaries
Other income (expense) – net
Income (loss) from continuing operations before income
taxes
(Provision for) benefit from income taxes
Income (loss) from continuing operations
Income (loss) from discontinued operations – net of
tax
Gain (loss) on disposition of discontinued operations
– net of tax
Net income (loss)
Net loss (income) from continuing operations
attributable to noncontrolling interest
Net loss (income) from discontinued operations
attributable to noncontrolling interest
Net income (loss) attributable to Terex Corporation
Comprehensive income (loss), net of tax
Comprehensive loss (income) attributable to
noncontrolling interest
Comprehensive income (loss) attributable to Terex
Corporation
Terex
Corporation
42.5
$
(39.2)
3.3
(29.4)
(26.1)
129.7
(170.5)
348.8
(36.1)
Wholly-
owned
Guarantors
$ 3,257.0
(2,679.8)
577.2
(237.4)
339.8
73.8
(16.6)
9.4
4.7
Non-
guarantor
Subsidiaries
3,210.2
$
(2,739.2)
471.0
(384.7)
86.3
3.9
(137.0)
(2.9)
26.7
Intercompany
Eliminations
$
(1,025.7) $
1,025.7
—
—
—
(201.4)
201.4
(355.3)
—
Consolidated
5,484.0
(4,432.5)
1,051.5
(651.5)
400.0
6.0
(122.7)
—
(4.7)
245.8
6.2
252.0
8.9
7.3
268.2
—
—
268.2
5.7
—
$
$
411.1
(24.3)
386.8
5.4
—
392.2
—
—
392.2
388.8
$
$
(23.0)
(8.5)
(31.5)
8.0
50.7
27.2
1.5
(355.3)
—
(355.3)
(13.4)
0.6
(368.1)
—
278.6
(26.6)
252.0
8.9
58.6
319.5
1.5
(2.0)
26.7
$
—
(368.1) $
(2.0)
319.0
(223.1) $
(165.3) $
6.1
—
(0.4)
—
(0.4)
5.7
$
388.8
$
(223.5) $
(165.3) $
5.7
$
$
$
F-60
TEREX CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2016
(in millions)
Terex
Corporation
Wholly-
owned
Guarantors
Non-
guarantor
Subsidiaries
Intercompany
Eliminations
Consolidated
Assets
Current assets
Cash and cash equivalents
Trade receivables – net
Intercompany receivables
Inventories
Prepaid and other current assets
Current assets held for sale
Total current assets
Property, plant and equipment – net
Goodwill
Non-current intercompany receivables
Investment in and advances to (from) subsidiaries
Other assets
Non-current assets held for sale
Total assets
Liabilities and Stockholders’ Equity
Current liabilities
$
50.7
$
0.4
$
377.4
$
— $
5.2
28.7
0.5
55.3
—
140.4
32.7
—
1,257.8
4,120.8
109.8
0.1
167.0
37.8
310.6
71.1
15.1
602.0
148.4
120.7
2,917.2
90.9
175.8
119.7
340.3
88.8
542.7
46.4
717.8
2,113.4
123.5
139.0
13.1
94.1
257.9
1,051.5
$ 5,661.6
$ 4,174.7
$
3,792.5
$
—
(155.3)
—
—
—
(155.3)
—
—
(4,188.1)
(4,278.6)
—
428.5
512.5
—
853.8
172.8
732.9
2,700.5
304.6
259.7
—
27.2
543.5
—
(8,622.0) $
1,171.3
5,006.8
Notes payable and current portion of long-term debt $
— $
0.2
$
13.6
$
— $
Trade accounts payable
Intercompany payables
Accruals and other current liabilities
Current liabilities held for sale
Total current liabilities
Long-term debt, less current portion
Non-current intercompany payables
Other non-current liabilities
Non-current liabilities held for sale
Total stockholders’ equity
40.3
4.0
62.3
—
106.6
1,140.4
2,884.3
45.6
—
197.6
42.3
113.3
13.3
366.7
—
—
34.8
—
1,484.7
3,773.2
284.8
109.0
241.1
440.5
1,089.0
421.6
1,303.8
124.1
312.1
541.9
—
(155.3)
—
—
(155.3)
—
(4,188.1)
—
—
(4,278.6)
13.8
522.7
—
416.7
453.8
1,407.0
1,562.0
—
204.5
312.1
1,521.2
Total
liabilities,
noncontrolling
interest
and
stockholders’ equity
$ 5,661.6
$ 4,174.7
$
3,792.5
$
(8,622.0) $
5,006.8
F-61
TEREX CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2015
(in millions)
Terex
Corporation
Wholly-
owned
Guarantors
Non-
guarantor
Subsidiaries
Intercompany
Eliminations
Consolidated
Assets
Current assets
Cash and cash equivalents
Trade receivables – net
Intercompany receivables
Inventories
Prepaid and other current assets
Current assets held for sale
Total current assets
Property, plant and equipment – net
Goodwill
Non-current intercompany receivables
Investment in and advances to (from) subsidiaries
Other assets
Non-current assets held for sale
Total assets
Liabilities and Stockholders’ Equity
Current liabilities
$
91.7
$
0.2
$
279.3
$
— $
5.2
57.5
—
108.6
—
263.0
57.9
—
1,353.8
4,010.2
29.2
—
241.7
55.3
424.2
33.9
17.1
772.4
145.9
162.2
2,786.4
94.4
104.3
29.5
456.4
64.7
639.4
110.0
732.5
2,282.3
168.1
296.9
72.9
95.2
305.5
1,131.0
$ 5,714.1
$ 4,095.1
$
4,351.9
$
—
(177.5)
—
—
—
(177.5)
—
—
(4,213.1)
(4,154.5)
—
371.2
703.3
—
1,063.6
252.5
749.6
3,140.2
371.9
459.1
—
45.3
439.0
—
(8,545.1) $
1,160.5
5,616.0
Notes payable and current portion of long-term debt $
— $
0.7
$
65.7
$
— $
Trade accounts payable
Intercompany payables
Accruals and other current liabilities
Current liabilities held for sale
Total current liabilities
Long-term debt, less current portion
Non-current intercompany payables
Other non-current liabilities
Non-current liabilities held for sale
Total stockholders’ equity
21.4
3.1
59.8
—
84.3
1,138.1
2,562.3
52.0
—
222.8
56.6
113.5
17.6
411.2
1.2
—
35.3
—
1,877.4
3,647.4
316.5
117.8
212.2
428.4
1,140.6
590.5
1,650.8
129.8
298.5
541.7
—
(177.5)
—
—
(177.5)
—
(4,213.1)
—
—
(4,154.5)
66.4
560.7
—
385.5
446.0
1,458.6
1,729.8
—
217.1
298.5
1,912.0
Total
liabilities,
noncontrolling
interest
and
stockholders’ equity
$ 5,714.1
$ 4,095.1
$
4,351.9
$
(8,545.1) $
5,616.0
F-62
TEREX CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2016
(in millions)
Net cash provided by (used in) operating activities
$
(253.0) $
420.7
$
193.6
$
5.7
$
367.0
Terex
Corporation
Wholly-
owned
Guarantors
Non-
guarantor
Subsidiaries
Intercompany
Eliminations
Consolidated
Cash flows from investing activities
Capital expenditures
Acquisitions, net of cash acquired
Proceeds (payments) from disposition of
discontinued operations
Proceeds from sale of assets
Intercompany investing activities (1)
Other investing activities, net
Net cash provided by (used in) investing activities
Cash flows from financing activities
Repayments of debt
Proceeds from issuance of debt
Proceeds from (purchase of) noncontrolling
interest, net
Intercompany financing activities (1)
Share repurchases
Dividends paid
Other financing activities, net
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash
equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of period
(2.4)
—
—
0.1
327.0
—
324.7
(1,013.2)
1,013.4
—
—
(82.7)
(30.0)
—
(112.5)
—
(40.8)
91.6
(32.0)
—
—
5.4
(97.5)
—
(124.1)
(1.7)
—
—
(297.1)
—
—
—
(298.8)
—
(2.2)
3.1
(38.6)
(7.0)
3.5
61.7
(23.4)
26.6
22.8
(271.4)
84.3
2.9
67.6
—
—
(1.7)
(118.3)
(19.7)
78.4
371.8
—
—
—
—
(206.1)
(29.1)
(235.2)
—
—
—
229.5
—
—
—
229.5
—
—
—
Cash and cash equivalents, end of period
$
50.8
$
0.9
$
450.2
$
— $
(73.0)
(7.0)
3.5
67.2
—
(2.5)
(11.8)
(1,286.3)
1,097.7
2.9
—
(82.7)
(30.0)
(1.7)
(300.1)
(19.7)
35.4
466.5
501.9
(1)
Intercompany investing and financing activities include cash pooling activity between Terex Corporation and Wholly-Owned Guarantors.
F-63
TEREX CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2015
(in millions)
Net cash provided by (used in) operating activities
$
(510.0) $
647.6
$
277.4
$
(202.1) $
212.9
Terex
Corporation
Wholly-
owned
Guarantors
Non-
guarantor
Subsidiaries
Intercompany
Eliminations
Consolidated
Cash flows from investing activities
Capital expenditures
Acquisitions, net of cash acquired
Proceeds from disposition of discontinued
operations
Proceeds from sale of assets
Intercompany investing activities (1)
Other investing activities, net
Net cash provided by (used in) investing activities
Cash flows from financing activities
Repayments of debt
Proceeds from issuance of debt
Proceeds from (purchase of) noncontrolling
interest, net
Intercompany financing activities (1)
Share repurchases
Dividends paid
Other financing activities, net
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash
equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of period
(1.6)
—
(3.4)
(1.0)
713.3
—
707.3
(1,317.4)
1,188.7
—
—
(50.8)
(25.8)
0.6
(204.7)
—
(7.4)
99.0
Cash and cash equivalents, end of period
$
91.6
$
(41.9)
(52.1)
—
0.9
—
—
(93.1)
(7.8)
—
—
(545.5)
—
—
—
(553.3)
—
1.2
1.9
3.1
(60.3)
(19.1)
3.2
3.2
(231.6)
33.9
(270.7)
(72.6)
274.1
(1.2)
(172.8)
—
—
(2.2)
25.3
(37.5)
(5.5)
377.3
—
—
—
—
(481.7)
(34.5)
(516.2)
—
—
—
718.3
—
—
—
718.3
—
—
—
$
371.8
$
— $
(103.8)
(71.2)
(0.2)
3.1
—
(0.6)
(172.7)
(1,397.8)
1,462.8
(1.2)
—
(50.8)
(25.8)
(1.6)
(14.4)
(37.5)
(11.7)
478.2
466.5
(1)
Intercompany investing and financing activities include cash pooling activity between Terex Corporation and Wholly-Owned Guarantors.
F-64
TEREX CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2014
(in millions)
Net cash provided by (used in) operating activities
$
(113.4) $
901.9
$
35.2
$
(413.0) $
410.7
Terex
Corporation
Wholly-
owned
Guarantors
Non-
guarantor
Subsidiaries
Intercompany
Eliminations
Consolidated
Cash flows from investing activities
Capital expenditures
Acquisitions, net of cash acquired
Other investments
Proceeds (payments) from disposition of
discontinued operations
Proceeds from sale of assets
Intercompany investing activities (1)
Other investing activities, net
Net cash provided by (used in) investing activities
Cash flows from financing activities
Repayments of debt
Proceeds from issuance of debt
Purchase of noncontrolling interest
Intercompany financing activities (1)
Share repurchases
Dividends paid
Other financing activities, net
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash
equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
$
(4.4)
—
(20.0)
31.3
25.0
363.5
—
395.4
(1,018.8)
1,011.0
—
—
(171.2)
(21.8)
1.5
(199.3)
—
82.7
16.3
99.0
(31.8)
—
—
—
12.1
—
—
(19.7)
(3.2)
7.2
—
(888.2)
—
—
—
(884.2)
—
(2.0)
3.9
(45.3)
(7.4)
—
130.9
6.2
—
(1.6)
82.8
(779.8)
666.0
(78.6)
111.7
—
—
(9.0)
(89.7)
(38.9)
(10.6)
387.9
—
—
—
—
—
(363.5)
—
(363.5)
—
—
—
776.5
—
—
—
776.5
—
—
—
$
1.9
$
377.3
$
— $
(81.5)
(7.4)
(20.0)
162.2
43.3
—
(1.6)
95.0
(1,801.8)
1,684.2
(78.6)
—
(171.2)
(21.8)
(7.5)
(396.7)
(38.9)
70.1
408.1
478.2
(1)
Intercompany investing and financing activities include cash pooling activity between Terex Corporation and Wholly-Owned Guarantors.
F-65
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(Amounts in millions)
Additions
Balance
Beginning
of Year
Charges to
Earnings
Other (1)
Deductions (2)
Balance End
of Year
Year ended December 31, 2016
Deducted from asset accounts:
Allowance for doubtful accounts - Current
Allowance for doubtful accounts - Non-current
Reserve for inventory
Valuation allowances for deferred tax assets
Totals
Year ended December 31, 2015
Deducted from asset accounts:
Allowance for doubtful accounts - Current
Allowance for doubtful accounts - Non-current
Reserve for inventory
Valuation allowances for deferred tax assets
Totals
Year ended December 31, 2014
Deducted from asset accounts:
Allowance for doubtful accounts - Current
Allowance for doubtful accounts - Non-current
Reserve for inventory
Valuation allowances for deferred tax assets
Totals
$
$
$
$
$
$
20.4
27.4
76.8
215.1
339.7
18.3
28.6
77.9
244.0
368.8
38.4
29.1
86.7
152.9
307.1
$
$
$
$
$
$
$
5.6
(1.5)
37.0
(50.8)
(9.7) $
(5.4) $
(0.4)
(10.8)
(15.7)
(32.3) $
4.3
3.2
18.2
(20.6)
5.1
$
$
$
1.7
(2.1)
(6.1)
(8.3)
(14.8) $
— $
1.5
17.6
37.9
57.0
$
(5.7) $
(1.8)
(11.8)
53.2
33.9
$
(4.1) $
(0.3)
(19.7)
—
(24.1) $
(3.9) $
(2.3)
(13.2)
—
(19.4) $
(14.4) $
(0.2)
(14.6)
—
(29.2) $
16.5
25.2
83.3
148.6
273.6
20.4
27.4
76.8
215.1
339.7
18.3
28.6
77.9
244.0
368.8
(1)
Primarily represents the impact of foreign currency exchange, business divestitures and other amounts recorded to accumulated other comprehensive
income (loss).
(2)
Primarily represents the utilization of established reserves, net of recoveries.
F-66
EXHIBIT 12
TEREX CORPORATION
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
(amounts in millions)
EARNINGS
Income (loss) from continuing operations before
income taxes
Adjustments:
Undistributed (income) loss of less than 50%
owned investments
Fixed charges
Earnings (loss)
FIXED CHARGES
2016
2015
2014
2013
2012
Year Ended December 31,
$ (270.7)
$ 195.7
$ 278.6
$ 284.2
$ 104.5
(0.4)
117.0
$ (154.1)
1.6
124.6
$ 321.9
8.4
141.9
$ 428.9
4.8
149.9
$ 438.9
2.2
256.4
$ 363.1
Interest expense, including debt discount
amortization
Amortization/writeoff of debt issuance costs
Portion of rental expense representative of
interest factor (assumed to be 33%)
96.6
5.8
14.6
102.8
5.4
115.3
10.0
120.1
13.7
151.2
89.2
16.4
16.6
16.1
16.0
Fixed charges
$ 117.0
$ 124.6
$ 141.9
$ 149.9
$ 256.4
RATIO OF EARNINGS TO FIXED CHARGES
— (1)
2.6 x
3.0 x
2.9 x
1.4 x
AMOUNT OF EARNINGS DEFICIENCY FOR
COVERAGE OF FIXED CHARGES
(1) less than 1.0x
$ 271.1
$ —
$ —
$ —
$ —
Exhibit 31.1
CERTIFICATION
I, John L. Garrison, Jr., certify that:
1.
I have reviewed this annual report on Form 10-K of Terex Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: February 24, 2017
/s/ John L. Garrison, Jr.
John L. Garrison, Jr.
President and Chief Executive Officer
Exhibit 31.2
CERTIFICATION
I, Kevin P. Bradley, certify that:
1.
I have reviewed this annual report on Form 10-K of Terex Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: February 24, 2017
/s/ Kevin P. Bradley
Kevin P. Bradley
Senior Vice President and
Chief Financial Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32
In connection with the annual report of Terex Corporation (the “Company”) on Form 10-K for the period ended December 31,
2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, John L. Garrison Jr., Chairman
and Chief Executive Officer of the Company, and Kevin P. Bradley, Senior Vice President and Chief Financial Officer of the
Company, certify, to the best of our knowledge, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley
Act of 2002, that:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934, and
The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
/s/ John L. Garrison, Jr.
John L. Garrison, Jr.
President and Chief Executive Officer
February 24, 2017
/s/ Kevin P. Bradley
Kevin P. Bradley
Senior Vice President and
Chief Financial Officer
February 24, 2017
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging or
otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by
Section 906, has been provided to Terex Corporation and will be retained by Terex Corporation and furnished to the Securities
and Exchange Commission or its staff upon request.
Shareholder Information
DAVID C. WANG
Vice President of International Relations (retired)
The Boeing Company
SCOTT W. WINE
Chairman and Chief Executive Officer
Polaris Industries, Inc.
G. CHRIS ANDERSEN*
Partner
G.C. Andersen Partners, LLC
*Director Emeritus
CORPORATE LEADERSHIP
JOHN L. GARRISON
President and Chief Executive Officer
JOHN D. SHEEHAN
Senior Vice President and
Chief Financial Officer
KEVIN A. BARR
Senior Vice President, Human Resources
PAUL CALDARAZZO
Senior Vice President, Strategic Sourcing
and Execute To Win
ERIC I COHEN
Senior Vice President, General Counsel
and Secretary
BRIAN J. HENRY
Senior Vice President, Business Development
and Investor Relations
STOCK INFORMATION
Stock Symbol: TEX
Stock Exchange: New York Stock Exchange.
The high and low quarterly sales prices for
the past two years of Terex Corporation are
as follows ($):
2016
Q1
Q2
Q3
Q4
HIGH
25.38
25.57
25.66 33.17
LOW
2015
13.62
18.91
19.49 21.88
Q1
Q2
Q3
Q4
HIGH
28.53
29.32
27.11
22.76
LOW
22.01
22.25
16.54 17.29
MATTHEW S. FEARON
President, Terex Aerial Work Platforms
STEVE FILIPOV
President, Terex Cranes
KIERAN HEGARTY
President, Terex Materials Processing
SCOTT C. HENSEL
President, Terex Services, Parts and
Customer Solutions
STACEY B. BABSON-SMITH
Vice President, Chief Ethics and
Compliance Officer
ANDREW CAMPBELL
Vice President, Chief Information Officer
MARK I. CLAIR
Vice President, Controller and
Chief Accounting Officer
DEREK B. EVERITT
Vice President, Terex Transformation Program
AMY J. GEORGE
Vice President, Talent, Diversity and Inclusion
RAMON OLIU, JR.
Vice President, Chief Risk Officer
ANNUAL REPORT / FORM 10-K
Copies of the Annual Report / Form 10-K are
available by downloading from, or making
an electronic request through, the Investor
Relations section of the Terex Corporation
website, www.terex.com.
ANNUAL MEETING
The Annual Meeting of Shareholders will
be held at 10 a.m. (Eastern time) on Thursday,
May 11, 2017 at Terex Corporation, 200 Nyala
Farm Road, Westport, CT, USA.
BOARD OF DIRECTORS
DAVID A. SACHS
Partner, Ares Management, LP
Chairman of the Board, Terex Corporation
PAULA H. J. CHOLMONDELEY
Private Consultant, Strategic Planning
DONALD DEFOSSET
Chairman, President and CEO (retired)
Walter Industries, Inc.
JOHN L. GARRISON
President and Chief Executive Officer
THOMAS J. HANSEN
Vice Chairman (retired)
Illinois Tool Works, Inc.
MATTHEW P. HEPLER
Partner
Marcato Capital Management L.P.
DR. RAIMUND KLINKNER
Managing Shareholder
IMX Institute for Manufacturing
Excellence GmbH
OREN G. SHAFFER
Vice Chairman and
Chief Financial Officer (retired)
Qwest Communications International, Inc.
CORPORATE HEADQUARTERS
TEREX CORPORATION
200 Nyala Farm Road
Westport, CT 06880, USA
Phone: 203-222-7170
Fax: 203-222-7976
Website: www.terex.com
TRANSFER AGENT
AND REGISTRAR
American Stock Transfer & Trust Company
6201 15th Avenue
Brooklyn, NY 11219
Phone: 800-937-5449 or 718-921-8124
Shareholders seeking information concerning
stock transfers, changes of address and lost
certificates should contact the Company’s
stock transfer agent directly. American Stock
Transfer & Trust Company may also be con-
tacted at www.astfinancial.com.
This Annual Report contains forward-looking information based on current expectations of Terex. Because forward-looking statements involve risks and uncertainties,
actual results could differ materially. For a more detailed description of such risks and uncertainties, see the Terex Annual Report on Form 10-K, included with this
Annual Report, under the headings “Risk Factors” and “Forward Looking Information.” The forward-looking statements contained herein speak only as of the date of
this Annual Report. Terex expressly disclaims any obligation or undertaking to update or revise any forward-looking statement contained in this Annual Report to
reflect any change in its expectations. This Annual Report refers to various non-GAAP (U.S. generally accepted accounting principles) financial measures. The non-
GAAP measures may not be comparable to similarly titled measures being disclosed by other companies. Terex believes that this information is useful to understanding
its operating results and the ongoing performance of its underlying businesses. The photographs, products, and service names included in this Annual Report may
be trademarks, service marks, or trade names of Terex Corporation and or its subsidiaries in the USA and other countries and all rights are reserved. Terex is a
Registered Trademark of Terex Corporation in the USA and many other countries. Copyright 2017 Terex Corporation.
Annual Report Design by Curran & Connors, Inc. / www.curran-connors.com
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200 Nyala Farm Road
Westport, CT 06880, USA
Phone: 203-222-7170
www.terex.com