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2 0 1 7 A N N U A L R E P O R T
Focus. Simplify. Execute To Win.
The Terex Way—The Values 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.
MAKING PROGRESS
FOCUS
GOAL ACCOMPLISHED
FOCUS THE PORTFOLIO
Taking Action:
• Completed sale of Material Handling &
Port Solutions segment
• Completed sale of Construction businesses
STRATEGY
SIMPLIFY
GOAL IN PROGRESS
SIMPLIFY THE COMPANY
Taking Action:
• Reduced segments from five to three
• Executing footprint rationalization
• Reducing administrative cost structure
EXECUTE
TO WIN
GOAL IN SIGHT
EXECUTE TO WIN
Strengthen Core Management Processes:
• Commercial Excellence
• Lifecycle Solutions
• Strategic Sourcing
Terex Corporation / 2017 Annual Report / 1
John L. Garrison | President and Chief Executive Officer
Dear Fellow Shareholders:
“ We are transforming our Company to a high performance culture that consistently
delivers on our commitments to our Team Members, Customers and Shareholders.”
I am proud of the teamwork, effort and progress
the Terex team made during 2017 executing our
Focus, Simplify, and Execute to Win transformation
strategy. That progress has created a strong sense
of excitement for our future. We are transforming
our Company to a high performance culture that
consistently delivers on our commitments to our
Team Members, Customers and Shareholders.
Our first commitment is to create a Zero Harm
safety culture. Across the world we improved our
safety performance, but what is even more import
ant is the team clearly understands that there is
more we can and must do to achieve Zero Harm.
We also improved our customer satisfaction scores
across our businesses. Finally, the team exceeded
the financial commitments we made for the year
taking advantage of improving markets and by
executing our strategy. The team clearly sees the
direction we are heading and the substantial
opportunity to continue to drive improvement in
our businesses.
Focus
The first element of our strategy is to focus our
port folio on businesses that are best positioned to
generate returns above our cost of capital through
the economic cycle. In January of 2017, we closed
on the sale of the Material Handling & Port Solutions
(MHPS) segment to Konecranes generating signif
icant value for you, our shareholders. We also
completed the sale of various construction busi
nesses in 2017, eliminating historical underper
formers and enabling further consolidation of our
segment structure. The Focus element of our strat
egy is complete with these divestitures. We have
concentrated our business portfolio on Aerial Work
Platforms, Cranes, and Materials Processing. We
are confident that with their respected global brands,
strong market positions, and effective execution
we can generate significant longterm earnings
and return on invested capital.
/ 2
CEO Graphs
48%
Aerial Work
Platforms
27%
Cranes
53%
USA/Canada
24%
Western Europe
25%
Materials
Processing
23%
Rest of
the World
Terex Financial Highlights from 2017:
6
5
4
3
2
1
0
2014
2015
2016
2017
6
5
4
3
2
1
0
CONSOLIDATED
NET SALES
CONSOLIDATED
(USD IN BILLIONS)
NET SALES
(USD IN BILLIONS)
CEO Graphs
5.48
5.02
4.44
4.36
NET SALES
BY SEGMENT
NET SALES
BY GEOGRAPHY
48%
Aerial Work
Platforms
27%
Cranes
53%
USA/Canada
24%
Western Europe
2014
2015
2016
2017
25%
Materials
Processing
23%
Rest of
the World
CONSOLIDATED
NET SALES
(USD IN BILLIONS)
6
5
4
3
2
1
0
Simplify
As a result of more than 50 acquisitions over 20
years, Terex accumulated complexity in many ways,
including duplicative manufacturing locations, mul-
tiple accounting and ERP systems, and excessive
legal entities. This complexity increases costs,
reduces clarity, and impedes responsiveness to
customers. We began addressing these issues in
2016 and accelerated our actions in 2017. We will
continue to execute simplification priorities in 2018
and beyond.
2016
2017
2015
Our most significant progress so far has been in
simplifying our manufacturing footprint, which we
reduced by 2.6 million square feet, or 27%, without
2014
reducing revenue potential. We accomplished this
by outsourcing low-value manufacturing activities
and by consolidating and improving productivity in
high-value assembly operations. These actions
occurred across the Company but were primarily
in our Cranes segment, which improved operating
profit despite a revenue decline.
Simplification of accounting and management
reporting processes is also well underway. We are
midway through implementation of a unified chart
6
5
5.02
5.48
of accounts that will create financial clarity across
all operating units and will improve management’s
ability to quickly identify performance issues and
4.44
take corrective action. During 2017, we also simpli-
fied our legal structure, reducing the number of
active legal entities by 26, or approximately 20%.
This will directly save administrative expenses
by reducing statutory audits and tax filing require-
ments, and indirectly by simplifying consolidation
accounting.
2
4.36
3
4
1
Execute to Win
Execute to Win (ETW) is the deployment of proven
and rigorous standard work processes that lead to
superior and more consistent results, and is being
2016
2015
2017
2014
0
“ Our most significant progress so far
has been in simplifying our manufacturing
footprint, which we reduced by 2.6 million
square feet, or 27%, without reducing
revenue potential.”
Terex Corporation / 2017 Annual Report / 3
EXECUTE TO WIN:
PRIORITY AREAS
LIFECYCLE
SOLUTIONS
• Services
• Spare Parts
• Technology and Innovation
EXECUTE
TO WIN
COMMERCIAL
EXCELLENCE
STRATEGIC
SOURCING
• Customer Offerings and Value Propositions
• Sales and Pricing Execution
• Dealer and Account Management
• Global Sourcing Organization
• Standard Processes, Tools and Training
• Supplier Development and Alliance Management
implemented in three priority areas: Commercial
Excellence (how we interface with customers),
Lifecycle Solutions (how we support our customers),
and Strategic Sourcing (how we buy). Execution
of ETW is well underway leaving 2017, and will
accelerate in 2018 and beyond.
Commercial Excellence centers on customer rela-
tionship management and on deploying tools and
processes that improve account management, that
optimize selling efforts and that closely monitor
pricing to improve both revenue and profitability
outcomes. Commercial Excellence also provides
transparency and accountability throughout our
selling organizations, making use of proven soft-
ware tools that assure process compliance while
also enabling decisions at the speed required by
customers. We are about one-half of the way to a
full global implementation of these tools and are
encouraged by the impact that they are already
having on our team and our results.
New Product Development is essential to meeting
the needs of our customers, and we are increasing
spending on new products as we simplify the
Company and reduce spending in other areas.
In 2017, AWP continued development of hybrid
electric and all electric products, launched a new
line of “XC” extra capacity booms to address
emerging safety regulations, and introduced several
new accessories that improve end user experience
with our products. Terex MP continued to build out
its offerings in washing and environmental products,
added a new compact line of crushing and screen-
ing products, expanded into portable conveyors,
and sustained investment in more established prod-
uct categories. Terex Cranes invested in the Demag
brand, launching several important new all-terrain
and crawler crane products. Cranes also introduced
a new 100-ton rough terrain crane and multiple new
tower cranes during 2017, and its Utilities business
launched three new products including the Optima
insulated aerial devices, augur drills and green
fleet solution HyPower hybrid system.
Lifecycle Solutions is initially focused on improving
parts and service fulfillment, the online customer
experience, and parts pricing analytics and disci-
pline. These processes are common across all
three segments, and during 2017 we developed
a company-wide Lifecycle Solutions organization
and began filling key positions that will drive
improvement across the Company. These efforts
will improve the value of our machinery in end-user
applications while enhancing machinery uptime
and improving customer return on investment.
Strategic Sourcing is both a significant investment
and a significant savings opportunity for our
Company. Prior acquisitions led to multiple, ineffi-
cient supply chains operating discretely out of each
individual factory location. With strategic sourcing,
/ 4
OPTIMAL CAPITAL
STRUCTURE
• Debt Repayment
~2.5X Net Debt to EBITDA
RESTRUCTURING
INVESTMENTS
• Administrative Cost Reduction
• Footprint Rationalization
DISCIPLINED CAPITAL
ALLOCATION STRATEGY
CASH 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
we are consolidating spend with fewer world class
suppliers, enabling purchase leverage, greater
supplier attention to Terex priorities, and simplify
ing production and service processes.
During 2017, we created a global sourcing organi
zation and began implementing a sourcing process
that is successfully used by many high performance
companies. We are initially focused on approximately
$800 million in annual component purchases that
comprise Strategic Sourcing Wave 1. We expect to
realize savings beginning in the second half of 2018
from Wave 1 as new sourcing agreements take
effect. We plan to initiate the Wave 2 sourcing pro
cess in mid2018 which focuses on an additional
$800 million of spend.
Disciplined Capital Allocation
We also adhered closely to our disciplined capital
allocation strategy in 2017, optimizing the capital
structure with cash proceeds from the MHPS sale,
fully funding growth initiatives, reducing debt, and
returning capital to shareholders via dividends and
share repurchases. We reduced debt by approxi
mately $600 million and simultaneously refinanced
the remaining $1 billion. This created the strongest
Terex balance sheet in over a decade with the low
est interest rates in the Company’s history. We fully
funded organic growth initiatives, including higher
product development spending and significant
investments in ETW priorities. We completed and
funded substantial restructuring actions, primarily
in Cranes. During the year we sold the 19.6 million
shares of Konecranes Plc received in the MHPS sale
realizing approximately $770 million in net pro ceeds
which, together with the cash proceeds, provided
the funding for the debt repayment and the repur
chase of almost 26 million shares (approximately
25% of our shares outstanding). We also increased
our dividend from $0.28 in 2016 to $0.32 per share
in 2017.
The progress we made on our transformation jour
ney would not be possible without the energy, ded
ication and discipline of our 10,700 team members,
who focus every day on improving our Company
and delivering a superior ownership experience
for Terex customers. I am appreciative of what this
team has accomplished to date and look forward
to the results that we can create as we continue to
transform Terex together.
On behalf of our Board of Directors and Executive
Leadership Team, I thank you for your interest
in Terex.
Sincerely,
John L. Garrison
President and Chief Executive Officer
Terex Corporation / 2017 Annual Report / 5
2.0
2.0
1.5
1.5
1.0
1.0
0.5
0.5
2.5
2.5
2.0
2.0
1.5
1.5
1.0
1.0
0.5
0.5
Cranes
Cranes
NET SALES
BY PRODUCT
NET SALES
BY PRODUCT
NET SALES
NET SALES
BY GEOGRAPHY
BY GEOGRAPHY
61%
Mobile Cranes
61%
Mobile Cranes
31%
Utilities
31%
Utilities
42%
42%
USA/Canada
USA/Canada
25%
25%
Western Europe
Western Europe
“ We reduced debt by approximately $600 million and simultaneously refinanced the
remaining $1 billion. This created the strongest Terex balance sheet in over a decade
with the lowest interest rates in the Company’s history.”
DO NOT USE
DO NOT USE
Terex Business Segments AtAGlance:
8%
8%
Tower Cranes
Tower Cranes
33%
33%
Rest of the World
Rest of the World
Cranes
Aerial Work Platforms
Aerial Work Platforms
0.6
0.6
0.5
0.5
0.4
0.4
0.3
0.3
0.2
0.2
0.1
0.1
NET SALES
(USD IN BILLIONS)
NET SALES
(USD IN BILLIONS)
NET SALES
NET SALES
BY PRODUCT
BY PRODUCT
Cranes
46%
Boom Lifts
33%
33%
Scissor Lifts
Scissor Lifts
1.66
46%
Boom Lifts
2.0
2.0
1.66
1.57
1.57
NET SALES
BY GEOGRAPHY
NET SALES
BY GEOGRAPHY
BACKLOG
(USD IN BILLIONS)
NET SALES
BACKLOG
(USD IN BILLIONS)
BY PRODUCT
NET SALES
BY GEOGRAPHY
60%
60%
USA/Canada
USA/Canada
20%
Western Europe
0.6
20%
Western Europe
61%
0.6
0.51
Mobile Cranes
0.51
31%
Utilities
0.55
0.55
42%
USA/Canada
25%
Western Europe
1.5
1.5
1.27
1.27
1.19
1.19
DO NOT USE
1.0
DO NOT USE
1.0
0.5
0.5
0.5
0.5
0.4
0.4
0.41
0.41
0.32
0.32
0.3
0.3
DO NOT USE
0.2
0.2
0.1
0.1
2016
2017
2017
20%
20%
0
0
Rest of the World
Rest of the World
2014
8%
Tower Cranes
2015
2016
2014
2015
2016
2017
2017
33%
Rest of the World
0.0
0.0
2014
2014
2015
2015
2016
2016
2017
2017
0.0
0.0
2014
2014
2015
2015
2016
2016
2017
2017
8%
8%
Small Aerials,
Small Aerials,
Light Towers & Other
Light Towers & Other
0
0
13%
13%
2015
2014
Telehandlers
Telehandlers
2014
2015
2016
Aerial Work
Platforms
Materials Processing
Materials Processing
0.8
0.8
2.0
0.7
0.7
NET SALES
(USD IN BILLIONS)
NET SALES
(USD IN BILLIONS)
NET SALES
NET SALES
BY PRODUCT
BY PRODUCT
Aerial Work Platforms
2.40
2.5
2.5
2.40
0.6
62%
62%
2.25
2.25
Crushing &
Crushing &
0.5
Screening
Screening
1.98
0.6
0.6
0.5
0.5
0.4
0.4
0.3
0.3
0.2
0.2
0.1
0.1
1.5
1.0
0.5
2.0
2.0
1.5
1.5
1.0
1.0
0.5
0.5
0.4
0.3
0.2
0.1
BACKLOG
(USD IN BILLIONS)
BACKLOG
NET SALES
NET SALES
NET SALES
(USD IN BILLIONS)
BY PRODUCT
BY GEOGRAPHY
BY GEOGRAPHY
NET SALES
(USD IN BILLIONS)
NET SALES
BY GEOGRAPHY
BACKLOG
(USD IN BILLIONS)
20%
20%
Concrete
Concrete
2.07
1.98
2.07
0.8
0.7
46%
0.8
47%
47%
0.71
Boom Lifts
USA/Canada
USA/Canada
0.7
2.0
0.71
33%
26%
26%
Scissor Lifts
Western Europe
Western Europe
1.66
0.76
0.76
1.57
60%
USA/Canada
20%
Western Europe
0.6
0.6
0.5
0.5
0.57
0.57
1.5
0.51
0.51
1.27
1.19
0.51
0.55
0.41
0.32
0.6
0.5
0.4
0.3
0.2
0.1
DO NOT USE
DO NOT USE
0.4
0.4
DO NOT USE
1.0
0.3
0.3
0.2
0.2
0.5
7%
7%
2015
2016
2017
Environmental
Environmental
2016
2014
2015
2016
2017
11%
11%
Material
Material
2017
Handlers
Handlers
0.1
0
0.1
8%
Small Aerials,
27%
27%
0
Light Towers & Other
2014
2015
2015
Rest of the World
Rest of the World
2014
0
13%
2014
Telehandlers
2017
2016
2016
2015
2017
0.0
0.0
2014
2014
2015
2015
2016
2016
2017
2017
0.0
0.0
2014
2014
2015
2015
2016
0.0
2016
2017
2014
2017
2015
2016
2017
0
0
2014
0.0
2015
2014
Materials
Processing
0.35
0.35
0.30
0.30
0.25
0.25
0.20
0.20
0.15
0.15
0.10
0.10
0.05
0.05
1.07
1.07
NET SALES
NET SALES
(USD IN BILLIONS)
(USD IN BILLIONS)
Materials Processing
0.8
1.2
1.2
1.0
1.0
0.94
0.94
0.7
0.94
0.94
0.6
0.94
0.94
0.8
0.8
0.6
0.6
0.4
0.4
0.2
0.2
0.5
0.4
0.3
0.2
0.1
2.5
2.0
1.5
1.0
0.5
1.2
1.2
1.0
1.0
0.8
0.8
0.6
0.6
0.4
0.4
0.2
0.2
0.0
0.0
2014
2014
2015
2015
2016
2016
2017
2017
0.00
0.00
0.0
2014
2014
2014
2015
2015
2015
2016
2016
2016
2017
2017
2017
0
0
2014
2014
0.0
2015
2015
2014
2016
2016
2015
2017
2017
2016
2017
0
0
2014
2014
2016
2017
20%
0
Rest of the World
2014
2015
2016
2017
NET SALES
BY GEOGRAPHY
BACKLOG
(USD IN BILLIONS)
47%
USA/Canada
2.07
1.98
26%
Western Europe
2016
27%
Rest of the World
2017
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
0.71
0.76
0.57
0.51
2014
2015
2016
2017
BACKLOG
BACKLOG
(USD IN BILLIONS)
(USD IN BILLIONS)
NET SALES
BY PRODUCT
NET SALES
(USD IN BILLIONS)
0.35
0.35
0.30
0.30
62%
Crushing &
Screening
2.40
0.32
0.32
2.25
2.5
20%
Concrete
2.0
0.25
0.25
0.20
0.20
0.15
0.15
0.10
0.10
0.05
0.05
0.22
0.22
1.5
DO NOT USE
0.15
0.13
1.0
0.15
0.13
0.5
7%
0
Environmental
2015
2015
2016
2016
2014
11%
Material
Handlers
2017
2017
2015
/ 6
1.2
1.0
0.8
0.6
0.4
0.2
0.0
0.35
0.30
0.25
0.20
0.15
0.10
0.05
0.00
NET SALES
(USD IN BILLIONS)
BACKLOG
(USD IN BILLIONS)
1.07
0.94
0.94
0.94
1.2
1.0
0.8
0.6
0.4
0.2
0.32
0.22
0.15
0.13
0.35
0.30
0.25
0.20
0.15
0.10
0.05
0
2014
2015
2016
2017
2014
2015
2016
2017
0
2014
2015
2016
2017
2014
2015
2016
2017
2 0 17 F O R M 10 - K
For the Year Ended December 31, 2017
3_Terex_2017AR_33047_FN.indd 1
2/23/18 1:57 PM
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, 2017
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, a non-accelerated filer, a smaller reporting company
or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging
growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer
Smaller Reporting Company
Accelerated Filer
Emerging growth company
Non-accelerated Filer
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with
any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
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 $3,314
million based on the last sale price on June 30, 2017.
The number of shares of the Registrant’s common stock outstanding was 81.0 million as of February 12, 2018.
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 2018 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 referred to as “Terex,” the “Registrant,” “us,” “we,” “our” or the “Company.” This Annual Report generally speaks
as of December 31, 2017, 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;
•
•
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;
our ability to successfully implement our Execute to Win strategy; 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, 2017
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
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24
27
28
51
53
54
54
54
55
55
55
55
55
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58
3
PART I
ITEM 1.
BUSINESS
GENERAL
Our Company was incorporated in Delaware in October 1986 as Terex U.S.A., Inc. Since that time, we have changed significantly,
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. Today, Terex is a global manufacturer of aerial work platforms, cranes and
materials processing machinery. We design, build and support products used in construction, maintenance, manufacturing, energy,
minerals and materials management applications. Our products are manufactured in North and South America, Europe, Australia
and Asia and sold worldwide. We engage with customers through all stages of the product life cycle, from initial specification
and financing to parts and service support. We continue to focus on becoming an industry leading operating company.
We manage and report our business in the following segments: (i) Aerial Work Platforms (“AWP”); (ii) Cranes; and (iii) Material
Processing (“MP”).
Further information about our industry and reportable segments, including geographic information, appears in Item 7.
“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.
4
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.
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 Zweibrücken, Germany;
• Truck cranes and 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 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; 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 facility in 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®, Evoquip® 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;
• Modular, mobile and static crushing and screening equipment and base crushers are manufactured in Oklahoma City,
Oklahoma;
Screening equipment is manufactured in Durand, Michigan;
• Base crushers and base screens are manufactured in Subang Jaya, Malaysia;
•
• Base crushers are manufactured in Coalville, England;
•
• Wood processing, biomass and recycling equipment systems are manufactured in Newton, New Hampshire, and
Fabrications, sub-assemblies and steel kits are manufactured in Ballymoney, Northern Ireland;
Dungannon, Northern Ireland.
• Material handlers are manufactured in Bad Schönborn, Germany;
• Concrete pavers are manufactured in Canton, South Dakota; and
•
Front discharge concrete mixer trucks are manufactured in Fort Wayne, Indiana.
We have North American distribution centers in Louisville, Kentucky and Southaven, Mississippi 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
continually evaluates the level to which it provides direct customer financing versus utilizing third party funding to meet its business
objectives.
5
In the United States and on a limited basis in China, TFS originates and services financing transactions directly with end-user
customers, distributors and rental companies. Most of the transactions are fixed and floating rate loans; however, TFS also provides
sales-type leases, operating leases and rentals. In the normal course of business, loans and leases are sold to financial institutions
with which TFS has established relationships. Globally, TFS also facilitates financing transactions directly between our customers
and third party financial institutions. TFS also arranges wholesale financing for dealers and distributors who sell our equipment
to end users. These financing arrangements are third party financings between the dealer/distributor and the financial institutions
with which TFS has established relationships.
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
secondary market sales channels are also used for re-marketing any equipment which 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, we completed the disposition of our MHPS business (the “Disposition”) to Konecranes Plc (“Konecranes”).
The MHPS business sold constituted the entirety of one of our previous reportable operating segments and comprised two of our
six previous reporting units, represented a significant portion of our revenues and assets, and is therefore accounted for as a
discontinued operation for all periods presented. The Disposition represented a significant strategic shift in our business away
from universal, process, mobile harbor and ship-to-shore cranes that will have a major effect on our future operating results.
See Note B – “Sale of MHPS Business” and Note E – “Discontinued Operations and Assets and Liabilities Held for Sale” in the
Notes to the Consolidated Financial Statements for further information regarding the Disposition and 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 key focus of our organization and is central to our ability to generate returns for investors.
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 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.
6
The “Focus” element of this strategy concentrated our business portfolio in product categories where we are among the market
leaders. Where we were 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. Work related to this strategic theme involved review of all
businesses in the portfolio from the perspectives of market attractiveness and competitive position. Several portfolio actions were
taken as a result, including the sale of our former MHPS segment and sale of certain of our former Construction segment product
lines. We now consider the Focus element of our strategy to be complete.
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 finance initiatives 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 we operate.
We have already exited 12 facilities around the world. In total, our actions have eliminated approximately 2.6 million square feet,
or 27%, of our global footprint. We have also reduced our number of legal entities by over 70 legal entities, or 40%, since the end
of 2016, resulting in the fewest number of legal entities since 1999. Our smaller manufacturing footprint and simpler legal structure
is expected to enable streamlined business processes and lower costs.
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 are implementing three specific near-term transformational priorities in our Execute to
Win initiatives.
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. Our long-term financial plan includes major contributions in these three areas 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 (transformation initiatives, general & administrative cost reduction, footprint rationalization)
4. Efficient return of capital to shareholders (dividends and share repurchases)
During 2017, we repaid debt, net of debt issuances, of approximately $583 million and repurchased approximately $924 million
of our common stock.
Execution of our strategy of Focus, Simplify and Execute to Win was announced in 2016 and we do not anticipate material deviation
from this strategy over the next several years. With Focus now complete and Simplify well underway, the bulk of our effort will
now be concentrated on Execute to Win and on steadily improving cash flow to enable the capital allocation priorities outlined
above.
7
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.
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.
8
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
into an A-frame 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.
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.
9
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 debarking systems.
This equipment is used in, among other things, the pulp and paper, wood energy, green waste/construction and demolition recycling
industries.
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 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 & Telehandlers
Mobile & Tower Cranes
Materials Processing Equipment
Specialty Equipment
Other
Compact Construction Equipment (1)
TOTAL
PERCENTAGE OF SALES
2017
2016
2015
46%
19
17
9
8
1
43%
42%
19
15
8
9
6
22
13
7
10
6
100%
100%
100%
(1) As of December 31, 2017, we sold all of our businesses that manufactured compact construction equipment.
10
BACKLOG
Our backlog for continuing operations as of December 31, 2017 and 2016 was as follows:
AWP
Cranes
MP
Corporate and other
Total
December 31,
2017
2016
(in millions)
$
763.0
550.4
317.7
—
$
506.1
323.4
215.6
27.4
$
1,631.1
$
1,072.5
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. Low
backlog may indicate less future sales; however, they may also reflect a rapid ability to fill orders.
Our overall backlog amounts at December 31, 2017 increased $558.6 million from our backlog amounts at December 31, 2016,
primarily due to higher orders across all business segments, partially offset by the disposition of remaining construction equipment
product lines. The positive impact of foreign exchange rate changes on 2017 backlog was approximately 8% when compared to
2016.
AWP segment backlog at December 31, 2017 increased approximately 51% from our backlog amounts at December 31, 2016.
This increase from the prior year was primarily due to higher global demand for aerial equipment, particularly in North America
and Western Europe, and earlier fleet ordering due to increased customer confidence. The positive impact of foreign exchange
rate changes on 2017 backlog was approximately 6% when compared to 2016.
The backlog at our Cranes segment increased approximately 70% from December 31, 2016. This increase from the prior year
was driven by the global cranes market starting to stabilize. North American markets are improving due to higher oil prices and
a generally positive economic environment. European markets are starting to see modest growth and our new product introductions
continue to be well received. In addition, we saw an increase in investment activity in Australia throughout the year after being
down for several years. The positive impact of foreign exchange rate changes on 2017 backlog was approximately 11% when
compared to 2016.
Our MP segment backlog at December 31, 2017 increased approximately 47% from December 31, 2016. The increase in backlog
over the prior year was primarily due to higher demand for mobile crushing and screening equipment, Fuchs material handlers,
and environmental equipment partially offset by lower demand for concrete products in the U.S. The positive impact of foreign
exchange rate changes on 2017 backlog was approximately 9% when compared to 2016.
The decrease in Corporate and other backlog was due to the disposition of our remaining construction equipment product lines in
2017.
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 and independent distributors. We employ sales representatives who service these channel partners from offices located
throughout the world.
11
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 model 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.
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, including in 2017, but is now largely completed.
The newest emission reduction program introduced in Europe, known as Stage V, will begin to drive further engine emissions
related product development in 2018. Product innovation has become a core element of our growth strategy; we have re-invigorated
and increased our emphasis on creating new models and meeting the demands of our customers. Robust product development
pipelines are in place, which we expect will continue to bring new, differentiated products to the market in the years ahead. We
have also focused on producing more cost-effective product solutions across various segments.
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.”
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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, Link-Belt,
XCMG, Kato, Zoomlion and Sany
Liebherr, Manitowoc
Zoomlion, XCMG and Wolffkran
(Potain), Comansa,
Jaso,
Manitowoc, Link-Belt, Liebherr, Sennebogen,
Hitachi, Kobelco, XCMG, Zoomlion, Fushun and Sany
Lattice Boom Truck Cranes
Liebherr, Link Belt
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
Concrete Pavers
Liebherr, Sennebogen, Linkbelt, Exodus and Caterpillar
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 2017. In 2017, 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 20% of our consolidated net sales.
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EMPLOYEES
As of December 31, 2017, we had approximately 10,700 employees; including approximately 5,000 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®, Powerscreen®, Demag®, Fuchs® and
CBI® 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 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 the 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 the costs of, and damages resulting from, cleaning up sites, past spills, disposals and other releases
of hazardous substances, should any of such events occur. 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 may arise.
The use and operation of our equipment in an environmentally conscious manner is an important 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 which continued to be a priority in 2017, but is now largely completed. The newest
emission reduction program introduced in Europe, known as Stage V, will now begin to drive further engine emissions related
product development in 2018. Our segments also offer products that use 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 that these expenditures will have a material adverse effect on our business or results of operations.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS, GEOGRAPHIC AREAS AND EXPORT SALES
Information regarding foreign and domestic operations, export sales and segment information is included in Note 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). We expect a normal historical sales pattern in 2018.
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 “Investor Relations” – “Financial Reporting”,
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 “Investor Relations” –
“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. While we are expecting to experience sales growth in 2018, 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. 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 are impacted in part by historical purchase
levels. 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 economic recovery progresses more
slowly than our market expectations or the global economic weakness of the recent past were to recur, 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, 2017 was 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, increases in our
interest expense 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.
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.
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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 2017, 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. There can be no assurance third party finance companies will continue to extend credit to
our customers.
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 or residual value 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. We establish reserves based upon our analysis of the current quality and financial position of
our customers, past payment experience and collateral values. 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.
Historically, losses related to guarantees have been immaterial; 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, 2017, we had trade receivables of $579.9 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 analysis of the quality of the current receivables, the current financial position of our customers
and past collections experience. An unexpected change in customer financial condition or future 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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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. We
note that the upcoming withdrawal of the U.K. from the E.U. may negatively impact the value of the British Pound as compared
to the U.S. dollar and other currencies as the U.K. negotiates and executes its exit from the E.U., which is scheduled to occur in
2019.
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.
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 and the Middle East;
difficulty in obtaining distribution support;
natural disasters; and
current and changing tax laws.
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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 our anti-corruption policy or applicable
anti-corruption laws, 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, violations of 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 imposed by the SEC.”
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.
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, 2017, we employed approximately 10,700 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.
20
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 nearing the end of our transition to Tier 4 power systems and are now planning for the implementation of European Stage
V engine emissions. While plans are in place to comply with the phase-in of European Stage V regulations, we are dependent on
our engine suppliers to continue to timely deliver engines which meet applicable emissions regulations. 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 Company, 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 and Delaware law 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.
In connection with the Company’s purchase of Demag Cranes AG (“DCAG”) in 2011, certain former shareholders of DCAG
initiated appraisal proceedings relating to (i) a domination and profit loss transfer agreement between DCAG and Terex Germany
GmbH & Co. KG (the “DPLA Proceeding”) and (ii) the squeeze out of the former DCAG shareholders (the “Squeeze out
Proceeding”) alleging that the Company did not pay fair value for the shares of DCAG. These proceedings were initiated in the
Regional Court of Düsseldorf on April 24, 2012 and January 26, 2014, respectively. The Company believes it did pay fair value
for the shares of DCAG and that no further payment from the Company to any former shareholders of DCAG 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 by both parties
(claimants as to results, Terex as to costs). The Squeeze out Proceeding is still in the relatively early stages. While the Company
believes the position of the former shareholders of DCAG 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.
21
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.
As technology continues to evolve, we anticipate that we will collect and store even more data in the future and that our systems
will increasingly use remote communication. 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.
The timing and amount of benefits from the Company’s Execute to Win initiatives may not be as expected and the
Company’s financial results could be adversely impacted.
We are in the process of implementing our Focus, Simplify and Execute to Win initiatives as part of our strategy to deliver long-
term growth and earnings to our shareholders. The Execute to Win component of this strategy has three priority areas: Lifecycle
Solutions, Commercial Excellence and Strategic Sourcing. We are making significant investments in each of these priority areas.
However, we cannot provide any assurance that we will be able to realize the anticipated benefits of these initiatives. Although
Execute to Win is expected to improve future operating margins and revenue growth, if the Company is unable to achieve expected
benefits from one or more of these three initiatives or is unable to complete these initiatives without material disruption to our
businesses, the timing and amount of benefits may not be as expected and could adversely impact the Company’s competitive
position, financial condition, profitability and/or cash flows.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
Not applicable.
22
ITEM 2.
PROPERTIES
As of December 31, 2017, our principal manufacturing, warehouse, service and office facilities comprised a total of approximately
7 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 SEGMENT
FACILITY LOCATION
BUSINESS SEGMENT
FACILITY LOCATION
MP
Corporate/Other
AWP
Cranes
Westport, Connecticut (1)
Schaeffhausen, Switzerland
Rock Hill, South Carolina
Moses Lake, Washington (1)
North Bend, Washington (1)
Redmond, Washington (1)
Changzhou, China
Umbertide, Italy
Darra, Australia (1)
Watertown, South Dakota (1)
Huron, South Dakota
Brisbane, Australia (1)
Multiple Business
Segments
Betim, Brazil (1) (2)
Long Crendon, England (1)
Zweibrücken-Dinglerstrasse, Germany(1)
Zweibrücken-Wallerscheid, Germany (1)
Crespellano, Italy
Fontanafredda, Italy
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)
Oklahoma City, Oklahoma
(1) These facilities are either partially or fully leased or subleased.
(2) Plans have been announced to exit the business associated with this facility.
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. From time to time, we may determine that certain
of our properties exceed our requirements. Such properties may be sold, leased or utilized in another manner.
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, 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 R –
“Litigation and Contingencies,” in the Notes to the Consolidated Financial Statements.
ITEM 4.
MINE SAFETY DISCLOSURE
Not applicable.
23
PART II
ITEM 5.
MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock, par value $.01 per share (“Common Stock”) is traded on the New York Stock Exchange (“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:
High
Low
Dividends
2017
2016
Fourth
Third
Second
First
Fourth
Third
Second
First
$
$
$
$
48.90
41.68
$0.08
$
$
45.10
35.79
$0.08
37.90
30.25
$0.08
$
$
$
$
33.87
28.67
$0.08
$
$
33.17
21.88
$0.07
$
$
25.66
19.49
$0.07
25.57
18.91
$0.07
$
$
25.38
13.62
$0.07
Certain of our debt agreements contain restrictions as to the payment of cash dividends to stockholders. In addition, Delaware
law limits payment of dividends. In the first quarter of 2018, the Company’s Board of Directors declared a dividend of $0.10 per
share to be paid on March 19, 2018 to all stockholders of record as of the close of business on March 9, 2018. Any additional
payments of 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 12, 2018, there were 659 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 and the Peer Group (as defined below) for the period commencing December 31, 2012 through December 31,
2017. 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 Peer Group are weighted by market capitalization.
The Peer Group consists of the following companies that are in our same industry, of comparable revenue size to us and/or other
manufacturing companies: AGCO Corporation, Carlisle Companies Inc., Crane Company, Dana Incorporated, Dover Corporation,
Flowserve Corporation, Hubbell Inc., Lennox International Inc., The Manitowoc Company, Inc., Meritor Inc., Navistar
International Corporation, Oshkosh Corporation, Pentair Ltd., Rockwell Automation, Inc., Roper Technologies Inc., Timken
Company, Trinity Industries Inc. and Westinghouse Air Brake Technologies Corporation.
24
Terex Corporation
S&P 500
Peer Group
12/12
100.00
100.00
100.00
12/13
149.57
132.39
145.94
12/14
99.86
150.51
142.36
12/15
66.88
152.59
127.83
12/16
115.54
170.84
159.28
12/17
178.24
208.14
209.65
Copyright© 2018 Standard & Poor's, a division of S&P Global. All rights reserved.
25
Purchases of Equity Securities
The following table provides information about our purchases during the quarter ended December 31, 2017 of our common stock
that is registered by us pursuant to the Exchange Act.
Issuer Purchases of Equity Securities
Period
October 1, 2017 – October 31, 2017
November 1, 2017 – November 30, 2017
December 1, 2017 – December 31, 2017
Total
(a) Total Number of
Shares Purchased (2)
186,750
3,013,098
211,544
3,411,392
(b) Average Price
Paid per Share
$44.97
$44.97
$46.63
$45.08
(c) Total Number
of Shares
Purchased as Part
of Publicly
Announced Plans
or Programs (1)
184,918
3,011,884
210,312
3,407,114
(d) Approximate
Dollar Value of
Shares that May
Yet be Purchased
Under the Plans
or Programs (in
thousands) (1)
$145,261
$9,807
$—
$—
(1)
In May 2017, our Board of Directors authorized and the Company publicly announced the repurchase of up to an additional $280 million of the Company’s
outstanding common shares. In September 2017, our Board of Directors authorized and the Company publicly announced the repurchase of up to an additional
$225 million of the Company’s outstanding common shares.
(2) Amount includes shares of common stock to satisfy requirements under its deferred compensation obligations to employees.
26
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)
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
AS OF OR FOR THE YEAR ENDED DECEMBER 31,
2017
2016
2015
2014
2013
$ 4,363.4
$ 4,443.1
$ 5,021.7
$ 5,484.0
$ 5,344.5
173.6
60.0
—
68.7
(147.8)
(193.3)
14.3
3.5
323.7
128.2
17.4
3.4
400.0
252.0
8.9
58.6
319.0
418.6
222.1
(3.8)
2.6
226.0
Net income (loss) attributable to common stockholders
128.7
(176.1)
145.9
Per Common and Common Equivalent Share:
Basic attributable to common stockholders
Income (loss) from continuing operations
$
0.65
$
(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
—
0.74
1.39
0.13
0.03
(1.63)
Diluted attributable to common stockholders
Income (loss) from continuing operations
$
0.63
$
(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
—
0.73
1.36
0.13
0.03
(1.63)
$
$
1.20
0.13
0.03
1.36
1.17
0.13
0.03
1.33
2.31
0.06
0.54
2.91
2.22
0.06
0.51
2.79
$
2.04
(0.03)
0.02
2.03
$
1.94
(0.03)
0.02
1.93
CURRENT ASSETS AND LIABILITIES
Current assets
Current liabilities
PROPERTY, PLANT AND EQUIPMENT
Net property, plant and equipment
Capital expenditures
Depreciation
TOTAL ASSETS
CAPITALIZATION
$ 2,383.0
$ 2,700.5
$ 3,140.2
$ 3,352.3
$ 3,633.9
1,035.5
1,407.0
1,458.6
1,643.0
1,724.7
$
311.0
$
304.6
$
371.9
$
339.7
$
373.2
(43.5)
59.9
(58.1)
65.5
(81.5)
63.9
(58.3)
70.4
(55.4)
68.9
$ 3,462.5
$ 5,006.8
$ 5,616.0
$ 5,903.3
$ 6,511.2
Long-term debt and notes payable (includes capital leases)
$
984.8
$ 1,575.8
$ 1,796.2
$ 1,754.8
$ 1,922.5
Total Terex Corporation Stockholders’ Equity
1,222.0
1,484.7
1,877.4
2,005.9
2,190.1
Dividends per share of Common Stock
Shares of Common Stock outstanding at year end
EMPLOYEES
(1)
0.32
80.2
0.28
105.0
0.24
107.7
0.20
105.4
0.05
109.9
10,700
11,300
13,700
13,400
13,100
For more information on items that affect comparability among the years, see Note E - “Discontinued Operations and Assets and Liabilities Held
for Sale”, Note K - “Goodwill and Intangible Assets, Net”, Note M - “Restructuring and Other Charges” and Note N - “Long-Term Obligations”
in the Notes to the Consolidated Financial Statements.
(1) Excludes approximately 6,800, 6,700, 7,000, and 7,400 MHPS employees in years 2016, 2015, 2014, and 2013, respectively.
27
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
BUSINESS DESCRIPTION
Terex is a global manufacturer of aerial work platforms, cranes and materials processing machinery. We design, build and support
products used in construction, maintenance, manufacturing, energy, minerals and materials management applications. Our products
are manufactured in North and South America, Europe, Australia and Asia and sold worldwide. We engage with customers through
all stages of the product life cycle, from initial specification and financing to parts and service support. We manage and report
our business in the following segments: (i) AWP; (ii) Cranes; and (iii) MP. Please refer to Note C - “Business Segment Information”
in the accompanying Consolidated Financial Statements for further information about our reportable segments.
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 effects
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, 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. Our 2018 outlook for earnings per share is a non-GAAP financial measure because it excludes items such as restructuring
and other related charges, transformation costs, the impact of the release of tax valuation allowances, gains and losses on divestitures
and other unusual items such as the impact of H.R. 1 “An Act to provide for reconciliation pursuant to titles II and V of the
concurrent resolution on the budget for fiscal year 2018” (formerly known as “Tax Cuts and Jobs Act” and is referred to as the
“2017 Federal Tax Act”). 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 2018 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 (net of allowance), 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 months 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.
28
Non-GAAP measures we also use include Net Operating Profit After Tax (“NOPAT”) as adjusted, income (loss) from operations
as adjusted, annualized effective tax rate as adjusted, cash and cash equivalents as adjusted, debt as adjusted and Terex Corporation
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.
Overview
Focus, Simplify and Execute to Win are the three pillars of our business strategy and we made meaningful progress on our strategic
priorities throughout the year. We completed the first pillar of our strategy in 2017, focusing the portfolio on our core three segments.
Going forward, our strategy deployment efforts will be concentrated on simplifying the Company and implementing our “Execute
to Win” business system.
In 2017, we exited 12 manufacturing facilities, reducing our global footprint by approximately 27%. Many of these actions were
central to the Cranes restructuring plan and its significant operating improvement. See Note M - “Restructuring and Other Charges”
in our Consolidated Financial Statements for more information on restructuring actions in our Cranes segment. The Finance and
IT teams will be at the forefront of our administrative simplification efforts in 2018. There are several major projects underway
to simplify our account structure, improve processes and enhance performance measurement systems across our Company.
Our “Execute to Win” business system has three priority areas: Lifecycle Solutions, Commercial Excellence and Strategic Sourcing.
Under Lifecycle Solutions, our global parts initiatives are progressing as we have teams focused on specific operational
improvements to improve service levels to our customers. Our 2018 focus will be on building our global parts organization and
developing a longer term telematics strategy. Our Commercial Excellence initiative continues to make progress as we enhanced
performance management tools, improved process discipline in sales pipeline and account management and strengthened our
commercial leadership. On Strategic Sourcing, we established the global organization in 2017 and launched the first of successive
waves to leverage our global purchasing scale. We will be selecting suppliers and begin implementation throughout 2018.
Our full year 2017 financial results demonstrate the significant improvement across the Company as all three segments finished
the year strong. AWP sales increased year-over-year, and importantly, its operating margins improved in the second half of the
year as well. Our Cranes segment’s profitability improved year-over-year, realizing benefits from its restructuring program. Our
MP segment had another strong year, growing sales and operating margin. We see positive momentum in our backlog (firm orders
expected to be filled within one year) for our segments, which was up 56% year-over-year, excluding Corporate and Other. This
is the fourth consecutive quarter of backlog growth in each of our business segments.
Our AWP segment’s full year 2017 results included better than expected net sales and improved operating margins in the second
half of the year, although increased commodity prices, mostly for steel, was a headwind. As we enter 2018, we believe that the
replacement cycle trough is waning and we are entering a period of growth. There is accelerating momentum in the global aerials
market as worldwide product demand is increasing and rental customers are seeing continued improvement in utilization and
rental rates. This can be seen in AWP’s backlog, which is up 51% on a year-over-year basis. We expect margins to improve in
2018, driven by improved product pricing and manufacturing productivity, although the price of steel is a potential headwind we
continue to monitor.
Our Cranes segment made significant progress in 2017 as profitability improved year-over-year despite net sales declining. The
global crane market remained challenging, but we are seeing signs of stabilization and we saw growth in markets for our tower
cranes and utilities products. Entering 2018, we are expecting our first year of sales growth after seven consecutive years of
declining sales. We believe there will be pockets of market growth aided by higher oil prices, lower used equipment inventory
and general economic growth. We also anticipate new product launches will drive our sales higher in 2018. We are optimistic
about Cranes backlog, which grew 70% year-over year. Importantly, profitability is also expected to improve in 2018.
Our MP segment had an excellent finish to another strong year, with its operating profit improving on increased net sales. Growth
was driven by our crushing and screening, scrap material handling and environmental product lines. Crushing and screening
remained stable in North America, with growth across Europe, Asia and Australia. Our material handling business continued to
grow, benefiting from improvements to our commercial capabilities and an improving market outlook. As we enter 2018, we
expect global demand for crushing and screening equipment to continue to grow, driven by aggregate consumption. We also
expect stronger demand for our material handling equipment and our broad line of environmental products. We are encouraged
by our backlog for the segment, which is up 47% compared to the prior year and expect to expand our margins as well in 2018,
although the strengthening of the British Pound is a potential headwind.
29
Geographically, our largest market remains North America, which represents approximately 53% of our global sales in continuing
operations. Our sales grew in North America, Eastern Europe/Middle East/Africa and Asia/Pacific on a year-over-year basis.
However, our Western European sales were generally stable and Latin American sales were down.
In 2017, we delivered on our commitment to follow our disciplined capital allocation strategy. We improved our balance sheet,
reduced our interest expense and rates and returned $924 million to shareholders through share repurchases. See Part II, Item 5
“Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” for further
information on our share repurchases. We are committed to following the same disciplined capital allocation strategy in 2018.
As a result, our Board of Directors recently authorized the repurchase of up to an additional $325 million of Terex stock. Our
Board of Directors also approved raising our quarterly dividend by 25% to $0.10 per share.
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.
By implementing our strategy and strengthening the Company, we are well positioned for what we expect to be an improving
global market environment in 2018. We expect to increase revenue and improve operating margins in every business segment.
We expect 2018 earnings per share (“EPS”) to be between $2.35 and $2.65, excluding restructuring and other unusual items on
net sales of approximately $4.8 billion. Our EPS guidance excludes any benefit associated with the additional share repurchase
authorization and includes an approximately 400 basis point reduction in our effective tax rate, driven principally by changes to
the U.S. tax code. See Note D - “Income Taxes” for a detailed description of the impact of changes to the U.S. tax code on our
Company.
ROIC
ROIC and Non-GAAP Measures (as calculated below) assist in showing how effectively we utilize capital invested in our operations.
ROIC is determined by dividing the sum of NOPAT for each of the previous four quarters by the average of Debt less Cash and
cash equivalents plus Terex Corporation stockholders’ equity for the previous five quarters. NOPAT for each quarter is calculated
by multiplying Income (loss) from operations as adjusted by one minus the annualized effective tax rate.
In the calculation of ROIC, we adjust income (loss) from operations, annualized effective tax rate, cash and cash equivalents, debt
and Terex Corporation stockholders’ equity to remove the effects of the impact of certain transactions in order to create a measure
that is useful to understanding our operating results and the ongoing performance of our underlying business without the impact
of unusual items as shown in the tables below. 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.
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.
Terex management and Board of Directors use ROIC as one measure 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 Terex Corporation
stockholders’ equity, as adjusted 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 for the year ended
December 31, 2017 was 8.0%.
30
Amounts described below are reported in millions of U.S. dollars, except for the annualized effective tax rate. Amounts are as of
and for the three months ended for the periods referenced in the tables below.
Dec ’17
Sep '17
Jun '17
Mar '17
Dec ’16
Annualized effective tax rate, as adjusted
26.9%
26.9%
26.9%
26.9%
Income (loss) from operations, as adjusted
Multiplied by: 1 minus annualized effective tax rate,
as adjusted
NOPAT, as adjusted
Debt, as adjusted
Less: Cash and cash equivalents, as adjusted
Debt less Cash and cash equivalents, as adjusted
$
$
$
$
44.4
$
70.4
$
79.1
$
12.3
73.1%
32.5
984.8
(630.1)
354.7
$
$
$
73.1%
51.5
984.9
(595.7)
389.2
$
$
$
73.1%
57.8
$
73.1%
9.0
992.0
(558.6)
433.4
$ 1,242.8
(816.4)
426.4
$
Terex Corporation stockholders’ equity, as adjusted
$ 1,078.3
$ 1,193.7
$ 1,342.6
$ 1,527.3
Debt less Cash and cash equivalents plus Total Terex
Corporation stockholders’ equity, as adjusted
$ 1,433.0
$ 1,582.9
$ 1,776.0
$ 1,953.7
$
$
$
$
1,592.6
(501.9)
1,090.7
1,553.1
2,643.8
December 31, 2017 ROIC
NOPAT, as adjusted (last 4 quarters)
Average Debt less Cash and cash equivalents plus Terex
Corporation stockholders’ equity, as adjusted (5 quarters)
8.0%
150.8
1,877.9
$
$
31
Reconciliation of income (loss) from operations:
Income (loss) from operations, as reported
$
39.8 $
64.2 $
75.9 $
(6.3)
Three
months
ended
12/31/17
Three
months
ended
9/30/17
Three
months
ended
06/30/17
Three
months
ended
03/31/17
Adjustments:
Deal related
Restructuring and related
Transformation
Asset impairment
(Income) loss from TFS
Income (loss) from operations, as adjusted
Reconciliation of Cash and cash equivalents:
Cash and cash equivalents - continuing operations
Cash and cash equivalents - assets held for sale
Cash and cash equivalents, as adjusted
Reconciliation of Debt:
Debt - continuing operations
Debt - liabilities held for sale
Debt, as adjusted
Reconciliation of Terex Corporation stockholders’ equity:
Terex Corporation stockholders’ equity as reported
TFS Assets
Effects of adjustments, net of tax:
Deal related
Restructuring and related
Transformation
Extinguishment of debt
Asset impairment
(Income) loss from TFS
$
$
$
$
$
$
Terex Corporation stockholders’ equity, as adjusted
$
7.1
(7.8)
9.8
—
(4.5)
44.4 $
(0.3)
(0.8)
9.1
—
(1.8)
70.4 $
2.5
(12.6)
17.9
(1.6)
(3.0)
79.1 $
3.6
9.0
8.4
—
(2.4)
12.3
As of
12/31/17
As of
9/30/17
As of
06/30/17
As of
03/31/17
As of
12/31/16
626.5 $
592.7 $
555.5 $
813.9 $
3.6
3.0
3.1
2.5
630.1 $
595.7 $
558.6 $
816.4 $
428.5
73.4
501.9
984.8 $
984.9 $
992.0 $
1,242.8 $
1,575.8
—
—
—
—
16.8
984.8 $
984.9 $
992.0 $
1,242.8 $
1,592.6
1,222.0 $
(181.7)
1,379.7 $
(220.5)
1,539.8 $
(228.7)
1,695.3 $
(236.4)
1,484.7
(238.5)
(15.3)
(8.9)
33.1
(20.6)
(3.2)
25.9
(18.3)
(2.6)
19.2
38.9
(1.2)
(8.6)
1,078.3 $
38.9
(1.2)
(5.3)
1,193.7 $
38.4
(1.2)
(4.0)
1,342.6 $
23.9
6.6
6.1
33.6
16.8
112.4
7.6
—
—
(1.8)
1,527.3 $
179.8
(9.7)
1,553.1
32
Reconciliation of annualized effective tax rate:
Income tax rate, as reported
Effect of adjustments:
Deal related
Restructuring and related
Transformation
Extinguishment of debt
Asset impairment
Tax related
2017 Federal Tax Act
Annualized effective income tax rate, as adjusted
Sale of MHPS Business
Income (loss) from
continuing operations
before income taxes
(Provision for)
benefit from
income taxes
Income tax
rate
$
112.0
$
(52.0)
46.4%
(20.9)
(12.2)
45.2
53.1
(1.6)
—
—
175.6
(11.3)
(0.5)
(10.1)
(19.0)
0.6
(5.3)
50.4
(47.2)
26.9%
See Item 1, Business, and Note B – “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, which was completed on January 4, 2017.
33
RESULTS OF OPERATIONS
2017 COMPARED WITH 2016
Consolidated
2017
2016
Net sales
Gross profit
SG&A
Goodwill impairment
Income (loss) from operations
$
$
$
$
$
4,363.4
816.0
642.4
—
173.6
*
Not meaningful as a percentage
% of
Sales
($ amounts in millions)
—
18.7%
14.7%
—%
4.0%
$
$
$
$
$
4,443.1
712.4
684.2
176.0
(147.8)
% of
Sales
% Change In
Reported Amounts
—
16.0 %
15.4 %
4.0 %
(3.3)%
(1.8)%
14.5 %
(6.1)%
*
217.5 %
Net sales for the year ended December 31, 2017 decreased $79.7 million when compared to 2016. The decline in net sales was
primarily due to disposition of remaining construction equipment product lines and lower net sales in certain Cranes product lines.
These declines were partially offset by higher demand for equipment in our MP and AWP segments.
Gross profit for the year ended December 31, 2017 increased $103.6 million when compared to 2016. The increase was primarily
due to higher sales volume in our MP and AWP segments, reduced restructuring and warranty charges in our Cranes segment and
improved factory utilization in our AWP segment. The increase was partially offset by changes in customer mix and commodity
price increases (primarily steel) in AWP, lower sales volume in Cranes and divestiture of certain construction product lines in
Corporate.
SG&A costs for the year ended December 31, 2017 decreased $41.8 million when compared to 2016. The decrease was primarily
due to reduced costs associated with the divestiture of certain construction product lines in Corporate and severance in Cranes,
partially offset by greater investment in our transformation initiatives in 2017 and higher accruals for team member incentive
compensation due to improved Company performance in 2017.
In the year ended December 31, 2016, we recorded a non-cash impairment charge of approximately $176 million to write down
the value of goodwill due to deteriorating market conditions in our Cranes segment.
Income from operations increased by $321.4 million for the year ended December 31, 2017 when compared to 2016. The increase
was primarily due to year-over-year operating improvement in our Cranes segment mostly due to charges taken in 2016 that did
not recur in 2017, reductions to severance accruals and warranty costs and structural cost savings as well as higher sales volume
in our MP segment, partially offset by lower operating performance in our AWP segment, mostly due to changes in customer mix
and increased commodity prices (primarily steel related).
Aerial Work Platforms
2017
2016
% of
Sales
($ amounts in millions)
% of
Sales
% Change In
Reported Amounts
Net sales
Income (loss) from operations
$
$
2,071.5
170.3
—
8.2%
$
$
1,977.8
177.4
—
9.0%
4.7 %
(4.0)%
Net sales for the AWP segment for the year ended December 31, 2017 increased $93.7 million when compared to 2016, primarily
due to higher demand for aerial equipment in North America and Western Europe, particularly with respect to booms and
telehandlers.
Income from operations for the year ended December 31, 2017 decreased $7.1 million when compared to 2016. The decrease
was primarily due to increased commodity prices (primarily steel related) and changes in customer mix, partially offset by improved
factory utilization and increased sales volume.
34
Cranes
2017
2016
% of
Sales
($ amounts in millions)
% of
Sales
% Change In
Reported Amounts
Net sales
Income (loss) from operations
$
$
1,194.0
(17.8)
—
(1.5)%
$
$
1,274.5
(321.7)
—
(25.2)%
(6.3)%
94.5 %
Net sales for the Cranes segment for the year ended December 31, 2017 decreased by $80.5 million when compared to 2016, as
global crane markets, although stabilizing, were adversely impacted in 2017 by low oil, gas and commodity prices, reduced demand
for large crawler and rough terrain cranes in the wind energy market in Germany and production constraints at our Oklahoma City
facility. This was partially offset by the positive impact of foreign exchange rate changes, particularly in Europe, of approximately
$16 million.
Loss from operations for the year ended December 31, 2017 decreased by $303.9 million when compared to 2016. The year-over-
year improvement was primarily driven by charges taken in 2016 that did not recur in 2017 which included an approximately
$176 million goodwill impairment charge, approximately $92 million for severance and restructuring charges, approximately $20
million for asset impairment charges in Europe, Asia and the U.S. and approximately $17 million of charges for increased warranty
and inventory reserves. Year-over-year improvement was also due to reductions to severance accruals established in the fourth
quarter of the prior year as production volumes are expected to exceed earlier forecasts, requiring us to maintain a higher headcount,
reduced warranty costs and structural cost savings. The improvement was partially offset by lower sales volume, primarily large
crawler and rough terrain cranes, and increased commodity prices.
See Note K - “Goodwill and Intangible Assets, Net” in the accompanying Consolidated Financial Statements for more information
about the goodwill impairment charge recognized in 2016.
Materials Processing
2017
2016
% of
Sales
($ amounts in millions)
% of
Sales
% Change In
Reported Amounts
Net sales
Income (loss) from operations
$
$
1,072.5
124.8
—
11.6%
$
$
944.5
86.3
—
9.1%
13.6%
44.6%
Net sales for the MP segment increased by $128.0 million for the year ended December 31, 2017 when compared to 2016, primarily
due to higher demand for mobile crushing and screening equipment, Fuchs material handlers, and environmental equipment,
partially offset by the negative impact of foreign exchange rate changes, particularly in Europe, of approximately $7 million.
Income from operations for the year ended December 31, 2017 increased $38.5 million when compared to 2016, primarily from
the effect of increased sales volume, partially offset by higher operating expenses and the negative impact of foreign exchange
activity of approximately $4 million.
35
Corporate and Other/Eliminations
2017
2016
% of
Sales
($ amounts in millions)
% of
Sales
% Change In
Reported Amounts
Net sales
Income (loss) from operations
$
$
25.4
(103.7)
—
*
$
$
246.3
(89.8)
—
*
(89.7)%
(15.5)%
*
Not meaningful as a percentage
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. Net sales decreased by $220.9 million for the year ended December 31, 2017 when
compared to 2016, primarily attributable to approximately $293 million related to the disposition of remaining construction
equipment product lines and lower intercompany sales eliminations, partially offset by increased government sales of approximately
$42 million.
Loss from operations increased $13.9 million for the year ended December 31, 2017 when compared to 2016, primarily attributable
to greater investment in our transformation initiatives and higher accruals for team member incentive compensation, partially
offset by gains on the sale of certain construction product line assets and operating losses from divested construction product lines
incurred in the prior year.
Interest Expense, Net of Interest Income
During the year ended December 31, 2017, our interest expense, net of interest income, was $60.6 million, or $37.1 million lower
than the prior year due to lower borrowings at lower interest rates.
Loss on Early Extinguishment of Debt
During the year ended December 31, 2017, we recorded a loss on early extinguishment of debt of $52.6 million related to the
termination of our 2014 Credit Agreement, the retirement of our 6% Notes (as defined below) and 6-1/2% Notes (as defined below)
and an amendment related to the 2017 Credit Agreement which lowered the interest rate on the Company’s senior secured term
loan by 0.25%, all as further described in Note N - “Long-Term Obligations”.
Other Income (Expense) — Net
Other income (expense) – net for the year ended December 31, 2017 was income of $51.6 million, a $76.4 million increase in
income when compared to the same period in the prior year. As described in Note B - “Sale of MHPS Business”, we sold all
Konecranes shares received in connection with sale of MHPS. During the year ended December 31, 2017, we recorded a net gain
from the sale of shares of $42.0 million, including $41.6 million attributable to foreign exchange rate changes, and recorded related
dividend income of $13.5 million. Additionally, increased income in the current year period is attributable to merger-related costs
incurred and asset impairments taken in the prior year, partially offset by increased losses from foreign currency exchange in the
current year.
Income Taxes
During the year ended December 31, 2017, we recognized an income tax expense of $52.0 million on income of $112.0 million,
an effective tax rate of 46.4%, as compared to an income tax benefit of $77.4 million on a loss of $270.7 million, an effective tax
rate of 28.6%, for the year ended December 31, 2016. The higher effective tax rate for the year ended December 31, 2017 was
primarily due to tax expense associated with the 2017 Federal Tax Act partially offset by favorable jurisdictional mix.
36
On December 22, 2017, the 2017 Federal Tax Act was enacted, which includes significant changes to existing U.S. tax laws that
impact our Company, most notably, a reduction of the U.S. corporate income tax rate from 35% to 21% effective for tax years
beginning after December 31, 2017, a one-time mandatory tax (“Transition Tax”) on accumulated earnings and profits (“E&P”)
of our foreign subsidiaries that have not been subject to U.S. tax, and accelerated depreciation on certain assets placed into service
after September 27, 2017 and through December 31, 2022. We have calculated our reasonable estimate of the impact from the
2017 Federal Tax Act in our year-end income tax provision in accordance with our understanding of the 2017 Federal Tax Act and
guidance available as of the date of this filing. As a result, we recorded $50.4 million of provisional tax expense in the fourth
quarter of 2017 (i.e., enactment period of the 2017 Federal Tax Act) consisting of $29.8 million related to the Transition Tax and
$20.6 million from the remeasurement of the Company’s net deferred tax assets in the U.S. based on the new, lower 21% corporate
income tax rate. See Note D - “Income Taxes,” in our Consolidated Financial Statements.
Income (Loss) from Discontinued Operations
Income from discontinued operations for the year ended December 31, 2016 of $14.3 million was related to our MHPS business
which was sold on January 4, 2017.
Gain (Loss) on Disposition of Discontinued Operations
During the year ended December 31, 2017, we recognized a gain on disposition of discontinued operations - net of tax of $65.7
million related to the sale of our MHPS business and $3.0 million due to contractual earnout payments related to the sale of our
Atlas heavy construction equipment and knuckle-boom cranes businesses (“Atlas”). During the year ended December 31, 2016,
we recognized a gain on disposition of discontinued operations - net of tax of $3.5 million, related primarily to Atlas contractual
earnout payments.
37
2016 COMPARED WITH 2015
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 $471.5 million for the year ended December 31, 2016 when compared to 2015. The decrease
was primarily due to the Cranes segment goodwill impairment charge, lower operating performance in the AWP and Cranes
segments, for the reasons noted above, and severance and asset impairment charges in Cranes and Corporate.
38
Aerial Work Platforms
2016
2015
% of
Sales
($ 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 $10 million of general and administrative expense reductions compared to
the prior year period.
See Note K - “Goodwill and Intangible Assets, Net” in the accompanying Consolidated Financial Statements for more information
about the goodwill impairment charge recognized in 2016.
39
Materials Processing
2016
2015
% of
Sales
($ 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 $24.8 million, an increase of $1.2 million
when compared to expense of $23.6 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.
40
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.
41
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, 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 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 A – “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 net realizable value (“NRV”). These assumptions require us to analyze the
aging of and forecasted demand for our 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 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, 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 identification of specific situations and increase
our inventory reserves accordingly. As further changes in future economic or industry conditions occur, we will revise estimates
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 NRV, excess
and obsolete inventory accordingly. Any increase in our reserves will adversely impact our results of operations. Establishment
of a reserve for lower of cost or NRV, excess and obsolete inventory establishes a new cost basis in the inventory. Such reserves
are not reduced until the product is sold.
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
foreign 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 – 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, 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 if certain conditions are met by the customer.
We are generally able to mitigate some 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.
42
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 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. See
Note R – “Litigation and Contingencies” in the Notes to the Consolidated Financial Statements for further information regarding
our guarantees.
Revenue Recognition – We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the
price is fixed and determinable and collection is probable. Product is considered delivered to the customer once it has been shipped
and risk of loss has been transferred. The majority of our revenue is recognized at the time of shipment. Certain of our businesses
account for sales discounts and allowances based on sales volumes. These items primarily relate to sales volume incentives and
special pricing allowances. This requires us to estimate at the time of sale the amounts that should not be recorded as revenue as
these amounts are not expected to be collected from customers. We principally rely on historical experience, specific customer
agreements, and anticipated future trends to estimate these amounts at the time of shipment.
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. We have three reportable operating
segments: AWP, Cranes and MP. All operating segments are comprised of one reporting unit. Only AWP and MP goodwill is
tested for impairment as Cranes goodwill was fully impaired in 2016.
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, along
with other relevant market information, 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. See Note K – “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.
43
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 estimated fair value and 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 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, 2017, 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 P – “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 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
31% of the assets are in equity securities and 69% 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, 2016 and again in 2017, the Society issued improvement
scales MP-2015, MP-2016 and MP-2017, 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, 2017. 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 3.78% for the U.S. plan and 0.70% to 10.71% with a weighted average of
2.15% for non-U.S. plans at December 31, 2017. 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%. Our U.K. pension plan is frozen so there is
no expected rate of compensation increase; however, other Non-US plans’ expected rates of compensation increases were 1.00%
to 10.00% with a weighted average for all Non-U.S. plans of 0.93% at December 31, 2017. 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 $2.2 million was due to earnings on our pension assets partially offset by the negative effect of changes in foreign
exchange rates and 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, 2017:
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)
(4.2)
0.2
(9.8)
$
$
$
$
(0.3)
—
(0.3)
—
$
$
$
$
0.2
4.4
(0.2)
10.2
$
$
$
$
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 the unrecognized deferred tax
liabilities for temporary differences related to our investment in non-U.S. 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.” Given the continued changes and complexity in worldwide
tax laws, coupled with our geographic scope and size there may be greater 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.
On December 22, 2017, the SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP
when a SEC registrant does not have the necessary information available, compiled, analyzed, or reviewed in sufficient detail to
complete the accounting for certain income tax effects from the 2017 Federal Tax Act. In accordance with SAB 118, we have
made a reasonable estimate of the effects on our existing U.S. deferred tax balances and the one-time mandatory Transition Tax.
We also determined that we were not able to make a reasonable estimate of state and foreign income and withholding tax that may
be due on the actual repatriation of earnings that have been taxed for federal tax purposes. Additional work is necessary to produce
more detailed analyses as well as evaluate potential correlative adjustments. Any subsequent adjustment to these amounts will
be recorded to tax expense when the analysis is complete. See Note D - “Income Taxes,” in our Consolidated Financial Statements.
46
RECENT ACCOUNTING PRONOUNCEMENTS
Please refer to Note A – “Basis of Presentation” in the accompanying Consolidated Financial Statements for a summary of recently
issued accounting pronouncements.
LIQUIDITY AND CAPITAL RESOURCES
We are focused on generating cash and maintaining liquidity (cash and availability under our revolving credit facility) for the
efficient operation of our business. We had cash and cash equivalents, including cash and cash equivalents recorded as Current
assets held for sale, of $630.1 million at December 31, 2017. We had undrawn availability under our revolving credit facility of
$450.0 million, giving us total liquidity of $1,080.1 million. In January 2017, we reduced the size of our revolving credit facility
by $150 million, which was a key driver in the change in our liquidity at December 31, 2017 decreasing by approximately $22
million as compared to December 31, 2016. During the year ended December 31, 2017, we generated approximately $835 million
in cash due to the sale of our MHPS business, approximately $770 million in cash from the sales of our Konecranes shares and
approximately $153 million in net cash provided by operating activities. During the year ended December 31, 2017, we used our
liquidity to repay debt, net of debt issuances, of approximately $583 million and repurchase approximately $924 million of our
common stock.
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.
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. Most of this
cash could be used in the U.S., if necessary. Cash repatriated to the U.S. could be subject to incremental local taxation.
As a result of the 2017 Federal Tax Act, we have changed our indefinite reinvestment assertion related to foreign earnings that
have been taxed in the U.S. and now consider these earnings no longer indefinitely reinvested. We expect to repatriate cash in
excess of that which is indefinitely reinvested when not required by our non-U.S. subsidiaries to the U.S. and continue to plan to
indefinitely reinvest amounts in excess of earnings taxed in the U.S. See Note D - “Income Taxes,” in our Consolidated Financial
Statements. There are no 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.
Consistent with our expectations, we generated cash from operations during the year ended December 31, 2017. Generating cash
from operations depends primarily on our ability to earn net income through the sales of our products and to manage our investment
in working capital. We generated $52.7 million in free cash flow for the year ended December 31, 2017. This was primarily due
to improved profitability on our business and working capital efficiency. We are expecting to generate approximately $100 million
of free cash flow in 2018. This guidance includes spending roughly $46 million on transformation and building an additional $40
million of AWP inventories in the second half of 2018 to be prepared for 2019, but excludes approximately $20 million to purchase
our principal Northern Ireland based crushing and screening manufacturing facilities.
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
Capital expenditures
Free cash flow $
Year Ended
12/31/2017
153.0
(56.8)
(43.5)
52.7
Our main sources of funding are cash generated from operations, including cash generated from the sale of receivables, loans from
our bank credit facilities, and funds raised in capital markets. Pursuant to terms of our trade accounts receivable factoring
arrangements, during the year ended December 31, 2017, we sold, without recourse, approximately $631 million of trade accounts
receivable to improve our liquidity. During the year ended December 31, 2017, we also sold approximately $267 million of sales-
type leases and commercial loans.
47
We believe cash generated from operations, including cash generated from the sale of receivables, 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.
Working capital as a percent of trailing three month annualized net sales was 21.7% at December 31, 2017 compared to 20.8% at
December 31, 2016 demonstrating our continued efficient use of resources.
The following tables show the calculation of our working capital in continuing operations and trailing three months annualized
sales as of December 31, 2017 and 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
12/31/17
$ 1,063.6
4
$ 4,254.4
x
Three
months
ended
12/31/16
$
974.7
4
$ 3,898.8
As of
12/31/17
As of
12/31/16
$
$
969.6
579.9
(592.4)
(32.6)
924.5
$
$
853.8
512.5
(522.7)
(33.0)
810.6
On January 31, 2017, we entered into a new credit agreement which was subsequently amended on August 17, 2017 (the “2017
Credit Agreement”). The 2017 Credit Agreement provides us with a senior secured revolving line of credit of up to $450 million
that is available through January 31, 2022 and a $400 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 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 million as long as the Company satisfies a senior secured leverage ratio contained in the 2017 Credit
Agreement. Borrowings under our 2017 Credit Agreement U.S. dollar term loan were $395.1 million as of December 31, 2017
and there were no revolving credit amounts outstanding.
Our previous credit agreement provided us with a revolving line of credit of up to $600 million plus a $230 million senior secured
term loan and a €200 million senior secured term loan. See Note N - “Long-Term Obligations,” in our Consolidated Financial
Statements for information concerning the 2017 Credit Agreement and our previous credit agreement.
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
2.25%, with a floor of 0.75% on LIBOR. At December 31, 2017, the weighted average interest rate on our term loan was 3.94%.
48
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.
On January 31, 2017, we sold and issued $600 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, were used: (i) to complete a tender offer for up to $550 million of our 6% Senior Notes due 2021 (“6% Notes”),
(ii) to redeem and discharge such portion of the 6% Notes not purchased in the tender offer, (iii) to fund a $300 million partial
redemption of the 6% Notes, (iv) to fund repayment of all $300 million aggregate principal amount outstanding of our 6.5% Senior
Notes due 2020 (“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 our previous credit agreement. During the
first quarter of 2017, all of the 6% Notes were redeemed and $45.8 million of the 6-1/2% Notes were repurchased. On April 3,
2017, the remaining $254.2 million of 6-1/2% Notes was redeemed. The 5-5/8% Notes are jointly and severally guaranteed by
certain of the Company’s domestic subsidiaries. See Note N - “Long-Term Obligations” in the Notes to the Consolidated Financial
Statements for further information.
Our investment in financial services assets was approximately $182 million, net at December 31, 2017. 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.
In February 2015, we announced authorization by our Board of Directors for the repurchase of up to $200 million of our outstanding
shares of common stock, of which approximately $131 million of this authorization was utilized prior to January 1, 2017. In
February 2017, we announced authorization by our Board of Directors for the repurchase of up to an additional $350 million of
our outstanding shares of common stock. In May 2017, we announced the completion of the February 2015 and February 2017
authorizations and subsequently that our Board of Directors had authorized the repurchase of up to an additional $280 million of
our outstanding shares of common stock. In September 2017, we announced the completion of the May 2017 authorization and
subsequently that our Board of Directors had authorized the repurchase of up to an additional $225 million of our outstanding
shares of common stock. During the year ended December 31, 2017, we repurchased a total of 25.7 million shares for $923.7
million under these programs. In the first quarter of 2018, we announced authorization by our Board of Directors for the repurchase
of up to $325 million of our outstanding shares of common stock. In each quarter of 2017, our Board of Directors declared a
dividend of $0.08 per share, which was paid to our shareholders. In the first quarter of 2018, our Board of Directors declared a
quarterly dividend of $0.10 per share, to be paid on March 19, 2018 to all stockholders of record as of the close of business on
March 9, 2018.
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 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, 2017 totaled $153.0 million, compared to cash provided by operations
of $377.1 million for the year ended December 31, 2016. The decrease in cash provided by operations was primarily driven by
higher restructuring, severance and other accruals, including those related to our former MHPS business, set up in the prior year
and settled in 2017, increased inventory purchases associated with higher backlog and increased receivables associated with higher
fourth quarter sales in the current year as compared to the prior year, partially offset by increased net income.
Cash provided by investing activities for the year ended December 31, 2017 was $1,535.6 million, compared to $11.8 million cash
used in investing activities for the year ended December 31, 2016. The increase in cash provided by investing activities was
primarily due to cash received from the sale of our MHPS business, including the subsequent sale of Konecranes stock in 2017
compared to 2016.
Cash used in financing activities was $1,606.5 million for the year ended December 31, 2017, compared to cash used in financing
activities for the year ended December 31, 2016 of $310.2 million. The increase in cash used in financing was primarily due to
share repurchases and redemptions of our 6-1/2% Notes and 6% Notes and a reduction in term loans, partially offset by the issuance
of our 5-5/8% Notes in the current year period compared to 2016.
49
Contractual Obligations
The following table sets out our specified contractual obligations at December 31, 2017 (in millions):
Total
< 1 year
1-3 years
3-5 years
> 5 years
Payments due by period
Long-term debt obligations
$
1,345.6
$
55.3
$
Capital lease obligations
Operating lease obligations
Purchase obligations (1)
3.3
153.5
591.0
Total
$
2,093.4
$
0.3
31.1
587.7
674.4
111.6
1.0
45.2
3.3
$
110.7
$
1,068.0
1.3
33.8
—
0.7
43.4
—
$
161.1
$
145.8
$
1,112.1
(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, 2017 for indebtedness that has floating interest
rates.
As of December 31, 2017, our liability for uncertain income tax positions was $14.0 million. The amount of reasonably possible
payments in 2018 related to our tax audits worldwide is not significant. 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 tax authorities. Due to the high degree of uncertainty regarding the timing of potential future cash flows
associated with 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, 2017, we had outstanding letters of credit that totaled $57.4 million and had issued $45.6 million
in credit guarantees of customer financing to purchase equipment.
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 2017, we made cash contributions and payments
to the retirement plans of $9 million, and we estimate that our retirement plan contributions will be approximately $9 million in
2018. 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 if certain conditions are met by the customer.
We are generally able to mitigate some 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.
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.
See Note R – “Litigation and Contingencies” in the Notes to the Consolidated Financial Statements for further information regarding
our guarantees.
50
CONTINGENCIES AND UNCERTAINTIES
Foreign Exchange 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. We enter into foreign exchange contracts
to manage the variability of future cash flows associated with recognized assets or liabilities or forecasted transactions due to
changing currency exchange rates. Primary currencies to which we are exposed are the Euro, British Pound and Australian Dollar.
See Risk Factor entitled, “We are subject to currency fluctuations.” in Item 1A. 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 Note L - “Derivative Financial Instruments” in the Notes to the Consolidated Financial Statements for further information
about our derivatives and Item 7A. “Quantitative and Qualitative Disclosures About Market Risk” 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 R – “Litigation and Contingencies” in the Notes to the Consolidated Financial Statements
for more information concerning contingencies and uncertainties, including our securities and stockholder derivative lawsuits,
and our proceedings involving certain former shareholders of DCAG. We are insured for product liability, general liability, workers’
compensation, employer’s liability, property damage, intellectual property and other insurable risks 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 our liability. However, we do not believe these contingencies and
uncertainties will, individually or in 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.
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 related to derivative financial instruments, refer to Note L – “Derivative Financial
Instruments” in our Consolidated Financial Statements.
Foreign Exchange Risk
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. We
note that the upcoming withdrawal of the U.K. from the E.U. may negatively impact the value of the British Pound as compared
to the U.S. dollar and other currencies as the U.K. negotiates and executes its exit from the E.U., which is scheduled to occur in
2019. We assess foreign currency risk based on transactional cash flows, identify naturally offsetting positions and purchase
hedging instruments to partially offset anticipated exposures.
51
At December 31, 2017, 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, 2017 would have had an approximately $16 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, 2017, approximately 40%
of our debt was floating rate debt and the weighted average interest rate for all debt was 4.88%.
At December 31, 2017, 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, 2017 would have increased interest
expense by approximately $2 million for the year ended December 31, 2017.
Commodities Risk
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. 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. 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. 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.
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. During 2017,
unfavorable input cost changes in some areas, largely related to steel prices, were partially offset by favorable changes in other
areas. We continue to monitor global steel prices, as a sustained increase in prices would have an unfavorable impact on our input
costs.
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 2017 and 2016 are as follows (in millions, except
per share amounts):
Net sales
Gross profit
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
(26.7)
Per share:
Basic
2017
2016
Fourth
Third
Second
First
Fourth
Third
Second
First
$ 1,063.6
$ 1,111.2
$ 1,181.7
$ 1,006.9
$
974.7
$ 1,056.4
$ 1,297.7
$ 1,114.3
204.0
219.0
240.7
152.3
104.7
183.9
242.1
181.7
(31.7)
56.6
95.4
(60.3)
(313.9)
—
5.0
—
2.6
59.2
—
5.4
100.8
—
55.7
(4.6)
46.7
—
(267.2)
33.3
63.5
—
96.8
109.6
(22.0)
(44.6)
(52.2)
0.1
65.1
3.4
(70.8)
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
$
(0.38)
$
0.64
$
0.99
$
(0.57)
$
(2.96)
$
0.31
$
1.01
$
(0.20)
—
0.06
(0.32)
—
0.03
0.67
—
0.06
1.05
—
0.53
0.44
—
0.59
(0.41)
(0.48)
—
—
0.03
(0.04)
(2.52)
0.90
0.60
(0.65)
$
(0.37)
$
0.63
$
0.98
$
(0.57)
$
(2.96)
$
0.31
$
1.00
$
(0.20)
—
0.06
(0.31)
—
0.03
0.66
—
0.06
1.04
—
0.53
0.44
—
0.58
(0.41)
(0.48)
—
—
0.03
(0.04)
(2.52)
0.89
0.59
(0.65)
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, 2017, 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, 2017.
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, 2017. 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, 2017, the Company’s
internal control over financial reporting was effective.
The effectiveness of our internal control over financial reporting as of December 31, 2017 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, 2017, 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, 2017:
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)
2,587 (1)
—
2,587
$65.57
—
Number of securities
remaining available for
future issuance under equity
compensation plans
(excluding securities
reflected in column (a)) (c)
2,182,443
—
2,182,443
(1) This does not include 3,111,057 shares of restricted stock awards and 762,953 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
The exhibits set forth below are filed as part of this Form 10-K.
Exhibit
No.
2.1
2.2
3.1
3.2
3.3
3.4
3.5
4.1
4.2
4.3
10.1
10.2
10.3
Exhibit
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).
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 10.1
of the Form 8-K Current Report, Commission File No. 1-10702, dated May 11, 2017 and filed with the Commission
on May 15, 2017). ***
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). ***
56
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
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 granted prior to 2017) under the Terex Corporation Amended and
Restated 2009 Omnibus Incentive Plan between Terex Corporation and participants of the 2009 Omnibus Incentive
Plan (incorporated by reference to Exhibit 10.17 of the Form 10-K for the year ended December 31, 2011). ***
Form of Restricted Stock Agreement (performance based granted prior to 2017) under the Terex Corporation Amended
and Restated 2009 Omnibus Incentive Plan between Terex Corporation and participants of the 2009 Omnibus Incentive
Plan (incorporated by reference to Exhibit 10.18 of the Form 10-K for the year ended December 31, 2011).***
Form of Restricted Stock Agreement (time based granted 2017) under the Terex Corporation Amended and Restated
2009 Omnibus Incentive Plan between Terex Corporation and participants of the 2009 Omnibus Incentive Plan
(incorporated by reference to Exhibit 10.9 of the Form 10-Q for the quarter ended March 31, 2017 of Terex Corporation,
Commission File No. 1-10702). ***
Form of Restricted Stock Agreement (performance based granted 2017) under the Terex Corporation Amended and
Restated 2009 Omnibus Incentive Plan between Terex Corporation and participants of the 2009 Omnibus Incentive
Plan (incorporated by reference to Exhibit 10.10 of the Form 10-Q for the quarter ended March 31, 2017 of Terex
Corporation, Commission File No. 1-10702). ***
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 10.2 of the
Form 8-K Current Report, Commission File No. 1-10702, dated January 31, 2017 and filed with the Commission
February 2, 2017).
Supplement No. 1 dated as of April 6, 2017 to the 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 10.13 of the Form 10-Q for the quarter ended March 31, 2017 of Terex
Corporation, Commission File No. 1-10702).
Incremental Assumption Agreement and Amendment No. 1 dated as of August 17, 2017, to the Credit Agreement
dated as of January 31, 2017, among Terex Corporation, 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 17, 2017 and filed with the Commission on August 17, 2017).
Form of Change in Control and Severance Agreement between Terex Corporation and certain executive officers
(incorporated by reference to Exhibit 10.14 of the Form 10-Q for the quarter ended March 31, 2017 of Terex
Corporation, Commission File No. 1-10702). ***
Form of Change in Control and Severance Agreement between Terex Corporation and certain executive officers
(incorporated by reference to Exhibit 10.15 of the Form 10-Q for the quarter ended March 31, 2017 of Terex
Corporation, Commission File No. 1-10702). ***
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). ***
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).
57
10.19
10.20
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).
Letter Agreement among Marcato Capital Management LP, Marcato International Master Fund, Ltd., Matthew Hepler
and Terex Corporation, dated February 2, 2017 (incorporated by reference to Exhibit B of the Schedule 13D of Marcato
Capital Management LP, Richard T. McGuire III and Marcato International Master Fund, Ltd., dated February 2,
2017 and filed with the Securities and Exchange Commission on February 3, 2017).
10.21
Employment Letter from Terex Corporation signed by John Sheehan on February 5, 2017. *, ***
12
21.1
23.1
24.1
31.1
31.2
32
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. *
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.
ITEM 16.
FORM 10-K SUMMARY
Not applicable.
58
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 16, 2018
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/ John D. Sheehan
John D. Sheehan
/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/ Andra M. Rush
Andra M. Rush
*/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)
DATE
February 16, 2018
February 16, 2018
February 16, 2018
Director
Director
Director
Director
Director
Director
Non-Executive Chairman and Director
Director
Director
Director
*By /s/ John D. Sheehan
John D. Sheehan, as Attorney-in-Fact
February 16, 2018
59
TEREX CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
TEREX CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2017 AND 2016
AND FOR EACH OF THE THREE YEARS
IN THE PERIOD ENDED DECEMBER 31, 2017
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-4
F-5
F-6
F-7
F-8
F-9
F-58
All other schedules for which provision is made in the applicable regulations of the Securities and Exchange Commission (“SEC”)
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
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheet of Terex Corporation and its subsidiaries as of December 31, 2017
and 2016, and the related consolidated statements of income (loss), comprehensive income (loss), changes in stockholders’ equity
and cash flows for each of the three years in the period ended December 31, 2017, including the related notes and financial statement
schedule listed in the accompanying index (collectively referred to as the “consolidated financial statements”). We also have
audited the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal
Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of the Company as of December 31, 2017 and 2016, and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2017 in conformity with accounting principles generally accepted in the United States of
America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting
as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Change in Accounting Principles
As discussed in Note A to the consolidated financial statements, the Company changed the manner in which it accounts for stock
compensation and the manner in which it accounts for certain cash payments on the consolidated statement of cash flows in 2017.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, 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 the Company’s consolidated financial statements and on the Company's internal control over financial reporting
based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United
States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether
due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement
of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the consolidated financial statements. 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.
F-2
Definition and Limitations of Internal Control over Financial Reporting
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 16, 2018
We have served as the Company’s auditor since 1992.
F-3
TEREX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (LOSS)
(in millions, except per share data)
Year Ended
December 31,
2016
2015
$
5,021.7
(4,050.5)
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
Loss on early extinguishment of debt
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
$
$
$
$
$
$
$
$
4,443.1
(3,730.7)
712.4
(684.2)
(176.0)
(147.8)
4.3
(102.0)
(0.4)
(24.8)
(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) $
2017
4,363.4
(3,547.4)
816.0
(642.4)
—
173.6
6.9
(67.5)
(52.6)
51.6
112.0
(52.0)
60.0
—
68.7
128.7
—
—
128.7
60.0
—
68.7
128.7
0.65
—
0.74
1.39
$
$
$
$
$
$
0.63
$
$
—
0.73
1.36
92.8
94.9
971.2
(647.5)
—
323.7
3.8
(108.1)
(0.1)
(23.6)
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
107.9
107.9
107.4
109.6
The accompanying notes are an integral part of these consolidated financial statements.
F-4
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 $(7.5), $14.0
and $11.7, respectively
Derivative hedging adjustment, net of (provision for) benefit from taxes of $(1.2), $1.2 and
$(0.4), respectively
Debt and equity securities adjustment, net of (provision for) benefit from taxes of $0.0,
$(0.1) and $0.1, respectively
Pension liability adjustment:
Net gain (loss), net of (provision for) benefit from taxes of $(2.8), $12.1 and $2.6,
respectively
Amortization of actuarial (gain) loss, net of provision for (benefit from) taxes of $(2.2),
$(3.1) and $(1.6), respectively
Divestiture of business, net of provision for (benefit from) taxes of $(23.9), $0.0 and $0.0,
respectively
Foreign exchange and other effects, net of (provision for) benefit from taxes of $1.9,
$(2.4) and $(1.9), respectively
Total pension liability adjustment
Other comprehensive income (loss)
Comprehensive income (loss)
Comprehensive loss (income) attributable to noncontrolling interest
Year Ended December 31,
2017
2016
2015
$
128.7 $
(175.5) $
149.0
470.6
(123.0)
(247.3)
4.5
3.7
5.0
5.7
55.5
(5.1)
61.1
539.9
668.6
—
(4.7)
6.9
3.0
(7.9)
(28.3)
11.7
6.7
—
12.2
(9.4)
(130.2)
(305.7)
(0.2)
9.6
—
11.0
32.3
(219.9)
(70.9)
(3.0)
(73.9)
Comprehensive income (loss) attributable to Terex Corporation
$
668.6 $
(305.9) $
The accompanying notes are an integral part of these consolidated financial statements.
F-5
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 $16.2 and $16.5 at December 31, 2017 and 2016,
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 130.4 and 129.6 shares at
December 31, 2017 and 2016, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive (loss) income
Less cost of shares of common stock in treasury – 50.2 and 24.6 shares at December 31, 2017 and
2016, respectively
Total Terex Corporation stockholders’ equity
Noncontrolling interest
Total stockholders’ equity
Total liabilities, noncontrolling interest and stockholders’ equity
December 31,
2017
2016
$
626.5
$
428.5
579.9
969.6
203.4
3.6
2,383.0
311.0
273.6
13.8
481.1
—
3,462.5
5.2
592.4
159.6
44.7
231.6
2.0
1,035.5
979.6
151.3
72.6
1.0
2,240.0
$
$
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
1.3
1,322.0
1,995.9
(239.5)
(1,857.7)
1,222.0
0.5
1,222.5
3,462.5
$
1.3
1,300.0
1,897.9
(779.4)
(935.1)
1,484.7
36.5
1,521.2
5,006.8
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-6
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, 2014
105.4
$
$
1,251.5
$ 1,984.9
$
(429.8) $
(801.9) $
33.2
$ 2,039.1
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
Net Income (Loss)
Other Comprehensive Income (Loss) – net
of tax
Issuance of Common Stock
Compensation under Stock-based Plans –
net
Dividends
Divestiture
Acquisition of Treasury Stock
Balance at December 31, 2017
—
—
4.3
—
—
—
(2.0)
107.7
—
—
0.8
0.1
—
—
(3.6)
105.0
—
—
0.8
0.2
—
—
(25.8)
1.2
—
—
0.1
—
—
—
—
1.3
—
—
—
—
—
—
—
1.3
—
—
—
—
—
—
—
—
—
25.8
(4.5)
0.4
0.1
—
145.9
—
—
—
(26.2)
—
—
1,273.3
2,104.6
—
—
22.1
4.0
—
0.6
—
(176.1)
—
—
—
—
(30.6)
—
1,300.0
1,897.9
—
—
21.0
0.2
0.8
—
—
128.7
—
—
(0.4)
(30.3)
—
—
—
(219.8)
—
—
—
—
—
(649.6)
—
(129.8)
—
—
—
—
—
(779.4)
—
539.9
—
—
—
—
—
—
—
—
2.3
—
—
(52.6)
(852.2)
—
—
—
1.4
—
—
(84.3)
(935.1)
—
—
—
4.0
—
—
(926.6)
3.1
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)
—
36.5
—
—
—
—
—
(36.0)
—
0.5
22.1
5.4
2.9
(31.2)
(84.3)
1,521.2
128.7
539.9
21.0
3.8
(29.5)
(36.0)
(926.6)
$ 1,222.5
80.2
$
1.3
$
1,322.0
$ 1,995.9
$
(239.5) $ (1,857.7) $
The accompanying notes are an integral part of these financial statements.
F-7
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
Loss on early extinguishment of debt
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
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
Payment of debt extinguishment costs
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,
2017
2016
2015
$
128.7
$
(175.5) $
149.0
66.5
(68.7)
37.6
—
6.8
(58.0)
52.6
38.5
34.0
(0.5)
(33.5)
25.0
(14.7)
(29.8)
(31.5)
153.0
(43.5)
—
775.7
803.4
—
1,535.6
(1,594.1)
1,010.7
(36.4)
(924.9)
(29.5)
(32.3)
(1,606.5)
46.1
128.2
501.9
96.7
(3.5)
(137.6)
176.0
70.0
(5.8)
0.4
37.8
60.2
33.0
97.3
(21.0)
16.9
175.7
(43.5)
377.1
(73.0)
(7.0)
3.5
67.2
(2.5)
(11.8)
(1,286.3)
1,097.7
—
(82.7)
(30.0)
(8.9)
(310.2)
(19.7)
35.4
466.5
$
630.1
$
501.9
$
132.4
(3.4)
(2.6)
11.3
25.4
(1.0)
0.1
38.5
32.0
74.1
(90.6)
41.7
16.1
(214.0)
18.5
227.5
(103.8)
(71.2)
(0.2)
3.1
(0.6)
(172.7)
(1,397.8)
1,462.8
—
(50.8)
(25.8)
(17.4)
(29.0)
(37.5)
(11.7)
478.2
466.5
The accompanying notes are an integral part of these consolidated financial statements.
F-8
TEREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions, unless otherwise noted, except per share amounts)
NOTE A – BASIS OF PRESENTATION
Principles of Consolidation. The Consolidated Financial Statements include the accounts of Terex Corporation, its majority-
owned subsidiaries and other controlled 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. See discussion below for reclassification and cumulative effect adjustment impacts related to adoption of
Accounting Standards Update (“ASU”) 2016-09, “Compensation-Stock Compensation (Topic 718), Improvements to Employee
Share-Based Payment Accounting” and ASU 2016-15, “Statement of Cash Flows (Topic 230), Classification of Certain Cash
Receipts and Cash Payments”. Additionally, certain prior period amounts have been reclassified to conform with the 2017
presentation.
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,
2017 and 2016 include $5.0 million and $6.0 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.
Inventories. Inventories are stated at the lower of cost or net realizable value (“NRV”). Cost is determined by the average cost
and first-in, first-out (“FIFO”) methods (approximately 10% and 90%, 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 NRV. 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, 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,
2017 and 2016, reserves for lower of cost or NRV, excess and obsolete inventory totaled $85.8 million and $83.3 million,
respectively.
If actual conditions are less favorable than those the Company has projected, the Company will increase its reserves for lower of
cost or NRV, excess and obsolete inventory accordingly. Any increase in the Company’s reserves will adversely impact its results
of operations. Establishment of a reserve for lower of cost or NRV, 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”).
F-9
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. 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. Debt issuance costs related to
securing the Company’s 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 $22.2 million and $21.2 million
(net of accumulated amortization of $3.6 million and $28.9 million) at December 31, 2017 and 2016, 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
ninety-nine 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 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. 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 operating results are regularly reviewed by the Company’s chief operating decision maker. The Company has three
reportable operating segments: Aerial Work Platforms (“AWP”), Cranes and Materials Processing (“MP”). All operating segments
are comprised of one reporting unit. Only AWP and MP goodwill is tested for impairment as Cranes goodwill was fully impaired
in 2016.
The Company 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 the Company elects not to perform a qualitative
analysis, the Company performs 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. 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. The 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 the 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
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 the annual impairment test performed as of October 1, 2017, 2016 and 2015, the Company recorded a non-cash
charge of $176.0 million in our Cranes segment during the year ended December 31, 2016 and a non-cash charge of $11.3 million
in our former Material Handling and Port Solutions (“MHPS”) segment, which is a discontinued operation, during the year ended
December 31, 2015. There were no goodwill impairment charges recorded during 2017. See Note E – “Discontinued Operations
and Assets and Liabilities Held for Sale” and Note K – “Goodwill and Intangible Assets, Net”.
F-10
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 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. The Company uses 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
estimated fair value and carrying value of the asset. Included in Selling, general & administrative expenses (“SG&A”) are
approximately $6.8 million of asset impairments for the year ended December 31, 2017 and $41.2 million for the year ended
December 31, 2016. 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. In 2016, 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 M – “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 R – “Litigation and Contingencies.” Substantially all receivables were trade receivables at
December 31, 2017 and 2016.
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, 2017, 2016 and 2015 totaled $631.1 million, $620.4 million and $77.2 million, respectively. The
2015 gross amount of trade receivables sold was updated to include amounts not previously disclosed. The factoring discount paid
upon sale is recorded as interest expense in the Consolidated Statement of Income (Loss). As of December 31, 2017 and 2016,
$85.2 million and $64.3 million, respectively, of receivables qualifying for sale treatment and continuing to be serviced by the
Company were outstanding.
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.
F-11
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.
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.
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-12
The following table summarizes the changes in the consolidated product warranty liability (in millions):
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
Accruals for warranties issued during the period
Changes in estimates
Settlements during the year
Foreign exchange effect/other
Balance as of December 31, 2017
$
$
53.0
72.4
(2.3)
(58.1)
(5.2)
59.8
50.1
2.5
(62.0)
2.2
52.6
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 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 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 P – “Retirement Plans and Other Benefits.”
Deferred Compensation. The Company maintains a Deferred Compensation Plan, which is described more fully in Note P –
“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, 2017 and 2016. 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, 2017, the Company had stock-based employee compensation plans, which are
described more fully in Note Q – “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 L – “Derivative Financial Instruments.”
F-13
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, 2017 and 2016.
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 $81.0 million, $86.2 million and $89.7 million during 2017, 2016 and 2015, 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 L – “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.
Recently Issued Accounting Standards
Accounting Standards Implemented in 2017
In July 2015, the Financial Accounting Standards Board (“FASB”) issued ASU 2015-11, “Simplifying the Measurement of
Inventory,” (“ASU 2015-11”). ASU 2015-11 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 Company adopted ASU 2015-11 on January 1, 2017.
Adoption did not have a material effect on the Company’s 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 de-designation of that hedge accounting relationship. The Company adopted ASU 2016-05 on January
1, 2017. Adoption did not 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 Company adopted ASU 2016-06 on January 1, 2017. Adoption did not have a material effect on the Company’s
consolidated financial statements.
F-14
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 Company adopted ASU 2016-07 on
January 1, 2017. Adoption did not have a material effect on the Company’s consolidated financial statements.
On January 1, 2017, the Company adopted ASU 2016-09, “Compensation-Stock Compensation (Topic 718), Improvements to
Employee Share-Based Payment Accounting,” (“ASU 2016-09”). As required by ASU 2016-09, excess tax benefits and tax
deficiencies recognized on the vesting date of restricted stock awards are reflected in the Consolidated Statements of Comprehensive
Income (Loss) as a component of the provision for income taxes and was adopted on a prospective basis. In addition, ASU 2016-09
requires that the excess tax benefit be removed from the overall calculation of diluted shares. The impact on diluted earnings per
share for adoption of this provision was not material. As required by ASU 2016-09, excess tax benefits recognized on stock-based
compensation expense are now classified as an operating activity in the Company’s Consolidated Statement of Cash Flows,
previously they were classified as a financing activity. The Company has elected to apply this provision on a prospective basis,
so no prior periods have been adjusted. ASU 2016-09 increases the amount of shares an employer can withhold for tax purposes
without triggering liability accounting, which had no effect on the Company’s consolidated financial statements. ASU 2016-09
requires all cash payments made on an employee’s behalf for withheld shares to be presented as a financing activity in the
Consolidated Statement of Cash Flows, with retrospective application required. As a result, net cash provided by operating activities
for the years ended December 31, 2016 and 2015 increased by $10.1 million and $14.6 million, respectively, with a corresponding
increase to net cash used in financing activities. Finally, ASU 2016-09 allows for the option to account for forfeitures as they
occur, rather than estimating expected forfeitures over the service period. The Company elected to account for forfeitures as they
occur and the net cumulative effect of this change was recognized as a $0.6 million increase to additional paid in capital, a $0.2
million increase to deferred tax assets and a $0.4 million reduction to retained earnings as of January 1, 2017.
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 Accounting Standards Codification (“ASC”) 230, “Statement of Cash Flows,” and provides specific guidance
on certain cash flow classification issues. The effective date for ASU 2016-15 is the first quarter of fiscal year 2018 and early
adoption is permitted. During the third quarter of 2017, the Company adopted ASU 2016-15 effective January 1, 2017. Adoption
of this standard required the Company to classify cash payments for debt prepayment or debt extinguishment costs as cash outflows
for financing activities on the Consolidated Statement of Cash Flows. As a result, debt extinguishment costs of $36.4 million
were recorded in financing activities instead of operating activities on the Consolidated Statement of Cash Flows in accordance
with the adoption of the new standard in 2017. The impact for the years ended December 31, 2016 and 2015 was immaterial.
Accounting Standards to be Implemented
In May 2014, the 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.
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 will adopt the New Revenue Standards in the first quarter of 2018 using the modified
retrospective approach. During 2017, we completed our evaluation of the impact of the New Revenue Standards. Adoption is
not expected to have a material effect on the Company’s consolidated financial statements as changes in timing and amount of
revenue recognized under the New Revenue Standards are not significant compared to current practice under ASC 605.
In January 2016, the FASB issued ASU 2016-01, "Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement
of Financial Assets and Financial Liabilities," (“ASU 2016-01”). 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. Early adoption is not permitted. An entity should apply the amendments by means of a
cumulative-effect adjustment to the balance sheet. Adoption is not expected to have a material effect on the Company’s consolidated
financial statements.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” (“ASU 2016-02”). The new standard establishes a right-
of-use model (“ROU”) that requires a lessee to recognize an ROU asset and lease liability on the balance sheet for all leases with
a term longer than 12 months and requires the disclosure of key information about leasing arrangements. Leases will be classified
as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.
The effective date will be the first quarter of fiscal year 2019 and early adoption is permitted. A modified retrospective transition
approach is required for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the
financial statements, with certain practical expedients available. While the Company continues to assess the effect of adoption,
it currently believes that ASU 2016-02 may have a material effect on its consolidated financial statements with the most significant
changes likely related to the recognition of new ROU assets and lease liabilities on the Consolidated Balance Sheet.
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 and early adoption is permitted after 2018. ASU 2016-13 will be applied using a modified
retrospective approach. The Company is evaluating the impact that adoption of this new standard will have on its 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 U.S. generally accepted
accounting principles 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 and early adoption is permitted. Adoption will be
applied on a modified retrospective basis, resulting in a cumulative-effect adjustment directly to retained earnings. Adoption is
not expected to have a material effect on the Company’s 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 and
early adoption is permitted. ASU 2016-18 will be applied retrospectively. Adoption is not expected to have a material effect on
the Company’s consolidated financial statements.
F-16
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 and early adoption is permitted for specific
transactions. ASU 2017-01 will be applied prospectively. Adoption is not expected to have a material effect on the Company’s
consolidated financial statements.
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 and early adoption is permitted.
ASU 2017-04 will be applied prospectively. The Company plans to early adopt ASU 2017-04 in the first quarter of 2018. Adoption
is not expected to have a material effect on the Company’s consolidated financial statements.
In February 2017, the FASB issued ASU 2017-05, “Other Income-Gains and Losses from the Derecognition of Nonfinancial
Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial
Assets,” (ASU 2017-05”). ASU 2017-05 is meant to clarify the scope of ASC Subtopic 610-20, “Other Income-Gains and Losses
from the Derecognition of Nonfinancial Assets” and to add guidance for partial sales of nonfinancial assets. ASU 2017-05 is to
be applied using a full retrospective method or a modified retrospective method as outlined in the guidance and is effective at the
same time as ASU 2014-09. Further, the Company is required to adopt ASU 2017-05 at the same time that it adopts the guidance
in the New Revenue Standards. Adoption is not expected to have a material effect on the Company’s consolidated financial
statements.
In March 2017, the FASB issued ASU 2017-07, “Compensation - Retirement Benefits (Topic 715): Improving the Presentation
of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” (“ASU 2017-07”). ASU 2017-07 changes how
employers that sponsor defined benefit pension plans and other postretirement plans present the net periodic benefit cost in the
income statement. An employer is required to report the service cost component in the same line item or items as other compensation
costs arising from services rendered by the pertinent employees during the period. Other components of net benefit cost are
required to be presented in the income statement separately from the service cost component and outside a subtotal of income
from operations. The amendment also allows only the service cost component to be eligible for capitalization, when applicable.
The effective date will be the first quarter of fiscal year 2018. Early adoption is permitted only in the first interim period of a
fiscal year. ASU 2017-07 will be applied retrospectively for the presentation requirements and prospectively for the capitalization
of the service cost component requirements. Adoption is not expected to have a material effect on the Company’s consolidated
financial statements.
In March 2017, the FASB issued ASU 2017-08, “Receivables--Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium
Amortization on Purchased Callable Debt Securities,” (“ASU 2017-08”). ASU 2017-08 shortens the amortization period for
callable debt securities held at a premium, requiring the premium to be amortized to the earliest call date. The amendments do
not require an accounting change for securities held at a discount. The effective date will be the first quarter of fiscal year 2019
and early adoption is permitted. Adoption will be applied on a modified retrospective basis, resulting in a cumulative-effect
adjustment directly to retained earnings. Adoption is not expected to have a material effect on the Company’s consolidated financial
statements.
In May 2017, the FASB issued ASU 2017-09, “Compensation-Stock Compensation (Topic 718): Scope of Modification
Accounting,” (“ASU 2017-09”). ASU 2017-09 clarifies when changes to the terms or conditions of a share-based payment award
must be accounted for as modifications. The new guidance will reduce diversity in practice and result in fewer changes to the
terms of an award being accounted for as modifications. Under ASU 2017-09, an entity will not apply modification accounting
to a share-based payment award if the award’s fair value, vesting conditions and classification as an equity or liability instrument
are the same immediately before and after the change. ASU 2017-09 will be applied prospectively to awards modified on or after
the adoption date. The effective date will be the first quarter of fiscal year 2018 and early adoption is permitted. Adoption is not
expected to have a material effect on the Company’s consolidated financial statements.
F-17
In May 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for
Hedging Activities,” (“ASU 2017-12”). ASU 2017-12 expands an entity’s ability to apply hedge accounting for nonfinancial and
financial risk components and allow for a simplified approach for fair value hedging of interest rate risk. ASU 2017-12 eliminates
the need to separately measure and report hedge ineffectiveness and generally requires the entire change in fair value of a hedging
instrument to be presented in the same income statement line as the hedged item. Additionally, ASU 2017-12 simplifies the hedge
documentation and effectiveness assessment requirements under the previous guidance. The effective date will be the first quarter
of fiscal year 2019 and early adoption is permitted. Adoption will be applied through a cumulative-effect adjustment to cash flows
and prospectively for presentation and disclosure. The Company is evaluating the impact that adoption of this new standard will
have on its consolidated financial statements.
NOTE B – SALE OF MHPS BUSINESS
On May 16, 2016, Terex agreed to sell its 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, effective as of January 1, 2017. In connection with the
Disposition, the Company received 19.6 million newly issued Class B shares of Konecranes and approximately $835 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. During the year ended
December 31, 2017, the Company recognized a gain on the Disposition (net of tax) of $65.7 million.
The Company and Konecranes entered into a Stockholders Agreement, dated as of January 4, 2017, which provided certain
customary restrictions and obligations. Terex also had customary registration rights pursuant to a registration rights agreement
between Terex and Konecranes entered into on January 4, 2017.
The Company sold all shares received in connection with the Disposition for net proceeds of approximately $770 million and
recorded a $42.0 million net gain on the sale of shares which included $41.6 million attributable to foreign exchange rate changes
during the year ended December 31, 2017. The net gain on these sales is recorded as a component of Other income (expense) -
net in the Consolidated Statement of Income (Loss).
On March 23, 2017, Konecranes declared a dividend of €1.05 per share to holders of record as of March 27, 2017, which was paid
on April 4, 2017. During the year ended December 31, 2017, the Company recognized dividend income of $13.5 million as a
component of Other income (expense) - net in the Consolidated Statement of Income (Loss).
In connection with the Disposition, the Company and Konecranes entered into certain ancillary agreements, including Transition
Services Agreements (“TSA’s”) generally with terms from three to twelve months, dated as of January 4, 2017, under which the
parties provide one another certain transition services to facilitate both the separation of the MHPS business from the businesses
retained by the Company and the interim operations of the MHPS business acquired by Konecranes. Cash inflows and outflows
related to these TSA’s generally offset to immaterial amounts. At December 31, 2017, seven TSA’s remain, five of which will
expire in the first quarter of 2018. The two remaining TSA’s relate to certain transition services that the Company will provide
to Konecranes on an as-needed basis which will be billed as services are provided.
Loss Contract
Related to the Disposition, the Company and Konecranes entered into an agreement for Konecranes to manufacture certain crane
products on behalf of the Company for an original period of 12 months, which was subsequently amended for a total of 36 months.
The Company recorded an expense of $7.9 million related to losses expected to be incurred over the agreement’s life during the
year ended December 31, 2017.
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-18
NOTE C – BUSINESS SEGMENT INFORMATION
The Company 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 2017, 2016 or 2015.
F-19
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,
2017
2016
2015
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
$
2,071.5
$
1,977.8
$
1,194.0
1,072.5
25.4
4,363.4
170.3
(17.8)
124.8
(103.7)
173.6
19.4
19.2
7.3
20.2
66.1
14.1
15.2
6.3
7.9
$
$
$
$
$
$
43.5
$
$
$
$
$
$
$
$
1,274.5
944.5
246.3
2,246.0
1,566.5
940.1
269.1
4,443.1
$
5,021.7
$
177.4
(321.7)
86.3
(89.8)
(147.8) $
270.2
56.3
68.6
(71.4)
323.7
19.9
21.5
6.9
26.0
74.3
17.1
13.2
7.5
20.3
58.1
$
$
$
$
15.3
21.0
6.9
33.4
76.6
38.0
13.8
20.7
9.0
81.5
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,
2017
2016
$
1,358.5
$
1,682.1
1,219.5
(801.2)
3.6
1,659.8
1,618.0
1,104.9
(1,280.1)
1,904.2
$
3,462.5
$
5,006.8
F-20
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,
2017
2016
2015
$
$
2,217.2
267.3
182.9
655.3
1,040.7
4,363.4
$
$
$
$
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
December 31,
2017
2016
178.7
37.0
42.2
16.6
36.5
311.0
$
$
181.1
34.9
32.4
14.8
41.4
304.6
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,
2017
2016
2015
$
$
(36.3) $
148.3
112.0
$
(29.9) $
(240.8)
(270.7) $
212.2
(16.5)
195.7
Income (loss) before income taxes including Income (loss) from discontinued operations and Gain (loss) from disposition of
discontinued operations attributable to the Company was $205.4 million, $(242.0) million and $231.1 million for the years ended
December 31, 2017, 2016 and 2015, respectively.
F-21
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,
2017
2016
2015
$
$
(14.5) $
2.0
26.8
14.3
37.4
(0.5)
0.8
37.7
52.0
$
$
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
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 $76.7 million, $(66.5) million and
$82.1 million for the years ended December 31, 2017, 2016 and 2015, respectively.
On December 22, 2017, H.R. 1 “An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on
the budget for fiscal year 2018” (formerly known as “Tax Cuts and Jobs Act” and is referred to as the “2017 Federal Tax Act”)
was enacted. The 2017 Federal Tax Act lowered the U.S. federal corporate income tax rate from 35% to 21% effective January
1, 2018. As a result, the change in the U.S. federal tax rate required Terex to re-measure its federal deferred tax assets and liabilities.
The 2017 Federal Tax Act contains a deemed repatriation transition tax (“Transition Tax”) on accumulated earnings and profits
of the Company’s non-U.S. subsidiaries that have not been subject to U.S. tax. Terex plans to elect to pay its net Transition Tax
over eight years. In addition, the 2017 Federal Tax Act also allows full expensing of the cost of certain assets placed into service
after September 27, 2017 and through December 31, 2022.
Effective for tax years beginning on January 1, 2018, the 2017 Federal Tax Act essentially repealed the existing U.S. system of
deferred taxation on foreign earnings by adding the global intangible low-taxed income (“GILTI”) regime which will subject the
majority of the post-2017 earnings of the Company’s non-U.S. subsidiaries (i.e., amounts in excess of a deemed return on net
tangible assets of non-U.S. subsidiaries) to current tax in the U.S. along with the application of a special deduction and allowable
foreign tax credits. Additionally, a territorial taxation system is also introduced by the 2017 Federal Tax Act which will exempt
foreign dividends from U.S. federal tax. The 2017 Federal Tax Act also repealed the domestic production activities deduction and
the performance exception permitting certain executive officer compensation greater than $1 million to be deducted. Other
provisions from the 2017 Federal Tax Act include the deduction for foreign-derived intangible income, new limitations on the
deductibility of business interest, and the new base erosion and anti-abuse tax regime.
On December 22, 2017, the SEC issued SAB 118 which provides guidance on accounting for the impact of the 2017 Federal Tax
Act. SAB 118 provides a measurement period of up to one year from enactment for a company to complete its tax accounting
under ASC 740. Once a company is able to make a reasonable estimate and record a provisional amount for effects of the 2017
Federal Tax Act, it is required to do so. Such provisional measurement amounts are anticipated to change as remaining data is
obtained, calculations are prepared, and analysis and review are completed, until the Company records a final amount within the
measurement period.
During the fourth quarter of 2017, the Company recorded $29.8 million as a provisional tax charge for the Transition Tax and
$20.6 million as a provisional tax charge for the re-measurement of its U.S. deferred tax balances. Both provisional tax amounts
are the Company’s reasonable estimate of the impact from the 2017 Federal Tax Act based on its understanding and available
guidance, along with the assumptions made, calculations, analysis, and review as of the date of this filing. In addition, these
provisional amounts incorporate assumptions made based upon the Company’s current interpretation of the 2017 Federal Tax Act
and may change as the Company receives additional clarification and implementation guidance.
F-22
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, 2017 and 2016 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)
2017
2016
(8.8) $
(5.7)
13.9
7.8
218.4
21.5
28.9
(2.0)
0.1
4.5
18.5
(136.4)
160.7
$
(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
$
$
Deferred tax assets total $299.3 million before valuation allowances of $136.4 million, partially offset by deferred tax liabilities
of $2.2 million at December 31, 2017. There were $182.7 million of deferred tax assets after valuation allowances in continuing
operations ($19.7 million in discontinued operations), partially offset by deferred tax liabilities of $0.9 million in continuing
operations ($3.7 million in discontinued operations) at December 31, 2016.
The Company re-measured its U.S. federal deferred tax balances at the applicable rate of 21% in accordance with the 2017 Federal
Tax Act as of the enactment date on December 22, 2017. As a result, the Company recorded a provisional $20.6 million deferred
tax expense.
In January 2018, the FASB released guidance on the accounting for tax on GILTI. The guidance indicates that either accounting
for deferred taxes related to GILTI or treating any taxes on GILTI as period costs are both acceptable accounting policy elections.
Terex is evaluating both methods, and will select a method during the measurement period in 2018.
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, 2017 and 2016 was $136.4 million and $148.6 million, respectively. The net change in the total valuation
allowance for the years ended December 31, 2017 and 2016 was a decrease of $12.2 million and a decrease of $66.5 million,
respectively.
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.
F-23
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
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
2017 Federal Tax Act (1)
Impairment loss on goodwill and intangible assets
Expired stock awards
Other
Total provision for (benefit from) income taxes
Year Ended December 31,
2017
2016
2015
$
$
39.2
1.0
(2.8)
(20.1)
11.1
—
—
(27.2)
46.9
—
2.4
1.5
52.0
$
$
(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
(1) The total impact of the 2017 Federal Tax Act is $50.4 million. Impacts of $1.3 million and $2.1 million are included in State taxes and Change in
valuation allowance, respectively.
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 Company received tax incentives in certain jurisdictions through 2016. For the years ended December 31, 2016 and 2015,
the Company received no tax benefits and $7.0 million of tax benefits in continuing operations ($0.8 million and $1.2 million of
tax benefits in discontinued operations), respectively.
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 to the extent such amounts are indefinitely
reinvested to support operations and continued growth plans outside the U.S. 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 non-U.S.
subsidiaries changes, deferred U.S. income taxes, foreign income taxes, and foreign withholding taxes may have to be accrued.
As a result of the 2017 Federal Tax Act, the Company has changed its indefinite reinvestment assertion related to foreign earnings
that have been taxed in the U.S. and now considers these earnings no longer indefinitely reinvested. The Company has not recorded
any foreign or state tax expense with respect to earnings which have been subject to federal income tax and which are no longer
indefinitely reinvested, because it is not yet able to make a reasonable estimate. Any adjustments related to the indefinite
reinvestment assertion will be included in income from continuing operations as an adjustment to tax expense during the
measurement period in 2018. The Company plans to indefinitely reinvest all undistributed foreign earnings in excess of those
previously taxed in the U.S. For the year ended December 31, 2017, the Company’s provisional estimate of its remaining unremitted
earnings of its foreign subsidiary ownership chains that have positive retained earnings and have not been subject to tax in the
U.S. was approximately $27 million. At this time, determination of the unrecognized deferred tax liabilities for temporary
differences related to the Company’s investment in non-U.S. subsidiaries is not practicable.
For the year ended December 31, 2016, 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, 2017, 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 2037. In addition, the gross
amount of the U.S. federal capital loss carryforward is $14.8 million which expires in 2019 and 2022.
F-24
At December 31, 2017, the Company has approximately $568 million of loss carry forwards, consisting of $195 million in Germany,
$185 million in Italy, $60 million in China, $33 million in Spain, $25 million in Switzerland, and $70 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 $24 million, and it has an unlimited carryforward period.
The Company had total net income tax payments including discontinued operations of $29.0 million, $52.8 million and $67.6
million in 2017, 2016 and 2015, respectively. At December 31, 2017 and 2016, Other current assets included net income tax
receivable amounts of $19.4 million and $22.6 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, China, India and the U.S. Currently, various entities of the Company
are under audit in Germany, Italy, India, 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 2015 have been adjusted to eliminate the impact of offsets, which are immaterial:
Balance as of January 1, 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, 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
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, 2017
$
$
78.1
—
1.7
(9.3)
—
(1.1)
—
—
69.4
—
6.3
(3.1)
—
(5.0)
(7.8)
—
59.8
—
12.3
(29.9)
—
(1.3)
(6.8)
—
34.1
As a result of the Disposition, the Company’s ending balance of unrecognized tax benefits for the year ended December 31,
2017 was reduced by $29.2 million.
F-25
The Company evaluates each reporting period whether it is reasonably possible 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. 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, 2017
may decrease approximately $16 million in the fiscal year ending December 31, 2018. Such possible decrease relates primarily
to audit settlements, transfer pricing, deductibility issues and expiration of statutes of limitation.
As of December 31, 2017 and 2016, the Company had $34.1 million and $59.8 million, respectively, of unrecognized tax benefits.
Of the $34.1 million at December 31, 2017, $26.4 million, if recognized, would affect the effective tax rate. As of December 31,
2017 and 2016, the liability for potential interest and penalties was $8.5 million and $12.9 million, respectively. During the year
ended December 31, 2017, the Company recognized tax (benefit) expense of $1.6 million in continuing operations and $(6.0)
million in Gain (loss) on disposition of discontinued operations - (net of tax) in the Consolidated Statement of Income (Loss) for
interest and penalties. During the year ended December 31, 2016, the Company recognized $(1.0) million for interest and penalties.
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 B - “Sale of MHPS
Business” for further information on the Disposition. The Disposition represented 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 previous reportable
operating segments and comprised two of the Company’s six previous reporting units, represented 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 included 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.
Cash flows from the Company’s discontinued operations are included in the Consolidated Statements of Cash Flows.
F-26
Income (loss) from discontinued operations
The following amounts related to the discontinued operations of MHPS 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)
Income (loss) from discontinued operations before income taxes
(Provision for) benefit from income taxes
Income (loss) from discontinued operations – net of tax
Net loss (income) attributable to noncontrolling interest
Income (loss) from discontinued operations - net of tax
attributable to Terex Corporation
Year ended December 31,
2016
2015
$
1,398.2
(1,090.3)
(266.8)
(3.1)
(2.3)
(11.5)
24.2
(9.9)
14.3
(0.9)
1,521.4
(1,184.1)
(271.1)
(34.7)
(1.4)
0.8
30.9
(13.5)
17.4
(3.3)
$
13.4
$
14.1
As a result of goodwill impairment tests performed as of October 1, 2016 and 2015 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.
As a result of impairment tests performed in 2016 and 2015 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.
Cranes
As part of the transformation and improvement of its Cranes segment, the Company is actively seeking a buyer for its utility hot
lines tools business located in South America and, accordingly, assets and liabilities have been reported as held for sale since
management made its decision in December 2016, at which time the Company recorded a non-cash impairment charge of $1.6
million to adjust net asset value to estimated fair value. During 2017, an additional non-cash impairment charge of $6.7 million
was recorded to adjust net asset value to estimated fair value.
In August 2017, the Company entered into an agreement to sell its cranes manufacturing facility in Jinan, China. The sale was
completed during the third quarter of 2017 and the Company recorded a gain on sale of $5.7 million in its Corporate and Other
category as a component of Selling, general and administrative expenses (“SG&A”) in the Consolidated Statement of Income
(Loss).
Construction
In December 2016, the Company entered into an agreement to sell its Coventry, UK-based compact construction business and
recorded a non-cash impairment charge of $3.5 million to adjust the net asset value of these construction product lines to estimated
fair value. The unsold assets and liabilities of the Company’s former Construction segment were reported in the Consolidated
Balance Sheet as held for sale at December 31, 2016. During the year ended December 31, 2017, the Company completed the
sale of Coventry, UK-based compact construction business and remaining UK-based compact construction product lines and
recognized a loss of $1.2 million within SG&A in the Consolidated Statement of Income (Loss) related to the sale.
In March 2017, the Company signed a sale agreement with a buyer to sell its Indian compact construction business. The Company
completed the sale during the year ended December 31, 2017 and a loss of $1.6 million was recognized within SG&A related to
the sale.
F-27
The operating results for these construction product lines are reported in continuing operations, within the Corporate and Other
category in our segment disclosures.
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.
During the year ended December 31, 2017, the Company recognized a gain of $5.8 million within SG&A resulting from a post-
closing adjustment related to the 2016 sale of its midi/mini excavators, wheeled excavators, and compact wheel loader business
in Germany.
The operating results for these construction product lines are reported in continuing operations, within the Corporate and Other
category in our segment disclosures.
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-28
The following table provides the amounts of assets and liabilities held for sale in the Consolidated Balance Sheet (in millions):
December
31, 2017
December 31, 2016
Cranes
MHPS
Cranes
Construction
Total
Assets
Cash and cash equivalents
Trade receivables – net
Inventories
Prepaid and other current assets
Impairment reserve
Current assets held for sale
Property, plant and equipment – net
Goodwill
Intangible assets – net
Impairment reserve
Other assets
Non-current assets held for sale
Liabilities
Notes payable and current portion of long-term debt
Trade accounts payable
Accruals and other current liabilities
Current liabilities held for sale
Long-term debt, less current portion
Retirement plans
Other non-current liabilities
Non-current liabilities held for sale
$
$
$
$
$
$
$
$
3.6
2.2
1.7
0.5
(4.4)
3.6
0.4
—
2.9
(3.3)
—
$
71.0 $
1.2 $
1.2 $
243.5
309.4
49.9
—
3.1
1.7
0.5
—
24.4
23.9
3.1
—
73.4
271.0
335.0
53.5
—
$
$
673.8 $
6.5 $
52.6 $
732.9
294.2 $
0.8 $
3.2 $
573.7
212.6
—
86.4
—
2.9
(1.7)
1.1
—
—
(3.5)
1.6
298.2
573.7
215.5
(5.2)
89.1
— $ 1,166.9 $
3.1 $
1.3 $ 1,171.3
— $
13.1 $
— $
1.3 $
0.5
1.5
2.0
132.6
267.0
0.7
6.2
23.8
9.1
$
412.7 $
6.9 $
34.2 $
— $
2.4 $
— $
— $
235.3
71.7
0.7
0.4
0.9
0.7
14.4
157.1
282.3
453.8
2.4
236.9
72.8
$
309.4 $
1.1 $
1.6 $
312.1
0.7
0.3
1.0
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,
2017
December 31,
2016
December 31,
2015
$
$
626.5
3.6
630.1
$
$
428.5
73.4
501.9
$
$
371.2
95.3
466.5
There were no cash and cash equivalents held for sale at December 31, 2017 which were not immediately available for use. Cash
and cash equivalents held for sale at December 31, 2016 and 2015 include $14.0 million and $9.8 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-29
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
Year Ended December 31,
2016
2015
$
$
$
$
$
22.4
15.8
$
$
— $
$
3.0
55.8
(2.2)
11.3
23.9
(14.9) $
(22.3)
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,
2017
Atlas
Total
2016
Atlas
2015
Atlas
3.5 $ 93.4
(24.7)
(0.5)
3.0 $ 68.7
$
$
4.5
(1.0)
3.5
$
$
4.5
(1.1)
3.4
MHPS
$ 89.9 $
(24.2)
$ 65.7 $
During the years ended December 31, 2017, 2016, and 2015 the Company recognized a gain on disposition of discontinued
operations - net of tax of $68.7 million, $3.5 million and $3.4 million, respectively. During the year ended December 31, 2017,
the Company recognized a gain on disposition of discontinued operations - net of tax of $65.7 million related to the sale of the
MHPS business. During the years ended December 31, 2017, 2016, and 2015, the Company recorded gains (net of tax) of $3.0
million, $3.5 million and $3.4 million, respectively, 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-30
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)
2017
2016
2015
$
$
$
$
$
$
60.0
$
—
68.7
128.7
$
(193.0)
13.4
3.5
(176.1)
92.8
107.9
0.65
$
$
—
0.74
1.39
92.8
2.1
94.9
0.63
$
—
0.73
1.36
$
(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
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:
2017
2016
2015
Income (loss) from continuing operations
Net loss (income) from continuing operations attributable to noncontrolling
interest
Income (loss) from continuing operations attributable to common
stockholders
$
$
60.0
$
(193.3)
$
128.2
—
0.3
0.2
60.0
$
(193.0)
$
128.4
Weighted average options to purchase 5,200, 69,200 and 141,200 shares of the Company’s common stock, par value $0.01 per
share (“Common Stock”), were outstanding during the years ended December 31, 2017, 2016 and 2015, respectively, but were
not included in the computation of diluted shares as the effect would be anti-dilutive. Weighted average restricted stock awards
of 4,300 shares, 1,535,200 shares and 852,300 shares were outstanding during the years ended December 31, 2017, 2016 and
2015, respectively, but were not included in the computation of diluted shares because the effect would be anti-dilutive or
performance targets were not expected to be 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 and the amount of compensation cost for future services that the Company has not yet recognized are
assumed to be used to repurchase shares.
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 N – “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.
F-31
NOTE G – FINANCE RECEIVABLES
The Company, primarily through 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. The Company bills and collects cash from the end
customer.
The Company primarily conducts on-book business in the U.S., with limited business in China, the United Kingdom, Germany
and Italy. The Company 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, on an individual asset basis. During the years ended December 31, 2017, 2016
and 2015, the Company transferred finance receivables of $266.6 million, $290.5 million and $81.9 million, respectively, to third
party financial institutions, which qualified for sales treatment under ASC 860. At December 31, 2017 and 2016, the Company
had $26.0 million and $4.7 million, respectively, 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. The Company 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 collectability 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 collectability 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,
2017
December 31,
2016
$
$
180.2
26.5
206.7
(6.6)
200.1
$
$
233.8
16.4
250.2
(6.3)
243.9
Approximately $85 million and $74 million of finance receivables are recorded in Prepaid and other current assets and
approximately $116 million and $168 million are recorded in Other assets in the Consolidated Balance Sheet at December 31,
2017 and 2016, respectively. Additionally, approximately $2 million is recorded in Trade receivables at December 31, 2016.
Certain immaterial prior period amounts have been included in the 2016 disclosures to conform with the 2017 presentation.
F-32
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, 2017
Year Ended December 31, 2016
Year Ended December 31, 2015
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
$
5.9
$
0.4
$
6.3
$
6.5
$
0.8
$
7.3
$
1.9
$
1.1
$
0.2
(0.4)
—
0.5
—
—
0.7
(0.4)
—
0.2
(0.8)
—
(0.2)
(0.2)
—
—
(1.0)
—
4.6
—
—
(0.3)
—
—
$
5.7
$
0.9
$
6.6
$
5.9
$
0.4
$
6.3
$
6.5
$
0.8
$
3.0
4.3
—
—
7.3
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. Amount of impairment is measured as the difference between the balance outstanding
and underlying collateral value of equipment being financed, as well as any other collateral. All finance receivables identified as
impaired are evaluated individually. Generally, the Company does not change 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, 2017
December 31, 2016
Commercial
Loans
Sales-Type
Leases
Total
Commercial
Loans
Sales-Type
Leases
Total
$
6.0
2.4
3.7
$
— $
—
—
$
6.0
2.4
3.7
1.6
1.6
1.7
$
— $
—
0.9
1.6
1.6
2.6
The average recorded investment for impaired finance receivables was $2.5 million for sales-type leases at December 31, 2015,
which were fully reserved. The average recorded investment for impaired finance receivables was $1.0 million for sales-type
leases at December 31, 2015, which were fully reserved.
F-33
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, 2017
December 31, 2016
Commercial
Loans
Sales-Type
Leases
Total
Commercial
Loans
Sales-Type
Leases
Total
$
$
$
$
2.4
3.3
5.7
6.0
174.2
180.2
$
$
$
$
— $
0.9
0.9
$
2.4
4.2
6.6
— $
26.5
26.5
$
6.0
200.7
206.7
$
$
$
$
1.6
4.3
5.9
1.6
232.2
233.8
$
$
$
$
— $
0.4
0.4
$
1.6
4.7
6.3
— $
16.4
16.4
$
1.6
248.6
250.2
Accounts are considered delinquent when the billed periodic payments of the finance receivables exceed 30 days past the due
date.
The following tables present analysis of aging of recorded investment in finance receivables (in millions):
December 31, 2017
Current
31-60 days
past due
61-90 days
past due
Greater than
90 days past
due
Total past
due
174.2
26.5
200.7
$
$
2.1
—
2.1
$
$
— $
—
— $
3.9
—
3.9
$
$
6.0
—
6.0
Total
Finance
Receivables
180.2
$
26.5
206.7
$
December 31, 2016
Current
31-60 days
past due
61-90 days
past due
Greater than
90 days past
due
Total past
due
231.6
15.8
247.4
$
$
0.6
—
0.6
$
$
0.2
0.6
0.8
$
$
1.4
—
1.4
$
$
2.2
0.6
2.8
Total
Finance
Receivables
233.8
$
16.4
250.2
$
Commercial loans
Sales-type leases
Total finance receivables
Commercial loans
Sales-type leases
Total finance receivables
$
$
$
$
Commercial loans in the amount of $10.5 million and $7.4 million were on non-accrual status as of December 31, 2017 and 2016,
respectively. At December 31, 2017, there were no sales-type leases on non-accrual status. There were no sales-type leases on
non-accrual status as of December 31, 2016.
F-34
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,
2017
December 31,
2016
$
3.3
$
31.8
73.1
79.6
18.9
9.6
64.7
111.8
53.0
11.1
Total
$
206.7
$
250.2
During 2017, the Company reduced its portfolio of finance receivables relative to 2016 by syndicating to financial institutions.
The receivables sold were primarily rated Average to Superior. The Company believes the finance receivables retained, net of
allowance for credit losses, are collectible.
NOTE H – INVENTORIES
Inventories consist of the following (in millions):
Finished equipment
Replacement parts
Work-in-process
Raw materials and supplies
Inventories
December 31,
2017
2016
$
$
419.6
$
163.3
165.6
221.1
969.6
$
334.7
144.9
175.4
198.8
853.8
Reserves for lower of cost or NRV and excess and obsolete inventory were $85.8 million at December 31, 2017. Reserves for
lower of cost or market value, excess and obsolete inventory were $83.3 million at December 31, 2016.
F-35
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,
2017
2016
$
43.3
$
144.7
479.3
667.3
(356.3)
311.0
$
$
36.4
144.3
456.1
636.8
(332.2)
304.6
Depreciation expense for the years ended December 31, 2017, 2016 and 2015, was $59.9 million, $65.5 million and $63.9 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 90 months. The net book value of equipment subject to operating leases was approximately $52 million and $67 million (net
of accumulated depreciation of approximately $19 million and $16 million) at December 31, 2017 and 2016, 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,
2018
2019
2020
2021
2022
Thereafter
$
$
7.5
4.4
2.5
1.4
0.4
—
16.2
The Company received approximately $16 million and $14 million of rental income from assets under operating leases during
2017 and 2016, respectively, none of which represented contingent rental payments.
F-36
NOTE K – 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, 2015, gross
$
Accumulated impairment
Balance at December 31, 2015, net
Acquisitions
Foreign exchange effect and other
Balance at December 31, 2016, gross
Accumulated impairment
Balance at December 31, 2016, net
Foreign exchange effect and other
Balance at December 31, 2017, gross
Accumulated impairment
Balance at December 31, 2017, net
$
AWP (1)
137.7
(38.6)
99.1
1.6
(1.6)
137.7
(38.6)
99.1
2.5
140.2
(38.6)
101.6
$
$
Cranes (1)
183.1
(4.2)
178.9
—
(3.8)
179.3
(179.3)
—
—
179.3
(179.3)
$
— $
MP
Total
204.3
(23.2)
181.1
—
(20.5)
183.8
(23.2)
160.6
11.4
195.2
(23.2)
172.0
$
$
525.1
(66.0)
459.1
1.6
(25.9)
500.8
(241.1)
259.7
13.9
514.7
(241.1)
273.6
(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”.
Intangible assets, net were comprised of the following as of December 31, 2017 and 2016 (in millions):
Weighted
Average
Life
(in years)
7
20
82
8
Definite-lived intangible assets:
Technology
Customer Relationships
Land Use Rights
Other
Total definite-lived intangible assets
(in millions)
Aggregate Amortization Expense
December 31, 2017
December 31, 2016
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
$
$
18.8
33.2
4.8
26.5
83.3
$
$
4.9
1.0
(17.8) $
(28.3)
(0.6)
(22.8)
3.7
(69.5) $ 13.8
4.2
$
$
17.0
33.1
7.9
25.8
83.8
$
$
(15.7) $
(25.2)
(0.9)
(23.6)
(65.4) $
1.3
7.9
7.0
2.2
18.4
For the Year Ended December 31,
2017
2016
2015
$
2.0
$
2.9
$
3.0
Estimated aggregate intangible asset amortization expense (in millions) for the next five years is as follows:
2018
2019
2020
2021
2022
$
$
$
$
$
1.9
1.7
1.7
1.6
1.4
F-37
NOTE L – DERIVATIVE FINANCIAL INSTRUMENTS
The Company operates internationally, with manufacturing and sales facilities in various locations around the world. In the normal
course of business, the Company primarily uses cash flow derivatives to manage foreign currency and interest rate exposures on
third party and intercompany forecasted transactions. For a derivative to qualify for hedge accounting treatment 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 records all derivative contracts at fair value on a recurring
basis. All of the Company’s derivative financial instruments are categorized under Level 2 of the ASC 820 hierarchy, see Note A
- “Basis of Presentation,” for an explanation of the ASC 820 hierarchy.
Foreign Exchange Contracts
The Company enters into foreign exchange contracts to manage the variability of future cash flows associated with recognized
assets or liabilities or forecasted transactions due to changing currency exchange rates. Primary currencies to which the Company
is exposed are the Euro, British Pound and Australian Dollar. These foreign exchange contracts are designated as cash flow
hedging instruments. Fair values of these contracts are derived using quoted forward foreign exchange prices to interpolate values
of outstanding trades at the reporting date based on their maturities. Most of the foreign exchange contracts outstanding as of
December 31, 2017 mature on or before December 31, 2018. At December 31, 2017 and 2016, the Company had $313.4 million
and $245.5 million notional amount, respectively, of foreign exchange contracts outstanding that were initially designated as cash
flow hedge contracts. The effective portion of unrealized gains and losses associated with foreign exchange contracts are deferred
as a component of Accumulated other comprehensive income (loss) (“AOCI”) until the underlying hedged transactions settle and
are reclassified to COGS in the Company’s Consolidated Statement of Income (Loss).
Certain foreign exchange contracts entered into by the Company have not been designated as hedging instruments to mitigate its
exposure to changes in foreign currency exchange rates on third party forecasted transactions and recognized assets and liabilities.
The Company had $113.2 million and $339.7 million notional amount of foreign exchange contracts outstanding that were not
designated as hedging instruments at December 31, 2017 and 2016, respectively. 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 these derivative financial instruments were recognized
as gains or losses in Other income (expense) – net in the Consolidated Statement of Income (Loss).
Other
Other derivatives include cross currency swaps, interest rate swaps and a debt conversion feature. Changes in the fair value of
our cross currency and interest rate swaps are deferred in AOCI. Gains or losses on cross currency swaps are reclassified to Other
income (expense) - net in the Consolidated Statement of Income (Loss) when the underlying hedged item is re-measured. Gains
or losses on interest rate swaps are reclassified to COGS in the Consolidated Statement of Income (Loss) when underlying hedged
transactions settle. Changes in fair value of the debt conversion feature are recorded in Other income (expense) - net in the
Consolidated Statement of Income (Loss).
F-38
The following table provides the location and fair value amounts of derivative instruments designated and not designated as
hedging instruments that are reported in the Consolidated Balance Sheet (in millions):
Asset Derivatives
Balance Sheet Account
Foreign exchange contracts Other current assets
Cross currency swap
Other current assets
Debt conversion feature
Other assets
Total asset derivatives
Liability Derivatives
Foreign exchange contracts Other current liabilities
Cross currency swap
Other non-current liabilities
Total liability derivatives
Total Derivatives
$
$
$
$
$
December 31,
2017
December 31,
2016
Derivatives
designated as
hedges
Derivatives not
designated as
hedges
Derivatives
designated as
hedges
Derivatives not
designated as
hedges
5.8 $
0.7
—
6.5 $
(1.6) $
(5.3)
(6.9) $
(0.4) $
0.3
—
1.5
1.8
$
$
— $
—
— $
1.8
$
4.2 $
—
—
4.2 $
(6.8) $
—
(6.8) $
(2.6) $
2.6
—
1.1
3.7
(1.2)
—
(1.2)
2.5
The following tables provide the effect of derivative instruments that are designated as hedges in the Consolidated Statement of
Income (Loss), Consolidated Statement of Comprehensive Income (Loss) and AOCI (in millions):
Gain (Loss) Recognized on Derivatives in AOCI, net of tax:
Cash Flow Derivatives
Foreign exchange contracts
Cross currency swap
Interest rate swap
Total
Gain (Loss) Reclassified from AOCI into Income (Loss) (Effective):
Account
Cost of goods sold
Other income (expense) – net
Total
Gain (Loss) Recognized on Derivatives (Ineffective) in Income (Loss):
Account
Cost of goods sold
Other income (expense) – net
Total
Year Ended
December 31,
2017
2016
2015
$
5.4
(0.9)
—
4.5
$
(4.5) $
—
(0.2)
(4.7) $
Year Ended
December 31,
2017
2016
2015
$
2.4
(3.1)
(0.7) $
(2.0) $
—
(2.0) $
Year Ended
December 31,
2.8
—
0.2
3.0
1.6
—
1.6
2017
2016
2015
2.1
(0.1)
2.0
$
$
1.0
—
1.0
$
$
2.3
(0.1)
2.2
$
$
$
$
$
$
Derivatives not designated as hedges are used to offset foreign exchange gains or losses resulting from the underlying exposures
of foreign currency denominated assets and liabilities. The following table provides the effect of non-designated derivatives
outstanding at the end of the period 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
2017
2016
2015
$
(0.7) $
0.9
$
(3.4)
F-39
In the Consolidated Statement of Income, the Company records hedging activity related to debt instruments, foreign exchange
contracts, cross currency swaps and interest rate swaps 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.
Counterparties to the Company’s foreign exchange contracts 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.
See Note Q - “Stockholders’ Equity” for unrealized net gains (losses), net of tax, included in AOCI. Within the unrealized net
gains (losses) included in AOCI as of December 31, 2017, it is estimated that $3.8 million of gains are expected to be reclassified
into earnings in the next twelve months.
NOTE M – 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.
Restructuring
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.
The programs are expected to cost $67.0 million, result in the reduction of approximately 700 team members and be completed
in 2018.
The following table provides information for all restructuring activities by segment of the amount of expense incurred during the
year ended December 31, 2017, the cumulative amount of expenses incurred for the years ended December 31, 2017, 2016 and
2015 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, 2017
Cumulative amount
incurred through
December 31, 2017
Total amount expected
to be incurred
$
$
$
0.1
(10.0)
0.1
0.1
(9.7) $
0.4
$
67.0
0.1
3.1
70.6
$
0.4
67.0
0.1
3.1
70.6
The following table provides information by type of restructuring activity with respect to the amount of expense incurred during
the year ended December 31, 2017, 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, 2017
Cumulative amount incurred through December 31, 2017
Total amount expected to be incurred
Employee
Termination
Costs
$
$
$
(12.5) $
$
48.3
48.3
$
Facility
Exit Costs
Asset Disposal
and Other Costs
Total
3.3
5.1
5.1
$
$
$
(0.5) $
$
17.2
17.2
$
(9.7)
70.6
70.6
F-40
The following table provides a roll forward of the restructuring reserve by type of restructuring activity for the year ended
December 31, 2017 (in millions):
Restructuring reserve at December 31, 2016
Restructuring reserve increase (decrease) (1)
Cash expenditures
Foreign exchange
Restructuring reserve at December 31, 2017
Employee
Termination
Costs
$
$
56.8
(12.9)
(20.6)
6.4
29.7
(1) Primarily related to the reversal of accrued restructuring costs associated with the Company’s change in strategy for reorganizing a certain business and need
to reduce headcount less than previously planned.
During the years ended December 31, 2017, 2016 and 2015, $(5.9) million, $42.6 million and $0.3 million, respectively, of
restructuring charges were included in COGS. During the years ended December 31, 2017, 2016 and 2015, $(3.3) million, $20.8
million and $1.1 million, respectively, of restructuring charges were included in SG&A. There were $17.7 million of asset
impairments included in restructuring costs, recorded in SG&A, for the year ended December 31, 2016. During the years ended
December 31, 2017 and 2015 there were an insignificant amount of asset impairments included in restructuring costs.
Other Charges
During the year ended December 31, 2017, the Company recorded reductions of $17.7 million to severance accruals established
in the prior year as a component of COGS and recorded expense of $6.1 million as a component of SG&A for severance charges
across all segments and corporate functions. During the year ended December 31, 2016, the Company recorded expense of $21.1
million and $12.7 million as a component of COGS and SG&A, respectively, for severance charges across all segments and
corporate functions.
F-41
NOTE N – LONG-TERM OBLIGATIONS
Long-term debt is summarized as follows (in millions):
December 31,
2017
2016
5-5/8% Senior Notes due February 1, 2025, net of unamortized debt issuance costs of $10.4
$
589.6
$
—
6-1/2% Senior Notes due April 1, 2020, net of unamortized debt issuance costs of $2.1
6% Senior Notes due May 15, 2021, net of unamortized debt issuance costs of $7.5
2017 Credit Agreement – term debt, net of unamortized debt issuance costs of $6.1
2014 Credit Agreement – term debt, net of unamortized debt issuance costs of $7.9
Capital lease obligations
Other
Total debt
Less: Notes payable and current portion of long-term debt
Long-term debt, less current portion
—
—
389.0
—
3.1
3.1
984.8
(5.2)
979.6
$
297.9
842.5
—
420.7
2.9
11.8
1,575.8
(13.8)
1,562.0
$
2017 Credit 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
(as defined below), among the Company and certain of its subsidiaries, the lenders thereunder and CSAG, 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 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 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.
On August 17, 2017, the Company entered into an Incremental Assumption Agreement and Amendment No. 1 to the 2017 Credit
Agreement which lowered the interest rate on the Company’s senior secured term loan by 0.25%.
During the year ended December 31, 2017, the Company recorded a loss on early extinguishment of debt related to the amendment
of its 2017 Credit Agreement of approximately $0.7 million.
As of December 31, 2017, the Company had $395.1 million, net of discount, in a U.S. dollar denominated term loan outstanding
under the 2017 Credit Agreement. The weighted average interest rate on the term loan at December 31, 2017 was 3.94%. The
Company had no revolving credit amounts outstanding as of December 31, 2017.
F-42
The 2017 Credit Agreement incorporates facilities for issuance of letters of credit up to $400 million. Letters of credit issued
under the 2017 Credit Agreement letter of credit facility decrease availability under the $450 million revolving line of credit. As
of December 31, 2017, the Company had no letters of credit issued under the 2017 Credit Agreement. The 2017 Credit Agreement
also permits the Company to have additional letter of credit facilities up to $300 million, and letters of credit issued under such
additional facilities do not decrease availability under the revolving lines of credit. The Company had letters of credit issued under
the additional letter of credit facilities of the 2017 Credit Agreement that totaled $34.3 million as of December 31, 2017.
The Company also has bilateral arrangements to issue letters of credit with various other financial institutions. These additional
letters of credit do not reduce the Company’s availability under the 2017 Credit Agreement. The Company had letters of credit
issued under these additional arrangements of $23.1 million as of December 31, 2017.
In total, as of December 31, 2017, the Company had letters of credit outstanding of $57.4 million. 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.
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.
2014 Credit Agreement
On January 31, 2017, in connection with the 2017 Credit Agreement, the Company terminated its 2014 Credit Agreement (as
defined below), among the Company and certain of its subsidiaries, the lenders thereunder and CSAG, 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 CSAG, 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 CSAG, 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 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: 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 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 have been 2.5 to 1.0 and the maximum permitted
levels of the senior secured leverage ratio would have been 2.75 to 1.0.
The 2014 Credit Agreement also contained customary default provisions.
In connection with termination of the 2014 Credit Agreement and the Company’s 2011 credit agreement, the Company recorded
charges of $8.2 million and $0.1 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, 2017 and 2015, respectively.
F-43
As of December 31, 2016, the Company had $428.6 million 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 was 3.63%, respectively.
The Company had no outstanding revolving credit amounts as of December 31, 2016.
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, 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 as of December 31, 2016.
The Company also had 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) as of December 31,
2016.
In total, as of December 31, 2016, the Company had letters of credit outstanding of $183.2 million ($121.4 million related to
discontinued operations). 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 became redeemable
by the Company beginning in April 2016 at an initial redemption price of 103.25% of principal amount.
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 waived 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 B - “Sale of MHPS Business”).
The Company redeemed $45.8 million principal amount of the 6-1/2% Notes in the first quarter of 2017 for $47.9 million, including
market premiums of $1.2 million and accrued but unpaid interest of $0.9 million. The Company redeemed the remaining $254.2
million principal amount of the 6-1/2% Notes on April 3, 2017 for $266.7 million, including accrued but unpaid interest of $8.4
million and a call premium of $4.1 million (which was recorded as Loss on early extinguishment of debt on that date). The 6-1/2%
Notes were jointly and severally guaranteed by certain of the Company’s domestic subsidiaries.
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 were used to redeem all $800.0 million principal amount of the
outstanding 8% Senior Subordinated Notes.
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 waived 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 B - “Sale of MHPS Business”).
F-44
During the first quarter of 2017, the Company redeemed all $850.0 million of the 6% Notes for $887.2 million, including redemption
premiums of $25.9 million and accrued but unpaid interest of $11.3 million. The 6% Notes were jointly and severally guaranteed
by certain of the Company’s domestic subsidiaries.
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, was 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 not purchased in the tender offer, (iii) to fund a $300.0 million partial redemption of
the 6% Notes, (iv) to fund repayment 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.
During the year ended December 31, 2017, the Company recorded a loss on early extinguishment of debt related to its 6% Notes
and its 6-1/2% Notes of $43.7 million.
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. 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. The facility limit was $350 million and contained customary
representations, warranties and covenants.
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. For further information on the interest rate swap agreements see Note L – “Derivative
Financial Instruments.”
4% Convertible Senior Subordinated Notes
On June 3, 2009, the Company sold and issued $172.5 million aggregate principal amount of 4% Convertible Notes. The Company
allocated $54.3 million of the $172.5 million principal amount of the 4% Convertible Notes to the equity component. The Company
recorded a related deferred tax liability of $19.4 million on the equity component. 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 on the 4% Convertible
Notes for the year ended December 31, 2015. 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 $0.01 par value common stock to settle the 4% Convertible Notes.
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 CSAG (and, CSAG 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.
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 Income (Loss).
F-45
Schedule of Debt Maturities
Scheduled annual maturities of the principal portion of long-term debt outstanding at December 31, 2017 in the successive five-
year period and thereafter are summarized below. Credit Agreement, which were entered into in January 2017. Amounts shown
are exclusive of minimum lease payments for capital lease obligations (in millions):
2018
2019
2020
2021
2022
Thereafter
Total Debt
Less: Unamortized debt issuance costs
Net debt
$
$
$
4.9
4.2
3.7
3.7
3.7
978.0
998.2
(16.5)
981.7
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, 2017 and 2016, as follows (in millions, except for quotes):
5-5/8% Notes
2017 Credit Agreement Term Loan (net of discount)
2017
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
Book Value
600.0
395.1
Book Value
300.0
850.0
223.5
205.1
$
$
$
$
$
$
$
$
$
$
$
$
Quote
1.04000
1.00708
Quote
1.02500
1.02750
1.00000
0.99500
$
$
$
$
$
$
FV
FV
624
398
308
873
224
204
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 A – “Basis of Presentation,” for an explanation of the
ASC 820 hierarchy. The Company believes that the carrying value of its other borrowings 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 $59.5 million, $96.2 million and $98.9 million of interest in 2017, 2016 and 2015, respectively.
F-46
NOTE O – LEASE COMMITMENTS
Future minimum noncancellable operating lease payments at December 31, 2017 are as follows (in millions):
2018
2019
2020
2021
2022
Thereafter
Total minimum obligations
Operating
Leases
31.1
25.3
19.9
17.7
16.1
43.4
153.5
$
$
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 $39.9 million, $44.3 million, and $49.6 million in
2017, 2016 and 2015, respectively.
F-47
NOTE P– RETIREMENT PLANS AND OTHER BENEFITS
U.S. Pension Plan
As of December 31, 2017, 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” (“HTFA-2014”). Included in
HTFA-2014 were provisions to further stabilize the interest rates used in valuing pension liabilities. As a result of the provisions
of MAP 21 and HTFA-2014, and existing funding commitments, there were no minimum contribution requirements for the 2017,
2016 and 2015 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 Switzerland plan is a funded plan and the Company funds this plan in accordance with
funding regulations. 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 0.8 million and 0.9 million at December 31, 2017 and 2016,
respectively.
Charges recognized for the Deferred Compensation Plan and these other savings plans were $16.9 million, $19.3 million and $20.6
million for the years ended December 31, 2017, 2016 and 2015, respectively. For the years ended December 31, 2017, 2016 and
2015, Company matching contributions to tax deferred savings plans were invested at the direction of plan participants.
F-48
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
2017
2016
2017
2016
2017
2016
Accumulated benefit obligation at end of year
Change in benefit obligation:
Benefit obligation at beginning of year
$
$
153.3
167.6
$
$
161.2
174.0
$
$
229.4
211.5
$
$
209.7
217.1
$
Service cost
Interest cost
Transfer to Held for Sale
Settlements
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
Settlements
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
$
$
$
$
$
0.6
7.1
—
—
2.5
(16.6)
—
167.6
3.2
5.0
(0.1)
(5.0)
1.1
(7.1)
23.0
231.6
123.1
108.3
9.5
—
1.1
—
(16.6)
—
6.9
(5.0)
7.5
0.4
(7.1)
10.2
0.6
6.4
—
—
0.1
(14.3)
—
160.4
117.1
14.5
—
1.2
—
(14.3)
—
118.5
(41.9) $
3.1
6.5
(5.5)
—
25.9
(9.4)
(26.2)
211.5
111.2
18.4
—
6.7
0.4
(9.4)
(19.0)
108.3
117.1
(50.5) $ (110.4) $ (103.2) $
121.2
1.2
40.7
41.9
$
$
1.2
49.3
50.5
$
$
2.8
107.6
110.4
$
$
2.4
100.8
103.2
64.8
$
75.6
$
68.2
$
0.1
0.3
0.1
148.5
(2.2)
$
$
$
$
4.2
—
0.1
—
—
(0.4)
(0.5)
—
3.4
—
—
—
0.5
—
(0.5)
—
—
(3.4) $
$
$
$
0.4
3.0
3.4
0.9
—
4.9
—
0.2
—
—
(0.6)
(0.3)
—
4.2
—
—
—
0.3
—
(0.3)
—
—
(4.2)
0.5
3.7
4.2
—
—
—
64.9
$
75.9
$
68.3
$
146.3
$
0.9
$
U.S. Pension Benefits
Non-U.S. Pension Benefits
Other Benefits
2017
2016
2015
2017
2016
2015
2017
2016
2015
Weighted-average assumptions as of
December 31:
Discount rate(1)
Expected return on plan assets
Rate of compensation increase(1)
3.78% 4.03% 4.20% 2.15% 2.27% 3.23% 3.58% 3.81% 3.91%
7.00% 7.00% 7.50% 4.43% 5.90% 5.93%
3.75% 3.75% 3.75% 0.93% 0.89% 0.83%
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-49
Components of net periodic cost:
Service cost
Interest cost
Expected return on plan assets
Recognition of prior service cost
Amortization of actuarial loss
Settlements
Other
Net periodic cost
U.S. Pension Benefits
Non-U.S. Pension Benefits
Other Benefits
2017
2016
2015
2017
2016
2015
2017
2016
2015
$ 0.6
$ 0.6
$ 1.1
$ 3.2
$ 3.1
$ 2.9
$ — $ — $ —
6.4
(7.8)
0.1
4.1
—
—
7.1
(8.3)
0.2
4.2
—
—
$ 3.4
$ 3.8
7.2
(9.9)
0.1
3.8
5.0
(5.0)
—
3.5
6.5
(6.0)
—
2.5
6.9
(7.0)
—
3.2
—
1.5
— (0.4)
$ 7.8
$ 2.3
—
(0.4)
$ 5.7
—
(0.3)
$ 5.7
0.1
—
—
(1.2)
—
0.2
—
—
—
—
—
—
$ (1.1) $ 0.2
0.2
—
—
0.1
—
—
$ 0.3
Participants in the Company’s U.K pension plan may elect to receive a lump-sum settlement of remaining pension benefits under
the terms of the plan. As a result of participants electing the lump-sum option during 2017, the Company settled $5.0 million of
Non-U.S. pension obligations. The settlements were paid from plan assets and did not require a cash contribution from the
Company. As a result, the Company recorded settlement losses of $1.5 million reflecting the accelerated recognition of unamortized
losses in the plan proportionate to the obligation that was settled.
Other Changes in Plan Assets and Benefit
Obligations Recognized in Other
Comprehensive Income (Loss):
Net (gain) loss
Amortization of actuarial gain (loss)
Amortization of prior service cost
Disposals
Settlements
Foreign exchange effect
Total recognized in other comprehensive
income (loss)
U.S. Pension Benefits
Non-U.S. Pension
Benefits
Other Benefits
2017
2016
2017
2016
2017
2016
$ (6.8) $
(4.1)
(0.1)
—
—
—
1.3
(4.2)
(0.1)
—
—
—
$ (0.7) $ 39.7
(5.6)
(2.3)
—
—
(12.2)
(3.5)
—
(79.4)
(1.5)
7.1
$ (0.3) $
1.2
—
—
—
—
(0.6)
—
—
—
—
—
$ (11.0) $
(3.0) $ (78.0) $ 19.6
$
0.9
$
(0.6)
Amounts expected to be recognized as components of net periodic cost for the
year ending December 31, 2018:
Actuarial net loss
Prior service cost
Total amount expected to be recognized as components of net periodic cost for
the year ending December 31, 2018
U.S. Pension
Benefits
Non-U.S.
Pension
Benefits
Other
Benefits
$
$
$
4.0
0.1
$
3.3
—
4.1
$
3.3
$
0.1
—
0.1
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
2017
2016
2017
2016
$ 160.4
$ 167.6
$ 231.6
$ 211.5
$ 153.3
$ 161.2
$ 229.4
$ 209.7
$ 118.5
$ 117.1
$ 121.2
$ 108.3
F-50
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.
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 31% and 32% of the portfolio at December 31, 2017 and 2016, 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 69% and 68% of the
portfolio at December 31, 2017 and 2016, respectively. The target investment allocation for 2018 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, 2017 and 2016. 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, 2017 and 2016. Investments of the plans primarily include
investments in companies from diversified industries with approximately 94% invested internationally and 6% invested in North
America. The target investment allocations to support our investment strategy for 2018 are approximately 67% to 68% fixed
income securities and approximately 32% to 33% 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 A – “Basis of Presentation,” for an explanation
of the ASC 820 hierarchy.
The fair value of the Company’s plan assets at December 31, 2017 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
27.6
8.7
55.8
—
16.4
0.6
—
6.9
$ 118.5
U.S. Pension Plan
Level 1 Level 2
$
NAV
Total
$ — $ — $
Non-U.S. Pension Plans
Level 1 Level 2
$
NAV
2.5
—
—
—
—
—
—
—
—
2.5
—
—
—
—
—
—
—
—
27.6
8.7
55.8
—
16.4
0.6
—
6.9
$ — $ 116.0
2.9
6.4
24.4
0.6
19.3
—
32.7
3.5
31.4
$ 121.2
$
2.9
—
—
—
—
—
—
—
—
2.9
$ — $ —
—
—
—
—
—
—
—
—
$ —
6.4
24.4
0.6
19.3
—
32.7
3.5
31.4
$ 118.3
$
F-51
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
Total
$ — $ — $
Non-U.S. Pension Plans
Level 1 Level 2
$
NAV
2.5
—
—
—
—
—
—
—
—
2.5
—
—
—
—
—
—
—
—
28.6
8.7
56.4
—
12.7
0.3
—
7.9
$ — $ 114.6
2.1
5.9
21.2
0.9
17.7
0.6
29.3
2.8
27.8
$ 108.3
$
$
2.1
—
—
—
—
—
—
—
—
2.1
$ — $ —
—
—
—
—
—
—
—
—
$ —
5.9
21.2
0.9
17.7
0.6
29.3
2.8
27.8
$ 106.2
The Company plans to contribute approximately $1 million to its U.S. defined benefit pension and post-retirement plans and
approximately $8 million to its non-U.S. defined benefit pension plans in 2018. During the year ended December 31, 2017, the
Company contributed $1.7 million to its U.S. defined benefit pension plans and post-retirement plans and $7.5 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
2018
2019
2020
2021
2022
2023-2027
$
$
$
$
$
$
11.1
10.9
10.9
10.7
10.5
52.1
Non-U.S.
Pension Benefits
11.7
$
7.4
$
7.6
$
8.2
$
8.4
$
45.4
$
Other Benefits
0.4
$
0.4
$
0.4
$
0.3
$
0.3
$
1.0
$
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 2018, decreasing one-half percentage point per year until it reaches 4.50% for 2022 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 Q– STOCKHOLDERS’ EQUITY
1-Percentage-
Point Increase
$
$
— $
$
0.1
1-Percentage-
Point Decrease
—
(0.1)
On December 31, 2017, there were 130.4 million shares of Common Stock issued and 80.2 million shares of Common Stock
outstanding. Of the 169.6 million unissued shares of Common Stock at that date, 3.1 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, 2017, the Company
held 50.2 million shares of Common Stock in treasury totaling $1,857.7 million, including 0.8 million shares held in a trust for
the benefit of the Company’s Deferred Compensation Plan totaling $18.6 million. During the year ended December 31, 2017, the
Company issued 38 thousand shares of its outstanding Common Stock which were contributed into a deferred compensation plan
under a Rabbi Trust.
F-52
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, 2017 and 2016, there were no shares of preferred stock outstanding.
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, 2017,
2.2 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 additional incentive inherent in ownership of 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.
Under the 2009 Plan, approximately 60% of these awards are time-based and vest ratably on each of the first three anniversary
dates. Approximately 25% cliff vest and are based on performance targets containing a market condition. Approximately 15%
cliff vest at the end of a three-year period and are subject to performance targets that may or may not be met and for which the
performance period has not yet been completed.
Substantially all stock option grants under the 2000 Plan had a contractual life of ten years. There were no options granted during
the years ended December 31, 2017, 2016 or 2015, 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, 2016
Exercised
Canceled or expired
Outstanding at December 31, 2017
Exercisable at December 31, 2017
Vested at December 31, 2017
Weighted
Average
Exercise Price
per Share
Weighted
Average
Remaining
Contractual
Life (in years)
Aggregate
Intrinsic
Value
Number of
Options
13,059
$
— $
(10,472) $
$
2,587
$
2,587
$
2,587
65.17
—
65.07
65.57
65.57
65.57
0.00
0.00
0.00
$
$
$
—
—
—
The fair value of restricted stock awards is based on the market price at the date of grant approval except for 0.7 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 2, 2017 March 3, 2016 March 5, 2015 March 5, 2015
1.01%
42.78%
1.55%
3
$36.48
1.22%
45.59%
0.97%
3
$29.24
0.91%
45.48%
0.98%
3
$28.10
0.91%
37.00%
0.58%
2
$25.60
F-53
The following table is a summary of restricted stock awards under all of the Company’s plans:
Nonvested at December 31, 2016
Granted
Vested
Canceled, expired or other
Nonvested at December 31, 2017
Restricted Stock
Awards
$
3,531,188
1,542,697
$
(1,252,563) $
(710,265) $
3,111,057
$
Weighted
Average Grant
Date Fair Value
25.42
32.54
28.76
21.86
28.68
As of December 31, 2017, unrecognized compensation costs related to restricted stock totaled approximately $40 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, 2017, 2016 and 2015 was $32.54, $23.95 and $26.83, respectively. The total fair
value of shares vested for restricted stock awards was $36.0 million, $35.1 million and $42.6 million for the years ended
December 31, 2017, 2016 and 2015, respectively.
Tax benefits associated with stock-based compensation were $11.8 million, $12.6 million and $12.4 million for the years ended
December 31, 2017, 2016 and 2015, respectively. The excess tax benefit for all stock-based compensation is included in the
Consolidated Statement of Cash Flows as an operating cash activity.
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, 2015
Current year change
Balance at December 31, 2015
Current year change
Balance at December 31, 2016
Current year change
Balance at December 31, 2017
Cumulative
Translation
Adjustment
$
(245.5) $
(247.2)
(492.7)
(122.6)
(615.3)
470.6
(144.7) $
$
Derivative
Hedging
Adjustment
Debt & Equity
Securities
Adjustment
Accumulated
Other
Comprehensive
Income (Loss)
Pension
Liability
Adjustment
$
(0.7) $
3.0
2.3
(4.7)
(2.4)
4.5
2.1
$
1.6
(7.9)
(6.3)
6.9
0.6
3.7
4.3
$
(185.2) $
32.3
(152.9)
(9.4)
(162.3)
61.1
(101.2) $
(429.8)
(219.8)
(649.6)
(129.8)
(779.4)
539.9
(239.5)
Accumulated Other Comprehensive Income (Loss) Attributable to Noncontrolling Interest
Balance at January 1, 2015
Current year change
Balance at December 31, 2015
Current year change
Balance at December 31, 2016
Current year change
Balance at December 31, 2017
Cumulative
Translation
Adjustment
0.8
$
(0.1)
0.7
(0.4)
0.3
—
0.3
$
Derivative
Hedging
Adjustment
$
Debt & Equity
Securities
Adjustment
Pension
Liability
Adjustment
— $
—
—
—
—
—
— $
— $
—
—
—
—
—
— $
Accumulated
Other
Comprehensive
Income (Loss)
0.8
(0.1)
0.7
(0.4)
0.3
—
0.3
— $
—
—
—
—
—
— $
$
F-54
Balance at January 1, 2015
Current year change
Balance at December 31, 2015
Current year change
Balance at December 31, 2016
Current year change
Balance at December 31, 2017
Accumulated Other Comprehensive Income (Loss)
Cumulative
Translation
Adjustment
$
(244.7) $
(247.3)
(492.0)
(123.0)
(615.0)
470.6
(144.4) $
$
Derivative
Hedging
Adjustment
Debt & Equity
Securities
Adjustment
Accumulated
Other
Comprehensive
Income (Loss)
Pension
Liability
Adjustment
$
(0.7) $
3.0
2.3
(4.7)
(2.4)
4.5
2.1
$
1.6
(7.9)
(6.3)
6.9
0.6
3.7
4.3
$
(185.2) $
32.3
(152.9)
(9.4)
(162.3)
61.1
(101.2) $
(429.0)
(219.9)
(648.9)
(130.2)
(779.1)
539.9
(239.2)
As of December 31, 2017, accumulated other comprehensive income for the cumulative translation adjustment, derivative hedging
adjustment, debt and equity securities adjustment and pension liability adjustment are net of a tax benefit/(provision) of $11.5
million, $(0.5) million, $(0.1) million and $32.8 million, respectively.
Changes in Accumulated Other Comprehensive Income (Loss)
The table below presents changes in AOCI by component for the year ended December 31, 2017 and 2016. All amounts are net
of tax (in millions).
Year ended December 31, 2017
Year ended December 31, 2016
Derivative
Hedging
Adj.
Debt &
Equity
Securities
Adj.
Pension
Liability
Adj. (2)
CTA (1)
Total
CTA
Derivative
Hedging
Adj.
Debt &
Equity
Securities
Adj.
Pension
Liability
Adj.
Total
Beginning balance
$(615.0) $
(2.4) $
0.6 $ (162.3) $ (779.1) $(492.0) $
2.3 $
(6.3) $(152.9) $(648.9)
Other comprehensive
income before
reclassifications
Amounts reclassified from
AOCI
Net Other Comprehensive
Income (Loss)
114.1
356.5
470.6
4.3
0.2
4.5
Ending balance
$(144.4) $
2.1 $
3.6
0.1
(0.1)
121.9
(121.1)
(5.7)
3.9
(16.1)
(139.0)
61.2
418.0
(1.9)
1.0
3.0
6.7
8.8
61.1
3.7
4.3 $ (101.2) $ (239.2) $(615.0) $
(123.0)
539.9
(4.7)
(2.4) $
(130.2)
(9.4)
6.9
0.6 $(162.3) $(779.1)
(1) Reclassifications primarily relate to $352.1 million of losses (net of $1.5 million of tax benefits) reclassified from AOCI to Gain (loss) on disposition of
discontinued operations - net of tax in connection with the sale of the MHPS business.
(2) Reclassifications primarily relate to $55.4 million of losses (net of $23.9 million of tax benefits) reclassified from AOCI to Gain (loss) on disposition of
discontinued operations - net of tax in connection with the sale of the MHPS business.
Share Repurchases and Dividends
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 of which approximately $131 million of this authorization was utilized prior to
January 1, 2017. In February 2017, the Company announced authorization by its Board of Directors for the repurchase of up to
an additional $350 million of the Company’s outstanding shares of common stock. In May 2017, the Company announced the
completion of the February 2015 and February 2017 authorizations and subsequently that the Company’s Board of Directors had
authorized the repurchase of up to an additional $280 million of our outstanding shares of common stock. In September 2017,
the Company announced the completion of the May 2017 authorization and subsequently that the Company’s Board of Directors
had authorized the repurchase of up to an additional $225 million of our outstanding shares of common stock. During the year
ended December 31, 2017, the Company repurchased 25.7 million shares for $923.7 million under the programs. During the year
ended December 31, 2016, the Company repurchased 3.5 million shares for $81.3 million under the programs. During the year
ended December 31, 2015, the Company repurchased 1.9 million shares for $50.0 million under the programs. In the first quarter
of 2018, the Company’s Board of Directors announced authorization for the repurchase of up to an additional $325 million of the
Company’s outstanding shares of common stock. The Company’s Board of Directors declared and paid a dividend of $0.08, $0.07
and $0.06 per share in each quarter of 2017, 2016 and 2015, respectively. Additionally, in the first quarter of 2018 the Company’s
Board of Directors declared a dividend of $0.10 per share which will be paid on March 19, 2018.
F-55
NOTE R – 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
In 2010, the Company received complaints seeking certification of class action lawsuits as follows:
• A consolidated class action complaint for violations of securities laws 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 time 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 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
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. However, the outcome of the lawsuits cannot be predicted and,
if determined adversely, could ultimately result in the Company incurring significant liabilities.
F-56
Demag Cranes AG Appraisal Proceedings
In connection with the Company’s purchase of Demag Cranes AG (“DCAG”) in 2011, certain former shareholders of DCAG
initiated appraisal proceedings relating to (i) a domination and profit loss transfer agreement between DCAG and Terex Germany
GmbH & Co. KG (the “DPLA Proceeding”) and (ii) the squeeze out of the former DCAG shareholders (the “Squeeze out
Proceeding”) alleging that the Company did not pay fair value for the shares of DCAG. These proceedings were initiated in the
Regional Court of Düsseldorf on April 24, 2012 and January 26, 2014, respectively. The Company believes it did pay fair value
for the shares of DCAG and that no further payment from the Company to any former shareholders of DCAG 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 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 by both parties
(claimants as to results, Terex as to costs). The Squeeze out Proceeding is still in the relatively early stages. While the Company
believes the position of the former shareholders of DCAG 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 time of default.
As of December 31, 2017 and 2016, the Company’s maximum exposure to such credit guarantees was $45.6 million and $42.3
million, respectively (credit guarantees as of December 31, 2016 include $2.0 million of guarantees related to discontinued
operations). 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 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 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 if certain conditions are met by the customer. Maximum
exposure for residual value guarantees issued by the Company totaled $7.8 million and $7.1 million as of December 31, 2017 and
2016, respectively. The Company is generally able to mitigate some 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 has recorded an aggregate liability within Other current liabilities and Other non-current liabilities in the Consolidated
Balance Sheet of $4.3 million and $3.8 million as of December 31, 2017 and 2016, respectively, for estimated fair value of all
guarantees provided.
There can be no assurance 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 used equipment
markets at the time of loss.
F-57
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(Amounts in millions)
Balance
Beginning
of Year
Charges to
Earnings
Other (1)
Deductions (2)
Balance End
of Year
Year ended December 31, 2017
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, 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
$
$
$
$
$
$
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
$
$
$
$
$
$
0.4
1.1
21.6
0.2
23.3
$
$
1.0
1.5
10.5
(12.4)
0.6
$
$
$
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) $
(1.7) $
(4.5)
(29.6)
—
(35.8) $
(4.1) $
(0.3)
(19.7)
—
(24.1) $
(3.9) $
(2.3)
(13.2)
—
(19.4) $
16.2
23.3
85.8
136.4
261.7
16.5
25.2
83.3
148.6
273.6
20.4
27.4
76.8
215.1
339.7
(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-58
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
2017
2016
2015
2014
2013
Year Ended December 31,
$ 112.0
$ (270.7)
$ 195.7
$ 278.6
$ 284.2
0.1
133.3
$ 245.4
(0.4)
117.0
$ (154.1)
1.6
124.6
$ 321.9
8.4
141.9
$ 428.9
4.8
149.9
$ 438.9
Interest expense, including debt discount
amortization
Amortization of debt issuance costs
Loss on early extinguishment of debt
Portion of rental expense representative of
interest factor (assumed to be 33%)
Fixed charges
63.3
4.2
52.6
13.2
$ 133.3
96.6
5.4
0.4
102.8
115.3
120.1
5.3
0.1
7.4
2.6
8.5
5.2
14.6
$ 117.0
16.4
$ 124.6
16.6
$ 141.9
16.1
$ 149.9
RATIO OF EARNINGS TO FIXED CHARGES
1.8 x
— (1)
2.6 x
3.0 x
2.9 x
AMOUNT OF EARNINGS DEFICIENCY FOR
COVERAGE OF FIXED CHARGES
$
—
$ 271.1
$ —
$ —
$ —
CALCULATION EXCLUDING LOSS ON
EARLY EXTINGUISHMENT OF DEBT:
RATIO OF EARNINGS TO FIXED CHARGES
AMOUNT OF EARNINGS DEFICIENCY FOR
COVERAGE OF FIXED CHARGES
(1) less than 1.0x
2.4 x
— (1)
2.6 x
3.1 x
3.0 x
$
—
$ 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 16, 2018
/s/ John L. Garrison, Jr.
John L. Garrison, Jr.
President and Chief Executive Officer
Exhibit 31.2
CERTIFICATION
I, John D. Sheehan, 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 16, 2018
/s/ John D. Sheehan
John D. Sheehan
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,
2017 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 John D. Sheehan, 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 16, 2018
/s/ John D. Sheehan
John D. Sheehan
Senior Vice President and
Chief Financial Officer
February 16, 2018
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.
The Terex Way—The Values and Beliefs
That Guide Our Actions and Behaviors
Integrity reflects honesty, ethics, transparency and accountability. We are
committed to maintaining high ethical standards in all of our business dealings.
Respect incorporates concern for safety, health, teamwork, diversity, inclusion and
performance. We treat all our team members, customers and suppliers with respect
INTEGRITY
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 entails willingness to take risks, responsibility, action and empowerment.
We have the courage to make a difference even when it is difficult.
COURAGE
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.
Shareholder Information
OREN G. SHAFFER
Vice Chairman and
Chief Financial Officer (retired)
Qwest Communications International Inc.
DAVID C. WANG
Vice President, 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, Chief Financial Officer
KEVIN A. BARR
Senior Vice President, Chief Human
Resources Officer
PAUL CALDARAZZO
Senior Vice President, Strategic Sourcing
and Execute to Win
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 ($):
2017
Q1
Q2
Q3
Q4
HIGH
33.87
37.90
45.10 48.90
LOW
2016
28.67
30.25
35.79 41.68
Q1
Q2
Q3
Q4
HIGH
25.38
25.57
25.66 33.17
LOW
13.62
18.91
19.49 21.88
ERIC I COHEN
Senior Vice President, General Counsel
and Secretary
BRIAN J. HENRY
Senior Vice President, Business Development
and Investor Relations
MATTHEW S. FEARON
President, Terex Aerial Work Platforms
STEVE FILIPOV
President, Terex Cranes
KIERAN HEGARTY
President, Terex Materials Processing
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, Chief Talent and
Diversity Officer
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 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
Friday, May 11, 2018 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
Chief Executive Officer (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 LP
DR. RAIMUND KLINKNER
Managing Shareholder
IMX Institute for Manufacturing
Excellence GmbH
ANDRA RUSH
President and Chief Executive Officer
Rush Group
CORPORATE HEADQUARTERS
TEREX CORPORATION
200 Nyala Farm Road
Westport, CT 06880, USA
Telephone: 203-222-7170
Fax: 203-222-7976
Website: www.terex.com
TRANSFER AGENT
AND REGISTRAR
American Stock Transfer & Trust Company
59 Maiden Lane, Plaza Level
New York, NY 10038
Telephone: 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.amstock.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 2018 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
2 0 1 7 A N N U A L R E P O R T
Focus. Simplify. Execute To Win.