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Focus.
Simplify.
Execute To Win.
2 0 1 9 A N N U A L R E P O R T
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.
Terex Strategy
2019 Accomplishments
Focus
Portfolio Rationalization
• Completed Sale of Demag Mobile Cranes
• Completed Sale of US Crane Product Lines
• Reoriented Remaining Crane Businesses Post-Sale
• Businesses in the Portfolio Outearn Their Cost
of Capital
Focus Objectives from the 2016
Strategy have now been met.
Simplify
Simplified Company Structure
• Implemented New Two Segment Structure
• Rationalized G&A
• Facility Upgrades to Simplify Global Operations
Simplify Objectives from the 2016
Strategy have now been met.
Execute
To Win
Commercial Excellence
• Company-Wide CRM Deployment
• Terex Proven Sales Process
• Significant New Talent Investments
Lifecycle Solutions
• Comprehensive Parts & Services Strategy
• Established Global Parts & Services Team
• Accelerating Improvement Initiatives
Strategic Sourcing
• Completed Core Process
• Strong Momentum Implementing Waves 1 & 2
• Launching New Strategic Projects
2019 Annual Report
1
Left to right: John L. Garrison, Jr., Chairman, President and Chief Executive Officer, team members
William De Bona and Mirko Burigana, on top of a Terex tower crane at the Fontanafredda, Italy facility.
Dear Fellow Shareholders:
2019 was the third year since Terex shared its
Focus, Simplify, Execute to Win strategy. The Focus
and Simplify elements of this strategy have now
been met, and we continue to make excellent prog-
ress towards the process improvement objectives
associated with Execute to Win. We are resolute in
our goal to establish a corporate culture based on
our Terex Way values, process discipline, and
accountability that will consistently deliver high
performance in all phases of future business cycles.
Health, Safety, and Environment (HSE) remains a
cornerstone of all that we do at Terex, and we are
committed to the goal of Zero Harm. The team
made significant progress reducing total recordable
injuries by more than 39%, clearly demonstrating the
culture of safety that we are successfully driving.
Continuously improving our HSE performance is
critical to our success. As I said in last year’s letter,
companies that exemplify a safety culture—and the
process standardization it requires—are more likely
to execute well in all other aspects of their business.
We completed the Focus element of our strategy in
2019 by executing two significant portfolio actions
in our former Cranes segment. In July, we completed
the sale of the Demag® Mobile Cranes business to
2 Terex Corporation
Tadano Ltd. and, in April, we completed the sale of
certain US Crane product lines to a subsidiary of
Custom Truck. Following these transactions, our
business portfolio is now composed of businesses
that have demonstrated the ability to earn more than
their cost of capital consistently through the business
cycles. Exiting these crane businesses also enabled
simplification of our company structure, including
elimination of the Cranes reporting segment and
streamlining of our corporate team.
With the actions taken from 2016 to 2020, we are a
structurally simpler company that is committed to
becoming more process-driven and to achieving
operational excellence. We have a team in place
that is capable of fulfilling our objectives.
We are anticipating continued uncertainty through
2020 given the recent global developments regarding
COVID-19 and the decline in worldwide oil prices,
combined with macroeconomic trends and a soft-
ening phase within the manufacturing and construc-
tion cycle. We made operational adjustments in the
back half of 2019 to better position for 2020 and will
continue to adjust as the year unfolds. Further
ahead, we see several exciting opportunities for
growth, including a strong anticipated replacement
5
4
3
2
1
0
Terex 2019
Financial Highlights
’16
Consolidated
’17
Net Sales
(USD in Billions)
’18
’19
Net Sales
by Segment
Net Sales by
Geography
5
4
3
2
1
0
4.52
4.35
3.79
’17
’18
’19
63%
Aerial Work
Platforms
6%
Corporate
& Other
31%
Materials
Processing
57%
USA/Canada
21%
Rest of
the World
22%
Western
Europe
cycle in U.S. aerials, increasing global adoption
across several product lines, and multiple Terex-
specific opportunities resulting from investments in
innovative new products and services. Terex now
has a very strong balance sheet, and we continue
to invest in our people, plant and equipment, so
we will be strategically positioned to achieve
consistent profitable growth in the years ahead.
We operate in cyclical markets, and our perfor-
mance will always be impacted by the ups and
downs that inevitably occur. We are putting
the pieces in place that will enable continuous
improvement though all phases of the manufacturing
cycle. Terex is a stronger company today and I am
excited by what we can accomplish together in the
years ahead.
Terex Aerial Work Platforms
Terex Aerial Work Platforms (AWP) now includes
two primary businesses: Genie (our global aerials
business) and Terex Utilities (a provider of insulated
utility maintenance equipment that are currently sold
primarily in the United States). Combined revenue
from these businesses fell 7.6% in 2019, off from the
strong performance delivered in 2018. AWP’s oper-
ating margins finished the year at 7.2%. Margin
performance was impacted by high materials
costs at the beginning of the year, adverse
exchange rates, unfavorable product mix, and
reducing production to reduce inventory to levels
appropriate to meet current demand.
During 2019, AWP continued to implement strategic
sourcing improvements, implementing Wave 1
improvement projects in MRO, fasteners, cut parts,
and fabrications. Salesforce was deployed in Genie
worldwide and Utilities implemented a well-received
new customer portal. The segment launched a pipe-
line of new parts and services initiatives that were
developed following enhancement of parts and
service management. Multiple new products were
launched, including the XC family of Genie booms,
the Z45 FE Hybrid, and new transmission line
aerials products in Utilities. And, Genie launched
its LiftConnect telematics solution as a standard
feature, creating an opportunity for significant
new offering development and enabling future
improvement of forecasting and other processes
in the business.
Terex Materials Processing
Terex Materials Processing (MP) delivered operating
profit of 14.4% for 2019 on revenue growth of 3.7%.
2019 Annual Report
3
2019, we began implementing multiple digital solu-
tions in our networks including Connected Dealer
Inventory (CDI) and other solutions that will benefit
both dealers and Terex as we work together to
support the changing needs of customers within
the global marketplace.
Rough Terrain (RT) and Tower Cranes
Terex Rough Terrain (RT) and Terex Towers
businesses have been strong performers over
many years and continue to perform well following
separation from our broader Cranes businesses.
In 2019, our RT Cranes facility in Crespellano, Italy
achieved 1,000 days without a recordable or lost
time injury, giving it one of the best safety records
in the company. Terex Towers launched three new
models, including its first ever hydraulic luffing jib
tower crane. And, both Towers and RT’s success-
fully launched a new telematics platform that will
give customers full access to location and condition
information to help them more effectively manage
their fleets.
We continue to invest in both Towers and RT’s and
see these businesses as attractive opportunities for
future growth.
Parts and Services
One of our Execute to Win priorities is in the area
of “Lifecycle Solutions,” which centers on the total
relationship between our company and owners,
Digital Offerings
Telematics as standard on most new builds. New digital
offerings increase customer productivity.
• Standard installation of
telematics removes adoption
barriers and accelerates
fleet coverage
• Control multiple machines from
the safety and comfort of an
excavator cab
• Respond real time as
• Internal payback is significant
issues arise
• Value to customers
is increasing
• Dynamically adjust settings for
more consistent output quality
Hybrid and Electric Drive
Complete range of the most advanced hybrid and
electric drive systems in the industry.
• Efficiency
• Performance
• Leak/Ingress
Protection
• Efficient, powerful and reliable
state of the art drive systems
• Best in market performance,
electronic traction control
• Improved reliability and lower
maintenance—“zero leak”
drive system
• Industry-leading hybrid
technology that drives
customer value
• Common and consistent
execution across product lines
• Cost effective and high ROI
• Uncompromised performance—
• Efficient drive for longer battery life
a true IC replacement
This performance resulted from excellent execution
during a year in which the demand environment
became progressively more challenging. Though
orders were down versus prior year in each 2019
quarter, operating margins increased over the same
period by 110 basis points, and 130 basis points on
an adjusted basis. This was driven by strong cost
discipline in MP and by pricing management in this
segment’s well-managed channels to market.
MP’s decline in orders during 2019 was driven by
customer uncertainty in key core markets, such as
the United States, and this uncertainty will likely
continue into 2020. We are preparing for softer
conditions and expect to continue delivering healthy
margins at the modestly lower revenues that we
expect. Meanwhile, we continue to invest in the
global development of the MP segment, investing in
new facilities, launching new products, monetizing
parts and services and telematics deployment. We
view Materials Processing as a major long-term
growth engine in our company.
Our ability to capitalize in MP is supported by
effective management of business-specific third-
party distribution networks within the segment. The
strength of MP distribution is a significant asset but
one that must be continually developed in order to
remain vital in a changing global marketplace. In
4 Terex Corporation
20
15
10
5
0
2017
2018
2019
20
15
10
5
0
2016
2017
2018
2019
Capital Allocation Priorities
Cash Flow from Operations
20%
Optimal Capital Structure
15%
17.6%
16.8%
Organic Growth Investments
8.0%
10%
5%
Disciplined Capital Allocation
Return on
Invested Capital
16.8%
17.6%
20%
15%
10%
5%
8.0%
0
2017
2018
2019
0
2017
2018
2019
users, and others throughout the life of the equip-
ment that we manufacture. Over time, our offerings
in this area will develop and broaden but, in the
near term, we are principally focused on improving
core operations in parts and services. This team
is already having an impact on the growth and profit-
ability from parts and services in our company, and
the strategy that they are driving is only just begin-
ning to take shape. Development of our parts and
services capabilities is a major ongoing opportunity
for both revenue growth and margin expansion in
our company.
Disciplined Capital Allocation
Finally, let me highlight our Disciplined Capital
Allocation Strategy, which was articulated alongside
Focus, Simplify, and Execute to Win as part of our
December 2016 strategy. Since Q3 2016, Terex has
refinanced its debt at lower interest rates, reduced
debt by $512 million, reduced net pension obligations
by $316 million, reduced on-book customer financing
by $136 million, and reduced our weighted average
diluted net share count by 34% via repurchases.
These actions were accomplished while organically
investing capital in our businesses, continuing to
deploy operating capital in high priority growth
programs, and increasing our quarterly dividend by
71% since December 2016. We have done what we
said we would do with respect to capital allocation,
significantly strengthening our balance sheet and
our shareholders have benefitted.
I am proud of the hard work that has been done
by our team. We have made great progress, but
there is much more still to be done. I am as excited
as ever by the opportunities in front of us and look
forward to working with our team to take our perfor-
mance to the next level.
Sincerely,
John L. Garrison, Jr.
Chairman, President and Chief Executive Officer
In 2019 Terex lost a great leader and friend. David C. Wang, a member of the Terex Board of
Directors since 2008, passed away on June 2, 2019 at age 74. Mr. Wang was instrumental in
helping Terex understand the culture and business environment in China as we built our
business in China over the past decade. We will miss his insights and wise counsel.
In addition, Oren Shaffer retired from the Terex Board of Directors in 2019. Oren was a long-
standing board member who helped shape Terex. We greatly appreciate his committed service
to the Terex Board of Directors.
2019 Annual Report
5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
’17
’18
’19
1.2
1.0
0.8
0.6
0.4
0.2
0.0
’17
’18
’19
3.0
2.5
2.0
1.5
1.0
0.5
0.0
1.2
1.0
0.8
0.6
0.4
0.2
0.0
’16
’17
’18
’19
’16
’17
’18
’19
Aerial Work Platforms
Net Sales
(USD in Billions)
Backlog
(USD in Billions)
Net Sales by Geography
(USD in Billions)
1.5
1.2
3.0
2.5
2.0
0.9
1.5
0.6
1.0
0.5
0.3
0
0.0
2.95
2.43
2.73
1.2
1.10
0.6
0.5
0.4
0.3
0.2
1.0
0.91
0.75
0.8
0.6
0.4
0.2
’17
’18
’17
’18
’19
’19
0.1
0.0
0
’17
’18
’17
’18
’19
’19
2.95
2.73
2.36
2.43
1.10
0.91
0.75
0.64
3.0
2.5
2.0
1.5
1.0
0.5
0
’16
’16
’17
’17
’18
’18
’19
’19
0
’16
’18
’19
’16
’17
’19
’17
’18
1.2
1.0
0.8
0.6
0.4
0.2
0.6
0.5
0.4
0.3
0.2
0.1
0.0
1.5
1.2
0.9
0.6
0.3
0.0
66%
USA/Canada
18%
Rest of
the World
16%
Western
Europe
Materials Processing
Net Sales
(USD in Billions)
Backlog
(USD in Billions)
Net Sales by Geography
(USD in Billions)
1.32
1.37
1.12
1.5
1.2
0.9
0.6
0.3
0
’17
’18
’19
0.6
0.5
0.4
0.3
0.2
0.1
0
0.51
0.33
0.30
39%
USA/Canada
31%
Rest of
the World
30%
Western
Europe
1.37
1.32
1.12
0.97
1.5
1.2
0.9
0.6
0.3
0.51
0.33
0.30
0.22
0.6
0.5
0.4
0.3
0.2
0.1
’17
’18
’19
0
’16
’17
’18
’19
0
’16
’17
’18
’19
Builders of Terex
1990 –2019
Kevin Barr, Eric Cohen and Brian Henry (l. to r.),
left the company at the end of 2019. Brian Henry,
responsible for corporate strategy, acquisitions,
and divestitures, shaped the Terex of today over his
29-year career. Eric Cohen led the Legal function
for 22 years establishing our Corporate Governance
and Ethics & Compliance standards. Kevin Barr
joined Terex 19 years ago, tasked with building the
Human Resources function. We thank them for
their many contributions over the course of their
distinguished careers.
6 Terex Corporation
2 0 1 9 F O R M 1 0 - K
for the Year Ended December 31, 2019
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(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, 2019
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:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
COMMON STOCK, $.01 PAR VALUE
TEX
New York Stock Exchange
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 every Interactive Data File required to be submitted 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 such files).
Yes
No
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.
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 $2,144.8
million based on the last sale price on June 28, 2019.
Number of outstanding shares of common stock: 70.7 million as of February 11, 2020.
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 2020 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.” Unless specifically noted otherwise,
this Annual Report generally speaks as of December 31, 2019 and excludes discontinued operations. Discontinued operations
primarily relate to the Demag® mobile cranes business and mobile crane product lines manufactured in our Oklahoma City facility.
See Note D - “Discontinued Operations and Assets and Liabilities Held for Sale” in the Notes to the Consolidated Financial
Statements for further information.
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, 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;
changes in import/export regulatory regimes and the escalation of global trade conflicts could continue to negatively
impact sales of our products and our financial results;
our financial results could be adversely impacted by the United Kingdom’s (“U.K.”) departure from the European
Union (“E.U.”);
changes affecting the availability of the London Interbank Offered Rate ("LIBOR") may have consequences on us that
cannot yet reasonably be predicted;
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;
exposure from providing financing and credit support for some of our customers;
•
•
•
• we may experience losses in excess of recorded reserves;
• we are dependent upon third-party suppliers, making us vulnerable to supply shortages and price increases;
•
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 and other liabilities;
our ability to comply with an injunction and related obligations imposed by the United States Securities and Exchange
Commission (“SEC”);
disruption or breach in our information technology systems and storage of sensitive data;
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, 2019
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosure
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
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
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
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
Exhibits and Financial Statement Schedules
Form 10-K Summary
SIGNATURES
PAGE
4
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23
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24
26
27
48
49
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50
51
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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, materials processing
machinery and cranes. 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”) and (ii) Materials Processing
(“MP”).
Further information about our industry and reportable segments appears in Part II, Item 7. – “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” and Note B – “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, utility 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, utility equipment (including truck-mounted digger derricks, auger drills
and insulated aerial devices), 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, institutional and residential buildings and
facilities, for construction and maintenance of energized power lines, tree trimming, certain construction and foundation drilling
applications, 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;
• Utility products are manufactured in Watertown and Huron, South Dakota and Betim, Brazil;
• Telehandlers are manufactured in Oklahoma City, Oklahoma and Umbertide, Italy; and
• Trailer-mounted light towers, trailer-mounted booms and self-propelled aerials are manufactured in Rock Hill, South
Carolina.
We have a parts and logistics center located in North Bend, Washington for our aerial work platform and utility products equipment.
Additionally, a portion of our aerial work platform and utility products 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
outsourced facilities.
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 utility hot line tools business in Betim, Brazil.
MATERIALS PROCESSING
Our MP segment designs, manufactures and markets materials processing and specialty equipment, including crushers, washing
systems, screens, apron feeders, material handlers, pick and carry cranes, wood processing, biomass and recycling equipment,
concrete mixer trucks and concrete pavers, conveyors, 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, maintenance applications to lift equipment or
material, and in building roads and bridges. We market our MP products principally under the Terex®, Powerscreen®, Fuchs®,
EvoQuip®, Canica®, Cedarapids®, CBItm, Simplicity®, Franna®,, Terex Ecotec®, Terex Finlay®, Terex Washing Systems, Terex
MPS, Terex Jaques®, Terex Advance®, Terex Conveying Systems and Terex Bid-Well® brand names and business lines.
4
MP has the following significant manufacturing operations:
• Mobile crushers, mobile screens, track conveyors 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;
• Modular, mobile and static crushing and screening equipment and base crushers are manufactured in Oklahoma City,
Oklahoma;
Static crushers and screens are manufactured in Subang Jaya, Malaysia;
•
• Crushing and screening equipment is manufactured in Durand, Michigan;
Static and mobile crushers are manufactured in Coalville, England;
•
•
Fabrications, sub-assemblies and steel kits are manufactured in Ballymoney, Northern Ireland;
• Wood processing, biomass and recycling equipment systems are manufactured in Newton, New Hampshire, Dungannon,
Northern Ireland and Campsie, Northern Ireland;
• Material handlers are manufactured in Bad Schönborn, Germany;
• Concrete pavers and tracked conveyors are manufactured in Canton, South Dakota;
Front discharge concrete mixer trucks are manufactured in Fort Wayne, Indiana;
•
•
Pick and carry cranes are manufactured in Brisbane, Australia; and
• Tracked conveyors are manufactured in Campsie, Northern Ireland.
We have North American distribution centers in Louisville, Kentucky and Southaven, Mississippi and service centers in Australia,
Thailand, Turkey and Malaysia.
OTHER
We also design, manufacture, service, refurbish and market rough terrain and tower cranes, as well as their related components
and replacement parts. Customers use rough terrain cranes to move materials and equipment on rugged or uneven terrain and
tower cranes, often in urban areas where space is constrained and in long-term or high rise building sites, to lift construction
material and place material at point of use. We market our rough terrain and tower crane products principally under the Terex®
brand name.
Rough terrain and tower cranes have the following significant manufacturing operations:
• Rough terrain cranes are manufactured in Crespellano, Italy; and
• Tower cranes are manufactured in Fontanafredda, Italy.
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.
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 third party financial
institutions. Globally, TFS facilitates financing transactions directly between our customers and third party financial institutions.
In addition, wholesale financing may be arranged between dealers and distributors who sell our equipment and 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 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. When equipment is received, TFS uses the resale channel which maximizes proceeds and/or mitigates risk
for Terex and our funding partners.
5
DISCONTINUED OPERATIONS
Mobile Cranes
On July 31, 2019, we completed the disposition of our Demag® mobile cranes business (“Demag”) to Tadano Ltd. and certain of
its subsidiaries (“Tadano”). Products divested were our Demag® all terrain cranes and large lattice boom crawler cranes. During
2019, we also exited North American mobile crane product lines manufactured in our Oklahoma City facility. Our actions to sell
Demag and cease manufacturing mobile crane product lines in our Oklahoma City facility represented a significant strategic shift
in our business away from mobile cranes as these businesses constituted a significant part of our operations and financial results.
As a result, we realigned certain operations that were formerly part of our Cranes segment. For financial reporting periods beginning
on or after January 1, 2019, our utilities business has been consolidated within our AWP segment, our pick and carry cranes business
has been consolidated within our MP segment and our rough terrain and tower cranes businesses have been consolidated within
Corporate and Other. Prior period reportable segment information was adjusted to reflect the realignment of our operations.
Material Handling and Port Solutions (“MHPS”)
On January 4, 2017, we completed disposition of our MHPS business (the “Disposition”) to Konecranes Plc (“Konecranes”). The
MHPS business sold constituted the entirety of one of our previous reportable 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 had a major effect on our operating results.
See Note D – “Discontinued Operations and Assets and Liabilities Held for Sale” in the Notes to the Consolidated Financial
Statements for further information regarding dispositions and our discontinued operations.
SUBSEQUENT EVENTS
For financial reporting periods beginning on or after January 1, 2020, our rough terrain and tower cranes operations included within
Corporate and Other will be consolidated within our MP segment to align with the Company’s new management and reporting
structure. Prior period reportable segment information will be adjusted in succeeding periods to reflect the realignment of our
operations.
BUSINESS STRATEGY
Terex is a manufacturer of specialized 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 and understanding of 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.
6
During 2016, Terex began implementing a strategy that has three principal elements:
1. Focus the portfolio on businesses best positioned to generate returns above the cost of capital through the cycle.
2. Simplify company structure, systems and footprint to improve efficiency and enhance global competitiveness.
3. Execute to Win, driving process discipline, execution rigor, and accountability in core processes.
The “Focus” element of this strategy 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, sale of Demag, sale of certain of our former Construction
segment product lines and exiting certain North American mobile crane product lines. Though the original objectives have been
met, the principles on which the focus element was based will continue to be applied to our Company’s business portfolio. Businesses
that do not lead in their markets or do not achieve reasonable return expectations will be reviewed. Meanwhile, businesses that
do lead and do deliver attractive returns will be candidates for additional investment.
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 strategy, we have been addressing these
issues and are implementing strategic initiatives to simplify our structure, footprint and processes. We have been working to flatten
and streamline the organization. We have undertaken finance initiatives to simplify the way that we measure and manage the
Company day-to-day. We also simplified 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. During
2019, following the sale of Demag and exiting certain North American mobile crane product lines, Terex simplified its corporate
structure and we are now a two segment company.
The third major theme of the Terex strategy is Execute to Win, which is a focus on three key management processes: talent
development, strategy development and deployment, and operational excellence. Execute to Win represents a major change in
the philosophy of our Company in terms of where and how work is done. Our goal is to become operationally excellent, balancing
desire for business autonomy with the need for overall efficiency and relying on process excellence as a critical enabler of both
business and company performance. We have been 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 involves implementing a standard, Terex-wide strategic sourcing process that will help us leverage
our spending, thereby achieving lower costs from suppliers.
Capital allocation is an important part of our overall strategy. Our capital allocation priorities (in order) have been:
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 2019, we returned approximately $36 million to shareholders in the form of dividends and share repurchases.
7
PRODUCTS
AERIAL WORK PLATFORMS
AERIAL WORK PLATFORMS. Aerial work platform equipment positions workers and materials easily and quickly to elevated
work areas, enhancing safety and productivity at height. These products have been 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 they 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, industrial and institutional construction, as well as
highway and bridge maintenance projects.
Scissor lifts are used in indoor and outdoor applications in a variety of construction, industrial, institutional and commercial
settings.
UTILITY EQUIPMENT. Our utility products include digger derricks, auger drills and insulated aerial devices. 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.
•
TELEHANDLERS. Telehandlers are used to move and place materials on residential and commercial construction sites and 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.
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. 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, grinders and windrow turners.
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.
8
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, water management systems, 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 shredders, grinders, trommels, chippers, compost turners and specialty
systems. This equipment is used in, among other things, recycling, wood energy, green waste/construction, demolition recycling
industries and pulp and paper.
We manufacture a range of conveyors which include tracked mobile conveyors. Conveyors are mechanical machines used to
transport and stockpile materials such as aggregates and minerals after processing.
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.
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.
• 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.
OTHER
ROUGH TERRAIN 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.
TOWER CRANES. Tower cranes are often used in urban areas where space is constrained and in long-term or high-rise 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.
9
BACKLOG
Our backlog as of December 31, 2019 and 2018 was as follows:
AWP
MP
Corporate and other
Total
December 31,
2019
2018
(in millions)
$
752.5
295.4
33.3
$
1,098.1
512.6
50.7
$
1,081.2
$
1,661.4
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.
Our overall backlog amounts at December 31, 2019 decreased $580.2 million from our backlog amounts at December 31, 2018,
due to lower orders across all business segments.
AWP segment backlog at December 31, 2019 decreased approximately 31% from our backlog amounts at December 31, 2018.
This decrease from the prior year was driven primarily by lower orders in North America and Europe and not all national account
customers’ 2020 advance purchase orders were completed by December 31, 2019.
MP segment backlog at December 31, 2019 decreased approximately 42% from our backlog amounts at December 31, 2018. This
decrease from the prior year was driven primarily by softening demand for crushing and screening products and material handlers,
as well as dealers in the fourth quarter of 2018 ordering a much higher percentage of their 2019 full year equipment requirements
due to extended lead times.
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.
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.
OTHER
We market our crane products globally, optimizing assorted channel marketing systems, including a distribution network and a
direct sales force. Distribution via a distributor network is often utilized in certain geographic areas, including the United States
and Canada where we also sell directly to key accounts.
10
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, such as the telematics application to remotely monitor and manage our products, 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 new regulations continues to be a focus of the Company, including the newest diesel engine emission
reduction program introduced in Europe, known as Stage V, which is driving further engine emissions related product development.
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 product families, as well as increasing commonalities of components to ease
manufacturing processes.
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 we serve.
MATERIALS
Information regarding principal materials, components and commodities and any risks associated with these items are included
in Part II, Item 7A. – “Quantitative and Qualitative Disclosures about Market Risk – Commodities Risk.”
11
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 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 our 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), JCB and Aichi
Oshkosh (JLG), Linamar (Skyjack), Haulotte, Manitou
and Xtreme/Tanfield (Snorkel), JCB and Dingli
Oshkosh (JLG), Skytrak, Caterpillar and Lull brands),
JCB, CNH, Merlo and Manitou (Gehl)
Trailer-mounted Light Towers
Allmand Bros., Generac, Wacker Neuson and Doosan
Utility Equipment
Altec and Time Manufacturing
Materials Processing
Crushing & Screening Equipment
Washing Systems
Metso, Sandvik, Deere (Kleeman), Astec Industries,
Keestrack, Rubble Master and Portafill
CDE Global, Metso, McLanahan, Azfab, Phoenix
Process Equipment, Matec, Weir/Trio and Superior
Wood Processing, Biomass and Recycling
Equipment
Doppstadt, Komptech, Morbark, Vermeer, Astec
Industries, Eggersmann, Jenz and Bandit
Conveyors
Material Handlers
Concrete Pavers
Concrete Mixer Trucks
Superior, Astec/Telestack, Metso/McCloskey,
Puzzulona Thor, Deere (Kleeman), Weir/Trio and Edge
Sennebogen, Liebherr and Caterpillar
Gomaco, Deere (Wirtgen), Power Curbers, Guntert &
Zimmerman and Allen Equipment
Oshkosh, Kimble and Continental Manufacturing and
McNeilus
Pick and Carry Cranes
TIDD and Humma
Corporate and Other
Rough Terrain Cranes
Tower Cranes
Liebherr, Manitowoc (Grove), Tadano-Faun, Link-Belt,
XCMG, Kato, Zoomlion and Sany
Liebherr, Manitowoc
Zoomlion, XCMG and Wolffkran
(Potain), Comansa,
Jaso,
MAJOR CUSTOMERS
None of our customers individually accounted for more than 10% of our consolidated net sales in 2019. In 2019, our largest
customer accounted for less than 6% of our consolidated net sales and our top ten customers in the aggregate accounted for less
than 27% of our consolidated net sales. A material portion of AWP net sales are to national rental companies.
EMPLOYEES
As of December 31, 2019, we had approximately 9,500 employees; including approximately 4,700 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.
12
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® and Fuchs® trademarks.
The other trademarks and trade names that we use include registered trademarks of Terex Corporation or its subsidiaries.
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 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 ensuring that safety and health
hazards are adequately addressed through appropriate work practices, training and procedures. We are committed to reducing lost
time injuries and working towards 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.
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, the newest diesel engine emission reduction program introduced in Europe, known as Stage
V, is driving further engine emissions related product development. Our segments also offer products that use plug-in electric
hybrid technology to save fuel, reduce emissions and reduce noise in residential areas.
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.
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). While we expect a normal historical sales pattern in 2020, our earnings generated in the
first quarter of 2020 are projected to be less than the historical pattern due to lower revenues in AWP combined with unabsorbed
overhead on production below retail demand.
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WORKING CAPITAL
Our businesses are working capital intensive and require funding to purchase production and replacement parts inventories,
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 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. We currently expect market conditions to remain challenged in 2020 and expect continued geopolitical and
economic uncertainty. If the global economy weakens or customers’ perceptions concerning the timing of the economic cycle
change, it may cause customers to continue to forgo 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 global economic conditions are weaker
than our market expectations or the global economic weakness of the past were to recur, then there could be an adverse effect on
our net sales, financial condition, profitability and/or cash flow which could result in the need for us to record impairments.
Changes in import/export regulatory regimes, the imposition of tariffs and escalation of global trade conflicts could continue
to negatively impact our business.
The current U.S. administration continues to express strong concerns about imports from countries that it perceives as engaging
in unfair trade practices. The U.S. government has imposed tariffs on certain foreign goods from a variety of countries and regions
and has raised the possibility of imposing additional tariff increases or expanding the tariffs to capture other types of goods. In
response, many of these foreign governments have imposed retaliatory tariffs on goods that their countries import from the U.S.
Changes in U.S. trade policy have and may continue to result in one or more foreign governments adopting responsive trade
policies that make it more difficult or costly for us to do business in or import our products from those countries. For example,
tariffs on certain Chinese origin goods impact the cost of material and machines we import directly from our manufacturing
operations in China, as well as the cost of material and components imported on our behalf by suppliers. The indirect impact of
inflationary pressure on costs throughout the supply chain and the direct impact, for example, on costs for machines we import
from our manufacturing operations in China, is leading to higher input costs and lower margins on certain products we sell. In
addition, tariffs imposed by the Chinese government on U.S. imports have made the cost of some of our products more expensive
for our Chinese customers.
We cannot predict the extent to which the U.S. or other countries will impose new or additional quotas, duties, tariffs, taxes or
other similar restrictions upon the import or export of our products in the future, nor can we predict future trade policy or the terms
of any renegotiated trade agreements and their impact on our business. Tariffs and the possibility of an escalation or further
developments of current trade conflicts, particularly between the U.S. and China, could continue to negatively impact global trade
and economic conditions in many of the regions where we do business. This could result in continued significant increases in our
material and component costs and the cost of machinery imported directly from our manufacturing operations in China. In addition,
it may adversely impact demand for our products in China and elsewhere.
While we have been able to mitigate a portion of the effects of recent tariffs through the U.S. government’s duty draw back
mechanism and from tariff exclusions, there can be no assurance that any existing tariff exclusions that have been granted will be
extended beyond their expiration dates. In addition, if we are unable to recover a substantial portion of increased raw material,
component or machinery costs either through duty draw-back, tariff exclusions or from our customers and suppliers this could
have an adverse effect on our business or results of operations.
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Our financial results could be adversely impacted by the U.K.’s departure from the E.U.
Uncertainty related to the withdrawal of the U.K. from the E.U. commonly referred to as “Brexit,” could negatively impact the
global economy, particularly many important European economies. While the U.K. officially left the E.U. on January 31, 2020,
the U.K. has entered into a transition period during which period of time the U.K.’s trading relationship with the E.U. will remain
largely the same while the U.K. negotiates trade and other agreements with the E.U. and other countries. The terms and eventual
date of any agreement between the U.K and E.U. remain highly uncertain. Given the lack of comparable precedent, it is not certain
what financial, trade and legal implications the withdrawal of the U.K. from the E.U. will ultimately have on us, particularly for
our MP segment which has significant manufacturing facilities in Northern Ireland. Depending on the agreements negotiated by
the U.K. with the E.U. and other countries, we could become subject to, among other things, export tariffs and regulatory restrictions
that could increase transaction costs, reduce our ability to hire or retain employees in Northern Ireland, reduce access to supplies
and materials, cause shipping delays because of the need for new customs inspections and procedures and reduce demand or access
to customers in international markets, all of which would impair our ability to conduct our operations as they have been conducted
historically. While we continue to closely monitor negotiations and take steps to identify and implement potential countermeasures
for our businesses that are likely to be affected, these and other potential implications of Brexit could adversely affect our business,
financial condition or results of operation.
Changes affecting the availability of LIBOR may have consequences on us that cannot yet reasonably be predicted.
We currently have outstanding variable rate debt with interest rates based on LIBOR. The LIBOR benchmark has been the subject
of national, international, and other regulatory guidance and proposals for reform. In July 2017, the U.K. Financial Conduct
Authority announced that it intends to stop persuading or compelling banks to submit rates for calculation of LIBOR after 2021.
These reforms may cause LIBOR to perform differently than in the past and LIBOR may ultimately cease to exist after 2021.
LIBOR reforms could result in the establishment of new methods of calculating LIBOR or the establishment of one or more
alternative benchmark rates. Although we continue to monitor the status and discussions regarding LIBOR, at this time, it is not
possible to predict the effect of any changes to LIBOR, any phase out of LIBOR or any establishment of alternative benchmark
rates on our Company. It is possible this change may cause our interest expense to increase and our available cash flow and /or
financial condition to be adversely affected.
We have a significant amount of debt outstanding and must comply with restrictive covenants in our debt agreements.
Our total debt at December 31, 2019 was approximately $1.2 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. As of December 31, 2019, we are in compliance with the financial covenants. However, 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. In addition, our credit agreement indebtedness may use LIBOR as a
benchmark for establishing our interest rate. As discussed above, LIBOR is the subject of recent national, international and other
regulatory guidance and proposals for reform which may cause LIBOR to perform differently than in the past or to be replaced
entirely. Consequences of these developments cannot be entirely predicted, but could include an increase in the cost of our credit
agreement indebtedness.
We may be unable to generate sufficient cash flow to service our debt obligations.
Servicing our debt requires a significant amount of cash. Our ability to generate sufficient cash depends on numerous factors
beyond our control and our business may not generate sufficient cash flow from operating activities. Our ability to make payments
on, and refinance, our debt and fund planned capital expenditures will depend on our ability to generate cash in the future. To
some extent, this is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond
our control. Lower sales, or uncollectible receivables, generally will reduce our cash flow.
We cannot assure our business will generate sufficient cash flow from operations, or future borrowings will be available to us
under our credit facility or otherwise, in an amount sufficient to fund our liquidity needs.
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If our cash flows and capital resources are insufficient to service our indebtedness, we may be forced to reduce or delay capital
expenditures, sell assets, seek additional capital or restructure or refinance our indebtedness. These alternative measures may not
be successful and may not permit us to meet our scheduled debt service obligations. Our ability to restructure or refinance our
debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our debt
could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our
business operations.
Our access to capital markets and borrowing capacity could be limited in certain circumstances.
Our access to capital markets to raise funds through the sale of equity or debt securities is subject to various factors, including
general economic and/or financial market conditions. Significant changes in market liquidity conditions could impact access to
funding and associated funding costs, which could reduce our earnings and cash flows. If our consolidated cash flow coverage
ratio is less than 2.0 to 1.0, we are subject to significant restrictions on the amount of indebtedness we can incur. Although our
cash flow coverage ratio was greater than 2.0 to 1.0 at the end of 2019, 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 China, India,
Brazil and the Middle East. Failure to compete effectively 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 and some 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 are exposed to losses from providing financing and credit support to 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, 2019, we had trade receivables of $401.9 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, trade barriers, 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.
Increases 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 either from duty draw-back credits or 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
also note that Brexit may negatively impact the value of the British Pound as compared to the U.S. dollar and other currencies.
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.”
The legislative and regulatory framework for privacy and data protection issues worldwide is also rapidly evolving and is likely
to remain uncertain for the foreseeable future. We collect and transfer personal data as part of our business processes and activities.
This data is subject to a variety of U.S., E.U. and other international laws and regulations, including oversight by various regulatory
or other governmental bodies. Any inability, or perceived inability, to adequately address privacy and data protection concerns,
even if unfounded, or comply with applicable laws, regulations, policies, industry standards, contractual obligations, or other legal
obligations (including at newly acquired companies) could result in additional cost and liability to us or company officials, damage
our reputation, inhibit sales, and otherwise adversely affect our business.
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, 2019, we employed approximately 9,500 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.
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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.
While plans are in place to continue 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.
There is also increased focus, including by governmental and non-governmental organizations, investors and other stakeholders,
on these and other sustainability matters. Maintaining a strong reputation with customers, investors, stakeholders and trade partners
is critical to the success of our business. We devote significant time and resources to programs that are consistent with our corporate
values and are designed to protect and preserve our reputation as a good corporate citizen. Any perception (whether or not valid)
of our failure to act responsibly with respect to the environment or to effectively respond to new, or changes in, legal or regulatory
requirements concerning climate change or other sustainability concerns could adversely affect our business and reputation.
We face litigation and product liability claims 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 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 2009 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.
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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. We continuously seek to maintain a robust program of information security and
controls, but 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, particularly through malicious cyber-attacks which are
increasing in both frequency and sophistication by both state and non-state actors, 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 misstated financial information, regulatory action, fines and litigation, and other potential liabilities, 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 current cyber threat environment indicates increased risk for all companies. In addition, we could be impacted by cyber
threats, disruptions or vulnerabilities of our customers and suppliers. Like other global companies, we have experienced cyber
threats and incidents, although none have had a material adverse effect on our business or financial condition. Our information
security efforts include programs designed to address security governance, identification and protection of critical assets, insider
risk, third-party risk and cyber defense operations. While these measures are designed to reduce the risk of a breach or failure of
our information technology systems, no security measures or countermeasures can guarantee that the Company will not experience
a significant information security incident in the future.
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 have continued to implement 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 made 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, 2019, 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
Corporate/Other
AWP
Westport, Connecticut (1)
Schaffhausen, Switzerland (1)
Crespellano, Italy
Fontanafredda, Italy
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
Betim, Brazil (1) (2)
MP
Multiple Business
Segments
Louisville, Kentucky
Durand, Michigan
Coalville, England
Hosur, India
Subang Jaya, Malaysia (1)
Ballymoney, Northern Ireland
Campsie, Northern Ireland
Dungannon, Northern Ireland (1)
Omagh, Northern Ireland (1)
Newton, New Hampshire
Canton, South Dakota
Fort Wayne, Indiana
Bad Schönborn, Germany
Brisbane, Australia (1)
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
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 proceedings involving a claim in
Brazil regarding payment of ICMS tax (Brazilian state value-added tax), see Note O – “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.” 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 February 2020, Terex’s Board of Directors declared a dividend of $0.12
per share to be paid on March 19, 2020. 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 11, 2020, there were 582 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, 2014 through December 31,
2019. 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
12/14
100.00
100.00
100.00
12/15
66.76
101.38
89.79
12/16
115.69
113.51
111.88
12/17
178.49
138.29
147.27
12/18
103.14
132.23
124.31
12/19
113.13
173.86
169.63
Copyright© 2018 Standard & Poor's, a division of S&P Global. All rights reserved.
Purchases of Equity Securities
The following table provides information about our purchases during the quarter ended December 31, 2019 of our common stock
that is registered by us pursuant to the Exchange Act.
Issuer Purchases of Equity Securities
Period
October 1, 2019 – October 31, 2019
November 1, 2019 – November 30, 2019
December 1, 2019 – December 31, 2019
Total
Total Number of
Shares Purchased (1)
2,498
140,156
41,625
184,279
Average Price Paid
per Share
$23.99
$27.69
$28.08
$27.72
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs (2)
—
138,275
37,000
175,275
Approximate
Dollar Value of
Shares that May
Yet be Purchased
Under the Plans
or Programs (in
thousands) (2)
$200,000
$196,176
$195,146
$195,146
(1) Amount includes shares of common stock purchased to satisfy requirements under the Company’s deferred compensation obligations to employees.
(2) In July 2018, our Board of Directors authorized and the Company publicly announced the repurchase of up to an additional $300 million of the Company’s
outstanding common shares.
25
ITEM 6.
SELECTED FINANCIAL DATA
FIVE-YEAR SELECTED FINANCIAL DATA
The following table summarizes our selected financial data and should be read in conjunction with the more detailed Consolidated Financial Statements
and related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations. This selected financial data includes
comparative income statement data whose presentation has been retrospectively adjusted for the effects of discontinued operations. All periods are
presented on a consistent basis.
(in millions, except per share amounts and employees)
AS OF OR FOR THE YEAR ENDED DECEMBER 31,
2019
2018
2017
2016
2015
SUMMARY OF OPERATIONS
Net sales
Income (loss) from operations
Income (loss) from continuing operations
Income (loss) from discontinued operations – net of tax
(155.4)
(130.4)
(49.6)
(226.8)
Gain (loss) on disposition of discontinued operations – net of tax
Net income (loss) attributable to common stockholders
0.1
54.4
2.4
113.7
67.3
128.7
Per Common and Common Equivalent Share:
Basic attributable to common stockholders
$ 4,353.1
$ 4,517.2
$ 3,793.7
$ 3,808.5
$ 4,141.3
335.0
209.7
412.5
241.7
228.2
111.0
124.9
47.8
300.4
108.9
36.7
3.4
3.5
(176.1)
145.9
Income (loss) from continuing operations
$
2.95
$
3.21
$
1.20
$
0.45
$
Income (loss) from discontinued operations – net of tax
(2.18)
(1.73)
(0.53)
Gain (loss) on disposition of discontinued operations – net of tax
Net income (loss) attributable to common stockholders
—
0.77
0.03
1.51
0.72
1.39
(2.11)
0.03
(1.63)
Diluted attributable to common stockholders
Income (loss) from continuing operations
$
2.92
$
3.14
$
1.17
$
0.45
$
Income (loss) from discontinued operations – net of tax
(2.16)
(1.69)
(0.52)
Gain (loss) on disposition of discontinued operations – net of tax
Net income (loss) attributable to common stockholders
—
0.76
0.03
1.48
0.71
1.36
(2.11)
0.03
(1.63)
1.02
0.31
0.03
1.36
1.00
0.30
0.03
1.33
CURRENT ASSETS AND LIABILITIES
Current assets
Current liabilities
PROPERTY, PLANT AND EQUIPMENT
Net property, plant and equipment
Capital expenditures
Depreciation
TOTAL ASSETS
CAPITALIZATION
Long-term debt
Total Terex Corporation Stockholders’ Equity
Dividends per share of Common Stock
Shares of Common Stock outstanding at year end
EMPLOYEES
(1), (2)
$ 2,019.7
$ 2,423.0
$ 2,383.0
$ 2,700.5
$ 3,140.2
872.4
1,214.7
1,035.5
1,407.0
1,458.6
$
389.4
$
317.3
$
277.7
$
277.1
$
329.8
(105.5)
39.6
(91.0)
39.0
(31.7)
47.0
(48.8)
52.0
(74.4)
50.9
$ 3,195.6
$ 3,485.9
$ 3,462.5
$ 5,006.8
$ 5,616.0
$ 1,175.7
$ 1,214.7
$
979.1
$ 1,570.0
$ 1,791.0
932.3
0.44
70.4
9,500
860.5
0.40
69.6
9,900
1,222
1,484.7
1,877.4
0.32
80.2
8,900
0.28
105.0
9,200
0.24
107.7
10,500
For more information on items that affect comparability among the years, see Note D - “Discontinued Operations and Assets and Liabilities
Held for Sale” in the Notes to the Consolidated Financial Statements.
(1) Excludes approximately 6,800 and 6,700 MHPS employees in years 2016 and 2015, respectively.
(2) Excludes approximately 1,800, 1,800, 2,100 and 3,200 Mobile Cranes employees in years 2018, 2017, 2016, and 2015, respectively.
26
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, materials processing machinery and cranes. 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 and (ii) MP.
On July 31, 2019, we completed the disposition of Demag to Tadano. During 2019, we also exited North American mobile crane
product lines manufactured in our Oklahoma City facility. As a result, we realigned certain operations, formerly part of our Cranes
segment. For financial reporting periods beginning on or after January 1, 2019, our utilities business has been consolidated within
our AWP segment, our pick and carry cranes business has been consolidated within our MP segment and our rough terrain and
tower cranes businesses have been consolidated within Corporate and Other. Prior period reportable segment information was
adjusted to reflect the realignment of our operations.
Please refer to Note B - “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 and divestitures.
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 using rates that the comparable prior periods were translated
at to isolate the foreign exchange component of fluctuation from the operational component. Similarly, impact of changes in our
results from acquisitions and divestitures 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 finance receivables consisting of sales-type leases and
commercial loans (“TFS Assets”), less Capital expenditures, net of proceeds from sale of capital assets, plus the estimated level
of net working capital in divested businesses at the closing date. We believe 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 unusual items. Our 2020 outlook
for earnings per share is a non-GAAP financial measure because it excludes unusual items. 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 2020 GAAP financial
results. Adjusted EPS provides guidance to investors about our EPS expectations excluding unusual items that we do not believe
are reflective of our ongoing operations.
27
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 ongoing operations of the
business. Trailing three months annualized net sales is calculated using 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 we
believe measures our resource use efficiency.
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 have been the three pillars of our business strategy. We continued to implement the elements
of our strategy in 2019. We completed the sale of Demag and exited the mobile crane product lines manufactured at our Oklahoma
City facility. These actions have positively impacted Terex by Focusing our portfolio on high performing businesses best positioned
to out-earn their cost of capital over the cycle. We also continued to simplify and optimize our manufacturing footprint. We had
the official opening of MP’s new Northern Ireland facility and our new Utilities manufacturing facility in South Dakota remains
on schedule and within budget. MP’s capacity expansion in India also remains on track. These investments enable simplification
and improved manufacturing productivity critical to our future success and growth. In addition, we have transitioned to a simpler
two segment operating structure that has reduced corporate operating expenses. We continued to invest in our Execute to Win
business system, focusing on enhancing our capabilities by investing in people, processes and tools in our three priority areas:
Commercial Excellence, Parts and Lifecycle Solutions and Strategic Sourcing.
Overall, 2019 was a challenging year for us. Operationally, MP had excellent performance in 2019 as it increased sales and
expanded operating margin. However, softening in the Company’s aerials business more than offset MP’s strong operating
performance. Despite the challenging global markets, our global, cross-segment parts and services team drove 9% revenue growth
on currency neutral basis in parts and services even though machine sales were down throughout the Company.
Our AWP segment’s 2019 net sales were down 8% from the prior year. AWP’s revenue declines were greatest in North America
and Western Europe as concerns over the global macroeconomic market for industrial equipment caused rental customers for
aerials to hold back capital equipment purchases. This more than offset revenue increases for utility products in North America
as well as for aerials in China, which improved due to market growth and increased product adoption. To align with customer
demand and manage inventory levels, we reduced aerial production throughout 2019 with fourth quarter 2019 production levels
approximately 45% lower than production levels in the fourth quarter of 2018. AWP’s lower sales, significantly reduced production
levels and the strong U.S. Dollar relative to the Euro were the primary drivers in the operating profit reduction in 2019 as compared
to the prior year. We expect continued growth for our utilities business in 2020 and the caution being exhibited by our aerials
rental customers during 2019 to continue into 2020. As a result, we expect AWP sales to be down 7%-10% and operating margins
to contract to 6%-7% in 2020.
Our MP segment had another strong year, with its operating profit improving on increased net sales. These results were driven
primarily by continued demand for crushing and screening products, concrete trucks, material handlers and pick and carry cranes,
as well as effective price and cost management. The strong U.S. Dollar to the British Pound provided a modest tailwind for our
crushing and screening business. However, MP did have challenging markets at the end of the year as cautious customer sentiment
led to delays of capital purchases of crushing and screening products, material handlers and environmental equipment. As a result
of this market softening, we expect MP sales, including our tower and rough terrain cranes businesses, to be down 8%-11% and
operating margins to contract to 12.3%-13% in 2020.
Geographically, our largest market is North America, which represents approximately 57% of our global sales in continuing
operations. As compared to prior year, our sales were down in North America, Europe, the Middle East and Africa, up in Asia
Pacific and up by double digits off a low base in Latin America.
28
We continued to execute our disciplined capital allocation strategy in 2019. In addition to making strategic investments in our
businesses to drive more efficient manufacturing, such as the construction of our new Utilities manufacturing center in South
Dakota and expansion of MP locations in the U.K. and India, we have also reduced inventories of finished goods in the second
half of 2019 by adjusting production rates down at AWP. Furthermore, we completed sales of businesses and investments, including
the sale of our Demag mobile cranes business, in 2019, generating approximately $160 million of additional cash for Terex. We
also generated approximately $86 million of free cash flow in 2019. We expect to generate an additional $140 million of free
cash flow in 2020. We also continued to return capital to shareholders. Between dividends and share repurchases in 2019,
approximately $36 million was returned to shareholders. Finally, our Board of Directors approved increasing our quarterly dividend
in 2020 by 9% to $0.12 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.
Based on the challenging global industrial equipment market, we expect 2020 earnings per share (“EPS”) to be between $1.85
and $2.35, on net sales of approximately $3.9 billion. This EPS guidance (i) is based on an expected tax rate of 19%, (ii) anticipates
renewal of the current Section 301 tariff exclusions we are receiving from the U.S. government, (iii) excludes any benefit associated
with our existing share repurchase program and (iv) does not anticipate any material impact associated with Brexit. Also, with
respect to the Coronavirus, we are not currently anticipating any material impact on our 2020 results; however, we do expect to
have lower sales and earnings from our AWP China facility in the first half of 2020 which is expected to be made up in the second
half of the year.
29
ROIC
ROIC and other 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 by one minus the annualized effective tax rate.
In the calculation of ROIC, we adjust income (loss) from operations, annualized effective tax rate, 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. Cash and cash equivalents and Debt are adjusted to include amounts recorded as held for sale.
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 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 provides a better comparison across similar businesses regarding total capitalization, and ROIC highlights
the level of value creation as a percentage of capital invested. As the tables below show, our ROIC at December 31, 2019 was
17.6%.
Amounts described below are reported in millions of U.S. dollars, except for the annualized effective tax rates. Amounts are as
of and for the three months ended for the periods referenced in the tables below.
Dec '19
Sep '19
Jun '19
Mar '19
Dec '18
Annualized effective tax rate as adjusted
Income (loss) from operations as adjusted
Multiplied by: 1 minus annualized effective tax rate
Adjusted net operating income (loss) after tax
Debt as adjusted
Less: Cash and cash equivalents as adjusted
Debt less Cash and cash equivalents as adjusted
Total Terex Corporation stockholders’ equity as
adjusted
Debt less Cash and cash equivalents plus Total Terex
Corporation stockholders’ equity as adjusted
15.6%
35.3
84.4%
29.8
$
$
15.6%
86.2
84.4%
72.8
$
$
15.6%
127.9
84.4%
107.9
$
$
15.6%
104.8
84.4%
88.5
$
$
$ 1,175.7
(540.1)
635.6
$
$ 1,175.6
(475.5)
700.1
$
$ 1,351.9
(394.6)
957.3
$
$ 1,477.8
(330.2)
$ 1,147.6
$
963.7
$
881.3
$
852.2
$
743.4
$ 1,599.3
$ 1,581.4
$ 1,809.5
$ 1,891.0
$
$
$
$
1,219.4
(372.1)
847.3
752.5
1,599.8
December 31, 2019 ROIC
NOPAT as adjusted (last 4 quarters)
Average Debt less Cash and cash equivalents plus Total Terex
Corporation stockholders’ equity, as adjusted (5 quarters)
17.6%
299.0
1,696.2
$
$
30
Reconciliation of income (loss) from operations:
Income (loss) from operations as reported
$
22.9 $
86.4 $
126.0 $
99.7
Three
months
ended
12/31/19
Three
months
ended
9/30/19
Three
months
ended
6/30/19
Three
months
ended
3/31/19
Adjustments:
Deal related
Restructuring and related
Transformation
Other
(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
Pension annuitization
Other
(Income) loss from TFS
$
$
$
$
$
$
Terex Corporation stockholders’ equity as adjusted
$
—
9.8
3.4
0.2
(1.0)
35.3 $
(0.9)
2.2
2.2
—
(3.7)
86.2 $
(7.0)
8.7
4.0
—
(3.8)
127.9 $
0.2
1.7
4.1
—
(0.9)
104.8
As of
12/31/19
As of
9/30/19
As of
6/30/19
As of
3/31/19
As of
12/31/18
535.1 $
470.6 $
367.5 $
304.6 $
5.0
4.9
27.1
25.6
540.1 $
475.5 $
394.6 $
330.2 $
339.5
32.6
372.1
1,175.7 $
1,175.6 $
1,347.7 $
1,473.4 $
1,214.7
—
—
4.2
4.4
4.7
1,175.7 $
1,175.6 $
1,351.9 $
1,477.8 $
1,219.4
932.3 $
(154.0)
866.3 $
(159.0)
860.1 $
(180.2)
781.8 $
(204.6)
860.5
(185.1)
75.3
31.0
23.5
56.3
75.3
22.7
20.6
56.3
75.8
19.2
18.4
56.3
83.1
9.5
13.9
56.3
7.4
(8.1)
963.7 $
6.4
(7.3)
881.3 $
6.8
(4.2)
852.2 $
4.4
(1.0)
743.4 $
—
6.8
9.1
56.3
5.1
(0.2)
752.5
31
Year Ended December 31, 2019
Reconciliation of annualized effective tax rate:
As reported
Effect of adjustments:
Deal related
Restructuring and related
Transformation
Other
Tax related
As adjusted
Income (loss) from
continuing operations
before income taxes
(Provision for)
benefit from
income taxes
Income tax
rate
$
247.5
$
(37.8)
15.3%
(7.5)
22.4
13.7
0.6
—
276.7
0.2
(4.7)
(2.8)
(0.1)
2.0
(43.2)
15.6%
32
RESULTS OF OPERATIONS
2019 COMPARED WITH 2018
Consolidated
2019
2018
Net sales
Gross profit
SG&A
Income (loss) from operations
$
$
$
$
4,353.1
887.8
552.8
335.0
% of
Sales
($ amounts in millions)
—
20.4%
12.7%
7.7%
$
$
$
$
4,517.2
961.9
549.4
412.5
% of
Sales
% Change In
Reported Amounts
—
21.3%
12.2%
9.1%
(3.6)%
(7.7)%
0.6 %
(18.8)%
Net sales for the year ended December 31, 2019 decreased $164.1 million when compared to 2018. The decrease in net sales was
primarily due to weakening demand for aerial work platforms in North America and Western Europe in our AWP segment and
changes in foreign exchange rates which negatively impacted consolidated net sales by approximately $105 million, partially
offset by higher demand for equipment in our MP segment and aerial work platforms in China and utility equipment in our AWP
segment.
Gross profit for the year ended December 31, 2019 decreased $74.1 million when compared to 2018. The decrease was primarily
due to the negative impact of foreign exchange rate changes across all segments and lower sales volume and factory overhead
absorption in our AWP segment, partially offset by higher sales volume in our MP segment and favorable price variances in our
AWP segment.
SG&A costs for the year ended December 31, 2019 increased $3.4 million when compared to 2018 primarily due to increased
engineering and selling costs, partially offset by lower personnel costs.
Income from operations decreased by $77.5 million for the year ended December 31, 2019 when compared to 2018. The decrease
was primarily due to the negative effects of foreign exchange rate changes in all segments and lower sales volume and factory
overhead absorption in our AWP segment, partially offset by higher sales volume in our MP segment and favorable price variances
in our AWP segment.
Aerial Work Platforms
2019
2018
% of
Sales
($ amounts in millions)
% of
Sales
% Change In
Reported Amounts
Net sales
Income from operations
$
$
2,726.6
196.2
—
7.2%
$
$
2,950.4
300.5
—
10.2%
(7.6)%
(34.7)%
Net sales for the AWP segment for the year ended December 31, 2019 decreased $223.8 million when compared to 2018 primarily
due to weakening demand for aerial work platforms in North America and Western Europe, partially offset by increased sales in
China and higher demand for utility equipment. Net sales were negatively impacted by effects of foreign exchange rate changes,
particularly in Europe, of approximately $43 million.
Income from operations for the year ended December 31, 2019 decreased $104.3 million when compared to 2018. The decrease
was primarily due to lower sales volume, lower factory overhead absorption from a decrease in overall production volume, the
negative effects of foreign exchange rate changes and higher engineering and selling costs, partially offset by favorable price
variances and a change in allocation of health care costs.
33
Materials Processing
2019
2018
% of
Sales
($ amounts in millions)
% of
Sales
% Change In
Reported Amounts
Net sales
Income from operations
$
$
1,371.4
196.8
—
14.4%
$
$
1,322.6
176.0
—
13.3%
3.7%
11.8%
Net sales for the MP segment increased by $48.8 million for the year ended December 31, 2019 when compared to 2018 primarily
due to higher demand for material handlers and mobile crushing and screening equipment, pick and carry equipment primarily in
Australia and concrete mixer trucks in North America. Net sales were negatively impacted by effects of foreign exchange rate
changes, particularly in Europe, of approximately $50 million.
Income from operations for the year ended December 31, 2019 increased $20.8 million when compared to 2018 primarily due to
higher sales volume, partially offset by the negative effects of foreign exchange rate changes.
Corporate and Other / Eliminations
2019
2018
% of
Sales
($ amounts in millions)
% of
Sales
% Change In
Reported Amounts
Net sales
Loss from operations
$
$
255.1
(58.0)
—
(22.7)%
$
$
244.2
(64.0)
—
(26.2)%
4.5%
9.4%
Net sales include rough terrain and tower cranes sales, on-book financing activities of TFS and elimination of intercompany sales
activity among segments. The net sales increase is primarily due to lower intercompany sales eliminations, partially offset by
weakening demand for tower cranes and negative effect of foreign exchange rate changes on rough terrain and tower cranes sales.
Loss from operations for the year ended December 31, 2019 decreased $6.0 million when compared to 2018. The decrease in
operating loss is primarily due to lower compensation costs and professional fees, the sale of an equity investment and a customer
advance forfeiture, partially offset by the negative effects of exchange rate changes, lower tower cranes sales volume, a change
in allocation of health care costs, severance costs and a specific loss allowance on a finance receivable.
Interest Expense, Net of Interest Income
During the year ended December 31, 2019, our interest expense, net of interest income, was $81.4 million, or $17.3 million higher
than the prior year due to an increase in average borrowings offset by lower rates.
Other Income (Expense) — Net
Other income (expense) – net for the year ended December 31, 2019 was a loss of $6.1 million, compared to a loss of $60.6 million
in 2018. The change was due primarily to a loss in the prior year of approximately $51 million related to the settlement of our
U.S. defined benefit pension plan, as described in Note M - “Retirement Plans and Other Benefits”.
Income Taxes
During the year ended December 31, 2019, we recognized an income tax expense of $37.8 million on income of $247.5 million,
an effective tax rate of 15.3%, as compared to an income tax expense of $45.4 million on income of $287.1 million, an effective
tax rate of 15.8%, for the year ended December 31, 2018. The lower effective tax rate for the year ended December 31, 2019 was
primarily due to favorable jurisdictional mix.
34
Income (Loss) from Discontinued Operations - net of tax
Loss from discontinued operations - net of tax for the year ended December 31, 2019 was $155.4 million compared to a loss of
$130.4 million for the year ended December 31, 2018. The loss in 2019 was primarily from recognition of a pre-tax charge
of approximately $82 million ($82 million after-tax) to write-down the mobile cranes disposal group to fair value, less costs to
sell, and the negative performance of our mobile cranes business.
Gain (Loss) on Disposition of Discontinued Operations - net of tax
Gain on disposition of discontinued operations - net of tax for the year ended December 31, 2019 was $0.1 million compared to
a gain of $2.4 million for the year ended December 31, 2018. The gain in 2019 was primarily related to a gain on the sale of our
North American mobile crane product lines manufactured in its Oklahoma City facility, partially offset by post-closing adjustments
for the sale of MHPS and a loss on the sale of Demag.
35
2018 COMPARED WITH 2017
Consolidated
2018
2017
Net sales
Gross profit
SG&A
Income (loss) from operations
$
$
$
$
4,517.2
961.9
549.4
412.5
% of
Sales
($ amounts in millions)
—
21.3%
12.2%
9.1%
$
$
$
$
3,793.7
767.3
539.1
228.2
% of
Sales
% Change In
Reported Amounts
—
20.2%
14.2%
6.0%
19.1%
25.4%
1.9%
80.8%
Net sales for the year ended December 31, 2018 increased $723.5 million when compared to 2017. The increase in net sales was
primarily due to higher demand for equipment in all segments. Changes in foreign exchange rates positively impacted consolidated
net sales by approximately $67 million.
Gross profit for the year ended December 31, 2018 increased $194.6 million when compared to 2017. The increase was primarily
due to higher sales and production volume and the positive impact of foreign exchange rate changes in all segments, partially
offset by increased material costs across all segments.
SG&A costs for the year ended December 31, 2018 increased $10.3 million when compared to 2017 primarily due to planned
engineering and strategic sourcing spending.
Income from operations increased by $184.3 million for the year ended December 31, 2018 when compared to 2017. The increase
was primarily due to higher sales and production volume and the positive effects of exchange rate changes in all segments, partially
offset by increased material costs across all segments.
Aerial Work Platforms
2018
2017
% of
Sales
($ amounts in millions)
% of
Sales
% Change In
Reported Amounts
Net sales
Income (loss) from operations
$
$
2,950.4
300.5
—
10.2%
$
$
2,433.2
199.8
—
8.2%
21.3 %
50.4 %
Net sales for the AWP segment for the year ended December 31, 2018 increased $517.2 million when compared to 2017 primarily
due to higher broad-based demand for aerial equipment in North America, Western Europe and China, telehandlers in North
America from a combination of fleet replacement and growth in rental fleets due to improving rental utilization rates as well as
utility equipment sales in North America. Net sales were positively impacted by effects of foreign exchange rate changes,
particularly in Europe, of approximately $45 million.
Income from operations for the year ended December 31, 2018 increased $100.7 million when compared to 2017. The increase
was primarily due to increased sales volume, improved factory utilization and the positive impact of foreign exchange rate changes,
partially offset by increased material costs, driven by higher steel prices and tariffs, and higher selling and administrative costs
associated with planned engineering and strategic sourcing spending.
36
Materials Processing
2018
2017
% of
Sales
($ amounts in millions)
% of
Sales
% Change In
Reported Amounts
Net sales
Income (loss) from operations
$
$
1,322.6
176.0
—
13.3%
$
$
1,119.8
125.1
—
11.2%
18.1%
40.7%
Net sales for the MP segment increased by $202.8 million for the year ended December 31, 2018 when compared to 2017 primarily
due to higher demand for mobile crushing and screening equipment, pick and carry cranes and parts as a result of broad-based
economic growth, construction activity and aggregate consumption and increased material handler sales from a stronger scrap
market. These increases were partially offset by lower demand for concrete mixer trucks in North America due to emission
regulations associated with sales of refurbished trucks. Net sales were positively impacted by effects of foreign exchange rate
changes, particularly in Europe, of approximately $14 million.
Income from operations for the year ended December 31, 2018 increased $50.9 million when compared to 2017 primarily due to
increased sales and production volume, partially offset by higher selling and administrative costs associated with planned
engineering and strategic sourcing spending.
Corporate and Other / Eliminations
2018
2017
% of
Sales
($ amounts in millions)
% of
Sales
% Change In
Reported Amounts
Net sales
Income (loss) from operations
$
$
244.2
(64.0)
—
(26.2)%
$
$
240.7
(96.7)
—
(40.2)%
1.5%
33.8%
Net sales include rough terrain and tower cranes sales, on-book financing activities of TFS and elimination of intercompany sales
activity among segments while net sales in 2017 included sales in various construction equipment product lines. The change in
net sales was primarily due to higher demand for rough terrain and tower cranes, lower intercompany sales eliminations and
increased TFS revenue from syndications in 2018, partially offset by approximately $76 million related to divestiture of construction
product lines and lower governmental sales.
Loss from operations decreased $32.7 million for the year ended December 31, 2018 when compared to 2017. The decrease in
operating loss is primarily due to lower general and administrative expenses and increased revenue from rough terrain and tower
cranes, partially offset by gains in the prior year on the sale of certain construction product line assets.
Interest Expense, Net of Interest Income
During the year ended December 31, 2018, our interest expense, net of interest income, was $64.1 million, or $3.2 million higher
than the prior year due to increased borrowings at higher interest rates on floating rate instruments.
Loss on Early Extinguishment of Debt
During the year ended December 31, 2018, we recorded a loss on early extinguishment of debt of $0.7 million as a result of an
amendment to the 2017 Credit Agreement which lowered the interest rate on the Company’s senior secured term loan by 25 basis
points. During the year ended December 31, 2017, we recorded a loss on early extinguishment of debt of $52.6 million primarily
related to the termination of our 2014 Credit Agreement and retirement of our 6% Notes (as defined below) and 6-1/2% Notes (as
defined below), all as further described in Note K - “Long-Term Obligations”.
37
Other Income (Expense) — Net
Other income (expense) – net for the year ended December 31, 2018 was a loss of $60.6 million, compared to a gain of $48.7
million in 2017. The change was due primarily to a loss of approximately $51 million related to the settlement of our U.S. defined
benefit pension plan, as described in Note M - “Retirement Plans and Other Benefits”, and a net gain recorded in the prior year
from the sale of Konecranes shares of $42.0 million and related dividend income of $13.5 million, as described in Note D -
“Discontinued Operations And Assets and Liabilities Held for Sale”.
Income Taxes
During the year ended December 31, 2018, we recognized an income tax expense of $45.4 million on income of $287.1 million,
an effective tax rate of 15.8%, as compared to an income tax expenses of $52.4 million on income of $163.4 million, an effective
tax rate of 32.1%, for the year ended December 31, 2017. The lower effective tax rate for the year ended December 31, 2018 was
primarily due to less tax expense associated with 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” (2017 Federal Tax Act) and higher benefits from the resolution of tax
audits, partially offset by less favorable character of earnings.
Income (Loss) from Discontinued Operations - net of tax
Loss from discontinued operations - net of tax for the year ended December 31, 2018 was $130.4 million, compared to a loss of
$49.6 million for the year ended December 31, 2017. The increased loss was primarily related to supply chain challenges in our
mobile cranes business resulting in higher manufacturing and selling costs as well as reductions taken in the prior year to severance
accruals.
Gain (Loss) on Disposition of Discontinued Operations - net of tax
During the year ended December 31, 2018, we recognized a gain on disposition of discontinued operations - net of tax of $2.4
million, due primarily to a gain of $2.7 million related to the prior sale of our Atlas heavy construction equipment and knuckle-
boom cranes businesses. During the year ended December 31, 2017, we recognized a gain on disposition of discontinued operations
- net of tax of $67.3 million, related primarily to the sale of our MHPS business.
38
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 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.
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.
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.
39
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 O – “Litigation and Contingencies” in the Notes to the Consolidated Financial Statements for further information regarding
our guarantees.
Revenue Recognition – We recognize revenue when goods or services are transferred to customers in an amount that reflects the
consideration which we expect to receive in exchange for those goods or services. In determining when and how revenue is
recognized from contracts with customers, we perform the following five-step analysis: (i) identification of contract with customer;
(ii) determination of performance obligations; (iii) measurement of the transaction price; (iv) allocation of the transaction price
to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.
The majority of our revenue is recognized at the time of shipment, at the net sales price (transaction price). Estimates of variable
consideration, such as volume discounts and rebates, reduce transaction price when it is probable that a customer will attain these
types of sales incentives. These estimates are primarily derived from contractual terms and historical experience.
Goodwill – Goodwill is assigned to one or more reporting segments on the date of acquisition. We review our goodwill for
impairment annually during the fourth quarter of each fiscal year and between annual tests if an event occurs or circumstances
change that would more likely than not reduce the fair value of any one of our reporting units below its respective carrying amount.
In performing the goodwill impairment test, we first perform a qualitative assessment, which requires that we consider events or
circumstances including macroeconomic conditions, industry and market considerations, cost factors, overall financial
performance, changes in management or key personnel, changes in strategy, changes in customers, changes in the composition or
carrying amount of a reporting segment’s net assets and changes in our stock price. If, after assessing the totality of events or
circumstances, we determine that it is more likely than not that the fair values of our reporting segments are greater than the
carrying amounts, then the quantitative goodwill impairment test is not performed.
If the qualitative assessment indicates that the quantitative analysis should be performed, we then evaluate goodwill for impairment
by comparing the fair value of each of our reporting segments to its carrying value, including the associated goodwill. To determine
the fair values, we uses an income approach, along with other relevant market information, derived from a discounted cash flow
model to estimate fair value of our reporting units. An impairment charge for the amount by which the carrying amount exceeds
the reporting unit’s fair value, if any, would be recognized. The loss recognized would not exceed total amount of goodwill
allocated to that reporting unit.
See Note I – “Goodwill and Intangible Assets, Net” in the Notes to the Consolidated Financial Statements for further information.
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.
40
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, 2019, we maintained an unfunded, nonqualified Supplemental Executive
Retirement Plan (the “U.S. SERP”) for certain former U.S. employees. Generally, the U.S. 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. Participation in the U.S. SERP 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 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 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.
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. 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 4.50% for the U.K. plan and 2.00% for the Swiss plan at December 31,
2019. 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 were 3.31% for the U.S. SERP and 0.10% to 10.71% with a weighted average of 1.87% for non-U.S. plans at
December 31, 2019. 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.
The U.S. SERP has no expected rate of compensation increase as all participants have retired or have a terminated vested benefit
payable in the future. Our U.K. pension plan is frozen so there is no expected rate of compensation increase; however, other Non-
U.S. plans’ expected rates of compensation increases were 1.00% to 8.00% with a weighted average for all Non-U.S. plans of
0.17% at December 31, 2019. 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 of our defined benefit pension plans 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 increase
in the liability and decreased funded status of $5.9 million was due to changes in assumptions from the previous year, primarily
decreases in discount rates, partially offset by gains incurred on our pension assets.
41
Actual results in any given year will often differ from actuarial assumptions because of demographic, economic and other factors.
Market value of plan assets can change significantly in a relatively short period of time. Additionally, the measurement of plan
benefit obligations is sensitive to changes in interest rates. As a result, if the equity market declines and/or interest rates decrease,
the plans’ estimated benefit obligations could increase, causing an increase in liabilities and a reduction in Stockholders’ Equity.
We expect any future obligations under our plans that are not currently funded will be funded from future cash flows from operations.
If our contributions are insufficient to adequately fund the plans to cover our future obligations, or if the performance of assets in
our plans does not meet expectations, or if our assumptions are modified, contributions could be higher than expected, which
would reduce cash available for our business. Changes in U.S. or foreign laws governing these plans could require additional
contributions.
Assumptions used in computing our net pension expense and projected benefit obligation have a significant effect on the amounts
reported. A 25 basis point change in each assumption below would have the following effects upon net pension expense and
projected benefit obligation, respectively, as of and for the year ended December 31, 2019:
($ amounts in millions)
Increase
Decrease
Discount Rate
Expected long-
term rate of return
Discount Rate
Expected long-
term rate of return
U. S. Plan:
Net pension expense
Projected benefit obligation
Non-U.S. Plans:
Net pension expense
Projected benefit obligation
$
$
$
$
(0.2)
(1.2)
0.2
(5.9)
$
$
$
$
—
—
(0.3)
—
$
$
$
$
$
0.2
1.2
(0.1)
6.3
$
—
—
—
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.
42
RECENT ACCOUNTING STANDARDS
Please refer to Note A – “Basis of Presentation” in the accompanying Consolidated Financial Statements for a summary of recently
issued accounting standards.
LIQUIDITY AND CAPITAL RESOURCES
We are focused on generating cash and maintaining liquidity (cash and availability under our revolving line of credit) for the
efficient operation of our business. At December 31, 2019, we had cash and cash equivalents of $540.1 million and undrawn
availability under our revolving line of credit of $600 million, giving us total liquidity of approximately $1.1 billion. During the
year ended December 31, 2019, our liquidity increased by approximately $405 million from December 31, 2018 primarily due to
cash provided by an additional debt issuance and proceeds from the sale of Demag and ASV shares.
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 and inside 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 foreign and state
taxation. We will continue to seek opportunities to tax-efficiently mobilize and redeploy funds. There are no trends, demands or
uncertainties as a result of the Company’s cash deployment strategies that are reasonably likely to have a material effect on us as
a whole or that may be relevant to our financial flexibility.
We had free cash flow of $86.4 million for the year ended December 31, 2019. We are expecting to generate approximately $140
million of free cash flow in 2020.
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, net of proceeds from sale of capital assets (1)
Deal related net working capital adjustment
Year Ended
12/31/2019
173.4
(31.1)
(94.4)
38.5
Free cash flow $
(1) Includes $10.2 million of proceeds from sale of capital assets within Proceeds (payments) from disposition of discontinued operations in
the Consolidated Statement of Cash Flows.
86.4
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, 2019, we sold, without recourse, approximately $1,108 million of trade accounts
receivable to enhance liquidity. During the year ended December 31, 2019, we also sold approximately $226 million of sales-
type leases and commercial loans.
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 Part I, 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.
43
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 accelerate 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 20.4% at December 31, 2019.
The following tables show the calculation of our working capital in continuing operations and trailing three months annualized
sales as of December 31, 2019 (in millions):
Net Sales
Trailing Three Month Annualized Net Sales
Inventories
Trade Receivables
Trade Accounts Payable
Customer Advances
Working Capital
Three
months
ended
12/31/19
x
$
885.0
4
$ 3,540.0
As of
12/31/19
$
$
847.7
401.9
(508.1)
(17.9)
723.6
On January 31, 2017, we entered into a new credit agreement (as amended, the “2017 Credit Agreement”). The 2017 Credit
Agreement contains a $400 million senior secured term loan (the “Original Term Loan”). The Original Term Loan portion of the
2017 Credit Agreement bears interest at a rate of LIBOR plus 2.00% with a 0.75% LIBOR floor. On March 7, 2019, we entered
into an Incremental Assumption Agreement and Amendment No. 3 (“Amendment No. 3”) to the 2017 Credit Agreement.
Amendment No. 3 provided us with an additional term loan (the “2019 Term Loan”) under the 2017 Credit Agreement in the
amount of $200 million. The 2019 Term Loan portion of the 2017 Credit Agreement bears interest at a rate of LIBOR plus 2.75%
with a 0.75% LIBOR floor (the Original Term Loan together with 2019 Term Loan comprise the “Term Loans” portion of the
2017 Credit Agreement). The 2017 Credit Agreement contains a $600 million revolving line of credit available through January
31, 2022. Net proceeds from the 2019 Term Loan were used to reduce borrowings under the revolving line of credit. 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 requiring the Company to satisfy a senior secured leverage ratio contained in the 2017 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. See Note K - “Long-Term Obligations,” in our Consolidated Financial Statements for
information concerning the 2017 Credit Agreement.
Borrowings under the 2017 Credit Agreement as of December 31, 2019 were $585.5 million, net of discount, on our Term Loans.
There were no amounts outstanding on our revolving line of credit as of December 31, 2019. At December 31, 2019, the weighted
average interest rate was 4.10% on the Term Loans portion of the 2017 Credit Agreement.
44
We manage our interest rate risk by maintaining a balance between fixed and floating rate debt, including 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.
Our investment in TFS financial services assets was approximately $154 million, net at December 31, 2019. We remain focused
on expanding financing solutions in key markets like the U.S., Europe and China. We also anticipate using TFS to drive incremental
sales by increasing customer financing through TFS in certain instances.
In July 2018, our Board of Directors authorized the repurchase of up to an additional $300 million of our outstanding shares of
common stock. During the year ended December 31, 2019, we repurchased a total of 0.2 million shares for $4.9 million under
the July 2018 authorization leaving approximately $195 million available for repurchase under this program. In each quarter of
2019, our Board of Directors declared a dividend of $0.11 per share, which was paid to our shareholders. In February 2020, our
Board of Directors declared a dividend of $0.12 per share which will be paid on March 19, 2020.
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 was $173.4 million and $94.2 million for the years ended December 31, 2019 and 2018,
respectively. The increase in cash provided by operations was primarily driven by working capital efficiency, partially offset by
decreased operating profitability.
Cash provided by investing activities for the year ended December 31, 2019 was $103.8 million, compared to $85.9 million of
cash used in investing activities for the year ended December 31, 2018. The increase in cash provided by investing activities was
primarily due to proceeds received from the sale of Demag and ASV shares.
Cash used in financing activities was $103.7 million and $244.9 million for the years ended December 31, 2019 and 2018,
respectively. The decrease in cash used in financing activities was primarily due to share repurchases made during the prior year
period, partially offset by higher debt repayments on our revolving line of credit in 2019.
Contractual Obligations
The following table sets out our specified contractual obligations at December 31, 2019 (in millions):
Total
< 1 year
1-3 years
3-5 years
> 5 years
Payments due by period
Long-term debt obligations
$
1,450.9
$
63.2
$
123.7
$
659.5
$
604.5
Finance lease obligations
Operating lease obligations
Purchase obligations (1)
Total
4.1
153.2
528.5
$
2,136.7
$
1.0
34.2
527.8
626.2
2.0
52.6
0.6
1.0
38.8
0.1
0.1
27.6
—
$
178.9
$
699.4
$
632.2
(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 for term loan indebtedness as of December 31, 2019.
As of December 31, 2019, our liability for uncertain income tax positions was $3.2 million. The amount of reasonably possible
payments in 2020 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.
45
Additionally, at December 31, 2019, we had outstanding letters of credit that totaled $80.1 million and had issued $78.4 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 2019, we made cash contributions and payments
to the retirement plans of $8.5 million, and we estimate that our retirement plan contributions will be approximately $9 million
in 2020. Changes in market conditions, changes in our funding levels or actions by governmental agencies may result in accelerated
funding requirements in future periods.
46
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
minimal 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 O – “Litigation and Contingencies” in the Notes to the Consolidated Financial Statements for further information regarding
our guarantees.
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 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 Part I, 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 J - “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 O – “Litigation and Contingencies” in the Notes to the Consolidated Financial Statements
for more information concerning contingencies and uncertainties, including our proceedings involving a claim in Brazil regarding
payment of ICMS tax. 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 any 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 Part I, Item 1. – “Business – Safety and Environmental Considerations” for additional discussion of safety and environmental
items.
47
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 J – “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 Brexit may 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. We assess foreign currency risk based on transactional cash flows, identify naturally offsetting
positions and purchase hedging instruments to partially offset anticipated exposures.
At December 31, 2019, 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, 2019 would have had approximately a $31 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 establishing 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, 2019, approximately 49%
of our debt was floating rate debt and the weighted average interest rate for all debt was 4.87%.
At December 31, 2019, 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, 2019 would have increased interest
expense by approximately $2 million for the year ended December 31, 2019.
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 design and implement 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 pricing
and quantities, developing a closer working relationship with key suppliers and purchasing hedging instruments to partially offset
anticipated exposures. One key element of our Execute to Win strategy is to focus on strategic sourcing to gain efficiencies using
our global purchasing power.
48
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.
Increases 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 2019, unfavorable
input cost changes in some areas were offset by favorable changes in other areas. The Section 301 tariffs on certain Chinese origin
goods continue to put pressure on input costs. In 2019, we benefited from temporary tariff exclusions on certain categories;
however, if the exclusions are not extended by the US Government, it may have an adverse impact on our material costs in 2020.
We continue to utilize the duty drawback mechanism to offset some of the impact of these tariffs. We will continue to monitor
international trade policy and will make adjustments to our supply base where possible to mitigate the impact on our costs. For
more information on commodities risk, see Part I, Item 1A. – Risk Factors.
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
Summarized quarterly financial data for 2019 and 2018 are as follows (in millions, except per share amounts):
Net sales
Gross profit
Net 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)
Per share:
Basic
2019
2018
Fourth
Third
Second
First
Fourth
Third
Second
First
$
885.0
168.6
18.5
$ 1,024.6
$ 1,306.9
$ 1,136.6
$ 1,048.8
$ 1,098.8
$ 1,253.0
$ 1,116.6
209.6
52.4
271.8
81.6
237.8
57.2
214.6
19.6
240.1
69.2
278.6
84.2
228.6
68.7
(3.6)
(10.1)
(17.3)
(124.4)
(50.2)
(30.8)
(28.3)
(21.1)
9.6
24.5
(20.9)
21.4
10.8
75.1
0.6
(66.6)
(2.4)
(33.0)
0.2
38.6
1.9
57.8
2.7
50.3
Net income (loss) from continuing operations
$
0.26
$
0.73
$
1.14
$
0.81
$
0.27
$
0.94
$
1.11
$
0.86
Income (loss) from discontinued operations –
net of tax
Gain (loss) on disposition of discontinued
operations – net of tax
Net income (loss)
Diluted
(0.05)
(0.14)
(0.24)
(1.76)
(0.69)
(0.42)
(0.37)
(0.26)
0.13
0.34
(0.29)
0.30
0.15
1.05
0.01
(0.94)
(0.03)
(0.45)
—
0.52
0.03
0.77
0.03
0.63
Net income (loss) from continuing operations
$
0.26
$
0.73
$
1.14
$
0.79
$
0.26
$
0.92
$
1.10
$
0.84
Income (loss) from discontinued operations –
net of tax
Gain (loss) on disposition of discontinued
operations – net of tax
Net income (loss)
(0.05)
(0.14)
(0.24)
(1.73)
(0.68)
(0.41)
(0.37)
(0.26)
0.13
0.34
(0.29)
0.30
0.15
1.05
0.01
(0.93)
(0.03)
(0.45)
—
0.51
0.02
0.75
0.04
0.62
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.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
49
ITEM 9A.
CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to ensure 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 time periods specified in the SEC’s rules and forms, and 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 supervision and with participation of our management, including the CEO and CFO,
as of December 31, 2019, 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, 2019.
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, 2019. 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, 2019, the Company’s
internal control over financial reporting was effective.
The effectiveness of our internal control over financial reporting as of December 31, 2019 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 that occurred during the quarter ended December 31, 2019
that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Effectiveness of any system of controls and procedures is subject to certain limitations, and, as a result, there can be no assurance
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 objectives of the control system will be attained.
During 2019, we implemented a global lease accounting system and updated internal controls over financial reporting, as necessary,
to accommodate modifications to our business processes and accounting procedures as a result of the adoption of Accounting
Standard Update 2016-02, “Leases (Topic 842)”.
ITEM 9B.
OTHER INFORMATION
None.
50
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, 2019:
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
Weighted average exercise
price of outstanding options,
warrants and rights
Number of securities
remaining available for
future issuance under equity
compensation plans
__ (1)
—
—
$—
—
2,310,083
—
2,310,083
(1) This does not include 2,442,260 shares of restricted stock awards and 758,179 shares held in a rabbi trust for a deferred compensation plan.
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.
51
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
2.3
3.1
3.2
3.3
3.4
3.5
4.1
4.2
4.3
4.4
10.1
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).
Asset and Stock Purchase Agreement, dated as of February 22, 2019 by and between Terex Corporation and
Tadano Ltd. (incorporated by reference to Exhibit 2.1 of the Form 8-K Current Report, Commission File No.
1-10702, dated February 22, 2019 and filed with the Commission February 27, 2019).
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).
Description of Capital Stock. *
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). ***
52
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
Terex Corporation Amended and Restated Supplemental Executive Retirement Plan (incorporated by reference to
Exhibit 10.10 of the Form 10-K for the year ended December 31, 2008 of Terex Corporation, Commission File No.
1-10702). ***
Terex Corporation Amended and Restated Deferred Compensation Plan (incorporated by reference to Exhibit 10.11
of the Form 10-Q for the quarter ended June 30, 2004 of Terex Corporation, Commission File No. 1-10702). ***
Amendment to the Terex Corporation Amended and Restated Deferred Compensation Plan (incorporated by reference
to Exhibit 10.1 of the Form 8-K Current Report, Commission File No. 1-10702, dated October 14, 2008 and filed
with the Commission on October 17, 2008). ***
Terex Corporation Deferred Compensation Plan (incorporated by reference to Exhibit 10.2 of the Form 8-K Current
Report, Commission File No. 1-10702, dated May 9, 2013 and filed with the Commission on May, 14, 2013). ***
Terex Corporation Amended and Restated 2009 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.1
of the Form 8-K Current Report, Commission File No. 1-10702, dated May 9, 2013 and filed with the Commission
on May, 14, 2013). ***
Form of Restricted Stock Agreement (time based 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).
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). ***
Employment Letter from Terex Corporation signed by John Sheehan on February 5, 2017 (Incorporated by reference
to Exhibit 10.21 of the Form 10-K for the year ended December 31, 2017). ***
53
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
21.1
23.1
24.1
31.1
31.2
32
Incremental Assumption Agreement and Amendment No. 2 dated as of February 28, 2018, 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 February 28, 2018 and filed with the Commission on February, 28,
2018).
Incremental Revolving Credit Assumption Agreement dated as of April 10, 2018, 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 April 10, 2018 and filed with the Commission on April, 10, 2018).
Terex Corporation 2018 Omnibus Incentive Plan (incorporated by reference to Appendix A of the DEFA 14A of
Terex Corporation filed with the Commission on April 9, 2018).***
Incremental Assumption Agreement and Amendment No. 3 dated as of March 7, 2019, 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 March 7, 2019 and filed with the Commission March 7, 2019).
Form of Restricted Stock Agreement (time based granted 2019) under the Terex Corporation 2018 Omnibus
Incentive Plan between Terex Corporation and participants of the 2018 Omnibus Incentive Plan (incorporated by
reference to Exhibit 10.2 of the Form 10-Q for the quarter ended March 31, 2019 of Terex Corporation,
Commission File No. 1-10702).***
Form of Restricted Stock Agreement (performance based granted 2019) under the Terex Corporation 2018
Omnibus Incentive Plan between Terex Corporation and participants of the 2018 Omnibus Incentive Plan
(incorporated by reference to Exhibit 10.3 of the Form 10-Q for the quarter ended March 31, 2019 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 10.4 of the Form 10-Q for the quarter ended March 31, 2019 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 10.5 of the Form 10-Q for the quarter ended March 31, 2019 of Terex
Corporation, Commission File No. 1-10702).***
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 - the instance document does not appear in the Interactive Data File because its XBRL
tags are embedded within the Inline XBRL 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. *
54
104
*
**
***
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
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.
55
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 14, 2020
John L. Garrison, Jr.
Chairman and Chief Executive
Officer
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
TITLE
Chairman and Chief Executive
Officer
(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 14, 2020
February 14, 2020
February 14, 2020
*/s/ Paula H. J. Cholmondeley
Paula H. J. Cholmondeley
*/s/ Don DeFosset
Don DeFosset
*/s/ Thomas J. Hansen
Thomas J. Hansen
*/s/ Raimund Klinkner
Raimund Klinkner
*/s/ Andra M. Rush
Andra M. Rush
*/s/ David A. Sachs
David A. Sachs
*/s/ Scott W. Wine
Scott W. Wine
Director
Director
Director
Director
Director
Lead Director
Director
*By /s/ John D. Sheehan
John D. Sheehan, as Attorney-in-Fact
February 14, 2020
56
THIS PAGE IS INTENTIONALLY BLANK
NEXT PAGE IS NUMBERED “F-1”
57
TEREX CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
TEREX CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2019 AND 2018
AND FOR EACH OF THE THREE YEARS
IN THE PERIOD ENDED DECEMBER 31, 2019
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-5
F-6
F-7
F-8
F-9
F-10
F-53
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 (the “Company”) as of
December 31, 2019 and 2018, 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, 2019, including the related notes
and financial statement schedule listed in the accompanying index for each of three years in the period ended December 31, 2019
(collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over
financial reporting as of December 31, 2019, 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, 2019 and 2018, and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 2019 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, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note A to the consolidated financial statements, the Company changed the manner in which it accounts for leases
in 2019.
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.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or
disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or
complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial
statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on
the critical audit matter or on the accounts or disclosures to which it relates.
Income Taxes
As described in Notes A, C and D to the consolidated financial statements, the Company estimates income taxes based on enacted
tax laws in the various jurisdictions where it conducts business. The Company recorded a provision for income taxes of $37.8
million from continuing operations and an income tax benefit of $20.5 million from discontinued operations for the year ended
December 31, 2019. Additionally, the Company reported deferred tax assets, net of deferred tax liabilities, for continuing operations
of $241.3 million, before valuation allowances of $107.0 million, as of December 31, 2019. As further described in Notes A and
D to the consolidated financial statements, on July 31, 2019, the Company completed the disposition of its Demag mobile cranes
business to Tadano Ltd. In connection with the disposition of the Demag mobile cranes business, the Company completed a legal
entity restructuring and reported income tax provisions related to continuing operations and discontinued operations. Judgments
and estimates are required by management to determine income tax expense, including evaluating: (i) estimates of future taxable
income used in evaluating the net realizable value of its deferred tax assets, (ii) complexities in worldwide tax laws to determine
exposure to uncertain tax positions, and (iii) income tax impacts related to the disposition of the Demag mobile cranes business,
including the allocation of the income tax provision between continuing operations and discontinued operations.
The principal considerations for our determination that performing procedures relating to income taxes is a critical audit matter
are there was significant judgment by management when determining the income tax expense. This in turn led to a high degree
of auditor judgment, effort, and subjectivity in performing procedures and in evaluating audit evidence relating to income taxes,
including (i) management’s significant assumptions related to future performance of the business, which is used in the evaluation
of deferred tax assets, (ii) management’s assessment of uncertain tax positions, which includes complexities in worldwide tax
laws, and (iii) the income tax impacts related to the disposition of the Demag mobile cranes business. In addition, the audit effort
involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the
audit evidence obtained.
F-3
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall
opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to income
taxes, including controls over the valuation of deferred tax assets and tax impacts related to the disposition of the Demag mobile
cranes business. These procedures also included, among others, (i) testing the income tax provision, including evaluating the
effective tax rate reconciliation, and evaluating permanent and temporary tax differences for both discontinued and continuing
operations, (ii) evaluating the identification of reserves for uncertain tax positions, (iii) evaluating the impact of the disposed
Demag mobile crane business on management’s intraperiod allocation of the tax provision between continuing operations and
discontinued operations, and (iv) evaluating management’s assessment of the realizability of deferred tax assets on a jurisdictional
basis, including evaluating the assumptions related to future performance of the business and the related expected utilization of
deferred tax assets. Professionals with specialized skill and knowledge were used to assist in evaluating management’s assumptions
and the audit evidence obtained as it relates to the income tax impacts of the disposition of the Demag mobile cranes business,
including the tax bases of the entities disposed of.
/s/PricewaterhouseCoopers LLP
Stamford, Connecticut
February 14, 2020
We have served as the Company’s auditor since 1992.
F-4
TEREX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (LOSS)
(in millions, except per share data)
Net sales
Cost of goods sold
Gross profit
Selling, general and administrative expenses
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)
Basic earnings (loss) per share:
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)
Diluted earnings (loss) per share:
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)
Weighted average number of shares outstanding in per share calculation
Basic
Diluted
$
$
$
$
$
$
$
$
Year Ended
December 31,
2018
4,517.2
(3,555.3)
961.9
(549.4)
412.5
2019
4,353.1
(3,465.3)
887.8
(552.8)
335.0
2017
3,793.7
(3,026.4)
767.3
(539.1)
228.2
6.5
(87.9)
—
(6.1)
247.5
(37.8)
209.7
(155.4)
0.1
8.7
(72.8)
(0.7)
(60.6)
287.1
(45.4)
241.7
(130.4)
2.4
54.4
$
113.7
$
$
$
$
2.95
(2.18)
—
0.77
2.92
(2.16)
—
$
$
$
3.21
(1.73)
0.03
1.51
3.14
(1.69)
0.03
0.76
$
1.48
$
71.1
71.8
75.4
76.9
6.3
(67.2)
(52.6)
48.7
163.4
(52.4)
111.0
(49.6)
67.3
128.7
1.20
(0.53)
0.72
1.39
1.17
(0.52)
0.71
1.36
92.8
94.9
The accompanying notes are an integral part of these consolidated financial statements.
F-5
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
$(3.9), $0.0 and $(7.5), respectively
Derivative hedging adjustment, net of (provision for) benefit from taxes of $(1.6),
$1.7 and $(1.2), respectively
Debt and equity securities adjustment, net of (provision for) benefit from taxes of
$0.0, $0.0 and $0.0, respectively
Pension liability adjustment:
Net gain (loss), net of (provision for) benefit from taxes of $1.9, $1.0 and $(2.8),
respectively
Amortization of actuarial (gain) loss, net of provision for (benefit from) taxes of
$(0.6), $(1.7) and $(2.2), respectively
Settlement of U.S. defined benefit pension obligations, net of provision for
(benefit from) taxes of $0.0, $(24.4) and $0.0, respectively
Divestiture of business, net of provision for (benefit from) taxes of $(5.3), $0.0
and $(23.9), respectively
Foreign exchange and other effects, net of (provision for) benefit from taxes of
$(0.7), $0.2 and $1.9, respectively
Total pension liability adjustment
Other comprehensive income (loss)
Comprehensive income (loss)
Year Ended December 31,
2019
2018
2017
$
54.4
$
113.7
$
128.7
17.4
(80.9)
470.6
3.6
1.8
(6.5)
(0.9)
(7.8)
(4.3)
1.9
—
12.6
(2.2)
4.5
27.3
81.7
$
5.8
42.6
—
1.5
45.6
(42.7)
$
71.0
$
4.5
3.7
5.0
5.7
—
55.5
(5.1)
61.1
539.9
668.6
The accompanying notes are an integral part of these consolidated financial statements.
F-6
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 $9.9 and $9.1 at December 31, 2019 and 2018, 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
Current portion of long-term debt
Trade accounts payable
Accrued compensation and benefits
Other current liabilities
Current liabilities held for sale
Total current liabilities
Non-current liabilities
Long-term debt, less current portion
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 82.2 and 81.3 shares at December
31, 2019 and 2018, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)
Less cost of shares of common stock in treasury – 11.8 and 11.7 shares at December 31, 2019 and
2018, respectively
Total Terex Corporation stockholders’ equity
Noncontrolling interest
Total stockholders’ equity
Total liabilities and stockholders’ equity
December 31,
2019
2018
535.1
401.9
847.7
225.8
9.2
2,019.7
389.4
269.9
9.7
506.3
0.6
3,195.6
6.9
508.1
100.3
248.7
8.4
872.4
1,168.8
220.9
1.2
2,263.3
0.8
824.4
771.4
(257.5)
(406.8)
932.3
—
932.3
3,195.6
$
$
$
$
339.5
535.0
918.9
170.1
459.5
2,423.0
317.3
265.2
11.4
400.6
68.4
3,485.9
4.1
687.2
123.1
220.8
179.5
1,214.7
1,210.6
113.1
86.5
2,624.9
0.8
797.3
749.0
(284.8)
(401.8)
860.5
0.5
861.0
3,485.9
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-7
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(in millions)
Balance at December 31, 2016
105.0
$
1.3
$ 1,300.0
$ 1,897.9
$
(779.4) $
(935.1) $
36.5
$ 1,521.2
Outstanding
Shares
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Common
Stock in
Treasury
Non-
controlling
Interest
Total
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
Net income (loss)
Other comprehensive income (loss) – net of tax
Issuance of common stock
Compensation under stock-based plans – net
Dividends
Retirement of treasury stock
Acquisition of treasury stock
Other
Balance at December 31, 2018
Net income (loss)
Other comprehensive income (loss) – net of tax
Issuance of common stock
Compensation under stock-based plans – net
Dividends
Acquisition of treasury stock
Divestiture
—
—
0.8
0.2
—
—
(25.8)
80.2
—
—
0.8
0.1
—
—
(11.5)
—
69.6
—
—
0.9
0.1
—
(0.2)
—
—
—
—
—
—
—
—
1.3
—
—
—
—
—
—
—
21.0
0.2
0.8
—
—
128.7
—
—
(0.4)
(30.3)
—
—
—
539.9
—
—
—
—
—
—
—
—
4.0
—
—
(926.6)
1,322.0
1,995.9
(239.5)
(1,857.7)
—
—
17.3
6.3
0.9
113.7
—
—
—
(30.9)
(0.5)
(549.2)
(1,332.3)
—
—
0.8
—
—
—
—
—
—
—
—
—
797.3
—
—
27.8
(1.3)
0.6
—
—
—
2.6
749.0
54.4
—
—
—
(32.0)
—
—
—
(42.7)
—
—
—
—
—
—
—
—
1.7
—
1,882.0
(427.8)
(2.6)
—
(284.8)
(401.8)
—
27.3
—
—
—
—
—
—
—
—
2.7
—
(7.7)
—
—
—
—
—
—
(36.0)
—
0.5
—
—
—
—
—
—
—
—
0.5
—
—
—
—
—
—
(0.5)
128.7
539.9
21.0
3.8
(29.5)
(36.0)
(926.6)
1,222.5
113.7
(42.7)
17.3
8.0
(30.0)
—
(427.8)
—
861.0
54.4
27.3
27.8
1.4
(31.4)
(7.7)
(0.5)
Balance at December 31, 2019
70.4
$
0.8
$
824.4
$
771.4
$
(257.5) $
(406.8) $
— $
932.3
The accompanying notes are an integral part of these financial statements.
F-8
TEREX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
Operating Activities
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating
Year Ended December 31,
2019
2018
2017
$
54.4
$
113.7
$
128.7
activities:
Depreciation and amortization
(Gain) loss on disposition of discontinued operations
Deferred taxes
Impairments
(Gain) loss on sale of assets
Loss on early extinguishment of debt
Stock-based compensation expense
Pension plan settlements
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
Other assets and liabilities
Foreign exchange and other operating activities, net
Net cash provided by (used in) operating activities
Investing Activities
Capital expenditures
Proceeds from sale of capital assets
Proceeds from disposition of investments
Proceeds (payments) from disposition of discontinued operations
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
49.6
(0.1)
(17.6)
83.6
(9.8)
—
43.1
—
47.6
176.1
20.3
(220.1)
(57.0)
3.3
173.4
(108.9)
4.3
30.7
177.7
—
103.8
(1,660.5)
1,616.6
—
(7.4)
(31.4)
(21.0)
(103.7)
(5.5)
168.0
372.1
59.7
(2.4)
(9.1)
9.0
(1.9)
0.7
36.7
67.8
30.3
(107.9)
(284.2)
213.2
(25.1)
(6.3)
94.2
(103.8)
2.8
19.3
2.5
(6.7)
(85.9)
(1,150.1)
1,382.3
(0.5)
(427.5)
(30.0)
(19.1)
(244.9)
(21.4)
(258.0)
630.1
$
540.1
$
372.1
$
66.5
(68.7)
37.6
6.8
(58.0)
52.6
38.5
1.5
34.0
(0.5)
(33.5)
25.0
(46.0)
(31.5)
153.0
(43.5)
20.2
783.2
775.7
—
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
630.1
The accompanying notes are an integral part of these consolidated financial statements.
F-9
TEREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A – BASIS OF PRESENTATION
Basis of Presentation and Principles of Consolidation. The Consolidated Financial Statements include the accounts of Terex
Corporation, its majority-owned subsidiaries and other controlled subsidiaries (“Terex” or the “Company”). The Company
consolidates all majority-owned and controlled subsidiaries, applies 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 intercompany balances,
transactions and profits have been eliminated. Certain prior period amounts have been reclassified to conform with the 2019
presentation.
As further described in Note D - “Discontinued Operations and Assets and Liabilities Held for Sale”, on July 31, 2019, the Company
completed the previously announced disposition of its Demag® mobile cranes business (“Demag”) to Tadano Ltd. and certain of
its subsidiaries (“Tadano”). During 2019, the Company also exited North American mobile crane product lines manufactured in
its Oklahoma City facility. As a result, the Company reported these operations, formerly part of the Cranes segment, in discontinued
operations in the Consolidated Statement of Income (Loss) for all periods presented, and in assets and liabilities held for sale in
the Consolidated Balance Sheet at December 31, 2019 and 2018. Other operations formerly part of the Cranes segment were
reorganized to align with the Company’s new management and reporting structure. The utilities business has been consolidated
within Aerial Work Platforms (“AWP”), the pick and carry cranes business has been consolidated within Materials Processing
(“MP”) and the rough terrain and tower cranes businesses have been consolidated within Corporate and Other. The Company
now manages and reports its business in the following segments: (i) AWP and (ii) MP. Prior period amounts have been reclassified
to conform with the 2019 presentation. See Note B - “Business Segment Information” and Note D - “Discontinued Operations
and Assets and Liabilities Held for Sale” for further information.
For financial reporting periods beginning on or after January 1, 2020, the Company’s rough terrain and tower cranes operations
will be consolidated within MP to align with its new management and reporting structure. Prior period reportable segment
information will be adjusted in succeeding periods to reflect the realignment of operations.
Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles (“U.S.
GAAP”) 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. Carrying amount of cash and cash equivalents approximates its fair value. Cash and cash equivalents at December 31, 2019
and 2018 include $4.6 million and $12.6 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 lower of cost
or NRV. These assumptions require the Company to analyze aging of and forecasted demand for its inventory, forecasted 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 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,
2019 and 2018, reserves for lower of cost or NRV, excess and obsolete inventory totaled $53.2 million and $49.8 million,
respectively.
F-10
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”).
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. Debt issuance costs related to debt that is extinguished
early are charged to expense at the time of retirement. Debt issuance costs were $17.0 million and $19.0 million (net of accumulated
amortization of $12.2 million and $7.6 million) at December 31, 2019 and 2018, 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 is assigned to one or more reporting segments on the date of acquisition. The Company reviews its goodwill
for impairment annually during the fourth quarter of each fiscal year and between annual tests if an event occurs or circumstances
change that would more likely than not reduce the fair value of any one of its reporting units below its respective carrying amount.
In performing the goodwill impairment test, the Company first performs a qualitative assessment, which requires that it consider
events or circumstances including macroeconomic conditions, industry and market considerations, cost factors, overall financial
performance, changes in management or key personnel, changes in strategy, changes in customers, changes in the composition or
carrying amount of a reporting segment’s net assets and changes in its stock price. If, after assessing the totality of events or
circumstances, the Company determines that it is more likely than not that the fair values of its reporting segments are greater
than the carrying amounts, then the quantitative goodwill impairment test is not performed.
If the qualitative assessment indicates that the quantitative analysis should be performed, the Company then evaluates goodwill
for impairment by comparing the fair value of each of its reporting segments to its carrying value, including the associated goodwill.
To determine the fair values, 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. An impairment charge for the amount by which the
carrying amount exceeds the reporting unit’s fair value, if any, would be recognized. The loss recognized would not exceed total
amount of goodwill allocated to that reporting unit.
The Company completed its annual impairment test in the fourth quarter of 2019. The Company determined, after performing a
qualitative review of each reporting segment, that it is more likely than not that the fair value of each of its reporting segments
substantially exceeds the respective carrying amounts. Accordingly, there was no indication of impairment and the quantitative
goodwill impairment test was not performed.
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 $1.5
million, $2.5 million and $7.3 million of asset impairments for the year ended December 31, 2019, 2018 and 2017, respectively.
F-11
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. 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 O – “Litigation
and Contingencies.” Substantially all receivables were trade receivables at December 31, 2019 and 2018.
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, 2019, 2018 and 2017 totaled $1,108.0 million ($1.1 million related to discontinued operations),
$940.1 million ($1.3 million related to discontinued operations) and $631.1 million ($1.5 million related to discontinued operations),
respectively. The factoring discount paid upon sale is recorded as interest expense in the Consolidated Statement of Income (Loss).
As of December 31, 2019 and 2018, $83.9 million and $85.1 million ($0.2 million related to discontinued operations), respectively,
of receivables qualifying for sale treatment and continuing to be serviced by the Company were outstanding.
Revenue Recognition. The Company recognizes revenue when goods or services are transferred to customers in an amount that
reflects the consideration which it expects to receive in exchange for those goods or services. In determining when and how
revenue is recognized from contracts with customers, the Company performs the following five-step analysis: (i) identification
of contract with customer; (ii) determination of performance obligations; (iii) measurement of the transaction price; (iv) allocation
of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each
performance obligation.
In the United States, we have the ability to enter into a security agreement and receive a security interest in the product by filing
an appropriate Uniform Commercial Code (“UCC”) financing statement. However, a significant portion of 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, we retain title to goods delivered to a customer until the customer
makes payment so that we can recover the goods in the event of customer default on payment. The Company considers the
following events in order to determine when it is appropriate to recognize revenue: (i) the customer has physical possession of
the product; (ii) the customer has legal title to the product; (iii) the customer has assumed the risks and rewards of ownership and
(iv) the customer has communicated acceptance of the product. These events serve as indicators, along with the details contained
within the contract, that it is appropriate to recognize revenue.
The Company generates revenue through the sale of machines, parts and service, and extended warranties. Revenue from product
sales is recorded when the performance obligation is fulfilled, usually at the time of shipment, at the net sales price (transaction
price). Estimates of variable consideration, such as volume discounts and rebates, reduce transaction price when it is probable
that a customer will attain these types of sales incentives. These estimates are primarily derived from contractual terms and
historical experience. The Company elected to present revenue net of sales tax and other similar taxes and account for shipping
and handling as activities to fulfill the promise to transfer goods rather than separate performance obligations. Payments are
typically due either 30 or 60 days, depending on geography, following delivery of products or completion of services.
Revenue from extended warranties is recognized over time on a straight line basis because the customer benefits evenly from the
extended warranty throughout the period; beginning upon expiration of the standard warranty and through end of the term. Revenue
from services is recognized based on cost input method as the time and materials used in the repair portrays the most accurate
depiction of completion of the performance obligation. During the full year ended December 31, 2019, revenues generated from
the sale of extended warranties and services were an immaterial portion of revenue.
The Company sells equipment subject to leases and related lease payments. Income from operating leases is recognized ratably
over the lease term. Revenue from sales-type leases is recognized at the inception of the lease.
For detailed sales information see Note B - “Business Segment Information”.
F-12
Leases. Terex leases approximately 100 real properties, approximately 500 vehicles, and approximately 400 pieces of office and
industrial equipment. As the lessee, Terex will classify a lease which it has substantially all the risks and rewards of ownership
as a finance lease.
The Company determines if an arrangement contains a lease at contract inception. With the exception of short-term leases (leases
with terms less than 12 months), all leases with contractual fixed costs are recorded on the balance sheet on the lease commencement
date as a right-of-use (“ROU”) asset and a lease liability. Lease liabilities are initially measured at the present value of the minimum
lease payments and subsequently increased to reflect the interest accrued and reduced by the lease payments affected. ROU assets
are initially measured at the present value of the minimum lease payments adjusted for any prior lease payments, lease incentives
and initial direct costs. The Company does not separate lease and non-lease components of a contract for any class of leases.
Certain leases contain escalation, renewal and/or termination options that are factored into the ROU asset as appropriate. Operating
leases result in a straight-line rent expense over the life of the lease. For finance leases, ROU assets are amortized on a straight-
line basis over the life of the lease and interest accretes to the lease liability which results in a higher interest expense at lease
inception that declines over the life of the lease. Variable lease costs are expensed as incurred and are not included in the
determination of ROU assets or lease liabilities.
Short-term leases for real property, vehicles and industrial and office equipment are recognized in the income statement on a
straight-line basis over the lease term.
The Company uses its estimated incremental borrowing rate, which is derived from information available at the lease
commencement date, in determining the present value of lease payments, if the rate is not implicit in the lease. Consideration is
given to the Company’s recent debt issuances as well as publicly available data for instruments with similar characteristics when
calculating incremental borrowing rates.
For detailed lease information see Note L - “Leases”.
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 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 current portion of the product warranty liability is
included in Other current liabilities and the non-current portion 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.
The following table summarizes the changes in the consolidated product warranty liability (in millions):
Balance as of December 31, 2017
Accruals for warranties issued during the period
Changes in estimates
Settlements during the period
Foreign exchange effect/other
Balance as of December 31, 2018
Accruals for warranties issued during the period
Changes in estimates
Settlements during the period
Foreign exchange effect/other
Balance as of December 31, 2019
$
$
35.7
43.7
7.2
(46.1)
(0.7)
39.8
41.1
13.4
(50.1)
3.3
47.5
F-13
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 product safety employees. 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 M – “Retirement Plans and Other Benefits.”
Deferred Compensation. The Company maintains a deferred compensation plan, which is described more fully in Note M –
“Retirement Plans and Other Benefits.” The Company’s 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, 2019 and 2018. The plan obligations for participant deferrals in common stock are classified as Additional paid-
in capital and deferrals in the bond fund investment are classified as Accrued compensation and benefits and Other non-current
liabilities in the Consolidated Balance Sheet. The total of 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, 2019, the Company had stock-based employee compensation plans, which are
described more fully in Note N – “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. The Company recognizes
forfeitures as they occur.
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 J – “Derivative Financial Instruments.”
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, 2019 and 2018.
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, development and engineering costs were $72.4 million, $63.2 million and $55.6 million during 2019, 2018 and 2017,
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 C – “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 E – “Earnings Per Share.”
F-14
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 foreign exchange contracts, cross currency and commodity swaps
and a debt conversion feature on a convertible promissory note discussed in Note J – “Derivative Financial Instruments”, debt
discussed in Note K – “Long-term Obligations” and defined benefit plan assets discussed in Note M – “Retirement Plans and
Other Benefits”. These instruments 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 2019
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2016-02,
“Leases (Topic 842),” (“ASU 2016-02”). The standard establishes a ROU model that requires a lessee to recognize an ROU asset
and a 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 are classified as finance or operating, with classification affecting the subsequent
expense pattern and presentation of expense recognition in the income statement. Subsequently, the FASB issued the following
standards related to ASU 2016-02: ASU 2018-01, “Land Easement Practical Expedient for Transition to Topic 842”, ASU 2018-10,
“Codification Improvements to Topic 842, Leases”, ASU 2018-11, “Leases (Topic 842): Targeted Improvements” (“ASU
2018-11”), ASU 2018-20, “Narrow-Scope Improvements for Lessors” and ASU 2019-01, “Leases (Topic 842): Codification
Improvements”, which provided additional guidance and clarity to ASU 2016-02 (collectively, the “Lease Standard”).
The Company adopted the Lease Standard on January 1, 2019 under the alternative transition method permitted by ASU 2018-11.
This transition method allowed the Company to initially apply the requirements of the Lease Standard at the adoption date, versus
at the beginning of the earliest period presented. The Company elected the transition package of practical expedients, the practical
expedient to not separate lease and non-lease components for all of its leases, the short-term lease recognition exemption for all
of its leases that qualify and the land easement practical expedient; it did not elect the use of hindsight practical expedient.
Adoption of the Lease Standard had a material effect on the Company’s consolidated financial statements due to the recognition
of approximately $138 million of operating lease liabilities (approximately $6 million related to discontinued operations) with
corresponding ROU assets. The Company implemented a global lease accounting system and updated internal controls over
financial reporting, as necessary, to accommodate modifications to its business processes and accounting procedures as a result
of the Lease Standard.
In February 2018, the FASB issued ASU 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220):
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” (“ASU 2018-02”). ASU 2018-02
allows reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from
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”. The Company adopted ASU 2018-02 on January 1, 2019. Adoption did not have a material effect on the Company’s
consolidated financial statements.
In July 2018, the FASB issued ASU 2018-09, “Codification Improvements,” (“ASU 2018-09”). ASU 2018-09 provides technical
corrections, clarifications and other improvements across a variety of accounting topics. Certain amendments were applicable
immediately while others provide transition guidance and are effective in the first quarter of fiscal year 2019. The Company
completed the adoption of ASU 2018-09 on January 1, 2019. Adoption did not have a material effect on the Company’s consolidated
financial statements.
F-15
Accounting Standards to be Implemented
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses
on Financial Instruments,” (“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 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. Subsequently, the FASB issued the following standards related to ASU 2016-13: ASU 2018-19,
“Codification Improvements to Topic 326, Financial Instruments - Credit Losses,” ASU 2019-05, “Financial Instruments-Credit
Losses (Topic 326) Targeted Transition Relief,” and ASU 2019-11, “Codification Improvements to Topic 326, Financial
Instruments-Credit Losses,” which provided additional guidance and clarity to ASU 2016-13 (collectively, the “Credit Loss
Standard”). The effective date will be the first quarter of fiscal year 2020 and early adoption is permitted. The Credit Loss Standard
will be applied using a modified retrospective approach. Adoption is not expected to have a material effect on the Company’s
consolidated financial statements.
In August 2018, the FASB issued ASU 2018-14, “Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic
715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans,” (“ASU 2018-14”). ASU
2018-14 adds, removes and clarifies disclosure requirements related to defined benefit pension plans and other postretirement
plans. The guidance is effective for our fiscal year ending December 31, 2020 and early adoption is permitted. Adoption is not
expected to have a material effect on the Company’s consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40),
Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract,” (“ASU
2018-15”). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is
a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.
The effective date will be the first quarter of fiscal year 2020 and early adoption is permitted. Adoption is not expected to have
a material effect on the Company’s consolidated financial statements.
In April 2019, the FASB issued ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments - Credit Losses,
Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments,” (“ASU 2019-04”). ASU 2019-04 provides narrow
scope amendments for Topics 326, 815 and 825. The effective date will be the first quarter of fiscal year 2020 and early adoption
is permitted. Adoption is not expected to have a material effect on the Company’s consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740) - Simplifying the Accounting for Income
Taxes” (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12
removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve
consistent application of Topic 740. The effective date will be the first quarter of fiscal year 2021 and early adoption is permitted.
The Company is currently evaluating the impact that the amendments to Topic 740 will have on its consolidated financial statements.
NOTE B – BUSINESS SEGMENT INFORMATION
Terex is a global manufacturer of aerial work platforms, materials processing machinery and cranes. The Company designs, builds
and supports products used in construction, maintenance, manufacturing, energy, minerals and materials management applications.
Terex’s products are manufactured in North and South America, Europe, Australia and Asia and sold worldwide. The Company
engages with customers through all stages of the product life cycle, from initial specification and financing to parts and service
support. The Company operates in two reportable segments: (i) AWP and (ii) MP.
The AWP segment designs, manufactures, services and markets aerial work platform equipment, telehandlers, light towers and
utility equipment as well as their related components and replacement parts. Customers use these products to construct and
maintain industrial, commercial, institutional and residential buildings and facilities, for construction and maintenance of utility
and telecommunication lines, tree trimming, certain construction and foundation drilling applications, and for other commercial
operations, as well as in 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, pick and carry cranes, wood processing, biomass and recycling equipment,
concrete mixer trucks and concrete pavers, conveyors, 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, maintenance applications to lift equipment or
material, and in building roads and bridges.
F-16
The Company designs, manufactures, services, refurbishes and markets rough terrain and tower cranes, as well as their related
components and replacement parts. Customers use rough terrain cranes to move materials and equipment on rugged or uneven
terrain and tower cranes, often in urban areas where space is constrained and in long-term or high-rise building sites, to lift
construction material and place the material at point of use. Rough terrain and tower cranes are included in Corporate and Other.
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 Corporate and Other.
Corporate and Other also includes eliminations among the two segments, various construction product lines, as well as general
and corporate items.
None of the Company’s customers individually accounted for more than 10% of consolidated net sales in 2019, 2018 or 2017.
Business segment information is presented below (in millions):
Net sales
AWP
MP
Corporate and Other / Eliminations
Total
Income (loss) from operations
AWP
MP
Corporate and Other / Eliminations
Total
Depreciation and amortization
AWP
MP
Corporate
Total
Capital expenditures
AWP
MP
Corporate
Total
Year Ended December 31,
2019
2018
2017
2,726.6
$
2,950.4
$
1,371.4
255.1
4,353.1
196.2
196.8
(58.0)
335.0
23.0
7.7
15.7
46.4
82.1
11.5
11.9
$
$
$
$
$
$
1,322.6
244.2
4,517.2
300.5
176.0
(64.0)
412.5
20.9
7.6
16.8
45.3
49.7
33.1
8.2
$
$
$
$
$
$
105.5
$
91.0
$
2,433.2
1,119.8
240.7
3,793.7
199.8
125.1
(96.7)
228.2
23.2
8.0
21.8
53.0
15.6
6.7
9.4
31.7
$
$
$
$
$
$
$
$
F-17
Sales between segments are generally priced to recover costs plus a reasonable markup for profit, which is eliminated in
consolidation.
Identifiable assets
AWP
MP
Corporate and Other / Eliminations (1)
Assets held for sale (2)
Total
December 31,
2019
2018
$
1,814.4
$
1,983.5
1,172.1
199.3
9.8
1,160.1
(185.6)
527.9
$
3,195.6
$
3,485.9
(1) Increase primarily due to cash from the sales of Demag and ASV Holdings, Inc. shares, Section 301 tariff receivables and recognition of
ROU assets.
(2) Decrease in assets from the sale of Demag. See Note D - “Discontinued Operations and Assets and Liabilities Held For Sale”.
Long-lived Assets
United States
United Kingdom
Germany
Other European countries
All other
Total
December 31,
2019
2018
$
$
246.8
69.0
11.0
21.6
41.0
389.4
$
$
193.1
61.4
10.7
18.6
33.5
317.3
Long-lived assets consist of net fixed assets, which can be attributed to the specific geographic regions.
Geographic net sales information is presented below (in millions):
Year Ended December 31, 2019
AWP
MP
Corporate and
Other /
Eliminations
Total
Net sales by region
North America
Western Europe
Asia-Pacific
Rest of World (1)
Total (2)
$
$
1,801.8
431.1
325.1
168.6
2,726.6
$
$
535.2
418.0
288.5
129.7
1,371.4
$
$
146.9
96.8
15.0
(3.6)
255.1
(1) Includes intercompany sales and eliminations.
(2) Total sales include $2.3 billion attributable to the U.S., the Company’s country of domicile.
Net sales by region
North America
Western Europe
Asia-Pacific
Rest of World (1)
Total (2)
Year Ended December 31, 2018
AWP
MP
Corporate and
Other /
Eliminations
$
$
1,985.2
530.5
274.8
159.9
2,950.4
$
$
518.5
382.0
269.6
152.5
1,322.6
$
$
135.8
75.4
30.8
2.2
244.2
$
$
$
$
2,483.9
945.9
628.6
294.7
4,353.1
Total
2,639.5
987.9
575.2
314.6
4,517.2
(1) Includes intercompany sales and eliminations.
(2) Total sales include $2.4 billion attributable to the U.S., the Company’s country of domicile.
F-18
Net sales by region
North America
Western Europe
Asia-Pacific
Rest of World (1)
Total (2)
Year Ended December 31, 2017
AWP
MP
Corporate and
Other /
Eliminations
Total
$
$
1,570.7
404.2
265.0
193.3
2,433.2
$
$
507.1
282.7
204.8
125.2
1,119.8
$
$
143.9
92.1
37.2
(32.5)
240.7
$
$
2,221.7
779.0
507.0
286.0
3,793.7
(1) Includes intercompany sales and eliminations.
(2) Total sales include $2.1 billion attributable to the U.S., the Company’s country of domicile.
The Company attributes sales to unaffiliated customers in different geographical areas based on the location of the customer.
Product type net sales information is presented below (in millions):
Net sales by product type
Aerial Work Platforms
Materials Processing Equipment
Specialty Equipment
Other (1)
Total
(1) Includes other product types, intercompany sales and eliminations.
Net sales by product type
Aerial Work Platforms
Materials Processing Equipment
Specialty Equipment
Other (1)
Total
(1) Includes other product types, intercompany sales and eliminations.
Year Ended December 31, 2019
AWP
MP
Corporate and
Other /
Eliminations
Total
$
$
$
$
1,912.1
—
—
814.5
2,726.6
$
$
— $
895.4
473.3
2.7
1,371.4
$
2.8
—
—
252.3
255.1
Year Ended December 31, 2018
AWP
MP
Corporate and
Other /
Eliminations
2,128.6
—
—
821.8
2,950.4
$
$
— $
877.0
421.1
24.5
1,322.6
$
3.5
—
—
240.7
244.2
$
$
$
$
1,914.9
895.4
473.3
1,069.5
4,353.1
Total
2,132.1
877.0
421.1
1,087.0
4,517.2
F-19
Year Ended December 31, 2017
AWP
MP
Corporate and
Other /
Eliminations
Total
$
$
1,718.0
—
—
715.2
—
2,433.2
$
$
— $
726.9
376.3
16.6
—
1,119.8
$
2.7
0.6
—
204.1
33.3
240.7
$
$
1,720.7
727.5
376.3
935.9
33.3
3,793.7
Net sales by product type
Aerial Work Platforms
Materials Processing Equipment
Specialty Equipment
Other (1)
Compact Construction Equipment (2)
Total
(1) Includes other product types, intercompany sales and eliminations.
(2) Remaining Compact Construction product lines divested in 2017.
NOTE C – 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,
2019
2018
2017
$
$
(32.4) $
279.9
247.5
$
(9.5) $
296.6
287.1
$
(13.4)
176.8
163.4
The Company recorded Income (loss) from discontinued operations and Gain (loss) on disposition of discontinued operations
before income taxes of $(175.8) million, $(136.3) million, and $40.6 million for the years ended December 31, 2019, 2018 and
2017, respectively.
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
Provision for (benefit from) income taxes
Year Ended December 31,
2019
2018
2017
$
$
14.7
1.2
38.1
54.0
(14.9)
(3.3)
2.0
(16.2)
37.8
$
$
21.4
1.8
31.2
54.4
(14.4)
1.2
4.2
(9.0)
45.4
$
$
(10.1)
2.2
22.7
14.8
36.6
(0.6)
1.6
37.6
52.4
The elimination of tax from intercompany transactions is included in current tax expense. The Company recorded Provision for
(benefit from) income taxes of $(20.5) million, $(8.3) million and $24.3 million from discontinued operations and on disposition
of discontinued operations for the years ended December 31, 2019, 2018 and 2017, respectively.
F-20
On December 22, 2017, the SEC issued Staff Accounting Bulletin No. 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 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” (the “2017 Federal Tax Act”). During the fourth quarter of 2017, the
Company recorded $29.8 million as a provisional tax charge for the deemed repatriation transition tax and $20.6 million as a
provisional tax charge for the re-measurement of its U.S. deferred tax balances. The Company recorded measurement period
adjustments during 2018 which did not have material effect on its consolidated financial statements. The 2017 provisional amounts
were finalized in the fourth quarter of 2018.
In January 2018, the FASB released guidance on the accounting for tax on Global Intangible Low-taxed Income (“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 elected to treat taxes on GILTI inclusions as period costs.
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, 2019 and 2018 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
Operating lease ROU asset
Operating lease liability
Other
Deferred tax assets valuation allowance
Net deferred tax assets (liabilities)
2019
2018
(14.5) $
(4.7)
6.4
9.8
198.5
13.3
22.0
(30.9)
32.2
9.2
(107.0)
134.3
$
(10.1)
(5.0)
6.4
8.3
195.5
12.1
18.8
—
—
11.1
(114.3)
122.8
$
$
Deferred tax assets for continuing operations were $243.6 million ($0.3 million for discontinued operations) before valuation
allowances of $107.0 million, partially offset by deferred tax liabilities for continuing operations of $2.3 million at December 31,
2019. Deferred tax assets for continuing operations were $239.0 million ($24.1 million for discontinued operations) before
valuation allowances of $114.3 million, partially offset by deferred tax liabilities for continuing operations of $1.9 million at
December 31, 2018. There were no deferred tax liabilities for discontinued operations at December 31, 2019 and 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, 2019 and 2018 was $107.0 million and $114.3 million, respectively. The net change in the total valuation
allowance for the years ended December 31, 2019 and 2018 was a decrease of $7.3 million and $20.3 million, respectively.
F-21
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 tax rates
Tax effect of dispositions
2017 Federal Tax Act
Expired stock awards
Pension plan settlement
Other
Provision for (benefit from) income taxes
Year Ended December 31,
2019
2018
2017
51.9
(1.7)
(4.9)
(14.5)
7.2
3.7
—
—
—
—
(3.9)
37.8
$
$
60.3
2.3
(13.9)
(18.0)
16.3
0.7
—
5.5
—
(7.1)
(0.7)
45.4
$
$
57.2
1.0
(2.1)
(33.7)
7.7
—
(27.2)
46.9 (1)
2.0
—
0.6
52.4
$
$
(1) The 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.
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 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 recorded
foreign, federal and state tax expense with respect to earnings which have been subject to federal income tax and which are no
longer indefinitely reinvested. Any adjustments related to the change of indefinite reinvestment assertion for foreign earnings
accumulated as of December 31, 2017 has been 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, 2019, the Company’s 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 $90 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.
At December 31, 2019, the Company has various state net operating loss carry forwards available to reduce future state taxable
income and income taxes, the majority of which will expire at various dates through 2039.
At December 31, 2019, the Company has approximately $536 million of loss carry forwards, consisting of $245 million in Germany,
$161 million in Italy, $52 million in China, $30 million in Spain, and $48 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 $21 million, and it has an unlimited carryforward period.
The Company made total net income tax payments including discontinued operations of $46.8 million, $52.7 million and $29.0
million in 2019, 2018 and 2017, respectively. At December 31, 2019 and 2018, Other current assets included net income tax
receivable amounts of $24.3 million and $13.5 million, respectively.
F-22
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, 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 unrecognized tax benefits (in millions).
Balance as of January 1, 2017
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
Balance as of December 31, 2017
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
Balance as of December 31, 2018
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
Balance as of December 31, 2019
$
$
30.6
—
11.9
(0.7)
—
(1.3)
(6.8)
33.7
—
6.1
(14.8)
—
(0.8)
(10.7)
13.5
—
2.0
(0.4)
—
(0.8)
—
14.3
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 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 difficult to predict. The Company believes it is reasonably possible
the amount of unrecognized tax benefits disclosed as of December 31, 2019 may decrease approximately $6 million in the year
ending December 31, 2020. Such possible decrease relates to anticipated tax audit settlements.
As of December 31, 2019 and 2018, the Company had $14.3 million and $13.5 million, respectively, of unrecognized tax benefits.
Of the $14.3 million at December 31, 2019, $4.0 million, if recognized, would affect the effective tax rate. As of December 31,
2019 and 2018, the liability for potential interest and penalties was $1.2 million and $1.0 million, respectively. During the years
ended December 31, 2019 and 2018, the Company recognized total tax expense of $0.2 million and tax benefit of $6.6 million
for interest and penalties, respectively.
F-23
NOTE D – DISCONTINUED OPERATIONS AND ASSETS AND LIABILITIES HELD FOR SALE
MOBILE CRANES
On July 31, 2019, the Company completed the disposition of Demag to Tadano. The Company received approximately $215
million of consideration, as adjusted for estimated amounts of cash, debt, working capital and certain other items. The final
consideration will be adjusted based on the actual amounts of cash, debt and working capital. Products divested are Demag® all
terrain cranes and large lattice boom crawler cranes. During the year ended December 31, 2019, the Company recognized a charge
of approximately $82 million, net of tax, to write-down Demag to its fair value, less costs to sell. During the year ended December 31,
2019, the Company recorded a loss on disposition of discontinued operations, net of tax, of $11.6 million. During 2019, the
Company also exited North American mobile crane product lines manufactured in its Oklahoma City facility.
The Company’s actions to sell Demag and cease manufacturing mobile crane product lines in its Oklahoma City facility represent
a significant strategic shift in its business away from mobile cranes as these businesses constituted a significant part of its operations
and financial results. The Company believes these actions were necessary as it continues to execute its Focus, Simplify and
Execute to Win strategy.
In connection with the disposition of Demag, the Company completed a legal entity restructuring and entered into certain ancillary
agreements with Tadano, including a Transition Services Agreement (“TSA”), dated as of July 31, 2019, under which the parties
will provide one another certain transition services to facilitate the separation of Demag from the Company. Agreements covered
under the TSA are generally 12 months or less in duration but certain agreements extend for 36 months. Fees related to these
agreements are for reimbursement of services provided.
In addition to selling Demag, the Company sold its boom truck, truck crane and crossover product lines and related inventory
previously manufactured in its Oklahoma City facility on April 24, 2019. The Company received notes and receivables totaling
$27.7 million and recorded a gain, net of tax, of $12.8 million during the year ended December 31, 2019.
MHPS
On May 16, 2016, Terex agreed to sell its Material Handling and Port Solutions (“MHPS”) business to Konecranes Plc
(“Konecranes”) by entering into a Stock and Asset Purchase Agreement, as amended (the “SAPA”), with Konecranes. On January
4, 2017, the Company completed 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, which was undertaken by Konecranes in connection with the Disposition. During the years ended December 31,
2019, 2018 and 2017, the Company recognized a (loss) gain on the Disposition (net of tax) of $(1.2) million, $(3.1) million and
$64.3 million, respectively.
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 sale of shares which included a gain of $41.6 million attributable to foreign exchange rate
changes during the year ended December 31, 2017. The net gain 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).
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
on October 11, 2017. The Company recorded an expense of $7.9 million related to losses expected to be incurred over the original
agreement’s life during the year ended December 31, 2017.
F-24
Income (loss) from discontinued operations
The following amounts related to discontinued operations were derived from historical financial information and have been
segregated from continuing operations and reported as discontinued operations in the Consolidated Statement of Income (Loss)
(in millions):
Year ended December 31,
2019
2018
2017
Net sales
Cost of sales
Selling, general and administrative expenses
Impairment of Mobile Cranes disposal group
Asset impairments
Other income (expense)
Income (loss) from discontinued operations before income taxes
(Provision for) benefit from income taxes
Gain (loss) on disposition of discontinued operations – net of tax
Income (loss) from discontinued operations – net of tax
Other Divestitures
Cranes
$ 327.2
(335.2)
(75.6)
(82.1)
—
(4.5)
(170.2)
14.8
—
Cranes
$ 569.7
(521.0)
(97.5)
—
0.5
(3.1)
(51.4)
0.4
1.4
$ (155.4) $ (130.4) $ (49.6)
Cranes
$ 607.8
(602.9)
(117.5)
—
(6.6)
(19.1)
(138.3)
7.9
—
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. Non-cash impairment charges of $1.8 million and $6.7 million, were recorded
to adjust net asset value to estimated fair value in 2018 and 2017, respectively.
The operating results for the hot lines tools business are reported in continuing operations, within the AWP segment in the Company’s
segment disclosures.
In August 2017, the Company entered into an agreement to sell its 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
During the year ended December 31, 2017, the Company completed the sale of its Coventry, U.K.-based compact construction
business and remaining U.K.-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.
The operating results for these construction product lines are reported in continuing operations, within the Corporate and Other
category in the Company’s segment disclosures.
During the year ended December 31, 2016, the Company sold certain additional portions of its former Construction segment,
including the following products: midi/mini excavators, wheeled excavators, compact wheel loaders, and components, primarily
in Europe. 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 the Company’s segment disclosures.
F-25
Assets and Liabilities Held for Sale
Assets and liabilities held for sale consist of mobile cranes product lines manufactured in Oklahoma City, the Company’s utility
hot lines tools business located in South America and Demag, all previously contained in its former Cranes 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 amounts or fair value less costs to sell. Assets are no longer depreciated once classified as held
for sale.
The following table provides the amounts of assets and liabilities held for sale in the Consolidated Balance Sheet (in millions):
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
Intangible assets – net
Impairment reserve
Other assets
Non-current assets held for sale
Liabilities
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
December 31, 2019 December 31, 2018
$
$
$
$
$
$
$
$
$
$
$
5.0
3.5
5.3
0.2
(4.8)
9.2
0.6
2.4
(2.8)
0.4
0.6
$
— $
4.6
3.8
8.4
$
— $
—
1.2
1.2
$
32.6
126.9
295.5
9.4
(4.9)
459.5
28.8
4.3
(2.9)
38.2
68.4
0.6
101.6
77.3
179.5
4.1
71.8
10.6
86.5
The following table provides amounts of cash and cash equivalents presented in the Consolidated Statement of Cash Flows (in
millions):
Cash and cash equivalents:
Cash and cash equivalents - continuing operations
Cash and cash equivalents - held for sale
Total cash and cash equivalents
December 31, 2019 December 31, 2018 December 31, 2017
$
$
535.1
5.0
540.1
$
$
339.5
32.6
372.1
$
$
571.6
58.5
630.1
F-26
The following table provides supplemental cash flow information related to discontinued operations (in millions):
Non-cash operating items:
Depreciation and amortization
Gain (loss) on disposition of discontinued operations
Deferred taxes
Impairments
Investing activities:
Capital expenditures
Year Ended December 31,
2019
2018
2017
$
$
$
$
$
$
3.3
— $
(1.4) $
$
82.1
14.4
$
— $
(0.2) $
$
6.6
13.1
(1.4)
(0.1)
(0.5)
(3.4) $
(12.8) $
(13.4)
Gain (Loss) on Disposition of Discontinued Operations - net of tax (in millions):
Gain (loss) on disposition of discontinued
operations
(Provision for) benefit from income
taxes
Gain (loss) on disposition of discontinued
operations – net of tax
2019
2018
2017
Year Ended December 31,
Cranes MHPS Other
Total
MHPS
Atlas
Other
Total
MHPS
Atlas
Total
$ (1.0) $ (4.6) $ — $ (5.6) $ (1.2) $ 3.2 $ — $ 2.0
$ 88.5 $ 3.5 $ 92.0
2.2
3.4
0.1
5.7
(1.9)
(0.5)
2.8
0.4
(24.2)
(0.5)
(24.7)
$ 1.2 $ (1.2) $ 0.1 $ 0.1
$ (3.1) $ 2.7 $ 2.8 $ 2.4
$ 64.3 $ 3.0 $ 67.3
F-27
NOTE E – EARNINGS PER SHARE
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)
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)
Diluted shares:
Weighted average shares outstanding - basic
Effect of dilutive securities:
Restricted stock awards
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)
For the year ended December 31,
(in millions, except per share data)
2019
2018
2017
$
209.7
(155.4)
0.1
$
241.7
(130.4)
2.4
54.4
$
113.7
$
111.0
(49.6)
67.3
128.7
71.1
75.4
92.8
$
2.95
(2.18)
—
$
3.21
(1.73)
0.03
0.77
$
1.51
$
71.1
0.7
71.8
75.4
1.5
76.9
$
2.92
(2.16)
—
$
3.14
(1.69)
0.03
0.76
$
1.48
$
1.20
(0.53)
0.72
1.39
92.8
2.1
94.9
1.17
(0.52)
0.71
1.36
$
$
$
$
$
$
Non-vested restricted stock awards granted by the Company are treated as potential common shares outstanding in computing
diluted earnings per share using the treasury stock method. Weighted average restricted stock awards of approximately 0.6 million,
and 0.2 million were outstanding during the year ended December 31, 2019 and 2018, respectively, but were not included in the
computation of diluted shares as the effect would be anti-dilutive or performance targets were not expected to be achieved for
awards contingent upon performance. In 2017, these awards were not material.
F-28
NOTE F – 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, Brazil and Germany. 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, 2019, 2018
and 2017, the Company transferred finance receivables of $226.2 million, $290.5 million and $266.6 million, respectively, to
third-party financial institutions, which qualified for sales treatment under ASC 860. During the years ended December 31, 2019,
2018 and 2017, the Company recorded gains on transferred finance receivables of $5.4 million, $3.3 million, and $11.3 million,
respectively, which were recorded as sales by TFS and were reported in the Corporate and Other category. At December 31, 2019
and 2018, the Company had $17.6 million and $19.2 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,
2019
December 31,
2018
$
$
145.7
20.5
166.2
(11.0)
155.2
$
$
154.0
45.5
199.5
(5.5)
194.0
Approximately $52 million and $72 million of finance receivables are recorded in Prepaid and other current assets at December 31,
2019 and 2018. Approximately $103 million and $122 million are recorded in Other assets in the Consolidated Balance Sheet at
December 31, 2019 and 2018, respectively.
F-29
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 (in millions):
Year Ended December 31, 2019
Year Ended December 31, 2018
Year Ended December 31, 2017
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
$
4.0
$
1.5
$
5.5
$
5.7
$
0.9
$
6.6
$
5.9
$
0.4
$
6.3
6.9
(0.4)
—
(1.0)
—
—
5.9
(0.4)
—
(0.5)
(1.1)
(0.1)
0.6
—
—
0.1
(1.1)
(0.1)
0.2
(0.4)
—
0.5
—
—
0.7
(0.4)
—
$
10.5
$
0.5
$
11.0
$
4.0
$
1.5
$
5.5
$
5.7
$
0.9
$
6.6
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 a reserve rate to its portfolio, net of individually impaired finance receivables. 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, 2019
December 31, 2018
December 31, 2017
Commercial
Loans
Sales-Type
Leases
Total
Commercial
Loans
Sales-Type
Leases
Total
Commercial
Loans
Sales-Type
Leases
Total
$
7.8
$
— $
7.8
$
1.5
$
— $
1.5
$
6.0
$
— $
6.0
—
—
0.6
2.4
2.4
3.7
—
—
2.4
3.7
7.8
7.5
—
—
7.8
7.5
0.6
2.4
F-30
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, 2019
December 31, 2018
Commercial
Loans
Sales-Type
Leases
Total
Commercial
Loans
Sales-Type
Leases
Total
$
$
$
$
7.8
2.7
10.5
7.8
137.9
145.7
$
$
$
$
— $
0.5
0.5
7.8
3.2
$
11.0
— $
20.5
20.5
$
7.8
158.4
166.2
$
$
$
$
0.6
3.4
4.0
1.5
152.5
154.0
$
$
$
$
— $
1.5
1.5
$
0.6
4.9
5.5
— $
45.5
45.5
$
1.5
198.0
199.5
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):
Commercial loans
Sales-type leases
Total finance receivables
Commercial loans
Sales-type leases
Total finance receivables
$
$
$
$
December 31, 2019
Current
31-60 days past
due
61-90 days past
due
Greater than
90 days past
due
135.1
20.2
155.3
$
$
2.4
—
2.4
$
$
0.1
0.3
0.4
$
$
8.1
—
8.1
Total past due
10.6
$
0.3
10.9
$
Total Finance
Receivables
$
$
145.7
20.5
166.2
December 31, 2018
Current
31-60 days past
due
61-90 days past
due
Greater than
90 days past
due
152.2
45.3
197.5
$
$
0.1
0.2
0.3
$
$
— $
—
— $
1.7
—
1.7
Total past due
1.8
$
0.2
2.0
$
Total Finance
Receivables
$
$
154.0
45.5
199.5
Commercial loans in the amount of $27.1 million and $6.0 million were on non-accrual status as of December 31, 2019 and 2018,
respectively. Sales-type leases in the amount of $0.3 million were on non-accrual status as of December 31, 2019 and there were
no sales-type leases on non-accrual status as of December 31, 2018.
F-31
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,
2019
December 31,
2018
$
1.7
$
17.3
42.1
96.2
8.9
7.5
30.7
56.9
94.5
9.9
Total
$
166.2
$
199.5
The Company believes the finance receivables retained, net of allowance for credit losses, are collectible.
NOTE G – INVENTORIES
Inventories consist of the following (in millions):
Finished equipment
Replacement parts
Work-in-process
Raw materials and supplies
Inventories
December 31,
2019
2018
408.1
$
160.8
78.7
200.1
847.7
$
478.4
143.3
86.5
210.7
918.9
$
$
Reserves for lower of cost or NRV and excess and obsolete inventory were $53.2 million and $49.8 million at December 31, 2019
and 2018, respectively.
NOTE H – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment – net consist of the following (in millions):
Property
Plant
Equipment
Leasehold improvements
Construction in progress
Property, plant and equipment – gross
Less: Accumulated depreciation
Property, plant and equipment – net
F-32
December 31,
2019
2018
$
40.9
$
168.1
358.3
55.8
101.1
724.2
(334.8)
389.4
$
$
39.6
161.3
337.3
49.1
42.2
629.5
(312.2)
317.3
Depreciation expense for the years ended December 31, 2019, 2018 and 2017, was $39.6 million, $39.0 million and $47.0 million,
respectively.
NOTE I – 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, 2017, gross
Accumulated impairment
Balance at December 31, 2017, net
Foreign exchange effect and other
Balance at December 31, 2018, gross
Accumulated impairment
Balance at December 31, 2018, net
Foreign exchange effect and other
Balance at December 31, 2019, gross
Accumulated impairment
Balance at December 31, 2019, net
AWP
MP
Total
$
$
140.2
(38.6)
101.6
(1.0)
139.2
(38.6)
100.6
0.1
139.3
(38.6)
100.7
$
$
195.2
(23.2)
172.0
(7.4)
187.8
(23.2)
164.6
4.6
192.4
(23.2)
169.2
$
$
335.4
(61.8)
273.6
(8.4)
327.0
(61.8)
265.2
4.7
331.7
(61.8)
269.9
Intangible assets, net were comprised of the following as of December 31, 2019 and 2018 (in millions):
Definite-lived intangible assets:
Technology
Customer Relationships
Land Use Rights
Other
Total definite-lived intangible assets
(in millions)
Aggregate Amortization Expense
Weighted
Average
Life
(in years)
7
22
81
8
December 31, 2019
December 31, 2018
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
$
9.4
$
25.6
4.3
25.1
64.4
$
$
(8.8) $
(22.8)
(0.7)
(22.4)
(54.7) $
0.6
2.8
3.6
2.7
9.7
$
9.7
$
25.6
4.4
24.9
64.6
$
$
(9.1) $
(21.7)
(0.6)
(21.8)
(53.2) $
0.6
3.9
3.8
3.1
11.4
For the Year Ended December 31,
2019
2018
2017
$
1.8
$
1.8
$
1.8
Estimated aggregate intangible asset amortization expense (in millions) for each of the next five years is as follows:
2020
2021
2022
2023
2024
$
1.4
1.3
1.3
0.8
0.6
F-33
NOTE J – 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 price risk 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 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. 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. The Company’s derivative financial
instruments are categorized under the ASC 820 hierarchy; see Note A - “Basis of Presentation” for an explanation of the hierarchy.
Foreign Exchange Contracts
The Company enters into foreign exchange contracts to manage 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. Foreign exchange contracts outstanding as of December 31,
2019 mature on or before December 31, 2020. At December 31, 2019 and 2018, the Company had $233.0 million and $368.2
million notional amount, respectively, of foreign exchange contracts outstanding that were designated as cash flow hedge contracts.
For effective hedging instruments, 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 recognized assets and liabilities. The Company had $121.2 million
and $107.8 million notional amount of foreign exchange contracts outstanding that were not designated as hedging instruments
at December 31, 2019 and 2018, 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 designated as cash flow hedging instruments include cross currency and commodity swaps. The outstanding
notional amount of commodity swaps was $7.0 million at December 31, 2019. There were no cross currency swaps outstanding
at December 31, 2019. The outstanding notional amount of cross currency and commodity swaps was $45.9 million and $11.2
million , respectively, at December 31, 2018. The Company uses cross currency swaps to mitigate its exposure to changes in
foreign currency exchange rates and commodity swaps to mitigate price risk for hot rolled coil steel. Fair values of cross currency
swaps are based on the present value of future cash payments and receipts. Fair values of commodity swaps are based on observable
market data for similar assets and liabilities. Changes in the fair value of cross currency and commodity 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 commodity swaps are reclassified to COGS
in the Consolidated Statement of Income (Loss) when the hedged transaction affects earnings.
Other derivatives not designated as hedging instruments include a debt conversion feature on a convertible promissory note held
by the Company for which changes in fair value are recorded in Other income (expense) - net in the Consolidated Statement of
Income (Loss).
F-34
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):
Instrument (1)
Balance Sheet Account
Foreign exchange contracts Other current assets
Cross currency swaps
Other current assets
Debt conversion feature
Other assets
Foreign exchange contracts Other current liabilities
Commodity swaps
Other current liabilities
Cross currency swaps
Other non-current liabilities
Net derivative asset (liability)
(1) Categorized as Level 2 under the ASC 820 Fair Value Hierarchy.
$
$
$
December 31,
2019
December 31,
2018
Derivatives
designated as
hedges
Derivatives not
designated as
hedges
Derivatives
designated as
hedges
Derivatives not
designated as
hedges
4.1 $
—
—
(3.9) $
—
—
0.2 $
— $
—
—
— $
—
—
— $
2.9 $
0.8
—
(5.0) $
(1.1)
(3.0)
(5.4) $
0.2
—
0.5
—
—
—
0.7
The following tables provide the effect of derivative instruments that are designated as hedges in AOCI (in millions):
Gain (Loss) Recognized on
Derivatives in OCI, net of tax
Year Ended December 31,
Gain (Loss) Reclassified from
AOCI into Income
Year Ended December 31,
Instrument
2019
2018
Income Statement Account
2019
2018
Foreign exchange contracts
$
2.7 $
(5.4) Cost of goods sold
Commodity swaps
Cross currency swaps
0.3
0.6
(1.2) Cost of goods sold
0.1 Other income (expense) - net
Total
$
3.6 $
(6.5)
Total
$
$
(5.5) $
(2.8)
1.1
(7.2) $
(1.4)
(0.2)
2.1
0.5
Gain (Loss) Recognized on Derivatives in OCI, net of tax:
Instrument
Foreign exchange contracts
Cross currency swaps
Total
Gain (Loss) Reclassified from AOCI into Income (Loss) (Effective):
Income Statement Account
Cost of goods sold
Other income (expense) – net
Total
Year Ended
December 31, 2017
$
$
5.4
(0.9)
4.5
Year Ended
December 31, 2017
$
$
1.5
(3.1)
(1.6)
F-35
The following tables provide the effect of derivative instruments that are designated as hedges in the Consolidated Statement of
Income (Loss) (in millions):
Classification and amount of Gain or Loss
Recognized in Income
Cost of goods sold
Other income (expense) -
net
Year Ended December 31,
2019
2018
2019
2018
Income Statement Accounts in which effects of cash flow hedges are recorded $ (3,465.3) $ (3,555.3) $
Gain (Loss) Reclassified from AOCI into Income (Loss):
(6.1) $
(60.6)
Foreign exchange contracts
Commodity swaps
Cross currency swaps
Total
(5.5)
(2.8)
—
(8.3) $
(1.4)
(0.2)
—
(1.6) $
—
—
1.1
1.1 $
—
—
2.1
2.1
$
Gain (Loss) Recognized on Derivatives (Ineffective) in Income (Loss):
December 31, 2017
Income Statement Account
Cost of goods sold
Other income (expense) – net
Total
$
$
1.2
(0.1)
1.1
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 Statement of Income (Loss) (in millions):
Instrument
Foreign exchange contracts
Debt conversion feature
Total
Income Statement Account
2019
2018
2017
Year Ended December 31,
Other income (expense) – net
Other income (expense) – net
$
$
$
(0.2) $
(0.5) $
(0.7) $
(0.1) $
(0.9) $
(1.0) $
(1.1)
0.4
(0.7)
In the Consolidated Statement of Income (Loss), the Company records hedging activity related to foreign exchange contracts,
cross currency and commodity swaps, and the debt conversion feature 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 derivative financial instruments are major financial institutions and commodity trading companies
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 N - “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, 2019, it is estimated that $0.8 million of losses are expected to be reclassified
into earnings in the next twelve months.
F-36
NOTE K – LONG-TERM OBLIGATIONS
Long-term debt is summarized as follows (in millions):
5-5/8% Senior Notes due February 1, 2025, net of unamortized debt issuance costs of $7.5 and
$8.9 at December 31, 2019 and 2018, respectively
$
592.5
$
591.1
December 31,
2019
2018
2017 Credit Agreement – term debt due January 31, 2024 (“Original Term Loan”, as defined
below), net of unamortized debt issuance costs of $4.0 and $5.0 at December 31, 2019 and
2018, respectively
2017 Credit Agreement – term debt due January 31, 2024 (“2019 Term Loan”, as defined
below), net of unamortized debt issuance costs of $2.1 at December 31, 2019
2017 Credit Agreement – revolver
Finance lease obligations
Other
Total debt
Less: Current portion of long-term debt
Long-term debt, less current portion
2017 Credit Agreement
383.8
195.6
—
3.7
0.1
386.4
—
237.0
—
0.2
1,175.7
(6.9)
1,168.8
$
1,214.7
(4.1)
1,210.6
$
On January 31, 2017, the Company entered into a credit agreement (as amended, the “2017 Credit Agreement”) with the lenders
and issuing banks party thereto and Credit Suisse AG, Cayman Islands Branch (“CSAG”), as administrative agent and collateral
agent. The 2017 Credit Agreement includes (i) a $600 million revolving line of credit (the “Revolver”) and (ii) senior secured
term loans totaling $600 million that will mature on January 31, 2024 (the “Term Loans”); both are further described below. In
connection with the 2017 Credit Agreement, the Company terminated its previous credit agreement with the lenders party thereto
and CSAG, as administrative agent and collateral agent and related agreements and documents (the “2014 Credit Agreement”).
The 2017 Credit Agreement contains a $400 million senior secured term loan (the “Original Term Loan”). 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 Original Term Loan by 25 basis points. On February 28, 2018, the Company entered into an
Incremental Assumption Agreement and Amendment No. 2 (“Amendment No. 2”) to the 2017 Credit Agreement which lowered
the interest rate on the Original Term Loan by an additional 25 basis points. The Original Term Loan portion of the 2017 Credit
Agreement bears interest at a rate of London Interbank Offered Rate (“LIBOR”) plus 2.00% with a 0.75% LIBOR floor. On
March 7, 2019, the Company entered into an Incremental Assumption Agreement and Amendment No. 3 (“Amendment No. 3”)
to the 2017 Credit Agreement. Amendment No. 3 provided the Company with an additional term loan (the “2019 Term Loan”)
under the 2017 Credit Agreement in the amount of $200 million. The 2019 Term Loan portion of the 2017 Credit Agreement
bears interest at a rate of LIBOR plus 2.75% with a 0.75% LIBOR floor.
On April 10, 2018, the Company entered into an Incremental Revolving Credit Assumption Agreement to the 2017 Credit Agreement
which increased the size of the revolving line of credit from $450 million to $600 million available through January 31, 2022.
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. The Company was in compliance with the covenants
contained in the 2017 Credit Agreement as of December 31, 2019.
F-37
During the years ended December 31, 2018 and 2017, the Company recorded a loss on early extinguishment of debt related to
Amendment No. 2 to the 2017 Credit Agreement of approximately $0.7 million and $0.7 million, respectively.
As of December 31, 2019 and 2018, the Company had, $585.5 million and $391.4 million, net of discount, respectively, in Term
Loans outstanding under the 2017 Credit Agreement. The weighted average interest rate on the Term Loans at December 31, 2019
and 2018 was 4.10% and 4.50%, respectively. The Company had no revolving credit amounts outstanding as of December 31,
2019 and $237.0 million outstanding as of December 31, 2018. The weighted average interest rate on the revolving credit amounts
at December 31, 2018 was 5.98%.
The Company issues letters of credit that generally serve as collateral for certain liabilities included in the Consolidated Balance
Sheet and guaranteeing the Company’s performance under contracts. Letters of credit can be issued under two facilities provided
in the 2017 Credit Agreement and via bilateral arrangements outside the 2017 Credit Agreement.
The 2017 Credit Agreement incorporates secured facilities for issuance of letters of credit up to $400 million (the “$400 Million
Facility”). Letters of credit issued under the $400 Million Facility decrease availability under the Revolver. The 2017 Credit
Agreement also permits the Company to have additional secured facilities for the issuance of letters of credit up to $300 million
(the “$300 Million Facility”). Letters of credit issued under the $300 Million Facility do not decrease availability under the
Revolver.
The Company also has bilateral arrangements to issue letters of credit with various other financial institutions (the “Bilateral
Arrangements”). The Bilateral Arrangements are not secured under the 2017 Credit Agreement and do not decrease availability
under the Revolver.
Letters of credit outstanding (in millions):
December 31, 2019
December 31, 2018
$400 Million Facility
$300 Million Facility
Bilateral Arrangements
Total
Continuing
Operations
$
— $
34.8
45.3
80.1
$
$
Discontinued
Operations
Continuing
Operations
Discontinued
Operations
Total
Total
— $ — $
34.8
—
—
45.3
— $ 80.1
$
— $
33.4
32.0
65.4
$
— $ —
33.4
—
42.4
10.4
$ 75.8
10.4
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 lenders, granting security and guarantees to the 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 August 13, 2014 the Company entered into a credit agreement (as amended, the “2014 Credit Agreement”), with the lenders
party thereto and CSAG, as administrative agent and collateral agent. 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.
On January 31, 2017, in connection with the 2017 Credit Agreement, the Company terminated its 2014 Credit Agreement and
related agreements and documents.
During the year ended December 31, 2017, the Company recorded a loss on early extinguishment of debt related to its 2014 Credit
Agreement of $8.2 million.
F-38
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.
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. 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.
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 its MHPS business, was used: (i) to complete a tender offer for up to $550.0 million of its 6% 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 its 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.
Schedule of Debt Maturities
Scheduled annual maturities of the principal portion of long-term debt outstanding at December 31, 2019 in the successive five-
year period and thereafter are summarized below. Amounts shown are exclusive of minimum lease payments for capital lease
obligations (in millions):
2020
2021
2022
2023
2024
Thereafter
Total Debt
Less: Unamortized debt issuance costs
Net debt
$
$
$
6.1
5.5
5.5
5.5
561.4
601.5
1,185.5
(13.5)
1,172.0
F-39
Fair Value of Debt
Based on indicative price quotations from financial institutions multiplied by the amount recorded on the Company’s Consolidated
Balance Sheet (“Book Value”), the Company estimates the fair values (“FV”) of its debt set forth below as of December 31, 2019
and 2018, as follows (in millions, except for quotes):
2019
5-5/8% Notes
2017 Credit Agreement - Original Term Loan (net of discount)
2017 Credit Agreement - 2019 Term Loan (net of discount)
5-5/8% Notes
2017 Credit Agreement - Original Term Loan (net of discount)
2018
Book Value
600.0
387.8
197.7
Book Value
600.0
391.4
$
$
$
$
$
$
$
$
$
$
Quote
1.03375
1.00656
1.00938
Quote
0.93250
0.96750
$
$
$
$
$
FV
FV
620
390
200
560
379
The fair value of debt reported in the table above is based on price quotations on the debt instrument in an active market and
therefore is categorized under Level 1 of the ASC 820 hierarchy. See Note A – “Basis of Presentation” for an explanation of ASC
820 hierarchy. The Company believes that the carrying value of its other borrowings, including amounts outstanding, if any, for
the revolving credit line under the 2017 Credit Agreement approximate fair market value based on maturities for debt of similar
terms. Fair value of these other borrowings are categorized under Level 2 of the ASC 820 hierarchy.
The Company paid $70.9 million, $57.5 million and $59.2 million of interest in 2019, 2018 and 2017, respectively.
NOTE L – LEASES
Terex has operating leases for real property, vehicles and office and industrial equipment, generally expiring over terms from 1
to 15 years. Many of the leases held by Terex include options to extend or terminate the lease.
Real property leases are used for office, administrative and industrial purposes. The base terms of these leases typically expire
between 2 and 6 years, with options to renew between 1 and 15 years. Most of our renewal options are linked to market conditions
and Terex cannot estimate how existing renewal options will affect the monthly payments. Residual value guarantees are not
material.
The vehicle leases mainly include cars and trucks. Term length for these leases typically varies between 1 and 7 years.
Office and industrial equipment leases primarily include machinery used for conducting business at office locations and
manufacturing sites worldwide. Term length for these leases typically varies between 1 and 6 years.
F-40
Operating Leases
Operating lease cost consists of the following (in millions):
Operating lease cost
Variable lease cost
Short-term lease cost
Total operating lease costs
Year Ended
December 31, 2019
$
$
33.8
6.7
5.0
45.5
Variable lease costs correspond to future period lease payments which are determined at fair market value at determined points
in time. Operating lease obligations consist primarily of commitments to rent real properties.
Supplemental balance sheet information related to leases (in millions, except lease term and discount rate):
Operating lease right-of-use assets included within Other assets
Current maturities of operating leases included within Other current liabilities
Non-current operating leases included within Other liabilities
Total operating lease liabilities
Weighted average discount rate for operating leases
Weighted average remaining operating lease term in years
Maturities of operating lease liabilities (in millions):
Years Ending December 31,
2020
2021
2022
2023
2024
Thereafter
Total undiscounted operating lease payments
Less: Imputed interest
Total operating lease liabilities
Less: Current maturities of operating lease liabilities
Non-current operating lease liabilities
Supplemental cash flow and other information related to operating leases (in millions):
Cash paid for amounts included in the measurement of operating lease liabilities
Operating right-of-use assets obtained in exchange for operating lease liabilities
December 31, 2019
122.9
25.9
104.7
130.6
5.58%
6
December 31, 2019
31.3
27.8
24.8
21.9
16.9
27.6
150.3
(19.7)
130.6
(25.9)
104.7
Year Ended
December 31, 2019
36.6
22.9
$
$
$
$
$
$
$
F-41
Disclosures related to periods prior to adoption of the Lease Standard
Future minimum noncancellable operating lease payments at December 31, 2018 were as follows (in millions):
2019
2020
2021
2022
2023
Thereafter
Total minimum obligations
$
$
30.5
25.8
22.9
18.7
16.4
37.0
151.3
Most of the Company’s operating leases provide the Company with the option to renew the leases for varying periods after the
initial lease terms. These renewal options enable the Company to renew the leases based upon the fair rental values at the date of
expiration of the initial lease. Total rental expense under operating leases was $37.5 million and $36.5 million in 2018 and 2017,
respectively.
F-42
NOTE M – RETIREMENT PLANS AND OTHER BENEFITS
U.S. Pension Plan
The Company maintains a nonqualified Supplemental Executive Retirement Plan (“U.S. SERP”). The U.S. SERP provides
retirement benefits to certain former U.S. employees of the Company. Generally, the U.S. 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 U.S. SERP is unfunded and
participation in the U.S. SERP has been frozen. There is a defined contribution plan for certain senior executives of the Company.
The Company maintained one qualified defined benefit pension plan covering certain domestic employees (the “Terex Plan”).
Participation in the Terex Plan for all employees was frozen. Participants were credited with post-freeze service for purposes of
determining vesting and retirement eligibility only. The benefits covering salaried employees were based primarily on years of
service and employees’ qualifying compensation during the final years of employment. The benefits covering bargaining unit
employees were based primarily on years of service and a flat dollar amount per year of service. The Company’s policy was
generally to fund the Terex Plan based on the requirements of the Employee Retirement Income Security Act of 1974 (“ERISA”).
Plan assets consisted primarily of common stocks, bonds and short-term cash equivalent funds. In November 2018, the Company
completed the termination of the Terex Plan as further described below. There were no minimum contribution requirements for
the 2018 and 2017 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 trustee. 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. In Italy, there are mandatory termination
indemnity plans providing a benefit that is 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. Charges recognized for these
savings plans were $20.8 million, $21.9 million and $16.1 million for the years ended December 31, 2019, 2018 and 2017,
respectively. For the years ended December 31, 2019, 2018 and 2017, Company matching contributions to tax deferred savings
plans were invested at the direction of plan participants.
F-43
Information regarding the Company’s plans, including U.S. SERP, was as follows (in millions, except percent values):
U.S. Pension Benefits
Non-U.S. Pension Benefits
Other Benefits
2019
2018
2019
2018
2019
2018
Accumulated benefit obligation at end of year
Change in benefit obligation:
Benefit obligation at beginning of year
$
$
43.1
39.1
$
$
$
$
151.1
138.4
$
$
136.6
154.6
$
Service cost
Interest cost
Transfer from held for sale
Settlements
Curtailments
Plan amendments
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
Transfer to held for sale
Foreign exchange effect
Fair value of plan assets at end of year
Funded status
Amounts recognized in the statement of financial
position are included in:
Other current liabilities
Other 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
Guaranteed Minimum Pension (“GMP”) Payments
$
$
$
$
$
35.1
128.0
0.4
4.3
—
(77.5)
—
—
(8.2)
(7.9)
—
39.1
90.4
(4.7)
(77.5)
6.0
—
(7.9)
(6.3)
—
0.2
1.6
—
—
—
—
3.4
(1.2)
—
43.1
—
—
—
1.2
—
(1.2)
—
—
1.9
3.6
0.1
(2.4)
(0.3)
—
12.6
(5.8)
4.9
153.0
107.5
10.9
(2.4)
7.1
0.5
(5.8)
—
4.3
—
(43.1) $
—
(39.1) $
122.1
(30.9) $
1.8
3.4
—
(2.7)
—
2.6
(6.5)
(6.5)
(8.3)
138.4
121.2
(4.1)
(2.7)
5.8
0.5
(6.5)
—
(6.7)
107.5
(30.9) $
0.9
—
0.1
2.1
—
—
—
(0.1)
(0.2)
—
2.8
—
—
—
0.2
—
(0.2)
—
—
$
1.1
—
—
—
—
—
—
(0.2)
—
—
0.9
—
—
—
—
—
—
—
—
—
(2.8) $
—
(0.9)
$
$
$
2.4
40.7
43.1
3.1
—
1.3
37.8
39.1
$
$
0.6
30.3
30.9
$
$
0.5
30.4
30.9
$
$
(0.9) $
—
48.3
$
61.3
$
2.6
2.7
$
$
$
0.3
2.5
2.8
0.4
—
3.1
$
(0.9) $
50.9
$
64.0
$
0.4
$
0.1
0.8
0.9
0.5
—
0.5
On October 26, 2018, the High Court of Justice in the United Kingdom ruled that Lloyds Bank plc was required to provide equal
benefits for men and women for GMP payments accrued after May 17, 1990 in pension plans liabilities. Inequalities arose from
statutory differences between men and women in both the earliest age from which a GMP is payable and the rates of the GMP
accrual. The Company estimated the cost of equalizing the GMP payments and increased its Non-U.S. pension benefit liability
by $2.6 million at December 31, 2018 for GMP payments. This was recorded as prior service costs for 2018 and amortization
began in 2019.
F-44
U.S. Pension Benefits
Non-U.S. Pension Benefits
Other Benefits
2019
2018
2017
2019
2018
2017
2019
2018
2017
Weighted-average assumptions as of
December 31:
Discount rate(1)
Expected return on plan assets
Rate of compensation increase(1)
3.31% 4.41% 3.78% 1.87% 2.67% 2.43% 3.10% 4.14% 3.58%
—%
—% 7.00% 4.40% 4.40% 4.43%
—% 3.75% 3.75% 0.17% 0.19% 0.14%
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.
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
2019
2018
2017
2019
2018
2017
2019
2018
2017
$ 0.2
$ 0.4
$ 0.6
$ 1.9
$ 1.8
$ 1.8
$ — $ — $ —
1.6
4.3
— (5.6)
0.1
—
(0.5)
2.6
— 50.5
(0.2)
—
$ 1.1
$ 52.3
5.1
(6.0)
0.1
3.3
3.6
(4.7)
0.1
1.5
3.4
(5.0)
—
1.4
3.9
(5.0)
—
1.4
—
0.6
— (0.7)
$ 2.3
$ 3.1
0.8
(0.4)
$ 2.0
1.5
(0.4)
$ 3.2
0.1
—
—
—
—
—
$ 0.1
—
—
—
—
—
—
— (1.3)
—
—
—
—
$ — $ (1.3)
Components of Net periodic cost other than the Service cost component are included in Other income (expense) - Net in the
Consolidated Statement of Comprehensive Income (Loss). The Service cost component is included in the same line item or items
as other compensation costs arising from services rendered by pertinent employees during the period.
Pension Settlements
In November 2018, the Company entered into a contract for a group annuity to transfer the obligation to pay the remaining
retirement benefits of all plan participants in the Terex Plan to an insurance company (the “Pension Annuitization”). The transfer
of $108.5 million ($31.0 million related to discontinued operations), in both plan obligations and plan assets was completed on
November 5, 2018. The Company contributed $4.7 million to the plan to facilitate the transaction, secure the remaining plan
obligations and take advantage of certain tax benefits. Prior to the transaction, the Terex Plan had approximately 2,600 participants.
As a result of the Pension Annuitization, the Company recorded a pretax non-cash settlement loss of $50.5 million (after tax $32.1
million) reflecting the accelerated recognition of unamortized losses in the Terex Plan as a result of the obligation that was settled.
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 the years ended December 31, 2019 and
2018, the Company settled $2.4 million and $2.7 million of Non-U.S. pension obligations, respectively. 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 $0.6 million and $0.8 million reflecting the accelerated recognition of unamortized losses in the plan proportionate to
the obligation that was settled in 2019 and 2018, respectively.
F-45
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
U.S. Pension Benefits
Non-U.S. Pension
Benefits
Other Benefits
2019
2018
2019
2018
2019
2018
$
$
3.4
0.6
—
—
—
—
$
4.7
(3.4)
(0.1)
—
(67.0)
—
$
6.4
(2.5)
(0.2)
(17.9)
(0.6)
1.6
0.9
(3.2)
2.5
—
(0.8)
(3.7)
$ (0.1) $
—
—
—
—
—
(0.3)
(0.1)
—
—
—
—
Total recognized in other comprehensive income (loss)
$
4.0
$ (65.8) $ (13.2) $ (4.3) $ (0.1) $
(0.4)
Amounts expected to be recognized as components of net periodic cost for the year
ending December 31, 2020:
Actuarial net loss
Prior service cost
Total amount expected to be recognized as components of net periodic cost for the
year ending December 31, 2020
U.S. Pension
Benefits
Non-U.S.
Pension
Benefits
Other
Benefits
$
$
— $
—
$
1.7
0.1
— $
1.8
$
—
—
—
For the Company’s plans, including the U.S. 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
2019
$ 43.1
2018
$ 39.1
2019
$ 153.0
2018
$ 138.4
$ 43.1
$ 35.1
$ 151.1
$ 136.6
$ — $ — $ 122.1
$ 107.5
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 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% and 76% of the portfolio at December 31, 2019 and 2018, respectively. 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% and 24% of the portfolio at December 31, 2019 and 2018, respectively.
Investments of the plans primarily include investments in companies from diversified industries with 87% invested internationally
and 13% invested in North America. The target investment allocations to support the Company’s investment strategy for 2020
are approximately 71% to 73% fixed income securities and approximately 27% to 29% equity securities, multi-asset investment
funds and real estate investments.
F-46
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. Fair value of investment funds is priced on the market value of underlying investments in the portfolio
and therefore categorized as Level 2 of the ASC 820 hierarchy. Fair value of group annuity insurance contracts is based on
techniques that require inputs that are both significant to the fair value measurement and unobservable and therefore categorized
as Level 3 of the ASC 820 hierarchy. Specifically, group annuity insurance contracts are valued at original buy in price adjusted
for changes in discount rates and other actuarial assumptions. 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, 2019 are as follows (in millions):
Cash, including money market funds
U.S. equities
Non-U.S. equities
Non-U.S. corporate bond funds
Non-U.S. governmental fixed income funds
Group annuity insurance contracts
Real estate
Other securities
Total investments measured at fair value
Cash, including money market funds
U.S. equities
Non-U.S. equities
Non-U.S. corporate bond funds
Non-U.S. governmental fixed income funds
Real estate
Other securities
Total investments measured at fair value
The fair value of the Company’s plan assets at December 31, 2018 are as follows (in millions):
Total
Non-U.S. Pension Plans
Level 1 Level 2
$
Total
$
2.3
16.1
14.1
2.8
25.2
35.5
3.8
22.3
$ 122.1
$
0.7
11.1
10.7
2.5
59.7
3.7
19.1
$ 107.5
$
$
Level 3
$ — $ —
—
—
—
—
35.5
—
—
35.5
16.1
14.1
2.8
25.2
—
3.8
22.3
$ 84.3
$
Level 3
$ — $ —
—
—
—
—
—
—
$ —
11.1
10.7
2.5
59.7
3.7
19.1
$ 106.8
2.3
—
—
—
—
—
—
—
2.3
0.7
—
—
—
—
—
—
0.7
Non-U.S. Pension Plans
Level 1 Level 2
$
Changes in fair value measurements of Level 3 investments during the year ended December 31, 2019 are as follows (in millions):
Balance at beginning of year
Transfers into Level 3
Balance at end of year
Non-U.S.
Pension Benefits
—
$
35.5
35.5
$
F-47
The Company plans to contribute approximately $2 million to its U.S. post-retirement plans and approximately $7 million to its
non-U.S. defined benefit pension plans in 2020. During the year ended December 31, 2019, the Company contributed $1.4 million
to its U.S. defined benefit pension plans and post-retirement plans and $7.1 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
2020
2021
2022
2023
2024
2025-2029
$
$
$
$
$
$
2.4
2.4
2.3
2.5
2.5
12.3
Non-U.S.
Pension Benefits
6.0
$
5.5
$
5.6
$
5.7
$
6.1
$
31.6
$
Other Benefits
0.4
$
0.3
$
0.3
$
0.3
$
0.2
$
0.8
$
For the other benefits, for measurement purposes, a 7.50% rate of increase in the per capita cost of covered health care benefits
was assumed for 2020, decreasing one-half percentage point per year until it reaches 4.50% for 2025 and thereafter. Assumed
health care cost trend rates may have a significant effect on the amounts reported for health care plans.
A one-percentage-point change in assumed health care cost trend rates would not have a material effect on total service and interest
cost components or post-retirement benefit obligation.
NOTE N – STOCKHOLDERS’ EQUITY
On December 31, 2019, there were 82.2 million shares of common stock issued and 70.4 million shares of common stock
outstanding. Of the 217.8 million unissued shares of common stock at that date, 2.4 million shares of common stock were reserved
for issuance for the vesting of restricted stock.
Common Stock in Treasury. The Company values treasury stock on an average cost basis. As of December 31, 2019, the Company
held 11.8 million shares of common stock in treasury totaling $406.8 million, which include 0.8 million shares held in a trust for
the benefit of the Company’s deferred compensation plan totaling $19.9 million.
On December 21, 2018, the Company retired 50.0 million shares of its common stock held in treasury. The shares were returned
to the status of authorized but unissued shares. As a result, the treasury stock balance decreased by $1,882.0 million. As a part of
the retirement, the Company reduced its common stock, Additional paid-in capital and Retained earnings balances by $(0.5)
million, $(549.2) million, and $(1,332.3) million, respectively.
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, 2019 and 2018, there were no shares of preferred stock outstanding.
Long-Term Incentive Plans. In May 2018, the stockholders approved the Terex Corporation 2018 Omnibus Incentive Plan (the
“2018 Plan”). The purpose of the 2018 Plan is to assist the Company in attracting and retaining selected individuals to serve as
employees, directors, officers, consultants and advisors of the Company and its subsidiaries and affiliates who will contribute to
the Company’s success and to achieve long-term objectives which will inure to the benefit of all stockholders of the Company
through the additional incentive inherent in the ownership of the common stock. The 2018 Plan authorizes the granting of (i)
options to purchase shares of common stock (“Shares”), (ii) stock appreciation rights, (iii) restricted stock awards, (iv) restricted
stock units, (v) other stock awards, (vi) cash awards and (vii) performance awards. The maximum number of Shares that may be
the subject of awards under the 2018 Plan is 1.2 million Shares, plus the number of Shares remaining available for issuance under
the Terex Corporation 2009 Omnibus Incentive Plan (the “2009 Plan”) that are not subject to outstanding awards as of the date
of stockholder approval, and the number of Shares subject to awards outstanding under the 2009 Plan as of such date but only to
the extent that such outstanding awards are forfeited, expire, or otherwise terminate without the issuance of such Shares. Under
the 2018 Plan, Shares covering restricted stock awards, restricted stock units and other stock awards shall only be counted as used
to the extent that they are actually issued. As of December 31, 2019, 2.3 million shares were available for grant under the 2018
Plan.
F-48
In May 2009, the stockholders approved 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, (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 was 8.0 million Shares plus the number of Shares remaining available for issuance under the Terex Corporation
2000 Incentive Plan and the 1996 Terex Corporation Long-Term Incentive Plan.
Under the 2018 and 2009 Plans, approximately 48% of outstanding awards are time-based and vest ratably on each of the first
three anniversary dates. Approximately 35% 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. Approximately 17% cliff vest and are
based on performance targets containing a market condition determined over a three-year period.
Fair value of restricted stock awards is based on the market price at the date of grant approval except for 0.4 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:
Grant date
Grant date
Grant date
Dividend yields
Expected historical volatility
Risk free interest rate
Expected life (in years)
Grant date fair value per share
March 12, 2019 March 8, 2018 March 2, 2017
1.00%
40.41%
2.38%
3
$41.57
1.01%
42.78%
1.55%
3
$36.48
1.31%
36.64%
2.40%
3
$38.77
The following table is a summary of restricted stock awards under all of the Company’s plans:
Nonvested at December 31, 2018
Granted
Vested
Canceled, expired or other
Nonvested at December 31, 2019
Restricted Stock
Awards
$
2,976,227
1,137,983
$
(1,432,294) $
(239,656) $
$
2,442,260
Weighted
Average Grant
Date Fair Value
34.32
33.84
30.82
32.76
35.53
As of December 31, 2019, unrecognized compensation costs related to restricted stock totaled approximately $37 million, which
will be expensed over a weighted average period of 1.7 years. The grant date weighted average fair value for restricted stock
awards during the years ended December 31, 2019, 2018 and 2017 was $33.84, $40.06 and $32.54, respectively. The total fair
value of shares vested for restricted stock awards was $44.1 million, $34.9 million and $36.0 million for the years ended
December 31, 2019, 2018 and 2017, respectively.
Tax benefits associated with stock-based compensation were $7.3 million, $4.6 million and $11.8 million for the years ended
December 31, 2019, 2018 and 2017, respectively. The excess tax benefit for all stock-based compensation is included in the
Consolidated Statement of Cash Flows as an operating cash activity.
F-49
Comprehensive Income (Loss). The following table reflects the accumulated balances of other comprehensive income (loss) (in
millions):
Balance at January 1, 2017
Current year change
Balance at December 31, 2017
Current year change
Balance at December 31, 2018
Current year change
Balance at December 31, 2019
Cumulative
Translation
Adjustment
$
(615.3) $
470.6
(144.7)
(80.9)
(225.6)
17.4
(208.2) $
$
Derivative
Hedging
Adjustment
Debt & Equity
Securities
Adjustment
Accumulated
Other
Comprehensive
Income (Loss)
Pension
Liability
Adjustment
$
(2.4) $
4.5
2.1
(6.5)
(4.4)
3.6
(0.8) $
0.6
3.7
4.3
(3.5)
0.8
1.8
2.6
$
(162.3) $
61.1
(101.2)
45.6
(55.6)
4.5
(51.1) $
(779.4)
539.9
(239.5)
(45.3)
(284.8)
27.3
(257.5)
As of December 31, 2019, accumulated other comprehensive income (loss) 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 $7.6 million, $(0.3) million, $(0.1) million and $3.2 million, respectively.
Changes in Accumulated Other Comprehensive Income (Loss)
The table below presents changes in AOCI by component for the year ended December 31, 2019 and 2018. All amounts are net
of tax (in millions).
Year ended December 31, 2019
Year ended December 31, 2018
Beginning balance
Other comprehensive
income (loss) before
reclassifications
Amounts reclassified from
AOCI
Net other comprehensive
income (loss)
Other (4)
Ending balance
Derivative
Hedging
Adj.
Debt &
Equity
Securities
Adj.
Pension
Liability
Adj. (2)
CTA (1)
$(225.6) $
(4.4) $
Total
0.8 $ (55.6) $ (284.8) $(144.7) $
CTA
Derivative
Hedging
Adj.
Debt &
Equity
Securities
Adj.
Pension
Liability
Adj. (3)
Total
2.1 $
4.3 $(101.2) $(239.5)
(8.7)
(2.6)
1.8
(10.0)
(19.5)
(80.2)
(7.4)
(0.9)
(2.8)
(91.3)
26.1
17.4
—
6.2
3.6
—
$(208.2) $
(0.8) $
—
1.8
14.5
46.8
(0.7)
0.9
— 48.4
48.6
4.5
27.3
—
—
2.6 $ (51.1) $ (257.5) $(225.6) $
—
(80.9)
—
(6.5)
—
(4.4) $
45.6
(0.9)
(42.7)
(2.6)
(2.6)
—
0.8 $ (55.6) $(284.8)
(1) Reclassifications relate to $26.1 million of losses (net of $2.8 million of tax benefits) reclassified from AOCI to Gain (loss) on disposition of
discontinued operations - net of tax in connection with the sale of Demag.
(2) Reclassifications primarily relate to $12.6 million of losses (net of $5.3 million of tax benefits) reclassified from AOCI to Gain (loss) on
disposition of discontinued operations - net of tax in connection with the sale of Demag.
(3) Reclassifications primarily relate to $42.6 million of losses (net of $24.4 million of tax benefits) reclassified from AOCI to Other income
(expense) - net in connection with the settlement of U.S. defined benefit pension obligations.
(4) Other relates to amounts reclassified from AOCI to Retained Earnings in connection with the adoption of ASU 2016-01 and 2016-16.
Share Repurchases and Dividends
Since February 2015, Terex’s Board of Directors authorized the Company to repurchase up to $1,680 million of its outstanding
shares of common stock of which approximately $131 million of these authorizations was utilized prior to January 1, 2017. The
Company repurchased 0.2 million shares for $4.9 million, 11.4 million shares for $425.0 million and 25.7 million shares for
$923.7 million under these programs during the years ended December 31, 2019, 2018 and 2017, respectively.
Terex’s Board of Directors declared a dividend of $0.11, $0.10 and $0.08 per share in each quarter of 2019, 2018 and 2017,
respectively, which were paid to the Company’s shareholders. In February 2020, Terex’s Board of Directors declared a dividend
of $0.12 per share which will be paid on March 19, 2020.
F-50
NOTE O – 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, which generally covered the time period from February 2008 to February 2009, alleged violations of federal
securities laws and Delaware law claiming, 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.
With respect to these claims, the Company believes that it acted at all times in compliance with all applicable laws and, without
any admission of wrongdoing or liability, has settled the stockholder derivative and securities lawsuits. The settlement amounts
with respect to each lawsuit were covered by the Company’s insurance policies and did not have a material effect on the Company’s
financial results. As part of the stockholder derivative settlement, the Company has agreed to make certain amendments to its
corporate governance procedures.
Terex Latin América Equipamentos Ltda ICMS Proceedings
Terex Latin America Equipamentos Ltda (“TLA”) imports Terex products into Brazil through the state of Espirito Santo to its
facility in Sao Paulo. For the 2004 through March 2009 period TLA used a third-party trading company, SAB, as an agent to
process the importation of Terex products. TLA properly paid the Espirito Santo ICMS tax (Brazilian state value-added tax) to
SAB for payment to Espirito Santo, which would produce an ICMS credit to be used against imposition of Sao Paolo ICMS tax.
SAB went into bankruptcy and may not have actually remitted to Espirito Santo the ICMS tax amounts paid to it by TLA. The
Brazilian state of Sao Paulo challenged the credit against Sao Paolo ICMS that TLA claimed and assessed unpaid ICMS and related
interest in the amount of approximately BRL 102 million ($24 million). TLA challenged the claim of Sao Paulo and learned in
October 2019 that the Sao Paulo claim has survived the administrative tribunal process. TLA anticipates that it will receive notice
for an amount due from Sao Paulo and expects to protest the Sao Paulo claim in litigation which is likely to commence in 2020.
While the Company believes the position of the state of Sao Paulo is without merit and continues to vigorously oppose it, no
assurance can be given as to the final resolution of the ICMS litigation or that TLA will not ultimately be required to pay ICMS
and interest to the state of Sao Paulo.
F-51
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. These may require the Company to: (i) pay-off the
customer’s obligations, (ii) assume the customer’s payments or (iii) pay a predetermined percentage of the customer’s outstanding
obligation. The current amount of the maximum potential liability under these credit guarantees cannot be reasonably estimated
due to limited availability of the unique facts and circumstances of each arrangement, such as customer delinquency and whether
changes have been made to the structure of the contractual obligation between the funder and customer.
For credit guarantees outstanding as of December 31, 2019 and 2018, the maximum exposure determined at inception was $78.4
million and $59.2 million ($20.3 million related to discontinued operations), respectively. 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.
F-52
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, 2019
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, 2018
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, 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
$
$
$
$
$
$
9.1
21.6
49.8
114.3
194.8
9.3
22.2
53.4
134.6
219.5
9.4
25.2
56.3
148.1
239.0
$
$
$
$
$
$
6.4
—
4.1
(4.1)
6.4
$
$
$
2.4
0.2
6.5
(15.8)
(6.7) $
(0.6) $
(0.3)
3.1
(3.2)
(1.0) $
— $
(0.8)
(1.7)
(4.5)
(7.0) $
0.4
—
11.2
0.3
11.9
$
$
$
0.2
1.5
6.8
(13.8)
(5.3) $
(5.0) $
—
(3.8)
—
(8.8) $
(2.6) $
—
(8.4)
—
(11.0) $
(0.7) $
(4.5)
(20.9)
—
(26.1) $
9.9
21.3
53.2
107.0
191.4
9.1
21.6
49.8
114.3
194.8
9.3
22.2
53.4
134.6
219.5
(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-53
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 14, 2020
/s/ John L. Garrison, Jr.
John L. Garrison, Jr.
Chairman 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 14, 2020
/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,
2019 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.
Chairman and Chief Executive Officer
February 14, 2020
/s/ John D. Sheehan
John D. Sheehan
Senior Vice President and
Chief Financial Officer
February 14, 2020
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.
This page intentionally left blank
Shareholder Information
BOARD OF DIRECTORS
JOHN L. GARRISON, JR.
Chairman, President and
Chief Executive Officer
DAVID A. SACHS
Partner, Ares Management, LP
Lead Director, Terex Corporation
PAULA H. J. CHOLMONDELEY
Private Consultant, Strategic Planning
DONALD DEFOSSET
Chairman, President and
Chief Executive Officer (retired)
Walter Industries, Inc.
THOMAS J. HANSEN
Vice Chairman (retired)
Illinois Tool Works, Inc.
DR. RAIMUND KLINKNER
Managing Partner
IMX Institute for Manufacturing
Excellence GmbH
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
6201 15th Avenue
Brooklyn, NY 11219
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 help@astfinancial.com.
ANDRA RUSH
President and Chief Executive Officer
Rush Group
SCOTT W. WINE
Chairman and Chief Executive Officer
Polaris Industries, Inc.
CORPORATE LEADERSHIP
JOHN L. GARRISON, JR.
Chairman, President and
Chief Executive Officer
JOHN D. SHEEHAN
Senior Vice President, Chief Financial Officer
STACEY B. BABSON-SMITH
Vice President, Chief Ethics and
Compliance Officer
MATTHEW S. FEARON
President, Terex Aerial Work Platforms
AMY J. GEORGE
Senior Vice President, Chief Human
Resources Officer
KIERAN HEGARTY
President, Terex Materials Processing
SCOTT J. POSNER
Senior Vice President, General Counsel
and Secretary
BORIS SCHOEPPLEIN
President, Terex Parts & Services
RANDY S. WILLIAMSON
Vice President, Corporate Development and
Chief Strategy Officer
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 ($):
2019
Q1
Q2
Q3
Q4
HIGH
38.57
34.67
33.49 31.28
LOW
2018
25.81
26.59
22.91 22.84
Q1
Q2
Q3
Q4
HIGH
50.17
43.30
45.47 41.36
LOW
35.77
35.30
36.26 25.47
ANNUAL REPORT/FORM 10-K
Copies of the Annual Report/Form 10-K
are available by downloading from
https://investors.terex.com.
ANNUAL MEETING
A virtual Annual Meeting of Shareholders
will be held at 10 a.m. (Eastern Time) on
May 14, 2020.
This Annual Report generally speaks as of December 31, 2019 and excludes discontinued operations. Discontinued operations primarily relate to the Demag® mobile
cranes business and mobile crane product lines manufactured in our Oklahoma City facility. 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 2020 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