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EX-32 - EXHIBIT 32 CEO AND CFO CERTFICATION - TEREX CORPtex3312017-ex32.htm
EX-31.2 - EXHIBIT 31.2 CFO CERTIFICATION - TEREX CORPtex3312017-ex312.htm
EX-31.1 - EXHIBIT 31.1 CEO CERTIFICATION - TEREX CORPtex3312017-ex311.htm
EX-12 - EXHIBIT 12 EARNINGS TO FIXED CHARGE - TEREX CORPtex3312017-ex12.htm
EX-10.13 - EXHIBIT 10.13 SUPPLEMENTAL 1 TO GCA - TEREX CORPtex3312017-ex1013.htm
EX-10.10 - EXHIBIT 10.10 FORM OF RSA PERF - TEREX CORPtex3312017-ex1010.htm
EX-10.9 - EXHIBIT 10.9 FORM OF RSA TIME BASED - TEREX CORPtex3312017-ex109.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

F O R M   10 – Q

(Mark One)

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2017

o
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)
 
34-1531521
(IRS Employer Identification No.)

200 Nyala Farm Road, Westport, Connecticut 06880
(Address of principal executive offices)

(203) 222-7170
(Registrant’s telephone number, including area code)

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
x
 
NO
o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES
x
 
NO
o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting 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 x
 
Accelerated filer o
 
 Non-accelerated filer o
Smaller reporting company o
 
Emerging growth company o
 
 

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. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES
o
 
NO
x

Number of outstanding shares of common stock: 97.6 million as of April 28, 2017.
The Exhibit Index begins on page 52.






TEREX CORPORATION AND SUBSIDIARIES

GENERAL

This Quarterly Report on Form 10-Q filed by Terex Corporation generally speaks as of March 31, 2017 unless specifically noted otherwise. Unless otherwise indicated, Terex Corporation, together with its consolidated subsidiaries, is hereinafter referred to as “Terex,” the “Registrant,” “us,” “we,” “our” or the “Company.”

Forward-Looking Information

Certain information in this Quarterly 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 Quarterly Report or in documents incorporated herein by reference, the words “may,” “expects,” “should,” “intends,” “anticipates,” “believes,” “plans,” “projects,” “estimates” and the negatives thereof and analogous or similar expressions are intended to identify forward-looking statements. However, the absence of these words does not mean that the statement is not forward-looking. We have based these forward-looking statements on current expectations and projections about future events. These statements are not guarantees of future performance. Such statements are inherently subject to a variety of risks and uncertainties that could cause actual results to differ materially from those reflected in such forward-looking statements. Such risks and uncertainties, many of which are beyond our control, include, among others:

our business is cyclical and weak general economic conditions affect the sales of our products and financial results;
our need to comply with restrictive covenants contained in our debt agreements;
our ability to generate sufficient cash flow to service our debt obligations and operate our business;
our ability to access the capital markets to raise funds and provide liquidity;
our business is sensitive to government spending;
our business is highly competitive and is affected by our cost structure, pricing, product initiatives and other actions taken by competitors;
our retention of key management personnel;
the financial condition of suppliers and customers, and their continued access to capital;
our providing financing and credit support for some of our customers;
we may experience losses in excess of recorded reserves;
the carrying value of our goodwill could become impaired;
our ability to obtain parts and components from suppliers on a timely basis at competitive prices;
our business is global and subject to changes in exchange rates between currencies, commodity price changes, regional economic conditions and trade restrictions;
our operations are subject to a number of potential risks that arise from operating a multinational business, including compliance with changing regulatory environments, the Foreign Corrupt Practices Act and other similar laws, and political instability;
a material disruption to one of our significant facilities;
possible work stoppages and other labor matters;
compliance with changing laws and regulations, particularly environmental and tax laws and regulations;
litigation, product liability claims, intellectual property claims, class action lawsuits and other liabilities;
our ability to comply with an injunction and related obligations imposed by the United States Securities and Exchange Commission (“SEC”);
disruption or breach in our information technology systems; and
other factors.

Actual events or our actual future results may differ materially from any forward-looking statement due to these and other risks, uncertainties and significant factors. The forward-looking statements contained herein speak only as of the date of this Quarterly 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 Quarterly 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.




 
 
Page No.
 
 
 
 
 
 
 
TEREX CORPORATION AND SUBSIDIARIES
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

3



PART I.
FINANCIAL INFORMATION
ITEM 1.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(unaudited)
(in millions, except per share data)
 
Three Months Ended
March 31,
 
2017
 
2016
Net sales
$
1,006.9

 
$
1,114.3

Cost of goods sold
(854.6
)
 
(932.6
)
Gross profit
152.3

 
181.7

Selling, general and administrative expenses
(158.6
)
 
(170.4
)
Income (loss) from operations
(6.3
)
 
11.3

Other income (expense)
 
 
 
Interest income
1.8

 
1.2

Interest expense
(21.4
)
 
(24.7
)
Loss on early extinguishment of debt
(45.4
)
 

Other income (expense) – net 
(17.3
)
 
(5.9
)
Income (loss) from continuing operations before income taxes
(88.6
)
 
(18.1
)
(Provision for) benefit from income taxes
28.3

 
(3.9
)
Income (loss) from continuing operations
(60.3
)
 
(22.0
)
Income (loss) from discontinued operations – net of tax

 
(52.4
)
Gain (loss) on disposition of discontinued operations – net of tax
55.7

 
3.4

Net income (loss)
(4.6
)
 
(71.0
)
Net loss (income) from discontinued operations attributable to noncontrolling interest

 
0.2

Net income (loss) attributable to Terex Corporation
$
(4.6
)
 
$
(70.8
)
Amounts attributable to Terex Corporation Common Stockholders:
 
 
 
Income (loss) from continuing operations
$
(60.3
)
 
$
(22.0
)
Income (loss) from discontinued operations – net of tax

 
(52.2
)
Gain (loss) on disposition of discontinued operations – net of tax
55.7

 
3.4

Net income (loss) attributable to Terex Corporation
$
(4.6
)
 
$
(70.8
)
Basic Earnings (Loss) per Share Attributable to Terex Corporation Common Stockholders:
 
 
 
Income (loss) from continuing operations
$
(0.57
)
 
$
(0.20
)
Income (loss) from discontinued operations – net of tax

 
(0.48
)
Gain (loss) on disposition of discontinued operations – net of tax
0.53

 
0.03

Net income (loss) attributable to Terex Corporation
$
(0.04
)
 
$
(0.65
)
Diluted Earnings (Loss) per Share Attributable to Terex Corporation Common Stockholders:
 
 
 
Income (loss) from continuing operations
$
(0.57
)
 
$
(0.20
)
Income (loss) from discontinued operations – net of tax

 
(0.48
)
Gain (loss) on disposition of discontinued operations – net of tax
0.53

 
0.03

Net income (loss) attributable to Terex Corporation
$
(0.04
)
 
$
(0.65
)
Weighted average number of shares outstanding in per share calculation
 
 
 
Basic
105.2

 
108.8

Diluted
105.2

 
108.8

 
 
 
 
Comprehensive income (loss)
$
423.5

 
$
(12.6
)
Comprehensive loss (income) attributable to noncontrolling interest

 
0.1

Comprehensive income (loss) attributable to Terex Corporation
$
423.5

 
$
(12.5
)
 
 
 
 
Dividends declared per common share
$
0.08

 
$
0.07


The accompanying notes are an integral part of these condensed consolidated financial statements.

4



TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited)
(in millions, except par value)
 
March 31,
2017
 
December 31,
2016
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
813.9

 
$
428.5

Trade receivables (net of allowance of $16.1 and $16.5 at March 31, 2017 and December 31, 2016, respectively)
651.0

 
512.5

Inventories
909.2

 
853.8

Prepaid and other current assets
195.8

 
172.8

Current assets held for sale
27.8

 
732.9

Total current assets
2,597.7

 
2,700.5

Non-current assets
 
 
 

Property, plant and equipment – net
302.7

 
304.6

Goodwill
262.1

 
259.7

Intangible assets – net
18.0

 
18.4

Investment carried at fair value
431.0

 

Other assets
549.2

 
552.3

Non-current assets held for sale
2.4

 
1,171.3

Total assets
$
4,163.1

 
$
5,006.8

 
 
 
 
Liabilities and Stockholders’ Equity
 
 
 
Current liabilities
 

 
 

Notes payable and current portion of long-term debt
$
263.2

 
$
13.8

Trade accounts payable
548.9

 
522.7

Accrued compensation and benefits
121.8

 
125.1

Accrued warranties and product liability
60.7

 
61.2

Other current liabilities
266.7

 
230.4

Current liabilities held for sale
16.4

 
453.8

Total current liabilities
1,277.7

 
1,407.0

Non-current liabilities
 
 
 

Long-term debt, less current portion
979.6

 
1,562.0

Retirement plans
153.5

 
153.8

Other non-current liabilities
54.0

 
50.7

Non-current liabilities held for sale
2.6

 
312.1

Total liabilities
2,467.4

 
3,485.6

Commitments and contingencies


 


Stockholders’ equity
 

 
 

Common stock, $.01 par value – authorized 300.0 shares; issued 130.3 and 129.6 shares at March 31, 2017 and December 31, 2016, respectively
1.3

 
1.3

Additional paid-in capital
1,293.5

 
1,300.0

Retained earnings
1,884.5

 
1,897.9

Accumulated other comprehensive income (loss)
(351.3
)
 
(779.4
)
Less cost of shares of common stock in treasury – 31.0 and 24.6 shares at March 31, 2017 and December 31, 2016, respectively
(1,132.7
)
 
(935.1
)
Total Terex Corporation stockholders’ equity
1,695.3

 
1,484.7

Noncontrolling interest
0.4

 
36.5

Total stockholders’ equity
1,695.7

 
1,521.2

Total liabilities and stockholders’ equity
$
4,163.1

 
$
5,006.8


The accompanying notes are an integral part of these condensed consolidated financial statements.

5



TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
(in millions)
 
Three Months Ended
March 31,
 
2017
 
2016
Operating Activities
 
 
 
Net income (loss)
$
(4.6
)
 
$
(71.0
)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 

 
 

Depreciation and amortization
16.3

 
29.9

(Gain) loss on disposition of discontinued operations
(55.7
)
 
(3.4
)
Deferred taxes
(24.9
)
 
(4.5
)
(Gain) loss on sale of assets
4.7

 

Loss on early extinguishment of debt
13.1

 

Stock-based compensation expense
9.7

 
8.7

Other non-cash charges
13.0

 
19.8

Changes in operating assets and liabilities (net of effects of acquisitions and divestitures):
 

 
 

Trade receivables
(130.7
)
 
(57.7
)
Inventories
(39.4
)
 
(93.3
)
Trade accounts payable
24.9

 
4.2

Income taxes payable / receivable
(6.2
)
 
5.0

Other assets and liabilities
(13.7
)
 
60.5

Other operating activities, net
(2.6
)
 
(18.9
)
Net cash provided by (used in) operating activities
(196.1
)
 
(120.7
)
Investing Activities
 

 
 

Capital expenditures
(10.6
)
 
(22.2
)
Acquisitions, net of cash acquired

 
(3.2
)
Proceeds (payments) from disposition of discontinued operations
764.3

 

Proceeds from sale of assets
294.6

 
2.0

Other investing activities, net

 
(2.5
)
Net cash provided by (used in) investing activities
1,048.3

 
(25.9
)
Financing Activities
 

 
 

Repayments of debt
(1,329.5
)
 
(166.1
)
Proceeds from issuance of debt
999.0

 
177.0

Share repurchases
(178.2
)
 

Dividends paid
(8.3
)
 
(7.6
)
Other financing activities, net
(27.7
)
 
(9.1
)
Net cash provided by (used in) financing activities
(544.7
)
 
(5.8
)
Effect of Exchange Rate Changes on Cash and Cash Equivalents
7.0

 
9.5

Net Increase (Decrease) in Cash and Cash Equivalents
314.5

 
(142.9
)
Cash and Cash Equivalents at Beginning of Period
501.9

 
466.5

Cash and Cash Equivalents at End of Period
$
816.4

 
$
323.6


The accompanying notes are an integral part of these condensed consolidated financial statements.

6



TEREX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
(unaudited)
NOTE A – BASIS OF PRESENTATION

Basis of Presentation.  The accompanying unaudited Condensed Consolidated Financial Statements of Terex Corporation and subsidiaries as of March 31, 2017 and for the three months ended March 31, 2017 and 2016 have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all information and footnotes required by accounting principles generally accepted in the United States of America to be included in full-year financial statements.  The accompanying Condensed Consolidated Balance Sheet as of December 31, 2016 has been derived from and should be read in conjunction with the audited Consolidated Balance Sheet as of that date, but does not include all disclosures required by accounting principles generally accepted in the United States.  For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

The Condensed Consolidated Financial Statements include 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 either the equity method of accounting or utilizes the fair value option allowed by Accounting Standards Codification (“ASC”) 825 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.

In the opinion of management, adjustments considered necessary for the fair presentation of these interim financial statements have been made.  Except as otherwise disclosed, all such adjustments consist only of those of a normal recurring nature.  Operating results for the three months ended March 31, 2017 are not necessarily indicative of results that may be expected for the year ending December 31, 2017.

Cash and cash equivalents at March 31, 2017 and December 31, 2016 include $6.1 million and $6.0 million, respectively, which were not immediately available for use.  These consist primarily of cash balances held in escrow to secure various obligations of the Company.

Reclassifications. Effective as of June 30, 2016, adjustments were made to the Company’s reportable segments as a result of definitive agreements to sell portions of its business and reorganize the management structure of other portions of its business, as discussed below. On May 16, 2016, the Company entered into an agreement to sell its Material Handling and Port Solutions (“MHPS”) business to Konecranes. As a result, the former MHPS segment is reported in discontinued operations in the Condensed Consolidated Statement of Comprehensive Income (Loss) for all periods presented, and in assets and liabilities held for sale in the Condensed Consolidated Balance Sheet at December 31, 2016, and is no longer a reportable segment. During June and July of 2016, the Company entered into agreements to sell certain portions of its former Construction segment. As a result, concrete mixer trucks and concrete paver product lines from the former Construction segment were reassigned to the Company’s Materials Processing (“MP”) segment and remaining product lines within the former Construction segment, such as loader backhoes and site dumpers, have been reassigned to the Corporate and Other category, as a result of changes in management responsibilities and reporting associated with these product lines. The effect of these changes has been shown in all periods presented.

See Note B - “Sale of MHPS Business and Investment Carried at Fair Value”, Note C - “Business Segment Information”, Note E - “Discontinued Operations and Assets and Liabilities Held for Sale” and Note J - “Goodwill and Intangible Assets, Net” for further information.

See discussion below for reclassification and cumulative effect adjustment impact related to adoption of Accounting Standards Update (“ASU”) 2016-09, “Compensation-Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting”.


7



Recently Issued Accounting Standards

Accounting Standards Implemented in 2017

In July 2015, the Financial Accounting Standards Board (“FASB”) issued ASU 2015-11, “Simplifying the Measurement of Inventory,” (“ASU 2015-11”). ASU 2015-11 simplifies the subsequent measurement of inventory by using only the lower of cost or net realizable value. The ASU defines net realizable value as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The Company adopted ASU 2015-11 on January 1, 2017. Adoption did not have a material effect on the Company’s consolidated financial statements.

In March 2016, the FASB issued ASU 2016-05, “Derivatives and Hedging (Topic 815),” (“ASU 2016-05”). ASU 2016-05 provides guidance clarifying that novation of a derivative contract (i.e. a change in counterparty) in a hedge accounting relationship does not, in and of itself, require dedesignation of that hedge accounting relationship. The Company adopted ASU 2016-05 on January 1, 2017. Adoption did not have a material effect on the Company’s consolidated financial statements.

In March 2016, the FASB issued ASU 2016-06, “Derivatives and Hedging (Topic 815),” (“ASU 2016-06”). ASU 2016-06 simplifies the embedded derivative analysis for debt instruments containing contingent call or put options by clarifying that an exercise contingency does not need to be evaluated to determine whether it relates to interest rates and credit risk in an embedded derivative analysis. The Company adopted ASU 2016-06 on January 1, 2017. Adoption did not have a material effect on the Company’s consolidated financial statements.

In March 2016, the FASB issued ASU 2016-07, “Investments-Equity Method and Joint Ventures (Topic 323),” (“ASU 2016-07”). ASU 2016-07 eliminates the retroactive adjustments to an investment qualifying for the equity method of accounting as a result of an increase in the level of ownership interest or degree of influence by the investor. The Company adopted ASU 2016-07 on January 1, 2017. Adoption did not have a material effect on the Company’s consolidated financial statements.

On January 1, 2017, the Company adopted ASU 2016-09, “Compensation-Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting,” (“ASU 2016-09”). As required by ASU 2016-09, excess tax benefits and tax deficiencies recognized on the vesting date of restricted stock awards are reflected in the Condensed Consolidated Statements of Comprehensive Income (Loss) as a component of the provision for income taxes and was adopted on a prospective basis. In addition, ASU 2016-09 requires that the excess tax benefit be removed from the overall calculation of diluted shares. The impact on diluted earnings per share for adoption of this provision was not material. As required by ASU 2016-09, excess tax benefits recognized on stock-based compensation expense are now classified as an operating activity in the Company’s Condensed Consolidated Statement of Cash Flows versus previously classified as a financing activity. The Company has elected to apply this provision on a prospective basis, so no prior periods have been adjusted. ASU 2016-09 increases the amount of shares an employer can withhold for tax purposes without triggering liability accounting, which had no effect on the Company’s consolidated financial statements. ASU 2016-09 requires all cash payments made on an employee’s behalf for withheld shares to be presented as a financing activity in the Condensed Consolidated Statement of Cash Flows, with retrospective application required. As a result, net cash used in operating activities for the three months ended March 31, 2016 decreased by $8.5 million with a corresponding increase to net cash used in financing activities. Finally, ASU 2016-09 allows for the option to account for forfeitures as they occur, rather than estimating expected forfeitures over the service period. The Company elected to account for forfeitures as they occur and the net cumulative effect of this change was recognized as a $0.6 million increase to additional paid in capital, a $0.2 million increase to deferred tax assets and a $0.4 million reduction to retained earnings as of January 1, 2017.

Accounting Standards to be Implemented

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” (“ASU 2014-09”). ASU 2014-09 outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. This new revenue recognition model provides a five-step analysis in determining when and how revenue is recognized. The new model requires revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In August 2015, the FASB issued ASU 2015-14, “Deferral of the Effective Date”, which amends ASU 2014-09. As a result, the effective date will be the first quarter of fiscal year 2018 with early adoption permitted in the first quarter of fiscal year 2017.


8



Subsequently, the FASB has issued the following standards related to ASU 2014-09: ASU 2016-08, “Revenue from Contracts with Customers (Topic 606), Principal versus Agent Considerations (Reporting Revenue Gross versus Net),” (“ASU 2016-08”); ASU 2016-10, “Revenue from Contracts with Customers (Topic 606), Identifying Performance Obligations and Licensing,” (“ASU 2016-10”); ASU 2016-12, “Revenue from Contracts with Customers (Topic 606) Narrow-Scope Improvements and Practical Expedients,” (“ASU 2016-12”); and ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers,” (“ASU 2016-20”), which are intended to provide additional guidance and clarity to ASU 2014-09. The Company must adopt ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20 along with ASU 2014-09 (collectively, the “New Revenue Standards”).

The New Revenue Standards may be applied using one of two retrospective application methods: (1) a full retrospective approach for all periods presented, or (2) a modified retrospective approach that presents a cumulative effect as of the adoption date and additional required disclosures. The Company plans to adopt the New Revenue Standards in the first quarter of 2018 using the modified retrospective approach and is in the process of completing its initial analysis identifying the revenue streams that will be impacted by the adoption of this new standard and the impact to its consolidated financial statements and footnote disclosures.

In January 2016, the FASB issued ASU 2016-01, "Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities," (“ASU 2016-01”). The amendments in ASU 2016-01, among other things, require equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; require public business entities to use the exit price notion when measuring fair value of financial instruments for disclosure purposes; require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables); and eliminate the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate fair value that is required to be disclosed for financial instruments measured at amortized cost. The effective date will be the first quarter of fiscal year 2018. The Company is evaluating the impact that adoption of this new standard will have on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” (“ASU 2016-02”). ASU 2016-02 requires lessees to recognize assets and liabilities on the balance sheet for leases with lease terms greater than twelve months and disclose key information about leasing arrangements. The effective date will be the first quarter of fiscal year 2019, with early adoption permitted. The Company is evaluating the impact that adoption of this new standard will have on its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses,” (“ASU 2016-13”). ASU 2016-13 sets forth a “current expected credit loss” model which requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. The guidance in this new standard replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. The effective date will be the first quarter of fiscal year 2020. The Company is evaluating the impact that adoption of this new standard will have on its consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments,” (“ASU 2016-15”).  ASU 2016-15 reduces the existing diversity in practice in financial reporting by clarifying existing principles in ASC 230, “Statement of Cash Flows,” and provides specific guidance on certain cash flow classification issues.  The effective date for ASU 2016-15 will be the first quarter of fiscal year 2018, with early adoption permitted.  ASU 2016-15 will be applied retrospectively and may modify the Company's current disclosures and reclassifications within the consolidated statement of cash flows, but is not expected to have a material effect on the Company’s consolidated financial statements.

In October 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740) - Intra-Entity Transfer of Assets Other than Inventory,” (“ASU 2016-16”).  ASU 2016-16 requires recognition of current and deferred income taxes resulting from an intra-entity transfer of any asset (excluding inventory) when the transfer occurs. This is a change from existing U.S. generally accepted accounting principles which prohibits recognition of current and deferred income taxes until the asset is sold to a third party.  The effective date for ASU 2016-16 will be the first quarter of fiscal year 2018 with early adoption permitted.  Adoption will be applied on a modified retrospective basis, resulting in a cumulative-effect adjustment directly to retained earnings.  The Company is evaluating the impact that adoption of this new standard will have on its consolidated financial statements.


9



In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230) - Restricted Cash,” (“ASU 2016-18”). ASU 2016-18 requires a statement of cash flows to explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The effective date will be the first quarter of fiscal year 2018. Adoption will not have any effect on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business,” (“ASU 2017-01”). ASU 2017-01 provides guidance in ascertaining whether a collection of assets and activities is considered a business. The effective date will be the first quarter of fiscal year 2018, with prospective application. Adoption is not expected to have a material effect on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” (“ASU 2017-04”). ASU 2017-04 eliminates Step 2 from the goodwill impairment test. Instead, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, if any. The loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment. The effective date will be the first quarter of fiscal year 2020, with early adoption permitted in 2017. The Company is evaluating the impact that adoption of this new standard will have on its consolidated financial statements.

In February 2017, the FASB issued ASU 2017-05, “Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets,” (ASU 2017-05”). ASU 2017-05 is meant to clarify the scope of ASC Subtopic 610-20, “Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets” and to add guidance for partial sales of nonfinancial assets. ASU 2017-05 is to be applied using a full retrospective method or a modified retrospective method as outlined in the guidance and is effective at the same time as ASU 2014-09. Further, the Company is required to adopt ASU 2017-05 at the same time that it adopts the guidance in the New Revenue Standards. The Company is evaluating the impact that adoption of this new standard will have on its consolidated financial statements.

In February 2017, the FASB issued ASU 2017-06, “Plan Accounting: Defined Benefit Pension Plans (Topic 960); Defined Contribution Pension Plans (Topic 962); Health and Welfare Benefit Plans (Topic 965): Employee Benefit Plan Master Trust Reporting, (“ASU 2017-06”)”. ASU 2017-06 provides guidance for reporting by an employee benefit plan for its interest in a master trust. The guidance is effective beginning in the first quarter of fiscal year 2021 on a retrospective basis, with early application permitted as of the beginning of the first quarter of fiscal year 2020. The Company is evaluating the impact that adoption of this new standard will have on its consolidated financial statements.

In March 2017, the FASB issued ASU 2017-07, “Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” (“ASU 2017-07”). ASU 2017-07 changes how employers that sponsor defined benefit pension plans and other postretirement plans present the net periodic benefit cost in the income statement. An employer is required to report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. Other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. The amendment also allows only the service cost component to be eligible for capitalization, when applicable. The effective date will be the first quarter of fiscal year 2018. ASU 2017-07 will be applied retrospectively for the presentation requirements and prospectively for the capitalization of the service cost component requirements. The Company is evaluating the impact that adoption of this new standard will have on its consolidated financial statements.

In March 2017, the FASB issued ASU 2017-08, “Receivables--Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities,” (“ASU 2017-08”). ASU 2017-08 shortens the amortization period for callable debt securities held at a premium, requiring the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount. The effective date will be the first quarter of fiscal year 2019. Adoption is not expected to have a material effect on the Company’s consolidated financial statements.

Accrued Warranties.  The Company records accruals for potential warranty claims based on its claims 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.


10



A liability for estimated warranty claims is accrued at the time of sale.  The non-current portion of the warranty accrual is included in Other non-current liabilities in the Company’s Condensed Consolidated Balance Sheet.  The liability is established using historical warranty claim experience for each product sold.  Historical claim 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 product warranty liability (in millions):
 
Three Months Ended
 
March 31, 2017
Balance at beginning of period
$
59.8

Accruals for warranties issued during the period
14.0

Changes in estimates
0.5

Settlements during the period
(15.2
)
Foreign exchange effect/other
0.7

Balance at end of period
$
59.8


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”) includes our investment discussed in Note B - “Sale of MHPS Business and Investment Carried at Fair Value” and interest rate swaps and foreign currency forward contracts discussed in Note K – “Derivative Financial Instruments.”  These investments 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.

NOTE B – SALE OF MHPS BUSINESS AND INVESTMENT CARRIED AT FAIR VALUE

On May 16, 2016, Terex agreed to sell its MHPS business to Konecranes Plc, a Finnish public company limited by shares (“Konecranes”) by entering into a Stock and Asset Purchase Agreement, as amended (the “SAPA”), with Konecranes. As a result, the Company and Konecranes terminated the Business Combination Agreement and Plan of Merger (the “BCA”) announced on August 11, 2015, with no penalties incurred by either party. On January 4, 2017, the Company completed the disposition of its MHPS business to Konecranes (the “Disposition”), pursuant to the SAPA, effective as of January 1, 2017. In connection with the Disposition, the Company received 19.6 million newly issued Class B shares of Konecranes and approximately $835 million in cash after adjustments for estimated cash, debt and net working capital at closing and the divestiture of Konecranes’ Stahl Crane Systems business (“Stahl”), which was undertaken by Konecranes in connection with the Disposition. The final transaction consideration is subject to post-closing adjustments for the actual cash, debt and net working capital at closing, the 2016 performance of the MHPS business and Konecranes business, and the closing of the sale of Stahl. The Company recognized a gain on the Disposition of $52.7 million, net of tax.

The Company and Konecranes entered into a Stockholders Agreement (the “Stockholders Agreement”), dated as of January 4, 2017, providing certain restrictions, including Terex’s commitment that it will not directly or indirectly sell or otherwise transfer the shares of Konecranes stock received by the Company for a period of three months, subject to certain exceptions, including transfers to affiliates or with permission from Konecranes. In addition, under the Stockholders Agreement, Terex is subject to certain standstill obligations for a four-year period, as well as some limited obligations following the initial four-year period. Terex also has customary registration rights pursuant to a registration rights agreement between Terex and Konecranes entered into on January 4, 2017 (the “Registration Rights Agreement”). In connection with the Disposition, Konecranes’ articles of association were amended to create a new class of B shares.

11




On February 15, 2017, Terex sold approximately 7.5 million Konecranes shares for proceeds of approximately $272 million and recorded a loss on sale of $13.2 million as a component of Other income (expense) - net in the Condensed Consolidated Statement of Comprehensive Income (Loss) during the period. Following the sale of shares, Terex owns approximately 15.5% of the outstanding shares of Konecranes. Pursuant to the Stockholders Agreement and amended articles of association, Terex has nominated two members to the Board of Directors of Konecranes. Terex's Board nominees are David Sachs and Oren Shaffer.

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. At March 31, 2017, the Company recorded a dividend receivable in Prepaid and other current assets in the Condensed Consolidated Balance Sheet and recognized dividend income of $13.5 million as a component of Other income (expense) - net in the Condensed Consolidated Statement of Comprehensive Income (Loss).

Our investment in Konecranes shares qualifies for equity method of accounting as the Company has ability to exercise significant influence primarily through its board representation. As such, the Company has elected to account for its investment in Konecranes shares using the fair value option allowed by ASC 825. As a result, changes in fair value of the shares of its investment in Konecranes are recognized as a component of Other income (expense) - net in the Condensed Consolidated Statement of Comprehensive Income (Loss) during the period.

At March 31, 2017, the Company’s investment in Konecranes Class B shares was $431.0 million. Konecranes Class B shares have the same financial rights as Konecranes Class A shares. Konecranes Class A shares are publicly traded on the NASDAQ Helsinki exchange, and as such, fair value of the Konecranes shares is based on price quotations in an active market. Therefore, the Company categorizes this investment under Level 1 of the ASC 820 hierarchy. See Note A – “Basis of Presentation,” for an explanation of the ASC 820 hierarchy.

During the three months ended March 31, 2017, the Company recorded a change in fair value of $(9.3) million as a component of Other income (expense) - net in the Condensed Consolidated Statement of Comprehensive Income (Loss).

In connection with the Disposition, the Company and Konecranes entered into certain ancillary agreements, including Transition Services Agreements (“TSA’s”) generally with terms from three to twelve months, dated as of January 4, 2017, under which the parties will provide one another certain transition services to facilitate both the separation of the MHPS business from the businesses retained by the Company and the interim operations of the MHPS business acquired by Konecranes. Cash inflows and outflows related to these TSA’s generally offset to immaterial amounts.

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 a period of 12 months. The Company recorded an expense of $6.3 million related to losses expected to be incurred over the agreement’s life during the three months ended March 31, 2017.

BCA Related Expenses

Terex incurred transaction costs directly related to the terminated BCA of $7.3 million for the three months ended March 31, 2016 which amounts are recorded in Other income (expense) - net in the Condensed Consolidated Statement of Comprehensive Income (Loss).

NOTE C – BUSINESS SEGMENT INFORMATION

Terex is a global manufacturer of lifting and material processing products and services that deliver lifecycle solutions to maximize customer return on investment. The Company delivers lifecycle solutions to a broad range of industries, including the construction, infrastructure, manufacturing, shipping, transportation, refining, energy, utility, quarrying and mining industries. The Company operates in three reportable segments: (i) Aerial Work Platforms (“AWP”); (ii) Cranes; and (iii) MP.

The AWP segment designs, manufactures, services and markets aerial work platform equipment, telehandlers and light towers. Customers use these products to construct and maintain industrial, commercial and residential buildings and facilities and for other commercial operations, as well as in a wide range of infrastructure projects.


12



The Cranes segment designs, manufactures, services, refurbishes and markets a wide variety of cranes, including mobile telescopic cranes, lattice boom crawler cranes, tower cranes, and utility equipment, as well as their related components and replacement parts. Customers use these products primarily for construction, repair and maintenance of commercial buildings, manufacturing facilities, construction and maintenance of utility and telecommunication lines, tree trimming and certain construction and foundation drilling applications and a wide range of infrastructure projects.

The MP segment designs, manufactures and markets materials processing and specialty equipment, including crushers, washing systems, screens, apron feeders, material handlers, wood processing, biomass and recycling equipment, concrete mixer trucks and concrete pavers, and their related components and replacement parts. Customers use these products in construction, infrastructure and recycling projects, in various quarrying and mining applications, as well as in landscaping and biomass production industries, material handling applications, and in building roads and bridges.

The Company assists customers in their rental, leasing and acquisition of its products through Terex Financial Services (“TFS”). TFS uses its equipment financing experience to provide financing solutions to customers who purchase the Company’s equipment. TFS is included in the Corporate and Other category.

Business segment information is presented below (in millions):
 
Three Months Ended
March 31,
 
2017
 
2016
Net Sales
 
 
 
AWP
$
472.4

 
$
520.7

Cranes
263.9

 
307.3

MP
249.1

 
223.8

Corporate and Other / Eliminations
21.5

 
62.5

Total
$
1,006.9

 
$
1,114.3

Income (loss) from Operations
 
 
 
AWP
$
21.7

 
$
38.1

Cranes
(32.8
)
 
(16.6
)
MP
25.5

 
15.8

Corporate and Other / Eliminations
(20.7
)
 
(26.0
)
Total
$
(6.3
)
 
$
11.3


 
March 31,
2017
 
December 31,
2016
Identifiable Assets
 
 
 
AWP (1)
$
1,315.8

 
$
1,659.8

Cranes
1,631.0

 
1,618.0

MP
1,176.9

 
1,104.9

Corporate and Other / Eliminations (2)
9.2

 
(1,280.1
)
Assets held for sale
30.2

 
1,904.2

Total
$
4,163.1

 
$
5,006.8


(1) Reduction due primarily to the settlement of an intercompany balance with Corporate and Other.
(2) Increase due to Investment carried at fair value and increased cash on hand as a result of the sale of MHPS, debt refinancing and lower eliminations due to settlement of intercompany balance with AWP segment.


13



NOTE D – INCOME TAXES

During the three months ended March 31, 2017, the Company recognized an income tax benefit of $28.3 million on a loss of $88.6 million, an effective tax rate of 31.9% as compared to an income tax expense of $3.9 million on a loss of $18.1 million, an effective tax rate of (21.5)%, for the three months ended March 31, 2016.  The effective tax rate for the three months ended March 31, 2017 was driven by a tax benefit for interest deduction and geographic mix of earnings.  In addition, since the Company’s year-to-date ordinary loss exceeded the anticipated ordinary loss for the full year, the tax benefit for the three months ended March 31, 2017 was limited to the amount that would be recognized if the year-to-date ordinary loss were the anticipated ordinary loss for the full year.  The effective tax rate for the three months ended March 31, 2016 was driven by losses in jurisdictions where no tax benefits are recognized due to valuation allowances.

NOTE E –DISCONTINUED OPERATIONS AND ASSETS AND LIABILITIES HELD FOR SALE

MHPS

On January 4, 2017, the Company completed the disposition of its MHPS business to Konecranes. See Note B - “Sale of MHPS Business and Investment Carried at Fair Value” for further information on the Disposition. The Disposition represents a significant strategic shift in the Company’s business away from universal, process, mobile harbor and ship-to-shore cranes that will have a major effect on the Company’s future operating results, primarily because the MHPS business represented the entirety of one of the Company’s five previous reportable operating segments and comprised two of the Company’s six previous reporting units, representing a significant portion of the Company’s revenues and assets, and is therefore accounted for as a discontinued operation for all periods presented. MHPS products include universal cranes, process cranes and components, such as rope hoists, chain hoists, light crane systems, travel units and electric motors, primarily for industrial applications, and mobile harbor cranes, ship-to-shore gantry cranes, rubber tired and rail mounted gantry cranes, straddle carriers, sprinter carriers, reach stackers, container handlers, general cargo lift trucks, automated stacking cranes, automated guided vehicles and software solutions for logistics terminals.

Cash flows from discontinued operations are included in the Condensed Consolidated Statement of Cash Flows.

Income (loss) from discontinued operations

The following amounts related to the discontinued operations were derived from historical financial information and have been segregated from continuing operations and reported as discontinued operations in the Condensed Consolidated Statement of Comprehensive Income (Loss) (in millions):
 
Three Months Ended
 
March 31,
 
2016
Net sales
$
312.6

Cost of sales
(270.8
)
Selling, general and administrative expenses
(94.8
)
Net interest (expense)
(0.4
)
Other income (expense)
2.1

Income (loss) from discontinued operations before income taxes
(51.3
)
(Provision for) benefit from income taxes
(1.1
)
Income (loss) from discontinued operations – net of tax
(52.4
)
Net loss (income) attributable to noncontrolling interest
0.2

Income (loss) from discontinued operations – net of tax attributable to Terex Corporation
$
(52.2
)
 
 


14



Cranes

As part of the transformation and improvement of its Cranes segment, the Company is actively seeking a buyer for a portion of its cranes business located in South America and, accordingly, the assets and liabilities are reported as held for sale.

Construction

In December 2016, the Company entered into an agreement to sell its Coventry, UK-based compact construction business.  During the three months ended March 31, 2017, the Company completed the sale of the Coventry, UK-based compact construction business and a loss of $0.6 million was recognized within SG&A related to the sale. The sale of the remaining UK-based compact construction product line assets is expected to be completed during the second quarter of 2017. During the three months ended March 31, 2017, the Company recognized a gain of $5.6 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. In addition, the Company signed a sale agreement with a buyer to sell its Indian compact construction business and expects to complete the sale during the second quarter of 2017. The operating results for these construction product lines are reported in continuing operations, within the Corporate and Other category in our segment disclosures, and the remaining assets and liabilities are reported as held for sale.


15



Assets and liabilities held for sale

Assets and liabilities held for sale consist of the Company’s former MHPS segment, portions of its Cranes segment and portions of its former Construction Segment. Such assets and liabilities are classified as held for sale upon meeting the requirements of ASC 360 - “Property, Plant and Equipment”, and are recorded at lower of carrying 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 Condensed Consolidated Balance Sheet (in millions):
 
March 31, 2017
 
December 31, 2016
 
Cranes
Construction
Total
 
MHPS
Cranes
Construction
Total
Assets
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
1.6

$
0.9

$
2.5

 
$
71.0

$
1.2

$
1.2

$
73.4

Trade receivables – net
2.8

10.0

12.8

 
243.5

3.1

24.4

271.0

Inventories
1.9

10.1

12.0

 
309.4

1.7

23.9

335.0

Prepaid and other current assets
0.5

2.2

2.7

 
49.9

0.5

3.1

53.5

Impairment reserve

(2.2
)
(2.2
)
 




Current assets held for sale
$
6.8

$
21.0

$
27.8

 
$
673.8

$
6.5

$
52.6

$
732.9

 
 
 
 
 
 
 
 
 
Property, plant and equipment – net
$
0.7

$
1.0

$
1.7

 
$
294.2

$
0.8

$
3.2

$
298.2

Goodwill



 
573.7



573.7

Intangible assets
3.0


3.0

 
212.6

2.9


215.5

Impairment reserve
(2.9
)
(1.9
)
(4.8
)
 

(1.7
)
(3.5
)
(5.2
)
Other assets
1.1

1.4

2.5

 
86.4

1.1

1.6

89.1

Non-current assets held for sale
$
1.9

$
0.5

$
2.4

 
$
1,166.9

$
3.1

$
1.3

$
1,171.3

 
 
 
 
 
 
 
 
 
Liabilities
 

 

 
 
 

 

 

 

Notes payable and current portion of long-term debt
$

$

$

 
$
13.1

$

$
1.3

$
14.4

Trade accounts payable
0.8

5.8

6.6

 
132.6

0.7

23.8

157.1

Accruals and other current liabilities
5.0

4.8

9.8

 
267.0

6.2

9.1

282.3

Current liabilities held for sale
$
5.8

$
10.6

$
16.4

 
$
412.7

$
6.9

$
34.2

$
453.8

 
 
 
 
 
 
 
 
 
Long-term debt, less current portion
$

$

$

 
$
2.4

$

$

$
2.4

Retirement plans and other non-current liabilities
0.7

1.0

1.7

 
235.3

0.7

0.9

236.9

Other non-current liabilities
0.4

0.5

0.9

 
71.7

0.4

0.7

72.8

Non-current liabilities held for sale
$
1.1

$
1.5

$
2.6

 
$
309.4

$
1.1

$
1.6

$
312.1


16




The following table provides amounts of cash and cash equivalents presented in the Condensed Consolidated Statement of Cash Flows (in millions):

 
March 31, 2017
 
December 31, 2016
Cash and cash equivalents:
 
 
 
Cash and cash equivalents - continuing operations
$
813.9

 
$
428.5

Cash and cash equivalents - held for sale
2.5

 
73.4

Total cash and cash equivalents:
$
816.4

 
$
501.9

 
 
 
 

Cash and cash equivalents held for sale at March 31, 2017 includes no amounts which were not immediately available for use. Cash and cash equivalents held for sale at December 31, 2016 includes $14.0 million which were not immediately available for use.  These consist primarily of cash balances held in escrow to secure various obligations of the Company.

The following table provides supplemental cash flow information related to discontinued operations (in millions):

 
March 31,
 
2016
Non-cash operating items:
 
Depreciation and amortization
$
13.3

Deferred taxes
$
0.1

Investing activities:
 
Capital expenditures
$
3.8

 
 

Gain (loss) on disposition of discontinued operations - net of tax

 
Three Months Ended
 
March 31,
 
2017
 
2016
 
MHPS
Atlas
Total
 
Total
 
 
 
 
 
 
Gain (loss) on disposition of discontinued operations
$
79.5

$
3.5

$
83.0

 
$
4.5

(Provision for) benefit from income taxes
(26.8
)
(0.5
)
(27.3
)
 
(1.1
)
Gain (loss) on disposition of discontinued operations – net of tax
$
52.7

$
3.0

$
55.7

 
$
3.4

 
 
 
 
 
 

During the three months ended March 31, 2017, the Company recognized a gain on disposition of discontinued operations - net of tax of $55.7 million, $52.7 million of which is due to the sale of the MHPS business. The remaining $3.0 million is related to the sale of its Atlas heavy construction equipment and knuckle-boom cranes businesses (“Atlas”), due to contractual earnout payments. During the three months ended March 31, 2016 the Company recognized a gain on disposition of discontinued operations - net of tax of $3.4 million due primarily to a gain of $3.0 million related to the sale of Atlas based on contractual earnout payments and a $0.5 million gain related to sale of its truck business.



17



NOTE F – EARNINGS PER SHARE
(in millions, except per share data)
Three Months Ended
March 31,
 
2017
 
2016
Income (loss) from continuing operations attributable to Terex Corporation Common Stockholders
$
(60.3
)
 
$
(22.0
)
Income (loss) from discontinued operations–net of tax

 
(52.2
)
Gain (loss) on disposition of discontinued operations–net of tax
55.7

 
3.4

Net income (loss) attributable to Terex Corporation
$
(4.6
)
 
$
(70.8
)
Basic shares:
 
 
 
Weighted average shares outstanding
105.2

 
108.8

Earnings (loss) per share – basic:
 
 
 
Income (loss) from continuing operations
$
(0.57
)
 
$
(0.20
)
Income (loss) from discontinued operations–net of tax

 
(0.48
)
Gain (loss) on disposition of discontinued operations–net of tax
0.53

 
0.03

Net income (loss) attributable to Terex Corporation
$
(0.04
)
 
$
(0.65
)
Diluted shares:
 
 
 
Weighted average shares outstanding - basic
105.2

 
108.8

Effect of dilutive securities:
 
 
 
Stock options and restricted stock awards

 

Diluted weighted average shares outstanding
105.2

 
108.8

Earnings (loss) per share – diluted:
 
 
 
Income (loss) from continuing operations
$
(0.57
)
 
$
(0.20
)
Income (loss) from discontinued operations–net of tax

 
(0.48
)
Gain (loss) on disposition of discontinued operations–net of tax
0.53

 
0.03

Net income (loss) attributable to Terex Corporation
$
(0.04
)
 
$
(0.65
)
 
Weighted average options to purchase approximately 8,000 and 139,000 shares of the Company’s common stock, par value $0.01 per share (“Common Stock”), were outstanding during the three months ended March 31, 2017 and March 31, 2016, respectively, but were not included in the computation of diluted shares as the effect would be anti-dilutive.  Weighted average restricted stock awards of 2.3 million and 2.5 million were outstanding during the three months ended March 31, 2017 and 2016, respectively, but were not included in the computation of diluted shares because the effect would be anti-dilutive or performance targets were not yet achieved for awards contingent upon performance. ASC 260, “Earnings per Share,” requires that employee stock options and non-vested restricted shares granted by the Company be treated as potential common shares outstanding in computing diluted earnings per share. Under the treasury stock method, the amount the employee must pay for exercising stock options and the amount of compensation cost for future services that the Company has not yet recognized are assumed to be used to repurchase shares.


18



NOTE G – FINANCE RECEIVABLES

TFS leases equipment and provides financing to customers for the purchase and use of Terex equipment. In the normal course of business, TFS assesses credit risk, establishes structure and pricing of financing transactions, documents the finance receivable, and records and funds the transactions. TFS bills and collects cash from the customer.

TFS primarily conducts on-book business in the U.S., with limited business in China, the United Kingdom, and Germany. TFS does business with various types of customers consisting of rental houses, end user customers and Terex equipment dealers.

The Company’s net finance receivable balances include both sales-type leases and commercial loans. Finance receivables that management intends to hold until maturity are stated at their outstanding unpaid principal balances, net of an allowance for loan losses as well as any deferred fees and costs. Finance receivables originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value, in the aggregate. During the three months ended March 31, 2017 and 2016, the Company transferred finance receivables of $43.5 million and $33.9 million, respectively, to third party financial institutions, which qualified for sales treatment under ASC 860. At March 31, 2017, the Company had $19.9 million of held for sale finance receivables recorded in Prepaid and other current assets in the Condensed Consolidated Balance Sheet.

Revenue attributable to finance receivables management intends to hold until maturity is recognized on the accrual basis using the effective interest method. TFS bills customers and accrues interest income monthly on the unpaid principal balance. The accrual of interest is generally discontinued when the contractual payment of principal or interest has become 90 days past due or management has significant doubts about further 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):
 
March 31,
2017
 
December 31,
2016
Commercial loans
$
223.8

 
$
226.4

Sales-type leases
16.6

 
16.4

Total finance receivables, gross
240.4

 
242.8

Allowance for credit losses
(6.0
)
 
(6.3
)
Total finance receivables, net
$
234.4

 
$
236.5


At March 31, 2017, approximately $86 million of finance receivables are recorded in Prepaid and other current assets and approximately $149 million are recorded in Other assets in the Condensed Consolidated Balance Sheet. At December 31, 2016, approximately $74 million of finance receivables were recorded in Prepaid and other current assets and approximately $162 million were recorded in Other assets in the Condensed Consolidated Balance Sheet

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.

19




The following table presents an analysis of the allowance for credit losses:

 
 
 
 
Three Months Ended
March 31, 2017
 
Three Months Ended
March 31, 2016
 
 
Commercial Loans
 
Sales-Type Leases
 
Total
 
Commercial Loans
 
Sales-Type Leases
 
Total
Balance, beginning of period
 
$
5.9

 
0.4

 
$
6.3

 
$
6.5

 
$
0.8

 
$
7.3

Provision for credit losses
 
(0.3
)
 

 
(0.3
)
 
(0.1
)
 
0.3

 
0.2

Charge offs
 

 

 

 

 

 

Recoveries
 

 

 

 

 

 

Balance, end of period
 
$
5.6

 
$
0.4

 
$
6.0

 
$
6.4

 
$
1.1

 
$
7.5


The Company utilizes a two tier approach to set allowances: (1) identification of impaired finance receivables and establishment of specific loss allowances on such receivables; and (2) establishment of general loss allowances on the remainder of its portfolio. Specific loss allowances are established based on circumstances and factors of specific receivables. The Company regularly reviews the portfolio which allows for early identification of potentially impaired receivables. The process takes into consideration, among other things, delinquency status, type of collateral and other factors specific to the borrower.

General loss allowance levels are determined based upon a combination of factors including, but not limited to, TFS experience, general market loss experience, performance of the portfolio, current economic conditions, and management's judgment. The two primary risk characteristics inherent in the portfolio are (1) the customer's ability to meet contractual payment terms, and (2) the liquidation values of the underlying primary and secondary collaterals. The Company records a general or unallocated loss allowance that is calculated by applying the reserve rate to its portfolio, including the unreserved balance of accounts that have been specifically reserved for. All delinquent accounts are reviewed for potential impairment. A receivable is deemed to be impaired when based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Amount of impairment is measured as the difference between the balance outstanding and underlying collateral value of equipment being financed, as well as any other collateral. All finance receivables identified as impaired are evaluated individually. Generally, the Company does not change terms and conditions of existing finance receivables.

The following table presents individually impaired finance receivables (in millions):

 
 
March 31, 2017
 
December 31, 2016
 
 
Commercial Loans
 
Sales-Type Leases
 
Total
 
Commercial Loans
 
Sales-Type Leases
 
Total
Recorded investment
 
$
2.4

 
$

 
$
2.4

 
$
1.6

 
$

 
$
1.6

Related allowance
 
1.5

 

 
1.5

 
1.6

 

 
1.6

Average recorded investment
 
2.4

 

 
2.4

 
1.7

 
0.9

 
2.6


The average recorded investment for impaired finance receivables was $1.9 million for sales-type leases and $1.6 million for commercial loans at March 31, 2016, which were fully reserved.


20



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):

 
 
March 31, 2017
 
December 31, 2016
Allowance for credit losses, ending balance:
 
Commercial Loans
 
Sales-Type Leases
 
Total
 
Commercial Loans
 
Sales-Type Leases
 
Total
Individually evaluated for impairment
 
$
1.5

 
$

 
$
1.5

 
$
1.6

 
$

 
$
1.6

Collectively evaluated for impairment
 
4.1

 
0.4

 
4.5

 
4.3

 
0.4

 
4.7

Total allowance for credit losses
 
$
5.6

 
$
0.4

 
$
6.0

 
$
5.9

 
$
0.4

 
$
6.3

 
 
 
 
 
 
 
 
 
 
 
 
 
Finance receivables, ending balance:
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
 
$
2.4

 
$

 
$
2.4

 
$
1.6

 
$

 
$
1.6

Collectively evaluated for impairment
 
221.4

 
16.6

 
238.0

 
224.8

 
16.4

 
241.2

Total finance receivables
 
$
223.8

 
$
16.6

 
$
240.4

 
$
226.4

 
$
16.4

 
$
242.8


Accounts are considered delinquent when the billed periodic payments of the finance receivables exceed 30 days past the due date.

The following tables present analyses of aging of recorded investment in finance receivables (in millions):

 
March 31, 2017
 
Current
 
31-60 days past due
 
61-90 days past due
 
Greater than 90 days past due
 
Total past due
 
Total Finance Receivables
Commercial loans
$
216.8

 
$
5.1

 
$
0.2

 
$
1.7

 
$
7.0

 
$
223.8

Sales-type leases
16.0

 

 

 
0.6

 
0.6

 
16.6

Total finance receivables
$
232.8

 
$
5.1

 
$
0.2

 
$
2.3

 
$
7.6

 
$
240.4


 
December 31, 2016
 
Current
 
31-60 days past due
 
61-90 days past due
 
Greater than 90 days past due
 
Total past due
 
Total Finance Receivables
Commercial loans
$
224.2

 
$
0.6

 
$
0.2

 
$
1.4

 
$
2.2

 
$
226.4

Sales-type leases
15.8

 

 
0.6

 

 
0.6

 
16.4

Total finance receivables
$
240.0

 
$
0.6

 
$
0.8

 
$
1.4

 
$
2.8

 
$
242.8



At March 31, 2017 and December 31, 2016, $1.7 million and $1.4 million, respectively, of commercial loans were 90 days or more past due. Commercial loans in the amount of $9.4 million and $7.4 million were on non-accrual status as of March 31, 2017 and December 31, 2016, respectively.

At March 31, 2017, there were $0.6 million sales-type lease receivables that were 90 days or more past due. At December 31, 2016 there were no sales-type lease receivables that were 90 days or more past due. Sales-type leases in the amount of $0.6 million were on non-accrual status as of March 31, 2017. At December 31, 2016 there were no sales-type leases on non-accrual status.

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.


21



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
 
March 31, 2017
 
December 31, 2016
Superior
 
$
9.1

 
$
9.6

Above Average
 
62.5

 
64.7

Average
 
102.3

 
111.3

Below Average
 
61.5

 
53.0

Sub Standard
 
5.0

 
4.2

Total
 
$
240.4


$
242.8




NOTE H – INVENTORIES

Inventories consist of the following (in millions):
 
March 31,
2017
 
December 31,
2016
Finished equipment
$
373.9

 
$
334.7

Replacement parts
143.7

 
144.9

Work-in-process
184.8

 
175.4

Raw materials and supplies
206.8

 
198.8

Inventories
$
909.2

 
$
853.8


Reserves for lower of cost or net realizable value and excess and obsolete inventory were $85.2 million at March 31, 2017. Reserves for lower of cost or market value, excess and obsolete inventory were $83.3 million at December 31, 2016.

NOTE I – PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment – net consist of the following (in millions):
 
March 31,
2017
 
December 31,
2016
Property
$
39.2

 
$
36.4

Plant
147.4

 
144.3

Equipment
454.1

 
456.1

Property, plant and equipment – gross 
640.7

 
636.8

Less: Accumulated depreciation
(338.0
)
 
(332.2
)
Property, plant and equipment – net
$
302.7

 
$
304.6



22



NOTE J – GOODWILL AND INTANGIBLE ASSETS, NET

An analysis of changes in the Company’s goodwill by business segment is as follows (in millions):
 
    AWP
 
    Cranes
 
MP
 
Total
Balance at December 31, 2016, gross
$
137.7

 
$
179.3

 
$
183.8

 
$
500.8

Accumulated impairment
(38.6
)
 
(179.3
)
 
(23.2
)
 
(241.1
)
Balance at December 31, 2016, net
99.1

 

 
160.6

 
259.7

Foreign exchange effect and other
0.5

 

 
1.9

 
2.4

Balance at March 31, 2017, gross
138.2

 
179.3

 
185.7

 
503.2

Accumulated impairment
(38.6
)
 
(179.3
)
 
(23.2
)
 
(241.1
)
Balance at March 31, 2017, net
$
99.6

 
$

 
$
162.5

 
$
262.1


Intangible assets, net were comprised of the following as of March 31, 2017 and December 31, 2016 (in millions):
 
 
 
March 31, 2017
 
December 31, 2016
 
Weighted Average Life
(in years)
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
Definite-lived intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Technology
7
 
$
16.8

 
$
(15.6
)
 
$
1.2

 
$
17.0

 
$
(15.7
)
 
$
1.3

Customer Relationships
20
 
32.8

 
(25.6
)
 
7.2

 
33.1

 
(25.2
)
 
7.9

Land Use Rights
68
 
8.1

 
(1.0
)
 
7.1

 
7.9

 
(0.9
)
 
7.0

Other
8
 
26.2

 
(23.7
)
 
2.5

 
25.8

 
(23.6
)
 
2.2

Total definite-lived intangible assets
 
 
$
83.9

 
$
(65.9
)
 
$
18.0

 
$
83.8

 
$
(65.4
)
 
$
18.4


 
Three Months Ended
March 31,
(in millions)
2017
 
2016
Aggregate Amortization Expense
$
0.5

 
$
0.7


Estimated aggregate intangible asset amortization expense (in millions) for each of the next five years below is:
2017
$
2.0

2018
$
1.8

2019
$
1.7

2020
$
1.7

2021
$
1.6



NOTE K – DERIVATIVE FINANCIAL INSTRUMENTS

In the normal course of business, the Company enters into two types of derivatives to hedge its interest rate exposure and foreign currency exposure: hedges of fair value exposures and hedges of cash flow exposures.  Fair value exposures relate to recognized assets or liabilities and firm commitments, while cash flow exposures relate to the variability of future cash flows associated with recognized assets or liabilities or forecasted transactions.


23



The Company operates internationally, with manufacturing and sales facilities in various locations around the world, and uses certain financial instruments to manage its foreign currency, interest rate and fair value exposures.  To qualify a derivative as a hedge at inception and throughout the hedge period, the Company formally documents the nature and relationships between hedging instruments and hedged items, as well as its risk-management objectives and strategies for undertaking various hedge transactions, and the method of assessing hedge effectiveness.  Additionally, for hedges of forecasted transactions, significant characteristics and expected terms of a forecasted transaction must be specifically identified, and it must be probable that each forecasted transaction will occur.  If it is deemed probable the forecasted transaction will not occur, then the gain or loss would be recognized in current earnings.  Financial instruments qualifying for hedge accounting must maintain a specified level of effectiveness between the hedging instrument and the item being hedged, both at inception and throughout the hedged period.  The Company does not engage in trading or other speculative use of financial instruments.

The Company has used and may use forward contracts and options to mitigate its exposure to changes in foreign currency exchange rates on third party and intercompany forecasted transactions.  Primary currencies to which the Company is exposed are the Euro, British Pound and Australian Dollar.  The effective portion of unrealized gains and losses associated with forward contracts and the intrinsic value of option contracts are deferred as a component of Accumulated other comprehensive income (loss) (“AOCI”) until the underlying hedged transactions are reported in the Company’s Condensed Consolidated Statement of Comprehensive Income (Loss).

The Company has used and may use interest rate swaps to mitigate its exposure to changes in interest rates related to existing issuances of variable rate debt and changes in the fair value of fixed rate debt.  Primary exposure includes movements in the U.S. prime rate and London Interbank Offered Rate (“LIBOR”). The effective portion of interest rate derivatives designated as cash flow hedges is deferred in AOCI and is recognized in earnings as hedged transactions occur.  Changes in fair value associated with contracts deemed ineffective are recognized in earnings immediately.

In the Condensed Consolidated Statement of Comprehensive Income (Loss), the Company records hedging activity related to debt instruments and hedging activity related to foreign currency in the accounts for which the hedged items are recorded.  On the Condensed Consolidated Statement of Cash Flows, the Company presents cash flows from hedging activities in the same manner as it records the underlying item being hedged.

The Company is party to currency exchange forward contracts that generally mature within one year to manage its exposure to changing currency exchange rates.  At March 31, 2017 and December 31, 2016, the Company had $229.5 million and $245.5 million notional amount of currency exchange forward contracts outstanding that were initially designated as hedge contracts, respectively. Most of the currency exchange forward contracts outstanding as of March 31, 2017 mature on or before March 31, 2018.  The fair market value of the contracts outstanding as of March 31, 2017 and December 31, 2016 was a net loss of $0.9 million and a net loss of $2.6 million, respectively.  At March 31, 2017 and December 31, 2016, $187.9 million and $194.0 million notional amounts ($1.3 million of net fair value losses and $2.7 million of net fair value losses), respectively, of these forward contracts have been designated as, and are effective as, cash flow hedges of forecasted and specifically identified transactions.  During 2017 and 2016, the Company recorded the change in fair value for these cash flow hedges to AOCI and reclassified to earnings a portion of the deferred gain or loss from AOCI as the hedged transactions occurred and were recognized in earnings.

The Company records foreign exchange contracts at fair value on a recurring basis.  The foreign exchange contracts designated as hedging instruments are categorized under Level 2 of the ASC 820 hierarchy and are recorded at March 31, 2017 and December 31, 2016 as a net liability of $0.9 million and a net liability of $2.6 million, respectively.  See Note A – “Basis of Presentation,” for an explanation of the ASC 820 hierarchy. Fair values of these foreign exchange forward contracts are derived using quoted forward foreign exchange prices to interpolate values of outstanding trades at the reporting date based on their maturities.

The Company uses forward foreign exchange contracts to mitigate its exposure to changes in foreign currency exchange rates on third party and intercompany forecasted transactions and balance sheet exposures. Certain of these contracts have not been designated as hedging instruments. The majority of gains and losses recognized from foreign exchange contracts not designated as hedging instruments were offset by changes in the underlying hedged items, resulting in no material net impact on earnings. Changes in the fair value of derivative financial instruments are recognized as gains or losses in Cost of goods sold or Other income (expense) – net in the Condensed Consolidated Statement of Comprehensive Income (Loss).


24



Concurrent with the 2014 sale of a majority stake in A.S.V., Inc. to Manitex International, Inc. (“Manitex”), the Company invested in a subordinated convertible promissory note from Manitex, which included an embedded derivative, the conversion feature. At the date of issuance, the embedded derivative was measured at fair value. The derivative is categorized under Level 2 of the ASC 820 hierarchy and marked-to-market each period with changes in fair value recorded in Other income (expense) - net in the Condensed Consolidated Statement of Comprehensive Income (Loss).

Commencing in May 2015 the Company entered into certain interest rate swap agreements to offset the variability of cash flows due to changes in the floating rate of borrowings under its former Securitization Facility, which was terminated on May 31, 2016. The interest rate swaps were designated as cash flow hedges of the changes in the cash flows of interest rate payments on debt associated with changes in floating interest rates. Changes in the fair value of these derivative financial instruments were recognized as gains or losses in Cost of goods sold in the Condensed Consolidated Statement of Comprehensive Income (Loss). The Company recorded these contracts at fair value on a recurring basis.  At March 31, 2017, the Company had no interest rate swap contracts outstanding, because it terminated the Securitization Facility and concurrently settled its outstanding interest rate swap contracts.

During November 2016, the Company entered into forward foreign currency contracts, with notional value of €100 million, in connection with the sale of the MHPS business to Konecranes to hedge against its exposure to changes in the Euro to U.S. dollar exchange rate, as part of the proceeds from sale was received in Euros. The derivatives were categorized under Level 2 of the ASC 820 hierarchy and fair value was derived using quoted forward foreign exchange prices to interpolate values of outstanding trades at the reporting date based on their maturities. These forward foreign currency contracts were recorded as a net asset of $2.0 million at December 31, 2016. At March 31, 2017, these forward foreign currency contracts were no longer outstanding as the sale of MHPS to Konecranes closed in January 2017.

During the first quarter of 2017, the Company entered into forward foreign currency contracts to hedge a portion of its Euro exposure of Konecranes shares held by the Company and dividends received on Konecranes shares. At March 31, 2017 the Company had €312.1 million notional amount of these derivatives outstanding. They are categorized under Level 2 of the ASC 820 hierarchy and fair value was derived using quoted forward foreign exchange prices to interpolate values of outstanding trades at the reporting date based on their maturities. Fair value measurement resulted in a loss of $0.2 million recorded in Other income (expense) - net in the Condensed Consolidated Statement of Comprehensive Income (Loss).

The following table provides the location and fair value amounts of derivative instruments designated as hedging instruments that are reported in the Condensed Consolidated Balance Sheet (in millions):
Asset Derivatives
Balance Sheet Account
March 31,
2017
 
December 31,
2016
Foreign exchange contracts
Other current assets
$
2.1

 
$
4.2

Total asset derivatives
 
2.1

 
4.2

Liability Derivatives
 
 

 
 

Foreign exchange contracts
Other current liabilities
(3.0
)
 
(6.8
)
Total liability derivatives
 
(3.0
)
 
(6.8
)
Total Derivatives
 
$
(0.9
)
 
$
(2.6
)

The following table provides the location and fair value amounts of derivative instruments not designated as hedging instruments that are reported in the Condensed Consolidated Balance Sheet (in millions):
Asset Derivatives
Balance Sheet Account
March 31,
2017
 
December 31,
2016
Foreign exchange contracts
Other current assets
$
1.1

 
$
2.6

Debt conversion feature
Other assets
0.8

 
1.1

Total asset derivatives
 
1.9

 
3.7

Liability Derivatives
 
 

 
 

Foreign exchange contracts
Other current liabilities
(0.3
)
 
(1.2
)
Total liability derivatives
 
(0.3
)
 
(1.2
)
Total Derivatives
 
$
1.6

 
$
2.5



25



The following tables provide the effect of derivative instruments that are designated as hedges in the Condensed Consolidated Statement of Comprehensive Income (Loss) and AOCI (in millions):
Gain (Loss) Recognized in AOCI on Derivatives:
Three Months Ended
March 31,
Cash Flow Derivatives
 
2017
 
2016
Foreign exchange contracts
 
$
1.1

 
$
(3.1
)
Interest rate swap
 

 
(0.5
)
Total
 
$
1.1

 
$
(3.6
)
Gain (Loss) Reclassified from AOCI into Income (Effective):
Three Months Ended
March 31,
Account
 
2017
 
2016
Cost of goods sold
 
$
(2.0
)
 
$
1.3

Gain (Loss) Recognized in Income on Derivatives (Ineffective):
Three Months Ended
March 31,
Account
 
2017
 
2016
Cost of goods sold
 
$
0.4

 
$
0.1

Other income (expense) – net
 
0.2

 
(0.1
)
Total
 
$
0.6

 
$


The following table provides the effect of derivative instruments that are not designated as hedges in the Condensed Consolidated Statement of Comprehensive Income (Loss) (in millions):
Gain (Loss) Recognized in Income on Derivatives not designated as hedges:
Three Months Ended
March 31,
Account
2017
 
2016
Other income (expense) – net
$
(0.8
)
 
$
(2.3
)

Counterparties to the Company’s currency exchange forward contracts are major financial institutions with credit ratings of investment grade or better and no collateral is required.  There are no significant risk concentrations.  Management continues to monitor counterparty risk and believes the risk of incurring losses on derivative contracts related to credit risk is unlikely and any losses would be immaterial.

Unrealized net gains (losses), net of tax, included in AOCI are as follows (in millions):
 
Three Months Ended
March 31,
 
2017
 
2016
Balance at beginning of period
$
(2.4
)
 
$
2.3

Additional gains (losses) – net
(0.6
)
 
(2.4
)
Amounts reclassified to earnings
1.7

 
(1.2
)
Balance at end of period
$
(1.3
)
 
$
(1.3
)

Within the unrealized net gains (losses) included in AOCI as of March 31, 2017, it is estimated that $1.3 million of losses are expected to be reclassified into earnings in the next twelve months.

26




NOTE L – RESTRUCTURING AND OTHER CHARGES

The Company continually evaluates its cost structure to be appropriately positioned to respond to changing market conditions. From time to time the Company may initiate certain restructuring programs to better utilize its workforce and optimize facility utilization to match demand for its products.

Restructuring

During 2016, the Company established restructuring programs in its Cranes segment to transfer production between existing facilities and close certain facilities in order to maximize labor efficiencies and reduce overhead costs, and incurred $77.0 million of expense in 2016 and 2017. The programs are expected to cost $78.9 million, result in the reduction of approximately 1,260 team members and expected to be completed in 2018.

The following table provides information for all restructuring activities by segment of the amount of expense incurred during the three months ended March 31, 2017, the cumulative amount of expenses incurred since inception of the programs through March 31, 2017, and the total amount expected to be incurred (in millions):
 
Amount incurred
during the
three months ended
March 31, 2017
 
Cumulative amount
incurred through
March 31, 2017
 
Total amount expected to be incurred
AWP
$

 
$
0.3

 
$
0.3

Cranes

 
77.0

 
78.9

Corp & Other

 
1.6

 
1.6

Total
$

 
$
78.9

 
$
80.8


The following table provides information by type of restructuring activity with respect to the amount of expense incurred during the three months ended March 31, 2017, the cumulative amount of expenses incurred since inception of the programs and the total amount expected to be incurred (in millions):
 
Employee
Termination Costs
 
Facility
Exit Costs
 
Asset Disposal and Other Costs
 
Total
Amount incurred during the three months ended March 31, 2017
$

 
$

 
$

 
$

Cumulative amount incurred through March 31, 2017
$
59.7

 
$
1.7

 
$
17.5

 
$
78.9

Total amount expected to be incurred
$
60.4

 
$
2.5

 
$
17.9

 
$
80.8


During the three months ended March 31, 2017, restructuring charges/(reductions) of $(0.6) million and $0.6 million, were included in Cost of Goods Sold (“COGS) and Selling, general and administrative expenses (“SG&A”), respectively. During the three months ended March 31, 2016 there were no restructuring amounts included in COGS or SG&A.

The following table provides a roll forward of the restructuring reserve by type of restructuring activity for the three months ended March 31, 2017 (in millions):
 
Employee
Termination Costs
 
Total
Restructuring reserve at December 31, 2016
$
56.8

 
$
56.8

Restructuring reserve increase (decrease)
(0.2
)
 
(0.2
)
Cash expenditures
(3.9
)
 
(3.9
)
Foreign exchange
0.8

 
0.8

Restructuring reserve at March 31, 2017
$
53.5

 
$
53.5



27



Other

During the first three months of 2017, the Company recorded $0.1 million and $2.1 million as a component of COGS and SG&A, respectively, for severance charges for structural cost reduction actions across all segments and corporate functions. During the first three months of 2016, the Company recorded $2.8 million and $9.6 million as a component of COGS and SG&A, respectively, for severance charges for structural cost reduction actions across all segments and corporate functions.

NOTE M – LONG-TERM OBLIGATIONS

2017 Credit Agreement

On January 31, 2017, the Company entered into a new credit agreement (the “2017 Credit Agreement”), with the lenders and issuing banks party thereto (the “New Lenders”) and Credit Suisse AG, Cayman Islands Branch (“CSAG”), as administrative agent and collateral agent. In connection with the 2017 Credit Agreement, the Company terminated its 2014 Credit Agreement (as defined below), among the Company and certain of its subsidiaries, the lenders thereunder and Credit Suisse AG, as administrative agent and collateral agent, and related agreements and documents. The 2017 Credit Agreement provides the Company with a senior secured revolving line of credit of up to $450 million that is available through January 31, 2022 and a $400 million senior secured term loan, which will mature on January 31, 2024. The 2017 Credit Agreement allows unlimited incremental commitments, which may be extended at the option of the existing or new lenders and can be in the form of revolving credit commitments, term loan commitments, or a combination of both, with incremental amounts in excess of $300 million as long as the Company satisfies a senior secured leverage ratio contained in the 2017 Credit Agreement.

The 2017 Credit Agreement requires the Company to comply with a number of covenants, which limit, in certain circumstances, the Company’s ability to take a variety of actions, including but not limited to: incur indebtedness; create or maintain liens on its property or assets; make investments, loans and advances; repurchase shares of its common stock; engage in acquisitions, mergers, consolidations and asset sales; redeem debt; and pay dividends and distributions. If the Company’s borrowings under its revolving line of credit are greater than 30% of the total revolving credit commitments, the 2017 Credit Agreement requires the Company to comply with certain financial tests, as defined in the 2017 Credit Agreement. If applicable, the minimum required levels of the interest coverage ratio would be 2.5 to 1.0 and the maximum permitted levels of the senior secured leverage ratio would be 2.75 to 1.0. The 2017 Credit Agreement also contains customary default provisions.

As of March 31, 2017, the Company had $397.8 million, net of discount, in U.S. dollar denominated term loans outstanding under the 2017 Credit Agreement. The weighted average interest rate on the term loans at March 31, 2017 was 3.54%. The Company had no revolving credit amounts outstanding as of March 31, 2017.

The 2017 Credit Agreement incorporates facilities for issuance of letters of credit up to $400 million.  Letters of credit issued under the 2017 Credit Agreement letter of credit facility decrease availability under the $450 million revolving line of credit.  As of March 31, 2017, the Company had no letters of credit issued under the 2017 Credit Agreement.  The 2017 Credit Agreement also permits the Company to have additional letter of credit facilities up to $300 million, and letters of credit issued under such additional facilities do not decrease availability under the revolving lines of credit. The Company had letters of credit issued under the additional letter of credit facilities of the 2017 Credit Agreement that totaled $36.0 million as of March 31, 2017.

The Company also has bilateral arrangements to issue letters of credit with various other financial institutions.  These additional letters of credit do not reduce the Company’s availability under the 2017 Credit Agreement.  The Company had letters of credit issued under these additional arrangements of $25.8 million as of March 31, 2017.

In total, as of March 31, 2017, the Company had letters of credit outstanding of $61.8 million. The letters of credit generally serve as collateral for certain liabilities included in the Condensed Consolidated Balance Sheet. Certain letters of credit serve as collateral guaranteeing the Company’s performance under contracts.

Furthermore, the Company and certain of its subsidiaries agreed to take certain actions to secure borrowings under the 2017 Credit Agreement. As a result, on January 31, 2017, Terex and certain of its subsidiaries entered into a Guarantee and Collateral Agreement with CSAG, as collateral agent for the New Lenders, granting security and guarantees to the New Lenders for amounts borrowed under the 2017 Credit Agreement. Pursuant to the Guarantee and Collateral Agreement, Terex is required to (a) pledge as collateral the capital stock of the Company’s material domestic subsidiaries and 65% of the capital stock of certain of the Company’s material foreign subsidiaries, and (b) provide a first priority security interest in substantially all of the Company’s domestic assets.


28



2014 Credit Agreement

On January 31, 2017, in connection with the 2017 Credit Agreement, the Company terminated its 2014 Credit Agreement (as defined below), among the Company and certain of its subsidiaries, the lenders thereunder and Credit Suisse AG, as administrative agent and collateral agent, and related agreements and documents.

On August 13, 2014 the Company entered into a credit agreement (the “2014 Credit Agreement”), with the lenders party thereto and Credit Suisse AG, as administrative agent and collateral agent. The 2014 Credit Agreement provided the Company with a senior secured revolving line of credit of up to $600 million that was available through August 13, 2019, a $230.0 million senior secured term loan and a €200.0 million senior secured term loan, which both matured on August 13, 2021. The 2014 Credit Agreement allowed unlimited incremental commitments, which could be extended at the option of the existing or new lenders and could be in the form of revolving credit commitments, term loan commitments, or a combination of both as long as the Company satisfied a senior secured debt financial ratio contained in the 2014 Credit Agreement.

The 2014 Credit Agreement required the Company to comply with a number of covenants. The covenants limited, in certain circumstances, the Company’s ability to take a variety of actions, including but not limited to: incur indebtedness; create or maintain liens on its property or assets; make investments, loans and advances; repurchase shares of its Common Stock; engage in acquisitions, mergers, consolidations and asset sales; redeem debt; and pay dividends and distributions.

If the Company’s borrowings under its revolving line of credit were greater than 30% of the total revolving credit commitments, the 2014 Credit Agreement required the Company to comply with certain financial tests, as defined in the 2014 Credit Agreement. If applicable, the minimum required levels of the interest coverage ratio would be 2.5 to 1.0 and the maximum permitted levels of the senior secured leverage ratio would be 2.75 to 1.0.

The 2014 Credit Agreement also contained customary default provisions.

During the three months ended March 31, 2017, the Company recorded a loss on early extinguishment of debt related to its 2014 Credit Agreement of approximately $8.2 million.

As of December 31, 2016, the Company had $428.6 million, net of discount, in U.S. dollar and Euro denominated term loans outstanding under the 2014 Credit Agreement. The weighted average interest rate on the term loans at December 31, 2016 was 3.63%. The Company had no outstanding U.S. dollar and Euro denominated revolving credit amounts under the 2014 Credit Agreement at December 31, 2016.

The 2014 Credit Agreement incorporated facilities for issuance of letters of credit up to $400 million.  Letters of credit issued under the 2014 Credit Agreement letter of credit facility decreased availability under the $600 million revolving line of credit. As of December 31, 2016, the Company had no letters of credit issued under the 2014 Credit Agreement.  The 2014 Credit Agreement also permitted the Company to have additional letter of credit facilities up to $300 million, and letters of credit issued under such additional facilities did not decrease availability under the revolving line of credit. The Company had letters of credit issued under the additional letter of credit facilities of the 2014 Credit Agreement that totaled $36.8 million as of December 31, 2016.

The Company also had bilateral arrangements to issue letters of credit with various other financial institutions.  These additional letters of credit did not reduce the Company’s availability under the 2014 Credit Agreement.  The Company had letters of credit issued under these additional arrangements of $146.4 million ($121.4 million related to discontinued operations) as of December 31, 2016.

In total, as of December 31, 2016, the Company had letters of credit outstanding of $183.2 million ($121.4 million related to discontinued operations). The letters of credit generally served as collateral for certain liabilities included in the Condensed Consolidated Balance Sheet. Certain letters of credit served as collateral guaranteeing the Company’s performance under contracts.

The Company and certain of its subsidiaries agreed to take certain actions to secure borrowings under the 2014 Credit Agreement.  As a result, the Company and certain of its subsidiaries entered into a Guarantee and Collateral Agreement with Credit Suisse, as collateral agent for the lenders, granting security to the lenders for amounts borrowed under the 2014 Credit Agreement.  The Company was required to (a) pledge as collateral the capital stock of the Company’s material domestic subsidiaries and 65% of the capital stock of certain of the Company’s material foreign subsidiaries, and (b) provide a first priority security interest in, and mortgages on, substantially all of the Company’s domestic assets.


29



6-1/2% Senior Notes

On March 27, 2012, the Company sold and issued $300.0 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 extinguishment of debt on that date). The 6-1/2% Notes were jointly and severally guaranteed by certain of the Company’s domestic subsidiaries, but summarized financial information for the wholly-owned guarantors is not provided because the 6-1/2% Notes were fully extinguished as of April 3, 2017.

6% Senior Notes

On November 26, 2012, the Company sold and issued $850.0 million aggregate principal amount of Senior Notes due 2021 (“6% Notes”) at par. The proceeds from this offering plus other cash was used to redeem all $800.0 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 our MHPS business, was used: (i) to complete a tender offer for up to $550.0 million of our 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 our 6-1/2% Notes on or before April 3, 2017, (v) to pay related premiums, fees, discounts and expenses, and (vi) for general corporate purposes, including repayment of borrowings outstanding under the 2014 Credit Agreement. The 5-5/8% Notes are jointly and severally guaranteed by certain of the Company’s domestic subsidiaries.

During the three months ended March 31, 2017, the Company recorded a loss on early extinguishment of debt related to its 6% Notes and its 6-1/2% Notes of $37.2 million.

Fair Value of Debt

Based on indicative price quotations from financial institutions multiplied by the amount recorded on the Company’s Condensed Consolidated Balance Sheet (“Book Value”), the Company estimates the fair values (“FV”) of its debt set forth below as of March 31, 2017, as follows (in millions, except for quotes):
 
Book Value
 
Quote
 
FV
5-5/8% Notes
$
600.0

 
$
1.00750

 
$
605

6-1/2% Notes
$
254.2

 
$
1.01625

 
$
258

2017 Credit Agreement Term Loan (net of discount)
$
397.8

 
$
1.00375

 
$
399


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 categorized under Level 1 of the ASC 820 hierarchy. See Note A – “Basis of Presentation,” for an explanation of the ASC 820 hierarchy. The Company believes that the carrying value of its other borrowings, including amounts outstanding for the revolving credit line under the 2017 Credit Agreement approximate fair market value based on maturities for debt of similar terms. The fair value of these other borrowings are categorized under Level 2 of the ASC 820 hierarchy.


30



NOTE N – RETIREMENT PLANS AND OTHER BENEFITS

The Company maintains defined benefit plans in the United States, France, Germany, India, Switzerland and the United Kingdom for some of its subsidiaries, including a nonqualified Supplemental Executive Retirement Plan (“SERP”) in the United States. 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 also has several programs that provide postemployment benefits, including health and life insurance benefits, to certain former salaried and hourly employees. Information regarding the Company’s plans, including the SERP, was as follows (in millions):
 
Three Months Ended
March 31,
 
2017
 
2016
 
U.S. Pension
 
Non-U.S. Pension
 
Other
 
U.S. Pension
 
Non-U.S. Pension
 
Other
Components of net periodic cost:
 
 
 
 
 
 
 
 
 
 
 
Service cost
$
0.2

 
$
0.7

 
$

 
$
0.3

 
$
0.7

 
$

Interest cost
1.7

 
1.2

 

 
1.8

 
1.7

 
0.1

Expected return on plan assets
(2.0
)
 
(1.2
)
 

 
(2.1
)
 
(1.6
)
 

Amortization of actuarial loss
1.1

 
0.8

 

 
1.0

 
0.6

 

Net periodic cost 
$
1.0

 
$
1.5

 
$

 
$
1.0

 
$
1.4

 
$
0.1


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.

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These lawsuits generally cover the period from February 2008 to February 2009 and allege, among other things, that certain of the Company’s SEC filings and other public statements contained false and misleading statements which resulted in damages to the Company, the plaintiffs and the members of the purported class when they purchased the Company’s securities and in the stockholder derivative complaint, that there were breaches of fiduciary duties. The stockholder derivative complaint also alleges waste of corporate assets relating to the repurchase of the Company’s shares in the market and unjust enrichment as a result