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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

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

Commission file number 1-10702

Terex Corporation
(Exact name of registrant as specified in its charter)
Delaware   34-1531521
(State of Incorporation)   (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)
_______________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock ($0.01 par value) TEX New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
Accelerated filer  Non-accelerated filer
Smaller reporting company Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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

Number of outstanding shares of common stock: 69.3 million as of April 28, 2020.
The Exhibit Index begins on page 48.




GENERAL

Unless specifically noted otherwise, this Quarterly Report on Form 10-Q filed by Terex Corporation generally speaks as of March 31, 2020 and excludes discontinued operations. Discontinued operations primarily relate to the Demag® mobile cranes business and mobile crane product lines that were previously manufactured in our Oklahoma City facility. See Note D - “Discontinued Operations and Assets and Liabilities Held for Sale” in the Notes to the Condensed Consolidated Financial Statements for further information. 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,” “will” 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 has been, and could be further, adversely impacted by an outbreak of a new strain of coronavirus (“COVID-19”);
our business is cyclical and weak general economic conditions affect the sales of our products and financial results;
changes in import/export regulatory regimes and the escalation of global trade conflicts could continue to negatively impact sales of our products and our financial results;
our financial results could be adversely impacted by the United Kingdom’s (“U.K.”) departure from the European Union (“E.U.”);
changes affecting the availability of the London Interbank Offered Rate ("LIBOR") may have consequences on us that cannot yet reasonably be predicted;
our need to comply with restrictive covenants contained in our debt agreements;
our ability to generate sufficient cash flow to service our debt obligations and operate our business;
our ability to access the capital markets to raise funds and provide liquidity;
our business is sensitive to government spending;
our business is highly competitive and is affected by our cost structure, pricing, product initiatives and other actions taken by competitors;
our retention of key management personnel;
the financial condition of suppliers and customers, and their continued access to capital;
exposure from providing financing and credit support for some of our customers;
we may experience losses in excess of recorded reserves;
we are dependent upon third-party suppliers, making us vulnerable to supply shortages and price increases;
our business is global and subject to changes in exchange rates between currencies, commodity price changes, regional economic conditions and trade restrictions;
our operations are subject to a number of potential risks that arise from operating a multinational business, including compliance with changing regulatory environments, the Foreign Corrupt Practices Act and other similar laws and political instability;
a material disruption to one of our significant facilities;
possible work stoppages and other labor matters;
compliance with changing laws and regulations, particularly environmental and tax laws and regulations;
litigation, product liability claims and other liabilities;
our ability to comply with an injunction and related obligations imposed by the United States Securities and Exchange Commission (“SEC”);
disruption or breach in our information technology systems and storage of sensitive data;
our ability to successfully implement our Execute to Win strategy; and
other factors.

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



TEREX CORPORATION AND SUBSIDIARIES
Index to Quarterly Report on Form 10-Q
For the Quarterly Period Ended March 31, 2020


3


PART I.FINANCIAL INFORMATION

ITEM 1.
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,
  2020 2019
Net sales $ 833.6    $ 1,136.6   
Cost of goods sold (696.9)   (898.8)  
Gross profit 136.7    237.8   
Selling, general and administrative expenses (143.8)   (138.1)  
Income (loss) from operations (7.1)   99.7   
Other income (expense)
Interest income 0.9    1.7   
Interest expense (17.7)   (23.0)  
Other income (expense) – net  (1.6)   (3.2)  
Income (loss) from continuing operations before income taxes (25.5)   75.2   
(Provision for) benefit from income taxes 0.8    (18.0)  
Income (loss) from continuing operations (24.7)   57.2   
Income (loss) from discontinued operations – net of tax (0.2)   (124.4)  
Gain (loss) on disposition of discontinued operations – net of tax —    0.6   
Net income (loss) $ (24.9)   $ (66.6)  
Basic earnings (loss) per share:
Income (loss) from continuing operations $ (0.35)   $ 0.81   
Income (loss) from discontinued operations – net of tax —    (1.76)  
Gain (loss) on disposition of discontinued operations – net of tax —    0.01   
Net income (loss) $ (0.35)   $ (0.94)  
Diluted earnings (loss) per share:
Income (loss) from continuing operations $ (0.35)   $ 0.79   
Income (loss) from discontinued operations – net of tax —    (1.73)  
Gain (loss) on disposition of discontinued operations – net of tax —    0.01   
Net income (loss) $ (0.35)   $ (0.93)  
Weighted average number of shares outstanding in per share calculation
Basic 70.5    70.6   
Diluted 70.5    71.8   
Comprehensive income (loss) $ (81.1)   $ (68.9)  

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,
2020
December 31,
2019
Assets    
Current assets    
Cash and cash equivalents $ 511.3    $ 535.1   
  Trade receivables (net of allowance of $10.8 and $9.9 at March 31, 2020 and December 31, 2019, respectively)
402.0    401.9   
Inventories 823.0    847.7   
Prepaid and other current assets 229.3    235.0   
Total current assets 1,965.6    2,019.7   
Non-current assets    
Property, plant and equipment – net 388.8    389.4   
Goodwill 261.2    269.9   
Intangible assets – net 9.2    9.7   
Other assets 489.9    506.9   
Total assets $ 3,114.7    $ 3,195.6   
Liabilities and Stockholders’ Equity
Current liabilities    
Current portion of long-term debt $ 7.0    $ 6.9   
Trade accounts payable 454.9    508.1   
Other current liabilities 313.7    357.4   
Total current liabilities 775.6    872.4   
Non-current liabilities    
Long-term debt, less current portion 1,338.1    1,168.8   
Other non-current liabilities 214.8    222.1   
Total liabilities 2,328.5    2,263.3   
Commitments and contingencies
Stockholders’ equity    
Common stock, $0.01 par value – authorized 300.0 shares; issued 82.8 and 82.2 shares at March 31, 2020 and December 31, 2019, respectively
0.9    0.8   
Additional paid-in capital 821.5    824.4   
Retained earnings 736.0    771.4   
Accumulated other comprehensive income (loss) (313.7)   (257.5)  
Less cost of shares of common stock in treasury – 14.2 and 11.8 shares at March 31, 2020 and December 31, 2019, respectively
(458.5)   (406.8)  
Total stockholders’ equity 786.2    932.3   
Total liabilities and stockholders’ equity $ 3,114.7    $ 3,195.6   

The accompanying notes are an integral part of these condensed consolidated financial statements.
5


TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(unaudited)
(in millions)
Outstanding
Shares
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Common
Stock in
Treasury
Non-controlling
Interest
Total
Balance at December 31, 2019 70.4    $ 0.8    $ 824.4    $ 771.4    $ (257.5)   $ (406.8)   $ —    $ 932.3   
Net income (loss) —    —    —    (24.9)   —    —    —    (24.9)  
Other comprehensive income (loss) – net of tax
—    —    —    —    (56.2)   —    —    (56.2)  
Issuance of common stock 0.6    0.1    26.4    —    —    —    —    26.5   
Compensation under stock-based plans – net
0.1    —    (29.5)   —    —    3.2    —    (26.3)  
Dividends —    —    0.2    (8.6)   —    —    —    (8.4)  
Acquisition of treasury stock (2.5)   —    —    —    —    (54.9)   —    (54.9)  
Other —    —    —    (1.9)   —    —    —    (1.9)  
Balance at March 31, 2020 68.6    $ 0.9    $ 821.5    $ 736.0    $ (313.7)   $ (458.5)   $ —    $ 786.2   


Outstanding
Shares
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Common
Stock in
Treasury
Non-controlling
Interest
Total
Balance at December 31, 2018 69.6    $ 0.8    $ 797.3    $ 749.0    $ (284.8)   $ (401.8)   $ 0.5    $ 861.0   
Net income (loss) —    —    —    (66.6)   —    —    —    (66.6)  
Other comprehensive income (loss) – net of tax
—    —    —    —    (2.3)   —    —    (2.3)  
Issuance of common stock 0.7    —    21.4    —    —    —    —    21.4   
Compensation under stock-based plans – net
0.1    —    (24.7)   —    —    1.7    —    (23.0)  
Dividends —    —    0.1    (8.0)   —    —    —    (7.9)  
Acquisition of treasury stock —    —    —    —    —    (0.3)   —    (0.3)  
Balance at March 31, 2019 70.4    $ 0.8    $ 794.1    $ 674.4    $ (287.1)   $ (400.4)   $ 0.5    $ 782.3   


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

6


TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
(in millions)
  Three Months Ended
March 31,
  2020 2019
Operating Activities    
Net income (loss) $ (24.9)   $ (66.6)  
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:    
Depreciation and amortization 11.8    13.5   
(Gain) loss on disposition of discontinued operations —    (0.6)  
Deferred taxes 4.7    (2.6)  
Impairments 0.1    86.1   
Stock-based compensation expense 7.3    11.7   
Inventory and other non-cash charges 6.1    25.0   
Changes in operating assets and liabilities (net of effects of acquisitions and divestitures):    
Trade receivables (16.3)   (96.2)  
Inventories 2.1    (69.6)  
Trade accounts payable (35.5)   (70.1)  
Other assets and liabilities (39.6)   (102.3)  
Foreign exchange and other operating activities, net (4.5)   6.3   
Net cash provided by (used in) operating activities (88.7)   (265.4)  
Investing Activities    
Capital expenditures (25.2)   (10.8)  
Proceeds from sale of capital assets 0.5    0.2   
Proceeds (payments) from disposition of discontinued operations 4.5    —   
Net cash provided by (used in) investing activities (20.2)   (10.6)  
Financing Activities    
Repayments of debt (1.5)   (638.7)  
Proceeds from issuance of debt 170.0    899.0   
Share repurchases (54.8)   (0.2)  
Dividends paid (8.4)   (7.8)  
Other financing activities, net (7.0)   (15.9)  
Net cash provided by (used in) financing activities 98.3    236.4   
Effect of Exchange Rate Changes on Cash and Cash Equivalents (14.5)   (2.3)  
Net Increase (Decrease) in Cash and Cash Equivalents (25.1)   (41.9)  
Cash and Cash Equivalents at Beginning of Period 540.1    372.1   
Cash and Cash Equivalents at End of Period $ 515.0    $ 330.2   

The accompanying notes are an integral part of these condensed consolidated financial statements.
7


TEREX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

NOTE A – BASIS OF PRESENTATION

Basis of Presentation and Principles of Consolidation.  The accompanying unaudited Condensed Consolidated Financial Statements of Terex Corporation and subsidiaries as of March 31, 2020 and for the three months ended March 31, 2020 and 2019 have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) 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 U.S. GAAP to be included in full-year financial statements.  The accompanying Condensed Consolidated Balance Sheet as of December 31, 2019 has been derived from audited consolidated financial statements as of that date, but does not include all disclosures required by U.S. GAAP.  For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for year ended December 31, 2019.

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 equity method of accounting for investments in which the Company is able to exercise significant influence and applies the cost method for all other investments.  All intercompany balances, transactions and profits have been eliminated. Certain prior period amounts have been reclassified to conform with the 2020 presentation.

As further described in Note D - “Discontinued Operations and Assets and Liabilities Held for Sale”, on July 31, 2019, the Company completed the disposition of its Demag® mobile cranes business (“Demag”) to Tadano Ltd. and certain of its subsidiaries (“Tadano”). During 2019, the Company also exited North American mobile crane product lines manufactured in its Oklahoma City facility. As a result, the Company reported these operations, formerly part of the Cranes segment, in discontinued operations in the Condensed Consolidated Statement of Comprehensive Income (Loss) for all periods presented. Residual assets and liabilities are recorded within Prepaid and other current assets, Other assets, Other current liabilities and Other non-current liabilities in the Condensed Consolidated Balance Sheet at March 31, 2020 and December 31, 2019. Other operations formerly part of the Cranes segment were reorganized to align with the Company’s new management and reporting structure. The utilities business has been consolidated within Aerial Work Platforms (“AWP”) and the pick and carry, rough terrain and tower cranes businesses have been consolidated within Materials Processing (“MP”). The Company now manages and reports its business in the following segments: (i) AWP and (ii) MP. See Note B - “Business Segment Information” and Note D - “Discontinued Operations and Assets and Liabilities Held for Sale” for further information.

In the opinion of management, adjustments considered necessary for the fair statement 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, 2020 are not necessarily indicative of results that may be expected for the year ending December 31, 2020.

Cash and cash equivalents include $4.6 million at March 31, 2020 and December 31, 2019 which were not immediately available for use.  These consist primarily of cash balances held in escrow to secure various obligations of the Company.
8



Recently Issued Accounting Standards

Accounting Standards Implemented in 2020

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” (“ASU 2016-13”). ASU 2016-13 sets forth a “current expected credit loss” model which requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. Guidance in this standard replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. Subsequently, the FASB issued the following standards related to ASU 2016-13: ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments - Credit Losses,” ASU 2019-05, “Financial Instruments-Credit Losses (Topic 326) Targeted Transition Relief,” ASU 2019-11, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses,” and ASU 2020-03, “Codification Improvement to Financial Instruments,” which provided additional guidance and clarity to ASU 2016-13 (collectively, the “Credit Loss Standard”). The Company adopted the Credit Loss Standard on January 1, 2020 using a modified retrospective approach. Adoption did not have a material effect on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40), Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract,” (“ASU 2018-15”). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The Company adopted ASU 2018-15 on January 1, 2020. Adoption did not have a material effect on the Company’s consolidated financial statements.

In April 2019, the FASB issued ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments,” (“ASU 2019-04”). ASU 2019-04 provided narrow scope amendments for Topics 326, 815 and 825.  The Company adopted ASU 2019-04 on January 1, 2020. Adoption did not have a material effect on the Company’s consolidated financial statements.

Accounting Standards to be Implemented

In August 2018, the FASB issued ASU 2018-14, “Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans,” (“ASU 2018-14”). ASU 2018-14 adds, removes and clarifies disclosure requirements related to defined benefit pension plans and other postretirement plans. The guidance is effective for our fiscal year ending December 31, 2020. Adoption is not expected to have a material effect on the Company’s consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes” (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application of Topic 740. The effective date will be the first quarter of fiscal year 2021 and early adoption is permitted. The Company is currently evaluating the impact that the amendments to Topic 740 will have on its consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848)”. ASU 2020-04 provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform. The guidance is effective as of March 12, 2020 through December 31, 2022. The Company is currently evaluating the impact that the amendments to Topic 848 will have on its consolidated financial statements.

9


Accounts Receivable and Allowance for Doubtful Accounts. Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of current expected credit losses on its existing accounts receivable. The Company determines the allowance based on historical customer review, reasonable and supportable forecasts, and current financial conditions. The Company reviews its allowance for doubtful accounts at least quarterly. Account balances are charged off against the allowance when the Company determines it is expected the receivable will not be recovered. There can be no assurance that the Company’s estimate of accounts receivable collection will be indicative of future results. The Company has off-balance sheet credit exposure related to guarantees provided to financial institutions as disclosed in Note M – “Litigation and Contingencies”.

The following table summarizes changes in the consolidated allowance for doubtful accounts (in millions):
Balance as of December 31, 2019 $ 9.9   
Provision for credit losses 1.0   
Other adjustments (0.1)  
Balance as of March 31, 2020 $ 10.8   

Guarantees. The Company records a liability for the estimated fair value of guarantees issued pursuant to ASC 460. In addition, the Company recognizes a loss under a guarantee when its obligation to make payment under the guarantee is expected. A loss would be recognized if the Company’s payment obligation under the guarantee exceeds the value it can expect to recover to offset such payment, primarily through the sale of the equipment underlying the guarantee.

Accrued Warranties.  The Company records accruals for potential warranty claims based on its claim experience.  The Company’s products are typically sold with a standard warranty covering defects that arise during a fixed period.  Each business provides a warranty specific to products it offers.  The specific warranty offered by a business is a function of customer expectations and competitive forces.  Warranty length is generally a fixed period of time, a fixed number of operating hours or both.

A liability for estimated warranty claims is accrued at the time of sale.  The current portion of the product warranty liability is included in Other current liabilities and the non-current portion is included in Other non-current liabilities in the Company’s Condensed Consolidated Balance Sheet.  The liability is established using historical warranty claims experience for each product sold.  Historical claims experience may be adjusted for known design improvements or for the impact of unusual product quality issues.  Warranty reserves are reviewed quarterly to ensure critical assumptions are updated for known events that may affect the potential warranty liability.

The following table summarizes changes in the consolidated product warranty liability (in millions):
Balance as of December 31, 2019 $ 47.5   
Accruals for warranties issued during the period 7.9   
Changes in estimates 3.7   
Settlements during the period (13.1)  
Foreign exchange effect/other (0.5)  
Balance as of March 31, 2020 $ 45.5   

10


Fair Value Measurements. Assets and liabilities measured at fair value on a recurring basis under the provisions of Accounting Standards Codification (“ASC”) 820, “Fair Value Measurement and Disclosure” (“ASC 820”) include foreign exchange contracts, interest rate caps, cross currency swaps, commodity swaps and a debt conversion feature on a convertible promissory note discussed in Note J – “Derivative Financial Instruments” and debt discussed in Note K – “Long-term Obligations”.  These instruments are valued using a market approach, which uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.  ASC 820 establishes a fair value hierarchy for those instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s assumptions (unobservable inputs).  The hierarchy consists of three levels:

Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2 – Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
Level 3 – Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported by little or no market activity).

Determining which category an asset or liability falls within this hierarchy requires judgment.  The Company evaluates its hierarchy disclosures each quarter.

NOTE B – BUSINESS SEGMENT INFORMATION

Terex is a global manufacturer of aerial work platforms and materials processing machinery. The Company designs, builds and supports products used in construction, maintenance, manufacturing, energy, minerals and materials management applications. Terex’s products are manufactured in North and South America, Europe, Australia and Asia and sold worldwide. The Company engages with customers through all stages of the product life cycle, from initial specification and financing to parts and service support. The Company operates in two reportable segments: (i) AWP and (ii) MP.

The AWP segment designs, manufactures, services and markets aerial work platform equipment, utility equipment, telehandlers and light towers as well as their related components and replacement parts. Customers use these products to construct and maintain industrial, commercial, institutional and residential buildings and facilities, for construction and maintenance of utility and telecommunication lines, tree trimming, certain construction and foundation drilling applications, and for other commercial operations, as well as in a wide range of infrastructure projects.

The MP segment designs, manufactures and markets materials processing and specialty equipment, including crushers, washing systems, screens, apron feeders, material handlers, pick and carry cranes, rough terrain cranes, tower cranes, wood processing, biomass and recycling equipment, concrete mixer trucks and concrete pavers, conveyors, and their related components and replacement parts. Customers use these products in construction, infrastructure and recycling projects, in various quarrying and mining applications, as well as in landscaping and biomass production industries, material handling applications, maintenance applications to lift equipment or material, moving materials and equipment on rugged or uneven terrain, lifting construction material and placing material at point of use.

The Company’s rough terrain and tower cranes operations were consolidated within MP for financial reporting periods beginning on or after January 1, 2020, to align with its new management and reporting structure. Prior period reportable segment information was adjusted to reflect the realignment of operations.

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

Corporate and Other also includes eliminations among the two segments, as well as general and corporate items.

11


Business segment information is presented below (in millions):
  Three Months Ended
March 31,
  2020 2019
Net sales
AWP $ 511.7    $ 727.9   
MP 315.6    410.5   
Corporate and Other / Eliminations 6.3    (1.8)  
Total $ 833.6    $ 1,136.6   
Income (loss) from operations
AWP $ (5.9)   $ 59.6   
MP 25.0    59.5   
Corporate and Other / Eliminations (26.2)   (19.4)  
Total $ (7.1)   $ 99.7   

Sales between segments are generally priced to recover costs plus a reasonable markup for profit, which is eliminated in consolidation.
  March 31,
2020
December 31,
2019
Identifiable assets    
AWP $ 1,824.4    $ 1,814.4   
MP 1,620.0    1,750.9   
Corporate and Other / Eliminations (335.0)   (379.5)  
Assets held for sale 5.3    9.8   
Total $ 3,114.7    $ 3,195.6   

Geographic net sales information is presented below (in millions):
 

  Three Months Ended
March 31, 2020
Three Months Ended
March 31, 2019
  AWP MP Corporate and Other / Eliminations Total AWP MP Corporate and Other / Eliminations Total
Net sales by region          
North America $ 342.5    $ 114.4    $ 14.4    $ 471.3    $ 437.4    $ 143.5    $ 13.9    $ 594.8   
Western Europe 88.8    105.7    0.1    194.6    164.5    144.5    0.1    309.1   
Asia-Pacific 51.1    59.0    0.2    110.3    79.4    73.7    0.5    153.6   
Rest of World (1)
29.3    36.5    (8.4)   57.4    46.6    48.8    (16.3)   79.1   
Total (2)
$ 511.7    $ 315.6    $ 6.3    $ 833.6    $ 727.9    $ 410.5    $ (1.8)   $ 1,136.6   

(1)  Includes intercompany sales and eliminations.
(2)  Total sales include $431.1 million and $547.2 million for the three months ended March 31, 2020 and 2019, respectively, attributable to the United States, the Company’s country of domicile.

The Company attributes sales to unaffiliated customers in different geographical areas based on the location of the customer.
12



Product type net sales information is presented below (in millions):
 

  Three Months Ended
March 31, 2020
Three Months Ended
March 31, 2019
  AWP MP Corporate and Other / Eliminations Total AWP MP Corporate and Other / Eliminations Total
Net sales by product type          
Aerial Work Platforms $ 346.7    $ —    $ 0.4    $ 347.1    $ 519.6    $ —    $ 0.9    $ 520.5   
Materials Processing Equipment —    188.1    —    188.1    —    216.0    —    216.0   
Specialty Equipment —    126.3    0.3    126.6    —    192.3    1.1    193.4   
Other (1)
165.0    1.2    5.6    171.8    208.3    2.2    (3.8)   206.7   
Total $ 511.7    $ 315.6    $ 6.3    $ 833.6    $ 727.9    $ 410.5    $ (1.8)   $ 1,136.6   

(1)  Includes other product types, intercompany sales and eliminations.

NOTE C – INCOME TAXES

During the three months ended March 31, 2020, the Company recognized income tax benefit of $0.8 million on a loss of $25.5 million, an effective tax rate of 3.1%, as compared to income tax expense of $18.0 million on income of $75.2 million, an effective tax rate of 23.9%, for the three months ended March 31, 2019. The lower effective tax rate for the three months ended March 31, 2020 is primarily due to increased U.S. tax on foreign income, recording state valuation allowances and deferred tax resulting from India tax legislation, partially offset by tax benefits from geographic mix and the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), when compared with the three months ended March 31, 2019.

13


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

Mobile Cranes Disposal Group

On July 31, 2019, the Company completed the disposition of Demag to Tadano. The Company received approximately $215 million of consideration, as adjusted for estimated amounts of cash, debt, working capital and certain other items. The final consideration will be adjusted based on the actual amounts of cash, debt and working capital. Products divested were Demag® all terrain cranes and large lattice boom crawler cranes. During the three months ended March 31, 2019, the Company recognized a charge of approximately $86 million, net of tax, to write-down Demag to its fair value, less costs to sell. During 2019, the Company also exited North American mobile crane product lines manufactured in its Oklahoma City facility.

The Company’s actions to sell Demag and cease manufacturing of mobile crane product lines in its Oklahoma City facility represent a significant strategic shift in its business away from mobile cranes as these businesses constituted a significant part of its operations and financial results. The Company believes these actions were necessary to execute its Focus, Simplify and Execute to Win strategy.

In connection with the disposition of Demag, the Company entered into certain ancillary agreements with Tadano including a Transition Services Agreement (“TSA”), dated as of July 31, 2019, under which the parties will provide one another certain transition services to facilitate the separation of Demag from the Company. Agreements covered under the TSA are generally 12 months or less in duration but certain agreements extend for 36 months. Fees related to these agreements are for reimbursement of services provided.

Income (Loss) from Discontinued Operations

The following amounts related to discontinued operations were derived from historical financial information and have been segregated from continuing operations and reported as discontinued operations in the Condensed Consolidated Statement of Comprehensive Income (Loss) (in millions):
Three Months Ended
March 31,
 
  2020 2019
Net sales $ 5.4    $ 125.9   
Cost of sales
(5.1)   (140.3)  
Selling, general and administrative expenses
(0.5)   (31.0)  
Impairment of mobile cranes disposal group
(0.1)   (86.1)  
Other income (expense)
—    (2.3)  
Income (loss) from discontinued operations before income taxes
(0.3)   (133.8)  
(Provision for) benefit from income taxes
0.1    9.4   
Income (loss) from discontinued operations – net of tax $ (0.2)   $ (124.4)  
14


Assets and Liabilities Held for Sale

Assets and liabilities held for sale consist of the Company’s utility hot lines tools business located in South America, mobile cranes product lines manufactured in Oklahoma City and Demag, all previously contained in its former Cranes segment. Such assets and liabilities are classified as held for sale upon meeting the requirements of ASC 360 - “Property, Plant and Equipment”, and are recorded at lower of carrying amounts or fair value less costs to sell. Assets are no longer depreciated once classified as held for sale.

The following table provides the amounts of assets and liabilities held for sale in the Condensed Consolidated Balance Sheet (in millions):
March 31, 2020 December 31, 2019
  Cranes Cranes
Assets    
Cash and cash equivalents $ 3.7    $ 5.0   
Trade receivables – net 2.7    3.5   
Inventories 2.0    5.3   
Prepaid and other current assets 0.2    0.2   
Impairment reserve (3.7)   (4.8)  
Included in Prepaid and other current assets $ 4.9    $ 9.2   
Property, plant and equipment – net $ 0.4    $ 0.6   
Intangible assets 1.8    2.4   
Impairment reserve (2.2)   (2.8)  
Other assets 0.4    0.4   
Included in Other assets $ 0.4    $ 0.6   
Liabilities    
Trade accounts payable $ 2.1    $ 4.6   
Accruals and other current liabilities 2.0    3.8   
Included in Other current liabilities $ 4.1    $ 8.4   
Non-current liabilities $ 1.0    $ 1.2   
Included in Other non-current liabilities $ 1.0    $ 1.2   

15


The following table provides amounts of cash and cash equivalents presented in the Condensed Consolidated Statement of Cash Flows (in millions):
  March 31, 2020 December 31, 2019
Cash and cash equivalents:    
Cash and cash equivalents - continuing operations $ 511.3    $ 535.1   
Cash and cash equivalents - held for sale 3.7    5.0   
Total cash and cash equivalents $ 515.0    $ 540.1   

The following table provides supplemental cash flow information related to discontinued operations (in millions):
Three Months Ended
March 31,
 
  2020 2019
Non-cash operating items:
Depreciation and amortization $ —    $ 2.2   
Impairments
$ 0.1    $ 86.1   
Deferred taxes
$ —    $ (3.3)  
Investing activities:
Capital expenditures $ —    $ (1.6)  

Gain (Loss) on Disposition of Discontinued Operations - net of tax (in millions):

Three Months Ended
  March 31,
  2019
Material Handling and Port Solutions
Gain (loss) on disposition of discontinued operations $ (1.3)  
(Provision for) benefit from income taxes 1.9   
Gain (loss) on disposition of discontinued operations – net of tax
$ 0.6   

   
16


NOTE E – EARNINGS PER SHARE
(in millions, except per share data) Three Months Ended
March 31,
  2020 2019
Income (loss) from continuing operations
$ (24.7)   $ 57.2   
Income (loss) from discontinued operations – net of tax (0.2)   (124.4)  
Gain (loss) on disposition of discontinued operations – net of tax
—    0.6   
Net income (loss) $ (24.9)   $ (66.6)  
Basic shares:
Weighted average shares outstanding 70.5    70.6   
Earnings (loss) per share – basic:
Income (loss) from continuing operations $ (0.35)   $ 0.81   
Income (loss) from discontinued operations – net of tax —    (1.76)  
Gain (loss) on disposition of discontinued operations – net of tax
—    0.01   
Net income (loss) $ (0.35)   $ (0.94)  
Diluted shares:
Weighted average shares outstanding – basic 70.5    70.6   
Effect of dilutive securities:
Restricted stock awards
—    1.2   
Diluted weighted average shares outstanding 70.5    71.8   
Earnings (loss) per share – diluted:
Income (loss) from continuing operations $ (0.35)   $ 0.79   
Income (loss) from discontinued operations – net of tax —    (1.73)  
Gain (loss) on disposition of discontinued operations – net of tax
—    0.01   
Net income (loss) $ (0.35)   $ (0.93)  

 
Non-vested restricted stock awards granted by the Company are treated as potential common shares outstanding in computing diluted earnings per share using the treasury stock method. Weighted average restricted stock awards of approximately 1.6 million and 0.8 million were outstanding during the three months ended March 31, 2020 and 2019, respectively, but were not included in the computation of diluted shares as the effect would be anti-dilutive or performance targets were not expected to be achieved for awards contingent upon performance.

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NOTE F – FINANCE RECEIVABLES

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

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

The Company’s net finance receivable balances include both sales-type leases and commercial loans. Finance receivables that management intends to hold until maturity are stated at their outstanding unpaid principal balances, net of an allowance for loan losses as well as any deferred fees and costs. Finance receivables originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value, on an individual asset basis. During the three months ended March 31, 2020 and 2019, the Company transferred finance receivables of $33.1 million and $43.2 million, respectively, to third-party financial institutions, which qualified for sales treatment under ASC 860. At March 31, 2020 and December 31, 2019 the Company had $20.7 million and $17.6 million, respectively, 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. The Company bills customers and accrues interest income monthly on the unpaid principal balance. The accrual of interest is generally discontinued when the contractual payment of principal or interest has become 90 days past due or management has significant doubts about further collectability of contractual payments, even though the loan may be currently performing. A receivable may remain on accrual status if it is in the process of collection and is either guaranteed or secured. Interest received on non-accrual finance receivables is typically applied against principal. Finance receivables are generally restored to accrual status when the obligation is brought current and the borrower has performed in accordance with the contractual terms for a reasonable period of time and the ultimate collectability of the total contractual principal and interest is no longer in doubt. The Company has a history of enforcing the terms of these separate financing agreements. The Company is offering principal payment relief options to customers impacted by COVID-19. These loan modifications are accounted for in accordance with Section 4013 of the CARES Act and therefore are not treated as troubled debt restructurings for accounting or disclosure purposes.

Finance receivables, net consisted of the following (in millions):
March 31,
2020
December 31,
2019
Commercial loans $ 146.4    $ 145.7   
Sales-type leases 19.4    20.5   
Total finance receivables, gross 165.8    166.2   
Allowance for credit losses (14.8)   (11.0)  
Total finance receivables, net $ 151.0    $ 155.2   

Approximately $53 million and $52 million of finance receivables are recorded in Prepaid and other current assets at March 31, 2020 and December 31, 2019, respectively. Approximately $98 million and $103 million are recorded in Other assets in the Condensed Consolidated Balance Sheet at March 31, 2020 and December 31, 2019, respectively.

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 Condensed 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, reasonable and supportable forecasts of customer default, 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.

18


The following table presents an analysis of the allowance for credit losses (in millions):

Three Months Ended
March 31, 2020
Three Months Ended
March 31, 2019
Commercial Loans Sales-Type Leases Total Commercial Loans Sales-Type Leases Total
Balance, beginning of period $ 10.5    $ 0.5    $ 11.0    $ 4.0    $ 1.5    $ 5.5   
Provision for credit losses
4.0    —    4.0    8.2    (0.3)   7.9   
Charge offs (0.2)   —    (0.2)   (0.8)   —    (0.8)  
Balance, end of period $ 14.3    $ 0.5    $ 14.8    $ 11.4    $ 1.2    $ 12.6   

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

General loss allowance levels are determined based upon a combination of factors including, but not limited to, TFS experience, general market loss experience, performance of the portfolio, current economic conditions, reasonable and supportable forecasts of customer defaults and collateral values, and management's judgment. The two primary risk characteristics inherent in the portfolio are (1) the customer's ability to meet contractual payment terms, and (2) the liquidation values of the underlying primary and secondary collaterals. The Company records a general or unallocated loss allowance that is calculated by applying a reserve rate to its portfolio, net of individually impaired finance receivables. Accounts are considered delinquent when the billed periodic payments of the finance receivables exceed 30 days past the due date. All delinquent accounts are reviewed for potential impairment. A receivable is deemed to be impaired when based on current information and events, it is expected 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.

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The following table presents individually impaired finance receivables (in millions):
March 31, 2020 March 31, 2019 December 31, 2019
Commercial Loans Sales-Type Leases Total Commercial Loans Sales-Type Leases Total Commercial Loans Sales-Type Leases Total
Recorded investment $ 22.7    $ —    $ 22.7    $ 8.0    $ —    $ 8.0    $ 7.8    $ —    $ 7.8   
Related allowance 11.5    —    11.5    7.8    —    7.8    7.8    —    7.8   
Average recorded investment 11.5    —    11.5    6.9    —    6.9    7.5    —    7.5   

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, 2020 December 31, 2019
Allowance for credit losses, ending balance: Commercial Loans Sales-Type Leases Total Commercial Loans Sales-Type Leases Total
Individually evaluated for impairment $ 11.5    $ —    $ 11.5    $ 7.8    $ —    $ 7.8   
Collectively evaluated for impairment 2.8    0.5    3.3    2.7    0.5    3.2   
Total allowance for credit losses $ 14.3    $ 0.5    $ 14.8    $ 10.5    $ 0.5    $ 11.0   
Finance receivables, ending balance:
Individually evaluated for impairment $ 22.7    $ —    $ 22.7    $ 7.8    $ —    $ 7.8   
Collectively evaluated for impairment 123.7    19.4    143.1    137.9    20.5    158.4   
Total finance receivables $ 146.4    $ 19.4    $ 165.8    $ 145.7    $ 20.5    $ 166.2   

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

The following tables present analysis of aging of recorded investment in finance receivables (in millions):
March 31, 2020
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 $ 137.7    $ 0.7    $ 0.3    $ 7.7    $ 8.7    $ 146.4   
Sales-type leases 19.1    —    —    0.3    0.3    19.4   
Total finance receivables $ 156.8    $ 0.7    $ 0.3    $ 8.0    $ 9.0    $ 165.8   

December 31, 2019
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 $ 135.1