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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 September 30, 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 October 23, 2020.
The Exhibit Index begins on page 55.



GENERAL

Unless specifically noted otherwise, this Quarterly Report on Form 10-Q filed by Terex Corporation generally speaks as of September 30, 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 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 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 September 30, 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
September 30, 		Nine Months Ended
September 30,
  2020 2019 2020 2019
Net sales $ 765.6  $ 1,024.6  $ 2,289.7  $ 3,468.1 
Cost of goods sold (619.3) (815.0) (1,899.6) (2,748.9)
Gross profit 146.3  209.6  390.1  719.2 
Selling, general and administrative expenses (109.8) (123.2) (353.3) (407.1)
Income (loss) from operations 36.5  86.4  36.8  312.1 
Other income (expense)    
Interest income 0.8  1.9  2.5  5.4 
Interest expense (15.8) (22.0) (50.0) (69.6)
Other income (expense) – net  (0.6) 1.6  (0.1) (2.9)
Income (loss) from continuing operations before income taxes 20.9  67.9  (10.8) 245.0 
(Provision for) benefit from income taxes 1.1  (15.5) 4.9  (53.8)
Income (loss) from continuing operations 22.0  52.4  (5.9) 191.2 
Income (loss) from discontinued operations – net of tax (0.1) (10.1) (1.3) (151.8)
Gain (loss) on disposition of discontinued operations – net of tax (16.1) (20.9) (21.1) (9.5)
Net income (loss) $ 5.8  $ 21.4  $ (28.3) $ 29.9 
Basic earnings (loss) per share:    
Income (loss) from continuing operations $ 0.31  $ 0.73  $ (0.09) $ 2.69 
Income (loss) from discontinued operations – net of tax —  (0.14) (0.02) (2.14)
Gain (loss) on disposition of discontinued operations – net of tax (0.23) (0.29) (0.30) (0.13)
Net income (loss) $ 0.08  $ 0.30  $ (0.41) $ 0.42 
Diluted earnings (loss) per share:    
Income (loss) from continuing operations $ 0.31  $ 0.73  $ (0.09) $ 2.66 
Income (loss) from discontinued operations – net of tax —  (0.14) (0.02) (2.11)
Gain (loss) on disposition of discontinued operations – net of tax (0.23) (0.29) (0.30) (0.13)
Net income (loss) $ 0.08  $ 0.30  $ (0.41) $ 0.42 
Weighted average number of shares outstanding in per share calculation    
Basic 69.3  71.3  69.7  71.0 
Diluted 69.5  71.8  69.7  71.8 
Comprehensive income (loss) $ 46.7  $ 8.4  $ (24.7) $ 14.4 

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)
  September 30,
2020 		December 31,
2019
Assets    
Current assets    
Cash and cash equivalents $ 508.3  $ 535.1 
  Trade receivables (net of allowance of $11.6 and $9.9 at September 30, 2020 and December 31, 2019, respectively)
403.2  401.9 
Inventories 635.5  847.7 
Prepaid and other current assets 214.1  235.0 
Total current assets 1,761.1  2,019.7 
Non-current assets    
Property, plant and equipment – net 401.7  389.4 
Goodwill 267.1  269.9 
Intangible assets – net 8.6  9.7 
Other assets 476.7  506.9 
Total assets $ 2,915.2  $ 3,195.6 
Liabilities and Stockholders’ Equity
Current liabilities    
Current portion of long-term debt $ 7.5  $ 6.9 
Trade accounts payable 337.8  508.1 
Other current liabilities 335.7  357.4 
Total current liabilities 681.0  872.4 
Non-current liabilities    
Long-term debt, less current portion 1,167.0  1,168.8 
Other non-current liabilities 214.5  222.1 
Total liabilities 2,062.5  2,263.3 
Commitments and contingencies
Stockholders’ equity    
Common stock, $0.01 par value – authorized 300.0 shares; issued 82.9 and 82.2 shares at September 30, 2020 and December 31, 2019, respectively
0.9  0.8 
Additional paid-in capital 832.2  824.4 
Retained earnings 732.6  771.4 
Accumulated other comprehensive income (loss) (253.9) (257.5)
Less cost of shares of common stock in treasury – 14.3 and 11.8 shares at September 30, 2020 and December 31, 2019, respectively
(459.1) (406.8)
Total stockholders’ equity 852.7  932.3 
Total liabilities and stockholders’ equity $ 2,915.2  $ 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 
Net income (loss) —  —  —  (9.2) —  —  —  (9.2)
Other comprehensive income (loss) – net of tax —  —  —  —  18.9  —  —  18.9 
Issuance of common stock 0.1  —  0.6  —  —  —  —  0.6 
Compensation under stock-based plans – net —  —  4.7  —  —  0.1  —  4.8 
Acquisition of treasury stock (0.1) —  —  —  —  (1.0) —  (1.0)
Other —  —  —  0.1  —  —  —  0.1 
Balance at June 30, 2020 68.6  $ 0.9  $ 826.8  $ 726.9  $ (294.8) $ (459.4) $ —  $ 800.4 
Net income (loss) —  —  —  5.8  —  —  —  5.8 
Other comprehensive income (loss) – net of tax —  —  —  —  40.9  —  —  40.9 
Issuance of common stock —  —  0.7  —  —  —  —  0.7 
Compensation under stock-based plans – net —  —  4.7  —  —  0.4  —  5.1 
Acquisition of treasury stock —  —  —  —  —  (0.1) —  (0.1)
Other —  —  —  (0.1) —  —  —  (0.1)
Balance at September 30, 2020 68.6  $ 0.9  $ 832.2  $ 732.6  $ (253.9) $ (459.1) $ —  $ 852.7 

The accompanying notes are an integral part of these condensed consolidated financial statements.
6


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, 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 
Net income (loss) —  —  —  75.1  —  —  —  75.1 
Other comprehensive income (loss) – net of tax —  —  —  —  (0.2) —  —  (0.2)
Issuance of common stock —  —  1.5  —  —  —  —  1.5 
Compensation under stock-based plans – net —  —  11.7  —  —  0.1  —  11.8 
Dividends —  —  0.2  (8.0) —  —  —  (7.8)
Acquisition of treasury stock —  —  —  —  —  (2.1) —  (2.1)
Balance at June 30, 2019 70.4  $ 0.8  $ 807.5  $ 741.5  $ (287.3) $ (402.4) $ 0.5  $ 860.6 
Net income (loss) —  —  —  21.4  —  —  —  21.4 
Other comprehensive income (loss) – net of tax —  —  —  —  (13.0) —  —  (13.0)
Issuance of common stock 0.2  —  4.2  —  —  —  —  4.2 
Compensation under stock-based plans – net —  —  0.7  —  —  1.0  —  1.7 
Dividends —  —  0.2  (8.0) —  —  —  (7.8)
Acquisition of treasury stock —  —  —  —  —  (0.3) —  (0.3)
Divestiture —  —  —  —  —  —  (0.5) (0.5)
Balance at September 30, 2019 70.6  $ 0.8  $ 812.6  $ 754.9  $ (300.3) $ (401.7) $ —  $ 866.3 


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

7

TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
(in millions)
  Nine Months Ended
September 30,
  2020 2019
Operating Activities    
Net income (loss) $ (28.3) $ 29.9 
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:    
Depreciation and amortization 36.3  38.6 
(Gain) loss on disposition of discontinued operations 21.1  9.5 
Deferred taxes (3.2) (9.6)
Impairments 3.1  82.2 
(Gain) loss on sale of assets (0.4) (8.2)
Stock-based compensation expense 17.8  31.5 
Inventory and other non-cash charges 19.2  44.0 
Changes in operating assets and liabilities (net of effects of acquisitions and divestitures):    
Trade receivables (13.7) 67.0 
Inventories 214.6  (11.1)
Trade accounts payable (174.0) (151.5)
Other assets and liabilities 4.7  (46.8)
Foreign exchange and other operating activities, net (8.3) 2.9 
Net cash provided by (used in) operating activities 88.9  78.4 
Investing Activities    
Capital expenditures (53.9) (75.4)
Proceeds from sale of capital assets 2.5  0.8 
Proceeds from disposition of investments —  30.7 
Proceeds (payments) from disposition of discontinued operations 11.4  172.4 
Net cash provided by (used in) investing activities (40.0) 128.5 
Financing Activities    
Repayments of debt (174.5) (1,548.2)
Proceeds from issuance of debt 170.0  1,508.8 
Share repurchases (55.9) (2.4)
Dividends paid (8.4) (23.5)
Other financing activities, net (12.0) (20.2)
Net cash provided by (used in) financing activities (80.8) (85.5)
Effect of Exchange Rate Changes on Cash and Cash Equivalents 4.4  (18.0)
Net Increase (Decrease) in Cash and Cash Equivalents (27.5) 103.4 
Cash and Cash Equivalents at Beginning of Period 540.1  372.1 
Cash and Cash Equivalents at End of Period $ 512.6  $ 475.5 

The accompanying notes are an integral part of these condensed consolidated financial statements.
8

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 September 30, 2020 and for the three and nine months ended September 30, 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 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, filed on February 14, 2020, as updated by the Company's Current Report on Form 8-K filed on August 7, 2020.

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 September 30, 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 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 and nine months ended September 30, 2020 are not necessarily indicative of results that may be expected for the year ending December 31, 2020.

Cash and cash equivalents include $4.9 million and $4.6 million at September 30, 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.
9


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 first quarter of fiscal year 2021 and early adoption is permitted. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848)”, which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions that reference the London Interbank Offered Rate ("LIBOR") or another reference rate expected to be discontinued because of reference rate reform. The amendments in this ASU were effective upon issuance and may be applied through December 31, 2022. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

Accounts Receivable and Allowance for Doubtful Accounts. Trade accounts receivable are recorded at invoiced amount and do not bear interest. Allowance for doubtful accounts is the Company’s estimate of current expected credit losses on its existing accounts receivable and determined based on historical customer review, current financial conditions and reasonable and supportable forecasts. 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”.
10


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 2.1 
Other adjustments (0.4)
Balance as of September 30, 2020
$ 11.6 

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 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 27.3 
Changes in estimates 14.1 
Settlements during the period (36.1)
Foreign exchange effect/other 0.7 
Balance as of September 30, 2020
$ 53.5 

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.

11

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 identifies its operating segments according to how business activities are managed and evaluated, and has identified three operating segments: Aerials, Utilities and MP. As Aerials and Utilities operating segments share similar economic characteristics, these operating segments are aggregated into one operating segment, AWP. The Company operates in two reportable segments: (i) AWP and (ii) MP.

AWP 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.

MP designs, manufactures, services 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 reportable segments, as well as general and corporate items.

Business segment information is presented below (in millions):
  Three Months Ended
September 30, 		Nine Months Ended
September 30,
  2020 2019 2020 2019
Net sales    
AWP $ 445.0  $ 628.2  $ 1,370.6  $ 2,226.5 
MP 311.3  382.7  890.5  1,224.1 
Corporate and Other / Eliminations 9.3  13.7  28.6  17.5 
Total $ 765.6  $ 1,024.6  $ 2,289.7  $ 3,468.1 
Income (loss) from operations    
AWP $ 13.3  $ 45.9  $ 2.4  $ 191.8 
MP 40.3  58.4  88.7  183.2 
Corporate and Other / Eliminations (17.1) (17.9) (54.3) (62.9)
Total $ 36.5  $ 86.4  $ 36.8  $ 312.1 

Sales between segments are generally priced to recover costs plus a reasonable markup for profit, which is eliminated in consolidation.
12

  September 30,
2020 		December 31,
2019
Identifiable assets    
AWP (1)
$ 1,723.4  $ 1,814.4 
MP (2)
1,576.3  1,750.9 
Corporate and Other / Eliminations (3)
(391.2) (379.5)
Assets held for sale 6.7  9.8 
Total $ 2,915.2  $ 3,195.6 

(1)     Decrease due to lower inventory balances.
(2)     Decrease due to settlement of certain intercompany balances.
(3)     Decrease in cash, receivables and other assets offset by settlement of certain intercompany balances.

Geographic net sales information is presented below (in millions):
  Three Months Ended
September 30, 2020 		Three Months Ended
September 30, 2019
  AWP MP Corporate and Other / Eliminations Total AWP MP Corporate and Other / Eliminations Total
Net sales by region    
North America $ 278.4  $ 123.3  $ 16.0  $ 417.7  $ 429.3  $ 147.9  $ 28.0  $ 605.2 
Western Europe 55.6  94.6  —  150.2  77.4  119.1  0.2  196.7 
Asia-Pacific 89.3  64.3  0.2  153.8  78.5  72.5  0.5  151.5 
Rest of World (1)
21.7  29.1  (6.9) 43.9  43.0  43.2  (15.0) 71.2 
Total (2)
$ 445.0  $ 311.3  $ 9.3  $ 765.6  $ 628.2  $ 382.7  $ 13.7  $ 1,024.6 

(1)     Includes intercompany sales and eliminations.
(2)     Total sales include $386.2 million and $547.1 million for the three months ended September 30, 2020 and 2019, respectively, attributable to the United States, the Company’s country of domicile.

  Nine Months Ended
September 30, 2020 		Nine Months Ended
September 30, 2019
  AWP MP Corporate and Other / Eliminations Total AWP MP Corporate and Other / Eliminations Total
Net sales by region    
North America $ 897.7  $ 361.5  $ 49.7  $ 1,308.9  $ 1,466.0  $ 479.0  $ 63.2  $ 2,008.2 
Western Europe 186.2  270.5  0.2  456.9  369.9  397.8  0.4  768.1 
Asia-Pacific 215.8  169.9  1.5  387.2  253.5  217.8  1.6  472.9 
Rest of World (1)
70.9  88.6  (22.8) 136.7  137.1  129.5  (47.7) 218.9 
Total (2)
$ 1,370.6  $ 890.5  $ 28.6  $ 2,289.7  $ 2,226.5  $ 1,224.1  $ 17.5  $ 3,468.1 

(1)     Includes intercompany sales and eliminations.
(2)     Total sales include $1,201.7 million and $1,829.5 million for the nine months ended September 30, 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.
13


Product type net sales information is presented below (in millions):
  Three Months Ended
September 30, 2020 		Three Months Ended
September 30, 2019
  AWP MP Corporate and Other / Eliminations Total AWP MP Corporate and Other / Eliminations Total
Net sales by product type    
Aerial Work Platforms $ 321.1  $ —  $ 0.3  $ 321.4  $ 426.0  $ —  $ 0.6  $ 426.6 
Materials Processing Equipment —  194.7  —  194.7  —  222.7  —  222.7 
Specialty Equipment —  116.4  0.4  116.8  —  157.8  0.6  158.4 
Other (1)
123.9  0.2  8.6  132.7  202.2  2.2  12.5  216.9 
Total $ 445.0  $ 311.3  $ 9.3  $ 765.6  $ 628.2  $ 382.7  $ 13.7  $ 1,024.6 

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

  Nine Months Ended
September 30, 2020 		Nine Months Ended
September 30, 2019
  AWP MP Corporate and Other / Eliminations Total AWP MP Corporate and Other / Eliminations Total
Net sales by product type    
Aerial Work Platforms $ 947.2  $ —  $ 0.5  $ 947.7  $ 1,581.6  $ —  $ 2.2  $ 1,583.8 
Materials Processing Equipment —  533.6  —  533.6  —  670.3  —  670.3 
Specialty Equipment —  354.6  1.1  355.7  —  547.1  2.4  549.5 
Other (1)
423.4  2.3  27.0  452.7  644.9  6.7  12.9  664.5 
Total $ 1,370.6  $ 890.5  $ 28.6  $ 2,289.7  $ 2,226.5  $ 1,224.1  $ 17.5  $ 3,468.1 

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

NOTE C – INCOME TAXES

During the three months ended September 30, 2020, the Company recognized income tax benefit of $1.1 million on income of $20.9 million, an effective tax rate of (5.3)%, as compared to income tax expense of $15.5 million on income of $67.9 million, an effective tax rate of 22.8%, for the three months ended September 30, 2019. The lower effective tax rate for the three months ended September 30, 2020 is primarily due to geographic mix and tax benefits from the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) and changes in tax regulations, partially offset by U.S. tax on foreign income, when compared with the three months ended September 30, 2019.

During the nine months ended September 30, 2020, the Company recognized income tax benefit of $4.9 million on a loss of $10.8 million, an effective tax rate of 45.4%, as compared to income tax expense of $53.8 million on income of $245.0 million, an effective tax rate of 22.0%, for the nine months ended September 30, 2019. The higher effective tax rate for the nine months ended September 30, 2020 is primarily due to geographic mix and tax benefits from the CARES Act and changes in tax regulations, partially offset by U.S. tax on foreign income, when compared with the nine months ended September 30, 2019.

14

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. Products divested were Demag® all terrain cranes and large lattice boom crawler cranes. During the three months ended September 30, 2020, the Company recognized a loss, net of tax, of $16.1 million primarily related to a settlement with Tadano on cash, debt, working capital and certain other items related to the disposition of Demag. During the nine months ended September 30, 2019, the Company recognized a charge of approximately $82 million, net of tax, to write-down Demag to its fair value, less costs to sell. During the three and nine months ended September 30, 2019, the Company recorded a loss on disposition of discontinued operations, net of tax, of $20.9 million related to this transaction. During 2019, the Company also exited North American mobile crane product lines manufactured in its Oklahoma City facility and recognized a gain, net of tax, of $12.8 million related to the sale during the nine months ended September 30, 2019.

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 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. At September 30, 2020, all significant agreements covered under the TSA have terminated.

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
September 30, 		Nine Months Ended
September 30,
 
  2020 2019 2020 2019
Net sales $ —  $ 67.7  $ 5.5  $ 324.8 
Cost of sales
(0.2) (67.9) (5.7) (330.8)
Selling, general and administrative expenses
(0.2) (12.0) (1.6) (73.6)
Impairment of mobile cranes disposal group
—  —  (0.1) (82.1)
Other income (expense)
—  (0.8) (0.1) (4.5)
Income (loss) from discontinued operations before income taxes
(0.4) (13.0) (2.0) (166.2)
(Provision for) benefit from income taxes
0.3  2.9  0.7  14.4 
Income (loss) from discontinued operations – net of tax $ (0.1) $ (10.1) $ (1.3) $ (151.8)
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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):
September 30, 2020 December 31, 2019
  Cranes Cranes
Assets    
Cash and cash equivalents $ 4.3  $ 5.0 
Trade receivables – net 3.0  3.5 
Inventories 2.2  5.3 
Prepaid and other current assets 0.2  0.2 
Impairment reserve (3.4) (4.8)
Included in Prepaid and other current assets $ 6.3  $ 9.2 
Property, plant and equipment – net $ 0.6  $ 0.6 
Intangible assets 1.7  2.4 
Impairment reserve (2.0) (2.8)
Other assets 0.1  0.4 
Included in Other assets $ 0.4  $ 0.6 
Liabilities    
Trade accounts payable $ 1.1  $ 4.6 
Accruals and other current liabilities 2.0  3.8 
Included in Other current liabilities $ 3.1  $ 8.4 
Non-current liabilities $ 0.9  $ 1.2 
Included in Other non-current liabilities $ 0.9  $ 1.2 

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The following table provides amounts of cash and cash equivalents presented in the Condensed Consolidated Statement of Cash Flows (in millions):
  September 30, 2020 December 31, 2019
Cash and cash equivalents:    
Cash and cash equivalents - continuing operations $ 508.3  $ 535.1 
Cash and cash equivalents - held for sale 4.3  5.0 
Total cash and cash equivalents $ 512.6  $ 540.1 

The following table provides supplemental cash flow information related to discontinued operations (in millions):
Three Months Ended
September 30, 		Nine Months Ended
September 30,
 
  2020 2019 2020 2019
Non-cash operating items:
Depreciation and amortization $ —  $ 0.1  $ —  $ 3.3 
Impairments
$ —  $ —  $ 0.1  $ 82.1 
Deferred taxes
$ (0.1) $ (7.3) $ 0.2  $ (5.2)
Investing activities:
Capital expenditures $ —  $ (0.7) $ —  $ (3.4)

Gain (Loss) on Disposition of Discontinued Operations - net of tax (in millions):
Three Months Ended
  September 30,
  2020 2019
Cranes Cranes Material Handling and Port Solutions Total
Gain (loss) on disposition of discontinued operations $ (20.5) $ (20.8) $ —  $ (20.8)
(Provision for) benefit from income taxes 4.4  (0.1) —  (0.1)
Gain (loss) on disposition of discontinued operations – net of tax
$ (16.1) $ (20.9) $ —  $ (20.9)

Nine Months Ended
  September 30,
  2020 2019
Cranes Cranes Material Handling and Port Solutions Total
Gain (loss) on disposition of discontinued operations $ (27.7) $ (7.1) $ (1.3) $ (8.4)
(Provision for) benefit from income taxes 6.6  (1.0) (0.1) (1.1)
Gain (loss) on disposition of discontinued operations – net of tax
$ (21.1) $ (8.1) $ (1.4) $ (9.5)

            
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NOTE E – EARNINGS PER SHARE
(in millions, except per share data) Three Months Ended
September 30, 		Nine Months Ended
September 30,
  2020 2019 2020 2019
Income (loss) from continuing operations
$ 22.0  $ 52.4  $ (5.9) $ 191.2 
Income (loss) from discontinued operations – net of tax (0.1) (10.1) (1.3) (151.8)
Gain (loss) on disposition of discontinued operations – net of tax
(16.1) (20.9) (21.1) (9.5)
Net income (loss) $ 5.8  $ 21.4  $ (28.3) $ 29.9 
Basic shares:    
Weighted average shares outstanding 69.3  71.3  69.7  71.0 
Earnings (loss) per share – basic:    
Income (loss) from continuing operations $ 0.31  $ 0.73  $ (0.09) $ 2.69 
Income (loss) from discontinued operations – net of tax —  (0.14) (0.02) (2.14)
Gain (loss) on disposition of discontinued operations – net of tax
(0.23) (0.29) (0.30) (0.13)
Net income (loss) $ 0.08  $ 0.30  $ (0.41) $ 0.42 
Diluted shares:    
Weighted average shares outstanding – basic 69.3  71.3  69.7  71.0 
Effect of dilutive securities:    
Restricted stock awards
0.2  0.5  —  0.8 
Diluted weighted average shares outstanding 69.5  71.8  69.7  71.8 
Earnings (loss) per share – diluted:    
Income (loss) from continuing operations $ 0.31  $ 0.73  $ (0.09) $ 2.66 
Income (loss) from discontinued operations – net of tax —  (0.14) (0.02) (2.11)
Gain (loss) on disposition of discontinued operations – net of tax
(0.23) (0.29) (0.30) (0.13)
Net income (loss) $ 0.08  $ 0.30  $ (0.41) $ 0.42 

 
Non-vested restricted stock awards granted by the Company are treated as potential common shares outstanding in computing diluted earnings per share using the treasury stock method. Weighted average restricted stock awards of approximately 0.9 million and 1.3 million were outstanding during the three months ended September 30, 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. Weighted average restricted stock awards of approximately 2.0 million and 1.1 million were outstanding during the nine months ended September 30, 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 other jurisdictions. 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 and nine months ended September 30, 2020, the Company transferred finance receivables of $14.6 million and $67.1 million, respectively, to third-party financial institutions, which qualified for sales treatment under ASC 860. During the three and nine months ended September 30, 2019, the Company transferred finance receivables of $60.8 million and $179.7 million, respectively, to third-party financial institutions, which qualified for sales treatment under ASC 860. At September 30, 2020 and December 31, 2019, the Company had $10.5 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):
September 30,
2020 		December 31,
2019
Commercial loans $ 117.8  $ 145.7 
Sales-type leases 14.6  20.5 
Total finance receivables, gross 132.4  166.2 
Allowance for credit losses (14.2) (11.0)
Total finance receivables, net $ 118.2  $ 155.2 

Approximately $42 million and $52 million of finance receivables are recorded in Prepaid and other current assets at September 30, 2020 and December 31, 2019, respectively. Approximately $77 million and $103 million are recorded in Other assets in the Condensed Consolidated Balance Sheet at September 30, 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.

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The following table presents an analysis of the allowance for credit losses (in millions):
Three Months Ended
September 30, 2020 		Three Months Ended
September 30, 2019
Commercial Loans Sales-Type Leases Total Commercial Loans Sales-Type Leases Total
Balance, beginning of period $ 13.9  $ 0.5  $ 14.4  $ 10.9  $ 1.2  $ 12.1 
Provision for credit losses
(0.1) (0.1) (0.2) 0.3  (0.5) (0.2)
Charge offs —  —  —  (0.8) —  (0.8)
Recoveries —  —  —  —  —  — 
Balance, end of period $ 13.8  $ 0.4  $ 14.2  $ 10.4  $ 0.7  $ 11.1 

Nine Months Ended
September 30, 2020 		Nine Months Ended
September 30, 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
2.9  (0.1) 2.8  7.2  (0.8) 6.4 
Charge offs (0.2) —  (0.2) (0.8) —  (0.8)
Recoveries 0.6  —  0.6  —  —  — 
Balance, end of period $ 13.8  $ 0.4  $ 14.2  $ 10.4  $ 0.7  $ 11.1 

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):
September 30, 2020 September 30, 2019 December 31, 2019
Commercial Loans Sales-Type Leases Total Commercial Loans Sales-Type Leases Total Commercial Loans Sales-Type Leases Total
Recorded investment $ 22.5  $ 1.2  $ 23.7  $ 7.6  $ —  $ 7.6  $ 7.8  $ —  $ 7.8 
Related allowance 11.3  0.2  11.5  7.6  —  7.6  7.8  —  7.8 
Average recorded investment 18.3  0.1  18.4  7.4  —  7.4  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):
September 30, 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 $ 11.3  $ 0.2  $ 11.5  $ 7.8  $ —  $ 7.8 
Collectively evaluated for impairment 2.5  0.2  2.7  2.7  0.5  3.2 
Total allowance for credit losses $ 13.8  $ 0.4  $ 14.2  $ 10.5  $ 0.5  $ 11.0 
Finance receivables, ending balance:
Individually evaluated for impairment $ 22.5  $ 1.2  $ 23.7  $ 7.8  $ —  $ 7.8 
Collectively evaluated for impairment 95.3  13.4  108.7  137.9  20.5  158.4 
Total finance receivables $ 117.8  $ 14.6  $ 132.4  $ 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):
September 30, 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 $ 105.9  $ 0.2  $ 0.3  $ 11.4  $ 11.9  $ 117.8 
Sales-type leases 13.2  —  1.2  0.2  1.4  14.6 
Total finance receivables $ 119.1  $ 0.2  $ 1.5  $ 11.6  $ 13.3  $ 132.4 

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  $ 2.4  $ 0.1  $ 8.1  $ 10.6  $ 145.7 
Sales-type leases 20.2  —  0.3  —  0.3  20.5 
Total finance receivables $ 155.3  $ 2.4  $ 0.4  $ 8.1  $ 10.9  $ 166.2 

Commercial loans in the amount of $33.0 million and $27.1 million were on non-accrual status as of September 30, 2020 and December 31, 2019, respectively. Sales-type leases in the amount of $2.4 million and $0.3 million were on non-accrual status at September 30, 2020 and December 31, 2019, respectively.

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Credit Quality Information

Credit quality is reviewed periodically based on customers’ payment status. In addition to delinquency status, any information received regarding a customer (such as bankruptcy filings, etc.) will also be considered to determine the credit quality of the customer. Collateral asset values are also monitored regularly to determine the potential loss exposures on any given transaction.

The Company uses the following internal credit quality indicators, based on an internal risk rating system, using certain external credit data, listed from the lowest level of risk to highest level of risk. The internal rating system considers factors affecting specific borrowers’ ability to repay.

The following table presents finance receivables by risk rating and year of origination as of September 30, 2020 (in millions):
Rating 2020 2019 2018 2017 2016 Prior Total
Superior $ 0.8  $ —  $ —  $ —  $ —  $ —  $ 0.8 
Above Average 5.1  2.2  2.4  —  —  1.2  10.9 
Average
8.3  28.6  25.7  2.9  —  —  65.5 
Below Average 2.1  16.9  20.1  2.1  4.2  0.1  45.5 
Sub Standard —  8.2  1.5  —  —  —  9.7 
Total $ 16.3  $ 55.9  $ 49.7  $ 5.0  $ 4.2  $ 1.3  $ 132.4 

The following table present finance receivables by risk rating and year of origination as of December 31, 2019 (in millions):
Rating 2019 2018 2017 2016 2015 Prior Total
Superior $ 1.7  $ —  $ —  $ —  $ —  $ —  $ 1.7 
Above Average 12.6  3.0  —  —  1.7  —  17.3 
Average 20.8  17.1  3.4  0.7  0.1  —  42.1 
Below Average 44.6  43.1  4.6  3.9  —  —  96.2 
Sub Standard 7.7  1.1  —  —  0.1  —  8.9 
Total $ 87.4  $ 64.3  $ 8.0  $ 4.6  $ 1.9  $ —  $ 166.2 
The Company believes the finance receivables retained, net of allowance for credit losses, are collectible.

NOTE G – INVENTORIES

Inventories consist of the following (in millions):
  September 30,
2020 		December 31,
2019
Finished equipment $ 216.6  $ 408.1 
Replacement parts 152.6  160.8 
Work-in-process 60.0  78.7 
Raw materials and supplies 206.3  200.1 
Inventories $ 635.5  $ 847.7 

Reserves for lower of cost or net realizable value and excess and obsolete inventory were $61.7 million and $53.2 million at September 30, 2020 and December 31, 2019, respectively.

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NOTE H – PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment – net consist of the following (in millions):
  September 30,
2020 		December 31,
2019
Property $ 42.2  $ 40.9 
Plant 244.6  168.1 
Equipment 387.8  358.3 
Leasehold improvements 57.3  55.8 
Construction in progress 28.6  101.1 
Property, plant and equipment – gross  760.5  724.2 
Less: Accumulated depreciation (358.8) (334.8)
Property, plant and equipment – net $ 401.7  $ 389.4 

During the third quarter of 2020, the Company completed construction of a manufacturing facility in Watertown, South Dakota. Related assets were placed in service and transferred from construction in progress to plant and equipment.

NOTE I – GOODWILL AND INTANGIBLE ASSETS, NET

An analysis of changes in the Company’s goodwill by business segment is as follows (in millions):
      AWP MP Total
Balance at December 31, 2019, gross
$ 139.3  $ 192.4  $ 331.7 
Accumulated impairment (38.6) (23.2) (61.8)
Balance at December 31, 2019, net
100.7  169.2  269.9 
Foreign exchange effect and other 0.3  (3.1) (2.8)
Balance at September 30, 2020, gross
139.6  189.3  328.9 
Accumulated impairment (38.6) (23.2) (61.8)
Balance at September 30, 2020, net
$ 101.0  $ 166.1  $ 267.1 

Intangible assets, net were comprised of the following (in millions):
September 30, 2020 December 31, 2019
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 $ 9.8  $ (9.2) $ 0.6  $ 9.4  $ (8.8) $ 0.6 
Customer Relationships 22 25.9  (23.7) 2.2  25.6  (22.8) 2.8 
Land Use Rights
81 4.3  (0.7) 3.6  4.3  (0.7) 3.6 
Other 8 25.3  (23.1) 2.2  25.1  (22.4) 2.7 
Total definite-lived intangible assets
$ 65.3  $ (56.7) $ 8.6  $ 64.4  $ (54.7) $ 9.7 

Three Months Ended
September 30, 		Nine Months Ended
September 30,
(in millions) 2020 2019 2020 2019
Aggregate Amortization Expense $ 0.4  $ 0.4  $ 1.3  $ 1.3 

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Estimated aggregate intangible asset amortization expense (in millions) for each of the next five years is as follows:
2020 $ 1.4 
2021 $ 1.3 
2022 $ 1.3 
2023 $ 0.8 
2024 $ 0.6 

NOTE J – DERIVATIVE FINANCIAL INSTRUMENTS

The Company operates internationally, with manufacturing and sales facilities in various locations around the world. In the normal course of business, the Company primarily uses cash flow derivatives to manage foreign currency and price risk exposures on third-party and intercompany forecasted transactions.  For a derivative to qualify for hedge accounting treatment at inception and throughout the hedge period, the Company formally documents the nature and relationships between hedging instruments and hedged items, as well as its risk-management objectives and strategies for undertaking various hedge transactions, and method of assessing hedge effectiveness.  Additionally, for hedges of forecasted transactions, significant characteristics and expected terms of a forecasted transaction must be specifically identified, and it must be probable that each forecasted transaction will occur.  If it is deemed probable the forecasted transaction will not occur, then the gain or loss would be recognized in current earnings.  Financial instruments qualifying for hedge accounting must maintain a specified level of effectiveness between the hedging instrument and the item being hedged.  The Company does not engage in trading or other speculative use of financial instruments. The Company records all derivative contracts at fair value on a recurring basis. The Company’s derivative financial instruments are categorized under the ASC 820 hierarchy; see Note A - “Basis of Presentation” for an explanation of the hierarchy.

Foreign Exchange Contracts

The Company enters into foreign exchange contracts to manage variability of future cash flows associated with changing currency exchange rates.  Primary currencies to which the Company is exposed are the Euro, British Pound and Australian Dollar. Foreign currency exchange contracts designated as cash flow hedges are used to manage variability of future cash flows associated with recognized assets or liabilities and forecasted transactions. Certain foreign exchange contracts not designated as hedging instruments are used to mitigate its exposure to changes in foreign currency exchange rates on recognized assets and liabilities. Fair values of these contracts are derived using quoted forward foreign exchange prices to interpolate values of outstanding trades at the reporting date based on their maturities. Foreign exchange contracts outstanding at September 30, 2020 mature on or before December 31, 2020.

At September 30, 2020 and December 31, 2019, the Company had $5.3 million and $233.0 million notional amount, respectively, of foreign exchange contracts outstanding that were designated as cash flow hedge contracts. For effective hedging instruments, unrealized gains and losses associated with foreign exchange contracts are deferred as a component of Accumulated other comprehensive income (loss) (“AOCI”) until the underlying hedged transactions settle and are reclassified to Cost of goods sold (“COGS”) in the Company’s Condensed Consolidated Statement of Comprehensive Income (Loss).

The Company had $54.7 million and $121.2 million notional amount of foreign exchange contracts outstanding that were not designated as hedging instruments at September 30, 2020 and December 31, 2019, respectively.  The majority of gains and losses recognized from foreign exchange contracts not designated as hedging instruments were offset by changes in the underlying hedged items, resulting in no material net impact on earnings. Changes in the fair value of these derivative financial instruments were recognized as gains or losses in COGS and Other income (expense) – net in the Condensed Consolidated Statement of Comprehensive Income (Loss).

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Other

Other derivatives designated as cash flow hedging instruments include interest rate caps and commodity swaps with outstanding notional amounts of $300.0 million and $17.3 million at September 30, 2020. Commodity swaps outstanding at September 30, 2020 mature on or before August 31, 2021. There were no interest rate caps or cross currency swaps designated as cash flow hedging instruments outstanding at December 31, 2019. The outstanding notional amount of commodity swaps was $7.0 million at December 31, 2019. The Company uses interest rate caps to mitigate its exposure to changes in interest rates related to variable rate debt, cross currency swaps to mitigate its exposure to changes in foreign currency exchange rates and commodity swaps to mitigate price risk for hot rolled coil steel. Fair values of interest rate caps and cross currency swaps are based on the present value of future cash payments and receipts. Fair values of commodity swaps are based on observable market data for similar assets and liabilities. Changes in the fair value of interest rate caps, cross currency swaps and commodity swaps are deferred in AOCI. Gains or losses on interest rate caps are reclassified to Interest expense in the Condensed Consolidated Statement of Comprehensive Income (Loss) when the underlying hedged transactions occur. Gains or losses on cross currency swaps are reclassified to Other income (expense) - net in the Condensed Consolidated Statement of Comprehensive Income (Loss) when the underlying hedged item is re-measured. Gains or losses on commodity swaps are reclassified to COGS in the Condensed Consolidated Statement of Comprehensive Income (Loss) when the hedged transaction affects earnings.

Other derivatives designated as net investment hedging instruments include cross currency swaps with outstanding notional amounts of $117.2 million at September 30, 2020. There were no cross currency swaps designated as net investment hedging instruments outstanding at December 31, 2019. The Company uses these cross currency swaps to mitigate its exposure to changes in foreign currency exchange rates related to a net investment in a Euro-denominated functional currency subsidiary. Fair values of cross currency swaps are based on the present value of future cash payments and receipts. Changes in the fair value of cross currency swaps are deferred in AOCI. Gains or losses on cross currency swaps are reclassified to Selling, general and administrative expenses in the Condensed Consolidated Statement of Comprehensive Income (Loss) when the net investment is liquidated.

Other derivatives not designated as hedging instruments include a debt conversion feature on a convertible promissory note held by the Company for which changes in fair value are recorded in Other income (expense) - net in the Condensed Consolidated Statement of Comprehensive Income (Loss).

The following table provides the location and fair value amounts of derivative instruments designated and not designated as hedging instruments that are reported in the Condensed Consolidated Balance Sheet (in millions):
September 30,
2020 		December 31,
2019
Instrument (1)
Balance Sheet Account Derivatives designated as hedges Derivatives not designated as hedges Derivatives designated as hedges Derivatives not designated as hedges
Foreign exchange contracts Other current assets $ 0.1  $ —  $ 4.1  $ — 
Commodity swaps Other current assets 0.4  —  —  — 
Foreign exchange contracts Other current liabilities —  (0.1) (3.9) — 
Cross currency swaps - net investment hedge Other current liabilities (1.1) —  —  — 
Interest rate caps Other current liabilities (1.2) —  —  — 
Cross currency swaps - net investment hedge Other non-current liabilities (6.3) —  —  — 
Interest rate caps Other non-current liabilities (3.0) —  —  — 
Net derivative asset (liability) $ (11.1) $ (0.1) $ 0.2  $ — 
(1) Categorized as Level 2 under the ASC 820 Fair Value Hierarchy.


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The following tables provide the effect of derivative instruments that are designated as hedges in AOCI (in millions):
Gain (Loss) Recognized on Derivatives in OCI, net of tax Gain (Loss) Reclassified from AOCI into Income (Loss)
Instrument Three Months Ended
September 30, 2020 		Nine Months Ended
September 30, 2020 		Income Statement Account Three Months Ended
September 30, 2020 		Nine Months Ended
September 30, 2020
Foreign exchange contracts $ 0.2  $ (0.5) Cost of goods sold $ 0.3  $ (2.1)
Commodity swaps 1.1  0.3  Cost of goods sold (0.1) (1.9)
Cross currency swaps - net investment hedge (3.6) (5.8) Selling, general and administrative expenses —  — 
Interest rate caps (0.5) (3.1) Interest expense (0.3) (0.1)
Total $ (2.8) $ (9.1) Total $ (0.1) $ (4.1)

Gain (Loss) Recognized on Derivatives in OCI, net of tax Gain (Loss) Reclassified from AOCI into Income (Loss)
Instrument Three Months Ended
September 30, 2019 		Nine Months Ended
September 30, 2019 		Income Statement Account Three Months Ended
September 30, 2019 		Nine Months Ended
September 30, 2019
Foreign exchange contracts $ (1.9) $ (1.4) Cost of goods sold $ (2.8) $ (5.2)
Commodity swaps 0.2  (0.1) Cost of goods sold (1.5) (2.5)
Cross currency swaps - cash flow hedge 0.2  0.9  Other income (expense) - net 1.9  2.3 
Total $ (1.5) $ (0.6) Total $ (2.4) $ (5.4)

The following tables provide the effect of derivative instruments that are designated as hedges in the Condensed Consolidated Statement of Comprehensive Income (Loss) (in millions):
Classification and amount of Gain (Loss) Recognized in Income (Loss)
Cost of goods sold Interest Expense
Three Months Ended
September 30, 2020 		Nine Months Ended
September 30, 2020 		Three Months Ended
September 30, 2020 		Nine Months Ended
September 30, 2020
Income Statement Accounts in which effects of cash flow hedges are recorded $ (619.3) $ (1,899.6) $ (15.8) $ (50.0)
Gain (loss) reclassified from AOCI into Income (loss):
Foreign exchange contracts 0.3  (2.1) —  — 
Commodity swaps (0.1) (1.9) —  — 
Interest rate caps —  —  (0.3) (0.1)
Amount excluded from effectiveness testing recognized in Income (loss) based on amortization approach:
Cross currency swaps - net investment hedge —  —  0.2  0.3 
Total $ 0.2  $ (4.0) $ (0.1) $ 0.2 

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Classification and amount of Gain (Loss) Recognized in Income (Loss)
Cost of goods sold Other income (expense) - net
Three Months Ended
September 30, 2019 		Nine Months Ended
September 30, 2019 		Three Months Ended
September 30, 2019 		Nine Months Ended
September 30, 2019
Income Statement Accounts in which effects of cash flow hedges are recorded $ (815.0) $ (2,748.9) $ 1.6  $ (2.9)
Gain (loss) reclassified from AOCI into Income (loss):
Foreign exchange contracts (2.8) (5.2) —  — 
Commodity swaps (1.5) (2.5) —  — 
Cross currency swaps - cash flow hedge —  —  1.9  2.3 
Total $ (4.3) $ (7.7) $ 1.9  $ 2.3 

Derivatives not designated as hedges are used to offset foreign exchange gains or losses resulting from the underlying exposures of foreign currency denominated assets and liabilities. The following table provides the effect of non-designated derivatives outstanding at the end of the period in the Condensed Consolidated Statement of Comprehensive Income (Loss) (in millions):
Gain (Loss) Recognized in Income (Loss)
Instrument Income Statement Account Three Months Ended
September 30, 2020 		Nine Months Ended
September 30, 2020 		Three Months Ended
September 30, 2019 		Nine Months Ended
September 30, 2019
Foreign exchange contracts Cost of goods sold $ 0.1  $ (0.2) $ —  $ — 
Foreign exchange contracts Other income (expense) – net (0.4) (0.2) (0.4) (0.7)
Debt conversion feature Other income (expense) – net (0.1) —  (0.1) (0.4)
Total $ (0.4) $ (0.4) $ (0.5) $ (1.1)

In the Condensed Consolidated Statement of Comprehensive Income (Loss), the Company records hedging activity related to foreign exchange contracts, interest rate caps, cross currency swaps and commodity swaps, and the debt conversion feature 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.

Counterparties to the Company’s derivative financial instruments are major financial institutions and commodity trading companies with credit ratings of investment grade or better and no collateral is required.  There are no significant risk concentrations.  Management continues to monitor counterparty risk and believes the risk of incurring losses on derivative contracts related to credit risk is unlikely and any losses would be immaterial.
 
See Note N - “Stockholders’ Equity” for unrealized net gains (losses), net of tax, included in AOCI. Within unrealized net gains (losses) included in AOCI as of September 30, 2020, it is estimated that $2.7 million of losses are expected to be reclassified into earnings in the next twelve months.

NOTE K – LONG-TERM OBLIGATIONS

2017 Credit Agreement

On January 31, 2017, the Company entered into a credit agreement (as amended, the “2017 Credit Agreement”) with the lenders and issuing banks party thereto and Credit Suisse AG, Cayman Islands Branch (“CSAG”), as administrative agent and collateral agent. The 2017 Credit Agreement includes (i) a $600 million revolving line of credit (the “Revolver”) and (ii) senior secured term loans totaling $600 million that will mature on January 31, 2024 (the “Term Loans”); both are further described below. On April 23, 2020, the Company entered into a Loan Modification Agreement and Amendment No. 4 (“Amendment No. 4”) to the 2017 Credit Agreement. Amendment No. 4 extended the term of the Revolver to expire on January 31, 2023. As a result of Amendment No. 4, during 2020, the Company is only subject to a minimum liquidity covenant and then during 2021 it is subject to a maximum secured leverage covenant that is only applicable if borrowings under the Revolver are greater than 30% of the total revolving credit commitments.

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The 2017 Credit Agreement contains a $400 million senior secured term loan (the “Original Term Loan”). On August 17, 2017, the Company entered into an Incremental Assumption Agreement and Amendment No. 1 to the 2017 Credit Agreement which lowered the interest rate on the Original Term Loan by 25 basis points. On February 28, 2018, the Company entered into an Incremental Assumption Agreement and Amendment No. 2 (“Amendment No. 2”) to the 2017 Credit Agreement which lowered the interest rate on the Original Term Loan by an additional 25 basis points. The Original Term Loan portion of the 2017 Credit Agreement bears interest at a rate of LIBOR plus 2.00% with a 0.75% LIBOR floor. On March 7, 2019, the Company entered into an Incremental Assumption Agreement and Amendment No. 3 (“Amendment No. 3”) to the 2017 Credit Agreement. Amendment No. 3 provided the Company with an additional term loan (the “2019 Term Loan”) under the 2017 Credit Agreement in the amount of $200 million. The 2019 Term Loan portion of the 2017 Credit Agreement bears interest at a rate of LIBOR plus 2.75% with a 0.75% LIBOR floor.

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 ($150 million through 2021 as a result of Amendment No. 4) 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 the Revolver 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 (“Interest Coverage Ratio”) would be 2.5 to 1.0 and the maximum permitted levels of the senior secured leverage ratio (“Senior Secured Leverage Ratio”) would be 2.75 to 1.0. The 2017 Credit Agreement also contains customary default provisions.

Amendment No. 4 waived compliance with the Interest Coverage Ratio and Senior Secured Leverage Ratio through December 31, 2020, replacing them with a sliding scale minimum liquidity requirement, $100 million at June 30 and September 30, 2020 and $150 million at December 31, 2020. Maximum levels of the Senior Secured Leverage Ratio will be 3.75 to 1.0 at March 31, 2021, 3.25 to 1.0 at June 30, 2021 and 2.75 to 1.0 at September 30, 2021 and thereafter. In addition Amendment No. 4 prohibits share repurchases and dividends, contains anti-cash hoarding provisions and additional financial reporting provisions until December 31, 2020. Amendment No. 4 also increased the interest rate on the Revolver by 25 basis points until December 31, 2021. The Company, at its sole option, has the ability to revert to original financial covenants and Revolver pricing. The Company was in compliance with all covenants contained in the 2017 Credit Agreement as of September 30, 2020.

As of September 30, 2020 and December 31, 2019, the Company had $581.3 million and $585.5 million, net of discount, respectively, in Term Loans outstanding under the 2017 Credit Agreement. The weighted average interest rate on the Term Loans at September 30, 2020 and December 31, 2019 was 3.00% and 4.10%, respectively. The Company had no revolving credit amounts outstanding as of September 30, 2020 and December 31, 2019.

The Company issues letters of credit that generally serve as collateral for certain liabilities included in the Condensed Consolidated Balance Sheet and guaranteeing the Company’s performance under contracts. Letters of credit can be issued under two facilities provided in the 2017 Credit Agreement and via bilateral arrangements outside the 2017 Credit Agreement.

The 2017 Credit Agreement incorporates secured facilities for issuance of letters of credit up to $400 million (the “$400 Million Facility”).  Letters of credit issued under the $400 Million Facility decrease availability under the Revolver.  The 2017 Credit Agreement also permits the Company to have additional secured facilities for the issuance of letters of credit up to $300 million (the “$300 Million Facility”). Letters of credit issued under the $300 Million Facility do not decrease availability under the Revolver.

The Company also has bilateral arrangements to issue letters of credit with various other financial institutions (the “Bilateral Arrangements”).  The Bilateral Arrangements are not secured under the 2017 Credit Agreement and do not decrease availability under the Revolver.

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Letters of credit outstanding (in millions):
September 30, 2020 December 31, 2019
$400 Million Facility $ —  $ — 
$300 Million Facility 35.1  34.8 
Bilateral Arrangements 46.8  45.3 
Total $ 81.9  $ 80.1 

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

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 the Company’s Material Handling and Port Solutions business, was used: (i) to complete a tender offer for up to $550.0 million of the Company’s Senior Notes due 2021 (“6% Notes”), (ii) to redeem and discharge such portion of the 6% Notes not purchased in the tender offer, (iii) to fund a $300.0 million partial redemption of the 6% Notes, (iv) to fund repayment of all $300.0 million aggregate principal amount outstanding of the Company’s 6-1/2% senior notes due 2021 on or before April 3, 2017, (v) to pay related premiums, fees, discounts and expenses, and (vi) for general corporate purposes. The 5-5/8% Notes are jointly and severally guaranteed by certain of the Company’s domestic subsidiaries.

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 September 30, 2020, as follows (in millions, except for quotes):
  Book Value Quote FV
5-5/8% Notes $ 600.0  $ 1.00000  $ 600.0 
2017 Credit Agreement Original Term Loan (net of discount) $ 385.0  $ 0.96500  $ 371.5 
2017 Credit Agreement 2019 Term Loan (net of discount) $ 196.3  $ 0.97500  $ 191.4 

The fair value of debt reported in the table above is based on price quotations on the debt instrument in an active market and therefore is categorized under Level 1 of the ASC 820 hierarchy. See Note A – “Basis of Presentation” for an explanation of ASC 820 hierarchy. The Company believes that the carrying value of its other borrowings, including amounts outstanding, if any, for the revolving credit line under the 2017 Credit Agreement, approximate fair market value based on maturities for debt of similar terms. Fair value of these other borrowings are categorized under Level 2 of the ASC 820 hierarchy.

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NOTE L – RETIREMENT PLANS AND OTHER BENEFITS

The Company maintains defined benefit plans in France, Germany, India, Switzerland and the United Kingdom for some of its subsidiaries, as well as a nonqualified Supplemental Executive Retirement Plan (“U.S. 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 has several non-pension post-retirement benefit programs, including health and life insurance benefits to certain former salaried and hourly employees. Information regarding the Company’s plans, including the U.S. SERP, is as follows (in millions):
  Three Months Ended
September 30, 		Nine Months Ended
September 30,
  2020 2019 2020 2019
U.S. Pension Non-U.S. Pension Other U.S. Pension Non-U.S. Pension Other U.S. Pension Non-U.S. Pension Other U.S. Pension Non-U.S. Pension Other
Components of net periodic cost:
   
Service cost $ —  $ 0.4  $ —  $ —  $ 0.4  $ —  $ —  $ 1.0  $ —  $ 0.1  $ 1.1  $ — 
Interest cost 0.3  0.7  —  0.5  0.8  —  1.0  2.0  0.1  1.3  2.6  0.1 
Expected return on plan assets
—  (1.3) —  —  (1.1) —  —  (3.9) —  —  (3.5) — 
Amortization of actuarial (gain) loss
0.1  0.3  —  (0.1) 0.4  —  0.1  1.3  —  (0.4) 1.2  — 
Net periodic cost  $ 0.4  $ 0.1  $ —  $ 0.4  $ 0.5  $ —  $ 1.1  $ 0.4  $ 0.1  $ 1.0  $ 1.4  $ 0.1 

Components of Net periodic cost other than the Service cost component are included in Other income (expense) - Net in the Condensed Consolidated Statement of Comprehensive Income (Loss). The Service cost component is included in the same line item or items as other compensation costs arising from services rendered by pertinent employees during the period.

NOTE M – 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.

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Securities and Stockholder Derivative Lawsuits

In 2010, the Company received complaints seeking certification of class action lawsuits as follows:

•A consolidated class action complaint for violations of securities laws was filed in the United States District Court, District of Connecticut on November 18, 2010 and is entitled Sheet Metal Workers Local 32 Pension Fund and Ironworkers St. Louis Council Pension Fund, individually and on behalf of all others similarly situated v. Terex Corporation, et al.

•A stockholder derivative complaint for violation of the Securities and Exchange Act of 1934, breach of fiduciary duty, waste of corporate assets and unjust enrichment was filed on April 12, 2010 in the United States District Court, District of Connecticut and is entitled Peter Derrer, derivatively on behalf of Terex Corporation v. Ronald M. DeFeo, Phillip C. Widman, Thomas J. Riordan, G. Chris Andersen, Donald P. Jacobs, David A. Sachs, William H. Fike, Donald DeFosset, Helge H. Wehmeier, Paula H.J. Cholmondeley, Oren G. Shaffer, Thomas J. Hansen, and David C. Wang, and Terex Corporation.

These lawsuits, which generally covered the time period from February 2008 to February 2009, alleged violations of federal securities laws and Delaware law claiming, among other things, that certain of the Company’s SEC filings and other public statements contained false and misleading statements which resulted in damages to the Company, the plaintiffs and the members of the purported class when they purchased the Company’s securities and that there were breaches of fiduciary duties.

With respect to these claims, the Company believes that it acted at all times in compliance with all applicable laws and, without any admission of wrongdoing or liability, has settled the stockholder derivative and securities lawsuits. The settlement amounts with respect to each lawsuit were covered by the Company’s insurance policies and did not have a material effect on the Company’s financial results. As part of the stockholder derivative settlement, the Company made certain amendments to its corporate governance procedures.

Terex Latin América Equipamentos Ltda ICMS Proceedings

Terex Latin America Equipamentos Ltda (“TLA”) imports Terex products into Brazil through the state of Espirito Santo to its facility in Sao Paulo. For the 2004 through March 2009 period TLA used a third-party trading company, SAB, as an agent to process the importation of Terex products. TLA properly paid the Espirito Santo ICMS tax (Brazilian state value-added tax) to SAB for payment to Espirito Santo, which would produce an ICMS credit to be used against imposition of Sao Paolo ICMS tax. SAB went into bankruptcy and may not have actually remitted to Espirito Santo the ICMS tax amounts paid to it by TLA. The Brazilian state of Sao Paulo challenged the credit against Sao Paolo ICMS that TLA claimed and assessed unpaid ICMS tax, penalties and related interest in the amount of approximately BRL 101 million ($18 million). TLA challenged the claim of Sao Paulo and learned in October 2019 that the Sao Paulo claim has survived the administrative tribunal process. TLA anticipates that it will receive notice for an amount due from Sao Paulo and expects to protest the Sao Paulo claim in litigation which may not commence until 2021. While the Company believes the position of the state of Sao Paulo is without merit and continues to vigorously oppose it, no assurance can be given as to the final resolution of the ICMS litigation or that TLA will not ultimately be required to pay ICMS and interest to the state of Sao Paulo.

Other

The Company is involved in various other legal proceedings which have arisen in the normal course of its operations.  The Company has recorded provisions for estimated losses in circumstances where a loss is probable and the amount or range of possible amounts of the loss is estimable.

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Credit Guarantees

Customers of the Company from time to time may fund the acquisition of the Company’s equipment through third-party finance companies.  In certain instances, the Company may provide a credit guarantee to the finance company, by which the Company agrees to make payments to the finance company should the customer default. These may require the Company to: (i) pay-off the customer’s obligations, (ii) assume the customer’s payments or (iii) pay a predetermined percentage of the customer’s outstanding obligation.  The current amount of the maximum potential liability under these credit guarantees cannot be reasonably estimated due to limited availability of the unique facts and circumstances of each arrangement, such as customer delinquency and whether changes have been made to the structure of the contractual obligation between the funder and customer.

For credit guarantees outstanding as of September 30, 2020 and December 31, 2019, the maximum exposure determined at inception was $104.8 million and $78.4 million, respectively. Terms of these guarantees coincide with the financing arranged by the customer and generally do not exceed five years. Given the Company’s position as original equipment manufacturer and its knowledge of end markets, the Company, when called upon to fulfill a guarantee, generally has been able to liquidate the financed equipment at a minimal loss, if any, to the Company.

There can be no assurance that historical credit default experience will be indicative of future results.  The Company’s ability to recover losses experienced from its guarantees may be affected by economic conditions in effect at the time of loss.

NOTE N – STOCKHOLDERS’ EQUITY
Changes in Accumulated Other Comprehensive Income (Loss)

The table below presents changes in AOCI by component for the three and nine months ended September 30, 2020 and 2019. All amounts are net of tax (in millions).
Three Months Ended
September 30, 2020 		Three Months Ended
September 30, 2019
CTA Derivative Hedging Adj. Debt & Equity Securities Adj. Pension Liability Adj. Total
CTA(1)
Derivative Hedging Adj. Debt & Equity Securities Adj. Pension Liability Adj. Total
Beginning balance (243.5) (7.1) 3.6  (47.8) $ (294.8) $ (231.7) $ (3.5) $ 2.1  $ (54.2) $ (287.3)
Other comprehensive income (loss) before reclassifications
45.0  (2.7) 0.3  (2.0) 40.6  (51.9) (3.5) 0.4  14.4  (40.6)
Amounts reclassified from AOCI
—  (0.1) —  0.4  0.3  26.1  2.0  —  (0.5) 27.6 
Net other comprehensive income (loss)
45.0  (2.8) 0.3  (1.6) 40.9  (25.8) (1.5) 0.4  13.9  (13.0)
Ending balance
$ (198.5) $ (9.9) $ 3.9  $ (49.4) $ (253.9) $ (257.5) $ (5.0) $ 2.5  $ (40.3) $ (300.3)

(1)    Reclassifications relate to $26.1 million of losses (net of $2.8 million of tax benefits) reclassified from AOCI to Gain (loss) on disposition of discontinued operations - net of tax in connection with the sale of Demag.

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Nine Months Ended
September 30, 2020 		Nine Months Ended
September 30, 2019
CTA Derivative Hedging Adj. Debt & Equity Securities Adj. Pension Liability Adj. Total
CTA(1)
Derivative Hedging Adj. Debt & Equity Securities Adj. Pension Liability Adj. Total
Beginning balance $ (208.2) $ (0.8) $ 2.6  $ (51.1) $ (257.5) $ (225.6) $ (4.4) $ 0.8  $ (55.6) $ (284.8)
Other comprehensive income (loss) before reclassifications
9.7  (12.5) 1.3  0.5  (1.0) (58.0) (5.7) 1.7  14.6  (47.4)
Amounts reclassified from AOCI
—  3.4  —  1.2  4.6  26.1  5.1  —  0.7  31.9 
Net other comprehensive income (loss)
9.7  (9.1) 1.3  1.7  3.6  (31.9) (0.6) 1.7  15.3  (15.5)
Ending balance $ (198.5) $ (9.9) $ 3.9  $ (49.4) $ (253.9) $ (257.5) $ (5.0) $ 2.5  $ (40.3) $ (300.3)

(1)    Reclassifications relate to $26.1 million of losses (net of $2.8 million of tax benefits) reclassified from AOCI to Gain (loss) on disposition of discontinued operations - net of tax in connection with the sale of Demag.

Stock-Based Compensation

During the nine months ended September 30, 2020, the Company awarded 1.4 million shares of restricted stock to its employees with a weighted average grant date fair value of $22.40 per share.  Approximately 58% of these awards are time-based and vest ratably on each of the first three anniversary dates. Approximately 28% cliff vest at the end of a three-year period and are subject to performance targets that may or may not be met and for which the performance period has not yet been completed. Approximately 14% cliff vest and are based on performance targets containing a market condition determined over a three-year period.

The Company used the Monte Carlo method to determine grant date fair value of $21.09 per share for the awards with a market condition granted on February 26, 2020.  The Monte Carlo method is a statistical simulation technique used to provide the grant date fair value of an award.  

The following table presents the weighted-average assumptions used in the valuation:
Grant date
February 26, 2020
Dividend yields 2.12  %
Expected volatility 36.36  %
Risk free interest rate 1.14  %
Expected life (in years) 3

Share Repurchases and Dividends

In July 2018, Terex’s Board of Directors authorized the Company to repurchase up to an additional $300 million of the Company’s outstanding shares of common stock, of which approximately $105 million was utilized prior to January 1, 2020. During the nine months ended September 30, 2020, the Company repurchased 2.5 million shares for $54.6 million under this program. During the nine months ended September 30, 2019, the Company did not repurchase shares under this program. In the first quarter of 2020, Terex’s Board of Directors declared a dividend of $0.12, which was paid to the Company’s shareholders. In April 2020, the Company announced that it has suspended further share repurchases and dividend payments for the remainder of 2020.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

BUSINESS DESCRIPTION

Terex is a global manufacturer of aerial work platforms and materials processing machinery. We design, build and support products used in construction, maintenance, manufacturing, energy, minerals and materials management applications. Our products are manufactured in North and South America, Europe, Australia and Asia and sold worldwide. We engage with customers through all stages of the product life cycle, from initial specification and financing to parts and service support. We report our business in the following segments: (i) Aerial Work Platforms (“AWP”) and (ii) Materials Processing (“MP”).

On July 31, 2019, we completed the disposition of our Demag® mobile cranes business (“Demag”) to Tadano Ltd. and certain of its subsidiaries (“Tadano”). During 2019, we also exited North American mobile crane product lines manufactured in our Oklahoma City facility. As a result, we reorganized certain operations, formerly part of our Cranes segment, to align with our new management and reporting structure. Our utilities business has been consolidated within our AWP segment and our pick and carry, rough terrain and tower cranes businesses have been consolidated within our MP segment. Prior period reportable segment information was adjusted to reflect the realignment of our operations.

Further information about our industry and reportable segments appears below and in Note B – “Business Segment Information” in the Notes to the Condensed Consolidated Financial Statements.

Non-GAAP Measures

In this document, we refer to various GAAP (U.S. generally accepted accounting principles) and non-GAAP financial measures. These non-GAAP measures may not be comparable to similarly titled measures disclosed by other companies. We present non-GAAP financial measures in reporting our financial results to provide investors with additional analytical tools which we believe are useful in evaluating our operating results and the ongoing performance of our underlying businesses. We do not, nor do we suggest that investors consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.

Non-GAAP measures we may use include translation effect of foreign currency exchange rate changes on net sales, gross profit, selling, general & administrative (“SG&A”) costs and operating profit, as well as the net sales, gross profit, SG&A costs and operating profit excluding the impact of acquisitions and divestitures.

As changes in foreign currency exchange rates have a non-operating impact on our financial results, we believe excluding effects of these changes assists in assessment of our business results between periods. We calculate the translation effect of foreign currency exchange rate changes by translating current period results using rates that the comparable prior periods were translated at to isolate the foreign exchange component of fluctuation from the operational component. Similarly, impact of changes in our results from acquisitions and divestitures not included in comparable prior periods may be subtracted from the absolute change in results to allow for better comparability of results between periods.

We calculate a non-GAAP measure of free cash flow. We define free cash flow as Net cash provided by (used in) operating activities, plus (minus) increases (decreases) in Terex Financial Services finance receivables consisting of sales-type leases and commercial loans (“TFS Assets”), less Capital expenditures, net of proceeds from sale of capital assets. We believe this measure of free cash flow provides management and investors further useful information on cash generation or use in our primary operations.

Working capital is calculated using the Condensed Consolidated Balance Sheet amounts for Trade receivables (net of allowance) plus Inventories, less Trade accounts payable and Customer advances. We view excessive working capital as an inefficient use of resources, and seek to minimize the level of investment without adversely impacting ongoing operations of the business. Trailing three months annualized net sales is calculated using net sales for the most recent quarter end multiplied by four. The ratio calculated by dividing working capital by trailing three months annualized net sales is a non-GAAP measure we believe measures our resource use efficiency.

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Non-GAAP measures we also use include Net Operating Profit After Tax (“NOPAT”) as adjusted, income (loss) from operations as adjusted, annualized effective tax rate as adjusted, cash and cash equivalents as adjusted and stockholders’ equity as adjusted, which are used in the calculation of our after tax return on invested capital (“ROIC”) (collectively the “Non-GAAP Measures”), which are discussed in detail below.

Overview

While the COVID-19 pandemic continued in the third quarter, global economic activity has stabilized and begun to gradually recover but remains below pre-COVID-19 levels. In response to the ongoing pandemic, we have implemented safety, financial and cost reduction actions.

Safety is and will remain the top priority of the Company driven by our Zero Harm Safety culture of Think Safe – Work Safe – Home Safe. Our global and regional crisis response teams remain active and our facilities continue refining their preparedness and response plans to ensure that they can respond swiftly as local or regional pandemic conditions change. The continuing vigilance of our team members both inside and outside of work and the successful COVID-19 safety measures we implemented early on are doing a good job of protecting our team.

After safety, our top priority is our liquidity. As of September 30, 2020, we had approximately $1.1 billion in available liquidity. We have taken numerous actions so that we can maintain strong liquidity levels going forward. It is important that all of Terex’s stakeholders, including customers, suppliers, team members and credit and equity investors have confidence that we have the operational and financial strength to manage successfully through this period of uncertainty. We believe our liquidity continues to be sufficient to meet our business plans. See “Liquidity and Capital Resources” for a detailed description of liquidity and working capital levels, including the primary factors affecting such levels.

In the first nine months of 2020, we have made good progress in lowering our costs. Specifically, we have reduced our SG&A costs by over $50 million as compared to the first nine months of 2019, driven by furloughs, team member salary reductions, and deferral of merit increases. We are executing a SG&A cost reduction initiative with a target of SG&A percent to sales for 2021 of 12.5%. In addition to reducing 2021 SG&A percent to sales, this initiative is replacing temporary 2020 cost savings actions with permanent cost reductions. Due to reduced levels of demand, we continued to permanently reduce our workforce levels in the third quarter and in October to align with production levels. As a result of actions taken, principally within AWP, during the month of October, we anticipate at least $15 million of severance and restructuring charges in the fourth quarter of 2020. We are continuing to closely partner with suppliers to limit the incoming supply of materials, receiving only what is needed to support current production schedules and avoid significant supply chain disruptions. Given the economic and industry uncertainty posed by the pandemic, we also reduced our 2020 capital spending by 35%, although we continue to invest in growth as demonstrated by our new Utilities manufacturing facility and continuing to expand our Changzhou, China facility.

We are continuing to transition from our “Focus, Simplify, Execute to Win” strategy to its next phase of “Execute, Innovate, Grow.” We are evolving into a leaner organization, with fewer organizational levels, including the elimination and consolidation of management layers. Also, as we right-size our organization, we have been re-evaluating and reducing our company-wide footprint. We recognize that to win in the marketplace we must have a globally cost competitive manufacturing footprint. We have been and will continue to take the actions necessary to achieve this objective. We also will continue to innovate in our products and technology. We are listening to our customers so our products and services offer the features and benefits which provide value to our customers. We are emphasizing execution driving innovation and growth, specifically focused on profitable growth.

Net sales in the third quarter of 2020 stabilized and improved sequentially almost 11% as end markets continue to recover from the lows in the second quarter. AWP net sales improved sequentially by almost 8% in the third quarter from the second quarter, while MP net sales improved almost 18%. Despite the challenging global macroeconomic and industry environment in which we are operating, our disciplined focus on meeting customer demand and tightly managing all costs resulted in significantly improved financial results compared to the second quarter of 2020.

Our AWP segment’s third quarter 2020 net sales were down 29% from the prior year period driven by end markets in the U.S. and Europe remaining significantly below last year’s levels. We continued to aggressively manage production levels to ensure we were not building excess inventory. The market and our aerial products sales in China were robust in the third quarter. Overall, the Utilities market stabilized in the quarter but remained soft in certain customer segments. AWP’s lower operating margin in the quarter compared to the prior year period was driven by lower sales volume. The backlog for AWP was relatively flat, only down 3% from the prior year period, while bookings were up in the third quarter as compared to the prior year period.

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Our MP segment’s third quarter 2020 net sales were down 19% from the prior year period driven by cautious customer sentiment delaying capital purchases of crushing and screening equipment and material handlers. The strong financial performance of the MP segment, achieving an operating margin of 13% demonstrates our MP team has been aggressively managing its cost structure in a challenging market environment. The backlog for MP was only down 8% from the prior year period, while bookings were up in the third quarter as compared to the prior year period.

Throughout the first nine months of 2020 we have been intensely focused on rightsizing our inventory levels to the customer demand environment, especially in our aerial products business. Our focus on net working capital management drove $54.4 million of positive free cash flow generation in the third quarter. We expect to continue to deliver positive free cash flow performance in the fourth quarter, which historically has been our strongest quarter from a free cash generation perspective.

In the third quarter of 2020, our largest market remained North America, which represented approximately 55% of our global sales in continuing operations. As compared to the prior year period, our sales in Asia-Pacific were essentially flat, but were down double digits in every other major geography.

Based on the Company’s current expectations of the markets for the remainder of 2020, the Company continues to anticipate sales in the second half of 2020 to be similar to the first half of the year. Although the full severity and duration of the global pandemic is unknown, it is anticipated that our operating results will continue to be impacted. See Part II, Item 1A. – “Risk Factors” for a detailed description of the risks resulting from COVID-19.
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ROIC

ROIC and other Non-GAAP Measures (as calculated below) assist in showing how effectively we utilize capital invested in our operations. ROIC is determined by dividing the sum of NOPAT for each of the previous four quarters by the average of Debt less Cash and cash equivalents plus Stockholders’ equity for the previous five quarters. NOPAT for each quarter is calculated by multiplying Income (loss) from operations by one minus the annualized effective tax rate.

In the calculation of ROIC, we adjust income (loss) from operations, annualized effective tax rate, and stockholders’ equity to remove the effects of the impact of certain transactions in order to create a measure that is useful to understanding our operating results and the ongoing performance of our underlying business without the impact of unusual items as shown in the tables below. Cash and cash equivalents is adjusted to include amounts recorded as held for sale.

Furthermore, we believe returns on capital deployed in Terex Financial Services (“TFS”) do not represent our primary operations and, therefore, TFS Assets and results from operations have been excluded from the Non-GAAP Measures. Debt is calculated using amounts for Current portion of long-term debt plus Long-term debt, less current portion. We calculate ROIC using the last four quarters’ adjusted NOPAT as this represents the most recent 12-month period at any given point of determination. In order for the denominator of the ROIC ratio to properly match the operational period reflected in the numerator, we include the average of five quarters’ ending balance sheet amounts so that the denominator includes the average of the opening through ending balances (on a quarterly basis) thereby providing, over the same time period as the numerator, four quarters of average invested capital.

Terex management and Board of Directors use ROIC as one measure to assess operational performance, including in connection with certain compensation programs. We use ROIC as a metric because we believe it measures how effectively we invest our capital and provides a better measure to compare ourselves to peer companies to assist in assessing how we drive operational improvement. We believe ROIC measures return on the amount of capital invested in our primary businesses, excluding TFS, as opposed to another metric such as return on stockholders’ equity that only incorporates book equity, and is thus a more accurate and descriptive measure of our performance. We also believe adding Debt less Cash and cash equivalents to Stockholders’ equity provides a better comparison across similar businesses regarding total capitalization, and ROIC highlights the level of value creation as a percentage of capital invested. As the tables below show, our ROIC at September 30, 2020 was 3.8%.

Amounts described below are reported in millions of U.S. dollars, except for the annualized effective tax rates.  Amounts are as of and for the three months ended for the periods referenced in the tables below.
  Sep '20 Jun '20 Mar '20 Dec '19 Sep '19
Annualized effective tax rate, as adjusted 28.8  % 28.8  % 28.8  % 15.6  %  
Income (loss) from operations as adjusted $ 34.7  $ 4.0  $ (4.5) $ 35.3 
Multiplied by: 1 minus annualized effective tax rate 71.2  % 71.2  % 71.2  % 84.4  %
Adjusted net operating income (loss) after tax $ 24.7  $ 2.8  $ (3.2) $ 29.8   
Debt $ 1,174.5  $ 1,174.5  $ 1,345.1  $ 1,175.7  $ 1,175.6 
Less: Cash and cash equivalents as adjusted (512.6) (429.9) (515.0) (540.1) (475.5)
Debt less Cash and cash equivalents as adjusted 661.9  744.6  830.1  635.6  700.1 
Stockholders’ equity as adjusted 748.2  681.1  651.2  791.4  709.0 
Debt less Cash and cash equivalents plus Stockholders’ equity as adjusted $ 1,410.1  $ 1,425.7  $ 1,481.3  $ 1,427.0  $ 1,409.1 

September 30, 2020 ROIC 3.8  %
NOPAT as adjusted (last 4 quarters) $ 54.1 
Average Debt less Cash and cash equivalents plus Stockholders’ equity as adjusted (5 quarters) $ 1,430.6 
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Three months ended 9/30/20 Three months ended 6/30/20 Three months ended 3/31/20 Three months ended 12/31/19
Reconciliation of income (loss) from operations:    
Income (loss) from operations, as reported $ 36.5  $ 7.4  $ (7.1) $ 22.9 
Adjustments:
Deal related —  —  —  — 
Restructuring and related —  —  —  9.8 
Transformation —  —  —  3.4 
Other —  —  —  0.2 
(Income) loss from TFS (1.8) (3.4) 2.6  (1.0)
Income (loss) from operations as adjusted $ 34.7  $ 4.0  $ (4.5) $ 35.3 
As of 9/30/20 As of 6/30/20 As of 3/31/20 As of 12/31/19 As of 9/30/19
Reconciliation of Cash and cash equivalents:
Cash and cash equivalents - continuing operations $ 508.3  $ 426.0  $ 511.3  $ 535.1  $ 470.6 
Cash and cash equivalents - assets held for sale 4.3  3.9  3.7  5.0  4.9 
Cash and cash equivalents, as adjusted $ 512.6  $ 429.9  $ 515.0  $ 540.1  $ 475.5 
Reconciliation of Stockholders’ equity:
Stockholders’ equity as reported $ 852.7  $ 800.4  $ 786.2  $ 932.3  $ 866.3 
TFS Assets (115.8) (131.9) (150.0) (154.0) (159.0)
Effects of adjustments, net of tax:
Deal related (0.5) (0.5) (0.5) (0.5) (0.5)
Restructuring and related 11.8  11.8  11.8  11.8  3.5 
Transformation 5.1  5.1  5.1  5.1  2.2 
Other 0.6  0.6  0.6  0.6  (0.4)
(Income) loss from TFS (5.7) (4.4) (2.0) (3.9) (3.1)
Stockholders’ equity as adjusted $ 748.2  $ 681.1  $ 651.2  $ 791.4  $ 709.0 

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Nine Months Ended
September 30, 2020 		Income (loss) from continuing operations before income taxes (Provision for) benefit from income taxes Income tax rate
Reconciliation of annualized effective tax rate:
As reported $ (10.8) $ 4.9  45.4  %
Effect of adjustments:
Tax related —  (1.8)
As adjusted $ (10.8) $ 3.1  28.8  %

Year Ended
December 31, 2019 		Income (loss) from continuing operations before income taxes (Provision for) benefit from income taxes Income tax rate
Reconciliation of annualized effective tax rate:
As reported $ 247.5  $ (37.8) 15.3  %
Effect of adjustments:
Deal related (7.5) 0.2 
Restructuring and related 22.4  (4.7)
Transformation 13.7  (2.8)
Other 0.6  (0.1)
Tax related —  2.0 
As adjusted $ 276.7  $ (43.2) 15.6  %


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RESULTS OF OPERATIONS

Three Months Ended September 30, 2020 Compared with Three Months Ended September 30, 2019

Consolidated

  Three Months Ended September 30,  
  2020 2019  
    % of
Sales 		  % of
Sales 		% Change In
Reported Amounts
  ($ amounts in millions)  
Net sales $ 765.6  —  $ 1,024.6  —  (25.3) %
Gross profit $ 146.3  19.1  % $ 209.6  20.5  % (30.2) %
SG&A $ 109.8  14.3  % $ 123.2  12.0  % (10.9) %
Income (loss) from operations $ 36.5  4.8  % $ 86.4  8.4  % (57.8) %

Net sales for the three months ended September 30, 2020 decreased $259.0 million when compared to the same period in 2019.  The decrease in net sales was primarily due to lower demand for aerial work platforms, telehandlers and utility equipment in our AWP segment and materials processing equipment, material handlers and concrete mixer trucks in our MP segment primarily as a result of COVID-19 adversely affecting our customers’ sentiment and spending, leading to a downturn in our markets.

Gross profit for the three months ended September 30, 2020 decreased $63.3 million when compared to the same period in 2019. The decrease was primarily due to lower sales as a result of the impact of COVID-19.

SG&A costs for the three months ended September 30, 2020 decreased $13.4 million when compared to the same period in 2019.  The decrease was primarily due to cost control measures, including workforce furloughs, salary reductions and reduced discretionary spending, taken across all areas of our business to mitigate the negative impact of COVID-19.

Income from operations for the three months ended September 30, 2020 decreased $49.9 million when compared to the same period in 2019.  The decrease was primarily due to the negative impact of COVID-19 on our businesses, partially offset by lower selling, general and administrative expenses.

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Aerial Work Platforms

  Three Months Ended September 30,  
  2020 2019  
    % of
Sales 		  % of
Sales 		% Change In
Reported Amounts
  ($ amounts in millions)  
Net sales $ 445.0  —  $ 628.2  —  (29.2) %
Income (loss) from operations $ 13.3  3.0  % $ 45.9  7.3  % (71.0) %

Net sales for the AWP segment for the three months ended September 30, 2020 decreased $183.2 million when compared to the same period in 2019 primarily due to lower demand for aerial work platforms in all major geographies, except Asia-Pacific due to strong demand in China, and telehandlers and utility equipment in North America as a result of COVID-19 adversely affecting our customers’ sentiment and spending, leading to a downturn in our markets.

Income (loss) from operations for the three months ended September 30, 2020 decreased $32.6 million when compared to the same period in 2019 primarily due to lower sales volume as a result of the impact of COVID-19, partially offset by reduced spending for selling, general and administrative expenses.

Materials Processing

  Three Months Ended September 30,  
  2020 2019  
    % of
Sales 		  % of
Sales 		% Change In
Reported Amounts
  ($ amounts in millions)  
Net sales $ 311.3  —  $ 382.7  —  (18.7) %
Income (loss) from operations $ 40.3  12.9  % $ 58.4  15.3  % (31.0) %

Net sales for the MP segment for the three months ended September 30, 2020 decreased $71.4 million when compared to the same period in 2019 primarily due to decreased demand for materials processing equipment and material handlers in all major geographies and concrete mixer trucks in North America as a result of COVID-19 adversely affecting our customers’ sentiment and spending, leading to a downturn in our markets.

Income from operations for the three months ended September 30, 2020 decreased $18.1 million when compared to the same period in 2019 primarily due to lower sales volume as a result of the impact of COVID-19, partially offset by reduced spending for selling, general and administrative expenses.

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Corporate and Other / Eliminations

  Three Months Ended September 30,  
  2020 2019  
    % of
Sales 		  % of
Sales 		% Change In
Reported Amounts
  ($ amounts in millions)  
Net sales $ 9.3  —  $ 13.7  —  (32.1) %
Income (loss) from operations $ (17.1) * $ (17.9) * 4.5  %
* - Not a meaningful percentage

Net sales include on-book financing activities of TFS and elimination of intercompany sales activity among segments. The net sales decrease is primarily attributable to lower TFS activity offset by lower intercompany sales eliminations.

Loss from operations for the three months ended September 30, 2020 decreased $0.8 million when compared to the same period in 2019.

Interest Expense, Net of Interest Income

During the three months ended September 30, 2020, our interest expense, net of interest income, was $15.0 million, or $5.1 million lower than the same period in the prior year due to a decrease in average borrowings and lower rates.

Other Income (Expense) – Net

Other income (expense) – net for the three months ended September 30, 2020 was an expense of $0.6 million, or a $2.2 million increase in expense when compared to the same period in the prior year. The increase was due primarily to mark-to-market losses recorded on an equity investment in the current year period compared to gains recorded in the prior year period and lower foreign exchange translation gains in the current year period, compared to the 2019 period.

Income Taxes

During the three months ended September 30, 2020, we recognized income tax benefit of $1.1 million on income of $20.9 million, an effective tax rate of (5.3)%, as compared to income tax expense of $15.5 million on income of $67.9 million, an effective tax rate of 22.8%, for the three months ended September 30, 2019.  The lower effective tax rate for the three months ended September 30, 2020 is primarily due to geographic mix and tax benefits from the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) and changes in tax regulations, partially offset by U.S. tax on foreign income, when compared with the three months ended September 30, 2019.

Income (Loss) from Discontinued Operations - net of taxes

Loss from discontinued operations - net of tax for the three months ended September 30, 2020 was $0.1 million compared to loss from discontinued operations - net of tax of $10.1 million for the same period in the prior year, a reduction of $10.0 million. The loss in the prior year was primarily due to the negative performance of our mobile cranes business prior to disposition.

Gain (Loss) on Disposition of Discontinued Operations - net of taxes

During the three months ended September 30, 2020, we recognized a loss on disposition of discontinued operations - net of tax of $16.1 million primarily related to a settlement with Tadano on cash, debt, working capital and certain other items related to the disposition of Demag. During the three months ended September 30, 2019, we recognized a loss on disposition of discontinued operations - net of tax of $20.9 million primarily related to the disposition of Demag.

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Nine Months Ended September 30, 2020 Compared with Nine Months Ended September 30, 2019

Consolidated

  Nine Months Ended September 30,  
  2020 2019  
    % of
Sales 		  % of
Sales 		% Change In
Reported Amounts
  ($ amounts in millions)  
Net sales $ 2,289.7  —  $ 3,468.1  —  (34.0) %
Gross profit $ 390.1  17.0  % $ 719.2  20.7  % (45.8) %
SG&A $ 353.3  15.4  % $ 407.1  11.7  % (13.2) %
Income (loss) from operations $ 36.8  1.6  % $ 312.1  9.0  % (88.2) %

Net sales for the nine months ended September 30, 2020 decreased $1,178.4 million when compared to the same period in 2019.  The decrease in net sales was primarily due to lower demand for aerial work platforms, telehandlers and utility equipment in our AWP segment and materials processing equipment, material handlers, cranes and concrete mixer trucks in our MP segment primarily as a result of COVID-19 adversely affecting our customers’ sentiment and spending, leading to a downturn in our markets.

Gross profit for the nine months ended September 30, 2020 decreased $329.1 million when compared to the same period in 2019. The decrease was primarily due to lower sales and temporary manufacturing shutdowns as a result of the impact of COVID-19.

SG&A costs for the nine months ended September 30, 2020 decreased $53.8 million when compared to the same period in 2019.  The decrease was primarily due to cost control measures, including workforce furloughs, salary reductions and reduced discretionary spending, taken across all areas of our business to mitigate the negative impact of COVID-19.

Income from operations for the nine months ended September 30, 2020 decreased $275.3 million when compared to the same period in 2019.  The decrease was primarily due to the negative impact of COVID-19 on our businesses, partially offset by lower selling, general and administrative expenses.

Aerial Work Platforms

  Nine Months Ended September 30,  
  2020 2019  
    % of
Sales 		  % of
Sales 		% Change In
Reported Amounts
  ($ amounts in millions)  
Net sales $ 1,370.6  —  $ 2,226.5  —  (38.4) %
Income (loss) from operations $ 2.4  0.2  % $ 191.8  8.6  % (98.7) %

Net sales for the AWP segment for the nine months ended September 30, 2020 decreased $855.9 million when compared to the same period in 2019 primarily due to lower demand for aerial work platforms in all major geographies and telehandlers and utility equipment in North America as a result of COVID-19 adversely affecting our customers’ sentiment and spending, leading to a downturn in our markets.

Income from operations for the nine months ended September 30, 2020 decreased $189.4 million when compared to the same period in 2019 primarily due to lower sales volume and temporary manufacturing shutdowns as a result of the impact of COVID-19, partially offset by reduced spending for selling, general and administrative expenses.

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Materials Processing

  Nine Months Ended September 30,  
  2020 2019  
    % of
Sales 		  % of
Sales 		% Change In
Reported Amounts
  ($ amounts in millions)  
Net sales $ 890.5  —  $ 1,224.1  —  (27.3) %
Income (loss) from operations $ 88.7  10.0  % $ 183.2  15.0  % (51.6) %

Net sales for the MP segment for the nine months ended September 30, 2020 decreased $333.6 million when compared to the same period in 2019 primarily due to decreased demand for materials processing equipment, material handlers and cranes in all major geographies and concrete mixer trucks in North America as a result of COVID-19 adversely affecting our customers’ sentiment and spending, leading to a downturn in our markets.

Income from operations for the nine months ended September 30, 2020 decreased $94.5 million when compared to the same period in 2019 primarily due to lower sales volume and temporary manufacturing shutdowns as a result of the impact of COVID-19, partially offset by reduced spending for selling, general and administrative expenses.

Corporate and Other / Eliminations

  Nine Months Ended September 30,  
  2020 2019  
    % of
Sales 		  % of
Sales 		% Change In
Reported Amounts
  ($ amounts in millions)  
Net sales $ 28.6  —  $ 17.5  —  63.4  %
Income (loss) from operations $ (54.3) * $ (62.9) * 13.7  %
* - Not a meaningful percentage

Net sales include on-book financing activities of TFS and elimination of intercompany sales activity among segments. The net sales increase is primarily attributable to lower intercompany sales eliminations.

Loss from operations for the nine months ended September 30, 2020 decreased $8.6 million when compared to the same period in 2019. The decrease in operating loss is primarily due to lower general and administrative spending and reduced personnel expense due to temporary furloughs related to COVID-19, partially offset by the gain on sale of an investment in 2019, a specific finance receivable reserve for one customer and change in allocation of corporate costs.

Interest Expense, Net of Interest Income

During the nine months ended September 30, 2020, our interest expense, net of interest income, was $47.5 million, or $16.7 million lower than the same period in the prior year due to a decrease in average borrowings and lower rates.

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Other Income (Expense) – Net

Other income (expense) – net for the nine months ended September 30, 2020 was an expense of $0.1 million, or a $2.8 million decrease in expense when compared to the same period in the prior year. The decrease in expense was due to foreign exchange translation gains in the current year period, compared to losses in the 2019 period, and a positive post-closing adjustment in 2020 related to the settlement of our U.S. defined benefit pension plan in 2018, partially offset by mark-to-market losses recorded on an equity investment in the current year period compared to gains recorded in the prior year period.

Income Taxes

During the nine months ended September 30, 2020, we recognized income tax benefit of $4.9 million on a loss of $10.8 million, an effective tax rate of 45.4%, as compared to income tax expense of $53.8 million on income of $245.0 million, an effective tax rate of 22.0%, for the nine months ended September 30, 2019.  The higher effective tax rate for the nine months ended September 30, 2020 is primarily due to geographic mix and tax benefits from the CARES Act and changes in tax regulations, partially offset by U.S. tax on foreign income, when compared to the nine months ended September 30, 2019.

Income (Loss) from Discontinued Operations

Loss from discontinued operations - net of tax for the nine months ended September 30, 2020 was $1.3 million compared to loss from discontinued operations - net of tax of $151.8 million for the same period in the prior year. The loss in the prior period was primarily from recognition of a pre-tax charge of approximately $82 million ($82 million after-tax) to write-down the mobile cranes disposal group to fair value, less costs to sell and the negative performance of our mobile cranes business prior to disposition.

Gain (Loss) on Disposition of Discontinued Operations

During the nine months ended September 30, 2020, we recognized a loss on disposition of discontinued operations - net of tax of $21.1 million, primarily related to a settlement with Tadano on cash, debt, working capital and certain other items related to the disposition of Demag. During the nine months ended September 30, 2019, we recognized a loss on disposition of discontinued operations - net of tax of $9.5 million primarily related to the disposition of Demag, partially offset by a gain on the sale of our boom truck, truck crane and crossover product lines and related inventory previously manufactured in our Oklahoma City facility.

LIQUIDITY AND CAPITAL RESOURCES

We are focused on generating cash and maintaining liquidity (cash and availability under our revolving line of credit) for the efficient operation of our business.  At September 30, 2020, we had cash and cash equivalents of $512.6 million and undrawn availability under our revolving line of credit of $600 million, giving us total liquidity of approximately $1.1 billion. During the nine months ended September 30, 2020, our liquidity decreased by approximately $28 million from December 31, 2019.

Our main sources of funding are cash generated from operations, including cash generated from the sale of receivables, loans from our bank credit facilities and funds raised in capital markets. We have no significant debt maturities until 2023 and we have increased our focus on internal cash flow generation. Our actions to maintain liquidity in view of current conditions in the economy include reducing costs and working capital, suspending our share repurchase program and suspending making further dividend payments in 2020. We also amended our revolving credit facility in April 2020. We believe the amendment provides us with the flexibility needed to manage the Company during these challenging times. We believe these measures, in conjunction with our actions to delay certain capital spending projects, will provide us with adequate liquidity to comply with our financial covenants under our bank credit facility, continue to support internal operating initiatives and meet our operating and debt service requirements for at least the next 12 months. See Part II, Item 1A. – “Risk Factors” for a detailed description of the risks resulting from our debt and our ability to generate sufficient cash flow to operate our business.

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Our ability to generate cash from operations is subject to numerous factors, including the following:

•The duration and depth of the global economic weakness resulting from COVID-19.
•Many of our customers fund their purchases through third-party finance companies that extend credit based on the credit-worthiness of customers and expected residual value of our equipment.  Changes either in customers’ credit profile or used equipment values may affect the ability of customers to purchase equipment.  There can be no assurance third-party finance companies will continue to extend credit to our customers as they have in the past.
•As our sales change, the amount of working capital needed to support our business may change.
•Our suppliers extend payment terms to us primarily based on our overall credit rating.  Declines in our credit rating may influence suppliers’ willingness to extend terms and in turn accelerate cash requirements of our business.
•Sales of our products are subject to general economic conditions, weather, competition, translation effect of foreign currency exchange rate changes, and other factors that in many cases are outside our direct control.  For example, during periods of economic uncertainty, our customers have delayed purchasing decisions, which reduces cash generated from operations.
•Availability and utilization of other sources of liquidity such as trade receivables sales programs.

Typically, we have invested our cash in a combination of highly rated, liquid money market funds and in short-term bank deposits with large, highly rated banks. Our investment objective is to preserve capital and liquidity while earning a market rate of interest.

We seek to use cash held by our foreign subsidiaries to support our operations and continued growth plans outside and inside the United States through funding of capital expenditures, operating expenses or other similar cash needs of these operations. Most of this cash could be used in the U.S., if necessary, without additional tax cost. Incremental cash repatriated to the U.S. would not be expected to result in material foreign and state tax cost. We will continue to seek opportunities to tax-efficiently mobilize and redeploy funds.

We had positive free cash flow of $54.4 million and $12.7 million for the three and nine months ended September 30, 2020, respectively.

The following table reconciles Net cash provided by (used in) operating activities to free cash flow (in millions):
Three Months Ended
9/30/2020 		Nine Months Ended
9/30/2020
Net cash provided by (used in) operating activities $ 76.6  $ 88.9 
Increase (decrease) in TFS assets (16.1) (38.2)
Capital expenditures, net of proceeds from sale of capital assets (1)
(6.1) (38.0)
Free cash flow $ 54.4  $ 12.7 

(1)     Includes $4.4 million and $13.4 million of proceeds from sale of capital assets within Proceeds (payments) from the disposition of discontinued operations in the Condensed Consolidated Statement of Cash Flows for the three and nine months ended September 30, 2020, respectively.

Pursuant to terms of our trade accounts receivable factoring arrangements, during the nine months ended September 30, 2020, we sold, without recourse, approximately $319 million of trade accounts receivable to enhance liquidity. During the nine months ended September 30, 2020, we also sold approximately $67 million of sales-type leases and commercial loans.

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Working capital as a percent of trailing three month annualized net sales was 22.4% at September 30, 2020.

The following tables show the calculation of our working capital in continuing operations and trailing three months annualized sales as of September 30, 2020 (in millions):
Three Months Ended
9/30/2020
Net Sales $ 765.6 
x 4 
Trailing Three Month Annualized Net Sales $ 3,062.4 

As of 9/30/20
Inventories $ 635.5 
Trade Receivables 403.2 
Trade Accounts Payable (337.8)
Customer Advances (14.6)
Working Capital $ 686.3 

On January 31, 2017, we entered into a credit agreement (as amended, the “2017 Credit Agreement”). The 2017 Credit Agreement contains a $400 million senior secured term loan (the “Original Term Loan”). The Original Term Loan portion of the 2017 Credit Agreement bears interest at a rate of London Interbank Offered Rate (“LIBOR”) plus 2.00% with a 0.75% LIBOR floor. On March 7, 2019, we entered into an Incremental Assumption Agreement and Amendment No. 3 (“Amendment No. 3”) to the 2017 Credit Agreement. Amendment No. 3 provided us with an additional term loan (the “2019 Term Loan”) under the 2017 Credit Agreement in the amount of $200 million. The 2019 Term Loan portion of the 2017 Credit Agreement bears interest at a rate of LIBOR plus 2.75% with a 0.75% LIBOR floor (the Original Term Loan together with 2019 Term Loan comprise the “Term Loans” portion of the 2017 Credit Agreement). Net proceeds from the 2019 Term Loan were used to reduce borrowings under the revolving line of credit. On April 23, 2020, we entered into a Loan Modification Agreement and Amendment No. 4 (“Amendment No. 4”) to the 2017 Credit Agreement. The 2017 Credit Agreement contains a $600 million revolving line of credit (the “Revolver”). The 2017 Credit Agreement allows unlimited incremental commitments, which may be extended at the option of existing or new lenders and can be in the form of revolving credit commitments, term loan commitments, or a combination of both, with incremental amounts in excess of $150 million through 2021 ($300 million thereafter) requiring the Company to satisfy a senior secured leverage ratio contained in the 2017 Credit Agreement. Interest rates charged under the Revolver in the 2017 Credit Agreement are subject to adjustment based on our consolidated leverage ratio. Amendment No. 4 extended the term of the Revolver to expire on January 31, 2023. As a result of Amendment No. 4, during 2020, we are only subject to a minimum liquidity covenant and then during 2021 we are subject to a maximum secured leverage covenant that is only applicable if our borrowings under the Revolver are greater than 30% of the total revolving credit commitments. See Note K - “Long-Term Obligations,” in our Condensed Consolidated Financial Statements for additional information concerning the 2017 Credit Agreement and Amendment No. 4.

Borrowings under the 2017 Credit Agreement at September 30, 2020 were $581.3 million, net of discount, on our Term Loans. At September 30, 2020, the weighted average interest rate was 3.00% on the Term Loans portion of the 2017 Credit Agreement. We had no revolving credit amounts outstanding as of September 30, 2020.

We manage our interest rate risk by maintaining the ratio of fixed and floating rate debt, including use of interest rate derivatives when appropriate. Over the long term, we believe this mix will produce lower interest cost than a purely fixed rate mix while reducing interest rate risk.

Our investment in TFS financial services assets was approximately $116 million, net at September 30, 2020. We remain focused on expanding financing solutions in key markets like the U.S., Europe and China. We also anticipate our continued use of TFS to drive incremental sales by increasing customer financing facilitated through TFS in certain instances.

In July 2018, our Board of Directors authorized the repurchase up to an additional $300 million of our outstanding shares of common stock. During the nine months ended September 30, 2020, we repurchased 2.5 million shares for $54.6 million under this authorization leaving approximately $141 million available for repurchase under this program. In the first quarter of 2020, our Board of Directors declared a dividend of $0.12 per share, which was paid to our shareholders. In April 2020, we announced that we have suspended further share repurchases and dividend payments for the remainder of 2020.
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Our ability to access capital markets to raise funds, through sale of equity or debt securities, is subject to various factors, some specific to us and others related to general economic and/or financial market conditions.  These include results of operations, projected operating results for future periods and debt to equity leverage.  Our ability to access capital markets is also subject to our timely filing of periodic reports with the Securities and Exchange Commission (“SEC”).  In addition, terms of our bank credit facilities, senior notes and senior subordinated notes contain restrictions on our ability to make further borrowings and to sell substantial portions of our assets.

Cash Flows

Cash provided by operations for the nine months ended September 30, 2020 totaled $88.9 million, compared to cash provided by operations of $78.4 million for the nine months ended September 30, 2019.  The increase in cash provided by operations was primarily driven by improved working capital efficiency, offset by decreased operating profitability.

Cash used in investing activities for the nine months ended September 30, 2020 was $40.0 million, compared to $128.5 million of cash provided by investing activities for the nine months ended September 30, 2019. Cash used in investing activities in the current period relates primarily to capital expenditures. Cash provided by investing activities in the prior period was primarily due to proceeds received from the sale of Demag and ASV shares, partially offset by capital expenditures.

Cash used in financing activities was $80.8 million for the nine months ended September 30, 2020, compared to $85.5 million of cash used in financing activities for the nine months ended September 30, 2019. The decrease in cash used in financing activities was primarily due to higher net debt repayments and dividend payments in the prior year, partially offset by higher share repurchases in the current year.

OFF-BALANCE SHEET ARRANGEMENTS

Guarantees

Our customers, from time to time, fund the acquisition of our equipment through third-party finance companies.  In certain instances, we may provide a credit guarantee to the finance company by which we agree to make payments to the finance company should the customer default.  Our maximum liability is generally limited to our customer’s remaining payments due to the finance company at the time of default.  In the event of a customer default, we are generally able to recover and dispose of the equipment at a minimal loss, if any, to us.

We issue, from time to time, residual value guarantees under sales-type leases.  A residual value guarantee involves a guarantee that a piece of equipment will have a minimum fair market value at a future date if certain conditions are met by the customer. We are generally able to mitigate some risk associated with these guarantees because maturity of guarantees is staggered, which limits the amount of used equipment entering the marketplace at any one time.

There can be no assurance our historical experience in used equipment markets will be indicative of future results.  Our ability to recover losses from our guarantees may be affected by economic conditions in used equipment markets at the time of loss.

See Note M – “Litigation and Contingencies” in the Notes to the Condensed Consolidated Financial Statements for further information regarding our guarantees.

CONTINGENCIES AND UNCERTAINTIES

Foreign Exchange and Interest Rate Risk

Our products are sold in over 100 countries around the world and, accordingly, our revenues are generated in foreign currencies, while costs associated with those revenues are only partly incurred in the same currencies.  We enter into foreign exchange contracts to manage variability of future cash flows associated with recognized assets or liabilities or forecasted transactions due to changing currency exchange rates.  Primary currencies to which we are exposed are the Euro, British Pound and Australian Dollar.

We manage exposure to interest rates by incurring a mix of indebtedness bearing interest at both floating and fixed rates at inception and maintaining the ratio of floating and fixed rates on this mix of indebtedness using interest rate derivatives when necessary.

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See Note J – “Derivative Financial Instruments” in the Notes to the Condensed Consolidated Financial Statements for further information about our derivatives and Item 3 “Quantitative and Qualitative Disclosures About Market Risk” for a discussion of the impact changes in foreign currency exchange rates and interest rates may have on our financial performance.

Other

We are subject to a number of contingencies and uncertainties including, without limitation, product liability claims, workers’ compensation liability, intellectual property litigation, self-insurance obligations, tax examinations, guarantees, class action lawsuits and other matters. See Note M – “Litigation and Contingencies” in the Notes to the Condensed Consolidated Financial Statements for more information concerning contingencies and uncertainties, including our proceedings involving a claim in Brazil regarding payment of ICMS tax, penalties and related interest.  We are insured for product liability, general liability, workers’ compensation, employer’s liability, property damage, intellectual property and other insurable risks required by law or contract with retained liability to us or deductibles. Many of the exposures are unasserted or proceedings are at a preliminary stage, and it is not presently possible to estimate the amount or timing of any liability. However, we do not believe these contingencies and uncertainties will, individually or in aggregate, have a material adverse effect on our operations. For contingencies and uncertainties other than income taxes, when it is probable a loss will be incurred and possible to make reasonable estimates of our liability with respect to such matters, a provision is recorded for the amount of such estimate or for the minimum amount of a range of estimates when it is not possible to estimate the amount within the range is most likely to occur.

We generate hazardous and non-hazardous wastes in the normal course of our manufacturing operations. As a result, we are subject to a wide range of environmental laws and regulations. All of our employees are required to obey all applicable health, safety and environmental laws and regulations and must observe the proper safety rules and environmental practices in work situations. These laws and regulations govern actions that may have adverse environmental effects, such as discharges to air and water, and require compliance with certain practices when handling and disposing of hazardous and non-hazardous wastes. These laws and regulations would also impose liability for the costs of, and damages resulting from, cleaning up sites, past spills, disposals and other releases of hazardous substances, should any such events occur. We are committed to complying with these standards and monitoring our workplaces to determine if equipment, machinery and facilities meet specified safety standards. Each of our manufacturing facilities is subject to an environmental audit at least once every five years to monitor compliance and no incidents have occurred which required us to pay material amounts to comply with such laws and regulations. We are dedicated to ensuring that safety and health hazards are adequately addressed through appropriate work practices, training and procedures. We are committed to reducing lost time injuries and working towards a world-class level of safety practices in our industry.

RECENT ACCOUNTING STANDARDS

Please refer to Note A – “Basis of Presentation” in the accompanying Condensed Consolidated Financial Statements for a summary of recently issued accounting standards.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to certain market risks that exist as part of our ongoing business operations and we use derivative financial instruments, where appropriate, to manage these risks. As a matter of policy, we do not engage in trading or speculative transactions. For further information on accounting related to derivative financial instruments, refer to Note J – “Derivative Financial Instruments” in our Condensed Consolidated Financial Statements.

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Foreign Exchange Risk

Our products are sold in over 100 countries around the world. The reporting currency for our consolidated financial statements is the U.S. dollar. Certain of our assets, liabilities, expenses, revenues and earnings are denominated in other countries’ currencies, including the Euro, British Pound and Australian dollar. Those assets, liabilities, expenses, revenues and earnings are translated into U.S. dollars at the applicable exchange rates to prepare our consolidated financial statements. Therefore, increases or decreases in exchange rates between the U.S. dollar and those other currencies affect the value of those items as reflected in our consolidated financial statements, even if their value remains unchanged in their original currency. Due to continued volatility of foreign currency exchange rates to the U.S. dollar, fluctuations in currency exchange rates may have an impact on the accuracy of our financial guidance. Such fluctuations in foreign currency rates relative to the U.S. dollar may cause our actual results to differ materially from those anticipated in our guidance and have a material adverse effect on our business or results of operations. We note that departure of the U.K. from the E.U. may impact the value of the British Pound as compared to the U.S. dollar and other currencies as the U.K. negotiates trade agreements with the E.U. We assess foreign currency risk based on transactional cash flows, identify naturally offsetting positions and purchase hedging instruments to partially offset anticipated exposures.

At September 30, 2020, we performed a sensitivity analysis on the impact that aggregate changes in the translation effect of foreign currency exchange rate changes would have on our operating income.  Based on this sensitivity analysis, we have determined that a change in the value of the U.S. dollar relative to other currencies by 10% to amounts already incorporated in the financial statements for the nine months ended September 30, 2020 would have had approximately a $12 million impact on the translation effect of foreign currency exchange rate changes already included in our reported operating income for the period.

Interest Rate Risk

We are exposed to interest rate volatility with regard to future issuances of fixed rate debt and existing issuances of variable rate debt. Primary exposure includes movements in the U.S. prime rate and LIBOR. We manage interest rate risk by establishing a mix of indebtedness bearing interest at both floating and fixed rates at inception and maintain a ratio of floating and fixed rates on this mix of indebtedness using interest rate derivatives when necessary. At September 30, 2020, approximately 24% of our debt was floating rate debt and the weighted average interest rate for all debt was 4.27%.

At September 30, 2020, we performed a sensitivity analysis for our derivatives and other financial instruments that have interest rate risk.  We calculated the pretax earnings effect on our interest sensitive instruments.  Based on this sensitivity analysis, we have determined that an increase of 10% in our average floating interest rates at September 30, 2020 would have increased interest expense by $0.9 million for the nine months ended September 30, 2020.

Commodities Risk

In the absence of labor strikes or other unusual circumstances, substantially all materials and components are normally available from multiple suppliers. However, certain of our businesses receive materials and components from a single source supplier, although alternative suppliers of such materials may be generally available. Delays in our suppliers’ abilities, especially any sole suppliers for a particular business, to provide us with necessary materials and components may delay production at a number of our manufacturing locations, or may require us to seek alternative supply sources. Delays in obtaining supplies may result from a number of factors affecting our suppliers, including capacity constraints, labor disputes, suppliers’ impaired financial condition, suppliers’ allocations to other purchasers, weather emergencies, pandemics or acts of war or terrorism. Any delay in receiving supplies could impair our ability to deliver products to our customers and, accordingly, could have a material adverse effect on our business, results of operations and financial condition. Current and potential suppliers are evaluated regularly on their ability to meet our requirements and standards. We actively manage our material supply sourcing, and employ various methods to limit risk associated with commodity cost fluctuations and availability. We design and implement plans to mitigate the impact of these risks by using alternate suppliers, expanding our supply base globally, leveraging our overall purchasing volumes to obtain favorable pricing and quantities, developing a closer working relationship with key suppliers and purchasing hedging instruments to partially offset anticipated exposures. One key element of our strategy is to focus on strategic sourcing to gain efficiencies using our global purchasing power.

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Principal materials and components used in our various manufacturing processes include steel, castings, engines, tires, hydraulics, cylinders, drive trains, electric controls and motors, and a variety of other commodities and fabricated or manufactured items. Increases in the cost of these materials and components may affect our financial performance. If we are not able to recover increased raw material or component costs from our customers, our margins could be adversely affected. Overall material input costs were generally stable in the first nine months of 2020. However, Section 301 tariffs on certain Chinese origin goods continued to put pressure on input costs. We continue to benefit from temporary tariff exclusions on certain categories of goods from China. Some of these exclusions have been extended by the U.S. Government into 2021, while other exclusions have either not been extended or are due to expire later this year. The elimination of tariff exclusions has an adverse impact on our material costs. We continue to utilize the duty drawback mechanism to offset some of the impact of these tariffs. We will continue to monitor international trade policy and will make adjustments to our supply base where possible to mitigate the impact on our costs. For more information on commodities risk, see Part I, Item 1A. – “Risk Factors” in our Annual Report on Form 10-K.


ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure information required to be disclosed in reports we file under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within time periods specified in the SEC’s rules and forms, and such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required financial disclosure.  In connection with the preparation of this Quarterly Report on Form 10-Q, our management carried out an evaluation, under supervision and with participation of our management, including the CEO and CFO, as of September 30, 2020, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) under the Exchange Act.  Based upon this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of September 30, 2020.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Effectiveness of any system of controls and procedures is subject to certain limitations, and, as a result, there can be no assurance our controls and procedures will detect all errors or fraud.  A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that objectives of the control system will be attained.

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PART II.                 OTHER INFORMATION

Item 1. Legal Proceedings

We are involved in various legal proceedings, including product liability, general liability, workers’ compensation liability, employment, commercial and intellectual property litigation, which have arisen in the normal course of operations. We are insured for product liability, general liability, workers’ compensation, employer’s liability, property damage and other insurable risk required by law or contract with retained liability to us or deductibles. We believe the outcome of such matters, individually and in aggregate, will not have a material adverse effect on our consolidated financial position. However, outcomes of lawsuits cannot be predicted and, if determined adversely, could ultimately result in us incurring significant liabilities which could have a material adverse effect on our results of operations.

For information concerning litigation and other contingencies and uncertainties, including our proceedings involving a claim in Brazil regarding payment of ICMS tax (Brazilian state value-added tax), see Note M - “Litigation and Contingencies,” in the Notes to the Condensed Consolidated Financial Statements.


Item 1A. Risk Factors

There have been no material changes in our risk factors previously disclosed in Part I, Item 1A. – “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2019, except for the risk factors updated below:

The novel coronavirus pandemic has adversely impacted, and is expected to continue to adversely impact, our business, results of operations and financial condition, and the ultimate impact will depend on future developments, which are highly uncertain and cannot be predicted.

In March 2020, the World Health Organization declared COVID-19 a global pandemic and governmental authorities around the world implemented shelter-in-place orders, quarantines, social distancing requirements, travel bans and other similar governmental restrictions to reduce the spread of COVID-19. This negatively impacted the global economy, created significant volatility and disruption of financial markets, and caused disruptions in our supply chains and logistics. It also adversely affected our customers’ sentiment and spending, leading to a downturn in our markets. Additionally, COVID-19 adversely affected our workforce, with temporary factory closures, slowdowns, restrictions on travel and transports, among other effects, thereby negatively impacting our operations. We reduced our workforce to focus only on critical activities and a significant percentage of global team members continue to work remotely, which can introduce operational and cybersecurity risks. We developed and implemented new health and safety protocols, business continuity plans and different scenario plans in an effort to try to mitigate the negative impact of COVID-19. Our management continues to remain focused on mitigating the impact of COVID-19, which has required a large investment of time and resources, which may delay other value-add initiatives.

It is not possible to accurately predict with any degree of certainty the impact COVID-19 will have on our operations going forward as the situation continues to remain fluid. Despite our efforts and numerous measures taken to manage the impacts of COVID-19, the full degree and extent to which it will ultimately affect our operational and financial performance will depend on uncertain future developments and factors beyond our control, including, but not limited to, the pace of the continued spread of the pandemic, the severity and duration of the pandemic, including any resurgences, second waves or spikes in areas where we, our suppliers or our customers operate, any governmental regulations imposed in response and the identification and distribution of any vaccine or cure. We expect that any significant further or prolonged deterioration in the global economic conditions and disruptions to our global supply chain would adversely impact our operations, business results and financial condition. Such factors could also continue to adversely affect our customers’ financial condition, resulting in further reduced spending for our products and services. The longer the pandemic continues, the more likely that more of the foregoing risks may be realized.

The impact of COVID-19 may also continue to exacerbate other risks discussed in Item 1A. Risk Factors in our Annual Report on Form 10-K for year ended December 31, 2019, any of which could have a material effect on us. This situation continues to evolve and additional impacts may arise that we are not aware of currently.

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Our business is affected by the cyclical nature of markets we serve.

Demand for our products tends to be cyclical and is affected by the general strength of the economies in which we sell our products, prevailing interest rates, residential and non-residential construction spending, capital expenditure allocations of our customers and other factors. Adverse economic conditions, including a decrease in commodity prices, the recent deterioration in the worldwide financial markets and decreasing global economic activity, have caused and may continue to cause our customers to forego or postpone new purchases. If our customers are not successful in generating sufficient revenue or are precluded from securing financing, they may not be able to pay, or may delay payment of, receivables that are owed to us. Any inability of current and/or potential customers to pay us for our products will adversely affect our earnings and cash flow.

Our sales depend in part upon our customers’ replacement or repair cycles, which are impacted in part by historical purchase levels. We are in a period in which global economic conditions and key commodity prices have rapidly and significantly declined, and if economic conditions in the U.S. and other key markets deteriorate further or do not show improvement, we may experience further negative impacts to our net sales, financial condition, profitability and cash flows, which could result in the need for us to record impairments. We have taken a number of steps, and will continually review our operations, to reduce our costs. There can be no assurance, however, that these steps will mitigate the negative impact of the recent deterioration in economic conditions.

Our financial results could be adversely impacted by the U.K.’s departure from the E.U.

Uncertainty related to the withdrawal of the U.K. from the E.U. commonly referred to as “Brexit,” could negatively impact the global economy, particularly many important European economies. While the U.K. officially left the E.U. on January 31, 2020, the U.K. has entered into a transition period during which period of time the U.K.’s trading relationship with the E.U. will remain largely the same while the U.K. negotiates trade and other agreements with the E.U. and other countries. The terms and eventual date of any agreement between the U.K and E.U. remain highly uncertain. Given the lack of comparable precedent, it is not certain what financial, trade and legal implications the withdrawal of the U.K. from the E.U. will ultimately have on us, particularly for our MP segment which has significant manufacturing facilities in Northern Ireland. Depending on the agreements negotiated by the U.K. with the E.U. and other countries, or the potential of no agreement being reached, we could become subject to, among other things, export tariffs and regulatory restrictions that could increase transaction costs, reduce our ability to hire or retain employees in Northern Ireland, reduce access to supplies and materials, cause shipping delays because of the need for new customs inspections and procedures and reduce demand or access to customers in international markets, all of which would impair our ability to conduct our operations as they have been conducted historically. While we continue to closely monitor the ever-changing negotiations and take steps to identify and implement potential countermeasures for our businesses that are likely to be affected, these and other potential implications of Brexit could adversely affect our business, financial condition or results of operation.

We have a significant amount of debt outstanding and must comply with restrictive covenants in our debt agreements.

Our total debt at September 30, 2020 was approximately $1.2 billion. Our credit agreement and other debt agreements contain financial and restrictive covenants that may limit our ability to, among other things, borrow additional funds or take advantage of business opportunities. While we were in compliance with such financial covenants as of March 31, 2020, we sought and received an amendment to our credit agreement on April 23, 2020. This amendment was necessary because of continued deteriorating business conditions resulting from COVID-19 that caused us to believe there was a likelihood that we would be in violation of certain financial covenants under our credit agreement as early as the second quarter of 2020 without such an amendment and we would have lost access to a significant amount of liquidity. Increases in our debt, increases in our interest expense or decreases in our earnings could cause us to fail to comply with our financial covenants. Failing to comply with such covenants could result in a loss of a significant amount of liquidity or an event of default that, if not cured or waived, could result in the acceleration of all our indebtedness or otherwise have a material adverse effect on our financial position, results of operations and debt service capability.

Our level of debt and the financial and restrictive covenants contained in our credit agreement could have important consequences on our financial position and results of operations, including increasing our vulnerability to increases in interest rates because debt under our credit agreement bears interest at variable rates. In addition, our credit agreement indebtedness may use LIBOR as a benchmark for establishing our interest rate. LIBOR is the subject of recent national, international and other regulatory guidance and proposals for reform which may cause LIBOR to perform differently than in the past or to be replaced entirely. Consequences of these developments cannot be entirely predicted, but could include an increase in the cost of our credit agreement indebtedness.

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Our access to capital markets and borrowing capacity could be limited in certain circumstances.

Our access to capital markets to raise funds through the sale of equity or debt securities is subject to various factors, including general economic and/or financial market conditions. As a result of current economic conditions, including turmoil and uncertainty in the capital markets, credit markets have tightened significantly, which makes obtaining new capital more challenging and more expensive. If our consolidated cash flow coverage ratio is less than 2.0 to 1.0, we are subject to significant restrictions on the amount of indebtedness we can incur. Our cash flow coverage ratio was greater than 2.0 to 1.0 on September 30, 2020.

Our access to debt financing at competitive risk-based interest rates is partly a function of our credit ratings. A downgrade to our credit ratings could increase our interest rates, could limit our access to public debt markets, could limit the institutions willing to provide us credit facilities, and could make any future credit facilities or credit facility amendments more costly and/or difficult to obtain.

Although we believe the banks participating in our credit facility have adequate capital and resources, we can provide no assurance that all of these banks will continue to operate as a going concern in the future. If any of the banks in our lending group were to fail or be unwilling to renew our credit facility at or prior to its expiration, it is possible that the borrowing capacity under our current or any future credit facility would be reduced. If the availability under our credit facility was reduced significantly, we could be required to obtain capital from alternate sources to finance our capital needs. Our options for addressing such capital constraints would include, but not be limited to (i) obtaining commitments from the remaining banks in the lending group or from new banks to fund increased amounts under the terms of our credit facility, or (ii) accessing the public capital markets. If it becomes necessary to access additional capital, it is possible that any such alternatives in the current market could be on terms less favorable than under our existing credit facility terms, which could have a negative impact on our consolidated financial position, results of operations or cash flows.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Purchases of Equity Securities

The following table provides information about our purchases during the quarter ended September 30, 2020 of our common stock that is registered by us pursuant to the Exchange Act.
Issuer Purchases of Equity Securities
Period
Total Number of Shares Purchased (1)
Average Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)
Approximate Dollar Value of Shares that May Yet be Purchased
Under the Plans or Programs (in thousands) (2)
July 1, 2020 - July 31, 2020 1,945 $17.69 — $140,517
August 1, 2020 - August 31, 2020 2,542 $19.65 — $140,517
September 1, 2020 - September 30, 2020 3,116 $19.69 — $140,517
Total 7,603 $19.16 — $140,517

(1)Amount includes shares of common stock purchased to satisfy requirements under the Company’s deferred compensation obligations to employees.
(2)In July 2018, our Board of Directors authorized and the Company publicly announced the repurchase of up to an additional $300 million of the Company’s outstanding common shares.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.
54


Item 5. Other Information

Not applicable.


Item 6. Exhibits

The exhibits set forth below are filed as part of this Form 10-Q.


Exhibit No. Exhibit
31.1
31.2
32
101.INS XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH XBRL Taxonomy Extension Schema Document. *
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document. *
101.DEF XBRL Taxonomy Extension Definition Linkbase Document. *
101.LAB XBRL Taxonomy Extension Label Linkbase Document. *
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document. *
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
* Exhibit filed with this document.
** Exhibit furnished with this document.

55

SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


TEREX CORPORATION
(Registrant)


Date: October 28, 2020 /s/ John D. Sheehan
  John D. Sheehan
  Senior Vice President and
  Chief Financial Officer
  (Principal Financial Officer)


Date: October 28, 2020 /s/ Mark I. Clair
  Mark I. Clair
  Vice President, Controller and
  Chief Accounting Officer
  (Principal Accounting Officer)

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