10-K 1 tex201510-k.htm 10-K TEREX CORPORATION 10-K DECEMBER 31, 2015 10-K


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-K

FOR ANNUAL AND TRANSITIONAL REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2015
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-10702
TEREX CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
 
34-1531521
(State of Incorporation)
 
(IRS Employer Identification No.)
200 Nyala Farm Road, Westport, Connecticut
 
06880
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (203) 222-7170
Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK, $.01 PAR VALUE
(Title of Class)
NEW YORK STOCK EXCHANGE
(Name of Exchange on which Registered)
Securities registered pursuant to Section 12(g) of the Act: NONE

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
 
YES x
NO o
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Act.
 
YES o
NO x
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
 
YES x
NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
YES x
NO o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):
Large Accelerated Filer  x
Accelerated Filer  o
Non-accelerated Filer  o  
Smaller Reporting Company  o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
YES o
NO x
The aggregate market value of the voting and non-voting common equity stock held by non-affiliates of the Registrant was approximately $2,426 million based on the last sale price on June 30, 2015.

THE NUMBER OF SHARES OF THE REGISTRANT’S COMMON STOCK OUTSTANDING WAS 108.6 MILLION AS OF February 18, 2016.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Terex Corporation Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after the year covered by this Form 10-K with respect to the 2016 Annual Meeting of Stockholders are incorporated by reference into Part III hereof.





As used in this Annual Report on Form 10-K, unless otherwise indicated, Terex Corporation, together with its consolidated subsidiaries, is hereinafter referred to as “Terex,” the “Registrant,” “us,” “we,” “our” or the “Company.” This Annual Report generally speaks as of December 31, 2015, unless specifically noted otherwise.

Forward-Looking Information

Certain information in this Annual Report includes forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934) regarding future events or our future financial performance that involve certain contingencies and uncertainties, including those discussed below in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Contingencies and Uncertainties.” In addition, when included in this Annual Report or in documents incorporated herein by reference, the words “may,” “expects,” “should,” “intends,” “anticipates,” “believes,” “plans,” “projects,” “estimates” and the negatives thereof and analogous or similar expressions are intended to identify forward-looking statements. However, the absence of these words does not mean that the statement is not forward-looking. We have based these forward-looking statements on current expectations and projections about future events. These statements are not guarantees of future performance. Such statements are inherently subject to a variety of risks and uncertainties that could cause actual results to differ materially from those reflected in such forward-looking statements. Such risks and uncertainties, many of which are beyond our control, include, among others:

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

Actual events or our actual future results may differ materially from any forward-looking statement due to these and other risks, uncertainties and significant factors. The forward-looking statements contained herein speak only as of the date of this Annual Report and the forward-looking statements contained in documents incorporated herein by reference speak only as of the date of the respective documents. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained or incorporated by reference in this Annual Report to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.


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TEREX CORPORATION AND SUBSIDIARIES
Index to Annual Report on Form 10-K
For the Year Ended December 31, 2015

PAGE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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PART I


ITEM 1.
BUSINESS

GENERAL

Terex is a lifting and material handling solutions company. We are focused on improving our operations and delivering reliable, customer-driven solutions for a wide range of commercial applications, including the construction, infrastructure, quarrying, mining, manufacturing, transportation, energy and utility industries. We report in five business segments: (i) Aerial Work Platforms; (ii) Cranes; (iii) Material Handling & Port Solutions; (iv) Materials Processing; and (v) Construction.

Our Company was incorporated in Delaware in October 1986 as Terex U.S.A., Inc. We have changed significantly since that time, achieving $6.5 billion of net sales in 2015. Much of our growth has been accomplished through acquisitions, and as part of managing our portfolio of companies, we regularly consider the divestiture of non-core businesses and products. We also continue to focus on becoming an industry leading operating company.

As we have expanded our operations, our business has become increasingly international in scope, with our products manufactured in North and South America, Europe, Australia and Asia and sold worldwide. We continue to focus on expanding our business globally, with a continued emphasis on developing markets such as China, India, Latin America, Africa and the Middle East.

For financial information about our industry and geographic segments, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note C – “Business Segment Information” in the Notes to the Consolidated Financial Statements.

AERIAL WORK PLATFORMS

Our Aerial Work Platforms (“AWP”) segment designs, manufactures, services and markets aerial work platform equipment, telehandlers and light towers. Products include portable material lifts, portable aerial work platforms, trailer-mounted articulating booms, self-propelled articulating and telescopic booms, scissor lifts, telehandlers and trailer-mounted light towers as well as their related components and replacement parts. Customers use these products to construct and maintain industrial, commercial and residential buildings and facilities and for other commercial operations, as well as in a wide range of infrastructure projects. We market aerial work platform products principally under the Terex® and Genie® brand names.

AWP has the following significant manufacturing operations:

Aerial work platform equipment is manufactured in Redmond and Moses Lake, Washington, Rock Hill, South Carolina, Umbertide, Italy, Coventry, England and Changzhou, China;
Telehandlers are manufactured in Oklahoma City, Oklahoma and Umbertide, Italy; and
Trailer-mounted light towers are manufactured in Rock Hill, South Carolina.

We have a parts and logistics center located in North Bend, Washington for our aerial work platform equipment. Additionally, a portion of our aerial work platform parts business is conducted at a shared Terex facility in Southaven, Mississippi. Our European and Asian Pacific parts and logistics operations are conducted through out-sourced facilities.

CRANES

Our Cranes segment designs, manufactures, services, refurbishes and markets mobile telescopic cranes, tower cranes, lattice boom crawler cranes, lattice boom truck cranes, utility equipment and truck-mounted cranes (boom trucks), as well as their related components and replacement parts. Customers use these products primarily for construction, repair and maintenance of commercial buildings, manufacturing facilities, energy related projects, construction and maintenance of utility and telecommunication lines, tree trimming and certain construction and foundation drilling applications and a wide range of infrastructure projects. We market our Cranes products principally under the Terex® brand name.

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Cranes has the following significant manufacturing operations:

Rough terrain cranes are manufactured in Crespellano, Italy and Waverly, Iowa;
All-terrain cranes are manufactured in Montceau-les-Mines, France, Zweibrücken and Bierbach-Homburg, Germany;
Truck cranes are manufactured in Waverly, Iowa;
Truck-mounted cranes are manufactured in Waverly, Iowa;
Tower cranes are manufactured in Fontanafredda, Italy;
Lattice boom crawler cranes are manufactured in Oklahoma City, Oklahoma, Jinan, China, Zweibrücken and Bierbach-Homburg, Germany;
Pick and carry cranes are manufactured in Brisbane, Australia;
Lattice boom truck cranes are manufactured in Zweibrücken and Bierbach-Homburg, Germany;
Steel assemblies for cranes are manufactured in Bierbach-Homburg, Germany and Pecs, Hungary; and
Utility products are manufactured in Watertown and Huron, South Dakota, Fort Wayne, Indiana, Waukesha, Wisconsin, Betim, Brazil and Jinan, China.

We have a minority interest in a Chinese company which manufactures truck cranes and truck-mounted cranes in China.

We also provide service and support for industrial cranes and aerial products in North America and refurbish aerial products in facilities located in Waco, Texas and Stockton, California.

MATERIAL HANDLING & PORT SOLUTIONS

Our Material Handling & Port Solutions (“MHPS”) segment designs, manufactures, services and markets industrial cranes, including universal cranes, process cranes, rope and chain hoists, electric motors, light crane systems and crane components as well as a diverse portfolio of port and rail equipment including mobile harbor cranes, straddle and sprinter carriers, rubber tired gantry cranes, rail mounted gantry cranes, ship-to-shore gantry cranes, reach stackers, empty container handlers, full container handlers, general cargo lift trucks, automated stacking cranes, automated guided vehicles and terminal automation technology, including software, as well as their related components and replacement parts. Customers use these products for lifting and material handling at manufacturing, port and rail facilities. Our MHPS segment also operates an extensive global sales and service network. We market our MHPS products under the Terex® and Demag® brand names and the Terex® name in conjunction with the Gottwald® brand name.

MHPS has the following significant manufacturing operations:

Universal cranes are manufactured in Banbury, UK, Milan, Italy, Solon, Ohio, Cotia, Brazil, Boksburg, South Africa, Chakan, India and Shanghai, China;
Process cranes are manufactured in Slany, Czech Republic, Banbury, UK, Solon, Ohio, Boksburg, South Africa, Chakan, India, Shanghai, China and Cotia, Brazil;
Rope and chain hoists are manufactured in Wetter an der Ruhr, Germany, Shanghai, China, Milan, Italy and Cotia, Brazil;
Electric motors are manufactured in Uslar, Germany;
Light crane systems are manufactured in Shanghai, China, Cotia, Brazil, Chakan, India and Wetter an der Ruhr, Germany;
Mobile harbor cranes are manufactured in Düsseldorf, Germany and Xiamen, China;
Automated stacking cranes and automated guided vehicles are manufactured in Düsseldorf, Germany;
Rubber tired gantry cranes, rail mounted gantry cranes, ship-to-shore gantry cranes, reach stackers, empty container handlers and other material handling equipment are manufactured in Xiamen, China;
Reach stackers are manufactured in Montceau-les-Mines, France;
Straddle and sprinter carriers are manufactured in Würzburg, Germany; and
Empty container handlers, full container handlers and general cargo lift trucks are manufactured in Lentigione, Italy.

We offer a range of services for cranes and lifting equipment, port management software and logistics solutions, and operate a global network of service stations.

We have a 50% interest in a Singapore-based company that manufactures industrial cranes in eight locations around the world.

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MATERIALS PROCESSING

Our Materials Processing (“MP”) segment designs, manufactures and markets materials processing equipment, including crushers, washing systems, screens, apron feeders, wood processing, biomass and recycling machines 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. We market our MP products principally under the Terex® Powerscreen® and CBI® brand names and the Terex® name in conjunction with certain historic brand names.

MP has the following significant manufacturing operations:

Mobile crushers, mobile screens and washing systems are manufactured in Omagh and Dungannon, Northern Ireland;
Mobile crushers, mobile screens, base crushers, base screens and washing systems are manufactured in Hosur, India, primarily for the Indian market;
Base crushers and base screens are manufactured in Subang Jaya, Malaysia and Oklahoma City, Oklahoma;
Screening equipment is manufactured in Durand, Michigan;
Base crushers are manufactured in Coalville, England; and
Wood processing, biomass and recycling equipment systems are manufactured in Newton, New Hampshire, Haid bei, Austria and Dungannon, Northern Ireland.

We have a North American distribution center in Louisville, Kentucky and service centers in Australia, Thailand, Turkey and Malaysia.

We have a 50% interest in a Chinese company that manufactures mobile crushers and mobile screens primarily for the Chinese market.

CONSTRUCTION

Our Construction segment designs, manufactures and markets two primary categories of construction equipment and their related components and replacement parts:

Compact construction equipment, including loader backhoes, mini and midi excavators, wheeled excavators, site dumpers, compaction rollers and wheel loaders; and
Specialty equipment, including material handlers, concrete mixer trucks and concrete pavers.

Customers use these products in construction and infrastructure projects, in building roads, bridges, residential and commercial buildings, industrial sites and for material handling applications. We market our Construction products principally under the Terex® brand name, and for certain products, the Terex® name in conjunction with certain historic brand names.

Construction has the following significant manufacturing operations:

Compact Construction Equipment

Site dumpers, compaction rollers and loader backhoes, as well as certain products for our AWP segment, are manufactured in Coventry, England;
A range of wheel loaders, wheeled excavators and mini, mobile, and midi excavators are manufactured in Crailsheim, Germany; and
Loader backhoes are manufactured in Greater Noida, Uttar Pradesh, India for markets in India and neighboring countries.

Specialty Equipment

Material handlers are manufactured in Bad Schönborn, Germany;
Concrete pavers are manufactured in Canton, South Dakota; and
Front and rear discharge concrete mixer trucks are manufactured in Fort Wayne, Indiana.

Construction’s Americas distribution center is in Southaven, Mississippi and serves as a machine and parts center for Construction and other Terex operations.

We have a minority interest in a company that manufactures skid steers and compact track loaders in the United States.

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BUSINESS COMBINATION AND PLAN OF MERGER

On August 10, 2015, we entered into a Business Combination Agreement and Plan of Merger (the "BCA") with Konecranes Plc, a Finnish public company limited by shares ("Konecranes"). The combined company that would result from the transaction will be called Konecranes Terex Plc and will be incorporated in Finland.
In the proposed transaction, a wholly-owned subsidiary of Konecranes would be merged with and into Terex and our shareholders would receive 0.8 of a Konecranes share for each existing Terex share (the “Merger”). Upon completion of the Merger, our shareholders would own approximately 60% and Konecranes shareholders would own approximately 40% of the combined company. The BCA includes undertakings by us and Konecranes that are typical in similar transactions, including undertakings by both companies to conduct their businesses in the ordinary course prior to the completion of the Merger.
The BCA may be terminated by us or Konecranes under certain circumstances prior to the completion of the Merger, including, for example, because of a material breach by either party of the terms and conditions of the BCA. The parties have further agreed on certain termination fees customary in similar transactions and payable to the other party under certain circumstances.
The transaction is subject to approval by both Terex and Konecranes shareholders, regulatory approvals, and the listing of the Konecranes shares or American Depositary Shares (the “ADSs”) on the New York Stock Exchange or another U.S. national securities exchange. Terex and Konecranes expect to convene meetings of their shareholders to approve the transaction in the first half of 2016. Closing of the transaction is expected to occur during the first half of 2016.
See Note A – “Business Combination Agreement and Plan of Merger” in the Notes to the Consolidated Financial Statements for further information regarding the proposed Merger.

OTHER

We may assist customers in their rental, leasing and acquisition of our products through Terex Financial Services (“TFS”). TFS uses its equipment financing experience to provide financing solutions to our customers who purchase our equipment. TFS provides financing support primarily: (i) in the United States and on a limited basis in China, originating, underwriting, documenting, funding and servicing financing transactions directly with end-user customers, distributors and rental companies; and (ii) by facilitating loans and leases between our customers and third party financial institutions. Most of the transactions are fixed and floating rate loans. However, TFS also provides sales-type leases, operating leases and rentals. TFS, in the normal course of business, also sells loans and leases to financial institutions with which it has established relationships.

The on-book financing activities of TFS have primarily been limited to the United States and China. Additionally, in those countries in which TFS engages in on-book financing, TFS continually evaluates the level to which it utilizes third party funding versus direct customer financing to meet its business objectives.

TFS continually monitors used equipment values of Terex equipment in the secondary market sales channels for all of our equipment categories. This provides a basis for TFS to project future values of equipment for the underwriting of leases or loans. These re-marketing channels are also used if equipment is returned at end of lease, or is repossessed in case of a customer default. TFS uses the resale channel which maximizes proceeds and/or mitigates risk for Terex and our funding partners.


DISCONTINUED OPERATIONS

On May 30, 2014, the Company sold its truck business, which was consolidated in the Construction segment, to Volvo Construction Equipment for approximately $160 million. The truck business manufactured and sold off-highway rigid and articulated haul trucks. Included in the transaction was the manufacturing facility in Motherwell, Scotland. As a result, the reporting of the truck business has been included in discontinued operations for all periods presented. See Note E – “Discontinued Operations” in the Notes to our Consolidated Financial Statements for more information on our discontinued operations.

BUSINESS STRATEGY

General

We operate a diverse portfolio of specialized machinery businesses that serve numerous end-use applications in several geographic markets. Our diverse portfolio reduces impact of any one application or market on business results while our focus on machinery-related businesses brings common operational characteristics that enable business efficiency.

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Over the past several years, we changed our business portfolio to better balance business drivers and strengthen the capabilities of our Company. We moved from a predominantly mining and construction equipment company to a more diverse portfolio that serves numerous end markets. Today, we are a lifting and material handling solutions company. Construction markets are still important to our success, along with several other economic drivers. These include global industrial activity, global trade, U.S. electricity demand and infrastructure maintenance. Service to the large installed base of our equipment now operating around the world is an important opportunity that can favorably impact future results.

A key objective in developing our portfolio of businesses is market leadership. We may initially secure smaller positions, but our goal in developing businesses is to be a top three competitor in applications and geographies that we serve. This goal shapes acquisition, divestiture, and operating strategies in our Company. At the end of 2015, approximately 75% of our revenue was generated in areas where we are a top three competitor in the market served.

Operationally, we focus on three primary objectives:

1.
Customer Responsiveness
2.
Operational Efficiency
3.
Global Growth

We must excel in each of these areas in order to be a more effective and more profitable company long term, and strong performance in all three areas is central to daily management of our Company.

Our Customer Responsiveness goal is to exceed the performance of competitors in providing equipment that goes to work and stays at work, backed by world-class parts and service support. Each of our businesses measures customer satisfaction and develops roadmaps used to drive improvement in customer satisfaction.

Our Operational Efficiency goal is to achieve the highest return on invested capital in our peer group. This implies an efficient factory footprint, efficient supply and delivery chains, and a lean mindset that helps eliminate waste throughout our processes for production, delivery, and service to the customer. It is our goal to provide the best value and have ability to compete on price when necessary. Competition in all of our businesses is intense and we must position ourselves to compete more effectively during all phases of future business cycles.

Global Growth is also critical to our future success. A few of our businesses are focused in specific geographies, but most operate in global industries that require global presence. Collaboration across businesses, sharing of assets, and unified approaches to market development are all critical to efficient pursuit of global opportunities for growth. Efficient sharing of underlying resources enables our businesses to focus on things customers value most and to better position our company to participate as developed markets recover and as developing markets continue to evolve and grow.

We remain committed to becoming a stronger and more effective company tomorrow than we are today. To succeed, we must focus on what makes our individual businesses strong while also working across businesses to harness the strength of the Company as a whole. Strategy plays an important role but, in the end, our success will be defined and driven by our people. People matter in our company, and it is the way that people work, both individually and collectively, that makes the difference between success and failure. Because of this, we work very hard on the composition of our team, on the values and culture of our company, and on the principles that guide our thinking each and every day. These principles are reflected in our purpose, mission, and vision, in a set of cultural characteristics that we call the Terex Way, and in the processes and practices that define the Terex Business System.

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Purpose, Mission, Vision

Our purpose is to improve the lives of people around the world. Our mission is to provide solutions to our machinery and industrial product customers that yield superior productivity and return on investment.

Our vision focuses on the Company’s core constituencies of customers, stakeholders and team members:

Customers: We aim to be the most customer responsive company in the industry as determined by our customers.
Stakeholders: We aim to be the most profitable company in the industry as measured by return on invested capital.
Team Members: We aim to be the best place to work in the industry as determined by our team members.

The Terex Way

We operate our business based on our value system, “The Terex Way.” The Terex Way shapes the culture of our Company and reflects our collective commitment to what it means to be a part of Terex. The Terex Way is based on six key values:

Integrity: Integrity reflects honesty, ethics, transparency and accountability. We are committed to maintaining high ethical standards in all of our business dealings and we never sacrifice our integrity for profit.
Respect: Respect incorporates concern for safety, health, teamwork, diversity, inclusion and performance. We treat all our team members, customers and suppliers with respect and dignity.
Improvement: Improvement encompasses quality, problem-solving systems, a continuous improvement culture and collaboration. We continuously search for new and better ways of doing things, focusing on continuous improvement and the elimination of waste.
Servant Leadership: Servant leadership requires service to others, humility, authenticity and leading by example. We work to serve the needs of our customers, investors and team members.
Courage: Courage entails willingness to take risks, responsibility, action and empowerment. We have the courage to make a difference even when it is difficult.
Citizenship: Citizenship means social responsibility and environmental stewardship. We comply with all laws, respect all people’s values and cultures, and are good global, national and local citizens.

The Terex Business System

Our operational principles are based on the “Terex Business System,” or “TBS.” TBS is the framework around which we build our capabilities as an industry leading operating company to achieve our long-term goals. Founded on lean concepts, TBS is a set of guiding principles and business processes that collectively define how we do what we do. TBS is our playbook to deliver our customer, team member and financial goals. It aligns the Company globally with repeatable, teachable processes that harness the full potential of our team members, with each business segment implementing and adapting TBS to fit its manufacturing processes. TBS is not business strategy; it supports business strategy. We believe TBS provides us with a competitive advantage using customer-centric tools that continually enhance responsiveness and eliminate waste.

PRODUCTS

AERIAL WORK PLATFORMS

AERIAL WORK PLATFORMS. Aerial work platform equipment safely positions workers and materials easily and quickly to elevated work areas to enhance productivity. These products have developed as alternatives to scaffolding and ladders. We offer a variety of aerial lifts that are categorized into six product families: portable material lifts; portable aerial work platforms; trailer-mounted articulating booms; self-propelled articulating and self-propelled telescopic booms; and scissor lifts.

Portable material lifts are used primarily indoors in the construction, industrial and theatrical markets.
Portable aerial work platforms are used primarily indoors in a variety of markets to perform overhead maintenance.
Trailer-mounted articulating booms are used both indoors and outdoors. They provide versatile reach, and have the ability to be towed between job sites.
Self-propelled articulating booms are primarily used in construction and industrial applications, both indoors and outdoors. They feature lifting versatility with up, out and over position capabilities to access difficult to reach overhead areas.
Self-propelled telescopic booms are used outdoors in commercial and industrial construction, as well as highway and bridge maintenance projects.
Scissor lifts are used in outdoor and indoor applications in a variety of construction, industrial and commercial settings.

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TELEHANDLERS. Telehandlers move and place materials on residential and commercial construction sites and are used in the energy and infrastructure industries.

LIGHT TOWERS. Trailer-mounted light towers are used primarily to light work areas for construction, entertainment, emergency assistance and security during nighttime or low light applications.

CRANES

We offer a wide variety of cranes, including mobile telescopic cranes, tower cranes, lattice boom crawler cranes, lattice boom truck cranes and boom trucks.

MOBILE TELESCOPIC CRANES. Mobile telescopic cranes are used primarily for industrial applications, in commercial and public works construction, and in maintenance applications to lift equipment or material. We offer a complete line of mobile telescopic cranes, including rough terrain cranes, truck cranes, all terrain cranes and pick and carry cranes.

Rough terrain cranes move materials and equipment on rugged or uneven terrain and are often located on a single construction or work site for long periods. Rough terrain cranes cannot be driven on highways and accordingly must be transported by truck to the work site.
Truck cranes have two cabs and can travel rapidly from job site to job site at highway speeds. Truck cranes are often used for multiple local jobs, primarily in urban or suburban areas.
All-terrain cranes were developed in Europe as a cross between rough terrain and truck cranes, and are designed to travel across both rough terrain and highways.
Pick and carry cranes are designed for a wide variety of applications, including use at mine sites, large fabrication yards, building and construction sites and in machinery maintenance and installation. They combine high road speed with all terrain capability.

LATTICE BOOM CRAWLER AND LATTICE BOOM TRUCK CRANES. Lattice boom crawler and lattice boom truck cranes are designed to lift material on rough terrain. The boom is made of tubular steel sections, which, together with the base unit, are transported to and erected at a construction site. Applications include infrastructure building, wind turbine erection, construction of nuclear power and petrochemical plants and heavy lifting within oil refineries and the construction industry.

TOWER CRANES. Tower cranes are often used in urban areas where space is constrained and in long-term or very high building sites. Tower cranes lift construction material and place the material at the point where it is being used. We produce the following types of tower cranes:

Self-erecting tower cranes unfold from sections and can be trailer mounted; certain larger models have a telescopic tower and folding jib. These cranes can be assembled on site in a few hours. Applications include residential and small commercial construction.
Hammerhead tower cranes have a tower and a horizontal jib assembled from sections. The tower extends above the jib to which suspension cables supporting the jib are attached. These cranes are assembled on-site in one to three days depending on height, and can increase in height with the project.
Flat top tower cranes have a tower and a horizontal jib assembled from sections. There is no A-frame above the jib, which is self-supporting and consists of reinforced jib sections. These cranes are assembled on-site in one to two days, and can increase in height with the project.
Luffing jib tower cranes have a tower and an angled jib assembled from sections. There is one A-frame above the jib to which suspension cables supporting the jib are attached. Unlike other tower cranes, there is no trolley to control linear movement of the load, which is accomplished by changing the jib angle. These cranes are assembled on-site in two to three days, and can increase in height with the project.

TRUCK-MOUNTED CRANES (BOOM TRUCKS). We manufacture telescopic boom cranes and articulated hydraulic cranes for mounting on a commercial truck chassis. Truck-mounted cranes are used primarily in the construction and maintenance industries to lift equipment or materials to various heights. Boom trucks are generally lighter and have less lifting capacity than truck cranes, and are used for many of the same applications when lower lifting capacities are sufficient. An advantage of a boom truck is that the equipment or material to be lifted by the crane can be transported by the truck, which can travel at highway speeds. Applications include delivery of building materials and the installation of commercial air conditioners and other roof-mounted equipment.

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UTILITY EQUIPMENT. Our utility products include digger derricks, auger drills, insulated and non-insulated aerial devices and cable placers. These products are used by electric utilities, tree care companies, telecommunications and cable companies, and the related construction industries, as well as by government organizations.

Digger derricks are used to dig holes, hoist and set utility poles, as well as lift transformers and other materials at job sites. Auger drills are used to dig holes for utility poles or construction foundations requiring larger diameter holes in difficult soil conditions.
Insulated aerial devices are used to elevate workers and material to work areas at the top of utility poles, energized transmission lines and for trimming trees near energized electrical lines, as well as for miscellaneous purposes such as sign maintenance. Non-insulated aerials are used in applications where energized electrical lines are not a hazard.
Cable placers are used to install fiber optic, copper and strand telephone and cable lines.

SERVICES. We offer a range of services for aerial work platform, construction, industrial crane and utility equipment consisting of inspections, preventative maintenance, general repairs, reconditioning, refurbishment, modernization and spare parts, as well as consultancy and training services. Our services are provided on our own products and on third-party products and related equipment.

MATERIAL HANDLING & PORT SOLUTIONS

MATERIAL HANDLING. We manufacture universal cranes, process cranes and components, such as rope hoists, chain hoists, light crane systems, travel units and electric motors.

Universal cranes are configured individually from standardized modules for industrial infrastructure applications.
Process cranes are also made from largely standardized modules and are integrated individually into the customer’s specific production processes.
Rope hoists and chain hoists are used to facilitate the movement of materials in a factory. They can either be integrated as components in universal and process cranes or used as lifting devices in non-crane applications.
Light crane systems can be described as railway systems on ceilings that use hoists to move and lift materials in factories.
Wheel blocks, electric motors, gearboxes, converters and travel units are components that can be included in tailored solutions for drive applications that aid in the movement of materials in a factory. These components can also be used separately in non-crane applications.
Crane sets comprise component packages for customers who are constructing their own girders in a factory.

11




PORT SOLUTIONS. We manufacture mobile harbor cranes, ship-to-shore gantry cranes, rubber tired and rail mounted gantry cranes, straddle carriers, sprinter carriers, reach stackers, empty container handlers, full container handlers, general cargo lift trucks, automated stacking cranes, automated guided vehicles and software solutions for logistic terminals.

Mobile harbor cranes are used for material handling at ports, including general cargo handling, shipping containers and bulk materials such as coal, iron ore and grain. Mobile harbor cranes can travel around the port as needed and have the ability to move large loads. Mobile harbor cranes can be fitted with a variety of attachments for handling different types of cargo and can also be mounted on a portal or pontoons.
Ship-to-shore gantry cranes are used to load and unload container vessels at ports.
Rubber tired and rail mounted gantry cranes are used for space intensive shipping container stacking at port and railway facilities. These products have both horizontal and vertical lifting capabilities and can stack up to six containers on top of each other.
Straddle carriers pick up and carry shipping containers from or to a quay-side crane while straddling their load. Straddle carriers have the capability to stack up to four shipping containers on top of each other. Straddle carriers are used in port and railway facilities to move shipping containers and to load and unload shipping containers from on-highway trucks. Straddle carriers have both horizontal and vertical lifting capabilities.
Sprinter carriers operate in a similar manner to straddle carriers, but at higher speeds in horizontal transport and can stack only one container on top of another container.
Reach stackers are used to pick up and stack shipping containers at port and railway facilities. At the end of each reach stacker’s boom is a spreader that enables it to attach to shipping containers of varying lengths and weights and to rotate the container.
Empty container handlers, full container handlers and general cargo lift trucks are small to medium-sized highly mobile trucks for use with a variety of container handling applications at port and railway facilities and provide general cargo lifting capabilities.
Automated stacking cranes are able to stack and manage shipping container storage either automatically, semi-automatically or manually. They also form the link between quayside and landside equipment such as ship-to-shore cranes, transport vehicles and trucks.
Automated guided vehicles can carry containers of varying size. The vehicles are controlled and supplied with data and orders by our proprietary designed software. Automated guided vehicles find their routes via transponders, which are powerful radio frequency identification chips that are embedded into the pavement of the terminal. In large container terminals involving container transport, storage and transloading, automated guided vehicles work hand-in-hand with automated stacking cranes.

MATERIALS PROCESSING

Materials processing equipment is used in processing aggregate materials for building applications and is also used in the quarrying, mining, demolition, recycling, landscaping and biomass production industries. Our materials processing equipment includes crushers, screens and feeders, washing systems as well as wood and biomass chippers.

We manufacture a range of jaw, impactor (both horizontal and vertical shaft) and cone crushers, as well as base crushers for integration within mobile, modular and static plants.

Jaw crushers are used for crushing larger rock, primarily at the quarry face or on recycling duties. Applications include hard rock, sand and gravel and recycled materials. Cone crushers are used in secondary and tertiary applications to reduce a number of materials, including quarry rock and riverbed gravel.
Horizontal shaft impactors are primary and secondary crushers. They are typically applied to reduce soft to medium hard materials, as well as recycled materials. Vertical shaft impactors are secondary and tertiary crushers that reduce material utilizing various rotor configurations and are highly adaptable to any application.

Our screening and feeder equipment includes:

Heavy duty inclined and horizontal screens and feeders, which are used in low to high tonnage applications and are available as either stationary or heavy-duty mobile equipment. Screens are used in all phases of plant design from handling quarried material to fine screening. Dry screening is used to process materials such as sand, gravel, quarry rock, coal, ore, construction and demolition waste, soil, compost and wood chips.
Feeders are used to unload materials from hoppers and bulk material storage at controlled rates. They are available for applications ranging from primary feed hoppers to fine material bin unloading. Our range includes apron feeders, grizzly feeders and pan feeders.

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Washing system products include a completely mobile, single chassis washing plant incorporating separation, washing, dewatering and stockpiling. We manufacture mobile and stationary screening rinsers, bucket-wheel dewaterers, scrubbing devices for aggregate, a mobile cyclone for maximum retention of sand particles, silt extraction systems, stockpiling conveyors and a sand screw system as an alternative to bucket-wheel dewaterers. We also manufacture washing screens, which are used to separate, wash, scrub, dewater and stockpile sand and gravel.

Wood processing biomass and recycling equipment includes grinders, chippers, compost turners, shredders, and de-barker systems. This equipment is used in, among other things, the pulp and paper, wood energy, and green waste/construction and demolition recycling industries.

CONSTRUCTION

COMPACT CONSTRUCTION EQUIPMENT. We manufacture a wide variety of compact construction equipment used primarily in the construction and rental industries. Products include loader backhoes, compaction rollers, excavators, site dumpers, and wheel loaders.

Loader backhoes incorporate a front-end loader and rear excavator arm. They are used for loading, excavating and lifting in many construction and agricultural related applications.
Our compaction rollers range from pedestrian single drum to ride-on tandem drum rollers.
Excavators in the compact equipment category include mini, wheeled and midi excavators used in the general construction, landscaping and rental businesses.
Wheel loaders are used for loading and unloading materials. Applications include residential and non-residential construction, waste management and general construction.
Site dumpers are used to move materials from one location to another, and are primarily used for construction applications.

SPECIALTY EQUIPMENT. We manufacture material handlers, concrete mixer trucks and concrete pavers.

Material handlers are designed for handling logs, scrap, recycling and other bulky materials with clamshell, magnet or grapple attachments.
Concrete mixer trucks are machines with a large revolving drum in which cement is mixed with other materials to make concrete. We offer models with custom chassis as well as rear discharge models mounted on commercial chassis, both with configurations from three to seven axles.
Our concrete pavers are used to finish bridges, concrete streets, highways and airport surfaces.

PRODUCT CATEGORY SALES

The following table lists our main product categories and their percentage of our total sales:

 
PERCENTAGE OF SALES
PRODUCT CATEGORY
2015
 
2014
 
2013
Aerial Work Products
27
%
 
26
%
 
24
%
Mobile & Tower Cranes
17

 
18

 
21

Materials Processing Equipment
10

 
7

 
9

Port Equipment
10

 
11

 
9

Material Handling
8

 
10

 
10

Services
7

 
7

 
7

Telehandlers & Light Construction Equipment
6

 
6

 
5

Compact Construction Equipment
5

 
7

 
7

Utility Equipment
5

 
4

 
5

Specialty Equipment
5

 
4

 
3

TOTAL
100
%
 
100
%
 
100
%
    


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BACKLOG

Our backlog as of December 31, 2015 and 2014 was as follows:
 
December 31,
 
2015
 
2014
 
(in millions)
AWP
$
567.5

 
$
698.4

Cranes
431.9

 
538.5

MHPS
538.7

 
574.8

MP
54.3

 
51.4

Construction
145.9

 
137.9

Total
$
1,738.3

 
$
2,001.0


We define backlog as firm orders that are expected to be filled within one year, although there can be no assurance that all such backlog orders will be filled within that time. Our backlog orders represent primarily new equipment orders. Parts orders are generally filled on an as-ordered basis.

Our management views backlog as one of many indicators of the performance of our business. Because many variables can cause changes in backlog, and these changes may or may not be of any significance, we consequently view backlog as an important, but not necessarily determinative, indicator of future results. High backlog can indicate a high level of future sales; however, when backlogs are high, this may also reflect a high level of production delays, which may result in future order cancellations from disappointed customers. Low backlog may indicate less future sales; however, they may also reflect a rapid ability to fill orders that is appreciated by our customers.

Our overall backlog amounts at December 31, 2015 decreased $262.7 million from our backlog amounts at December 31, 2014, primarily due to lower orders in AWP and Cranes. The translation effect of foreign exchange rates negatively impacted backlog year-over-year by approximately 8%.

AWP segment backlog at December 31, 2015 decreased approximately 19% from our backlog amounts at December 31, 2014. This decrease from the prior year was primarily due to lower fleet orders from large North American rental customers and to a lesser extent, the impact of the strong U.S. Dollar.

The backlog at our Cranes segment decreased approximately 20% from December 31, 2014. This decrease over the prior year was driven mostly by lower orders of rough terrain cranes, boom trucks and utilities products, partially offset by tower cranes.  Foreign exchange negatively impacted 2015 backlog by approximately 6% when compared to 2014.

Our MHPS segment backlog decreased approximately 6% from December 31, 2014. This decrease was primarily due to the translation effect of foreign exchange rates, with backlog up slightly on a currency neutral basis.

Our MP segment backlog at December 31, 2015 increased approximately 6% from December 31, 2014. This increase over the prior year was primarily due to an acquisition which expanded the MP business segment and increased the order intake levels in 2015.

Construction segment backlog at December 31, 2015 increased approximately 6% from December 31, 2014. This increase over the prior year was primarily due to an increase in orders for Concrete Mixer Trucks in the United States; partially offset by timing differences in order patterns for Material Handlers in Germany.

DISTRIBUTION

We distribute our products through a global network of dealers, rental companies, major accounts and direct sales to customers.

AERIAL WORK PLATFORMS

Our aerial work platform, telehandler and light tower products are distributed principally through a global network of rental companies, independent distributors and, to a lesser extent, strategic accounts. We employ sales representatives who service these channel partners from offices located throughout the world.

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CRANES

We market our crane products globally, optimizing assorted channel marketing systems including a distribution network and a direct sales force. We have direct sales, primarily to specialized crane rental companies, in certain crane markets such as Australia, the United Kingdom, Germany, Spain, Belgium, Italy, France, Scandinavia and China to offer comprehensive service and support to customers. Distribution via a distributor network is often utilized in other geographic areas, including the United States and Canada where we also sell directly to key accounts.

We sell utility equipment to the utility and municipal markets through a direct sales effort in certain territories and through a network of independent distributors in North America. Outside of North America, independent distributors sell our utility equipment directly to customers.

MATERIAL HANDLING & PORT SOLUTIONS

Our port equipment products are sold both directly to customers and through independent distributors to port and terminal operators and are serviced either by our service organization or independent service providers. Our material handling products are also sold directly or indirectly, via independent distributors, to our end market customers.

MATERIALS PROCESSING

We distribute our products through a global network of independent distributors, rental companies, major accounts and direct sales to customers.

CONSTRUCTION

We distribute compact construction equipment primarily through a network of independent and rental distributors throughout the world. We distribute loader backhoes and compaction rollers manufactured in India through a network of approximately 50 distributors located in India, Nepal and neighboring countries.

We distribute material handlers primarily through a network of independent distributors throughout the world. Our distributors are predominantly independent businesses, which generally serve the construction, mining, forestry and/or scrap industries. Although these distributors may carry products from a variety of manufacturers, they generally carry only one manufacturer’s “brand” of each particular type of product. We sell concrete pavers to end user customers directly.

We sell concrete mixer trucks primarily directly to customers and through independent distributors in certain regions of the United States and Canada.

RESEARCH, DEVELOPMENT AND ENGINEERING

We maintain engineering staff primarily at our manufacturing locations to conduct research, development and engineering for site-specific products. Our businesses also assess global trends to understand future needs of our customers and help us decide which technologies to implement in future development projects. In addition, our engineering center in India supports our engineering teams worldwide through new product design, existing product design improvement and development of products for local markets. Continually monitoring our materials, manufacturing and engineering costs is essential to identify possible savings, then leverage those savings to improve our competitiveness and our customers’ return on investment. Our research, development and engineering expenses are primarily incurred to develop (i) additional applications and extensions of our existing product lines to meet customer needs and take advantage of growth opportunities and (ii) customer responsive enhancements and continuous cost improvements of existing products.

Our engineering focus mirrors the business priorities of delivering customer responsive solutions, growing in developing markets, complying with evolving regulatory standards in our global markets and applying our lean manufacturing principles by standardizing products, rationalizing components and strategically aligning with select global suppliers. Our engineering teams in China and India represent our commitment to engineering products for developing markets. They take equipment technology from the developed markets and translate it to appropriate technology for developing markets using the experience and cultural understanding of engineering teams native to those markets.

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Product change driven by regulations requiring Tier 4 emissions compliance in most of our diesel engine powered machinery has been an important part of our engineering priorities over the last several years and will continue to play a role in product development programs through 2017 as we work to finalize the engine-horsepower dependent phase-in of Tier 4 regulations across our various diesel-engine equipped products. We have also focused on producing more cost-effective product solutions across various segments.

Costs decreased in 2015 as compared to 2014 due to the completion of much of our Tier 4 conversion work, fewer project bids and the positive effects of changes in foreign exchange rates. Costs incurred to develop new products and improve existing products remained relatively flat in 2014 as compared to 2013. Research, development and engineering costs were $119.1 million, $135.5 million and $131.5 million in 2015, 2014 and 2013, respectively. We will continue our commitment to appropriate levels of research, development and engineering spending, commensurate with our level of vertical integration, in order to meet our customer needs, uphold competitive functionality of our products and maintain regulatory compliance in all the markets that we serve.

MATERIALS

Information regarding principal materials, components and commodities and any risks associated with these items are included in Item 7A. – “Quantitative and Qualitative Disclosures about Market Risk – Commodities Risk.”

COMPETITION

We face a competitive global manufacturing market for all of our products. We compete with other manufacturers based on many factors, particularly price, performance and product reliability. We generally operate under a best value strategy, where we attempt to offer our customers products that are designed to improve customers’ return on invested capital. However, in some instances, customers may prefer the pricing, performance or reliability aspects of a competitor’s product despite our product pricing or performance. We do not have a single competitor across all business segments. The following table shows the primary competitors for our products in the following categories:
BUSINESS SEGMENT
 
PRODUCTS
 
PRIMARY COMPETITORS
Aerial Work Platforms
 
Portable Material Lifts and Portable Aerial Work Platforms
 
Oshkosh (JLG), Vestil, Sumner and Wesco
 
 
 
 
 
 
 
Boom Lifts
 
Oshkosh (JLG), Haulotte, Linamar (Skyjack), Xtreme/Tanfield (Snorkel) and Aichi
 
 
 
 
 
 
 
Scissor Lifts
 
Oshkosh (JLG), Linamar (Skyjack), Haulotte, Manitou and Xtreme/Tanfield (Snorkel)
 
 
 
 
 
 
 
Telehandlers
 
Oshkosh (JLG, Skytrak, Caterpillar and Lull brands), JCB, CNH, Merlo and Manitou (Gehl)
 
 
 
 
 
 
 
Trailer-mounted Light Towers
 
Allmand Bros., Generac, Wacker Neuson
 and Doosan
 
 
 
 
 
Cranes
 
Mobile Telescopic Cranes
 
Liebherr, Manitowoc (Grove), Tadano-Faun, Sumitomo (Link-Belt), XCMG, Kato, Zoomlion and Sany
 
 
 
 
 
 
 
Tower Cranes
 
Liebherr, Manitowoc (Potain), Comansa, Jaso, Zoomlion, XCMG and Wolffkran
 
 
 
 
 
 
 
Lattice Boom Crawler Cranes
 
Manitowoc, Sumitomo (Link-Belt), Liebherr, Hitachi, Kobelco, XCMG, Zoomlion, Fushun and Sany
 
 
 
 
 
 
 
Lattice Boom Truck Cranes
 
Liebherr
 
 
 
 
 
 
 
Truck-Mounted Cranes
 
Manitowoc (National Crane), Altec and Manitex
 
 
 
 
 
 
 
Utility Equipment
 
Altec and Time Manufacturing
 
 
 
 
 
Material Handling & Port Solutions
 
Industrial Cranes
 
Konecranes, Columbus McKinnon, ABUS, Kito, GH and OMIS
 
 
 
 
 
 
 
Mobile Harbor Cranes and Automated Port Technology
 
Liebherr, Konecranes, Cargotec (Kalmar), Zhenhua Port Machinery (ZMPC) and Künz

 
 
 
 
 
 
 
Reach Stackers
 
Cargotec (Kalmar), Hyster, Konecranes (SMV), Taylor, Dalian, CVS Ferrari, Liebherr and Sany
 
 
 
 
 

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BUSINESS SEGMENT
 
PRODUCTS
 
PRIMARY COMPETITORS
 
 
Straddle and Sprinter Carriers
 
Cargotec (Kalmar), CVS Ferrari, Konecranes and Liebherr
 
 
 
 
 
 
 
Rubber Tired and Rail Mounted Gantry Cranes
 
Zhenhua Port Machinery (ZMPC), Liebherr, Konecranes, Cargotec (Kalmar), Doosan, Hyundai, Mitsui Engineering & Shipbuilding and Künz
 
 
 
 
 
 
 
Ship-to-Shore Gantry Cranes
 
Zhenhua Port Machinery (ZMPC), Liebherr, Konecranes, Cargotec (Kalmar), Samsung, Doosan, Hyundai and Mitsui Engineering & Shipbuilding
 
 
 
 
 
 
 
Empty Container Handlers, Full Container Handlers and General Cargo Lift Trucks
 
Cargotec (Kalmar), Hyster, Linde, CVS Ferrari, Konecranes (SMV), Svetruck and Sany
 
 
 
 
 
Materials Processing
 
Crushing Equipment
 
Metso, Astec Industries, Sandvik, McCloskey, Komatsu and Kleemann
 
 
 
 
 
 
 
Screening Equipment
 
Metso, Astec Industries, McCloskey, Kleeman and Sandvik
 
 
 
 
 
 
 
Washing systems
 
McLanahan, Astec Industries and CDE Global
 
 
 
 
 
 
 
Wood processing biomass and recycling
 
Vermeer, Bandit, Astec Inductries, Doppstadt, Komptech and Hammell
 
 
 
 
 
Construction
 
Material Handlers
 
Liebherr, Sennebogen, Linkbelt, Exodus and Caterpillar
 
 
 
 
 
 
 
Wheel Loaders
 
Caterpillar, Volvo, Kubota, Kawasaki, John Deere, Komatsu, Hitachi, CNH, Liebherr and Doosan
 
 
 
 
 
 
 
Loader Backhoes
 
Caterpillar, CNH, JCB, John Deere, and Mahindra
 
 
 
 
 
 
 
Mini Excavators
 
Doosan (Bobcat), Yanmar, Volvo, Takeuchi, IHI, CNH, Caterpillar, John Deere, Neuson and Kubota
 
 
 
 
 
 
 
Midi Excavators
 
Komatsu, Hitachi, Volvo and Yanmar
 
 
 
 
 
 
 
Wheeled Excavators
 
Wacker Neuson and Doosan (Bobcat)
 
 
 
 
 
 
 
Site Dumpers
 
Thwaites, Wacker Neuson, JCB and AUSA
 
 
 
 
 
 
 
Compaction Rollers
 
Bomag, Hamm, JCB and Ammann
 
 
 
 
 
 
 
Concrete Pavers
 
Gomaco, Wirtgen, Power Curbers and Guntert & Zimmerman
 
 
 
 
 
 
 
Concrete Mixer Trucks
 
Oshkosh, Kimble and Continental Manufacturing
 
 
 
 
 

MAJOR CUSTOMERS

None of our customers individually accounted for more than 10% of our consolidated net sales in 2015. In 2015, our largest customer accounted for less than 5% of our consolidated net sales and our top ten customers in the aggregate accounted for less than 18% of our consolidated net sales.

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EMPLOYEES

As of December 31, 2015, we had approximately 20,400 employees; including approximately 6,500 employees in the U.S. Approximately four percent of our employees in the U.S. are represented by labor unions. Outside of the U.S., we enter into employment contracts and collective agreements in those countries in which such relationships are mandatory or customary. The provisions of these agreements correspond in each case with the required or customary terms in the subject jurisdiction. We generally consider our relations with our employees to be good.

PATENTS, LICENSES AND TRADEMARKS

We use proprietary materials such as patents, trademarks, trade secrets and trade names in our operations and take actions to protect these rights.

We use several significant trademarks and trade names, most notably the Terex®, Genie®, Demag® and Powerscreen® trademarks. The other trademarks and trade names that we use include registered trademarks of Terex Corporation or its subsidiaries. The Demag® trademark is a registered trademark of Mannesmann Demag Krauss-Maffei GmbH which is licensed to certain Terex subsidiaries for certain products. In the fourth quarter of 2015, in connection with our annual impairment test over our indefinite-lived trademarks, we recognized a non-cash impairment charge of approximately $23 million in our MHPS segment. This charge is recorded in Goodwill and intangible asset impairments in the accompanying Consolidated Statement of Income.

We have many patents that we use in connection with our operations, and most of our products contain some proprietary technology. Many of these patents and related proprietary technology are important to the production of particular products; however, overall, our patents, taken together, are not material to our business or our overall financial results.

Currently, we are engaged in various legal proceedings with respect to intellectual property rights. While the outcome of these matters cannot be predicted with certainty, we believe the outcome of such matters will not have a material adverse effect, individually or in the aggregate, on our business or operating performance. For more detail, see “Item 3 – Legal Proceedings.”

SAFETY AND ENVIRONMENTAL CONSIDERATIONS

As part of The Terex Way, we are committed to providing a safe and healthy environment for our team members, and strive to provide quality products that are safe to use and operate in an environmentally conscious and respectful manner.

We generate hazardous and non-hazardous wastes in the normal course of our manufacturing operations. As a result, we are subject to a wide range of environmental laws and regulations. All of our employees are required to obey all applicable health, safety and environmental laws and regulations and must observe 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 costs of, and damages resulting from, cleaning up sites, past spills, disposals and other releases of hazardous substances, should any of such events occur. We are committed to complying with these standards and monitoring our workplaces to determine if equipment, machinery and facilities meet specified safety standards. Each of our manufacturing facilities is subject to an environmental audit at least once every five years to monitor compliance and no incidents have occurred which required us to pay material amounts to comply with such laws and regulations. We are dedicated to seeing that safety and health hazards are adequately addressed through appropriate work practices, training and procedures. For example, we continue to reduce lost time injuries in the workplace and work toward a world-class level of safety practices in our industry.

We are dedicated to product safety when designing and manufacturing our equipment. Our equipment is designed to meet all applicable laws, regulations and industry standards for use in their markets. We continually incorporate safety improvements in our products. We maintain an internal product safety team that is dedicated to improving safety and investigating and resolving any product safety issues that arise.

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The use and operation of our equipment in an environmentally conscious manner is a priority for us. We are aware of global discussions regarding climate change and the impact of greenhouse gas emissions on global warming. We are increasing our production of products that have lower greenhouse gas emissions in response to both regulatory initiatives and anticipated market demand trends. For example, starting in 2010, one of our most significant design priorities was to include Tier 4 emission compliant diesel engines in our machinery. This continued to be a priority in 2015 and will continue to play a role in our product development programs through 2017 as we move through the engine-horsepower dependent phase-in of Tier 4 regulations across our diesel-engine equipped products. We manufacture a utility truck that uses plug-in electric hybrid technology to save fuel, reduce emissions and reduce noise in residential areas. Similarly, our MHPS segment offers hybrid drive diesel-hydraulic and diesel-electric systems on certain of its port equipment products.

Increasing laws and regulations dealing with the environmental aspects of the products we manufacture can result in significant expenditures in designing and manufacturing new forms of equipment that satisfy such new laws and regulations. Compliance with laws and regulations regarding safety and the environment has required, and will continue to require, us to make expenditures. We currently do not expect these expenditures to have a material adverse effect on our business or results of operations.

FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS, GEOGRAPHIC AREAS AND EXPORT SALES

Information regarding foreign and domestic operations, export sales and segment information is included in Note C – “Business Segment Information” in the Notes to the Consolidated Financial Statements.

SEASONAL FACTORS

Over the past several years, our business has become less seasonal as we have grown and diversified our product offerings and expanded the geographic reach of our products. As we enter 2016, we expect the overall economic environment will affect our sales more than historical seasonal trends.

WORKING CAPITAL

Our businesses are working capital intensive and require funding to purchase production and replacement parts inventories, capital expenditures to repair, replace and upgrade existing facilities, as well as finance receivables from customers and dealers. We have debt service requirements, including semi-annual interest payments on our outstanding notes and quarterly interest payments on our bank credit facility. We believe cash generated from operations, together with availability under our bank credit facility and cash on hand, provide us with adequate liquidity to meet our operating and debt service requirements. See Item 1A “Risk Factors” for a detailed description of the risks resulting from our debt and our ability to generate sufficient cash flow to operate our business. We will continue to pursue cash generation opportunities, including reducing costs and working capital, reviewing alternatives for under-utilized assets, and selectively investing in our businesses to promote growth opportunities.

AVAILABLE INFORMATION

We maintain a website at www.terex.com. We make available on our website under “About Terex” – “Investor Relations” – “SEC Filings,” free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after we electronically file or furnish such material with the SEC. References to our website in this report are provided as a convenience, and the information on our website is not, and shall not be deemed to be a part of this report or incorporated into any other filings we make with the SEC. The public may read and copy any materials the Company has filed with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549.  The public may obtain information on the operation of the Public Reference Room by calling the SEC at (800) SEC-0330.  The SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. In addition, we make available on our website under “About Terex” – “Investor Relations” – “Corporate Governance,” free of charge, our Audit Committee Charter, Compensation Committee Charter, Governance and Nominating Committee Charter, Corporate Governance Guidelines and Code of Ethics and Conduct. In addition, the foregoing information is available in print, without charge, to any stockholder who requests these materials from us.

19




ITEM 1A.
RISK FACTORS

You should carefully consider the following risks, together with the cautionary statement under the caption “Forward-Looking Information” above and the other information included in this report. The risks described below are not the only ones we face. Additional risks that are currently unknown to us or that we currently consider immaterial may also impair our business or adversely affect our financial condition or results of operations. If any of the following risks actually occurs, our business, financial condition or results of operation could be adversely affected.

RISKS RELATED TO THE KONECRANES TRANSACTION
The merger is subject to conditions, including certain conditions that may not be satisfied or completed on a timely basis, if at all. Whether or not the merger is completed, the announcement and pendency of the merger could impact or cause disruptions in our businesses, which could have an adverse effect on our businesses and operating results before the merger, and the combined company after the merger.
The completion of the merger is subject to a number of conditions, including, among other things, the approval by our stockholders of the merger proposal, the approval by Konecranes shareholders of all of the proposals relating to the merger and the receipt of antitrust and other regulatory approvals in the United States, the European Union, China and certain other jurisdictions, which make the completion and timing of the completion of the merger uncertain. Also, either Terex or Konecranes may terminate the business combination agreement if the merger has not been completed by August 10, 2016 (subject to certain extension rights).

Whether or not the merger is completed, the announcement and pendency of the merger could cause disruptions in or otherwise negatively impact our businesses and operating results, including among others:
Our employees may experience uncertainty about their future roles with the combined company, which might adversely affect our ability to retain and hire key personnel and other employees;
the attention of our management may be directed toward completion of the merger and transaction-related considerations and may be diverted from the day-to-day operations and pursuit of other opportunities that could have been beneficial to our businesses;
customers, distributors, vendors or suppliers may seek to modify or terminate their business relationships with us, or delay or defer decisions concerning Terex;
we have incurred and will continue to incur significant transaction costs in connection with the merger; and
we may be required to pay, in certain circumstances, a termination fee of up to $37 million to Konecranes.
These disruptions and expenses could be exacerbated by a delay in the completion of the merger or termination of the business combination agreement and could have a material adverse effect on our businesses, operating results or prospects if the merger is not completed or the business, operating results or prospects of the combined company if the merger is completed.
Two class action lawsuits have been filed and additional lawsuits may be filed against Terex relating to the merger. An adverse ruling in any such lawsuit may prevent the merger from being consummated.
In August 2015, two class action complaints challenging the merger were filed in the Delaware Chancery Court.

The two complaints name as defendants Terex, Konecranes, Konecranes, Inc., Konecranes Acquistion LLC (“Merger Sub”) and the members of the board of directors of Terex. The complaints seek, among other relief, an order enjoining or rescinding the merger and an award of attorneys’ fees and costs on the grounds that the Terex board of directors breached their fiduciary duty in connection with entering into the business combination agreement and approving the merger. The complaints further allege that Terex, Konecranes, Konecranes, Inc. and Merger Sub aided and abetted the alleged breaches of fiduciary duties by the Terex board of directors. It is possible that these complaints will be further amended to make additional claims and/or that additional lawsuits making similar or additional claims relating to the merger will be brought.

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We believe that the allegations in the suits are without merit, and Terex and its directors will vigorously defend against them. One of the conditions to completion of the merger is the absence of any order being in effect that prohibits consummation of the merger. Accordingly, if any of these plaintiffs or any future plaintiff is successful in obtaining an order enjoining consummation of the merger, then such order may prevent the merger from being completed, or from being completed within the expected time frame.

Additionally, we may be subject to litigation if the merger is not completed, or in connection with any enforcement proceeding commenced by one of the parties to the business combination agreement against the other(s) to perform its obligations under the business combination agreement.

Terex and Konecranes may fail to realize all of the anticipated benefits of the merger, or those benefits may take longer to realize than expected.
The ability of Terex and Konecranes to realize the anticipated benefits of the transaction will depend, to a large extent, on the combined company’s ability to integrate the two businesses. The combination of two independent businesses is a complex, costly and time-consuming process. As a result, Terex and Konecranes will be required to devote significant management attention and resources to integrating their business practices and operations. The integration process may disrupt the businesses and, if implemented ineffectively, could restrict realization of expected benefits. In addition, the realization of anticipated benefits of the merger may be limited by a change in law or regulatory environment, including tax laws and regulations. On November 19, 2015, the Internal Revenue Service (the “IRS”) and Treasury Department announced that they intend to adopt additional regulations regarding transactions involving acquired U.S. corporations. While Terex and Konecranes are still considering potential effects of this announcement, the regulations described therein would materially impact the ability of the combined company to realize certain anticipated financial and tax benefits of the merger.
In addition, the overall integration of the businesses may result in material unanticipated problems, expenses, liabilities and competitive responses. The difficulties of combining the operations of the companies include, among others:
difficulties in achieving anticipated cost savings, synergies (including sourcing synergies), business opportunities and growth prospects from the combination;
difficulties in the integration of operations and systems;
potential expense due to loss of tax attributes, gain recognition, and changes to consolidated group filing statuses due to the merger transaction and subsequent tax costs related to potential reduced ability to use tax attributes and costs of making cash available to the Finnish parent company and other potential material negative tax synergies if the combined company remains domiciled in Finland for an extended period of time;
conforming standards, controls, procedures and accounting and other policies, business cultures and compensation structures between the two companies;
difficulties in the assimilation of employees;
challenges in retaining key personnel;
higher than anticipated transaction and integration costs; and
higher interest rates on debt resulting in increased interest expense.

Many of these factors will be outside of the control of Terex or Konecranes and any one of these factors could result in increased costs, decreases in the amount of expected revenues and diversion of management’s time and energy, which could materially impact the business, financial condition and results of operations of the combined company. In addition, even if operations of the businesses of Terex and Konecranes are integrated successfully, full benefits of the transaction may not be realized, including synergies, cost savings or sales or growth opportunities that are expected. These benefits may not be achieved within the anticipated time frame, or at all. Additional unanticipated costs may be incurred in the integration of the businesses of Terex and Konecranes. All of these factors could cause a decline in earnings per share of the combined company, decrease or delay the expected accretive effect of the transaction and negatively impact the price of the combined company’s ordinary shares/ADSs. As a result, we cannot assure you that the combination of Terex and Konecranes will result in the realization of benefits anticipated from the transaction. 

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RISKS RELATED TO OUR BUSINESS

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. The global economy has continued to experience uneven recovery and financial uncertainty continues to exist, including as it relates to oil and gas prices. We cannot provide any assurance the global economic weakness of the recent past will not recur. There continues to be concern about several important European economies. Further, certain countries in Asia and Latin America have experienced slower growth rates and the Australian market has experienced declines. If the global economy weakens, it may cause customers to continue to forego or postpone new purchases in favor of reducing their existing fleets or refurbishing or repairing existing machinery.

Our sales depend in part upon our customers’ replacement or repair cycles, which is impacted in part by historical purchase levels. It is anticipated there will be reduced replacement demand in certain of our businesses, such as AWP, resulting from very low industry purchases in 2009 and 2010. In addition, if our customers are not successful in generating sufficient revenue or are precluded from securing financing, they may not be able to pay, or may delay payment of, accounts receivable owed to us. If the global economic weakness of the past several years continues or becomes more severe, or if any economic recovery progresses more slowly than our market expectations, then there could be an adverse effect on our net sales, financial condition, profitability and/or cash flow and could result in the need for us to record impairments.

We may face limitations on our ability to integrate acquired businesses.

From time to time, we engage in strategic transactions involving risks, including the possible failure to successfully integrate and realize the expected benefits of such transactions. We have consummated many acquisitions in the past and anticipate making additional acquisitions in the future. Our ability to realize the anticipated benefits of these transactions, including the expected combination benefits, will depend, largely on our ability to integrate acquired businesses.

The risks associated with our past or future acquisitions include:

the business culture of the acquired business may not match well with our culture;
technological and product synergies, economies of scale and cost reductions may not occur as expected;
we may acquire or assume unexpected liabilities;
faulty assumptions may be made regarding the integration process;
unforeseen difficulties may arise in integrating operations and systems;
we may fail to retain, motivate and integrate key management and other employees of the acquired business;
higher than expected finance costs may arise due to unforeseen changes in tax, trade, environmental, labor, safety, payroll or pension policies in any jurisdiction in which the acquired business conducts its operations; and
we may experience problems in retaining customers.

The successful integration of any previously acquired or newly acquired business also requires us to implement effective internal control processes in these acquired businesses. While we believe we have successfully integrated acquisitions to date, we cannot ensure previously acquired or newly acquired companies will operate profitably, the intended beneficial effect from these acquisitions will be realized and that we will not encounter difficulties in implementing effective internal control processes in these acquired businesses, particularly when the acquired business operates in foreign jurisdictions and/or was privately owned. See the risk factor entitled “We must comply with an injunction and related obligations imposed by the SEC” for additional consequences if we were to commit a violation of reporting and internal control provisions of federal securities laws. Further, we may need to consolidate or restructure our acquired or existing facilities, which may require expenditures related to reductions in workforce and other charges resulting from these consolidations or restructuring activities, such as the write-down of inventory and lease termination costs. Any of the foregoing could adversely affect our business and results of operations.

Many of these factors will be outside of the combined company’s control and any one of them could result in increased costs, decreases in the amount of expected revenues and diversion of management’s time and energy. If we fail to implement our acquisition strategy, including successfully integrating acquired businesses, this could have an adverse effect on our business, financial condition and results of operations.


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

Our total debt at December 31, 2015 was $1,831.2 million. Our credit agreement and other debt agreements contain financial and restrictive covenants that may limit our ability to, among other things, borrow additional funds or take advantage of business opportunities. While we are currently in compliance with the financial covenants, increases in our debt or decreases in our earnings could cause us to fail to comply with these financial covenants. Failing to comply with such covenants could result in an event of default that, if not cured or waived, could result in the acceleration of all our indebtedness or otherwise have a material adverse effect on our financial position, results of operation and debt service capability.

Our level of debt and the financial and restrictive covenants contained in our credit agreement could have important consequences on our financial position and results of operations, including increasing our vulnerability to increases in interest rates because debt under our credit agreement bears interest at variable rates.

We may be unable to generate sufficient cash flow to service our debt obligations.

Servicing our debt requires a significant amount of cash. Our ability to generate sufficient cash depends on numerous factors beyond our control and our business may not generate sufficient cash flow from operating activities. Our ability to make payments on, and refinance, our debt and fund planned capital expenditures will depend on our ability to generate cash in the future. To some extent, this is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Lower sales, or uncollectible receivables, generally will reduce our cash flow.

We cannot assure our business will generate sufficient cash flow from operations, or future borrowings will be available to us under our credit facility or otherwise, in an amount sufficient to fund our liquidity needs.

If our cash flows and capital resources are insufficient to service our indebtedness, we may be forced to reduce or delay capital expenditures, sell assets, seek additional capital or restructure or refinance our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations.

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

Our access to capital markets to raise funds through the sale of equity or debt securities is subject to various factors, including general economic and/or financial market conditions. Significant changes in market liquidity conditions could impact access to funding and associated funding costs, which could reduce our earnings and cash flows. If our consolidated cash flow coverage ratio is less than 2.0 to 1.0, we are subject to significant restrictions on the amount of indebtedness we can incur. Although our cash flow coverage ratio was greater than 2.0 to 1.0 at the end of 2015, there can be no assurance this will continue to occur.

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

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

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Our business is sensitive to government spending.

Many of our customers depend substantially on government funding of highway construction, maintenance and other infrastructure projects. In addition, we sell products to governments and government agencies in the U.S. and other nations. Policies of governments attempting to address local deficit or structural economic issues could have a material impact on our customers and markets. Any decrease or delay in government funding of highway construction and maintenance, other infrastructure projects and overall government spending could cause our revenues and profits to decrease.

We operate in a highly competitive industry.

Our industry is highly competitive. To compete successfully, our products must excel in terms of quality, reliability, productivity, price, features, ease of use, safety and comfort, and we must provide excellent customer service. The greater financial resources of certain of our competitors may put us at a competitive disadvantage. Low-cost competition from China and other developing markets could also result in decreased demand for our products. If competition in our industry intensifies or if our current competitors lower their prices for competing products, we may lose sales or be required to lower the prices we charge for our products. If we are unable to provide continued technological improvements in our equipment that meet our customers’ expectations, or the industry’s expectations, the demand for our equipment could be substantially adversely affected. Our ability to match new product offerings to diverse global customers’ anticipated preferences for different types and sizes of equipment and various equipment features and functionality, at affordable prices, is critical to our success. This requires a thorough understanding of our existing and potential customers on a global basis, particularly in developing markets, including Brazil, China and India. Failure to compete effectively with our competitors could result in lower revenues from our products and services, lower gross margins or cause us to lose market share.

We rely on key management.

We rely on the management and leadership skills of our senior management team, particularly those of the Chief Executive Officer. The loss of the services of key employees or senior officers, or the inability to identify, hire and retain other highly qualified personnel in the future, could adversely affect the quality and profitability of our business operations.

Some of our customers rely on financing with third parties to purchase our products.

We rely on sales of our products to generate cash from operations. Significant portions of our sales are financed by third party finance companies on behalf of our customers. The availability of financing by third parties is affected by general economic conditions, the credit worthiness of our customers and the estimated residual value of our equipment. Deterioration in the credit quality of our customers or the estimated residual value of our equipment could negatively impact the ability of our customers to obtain the resources they need to purchase our equipment. Given the current economic conditions, there can be no assurance that third party finance companies will continue to extend credit to our customers.

Due to the ongoing uncertainty in certain global economies, some of our customers have been unable to obtain the credit they need to buy our equipment. As a result, some of our customers may need to cancel existing orders. Given the lack of liquidity, our customers may be compelled to sell their equipment at less than fair value to raise cash, which could have a negative impact on residual values of our equipment. These economic conditions could have a material adverse effect on demand for our products and on our financial condition and operating results.

We provide financing and credit support for some of our customers.

We assist customers in their rental, leasing and acquisition of our products through TFS. We provide financing for some of our customers, primarily in the U.S., to acquire and use our equipment through loans, sales-type leases, and operating leases. TFS enters into these financing agreements with the intent either to hold the financing until maturity or to sell the financing to a third party within a short time period. Until such financing obligations are satisfied through either customer payments or a third party sale, we retain the risks associated with such customer financing. Our results could be adversely affected if such customers default on their contractual obligations to us, if the residual values of such equipment on these transactions decline below the original estimated values or we are unable to sell the financing receivable to a third party.

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As described above, our customers, from time to time, may fund the acquisition of our equipment through third-party finance companies. In certain instances, we may provide credit guarantees, residual value guarantees or buyback guarantees. With these guarantees, we must assess the probability of losses or non-performance in ways similar to the evaluation of accounts receivable, including consideration of a customer’s payment history, leverage, availability of third party financing, political and currency exchange risks, and other factors. Many of these factors, including the assessment of a customer’s ability to pay, are influenced by economic and market factors that cannot be predicted with certainty. In circumstances where we believe it is probable that a specific customer will have difficulty meeting its financial obligations, a specific reserve is recorded to recognize a liability for a guarantee we expect to pay, taking into account any amounts that we would anticipate realizing if we are forced to repossess the equipment that supports the customer’s financial obligations to us. During periods of economic weakness, the collateral underlying our guarantees of indebtedness of customers or receivables can decline sharply, thereby increasing our exposure to losses. In the future, we may incur losses in excess of our recorded reserves if the financial condition of our customers were to deteriorate further or the full amount of any anticipated proceeds from the sale of the collateral supporting our customers’ financial obligations is not realized. To date, losses related to guarantees have been negligible; however, there can be no assurance that our historical experience with respect to guarantees will be indicative of future results.

We may experience losses in excess of our recorded reserves for trade receivables.

As of December 31, 2015, we had trade receivables of $939.2 million. We evaluate the collectability of open accounts, finance receivables and note receivables based on a combination of factors and establish reserves based on our estimates of probable losses. In circumstances where we believe it is probable that a specific customer will have difficulty meeting its financial obligations, a specific reserve is recorded to reduce the net recognized receivable to the amount we expect to recover. We also establish additional reserves based upon our perception of the quality of the current receivables, the current financial position of our customers and past collections experience. Continued economic uncertainty could result in additional requirements for specific reserves, which could have a negative impact on our consolidated financial position.

Impairment in the carrying value of goodwill and other indefinite-lived intangible assets could negatively affect our operating results.

We have a substantial amount of goodwill and purchased intangible assets on our balance sheet as a result of acquisitions we have completed. Carrying value of goodwill represents fair value of an acquired business in excess of identifiable assets and liabilities as of the acquisition date. Carrying value of indefinite-lived intangible assets represents fair value of trademarks and trade names as of the acquisition date. We evaluate these assets for impairment at least annually, or more frequently if potential interim indicators exist that could result in impairment. In testing for impairment, if we believe, as a result of a qualitative assessment, that it is more likely than not that fair value of a reporting unit is less than its carrying amount, a quantitative two-step goodwill impairment test is required. In a two-step goodwill impairment test, if carrying value of a reporting unit exceeds its current fair value as determined based on the discounted future cash flows of the reporting unit and market comparable sales and earnings multiples, the goodwill or intangible asset is considered impaired and is reduced to fair value via a non-cash charge to earnings. Events and conditions that could result in impairment include a prolonged period of global economic weakness and tight credit markets, further decline in economic conditions or a slow, weak economic recovery, as well as sustained declines in the price of our common stock, adverse changes in interest rates, or other factors leading to reductions in the long-term sales or profitability that we expect. Determination of fair value of a reporting unit includes developing estimates which are highly subjective and incorporate calculations that are sensitive to minor changes in underlying assumptions. Management’s assumptions change as more information becomes available. In 2015, we recorded approximately $35 million of impairment charges in our MHPS segment’s results for write downs of goodwill and indefinite-lived intangible assets. For more information, see Note L – “Goodwill and Intangible Assets, Net” in the Notes to the Consolidated Financial Statements. Changes in these assumptions could result in additional impairment charges in the future, which could have a significant adverse impact on our reported earnings.

We are dependent upon third-party suppliers, making us vulnerable to supply shortages and price increases.

We obtain materials and manufactured components from third-party suppliers. In the absence of labor strikes or other unusual circumstances, substantially all materials and components are normally available from multiple suppliers. However, certain of our businesses receive materials and components from a single source supplier, although alternative suppliers of such materials are generally available. Delays in our suppliers’ abilities, especially any sole suppliers for a particular business, to provide us with necessary materials and components may delay production at a number of our manufacturing locations, or may require us to seek alternative supply sources. Delays in obtaining supplies may result from a number of factors affecting our suppliers, including capacity constraints, labor disputes, suppliers’ impaired financial condition, suppliers’ allocations to other purchasers, weather emergencies or acts of war or terrorism. Any delay in receiving supplies could impair our ability to deliver products to our customers and, accordingly, could have a material adverse effect on our business, results of operations and financial condition.

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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. Extreme movements in the cost of these materials and components may affect our financial performance. If we are not able to recover increased raw material or component costs from our customers, our margins could be adversely affected.

In addition, we purchase material and services from our suppliers on terms extended based on our overall credit rating. Deterioration in our credit rating may impact suppliers’ willingness to extend terms and in turn increase the cash requirements of our business.

We are subject to currency fluctuations.

Our products are sold in over 100 countries around the world. The reporting currency for our consolidated financial statements is the U.S. dollar. Certain of our assets, liabilities, expenses, revenues and earnings are denominated in other countries’ currencies, including the euro, British pound sterling and Australian dollar. Those assets, liabilities, expenses, revenues and earnings are translated into U.S. dollars at the applicable exchange rates to prepare our consolidated financial statements. Therefore, increases or decreases in exchange rates between the U.S. dollar and those other currencies affect the value of those items as reflected in our consolidated financial statements, even if their value remains unchanged in their original currency. Due to the continued volatility of foreign currency exchange rates to the U.S. dollar, fluctuations in currency exchange rates may have an impact on the accuracy of our financial guidance. Such fluctuations in foreign currency rates relative to the U.S. dollar may cause our actual results to differ materially from those anticipated in our guidance and have a material adverse effect on our business or results of operations.

We may buy protecting or offsetting positions (known as “hedges”) in certain currencies to reduce the risk of an adverse currency exchange movement. We have not engaged in any speculative hedging activities. Although we partially hedge our revenues and costs, currency fluctuations may impact our financial performance in the future.

We are exposed to political, economic and other risks that arise from operating a multinational business.

Our operations are subject to a number of potential risks. Such risks principally include:

trade protection measures and currency exchange controls;
labor unrest;
global and regional economic conditions;
political instability;
terrorist activities and the U.S. and international response thereto;
restrictions on the transfer of funds into or out of a country;
export duties and quotas;
domestic and foreign customs and tariffs;
current and changing regulatory environments;
difficulties protecting our intellectual property;
transportation delays and interruptions;
costs and difficulties in integrating, staffing and managing international operations, especially in developing markets such as China, India, Brazil, Russia and the Middle East;
difficulty in obtaining distribution support; and
current and changing tax laws.

In addition, many of the nations in which we operate have developing legal and economic systems adding greater uncertainty to our operations in those countries than would be expected in North America and Western Europe. These factors may have an adverse effect on our international operations in the future.

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We must comply with all applicable laws, including the Foreign Corrupt Practices Act (“FCPA”) and other laws that prohibit engaging in corruption for the purpose of obtaining or retaining business. These anti-corruption laws prohibit companies and their intermediaries from making improper payments or providing anything of value to improperly influence government officials or private individuals for the purpose of obtaining or retaining a business advantage regardless of whether those practices are legal or culturally expected in a particular jurisdiction. Our global activities and distribution model are subject to risk of corruption by our employees and in addition, our sales agents, distributors, dealers and other third parties that transact Terex business particularly because these parties are generally not subject to our control. We have an internal policy that expressly prohibits engaging in any commercial bribery and public corruption, including facilitation payments. We conduct corruption risk assessments, we have implemented training programs for our employees with respect to the Company’s prohibition against public corruption and commercial bribery, and we perform reputational due diligence on certain third parties that transact Terex business. In addition, we conduct transaction testing to assess compliance with our internal anti-corruption policy and procedures. However, we cannot assure you that our policies, procedures and programs always will protect us from reckless or criminal acts committed by our employees or third parties that transact Terex business. We have a zero tolerance policy for violations of anti-corruption laws and our anti-corruption policy. In the event we believe or have reason to believe our employees, agents, representatives, dealers or distributors or other third parties that transact Terex business have or may have violated applicable anti-corruption laws, including the FCPA, we investigate or have outside counsel investigate relevant facts and circumstances. Although we have a compliance program in place designed to reduce the likelihood of potential violations of such laws, any violations of the FCPA or other anti-corruption laws could result in significant fines, criminal sanctions against us or our employees, prohibitions on the conduct of our business including our business with the U.S. government, an adverse effect on our reputation, business and results of operations and financial condition and a violation of our injunction or cease and desist order with the SEC. See Risk Factor entitled, “We must comply with an injunction and related obligations resulting from the settlement of an SEC investigation.”

We continue to focus on operational improvement in developing markets such as China, India, Brazil and the Middle East. These efforts will require us to hire, train and retain qualified personnel in countries where language, cultural or regulatory barriers may exist. Any significant difficulties in continuing to improve or expand our operations in developing markets may divert management’s attention from our existing operations and require a greater level of resources than we plan to commit.

Expansion into developing markets may require modification of products to meet local requirements or preferences.  Modification to the design of our products to meet local requirements and preferences may take longer or be more costly than we anticipate and could have a material adverse effect on our ability to achieve international sales growth.

A material disruption to one of our significant manufacturing plants could adversely affect our ability to generate revenue.

We produce most of our machines and aftermarket parts for each product type at one manufacturing facility. If operations at a significant facility were disrupted as a result of equipment failures, natural disasters, work stoppages, power outages or other reasons, our business, financial conditions and results of operations could be adversely affected. Interruptions in production could increase costs and delay delivery of units in production. Production capacity limits could cause us to reduce or delay sales efforts until production capacity is available.

We may be adversely impacted by work stoppages and other labor matters.

As of December 31, 2015, we employed approximately 20,400 people worldwide. While we have no reason to believe that we will be impacted by work stoppages or other labor matters, we cannot assure that future issues with our team members or labor unions will be resolved favorably or that we will not encounter future strikes, further unionization efforts or other types of conflicts with labor unions or our team members. Any of these factors may have an adverse effect on us or may limit our flexibility in dealing with our workforce.

Compliance with environmental regulations could be costly and require us to make significant expenditures.

We generate hazardous and nonhazardous wastes in the normal course of our manufacturing operations. As a result, we are subject to a wide range of environmental laws and regulations. These laws and regulations govern actions that may have adverse environmental effects and require compliance with certain practices when handling and disposing of hazardous and nonhazardous wastes. Some environmental laws impose strict, retroactive and joint and several liability for the remediation of the release of hazardous substances, which could subject us to liability without regard to whether we were negligent or at fault. Failure to comply with environmental laws could expose us to substantial fines or penalties and to civil and criminal liability. These liabilities, sanctions, damages and remediation efforts related to any non-compliance with such laws and regulations could have a material adverse effect on our business or results of operations. No such incidents have occurred which required us to pay material amounts to comply with such laws and regulations.

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In addition, increasing laws and regulations dealing with environmental aspects of the products we manufacture can result in significant expenditures in designing and manufacturing new forms of equipment that satisfy such new laws and regulations. In particular, climate change is receiving increasing attention worldwide. Many scientists, legislators and others attribute climate change to increased levels of greenhouse gases, including carbon dioxide, which has led to significant legislative and regulatory efforts to limit greenhouse gas emissions. While additional regulation of emissions in the future appears likely, it is too early to predict how new regulations would ultimately affect our business, operations or financial results, although government policies limiting greenhouse gas emissions of our products will likely require increased compliance expenditures on our part.

We are also continuing the transition to Tier 4 power systems. While plans are in place to comply with the phase-in of Tier 4 regulations, we are dependent on our engine suppliers to continue to timely deliver. A failure to timely receive appropriate engines from our suppliers could result in our being placed in uncompetitive positions or without finished product when needed. Compliance with environmental laws and regulations has required, and will continue to require, us to make expenditures, however we do not expect these expenditures to have a material adverse effect on our business or results of operations.

We face litigation and product liability claims, class action lawsuits and other liabilities.

In our lines of business, numerous suits have been filed alleging damages for accidents that have occurred during use or operation of our products. We are self-insured, up to certain limits, for these product liability exposures, as well as for certain exposures related to general, workers’ compensation and automobile liability. We obtain insurance coverage for catastrophic losses as well as those risks where insurance is required by law or contract. We do not believe that the outcome of such matters will have a material adverse effect on our consolidated financial position; however, any significant liabilities not covered by insurance could have an adverse effect on our financial condition.

We are the subject of a securities class action lawsuit and a stockholder derivative lawsuit. These lawsuits generally cover the time period from February 2008 to February 2009 and allege, among other things, that certain of our SEC filings and other public statements contained false and misleading statements which resulted in damages to the plaintiffs and the members of the purported class when they purchased our securities and that there were breaches of fiduciary duties. We believe that the allegations in the suits are without merit, and Terex, its directors and the named executives will vigorously defend against them. We believe that we have acted, and continue to act, in compliance with federal securities laws with respect to these matters. However, the outcome of the lawsuits cannot be predicted and, if determined adversely, could ultimately result in us incurring significant liabilities.

We must comply with an injunction and related obligations imposed by the SEC.

We and our directors, officers and employees are required to comply at all times with the terms of a settlement with the SEC that includes an injunction barring us from committing or aiding and abetting any future violations of the anti-fraud, books and records, reporting and internal control provisions of the federal securities laws and related SEC rules. In addition, regarding a separate and unrelated SEC matter, we consented to the entry of an administrative cease and desist order prohibiting future violations of certain provisions of the federal securities laws. As a result, if we commit or aid or abet any future violations of the anti-fraud, books and records, reporting and internal control provisions of the federal securities laws and related SEC rules, we are likely to suffer severe penalties, financial and otherwise, that could have a material negative impact on our business and results of operations.

We may be adversely affected by disruption in, or breach in security of, our information technology systems.

We rely on information technology systems, some of which are managed by third parties, to process, transmit and store electronic information (including sensitive data such as confidential business information and personally identifiable data relating to employees, customers and other business partners), and to manage or support a variety of critical business processes and activities. These systems may be damaged, disrupted or shut down due to attacks by computer hackers, computer viruses, employee error or malfeasance, power outages, hardware failures, telecommunication or utility failures, catastrophes or other unforeseen events, and in any such circumstances our system redundancy and other disaster recovery planning may be ineffective or inadequate. A failure of or breach in information technology security could expose us and our customers, distributors and suppliers to risks of misuse of information or systems, the compromise of confidential information, manipulation and destruction of data, defective products, production downtimes and operations disruptions. In addition, such breaches in security could result in litigation, regulatory action and potential liability, as well as the costs and operational consequences of implementing further data protection measures, each of which could have a material adverse effect on our business or results of operations.

ITEM 1B.
UNRESOLVED STAFF COMMENTS

Not applicable.

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ITEM 2.
PROPERTIES

As of December 31, 2015, our principal manufacturing, warehouse, service and office facilities comprised a total of approximately 14 million square feet of space worldwide. The following table outlines the principal manufacturing, warehouse, service and office facilities owned or leased (as indicated below) by the Company and its subsidiaries:
BUSINESS UNIT
 
FACILITY LOCATION
 
BUSINESS UNIT
 
FACILITY LOCATION
 
 
 
 
 
 
 
Terex (Corporate Offices)
 
Westport, Connecticut (1)
 
MHPS
 
Solon, Ohio
 
 
Schaeffhausen, Switzerland
 
 
 
Salzburg, Austria
AWP
 
Oklahoma City, Oklahoma
 
 
 
Cotia, Brazil
 
 
Rock Hill, South Carolina
 
 
 
Shanghai, China (1)
 
 
Moses Lake, Washington (1)
 
 
 
Xiamen, China
 
 
North Bend, Washington (1)
 
 
 
Slany, Czech Republic
 
 
Redmond, Washington (1)
 
 
 
Banbury, England (1)
 
 
Darra, Australia (1)
 
 
 
Düsseldorf, Germany
 
 
Changzhou, China
 
 
 
Uslar, Germany
 
 
Umbertide, Italy
 
 
 
Wetter an der Ruhr, Germany
Cranes
 
Waverly, Iowa
 
 
 
Würzburg, Germany
 
 
Watertown, South Dakota (1)
 
 
 
Chakan, India (1)
 
 
Huron, South Dakota
 
 
 
Lentigione, Italy
 
 
Brisbane, Australia (1)
 
 
 
Milan, Italy (1)
 
 
Betim, Brazil (1)
 
 
 
Boksburg, South Africa
 
 
Jinan, China
 
 
 
Dietlikon, Switzerland
 
 
Long Crendon, England
 
MP
 
Louisville, Kentucky
 
 
Montceau-les-Mines, France
 
 
 
Durand, Michigan
 
 
Bierbach-Homburg, Germany (1)
 
 
 
Coalville, England
 
 
Zweibrücken-Dinglerstrasse, Germany
 
 
 
Hosur, India
 
 
Zweibrücken-Wallerscheid, Germany (1)
 
 
 
Subang Jaya, Malaysia (1)
 
 
Pecs, Hungary (1)
 
 
 
Omagh, Northern Ireland (1)
 
 
Crespellano, Italy
 
 
 
Dungannon, Northern Ireland (1)
 
 
Fontanafredda, Italy
 
 
 
Newton, New Hampshire
 
 
Waukesha, Wisconsin (1)
 
 
 
Ballymoney, Northern Ireland
 
 
 
 
 
 
Haid bei, Austria(1)
 
 
 
 
Construction
 
Fort Wayne, Indiana
 
 
 
 
 
 
Southaven, Mississippi (1)
 
 
 
 
 
 
Canton, South Dakota
 
 
 
 
 
 
Coventry, England (1)
 
 
 
 
 
 
Bad Schönborn, Germany
 
 
 
 
 
 
Crailsheim, Germany
 
 
 
 
 
 
Greater Noida, Uttar Pradesh, India (1)
 
 
 
 
 
 
Gerabronn, Germany (1)
 
 
 
 
 
 
Oklahoma City, Oklahoma

(1) 
These facilities are either leased or subleased.

We also have numerous owned or leased locations for new machine and parts sales and distribution and rebuilding of components located worldwide.

We believe the properties listed above are suitable and adequate for our use. We have determined that certain of our other properties exceed our requirements. Such properties may be sold, leased or utilized in another manner and have been excluded from the above list.

29



ITEM 3.
LEGAL PROCEEDINGS

General

We are involved in various legal proceedings, including product liability, general liability, workers’ compensation liability, employment, commercial and intellectual property litigation, which have arisen in the normal course of operations. We are insured for product liability, general liability, workers’ compensation, employer’s liability, property damage and other insurable risk required by law or contract with retained liability to us or deductibles. We believe the outcome of such matters, individually and in aggregate, will not have a material adverse effect on our consolidated financial position. However, the 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 other contingencies and uncertainties, including our securities, stockholder derivative, merger and Employee Retirement Income Security Act of 1974 lawsuits, see Note S – “Litigation and Contingencies” in the Notes to the Consolidated Financial Statements.

ITEM 4.
MINE SAFETY DISCLOSURE

Not applicable.

PART II


ITEM 5.
MARKET FOR THE REGISTRANTS COMMON EQUITY RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

(a) Our common stock, par value $.01 per share (“Common Stock”) is listed on the NYSE under the symbol “TEX.” The high and low quarterly stock prices for our Common Stock on the NYSE Composite Tape (for the last two completed years) are as follows:
 
2015
 
2014
 
Fourth
 
Third
 
Second
 
First
 
Fourth
 
Third
 
Second
 
First
High
$
22.76

 
$
27.11

 
$
29.32

 
$
28.53

 
$
32.54

 
$
42.53

 
$
44.72

 
$
45.46

Low
$
17.29

 
$
16.54

 
$
22.25

 
$
22.01

 
$
25.40

 
$
31.52

 
$
37.99

 
$
37.02


We declared and paid a $0.06 per share dividend during each quarter of 2015 and $0.05 during each quarter of 2014. Certain of our debt agreements contain restrictions as to the payment of cash dividends to stockholders. In addition, Delaware law limits payment of dividends. We declared a dividend of $0.07 per share in the first quarter of 2016, which will be paid in March 2016. However, any additional payments of cash dividends will depend upon our financial condition, capital requirements and earnings, as well as other factors that the Board of Directors may deem relevant.

As of February 18, 2016, there were 810 stockholders of record of our Common Stock.

Performance Graph

The following stock performance graph is intended to show our stock performance compared with that of comparable companies. The stock performance graph shows the change in market value of $100 invested in our Common Stock, the Standard & Poor’s 500 Stock Index, and our Peer Group (as defined below) for the period commencing December 31, 2010 through December 31, 2015. The cumulative total stockholder return assumes dividends are reinvested. The stockholder return shown on the graph below is not indicative of future performance. The companies in the Peer Group are weighted by market capitalization. Our peer group is aligned with the peer group that is used by our Compensation Committee in benchmarking our executive officer’s compensation.

The Peer Group consists of the following companies that are in our same industry, of comparable revenue size to us and/or other manufacturing companies: AGCO Corporation, Cameron International Corporation, Carlisle Companies Inc., Crane Company, Cummins Inc., Dover Corporation, Flowserve Corporation, FMC Technologies, Inc., Hubbell Inc., Illinois Tool Works Inc., Ingersoll-Rand Plc, Joy Global Inc., Lennox International Inc., The Manitowoc Company, Inc., Meritor Inc., Navistar International Corporation, Oshkosh Corporation, Paccar Inc., Parker-Hannifin Corporation, Pentair Ltd., Rockwell Automation, Inc., Roper Technologies Inc., SPX Corporation, Textron Inc., Timken Company and Trinity Industries Inc.

30




 
12/10

12/11

12/12

12/13

12/14

12/15

Terex Corporation
100.00

43.52

90.56

135.46

90.44

50.57

S&P 500
100.00

102.11

118.45

156.82

178.29

180.75

Peer Group
100.00

87.31

106.27

148.22

149.89

128.40

Copyright© 2016 Standard & Poor's, a division of The McGraw-Hill Companies Inc. All rights reserved. (www.researchdatagroup.com/S&P.htm)

(b) Not applicable.

31




(c) The following table provides information about purchases during the quarter ended December 31, 2015 of our common stock that is registered by us pursuant to the Exchange Act.
 
 
Issuer Purchases of Equity Securities
Period
 
(a) Total Number of Shares Purchased
 
(b) Average Price Paid per Share
 
(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)
 
(d) Approximate Dollar Value of Shares that May Yet be Purchased
Under the Plans or Programs (in thousands) (1)
October 1, 2015 – October 31, 2015
 
12,800 (2)
 
$18.41
 
 
$150,000
November 1, 2015 – November 30, 2015
 
 
$—
 
 
$150,000
December 1, 2015 – December 31, 2015
 
6,412 (2)
 
$19.78
 
 
$150,000
Total
 
19,212
 
$18.87
 
 
$150,000
(1)
In February 2015, our Board of Directors authorized and the Company publicly announced the repurchase of up to $200 million of the Company’s outstanding common shares.
(2)
In October and December 2015 the Company purchased shares of common stock to satisfy requirements under its deferred compensation obligations to employees.


32



ITEM 6.
SELECTED FINANCIAL DATA

FIVE-YEAR SELECTED FINANCIAL DATA

The following table summarizes our selected financial data and should be read in conjunction with the more detailed Consolidated Financial Statements and related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(in millions, except per share amounts and employees)
 
AS OF OR FOR THE YEAR ENDED DECEMBER 31,
 
2015
 
2014
 
2013
 
2012
 
2011
SUMMARY OF OPERATIONS
 
 
 
 
 
 
 
 
 
Net sales
$
6,543.1

 
$
7,308.9

 
$
7,084.0

 
$
6,982.2

 
$
6,158.0

Income (loss) from operations
355.2

 
423.1

 
419.1

 
366.8

 
59.9

Income (loss) from continuing operations
145.6

 
259.5

 
203.9

 
74.8

 
20.2

Income (loss) from discontinued operations – net of tax

 
1.4

 
14.4

 
28.4

 
19.7

Gain (loss) on disposition of discontinued operations – net of tax
3.4

 
58.6

 
2.6

 
0.4

 
0.8

Net income (loss) attributable to common stockholders
145.9

 
319.0

 
226.0

 
105.8

 
45.2

Per Common and Common Equivalent Share:
 
 
 
 
 
 
 
 
 
Basic attributable to common stockholders
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
1.33

 
$
2.36

 
$
1.88

 
$
0.70

 
$
0.22

Income (loss) from discontinued operations – net of tax

 
0.01

 
0.13

 
0.26

 
0.18

Gain (loss) on disposition of discontinued operations – net of tax
0.03

 
0.54

 
0.02

 

 
0.01

Net income (loss) attributable to common stockholders
1.36

 
2.91

 
2.03

 
0.96

 
0.41

Diluted attributable to common stockholders
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
1.30

 
$
2.27

 
$
1.79

 
$
0.68

 
$
0.22

Income (loss) from discontinued operations – net of tax

 
0.01

 
0.12

 
0.25

 
0.18

Gain (loss) on disposition of discontinued operations – net of tax
0.03

 
0.51

 
0.02

 

 
0.01

Net income (loss) attributable to common stockholders
1.33

 
2.79

 
1.93

 
0.93

 
0.41

 
 
 
 
 
 
 
 
 
 
CURRENT ASSETS AND LIABILITIES
 
 
 
 
 
 
 
 
 
Current assets
$
3,144.2

 
$
3,356.2

 
$
3,639.4

 
$
3,797.4

 
$
4,053.2

Current liabilities
1,458.6

 
1,643.1

 
1,724.7

 
1,708.8

 
1,890.9

PROPERTY, PLANT AND EQUIPMENT
 
 
 
 
 
 
 
 
 
Net property, plant and equipment
$
675.8

 
$
690.3

 
$
789.4

 
$
806.8

 
$
829.7

Capital expenditures
(103.8
)
 
(80.0
)
 
(79.5
)
 
(81.2
)
 
(77.9
)
Depreciation
98.4

 
110.4

 
104.4

 
99.7

 
88.5

TOTAL ASSETS
$
5,637.1

 
$
5,928.0

 
$
6,536.7

 
$
6,746.2

 
$
7,063.4

 
 
 
 
 
 
 
 
 
 
CAPITALIZATION
 
 
 
 
 
 
 
 
 
Long-term debt and notes payable (includes capital leases)
$
1,831.2

 
$
1,788.8

 
$
1,976.7

 
$
2,098.7

 
$
2,300.4

Total Terex Corporation Stockholders’ Equity
1,877.4

 
2,005.9

 
2,190.1

 
2,007.7

 
1,910.3

Dividends per share of Common Stock
0.24

 
0.20

 
0.05

 

 

Shares of Common Stock outstanding at year end
107.7

 
105.4

 
109.9

 
109.9

 
108.8

EMPLOYEES
20,400

 
20,400

 
20,500

 
20,900

 
22,100


See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Notes to the Consolidated Financial Statements for a discussion of “Discontinued Operations,” “Dispositions,” “Goodwill,” “Long-Term Obligations” and “Stockholders’ Equity.”


33



ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

BUSINESS DESCRIPTION

Terex is a lifting and material handling solutions company. We are focused on operational improvement and delivering reliable, customer-driven solutions for a wide range of commercial applications, including the construction, infrastructure, quarrying, mining, manufacturing, transportation, energy and utility industries. We operate in five reportable segments: (i) AWP; (ii) Cranes; (iii) MHPS; (iv) MP; and (v) Construction. Please refer to Note C – “Business Segment Information” in the accompanying Consolidated Financial Statements for a description of our segments.

Non-GAAP Measures

In this document, we refer to various GAAP (U.S. generally accepted accounting principles) and non-GAAP financial measures. These non-GAAP measures may not be comparable to similarly titled measures disclosed by other companies. We present non-GAAP financial measures in reporting our financial results to provide investors with additional analytical tools which we believe are useful in evaluating our operating results and the ongoing performance of our underlying businesses. We do not, nor do we suggest that investors should, 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 use include translation effect of foreign currency exchange rate changes on net sales, gross profit, Selling, general & administrative (“SG&A”) costs and operating profit, as well as the net sales, gross profit, SG&A costs and operating profit excluding the impact of acquisitions.

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

We calculate a non-GAAP measure of free cash flow. We define free cash flow as Net cash provided by (used in) operating activities, plus (minus) increases (decreases) in Terex Financial Services (“TFS”) finance receivable assets, plus (minus) decreases (increases) in cash balances held for settlement on securitized assets, less Capital expenditures. We believe the measure of free cash flow provides management and investors further information on cash generation or use in our primary operations.

We discuss forward looking information related to expected earnings per share (“EPS”) excluding restructuring charges and other items. This adjusted EPS is a non-GAAP measure that provides guidance to investors about our expected EPS excluding restructuring or other charges that we do not believe are reflective of our ongoing earnings.

Working capital is calculated using the 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 the ongoing operations of the business. Trailing three month annualized net sales is calculated using the net sales for the most recent quarter multiplied by four. The ratio, which is calculated by dividing working capital by trailing three months annualized net sales, is a non-GAAP measure that we believe measures our resource use efficiency.

Non-GAAP measures we use also include Net Operating Profit After Tax (“NOPAT”) as adjusted, income (loss) before income taxes as adjusted, income (loss) from operations as adjusted, (benefit from) provision for income taxes 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.

34




Overview

Our operating environment throughout 2015 was more challenging than we anticipated, with softening end market demand accelerating in the fourth quarter of 2015. The negative impact was broad-based, with order activity in the second half of the year below expectations in most of our business segments and product categories. Despite the challenging marketplace environment, we were able to exceed our free cash flow target in 2015, generating approximately $290 million in free cash flow.
Our AWP segment experienced reduced sales in 2015 which negatively impacted profitability. Improved manufacturing efficiencies and lower material costs were more than offset by lower net sales and pricing pressure we continue to see in the marketplace. We are planning for reduced net sales in North America in 2016, partially offset by a stronger European marketplace.

Our Cranes segment’s net sales and profitability for 2015 declined year over year as the global crane market remains challenging. Our Utilities business had increased sales and profitability year over year, although it did experience some softening in the second half of 2015. We expect continued softness for cranes products in North America and Australia in 2016, although we do anticipate stability in our tower cranes and all terrain cranes businesses.

Our MHPS segment performance was stronger in the second half of 2015 than in the first half, but overall was below our expectations entering 2015. The negative impact of foreign exchange rates and the decrease in port automation sales were the primary drivers of the decline in net sales. We were encouraged by improved mobile harbor cranes sales and our material handling sales were essentially flat when adjusting for foreign exchange rates. We expect 2016 to be relatively stable as compared to 2015.

Our MP segment had solid performance in a difficult operating environment. Our core crushing and screening businesses were down, with North America and parts of Europe the primary bright spots. However, we have been investing in expanding our environmental equipment and washing systems businesses and our investment in these new product categories has helped offset some of the weakness in the commodity driven markets. We expect this segment to continue to have strong profitability in 2016.

Our Construction segment had a difficult fourth quarter which accounted for most of its operating loss in 2015. Net sales in this segment declined year-over-year due to the divestiture of our majority interest in the compact track loader business and negative impact of foreign exchange rates, partially offset by higher demand for our site dumpers and concrete mixer trucks. Pressure on operating results continues to come from the German and Indian compact construction businesses. Strength in our North American concrete truck business and dumper business is expected to be more than offset by weakness in our German and Indian compact construction businesses throughout 2016. We continue to explore alternative ways to create value from this segment for our shareholders.

Geographically, while sales in the North American market remain relatively strong, we have been impacted by lower oil and gas related activity. European markets are mixed with sales down slightly on a currency neutral basis. Most of the other markets are experiencing year over year declines, particularly Brazil and Australia, although sales in Asia Pacific were up on a currency neutral basis.

We continued to work to improve our capital structure in 2015. We settled our 4% Convertible Senior Subordinated Notes in the year without incurring additional borrowings under our revolving credit facility and we re-priced our European term loan with lower interest rates. Our efforts to improve our working capital investment also helped generate approximately $290 million in free cash flow in 2015, above our expectations.

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.

35




Looking ahead to 2016, we see softer demand for some of our products. Lower requirements for fleet replacement for the Company’s AWP product in North America is developing as previously communicated. The downturn in the oil and gas sector is also hurting product demand, particularly for Cranes. This, together with ongoing macro-economic weakness in many of our end markets, is expected to have a negative impact on our operating earnings in 2016. We are in process of developing and implementing plans to reduce our general and administrative expenses, which began in January 2016 and will continue throughout the year. We are also evaluating our facilities footprint, as well as underperforming businesses, and will make required adjustments so that we are globally cost-competitive and our businesses perform above our cost of capital throughout the business cycle. We will continue to invest in research, development and engineering to ensure we have competitive products and services that provide a superior return for our customers. The Company expects 2016 earnings per share to be between $1.30 and $1.60, excluding restructuring and other unusual items, on net sales that are approximately 10% lower than 2015.


ROIC continues to be a metric we use to measure our performance. ROIC and the Non-GAAP Measures assist in showing how effectively we utilize capital invested in our operations. After-tax ROIC is determined by dividing the sum of NOPAT for each of the previous four quarters by the average of the sum of Total Terex Corporation stockholders’ equity plus Debt (as defined below) less Cash and cash equivalents for the previous five quarters. NOPAT for each quarter is calculated by multiplying Income (loss) from operations by a figure equal to one minus the effective tax rate of the Company. We believe returns on capital deployed in TFS do not represent our primary operations and, therefore, TFS finance receivable assets and results from operations have been excluded from the Non-GAAP Measures. The effective tax rate is equal to the (Provision for) benefit from income taxes divided by Income (loss) from continuing operations before income taxes for the respective quarter. Debt is calculated using the amounts for Notes payable and current portion of long-term debt plus Long-term debt, less current portion. We calculate ROIC using the last four quarters’ adjusted NOPAT as this represents the most recent 12-month period at any given point of determination. In order for the denominator of the ROIC ratio to properly match the operational period reflected in the numerator, we include the average of five quarters’ ending balance sheet amounts so that the denominator includes the average of the opening through ending balances (on a quarterly basis) thereby providing, over the same time period as the numerator, four quarters of average invested capital.

36




Terex management and the Board of Directors use ROIC as one of the primary measures 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 Total stockholders’ equity provides a better comparison across similar businesses regarding total capitalization, and ROIC highlights the level of value creation as a percentage of capital invested. As the tables below show, our ROIC at December 31, 2015 was 6.6%.

Amounts described below are reported in millions of U.S. dollars, except for the effective tax rates. Amounts are as of and for the three months ended for the periods referenced in the tables below.
 
Dec ’15
Sep ’15
Jun ’15
Mar ’15
Dec ’14
Provision for (benefit from) income taxes
$
5.6

$
30.8

$
33.0

$
11.6

 
Divided by: Income (loss) before income taxes
20.3

76.9

119.3

10.1

 
Effective tax rate
27.6
%
40.1
%
27.7
%
114.9
 %
 
Income (loss) from operations as adjusted
$
53.1

$
109.4

$
147.2

$
46.5

 
Multiplied by: 1 minus Effective tax rate
72.4
%
59.9
%
72.3
%
(14.9
)%
 
Adjusted net operating income (loss) after tax
$
38.4

$
65.5

$
106.4

$
(6.9
)
 
Debt (as defined above)
$
1,831.2

$
1,897.6

$
1,906.6

$
1,872.9

$
1,788.8

Less: Cash and cash equivalents
(466.5
)
(301.1
)
(332.7
)
(351.3
)
(478.2
)
Debt less Cash and cash equivalents
$
1,364.7

$
1,596.5

$
1,573.9

$
1,521.6

$
1,310.6

Total Terex Corporation stockholders’ equity as adjusted
$
1,528.0

$
1,549.7

$
1,630.8

$
1,543.3

$
1,843.2

Debt less Cash and cash equivalents plus Total Terex Corporation stockholders’ equity as adjusted
$
2,892.7

$
3,146.2

$
3,204.7

$
3,064.9

$
3,153.8


December 31, 2015 ROIC
6.6
%
NOPAT as adjusted (last 4 quarters)
$
203.4

Average Debt less Cash and cash equivalents plus Total Terex Corporation stockholders’ equity as adjusted (5 quarters)
$
3,092.5


 
Three months ended 12/31/15
Three months ended 9/30/15
Three months ended 06/30/15
Three months ended 03/31/15
 
Reconciliation of income (loss) from operations:
 
 
 
 
 
Income (loss) from operations as reported
$
50.8

$
111.9

$
148.3

$
44.2

 
(Income) loss from operations for TFS
2.3

(2.5
)
(1.1
)
2.3

 
Income (loss) from operations as adjusted
$
53.1

$
109.4

$
147.2

$
46.5

 
 
 
 
 
 
 
Reconciliation of Terex Corporation stockholders’ equity:
As of 12/31/15
As of 9/30/15
As of 06/30/15
As of 03/31/15
As of 12/31/14
Terex Corporation stockholders’ equity as reported
$
1,877.4

$
1,889.9

$
1,915.0

$
1,747.8

$
2,005.9

TFS Assets
(349.4
)
(340.2
)
(284.2
)
(204.5
)
(162.7
)
Terex Corporation stockholders’ equity as adjusted
$
1,528.0

$
1,549.7

$
1,630.8

$
1,543.3

$
1,843.2




37



Business Combination and Plan of Merger

See Item 1, Business, and Note A – “Business Combination Agreement and Plan of Merger” in the Notes to the Consolidated Financial Statements for further information regarding the proposed merger with Konecranes.

Proposal from Zoomlion Heavy Industry Science and Technology Co.

We have received an unsolicited, non-binding acquisition proposal from Zoomlion Heavy Industry Science and Technology Co. (“Zoomlion”) to acquire all of the outstanding shares of Terex for $30.00 per share in cash. The proposal is conditioned on, among other things, receipt of U.S. and Chinese regulatory approval and Zoomlion shareholder approval.

We have entered into a confidentiality agreement with Zoomlion and are in discussions with Zoomlion regarding the proposal. Consistent with its fiduciary duties, the Terex Board of Directors, in consultation with its legal and financial advisors, is carefully reviewing the Zoomlion proposal to determine the course of action that it believes is in the best interests of Terex shareholders.

RESULTS OF OPERATIONS

2015 COMPARED WITH 2014

Terex Consolidated
 
2015
 
2014
 
 
 
 
 
% of
Sales
 
 
 
% of
Sales
 
% Change In Reported Amounts
 
($ amounts in millions)
 
 
Net sales
$
6,543.1

 

 
$
7,308.9

 

 
(10.5
)%
Gross profit
$
1,308.5

 
20.0
%
 
$
1,453.5

 
19.9
%
 
(10.0
)%
SG&A
$
918.6

 
14.0
%
 
$
1,030.4

 
14.1
%
 
(10.9
)%
Goodwill and intangible asset impairment
$
34.7

 
0.5
%
 
$

 
%
 
*

Income from operations
$
355.2

 
5.4
%
 
$
423.1

 
5.8
%
 
(16.0
)%
*
Not meaningful as a percentage

Net sales for the year ended December 31, 2015 decreased $765.8 million when compared to 2014. The decline in net sales was driven by lower net sales across all segments, with the largest declines coming from MHPS, AWP and Construction. Changes in foreign exchange rates negatively impacted consolidated net sales by approximately 8% or $573 million. Net sales decreased by approximately $110 million due to the disposition of businesses in our MHPS and Construction segments. The declines were partially offset by improvements in certain product lines or regions in all of our segments.

Gross profit for the year ended December 31, 2015 decreased $145.0 million when compared to 2014. The decrease was primarily due to declines in all segments except MP, which delivered improved margins. Changes in foreign exchange rates negatively impacted gross profit in all segments, and sales volumes were down in all segments except for Cranes. These decreases were partially offset by reduced material and manufacturing costs.

SG&A costs for the year ended December 31, 2015 decreased $111.8 million when compared to 2014. The majority of the decrease in SG&A costs was due to the positive impact of changes in foreign exchange rates, particularly in our MHPS segment.

Due to deteriorating market conditions in our MHPS segment, we recorded a non-cash impairment charge of $11.3 million to write down the value of goodwill and a non-cash intangible asset impairment charge of $23.4 million to write down tradenames, both of which were recorded in the operating results of our MHPS segment in the year ended December 31, 2015.

Income from operations decreased by $67.9 million for the year ended December 31, 2015 when compared to 2014. The decrease was primarily due to lower operating performance in the AWP and Cranes segments.


38



Aerial Work Platforms
 
2015
 
2014
 
 
 
 
 
% of
Sales
 
 
 
% of
Sales
 
% Change In Reported Amounts
 
($ amounts in millions)
 
 
Net sales
$
2,213.4

 

 
$
2,369.7

 

 
(6.6
)%
Income from operations
$
269.3

 
12.2
%
 
$
302.8

 
12.8
%
 
(11.1
)%

Net sales for the AWP segment for the year ended December 31, 2015 decreased $156.3 million when compared to 2014. Net sales decreased approximately $82 million due to the negative impact of foreign exchange rate changes. North American net sales decreased due to lower pricing and softening demand for telehandlers and booms, which are impacted by the uncertainty surrounding oil and gas markets. Sales in Latin America were lower due to the continuing impact of economic uncertainties in Brazil as well as softer pricing. These decreases were partially offset by increased net sales in Europe due to robust replacement demand and increased product adoption in China.

Income from operations for the year ended December 31, 2015 decreased $33.5 million when compared to 2014. The decrease was due to declines in net sales noted above, as well as unfavorable pricing, and negative impact from foreign exchange rate changes. These decreases were partially offset by lower material costs and reduced manufacturing costs associated with decreased indirect labor.

Cranes
 
2015
 
2014
 
 
 
 
 
% of
Sales
 
 
 
% of
Sales
 
% Change In Reported Amounts
 
($ amounts in millions)
 
 
Net sales
$
1,699.7

 

 
$
1,791.1

 

 
(5.1
)%
Income from operations
$
57.5

 
3.4
%
 
$
85.9

 
4.8
%
 
(33.1
)%

Net sales for the Cranes segment for the year ended December 31, 2015 decreased by $91.4 million when compared to 2014. Net sales decreased approximately $172 million due to the negative impact of foreign exchange rate changes. Lower demand for mobile cranes in North America and Australia, largely due to declines in oil, gas and commodity prices, also contributed to the decrease in net sales. This was partially offset by higher cranes product sales in Europe and Asia and the contribution from an acquired business of approximately $73 million.

Income from operations for the year ended December 31, 2015 decreased $28.4 million when compared to 2014, resulting primarily from approximately $17 million of foreign exchange rate changes and approximately $14 million of lower factory utilization.

Material Handling & Port Solutions
 
2015
 
2014
 
 
 
 
 
% of
Sales
 
 
 
% of
Sales
 
% Change In
Reported Amounts
 
($ amounts in millions)
 
 
Net sales
$
1,445.8

 

 
$
1,783.4

 

 
(18.9
)%
Loss from operations
$
(8.6
)
 
(0.6
)%
 
$
(17.2
)
 
(1.0
)%
 
(50.0
)%


Net sales for the MHPS segment for the year ended December 31, 2015 decreased by $337.6 million when compared to 2014. Net sales decreased approximately $215 million due to the negative impact of foreign exchange rate changes. Decreases in port automation sales in Western Europe, and the divestiture of our Australia Material Handling business in 2014 also contributed to the decline in net sales. These decreases were partially offset by incremental sales of mobile harbor cranes as well as increased sales from our materials handling business in the United States.


39



Loss from operations for the year ended December 31, 2015 improved by $8.6 million when compared to 2014. The 2014 results included approximately $42 million of restructuring charges and approximately $33 million of loss from the sale of an entity, which did not repeat in 2015. The loss from operations in 2015 was driven by approximately $11 million and $23 million of goodwill and tradename impairment charges, respectively, and decline in sales volume, including continued challenges in Brazil and the decrease in port automation sales.

See Note L – “Goodwill and Intangible assets” in the accompanying Consolidated Financial Statements for more information about the goodwill and tradename impairment charges recognized in 2015.

Materials Processing
 
2015
 
2014
 
 
 
 
 
% of
Sales
 
 
 
% of
Sales
 
% Change In Reported Amounts
 
($ amounts in millions)
 
 
Net sales
$
636.5

 

 
$
653.1

 

 
(2.5
)%
Income from operations
$
57.1

 
9.0
%
 
$
60.6

 
9.3
%
 
(5.8
)%

Net sales for the MP segment decreased by $16.6 million for the year ended December 31, 2015 when compared to 2014. The decrease was primarily due to approximately $44 million negative impact of foreign exchange rate changes. Sales volumes declined by approximately $24 million, including continued softness in mining-related markets. The decrease was partially offset by an increase of $51 million from acquired businesses, and increased sales in India.

Income from operations for the year ended December 31, 2015 decreased $3.5 million when compared to 2014. The decrease was driven primarily by approximately $9 million negative impact of foreign exchange rate changes, approximately $6 million impact from lower sales volume, partially offset by approximately $11 million of manufacturing cost savings.

Construction
 
2015
 
2014
 
 
 
 
 
% of
Sales
 
 
 
% of
Sales
 
% Change In Reported Amounts
 
($ amounts in millions)
 
 
Net sales
$
673.6

 

 
$
836.6

 

 
(19.5
)%
Income (loss) from operations
$
(10.2
)
 
(1.5
)%
 
$
1.2

 
0.1
%
 
*

*              Not meaningful as a percentage

Net sales for the Construction segment decreased by $163.0 million for the year ended December 31, 2015 when compared to 2014. Net sales decreased by approximately $220 million due to the disposition of our majority interest in the compact track loader business in the fourth quarter of 2014, unfavorable foreign currency exchange rate changes, and reduced compact construction sales in Germany and India. Partially offsetting these decreases were increased site dumper sales in the U.K. and increased concrete mixer truck sales in the U.S.

Loss from operations for the year ended December 31, 2015 was $10.2 million, compared to income from operations of $1.2 million for the year ended December 31, 2014, resulting primarily from lower net sales, which drove a reduction of approximately $15 million from lower volume, the business divestiture noted above, partially offset by favorable pricing and sales mix.

40




Corporate/Eliminations
 
2015
 
2014
 
 
 
 
 
% of
Sales
 
 
 
% of
Sales
 
% Change In Reported Amounts
 
($ amounts in millions)
 
 
Net sales
$
(125.9
)
 

 
$
(125.0
)
 

 
*
Loss from operations
$
(9.9
)
 
*

 
$
(10.2
)
 
*

 
*
*
Not meaningful as a percentage

The net sales amounts include the elimination of intercompany sales activity among segments.

Interest Expense, Net of Interest Income

During the year ended December 31, 2015, our interest expense net of interest income was $100.3 million, or $12.2 million lower than the prior year. The reduction resulted from the settlement of the 4% Convertible Notes on June 1, 2015 and lower effective interest rates in the current year.

Loss on Early Extinguishment of Debt

During the year ended December 31, 2015, we recorded $0.1 million in costs related to an amendment made to our 2014 Credit Agreement to reduce the variable interest spread on our Euro denominated term loan by 50 basis points. We recorded a loss of $2.6 million on early extinguishment of debt in the year ended December 31, 2014 related to the termination of our 2011 Credit Agreement.

Other Income (Expense) — Net

Other income (expense) — net for the year ended December 31, 2015 was expense of $22.9 million, an increase of $19.5 million when compared to expense of $3.4 million in the prior year.  This was driven primarily by approximately $14 million of merger related costs and approximately $8 million in increased foreign exchange losses in the current year period compared to the prior year period.

Income Taxes

During the year ended December 31, 2015, we recognized income tax expense of $81.0 million on income of $226.6 million, an effective tax rate of 35.7%, as compared to an income tax expense of $37.7 million on income of $297.2 million, an effective tax rate of 12.7%, for the year ended December 31, 2014. The higher effective tax rate for the year ended December 31, 2015 was primarily due to tax benefits derived from divestitures in the year ended December 31, 2014, and increased losses not benefited in 2015 that do not produce tax benefits, partially offset by a favorable geographic mix of earnings in 2015.

Income (Loss) from Discontinued Operations

Income from discontinued operations for the year ended December 31, 2015 decreased by approximately $1 million when compared to the prior year as the truck business was sold in May 2014.

Gain (Loss) on Disposition of Discontinued Operations

Gain (loss) on disposition of discontinued operations decreased by approximately $55 million primarily due to the sale of the truck business in the year ended December 31, 2014.


41



2014 COMPARED WITH 2013

Terex Consolidated
 
2014
 
2013
 
 
 
 
 
% of
Sales
 
 
 
% of
Sales
 
% Change In Reported Amounts
 
($ amounts in millions)
 
 
Net sales
$
7,308.9

 

 
$
7,084.0

 

 
3.2
%
Gross profit
$
1,453.5

 
19.9
%
 
$
1,439.5

 
20.3
%
 
1.0
%
SG&A
$
1,030.4

 
14.1
%
 
$
1,020.4

 
14.4
%
 
1.0
%
Income from operations
$
423.1

 
5.8
%
 
$
419.1

 
5.9
%
 
1.0
%

Net sales for the year ended December 31, 2014 increased $224.9 million when compared to 2013.  Our AWP segment had significant growth in net sales from continued rental channel replenishment. Our MHPS segment also experienced net sales growth primarily from its port solutions businesses. Net sales in our MP and Construction segments improved slightly in the current year. However, net sales in our Cranes segment were lower in the Middle East and Australia, partially offsetting net sales increases in our other segments.

Gross profit for the year ended December 31, 2014 increased $14.0 million when compared to 2013.  Our MHPS and Construction segments’ gross profit improved from the prior year, partially offset by decreased gross profit in the other three segments.

SG&A costs for the year ended December 31, 2014 increased by $10.0 million when compared to 2013.  Cost reduction activities taken in prior periods in our MHPS and Construction segments are reflected in current year SG&A costs. Higher SG&A costs in our AWP and MP segments more than offset those improvements.

Income from operations increased by $4.0 million for the year ended December 31, 2014 when compared to 2013.  The increase was primarily due to improvement in our MHPS and Construction segments, partially offset by weaker performance in our AWP, Cranes and MP segments.

Aerial Work Platforms
 
2014
 
2013
 
 
 
 
 
% of
Sales
 
 
 
% of
Sales
 
% Change In Reported Amounts
 
($ amounts in millions)
 
 
Net sales
$
2,369.7

 

 
$
2,131.0

 

 
11.2
 %
Income from operations
$
302.8

 
12.8
%
 
$
325.8

 
15.3
%
 
(7.1
)%

Net sales for the AWP segment for the year ended December 31, 2014 increased $238.7 million when compared to 2013.  Net sales improvement was primarily due to continued replacement demand and capital expenditures for growth from the North American rental channels, continued replacement demand in Europe and Asia Pacific, and growing demand in China, partially offset by weaker demand in Latin America.

Income from operations for the year ended December 31, 2014 decreased $23.0 million when compared to 2013.  The decrease was primarily due to higher factory and manufacturing start-up costs of approximately $33 million, higher commodity costs of approximately $17 million, approximately $7 million of increased selling and marketing costs associated with higher net sales, and approximately $8 million increased allocation of corporate costs, partially offset by margins associated with higher sales volume.


42



Cranes
 
2014
 
2013
 
 
 
 
 
% of
Sales
 
 
 
% of
Sales
 
% Change In Reported Amounts
 
($ amounts in millions)
 
 
Net sales
$
1,791.1

 

 
$
1,925.5

 

 
(7.0
)%
Income from operations
$
85.9

 
4.8
%
 
$
110.5

 
5.7
%
 
(22.3
)%

Net sales for the Cranes segment for the year ended December 31, 2014 decreased by $134.4 million when compared to 2013.  This decrease was due to decline in demand for mobile cranes in North America, the Middle East and Australia. These declines were partially offset by improving sales for mobile cranes in Western Europe and tower cranes worldwide, as well as utility products in North America.

Income from operations for the year ended December 31, 2014 decreased $24.6 million when compared to 2013, resulting primarily from lower net sales, which drove a reduction of approximately $34 million in gross profit due to unfavorable product mix and lower volume, partially offset by approximately $10 million in lower restructuring and related charges. Income from operations was also impacted by approximately $4 million of higher engineering costs, primarily related to Tier 4 compliance and new product development.

Material Handling & Port Solutions
 
2014
 
2013
 
 
 
 
 
% of
Sales
 
 
 
% of
Sales
 
% Change In
Reported Amounts
 
($ amounts in millions)
 
 
Net sales
$
1,783.4

 

 
$
1,698.5

 

 
5.0
%
Loss from operations
$
(17.2
)
 
(1.0
)%
 
$
(41.8
)
 
(2.5
)%
 
*

*             Not meaningful as a percentage

Net sales for the MHPS segment for the year ended December 31, 2014 increased by $84.9 million when compared to 2013. The increase was driven by improvement in net sales for our port solutions businesses, with the largest increase in Western Europe related to port automation technology, partially offset by lower net sales in our material handling businesses compared to the prior year.

Loss from operations for the year ended December 31, 2014 improved by $24.6 million when compared to 2013. This improvement was primarily driven by increased gross profit on increased net sales and favorable product mix, contributing approximately $34 million and by approximately $10 million of improvement related to prior year cost reduction activities. Additionally, restructuring and related charges and inventory charges were each approximately $6 million lower, respectively. This was partially offset by approximately $33 million related to a loss on sale of an entity.

Materials Processing
 
2014
 
2013
 
 
 
 
 
% of
Sales
 
 
 
% of
Sales
 
% Change In Reported Amounts
 
($ amounts in millions)
 
 
Net sales
$
653.1

 

 
$
628.2

 

 
4.0
 %
Income from operations
$
60.6

 
9.3
%
 
$
71.8

 
11.4
%
 
(15.6
)%

Net sales in the MP segment increased by $24.9 million for the year ended December 31, 2014 when compared to 2013.  Net sales improvements were primarily in the North American market but were partially offset by lower net sales in Australia and Latin America, as well as lower parts sales in the current year. Increased demand for washing systems and biomass chippers contributed to the increase.


43



Income from operations for the year ended December 31, 2014 decreased $11.2 million when compared to 2013. The decrease was driven primarily by unfavorable geographic mix of sales and decreased productivity, approximately $3 million of higher trade show expenses, approximately $2 million of higher engineering costs related to new product development, partially offset by approximately $2 million related to the reversal of a litigation accrual.

As of October 1, 2014, we performed our annual goodwill impairment test for the MP segment, which resulted in the fair market value of the MP reporting unit exceeding its carrying value by 24%.  While no evidence of impairment was indicated, due to geopolitical uncertainty and short-term volatility in worldwide commodities markets, we reviewed the MP reporting unit at December 31, 2014 to determine if the results of the October 1 test would be significantly different.  We did not find evidence of impairment at December 31, 2014, but we will continue to monitor the performance of the MP reporting unit and update the test as circumstances warrant.  If the MP reporting unit is unable to achieve its projected cash flows, the outcome of any prospective tests may result in recording goodwill impairment charges in future periods.  The amount of goodwill in the MP segment was $174.9 million as of December 31, 2014.

Construction
 
2014
 
2013
 
 
 
 
 
% of
Sales
 
 
 
% of
Sales
 
% Change In Reported Amounts
 
($ amounts in millions)
 
 
Net sales
$
836.6

 

 
$
820.0

 

 
2.0
%
Income (loss) from operations
$
1.2

 
0.1
%
 
$
(24.8
)
 
(3.0
)%
 
*

*              Not meaningful as a percentage

Net sales for the Construction segment increased by $16.6 million for the year ended December 31, 2014 when compared to 2013.  The majority of the increase was primarily due to higher demand for our concrete mixer trucks in the U.S. and material handling products primarily in Europe, partially offset by decreased net sales as a result of divestitures of our roadbuilding business.

Income (loss) from operations for the year ended December 31, 2014 improved $26.0 million when compared to 2013.  Improvement was primarily due to the increase in net sales, improved factory utilization, and cost reductions driven by approximately $7 million from divestitures, approximately $3 million of selling and administrative cost reduction activities, approximately $3 million lower allocation of corporate costs, and approximately $2 million of reduced bad debt charges due to recoveries.

Corporate/Eliminations
 
2014
 
2013
 
 
 
 
 
% of
Sales
 
 
 
% of
Sales
 
% Change In Reported Amounts
 
($ amounts in millions)
 
 
Net sales
$
(125.0
)
 

 
$
(119.2
)
 

 
*
Loss from operations
$
(10.2
)
 
*

 
$
(22.4
)
 
*

 
*
*             Not meaningful as a percentage

The net sales amounts include the elimination of intercompany sales activity among segments. Lower loss from operations in the current year was partially due to a gain from a divested business of approximately $17 million.

Interest Expense, Net of Interest Income

During the year ended December 31, 2014, our interest expense net of interest income was $112.5 million, or $6.9 million lower than the prior year. This improvement was primarily driven by lower interest rates on our debt.

Loss on Early Extinguishment of Debt

We recorded a loss of $2.6 million on early extinguishment of debt during the year ended December 31, 2014 related to the termination of our 2011 Credit Agreement. A loss of $5.2 million on early extinguishment of debt was recorded in the year ended December 31, 2013 related to repayment of a portion of our term debt.

44




Other Income (Expense) — Net

Other income (expense) — net for the year ended December 31, 2014 was expense of $3.4 million, a decrease of $8.7 million when compared to income of $5.3 million in the prior year. This was driven primarily by foreign exchange losses in the current year period compared to gains in the prior year period.

Income Taxes

During the year ended December 31, 2014, we recognized income tax expense of $37.7 million on income of $297.2 million, an effective tax rate of 12.7%, as compared to income tax expense of $87.4 million on income of $291.3 million, an effective tax rate of 30.0%, for the year ended December 31, 2013.  The lower effective tax rate for the year ended December 31, 2014 was primarily due to tax benefits derived from divestitures and a more favorable geographic mix of earnings. These items were partially offset by the recording of valuation allowances and reduced benefits from the release of uncertain tax positions when compared to the prior year.

Income (Loss) from Discontinued Operations

Income from discontinued operations for the year ended December 31, 2014 decreased by approximately $13.0 million when compared to the prior year as the truck business was sold in May 2014.

Gain (Loss) on Disposition of Discontinued Operations

Gain (loss) on disposition of discontinued operations increased by approximately $56 million primarily due to the sale of the truck business in the year ended December 31, 2014.


CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Changes in estimates and assumptions used by management could have significant impact on our financial results. Actual results could differ from those estimates.

We believe that the following are among our most significant accounting policies which are important in determining the reporting of transactions and events and which utilize estimates about the effect of matters that are inherently uncertain and therefore are based on management judgment. Please refer to Note B – “Basis of Presentation” in the accompanying Consolidated Financial Statements for a complete listing of our accounting policies.

Inventories – In valuing inventory, we are required to make assumptions regarding level of reserves required to value potentially obsolete or over-valued items at the lower of cost or market. These assumptions require us to analyze the aging of and forecasted demand for our inventory, forecast future products sales prices, pricing trends and margins, and to make judgments and estimates regarding obsolete or excess inventory. Future product sales prices, pricing trends and margins are based on the best available information at that time including actual orders received, negotiations with our customers for future orders, including their plans for expenditures, and market trends for similar products. Our judgments and estimates for excess or obsolete inventory are based on analysis of actual and forecasted usage. Valuation of used equipment taken in trade from customers requires us to use the best information available to determine the value of the equipment to potential customers. This value is subject to change based on numerous conditions. Inventory reserves are established taking into account age, frequency of use, or sale, and in the case of repair parts, the installed base of machines. While calculations are made involving these factors, significant management judgment regarding expectations for future events is involved. Future events that could significantly influence our judgment and related estimates include general economic conditions in markets where our products are sold, new equipment price fluctuations, actions of our competitors, including introduction of new products and technological advances, as well as new products and design changes we introduce. We make adjustments to our inventory reserve based on the identification of specific situations and increase our inventory reserves accordingly. As further changes in future economic or industry conditions occur, we will revise estimates that were used to calculate its inventory reserves.



45



If actual conditions are less favorable than those we have projected, we will increase our reserves for lower of cost or market (“LCM”), excess and obsolete inventory accordingly. Any increase in our reserves will adversely impact our results of operations. Establishment of a reserve for LCM, excess and obsolete inventory establishes a new cost basis in the inventory. Such reserves are not reduced until the product is sold.

Accounts Receivable – We are required to judge our ability to collect accounts receivable from our customers. Valuation of receivables includes evaluating customer payment histories, customer leverage, availability of third-party financing, political and exchange risks and other factors. Many of these factors, including assessment of a customer’s ability to pay, are influenced by economic and market factors that cannot be predicted with certainty. Given current economic conditions, there can be no assurance our historical accounts receivable collection experience will be indicative of future results.

Guarantees – As of December 31, 2015, we have issued guarantees to financial institutions related to customer financing of equipment purchases by our customers. We must assess the probability of losses or non-performance in ways similar to the evaluation of accounts receivable, including consideration of a customer’s payment history, leverage, availability of third party financing, political and exchange risks, and other factors. Many of these factors, including the assessment of a customer’s ability to pay, are influenced by economic and market factors that cannot be predicted with certainty.

Our customers, from time to time, may fund 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 limited to the remaining payments due to the finance company at the time of default. In the event of customer default, we have generally been able to recover and dispose of the equipment at a minimum loss, if any, to us. There can be no assurance that our historical credit default experience will be indicative of future results. Our ability to recover losses experienced from our guarantees may be affected by economic conditions in effect at time of loss.

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

We guarantee, from time to time, that we will buy equipment from our customers in the future at a stated price if certain conditions are met by the customer. Such guarantees are referred to as buyback guarantees. These conditions generally pertain to the functionality and state of repair of the machine. We are generally able to mitigate the risk of these guarantees because maturity of guarantees is staggered, limiting the amount of used equipment entering the marketplace at any one time and through leveraging our access to the used equipment markets provided by our original equipment manufacturer status.

We record a liability for the estimated fair value of guarantees issued pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 460, “Guarantees” (“ASC 460”). We recognize a loss under a guarantee when our obligation to make payment under the guarantee is probable and the amount of the loss can be estimated. A loss would be recognized if our payment obligation under the guarantee exceeds the value we could expect to recover to offset such payment, primarily through the sale of the equipment underlying the guarantee.

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

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

Revenue Recognition