Company Quick10K Filing
Quick10K
Terex
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$31.06 71 $2,210
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-06-13 Enter Agreement, Exhibits
8-K 2019-06-03 Officers
8-K 2019-05-16 Shareholder Vote
8-K 2019-05-01 Earnings, Exhibits
8-K 2019-04-30 Earnings, Regulation FD, Exhibits
8-K 2019-04-18 Other Events, Exhibits
8-K 2019-02-24 Earnings, Regulation FD, Exhibits
8-K 2019-02-19 Earnings, Exhibits
8-K 2019-02-13 Other Events, Exhibits
8-K 2018-11-05 Earnings, Exhibits
8-K 2018-11-01 Earnings, Regulation FD, Exhibits
8-K 2018-10-22 Other Events, Exhibits
8-K 2018-08-21 Regulation FD
8-K 2018-08-01 Earnings, Exhibits
8-K 2018-07-31 Earnings, Regulation FD, Exhibits
8-K 2018-07-19 Other Events, Exhibits
8-K 2018-05-15 Officers, Shareholder Vote, Exhibits
8-K 2018-05-02 Earnings, Exhibits
8-K 2018-05-01 Earnings, Regulation FD, Exhibits
8-K 2018-04-23 Other Events, Exhibits
8-K 2018-04-10 Enter Agreement, Exhibits
8-K 2018-02-28 Enter Agreement, Exhibits
8-K 2018-02-15 Earnings, Exhibits
8-K 2018-02-14 Regulation FD
8-K 2018-02-13 Earnings, Regulation FD, Exhibits
8-K 2018-02-01 Other Events, Exhibits
PRO Pros Holdings 1,980
ESPR Esperion Therapeutics 1,370
FSTR Foster L B 232
INAP Internap 98
APVO Aptevo Therapeutics 35
ESOA Energy Services of America 0
VIST Vist Financial 0
FMI Foundation Medicine 0
DPDW Deep Down 0
ARGS Argos Therapeutics 0
TEX 2019-03-31
Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-10.2 tex3312019-ex102.htm
EX-10.3 tex3312019-ex103.htm
EX-10.4 tex3312019-ex104.htm
EX-10.5 tex3312019-ex105.htm
EX-31.1 tex3312019-ex311.htm
EX-31.2 tex3312019-ex312.htm
EX-32 tex3312019-ex32.htm

Terex Earnings 2019-03-31

TEX 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 tex331201910-q.htm 10-Q 03.31.2019 Document



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10–Q

(Mark One)

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

For the quarterly period ended March 31, 2019

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

Commission file number 1-10702

Terex Corporation
(Exact name of registrant as specified in its charter)

Delaware
(State of Incorporation)
 
34-1531521
(IRS Employer Identification No.)

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

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

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

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

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

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

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

Number of outstanding shares of common stock: 71.2 million as of April 29, 2019.
The Exhibit Index begins on page 51.




GENERAL

Unless specifically noted otherwise, this Quarterly Report on Form 10-Q filed by Terex Corporation generally speaks as of March 31, 2019 and excludes discontinued operations. Discontinued operations primary relate to the Demag® mobile cranes business and mobile crane product lines manufactured in our Oklahoma City facility. See Note D - “Discontinued Operations and Assets and Liabilities Held for Sale” for further information. Unless otherwise indicated, Terex Corporation, together with its consolidated subsidiaries, is hereinafter referred to as “Terex,” the “Registrant,” “us,” “we,” “our” or the “Company.”

Forward-Looking Information

Certain information in this Quarterly Report includes forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995) regarding future events or our future financial performance that involve certain contingencies and uncertainties, including those discussed below in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Contingencies and Uncertainties.”  In addition, when included in this Quarterly Report or in documents incorporated herein by reference, the words “may,” “expects,” “should,” “intends,” “anticipates,” “believes,” “plans,” “projects,” “estimates” and the negatives thereof and analogous or similar expressions are intended to identify forward-looking statements. However, the absence of these words does not mean that the statement is not forward-looking. We have based these forward-looking statements on current expectations and projections about future events. These statements are not guarantees of future performance. Such statements are inherently subject to a variety of risks and uncertainties that could cause actual results to differ materially from those reflected in such forward-looking statements. Such risks and uncertainties, many of which are beyond our control, include, among others:

our business is cyclical and weak general economic conditions affect the sales of our products and financial results;
changes in import/export regulatory regimes and the escalation of global trade conflicts could continue to negatively impact sales of our products and our financial results;
our financial results could be adversely impacted by the United Kingdom’s (“U.K.”) departure from the European Union (“E.U.”);
our need to comply with restrictive covenants contained in our debt agreements;
our ability to generate sufficient cash flow to service our debt obligations and operate our business;
our ability to access the capital markets to raise funds and provide liquidity;
our business is sensitive to government spending;
our business is highly competitive and is affected by our cost structure, pricing, product initiatives and other actions taken by competitors;
our retention of key management personnel;
the financial condition of suppliers and customers, and their continued access to capital;
exposure from providing financing and credit support for some of our customers;
we may experience losses in excess of recorded reserves;
we are dependent upon third-party suppliers, making us vulnerable to supply shortages and price increases;
our business is global and subject to changes in exchange rates between currencies, commodity price changes, regional economic conditions and trade restrictions;
our operations are subject to a number of potential risks that arise from operating a multinational business, including compliance with changing regulatory environments, the Foreign Corrupt Practices Act and other similar laws and political instability;
a material disruption to one of our significant facilities;
possible work stoppages and other labor matters;
compliance with changing laws and regulations, particularly environmental and tax laws and regulations;
litigation, product liability claims, 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 storage of sensitive data;
our ability to successfully implement our Execute to Win strategy; and
other factors.

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




TEREX CORPORATION AND SUBSIDIARIES
Index to Quarterly Report on Form 10-Q
For the Quarterly Period Ended March 31, 2019


3



PART I.
FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS

TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(unaudited)
(in millions, except per share data)
 
Three Months Ended
March 31,
 
2019
 
2018
Net sales
$
1,136.6

 
$
1,116.6

Cost of goods sold
(898.8
)
 
(888.0
)
Gross profit
237.8

 
228.6

Selling, general and administrative expenses
(138.1
)
 
(134.3
)
Income (loss) from operations
99.7

 
94.3

Other income (expense)
 
 
 
Interest income
1.7

 
3.3

Interest expense
(23.0
)
 
(15.9
)
Other income (expense) – net 
(3.2
)
 
1.2

Income (loss) from continuing operations before income taxes
75.2

 
82.9

(Provision for) benefit from income taxes
(18.0
)
 
(14.2
)
Income (loss) from continuing operations
57.2

 
68.7

Income (loss) from discontinued operations – net of tax
(124.4
)
 
(21.1
)
Gain (loss) on disposition of discontinued operations – net of tax
0.6

 
2.7

Net income (loss)
$
(66.6
)
 
$
50.3

 
 
 
 
Basic earnings (loss) per share:
 
 
 
Income (loss) from continuing operations
$
0.81

 
$
0.86

Income (loss) from discontinued operations – net of tax
(1.76
)
 
(0.26
)
Gain (loss) on disposition of discontinued operations – net of tax
0.01

 
0.03

Net income (loss)
$
(0.94
)
 
$
0.63

Diluted earnings (loss) per share:
 
 
 
Income (loss) from continuing operations
$
0.79

 
$
0.84

Income (loss) from discontinued operations – net of tax
(1.73
)
 
(0.26
)
Gain (loss) on disposition of discontinued operations – net of tax
0.01

 
0.04

Net income (loss)
$
(0.93
)
 
$
0.62

Weighted average number of shares outstanding in per share calculation
 
 
 
Basic
70.6

 
79.7

Diluted
71.8

 
81.7

 
 
 
 
Comprehensive income (loss)
$
(68.9
)
 
$
76.5


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

4



TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited)
(in millions, except par value)
 
March 31,
2019
 
December 31,
2018
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
304.6

 
$
339.5

Trade receivables (net of allowance of $9.6 and $9.1 at March 31, 2019 and December 31, 2018, respectively)
661.6

 
535.0

Inventories
955.4

 
918.9

Prepaid and other current assets
179.8

 
170.1

Current assets held for sale
406.6

 
459.5

Total current assets
2,508.0

 
2,423.0

Non-current assets
 
 
 

Property, plant and equipment – net
327.6

 
317.3

Operating lease right-of-use assets
121.9

 

Goodwill
267.7

 
265.2

Intangible assets – net
11.0

 
11.4

Other assets
411.8

 
400.6

Non-current assets held for sale
6.8

 
68.4

Total assets
$
3,654.8

 
$
3,485.9

 
 
 
 
Liabilities and Stockholders’ Equity
 
 
 
Current liabilities
 

 
 

Notes payable and current portion of long-term debt
$
6.1

 
$
4.1

Trade accounts payable
647.1

 
687.2

Accrued compensation and benefits
88.7

 
123.1

Current maturities of operating leases
25.7

 

Other current liabilities
193.2

 
220.8

Current liabilities held for sale
142.4

 
179.5

Total current liabilities
1,103.2

 
1,214.7

Non-current liabilities
 
 
 

Long-term debt, less current portion
1,467.3

 
1,210.6

Non-current operating leases
106.2

 

Retirement plans
69.8

 
69.0

Other non-current liabilities
35.7

 
44.1

Non-current liabilities held for sale
90.3

 
86.5

Total liabilities
2,872.5

 
2,624.9

Commitments and contingencies


 


Stockholders’ equity
 

 
 

Common stock, $.01 par value – authorized 300.0 shares; issued 82.0 and 81.3 shares at March 31, 2019 and December 31, 2018, respectively
0.8

 
0.8

Additional paid-in capital
794.1

 
797.3

Retained earnings
674.4

 
749.0

Accumulated other comprehensive income (loss)
(287.1
)
 
(284.8
)
Less cost of shares of common stock in treasury – 11.6 and 11.7 shares at March 31, 2019 and December 31, 2018, respectively
(400.4
)
 
(401.8
)
Total Terex Corporation stockholders’ equity
781.8

 
860.5

Noncontrolling interest
0.5

 
0.5

Total stockholders’ equity
782.3

 
861.0

Total liabilities and stockholders’ equity
$
3,654.8

 
$
3,485.9


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

5



TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(unaudited)
(in millions)
 
Outstanding
Shares
 
Common
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Common
Stock in
Treasury
 
Non-controlling
Interest
 
Total
Balance at December 31, 2018
69.6

 
$
0.8

 
$
797.3

 
$
749.0

 
$
(284.8
)
 
$
(401.8
)
 
$
0.5

 
$
861.0

Net income (loss)

 

 

 
(66.6
)
 

 

 

 
(66.6
)
Other comprehensive income (loss) – net of tax

 

 

 

 
(2.3
)
 

 

 
(2.3
)
Issuance of common stock
0.7

 

 
21.4

 

 

 

 

 
21.4

Compensation under stock-based plans – net
0.1

 

 
(24.7
)
 

 

 
1.7

 

 
(23.0
)
Dividends

 

 
0.1

 
(8.0
)
 

 

 

 
(7.9
)
Acquisition of treasury stock

 

 

 

 

 
(0.3
)
 

 
(0.3
)
Balance at March 31, 2019
70.4

 
$
0.8

 
$
794.1

 
$
674.4

 
$
(287.1
)
 
$
(400.4
)
 
$
0.5

 
$
782.3


 
Outstanding
Shares
 
Common
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Common
Stock in
Treasury
 
Non-controlling
Interest
 
Total
Balance at December 31, 2017
80.2

 
$
1.3

 
$
1,322.0

 
$
1,995.9

 
$
(239.5
)
 
$
(1,857.7
)
 
$
0.5

 
$
1,222.5

Net income (loss)

 

 

 
50.3

 

 

 

 
50.3

Other comprehensive income (loss) – net of tax

 

 

 

 
28.8

 

 

 
28.8

Issuance of common stock
0.8

 

 
18.0

 

 

 

 

 
18.0

Compensation under stock-based plans – net
0.1

 

 
(25.1
)
 

 

 
1.7

 

 
(23.4
)
Dividends

 

 
0.2

 
(8.0
)
 

 

 

 
(7.8
)
Acquisition of treasury stock
(5.1
)
 

 

 

 

 
(209.5
)
 

 
(209.5
)
Other

 

 

 
2.6

 
(2.6
)
 

 

 

Balance at March 31, 2018
76.0

 
$
1.3

 
$
1,315.1

 
$
2,040.8

 
$
(213.3
)
 
$
(2,065.5
)
 
$
0.5

 
$
1,078.9



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


6



TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
(in millions)
 
Three Months Ended
March 31,
 
2019
 
2018
Operating Activities
 
 
 
Net income (loss)
$
(66.6
)
 
$
50.3

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 

 
 

Depreciation and amortization
13.5

 
16.0

(Gain) loss on disposition of discontinued operations
(0.6
)
 
(2.7
)
Deferred taxes
(2.6
)
 
(1.6
)
Impairments
86.1

 
0.5

Stock-based compensation expense
11.7

 
7.9

Inventory and other non-cash charges
25.0

 
(0.1
)
Changes in operating assets and liabilities (net of effects of acquisitions and divestitures):
 

 
 

Trade receivables
(96.2
)
 
(101.4
)
Inventories
(69.6
)
 
(26.2
)
Trade accounts payable
(70.1
)
 
59.7

Other assets and liabilities
(102.3
)
 
(47.1
)
Foreign exchange and other operating activities, net
6.3

 
0.3

Net cash provided by (used in) operating activities
(265.4
)
 
(44.4
)
Investing Activities
 

 
 

Capital expenditures
(10.8
)
 
(34.5
)
Proceeds from disposition of investments

 
19.8

Other investing activities, net
0.2

 
(0.6
)
Net cash provided by (used in) investing activities
(10.6
)
 
(15.3
)
Financing Activities
 

 
 

Repayments of debt
(638.7
)
 
(118.2
)
Proceeds from issuance of debt
899.0

 
215.5

Share repurchases
(0.2
)
 
(205.3
)
Dividends paid
(7.8
)
 
(7.8
)
Other financing activities, net
(15.9
)
 
(12.5
)
Net cash provided by (used in) financing activities
236.4

 
(128.3
)
Effect of Exchange Rate Changes on Cash and Cash Equivalents
(2.3
)
 
9.3

Net Increase (Decrease) in Cash and Cash Equivalents
(41.9
)
 
(178.7
)
Cash and Cash Equivalents at Beginning of Period
372.1

 
630.1

Cash and Cash Equivalents at End of Period
$
330.2

 
$
451.4


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

7



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

NOTE A – BASIS OF PRESENTATION

Basis of Presentation.  The accompanying unaudited Condensed Consolidated Financial Statements of Terex Corporation and subsidiaries as of March 31, 2019 and for the three months ended March 31, 2019 and 2018 have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all information and footnotes required by accounting principles generally accepted in the United States of America to be included in full-year financial statements.  The accompanying Condensed Consolidated Balance Sheet as of December 31, 2018 has been derived from the audited consolidated financial statements as of that date, but does not include all disclosures required by accounting principles generally accepted in the United States.  For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

The Condensed Consolidated Financial Statements include accounts of Terex Corporation, its majority-owned subsidiaries and other controlled subsidiaries (“Terex” or the “Company”).  The Company consolidates all majority-owned and controlled subsidiaries, applies the equity method of accounting for investments in which the Company is able to exercise significant influence and applies the cost method for all other investments.  All intercompany balances, transactions and profits have been eliminated.

As further described in Note D - “Discontinued Operations and Assets and Liabilities Held for Sale”, on February 22, 2019, the Company announced it entered into an Asset and Stock Purchase Agreement (the “ASPA”) with Tadano Ltd. (“Tadano”) to sell its Demag® mobile cranes business and will cease to manufacture mobile crane product lines in its Oklahoma City facility. As a result, the Company reported these operations, formerly part of the Cranes segment, in discontinued operations in the Condensed Consolidated Statement of Comprehensive Income (Loss) for all periods presented, and in assets and liabilities held for sale in the Condensed Consolidated Balance Sheet at March 31, 2019 and December 31, 2018. Other operations formerly part of the Cranes segment were reorganized to align with the Company’s new management and reporting structure. For financial reporting periods beginning on or after January 1, 2019, the utilities business will be consolidated within Aerial Work Platforms (“AWP”), the pick and carry cranes business will be consolidated within Materials Processing (“MP”) and the rough terrain and tower cranes businesses will be consolidated within Corporate and Other. The Company will now manage and report its business in the following segments: (i) AWP and (ii) MP. Prior period amounts have been reclassified to conform with the 2019 presentation. See Note B - “Business Segment Information”, Note D - “Discontinued Operations and Assets and Liabilities Held for Sale” and Note I - “Goodwill and Intangible Assets, Net” for further information.

In the opinion of management, adjustments considered necessary for the fair statement of these interim financial statements have been made.  Except as otherwise disclosed, all such adjustments consist only of those of a normal recurring nature.  Operating results for the three months ended March 31, 2019 are not necessarily indicative of results that may be expected for the year ending December 31, 2019.

Cash and cash equivalents at March 31, 2019 and December 31, 2018 include $12.7 million and $12.6 million, respectively, which were not immediately available for use.  These consist primarily of cash balances held in escrow to secure various obligations of the Company.

Recently Issued Accounting Standards

Accounting Standards Implemented in 2019

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2016-02, “Leases (Topic 842),” (“ASU 2016-02”). The standard establishes a right-of-use (“ROU”) model that requires a lessee to recognize an ROU asset and a lease liability on the balance sheet for all leases with a term longer than 12 months and requires the disclosure of key information about leasing arrangements. Leases are classified as finance or operating, with classification affecting the subsequent expense pattern and presentation of expense recognition in the income statement. Subsequently, the FASB issued the following standards related to ASU 2016-02: ASU 2018-01, “Land Easement Practical Expedient for Transition to Topic 842”, ASU 2018-10, “Codification Improvements to Topic 842, Leases”, ASU 2018-11, “Leases (Topic 842): Targeted Improvements” (“ASU 2018-11”), ASU 2018-20, “Narrow-Scope Improvements for Lessors” and ASU 2019-01, “Leases (Topic 842): Codification Improvements”, which provided additional guidance and clarity to ASU 2016-02 (collectively, the “Lease Standard”).


8



The Company adopted the Lease Standard on January 1, 2019 under the alternative transition method permitted by ASU 2018-11. This transition method allowed the Company to initially apply the requirements of the Lease Standard at the adoption date, versus at the beginning of the earliest period presented. The Company elected the transition package of practical expedients, the practical expedient to not separate lease and non-lease components for all of its leases, the short-term lease recognition exemption for all of its leases that qualify and the land easement practical expedient; it did not elect the use of hindsight practical expedient.

Adoption of the Lease Standard had a material effect on the Company’s condensed consolidated financial statements due to the recognition of approximately $138 million of operating lease liabilities (approximately $6 million related to discontinued operations) with corresponding ROU assets. The Company implemented a global lease accounting system and updated internal controls over financial reporting, as necessary, to accommodate modifications to its business processes and accounting procedures as a result of the Lease Standard.

In February 2018, the FASB issued ASU 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” (“ASU 2018-02”). ASU 2018-02 allows reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from H.R. 1 “An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018”. The Company adopted ASU 2018-02 on January 1, 2019. Adoption did not have a material effect on the Company’s consolidated financial statements.

In July 2018, the FASB issued ASU 2018-09, “Codification Improvements,” (“ASU 2018-09”). ASU 2018-09 provides technical corrections, clarifications and other improvements across a variety of accounting topics. Certain amendments were applicable immediately while others provide transition guidance and are effective in the first quarter of fiscal year 2019. The Company completed the adoption of ASU 2018-09 on January 1, 2019. Adoption did not have a material effect on the Company’s consolidated financial statements.

Accounting Standards to be Implemented

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses,” (“ASU 2016-13”). ASU 2016-13 sets forth a “current expected credit loss” model which requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. The guidance in this standard replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. Subsequently, the FASB issued ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments - Credit Losses” which provided additional guidance and clarity to ASU 2016-13 (collectively, the “Credit Loss Standard”). The effective date will be the first quarter of fiscal year 2020 and early adoption is permitted. The Credit Loss Standard will be applied using a modified retrospective approach. The Company is evaluating the impact that adoption of the Credit Loss Standard will have on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820), - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement,” (“ASU 2018-13”). ASU 2018-13 improves the effectiveness of fair value measurement disclosures by removing or modifying certain disclosure requirements and adding others. The effective date will be the first quarter of fiscal year 2020 and early adoption is permitted. Adoption is not expected to have a material effect on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU 2018-14, “Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans,” (“ASU 2018-14”). ASU 2018-14 adds, removes and clarifies disclosure requirements related to defined benefit pension plans and other postretirement plans. The effective date will be the first quarter of fiscal year 2021 and early adoption is permitted. The Company is evaluating the impact that adoption of this standard will have on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, “Intangible-Goodwill and Other - Internal-Use Software (Subtopic 350-40), Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract,” (“ASU 2018-15”). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The effective date will be the first quarter of fiscal year 2020 and early adoption is permitted. The Company is evaluating the impact that adoption of this standard will have on its consolidated financial statements.


9



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

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

The following table summarizes the changes in the consolidated product warranty liability (in millions):
Balance as of December 31, 2018
$
39.8

Accruals for warranties issued during the period
10.5

Changes in estimates
0.9

Settlements during the period
(11.2
)
Foreign exchange effect/other
(0.4
)
Balance as of March 31, 2019
$
39.6


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

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

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

Leases. Terex leases approximately 100 real properties, approximately 500 vehicles, and approximately 450 pieces of office and industrial equipment. As the lessee, Terex will classify a lease which it has substantially all the risks and rewards of ownership as a finance lease.
The Company determines if an arrangement contains a lease at contract inception. With the exception of short-term leases (leases with terms less than 12 months), all leases with contractual fixed costs are recorded on the balance sheet on the lease commencement date as an ROU asset and a lease liability. Lease liabilities are initially measured at the present value of the minimum lease payments and subsequently increased to reflect the interest accrued and reduced by the lease payments affected. ROU assets are initially measured at the present value of the minimum lease payments adjusted for any prior lease payments, lease incentives and initial direct costs. The Company does not separate lease and non-lease components of a contract for any class of leases. Certain leases contain escalation, renewal and/or termination options that are factored into the ROU asset as appropriate. Operating leases result in a straight-line rent expense over the life of the lease. For finance leases, ROU assets are amortized on a straight-line basis over the life of the lease and interest accretes to the lease liability which results in a higher interest expense at lease inception that declines over the life of the lease. Variable lease costs correspond to future period lease payments which are determined at fair market value and recorded at determined points in time.
Short-term leases for real property, vehicles and industrial and office equipment are recognized in the income statement on a straight line basis over the lease term.

10




The Company uses its estimated incremental borrowing rate, which is derived from information available at the lease commencement date, in determining the present value of lease payments, if the rate is not implicit in the lease. Consideration is given to the Company’s recent debt issuances as well as publicly available data for instruments with similar characteristics when calculating incremental borrowing rates.

For detailed lease information see Note M - “Leases”.

NOTE B – BUSINESS SEGMENT INFORMATION

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

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

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

The Company designs, manufactures, services, refurbishes and markets rough terrain and tower cranes, as well as their related components and replacement parts. Customers use rough terrain cranes to move materials and equipment on rugged or uneven terrain and tower cranes, often in urban areas where space is constrained and in long-term or high rise building sites, to lift construction material and place the material at the point of use. Rough terrain and tower cranes are included in Corporate and Other.

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

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

Business segment information is presented below (in millions):
 
Three Months Ended
March 31,
 
2019
 
2018
Net Sales
 
 
 
AWP
$
727.9

 
$
737.5

MP
346.2

 
315.9

Corporate and Other / Eliminations
62.5

 
63.2

Total
$
1,136.6

 
$
1,116.6

Income (loss) from Operations
 
 
 
AWP
$
59.6

 
$
70.2

MP
49.2

 
39.9

Corporate and Other / Eliminations
(9.1
)
 
(15.8
)
Total
$
99.7

 
$
94.3


11




Sales between segments are generally priced to recover costs plus a reasonable markup for profit, which is eliminated in consolidation.
 
March 31,
2019
 
December 31,
2018
Identifiable Assets
 
 
 
AWP
$
2,150.2

 
$
1,983.5

MP
1,222.0

 
1,160.1

Corporate and Other / Eliminations
(130.8
)
 
(185.6
)
Assets held for sale
413.4

 
527.9

Total
$
3,654.8

 
$
3,485.9


Geographic net sales information is presented below (in millions):
 
Three Months Ended
March 31, 2019
 
AWP
 
MP
 
Corporate and Other / Eliminations
 
Total
Net Sales by Region
 

 
 
 
 
 
 

North America
$
437.4

 
$
128.2

 
$
29.2

 
$
594.8

Western Europe
164.5

 
118.9

 
25.7

 
309.1

Asia-Pacific
79.4

 
69.9

 
4.3

 
153.6

Rest of World (1)
46.6

 
29.2

 
3.3

 
79.1

Total
$
727.9

 
$
346.2

 
$
62.5

 
$
1,136.6

(1) Includes intercompany sales and eliminations.
 
 
Three Months Ended
March 31, 2018
 
AWP
 
MP
 
Corporate and Other / Eliminations
 
Total
Net Sales by Region
 

 
 
 
 
 
 

North America
$
447.2

 
$
137.4

 
$
25.3

 
$
609.9

Western Europe
204.2

 
82.5

 
17.0

 
303.7

Asia-Pacific
57.9

 
57.0

 
5.0

 
119.9

Rest of World (1)
28.2

 
39.0

 
15.9

 
83.1

Total
$
737.5

 
$
315.9

 
$
63.2

 
$
1,116.6

(1) Includes intercompany sales and eliminations.
 
The Company attributes sales to unaffiliated customers in different geographical areas based on the location of the customer. 


12



Product type net sales information is presented below (in millions):
 
Three Months Ended
March 31, 2019
 
AWP
 
MP
 
Corporate and Other / Eliminations
 
Total
Net Sales by Product Type
 

 
 
 
 
 
 

Aerial Work Platforms
$
519.6

 
$

 
$
0.9

 
$
520.5

Materials Processing Equipment

 
216.0

 

 
216.0

Specialty Equipment

 
129.5

 

 
129.5

Other (1)
208.3

 
0.7

 
61.6

 
270.6

Total
$
727.9

 
$
346.2

 
$
62.5

 
$
1,136.6

(1) Includes other product types, intercompany sales and eliminations.
 
 
Three Months Ended
March 31, 2018
 
AWP

MP

Corporate and Other / Eliminations

Total
Net Sales by Product Type
 








 

Aerial Work Platforms
$
552.7


$


$
0.4


$
553.1

Materials Processing Equipment


213.4


0.4


213.8

Specialty Equipment

 
59.7

 

 
59.7

Other (1)
184.8


42.8


62.4


290.0

Total
$
737.5


$
315.9


$
63.2


$
1,116.6

(1) Includes other product types, intercompany sales and eliminations.
 
NOTE C – INCOME TAXES

During the three months ended March 31, 2019, the Company recognized income tax expense of $18.0 million on income of $75.2 million, an effective tax rate of 23.9%, as compared to income tax expense of $14.2 million on income of $82.9 million, an effective tax rate of 17.1%, for the three months ended March 31, 2018. The higher effective tax rate for the three months ended March 31, 2019 is primarily due to less tax benefit from stock compensation deductions, deferred tax expense due to a lower blended tax rate, and a less favorable jurisdictional mix when compared to the three months ended March 31, 2018.


13



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

MOBILE CRANES

On February 22, 2019, the Company entered into the ASPA with Tadano to sell its Demag® mobile cranes business for an enterprise value of $215 million (the “Transaction”). Consideration will be paid in cash and cash received will be net of indebtedness. The purchase price is subject to post-closing adjustments based upon the level of net working capital and cash and debt in the Demag® mobile cranes business at the closing date. Products to be divested are Demag® all terrain cranes and large lattice boom crawler cranes. The Transaction, which is subject to governmental regulatory approvals and other customary closing conditions, is targeted to close in mid-2019. In addition to selling its Demag® mobile cranes business, the Company will cease to manufacture mobile crane product lines in its Oklahoma City facility.

As a result of the Transaction, the Company recognized a pre-tax charge of approximately $86 million ($86 million after-tax) in the first quarter of 2019 to write-down the Demag® mobile cranes business to its fair value, less costs to sell. This charge includes approximately $28 million attributable to amounts previously recognized in accumulated other comprehensive income.

The Company’s actions to sell the Demag® mobile cranes business and cease manufacturing mobile crane product lines in its Oklahoma City facility represent a significant strategic shift in its business away from mobile cranes as these businesses constituted a significant part of its operations and financial results.

The Company believes these actions are necessary as it continues to execute its Focus, Simplify and Execute to Win strategy as further described in Part I, Item 1. “Business” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

On April 24, 2019, the Company sold its boom truck, truck crane and crossover product lines previously manufactured in its Oklahoma City facility.

Income (loss) from discontinued operations

The following amounts related to discontinued operations were derived from historical financial information and have been segregated from continuing operations and reported as discontinued operations in the Condensed Consolidated Statement of Comprehensive Income (Loss) (in millions):

 
Three Months Ended
March 31,
 
 
2019
 
2018
Net sales
$
125.9

 
$
144.3

Cost of sales
(140.3
)
 
(142.0
)
Selling, general and administrative expenses
(31.0
)
 
(25.3
)
Impairment of Mobile Cranes disposal group
(86.1
)
 

Other income (expense)
(2.3
)
 
(0.9
)
Income (loss) from discontinued operations before income taxes
(133.8
)
 
(23.9
)
(Provision for) benefit from income taxes
9.4

 
2.8

Income (loss) from discontinued operations – net of tax
(124.4
)
 
(21.1
)

14




Assets and liabilities held for sale

Assets and liabilities held for sale consist of assets and liabilities of the Company’s Demag® mobile cranes business, its mobile cranes product lines manufactured in Oklahoma City and its utility hot lines tools business located in South America, all previously contained in its former Cranes segment, which are expected to be sold within one year. Such assets and liabilities are classified as held for sale upon meeting the requirements of ASC 360 - “Property, Plant and Equipment”, and are recorded at lower of carrying amounts or fair value less costs to sell. Assets are no longer depreciated once classified as held for sale. The following table provides the amounts of assets and liabilities held for sale in the Condensed Consolidated Balance Sheet (in millions):

 
March 31, 2019
 
December 31, 2018
 
Cranes
 
Cranes
Assets
 
 
 
Cash and cash equivalents
$
25.6

 
$
32.6

Trade receivables – net
84.5

 
126.9

Inventories
299.7

 
295.5

Prepaid and other current assets
11.3

 
9.4

Impairment reserve
(14.5
)
 
(4.9
)
Current assets held for sale
$
406.6

 
$
459.5

 
 
 
 
Property, plant and equipment – net
$
28.0

 
$
28.8

Intangible assets
4.2

 
4.3

Impairment reserve
(79.3
)
 
(2.9
)
Other assets
53.9

 
38.2

Non-current assets held for sale
$
6.8

 
$
68.4

 
 
 
 
Liabilities
 

 
 

Notes payable and current portion of long-term debt
$
0.6

 
$
0.6

Trade accounts payable
77.5

 
101.6

Accruals and other current liabilities
64.3

 
77.3

Current liabilities held for sale
$
142.4

 
$
179.5

 
 
 
 
Long-term debt, less current portion
$
3.8

 
$
4.1

Retirement plans and other non-current liabilities
68.5

 
71.8

Non-current liabilities
18.0

 
10.6

Non-current liabilities held for sale
$
90.3

 
$
86.5



15



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

 
March 31, 2019
 
December 31, 2018
Cash and cash equivalents:
 
 
 
Cash and cash equivalents - continuing operations
$
304.6

 
$
339.5

Cash and cash equivalents - held for sale
25.6

 
32.6

Total cash and cash equivalents
$
330.2

 
$
372.1


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

 
Three Months Ended
March 31,
 
 
2019
 
2018
Non-cash operating items:
 
 
 
Depreciation and amortization
$
2.2

 
$
3.9

Impairments
$
86.1

 
$
0.2

Deferred taxes
$
(3.3
)
 
$
(0.2
)
Investing activities:
 
 
 
Capital expenditures
$
(1.6
)
 
$
(3.2
)

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


Three Months Ended
 
March 31,
 
2019

2018

Material Handling and Port Solutions

Atlas
Gain (loss) on disposition of discontinued operations
$
(1.3
)
 
$
3.2

(Provision for) benefit from income taxes
1.9

 
(0.5
)
Gain (loss) on disposition of discontinued operations – net of tax
$
0.6

 
$
2.7

 



16



NOTE E – EARNINGS PER SHARE
(in millions, except per share data)
Three Months Ended
March 31,
 
2019
 
2018
Income (loss) from continuing operations
$
57.2

 
$
68.7

Income (loss) from discontinued operations–net of tax
(124.4
)
 
(21.1
)
Gain (loss) on disposition of discontinued operations–net of tax
0.6

 
2.7

Net income (loss)
$
(66.6
)
 
$
50.3

Basic shares:
 
 
 

Weighted average shares outstanding
70.6

 
79.7

Earnings (loss) per share – basic:
 

 
 

Income (loss) from continuing operations
$
0.81

 
$
0.86

Income (loss) from discontinued operations–net of tax
(1.76
)
 
(0.26
)
Gain (loss) on disposition of discontinued operations–net of tax
0.01

 
0.03

Net income (loss)
$
(0.94
)
 
$
0.63

Diluted shares:
 

 
 

Weighted average shares outstanding - basic
70.6

 
79.7

Effect of dilutive securities:
 

 
 

Restricted stock awards
1.2

 
2.0

Diluted weighted average shares outstanding
71.8

 
81.7

Earnings (loss) per share – diluted:
 

 
 

Income (loss) from continuing operations
$
0.79

 
$
0.84

Income (loss) from discontinued operations–net of tax
(1.73
)
 
(0.26
)
Gain (loss) on disposition of discontinued operations–net of tax
0.01

 
0.04

Net income (loss)
$
(0.93
)
 
$
0.62

 
Non-vested restricted stock awards granted by the Company are treated as potential common shares outstanding in computing diluted earnings per share using the treasury stock method. Weighted average restricted stock awards of approximately 0.8 million and 0.1 million were outstanding during the three months ended March 31, 2019 and 2018, respectively, but were not included in the computation of diluted shares as the effect would be anti-dilutive or performance targets were not expected to be achieved for awards contingent upon performance.



17



NOTE F – FINANCE RECEIVABLES

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

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

The Company’s net finance receivable balances include both sales-type leases and commercial loans. Finance receivables that management intends to hold until maturity are stated at their outstanding unpaid principal balances, net of an allowance for loan losses as well as any deferred fees and costs. Finance receivables originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value, on an individual asset basis. During the three months ended March 31, 2019 and 2018, the Company transferred finance receivables of $43.2 million and $91.3 million, respectively, to third party financial institutions, which qualified for sales treatment under ASC 860. The Company had $27.2 million and $19.2 million of held for sale finance receivables recorded in Prepaid and other current assets in the Condensed Consolidated Balance Sheet at March 31, 2019 and December 31, 2018, respectively.

Revenue attributable to finance receivables management intends to hold until maturity is recognized on the accrual basis using the effective interest method. The Company bills customers and accrues interest income monthly on the unpaid principal balance. The accrual of interest is generally discontinued when the contractual payment of principal or interest has become 90 days past due or management has significant doubts about further collectability of contractual payments, even though the loan may be currently performing. A receivable may remain on accrual status if it is in the process of collection and is either guaranteed or secured. Interest received on non-accrual finance receivables is typically applied against principal. Finance receivables are generally restored to accrual status when the obligation is brought current and the borrower has performed in accordance with the contractual terms for a reasonable period of time and the ultimate collectability of the total contractual principal and interest is no longer in doubt. The Company has a history of enforcing the terms of these separate financing agreements.

Finance receivables, net consisted of the following (in millions):
 
March 31,
2019
 
December 31,
2018
Commercial loans
$
171.0

 
$
154.0

Sales-type leases
48.7

 
45.5

Total finance receivables, gross
219.7

 
199.5

Allowance for credit losses
(12.6
)
 
(5.5
)
Total finance receivables, net
$
207.1

 
$
194.0


Approximately $73 million and $72 million of finance receivables are recorded in Prepaid and other current assets and approximately $134 million and $122 million are recorded in Other assets in the Condensed Consolidated Balance Sheet at March 31, 2019 and December 31, 2018, respectively.

Credit losses are charged against the allowance for credit losses when management ceases active collection efforts. Subsequent recoveries, if any, are credited to earnings. The allowance for credit losses is maintained at a level set by management which represents evaluation of known and inherent risks in the portfolio at the consolidated balance sheet date. Management’s periodic evaluation of the adequacy of the allowance is based on the Company’s past loan loss experience, market-based loss experience, specific customer situations, estimated value of any underlying collateral, current economic conditions, and other relevant factors. This evaluation is inherently subjective, since it requires estimates that may be susceptible to significant change. Although specific and general loss allowances are established in accordance with management’s best estimate, actual losses are dependent upon future events and, as such, further additions to or decreases from the level of loss allowances may be necessary.


18



The following table presents an analysis of the allowance for credit losses (in millions):
 
 
Three Months Ended
March 31, 2019
 
Three Months Ended
March 31, 2018
 
 
Commercial Loans
 
Sales-Type Leases
 
Total
 
Commercial Loans
 
Sales-Type Leases
 
Total
Balance, beginning of period
 
$
4.0

 
$
1.5

 
$
5.5

 
$
5.7

 
$
0.9

 
$
6.6

Provision for credit losses
 
8.2

 
(0.3
)
 
7.9

 
(2.3
)
 
0.6

 
(1.7
)
Charge offs
 
(0.8
)
 

 
(0.8
)
 
(1.1
)
 

 
(1.1
)
Balance, end of period
 
$
11.4

 
$
1.2

 
$
12.6

 
$
2.3

 
$
1.5

 
$
3.8

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

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

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

 
 
March 31, 2019
 
December 31, 2018
 
 
Commercial Loans
 
Sales-Type Leases
 
Total
 
Commercial Loans
 
Sales-Type Leases
 
Total
Recorded investment
 
$
8.0

 
$

 
$
8.0

 
$
1.5

 
$

 
$
1.5

Related allowance
 
7.8

 

 
7.8

 
0.6

 

 
0.6

Average recorded investment
 
6.9

 

 
6.9

 
2.4

 

 
2.4


The average recorded investment for impaired finance receivables was $4.4 million for commercial loans at March 31, 2018. There were no impaired sales-type leases at March 31, 2018.


19



The allowance for credit losses and finance receivables by portfolio, segregated by those amounts that are individually evaluated for impairment and those that are collectively evaluated for impairment, was as follows (in millions):

 
 
March 31, 2019
 
December 31, 2018
Allowance for credit losses, ending balance:
 
Commercial Loans
 
Sales-Type Leases
 
Total
 
Commercial Loans
 
Sales-Type Leases
 
Total
Individually evaluated for impairment
 
$
7.8

 
$

 
$
7.8

 
$
0.6

 
$

 
$
0.6

Collectively evaluated for impairment
 
3.6

 
1.2

 
4.8

 
3.4

 
1.5

 
4.9

Total allowance for credit losses
 
$
11.4

 
$
1.2

 
$
12.6

 
$
4.0

 
$
1.5

 
$
5.5

 
 
 
 
 
 
 
 
 
 
 
 
 
Finance receivables, ending balance:
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
 
$
8.0

 
$

 
$
8.0

 
$
1.5

 
$

 
$
1.5

Collectively evaluated for impairment
 
163.0

 
48.7

 
211.7

 
152.5

 
45.5

 
198.0

Total finance receivables
 
$
171.0

 
$
48.7

 
$
219.7

 
$
154.0

 
$
45.5

 
$
199.5


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

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

 
March 31, 2019
 
Current
 
31-60 days past due
 
61-90 days past due
 
Greater than 90 days past due
 
Total past due
 
Total Finance Receivables
Commercial loans
$
170.3

 
$
0.1

 
$

 
$
0.6

 
$
0.7

 
$
171.0

Sales-type leases
47.9

 
0.1

 
0.7

 

 
0.8

 
48.7

Total finance receivables
$
218.2

 
$
0.2

 
$
0.7

 
$
0.6

 
$
1.5

 
$
219.7


 
December 31, 2018
 
Current
 
31-60 days past due
 
61-90 days past due
 
Greater than 90 days past due
 
Total past due
 
Total Finance Receivables
Commercial loans
$
152.2

 
$
0.1

 
$

 
$
1.7

 
$
1.8

 
$
154

Sales-type leases
45.3

 
0.2

 

 

 
0.2

 
45.5

Total finance receivables
$
197.5

 
$
0.3

 
$

 
$
1.7

 
$
2.0

 
$
199.5


Commercial loans in the amount of $6.2 million and $6.0 million were on non-accrual status as of March 31, 2019 and December 31, 2018, respectively. At March 31, 2019 and December 31, 2018, there were no sales-type leases on non-accrual status.


20



Credit Quality Information

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

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

Finance receivables by risk rating (in millions):

Rating
 
March 31, 2019
 
December 31, 2018
Superior
 
$
4.9

 
$
7.5

Above Average
 
29.6

 
30.7

Average
 
66.6

 
56.9

Below Average
 
110.2

 
94.5

Sub Standard
 
8.4

 
9.9

Total
 
$
219.7


$
199.5


The Company believes the finance receivables retained, net of allowance for credit losses, are collectible.

NOTE G – INVENTORIES

Inventories consist of the following (in millions):
 
March 31,
2019
 
December 31,
2018
Finished equipment
$
486.1

 
$
478.4

Replacement parts
152.9

 
143.3

Work-in-process
95.8

 
86.5

Raw materials and supplies
220.6

 
210.7

Inventories
$
955.4

 
$
918.9


Reserves for lower of cost or net realizable value and excess and obsolete inventory were $49.7 million and $49.8 million at March 31, 2019 and December 31, 2018, respectively.

NOTE H – PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment – net consist of the following (in millions):
 
March 31,
2019
 
December 31,
2018
Property
$
39.5

 
$
39.6

Plant
163.7

 
161.3

Equipment
445.7

 
428.6

Property, plant and equipment – gross 
648.9

 
629.5

Less: Accumulated depreciation
(321.3
)
 
(312.2
)
Property, plant and equipment – net
$
327.6

 
$
317.3



21



NOTE I – GOODWILL AND INTANGIBLE ASSETS, NET

An analysis of changes in the Company’s goodwill by business segment is as follows (in millions):
 
    AWP
 
MP
 
Total
Balance at December 31, 2018, gross
$
139.2

 
$
187.8

 
$
327.0

Accumulated impairment
(38.6
)
 
(23.2
)
 
(61.8
)
Balance at December 31, 2018, net
100.6

 
164.6

 
265.2

Foreign exchange effect and other
(0.1
)
 
2.6

 
2.5

Balance at March 31, 2019, gross
139.1

 
190.4

 
329.5

Accumulated impairment
(38.6
)
 
(23.2
)
 
(61.8
)
Balance at March 31, 2019, net
$
100.5

 
$
167.2

 
$
267.7


Intangible assets, net were comprised of the following (in millions):
 
 
 
March 31, 2019
 
December 31, 2018
 
Weighted Average Life
(in years)
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
Definite-lived intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Technology
7
 
$
9.4

 
$
(8.8
)
 
$
0.6

 
$
9.7

 
$
(9.1
)
 
$
0.6

Customer Relationships
22
 
25.6

 
(22.2
)
 
3.4

 
25.6

 
(21.7
)
 
3.9

Land Use Rights
81
 
4.4

 
(0.6
)
 
3.8

 
4.4

 
(0.6
)
 
3.8

Other
8
 
25.0

 
(21.8
)
 
3.2

 
24.9

 
(21.8
)
 
3.1

Total definite-lived intangible assets
 
 
$
64.4

 
$
(53.4
)
 
$
11.0

 
$
64.6

 
$
(53.2
)
 
$
11.4


 
Three Months Ended
March 31,
(in millions)
2019
 
2018
Aggregate Amortization Expense
$
0.4

 
$
0.5


Estimated aggregate intangible asset amortization expense (in millions) for each of the next five years below is:
2019
$
1.8

2020
$
1.7

2021
$
1.6

2022
$
1.4

2023
$
0.9




22



NOTE J – DERIVATIVE FINANCIAL INSTRUMENTS

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

Foreign Exchange Contracts

The Company enters into foreign exchange contracts to manage variability of future cash flows associated with recognized assets or liabilities or forecasted transactions due to changing currency exchange rates.  Primary currencies to which the Company is exposed are the Euro, British Pound and Australian Dollar. These foreign exchange contracts are designated as cash flow hedging instruments. Fair values of these contracts are derived using quoted forward foreign exchange prices to interpolate values of outstanding trades at the reporting date based on their maturities. Most of the foreign exchange contracts outstanding as of March 31, 2019 mature on or before March 31, 2020.  At March 31, 2019 and December 31, 2018, the Company had $474.4 million and $368.2 million notional amount, respectively, of foreign exchange contracts outstanding that were designated as cash flow hedge contracts. For effective hedging instruments, unrealized gains and losses associated with foreign exchange contracts are deferred as a component of Accumulated other comprehensive income (loss) (“AOCI”) until the underlying hedged transactions settle and are reclassified to Cost of goods sold (“COGS”) in the Company’s Condensed Consolidated Statement of Comprehensive Income (Loss).

Certain foreign exchange contracts entered into by the Company have not been designated as hedging instruments to mitigate its exposure to changes in foreign currency exchange rates on recognized assets and liabilities. The Company had $122.8 million and $107.8 million notional amount of foreign exchange contracts outstanding that were not designated as hedging instruments at March 31, 2019 and December 31, 2018, respectively.  The majority of gains and losses recognized from foreign exchange contracts not designated as hedging instruments were offset by changes in the underlying hedged items, resulting in no material net impact on earnings. Changes in the fair value of these derivative financial instruments were recognized as gains or losses in Other income (expense) – net in the Condensed Consolidated Statement of Comprehensive Income (Loss).

Other

Other derivatives designated as cash flow hedging instruments include cross currency and commodity swaps with outstanding notional amounts of $44.9 million and $3.9 million at March 31, 2019, respectively. The outstanding notional amount of cross currency swaps and commodity swaps was $45.9 million and $11.2 million at December 31, 2018, respectively. The Company uses cross currency swaps to mitigate its exposure to changes in foreign currency exchange rates and commodity swaps to mitigate price risk for hot rolled coil steel. Fair values of cross currency swaps are based on the present value of future cash payments and receipts. Fair values of commodity swaps are based on observable market data for similar assets and liabilities. Changes in the fair value of cross currency and commodity swaps are deferred in AOCI. Gains or losses on cross currency swaps are reclassified to Other income (expense) - net in the Condensed Consolidated Statement of Comprehensive Income (Loss) when the underlying hedged item is re-measured. Gains or losses on commodity swaps are reclassified to COGS in the Condensed Consolidated Statement of Comprehensive Income (Loss) when the hedged transaction affects earnings.

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


23



The following table provides the location and fair value amounts of derivative instruments designated and not designated as hedging instruments that are reported in the Condensed Consolidated Balance Sheet (in millions):
 
 
March 31,
2019
 
December 31,
2018
Instrument (1)
Balance Sheet Account
Derivatives designated as hedges
Derivatives not designated as hedges
 
Derivatives designated as hedges
Derivatives not designated as hedges
Foreign exchange contracts
Other current assets
$
3.7

$

 
$
2.9

$
0.2

Cross currency swaps
Other current assets
0.8


 
0.8


Debt conversion feature
Other assets

0.9

 

0.5

Foreign exchange contracts
Other current liabilities
(6.1
)
(0.7
)
 
(5.0
)

Commodity swaps
Other current liabilities
(0.4
)

 
(1.1
)

Cross currency swaps
Other non-current liabilities
(1.8
)

 
(3.0
)

Net derivative asset (liability)
$
(3.8
)
$
0.2

 
$
(5.4
)
$
0.7

(1) Categorized as Level 2 under the ASC 820 Fair Value Hierarchy.

The following tables provide the effect of derivative instruments that are designated as hedges in AOCI (in millions):
 
Gain (Loss) Recognized on Derivatives in OCI, net of tax
 
Gain (Loss) Reclassified from AOCI into Income
Instrument
Three Months Ended March 31, 2019
Three Months Ended March 31, 2018
Income Statement Account
Three Months Ended March 31, 2019
Three Months Ended March 31, 2018
Foreign exchange contracts
$
(1.2
)
$
(0.5
)
Cost of goods sold
$
(1.9
)
$
2.0

Commodity swaps
(0.1
)

Cost of goods sold
(0.3
)

Cross currency swaps
0.2

(0.8
)
Other income (expense) - net
1.0

(1.3
)
Total
$
(1.1
)
$
(1.3
)
Total
$
(1.2
)
$
0.7



24



The following tables provide the effect of derivative instruments that are designated as hedges in the Condensed Consolidated Statement of Comprehensive Income (Loss) (in millions):
 
Classification and amount of Gain or Loss
Recognized in Income
 
Cost of goods sold
Other income (expense) - net
 
Three Months Ended March 31, 2019
Three Months Ended March 31, 2018
Three Months Ended March 31, 2019
Three Months Ended March 31, 2018
Income Statement Accounts in which effects of cash flow hedges are recorded
$
(898.8
)
$
(888.0
)
$
(3.2
)
$
1.2

Gain (Loss) Reclassified from AOCI into Income:
 
 
Foreign exchange contracts
(1.9
)
2.0



Commodity swaps
(0.3
)



Cross currency swaps


1.0

(1.3
)
Total
$
(2.2
)
$
2.0

$
1.0

$
(1.3
)

Derivatives not designated as hedges are used to offset foreign exchange gains or losses resulting from the underlying exposures of foreign currency denominated assets and liabilities. The following table provides the effect of non-designated derivatives outstanding at the end of the period in the Condensed Consolidated Statement of Comprehensive Income (Loss) (in millions):
 
 
Gain (Loss) Recognized in Income
 
 
Three Months Ended
March 31,
Instrument
Income Statement Account
2019
2018
Foreign exchange contracts
Other income (expense) – net
$
(0.8
)
$
(0.4
)
Debt conversion feature
Other income (expense) – net
0.4

0.5

 
Total
$
(0.4
)
$
0.1


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

Counterparties to the Company’s derivative financial instruments are major financial institutions and commodity trading companies with credit ratings of investment grade or better and no collateral is required.  There are no significant risk concentrations.  Management continues to monitor counterparty risk and believes the risk of incurring losses on derivative contracts related to credit risk is unlikely and any losses would be immaterial.
 
See Note O - “Stockholders’ Equity” for unrealized net gains (losses), net of tax, included in AOCI. Within the unrealized net gains (losses) included in AOCI as of March 31, 2019, it is estimated that $4.0 million of losses are expected to be reclassified into earnings in the next twelve months.


25



NOTE K – LONG-TERM OBLIGATIONS

2017 Credit Agreement

On January 31, 2017, the Company entered into a credit agreement (as amended, the “2017 Credit Agreement”), with the lenders and issuing banks party thereto and Credit Suisse AG, Cayman Islands Branch (“CSAG”), as administrative agent and collateral agent. The 2017 Credit Agreement includes (i) a $600 million revolving line of credit and (ii) senior secured term loans totaling $600 million that will mature on January 31, 2024 (the “Term Loans”); both are further described below. In connection with the 2017 Credit Agreement, the Company terminated its previous credit agreement with the lenders party thereto and CSAG, as administrative agent and collateral agent and related agreements and documents (the “2014 Credit Agreement”).

The 2017 Credit Agreement contains a $400.0 million senior secured term loan (the “Original Term Loan”). On August 17, 2017, the Company entered into an Incremental Assumption Agreement and Amendment No. 1 to the 2017 Credit Agreement which lowered the interest rate on the Original Term Loan by 25 basis points. On February 28, 2018, the Company entered into an Incremental Assumption Agreement and Amendment No. 2 (“Amendment No. 2”) to the 2017 Credit Agreement which lowered the interest rate on the Original Term Loan by an additional 25 basis points. The Original Term Loan portion of the 2017 Credit Agreement bears interest at a rate of London Interbank Offered Rate (“LIBOR”) plus 2.00% with a 0.75% LIBOR floor. On March 7, 2019, the Company entered into an Incremental Assumption Agreement and Amendment No. 3 (“Amendment No. 3”) to the 2017 Credit Agreement. Amendment No. 3 provided the Company with an additional term loan (the “2019 Term Loan”) under the 2017 Credit Agreement in the amount of $200 million. The 2019 Term Loan portion of the 2017 Credit Agreement bears interest at a rate of LIBOR plus 2.75% with a 0.75% LIBOR floor.

On April 10, 2018, the Company entered into an Incremental Revolving Credit Assumption Agreement to the 2017 Credit Agreement which increased the size of the revolving line of credit from $450 million to $600 million available through January 31, 2022. The 2017 Credit Agreement allows unlimited incremental commitments, which may be extended at the option of the existing or new lenders and can be in the form of revolving credit commitments, term loan commitments, or a combination of both, with incremental amounts in excess of $300 million as long as the Company satisfies a senior secured leverage ratio contained in the 2017 Credit Agreement.

The 2017 Credit Agreement requires the Company to comply with a number of covenants which limit, in certain circumstances, the Company’s ability to take a variety of actions, including but not limited to: incur indebtedness; create or maintain liens on its property or assets; make investments, loans and advances; repurchase shares of its common stock; engage in acquisitions, mergers, consolidations and asset sales; redeem debt; and pay dividends and distributions. If the Company’s borrowings under its revolving line of credit are greater than 30% of the total revolving credit commitments, the 2017 Credit Agreement requires the Company to comply with certain financial tests, as defined in the 2017 Credit Agreement. If applicable, the minimum required levels of the interest coverage ratio would be 2.5 to 1.0 and the maximum permitted levels of the senior secured leverage ratio would be 2.75 to 1.0. The 2017 Credit Agreement also contains customary default provisions. The Company was in compliance with the financial covenants contained in the 2017 Credit Agreement as of March 31, 2019.

During the three months ended March 31, 2018, the Company recorded a loss on early extinguishment of debt related to Amendment No. 2 to the 2017 Credit Agreement of approximately $0.7 million.

As of March 31, 2019 and December 31, 2018, the Company had $589.5 million and $391.4 million, net of discount, respectively, in Term Loans outstanding under the 2017 Credit Agreement. The weighted average interest rate on the Term Loans at March 31, 2019 and December 31, 2018 was 4.74% and 4.50%, respectively. The Company had $299.5 million and $237.0 million revolving credit amounts outstanding as of March 31, 2019 and December 31, 2018, respectively. The weighted average interest rate on the revolving credit amounts at March 31, 2019 and December 31, 2018 was 4.37% and 5.98%, respectively.

The 2017 Credit Agreement incorporates facilities for issuance of letters of credit up to $400 million.  Letters of credit issued under the 2017 Credit Agreement letter of credit facility decrease availability under the $600 million revolving line of credit.  As of March 31, 2019 and December 31, 2018, the Company had no letters of credit issued under the 2017 Credit Agreement.  The 2017 Credit Agreement also permits the Company to have additional letter of credit facilities up to $300 million, and letters of credit issued under such additional facilities do not decrease availability under the revolving lines of credit. The Company had letters of credit issued under the additional letter of credit facilities of the 2017 Credit Agreement that totaled $34.7 million and $33.4 million as of March 31, 2019 and December 31, 2018, respectively.


26



The Company also has bilateral arrangements to issue letters of credit with various other financial institutions.  These additional letters of credit do not reduce the Company’s availability under the 2017 Credit Agreement.  The Company had letters of credit issued under these additional arrangements of $57.0 million ($10.2 million related to discontinued operations) and $42.4 million ($10.4 million related to discontinued operations) as of March 31, 2019 and December 31, 2018, respectively.

In total, as of March 31, 2019 and December 31, 2018, the Company had letters of credit outstanding of $91.7 million ($10.2 million related to discontinued operations) and $75.8 million ($10.4 million related to discontinued operations), respectively. The letters of credit generally serve as collateral for certain liabilities included in the Condensed Consolidated Balance Sheet and guaranteeing the Company’s performance under contracts.

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

5-5/8% Senior Notes

On January 31, 2017, the Company sold and issued $600.0 million aggregate principal amount of Senior Notes Due 2025 (“5-5/8% Notes”) at par in a private offering. The proceeds from the 5-5/8% Notes, together with cash on hand, including cash from the sale of the Company’s Material Handling and Port Solutions business, was used: (i) to complete a tender offer for up to $550.0 million of the Company’s Senior Notes due 2021 (“6% Notes”), (ii) to redeem and discharge such portion of the 6% Notes not purchased in the tender offer, (iii) to fund a $300.0 million partial redemption of the 6% Notes, (iv) to fund repayment of all $300.0 million aggregate principal amount outstanding of the Company’s 6-1/2% senior notes due 2021 on or before April 3, 2017, (v) to pay related premiums, fees, discounts and expenses, and (vi) for general corporate purposes, including repayment of borrowings outstanding under the 2014 Credit Agreement. The 5-5/8% Notes are jointly and severally guaranteed by certain of the Company’s domestic subsidiaries.

Fair Value of Debt

Based on indicative price quotations from financial institutions multiplied by the amount recorded on the Company’s Condensed Consolidated Balance Sheet (“Book Value”), the Company estimates the fair values (“FV”) of its debt set forth below as of March 31, 2019, as follows (in millions, except for quotes):
 
Book Value
 
Quote
 
FV
5-5/8% Notes
$
600.0

 
$
1.00500

 
$
603

2017 Credit Agreement Original Term Loan (net of discount)
$
390.5

 
$
0.98800

 
$
386

2017 Credit Agreement 2019 Term Loan (net of discount)
$
199.0

 
$
1.00200

 
$
199


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


27



NOTE L – RETIREMENT PLANS AND OTHER BENEFITS

The Company maintains defined benefit plans in France, Germany, India, Switzerland and the United Kingdom for some of its subsidiaries, as well as a nonqualified Supplemental Executive Retirement Plan (“DB SERP”) in the United States. In Italy, there are mandatory termination indemnity plans providing a benefit that is payable upon termination of employment in substantially all cases of termination. The Company has several non-pension post-retirement benefit programs, including health and life insurance benefits to certain former salaried and hourly employees. Information regarding the Company’s plans, including the DB SERP, is as follows (in millions):
 
Three Months Ended
March 31,
 
2019
 
2018
 
U.S. Pension
 
Non-U.S. Pension
 
Other
 
U.S. Pension
 
Non-U.S. Pension