TEX 2013 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, 2013
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.  T

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 $2,818 million based on the last sale price on June 28, 2013.

THE NUMBER OF SHARES OF THE REGISTRANT’S COMMON STOCK OUTSTANDING WAS 110.7 MILLION AS OF February 19, 2014.
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 2014 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, 2013, 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;
our ability to successfully integrate acquired businesses, including Terex Material Handling & Port Solutions, AG;
the 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 very competitive and is affected by our cost structure, pricing, product initiatives and other actions taken by competitors;
our ability to timely manufacture and deliver products to customers;
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, 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, patent claims, class action lawsuits and other liabilities;
our ability to comply with an injunction and related obligations resulting from the settlement of an investigation by the United States Securities and Exchange Commission (“SEC”);
our implementation of a global enterprise resource planning system and its performance; 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, 2013

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) Construction; (iii) Cranes; (iv) Material Handling & Port Solutions; and (v) Materials Processing.

We view our purpose as making products used 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 our commitments to our core constituencies of customers, stakeholders and team members by providing our customers with a superior ownership experience, our stakeholders with a profitable enterprise that increases value, and our team members with a preferred place to work.

Our Company was incorporated in Delaware in October 1986 as Terex U.S.A., Inc. We have changed significantly since that time, achieving $7.1 billion of net sales in 2013. Much of our growth has been accomplished through acquisitions, and, in the past ten years, we have also focused on becoming a superb 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 an increased emphasis on developing markets such as China, India, Brazil, Russia 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 B – “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, light towers and bridge inspection equipment. Products include portable material lifts, portable aerial work platforms, trailer-mounted articulating booms, self-propelled articulating and telescopic booms, scissor lifts, telehandlers, trailer-mounted light towers and bridge inspection 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, 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 Moses Lake, Washington and Umbertide, Italy; and
Trailer-mounted light towers, trailer-mounted articulating booms and bridge inspection equipment are manufactured in Rock Hill, South Carolina and Hosur, India.

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 parts and logistics operations are conducted through an out-sourced facility in Roosendaal, The Netherlands.

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, compaction equipment, mini and midi excavators, site dumpers, compact track loaders, skid steer loaders and wheel loaders; and
Specialty equipment, including material handlers, concrete mixer trucks and concrete pavers.

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Customers use these products in construction and infrastructure projects, in building roads, bridges, homes, 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

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

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 North American distribution center is in Southaven, Mississippi and serves as a parts center for Construction and other Terex operations.

See Note D - “Discontinued Operations” in the Notes to our Consolidated Financial Statements for information on our truck business that is now included in discontinued operations.

CRANES

Our Cranes segment designs, manufactures, services 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, construction and maintenance of utility and telecommunication lines, tree trimming and certain construction and foundation drilling applications and a wide range of infrastructure projects including in the energy sector. We market our Cranes products principally under the Terex® brand name.

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-Dinglerstrasse, Bierbach-Homburg and Zweibrücken-Wallerscheid, Germany;
Truck cranes are manufactured in Montceau-les-Mines, France and Waverly, Iowa;
Truck-mounted cranes are manufactured in Montceau-les-Mines, France and Waverly, Iowa;
Tower cranes are manufactured in Montceau-les-Mines, France and Fontanafredda, Italy;
Lattice boom crawler cranes are manufactured in Oklahoma City, Oklahoma, Jinan, China, Zweibrücken-Dinglerstrasse, Bierbach-Homburg and Zweibrücken-Wallerscheid, Germany;
Pick and carry cranes are manufactured in Brisbane, Australia;
Lattice boom truck cranes are manufactured in Zweibrücken-Dinglerstrasse, Bierbach-Homburg and Zweibrücken-Wallerscheid, 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, Betim, Brazil and Changzhou, 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.


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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 material handling at manufacturing and 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 Luisenthal, Germany, Banbury, UK, Milan, Italy, Solon, Ohio, Cotia, Brazil, Boksburg, South Africa, Chakan, India, Shanghai, China, and Sydney, Australia;
Process cranes are manufactured in Slany, Czech Republic, Banbury, UK, Solon, Ohio, Boksburg, South Africa, Chakan, India, Shanghai, China, Cotia, Brazil and Sydney, Australia;
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, 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
Reach stackers, 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 and operate a global network of service stations.

We have a 50% interest in a Singapore company which manufactures industrial cranes in seven locations around the world.

MATERIALS PROCESSING

Our Materials Processing (“MP”) segment designs, manufactures and markets materials processing equipment, including crushers, washing systems, screens, apron feeders, chippers and related components and replacement parts. Customers use our MP 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® and Powerscreen® 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 and mobile screens are manufactured in Hosur, India, primarily for the Indian market;
Base crushers and base screens are manufactured in Subang Jaya, Malaysia and at a Terex facility in Oklahoma City, Oklahoma;
Screening equipment is manufactured in Durand, Michigan;
Base crushers are manufactured in Coalville, England; and
Hand-fed chippers and drum-style trailer-mounted and tracked biomass chippers are manufactured in Farwell, Michigan.

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

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


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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) by facilitating loans and leases between our customers and third party financial institutions; (ii) 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 (iii) in a few countries in Europe, purchasing receivables associated with Terex equipment financings that were originated by 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.

Although the on-book financing activities of TFS have primarily been limited to the United States, China and several countries in Europe, TFS is continually evaluating the need and opportunity to provide this capability in other countries.

DISCONTINUED OPERATIONS

On December 9, 2013, we signed an agreement to sell our truck business, which was consolidated in the Construction segment, to Volvo Construction Equipment for $160 million. The truck business manufactures and sells off-highway rigid and articulated haul trucks. Included in the transaction is the manufacturing facility in Motherwell, Scotland. The sale, which is subject to government regulatory approvals and other customary closing conditions, is targeted to close in the first half of 2014. As a result of this agreement, reporting of the truck business has been included in discontinued operations for all periods presented. See Note D – “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 the 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.

Mergers and acquisitions have played an important role in the history of our Company and we will continue to evaluate new opportunities that can enhance our business portfolio while creating opportunities to leverage market presence, operational capabilities, or both. However, our current focus is on operational improvement, not acquisitions, as the main driver of financial performance.

Over the past several years, we have changed our business portfolio to better balance business drivers and strengthen the capabilities of our Company. We have moved from what was predominantly a mining and construction equipment company to a more diverse portfolio that serves numerous end markets. Although we are a lifting and material handling solutions company, construction markets are still important to our success and are expected to contribute favorably as U.S. and European markets continue to recover. Other important business drivers include global industrial activity, global trade, U.S. electricity demand and infrastructure maintenance. We expect that service to the large installed base of our equipment that is now operating around the world will be an important business driver in the future as well.

Another portfolio objective is market leadership. Although we may initially secure smaller positions, our goal in acquiring and developing businesses is to be a top three competitor in the applications and geographies that we serve. This goal shapes both acquisition and operating strategies in our Company. At the end of 2013, greater than 80% of our revenue was generated in areas where Terex is 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 the daily management of our Company.


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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 routinely measures customer satisfaction and develops roadmaps used to drive both step-change and incremental improvement in customer satisfaction. Our goal is annual improvement in our current businesses to achieve improved responsiveness versus our competition.

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 help eliminate waste throughout our processes for production, delivery, and service to the customer using the Terex Business System (as explained below). It is not our goal to be the lowest priced competitor, but to have the 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.

Being operationally efficient requires that we be focused. Our Company is diverse by design and includes many different acquired businesses with different product, process, and system legacies. While we address many of these issues via integration, each addition to the portfolio and each subsequent investment made in new products and new factories adds a level of complexity to our Company that must be managed. While we have been effective at managing this complexity we believe that significant further value can be unlocked by simplifying and streamlining our Company. A primary focus of our 2013 strategy and planning work was on three key themes that address complexity reduction in our Company. These include Portfolio Management (streamlining product portfolios), Simplification (process and system optimization), and Financial Efficiency (working capital, capital structure, and tax efficiency). These three operational themes remain central to our thinking and will shape many improvement actions in 2014 and beyond. While we remain excited about the market opportunities for our Company, we also believe that meaningful value can be captured from within.

Global Growth is also critical to our future success. We believe that success in developing markets is both an opportunity and a necessity for many of our businesses. Developing markets are also increasingly important sources of supplies in our industries. We have been active for several years at sourcing components and products from developing markets and intend to pursue such opportunities aggressively in the future.

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 together across our businesses to harness the strength of the Company as a whole. We continue to strengthen our management team and processes in order to meet these goals.

What does not change however, is our unwavering commitment to a set of core principles that guide everything we do. 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.

Purpose, Mission, Vision

Our purpose remains 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.

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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 and 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 a superb 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 who we are and 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. TBS is not the business strategy; it supports the business strategy. We anticipate that TBS will provide us a competitive advantage through the use of customer-centric tools that continually enhance customer 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 seven product families: portable material lifts; portable aerial work platforms; trailer-mounted articulating booms; self-propelled articulating and self-propelled telescopic booms; scissor lifts; and bridge inspection equipment.

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.
Bridge inspection equipment allows access to many under bridge related tasks, including inspections, painting, sandblasting, repairs, general maintenance, installation and maintenance of under bridge pipe and cables, stripping operations and replacement and maintenance of bearings.

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

CONSTRUCTION

COMPACT CONSTRUCTION EQUIPMENT. We manufacture a wide variety of compact construction equipment used primarily in the construction and rental industries. Products include compact track loaders, loader backhoes, compaction equipment, excavators, site dumpers, skid steer loaders 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 equipment ranges from pedestrian single drum to ride-on tandem rollers.
Excavators in the compact equipment category include mini, mobile 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.

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Site dumpers are used to move smaller quantities of materials from one location to another, and are primarily used for construction applications.
Compact track loaders and skid steer loaders are used for loading and unloading materials in construction, industrial, rental, agricultural and landscaping businesses.

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.

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 rough or uneven terrain, and are often located on a single construction or work site such as a building site, a highway or a utility project 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 wind turbine erection.

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 are trailer-mounted and unfold from four sections (two for the tower and two for the jib); 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 lateral 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.


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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 capabilities 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.

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 cranes and lifting equipment consisting of field services, refurbishment and spare parts, as well as consultancy and training services regarding the use of our crane systems. Our services are provided on our own products and also 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.

PORT SOLUTIONS. We manufacture mobile harbor cranes, wide span gantry 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.
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 up two containers on top of each other.

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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 and wide span gantries are able to stack and manage 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 and transponders, i.e. electro-magnetic route markers embedded into the ground of the terminal, which navigate and control the vehicles. 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 roadbuilding 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 track-mounted jaw, impactor (both horizontal and vertical shaft) and cone crushers, as well as base crushers for integration within 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.

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.

Biomass chippers are used by biomass producers, land developers and contractors to produce chips for energy or for the clearing of large sites. Hand-fed chippers are used by landscapers, rental companies, utilities, arborists, and municipalities to cut tree limbs or trunks into wood chips.


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PRODUCT CATEGORY SALES

The following table lists our main product categories and their percentage of our total sales:
 
PERCENTAGE OF SALES
PRODUCT CATEGORY
2013
 
2012
 
2011
Aerial Work Platforms
24
%
 
20
%
 
19
%
Mobile Telescopic & Truck Cranes
15

 
16

 
17

Material Handling *
10

 
7

 
4

Port Equipment *
9

 
9

 
9

Materials Processing Equipment
9

 
13

 
12

Compact Construction Equipment
7

 
8

 
10

Services *
7

 
6

 
3

Lattice Boom Crawler & Tower Cranes
6

 
5

 
7

Telehandlers & Light Construction Equipment
5

 
4

 
4

Utility Equipment
5

 
4

 
4

Specialty Equipment
3

 
8

 
11

TOTAL
100
%
 
100
%
 
100
%
* Terex Material Handling & Port Solutions AG sales included from August 16, 2011, date of acquisition.

BACKLOG

Our backlog as of December 31, 2013 and 2012 was as follows:
 
December 31,
 
2013
 
2012
 
(in millions)
AWP
$
294.4

 
$
509.9

Construction
165.6

 
176.0

Cranes
501.2

 
642.7

MHPS
805.3

 
577.1

MP
61.2

 
70.4

Total
$
1,827.7

 
$
1,976.1


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. Small backlog may indicate a low level of 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, 2013 decreased $148.4 million from our backlog amounts at December 31, 2012, primarily due to lower demand for our Cranes products and timing differences in order patterns for AWP products, offset in part by existing orders of major automation programs for our Port Solutions products that are now deliverable within the next 12 months.

AWP segment backlog at December 31, 2013 decreased approximately 42% from our backlog amounts at December 31, 2012 This decrease over the prior year was primarily due to timing differences in order patterns from large rental customers where bulk orders were placed at the end of 2012 and more typical ordering patterns are occurring at the end of 2013 into 2014.


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Construction segment backlog at December 31, 2013 decreased approximately 6% from December 31, 2012. This decrease over the prior year was primarily due to lower demand for compact equipment, mostly in Germany, and the sale of certain roadbuilding businesses in 2013, partially offset by increased demand for concrete mixer trucks in the U.S.

The backlog at our Cranes segment decreased approximately 22% from December 31, 2012. This decrease over the prior year was primarily due to softening demand in most geographies.

Our MHPS segment backlog increased approximately 40% from December 31, 2012. This increase over the prior year was primarily due to previously announced major automation programs in Port Solutions scheduled to ship in the next 12 months.

Our MP segment backlog at December 31, 2013 decreased approximately 13% from December 31, 2012. This decrease over the prior year was primarily due to a decrease in order intake levels in 2013, particularly for mobile crushing and screening products.

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 dealers and, to a lesser extent, strategic accounts. We employ sales representatives who service these channel partners from offices located throughout the world.

CONSTRUCTION

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

We distribute material handlers primarily through a network of independent dealers and distributors throughout the world. Our dealers are predominantly independent businesses, which generally serve the construction, mining, forestry and/or scrap industries. Although these dealers 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.

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 and Scandinavia to offer comprehensive service and support to customers. Distribution via a dealer network is often utilized in other geographic areas, including the United States.

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 dealers 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 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 dealers, rental companies, major accounts and direct sales to customers.


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RESEARCH AND DEVELOPMENT

We maintain engineering staff primarily at our manufacturing locations to conduct research and development 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 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.

Product change driven by regulations requiring Tier 4 emissions compliance in most of our diesel engine powered machinery was an important part of our engineering priorities in 2011 and 2012 and will be a major emphasis of our product development programs through 2015 as we move through 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, ecologically sound product solutions with the development of battery-powered automated guided vehicles in our MHPS segment, rough terrain hybrid scissor lifts and booms in our AWP segment and a hybrid utility truck in our Cranes segment.

Costs incurred to develop new products or improve existing products of continuing operations increased in 2013 as compared to 2012 due to new product development, emissions compliance work, increased work associated with ramping up production and increased slightly in 2012 as compared to 2011 due to the partial year addition of the MHPS segment, and were $85.3 million, $71.7 million and $69.3 million in 2013, 2012 and 2011, respectively. We have continued our commitment to appropriate levels of 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 the customer’s 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
 
 
 
 
 
 
 
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., Magnum and Doosan
 
 
 
 
 
 
 
Bridge Inspection Equipment
 
Moog USA and Barin
 
 
 
 
 

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BUSINESS SEGMENT
 
PRODUCTS
 
PRIMARY COMPETITORS
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, Komatsu, Volvo, 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
 
 
 
 
 
 
 
Site Dumpers
 
Thwaites, Wacker Neuson and AUSA
 
 
 
 
 
 
 
Skid Steer Loaders
 
Doosan (Bobcat), Caterpillar, CNH, John Deere, Takeuchi, Manitou (Gehl), Volvo and Kubota
 
 
 
 
 
 
 
Compact Track Loaders
 
Doosan (Bobcat), Caterpillar, CNH, John Deere, Takeuchi, Volvo and Manitou (Gehl)
 
 
 
 
 
 
 
Compaction Equipment
 
Bomag, Hamm, JCB and Ammann
 
 
 
 
 
 
 
Concrete Pavers
 
Gomaco, Wirtgen, Power Curbers and Guntert & Zimmerman
 
 
 
 
 
 
 
Concrete Mixer Trucks
 
Oshkosh, Kimble and Continental Manufacturing
 
 
 
 
 
Cranes
 
Mobile Telescopic Cranes
 
Liebherr, Manitowoc (Grove), Tadano-Faun, Sumitomo (Link-Belt), XCMG, Kato, Zoomlion and Sany
 
 
 
 
 
 
 
Tower Cranes
 
Liebherr, Manitowoc (Potain), Comansa, Zoomlion, Sany, 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), Zhenua Port Machinery (ZPMC) and Künz

 
 
 
 
 
 
 
Reach Stackers
 
Cargotec (Kalmar), Hyster, Konecranes (SMV), Taylor, Dalian, CVS Ferrari, Liebherr and Sany
 
 
 
 
 
 
 
Straddle and Sprinter Carriers
 
Cargotec (Kalmar), CVS Ferrari, Konecranes and Liebherr
 
 
 
 
 
 
 
Rubber Tired and Rail Mounted Gantry Cranes
 
Zhenua Port Machinery (ZPMC), Liebherr, Konecranes, Cargotec (Kalmar), Doosan, Hyundai and Mitsui Engineering & Shipbuilding

 
 
 
 
 
 
 
Ship-to-Shore Gantry Cranes
 
Zhenua Port Machinery (ZPMC), 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 and Sandvik
 
 
 
 
 
 
 
Washing systems
 
McLanahan, Astec Industries, CDE Global and GreyStone
 
 
 
 
 

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BUSINESS SEGMENT
 
PRODUCTS
 
PRIMARY COMPETITORS
 
 
Chippers
 
Vermeer, Bandit and Morbark

MAJOR CUSTOMERS

None of our customers accounted for more than 10% of our consolidated sales in 2013. In 2013, our largest customer accounted for less than 4% of our net sales and our top ten customers in the aggregate accounted for less than 14% of our net sales.

EMPLOYEES

As of December 31, 2013, we had approximately 20,500 employees, including approximately 6,400 employees in the U.S. Approximately 5% 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 Siemens AG which is licensed to certain Terex subsidiaries for certain products.

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 financial results, nor do they provide us with a competitive advantage over our competitors.

We protect our proprietary rights through registration, agreements and litigation to the extent we deem appropriate. We own and maintain trademark registrations and patents in countries where we conduct business, and monitor the status of our trademark registrations and patents to maintain them in force and renew them as appropriate. The duration of active registrations varies based upon the relevant statutes in the applicable jurisdiction. We also take further actions to protect our proprietary rights when circumstances warrant, including the initiation of legal proceedings, if necessary.

Currently, we are engaged in various legal proceedings with respect to intellectual property rights. While the final 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 the proper safety rules and environmental practices in work situations. These laws and regulations govern actions that may have adverse environmental effects, such as discharges to air and water, and require compliance with certain practices when handling and disposing of hazardous and non-hazardous wastes. These laws and regulations would also impose liability for the costs of, and damages resulting from, cleaning up sites, past spills, disposals and other releases of hazardous substances, should any 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 facilities is subject to an environmental audit at least once every three 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 have reduced lost time injuries in the workplace since 2007 and we continue to work toward a world-class level of safety practices in our industry.


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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 may arise.

The use and operation of our equipment in an environmentally conscious manner is an important priority for Terex. 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 2013 and will be a major emphasis of our product development programs through 2015 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 that these expenditures will 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 B – “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, diversified our product offerings and expanded the geographic reach of our products, we have become less dependent on construction products and sales in the United States and Europe. As we enter 2014, 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. 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, Corporate Responsibility and Strategy 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.

18




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.

Our business is affected by the cyclical nature of the 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, the capital expenditure allocations of our customers and other factors. While demand in many of our end markets has rebounded from historical lows that we experienced in 2009, such demand depends on the global economy and may not be sustainable. The global economy has continued to experience uneven recovery and financial uncertainty continues to exist. We cannot provide any assurance that the global economic weakness of the recent past will not re-occur. 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 also experienced declines. If the global economy weakens it may cause customers to continue to forgo 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. 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 that are 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 or 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 inventory impairments.

We may face limitations on our ability to integrate acquired businesses, including Terex Material Handling & Port Solutions AG, formerly known as Demag Cranes AG (“TMHPS AG”).

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. In the second half of 2011, we acquired approximately 81% of the outstanding shares of TMHPS AG, bringing our ownership total to approximately 82%. Our ability to realize the anticipated benefits of the purchase, including the expected combination benefits, will depend, to a large extent, on our ability to integrate the businesses of both companies. We were unable to begin any meaningful integration of the companies until a Domination and Profit and Loss Transfer Agreement was put in place, which did not happen until April 2012, and we have only recently acquired 100% of the outstanding shares.

The integration is now underway and management is devoting significant attention and resources to the integration process, which may disrupt our business and, if implemented ineffectively, could preclude realization of the full benefits we expect. The risks associated with the TMHPS AG acquisition and our other 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.


19



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 that previously acquired or newly acquired companies will operate profitably, that 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 resulting from the settlement of an SEC investigation” for additional consequences if we were to commit a violation of the reporting and internal control provisions of the federal securities laws. In addition, to the extent that we are seeking acquisitions in machinery and industrial businesses that are significantly different from our existing operations, there will be added risks and challenges for managing and integrating these businesses. 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.

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

Our total long-term debt at December 31, 2013 was $1,976.7 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 that our business will generate sufficient cash flow from operations, or that 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 that we can incur. Although our cash flow coverage ratio was greater than 2.0 to 1.0 at the end of 2013, there can be no assurance that this will continue to occur.


20



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.

During the financial crisis which began in 2008 a number of large financial institutions either failed or relied on the assistance of governments to continue to operate as a going concern. Although we believe that 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.

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 also 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 potential high growth 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 Ronald M. DeFeo, our Chairman of the Board and Chief Executive Officer. Mr. DeFeo has been with us since 1992, serving as Chief Executive Officer since 1995 and Chairman since 1998, guiding the transformation of Terex during that time. We have an employment agreement with Mr. DeFeo, which expires on December 31, 2015. We could be harmed by the loss of any of our senior executives or other key personnel in the future.

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.


21



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.

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 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, 2013, we had trade receivables of $1,176.8 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 collect. 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.

An 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. The carrying value of goodwill represents the fair value of an acquired business in excess of identifiable assets and liabilities as of the acquisition date. The carrying value of indefinite-lived intangible assets represents the 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 the fair value of a reporting unit is less than its carrying amount, the quantitative two-step goodwill impairment test is required. In the two-step goodwill impairment test, if the 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 the 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

22



change as more information becomes available. Changes in these assumptions could result in an impairment charge 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.

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. 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;
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.


23



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 the 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 that we believe or have reason to believe that 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 the 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, Russia 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 to be 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, 2013, we employed approximately 20,500 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. These laws and regulations also impose liability for the costs of, and damages resulting from, cleaning up sites, past spills, disposals and other releases of hazardous substances, should any of such events occur. No such incidents have occurred which required us to pay material amounts to comply with such laws and regulations.


24



In addition, 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. 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 the 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. Insurance coverage is obtained for catastrophic losses as well as those risks required to be insured 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, an Employee Retirement Income Security Act of 1974 (“ERISA”) 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 and of disclosure requirements under ERISA. 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 and ERISA law 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 resulting from the settlement of an SEC investigation.

In August 2009, a final court decree formalized the settlement that was entered into to resolve the previously disclosed SEC investigation of Terex related mainly to (1) certain transactions between us and United Rentals, Inc. that took place in 2000 and 2001, and one transaction between United Rentals, Inc. and one of our subsidiaries that took place in 2001 before that subsidiary was acquired by Terex, and (2) the circumstances of the restatement of certain of our financial statements for the years 2000-2004. The settlement resolved all matters relating to the potential liability of Terex, but did not address our current or former employees. Under the terms of the settlement, we paid a civil penalty of $8 million in August 2009 and we consented, without admitting or denying the SEC’s allegations, to the entry of a judgment which enjoins 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.

We and our directors, officers and employees are required to comply at all times with the terms of this injunction. In addition, in 1999 regarding a separate and unrelated SEC investigation, 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 are in the process of implementing a global enterprise resource planning system.

We are implementing a global enterprise resource planning system to replace many of our existing operating and financial systems. Such an implementation is a major undertaking, both financially and from a management and personnel perspective. Should the system not be implemented successfully, or if the system does not perform in a satisfactory manner, it could disrupt and might adversely affect our operations and results of operations, including our ability to report accurate and timely financial results.


25



ITEM 1B.
UNRESOLVED STAFF COMMENTS

Not applicable.
ITEM 2.
PROPERTIES

As of December 31, 2013, 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
AWP
 
Rock Hill, South Carolina
 
 
 
Sydney, Australia
 
 
Moses Lake, Washington (1)
 
 
 
Salzburg, Austria
 
 
North Bend, Washington (1)
 
 
 
Cotia, Brazil
 
 
Redmond, Washington (1)
 
 
 
Shanghai, China (1)
 
 
Darra, Australia (1)
 
 
 
Xiamen, China
 
 
Changzhou, China
 
 
 
Slany, Czech Republic
 
 
Umbertide, Italy
 
 
 
Banbury, England (1)
Construction
 
Fort Wayne, Indiana
 
 
 
Düsseldorf, Germany
 
 
Southaven, Mississippi (1)
 
 
 
Luisenthal, Germany
 
 
Grand Rapids, Minnesota
 
 
 
Uslar, Germany
 
 
Oklahoma City, Oklahoma
 
 
 
Wetter an der Ruhr, Germany
 
 
Canton, South Dakota
 
 
 
Würzburg, Germany
 
 
Coventry, England (1)
 
 
 
Chakan, India (1)
 
 
Bad Schönborn, Germany
 
 
 
Lentigione, Italy
 
 
Crailsheim, Germany
 
 
 
Milan, Italy (1)
 
 
Greater Noida, Uttar Pradesh, India (1)
 
 
 
Boksburg, South Africa
Cranes
 
Waverly, Iowa
 
 
 
Madrid, Spain (1)
 
 
Watertown, South Dakota
 
 
 
Dietlikon, Switzerland
 
 
Huron, South Dakota
 
MP
 
Durand, Michigan
 
 
Brisbane, Australia (1)
 
 
 
Farwell, Michigan (1)
 
 
Betim, Brazil (1)
 
 
 
Coalville, England
 
 
Jinan, China
 
 
 
Hosur, India
 
 
Long Crendon, England
 
 
 
Subang Jaya, Malaysia (1)
 
 
Montceau-les-Mines, France
 
 
 
Omagh, Northern Ireland (1)
 
 
Bierbach-Homburg, Germany (1)
 
 
 
Dungannon, Northern Ireland (1)
 
 
Zweibrücken-Dinglerstrasse, Germany
 
 
 
 
 
 
Zweibrücken-Wallerscheid, Germany (1)
 
 
 
 
 
 
Pecs, Hungary (1)
 
 
 
 
 
 
Crespellano, Italy
 
 
 
 
 
 
Fontanafredda, Italy
 
 
 
 

(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 that 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. We are actively marketing some of these properties for sale.

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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 that the outcome of such matters, individually and in the 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 ERISA, securities and stockholder derivative lawsuits, see Note Q – “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:
 
2013
 
2012
 
Fourth
 
Third
 
Second
 
First
 
Fourth
 
Third
 
Second
 
First
High
$
42.36

 
$
34.87

 
$
37.12

 
$
36.78

 
$
28.33

 
$
26.20

 
$
25.34

 
$
26.77

Low
$
32.52

 
$
26.39

 
$
25.60

 
$
28.27

 
$
20.41

 
$
14.05

 
$
14.89

 
$
14.10


We declared and paid a $0.05 per share dividend during the fourth quarter of 2013. No dividends were declared or paid in 2012. Certain of our debt agreements contain restrictions as to the payment of cash dividends to stockholders. In addition, Delaware law limits payment of dividends. It is our intention to pay four quarterly dividends of $0.05 per share, for an aggregate of $0.20 per share, for the calendar year 2014. However, any future 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 19, 2014, there were 926 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, 2008 through December 31, 2013. 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.


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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., Danaher Corporation, Dover Corporation, Eaton 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., Nacco Industries Inc., Navistar International Corporation, Oshkosh Corporation, Paccar Inc., Pall Corporation, Parker-Hannifin Corporation, Rockwell Automation, Inc., Roper Industries Inc., SPX Corporation, Textron Inc. and Timken Company.
 
12/08

12/09

12/10

12/11

12/12

12/13

Terex Corporation
100.00

114.38

179.21

78.00

162.30

242.76

S&P 500
100.00

126.46

145.51

148.59

172.37

228.19

Peer Group
100.00

151.10

217.52

194.02

234.62

325.76

Copyright© 2014 Standard & Poor's, a division of The McGraw-Hill Companies Inc. All rights reserved. (www.researchdatagroup.com/S&P.htm)

(b) Not applicable.


28



(c) The following table provides information about purchases during the quarter ended December 31, 2013 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 (2)
 
(d) Approximate Dollar Value of Shares that May Yet be Purchased
Under the Plans or Programs (in thousands) (2)
October 1, 2013 – October 31, 2013 (1)
 
2,876
 
$34.76
 
 
$—
November 1, 2013 – November 30, 2013
 
 
$—
 
 
$—
December 1, 2013 – December 31, 2013 (2)
 
771,563
 
$38.88
 
771,563
 
$170,000
Total
 
774,439
 
$38.87
 
771,563
 
$170,000
(1)
In the fourth quarter of 2013, the Company accepted 2,876 shares of common stock from employees of the Company as payment for option exercises.
(2)
In December 2013, our Board of Directors authorized and the Company publicly announced the repurchase of up to $200 million of the Company’s outstanding common shares through December 31, 2015.


29



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,
 
2013
 
2012
 
2011
 
2010
 
2009
SUMMARY OF OPERATIONS
 
 
 
 
 
 
 
 
 
Net sales
$
7,084.0

 
$
6,982.2

 
$
6,158.0

 
$
4,207.9

 
$
3,709.6

Income (loss) from operations
419.1

 
366.8

 
59.9

 
(77.2
)
 
(385.5
)
Income (loss) from continuing operations
203.9

 
74.8

 
20.2

 
(197.6
)
 
(392.0
)
Income (loss) from discontinued operations – net of tax
14.4

 
28.4

 
19.7

 
(29.2
)
 
7.3

Gain (loss) on disposition of discontinued operations – net of tax
2.6

 
0.4

 
0.8

 
589.3

 
(12.6
)
Net income (loss) attributable to common stockholders
226.0

 
105.8

 
45.2

 
358.5

 
(398.4
)
Per Common and Common Equivalent Share:
 
 
 
 
 
 
 
 
 
Basic attributable to common stockholders
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
1.88

 
$
0.70

 
$
0.22

 
$
(1.85
)
 
$
(3.83
)
Income (loss) from discontinued operations – net of tax
0.13

 
0.26

 
0.18

 
(0.27
)
 
0.07

Gain (loss) on disposition of discontinued operations – net of tax
0.02

 

 
0.01

 
5.42

 
(0.12
)
Net income (loss) attributable to common stockholders
2.03

 
0.96

 
0.41

 
3.30

 
(3.88
)
Diluted attributable to common stockholders
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
1.79

 
$
0.68

 
$
0.22

 
$
(1.85
)
 
$
(3.83
)
Income (loss) from discontinued operations – net of tax
0.12

 
0.25

 
0.18

 
(0.27
)
 
0.07

Gain (loss) on disposition of discontinued operations – net of tax
0.02

 

 
0.01

 
5.42

 
(0.12
)
Net income (loss) attributable to common stockholders
1.93

 
0.93

 
0.41

 
3.30

 
(3.88
)
 
 
 
 
 
 
 
 
 
 
CURRENT ASSETS AND LIABILITIES
 
 
 
 
 
 
 
 
 
Current assets
$
3,639.4

 
$
3,797.4

 
$
4,053.2

 
$
3,986.9

 
$
3,914.6

Current liabilities
1,724.7

 
1,708.8

 
1,890.9

 
1,674.2

 
1,554.7

PROPERTY, PLANT AND EQUIPMENT
 
 
 
 
 
 
 
 
 
Net property, plant and equipment
$
789.4

 
$
806.8

 
$
829.7

 
$
567.8

 
$
598.4

Capital expenditures
(79.5
)
 
(81.2
)
 
(77.9
)
 
(54.6
)
 
(50.1
)
Depreciation
104.4

 
99.7

 
88.5

 
77.2

 
68.6

TOTAL ASSETS
$
6,536.7

 
$
6,746.2

 
$
7,063.4

 
$
5,516.4

 
$
5,713.8

 
 
 
 
 
 
 
 
 
 
CAPITALIZATION
 
 
 
 
 
 
 
 
 
Long-term debt and notes payable (includes capital leases)
$
1,976.7

 
$
2,098.7

 
$
2,300.4

 
$
1,686.3

 
$
1,966.4

Total Terex Corporation Stockholders’ Equity
2,190.1

 
2,007.7

 
1,910.3

 
2,083.2

 
1,650.2

Dividends per share of Common Stock
0.05

 

 

 

 

Shares of Common Stock outstanding at year end
109.9

 
109.9

 
108.8

 
108.1

 
107.3

EMPLOYEES
20,500

 
20,900

 
22,100

 
15,900

 
14,600


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,” “Acquisitions,” “Goodwill,” “Long-Term Obligations” and “Stockholders’ Equity.”


30



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) Construction; (iii) Cranes; (iv) MHPS; and (v) MP.

Our AWP segment designs, manufactures, markets and services aerial work platform equipment, telehandlers, light towers, and bridge inspection equipment as well as their related replacement parts and components. 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.

Our Construction segment designs, manufactures and markets compact construction and specialty equipment, as well as their related replacement parts and components. Customers use these products in construction and infrastructure projects, in building roads, bridges, homes, industrial sites and for material handling applications.

In 2013, we divested our roadbuilding operations, formerly a part of the Construction segment, in Brazil and in Oklahoma City. On December 9, 2013, we signed an agreement to sell our truck business, which was consolidated in the Construction segment, to Volvo Construction Equipment for $160 million. The truck business manufactures and sells off-highway rigid and articulated haul trucks. Included in the transaction is the manufacturing facility in Motherwell, Scotland. The sale, which is subject to government regulatory approvals and other customary closing conditions, is targeted to close in the first half of 2014. As a result of this agreement, the reporting of the truck business has been included in discontinued operations for all periods presented.

Our Cranes segment designs, manufactures, markets, services and refurbishes rough terrain cranes, all terrain cranes, truck cranes, tower cranes, lattice boom crawler cranes, lattice boom truck cranes, truck-mounted cranes (boom trucks) and utility equipment, as well as their related replacement parts and components. Customers use these products for construction, repair and maintenance of commercial buildings, manufacturing facilities, construction and maintenance of utility and telecommunication lines, tree trimming and certain construction and foundation drilling applications and a wide range of infrastructure projects. The segment also provides service and support for industrial cranes and aerial products in North America.

Our MHPS segment designs, manufactures, markets and services industrial cranes, including standard 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, gantry cranes, ship-to-shore cranes, reach stackers, container handlers, general cargo lift trucks, automated stacking cranes, automated guided vehicles and terminal automation technology, including software. The segment operates an extensive global sales and service network. Customers use these products for lifting and material handling at manufacturing and port and rail facilities.

Our MP segment designs, manufactures and markets materials processing equipment, including crushers, washing systems, screens, apron feeders, chippers and their related replacement parts and components. 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 assist customers in their rental, leasing and acquisition of our products through TFS. TFS uses its equipment financing experience to provide financing solutions to our customers who purchase our equipment.

Subsequent to December 31, 2012, we realigned certain operations in an effort to strengthen our ability to service customers and to recognize certain organizational efficiencies. Our Utilities business, formerly part of our AWP segment, is now consolidated within our Cranes segment. Our Crane America Services business, formerly part of our MHPS segment, and our legacy AWP services business, formerly part of our AWP segment, are now consolidated within our Cranes segment and are run together as our Terex Services North America business. The historical results have been reclassified to reflect these changes.


31



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 the 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 the rates that the comparable prior periods were translated to isolate the foreign exchange component of the 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. In 2013, we defined this as income from operations plus certain impairments and write downs, depreciation, amortization, proceeds from the sale of assets, plus or minus cash changes in working capital, customer advances and rental/demo equipment and less capital expenditures. We will be changing this definition for 2014 to be Net cash provided by (used in) operating activities, less Capital expenditures, as we believe this definition more closely aligns with how our investors calculate free cash flow. We believe that the measure of free cash flow provides management and investors further information on cash generation or use.

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 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.

Overview

Overall, 2013 was a good year and we are pleased with the improvements and progress underway at Terex. This past year was a tale of two halves, with the second half of the year significantly stronger than the first half. Our performance in the second half was fueled by the continued strength of AWP and the turn around in our MHPS segment. Our focus throughout the year on strengthening margins and driving financial efficiency helped deliver a strong close to the year. However, we expected 2013 to be a year of significant sales growth, and this did not occur. We achieved improved profitability despite flat overall net sales as we were impacted by challenging end markets during 2013 in Europe, Australia and Asia, and a more cautious North American market than originally anticipated going into the year.


32



We are seeing strength in early-cycle product categories where demand is mostly replacement driven. Our AWP segment performed substantially better in 2013, with improved net sales year-over-year, and continued strong orders for its products in the North American rental channel and a noticeable pickup in European and Latin American performance. We expect strong demand for AWP products, particularly in North America, to continue through 2014. Our MP segment reported solid results, delivering double digit operating margins despite a relatively soft demand environment. This was a result of good operational execution by this segment. These business segments performed well in 2013 and we expect even better performance in 2014.

Our remaining three segments did not meet our expectations in 2013. Although our Cranes segment remains profitable, it has not seen the net sales growth we expected. While new product launches did provide some growth, markets such as Australia, Europe and Latin America suffered more than anticipated. In addition, backlog was down year-over-year as we have experienced lower demand for our Cranes products in most geographies. These declines are primarily connected to the delayed recovery of non-residential construction activities and declines in commodity related demand. Our quoting activity continues to be strong, however, conversion of these opportunities into sales is slow as related projects are often delayed. We do believe Cranes will experience growth in both net sales and income from operations in 2014.

Our Construction businesses remain challenged. Net sales in our Construction segment declined year-over-year and we have continued to streamline this segment by selling certain underperforming product lines during the year. Following the pending sale of our truck business, we will have a smaller and more focused Construction portfolio. We are confident we can improve the financial profile of this segment going forward.

Our MHPS segment had a difficult first half of 2013, but we have seen positive developments for this segment. We have made good progress with the integration of our MHPS segment and we expect continued progress in 2014. Importantly, SG&A costs are trending downward, primarily due to actions taken to reduce our cost structure, as well as the focus on continued integration of these businesses. Backlog for the MHPS segment is up significantly year-over-year due to previously announced major automation programs in Port Solutions scheduled to ship in the next 12 months.

We took substantive actions in 2013 to adjust the cost structure in our Cranes, Construction and MHPS segments to align our workforce with the demands of these businesses. The benefits to our stakeholders from these actions are expected to have a meaningful impact on our future results in 2014 and beyond. See Note L – “Restructuring and Other Charges” in our Consolidated Financial Statements for a detailed description of our restructuring activities, including the reasons, timing and costs associated with such actions.

Geographically, North America remains the most stable market overall. Europe has seen slight improvements in certain products, mostly in our AWP segment, and the Middle East continues to provide growth. Looking ahead to 2014, while some developing markets still appear to be muted, we are encouraged that economic momentum in the core geographies of North America and Europe seems to be increasing.

We are pleased by a number of accomplishments in 2013, including initiation of dividend payments to our shareholders, a share repurchase plan, re-priced and reduced debt yielding significant interest savings and sale, both completed and planned, of several of our businesses. In addition, we have generated free cash flow of approximately $376 million in 2013. Using our revised definition of free cash flow, we generated approximately $106 million in 2013. We are expecting to generate over $250 million in free cash flow for the full year 2014 using our revised definition. See “Non-GAAP Measures” above to see the change in definition of free cash flow for 2013 as compared to 2014.

In July 2013, we acquired approximately 14% of the shares of Terex Material Handling & Port Solutions AG (“TMHPS AG”) for approximately $228 million. In January 2014, we paid approximately $77 million for the remaining outstanding shares of TMHPS AG. We now own 100% of TMHPS AG. These actions are consistent with our goals to simplify our capital structure and eliminated the obligation to make guaranteed payments to noncontrolling shareholders and also removed the financial and administrative burden of maintaining the entity as a German public company. We believe our liquidity after the acquisition of additional shares in TMHPS AG 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.
During 2013, we made investments and implemented actions to set us on a course toward increased profitability in 2014 and beyond. We enter 2014 with optimism around our businesses and expectations to deliver improved financial results. Much of this optimism stems from our continued focus on internal areas of improvement, such as our capital structure initiatives, model and business simplification, as well as the year over year benefits anticipated from the restructuring efforts undertaken in 2013.


33



When balancing the different demand environments in each of our businesses, we are expecting 2014 earnings per share to be between $2.50 and $2.80 (excluding restructuring and unusual items) on net sales of between $7.3 billion and $7.7 billion. We believe that opportunities in our AWP, MHPS and MP segments to be the primary drivers of our increased earnings in 2014. Our Construction and Cranes segments are expected to show improvement but at a slower pace. We expect a tax rate between 33% and 35%. Our estimated average share count is expected to be approximately 118 million shares.

Our 2014 guidance reflects the benefits of internal cost initiatives, capital structure improvements and some anticipated net sales growth. The guidance is for continuing operations, and as such excludes the earnings associated with the off-highway truck business due to its impending sale. We see some signs of improvement in many parts of the world although this is tempered with some continued market uncertainty, particularly in developing markets. Overall, we believe that the global economy will be stronger in 2014, but still modest when viewed against historic demand levels.

ROIC continues to be a unifying metric that we use to measure our performance. ROIC and the Non-GAAP Measures assist in showing how effectively we utilize the 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 continuing operations by a figure equal to one minus the effective tax rate of the Company. We believe that 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) before income taxes for the respective quarter. Total Terex Corporation stockholders’ equity is adjusted to include redeemable noncontrolling interest as this item is deemed to be temporary equity and therefore should be included in the denominator of the ROIC ratio. 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’ NOPAT as this represents the most recent 12-month period at any given point of determination. In order for the denominator of the ROIC ratio to properly match the operational period reflected in the numerator, we include the average of five quarters’ ending balance sheet amounts so that the denominator includes the average of the opening through ending balances (on a quarterly basis) thereby providing, over the same time period as the numerator, four quarters of average invested capital.

Terex management and 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 unifying metric because we believe that 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 that 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 that 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, 2013 was 8.1%.

The 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 (in millions, except percentages).
 
Dec ’13
Sep ’13
Jun ’13
Mar ’13
Dec ’12
Provision for (benefit from) income taxes
$
22.3

$
22.8

$
27.7

$
14.6

 
Divided by: Income (loss) before income taxes
106.0

106.6

46.4

32.3

 
Effective tax rate
21.0
%
21.4
%
59.7
%
45.2
%
 
Income (loss) from operations as adjusted
$
131.5

$
139.4

$
83.8

$
66.1

 
Multiplied by: 1 minus Effective tax rate
79.0
%
78.6
%
40.3
%
54.8
%
 
Adjusted net operating income (loss) after tax
$
103.9

$
109.6

$
33.8

$
36.2

 
Debt (as defined above)
$
1,976.7

$
1,905.9

$
1,870.4

$
2,082.5

$
2,098.7

Less: Cash and cash equivalents
(408.1
)
(370.6
)
(548.2
)
(729.7
)
(678.0
)
Debt less Cash and cash equivalents
$
1,568.6

$
1,535.3

$
1,322.2

$
1,352.8

$
1,420.7

Total Terex Corporation stockholders’ equity as adjusted
$
2,092.4

$
2,002.2

$
2,042.7

$
2,053.8

$
2,103.7

Debt less Cash and cash equivalents plus Total Terex Corporation stockholders’ equity as adjusted
$
3,661.0

$
3,537.5

$
3,364.9

$
3,406.6

$
3,524.4



34



December 31, 2013 ROIC
8.1
%
NOPAT as adjusted (last 4 quarters)
$
283.5

Average Debt less Cash and cash equivalents plus Total Terex Corporation stockholders’ equity as adjusted (5 quarters)
$
3,498.9


 
Three months ended 12/31/13
Three months ended 9/30/13
Three months ended 06/30/13
Three months ended 03/31/13
 
Reconciliation of income (loss) from operations:
 
 
 
 
 
Income (loss) from operations as reported
$
131.4

$
138.6

$
83.5

$
65.6

 
(Income) loss from operations for TFS
0.1

0.8

0.3

0.5

 
Income (loss) from operations as adjusted
$
131.5

$
139.4

$
83.8

$
66.1

 
 
 
 
 
 
 
Reconciliation of Terex Corporation stockholders’ equity:
As of 12/31/13
As of 9/30/13
As of 06/30/13
As of 03/31/13
As of 12/31/12
Terex Corporation stockholders’ equity as reported
$
2,190.1

$
2,094.2

$
1,955.8

$
1,957.5

$
2,007.7

TFS Assets
(151.6
)
(149.8
)
(139.7
)
(147.5
)
(150.9
)
Redeemable noncontrolling interest
53.9

57.8

226.6

243.8

246.9

Terex Corporation stockholders’ equity as adjusted
$
2,092.4

$
2,002.2

$
2,042.7

$
2,053.8

$
2,103.7


RESULTS OF OPERATIONS

2013 COMPARED WITH 2012

Terex Consolidated
 
2013
 
2012
 
 
 
 
 
% of
Sales
 
 
 
% of
Sales
 
% Change In Reported Amounts
 
($ amounts in millions)
 
 
Net sales
$
7,084.0

 

 
$
6,982.2

 

 
1.5
 %
Gross profit
$
1,439.5

 
20.3
%
 
$
1,400.1

 
20.1
%
 
2.8
 %
SG&A
$
1,020.4

 
14.4
%
 
$
1,033.3

 
14.8
%
 
(1.2
)%
Income from operations
$
419.1

 
5.9
%
 
$
366.8

 
5.3
%
 
14.3
 %

Net sales for the year ended December 31, 2013 increased $101.8 million when compared to 2012. Our AWP segment had significant growth in net sales from continued rental channel replenishment, particularly in North America, Europe and Latin America as well as other international markets. However, the impact of weak demand in European and other markets on our Construction, Cranes, MHPS and MP segments partially offset those net sales increases.

Gross profit for the year ended December 31, 2013 increased $39.4 million when compared to 2012. Approximately $32 million of restructuring and related charges impacted gross profit in the current year. Our AWP and Construction segments’ gross profit improved from the prior year period, partially offset by decreased gross profit in the other three segments.

SG&A costs for the year ended December 31, 2013 decreased $12.9 million when compared to 2012. Approximately $29 million of restructuring and related charges affected SG&A costs in the current year. These charges were partially offset by lower SG&A costs resulting from actions taken in prior periods to lower our cost structure as well as from a charge taken in the prior year for an acquisition related note receivable that did not recur in the current year.

Income from operations improved by $52.3 million for the year ended December 31, 2013 when compared to 2012. The increase was primarily due to improved profitability in our AWP segment and lower overall SG&A costs.


35



Aerial Work Platforms
 
2013
 
2012
 
 
 
 
 
% of
Sales
 
 
 
% of
Sales
 
% Change In Reported Amounts
 
($ amounts in millions)
 
 
Net sales
$
2,131.0

 

 
$
1,742.4

 

 
22.3
%
Gross profit
$
514.9

 
24.2
%
 
$
381.2

 
21.9
%
 
35.1
%
SG&A
$
189.1

 
8.9
%
 
$
170.3

 
9.8
%
 
11.0
%
Income from operations
$
325.8

 
15.3
%
 
$
210.9

 
12.1
%
 
54.5
%

Net sales for the AWP segment for the year ended December 31, 2013 increased $388.6 million when compared to 2012. We continued to see growth from replacement-based demand in the North American, Latin American and European rental channels for our aerial work platform products as well as increased demand arising from the early stages of replacement demand in many other international markets.

Gross profit for the year ended December 31, 2013 increased $133.7 million when compared to 2012. Increased net sales, improved price realization, lower material costs and the mix of product sales, contributed approximately $149 million to the improvement in gross profit. This improvement was slightly offset by approximately $11 million in higher distribution and warranty costs associated with higher net sales volume.

SG&A costs for the year ended December 31, 2013 increased $18.8 million when compared to 2012. Higher selling and marketing costs associated with higher net sales increased SG&A costs by approximately $7 million as compared to the prior year. Additionally, the allocation of corporate costs was approximately $8 million higher in the current year.

Income from operations for the year ended December 31, 2013 improved $114.9 million when compared to 2012. The increase was due to the items noted above, particularly increased net sales volume, partially offset by higher SG&A costs.

Construction
 
2013
 
2012
 
 
 
 
 
% of
Sales
 
 
 
% of
Sales
 
% Change In Reported Amounts
 
($ amounts in millions)
 
 
Net sales
$
820.0

 

 
$
952.1

 

 
(13.9
)%
Gross profit
$
83.2

 
10.1
 %
 
$
68.2

 
7.2
 %
 
22.0
 %
SG&A
$
108.0

 
13.2
 %
 
$
137.5

 
14.4
 %
 
(21.5
)%
Loss from operations
$
(24.8
)
 
(3.0
)%
 
$
(69.3
)
 
(7.3
)%
 
*

*              Not meaningful as a percentage

Net sales for the Construction segment decreased by $132.1 million for the year ended December 31, 2013 when compared to 2012. Demand for our Construction products has weakened, particularly in Western Europe. Decreased demand for our material handlers and compact construction equipment negatively impacted net sales in the current year period. These declines were partially offset by improved net sales from our cement mixer product line.

Gross profit for the year ended December 31, 2013 increased $15.0 million when compared to 2012. The increase was primarily due to approximately $21 million of lower inventory and restructuring charges in the current year compared to the prior year. These were partially offset by lower net sales for our material handlers and compact construction product lines worldwide. Additionally, charges taken in connection with the sale of a portion of the roadbuilding businesses decreased gross profit by approximately $3 million.

SG&A costs for the year ended December 31, 2013 decreased $29.5 million when compared to 2012. Cost reduction activities taken in prior periods are reflected in lower current year SG&A costs. Additionally, the allocation of corporate costs was approximately $5 million lower in the current year. Approximately $5 million lower restructuring and related charges in the current year decreased SG&A costs.


36



Loss from operations for the year ended December 31, 2013 decreased $44.5 million when compared to 2012. The lower loss was primarily due to lower inventory, restructuring and other SG&A costs partially offset by the impact of lower net sales.

Cranes
 
2013
 
2012
 
 
 
 
 
% of
Sales
 
 
 
% of
Sales
 
% Change In Reported Amounts
 
($ amounts in millions)
 
 
Net sales
$
1,925.5

 

 
$
1,987.6

 

 
(3.1
)%
Gross profit
$
337.1

 
17.5
%
 
$
393.6

 
19.8
%
 
(14.4
)%
SG&A
$
226.6

 
11.8
%
 
$
225.6

 
11.4
%
 
0.4
 %
Income from operations
$
110.5

 
5.7
%
 
$
168.0

 
8.5
%
 
(34.2
)%

Net sales for the Cranes segment for the year ended December 31, 2013 decreased by $62.1 million when compared to 2012. We have experienced declines in net sales in Australia and Latin America, partially offset by stronger sales in the Middle East. These declines were primarily related to lower commodity driven demand.

Gross profit for the year ended December 31, 2013 decreased by $56.5 million when compared to 2012. Approximately $10 million of restructuring and related charges impacted gross profit in the current year period. The decrease in net sales and lower margin mix of product sales were the primary drivers of the remaining decrease in gross profit.

SG&A costs for the year ended December 31, 2013 increased $1.0 million when compared to 2012. Approximately $5 million of higher engineering costs for new product development were incurred in the current year period. Additionally, the allocation of corporate costs was approximately $7 million higher in the current year period. However, a $12 million charge in the prior year period related to the write down of an acquisition related note did not recur in the current year period.

Income from operations for the year ended December 31, 2013 decreased $57.5 million when compared to 2012, resulting primarily from restructuring and related costs and lower net sales.

Material Handling & Port Solutions
 
2013
 
2012
 
 
 
 
 
% of
Sales
 
 
 
% of
Sales
 
% Change In
Reported Amounts
 
($ amounts in millions)
 
 
Net sales
$
1,698.5

 

 
$
1,742.1

 

 
(2.5
)%
Gross profit
$
345.4

 
20.3
 %
 
$
386.7

 
22.2
%
 
(10.7
)%
SG&A
$
387.2

 
22.8
 %
 
$
381.1

 
21.9
%
 
1.6
 %
Income (loss) from operations
$
(41.8
)
 
(2.5
)%
 
$
5.6

 
0.3
%
 
*

*
Not meaningful as a percentage

Net sales for the MHPS segment for the year ended December 31, 2013 decreased by $43.6 million when compared to 2012. Weak demand across several geographies, including Europe, South Africa and India, has reduced net sales in both businesses in this segment. However, net sales were approximately 40% higher in the second half of the current year than in the first half of the year.

Gross profit for the year ended December 31, 2013 decreased by $41.3 million when compared to 2012. Approximately $21 million of restructuring and related charges impacted gross profit in the current year period. The remaining decrease in gross profit was primarily attributable to the reduced overall net sales volume.

SG&A costs for the year ended December 31, 2013 increased by $6.1 million when compared to 2012. Approximately $25 million of restructuring and related charges affected SG&A costs in the current year period. This was partially offset by cost reduction activities taken in prior periods that positively impacted SG&A by approximately $15 million.

37




Income (loss) from operations for the year ended December 31, 2013 declined by $47.4 million when compared to 2012. These results were primarily driven by restructuring and related charges.

Materials Processing
 
2013
 
2012
 
 
 
 
 
% of
Sales
 
 
 
% of
Sales
 
% Change In Reported Amounts
 
($ amounts in millions)
 
 
Net sales
$
628.2

 

 
$
661.5

 

 
(5.0
)%
Gross profit
$
145.4

 
23.1
%
 
$
149.6

 
22.6
%
 
(2.8
)%
SG&A
$
73.6

 
11.7
%
 
$
74.3

 
11.2
%
 
(0.9
)%
Income from operations
$
71.8

 
11.4
%
 
$
75.3

 
11.4
%
 
(4.6
)%

Net sales in the MP segment decreased by $33.3 million for the year ended December 31, 2013 when compared to 2012. The translation effect of foreign currency exchange rate changes negatively impacted net sales by approximately $12 million. Additionally, the decline in net sales was impacted by weakness in minerals driven markets such as Australia and South America, as well as general construction weakness in Europe. However, our business remained strong in North America driven by replacement demand.

Gross profit for the year ended December 31, 2013 decreased by $4.2 million when compared to 2012. The decrease was primarily due to lower net sales volume and a negative impact from the translation effect of foreign currency exchange rate changes. However, improved manufacturing cost structure partially offset this decrease.

SG&A costs for the year ended December 31, 2013 decreased $0.7 million when compared to 2012. SG&A costs in the current year reflected reduced spending on selling and marketing costs, partially offset by increased engineering costs for investments in new products and markets.

Income from operations for the year ended December 31, 2013 decreased $3.5 million when compared to 2012. This was driven primarily by lower net sales partially offset by manufacturing costs controls.

Corporate/Eliminations
 
2013
 
2012
 
 
 
 
 
% of
Sales
 
 
 
% of
Sales
 
% Change In Reported Amounts
 
($ amounts in millions)
 
 
Net sales
$
(119.2
)
 

 
$
(103.5
)
 

 
*
Loss from operations
$
(22.4
)
 
*

 
$
(23.7
)
 
*

 
*
*
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, 2013, our interest expense net of interest income was $119.4 million, or $36.4 million lower than the prior year. This improvement was primarily driven by the capital market activities in 2012 and continued paydown of debt in 2013, which generally resulted in lower cost debt being used to pay off higher cost debt as well as decreasing our debt balances.

Loss on Early Extinguishment of Debt

We recorded a loss of $5.2 million on early extinguishment of debt during the year ended December 31, 2013 related to the redemption of a portion of our term debt. A loss of $83.0 million on early extinguishment of debt was recorded in the year ended December 31, 2012 related to the redemption of certain of our senior notes and convertible debt.


38



Other Income (Expense) — Net

Other income (expense) — net for the year ended December 31, 2013 was income of $5.3 million, a decrease of $2.6 million when compared to income of $7.9 million in the prior year.  This was driven primarily by losses incurred from the sale of assets in the current year.

Income Taxes

During the year ended December 31, 2013, we recognized income tax expense of $87.4 million on income of $291.3 million, an effective tax rate of 30.0%, as compared to an income tax expense of $51.5 million on income of $126.3 million, an effective tax rate of 40.8%, for the year ended December 31, 2012. The lower effective tax rate for the year ended December 31, 2013 was primarily due to reductions in the provision for uncertain tax positions and losses for which no tax benefit was recognized in the current year when compared to the prior year.

Income (Loss) from Discontinued Operations

Income from discontinued operations for the year ended December 31, 2013 decreased by approximately $14 million when compared to the prior year primarily due to lower demand for our trucks in the current year.

Gain (Loss) on Disposition of Discontinued Operations

For the year ended December 31, 2013, we recognized a gain from contractually obligated earnings based payments from the purchaser of a business sold in 2010. For the year ended December 31, 2012, we recognized a gain from contractually obligated earnings based payments from the purchaser of a business sold in 2010 partially offset by a loss associated with settlement of claims related to the sale of the Mining business.


2012 COMPARED WITH 2011

Terex Consolidated
 
2012
 
2011
 
 
 
 
 
% of
Sales
 
 
 
% of
Sales
 
% Change In Reported Amounts
 
($ amounts in millions)
 
 
Net sales
$
6,982.2

 

 
$
6,158.0

 

 
13.4
%
Gross profit
$
1,400.1

 
20.1
%
 
$
923.5

 
15.0
%
 
51.6
%
SG&A
$
1,033.3

 
14.8
%
 
$
863.6

 
14.0
%
 
19.7
%
Income from operations
$
366.8

 
5.3
%
 
$
59.9

 
1.0
%
 
512.4
%

Net sales for the year ended December 31, 2012 increased $824.2 million when compared to 2011.  Excluding the effect of the addition from TMHPS AG in both periods and the negative impact of foreign currency exchange rate changes, net sales increased approximately 5% from the prior year period. The impact of the acquisition of TMHPS AG increased net sales by approximately $693 million due to inclusion in our results for the full year in 2012. Our AWP segment had approximately 22% higher net sales in 2012 and our Cranes segment was slightly higher in 2012. However, our Construction segment net sales was down approximately 20% when compared to 2011. Our MP segment net sales were down slightly from 2011.

Gross profit for the year ended December 31, 2012 increased $476.6 million when compared to 2011.  Excluding the impact of the acquisition of TMHPS AG, gross profit improved by approximately $235 million primarily due to improved price realization and cost reductions. The acquisition of TMHPS AG added approximately $242 million to gross profit due to inclusion in our results for the full year in 2012. The prior year amounts for MHPS included approximately $41 million from inventory revaluation charges related to the acquisition which did not recur in the current year.

SG&A costs increased by $169.7 million when compared to 2011.  Excluding the impacts of the acquisition of TMHPS AG and foreign currency exchange rate changes, SG&A costs were lower by approximately $18 million on higher net sales levels. The acquisition of TMHPS AG added approximately $212 million to SG&A costs due to inclusion in our results for the full year in 2012.


39



Income from operations improved by $306.9 million for the year ended December 31, 2012 versus the comparable period in 2011.  The increase was primarily due to the items noted above particularly, improved price realization and actions taken in previous periods to reduce our cost structure, as well as the impact of the acquisition of TMHPS AG.

Aerial Work Platforms
 
2012
 
2011
 
 
 
 
 
% of
Sales
 
 
 
% of
Sales
 
% Change In Reported Amounts
 
($ amounts in millions)
 
 
Net sales
$
1,742.4

 

 
$
1,425.0

 

 
22.3
%
Gross profit
$
381.2

 
21.9
%
 
$
239.2

 
16.8
%
 
59.4
%
SG&A
$
170.3

 
9.8
%
 
$
157.3

 
11.0
%
 
8.3
%
Income from operations
$
210.9

 
12.1
%
 
$
81.9

 
5.7
%
 
157.5
%

Net sales for the AWP segment for the year ended December 31, 2012 increased $317.4 million when compared to 2011.  We continued to see growth from replacement-based demand in the North American rental channels for our aerial work platform products. Price realization also contributed to the increase in net sales. European sales for aerial work platforms also improved relative to the prior year.

Gross profit for the year ended December 31, 2012 increased $142.0 million when compared to 2011.  Improved price realization, increased net sales, the mix of product sales and lower manufacturing costs, contributed approximately $151 million to the improvement in gross profit. These improvements were partially offset by approximately $9 million from increased inventory charges compared to the prior year.

SG&A costs for the year ended December 31, 2012 increased $13.0 million when compared to 2011.  Higher general and administrative costs to enable the increased sales levels increased SG&A spending by approximately $10 million as compared to the prior year.

Income from operations for the year ended December 31, 2012 improved $129.0 million when compared to 2011.  The increase was due to the items noted above, particularly improved price realization and increased net sales volume, partially offset by higher SG&A.

Construction
 
2012
 
2011
 
 
 
 
 
% of
Sales
 
 
 
% of
Sales
 
% Change In Reported Amounts
 
($ amounts in millions)
 
 
Net sales
$
952.1

 

 
$
1,182.7

 

 
(19.5
)%
Gross profit
$
68.2

 
7.2
 %
 
$
126.2

 
10.7
 %
 
(46.0
)%
SG&A
$
137.5

 
14.4
 %
 
$
161.5

 
13.7
 %
 
(14.9
)%
Loss from operations
$
(69.3
)
 
(7.3
)%
 
$
(35.3
)
 
(3.0
)%
 
*

*              Not meaningful as a percentage

Net sales in the Construction segment decreased by $230.6 million for the year ended December 31, 2012 when compared to 2011.  Weakened demand for our material handling products and a lack of government infrastructure spending in North America and Brazil negatively impacted our Roadbuilding equipment sales. Additionally, lower demand for compact construction products, particularly in Europe, affected net sales in the current year. Changes in foreign currency exchange rates negatively impacted net sales by approximately $23 million.

Gross profit for the year ended December 31, 2012 decreased $58.0 million when compared to 2011.  Lower net sales decreased gross profit by approximately $39 million. Additionally, higher inventory write downs and restructuring charges associated with our Roadbuilding and compact construction businesses decreased gross profit by approximately $22 million.


40



SG&A costs for the year ended December 31, 2012 decreased $24.0 million when compared to 2011.  The impact of cost reduction actions taken in prior periods are reflected in lower current year SG&A costs. These positive impacts on SG&A costs for the current year were partially offset by approximately $9 million higher asset impairment and restructuring related costs in the current year associated with our Roadbuilding and compact construction businesses.

Loss from operations for the year ended December 31, 2012 increased $34.0 million when compared to 2011.  The increased loss was due to the items noted above, particularly approximately $31 million of charges associated with our Roadbuilding and compact construction businesses, partially offset by lower SG&A costs.

Cranes
 
2012
 
2011
 
 
 
 
 
% of
Sales
 
 
 
% of
Sales
 
% Change In Reported Amounts
 
($ amounts in millions)
 
 
Net sales
$
1,987.6

 

 
$
1,936.5

 

 
2.6
 %
Gross profit
$
393.6

 
19.8
%
 
$
267.1

 
13.8
%
 
47.4
 %
SG&A
$
225.6

 
11.4
%
 
$
233.2

 
12.0
%
 
(3.3
)%
Income from operations
$
168.0

 
8.5
%
 
$
33.9

 
1.8
%
 
395.6
 %

Net sales for the Cranes segment for the year ended December 31, 2012 increased by $51.1 million when compared to 2011.  Changes in foreign currency exchange rates negatively impacted net sales by approximately $68 million. Strong demand for rough terrain cranes driven by energy related projects continued. Additionally, the inclusion of an acquired business in 2012 that was not included in the prior year period increased net sales. We also experienced good demand for our cranes in North America, South America, the Middle East and Australia. This strength was offset by softening demand for all-terrain cranes in Western Europe.

Gross profit for the year ended December 31, 2012 increased by $126.5 million when compared to 2011.  Improved price realization, factory utilization, a favorable mix of product sales and higher parts volume in the current year improved gross profit by approximately $115 million. Additionally, lower inventory, warranty and restructuring charges in the current year improved gross profit by approximately $24 million. Changes in foreign currency exchange rates negatively impacted gross profit by approximately $16 million.

SG&A costs for the year ended December 31, 2012 decreased $7.6 million versus 2011.  The impact of cost reduction actions taken in prior years are reflected in lower current year SG&A costs. The lower allocation of corporate expenses in the current year decreased SG&A costs by approximately $11 million. Changes in foreign currency exchange rate also positively impacted SG&A costs in the current year by approximately $11 million. Partially offsetting these positive impacts on SG&A costs was approximately $12 million from the write down of an acquisition related note receivable in the current year.

Income from operations for the year ended December 31, 2012 increased $134.1 million versus 2011, resulting primarily from improved price realization, a favorable mix of product sales and lower SG&A costs. However, changes in foreign currency exchange rates negatively impacted income from operations by approximately $5 million.


41



Material Handling & Port Solutions
 
2012
 
2011
 
 
 
 
 
% of
Sales