Terex Corporation (TEX) Industrial Machinery

Krause Fund Research Fall 2018

November 9, 2018 Stock Rating:

Heidi Hannenberg Julia Garry heidi-hannenberg@uiowa.edu julia-garry@uiowa.edu Matthew Conway Emily Kwak matthew-t-conway@uiowa.edu emily-a-kwak@uiowa.edu

HOLD Analysts:

Investment Thesis

12 Month Performance

Earnings Estimates

Company Description

Relative Financial Performance

Terex Corporation (NYSE:TEX) is a leading industrial machinery firm headquartered in Westport, CT. In addition to the company’s headquarters, they have facility locations in nine other U.S. states and in 11 other countries around the world. Terex operates under three business segments including; Aerial Work Platforms, Cranes and Materials Processing Equipment. The machinery products in each of the business segments are branded under the names Terex, Genie, Powerscreen and Demag.

Terex Corporation is among the ten largest industrial machinery companies in the United States. While TEX has faced declining revenue and high costs in recent years, they are in the process of restructuring their business and focusing toward a common goal to mitigate higher input costs. They remain volatile with the markets and other external forces but internal improvements are expected to boost net income growth in the next few years. However, these improvements will only provide short term growth and TEX will have to introduce new technology and innovation to remain competitive in the long run. Due to the limited time horizon of TEX’s current growth, these expectations point toward low levels of long-term growth at the current price of $30.39. • As a business operating in the industrials sector, TEX is subject to volatility with the markets.

Historically, Terex has experienced slightly exaggerated growth when markets are performing well and decline when markets are down.

• TEX is experiencing a time of uncertainty as they focus efforts on restructuring their business in order to remain competitive. Management remains positive regarding growth due to restructuring efforts. The company began 2018 by outperforming EPS estimates and showing continued growth and progress. However, TEX missed EPS estimates for FY18Q3 by $0.09.

• While TEX attempts to decrease costs to bump up their bottom line, they are affected by increased material costs due to tariffs on steel and currency exchange rates. They are working on offsetting these costs by decreasing other input costs as well as selling, general and administrative costs.

• Recent supply chain issues have led to shortages and set back TEX from increasing revenue in the Cranes segment. They are currently recovering from these challenges and seeking solutions to avoid these problems in the future.

• Despite the challenges Terex faces, demand has remained steady and is expected to increase slightly with the introduction of new products and improved customer service.

Source: Yahoo Finance

Source: Factset

DCF Model 30.78$ DDM Model 25.17$ Relative Multiple 33.47$

Current Price 30.39$ 52 Week Range 28.64 - 50.17EPS (2018) 2.83$

Market Capitalization (M) 2377Shares Outstanding (M) 73.70Average Daily Volume 1,311,656 Beta 1.71Dividend Yield 1.32%Payout Ratio 23.02%Price/ Earnings (TTM) 21.86Price/ Earnings (FY18) 10.73

ROE 10.53%ROA 3.72%Operating Margin 3.98%Profit Margin 18.70%

Debt to Equity 1.83Current Ratio 1.17

Price Data

Target Price: $29.46- $32.09

Key Statistics

Profitabil ity Ratios

Financial Ratios

Year 2016 2017 2018E 2019E 2020E 2021EEPS -1.63 1.39 2.83 3.66 3.91 3.94Growth -219.9% -185.3% 103.8% 29.4% 6.6% 0.9%

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As of November 9, 2018, our analyst team is recommending a “hold” rating for Terex Corporation. We believe that Terex will see net income growth in the next five years based on steady demand of products and their efforts to cut costs. Although we have forecasted some growth for Terex, we also believe that the growth will be short-term focused. Based on the uncertainty with the outcome of their current restructuring process, higher material costs from tariffs and their volatility to the market, we believe that Terex will not experience large long-term growth. We have projected their share price to be $30.78 based on our DCF model. This estimated value is similar to their current intrinsic value of $30.39 which indicates that the stock is accurately valued.

Real GDP GDP is important to the industrials sector because it represents the overall health of the economy. The industrials sector is highly sensitive to the state of the economy and its performance is driven by macroeconomic factors, which are portrayed through GDP. When the economy is strong, more companies are in the financial position to expand production or improve current production through capital expenditures. A higher GDP can lead to an increase in production of industrial goods, durable goods orders, defense and infrastructure spending, corporations’ access to capital, corporate financial health, and in transportation needs1. Percent Change in Quarterly Real GDP over the Past Year

Source: St Louis Federal Reserve2

As shown in the graph above, the U.S. experienced exceedingly high real GDP growth of 4.2 percent in the second quarter of 2018. Third quarter results came in lower at 3.5 percent but are still above the ideal rate of 2-3 percent. Interest Rates Interest rates are a very important economic indicator in the industrial machinery industry. The companies within this industry have significant capital expenditures and invest highly in research and development. By doing so, they require financing and need to pay interest on those investments. Customers of industrial machinery companies also require financing to purchase the machinery. Which means that an increase or decrease in interest rates would impact the customer’s demand for the industrial products. The current interest rates are heavily influenced by the 10-year U.S. Treasury Bond rate which is currently at 3.213%.3 The Federal Reserve has also raised interest rates to a target rate of 2.00-2.25% as of September 26, 2018. In the November 2018 Federal Open Market Committee’s meeting, the Fed has discussed that rates are likely to be hiked up in the future4. Industrial companies rely heavily on borrowing to finance projects and the increasing interest rates will put more pressure on the industry because investors will continue to require a higher rate of return. This could lead to a decreasing amount of capital expenditures because of the increasing cost of purchasing property, plant and equipment. Exchange Rates Due to the increasing trend of American businesses expanding globally, exchange rates are a very important economic indicator. This is especially important when looking at industrial companies because of the amount of goods and materials that they import. The most significant exchange rates are the U.S dollar compared to the Euro, the Chinese Yuan, and the Japanese Yen. Currently, the Euro is trading at $0.876 per U.S. dollar, the Yuan is trading at $6.916 per U.S. dollar the Yen is trading at $ 113.31 per U.S dollar5. Exchange rates impact the cost of materials for industrial companies and can lead to firms choosing specific suppliers based on those prices. Uncertainty with exchange rates is seen as a risk factor for the industrial machinery industry.

Economic Outlook

Executive Summary

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Commodity Prices Commodity prices have the ability to greatly affect the markets. Companies are often reliant on commodities for production or they may be reliant on suppliers or consumers that are affected by price changes. Oil is one commodity that the market as a whole is sensitive to. Of the past five recessions, four were preceded by a steep increase in oil prices. Companies affected by fluctuations in prices include oil companies, industrial, and financial companies6. Other commodities, such as steel, are a large component of manufacturing heavy machinery and equipment. Industries affected by steel prices include auto, aerospace, manufacturing and construction7. Steel In March 2018, President Trump ordered 25% tariffs on imported steel with an exception for imports from ally countries. In May he extended tariffs to ally countries including Canada, who is the leading supplier of steel to the United States. Since the tariffs have been in place, steel prices have fluctuated in an upward trend and in September, steel reached an all-time high price of 4780. Steel is a large component of industrial machinery products and price increases can hurt profits of companies in this industry. Changes in Steel Prices over One Year

Source: Trading Economics8 Crude Oil Throughout 2018, crude oil has seen a steady increase in prices. Despite recent sanctions placed on Iranian oil, U.S. oil prices have begun a downward trend rather than increasing. Next year, crude oil is expected to remain relatively constant and sell for an average of $72 a barrel, which is nearly the current level9. The industrials sector is affected by growth in the oil industry because they supply materials to expand and build oil drilling operations. When oil prices are rising, oil companies

expand their businesses and purchase heavy machinery and equipment to support increased drilling10. Changes in Oil Prices Over One Year

Source: Trading Economics11 Capacity Utilization Capacity Utilization measures the percentage of corporation capacity that is being used in production relative to their total capacity available. As the percentage of capacity increases, the economy as a whole is operating more efficiently and making use of available resources. As shown in the graph below, the U.S. Capacity Utilization has been steadily increasing from 77.46% in May to 78.12% in September. We believe there is potential for growth in the industrials sector as capacity continues to increase and companies expand operations. U.S. Capacity Utilization Over One Year

Source: St Louis Federal Reserve12

Industry Overview The Machinery Industry is broken down into two sub-industries: Construction & Farm Machinery & Heavy Trucks and Industrial Machinery. Terex is part of the industrial machinery sub-industry which provides products and services for agriculture, infrastructure,

Industry Analysis

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mining, transportation, energy and construction markets. It is characterized as being capital intensive and cyclical. Due to the fact that companies tend to buy more equipment in a strong economy and when profitability is rising, the industrial machinery industry is driven by broad macro factors. High volatility in product demand as a result of market correlation leads to operational challenges for firms including forecasting challenges, production level changes, and excess inventory issues. Strong growth in the downstream markets served by industrial machinery will lead to a higher demand over the next five years13. Industrial machinery is part of the industrials sector which has the highest correlation of any sector to the S&P 500, as shown in the graph below1. S&P 500 Industrial Sector Sales Growth vs. GDP Growth

Source: Fisher Investments1 Industry Life Cycle This industry is in the mature stage of its life cycle. While the industry’s contribution to the economy is forecasted to continually increase, it is expected to grow at a rate lower than national GDP. The industry is heavily reliant on its downstream markets and the performance of the companies that they serve. Industry players have established static clientele and expected to show only slight growth over the next ten years. In addition, this industry has seen heightened company consolidations over the past five years13. Recent Development and Trends Since industrial machinery companies serve a wide range of markets and industries, they have often faced obstacles that major players overcame with their sheer size and wide range of products. However, size can no longer be a company’s sole competitive advantage due to technological advances. Customers seek efficiency, innovation, connected technologies, and digitization. While the trend for digitized devices has been emerging

over recent years in the industrial machinery industry, the demand for these products is increasing exponentially. New technologies within this industry include connected equipment with sensors, actuators, and cloud technology used to exchange data and insights between computer networks and other machines in real time14. To stay competitive, companies must focus on increasing their global presence and competition, integrate technology into their products, and switch their business focus from the machinery hardware to advanced software15. Markets and Competition: Porter’s Competitive Forces Bargaining Power of Suppliers: Low Over 1700 companies supply industrial machinery within over 40 specialty fields. Aside from labor strikes and unusual circumstances, most materials are available from multiple suppliers at any time16. Therefore, no single supplier has much bargaining power over prices of materials. Bargaining Power of the Consumer: High Customers of industrial machinery are in numerous markets including agriculture, infrastructure, mining, transportation, energy and construction. Without technological improvements, products are substantially standardized and customers can easily switch between companies they buy from if they believe prices are unfair. The market consists of informed buyers who analyze products and sales people are rarely able to talk to the final decision makers of a purchase. Threat of New Entrants: Low and Steady The industrial machinery industry has low barriers to entry as well as low market share concentration. No single company accounts for more than 5% of the total industry revenue13. Increasing operational scale in this industry requires high capital expenditures that may deter new entrants. Consequently, new entrants are likely to position themselves in emerging and underserved markets rather than competing with established leaders. Threat of Substitutes: Medium Manufacturers are focusing on investing in innovation such as robots and advanced technology to complete manufacturing jobs more efficiently. As a result,

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industrial machinery will change to accommodate robots or could even be replaced by some robots. However, while new technology would enhance the operation of a customer, it will come at a cost. New technology will both be costly to purchase and costly for the customers to implement as they would have to train employees to use it. Competitive Rivalry: Medium and Increasing This industry is extremely diverse, and companies vary in scope of products and sales. Companies compete on pricing, variety, convenience, and services. Many companies in the industry focus on a niche product while others focus on expansion and a wide scope of products to reach numerous markets13. Catalysts for Growth or Change New steel and aluminum tariffs In May 2018, President Trump implemented a new 25% tariff on steel and 10% tariff on aluminum. Currently, 33% of steel that is used by American businesses each year is imported and more than 90% of aluminum used by American businesses is imported. Terex imports both of these materials for their products. The increased cost of these materials is causing Terex to have higher annual cost of sales amounts. They are turning to adjusting the price of their prices and cutting other costs to offset the tariffs. The higher cost of steel and aluminum is especially affecting the construction, oil and utility industries which in turn impacts the industrial manufacturing industry that Terex aligns in7. Artificial Intelligence and Machine Learning Artificial Intelligence and Machine Learning trends have been increasing amongst several industries but more recently in the industrial manufacturing industry. The algorithms have the ability to change how the manufacturing industry performs skilled labor, predicts customer needs and collects information. Factories can implement IT systems that are considered “smart” with artificial intelligence. Machine learning algorithms would determine which factors would improve production quality and sensors would replace human hands. This process would increase production capacity, reduce wasted time and materials and lower the cost of production. The digitizing trend has the ability to lower

the cost and increase efficiency in the industrial manufacturing industry17. Key Investment Positives and Negatives Positives The industrial machinery industry has several characteristics that make it a positive industry to invest in. For instance, companies within this industry tend to produce higher than average capital gains18. Additionally, firms within this industry produce products that are needed in daily life. Terex produces construction equipment that is used to build and maintain roads and infrastructure. This activity will remain constant regardless of market conditions. Historically, in times of recession, the government has attempted to support the economy by investing in public projects. These projects have revolved around public infrastructure and road projects in the past. Following that same trend, industrial machinery companies would be strong investments even in the time of a recession. On the other hand, industrial machinery firms tend to be more cyclical and are a strong industry to invest in when the economy is starting to make an upturn because the industry reflects the market as a whole19. Negatives Although firms in the industrial machinery industry can be strong investments, their characteristic of being cyclical can also be a negative. This industry fluctuates with the market and investors must be aware of the macroeconomic factors that could lead to a market downfall. This adds an additional risk component of investing in industrial machinery. Currently, the sector’s sensitivity to the raw materials used in production is leading to lower profit margins. The most recent steel and aluminum tariffs have led to larger costs for these companies and lower margins. Finally, companies within this industrial typically have lower payout ratios in comparison to companies in other industries1. Comparison with Other High Performing Firms We found it important to compare Terex to other industry leaders to better understand the ways that our industry obtains lower costs and higher margins. We compared Terex to Astec Industries, Manitowoc

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Company, Oshkosh Corporation and Caterpillar Inc. as a few of their main competitors in the industry. Revenue growth When looking at the last three years of revenue growth, we compared Terex to Astec and Manitowoc. As seen in the graph below, Manitowoc has experienced very similar revenue growth to Terex in the last few years. This can attribute to industry wide factors and specific economic factors that led to lower revenue in the industrial machinery industry.

Source: Factset20 EV/EBIT Comparison We decided to compare Terex to its competitors based on the valuation multiple; Enterprise Value/ Earnings before Interest Expense and Taxes. This multiple was chosen because it portrays the company’s earnings abilities. As seen in the graph below, the four companies have similar EV/EBIT multiples. This can be an indicator that they companies in this comparison are neither over nor undervalued in comparison to industry averages.

Source: Factset20

Direct Comparison with Oshkosh Corporation Based on similar business segments, we compared Terex’s Aerial Works Platform business segment to Oshkosh’s business segment; Access Equipment. The Access Equipment segment consists of aerial works platforms and telehandlers which is very similar to Terex’s. In comparing, we were able to determine that the sales in aerial works platforms have followed a similar trend with both companies. AWP sales were declining from 2014 to 2016, but they have been producing stable growth since 2016. This recent upward trend can be an indicator of increasing demand for AWP products.

Source: Factset20

Company Overview Terex Corporation is a global manufacturer of material processing equipment, cranes and aerial works platforms. The products are sold worldwide and manufactured in North America, Europe, South America, Australia and Asia16. The firm was founded in 1970 is currently headquartered in Westport, CT. Their products within their three business segments are branded under the names; Terex Genie, Powerscreen and Damag. Terex introduced a new business strategy in 2016 and is continuing to transform strategies aligned with the three new pillars. The pillars include Focus, Simplify and Execute to Win. In 2017, the company completed the “Focus” portion by focusing their portfolio intro three business segments rather than several smaller product lines. Going forward, the Simplify pillar will focus on restructuring of the Cranes segment, simplifying account

Company Analysis

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structures, improving processes and enhancing performance measurement systems. Efforts to make Terex’s manufacturing footprint smaller are also in place. They have exited 12 facilities worldwide already and believe that the simplified manufacturing process and legal structure will allow them to lower costs. Finally, The Execute to Win efforts will focus on development of talent and operational excellence16. Financial Summary From 2014 to 2016, Terex saw year-to-year declines in gross profit. However, management expects to see an increase in 2018. In addition, from 2014 to 2016, Terex also experienced year-to-year significant declines in net income and net income from continuing operations. In 2017, both of these values improved significantly from 2016. For instance, in 2016 Terex had a net loss of $175.5 million and in 2017, net income was $128.7 million. While the company is still going through a restructuring process, they are focusing on improving for the future. They are selling previous debts, selling off an unprofitable crane segment, and focusing on innovative measures in business operations. Additionally, Terex is introducing a new parts pricing system. The new system will price parts based on market conditions which will allow them to remain profitable regardless of certain economic factors21. Products and Markets Terex manufactures products for three business segments:

1. Aerial Work Platforms 2. Cranes 3. Materials Processing Equipment

Aerial Works Platforms The AWP segment is further divided into six categories. Those include; portable aerial work platforms, self-propelled articulating, self-propelled telescopic booms, portable material lifts, scissor lifts and trailer-mounted articulating booms. The AWP products also include telehandlers that are used to move materials around construction sites and light towers to provide additional light in construction zones. In 2017, the AWP segment accounted for 47.5% of total revenue. Looking forward, our estimates show the segment’s revenue continuing to

grow for the next three years based on increasing demand and new suppliers with lower costs in 201916. Cranes The Cranes segment is made up of lattice boom crawler cranes, mobile telescopic cranes, tower cranes and other utility equipment16. This product line contributed 27.4% of Terex’s total revenue in 2017. In the last four years, this segment has seen declining revenue growth on average of 10.85% because of issues in the supply chain causing shortages. This has caused products to be delivered to customers late. Although the segment has seen some decline, the demand for cranes is increasing and the materials management team is making more efforts in making the supply chain more visible to address and prevent these issues from occurring in the future. Materials Processing Equipment The MP business segment is made up of products that customers use in construction, recycling and infrastructure projects. The products include washing systems, screens, apron feeders, crushers, wood processing, biomass and recycling equipment and material handlers16. As of 2017, the MP equipment was accountable for 24.6% of Terex’s total revenue. This segment has increased backlog by 72% so far in 2018 and is well positioned for strong sales in 2019. The MP segment is also forecasting increasing demand because of higher construction spending. Production

Terex obtains materials from third-party suppliers. In most cases, Terex purchases materials from multiple suppliers who have various materials and components needed. In some other cases, Terex uses single source suppliers to produce more specific products. In general, Terex’s products use steel, castings, engines, tires, hydraulics, cylinders, drive trains, electric controls, motors and other manufactured items which are all purchased from suppliers. The contracts with suppliers are based on Terex’s overall credit rating16. Extreme movements in the cost of these materials may affect Terex’s financial performance and margins can be adversely affected. Increased steel prices in 2017 were partially offset by other favorable cost changes. Forward looking, unknown global steel prices are causing Terex to adopt a new pricing strategy and be strategic about lowering other costs.

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Distribution Terex’s products are distributed through a global network of dealers, rental companies, major accounts and direct sales to customers. The company owns multiple distribution centers in the United States. Their aerial work platforms segment is distributed primarily through a global network of rental companies and independent distributors. The cranes segment utilizes direct selling techniques primarily to specialized crane rental companies. Products from the materials processing segment is distributed through independent distributors, rental companies, major accounts, and direct sales16. Competition Terex competes in a highly competitive industry and must compete in terms of their products and customer service to excel against competition. They are in competition with other manufacturing companies producing similar products in aerial work platforms, cranes and materials processing equipment. Terex does not have one significant competitor across all business segments but some of their major competitors in different segments include Oshkosh, Liebherr, Manitowoc, Metso, and numerous others. Their business strategy to create a competitive advantage is to create superior life-cycle return on invested capital to their customers relative to their competition. They are at a competitive disadvantage relative to competitors with greater financial resources and low-cost competition from China. In order to compete they must provide technological improvements, compete in global markets, and offer affordable prices16. SWOT Analysis Strengths Terex’s business strategy involved three pillars to Focus, Simplify, and Execute to Win. They have completed their first pillar to focus their portfolio on businesses best positioned to generate returns above the cost of capital. To complete this, they concentrated their business portfolio into product categories in which they are among market leaders and have divested businesses that did not make them market leaders. Their Simplify pillar is centered on reducing complexity in the business and managing costs. They are taking measures to simplify the way that they manage the company day-to-day and are reducing their number of manufacturing facilities by

sharing facilities across business lines. Their Execute to Win pillar focuses on talent development, strategy development and deployment, and operational excellence. By carrying out these three initiatives, Terex is positioning their company in a strategic manner to compete with their peers16. Weaknesses As part of the Industrials sector, Terex is greatly affected by the cyclical nature of the markets that they serve and have fluctuating sales with the overall health of the economy. In addition, the company has a significant amount of debt outstanding and must comply with restrictive covenants in their debt agreement. These covenants may limit their ability to borrow additional funds and take advantage of business opportunities. In addition, they are uncertain if they will be able to generate sufficient cash flow to service their debt obligations16. Opportunities With an improving global market environment, Terex expects to increase their revenue and improve operating margins across every business segment. Technological improvements will allow Terex to expand their level of sales outside of the U.S. and compete globally. Due to higher oil prices and an overall positive economic environment, North American markets are improving for Terex and they have also see recent improvements in Europe and Australia16. Threats As a multinational business, Terex is subject to political, economic and other risks that arise such as global economic conditions and political instability. One factor that they are constantly monitoring is global steel prices as they would be greatly affected by a sustained increase in price. Terex needs to comply with environmental regulations for each country in which they operate, and compliance is costly to the company. In addition, many of Terex’s customers substantially depend on government funding for various construction and maintenance projects. If government funding decreases or delays to these customers, Terex’s revenues and profits could suffer. Many customers also depend on third party financing and the availability of financing is greatly affected by general economic conditions16.

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Revenue Decomposition We broke down Terex’s revenue into its three business segments; aerial works platforms, cranes, and materials processing equipment. We further broke down each business segment into total net sales, revenue growth rate and total income from operations. We decided to break down revenue this way because of how revenue was reported on Terex’s 10-K and how Terex’s management forecasts future revenue. When projecting revenue growth of each business segment, we considered historical performance, management guidance from earnings reports and the most significant macroeconomic factors.

Source: Q3 earnings21 Aerial Works Platform As an entire segment, revenue has grown on average of 5.5% annually for the past nine years. More recently, the AWP segment has seen strong global demand and has focused on increasing sales and bookings. Sales of AWP products increased by 14% in quarter 3 of 2018. The improved operating profit has also help offset the increased material costs including tariffs and foreign exchange costs. In 2019, The AWP team is turning to new suppliers as part of a Strategic Sourcing plan to also assist with offsetting higher costs. The higher steel costs and higher inflationary pressure will be affecting the pricing of the AWP products in the future, but Terex was clear that customers were aware of the pricing changes and contracts were still in place21. Cranes The Cranes segment has continued to show high demand both nationally and internationally. The new product lines including the most recent Demag product line of all terrain cranes have seen higher demand. Additionally,

the increasing oil prices are causing small demand increases in both North America and the Middle East. Although the cranes segment has seen increasing demand, the supply base has had difficulty keeping up with the high demand causing shortages. These shortages have occurred during the assembly process and have had an impact on production times and a higher cost of sales. The materials management team has made efforts to have more visibility of the supply chain in the most recent quarter of this year and management has provided guidance that the crane business will continue to address the issues21. Materials Processing Equipment This segment delivers consistent performance and continues to show that. In the most recent quarter of 2018, the MP business segment has increased backlog by 72% which forecasts sales in 2019 to be strong. This will assist in revenue growth in this segment. MP has also seen an increase in demand of the crushing and screening equipment, material handlers and environmental products globally. This segment is also driven by construction activity and aggregate consumption21. According to the U.S. Census Bureau, the amount spent on public construction projects has increased 11% in the last year and private construction spending has increased 6.1% since September of 201722. The increase of construction spending is a positive driver for Terex and specifically the MP Equipment segment. Key Assumptions Cost of Goods Sold and SGA Over the last 6 years, Terex’s cost of goods sold amount has been on average of 78.80% of sales. However, based on guidance from management we decided to forecast COGS as 78.0% of sales for the next five years with slightly higher costs in 2018. Terex’s restructuring process has is allowing them to cut costs to reduce the effects of the higher input costs. Additionally, Terex is in the process of reducing the number of suppliers in their supply chain which they are expecting significant cost of goods and SG&A savings from. SG&A expenses have been on average of 14.35% of sales in the last seven years. Again, based on guidance from management about cutting costs to offset tariffs we have decided to forecast SG&A expense as 12.7% of sales. Continuing Value Growth We estimated that Terex’s growth in the continuing value year (2023) and beyond will be 3.5%. We believe

Valuation Analysis

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this number is accurate because it combines the inflation rate and the rate we believe Terex will grow beyond the economy. Currently inflation is 2.3% and we believe the additional 1.2% of growth will be over performing the market23. According to the IBIS World Industry Research Reports, the industrial machinery industry as a whole is expected to see revenue growth of 3.1% over the next five years. We believe that our assumption of 3.5% growth is aligned with this13. Weighted Average Cost of Capital (WACC) We arrived at Terex’s Weighted Average Cost of Capital of 10.46% using the firm’s capital structure of 73.43% equity and 26.57% debt. We anticipate that Terex will continue to maintain the same capital structure indefinitely. The WACC is calculated using the cost of equity and cost of debt described below. Cost of Equity We used the Capital Asset Pricing Model (CAPM) to calculate the cost of equity to be 12.31%. The variables used in the CAPM calculation are as follows:

• Risk Free Rate: 3.21% • Equity Risk Premium: 5.32% • Beta: 1.71

The risk-free rate represents the current 10-year U.S. treasury yield3. The equity risk premium is derived using Damodaran’s calculation of implied ERP as of November 1, 201824. We believe that this model provides a realistic calculation of ERP because Damodaran’s model has proven historically accurate. Beta was calculated as an average of 5-year monthly, 2-year weekly and 3-year weekly betas25. Cost of Debt To calculate the cost of debt, we found the yield-to-maturity of bonds issued by Terex. They have a 6-year bond yielding 6.33% and a 10-year bond yielding 7.15%. Since we used a 10-year horizon for the risk-free rate, we used the 10-year yield-to-maturity of 7.15% in our calculation26. We then accounted for the tax benefit of debt using the future marginal tax rate of 21%. After adjusting for tax, our after-tax cost of debt is 5.65%.

Valuation Models Discounted Cash Flow and Economic Profit Models The discounted cash flow (DCF) and economic profit (EP) models calculate an intrinsic value for the Terex’s stock of $30.78. The key value drivers used by these models are net operating profit less adjusted taxes (NOPLAT) and invested capital (IC). The DCF model uses these drivers to calculate free cash flow and the EP model uses the drivers to calculate economic profit. Both calculations are discounted by the WACC to arrive at the value of operating assets. We adjusted the value of operating assets by subtracting non-operating debt to then arrive at the value of equity. To calculate the intrinsic value of a share of Terex, we divided the value of equity by the number of shares outstanding and performed a partial year adjustment to calculate the intrinsic value as of November 9, 2018. We believe that the DCF and EP models provide the most accurate price for Terex because these models best incorporate our assumptions and projections for the company. Discounted Dividend Model The dividend discount model calculates an intrinsic value for a share of Terex stock of $25.17. The key value drivers used by this model are annual dividend assumptions and the final year calculation of EPS. Dividends have been constantly increasing since they were first issued in 2013 so we assumed continued growth in dividends. We predicted the highest growth in dividends in 2019 and 2020, when we also expect the highest net income. From 2014 to 2017, Terex increased their dividend by $0.04 each year. After 2020, when we expect a decline in revenue growth, we returned to growing dividends by $0.04 each year. We then discounted these values using the cost of equity and performed a partial year adjustment to arrive at the intrinsic value. We do not believe that the dividend discount model is an accurate depiction of Terex’s value. Terex only began issuing dividends in 2013 and has since increased their dividend per share from $0.05 in 2013 to $0.40 in 2018. With little historical data on dividend distribution, it is uncertain how much Terex’s dividend yield will grow going forward. The current dividend yield of 1.11% is only half of the average for the industrials sector of 2.22%. We do not believe that this dividend yield is significant enough to produce an accurate valuation of the company.

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Relative Valuation Model The relative valuation model investigates five of Terex’s competitors and calculates an intrinsic value for a share of Terex’s stock of $33.47. The key value driver used in this model is an average of competitor’s P/E ratios. Many of Terex’s main competitors are international companies traded on foreign exchanges and cannot be directly compared to Terex. After excluding foreign companies, we removed outliers with much higher ratios than Terex. With the remaining competitors that we identified, we calculated an average P/E ratio for 2018 of 11.82. The average P/E is slightly higher than Terex’s P/E ratio of 10.7, making the calculated intrinsic value above Terex’s current price. This model shows that Terex is currently undervalued and the stock price is projected to increase going forward. However, we do not believe that this model is the best depiction of the company’s financial position. Since numerous main competitors were excluded from the analysis, we believe that the DCF model computes a more reliable estimate of the current intrinsic value.

Beta vs. Equity Risk Premium Comparing the Beta and Equity Risk Premium was important to our model because of their direct impact on Terex’s weighted average cost of capital value. Our model’s beta was based on the raw beta calculation found through Bloomberg and our model’s equity risk premium calculation was found on Damodaran’s TTM implied ERP. The comparison showed that small changes in the equity risk premium caused about a $.75 change in the share price. Changes of .02 in the beta caused less volatility in the intrinsic value in comparison to the equity risk premium changes.

WACC vs. CV Growth We compared the continuing value growth rate to the weighted average cost of capital and found that both

metrics affected Terex’s intrinsic value by a very small amount. The .10% change in the CV growth rate caused slightly higher volatility in the stock price than with changes in WACC but both impacted the share price very moderately.

Marginal Tax Rate vs. Pre-tax Cost of Debt We decided to test the marginal tax rate to portray the effect the new federal income tax rate has on Terex’s intrinsic value. We found that changing the tax rate by increments of a 1%, the share price was impacted on average by $0.59. In addition, we compared the tax rate to the pre-tax cost of debt to see how a change in our corporate bond yields would impact our model. Changes of .10% caused even smaller volatility in price in comparison to the tax rates affect.

COGS vs. SG&A When testing COGS vs SG&A, both calculated as a percentage of sales, we found that the intrinsic stock price is moderately volatile with both metrics. Both of these metrics affect the NOPLAT calculation and moderately influence the target stock price.

DCF Share Price 30.78$ 1.65 1.67 1.69 1.71 1.73 1.75 1.775.10% 34.08 33.56 33.04 32.54 32.05 31.57 31.105.20% 33.24 32.72 32.22 31.72 31.24 30.77 30.305.30% 32.43 31.92 31.42 30.93 30.46 29.99 29.53

Equity Risk Premium 5.32% 32.27 31.76 31.26 30.78 30.30 29.84 29.385.40% 31.64 31.14 30.65 30.17 29.70 29.24 28.795.50% 30.88 30.39 29.90 29.43 28.97 28.52 28.075.60% 30.14 29.66 29.18 28.72 28.26 27.82 27.38

Beta

DCF Share Price 30.78$ 10.2% 10.3% 10.4% 10.5% 10.6% 10.7% 10.8%3.20% 32.05 31.38 30.73 30.10 29.48 28.88 28.303.30% 32.31 31.63 30.96 30.32 29.69 29.08 28.493.40% 32.57 31.87 31.20 30.55 29.91 29.29 28.69

CV Growth (g) 3.50% 32.84 32.13 31.44 30.78 30.13 29.50 28.893.60% 33.11 32.39 31.70 31.02 30.36 29.72 29.103.70% 33.40 32.67 31.95 31.26 30.59 29.94 29.313.80% 33.69 32.95 32.22 31.52 30.84 30.17 29.53

WACC

DCF Share Price 30.78$ 18% 19% 20% 21% 22% 23% 24%6.85% 32.92 32.33 31.74 31.15 30.56 29.96 29.366.95% 32.78 32.20 31.62 31.03 30.44 29.84 29.247.05% 32.65 32.07 31.49 30.90 30.31 29.72 29.13

Pre tax cost of debt 7.15% 32.51 31.94 31.36 30.78 30.19 29.61 29.017.25% 32.38 31.81 31.23 30.65 30.07 29.49 28.907.35% 32.25 31.68 31.11 30.53 29.95 29.37 28.797.45% 32.11 31.55 30.98 30.41 29.83 29.26 28.67

Marginal Tax Rate

DCF Share Price 30.78$ 77.4% 77.6% 77.8% 78.0% 78.2% 78.4% 78.6%12.1% 39.33 37.91 36.48 35.06 33.63 32.21 30.7912.3% 37.91 36.48 35.06 33.63 32.21 30.78 29.3612.5% 36.48 35.05 33.63 32.21 30.78 29.36 27.93

SG&A (% of sales) 12.7% 35.05 33.63 32.20 30.78 29.35 27.93 26.5012.9% 33.62 32.20 30.78 29.35 27.93 26.50 25.0813.1% 32.20 30.77 29.35 27.92 26.50 25.08 23.6513.3% 30.77 29.35 27.92 26.50 25.07 23.65 22.22

COGS (% of sales)

Sensitivity Analysis

12

Beta vs. Risk Free Rate In comparing these two metrics, we wanted to analyze the effect of changes in beta and the risk free rate, which are both key metrics in the calculation of WACC. Our model’s beta was based on the raw beta calculation found through Bloomberg and the risk free rate is from a 10-year treasury yield. While the intrinsic value of the stock is not greatly affected by changes in the risk free rate, it is volatile to changes in beta.

DCF Share Price 30.78$ 1.65 1.67 1.69 1.71 1.73 1.75 1.772.90% 33.82 33.28 32.75 32.24 31.73 31.23 30.753.00% 33.31 32.78 32.27 31.76 31.26 30.78 30.303.10% 32.82 32.30 31.79 31.29 30.81 30.33 29.87

Risk Free rate 3.21% 32.27 31.76 31.26 30.78 30.30 29.84 29.383.30% 31.85 31.35 30.87 30.39 29.92 29.46 29.023.40% 31.38 30.89 30.42 29.95 29.49 29.04 28.603.50% 30.92 30.45 29.98 29.52 29.07 28.63 28.20

Beta

13

1Fisher Investments on Industrials. John Wiley &

Sons, Inc. 2009. Print. 2 “Real Gross Domestic Product.” FRED, Federal

Reserve Bank of St. Louis, 26 Oct. 2018, fred.stlouisfed.org/series/GDPC1/.

3 “^TNX : Summary for CBOE Interest Rate 10 Year T No.” Yahoo! Finance, Yahoo!, 8 Nov. 2018, finance.yahoo.com/quote/%5ETNX?p=%5ETNX.

4 “ FOMC Meeting Announcement.” Econoday Economic Report, Economy, 8 Nov. 2018, us.econoday.com/byshoweventfull.asp?fid=481800&cust=us&year=2018&lid=0&prev=%2Fbyweek.asp#top.

5 “Currency Converter.” OANDA, www.oanda.com/currency/converter/.

6 Klein, Matthew C. “How Rising Oil Prices Will Affect the U.S.” Barron's, Barrons, 11 May 2018, www.barrons.com/articles/how-rising-oil-prices-will-affect-the-u-s-1526066957.

7 Donnelly, Grace. “These Industries Will Be Most Impacted by Trump's Steel and Aluminum Tariffs.” Fortune, Fortune, 2 Mar. 2018, fortune.com/2018/03/02/trump-steel-aluminum-tariff-industries/.

8 “Steel 2016-2018.”, Trading Economics, 9 Nov. 2018, tradingeconomics.com/commodity/steel.

9 Krauss, Clifford. “Iran Sanctions and Oil Prices: Who'll Feel the Pain?” The New York Times, The New York Times, 5 Nov. 2018, www.nytimes.com/2018/11/05/business/energy-environment/oil-prices-iran-sanctions.html.

10 “Ready for the Boom.” Http://Www.cranestodaymagazine.com, Cranes Today, 17 Aug. 2017, www.cranestodaymagazine.com/features/ready-for-the-boom-5902154/.

11 “Crude Oil 1946-2018.”, Trading Economics, 9 Nov. 2018, tradingeconomics.com/commodity/crude-oil.

12 “Capacity Utilization: Total Industry.” FRED, Federal Reserve Bank of St. Louis, 16 Oct. 2018, fred.stlouisfed.org/series/TCU.

13 Roth, Ryan. “Industrial Machinery & Equipment Wholesaling in the US.” IBISWorld: Where Knowledge Is Power, IBISWorld, July 2018, http://clients1.ibisworld.com.proxy.lib.uiowa.edu/reports/us/industry/competitivelandscape.aspx?entid=948

14 Mueller, Marian, et al. “Industrial Manufacturing Trends 2018-19.” Strategy& - the Global Strategy Consulting Team at PwC, PwC, 2018, www.strategyand.pwc.com/trend/2018-manufacturing.

15 Breunig, Matthias, and Niko Mohr. “Digital Machinery: How Companies Can Win the Changing Manufacturing Game.” McKinsey & Company, Dec. 2017, www.mckinsey.com/business-functions/digital-mckinsey/our-insights/digital-machinery-how-companies-can-win-the-changing-manufacturing-game.

16 Terex Corporation. (2018). 2017 annual report. Retrieved from https://www.sec.gov/cgi-bin/viewer?action=view&cik=97216&accession_number=0000097216-18-000024&xbrl_type=v

17 Newman, Daniel. “Top 5 Digital Transformation Trends In Manufacturing.” Forbes, Forbes Magazine, 8 Aug. 2017, www.forbes.com/sites/danielnewman/2017/08/08/top-5-digital-transformation-trends-in-manufacturing/#6729ab90249f.

18 Value Line Research Department. “Industry Overview: Machinery.” Value Line - The Most Trusted Name in Investment Research, Value Line, 2018, www.valueline.com/Stocks/Industries/Industry_Overview__Machinery.aspx#.W5V5aNhKhQI.

19 Samaha, Lee. “Construction Machinery: Investing Essentials.” The Motley Fool, The Motley Fool, 1 Aug. 2014, www.fool.com/investing/general/2014/08/01/construction-machinery-investing-essentials.aspx.

20 “Terex Corporation (TEX) Key Comps.” FactSet, FactSet, 2018, company-security.apps.factset.com/comps/TEX-US?action=set_identifier.

21 Motley Fool Transcribers. “Terex Corp (TEX) Q3 2018 Earnings Conference Call Transcript.” The Motley Fool, The Motley Fool, 2 Nov. 2018, www.fool.com/earnings/call-transcripts/2018/11/02/terex-corp-tex-q3-2018-earnings-conference-call-tr.aspx.

22 Merryman, Ray. “US Census Bureau Construction Spending Survey.” Census.gov, US Census Bureau, 2018, www.census.gov/construction/c30/c30index.html.

23 “Current US Inflation Rates: 2008-2018.” US Inflation Calculator, 11 Oct. 2018, www.usinflationcalculator.com/inflation/current-inflation-rates/.

24 Damodaran, Aswath. Damodaran Online: Home Page for Aswath Damodaran, 1 Nov. 2018, pages.stern.nyu.edu/~adamodar/.

27 Bloomberg TEX Beta 28 Bloomberg TEX NIA

References

14

Important Disclaimer

This report was created by students enrolled in the Security Analysis (6F:112) class at the University of Iowa. The report was originally created to offer an internal investment recommendation for the University of Iowa Krause Fund and its advisory board. The report also provides potential employers and other interested parties an example of the students’ skills, knowledge and abilities. Members of the Krause Fund are not registered investment advisors, brokers or officially licensed financial professionals. The investment advice contained in this report does not represent an offer or solicitation to buy or sell any of the securities mentioned. Unless otherwise noted, facts and figures included in this report are from publicly available sources. This report is not a complete compilation of data, and its accuracy is not guaranteed. From time to time, the University of Iowa, its faculty, staff, students, or the Krause Fund may hold a financial interest in the companies mentioned in this report.

Terex CorporationRevenue Decomposition

Fiscal Years Ending Dec. 31 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018E 2019E 2020E 2021E 2022E 2023ENet Sales AWP 2,386.90 838.10 1,076.30 1,750.00 2,104.60 2,131.00 2,369.70 2,213.40 1,977.80 2,071.50 2550 2639 2657 2463 2463 2463Cranes 2,964.60 1,964.20 1,419.20 1,543.00 1,491.90 1,925.50 1,791.10 1,699.70 1,274.50 1,194.00 1348 1440 1486 1279 1279 1279MHPS 354.40 1,077.30 1,840.30 1,698.50 1,783.40 1,445.80 MP 987.90 353.60 533.10 682.80 661.50 628.20 653.10 636.50 944.50 1,072.50 1245 1310 1346 1283 1283 1283Construction 2,123.50 951.90 1,081.20 1,505.60 1,308.70 820.00 836.60 673.60 Corporate and Other/ Eliminations

(75.90) (64.70) (56.00) (54.10) (58.60) (119.20) (125.00) (125.90) 246.30 25.40 0 0 0 0 0 0Total 8,387.00 4,043.10 4,408.20 6,504.60 7,348.40 7,084.00 7,308.90 6,543.10 4,443.10 4,363.40 5143 5389 5489 5025 5025 5025

Revenue Growth RateAWP -64.89% 28.42% 62.59% 20.26% 1.25% 11.20% -6.60% -10.64% 4.74% 23.10% 3.49% 0.68% -7.30% 0.00% 0.00%Cranes -33.74% -27.75% 8.72% -3.31% 29.06% -6.98% -5.10% -25.02% -6.32% 12.90% 6.82% 3.19% -13.93% 0.00% 0.00%MHPS 203.98% 70.83% -7.71% 5.00%MP -64.21% 50.76% 28.08% -3.12% -5.03% 3.96% -2.54% 48.39% 13.55% 16.08% 5.22% 2.75% -4.68% 0.00% 0.00%Construction -55.17% 13.58% 39.25% -13.08% -37.34% 2.02%Corporate and Other/ Eliminations

-14.76% -13.45% -3.39% 8.32% 103.41% 4.87% 0.72% -295.63% -89.69% -100.00% 0.00% 0.00% 0.00% 0.00% 0.00%Total -51.79% 9.03% 47.56% 12.97% -3.60% 3.17% -10.48% -32.09% -1.79% 17.87% 4.78% 1.86% -8.45% 0.00% 0.00%

Income (loss) from Operations AWP 215.40 (154.00) 2.80 86.30 227.70 325.80 302.80 270.20 177.40 170.30 289 312 317 272 272 272Cranes 392.90 80.40 54.60 25.70 143.40 110.50 85.90 56.30 (321.70) (17.80) -20 18 32 3 3 3MHPS (21.10) (64.70) 13.40 (41.80) (17.20)MP 110.10 (49.30) 24.50 59.50 75.30 71.80 60.60 68.60 86.30 124.80 156 165 169 148 148 148Construction (476.30) (282.90) (52.00) (18.40) (43.60) (24.80) 1.20 Corporate and Other/ Eliminations

(67.60) (54.10) (82.60) (7.20) (17.60) (22.40) (10.20) (71.40) (89.80) (103.70) -62 -53 -45 -58 -58 -58Total 174.50 (459.90) (73.80) 81.20 398.60 419.10 423.10 323.70 (147.80) 173.60 363 442 473 365 365 365

Terex CorporationIncome Statement

Fiscal Years Ending Dec. 31 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018E 2019E 2020E 2021E 2022E 2023ENet sales 9889.60 4043.10 4418.20 6504.60 7348.40 7084.00 7308.90 6543.10 4443.10 4363.40 5170.63 5351.60 5538.91 5483.52 5428.68 5591.54Cost of goods sold 7853.90 3643.60 3692.70 5393.90 5735.40 5483.10 5683.70 5116.30 3592.50 3513.60 4065.36 4174.25 4320.35 4277.14 4234.37 4361.40Depreciation and Amortization 97.70 96.80 104.80 126.60 153.00 152.30 155.70 128.20 96.70 61.90 57.54 62.80 67.09 70.59 73.44 75.76Gross profit 1927.70 274.90 602.90 960.30 1445.60 1439.50 1453.50 1308.50 712.40 816.00 1047.74 1114.55 1151.47 1135.78 1120.87 1154.37Selling, general & administrative expenses 1065.20 734.80 676.70 879.10 1047.00 1020.40 1030.40 918.60 684.20 642.40 679.65 679.65 703.44 696.41 689.44 710.13Goodwill impairment 459.90 - - - - - - 34.70 176.00 - 0.00 0.00 0.00 0.00 0.00 0.00Income (loss) from operations 402.60 -459.90 -73.80 81.20 398.60 419.10 423.10 355.20 -147.80 173.60 368.09 434.90 448.03 439.38 431.43 444.25Other Income (Expense) Interest income 22.40 4.90 9.80 14.30 8.80 6.70 6.60 4.30 4.30 6.90 5.17 5.35 5.54 5.48 5.43 5.59Interest expense 103.10 119.40 145.40 134.90 164.60 126.10 119.10 104.60 102.00 67.50 70.04 64.89 69.65 72.04 74.37 74.13Gain (loss) on early extinguishment of debt - -3.30 -1.40 -7.70 -83.00 -5.20 -2.60 -0.10 - -52.60 0.00 0.00 0.00 0.00 0.00 0.00Amortization of debt issuance costs 3.20 5.00 7.90 8.10 9.60 8.50 7.40 5.30 - - 0.00 0.00 0.00 0.00 0.00 0.00Other income (expense) - net -4.60 1.00 -19.60 139.70 5.40 5.30 -3.40 -22.90 -25.20 51.60 0.00 0.00 0.00 0.00 0.00 0.00Income (loss) from continuing operations before income 314.10 -581.70 -238.30 84.50 155.60 291.30 297.20 226.60 -270.70 112.00 303.21 375.36 383.91 372.82 362.48 375.71Provision for (benefit from) income taxes 242.20 -132.10 -26.80 50.40 54.20 87.40 37.70 81.00 -77.40 52.00 63.68 78.83 80.62 78.29 76.12 78.90Income (loss) from continuing operations 71.90 -449.60 -211.50 34.10 101.40 203.90 259.50 145.60 -193.30 60.00 239.54 296.54 303.29 294.53 286.36 296.81Income (loss) from discontinued operations, net of tax - 64.90 -15.30 5.80 1.80 14.40 1.40 - 14.30 - 0.00 0.00 0.00 0.00 0.00 0.00Gain (loss) on disposition of discontinued operations, ne - -12.60 589.30 0.80 0.40 2.60 58.60 3.40 3.50 68.70 0.00 0.00 0.00 0.00 0.00 0.00Net income (loss) 71.90 -397.30 362.50 40.70 103.60 220.90 319.50 149.00 -175.50 128.70 239.54 296.54 303.29 294.53 286.36 296.81Less: net income attributable to noncontrolling interest - -1.10 -4.00 4.50 2.20 5.10 -0.50 -3.10 0.30 - 0.00 0.00 0.00 0.00 0.00 0.00Net loss (income) from discontinued operations attributa - - - - - - - - -0.90 - 0.00 0.00 0.00 0.00 0.00 0.00Net (loss) income attributable to Terex Corporation - -398.40 358.50 45.20 105.80 226.00 319.00 145.90 -176.10 128.70 239.54 296.54 303.29 294.53 286.36 296.81Basic Earnings (Loss) per share attributable to Terex Corporation Common StockholdersNet income (loss) per common share - basic 0.73 -3.88 3.30 0.41 0.96 2.03 2.91 1.36 -1.63 1.39 2.83 3.66 3.91 3.94 3.97 4.25Dividends per common share 0.05 0.20 0.24 0.28 0.32 0.40 0.48 0.58 0.62 0.66 0.70Weighted average number of shares outstanding in per share calculationWeighted average common shares outstanding - basic 98.10 102.60 108.70 109.50 110.30 111.10 109.70 107.40 107.90 92.80 84.57 80.91 77.65 74.75 72.16 69.86

Terex CorporationBalance Sheet

Fiscal Years Ending Dec. 31 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018E 2019E 2020E 2021E 2022E 2023ECurrent Assets Cash & cash equivalents 484.40 929.50 894.20 774.10 678.00 408.10 478.20 466.50 428.50 626.50 327.29 453.17 550.45 696.11 798.55 857.98Investment in marketable securities 521.40 3.00 0.00 0.00 0.00 0.00Trade receivables, gross 1030.30 671.10 829.30 1220.60 1224.40 1116.90 968.80 529.00 596.10 661.00 684.13 708.08 701.00 693.99 714.81Less: allowance 62.80 61.10 46.80 42.50 47.60 30.50 29.60 16.50 16.20 20.60 20.35 21.23 21.24 20.83 21.51Trade receivables, net 967.50 610.00 782.50 1178.10 1077.70 1176.80 1086.40 939.20 512.50 579.90 640.40 663.78 686.85 679.76 673.16 693.29Inventories 2234.80 1418.50 1448.70 1758.10 1715.60 1613.20 1460.90 1445.70 853.80 969.60 1071.29 1108.79 1147.59 1136.12 1124.76 1158.50Deferred taxes 139.00 120.50 23.40 81.80 0.00 0.00 0.00 0.00 0.00 0.00Prepaid & other current assets 215.20 208.30 298.70 218.40 326.10 312.00 330.70 292.80 172.80 203.40 224.41 232.26 240.39 237.98 235.60 242.67Current assets held for sale 627.80 129.30 732.90 3.60 0.00 0.00 0.00 0.00 0.00 0.00Total current assets 4040.90 3914.60 3968.90 4013.50 3797.40 3639.40 3356.20 3144.20 2700.50 2383.00 2263.39 2457.99 2625.28 2749.97 2832.07 2952.44Non Current Assets Gross property, plant & equipment 788.70 962.20 922.30 1240.10 1233.20 1253.80 1163.30 1188.00 636.80 667.30 753.30 839.30 925.30 1011.30 1097.30 1183.30Less: accumulated depreciation 307.20 332.30 348.80 404.60 419.90 464.40 473.00 512.20 332.20 356.30 413.84 476.64 543.73 614.32 687.76 763.53Property, plant & equipment - net 481.50 629.90 573.50 835.50 813.30 789.40 690.30 675.80 304.60 311.00 339.47 362.66 381.57 396.98 409.54 419.77Goodwill 457.00 511.10 492.90 1258.80 1245.30 1245.60 1131.00 1023.20 259.70 273.60 273.60 273.60 273.60 273.60 273.60 273.60Intangible assets, net - - - 519.50 474.40 444.80 325.40 249.50 18.40 13.80 9.20 4.60 0.00 0.00 0.00 0.00Deferred taxes 84.50 153.40 90.50 70.20 - - - - - - 0.00 0.00 0.00 0.00 0.00 0.00Other assets 381.50 331.90 390.60 353.20 415.80 401.90 425.10 544.40 552.30 481.10 485.95 502.95 520.56 515.35 510.20 525.50Non-current assets held for sale - 172.90 - - - 15.60 - - 1171.30 - 0.00 0.00 0.00 0.00 0.00 0.00Total assets 5445.40 5713.80 5516.40 7050.70 6746.20 6536.70 5928.00 5637.10 5006.80 3462.50 3371.60 3601.81 3801.00 3935.90 4025.41 4171.32Current Liabilities Notes payable & current portion of long-term d 39.40 73.70 346.80 77.00 83.80 86.80 152.50 80.20 13.80 5.20 5.00 5.00 5.00 5.00 5.00 5.00Trade accounts payable 983.90 540.90 570.00 764.60 635.50 689.10 736.10 737.70 522.70 592.40 592.55 613.29 634.76 628.41 622.13 640.79Accrued compensation & benefits 169.30 135.50 128.50 222.30 226.20 234.30 204.00 188.20 125.10 159.60 155.12 160.55 166.17 164.51 162.86 167.75Accrued warranties & product liability 149.30 112.90 86.40 111.00 97.60 96.20 74.20 68.30 61.20 44.70 77.56 80.27 83.08 82.25 81.43 83.87Income taxes payable - - 186.80 185.30 83.50 - - - - - 0.00 0.00 0.00 0.00 0.00 0.00Other current liabilities 363.40 342.90 259.90 308.30 269.30 270.10 278.90 241.50 230.40 231.60 227.51 235.47 243.71 241.27 238.86 246.03Current liabilities held for sale - 216.80 - - - 46.10 - - 453.80 2.00 0.00 0.00 0.00 0.00 0.00 0.00Total current liabilities 1824.60 1554.70 1674.20 1891.70 1708.80 1724.70 1643.10 1458.60 1407.00 1035.50 1057.74 1094.59 1132.72 1121.44 1110.28 1143.44Non-current Liabilities Long-term debt, less current portion 1396.40 1892.70 1339.50 2223.40 2014.90 1889.90 1636.30 1751.00 1562.00 979.60 907.52 974.18 1007.57 1040.18 1036.73 1032.59Retirement plans - - - 344.60 430.70 388.20 432.50 375.70 153.80 151.30 142.30 133.30 124.30 115.30 106.30 97.30Other non-current liabilities 502.70 571.30 391.30 406.50 313.60 259.50 177.00 139.80 50.70 72.60 85.83 88.84 91.95 91.03 90.12 92.82Non-current liabilities - discontinued operation - 20.70 - - - 5.70 - - 312.10 1.00 0.00 0.00 0.00 0.00 0.00 0.00Total liabilities 3723.70 4039.40 3405.00 4866.20 4468.00 4268.00 3888.90 3725.10 3485.60 2240.00 2193.39 2290.90 2356.53 2367.95 2343.43 2366.15Redeemable noncontrolling interest - - - - 246.90 53.90 - - - - 0.00 0.00 0.00 0.00 0.00 0.00Stockholder's Equity Common Stock 1047.30 1254.70 1265.40 1273.00 1261.90 1248.70 1252.70 1274.60 1301.30 1323.30 1323.30 1323.30 1323.30 1323.30 1323.30 1323.30Retained earnings (accumulated deficit) 1356.60 958.20 1316.70 1361.90 1467.70 1688.10 1984.90 2104.60 1897.90 1995.90 2201.61 2459.31 2717.87 2966.35 3205.38 3453.57Accumulated other comprehensive income (lo -82.30 36.00 100.40 -129.40 -124.10 -116.50 -429.80 -649.60 -779.40 -239.50 -239.50 -239.50 -239.50 -239.50 -239.50 -239.50Less: cost of share of common stock in treasu 599.90 598.70 599.30 599.10 597.80 630.20 801.90 852.20 935.10 1857.70 2107.70 2232.70 2357.70 2482.70 2607.70 2732.70Total stockholders' equity (deficit) 1721.70 1650.20 2083.20 1906.40 2007.70 2190.10 2005.90 1877.40 1484.70 1222.00 1177.71 1310.41 1443.97 1567.45 1681.48 1804.67Noncontrolling interest - 24.20 28.20 278.10 23.60 24.70 33.20 34.60 36.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50Total stockholders' equity - 1674.40 2111.40 2184.50 2031.30 2214.80 2039.10 1912.00 1521.20 1222.50 1177.71 1310.41 1443.97 1567.45 1681.48 1804.67Total liabilities and stockholder's equity 5445.40 5713.80 5516.40 7050.70 6499.30 6482.80 5928.00 5637.10 5006.80 3462.50 3371.60 3601.81 3801.00 3935.90 4025.41 4171.32

Terex CorporationCash Flow Statement

Fiscal Years Ending Dec. 31 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017Net income (loss) 71.9 -397.3 362.5 40.7 103.6 220.9 319.5 149 -175.5 128.7

Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities:Discontinued operations - - - -6.6 -2.2 - - - - -(Income) loss from discontinued operations - -64.9 15.3 - - - - - - -Depreciation & amortization 97.7 96.8 104.8 126.6 153 152.3 155.7 128.2 96.7 66.5(Gain) loss on disposition of discontinued operations - 12.6 -589.3 - - - -58.6 -3.4 -3.5 -68.7Deferred taxes 20.5 -145 108 -2 -25.2 -2.3 -17.8 -2.6 -137.6 37.6Goodwill impairment 459.9 - - - - - - - 176 -Asset impairment - 5.4 11.4 - - - - - 70 6.8Loss (gain) on sale of assets -1.5 -1.8 -3.3 -173.5 -5.9 4.3 16.6 -1 -5.8 -58Loss on early extinguishment of debt - 3.3 1.4 - 99 5.2 2.6 0.1 - 52.6Accretion of debt - - 11.9 - - - - - - -Loss on investments in derivative securities - - 20.8 - - - - - - -Stock-based compensation expense 58.2 31.8 34.9 23.4 29.1 43.9 46.5 38.5 37.8 38.5Inventory & other non-cash charges - - - - - - - - 60.6 34Excess tax benefit from stock-based compensation -8.9 - -1.1 - - - - - - -Other non-cash charges - - - 96.4 70.1 53.1 32.3 72.9 - -

Changes in operating assets and liabilities (net of effects of acquisitions and divestitures):Trade receivables 143.6 321 -201.8 -181.2 122.5 -153.1 -4.2 74.1 33 -0.5Inventories -404.9 537.7 -153.6 -26.1 -55 -70.4 -27.1 -90.6 97.3 -33.5Trade accounts payable -137.5 -428.8 36.1 64.6 -126.3 86.9 85.8 41.7 -21 25Accrued compensation & benefits -43.3 -53.4 -5.7 - - - - - - -Income taxes payable/ receivable - - - 74.4 -108.7 -80.7 -68.3 16.1 16.9 -14.7Income taxes payable - 3.9 -97.5 - - - - - - -Accrued warranties & product liability 25.4 -30.5 -24.2 - - - - - - -Customer advances -46.7 23 -32.5 - 97.1 -16.5 -75.2 -47.1 - -Other current assets - - -103.7 - - - - - - -Other operating assets & liabilities, net -50.7 17.6 -104.5 -56.3 -67.7 -46.4 -17.4 -181.5 165.6 -29.8Other operating activities, net - - - 38.7 8.9 -8.7 20.3 18.5 - -Foreign exchange & other operating activities, net - - - - - - - - -43.5 -31.5Net cash flows from operating activities 183.7 -68.6 -610.1 19.1 292.3 188.5 410.7 212.9 367 153INVESTING ACTIVITIESCapital expenditures -120.8 -51.4 -55 -79.1 -82.5 -82.8 -81.5 -103.8 -73 -43.5Acquisition of businesses, net of cash acquired -481.5 -9.8 -12.8 -1035.2 -3.4 - - -71.2 -7 -Other investments - - - - -24.1 - -20 - - -Investments in & advances to affiliates - - -19.3 - - - - - - -Proceeds (payments) from disposition of discontinued operations - - 1002 0.5 3.5 - 162.2 -0.2 3.5 775.7Investments in derivative securities - - -21.1 -16.1 - - - - - -Proceeds from sale of assets 23 6.1 10 539.6 34.6 46.1 43.3 3.1 67.2 803.4Other investing activities, net - - - -2.2 -4.4 -0.7 -9 -0.6 -2.5 -Net cash flows from investing activities -579.3 -55.1 903.8 -592.5 -76.3 -37.4 95 -172.7 -11.8 1535.6FINANCING ACTIVITIESRepayments of debt - -130.5 -274.7 -444.2 -1533 -571.8 -1801.8 -1397.8 -1286.3 -1594.1Proceeds from issuance of debt - 620.6 - 926.7 1234.3 425.2 1684.2 1462.8 1097.7 1010.7Payment of debt extinguishment costs - - - - - - - - - -36.4Proceeds from issuance of common stock - net - 156.3 - - - - - - - -Payment of debt issuance costs - -17.2 -7.8 -26.6 -20.7 - - - - -Excess tax benefit from stock-based compensation 8.9 - 1.1 - - - - - - -Net borrowings (repayments) under revolving line of credit agreements 36.7 -60.8 -16.9 - - - - - - -Proceeds from stock options exercised 2.5 0.6 - - - - - - - -Distributions to noncontrolling interest - -1.7 -12.9 -6.3 -3.5 -228.1 -80.3 -1.2 - -Purchase of noncontrolling interest, net - -7.1 -3.4 - -4.9 -18.5 - -0.3 - -Proceeds from (purchase of) noncontrolling interest, net - - - - - - - - 2.9 -Share repurchases -395.5 - -1.2 - - -31.4 -171.2 -50.8 -82.7 -924.9Dividends paid - - - - - -5.5 -21.8 -25.8 -30 -29.5Other financing activities - net -1.8 -1.4 0.1 4.6 4.5 10 -5.8 -1.3 -1.7 -32.3Net cash flows from financing activities -349.2 558.8 -315.7 454.2 -323.3 -420.1 -396.7 -14.4 -300.1 -1606.5Net cash flows from operating activities of discontinued operations - 30.9 -53.1 - - - - - - -Net cash flows from investing activities of discontinued operations - -6 0.1 - - - - - - -Net cash flows from financing activities of discontinued operations - -0.2 - - - - - - - -Net cash cash flows from discontinued operations - 24.7 -53 - - - - - - -Effect of exchange rate changes on cash & cash equivalents -43.2 27 -2 -0.9 11.2 -0.9 -38.9 -37.5 -19.7 46.1Net increase (decrease) in cash & cash equivalents -788 486.8 -77 -120.1 -96.1 -269.9 70.1 -11.7 35.4 128.2Cash & cash equivalents at beginning of period 1272.4 484.4 971.2 894.2 774.1 678 408.1 478.2 466.5 501.9Cash & cash equivalents at end of period 484.4 971.2 894.2 774.1 678 408.1 478.2 466.5 501.9 630.1

Terex CorporationCash Flow Statement

Fiscal Years Ending Dec. 31 2018E 2019E 2020E 2021E 2022E 2023ENet income (loss) 239.54 296.54 303.29 294.53 286.36 296.81Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities:Depreciation Expense 57.54 62.80 67.09 70.59 73.44 75.76Increase (decrease) in current Assets:

Trade receivables, net -60.50 -23.38 -23.07 7.09 6.60 -20.13Inventories -101.69 -37.50 -38.81 11.48 11.36 -33.74Prepaid & other current assets -21.01 -7.85 -8.13 2.40 2.38 -7.07Current Assets Held for Sale 3.60 0.00 0.00 0.00 0.00 0.00

Increase (decrease) in current liabilities:Trade accounts payable 0.15 20.74 21.47 -6.35 -6.28 18.66Accrued compensation & benefits -4.48 5.43 5.62 -1.66 -1.65 4.89Retirement Plans -9.00 -9.00 -9.00 -9.00 -9.00 -9.00Accrued warranties & product liability 32.86 2.71 2.81 -0.83 -0.82 2.44Other Current Liabilities -4.09 7.96 8.24 -2.44 -2.41 7.17

Net Cash Provided by Operating Activities 132.92 318.46 329.51 365.81 359.98 335.79

Cash From Investing ActivitiesInvestment in Marketable Securities 0.00 0.00 0.00 0.00 0.00 0.00Capital Expenditures -86.00 -86.00 -86.00 -86.00 -86.00 -86.00Capitalization of Intangibles 4.60 4.60 4.60 0.00 0.00 0.00Other Assets -4.85 -17.01 -17.60 5.21 5.15 -15.31

Net Cash Used for Investing Activities -86.25 -98.41 -99.00 -80.79 -80.85 -101.31

Cash from Financing ActivitiesLiabilities for Sale -2.00Notes Payable -0.20 0.00 0.00 0.00 0.00 0.00Discontinued Operations -1.00 0.00 0.00 0.00 0.00 0.00Long Term Debt -72.08 66.66 33.39 32.61 -3.44 -4.14Other Noncurrent Liabilities 13.23 3.00 3.11 -0.92 -0.91 2.70Payment of dividends -33.83 -38.84 -44.73 -46.04 -47.34 -48.62Repurchases of Common Stock -250.00 -125.00 -125.00 -125.00 -125.00 -125.00Changes in AOCI 0.00 0.00 0.00 0.00 0.00 0.00

Net Cash provided by Financing -345.88 -94.17 -133.23 -139.35 -176.69 -175.06

Net Change in Cash -299.21 125.87 97.28 145.66 102.44 59.43Beginning Cash 626.50 327.29 453.17 550.45 696.11 798.55End Cash 327.29 453.17 550.45 696.11 798.55 857.98

Terex CorporationCommon Size Income Statement

Fiscal Years Ending Dec. 31 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018E 2019E 2020E 2021E 2022E 2023ENet sales 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%Cost of goods sold 79.42% 90.12% 83.58% 82.92% 78.05% 77.40% 77.76% 78.19% 80.86% 80.52% 78.62% 78.00% 78.00% 78.00% 78.00% 78.00%Depreciation Expense 0.99% 2.39% 2.37% 1.95% 2.08% 2.15% 2.13% 1.96% 2.18% 1.42% 1.11% 1.17% 1.21% 1.29% 1.35% 1.35%Gross profit 19.49% 6.80% 13.65% 14.76% 19.67% 20.32% 19.89% 20.00% 16.03% 18.70% 20.26% 20.83% 20.79% 20.71% 20.65% 20.65%Selling, general & administrative expenses 10.77% 18.17% 15.32% 13.52% 14.25% 14.40% 14.10% 14.04% 15.40% 14.72% 13.14% 12.70% 12.70% 12.70% 12.70% 12.70%Goodwill impairment 4.65% 0.53% 3.96% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Income (loss) from operations 4.07% -11.37% -1.67% 1.25% 5.42% 5.92% 5.79% 5.43% -3.33% 3.98% 7.12% 8.13% 8.09% 8.01% 7.95% 7.95%Other Income (Expense) 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Interest income 0.23% 0.12% 0.22% 0.22% 0.12% 0.09% 0.09% 0.07% 0.10% 0.16% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10%Interest expense 1.04% 2.95% 3.29% 2.07% 2.24% 1.78% 1.63% 1.60% 2.30% 1.55% 1.35% 1.21% 1.26% 1.31% 1.37% 1.33%Gain (loss) on early extinguishment of debt -0.08% -0.03% -0.12% -1.13% -0.07% -0.04% 0.00% -1.21% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Amortization of debt issuance costs 0.03% 0.12% 0.18% 0.12% 0.13% 0.12% 0.10% 0.08% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Other income (expense) - net -0.05% 0.02% -0.44% 2.15% 0.07% 0.07% -0.05% -0.35% -0.57% 1.18% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Income (loss) from continuing operations before income 3.18% -14.39% -5.39% 1.30% 2.12% 4.11% 4.07% 3.46% -6.09% 2.57% 5.86% 7.01% 6.93% 6.80% 6.68% 6.72%Provision for (benefit from) income taxes 2.45% -3.27% -0.61% 0.77% 0.74% 1.23% 0.52% 1.24% -1.74% 1.19% 1.23% 1.47% 1.46% 1.43% 1.40% 1.41%Income (loss) from continuing operations 0.73% -11.12% -4.79% 0.52% 1.38% 2.88% 3.55% 2.23% -4.35% 1.38% 4.63% 5.54% 5.48% 5.37% 5.27% 5.31%Income (loss) from discontinued operations, net of tax 1.61% -0.35% 0.09% 0.02% 0.20% 0.02% 0.32% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Gain (loss) on disposition of discontinued operations, ne -0.31% 13.34% 0.01% 0.01% 0.04% 0.80% 0.05% 0.08% 1.57% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Net income (loss) 0.73% -9.83% 8.20% 0.63% 1.41% 3.12% 4.37% 2.28% -3.95% 2.95% 4.63% 5.54% 5.48% 5.37% 5.27% 5.31%Less: net income attributable to noncontrolling interest -0.03% -0.09% 0.07% 0.03% 0.07% -0.01% -0.05% 0.01% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Net loss (income) from discontinued operations attributa -0.02% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Net (loss) income attributable to Terex Corporation -9.85% 8.11% 0.69% 1.44% 3.19% 4.36% 2.23% -3.96% 2.95% 4.63% 5.54% 5.48% 5.37% 5.27% 5.31%

Terex CorporationCommon Size Balance Sheet

Fiscal Years Ending Dec. 31 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018E 2019E 2020E 2021E 2022E 2023ECurrent Assets Cash & cash equivalents 4.90% 22.99% 20.24% 11.90% 9.23% 5.76% 6.54% 7.13% 9.64% 14.36% 6.33% 8.47% 9.94% 12.69% 14.71% 15.34%Investment in marketable securities 0.00% 0.00% 11.80% 0.05% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Trade receivables, gross 10.42% 16.60% 18.77% 18.77% 0.00% 17.28% 15.28% 14.81% 11.91% 13.66% 12.78% 12.78% 12.78% 12.78% 12.78% 12.78%Less: allowance 0.64% 1.51% 1.06% 0.65% 0.00% 0.67% 0.42% 0.45% 0.37% 0.37% 0.40% 0.38% 0.38% 0.39% 0.38% 0.38%Trade receivables, net 9.78% 15.09% 17.71% 18.11% 14.67% 16.61% 14.86% 14.35% 11.53% 13.29% 12.39% 12.40% 12.40% 12.40% 12.40% 12.40%Inventories 22.60% 35.08% 32.79% 27.03% 23.35% 22.77% 19.99% 22.10% 19.22% 22.22% 20.72% 20.72% 20.72% 20.72% 20.72% 20.72%Deferred taxes 1.41% 2.98% 0.53% 1.26% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Prepaid & other current assets 2.18% 5.15% 6.76% 3.36% 4.44% 4.40% 4.52% 4.47% 3.89% 4.66% 4.34% 4.34% 4.34% 4.34% 4.34% 4.34%Current assets held for sale 0.00% 15.53% 0.00% 0.00% 0.00% 1.83% 0.00% 0.00% 16.50% 0.08% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Total current assets 40.86% 96.82% 89.83% 61.70% 51.68% 51.37% 45.92% 48.05% 60.78% 54.61% 43.77% 45.93% 47.40% 50.15% 52.17% 52.80%Non Current Assets Gross property, plant & equipment 7.98% 23.80% 20.88% 19.06% 16.78% 17.70% 15.92% 18.16% 14.33% 15.29% 14.57% 15.68% 16.71% 18.44% 20.21% 21.16%Less: accumulated depreciation 3.11% 8.22% 7.89% 6.22% 5.71% 6.56% 6.47% 7.83% 7.48% 8.17% 8.00% 8.91% 9.82% 11.20% 12.67% 13.66%Property, plant & equipment - net 4.87% 15.58% 12.98% 12.84% 11.07% 11.14% 9.44% 10.33% 6.86% 7.13% 6.57% 6.78% 6.89% 7.24% 7.54% 7.51%Goodwill 4.62% 12.64% 11.16% 19.35% 16.95% 17.58% 15.47% 15.64% 5.85% 6.27% 5.29% 5.11% 4.94% 4.99% 5.04% 4.89%Intangible assets, net 7.99% 6.46% 6.28% 4.45% 3.81% 0.41% 0.32% 0.18% 0.09% 0.00% 0.00% 0.00% 0.00%Deferred taxes 0.85% 3.79% 2.05% 1.08% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Other assets 3.86% 8.21% 8.84% 5.43% 5.66% 5.67% 5.82% 8.32% 12.43% 11.03% 9.40% 9.40% 9.40% 9.40% 9.40% 9.40%Non-current assets held for sale 4.28% 0.22% 26.36% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Total assets 55.06% 141.32% 124.86% 108.40% 91.81% 92.27% 81.11% 86.15% 112.69% 79.35% 65.21% 67.30% 68.62% 71.78% 74.15% 74.60%Current Liabilities Notes payable & current portion of lo 0.40% 1.82% 7.85% 1.18% 1.14% 1.23% 2.09% 1.23% 0.31% 0.12% 0.10% 0.09% 0.09% 0.09% 0.09% 0.09%Trade accounts payable 9.95% 13.38% 12.90% 11.75% 8.65% 9.73% 10.07% 11.27% 11.76% 13.58% 11.46% 11.46% 11.46% 11.46% 11.46% 11.46%Accrued compensation & benefits 1.71% 3.35% 2.91% 3.42% 3.08% 3.31% 2.79% 2.88% 2.82% 3.66% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00%Accrued warranties & product liability 1.51% 2.79% 1.96% 1.71% 1.33% 1.36% 1.02% 1.04% 1.38% 1.02% 1.50% 1.50% 1.50% 1.50% 1.50% 1.50%Customer advancesIncome taxes payable 4.23% 2.85% 1.14% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Other current liabilities 3.67% 8.48% 5.88% 4.74% 3.66% 3.81% 3.82% 3.69% 5.19% 5.31% 4.40% 4.40% 4.40% 4.40% 4.40% 4.40%Current liabilities held for sale 5.36% 0.65% 10.21% 0.05% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Total current liabilities 18.45% 38.45% 37.89% 29.08% 23.25% 24.35% 22.48% 22.29% 31.67% 23.73% 20.46% 20.45% 20.45% 20.45% 20.45% 20.45%Non-current Liabilities Long-term debt, less current portion 14.12% 46.81% 30.32% 34.18% 27.42% 26.68% 22.39% 26.76% 35.16% 22.45% 17.55% 18.20% 18.19% 18.97% 19.10% 18.47%Retirement plans 5.30% 5.86% 5.48% 5.92% 5.74% 3.46% 3.47% 2.75% 2.49% 2.24% 2.10% 1.96% 1.74%Other non-current liabilities 5.08% 14.13% 8.86% 6.25% 4.27% 3.66% 2.42% 2.14% 1.14% 1.66% 1.66% 1.66% 1.66% 1.66% 1.66% 1.66%Non-current liabilities - discontinued o 0.51% 0.08% 7.02% 0.02% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Total liabilities 37.65% 99.91% 77.07% 74.81% 60.80% 60.25% 53.21% 56.93% 78.45% 51.34% 42.42% 42.81% 42.55% 43.18% 43.17% 42.32%Redeemable noncontrolling interest 3.36% 0.76% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Stockholder's Equity Common Stock 10.59% 31.03% 28.64% 19.57% 17.17% 17.63% 17.14% 19.48% 29.29% 30.33% 25.59% 24.73% 23.89% 24.13% 24.38% 23.67%Retained earnings (accumulated defi 13.72% 23.70% 29.80% 20.94% 19.97% 23.83% 27.16% 32.17% 42.72% 45.74% 42.58% 45.95% 49.07% 54.10% 59.05% 61.76%Accumulated other comprehensive in -0.83% 0.89% 2.27% -1.99% -1.69% -1.64% -5.88% -9.93% -17.54% -5.49% -4.63% -4.48% -4.32% -4.37% -4.41% -4.28%Less: cost of share of common stock 6.07% 14.81% 13.56% 9.21% 8.14% 8.90% 10.97% 13.02% 21.05% 42.57% 40.76% 41.72% 42.57% 45.28% 48.04% 48.87%Total stockholders' equity (deficit) 17.41% 40.82% 47.15% 29.31% 27.32% 30.92% 27.44% 28.69% 33.42% 28.01% 22.78% 24.49% 26.07% 28.58% 30.97% 32.27%Noncontrolling interest 0.60% 0.64% 4.28% 0.32% 0.35% 0.45% 0.53% 0.82% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01%Total stockholders' equity 41.41% 47.79% 33.58% 27.64% 31.26% 27.90% 29.22% 34.24% 28.02% 22.78% 24.49% 26.07% 28.58% 30.97% 32.27%Total liabilities, redeemable noncontr 55.06% 141.32% 124.86% 108.40% 88.45% 91.51% 81.11% 86.15% 112.69% 79.35% 65.21% 67.30% 68.62% 71.78% 74.15% 74.60%

Terex CorporationValue Driver Estimation

Fiscal Years Ending Dec. 31 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018E 2019E 2020E 2021E 2022E 2023ENOPLAT Calculation: Operating Revenues 9889.60 4043.10 4418.20 6504.60 7348.40 7084.00 7308.90 6543.10 4443.10 4363.40 5170.63 5351.60 5538.91 5483.52 5428.68 5591.54COGS 7853.90 3643.60 3692.70 5393.90 5735.40 5483.10 5683.70 5116.30 3592.50 3513.60 4065.36 4174.25 4320.35 4277.14 4234.37 4361.40SG&A 1065.20 734.80 676.70 879.10 1047.00 1020.40 1030.40 918.60 684.20 642.40 679.65 679.65 703.44 696.41 689.44 710.13Depreciation Expense 97.70 96.80 104.80 126.60 153.00 152.30 155.70 128.20 96.70 61.90 57.54 62.80 67.09 70.59 73.44 75.76Add: Implied interest on operating leases 19.39 14.04 12.51 14.79 15.42 14.86 12.48 12.89 7.31 8.52 8.35 8.18 8.02 7.86 7.70EBITA 872.80 -412.71 -41.96 117.51 427.79 443.62 453.96 392.48 82.59 152.81 376.60 443.25 456.21 447.39 439.28 451.95

Income Tax Expense 242.20 -132.10 -26.80 50.40 54.20 87.40 37.70 81.00 -77.40 52.00 63.68 78.83 80.62 78.29 76.12 78.90Plus: Tax shield on interest expense 72.61 -2.98 82.25 83.65 83.99 39.48 22.20 31.34 -28.60 8.62 14.71 13.63 14.63 15.13 15.62 15.57Less: Tax on interest income 15.77 -0.12 5.54 8.87 4.49 2.10 1.23 1.29 -1.21 0.88 1.09 1.12 1.16 1.15 1.14 1.17Plus: Tax shield from impairment of goodwill 323.88 10.40 -49.35 0.00 0.00 0.00 0.00 0.00 0.00Less: Gain (loss) on extinguishment of debt 0.08 -0.79 -4.77 -42.35 -1.63 -0.48 -0.03 -6.72 0.00 0.00 0.00 0.00 0.00 0.00Plus: Tax on lease interest -0.48 7.94 7.76 7.55 4.83 2.77 3.74 -3.61 0.93 1.79 1.75 1.72 1.68 1.65 1.62Plus: Tax shield on amortization of debt issuance costs 2.25 -0.12 4.47 5.02 4.90 2.66 1.38 1.59Less: Tax on other income (expense) -3.24 -0.02 -11.09 86.63 2.76 1.66 -0.63 -6.86 7.07 6.59 0.00 0.00 0.00 0.00 0.00 0.00Less: Total Adjusted Taxes 628.40 -135.14 66.25 48.35 178.20 127.41 61.17 129.93 -161.21 59.87 77.30 91.33 94.09 92.27 90.60 93.29

Net Deferred Tax Liability -182.60 -234.20 -49.70 -4.80 -54.50 -3.40 -52.90 -76.10 -181.80 -160.70Less: Previous Year Deferred Tax Liability -231.90 -182.60 -234.20 -49.70 -4.80 -54.50 -3.40 -52.90 -76.10 -181.80Plus: Change in Deferred Taxes 49.30 -51.60 184.50 44.90 -49.70 51.10 -49.50 -23.20 -105.70 21.10 0.00 0.00 0.00 0.00 0.00 0.00

NOPLAT 293.70 -329.17 76.29 114.06 199.89 367.31 343.30 239.35 138.10 114.05 299.31 351.92 362.12 355.13 348.68 358.66

Invested Capital Calculation:Normal Cash 484.40 198.03 216.41 318.60 359.93 346.98 358.00 320.49 217.63 213.72 253.26 262.13 271.30 268.59 265.90 273.88Trade Accounts receivable, net 967.50 610.00 782.50 1178.10 1077.70 1176.80 1086.40 939.20 512.50 579.90 640.40 663.78 686.85 679.76 673.16 693.29Inventories 2234.80 1418.50 1448.70 1758.10 1715.60 1613.20 1460.90 1445.70 853.80 969.60 1071.29 1108.79 1147.59 1136.12 1124.76 1158.50Prepaid & other current assets 215.20 208.30 298.70 218.40 326.10 312.00 330.70 292.80 172.80 203.40 224.41 232.26 240.39 237.98 235.60 242.67Trade accounts payable 983.90 540.90 570.00 764.60 635.50 689.10 736.10 737.70 522.70 592.40 592.55 613.29 634.76 628.41 622.13 640.79Accrued compensation & benefits 169.30 135.50 128.50 222.30 226.20 234.30 204.00 188.20 125.10 159.60 155.12 160.55 166.17 164.51 162.86 167.75Accrued warranties & product liability 149.30 112.90 86.40 111.00 97.60 96.20 74.20 68.30 61.20 44.70 77.56 80.27 83.08 82.25 81.43 83.87Income taxes payable 186.80 185.30 83.50Other current liabilities 363.40 342.90 259.90 308.30 269.30 270.10 278.90 241.50 230.40 231.60 227.51 235.47 243.71 241.27 238.86 246.03

Operating Working Capital 2236.00 1302.63 1514.71 1881.70 2167.23 2159.28 1942.80 1762.49 817.33 938.32 1136.62 1177.37 1218.41 1206.00 1194.14 1229.90Plus: Net PPE 481.50 629.90 573.50 835.50 813.30 789.40 690.30 675.80 304.60 311.00 339.47 362.66 381.57 396.98 409.54 419.77

Net intangible assets 519.50 474.40 444.80 325.40 249.50 18.40 13.80 9.20 4.60 0.00 0.00 0.00 0.00PV of operating leases 271.22 196.41 175.00 206.81 215.70 207.89 174.57 180.26 102.30 119.14 116.76 114.43 112.14 109.89 107.70 105.54Other assets 381.50 331.90 390.60 353.20 415.80 401.90 425.10 544.40 552.30 481.10 485.95 502.95 520.56 515.35 510.20 525.50

Plus: Other L-T Operating Assets 652.72 528.31 565.60 1079.51 1105.90 1054.59 925.07 974.16 673.00 614.04 611.91 621.98 632.69 625.25 617.89 631.05Warranty liabilities 149.30 112.90 86.40 111.00 97.60 96.20 74.20 68.30 61.20 44.70 77.56 80.27 83.08 82.25 81.43 83.87Other liabilities 502.70 571.30 391.30 406.50 313.60 259.50 177.00 139.80 50.70 72.60 85.83 88.84 91.95 91.03 90.12 92.82

Less: Other L-T Operating Liabilities 652.00 684.20 477.70 517.50 411.20 355.70 251.20 208.10 111.90 117.30 163.39 169.11 175.03 173.28 171.55 176.69Invested Capital 2718.22 1776.64 2176.10 3279.21 3675.23 3647.56 3306.97 3204.34 1683.03 1746.07 1924.60 1992.90 2057.64 2054.95 2050.03 2104.03Change in Invested Capital -941.58 399.46 1103.11 396.02 -27.67 -340.59 -102.63 -1521.31 63.04 178.53 68.30 64.75 -2.69 -4.92 54.00

NOPLAT -329.17 76.29 114.06 199.89 367.31 343.30 239.35 138.10 114.05 299.31 351.92 362.12 355.13 348.68 358.66Less: Change in Invested Capital -941.58 399.46 1103.11 396.02 -27.67 -340.59 -102.63 -1521.31 63.04 178.53 68.30 64.75 -2.69 -4.92 54.00

Free Cash Flow 612.41 -323.17 -989.05 -196.13 394.98 683.89 341.98 1659.41 51.01 120.77 283.62 297.38 357.82 353.60 304.65

NOPLAT -329.17 76.29 114.06 199.89 367.31 343.30 239.35 138.10 114.05 299.31 351.92 362.12 355.13 348.68 358.66IC (T-1) 2718.22 1776.64 2176.10 3279.21 3675.23 3647.56 3306.97 3204.34 1683.03 1746.07 1924.60 1992.90 2057.64 2054.95 2050.03

Return on Invested Capital -12.11% 4.29% 5.24% 6.10% 9.99% 9.41% 7.24% 4.31% 6.78% 17.14% 18.29% 18.17% 17.26% 16.97% 17.50%

IC (T-1) 2718.22 1776.64 2176.10 3279.21 3675.23 3647.56 3306.97 3204.34 1683.03 1746.07 1924.60 1992.90 2057.64 2054.95 2050.03ROIC -0.12 0.04 0.05 0.06 0.10 0.09 0.07 0.04 0.07 0.17 0.18 0.18 0.17 0.17 0.17WACC 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10

EP -613.58 -109.60 -113.63 -143.22 -17.23 -38.36 -106.66 -197.18 -62.05 116.61 150.54 153.60 139.83 133.67 144.16

NOPLAT -329.17 76.29 114.06 199.89 367.31 343.30 239.35 138.10 114.05 299.31 351.92 362.12 355.13 348.68 358.66IC (T-1) 2718.22 1776.64 2176.10 3279.21 3675.23 3647.56 3306.97 3204.34 1683.03 1746.07 1924.60 1992.90 2057.64 2054.95 2050.03WACC 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10

EP (alternate calculation) -613.58 -109.60 -113.63 -143.22 -17.23 -38.36 -106.66 -197.18 -62.05 116.61 150.54 153.60 139.83 133.67 144.16

Terex CorporationWeighted Average Cost of Capital (WACC) Estimation

Risk Free 3.21%Risk Premium 5.32%Beta 1.71Cost of Equity 12.31%

Debt Rating BBPre-Tax Cost of Debt 7.15%Tax Rate 21%After-Tax Cost of Debt 5.65%

MV Weight of Equity 72.27%MV Weight of Debt 27.73%

Forward WACC 10.46%

Terex CorporationDiscounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models

Key Inputs: CV Growth 3.50% CV ROIC 17% WACC 10.46% Cost of Equity 12.31%

Fiscal Years Ending Dec. 31 2018E 2019E 2020E 2021E 2022E 2023E

DCF ModelNOPLAT 299 352 362 355 349 359Change in Invested Capital 178.5 68.3 64.7 -2.7 -4.9 54.0FCF 120.77 283.62 297.38 357.82 353.60 304.65ROIC 17% 18% 18% 17% 17% 17%Continuing Value 4120

CF to Discount 121 284 297 358 354 4120Discount Periods 1 2 3 4 5 5PV of Cash Flows 109 232 221 240 215 2505

Value of Operating Assets 3523Less: Debt 908Less: PV Operating Leases 117Less: Retirement Plans 142Value of Equity 2356Shares Outstanding 85Intrinsic Value (per share) 30.78$

EP ModelEconomic Profit to Discount 117 151 154 140 134 144Continuing Value (CV) 2070Discount Periods 1 2 3 4 5 5PV of FCF Discounted by WACC 106 123 114 94 81 1259

PV (EP) 1777Plus: Beginning Invested Capital 1746Value of Operating Assets 3523Less: Debt 908Less: PV Operating Leases 117Less: Retirement Plans 142Value of Equity 2356Shares Outstanding 85Intrinsic Value (per share) 30.78

Terex CorporationDividend Discount Model (DDM) or Fundamental P/E Valuation Model

Fiscal Years Ending 2018E 2019E 2020E 2021E 2022E 2023EEPS 2.83$ 3.66$ 3.91$ 3.94$ 3.97$ 4.25$

Key Assumptions CV growth 3.50% CV ROE 16.45% Cost of Equity 12.31%

Future Cash Flows P/E Multiple (CV Year) 8.94 EPS (CV Year) 4.25$ Future Stock Price 37.96 Dividends Per Share 0.40 0.48 0.58 0.62 0.66 0.70 Future Cash Flows 0.40 0.48 0.58 0.62 0.66 37.96$

Discount Periods 1 2 3 4 5 5Discounted Cash Flows 0.36 0.38 0.41 0.39 0.37 21.25

Intrinsic Value 25.17$

Terex CorporationRelative Valuation Models

EPS EPSTicker Company Price 2018E 2019E P/E 18 P/E 19OSK Oshkosh Corporation $56.37 $6.03 $6.49 9.35 8.69 LIMAF Linamar Company $41.93 $6.26 $7.33 6.70 5.72 MXTOF Metso Corporation $30.58 $1.72 $2.06 17.78 14.84 GNRC Generac Holdings Inc $53.24 $4.13 $4.26 12.89 12.50 CNHI CNH Industiral N.V. $10.20 $0.73 $0.86 13.97 11.86 CAT Caterpillar $118.98 $11.66 $12.90 10.20 9.22

Average 11.82 10.47

TEX Terex Corporation $30.39 $2.83 $3.66 10.7 8.3

Implied Relative Value: P/E (EPS18) $ 33.47 P/E (EPS19) 38.38$

Terex CorporationKey Management Ratios

Fiscal Years Ending 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018E 2019E 2020E 2021E 2022E 2023E

Liquidity RatiosCash & Cash Equivalents 484.40$ 929.50$ 894.20$ 774.10$ 678.00$ 408.10$ 478.20$ 466.50$ 428.50$ 626.50$ 327.29$ 453.17$ 550.45$ 696.11$ 798.55$ 857.98$ AR 967.50$ 610.00$ 782.50$ 1,178.10$ 1,077.70$ 1,176.80$ 1,086.40$ 939.20$ 512.50$ 579.90$ 640.40$ 663.78$ 686.85$ 679.76$ 673.16$ 693.29$ Current Liabilities 1,824.60$ 1,554.70$ 1,674.20$ 1,891.70$ 1,708.80$ 1,724.70$ 1,643.10$ 1,458.60$ 1,407.00$ 1,035.50$ 1,057.74$ 1,094.59$ 1,132.72$ 1,121.44$ 1,110.28$ 1,143.44$ Current Ratio 0.80 0.99 1.00 1.03 1.03 0.92 0.95 0.96 0.67 1.17 0.91 1.02 1.09 1.23 1.33 1.36

Activity or Asset-Management RatiosSales 9,889.60$ 4,043.10$ 4,418.20$ 6,504.60$ 7,348.40$ 7,084.00$ 7,308.90$ 6,543.10$ 4,443.10$ 4,363.40$ 5,170.63$ 5,351.60$ 5,538.91$ 5,483.52$ 5,428.68$ 5,591.54$ Total Average Assets 5,579.60$ 5,615.10$ 6,283.55$ 6,898.45$ 6,641.45$ 6,232.35$ 5,782.55$ 5,321.95$ 4,234.65$ 3,417.05$ 3,486.71$ 3,701.41$ 3,868.45$ 3,980.65$ 4,098.36$ Asset Turnover Ratio 0.72 0.79 1.04 1.07 1.07 1.17 1.13 0.83 1.03 1.51 1.53 1.50 1.42 1.36 1.36

Financial Leverage RatiosTotal Liabilities 3723.70 4039.40 3405.00 4866.20 4468.00 4268.00 3888.90 3725.10 3485.60 2240.00 2193.39 2290.90 2356.53 2367.95 2343.43 2366.15Total Equity - 1674.40 2111.40 2184.50 2031.30 2214.80 2039.10 1912.00 1521.20 1222.50 1177.71 1310.41 1443.97 1567.45 1681.48 1804.67D/E Ratio 2.41 1.61 2.23 2.20 1.93 1.91 1.95 2.29 1.83 1.86 1.75 1.63 1.51 1.39 1.31

Profitability RatiosNet Income 71.90 -397.30 362.50 40.70 103.60 220.90 319.50 149.00 -175.50 128.70 239.54 296.54 303.29 294.53 286.36 296.81Shareholders equity - 1,674.400$ 2,111.400$ 2,184.500$ 2,031.300$ 2,214.800$ 2,039.100$ 1,912.000$ 1,521.200$ 1,222.500$ 1,177.710$ 1,310.408$ 1,443.971$ 1,567.454$ 1,681.477$ 1,804.669$ ROE -24% 17% 2% 5% 10% 16% 8% -12% 11% 20% 23% 21% 19% 17% 16%

Payout Policy RatiosDividend per share 0.00 0.00 0.00 0.00 0.00 0.05 0.20 0.24 0.28 0.32 0.40 0.48 0.58 0.62 0.66 0.70EPS 0.73 -3.88 3.30 0.41 0.96 2.03 2.91 1.36 -1.63 1.39 2.83 3.66 3.91 3.94 3.97 4.25Divident Payout Ratio 0.00 0.00 0.00 0.00 0.00 0.02 0.07 0.18 -0.17 0.23 0.14 0.13 0.15 0.16 0.17 0.16

Net Income 71.90 -397.30 362.50 40.70 103.60 220.90 319.50 149.00 -175.50 128.70 239.54 296.54 303.29 294.53 286.36 296.81Total Assets 5445.40 5713.80 5516.40 7050.70 6746.20 6536.70 5928.00 5637.10 5006.80 3462.50 3371.60 3601.81 3801.00 3935.90 4025.41 4171.32ROA 1.32% -6.95% 6.57% 0.58% 1.54% 3.38% 5.39% 2.64% -3.51% 3.72% 7.10% 8.23% 7.98% 7.48% 7.11% 7.12%

Present Value of Operating Lease Obligations (2017) Present Value of Operating Lease Obligations (2016) Present Value of Operating Lease Obligations (2015)

Operating Operating OperatingFiscal Years Ending Dec. 31 Leases Fiscal Years Ending Dec. 31 Leases Fiscal Years Ending 32.4252851336817 Leases2018 31.1 2017 32.5 2016 612019 25.3 2018 21 2017 48.12020 19.9 2019 16.4 2018 33.82021 17.7 2020 11.2 2019 22.12022 16.1 2021 10.5 2020 15.2Thereafter 43.4 Thereafter 40.7 Thereafter 42.5Total Minimum Payments 153.5 Total Minimum Payments 132.3 Total Minimum Payments 222.7Less: Interest 34 Less: Interest 30 Less: Interest 42PV of Minimum Payments 119 PV of Minimum Payments 102 PV of Minimum Payments 180

Capitalization of Operating Leases Capitalization of Operating Leases Capitalization of Operating Leases

Pre-Tax Cost of Debt 7.15% Pre-Tax Cost of Debt 7.15% Pre-Tax Cost of Debt 7.15%Number Years Implied by Year 6 Payment 2.7 Number Years Implied by Year 6 Payment 3.9 Number Years Implied by Year 6 Payment 2.8

Lease PV Lease Lease PV Lease Lease PV LeaseYear Commitment Payment Year Commitment Payment Year Commitment Payment1 31.1 29.0 1 32.5 30.3 1 61 56.92 25.3 22.0 2 21 18.3 2 48.1 41.93 19.9 16.2 3 16.4 13.3 3 33.8 27.54 17.7 13.4 4 11.2 8.5 4 22.1 16.85 16.1 11.4 5 10.5 7.4 5 15.2 10.86 & beyond 16.1 27.1 6 & beyond 10.5 24.4 6 & beyond 15.2 26.4PV of Minimum Payments 119.1 PV of Minimum Payments 102.3 PV of Minimum Payments 180.3

Effects of ESOP Exercise and Share Repurchases on Common Stock Balance Sheet Account and Number of Shares Outstanding

Number of Options Outstanding (shares): 0Average Time to Maturity (years): 0.00Expected Annual Number of Options Exercised: 0

Current Average Strike Price: -$ Cost of Equity: 12.31%Current Stock Price: $30.39

2018E 2019E 2020E 2021E 2022E 2023EIncrease in Shares Outstanding: 0 0 0 0 0 0Average Strike Price: -$ -$ -$ -$ -$ -$ Increase in Common Stock Account: - - - - - -

Change in Treasury Stock 250 125 125 125 125 125Expected Price of Repurchased Shares: 30.39$ 34.13$ 38.33$ 43.05$ 48.35$ 54.30$ Number of Shares Repurchased: 8 4 3 3 3 2

Shares Outstanding (beginning of the year) 93 85 81 78 75 72Plus: Shares Issued Through ESOP 0 0 0 0 0 0Less: Shares Repurchased in Treasury 8 4 3 3 3 2 Shares Outstanding (end of the year) 85 81 78 75 72 70