UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DCD.C. 20549
FORM 10-K
| (Mark One) | |||||
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the Fiscal Year Ended December 31, 20192021
or
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
Commission file number 1-10702
TEREX CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware | 34-1531521 | |||||||||||||
| (State of Incorporation) | (IRS Employer Identification No.) | |||||||||||||
| Connecticut | ||||||||||||||
| (Address of principal executive offices) | (Zip Code) | |||||||||||||
Registrant’s telephone number, including area code: (203) (203) 222-7170
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
| TEX | New York Stock Exchange | |||||||
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark if the Registrantregistrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
| Yes | ☒ | No | ☐ | |||||||||||
Indicate by check mark if the Registrantregistrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Act.
| Yes | ☐ | No | ☒ | |||||||||||
Indicate by check mark whether the Registrantregistrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
| Yes | ☒ | No | ☐ | |||||||||||
Indicate by check mark whether the Registrantregistrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
| Yes | ☒ | No | ☐ | |||||||||||
Indicate by check mark whether the Registrantregistrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☒ | Accelerated | ☐ | ||||||||||||||||
| Smaller | ☐ | Emerging growth company | ☐ | ||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the Registrantregistrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
| Yes | ☐ | No | ☒ | |||||||||||
The aggregate market value of the voting and non-voting common equity stock held by non-affiliates of the Registrantregistrant was approximately $2,144.8$3,235 million based on the last sale price on June 28, 2019.30, 2021.
Number of outstanding shares of common stock: 70.769.7 million as of February 11, 2020.8, 2022.
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 Annual Report on Form 10-K with respect to the 20202022 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 referred to as “Terex,” the “Registrant,” “us,” “we,” “our” or the “Company.” Unless specifically noted otherwise, this Annual Report generally speaks as of December 31, 2019 and excludes discontinued operations. Discontinued operations primarily relate to the Demag® mobile cranes business and mobile crane product lines manufactured in our Oklahoma City facility. See Note D - “Discontinued Operations and Assets and Liabilities Held for Sale” in the Notes to the Consolidated Financial Statements for further information.2021.
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, Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”) and the Private Securities Litigation Reform Act of 1995) regarding future events or our future financial performance that involve certain contingencies and uncertainties, including those discussed below in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Contingencies and Uncertainties.” In addition, when included in this Annual Report or in documents incorporated herein by reference, the words “may,” “expects,” “should,” “intends,” “anticipates,” “believes,” “plans,” “projects,” “estimates”“estimates,” “will” and the negatives thereof and analogous or similar expressions are intended to identify forward-looking statements. However, the absence of these words does not mean that the statement is not forward-looking. We have based these forward-looking statements on current expectations and projections about future events. These statements are not guarantees of future performance. Such statements are inherently subject to a variety of risks and uncertainties that could cause actual results to differ materially from those reflected in such forward-looking statements. Such risks and uncertainties, many of which are beyond our control, include, among others:
•our business is cyclicalhas been, and weak general economic conditions affect the sales of our products and financial results;
•our business is highly competitive and is affected by our cost structure, pricing, product initiatives and other actions taken by competitors;
•we are dependent upon third-party suppliers, making us vulnerable to supply shortages and price increases;
•consolidation within our business is globalcustomer base and subject to changes in exchange rates between currencies, commodity price changes, regional economic conditions and trade restrictions;suppliers;
•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;
•our business is sensitive to government spending;
•our ability to integrate acquired businesses;
•our business is affected by the cyclical nature of markets we serve;
•our need to comply with restrictive covenants contained in our debt agreements;
•our ability to generate sufficient cash flow to service our debt obligations and operate our business;
•our ability to access the capital markets to raise funds and provide liquidity;
•the financial condition of suppliers and customers, and their continued access to capital;
•exposure from providing credit support for some of our customers;
•we may experience losses in excess of recorded reserves;
•our business is global and subject to changes in exchange rates between currencies, commodity price changes, regional economic conditions and trade relations;
•our retention of key management personnel and skilled labor;
•possible work stoppages and other labor matters;
•changes in import/export regulatory regimes, imposition of tariffs, escalation of global trade conflicts and unfairly traded imports, particularly from China,could continue to negatively impact our business;
•compliance with changing laws and regulations, particularly environmental and tax laws and regulations;
•litigation, product liability claims and other liabilities;
•our compliance with the United States (“U.S.”) Foreign Corrupt Practices Act and similar worldwide anti-corruption laws;
•increased regulatory focus on privacy and data security issues and expanding laws;
•our ability to comply with an injunction and related obligations imposed by the United StatesU.S. Securities and Exchange Commission (“SEC”);
•our ability to successfully implement our strategy;
•disruption or breach in our information technology systems and storage of sensitive data; 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 significantmaterial 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, 2019
2021
| PAGE | ||||||||
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PART I
ITEM 1. BUSINESS
GENERAL
Our Company was incorporated in Delaware in October 1986 as Terex U.S.A., Inc. Since that time, we have changed significantly, and much of this change has been historically accomplished through acquisitions and managing our portfolio of companies by divestiture of non-core businesses and products. Today, Terex is a global manufacturer of aerial work platforms and materials processing machinery and cranes.machinery. We design, build and support products used in construction, maintenance, manufacturing, energy, minerals and materials management applications. Terex products and solutions enable customers to reduce their environmental impact including electric and hybrid offerings that deliver quiet and emission-free performance, products that support renewable energy, and products that aid in the recovery of useful materials from various types of waste. Our products are manufactured in North and South America, Europe, Australia and Asia and sold worldwide. We engage with customers through all stages of the product life cycle, from initial specification and financing to parts and service support. We continue to focus on becoming an industry leading operating company.
We manage and report our business in the following segments: (i) Aerial Work Platforms (“AWP”) and (ii) Materials Processing (“MP”).
Further information about our industry and reportable segments appears in Part II, Item 7. – “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 AWP segment designs, manufactures, services and markets aerial work platform equipment, utility equipment telehandlers and light towers.telehandlers. Products include portable material lifts, portable aerial work platforms, trailer-mounted articulating booms, self-propelled articulating and telescopic booms, scissor lifts, utility equipment (including truck-mounted digger derricks auger drills and insulated aerial devices), and telehandlers, and trailer-mounted light towers, as well as their related components and replacement parts. Customers use these products to construct and maintain industrial, commercial, institutional and residential buildings and facilities, for construction and maintenance of energized powerutility and telecommunication lines, tree trimming, certain construction and foundation drilling applications, and for other commercial operations, as well as in a wide range of infrastructure projects. 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 and Changzhou, China;
•Utility products are manufactured in Watertown and Huron, South Dakota and Betim, Brazil;Changzhou, China; and
•Telehandlers are manufactured in Oklahoma City, Oklahoma, Umbertide, Italy and Umbertide, Italy; andMonterrey, Mexico.
We have a parts and logistics center located in North Bend, Washington for our aerial work platform and utility products equipment.products. Additionally, a portion of our aerial work platform and utility products parts business is conducted at a shared Terex facility in Southaven, Mississippi. Our European, Asian Pacific and Latin American parts and logistics operations are conducted through a combination of outsourced facilities.facilities and Terex managed operations.
We also provide service and support for utilityaerial and aerialutility products in the U.S. through a network of service branches and field service operations. We have announced plans to exit and sell our utility hot line tools business in Betim, Brazil.
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MATERIALS PROCESSING
Our MP segment designs, manufactures, services and markets materials processing and specialty equipment, including crushers, washing systems, screens, trommels, apron feeders, material handlers, pick and carry cranes, rough terrain cranes, tower cranes, wood processing, biomass and recycling equipment, concrete mixer trucks and concrete pavers, conveyors, and their related components and replacement parts. Customers use these products in construction, infrastructure and recycling projects, in various quarrying and mining applications, as well as in landscaping and biomass production industries, material handling applications, maintenance applications to lift equipment or material, moving materials and in building roadsequipment on rugged or uneven terrain, lifting construction material and bridges.placing material at point of use. We market our MP products principally under the Terex®, Powerscreen®, Fuchs®, EvoQuip®, Canica®, Cedarapids®, CBItm®, Simplicity®, Franna®,, Terex Ecotec®, Terex Finlay®, Terex Washing Systems, Terex MPS, Terex Jaques®, Terex Advance®, ProStacktm, Terex Conveying Systems Bid-Well®, MDStm and Terex Bid-Well®Recycling Systems brand names and business lines.
MP has the following significant manufacturing operations:
•Mobile crushers mobileare manufactured in Omagh, Northern Ireland;
•Mobile screens track conveyors and washing systems are manufactured in Omagh and Dungannon, Northern Ireland;
•Mobile crushers, mobile screens, base crushers, base screens, modular and wheeled crushing and screening plants, track conveyors, and washing systems and pick and carry cranes are manufactured in Hosur, India;
•Modular, mobile and static crushing and screening equipment and base crushers are manufactured in Oklahoma City, Oklahoma;
•Static crushers and screens are manufactured in Subang Jaya, Malaysia;
•Crushing and screening equipment is manufactured in Durand, Michigan;
•Wood processing, biomass and recycling equipment systems, mobile screens and tracked conveyors are manufactured in Campsie, Northern Ireland;
•Fabrications, sub-assemblies and steel kits are manufactured in Ballymoney, Northern Ireland;
•Wood processing, biomass and recycling equipment systems are manufactured in Newton, New Hampshire, Dungannon, Northern Ireland and Campsie, Northern Ireland;Hampshire;
•Material handlers are manufactured in Bad Schönborn, Germany;
•Concrete pavers and tracked conveyors are manufactured in Canton, South Dakota;
•Front discharge concrete mixer trucks are manufactured in Fort Wayne, Indiana;
•Pick and carry cranes are manufactured in Brisbane, Australia; and
•Tower cranes are manufactured in Fontanafredda, Italy;
•Mobile crushers and mobile screens are manufactured in Jiading, China; and
•Mobile and static trommel screens are manufactured in Monaghan, Ireland.
We have North American distribution centers in Louisville, Kentucky and Southaven, Mississippi and service centers in Australia, Thailand, Turkey and Malaysia.
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 solutionsfacilitate financial products and services to ourassist customers who purchasein the acquisition of our equipment. On a global basis, TFS continually evaluates the level to which it provides direct customer financing versus utilizing third party funding to meet its business objectives.
TFS continually monitors used equipment values of Terex equipment in the secondary market sales channels for all of our equipment categories. This provides a basis to project future values of equipment for the underwriting of leases or loans. These secondary market sales channels aremay also be used for re-marketing any equipment which is returned at end of lease, or is repossessed in case of a customer default. WhenIf equipment is received, TFS uses the resale channel which maximizes proceeds and/or mitigates risk for Terex and our funding partnerspartners.
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DISCONTINUED OPERATIONS
Mobile Cranes
On July 31, 2019, we completed the disposition of our Demag® mobile cranes business (“Demag”) to Tadano Ltd. and certain of its subsidiaries (“Tadano”). Products divested were our Demag® all terrain cranes and large lattice boom crawler cranes. During 2019, we also exited North American mobile crane product lines manufactured in our Oklahoma City facility. Our actions to sell Demag and cease the manufacturing of mobile crane product lines in our Oklahoma City facility represented a significant strategic shift in our business away from mobile cranes as these businesses constituted a significant part of our operations and financial results. As a result, we realigned certain operations thatWe believe these actions were formerly part ofnecessary to execute our Cranes segment. For financial reporting periods beginning on or after January 1, 2019, our utilities business has been consolidated within our AWP segment, our pick and carry cranes business has been consolidated within our MP segment and our rough terrain and tower cranes businesses have been consolidated within Corporate and Other. Prior period reportable segment information was adjusted to reflect the realignment of our operations.strategy.
See Note D – “Discontinued Operations“Acquisitions and Assets and Liabilities Held for Sale”Discontinued Operations” in the Notes to the Consolidated Financial Statements for further information regarding dispositions and our discontinued operations.
BUSINESS STRATEGY
Terex is a manufacturer of specialized capital equipment and related services. Our goal is to design, manufacture and market equipment and services that provide superior life-cycle return on invested capital to our customers (“Customer ROIC”). Customer ROIC is a key focus of our organization and is central to our ability to generate returns for investors.
We operate our businessCompany based on our value system, “The Terex Way.” The Terex Way values shape the culture of our Company and reflect our collective commitment to and understanding of 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.
•Servant Leadership: Servant leadership requires service to others, humility, authenticity and leading by example. We work to serve the needs of our customers, investors and team members.
•Courage: Courage entails willingness to take risks, responsibility, action and empowerment. We have the courage to make a difference even when it is difficult.
•Citizenship:Citizenship means social responsibility and environmental stewardship. We comply with all laws, respect all people’s values and cultures, and are good global, national and local citizens.
Each business in our Company is unique, but all businesses are managed to a common set of expectations in three principal elements:broad thematic areas, as defined by our “Execute, Innovate, Grow” operating framework.
The “Focus” element“Execute” theme involves expectations related to core operating processes and accountabilities. We expect our businesses to deploy processes that meet local needs while delivering a level of performance and predictability that is consistent with effective operations. These expectations are fulfilled differently by the various Terex businesses, but the core principles are the same. For example, our Genie business is managed to a defined set of processes that we call the Genie Business System. Our Materials Processing segment is managed to a similar set of processes that we call the MP Operating System. Both are key to delivering excellence across all functions within our operations. We feel that managing this way is key to appropriately balancing consistency and autonomy in our Company. Process discipline is important to efficient operation, but local control is important to the effectiveness with which business processes are implemented.
The “Innovate” theme focuses on purposeful development of step-change improvements in Terex offerings and in the efficiency with which these offerings are executed and supported. Innovation at Terex means doing things significantly better tomorrow than they have been done in the past by harnessing new thinking and applying technology in new and creative ways. Digitalization plays an important role in many of the innovations we pursue, but there are other aspects of this strategy concentratedthat involve non-digital changes to the design of our products and improved ways of doing things.
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The “Grow” theme is the outcome of doing “Execute” and “Innovate” well. We will successfully and profitably grow when we operate efficiently, apply new thinking in creating value for customers and take on new challenges through business investments (i.e. new category and geographic development). We also see a role for increased inorganic investment by adding scope or depth to our Company via acquisitions. We are actively building our inorganic investment pipeline, with an eye towards adding new dimensions to the Company portfolio in product categories where we are among the market leaders. Where we were not among the market leadersand applying our strategy has been to either divest those product lines or pursueskills as a business strategy which we believe will enable us to become a market leader. Work related to this strategic theme involved reviewmanager of allspecialized machinery businesses in the portfolio from the perspectives of market attractivenessnew and competitive position. Several portfolio actions were taken as a result, including the sale of our former MHPS segment, sale of Demag, sale of certain of our former Construction segment product lines and exiting certain North American mobile crane product lines. Though the original objectives have been met, the principles on which the focus element was based will continue to be applied to our Company’s business portfolio. Businesses that do not lead in their markets or do not achieve reasonable return expectations will be reviewed. Meanwhile, businesses that do lead and do deliver attractive returns will be candidates for additional investment.complementary domains.
Disciplined Capital allocation isAllocation approach remains an important part of our overall strategy. Ourstrategy, including maintenance of an optimal capital allocation priorities (in order) have been:
Successful pursuit of the “Execute, Innovate, Grow” strategy will shape the direction of our Company over the coming years. Terex is a diverse company that works collaboratively to deliver business performance efficiently and effectively. We balance the independence of our businesses with the benefits of total Company scale, which is central to how we manage our Company.
PRODUCTS
AERIAL WORK PLATFORMS
AERIAL WORK PLATFORMS. Aerial work platform equipment positions workers and materials easily and quickly to elevated work areas, enhancing safety and productivity at height. These products have been developed as alternatives to scaffolding and ladders. We offer a variety of aerial lifts that are categorized into six product families: portable material lifts; portable aerial work platforms; trailer-mounted articulating booms; self-propelled articulating and self-propelled telescopic booms; and scissor lifts.
•Portable material lifts are used primarily indoors in the construction, industrial and theatrical markets.
•Portable aerial work platforms are used primarily indoors in a variety of markets to perform overhead maintenance.
•Trailer-mounted articulating booms are used both indoors and outdoors. They provide versatile reach, and they 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, industrial and institutional construction, as well as highway and bridge maintenance projects.
•Scissor lifts are used in indoor and outdoor applications in a variety of construction, industrial, institutional and commercial settings.
UTILITY EQUIPMENT. Our utility products include digger derricks auger drills and insulated aerial devices. 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 insulated products used to dig holes, hoist and set utility poles, as well as lift transformers and other materials at job sites near energized power lines. 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 near energized transmission and distribution lines and for trimming trees near energized electrical lines, as well as for miscellaneous purposes such as sign maintenance.
TELEHANDLERS. Telehandlers are used to move and place materials on residential and commercial construction sites and in the energy and infrastructure industries.
SERVICES. We offer a range of services for aerial work platform and utility equipmentproducts consisting of inspections, preventative maintenance, general repairs, reconditioning, refurbishment, modernization and spare parts, as well as consultancy and training services. Our services are provided on our own products and on third-party products and related equipment.
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MATERIALS PROCESSING
MATERIALS PROCESSING EQUIPMENT. Materials processing equipment is used in processing aggregate materials for building applications and is also used in the quarrying, mining, construction, demolition, recycling, landscaping and biomass production industries. Our materials processing equipment includes crushers, screens, trommels and feeders, washing systems and conveyors as well as wood and biomass chippers and grinders, concrete mixers and windrow turners.pavers.
We manufacture a range of jaw, impactor (both horizontal and vertical shaft) and cone crushers, as well as base crushers for integration within mobile, modular and static plants.
•Jaw crushers are used for crushing larger rock, primarily at the quarry face or on recycling duties. Applications include hard rock, sand and gravel and recycled materials. Cone crushers are used in secondary and tertiary applications to reduce a number of materials, including quarry rock and riverbed gravel.
•Horizontal shaft impactors are primary and secondary crushers. They are typically applied to reduce soft to medium hard materials, as well as recycled materials. Vertical shaft impactors are secondary and tertiary crushers that reduce material utilizing various rotor configurations and are highly adaptable to any application.
Our screening and feeder equipment includes:
•Heavy duty inclined and horizontal screens and feeders, which are used in low to high tonnage applications and are available as either stationary or heavy-duty mobile equipment. Screens are used in all phases of plant design from handling quarried material to fine screening. Dry screening is used to process materials such as sand, gravel, quarry rock, coal, ore, construction and demolition waste, soil, compost and wood chips.
•Feeders are used to unload materials from hoppers and bulk material storage at controlled rates. They are available for applications ranging from primary feed hoppers to fine material bin unloading. Our range includes apron feeders, grizzly feeders and pan feeders.
Washing system products include mobile and static wash plants incorporating separation, washing, scrubbing, dewatering and stockpiling. We manufacture mobile and stationary rinsing screens, scrubbing systems, sand screw dewaterers, bucket-wheel dewaterers, water management systems, hydrocyclone plants for efficient silt extraction and a range of stockpiling conveyors. Washing systems operate in the aggregates, recycling, mining and industrial sands segments.
Wood processing, biomass and recycling equipment includes shredders, grinders, trommels, chippers compost turners and specialty systems. This equipment is used in, among other things, recycling, wood energy, green waste/construction, demolition recycling industries and pulp and paper.
We manufacture a range of conveyors which include tracked and wheeled mobile conveyors. Conveyors are mechanical machines used to transport and stockpile materials such as aggregates and minerals after processing.
SPECIALTY EQUIPMENT. We manufacture material handlers, cranes, 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.
•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.
•Concrete mixer trucks are machines with a towerlarge revolving drum in which cement is mixed with other materials to make concrete. We offer models with custom chassis with configurations from three to seven axles.
•Our concrete pavers are used to finish bridges, canals, concrete streets, highways and an angled jib assembled from sections. There is one A-frame above the jib to which suspension cables supporting the jib are attached. Unlike other tower cranes, there is no trolley to control linear movement of the load, which is accomplished by changing the jib angle. These cranes are assembled on-site in two to three days, and can increase in height with the project.airport surfaces.
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BACKLOG
Our backlog as of December 31, 20192021 and 20182020 was as follows:follows (in millions):
| December 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| AWP | $ | 1,955.8 | $ | 825.6 | |||||||
| MP | 1,034.0 | 523.4 | |||||||||
| Total | $ | 2,989.8 | $ | 1,349.0 | |||||||
| December 31, | |||||||
| 2019 | 2018 | ||||||
| (in millions) | |||||||
| AWP | $ | 752.5 | $ | 1,098.1 | |||
| MP | 295.4 | 512.6 | |||||
| Corporate and other | 33.3 | 50.7 | |||||
| Total | $ | 1,081.2 | $ | 1,661.4 | |||
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-orderedas 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.
Our overall backlog amounts at December 31, 2019 decreased $580.22021 increased $1,640.8 million from our backlog amounts at December 31, 2018,2020, due to lowerhigher orders across all business segments.segments as our customers have increased capital spending in response to an improving global economic outlook.
AWP segment backlog at December 31, 2019 decreased2021 increased approximately 31%137% from our backlog amounts at December 31, 2018.2020. This decreaseincrease from the prior year was driven by robust demand in all global markets as bookings continue to outpace billings.
MP segment backlog at December 31, 2021 increased approximately 98% from our backlog amounts at December 31, 2020. This increase from the prior year was driven primarily by lower ordershigher demand across all MP businesses primarily in North America, andWestern Europe and not all national account customers’ 2020 advance purchase orders were completed by December 31, 2019.Asia Pacific.
DISTRIBUTION
We distribute our products through a global network of dealers,independent distributors, rental companies major accounts and direct sales to customers.
AERIAL WORK PLATFORMS
Our aerial work platform telehandler and light towertelehandler products are distributed principally through a global network of rental companies and independent distributors. We employ sales representatives who service these channel partners from offices located throughout the world.
MATERIALS PROCESSING
We distribute our products through a global network of independent distributors, rental companies major accounts and direct sales to customers.
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RESEARCH, DEVELOPMENT AND ENGINEERING
We maintain engineering staff primarily at our manufacturing locations to conduct research, development and engineering for site-specific products. We have also established competency centers that support entire segments from single locations in certain fields such as control systems. 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 identifyidentifying possible savings, which then enables us to leverage those savings to improve our competitiveness and our customers’ return on investment. Our research, development and engineering expenses are primarily incurred to develop (i) additional applications and extensions of our existing product lines to meet customer needs, such as the telematics application to remotely monitor and manage our products, 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 innovation has become a core element of our growth strategy. We have re-invigorated and increased our emphasis on creating new models and meeting the demands of our customers. Robust product development pipelines are in place, which we expect will continue to bring new, differentiated products to the market in the years ahead. We have also focused on producing more cost-effective product solutions across product families, as well as increasing commonalities of components to ease manufacturing processes.
We will continue our commitment to appropriate levels of research, development and engineering spending in order to meet our customer needs, uphold competitive functionality of our products and maintain regulatory compliance in all the markets we serve.
MATERIALS
Information regarding principal materials, components and commodities and any risks associated with these items are included in Part II, Item 7A. – “Quantitative and Qualitative Disclosures about Market Risk – Commodities Risk.”
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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 designed to improve customers’ return on invested capital.Customer ROIC. 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 our business segments. The following table shows the primary competitors, in alphabetical order, 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), Sumner, Vestil | ||||||||||||
| Boom Lifts | ||||||||||||||
| Oshkosh (JLG) | ||||||||||||||
| Dingli, Haulotte, JCB, Linamar (Skyjack), LGMG, Manitou, Oshkosh (JLG) and Xtreme/Tanfield (Snorkel) | ||||||||||||||
| Utility Equipment | Altec, Dur-A-Lift, Posi+ and Time Manufacturing | |||||||||||||
| Telehandlers | CNH, JCB, Manitou (Gehl), Merlo and Oshkosh (JLG, Skytrak, Caterpillar and Lull brands) | |||||||||||||
| Materials Processing | Crushing & Screening Equipment | |||||||||||||
| Washing Systems | Azfab, CDE Global, | |||||||||||||
| Wood Processing, Biomass, | Astec Industries, Bandit, Doppstadt, Eggersmann, Jenz, Komptech, Morbark | |||||||||||||
| Conveyors | ||||||||||||||
| Material Handlers | ||||||||||||||
| Concrete Pavers | Allen Engineering, Gomaco, | |||||||||||||
| Concrete Mixer Trucks | ||||||||||||||
| Pick and Carry Cranes | ||||||||||||||
Rough Terrain Cranes | Kato, Liebherr, Link-Belt, Manitowoc (Grove), Sany, Tadano-Faun, | |||||||||||||
| Tower Cranes | Comansa, Jaso, Liebherr, Manitowoc (Potain), | |||||||||||||
MAJOR CUSTOMERS
None of our customers individually accounted for more than 10% of our consolidated net sales in 2019.2021. In 2019,2021, our largest customer accounted for less than 6%5% of our consolidated net sales and our top ten customers in the aggregate accounted for less than 27%24% of our consolidated net sales. A material portion of AWP net sales are to national rental companies.
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®, Powerscreen® and Fuchs® trademarks. The other trademarks and trade names that we use include registered trademarks of Terex Corporation or its subsidiaries.
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We have many patents that we use in connection with our operations and most of our products contain some proprietary technology. Many of these patents and related proprietary technology are important to the production of particular products; however, overall, our patents, taken together, are not material to our business or our overall financial results.
Currently, we are engaged in various legal proceedings with respect to intellectual property rights. While the outcome of these matters cannot be predicted with certainty, we believe the outcome of such matters will not have a material adverse effect, individually or in 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, and our Zero Harm Safety and Environmental culture, 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. Safety is a top priority, not only for our team members, but also our customers. Terex has a longstanding commitment to designing, manufacturing, and selling safe and efficient products. Our safety standards and practices are rigorous. We collaborate with customers to design features that help keep operators safe, improve working environments, and help maintain equipment uptime and utilization.
During the COVID-19 pandemic, we are taking appropriate precautions and implementing safeguards to protect our team members while they continue to meet our customers' needs around the world. We have implemented measures consistent with recommendations of the Centers for Disease Control and the World Health Organization. Practices include increased frequency of cleaning and disinfecting of facilities, following social distancing practices, mask usage when distancing practices are not possible and managing safe return to work for those impacted by COVID-19.
We generate hazardous and non-hazardous wastes in the normal course of our manufacturing operations. As a result, we are subject to a wide range of environmental laws and regulations. All of our employees are required to obey all applicable health, safety and environmental laws and regulations and must observe the proper safety rules and environmental practices in work situations. These laws and regulations govern actions that may have adverse environmental effects, such as discharges to air and water, and require compliance with certain practices when handling and disposing of hazardous and non-hazardous wastes. These laws and regulations would also impose liability for the costs of, and damages resulting from, cleaning up sites, past spills, disposals and other releases of hazardous substances, should any such events occur. We are committed to complying with these standards and monitoring our workplaces to determine if equipment, machinery and facilities meet specified safety standards. Each of our manufacturing facilities is subject to an environmental audit at least once every five years to monitor compliance andcompliance. Also, no incidents have occurred which required us to pay material amounts to comply with such laws and regulations. We are dedicated to ensuring that safety and health hazards are adequately addressed through appropriate work practices, training and procedures. We are committed to reducing lost time injuries and working towards a world-class level of safety practices in our industry.
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.
Use and operation of our equipment in an environmentally conscious manner is an important priority for us. We are aware of global discussions regarding climate change and the impact of greenhouse gas emissions on global warming. We are increasing our production of products that have lower greenhouse gas emissions in response to both regulatory initiatives and anticipated market demand trends. For example,demand. We are active in the newest diesel engine emission reduction program introduced in Europe, known as Stage V, is driving further engine emissions relateddevelopment of incorporating alternative power solutions within our different product development. lines. Globally, job site regulations have become increasingly stringent, requiring quieter equipment with lower or zero emissions. At the same time, for our Genie® equipment, more job sites are requiring machines capable of working both outdoors and indoors.Our segments also offercustomers want products that operate on battery electric and fuel-electric hybrid options. Many Genie® lift models offer all-electric or fuel-electric hybrid options that deliver quiet, emission-free performance, which is necessary for indoor working environments, as well as city centers with noise and emission restrictions. We offer crushers and screens that can operate from electrical power supply lines to help reduce the use plug-in electric hybrid technologyof fuel. Hybrid solutions are also available on select utility aerial devices, cranes, and mixer trucks that use battery power to save fuel, reduce emissionsperform certain equipment functions without the engine running. Overall, we believe these developments are the leading edge of much greater change to the way equipment in the future will be powered. We have taken a lead on many of these developments within the industries we serve, and reduce noise in residential areas.we will continue to evolve our approach to alternative, environmentally friendly equipment power as technical capabilities advance, solution economics improve, and customer demand for these solutions continues to increase.
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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.
SEASONAL FACTORS
Terex is a globally diverse company, supporting multiple end uses. Seasonality is a factor in some businesses, where annual purchasing patterns are impacted by the seasonality of downstream project spending. Specifically, our businesses can experience stronger demand during the second quarter, as customers in the northern hemisphere make investments in time for the annual construction season (April to October). WhileNon-seasonal macro factors are also important and can surpass seasonal influences in importance in some years. Entering 2022, for example, we expect supply chain challenges to have greater influence on our sales than historical seasonal trends. As a normal historicalresult, in 2022, we expect sales patternto be highest in 2020,the second and third quarters, and expect our earnings generated in the first quartersecond half of 2020 are projectedthe year to be lesshigher than the historical pattern due to lower revenues in AWP combined with unabsorbed overhead on production below retail demand.first half of the year.
WORKING CAPITAL
Our businesses are working capital intensive and require funding to purchase production and replacement parts inventories and expenditures to repair, replace and upgrade existing facilities, as well as funding to finance receivables from customers and dealers.facilities. We have debt service requirements, including semi-annualperiodic interest payments on our outstanding notes and quarterly interest payments on our bank credit facility.debt. We believe cash generated from operations, together with availability underincluding cash generated from the sale of receivables, loans from our bank credit facilityfacilities and cash on hand,funds raised in capital markets, will provide us with adequate liquidity to comply with our financial covenants under our bank credit facility, continue to support internal operating initiatives and meet our operating and debt service requirements.requirements for at least the next 12 months from the date of issuance of this annual report. 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.
HUMAN CAPITAL MANAGEMENT
SAFETY
The safety of our team is our number one priority. At Terex, safety is an absolute way of life. We are committed to Zero Harm, and we expect all team members to be committed to safety and continuous improvement in this area. In 2016, Terex set the goals of reaching a 0.20 lost time injury rate and 1.00 total recordable injury rate by 2024. We have made good progress since 2016 when our lost time injury rate was 0.80 and our total recordable injury rate was 3.82. At the end of 2021, our lost time injury rate was 0.52 and our total recordable injury rate was 1.77. Our aspirational goal will always be zero injuries, but these goals represent milestones along our journey to Zero Harm.
TEAM MEMBER TALENT AND SUPPORT
Terex strives to attract, develop and retain the best people to be part of our team. We have a diverse and highly engaged global workforce. Capable, highly skilled and diverse team members are key to our ability to implement our “Execute, Innovate, Grow” strategy.
As of December 31, 2021, we had approximately 8,600 team members, including approximately 3,700 team members in the U.S. Approximately one percent of our team members 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 team members to be good and we provide mechanisms such as surveys and helplines for our team members to provide their perspectives. In 2021, 81% of team members participated in our company-wide global engagement survey. Safety remained the highest rated survey category and we received positive net promoter scores.
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We have a robust talent review process in which we assess talent strengths and opportunity areas, matching our team members’ career aspirations with the needs of the business. We offer a wide range of training programs to support team members in their current roles and in achieving advancement opportunities. Our core curriculum of Terex Success Programs are designed for all of our team members from individual contributors to front line supervisors to managers and executives. These programs are grounded in The Terex Way values and help participants build key skills. Additional training programs are offered around specific topics such as Safety; Diversity, Equity and Inclusion (“DEI”); Technical Skills; and Financial Fundamentals.
We have a strong performance management process that includes annually setting clear business and professional objectives, mid-year calibration, annual performance reviews and succession planning. Both team members and managers play active roles in the performance management process, furthering a culture of accountability that supports team member development.
We design our benefits and programs to support the way our team members live and work. We care about our team members. For example, our Global Employee Assistance Program is in place to support team members who are facing challenges in their personal lives. Where we can, we offer a flexible work environment, enabling team members to manage the demands of their personal and professional lives.
DIVERSITY, EQUITY AND INCLUSION
We are committed to increasing and retaining demographic diversity at all levels of our global workforce. We extend a warm welcome to team members of every race, gender, age, religion, identity or experience. We encourage, value and support non-majority team members in all of our facilities worldwide. We actively seek their engagement and partnership, as we understand that diversity of background, thought and experience leads to improved problem-solving and greater innovation.
Diversity in and of itself is not sufficient. We strive to be fair and impartial in our decisions, ensuring Equity within our workplace. By doing so, we create a sense of Inclusion and belonging for all our team members. We are committed to DEI so we can make Terex the kind of place where every team member feels valued, listened to and appreciated.
Our Company has a vibrant, global initiative to increase representation of women in our workplace because we recognize that women are often under-represented in manufacturing organizations such as ours. We are making excellent progress, requiring diverse candidate slates, supporting women through mentoring, training, and colleague-to-colleague education, and using our talent development process to identify qualified women for their next role(s) within our organization. In 2014, we established five-year goals to increase representation in three areas: women in leadership, women in line roles (like operations, engineering and sales) and women overall. Having made progress against these goals, we have extended them for another five years.
In 2020, we committed to expand our primary DEI focus areas to include race and ethnicity, to ensure that members of under-represented groups have a sense of belonging and can thrive within our organization. We intentionally defined our DEI aspirations, initially focusing on our U.S. workforce. We have set aspirations to increase the representation of non-majority team members in leadership, management, indirect manufacturing and indirect selling, general & administrative (“SG&A”) roles.
In 2021, we implemented actions to help achieve our aspirations, by creating a DEI governance structure that includes a DEI Governance Council; regional DEI Councils in the Americas, Europe, the Middle East, Africa and Russia (EMEAR) and Asia Pacific; our longstanding Women@Terex Steering Committee; and eight global Affinity Groups. The DEI Governance Council is sponsored by our Chief Executive Officer (“CEO”) and Chief Human Resources Officer; our regional councils have Executive Leadership Team (“ELT”) level sponsorship from our segment Presidents. Our DEI efforts are centered around recruitment, engagement, development and retention. We have completed training for our ELT, senior leadership, managers and the HR community. This training will be cascaded to our more junior managers and supervisors as well. We continue to develop tools and resources for use at the individual and site level to foster inclusion. For 2022, we are introducing a component to our annual incentive plan that will be focused on the achievement of specific DEI metrics.
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AVAILABLE INFORMATION
We maintain a website at www.terex.com. We make available on our website under “Investor Relations” – “Financial Reporting”, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after we electronically file or furnish such material with the SEC. References to our website in this report are provided as a convenience, and the information on our website is not, and shall not be deemed to be a part of this report or incorporated into any other filings we make with the SEC. The SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. In addition, we make available on our website under “Investor Relations” – “Governance”, free of charge, our Audit Committee Charter, Compensation Committee Charter, Governance and Nominating Committee Charter, Corporate Governance Guidelines and Code of Ethics and Conduct. In addition, the foregoing information is available in print, without charge, to any stockholder who requests these materials from us.
ITEM 1A. RISK FACTORS
You should carefully consider the following material risks, together with the cautionary statement under the caption “Forward-Looking Information” above and the other information included in this report. Although the risks are organized by headings, and each risk is discussed separately, many are interrelated. 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.
Manufacturing and Operational Risks
Global public health pandemics, such as the COVID-19 pandemic, have adversely impacted and may continue to adversely impact our business, results of operations and financial condition and the ultimate impact will depend on future developments, which remain uncertain.
Countries around the world have experienced, and may experience in the future, outbreaks of contagious diseases that affect public health. In March 2020, the World Health Organization declared COVID-19 a global pandemic and governmental authorities around the world implemented shelter-in-place orders, quarantines, social distancing requirements, travel bans and other similar governmental restrictions to reduce the spread of COVID-19. Although certain restrictions related to the COVID-19 pandemic have eased, uncertainty continues to exist regarding such measures and potential future measures. Efforts to combat the virus have been complicated by viral variants.
The COVID-19 pandemic has disrupted our operations and is expected to continue to negatively impact our operations in numerous ways. It has also negatively impacted the global economy, created significant volatility and disruption of financial markets and caused disruptions in our supply chains and logistics. The rapid increase in demand as the COVID-19 pandemic wanes has caused and is expected to continue to cause significant stress on global supply chains, resulting in parts and components shortages and/or inefficiencies in production. Current material and component shortages have limited and could continue to limit our ability to meet customer demand. Additionally, the COVID-19 pandemic adversely affected our workforce, with temporary factory closures, slowdowns, inefficiencies and restrictions on travel and transports, among other effects, thereby negatively impacting our operations. A significant percentage of global team members continue to work remotely, which can introduce operational and cybersecurity risks. Because working remotely has become more prevalent and accepted as a result of the COVID-19 pandemic, companies could determine that it will be acceptable for employees to work from their homes on a long-term basis, which could over time reduce demand for our products. We developed and implemented new health and safety protocols, business continuity plans and different scenario plans in an effort to try to mitigate the negative impact of the COVID-19 pandemic. Our management continues to remain focused on mitigating the impact of the COVID-19 pandemic, which has required a large investment of time and resources, which may delay other value-add initiatives.
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It is not possible to accurately predict with any degree of certainty the impact of the COVID-19 pandemic on our operations going forward as the situation continues to remain fluid. Despite our efforts and numerous measures taken to manage the impacts of the COVID-19 pandemic, the full degree and extent to which it will ultimately affect our operational and financial performance will depend on uncertain future developments and factors beyond our control, including, but not limited to, the pace of the continued spread of the pandemic, the severity and ultimate duration of the pandemic, including any resurgences, mutations or variants, any governmental regulations or restrictions imposed in response to such, and the ultimate efficacy and distribution speed of approved vaccines and treatments. We expect that any further or prolonged disruptions to our global supply chain would adversely impact our operations, business results and financial condition. Such factors could also continue to adversely affect our customers’ financial condition, resulting in further reduced spending for our products and services. The longer the pandemic continues, the more likely that more of the foregoing risks may be realized.
The impact of the COVID-19 pandemic continues to evolve and its ultimate duration, severity and disruption to our business, customers and supply chain, and the related financial impact to us, cannot be accurately forecasted at this time. The impact of the COVID-19 pandemic may also continue to exacerbate other risks discussed below in this section Item 1A. Risk Factors, any of which could have a material effect on us. This situation continues to evolve and additional impacts may arise that we are not aware of currently.
We operate in a highly competitive industry.
Our industry is highly competitive. Our competitors include a variety of both domestic and foreign companies in all major markets. To compete successfully, our products must excel in terms of quality, reliability, productivity, price, features, ease of use, safety and comfort, and we must provide excellent customer service. The greater financial resources of certain of our competitors may put us at a competitive disadvantage. Low-cost competition from China and other developing markets could also result in decreased demand for our products. If competition in our industry intensifies or if our current competitors lower their prices for competing products, we may lose sales or be required to lower the prices we charge for our products. If we are unable to provide continued technological improvements in our equipment that meet our customers’ expectations, or the industry’s expectations, the demand for our equipment could be substantially adversely affected. Our ability to match new product offerings to diverse global customers’ anticipated preferences for different types and sizes of equipment and various equipment features and functionality, at affordable prices, is critical to our success. This requires a thorough understanding of our existing and potential customers on a global basis, particularly in developing markets, including China, India, Latin America, the Middle East and Africa. Failure to compete effectively could result in lower revenues from our products and services, lower gross margins or cause us to lose market share.
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 may be generally available. Delays in our suppliers’ abilities, especially any sole suppliers for a particular business, to provide us with necessary materials and components may delay production at a number of our manufacturing locations, or may require us to seek alternative supply sources. Delays in obtaining supplies may result from a number of factors affecting our suppliers, including capacity constraints, regulatory changes, freight and container availability, labor disputes, suppliers’ impaired financial condition, suppliers’ allocations to other purchasers, weather emergencies, pandemics or acts of war or terrorism. Any delay in receiving supplies could impair our ability to deliver products to our customers and, accordingly, could have a material adverse effect on our business, results of operations and financial condition.
We have experienced, and in the future are likely to experience, significant disruption of the supply of some of our parts, materials, components and final assemblies that we obtain from suppliers or subcontractors. For example, the rapid increase in demand as the COVID-19 pandemic wanes has caused, and is expected to continue to cause, significant stress on global supply chains. As economies around the world have reopened in 2021, sharp increases in demand have created significant disruptions to the global supply chain, which have affected our ability to receive goods on a timely basis and at anticipated costs. Principal materials and components used in our various manufacturing processes include steel, castings, engines, tires, hydraulics, cylinders, drive trains, electric controls and motors, semiconductors, and a variety of other commodities and fabricated or manufactured items. Increases in input costs and freight due to price inflation and global supply chain disruptions may adversely affect our financial performance. Additionally, tariffs on certain Chinese origin goods may put pressure on input costs.
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Global logistics network challenges include shortages of shipping containers, ocean freight capacity constraints, international port delays, trucking and chassis shortages, railway and air freight capacity, and labor availability constraints, which have resulted in delays, shortages of key manufacturing components, increased order backlogs, and increased transportation costs. We actively monitor and mitigate supply chain risk, but there can be no assurance that our mitigation plans will be effective to prevent disruptions that may arise from shortages of materials that we use in the production of our products. Uncertainties related to the magnitude and duration of global supply chain disruptions have adversely affected, and may continue to adversely affect, our business and outlook. If we are unable to recover a substantial portion of increased costs from our customers and suppliers, or through duty draw-back, our business or results of operations 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 accelerate cash requirements of our business.
Consolidation within our customer base and suppliers may negatively impact our pricing and product margins.
Over the last few years, some of our larger customers have been actively growing through acquisitions. This consolidation has increased the concentration of our largest customers, resulting in increased pricing pressure from our customers. Should our larger customers continue to grow through acquisitions, their buying influence may grow and negatively impact our negotiating leverage. Some of our suppliers have undergone a similar process of consolidation. The consolidation of our largest suppliers has resulted in limited sources of supply for certain parts and components and increased cost pressures from our suppliers. Any future consolidation of our customer base or our suppliers could negatively impact our business, financial condition, results of operations and cash flows. If this trend in customer and supplier consolidation continues, it could have an unfavorable impact on our pricing and product margins.
We are exposed to political, economic and other risks that arise from operating a multinational business.
Our operations are subject to a number of potential risks. Such risks principally include:
•trade protection measures and currency exchange controls;
•labor unrest;
•global and regional economic conditions;
•the United Kingdom’s (“U.K.”) departure from the European Union (“E.U.”);
•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, Latin America, the Middle East and Africa;
•difficulty in obtaining distribution support;
•natural disasters; 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, Western Europe and certain Asia Pacific markets. These factors may have an adverse effect on our international operations in the future.
We continue to focus on operational improvement in developing markets such as China, India, Latin America, the Middle East and Africa. 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.
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A material disruption to one of our significant manufacturing plants could adversely affect our ability to generate revenue.
We produce most of our machines for each product type at one manufacturing facility. If operations at a significant facility were disrupted as a result of equipment failures, natural disasters, health epidemics, 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.
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 may face limitations on our ability to integrate acquired businesses.
From time to time, we may engage in strategic transactions involving risks, including the possible failure to successfully integrate and realize the expected benefits of such transactions. We have consummated acquisitions in the past and anticipate making additional acquisitions in the future. Our ability to realize the anticipated benefits of any purchase, including the expected combination benefits, will depend, to a large extent, on our ability to integrate any acquired businesses. The risks associated with integrating acquired businesses 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 acquisition and 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; and
•we may experience problems in retaining customers.
The successful integration of any newly acquired business also requires us to implement effective internal control processes in these acquired businesses. We cannot ensure that any 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. Any of the foregoing could adversely affect our business and results of operations. If we fail to successfully integrate any acquired business, this could have an adverse effect on our business, financial condition and results of operations.
Financial and General Economy Risks
Our business is affected by the cyclical nature of markets we serve.
Demand for our products tends to be cyclical and is affected by the general strength of the economies in which we sell our products, prevailing interest rates, residential and non-residential construction spending, capital expenditure allocations of our customers, the timing of regulatory standard changes, oil and gas related activity and other factors. We currently expect market conditionsAs discussed under the risk factor titled, “Global public health pandemics, such as the COVID-19 pandemic, have adversely impacted and may continue to adversely impact our business, results of operations and financial condition and the ultimate impact will depend on future developments, which remain challenged in 2020 and expect continued geopolitical and economic uncertainty. Ifuncertain,”the COVID-19 pandemic negatively impacted the global economy weakens or customers’ perceptions concerningand significantly increased economic and demand uncertainty. While we are expecting to experience sales growth in 2022, we cannot provide any assurance the timingglobal economic weakness of the economic cycle change, itrecent past will not recur. As discussed under the risk factor titled, “We are dependent upon third-party suppliers, making us vulnerable to supply shortages and price increases,” the supply chain is currently constrained, and if we are not able to receive parts and components on a timely basis and at anticipated costs, we may cause customers to continue to forgonot achieve the growth we expect in sales or postpone new purchases in favor of reducing their existing fleets or refurbishing or repairing existing machinery.
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Our sales depend in part upon our customers’ replacement or repair cycles, which are impacted in part by historical purchase levels. We are coming through a period during which global economic conditions are weaker than our market expectations orand key commodity prices rapidly and significantly declined, and if economic conditions in the global economic weakness of the past wereU.S. and other key markets do not show continued improvement, we may experience negative impacts to recur, then there could be an adverse effect on our net sales, financial condition, profitability and/orand cash flowflows, which could result in the need for us to record impairments.
We have a significant amount of debt outstanding and must comply with restrictive covenants in our debt agreements.
Our level of debt and the financial and restrictive covenants contained in our credit agreement could have important consequences on our financial position and results of operations, including increasing our vulnerability to increases in interest rates because debt under our credit agreement bears interest at variable rates. In addition, our credit agreement indebtedness may use LIBOR as a benchmark for establishing our interest rate. As discussed above,While we expect LIBOR to be available in substantially its current form until at least the end of June 30, 2023, it is the subject of recent national, international and other regulatory guidance and proposals for reformpossible that LIBOR will become unavailable prior to that point which may causeimpact our interest expense. Our credit agreement provides for any changes away from LIBOR to perform differently than in the past ora successor rate to be replaced entirely.based on prevailing or equivalent standards, however, the replacement of LIBOR may result in fluctuating interest rates that may have a negative impact on our interest expense and our profitability. Consequences of these developments cannot be entirely predicted, but could include an increase in the cost of our credit agreement indebtedness.
We may be unable to generate sufficient cash flow to service our debt obligations.obligations and operate our business.
Servicing our debt requires a significant amount of cash. Our ability to generate sufficient cash depends on numerous factors beyond our control and our business may not generate sufficient cash flow from operating activities. Our ability to make payments on, and refinance, our debt and fund planned capital expenditures will depend on our ability to generate cash in the future. To some extent, this is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Lower sales, or uncollectible receivables, generally will reduce our cash flow.
We cannot assure our business will generate sufficient cash flow from operations, or future borrowings will be available to us under our credit facility or otherwise, in an amount sufficient to fund our liquidity needs.
If our cash flows and capital resources are insufficient to service our indebtedness, we may be forced to reduce or delay capital expenditures, sell assets, seek additional capital or restructure or refinance our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations.
Our access to capital markets and borrowing capacity could be limited in certain circumstances.
Our access to capital markets to raise funds through the sale of equity or debt securities is subject to various factors, including general economic and/or financial market conditions. Significant changes in market liquidity conditions could impact access to funding and associated funding costs, which could reduce our earnings and cash flows. If our consolidated cash flow coverage ratio is less than 2.0 to 1.0, we are subject to significant restrictions on the amount of indebtedness we can incur. Although our cash flow coverage ratio was greater than 2.0 to 1.0 at the end of 2019,2021, there can be no assurance this will continue to occur.
Our access to debt financing at competitive risk-based interest rates is partly a function of our credit ratings. A downgrade to our credit ratings could increase our interest rates, could limit our access to public debt markets, could limit the institutions willing to provide us credit facilities, and could make any future credit facilities or credit facility amendments more costly and/or difficult to obtain.
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Although we believe the banks participating in our credit facility have adequate capital and resources, we can provide no assurance that all of these banks will continue to operate as a going concern in the future. If any of the banks in our lending group were to fail or be unwilling to renew our credit facility at or prior to its expiration, it is possible that the borrowing capacity under our current or any future credit facility would be reduced. If the availability under our credit facility was reduced significantly, we could be required to obtain capital from alternate sources to finance our capital needs. Our options for addressing such capital constraints would include, but not be limited to (i) obtaining commitments from the remaining banks in the lending group or from new banks to fund increased amounts under the terms of our credit facility, or (ii) accessing the public capital markets. If it becomes necessary to access additional capital, it is possible that any such alternatives in the current market could be on terms less favorable than under our existing credit facility terms, which could have a negative impact on our consolidated financial position, results of operations or cash flows.
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 partythird-party finance companies on behalf of our customers. The availability of financing by third parties is affected by general economic conditions, credit worthiness of our customers and estimated residual value of our equipment. Deterioration in credit quality of our customers or estimated residual value of our equipment could negatively impact the ability of our customers to obtain resources they need to purchase our equipment. There can be no assurance third partythird-party finance companies will continue to extend credit to our customers.
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 and some 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 are exposed to losses from providing financing and credit support to some of our customers.
We may assist customers in their rental, leasing and acquisition of our products through TFS. We provideby facilitating financing for some of ourtransactions directly between (i) end-user customers, primarilydistributors and rental companies and (ii) third-party financial institutions, providing recourse 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 residual values of such equipment on these transactions decline below original estimated values or we are unable to sell the financing receivable to a third party.
During periods of economic weakness, 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. Historically, losses related to guarantees have been immaterial; 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.
20
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, Chinese Yuan, Australian Dollar and Australian dollar.Mexican Peso. Those assets, liabilities, expenses, revenues and earnings are translated into U.S. dollars at the applicable foreign exchange rates to prepare our consolidated financial statements. Therefore, increases or decreases in foreign exchange rates between the U.S. dollar and those other currencies affect the value of those items as reflected in our consolidated financial statements, even if their value remains unchanged in their original currency. Due to the continued volatility of foreign currency exchange rates to the U.S. dollar, fluctuations in currencyforeign exchange rates may have an impact on the accuracy of our financial guidance. Such fluctuations in foreign currencyexchange rates relative to the U.S. dollar may cause our actual results to differ materially from those anticipated in our guidance and have a material adverse effect on our business or results of operations. We also note that Brexit may negatively impact the value of the British Pound as compared to the U.S. dollar and other currencies.
Human Capital Risks
We are exposedrely on key management and skilled labor, and we may be unable to political, economicattract and retain qualified team members.
We rely on the management and leadership skills of our senior management team, particularly those of the Chief Executive Officer. The loss of the services of key employees or senior officers, or the inability to identify, hire and retain other highly qualified personnel in the future, could adversely affect the quality and profitability of our business operations.
Our ability to expand or maintain our business depends on our ability to hire, train and retain team members with the skills necessary to understand and adapt to the continuously developing needs of our customers. Efforts to attract talent to fill open roles in light of recent constrained labor availability may take more time than in the past and may cost us significantly more than in recent years. Moreover, the constrained labor conditions may mean that retention of existing talent may require significant additional pay and incentives. If we fail to attract, motivate, train and retain qualified personnel, or if we experience excessive turnover, we may experience declining sales, manufacturing delays or other inefficiencies, increased recruiting, training and relocation costs and other risksdifficulties, and our business, financial condition, results of operations and cash flows could be materially and adversely affected. Competition for qualified personnel is intense and we may not be successful in attracting or retaining qualified personnel, which could negatively impact our business.
We may be adversely impacted by work stoppages and other labor matters.
As of December 31, 2021, we employed approximately 8,600 people worldwide. While we have no reason to believe that arise from operating a multinational business.
conflicts with labor unrest;
Legal, Regulatory & Compliance Risks
Changes in import/export regulatory regimes, imposition of tariffs, escalation of global trade conflicts and unfairly traded imports, particularly from China, could continue to negatively impact our business.
The U.S. government has imposed tariffs on certain foreign goods from a variety of countries and regions that it perceives as engaging in unfair trade practices, and previously raised the possibility of imposing additional tariff increases or expanding the tariffs to capture other types of goods. In response, many of these foreign governments have imposed retaliatory tariffs on goods that their countries import from the U.S. Changes in U.S. trade policy have and may continue to result in one or more foreign governments adopting responsive trade policies that make it more difficult or costly for us to do business in or import our products from those countries. For example, tariffs on certain Chinese origin goods impact the cost of material and machines we import directly from our manufacturing operations in China, as well as the future.cost of material and components imported on our behalf by suppliers. The indirect impact of inflationary pressure on costs throughout the supply chain and the direct impact, for example, on costs for machines we import from our manufacturing operations in China, is leading to higher input costs and lower margins on certain products we sell. In addition, tariffs imposed by the Chinese government on U.S. imports have made the cost of some of our products more expensive for our Chinese customers.
21
We cannot predict the extent to which the U.S. or other countries will impose new or additional quotas, duties, tariffs, taxes or other similar restrictions upon the import or export of our products in the future, nor can we predict future trade policy or the terms of any renegotiated trade agreements and their impact on our business. Tariffs and the possibility of an escalation or further developments of current trade conflicts, particularly between the U.S. and China, could continue to negatively impact global trade and economic conditions in many of the regions where we do business. This could result in continued significant increases in our material and component costs and the cost of machinery imported directly from our manufacturing operations in China. In addition, it may adversely impact demand for our products in China and elsewhere.
While we have been able to mitigate a portion of the effects of tariffs through the U.S. government’s duty draw-back mechanism and from tariff exclusions, all tariff exclusions have expired. There is potential that some tariff exclusions may be reinstated, although this is uncertain. If we are unable to recover a substantial portion of increased costs from our customers and suppliers or through duty draw-back, our business or results of operations could be adversely affected.
The Coalition of American Manufacturers of Mobile Access Equipment, an alliance of mobile access equipment producers in the U.S. of which we are a member, is pursuing anti-dumping and countervailing cases against unfairly traded Chinese imports of mobile access equipment. While the U.S. Department of Commerce has issued in 2021 a countervailing and preliminary anti-dumping duty rate on mobile access equipment from China, these duties may not be enough to offset the subsidies provided by the Chinese government to Chinese mobile access equipment manufacturers. If additional duties are not imposed on imports of Chinese mobile access equipment and/or the duties are not finalized through affirmative final determinations, we may continue to operate at a disadvantage to Chinese manufacturers. This could result in reduced demand for our products in the U.S. and have an adverse effect on our business or results of operations.
Compliance with environmental regulations could be costly and require us to make significant expenditures.
We generate hazardous and nonhazardous wastes in the normal course of our manufacturing operations. As a result, we are subject to a wide range of environmental laws and regulations. These laws and regulations govern actions that may have adverse environmental effects and require compliance with certain practices when handling and disposing of hazardous and nonhazardous wastes. Some environmental laws impose strict, retroactive and joint and several liability for the remediation of the release of hazardous substances, which could subject us to liability without regard to whether we were negligent or at fault. Failure to comply with environmental laws could expose us to substantial fines or penalties and to civil and criminal liability. These liabilities, sanctions, damages and remediation efforts related to any non-compliance with such laws and regulations could have a material adverse effect on our business or results of operations. No such incidents have occurred which required us to pay material amounts to comply with such laws and regulations.
In addition, increasing laws and regulations dealing with environmental aspects of the products we manufacture can result in significant expenditures in designing and manufacturing new forms of equipment that satisfy such new laws and regulations. In particular, climate change is receiving increasing attention worldwide. Many scientists, legislators and others attribute climate change to increased levels of greenhouse gases, including carbon dioxide, which has led to significant legislative and regulatory efforts to limit greenhouse gas emissions. While additional regulation of emissions in the future appears likely, it is too early to predict how new regulations would ultimately affect our business, operations or financial results, although government policies limiting greenhouse gas emissions of our products will likely require increased compliance expenditures on our part.
There is also increased focus, including by governmental and non-governmental organizations, investors and other stakeholders, on these and other sustainability matters. Maintaining a strong reputation with customers, investors, stakeholders and trade partners is critical to the success of our business. We devote significant time and resources to programs that are consistent with our corporate values and are designed to protect and preserve our reputation as a good corporate citizen. Any perception (whether or not valid) of our failure to act responsibly with respect to the environment or to effectively respond to new, or changes in, legal or regulatory requirements concerning climate change or other sustainability concerns could adversely affect our business and reputation.
We face litigation and product liability claims and other liabilities.
In our lines of business, numerous suits have been filed alleging damages for accidents that have occurred during use or operation of our products. We are self-insured, up to certain limits, for these product liability exposures, as well as for certain exposures related to general, workers’ compensation and automobile liability. We obtain insurance coverage for catastrophic losses as well as those risks where insurance is required by law or contract. We do not believe that the outcome of such matters will have a material adverse effect on our consolidated financial position; however, any significant liabilities not covered by insurance could have an adverse effect on our financial condition.
22
We operate in many different jurisdictions and we could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar worldwide anti-corruption laws.
We must comply with all applicable laws, including the Foreign Corrupt Practices Act (“FCPA”) and other laws that prohibit engaging in corruption for the purpose of obtaining or retaining business. These anti-corruption laws prohibit companies and their intermediaries from making improper payments or providing anything of value to improperly influence government officials or private individuals for the purpose of obtaining or retaining a business advantage regardless of whether those practices are legal or culturally expected in a particular jurisdiction. Our global activities and distribution model are subject to risk of corruption by our employees and in addition, our sales agents, distributors, dealers and other third parties that transact Terex business particularly because these parties are generally not subject to our control. We have an internal policy that expressly prohibits engaging in any commercial bribery and public corruption, including facilitation payments. We conduct corruption risk assessments, we have implemented training programs for our employees with respect to the Company’s prohibition against public corruption and commercial bribery, and we perform reputational due diligence on certain third parties that transact Terex business. In addition, we conduct transaction testing to assess compliance with our internal anti-corruption policy and procedures. However, we cannot assure you that our policies, procedures and programs always will protect us from reckless or criminal acts committed by our employees or third parties that transact Terex business. We have a zero tolerance policy for violations of anti-corruption laws and our anti-corruption policy. In the event we believe or have reason to believe our employees, agents, representatives, dealers or distributors or other third parties that transact Terex business have or may have violated our anti-corruption policy or applicable anti-corruption laws, we investigate or have outside counsel investigate relevant facts and circumstances. Although we have a compliance program in place designed to reduce the likelihood of potential violations of such laws, violations of 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“We must comply with an injunction and related obligations imposed by the SEC.”
Increasing regulatory focus on privacy and data security issues and expanding laws could expose us to increased liability.
The legislative and regulatory framework for privacy and data protection issues worldwide is also rapidly evolving and is likely to remain uncertain for the foreseeable future. We collect and transfer personal data as part of our business processes and activities. This data is subject to a variety of U.S., E.U. and other international laws and regulations, including oversight by various regulatory or other governmental bodies. Any inability, or perceived inability, to adequately address privacy and data protection concerns, even if unfounded, or to comply with applicable laws, regulations, policies, industry standards, contractual obligations, or other legal obligations (including at newly acquired companies) could result in additional cost and liability to us or company officials, damage our reputation, inhibit sales, and otherwise adversely affect our business.
We must comply with an injunction and related obligations imposed by the SEC.
We and our directors, officers and employees are required to comply at all times with the terms of a 2009 settlement with the SEC that includes an injunction barring us from committing or aiding and abetting any future violations of the anti-fraud, books and records, reporting and internal control provisions of the federal securities laws and related SEC rules. In addition, regarding a separate and unrelated SEC matter, we consented to the entry of an administrative cease and desist order prohibiting future violations of certain provisions of the federal securities laws. As a result, if we commit or aid or abet any future violations of the anti-fraud, books and records, reporting and internal control provisions of the federal securities laws and related SEC rules, we are likely to suffer severe penalties, financial and otherwise, that could have a material negative impact on our business and results of operations.
Strategic Performance Risks
The timing and amount of benefits from our strategic initiatives may not be as expected and our financial results could be adversely impacted.
Each business in our Company is unique, but all businesses are managed to the “Execute, Innovate, Grow” operating framework. This is part of our continuing strategy to deliver long-term growth and earnings to our shareholders. We have made, and continue to make, significant investments in these strategic initiatives. However, we cannot provide any assurance that we will be able to realize the full anticipated benefits of these initiatives. Although “Execute, Innovate, Grow” is expected to improve future operating margins and revenue growth, if we are unable to achieve expected benefits from these initiatives or are unable to complete them without material disruption to our businesses, the timing and amount of benefits may not be as expected and could adversely impact the Company’s competitive position, financial condition, profitability and/or cash flows.
23
Information Technology Risks
We may be adversely affected by disruption in, or breach in security of, our information technology systems.
We rely on information technology systems, some of which are managed by third parties, to process, transmit and store electronic information (including sensitive data such as confidential business information and personally identifiable data relating to employees, customers and other business partners), and to manage or support a variety of critical business processes and activities. As technology continues to evolve, we anticipate that we will collect and store even more data in the future and that our systems will increasingly use remote communication. We continuously seek to maintain a robust program of information security and controls, but these systems may be damaged, disrupted or shut down due to attacks by computer hackers, computer viruses, employee error or malfeasance, power outages, hardware failures, telecommunication or utility failures, catastrophes or other unforeseen events, and in any such circumstances our system redundancy and other disaster recovery planning may be ineffective or inadequate. A failure of or breach in information technology security, particularly through malicious cyber-attacks which are increasing in both frequency and sophistication by both state and non-state actors, could expose us and our customers, distributors and suppliers to risks of misuse of information or systems, the compromise of confidential information, manipulation and destruction of data, defective products, production downtimes and operations disruptions. In addition, such breaches in security could result in misstated financial information, regulatory action, fines and litigation, and other potential liabilities, as well as the costs and operational consequences of implementing further data protection measures, each of which could have a material adverse effect on our business or results of operations.
The current cyber threat environment indicates increased risk for all companies. In addition, we could be impacted by cyber threats, disruptions or vulnerabilities of our customers and suppliers. Like other global companies, we have experienced cyber threats and incidents in our systems and those of our third-party providers, and we have experienced viruses and attacks targeting our information technology systems and networks, although none have had a material adverse effect on our business or financial condition. Our information security efforts include programs designed to address security governance, identification and protection of critical assets, insider risk, third-party risk and cyber defense operations. While these measures are designed to reduce the risk of a breach or failure of our information technology systems, no security measures or countermeasures can guarantee that the Company will not experience a significant information security incident in the future.
Not applicable.
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| ITEM 2. PROPERTIES |
As of December 31, 2019,2021, our principal manufacturing, warehouse, service and office facilities comprised a total of approximately 7 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 in relation to our continuing businesses:
| BUSINESS SEGMENT | FACILITY LOCATION | BUSINESS SEGMENT | FACILITY LOCATION | |||||||||||||||||
| Corporate/Other | Norwalk, Connecticut (1) | MP | Louisville, Kentucky | |||||||||||||||||
Schaffhausen, Switzerland (1) | Durand, Michigan | |||||||||||||||||||
| Multiple Business Segments | Southaven, Mississippi (1) | Coalville, England | ||||||||||||||||||
| Oklahoma City, Oklahoma | Hosur, India | |||||||||||||||||||
| AWP | Moses Lake, Washington (1) | Subang Jaya, Malaysia (1) | ||||||||||||||||||
North Bend, Washington (1) | Ballymoney, Northern Ireland | |||||||||||||||||||
Redmond, Washington (1) | Campsie, Northern Ireland | |||||||||||||||||||
Bothell, Washington (1) | Dungannon, Northern Ireland (1) | |||||||||||||||||||
| Changzhou, China | Omagh, Northern Ireland (1) | |||||||||||||||||||
| Umbertide, Italy | Newton, New Hampshire | |||||||||||||||||||
Darra, Australia (1) | Canton, South Dakota | |||||||||||||||||||
| Watertown, South Dakota | Fort Wayne, Indiana | |||||||||||||||||||
| Huron, South Dakota | Bad Schönborn, Germany | |||||||||||||||||||
| Monterrey, Mexico | Brisbane, Australia (1) | |||||||||||||||||||
| Crespellano, Italy | ||||||||||||||||||||
| Fontanafredda, Italy | ||||||||||||||||||||
| Monaghan, Republic of Ireland | ||||||||||||||||||||
| Jiading, China | ||||||||||||||||||||
We also have numerous owned or leased locations for new machine and parts sales, and distribution and rebuilding of componentsservice located worldwide.
We believe the properties listed above are suitable and adequate for our use. From time to time, we may determine that certain of our properties exceed our requirements. Such properties may be sold, leased or utilized in another manner.
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 riskrisks required by law or contract with retained liability to us or deductibles. We believe the outcome of such matters, individually and in aggregate, will not have a material adverse effect on our consolidated financial position.statements. However, outcomes of lawsuits cannot be predicted and, if determined adversely, could ultimately result in us incurring significant liabilities which could have a material adverse effect on our results of operations.
For information concerningregarding litigation and other contingencies and uncertainties, including our proceedings involving a claim in Brazil regarding payment of ICMS tax (Brazilian state value-added tax), see Note ON – “Litigation and Contingencies,” in the Notes to the Consolidated Financial Statements.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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| PART II |
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Our common stock, par value $.01 per share (“Common Stock”)Stock is tradedlisted on the New York Stock Exchange (“NYSE”) under the symbol “TEX.”TEX. Certain of our debt agreements contain restrictions as to the payment of cash dividends to stockholders. In addition, Delaware law limits payment of dividends. In February 2020,2022, Terex’s Board of Directors declared a dividend of $0.12$0.13 per share, towhich will be paid to our shareholders on March 19, 2020.21, 2022. Any additional payments of 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 11, 2020,8, 2022, there were 582538 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 the Peer Group (as defined below) for the period commencing December 31, 20142016 through December 31, 2019.2021. 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.
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, Carlisle Companies Inc., Crane Company, Dana Incorporated, Dover Corporation, Flowserve Corporation, Hubbell Inc., Lennox International Inc., The Manitowoc Company, Inc., Meritor Inc., Navistar International Corporation, Oshkosh Corporation, Pentair Ltd., Rockwell Automation, Inc., Roper Technologies Inc., Timken Company, Trinity Industries Inc. and Westinghouse Air Brake Technologies Corporation.
26
| 12/14 | 12/15 | 12/16 | 12/17 | 12/18 | 12/19 | |||||||
| Terex Corporation | 100.00 | 66.76 | 115.69 | 178.49 | 103.14 | 113.13 | ||||||
| S&P 500 | 100.00 | 101.38 | 113.51 | 138.29 | 132.23 | 173.86 | ||||||
| Peer Group | 100.00 | 89.79 | 111.88 | 147.27 | 124.31 | 169.63 | ||||||
| Copyright© 2018 Standard & Poor's, a division of S&P Global. All rights reserved. | ||||||||||||
| 12/16 | 12/17 | 12/18 | 12/19 | 12/20 | 12/21 | |||||||||||||||
| Terex Corporation | 100.00 | 154.28 | 89.15 | 97.78 | 115.25 | 146.60 | ||||||||||||||
| S&P 500 | 100.00 | 121.83 | 116.49 | 153.17 | 181.35 | 233.41 | ||||||||||||||
| Peer Group | 100.00 | 131.59 | 112.18 | 153.68 | 173.42 | 220.65 | ||||||||||||||
| Copyright© 2022 Standard & Poor's, a division of S&P Global. All rights reserved. | ||||||||||||||||||||
Purchases of Equity Securities
The following table provides information about our purchases during the quarter ended December 31, 20192021 of our common stockCommon Stock that is registered by us pursuant to the Exchange Act.
| Issuer Purchases of Equity Securities | ||||||||||||||||||||||||||
| Period | Total Number of Shares Purchased (1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) | Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs (in thousands) (2) | ||||||||||||||||||||||
| October 1, 2021 – October 31, 2021 | 1,466 | $43.64 | — | $140,517 | ||||||||||||||||||||||
| November 1, 2021 – November 30, 2021 | 976 | $45.98 | — | $140,517 | ||||||||||||||||||||||
| December 1, 2021 – December 31, 2021 | 31,423 | $41.44 | 28,688 | $139,334 | ||||||||||||||||||||||
| Total | 33,865 | $41.67 | 28,688 | $139,334 | ||||||||||||||||||||||
| Issuer Purchases of Equity Securities | ||||||||
| Period | Total Number of Shares Purchased (1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) | Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs (in thousands) (2) | ||||
| October 1, 2019 – October 31, 2019 | 2,498 | $23.99 | — | $200,000 | ||||
| November 1, 2019 – November 30, 2019 | 140,156 | $27.69 | 138,275 | $196,176 | ||||
| December 1, 2019 – December 31, 2019 | 41,625 | $28.08 | 37,000 | $195,146 | ||||
| Total | 184,279 | $27.72 | 175,275 | $195,146 | ||||
| (in millions, except per share amounts and employees) | AS OF OR FOR THE YEAR ENDED DECEMBER 31, | ||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | |||||||||||||||
| SUMMARY OF OPERATIONS | |||||||||||||||||||
| Net sales | $ | 4,353.1 | $ | 4,517.2 | $ | 3,793.7 | $ | 3,808.5 | $ | 4,141.3 | |||||||||
| Income (loss) from operations | 335.0 | 412.5 | 228.2 | 124.9 | 300.4 | ||||||||||||||
| Income (loss) from continuing operations | 209.7 | 241.7 | 111.0 | 47.8 | 108.9 | ||||||||||||||
| Income (loss) from discontinued operations – net of tax | (155.4 | ) | (130.4 | ) | (49.6 | ) | (226.8 | ) | 36.7 | ||||||||||
| Gain (loss) on disposition of discontinued operations – net of tax | 0.1 | 2.4 | 67.3 | 3.5 | 3.4 | ||||||||||||||
| Net income (loss) attributable to common stockholders | 54.4 | 113.7 | 128.7 | (176.1 | ) | 145.9 | |||||||||||||
| Per Common and Common Equivalent Share: | |||||||||||||||||||
| Basic attributable to common stockholders | |||||||||||||||||||
| Income (loss) from continuing operations | $ | 2.95 | $ | 3.21 | $ | 1.20 | $ | 0.45 | $ | 1.02 | |||||||||
| Income (loss) from discontinued operations – net of tax | (2.18 | ) | (1.73 | ) | (0.53 | ) | (2.11 | ) | 0.31 | ||||||||||
| Gain (loss) on disposition of discontinued operations – net of tax | — | 0.03 | 0.72 | 0.03 | 0.03 | ||||||||||||||
| Net income (loss) attributable to common stockholders | 0.77 | 1.51 | 1.39 | (1.63 | ) | 1.36 | |||||||||||||
| Diluted attributable to common stockholders | |||||||||||||||||||
| Income (loss) from continuing operations | $ | 2.92 | $ | 3.14 | $ | 1.17 | $ | 0.45 | $ | 1.00 | |||||||||
| Income (loss) from discontinued operations – net of tax | (2.16 | ) | (1.69 | ) | (0.52 | ) | (2.11 | ) | 0.30 | ||||||||||
| Gain (loss) on disposition of discontinued operations – net of tax | — | 0.03 | 0.71 | 0.03 | 0.03 | ||||||||||||||
| Net income (loss) attributable to common stockholders | 0.76 | 1.48 | 1.36 | (1.63 | ) | 1.33 | |||||||||||||
| CURRENT ASSETS AND LIABILITIES | |||||||||||||||||||
| Current assets | $ | 2,019.7 | $ | 2,423.0 | $ | 2,383.0 | $ | 2,700.5 | $ | 3,140.2 | |||||||||
| Current liabilities | 872.4 | 1,214.7 | 1,035.5 | 1,407.0 | 1,458.6 | ||||||||||||||
PROPERTY, PLANT AND EQUIPMENT | |||||||||||||||||||
| Net property, plant and equipment | $ | 389.4 | $ | 317.3 | $ | 277.7 | $ | 277.1 | $ | 329.8 | |||||||||
| Capital expenditures | (105.5 | ) | (91.0 | ) | (31.7 | ) | (48.8 | ) | (74.4 | ) | |||||||||
| Depreciation | 39.6 | 39.0 | 47.0 | 52.0 | 50.9 | ||||||||||||||
| TOTAL ASSETS | $ | 3,195.6 | $ | 3,485.9 | $ | 3,462.5 | $ | 5,006.8 | $ | 5,616.0 | |||||||||
| CAPITALIZATION | |||||||||||||||||||
| Long-term debt | $ | 1,175.7 | $ | 1,214.7 | $ | 979.1 | $ | 1,570.0 | $ | 1,791.0 | |||||||||
| Total Terex Corporation Stockholders’ Equity | 932.3 | 860.5 | 1,222 | 1,484.7 | 1,877.4 | ||||||||||||||
| Dividends per share of Common Stock | 0.44 | 0.40 | 0.32 | 0.28 | 0.24 | ||||||||||||||
| Shares of Common Stock outstanding at year end | 70.4 | 69.6 | 80.2 | 105.0 | 107.7 | ||||||||||||||
EMPLOYEES (1), (2) | 9,500 | 9,900 | 8,900 | 9,200 | 10,500 | ||||||||||||||
(2) Excludes approximately 1,800, 1,800, 2,100In July 2018, our Board of Directors authorized and 3,200 Mobile Cranes employees in years 2018, 2017, 2016, and 2015, respectively.the Company publicly announced the repurchase of up to an additional $300 million of the Company’s outstanding common shares.
ITEM 6. RESERVED
27
| ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
BUSINESS DESCRIPTION
Terex is a global manufacturer of aerial work platforms and materials processing machinery and cranes.machinery. We design, build and support products used in construction, maintenance, manufacturing, energy, minerals and materials management applications. Terex products and solutions enable customers to reduce their environmental impact including electric and hybrid offerings that deliver quiet and emission-free performance, products that support renewable energy, and products that aid in the recovery of useful materials from various types of waste. Our products are manufactured in North and South America, Europe, Australia and Asia and sold worldwide. We engage with customers through all stages of the product life cycle, from initial specification and financing to parts and service support. We manage and report our business in the following segments: (i) AWP and (ii) MP.
Non-GAAP Measures
In this document, we refer to various GAAP (U.S. generally accepted accounting principles) and non-GAAP financial measures. These non-GAAP measures may not be comparable to similarly titled measures disclosed by other companies. We present non-GAAP financial measures in reporting our financial results to provide investors with additional analytical tools which we believe are useful in evaluating our operating results and the ongoing performance of our underlying businesses. We do not, nor do we suggest that investors consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.
Non-GAAP measures we may use include translation effect of foreign currency exchange rate changes on net sales, gross profit, selling, general & administrative (“SG&A”)&A costs and operating profit, as well as the net sales, gross profit, SG&A costs and operating profit excluding the impact of acquisitions and divestitures.
As changes in foreign currency exchange rates have a non-operating impact on our financial results, we believe excluding effects of these changes assists in assessment of our business results between periods. We calculate the translation effect of foreign currency exchange rate changes by translating current period results using rates that the comparable prior periods were translated at to isolate the foreign exchange component of fluctuation from the operational component. Similarly, impact of changes in our results from acquisitions and divestitures not included in comparable prior periods may be subtracted from the absolute change in results to allow for better comparability of results between periods.
We calculate a non-GAAP measure of free cash flow. We define free cash flow as Net cash provided by (used in) operating activities, plus (minus) increases (decreases) in Terex Financial ServicesTFS finance receivables consisting of sales-type leases and commercial loans (“TFS Assets”), less Capital expenditures, net of proceeds from sale of capital assets, plus the estimated level of net working capital in divested businesses at the closing date.assets. We believe this measure of free cash flow provides management and investors further useful information on cash generation or use in our primary operations.
We discuss forward lookingforward-looking information related to expected earnings per share (“EPS”) excluding the impact of potential future acquisitions, divestitures, restructuring and other unusual items. Our 20202022 outlook for earnings per share is a non-GAAP financial measure because it excludes unusual items. The Company is not able to reconcile these forward-looking non-GAAP financial measures to their most directly comparable forward-looking GAAP financial measures without unreasonable efforts because the Company is unable to predict with a reasonable degree of certainty the exact timing and impact of such items. The unavailable information could have a significant impact on the Company’s full-year 2020full year 2022 GAAP financial results. Adjusted EPSThis forward-looking information provides guidance to investors about our EPS expectations excluding these unusual items that we do not believe are reflective of our ongoing operations.
Working capital is calculated using the Consolidated Balance Sheet amounts for Trade receivables (net of allowance) plus Inventories, (net of allowance), less Trade accounts payable and Customer advances. We view excessive working capital as an inefficient use of resources, and seek to minimize the level of investment without adversely impacting ongoing operations of the business. Trailing three months annualized net sales is calculated using net sales for the most recent quarter end multiplied by four. The ratio calculated by dividing working capital by trailing three months annualized net sales is a non-GAAP measure we believe measures our resource use efficiency.
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Non-GAAP measures we also use include Net Operating Profit After Tax (“NOPAT”) as adjusted, incomeIncome (loss) from operations as adjusted, annualized effective tax rate as adjusted, cash and cash equivalents as adjusted Debt as adjusted and Terex Corporation stockholders’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
Our strategic operational priorities of execution, innovation, and growth continue to Win have been the three pillars ofmake excellent progress and strengthened our business strategy.operations in 2021. We continuedproactively managed supply chain disruptions and aggressively managed SG&A costs. We also improved Genie’s future cost competitiveness as our temporary Mexico facility is now producing telehandlers and continues to implementramp-up.
We also continue to innovate so our products and services offer the elements offeatures and benefits that provide value to our strategycustomers. We introduced new products including environmental and recycling solutions in 2019. We completed the sale of DemagMP, new electric offerings in Genie, and exited the mobile crane product lines manufactured at our Oklahoma City facility. These actions have positively impacted Terex by Focusing our portfolio on high performing businesses best positioned to out-earn their cost of capital over the cycle.electric grid maintenance products in Utilities. We also continued to simplifyinvest in connected assets and optimize our manufacturing footprint. We haddigital capabilities, such as customer dealer integration and telematics across the official openingenterprise to better serve customers.
Organic and inorganic growth continues to be a focus. In 2021, we expanded production capabilities of MP’s newmobile crushing and screening equipment in China and Northern Ireland, facilitycompleted a bolt-on acquisition, purchasing a heavy duty trommels business that broadens our product offerings, and continued expansion of service facilities for our new Utilities manufacturing facilitycustomers.
Our performance in South Dakota remains on schedule2021 reflected strong improvement in the business and within budget. MP’s capacity expansiongood execution by our team members in India also remains on track. These investments enable simplificationa dynamic and improved manufacturing productivity criticalchallenging environment. Net sales of $3.9 billion were up 26% year-over-year as end-markets recovered. SG&A spending was $42 million lower year-over-year at 11% of net sales, beating our 12.5% target. Operating margin of 8.4% expanded 620 basis points due to our future successhigher sales and growth. In addition, we have transitionedstrict expense discipline. This led to a simpler two segment operating structure that has reduced corporate operating expenses. We continuedearnings per share (“EPS”) increasing significantly from $0.13 in 2020 to invest$3.07 in our Execute to Win business system, focusing on enhancing our capabilities by investing in people, processes and tools in our three priority areas: Commercial Excellence, Parts and Lifecycle Solutions and Strategic Sourcing.2021.
Overall, 2019 was2021 demonstrated the resilience of our businesses and team members to deliver improving results throughout the year against a challenging backdrop. Like most other industrial companies, we faced shortages and cost pressures from materials, logistics, freight and labor. These headwinds became more pronounced as the year for us. Operationally, MP had excellent performance in 2019 as it increased sales and expanded operating margin. However, softeningdeveloped, particularly in the Company’s aerials business more thanfourth quarter, and have constrained our growth in the short-term. We took pricing actions, but they were not sufficient to offset MP’s strong operating performance. Despitesignificant material and logistics inflation in the challenging global markets, our global, cross-segment parts and services team drove 9% revenue growth on currency neutral basis in parts and services even though machine sales were down throughout the Company.back half of 2021.
Our AWP segment’s 20192021 net sales were down 8%up 22% from the prior year. AWP’s revenue declines were greatestyear driven by continued strong demand in North Americaall our global markets. For our Genie business globally, rental rates are improving, used equipment pricing is strong and Western Europe as concerns overfleet utilization remains robust which are all positive signs of a strengthening aerials rental industry. We are also continuing to see positive indicators for non-residential investment. The utilities market also improved significantly with demand strong across its end-markets of tree care, rental and investor-owned utilities. We are also experiencing strong growth in our Utilities parts and services business. AWP delivered significantly improved operating margins in the year, driven by increased production and aggressively managing all costs. This improvement was despite the current global macroeconomic market for industrial equipment caused rental customers for aerials to hold back capital equipment purchases. This more than offset revenue increases for utility productssupply chain dynamics which impacted our operations in North AmericaAWP in the second half of the year through reduced efficiency in our manufacturing facilities as well as for aerials in China,higher material, logistics and labor costs. We expect end market demand to remain strong into 2022 as demonstrated by AWP’s backlog, which improved due to market growth and increased product adoption. To align with customer demand and manage inventory levels, we reduced aerial production throughout 2019 with fourth quarter 2019 production levels approximately 45% lower than production levels in the fourth quarter of 2018. AWP’s lower sales, significantly reduced production levels and the strong U.S. Dollar relative to the Euro were the primary drivers in the operating profit reduction in 2019 asis up 137% compared to the prior year. We expect continued growth for our utilities business in 2020 and the caution being exhibited by our aerials rental customers during 2019 to continue into 2020. As a result, we anticipate net sales between $2.3 billion and $2.4 billion and an operating margin between 7.8% and 8.5% in 2022. We expect AWP sales to be down 7%-10% and operating margins to contract to 6%-7%significantly higher input costs peaking in 2020.the first quarter with pricing realization improving through the year.
Our MP segment had anothersegment’s 2021 net sales were up 35% from the prior year driven by strong year, with itscustomer sentiment across all end-markets and geographies. MP has been aggressively managing all elements of cost as end-markets improve resulting in a 14% operating profit improving on increased net sales. These results were driven primarily by continuedmargin for the year. We expect global demand for crushing and screening products,equipment to continue to grow. Broad-based economic growth, construction activity and aggregates consumption are the primary market drivers. We are also seeing strong markets for the concrete trucks,mixer truck, material handlershandling and pickenvironmental businesses. Customer sentiment continues to improve and carry cranes, as well as effective price and cost management. The strong U.S. Dollarwe are encouraged by MP’s backlog, which is up 98% compared to the British Pound provided a modest tailwind for our crushing and screening business. However, MP did have challenging markets at the end of theprior year as cautious customer sentiment led to delays of capital purchases of crushing and screening products, material handlers and environmental equipment.period. As a result, of this market softening,we anticipate net sales between $1.8 billion and $1.9 billion and an operating margin between 14.0% and 14.5% in 2022, although we expect MP sales, including our tower and rough terrain cranes businesses, tothe first quarter will be down 8%-11% and operating margins to contract to 12.3%-13% in 2020.challenged by supply constraints.
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In 2021, our largest market isremained North America, which representsrepresented approximately 57%55% of our global sales in continuing operations.sales. As compared to the prior year period, our sales were down in North America, Europe, the Middle East and Africa, up in Asia Pacific and up by double digits off a low base in Latin America.every major geography.
businesses. We believe ourwe have ample liquidity continues to be sufficient to meet our business plans. See “Liquidity and Capital Resources” for a detailed description of liquidity and working capital levels, including the primary factors affecting such levels.levels, as well as a reconciliation of net cash provided by (used in) operating activities to free cash flow.
ROIC
ROIC and other Non-GAAP Measures (as calculated below) assist in showing how effectively we utilize capital invested in our operations. ROIC is determined by dividing the sum of NOPAT for each of the previous four quarters by the average of Debt less Cash and cash equivalents plus Terex Corporation stockholders’Stockholders’ equity for the previous five quarters. NOPAT for each quarter is calculated by multiplying Income (loss) from operations by one minus the annualizedfull year 2021 effective tax rate.rate (“Effective Tax Rate”).
In the calculation of ROIC, we adjust incomeIncome (loss) from operations annualized effective tax rate, and Terex Corporation stockholders’Stockholders’ equity to remove the effects of the impact of certain transactions in order to create a measure that is useful to understanding our operating results and the ongoing performance of our underlying business without the impact of unusual items as shown in the tables below. Cash and cash equivalents and Debt areis adjusted to include amounts recorded as held for sale.
Furthermore, we believe returnsreturn on capital deployed in TFS do not represent our primary operations and, therefore, TFS Assets and results from operations have been excluded from the Non-GAAP Measures. Debt is calculated using amounts for Current portion of long-term debt plus Long-term debt, less current portion. We calculate ROIC using the last four quarters’ adjusted NOPAT as this represents the most recent 12-month period at any given point of determination. In order for the denominator of the ROIC ratio to properly match the operational period reflected in the numerator, we include the average of five quarters’ ending balance sheet amounts so that the denominator includes the average of the opening through ending balances (on a quarterly basis) thereby providing, over the same time period as the numerator, four quarters of average invested capital.
Terex management and Board of Directors use ROIC as one measure to assess operational performance, including in connection with certain compensation programs. We use ROIC as a metric because we believe it measures how effectively we invest our capital and provides a better measure to compare ourselves to peer companies to assist in assessing how we drive operational improvement. We believe ROIC measures return on the amount of capital invested in our primary businesses, excluding TFS, as opposed to another metric such as return on stockholders’ equity that only incorporates book equity, and is thus a more accurate and descriptive measure of our performance. We also believe adding Debt less Cash and cash equivalents to Terex Corporation stockholders’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, 20192021 was 17.6%19.0%.
Amounts described below are reported in millions of U.S. dollars, except for the annualized effective tax rates.Effective Tax Rate. Amounts are as of and for the three months ended for the periods referenced in the tables below.
| Dec '21 | Sep '21 | Jun '21 | Mar '21 | Dec '20 | |||||||||||||
| Effective Tax Rate | 17.6 | % | 17.6 | % | 17.6 | % | 17.6 | % | |||||||||
| Income (loss) from operations as adjusted | $ | 70.0 | $ | 74.9 | $ | 117.3 | $ | 55.4 | |||||||||
| Multiplied by: 1 minus Effective Tax Rate | 82.4 | % | 82.4 | % | 82.4 | % | 82.4 | % | |||||||||
| Adjusted net operating income (loss) after tax | $ | 57.7 | $ | 61.7 | $ | 96.7 | $ | 45.6 | |||||||||
| Debt | $ | 674.1 | $ | 893.4 | $ | 894.2 | $ | 979.2 | $ | 1,173.8 | |||||||
| Less: Cash and cash equivalents as adjusted | (266.9) | (558.2) | (547.5) | (577.8) | (670.1) | ||||||||||||
| Debt less Cash and cash equivalents as adjusted | 407.2 | 335.2 | 346.7 | 401.4 | 503.7 | ||||||||||||
| Stockholders�� equity as adjusted | 1,097.0 | 1,037.5 | 1,015.5 | 918.9 | 806.8 | ||||||||||||
| Debt less Cash and cash equivalents plus Stockholders’ equity as adjusted | $ | 1,504.2 | $ | 1,372.7 | $ | 1,362.2 | $ | 1,320.3 | $ | 1,310.5 | |||||||
| December 31, 2021 ROIC | 19.0 | % | |||
| NOPAT as adjusted (last 4 quarters) | $ | 261.7 | |||
| Average Debt less Cash and cash equivalents plus Stockholders’ equity, as adjusted (5 quarters) | $ | 1,374.0 | |||
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| Dec '19 | Sep '19 | Jun '19 | Mar '19 | Dec '18 | |||||||||||
| Annualized effective tax rate as adjusted | 15.6 | % | 15.6 | % | 15.6 | % | 15.6 | % | |||||||
| Income (loss) from operations as adjusted | $ | 35.3 | $ | 86.2 | $ | 127.9 | $ | 104.8 | |||||||
| Multiplied by: 1 minus annualized effective tax rate | 84.4 | % | 84.4 | % | 84.4 | % | 84.4 | % | |||||||
| Adjusted net operating income (loss) after tax | $ | 29.8 | $ | 72.8 | $ | 107.9 | $ | 88.5 | |||||||
| Debt as adjusted | $ | 1,175.7 | $ | 1,175.6 | $ | 1,351.9 | $ | 1,477.8 | $ | 1,219.4 | |||||
| Less: Cash and cash equivalents as adjusted | (540.1 | ) | (475.5 | ) | (394.6 | ) | (330.2 | ) | (372.1 | ) | |||||
| Debt less Cash and cash equivalents as adjusted | $ | 635.6 | $ | 700.1 | $ | 957.3 | $ | 1,147.6 | $ | 847.3 | |||||
| Total Terex Corporation stockholders’ equity as adjusted | $ | 963.7 | $ | 881.3 | $ | 852.2 | $ | 743.4 | $ | 752.5 | |||||
| Debt less Cash and cash equivalents plus Total Terex Corporation stockholders’ equity as adjusted | $ | 1,599.3 | $ | 1,581.4 | $ | 1,809.5 | $ | 1,891.0 | $ | 1,599.8 | |||||
| Three months ended 12/31/21 | Three months ended 9/30/21 | Three months ended 6/30/21 | Three months ended 3/31/21 | ||||||||||||||
| Reconciliation of income (loss) from operations: | |||||||||||||||||
| Income (loss) from operations as reported | $ | 69.8 | $ | 74.2 | $ | 122.5 | $ | 61.5 | |||||||||
| Adjustments: | |||||||||||||||||
| (Income) loss from TFS | 0.2 | 0.7 | (5.2) | (6.1) | |||||||||||||
| Income (loss) from operations as adjusted | $ | 70.0 | $ | 74.9 | $ | 117.3 | $ | 55.4 | |||||||||
| As of 12/31/21 | As of 9/30/21 | As of 6/30/21 | As of 3/31/21 | As of 12/31/20 | |||||||||||||
| Reconciliation of Cash and cash equivalents: | |||||||||||||||||
| Cash and cash equivalents - continuing operations | $ | 266.9 | $ | 553.2 | $ | 542.2 | $ | 572.9 | $ | 665.0 | |||||||
| Cash and cash equivalents - assets held for sale | — | 5.0 | 5.3 | 4.9 | 5.1 | ||||||||||||
| Cash and cash equivalents as adjusted | $ | 266.9 | $ | 558.2 | $ | 547.5 | $ | 577.8 | $ | 670.1 | |||||||
| Reconciliation of Stockholders’ equity: | |||||||||||||||||
| Stockholders’ equity as reported | $ | 1,109.6 | $ | 1,050.7 | $ | 1,033.9 | $ | 946.1 | $ | 921.5 | |||||||
| TFS Assets | (3.3) | (3.7) | (8.3) | (21.4) | (113.9) | ||||||||||||
| Effects of adjustments, net of tax: | |||||||||||||||||
| (Income) loss from TFS | (9.3) | (9.5) | (10.1) | (5.8) | (0.8) | ||||||||||||
| Stockholders’ equity as adjusted | $ | 1,097.0 | $ | 1,037.5 | $ | 1,015.5 | $ | 918.9 | $ | 806.8 | |||||||
| December 31, 2019 ROIC | 17.6 | % | |
| NOPAT as adjusted (last 4 quarters) | $ | 299.0 | |
| Average Debt less Cash and cash equivalents plus Total Terex Corporation stockholders’ equity, as adjusted (5 quarters) | $ | 1,696.2 | |
| Three months ended 12/31/19 | Three months ended 9/30/19 | Three months ended 6/30/19 | Three months ended 3/31/19 | ||||||||||||
| Reconciliation of income (loss) from operations: | |||||||||||||||
| Income (loss) from operations as reported | $ | 22.9 | $ | 86.4 | $ | 126.0 | $ | 99.7 | |||||||
| Adjustments: | |||||||||||||||
| Deal related | — | (0.9 | ) | (7.0 | ) | 0.2 | |||||||||
| Restructuring and related | 9.8 | 2.2 | 8.7 | 1.7 | |||||||||||
| Transformation | 3.4 | 2.2 | 4.0 | 4.1 | |||||||||||
| Other | 0.2 | — | — | — | |||||||||||
| (Income) loss from TFS | (1.0 | ) | (3.7 | ) | (3.8 | ) | (0.9 | ) | |||||||
| Income (loss) from operations as adjusted | $ | 35.3 | $ | 86.2 | $ | 127.9 | $ | 104.8 | |||||||
| As of 12/31/19 | As of 9/30/19 | As of 6/30/19 | As of 3/31/19 | As of 12/31/18 | |||||||||||
| Reconciliation of Cash and cash equivalents: | |||||||||||||||
| Cash and cash equivalents - continuing operations | $ | 535.1 | $ | 470.6 | $ | 367.5 | $ | 304.6 | $ | 339.5 | |||||
| Cash and cash equivalents - assets held for sale | 5.0 | 4.9 | 27.1 | 25.6 | 32.6 | ||||||||||
| Cash and cash equivalents as adjusted | $ | 540.1 | $ | 475.5 | $ | 394.6 | $ | 330.2 | $ | 372.1 | |||||
| Reconciliation of Debt: | |||||||||||||||
| Debt - continuing operations | $ | 1,175.7 | $ | 1,175.6 | $ | 1,347.7 | $ | 1,473.4 | $ | 1,214.7 | |||||
| Debt - liabilities held for sale | — | — | 4.2 | 4.4 | 4.7 | ||||||||||
| Debt as adjusted | $ | 1,175.7 | $ | 1,175.6 | $ | 1,351.9 | $ | 1,477.8 | $ | 1,219.4 | |||||
| Reconciliation of Terex Corporation stockholders’ equity: | |||||||||||||||
| Terex Corporation stockholders’ equity as reported | $ | 932.3 | $ | 866.3 | $ | 860.1 | $ | 781.8 | $ | 860.5 | |||||
| TFS Assets | (154.0 | ) | (159.0 | ) | (180.2 | ) | (204.6 | ) | (185.1 | ) | |||||
| Effects of adjustments, net of tax: | |||||||||||||||
| Deal related | 75.3 | 75.3 | 75.8 | 83.1 | — | ||||||||||
| Restructuring and related | 31.0 | 22.7 | 19.2 | 9.5 | 6.8 | ||||||||||
| Transformation | 23.5 | 20.6 | 18.4 | 13.9 | 9.1 | ||||||||||
| Pension annuitization | 56.3 | 56.3 | 56.3 | 56.3 | 56.3 | ||||||||||
| Other | 7.4 | 6.4 | 6.8 | 4.4 | 5.1 | ||||||||||
| (Income) loss from TFS | (8.1 | ) | (7.3 | ) | (4.2 | ) | (1.0 | ) | (0.2 | ) | |||||
| Terex Corporation stockholders’ equity as adjusted | $ | 963.7 | $ | 881.3 | $ | 852.2 | $ | 743.4 | $ | 752.5 | |||||
| Year Ended December 31, 2019 | Income (loss) from continuing operations before income taxes | (Provision for) benefit from income taxes | Income tax rate | ||||||
| Reconciliation of annualized effective tax rate: | |||||||||
| As reported | $ | 247.5 | $ | (37.8 | ) | 15.3 | % | ||
| Effect of adjustments: | |||||||||
| Deal related | (7.5 | ) | 0.2 | ||||||
| Restructuring and related | 22.4 | (4.7 | ) | ||||||
| Transformation | 13.7 | (2.8 | ) | ||||||
| Other | 0.6 | (0.1 | ) | ||||||
| Tax related | — | 2.0 | |||||||
| As adjusted | 276.7 | (43.2 | ) | 15.6 | % | ||||
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RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated financial statements and accompanying notes included in Exhibit 15 (a) (1) and (2) Financial Statements and Financial Statement Schedules of this Annual Report on Form 10-K. This section of our Annual Report on Form 10-K generally discusses 2021 and 2020 and provides a year-over-year comparison of 2021 and 2020. Discussions of 2019 COMPARED WITH 2018
| 2019 | 2018 | |||||||||||||||
% of Sales | % of Sales | % Change In Reported Amounts | ||||||||||||||
| ($ amounts in millions) | ||||||||||||||||
| Net sales | $ | 4,353.1 | — | $ | 4,517.2 | — | (3.6 | )% | ||||||||
| Gross profit | $ | 887.8 | 20.4 | % | $ | 961.9 | 21.3 | % | (7.7 | )% | ||||||
| SG&A | $ | 552.8 | 12.7 | % | $ | 549.4 | 12.2 | % | 0.6 | % | ||||||
| Income (loss) from operations | $ | 335.0 | 7.7 | % | $ | 412.5 | 9.1 | % | (18.8 | )% | ||||||
Consolidated
| 2021 | 2020 | 2019 | |||||||||||||||||||||||||||||||||||||||
| % of Sales | % of Sales | % of Sales | % Change in Reported Amounts 2021 vs 2020 | ||||||||||||||||||||||||||||||||||||||
| ($ amounts in millions) | |||||||||||||||||||||||||||||||||||||||||
| Net sales | $ | 3,886.8 | — | $ | 3,076.4 | — | $ | 4,353.1 | — | 26.3 | % | ||||||||||||||||||||||||||||||
| Gross profit | 757.4 | 19.5 | % | 539.3 | 17.5 | % | 887.8 | 20.4 | % | 40.4 | % | ||||||||||||||||||||||||||||||
| SG&A | 429.4 | 11.0 | % | 470.9 | 15.3 | % | 552.8 | 12.7 | % | (8.8) | % | ||||||||||||||||||||||||||||||
| Income (loss) from operations | 328.0 | 8.4 | % | 68.4 | 2.2 | % | 335.0 | 7.7 | % | 379.5 | % | ||||||||||||||||||||||||||||||
Net sales for the year ended December 31, 2019 decreased $164.12021 increased $810.4 million when compared to 2018.2020. The decreaseincrease in net sales was primarily due to weakeninghigher demand for aerial work platforms, in North Americamaterials processing equipment, material handlers, concrete mixer trucks, cranes and Western Europe in our AWP segment and changesutility equipment. Changes in foreign exchange rates which negativelypositively impacted consolidated net sales by approximately $105 million, partially offset by higher$95 million. Customer sentiment in both segments continues to improve as equipment is being utilized and ordered as end-market demand for equipment in our MP segment and aerial work platforms in China and utility equipment in our AWP segment.strengthens.
Gross profit for the year ended December 31, 2019 decreased $74.12021 increased $218.1 million when compared to 2018.2020. The decreaseincrease was primarily due to higher sales volume, improved manufacturing efficiency, price realization and the negativepositive impact of changes in foreign exchange rate changes across all segments and lower sales volume and factory overhead absorption in our AWP segment,rates, partially offset by higher sales volumematerial, labor and freight cost inflation due to disruptions in our MP segmentthe supply chain and favorable price variances in our AWP segment.labor availability constraints.
SG&A costs for the year ended December 31, 2019 increased $3.42021 decreased $41.5 million when compared to 20182020. The decrease was primarily due to increased engineeringcost management actions taken across all areas of our business, including right-sizing our workforce and selling costs,reduced discretionary spending, partially offset by lower personnel costs.the negative impact of changes in foreign exchange rates.
Income from operations decreasedincreased by $77.5$259.6 million for the year ended December 31, 20192021 when compared to 2018.2020. The decreaseincrease was primarily due to higher sales volume, SG&A cost management, improved manufacturing efficiency, price realization and the negative effectspositive impact of changes in foreign exchange rate changes in all segments and lower sales volume and factory overhead absorption in our AWP segment,rates, partially offset by higher sales volumeincreases in our MP segmentmaterial, labor and favorable price variances in our AWP segment.freight costs.
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Aerial Work Platforms
| 2021 | 2020 | 2019 | |||||||||||||||||||||||||||||||||||||||
| % of Sales | % of Sales | % of Sales | % Change in Reported Amounts 2021 vs 2020 | ||||||||||||||||||||||||||||||||||||||
| ($ amounts in millions) | |||||||||||||||||||||||||||||||||||||||||
| Net sales | $ | 2,178.8 | — | $ | 1,782.9 | — | $ | 2,726.6 | — | 22.2 | % | ||||||||||||||||||||||||||||||
| Income from operations | 152.1 | 7.0 | % | 0.5 | — | % | 196.2 | 7.2 | % | * | |||||||||||||||||||||||||||||||
| 2019 | 2018 | |||||||||||||||
% of Sales | % of Sales | % Change In Reported Amounts | ||||||||||||||
| ($ amounts in millions) | ||||||||||||||||
| Net sales | $ | 2,726.6 | — | $ | 2,950.4 | — | (7.6 | )% | ||||||||
| Income from operations | $ | 196.2 | 7.2 | % | $ | 300.5 | 10.2 | % | (34.7 | )% | ||||||
Net sales for the AWP segment for the year ended December 31, 2019 decreased $223.82021 increased $395.9 million when compared to 20182020 primarily due to weakeninghigher demand driven by fleet replacement and end-market growth for aerial work platforms in North America, and Western Europe partially offset by increased sales in China and higher demand for utility equipment.China. Net sales were negativelypositively impacted by the effects of foreign exchange rate changes particularly in Europe, of approximately $43$42 million.
| 2019 | 2018 | |||||||||||||||
% of Sales | % of Sales | % Change In Reported Amounts | ||||||||||||||
| ($ amounts in millions) | ||||||||||||||||
| Net sales | $ | 1,371.4 | — | $ | 1,322.6 | — | 3.7 | % | ||||||||
| Income from operations | $ | 196.8 | 14.4 | % | $ | 176.0 | 13.3 | % | 11.8 | % | ||||||
Income from operations for the year ended December 31, 20192021 increased $20.8$151.6 million when compared to 20182020 primarily due to higher sales volume, partially offset byimproved manufacturing efficiency, price realization, SG&A cost management and the negativepositive effects of foreign exchange rate changes.changes, partially offset by material, labor and freight cost inflation due to disruptions in the supply chain and labor availability constraints.
Materials Processing
| 2021 | 2020 | 2019 | |||||||||||||||||||||||||||||||||||||||
| % of Sales | % of Sales | % of Sales | % Change in Reported Amounts 2021 vs 2020 | ||||||||||||||||||||||||||||||||||||||
| ($ amounts in millions) | |||||||||||||||||||||||||||||||||||||||||
| Net sales | $ | 1,691.8 | — | $ | 1,256.8 | — | $ | 1,602.6 | — | 34.6 | % | ||||||||||||||||||||||||||||||
| Income from operations | 240.9 | 14.2 | % | 143.4 | 11.4 | % | 227.9 | 14.2 | % | 68.0 | % | ||||||||||||||||||||||||||||||
Net sales for the MP segment increased by $435.0 million for the year ended December 31, 2021 when compared to 2020 primarily due to robust end-market demand for aggregates and cranes in all major geographies, material handlers in North America and Western Europe, and concrete mixer trucks and environmental equipment in North America. Net sales were positively impacted by the effects of foreign exchange rate changes of approximately $53 million.
Income from operations for the year ended December 31, 2021 increased $97.5 million when compared to 2020 primarily due to higher sales volume, price realization and the positive effects of foreign exchange rate changes, partially offset by material, labor and freight cost inflation due to disruptions in the supply chain and labor availability constraints.
Corporate and Other / Eliminations
| 2021 | 2020 | 2019 | |||||||||||||||||||||||||||||||||||||||
| % of Sales | % of Sales | % of Sales | % Change in Reported Amounts 2021 vs 2020 | ||||||||||||||||||||||||||||||||||||||
| ($ amounts in millions) | |||||||||||||||||||||||||||||||||||||||||
| Net sales | $ | 16.2 | — | $ | 36.7 | — | $ | 23.9 | — | (55.9) | % | ||||||||||||||||||||||||||||||
| Loss from operations | (65.0) | * | (75.5) | * | (89.1) | * | 13.9 | % | |||||||||||||||||||||||||||||||||
| 2019 | 2018 | |||||||||||||||
% of Sales | % of Sales | % Change In Reported Amounts | ||||||||||||||
| ($ amounts in millions) | ||||||||||||||||
| Net sales | $ | 255.1 | — | $ | 244.2 | — | 4.5 | % | ||||||||
| Loss from operations | $ | (58.0 | ) | (22.7 | )% | $ | (64.0 | ) | (26.2 | )% | 9.4 | % | ||||
Net sales include rough terrain and tower cranes sales, on-book financing activities of TFS, governmental sales and elimination of intercompany sales activity among segments. The net sales increasedecrease is primarily dueattributable to lower TFS revenue, partially offset by lower intercompany sales eliminations, partially offset by weakening demand for tower cranes and negative effect of foreign exchange rate changes on rough terrain and tower cranes sales.eliminations.
Loss from operations for the year ended December 31, 20192021 decreased $6.0$10.5 million when compared to 2018.2020. The decrease in operating loss is primarily due to lower compensation costs and professional fees,SG&A cost management, gains on the sale of an equity investmentassets and a customer advance forfeiture,reserve release in the current period for a specific finance receivable reserve recorded in 2020, partially offset by the negative effects of exchange rate changes, lower tower cranes sales volume,revenue.
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Other
| 2021 | 2020 | 2019 | |||||||||||||||||||||
| % Change in Reported Amounts 2021 vs 2020 | |||||||||||||||||||||||
| ($ amounts in millions) | |||||||||||||||||||||||
| Interest (expense), net of interest income | $ | (47.8) | $ | (62.3) | $ | (81.4) | (23.3) | % | |||||||||||||||
| Loss on early extinguishment of debt | (29.4) | — | — | * | |||||||||||||||||||
| Other income (expense) – net | 13.0 | 4.9 | (6.1) | (165.3) | % | ||||||||||||||||||
| (Provision for) benefit from income taxes | (46.3) | (2.0) | (37.8) | * | |||||||||||||||||||
| Income (loss) from discontinued operations – net of tax | — | (0.4) | (155.4) | * | |||||||||||||||||||
| Gain (loss) on disposition of discontinued operations – net of tax | 3.4 | (19.2) | 0.1 | 117.7 | % | ||||||||||||||||||
* Not a change in allocation of health care costs, severance costs and a specific loss allowance on a finance receivable.meaningful percentage
Interest Expense, Net of Interest Income
During the year ended December 31, 2019,2021, our interest expense, net of interest income, was $81.4$47.8 million, or $17.3$14.5 million higherlower than the prior yearin 2020 due to an increasea decrease in average borrowings offset byand lower rates.
Loss on Early Extinguishment of Debt
During the year ended December 31, 2021, we recorded a loss on early extinguishment of debt of $29.4 million related to refinancing of a significant portion of our capital structure and prepayment of term loans.
Other Income (Expense) —– Net
Other income (expense) – net for the year ended December 31, 20192021 was a lossincome of $6.1$13.0 million, compared to a loss of $60.6$4.9 million in 2018.2020, an increase of $8.1 million. The changeincrease in income was primarily due primarily to a lossgain related to the early termination of a lease, partially offset by a positive post-closing adjustment in the prior year of approximately $51 million2020 related to the settlement of our U.S. defined benefit pension plan as described in Note M - “Retirement Plans2018 and Other Benefits”.lower foreign exchange rate translation gains and mark-to-market gains on investments in the current year compared to the prior year.
During the year ended December 31, 2019,2021, we recognized anrecorded a loss on early extinguishment of debt of $29.4 million related to refinancing of a significant portion of our capital structure and prepayment of term loans.
Other Income (Expense) – Net
Other income tax expense of $37.8 million on income of $247.5 million, an effective tax rate of 15.3%, as compared to an income tax expense of $45.4 million on income of $287.1 million, an effective tax rate of 15.8%,(expense) – net for the year ended December 31, 2018.2021 was income of $13.0 million, compared to $4.9 million in 2020, an increase of $8.1 million. The lower effective tax rate for the year ended December 31, 2019increase in income was primarily due to favorable jurisdictional mix.
| 2018 | 2017 | |||||||||||||||
% of Sales | % of Sales | % Change In Reported Amounts | ||||||||||||||
| ($ amounts in millions) | ||||||||||||||||
| Net sales | $ | 4,517.2 | — | $ | 3,793.7 | — | 19.1 | % | ||||||||
| Gross profit | $ | 961.9 | 21.3 | % | $ | 767.3 | 20.2 | % | 25.4 | % | ||||||
| SG&A | $ | 549.4 | 12.2 | % | $ | 539.1 | 14.2 | % | 1.9 | % | ||||||
| Income (loss) from operations | $ | 412.5 | 9.1 | % | $ | 228.2 | 6.0 | % | 80.8 | % | ||||||
| 2018 | 2017 | |||||||||||||||
% of Sales | % of Sales | % Change In Reported Amounts | ||||||||||||||
| ($ amounts in millions) | ||||||||||||||||
| Net sales | $ | 2,950.4 | — | $ | 2,433.2 | — | 21.3 | % | ||||||||
| Income (loss) from operations | $ | 300.5 | 10.2 | % | $ | 199.8 | 8.2 | % | 50.4 | % | ||||||
| 2018 | 2017 | |||||||||||||||
% of Sales | % of Sales | % Change In Reported Amounts | ||||||||||||||
| ($ amounts in millions) | ||||||||||||||||
| Net sales | $ | 1,322.6 | — | $ | 1,119.8 | — | 18.1 | % | ||||||||
| Income (loss) from operations | $ | 176.0 | 13.3 | % | $ | 125.1 | 11.2 | % | 40.7 | % | ||||||
| 2018 | 2017 | |||||||||||||||
% of Sales | % of Sales | % Change In Reported Amounts | ||||||||||||||
| ($ amounts in millions) | ||||||||||||||||
| Net sales | $ | 244.2 | — | $ | 240.7 | — | 1.5 | % | ||||||||
| Income (loss) from operations | $ | (64.0 | ) | (26.2 | )% | $ | (96.7 | ) | (40.2 | )% | 33.8 | % | ||||
Loss on Early Extinguishment of Debt
During the year ended December 31, 2018,2021, we recorded a loss on early extinguishment of debt of $0.7$29.4 million as a result of an amendment to the 2017 Credit Agreement which lowered the interest rate on the Company’s senior secured term loan by 25 basis points. During the year ended December 31, 2017, we recorded a loss on early extinguishment of debt of $52.6 million primarily related to the terminationrefinancing of a significant portion of our 2014 Credit Agreementcapital structure and retirementprepayment of our 6% Notes (as defined below) and 6-1/2% Notes (as defined below), all as further described in Note K - “Long-Term Obligations”.term loans.
Other Income (Expense) —– Net
Other income (expense) – net for the year ended December 31, 20182021 was a lossincome of $60.6$13.0 million, compared to $4.9 million in 2020, an increase of $8.1 million. The increase in income was primarily due to a gain related to the early termination of $48.7 milliona lease, partially offset by a positive post-closing adjustment in 2017. The change was due primarily to a loss of approximately $51 million2020 related to the settlement of our U.S. defined benefit pension plan as described in Note M - “Retirement Plans2018 and Other Benefits”,lower foreign exchange rate translation gains and a net gain recordedmark-to-market gains on investments in the current year compared to the prior year from the sale of Konecranes shares of $42.0 million and related dividend income of $13.5 million, as described in Note D - “Discontinued Operations And Assets and Liabilities Held for Sale”.year.
Income Taxes
During the year ended December 31, 2018,2021, we recognized an income tax expense of $45.4$46.3 million on income of $287.1$263.8 million, an effective tax rate of 15.8%17.6%, as compared to an income tax expensesexpense of $52.4$2.0 million on income of $163.4$11.0 million, an effective tax rate of 32.1%18.2%, for the year ended December 31, 2017.2020. The lower effective tax rate for the year ended December 31, 2018 was primarily due2021 when compared to less tax expense associated with H.R. 1 “An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018” (2017 Federal Tax Act) and higher benefits from the resolution of tax audits, partially offset by less favorable character of earnings.
Gain (Loss) on Disposition of Discontinued Operations - net– Net of taxTax
During the yearyears ended December 31, 2018,2021 and 2020, we recognized a gain (loss) on disposition of discontinued operations - net of tax of $2.4$3.4 million dueand $(19.2) million, respectively. The gain in the current year period primarily related to our prior dispositions of our mobile cranes and MHPS businesses. The loss in the prior year primarily related to a gain of $2.7 millionsettlement on cash, debt, working capital and certain other items related to the prior saledisposition of our Atlas heavy construction equipment and knuckle-boommobile cranes businesses. During the year ended December 31, 2017, we recognized a gain on disposition of discontinued operations - net of tax of $67.3 million, related primarily to the sale of our MHPS business.
CRITICAL ACCOUNTING POLICIESESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Changes in estimates and assumptions used by management could have significant impacts on our financial results. Actual results could differ from those estimates.
We believe the following are among our most significant accounting policies which are important in determining the reporting of transactions and events and which utilize estimates about the effect of matters that are inherently uncertain and therefore are based on management judgment. Please refer to Note A – “Basis of Presentation” in the accompanying Consolidated Financial Statements for a listing of our accounting policies.
Inventories – In valuing inventory, we are required to make assumptions regarding the level of reserves required to value potentially obsolete or over-valued items at the lower of cost or net realizable value (“NRV”). These assumptions require us to analyze the aging of and forecasted demand for our inventory, forecast future product sales prices, pricing trends and margins, and to make judgments and estimates regarding obsolete or excess inventory. Future product sales prices, pricing trends and margins are based on the best available information at that time includinghistorical experience and actual orders received, negotiations with our customers for future orders, including their plans for expenditures, and market trends for similar products.received. Our judgments and estimates for excess or obsolete inventory are based on analysis of actual and forecasted usage. Valuation of used equipment taken in trade from customers requires us to use the best information available to determine the value of the equipment to potential customers. This value is subject to change based on numerous conditions. Inventory reserves are established taking into account age, frequency of use, or sale, and in the case of repair parts, installed base of machines. While calculations are made involving these factors, significant management judgment regarding expectations for future events is involved. Future events that could significantly influence our judgment and related estimates include general economic conditions in markets where our products are sold, new equipment price fluctuations, actions of our competitors, including introduction of new products and technological advances, as well as new products and design changes we introduce. We make adjustments to our inventory reservereserves based on identification of specific situations and increase our inventory reserves accordingly. As further changes in future economic or industry conditions occur, we willmay revise estimates that were used to calculate our inventory reserves.
If actual conditions are less favorable than those we have projected, we will increase our reserves for lower of cost or NRV, excess and obsolete inventory accordingly. Any increase in our reserves will adversely impact our results of operations. Establishment of a reserve for lower of cost or NRV, excess and obsolete inventory establishes a new cost basis in the inventory. Such reserves are not reduced until the product is sold.
Guarantees – We have issued guarantees tomay assist customers in their rental, leasing and acquisition of our products by facilitating financing transactions directly between (i) end-user customers, distributors and rental companies and (ii) third-party financial institutions, related to customer financing of equipment purchases by our customers. We must assess the probabilityproviding recourse in certain circumstances. The expectation of losses or non-performance in ways similar to the evaluation of accounts receivable, includingis assessed based on consideration of a customer’s payment history, leverage, availability of third party financing, politicalhistorical customer assessments, current financial conditions, reasonable and exchange risks,supportable forecasts, equipment collateral value 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.
There can be no assurance that our historical experience in used equipment markets will be indicative of future results. Our ability to recover losses experienced from our guarantees may be affected by economic conditions in used equipment markets at the time of loss. See Note ON – “Litigation and Contingencies” in the Notes to the Consolidated Financial Statements for further information regarding our guarantees.
Revenue Recognition – We recognize revenue when goods or services are transferred to customers in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. In determining when and how revenue is recognized from contracts with customers, we perform the following five-step analysis: (i) identification of contract with customer; (ii) determination of performance obligations; (iii) measurement of the transaction price; (iv) allocation of the transaction price to the performance obligations;obligations and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. The majority of our revenue is recognized at the time of shipment, at the net sales price (transaction price). Estimates of variable consideration, such as volume discounts and rebates, reduce transaction price when it is probable that a customer will attain these types of sales incentives. These estimates are primarily derived from contractual terms and historical experience.
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Accounts Receivable and Allowance for Doubtful Accounts – Trade accounts receivable are recorded at invoiced amount and do not bear interest. Allowance for doubtful accounts is our estimate of current expected credit losses on existing accounts receivable and determined based on historical customer assessments, current financial conditions and reasonable and supportable forecasts. Account balances are charged off against the allowance when the Company determines it is expected the receivable will not be recovered. There can be no assurance that our estimate of accounts receivable collection will be indicative of future results.
Goodwill – Goodwill is assigned to one or moreWe test goodwill at the reporting segments on the date of acquisition. We review our goodwillunit level for impairment annually during the fourth quarter of each fiscal yearon an annual basis and between annual tests if an event occurs orevents and circumstances change that wouldindicate it is more likely than not reducethat the fair value of any onea reporting unit is less than its carrying value. Our annual impairment test date is the first day of our reporting units below its respective carrying amount.fiscal fourth quarter.
In performing the goodwill impairment test, we may first perform a qualitative assessment whichor bypass the qualitative assessment and proceed directly to performing the quantitative impairment test. A qualitative assessment requires that we consider events or circumstances including macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, changes in management or key personnel, changes in strategy, changes in customers, changes in the composition or carrying amount of a reporting segment’s net assets and changes in our stock price. If, after assessing the totality of events or circumstances, we determine that it is more likely than not that the fair values of our reporting segmentsunits are greater than the carrying amounts, then thea quantitative goodwill impairment test isdoes not need to be performed.
If the qualitative assessment indicates that thea quantitative analysis should be performed or a quantitative analysis is directly elected, we then evaluate goodwill for impairment by comparing the fair value of each of our reporting segmentsunits to its carrying value, including the associated goodwill. To determine the fair values, we usesuse an income approach, along with other relevant market information, derived from a discounted cash flow model to estimate fair value of our reporting units. An impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, if any, would be recognized. The loss recognized would not exceed total amount of goodwill allocated to that reporting unit.
Accrued Warranties – We record accruals for unassertedpotential warranty claims based on our claim experience. Warranty costs areA liability for estimated warranty claims is accrued at the time revenueof sale. The liability is recognized. However, adjustments to the initialestablished using historical warranty accrual are recorded if actual claims experience indicates adjustmentsfor each product sold. Historical claims experience may be adjusted for known design improvements or for the impact of unusual product quality issues. Assumptions are necessary. Theseupdated for known events that may affect the potential warranty costs are based upon management’s assessment of past claims and current experience.liability. However, actual claims could be higher or lower than amounts estimated, as the amount and value of warranty claims are subject to variation as a result of many factors that cannot be predicted with certainty, including production quality issues, performance of new products, models and technology, changes in weather conditions for product operation, different uses for products and other similar factors.
Defined Benefit Plans– Pension benefits represent financial obligations that will be ultimately settled in the future with employees who meet eligibility requirements. As of December 31, 2019, we maintained an unfunded, nonqualified Supplemental Executive Retirement Plan (the “U.S. SERP”) for certain former U.S. employees. Generally, the U.S. SERP provides a benefit based on average total compensation earned over a participant’s final five years of employment and years of service reduced by benefits earned under any Company retirement program, excluding salary deferrals and matching contributions. In addition, benefits are reduced by Social Security Primary Insurance Amounts attributable to Company contributions. Participation in the U.S. SERP is frozen; however, eligible participants are credited with post-freeze service for purposes of determining vesting and the amount of benefits.
We maintain defined benefit plans in France, Germany, India, Switzerland and the U.K. for some of our subsidiaries. The plans in France, Germany and India are unfunded plans. The plansubsidiaries, as well as a nonqualified Supplemental Executive Retirement Plan in the U.K. is frozen. Participation in the German plans is frozen; however, eligible participants are credited with post-freeze service for purposes of determining vestingU.S. (“U.S. SERP”). In Italy and the amount of benefits. For our operations in Italy,Mexico, there are mandatory termination indemnity plans providing a benefit that is payable upon termination of employment in substantially all cases of termination. We record this obligation based on the mandated requirements. The measure of the current obligation is not dependent on the employees’ future servicehave several non-pension post-retirement benefit programs, including health and therefore is measured at current value.life insurance benefits to certain former salaried and hourly employees.
Plan assets consist primarily of common stocks, bondsfixed income and short-term cash equivalent funds.equity securities. For non-U.S. funded plans, approximately 25%70% of the assets are in equityfixed income securities, 72%27% are in fixed incomeequity securities and 3% are in real estate investment securities. These allocations are reviewed periodically and updated to meet the long-term goals of the plans.
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Determination of defined benefit pension and post-retirement plan obligations and their associated expenses requires use of actuarial valuations to estimate the benefits employees earn while working, as well as the present value of those benefits. We use the services of independent actuaries to assist with these calculations. Inherent in these valuations are economic assumptions, including expected returns on plan assets and discount rates at which liabilities may be settled, rates of increase of health care costs, rates of future compensation increases as well as employee demographic assumptions such as retirement patterns, mortality and turnover.settled. The actuarial assumptions used may differ materially from actual results due to changing market and economic conditions, higher or lower turnover rates, or longer or shorter life spans of participants. Actual results that differ from the actuarial assumptions used are recorded as unrecognized gains and losses. Unrecognized gains and losses that exceed 10% of the greater of the plan’s projected benefit obligations or the market-related value of assets are amortized to earnings over the shorter of the estimated future service period of the plan participants or the period until any anticipated final plan settlements. The assumptions used in the actuarial models are evaluated periodically and are updated to reflect experience. We believe the assumptions used in the actuarial calculations are reasonable and are within accepted practices in each of the respective geographic locations in which we operate.
Expected long-term rates of return on pension plan assets were 4.50%4.00% for the U.K. plan and 2.00%1.25% for the Swiss plan at December 31, 2019.2021. Our strategy with regard to the investments in the pension plans is to earn a rate of return sufficient to match or exceed the long-term growth of pension liabilities. The expected rate of return of plan assets represents an estimate of long-term returns on the investment portfolio. These rates are determined annually by management based on a weighted average of current and historical market trends, historical portfolio performance and the portfolio mix of investments. The expected long-term rate of return on plan assets at the December 31 measurement date is used to measure the earnings effects for the subsequent year. The difference between the expected return and the actual return on plan assets affects the calculated value of plan assets and, ultimately, future pension expense (income).
The discount rates were 3.31%2.80% for the U.S. SERP and 0.10%0.20% to 10.71%6.85% with a weighted average of 1.87%1.93% for non-U.S. plans at December 31, 2019.2021. The discount rate enables us to estimate the present value of expected future cash flows on the measurement date. The rate used reflects a rate of return on high-quality fixed income investments that match the duration of expected benefit payments at the December 31 measurement date. The discount rate at December 31 isrates are used to measure the year-end benefit obligations and the earnings effects on the subsequent year. Typically, a higher discount rate decreases the present value of benefit obligations.
The U.S. SERP has no expected rate of compensation increase as all participants have retired or have a terminated vested benefit payable in the future. Our U.K. pension plan is frozen so there is no expected rate of compensation increase; however, other Non-U.S.non-U.S. plans’ expected rates of compensation increases were 1.00%1.25% to 8.00% with a. The weighted average of the rates for all Non-U.S.non-U.S. plans of 0.17%is 0.18% at December 31, 2019.2021. These estimated annual compensation increases are determined by management every year and are based on historical trends and market indices.
We have recorded the net underfunded status of our defined benefit pension plans as a liability partially offset by an asset and the unrecognized prior service costs and actuarial gains (losses) as an adjustment to Stockholders’ equity on the Consolidated Balance Sheet. The net increasedecrease in the net liability and decreasedincreased funded status of $5.9$24.1 million was due primarily to changes in assumptions from the previous year, primarily decreasesincreases in discount rates partially offset by gains incurredand returns on our pensionplan assets.
Actual results in any given year will often differ from actuarial assumptions because of demographic, economic and other factors. Market value of plan assets can change significantly in a relatively short period of time. Additionally, the measurement of plan benefit obligations is sensitive to changes in interest rates. As a result, if the equity market declines and/or interest rates decrease, the plans’ estimated benefit obligations could increase, causing an increase in liabilities and a reduction in Stockholders’ Equity.
We expect any future obligations under our plans that are not currently funded willto be funded fromby future cash flows from operations. If our contributions are insufficient to adequately fund the plans to cover our future obligations, or if the performance of assets in our plans does not meet expectations, or if our assumptions are modified, contributions could be higher than expected, which would reduce cash available for our business. Changes in U.S. or foreign laws governing these plans could require additional contributions.
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Assumptions used in computing our net pension expense and projected benefit obligation have a significant effect on the amounts reported. A 25 basis point change in each assumption below would have the following effects upon net pension expense and projected benefit obligation, respectively, as of and for the year ended December 31, 2019:2021 (in millions):
| Increase | Decrease | |||||||||||||||||||||||||||||||||||||
| ($ amounts in millions) | Increase | Decrease | ||||||||||||||||||||||||||||||||||||
| Discount Rate | Expected long- term rate of return | Discount Rate | Expected long- term rate of return | |||||||||||||||||||||||||||||||||||
| Discount Rate | Expected long- term rate of return | Discount Rate | Expected long- term rate of return | |||||||||||||||||||||||||||||||||||
| U. S. Plan: | U. S. Plan: | |||||||||||||||||||||||||||||||||||||
| Net pension expense | $ | (0.2 | ) | $ | — | $ | 0.2 | $ | — | Net pension expense | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||
| Projected benefit obligation | $ | (1.2 | ) | $ | — | $ | 1.2 | — | Projected benefit obligation | $ | (1.4) | $ | — | $ | 1.4 | — | ||||||||||||||||||||||
| Non-U.S. Plans: | Non-U.S. Plans: | |||||||||||||||||||||||||||||||||||||
| Net pension expense | $ | 0.2 | $ | (0.3 | ) | $ | (0.1 | ) | $ | 0.3 | ||||||||||||||||||||||||||||
| Net pension expense (benefit) | Net pension expense (benefit) | $ | 0.2 | $ | (0.4) | $ | (0.2) | $ | 0.4 | |||||||||||||||||||||||||||||
| Projected benefit obligation | $ | (5.9 | ) | $ | — | $ | 6.3 | — | Projected benefit obligation | $ | (5.6) | $ | — | $ | 5.9 | — | ||||||||||||||||||||||
Income Taxes – We estimate income taxes based on enacted tax laws in the various jurisdictions where we conduct business. We recognize deferred income tax assets and liabilities, which represent future tax benefits or obligations of our legal entities. These deferred income tax balances arise from temporary differences due to divergent treatment of certain items for accounting and income tax purposes.
We evaluate our deferred tax assets each period to ensure that estimated future taxable income will be sufficient in character, amount and timing to result in the use of our deferred tax assets. “Character” refers to the type (ordinary income versus capital gain) as well as the source (foreign vs. domestic) of the income we generate. “Timing” refers to the period in which future income is expected to be generated. Timing is important because, in certain jurisdictions, net operating losses (“NOLs”) and other tax attributes expire if not used within an established statutory time frame. Based on these evaluations, we have determined that it is more likely than not that expected future earnings will be sufficient to use most of our deferred tax assets.
We do not provide for income taxes or tax benefits on differences between financial reporting basis and tax basis of our non-U.S. subsidiaries where such differences are reinvested and, in our opinion, will continue to be indefinitely reinvested. If earnings of foreign subsidiaries are not considered indefinitely reinvested, deferred U.S. income taxes, foreign income taxes, and foreign withholding taxes may have to be provided. We do not record deferred income taxes on the temporary difference between the book and tax basis in domestic subsidiaries where permissible. At this time, determination of the unrecognized deferred tax liabilities for temporary differences related to our investment in non-U.S. subsidiaries is not practicable.
Judgments and estimates are required to determine tax expense and deferred tax valuation allowances and in assessing uncertain tax positions. Tax returns are subject to audit and local taxing authorities could challenge tax-filing positions we take. Our practice is to file income tax returns that conform to requirements of each jurisdiction and to record provisions for tax liabilities, including interest and penalties, in accordance with ASCAccounting Standards Codification (“ASC”) 740, “Income Taxes.” Given the continued changes and complexity in worldwide tax laws, coupled with our geographic scope and size there may be greater exposure to uncertain tax positions. Given the subjective nature of applicable tax laws, results of an audit of some of our tax returns could have a significant impact on our consolidated financial statements.
RECENT ACCOUNTING STANDARDS
Please refer to Note A – “Basis of Presentation” in the accompanying Consolidated Financial Statements for a summary of recently issued accounting standards.
LIQUIDITY AND CAPITAL RESOURCES
We are focused on generating cash and maintaining liquidity (cash and availability under our revolving line of credit) for the efficient operation of our business. At December 31, 2019,2021, we had cash and cash equivalents of $540.1$266.9 million and undrawn availability under our revolving line of credit of $600 million, giving us total liquidity of approximately $1.1 billion.$867 million. During the year ended December 31, 2019,2021, our liquidity increaseddecreased by approximately $405$250 million from December 31, 20182020 primarily due to reducing outstanding debt by approximately $503 million and investing in our strategic priorities, partially offset by cash provided by an additional debt issuancegenerated from operations, the expiration of a $150 million minimum liquidity requirement and proceeds of approximately $99 million from the sale of Demag and ASV shares.
| Year Ended 12/31/2019 | ||||
| Net cash provided by (used in) operating activities | 173.4 | |||
| Increase (decrease) in TFS assets | (31.1 | ) | ||
Capital expenditures, net of proceeds from sale of capital assets (1) | (94.4 | ) | ||
| Deal related net working capital adjustment | 38.5 | |||
| Free cash flow | $ | 86.4 | ||
Our main sources of funding are cash generated from operations, including cash generated from the sale of receivables, loans from our bank credit facilities and funds raised in capital markets. PursuantWe have no significant debt maturities until 2024 and we have increased our focus on internal cash flow generation. Our actions to termsmaintain liquidity include disciplined management of our trade accounts receivable factoring arrangements, during the year ended December 31, 2019, we sold, without recourse, approximately $1,108 million of trade accounts receivable to enhance liquidity. During the year ended December 31, 2019, we also sold approximately $226 million of sales-type leasescosts and commercial loans.
working capital. We believe cash generated from operations, including cash generated from the sale of receivables, togetherthese measures will provide us with accessadequate liquidity to comply with our financial covenants under our bank credit facilities and cash on hand, provide adequate liquidity tofacility, continue to support internal operating initiatives and meet our operating and debt service requirements for at least the next 12 months.months from the date of issuance of this annual report. See Part I, 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.
Our ability to generate cash from operations is subject to numerous factors, including the following:
•The duration and depth of the global economic uncertainty resulting from COVID-19.
•As our sales change, the amount of working capital needed to support our business may change.
•Many of our customers fund their purchases through third-party finance companies that extend credit based on the credit-worthiness of customers and expected residual value of our equipment. Changes either in customers’ credit profile or used equipment values may affect the ability of customers to purchase equipment. There can be no assurance that third-party finance companies will continue to extend credit to our customers as they have in the past.
•Our suppliers extend payment terms to us primarily based on our overall credit rating. DeclinesDeterioration in our credit rating may influence suppliers’ willingness to extend terms and in turn accelerate cash requirements of our business.
•Sales of our products are subject to general economic conditions, weather, competition, translation effect of foreign currency exchange rate changes, and other factors that in many cases are outside our direct control. For example, during periods of economic uncertainty, our customers have delayed purchasing decisions, which reduces cash generated from operations.
•Availability and utilization of other sources of liquidity such as trade receivables sales programs.
Typically, we have invested our cash in a combination of highly rated, liquid money market funds and in short-term bank deposits with large, highly rated banks. Our investment objective is to preserve capital and liquidity while earning a market rate of interest.
We seek to use cash held by our foreign subsidiaries to support our operations and continued growth plans outside and inside the U.S. through funding of capital expenditures, operating expenses or other similar cash needs of these operations. Most of this cash could be used in the U.S., if necessary, without additional tax expense. Incremental cash repatriated to the U.S. would not be expected to result in material foreign, Federal or state tax cost. We will continue to seek opportunities to tax-efficiently mobilize and redeploy funds.
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We had free cash flow of $125.0 million for the year ended December 31, 2021.
The following table reconciles net cash provided by (used in) operating activities to free cash flow (in millions):
Year Ended 12/31/2021 | ||||||||
| Net cash provided by (used in) operating activities | $ | 293.4 | ||||||
| Increase (decrease) in TFS assets | (110.6) | |||||||
| Capital expenditures, net of proceeds from sale of capital assets | (57.8) | |||||||
| Free cash flow | $ | 125.0 | ||||||
Pursuant to terms of our trade accounts receivable factoring arrangements, during the year ended December 31, 2021, we sold, without material recourse, approximately $527 million of trade accounts receivable to enhance liquidity. During the year ended December 31, 2021, we also sold approximately $96 million of sales-type leases and commercial loans.
Working capital as a percent of trailing three month annualized net sales was 20.4%19.1% at December 31, 2019.2021.
The following tables show the calculation of our working capital in continuing operations and trailing three months annualized sales as of December 31, 20192021 (in millions):
| Three months ended 12/31/2021 | |||||||||||
| Net Sales | $ | 990.1 | |||||||||
| x | 4 | ||||||||||
| Trailing Three Month Annualized Net Sales | $ | 3,960.4 | |||||||||
| Three months ended 12/31/19 | |||
| Net Sales | $ | 885.0 | |
| x | 4 | ||
| Trailing Three Month Annualized Net Sales | $ | 3,540.0 | |
| As of 12/31/21 | |||||||||||
| Inventories | $ | 813.5 | |||||||||
| Trade Receivables | 507.7 | ||||||||||
| Trade Accounts Payable | (537.7) | ||||||||||
| Customer Advances | (25.4) | ||||||||||
| Working Capital | $ | 758.1 | |||||||||
| As of 12/31/19 | |||
| Inventories | $ | 847.7 | |
| Trade Receivables | 401.9 | ||
| Trade Accounts Payable | (508.1 | ) | |
| Customer Advances | (17.9 | ) | |
| Working Capital | $ | 723.6 | |
On January 31, 2017, we entered into a new credit agreement (aswhich was subsequently amended the “2017 Credit Agreement”). The 2017 Credit Agreement contains a $400 million senior secured term loan (the “Original Term Loan”). The Original Term Loan portion of the 2017 Credit Agreement bears interest at a rate of LIBOR plus 2.00% with a 0.75% LIBOR floor. On March 7, 2019, we entered into an Incremental Assumption Agreement and Amendment No. 3 (“Amendment No. 3”) to the 2017 Credit Agreement. Amendment No. 3 provided us with an additional term loan (the “2019 Term Loan”) under the 2017 Credit Agreement in the amount of $200 million. The 2019 Term Loan portion of the 2017 Credit Agreement bears interest at a rate of LIBOR plus 2.75% with a 0.75% LIBOR floor (the Original Term Loan together with 2019 Term Loan comprise the “Term Loans” portion of the 2017 Credit Agreement). The 2017 Credit Agreement containsinclude (i) a $600 million revolving line of credit available through(the “Revolver”) and (ii) senior secured term loans totaling $600 million with a maturity date of January 31, 2022. Net proceeds from2024 (the “Term Loans”). On April 1, 2021, we entered into an amendment and restatement of the 2019 Term Loan were usedcredit agreement (as amended and restated, the “Credit Agreement”) which included the following principal changes to reduce borrowingsthe original credit agreement: (i) extension of the term of the Revolver to expire on April 1, 2026, which maturity will spring forward to November 1, 2023 if the principal outstanding under the revolving lineTerm Loans is not repaid or the maturity date is not extended, (ii) reinstatement of credit. The 2017 Credit Agreement allows unlimited incremental commitments, which may be extended at the option of existing or new lenders and can befinancial covenants that were waived in 2020, (iii) decrease in the forminterest rate on the drawn Revolver by 25 basis points and (iv) certain other technical changes, including additional language regarding the potential cessation of revolving credit commitments, term loan commitments, orthe London Interbank Offered Rate (“LIBOR”) as a combination of both, with incremental amounts in excess of $300 million requiring the Company to satisfy a senior secured leverage ratio contained in the 2017 Credit Agreement. Interest rates charged under the revolving line of credit in the 2017 Credit Agreement are subject to adjustment based on our consolidated leverage ratio.benchmark rate. See Note K -J – “Long-Term Obligations,”Obligations” in our Consolidated Financial Statements for additional information concerningregarding the 2017 Credit Agreement.
Borrowings under the 2017 Credit Agreement as of December 31, 20192021 were $585.5$77.8 million, net of discount, on our Term Loans. During the year ended December 31, 2021, we prepaid approximately $500 million of our Term Loans prior to their maturity date to reduce our outstanding debt and lower our leverage. At December 31, 2021, the weighted average interest rate was 2.75% on our Term Loans. There were no amounts outstanding on our revolving line of creditthe Revolver as of December 31, 2019. At December 31, 2019,2021.
In April 2021, we sold and issued $600.0 million aggregate principal amount of Senior Notes Due 2029 (“5% Notes”) at par in a private offering. The proceeds from the weighted average interest rate was 4.10%5% Notes, together with cash on the Term Loans portionhand, were used to fund redemption and discharge of the 2017 Credit Agreement.$600.0 million aggregate principal amount of Senior Notes Due 2025 (“5-5/8% Notes”) in full for $622.9 million, including redemption premiums of $16.9 million and accrued but unpaid interest of $6.0 million. See Note J – “Long-Term Obligations” in our Consolidated Financial Statements for additional information regarding the 5% Notes and 5-5/8% Notes.
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On May 25, 2021, we acquired assets to facilitate manufacturing of certain MP products in China for total cash consideration of approximately $17 million.
On July 6, 2021, we acquired a manufacturer of heavy duty aggregate and recycling trommels, apron feeders and conveyor systems based in the Republic of Ireland for total cash consideration of approximately $19 million. This acquisition supports our strategy to expand our material processing offerings in the crushing, screening and environmental industries, with products that complement our existing products.
In July 2018, our Board of Directors authorized the repurchase of up to an additional $300 million of our outstanding shares of common stock. During the year ended December 31, 2019,2021, we repurchased a total of 0.2 million28,688 shares for $4.9$1.2 million under the July 2018this authorization leaving approximately $195$139 million available for repurchase under this program.
In February 2021, our Board of Directors reinstated our quarterly dividend for 2021 and declared a dividend of $0.12 per share in each quarter of 2019,2021, which was paid to our shareholders. In February 2022, our Board of Directors declared a dividend of $0.11 per share, which was paid to our shareholders. In February 2020, our Board of Directors declared a dividend of $0.12$0.13 per share, which will be paid to the Company’s shareholders on March 19, 2020.21, 2022.
Our ability to access capital markets to raise funds, through sale of equity or debt securities, is subject to various factors, some specific to us and others related to general economic and/or financial market conditions. These include results of operations, projected operating results for future periods and debt to equity leverage. Our ability to access capital markets is also subject to our timely filing of periodic reports with the SEC. In addition, terms of our bank credit facilities, senior notes and senior subordinated notes contain restrictions on our ability to make further borrowings and to sell substantial portions of our assets.
The Company’s material cash requirements include the following contractual and other obligations:
Debt
As of December 31, 2021, the Company had outstanding debt of $670.6 million, with $4.0 million payable within 12 months. Future interest payments associated with the outstanding debt are approximately $221 million with $30.5 million payable within 12 months. For detailed debt information see Note J – “Long Term Obligations”.
Leases
The Company has leases for real property, vehicles and office and industrial equipment. As of December 31, 2021, the Company had contractual fixed costs primarily related to lease commitments of approximately $112 million, with $27.4 million payable within 12 months. For detailed lease information see Note K – “Leases”.
Purchase Obligations
The Company had purchase obligations of $744.3 million, with substantially all purchase obligations payable within 12 months. Purchase obligations include non-cancellable and cancellable commitments. In many cases, cancellable commitments contain penalty provisions for cancellation.
We reported a liability of $2.6 million related to unrecognized tax benefits as of December 31, 2021 and do not expect this liability to change materially in 2022. As such, any related payments in 2022 would not be significant.
Additionally, at December 31, 2021, we had outstanding letters of credit that totaled $107.8 million and maximum exposure of $143.5 million for credit guarantees outstanding related to recourse provided to third-party financial institutions when customers finance the purchase of equipment.
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We maintain defined benefit pension plans for some of our U.S. and non-U.S. operations. It is our policy to fund the retirement plans at the minimum level required by applicable regulations. In 2021, we made cash contributions and payments to the retirement plans of $9.7 million, and we estimate that our retirement plan contributions will be approximately $9 million in 2022. Changes in market conditions, changes in our funding levels or actions by governmental agencies may result in accelerated funding requirements in future periods.
In 2022, we expect approximately $90 million in net capital expenditures, with our largest expenditure related to our manufacturing facility in Mexico.
Cash Flows
Cash provided by operations was $173.4$293.4 million and $94.2$225.4 million for the years ended December 31, 20192021 and 2018,2020, respectively. The increase in cash provided by operations was primarily driven by working capital efficiency,increased operating profitability and proceeds from the sale of customer finance receivables, partially offset by decreased operating profitability.higher working capital as a result of robust end-market demand.
Cash provided byused in investing activities was $102.2 million and $38.5 million for the yearyears ended December 31, 2019 was $103.8 million, compared to $85.9 million of2021 and 2020, respectively. The increase in cash used in investing activities forrelates primarily to cash used in acquisition and investment activity, partially offset by lower capital expenditures in the current year ended December 31, 2018. The increase in cash provided by investing activities was primarily due toand proceeds received from the saledisposition of Demag and ASV shares.discontinued operations in the prior year.
Cash used in financing activities was $103.7$580.1 million and $244.9$82.8 million for the years ended December 31, 20192021 and 2018,2020, respectively. The decreaseincrease in cash used in financing activities was primarily due to share repurchases made duringhigher debt repayments, dividend payments and debt extinguishment costs in the priorcurrent year, period, partially offset by higher debt repayments on our revolving line of credit in 2019.
| Payments due by period | |||||||||||||||||||
| Total | < 1 year | 1-3 years | 3-5 years | > 5 years | |||||||||||||||
| Long-term debt obligations | $ | 1,450.9 | $ | 63.2 | $ | 123.7 | $ | 659.5 | $ | 604.5 | |||||||||
| Finance lease obligations | 4.1 | 1.0 | 2.0 | 1.0 | 0.1 | ||||||||||||||
| Operating lease obligations | 153.2 | 34.2 | 52.6 | 38.8 | 27.6 | ||||||||||||||
Purchase obligations (1) | 528.5 | 527.8 | 0.6 | 0.1 | — | ||||||||||||||
| Total | $ | 2,136.7 | $ | 626.2 | $ | 178.9 | $ | 699.4 | $ | 632.2 | |||||||||
OFF-BALANCE SHEET ARRANGEMENTS
Guarantees
There can be no assurance that our historical experience in used equipment markets will be indicative of future results. Our ability to recover losses experienced from our guarantees may be affected by economic conditions in used equipment markets at the time of loss.
See Note ON – “Litigation and Contingencies” in the Notes to the Consolidated Financial Statements for further information regarding our guarantees.
CONTINGENCIES AND UNCERTAINTIES
Foreign Exchange and Interest Rate Risk
Our products are sold in over 100 countries around the world and, accordingly, our revenues are generated in foreign currencies, while costs associated with those revenues are only partly incurred in the same currencies. Primary currencies to which we are exposed are the Euro, British Pound, Chinese Yuan, Australian Dollar and Mexican Peso. We enter into foreign exchange contractspurchase hedging instruments to manage variability of future cash flows associated with recognized assets or liabilities or forecasted transactions due to changing currency exchange rates. Primary currencies to which we are exposed are the Euro, British Pound and Australian Dollar. See Risk Factor entitled, “We are subject to currency fluctuations.” in Part I, Item 1A. for further information on our foreign exchange risk.
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We manage our exposure to interest ratesrate risk by incurringestablishing a mix of indebtedness bearing interest at both floating and fixed rates at inception and maintaining an ongoing balance betweenmaintain a ratio of floating and fixed rates on this mix of indebtedness using interest rate swapsderivatives when necessary.
See Note J -I – “Derivative Financial Instruments” in the Notes to the Consolidated Financial Statements for further information aboutregarding our derivatives and Item 7A. – “Quantitative and Qualitative Disclosures About Market Risk” for a discussion of the impact that changes in foreign currency exchange rates and interest rates may have on our financial performance.
Other
We are subject to a number of contingencies and uncertainties including, without limitation, product liability claims, workers’ compensation liability, intellectual property litigation, self-insurance obligations, tax examinations, guarantees, class action lawsuits and other matters. See Note ON – “Litigation and Contingencies” in the Notes to the Consolidated Financial Statements for more information concerningregarding contingencies and uncertainties, including our proceedings involving a claim in Brazil regarding payment of ICMS tax.tax, penalties and related interest. We are insured for product liability, general liability, workers’ compensation, employer’s liability, property damage, intellectual property and other insurable risks required by law or contract with retained liability to us or deductibles. Many of the exposures are unasserted or proceedings are at a preliminary stage, and it is not presently possible to estimate the amount or timing of any liability. However, we do not believe these contingencies and uncertainties will, individually or in aggregate, have a material adverse effect on our operations. For contingencies and uncertainties other than income taxes, when it is probable that a loss will be incurred and possible to make reasonable estimates of our liability with respect to such matters, a provision is recorded for the amount of such estimate or for the minimum amount of a range of estimates when it is not possible to estimate the amount within the range that is most likely to occur.
We generate hazardous and non-hazardous wastes in the normal course of our manufacturing operations. As a result, we are subject to a wide range of environmental laws and regulations. All of our employees are required to obey all applicable health, safety and environmental laws and regulations and must observe the proper safety rules and environmental practices in work situations. These laws and regulations govern actions that may have adverse environmental effects, such as discharges to air and water, and require compliance with certain practices when handling and disposing of hazardous and non-hazardous wastes. These laws and regulations would also impose liability for the costs of, and damages resulting from, cleaning up sites, past spills, disposals and other releases of hazardous substances, should any such events occur. We are committed to complying with these standards and monitoring our workplaces to determine if equipment, machinery and facilities meet specified safety standards. Each of our manufacturing facilities is subject to an environmental audit at least once every five years to monitor compliance. Also, no incidents have occurred which required us to pay material amounts to comply with such laws and regulations. We are dedicated to ensuring that safety and health hazards are adequately addressed through appropriate work practices, training and procedures. We are committed to reducing injuries and working towards a world-class level of safety practices in our industry. See Part I, Item 1. – “Business – Safety and Environmental Considerations” for additional discussion of safety and environmental items.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to certain market risks that exist as part of our ongoing business operations and we use derivative financial instruments, where appropriate, to manage these risks. As a matter of policy, we do not engage in trading or speculative transactions. For further information on accounting related to derivative financial instruments, refer to Note JI – “Derivative Financial Instruments” in our Consolidated Financial Statements.
Foreign Exchange Risk
Our products are sold in over 100 countries around the world. The reporting currency for our consolidated financial statements is the U.S. dollar. Certain of our assets, liabilities, expenses, revenues and earnings are denominated in other countries’ currencies, including the Euro, British Pound, Chinese Yuan, Australian Dollar and Australian dollar.Mexican Peso. Those assets, liabilities, expenses, revenues and earnings are translated into U.S. dollars at the applicable foreign exchange rates to prepare our consolidated financial statements. Therefore, increases or decreases in foreign exchange rates between the U.S. dollar and those other currencies affect the value of those items as reflected in our consolidated financial statements, even if their value remains unchanged in their original currency. Due to the continued volatility of foreign currency exchange rates to the U.S. dollar, fluctuations in currencyforeign exchange rates may have an impact on the accuracy of our financial guidance. Such fluctuations in foreign currencyexchange rates relative to the U.S. dollar may cause our actual results to differ materially from those anticipated in our guidance and have a material adverse effect on our business or results of operations. We note that Brexit may impact the value of the British Pound as compared to the U.S. dollar and other currencies as the U.K. negotiates and executes its exit from the E.U. We assess foreign currency risk based on transactional cash flows, identify naturally offsetting positions and purchase hedging instruments to partially offset anticipated exposures.
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At December 31, 2019,2021, we performed a sensitivity analysis on the impact that aggregate changes in the translation effect of foreign currency exchange rate changes would have on our operating income. Based on this sensitivity analysis, we have determined that a change in the value of the U.S. dollar relative to other currencies by 10% to amounts already incorporated in the consolidated financial statements for the year ended December 31, 20192021 would have had approximately a $31$32 million impact on the translation effect of foreign currency exchange rate changes already included in our reported operating income for the period.
Interest Rate Risk
We are exposed to interest rate volatility with regard to future issuances of fixed rate debt and existing issuances of variable rate debt. Primary exposure includes movements in the U.S. prime rate and LIBOR.benchmark rates. We manage our exposure to interest rate risk by establishing a mix of indebtedness bearing interest at both floating and fixed rates at inception and maintain an ongoing balance betweena ratio of floating and fixed rates on this mix of indebtedness using interest rate swapsderivatives when necessary. At December 31, 2019,2021, approximately 49%12% of our debt was floating rate debt and the weighted average interest rate for allof our debt was 4.87%4.68%.
At December 31, 2019,2021, we performed a sensitivity analysis for our derivatives and other financial instruments that have interest rate risk. We calculated the pretax earnings effect on our interest sensitive instruments. Based on this sensitivity analysis, we have determined that an increase of 10% in our average floating interest rates at December 31, 20192021 would not have materially increased interest expense by approximately $2 million for the year ended December 31, 2019.2021.
Commodities Risk
In the absence of labor strikes or other unusual circumstances, substantially all materials and components are normally available from multiple suppliers. However, certain of our businesses receive materials and components from a single source supplier, although alternative suppliers of such materials may be generally available. Delays in our suppliers’ abilities, especially any sole suppliers for a particular business, to provide us with necessary materials and components may delay production at a number of our manufacturing locations, or may require us to seek alternative supply sources. Delays in obtaining supplies may result from a number of factors affecting our suppliers, including capacity constraints, regulatory changes, freight and container availability, labor disputes, suppliers’ impaired financial condition, suppliers’ allocations to other purchasers, weather emergencies, pandemics or acts of war or terrorism. Any delay in receiving supplies could impair our ability to deliver products to our customers and, accordingly, could have a material adverse effect on our business, results of operations and financial condition. Current and potential suppliers are evaluated regularly on their ability to meet our requirements and standards. We actively manage our material supply sourcing, and employ various methods to limit risk associated with commodity cost fluctuations and availability. During 2021, our manufacturing operations were adversely affected by material shortages and production delays as the continuity of supply was impacted by capacity constraints, global logistics disruptions, raw material shortages and COVID-19 related production downtime at certain component suppliers. We designhave designed and implementimplemented plans to mitigate the impact of these risks by using alternate suppliers, expanding our supply base globally, leveraging our overall purchasing volumes to obtain favorable pricing and quantities, developing a closer working relationship with key suppliers and purchasing hedging instruments to partially offset anticipated exposures. One key element of our ExecuteHowever, we anticipate that we will continue to Win strategy is to focus on strategic sourcing to gain efficiencies using our global purchasing power.be adversely affected by material shortages and production delays into 2022.
Principal materials and components used in our various manufacturing processes include steel, castings, engines, tires, hydraulics, cylinders, drive trains, electric controls and motors, semiconductors, and a variety of other commodities and fabricated or manufactured items. IncreasesWe have seen a rise in the cost of theseinput costs across most materials and components may affectwhich has adversely affected 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. During 2019, unfavorable input cost changes in some areas were offset by favorable changes in other areas. The Section 301Additionally, tariffs on certain Chinese origin goods continue to put pressure on input costs. In 2019,costs, which we benefitedhave been able to partially mitigate through the U.S. Government’s duty draw back mechanism. If we are unable to recover a substantial portion of increased costs from temporary tariff exclusions on certain categories; however, if the exclusions are not extended by the US Government, it may have an adverse impact on our material costs in 2020. We continue to utilize thecustomers and suppliers or through duty drawback mechanism to offset somedraw-back, our business or results of the impact of these tariffs.operations could be adversely affected. We will continue to monitor international trade policy and will make adjustments to our supply base where possible to mitigate the impact on our costs. For more information on commodities risk, see Part I, Item 1A. – Risk Factors.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The report of our independent registered public accounting firmfirms and our Consolidated Financial Statementsconsolidated financial statements and Financial Statement Schedulefinancial statement schedule are filed pursuant to this Item 8 and are included later in this report. See Index to Consolidated Financial Statements and Financial Statement Schedule on page F-1.
| 2019 | 2018 | ||||||||||||||||||||||||||||||
| Fourth | Third | Second | First | Fourth | Third | Second | First | ||||||||||||||||||||||||
| Net sales | $ | 885.0 | $ | 1,024.6 | $ | 1,306.9 | $ | 1,136.6 | $ | 1,048.8 | $ | 1,098.8 | $ | 1,253.0 | $ | 1,116.6 | |||||||||||||||
| Gross profit | 168.6 | 209.6 | 271.8 | 237.8 | 214.6 | 240.1 | 278.6 | 228.6 | |||||||||||||||||||||||
| Net income (loss) from continuing operations | 18.5 | 52.4 | 81.6 | 57.2 | 19.6 | 69.2 | 84.2 | 68.7 | |||||||||||||||||||||||
| Income (loss) from discontinued operations – net of tax | (3.6 | ) | (10.1 | ) | (17.3 | ) | (124.4 | ) | (50.2 | ) | (30.8 | ) | (28.3 | ) | (21.1 | ) | |||||||||||||||
| Gain (loss) on disposition of discontinued operations – net of tax | 9.6 | (20.9 | ) | 10.8 | 0.6 | (2.4 | ) | 0.2 | 1.9 | 2.7 | |||||||||||||||||||||
| Net income (loss) | 24.5 | 21.4 | 75.1 | (66.6 | ) | (33.0 | ) | 38.6 | 57.8 | 50.3 | |||||||||||||||||||||
| Per share: | |||||||||||||||||||||||||||||||
| Basic | |||||||||||||||||||||||||||||||
| Net income (loss) from continuing operations | $ | 0.26 | $ | 0.73 | $ | 1.14 | $ | 0.81 | $ | 0.27 | $ | 0.94 | $ | 1.11 | $ | 0.86 | |||||||||||||||
| Income (loss) from discontinued operations – net of tax | (0.05 | ) | (0.14 | ) | (0.24 | ) | (1.76 | ) | (0.69 | ) | (0.42 | ) | (0.37 | ) | (0.26 | ) | |||||||||||||||
| Gain (loss) on disposition of discontinued operations – net of tax | 0.13 | (0.29 | ) | 0.15 | 0.01 | (0.03 | ) | — | 0.03 | 0.03 | |||||||||||||||||||||
| Net income (loss) | 0.34 | 0.30 | 1.05 | (0.94 | ) | (0.45 | ) | 0.52 | 0.77 | 0.63 | |||||||||||||||||||||
| Diluted | |||||||||||||||||||||||||||||||
| Net income (loss) from continuing operations | $ | 0.26 | $ | 0.73 | $ | 1.14 | $ | 0.79 | $ | 0.26 | $ | 0.92 | $ | 1.10 | $ | 0.84 | |||||||||||||||
| Income (loss) from discontinued operations – net of tax | (0.05 | ) | (0.14 | ) | (0.24 | ) | (1.73 | ) | (0.68 | ) | (0.41 | ) | (0.37 | ) | (0.26 | ) | |||||||||||||||
| Gain (loss) on disposition of discontinued operations – net of tax | 0.13 | (0.29 | ) | 0.15 | 0.01 | (0.03 | ) | — | 0.02 | 0.04 | |||||||||||||||||||||
| Net income (loss) | 0.34 | 0.30 | 1.05 | (0.93 | ) | (0.45 | ) | 0.51 | 0.75 | 0.62 | |||||||||||||||||||||
Not applicable.
ITEM 9A. |
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure information required to be disclosed in reports we file under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within time periods specified in the SEC’s rules and forms, and such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”)CEO and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required financial disclosure. In connection with the preparation of this Annual Report on Form 10-K, our management carried out an evaluation, under supervision and with participation of our management, including the CEO and CFO, as of December 31, 2019,2021, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) under the Exchange Act. Based upon this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of December 31, 20192021.
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that: pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; provide reasonable assurance transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management has conducted an assessment, including testing, of the effectiveness of our internal control over financial reporting as of December 31, 2019.2021. In making its assessment of internal control over financial reporting, management used the criteria in Internal Control — Integrated Framework (2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, the Company’s management has concluded that, as of December 31, 2019,2021, the Company’s internal control over financial reporting was effective.
The effectiveness of our internal control over financial reporting as of December 31, 20192021 has been audited by PricewaterhouseCoopersKPMG LLP, an independent registered public accounting firm, as stated in their report which appears in this Annual Report on Form 10-K.
There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 20192021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Effectiveness of any system of controls and procedures is subject to certain limitations, and, as a result, there can be no assurance our controls and procedures will detect all errors or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that objectives of the control system will be attained.
None.
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| PART III |
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by Item 10 is incorporated by reference tofrom the definitive Terex Corporation Proxy Statement to be filed with the Securities and Exchange Commission not later thanSEC within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by reference tofrom the definitive Terex Corporation Proxy Statement to be filed with the Securities and Exchange Commission not later thanSEC within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Equity Compensation Plan Information
The following table summarizes information about the Company’s equity compensation plans as of December 31, 20192021::
| Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans | |||||||||||||||||
| Equity compensation plans approved by stockholders | __ (1) | $— | ||||||||||||||||||
| Equity compensation plans not approved by stockholders | — | — | — | |||||||||||||||||
| Total | — | |||||||||||||||||||
(1)This does not include 1,887,706 shares of restricted stock awards and 635,971 shares held in a rabbi trust for a deferred compensation plan. |
The other information required by Item 12 is incorporated by reference tofrom the definitive Terex Corporation Proxy Statement to be filed with the Securities and Exchange Commission not later thanSEC within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by Item 13 is incorporated by reference tofrom the definitive Terex Corporation Proxy Statement to be filed with the Securities and Exchange Commission not later thanSEC within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Our independent registered public accounting firm is KPMG LLP, New York, NY, Auditor ID: 185. Our predecessor independent registered public accounting firm was PricewaterhouseCoopers LLP, Stamford, CT, Auditor ID: 238.
The information required by Item 14 is incorporated by reference tofrom the definitive Terex Corporation Proxy Statement to be filed with the Securities and Exchange Commission not later thanSEC within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.
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| PART IV |
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) (1) and (2) Financial Statements and Financial Statement Schedules.
See “Index to Consolidated Financial Statements and Financial Statement Schedule” on Page F-1.
(3) Exhibits
The exhibits set forth below are filed as part of this Annual Report on Form 10-K.
| Exhibit No. | Exhibit | ||||
| 3.2 | |||||
| 3.3 | |||||
| 3.4 | |||||
| 3.5 | |||||
| 4.1 | |||||
| 4.2 | |||||
| 4.3 | |||||
| 4.4 | |||||
| 10.1 | |||||
| 10.2 | |||||
| 10.3 | |||||
| 10.4 | |||||
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| 23.1 | |||||
| 23.2 | |||||
| 24.1 | |||||
| 31.1 | |||||
| 31.2 | |||||
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| 32 | |||||
| 101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | ||||
| 101.SCH | XBRL Taxonomy Extension Schema Document. * | ||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. * | ||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. * | ||||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document. * | ||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. * | ||||
| 104 | |||||
| Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | |||||
| * | Exhibit filed with this document. | ||||
| ** | Exhibit furnished with this document. | ||||
| *** | Denotes a management contract or compensatory plan or arrangement. | ||||
ITEM 16. FORM 10-K SUMMARY
Not applicable.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
TEREX CORPORATION
| By: | /s/ John L. Garrison, Jr. | February | |||||||||
| John L. Garrison, Jr. | |||||||||||
Chairman and Chief Executive Officer | |||||||||||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| NAME | TITLE | DATE | ||||||
| /s/ John L. Garrison, Jr | Chairman and Chief Executive | February 11, 2022 | ||||||
| John L. Garrison, Jr. | Officer | |||||||
| (Principal Executive Officer) | ||||||||
| /s/ | ||||||||
| Senior Vice President and Chief Financial | February | |||||||
| Officer | ||||||||
| (Principal Financial Officer) | ||||||||
| /s/ | February | |||||||
| (Principal Accounting Officer) | ||||||||
| */s/ Paula H. J. Cholmondeley | Director | |||||||
| Paula H. J. Cholmondeley | ||||||||
| */s/ Don DeFosset | Director | |||||||
| Don DeFosset | ||||||||
| */s/ Thomas J. Hansen | Director | |||||||
| Thomas J. Hansen | ||||||||
| */s/ | Director | |||||||
| */s/ Christopher Rossi | Director | |||||||
| Christopher Rossi | ||||||||
| */s/ Andra M. Rush | Director | |||||||
| Andra M. Rush | ||||||||
| */s/ David A. Sachs | Lead Director | |||||||
| David A. Sachs | ||||||||
*By /s/ | February | |||||||
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THIS PAGE IS INTENTIONALLY BLANK
NEXT PAGE IS NUMBERED “F-1”
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TEREX CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
TEREX CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 20192021 AND 20182020
During the year ended December 31, 2021, we recognized income tax expense of $46.3 million on income of $263.8 million, an effective tax rate of 17.6%, as compared to income tax expense of $2.0 million on income of $11.0 million, an effective tax rate of 18.2%, for the year ended December 31, 2020. The lower effective tax rate for the year ended December 31, 2021 when compared to the year ended December 31, 2020 is primarily due to U.S. tax on foreign income and certain discrete items, partially offset by geographic mix and the 2020 benefit of the Coronavirus Aid, Relief, and Economic Security Act.
Gain (Loss) on Disposition of Discontinued Operations DECEMBER– Net of Tax
During the years ended December 31, 20192021 and 2020, we recognized a gain (loss) on disposition of discontinued operations - net of tax of $3.4 million and $(19.2) million, respectively. The gain in the current year period primarily related to our prior dispositions of our mobile cranes and MHPS businesses. The loss in the prior year primarily related to a settlement on cash, debt, working capital and certain other items related to the prior disposition of our mobile cranes business.
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CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Changes in estimates and assumptions used by management could have significant impacts on our financial results. Actual results could differ from those estimates.
We believe the following are among our most significant accounting policies which are important in determining the reporting of transactions and events and which utilize estimates about the effect of matters that are inherently uncertain and therefore are based on management judgment. Please refer to Note A – “Basis of Presentation” in the accompanying Consolidated Financial Statements for a listing of our accounting policies.
Inventories – In valuing inventory, we are required to make assumptions regarding the level of reserves required to value potentially obsolete or over-valued items at the lower of cost or net realizable value (“NRV”). These assumptions require us to analyze the aging of and forecasted demand for our inventory, forecast future product sales prices, pricing trends and margins, and to make judgments and estimates regarding obsolete or excess inventory. Future product sales prices, pricing trends and margins are based on historical experience and actual orders received. Our judgments and estimates for excess or obsolete inventory are based on analysis of actual and forecasted usage. Valuation of used equipment taken in trade from customers requires us to use the best information available to determine the value of the equipment to potential customers. This value is subject to change based on numerous conditions. Inventory reserves are established taking into account age, frequency of use, or sale, and in the case of repair parts, installed base of machines. While calculations are made involving these factors, significant management judgment regarding expectations for future events is involved. Future events that could significantly influence our judgment and related estimates include general economic conditions in markets where our products are sold, new equipment price fluctuations, actions of our competitors, including introduction of new products and technological advances, as well as new products and design changes we introduce. We make adjustments to our inventory reserves based on identification of specific situations and increase our inventory reserves accordingly. As further changes in future economic or industry conditions occur, we may revise estimates that were used to calculate our inventory reserves.
If actual conditions are less favorable than those we have projected, we will increase our reserves for lower of cost or NRV, excess and obsolete inventory accordingly. Any increase in our reserves will adversely impact our results of operations. Establishment of a reserve for lower of cost or NRV, excess and obsolete inventory establishes a new cost basis in the inventory. Such reserves are not reduced until the product is sold.
Guarantees – We may assist customers in their rental, leasing and acquisition of our products by facilitating financing transactions directly between (i) end-user customers, distributors and rental companies and (ii) third-party financial institutions, providing recourse in certain circumstances. The expectation of losses or non-performance is assessed based on consideration of historical customer assessments, current financial conditions, reasonable and supportable forecasts, equipment collateral value and other factors. Many of these factors, including the assessment of a customer’s ability to pay, are influenced by economic and market factors that cannot be predicted with certainty. Our maximum liability is generally limited to our customer’s remaining payments due to the third-party financial institutions at the time of default. In the event of a customer default, we are generally able to recover and dispose of the equipment at a minimum loss, if any, to us. Reserves are recorded for expected loss over the contractual period of risk exposure.
There can be no assurance that our historical experience in used equipment markets will be indicative of future results. Our ability to recover losses experienced from our guarantees may be affected by economic conditions in used equipment markets at the time of loss. See Note N – “Litigation and Contingencies” in the Notes to Consolidated Financial Statements for further information regarding our guarantees.
Revenue Recognition – We recognize revenue when goods or services are transferred to customers in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. In determining when and how revenue is recognized from contracts with customers, we perform the following five-step analysis: (i) identification of contract with customer; (ii) determination of performance obligations; (iii) measurement of the transaction price; (iv) allocation of the transaction price to the performance obligations and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. The majority of our revenue is recognized at the time of shipment, at the net sales price (transaction price). Estimates of variable consideration, such as volume discounts and rebates, reduce transaction price when it is probable that a customer will attain these types of sales incentives. These estimates are primarily derived from contractual terms and historical experience.
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Accounts Receivable and Allowance for Doubtful Accounts – Trade accounts receivable are recorded at invoiced amount and do not bear interest. Allowance for doubtful accounts is our estimate of current expected credit losses on existing accounts receivable and determined based on historical customer assessments, current financial conditions and reasonable and supportable forecasts. Account balances are charged off against the allowance when the Company determines it is expected the receivable will not be recovered. There can be no assurance that our estimate of accounts receivable collection will be indicative of future results.
Goodwill – We test goodwill at the reporting unit level for impairment on an annual basis and between annual tests if events and circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying value. Our annual impairment test date is the first day of our fiscal fourth quarter.
In performing the goodwill impairment test, we may first perform a qualitative assessment or bypass the qualitative assessment and proceed directly to performing the quantitative impairment test. A qualitative assessment requires that we consider events or circumstances including macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, changes in management or key personnel, changes in strategy, changes in customers, changes in the composition or carrying amount of a reporting segment’s net assets and changes in our stock price. If, after assessing the totality of events or circumstances, we determine that it is more likely than not that the fair values of our reporting units are greater than the carrying amounts, then a quantitative impairment test does not need to be performed.
If the qualitative assessment indicates a quantitative analysis should be performed or a quantitative analysis is directly elected, we evaluate goodwill for impairment by comparing the fair value of each of our reporting units to its carrying value, including the associated goodwill. To determine the fair values, we use an income approach, along with other relevant market information, derived from a discounted cash flow model to estimate fair value of our reporting units. An impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, if any, would be recognized. The loss recognized would not exceed total amount of goodwill allocated to that reporting unit.
Long-Lived Assets – We assess the realizability of our long-lived assets, including definite-lived intangible assets, and to evaluate such assets for impairment whenever events or changes in circumstances indicate the carrying amount of such assets (or group of assets) may not be recoverable. Impairment is determined to exist if estimated future undiscounted cash flows are less than carrying value. If an impairment is indicated, assets are written down to their fair value, which is typically determined by a discounted cash flow analysis. Future cash flow projections include assumptions regarding future sales levels and the level of working capital needed to support the assets. We use data developed by business segment management as well as macroeconomic data in making these calculations. There are no assurances that future cash flow assumptions will be achieved. The amount of any impairment then recognized would be calculated as the difference between estimated fair value and carrying value of the asset.
Accrued Warranties – We record accruals for potential warranty claims based on our claim experience. A liability for estimated warranty claims is accrued at the time of sale. The liability is established using historical warranty claims experience for each product sold. Historical claims experience may be adjusted for known design improvements or for the impact of unusual product quality issues. Assumptions are updated for known events that may affect the potential warranty liability. However, actual claims could be higher or lower than amounts estimated, as the amount and value of warranty claims are subject to variation as a result of many factors that cannot be predicted with certainty, including production quality issues, performance of new products, models and technology, changes in weather conditions for product operation, different uses for products and other similar factors.
Defined Benefit Plans – Pension benefits represent financial obligations that will be ultimately settled in the future with employees who meet eligibility requirements. We maintain defined benefit plans in France, Germany, India, Switzerland and the U.K. for some of our subsidiaries, as well as a nonqualified Supplemental Executive Retirement Plan in the U.S. (“U.S. SERP”). In Italy and Mexico, there are mandatory termination indemnity plans providing a benefit that is payable upon termination of employment in substantially all cases of termination. We have several non-pension post-retirement benefit programs, including health and life insurance benefits to certain former salaried and hourly employees.
Plan assets consist primarily of fixed income and equity securities. For non-U.S. funded plans, approximately 70% of the assets are in fixed income securities, 27% are in equity securities and 3% are in real estate securities. These allocations are reviewed periodically and updated to meet the long-term goals of the plans.
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Determination of defined benefit pension and post-retirement plan obligations and their associated expenses requires use of actuarial valuations to estimate the benefits employees earn while working, as well as the present value of those benefits. We use the services of independent actuaries to assist with these calculations. Inherent in these valuations are economic assumptions, including expected returns on plan assets and discount rates at which liabilities may be settled. The actuarial assumptions used may differ materially from actual results due to changing market and economic conditions, higher or lower turnover rates, or longer or shorter life spans of participants. Actual results that differ from the actuarial assumptions used are recorded as unrecognized gains and losses. Unrecognized gains and losses that exceed 10% of the greater of the plan’s projected benefit obligations or the market-related value of assets are amortized to earnings over the shorter of the estimated future service period of the plan participants or the period until any anticipated final plan settlements. The assumptions used in the actuarial models are evaluated periodically and are updated to reflect experience. We believe the assumptions used in the actuarial calculations are reasonable and are within accepted practices in each of the respective geographic locations in which we operate.
Expected long-term rates of return on pension plan assets were 4.00% for the U.K. plan and 1.25% for the Swiss plan at December 31, 2021. Our strategy with regard to the investments in the pension plans is to earn a rate of return sufficient to match or exceed the long-term growth of pension liabilities. The expected rate of return of plan assets represents an estimate of long-term returns on the investment portfolio. These rates are determined annually by management based on a weighted average of current and historical market trends, historical portfolio performance and the portfolio mix of investments. The expected long-term rate of return on plan assets at the December 31 measurement date is used to measure the earnings effects for the subsequent year. The difference between the expected return and the actual return on plan assets affects the calculated value of plan assets and, ultimately, future pension expense (income).
The discount rates were 2.80% for the U.S. SERP and 0.20% to 6.85% with a weighted average of 1.93% for non-U.S. plans at December 31, 2021. The discount rate enables us to estimate the present value of expected future cash flows on the measurement date. The rate used reflects a rate of return on high-quality fixed income investments that match the duration of expected benefit payments at the December 31 measurement date. The discount rates are used to measure the year-end benefit obligations and the earnings effects on the subsequent year. Typically, a higher discount rate decreases the present value of benefit obligations.
The U.S. SERP has no expected rate of compensation increase as all participants have retired or have a terminated vested benefit payable in the future. Our U.K. pension plan is frozen so there is no expected rate of compensation increase; however, other non-U.S. plans’ expected rates of compensation increases were 1.25% to 8.00%. The weighted average of the rates for all non-U.S. plans is 0.18% at December 31, 2021. These estimated annual compensation increases are determined by management every year and are based on historical trends and market indices.
We have recorded the net underfunded status of our defined benefit pension plans as a liability partially offset by an asset and the unrecognized prior service costs and actuarial gains (losses) as an adjustment to Stockholders’ equity on the Consolidated Balance Sheet. The net decrease in the net liability and increased funded status of $24.1 million was due primarily to changes in assumptions from the previous year, primarily increases in discount rates and returns on our plan assets.
Actual results in any given year will often differ from actuarial assumptions because of demographic, economic and other factors. Market value of plan assets can change significantly in a relatively short period of time. Additionally, the measurement of plan benefit obligations is sensitive to changes in interest rates. As a result, if the equity market declines and/or interest rates decrease, the plans’ estimated benefit obligations could increase, causing an increase in liabilities and a reduction in Stockholders’ Equity.
We expect any future obligations under our plans that are not currently funded to be funded by future cash flows from operations. If our contributions are insufficient to adequately fund the plans to cover our future obligations, or if the performance of assets in our plans does not meet expectations, or if our assumptions are modified, contributions could be higher than expected, which would reduce cash available for our business. Changes in U.S. or foreign laws governing these plans could require additional contributions.
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Assumptions used in computing our net pension expense and projected benefit obligation have a significant effect on the amounts reported. A 25 basis point change in each assumption below would have the following effects upon net pension expense and projected benefit obligation, respectively, as of and for the year ended December 31, 2021 (in millions):
| Increase | Decrease | ||||||||||||||||||||||
| Discount Rate | Expected long- term rate of return | Discount Rate | Expected long- term rate of return | ||||||||||||||||||||
| U. S. Plan: | |||||||||||||||||||||||
| Net pension expense | $ | — | $ | — | $ | — | $ | — | |||||||||||||||
| Projected benefit obligation | $ | (1.4) | $ | — | $ | 1.4 | — | ||||||||||||||||
| Non-U.S. Plans: | |||||||||||||||||||||||
| Net pension expense (benefit) | $ | 0.2 | $ | (0.4) | $ | (0.2) | $ | 0.4 | |||||||||||||||
| Projected benefit obligation | $ | (5.6) | $ | — | $ | 5.9 | — | ||||||||||||||||
Income Taxes – We estimate income taxes based on enacted tax laws in the various jurisdictions where we conduct business. We recognize deferred income tax assets and liabilities, which represent future tax benefits or obligations of our legal entities. These deferred income tax balances arise from temporary differences due to divergent treatment of certain items for accounting and income tax purposes.
We evaluate our deferred tax assets each period to ensure that estimated future taxable income will be sufficient in character, amount and timing to result in the use of our deferred tax assets. “Character” refers to the type (ordinary income versus capital gain) as well as the source (foreign vs. domestic) of the income we generate. “Timing” refers to the period in which future income is expected to be generated. Timing is important because, in certain jurisdictions, net operating losses (“NOLs”) and other tax attributes expire if not used within an established statutory time frame. Based on these evaluations, we have determined that it is more likely than not that expected future earnings will be sufficient to use most of our deferred tax assets.
We do not provide for income taxes or tax benefits on differences between financial reporting basis and tax basis of our non-U.S. subsidiaries where such differences are reinvested and, in our opinion, will continue to be indefinitely reinvested. If earnings of foreign subsidiaries are not considered indefinitely reinvested, deferred U.S. income taxes, foreign income taxes, and foreign withholding taxes may have to be provided. We do not record deferred income taxes on the temporary difference between the book and tax basis in domestic subsidiaries where permissible. At this time, determination of the unrecognized deferred tax liabilities for temporary differences related to our investment in non-U.S. subsidiaries is not practicable.
Judgments and estimates are required to determine tax expense and deferred tax valuation allowances and in assessing uncertain tax positions. Tax returns are subject to audit and local taxing authorities could challenge tax-filing positions we take. Our practice is to file income tax returns that conform to requirements of each jurisdiction and to record provisions for tax liabilities, including interest and penalties, in accordance with Accounting Standards Codification (“ASC”) 740, “Income Taxes.” Given the continued changes and complexity in worldwide tax laws, coupled with our geographic scope and size there may be greater exposure to uncertain tax positions. Given the subjective nature of applicable tax laws, results of an audit of some of our tax returns could have a significant impact on our consolidated financial statements.
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RECENT ACCOUNTING STANDARDS
Please refer to Note A – “Basis of Presentation” in the accompanying Consolidated Financial Statements for a summary of recently issued accounting standards.
LIQUIDITY AND CAPITAL RESOURCES
We are focused on generating cash and maintaining liquidity (cash and availability under our revolving line of credit) for the efficient operation of our business. At December 31, 2021, we had cash and cash equivalents of $266.9 million and undrawn availability under our revolving line of credit of $600 million, giving us total liquidity of approximately $867 million. During the year ended December 31, 2021, our liquidity decreased by approximately $250 million from December 31, 2020 primarily due to reducing outstanding debt by approximately $503 million and investing in our strategic priorities, partially offset by cash generated from operations, the expiration of a $150 million minimum liquidity requirement and proceeds of approximately $99 million from the sale of finance receivables.
Our main sources of funding are cash generated from operations, including cash generated from the sale of receivables, loans from our bank credit facilities and funds raised in capital markets. We have no significant debt maturities until 2024 and we have increased our focus on internal cash flow generation. Our actions to maintain liquidity include disciplined management of costs and working capital. We believe these measures will provide us with adequate liquidity to comply with our financial covenants under our bank credit facility, continue to support internal operating initiatives and meet our operating and debt service requirements for at least the next 12 months from the date of issuance of this annual report. See Part I, 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.
Our ability to generate cash from operations is subject to numerous factors, including the following:
•The duration and depth of the global economic uncertainty resulting from COVID-19.
•As our sales change, the amount of working capital needed to support our business may change.
•Many of our customers fund their purchases through third-party finance companies that extend credit based on the credit-worthiness of customers and expected residual value of our equipment. Changes either in customers’ credit profile or used equipment values may affect the ability of customers to purchase equipment. There can be no assurance that third-party finance companies will continue to extend credit to our customers as they have in the past.
•Our suppliers extend payment terms to us primarily based on our overall credit rating. Deterioration in our credit rating may influence suppliers’ willingness to extend terms and in turn accelerate cash requirements of our business.
•Sales of our products are subject to general economic conditions, weather, competition, translation effect of foreign currency exchange rate changes, and other factors that in many cases are outside our direct control. For example, during periods of economic uncertainty, our customers have delayed purchasing decisions, which reduces cash generated from operations.
•Availability and utilization of other sources of liquidity such as trade receivables sales programs.
Typically, we have invested our cash in a combination of highly rated, liquid money market funds and in short-term bank deposits with large, highly rated banks. Our investment objective is to preserve capital and liquidity while earning a market rate of interest.
We seek to use cash held by our foreign subsidiaries to support our operations and continued growth plans outside and inside the U.S. through funding of capital expenditures, operating expenses or other similar cash needs of these operations. Most of this cash could be used in the U.S., if necessary, without additional tax expense. Incremental cash repatriated to the U.S. would not be expected to result in material foreign, Federal or state tax cost. We will continue to seek opportunities to tax-efficiently mobilize and redeploy funds.
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We had free cash flow of $125.0 million for the year ended December 31, 2021.
The following table reconciles net cash provided by (used in) operating activities to free cash flow (in millions):
| $ | 293.4 | |||||||
| (110.6) | ||||||||
| (57.8) | ||||||||
| Free cash flow | $ | 125.0 | ||||||
Working capital as a percent of trailing three month annualized net sales was 19.1% at December 31, 2021.
The following tables show the accompanying consolidated balance sheetcalculation of Terex Corporationour working capital and its subsidiaries (the “Company”)trailing three months annualized sales as of December 31, 20192021 (in millions):
| Three months ended 12/31/2021 | |||||||||||
| Net Sales | $ | 990.1 | |||||||||
| x | 4 | ||||||||||
| Trailing Three Month Annualized Net Sales | $ | 3,960.4 | |||||||||
| As of 12/31/21 | |||||||||||
| Inventories | $ | 813.5 | |||||||||
| Trade Receivables | 507.7 | ||||||||||
| Trade Accounts Payable | (537.7) | ||||||||||
| Customer Advances | (25.4) | ||||||||||
| Working Capital | $ | 758.1 | |||||||||
On January 31, 2017, we entered into a credit agreement which was subsequently amended to include (i) a $600 million revolving line of credit (the “Revolver”) and 2018,(ii) senior secured term loans totaling $600 million with a maturity date of January 31, 2024 (the “Term Loans”). On April 1, 2021, we entered into an amendment and the related consolidated statements of income (loss), comprehensive income (loss), changes in stockholders’ equity and cash flows for eachrestatement of the three yearscredit agreement (as amended and restated, the “Credit Agreement”) which included the following principal changes to the original credit agreement: (i) extension of the term of the Revolver to expire on April 1, 2026, which maturity will spring forward to November 1, 2023 if the principal outstanding under the Term Loans is not repaid or the maturity date is not extended, (ii) reinstatement of financial covenants that were waived in 2020, (iii) decrease in the periodinterest rate on the drawn Revolver by 25 basis points and (iv) certain other technical changes, including additional language regarding the potential cessation of the London Interbank Offered Rate (“LIBOR”) as a benchmark rate. See Note J – “Long-Term Obligations” in our Consolidated Financial Statements for additional information regarding the Credit Agreement.
Borrowings under the Credit Agreement as of December 31, 2021 were $77.8 million, net of discount, on our Term Loans. During the year ended December 31, 2019,2021, we prepaid approximately $500 million of our Term Loans prior to their maturity date to reduce our outstanding debt and lower our leverage. At December 31, 2021, the weighted average interest rate was 2.75% on our Term Loans. There were no amounts outstanding on the Revolver as of December 31, 2021.
In April 2021, we sold and issued $600.0 million aggregate principal amount of Senior Notes Due 2029 (“5% Notes”) at par in a private offering. The proceeds from the 5% Notes, together with cash on hand, were used to fund redemption and discharge of the $600.0 million aggregate principal amount of Senior Notes Due 2025 (“5-5/8% Notes”) in full for $622.9 million, including redemption premiums of $16.9 million and accrued but unpaid interest of $6.0 million. See Note J – “Long-Term Obligations” in our Consolidated Financial Statements for additional information regarding the 5% Notes and 5-5/8% Notes.
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We remain focused on expanding customer financing solutions in key markets like the U.S., Europe and China. We also anticipate our continued use of TFS to drive incremental sales by increasing customer financing facilitated through TFS in certain instances. In February 2021, we transferred finance receivables of $89.7 million to a U.S. regional bank, which qualified for sales treatment under ASC 860. We received $99.4 million of cash proceeds from the sale and recognized a net gain of $5.6 million.
On May 25, 2021, we acquired assets to facilitate manufacturing of certain MP products in China for total cash consideration of approximately $17 million.
On July 6, 2021, we acquired a manufacturer of heavy duty aggregate and recycling trommels, apron feeders and conveyor systems based in the Republic of Ireland for total cash consideration of approximately $19 million. This acquisition supports our strategy to expand our material processing offerings in the crushing, screening and environmental industries, with products that complement our existing products.
In July 2018, our Board of Directors authorized the repurchase up to $300 million of our outstanding shares of common stock. During the year ended December 31, 2021, we repurchased 28,688 shares for $1.2 million under this authorization leaving approximately $139 million available for repurchase under this program.
In February 2021, our Board of Directors reinstated our quarterly dividend for 2021 and declared a dividend of $0.12 per share in each quarter of 2021, which was paid to our shareholders. In February 2022, our Board of Directors declared a dividend of $0.13 per share, which will be paid to the Company’s shareholders on March 21, 2022.
Our ability to access capital markets to raise funds, through sale of equity or debt securities, is subject to various factors, some specific to us and others related to general economic and/or financial market conditions. These include results of operations, projected operating results for future periods and debt to equity leverage. Our ability to access capital markets is also subject to our timely filing of periodic reports with the SEC. In addition, terms of our bank credit facilities, senior notes and senior subordinated notes contain restrictions on our ability to make further borrowings and to sell substantial portions of our assets.
The Company’s material cash requirements include the following contractual and other obligations:
Debt
As of December 31, 2021, the Company had outstanding debt of $670.6 million, with $4.0 million payable within 12 months. Future interest payments associated with the outstanding debt are approximately $221 million with $30.5 million payable within 12 months. For detailed debt information see Note J – “Long Term Obligations”.
Leases
The Company has leases for real property, vehicles and office and industrial equipment. As of December 31, 2021, the Company had contractual fixed costs primarily related to lease commitments of approximately $112 million, with $27.4 million payable within 12 months. For detailed lease information see Note K – “Leases”.
Purchase Obligations
The Company had purchase obligations of $744.3 million, with substantially all purchase obligations payable within 12 months. Purchase obligations include non-cancellable and cancellable commitments. In many cases, cancellable commitments contain penalty provisions for cancellation.
We reported a liability of $2.6 million related to unrecognized tax benefits as of December 31, 2021 and do not expect this liability to change materially in 2022. As such, any related payments in 2022 would not be significant.
Additionally, at December 31, 2021, we had outstanding letters of credit that totaled $107.8 million and maximum exposure of $143.5 million for credit guarantees outstanding related to recourse provided to third-party financial institutions when customers finance the purchase of equipment.
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We maintain defined benefit pension plans for some of our U.S. and non-U.S. operations. It is our policy to fund the retirement plans at the minimum level required by applicable regulations. In 2021, we made cash contributions and payments to the retirement plans of $9.7 million, and we estimate that our retirement plan contributions will be approximately $9 million in 2022. Changes in market conditions, changes in our funding levels or actions by governmental agencies may result in accelerated funding requirements in future periods.
In 2022, we expect approximately $90 million in net capital expenditures, with our largest expenditure related to our manufacturing facility in Mexico.
Cash Flows
Cash provided by operations was $293.4 million and $225.4 million for the years ended December 31, 2021 and 2020, respectively. The increase in cash provided by operations was primarily driven by increased operating profitability and proceeds from the sale of customer finance receivables, partially offset by higher working capital as a result of robust end-market demand.
Cash used in investing activities was $102.2 million and $38.5 million for the years ended December 31, 2021 and 2020, respectively. The increase in cash used in investing activities relates primarily to cash used in acquisition and investment activity, partially offset by lower capital expenditures in the current year and proceeds from the disposition of discontinued operations in the prior year.
Cash used in financing activities was $580.1 million and $82.8 million for the years ended December 31, 2021 and 2020, respectively. The increase in cash used in financing activities was primarily due to higher debt repayments, dividend payments and debt extinguishment costs in the current year, partially offset by higher share repurchases in the prior year.
OFF-BALANCE SHEET ARRANGEMENTS
Guarantees
We may assist customers in their rental, leasing and acquisition of our products by facilitating financing transactions directly between (i) end-user customers, distributors and rental companies and (ii) third-party financial institutions, providing recourse in certain circumstances. The expectation of losses or non-performance is assessed based on consideration of historical customer assessments, current financial conditions, reasonable and supportable forecasts, equipment collateral value and other factors. Many of these factors, including the assessment of a customer’s ability to pay, are influenced by economic and market factors that cannot be predicted with certainty. Our maximum liability is generally limited to our customer’s remaining payments due to the third-party financial institutions at the time of default. In the event of a customer default, we are generally able to recover and dispose of the equipment at a minimum loss, if any, to us. Reserves are recorded for expected loss over the contractual period of risk exposure.
There can be no assurance that our historical experience in used equipment markets will be indicative of future results. Our ability to recover losses experienced from our guarantees may be affected by economic conditions in used equipment markets at the time of loss.
See Note N – “Litigation and Contingencies” in the Notes to Consolidated Financial Statements for further information regarding our guarantees.
CONTINGENCIES AND UNCERTAINTIES
Foreign Exchange and Interest Rate Risk
Our products are sold in over 100 countries around the world and, accordingly, our revenues are generated in foreign currencies, while costs associated with those revenues are only partly incurred in the same currencies. Primary currencies to which we are exposed are the Euro, British Pound, Chinese Yuan, Australian Dollar and Mexican Peso. We purchase hedging instruments to manage variability of future cash flows associated with recognized assets or liabilities due to changing currency exchange rates. See Risk Factor entitled, “We are subject to currency fluctuations.” in Part I, Item 1A. for further information on our foreign exchange risk.
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We manage our exposure to interest rate risk by establishing a mix of indebtedness bearing interest at both floating and fixed rates at inception and maintain a ratio of floating and fixed rates on this mix of indebtedness using interest rate derivatives when necessary.
See Note I – “Derivative Financial Instruments” in the Notes to Consolidated Financial Statements for further information regarding our derivatives and Item 7A. – “Quantitative and Qualitative Disclosures About Market Risk” for a discussion of the impact changes in foreign currency exchange rates and interest rates may have on our financial performance.
Other
We are subject to a number of contingencies and uncertainties including, without limitation, product liability claims, workers’ compensation liability, intellectual property litigation, self-insurance obligations, tax examinations, guarantees, class action lawsuits and other matters. See Note N – “Litigation and Contingencies” in the Notes to Consolidated Financial Statements for more information regarding contingencies and uncertainties, including our proceedings involving a claim in Brazil regarding payment of ICMS tax, penalties and related notesinterest. We are insured for product liability, general liability, workers’ compensation, employer’s liability, property damage, intellectual property and other insurable risks required by law or contract with retained liability to us or deductibles. Many of the exposures are unasserted or proceedings are at a preliminary stage, and it is not presently possible to estimate the amount or timing of any liability. However, we do not believe these contingencies and uncertainties will, individually or in aggregate, have a material adverse effect on our operations. For contingencies and uncertainties other than income taxes, when it is probable a loss will be incurred and possible to make reasonable estimates of our liability with respect to such matters, a provision is recorded for the amount of such estimate or for the minimum amount of a range of estimates when it is not possible to estimate the amount within the range that is most likely to occur.
We generate hazardous and non-hazardous wastes in the normal course of our manufacturing operations. As a result, we are subject to a wide range of environmental laws and regulations. All of our employees are required to obey all applicable health, safety and environmental laws and regulations and must observe the proper safety rules and environmental practices in work situations. These laws and regulations govern actions that may have adverse environmental effects, such as discharges to air and water, and require compliance with certain practices when handling and disposing of hazardous and non-hazardous wastes. These laws and regulations would also impose liability for the costs of, and damages resulting from, cleaning up sites, past spills, disposals and other releases of hazardous substances, should any such events occur. We are committed to complying with these standards and monitoring our workplaces to determine if equipment, machinery and facilities meet specified safety standards. Each of our manufacturing facilities is subject to an environmental audit at least once every five years to monitor compliance. Also, no incidents have occurred which required us to pay material amounts to comply with such laws and regulations. We are dedicated to ensuring that safety and health hazards are adequately addressed through appropriate work practices, training and procedures. We are committed to reducing injuries and working towards a world-class level of safety practices in our industry. See Part I, Item 1. – “Business – Safety and Environmental Considerations” for additional discussion of safety and environmental items.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to certain market risks that exist as part of our ongoing business operations and we use derivative financial instruments, where appropriate, to manage these risks. As a matter of policy, we do not engage in trading or speculative transactions. For further information on accounting related to derivative financial instruments, refer to Note I – “Derivative Financial Instruments” in our Consolidated Financial Statements.
Foreign Exchange Risk
Our products are sold in over 100 countries around the world. The reporting currency for our consolidated financial statements is the U.S. dollar. Certain of our assets, liabilities, expenses, revenues and earnings are denominated in other countries’ currencies, including the Euro, British Pound, Chinese Yuan, Australian Dollar and Mexican Peso. Those assets, liabilities, expenses, revenues and earnings are translated into U.S. dollars at the applicable foreign exchange rates to prepare our consolidated financial statements. Therefore, increases or decreases in foreign exchange rates between the U.S. dollar and those other currencies affect the value of those items as reflected in our consolidated financial statements, even if their value remains unchanged in their original currency. Due to continued volatility of foreign exchange rates to the U.S. dollar, fluctuations in foreign exchange rates may have an impact on the accuracy of our financial guidance. Such fluctuations in foreign exchange rates relative to the U.S. dollar may cause our actual results to differ materially from those anticipated in our guidance and have a material adverse effect on our business or results of operations. We assess foreign currency risk based on transactional cash flows, identify naturally offsetting positions and purchase hedging instruments to partially offset anticipated exposures.
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At December 31, 2021, we performed a sensitivity analysis on the impact that aggregate changes in the translation effect of foreign exchange rate changes would have on our operating income. Based on this sensitivity analysis, we have determined that a change in the value of the U.S. dollar relative to other currencies by 10% to amounts already incorporated in the consolidated financial statements for the year ended December 31, 2021 would have had approximately a $32 million impact on the translation effect of foreign exchange rate changes already included in our reported operating income for the period.
Interest Rate Risk
We are exposed to interest rate volatility with regard to future issuances of fixed rate debt and existing issuances of variable rate debt. Primary exposure includes movements in benchmark rates. We manage our exposure to interest rate risk by establishing a mix of indebtedness bearing interest at both floating and fixed rates at inception and maintain a ratio of floating and fixed rates on this mix of indebtedness using interest rate derivatives when necessary. At December 31, 2021, approximately 12% of our debt was floating rate debt and the weighted average interest rate of our debt was 4.68%.
At December 31, 2021, we performed a sensitivity analysis for our financial instruments that have interest rate risk. We calculated the pretax earnings effect on our interest sensitive instruments. Based on this sensitivity analysis, we have determined that an increase of 10% in our average floating interest rates at December 31, 2021 would not have materially increased interest expense for the year ended December 31, 2021.
Commodities Risk
In the absence of labor strikes or other unusual circumstances, substantially all materials and components are normally available from multiple suppliers. However, certain of our businesses receive materials and components from a single source supplier, although alternative suppliers of such materials may be generally available. Delays in our suppliers’ abilities, especially any sole suppliers for a particular business, to provide us with necessary materials and components may delay production at a number of our manufacturing locations, or may require us to seek alternative supply sources. Delays in obtaining supplies may result from a number of factors affecting our suppliers, including capacity constraints, regulatory changes, freight and container availability, labor disputes, suppliers’ impaired financial condition, suppliers’ allocations to other purchasers, weather emergencies, pandemics or acts of war or terrorism. Any delay in receiving supplies could impair our ability to deliver products to our customers and, accordingly, could have a material adverse effect on our business, results of operations and financial condition. Current and potential suppliers are evaluated regularly on their ability to meet our requirements and standards. We actively manage our material supply sourcing, and employ various methods to limit risk associated with commodity cost fluctuations and availability. During 2021, our manufacturing operations were adversely affected by material shortages and production delays as the continuity of supply was impacted by capacity constraints, global logistics disruptions, raw material shortages and COVID-19 related production downtime at certain component suppliers. We have designed and implemented plans to mitigate the impact of these risks by using alternate suppliers, expanding our supply base globally, leveraging our overall purchasing volumes to obtain favorable pricing and quantities, developing a closer working relationship with key suppliers and purchasing hedging instruments to partially offset anticipated exposures. However, we anticipate that we will continue to be adversely affected by material shortages and production delays into 2022.
Principal materials and components used in our various manufacturing processes include steel, castings, engines, tires, hydraulics, cylinders, drive trains, electric controls and motors, semiconductors, and a variety of other commodities and fabricated or manufactured items. We have seen a rise in input costs across most materials and components which has adversely affected our financial performance. Additionally, tariffs on certain Chinese origin goods continue to put pressure on input costs, which we have been able to partially mitigate through the U.S. Government’s duty draw back mechanism. If we are unable to recover a substantial portion of increased costs from our customers and suppliers or through duty draw-back, our business or results of operations could be adversely affected. We will continue to monitor international trade policy and will make adjustments to our supply base where possible to mitigate the impact on our costs. For more information on commodities risk, see Part I, Item 1A. – Risk Factors.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The report of our independent registered public accounting firms and our consolidated financial statements and financial statement schedule listedare filed pursuant to this Item 8 and are included later in this report. See Index to Consolidated Financial Statements and Financial Statement Schedule on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
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ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure information required to be disclosed in reports we file under the Exchange Act is recorded, processed, summarized and reported within time periods specified in the accompanying index for eachSEC’s rules and forms, and such information is accumulated and communicated to our management, including our CEO and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required financial disclosure. In connection with the preparation of three years inthis Annual Report on Form 10-K, our management carried out an evaluation, under supervision and with participation of our management, including the period ended December 31, 2019 (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reportingCEO and CFO, as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations2021, of the Treadway Commission (COSO).
Management is to express opinions on the Company’s consolidated financial statementsresponsible for establishing and on the Company'smaintaining adequate internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect tofor the Company, as such term is defined in accordance withRules 13a-15(f) and 15d-15(f) under the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
Act. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The critical auditeffectiveness of our internal control over financial reporting as of December 31, 2021 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report which appears in this Annual Report on Form 10-K.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Effectiveness of any system of controls and procedures is subject to certain limitations, and, as a result, there can be no assurance our controls and procedures will detect all errors or fraud. A control system, no matter communicated belowhow well conceived and operated, can provide only reasonable, not absolute, assurance that objectives of the control system will be attained.
ITEM 9B. OTHER INFORMATION
None.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by Item 10 is a matter arisingincorporated by reference from the current period auditdefinitive Terex Corporation Proxy Statement to be filed with the SEC within 120 days after the year covered by this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by reference from the definitive Terex Corporation Proxy Statement to be filed with the SEC within 120 days after the year covered by this Annual Report on Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Equity Compensation Plan Information
The following table summarizes information about the Company’s equity compensation plans as of December 31, 2021:
| Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans | |||||||||||||||||
| Equity compensation plans approved by stockholders | __ (1) | $— | 3,320,301 | |||||||||||||||||
| Equity compensation plans not approved by stockholders | — | — | — | |||||||||||||||||
| Total | — | 3,320,301 | ||||||||||||||||||
(1)This does not include 1,887,706 shares of restricted stock awards and 635,971 shares held in a rabbi trust for a deferred compensation plan.
The other information required by Item 12 is incorporated by reference from the definitive Terex Corporation Proxy Statement to be filed with the SEC within 120 days after the year covered by this Annual Report on Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by Item 13 is incorporated by reference from the definitive Terex Corporation Proxy Statement to be filed with the SEC within 120 days after the year covered by this Annual Report on Form 10-K.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Our independent registered public accounting firm is KPMG LLP, New York, NY, Auditor ID: 185. Our predecessor independent registered public accounting firm was PricewaterhouseCoopers LLP, Stamford, CT, Auditor ID: 238.
The information required by Item 14 is incorporated by reference from the definitive Terex Corporation Proxy Statement to be filed with the SEC within 120 days after the year covered by this Annual Report on Form 10-K.
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PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) (1) and (2) Financial Statements and Financial Statement Schedules.
See “Index to Consolidated Financial Statements and Financial Statement Schedule” on Page F-1.
(3) Exhibits
The exhibits set forth below are filed as part of this Annual Report on Form 10-K.
| Exhibit No. | Exhibit | ||||
| 3.1 | |||||
| 3.2 | |||||
| 3.3 | |||||
| 3.4 | |||||
| 3.5 | |||||
| 4.1 | |||||
| 4.2 | |||||
| 4.3 | |||||
| 4.4 | |||||
| 10.1 | |||||
| 10.2 | |||||
| 10.3 | |||||
| 10.4 | |||||
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| 10.5 | |||||
| 10.6 | |||||
| 10.7 | |||||
| 10.8 | |||||
| 10.9 | |||||
| 10.10 | |||||
| 10.11 | |||||
| 10.12 | |||||
| 10.13 | |||||
| 10.14 | |||||
| 10.15 | |||||
| 10.16 | |||||
| 21.1 | |||||
| 23.1 | |||||
| 23.2 | |||||
| 24.1 | |||||
| 31.1 | |||||
| 31.2 | |||||
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| 32 | |||||
| 101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | ||||
| 101.SCH | XBRL Taxonomy Extension Schema Document. * | ||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. * | ||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. * | ||||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document. * | ||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. * | ||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | ||||
| * | Exhibit filed with this document. | ||||
| ** | Exhibit furnished with this document. | ||||
| *** | Denotes a management contract or compensatory plan or arrangement. | ||||
ITEM 16. FORM 10-K SUMMARY
Not applicable.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the consolidated financial statements that was communicated or requiredSecurities Exchange Act of 1934, the registrant has duly caused this report to be communicatedsigned on its behalf by the undersigned thereunto duly authorized.
TEREX CORPORATION
| By: | /s/ John L. Garrison, Jr. | February 11, 2022 | |||||||||
| John L. Garrison, Jr. | |||||||||||
| Chairman and Chief Executive Officer | |||||||||||
Pursuant to the audit committeerequirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and that (i) relates to accounts or disclosures that are material toin the consolidated financial statementscapacities and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.dates indicated.
| NAME | TITLE | DATE | ||||||
| /s/ John L. Garrison, Jr | Chairman and Chief Executive | February 11, 2022 | ||||||
| John L. Garrison, Jr. | Officer | |||||||
| (Principal Executive Officer) | ||||||||
| /s/ Julie A. Beck | Senior Vice President and Chief Financial | February 11, 2022 | ||||||
| Julie A. Beck | Officer | |||||||
| (Principal Financial Officer) | ||||||||
| /s/ Stephen A. Johnston | Chief Accounting Officer | February 11, 2022 | ||||||
| Stephen A. Johnston | (Principal Accounting Officer) | |||||||
| */s/ Paula H. J. Cholmondeley | Director | |||||||
| Paula H. J. Cholmondeley | ||||||||
| */s/ Don DeFosset | Director | |||||||
| Don DeFosset | ||||||||
| */s/ Thomas J. Hansen | Director | |||||||
| Thomas J. Hansen | ||||||||
| */s/ Sandie O’Connor | Director | |||||||
| Sandie O’Connor | ||||||||
| */s/ Christopher Rossi | Director | |||||||
| Christopher Rossi | ||||||||
| */s/ Andra M. Rush | Director | |||||||
| Andra M. Rush | ||||||||
| */s/ David A. Sachs | Lead Director | |||||||
| David A. Sachs | ||||||||
*By /s/ Julie A. Beck | February 11, 2022 | |||||||
| Julie A. Beck, as Attorney-in-Fact | ||||||||
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TEREX CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
TEREX CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2021 AND 2020
Income Taxes
Gain (Loss) on Disposition of Discontinued Operations – Net of Tax
During the years ended December 31, 2021 and 2020, we recognized a gain (loss) on disposition of discontinued operations - net of tax of $3.4 million and $(19.2) million, respectively. The gain in the current year period primarily related to our prior dispositions of our mobile cranes and MHPS businesses. The loss in the prior year primarily related to a settlement on cash, debt, working capital and certain other items related to the prior disposition of our mobile cranes business.
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CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Changes in estimates and assumptions used by management could have significant impacts on our financial results. Actual results could differ from those estimates.
We believe the following are among our most significant accounting policies which are important in determining the reporting of transactions and events and which utilize estimates about the effect of matters that are inherently uncertain and therefore are based on management judgment. Please refer to Note A – “Basis of Presentation” in the accompanying Consolidated Financial Statements for a listing of our accounting policies.
Inventories – In valuing inventory, we are required to make assumptions regarding the level of reserves required to value potentially obsolete or over-valued items at the lower of cost or net realizable value (“NRV”). These assumptions require us to analyze the aging of and forecasted demand for our inventory, forecast future product sales prices, pricing trends and margins, and to make judgments and estimates regarding obsolete or excess inventory. Future product sales prices, pricing trends and margins are based on historical experience and actual orders received. Our judgments and estimates for excess or obsolete inventory are based on analysis of actual and forecasted usage. Valuation of used equipment taken in trade from customers requires us to use the best information available to determine the value of the equipment to potential customers. This value is subject to change based on numerous conditions. Inventory reserves are established taking into account age, frequency of use, or sale, and in the case of repair parts, installed base of machines. While calculations are made involving these factors, significant management judgment regarding expectations for future events is involved. Future events that could significantly influence our judgment and related estimates include general economic conditions in markets where our products are sold, new equipment price fluctuations, actions of our competitors, including introduction of new products and technological advances, as well as new products and design changes we introduce. We make adjustments to our inventory reserves based on identification of specific situations and increase our inventory reserves accordingly. As further changes in future economic or industry conditions occur, we may revise estimates that were used to calculate our inventory reserves.
If actual conditions are less favorable than those we have projected, we will increase our reserves for lower of cost or NRV, excess and obsolete inventory accordingly. Any increase in our reserves will adversely impact our results of operations. Establishment of a reserve for lower of cost or NRV, excess and obsolete inventory establishes a new cost basis in the inventory. Such reserves are not reduced until the product is sold.
Guarantees – We may assist customers in their rental, leasing and acquisition of our products by facilitating financing transactions directly between (i) end-user customers, distributors and rental companies and (ii) third-party financial institutions, providing recourse in certain circumstances. The expectation of losses or non-performance is assessed based on consideration of historical customer assessments, current financial conditions, reasonable and supportable forecasts, equipment collateral value and other factors. Many of these factors, including the assessment of a customer’s ability to pay, are influenced by economic and market factors that cannot be predicted with certainty. Our maximum liability is generally limited to our customer’s remaining payments due to the third-party financial institutions at the time of default. In the event of a customer default, we are generally able to recover and dispose of the equipment at a minimum loss, if any, to us. Reserves are recorded for expected loss over the contractual period of risk exposure.
There can be no assurance that our historical experience in used equipment markets will be indicative of future results. Our ability to recover losses experienced from our guarantees may be affected by economic conditions in used equipment markets at the time of loss. See Note N – “Litigation and Contingencies” in the Notes to Consolidated Financial Statements for further information regarding our guarantees.
Revenue Recognition – We recognize revenue when goods or services are transferred to customers in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. In determining when and how revenue is recognized from contracts with customers, we perform the following five-step analysis: (i) identification of contract with customer; (ii) determination of performance obligations; (iii) measurement of the transaction price; (iv) allocation of the transaction price to the performance obligations and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. The majority of our revenue is recognized at the time of shipment, at the net sales price (transaction price). Estimates of variable consideration, such as volume discounts and rebates, reduce transaction price when it is probable that a customer will attain these types of sales incentives. These estimates are primarily derived from contractual terms and historical experience.
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Accounts Receivable and Allowance for Doubtful Accounts – Trade accounts receivable are recorded at invoiced amount and do not bear interest. Allowance for doubtful accounts is our estimate of current expected credit losses on existing accounts receivable and determined based on historical customer assessments, current financial conditions and reasonable and supportable forecasts. Account balances are charged off against the allowance when the Company determines it is expected the receivable will not be recovered. There can be no assurance that our estimate of accounts receivable collection will be indicative of future results.
Goodwill – We test goodwill at the reporting unit level for impairment on an annual basis and between annual tests if events and circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying value. Our annual impairment test date is the first day of our fiscal fourth quarter.
In performing the goodwill impairment test, we may first perform a qualitative assessment or bypass the qualitative assessment and proceed directly to performing the quantitative impairment test. A qualitative assessment requires that we consider events or circumstances including macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, changes in management or key personnel, changes in strategy, changes in customers, changes in the composition or carrying amount of a reporting segment’s net assets and changes in our stock price. If, after assessing the totality of events or circumstances, we determine that it is more likely than not that the fair values of our reporting units are greater than the carrying amounts, then a quantitative impairment test does not need to be performed.
If the qualitative assessment indicates a quantitative analysis should be performed or a quantitative analysis is directly elected, we evaluate goodwill for impairment by comparing the fair value of each of our reporting units to its carrying value, including the associated goodwill. To determine the fair values, we use an income approach, along with other relevant market information, derived from a discounted cash flow model to estimate fair value of our reporting units. An impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, if any, would be recognized. The loss recognized would not exceed total amount of goodwill allocated to that reporting unit.
Long-Lived Assets – We assess the realizability of our long-lived assets, including definite-lived intangible assets, and to evaluate such assets for impairment whenever events or changes in circumstances indicate the carrying amount of such assets (or group of assets) may not be recoverable. Impairment is determined to exist if estimated future undiscounted cash flows are less than carrying value. If an impairment is indicated, assets are written down to their fair value, which is typically determined by a discounted cash flow analysis. Future cash flow projections include assumptions regarding future sales levels and the level of working capital needed to support the assets. We use data developed by business segment management as well as macroeconomic data in making these calculations. There are no assurances that future cash flow assumptions will be achieved. The amount of any impairment then recognized would be calculated as the difference between estimated fair value and carrying value of the asset.
Accrued Warranties – We record accruals for potential warranty claims based on our claim experience. A liability for estimated warranty claims is accrued at the time of sale. The liability is established using historical warranty claims experience for each product sold. Historical claims experience may be adjusted for known design improvements or for the impact of unusual product quality issues. Assumptions are updated for known events that may affect the potential warranty liability. However, actual claims could be higher or lower than amounts estimated, as the amount and value of warranty claims are subject to variation as a result of many factors that cannot be predicted with certainty, including production quality issues, performance of new products, models and technology, changes in weather conditions for product operation, different uses for products and other similar factors.
Defined Benefit Plans – Pension benefits represent financial obligations that will be ultimately settled in the future with employees who meet eligibility requirements. We maintain defined benefit plans in France, Germany, India, Switzerland and the U.K. for some of our subsidiaries, as well as a nonqualified Supplemental Executive Retirement Plan in the U.S. (“U.S. SERP”). In Italy and Mexico, there are mandatory termination indemnity plans providing a benefit that is payable upon termination of employment in substantially all cases of termination. We have several non-pension post-retirement benefit programs, including health and life insurance benefits to certain former salaried and hourly employees.
Plan assets consist primarily of fixed income and equity securities. For non-U.S. funded plans, approximately 70% of the assets are in fixed income securities, 27% are in equity securities and 3% are in real estate securities. These allocations are reviewed periodically and updated to meet the long-term goals of the plans.
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Determination of defined benefit pension and post-retirement plan obligations and their associated expenses requires use of actuarial valuations to estimate the benefits employees earn while working, as well as the present value of those benefits. We use the services of independent actuaries to assist with these calculations. Inherent in these valuations are economic assumptions, including expected returns on plan assets and discount rates at which liabilities may be settled. The actuarial assumptions used may differ materially from actual results due to changing market and economic conditions, higher or lower turnover rates, or longer or shorter life spans of participants. Actual results that differ from the actuarial assumptions used are recorded as unrecognized gains and losses. Unrecognized gains and losses that exceed 10% of the greater of the plan’s projected benefit obligations or the market-related value of assets are amortized to earnings over the shorter of the estimated future service period of the plan participants or the period until any anticipated final plan settlements. The assumptions used in the actuarial models are evaluated periodically and are updated to reflect experience. We believe the assumptions used in the actuarial calculations are reasonable and are within accepted practices in each of the respective geographic locations in which we operate.
Expected long-term rates of return on pension plan assets were 4.00% for the U.K. plan and 1.25% for the Swiss plan at December 31, 2021. Our strategy with regard to the investments in the pension plans is to earn a rate of return sufficient to match or exceed the long-term growth of pension liabilities. The expected rate of return of plan assets represents an estimate of long-term returns on the investment portfolio. These rates are determined annually by management based on a weighted average of current and historical market trends, historical portfolio performance and the portfolio mix of investments. The expected long-term rate of return on plan assets at the December 31 measurement date is used to measure the earnings effects for the subsequent year. The difference between the expected return and the actual return on plan assets affects the calculated value of plan assets and, ultimately, future pension expense (income).
The discount rates were 2.80% for the U.S. SERP and 0.20% to 6.85% with a weighted average of 1.93% for non-U.S. plans at December 31, 2021. The discount rate enables us to estimate the present value of expected future cash flows on the measurement date. The rate used reflects a rate of return on high-quality fixed income investments that match the duration of expected benefit payments at the December 31 measurement date. The discount rates are used to measure the year-end benefit obligations and the earnings effects on the subsequent year. Typically, a higher discount rate decreases the present value of benefit obligations.
The U.S. SERP has no expected rate of compensation increase as all participants have retired or have a terminated vested benefit payable in the future. Our U.K. pension plan is frozen so there is no expected rate of compensation increase; however, other non-U.S. plans’ expected rates of compensation increases were 1.25% to 8.00%. The weighted average of the rates for all non-U.S. plans is 0.18% at December 31, 2021. These estimated annual compensation increases are determined by management every year and are based on historical trends and market indices.
We have recorded the net underfunded status of our defined benefit pension plans as a liability partially offset by an asset and the unrecognized prior service costs and actuarial gains (losses) as an adjustment to Stockholders’ equity on the Consolidated Balance Sheet. The net decrease in the net liability and increased funded status of $24.1 million was due primarily to changes in assumptions from the previous year, primarily increases in discount rates and returns on our plan assets.
Actual results in any given year will often differ from actuarial assumptions because of demographic, economic and other factors. Market value of plan assets can change significantly in a relatively short period of time. Additionally, the measurement of plan benefit obligations is sensitive to changes in interest rates. As a result, if the equity market declines and/or interest rates decrease, the plans’ estimated benefit obligations could increase, causing an increase in liabilities and a reduction in Stockholders’ Equity.
We expect any future obligations under our plans that are not currently funded to be funded by future cash flows from operations. If our contributions are insufficient to adequately fund the plans to cover our future obligations, or if the performance of assets in our plans does not meet expectations, or if our assumptions are modified, contributions could be higher than expected, which would reduce cash available for our business. Changes in U.S. or foreign laws governing these plans could require additional contributions.
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Assumptions used in computing our net pension expense and projected benefit obligation have a significant effect on the amounts reported. A 25 basis point change in each assumption below would have the following effects upon net pension expense and projected benefit obligation, respectively, as of and for the year ended December 31, 2021 (in millions):
| Increase | Decrease | ||||||||||||||||||||||
| Discount Rate | Expected long- term rate of return | Discount Rate | Expected long- term rate of return | ||||||||||||||||||||
| U. S. Plan: | |||||||||||||||||||||||
| Net pension expense | $ | — | $ | — | $ | — | $ | — | |||||||||||||||
| Projected benefit obligation | $ | (1.4) | $ | — | $ | 1.4 | — | ||||||||||||||||
| Non-U.S. Plans: | |||||||||||||||||||||||
| Net pension expense (benefit) | $ | 0.2 | $ | (0.4) | $ | (0.2) | $ | 0.4 | |||||||||||||||
| Projected benefit obligation | $ | (5.6) | $ | — | $ | 5.9 | — | ||||||||||||||||
Income Taxes – We estimate income taxes based on enacted tax laws in the various jurisdictions where we conduct business. We recognize deferred income tax assets and liabilities, which represent future tax benefits or obligations of our legal entities. These deferred income tax balances arise from temporary differences due to divergent treatment of certain items for accounting and income tax purposes.
We evaluate our deferred tax assets each period to ensure that estimated future taxable income will be sufficient in character, amount and timing to result in the use of our deferred tax assets. “Character” refers to the type (ordinary income versus capital gain) as well as the source (foreign vs. domestic) of the income we generate. “Timing” refers to the period in which future income is expected to be generated. Timing is important because, in certain jurisdictions, net operating losses (“NOLs”) and other tax attributes expire if not used within an established statutory time frame. Based on these evaluations, we have determined that it conducts business. The Company recorded a provisionis more likely than not that expected future earnings will be sufficient to use most of our deferred tax assets.
We do not provide for income taxes or tax benefits on differences between financial reporting basis and tax basis of $37.8our non-U.S. subsidiaries where such differences are reinvested and, in our opinion, will continue to be indefinitely reinvested. If earnings of foreign subsidiaries are not considered indefinitely reinvested, deferred U.S. income taxes, foreign income taxes, and foreign withholding taxes may have to be provided. We do not record deferred income taxes on the temporary difference between the book and tax basis in domestic subsidiaries where permissible. At this time, determination of the unrecognized deferred tax liabilities for temporary differences related to our investment in non-U.S. subsidiaries is not practicable.
Judgments and estimates are required to determine tax expense and deferred tax valuation allowances and in assessing uncertain tax positions. Tax returns are subject to audit and local taxing authorities could challenge tax-filing positions we take. Our practice is to file income tax returns that conform to requirements of each jurisdiction and to record provisions for tax liabilities, including interest and penalties, in accordance with Accounting Standards Codification (“ASC”) 740, “Income Taxes.” Given the continued changes and complexity in worldwide tax laws, coupled with our geographic scope and size there may be greater exposure to uncertain tax positions. Given the subjective nature of applicable tax laws, results of an audit of some of our tax returns could have a significant impact on our consolidated financial statements.
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RECENT ACCOUNTING STANDARDS
Please refer to Note A – “Basis of Presentation” in the accompanying Consolidated Financial Statements for a summary of recently issued accounting standards.
LIQUIDITY AND CAPITAL RESOURCES
We are focused on generating cash and maintaining liquidity (cash and availability under our revolving line of credit) for the efficient operation of our business. At December 31, 2021, we had cash and cash equivalents of $266.9 million and undrawn availability under our revolving line of credit of $600 million, giving us total liquidity of approximately $867 million. During the year ended December 31, 2021, our liquidity decreased by approximately $250 million from continuingDecember 31, 2020 primarily due to reducing outstanding debt by approximately $503 million and investing in our strategic priorities, partially offset by cash generated from operations, the expiration of a $150 million minimum liquidity requirement and proceeds of approximately $99 million from the sale of finance receivables.
Our main sources of funding are cash generated from operations, including cash generated from the sale of receivables, loans from our bank credit facilities and funds raised in capital markets. We have no significant debt maturities until 2024 and we have increased our focus on internal cash flow generation. Our actions to maintain liquidity include disciplined management of costs and working capital. We believe these measures will provide us with adequate liquidity to comply with our financial covenants under our bank credit facility, continue to support internal operating initiatives and meet our operating and debt service requirements for at least the next 12 months from the date of issuance of this annual report. See Part I, 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.
Our ability to generate cash from operations is subject to numerous factors, including the following:
•The duration and depth of the global economic uncertainty resulting from COVID-19.
•As our sales change, the amount of working capital needed to support our business may change.
•Many of our customers fund their purchases through third-party finance companies that extend credit based on the credit-worthiness of customers and expected residual value of our equipment. Changes either in customers’ credit profile or used equipment values may affect the ability of customers to purchase equipment. There can be no assurance that third-party finance companies will continue to extend credit to our customers as they have in the past.
•Our suppliers extend payment terms to us primarily based on our overall credit rating. Deterioration in our credit rating may influence suppliers’ willingness to extend terms and in turn accelerate cash requirements of our business.
•Sales of our products are subject to general economic conditions, weather, competition, translation effect of foreign currency exchange rate changes, and other factors that in many cases are outside our direct control. For example, during periods of economic uncertainty, our customers have delayed purchasing decisions, which reduces cash generated from operations.
•Availability and utilization of other sources of liquidity such as trade receivables sales programs.
Typically, we have invested our cash in a combination of highly rated, liquid money market funds and in short-term bank deposits with large, highly rated banks. Our investment objective is to preserve capital and liquidity while earning a market rate of interest.
We seek to use cash held by our foreign subsidiaries to support our operations and an incomecontinued growth plans outside and inside the U.S. through funding of capital expenditures, operating expenses or other similar cash needs of these operations. Most of this cash could be used in the U.S., if necessary, without additional tax benefitexpense. Incremental cash repatriated to the U.S. would not be expected to result in material foreign, Federal or state tax cost. We will continue to seek opportunities to tax-efficiently mobilize and redeploy funds.
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We had free cash flow of $20.5$125.0 million from discontinued operations for the year ended December 31, 2019. 2021.
The following table reconciles net cash provided by (used in) operating activities to free cash flow (in millions):
Year Ended 12/31/2021 | ||||||||
| Net cash provided by (used in) operating activities | $ | 293.4 | ||||||
| Increase (decrease) in TFS assets | (110.6) | |||||||
| Capital expenditures, net of proceeds from sale of capital assets | (57.8) | |||||||
| Free cash flow | $ | 125.0 | ||||||
Pursuant to terms of our trade accounts receivable factoring arrangements, during the year ended December 31, 2021, we sold, without material recourse, approximately $527 million of trade accounts receivable to enhance liquidity. During the year ended December 31, 2021, we also sold approximately $96 million of sales-type leases and commercial loans.
Working capital as a percent of trailing three month annualized net sales was 19.1% at December 31, 2021.
The following tables show the calculation of our working capital and trailing three months annualized sales as of December 31, 2021 (in millions):
| Three months ended 12/31/2021 | |||||||||||
| Net Sales | $ | 990.1 | |||||||||
| x | 4 | ||||||||||
| Trailing Three Month Annualized Net Sales | $ | 3,960.4 | |||||||||
| As of 12/31/21 | |||||||||||
| Inventories | $ | 813.5 | |||||||||
| Trade Receivables | 507.7 | ||||||||||
| Trade Accounts Payable | (537.7) | ||||||||||
| Customer Advances | (25.4) | ||||||||||
| Working Capital | $ | 758.1 | |||||||||
On January 31, 2017, we entered into a credit agreement which was subsequently amended to include (i) a $600 million revolving line of credit (the “Revolver”) and (ii) senior secured term loans totaling $600 million with a maturity date of January 31, 2024 (the “Term Loans”). On April 1, 2021, we entered into an amendment and restatement of the credit agreement (as amended and restated, the “Credit Agreement”) which included the following principal changes to the original credit agreement: (i) extension of the term of the Revolver to expire on April 1, 2026, which maturity will spring forward to November 1, 2023 if the principal outstanding under the Term Loans is not repaid or the maturity date is not extended, (ii) reinstatement of financial covenants that were waived in 2020, (iii) decrease in the interest rate on the drawn Revolver by 25 basis points and (iv) certain other technical changes, including additional language regarding the potential cessation of the London Interbank Offered Rate (“LIBOR”) as a benchmark rate. See Note J – “Long-Term Obligations” in our Consolidated Financial Statements for additional information regarding the Credit Agreement.
Borrowings under the Credit Agreement as of December 31, 2021 were $77.8 million, net of discount, on our Term Loans. During the year ended December 31, 2021, we prepaid approximately $500 million of our Term Loans prior to their maturity date to reduce our outstanding debt and lower our leverage. At December 31, 2021, the weighted average interest rate was 2.75% on our Term Loans. There were no amounts outstanding on the Revolver as of December 31, 2021.
In April 2021, we sold and issued $600.0 million aggregate principal amount of Senior Notes Due 2029 (“5% Notes”) at par in a private offering. The proceeds from the 5% Notes, together with cash on hand, were used to fund redemption and discharge of the $600.0 million aggregate principal amount of Senior Notes Due 2025 (“5-5/8% Notes”) in full for $622.9 million, including redemption premiums of $16.9 million and accrued but unpaid interest of $6.0 million. See Note J – “Long-Term Obligations” in our Consolidated Financial Statements for additional information regarding the 5% Notes and 5-5/8% Notes.
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We remain focused on expanding customer financing solutions in key markets like the U.S., Europe and China. We also anticipate our continued use of TFS to drive incremental sales by increasing customer financing facilitated through TFS in certain instances. In February 2021, we transferred finance receivables of $89.7 million to a U.S. regional bank, which qualified for sales treatment under ASC 860. We received $99.4 million of cash proceeds from the sale and recognized a net gain of $5.6 million.
On May 25, 2021, we acquired assets to facilitate manufacturing of certain MP products in China for total cash consideration of approximately $17 million.
On July 6, 2021, we acquired a manufacturer of heavy duty aggregate and recycling trommels, apron feeders and conveyor systems based in the Republic of Ireland for total cash consideration of approximately $19 million. This acquisition supports our strategy to expand our material processing offerings in the crushing, screening and environmental industries, with products that complement our existing products.
In July 2018, our Board of Directors authorized the repurchase up to $300 million of our outstanding shares of common stock. During the year ended December 31, 2021, we repurchased 28,688 shares for $1.2 million under this authorization leaving approximately $139 million available for repurchase under this program.
In February 2021, our Board of Directors reinstated our quarterly dividend for 2021 and declared a dividend of $0.12 per share in each quarter of 2021, which was paid to our shareholders. In February 2022, our Board of Directors declared a dividend of $0.13 per share, which will be paid to the Company’s shareholders on March 21, 2022.
Our ability to access capital markets to raise funds, through sale of equity or debt securities, is subject to various factors, some specific to us and others related to general economic and/or financial market conditions. These include results of operations, projected operating results for future periods and debt to equity leverage. Our ability to access capital markets is also subject to our timely filing of periodic reports with the SEC. In addition, terms of our bank credit facilities, senior notes and senior subordinated notes contain restrictions on our ability to make further borrowings and to sell substantial portions of our assets.
The Company’s material cash requirements include the following contractual and other obligations:
Debt
As of December 31, 2021, the Company had outstanding debt of $670.6 million, with $4.0 million payable within 12 months. Future interest payments associated with the outstanding debt are approximately $221 million with $30.5 million payable within 12 months. For detailed debt information see Note J – “Long Term Obligations”.
Leases
The Company has leases for real property, vehicles and office and industrial equipment. As of December 31, 2021, the Company had contractual fixed costs primarily related to lease commitments of approximately $112 million, with $27.4 million payable within 12 months. For detailed lease information see Note K – “Leases”.
Purchase Obligations
The Company had purchase obligations of $744.3 million, with substantially all purchase obligations payable within 12 months. Purchase obligations include non-cancellable and cancellable commitments. In many cases, cancellable commitments contain penalty provisions for cancellation.
We reported a liability of $2.6 million related to unrecognized tax benefits as of December 31, 2021 and do not expect this liability to change materially in 2022. As such, any related payments in 2022 would not be significant.
Additionally, at December 31, 2021, we had outstanding letters of credit that totaled $107.8 million and maximum exposure of $143.5 million for credit guarantees outstanding related to recourse provided to third-party financial institutions when customers finance the purchase of equipment.
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We maintain defined benefit pension plans for some of our U.S. and non-U.S. operations. It is our policy to fund the retirement plans at the minimum level required by applicable regulations. In 2021, we made cash contributions and payments to the retirement plans of $9.7 million, and we estimate that our retirement plan contributions will be approximately $9 million in 2022. Changes in market conditions, changes in our funding levels or actions by governmental agencies may result in accelerated funding requirements in future periods.
In 2022, we expect approximately $90 million in net capital expenditures, with our largest expenditure related to our manufacturing facility in Mexico.
Cash Flows
Cash provided by operations was $293.4 million and $225.4 million for the years ended December 31, 2021 and 2020, respectively. The increase in cash provided by operations was primarily driven by increased operating profitability and proceeds from the sale of customer finance receivables, partially offset by higher working capital as a result of robust end-market demand.
Cash used in investing activities was $102.2 million and $38.5 million for the years ended December 31, 2021 and 2020, respectively. The increase in cash used in investing activities relates primarily to cash used in acquisition and investment activity, partially offset by lower capital expenditures in the current year and proceeds from the disposition of discontinued operations in the prior year.
Cash used in financing activities was $580.1 million and $82.8 million for the years ended December 31, 2021 and 2020, respectively. The increase in cash used in financing activities was primarily due to higher debt repayments, dividend payments and debt extinguishment costs in the current year, partially offset by higher share repurchases in the prior year.
OFF-BALANCE SHEET ARRANGEMENTS
Guarantees
We may assist customers in their rental, leasing and acquisition of our products by facilitating financing transactions directly between (i) end-user customers, distributors and rental companies and (ii) third-party financial institutions, providing recourse in certain circumstances. The expectation of losses or non-performance is assessed based on consideration of historical customer assessments, current financial conditions, reasonable and supportable forecasts, equipment collateral value and other factors. Many of these factors, including the assessment of a customer’s ability to pay, are influenced by economic and market factors that cannot be predicted with certainty. Our maximum liability is generally limited to our customer’s remaining payments due to the third-party financial institutions at the time of default. In the event of a customer default, we are generally able to recover and dispose of the equipment at a minimum loss, if any, to us. Reserves are recorded for expected loss over the contractual period of risk exposure.
There can be no assurance that our historical experience in used equipment markets will be indicative of future results. Our ability to recover losses experienced from our guarantees may be affected by economic conditions in used equipment markets at the time of loss.
See Note N – “Litigation and Contingencies” in the Notes to Consolidated Financial Statements for further information regarding our guarantees.
CONTINGENCIES AND UNCERTAINTIES
Foreign Exchange and Interest Rate Risk
Our products are sold in over 100 countries around the world and, accordingly, our revenues are generated in foreign currencies, while costs associated with those revenues are only partly incurred in the same currencies. Primary currencies to which we are exposed are the Euro, British Pound, Chinese Yuan, Australian Dollar and Mexican Peso. We purchase hedging instruments to manage variability of future cash flows associated with recognized assets or liabilities due to changing currency exchange rates. See Risk Factor entitled, “We are subject to currency fluctuations.” in Part I, Item 1A. for further information on our foreign exchange risk.
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We manage our exposure to interest rate risk by establishing a mix of indebtedness bearing interest at both floating and fixed rates at inception and maintain a ratio of floating and fixed rates on this mix of indebtedness using interest rate derivatives when necessary.
See Note I – “Derivative Financial Instruments” in the Notes to Consolidated Financial Statements for further information regarding our derivatives and Item 7A. – “Quantitative and Qualitative Disclosures About Market Risk” for a discussion of the impact changes in foreign currency exchange rates and interest rates may have on our financial performance.
Other
We are subject to a number of contingencies and uncertainties including, without limitation, product liability claims, workers’ compensation liability, intellectual property litigation, self-insurance obligations, tax examinations, guarantees, class action lawsuits and other matters. See Note N – “Litigation and Contingencies” in the Notes to Consolidated Financial Statements for more information regarding contingencies and uncertainties, including our proceedings involving a claim in Brazil regarding payment of ICMS tax, penalties and related interest. We are insured for product liability, general liability, workers’ compensation, employer’s liability, property damage, intellectual property and other insurable risks required by law or contract with retained liability to us or deductibles. Many of the exposures are unasserted or proceedings are at a preliminary stage, and it is not presently possible to estimate the amount or timing of any liability. However, we do not believe these contingencies and uncertainties will, individually or in aggregate, have a material adverse effect on our operations. For contingencies and uncertainties other than income taxes, when it is probable a loss will be incurred and possible to make reasonable estimates of our liability with respect to such matters, a provision is recorded for the amount of such estimate or for the minimum amount of a range of estimates when it is not possible to estimate the amount within the range that is most likely to occur.
We generate hazardous and non-hazardous wastes in the normal course of our manufacturing operations. As a result, we are subject to a wide range of environmental laws and regulations. All of our employees are required to obey all applicable health, safety and environmental laws and regulations and must observe the proper safety rules and environmental practices in work situations. These laws and regulations govern actions that may have adverse environmental effects, such as discharges to air and water, and require compliance with certain practices when handling and disposing of hazardous and non-hazardous wastes. These laws and regulations would also impose liability for the costs of, and damages resulting from, cleaning up sites, past spills, disposals and other releases of hazardous substances, should any such events occur. We are committed to complying with these standards and monitoring our workplaces to determine if equipment, machinery and facilities meet specified safety standards. Each of our manufacturing facilities is subject to an environmental audit at least once every five years to monitor compliance. Also, no incidents have occurred which required us to pay material amounts to comply with such laws and regulations. We are dedicated to ensuring that safety and health hazards are adequately addressed through appropriate work practices, training and procedures. We are committed to reducing injuries and working towards a world-class level of safety practices in our industry. See Part I, Item 1. – “Business – Safety and Environmental Considerations” for additional discussion of safety and environmental items.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to certain market risks that exist as part of our ongoing business operations and we use derivative financial instruments, where appropriate, to manage these risks. As a matter of policy, we do not engage in trading or speculative transactions. For further information on accounting related to derivative financial instruments, refer to Note I – “Derivative Financial Instruments” in our Consolidated Financial Statements.
Foreign Exchange Risk
Our products are sold in over 100 countries around the world. The reporting currency for our consolidated financial statements is the U.S. dollar. Certain of our assets, liabilities, expenses, revenues and earnings are denominated in other countries’ currencies, including the Euro, British Pound, Chinese Yuan, Australian Dollar and Mexican Peso. Those assets, liabilities, expenses, revenues and earnings are translated into U.S. dollars at the applicable foreign exchange rates to prepare our consolidated financial statements. Therefore, increases or decreases in foreign exchange rates between the U.S. dollar and those other currencies affect the value of those items as reflected in our consolidated financial statements, even if their value remains unchanged in their original currency. Due to continued volatility of foreign exchange rates to the U.S. dollar, fluctuations in foreign exchange rates may have an impact on the accuracy of our financial guidance. Such fluctuations in foreign exchange rates relative to the U.S. dollar may cause our actual results to differ materially from those anticipated in our guidance and have a material adverse effect on our business or results of operations. We assess foreign currency risk based on transactional cash flows, identify naturally offsetting positions and purchase hedging instruments to partially offset anticipated exposures.
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At December 31, 2021, we performed a sensitivity analysis on the impact that aggregate changes in the translation effect of foreign exchange rate changes would have on our operating income. Based on this sensitivity analysis, we have determined that a change in the value of the U.S. dollar relative to other currencies by 10% to amounts already incorporated in the consolidated financial statements for the year ended December 31, 2021 would have had approximately a $32 million impact on the translation effect of foreign exchange rate changes already included in our reported operating income for the period.
Interest Rate Risk
We are exposed to interest rate volatility with regard to future issuances of fixed rate debt and existing issuances of variable rate debt. Primary exposure includes movements in benchmark rates. We manage our exposure to interest rate risk by establishing a mix of indebtedness bearing interest at both floating and fixed rates at inception and maintain a ratio of floating and fixed rates on this mix of indebtedness using interest rate derivatives when necessary. At December 31, 2021, approximately 12% of our debt was floating rate debt and the weighted average interest rate of our debt was 4.68%.
At December 31, 2021, we performed a sensitivity analysis for our financial instruments that have interest rate risk. We calculated the pretax earnings effect on our interest sensitive instruments. Based on this sensitivity analysis, we have determined that an increase of 10% in our average floating interest rates at December 31, 2021 would not have materially increased interest expense for the year ended December 31, 2021.
Commodities Risk
In the absence of labor strikes or other unusual circumstances, substantially all materials and components are normally available from multiple suppliers. However, certain of our businesses receive materials and components from a single source supplier, although alternative suppliers of such materials may be generally available. Delays in our suppliers’ abilities, especially any sole suppliers for a particular business, to provide us with necessary materials and components may delay production at a number of our manufacturing locations, or may require us to seek alternative supply sources. Delays in obtaining supplies may result from a number of factors affecting our suppliers, including capacity constraints, regulatory changes, freight and container availability, labor disputes, suppliers’ impaired financial condition, suppliers’ allocations to other purchasers, weather emergencies, pandemics or acts of war or terrorism. Any delay in receiving supplies could impair our ability to deliver products to our customers and, accordingly, could have a material adverse effect on our business, results of operations and financial condition. Current and potential suppliers are evaluated regularly on their ability to meet our requirements and standards. We actively manage our material supply sourcing, and employ various methods to limit risk associated with commodity cost fluctuations and availability. During 2021, our manufacturing operations were adversely affected by material shortages and production delays as the continuity of supply was impacted by capacity constraints, global logistics disruptions, raw material shortages and COVID-19 related production downtime at certain component suppliers. We have designed and implemented plans to mitigate the impact of these risks by using alternate suppliers, expanding our supply base globally, leveraging our overall purchasing volumes to obtain favorable pricing and quantities, developing a closer working relationship with key suppliers and purchasing hedging instruments to partially offset anticipated exposures. However, we anticipate that we will continue to be adversely affected by material shortages and production delays into 2022.
Principal materials and components used in our various manufacturing processes include steel, castings, engines, tires, hydraulics, cylinders, drive trains, electric controls and motors, semiconductors, and a variety of other commodities and fabricated or manufactured items. We have seen a rise in input costs across most materials and components which has adversely affected our financial performance. Additionally, tariffs on certain Chinese origin goods continue to put pressure on input costs, which we have been able to partially mitigate through the U.S. Government’s duty draw back mechanism. If we are unable to recover a substantial portion of increased costs from our customers and suppliers or through duty draw-back, our business or results of operations could be adversely affected. We will continue to monitor international trade policy and will make adjustments to our supply base where possible to mitigate the impact on our costs. For more information on commodities risk, see Part I, Item 1A. – Risk Factors.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The report of our independent registered public accounting firms and our consolidated financial statements and financial statement schedule are filed pursuant to this Item 8 and are included later in this report. See Index to Consolidated Financial Statements and Financial Statement Schedule on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
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ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure information required to be disclosed in reports we file under the Exchange Act is recorded, processed, summarized and reported within time periods specified in the SEC’s rules and forms, and such information is accumulated and communicated to our management, including our CEO and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required financial disclosure. In connection with the preparation of this Annual Report on Form 10-K, our management carried out an evaluation, under supervision and with participation of our management, including the CEO and CFO, as of December 31, 2021, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) under the Exchange Act. Based upon this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of December 31, 2021.
Management’s Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that: pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; provide reasonable assurance transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management has conducted an assessment, including testing, of the effectiveness of our internal control over financial reporting as of December 31, 2021. In making its assessment of internal control over financial reporting, management used the criteria in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, the Company’s management has concluded that, as of December 31, 2021, the Company’s internal control over financial reporting was effective.
The effectiveness of our internal control over financial reporting as of December 31, 2021 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report which appears in this Annual Report on Form 10-K.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Effectiveness of any system of controls and procedures is subject to certain limitations, and, as a result, there can be no assurance our controls and procedures will detect all errors or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that objectives of the control system will be attained.
ITEM 9B. OTHER INFORMATION
None.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by Item 10 is incorporated by reference from the definitive Terex Corporation Proxy Statement to be filed with the SEC within 120 days after the year covered by this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by reference from the definitive Terex Corporation Proxy Statement to be filed with the SEC within 120 days after the year covered by this Annual Report on Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Equity Compensation Plan Information
The following table summarizes information about the Company’s equity compensation plans as of December 31, 2021:
| Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans | |||||||||||||||||
| Equity compensation plans approved by stockholders | __ (1) | $— | 3,320,301 | |||||||||||||||||
| Equity compensation plans not approved by stockholders | — | — | — | |||||||||||||||||
| Total | — | 3,320,301 | ||||||||||||||||||
(1)This does not include 1,887,706 shares of restricted stock awards and 635,971 shares held in a rabbi trust for a deferred compensation plan.
The other information required by Item 12 is incorporated by reference from the definitive Terex Corporation Proxy Statement to be filed with the SEC within 120 days after the year covered by this Annual Report on Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by Item 13 is incorporated by reference from the definitive Terex Corporation Proxy Statement to be filed with the SEC within 120 days after the year covered by this Annual Report on Form 10-K.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Our independent registered public accounting firm is KPMG LLP, New York, NY, Auditor ID: 185. Our predecessor independent registered public accounting firm was PricewaterhouseCoopers LLP, Stamford, CT, Auditor ID: 238.
The information required by Item 14 is incorporated by reference from the definitive Terex Corporation Proxy Statement to be filed with the SEC within 120 days after the year covered by this Annual Report on Form 10-K.
47
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) (1) and (2) Financial Statements and Financial Statement Schedules.
See “Index to Consolidated Financial Statements and Financial Statement Schedule” on Page F-1.
(3) Exhibits
The exhibits set forth below are filed as part of this Annual Report on Form 10-K.
| Exhibit No. | Exhibit | ||||
| 3.1 | |||||
| 3.2 | |||||
| 3.3 | |||||
| 3.4 | |||||
| 3.5 | |||||
| 4.1 | |||||
| 4.2 | |||||
| 4.3 | |||||
| 4.4 | |||||
| 10.1 | |||||
| 10.2 | |||||
| 10.3 | |||||
| 10.4 | |||||
48
| 10.5 | |||||
| 10.6 | |||||
| 10.7 | |||||
| 10.8 | |||||
| 10.9 | |||||
| 10.10 | |||||
| 10.11 | |||||
| 10.12 | |||||
| 10.13 | |||||
| 10.14 | |||||
| 10.15 | |||||
| 10.16 | |||||
| 21.1 | |||||
| 23.1 | |||||
| 23.2 | |||||
| 24.1 | |||||
| 31.1 | |||||
| 31.2 | |||||
49
| 32 | |||||
| 101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | ||||
| 101.SCH | XBRL Taxonomy Extension Schema Document. * | ||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. * | ||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. * | ||||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document. * | ||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. * | ||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | ||||
| * | Exhibit filed with this document. | ||||
| ** | Exhibit furnished with this document. | ||||
| *** | Denotes a management contract or compensatory plan or arrangement. | ||||
ITEM 16. FORM 10-K SUMMARY
Not applicable.
50
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
TEREX CORPORATION
| By: | /s/ John L. Garrison, Jr. | February 11, 2022 | |||||||||
| John L. Garrison, Jr. | |||||||||||
| Chairman and Chief Executive Officer | |||||||||||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| NAME | TITLE | DATE | ||||||
| /s/ John L. Garrison, Jr | Chairman and Chief Executive | February 11, 2022 | ||||||
| John L. Garrison, Jr. | Officer | |||||||
| (Principal Executive Officer) | ||||||||
| /s/ Julie A. Beck | Senior Vice President and Chief Financial | February 11, 2022 | ||||||
| Julie A. Beck | Officer | |||||||
| (Principal Financial Officer) | ||||||||
| /s/ Stephen A. Johnston | Chief Accounting Officer | February 11, 2022 | ||||||
| Stephen A. Johnston | (Principal Accounting Officer) | |||||||
| */s/ Paula H. J. Cholmondeley | Director | |||||||
| Paula H. J. Cholmondeley | ||||||||
| */s/ Don DeFosset | Director | |||||||
| Don DeFosset | ||||||||
| */s/ Thomas J. Hansen | Director | |||||||
| Thomas J. Hansen | ||||||||
| */s/ Sandie O’Connor | Director | |||||||
| Sandie O’Connor | ||||||||
| */s/ Christopher Rossi | Director | |||||||
| Christopher Rossi | ||||||||
| */s/ Andra M. Rush | Director | |||||||
| Andra M. Rush | ||||||||
| */s/ David A. Sachs | Lead Director | |||||||
| David A. Sachs | ||||||||
*By /s/ Julie A. Beck | February 11, 2022 | |||||||
| Julie A. Beck, as Attorney-in-Fact | ||||||||
51
THIS PAGE IS INTENTIONALLY BLANK
NEXT PAGE IS NUMBERED “F-1”
52
TEREX CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
TEREX CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2021 AND 2020
AND FOR EACH OF THE THREE YEARS
FINANCIAL STATEMENT SCHEDULE
All other schedules for which provision is made in the applicable regulations of the Securities and Exchange Commission (“SEC”) are not required under the related instructions, or are not applicable, and therefore have been omitted.
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and
Board of Directors of Terex Corporation:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheet of Terex Corporation and subsidiaries (the Company) as of December 31, 2021, the related consolidated statement of income (loss), comprehensive income (loss), changes in stockholders’ equity, and cash flows for the year then ended, and the related notes and financial statement Schedule II – Valuation and Qualifying Accounts and Reserves (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and the results of its operations and its cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audit of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
F-2
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Identification of uncertain tax positions and the recoverability of deferred tax assets
As described in Note C – ���Income Taxes” to the consolidated financial statements, the Company reported a liability of $2.6 million related to unrecognized tax benefits and net deferred tax assets net of deferred tax liabilities, for continuing operations of $241.3 million, before valuation allowances of $107.0$133.0 million as of December 31, 2019. As further described in Notes A2021. The Company uses judgments and Destimates to determine the consolidated financial statements, on July 31, 2019,uncertain tax positions and deferred tax asset valuation allowances, particularly as a result of the Company’s worldwide operations. Where the Company completedhas determined that its tax return filing position does not satisfy the disposition of its Demag mobile cranes business to Tadano Ltd. In connection with the disposition of the Demag mobile cranes business, themore likely than not recognition threshold, it has recorded no tax benefits. The Company completed a legal entity restructuring and reported income tax provisions related to continuing operations and discontinued operations. Judgments and estimates are required by management to determine income tax expense, including evaluating: (i) estimates of future taxable income used in evaluatingassesses the net realizable value of its deferred tax assets (ii) complexities in worldwidebased on available evidence, including historical information that is supplemented by currently available information about future tax laws to determine exposure toyears.
We identified the identification of uncertain tax positions and (iii) incomethe recoverability of deferred tax impacts related to the disposition of the Demag mobile cranes business, including the allocation of the income tax provision between continuing operations and discontinued operations.
The following are the income tax impacts relatedprimary procedures we performed to address this critical audit matter. We evaluated the disposition ofdesign and tested the Demag mobile cranes business. In addition, the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained.
We have served as the Company’s auditor since 19922021.
New York, New York
February 11, 2022
F-3
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
and Stockholders of Terex Corporation
Opinion on the Financial Statements
We have audited the consolidated balance sheet of Terex Corporation and its subsidiaries (the “Company”) as of December 31, 2020, and the related consolidated statements of income (loss), of comprehensive income (loss), of changes in stockholders’ equity and of cash flows for each of the two years in the period ended December 31, 2020, including the related notes and financial statement schedule listed in the accompanying index for each of the two years in the period ended December 31, 2020 (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP
Stamford, Connecticut
February 12, 2021
We served as the Company’s auditor from 1992 to 2020.
F-4
TEREX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (LOSS)
(in millions, except per share data)
| Year Ended December 31, | |||||||||||||||||
| 2021 | 2020 | 2019 | |||||||||||||||
| Net sales | $ | 3,886.8 | $ | 3,076.4 | $ | 4,353.1 | |||||||||||
| Cost of goods sold | (3,129.4) | (2,537.1) | (3,465.3) | ||||||||||||||
| Gross profit | 757.4 | 539.3 | 887.8 | ||||||||||||||
| Selling, general and administrative expenses | (429.4) | (470.9) | (552.8) | ||||||||||||||
| Income (loss) from operations | 328.0 | 68.4 | 335.0 | ||||||||||||||
| Other income (expense) | |||||||||||||||||
| Interest income | 3.7 | 3.6 | 6.5 | ||||||||||||||
| Interest expense | (51.5) | (65.9) | (87.9) | ||||||||||||||
| Loss on early extinguishment of debt | (29.4) | — | — | ||||||||||||||
| Other income (expense) – net | 13.0 | 4.9 | (6.1) | ||||||||||||||
| Income (loss) from continuing operations before income taxes | 263.8 | 11.0 | 247.5 | ||||||||||||||
| (Provision for) benefit from income taxes | (46.3) | (2.0) | (37.8) | ||||||||||||||
| Income (loss) from continuing operations | 217.5 | 9.0 | 209.7 | ||||||||||||||
| Income (loss) from discontinued operations – net of tax | — | (0.4) | (155.4) | ||||||||||||||
| Gain (loss) on disposition of discontinued operations – net of tax | 3.4 | (19.2) | 0.1 | ||||||||||||||
| Net income (loss) | $ | 220.9 | $ | (10.6) | $ | 54.4 | |||||||||||
| Basic earnings (loss) per share: | |||||||||||||||||
| Income (loss) from continuing operations | $ | 3.12 | $ | 0.13 | $ | 2.95 | |||||||||||
| Income (loss) from discontinued operations – net of tax | — | (0.01) | (2.18) | ||||||||||||||
| Gain (loss) on disposition of discontinued operations – net of tax | 0.05 | (0.27) | — | ||||||||||||||
| Net income (loss) | $ | 3.17 | $ | (0.15) | $ | 0.77 | |||||||||||
| Diluted earnings (loss) per share: | |||||||||||||||||
| Income (loss) from continuing operations | $ | 3.07 | $ | 0.13 | $ | 2.92 | |||||||||||
| Income (loss) from discontinued operations – net of tax | — | (0.01) | (2.16) | ||||||||||||||
| Gain (loss) on disposition of discontinued operations – net of tax | 0.05 | (0.27) | — | ||||||||||||||
| Net income (loss) | $ | 3.12 | $ | (0.15) | $ | 0.76 | |||||||||||
| Weighted average number of shares outstanding in per share calculation | |||||||||||||||||
| Basic | 69.7 | 69.6 | 71.1 | ||||||||||||||
| Diluted | 70.9 | 70.1 | 71.8 | ||||||||||||||
| Year Ended December 31, | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Net sales | $ | 4,353.1 | $ | 4,517.2 | $ | 3,793.7 | |||||
| Cost of goods sold | (3,465.3 | ) | (3,555.3 | ) | (3,026.4 | ) | |||||
| Gross profit | 887.8 | 961.9 | 767.3 | ||||||||
| Selling, general and administrative expenses | (552.8 | ) | (549.4 | ) | (539.1 | ) | |||||
| Income (loss) from operations | 335.0 | 412.5 | 228.2 | ||||||||
| Other income (expense) | |||||||||||
| Interest income | 6.5 | 8.7 | 6.3 | ||||||||
| Interest expense | (87.9 | ) | (72.8 | ) | (67.2 | ) | |||||
| Loss on early extinguishment of debt | — | (0.7 | ) | (52.6 | ) | ||||||
| Other income (expense) – net | (6.1 | ) | (60.6 | ) | 48.7 | ||||||
| Income (loss) from continuing operations before income taxes | 247.5 | 287.1 | 163.4 | ||||||||
| (Provision for) benefit from income taxes | (37.8 | ) | (45.4 | ) | (52.4 | ) | |||||
| Income (loss) from continuing operations | 209.7 | 241.7 | 111.0 | ||||||||
| Income (loss) from discontinued operations – net of tax | (155.4 | ) | (130.4 | ) | (49.6 | ) | |||||
| Gain (loss) on disposition of discontinued operations – net of tax | 0.1 | 2.4 | 67.3 | ||||||||
| Net income (loss) | $ | 54.4 | $ | 113.7 | $ | 128.7 | |||||
| Basic earnings (loss) per share: | |||||||||||
| Income (loss) from continuing operations | $ | 2.95 | $ | 3.21 | $ | 1.20 | |||||
| Income (loss) from discontinued operations – net of tax | (2.18 | ) | (1.73 | ) | (0.53 | ) | |||||
| Gain (loss) on disposition of discontinued operations – net of tax | — | 0.03 | 0.72 | ||||||||
| Net income (loss) | $ | 0.77 | $ | 1.51 | $ | 1.39 | |||||
| Diluted earnings (loss) per share: | |||||||||||
| Income (loss) from continuing operations | $ | 2.92 | $ | 3.14 | $ | 1.17 | |||||
| Income (loss) from discontinued operations – net of tax | (2.16 | ) | (1.69 | ) | (0.52 | ) | |||||
| Gain (loss) on disposition of discontinued operations – net of tax | — | 0.03 | 0.71 | ||||||||
| Net income (loss) | $ | 0.76 | $ | 1.48 | $ | 1.36 | |||||
| Weighted average number of shares outstanding in per share calculation | |||||||||||
| Basic | 71.1 | 75.4 | 92.8 | ||||||||
| Diluted | 71.8 | 76.9 | 94.9 | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-5
TEREX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(in millions)
| Year Ended December 31, | ||||||||||||||||||||
| 2021 | 2020 | 2019 | ||||||||||||||||||
| Net income (loss) | $ | 220.9 | $ | (10.6) | $ | 54.4 | ||||||||||||||
| Other comprehensive income (loss), net of tax: | ||||||||||||||||||||
| Cumulative translation adjustment, net of (provision for) benefit from taxes of $5.4, $(3.0) and $(3.9) for the years ended December 31, 2021, 2020 and 2019, respectively | (42.8) | 63.0 | 17.4 | |||||||||||||||||
| Derivative hedging adjustment, net of (provision for) benefit from taxes of $(2.7), $1.6 and $(1.6) for the years ended December 31, 2021, 2020 and 2019, respectively | 10.0 | (5.2) | 3.6 | |||||||||||||||||
| Debt and equity securities adjustment, net of (provision for) benefit from taxes of $0.0, $0.0 and $0.0 for the years ended December 31, 2021, 2020 and 2019, respectively | (1.2) | (1.4) | 1.8 | |||||||||||||||||
| Pension liability adjustment: | ||||||||||||||||||||
| Net gain (loss), net of (provision for) benefit from taxes of $(1.6), $1.7 and $1.9 for the years ended December 31, 2021, 2020 and 2019, respectively | 10.6 | (6.3) | (7.8) | |||||||||||||||||
| Amortization of actuarial (gain) loss, net of provision for (benefit from) taxes of $(0.3), $(0.4) and $(0.6) for the years ended December 31, 2021, 2020 and 2019, respectively | 2.0 | 1.3 | 1.9 | |||||||||||||||||
| Divestiture of business, net of provision for (benefit from) taxes of $0.0, $0.0 and $(5.3) for the years ended December 31, 2021, 2020 and 2019, respectively | — | — | 12.6 | |||||||||||||||||
| Foreign exchange and other effects, net of (provision for) benefit from taxes of $0.1, $(0.6) and $(0.7) for the years ended December 31, 2021, 2020 and 2019, respectively | 1.3 | (2.3) | (2.2) | |||||||||||||||||
| Total pension liability adjustment | 13.9 | (7.3) | 4.5 | |||||||||||||||||
| Other comprehensive income (loss) | (20.1) | 49.1 | 27.3 | |||||||||||||||||
| Comprehensive income (loss) | $ | 200.8 | $ | 38.5 | $ | 81.7 | ||||||||||||||
| Year Ended December 31, | ||||||||||||
| 2019 | 2018 | 2017 | ||||||||||
| Net income (loss) | $ | 54.4 | $ | 113.7 | $ | 128.7 | ||||||
| Other comprehensive income (loss), net of tax: | ||||||||||||
| Cumulative translation adjustment, net of (provision for) benefit from taxes of $(3.9), $0.0 and $(7.5), respectively | 17.4 | (80.9 | ) | 470.6 | ||||||||
| Derivative hedging adjustment, net of (provision for) benefit from taxes of $(1.6), $1.7 and $(1.2), respectively | 3.6 | (6.5 | ) | 4.5 | ||||||||
| Debt and equity securities adjustment, net of (provision for) benefit from taxes of $0.0, $0.0 and $0.0, respectively | 1.8 | (0.9 | ) | 3.7 | ||||||||
| Pension liability adjustment: | ||||||||||||
| Net gain (loss), net of (provision for) benefit from taxes of $1.9, $1.0 and $(2.8), respectively | (7.8 | ) | (4.3 | ) | 5.0 | |||||||
| Amortization of actuarial (gain) loss, net of provision for (benefit from) taxes of $(0.6), $(1.7) and $(2.2), respectively | 1.9 | 5.8 | 5.7 | |||||||||
| Settlement of U.S. defined benefit pension obligations, net of provision for (benefit from) taxes of $0.0, $(24.4) and $0.0, respectively | — | 42.6 | — | |||||||||
| Divestiture of business, net of provision for (benefit from) taxes of $(5.3), $0.0 and $(23.9), respectively | 12.6 | — | 55.5 | |||||||||
| Foreign exchange and other effects, net of (provision for) benefit from taxes of $(0.7), $0.2 and $1.9, respectively | (2.2 | ) | 1.5 | (5.1 | ) | |||||||
| Total pension liability adjustment | 4.5 | 45.6 | 61.1 | |||||||||
| Other comprehensive income (loss) | 27.3 | (42.7 | ) | 539.9 | ||||||||
| Comprehensive income (loss) | $ | 81.7 | $ | 71.0 | $ | 668.6 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-6
TEREX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in millions, except par value)
| December 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Assets | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ | 266.9 | $ | 665.0 | |||||||
| Trade receivables (net of allowance of $9.7 and $9.5 at December 31, 2021 and 2020, respectively) | 507.7 | 381.2 | |||||||||
| Inventories | 813.5 | 610.4 | |||||||||
| Prepaid and other current assets | 179.7 | 222.0 | |||||||||
| Total current assets | 1,767.8 | 1,878.6 | |||||||||
| Non-current assets | |||||||||||
| Property, plant and equipment – net | 429.6 | 406.6 | |||||||||
| Goodwill | 280.1 | 275.4 | |||||||||
| Intangible assets – net | 13.4 | 8.3 | |||||||||
| Other assets | 372.6 | 462.9 | |||||||||
| Total assets | $ | 2,863.5 | $ | 3,031.8 | |||||||
| Liabilities and Stockholders’ Equity | |||||||||||
| Current liabilities | |||||||||||
| Current portion of long-term debt | $ | 5.6 | $ | 7.6 | |||||||
| Trade accounts payable | 537.7 | 369.9 | |||||||||
| Accrued compensation and benefits | 108.5 | 85.8 | |||||||||
| Accrued warranties and product liability | 39.2 | 48.3 | |||||||||
| Other current liabilities | 218.9 | 211.7 | |||||||||
| Total current liabilities | 909.9 | 723.3 | |||||||||
| Non-current liabilities | |||||||||||
| Long-term debt, less current portion | 668.5 | 1,166.2 | |||||||||
| Other non-current liabilities | 175.5 | 220.8 | |||||||||
| Total liabilities | 1,753.9 | 2,110.3 | |||||||||
| Commitments and contingencies | 0 | 0 | |||||||||
| Stockholders’ equity | |||||||||||
| Common stock, $.01 par value – authorized 300.0 shares; issued 83.4 and 82.9 shares at December 31, 2021 and 2020, respectively | 0.9 | 0.9 | |||||||||
| Additional paid-in capital | 860.0 | 837.9 | |||||||||
| Retained earnings | 936.9 | 750.3 | |||||||||
| Accumulated other comprehensive income (loss) | (228.5) | (208.4) | |||||||||
| Less cost of shares of common stock in treasury – 14.2 and 14.3 shares at December 31, 2021 and 2020, respectively | (459.7) | (459.2) | |||||||||
| Total stockholders’ equity | 1,109.6 | 921.5 | |||||||||
| Total liabilities and stockholders’ equity | $ | 2,863.5 | $ | 3,031.8 | |||||||
| December 31, | |||||||
| 2019 | 2018 | ||||||
| Assets | |||||||
| Current assets | |||||||
| Cash and cash equivalents | $ | 535.1 | $ | 339.5 | |||
| Trade receivables (net of allowance of $9.9 and $9.1 at December 31, 2019 and 2018, respectively) | 401.9 | 535.0 | |||||
| Inventories | 847.7 | 918.9 | |||||
| Prepaid and other current assets | 225.8 | 170.1 | |||||
| Current assets held for sale | 9.2 | 459.5 | |||||
| Total current assets | 2,019.7 | 2,423.0 | |||||
| Non-current assets | |||||||
| Property, plant and equipment – net | 389.4 | 317.3 | |||||
| Goodwill | 269.9 | 265.2 | |||||
| Intangible assets – net | 9.7 | 11.4 | |||||
| Other assets | 506.3 | 400.6 | |||||
| Non-current assets held for sale | 0.6 | 68.4 | |||||
| Total assets | $ | 3,195.6 | $ | 3,485.9 | |||
| Liabilities and Stockholders’ Equity | |||||||
| Current liabilities | |||||||
| Current portion of long-term debt | $ | 6.9 | $ | 4.1 | |||
| Trade accounts payable | 508.1 | 687.2 | |||||
| Accrued compensation and benefits | 100.3 | 123.1 | |||||
| Other current liabilities | 248.7 | 220.8 | |||||
| Current liabilities held for sale | 8.4 | 179.5 | |||||
| Total current liabilities | 872.4 | 1,214.7 | |||||
| Non-current liabilities | |||||||
| Long-term debt, less current portion | 1,168.8 | 1,210.6 | |||||
| Other non-current liabilities | 220.9 | 113.1 | |||||
| Non-current liabilities held for sale | 1.2 | 86.5 | |||||
| Total liabilities | 2,263.3 | 2,624.9 | |||||
| Commitments and contingencies | |||||||
| Stockholders’ equity | |||||||
| Common stock, $.01 par value – authorized 300.0 shares; issued 82.2 and 81.3 shares at December 31, 2019 and 2018, respectively | 0.8 | 0.8 | |||||
| Additional paid-in capital | 824.4 | 797.3 | |||||
| Retained earnings | 771.4 | 749.0 | |||||
| Accumulated other comprehensive income (loss) | (257.5 | ) | (284.8 | ) | |||
| Less cost of shares of common stock in treasury – 11.8 and 11.7 shares at December 31, 2019 and 2018, respectively | (406.8 | ) | (401.8 | ) | |||
| Total Terex Corporation stockholders’ equity | 932.3 | 860.5 | |||||
| Noncontrolling interest | — | 0.5 | |||||
| Total stockholders’ equity | 932.3 | 861.0 | |||||
| Total liabilities and stockholders’ equity | $ | 3,195.6 | $ | 3,485.9 | |||
The accompanying notes are an integral part of these consolidated financial statements.
F-7
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(in millions)
| Outstanding Shares | Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Common Stock in Treasury | Non-controlling Interest | Total | ||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2018 | 69.6 | $ | 0.8 | $ | 797.3 | $ | 749.0 | $ | (284.8) | $ | (401.8) | $ | 0.5 | $ | 861.0 | ||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | 54.4 | — | — | — | 54.4 | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) – net of tax | — | — | — | — | 27.3 | — | — | 27.3 | |||||||||||||||||||||||||||||||||||||||
| Issuance of common stock | 0.9 | — | 27.8 | — | — | — | — | 27.8 | |||||||||||||||||||||||||||||||||||||||
| Compensation under stock-based plans – net | 0.1 | — | (1.3) | — | — | 2.7 | — | 1.4 | |||||||||||||||||||||||||||||||||||||||
| Dividends | — | — | 0.6 | (32.0) | — | — | — | (31.4) | |||||||||||||||||||||||||||||||||||||||
| Acquisition of treasury stock | (0.2) | — | — | — | — | (7.7) | — | (7.7) | |||||||||||||||||||||||||||||||||||||||
| Divestiture | — | — | — | — | — | — | (0.5) | (0.5) | |||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2019 | 70.4 | 0.8 | 824.4 | 771.4 | (257.5) | (406.8) | — | 932.3 | |||||||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | (10.6) | — | — | — | (10.6) | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) – net of tax | — | — | — | — | 49.1 | — | — | 49.1 | |||||||||||||||||||||||||||||||||||||||
| Issuance of common stock | 0.7 | 0.1 | 29.0 | — | — | — | — | 29.1 | |||||||||||||||||||||||||||||||||||||||
| Compensation under stock-based plans – net | 0.1 | — | (15.7) | — | — | 3.7 | — | (12.0) | |||||||||||||||||||||||||||||||||||||||
| Dividends | — | — | 0.2 | (8.6) | — | — | — | (8.4) | |||||||||||||||||||||||||||||||||||||||
| Acquisition of treasury stock | (2.6) | — | — | — | — | (56.1) | — | (56.1) | |||||||||||||||||||||||||||||||||||||||
| Other | — | — | — | (1.9) | — | — | — | (1.9) | |||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | 68.6 | 0.9 | 837.9 | 750.3 | (208.4) | (459.2) | — | 921.5 | |||||||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | 220.9 | — | — | — | 220.9 | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) – net of tax | — | — | — | — | (20.1) | — | — | (20.1) | |||||||||||||||||||||||||||||||||||||||
| Issuance of common stock | 0.6 | — | 12.2 | — | — | — | — | 12.2 | |||||||||||||||||||||||||||||||||||||||
| Compensation under stock-based plans – net | 0.1 | — | 9.3 | — | — | 2.9 | — | 12.2 | |||||||||||||||||||||||||||||||||||||||
| Dividends | — | — | 0.6 | (34.1) | — | — | — | (33.5) | |||||||||||||||||||||||||||||||||||||||
| Acquisition of treasury stock | (0.1) | — | — | — | — | (3.3) | — | (3.3) | |||||||||||||||||||||||||||||||||||||||
| Other | — | — | — | (0.2) | — | (0.1) | — | (0.3) | |||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | 69.2 | $ | 0.9 | $ | 860.0 | $ | 936.9 | $ | (228.5) | $ | (459.7) | $ | — | $ | 1,109.6 | ||||||||||||||||||||||||||||||||
Outstanding Shares | Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Common Stock in Treasury | Non-controlling Interest | Total | |||||||||||||||||||||||
| Balance at December 31, 2016 | 105.0 | $ | 1.3 | $ | 1,300.0 | $ | 1,897.9 | $ | (779.4 | ) | $ | (935.1 | ) | $ | 36.5 | $ | 1,521.2 | |||||||||||||
| Net income (loss) | — | — | — | 128.7 | — | — | — | 128.7 | ||||||||||||||||||||||
| Other comprehensive income (loss) – net of tax | — | — | — | — | 539.9 | — | — | 539.9 | ||||||||||||||||||||||
| Issuance of common stock | 0.8 | — | 21.0 | — | — | — | — | 21.0 | ||||||||||||||||||||||
| Compensation under stock-based plans – net | 0.2 | — | 0.2 | (0.4 | ) | — | 4.0 | — | 3.8 | |||||||||||||||||||||
| Dividends | — | — | 0.8 | (30.3 | ) | — | — | — | (29.5 | ) | ||||||||||||||||||||
| Divestiture | — | — | — | — | — | — | (36.0 | ) | (36.0 | ) | ||||||||||||||||||||
| Acquisition of treasury stock | (25.8 | ) | — | — | — | — | (926.6 | ) | — | (926.6 | ) | |||||||||||||||||||
| Balance at December 31, 2017 | 80.2 | 1.3 | 1,322.0 | 1,995.9 | (239.5 | ) | (1,857.7 | ) | 0.5 | 1,222.5 | ||||||||||||||||||||
| Net income (loss) | — | — | — | 113.7 | — | — | — | 113.7 | ||||||||||||||||||||||
| Other comprehensive income (loss) – net of tax | — | — | — | — | (42.7 | ) | — | — | (42.7 | ) | ||||||||||||||||||||
| Issuance of common stock | 0.8 | — | 17.3 | — | — | — | — | 17.3 | ||||||||||||||||||||||
| Compensation under stock-based plans – net | 0.1 | — | 6.3 | — | — | 1.7 | — | 8.0 | ||||||||||||||||||||||
| Dividends | — | — | 0.9 | (30.9 | ) | — | — | — | (30.0 | ) | ||||||||||||||||||||
| Retirement of treasury stock | — | (0.5 | ) | (549.2 | ) | (1,332.3 | ) | — | 1,882.0 | — | — | |||||||||||||||||||
| Acquisition of treasury stock | (11.5 | ) | — | — | — | — | (427.8 | ) | — | (427.8 | ) | |||||||||||||||||||
| Other | — | — | — | 2.6 | (2.6 | ) | — | — | — | |||||||||||||||||||||
| Balance at December 31, 2018 | 69.6 | 0.8 | 797.3 | 749.0 | (284.8 | ) | (401.8 | ) | 0.5 | 861.0 | ||||||||||||||||||||
| Net income (loss) | — | — | — | 54.4 | — | — | — | 54.4 | ||||||||||||||||||||||
| Other comprehensive income (loss) – net of tax | — | — | — | — | 27.3 | — | — | 27.3 | ||||||||||||||||||||||
| Issuance of common stock | 0.9 | — | 27.8 | — | — | — | — | 27.8 | ||||||||||||||||||||||
| Compensation under stock-based plans – net | 0.1 | — | (1.3 | ) | — | — | 2.7 | — | 1.4 | |||||||||||||||||||||
| Dividends | — | — | 0.6 | (32.0 | ) | — | — | — | (31.4 | ) | ||||||||||||||||||||
| Acquisition of treasury stock | (0.2 | ) | — | — | — | — | (7.7 | ) | — | (7.7 | ) | |||||||||||||||||||
| Divestiture | — | — | — | — | — | — | (0.5 | ) | (0.5 | ) | ||||||||||||||||||||
| Balance at December 31, 2019 | 70.4 | $ | 0.8 | $ | 824.4 | $ | 771.4 | $ | (257.5 | ) | $ | (406.8 | ) | $ | — | $ | 932.3 | |||||||||||||
| Year Ended December 31, | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Operating Activities | |||||||||||
| Net income (loss) | $ | 54.4 | $ | 113.7 | $ | 128.7 | |||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | |||||||||||
| Depreciation and amortization | 49.6 | 59.7 | 66.5 | ||||||||
| (Gain) loss on disposition of discontinued operations | (0.1 | ) | (2.4 | ) | (68.7 | ) | |||||
| Deferred taxes | (17.6 | ) | (9.1 | ) | 37.6 | ||||||
| Impairments | 83.6 | 9.0 | 6.8 | ||||||||
| (Gain) loss on sale of assets | (9.8 | ) | (1.9 | ) | (58.0 | ) | |||||
| Loss on early extinguishment of debt | — | 0.7 | 52.6 | ||||||||
| Stock-based compensation expense | 43.1 | 36.7 | 38.5 | ||||||||
| Pension plan settlements | — | 67.8 | 1.5 | ||||||||
| Inventory and other non-cash charges | 47.6 | 30.3 | 34.0 | ||||||||
| Changes in operating assets and liabilities (net of effects of acquisitions and divestitures): | |||||||||||
| Trade receivables | 176.1 | (107.9 | ) | (0.5 | ) | ||||||
| Inventories | 20.3 | (284.2 | ) | (33.5 | ) | ||||||
| Trade accounts payable | (220.1 | ) | 213.2 | 25.0 | |||||||
| Other assets and liabilities | (57.0 | ) | (25.1 | ) | (46.0 | ) | |||||
| Foreign exchange and other operating activities, net | 3.3 | (6.3 | ) | (31.5 | ) | ||||||
| Net cash provided by (used in) operating activities | 173.4 | 94.2 | 153.0 | ||||||||
| Investing Activities | |||||||||||
| Capital expenditures | (108.9 | ) | (103.8 | ) | (43.5 | ) | |||||
| Proceeds from sale of capital assets | 4.3 | 2.8 | 20.2 | ||||||||
| Proceeds from disposition of investments | 30.7 | 19.3 | 783.2 | ||||||||
| Proceeds (payments) from disposition of discontinued operations | 177.7 | 2.5 | 775.7 | ||||||||
| Other investing activities, net | — | (6.7 | ) | — | |||||||
| Net cash provided by (used in) investing activities | 103.8 | (85.9 | ) | 1,535.6 | |||||||
| Financing Activities | |||||||||||
| Repayments of debt | (1,660.5 | ) | (1,150.1 | ) | (1,594.1 | ) | |||||
| Proceeds from issuance of debt | 1,616.6 | 1,382.3 | 1,010.7 | ||||||||
| Payment of debt extinguishment costs | — | (0.5 | ) | (36.4 | ) | ||||||
| Share repurchases | (7.4 | ) | (427.5 | ) | (924.9 | ) | |||||
| Dividends paid | (31.4 | ) | (30.0 | ) | (29.5 | ) | |||||
| Other financing activities, net | (21.0 | ) | (19.1 | ) | (32.3 | ) | |||||
| Net cash provided by (used in) financing activities | (103.7 | ) | (244.9 | ) | (1,606.5 | ) | |||||
| Effect of Exchange Rate Changes on Cash and Cash Equivalents | (5.5 | ) | (21.4 | ) | 46.1 | ||||||
| Net Increase (Decrease) in Cash and Cash Equivalents | 168.0 | (258.0 | ) | 128.2 | |||||||
| Cash and Cash Equivalents at Beginning of Period | 372.1 | 630.1 | 501.9 | ||||||||
| Cash and Cash Equivalents at End of Period | $ | 540.1 | $ | 372.1 | $ | 630.1 | |||||
The accompanying notes are an integral part of these consolidated financial statements.
F-8
TEREX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
| Year Ended December 31, | |||||||||||||||||
| 2021 | 2020 | 2019 | |||||||||||||||
| Operating Activities | |||||||||||||||||
| Net income (loss) | $ | 220.9 | $ | (10.6) | $ | 54.4 | |||||||||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | |||||||||||||||||
| Depreciation and amortization | 50.2 | 49.7 | 49.6 | ||||||||||||||
| (Gain) loss on disposition of discontinued operations | (3.4) | 19.2 | (0.1) | ||||||||||||||
| Deferred taxes | 1.2 | 5.6 | (17.6) | ||||||||||||||
| Impairments | 6.3 | 5.5 | 83.6 | ||||||||||||||
| (Gain) loss on sale of assets | (7.4) | (0.4) | (9.8) | ||||||||||||||
| Loss on early extinguishment of debt | 29.4 | — | — | ||||||||||||||
| Stock-based compensation expense | 33.1 | 23.8 | 43.1 | ||||||||||||||
| Inventory and other non-cash charges | 14.7 | 20.6 | 47.6 | ||||||||||||||
| Changes in operating assets and liabilities (net of effects of acquisitions and divestitures): | |||||||||||||||||
| Trade receivables | (139.0) | 16.1 | 176.1 | ||||||||||||||
| Inventories | (229.5) | 261.6 | 20.3 | ||||||||||||||
| Trade accounts payable | 173.0 | (156.9) | (220.1) | ||||||||||||||
| Other assets and liabilities | 140.7 | 8.8 | (57.0) | ||||||||||||||
| Foreign exchange and other operating activities, net | 3.2 | (17.6) | 3.3 | ||||||||||||||
| Net cash provided by (used in) operating activities | 293.4 | 225.4 | 173.4 | ||||||||||||||
| Investing Activities | |||||||||||||||||
| Capital expenditures | (59.7) | (64.5) | (108.9) | ||||||||||||||
| Proceeds from sale of capital assets | 1.9 | 2.7 | 4.3 | ||||||||||||||
| Acquisitions, net of cash acquired, and investments | (42.7) | — | — | ||||||||||||||
| Proceeds (payments) from disposition of investments | (1.7) | 7.5 | 30.7 | ||||||||||||||
| Proceeds from disposition of discontinued operations | — | 15.8 | 177.7 | ||||||||||||||
| Net cash provided by (used in) investing activities | (102.2) | (38.5) | 103.8 | ||||||||||||||
| Financing Activities | |||||||||||||||||
| Repayments of debt | (1,103.5) | (176.0) | (1,660.5) | ||||||||||||||
| Proceeds from issuance of debt | 600.1 | 170.0 | 1,616.6 | ||||||||||||||
| Payment of debt extinguishment costs | (16.9) | — | — | ||||||||||||||
| Share repurchases | (3.0) | (56.0) | (7.4) | ||||||||||||||
| Dividends paid | (33.5) | (8.4) | (31.4) | ||||||||||||||
| Other financing activities, net | (23.3) | (12.4) | (21.0) | ||||||||||||||
| Net cash provided by (used in) financing activities | (580.1) | (82.8) | (103.7) | ||||||||||||||
| Effect of Exchange Rate Changes on Cash and Cash Equivalents | (14.3) | 25.9 | (5.5) | ||||||||||||||
| Net Increase (Decrease) in Cash and Cash Equivalents | (403.2) | 130.0 | 168.0 | ||||||||||||||
| Cash and Cash Equivalents at Beginning of Year | 670.1 | 540.1 | 372.1 | ||||||||||||||
Cash and Cash Equivalents at End of Year (1) | $ | 266.9 | $ | 670.1 | $ | 540.1 | |||||||||||
| (1) Cash and Cash Equivalents includes Cash and Cash Equivalents-Held for Sale of $5.1 and $5.0 at December 31, 2020 and 2019, respectively. | |||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-9
TEREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A – BASIS OF PRESENTATION
Basis of Presentation and Principles of Consolidation. The Consolidated Financial Statementsconsolidated financial statements include the accounts of Terex Corporation, its majority-owned subsidiaries and other controlled subsidiaries (“Terex” or the “Company”). The Company consolidates all majority-owned and controlled subsidiaries, applies equity method of accounting for investments in which the Company is able to exercise significant influence and applies the cost method for all other investments.investments which do not have readily determinable fair values. All intercompany balances, transactions and profits have been eliminated. Certain prior period amounts have been reclassified to conform with the 20192021 presentation.
As further described in Note D - “Discontinued Operations– “Acquisitions and Assets and Liabilities Held for Sale”Discontinued Operations”, on July 31, 2019, the Company completed the previously announced disposition of its Demag® mobile cranes business (“Demag”) to Tadano Ltd. and certain of its subsidiaries (“Tadano”). During 2019, the Company also exited North American mobile crane product lines manufactured in its Oklahoma City facility. As a result, the Company reported these operations, formerly part of the Cranes segment, in discontinued operations in the Consolidated Statement of Income (Loss) for all periods presented, and inpresented. Residual assets and liabilities held for salewere recorded within Prepaid and other current assets, Other assets, Other current liabilities and Other non-current liabilities in the Consolidated Balance Sheet at December 31, 2019 and 2018. Other operations formerly part of the Cranes segment were reorganized to align with the Company’s new management and reporting structure. The utilities business has been consolidated within Aerial Work Platforms (“AWP”), the pick and carry cranes business has been consolidated within Materials Processing (“MP”) and the rough terrain and tower cranes businesses have been consolidated within Corporate and Other. The Company now manages and reports its business in the following segments: (i) AWP and (ii) MP. Prior period amounts have been reclassified to conform with the 2019 presentation.2020. See Note B - “Business Segment Information”D – “Acquisitions and Note D - “Discontinued Operations and Assets and Liabilities Held for Sale”Discontinued Operations” for further information.
Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles (“U.S. GAAP”) requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from those estimates.
Cash and Cash Equivalents. Cash equivalents consist of highly liquid investments with original maturities of three months or less. Carrying amount of cash and cash equivalents approximates its fair value. Cash and cash equivalents include $3.7 million and $5.0 million at December 31, 20192021 and 2018 include $4.6 million and $12.6 million,2020, respectively, which were not immediately available for use. These consist primarily of cash balances held in escrow to secure various obligations of the Company.
Inventories. Inventories are stated at the lower of cost or net realizable value (“NRV”). Cost is determined by the average cost and first-in, first-out (“FIFO”) and average cost methods (approximately 10%93% and 90%7%, respectively). In valuing inventory, the Company is required to make assumptions regarding the level of reserves required to value potentially obsolete or over-valued items at lower of cost or NRV. These assumptions require the Company to analyze the aging of and forecasted demand for its inventory, forecastedforecast future product sales prices, pricing trends and margins, and to make judgments and estimates regarding obsolete or excess inventory. Future product sales prices, pricing trends and margins are based on the best available information at that time includinghistorical experience and actual orders received, negotiations with the Company’s customers for future orders, including their plans for expenditures, and market trends for similar products.received. The Company’s judgments and estimates for excess or obsolete inventory are based on analysis of actual and forecasted usage. The valuationValuation of used equipment taken in trade from customers requires the Company to use the best information available to determine the value of the equipment to potential customers. This value is subject to change based on numerous conditions. Inventory reserves are established taking into account age, frequency of use, or sale, and in the case of repair parts, installed base of machines. While calculations are made involving these factors, significant management judgment regarding expectations for future events is involved. Future events that could significantly influence the Company’s judgment and related estimates include general economic conditions in markets where the Company’s products are sold, new equipment price fluctuations, actions of the Company’s competitors, including introduction of new products and technological advances, as well as new products and design changes the Company introduces. The Company makes adjustments to its inventory reserves based on the identification of specific situations and increases its inventory reserves accordingly. As further changes in future economic or industry conditions occur, the Company may revise estimates that were used to calculate its inventory reserves. At December 31, 20192021 and 2018,2020, reserves for lower of cost or NRV, excess and obsolete inventory totaled $53.2$57.8 million and $49.8$61.8 million, respectively.
If actual conditions are less favorable than those the Company has projected, the Company will increase its reserves for lower of cost or NRV, excess and obsolete inventory accordingly. Any increase in the Company’s reserves will adversely impact its results of operations. Establishment of a reserve for lower of cost or NRV, excess and obsolete inventory establishes a new cost basis in the inventory. Such reserves are not reduced until the product is sold.
Shipping and handling costs for product shipments to customers are recorded in Cost of goods sold (“COGS”).
F-10
Debt Issuance Costs. Debt issuance costs incurred in securing the Company’s financing arrangements are capitalized and amortized over the term of the associated debt. Debt issuance costs related to senior notes and term loans are presented in the balance sheet as a direct deduction from the carrying amount of the borrowing, consistent with debt discounts. Debt issuance costs related to securing the Company’s revolving line of credit are presented in Other assets. Debt issuance costs related to debt that is extinguished early are charged to expense at the time of retirement. Debt issuance costs were $17.0$12.0 million and $19.0$15.4 million (net of accumulated amortization of $12.2$8.0 million and $7.6$17.3 million) at December 31, 20192021 and 2018,2020, respectively.
Intangible Assets. Intangible assets include purchased patents, trademarks, customer relationships and other specifically identifiable assets and are amortized on a straight-line basis over the respective estimated useful lives, which range from one to ninety-nine years.years. Intangible assets are reviewed for impairment when events or changes in circumstances warrant.indicate that their carrying amount may not be recoverable.
Goodwill. Goodwill represents the excess of purchase price over the fair value of assets acquired and liabilities assumed as part of a business combination. Goodwill is assigned to one or more reporting segments on the date of acquisition. The Company reviews its goodwill for impairment annually during the fourth quarter of each fiscal year and between annual testsor more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of any one of its reporting units below its respective carrying amount.
In performing the goodwill impairment test, the Company may first performsperform a qualitative assessment whichor bypass the qualitative assessment and proceed directly to performing the quantitative impairment test. A qualitative assessment requires that itthe Company to consider events or circumstances including macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, changes in management or key personnel, changes in strategy, changes in customers, changes in the composition or carrying amount of a reporting segment’s net assets and changes in its stock price. If, after assessing the totality of events or circumstances, the Company determines that it is more likely than not that the fair values of its reporting segmentsunits are greater than the carrying amounts, then thea quantitative goodwill impairment test isdoes not need to be performed.
If the qualitative assessment indicates that thea quantitative analysis should be performed or a quantitative analysis is directly elected, the Company then evaluates goodwill for impairment by comparing the fair value of each of its reporting segmentsunits to its carrying value, including the associated goodwill. To determine the fair values, the Company uses an income approach, along with other relevant market information, derived from a discounted cash flow model to estimate fair value of its reporting units. An impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, if any, would be recognized. The loss recognized would not exceed total amount of goodwill allocated to that reporting unit.
Property, Plant and Equipment. Property, plant and equipment are stated at cost. Expenditures for major renewals and improvements are capitalized while expenditures for maintenance and repairs not expected to extend the life of an asset beyond its normal useful life are charged to expense when incurred. Plant and equipment are depreciated over the estimated useful lives (1-40 years and 2-20 years, respectively) of the assets under the straight-line method of depreciation for financial reporting purposes and both straight-line and other methods for tax purposes.
F-11
Accounts Receivable and Allowance for Doubtful Accounts.Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowanceAllowance for doubtful accounts is the Company’s best estimate of the amount of probablecurrent expected credit losses inon its existing accounts receivable. The Company determines the allowancereceivable and determined based on historical customer review andassessments, current financial conditions. The Company reviews its allowance for doubtful accounts at least quarterly.conditions, and reasonable and supportable forecasts. Account balances are charged off against the allowance when the Company determines it is probable the receivable will not be recovered. There can be no assurance that the Company’s historicalestimate of accounts receivable collection experience will be indicative of future results. The Company has off-balance sheet credit exposure related to guarantees provided to financial institutions as disclosed in Note O – “Litigation and Contingencies.” Substantially all receivables were trade receivables at December 31, 2019 and 2018.
The following table summarizes changes in the consolidated allowance for doubtful accounts (in millions):
| Balance as of December 31, 2019 | $ | 9.9 | |||
| Provision for credit losses | 1.8 | ||||
| Other adjustments | (2.2) | ||||
| Balance as of December 31, 2020 | $ | 9.5 | |||
| Provision for credit losses | 2.5 | ||||
| Other adjustments | (2.3) | ||||
| Balance as of December 31, 2021 | $ | 9.7 | |||
Pursuant to terms of the Company’s trade accounts receivable factoring arrangements, certain of the Company’s subsidiaries may sell their trade accounts receivable. In certain cases, the Company continues to service such accounts. These trade receivables qualify for sales treatment under Accounting Standards Codification (“ASC”) 860, “Transfers and Servicing” (“ASC 860”) and accordingly, the proceeds are included in net cash provided by operating activities. The gross amount of trade receivables sold for years ended December 31, 2021, 2020 and 2019 2018totaled $527.0 million, $405.8 million and 2017 totaled $1,108.0 million, ($1.1 million related to discontinued operations), $940.1 million ($1.3 million related to discontinued operations) and $631.1 million ($1.5 million related to discontinued operations), respectively. The factoring discount paid upon sale is recorded as interest expense in the Consolidated Statement of Income (Loss). As of December 31, 20192021 and 2018, $83.92020, $60.7 million and $85.1$2.0 million, ($0.2 million related to discontinued operations), respectively, of receivables qualifying for sale treatment were outstanding and continuingcontinued to be serviced by the Company.
Finance Receivables. The Company’s net finance receivable balances include both sales-type leases and commercial loans. The Company were outstanding.had $12.2 million and $129.8 million of gross finance receivables at December 31, 2021 and 2020, respectively. The allowance for credit losses on finance receivables was $7.9 million and $13.8 million at December 31, 2021 and 2020, respectively. In February 2021, the Company transferred finance receivables of $89.7 million to a U.S. regional bank, which qualified for sales treatment under ASC 860. The Company received $99.4 million of cash proceeds from the sale and recognized a net gain of $5.6 million.
Revenue Recognition.The Company recognizes revenue when goods or services are transferred to customers in an amount that reflects the consideration which it expects to receive in exchange for those goods or services. In determining when and how revenue is recognized from contracts with customers, the Company performs the following five-step analysis: (i) identification of contract with customer; (ii) determination of performance obligations; (iii) measurement of the transaction price; (iv) allocation of the transaction price to the performance obligations;obligations and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.
In the United States, we havethe Company has the ability to enter into a security agreement and receive a security interest in the product by filing an appropriate Uniform Commercial Code (“UCC”) financing statement. However, a significant portion of the Company’s revenue is generated outside of the United States. In many countries outside of the United States, as a matter of statutory law, a seller retains title to a product until payment is made. The laws do not provide for a seller’s retention of a security interest in goods in the same manner as established in the UCC. In these countries, we retainthe Company retains title to goods delivered to a customer until the customer makes payment so that weit can recover the goods in the event of customer default on payment. The Company considers the following events in order to determine when it is appropriate to recognize revenue: (i) the customer has physical possession of the product; (ii) the customer has legal title to the product; (iii) the customer has assumed the risks and rewards of ownership, and (iv) the customer has communicated acceptance of the product.product and (v) the Company has a right to payment. These events serve as indicators, along with the details contained within the contract, that it is appropriate to recognize revenue.
F-12
The Company generates revenue through the sale of machines, parts and service, and extended warranties. Revenue from product sales is recorded when the performance obligation is fulfilled, usually at the time of shipment, at the net sales price (transaction price). Estimates of variable consideration, such as volume discounts and rebates, reduce transaction price when it is probable that a customer will attain these types of sales incentives. These estimates are primarily derived from contractual terms and historical experience. The Company elected to present revenue net of sales tax and other similar taxes and account for shipping and handling as activities to fulfill the promise to transfer goods rather than separate performance obligations. Payments are typically due either 30 or 60 days, depending on geography, following delivery of products or completion of services.
Revenue from extended warranties is recognized over time on a straight line basis because the customer benefits evenly from the extended warranty throughout the period; beginning upon expiration of the standard warranty and through end of the term. Revenue from services is recognized based on cost input method as the time and materials used in the repair portrays the most accurate depiction of completion of the performance obligation. During the full year ended December 31, 2019,2021, revenues generated from the sale of extended warranties and services were an immaterial portion of revenue.
The Company sells equipment subject to leases and related lease payments. Income from operating leases is recognized ratably over the lease term. Revenue from sales-type leases is recognized at the inception of the lease.
For detailed sales information see Note B -– “Business Segment Information”.
Leases. Terex leases approximately 100 real properties, approximately 500400 vehicles and approximately 400 pieces of office and industrial equipment. As the lessee, Terex will classify a lease which it has substantially all the risks and rewards of ownership as a finance lease.
The Company determines if an arrangement contains a lease at contract inception. With the exception of short-term leases (leases with terms less than 12 months), all leases with contractual fixed costs are recorded on the balance sheet on the lease commencement date as a right-of-use (“ROU”) asset and a lease liability. Lease liabilities are initially measured at the present value of the minimum lease payments and subsequently increased to reflect the interest accrued and reduced by the lease payments affected. ROU assets are initially measured at the present value of the minimum lease payments adjusted for any prior lease payments, lease incentives and initial direct costs. The Company does not separate lease and non-lease components of a contract for any class of leases. Certain leases contain escalation, renewal and/or termination options that are factored into the ROU asset as appropriate. Operating leases result in a straight-line rent expense over the life of the lease. For finance leases, ROU assets are amortized on a straight-line basis over the life of the lease and interest accretes to the lease liability which results in a higher interest expense at lease inception that declines over the life of the lease. VariableGenerally, variable lease costs are expensed as incurred and are not included in the determination of ROU assets or lease liabilities.
Short-term leases for real property, vehicles and industrial and office equipment are recognized in the income statement on a straight-line basis over the lease term.
The Company uses its estimated incremental borrowing rate, which is derived from information available at the lease commencement date, in determining the present value of lease payments, if the rate is not implicit in the lease. Consideration is given to the Company’s recent debt issuances as well as publicly available data for instruments with similar characteristics when calculating incremental borrowing rates.
The Company adopted Accounting Standard Update (“ASU”) 2016-02, “Leases (Topic 842),” on January 1, 2019 under the alternative transition method permitted by ASU 2018-11, “Leases (Topic 842): Targeted Improvements”. For detailed lease information see Note L -K – “Leases”.
Guarantees. The Company records a liabilityissues guarantees to financial institutions related to financing of equipment purchases by customers. The expectation of losses or non-performance is assessed based on consideration of historical customer assessments, current financial conditions, reasonable and supportable forecasts, equipment collateral value and other factors. Reserves are recorded for expected loss over the estimated fair valuecontractual period of risk exposure. See Note N – “Litigation and Contingencies” for additional information regarding guarantees issued pursuant to ASC 460. The Company recognizes a loss under a guarantee when its obligation to make payment under the guarantee is probable and the amount of the loss can be estimated. A loss would be recognized if the Company’s payment obligation under the guarantee exceeds the value it can expect to recover to offset such payment, primarily through the sale of the equipment underlying the guarantee.financial institutions.
Accrued Warranties. The Company records accruals for potential warranty claims based on its claim experience. The Company’s products are typically sold with a standard warranty covering defects that arise during a fixed period. Each business provides a warranty specific to products it offers. The specific warranty offered by a business is a function of customer expectations and competitive forces. Warranty length is generally a fixed period of time, a fixed number of operating hours or both.
F-13
A liability for estimated warranty claims is accrued at the time of sale. The current portion of the product warranty liability is included in Other current liabilitiesAccrued warranties and product liability and the non-current portion is included in Other non-current liabilities in the Company’s Consolidated Balance Sheet. The liability is established using historical warranty claims experience for each product sold. Historical claims experience may be adjusted for known design improvements or for the impact of unusual product quality issues. Warranty reserves are reviewed quarterly to ensure critical assumptionsAssumptions are updated for known events that may affect the potential warranty liability.
The following table summarizes the changes in the consolidated product warranty liability (in millions):
| Balance as of December 31, 2019 | $ | 47.5 | |||
| Accruals for warranties issued during the period | 38.9 | ||||
| Changes in estimates | 14.3 | ||||
| Settlements during the period | (48.4) | ||||
| Foreign exchange effect/other | 0.6 | ||||
| Balance as of December 31, 2020 | $ | 52.9 | |||
| Accruals for warranties issued during the period | 42.5 | ||||
| Changes in estimates | (4.7) | ||||
| Settlements during the period | (45.7) | ||||
| Foreign exchange effect/other | (0.9) | ||||
| Balance as of December 31, 2021 | $ | 44.1 | |||
| Balance as of December 31, 2017 | $ | 35.7 | |
| Accruals for warranties issued during the period | 43.7 | ||
| Changes in estimates | 7.2 | ||
| Settlements during the period | (46.1 | ) | |
| Foreign exchange effect/other | (0.7 | ) | |
| Balance as of December 31, 2018 | 39.8 | ||
| Accruals for warranties issued during the period | 41.1 | ||
| Changes in estimates | 13.4 | ||
| Settlements during the period | (50.1 | ) | |
| Foreign exchange effect/other | 3.3 | ||
| Balance as of December 31, 2019 | $ | 47.5 | |
Accrued Product Liability. The Company records accruals for product liability claims when deemed probable and estimable based on facts and circumstances, and prior claims experience. Accruals for product liability claims are valued based upon the Company’s prior claims experience, including consideration of jurisdiction, circumstances of the accident, type of loss or injury, identity of plaintiff, other potential responsible parties, analysis of outside legal counsel, analysis of internal product liability counsel and experience of the Company’s product safety employees. Actual product liability costs could be different due to a number of variables such as the decisions of juries or judges.
Defined Benefit Pension and Other Post-retirement Benefits. The Company provides post-retirement benefits to certain former salaried and hourly employees and certain hourly employees covered by bargaining unit contracts that provide such benefits. The Company accounts for these benefits under ASC 715, “Compensation-Retirement Benefits” (“ASC 715”). ASC 715 requires balance sheet recognition of the overfunded or underfunded status of pension and post-retirement benefit plans. Under ASC 715, actuarial gains and losses and prior service costs or credits and any remaining transition assets or obligations that have not been recognized under previous accounting standards must be recognized in Accumulated other comprehensive income, net of tax effects, until they are amortized as a component of net periodic benefit cost. See Note ML – “Retirement Plans and Other Benefits.”
Deferred Compensation. The Company maintains a deferred compensation plan, which is described more fully in Note M – “Retirement Plans and Other Benefits.”plan. The Company’s common stock held in a rabbi trust pursuant to the Company’s deferred compensation plan, is treated in a manner similar to treasury stock and is recorded at cost within Stockholders’ equity as of December 31, 20192021 and 2018.2020. The plan obligations for participant deferrals in common stock are classified as Additional paid-in capital and deferrals in the bond fund investment are classified as Accrued compensation and benefits and Other non-current liabilities in the Consolidated Balance Sheet. The total of common stock required to settle this deferred compensation obligation is included in the denominator in both basic and diluted earnings per share calculations.
Stock-Based Compensation. At December 31, 2019,2021, the Company had stock-based employee compensation plans, which are described more fully in Note NM – “Stockholders’ Equity.” The Company accounts for those plans under the recognition and measurement principles of ASC 718, “Compensation–Stock Compensation” (“ASC 718”). ASC 718 requires that expense resulting from all share-based payment transactions be recognized in the consolidated financial statements at fair value.value over the service period. The Company recognizes forfeitures as they occur.
Foreign Currency Translation. Assets and liabilities of the Company’s non-U.S. operations are translated at year-end exchange rates. Income and expenses are translated at average exchange rates during the year. For operations whose functional currency is the local currency, translation adjustments are recorded in the Accumulated other comprehensive income component of Stockholders’ equity. Gains or losses resulting from foreign currency transactions are recorded in the accounts based on the underlying transaction.
F-14
Derivatives. Derivative financial instruments are recorded in the Consolidated Balance Sheet at their fair value as either assets or liabilities. Changes in the fair value of derivatives are recorded each period in earnings or Accumulated other comprehensive income, depending on whether a derivative is designated and effective as part of a hedge transaction and, if it is, the type of hedge transaction. Gains and losses on derivative instruments reported in Accumulated other comprehensive income are included in earnings in the periods in which earnings are affected by the hedged item. See Note JI – “Derivative Financial Instruments.”
Research, Development and Engineering Costs. Research, development and engineering costs are expensed as incurred. Such costs incurred in the development of new products or significant improvements to existing products are included in SG&A. Research, development and engineering costs were $52.2 million, $58.9 million and $72.4 million $63.2 millionduring 2021, 2020 and $55.6 million during 2019,, 2018 and 2017, respectively.
Income Taxes. The Company accounts for income taxes using the asset and liability method. This method requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between financial statement carrying amounts and the tax bases of assets and liabilities. See Note C – “Income Taxes.”
Earnings Per Share. Basic earnings (loss) per share is computed by dividing Net income (loss) attributable to Terex Corporation for the period by the weighted average number of shares of common stock outstanding. Diluted earnings (loss) per share is computed by dividing Net income (loss) attributable to Terex Corporation for the period by the weighted average number of shares of common stock outstanding and potential dilutive common shares. See Note E – “Earnings Per Share.”
Fair Value Measurements.Assets and liabilities measured at fair value on a recurring basis under the provisions of ASC 820, “Fair Value Measurement and Disclosure” (“ASC 820”), include commodity swaps, interest rate caps, cross currency swaps and foreign exchange contracts, cross currencydiscussed in Note I – “Derivative Financial Instruments” and commodity swaps and a debt conversion feature on a convertible promissory note discussed in Note J – “Derivative Financial Instruments”, debt discussed in Note K – “Long-term Obligations” and defined benefit plan assets discussed in Note M – “Retirement Plans and Other Benefits”. These instruments are valued using aobservable market approach, which uses pricesdata for similar assets and other relevant information generated by market transactions involving identicalliabilities or comparable assets or liabilities.the present value of future cash payments and receipts. ASC 820 establishes a fair value hierarchy for those instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s assumptions (unobservable inputs). The hierarchy consists of three levels:
Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2 – Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
Level 3 – Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported by little or no market activity).
Determining which category an asset or liability falls within this hierarchy requires judgment. The Company evaluates its hierarchy disclosures each quarter.
Recently Issued Accounting Standards
Accounting Standards Implemented in 20192021
In February 2016,December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2016-02, “Leases (Topic 842),” (“ASU 2016-02”). The standard establishes a ROU model that requires a lessee to recognize an ROU asset and a lease liability on the balance sheet for all leases with a term longer than 12 months and requires the disclosure of key information about leasing arrangements. Leases are classified as finance or operating, with classification affecting the subsequent expense pattern and presentation of expense recognition in the income statement. Subsequently, the FASB issued the following standards related to ASU 2016-02: ASU 2018-01, “Land Easement Practical Expedient for Transition to Topic 842”, ASU 2018-10, “Codification Improvements to Topic 842, Leases”, ASU 2018-11, “Leases (Topic 842): Targeted Improvements” (“ASU 2018-11”), ASU 2018-20, “Narrow-Scope Improvements for Lessors” and ASU 2019-01, “Leases (Topic 842): Codification Improvements”, which provided additional guidance and clarity to ASU 2016-02 (collectively, the “Lease Standard”).
Accounting Standards to be Implemented
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met to ease an entity’s financial reporting burden as the market transitions from LIBOR and other interbank offered rates to alternative reference rates. The FASB further issued ASU 2021-01 in January 2021 to clarify the scope of Topic 848. The guidance was effective upon issuance and may be applied through December 31, 2022. Adoption is not expected to have a material effect on the Company’s consolidated financial statements.
NOTE B – BUSINESS SEGMENT INFORMATION
Terex is a global manufacturer of aerial work platforms and materials processing machinery and cranes.machinery. The Company designs, builds and supports products used in construction, maintenance, manufacturing, energy, minerals and materials management applications. Terex’sTerex products and solutions enable customers to reduce their environmental impact including electric and hybrid offerings that deliver quiet and emission-free performance, products that support renewable energy, and products that aid in the recovery of useful materials from various types of waste. The Company’s products are manufactured in North and South America, Europe, Australia and Asia and sold worldwide. The CompanyTerex engages with customers through all stages of the product life cycle, from initial specification and financing to parts and service support.
The Company identifies its operating segments according to how business activities are managed and evaluated, and has identified three operating segments: Aerials, Utilities and Materials Processing (“MP”). As Aerials and Utilities operating segments share similar economic characteristics, these operating segments are aggregated into one operating segment, Aerial Work Platforms (“AWP”). The Company operates in 2 reportable segments: (i) AWP and (ii) MP.
The Company assists customers in their rental, leasing and acquisition of its products through Terex Financial Services (“TFS”). TFS uses its equipment financing experience to provide financing solutionsfacilitate financial products and services to assist customers who purchasein the acquisition of the Company’s equipment. TFS is included in Corporate and Other.
Corporate and Other also includes eliminations among the 2 reportable segments, various construction product lines, as well as general and corporate items.
None of the Company’s customers individually accounted for more than 10% of consolidated net sales in 2019, 20182021, 2020 or 2017.2019.
F-16
Business segment information is presented below (in millions):
| Year Ended December 31, | |||||||||||||||||
| 2021 | 2020 | 2019 | |||||||||||||||
| Net sales | |||||||||||||||||
| AWP | $ | 2,178.8 | $ | 1,782.9 | $ | 2,726.6 | |||||||||||
| MP | 1,691.8 | 1,256.8 | 1,602.6 | ||||||||||||||
| Corporate and Other / Eliminations | 16.2 | 36.7 | 23.9 | ||||||||||||||
| Total | $ | 3,886.8 | $ | 3,076.4 | $ | 4,353.1 | |||||||||||
| Income (loss) from operations | |||||||||||||||||
| AWP | $ | 152.1 | $ | 0.5 | $ | 196.2 | |||||||||||
| MP | 240.9 | 143.4 | 227.9 | ||||||||||||||
| Corporate and Other / Eliminations | (65.0) | (75.5) | (89.1) | ||||||||||||||
| Total | $ | 328.0 | $ | 68.4 | $ | 335.0 | |||||||||||
| Depreciation and amortization | |||||||||||||||||
| AWP | $ | 25.9 | $ | 23.2 | $ | 23.0 | |||||||||||
| MP | 13.3 | 11.4 | 9.1 | ||||||||||||||
| Corporate | 11.0 | 15.1 | 14.3 | ||||||||||||||
| Total | $ | 50.2 | $ | 49.7 | $ | 46.4 | |||||||||||
| Capital expenditures | |||||||||||||||||
| AWP | $ | 41.2 | $ | 47.4 | $ | 82.1 | |||||||||||
| MP | 15.8 | 11.6 | 12.9 | ||||||||||||||
| Corporate | 2.7 | 5.5 | 10.5 | ||||||||||||||
| Total | $ | 59.7 | $ | 64.5 | $ | 105.5 | |||||||||||
| Year Ended December 31, | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Net sales | |||||||||||
| AWP | $ | 2,726.6 | $ | 2,950.4 | $ | 2,433.2 | |||||
| MP | 1,371.4 | 1,322.6 | 1,119.8 | ||||||||
| Corporate and Other / Eliminations | 255.1 | 244.2 | 240.7 | ||||||||
| Total | $ | 4,353.1 | $ | 4,517.2 | $ | 3,793.7 | |||||
| Income (loss) from operations | |||||||||||
| AWP | $ | 196.2 | $ | 300.5 | $ | 199.8 | |||||
| MP | 196.8 | 176.0 | 125.1 | ||||||||
| Corporate and Other / Eliminations | (58.0 | ) | (64.0 | ) | (96.7 | ) | |||||
| Total | $ | 335.0 | $ | 412.5 | $ | 228.2 | |||||
| Depreciation and amortization | |||||||||||
| AWP | $ | 23.0 | $ | 20.9 | $ | 23.2 | |||||
| MP | 7.7 | 7.6 | 8.0 | ||||||||
| Corporate | 15.7 | 16.8 | 21.8 | ||||||||
| Total | $ | 46.4 | $ | 45.3 | $ | 53.0 | |||||
| Capital expenditures | |||||||||||
| AWP | $ | 82.1 | $ | 49.7 | $ | 15.6 | |||||
| MP | 11.5 | 33.1 | 6.7 | ||||||||
| Corporate | 11.9 | 8.2 | 9.4 | ||||||||
| Total | $ | 105.5 | $ | 91.0 | $ | 31.7 | |||||
Sales between segments are generally priced to recover costs plus a reasonable markup for profit, which is eliminated in consolidation.
| December 31, | |||||||
| 2019 | 2018 | ||||||
| Identifiable assets | |||||||
| AWP | $ | 1,814.4 | $ | 1,983.5 | |||
| MP | 1,172.1 | 1,160.1 | |||||
Corporate and Other / Eliminations (1) | 199.3 | (185.6 | ) | ||||
Assets held for sale (2) | 9.8 | 527.9 | |||||
| Total | $ | 3,195.6 | $ | 3,485.9 | |||
| December 31, | |||||||||||
| (in millions) | 2021 | 2020 | |||||||||
| Identifiable assets | |||||||||||
AWP(1) | $ | 1,870.8 | $ | 1,541.0 | |||||||
| MP | 1,648.0 | 1,596.3 | |||||||||
Corporate and Other / Eliminations (2) | (655.3) | (111.8) | |||||||||
| Assets held for sale | — | 6.3 | |||||||||
| Total | $ | 2,863.5 | $ | 3,031.8 | |||||||
(1) Increase primarily due to cash from the sales of Demaghigher trade receivable and ASV Holdings, Inc. shares, Section 301 tariff receivables and recognition of ROU assets.inventory balances.
(2) Decrease in assets from the sale of Demag. See Note D - “Discontinued OperationsChange primarily due to lower cash and Assetsfinance receivable balances and Liabilities Held For Sale”.higher intercompany eliminations.
| December 31, | |||||||
| 2019 | 2018 | ||||||
| Long-lived Assets | |||||||
| United States | $ | 246.8 | $ | 193.1 | |||
| United Kingdom | 69.0 | 61.4 | |||||
| Germany | 11.0 | 10.7 | |||||
| Other European countries | 21.6 | 18.6 | |||||
| All other | 41.0 | 33.5 | |||||
| Total | $ | 389.4 | $ | 317.3 | |||
Long-lived assets consist of net fixed assets, which can be attributed to the specific geographic regions.regions (in millions):
| December 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Long-lived Assets | |||||||||||
| United States | $ | 218.0 | $ | 237.4 | |||||||
| United Kingdom | 76.4 | 74.5 | |||||||||
| China | 55.8 | 39.5 | |||||||||
| Other European countries | 38.9 | 36.2 | |||||||||
| All other | 40.5 | 19.0 | |||||||||
| Total | $ | 429.6 | $ | 406.6 | |||||||
F-17
Geographic net sales information is presented below (in millions):
| Year Ended December 31, 2019 | |||||||||||||||
| AWP | MP | Corporate and Other / Eliminations | Total | ||||||||||||
| Net sales by region | |||||||||||||||
| North America | $ | 1,801.8 | $ | 535.2 | $ | 146.9 | $ | 2,483.9 | |||||||
| Western Europe | 431.1 | 418.0 | 96.8 | 945.9 | |||||||||||
| Asia-Pacific | 325.1 | 288.5 | 15.0 | 628.6 | |||||||||||
Rest of World (1) | 168.6 | 129.7 | (3.6 | ) | 294.7 | ||||||||||
Total (2) | $ | 2,726.6 | $ | 1,371.4 | $ | 255.1 | $ | 4,353.1 | |||||||
| Year Ended December 31, 2021 | |||||||||||||||||||||||||||||
| AWP | MP | Corporate and Other / Eliminations | Total | ||||||||||||||||||||||||||
| Net sales by region | |||||||||||||||||||||||||||||
| North America | $ | 1,415.8 | $ | 667.4 | $ | 26.3 | $ | 2,109.5 | |||||||||||||||||||||
| Western Europe | 346.7 | 515.6 | 0.5 | 862.8 | |||||||||||||||||||||||||
| Asia-Pacific | 310.3 | 349.3 | 3.1 | 662.7 | |||||||||||||||||||||||||
Rest of World (1) | 106.0 | 159.5 | (13.7) | 251.8 | |||||||||||||||||||||||||
Total (2) | $ | 2,178.8 | $ | 1,691.8 | $ | 16.2 | $ | 3,886.8 | |||||||||||||||||||||
(1) Includes intercompany sales and eliminations.
(2) Total sales include $1.9 billion attributable to the U.S., the Company’s country of domicile.
| Year Ended December 31, 2020 | |||||||||||||||||||||||||||||
| AWP | MP | Corporate and Other / Eliminations | Total | ||||||||||||||||||||||||||
| Net sales by region | |||||||||||||||||||||||||||||
| North America | $ | 1,185.2 | $ | 497.7 | $ | 62.5 | $ | 1,745.4 | |||||||||||||||||||||
| Western Europe | 230.7 | 379.0 | 0.3 | 610.0 | |||||||||||||||||||||||||
| Asia-Pacific | 271.6 | 256.0 | 2.6 | 530.2 | |||||||||||||||||||||||||
Rest of World (1) | 95.4 | 124.1 | (28.7) | 190.8 | |||||||||||||||||||||||||
Total (2) | $ | 1,782.9 | $ | 1,256.8 | $ | 36.7 | $ | 3,076.4 | |||||||||||||||||||||
(1)Includes intercompany sales and eliminations.
(2) Total sales include $1.6 billion attributable to the U.S., the Company’s country of domicile.
| Year Ended December 31, 2019 | |||||||||||||||||||||||||||||
| AWP | MP | Corporate and Other / Eliminations | Total | ||||||||||||||||||||||||||
| Net sales by region | |||||||||||||||||||||||||||||
| North America | $ | 1,801.8 | $ | 605.6 | $ | 76.5 | $ | 2,483.9 | |||||||||||||||||||||
| Western Europe | 431.1 | 514.2 | 0.6 | 945.9 | |||||||||||||||||||||||||
| Asia-Pacific | 325.1 | 301.4 | 2.1 | 628.6 | |||||||||||||||||||||||||
Rest of World (1) | 168.6 | 181.4 | (55.3) | 294.7 | |||||||||||||||||||||||||
Total (2) | $ | 2,726.6 | $ | 1,602.6 | $ | 23.9 | $ | 4,353.1 | |||||||||||||||||||||
(1) Includes intercompany sales and eliminations.
(2) Total sales include $2.3 billion attributable to the U.S., the Company’s country of domicile.
| Year Ended December 31, 2018 | |||||||||||||||
| AWP | MP | Corporate and Other / Eliminations | Total | ||||||||||||
| Net sales by region | |||||||||||||||
| North America | $ | 1,985.2 | $ | 518.5 | $ | 135.8 | $ | 2,639.5 | |||||||
| Western Europe | 530.5 | 382.0 | 75.4 | 987.9 | |||||||||||
| Asia-Pacific | 274.8 | 269.6 | 30.8 | 575.2 | |||||||||||
Rest of World (1) | 159.9 | 152.5 | 2.2 | 314.6 | |||||||||||
Total (2) | $ | 2,950.4 | $ | 1,322.6 | $ | 244.2 | $ | 4,517.2 | |||||||
| Year Ended December 31, 2017 | |||||||||||||||
| AWP | MP | Corporate and Other / Eliminations | Total | ||||||||||||
| Net sales by region | |||||||||||||||
| North America | $ | 1,570.7 | $ | 507.1 | $ | 143.9 | $ | 2,221.7 | |||||||
| Western Europe | 404.2 | 282.7 | 92.1 | 779.0 | |||||||||||
| Asia-Pacific | 265.0 | 204.8 | 37.2 | 507.0 | |||||||||||
Rest of World (1) | 193.3 | 125.2 | (32.5 | ) | 286.0 | ||||||||||
Total (2) | $ | 2,433.2 | $ | 1,119.8 | $ | 240.7 | $ | 3,793.7 | |||||||
The Company attributes sales to unaffiliated customers in different geographical areas based on the location of the customer.
Product type net sales information is presented below (in millions):
| Year Ended December 31, 2021 | |||||||||||||||||||||||||||||
| AWP | MP | Corporate and Other / Eliminations | Total | ||||||||||||||||||||||||||
| Net sales by product type | |||||||||||||||||||||||||||||
| Aerial Work Platforms | $ | 1,611.8 | $ | — | $ | 1.6 | $ | 1,613.4 | |||||||||||||||||||||
| Materials Processing Equipment | — | 995.9 | 1.3 | 997.2 | |||||||||||||||||||||||||
| Specialty Equipment | — | 693.5 | 2.2 | 695.7 | |||||||||||||||||||||||||
| Utility Equipment | 380.6 | — | 0.6 | 381.2 | |||||||||||||||||||||||||
Other (1) | 186.4 | 2.4 | 10.5 | 199.3 | |||||||||||||||||||||||||
| Total | $ | 2,178.8 | $ | 1,691.8 | $ | 16.2 | $ | 3,886.8 | |||||||||||||||||||||
| Year Ended December 31, 2019 | |||||||||||||||
| AWP | MP | Corporate and Other / Eliminations | Total | ||||||||||||
| Net sales by product type | |||||||||||||||
| Aerial Work Platforms | $ | 1,912.1 | $ | — | $ | 2.8 | $ | 1,914.9 | |||||||
| Materials Processing Equipment | — | 895.4 | — | 895.4 | |||||||||||
| Specialty Equipment | — | 473.3 | — | 473.3 | |||||||||||
Other (1) | 814.5 | 2.7 | 252.3 | 1,069.5 | |||||||||||
| Total | $ | 2,726.6 | $ | 1,371.4 | $ | 255.1 | $ | 4,353.1 | |||||||
(1)Includes other product types, intercompany sales and eliminations.
| Year Ended December 31, 2018 | |||||||||||||||
| AWP | MP | Corporate and Other / Eliminations | Total | ||||||||||||
| Net sales by product type | |||||||||||||||
| Aerial Work Platforms | $ | 2,128.6 | $ | — | $ | 3.5 | $ | 2,132.1 | |||||||
| Materials Processing Equipment | — | 877.0 | — | 877.0 | |||||||||||
| Specialty Equipment | — | 421.1 | — | 421.1 | |||||||||||
Other (1) | 821.8 | 24.5 | 240.7 | 1,087.0 | |||||||||||
| Total | $ | 2,950.4 | $ | 1,322.6 | $ | 244.2 | $ | 4,517.2 | |||||||
| Year Ended December 31, 2020 | |||||||||||||||||||||||||||||
| AWP | MP | Corporate and Other / Eliminations | Total | ||||||||||||||||||||||||||
| Net sales by product type | |||||||||||||||||||||||||||||
| Aerial Work Platforms | $ | 1,234.8 | $ | — | $ | 0.9 | $ | 1,235.7 | |||||||||||||||||||||
| Materials Processing Equipment | — | 760.5 | — | 760.5 | |||||||||||||||||||||||||
| Specialty Equipment | — | 493.6 | 1.4 | 495.0 | |||||||||||||||||||||||||
| Utility Equipment | 352.4 | — | — | 352.4 | |||||||||||||||||||||||||
Other (1) | 195.7 | 2.7 | 34.4 | 232.8 | |||||||||||||||||||||||||
| Total | $ | 1,782.9 | $ | 1,256.8 | $ | 36.7 | $ | 3,076.4 | |||||||||||||||||||||
(1)Includes other product types, intercompany sales and eliminations.
| Year Ended December 31, 2017 | Year Ended December 31, 2019 | |||||||||||||||||||||||||||||||||||||||||||
| AWP | MP | Corporate and Other / Eliminations | Total | AWP | MP | Corporate and Other / Eliminations | Total | |||||||||||||||||||||||||||||||||||||
| Net sales by product type | Net sales by product type | |||||||||||||||||||||||||||||||||||||||||||
| Aerial Work Platforms | $ | 1,718.0 | $ | — | $ | 2.7 | $ | 1,720.7 | Aerial Work Platforms | $ | 1,912.1 | $ | — | $ | 2.8 | $ | 1,914.9 | |||||||||||||||||||||||||||
| Materials Processing Equipment | — | 726.9 | 0.6 | 727.5 | Materials Processing Equipment | — | 895.4 | — | 895.4 | |||||||||||||||||||||||||||||||||||
| Specialty Equipment | — | 376.3 | — | 376.3 | Specialty Equipment | — | 699.9 | 5.3 | 705.2 | |||||||||||||||||||||||||||||||||||
| Utility Equipment | Utility Equipment | 419.2 | — | — | 419.2 | |||||||||||||||||||||||||||||||||||||||
Other (1) | 715.2 | 16.6 | 204.1 | 935.9 | Other (1) | 395.3 | 7.3 | 15.8 | 418.4 | |||||||||||||||||||||||||||||||||||
Compact Construction Equipment (2) | — | — | 33.3 | 33.3 | ||||||||||||||||||||||||||||||||||||||||
| Total | $ | 2,433.2 | $ | 1,119.8 | $ | 240.7 | $ | 3,793.7 | Total | $ | 2,726.6 | $ | 1,602.6 | $ | 23.9 | $ | 4,353.1 | |||||||||||||||||||||||||||
(1)Includes other product types, intercompany sales and eliminations.
NOTE C – INCOME TAXES
The components of income (loss) from continuing operations before income taxes are as follows (in millions):
| Year Ended December 31, | ||||||||||||||||||||
| 2021 | 2020 | 2019 | ||||||||||||||||||
| United States | $ | (16.7) | $ | (148.8) | $ | (32.4) | ||||||||||||||
| Foreign | 280.5 | 159.8 | 279.9 | |||||||||||||||||
| Income (loss) from continuing operations before income taxes | $ | 263.8 | $ | 11.0 | $ | 247.5 | ||||||||||||||
| Year Ended December 31, | ||||||||||||
| 2019 | 2018 | 2017 | ||||||||||
| United States | $ | (32.4 | ) | $ | (9.5 | ) | $ | (13.4 | ) | |||
| Foreign | 279.9 | 296.6 | 176.8 | |||||||||
| Income (loss) from continuing operations before income taxes | $ | 247.5 | $ | 287.1 | $ | 163.4 | ||||||
The Company recorded Income (loss) from discontinued operations and Gain (loss) on disposition of discontinued operations before income taxes of $(175.8)$2.6 million, $(136.3)$(28.9) million and $40.6$(175.8) million for the years ended December 31, 2019, 20182021, 2020 and 2017,2019, respectively.
F-19
The major components of the Company’s provision for (benefit from) income taxes on continuing operations before income taxes are summarized below (in millions):
| Year Ended December 31, | ||||||||||||||||||||
| 2021 | 2020 | 2019 | ||||||||||||||||||
| Current: | ||||||||||||||||||||
| Federal | $ | 6.6 | $ | (27.1) | $ | 14.7 | ||||||||||||||
| State | 1.8 | 2.3 | 1.2 | |||||||||||||||||
| Foreign | 36.7 | 21.3 | 38.1 | |||||||||||||||||
| Current income tax provision (benefit) | 45.1 | (3.5) | 54.0 | |||||||||||||||||
| Deferred: | ||||||||||||||||||||
| Federal | (3.8) | 1.2 | (14.9) | |||||||||||||||||
| State | 1.5 | 4.3 | (3.3) | |||||||||||||||||
| Foreign | 3.5 | — | 2.0 | |||||||||||||||||
| Deferred income tax (benefit) provision | 1.2 | 5.5 | (16.2) | |||||||||||||||||
| Provision for (benefit from) income taxes | $ | 46.3 | $ | 2.0 | $ | 37.8 | ||||||||||||||
| Year Ended December 31, | ||||||||||||
| 2019 | 2018 | 2017 | ||||||||||
| Current: | ||||||||||||
| Federal | $ | 14.7 | $ | 21.4 | $ | (10.1 | ) | |||||
| State | 1.2 | 1.8 | 2.2 | |||||||||
| Foreign | 38.1 | 31.2 | 22.7 | |||||||||
| Current income tax provision (benefit) | 54.0 | 54.4 | 14.8 | |||||||||
| Deferred: | ||||||||||||
| Federal | (14.9 | ) | (14.4 | ) | 36.6 | |||||||
| State | (3.3 | ) | 1.2 | (0.6 | ) | |||||||
| Foreign | 2.0 | 4.2 | 1.6 | |||||||||
| Deferred income tax (benefit) provision | (16.2 | ) | (9.0 | ) | 37.6 | |||||||
| Provision for (benefit from) income taxes | $ | 37.8 | $ | 45.4 | $ | 52.4 | ||||||
The elimination of tax from intercompany transactions is included in current tax expense. The Company recorded Provision for (benefit from) income taxes of $(20.5)$(0.8) million, $(8.3)$(9.3) million and $24.3$(20.5) million from discontinued operations and on disposition of discontinued operations for the years ended December 31, 2019, 20182021, 2020 and 2017,2019, respectively.
In January 2018, the FASB released guidance on the accounting for tax on Global Intangible Low-taxed Income (“GILTI”). The guidance indicates that either accounting for deferred taxes related to GILTI or treating any taxes on GILTI as period costs are both acceptable accounting policy elections. Terex elected to treat taxes on GILTI inclusions as period costs.
Deferred tax assets and liabilities result from differences in the bases of assets and liabilities for tax and financial reporting purposes. The tax effects of the basis differences and loss carry forwards as of December 31, 20192021 and 20182020 for continuing operations are summarized below for major balance sheet captions (in millions):
| 2021 | 2020 | |||||||||||||
| Property, plant and equipment | $ | (16.1) | $ | (18.1) | ||||||||||
| Intangibles | (6.8) | (6.1) | ||||||||||||
| Inventories | 6.7 | 6.1 | ||||||||||||
| Accrued warranties and product liability | 10.8 | 12.5 | ||||||||||||
| Loss carry forwards | 184.4 | 204.4 | ||||||||||||
| Retirement plans | 11.3 | 14.0 | ||||||||||||
| Accrued compensation and benefits | 15.8 | 16.8 | ||||||||||||
| Operating lease ROU asset | (23.5) | (26.1) | ||||||||||||
| Operating lease liability | 23.8 | 27.0 | ||||||||||||
| Other | 24.1 | 18.5 | ||||||||||||
| Deferred tax assets valuation allowance | (100.0) | (112.1) | ||||||||||||
| Net deferred tax assets (liabilities) | $ | 130.5 | $ | 136.9 | ||||||||||
| 2019 | 2018 | |||||||
| Property, plant and equipment | $ | (14.5 | ) | $ | (10.1 | ) | ||
| Intangibles | (4.7 | ) | (5.0 | ) | ||||
| Inventories | 6.4 | 6.4 | ||||||
| Accrued warranties and product liability | 9.8 | 8.3 | ||||||
| Loss carry forwards | 198.5 | 195.5 | ||||||
| Retirement plans | 13.3 | 12.1 | ||||||
| Accrued compensation and benefits | 22.0 | 18.8 | ||||||
| Operating lease ROU asset | (30.9 | ) | — | |||||
| Operating lease liability | 32.2 | — | ||||||
| Other | 9.2 | 11.1 | ||||||
| Deferred tax assets valuation allowance | (107.0 | ) | (114.3 | ) | ||||
| Net deferred tax assets (liabilities) | $ | 134.3 | $ | 122.8 | ||||
Deferred tax assets were $233.0 million before valuation allowances of $100.0 million, resulting in $133.0 million of net deferred tax assets which are partially offset by deferred tax liabilities of $2.5 million at December 31, 2021. Deferred tax assets for continuing operations were $243.6$251.6 million ($0.30.1 million for discontinued operations) before valuation allowances of $107.0$112.1 million, resulting in $139.5 million of net deferred tax assets which are partially offset by deferred tax liabilities for continuing operations of $2.3$2.6 million at December 31, 2019. Deferred tax assets for continuing operations were $239.0 million ($24.1 million for discontinued operations) before valuation allowances of $114.3 million, partially offset by deferred tax liabilities for continuing operations of $1.9 million at December 31, 2018.2020. There were no deferred tax liabilities for discontinued operations at December 31, 20192021 and 2018.2020.
F-20
The Company evaluates the net realizable value of its deferred tax assets each reporting period. The Company must consider all objective evidence, both positive and negative, in evaluating the future realization of its deferred tax assets, including tax loss carry forwards. HistoricalAvailable evidence, including historical information is supplemented by currently availableobtainable information about future tax years. Realization of deferred tax assets requires sufficient taxable income of the appropriate character. To the extent estimates of future taxable income decrease or do not materialize, additional valuation allowances may be required. The Company records a valuation allowance for each deferred tax asset for which realization is not assessed as more likely than not. The valuation allowance for deferred tax assets as of December 31, 20192021 and 20182020 was $107.0$100.0 million and $114.3$112.1 million, respectively. The net change in the total valuation allowance for the years ended December 31, 20192021 and 20182020 was a decrease of $7.3$12.1 million and $20.3an increase of $5.1 million, respectively.
The Company’s Provision for (benefit from) income taxes is different from the amount that would be provided by applying the statutory federal income tax rate to the Company’s Income (loss) from continuing operations before income taxes. The reasons for the difference are summarized as follows (in millions):
| Year Ended December 31, | |||||||||||||||||||||||
| 2021 | 2020 | 2019 | |||||||||||||||||||||
| Tax at statutory federal income tax rate | $ | 55.4 | $ | 2.3 | $ | 51.9 | |||||||||||||||||
| State taxes | 2.7 | 5.2 | (1.7) | ||||||||||||||||||||
| Change in valuation allowance | (9.0) | — | (4.9) | ||||||||||||||||||||
| Foreign tax differential on income/losses of foreign subsidiaries | (12.0) | (13.0) | (14.5) | ||||||||||||||||||||
| U.S. tax on multi-national operations | 8.1 | 17.6 | 7.2 | ||||||||||||||||||||
| Change in foreign tax rates | (0.6) | 0.7 | 3.7 | ||||||||||||||||||||
| U.S. tax legislation | — | (10.9) | — | ||||||||||||||||||||
| Research and development | (0.8) | (1.2) | (2.0) | ||||||||||||||||||||
| Provision to return adjustments | 0.5 | (1.7) | (2.4) | ||||||||||||||||||||
| Compensation | 1.8 | 3.1 | 1.1 | ||||||||||||||||||||
| Other | 0.2 | (0.1) | (0.6) | ||||||||||||||||||||
| Provision for (benefit from) income taxes | $ | 46.3 | $ | 2.0 | $ | 37.8 | |||||||||||||||||
| Year Ended December 31, | |||||||||||||
| 2019 | 2018 | 2017 | |||||||||||
| Tax at statutory federal income tax rate | $ | 51.9 | $ | 60.3 | $ | 57.2 | |||||||
| State taxes | (1.7 | ) | 2.3 | 1.0 | |||||||||
| Change in valuation allowance | (4.9 | ) | (13.9 | ) | (2.1 | ) | |||||||
| Foreign tax differential on income/losses of foreign subsidiaries | (14.5 | ) | (18.0 | ) | (33.7 | ) | |||||||
| U.S. tax on multi-national operations | 7.2 | 16.3 | 7.7 | ||||||||||
| Change in foreign tax rates | 3.7 | 0.7 | — | ||||||||||
| Tax effect of dispositions | — | — | (27.2 | ) | |||||||||
| 2017 Federal Tax Act | — | 5.5 | 46.9 | (1) | |||||||||
| Expired stock awards | — | — | 2.0 | ||||||||||
| Pension plan settlement | — | (7.1 | ) | — | |||||||||
| Other | (3.9 | ) | (0.7 | ) | 0.6 | ||||||||
| Provision for (benefit from) income taxes | $ | 37.8 | $ | 45.4 | $ | 52.4 | |||||||
The Company does not provide for foreign income and withholding, U.S. Federal, or state income taxes or tax benefits on the financial reporting basis over the tax basis of its investments in foreign subsidiaries to the extent such amounts are indefinitely reinvested to support operations and continued growth plans outside the U.S. The Company reviews its plan to indefinitely reinvest on a quarterly basis. In making its decision to indefinitely reinvest, the Company evaluates its plans of reinvestment, its ability to control repatriation and to mobilize funds without triggering basis differences, and the profitability of U.S. operations and their cash requirements and the need, if any, to repatriate funds. If the assessment of the Company with respect to earnings of non-U.S. subsidiaries changes, deferred U.S. income taxes for foreign income taxes and foreign withholding, U.S. Federal or state income taxes or tax benefits may have to be accrued.
At December 31, 2019,2021, the Company has various state net operating loss carry forwards available to reduce future state taxable income and income taxes, the majority of which will expire at various dates through 2039.
The Company made total net income tax payments including discontinued operations of $28.4 million, $26.3 million and $46.8 million $52.7 millionin 2021, 2020 and $29.0 million in 2019, 2018 and 2017, respectively. At December 31, 20192021 and 2018,2020, Other current assets included net income tax receivable amounts of $24.3$52.4 million and $13.5$56.2 million, respectively.
F-21
The Company and its subsidiaries conduct business globally and file income tax returns in U.S. federal,Federal, state and foreign jurisdictions, as required. From a tax perspective, major jurisdictions where the Company is often subject to examination by tax authorities include Germany, Italy, the United Kingdom (“U.K.”), China, India and the U.S. Currently, various entities of the Company are under audit in Germany, Italy, India the U.S. and elsewhere. With fewlimited exceptions, the statute of limitations for the Company and most of its subsidiaries has expired for tax years prior to 2011.2016. The Company assesses uncertain tax positions for recognition, measurement and effective settlement. Where the Company has determined that its tax return filing position does not satisfy the more likely than not recognition threshold of ASC 740, “Income Taxes,” it has recorded no tax benefits. Where the Company has determined that its tax return filing positions are more likely than not to be sustained, the Company has measured and recorded the largest amount of tax benefit greater than 50% likely to be realized. The Company recognizes accrued interest and penalties, if any, related to income taxes as (Provision for) benefit from income taxes in its Consolidated Statement of Income (Loss).
The following table summarizes the activity related to the Company’s unrecognized tax benefits (in millions).
| Balance as of January 1, 2019 | $ | 13.5 | |||
| Additions for current year tax positions | — | ||||
| Additions for prior year tax positions | 2.0 | ||||
| Reductions for prior year tax positions | (0.4) | ||||
| Reductions for current year tax positions | — | ||||
| Reductions for expiration of statute of limitations | (0.8) | ||||
| Settlements | — | ||||
| Balance as of December 31, 2019 | 14.3 | ||||
| Additions for current year tax positions | — | ||||
| Additions for prior year tax positions | 9.2 | ||||
| Reductions for prior year tax positions | (3.7) | ||||
| Reductions for current year tax positions | — | ||||
| Reductions for expiration of statute of limitations | — | ||||
| Settlements | (1.3) | ||||
| Balance as of December 31, 2020 | 18.5 | ||||
| Additions for current year tax positions | — | ||||
| Additions for prior year tax positions | 0.6 | ||||
| Reductions for prior year tax positions | (0.1) | ||||
| Reductions for current year tax positions | — | ||||
| Reductions for expiration of statute of limitations | (0.9) | ||||
| Settlements | (15.5) | ||||
| Balance as of December 31, 2021 | $ | 2.6 | |||
| Balance as of January 1, 2017 | $ | 30.6 | |
| Additions for current year tax positions | — | ||
| Additions for prior year tax positions | 11.9 | ||
| Reductions for prior year tax positions | (0.7 | ) | |
| Reductions for current year tax positions | — | ||
| Reductions for expiration of statute of limitations | (1.3 | ) | |
| Settlements | (6.8 | ) | |
| Balance as of December 31, 2017 | 33.7 | ||
| Additions for current year tax positions | — | ||
| Additions for prior year tax positions | 6.1 | ||
| Reductions for prior year tax positions | (14.8 | ) | |
| Reductions for current year tax positions | — | ||
| Reductions for expiration of statute of limitations | (0.8 | ) | |
| Settlements | (10.7 | ) | |
| Balance as of December 31, 2018 | 13.5 | ||
| Additions for current year tax positions | — | ||
| Additions for prior year tax positions | 2.0 | ||
| Reductions for prior year tax positions | (0.4 | ) | |
| Reductions for current year tax positions | — | ||
| Reductions for expiration of statute of limitations | (0.8 | ) | |
| Settlements | — | ||
| Balance as of December 31, 2019 | $ | 14.3 | |
The Company evaluates each reporting period whether it is reasonably possible material changes to its uncertain tax position liability could occur in the next 12 months. Changes may occur as a result of uncertain tax positions being considered effectively settled, re-measured, paid, acquired or divested, as a result of a change in accounting rules, tax law or judicial decision, or due to expiration of the relevant statute of limitations. It is not possible to predict which uncertain tax positions, if any, may be challenged by tax authorities. Timing and impact of income tax audits and their resolution is uncertain. New facts, laws, pronouncements and judicial decisions can change assessments concerning technical merit and measurement. The amounts of or periods in which changes to reserves for uncertain tax positions will occur is difficult to predict. The Company believes it is reasonably possibledoes not expect the amount of unrecognized tax benefits disclosed as of December 31, 2019 may decrease approximately $6 million2021 will change materially in the year ending December 31, 2020. Such possible decrease relates to anticipated tax audit settlements.2022.
As of December 31, 20192021 and 2018,2020, the Company had $14.3$2.6 million and $13.5$18.5 million, respectively, of unrecognized tax benefits. Of the $14.3$2.6 million at December 31, 2019, $4.02021, $2.0 million, if recognized, would affect the effective tax rate. AsPotential interest and penalties were a receivable of $0.2 million and a liability of $1.4 million as of December 31, 20192021 and 2018, the liability for potential interest and penalties was $1.2 million and $1.0 million,2020, respectively. During the years ended December 31, 20192021 and 2018,2020, the Company recognized total tax (benefit) expense of $0.2$(1.5) million and tax benefit of $6.6$0.2 million for interest and penalties, respectively.
F-22
NOTE D – ACQUISITIONS AND DISCONTINUED OPERATIONS AND ASSETS AND LIABILITIES HELD FOR SALE
On July 6, 2021, the Company acquired all of the outstanding shares of Murray Design & Engineering, Ltd (“MDS”), a manufacturer of heavy duty aggregate and recycling trommels, apron feeders and conveyor systems, based in the Republic of Ireland. Total cash consideration transferred was approximately $19 million. The transaction was recorded as a business combination using the acquisition method which requires measurement of identifiable assets acquired and liabilities assumed at their estimated fair values as of the acquisition date. Goodwill was calculated as the excess of the aggregate of the fair value of the consideration transferred over the fair value of the net assets recognized. See Note H – “Goodwill and Intangible Assets, Net” for additional information regarding goodwill recognized as a result of the acquisition. MDS’s results of operations are consolidated within the MP segment in the consolidated financial statements from the date of acquisition.
On May 25, 2021, the Company acquired assets to facilitate manufacturing of certain MP products in China. Total cash consideration transferred was approximately $17 million. The transaction was recorded as an asset acquisition at cost, with the consideration allocated to individual assets acquired.
Dispositions
On November 30, 2021, the Company sold its utility hot lines tools business located in South America, which had been recorded as assets and liabilities held for sale prior to its disposition. The Company received consideration of $5.8 million from the sale at fair value and recognized a gain of $6.4 million included in SG&A in the Consolidated Statement of Income (Loss). Prior to disposition, the results of operations for the hot lines tools business, including any impairment reserves taken, were consolidated within the AWP segment in the consolidated financial statements.
On July 31, 2019, the Company completed the disposition of Demag® mobile cranes business to Tadano. The Company received approximately $215 million of consideration, as adjusted for estimated amounts of cash, debt, working capitalTadano Ltd. and certain other items. The final consideration will be adjusted based on the actual amounts of cash, debt and working capital. Products divested are Demag® all terrain cranes and large lattice boom crawler cranes. During the year ended December 31, 2019, the Company recognized a charge of approximately $82 million, net of tax, to write-down Demag to its fair value, less costs to sell. During the year ended December 31, 2019, the Company recorded a loss on disposition of discontinued operations, net of tax, of $11.6 million.subsidiaries. During 2019, the Company also exited North American mobile crane product lines manufactured in its Oklahoma City facility.
The Company’s actions to sell Demag and cease manufacturing of mobile crane product lines in its Oklahoma City facility representrepresented a significant strategic shift in its business away from mobile cranes as these businesses constituted a significant part of its operations and financial results. The Company believes these actions were necessary as it continues to execute its Focus, Simplify and Execute to Win strategy.
| Year ended December 31, | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Cranes | Cranes | Cranes | |||||||||
| Net sales | $ | 327.2 | $ | 607.8 | $ | 569.7 | |||||
| Cost of sales | (335.2 | ) | (602.9 | ) | (521.0 | ) | |||||
| Selling, general and administrative expenses | (75.6 | ) | (117.5 | ) | (97.5 | ) | |||||
| Impairment of Mobile Cranes disposal group | (82.1 | ) | — | — | |||||||
| Asset impairments | — | (6.6 | ) | 0.5 | |||||||
| Other income (expense) | (4.5 | ) | (19.1 | ) | (3.1 | ) | |||||
| Income (loss) from discontinued operations before income taxes | (170.2 | ) | (138.3 | ) | (51.4 | ) | |||||
| (Provision for) benefit from income taxes | 14.8 | 7.9 | 0.4 | ||||||||
| Gain (loss) on disposition of discontinued operations – net of tax | — | — | 1.4 | ||||||||
| Income (loss) from discontinued operations – net of tax | $ | (155.4 | ) | $ | (130.4 | ) | $ | (49.6 | ) | ||
F-23
The Company is actively seeking a buyer for its utility hot lines tools business located in South America and, accordingly, assets and liabilities have been reported as held for sale. Non-cash impairment chargescertain operations, formerly part of $1.8 million and $6.7 million, were recorded to adjust net asset value to estimated fair value in 2018 and 2017, respectively.
periods presented. The following table provides the amounts of assetsinformation was derived from historical financial information and liabilities held for sale in the Consolidated Balance Sheethas been segregated from continuing operations (in millions):
| Year ended December 31, | |||||||||||||||||||||||||||||
| 2020 | 2019 | ||||||||||||||||||||||||||||
| Net sales | $ | 6.0 | $ | 327.2 | |||||||||||||||||||||||||
| Cost of sales | (5.8) | (335.2) | |||||||||||||||||||||||||||
| Selling, general and administrative expenses | (0.9) | (75.6) | |||||||||||||||||||||||||||
| Impairment of mobile cranes disposal group | — | (82.1) | |||||||||||||||||||||||||||
| Asset impairments | (0.1) | — | |||||||||||||||||||||||||||
| Other income (expense) | — | (4.5) | |||||||||||||||||||||||||||
| Income (loss) from discontinued operations before income taxes | (0.8) | (170.2) | |||||||||||||||||||||||||||
| (Provision for) benefit from income taxes | 0.4 | 14.8 | |||||||||||||||||||||||||||
| Income (loss) from discontinued operations – net of tax | $ | (0.4) | $ | (155.4) | |||||||||||||||||||||||||
| December 31, 2019 | December 31, 2018 | ||||||
| Assets | |||||||
| Cash and cash equivalents | $ | 5.0 | $ | 32.6 | |||
| Trade receivables – net | 3.5 | 126.9 | |||||
| Inventories | 5.3 | 295.5 | |||||
| Prepaid and other current assets | 0.2 | 9.4 | |||||
| Impairment reserve | (4.8 | ) | (4.9 | ) | |||
| Current assets held for sale | $ | 9.2 | $ | 459.5 | |||
| Property, plant and equipment – net | $ | 0.6 | $ | 28.8 | |||
| Intangible assets – net | 2.4 | 4.3 | |||||
| Impairment reserve | (2.8 | ) | (2.9 | ) | |||
| Other assets | 0.4 | 38.2 | |||||
| Non-current assets held for sale | $ | 0.6 | $ | 68.4 | |||
| Liabilities | |||||||
| Current portion of long-term debt | $ | — | $ | 0.6 | |||
| Trade accounts payable | 4.6 | 101.6 | |||||
| Accruals and other current liabilities | 3.8 | 77.3 | |||||
| Current liabilities held for sale | $ | 8.4 | $ | 179.5 | |||
| Long-term debt, less current portion | $ | — | $ | 4.1 | |||
| Retirement plans | — | 71.8 | |||||
| Other non-current liabilities | 1.2 | 10.6 | |||||
| Non-current liabilities held for sale | $ | 1.2 | $ | 86.5 | |||
| December 31, 2019 | December 31, 2018 | December 31, 2017 | |||||||||
| Cash and cash equivalents: | |||||||||||
| Cash and cash equivalents - continuing operations | $ | 535.1 | $ | 339.5 | $ | 571.6 | |||||
| Cash and cash equivalents - held for sale | 5.0 | 32.6 | 58.5 | ||||||||
| Total cash and cash equivalents | $ | 540.1 | $ | 372.1 | $ | 630.1 | |||||
The following table provides supplemental cash flow information related to discontinued operations (in millions):
| Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | ||||||||||||||||
| Non-cash operating items: | |||||||||||||||||
| Depreciation and amortization | $ | — | $ | 3.3 | |||||||||||||
| Deferred taxes | $ | 0.1 | $ | (1.4) | |||||||||||||
| Impairments | $ | 0.1 | $ | 82.1 | |||||||||||||
| Investing activities: | |||||||||||||||||
| Capital expenditures | $ | — | $ | (3.4) | |||||||||||||
| Year Ended December 31, | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Non-cash operating items: | |||||||||||
| Depreciation and amortization | $ | 3.3 | $ | 14.4 | $ | 13.1 | |||||
| Gain (loss) on disposition of discontinued operations | $ | — | $ | — | $ | (1.4 | ) | ||||
| Deferred taxes | $ | (1.4 | ) | $ | (0.2 | ) | $ | (0.1 | ) | ||
| Impairments | $ | 82.1 | $ | 6.6 | $ | (0.5 | ) | ||||
| Investing activities: | |||||||||||
| Capital expenditures | $ | (3.4 | ) | $ | (12.8 | ) | $ | (13.4 | ) | ||
Gain (Loss) on Disposition of Discontinued Operations - net of tax (in millions):
| Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2021 | 2020 | 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cranes | MHPS | Total | Cranes | MHPS | Total | Cranes | MHPS | Other | Total | |||||||||||||||||||||||||||||||||||||||||||||||
| Gain (loss) on disposition of discontinued operations | $ | 1.4 | $ | 1.2 | $ | 2.6 | $ | (27.7) | $ | (0.4) | $ | (28.1) | $ | (1.0) | $ | (4.6) | $ | — | $ | (5.6) | ||||||||||||||||||||||||||||||||||||
| (Provision for) benefit from income taxes | 0.1 | 0.7 | 0.8 | 8.8 | 0.1 | 8.9 | 2.2 | 3.4 | 0.1 | 5.7 | ||||||||||||||||||||||||||||||||||||||||||||||
| Gain (loss) on disposition of discontinued operations – net of tax | $ | 1.5 | $ | 1.9 | $ | 3.4 | $ | (18.9) | $ | (0.3) | $ | (19.2) | $ | 1.2 | $ | (1.2) | $ | 0.1 | $ | 0.1 | ||||||||||||||||||||||||||||||||||||
| Year Ended December 31, | |||||||||||||||||||||||||||||||||||
| 2019 | 2018 | 2017 | |||||||||||||||||||||||||||||||||
| Cranes | MHPS | Other | Total | MHPS | Atlas | Other | Total | MHPS | Atlas | Total | |||||||||||||||||||||||||
| Gain (loss) on disposition of discontinued operations | $ | (1.0 | ) | $ | (4.6 | ) | $ | — | $ | (5.6 | ) | $ | (1.2 | ) | $ | 3.2 | $ | — | $ | 2.0 | $ | 88.5 | $ | 3.5 | $ | 92.0 | |||||||||
| (Provision for) benefit from income taxes | 2.2 | 3.4 | 0.1 | 5.7 | (1.9 | ) | (0.5 | ) | 2.8 | 0.4 | (24.2 | ) | (0.5 | ) | (24.7 | ) | |||||||||||||||||||
| Gain (loss) on disposition of discontinued operations – net of tax | $ | 1.2 | $ | (1.2 | ) | $ | 0.1 | $ | 0.1 | $ | (3.1 | ) | $ | 2.7 | $ | 2.8 | $ | 2.4 | $ | 64.3 | $ | 3.0 | $ | 67.3 | |||||||||||
F-24
NOTE E – EARNINGS PER SHARE
| For the year ended December 31, | |||||||||||||||||
| (in millions, except per share data) | |||||||||||||||||
| 2021 | 2020 | 2019 | |||||||||||||||
| Income (loss) from continuing operations | $ | 217.5 | $ | 9.0 | $ | 209.7 | |||||||||||
| Income (loss) from discontinued operations – net of tax | — | (0.4) | (155.4) | ||||||||||||||
| Gain (loss) on disposition of discontinued operations – net of tax | 3.4 | (19.2) | 0.1 | ||||||||||||||
| Net income (loss) | $ | 220.9 | $ | (10.6) | $ | 54.4 | |||||||||||
| Basic shares: | |||||||||||||||||
| Weighted average shares outstanding | 69.7 | 69.6 | 71.1 | ||||||||||||||
| Earnings (loss) per share – basic: | |||||||||||||||||
| Income (loss) from continuing operations | $ | 3.12 | $ | 0.13 | $ | 2.95 | |||||||||||
| Income (loss) from discontinued operations – net of tax | — | (0.01) | (2.18) | ||||||||||||||
| Gain (loss) on disposition of discontinued operations – net of tax | 0.05 | (0.27) | — | ||||||||||||||
| Net income (loss) | $ | 3.17 | $ | (0.15) | $ | 0.77 | |||||||||||
| Diluted shares: | |||||||||||||||||
| Weighted average shares outstanding – basic | 69.7 | 69.6 | 71.1 | ||||||||||||||
| Effect of dilutive securities: | |||||||||||||||||
| Restricted stock awards | 1.2 | 0.5 | 0.7 | ||||||||||||||
| Diluted weighted average shares outstanding | 70.9 | 70.1 | 71.8 | ||||||||||||||
| Earnings (loss) per share – diluted: | |||||||||||||||||
| Income (loss) from continuing operations | $ | 3.07 | $ | 0.13 | $ | 2.92 | |||||||||||
| Income (loss) from discontinued operations – net of tax | — | (0.01) | (2.16) | ||||||||||||||
| Gain (loss) on disposition of discontinued operations – net of tax | 0.05 | (0.27) | — | ||||||||||||||
| Net income (loss) | $ | 3.12 | $ | (0.15) | $ | 0.76 | |||||||||||
| For the year ended December 31, | |||||||||||
| (in millions, except per share data) | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Income (loss) from continuing operations | $ | 209.7 | $ | 241.7 | $ | 111.0 | |||||
| Income (loss) from discontinued operations-net of tax | (155.4 | ) | (130.4 | ) | (49.6 | ) | |||||
| Gain (loss) on disposition of discontinued operations-net of tax | 0.1 | 2.4 | 67.3 | ||||||||
| Net income (loss) | $ | 54.4 | $ | 113.7 | $ | 128.7 | |||||
| Basic shares: | |||||||||||
| Weighted average shares outstanding | 71.1 | 75.4 | 92.8 | ||||||||
| Earnings (loss) per share - basic: | |||||||||||
| Income (loss) from continuing operations | $ | 2.95 | $ | 3.21 | $ | 1.20 | |||||
| Income (loss) from discontinued operations-net of tax | (2.18 | ) | (1.73 | ) | (0.53 | ) | |||||
| Gain (loss) on disposition of discontinued operations-net of tax | — | 0.03 | 0.72 | ||||||||
| Net income (loss) | $ | 0.77 | $ | 1.51 | $ | 1.39 | |||||
| Diluted shares: | |||||||||||
| Weighted average shares outstanding - basic | 71.1 | 75.4 | 92.8 | ||||||||
| Effect of dilutive securities: | |||||||||||
| Restricted stock awards | 0.7 | 1.5 | 2.1 | ||||||||
| Diluted weighted average shares outstanding | 71.8 | 76.9 | 94.9 | ||||||||
| Earnings (loss) per share - diluted: | |||||||||||
| Income (loss) from continuing operations | $ | 2.92 | $ | 3.14 | $ | 1.17 | |||||
| Income (loss) from discontinued operations-net of tax | (2.16 | ) | (1.69 | ) | (0.52 | ) | |||||
| Gain (loss) on disposition of discontinued operations-net of tax | — | 0.03 | 0.71 | ||||||||
| Net income (loss) | $ | 0.76 | $ | 1.48 | $ | 1.36 | |||||
Non-vested restricted stock awards and restricted stock units (“restricted stock awards”) granted by the Company are treated as potential common shares outstanding in computing diluted earnings per share using the treasury stock method. Weighted average restricted stock awards of approximately 0.60.1 million, 0.8 million and 0.20.6 million were outstanding during the yearyears ended December 31, 20192021, 2020 and 2018,2019, respectively, but were not included in the computation of diluted shares as the effect would be anti-dilutive or performance targets were not expected to be achieved for awards contingent upon performance. In 2017, these awards were not material.
NOTE F – FINANCE RECEIVABLESINVENTORIES
| December 31, 2019 | December 31, 2018 | ||||||
| Commercial loans | $ | 145.7 | $ | 154.0 | |||
| Sales-type leases | 20.5 | 45.5 | |||||
| Total finance receivables, gross | 166.2 | 199.5 | |||||
| Allowance for credit losses | (11.0 | ) | (5.5 | ) | |||
| Total finance receivables, net | $ | 155.2 | $ | 194.0 | |||
| Year Ended December 31, 2019 | Year Ended December 31, 2018 | Year Ended December 31, 2017 | ||||||||||||||||||||||||||||||||||
| Commercial Loans | Sales-Type Leases | Total | Commercial Loans | Sales-Type Leases | Total | Commercial Loans | Sales-Type Leases | Total | ||||||||||||||||||||||||||||
| Balance, beginning of period | $ | 4.0 | $ | 1.5 | $ | 5.5 | $ | 5.7 | $ | 0.9 | $ | 6.6 | $ | 5.9 | $ | 0.4 | $ | 6.3 | ||||||||||||||||||
| Provision for credit losses | 6.9 | (1.0 | ) | 5.9 | (0.5 | ) | 0.6 | 0.1 | 0.2 | 0.5 | 0.7 | |||||||||||||||||||||||||
| Charge offs | (0.4 | ) | — | (0.4 | ) | (1.1 | ) | — | (1.1 | ) | (0.4 | ) | — | (0.4 | ) | |||||||||||||||||||||
| Recoveries | — | — | — | (0.1 | ) | — | (0.1 | ) | — | — | — | |||||||||||||||||||||||||
| Balance, end of period | $ | 10.5 | $ | 0.5 | $ | 11.0 | $ | 4.0 | $ | 1.5 | $ | 5.5 | $ | 5.7 | $ | 0.9 | $ | 6.6 | ||||||||||||||||||
| December 31, 2019 | December 31, 2018 | December 31, 2017 | ||||||||||||||||||||||||||||||||||
| Commercial Loans | Sales-Type Leases | Total | Commercial Loans | Sales-Type Leases | Total | Commercial Loans | Sales-Type Leases | Total | ||||||||||||||||||||||||||||
| Recorded investment | $ | 7.8 | $ | — | $ | 7.8 | $ | 1.5 | $ | — | $ | 1.5 | $ | 6.0 | $ | — | $ | 6.0 | ||||||||||||||||||
| Related allowance | 7.8 | — | 7.8 | 0.6 | — | 0.6 | 2.4 | — | 2.4 | |||||||||||||||||||||||||||
| Average recorded investment | 7.5 | — | 7.5 | 2.4 | — | 2.4 | 3.7 | — | 3.7 | |||||||||||||||||||||||||||
| December 31, 2019 | December 31, 2018 | |||||||||||||||||||||||
| Allowance for credit losses, ending balance: | Commercial Loans | Sales-Type Leases | Total | Commercial Loans | Sales-Type Leases | Total | ||||||||||||||||||
| Individually evaluated for impairment | $ | 7.8 | $ | — | $ | 7.8 | $ | 0.6 | $ | — | $ | 0.6 | ||||||||||||
| Collectively evaluated for impairment | 2.7 | 0.5 | 3.2 | 3.4 | 1.5 | 4.9 | ||||||||||||||||||
| Total allowance for credit losses | $ | 10.5 | $ | 0.5 | $ | 11.0 | $ | 4.0 | $ | 1.5 | $ | 5.5 | ||||||||||||
| Finance receivables, ending balance: | ||||||||||||||||||||||||
| Individually evaluated for impairment | $ | 7.8 | $ | — | $ | 7.8 | $ | 1.5 | $ | — | $ | 1.5 | ||||||||||||
| Collectively evaluated for impairment | 137.9 | 20.5 | 158.4 | 152.5 | 45.5 | 198.0 | ||||||||||||||||||
| Total finance receivables | $ | 145.7 | $ | 20.5 | $ | 166.2 | $ | 154.0 | $ | 45.5 | $ | 199.5 | ||||||||||||
| December 31, 2019 | |||||||||||||||||||||||
| Current | 31-60 days past due | 61-90 days past due | Greater than 90 days past due | Total past due | Total Finance Receivables | ||||||||||||||||||
| Commercial loans | $ | 135.1 | $ | 2.4 | $ | 0.1 | $ | 8.1 | $ | 10.6 | $ | 145.7 | |||||||||||
| Sales-type leases | 20.2 | — | 0.3 | — | 0.3 | 20.5 | |||||||||||||||||
| Total finance receivables | $ | 155.3 | $ | 2.4 | $ | 0.4 | $ | 8.1 | $ | 10.9 | $ | 166.2 | |||||||||||
| December 31, 2018 | |||||||||||||||||||||||
| Current | 31-60 days past due | 61-90 days past due | Greater than 90 days past due | Total past due | Total Finance Receivables | ||||||||||||||||||
| Commercial loans | $ | 152.2 | $ | 0.1 | $ | — | $ | 1.7 | $ | 1.8 | $ | 154.0 | |||||||||||
| Sales-type leases | 45.3 | 0.2 | — | — | 0.2 | 45.5 | |||||||||||||||||
| Total finance receivables | $ | 197.5 | $ | 0.3 | $ | — | $ | 1.7 | $ | 2.0 | $ | 199.5 | |||||||||||
| Rating | December 31, 2019 | December 31, 2018 | ||||||
| Superior | $ | 1.7 | $ | 7.5 | ||||
| Above Average | 17.3 | 30.7 | ||||||
| Average | 42.1 | 56.9 | ||||||
| Below Average | 96.2 | 94.5 | ||||||
| Sub Standard | 8.9 | 9.9 | ||||||
| Total | $ | 166.2 | $ | 199.5 | ||||
Inventories consist of the following (in millions):
| December 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Finished equipment | $ | 283.0 | $ | 195.8 | |||||||
| Replacement parts | 157.3 | 157.0 | |||||||||
| Work-in-process | 105.5 | 57.2 | |||||||||
| Raw materials and supplies | 267.7 | 200.4 | |||||||||
| Inventories | $ | 813.5 | $ | 610.4 | |||||||
| December 31, | |||||||
| 2019 | 2018 | ||||||
| Finished equipment | $ | 408.1 | $ | 478.4 | |||
| Replacement parts | 160.8 | 143.3 | |||||
| Work-in-process | 78.7 | 86.5 | |||||
| Raw materials and supplies | 200.1 | 210.7 | |||||
| Inventories | $ | 847.7 | $ | 918.9 | |||
Reserves for lower of cost or NRV and excess and obsolete inventory were $53.2$57.8 million and $49.8$61.8 million at December 31, 20192021 and 2018,2020, respectively.
F-25
NOTE HG – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment – net consist of the following (in millions):
| December 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Property | $ | 53.1 | $ | 43.6 | |||||||
| Plant | 284.4 | 250.1 | |||||||||
| Equipment | 402.4 | 390.2 | |||||||||
| Leasehold improvements | 50.0 | 49.9 | |||||||||
| Construction in progress | 26.9 | 31.1 | |||||||||
| Property, plant and equipment – gross | 816.8 | 764.9 | |||||||||
| Less: Accumulated depreciation | (387.2) | (358.3) | |||||||||
| Property, plant and equipment – net | $ | 429.6 | $ | 406.6 | |||||||
| December 31, | |||||||
| 2019 | 2018 | ||||||
| Property | $ | 40.9 | $ | 39.6 | |||
| Plant | 168.1 | 161.3 | |||||
| Equipment | 358.3 | 337.3 | |||||
| Leasehold improvements | 55.8 | 49.1 | |||||
| Construction in progress | 101.1 | 42.2 | |||||
| Property, plant and equipment – gross | 724.2 | 629.5 | |||||
| Less: Accumulated depreciation | (334.8 | ) | (312.2 | ) | |||
| Property, plant and equipment – net | $ | 389.4 | $ | 317.3 | |||