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.
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.
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
AND FOR EACH OF THE THREE YEARSIncome Taxes
IN THE PERIOD ENDED
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.
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.
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.
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.
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.
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.
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):
FINANCIAL STATEMENT SCHEDULE
|
| | |
| | (57.8) | |
| | |
Free cash flow | | $ | 125.0 | |
All other schedules for which provision is made inPursuant to terms of our trade accounts receivable factoring arrangements, during the applicable regulationsyear ended December 31, 2021, we sold, without material recourse, approximately $527 million of trade accounts receivable to enhance liquidity. During the Securitiesyear ended December 31, 2021, we also sold approximately $96 million of sales-type leases and Exchange Commission (“SEC”) are not required under the related instructions, or are not applicable, and therefore have been omitted.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
and Stockholders of Terex Corporation
Opinions on the Financial Statements and Internal Control over Financial Reporting
commercial loans.
We have audited
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.
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.
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.
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.
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.
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).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial positioneffectiveness of the Companydesign 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, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in 2021.
Internal Control - Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note A to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.
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 Management’s Annual Report on Internal Control overOver Financial Reporting appearing under Item 9A. Our responsibility
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.
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.
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.
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 reporting purposes in accordance with generally accepted accounting principles. A company’s internalInternal control over financial reporting includes those policies and procedures that (i)that: pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii)our assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures of the company are being made only in accordance with authorizations of our management and directors of the company;directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’sour assets that could have a material effect on theour 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.
Critical Audit MattersManagement 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 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.
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.
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.
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4.3 | Indenture, dated April 1, 2021, among Terex Corporation, the guarantors named therein and HSBC Bank USA, National Association, as Trustee, relating to 5% Senior Notes due 2029 (incorporated by reference to Exhibit 4.1 of the Form 8-K Current Report, Commission File No. 1-10702, dated April 1, 2021 and filed with the Commission on April 6, 2021). |
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10.12 | Amendment and Restatement Agreement dated as of April 1, 2021, relating to the Credit Agreement dated as of January 31, 2017, among Terex Corporation and certain of its subsidiaries, the Lenders and Issuing Banks named therein and Credit Suisse AG, Cayman Islands Branch, as Administrative Agent and Collateral Agent (incorporated by reference to Exhibit 10.1 of the Form 8-K Current Report, Commission File No. 1-10702, dated April 1, 2021 and filed with the Commission April 6, 2021). |
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10.14 | Guarantee and Collateral Agreement dated as of January 31, 2017, among Terex Corporation, certain of its subsidiaries, and Credit Suisse AG, Cayman Islands Branch, as Collateral Agent (incorporated by reference to Exhibit 10.2 of the Form 8-K Current Report, Commission File No. 1-10702, dated January 31, 2017 and filed with the Commission February 2, 2017). |
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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. |
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101.SCH | XBRL Taxonomy Extension Schema Document. * |
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101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. * |
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101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. * |
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101.LAB | XBRL Taxonomy Extension Label Linkbase Document. * |
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101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. * |
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104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
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* | Exhibit filed with this document. |
** | Exhibit furnished with this document. |
*** | Denotes a management contract or compensatory plan or arrangement. |
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ITEM 16. FORM 10-K SUMMARY
Not applicable.
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
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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.
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NAME | TITLE | DATE |
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/s/ John L. Garrison, Jr | Chairman and Chief Executive | February 11, 2022 |
John L. Garrison, Jr. | Officer | |
| (Principal Executive Officer) | |
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/s/ Julie A. Beck | Senior Vice President and Chief Financial | February 11, 2022 |
Julie A. Beck | Officer | |
| (Principal Financial Officer) | |
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/s/ Stephen A. Johnston | Chief Accounting Officer | February 11, 2022 |
Stephen A. Johnston | (Principal Accounting Officer) | |
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*/s/ Paula H. J. Cholmondeley | Director | |
Paula H. J. Cholmondeley | | |
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*/s/ Don DeFosset | Director | |
Don DeFosset | | |
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*/s/ Thomas J. Hansen | Director | |
Thomas J. Hansen | | |
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*/s/ Sandie O’Connor | Director | |
Sandie O’Connor | | |
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*/s/ Christopher Rossi | Director | |
Christopher Rossi | | |
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*/s/ Andra M. Rush | Director | |
Andra M. Rush | | |
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*/s/ David A. Sachs | Lead Director | |
David A. Sachs | | |
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*By /s/ Julie A. Beck | | February 11, 2022 |
Julie A. Beck, as Attorney-in-Fact | |
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NEXT PAGE IS NUMBERED “F-1”
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
As described in Notes A, C and DDuring 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 consolidatedyear 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 – 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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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 |
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3.1 | |
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3.2 | |
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3.3 | |
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3.4 | |
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3.5 | |
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4.1 | |
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4.2 | |
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4.3 | Indenture, dated April 1, 2021, among Terex Corporation, the guarantors named therein and HSBC Bank USA, National Association, as Trustee, relating to 5% Senior Notes due 2029 (incorporated by reference to Exhibit 4.1 of the Form 8-K Current Report, Commission File No. 1-10702, dated April 1, 2021 and filed with the Commission on April 6, 2021). |
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4.4 | |
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10.1 | |
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10.2 | |
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10.3 | |
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10.4 | |
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10.5 | |
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10.6 | |
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10.7 | |
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10.8 | |
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10.9 | |
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10.10 | |
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10.11 | |
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10.12 | Amendment and Restatement Agreement dated as of April 1, 2021, relating to the Credit Agreement dated as of January 31, 2017, among Terex Corporation and certain of its subsidiaries, the Lenders and Issuing Banks named therein and Credit Suisse AG, Cayman Islands Branch, as Administrative Agent and Collateral Agent (incorporated by reference to Exhibit 10.1 of the Form 8-K Current Report, Commission File No. 1-10702, dated April 1, 2021 and filed with the Commission April 6, 2021). |
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10.13 | |
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10.14 | Guarantee and Collateral Agreement dated as of January 31, 2017, among Terex Corporation, certain of its subsidiaries, and Credit Suisse AG, Cayman Islands Branch, as Collateral Agent (incorporated by reference to Exhibit 10.2 of the Form 8-K Current Report, Commission File No. 1-10702, dated January 31, 2017 and filed with the Commission February 2, 2017). |
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10.15 | |
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10.16 | |
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21.1 | |
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23.1 | |
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23.2 | |
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24.1 | |
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31.1 | |
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31.2 | |
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32 | |
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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. |
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101.SCH | XBRL Taxonomy Extension Schema Document. * |
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101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. * |
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101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. * |
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101.LAB | XBRL Taxonomy Extension Label Linkbase Document. * |
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101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. * |
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104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
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* | Exhibit filed with this document. |
** | Exhibit furnished with this document. |
*** | Denotes a management contract or compensatory plan or arrangement. |
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ITEM 16. FORM 10-K SUMMARY
Not applicable.
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 | |
THIS PAGE IS INTENTIONALLY BLANK
NEXT PAGE IS NUMBERED “F-1”
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
IN THE PERIOD ENDED DECEMBER 31, 2021
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.
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.
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 principal considerations for our determination that performing procedures relating to income taxes isassets as a critical audit matter are there was significant judgment by management when determining the income tax expense. This in turn led to amatter. A high degree of auditor judgment, effort,including the involvement of tax and subjectivity in performing proceduresvaluation professionals with specialized skills and knowledge, was required in evaluating audit evidence relating to income taxes, including (i) management’s significant assumptions related to future performance of the business, which is used in the evaluation of deferred tax assets, (ii) management’s assessmentidentification of uncertain tax positions, which includesparticularly given the complexities in worldwide tax laws and (iii)(ii) future taxable income and statutory limitations used in determining deferred tax asset valuation allowances.
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.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing theoperating effectiveness of certain internal controls relatingrelated to income taxes, including controls overrelated to the identification of uncertain tax positions and the recoverability of deferred tax assets. For the identification of uncertain tax positions, tax and valuation professionals with specialized skills and knowledge assisted in evaluating management’s identification of uncertain tax positions, including interpretation of relevant tax law and consideration of ongoing and completed examinations by tax authorities, and assessing certain international intercompany arrangements for consistency with relevant regulations and generally accepted practices. For the assessment of the recoverability of deferred tax assets, we evaluated the Company’s estimated future taxable income primarily by comparing estimated amounts to historical amounts and tax impacts related totrends and by considering the dispositionlength of the Demag mobile cranes business. These procedures alsoincluded, among others, (i) testingperiod over which the incomenet deferred tax provision, includingassets are expected to be used. Tax professionals with specialized skills and knowledge assisted in evaluating the effective tax rate reconciliation, and evaluating permanent and temporary tax differences for both discontinued and continuing operations, (ii) evaluating the identification of reserves for uncertain tax positions, (iii) evaluating the impact of the disposed Demag mobile crane business on management’s intraperiod allocation of the tax provision between continuing operations and discontinued operations, and (iv) evaluating management’s assessment of the realizabilityrecoverability of deferred tax assets, including statutory limitations on a jurisdictional basis, including evaluating the assumptions relateduse of those assets and assessing potential adjustments to future performance of the businesstaxable income based on known events and the related expected utilization of deferredrelevant enacted tax assets. Professionals with specialized skill and knowledge were used to assist in evaluating management’s assumptions and the audit evidence obtained as it relates to the income tax impacts of the disposition of the Demag mobile cranes business, including the tax bases of the entities disposed of.regulations.
/s/PricewaterhouseCoopers LLP
Stamford, Connecticut
February 14, 2020
We have served as the Company’s auditor since 19922021.
.
/s/KPMG LLP
New York, New York
February 11, 2022
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.
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 | |
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| | | | | |
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.
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 | |
| | | | | | |
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|
| | | | | | | | | | | | |
| | 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.
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 |
|
The accompanying notes are an integral part of these financial statements.
TEREX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
|
| | | | | | | | | | | |
| 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.
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.
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.
For financial reporting periods beginning on or after January 1, 2020, the Company’s rough terrain and tower cranes operations will be consolidated within MP to align with its new management and reporting structure. Prior period reportable segment information will be adjusted in succeeding periods to reflect the realignment of operations.
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”).
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.
The Company completed itsIn connection with the annual impairment test inconducted as of October 1, 2021, the fourth quarter of 2019.Company bypassed the qualitative assessment and proceeded directly to the quantitative impairment test. The Company determined, after performing a qualitative review ofquantitative assessment indicated that each reporting segment, that it is more likely than not that theunit had an estimated fair value of each ofwhich substantially exceeded its reporting segments substantially exceeds the respective carrying amounts. Accordingly, there was no indication of impairment and the quantitative goodwill impairment test was not performed.amount.
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.
Impairment of Long-Lived Assets. The Company’s policy is to assessCompany assesses the realizability of its long-lived assets, including definite-lived intangible assets, and to evaluateevaluates 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. The Company uses 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. Included in Selling, general & administrative expenses (“SG&A”) in the Consolidated Statement of Income (Loss) are $1.5$6.3 million, $2.5$5.5 million and $7.3$1.5 million of asset impairments for the yearyears ended December 31, 2019, 20182021, 2020 and 2017,2019, respectively.
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.
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.
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.
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.”
Environmental Policies. Environmental expenditures that relate to current operations are either expensed or capitalized depending on the nature of the expenditure. Expenditures relating to conditions caused by past operations that do not contribute to current or future revenue generation are expensed. Liabilities are recorded when environmental assessments and/or remedial actions are probable and the costs can be reasonably estimated. Such amounts were not material at December 31, 2019 and 2018.
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”).
The Company adopted the Lease Standard on January 1, 2019 under the alternative transition method permitted by ASU 2018-11. This transition method allowed the Company to initially apply the requirements of the Lease Standard at the adoption date, versus at the beginning of the earliest period presented. The Company elected the transition package of practical expedients, the practical expedient to not separate lease and non-lease components for all of its leases, the short-term lease recognition exemption for all of its leases that qualify and the land easement practical expedient; it did not elect the use of hindsight practical expedient.
Adoption of the Lease Standard had a material effect on the Company’s consolidated financial statements due to the recognition of approximately $138 million of operating lease liabilities (approximately $6 million related to discontinued operations) with corresponding ROU assets. The Company implemented a global lease accounting system and updated internal controls over financial reporting, as necessary, to accommodate modifications to its business processes and accounting procedures as a result of the Lease Standard.
In February 2018, the FASB issued ASU 2018-02, “Income Statement - Reporting Comprehensive2019-12, Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” (“ASU 2018-02”). ASU 2018-02 allows reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from H.R. 1 “An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018”. The Company adopted ASU 2018-02 on January 1, 2019. Adoption did not have a material effect on the Company’s consolidated financial statements.
In July 2018, the FASB issued ASU 2018-09, “Codification Improvements,” (“ASU 2018-09”). ASU 2018-09 provides technical corrections, clarifications and other improvements across a variety of accounting topics. Certain amendments were applicable immediately while others provide transition guidance and are effective in the first quarter of fiscal year 2019. The Company completed the adoption of ASU 2018-09 on January 1, 2019. Adoption did not have a material effect on the Company’s consolidated financial statements.
Accounting Standards to be Implemented
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” (“ASU 2016-13”). ASU 2016-13 sets forth a “current expected credit loss” model which requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. The guidance in this standard replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. Subsequently, the FASB issued the following standards related to ASU 2016-13: ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments - Credit Losses,” ASU 2019-05, “Financial Instruments-Credit Losses (Topic 326) Targeted Transition Relief,” and ASU 2019-11, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses,” which provided additional guidance and clarity to ASU 2016-13 (collectively, the “Credit Loss Standard”). The effective date will be the first quarter of fiscal year 2020 and early adoption is permitted. The Credit Loss Standard will be applied using a modified retrospective approach. Adoption is not expected to have a material effect on the Company’s consolidated financial statements.
In August 2018, the FASB issued ASU 2018-14, “Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans,” (“ASU 2018-14”). ASU 2018-14 adds, removes and clarifies disclosure requirements related to defined benefit pension plans and other postretirement plans. The guidance is effective for our fiscal year ending December 31, 2020 and early adoption is permitted. Adoption is not expected to have a material effect on the Company’s consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40), Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract,” (“ASU 2018-15”). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The effective date will be the first quarter of fiscal year 2020 and early adoption is permitted. Adoption is not expected to have a material effect on the Company’s consolidated financial statements.
In April 2019, the FASB issued ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments,” (“ASU 2019-04”). ASU 2019-04 provides narrow scope amendments for Topics 326, 815 and 825. The effective date will be the first quarter of fiscal year 2020 and early adoption is permitted. Adoption is not expected to have a material effect on the Company’s consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes”Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application of Topic 740. The effective date will beCompany adopted ASU 2019-12 on January 1, 2021. Adoption did not have a material effect on the first quarter of fiscal year 2021 and early adoption is permitted. The Company is currently evaluating the impact that the amendments to Topic 740 will have on itsCompany’s consolidated financial statements.
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 AWP segment designs, manufactures, services and markets aerial work platform equipment, telehandlers, light towersutility equipment and utility equipmenttelehandlers 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 utility 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.
The 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, and in building roads and bridges.
The Company designs, manufactures, services, refurbishes and markets rough terrain and tower cranes, as well as their related components and replacement parts. Customers use rough terrain cranes to movemoving materials and equipment on rugged or uneven terrain, and tower cranes, often in urban areas where space is constrained and in long-term or high-rise building sites, to liftlifting construction material and place theplacing material at point of use. Rough terrain and tower cranes are included in Corporate and Other.
The Company assists customers in their rental, leasing and acquisition of its products through Terex Financial Services (“TFS”). TFS uses its equipment financing experience to provide financing 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.
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 | |
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 |
|
(1)
Includes intercompany sales and eliminations.
(2) Total sales include $2.4 billion attributable to the U.S., the Company’s country of domicile.
|
| | | | | | | | | | | | | | | |
| 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 |
|
(1) Includes intercompany sales and eliminations.
(2) Total sales include $2.1 billion attributable to the U.S., the Company’s country of domicile.
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 |
|
F-18