What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-04-29 compared with 2021-10-29 · 131 added, 225 removed, 163 unchanged (69% of the section changed)

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BUSINESS DESCRIPTION

Terex is a global manufacturer of aerial work platforms and materials processing machinery.

We design, build and support products used in construction, maintenance, manufacturing, energy, minerals and materials management applications.

Our products are manufactured in North and South America, Europe, Australia and Asia and sold worldwide.

Terex is a global manufacturer of materials processing machinery and aerial work platforms.

We design, build and support products used in construction, maintenance, manufacturing, energy, recycling, minerals and materials management applications.

Certain Terex products and solutions enable customers to reduce their environmental impact including electric and hybrid offerings that deliver quiet and emission-free performance, products that support renewable energy, and products that aid in the recovery of useful materials from various types of waste.

Our products are manufactured in North America, Europe, Australia and Asia and sold worldwide.

We engage with customers through all stages of the product life cycle, from initial specification and financing to parts and service support.

We report our business in the following segments:

(i) Aerial Work Platforms (“AWP”) and (ii) Materials Processing (“MP”).

(i) Materials Processing (“MP”) and (ii) Aerial Work Platforms (“AWP”).

Further information about our reportable segments appears below and in Note B – “Business Segment Information” in the Notes to Condensed Consolidated Financial Statements.

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We calculate a non-GAAP measure of free cash flow.

We define free cash flow as Net cash provided by (used in) operating activities, plus (minus) increases (decreases) in Terex Financial Services (“TFS”) finance receivables consisting of sales-type leases and commercial loans (“TFS Assets”), less Capital expenditures, net of proceeds from sale of capital assets.

We define free cash flow as Net cash provided by (used in) operating activities less Capital expenditures, net of proceeds from sale of capital assets.

We believe this measure of free cash flow provides management and investors further useful information on cash generation or use in our primary operations.

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The ratio calculated by dividing working capital by trailing three months annualized net sales is a non-GAAP measure we believe measures our resource use efficiency.

Non-GAAP measures we also use include Net Operating Profit After Tax (“NOPAT”) as adjusted, Income (loss) from operations as adjusted, annualized effective tax rate as adjusted, cash and cash equivalents as adjusted and Stockholders’ equity as adjusted, which are used in the calculation of our after tax return on invested capital (“ROIC”) (collectively the “Non-GAAP Measures”), which are discussed in detail below.

Non-GAAP measures we also use include Net Operating Profit After Tax (“NOPAT”) as adjusted, annualized effective tax rate as adjusted and cash and cash equivalents as adjusted, which are used in the calculation of our after tax return on invested capital (“ROIC”) (collectively the “Non-GAAP Measures”), which are discussed in detail below.

Safety remains our top priority;

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Our strategic operational priorities of execution, innovation, and growth continue to make excellent progress.

We continue to address supply chain disruptions across various supply inputs and product lines.

Suppliers and logistics providers are currently working to ramp up and meet our production requirements.

Our team members in both reportable segments have worked hard to adapt and maintain production schedules.

Our commercial excellence initiatives are demonstrating results, as pricing actions continue to partially offset accelerating cost inflation.

Our SG&A as a percent to sales will be below our target of 12.5% for the full-year 2021.

We are maintaining strict cost discipline while recognizing that growth in the business will necessitate investment spending.

In the third quarter, we started production of telehandlers in Monterrey, Mexico.

This action is on track and will reduce the cost of manufacturing our telehandler products for the North American market.

We also continue to innovate so our products and services offer the features and benefits that provide value to our customers.

We are investing in our connected assets and digital capabilities to better serve customers.

We are also investing in the business for future growth through organic and inorganic opportunities.

In the third quarter, the MP team completed a bolt-on acquisition, purchasing a heavy duty trommels business that broadens our product offerings.

We also recently launched a new product line, Terex Recycling Systems, which will focus on construction, demolition, commercial and industrial waste applications.

We continued to deliver strong results as customer demand remained robust during the quarter.

Revenues of $1.0 billion were up 30% compared to the prior year period.

However, revenues were approximately 9% below our expectations due to supply chain challenges limiting our production output, especially within AWP.

Our operating margins and earnings per share (“EPS”) in the quarter improved significantly versus the prior year period, but were also lower than our prior expectations as a result of the revenue shortfall, inflationary cost pressures and supply chain challenges impacting the efficiency of our manufacturing operations.

Freight and logistics have also been a growing issue with delays and increased costs.

The availability of containers, ships and increasing offload times are impacting our production and delivery schedules.

AWP’s third quarter 2021 sales increased 29% compared to last year, driven by continued strong demand in all our global markets.

For our Genie business globally, rental rates are improving, used equipment pricing is strong and fleet utilization remains robust which are all positive signs of a recovering aerials rental industry.

We are also beginning to see positive indicators for non-residential investment.

The utilities market also improved significantly with demand strong across its end-markets of tree care, rental, and investor-owned utilities.

We are also experiencing strong growth in our Utilities parts and services business.

AWP delivered significantly improved operating margins in the quarter, driven by increased production and aggressively managing all costs.

This improvement was despite the current global supply chain dynamics which impacted our operations in AWP in the quarter through reduced efficiency in our manufacturing facilities as well as higher material, logistics and labor costs.

We expect end market demand to remain strong through the remainder of 2021 and into 2022 as demonstrated by our backlog for the segment, which is up 257% compared to the prior year period.

As we have already contracted with AWP customers for nearly all of our remaining 2021 revenue, most of the benefit of customer price increases we have been implementing, as an offset to inflationary pressures will not be realized until 2022.

MP had another excellent quarter with sales up 35% compared to last year driven by strong customer sentiment across all end-markets and geographies.

MP has been aggressively managing all elements of cost as end-markets improve resulting in a 14% operating margin.

We expect global demand for crushing and screening equipment to continue to grow.

Broad-based economic growth, construction activity and aggregates consumption are the primary market drivers.

We are also seeing strong markets for the concrete mixer truck, material handling and environmental businesses.

Customer sentiment continues to improve and we are encouraged by our backlog for the segment, which is up 253% compared to the prior year period.

We expect MP to be impacted by supply chain constraints and inflationary cost pressures, net of price realization, but not to the same extent as AWP.

In the third quarter of 2021, our largest market remained North America, which represented 55% of our global sales.

As compared to the prior year period, our sales were up significantly in every major geography:

up 31% in North America, up 33% in Western Europe and up 15% in Asia Pacific.

We continue to focus on cash generation and liquidity.

The strong, positive free cash flow of $43 million in the three months ended September 30, 2021 demonstrates the hard work of our team members to tightly manage net working capital.

As of September 30, 2021, we had $1.2 billion in available liquidity, with no near-term debt maturities.

Our strong liquidity position

and cash generation allowed us to prepay an additional $150 million of term loans in October, which is in addition to the $279 million of term loans prepaid earlier in 2021.

We are committed to continuing to strengthen Terex’s balance sheet, while maintaining flexibility to execute on our organic and inorganic growth plans.

We believe we have ample liquidity to meet our business plans.

We continue to drive penetration of new markets and geographies, which have high growth potential, including recycling, material handling and electrification.

Parts and service remain a focus as we enhance our digital offerings for dealers and customers.

We also expanded our Utilities customer service footprint in the quarter with a new Atlanta, Georgia facility.

In addition to technology and customer experience, we continue to invest for future growth, both organically and inorganically.

An important part of our organic growth is our investment in the new Monterrey, Mexico facility.

Our Mexico operation has ramped up production and is shipping telehandlers.

Our performance in the first quarter of 2022 reflected strong, global customer demand in our businesses and good execution by our team members in a dynamic and challenging environment.

Net sales of $1 billion were up 16% year-over-year as end-markets remained strong.

Despite the high inflationary environment, SG&A spending was $3 million lower year-over-year at 11.1% of net sales, reflecting focused cost management.

Operating margin of 7.4% expanded 30 basis points driven by higher sales and strict expense discipline.

This led to earnings per share (“EPS”) increasing by 32% year-over-year to $0.74 in the first quarter of 2022.

Overall, first quarter financial performance demonstrated continued, strong execution.

We continued to experience global supply chain disruptions and significant inflationary pressures due to COVID-19 and geopolitical risks.

These issues are causing increased disruptions and cost pressures in materials, logistics, freight and labor.

These headwinds have constrained our growth and became more pronounced at the end of the quarter.

However, we are aggressively managing these challenges.

We have taken pricing actions, but they were only able to partially offset the cost increases we experienced in the quarter.

We still anticipate being price cost negative in the first half of 2022 but being price cost neutral for all of 2022.

MP had another strong quarter with net sales up 20% from the prior year period driven by strong customer sentiment across all end-markets and geographies.

Our mobile crushing and screening businesses are benefiting from the strength of aggregates demand for infrastructure and sand for silicon used in semiconductors.

Secular growth of environmental and waste recycling solutions is driving demand for our wood processing, biomass and recycling equipment.

The strength of residential construction is driving demand for our cement products in the U.S.

Our material handlers are benefiting from strong scrap steel prices as steel prices remain elevated.

The strength of commodity prices is driving demand for our pick and carry cranes in Australia.

MP has been aggressively managing all elements of cost resulting in a 14.2% operating margin for the quarter.

We are encouraged by MP’s backlog of $1.2 billion, which is up 66% compared to the prior year period.

AWP’s first quarter 2022 net sales increased 16% compared to last year, driven by strong global end market demand.

Construction, infrastructure, and industrial applications are driving demand for Genie products.

In addition, the fundamentals of the North American and European replacement cycle are strong as fleets age and customers have strong utilization rates.

Globally, increased adoption continues to improve labor efficiency and jobsite safety.

Except for China, demand remains strong for Genie products in all regions.

Our Utilities business is benefiting from electric grid expansion as well as the demand for 5G telecom across the United States.

AWP delivered operating margins of 5.9% in the quarter driven by strict expense management.

AWP’s end market strength is demonstrated by its backlog of $2.3 billion, up 77% year-over-year.

In the first quarter of 2022, our largest market remained North America, which represented approximately 54% of our global sales.

As compared to the prior year period, our sales were up double digits in every major geography except for Asia Pacific which was down single digits.

We continued to execute our disciplined capital allocation strategy in the first quarter of 2022.

We are making strategic investments in our businesses as described above and we also continued to return capital to shareholders.

In February 2022, our Board of Directors approved increasing our quarterly dividend by 8% to $0.13 per share.

We also completed $20 million of share repurchases in the quarter.

We typically use cash in the first quarter of the year and had a negative free cash flow of $72 million in the first quarter of 2022.

We continue to maintain ample liquidity and as of March 31, 2022, we had $753 million in available liquidity, with no near-term debt maturities.

See “Liquidity and Capital Resources” for a detailed description of liquidity and working capital levels, including the primary factors affecting such levels, as well as a reconciliation of net cash provided by (used in) operating activities to free cash flow.

We have seen our end-markets remain robust over the course of the third quarter and we expect continued global end-market strength over the remainder of 2021 and into 2022.

However, our full-year outlook is limited as a result of the availability of components from our supply chain.

As a result, we have updated our outlook for the balance of 2021 and currently expect 2021 EPS to be between $2.75 and $2.85, on net sales of approximately $3.85 billion.

Customer demand remains strong globally for our products and services.

However, the global operating environment, became increasingly difficult and unpredictable as the quarter progressed and it continues here into the second quarter.

Despite these challenges, we are maintaining our outlook for 2022 EPS to be between $3.55 and $4.05, on net sales between $4.1 billion and $4.3 billion.

We are operating in an unprecedented environment with supply chain challenges, inflationary pressures, geopolitical uncertainty, and highly restrictive China COVID-19 policies, so results could change, positively or negatively.

ROIC and other Non-GAAP Measures (as calculated below) assist in showing how effectively we utilize capital invested in our operations.

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NOPAT for each quarter is calculated by multiplying Income (loss) from operations by one minus the annualized effective tax rate.

In the calculation of ROIC, we adjust Income (loss) from operations, annualized effective tax rate, and Stockholders’ equity to remove the effects of the impact of certain transactions in order to create a measure that is useful to understanding our operating results and the ongoing performance of our underlying business without the impact of unusual items as shown in the tables below.

In the calculation of ROIC, we adjust annualized effective tax rate to reflect management’s expectation of the full year effective tax rate to create a measure that is more useful to understanding our operating results and the ongoing performance of our underlying business as shown in the tables below.

Cash and cash equivalents is adjusted to include amounts recorded as held for sale.

Furthermore, we believe returns on capital deployed in TFS do not represent our primary operations and, therefore, TFS Assets and results from operations have been excluded from the Non-GAAP Measures.

Debt is calculated using amounts for Current portion of long-term debt plus Long-term debt, less current portion.

Furthermore, debt is calculated using amounts for Current portion of long-term debt plus Long-term debt, less current portion.

We calculate ROIC using the last four quarters’ adjusted NOPAT as this represents the most recent 12-month period at any given point of determination.

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We use ROIC as a metric because we believe it measures how effectively we invest our capital and provides a better measure to compare ourselves to peer companies to assist in assessing how we drive operational improvement.

We believe ROIC measures return on the amount of capital invested in our primary businesses, excluding TFS, as opposed to another metric such as return on stockholders’ equity that only incorporates book equity, and is thus a more accurate and descriptive measure of our performance.

We believe ROIC measures return on the amount of capital invested in our businesses and is an accurate and descriptive measure of our performance.

We also believe adding Debt less Cash and cash equivalents to Stockholders’ equity provides a better comparison across similar businesses regarding total capitalization, and ROIC highlights the level of value creation as a percentage of capital invested.

As the tables below show, our ROIC at September 30, 2021 was 16.7%.

As the tables below show, our ROIC at March 31, 2022 was 19.2%.

Amounts described below are reported in millions of U.S.

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Amounts are as of and for the three months ended for the periods referenced in the tables below.

Sep '21 Jun '21 Mar '21 Dec '20 Sep '20

Mar '22 Dec '21 Sep '21 Jun '21 Mar '21

Annualized effective tax rate as adjusted (1)

20.5 % 17.6 % 17.6 % 17.6 %

Income (loss) from operations as adjusted $ 74.9 $ 117.3 $ 55.4 $ 30.6

Income (loss) from operations $ 74.5 $ 69.8 $ 74.2 $ 122.5

Multiplied by:

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Debt less Cash and cash equivalents as adjusted 521.9 407.2 335.2 346.7 401.4

Stockholders’ equity as adjusted 1,036.1 1,014.1 917.4 805.3 735.4

Debt less Cash and cash equivalents plus Stockholders’ equity as adjusted $ 1,371.3 $ 1,360.8 $ 1,318.8 $ 1,309.0 $ 1,397.3

(1) The annualized effective tax rate for Dec’20 represents the actual full year 2020 effective tax rate.

September 30, 2021 ROIC 16.7 %

Stockholders’ equity 1,114.1 1,109.6 1,050.7 1,033.9 946.1

Debt less Cash and cash equivalents as adjusted plus Stockholders’ equity $ 1,636.0 $ 1,516.8 $ 1,385.9 $ 1,380.6 $ 1,347.5

(1) The annualized effective tax rate for each 2021 period represents the actual full year 2021 effective tax rate.

March 31, 2022 ROIC 19.2 %

NOPAT as adjusted (last 4 quarters) $ 278.7

Average Debt less Cash and cash equivalents plus Stockholders’ equity as adjusted (5 quarters) $ 1,351.4

Three months ended 9/30/21 Three months ended 6/30/21 Three months ended 3/31/21 Three months ended 12/31/20

Reconciliation of income (loss) from operations:

Income (loss) from operations as reported $ 74.2 $ 122.5 $ 61.5 $ 31.6

(Income) loss from TFS 0.7 (5.2) (6.1) (1.0)

Income (loss) from operations as adjusted $ 74.9 $ 117.3 $ 55.4 $ 30.6

Average Debt less Cash and cash equivalents as adjusted plus Stockholders’ equity (5 quarters) $ 1,453.4

As of 3/31/22 As of 12/31/21 As of 9/30/21 As of 6/30/21 As of 3/31/21

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Cash and cash equivalents as adjusted $ 218.4 $ 266.9 $ 558.2 $ 547.5 $ 577.8

Reconciliation of Stockholders’ equity:

Stockholders’ equity as reported $ 1,050.7 $ 1,033.9 $ 946.1 $ 921.5 $ 852.7

TFS Assets (3.7) (8.3) (21.4) (113.9) (115.8)

Effects of adjustments, net of tax:

(Income) loss from TFS (10.9) (11.5) (7.3) (2.3) (1.5)

Stockholders’ equity as adjusted $ 1,036.1 $ 1,014.1 $ 917.4 $ 805.3 $ 735.4

Nine Months Ended

September 30, 2021 Income (loss) from continuing operations before income taxes (Provision for) benefit from income taxes Income tax rate

Three Months Ended

March 31, 2022 Income (loss) from continuing operations before income taxes (Provision for) benefit from income taxes Income tax rate

Reconciliation of annualized effective tax rate:

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RESULTS OF OPERATIONS

Three Months Ended September 30, 2021 Compared with Three Months Ended September 30, 2020

Three Months Ended September 30,

Three Months Ended March 31, 2022 Compared with Three Months Ended March 31, 2021

Three Months Ended March 31,

Sales % Change In

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Income from operations $ 74.5 7.4 % $ 61.5 7.1 % 21.1 %

Net sales for the three months ended September 30, 2021 increased $228.2 million when compared to the same period in 2020.

The increase in net sales was primarily due to higher demand for aerial work platforms, materials processing equipment, material handlers, telehandlers, utility products and concrete mixer trucks.

Changes in foreign exchange rates positively impacted consolidated net sales by approximately $16 million.

Customer sentiment in both segments continues to improve as equipment is being utilized and ordered as end-market demand strengthens.

Gross profit for the three months ended September 30, 2021 increased $32.2 million when compared to the same period in 2020.

The increase was primarily due to higher sales volume and price realization, partially offset by material, labor and freight cost inflation due to disruptions in the supply chain.

SG&A costs for the three months ended September 30, 2021 decreased $5.5 million when compared to the same period in 2020 primarily due to cost management, including right-sizing our workforce and reduced discretionary spending, taken across all areas of our business.

Income from operations for the three months ended September 30, 2021 increased $37.7 million when compared to the same period in 2020.

The increase was primarily due to higher sales volume and price realization, partially offset by increases in material, labor and freight costs.

Aerial Work Platforms

Three Months Ended September 30,

Sales % Change In

Reported Amounts

($ amounts in millions)

Net sales $ 572.5 — $ 445.0 — 28.7 %

Income from operations $ 34.9 6.1 % $ 13.3 3.0 % 162.4 %

Net sales for the AWP segment for the three months ended September 30, 2021 increased $127.5 million when compared to the same period in 2020 primarily due to higher demand driven by fleet replacement and end-market growth for aerial work platforms and telehandlers in North America and Western Europe and utility products in North America.

Income from operations for the three months ended September 30, 2021 increased $21.6 million when compared to the same period in 2020 primarily due to higher sales volume and price realization, partially offset by material, labor and freight cost inflation due to disruptions in the supply chain.

Net sales for the three months ended March 31, 2022 increased $138.3 million when compared to the same period in 2021.

The increase in net sales was primarily due to strong demand for our products across multiple businesses.

Changes in foreign exchange rates negatively impacted consolidated net sales by approximately $32 million.

Gross profit for the three months ended March 31, 2022 increased $10.4 million when compared to the same period in 2021.

The increase was primarily due to higher sales volume.

However, price realization was more than offset by material, labor and freight cost increases due to global supply chain disruptions, significant inflationary pressures and the negative impact of changes in foreign exchange rates.

SG&A costs for the three months ended March 31, 2022 decreased $2.6 million when compared to the same period in 2021 primarily due to continued cost discipline across all areas of our business.

Income from operations for the three months ended March 31, 2022 increased $13.0 million when compared to the same period in 2021.

The increase was primarily due to higher sales volume.

However, price realization was more than offset by cost increases and the negative impact of changes in foreign exchange rates.

Materials Processing

Three Months Ended September 30,

Sales % Change In

Reported Amounts

($ amounts in millions)

Net sales $ 418.7 — $ 311.3 — 34.5 %

Income from operations $ 57.1 13.6 % $ 40.3 12.9 % 41.7 %

Net sales for the MP segment for the three months ended September 30, 2021 increased $107.4 million when compared to the same period in 2020 primarily due to robust end-market demand for materials processing equipment in Asia-Pacific and North America, material handlers in Western Europe and North America, cranes in Australia and concrete mixer trucks in North America.

Income from operations for the three months ended September 30, 2021 increased $16.8 million when compared to the same period in 2020 primarily due to higher sales volume and price realization, partially offset by material, labor and freight cost inflation due to disruptions in the supply chain.

Corporate and Other / Eliminations

Three Months Ended September 30,

Sales % Change In

Reported Amounts

($ amounts in millions)

Net sales $ 2.6 — $ 9.3 — (72.0) %

Loss from operations $ (17.8) * $ (17.1) * (4.1) %

* Not a meaningful percentage

Net sales include on-book financing activities of TFS, governmental sales and elimination of intercompany sales activity among segments.

The net sales decrease is primarily attributable to lower TFS revenue, partially offset by increased governmental sales.

Loss from operations for the three months ended September 30, 2021 increased $0.7 million when compared to the same period in 2020 .

The increase in operating loss is primarily due to lower revenue, partially offset by SG&A cost management.

Interest Expense, Net of Interest Income

During the three months ended September 30, 2021, our interest expense, net of interest income, was $11.7 million, or $3.3 million lower than the same period in the prior year due to a decrease in average borrowings and lower rates.

Other Income (Expense) – Net

Other income (expense) – net for the three months ended September 30, 2021 was expense of $1.1 million, or a $0.5 million increase in expense when compared to the same period in the prior year.

The increase was primarily due to foreign exchange translation losses in the current year period.

During the three months ended September 30, 2021, we recognized income tax expense of $13.9 million on income of $61.4 million, an effective tax rate of 22.6%, as compared to income tax benefit of $1.1 million on income of $20.9 million, an effective tax rate of (5.3)%, for the three months ended September 30, 2020.

The higher effective tax rate for the three months ended September 30, 2021 when compared with the three months ended September 30, 2020 is primarily due to U.S.

tax on foreign income, the 2020 benefit of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) and geographic mix.

Gain (Loss) on Disposition of Discontinued Operations - net of taxes

During the three months ended September 30, 2021 and 2020, we recognized a gain (loss) on disposition of discontinued operations - net of tax of $0.6 million and $(16.1) million, respectively.

The loss in the prior year period primarily related to a settlement on cash, debt, working capital and certain other items related to our prior disposition of our mobile cranes business.

Nine Months Ended September 30, 2021 Compared with Nine Months Ended September 30, 2020

Nine Months Ended September 30,

Three Months Ended March 31,

Sales % Change In

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Net sales $ 452.7 — $ 378.2 — 19.7 %

Gross profit $ 585.5 20.2 % $ 390.1 17.0 % 50.1 %

SG&A $ 327.3 11.3 % $ 353.3 15.4 % (7.4) %

Income from operations $ 64.5 14.2 % $ 49.1 13.0 % 31.4 %

Net sales for the nine months ended September 30, 2021 increased $607.0 million when compared to the same period in 2020.

The increase in net sales was primarily due to higher demand for aerial work platforms, materials processing equipment, material handlers, concrete mixer trucks and cranes.

Changes in foreign exchange rates positively impacted consolidated net sales by approximately $99 million.

Customer sentiment in both segments continues to improve as equipment is being utilized and ordered as end-market demand strengthens.

Gross profit for the nine months ended September 30, 2021 increased $195.4 million when compared to the same period in 2020.

The increase was primarily due to higher sales volume, improved manufacturing efficiency, price realization and the positive impact of changes in foreign exchange rates, partially offset by material, labor and freight cost inflation due to disruptions in the supply chain.

SG&A costs for the nine months ended September 30, 2021 decreased $26.0 million when compared to the same period in 2020 primarily due to cost management, including right-sizing our workforce and reduced discretionary spending, taken across all areas of our business.

Income from operations for the nine months ended September 30, 2021 increased $221.4 million when compared to the same period in 2020.

The increase was primarily due to higher sales volume, improved manufacturing efficiency, SG&A cost management, price realization and the positive impact of changes in foreign exchange rates, partially offset by increases in material, labor and freight costs.

Net sales for the MP segment for the three months ended March 31, 2022 increased $74.5 million when compared to the same period in 2021 primarily due to robust end-market demand for aggregates and material handlers in all major geographies, cranes in Asia-Pacific, and concrete mixer trucks and environmental equipment in North America.

Net sales were negatively impacted by the effects of foreign exchange rate changes of approximately $17 million.

Income from operations for the three months ended March 31, 2022 increased $15.4 million when compared to the same period in 2021 primarily due to higher sales volume.

Price realization offset material, labor and freight cost increases due to global supply chain disruptions and significant inflationary pressures.

Aerial Work Platforms

Nine Months Ended September 30,

Sales % Change In

Reported Amounts

($ amounts in millions)

Net sales $ 1,644.4 — $ 1,370.6 — 20.0 %

Income from operations $ 126.7 7.7 % $ 2.4 0.2 % *

* Not a meaningful percentage

Net sales for the AWP segment for the nine months ended September 30, 2021 increased $273.8 million when compared to the same period in 2020 primarily due to higher demand driven by fleet replacement and end-market growth for aerial work platforms in North America, Western Europe and China.

Net sales were positively impacted by the effects of foreign exchange rate changes of approximately $46 million.

Income from operations for the nine months ended September 30, 2021 increased $124.3 million when compared to the same period in 2020 primarily due to higher sales volume, improved manufacturing efficiency, price realization, SG&A cost management and the positive effects of foreign exchange rate changes, partially offset by material, labor and freight cost inflation due to disruptions in the supply chain.

Materials Processing

Nine Months Ended September 30,

Three Months Ended March 31,

Sales % Change In

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Income from operations $ 32.5 5.9 % $ 26.6 5.6 % 22.2 %

Net sales for the MP segment for the nine months ended September 30, 2021 increased $347.2 million when compared to the same period in 2020 primarily due to robust end-market demand for materials processing equipment in all major geographies, material handlers in North America and Western Europe, concrete mixer trucks in North America and cranes in Australia.

Net sales were positively impacted by the effects of foreign exchange rate changes of approximately $54 million.

Income from operations for the nine months ended September 30, 2021 increased $89.6 million when compared to the same period in 2020 primarily due to higher sales volume, improved manufacturing efficiency, price realization and the positive effects of foreign exchange rate changes, partially offset by material, labor and freight cost inflation due to disruptions in the supply chain.

Net sales for the AWP segment for the three months ended March 31, 2022 increased $74.8 million when compared to the same period in 2021 primarily due to higher demand driven by fleet replacement and end-market growth for aerial work platforms, utility products and telehandlers in North America, partially offset by lower demand for aerial work platforms in China.

Net sales were negatively impacted by the effects of foreign exchange rate changes of approximately $15 million.

Income from operations for the three months ended March 31, 2022 increased $5.9 million when compared to the same period in 2021 primarily due to higher sales volume.

However, price realization was more than offset by material, labor and freight cost increases due to global supply chain disruptions and significant inflationary pressures.

Corporate and Other / Eliminations

Nine Months Ended September 30,

Three Months Ended March 31,

Sales % Change In

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* Not a meaningful percentage

Net sales include on-book financing activities of TFS, governmental sales and elimination of intercompany sales activity among segments.

The net sales decrease is primarily attributable to lower TFS revenue, partially offset by lower intercompany sales eliminations.

Loss from operations for the nine months ended September 30, 2021 decreased $7.5 million when compared to the same period in 2020.

The decrease in operating loss is primarily due to a gain on the sale of the on-book finance receivables, SG&A cost management and a reserve release in the current period as well as a specific finance receivable reserve for one customer in the prior year period, partially offset by lower revenue.

Net sales include on-book financing activities of Terex Financial Services (“TFS”), governmental sales and elimination of intercompany sales activity among segments.

The net sales decrease is primarily attributable to lower TFS revenue.

Loss from operations for the three months ended March 31, 2022 increased $8.3 million when compared to the same period in 2021 .

The increase in operating loss is primarily due to a gain on the sale of assets in the prior period and the negative impact of changes in foreign exchange rates, provision for litigation on former product lines and restructuring charges in the current year, partially offset by lower SG&A.

Interest Expense, Net of Interest Income

During the nine months ended September 30, 2021, our interest expense, net of interest income, was $37.7 million, or $9.8 million lower than the same period in the prior year due to a decrease in average borrowings and lower rates.

During the three months ended March 31, 2022, our interest expense, net of interest income, was $10.0 million, or $4.6 million lower than the same period in the prior year primarily due to a decrease in average borrowings.

Loss on Early Extinguishment of Debt

During the nine months ended September 30, 2021, we recorded a loss on early extinguishment of debt of $27.7 million related to refinancing of a significant portion of our capital structure and prepayment of term loans.

During the three months ended March 31, 2021, we recorded a loss on early extinguishment of debt of $2.1 million related to the prepayment of the 2019 Term Loan, as defined in Note I - “Long-Term Obligations”.

Other Income (Expense) – Net

Other income (expense) – net for the nine months ended September 30, 2021 was income of $2.7 million, or a $2.8 million increase in income when compared to the same period in the prior year.

The increase in income was due to mark-to-market gains recorded on an equity investment in the current year period compared to losses recorded in the prior year period, partially offset by a positive post-closing adjustment in 2020 related to the settlement of our U.S.

defined benefit pension plan in 2018.

During the nine months ended September 30, 2021, we recognized income tax expense of $36.0 million on income of $195.5 million, an effective tax rate of 18.4%, as compared to income tax benefit of $4.9 million on loss of $10.8 million, an effective tax rate of 45.4%, for the nine months ended September 30, 2020.

The lower effective tax rate for the nine months ended September 30, 2021 when compared to the nine months ended September 30, 2020 is primarily due to geographic mix and the 2020 benefit of the CARES Act, partially offset by U.S.

Other income (expense) – net for the three months ended March 31, 2022 was expense of $0.3 million compared to income of $2.6 million in the same period in the prior year.

The increase in expense was primarily due to lower mark-to-market gains recorded on an equity investment and higher foreign exchange translation losses in the current year compared to the same period in the prior year.

During the three months ended March 31, 2022, we recognized income tax expense of $11.9 million on income of $64.2 million, an effective tax rate of 18.5%, as compared to income tax expense of $7.7 million on income of $47.4 million, an effective tax rate of 16.2%, for the three months ended March 31, 2021.

The higher effective tax rate for the three months ended March 31, 2022 when compared with the three months ended March 31, 2021 is primarily due to increased tax on the geographic distribution of income partially offset by reduced U.S.

tax on foreign income.

Income (Loss) from Discontinued Operations

Loss from discontinued operations - net of tax for the nine months ended September 30, 2020 was $1.3 million related to operations of our mobile cranes business.

Gain (Loss) on Disposition of Discontinued Operations - net of taxes

During the nine months ended September 30, 2021 and 2020, we recognized a gain (loss) on disposition of discontinued operations - net of tax of $2.6 million and $(21.1) 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.

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 September 30, 2021, we had cash and cash equivalents of $558.2 million and undrawn availability under our revolving line of credit of $600 million, giving us total liquidity of approximately $1.2 billion.

Cash generated from operations during the nine months ended September 30, 2021, the expiration of a $150 million minimum liquidity requirement and proceeds of approximately $99 million from the sale of finance receivables allowed us to maintain liquidity at a level consistent with December 31, 2020 while reducing outstanding debt by approximately $282 million and investing in our strategic priorities.

At March 31, 2022, we had cash and cash equivalents of $218.4 million and undrawn availability under our revolving line of credit of $535 million, giving us total liquidity of approximately $753 million.

During the three months ended March 31, 2022, our liquidity decreased by approximately $114 million from December 31, 2021 primarily due to cash used in our operating activities, share repurchases and capital expenditures.

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.

We have no significant debt maturities until 2024 and we have increased our focus on free cash flow generation.

Our actions to maintain liquidity include disciplined management of costs and working capital.

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We will continue to seek opportunities to tax-efficiently mobilize and redeploy funds.

We had free cash flow of $42.5 million and $183.4 million for the three and nine months ended September 30, 2021, respectively.

We had free cash flow use of $71.8 million for the three months ended March 31, 2022.

The following table reconciles net cash provided by (used in) operating activities to free cash flow (in millions):

Three Months Ended

9/30/2021 Nine Months Ended

Net cash provided by (used in) operating activities $ (51.7)

Increase (decrease) in TFS assets (4.6) (110.2)

Capital expenditures, net of proceeds from sale of capital assets (20.1)

Free cash flow $ 42.5 $ 183.4

Pursuant to terms of our trade accounts receivable factoring arrangements, during the nine months ended September 30, 2021, we sold, without material recourse, approximately $359 million of trade accounts receivable to enhance liquidity.

During the nine months ended September 30, 2021, we also sold approximately $96 million of sales-type leases and commercial loans.

We continue to maintain strong liquidity levels resulting in less utilization of low-cost funding arrangements.

Working capital as a percent of trailing three month annualized net sales was 17.4% at September 30, 2021.

The following tables show the calculation of our working capital in continuing operations and trailing three months annualized sales as of September 30, 2021 (in millions):

Free cash flow (use) $ (71.8)

Pursuant to terms of our trade accounts receivable factoring arrangements, during the three months ended March 31, 2022, we sold, without material recourse, approximately $141 million of trade accounts receivable to enhance liquidity.

Working capital as a percent of trailing three month annualized net sales was 21.2% at March 31, 2022.

The following tables show the calculation of our working capital and trailing three months annualized sales as of March 31, 2022 (in millions):

Three Months Ended

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Working Capital $ 849.8

On January 31, 2017, we entered into a credit agreement.

The credit agreement included (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 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.

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 $400 million senior secured term loan outstanding 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 Condensed Consolidated Financial Statements for additional information regarding the Credit Agreement.

Borrowings under the Credit Agreement at September 30, 2021 were $298.4 million, net of discount, on our Term Loans.

During the nine months ended September 30, 2021, we prepaid approximately $279 million of our Term Loans prior to their maturity date to reduce our outstanding debt and lower our leverage.

In October 2021, we prepaid an additional $150 million of our Term Loans prior to their maturity date to reduce our outstanding debt and lower our leverage.

At September 30, 2021, the weighted average interest rate was 2.75% on our Term Loans.

There were no amounts outstanding on the Revolver as of September 30, 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 Condensed Consolidated Financial Statements for additional information regarding the 5% Notes and 5-5/8% Notes.

(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 $400 million senior secured term loan (the “Original Term Loan”) 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 as a benchmark rate.

See Note I - “Long-Term Obligations” in our Condensed Consolidated Financial Statements for additional information regarding the Credit Agreement.

Borrowings under the Credit Agreement at March 31, 2022 were $77.9 million, net of discount, on the Original Term Loan and $65.0 million on the Revolver.

At March 31, 2022, the weighted average interest rate was 2.75% on the Original Term Loan and 2.17% on the Revolver.

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 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 nine months ended September 30, 2021, we did not repurchase shares under this authorization leaving approximately $141 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 the first, second and third quarters of 2021, which was paid to the Company’s shareholders.

In October 2021, our Board of Directors declared a dividend of $0.12 per share, which will be paid to the Company’s shareholders on December 17, 2021.

During the three months ended March 31, 2022, we repurchased — shares for $17.5 million under this authorization leaving approximately $122 million available for repurchase under this program.

In the first quarter of 2022, our Board of Directors declared a dividend of $0.13 per share, which was paid to the Company’s shareholders.

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.

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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.

Cash provided by operations for the nine months ended September 30, 2021 totaled $324.1 million, compared to $88.9 million for the nine months ended September 30, 2020.

The increase in cash provided by operations was primarily driven by increased operating profitability and proceeds from the sale of finance receivables.

Cash used in investing activities for the nine months ended September 30, 2021 was $73.4 million, compared to $40.0 million for the nine months ended September 30, 2020.

The increase in cash used in investing activities in the current period relates primarily to cash used in acquisition and investment activity, partially offset by lower capital expenditures.

Cash used in financing activities was $348.7 million for the nine months ended September 30, 2021, compared to $80.8 million for the nine months ended September 30, 2020.

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 share repurchases in the prior year.

Cash used in operations for the three months ended March 31, 2022 totaled $51.7 million, compared to cash provided by operations of $138.1 million for the three months ended March 31, 2021.

The change in operating cash was primarily driven by proceeds from the sale of finance receivables received in the prior year and higher working capital and incentive compensation payments in the current year.

Cash used in investing activities was $23.2 million and $6.1 million for the three months ended March 31, 2022 and 2021, respectively.

The increase in cash used in investing activities relates primarily to higher capital expenditures and investment activity.

Cash provided by financing activities was $28.0 million for the three months ended March 31, 2022, compared to cash used in financing activities of $214.9 million for the three months ended March 31, 2021.

The increase in cash provided by financing activities was primarily due to debt prepayments in the prior year compared to borrowings in the current year, partially offset by share repurchases.

OFF-BALANCE SHEET ARRANGEMENTS

Our customers may fund the acquisition of our equipment through third-party finance companies.

In certain instances, we may provide a credit guarantee to the finance company by which we agree to make payments to the finance company should the customer default.

Our maximum liability is generally limited to our customer’s remaining payments due to the finance company at the time of default.

The expectation of losses or non-performance is assessed based on consideration of historical customer reviews, current financial conditions, reasonable and supportable forecasts, equipment collateral value and other factors.

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 evaluated 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 credit default experience will be indicative of future results.

Our ability to recover losses experienced from our guarantees may be affected by economic conditions in effect at the time of loss.

See Note L – “Litigation and Contingencies” in the Notes to Condensed Consolidated Financial Statements for further information regarding our guarantees.

There can be no assurance that our historical experience in used equipment markets will be indicative of future results.

Our ability to recover losses experienced from our guarantees may be affected by economic conditions in used equipment markets at the time of loss.

See Note K – “Litigation and Contingencies” in the Notes to Condensed Consolidated Financial Statements for further information regarding our guarantees.

CONTINGENCIES AND UNCERTAINTIES

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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 and Australian Dollar.

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.

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 Condensed Consolidated Financial Statements for further information regarding our derivatives and Item 3 “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.

See Note H – “Derivative Financial Instruments” in the Notes to Condensed Consolidated Financial Statements for further information regarding our derivatives and Item 3 “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.

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 L – “Litigation and Contingencies” in the Notes to Condensed 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.

See Note K – “Litigation and Contingencies” in the Notes to Condensed 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.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis