What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-10-28 compared with 2022-08-03 · 113 added, 113 removed, 248 unchanged (48% of the section changed)

34 unchanged sentences

All Terex team members contributed to our effort of continuing to provide products and services for our customers, while maintaining a safe working environment.

We remain focused on executing our multi-year growth plan and continue to invest in new technologies and products across our businesses.

Our strategic operational priorities of execution, innovation and growth continue to strengthen our operations and allow us to capitalize on the strong demand in our end-markets.

We are leveraging our business operating systems to navigate supply challenges and labor constraints while working to mitigate material cost inflation.

We remain disciplined on SG&A and our recent Northern Ireland acquisition is providing cost effective fabrication and capacity support for future growth.

Sustaining investments in new products company-wide and continued deployment of digital solutions are critical for our competitiveness as we navigate near-term macro challenges to deliver long-term growth.

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

Company-wide investments in new product development and continued deployment of digital customer and dealer solutions are important to help to deliver long-term growth.

In the quarter, we expanded the capabilities of our growing environmental business in the MP segment with the acquisition of a company that designs and creates robots that pick, sort and recycle waste material.

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

Net sales of $1.1 billion were up 13% year-over-year, 21% on a foreign exchange neutral basis, as end-markets remained strong.

Despite the high inflationary environment, SG&A spending was flat year-over-year at 10.1% of net sales, reflecting focused cost management.

Operating margin of 9.6% was up 220 basis points sequentially, but was down 220 basis points compared to the prior year.

Although price cost dynamics have improved sequentially from the first quarter, operating profit in the second quarter was down from the prior year as price realization was offset by continued cost increases and the negative impact of changes in foreign exchange rates.

Overall, second quarter financial performance demonstrated continued, strong execution and focus on delivering for our customers and dealers despite global supply chain disruptions and significant inflationary pressures.

Gross margins increased by 320 basis points in the quarter as the team implemented cost take out plans and pricing actions helped to offset cost increases.

The year-over-year gross margin increase was in both our segments.

Despite the high inflationary environment, SG&A spending as a percentage of net sales was essentially flat year-over-year at 10.4% of net sales, reflecting focused cost management.

Operating margin of 10.8% was up 330 basis points year-over-year and up 120 basis points sequentially driven by prudent cost management and the improvement in price cost dynamics.

Overall, third quarter financial performance demonstrated continued, strong execution and focus on delivering for our customers and dealers despite global supply chain disruptions, significant inflationary pressures and foreign exchange rate volatility.

The global operating environment has remained difficult and unpredictable with increases in commodity prices, energy costs and logistics adversely impacting the Company.

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Although these headwinds have constrained our growth, we are aggressively managing these challenges.

We have continued to take pricing actions, but, as expected, they were only able to partially offset the cost increases we have experienced.

However, we still anticipate being price cost neutral for all of 2022.

MP had an excellent quarter with net sales up 9% from the prior year period, 16% on a foreign exchange neutral basis, driven by price realization and strong customer sentiment across all end-markets and geographies.

We have continued to take pricing actions which has been necessary to mitigate rising costs in both segments.

As a result of these actions, we anticipate being price cost neutral for all of 2022.

MP had a strong quarter with net sales up 9% from the prior year period, 20% on a foreign exchange neutral basis, driven by price realization and strong customer sentiment across multiple end-markets and geographies.

The MP businesses continue to benefit from strong equipment utilization rates and dealers looking to replenish their inventory and rental fleets.

5 unchanged sentences

MP has been aggressively managing all elements of cost resulting in a 14.6% operating margin for the quarter.

We are encouraged by MP’s backlog of $1.1 billion, which is up 32% compared to the prior year period.

AWP’s second quarter 2022 net sales were up slightly compared to the prior year period and increased 4% on a foreign exchange neutral basis, primarily due to price realization and higher demand in all major geographies, partially offset by lower demand in China.

We are encouraged by MP’s total backlog (including deliveries beyond 12 months) of $1.2 billion, which is up 14% compared to the prior year period’s total backlog of $1.1 billion.

AWP’s third quarter 2022 net sales were up 16% compared to the prior year period and increased 22% on a foreign exchange neutral basis, primarily due to price realization necessary to mitigate rising costs and higher demand driven by fleet replacement and end-market growth for aerial work platforms.

Utility product growth was strong in North America.

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

2 unchanged sentences

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

Demand remains strong for Genie products in all regions except China.

Our Utilities business is benefiting from electric grid expansion across the U.S.

AWP delivered operating margins of 9.6% in the quarter driven by strict expense management and disciplined pricing actions.

AWP’s end market strength is demonstrated by its backlog of $2.3 billion, up 62% year-over-year.

In the second quarter, our largest market remained North America, which represented approximately 58% of our global sales.

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

We continued to execute our disciplined capital allocation strategy in the second quarter.

AWP’s end market strength is demonstrated by its total backlog (including deliveries beyond 12 months) of $2.7 billion, which is up 44% compared to the prior year period’s total backlog of $1.9 billion.

In the third quarter, our largest market remained North America, which represented approximately 58% of our global sales.

As compared to the prior year period, sales were up double digits in every major geography except for Asia Pacific which was down although essentially flat on a foreign exchange neutral basis.

We continued to execute our disciplined capital allocation strategy in the third quarter.

We are making strategic investments in our businesses and continuing to return capital to shareholders.

Our strong balance sheet has allowed us to return approximately $100 million of cash to shareholders in the first half of 2022 and to prepay $23 million on our term loans in the quarter.

We generated $44 million of free cash flow in the quarter, consistent with our expectations.

Free cash flow in the second quarter includes the benefit of $38 million received on an IRS approved refund, but is also impacted by elevated levels of substantially completed inventory awaiting installation of final components.

We continue to maintain ample liquidity and as of June 30, 2022, we had $678 million in available liquidity, with no near-term debt maturities.

Our strong balance sheet has allowed us to return approximately $120 million of cash to shareholders in the first nine months of 2022.

We generated $53 million of free cash flow in the quarter, consistent with our sequential improvement goals, but below our expectations as inventory levels remained high in the third quarter.

We continue to maintain ample liquidity and as of September 30, 2022, we had $658 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.

As a result of our strong performance in the first half of the year, we are increasing our outlook for 2022 EPS to between $3.80 and $4.20, 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 restrictive China COVID-19 policies, so results can change, positively or negatively.

As a result of our strong performance in the third quarter, we are increasing our outlook for 2022 EPS to between $4.00 and $4.20, on net sales of approximately $4.3 billion.

We continue to operate in a highly uncertain environment with supply chain challenges, inflationary pressures, foreign exchange rate volatility, geopolitical uncertainty, and restrictive COVID-19 policies in China, so results can 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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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 June 30, 2022 was 17.3%.

As the tables below show, our ROIC at September 30, 2022 was 19.0%.

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.

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

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

Annualized effective tax rate as adjusted (1)

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Debt less Cash and cash equivalents as adjusted plus Stockholders’ equity $ 1,629.5 $ 1,623.8 $ 1,636.0 $ 1,516.8 $ 1,385.9

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

June 30, 2022 ROIC 17.3 %

(1) The annualized effective tax rate for Dec ’21 represents the actual full year 2021 effective tax rate.

September 30, 2022 ROIC 19.0 %

NOPAT as adjusted (last 4 quarters) $ 296.8

5 unchanged sentences

Cash and cash equivalents as adjusted $ 231.7 $ 253.3 $ 218.4 $ 266.9 $ 558.2

Six Months Ended

June 30, 2022

Nine Months Ended

September 30, 2022

Income (loss) from continuing operations before income taxes (Provision for) benefit from income taxes Income tax rate

5 unchanged sentences

RESULTS OF OPERATIONS

Three Months Ended June 30, 2022 Compared with Three Months Ended June 30, 2021

Three Months Ended June 30,

Three Months Ended September 30, 2022 Compared with Three Months Ended September 30, 2021

Three Months Ended September 30,

Sales % Change In

6 unchanged sentences

Income from operations $ 120.8 10.8 % $ 74.2 7.5 % 62.8 %

Net sales for the three months ended June 30, 2022 increased $38.4 million when compared to the same period in 2021.

The increase in net sales was primarily due to price realization across all segments and healthy demand for our products across multiple businesses.

Net sales for the three months ended September 30, 2022 increased $126.7 million when compared to the same period in 2021.

The increase in net sales was primarily due to price realization, necessary to mitigate rising costs, across all segments and healthy demand for our products across multiple businesses.

Changes in foreign exchange rates negatively impacted consolidated net sales by approximately $78 million.

Gross profit for the three months ended June 30, 2022 decreased $18.7 million when compared to the same period in 2021.

The decrease was primarily due to material, labor, manufacturing inefficiency and freight cost increases due to global supply chain disruptions, significant inflationary pressures and the negative impact of changes in foreign exchange rates, partially offset by price realization and incremental margin on higher sales volume.

SG&A expenses for the three months ended June 30, 2022 was flat when compared to the same period in 2021.

Income from operations for the three months ended June 30, 2022 decreased $18.6 million when compared to the same period in 2021.

The decrease was primarily due to cost increases and the negative impact of changes in foreign exchange rates which more than offset price realization and incremental margin on higher sales volume.

Gross profit for the three months ended September 30, 2022 increased $58.6 million when compared to the same period in 2021.

The increase was primarily due to price realization, favorable mix and incremental margin on higher sales volume, partially offset by material, labor, manufacturing inefficiency 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 expenses for the three months ended September 30, 2022 increased $12.0 million when compared to the same period in 2021 primarily due to higher personnel costs and increased engineering and selling costs, partially offset by the positive impact of changes in foreign exchange rates.

SG&A expenses were slightly lower as a percent of sales when compared to the same period in 2021.

Income from operations for the three months ended September 30, 2022 increased $46.6 million when compared to the same period in 2021.

The increase was primarily due to price realization, favorable mix and incremental margin on higher sales volume which more than offset cost increases and the negative impact of changes in foreign exchange rates.

Materials Processing

Three Months Ended June 30,

Three Months Ended September 30,

Sales % Change In

3 unchanged sentences

Income from operations $ 66.8 14.6 % $ 57.1 13.6 % 17.0 %

Net sales for the MP segment for the three months ended June 30, 2022 increased $39.9 million when compared to the same period in 2021 primarily due to price realization and robust end-market demand for aggregates and material handlers in all major geographies and cranes in Asia-Pacific and North America, partially offset by lower demand for cranes in Western Europe.

Net sales were negatively impacted by the effects of foreign exchange rate changes of approximately $31 million.

Income from operations for the three months ended June 30, 2022 increased $7.4 million when compared to the same period in 2021 primarily due to price realization and incremental margin on higher sales volume, partially offset by material, labor, manufacturing inefficiency and freight cost increases due to global supply chain disruptions, significant inflationary pressures and the negative effects of foreign exchange rate changes.

Net sales for the MP segment for the three months ended September 30, 2022 increased $39.2 million when compared to the same period in 2021 primarily due to price realization, necessary to mitigate rising costs, and healthy demand for our products across multiple businesses in spite of the negative impact of changes in foreign exchange rates of approximately $43 million.

Income from operations for the three months ended September 30, 2022 increased $9.7 million when compared to the same period in 2021 primarily due to price realization, favorable mix and incremental margin on higher sales volume, partially offset by material, labor, manufacturing inefficiency and freight cost increases due to global supply chain disruptions, significant inflationary pressures and the negative impact of changes in foreign exchange rates.

Aerial Work Platforms

Three Months Ended June 30,

Three Months Ended September 30,

Sales % Change In

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Income from operations $ 63.5 9.6 % $ 34.9 6.1 % 81.9 %

Net sales for the AWP segment for the three months ended June 30, 2022 increased $2.5 million when compared to the same period in 2021 primarily due to price realization and higher demand that was driven by fleet replacement and end-market growth for aerial work platforms and utility products in all major geographies, partially offset by lower demand in China.

Net sales were negatively impacted by the effects of foreign exchange rate changes of approximately $21 million.

Income from operations for the three months ended June 30, 2022 decreased $19.0 million when compared to the same period in 2021 primarily due to material, labor, manufacturing inefficiency and freight cost increases due to global supply chain disruptions, significant inflationary pressures and the negative effects of foreign exchange rate changes, partially offset by price realization.

Net sales for the AWP segment for the three months ended September 30, 2022 increased $90.1 million when compared to the same period in 2021 primarily due to price realization, necessary to mitigate rising costs, and higher demand that was driven by fleet replacement and end-market growth for aerial work platforms in all major geographies and utility products in North America, partially offset by lower telehandlers sales in North America and lower demand in China.

Net sales were negatively impacted by changes in foreign exchange rates of approximately $35 million.

Income from operations for the three months ended September 30, 2022 increased $28.6 million when compared to the same period in 2021 primarily due to price realization, favorable mix and incremental margin on higher sales volume, partially offset by material, labor, manufacturing inefficiency and freight cost increases due to global supply chain disruptions, significant inflationary pressures and the negative impact of changes in foreign exchange rates.

Corporate and Other / Eliminations

Three Months Ended June 30,

Three Months Ended September 30,

Sales % Change In

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* Not a meaningful percentage

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 June 30, 2022 increased $7.0 million when compared to the same period in 2021 .

The increase in operating loss is primarily due the negative impact of changes in foreign exchange rates, provision for litigation settlement on a former product line and restructuring charges in the current period and a finance receivable reserve release in the prior period, partially offset by lower SG&A expenses.

Net sales include 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 higher intercompany sale eliminations and lower TFS revenue.

Loss from operations for the three months ended September 30, 2022 decreased $8.3 million when compared to the same period in 2021 .

The decrease in operating loss is primarily due to changes in foreign exchange costs absorbed by our operating segments, partially offset by higher technology investment and personnel costs.

Interest Expense, Net of Interest Income

During the three months ended June 30, 2022, our interest expense, net of interest income, was $11.3 million, or $0.1 million lower than the same period in the prior year primarily due to a decrease in average borrowings, partially offset by lower interest income in the current year period.

Loss on Early Extinguishment of Debt

During the three months ended June 30, 2021, we recorded a loss on early extinguishment of debt of $25.6 million related to refinancing of a significant portion of our capital structure and prepayment of term loans.

During the three months ended September 30, 2022, our interest expense, net of interest income, was $12.4 million, or $0.7 million higher when compared to the same period in 2021 primarily due to an increase in our weighted average interest rate on revolving credit amounts, partially offset by higher interest income in the current year period.

Other Income (Expense) – Net

Other income (expense) – net for the three months ended June 30, 2022 was expense of $3.3 million compared to income of $1.2 million in the same period in the prior year.

The increase in expense was primarily due to foreign exchange translation losses in the current year compared to gains in the same period in the prior year.

During the three months ended June 30, 2022, we recognized income tax expense of $15.1 million on income of $89.2 million, an effective tax rate of 16.9%, as compared to income tax expense of $14.4 million on income of $86.7 million, an effective tax rate of 16.6%, for the three months ended June 30, 2021.

The higher effective tax rate for the three months ended June 30, 2022 when compared with the three months ended June 30, 2021 is primarily due to lower favorable discrete benefit in the current quarter largely offset by reduced tax on the geographic distribution of income.

Other income (expense) – net for the three months ended September 30, 2022 and 2021 was expense of $1.0 million and $1.1 million, respectively.

During the three months ended September 30, 2022, we recognized income tax expense of $25.6 million on income of $107.4 million, an effective tax rate of 23.8%, as compared to income tax expense of $13.9 million on income of $61.4 million, an effective tax rate of 22.6%, for the three months ended September 30, 2021.

The higher effective tax rate for the three months ended September 30, 2022 when compared with the three months ended September 30, 2021 is primarily due to higher tax related to the geographic distribution of income partially offset by lower U.S.

tax on foreign income.

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

During the three months ended June 30, 2021, we recognized a gain (loss) on disposition of discontinued operations - net of tax of $1.6 million primarily related to the sale of our former MHPS business.

Six Months Ended June 30, 2022 Compared with Six Months Ended June 30, 2021

Six Months Ended June 30,

During the three months ended September 30, 2021, we recognized a gain on disposition of discontinued operations - net of tax of $0.6 million primarily related to the sale of our mobile cranes business.

Nine Months Ended September 30, 2022 Compared with Nine Months Ended September 30, 2021

Nine Months Ended September 30,

Sales % Change In

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Income from operations $ 299.2 9.3 % $ 258.2 8.9 % 15.9 %

Net sales for the six months ended June 30, 2022 increased $176.7 million when compared to the same period in 2021.

The increase in net sales was primarily due to price realization across all segments and healthy demand for our products across multiple businesses.

Net sales for the nine months ended September 30, 2022 increased $303.4 million when compared to the same period in 2021.

The increase in net sales was primarily due to price realization, necessary to mitigate rising costs, across all segments and healthy demand for our products across multiple businesses.

Changes in foreign exchange rates negatively impacted consolidated net sales by approximately $161 million.

Gross profit for the six months ended June 30, 2022 decreased $8.3 million when compared to the same period in 2021.

SG&A expenses for the six months ended June 30, 2022 decreased $2.7 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 six months ended June 30, 2022 decreased $5.6 million when compared to the same period in 2021.

The decrease was primarily due to cost increases and the negative impact of changes in foreign exchange rates which more than offset price realization and incremental margin on higher sales volume.

Gross profit for the nine months ended September 30, 2022 increased $50.3 million when compared to the same period in 2021.

SG&A expenses for the nine months ended September 30, 2022 increased $9.3 million when compared to the same period in 2021 primarily due to higher personnel costs and increased engineering and selling costs, partially offset by the positive impact of changes in foreign exchange rates.

SG&A expenses were lower as a percent of sales when compared to the same period in 2021.

Income from operations for the nine months ended September 30, 2022 increased $41.0 million when compared to the same period in 2021.

Materials Processing

Six Months Ended June 30,

Nine Months Ended September 30,

Sales % Change In

3 unchanged sentences

Income from operations $ 210.8 15.2 % $ 178.3 14.4 % 18.2 %

Net sales for the MP segment for the six months ended June 30, 2022 increased $114.4 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 North America, and environmental equipment in North America and Western Europe, as well as price realization.

Net sales were negatively impacted by the effects of foreign exchange rate changes of approximately $47 million.

Income from operations for the six months ended June 30, 2022 increased $22.8 million when compared to the same period in 2021 primarily due to incremental margin on higher sales volume and price realization, partially offset by material, labor, manufacturing inefficiency and freight cost increases due to global supply chain disruptions, significant inflationary pressures and the negative effects of foreign exchange rate changes.

Net sales for the MP segment for the nine months ended September 30, 2022 increased $153.6 million when compared to the same period in 2021 primarily due to robust end-market demand for aggregates in all major geographies, material handlers in Western Europe and North America, cranes in Asia-Pacific and North America, and environmental equipment in North America and Western Europe, as well as price realization necessary to mitigate rising costs.

Net sales were negatively impacted by changes in foreign exchange rates of approximately $90 million.

Income from operations for the nine months ended September 30, 2022 increased $32.5 million when compared to the same period in 2021 primarily due to incremental margin on higher sales volume, favorable mix and price realization, partially offset by material, labor, manufacturing inefficiency and freight cost increases due to global supply chain disruptions, significant inflationary pressures and the negative impact of changes in foreign exchange rates.

Aerial Work Platforms

Six Months Ended June 30,

Nine Months Ended September 30,

Sales % Change In

3 unchanged sentences

Income from operations $ 142.2 7.8 % $ 126.7 7.7 % 12.2 %

Net sales for the AWP segment for the six months ended June 30, 2022 increased $77.3 million when compared to the same period in 2021 primarily due to price realization and higher demand that was driven by fleet replacement and end-market growth for aerial work platforms, utility products and telehandlers in in all major geographies, partially offset by lower demand in China.

Net sales were negatively impacted by the effects of foreign exchange rate changes of approximately $36 million.

Income from operations for the six months ended June 30, 2022 decreased $13.1 million when compared to the same period in 2021 primarily due to material, labor, manufacturing inefficiency and freight cost increases due to global supply chain disruptions, significant inflationary pressures and the negative effects of foreign exchange rate changes, partially offset by price realization and incremental margin on higher sales volume.

Net sales for the AWP segment for the nine months ended September 30, 2022 increased $167.4 million when compared to the same period in 2021 primarily due to price realization, necessary to mitigate rising costs, and higher demand that was driven by fleet replacement and end-market growth for aerial work platforms in all major geographies and utility products in North America, partially offset by lower demand in China and lower telehandlers sales in North America.

Net sales were negatively impacted by changes in foreign exchange rates of approximately $71 million.

Income from operations for the nine months ended September 30, 2022 increased $15.5 million when compared to the same period in 2021 primarily due to price realization, favorable mix and incremental margin on higher sales volume, partially offset by material, labor, manufacturing inefficiency and freight cost increases due to global supply chain disruptions, significant inflationary pressures and the negative impact of changes in foreign exchange rates.

Corporate and Other / Eliminations

Six Months Ended June 30,

Nine Months Ended September 30,

Sales % Change In

4 unchanged sentences

* 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 six months ended June 30, 2022 increased $15.3 million when compared to the same period in 2021.

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

Net sales include 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 and higher intercompany sales eliminations.

Loss from operations for the nine months ended September 30, 2022 increased $7.0 million when compared to the same period in 2021.

Interest Expense, Net of Interest Income

During the six months ended June 30, 2022, our interest expense, net of interest income, was $21.3 million, or $4.7 million lower than the same period in the prior year due to a decrease in average borrowings, partially offset by lower interest income in the current year period.

During the nine months ended September 30, 2022, our interest expense, net of interest income, was $33.7 million, or $4.0 million lower when compared to the same period in 2021 due to a decrease in average borrowings and lower interest income, partially offset by an increase in our weighted average interest rate on revolving credit amounts in the current year period.

Loss on Early Extinguishment of Debt

During the six months ended June 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 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.

Other Income (Expense) – Net

Other income (expense) – net for the six months ended June 30, 2022 was an expense of $3.6 million, compared to income of $3.8 million in the same period in the prior year.

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

During the six months ended June 30, 2022, we recognized income tax expense of $27.0 million on income of $153.4 million, an effective tax rate of 17.6%, as compared to income tax expense of $22.1 million on income of $134.1 million, an effective tax rate of 16.5%, for the six months ended June 30, 2021.

The higher effective tax rate for the six months ended June 30, 2022 when compared to the six months ended June 30, 2021 is primarily due to lower favorable discrete benefit in the current year period partially offset by reduced U.S.

tax on foreign income.

Other income (expense) – net for the nine months ended September 30, 2022 was an expense of $4.6 million, compared to income of $2.7 million in the same period in the prior year.

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

During the nine months ended September 30, 2022, we recognized income tax expense of $52.6 million on income of $260.8 million, an effective tax rate of 20.2%, as compared to income tax expense of $36.0 million on income of $195.5 million, an effective tax rate of 18.4%, for the nine months ended September 30, 2021.

The higher effective tax rate for the nine months ended September 30, 2022 when compared to the nine months ended September 30, 2021 is primarily due to higher tax related to the geographic distribution of income and lower favorable discrete benefits partially offset by lower U.S.

tax on foreign income in the current year period.

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

During the six months ended June 30, 2022 and 2021, we recognized a gain (loss) on disposition of discontinued operations - net of tax of $(0.4) million and $2.0 million, respectively.

During the nine months ended September 30, 2022 and 2021, we recognized a gain (loss) on disposition of discontinued operations - net of tax of $(0.4) million and $2.6 million, respectively.

The loss in the current year period primarily related to the sale of our mobile cranes business.

The gain in the prior year primarily related to the sale of our former MHPS business.

The gain in the prior year primarily related to the sales of our MHPS and mobile crane businesses.

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 June 30, 2022, we had cash and cash equivalents of $253 million and undrawn availability under our revolving line of credit of $425 million, giving us total liquidity of approximately $678 million.

During the six months ended June 30, 2022, our liquidity decreased by approximately $189 million from December 31, 2021 primarily due to share repurchases, capital expenditures, term loan prepayment and dividends, partially offset by cash generated from operations which includes the adverse impact of higher working capital.

At September 30, 2022, we had cash and cash equivalents of $232 million and undrawn availability under our revolving line of credit of $426 million, giving us total liquidity of approximately $658 million.

During the nine months ended September 30, 2022, our liquidity decreased by approximately $209 million from December 31, 2021 primarily due to share repurchases, capital expenditures, acquisitions, investments, term loan prepayment and dividends, partially offset by cash generated from operations which includes the adverse impact of higher working capital.

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.

6 unchanged sentences

Our ability to generate cash from operations is subject to numerous factors, including the following:

• The duration and depth of the global economic challenges resulting from supply chain constraints, inflationary pressures, geopolitical uncertainty and restrictive COVID-19 policies.

• The duration and depth of the global economic challenges resulting from supply chain constraints, inflationary pressures, foreign exchange rate volatility, geopolitical uncertainty and restrictive COVID-19 policies.

• As our sales change, the amount of working capital needed to support our business may change.

15 unchanged sentences

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

We had free cash flow of $44.2 million for the three months ended June 30, 2022 and free cash flow use of $27.6 million for the six months ended June 30, 2022.

We had free cash flow of $53.2 million and $25.6 million for the three months ended and nine months ended September 30, 2022, respectively.

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

Three Months Ended

6/30/2022 Six Months Ended

9/30/2022 Nine Months Ended

Net cash provided by (used in) operating activities $ 84.9 $ 104.2

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Free cash flow (use) $ 53.2 $ 25.6

Pursuant to terms of our trade accounts receivable factoring arrangements, during the six months ended June 30, 2022, we sold, without material recourse, approximately $292 million of trade accounts receivable to enhance liquidity.

Working capital as a percent of trailing three month annualized net sales was 20.7% at June 30, 2022.

The following tables show the calculation of our working capital and trailing three months annualized sales as of June 30, 2022 (in millions):

Pursuant to terms of our trade accounts receivable factoring arrangements, during the nine months ended September 30, 2022, we sold, without material recourse, approximately $458 million of trade accounts receivable to enhance liquidity.

Working capital as a percent of trailing three month annualized net sales was 20.0% at September 30, 2022.

The following tables show the calculation of our working capital and trailing three months annualized sales as of September 30, 2022 (in millions):

Three Months Ended

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(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 June 30, 2022 were $54.9 million, net of discount, on the Original Term Loan and $175.0 million on the Revolver.

During the six months ended June 30, 2022, we prepaid $23.0 million of the amount outstanding on the Original Term Loan prior to its maturity date to reduce our outstanding debt.

At June 30, 2022, the weighted average interest rate was 2.86% on the Original Term Loan and 2.80% on the Revolver.

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, 2022 were $54.9 million, net of discount, on the Original Term Loan and $173.7 million on the Revolver.

During the nine months ended September 30, 2022, we prepaid $23.0 million of the amount outstanding on the Original Term Loan prior to its maturity date to reduce our outstanding debt.

At September 30, 2022, the weighted average interest rate was 4.67% on the Original Term Loan and 4.01% on the Revolver.

We remain focused on expanding customer financing solutions in key markets like the U.S., Europe and China.

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On July 29, 2022, we acquired a manufacturer of volumetric mixers based in Canada to expand our concrete product offering for consideration of approximately $39 million.

See Note A - “Basis of Presentation” in our Condensed Consolidated Financial Statements for additional information regarding these transactions.

See Note D - “Acquisitions” in our Condensed Consolidated Financial Statements for additional information regarding these transactions.

In July 2018, our Board of Directors authorized the repurchase up to $300 million of our outstanding shares of common stock.

During the six months ended June 30, 2022, we repurchased 2,262,523 shares for $78.5 million under this authorization leaving approximately $61 million available for repurchase under this program.

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

In July 2022, our Board of Directors declared a dividend of $0.13 per share, which will be paid on September 19, 2022 to the Company’s shareholders of record as of August 12, 2022.

During the nine months ended September 30, 2022, we repurchased 2,718,549 shares for $92.0 million under this authorization leaving approximately $47 million available for repurchase under this program.

Our Board of Directors declared a dividend of $0.13 per share in the first, second and third quarters of 2022, which were paid to the Company’s shareholders.

In October 2022, our Board of Directors declared a dividend of $0.13 per share, which will be paid on December 19, 2022 to the Company’s shareholders of record as of November 10, 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.

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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 in operations was $19.3 million and $269.2 million for the six months ended June 30, 2022 and 2021, respectively.

Cash provided in operations was $104.2 million and $324.1 million for the nine months ended September 30, 2022 and 2021, respectively.

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 $54.8 million and $48.6 million for the six months ended June 30, 2022 and 2021, respectively.

The increase in cash used in investing activities relates primarily to higher capital expenditures, partially offset by lower investment activity.

Cash provided by financing activities was $38.0 million for the six months ended June 30, 2022, compared to cash used in financing activities of $337.7 million for the six months ended June 30, 2021.

Cash used in investing activities was $124.4 million and $73.4 million for the nine months ended September 30, 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 $13.3 million for the nine months ended September 30, 2022, compared to cash used in financing activities of $348.7 million for the nine months ended September 30, 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 in the current year.

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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.

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

CONTINGENCIES AND UNCERTAINTIES

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We manage our exposure to interest rate risk by establishing a mix of indebtedness bearing interest at both floating and fixed rates at inception and maintain a ratio of floating and fixed rates on this mix of indebtedness using interest rate derivatives when necessary.

See Note 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.

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.

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 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.

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.

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