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Item 7. Management’s Discussion and Analysis

2023-02-10 compared with 2022-02-11 · 134 added, 167 removed, 322 unchanged (48% 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.

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.

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 impact on the environment 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.

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We report our business in the following segments:

(i) AWP and (ii) MP.

(i) MP and (ii) AWP.

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

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We do not, nor do we suggest that investors consider, such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.

Non-GAAP measures we may use include translation effect of foreign currency exchange rate changes on net sales, gross profit, SG&A costs and operating profit, as well as the net sales, gross profit, SG&A costs and operating profit excluding the impact of acquisitions and divestitures.

Non-GAAP measures we may use include translation effect of foreign currency exchange rate changes on net sales, gross profit, SG&A expenses and operating profit, as well as the net sales, gross profit, SG&A expenses and operating profit excluding the impact of acquisitions and divestitures.

As changes in foreign currency exchange rates have a non-operating impact on our financial results, we believe excluding effects of these changes assists in assessment of our business results between periods.

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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 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, 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 also include Net Operating Profit After Tax (“NOPAT”), which is 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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All Terex team members contributed to our effort of continuing to provide products and services for our customers, while maintaining a safe working environment.

Our strategic operational priorities of execution, innovation, and growth continue to make excellent progress and strengthened our business operations in 2021.

We proactively managed supply chain disruptions and aggressively managed SG&A costs.

We also improved Genie’s future cost competitiveness as our temporary Mexico facility is now producing telehandlers and continues to ramp-up.

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

We introduced new products including environmental and recycling solutions in MP, new electric offerings in Genie, and electric grid maintenance products in Utilities.

We also continued to invest in connected assets and digital capabilities, such as customer dealer integration and telematics across the enterprise to better serve customers.

Organic and inorganic growth continues to be a focus.

In 2021, we expanded production capabilities of mobile crushing and screening equipment in China and Northern Ireland, completed a bolt-on acquisition, purchasing a heavy duty trommels business that broadens our product offerings, and continued expansion of service facilities for our Utilities customers.

Our performance in 2021 reflected strong improvement in the business and good execution by our team members in a dynamic and challenging environment.

Net sales of $3.9 billion were up 26% year-over-year as end-markets recovered.

SG&A spending was $42 million lower year-over-year at 11% of net sales, beating our 12.5% target.

Operating margin of 8.4% expanded 620 basis points due to higher sales and strict expense discipline.

This led to earnings per share (“EPS”) increasing significantly from $0.13 in 2020 to $3.07 in 2021.

Overall, 2021 demonstrated the resilience of our businesses and team members to deliver improving results throughout the year against a challenging backdrop.

Like most other industrial companies, we faced shortages and cost pressures from materials, logistics, freight and labor.

These headwinds became more pronounced as the year developed, particularly in the fourth quarter, and have constrained our growth in the short-term.

We took pricing actions, but they were not sufficient to offset significant material and logistics inflation in the back half of 2021.

Our AWP segment’s 2021 net sales were up 22% from the prior 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 strengthening aerials rental industry.

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

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

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

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

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

We expect end market demand to remain strong into 2022 as demonstrated by AWP’s backlog, which is up 137% compared to the prior year.

As a result, we anticipate net sales between $2.3 billion and $2.4 billion and an operating margin between 7.8% and 8.5% in 2022.

We expect significantly higher input costs peaking in the first quarter with pricing realization improving through the year.

Our MP segment’s 2021 net sales were up 35% from the prior 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 for the year.

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 MP’s backlog, which is up 98% compared to the prior year period.

As a result, we anticipate net sales between $1.8 billion and $1.9 billion and an operating margin between 14.0% and 14.5% in 2022, although we expect the first quarter will be challenged by supply constraints.

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.

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 2022, we completed a number of acquisitions, including enhancing our concrete offerings, adding fabrication capacity for our Northern Ireland businesses and expanding 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 2022 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 $4.4 billion were up 14% year-over-year, 20% on a foreign exchange neutral basis, as end-markets remained strong.

Gross margins increased by 190 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 down 80 basis points to 10.2% of net sales, reflecting focused cost management.

Operating margin of 9.5% was up 110 basis points year-over-year driven by prudent cost management and the improvement throughout the year in price cost dynamics.

Overall, 2022 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.

In addition, the weakening of the Euro and British Pound against the U.S.

Dollar had a meaningful negative impact on our results in the year.

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

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 were price/cost neutral for all of 2022.

MP had a strong year with net sales up 15% from 2021, 23% on a foreign exchange neutral basis, driven by strong customer sentiment across multiple end-markets and geographies as well as price realization.

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

Our mobile crushing and screening businesses are benefiting from the strength of aggregates driven by investments in infrastructure projects and demand for sand to source silicon used in semiconductors.

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

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

Our material handlers are benefiting from diversification into waste, scrap, port and timber applications.

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 15.3% operating margin for the year, up 110 basis points as compared to 2021.

We expect customer sentiment to remain strong and we are encouraged by MP’s backlog (including deliveries beyond 12 months) of $1.2 billion, which is up 12% compared to 2021 backlog of $1.0 billion.

As a result, we anticipate net sales between $2.0 billion and $2.1 billion and an operating margin of approximately 15.5% in 2023.

AWP’s 2022 net sales were up 14% compared to 2021 and increased 19% on a foreign exchange neutral basis, primarily due to higher demand driven by fleet replacement and end-market growth for aerial work platforms and price realization necessary to mitigate rising costs.

Utility product growth was strong in North America.

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

Examples of such applications for Genie products include data centers, warehouses and manufacturing facilities.

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 of aerial work platforms continues to improve labor efficiency and jobsite safety.

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

AWP delivered operating margins of 7.9% in the year driven by strict expense management and disciplined pricing actions.

We expect end market demand to remain strong into 2023 as demonstrated by AWP’s backlog (including deliveries beyond 12 months) of $2.9 billion, which is up 27% compared to 2021 backlog of $2.3 billion.

As a result, we anticipate net sales between $2.6 billion and $2.7 billion and an operating margin of approximately 9.0% in 2023.

We anticipate moving multiple production lines throughout our global footprint and opening our new permanent facility in Monterrey, Mexico, which we expect to impact manufacturing efficiencies in 2023.

In 2022, our largest market remained North America, which represented approximately 56% of our global sales.

As compared to the prior year period, our sales were up double digits in every major geography.

Throughout 2021, our team members remained vigilant and aggressively managed all costs generating $125 million of free cash flow in the year.

As of December 31, 2021, we had $867 million in available liquidity, with no near-term debt maturities.

Our strong liquidity position and cash generation allowed us to repay $503 million of debt in 2021.

We also continued to invest in the business in 2021 with $60 million of capital expenditures across our businesses.

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

As compared to 2021, 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 2022.

We made strategic investments in our businesses and continued to return capital to shareholders.

Our strong balance sheet has allowed us to return approximately $132 million of cash to shareholders during 2022.

We generated $152 million of free cash flow in the year, $27 million greater than we generated in 2021.

We continue to maintain ample liquidity and as of December 31, 2022, we had $727 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.

Customer demand remains strong for our products and services.

However, we are operating in a very challenging supply chain and logistics environment along with the continued impacts of a pandemic, so our results could change negatively or positively.

However, we continue to operate in a highly uncertain environment with supply chain challenges, inflationary pressures, foreign exchange rate volatility and geopolitical uncertainty, so results can change, positively or negatively.

See Part I, Item 1A.

– “Risk Factors” for a detailed description of the risks associated with supply chain disruptions and COVID-19.

– “Risk Factors” for a detailed description of the risks associated with supply chain disruptions.

As a result, we currently expect 2023 EPS to be between $4.60 and $5.00, on net sales between $4.6 billion and $4.8 billion.

Our outlook assumes pricing actions along with manufacturing efficiencies will offset cost pressures and that supply chain headwinds will abate in the second half of the year.

Our outlook assumes pricing actions along with manufacturing efficiencies will offset cost pressures.

We intend to continue to make prudent investment in the business including our new product development, engineering and digital initiatives.

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 full year 2022 effective tax rate (“Effective Tax Rate”).

In the calculation of ROIC, we adjust Income (loss) from operations 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.

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

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

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

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

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

In order for the denominator of the ROIC ratio to properly match the operational period reflected in the numerator, we include the average of five quarters’ ending balance sheet amounts so that the denominator includes the average of the opening through ending balances (on a quarterly basis) thereby providing, over the same time period as the numerator, four quarters of average invested capital.

Terex management and Board of Directors use ROIC as one measure to assess operational performance, including in connection with certain compensation programs.

Our management and Board of Directors use ROIC as one measure to assess operational performance, including in connection with certain compensation programs.

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

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

We 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.

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Effective Tax Rate 18.1 % 18.1 % 18.1 % 18.1 %

Income (loss) from operations as adjusted $ 70.0 $ 74.9 $ 117.3 $ 55.4

Income (loss) from operations $ 120.8 $ 120.8 $ 103.9 $ 74.5

Multiplied by:

1 minus Effective Tax Rate 81.9 % 81.9 % 81.9 % 81.9 %

Adjusted net operating income (loss) after tax $ 57.7 $ 61.7 $ 96.7 $ 45.6

Net operating income (loss) after tax $ 98.9 $ 98.9 $ 85.1 $ 61.0

Debt $ 775.5 $ 826.5 $ 828.2 $ 740.3 $ 674.1

Cash and cash equivalents as adjusted (266.9) (558.2) (547.5) (577.8) (670.1)

Debt less Cash and cash equivalents as adjusted 407.2 335.2 346.7 401.4 503.7

Stockholders’ equity as adjusted 1,097.0 1,037.5 1,015.5 918.9 806.8

Debt less Cash and cash equivalents plus Stockholders’ equity as adjusted $ 1,504.2 $ 1,372.7 $ 1,362.2 $ 1,320.3 $ 1,310.5

Cash and cash equivalents (304.1) (231.7) (253.3) (218.4) (266.9)

Debt less Cash and cash equivalents 471.4 594.8 574.9 521.9 407.2

Stockholders’ equity 1,181.2 1,034.7 1,048.9 1,114.1 1,109.6

Debt less Cash and cash equivalents plus Stockholders’ equity $ 1,652.6 $ 1,629.5 $ 1,623.8 $ 1,636.0 $ 1,516.8

December 31, 2022 ROIC

NOPAT as adjusted (last 4 quarters) $ 343.9

Average Debt less Cash and cash equivalents plus Stockholders’ equity, as adjusted (5 quarters) $ 1,374.0

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

Reconciliation of income (loss) from operations:

Income (loss) from operations as reported $ 69.8 $ 74.2 $ 122.5 $ 61.5

(Income) loss from TFS 0.2 0.7 (5.2) (6.1)

Income (loss) from operations as adjusted $ 70.0 $ 74.9 $ 117.3 $ 55.4

As of 12/31/21 As of 9/30/21 As of 6/30/21 As of 3/31/21 As of 12/31/20

Reconciliation of Cash and cash equivalents:

Cash and cash equivalents - continuing operations $ 266.9 $ 553.2 $ 542.2 $ 572.9 $ 665.0

Cash and cash equivalents - assets held for sale — 5.0 5.3 4.9 5.1

Cash and cash equivalents as adjusted $ 266.9 $ 558.2 $ 547.5 $ 577.8 $ 670.1

Reconciliation of Stockholders’ equity:

Stockholders’ equity as reported $ 1,109.6 $ 1,050.7 $ 1,033.9 $ 946.1 $ 921.5

TFS Assets (3.3) (3.7) (8.3) (21.4) (113.9)

Effects of adjustments, net of tax:

(Income) loss from TFS (9.3) (9.5) (10.1) (5.8) (0.8)

Stockholders’ equity as adjusted $ 1,097.0 $ 1,037.5 $ 1,015.5 $ 918.9 $ 806.8

Average Debt less Cash and cash equivalents plus Stockholders’ equity (5 quarters) $ 1,611.7

RESULTS OF OPERATIONS

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Gross profit 871.2 19.7 % 757.4 19.5 % 539.3 17.5 % 15.0 %

SG&A 429.4 11.0 % 470.9 15.3 % 552.8 12.7 % (8.8) %

Income (loss) from operations 328.0 8.4 % 68.4 2.2 % 335.0 7.7 % 379.5 %

SG&A expenses 451.2 10.2 % 429.4 11.0 % 470.9 15.3 % 5.1 %

Income from operations 420.0 9.5 % 328.0 8.4 % 68.4 2.2 % 28.0 %

Net sales for the year ended December 31, 2022 increased $530.9 million when compared to 2021.

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

Changes in foreign exchange rates positively impacted consolidated net sales by approximately $95 million.

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

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

Changes in foreign exchange rates negatively impacted consolidated net sales by approximately $244 million.

Gross profit for the year ended December 31, 2022 increased $113.8 million when compared to 2021.

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 and labor availability constraints.

SG&A costs for the year ended December 31, 2021 decreased $41.5 million when compared to 2020.

The decrease was primarily due to cost management actions taken across all areas of our business, including right-sizing our workforce and reduced discretionary spending, partially offset by the negative impact of changes in foreign exchange rates.

Income from operations increased by $259.6 million for the year ended December 31, 2021 when compared to 2020.

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

Aerial Work Platforms

The increase was primarily due to incremental margin on higher sales volume, price realization and favorable mix, 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 year ended December 31, 2022 increased $21.8 million when compared to 2021 primarily due to increased selling, technology and engineering costs in 2022 and non-recurring gains in 2021, 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 2021 due to continued cost discipline across all areas of our business.

Income from operations for the year ended December 31, 2022 increased by $92.0 million when compared to 2021.

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

Materials Processing

2022 2021 2020

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Income from operations 297.8 15.3 % 240.9 14.2 % 143.4 11.4 % 23.6 %

* Not a meaningful percentage

Net sales for the AWP segment for the year ended December 31, 2021 increased $395.9 million when compared to 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 $42 million.

Income from operations for the year ended December 31, 2021 increased $151.6 million when compared to 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 and labor availability constraints.

Materials Processing

Net sales for the year ended December 31, 2022 increased by $249.8 million when compared to 2021 primarily due to robust end-market demand for aggregates in all major geographies, material handlers and environmental equipment in North America and Western Europe, and cranes in Asia-Pacific and North America, as well as price realization, necessary to mitigate rising costs, and new product offerings.

Net sales were negatively impacted by changes in foreign exchange rates of approximately $138 million.

Income from operations for the year ended December 31, 2022 increased $56.9 million when compared to 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

2022 2021 2020

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Income from operations 196.2 7.9 % 152.1 7.0 % 0.5 — % 29.0 %

Net sales for the MP segment increased by $435.0 million for the year ended December 31, 2021 when compared to 2020 primarily due to robust end-market demand for aggregates and cranes in all major geographies, material handlers in North America and Western Europe, and concrete mixer trucks and environmental equipment in North America.

Net sales were positively impacted by the effects of foreign exchange rate changes of approximately $53 million.

Income from operations for the year ended December 31, 2021 increased $97.5 million when compared to 2020 primarily due to higher sales volume, price realization and the positive effects of foreign exchange rate changes, partially offset by material, labor and freight cost inflation due to disruptions in the supply chain and labor availability constraints.

Net sales for the year ended December 31, 2022 increased $304.8 million when compared to 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 except China and utility products and telehandlers in North America.

Net sales were negatively impacted by changes in foreign exchange rates of approximately $106 million.

Income from operations for the year ended December 31, 2022 increased $44.1 million when compared to 2021 primarily due to incremental margin on higher sales volume, price realization and favorable mix, 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

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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 year ended December 31, 2021 decreased $10.5 million when compared to 2020.

The decrease in operating loss is primarily due to SG&A cost management, gains on the sale of assets and a reserve release in the current period for a specific finance receivable reserve recorded in 2020, partially offset by lower revenue.

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 year ended December 31, 2022 increased $9.0 million when compared to 2021.

The increase in operating loss is primarily due to a gain on the sale of the finance receivables and a finance receivable reserve release in 2021.

2022 2021 2020

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Interest Expense, Net of Interest Income

During the year ended December 31, 2021, our interest expense, net of interest income, was $47.8 million, or $14.5 million lower than in 2020 due to a decrease in average borrowings and lower rates.

Interest expense, net of interest income, was comparable at $46.3 million and $47.8 million for the year ended December 31, 2022 and 2021, respectively.

Loss on Early Extinguishment of Debt

During the year ended December 31, 2021, we recorded a loss on early extinguishment of debt of $29.4 million related to refinancing of a significant portion of our capital structure and prepayment of term loans.

During the year ended December 31, 2022, loss on early extinguishment of debt was $0.3 million, or $29.1 million lower when compared to the same period in 2021, due to refinancing of a significant portion of our capital structure and prepayment of term loans in 2021.

Other Income (Expense) – Net

Other income (expense) – net for the year ended December 31, 2021 was income of $13.0 million, compared to $4.9 million in 2020, an increase of $8.1 million.

The increase in income was primarily due to a gain related to the early termination of a lease, partially offset by a positive post-closing adjustment in 2020 related to the settlement of our U.S.

defined benefit pension plan in 2018 and lower foreign exchange rate translation gains and mark-to-market gains on investments in the current year compared to the prior year.

Other income (expense) – net for the year ended December 31, 2022 was an expense of $6.8 million, compared to income of $13.0 million in the same period in 2021.

The increase in expense was primarily due to a gain related to the early termination of a lease in 2021, mark-to-market losses recorded on an equity investment in 2022 compared to gains recorded in 2021 and foreign exchange transaction losses in 2022 compared to gains in 2021.

During the year ended December 31, 2022, we recognized income tax expense of $66.4 million on income of $366.6 million, an effective tax rate of 18.1%, as compared to income tax expense of $46.3 million on income of $263.8 million, an effective tax rate of 17.6%, for the year ended December 31, 2021 .

The lower effective tax rate for the year ended December 31, 2021 when compared to the year ended December 31, 2020 is primarily due to U.S.

tax on foreign income and certain discrete items, partially offset by geographic mix and the 2020 benefit of the Coronavirus Aid, Relief, and Economic Security Act.

The higher effective tax rate for the year ended December 31, 2022 when compared to the year ended December 31, 2021 is primarily due to unfavorable items including higher U.S.

tax on foreign income and lower uncertain tax positions benefit, partially offset by the release of the valuation allowance for the German interest expense deferred tax asset in 2022.

Gain (Loss) on Disposition of Discontinued Operations – Net of Tax

During the years ended December 31, 2022 and 2021, we recognized a gain (loss) on disposition of discontinued operations - net of tax of $(0.2) million and $3.4 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.

The loss in 2022 primarily related to the sale of our mobile cranes business in 2019.

The gain in 2021 primarily related to the sales of our MHPS and mobile crane businesses in 2017 and 2019, respectively.

CRITICAL ACCOUNTING ESTIMATES

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Such reserves are not reduced until the product is sold.

Guarantees – We may assist customers in their rental, leasing and acquisition of our products by facilitating financing transactions directly between (i) end-user customers, distributors and rental companies and (ii) third-party financial institutions, providing recourse in certain circumstances.

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

Many of these factors, including the assessment of a customer’s ability to pay, are influenced by economic and market factors that cannot be predicted with certainty.

Our maximum liability is generally limited to our customer’s remaining payments due to the third-party financial institutions at the time of default.

In the event of a customer default, we are generally able to recover and dispose of the equipment at a minimum loss, if any, to us.

Reserves are recorded for expected loss over the contractual period of risk exposure.

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

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

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

Revenue Recognition – We recognize revenue when goods or services are transferred to customers in an amount that reflects the consideration which we expect to receive in exchange for those goods or services.

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These estimates are primarily derived from contractual terms and historical experience.

Accounts Receivable and Allowance for Doubtful Accounts – Trade accounts receivable are recorded at invoiced amount and do not bear interest.

Allowance for doubtful accounts is our estimate of current expected credit losses on existing accounts receivable and determined based on historical customer assessments, current financial conditions and reasonable and supportable forecasts.

Account balances are charged off against the allowance when the Company determines it is expected the receivable will not be recovered.

There can be no assurance that our estimate of accounts receivable collection will be indicative of future results.

Goodwill – We test goodwill at the reporting unit level for impairment on an annual basis and between annual tests if events and circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying value.

Our annual impairment test date is the first day of our fiscal fourth quarter.

We consider whether each component of an operating segment meets the criteria for a reporting unit in accordance with ASC 350-20.

However, we aggregate two or more components of an operating segment into a single reporting unit if the components have similar economic characteristics.

In performing the goodwill impairment test, we may first perform a qualitative assessment or bypass the qualitative assessment and proceed directly to performing the quantitative impairment test.

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The loss recognized would not exceed total amount of goodwill allocated to that reporting unit.

Long-Lived Assets – We assess the realizability of our long-lived assets, including definite-lived intangible assets, and to evaluate such assets for impairment whenever events or changes in circumstances indicate the carrying amount of such assets (or group of assets) may not be recoverable.

The quantitative assessment indicated that each reporting unit had an estimated fair value which substantially exceeded its respective carrying amount at the annual impairment test date.

Long-Lived Assets – We assess the realizability of our long-lived assets, including definite-lived intangible assets, and evaluate such assets for impairment whenever events or changes in circumstances indicate the carrying amount of such assets (or group of assets) may not be recoverable.

Impairment is determined to exist if estimated future undiscounted cash flows are less than carrying value.

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These estimated annual compensation increases are determined by management every year and are based on historical trends and market indices.

We have recorded the net underfunded status of our defined benefit pension plans as a liability partially offset by an asset and the unrecognized prior service costs and actuarial gains (losses) as an adjustment to Stockholders’ equity on the Consolidated Balance Sheet.

The net decrease in the net liability and increased funded status of $24.1 million was due primarily to changes in assumptions from the previous year, primarily increases in discount rates and returns on our plan assets.

We have recorded the underfunded status of our defined benefit pension plans as a liability and the unrecognized prior service costs and actuarial gains (losses) as an adjustment to Stockholders’ equity on the Consolidated Balance Sheet.

The decrease in the net liability and increased funded status of $2.4 million was due primarily to changes in assumptions from the previous year, primarily increases in discount rates, partially offset by losses on our plan assets resulting from global economic conditions.

Actual results in any given year will often differ from actuarial assumptions because of demographic, economic and other factors.

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These deferred income tax balances arise from temporary differences due to divergent treatment of certain items for accounting and income tax purposes.

We evaluate our deferred tax assets each period to ensure that estimated future taxable income will be sufficient in character, amount and timing to result in the use of our deferred tax assets.

We evaluate the net realizable value of our deferred tax assets each period to ensure that estimated future taxable income will be sufficient in character, amount and timing to result in the use of our deferred tax assets.

“Character” refers to the type (ordinary income versus capital gain) as well as the source (foreign vs.

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“Timing” refers to the period in which future income is expected to be generated.

Timing is important because, in certain jurisdictions, net operating losses (“NOLs”) and other tax attributes expire if not used within an established statutory time frame.

Timing is important because, in certain jurisdictions, net operating losses (“NOLs”) or other tax attributes expire if not used within an established statutory time frame.

We record a valuation allowance for each deferred tax asset for which realization is not assessed as more likely than not.

We must consider all objective evidence, both positive and negative, in evaluating the future realization of our deferred tax assets, including tax loss carry forwards.

Available evidence, including historical information is supplemented by currently obtainable information about future tax years.

Realization of deferred tax assets requires sufficient taxable income of the appropriate character.

Based on these evaluations, we have determined that it is more likely than not that expected future earnings will be sufficient to use most of our deferred tax assets.

To the extent estimates of future taxable income decrease or do not materialize, additional valuation allowances may be required.

We do not provide for income taxes or tax benefits on differences between financial reporting basis and tax basis of our non-U.S.

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Tax returns are subject to audit and local taxing authorities could challenge tax-filing positions we take.

Our practice is to file income tax returns that conform to requirements of each jurisdiction and to record provisions for tax liabilities, including interest and penalties, in accordance with Accounting Standards Codification (“ASC”) 740, “Income Taxes.” Given the continued changes and complexity in worldwide tax laws, coupled with our geographic scope and size there may be greater exposure to uncertain tax positions.

Our practice is to file income tax returns that conform to requirements of each jurisdiction and to record provisions for tax liabilities, including interest and penalties, in accordance with Accounting Standards Codification 740, “Income Taxes.” Given the continued changes and complexity in worldwide tax laws, coupled with our geographic scope and size there may be greater exposure to uncertain tax positions.

Given the subjective nature of applicable tax laws, results of an audit of some of our tax returns could have a significant impact on our consolidated financial statements.

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At December 31, 2022, we had cash and cash equivalents of $304 million and undrawn availability under our revolving line of credit of $423 million, giving us total liquidity of approximately $727 million.

During the year ended December 31, 2021, our liquidity decreased by approximately $250 million from December 31, 2020 primarily due to reducing outstanding debt by approximately $503 million and investing in our strategic priorities, partially offset by cash generated from operations, the expiration of a $150 million minimum liquidity requirement and proceeds of approximately $99 million from the sale of finance receivables.

During the year ended December 31, 2022, our liquidity decreased by approximately $140 million from December 31, 2021 primarily due to term loan prepayment, capital expenditures, investments, share repurchases, dividends and acquisitions, partially offset by cash generated from operations which includes the adverse impact of higher inventory due to supply chain disruptions.

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 2026 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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Our ability to generate cash from operations is subject to numerous factors, including the following:

• The duration and depth of the global economic uncertainty resulting from COVID-19.

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

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

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Our investment objective is to preserve capital and liquidity while earning a market rate of interest.

We seek to use cash held by our foreign subsidiaries to support our operations and continued growth plans outside and inside the U.S.

through funding of capital expenditures, operating expenses or other similar cash needs of these operations.

We seek to use cash held by our foreign subsidiaries to support our operations and continued growth plans through funding of capital expenditures, operating expenses or other similar cash needs of worldwide operations.

Most of this cash could be used in the U.S., if necessary, without additional tax expense.

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Net cash provided by (used in) operating activities $ 261.2

Increase (decrease) in TFS assets (110.6)

Capital expenditures, net of proceeds from sale of capital assets (109.4)

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Pursuant to terms of our trade accounts receivable factoring arrangements, during the year ended December 31, 2022, we sold, without material recourse, approximately $665 million of trade accounts receivable to enhance liquidity.

During the year ended December 31, 2021, we also sold approximately $96 million of sales-type leases and commercial loans.

Working capital as a percent of trailing three month annualized net sales was 18.0% at December 31, 2022.

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Working Capital $ 875.1

On January 31, 2017, we entered into a credit agreement which was subsequently amended to include (i) a $600 million revolving line of credit (the “Revolver”) and (ii) senior secured term loans totaling $600 million with a maturity date of January 31, 2024 (the “Term Loans”).

On April 1, 2021, we entered into an amendment and restatement of the credit agreement (as amended and restated, the “Credit Agreement”) which included the following principal changes to the original credit agreement:

(i) extension of the term of the Revolver to expire on April 1, 2026, which maturity will spring forward to November 1, 2023 if the principal outstanding under the Term Loans is not repaid or the maturity date is not extended, (ii) reinstatement of financial covenants that were waived in 2020, (iii) decrease in the interest rate on the drawn Revolver by 25 basis points and (iv) certain other technical changes, including additional language regarding the potential cessation of the London Interbank Offered Rate (“LIBOR”) as a benchmark rate.

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

Borrowings under the Credit Agreement as of December 31, 2021 were $77.8 million, net of discount, on our Term Loans.

During the year ended December 31, 2021, we prepaid approximately $500 million of our Term Loans prior to their maturity date to reduce our outstanding debt and lower our leverage.

At December 31, 2021, the weighted average interest rate was 2.75% on our Term Loans.

There were no amounts outstanding on the Revolver as of December 31, 2021.

In April 2021, we sold and issued $600.0 million aggregate principal amount of Senior Notes Due 2029 (“5% Notes”) at par in a private offering.

The proceeds from the 5% Notes, together with cash on hand, were used to fund redemption and discharge of the $600.0 million aggregate principal amount of Senior Notes Due 2025 (“5-5/8% Notes”) in full for $622.9 million, including redemption premiums of $16.9 million and accrued but unpaid interest of $6.0 million.

See Note J – “Long-Term Obligations” in our Consolidated Financial Statements for additional information regarding the 5% Notes and 5-5/8% Notes.

Revolver Borrowings were $177 million at December 31, 2022.

At December 31, 2022, the weighted average interest rate was 6.10% on the Revolver.

During the year ended December 31, 2022, we prepaid $78 million to retire our Term Loans prior to their maturity date to reduce our outstanding debt and lower our leverage.

For information regarding debt, see Note J – “Long-Term Obligations” in Notes to Consolidated Financial Statements.

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

We also anticipate our continued use of TFS to drive incremental sales by increasing customer financing facilitated through TFS in certain instances.

In February 2021, we transferred finance receivables of $89.7 million to a U.S.

regional bank, which qualified for sales treatment under ASC 860.

We received $99.4 million of cash proceeds from the sale and recognized a net gain of $5.6 million.

On May 25, 2021, we acquired assets to facilitate manufacturing of certain MP products in China for total cash consideration of approximately $17 million.

On July 6, 2021, we acquired a manufacturer of heavy duty aggregate and recycling trommels, apron feeders and conveyor systems based in the Republic of Ireland for total cash consideration of approximately $19 million.

This acquisition supports our strategy to expand our material processing offerings in the crushing, screening and environmental industries, with products that complement our existing products.

On April 22, 2022, we acquired a manufacturer of heavy fabrications based in Northern Ireland to facilitate manufacturing of certain MP products for cash consideration of approximately $6 million.

On July 29, 2022, we acquired a manufacturer of volumetric mixers based in Canada to expand our concrete product offering for consideration of approximately $40 million.

See Note D - “Acquisitions and Dispositions” in our 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 year ended December 31, 2022, we repurchased 2,862,650 shares for $96.6 million under this authorization leaving approximately $43 million available for repurchase under this program.

In February 2021, our Board of Directors reinstated our quarterly dividend for 2021 and declared a dividend of $0.12 per share in each quarter of 2021, which was paid to our shareholders.

In February 2022, our Board of Directors declared a dividend of $0.13 per share, which will be paid to the Company’s shareholders on March 21, 2022.

In December 2022, our Board of Directors authorized the additional repurchase up to $150 million of our outstanding shares of common stock.

Our Board of Directors declared a dividend of $0.13 per share in each quarter of 2022, which were paid to our shareholders.

In February 2023, our Board of Directors declared a dividend of $0.15 per share, which will be paid on March 20, 2023 to our shareholders of record as of March 9, 2023.

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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Future interest payments associated with the outstanding debt are approximately $203 million with $41.8 million payable within 12 months.

For detailed debt information see Note J – “Long Term Obligations”.

For detailed debt information see Note J – “Long Term Obligations” in Notes to Consolidated Financial Statements.

The Company has leases for real property, vehicles and office and industrial equipment.

As of December 31, 2022, the Company had contractual fixed costs primarily related to lease commitments of approximately $107 million, with $33.3 million payable within 12 months.

For detailed lease information see Note K – “Leases”.

For detailed lease information see Note K – “Leases” in Notes to Consolidated Financial Statements.

Purchase Obligations

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We reported a liability of $2.5 million related to unrecognized tax benefits as of December 31, 2022 and do not expect this liability to change materially in 2023.

As such, any related payments in 2022 would not be significant.

As such, any related payments in 2023 should not be significant.

Additionally, at December 31, 2022, we had outstanding letters of credit that totaled $118.4 million and maximum exposure of $121.4 million for credit guarantees outstanding related to recourse provided to third-party financial institutions when customers finance the purchase of equipment.

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Changes in market conditions, changes in our funding levels or actions by governmental agencies may result in accelerated funding requirements in future periods.

In 2022, we expect approximately $90 million in net capital expenditures, with our largest expenditure related to our manufacturing facility in Mexico.

In 2023, we expect approximately $135 million in capital expenditures, with our largest expenditure related to our manufacturing facility in Mexico.

Cash provided by operations was $261.2 million and $293.4 million for the years ended December 31, 2022 and 2021, respectively.

The increase in cash provided by operations was primarily driven by increased operating profitability and proceeds from the sale of customer finance receivables, partially offset by higher working capital as a result of robust end-market demand.

The change in operating cash was primarily driven by proceeds from the sale of finance receivables received in 2021, partially offset by increased operating profitability in 2022.

Cash used in investing activities was $154.1 million and $102.2 million for the years ended December 31, 2022 and 2021, respectively.

The increase in cash used in investing activities relates primarily to cash used in acquisition and investment activity, partially offset by lower capital expenditures in the current year and proceeds from the disposition of discontinued operations in the prior year.

Cash used in financing activities was $580.1 million and $82.8 million for the years ended December 31, 2021 and 2020, respectively.

The increase in cash used in financing activities was primarily due to higher debt repayments, dividend payments and debt extinguishment costs in the current year, partially offset by higher share repurchases in the prior year.

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

Cash used in financing activities was $54.9 million and $580.1 million for the year ended December 31, 2022 and 2021, respectively.

The decrease in cash used in financing activities was primarily due to debt prepayments in 2021 compared to borrowings in 2022, partially offset by share repurchases in 2022.

OFF-BALANCE SHEET ARRANGEMENTS

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.

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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, Australian Dollar and Mexican Peso.

Primary currencies to which we are exposed are the Euro, British Pound, Chinese Yuan, Indian Rupee, Australian Dollar and Mexican Peso.

We purchase hedging instruments to manage variability of future cash flows associated with recognized assets or liabilities due to changing currency exchange rates.

See Risk Factor entitled, “We are subject to currency fluctuations.” in Part I, Item 1A.

See Risk Factors in Part I, Item 1A.

for further information on our foreign exchange risk.

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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-K

Item 7. Management’s Discussion and Analysis