What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-10-27 compared with 2023-08-02 · 107 added, 102 removed, 240 unchanged (47% of the section changed)

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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 also include translation effect of foreign currency exchange rate changes on net sales, gross profit, selling, general & administrative (“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.

Non-GAAP measures also include translation effect of foreign currency exchange rate changes on net sales, gross profit, selling, general & administrative (“SG&A”) expenses and operating profit.

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

We calculate the translation effect of foreign currency exchange rate changes by translating current period results using rates that the comparable prior periods were translated at to isolate the foreign exchange component of fluctuation from the operational component.

Similarly, impact of changes in our results from acquisitions and divestitures not included in comparable prior periods may be subtracted from the absolute change in results to allow for better comparability of results between periods.

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

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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.

Our operations teams had excellent execution in the second quarter of 2023, demonstrating adaptability and flexibility to overcome the dynamic supply chain 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.

Our operations teams executed well during the third quarter of 2023, maintaining their focus on improving deliveries to our customers and continuing with cost reduction and productivity improvement initiatives.

Our investments in new product and technologies are important to help enable us to take advantage of sustainability trends such as recycling, electrification and decarbonization.

Our permanent Mexico facility continues to advance on time and on budget.

In the first half of 2023, Genie began transferring product lines from our temporary facility to our new permanent facility in Monterrey.

Our parts and service teams are investing in digital offerings for dealers and customers, including myTerex and Lift Connect.

Our performance in the second quarter of 2023 reflected strong, global customer demand in our businesses and excellent execution by our team members in a dynamic and challenging environment.

In the third quarter of 2023, our team members were focused on increasing production, starting up of our in-house paint system and process improvements at our new facility.

Our performance in the third quarter of 2023 reflected strong, global customer demand in our businesses and excellent execution by our team members in a dynamic and challenging environment.

Net sales of $1.3 billion were up 15% year-over-year as end-markets remained strong.

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Operating margin of 12.7%, was up 190 basis points compared to the prior year period.

This led to EPS more than doubling year-over-year to $2.35 in the second quarter of 2023 from our ongoing operations.

Overall, second quarter 2023 financial performance demonstrated continued, strong execution and focus on delivering for our customers and dealers despite continued macroeconomic volatility and lingering supply chain constraints.

This led to EPS increasing 46% to $1.75 in the third quarter of 2023 from our ongoing operations.

Overall, third quarter 2023 financial performance demonstrated continued, strong execution and focus on delivering for our customers and dealers despite continued macroeconomic volatility and lingering supply chain constraints.

Although supplier on-time delivery has improved, it remains below historical norms.

Our “hospital” inventories decreased by $25 million from the first quarter.

However, we continued to have $23 million of “hospital” inventory at the end of the second quarter, a clear indication of the level of disruption we continue to face.

Inflationary pressures are moderating, but overall costs continue to increase.

In addition to inflationary pressures and supply chain constraints, our teams are also navigating volatile credit and interest rate markets.

We continue to focus on assisting our customers in their efforts to obtain external financing solutions and monitor regional, customer and supplier risk.

MP had another strong quarter with net sales up 20% from the prior year period, driven by strong customer sentiment across multiple end-markets and geographies as well as price realization.

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

However, we continued to have $20 million of “hospital” inventory at the end of the third quarter, a clear indication of the level of disruption we continue to face.

Higher interest rates, inflation and geopolitical uncertainties have had an impact on Europe and we have seen slight softening in that market while demand in North America remains strong.

MP had another strong quarter with net sales up 18% from the prior year period, driven by strong demand for our aggregates, environmental and concrete products.

The MP businesses also continue to benefit from dealers looking to replenish their inventory and rental fleets.

Our mobile crushing and screening businesses are benefiting from the strength of aggregates and recycled materials.

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Although we are seeing some softness in European order activity, MP’s backlog of $0.9 billion remains healthy, supporting our outlook.

AWP’s second quarter 2023 net sales were up 38% compared to the prior year period, primarily driven by improved supply chain, higher demand and price realization necessary to mitigate rising costs.

Utility product growth was strong in North America.

AWP’s third quarter 2023 net sales were up 13% compared to the prior year period, primarily driven by improved supply chain, higher demand and price realization necessary to mitigate rising costs.

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.

In addition, the fundamentals of the North American 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 16.2% in the second quarter of 2023 driven by higher sales volumes, manufacturing efficiencies, cost reduction initiatives, and disciplined pricing actions to offset higher costs.

While our Utilities business is generally benefiting from electric grid expansion across the U.S., in the third quarter, this business was negatively impacted by inefficiencies due to supply chain issues, trade show expenses, and unfavorable product mix.

AWP delivered operating margins of 12.5% in the third quarter of 2023 driven by higher sales volumes, manufacturing efficiencies, cost reduction initiatives and disciplined pricing actions to offset higher costs.

AWP continues to have a robust backlog of $2.5 billion.

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While these moves are expected to have long-term benefits, we anticipate the moves will result in short-term manufacturing inefficiencies.

In the second quarter of 2023, our largest market remained North America, which represented approximately 60% of our global sales.

As compared to the prior year period, sales were up double digits in every major geography, on a foreign currency neutral basis.

We continued to execute our disciplined capital allocation strategy in the second quarter of 2023 as we made strategic investments in our businesses and we returned capital to shareholders.

Lingering supply chain issues are also expected to negatively impact our Utilities business in the fourth quarter.

In the third quarter of 2023, our largest market remained North America, which represented approximately 61% of our global sales.

As compared to the prior year period, sales were up double digits in North America and up single digits in Western Europe and Asia Pacific.

On a foreign currency neutral basis, sales in Western Europe were down slightly.

We continued to execute our disciplined capital allocation strategy in the third quarter of 2023 as we made strategic investments in our businesses and we returned capital to shareholders.

In July 2023, our Board of Directors approved increasing our quarterly dividend by 13% to $0.17 per share.

This follows a 15% increase we announced earlier this year.

The 31% increase in our dividend since the start of 2023 reflects our continued confidence in our strong financial position.

We generated $135 million of free cash flow in the second quarter, a $91 million improvement compared to the prior year period, driven by increased operating profit.

We continued to invest in our businesses with capital expenditures and investments of $25 million, which was offset by $33 million of proceeds from the sale of our Oklahoma City facility.

We continue to maintain ample liquidity and as of June 30, 2023, we had $763 million in available liquidity, with no near-term debt maturities.

The 31% increase

in our dividend since the start of 2023 reflects our continued confidence in our strong financial position.

We generated $106 million of free cash flow in the third quarter, double the free cash flow generated in the prior year period, driven by increased operating profit.

We continue to invest in our businesses with year-to-date capital expenditures and investments of $87 million, which was offset by $33 million of proceeds from the sale of our Oklahoma City facility.

We continue to maintain ample liquidity and as of September 30, 2023, we had $846 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.

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However, it is important to realize we are operating in a challenging macroeconomic environment with many variables and geopolitical uncertainties, so results could change, negatively or positively.

As a result of the strong execution by our team members in the second quarter and the strength of the customer backlog, we now expect EPS for the full-year of approximately $7.00 on sales of approximately $5.1 billion.

As a result of the strong execution by our team members in the third quarter and the strength of the customer backlog, we now expect EPS for the full-year of approximately $7.05 on sales of approximately $5.15 billion.

Our sales outlook incorporates the latest dialogue with our customers and our suppliers and our current supply chain expectations.

Subsequent Event

On October 12, 2023, John L.

notified our Board of Directors of his intention to retire as Chairman, CEO and as a member of the Board, effective January 1, 2024.

Garrison will continue as a consultant for Terex from January 1, 2024 through June 30, 2024.

The Board has appointed Simon Meester, the current President AWP, to succeed Mr.

Garrison as President and CEO, effective January 1, 2024.

Meester has also been appointed a member of the Board effective January 1, 2024.

Meester will not be a member of any committees of the Board.

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, 2023 was 28.2%.

As the tables below show, our ROIC at September 30, 2023 was 29.2%.

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

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

Jun '23 Mar '23 Dec '22 Sep '22 Jun '22

Sep '23 Jun '23 Mar '23 Dec '22 Sep '22

Annualized effective tax rate as adjusted (1)

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Debt less Cash and cash equivalents plus Stockholders’ equity $ 1,852.6 $ 1,871.2 $ 1,817.4 $ 1,652.6 $ 1,629.5

(1) The annualized effective tax rate for each 2022 period represents the actual full-year 2022 effective tax rate.

June 30, 2023 ROIC 28.2 %

(1) The annualized effective tax rate for Dec ’22 represents the actual full-year 2022 effective tax rate.

September 30, 2023 ROIC 29.2 %

NOPAT as adjusted (last 4 quarters) $ 515.6

Average Debt less Cash and cash equivalents plus Stockholders’ equity (5 quarters) $ 1,764.7

Six Months Ended

June 30, 2023

Nine Months Ended

September 30, 2023

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

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RESULTS OF OPERATIONS

Three Months Ended June 30, 2023 Compared with Three Months Ended June 30, 2022

Three Months Ended June 30,

Three Months Ended September 30, 2023 Compared with Three Months Ended September 30, 2022

Three Months Ended September 30,

Sales % Change In

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Income from operations 163.2 12.7 % 120.8 10.8 % 35.1 %

Net sales for the three months ended June 30, 2023 increased $326.0 million when compared to the same period in 2022.

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

Changes in foreign exchange rates negatively impacted consolidated net sales by approximately $10 million.

Gross profit for the three months ended June 30, 2023 increased $130.0 million when compared to the same period in 2022.

The increase was primarily due to incremental margin achieved on higher sales volume, price realization and improved manufacturing efficiencies.

SG&A expenses for the three months ended June 30, 2023 increased $24.0 million when compared to the same period in 2022 primarily due to inflation, incremental spend on new acquisitions and increased marketing, engineering and technology expenses.

Net sales for the three months ended September 30, 2023 increased $169.6 million when compared to the same period in 2022.

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

Changes in foreign exchange rates positively impacted consolidated net sales by approximately $25 million.

Gross profit for the three months ended September 30, 2023 increased $55.4 million when compared to the same period in 2022.

The increase was primarily due to incremental profit achieved on higher sales volume, improved manufacturing efficiencies and price realization.

SG&A expenses for the three months ended September 30, 2023 increased $13.0 million when compared to the same period in 2022 primarily due to inflation and increased marketing, engineering and technology expenses.

SG&A expenses were lower as a percent of sales when compared to the same period in 2022 due to strict expense management and higher sales.

Income from operations for the three months ended June 30, 2023 increased $106.0 million when compared to the same period in 2022.

The increase was primarily due to incremental margin achieved on higher sales volume, price realization and improved manufacturing efficiencies, which was partially offset by cost increases.

Income from operations for the three months ended September 30, 2023 increased $42.4 million when compared to the same period in 2022.

The increase was primarily due to incremental profit achieved on higher sales volume, improved manufacturing efficiencies and price realization, partially offset by cost increases.

Materials Processing

Three Months Ended June 30,

Three Months Ended September 30,

Sales % Change In

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Income from operations 91.3 16.9 % 66.8 14.6 % 36.7 %

Net sales for the three months ended June 30, 2023 increased $96.7 million when compared to the same period in 2022 primarily due to robust end-market demand for aggregates across all major geographies, concrete mixers and environmental equipment in North America and material handlers in Western Europe.

Net sales were negatively impacted by changes in foreign exchange rates of approximately $9 million.

Income from operations for the three months ended June 30, 2023 increased $18.7 million when compared to the same period in 2022 primarily due to incremental margin achieved on higher sales volume, favorable mix and improved manufacturing efficiencies, partially offset by cost increases.

Net sales for the three months ended September 30, 2023 increased $83.2 million when compared to the same period in 2022 primarily due to robust end-market demand for aggregates across all major geographies as well as concrete products and environmental equipment in North America.

Net sales were positively impacted by changes in foreign exchange rates of approximately $12 million.

Income from operations for the three months ended September 30, 2023 increased $24.5 million when compared to the same period in 2022 primarily due to incremental profit achieved on higher sales volume, favorable mix and improved manufacturing efficiencies.

Aerial Work Platforms

Three Months Ended June 30,

Three Months Ended September 30,

Sales % Change In

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Income from operations 93.6 12.5 % 63.5 9.6 % 47.4 %

Net sales for the three months ended June 30, 2023 increased $227.2 million when compared to the same period in 2022 primarily due to higher demand resulting from end-market growth for aerial work platforms in all major geographies and utility products and telehandlers in North America, as well as price realization necessary to mitigate rising costs.

Net sales were negatively impacted by changes in foreign exchange rates of approximately $1 million.

Income from operations for the three months ended June 30, 2023 increased $87.4 million when compared to the same period in 2022 primarily due to incremental margin achieved on higher sales volume, price realization, cost reduction initiatives and favorable manufacturing efficiencies, partially offset by cost increases.

Net sales for the three months ended September 30, 2023 increased $88.4 million when compared to the same period in 2022 primarily due to higher demand resulting from end-market growth for aerial work platforms, telehandlers and utility products in North America, as well as improvements in the Genie supply chain and price realization necessary to mitigate rising costs.

Net sales were positively impacted by changes in foreign exchange rates of approximately $13 million.

Income from operations for the three months ended September 30, 2023 increased $30.1 million when compared to the same period in 2022 primarily due to incremental profit achieved on higher sales volume, price realization and cost reduction initiatives, partially offset by cost increases, including costs associated with the ramp-up of our Monterrey facility.

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

Loss from operations for the three months ended September 30, 2023 increased $12.2 million when compared to the same period in 2022.

The increase in operating loss is primarily due to changes in foreign exchange costs absorbed by our operating segments in the prior year period.

Interest Expense, Net of Interest Income

During the three months ended June 30, 2023, our interest expense, net of interest income, was $14.3 million, or $2.9 million higher when compared to the same period in 2022 primarily due to increased receivable sales at higher interest rates and an increase in our weighted average interest rate on revolving credit amounts, partially offset by higher interest income in the current year period.

During the three months ended September 30, 2023, our interest expense, net of interest income, was $14.9 million, or $2.5 million higher when compared to the same period in 2022 primarily due to increased receivable sales at higher interest rates and 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, 2023 and 2022 was an expense of $3.8 million and $3.3 million, respectively.

The increase is due primarily to higher mark-to-market losses recorded on equity investments in the current year period compared to the same period in the prior year and increased non-service cost portion of pension expense, partially offset by foreign exchange transaction gains in the current year period compared to losses in the prior year period.

During the three months ended June 30, 2023, we recognized income tax expense of $32.0 million on income of $191.8 million, an effective tax rate of 16.7%, as compared to income tax expense of $15.1 million on income of $89.2 million, an effective tax rate of 16.9%, for the three months ended June 30, 2022.

The lower effective tax rate for the three months ended June 30, 2023 when compared with the three months ended June 30, 2022 is primarily due to lower tax expense on permanent items partially offset by higher tax related to geographic distribution of income.

Six Months Ended June 30, 2023 Compared with Six Months Ended June 30, 2022

Six Months Ended June 30,

Other income (expense) – net for the three months ended September 30, 2023 and 2022 was income of $0.7 million and an expense of $1.0 million, respectively.

The increase in income is due primarily to higher mark-to-market gains recorded on equity investments in the current year period compared to the same period in the prior year, partially offset by increased non-service cost portion of pension expense and foreign exchange transaction losses in the current year period compared to the prior year period.

During the three months ended September 30, 2023, we recognized income tax expense of $29.8 million on income of $149.0 million, an effective tax rate of 20.0%, as compared to income tax expense of $25.6 million on income of $107.4 million, an effective tax rate of 23.8%, for the three months ended September 30, 2022.

The lower effective tax rate for the three months ended September 30, 2023 when compared with the three months ended September 30, 2022 is primarily due to lower tax related to geographic distribution of income and lower expense on permanent items.

Nine Months Ended September 30, 2023 Compared with Nine Months Ended September 30, 2022

Nine Months Ended September 30,

Sales % Change In

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Income from operations $ 520.8 13.3 % $ 299.2 9.3 % 74.1 %

Net sales for the six months ended June 30, 2023 increased $559.2 million when compared to the same period in 2022.

Net sales for the nine months ended September 30, 2023 increased $728.8 million when compared to the same period in 2022.

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

Changes in foreign exchange rates negatively impacted consolidated net sales by approximately $28 million.

Gross profit for the six months ended June 30, 2023 increased $222.9 million when compared to the same period in 2022.

The increase was primarily due to incremental margin achieved on higher sales volume, price realization and improved manufacturing efficiencies, partially offset by the negative impact of changes in foreign exchange rates.

SG&A expenses for the six months ended June 30, 2023 increased $43.7 million when compared to the same period in 2022 primarily due to inflation, incremental spend on new acquisitions and increased marketing, engineering and technology expenses.

Gross profit for the nine months ended September 30, 2023 increased $278.3 million when compared to the same period in 2022.

The increase was primarily due to incremental profit achieved on higher sales volume, price realization and improved manufacturing efficiencies, partially offset by the negative impact of changes in foreign exchange rates.

SG&A expenses for the nine months ended September 30, 2023 increased $56.7 million when compared to the same period in 2022 primarily due to inflation, incremental spend on new acquisitions and increased marketing, engineering and technology expenses.

SG&A expenses were lower as a percent of sales when compared to the same period in 2022 due to strict expense management and higher sales.

Income from operations for the six months ended June 30, 2023 increased $179.2 million when compared to the same period in 2022.

The increase was primarily due to incremental margin achieved on higher sales volume, price realization and improved manufacturing efficiencies, which was partially offset by cost increases and the negative impact of changes in foreign exchange rates.

Income from operations for the nine months ended September 30, 2023 increased $221.6 million when compared to the same period in 2022.

The increase was primarily due to incremental profit achieved on higher sales volume, price realization and improved manufacturing efficiencies, partially offset by cost increases and the negative impact of changes in foreign exchange rates.

Materials Processing

Six Months Ended June 30,

Nine Months Ended September 30,

Sales % Change In

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Income from operations $ 274.8 16.4 % $ 210.8 15.2 % 30.4 %

Net sales for the MP segment for the six months ended June 30, 2023 increased $197.8 million when compared to the same period in 2022 primarily due to robust end-market demand for aggregates across all major geographies, concrete mixers and environmental equipment in North America and material handlers in Western Europe.

Net sales for the nine months ended September 30, 2023 increased $281.0 million when compared to the same period in 2022 primarily due to robust end-market demand for aggregates across all major geographies as well as concrete products and environmental equipment in North America.

Net sales were negatively impacted by changes in foreign exchange rates of approximately $24 million.

Income from operations for the six months ended June 30, 2023 increased $39.5 million when compared to the same period in 2022 primarily due to incremental margin achieved on higher sales volume, favorable mix and improved manufacturing efficiencies, partially offset by cost increases and the negative impact of changes in foreign exchange rates.

Income from operations for the nine months ended September 30, 2023 increased $64.0 million when compared to the same period in 2022 primarily due to incremental profit achieved on higher sales volume and improved manufacturing efficiencies, partially offset by cost increases 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

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Income from operations $ 310.3 13.7 % $ 142.2 7.8 % 118.2 %

Net sales for the AWP segment for the six months ended June 30, 2023 increased $361.6 million when compared to the same period in 2022 primarily due to higher demand resulting from end-market growth for aerial work platforms in all major geographies and telehandlers and utility products in North America as well as price realization necessary to mitigate rising costs.

Net sales were negatively impacted by changes in foreign exchange rates of approximately $16 million.

Income from operations for the six months ended June 30, 2023 increased $138.0 million when compared to the same period in 2022 primarily due to incremental margin achieved on higher sales volume, price realization, cost reduction initiatives and favorable manufacturing efficiencies, partially offset by cost increases.

Net sales for the nine months ended September 30, 2023 increased $450.0 million when compared to the same period in 2022 primarily due to higher demand resulting from end-market growth for aerial work platforms in all major geographies and telehandlers and utility products in North America as well as price realization necessary to mitigate rising costs.

Income from operations for the nine months ended September 30, 2023 increased $168.1 million when compared to the same period in 2022 primarily due to incremental profit achieved on higher sales volume, price realization and improved manufacturing efficiencies, partially offset by cost increases.

Corporate and Other / Eliminations

Six Months Ended June 30,

Nine Months Ended September 30,

Sales % Change In

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* Not a meaningful percentage

Loss from operations for the six months ended June 30, 2023 decreased $1.7 million when compared to the same period in 2022.

The decrease in operating loss is primarily due to a provision for litigation settlement on former product lines and restructuring charges and the negative impact of changes in foreign exchange rates in the prior year period.

Loss from operations for the nine months ended September 30, 2023 increased $10.5 million when compared to the same period in 2022.

The increase in operating loss is primarily due to changes in foreign exchange costs absorbed by our operating segments in the prior year period.

Interest Expense, Net of Interest Income

During the six months ended June 30, 2023, our interest expense, net of interest income, was $27.2 million, or $5.8 million higher when compared to the same period in 2022 due primarily to an increase in receivable sales and average borrowings at higher interest rates, partially offset by higher interest income in the current year period.

During the nine months ended September 30, 2023, our interest expense, net of interest income, was $42.1 million, or $8.4 million higher when compared to the same period in 2022 due primarily to an increase in receivable sales and average borrowings at higher interest rates, partially offset by higher interest income in the current year period.

Other Income (Expense) – Net

Other income (expense) – net for the six months ended June 30, 2023 was an expense of $5.4 million, compared to $3.6 million in the same period in the prior year.

The increase is due primarily to increased non-service cost portion of pension expense and higher mark-to-market losses recorded on equity investments in the current year period compared the same period in the prior year, partially offset by lower foreign exchange transaction losses in the current year period compared to the prior year period.

During the six months ended June 30, 2023, we recognized income tax expense of $55.3 million on income of $325.0 million, an effective tax rate of 17.0%, as compared to income tax expense of $27.0 million on income of $153.4 million, an effective tax rate of 17.6%, for the six months ended June 30, 2022.

The lower effective tax rate for the six months ended June 30, 2023 when compared with the six months ended June 30, 2022 is primarily due to lower tax expense on permanent items partially offset by higher tax related to geographic distribution of income.

Other income (expense) – net was an expense of $4.7 million for the nine months ended September 30, 2023 and 2022.

During the nine months ended September 30, 2023, we recognized income tax expense of $85.2 million on income of $474.0 million, an effective tax rate of 18.0%, as compared to income tax expense of $52.6 million on income of $260.8 million, an effective tax rate of 20.2%, for the nine months ended September 30, 2022.

The lower effective tax rate for the nine months ended September 30, 2023 when compared with the nine months ended September 30, 2022 is primarily due to lower tax expense on permanent items.

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

During the six months ended June 30, 2023 and 2022, we recognized a gain (loss) on disposition of discontinued operations - net of tax of $2.3 million and $(0.4) million, respectively.

During the nine months ended September 30, 2023 and 2022, we recognized a gain (loss) on disposition of discontinued operations - net of tax of $2.3 million and $(0.4) million, respectively.

The gain in the current year period primarily relates to post-closing adjustments related to the sales of our former MHPS and mobile cranes businesses.

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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, 2023, we had cash and cash equivalents of $298 million and undrawn availability under our revolving line of credit of $465 million, giving us total liquidity of approximately $763 million.

During the six months ended June 30, 2023, our liquidity increased by approximately $36 million from December 31, 2022 primarily due to cash generated from operations and sale of capital assets, partially offset by capital expenditures, investments, share repurchases and dividends.

At September 30, 2023, we had cash and cash equivalents of $352 million and undrawn availability under our revolving line of credit of $494 million, giving us total liquidity of approximately $846 million.

During the nine months ended September 30, 2023, our liquidity increased by approximately $119 million from December 31, 2022 primarily due to cash generated from operations and sale of capital assets, partially offset by capital expenditures, share repurchases, dividends, and acquisitions and investments.

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.

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

We had free cash flow of $134.8 million and $124.2 million for the three and six months ended June 30, 2023, respectively.

We had free cash flow of $106.4 million and $230.6 million for the three and nine months ended September 30, 2023, respectively.

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

Three Months Ended

6/30/2023 Six Months Ended

9/30/2023 Nine Months Ended

Net cash provided by (used in) operating activities $ 138.8 $ 268.6

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Free cash flow (use) $ 106.4 $ 230.6

Pursuant to terms of our trade accounts receivable factoring arrangements, during the six months ended June 30, 2023, we sold, without material recourse, approximately $382 million of trade accounts receivable to enhance liquidity.

Working capital as a percent of trailing three month annualized net sales was 19.2% at June 30, 2023.

The following tables show the calculation of our working capital and trailing three months annualized sales as of June 30, 2023 (in millions):

Pursuant to terms of our trade accounts receivable factoring arrangements, during the nine months ended September 30, 2023, we sold, without material recourse, approximately $587 million of trade accounts receivable to enhance liquidity.

Working capital as a percent of trailing three month annualized net sales was 20.6% at September 30, 2023.

The following tables show the calculation of our working capital and trailing three months annualized sales as of September 30, 2023 (in millions):

Three Months Ended

June 30, 2023

September 30, 2023

Net Sales $ 1,290.1

Trailing Three Month Annualized Net Sales $ 5,160.4

June 30, 2023

September 30, 2023

Inventories $ 1,117.0

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Working Capital $ 1,061.4

Revolving line of credit (the “Revolver”) borrowings at June 30, 2023 were $134.5 million.

At June 30, 2023, the weighted average interest rate was 6.84% on the Revolver.

Revolving line of credit (the “Revolver”) borrowings at September 30, 2023 were $106.0 million.

At September 30, 2023, the weighted average interest rate was 7.01% on the Revolver.

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

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We also anticipate our continued use of TFS to drive incremental sales by facilitating customer financing.

During the six months ended June 30, 2023, we repurchased 736,644 shares for $33.8 million leaving approximately $159 million available for repurchase under our share repurchase programs.

In the first and second quarters of 2023, our Board of Directors declared a dividend of $0.15 per share, which was paid to the Company’s shareholders.

In July 2023, our Board of Directors declared a dividend of $0.17 per share, which will be paid on September 19, 2023 to our shareholders of record as of August 14, 2023.

During the nine months ended September 30, 2023, we repurchased 736,644 shares for $33.8 million leaving approximately $159 million available for repurchase under our share repurchase programs.

Our Board of Directors declared a dividend of $0.15 per share in the first and second quarters of 2023 and $0.17 per share in the third quarter of 2023, which were paid to the Company’s shareholders.

In October 2023, our Board of Directors declared a dividend of $0.17 per share, which will be paid on December 19, 2023 to our shareholders of record as of November 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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In addition, terms of our bank credit facilities and senior notes contain restrictions on our ability to make further borrowings and to sell substantial portions of our assets.

Cash provided by operations was $129.8 million and $19.3 million for the six months ended June 30, 2023 and 2022, respectively.

Cash provided by operations was $268.6 million and $104.2 million for the nine months ended September 30, 2023 and 2022, respectively.

The increase in cash provided by operations was primarily driven by increased operating profitability in the current year.

Cash used in investing activities was $21.0 million and $54.8 million for the six months ended June 30, 2023 and 2022, respectively.

The decrease in cash used in investing activities relates primarily to lower capital expenditures and higher proceeds from the sale of capital assets, partially offset by higher acquisition and investment activity in the current year.

Cash used in financing activities was $119.0 million for the six months ended June 30, 2023, compared to cash provided by financing activities of $38.0 million for the six months ended June 30, 2022.

The increase in cash used in financing activities was primarily due to higher debt repayments in the current year, partially offset by lower share repurchases in the current year.

Cash used in investing activities was $53.4 million and $124.4 million for the nine months ended September 30, 2023 and 2022, respectively.

The decrease in cash used in investing activities relates primarily to higher proceeds from the sale of capital assets and lower acquisition and investment activity in the current year.

Cash used in financing activities was $160.6 million for the nine months ended September 30, 2023, compared to cash provided by financing activities of $13.3 million for the nine months ended September 30, 2022.

The increase in cash used in financing activities was primarily due to higher debt repayments and lower debt borrowing in the current year, partially offset by lower share repurchases in the current year.

OFF-BALANCE SHEET ARRANGEMENTS

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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