NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE A – BASIS OF PRESENTATION
Basis of Presentation.
The accompanying unaudited Condensed Consolidated Financial Statements of Terex Corporation and subsidiaries as of
June 30, 2019
and for the
three
and
six months ended
June 30, 2019
and
2018
have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and footnotes required by accounting principles generally accepted in the United States of America to be included in full-year financial statements. The accompanying Condensed Consolidated Balance Sheet as of
December 31, 2018
has been derived from the audited consolidated financial statements as of that date, but does not include all disclosures required by accounting principles generally accepted in the United States. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2018
.
The Condensed Consolidated Financial Statements include accounts of Terex Corporation, its majority-owned subsidiaries and other controlled subsidiaries (“Terex” or the “Company”). The Company consolidates all majority-owned and controlled subsidiaries, applies the equity method of accounting for investments in which the Company is able to exercise significant influence and applies the cost method for all other investments. All intercompany balances, transactions and profits have been eliminated.
As further described in Note D - “Discontinued Operations and Assets and Liabilities Held for Sale”, on February 22, 2019, the Company announced it entered into an Asset and Stock Purchase Agreement (the “ASPA”) with Tadano Ltd. (“Tadano”) to sell its Demag
®
mobile cranes business and will cease to manufacture mobile crane product lines in its Oklahoma City facility. As a result, the Company reported these operations, formerly part of the Cranes segment, in discontinued operations in the Condensed Consolidated Statement of Comprehensive Income (Loss) for all periods presented, and in assets and liabilities held for sale in the Condensed Consolidated Balance Sheet at
June 30, 2019
and
December 31, 2018
. Other operations formerly part of the Cranes segment were reorganized to align with the Company’s new management and reporting structure. For financial reporting periods beginning on or after January 1, 2019, the utilities business has been consolidated within Aerial Work Platforms (“AWP”), the pick and carry cranes business has been consolidated within Materials Processing (“MP”) and the rough terrain and tower cranes businesses has been consolidated within Corporate and Other. The Company now manages and reports its business in the following segments: (i) AWP and (ii) MP. Prior period amounts have been reclassified to conform with the 2019 presentation. See Note B - “Business Segment Information”, Note D - “Discontinued Operations and Assets and Liabilities Held for Sale” and Note I - “Goodwill and Intangible Assets, Net” for further information.
In the opinion of management, adjustments considered necessary for the fair statement of these interim financial statements have been made. Except as otherwise disclosed, all such adjustments consist only of those of a normal recurring nature. Operating results for the
three
and
six months ended
June 30, 2019
are not necessarily indicative of results that may be expected for the year ending
December 31, 2019
.
Cash and cash equivalents include
$12.6 million
which is not immediately available for use at
June 30, 2019
and
December 31, 2018
. These consist primarily of cash balances held in escrow to secure various obligations of the Company
.
Recently Issued Accounting Standards
Accounting Standards Implemented in 2019
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2016-02, “Leases (Topic 842),” (“ASU 2016-02”). The standard establishes a right-of-use (“ROU”) model that requires a lessee to recognize an ROU asset and a lease liability on the balance sheet for all leases with a term longer than 12 months and requires the disclosure of key information about leasing arrangements. Leases are classified as finance or operating, with classification affecting the subsequent expense pattern and presentation of expense recognition in the income statement. Subsequently, the FASB issued the following standards related to ASU 2016-02: ASU 2018-01, “Land Easement Practical Expedient for Transition to Topic 842”, ASU 2018-10, “Codification Improvements to Topic 842, Leases”, ASU 2018-11, “Leases (Topic 842): Targeted Improvements” (“ASU 2018-11”), ASU 2018-20, “Narrow-Scope Improvements for Lessors” and ASU 2019-01, “Leases (Topic 842): Codification Improvements”, which provided additional guidance and clarity to ASU 2016-02 (collectively, the “Lease Standard”).
The Company adopted the Lease Standard on January 1, 2019 under the alternative transition method permitted by ASU 2018-11. This transition method allowed the Company to initially apply the requirements of the Lease Standard at the adoption date, versus at the beginning of the earliest period presented. The Company elected the transition package of practical expedients, the practical expedient to not separate lease and non-lease components for all of its leases, the short-term lease recognition exemption for all of its leases that qualify and the land easement practical expedient; it did not elect the use of hindsight practical expedient.
Adoption of the Lease Standard had a material effect on the Company’s condensed consolidated financial statements due to the recognition of approximately $
138 million
of operating lease liabilities (approximately $
6 million
related to discontinued operations) with corresponding ROU assets. The Company implemented a global lease accounting system and updated internal controls over financial reporting, as necessary, to accommodate modifications to its business processes and accounting procedures as a result of the Lease Standard.
In February 2018, the FASB issued ASU 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” (“ASU 2018-02”). ASU 2018-02 allows reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from H.R. 1 “An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018”. The Company adopted ASU 2018-02 on January 1, 2019. Adoption did not have a material effect on the Company’s consolidated financial statements.
In July 2018, the FASB issued ASU 2018-09, “Codification Improvements,” (“ASU 2018-09”). ASU 2018-09 provides technical corrections, clarifications and other improvements across a variety of accounting topics. Certain amendments were applicable immediately while others provide transition guidance and are effective in the first quarter of fiscal year 2019. The Company completed the adoption of ASU 2018-09 on January 1, 2019. Adoption did not have a material effect on the Company’s consolidated financial statements.
Accounting Standards to be Implemented
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” (“ASU 2016-13”). ASU 2016-13 sets forth a “current expected credit loss” model which requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. The guidance in this standard replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. Subsequently, the FASB issued the following standards related to ASU 2016-13: ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments - Credit Losses,” and ASU 2019-05, “Financial Instruments-Credit Losses (Topic 326) Targeted Transition Relief,” which provided additional guidance and clarity to ASU 2016-13 (collectively, the “Credit Loss Standard”). The effective date will be the first quarter of fiscal year 2020 and early adoption is permitted. The Credit Loss Standard will be applied using a modified retrospective approach. The Company is currently identifying changes to its business processes, internal controls and policies to assess the impact that adoption of the Credit Loss Standard will have on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement,” (“ASU 2018-13”). ASU 2018-13 improves the effectiveness of fair value measurement disclosures by removing or modifying certain disclosure requirements and adding others. The effective date will be the first quarter of fiscal year 2020 and early adoption is permitted. Adoption is not expected to have a material effect on the Company’s consolidated financial statements.
In August 2018, the FASB issued ASU 2018-14, “Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans,” (“ASU 2018-14”). ASU 2018-14 adds, removes and clarifies disclosure requirements related to defined benefit pension plans and other postretirement plans. The effective date will be the first quarter of fiscal year 2021 and early adoption is permitted. Adoption is not expected to have a material effect on the Company’s consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40), Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract,” (“ASU 2018-15”). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The effective date will be the first quarter of fiscal year 2020 and early adoption is permitted. The Company is evaluating the impact that adoption of this standard will have on its consolidated financial statements.
In April 2019, the FASB issued ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments,” (“ASU 2019-04”). ASU 2019-04 provides narrow scope amendments for Topics 326, 815 and 825. The effective date will be the first quarter of fiscal year 2020 and early adoption is permitted. The Company is currently evaluating the impact that the amendments to Topic 326 will have on the implementation of the Credit Loss Standard. Adoption of the amendments to Topic 815 and Topic 825 are not expected to have a material effect on the Company’s consolidated financial statements.
Accrued Warranties
.
The Company records accruals for potential warranty claims based on its claim experience. The Company’s products are typically sold with a standard warranty covering defects that arise during a fixed period. Each business provides a warranty specific to products it offers. The specific warranty offered by a business is a function of customer expectations and competitive forces. Warranty length is generally a fixed period of time, a fixed number of operating hours or both.
A liability for estimated warranty claims is accrued at the time of sale. The current portion of the product warranty liability is included in Other current liabilities and the non-current portion is included in Other non-current liabilities in the Company’s Condensed Consolidated Balance Sheet. The liability is established using historical warranty claims experience for each product sold. Historical claims experience may be adjusted for known design improvements or for the impact of unusual product quality issues. Warranty reserves are reviewed quarterly to ensure critical assumptions are updated for known events that may affect the potential warranty liability.
The following table summarizes the changes in the consolidated product warranty liability (in millions):
|
|
|
|
|
|
|
|
Balance as of December 31, 2018
|
$
|
39.8
|
|
|
Accruals for warranties issued during the period
|
22.3
|
|
|
Changes in estimates
|
2.2
|
|
|
Settlements during the period
|
(22.8
|
)
|
|
Foreign exchange effect/other
|
3.2
|
|
|
Balance as of June 30, 2019
|
$
|
44.7
|
|
Fair Value Measurements.
Assets and liabilities measured at fair value on a recurring basis under the provisions of Accounting Standards Codification (“ASC”) 820, “Fair Value Measurement and Disclosure” (“ASC 820”) include foreign exchange contracts, cross currency and commodity swaps and a debt conversion feature on a convertible promissory note discussed in Note J – “Derivative Financial Instruments”, debt discussed in Note K – “Long-term Obligations” and defined benefit plan assets discussed in Note L – “Retirement Plans and Other Benefits”. These instruments are valued using a market approach, which uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. ASC 820 establishes a fair value hierarchy for those instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s assumptions (unobservable inputs). The hierarchy consists of three levels:
Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2 – Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
Level 3 – Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported by little or no market activity).
Determining which category an asset or liability falls within this hierarchy requires judgment. The Company evaluates its hierarchy disclosures each quarter.
Leases.
Terex leases approximately
100
real properties, approximately
500
vehicles, and approximately
450
pieces of office and industrial equipment. As the lessee, Terex will classify a lease which it has substantially all the risks and rewards of ownership as a finance lease.
The Company determines if an arrangement contains a lease at contract inception. With the exception of short-term leases (leases with terms less than 12 months), all leases with contractual fixed costs are recorded on the balance sheet on the lease commencement date as an ROU asset and a lease liability. Lease liabilities are initially measured at the present value of the minimum lease payments and subsequently increased to reflect the interest accrued and reduced by the lease payments affected. ROU assets are initially measured at the present value of the minimum lease payments adjusted for any prior lease payments, lease incentives and initial direct costs. The Company does not separate lease and non-lease components of a contract for any class of leases. Certain leases contain escalation, renewal and/or termination options that are factored into the ROU asset as appropriate. Operating leases result in a straight-line rent expense over the life of the lease. For finance leases, ROU assets are amortized on a straight-line basis over the life of the lease and interest accretes to the lease liability which results in a higher interest expense at lease inception that declines over the life of the lease. Variable lease costs correspond to future period lease payments which are determined at fair market value and recorded at determined points in time.
Short-term leases for real property, vehicles and industrial and office equipment are recognized in the income statement on a straight line basis over the lease term.
The Company uses its estimated incremental borrowing rate, which is derived from information available at the lease commencement date, in determining the present value of lease payments, if the rate is not implicit in the lease. Consideration is given to the Company’s recent debt issuances as well as publicly available data for instruments with similar characteristics when calculating incremental borrowing rates.
For detailed lease information see Note M - “Leases”.
NOTE B – BUSINESS SEGMENT INFORMATION
Terex is a global manufacturer of aerial work platforms, materials processing machinery and cranes. The Company designs, builds and supports products used in construction, maintenance, manufacturing, energy, minerals and materials management applications. Terex’s products are manufactured in North and South America, Europe, Australia and Asia and sold worldwide. The Company engages with customers through all stages of the product life cycle, from initial specification and financing to parts and service support. The Company operates in
two
reportable segments: (i) AWP and (ii) MP.
The AWP segment designs, manufactures, services and markets aerial work platform equipment, telehandlers, light towers and utility equipment as well as their related components and replacement parts. Customers use these products to construct and maintain industrial, commercial and residential buildings and facilities, construction and maintenance of utility and telecommunication lines, tree trimming, certain construction and foundation drilling applications, and for other commercial operations, as well as in a wide range of infrastructure projects.
The MP segment designs, manufactures and markets materials processing and specialty equipment, including crushers, washing systems, screens, apron feeders, material handlers, pick and carry cranes, wood processing, biomass and recycling equipment, concrete mixer trucks and concrete pavers, conveyors, and their related components and replacement parts. Customers use these products in construction, infrastructure and recycling projects, in various quarrying and mining applications, as well as in landscaping and biomass production industries, material handling applications, maintenance applications to lift equipment or material, and in building roads and bridges.
The Company designs, manufactures, services, refurbishes and markets rough terrain and tower cranes, as well as their related components and replacement parts. Customers use rough terrain cranes to move materials and equipment on rugged or uneven terrain and tower cranes, often in urban areas where space is constrained and in long-term or high rise building sites, to lift construction material and place the material at point of use. Rough terrain and tower cranes are included in Corporate and Other.
The Company assists customers in their rental, leasing and acquisition of its products through Terex Financial Services (“TFS”). TFS uses its equipment financing experience to provide financing solutions to customers who purchase the Company’s equipment. TFS is included in Corporate and Other.
Corporate and Other also includes eliminations among the
two
segments, as well as general and corporate items.
Business segment information is presented below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Net sales
|
|
|
|
|
|
|
|
|
AWP
|
$
|
870.4
|
|
|
$
|
852.3
|
|
|
$
|
1,598.3
|
|
|
$
|
1,589.8
|
|
|
MP
|
365.2
|
|
|
335.2
|
|
|
711.4
|
|
|
651.1
|
|
|
Corporate and Other / Eliminations
|
71.3
|
|
|
65.5
|
|
|
133.8
|
|
|
128.7
|
|
|
Total
|
$
|
1,306.9
|
|
|
$
|
1,253.0
|
|
|
$
|
2,443.5
|
|
|
$
|
2,369.6
|
|
|
Income (loss) from operations
|
|
|
|
|
|
|
|
|
|
AWP
|
$
|
86.3
|
|
|
$
|
111.6
|
|
|
$
|
145.9
|
|
|
$
|
181.8
|
|
|
MP
|
56.3
|
|
|
44.3
|
|
|
105.5
|
|
|
84.2
|
|
|
Corporate and Other / Eliminations
|
(16.6
|
)
|
|
(23.5
|
)
|
|
(25.7
|
)
|
|
(39.3
|
)
|
|
Total
|
$
|
126.0
|
|
|
$
|
132.4
|
|
|
$
|
225.7
|
|
|
$
|
226.7
|
|
Sales between segments are generally priced to recover costs plus a reasonable markup for profit, which is eliminated in consolidation.
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2019
|
|
December 31,
2018
|
|
Identifiable assets
|
|
|
|
|
AWP
|
$
|
2,043.6
|
|
|
$
|
1,983.5
|
|
|
MP
|
1,188.7
|
|
|
1,160.1
|
|
|
Corporate and Other / Eliminations
|
(37.1
|
)
|
|
(185.6
|
)
|
|
Assets held for sale
|
407.9
|
|
|
527.9
|
|
|
Total
|
$
|
3,603.1
|
|
|
$
|
3,485.9
|
|
Geographic net sales information is presented below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30, 2019
|
|
|
AWP
|
|
MP
|
|
Corporate and Other / Eliminations
|
|
Total
|
|
Net sales by region
|
|
|
|
|
|
|
|
|
|
|
North America
|
$
|
599.3
|
|
|
$
|
157.0
|
|
|
$
|
51.9
|
|
|
$
|
808.2
|
|
|
Western Europe
|
128.0
|
|
|
109.0
|
|
|
25.3
|
|
|
262.3
|
|
|
Asia-Pacific
|
95.6
|
|
|
68.9
|
|
|
3.3
|
|
|
167.8
|
|
|
Rest of World
(1)
|
47.5
|
|
|
30.3
|
|
|
(9.2
|
)
|
|
68.6
|
|
|
Total
|
$
|
870.4
|
|
|
$
|
365.2
|
|
|
$
|
71.3
|
|
|
$
|
1,306.9
|
|
(1) Includes intercompany sales and eliminations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30, 2019
|
|
|
AWP
|
|
MP
|
|
Corporate and Other / Eliminations
|
|
Total
|
|
Net sales by region
|
|
|
|
|
|
|
|
|
|
|
North America
|
$
|
1,036.7
|
|
|
$
|
285.2
|
|
|
$
|
81.1
|
|
|
$
|
1,403.0
|
|
|
Western Europe
|
292.5
|
|
|
227.9
|
|
|
51.0
|
|
|
571.4
|
|
|
Asia-Pacific
|
175.0
|
|
|
138.8
|
|
|
7.6
|
|
|
321.4
|
|
|
Rest of World
(1)
|
94.1
|
|
|
59.5
|
|
|
(5.9
|
)
|
|
147.7
|
|
|
Total
|
$
|
1,598.3
|
|
|
$
|
711.4
|
|
|
$
|
133.8
|
|
|
$
|
2,443.5
|
|
(1) Includes intercompany sales and eliminations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30, 2018
|
|
|
AWP
|
|
MP
|
|
Corporate and Other / Eliminations
|
|
Total
|
|
Net sales by region
|
|
|
|
|
|
|
|
|
|
|
North America
|
$
|
596.2
|
|
|
$
|
133.5
|
|
|
$
|
39.2
|
|
|
$
|
768.9
|
|
|
Western Europe
|
145.9
|
|
|
96.5
|
|
|
25.0
|
|
|
267.4
|
|
|
Asia-Pacific
|
67.4
|
|
|
70.5
|
|
|
6.6
|
|
|
144.5
|
|
|
Rest of World
(1)
|
42.8
|
|
|
34.7
|
|
|
(5.3
|
)
|
|
72.2
|
|
|
Total
|
$
|
852.3
|
|
|
$
|
335.2
|
|
|
$
|
65.5
|
|
|
$
|
1,253.0
|
|
(1) Includes intercompany sales and eliminations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30, 2018
|
|
|
AWP
|
|
MP
|
|
Corporate and Other / Eliminations
|
|
Total
|
|
Net sales by region
|
|
|
|
|
|
|
|
|
|
|
North America
|
$
|
1,043.4
|
|
|
$
|
270.9
|
|
|
$
|
64.5
|
|
|
$
|
1,378.8
|
|
|
Western Europe
|
350.1
|
|
|
179.0
|
|
|
42.0
|
|
|
571.1
|
|
|
Asia-Pacific
|
125.3
|
|
|
127.5
|
|
|
11.6
|
|
|
264.4
|
|
|
Rest of World (1)
|
71.0
|
|
|
73.7
|
|
|
10.6
|
|
|
155.3
|
|
|
Total
|
$
|
1,589.8
|
|
|
$
|
651.1
|
|
|
$
|
128.7
|
|
|
$
|
2,369.6
|
|
(1) Includes intercompany sales and eliminations.
The Company attributes sales to unaffiliated customers in different geographical areas based on the location of the customer.
Product type net sales information is presented below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30, 2019
|
|
|
AWP
|
|
MP
|
|
Corporate and Other / Eliminations
|
|
Total
|
|
Net sales by product type
|
|
|
|
|
|
|
|
|
|
|
Aerial Work Platforms
|
$
|
636.0
|
|
|
$
|
—
|
|
|
$
|
0.8
|
|
|
$
|
636.8
|
|
|
Materials Processing Equipment
|
—
|
|
|
231.6
|
|
|
—
|
|
|
231.6
|
|
|
Specialty Equipment
|
—
|
|
|
132.5
|
|
|
—
|
|
|
132.5
|
|
|
Other
(1)
|
234.4
|
|
|
1.1
|
|
|
70.5
|
|
|
306.0
|
|
|
Total
|
$
|
870.4
|
|
|
$
|
365.2
|
|
|
$
|
71.3
|
|
|
$
|
1,306.9
|
|
(1) Includes other product types, intercompany sales and eliminations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30, 2019
|
|
|
AWP
|
|
MP
|
|
Corporate and Other / Eliminations
|
|
Total
|
|
Net sales by product type
|
|
|
|
|
|
|
|
|
|
|
Aerial Work Platforms
|
$
|
1,155.6
|
|
|
$
|
—
|
|
|
$
|
1.7
|
|
|
$
|
1,157.3
|
|
|
Materials Processing Equipment
|
—
|
|
|
447.6
|
|
|
—
|
|
|
447.6
|
|
|
Specialty Equipment
|
—
|
|
|
262.0
|
|
|
—
|
|
|
262.0
|
|
|
Other
(1)
|
442.7
|
|
|
1.8
|
|
|
132.1
|
|
|
576.6
|
|
|
Total
|
$
|
1,598.3
|
|
|
$
|
711.4
|
|
|
$
|
133.8
|
|
|
$
|
2,443.5
|
|
(1) Includes other product types, intercompany sales and eliminations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30, 2018
|
|
|
AWP
|
|
MP
|
|
Corporate and Other / Eliminations
|
|
Total
|
|
Net sales by product type
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerial Work Platforms
|
$
|
642.3
|
|
|
$
|
—
|
|
|
$
|
0.4
|
|
|
$
|
642.7
|
|
|
Materials Processing Equipment
|
—
|
|
|
214.4
|
|
|
0.4
|
|
|
214.8
|
|
|
Specialty Equipment
|
—
|
|
|
111.3
|
|
|
—
|
|
|
111.3
|
|
|
Other
(1)
|
210.0
|
|
|
9.5
|
|
|
64.7
|
|
|
284.2
|
|
|
Total
|
$
|
852.3
|
|
|
$
|
335.2
|
|
|
$
|
65.5
|
|
|
$
|
1,253.0
|
|
(1) Includes other product types, intercompany sales and eliminations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30, 2018
|
|
|
AWP
|
|
MP
|
|
Corporate and Other / Eliminations
|
|
Total
|
|
Net sales by product type
|
|
|
|
|
|
|
|
|
|
|
Aerial Work Platforms
|
$
|
1,195.0
|
|
|
$
|
—
|
|
|
$
|
0.8
|
|
|
$
|
1,195.8
|
|
|
Materials Processing Equipment
|
—
|
|
|
429.3
|
|
|
0.8
|
|
|
430.1
|
|
|
Specialty Equipment
|
—
|
|
|
206.2
|
|
|
—
|
|
|
206.2
|
|
|
Other
(1)
|
394.8
|
|
|
15.6
|
|
|
127.1
|
|
|
537.5
|
|
|
Total
|
$
|
1,589.8
|
|
|
$
|
651.1
|
|
|
$
|
128.7
|
|
|
$
|
2,369.6
|
|
(1) Includes other product types, intercompany sales and eliminations.
NOTE C – INCOME TAXES
During the
three months ended
June 30, 2019
, the Company recognized income tax expense of
$20.3 million
on income of
$101.9 million
, an effective tax rate of
19.9%
, as compared to income tax expense of
$30.4 million
on income of
$114.6 million
, an effective tax rate of
26.5%
, for the
three months ended
June 30, 2018
. The lower effective tax rate for the
three months ended
June 30, 2019
is primarily due to less favorable jurisdictional mix and the impact of H.R. 1 “An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018” (“2017 Federal Tax Act”) in the
three months ended
June 30, 2018
, when compared to the
three months ended
June 30, 2019
.
During the
six months ended
June 30, 2019
, the Company recognized income tax expense of
$38.3 million
on income of
$177.1 million
, an effective tax rate of
21.6%
, as compared to income tax expense of
$44.6 million
on income of
$197.5 million
, an effective tax rate of
22.6%
, for the
six months ended
June 30, 2018
. The lower effective tax rate for the
six months ended
June 30, 2019
is primarily due to less favorable jurisdictional mix and the impact of the 2017 Federal Tax Act, partially offset by higher stock compensation deductions in the
six months ended
June 30, 2018
, when compared to the
six months ended
June 30, 2019
.
NOTE D – DISCONTINUED OPERATIONS AND ASSETS AND LIABILITIES HELD FOR SALE
MOBILE CRANES
On February 22, 2019, the Company entered into the ASPA with Tadano to sell its Demag
®
mobile cranes business for an enterprise value of
$215 million
(the “Transaction”). Consideration will be paid in cash and cash received will be net of indebtedness. The purchase price is subject to post-closing adjustments based upon the level of net working capital and cash and debt in the Demag
®
mobile cranes business at the closing date. Products to be divested are Demag
®
all terrain cranes and large lattice boom crawler cranes. The Company expects to complete the Transaction in the third quarter of 2019. In addition to selling its Demag
®
mobile cranes business, the Company will cease to manufacture mobile crane product lines in its Oklahoma City facility.
As a result of the Transaction, the Company recognized a pre-tax credit of approximately
$4 million
(
$4 million
after-tax) and a charge of approximately
$82 million
(
$82 million
after-tax) in the three and
six months ended
June 30, 2019
, respectively, to write-down the Demag
®
mobile cranes business to its fair value, less costs to sell. The charge for the
six months ended
June 30, 2019
includes approximately
$27 million
attributable to amounts previously recognized in accumulated other comprehensive income.
The Company’s actions to sell the Demag
®
mobile cranes business and cease manufacturing mobile crane product lines in its Oklahoma City facility represent a significant strategic shift in its business away from mobile cranes as these businesses constituted a significant part of its operations and financial results.
The Company believes these actions are necessary as it continues to execute its Focus, Simplify and Execute to Win strategy as further described in Part I, Item 1. “Business” included in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2018
.
On April 24, 2019, the Company sold its boom truck, truck crane and crossover product lines and related inventory previously manufactured in its Oklahoma City facility. The Company received notes and receivables totaling
$27.7 million
and recorded a gain, net of tax, of
$12.8 million
during the
three
and
six months ended
June 30, 2019
.
Income (loss) from discontinued operations
The following amounts related to discontinued operations were derived from historical financial information and have been segregated from continuing operations and reported as discontinued operations in the Condensed Consolidated Statement of Comprehensive Income (Loss) (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Net sales
|
$
|
131.2
|
|
|
$
|
149.5
|
|
|
$
|
257.1
|
|
|
$
|
293.8
|
|
|
Cost of sales
|
(122.6
|
)
|
|
(148.8
|
)
|
|
(262.9
|
)
|
|
(290.8
|
)
|
|
Selling, general and administrative expenses
|
(30.6
|
)
|
|
(29.8
|
)
|
|
(61.6
|
)
|
|
(55.1
|
)
|
|
Impairment of Mobile Cranes disposal group
|
4.0
|
|
|
—
|
|
|
(82.1
|
)
|
|
—
|
|
|
Other income (expense)
|
(1.4
|
)
|
|
(0.8
|
)
|
|
(3.7
|
)
|
|
(1.7
|
)
|
|
Income (loss) from discontinued operations before income taxes
|
(19.4
|
)
|
|
(29.9
|
)
|
|
(153.2
|
)
|
|
(53.8
|
)
|
|
(Provision for) benefit from income taxes
|
2.1
|
|
|
1.6
|
|
|
11.5
|
|
|
4.4
|
|
|
Income (loss) from discontinued operations – net of tax
|
(17.3
|
)
|
|
(28.3
|
)
|
|
(141.7
|
)
|
|
(49.4
|
)
|
Assets and liabilities held for sale
Assets and liabilities held for sale consist of assets and liabilities of the Company’s Demag
®
mobile cranes business, its mobile cranes product lines manufactured in Oklahoma City and its utility hot lines tools business located in South America, all previously contained in its former Cranes segment, which are expected to be sold within one year. Such assets and liabilities are classified as held for sale upon meeting the requirements of ASC 360 - “Property, Plant and Equipment”, and are recorded at lower of carrying amounts or fair value less costs to sell. Assets are no longer depreciated once classified as held for sale. The following table provides the amounts of assets and liabilities held for sale in the Condensed Consolidated Balance Sheet (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
|
|
Cranes
|
|
Cranes
|
|
Assets
|
|
|
|
|
Cash and cash equivalents
|
$
|
27.1
|
|
|
$
|
32.6
|
|
|
Trade receivables – net
|
74.7
|
|
|
126.9
|
|
|
Inventories
|
306.4
|
|
|
295.5
|
|
|
Prepaid and other current assets
|
10.6
|
|
|
9.4
|
|
|
Impairment reserve
|
(16.8
|
)
|
|
(4.9
|
)
|
|
Current assets held for sale
|
$
|
402.0
|
|
|
$
|
459.5
|
|
|
|
|
|
|
|
Property, plant and equipment – net
|
$
|
29.3
|
|
|
$
|
28.8
|
|
|
Intangible assets
|
4.4
|
|
|
4.3
|
|
|
Impairment reserve
|
(73.1
|
)
|
|
(2.9
|
)
|
|
Other assets
|
45.3
|
|
|
38.2
|
|
|
Non-current assets held for sale
|
$
|
5.9
|
|
|
$
|
68.4
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Notes payable and current portion of long-term debt
|
$
|
0.5
|
|
|
$
|
0.6
|
|
|
Trade accounts payable
|
61.6
|
|
|
101.6
|
|
|
Accruals and other current liabilities
|
69.2
|
|
|
77.3
|
|
|
Current liabilities held for sale
|
$
|
131.3
|
|
|
$
|
179.5
|
|
|
|
|
|
|
|
Long-term debt, less current portion
|
$
|
3.7
|
|
|
$
|
4.1
|
|
|
Retirement plans and other non-current liabilities
|
69.5
|
|
|
71.8
|
|
|
Non-current liabilities
|
15.3
|
|
|
10.6
|
|
|
Non-current liabilities held for sale
|
$
|
88.5
|
|
|
$
|
86.5
|
|
The following table provides amounts of cash and cash equivalents presented in the Condensed Consolidated Statement of Cash Flows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
|
Cash and cash equivalents:
|
|
|
|
|
Cash and cash equivalents - continuing operations
|
$
|
367.5
|
|
|
$
|
339.5
|
|
|
Cash and cash equivalents - held for sale
|
27.1
|
|
|
32.6
|
|
|
Total cash and cash equivalents
|
$
|
394.6
|
|
|
$
|
372.1
|
|
The following table provides supplemental cash flow information related to discontinued operations (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Non-cash operating items:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
$
|
1.0
|
|
|
$
|
3.9
|
|
|
$
|
3.2
|
|
|
$
|
7.8
|
|
|
Impairments
|
$
|
(4.0
|
)
|
|
$
|
0.7
|
|
|
$
|
82.1
|
|
|
$
|
0.9
|
|
|
Deferred taxes
|
$
|
5.4
|
|
|
$
|
0.4
|
|
|
$
|
2.1
|
|
|
$
|
0.2
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
$
|
(1.1
|
)
|
|
$
|
(4.2
|
)
|
|
$
|
(2.7
|
)
|
|
$
|
(7.4
|
)
|
Gain (loss) on disposition of discontinued operations - net of tax (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
June 30,
|
|
|
2019
|
|
2018
|
|
|
Cranes
|
Material Handling and Port Solutions
|
Total
|
|
Material Handling and Port Solutions
|
Trucks
|
Atlas
|
Total
|
|
Gain (loss) on disposition of discontinued operations
|
$
|
13.7
|
|
$
|
—
|
|
$
|
13.7
|
|
|
$
|
(0.6
|
)
|
$
|
—
|
|
$
|
—
|
|
$
|
(0.6
|
)
|
|
(Provision for) benefit from income taxes
|
(0.9
|
)
|
(2.0
|
)
|
(2.9
|
)
|
|
0.1
|
|
2.4
|
|
—
|
|
2.5
|
|
|
Gain (loss) on disposition of discontinued operations – net of tax
|
$
|
12.8
|
|
$
|
(2.0
|
)
|
$
|
10.8
|
|
|
$
|
(0.5
|
)
|
$
|
2.4
|
|
$
|
—
|
|
$
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
June 30,
|
|
|
2019
|
|
2018
|
|
|
Cranes
|
Material Handling and Port Solutions
|
Total
|
|
Material Handling and Port Solutions
|
Trucks
|
Atlas
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on disposition of discontinued operations
|
$
|
13.7
|
|
$
|
(1.3
|
)
|
$
|
12.4
|
|
|
$
|
(0.6
|
)
|
$
|
—
|
|
$
|
3.2
|
|
$
|
2.6
|
|
|
(Provision for) benefit from income taxes
|
(0.9
|
)
|
(0.1
|
)
|
(1.0
|
)
|
|
0.1
|
|
2.4
|
|
(0.5
|
)
|
2.0
|
|
|
Gain (loss) on disposition of discontinued operations – net of tax
|
$
|
12.8
|
|
$
|
(1.4
|
)
|
$
|
11.4
|
|
|
$
|
(0.5
|
)
|
$
|
2.4
|
|
$
|
2.7
|
|
$
|
4.6
|
|
|
|
|
|
|
|
|
|
|
|
NOTE E – EARNINGS PER SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions, except per share data)
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Income (loss) from continuing operations
|
$
|
81.6
|
|
|
$
|
84.2
|
|
|
$
|
138.8
|
|
|
$
|
152.9
|
|
|
Income (loss) from discontinued operations–net of tax
|
(17.3
|
)
|
|
(28.3
|
)
|
|
(141.7
|
)
|
|
(49.4
|
)
|
|
Gain (loss) on disposition of discontinued operations–net of tax
|
10.8
|
|
|
1.9
|
|
|
11.4
|
|
|
4.6
|
|
|
Net income (loss)
|
$
|
75.1
|
|
|
$
|
57.8
|
|
|
$
|
8.5
|
|
|
$
|
108.1
|
|
|
Basic shares:
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
71.2
|
|
|
75.5
|
|
|
70.9
|
|
|
77.6
|
|
|
Earnings (loss) per share – basic:
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
$
|
1.14
|
|
|
$
|
1.11
|
|
|
$
|
1.96
|
|
|
$
|
1.97
|
|
|
Income (loss) from discontinued operations–net of tax
|
(0.24
|
)
|
|
(0.37
|
)
|
|
(2.00
|
)
|
|
(0.64
|
)
|
|
Gain (loss) on disposition of discontinued operations–net of tax
|
0.15
|
|
|
0.03
|
|
|
0.16
|
|
|
0.06
|
|
|
Net income (loss)
|
$
|
1.05
|
|
|
$
|
0.77
|
|
|
$
|
0.12
|
|
|
$
|
1.39
|
|
|
Diluted shares:
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding – basic
|
71.2
|
|
|
75.5
|
|
|
70.9
|
|
|
77.6
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
Restricted stock awards
|
0.5
|
|
|
1.2
|
|
|
0.9
|
|
|
1.7
|
|
|
Diluted weighted average shares outstanding
|
71.7
|
|
|
76.7
|
|
|
71.8
|
|
|
79.3
|
|
|
Earnings (loss) per share – diluted:
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
$
|
1.14
|
|
|
$
|
1.10
|
|
|
$
|
1.93
|
|
|
$
|
1.93
|
|
|
Income (loss) from discontinued operations–net of tax
|
(0.24
|
)
|
|
(0.37
|
)
|
|
(1.97
|
)
|
|
(0.63
|
)
|
|
Gain (loss) on disposition of discontinued operations–net of tax
|
0.15
|
|
|
0.02
|
|
|
0.16
|
|
|
0.06
|
|
|
Net income (loss)
|
$
|
1.05
|
|
|
$
|
0.75
|
|
|
$
|
0.12
|
|
|
$
|
1.36
|
|
Non-vested restricted stock awards granted by the Company are treated as potential common shares outstanding in computing diluted earnings per share using the treasury stock method. Weighted average restricted stock awards of approximately
1.2 million
and
0.1 million
were outstanding during the
three months ended
June 30, 2019
and
2018
, respectively, but were not included in the computation of diluted shares as the effect would be anti-dilutive or performance targets were not expected to be achieved for awards contingent upon performance. Weighted average restricted stock awards of approximately
0.9 million
were outstanding during the
six months ended
June 30, 2019
, but were not included in the computation of diluted shares as the effect would be anti-dilutive or performance targets were not expected to be achieved for awards contingent upon performance. During the
six months ended
June 30, 2018
these amounts were
no
t material.
NOTE F – FINANCE RECEIVABLES
The Company, primarily through TFS, leases equipment and provides financing to customers for the purchase and use of Terex equipment. In the normal course of business, TFS assesses credit risk, establishes structure and pricing of financing transactions, documents the finance receivable, and records and funds the transactions. The Company bills and collects cash from the end customer.
The Company primarily conducts on-book business in the U.S., with limited business in China, Brazil, Germany and Italy. The Company does business with various types of customers consisting of rental houses, end user customers and Terex equipment dealers.
The Company’s net finance receivable balances include both sales-type leases and commercial loans. Finance receivables that management intends to hold until maturity are stated at their outstanding unpaid principal balances, net of an allowance for loan losses as well as any deferred fees and costs. Finance receivables originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value, on an individual asset basis. During the three and
six months ended
June 30, 2019
, the Company transferred finance receivables of
$75.3 million
and
$118.5 million
, respectively, to third party financial institutions, which qualified for sales treatment under ASC 860. During the three and
six months ended
June 30, 2018
, the Company transferred finance receivables of
$64.8 million
and
$156.1 million
, respectively, to third party financial institutions, which qualified for sales treatment under ASC 860. The Company had
$18.2 million
and
$19.2 million
of held for sale finance receivables recorded in Prepaid and other current assets in the Condensed Consolidated Balance Sheet at
June 30, 2019
and
December 31, 2018
, respectively.
Revenue attributable to finance receivables management intends to hold until maturity is recognized on the accrual basis using the effective interest method. The Company bills customers and accrues interest income monthly on the unpaid principal balance. The accrual of interest is generally discontinued when the contractual payment of principal or interest has become 90 days past due or management has significant doubts about further collectability of contractual payments, even though the loan may be currently performing. A receivable may remain on accrual status if it is in the process of collection and is either guaranteed or secured. Interest received on non-accrual finance receivables is typically applied against principal. Finance receivables are generally restored to accrual status when the obligation is brought current and the borrower has performed in accordance with the contractual terms for a reasonable period of time and the ultimate collectability of the total contractual principal and interest is no longer in doubt. The Company has a history of enforcing the terms of these separate financing agreements.
Finance receivables, net consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2019
|
|
December 31,
2018
|
|
Commercial loans
|
$
|
148.9
|
|
|
$
|
154.0
|
|
|
Sales-type leases
|
45.9
|
|
|
45.5
|
|
|
Total finance receivables, gross
|
194.8
|
|
|
199.5
|
|
|
Allowance for credit losses
|
(12.1
|
)
|
|
(5.5
|
)
|
|
Total finance receivables, net
|
$
|
182.7
|
|
|
$
|
194.0
|
|
Approximately
$58 million
and
$72 million
of finance receivables are recorded in Prepaid and other current assets and approximately
$125 million
and
$122 million
are recorded in Other assets in the Condensed Consolidated Balance Sheet at
June 30, 2019
and
December 31, 2018
, respectively.
Credit losses are charged against the allowance for credit losses when management ceases active collection efforts. Subsequent recoveries, if any, are credited to earnings. The allowance for credit losses is maintained at a level set by management which represents evaluation of known and inherent risks in the portfolio at the consolidated balance sheet date. Management’s periodic evaluation of the adequacy of the allowance is based on the Company’s past loan loss experience, market-based loss experience, specific customer situations, estimated value of any underlying collateral, current economic conditions, and other relevant factors. This evaluation is inherently subjective, since it requires estimates that may be susceptible to significant change. Although specific and general loss allowances are established in accordance with management’s best estimate, actual losses are dependent upon future events and, as such, further additions to or decreases from the level of loss allowances may be necessary.
The following table presents an analysis of the allowance for credit losses (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30, 2019
|
|
Three Months Ended
June 30, 2018
|
|
|
|
Commercial Loans
|
|
Sales-Type Leases
|
|
Total
|
|
Commercial Loans
|
|
Sales-Type Leases
|
|
Total
|
|
Balance, beginning of period
|
|
$
|
11.4
|
|
|
$
|
1.2
|
|
|
$
|
12.6
|
|
|
$
|
2.3
|
|
|
$
|
1.5
|
|
|
$
|
3.8
|
|
|
Provision for credit losses
|
|
0.3
|
|
|
—
|
|
|
0.3
|
|
|
0.7
|
|
|
—
|
|
|
0.7
|
|
|
Charge offs
|
|
(0.8
|
)
|
|
—
|
|
|
(0.8
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Balance, end of period
|
|
$
|
10.9
|
|
|
$
|
1.2
|
|
|
$
|
12.1
|
|
|
$
|
3.0
|
|
|
$
|
1.5
|
|
|
$
|
4.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30, 2019
|
|
Six Months Ended
June 30, 2018
|
|
|
|
Commercial Loans
|
|
Sales-Type Leases
|
|
Total
|
|
Commercial Loans
|
|
Sales-Type Leases
|
|
Total
|
|
Balance, beginning of period
|
|
$
|
4.0
|
|
|
$
|
1.5
|
|
|
$
|
5.5
|
|
|
$
|
5.7
|
|
|
$
|
0.9
|
|
|
$
|
6.6
|
|
|
Provision for credit losses
|
|
7.7
|
|
|
(0.3
|
)
|
|
7.4
|
|
|
(1.6
|
)
|
|
0.6
|
|
|
(1.0
|
)
|
|
Charge offs
|
|
(0.8
|
)
|
|
—
|
|
|
(0.8
|
)
|
|
(1.1
|
)
|
|
—
|
|
|
(1.1
|
)
|
|
Balance, end of period
|
|
$
|
10.9
|
|
|
$
|
1.2
|
|
|
$
|
12.1
|
|
|
$
|
3.0
|
|
|
$
|
1.5
|
|
|
$
|
4.5
|
|
The Company utilizes a two tier approach to set allowances: (1) identification of impaired finance receivables and establishment of specific loss allowances on such receivables; and (2) establishment of general loss allowances on the remainder of its portfolio. Specific loss allowances are established based on circumstances and factors of specific receivables. The Company regularly reviews the portfolio which allows for early identification of potentially impaired receivables. The process takes into consideration, among other things, delinquency status, type of collateral and other factors specific to the borrower.
General loss allowance levels are determined based upon a combination of factors including, but not limited to, TFS experience, general market loss experience, performance of the portfolio, current economic conditions, and management's judgment. The two primary risk characteristics inherent in the portfolio are (1) the customer's ability to meet contractual payment terms, and (2) the liquidation values of the underlying primary and secondary collaterals. The Company records a general or unallocated loss allowance that is calculated by applying the reserve rate to its portfolio, including the unreserved balance of accounts that have been specifically reserved. All delinquent accounts are reviewed for potential impairment. A receivable is deemed to be impaired when based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Amount of impairment is measured as the difference between the balance outstanding and underlying collateral value of equipment being financed, as well as any other collateral. All finance receivables identified as impaired are evaluated individually. Generally, the Company does not change terms and conditions of existing finance receivables.
The following table presents individually impaired finance receivables (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
|
|
|
Commercial Loans
|
|
Sales-Type Leases
|
|
Total
|
|
Commercial Loans
|
|
Sales-Type Leases
|
|
Total
|
|
Recorded investment
|
|
$
|
8.2
|
|
|
$
|
—
|
|
|
$
|
8.2
|
|
|
$
|
1.5
|
|
|
$
|
—
|
|
|
$
|
1.5
|
|
|
Related allowance
|
|
8.0
|
|
|
—
|
|
|
8.0
|
|
|
0.6
|
|
|
—
|
|
|
0.6
|
|
|
Average recorded investment
|
|
7.3
|
|
|
—
|
|
|
7.3
|
|
|
2.4
|
|
|
—
|
|
|
2.4
|
|
The average recorded investment for impaired finance receivables was
$3.2 million
for commercial loans at
June 30, 2018
. There were
no
impaired sales-type leases at
June 30, 2018
.
The allowance for credit losses and finance receivables by portfolio, segregated by those amounts that are individually evaluated for impairment and those that are collectively evaluated for impairment, was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
|
Allowance for credit losses, ending balance:
|
|
Commercial Loans
|
|
Sales-Type Leases
|
|
Total
|
|
Commercial Loans
|
|
Sales-Type Leases
|
|
Total
|
|
Individually evaluated for impairment
|
|
$
|
8.0
|
|
|
$
|
—
|
|
|
$
|
8.0
|
|
|
$
|
0.6
|
|
|
$
|
—
|
|
|
$
|
0.6
|
|
|
Collectively evaluated for impairment
|
|
2.9
|
|
|
1.2
|
|
|
4.1
|
|
|
3.4
|
|
|
1.5
|
|
|
4.9
|
|
|
Total allowance for credit losses
|
|
$
|
10.9
|
|
|
$
|
1.2
|
|
|
$
|
12.1
|
|
|
$
|
4.0
|
|
|
$
|
1.5
|
|
|
$
|
5.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance receivables, ending balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
8.2
|
|
|
$
|
—
|
|
|
$
|
8.2
|
|
|
$
|
1.5
|
|
|
$
|
—
|
|
|
$
|
1.5
|
|
|
Collectively evaluated for impairment
|
|
140.7
|
|
|
45.9
|
|
|
186.6
|
|
|
152.5
|
|
|
45.5
|
|
|
198.0
|
|
|
Total finance receivables
|
|
$
|
148.9
|
|
|
$
|
45.9
|
|
|
$
|
194.8
|
|
|
$
|
154.0
|
|
|
$
|
45.5
|
|
|
$
|
199.5
|
|
Accounts are considered delinquent when the billed periodic payments of the finance receivables exceed 30 days past the due date.
The following tables present analysis of aging of recorded investment in finance receivables (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
|
Current
|
|
31-60 days past due
|
|
61-90 days past due
|
|
Greater than 90 days past due
|
|
Total past due
|
|
Total Finance Receivables
|
|
Commercial loans
|
$
|
139.9
|
|
|
$
|
0.7
|
|
|
$
|
—
|
|
|
$
|
8.3
|
|
|
$
|
9.0
|
|
|
$
|
148.9
|
|
|
Sales-type leases
|
45.2
|
|
|
0.7
|
|
|
—
|
|
|
—
|
|
|
0.7
|
|
|
45.9
|
|
|
Total finance receivables
|
$
|
185.1
|
|
|
$
|
1.4
|
|
|
$
|
—
|
|
|
$
|
8.3
|
|
|
$
|
9.7
|
|
|
$
|
194.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
Current
|
|
31-60 days past due
|
|
61-90 days past due
|
|
Greater than 90 days past due
|
|
Total past due
|
|
Total Finance Receivables
|
|
Commercial loans
|
$
|
152.2
|
|
|
$
|
0.1
|
|
|
$
|
—
|
|
|
$
|
1.7
|
|
|
$
|
1.8
|
|
|
$
|
154.0
|
|
|
Sales-type leases
|
45.3
|
|
|
0.2
|
|
|
—
|
|
|
—
|
|
|
0.2
|
|
|
45.5
|
|
|
Total finance receivables
|
$
|
197.5
|
|
|
$
|
0.3
|
|
|
$
|
—
|
|
|
$
|
1.7
|
|
|
$
|
2.0
|
|
|
$
|
199.5
|
|
Commercial loans in the amount of
$13.1 million
and
$6.0 million
were on non-accrual status as of
June 30, 2019
and
December 31, 2018
, respectively. Sales-type leases in the amount of
$2.0 million
were on non-accrual status at
June 30, 2019
and there were
no
sales-type leases on non-accrual status at
December 31, 2018
.
Credit Quality Information
Credit quality is reviewed periodically based on customers’ payment status. In addition to delinquency status, any information received regarding a customer (such as bankruptcy filings, etc.) will also be considered to determine the credit quality of the customer. Collateral asset values are also monitored regularly to determine the potential loss exposures on any given transaction.
The Company uses the following internal credit quality indicators, based on an internal risk rating system, using certain external credit data, listed from the lowest level of risk to highest level of risk. The internal rating system considers factors affecting specific borrowers’ ability to repay.
Finance receivables by risk rating (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Rating
|
|
June 30, 2019
|
|
December 31, 2018
|
|
Superior
|
|
$
|
2.0
|
|
|
$
|
7.5
|
|
|
Above Average
|
|
20.0
|
|
|
30.7
|
|
|
Average
|
|
56.7
|
|
|
56.9
|
|
|
Below Average
|
|
106.8
|
|
|
94.5
|
|
|
Sub Standard
|
|
9.3
|
|
|
9.9
|
|
|
Total
|
|
$
|
194.8
|
|
|
$
|
199.5
|
|
The Company believes the finance receivables retained, net of allowance for credit losses, are collectible.
NOTE G – INVENTORIES
Inventories consist of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2019
|
|
December 31,
2018
|
|
Finished equipment
|
$
|
390.9
|
|
|
$
|
478.4
|
|
|
Replacement parts
|
159.2
|
|
|
143.3
|
|
|
Work-in-process
|
95.6
|
|
|
86.5
|
|
|
Raw materials and supplies
|
217.4
|
|
|
210.7
|
|
|
Inventories
|
$
|
863.1
|
|
|
$
|
918.9
|
|
Reserves for lower of cost or net realizable value and excess and obsolete inventory were
$53.2 million
and
$49.8 million
at
June 30, 2019
and
December 31, 2018
, respectively.
NOTE H – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment – net consist of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2019
|
|
December 31,
2018
|
|
Property
|
$
|
39.4
|
|
|
$
|
39.6
|
|
|
Plant
|
162.7
|
|
|
161.3
|
|
|
Equipment
|
461.4
|
|
|
428.6
|
|
|
Property, plant and equipment – gross
|
663.5
|
|
|
629.5
|
|
|
Less: Accumulated depreciation
|
(324.0
|
)
|
|
(312.2
|
)
|
|
Property, plant and equipment – net
|
$
|
339.5
|
|
|
$
|
317.3
|
|
NOTE I – GOODWILL AND INTANGIBLE ASSETS, NET
An analysis of changes in the Company’s goodwill by business segment is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AWP
|
|
MP
|
|
Total
|
|
Balance at December 31, 2018, gross
|
$
|
139.2
|
|
|
$
|
187.8
|
|
|
$
|
327.0
|
|
|
Accumulated impairment
|
(38.6
|
)
|
|
(23.2
|
)
|
|
(61.8
|
)
|
|
Balance at December 31, 2018, net
|
100.6
|
|
|
164.6
|
|
|
265.2
|
|
|
Foreign exchange effect and other
|
(0.2
|
)
|
|
(0.6
|
)
|
|
(0.8
|
)
|
|
Balance at June 30, 2019, gross
|
139.0
|
|
|
187.2
|
|
|
326.2
|
|
|
Accumulated impairment
|
(38.6
|
)
|
|
(23.2
|
)
|
|
(61.8
|
)
|
|
Balance at June 30, 2019, net
|
$
|
100.4
|
|
|
$
|
164.0
|
|
|
$
|
264.4
|
|
Intangible assets, net were comprised of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
|
|
Weighted Average Life
(in years)
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Definite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology
|
7
|
|
$
|
9.5
|
|
|
$
|
(8.9
|
)
|
|
$
|
0.6
|
|
|
$
|
9.7
|
|
|
$
|
(9.1
|
)
|
|
$
|
0.6
|
|
|
Customer Relationships
|
22
|
|
25.6
|
|
|
(22.3
|
)
|
|
3.3
|
|
|
25.6
|
|
|
(21.7
|
)
|
|
3.9
|
|
|
Land Use Rights
|
81
|
|
4.4
|
|
|
(0.6
|
)
|
|
3.8
|
|
|
4.4
|
|
|
(0.6
|
)
|
|
3.8
|
|
|
Other
|
8
|
|
25.0
|
|
|
(22.1
|
)
|
|
2.9
|
|
|
24.9
|
|
|
(21.8
|
)
|
|
3.1
|
|
|
Total definite-lived intangible assets
|
|
|
$
|
64.5
|
|
|
$
|
(53.9
|
)
|
|
$
|
10.6
|
|
|
$
|
64.6
|
|
|
$
|
(53.2
|
)
|
|
$
|
11.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
(in millions)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Aggregate Amortization Expense
|
$
|
0.5
|
|
|
$
|
0.5
|
|
|
$
|
0.9
|
|
|
$
|
0.9
|
|
Estimated aggregate intangible asset amortization expense (in millions) for each of the next five years below is:
|
|
|
|
|
|
|
|
2019
|
$
|
1.8
|
|
|
2020
|
$
|
1.7
|
|
|
2021
|
$
|
1.6
|
|
|
2022
|
$
|
1.4
|
|
|
2023
|
$
|
0.9
|
|
NOTE J – DERIVATIVE FINANCIAL INSTRUMENTS
The Company operates internationally, with manufacturing and sales facilities in various locations around the world. In the normal course of business, the Company primarily uses cash flow derivatives to manage foreign currency and price risk exposures on third party and intercompany forecasted transactions. For a derivative to qualify for hedge accounting treatment at inception and throughout the hedge period, the Company formally documents the nature and relationships between hedging instruments and hedged items, as well as its risk-management objectives and strategies for undertaking various hedge transactions, and method of assessing hedge effectiveness. Additionally, for hedges of forecasted transactions, significant characteristics and expected terms of a forecasted transaction must be specifically identified, and it must be probable that each forecasted transaction will occur. If it is deemed probable the forecasted transaction will not occur, then the gain or loss would be recognized in current earnings. Financial instruments qualifying for hedge accounting must maintain a specified level of effectiveness between the hedging instrument and the item being hedged. The Company does not engage in trading or other speculative use of financial instruments. The Company records all derivative contracts at fair value on a recurring basis. The Company’s derivative financial instruments are categorized under the ASC 820 hierarchy; see Note A - “Basis of Presentation” for an explanation of the hierarchy.
Foreign Exchange Contracts
The Company enters into foreign exchange contracts to manage variability of future cash flows associated with recognized assets or liabilities or forecasted transactions due to changing currency exchange rates. Primary currencies to which the Company is exposed are the Euro, British Pound and Australian Dollar. These foreign exchange contracts are designated as cash flow hedging instruments. Fair values of these contracts are derived using quoted forward foreign exchange prices to interpolate values of outstanding trades at the reporting date based on their maturities. Most of the foreign exchange contracts outstanding as of
June 30, 2019
mature on or before
June 30, 2020
. At
June 30, 2019
and
December 31, 2018
, the Company had
$441.3 million
and
$368.2 million
notional amount, respectively, of foreign exchange contracts outstanding that were designated as cash flow hedge contracts. For effective hedging instruments, unrealized gains and losses associated with foreign exchange contracts are deferred as a component of Accumulated other comprehensive income (loss) (“AOCI”) until the underlying hedged transactions settle and are reclassified to Cost of goods sold (“COGS”) in the Company’s Condensed Consolidated Statement of Comprehensive Income (Loss).
Certain foreign exchange contracts entered into by the Company have not been designated as hedging instruments to mitigate its exposure to changes in foreign currency exchange rates on recognized assets and liabilities. The Company had
$76.5 million
and
$107.8 million
notional amount of foreign exchange contracts outstanding that were not designated as hedging instruments at
June 30, 2019
and
December 31, 2018
, respectively. The majority of gains and losses recognized from foreign exchange contracts not designated as hedging instruments were offset by changes in the underlying hedged items, resulting in no material net impact on earnings. Changes in the fair value of these derivative financial instruments were recognized as gains or losses in Other income (expense) – net in the Condensed Consolidated Statement of Comprehensive Income (Loss).
Other
Other derivatives designated as cash flow hedging instruments include cross currency and commodity swaps with outstanding notional amounts of
$45.5 million
and
$3.2 million
at
June 30, 2019
, respectively. The outstanding notional amount of cross currency swaps and commodity swaps was
$45.9 million
and
$11.2 million
at
December 31, 2018
, respectively. The Company uses cross currency swaps to mitigate its exposure to changes in foreign currency exchange rates and commodity swaps to mitigate price risk for hot rolled coil steel. Fair values of cross currency swaps are based on the present value of future cash payments and receipts. Fair values of commodity swaps are based on observable market data for similar assets and liabilities. Changes in the fair value of cross currency and commodity swaps are deferred in AOCI. Gains or losses on cross currency swaps are reclassified to Other income (expense) - net in the Condensed Consolidated Statement of Comprehensive Income (Loss) when the underlying hedged item is re-measured. Gains or losses on commodity swaps are reclassified to COGS in the Condensed Consolidated Statement of Comprehensive Income (Loss) when the hedged transaction affects earnings.
Other derivatives not designated as hedging instruments include a debt conversion feature on a convertible promissory note held by the Company for which changes in fair value are recorded in Other income (expense) - net in the Condensed Consolidated Statement of Comprehensive Income (Loss).
The following table provides the location and fair value amounts of derivative instruments designated and not designated as hedging instruments that are reported in the Condensed Consolidated Balance Sheet (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2019
|
|
December 31,
2018
|
|
Instrument
(1)
|
Balance Sheet Account
|
Derivatives designated as hedges
|
Derivatives not designated as hedges
|
|
Derivatives designated as hedges
|
Derivatives not designated as hedges
|
|
Foreign exchange contracts
|
Other current assets
|
$
|
2.8
|
|
$
|
—
|
|
|
$
|
2.9
|
|
$
|
0.2
|
|
|
Cross currency swaps
|
Other current assets
|
0.8
|
|
—
|
|
|
0.8
|
|
—
|
|
|
Debt conversion feature
|
Other assets
|
—
|
|
0.3
|
|
|
—
|
|
0.5
|
|
|
Foreign exchange contracts
|
Other current liabilities
|
(5.3
|
)
|
(0.1
|
)
|
|
(5.0
|
)
|
—
|
|
|
Commodity swaps
|
Other current liabilities
|
(0.3
|
)
|
—
|
|
|
(1.1
|
)
|
—
|
|
|
Cross currency swaps
|
Other non-current liabilities
|
(1.8
|
)
|
—
|
|
|
(3.0
|
)
|
—
|
|
|
Net derivative asset (liability)
|
$
|
(3.8
|
)
|
$
|
0.2
|
|
|
$
|
(5.4
|
)
|
$
|
0.7
|
|
(1) Categorized as Level 2 under the ASC 820 Fair Value Hierarchy.
The following tables provide the effect of derivative instruments that are designated as hedges in AOCI (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) Recognized on Derivatives in OCI, net of tax
|
|
Gain (Loss) Reclassified from AOCI into Income
|
|
Instrument
|
Three Months Ended
June 30, 2019
|
Six Months Ended
June 30, 2019
|
Income Statement Account
|
Three Months Ended
June 30, 2019
|
Six Months Ended
June 30, 2019
|
|
Foreign exchange contracts
|
$
|
1.7
|
|
0.5
|
|
Cost of goods sold
|
$
|
(0.5
|
)
|
$
|
(2.4
|
)
|
|
Commodity swaps
|
(0.2
|
)
|
(0.3
|
)
|
Cost of goods sold
|
(0.7
|
)
|
(1.0
|
)
|
|
Cross currency swaps
|
0.5
|
|
0.7
|
|
Other income (expense) - net
|
(0.6
|
)
|
0.4
|
|
|
Total
|
$
|
2.0
|
|
$
|
0.9
|
|
Total
|
$
|
(1.8
|
)
|
$
|
(3.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) Recognized on Derivatives in OCI, net of tax
|
|
Gain (Loss) Reclassified from AOCI into Income
|
|
Instrument
|
Three Months Ended
June 30, 2018
|
Six Months Ended
June 30, 2018
|
Income Statement Account
|
Three Months Ended
June 30, 2018
|
Six Months Ended
June 30, 2018
|
|
Foreign exchange contracts
|
(6.3
|
)
|
(6.8
|
)
|
Cost of goods sold
|
$
|
0.6
|
|
$
|
2.6
|
|
|
Cross currency swaps
|
0.3
|
|
(0.5
|
)
|
Other income (expense) - net
|
2.6
|
|
1.3
|
|
|
Total
|
$
|
(6.0
|
)
|
$
|
(7.3
|
)
|
Total
|
$
|
3.2
|
|
$
|
3.9
|
|
The following tables provide the effect of derivative instruments that are designated as hedges in the Condensed Consolidated Statement of Comprehensive Income (Loss) (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classification and amount of Gain or Loss
Recognized in Income
|
|
|
Cost of goods sold
|
Other income (expense) - net
|
|
|
Three Months Ended
June 30, 2019
|
Six Months Ended
June 30, 2019
|
Three Months Ended
June 30, 2019
|
Six Months Ended
June 30, 2019
|
|
Income Statement Accounts in which effects of cash flow hedges are recorded
|
$
|
(1,035.1
|
)
|
$
|
(1,933.9
|
)
|
$
|
(1.3
|
)
|
$
|
(4.5
|
)
|
|
Gain (Loss) Reclassified from AOCI into Income:
|
|
|
|
Foreign exchange contracts
|
(0.5
|
)
|
(2.4
|
)
|
—
|
|
—
|
|
|
Commodity swaps
|
(0.7
|
)
|
(1.0
|
)
|
—
|
|
—
|
|
|
Cross currency swaps
|
—
|
|
—
|
|
(0.6
|
)
|
0.4
|
|
|
Total
|
$
|
(1.2
|
)
|
$
|
(3.4
|
)
|
$
|
(0.6
|
)
|
$
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classification and amount of Gain or Loss
Recognized in Income
|
|
|
Cost of goods sold
|
Other income (expense) - net
|
|
|
Three Months Ended
June 30, 2018
|
Six Months Ended
June 30, 2018
|
Three Months Ended
June 30, 2018
|
Six Months Ended
June 30, 2018
|
|
Income Statement Accounts in which effects of cash flow hedges are recorded
|
$
|
(974.4
|
)
|
$
|
(1,862.4
|
)
|
$
|
(1.6
|
)
|
$
|
(0.4
|
)
|
|
Gain (Loss) Reclassified from AOCI into Income:
|
|
|
|
Foreign exchange contracts
|
0.6
|
|
2.6
|
|
—
|
|
—
|
|
|
Cross currency swaps
|
—
|
|
—
|
|
2.6
|
|
1.3
|
|
|
Total
|
$
|
0.6
|
|
$
|
2.6
|
|
$
|
2.6
|
|
$
|
1.3
|
|
Derivatives not designated as hedges are used to offset foreign exchange gains or losses resulting from the underlying exposures of foreign currency denominated assets and liabilities. The following table provides the effect of non-designated derivatives outstanding at the end of the period in the Condensed Consolidated Statement of Comprehensive Income (Loss) (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) Recognized in Income
|
|
|
|
Three Months Ended
June 30, 2019
|
Six Months Ended
June 30, 2019
|
|
Three Months Ended
June 30, 2018
|
Six Months Ended
June 30, 2018
|
|
Instrument
|
Income Statement Account
|
|
|
|
|
|
|
Foreign exchange contracts
|
Other income (expense) – net
|
$
|
0.5
|
|
$
|
(0.3
|
)
|
|
$
|
0.1
|
|
$
|
(0.3
|
)
|
|
Debt conversion feature
|
Other income (expense) – net
|
(0.7
|
)
|
(0.3
|
)
|
|
0.3
|
|
0.8
|
|
|
|
Total
|
$
|
(0.2
|
)
|
$
|
(0.6
|
)
|
|
$
|
0.4
|
|
$
|
0.5
|
|
In the Condensed Consolidated Statement of Comprehensive Income (Loss), the Company records hedging activity related to foreign exchange contracts, cross currency and commodity swaps and the debt conversion feature in the accounts for which the hedged items are recorded. On the Condensed Consolidated Statement of Cash Flows, the Company presents cash flows from hedging activities in the same manner as it records the underlying item being hedged.
Counterparties to the Company’s derivative financial instruments are major financial institutions and commodity trading companies with credit ratings of investment grade or better and no collateral is required. There are no significant risk concentrations. Management continues to monitor counterparty risk and believes the risk of incurring losses on derivative contracts related to credit risk is unlikely and any losses would be immaterial.
See Note O - “Stockholders’ Equity” for unrealized net gains (losses), net of tax, included in AOCI. Within the unrealized net gains (losses) included in AOCI as of
June 30, 2019
, it is estimated that
$2.5 million
of losses are expected to be reclassified into earnings in the next twelve months.
NOTE K – LONG-TERM OBLIGATIONS
2017 Credit Agreement
On January 31, 2017, the Company entered into a credit agreement (as amended, the “2017 Credit Agreement”), with the lenders and issuing banks party thereto and Credit Suisse AG, Cayman Islands Branch (“CSAG”), as administrative agent and collateral agent. The 2017 Credit Agreement includes (i) a $600 million revolving line of credit (the “Revolver”) and (ii) senior secured term loans totaling
$600 million
that will mature on January 31, 2024 (the “Term Loans”); both are further described below. In connection with the 2017 Credit Agreement, the Company terminated its previous credit agreement with the lenders party thereto and CSAG, as administrative agent and collateral agent and related agreements and documents (the “2014 Credit Agreement”).
The 2017 Credit Agreement contains a
$400.0 million
senior secured term loan (the “Original Term Loan”). On August 17, 2017, the Company entered into an Incremental Assumption Agreement and Amendment No. 1 to the 2017 Credit Agreement which lowered the interest rate on the Original Term Loan by
25
basis points. On February 28, 2018, the Company entered into an Incremental Assumption Agreement and Amendment No. 2 (“Amendment No. 2”) to the 2017 Credit Agreement which lowered the interest rate on the Original Term Loan by an additional
25
basis points. The Original Term Loan portion of the 2017 Credit Agreement bears interest at a rate of London Interbank Offered Rate (“LIBOR”) plus
2.00%
with a
0.75%
LIBOR floor. On March 7, 2019, the Company entered into an Incremental Assumption Agreement and Amendment No. 3 (“Amendment No. 3”) to the 2017 Credit Agreement. Amendment No. 3 provided the Company with an additional term loan (the “2019 Term Loan”) under the 2017 Credit Agreement in the amount of
$200 million
. The 2019 Term Loan portion of the 2017 Credit Agreement bears interest at a rate of LIBOR plus
2.75%
with a
0.75%
LIBOR floor.
On April 10, 2018, the Company entered into an Incremental Revolving Credit Assumption Agreement to the 2017 Credit Agreement which increased the size of the revolving line of credit from
$450 million
to
$600 million
available through January 31, 2022. The 2017 Credit Agreement allows unlimited incremental commitments, which may be extended at the option of the existing or new lenders and can be in the form of revolving credit commitments, term loan commitments, or a combination of both, with incremental amounts in excess of
$300 million
as long as the Company satisfies a senior secured leverage ratio contained in the 2017 Credit Agreement.
The 2017 Credit Agreement requires the Company to comply with a number of covenants which limit, in certain circumstances, the Company’s ability to take a variety of actions, including but not limited to: incur indebtedness; create or maintain liens on its property or assets; make investments, loans and advances; repurchase shares of its common stock; engage in acquisitions, mergers, consolidations and asset sales; redeem debt; and pay dividends and distributions. If the Company’s borrowings under its revolving line of credit are greater than
30%
of the total revolving credit commitments, the 2017 Credit Agreement requires the Company to comply with certain financial tests, as defined in the 2017 Credit Agreement. If applicable, the minimum required levels of the interest coverage ratio would be
2.5
to 1.0 and the maximum permitted levels of the senior secured leverage ratio would be
2.75
to 1.0. The 2017 Credit Agreement also contains customary default provisions. The Company was in compliance with the financial covenants contained in the 2017 Credit Agreement as of
June 30, 2019
.
During the
six months ended
June 30, 2018
, the Company recorded a loss on early extinguishment of debt related to Amendment No. 2 to the 2017 Credit Agreement of approximately
$0.7 million
.
As of
June 30, 2019
and
December 31, 2018
, the Company had
$588.2 million
and
$391.4 million
, net of discount, respectively, in Term Loans outstanding under the 2017 Credit Agreement. The weighted average interest rate on the Term Loans at
June 30, 2019
and
December 31, 2018
was
4.60%
and
4.50%
, respectively. The Company had
$174.5 million
and
$237.0 million
revolving credit amounts outstanding as of
June 30, 2019
and
December 31, 2018
, respectively. The weighted average interest rate on the revolving credit amounts at
June 30, 2019
and
December 31, 2018
was
5.13%
and
5.98%
, respectively.
The Company issues letters of credit that generally serve as collateral for certain liabilities included in the Condensed Consolidated Balance Sheet and guaranteeing the Company’s performance under contracts. Letters of credit can be issued under two facilities provided in the 2017 Credit Agreement and via bilateral arrangements outside the 2017 Credit Agreement.
The 2017 Credit Agreement incorporates secured facilities for issuance of letters of credit up to
$400 million
(the “$400 Million Facility”). Letters of credit issued under the $400 Million Facility decrease availability under the Revolver. The 2017 Credit Agreement also permits the Company to have additional secured facilities for the issuance of letters of credit up to
$300 million
(the “$300 Million Facility”). Letters of credit issued under the $300 Million Facility do not decrease availability under the Revolver.
The Company also has bilateral arrangements to issue letters of credit with various other financial institutions (the “Bilateral Arrangements”). The Bilateral Arrangements are not secured under the 2017 Credit Agreement and do not decrease availability under the Revolver.
Letters of credit outstanding (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
|
|
Continuing Operations
|
|
Discontinued Operations
|
|
Total
|
|
Continuing Operations
|
|
Discontinued Operations
|
|
Total
|
|
$400 Million Facility
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$300 Million Facility
|
34.7
|
|
|
—
|
|
|
34.7
|
|
|
33.4
|
|
|
—
|
|
|
33.4
|
|
|
Bilateral Arrangements
|
46.6
|
|
|
10.5
|
|
|
57.1
|
|
|
32.0
|
|
|
10.4
|
|
|
42.4
|
|
|
Total
|
$
|
81.3
|
|
|
$
|
10.5
|
|
|
$
|
91.8
|
|
|
$
|
65.4
|
|
|
$
|
10.4
|
|
|
$
|
75.8
|
|
Furthermore, the Company and certain of its subsidiaries agreed to take certain actions to secure borrowings under the 2017 Credit Agreement. As a result, on January 31, 2017, Terex and certain of its subsidiaries entered into a Guarantee and Collateral Agreement with CSAG, as collateral agent for the lenders, granting security and guarantees to the lenders for amounts borrowed under the 2017 Credit Agreement. Pursuant to the Guarantee and Collateral Agreement, Terex is required to (a) pledge as collateral the capital stock of the Company’s material domestic subsidiaries and
65%
of the capital stock of certain of the Company’s material foreign subsidiaries and (b) provide a first priority security interest in substantially all of the Company’s domestic assets.
5-5/8%
Senior Notes
On January 31, 2017, the Company sold and issued
$600.0 million
aggregate principal amount of Senior Notes Due 2025 (“
5-5/8%
Notes”) at par in a private offering. The proceeds from the
5-5/8%
Notes, together with cash on hand, including cash from the sale of the Company’s Material Handling and Port Solutions business, was used: (i) to complete a tender offer for up to
$550.0 million
of the Company’s Senior Notes due 2021 (“
6%
Notes”), (ii) to redeem and discharge such portion of the
6%
Notes not purchased in the tender offer, (iii) to fund a
$300.0 million
partial redemption of the
6%
Notes, (iv) to fund repayment of all
$300.0 million
aggregate principal amount outstanding of the Company’s
6-1/2%
senior notes due 2021 on or before April 3, 2017, (v) to pay related premiums, fees, discounts and expenses, and (vi) for general corporate purposes, including repayment of borrowings outstanding under the 2014 Credit Agreement. The
5-5/8%
Notes are jointly and severally guaranteed by certain of the Company’s domestic subsidiaries.
Fair Value of Debt
Based on indicative price quotations from financial institutions multiplied by the amount recorded on the Company’s Condensed Consolidated Balance Sheet (“Book Value”), the Company estimates the fair values (“FV”) of its debt set forth below as of
June 30, 2019
, as follows (in millions, except for quotes):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book Value
|
|
Quote
|
|
FV
|
|
5-5/8% Notes
|
$
|
600.0
|
|
|
$
|
1.02250
|
|
|
$
|
614
|
|
|
2017 Credit Agreement Original Term Loan (net of discount)
|
$
|
389.6
|
|
|
$
|
0.99667
|
|
|
$
|
388
|
|
|
2017 Credit Agreement 2019 Term Loan (net of discount)
|
$
|
198.6
|
|
|
$
|
1.00406
|
|
|
$
|
199
|
|
The fair value of debt reported in the table above is based on price quotations on the debt instrument in an active market and therefore is categorized under Level 1 of the ASC 820 hierarchy. See Note A – “Basis of Presentation” for an explanation of ASC 820 hierarchy. The Company believes that the carrying value of its other borrowings, including amounts outstanding, if any, for the revolving credit line under the 2017 Credit Agreement, approximate fair market value based on maturities for debt of similar terms. Fair value of these other borrowings are categorized under Level 2 of the ASC 820 hierarchy.
NOTE L – RETIREMENT PLANS AND OTHER BENEFITS
The Company maintains defined benefit plans in France, Germany, India, Switzerland and the United Kingdom for some of its subsidiaries, as well as a nonqualified Supplemental Executive Retirement Plan (“DB SERP”) in the United States. In Italy, there are mandatory termination indemnity plans providing a benefit that is payable upon termination of employment in substantially all cases of termination. The Company has several non-pension post-retirement benefit programs, including health and life insurance benefits to certain former salaried and hourly employees. Information regarding the Company’s plans, including the DB SERP, is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
U.S. Pension
|
|
Non-U.S. Pension
|
|
Other
|
|
U.S. Pension
|
|
Non-U.S. Pension
|
|
Other
|
|
U.S. Pension
|
|
Non-U.S. Pension
|
|
Other
|
|
U.S. Pension
|
|
Non-U.S. Pension
|
|
Other
|
|
Components of net periodic cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
$
|
0.1
|
|
|
$
|
0.3
|
|
|
$
|
—
|
|
|
$
|
0.1
|
|
|
$
|
0.4
|
|
|
$
|
—
|
|
|
$
|
0.1
|
|
|
$
|
0.7
|
|
|
$
|
—
|
|
|
$
|
0.2
|
|
|
$
|
0.7
|
|
|
$
|
—
|
|
|
Interest cost
|
0.4
|
|
|
0.9
|
|
|
0.1
|
|
|
1.1
|
|
|
1.0
|
|
|
—
|
|
|
0.8
|
|
|
1.8
|
|
|
0.1
|
|
|
2.3
|
|
|
1.9
|
|
|
—
|
|
|
Expected return on plan assets
|
—
|
|
|
(1.2
|
)
|
|
—
|
|
|
(1.5
|
)
|
|
(1.3
|
)
|
|
—
|
|
|
—
|
|
|
(2.4
|
)
|
|
—
|
|
|
(3.0
|
)
|
|
(2.7
|
)
|
|
—
|
|
|
Amortization of actuarial loss
|
(0.2
|
)
|
|
0.4
|
|
|
—
|
|
|
0.9
|
|
|
0.3
|
|
|
—
|
|
|
(0.3
|
)
|
|
0.8
|
|
|
—
|
|
|
1.7
|
|
|
0.7
|
|
|
—
|
|
|
Other costs
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.2
|
|
|
—
|
|
|
Net periodic cost
|
$
|
0.3
|
|
|
$
|
0.4
|
|
|
$
|
0.1
|
|
|
$
|
0.6
|
|
|
$
|
0.6
|
|
|
$
|
—
|
|
|
$
|
0.6
|
|
|
$
|
0.9
|
|
|
$
|
0.1
|
|
|
$
|
1.2
|
|
|
$
|
0.8
|
|
|
$
|
—
|
|
Components of Net periodic cost other than the Service cost component are included in Other income (expense) - Net in the Condensed Consolidated Statement of Comprehensive Income (Loss). The Service cost component is included in the same line item or items as other compensation costs arising from services rendered by pertinent employees during the period.
NOTE M – LEASES
Terex has operating and finance leases for real property, vehicles and office and industrial equipment, expiring over terms from
1
to
15
years. Many of the leases held by Terex include options to extend or terminate the lease. The Company currently has no finance leases in its continuing operations.
Real property leases are used for office, administrative and industrial purposes. The base terms of these leases typically expire over a period of
6
years, with options to renew for an additional
69
months. Most of our renewal options are linked to market conditions and Terex cannot estimate how existing renewal options will affect the monthly payments. Residual value guarantees are not material.
The vehicle leases mainly include cars and trucks. Term length for these leases varies between
1
and
7
years.
Office and industrial equipment leases primarily include machinery used for conducting business at office locations and manufacturing sites worldwide. Term length for these leases vary between
1
and
6
years.
Operating Leases
Operating lease cost consists of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
Six Months Ended
|
|
|
June 30, 2019
|
June 30, 2019
|
|
Operating lease cost
|
$
|
7.9
|
|
$
|
15.7
|
|
|
Variable lease cost
|
1.9
|
|
3.4
|
|
|
Short-term lease cost
|
1.3
|
|
2.7
|
|
|
Total operating lease costs
|
$
|
11.1
|
|
$
|
21.8
|
|
Variable lease costs correspond to future period lease payments which are determined at fair market value at determined points in time. Operating lease obligations consist primarily of commitments to rent real properties.
Supplemental balance sheet information related to leases (in millions, except lease term and discount rate):
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
Operating lease right-of-use assets
|
$
|
121.9
|
|
|
|
|
|
Current maturities of operating leases
|
$
|
25.7
|
|
|
Non-current operating leases
|
103.8
|
|
|
Total operating lease liabilities
|
$
|
129.5
|
|
|
|
|
|
Weighted average discount rate for operating leases
|
5.64
|
%
|
|
Weighted average remaining operating lease term in years
|
6
|
|
Maturities of operating lease liabilities (in millions):
|
|
|
|
|
|
|
|
Years Ending December 31,
|
June 30, 2019
|
|
2019
|
$
|
16.9
|
|
|
2020
|
29.1
|
|
|
2021
|
25.9
|
|
|
2022
|
22.6
|
|
|
2023
|
19.4
|
|
|
Thereafter
|
38.7
|
|
|
Total undiscounted operating lease payments
|
152.6
|
|
|
Less: Imputed interest
|
(23.1
|
)
|
|
Total operating lease liabilities
|
129.5
|
|
|
Less: Current Maturities of operating lease liabilities
|
(25.7
|
)
|
|
Non-current operating lease liabilities
|
$
|
103.8
|
|
Supplemental cash flow and other information related to operating leases (in millions):
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
June 30, 2019
|
|
Cash paid for amounts included in the measurement of operating lease liabilities
|
$
|
19.4
|
|
|
Operating right-of-use assets obtained in exchange for operating lease liabilities
|
$
|
15.6
|
|
Disclosures related to periods prior to adoption of the Lease Standard
Future minimum noncancellable operating lease payments at
December 31, 2018
are as follows (in millions):
|
|
|
|
|
|
|
|
2019
|
$
|
30.5
|
|
|
2020
|
25.8
|
|
|
2021
|
22.9
|
|
|
2022
|
18.7
|
|
|
2023
|
16.4
|
|
|
Thereafter
|
37.0
|
|
|
Total minimum obligations
|
$
|
151.3
|
|
Most of the Company’s operating leases provide the Company with the option to renew the leases for varying periods after the initial lease terms. These renewal options enable the Company to renew the leases based upon the fair rental values at the date of expiration of the initial lease. Total rental expense under operating leases was
$37.5 million
in
2018
.
NOTE N – LITIGATION AND CONTINGENCIES
General
The Company is involved in various legal proceedings, including product liability, general liability, workers’ compensation liability, employment, commercial and intellectual property litigation, which have arisen in the normal course of operations. The Company is insured for product liability, general liability, workers’ compensation, employer’s liability, property damage and other insurable risk required by law or contract, with retained liability or deductibles. The Company records and maintains an estimated liability in the amount of management’s estimate of the Company’s aggregate exposure for such retained liabilities and deductibles. For such retained liabilities and deductibles, the Company determines its exposure based on probable loss estimations, which requires such losses to be both probable and the amount or range of probable loss to be estimable. The Company believes it has made appropriate and adequate reserves and accruals for its current contingencies and the likelihood of a material loss beyond amounts accrued is remote. The Company believes the outcome of such matters, individually and in aggregate, will not have a material adverse effect on its financial statements as a whole. However, outcomes of lawsuits cannot be predicted and, if determined adversely, could ultimately result in the Company incurring significant liabilities which could have a material adverse effect on its results of operations.
Securities and Stockholder Derivative Lawsuits
In 2010, the Company received complaints seeking certification of class action lawsuits as follows:
|
|
|
|
•
|
A consolidated class action complaint for violations of securities laws was filed in the United States District Court, District of Connecticut on November 18, 2010 and is entitled Sheet Metal Workers Local 32 Pension Fund and Ironworkers St. Louis Council Pension Fund, individually and on behalf of all others similarly situated v. Terex Corporation, et al.
|
|
|
|
|
•
|
A stockholder derivative complaint for violation of the Securities and Exchange Act of 1934, breach of fiduciary duty, waste of corporate assets and unjust enrichment was filed on April 12, 2010 in the United States District Court, District of Connecticut and is entitled Peter Derrer, derivatively on behalf of Terex Corporation v. Ronald M. DeFeo, Phillip C. Widman, Thomas J. Riordan, G. Chris Andersen, Donald P. Jacobs, David A. Sachs, William H. Fike, Donald DeFosset, Helge H. Wehmeier, Paula H.J. Cholmondeley, Oren G. Shaffer, Thomas J. Hansen, and David C. Wang, and Terex Corporation.
|
These lawsuits, which generally cover the time period from February 2008 to February 2009, allege violations of federal securities laws and Delaware law claiming, among other things, that certain of the Company’s SEC filings and other public statements contained false and misleading statements which resulted in damages to the Company, the plaintiffs and the members of the purported class when they purchased the Company’s securities and that there were breaches of fiduciary duties. The stockholder derivative complaint also alleges waste of corporate assets relating to the repurchase of the Company’s shares in the market and unjust enrichment as a result of securities sales by certain officers and directors. The complaints seek, among other things, unspecified compensatory damages, costs and expenses. As a result, the Company is unable to estimate a possible loss or a range of losses for these lawsuits. The stockholder derivative complaint also seeks amendments to the Company’s corporate governance procedures in addition to unspecified compensatory damages from the individual defendants in its favor.
On March 31, 2018, the securities lawsuit was dismissed against all of the named defendants except Mr. Riordan and the Company. In addition, certain claims were also narrowed. However, as all claims against Mr. Riordan were not dismissed, the case continued against both Mr. Riordan and, as a result, the Company as well. While the Company continues to believe that it has acted, and continues to act, in compliance with all applicable laws, on February 13, 2019, the plaintiffs and the Company advised the court that the parties had agreed in principle to a settlement of the securities lawsuit, subject to the court’s approval. The proposed settlement amount would be covered by the Company’s insurance policies and will not have a material effect on the Company’s financial results. On April 15, 2019, the court issued an order preliminarily approving the settlement and notice process. The notice period has now expired and the settlement process continues to move forward.
The stockholder derivative action requires that the plaintiff own shares at the time of the alleged action continuously throughout the pendency of the case. In September of 2018, the plaintiff’s counsel notified the Company that its named plaintiff no longer owned shares of Terex. Plaintiff’s counsel filed a motion to replace the plaintiff in this case with a new plaintiff. The Company filed a motion objecting to the substitution on several grounds as it is the Company’s belief that the proposed substitute plaintiff does not meet the legal requirements to act as plaintiff in this action. To date, the court has not rendered a decision on these motions. While the Company continues to believe that it has acted, and continues to act, in compliance with applicable laws, on April 24, 2019 the plaintiffs and the Company advised the court that the parties have agreed in principle to a settlement of the stockholder derivative lawsuit, subject to the court’s approval, and have submitted settlement papers for the court’s preliminary approval of the proposed settlement and notice process. The proposed settlement amount will not have a material effect on the Company’s consolidated financial statements.
Demag Cranes AG Appraisal Proceedings
In connection with the Company’s purchase of Demag Cranes AG (“DCAG”) in 2011, certain former shareholders of DCAG initiated appraisal proceedings relating to (i) a domination and profit loss transfer agreement between DCAG and Terex Germany GmbH & Co. KG (the “DPLA Proceeding”) and (ii) the squeeze out of the former DCAG shareholders (the “Squeeze out Proceeding”) alleging that the Company did not pay fair value for the shares of DCAG. In April 2018, the Company reached an agreement with the former shareholders of DCAG to settle the DPLA Proceeding for an amount not material to the Company’s consolidated financial statements. The Squeeze out Proceeding will continue and is still in the relatively early stages. While the Company believes the position of the former shareholders of DCAG is without merit and is vigorously opposing it, no assurance can be given as to the final resolution of the Squeeze out Proceeding or that the Company will not ultimately be required to make an additional payment as a result of such dispute.
Other
The Company is involved in various other legal proceedings which have arisen in the normal course of its operations. The Company has recorded provisions for estimated losses in circumstances where a loss is probable and the amount or range of possible amounts of the loss is estimable.
Credit Guarantees
Customers of the Company from time to time may fund the acquisition of the Company’s equipment through third-party finance companies. In certain instances, the Company may provide a credit guarantee to the finance company, by which the Company agrees to make payments to the finance company should the customer default. These may require the Company to: (i) pay-off the customer’s obligations, (ii) assume the customer’s payments or (iii) pay a predetermined percentage of the customer’s outstanding obligation. The current amount of the maximum potential liability under these credit guarantees cannot be reasonably estimated due to limited availability of the unique facts and circumstances of each arrangement, such as customer delinquency and whether changes have been made to the structure of the contractual obligation between the funder and customer.
For credit guarantees outstanding as of
June 30, 2019
and
December 31, 2018
, the maximum exposure determined at inception was
$77.4 million
(
$20.5 million
related to discontinued operations) and
$59.2 million
(
$20.3 million
related to discontinued operations), respectively. Terms of these guarantees coincide with the financing arranged by the customer and generally do not exceed
five years
. Given the Company’s position as original equipment manufacturer and its knowledge of end markets, the Company, when called upon to fulfill a guarantee, generally has been able to liquidate the financed equipment at a minimal loss, if any, to the Company.
There can be no assurance that historical credit default experience will be indicative of future results. The Company’s ability to recover losses experienced from its guarantees may be affected by economic conditions in effect at the time of loss.
NOTE O – STOCKHOLDERS’ EQUITY
Changes in Accumulated Other Comprehensive Income (Loss)
The table below presents changes in AOCI by component for the
three
and
six months ended
June 30, 2019
and
2018
. All amounts are net of tax (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30, 2019
|
|
Three Months Ended
June 30, 2018
|
|
|
CTA
|
Derivative Hedging Adj.
|
Debt & Equity Securities Adj.
|
Pension Liability Adj.
|
Total
|
|
CTA
|
Derivative Hedging Adj.
|
Debt & Equity Securities Adj.
|
Pension Liability Adj.
|
Total
|
|
Beginning balance
|
$
|
(227.7
|
)
|
$
|
(5.5
|
)
|
$
|
1.6
|
|
$
|
(55.5
|
)
|
$
|
(287.1
|
)
|
|
$
|
(113.3
|
)
|
$
|
0.8
|
|
$
|
0.8
|
|
$
|
(101.6
|
)
|
$
|
(213.3
|
)
|
|
Other comprehensive income (loss) before reclassifications
|
(4.0
|
)
|
0.6
|
|
0.5
|
|
0.7
|
|
(2.2
|
)
|
|
(74.5
|
)
|
(3.8
|
)
|
(0.1
|
)
|
4.2
|
|
(74.2
|
)
|
|
Amounts reclassified from AOCI
|
—
|
|
1.4
|
|
—
|
|
0.6
|
|
2.0
|
|
|
—
|
|
(2.2
|
)
|
—
|
|
1.5
|
|
(0.7
|
)
|
|
Net Other Comprehensive Income (Loss)
|
(4.0
|
)
|
2.0
|
|
0.5
|
|
1.3
|
|
(0.2
|
)
|
|
(74.5
|
)
|
(6.0
|
)
|
(0.1
|
)
|
5.7
|
|
(74.9
|
)
|
|
Ending balance
|
$
|
(231.7
|
)
|
$
|
(3.5
|
)
|
$
|
2.1
|
|
$
|
(54.2
|
)
|
$
|
(287.3
|
)
|
|
$
|
(187.8
|
)
|
$
|
(5.2
|
)
|
$
|
0.7
|
|
$
|
(95.9
|
)
|
$
|
(288.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30, 2019
|
|
Six Months Ended
June 30, 2018
|
|
|
CTA
|
Derivative Hedging Adj.
|
Debt & Equity Securities Adj.
|
Pension Liability Adj.
|
Total
|
|
CTA
|
Derivative Hedging Adj.
|
Debt & Equity Securities Adj.
|
Pension Liability Adj.
|
Total
|
|
Beginning balance
|
$
|
(225.6
|
)
|
$
|
(4.4
|
)
|
$
|
0.8
|
|
$
|
(55.6
|
)
|
$
|
(284.8
|
)
|
|
$
|
(144.7
|
)
|
$
|
2.1
|
|
$
|
4.3
|
|
$
|
(101.2
|
)
|
$
|
(239.5
|
)
|
|
Other comprehensive income (loss) before reclassifications
|
(6.1
|
)
|
(2.2
|
)
|
1.3
|
|
0.2
|
|
(6.8
|
)
|
|
(43.1
|
)
|
(4.7
|
)
|
(1.0
|
)
|
2.3
|
|
(46.5
|
)
|
|
Amounts reclassified from AOCI
|
—
|
|
3.1
|
|
—
|
|
1.2
|
|
4.3
|
|
|
—
|
|
(2.6
|
)
|
—
|
|
3.0
|
|
0.4
|
|
|
Net Other Comprehensive Income (Loss)
|
(6.1
|
)
|
0.9
|
|
1.3
|
|
1.4
|
|
(2.5
|
)
|
|
(43.1
|
)
|
(7.3
|
)
|
(1.0
|
)
|
5.3
|
|
(46.1
|
)
|
|
Other
(1)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
(2.6
|
)
|
—
|
|
(2.6
|
)
|
|
Ending balance
|
$
|
(231.7
|
)
|
$
|
(3.5
|
)
|
$
|
2.1
|
|
$
|
(54.2
|
)
|
$
|
(287.3
|
)
|
|
$
|
(187.8
|
)
|
$
|
(5.2
|
)
|
$
|
0.7
|
|
$
|
(95.9
|
)
|
$
|
(288.2
|
)
|
(1) Other relates to amounts reclassified from AOCI to Retained Earnings in connection with the adoption of ASU 2016-01 and 2016-16.
Stock-Based Compensation
During the
six months ended
June 30, 2019
, the Company awarded
1.1 million
shares of restricted stock to its employees with a weighted average grant date fair value of
$34.34
per share. Approximately
57%
of these awards are time-based and vest ratably on each of the first
three
anniversary dates. Approximately
28%
cliff vest at the end of a
three
-year period and are subject to performance targets that may or may not be met and for which the performance period has not yet been completed. Approximately
15%
cliff vest and are based on performance targets containing a market condition determined over a
three
-year period.
The Company used the Monte Carlo method to determine grant date fair value of
$38.77
per share for the awards with a market condition granted on March 12, 2019. The Monte Carlo method is a statistical simulation technique used to provide the grant date fair value of an award.
The following table presents the weighted-average assumptions used in the valuation:
|
|
|
|
|
|
|
|
Grant date
|
|
|
March 12, 2019
|
|
Dividend yields
|
1.31
|
%
|
|
Expected volatility
|
36.64
|
%
|
|
Risk free interest rate
|
2.40
|
%
|
|
Expected life (in years)
|
3
|
|
Share Repurchases and Dividends
In February 2015, the Company announced authorization by its Board of Directors for the repurchase of up to
$200 million
of the Company’s outstanding shares of common stock of which approximately
$131 million
of this authorization was utilized prior to January 1, 2017. In February 2017, the Company announced authorization by its Board of Directors for the repurchase of up to an additional
$350 million
of the Company’s outstanding shares of common stock. In May 2017, the Company announced the completion of the February 2015 and February 2017 authorizations and the Company’s Board of Directors authorized the repurchase of up to an additional
$280 million
of the Company’s outstanding shares of common stock. In September 2017, the Company announced the completion of the May 2017 authorization and the Company’s Board of Directors authorized a repurchase of up to an additional
$225 million
of the Company’s outstanding shares of common stock. In February 2018, the Company announced the completion of the September 2017 authorization and the Company’s Board of Directors authorized the repurchase of up to an additional
$325 million
of the Company’s outstanding shares of common stock. In July 2018, the Company announced the completion of the February 2018 authorization and the Company’s Board of Directors authorized the repurchase of up to an additional
$300 million
of the Company’s outstanding shares of common stock. During the
six months ended
June 30, 2018
, the Company repurchased
8.0 million
shares for
$325 million
. A portion of the share repurchases was executed prior to June 30, 2018 but cash settled in July 2018. During the
six months ended
June 30, 2019
, the Company did
no
t repurchase shares under this program leaving
$200 million
available for repurchase under the July 2018 authorization. In the first and second quarter of 2019, the Company’s Board of Directors declared a dividend of
$0.11
per share, which was paid to its shareholders.