NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE A – BASIS OF PRESENTATION
Basis of Presentation and Principles of Consolidation. The accompanying unaudited Condensed Consolidated Financial Statements of Terex Corporation and subsidiaries as of September 30, 2021 and for the three and nine months ended September 30, 2021 and 2020 have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and footnotes required by U.S. GAAP to be included in full-year financial statements. The accompanying Condensed Consolidated Balance Sheet as of December 31, 2020 has been derived from audited consolidated financial statements as of that date, but does not include all disclosures required by U.S. GAAP. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for year ended December 31, 2020.
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 equity method of accounting for investments in which the Company is able to exercise significant influence and applies the cost method for investments which do not have readily determinable fair values. All intercompany balances, transactions and profits have been eliminated. Certain prior period amounts have been reclassified to conform with the 2021 presentation.
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 nine months ended September 30, 2021 are not necessarily indicative of results that may be expected for the year ending December 31, 2021.
Cash and cash equivalents include $3.3 million and $5.0 million at September 30, 2021 and December 31, 2020, respectively, which were not immediately available for use. These consist primarily of cash balances held in escrow to secure various obligations of the Company.
The following table provides amounts of cash and cash equivalents presented in the Condensed Consolidated Statement of Cash Flows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
Cash and cash equivalents - continuing operations
|
$
|
553.2
|
|
|
$
|
665.0
|
|
|
|
|
|
Cash and cash equivalents - held for sale(1)
|
5.0
|
|
|
5.1
|
|
|
|
|
|
Total cash and cash equivalents
|
$
|
558.2
|
|
|
$
|
670.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Amounts relate to the Company’s utility hot lines tools business located in South America.
Recently Issued Accounting Standards
Accounting Standards Implemented in 2021
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2019-12, Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application of Topic 740. The Company adopted ASU 2019-12 on January 1, 2021. Adoption did not have a material effect on the Company’s consolidated financial statements.
Accounting Standards to be Implemented
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met to ease an entity’s financial reporting burden as the market transitions from LIBOR and other interbank offered rates to alternative reference rates. The FASB further issued ASU 2021-01 in January 2021 to clarify the scope of Topic 848. The guidance was effective upon issuance and may be applied through December 31, 2022. Adoption is not expected to have a material effect on the Company’s consolidated financial statements.
Accounts Receivable and Allowance for Doubtful Accounts. Trade accounts receivable are recorded at invoiced amount and do not bear interest. Allowance for doubtful accounts is the Company’s estimate of current expected credit losses on its existing accounts receivable and determined based on historical customer assessments, current financial conditions and reasonable and supportable forecasts. Account balances are charged off against the allowance when the Company determines the receivable will not be recovered. There can be no assurance that the Company’s estimate of accounts receivable collection will be indicative of future results.
The following table summarizes changes in the consolidated allowance for doubtful accounts (in millions):
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2020
|
$
|
9.5
|
|
Provision for credit losses
|
2.3
|
|
Other adjustments
|
(1.3)
|
|
Balance as of September 30, 2021
|
$
|
10.5
|
|
Finance Receivables. The Company’s net finance receivable balances include both sales-type leases and commercial loans. The Company had $12.9 million and $129.8 million of gross finance receivables at September 30, 2021 and December 31, 2020, respectively. The allowance for credit losses on finance receivables was $8.0 million and $13.8 million at September 30, 2021 and December 31, 2020, respectively. In February 2021, the Company transferred finance receivables of $89.7 million to a U.S. regional bank, which qualified for sales treatment under ASC 860. The Company received $99.4 million cash proceeds from the sale and recognized a net gain of $5.6 million.
Guarantees. The Company issues guarantees to financial institutions related to financing of equipment purchases by customers. The expectation of losses or non-performance is assessed based on consideration of historical customer reviews, current financial conditions, reasonable and supportable forecasts, equipment collateral value and other factors. Reserves are recorded for expected loss over the contractual period of risk exposure. See Note L – “Litigation and Contingencies” for additional information regarding guarantees issued to financial institutions.
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. Assumptions are updated for known events that may affect the potential warranty liability.
The following table summarizes changes in the consolidated product warranty liability (in millions):
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2020
|
$
|
52.9
|
|
Accruals for warranties issued during the period
|
31.8
|
|
Changes in estimates
|
(1.5)
|
|
Settlements during the period
|
(34.7)
|
|
Foreign exchange effect/other
|
(1.0)
|
|
Balance as of September 30, 2021
|
$
|
47.5
|
|
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 interest rate caps, commodity swaps, cross currency swaps and foreign exchange contracts, discussed in Note I – “Derivative Financial Instruments” and debt discussed in Note J – “Long-term Obligations”. 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.
NOTE B – BUSINESS SEGMENT INFORMATION
Terex is a global manufacturer of aerial work platforms and materials processing machinery. 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 identifies its operating segments according to how business activities are managed and evaluated, and has identified three operating segments: Aerials, Utilities and Materials Processing (“MP”). As Aerials and Utilities operating segments share similar economic characteristics, these operating segments are aggregated into one operating segment, Aerial Work Platforms (“AWP”). The Company operates in two reportable segments: (i) AWP and (ii) MP.
AWP designs, manufactures, services and markets aerial work platform equipment, utility equipment and telehandlers as well as their related components and replacement parts. Customers use these products to construct and maintain industrial, commercial, institutional and residential buildings and facilities, for 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.
MP designs, manufactures, services and markets materials processing and specialty equipment, including crushers, washing systems, screens, apron feeders, material handlers, pick and carry cranes, rough terrain cranes, tower 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, moving materials and equipment on rugged or uneven terrain, lifting construction material and placing material at point of use.
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 facilitate financial products and services to assist customers in the acquisition of the Company’s equipment. TFS is included in Corporate and Other.
Corporate and Other also includes eliminations among the two reportable segments, as well as general and corporate items.
Business segment information is presented below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Net sales
|
|
|
|
|
|
|
|
AWP
|
$
|
572.5
|
|
|
$
|
445.0
|
|
|
$
|
1,644.4
|
|
|
$
|
1,370.6
|
|
|
|
|
|
|
|
|
|
MP
|
418.7
|
|
|
311.3
|
|
|
1,237.7
|
|
|
890.5
|
|
Corporate and Other / Eliminations
|
2.6
|
|
|
9.3
|
|
|
14.6
|
|
|
28.6
|
|
Total
|
$
|
993.8
|
|
|
$
|
765.6
|
|
|
$
|
2,896.7
|
|
|
$
|
2,289.7
|
|
Income (loss) from operations
|
|
|
|
|
|
|
|
AWP
|
$
|
34.9
|
|
|
$
|
13.3
|
|
|
$
|
126.7
|
|
|
$
|
2.4
|
|
|
|
|
|
|
|
|
|
MP
|
57.1
|
|
|
40.3
|
|
|
178.3
|
|
|
88.7
|
|
Corporate and Other / Eliminations
|
(17.8)
|
|
|
(17.1)
|
|
|
(46.8)
|
|
|
(54.3)
|
|
Total
|
$
|
74.2
|
|
|
$
|
36.5
|
|
|
$
|
258.2
|
|
|
$
|
36.8
|
|
Sales between segments are generally priced to recover costs plus a reasonable markup for profit, which is eliminated in consolidation.
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2021
|
|
December 31,
2020
|
Identifiable assets
|
|
|
|
AWP (1)
|
$
|
1,814.3
|
|
|
$
|
1,541.0
|
|
MP
|
1,675.5
|
|
|
1,596.3
|
|
Corporate and Other / Eliminations (2)
|
(428.9)
|
|
|
(111.8)
|
|
Assets held for sale
|
7.0
|
|
|
6.3
|
|
Total
|
$
|
3,067.9
|
|
|
$
|
3,031.8
|
|
(1) Increase primarily due to higher trade receivable and inventory balances.
(2) Change primarily due to lower cash and finance receivable balances and higher intercompany eliminations.
Geographic net sales information is presented below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, 2021
|
|
Three Months Ended
September 30, 2020
|
|
AWP
|
|
|
|
MP
|
|
Corporate and Other / Eliminations
|
|
Total
|
|
AWP
|
|
MP
|
|
Corporate and Other / Eliminations
|
|
Total
|
Net sales by region
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
$
|
377.5
|
|
|
|
|
$
|
159.8
|
|
|
$
|
8.3
|
|
|
$
|
545.6
|
|
|
$
|
278.4
|
|
|
$
|
123.3
|
|
|
$
|
16.0
|
|
|
$
|
417.7
|
|
Western Europe
|
81.8
|
|
|
|
|
117.9
|
|
|
0.2
|
|
|
199.9
|
|
|
55.6
|
|
|
94.6
|
|
|
—
|
|
|
150.2
|
|
Asia-Pacific
|
80.5
|
|
|
|
|
95.5
|
|
|
0.5
|
|
|
176.5
|
|
|
89.3
|
|
|
64.3
|
|
|
0.2
|
|
|
153.8
|
|
Rest of World (1)
|
32.7
|
|
|
|
|
45.5
|
|
|
(6.4)
|
|
|
71.8
|
|
|
21.7
|
|
|
29.1
|
|
|
(6.9)
|
|
|
43.9
|
|
Total (2)
|
$
|
572.5
|
|
|
|
|
$
|
418.7
|
|
|
$
|
2.6
|
|
|
$
|
993.8
|
|
|
$
|
445.0
|
|
|
$
|
311.3
|
|
|
$
|
9.3
|
|
|
$
|
765.6
|
|
(1) Includes intercompany sales and eliminations.
(2) Total sales include $490.3 million and $386.2 million for the three months ended September 30, 2021 and 2020, respectively, attributable to the U.S., the Company’s country of domicile.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, 2021
|
|
Nine Months Ended
September 30, 2020
|
|
AWP
|
|
|
|
MP
|
|
Corporate and Other / Eliminations
|
|
Total
|
|
AWP
|
|
MP
|
|
Corporate and Other / Eliminations
|
|
Total
|
Net sales by region
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
$
|
1,066.7
|
|
|
|
|
$
|
488.9
|
|
|
$
|
23.7
|
|
|
$
|
1,579.3
|
|
|
$
|
897.7
|
|
|
$
|
361.5
|
|
|
$
|
49.7
|
|
|
$
|
1,308.9
|
|
Western Europe
|
265.8
|
|
|
|
|
379.8
|
|
|
0.4
|
|
|
646.0
|
|
|
186.2
|
|
|
270.5
|
|
|
0.2
|
|
|
456.9
|
|
Asia-Pacific
|
241.6
|
|
|
|
|
258.0
|
|
|
0.9
|
|
|
500.5
|
|
|
215.8
|
|
|
169.9
|
|
|
1.5
|
|
|
387.2
|
|
Rest of World (1)
|
70.3
|
|
|
|
|
111.0
|
|
|
(10.4)
|
|
|
170.9
|
|
|
70.9
|
|
|
88.6
|
|
|
(22.8)
|
|
|
136.7
|
|
Total (2)
|
$
|
1,644.4
|
|
|
|
|
$
|
1,237.7
|
|
|
$
|
14.6
|
|
|
$
|
2,896.7
|
|
|
$
|
1,370.6
|
|
|
$
|
890.5
|
|
|
$
|
28.6
|
|
|
$
|
2,289.7
|
|
(1) Includes intercompany sales and eliminations.
(2) Total sales include $1.4 billion and $1.2 billion for the nine months ended September 30, 2021 and 2020, respectively, attributable to the U.S., the Company’s country of domicile.
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
September 30, 2021
|
|
Three Months Ended
September 30, 2020
|
|
AWP
|
|
|
|
MP
|
|
Corporate and Other / Eliminations
|
|
Total
|
|
AWP
|
|
MP
|
|
Corporate and Other / Eliminations
|
|
Total
|
Net sales by product type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerial Work Platforms
|
$
|
413.7
|
|
|
|
|
$
|
—
|
|
|
$
|
0.2
|
|
|
$
|
413.9
|
|
|
$
|
321.1
|
|
|
$
|
—
|
|
|
$
|
0.3
|
|
|
$
|
321.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Materials Processing Equipment
|
—
|
|
|
|
|
245.5
|
|
|
—
|
|
|
245.5
|
|
|
—
|
|
|
194.7
|
|
|
—
|
|
|
194.7
|
|
Specialty Equipment
|
—
|
|
|
|
|
173.1
|
|
|
0.3
|
|
|
173.4
|
|
|
—
|
|
|
116.4
|
|
|
0.4
|
|
|
116.8
|
|
Other (1)
|
158.8
|
|
|
|
|
0.1
|
|
|
2.1
|
|
|
161.0
|
|
|
123.9
|
|
|
0.2
|
|
|
8.6
|
|
|
132.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
572.5
|
|
|
|
|
$
|
418.7
|
|
|
$
|
2.6
|
|
|
$
|
993.8
|
|
|
$
|
445.0
|
|
|
$
|
311.3
|
|
|
$
|
9.3
|
|
|
$
|
765.6
|
|
(1) Includes other product types, intercompany sales and eliminations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, 2021
|
|
Nine Months Ended
September 30, 2020
|
|
|
|
|
|
AWP
|
|
|
|
MP
|
|
Corporate and Other / Eliminations
|
|
Total
|
|
AWP
|
|
MP
|
|
Corporate and Other / Eliminations
|
|
Total
|
|
|
|
|
Net sales by product type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerial Work Platforms
|
$
|
1,218.9
|
|
|
|
|
$
|
—
|
|
|
$
|
0.8
|
|
|
$
|
1,219.7
|
|
|
$
|
947.2
|
|
|
$
|
—
|
|
|
$
|
0.5
|
|
|
$
|
947.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Materials Processing Equipment
|
—
|
|
|
|
|
735.4
|
|
|
—
|
|
|
735.4
|
|
|
—
|
|
|
533.6
|
|
|
—
|
|
|
533.6
|
|
|
|
|
|
Specialty Equipment
|
—
|
|
|
|
|
501.7
|
|
|
1.8
|
|
|
503.5
|
|
|
—
|
|
|
354.6
|
|
|
1.1
|
|
|
355.7
|
|
|
|
|
|
Other (1)
|
425.5
|
|
|
|
|
0.6
|
|
|
12.0
|
|
|
438.1
|
|
|
423.4
|
|
|
2.3
|
|
|
27.0
|
|
|
452.7
|
|
|
|
|
|
Total
|
$
|
1,644.4
|
|
|
|
|
$
|
1,237.7
|
|
|
$
|
14.6
|
|
|
$
|
2,896.7
|
|
|
$
|
1,370.6
|
|
|
$
|
890.5
|
|
|
$
|
28.6
|
|
|
$
|
2,289.7
|
|
|
|
|
|
(1) Includes other product types, intercompany sales and eliminations.
NOTE C – INCOME TAXES
During the three months ended September 30, 2021, the Company recognized income tax expense of $13.9 million on income of $61.4 million, an effective tax rate of 22.6%, as compared to income tax benefit of $1.1 million on income of $20.9 million, an effective tax rate of (5.3)%, for the three months ended September 30, 2020. The higher effective tax rate for the three months ended September 30, 2021 when compared with the three months ended September 30, 2020 is primarily due to U.S. tax on foreign income, the 2020 benefit of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) and geographic mix.
During the nine months ended September 30, 2021, the Company recognized income tax expense of $36.0 million on income of $195.5 million, an effective tax rate of 18.4%, as compared to income tax benefit of $4.9 million on loss of $10.8 million, an effective tax rate of 45.4%, for the nine months ended September 30, 2020. The lower effective tax rate for the nine months ended September 30, 2021 when compared with the nine months ended September 30, 2020 is primarily due to geographic mix and the 2020 benefit of the CARES Act, partially offset by U.S. tax on foreign income.
NOTE D – ACQUISITIONS AND DISCONTINUED OPERATIONS
Acquisitions
On July 6, 2021, the Company acquired all of the outstanding shares of Murray Design & Engineering, Ltd (“MDS”), a manufacturer of heavy duty aggregate and recycling trommels, apron feeders and conveyor systems, based in the Republic of Ireland. Total cash consideration transferred was approximately $19 million. The transaction was recorded as a business combination using the acquisition method which requires measurement of identifiable assets acquired and liabilities assumed at their estimated fair values as of the acquisition date. Goodwill was calculated as the excess of the aggregate of the fair value of the consideration transferred over the fair value of the net assets recognized. See Note H – “Goodwill and Intangible Assets, Net” for additional information regarding goodwill recognized as a result of the acquisition. MDS’s results of operations are consolidated within the MP segment in the Condensed Consolidated Financial Statements from the date of acquisition.
On May 25, 2021, the Company acquired assets to facilitate manufacturing of certain MP products in China. Total cash consideration transferred was approximately $17 million. The transaction was recorded as an asset acquisition at cost, with the consideration allocated to individual assets acquired.
Discontinued Operations
On July 31, 2019, the Company completed the disposition of Demag® mobile cranes business to Tadano Ltd. and certain of its subsidiaries. During 2019, the Company also exited North American mobile crane product lines manufactured 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. During the three and nine months ended September 30, 2020, the Company recorded income (loss) from discontinued operations, net of tax of $(0.1) million and $(1.3) million, respectively.
Gain (Loss) on Disposition of Discontinued Operations - net of tax is presented below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
Cranes
|
Material Handling and Port Solutions
|
|
Total
|
|
Cranes
|
|
|
|
|
|
Cranes
|
Material Handling and Port Solutions
|
Total
|
|
Cranes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on disposition of discontinued operations
|
|
$
|
0.8
|
|
$
|
—
|
|
|
$
|
0.8
|
|
|
$
|
(20.5)
|
|
|
|
|
|
|
$
|
1.4
|
|
$
|
1.2
|
|
$
|
2.6
|
|
|
$
|
(27.7)
|
|
(Provision for) benefit from income taxes
|
|
(0.2)
|
|
—
|
|
|
(0.2)
|
|
|
4.4
|
|
|
|
|
|
|
(0.4)
|
|
0.4
|
|
—
|
|
|
6.6
|
|
Gain (loss) on disposition of discontinued operations – net of tax
|
|
$
|
0.6
|
|
$
|
—
|
|
|
$
|
0.6
|
|
|
$
|
(16.1)
|
|
|
|
|
|
|
$
|
1.0
|
|
$
|
1.6
|
|
$
|
2.6
|
|
|
$
|
(21.1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE E – EARNINGS PER SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions, except per share data)
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Income (loss) from continuing operations
|
$
|
47.5
|
|
|
$
|
22.0
|
|
|
$
|
159.5
|
|
|
$
|
(5.9)
|
|
Income (loss) from discontinued operations – net of tax
|
—
|
|
|
(0.1)
|
|
|
—
|
|
|
(1.3)
|
|
Gain (loss) on disposition of discontinued operations – net of tax
|
0.6
|
|
|
(16.1)
|
|
|
2.6
|
|
|
(21.1)
|
|
Net income (loss)
|
$
|
48.1
|
|
|
$
|
5.8
|
|
|
$
|
162.1
|
|
|
$
|
(28.3)
|
|
Basic shares:
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
69.8
|
|
|
69.3
|
|
|
69.7
|
|
|
69.7
|
|
Earnings (loss) per share – basic:
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
$
|
0.68
|
|
|
$
|
0.31
|
|
|
$
|
2.29
|
|
|
$
|
(0.09)
|
|
Income (loss) from discontinued operations – net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.02)
|
|
Gain (loss) on disposition of discontinued operations – net of tax
|
0.01
|
|
|
(0.23)
|
|
|
0.04
|
|
|
(0.30)
|
|
Net income (loss)
|
$
|
0.69
|
|
|
$
|
0.08
|
|
|
$
|
2.33
|
|
|
$
|
(0.41)
|
|
Diluted shares:
|
|
|
|
|
|
|
|
Weighted average shares outstanding – basic
|
69.8
|
|
|
69.3
|
|
|
69.7
|
|
|
69.7
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
Restricted stock awards
|
1.1
|
|
|
0.2
|
|
|
1.1
|
|
|
—
|
|
Diluted weighted average shares outstanding
|
70.9
|
|
|
69.5
|
|
|
70.8
|
|
|
69.7
|
|
Earnings (loss) per share – diluted:
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
$
|
0.67
|
|
|
$
|
0.31
|
|
|
$
|
2.25
|
|
|
$
|
(0.09)
|
|
Income (loss) from discontinued operations – net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.02)
|
|
Gain (loss) on disposition of discontinued operations – net of tax
|
0.01
|
|
|
(0.23)
|
|
|
0.04
|
|
|
(0.30)
|
|
Net income (loss)
|
$
|
0.68
|
|
|
$
|
0.08
|
|
|
$
|
2.29
|
|
|
$
|
(0.41)
|
|
Non-vested restricted stock and restricted stock units granted (“restricted stock awards”) 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 0.1 million and 0.9 million were outstanding during the three months ended September 30, 2021 and 2020, 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 0.1 million and 2.0 million were outstanding during the nine months ended September 30, 2021 and 2020, 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.
NOTE F – INVENTORIES
Inventories consist of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2021
|
|
December 31,
2020
|
Finished equipment
|
$
|
256.9
|
|
|
$
|
195.8
|
|
Replacement parts
|
155.6
|
|
|
157.0
|
|
Work-in-process
|
94.3
|
|
|
57.2
|
|
Raw materials and supplies
|
240.9
|
|
|
200.4
|
|
Inventories
|
$
|
747.7
|
|
|
$
|
610.4
|
|
Reserves for lower of cost or net realizable value and excess and obsolete inventory were $57.2 million and $61.8 million at September 30, 2021 and December 31, 2020, respectively.
NOTE G – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment – net consist of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2021
|
|
December 31,
2020
|
Property
|
$
|
53.0
|
|
|
$
|
43.6
|
|
Plant
|
281.0
|
|
|
250.1
|
|
Equipment
|
396.7
|
|
|
390.2
|
|
Leasehold improvements
|
49.6
|
|
|
49.9
|
|
Construction in progress
|
10.7
|
|
|
31.1
|
|
Property, plant and equipment – gross
|
791.0
|
|
|
764.9
|
|
Less: Accumulated depreciation
|
(378.4)
|
|
|
(358.3)
|
|
Property, plant and equipment – net
|
$
|
412.6
|
|
|
$
|
406.6
|
|
NOTE H – GOODWILL AND INTANGIBLE ASSETS
An analysis of changes in the Company’s goodwill by business segment is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AWP
|
|
MP
|
|
Total
|
Balance at December 31, 2020, gross
|
$
|
140.6
|
|
|
$
|
196.6
|
|
|
$
|
337.2
|
|
Accumulated impairment
|
(38.6)
|
|
|
(23.2)
|
|
|
(61.8)
|
|
Balance at December 31, 2020, net
|
102.0
|
|
|
173.4
|
|
|
275.4
|
|
Acquisitions
|
—
|
|
|
7.3
|
|
|
7.3
|
|
|
|
|
|
|
|
Foreign exchange effect and other
|
(0.8)
|
|
|
(2.2)
|
|
|
(3.0)
|
|
Balance at September 30, 2021, gross
|
139.8
|
|
|
201.7
|
|
|
341.5
|
|
Accumulated impairment
|
(38.6)
|
|
|
(23.2)
|
|
|
(61.8)
|
|
Balance at September 30, 2021, net
|
$
|
101.2
|
|
|
$
|
178.5
|
|
|
$
|
279.7
|
|
In connection with the MDS acquisition, the Company recognized goodwill of $7.3 million during the period. The goodwill was assigned to the MP reporting unit and attributable primarily to the assembled workforce and expected synergies from the business combination. The goodwill is not expected to be deductible for income tax purposes. See Note D – “Acquisitions and Discontinued Operations” for additional information regarding the MDS acquisition.
Intangible assets, net were comprised of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
|
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
|
8
|
|
$
|
10.0
|
|
|
$
|
(9.8)
|
|
|
$
|
0.2
|
|
|
$
|
10.1
|
|
|
$
|
(9.6)
|
|
|
$
|
0.5
|
|
Customer Relationships
|
19
|
|
32.1
|
|
|
(25.0)
|
|
|
7.1
|
|
|
26.1
|
|
|
(24.1)
|
|
|
2.0
|
|
Land Use Rights
|
80
|
|
4.3
|
|
|
(0.8)
|
|
|
3.5
|
|
|
4.4
|
|
|
(0.7)
|
|
|
3.7
|
|
Other
|
8
|
|
26.3
|
|
|
(23.0)
|
|
|
3.3
|
|
|
25.5
|
|
|
(23.4)
|
|
|
2.1
|
|
Total definite-lived intangible assets
|
|
|
$
|
72.7
|
|
|
$
|
(58.6)
|
|
|
$
|
14.1
|
|
|
$
|
66.1
|
|
|
$
|
(57.8)
|
|
|
$
|
8.3
|
|
In connection with the MDS acquisition, the Company recognized customer relationships and trademarks of $6.3 million with an estimated useful life of 7 years and $1.3 million with an estimated useful life of 10 years during the period. See Note D – “Acquisitions and Discontinued Operations” for additional information regarding the MDS acquisition.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
(in millions)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Aggregate Amortization Expense
|
$
|
0.7
|
|
|
$
|
0.4
|
|
|
$
|
1.6
|
|
|
$
|
1.3
|
|
Estimated aggregate intangible asset amortization expense for each of the next five years is as follows (in millions):
|
|
|
|
|
|
|
|
2021
|
$
|
2.2
|
|
2022
|
2.3
|
|
2023
|
1.7
|
|
2024
|
1.5
|
|
2025
|
1.4
|
|
NOTE I – 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 uses cash flow derivatives to manage exposures. 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 methods 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.
Interest Rate Caps and Commodity Swaps
Derivatives designated as cash flow hedging instruments include interest rate caps and commodity swaps with outstanding notional value of $300.0 million and $18.6 million, respectively, at September 30, 2021. Commodity swaps outstanding at September 30, 2021 mature on or before August 31, 2022. The outstanding notional value of interest rate caps and commodity swaps was $300.0 million and $26.0 million, respectively, at December 31, 2020. The Company uses interest rate caps to mitigate its exposure to changes in interest rates related to variable rate debt and commodity swaps to mitigate price risk for hot rolled coil steel. Fair values of interest rate caps 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 interest rate caps and commodity swaps are deferred in Accumulated other comprehensive income (loss) (“AOCI”). Gains or losses on interest rate caps are reclassified to Interest expense in the Condensed Consolidated Statement of Comprehensive Income (Loss) when the underlying hedged transactions occur. Gains or losses on commodity swaps are reclassified to Cost of goods sold (“COGS”) in the Condensed Consolidated Statement of Comprehensive Income (Loss) when the hedged transaction affects earnings. In October 2021, the Company terminated all outstanding interest rate caps.
Cross Currency Swaps
Derivatives designated as net investment hedging instruments include cross currency swaps with outstanding notional value of $92.6 million and $97.7 million at September 30, 2021 and December 31, 2020, respectively. The Company uses these cross currency swaps to mitigate its exposure to changes in foreign currency exchange rates related to a net investment in a Euro-denominated functional currency subsidiary. Fair values of cross currency swaps are based on the present value of future cash payments and receipts. Changes in the fair value of cross currency swaps are deferred in AOCI. Gains or losses on cross currency swaps are reclassified to Selling, general and administrative expenses in the Condensed Consolidated Statement of Comprehensive Income (Loss) when the net investment is liquidated.
Foreign Exchange Contracts
The Company enters into foreign exchange contracts to manage variability of future cash flows associated with changing currency exchange rates. Foreign currency exchange contracts, whether designated or not designated as cash flow hedges, are used to mitigate exposure to changes in foreign currency exchange rates on recognized assets and liabilities. 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. Foreign exchange contracts outstanding at September 30, 2021 mature during the fourth quarter of 2021.
At December 31, 2020, the Company had $7.8 million notional value, respectively, of foreign exchange contracts outstanding that were designated as cash flow hedge contracts. There were no foreign exchange contracts that were designated as cash flow hedge contracts outstanding at September 30, 2021. For effective hedging instruments, changes in the fair value of foreign exchange contracts are deferred in AOCI until the underlying hedged transactions settle. Gains or losses on foreign exchange contracts are reclassified to COGS in the Company’s Condensed Consolidated Statement of Comprehensive Income (Loss).
The Company had $38.0 million and $54.2 million notional value of foreign exchange contracts outstanding that were not designated as hedging instruments at September 30, 2021 and December 31, 2020, respectively. The majority of gains and losses recognized from foreign exchange contracts not designated as hedging instruments are 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 are recognized as gains or losses in COGS and 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2021
|
|
December 31,
2020
|
Instrument (1)
|
Balance Sheet Account
|
Derivatives designated as hedges
|
Derivatives not designated as hedges
|
|
Derivatives designated as hedges
|
Derivatives not designated as hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity swaps
|
Other current assets
|
$
|
7.9
|
|
$
|
—
|
|
|
$
|
7.2
|
|
$
|
—
|
|
Commodity swaps
|
Other non-current assets
|
—
|
|
—
|
|
|
0.3
|
|
—
|
|
Interest rate caps
|
Other non-current assets
|
0.8
|
|
—
|
|
|
—
|
|
—
|
|
Foreign exchange contracts
|
Other current liabilities
|
—
|
|
(0.3)
|
|
|
—
|
|
—
|
|
Cross currency swaps - net investment hedge
|
Other current liabilities
|
(0.6)
|
|
—
|
|
|
(2.0)
|
|
—
|
|
Interest rate caps
|
Other current liabilities
|
(1.2)
|
|
—
|
|
|
(1.2)
|
|
—
|
|
Commodity swaps
|
Other current liabilities
|
(0.3)
|
|
—
|
|
|
—
|
|
—
|
|
Cross currency swaps - net investment hedge
|
Other non-current liabilities
|
(4.0)
|
|
—
|
|
|
(8.2)
|
|
—
|
|
|
|
|
|
|
|
|
Interest rate caps
|
Other non-current liabilities
|
—
|
|
—
|
|
|
(2.6)
|
|
—
|
|
Net derivative asset (liability)
|
$
|
2.6
|
|
$
|
(0.3)
|
|
|
$
|
(6.5)
|
|
$
|
—
|
|
(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 (Loss)
|
|
|
|
|
|
|
Instrument
|
Three Months Ended
September 30, 2021
|
Nine Months Ended
September 30, 2021
|
|
Income Statement Account
|
Three Months Ended
September 30, 2021
|
Nine Months Ended
September 30, 2021
|
|
Foreign exchange contracts
|
$
|
—
|
|
$
|
—
|
|
|
Cost of goods sold
|
$
|
—
|
|
$
|
0.1
|
|
|
Commodity swaps
|
(5.8)
|
|
9.1
|
|
|
Cost of goods sold
|
6.9
|
|
8.3
|
|
|
Cross currency swaps - net investment hedge
|
1.8
|
|
4.0
|
|
|
Selling, general and administrative expenses
|
—
|
|
—
|
|
|
Interest rate caps
|
0.1
|
|
2.7
|
|
|
Interest expense
|
(0.3)
|
|
(0.9)
|
|
|
Total
|
$
|
(3.9)
|
|
$
|
15.8
|
|
|
Total
|
$
|
6.6
|
|
$
|
7.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) Recognized on Derivatives in OCI, net of tax
|
|
Gain (Loss) Reclassified from AOCI into Income (Loss)
|
|
|
|
|
|
|
Instrument
|
Three Months Ended
September 30, 2020
|
Nine Months Ended
September 30, 2020
|
|
Income Statement Account
|
Three Months Ended
September 30, 2020
|
Nine Months Ended
September 30, 2020
|
|
Foreign exchange contracts
|
$
|
0.2
|
|
$
|
(0.5)
|
|
|
Cost of goods sold
|
$
|
0.3
|
|
$
|
(2.1)
|
|
|
Commodity swaps
|
1.1
|
|
0.3
|
|
|
Cost of goods sold
|
(0.1)
|
|
(1.9)
|
|
|
Cross currency swaps - net investment hedge
|
(3.6)
|
|
(5.8)
|
|
|
Selling, general and administrative expenses
|
—
|
|
—
|
|
|
Interest rate caps
|
(0.5)
|
|
(3.1)
|
|
|
Interest expense
|
(0.3)
|
|
(0.1)
|
|
|
Total
|
$
|
(2.8)
|
|
$
|
(9.1)
|
|
|
Total
|
$
|
(0.1)
|
|
$
|
(4.1)
|
|
|
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 (Loss) Recognized in Income (Loss)
|
|
Cost of goods sold
|
|
Interest expense
|
|
Three Months Ended
September 30, 2021
|
Nine Months Ended
September 30, 2021
|
|
Three Months Ended
September 30, 2021
|
Nine Months Ended
September 30, 2021
|
Income Statement Accounts in which effects of cash flow hedges are recorded
|
$
|
(815.3)
|
|
$
|
(2,311.2)
|
|
|
$
|
(12.3)
|
|
$
|
(40.6)
|
|
Gain (loss) reclassified from AOCI into Income (loss):
|
|
|
|
|
|
Foreign exchange contracts
|
—
|
|
0.1
|
|
|
—
|
|
—
|
|
Commodity swaps
|
6.9
|
|
8.3
|
|
|
—
|
|
—
|
|
Interest rate caps
|
—
|
|
—
|
|
|
(0.3)
|
|
(0.9)
|
|
Amount excluded from effectiveness testing recognized in Income (loss) based on amortization approach:
|
Cross currency swaps - net investment hedge
|
—
|
|
—
|
|
|
0.2
|
|
0.5
|
|
Total
|
$
|
6.9
|
|
$
|
8.4
|
|
|
$
|
(0.1)
|
|
$
|
(0.4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classification and amount of Gain (Loss) Recognized in Income (Loss)
|
|
Cost of goods sold
|
|
Interest expense
|
|
Three Months Ended
September 30, 2020
|
Nine Months Ended
September 30, 2020
|
|
Three Months Ended
September 30, 2020
|
Nine Months Ended
September 30, 2020
|
Income Statement Accounts in which effects of cash flow hedges are recorded
|
$
|
(619.3)
|
|
$
|
(1,899.6)
|
|
|
$
|
(15.8)
|
|
$
|
(50.0)
|
|
Gain (loss) reclassified from AOCI into Income (loss):
|
|
|
|
|
|
Foreign exchange contracts
|
0.3
|
|
(2.1)
|
|
|
—
|
|
—
|
|
Commodity swaps
|
(0.1)
|
|
(1.9)
|
|
|
—
|
|
—
|
|
Interest rate caps
|
—
|
|
—
|
|
|
(0.3)
|
|
(0.1)
|
|
Amount excluded from effectiveness testing recognized in Income (loss) based on amortization approach:
|
Cross currency swaps - net investment hedge
|
—
|
|
—
|
|
|
0.2
|
|
0.3
|
|
Total
|
$
|
0.2
|
|
$
|
(4.0)
|
|
|
$
|
(0.1)
|
|
$
|
0.2
|
|
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 (Loss)
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
Instrument
|
Income Statement Account
|
2021
|
2020
|
|
2021
|
2020
|
Foreign exchange contracts
|
Cost of goods sold
|
$
|
(0.6)
|
|
$
|
0.1
|
|
|
$
|
(0.6)
|
|
$
|
(0.2)
|
|
Foreign exchange contracts
|
Other income (expense) – net
|
(0.1)
|
|
(0.4)
|
|
|
(0.3)
|
|
(0.2)
|
|
Debt conversion feature
|
Other income (expense) – net
|
—
|
|
(0.1)
|
|
|
—
|
|
—
|
|
|
Total
|
$
|
(0.7)
|
|
$
|
(0.4)
|
|
|
$
|
(0.9)
|
|
$
|
(0.4)
|
|
In the Condensed Consolidated Statement of Comprehensive Income (Loss), the Company records hedging activity related to interest rate caps, commodity swaps, cross currency swaps, foreign exchange contracts 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 M - “Stockholders’ Equity” for unrealized net gains (losses), net of tax, included in AOCI. Within unrealized net gains (losses) included in AOCI as of September 30, 2021, it is estimated that $12.3 million of gains are expected to be reclassified into earnings in the next twelve months.
NOTE J – LONG-TERM OBLIGATIONS
Credit Agreement
On January 31, 2017, the Company entered into a 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 credit agreement included (i) a $600 million revolving line of credit (the “Revolver”) and (ii) senior secured term loans totaling $600 million with a maturity date of January 31, 2024 (the “Term Loans”). On April 1, 2021, the Company entered into an amendment and restatement of the credit agreement (as amended and restated, the “Credit Agreement”) which included the following principal changes to the original credit agreement: (i) extension of the term of the Revolver to expire on April 1, 2026, which maturity will spring forward to November 1, 2023 if the $400 million senior secured term loan (the “Original Term Loan”) outstanding is not repaid or its maturity date is not extended, (ii) reinstatement of financial covenants that were waived in 2020, (iii) decrease in the interest rate on the drawn Revolver by 25 basis points and (iv) certain other technical changes, including additional language regarding the potential cessation of LIBOR as a benchmark rate. The Company recorded a loss on early extinguishment of debt related to the amendment and restatement of the Credit Agreement of $2.4 million in the second quarter of 2021.
During the first quarter of 2021, the Company prepaid the $200 million term loan (the “2019 Term Loan”) under the Credit Agreement prior to its maturity date to reduce the Company’s outstanding debt and lower its leverage. The Company recorded a loss on early extinguishment of debt related to prepayment of $2.1 million for accelerated amortization of debt acquisition costs and original issue discount. The 2019 Term Loan bore interest at a rate of LIBOR plus 2.75% with a 0.75% LIBOR floor.
The Original Term Loan under the Credit Agreement bears interest at a rate of LIBOR plus 2.00% with a 0.75% LIBOR floor. During the second quarter of 2021, the Company prepaid $83.0 million of the amount outstanding on the Original Term Loan prior to its maturity date to reduce the Company’s outstanding debt and lower its leverage. The Company recorded a loss on early extinguishment of debt related to prepayment of $0.7 million for accelerated amortization of debt acquisition costs and original issue discount.
Unlimited incremental commitments 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 the maximum permitted level of the senior secured leverage as defined in the Credit Agreement.
The 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 the Revolver are greater than 30% of the total revolving credit commitments, the Credit Agreement requires the Company to comply with the following financial tests: (i) minimum required level of the interest coverage ratio of 2.5 to 1.0 and (ii) maximum permitted level of the senior secured leverage ratio of 2.75 to 1.0. The Credit Agreement also contains customary default provisions. The Company was in compliance with all covenants contained in the Credit Agreement as of September 30, 2021.
As of September 30, 2021 and December 31, 2020, the Company had $298.4 million and $579.9 million, net of discount, respectively, in Term Loans outstanding under the Credit Agreement. The weighted average interest rate on the Term Loans at September 30, 2021 and December 31, 2020 was 2.75% and 3.00%, respectively. The Company had no revolving credit amounts outstanding as of September 30, 2021 and December 31, 2020.
In October 2021, the Company prepaid an additional $150 million of the Original Term Loan prior to its maturity date to reduce the Company’s outstanding debt and lower its leverage. The Company expects to record a loss on early extinguishment of debt related to prepayment of approximately $1 million for accelerated amortization of debt acquisition costs and original issue discount in the fourth quarter of 2021.
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 Credit Agreement and via bilateral arrangements outside the Credit Agreement.
The 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 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 Credit Agreement and do not decrease availability under the Revolver.
Letters of credit outstanding (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
$400 Million Facility
|
|
|
|
|
$
|
—
|
|
|
|
|
|
|
$
|
—
|
|
$300 Million Facility
|
|
|
|
|
65.3
|
|
|
|
|
|
|
35.3
|
|
Bilateral Arrangements
|
|
|
|
|
45.1
|
|
|
|
|
|
|
47.2
|
|
Total
|
|
|
|
|
$
|
110.4
|
|
|
|
|
|
|
$
|
82.5
|
|
Furthermore, the Company and certain of its subsidiaries agreed to take certain actions to secure borrowings under the Credit Agreement. As a result, 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 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 5-5/8% Notes were jointly and severally guaranteed by certain of the Company’s domestic subsidiaries.
On March 15, 2021, the Company delivered a notice for the conditional redemption of all of its outstanding 5-5/8% Notes. On April 5, 2021, the Company redeemed the 5-5/8% Notes in full for $622.9 million, including redemption premiums of $16.9 million and accrued but unpaid interest of $6.0 million. The Company recorded a loss on early extinguishment of debt related to the redemption of the 5-5/8% Notes of $22.5 million in the second quarter of 2021.
5% Senior Notes
In Apri1 2021, the Company sold and issued $600.0 million aggregate principal amount of Senior Notes Due 2029 (“5% Notes”) at par in a private offering. The proceeds from the 5% Notes, together with cash on hand, was used: (i) to fund redemption and discharge of the 5-5/8% Notes and (ii) to pay related premiums, fees, discounts and expenses. The 5% 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 of its debt set forth below as of September 30, 2021, as follows (in millions, except for quotes):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book Value
|
|
Quote
|
|
Fair Value
|
|
|
|
|
|
|
5% Notes
|
$
|
600.0
|
|
|
1.03875
|
|
|
$
|
623.3
|
|
|
|
|
|
|
|
Original Term Loan (net of discount)
|
$
|
298.4
|
|
|
$
|
0.99700
|
|
|
$
|
297.5
|
|
|
|
|
|
|
|
The fair value of the 5% Notes and Original Term Loan is based on adjusted price quotations on the debt instruments in an active market. The Company believes that the carrying value of its other borrowings, including amounts outstanding, if any, for the revolving credit line under the Credit Agreement, approximate fair market value based on maturities for debt of similar terms. Fair value of 5% Notes, Original Term Loan and these other borrowings are categorized under Level 2 of the ASC 820 hierarchy. See Note A – “Basis of Presentation” for an explanation of ASC 820 hierarchy.
NOTE K – 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 in the U.S. (“U.S. SERP”). In Italy and Mexico, 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 U.S. SERP, is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
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
|
$
|
—
|
|
|
$
|
0.2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.7
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1.0
|
|
|
$
|
—
|
|
Interest cost
|
0.2
|
|
|
0.6
|
|
|
0.1
|
|
|
0.3
|
|
|
0.7
|
|
|
—
|
|
|
0.8
|
|
|
1.8
|
|
|
0.1
|
|
|
1.0
|
|
|
2.0
|
|
|
0.1
|
|
Expected return on plan assets
|
—
|
|
|
(1.3)
|
|
|
—
|
|
|
—
|
|
|
(1.3)
|
|
|
—
|
|
|
—
|
|
|
(4.2)
|
|
|
—
|
|
|
—
|
|
|
(3.9)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of actuarial (gain) loss
|
—
|
|
|
0.6
|
|
|
—
|
|
|
0.1
|
|
|
0.3
|
|
|
—
|
|
|
0.2
|
|
|
1.8
|
|
|
—
|
|
|
0.1
|
|
|
1.3
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic cost
|
$
|
0.2
|
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
$
|
0.4
|
|
|
$
|
0.1
|
|
|
$
|
—
|
|
|
$
|
1.0
|
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
$
|
1.1
|
|
|
$
|
0.4
|
|
|
$
|
0.1
|
|
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 L – 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 risks 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 condensed consolidated financial statements. 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.
Terex Latin América Equipamentos Ltda ICMS Proceedings
Terex Latin America Equipamentos Ltda (“TLA”) imports Terex products into Brazil through the state of Espirito Santo to its facility in Sao Paulo. For the 2004 through March 2009 period TLA used a third-party trading company, SAB, as an agent to process the importation of Terex products. TLA properly paid the Espirito Santo ICMS tax (Brazilian state value-added tax) to SAB for payment to Espirito Santo, which would produce an ICMS credit to be used against imposition of Sao Paolo ICMS tax. SAB went into bankruptcy and may not have actually remitted to Espirito Santo the ICMS tax amounts paid to it by TLA. The Brazilian state of Sao Paulo challenged the credit against Sao Paolo ICMS that TLA claimed and assessed unpaid ICMS tax, penalties and related interest in the amount of approximately BRL 103 million ($19 million). TLA challenged the claim of Sao Paulo and learned in October 2019 that the Sao Paulo claim has survived the administrative tribunal process. TLA anticipates that it will receive notice for an amount due from Sao Paulo and expects to protest the Sao Paulo claim in litigation. While the Company believes the position of the state of Sao Paulo is without merit and continues to vigorously oppose it, no assurance can be given as to the final resolution of the ICMS litigation or that TLA will not ultimately be required to pay ICMS and interest to the state of Sao Paulo.
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 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 whether changes have been made to the structure of the contractual obligation between the funder and customer.
For credit guarantees outstanding as of September 30, 2021 and December 31, 2020, the maximum exposure determined at inception was $163.3 million and $143.8 million, respectively. Terms of these guarantees coincide with the financing arranged by the customer and generally do not exceed five years. The allowance for credit losses on credit guarantees was $10.2 million and $8.3 million at September 30, 2021 and December 31, 2020, respectively.
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 M – STOCKHOLDERS’ EQUITY
Changes in Accumulated Other Comprehensive Income (Loss)
The table below presents changes in AOCI by component for the three and nine months ended September 30, 2021 and 2020. All amounts are net of tax (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, 2021
|
|
Three Months Ended
September 30, 2020
|
|
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
|
$
|
(156.6)
|
|
$
|
13.7
|
|
$
|
0.6
|
|
$
|
(57.7)
|
|
$
|
(200.0)
|
|
|
$
|
(243.5)
|
|
$
|
(7.1)
|
|
$
|
3.6
|
|
$
|
(47.8)
|
|
$
|
(294.8)
|
|
Other comprehensive income (loss) before reclassifications
|
(27.1)
|
|
1.1
|
|
(0.2)
|
|
1.5
|
|
(24.7)
|
|
|
45.0
|
|
(2.7)
|
|
0.3
|
|
(2.0)
|
|
40.6
|
|
Amounts reclassified from AOCI
|
—
|
|
(5.0)
|
|
—
|
|
0.4
|
|
(4.6)
|
|
|
—
|
|
(0.1)
|
|
—
|
|
0.4
|
|
0.3
|
|
Net other comprehensive income (loss)
|
(27.1)
|
|
(3.9)
|
|
(0.2)
|
|
1.9
|
|
(29.3)
|
|
|
45.0
|
|
(2.8)
|
|
0.3
|
|
(1.6)
|
|
40.9
|
|
Ending balance
|
$
|
(183.7)
|
|
$
|
9.8
|
|
$
|
0.4
|
|
$
|
(55.8)
|
|
$
|
(229.3)
|
|
|
$
|
(198.5)
|
|
$
|
(9.9)
|
|
$
|
3.9
|
|
$
|
(49.4)
|
|
$
|
(253.9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, 2021
|
|
Nine Months Ended
September 30, 2020
|
|
|
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
|
$
|
(145.2)
|
|
$
|
(6.0)
|
|
$
|
1.2
|
|
$
|
(58.4)
|
|
$
|
(208.4)
|
|
|
$
|
(208.2)
|
|
$
|
(0.8)
|
|
$
|
2.6
|
|
$
|
(51.1)
|
|
$
|
(257.5)
|
|
|
Other comprehensive income (loss) before reclassifications
|
(38.5)
|
|
21.6
|
|
(0.8)
|
|
1.1
|
|
(16.6)
|
|
|
9.7
|
|
(12.5)
|
|
1.3
|
|
0.5
|
|
(1.0)
|
|
|
Amounts reclassified from AOCI
|
—
|
|
(5.8)
|
|
—
|
|
1.5
|
|
(4.3)
|
|
|
—
|
|
3.4
|
|
—
|
|
1.2
|
|
4.6
|
|
|
Net other comprehensive income (loss)
|
(38.5)
|
|
15.8
|
|
(0.8)
|
|
2.6
|
|
(20.9)
|
|
|
9.7
|
|
(9.1)
|
|
1.3
|
|
1.7
|
|
3.6
|
|
|
Ending balance
|
$
|
(183.7)
|
|
$
|
9.8
|
|
$
|
0.4
|
|
$
|
(55.8)
|
|
$
|
(229.3)
|
|
|
$
|
(198.5)
|
|
$
|
(9.9)
|
|
$
|
3.9
|
|
$
|
(49.4)
|
|
$
|
(253.9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-Based Compensation
During the nine months ended September 30, 2021, the Company awarded 0.6 million shares of restricted stock awards to its employees with a weighted average grant date fair value of $44.56 per share. Approximately 58% of these awards are time-based and vest ratably on each of the first three anniversary dates of the grants. 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 14% 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 $54.92 per share for restricted stock awards with a market condition granted on March 4, 2021. 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 4, 2021
|
Dividend yields
|
1.12
|
%
|
Expected volatility
|
53.03
|
%
|
Risk free interest rate
|
0.29
|
%
|
Expected life (in years)
|
3
|
Share Repurchases and Dividends
In July 2018, Terex’s Board of Directors authorized the Company to repurchase up to $300 million of the Company’s outstanding shares of common stock. During the nine months ended September 30, 2021, the Company did not repurchase shares under these programs. During the nine months ended September 30, 2020, the Company repurchased 2.5 million shares for $54.6 million under these programs.
Terex’s Board of Directors declared a dividend of $0.12 per share in the first, second and third quarters of 2021, which was paid to the Company’s shareholders. In October 2021, Terex’s Board of Directors declared a dividend of $0.12 per share, which will be paid to the Company’s shareholders on December 17, 2021.