TEREX CORPORATION

TEX
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TEREX : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-K)

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02/14/2020 | 01:50 pm

BUSINESS DESCRIPTION




Terex is a global manufacturer of aerial work platforms, materials processing
machinery and cranes. We design, build and support products used in
construction, maintenance, manufacturing, energy, minerals and materials
management applications. Our products are manufactured in North and South
America
, Europe, Australia and Asia and sold worldwide. We engage with customers
through all stages of the product life cycle, from initial specification and
financing to parts and service support. We manage and report our business in the
following segments: (i) AWP and (ii) MP.

On July 31, 2019, we completed the disposition of Demag to Tadano. During 2019,
we also exited North American mobile crane product lines manufactured in our
Oklahoma City facility. As a result, we realigned certain operations, formerly
part of our Cranes segment. For financial reporting periods beginning on or
after January 1, 2019, our utilities business has been consolidated within our
AWP segment, our pick and carry cranes business has been consolidated within our
MP segment and our rough terrain and tower cranes businesses have been
consolidated within Corporate and Other. Prior period reportable segment
information was adjusted to reflect the realignment of our operations.


Please refer to Note B - "Business Segment Information" in the accompanying
Consolidated Financial Statements for further information about our reportable
segments.




Non-GAAP Measures

In this document, we refer to various GAAP (U.S. generally accepted accounting
principles) and non-GAAP financial measures. These non-GAAP measures may not be
comparable to similarly titled measures disclosed by other companies. We present
non-GAAP financial measures in reporting our financial results to provide
investors with additional analytical tools which we believe are useful in
evaluating our operating results and the ongoing performance of our underlying
businesses. We do not, nor do we suggest that investors consider such non-GAAP
financial measures in isolation from, or as a substitute for, financial
information prepared in accordance with GAAP.


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




As changes in foreign currency exchange rates have a non-operating impact on our
financial results, we believe excluding effects of these changes assists in
assessment of our business results between periods. We calculate the translation
effect of foreign currency exchange rate changes by translating current period
results using rates that the comparable prior periods were translated at to
isolate the foreign exchange component of fluctuation from the operational
component. Similarly, impact of changes in our results from acquisitions and
divestitures not included in comparable prior periods may be subtracted from the
absolute change in results to allow for better comparability of results between
periods.

We calculate a non-GAAP measure of free cash flow. We define free cash flow as
Net cash provided by (used in) operating activities, plus (minus) increases
(decreases) in Terex Financial Services finance receivables consisting of
sales-type leases and commercial loans ("TFS Assets"), less Capital
expenditures, net of proceeds from sale of capital assets, plus the estimated
level of net working capital in divested businesses at the closing date. We
believe this measure of free cash flow provides management and investors further
useful information on cash generation or use in our primary operations.

We discuss forward looking information related to expected earnings per share
("EPS") excluding unusual items. Our 2020 outlook for earnings per share is a
non-GAAP financial measure because it excludes unusual items. The Company is not
able to reconcile these forward-looking non-GAAP financial measures to their
most directly comparable forward-looking GAAP financial measures without
unreasonable efforts because the Company is unable to predict with a reasonable
degree of certainty the exact timing and impact of such items. The unavailable
information could have a significant impact on the Company's full-year 2020 GAAP
financial results. Adjusted EPS provides guidance to investors about our EPS
expectations excluding unusual items that we do not believe are reflective of
our ongoing operations.


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Working capital is calculated using the Consolidated Balance Sheet amounts for
Trade receivables (net of allowance) plus Inventories (net of allowance), less
Trade accounts payable and Customer advances. We view excessive working capital
as an inefficient use of resources, and seek to minimize the level of investment
without adversely impacting ongoing operations of the business. Trailing three
months annualized net sales is calculated using net sales for the most recent
quarter end multiplied by four. The ratio calculated by dividing working capital
by trailing three months annualized net sales is a non-GAAP measure we believe
measures our resource use efficiency.

Non-GAAP measures we also use include Net Operating Profit After Tax ("NOPAT")
as adjusted, income (loss) from operations as adjusted, annualized effective tax
rate as adjusted, cash and cash equivalents as adjusted, Debt as adjusted and
Terex Corporation stockholders' equity as adjusted, which are used in the
calculation of our after tax return on invested capital ("ROIC") (collectively
the "Non-GAAP Measures"), which are discussed in detail below.


Overview




Focus, Simplify and Execute to Win have been the three pillars of our business
strategy. We continued to implement the elements of our strategy in 2019. We
completed the sale of Demag and exited the mobile crane product lines
manufactured at our Oklahoma City facility. These actions have positively
impacted Terex by Focusing our portfolio on high performing businesses best
positioned to out-earn their cost of capital over the cycle. We also continued
to simplify and optimize our manufacturing footprint. We had the official
opening of MP's new Northern Ireland facility and our new Utilities
manufacturing facility in South Dakota remains on schedule and within budget.
MP's capacity expansion in India also remains on track. These investments enable
simplification and improved manufacturing productivity critical to our future
success and growth. In addition, we have transitioned to a simpler two segment
operating structure that has reduced corporate operating expenses. We continued
to invest in our Execute to Win business system, focusing on enhancing our
capabilities by investing in people, processes and tools in our three priority
areas: Commercial Excellence, Parts and Lifecycle Solutions and Strategic
Sourcing.

Overall, 2019 was a challenging year for us. Operationally, MP had excellent
performance in 2019 as it increased sales and expanded operating margin.
However, softening in the Company's aerials business more than offset MP's
strong operating performance. Despite the challenging global markets, our
global, cross-segment parts and services team drove 9% revenue growth on
currency neutral basis in parts and services even though machine sales were down
throughout the Company.

Our AWP segment's 2019 net sales were down 8% from the prior year. AWP's revenue
declines were greatest in North America and Western Europe as concerns over the
global macroeconomic market for industrial equipment caused rental customers for
aerials to hold back capital equipment purchases. This more than offset revenue
increases for utility products in North America as well as for aerials in China,
which improved due to market growth and increased product adoption. To align
with customer demand and manage inventory levels, we reduced aerial production
throughout 2019 with fourth quarter 2019 production levels approximately 45%
lower than production levels in the fourth quarter of 2018. AWP's lower sales,
significantly reduced production levels and the strong U.S. Dollar relative to
the Euro were the primary drivers in the operating profit reduction in 2019 as
compared to the prior year. We expect continued growth for our utilities
business in 2020 and the caution being exhibited by our aerials rental customers
during 2019 to continue into 2020. As a result, we expect AWP sales to be down
7%-10% and operating margins to contract to 6%-7% in 2020.

Our MP segment had another strong year, with its operating profit improving on
increased net sales. These results were driven primarily by continued demand for
crushing and screening products, concrete trucks, material handlers and pick and
carry cranes, as well as effective price and cost management. The strong U.S.
Dollar to the British Pound provided a modest tailwind for our crushing and
screening business. However, MP did have challenging markets at the end of the
year as cautious customer sentiment led to delays of capital purchases of
crushing and screening products, material handlers and environmental equipment.
As a result of this market softening, we expect MP sales, including our tower
and rough terrain cranes businesses, to be down 8%-11% and operating margins to
contract to 12.3%-13% in 2020.

Geographically, our largest market is North America, which represents
approximately 57% of our global sales in continuing operations. As compared to
prior year, our sales were down in North America, Europe, the Middle East and
Africa, up in Asia Pacific and up by double digits off a low base in Latin
America
.


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We continued to execute our disciplined capital allocation strategy in 2019. In
addition to making strategic investments in our businesses to drive more
efficient manufacturing, such as the construction of our new Utilities
manufacturing center in South Dakota and expansion of MP locations in the U.K.
and India, we have also reduced inventories of finished goods in the second half
of 2019 by adjusting production rates down at AWP. Furthermore, we completed
sales of businesses and investments, including the sale of our Demag mobile
cranes business, in 2019, generating approximately $160 million of additional
cash for Terex. We also generated approximately $86 million of free cash flow in
2019. We expect to generate an additional $140 million of free cash flow in
2020. We also continued to return capital to shareholders. Between dividends and
share repurchases in 2019, approximately $36 million was returned to
shareholders. Finally, our Board of Directors approved increasing our quarterly
dividend in 2020 by 9% to $0.12 per share.

We believe our liquidity continues to be sufficient to meet our business plans.
See "Liquidity and Capital Resources" for a detailed description of liquidity
and working capital levels, including the primary factors affecting such levels.

Based on the challenging global industrial equipment market, we expect 2020
earnings per share ("EPS") to be between $1.85 and $2.35, on net sales of
approximately $3.9 billion. This EPS guidance (i) is based on an expected tax
rate of 19%, (ii) anticipates renewal of the current Section 301 tariff
exclusions we are receiving from the U.S. government, (iii) excludes any benefit
associated with our existing share repurchase program and (iv) does not
anticipate any material impact associated with Brexit. Also, with respect to the
Coronavirus, we are not currently anticipating any material impact on our 2020
results; however, we do expect to have lower sales and earnings from our AWP
China facility in the first half of 2020 which is expected to be made up in the
second half of the year.


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ROIC




ROIC and other Non-GAAP Measures (as calculated below) assist in showing how
effectively we utilize capital invested in our operations. ROIC is determined by
dividing the sum of NOPAT for each of the previous four quarters by the average
of Debt less Cash and cash equivalents plus Terex Corporation stockholders'
equity for the previous five quarters. NOPAT for each quarter is calculated by
multiplying Income (loss) from operations by one minus the annualized effective
tax rate.

In the calculation of ROIC, we adjust income (loss) from operations, annualized
effective tax rate, and Terex Corporation stockholders' equity to remove the
effects of the impact of certain transactions in order to create a measure that
is useful to understanding our operating results and the ongoing performance of
our underlying business without the impact of unusual items as shown in the
tables below. Cash and cash equivalents and Debt are adjusted to include amounts
recorded as held for sale.

Furthermore, we believe returns on capital deployed in TFS do not represent our
primary operations and, therefore, TFS Assets and results from operations have
been excluded from the Non-GAAP Measures. Debt is calculated using amounts for
Current portion of long-term debt plus Long-term debt, less current portion. We
calculate ROIC using the last four quarters' adjusted NOPAT as this represents
the most recent 12-month period at any given point of determination. In order
for the denominator of the ROIC ratio to properly match the operational period
reflected in the numerator, we include the average of five quarters' ending
balance sheet amounts so that the denominator includes the average of the
opening through ending balances (on a quarterly basis) thereby providing, over
the same time period as the numerator, four quarters of average invested
capital.

Terex management and Board of Directors use ROIC as one measure to assess
operational performance, including in connection with certain compensation
programs. We use ROIC as a metric because we believe it measures how effectively
we invest our capital and provides a better measure to compare ourselves to peer
companies to assist in assessing how we drive operational improvement. We
believe ROIC measures return on the amount of capital invested in our primary
businesses, excluding TFS, as opposed to another metric such as return on
stockholders' equity that only incorporates book equity, and is thus a more
accurate and descriptive measure of our performance. We also believe adding Debt
less Cash and cash equivalents to Terex Corporation stockholders' equity
provides a better comparison across similar businesses regarding total
capitalization, and ROIC highlights the level of value creation as a percentage
of capital invested. As the tables below show, our ROIC at December 31, 2019 was
17.6%.

Amounts described below are reported in millions of U.S. dollars, except for the
annualized effective tax rates. Amounts are as of and for the three months ended
for the periods referenced in the tables below.
Dec '19 Sep '19 Jun '19 Mar '19 Dec '18
Annualized effective tax rate as
adjusted 15.6 % 15.6 % 15.6 % 15.6 %
Income (loss) from operations as
adjusted $ 35.3 $ 86.2 $ 127.9 $


104.8



Multiplied by: 1 minus annualized
effective tax rate 84.4 % 84.4 % 84.4 % 84.4 %
Adjusted net operating income (loss)
after tax $ 29.8 $ 72.8 $ 107.9 $


88.5



Debt as adjusted $ 1,175.7 $ 1,175.6 $ 1,351.9 $ 1,477.8 $ 1,219.4
Less: Cash and cash equivalents as
adjusted (540.1 ) (475.5 ) (394.6 ) (330.2 ) (372.1 )
Debt less Cash and cash equivalents
as adjusted $ 635.6 $ 700.1 $ 957.3 $ 1,147.6 $ 847.3
Total Terex Corporation
stockholders' equity as adjusted $ 963.7 $ 881.3 $ 852.2 $ 743.4 $ 752.5
Debt less Cash and cash equivalents
plus Total Terex Corporation
stockholders' equity as adjusted $ 1,599.3 $ 1,581.4 $ 1,809.5 $ 1,891.0 $ 1,599.8



December 31, 2019 ROIC 17.6 %
NOPAT as adjusted (last 4 quarters) $


299.0



Average Debt less Cash and cash equivalents plus Total Terex
Corporation
stockholders' equity, as adjusted (5 quarters) $ 1,696.2






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Three months Three months Three months Three months
ended 12/31/19 ended 9/30/19 ended 6/30/19 ended 3/31/19
Reconciliation of income (loss) from
operations:
Income (loss) from operations as
reported $ 22.9 $ 86.4 $ 126.0 $ 99.7
Adjustments:
Deal related - (0.9 ) (7.0 ) 0.2
Restructuring and related 9.8 2.2 8.7 1.7
Transformation 3.4 2.2 4.0 4.1
Other 0.2 - - -
(Income) loss from TFS (1.0 ) (3.7 ) (3.8 ) (0.9 )
Income (loss) from operations as
adjusted $ 35.3 $ 86.2 $ 127.9 $ 104.8

As of 12/31/19 As of 9/30/19 As of 6/30/19 As of 3/31/19 As of 12/31/18
Reconciliation of Cash and cash
equivalents:
Cash and cash equivalents -
continuing operations $ 535.1 $ 470.6 $ 367.5 $ 304.6 $ 339.5
Cash and cash equivalents - assets
held for sale 5.0 4.9 27.1 25.6 32.6
Cash and cash equivalents as
adjusted $ 540.1 $ 475.5 $ 394.6 $ 330.2 $ 372.1

Reconciliation of Debt:
Debt - continuing operations $ 1,175.7 $ 1,175.6 $ 1,347.7 $ 1,473.4 $ 1,214.7
Debt - liabilities held for sale - - 4.2 4.4 4.7
Debt as adjusted $ 1,175.7 $ 1,175.6 $


1,351.9 $ 1,477.8 $ 1,219.4




Reconciliation of Terex Corporation
stockholders' equity:
Terex Corporation stockholders'
equity as reported $ 932.3 $ 866.3 $ 860.1 $ 781.8 $ 860.5
TFS Assets (154.0 ) (159.0 ) (180.2 ) (204.6 ) (185.1 )
Effects of adjustments, net of tax:
Deal related 75.3 75.3 75.8 83.1 -
Restructuring and related 31.0 22.7 19.2 9.5 6.8
Transformation 23.5 20.6 18.4 13.9 9.1
Pension annuitization 56.3 56.3 56.3 56.3 56.3
Other 7.4 6.4 6.8 4.4 5.1
(Income) loss from TFS (8.1 ) (7.3 ) (4.2 ) (1.0 ) (0.2 )
Terex Corporation stockholders'
equity as adjusted $ 963.7 $ 881.3 $ 852.2 $ 743.4 $ 752.5




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



Year Ended December 31, 2019 income taxes taxes



Income tax rate
Reconciliation of annualized
effective tax rate:
As reported $ 247.5 $ (37.8 ) 15.3 %
Effect of adjustments:
Deal related (7.5 ) 0.2
Restructuring and related 22.4 (4.7 )
Transformation 13.7 (2.8 )
Other 0.6 (0.1 )
Tax related - 2.0
As adjusted 276.7 (43.2 ) 15.6 %




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RESULTS OF OPERATIONS

2019 COMPARED WITH 2018

Consolidated
2019 2018
% Change In
% of % of Reported
Sales Sales Amounts
($ amounts in millions)
Net sales $ 4,353.1 - $ 4,517.2 - (3.6 )%
Gross profit $ 887.8 20.4 % $ 961.9 21.3 % (7.7 )%
SG&A $ 552.8 12.7 % $ 549.4 12.2 % 0.6 %
Income (loss) from
operations $ 335.0 7.7 % $ 412.5 9.1 % (18.8 )%



Net sales for the year ended December 31, 2019 decreased $164.1 million when
compared to 2018. The decrease in net sales was primarily due to weakening
demand for aerial work platforms in North America and Western Europe in our AWP
segment and changes in foreign exchange rates which negatively impacted
consolidated net sales by approximately $105 million, partially offset by higher
demand for equipment in our MP segment and aerial work platforms in China and
utility equipment in our AWP segment.

Gross profit for the year ended December 31, 2019 decreased $74.1 million when
compared to 2018. The decrease was primarily due to the negative impact of
foreign exchange rate changes across all segments and lower sales volume and
factory overhead absorption in our AWP segment, partially offset by higher sales
volume in our MP segment and favorable price variances in our AWP segment.


SG&A costs for the year ended December 31, 2019 increased $3.4 million when
compared to 2018 primarily due to increased engineering and selling costs,
partially offset by lower personnel costs.




Income from operations decreased by $77.5 million for the year ended
December 31, 2019 when compared to 2018. The decrease was primarily due to the
negative effects of foreign exchange rate changes in all segments and lower
sales volume and factory overhead absorption in our AWP segment, partially
offset by higher sales volume in our MP segment and favorable price variances in
our AWP segment.

Aerial Work Platforms
2019 2018
% Change In
% of % of Reported
Sales Sales Amounts
($ amounts in millions)
Net sales $ 2,726.6 - $ 2,950.4 -



(7.6 )%
Income from operations $ 196.2 7.2 % $ 300.5 10.2 % (34.7 )%



Net sales for the AWP segment for the year ended December 31, 2019 decreased
$223.8 million when compared to 2018 primarily due to weakening demand for
aerial work platforms in North America and Western Europe, partially offset by
increased sales in China and higher demand for utility equipment. Net sales were
negatively impacted by effects of foreign exchange rate changes, particularly in
Europe, of approximately $43 million.

Income from operations for the year ended December 31, 2019 decreased $104.3
million
when compared to 2018. The decrease was primarily due to lower sales
volume, lower factory overhead absorption from a decrease in overall production
volume, the negative effects of foreign exchange rate changes and higher
engineering and selling costs, partially offset by favorable price variances and
a change in allocation of health care costs.



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Materials Processing
2019 2018
% of % of % Change In
Sales Sales Reported Amounts
($ amounts in millions)
Net sales $ 1,371.4 - $ 1,322.6 - 3.7 %
Income from operations $ 196.8 14.4 % $ 176.0 13.3 % 11.8 %



Net sales for the MP segment increased by $48.8 million for the year ended
December 31, 2019 when compared to 2018 primarily due to higher demand for
material handlers and mobile crushing and screening equipment, pick and carry
equipment primarily in Australia and concrete mixer trucks in North America. Net
sales were negatively impacted by effects of foreign exchange rate changes,
particularly in Europe, of approximately $50 million.


Income from operations for the year ended December 31, 2019 increased $20.8
million
when compared to 2018 primarily due to higher sales volume, partially
offset by the negative effects of foreign exchange rate changes.



Corporate and Other / Eliminations



2019 2018
% of % of % Change In Reported
Sales Sales Amounts
($ amounts in millions)
Net sales $ 255.1 - $ 244.2 - 4.5 %
Loss from operations $ (58.0 ) (22.7 )% $ (64.0 ) (26.2 )% 9.4 %



Net sales include rough terrain and tower cranes sales, on-book financing
activities of TFS and elimination of intercompany sales activity among segments.
The net sales increase is primarily due to lower intercompany sales
eliminations, partially offset by weakening demand for tower cranes and negative
effect of foreign exchange rate changes on rough terrain and tower cranes sales.

Loss from operations for the year ended December 31, 2019 decreased $6.0 million
when compared to 2018. The decrease in operating loss is primarily due to lower
compensation costs and professional fees, the sale of an equity investment and a
customer advance forfeiture, partially offset by the negative effects of
exchange rate changes, lower tower cranes sales volume, a change in allocation
of health care costs, severance costs and a specific loss allowance on a finance
receivable.


Interest Expense, Net of Interest Income




During the year ended December 31, 2019, our interest expense, net of interest
income, was $81.4 million, or $17.3 million higher than the prior year due to an
increase in average borrowings offset by lower rates.


Other Income (Expense) - Net




Other income (expense) - net for the year ended December 31, 2019 was a loss of
$6.1 million, compared to a loss of $60.6 million in 2018. The change was due
primarily to a loss in the prior year of approximately $51 million related to
the settlement of our U.S. defined benefit pension plan, as described in Note M
- "Retirement Plans and Other Benefits".


Income Taxes




During the year ended December 31, 2019, we recognized an income tax expense of
$37.8 million on income of $247.5 million, an effective tax rate of 15.3%, as
compared to an income tax expense of $45.4 million on income of $287.1 million,
an effective tax rate of 15.8%, for the year ended December 31, 2018. The lower
effective tax rate for the year ended December 31, 2019 was primarily due to
favorable jurisdictional mix.


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Income (Loss) from Discontinued Operations - net of tax




Loss from discontinued operations - net of tax for the year ended December 31,
2019
was $155.4 million compared to a loss of $130.4 million for the year ended
December 31, 2018. The loss in 2019 was primarily from recognition of a pre-tax
charge of approximately $82 million ($82 million after-tax) to write-down the
mobile cranes disposal group to fair value, less costs to sell, and the negative
performance of our mobile cranes business.


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




Gain on disposition of discontinued operations - net of tax for the year ended
December 31, 2019 was $0.1 million compared to a gain of $2.4 million for the
year ended December 31, 2018. The gain in 2019 was primarily related to a gain
on the sale of our North American mobile crane product lines manufactured in its
Oklahoma City facility, partially offset by post-closing adjustments for the
sale of MHPS and a loss on the sale of Demag.

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2018 COMPARED WITH 2017

Consolidated
2018 2017
% of % of % Change In
Sales Sales Reported Amounts
($ amounts in millions)
Net sales $ 4,517.2 - $ 3,793.7 - 19.1 %
Gross profit $ 961.9 21.3 % $ 767.3 20.2 % 25.4 %
SG&A $ 549.4 12.2 % $ 539.1 14.2 % 1.9 %
Income (loss) from
operations $ 412.5 9.1 % $ 228.2 6.0 % 80.8 %




Net sales for the year ended December 31, 2018 increased $723.5 million when
compared to 2017. The increase in net sales was primarily due to higher demand
for equipment in all segments. Changes in foreign exchange rates positively
impacted consolidated net sales by approximately $67 million.

Gross profit for the year ended December 31, 2018 increased $194.6 million when
compared to 2017. The increase was primarily due to higher sales and production
volume and the positive impact of foreign exchange rate changes in all segments,
partially offset by increased material costs across all segments.

SG&A costs for the year ended December 31, 2018 increased $10.3 million when
compared to 2017 primarily due to planned engineering and strategic sourcing
spending.

Income from operations increased by $184.3 million for the year ended
December 31, 2018 when compared to 2017. The increase was primarily due to
higher sales and production volume and the positive effects of exchange rate
changes in all segments, partially offset by increased material costs across all
segments.

Aerial Work Platforms
2018 2017
% of % of % Change In
Sales Sales Reported Amounts
($ amounts in millions)
Net sales $ 2,950.4 - $ 2,433.2 - 21.3 %
Income (loss) from
operations $ 300.5 10.2 % $ 199.8 8.2 % 50.4 %



Net sales for the AWP segment for the year ended December 31, 2018 increased
$517.2 million when compared to 2017 primarily due to higher broad-based demand
for aerial equipment in North America, Western Europe and China, telehandlers in
North America from a combination of fleet replacement and growth in rental
fleets due to improving rental utilization rates as well as utility equipment
sales in North America. Net sales were positively impacted by effects of foreign
exchange rate changes, particularly in Europe, of approximately $45 million.

Income from operations for the year ended December 31, 2018 increased $100.7
million
when compared to 2017. The increase was primarily due to increased sales
volume, improved factory utilization and the positive impact of foreign exchange
rate changes, partially offset by increased material costs, driven by higher
steel prices and tariffs, and higher selling and administrative costs associated
with planned engineering and strategic sourcing spending.


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Materials Processing
2018 2017
% of % of % Change In
Sales Sales Reported Amounts
($ amounts in millions)
Net sales $ 1,322.6 - $ 1,119.8 - 18.1 %
Income (loss) from
operations $ 176.0 13.3 % $ 125.1 11.2 % 40.7 %



Net sales for the MP segment increased by $202.8 million for the year ended
December 31, 2018 when compared to 2017 primarily due to higher demand for
mobile crushing and screening equipment, pick and carry cranes and parts as a
result of broad-based economic growth, construction activity and aggregate
consumption and increased material handler sales from a stronger scrap market.
These increases were partially offset by lower demand for concrete mixer trucks
in North America due to emission regulations associated with sales of
refurbished trucks. Net sales were positively impacted by effects of foreign
exchange rate changes, particularly in Europe, of approximately $14 million.

Income from operations for the year ended December 31, 2018 increased $50.9
million
when compared to 2017 primarily due to increased sales and production
volume, partially offset by higher selling and administrative costs associated
with planned engineering and strategic sourcing spending.


Corporate and Other / Eliminations



2018 2017
% of % of % Change In
Sales Sales Reported Amounts
($ amounts in millions)
Net sales $ 244.2 - $ 240.7 - 1.5 %
Income (loss) from
operations $ (64.0 ) (26.2 )% $ (96.7 ) (40.2 )% 33.8 %



Net sales include rough terrain and tower cranes sales, on-book financing
activities of TFS and elimination of intercompany sales activity among segments
while net sales in 2017 included sales in various construction equipment product
lines. The change in net sales was primarily due to higher demand for rough
terrain and tower cranes, lower intercompany sales eliminations and increased
TFS revenue from syndications in 2018, partially offset by approximately $76
million
related to divestiture of construction product lines and lower
governmental sales.

Loss from operations decreased $32.7 million for the year ended December 31,
2018
when compared to 2017. The decrease in operating loss is primarily due to
lower general and administrative expenses and increased revenue from rough
terrain and tower cranes, partially offset by gains in the prior year on the
sale of certain construction product line assets.


Interest Expense, Net of Interest Income




During the year ended December 31, 2018, our interest expense, net of interest
income, was $64.1 million, or $3.2 million higher than the prior year due to
increased borrowings at higher interest rates on floating rate instruments.


Loss on Early Extinguishment of Debt




During the year ended December 31, 2018, we recorded a loss on early
extinguishment of debt of $0.7 million as a result of an amendment to the 2017
Credit Agreement which lowered the interest rate on the Company's senior secured
term loan by 25 basis points. During the year ended December 31, 2017, we
recorded a loss on early extinguishment of debt of $52.6 million primarily
related to the termination of our 2014 Credit Agreement and retirement of our 6%
Notes (as defined below) and 6-1/2% Notes (as defined below), all as further
described in Note K - "Long-Term Obligations".

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Other Income (Expense) - Net




Other income (expense) - net for the year ended December 31, 2018 was a loss of
$60.6 million, compared to a gain of $48.7 million in 2017. The change was due
primarily to a loss of approximately $51 million related to the settlement of
our U.S. defined benefit pension plan, as described in Note M - "Retirement
Plans and Other Benefits", and a net gain recorded in the prior year from the
sale of Konecranes shares of $42.0 million and related dividend income of $13.5
million
, as described in Note D - "Discontinued Operations And Assets and
Liabilities Held for Sale".


Income Taxes




During the year ended December 31, 2018, we recognized an income tax expense of
$45.4 million on income of $287.1 million, an effective tax rate of 15.8%, as
compared to an income tax expenses of $52.4 million on income of $163.4 million,
an effective tax rate of 32.1%, for the year ended December 31, 2017. The lower
effective tax rate for the year ended December 31, 2018 was primarily due to
less tax expense associated with 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) and higher benefits from the resolution
of tax audits, partially offset by less favorable character of earnings.


Income (Loss) from Discontinued Operations - net of tax




Loss from discontinued operations - net of tax for the year ended December 31,
2018
was $130.4 million, compared to a loss of $49.6 million for the year ended
December 31, 2017. The increased loss was primarily related to supply chain
challenges in our mobile cranes business resulting in higher manufacturing and
selling costs as well as reductions taken in the prior year to severance
accruals.


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




During the year ended December 31, 2018, we recognized a gain on disposition of
discontinued operations - net of tax of $2.4 million, due primarily to a gain of
$2.7 million related to the prior sale of our Atlas heavy construction equipment
and knuckle-boom cranes businesses. During the year ended December 31, 2017, we
recognized a gain on disposition of discontinued operations - net of tax of
$67.3 million, related primarily to the sale of our MHPS business.



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CRITICAL ACCOUNTING POLICIES




The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements and reported
amounts of revenues and expenses during the reporting period. Changes in
estimates and assumptions used by management could have significant impacts on
our financial results. Actual results could differ from those estimates.

We believe the following are among our most significant accounting policies
which are important in determining the reporting of transactions and events and
which utilize estimates about the effect of matters that are inherently
uncertain and therefore are based on management judgment. Please refer to Note A
- "Basis of Presentation" in the accompanying Consolidated Financial Statements
for a listing of our accounting policies.

Inventories - In valuing inventory, we are required to make assumptions
regarding level of reserves required to value potentially obsolete or
over-valued items at the lower of cost or net realizable value ("NRV"). These
assumptions require us to analyze the aging of and forecasted demand for our
inventory, forecast future product sales prices, pricing trends and margins, and
to make judgments and estimates regarding obsolete or excess inventory. Future
product sales prices, pricing trends and margins are based on the best available
information at that time including actual orders received, negotiations with our
customers for future orders, including their plans for expenditures, and market
trends for similar products. Our judgments and estimates for excess or obsolete
inventory are based on analysis of actual and forecasted usage. Valuation of
used equipment taken in trade from customers requires us to use the best
information available to determine the value of the equipment to potential
customers. This value is subject to change based on numerous conditions.
Inventory reserves are established taking into account age, frequency of use, or
sale, and in the case of repair parts, installed base of machines. While
calculations are made involving these factors, significant management judgment
regarding expectations for future events is involved. Future events that could
significantly influence our judgment and related estimates include general
economic conditions in markets where our products are sold, new equipment price
fluctuations, actions of our competitors, including introduction of new products
and technological advances, as well as new products and design changes we
introduce. We make adjustments to our inventory reserve based on identification
of specific situations and increase our inventory reserves accordingly. As
further changes in future economic or industry conditions occur, we will revise
estimates used to calculate our inventory reserves.

If actual conditions are less favorable than those we have projected, we will
increase our reserves for lower of cost or NRV, excess and obsolete inventory
accordingly. Any increase in our reserves will adversely impact our results of
operations. Establishment of a reserve for lower of cost or NRV, excess and
obsolete inventory establishes a new cost basis in the inventory. Such reserves
are not reduced until the product is sold.

Guarantees - We have issued guarantees to financial institutions related to
customer financing of equipment purchases by our customers. We must assess the
probability of losses or non-performance in ways similar to the evaluation of
accounts receivable, including consideration of a customer's payment history,
leverage, availability of third party financing, political and exchange risks,
and other factors. Many of these factors, including the assessment of a
customer's ability to pay, are influenced by economic and market factors that
cannot be predicted with certainty.

Our customers, from time to time, fund the acquisition of our equipment through
third-party finance companies. In certain instances, we may provide a credit
guarantee to the finance company by which we agree to make payments to the
finance company should the customer default. Our maximum liability is generally
limited to our customer's remaining payments due to the finance company at the
time of default. In the event of a customer default, we are generally able to
recover and dispose of the equipment at a minimum loss, if any, to us.

We issue, from time to time, residual value guarantees under sales-type leases.
A residual value guarantee involves a guarantee that a piece of equipment will
have a minimum fair market value at a future date if certain conditions are met
by the customer. We are generally able to mitigate some risk associated with
these guarantees because maturity of guarantees is staggered, which limits the
amount of used equipment entering the marketplace at any one time.

We record a liability for the estimated fair value of guarantees issued pursuant
to Financial Accounting Standards Board ("FASB") Accounting Standards
Codification ("ASC") 460, "Guarantees" ("ASC 460"). We recognize a loss under a
guarantee when our obligation to make payment under the guarantee is probable
and the amount of the loss can be estimated. A loss would be recognized if our
payment obligation under the guarantee exceeds the value we could expect to
recover to offset such payment, primarily through the sale of the equipment
underlying the guarantee.


39
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There can be no assurance our historical experience in used equipment markets
will be indicative of future results. Our ability to recover losses from our
guarantees may be affected by economic conditions in used equipment markets at
the time of loss. See Note O - "Litigation and Contingencies" in the Notes to
the Consolidated Financial Statements for further information regarding our
guarantees.

Revenue Recognition - We recognize revenue when goods or services are
transferred to customers in an amount that reflects the consideration which we
expect to receive in exchange for those goods or services. In determining when
and how revenue is recognized from contracts with customers, we perform the
following five-step analysis: (i) identification of contract with customer; (ii)
determination of performance obligations; (iii) measurement of the transaction
price; (iv) allocation of the transaction price to the performance obligations;
and (v) recognition of revenue when (or as) the Company satisfies each
performance obligation. The majority of our revenue is recognized at the time of
shipment, at the net sales price (transaction price). Estimates of variable
consideration, such as volume discounts and rebates, reduce transaction price
when it is probable that a customer will attain these types of sales incentives.
These estimates are primarily derived from contractual terms and historical
experience.

Goodwill - Goodwill is assigned to one or more reporting segments on the date of
acquisition. We review our goodwill for impairment annually during the fourth
quarter of each fiscal year and between annual tests if an event occurs or
circumstances change that would more likely than not reduce the fair value of
any one of our reporting units below its respective carrying amount.

In performing the goodwill impairment test, we first perform a qualitative
assessment, which requires that we consider events or circumstances including
macroeconomic conditions, industry and market considerations, cost factors,
overall financial performance, changes in management or key personnel, changes
in strategy, changes in customers, changes in the composition or carrying amount
of a reporting segment's net assets and changes in our stock price. If, after
assessing the totality of events or circumstances, we determine that it is more
likely than not that the fair values of our reporting segments are greater than
the carrying amounts, then the quantitative goodwill impairment test is not
performed.

If the qualitative assessment indicates that the quantitative analysis should be
performed, we then evaluate goodwill for impairment by comparing the fair value
of each of our reporting segments to its carrying value, including the
associated goodwill. To determine the fair values, we uses an income approach,
along with other relevant market information, derived from a discounted cash
flow model to estimate fair value of our reporting units. An impairment charge
for the amount by which the carrying amount exceeds the reporting unit's fair
value, if any, would be recognized. The loss recognized would not exceed total
amount of goodwill allocated to that reporting unit.


See Note I - "Goodwill and Intangible Assets, Net" in the Notes to the
Consolidated Financial Statements for further information.




Impairment of Long-Lived Assets - Our policy is to assess the realizability of
our long-lived assets, including definite-lived intangible assets, and to
evaluate such assets for impairment whenever events or changes in circumstances
indicate the carrying amount of such assets (or group of assets) may not be
recoverable. Impairment is determined to exist if estimated future undiscounted
cash flows are less than carrying value. If an impairment is indicated, assets
are written down to their fair value, which is typically determined by a
discounted cash flow analysis. Future cash flow projections include assumptions
regarding future sales levels and the level of working capital needed to support
the assets. We use data developed by business segment management as well as
macroeconomic data in making these calculations. There are no assurances that
future cash flow assumptions will be achieved. The amount of any impairment then
recognized would be calculated as the difference between estimated fair value
and carrying value of the asset.

Accrued Warranties - We record accruals for unasserted warranty claims based on
our claim experience. Warranty costs are accrued at the time revenue is
recognized. However, adjustments to the initial warranty accrual are recorded if
actual claims experience indicates adjustments are necessary. These warranty
costs are based upon management's assessment of past claims and current
experience. However, actual claims could be higher or lower than amounts
estimated, as the amount and value of warranty claims are subject to variation
as a result of many factors that cannot be predicted with certainty, including
production quality issues, performance of new products, models and technology,
changes in weather conditions for product operation, different uses for products
and other similar factors.


40



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Defined Benefit Plans - Pension benefits represent financial obligations that
will be ultimately settled in the future with employees who meet eligibility
requirements. As of December 31, 2019, we maintained an unfunded, nonqualified
Supplemental Executive Retirement Plan (the "U.S. SERP") for certain former U.S.
employees. Generally, the U.S. SERP provides a benefit based on average total
compensation earned over a participant's final five years of employment and
years of service reduced by benefits earned under any Company retirement
program, excluding salary deferrals and matching contributions. In addition,
benefits are reduced by Social Security Primary Insurance Amounts attributable
to Company contributions. Participation in the U.S. SERP is frozen; however,
eligible participants are credited with post-freeze service for purposes of
determining vesting and the amount of benefits.

We maintain defined benefit plans in France, Germany, India, Switzerland and the
U.K. for some of our subsidiaries. The plans in France, Germany and India are
unfunded plans. The plan in the U.K. is frozen. Participation in the German
plans is frozen; however, eligible participants are credited with post-freeze
service for purposes of determining vesting and the amount of benefits. For our
operations in Italy, there are mandatory termination indemnity plans providing a
benefit payable upon termination of employment in substantially all cases of
termination. We record this obligation based on the mandated requirements. The
measure of the current obligation is not dependent on the employees' future
service and therefore is measured at current value.

Plan assets consist primarily of common stocks, bonds and short-term cash
equivalent funds. For non-U.S. funded plans, approximately 25% of the assets are
in equity securities, 72% are in fixed income securities and 3% are in real
estate investment securities. These allocations are reviewed periodically and
updated to meet the long-term goals of the plans.

Determination of defined benefit pension and post-retirement plan obligations
and their associated expenses requires use of actuarial valuations to estimate
the benefits employees earn while working, as well as the present value of those
benefits. We use the services of independent actuaries to assist with these
calculations. Inherent in these valuations are economic assumptions, including
expected returns on plan assets, discount rates at which liabilities may be
settled, rates of increase of health care costs, rates of future compensation
increases as well as employee demographic assumptions such as retirement
patterns, mortality and turnover. The actuarial assumptions used may differ
materially from actual results due to changing market and economic conditions,
higher or lower turnover rates, or longer or shorter life spans of participants.
Actual results that differ from the actuarial assumptions used are recorded as
unrecognized gains and losses. Unrecognized gains and losses that exceed 10% of
the greater of the plan's projected benefit obligations or the market-related
value of assets are amortized to earnings over the shorter of the estimated
future service period of the plan participants or the period until any
anticipated final plan settlements. The assumptions used in the actuarial models
are evaluated periodically and are updated to reflect experience. We believe the
assumptions used in the actuarial calculations are reasonable and are within
accepted practices in each of the respective geographic locations in which we
operate.

Expected long-term rates of return on pension plan assets were 4.50% for the
U.K. plan and 2.00% for the Swiss plan at December 31, 2019. Our strategy with
regard to the investments in the pension plans is to earn a rate of return
sufficient to match or exceed the long-term growth of pension liabilities. The
expected rate of return of plan assets represents an estimate of long-term
returns on the investment portfolio. These rates are determined annually by
management based on a weighted average of current and historical market trends,
historical portfolio performance and the portfolio mix of investments. The
expected long-term rate of return on plan assets at December 31 is used to
measure the earnings effects for the subsequent year. The difference between the
expected return and the actual return on plan assets affects the calculated
value of plan assets and, ultimately, future pension expense (income).

The discount rates were 3.31% for the U.S. SERP and 0.10% to 10.71% with a
weighted average of 1.87% for non-U.S. plans at December 31, 2019. The discount
rate enables us to estimate the present value of expected future cash flows on
the measurement date. The rate used reflects a rate of return on high-quality
fixed income investments that match the duration of expected benefit payments at
the December 31 measurement date. The discount rate at December 31 is used to
measure the year-end benefit obligations and the earnings effects on the
subsequent year. Typically, a higher discount rate decreases the present value
of benefit obligations.

The U.S. SERP has no expected rate of compensation increase as all participants
have retired or have a terminated vested benefit payable in the future. Our U.K.
pension plan is frozen so there is no expected rate of compensation increase;
however, other Non-U.S. plans' expected rates of compensation increases were
1.00% to 8.00% with a weighted average for all Non-U.S. plans of 0.17% at
December 31, 2019. These estimated annual compensation increases are determined
by management every year and are based on historical trends and market indices.

We have recorded the underfunded status of our defined benefit pension plans as
a liability and the unrecognized prior service costs and actuarial gains
(losses) as an adjustment to Stockholders' equity on the Consolidated Balance
Sheet. The net increase in the liability and decreased funded status of $5.9
million
was due to changes in assumptions from the previous year, primarily
decreases in discount rates, partially offset by gains incurred on our pension
assets.

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Actual results in any given year will often differ from actuarial assumptions
because of demographic, economic and other factors. Market value of plan assets
can change significantly in a relatively short period of time. Additionally, the
measurement of plan benefit obligations is sensitive to changes in interest
rates. As a result, if the equity market declines and/or interest rates
decrease, the plans' estimated benefit obligations could increase, causing an
increase in liabilities and a reduction in Stockholders' Equity.

We expect any future obligations under our plans that are not currently funded
will be funded from future cash flows from operations. If our contributions are
insufficient to adequately fund the plans to cover our future obligations, or if
the performance of assets in our plans does not meet expectations, or if our
assumptions are modified, contributions could be higher than expected, which
would reduce cash available for our business. Changes in U.S. or foreign laws
governing these plans could require additional contributions.

Assumptions used in computing our net pension expense and projected benefit
obligation have a significant effect on the amounts reported. A 25 basis point
change in each assumption below would have the following effects upon net
pension expense and projected benefit obligation, respectively, as of and for
the year ended December 31, 2019:
($ amounts in millions) Increase Decrease
Expected long- Expected long-
Discount Rate term rate of return Discount Rate term rate of return
U. S. Plan:
Net pension expense $ (0.2 ) $ - $ 0.2 $ -
Projected benefit obligation $ (1.2 ) $ - $ 1.2 -

Non-U.S. Plans:
Net pension expense $ 0.2 $ (0.3 ) $ (0.1 ) $ 0.3
Projected benefit obligation $ (5.9 ) $ -


$ 6.3 -






Income Taxes - We estimate income taxes based on enacted tax laws in the various
jurisdictions where we conduct business. We recognize deferred income tax assets
and liabilities, which represent future tax benefits or obligations of our legal
entities. These deferred income tax balances arise from temporary differences
due to divergent treatment of certain items for accounting and income tax
purposes.

We evaluate our deferred tax assets each period to ensure that estimated future
taxable income will be sufficient in character, amount and timing to result in
the use of our deferred tax assets. "Character" refers to the type (ordinary
income versus capital gain) as well as the source (foreign vs. domestic) of the
income we generate. "Timing" refers to the period in which future income is
expected to be generated. Timing is important because, in certain jurisdictions,
net operating losses ("NOLs") and other tax attributes expire if not used within
an established statutory time frame. Based on these evaluations, we have
determined that it is more likely than not that expected future earnings will be
sufficient to use most of our deferred tax assets.

We do not provide for income taxes or tax benefits on differences between
financial reporting basis and tax basis of our non-U.S. subsidiaries where such
differences are reinvested and, in our opinion, will continue to be indefinitely
reinvested. If earnings of foreign subsidiaries are not considered indefinitely
reinvested, deferred U.S. income taxes, foreign income taxes, and foreign
withholding taxes may have to be provided. We do not record deferred income
taxes on the temporary difference between the book and tax basis in domestic
subsidiaries where permissible. At this time, determination of the unrecognized
deferred tax liabilities for temporary differences related to our investment in
non-U.S. subsidiaries is not practicable.

Judgments and estimates are required to determine tax expense and deferred tax
valuation allowances and in assessing uncertain tax positions. Tax returns are
subject to audit and local taxing authorities could challenge tax-filing
positions we take. Our practice is to file income tax returns that conform to
requirements of each jurisdiction and to record provisions for tax liabilities,
including interest and penalties, in accordance with ASC 740, "Income Taxes."
Given the continued changes and complexity in worldwide tax laws, coupled with
our geographic scope and size there may be greater exposure to uncertain tax
positions. Given the subjective nature of applicable tax laws, results of an
audit of some of our tax returns could have a significant impact on our
financial statements.


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RECENT ACCOUNTING STANDARDS



Please refer to Note A - "Basis of Presentation" in the accompanying
Consolidated Financial Statements for a summary of recently issued accounting
standards.



LIQUIDITY AND CAPITAL RESOURCES




We are focused on generating cash and maintaining liquidity (cash and
availability under our revolving line of credit) for the efficient operation of
our business. At December 31, 2019, we had cash and cash equivalents of $540.1
million
and undrawn availability under our revolving line of credit of $600
million
, giving us total liquidity of approximately $1.1 billion. During the
year ended December 31, 2019, our liquidity increased by approximately $405
million
from December 31, 2018 primarily due to cash provided by an additional
debt issuance and proceeds from the sale of Demag and ASV shares.


Typically, we have invested our cash in a combination of highly rated, liquid
money market funds and in short-term bank deposits with large, highly rated
banks. Our investment objective is to preserve capital and liquidity while
earning a market rate of interest.




We seek to use cash held by our foreign subsidiaries to support our operations
and continued growth plans outside and inside the United States through funding
of capital expenditures, operating expenses or other similar cash needs of these
operations. Most of this cash could be used in the U.S., if necessary. Cash
repatriated to the U.S. could be subject to incremental foreign and state
taxation. We will continue to seek opportunities to tax-efficiently mobilize and
redeploy funds. There are no trends, demands or uncertainties as a result of the
Company's cash deployment strategies that are reasonably likely to have a
material effect on us as a whole or that may be relevant to our financial
flexibility.


We had free cash flow of $86.4 million for the year ended December 31, 2019. We
are expecting to generate approximately $140 million of free cash flow in 2020.



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



Year


Ended



12/31/2019



Net cash provided by (used in) operating activities


173.4



Increase (decrease) in TFS assets


(31.1 )



Capital expenditures, net of proceeds from sale of capital



assets (1) (94.4 )
Deal related net working capital adjustment 38.5
Free cash flow $ 86.4



(1) Includes $10.2 million of proceeds from sale of capital assets within
Proceeds (payments) from disposition of discontinued operations in the
Consolidated Statement of Cash Flows.




Our main sources of funding are cash generated from operations, including cash
generated from the sale of receivables, loans from our bank credit facilities
and funds raised in capital markets. Pursuant to terms of our trade accounts
receivable factoring arrangements, during the year ended December 31, 2019, we
sold, without recourse, approximately $1,108 million of trade accounts
receivable to enhance liquidity. During the year ended December 31, 2019, we
also sold approximately $226 million of sales-type leases and commercial loans.

We believe cash generated from operations, including cash generated from the
sale of receivables, together with access to our bank credit facilities and cash
on hand, provide adequate liquidity to continue to support internal operating
initiatives and meet our operating and debt service requirements for at least
the next 12 months. See Part I, Item 1A. - "Risk Factors" for a detailed
description of the risks resulting from our debt and our ability to generate
sufficient cash flow to operate our business.


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



• Many of our customers fund their purchases through third-party finance



companies that extend credit based on the credit-worthiness of customers



and expected residual value of our equipment. Changes either in customers'



credit profile or used equipment values may affect the ability of



customers to purchase equipment. There can be no assurance third-party



finance companies will continue to extend credit to our customers as they
have in the past.



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



business may change.



• Our suppliers extend payment terms to us primarily based on our overall



credit rating. Declines in our credit rating may influence suppliers'



willingness to extend terms and in turn accelerate cash requirements of
our business.



• Sales of our products are subject to general economic conditions, weather,



competition, translation effect of foreign currency exchange rate changes,



and other factors that in many cases are outside our direct control. For
example, during periods of economic uncertainty, our customers have
delayed purchasing decisions, which reduces cash generated from
operations.


• Availability and utilization of other sources of liquidity such as trade
receivables sales programs.




Working capital as a percent of trailing three month annualized net sales was
20.4% at December 31, 2019.




The following tables show the calculation of our working capital in continuing
operations and trailing three months annualized sales as of December 31, 2019
(in millions):
Three months ended 12/31/19
Net Sales $ 885.0
x 4
Trailing Three Month Annualized Net Sales $ 3,540.0



As of 12/31/19
Inventories $ 847.7
Trade Receivables 401.9
Trade Accounts Payable (508.1 )
Customer Advances (17.9 )
Working Capital $ 723.6



On January 31, 2017, we entered into a new credit agreement (as amended, the
"2017 Credit Agreement"). The 2017 Credit Agreement contains a $400 million
senior secured term loan (the "Original Term Loan"). The Original Term Loan
portion of the 2017 Credit Agreement bears interest at a rate of LIBOR plus
2.00% with a 0.75% LIBOR floor. On March 7, 2019, we entered into an Incremental
Assumption Agreement and Amendment No. 3 ("Amendment No. 3") to the 2017 Credit
Agreement. Amendment No. 3 provided us 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 (the Original Term Loan together with
2019 Term Loan comprise the "Term Loans" portion of the 2017 Credit Agreement).
The 2017 Credit Agreement contains a $600 million revolving line of credit
available through January 31, 2022. Net proceeds from the 2019 Term Loan were
used to reduce borrowings under the revolving line of credit. The 2017 Credit
Agreement allows unlimited incremental commitments, which may be extended at the
option of 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 requiring the Company to satisfy a senior
secured leverage ratio contained in the 2017 Credit Agreement. Interest rates
charged under the revolving line of credit in the 2017 Credit Agreement are
subject to adjustment based on our consolidated leverage ratio. See Note K -
"Long-Term Obligations," in our Consolidated Financial Statements for
information concerning the 2017 Credit Agreement.

Borrowings under the 2017 Credit Agreement as of December 31, 2019 were $585.5
million
, net of discount, on our Term Loans. There were no amounts outstanding
on our revolving line of credit as of December 31, 2019. At December 31, 2019,
the weighted average interest rate was 4.10% on the Term Loans portion of the
2017 Credit Agreement.


44



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We manage our interest rate risk by maintaining a balance between fixed and
floating rate debt, including use of interest rate derivatives when appropriate.
Over the long term, we believe this mix will produce lower interest cost than a
purely fixed rate mix while reducing interest rate risk.

Our investment in TFS financial services assets was approximately $154 million,
net at December 31, 2019. We remain focused on expanding financing solutions in
key markets like the U.S., Europe and China. We also anticipate using TFS to
drive incremental sales by increasing customer financing through TFS in certain
instances.

In July 2018, our Board of Directors authorized the repurchase of up to an
additional $300 million of our outstanding shares of common stock. During the
year ended December 31, 2019, we repurchased a total of 0.2 million shares for
$4.9 million under the July 2018 authorization leaving approximately $195
million
available for repurchase under this program. In each quarter of 2019,
our Board of Directors declared a dividend of $0.11 per share, which was paid to
our shareholders. In February 2020, our Board of Directors declared a dividend
of $0.12 per share which will be paid on March 19, 2020.

Our ability to access capital markets to raise funds, through sale of equity or
debt securities, is subject to various factors, some specific to us and others
related to general economic and/or financial market conditions. These include
results of operations, projected operating results for future periods and debt
to equity leverage. Our ability to access capital markets is also subject to our
timely filing of periodic reports with the SEC. In addition, terms of our bank
credit facilities, senior notes and senior subordinated notes contain
restrictions on our ability to make further borrowings and to sell substantial
portions of our assets.

Cash Flows

Cash provided by operations was $173.4 million and $94.2 million for the years
ended December 31, 2019 and 2018, respectively. The increase in cash provided by
operations was primarily driven by working capital efficiency, partially offset
by decreased operating profitability.

Cash provided by investing activities for the year ended December 31, 2019 was
$103.8 million, compared to $85.9 million of cash used in investing activities
for the year ended December 31, 2018. The increase in cash provided by investing
activities was primarily due to proceeds received from the sale of Demag and ASV
shares.

Cash used in financing activities was $103.7 million and $244.9 million for the
years ended December 31, 2019 and 2018, respectively. The decrease in cash used
in financing activities was primarily due to share repurchases made during the
prior year period, partially offset by higher debt repayments on our revolving
line of credit in 2019.

Contractual Obligations



The following table sets out our specified contractual obligations at
December 31, 2019 (in millions):



Payments due by period
Total < 1 year 1-3 years 3-5 years > 5 years
Long-term debt obligations $ 1,450.9 $ 63.2 $ 123.7 $ 659.5 $ 604.5
Finance lease obligations 4.1 1.0 2.0 1.0 0.1
Operating lease obligations 153.2 34.2 52.6 38.8 27.6
Purchase obligations (1) 528.5 527.8 0.6 0.1 -
Total $ 2,136.7 $ 626.2 $ 178.9 $ 699.4 $ 632.2




(1) Purchase obligations include non-cancellable and cancellable commitments.



In many cases, cancellable commitments contain penalty provisions for
cancellation.



Long-term debt obligations include expected interest expense. Interest expense
is calculated using fixed interest rates for indebtedness that has fixed rates
and the implied forward rates for term loan indebtedness as of December 31,
2019
.

As of December 31, 2019, our liability for uncertain income tax positions was
$3.2 million. The amount of reasonably possible payments in 2020 related to our
tax audits worldwide is not significant. Payments may be made in part to
mitigate the accrual of interest in connection with income tax audit assessments
that may be issued and that we would contest, or may in part be made to settle
the matter with tax authorities. Due to the high degree of uncertainty
regarding the timing of potential future cash flows associated with remaining
liabilities, we are unable to make a reasonable estimate of the amount and
period in which these remaining liabilities might be paid.

45
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Additionally, at December 31, 2019, we had outstanding letters of credit that
totaled $80.1 million and had issued $78.4 million in credit guarantees of
customer financing to purchase equipment.




We maintain defined benefit pension plans for some of our operations in the
United States
and Europe. It is our policy to fund the retirement plans at the
minimum level required by applicable regulations. In 2019, we made cash
contributions and payments to the retirement plans of $8.5 million, and we
estimate that our retirement plan contributions will be approximately $9 million
in 2020. Changes in market conditions, changes in our funding levels or actions
by governmental agencies may result in accelerated funding requirements in
future periods.


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OFF-BALANCE SHEET ARRANGEMENTS



Guarantees




Our customers, from time to time, fund the acquisition of our equipment through
third-party finance companies. In certain instances, we may provide a credit
guarantee to the finance company by which we agree to make payments to the
finance company should the customer default. Our maximum liability is generally
limited to our customer's remaining payments due to the finance company at the
time of default. In the event of a customer default, we are generally able to
recover and dispose of the equipment at a minimal loss, if any, to us.

We issue, from time to time, residual value guarantees under sales-type leases.
A residual value guarantee involves a guarantee that a piece of equipment will
have a minimum fair market value at a future date if certain conditions are met
by the customer. We are generally able to mitigate some risk associated with
these guarantees because maturity of guarantees is staggered, which limits the
amount of used equipment entering the marketplace at any one time.

There can be no assurance our historical experience in used equipment markets
will be indicative of future results. Our ability to recover losses from our
guarantees may be affected by economic conditions in used equipment markets at
the time of loss.


See Note O - "Litigation and Contingencies" in the Notes to the Consolidated
Financial Statements for further information regarding our guarantees.



CONTINGENCIES AND UNCERTAINTIES



Foreign Exchange and Interest Rate Risk




Our products are sold in over 100 countries around the world and, accordingly,
our revenues are generated in foreign currencies, while costs associated with
those revenues are only partly incurred in the same currencies. We enter 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 we are exposed are the
Euro, British Pound and Australian Dollar. See Risk Factor entitled, "We are
subject to currency fluctuations." in Part I, Item 1A. for further information
on our foreign exchange risk.

We manage exposure to interest rates by incurring a mix of indebtedness bearing
interest at both floating and fixed rates at inception and maintaining an
ongoing balance between floating and fixed rates on this mix of indebtedness
using interest rate swaps when necessary.

See Note J - "Derivative Financial Instruments" in the Notes to the Consolidated
Financial Statements for further information about our derivatives and Item 7A.
- "Quantitative and Qualitative Disclosures About Market Risk" for a discussion
of the impact that changes in foreign currency exchange rates and interest rates
may have on our financial performance.


Other




We are subject to a number of contingencies and uncertainties including, without
limitation, product liability claims, workers' compensation liability,
intellectual property litigation, self-insurance obligations, tax examinations,
guarantees, class action lawsuits and other matters. See Note O - "Litigation
and Contingencies" in the Notes to the Consolidated Financial Statements for
more information concerning contingencies and uncertainties, including our
proceedings involving a claim in Brazil regarding payment of ICMS tax. We are
insured for product liability, general liability, workers' compensation,
employer's liability, property damage, intellectual property and other insurable
risks required by law or contract with retained liability to us or deductibles.
Many of the exposures are unasserted or proceedings are at a preliminary stage,
and it is not presently possible to estimate the amount or timing of any
liability. However, we do not believe these contingencies and uncertainties
will, individually or in aggregate, have a material adverse effect on our
operations. For contingencies and uncertainties other than income taxes, when it
is probable that a loss will be incurred and possible to make reasonable
estimates of our liability with respect to such matters, a provision is recorded
for the amount of such estimate or for the minimum amount of a range of
estimates when it is not possible to estimate the amount within the range that
is most likely to occur.


See Part I, Item 1. - "Business - Safety and Environmental Considerations" for
additional discussion of safety and environmental items.



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