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Executives

Ron DeFeo - Chairman and CEO

Phil Widman - SVP and CFO

Tom Riordan - President and COO

Rick Nichols - President - Terex Cranes

Eric Nielsen - President - Terex Materials Processing & Mining

Laura Kiernan - Director, IR

Tim Ford - President - Terex Aerial Work Platforms

Analysts

David Raso - ISI Group

Meredith Taylor - Barclays Capital

Charles Brady - BMO Capital Markets

Steve Barger - KeyBanc Capital

Jamie Cook - Credit Suisse

Andrew Casey - Wachovia Capital Markets

Ted Grace - Goldman Sachs

Robert Wertheimer - Morgan Stanley

Ann Duignan - JP Morgan

Alex Blanton - Ingalls & Snyder

Joel Tiss - Buckingham Research Group

Robert McCarthy - Robert W. Baird

Charlie Rentschler - Wall Street Access

Andrew Obin - Banc of America/Merrill Lynch

Terex Corp. (TEX) Q4 2008 Earnings Call February 12, 2009 8:30 AM ET

Operator

Good morning. My name is, Brandy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Terex Fourth Quarter and Year-End 2008 Earnings Release Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions). Thank you.

I would now like to turn the call over to Ron DeFeo, Chairman and Chief Executive Officer. Please go ahead, sir.

Ron DeFeo

Thank you. Good morning, ladies and gentlemen, and thank you for your interest in Terex Corporation today. On the call with me this morning is Phil Widman, our Senior VP and Chief Financial Officer; Tom Riordan, the company's President and Chief Operating Officer; and Laura Kiernan, Director of Investor Relations.

Also participating on the call and available for your questions will be Rick Nichols of the Crane segment; Tim Ford for Aerial Work Platforms; Eric Nielsen for Materials Processing and Mining; Bob Isaman for Construction; and Steve Filipov for the Developing Markets.

To accommodate our audiences in earlier time zones or anyone unable to listen, our replay is available shortly after the live call and can be accessed until Thursday, February 19 at 5 pm. To access the replay, look at our website or dial 1-800-642, international 1-706-645-9291. International ID conference number 81993582. The easiest is probably just to go to our website in the Investor Relations section.

I would like to begin with some opening commentary followed by Mr. Widman who will provide a more detail financial report, and Mr. Riordan who will discuss operations by segment. We will obviously open it up for questions. And during the Q&A period, I would like to ask that you have one question and a follow-up.

So, let me get started. The 2008 year was a watershed year for Terex in many respects. During the year, we faced many challenges, and as well enjoyed some pretty significant successes. In essence, we were able to realize that was a potential on our business, it was a pretty incredible first half. And like many industrial businesses began a rapid slide during the second half that accelerated as the year ended.

It's now clear that the 12 by 12 in '10 goals, $12 billion in revenue with 12% margins by 2010 will not be achieved without an unlikely miracle turnaround. We confirmed as we reflect back on the year, that our stronger businesses of Aerial Work Platform, Cranes, Materials Processing and Mining could and would produce excellent returns. We also realized that our weaker businesses of Construction and Roadbuilding were not yet strong enough and need much more work flow strategically and operationally.

The current environment is one of a global slowdown, where the product and geographic diversity we have built into Terex has little ability to mitigate the market pressure we are experiencing at the moment.

Consequently, we are just going to continue managing Terex for cash generation over the next month. As we indicated we would at the end of the third quarter conference call.

We will monitor markets and trends to capitalize on opportunities as they present themselves or as we can make them happen. We are not providing income guidance at this point in time as our confidence is low and some of the key areas that drive guidance, we have a wide variety of revenue expectations, but generally more orders are being canceled than we anticipated in future orders or a battle.

In the pricing area, we are attempting to be disciplined but we also realize the losing share is not something we can tolerate in our stronger businesses. And then the weaker ones we will do what it takes to convert inventory to cash. From a material cost perspective I know you realize the rollercoaster we have been on relative to input costs.

Just last year, we were experiencing near 70% to 80% increases in steel, and while the trends here would be positive at this moment, there is inventory in the system that needs to be work through at our shops and with our suppliers.

Lastly, we have reduced employment by over 20% compared with June of year ago and we still have a ways to go in our review. A couple of months back, we froze the salaries for 2009 of our top 500 leaders and announced that the long-term compensation programs going forward will be reduced by 10% to 50%. We announced planning of salary freeze for virtually all the salary workforce about a certain pay level depending upon country and local agreements. Further changes may also be implemented. So in an environment like this what are the strengths that we can build upon and further why should you as an investor have confidence in Terex Corporation and our prospectus, I would like to address that. We believe because we have the financial strength to survive and an ability to overcome adversity.

We have seen adversity before. We have inventory in our company that we will monetize this cash will be crucial to weathering this storm. Our Financial Services group utilizes capital from financial partners to fund equipment purchases, so we do not have to fund retail business on our balance sheet. We continue to be able to find financing for our customers that have good projects. We are a company built around the high yield markets and understand leverage. And lastly, we will consider any and all strategic options in order to exit this period and begin a recovery with a more competitive franchise.

This attitude we feel is unusual among our companies and our industry, and we think a differentiator for Terex. Also we believe that infrastructure spending is going to be a major investment area not just for the United States but globally. We think our products are well positioned for this future opportunity. We feel we can build a better business in these challenging times like we have done before. We realized that our business will be at its worse period when the financial markets begin to improve.

It is during these inflection points when value can be created. We expect to be reaching for opportunities although we cannot predict success. We would not exist today without these periods in the past, so while we do not embrace this uncertain period, we do seek to take advantage of it.

The lack of stability and predictability of our current environment is more problematic today than I have seen it in the past, so this needs to improve before any actions can be taken.

Nevertheless, we think there will be a time in 2009, when progress will be made. We do expect in 2009 to be a profitable company with a first half weaker than the back half. I thank you for your support in the past and I ask for it in the future.

Now I would like to turn it over to Phil, who will cover 2008 and the current business climate in some more detail. Phil?

Phil Widman

Thanks, Ron, and good morning. Before I begin, let me remind you that we will discuss expectations of future events and performance of the company on today's call and that such expectations are subject to uncertainties related to macroeconomic factors, interest rates, governmental actions and other factors.

A fuller description of the factors that affect future expectations is included in the press release and our other public filings. I encourage you to read that.

We generated $290 million of cash from operating activities in the fourth quarter as we battled with the deteriorating economic conditions. This was achieved with heightened managed focus on reducing our incoming material, workforce and production levels while managing our customer receivables to secure our positions and minimize our risk.

We appreciate the assistance of our strategic suppliers to work proactively with us in rescheduling to the expected demand. We continue to effectively finance our equipment sales through the use of financial partners while minimizing our exposure unlike some of our competitors. We ended the year with $3 million of financial services assets on our balance sheet it is all about managing for cash.

From a liquidity standpoint we ended the year with $484 million of cash and cash equivalents. And availability on our revolver of $583 million and we are in compliance with all of our covenants. On a perspective basis, we are in discussion with our banks to provide relief to our fixed charge ratio given the expected earnings decline in relation to the carryover of fixed charges, which include interest, cash taxes, share repurchases and capital expenditures from the last 12 months.

Given we suspended the year repurchases in August of last year, this will become less of factor after the second quarter of this year. Our net leverage ratio is well within required levels given our continued positive liquidity position. We expect to be successful in resolving this in the first quarter.

Return on invested capital of 19.2% excluding the impact of the goodwill impairment was less than our targeted 23% for the year as we were unable to reduce our inventory quickly enough in line with the dramatic drop in sales volume as well as the declining profitability for the steep economic decline experienced in the second half of the year.

Business climate changes quickly in our industry, we were up 22% in net sales and up 29% in operating profit in the first half of 2008 compared to the 2007 period. Although second half of net sales declined by 4% and operating profit by 50% for the total company. As Cranes and Mining were able to somewhat buffer the accelerating sales declines in the other businesses, while we incurred costs besides our resources to the expected demand. Material input cost also freeze significantly in the second half. We responded quickly to these items to focus on reducing cost and the flow of in bound inventory and on increasing cash generation.

Let me switch to our non-cash item. As indicated in our third quarter 10-Q we disclosed the potential risk of goodwill impairment related to our Construction and Roadbuilding businesses. Given the continued decline in customer demand and continuation of slow market conditions, our annual impairment test in the fourth quarter indicated the need to fully impaire the goodwill in the Construction, Roadbuilding and Utilities businesses. The pre-tax charge was approximately $460 million or $4.84 per share in the fourth quarter.

The share count and effective tax rate waiting implies a full-year impact of $4.60 per share. After finalizing our review we determined that no identifiable asset impairments other than goodwill will require. Excluding the impact of the goodwill impairment our income from operations for the fourth quarter declined by approximately $172 million. The high level variance analysis indicates material cost inputs increased $68 million most significantly in AWP, Cranes and Material Processing and Mining.

The combined volume reduction and price impact on margin was $96 million. We incurred $22 million mainly for the impact of adjusting our production levels, and other items that too a positive $14 million impact over the prior year.

For the Construction segment, the decrease in income from operations excluding the goodwill impairment is approximately $79 million over the prior year quarter to a loss of $67 million in the current period. The main components of this decrease include volume and price impact on margin of approximately $39 million, material cost inputs increased $9 million, inventory and contract charges of approximately $7 million were incurred and we have a negative transactional foreign currency impact of approximately $10 million. Production, absorption, restructuring and other costs were approximately $14 million.

Last week we announced that we expected that our earnings per share for 2008 would be 5% below the low end of the previous guidance of $5.69 to $5.79 per share. Excluding the goodwill impairment and cost associated with the production level reduction, or approximately $5.41 per share.

Comparable actual results were $5.50 per share, due mainly to the finalization of our tax calculations. As we look to our outlook for 2009, we were tempered by the order rate in the fourth quarter, and also with the reality that our Cranes and Mining businesses were not immune to the effects of the economic crisis.

While order rates continue to soften in AWP, Construction and Material Processing, the Cranes business in particular in the tower and rough terrain cranes product lines experienced significant reductions.

A substantial percentage of the un-priced crane backlog for 2009 failed to materialize in the confirmed orders. With that backdrop, we expect our 2009 net sales to be 30% to 35% below 2008 levels. The translational effect of foreign currency exchange rate changes accounts for approximately 13% of the decline. So, this implies volume is down roughly 20% year-over-year. We expect 2009 net sales in AWP including the utility products to decline by 35% to 45%.

With the remaining segments of Construction including Roadbuilding, Cranes and Material Processing and Mining each declined 25% to 35%. We expect the cash flow in 2009 will be driven largely by working capital improvement. Particularly inventory level as overall volume declines and we drive our production more inline with demand. A target of 23% of fourth quarter annualized net sales in working capital at the end of 2009 imply the cash flow generation of greater than $500 million, excluding the currency impact from this item alone.

With that I will turn it over to Tom to discuss end markets and operating environment.

Tom Riordan

Thanks Phil, and good morning everyone. I will cover the current views of end markets and business conditions by segment and discuss how we are changing Terex to adapt to the current business climate.

It all starts with one simple approach, we are managing our business for cash, most of our businesses are experiencing continue reductions in incoming orders with the orders in the backlog being canceled or deferred. We are very focused that each of our businesses and managing our sales, inventory and operations planning process to quickly adjust our bill and material ordering in line with this rapidly changing market.

We are aggressively working with our key suppliers, now I reduced material requirements by canceling or delaying orders, but also reducing the costs of parts and material. Most of our steel and other commodity pricing is reduced from recent peak level but we are still experiencing higher material cost than last year. We will not see a significant improvement in cost and so later this year based on material already in the pipeline. The rapid downturn it schedules to our suppliers along with material pricing negotiations has been a clear challenge and working with our supply base. That said, we are pleased with the corporation we are seeing from the majority of our supplier partners.

The marketplace for each of our business is somewhat different, but there was a common approach we are taking throughout Terex. Where we have finished goods inventory we are working aggressively to sale to end customers making sure we are shutting or slowing down our factories faster than the sales rate decline, so inventory continues to drop. We are focused on improving our retail financing not wholesale financing. Working with our Terex financial services team and outside financing partners, so a customer who have good business prospectus during this credit crunch have funding.

We are closely monitoring inventory and receivables in our various dealer rail channels and working to reduce total channel inventory in line with the business levels that we are experiencing. Many of our competitors have much more extensive inventory builds than we do and are also reducing pricing along with the extending terms. As a general rule we are not extending terms and certainly not where we could jeopardize the quality of our receivables or customers' credit position. That said, we are aggressively working to maintain share.

These competing priorities require a clear communication and close scrutiny of any potential deal. The basic message here as we will capitalize and what business there is, manage our company for cash and we will not transfer an inventory problem from us to our customers.

Let me go through each of the segments.

Our Aerial Work Platform business was down significantly in the quarter nearly by half compared to Q4 2007. With a flexible team and lean business processes we have, we managed to significantly reduce build schedules and cost quickly resulting in a slight loss for the quarter. If we exclude restructuring actions, we were slightly profitable. AWP continued to generate cash and inventory finished 2008 at its lowest level since 2006.

Receivables are down dramatically from a year ago with DSOs about equivalent. We are very focused in defending our share and not extending terms to do it. In general, we saw AWP rental rates and utilization in Q4 down 5% or less for most customers, since then, however, we are seeing continued declines in rates in utilization with fleet sizes continuing to be reduced.

In many markets, our customers have limited visibility to future project work. Our European customers are generally more pessimistic for the near-term prospects than our US customers.

Our Construction business was down in Q4 significantly driven by markets in Europe, Middle East, Russia and elsewhere being challenged with credit availability, energy price [reps] along with commercial, industrial and infrastructure project delays.

Revenues were down, 37% along with a significant operating loss from volume, material cost and restructuring actions. Most of our restructuring and staff productions in the US and UK have been announced and are taking effect and we continue to work through the co-determination process with our [works comps] in Germany.

As we are not vertically integrated, we are already seeing inventory reducing from Q3 levels. This team is very focused on our sales, inventory and operations planning processes as I described above. Product and overhead cost reductions and managing for cash by appropriate pricing levels along with retail focused financing in conjunction with Terex Financial Services.

DSOs have improved by 6 days in the past quarter, by active management including weekly cash calls or one we have been very engaged with channel inventories.

Trends on residual pricing for Terex products appeared to be in line with the market. One bright spot in the quarter was the performance of our Cranes business. Excluding foreign exchange revenue was up approximately 16% with margins approaching 14%.

However, the warning signs we discussed in last quarter's call have turned into order cancellations in deferments for our smaller capacity cranes. Our tower crane business while a small part of our portfolio was the first to drop off. We have since seen drops in orders along with increase cancellation per truck cranes and recently with rough terrain crane.

Orders in backlog for the larger [all terrain] and crawler crane to be consistent to-date, but we are watching carefully. We currently expect these larger capacity cranes that are produced in Germany to be steady for the first half of the year. We have watched new programs with Terex Financial Services with our Cranes business with good success, offering retail-based financing for end customers who are unable to find credit despite work being available.

Market utilization rates and rail pricing are down with residuals generally holding steady. Our Material Processing and Mining segment has been challenged recently mainly with the Material Processing market. Overall, net sales for the Mining business in Q4 were up slightly and Material Processing down significantly.

Based on aggressive actions to reduce build rates in line with reduced orders, material processing dealer inventory is at reasonable level. Networking capital from Material Processing reduced in the quarter. We are taking structural action to reduce the overhead and capacity in this business to match what we expect the market to be and again focused on defending our market shares.

Our Mining business have seen some cancellation or requested delays or product delivery, particularly in our [grill] products which is our smallest product line. Incoming order rates have slowed. Similar to Cranes we expect the shovel and truck business to be reasonably stable in the first half of this year. While there have been numerous headlines in the media on capital spending reductions in this marketplace, our current mining backlog has reduced about 10% from prior year levels. The Roadbuilding Utility segment had a solid quarter for this environment with revenue about flat and profit neutral.

As we said in Q3 our US business remains challenged but our South American business doing very well. We are anticipating a noticeable recovery in this segment from the stimulus package recently passed in Congress. As previously announced these two businesses will be consolidated with other segments in 2009 with the Utilities business joining the AWP segment and the Roadbuilding business joining our Construction segment.

Our business in emerging markets has also slowed in most areas, although, Latin America is reasonably solid. Russia and India have experienced dramatic slow down and even China has moderated. Our S&P project still in early stages of ramp up such as the Panama Canal expansion project, private development, and some public projects has stalled in many geographies.

On an overall Terex basis, we continue to review all of our business operations for cost reduction and cash generation opportunities. All capital expenditure have been closely controlled and cash flow and customer receivable positions are being closely monitored in each business.

As I stated earlier we are clearly running the business for cash. I believe we have an appropriate balance for short-term focus on results without jeopardizing the future. Despite the rapid downturn in many of our businesses, we have reduced working capital meaningfully in Q4 over $200 million. This took place even as the total Terex revenue dropped by over 18%, meaning we took production down more than this. This clearly will continue in 2009 until we have orders, inventory and production back to equilibrium. Unfortunately, this lower base of business requires less people. This downturn is already resulting over 5,000 Terex jobs lost or scheduled to be reduced just in June 2008. That number will likely increase in the months ahead.

That said, I am very thankful we have a skilled and dedicated global team at Terex that’s working hard to satisfy our customers and improve our business.

At this point, I will turn it back to Ron.

Ron DeFeo

Thanks Tom. I think you can see from Tom and Phil's commentary that there is a lot of activity underway and we are managing in the near-term solid good cash. The bottom-line is not nearly as important as positioning the company properly. That comes from years of experience and managing in this industry, and the key to managing at this point in time is to ensure that equilibrium is achieved between our manufacturing and selling processes.

As we get greater clarity on our existing position, we certainly will share it with you, and look forward to providing a more detailed guidance in future conference calls.

Now I would like to open it up for your questions.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of David Raso with ISI Group.

David Raso - ISI Group

Good morning. Quick question about the comment about staying profitable in '09, it looks like roughly, if your decremental margins on the midpoint of your revenue guidance, you said your decrementals are 20%, that implies EPS $1.25 to $1.35. If there are 25% decrementals, it's more like $0.10, $0.20 of earnings, and then beyond that we are talking about it lot. So can we read just from doing the math that you expect your decrementals to be 25% or better, is that the way to think about it, or is there something about, thinking the decrementals at maybe even a higher rate, but then the headcount reduction and so forth, you can quantify it $30 million or $40 million benefit, can you take us through that thought process?

Ron DeFeo

Well, David, I think trying to come up with a decremental, decremental margin at this point in time is difficult as you know, because you have a lot of moving pieces. One of the things that we are feeling reasonably good about is that, our overall gross profits across the company seems to be reasonably strong and staying pretty much as we expected.

I think we are handicapping internally is a variety of cross currents, changes in material costs with certain inflection points at certain times that will be dependent upon how we use our material.

Our ability to take headcounts down not just directly, but indirectly will have an important bearing on that. The fact that we have said and I have said that, we expect to be profitable, obviously assumes that your analysis if you do it that way will be above the breakeven line.

David Raso - ISI Group

Okay. And going through the last downturn, yes you went into it with a higher net debt-to-capital ratio, and you still ended up being more a net buyer from Genie in particular, Schaeff, Demag, so forth. Your comment earlier about paraphrase will entertain all strategies and avenues, I believe you said, can you elaborate a little bit more on that? And the idea of buyer-seller, but also you worked into the idea that you said you are running the business for cash. Can you take us through the bigger picture thought process there?

Ron DeFeo

Sure, well clearly with so much uncertainty at this moment in time, managing for cash at least from our point of view appears to be absolutely the right thing to do. We have the potential to generate significant amounts of cash just from the inventory on our own balance sheet. So, doing that significantly improves our flexibility. We do think that the financial markets will improve somewhat as the year progresses exactly when and how, we obviously don’t know but we plan to pay close attention to that but we also believe our existing businesses our industry will lag that somewhat.

Opportunities get created in that environment, I would also say that we are going to look at our business critically, we are going to look at various parts of our company critically, I would not expect to own all of the pieces of the business that we own today, how much and exactly what I am not going to say and I can't predict, but obviously we want to pair our product portfolio. So we strengthen ourselves, add to our portfolio where we think it strategically make sense and where financially there are transactions that are doable. So, that when the markets do improve whether that be later this year or in 2010 or even later, I doubt if its later but when the markets do improve we are going to have a much better to be in a much better position. And I don’t expect to over lever ourselves from the process.

David Raso - ISI Group

Okay. Thank you very much.

Operator

Your next question comes from the line of Meredith Taylor with Barclays Capital.

Meredith Taylor - Barclays Capital

Hi, good morning.

Ron DeFeo

Good morning, Meredith.

Meredith Taylor - Barclays Capital

I am wondering, if you can talk a little bit about the backlog, in terms of what you have done to test the remaining close to $3 billion backlog. I am particularly wondering about the Cranes and Mining business. I mean I know you talked about inflations out of this $650 million shadow backlog, but what is your outlook for these businesses imply with respect to additional cancellations out of the backlog?

Ron DeFeo

Okay, Meredith. I am going to turn that over to first Rick Nichols of our Crane business and Eric Nielsen for our Mining segment, but before I do that just kind of make an overall comments saying that we have seen cancellations in both of these backlogs, but I think both businesses have been very aggressively going after each and every one of the orders to ensure that they are solid orders. So, I think as we sit here today, we had a reasonable degree of confidence in the backlogs. Rick?

Rick Nichols

Yes Meredith. I think from a Cranes perspective certainly we are flat year-on-year, but we have seen significant decline in our tower crane business which is down close to 70% from a backlog standpoint. Some weakening in rough-terrain crane business and certainly truck cranes are difficult at this time, but to really offset that we are out aggressively working with our customers and our dealers to ensure and understand that the backlog are solid, ensuring that they have financing and financing capability and helping them to get that if they don’t to shore up the backlog.

Ron DeFeo

One of the reassuring things in the crane segment is the used equipment prices are still reasonably strong and that's always a positive indicator in the business. And further in the crane segment and as Rick knows I just came back from visiting our German operations which houses a vast majority of that backlog a lot of the cranes in the backlog are of our larger size cranes for substantial infrastructure projects globally that are already funded and are already underway. So, we don’t expect that. That’s what gives us the confidence to have said, we have pretty good visibility for at least the first half in the crane backlog if not for a little bit longer. Eric?

Eric Nielsen

Sure. Meredith, on the mining side it's pretty much it's a similar story where by maintaining close connections with our customer base, which typically has two-thirds of accounting from the major players out there in the mining world. We were able to understand what their current plans are as well as their future plans. And it's through that constant dialog with the customers we feel we have a good handle on the backlog. Now, clearly what our customers do will influence us. But as their situations change, both up and down, we feel that we are in tune with it and pull that into our sales, inventory and operations planning process to make sure that our production schedule is going forward and our material purchases are in line with the expected demand. So, as best we can, we feel that we are in balance with both the current and future needs.

Ron DeFeo

We also have a pretty solid level of orders in mining. But I would say that there is nervousness in the mining community today about what they need and when they need it. At the same time, there is also nervousness in the mining community that a significant improvement in commodity prices will cause them to want everything all at once. So, I think it’s a little bit of a ying than yang situation in the mining industry, because they were caught not having enough capacity when commodity prices strike and some will want to get out in front of that. So, our customers are both hesitant, at the same time quite positive just looking for that indication of when commodity prices will begin to improve.

Meredith Taylor - Barclays Capital

That's helpful. And then just as a quick follow-up, as you are going back to the customers, ensure that the backlog is solid. How much are you revisiting the issue of price, and where specifically are you giving back more dramatically than in other businesses?

Ron DeFeo

Generally, we are not revisiting issue of price, I mean I am sure we get an occasional request here or there, but generally not. If we had a steel surcharge that would be the first thing to have gone.

Meredith Taylor - Barclays Capital

Okay, thanks so much.

Operator

Your next question comes from the line of Charlie Brady with BMO Capital Markets.

Charles Brady - BMO Capital Markets

Thanks, good morning. With respect to the debt covenant trigger, can you just help me understand some of the clarity. I know this cross default, if it's falling on the credit with the other fixed rate debt. But I guess I am trying to understand that if you have to seek or get a waiver, and if some subsequent bump in the interest rate to obtain that waiver, that consent, do that affect any of the interest rate on the other debt as well, or is it just constrained to the amount you have under that credit agreement.

Ron DeFeo

Just constrain amount under the credit agreement, which is $200 million.

Phil Widman

Yes, $200 million of term debt roughly and $700 million revolver.

Charles Brady - BMO Capital Markets

So, you have $200 million term on that credit agreement. Of the $700 million, you have got how much drawn on that?

Ron DeFeo

We had $583 of availability at the end of the year.

Laura Kiernan

35.

Ron DeFeo

It was 35 drawn at the end of the year and letters of credit make up the difference related to that.

Charles Brady - BMO Capital Markets

Okay. So then again, the interest rate expense exposure is limited just to what you got on the revolver?

Ron DeFeo

And the term debt.

Charles Brady - BMO Capital Markets

And the total of the $200 million term on the revolver as well?

Ron DeFeo

Right, but again the max case would be $700 on revolver and the 200 on the term. But again we haven’t drawn that much.

Charles Brady - BMO Capital Markets

Okay. And just back to one of the previous questions in terms of your comment on profitability at '09, do you expect to be profitable in all quarters in '09? I guess the sense maybe that’s not the case?

Ron DeFeo

We are not going to provide detail on that Charlie, its hard for us to say exactly. Again our focuses going to be to manage for cash, because managing for cash because managing for cash gives us the greatest uptick as we rebalanced production and revenue, okay. It gives us the greatest balance to get more positive quickly, one of the problems in our industry is that people keep their production levels up and push inventory into the channel as opposed to dramatically lowering their production levels and rebalancing it. Okay, what we are trying to do here is to minimize the pain despite the fact that we are in a very painful period, because if we don’t, it will be much more protracted.

Charles Brady - BMO Capital Markets

Thanks, I will get back in the queue.

Operator

Your next question comes from the line of Steve Barger with KeyBanc Capital.

Steve Barger - KeyBanc Capital

Good morning.

Ron DeFeo

Good morning, Steve.

Steve Barger - KeyBanc Capital

As you go through this negotiation relative to the fixed charge ratio, do you expect to get excessively penalized by fees or interest rate increases for historical discretionary decisions like the buyback.

Phil Widman

Steve, its Phil, again I am not going to comment on specifics of our discussions with the bank group. But I think its very strong group and we have always worked well together, I don’t expect anything totally unusual and resolving this.

Steve Barger - KeyBanc Capital

Okay. And you have seen this coming for more than few weeks potentially. Are the negotiations consensus, now that you couldn’t get this way before you released your earnings today? [Was it historic]?

Ron DeFeo

No, I am not going to comment on specific negotiations other than as we are putting together, our projections for this year and certainly the fact of the trailing fixed charges that I have discussed we saw that we needed some relief again I am not going to comment to the specific discussions right now.

Steve Barger - KeyBanc Capital

Okay.

Ron DeFeo

And I guess the other point Steve is again they are not contentious. We have a good group and they are not contentious and I would expect to get this complete within a relative short period of time.

Steve Barger - KeyBanc Capital

Okay, perfect. And then a follow-up. The expectation for the revenue decline of 30% to 35% is just I am thinking about the cadence, is that down say 60% in the first-half and 20% in the back-half or how are you kind of thinking about the cadence of revenue throughout the year?

Ron DeFeo

Well I think our feeling is first of all cranes is a currency. The currency we think it got about 13% negative impact. And over the years currency went up gradually, but because of this current economic situation the currency changed dramatically and very quickly so it has a pretty meaningful short-term snap to our business. As we look at the 2009 outlook each segment is a little bit different. I would expect our Aerial Work Platform business to have a weak first quarter. The normal second quarter is the strongest quarter of the year for AWP and then I would expect it to have probably a slight not a very strong back-half but probably similar to 2008. Cranes on the other hand may have a stronger first half of the year and potentially a weaker back half of the year.

Mining maybe more even first half, second half. Our materials processing is likely to be weaker in the first half, because we are making surely don’t put excess inventory in the distribution channel. We have announced the factory closure and we expect that business will respond positively to economic stimulus. So we expect the second half will probably be a little bit better than the first half.

Construction business, probably is weak in the first half of the year mainly because Europe is having a very tough time. And so as I net all that out, that’s how we try to put the revenue outlook together. Phil do you want to say anything?

Phil Widman

No, I think the other comment I would make is obviously our first half of '08 was quite a bit stronger than the second half. So from a percentage stand point it will show declines relative to the second half of '09 as I guess what I am going to expect.

Steve Barger - KeyBanc Capital

Alright that’s good color, thanks.

Operator

Your next question comes from the line of Jamie Cook with Credit Suisse.

Jamie Cook - Credit Suisse

Hi, good morning.

Ron DeFeo

Good morning, Jamie.

Jamie Cook - Credit Suisse

My first question, and David also tried to ask the question, but again on the assumptions that you guys being profitable in 2009. Can you walk me through based on the cost cutting initiatives that you have taken today in terms of reducing headcount, higher increases, limiting salaries. Based on the actions you have taken today and what type of savings can we expect in 2009 based on those actions.

And then my second question is, are there other actions that you are contemplating which [thought] yet, but that could potentially happen that further you need, are there other potential actions, you have to take that we don’t know about yet in order to remain profitable.

Ron DeFeo

The second part of you question, I would say is no.

Jamie Cook - Credit Suisse

Okay.

Ron DeFeo

And, relative to the first part, although on the second part of your question the only thing that would happen is, it would enhance our profitability. But it is not in my assumption. There is nothing in my assumption, that of being profitable that requires dramatic change in our current business portfolio.

With regard to your first question, it's a very had question for us to answer which is one of the reasons why we are not providing precise guidance, because of the 5000 people that are now out of the company, probably the vast majority of them were production oriented people. And the production oriented people actually, they add value, immediate value and their hours are absorbed in our costs. So, it's easy to say we took 5000 people out at an average cost of $50,000 a person and that’s the amount of incremental cost reduction, but that does not work quite that directly. Okay.

And we were looking at material cost increases and negative purchase price variances pretty dramatically in 2008 and we expect that to change pretty significantly in 2009. So, those are the cross currents that are underway, I think our feeling and the reason we make that comment is because we had a very strong view of where we thought the profit performance would be as recently as December. And when we went back in and then did our re-forecast to that, we made some severe cuts in production that will cause some short-term disruption, but nevertheless, still leave us with at a place where we think it will be profitable, reasonably profitable, but it's hard to forecast right now.

So, I know it would be better if I could tell you exactly what the headcounts and how everything would work out, but that's probably the best I can do at this point in time.

Phil Widman

The only thing I would add, Jamie, is that we are kind of looking at two prong approach here fundamentally. One as Ron alluded to kind of we recall as the standard reduction in force based on volume reductions, and the second piece is it's a more structural change as it relates to plant closings, plant curtailments and product-line relocation and SG&A reduction, they must take little more time and obviously there are various stages of getting announced and executed again. So, I think there has been very good progress on the reduction of force side and we have got more work to do on the structural cost side.

Jamie Cook - Credit Suisse

Then just bigger picture. I just want to make sure I understand your economic assumptions behind your remaining profitable in 2009. So, bigger picture, do we expect the stimulus in the US or China to begin help in 2009, I just want to understand bigger picture, did you made a commentary you expect the financial markets to improve in the back half of the year, I just want to make sure I understand your economic assumptions behind your remaining profitable?

Ron DeFeo

Yes, I feel like as we are in this current economic crisis, things will improve from here as appose to things continuing to deteriorate from here just as a general comment. I think the infrastructure investment is a good start in the United States and we feel very positive about that. I would like to see it actually work its way through to real project getting started before I jump on the bandwagon. And such thing is going to help our business, but that has the potential to help our business quite meaningfully, if it can take the fleets of Aerial Work Platforms that are currently less utilized today than they were before. And put them back to working, give our customers some greater cash flow so that they can begin to purchase and manage their fleet better.

And that could happen as early as the later part of this year, although, we are really not banking on that, okay. But I am also not banking on a depression going from here to dramatically worse economic position.

Jamie Cook - Credit Suisse

And then my last question strategically Ron, when I think of the Terex as it exist today you always have a planned infrastructure, but your diversification was a function of early made in sort of late cycle market that counter-balance one other. As you think of the company moving forward, should I think of Terex moving out of it's existing sort of box and thinking well maybe we need relative to other companies your service after-market are recurring, business stream isn’t as great as I would say other companies are. What I think you moving outside of infrastructure and in another market. I am just trying to think of how broadly you are thinking about changing Terex as existing mix of business?

Ron DeFeo

I think that's an open question for us, Jamie. I think generally we are machinery company and focused on this industry, but we also has done a decent job of finding assets where aggressive management in the machinery and assembly world where value can be created. So, I think it's a little early to start speculating. But as time evolves and the strength and cash flow generation that we anticipate happens. We will open our eyes a little bit to options.

Jamie Cook - Credit Suisse

Thanks. I will get back in queue.

Operator

Your next question comes from the line of Andy Casey with Wachovia Capital Markets.

Andrew Casey - Wachovia Capital Markets

Thanks. Good morning.

Ron DeFeo

Good morning, Andy.

Andrew Casey - Wachovia Capital Markets

Question on the structural cost side, it kind of ducktails with Jamie's question. Are you assuming that the downturn is multi-year because when looking at the SG&A line down 4% versus 20% revenue decline in the quarter? There is probably some corporate staffing initiatives, global expansion in some segment, and then maybe some pricing to maintain market share, contributing to the absolute level, but going forward, how quickly can that come down? And are you considering some reversal the corporate integration initiatives.

Phil Widman

Andy, its Phil. In terms of some of the initiatives, and lets just reiterating a couple of these. The supply management initiative obviously is been underway for a couple years, and certainly that’s even more important in the environment that we are in today, to manage the production inflows as well as our cost profile. So, I see that continuing. Certainly, we will look for efficiency, opportunities and ways to leverage the resources we have as we go forward.

In terms of the ERP implementation, we have reduced from 2008 levels the number of sites that we have planned to implement. So, we have taken some reductions year-over-year relevant to that to be realistic in terms of the current environment, we will continue to look at that to see where we can minimize cost while accelerating the impact of that, because that would provide better information to make better decisions about generating cash flow.

So, we look at things in terms of their cost payback as we look at that. With a smaller company, order of magnitude is down 30% to 35%, and we have to look at all our fixed costs in terms of where we can improve, what we are doing, and do it more efficiently.

We will look at what we can do to eliminate work and do it more efficiently, not necessarily just squeezing things.

Ron DeFeo

Right and to consolidate some activities. There is a number of activities that we are along the path, but not complete of being able to do that if we can push it to the completion point, we will be able to do activities more efficiently in the backroom processing of some of the things that we do as a company and do those well and do it in a lower cost. And that's what I would expect to continue. And I don't want to waste the investments we have already made to be perfectly [blunt and battered] I want to see them through the conclusion.

Andrew Casey - Wachovia Capital Markets

Okay, thanks. And then I don't know if you want to do this offline or not, but can you detail how that $0.24 of restructuring was allocated by segment?

Ron DeFeo

Since other may the similar question, let me just look at that for a second. The $21 million or $22 million, we are going to work off, Andy.

Andrew Casey - Wachovia Capital Markets

Okay.

Ron DeFeo

AWP order of magnitude in total is about $11 million, Construction about $5 million, Material Processing $1 million, Roadbuilding utility $2 million and then corporate had some as well $2 million to $3 million.

Andrew Casey - Wachovia Capital Markets

Okay. Thank you very much.

Operator

Your next question comes from the line of Ted Grace with Goldman Sachs.

Ted Grace - Goldman Sachs

Hi, just two quick questions. Realize a lot of moving parts in the cost savings program. But could you give us some sense for cadence throughout '09 maybe even ballpark, how you are going to expect to realize total benefits first half versus second half?

Ron DeFeo

In terms of costs reduction, Ted?

Ted Grace - Goldman Sachs

Just the benefit of cost savings.

Tom Riordan

This is Tom. As you can appreciate there is, as Phil detailed out, one-time cost for severance and other items they go with any kind of transitional change in overhead structure. So, we in general, I would say the cost is going to be more weighted towards the first half of the year, I think the benefits will, I am sorry Phil.

Phil Widman

I was just going to say that the reductions that we have already made which are very significant in '08 obviously, those are going to start January.

Tom Riordan

Maybe a better way of putting this as you are going to appreciate with the different businesses that are at different stages of the cycle here so to speak, where AWP, Construction and then Material Processing have been kind of sequentially moving down and it's just recently where we are getting in to concerns on the lower end of the cranes business and obviously very closely monitoring Mining.

So, we are going to have kind of cascade effect by business as we go forward here. I would suggest that most of the structural changes should be announced by Q3 timeframe and that depending upon exactly what comes out of that we would see cost effect later than that, meaning towards the tail-end of the year potentially depending upon what exactly is going to be executed. Partially because there is a wide variety of options as we continue to deep dive in some of our businesses in terms of pruning product lines, closing plants, relocating product lines and all of those things have got obviously different time and cost impacts that go along with them.

Ron DeFeo

But simplistically, first-half is headcount reduction and the second-half is going to be the structural stuff, and structural as well as material cost reductions. Because in the first half we are probably not yet going to benefit from some of the purchase price reductions that we have already negotiated, but we are working through the inventory. So general first half people reductions done but paying a higher cost, because of material costs and the structural not yet totally complete second-half material cost and structural should benefit. So that’s why I laid out things we are going to have a more profitable second half than first half generally.

Ted Grace - Goldman Sachs

Okay, that’s helpful. Thank you. And then secondly, we obviously all have been following the US stimulus pretty closely, a lot of countries in the EU have announced plans to pursue similar initiatives. I am just wondering if you can give us some color on how you are thinking about the bigger countries in Europe that will deal with Terex’s business there?

Ron DeFeo

Well the United Kingdom is certainly struggling much like the United States. And we don’t have much visibility on their progress at this stage. I think they are trying to encourage the same things that we are trying to encourage. We have a reasonable amount of business in the United Kingdom, between our number of factories and the amount of sales we have and Aerial Work Platforms, construction equipments, etcetera. So, I think that stimulus is going to help, I think the London Olympics is going to help, but I think it’s a struggle a little bit.

Also we have very strong presence in Germany, as the government announced a number of initiatives in Germany to stimulate their economy. I think we are like everybody expecting those to be positive but not necessarily banking on it and so we are managing our business almost like it’s going to have a little or no effect but the reality is that we hope it does.

Ted Grace - Goldman Sachs

Okay. And anything out of France or Spain that would be material?

Ron DeFeo

Well Spain is in sleep mode right now and I think likely to stay in sleep mode through this year, and maybe wake up in early next year. And I think that is the most severe and most depressed economy that we participate in Europe. And I think France is not so bad, but Spain is certainly causing us some challenges because we have a lot of inventory in Spain expecting that market would stay strong. So, we are having to move the inventory, we are having to sell it at discounted prices. We are having to take some back from customers, we have a variety of things that we are trying to do within the Spanish market which is costing us in the short-term.

Ted Grace - Goldman Sachs

Okay. And final question on the term debt and the bank debt. Any sense about how much of that is held by the banks, are there any non-bank entities whether it's a hedge fund or active respondents are holding any of that debt that are part of the negotiations?

Ron DeFeo

Again I would say, the top couple tiers of our bank group make up about in the mid 40% of total bank that we are talking about. And in the term that may be individuals there but not significant.

Ted Grace - Goldman Sachs

Okay, that’s helpful. Thank you.

Operator

Your next question comes from the line of Robert Wertheimer with Morgan Stanley.

Robert Wertheimer - Morgan Stanley

Hi, good morning, everybody. I wanted to ask questions on your inventory balance. And I guess what I am really trying to get out is just how much of it is easily to sell, easy to work down, either just to buying less on the incoming materials or through selling finished goods. And maybe the way to go, if you could split it between finished good, work in process and raw materials and sort of sense of how much of the working process, raw materials are destined for one division to really fundable and you can just use.

Ron DeFeo

Let me give you the numbers, maybe Tom can follow-up with some comments. Raw material, out of the $2.2 billion of net inventory, about $750 million is raw material; work in process is a little over $400 million. Replacement parts or spare parts supports about $440 million and finished goods between new and used is approximately $700 million. So, with the raw obviously we are looking at can we share that across our business with the finished goods that’s more unique to the individual products.

Phil Widman

And in general, I think the raw material, work in process is much more unique to a give product line. I think when we specify steel fabricated parts, etcetera; tends to be very much product unique. We don’t have a whole lot of multi-site productions, product lines we are not making large product range anywhere other than Germany as an example.

So the challenge becomes working through the individual business supply pipelines which we are doing reasonably effectively. As I mention there was a big focus on making sure we have got our planning in deferral of any incoming materials very tightly buttoned up. We have been I think pretty aggressive into very aggressive on various plat size depending upon the business in terms of curtailing production rates, recognizing, we still have material there, but trying to make sure that we are focused on selling existing finished goods. We don’t see or expect any, what I would call, long-term distressed assets out there. We are not building stuff that we don’t need and there is not purchasable by the end market customers that we have got today. So, we don’t see any fundamental issues other than the market slow downs we are seeing and making sure that we are working effectively with customers and moving through the channel.

Tom Riordan

Again, key message here is, we are not overloading, overburdening our customers with excess inventory with. For Ron's comment and Phil's comment we are being either extremely judicious to measure channel inventory and making sure we are not distressing dealers or rental channel partners here financially based on material we have got and go forcing through the channel.

Robert Wertheimer - Morgan Stanley

Now I understand. And my question is almost the other way, just how much cash can you easily generate and the profit impact to the (inaudible) and certainly depending on how much you have to discount to get it down as [your total] production. Are you able to split the inventories and not so fundable in the raw materials maybe do go directly up to one product. Can you be able to split it by segments? You mentioned some of that in the initial commentary.

Ron DeFeo

We are not going to break our inventory by segment per se. I think the challenge is again, how do we make sure overtime, we continue to mange this supply base effectively. There are a number of large suppliers that effectively equate to sizeable portion of our inventory, obviously our supply chain team is working on with engine suppliers, drive train and so on key components high value to make sure we are holding those at arms length and making sure we are not sitting on work in progress parts in order to move it through the channel.

Tom Riordan

I think the key thing is inventory turns.

Robert Wertheimer - Morgan Stanley

Okay.

Tom Riordan

We had inventory returns go down in 2008 and it hasn’t go down because we didn’t shut production down as rapidly as our sales went down, it's as simple as that. Overall, if we get inventory turns back up to where they were in 2007 it is a very large generation of cash. I don’t know Phil what it is that from 3.1 turns to 4.3?

Phil Widman

4.3 turns and I couch that as the target in terms of what we are looking at the end of this year is 23% of total working capital virtually all that is inventory. Production is greater than $0.5 billion.

Robert Wertheimer - Morgan Stanley

Couple of hundred million dollars greater than $0.5 billion, I don’t know if it's just you are using.

Phil Widman

I took out FX in that and again in terms of what number you use.

Tom Riordan

You may come up with that number. We are trying to kind of recognize that the calculation works that way. The practical implementation may not exactly end up that way. So, we are just trying to manage expectations here a little.

Robert Wertheimer - Morgan Stanley

I understood. Thank you, gentlemen.

Operator

Your next question comes from the line of Ann Duignan with JP Morgan.

Ann Duignan - JP Morgan

Hi, good morning everybody.

Ron DeFeo

Hi Ann.

Ann Duignan - JP Morgan

I sympathize Ron, and I'm sure it's not an easy environment to be in right now. I wanted to talk about pricing. You talked about converting inventories to cash at any price. You also mentioned that competitors are using pricing to liquidate inventories and may have a bigger problem because they came into the cycle with higher inventory levels. Can you talk me through, Ron, where exactly you are going to be most aggressive using pricing and then how will it show up in your financials? Is it more? Will you use financing? Will you use discounting? Will you lower lift prices? How should we monitor what's going on in the pricing line and also the impact on your competitors?

Ron DeFeo

Okay. Let me take that. Others can join in as when I'm finished. I want to mention I am going to go through several of our businesses Ann if its, okay?

Ann Duignan - JP Morgan

Yeah.

Ron DeFeo

Let me start first with our construction business. Our construction businesses is obviously the most stressed, and is the most stressed because the lion share of its business has been in Europe and it has gone from having a rather significant ramp up thinking that we were planning for substantial sales in Russia, the Middle East and a number of developing markets, and as well as the reasonably strong home market. To all of sudden, facing little or no home market business and clearly the markets of Russia and the Middle East drying up to nothing.

In that business, we make things like hydraulic excavators, loader backhoes and products where we have globally a relatively small market share. Okay, when you have a relatively small market share and you were dependent upon developing markets to help grow your business, and those markets have all of a sudden shutdown in order to liquidate inventory, you are going to have to be aggressive on pricing.

Okay, and because the fundamentals of what we do are not as well developed in that business as they are in others. And in that business, we have less to lose although we are losing money, but we have less to lose, because we need to absolutely convert that inventory into cash, because it's not going to get better with age. And that's another example of the Spanish market that I mentioned, because we have a relatively high amount of inventory in the Spanish market.

We are going to be aggressive there, so probably short-term profit pressure continues there, but a good, good cash decision for the company overall. If I can then turn to Aerial Work Platforms on the other hand, our Aerial Work Platforms business, we are being reasonably disciplined in.

Relative to our competitors, we are certainly not playing in the terms arena. We see some of our competitors offering extended terms, we think those have come back to haunt, some of our competitors we see are European competitor probably discounting pretty heavily on price. We will not lose market share on price, we do not think we need to drop prices dramatically. It may be that we have to make some pricing adjustment, but we think we can hold up the margins here reasonably well because what we are facing and what our main competitor is facing is pretty similar and we want the market to recover not to try and gain the last ounce of market share in that business, so that's bad business.

In the Crane business, it's a business really of a couple of worlds, there is the European big crane world, and then there is the American world, which is principally a truck and rough terrain crane world.

I think there is some good discipline in the American marketplace, but we have seen some price discounting and we do believe our competitors have more inventories than we do. And that in those marketplaces we are spending our money with financing. Okay, we are using financing dollars and low interest rates to try and encourage our customers or distribution to retail the inventory.

We do not believe we are going to have the same inventory push that our competitors have but believe we can hold the line. And in Europe with our bigger cranes we have pretty much specialty equipment line and there is very little pressure at least that I am seeing to take back prices because our customers really want the equipment still. So that's our Crane business.

Our materials processing business probably less about price and just more about managing the distribution channel inventory. I think there are reasonably well established pricing metrics in this business. We just do not want to have more inventory in the channel than they need we have to take some inventory back for fear of some of our dealers having financial difficulty, its been a relatively small amount, but that's how we have gone about the pricing area.

And in the mining area its really less about price and more about need and productivity and when you are in a bid it's about productivity and capacity. But once you get the bid that pretty much goes away. Did I miss a business? Okay, so hope I answered your question Ann, that's largely how we see it.

Ann Duignan - JP Morgan

Yeah, that's great color actually Ron, that's exactly what I was thinking about. How would you expect your competitors to react particularly in the Construction segment, I mean, I appreciate that you guys started to take cost a little bit sooner than some of your competitors and then Europe kind of fell off a cliff. I mean faster than anybody anticipated I understand how you are dealing with it.

Your competitors are most likely not going to want to give up market share either do you expect some more rational behavior in Europe in particular in construction equipment and how do you, you have been through these cycles before and sometimes it gets very ugly in Europe, how do you think this cycle will shape out?

Phil Widman

Yeah I think this cycle will be pretty ugly in Europe I do not think, you have got the dynamics for that to be it worked here you got, a company like [Lee-Bear] which is a privately owned company and present, it's a little bit different metrics and you have Fiat and CNH which is in different place. And I think Caterpillar will be reasonably disciplined in Europe.

Ron DeFeo

Volvo

Phil Widman

I think Volvo will be reasonably disciplined. And, well the Japanese are hard to handicap. The Japanese will be hard to handicap and it will be the Koreans that will attempt; it's a really huge price to get market share.

Ann Duignan - JP Morgan

Very helpful color I appreciate that and my follow-up question then is and back to the negotiations with your banks and I appreciate that it is an ongoing negotiation or discussion. Can you help us decide the worst case and the best case scenario in terms of the financial impact of, you renegotiate, we want to try and kind of model best case, worst case, if you can give us any, how it will depreciate that?

Phil Widman

In terms of the increased interest cost is that what you are thinking there?

Ann Duignan - JP Morgan

Yeah exactly

Phil Widman

Again I'm not comment specifically I think there are no precedence out there of renegotiations that you can probably do your research on. I think as I have indicated this is the fixed charge ratio, its not necessarily a liquidity issue which I think is very important and the stress points are that really over the next two quarters in terms of that ratio.

Ron DeFeo

I don’t think if you do the analysis on the amount o debt involved, you are going to find that it is a particularly large number.

Ann Duignan - JP Morgan

Yeah and I appreciate that and I appreciate what you are just going thorough right now. And a one final maybe tricky, I a not sure that I heard or I might missed it. Your outlook for restructuring by segment in the first half, where is it just more of the same number we should look at what you did in five segments. Which you gave with great details, last year is a just proportionately the same in the near term?

Tom Riordan

Ann this is Tom. I think what you will see in the first half of '09 is that there are some what I call minor adjustments that will take place in AWP, we will some adjustments in Material Processing, you will see a substantial impact in construction in first half relative to once we conclude the co-determination process within our worst councils and some of the other actions we are taking within construction. And I think we will see some of the early signs as I would describe it of the lower end of the Cranes business and little bit in Mining again recognizing within (inaudible) businesses certainly the higher end products will be reasonably steady for the first half of the year.

Ann Duignan - JP Morgan

Okay I appreciate it, I will get back in line and good luck out there.

Ron DeFeo

Thank you Ann.

Operator

Your next question comes from the line of Alex Blanton with Ingalls & Snyder

Alex Blanton - Ingalls & Snyder

Hi good morning. Did I hear you say that the possible inventory reduction might be as much as $500 million?

Ron DeFeo

Yes now it's vague to quantify that doing the math. We ended the year with working capital at 26.7% of fourth quarter '08 annualized sales, how that's calculated. And we have indicated we have targeted 23% for the end of '09. However if you have do the math, you need to take a little bit of currency out of that.

Alex Blanton - Ingalls & Snyder

Yup.

Ron DeFeo

Let's beat it on cash. But again depending on what your revenue assumptions are, it's more than 500. As others have indicated, you can certainly come up with numbers.

Alex Blanton - Ingalls & Snyder

But just a rough back of the end little calculation. The under absorption unless this is raw materials, of course you would not have any absorption issue on raw materials but if we were working with process or finished good. The under absorption from running production move enough to do that, something like $1 a share. And I was wondering what quarter that would hit because if you were going to reduce inventory. I would assume that you would do it, as soon as you could. So that would indicate that you would get a lot of under absorption in the first quarter. Is that correct?

Ron DeFeo

Alex, I think you have to think about under absorption has got two factors, factors of productivity and then also the overhead that's related to it.

Alex Blanton - Ingalls & Snyder

Well, I am thinking of the overheads, that's not absorbed into inventory.

Ron DeFeo

I would not assume the overhead is fixed.

Alex Blanton - Ingalls & Snyder

No, no but it does not get absorbed in the inventory at the proper rate if you run your production below this sales level. So therefore you have to charge that period and therefore is an expense in the period as unrelated to the sales?

Ron DeFeo

Alex let me clarify, in terms of the fourth quarter for example, in the charges I think I said $21.8 million in the quarter. Of $4 million or $5 million of that is under absorption that went to period loss, related to the topic that you are talking about.

Phil Widman

Yeah, we are not like a lot of other manufactures who would carry huge amount of fixed overhead.

Alex Blanton - Ingalls & Snyder

Okay, so it depends really on how much you have, that's right. But it would hit the first quarter whatever it is?

Ron DeFeo

No, not.

Alex Blanton - Ingalls & Snyder

More than --

Phil Widman

Yes, it's going to flow. There is not a specific lump that your, we have continual shutdowns, it's not like there is outstanding layer out there turn.

Alex Blanton - Ingalls & Snyder

No, but I was thinking you would probably do it earlier than later. When you --

Phil Widman

If the inventory comes down quicker, yes, there would be less under absorption tied to inventory, that would be out there but again that's going to flow.

Alex Blanton - Ingalls & Snyder

Okay. Then second question is just I guess since it relates to the whole company but I focused on the access equipment side. In the first quarter, I mean fourth quarter sorry SG&A was 17.9% of sales of course because sales were moving down versus 8.7% the year before. So that's 920 basis points of margin. Now I know that you can not take SG&A down by 50% but it is actually up $3 million year-over-year despite big decline of sales. So what are your plans for that, are you going to just sort of assume that the business comes back and you will need structure or are you going to be whacking away at SG&A as the year goes by to reduce that effect?

Ron DeFeo

Alex, let me give you some more specifics related to that so you can do better cogs year-over-year. Included in SG&A we have approximately $3.5 million related to the restructuring charges that we have already taken. Okay, in the '08.

Alex Blanton - Ingalls & Snyder

Okay.

Ron DeFeo

We would not have that in '07. We had allocated about $3 million more appropriate cost to the Aerial segment in '08 than we did in the prior year.

Alex Blanton - Ingalls & Snyder

Okay.

Ron DeFeo

Part of it, because it was well. Bad debt was up about $3 million year-over-year.

Alex Blanton - Ingalls & Snyder

Okay.

Ron DeFeo

Well, our cost related to the typical kind of S&A function, G&A selling and marketing expense and engineering. We reduced the approximately $7 million.

Alex Blanton - Ingalls & Snyder

Okay.

Ron DeFeo

Off of the base of 35 or so million dollars so there has been--

Phil Widman

No, the AWP team has done a terrific job at balancing cost reduction from both production and selling and administrative expense. We are paying the Piper for some restructuring cost, but -- Tim, you want to comment on that?

Tim Ford

Yes, I think Phil you outlined it pretty well. If you look at where we were mid year to where we are today as we noted in the release we have taken out lot of people. It has affected all level of the organization from my staff through the organization. I think we are pretty well situated as we sit here today.

Alex Blanton - Ingalls & Snyder

Okay. And on the gross margin side your decremental margin was about 35% which seems high to me, but would you comment on that is there is something in there that, I mean you had $98 million decline in profit on $285 million client sales?

Tim Ford

(inaudible) is volume.

Phil Widman

Let me comment on it Sam just a second. Again remember there is purchase price variance year-over-year.

Alex Blanton - Ingalls & Snyder

Okay.

Phil Widman

And I commented it on in the release let me just get back to my number. Is about $24 million on purchase price variance, Alex, and that's a big hit. The volume was really reasonable.

Tim Ford

What I would like to say is on about $300 million of business, if you take out restructuring costs, we made a little bit of money compared with somebody else that might have had little bit more revenue and lost a lot of money. We are doing pretty well.

Alex Blanton - Ingalls & Snyder

Okay. Thank you.

Operator

Your next question comes from the line of Joel Tiss with Buckingham Research.

Joel Tiss - Buckingham Research Group

Hi, thanks for taking my call. Most of the questions have been answered. I just wondered if you could give us any sense of the realizable value on the almost $1 billion of receivables and maybe any color on timing? How long to collect those ? Just sort of the status of where they are? Thank you.

Phil Widman

I think, Tom will correct me he is looking at the book, I think our receivables days year-over-year have improved a couple of days.

Tom Riordan

We are roughly at 40 days at the end of the year. We think we are properly reserved. We think we are proactively working with customers where we think there is some stress and we full expect to recover what we have accounted for here. And I would not be doing my job if I did not comment on your issue of realizability, all that we have in the balance sheet we believe is realizable.

Joel Tiss - Buckingham Research Group

Okay. Great, thank you.

Operator

Your next question comes from the line of Robert McCarthy with Robert W. Baird

Robert McCarthy - Robert W. Baird

Good morning. I will echo Joel's thank you for sticking with us. I was interested in your comments about the truck and shovel business in the high end of the Demag product in the Crane business, where you have good visibility for first half of the year or maybe a little longer. And what that might mean in terms of what you are seeing in current order activity, I heard you on truck and shovel, I suspect you were referring to strong order activity in the fourth quarter, can you give us some kind of an update on what you are seeing right now.

And what I'm wondering if that influences the way you are managing production schedules in those businesses, in other worlds, have you pulled production schedules down a little bit to try to stretch out the business that you do have in hand.

Eric Nielsen

Well, let me answer that last question, relative to the mining side. We build to the customers' orders on mining side. I think we have pulled production down somewhat, because we have recalibrated what we thought the year would be. Three months ago, we thought the year will be X, now it is X minus.

And but it is because of how we are characterizing our go-forward order requirements. I think in part of the Crane business, the same is true, but in the other part of the Cranes business it's just not yet. I think we are going to look at it, we are going to stay close to it, but I think our overall German crane operations, we have not substantially calibrated it down yet, Rick.

Rick Nicholas

No, we are sitting with a fairly steady backlog year-on-year. Most of the orders are very similar to the Mining business, will be tied directly to a customer and directly to a project that's out underway, already funded to a large extent, much more focused around the infrastructure and energy sector. So I think we are pretty confident in the backlog that our larger ACCC product out of Germany presents itself today.

Robert McCarthy - Robert W. Baird

And the current order environment, Ron?

Ron DeFeo

I think it's uncertain, I think that's part of the thing that's giving us a little pause and --

Robert McCarthy - Robert W. Baird

So people are sitting on their hands right now, would that be a fair?

Ron DeFeo

I hope it just their hands.

Robert McCarthy - Robert W. Baird

Yeah, okay.

Ron DeFeo

And I think its waiting to see what the next events are going to be I think we know that some of our customers want the equipment. So we also know that they either can not get financing or are not going to take the risk at this point.

Robert McCarthy - Robert W. Baird

Yes, okay and my other question is I wondered update on your investments in China and more particularly the Indian campus are you slowing things down a bit there, given changes in environment?

Ron DeFeo

Short answer is no, we are trying to manage for cash in the investment, we are putting at both places. But we are still expecting the Indian plant near Banglore to be up and running late Q2 June, July timeframe. And the two investments we have got in China will be basically one will be early part of next year one will be a little bit later next year. But we are not backing up on those investments fundamentally other than they managed cash maybe a little tighter than what we have.

Robert McCarthy - Robert W. Baird

And if you do not mind, can I just get you to clarify something you were talking about earlier Ron, in terms of where you are seeing terms being extended the customers is that primarily an issue in the European aerials market?

Ron DeFeo

Well, I think it has been, okay, I am not sure it is at this very moment but I think it has been. Tim, do you want to say something on that.

Tim Ford

I think, Europes has been a challenge but I think what kind of where we are. No difference, not a whole lot different no matter where you are.

Robert McCarthy - Robert W. Baird

I see, okay thank you.

Operator

Your next question --

Ron DeFeo

We are going to try to wrap this up pretty soon, Operator, why do not we take two more questions?

Operator

Your next question comes from Charlie Rentschler with Wall Street Access.

Charlie Rentschler - Wall Street Access

Yeah good morning, I will be quick here, you got the wagons circled and you are waiting for lease I guess and I expect the first thing that you hope would happen with the some kind of infrastructure spending to be rolled out and I wondered Ron can you, I'm sure you have given this a lot of thought. Where do you think this kind of relief would come from first would it be in this country logically versus other places and would have happened at the state and local level and could you even maybe indicate what kind of products that you might expect to be getting relief from first if you follow my thought?

Ron DeFeo

I do Charlie but I would like to say that we are not expecting the government to bail us out here at all and from the point of view of infrastructure spending being the key to our future. We think that's an additive, we think it’s a good thing. I do believe that the infrastructure spending that was in the Senate and let the Congress build it and it’s about the past is a good start as I mentioned earlier, it’s supposed to be $150 billion. But if you pair that back there is a lot less than it's really going into other projects that are quote shovel ready. I would like to see the country, the United States address its long-term economic viability of its infrastructure and that's a more serious discussion that has to take place.

But it's a good start that the products that will be affected will be those products that work on roads and bridges and those we have in our product portfolio they impact our Cranes business, they impact our Aerial Work Platforms business, really it impacts almost our entire portfolio.

But I am not looking for that infrastructure built to be the key to our salvation. What I think is the key to our salvation is generating the cash that we know we can generate. Husbanding that cash and making sure our cost structure is in line with our current revenue base and then being in a position as the markets improve which they inevitably will to capitalize on that quickly. We have a terrific Aerial Work Platform franchise. One that is generated 20% operating profits and that business will go back up. Will it go back up in the fourth quarter of 2009, the first quarter of 2010, I do not know?

Our Crane business its a terrific franchise has been generating 14% operating profit right now and can and continue to generate strong profitability. It's going to go through a period of weakness not a terrible period of weakness but a period of weakness.

Our Mining business. We have taken the Mining business from being an after thought to a completely strong business unit for us. The Materials Processing business a 14 to 15% operating profit business, a strong business, the leader in mobile crushing and screening. That business today is down, not because the business is bad but because the market is bad and our Roadbuilding business and our Construction businesses were businesses that we were trying to fix.

We have been whacked upside to head in those businesses we have had a number of issues and we have taken a step backward. And our challenge is where do we go from here and how do we get there. And so our view, is we have got great franchise with the exception of a couple that we continue to have to address and when the markets improve and they inevitably will, it's going to produce terrific returns for the investors.

Charlie Rentschler - Wall Street Access

God bless you all.

Ron DeFeo

Thanks, Charlie.

Operator

Your final question comes from the line of Andrew Obin with Banc of America/Merrill Lynch

Andrew Obin - Banc of America/Merrill Lynch

Hi Ron, how are you?

Ron DeFeo

Alright, Andrew how are you doing.

Andrew Obin - Banc of America/Merrill Lynch

I am well. Just a question, most of my questions have been answered. As I said I really appreciate the fact that you guys took the time to listen to all of us. But you mentioned something about using credits to move some of the products. Who are you partners and what's the credit availability right now?

Ron DeFeo

Andrew, It varies by jurisdiction obviously. I am not necessarily going to get through each partner but I would say in the US, we have approximately 15 or so partners that we are continuing to refine our base and distribute our base across multiple funders so. We do not have a concentration that I am concerned about in that regard at this stage. I think in the past in the US, we did have a large portion of our business with General Electric frankly. And we have been moving away from that, as issues have arisen there there.

Phil Widman

I do not think we funded much with GE at the end.

Ron DeFeo

No, no that’s right. In Europe as we disclosed in our 10-Q. We got out of our joint venture that we had with our financial partner in Europe and restructured that such that we have flexibility with a number of other parties and, again it's not easy out there. But we have been able to find strategic players to work with us and find capital where we have as we mentioned before good projects. That deals are not going to get funded but good projects are going to get funded.

Andrew Obin - Banc of America/Merrill Lynch

But I guess in order to get to provide good rates for your customers in this environment does it mean that you and your partners sort of share the burden of subsidizing the rate, is that fair we are thinking about it?

Ron DeFeo

Not necessarily, Andrew. And given you are dealing with hard quality assets.

Andrew Obin - Banc of America/Merrill Lynch

Yep.

Ron DeFeo

And good residual values, the rates, we are very competitive. You would be surprised how competitive we can be. In the case where we have specific programs or initiatives that we want to do, we will subsidize our rates in certain cases.

Andrew Obin - Banc of America/Merrill Lynch

Got you. Now I appreciate your answer. Thank you very much and good luck to you guys.

Ron DeFeo

Thanks, Andrew. I am sorry if there is anybody that we have missed the question on. Please follow-up with our investor relations team and Brandy I think that we will end the call. Correct?

Operator

This concludes today's Terex fourth quarter and year end 2008 earning release conference call. You may now disconnect.

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Source: Terex Corp., Q4 2008 Earnings Call Transcript.
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