Terex Corp (TEX) 2003 Q1 法說會逐字稿

Good morning. My name is Carmen, and I will be your conference facilitator. At this time, I would like to welcome everyone to the First Quarter Financial Results 2003 Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star, then the number one, on your telephone key pad. If you would like to withdraw your question, press star, then the number two, on your telephone key pad. Thank you. Mr. DeFeo, you may begin your conference.

Yes, thank you, Carmen, and good morning, and thanks, everyone, for their interest in Terex today. A few housekeeping items to start --a replay will be available of this call shortly after the conclusion and can be accessed until Tuesday, April 29th, at 6 p.m. Eastern Time. To access the replay, it's an 800 number, 642 1687, and the conference ID number is 9670202.

On the call this morning is Phil Widman, Senior Vice President and Chief Financial Officer, Kevin O'Reilly, Vice President of Investor Relations and Corporate Communications, Filip Filipov, President of Terex Cranes, Bob Wilkerson, President of Terex Area Work Platforms, Colin Robertson, President of our Terex Construction Business, and Thys De Beer, President of Terex Mining. Phil Widman will be covering the financial performance details in a couple of minutes, and I'll provide some further commentary to the operating activities, and as is our custom, we'll open it up to questions. Please try to limit your questions to one, and a follow-up, to give as many participants a chance to ask questions as possible. During this call, we will be making reference to various non-GAAP financial measures. A more detailed description of these measures and a reconciliation of these measures to the most recently comparable GAAP measure are included in our press release, issued last evening.

As you see, and have seen in our press release, Terex reported a solid first quarter. We made progress on many fronts, and we feel we're well on our way toward delivering on our primary objectives that we set for ourselves this year. Earnings before special items were 32 cents per share, meaningfully above the 18 cents per share delivered in the year-ago number, excluding special items. We generated $115m of cash from operations. Working capital, in absolute and relative terms, came down, and net debt was reduced $100m. The overall market environment we are competing in is challenging. Within this climate, we reported record revenues for the company, reflecting the acquisitions we did last year. Importantly, these acquisitions are contributing better than we had expected they would at this point in time. The balance of our business is more or less on target, with some stronger and weaker spots, as you would expect, and we will cover this is a few minutes. We remain committed to the customer concept that at Terex, you don't have to pay a lot to get a lot. But this customer proposition remains the foundation of our franchise-building activities. Now, Phil, will you take us through the numbers, please?

Thanks, Ron, and good morning. Before I begin, let me remind you that we will discuss expectations and 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. Fuller descriptions of these factors that affect future expectations is included in the press release and our other public filings. I encourage you to read them.

For the first quarter, Terex reported net income of $12.5m, or 26 cents per share, compared to a net loss of $107.2m, or $2.77 per share loss in the first quarter, 2002. Excluding the impact of special items, net income for the first quarter of 2003 was $15.6m, or 32 cents per share on net sales of $927.7m compared to $7m, or 18 cents per share on net sales of $582m in 2002. In the first quarter of 2002, we adopted the Financial Accounting Standards 141 and 142, related to business combinations, goodwill, and other intangible assets, which really accounted for the significant special item value in 2002 first quarter.

In our press release, we have provided additional information in the financial summary related to our performance, excluding recent acquisitions and special items, which we believe help clarify the ongoing performance of our business. I will address the special items first for the quarter.

The net charge after-tax effect for the first quarter 2003 special items is $3.1m loss, and includes the following items. Restructuring activities of $1.1m, including the downsizing of our CMI business, reflecting continuing weak market conditions, and the closure of our Aral facility in Olathe, Kansas, with the transfer of boom truck production to our Waverly, Iowa, facility. And finally, the period cost associated with previous restructuring activities. The impact of $2m from the fair value accounting of inventory on the Genie and [Zmag] acquisitions -- this has now worked its way through the financials and will not have an impact, going forward. The write-down of various investments and assets in Earth King subsidiaries of $1.7m, pending liquidation or sale of these businesses. And lastly, the favorable resolution of a legal claim of $1.7m.

Net sales for the first quarter of 2003 were $927.7m, compared to $582m during the first quarter of 2002, an increase of 59%. The acquired companies drove the sales growth in the quarter, and excluding the impact of acquisitions, net sales increased by 5% in the first quarter of 2003, compared to the first quarter of 2002, primarily due to Atlas, Schaeff, and Mining, offset by reductions in Roadbuilding and North American Cranes activities.

Gross profit, excluding special items, increased to $135.3m for the first quarter of '03 from $92.5m for the first quarter of 2002, reflecting the impact of acquisitions. Gross margin declined roughly 1.3% over the prior year on both base businesses and including the acquisitions, due to the focus on reduction of inventory for cash generation as well as the mix of businesses in our portfolio. SG&A expenses, excluding special items, increased to $88.1m from $59.8m for the first quarter of 2002. Overall, this achieves a level of 9.5% of sales, down from 10.3 in 2003, and excluding the impact from acquisitions, SG&A expenses were maintained at 10% of sales, year over year.

Income from operations, excluding special items, increased to $47.2m from $32.7m in the first quarter of 2002, representing a .6% improvement in operating margin. Excluding the impact of acquisitions, operating profit was $24.2m, or 4% operating margin, compared to 5.6% in the first quarter of 2002. This deterioration is mainly due to the base Roadbuilding and Cranes businesses, partially offset by improvements in mining over the prior year.

As mentioned in our press release, we have adjusted our effective tax rate from 32% to 28%, reflecting the mix of jurisdictions in our portfolio and the affect of various tax planning strategies. This contributes regulation two cents per share to our earnings in the quarter.

Cash flow from operating activities was $114.9m in the first quarter of 2003, with $90.2m coming from working capital. While trade receivables increased slightly, the day sales outstanding improved over the fourth quarter, 2002, level by 4.5 days, to 58 days, mainly reflecting the focus on past dues and the sale of inventory for cash. Inventory contributed $40m to the cash generation, and as finished goods focus and production timing activities get closer in balance with expected needs. Normally, we would increase our level of inventory in the first quarter, in expectation of the second quarter's seasonal impact. Trade payables contributed to $59m to cash generation, as we were able to continue our efforts to bring our German entities more in line with the rest of Terex. Overall, days payables outstanding increased four days from the fourth quarter of 2002, to 67 days, which is a combination of a volume increase in the first quarter and our efforts in Germany.

As a percentage of current quarter annualized sales, working capital is now at 29%, compared to 34% at the end of 2002. While we've made good progress in the last two quarters, this area continues to be a prime focus. Our 2003 goal is to yield $150m in cash from working capital reductions. Free cash flow for the first quarter of 2003, defined as cash flow from operating activities less capital expenditures, was $106.4m. You will note in the cash flow statement the cash effective in the acquisition of CBC Combitel was $8.5m.

Net debt at the end of the first quarter, 2003, decreased $100.1m, to $1.1089b from $1.209 in the end of the 2002 period, primarily due to working capital reductions. We remain committed to pay down $200m of debt in 2003. Our net book-- excuse me, the net debt to book capitalization at the end of the first quarter was 58.1%, compared to 61.1% at the end of 2002. In the first quarter, book equity increased $31.5m, relative to 2002 year-end, mainly due to earnings and a favorable translation gain of approximately $10m. Our weighted average interest rate on the total debt was 6.4% at the end of the first quarter, compared to 6.3% at the end of 2002. We remain well within our bank covenant compliance limits. Ron, back to you.

Thanks, Phil. Now I'd like to make some high-level comments about each segment and then open it up to your questions. First, Terex Construction. This segment had a solid first quarter, and frankly, in line with our expectations. Revenue was $326m, or 23% ahead of last year. Atlas and Schaeff had impressive top line growth, as they are penetrating new markets. The power screen businesses recorded double-digit growth, and our off-highway truck business improved over last year, with the successful introduction of our newly designed articulated truck line. Operating profit for Terex Construction was $14.7m, slightly down versus the year-ago level of $15.5m, and mostly this reflects the timing of certain costs. We currently have three factories producing Benford and Fermec products, as we start up the new Coventry facility and exit the Manchester and Warwick facilities in the United Kingdom. Later in the year, we will only have the Coventry facility, our first new factory in my 10 or 11 years at Terex, and it's really a great-looking operation.

Atlas made a profit in the quarter, confirming our belief that this business can, at a minimum, break even for the full year, if not do better, and importantly, the cost reduction and margin improvement initiatives that we put in place are on track and our franchise is improving in the critical market of Germany.

Our business in Spain continues to be a source of strength, and last year's completion of the U.S. Marine Corps forklift contract has almost been fully replaced with commercial business this year. And as a side note, we've received great feedback from the Marines, U.S. Marines, on our forklifts, as this Terex Gladiator has been on active duty for the past couple of months.

We are also very pleased with the continued good performance of the Power Screen and BL Pegson Screening and Crushing businesses. Combined, these businesses grew north of 15%, as the category and our position in it strengthened.

Turning to Terex Cranes, this business is also right on track with their performance. The North American market and our business in general here remains depressed, with double digit declines and further erosion of the customer base's financial strength. We see this year as a year of change among the crane rental customers, but little new business will come from this and every deal is a fight. We feel we are well-positioned with a broad customer base and a strong value proposition. Under-utilized Terex crane inventory among our customers came way down in North America, and while this is a painful process, it is needed to get the overall inventory in line and in balance with utilization. We continue to win new customers with [DMAG] and the American Crane entries, plus our boom truck business remains solid. We recently announced, as Phil mentioned, the relocation of our RO Boom Truck Assembly Facility from Olathe, Kansas, to our Terex Cranes facility in Waverly, Iowa, in combination with the rough terrain cranes already produced there, and to partially replace the aerial work platforms that we stopped making as a result of the Genie acquisition. We were already fabricating the booms at Waverly, and Olathe was essentially a final stage assembly and sales location. This will lower our cost and balance our work in the slow, rough terrain and truck crane business with little risk of disrupting the production process.

The primary strength of our crane business comes from our European operations, and reflects the success of our [DMAG] acquisition and the overall product integration plan that this has allowed. [DMAG] far exceeded our revenue expectations, as did [Monseau] in France and Bendini in Italy. Furthermore, each was ahead of our profit expectations. Margins did decline, partially due to pricing pressure and partially as a result of liquidating used inventory. This is a primary reason for the greater revenue than planned, although revenue was generally better than expected.

Crane revenue of $238m overall was 76% better than last year, with the non-acquisition business down over 30% from last year, virtually all of this from North America. As a separate note, the Terex tower crane business has a solid quarter as well, with revenue up over 30% from last year. We are building a first-class crane franchise worldwide that we believe rivals anyone and is making money as well. We continue to support the previous guidance for this business, but as we see the year, we may have higher revenue but somewhat lower margins than previously thought. We continue to see our North American business depressed, perhaps even through 2004, but feel that our European factories and Asian selling efforts can contribute towards achieving our guidance. Overall, we continue to support the guidance from this segment.

The Roadbuilding and Utilities segment was behind our expectations in the first quarter. Revenues were $158m, up almost 19%, with the growth coming from the acquisition of Advanced Mixer and the distribution acquisitions made in our utility equipment business. The Roadbuilding related businesses, excluding acquisitions, saw revenue declines of approximately 20% compared to the first quarter of last year. Local, state, and federal spending on road repair and construction remains uncertain, as a slowing economy has negatively impacted governmental budgets, as the government focuses on security first. We do not believe this outlook for these businesses will improve significantly over the remainder of 2003. As a result, we have reduced employment at CMI by 146 folks, and made a leadership change at Cedar Rapids as well. We continue to focus on generating cash during these difficult times and feel we have a significant opportunity to reduce inventory levels in these businesses.

The Terex Utilities team continues to solidify, but even here the market outlook for our products is mixed. In the West, and certain other areas, we have reasonably strong revenues, but in markets such as Texas, these markets have weakened, as utility companies are significantly reducing, if not halting, equipment purchases. We continue to diversify our customer base and add other Terex products, such as boom trucks, mini excavators, and backhoes to our customer offering to grow the utility franchise, and we expect this success to continue. Included in this segment are the light construction and Advance mixer businesses. Our light tower business had a strong quarter, with good military sales. The Advance mixer operation had a successful quarter and we are looking forward to the Israeli Ministry of Defense contract, which will be produced at the Advance mixer facility. We hope to capture additional military business as we leverage our Israeli MOD experience.

During the quarter, we elected to exit our remaining Earth King businesses, which are included in this segment. After evaluating various options, it was clear that these businesses were unable to generate sufficient revenues to warrant additional investments of cash or management time. Several businesses will be sold to outside investors, and others will be closed down during April and May. We have recorded a charge of $1.7m, net of tax, in the quarter to close these businesses. Operating profit for the segment was $4.1m, well below the $9.6m recorded a year ago. Solid gains from our utility, light tower, and Advance mixer businesses were offset by the weak impact of our Roadbuilding markets. Given the outlook for the Roadbuilding business, we expect to meet the lower end of our guidance for the Roadbuilding and Utility segment. As I mentioned earlier, we continue to right-size the Roadbuilding business in response to current market conditions.

The Terex Mining business had a reasonable quarter, and it's been a while since we could say this. Revenue was $80m, up 23% from last year, and operating profit was $4.7m, nearly three times the year-ago level. We were helped by cost reduction initiatives, the initiatives of 2002, and we had some solid shovel revenue. We also had a decent shipping quarter for mining trucks, but bookings for trucks were soft. Consequently, while the first quarter was strong, the next quarter will be challenging. Given the lumpy nature of this business, it's difficult to predict the full-year performance at this time, but we remain committed to the previous guidance in this segment, although performance remains uneven.

Turning to the Terex Aerial Work Platform business, or Genie, we had a very good first quarter and this business is off to a fine start in a very difficult economic environment for its products. Revenues were about $140m, and operating profit, excluding special items, at $16m, or 11.5% of revenue. This reflects what we estimate is a flat to slightly up revenue performance versus last year, and a very meaningful improvement in profits, following the implementation of the 100-day plan, post-acquisition. The Genie team has done an excellent job of continuing to diversify its customer base and to find new rental outlets for Genie, both domestically and abroad. Furthermore, our lean manufacturing process has allowed us to control inventory levels and still allows us to respond to opportunities as they present themselves. Despite the good news of the first quarter, we remain cautious in our outlook, as the market outlook for our customers is the same. We see little end market growth and we know the customer base is working hard to increase rental rates in this category. However, until other manufacturers lower their inventory somewhat, this pressure will remain. We have and will continue to introduce new and improved products that build the Genie franchise at the rental location level. We will continue to manage this business with a cash-first mentality and resist the competitive pressures to extend terms to start-ups and financially stressed companies. Our emphasis will be on continuing to support the historically loyal and strong Genie customer base, while delivering superior value, as always. We expect to be the in the range of the full year outlook, as previously provided for this group.

So in summary, we are pleased with our first quarter and positive about our near-term outlook. The cash generation and working capital performance should boost confidence in our ability to wring share value out of the balance sheet. Furthermore, the Genie and [DMAG] performance should reduce the perceived event risk associated with these acquisitions and help convince investors that we did not grow beyond our ability to implement the acquisitions-- the integrations required from these acquisitions. Plus, our credit profile has continued to improve, despite our growth. We remain focused on the near-term execution and not on acquisitions. The markets will remain challenging at this point, and we expect somewhere in the range of 60% of our earnings to come in the first half of the year, where previously we had said 55%. Thank you, and now I'd like to open it up to questions.

At this time, I would like to remind everyone, if you would like to ask a question, please press star, then the number one, on your telephone key pad. We'll pause for just a moment to compile the Q&A roster.

Your first question comes from David Raso from Smith Barney.

Hi, good morning.

Good morning, David.

I had a question on the strong sales activity. Can you help me understand that the comment about in line, the core business up 5% was, from my perspective, pretty strong, relative to the end market. What is your assumption of the core business over the course of the year, since the up 5 in the first quarter was as expected?

Well, David, that's-- that's a difficult question to answer. As we look forward, you know, we expect revenues to be roughly flat, year-over-year. It's been our basic assumption. Obviously we're pleased with the fact that our core business is up a little bit. You know, but we don't want to get too excited at this point in time; we want to stay focused on executing our plan. We've got a couple of areas of concern; Roadbuilding, North American Cranes, but we've got a couple of positive areas, such as Genie, Schaeff, and Atlas, so you know, overall, I think we had a good revenue, first quarter, but you know, we don't want to get ahead of ourselves.

So are revenue assumptions still flat?

Yes.

OK. And real quick, on the margin, did I hear you correctly -- a clarification -- the operating profit margin, X acquisitions, would have been 4%?

Yes, that's what Phil said -- X acquisitions.

And special items.

If you work with that number, that means the core business was 4, acquisitions, X Genie, were 3.8, and Genie brought their 11.5% margin?

Yes.

What should we be thinking, X Genie, about the acquired businesses, if they just did 3.8? I know the margins were depressed, selling some of the used equipment out of the inventory, but what should we think on the core businesses? I mean, the core-- the acquired businesses, X Genie.

The acquired businesses, which is essentially [DMAG] and the-

But Atlas, Schaeff-- I mean, there's a lot.

Yeah, I would say you're going to see margins in the-- Schaeff is not in that number, or Atlas, because we had them all of last year, David, OK?

OK.

So it's essentially the utility businesses and the [DMAG] businesses there.

David, I just wanted to clarify -- the acquisitions that we're including or excluding, it's listed in the press release in the footnote, but it's [DMAG], Genie, Pacific Utilities, Telelect Southeast, Advance Mixer, and Commercial Body, which was this year, so Atlas and Schaeff, as Ron mentioned, are year-over-year consistent.

The reason I asked the question, what I was trying to get at, is I'm trying to get a feel for how much for these margins may be artificially depressed, due to-- running the business for cash, selling some of the used equipment out, helping the working capital reduction, and if we work through that a quarter or two, you know, what could the second half margins look like, and that was the gist of the question.

Yeah, I think clearly there's opportunity there, David, as we get at the working capital, but I think we have to remind ourselves, we're in a competitive crane world, and crane margins are difficult. There is excess capacity right now, and every deal, it's pretty aggressive. So, while we'll squeeze the working capital out and it will put pressure, near-term, on margins, we don't want to get too excited about it at this stage, but frankly, you're right, there is an opportunity down the road here.

I appreciate it. I'll get back in queue. Thank you.

Your next question comes from Aaron Ravenscroft from Janney Montgomery Scott.

Good morning, gentlemen.

Hi, Aaron.

Phil, not bad on the inventories. Just to get some color on that, how much was related to the Artic Truck business, and used equipment at [DMAG]? As well, could you discuss progress in your operating initiatives with that?

I'm not going to give you too specific of numbers, but I would say the [DMAG] used equipment is in the $10m to $15m range. Artic Trucks, specifically, I don't have that number here, but our cash generation from inventory was mainly in construction and cranes, improvements year over year, pretty solid in both. But that's mainly where it's coming from. I would say there's strong for our big trucks, that we're seeing, and you know, that did go down from where we were at the end of the year.

Colin, do you have that number?

I know a $3m reduction in finished equipment from December, which was obviously significantly down from the September quarter in-possession. But of the $3m, I don't have it by product traffic area, but it's a safe assumption that most of it would be Artic Trucks.

OK. Your other comment, Aaron, was on other initiatives. We-- typically, as I mentioned in the statements, we would increase inventory in the first quarter, and with the expectation that we would have higher volume in the second. We still expect to see a significant seasonal trend, and we're trying to balance any increase in working capital and further decreases against that volume tendency and get the right product in inventory. I'd say we still have a lot of work to do in a variety of businesses to get rid of equipment, finished goods inventory, that will flow through in the short-term, let's say, in the first half, to first three quarters of this year. We're getting at the receivables issues, I think, pretty effectively. We can still do a lot better there. The work in process in raw material, we did see some improvement in those areas in the first quarter, and again, it's as we adjust our production levels, so I would say that we still have a long way to go, I guess, is what I would say, and we're going to continue to make progress.

And one thing I would add is, I'd just like to remind everybody that we did change our compensation program at the start of this year to focus on cash generation more than anything else, and we went away from the quasi-EVA type compensation program we had, historically had, and we put an emphasis on target bonuses, of which 40% will be paid on the basis of cash generation, 30% operating profit, and 30% on an individual location basis. And then we took the cash generation and operating profit targets and we grouped them by sector. And then we additionally added an incremental incentive to focus on a quick start in the first quarter. So, I think we have achieved what we set out to achieve, which is one of the reasons why I think the first quarter cash generation was the way it is, and furthermore, in order for those incentives to be fully realized, the cash generation has to be sustained throughout the year. So that's, you know, that's a little bit of our game plan.

And lastly, with respect to the cross-selling at Genie, I know that it wasn't going to be a big issue this year, but how is the training coming, how is the progress on that initiative coming?

You know, I think our first focus at Genie is to make sure we solidify our basic business and our basic franchise at Genie. Secondly, we have done cross-training, cross-training of the sales organization, and I think it's taking some time. I think we want to do it right, we want to make sure we can support the products that we try to sell on a cross-selling basis, and I don't expect a meaningful level of volume this year, but over time, I think it will be a nice addition. Bob, you want to add anything to that?

Yeah, I think we've done the training, the team members, sales reps, everybody is familiar with the products, service reps are familiar with it, but as Ron says, you want to add the whole value proposition to make sure our customers are comfortable in taking on new lines of equipment, and we're working on that, many fronts for that, and making good progress. But as you say, Ron, it will take some time.

Thank you very much. Sounds like a good start to the year.

Thank you, Aaron.

Your next question comes from John McGinty from CSFB.

Good morning, Ron.

Good morning, John.

Could I just start with a clarification? In each of the business areas, you spoke about your comfort level within the guidance range that you had given, except construction. I don't know if that was an oversight, or maybe I missed it. Did you talk to--

That was- if I didn't say it, that was an oversight. Construction still will be clearly within the guidance provided.

And the others, you talk high or low or whatever; this one is just within the guidance.

Yeah, it's within the guidance. We're pretty confident within the construction group we'll have a solid year. But, you know, we're not changing the guidance there.

OK. My first question is, is the acquisitions in the first quarter, what did they add, if you take into account what you paid for them? In other words, what would you have earned in the first quarter without the acquisition of [DMAG]-- I'm sorry, of [DMAG] and Genie?

Well, OK, John, you know, what would we have earned without them? We would have learned less. And both Genie and [DMAG] contributed probably more than half of our EPS, and you know, this is a little bit hard to determine because of the amount of cash that we extracted from some of these businesses, but they were both a meaningful contributor to our earnings per share.

What I'm getting at, Ron, is in listening to you discuss the businesses, what was not clear to me was why the earnings were about, you know, 10 or 11 cents higher than kind of the guidance? For in Genie and [DMAG]-- it sounds to me like it was mostly in Genie. Well, rather than pre-judge where it was-

Well, clearly, Genie was ahead of our expectations. Of that, there was no doubt. You know, an 11% operating profit, 11.5% operating profit from this business, given what the other principal competitors are doing here, and given where we started, I think is an heroic effort, and better than clearly we had expected in this environment. [DMAG] pretty much was on track. It's not a little bit better, frankly, so those two disproportionately added to our performance in the quarter. I would say had we not had those two, we would have struggled to make year-ago level numbers.

In other words, those were the two businesses that were the primary reason for the earnings above your guidance?

Clearly.

OK. And then the other question I have gets back to the fact that you guys went out of your way to say that even though you were comfortable that Phil was going to be able to get the working capital up, don't look for it early, look for it not even to be pro rata over the year, but to be more back-loaded, because of the seasonality and so on. Clearly, you know, you've done a phenomenal job. Given what you've done so far, I would think that your guidance of what you've given in working capital should be raised by at least $25m to $50m for the year, and was there something non-recurring in getting it out this early, or are you not going to raise the guidance, just because you're trying to be your traditional kind of conservative self in this? But it sure looks to me like the number ought to be about $125m instead of $90m?

Phil, you want to comment on that?

What have you done for me lately, Phil?

Well, our guidance for the full year is still at 150, and yes, it was 90 from the first quarter, which I'd say the one-time type items are getting some of the used equipment finished goods out, related to some of the restructuring programs, for example, in the aerials and cranes- as well as just, you know, trying to adjust our production schedules so we could liquidate the finished goods.

But shouldn't the 150 be higher for the year?

Well, let me comment on the seasonality. I would expect in the second quarter is when we'll really see, based on the higher volume, meaningful process improvements in finished good inventory reductions. The question I'm looking at is, is that going to affect working capital and receivables in the second quarter? You would expect it to, as it rolls through, so working capital may not go down in total in the second quarter. I expect we'll still have some improvement there.

The third and fourth would be as we collect, you know, from the higher volume quarters, is the natural tendency you would see in the positive cash flow. I'm going to wait on further guidance until I get through the second quarter, frankly, John.

All right, fair enough. Thank you very much.

OK, John.

Your next question comes from Sarah Thompson from Lehman Bros.

Hi, Sarah.

Hi, how are you?

Can I just go back for the [aerowork] platform for a little bit. Can you tell me-- I mean, it seems like it was awfully strong. Are you guys getting market share gains or are you just able to hold on to pricing better than some of your regular customers suggested you would be able to, or can you give us a little bit more color on that? Maybe it's just all cost savings?

Oh, sure, Sarah. Clearly, I think our rental customers were meeting some of their needs, we have made some price concessions to our rental customers, so I don't think, you know, that should be perceived as us extracting value from our customers. In fact, just the reverse. I think, frankly, our implementation of our 100-day plan, our cost savings, has really been the most critical item to this. And our operating efficiencies, in terms of the lean manufacturing, will keep us highly efficient for what we can achieve. I think it's a little early to say we're gaining market share. We're not focused on market share; we'll take it if we can make money on it, but Bob, do you want to add to that?

Well, I think it's a continuation of the journey we've been on in terms of cost reductions and cost containment over the last three years, so [inaudible] being part of the Terex family has given us some leverage in different places, that has helped us. But more work to be done; our markets are not real strong, and we're working to help our customers try to improve their businesses and make money as well, so more to be done.

Yep.

OK, so when you're talking about numbers being a lot better than you expected in the first quarter, that's entirely on a bottom line basis, as opposed to sales came in as you expected them on Genie?

Pretty much as expected. A little bit strong on Genie. We pulled some business either forward or backward, you know, that we've been working on, but most of the differential came as a result of cost reductions, Sarah. You know, we went through a very aggressive line item by line item review when we acquired Genie, and really, it was the Genie management team that did it, not Terex, and they put their 100-day plan together and got together as a team and said, ``Hey, we expect a tough market. How are we going to deliver, you know, 9% to 10% operating profit for the year, in a tough market,'' which was our guidance. And you know, we just happened to do a little bit better in the first quarter, and you know, we're going to keep trying to do that, but you know, we know it's a difficult environment.

OK, thanks for that. And then just one follow-up question; something you said earlier, and I may have missed it. What was the total dollar value in revenues of used equipment sales, or however you want to define it, but--

I think I indicated about 15.

15? OK, thank you very much.

Your next question comes from Robert McCarthy from Robert W. Baird Company.

Robert Baird. Good morning, gentlemen. Can you hear me?

Yeah, hi, Rob.

In the spirit of John's question about working capital, and following up on these questions on Genie, if you look at typical seasonality in that business, you look at the kind of range you were using for operating margin, you know, let's assume you would be in the middle of that range, is your real expectation. It's-- outside of just wanting to be extra, very super cautious, it's hard for me to understand why the first quarter wouldn't have already put you pretty much at the top of your forecast, and wouldn't give you, then, confidence that you'd be able to sustain some of this later in the year? Basically, I'm asking you why you're not raising your forecast for this business?

For the Genie business in general?

Yeah.

Yeah, I understand the nature of the question, and given the strong performance, it's a very legitimate question. I think the answer is pretty straightforward, and that is that second quarter is the quarter. You know, the Genie business is a March through July business. And we get it done in the second quarter and it could be heroic. If we just, you know, do OK, it will still be in good shape, but we've got to get it done in the second quarter, and so I think we're going to be fine. I think we may have upside here, but I'm just reflecting upon a challenging market environment and I don't think the visibility is there. This is a day-to-day fight. You know, every day, the guys at Genie wake up and see, ``where the hell are we going to get business?'' and it's not quite obvious to everybody where that is. So, you know, we've been successful here, but you know, I don't want to get so excited that we, you know, have expectations beyond where we're able to achieve.

You-- you've continued to have, I don't know how to call it, a struggle, if you will, with the Roadbuilding business, a lot of industry-driven, but you know, I think you'd acknowledge some of it's been internal issues as well. The press release makes mention of changing the way you go to business, or go to market. Can you elaborate on, you know, what you're thinking about there and why?

I think you may be interpreting a bit more than intended in the press release, but let me explain what we mean here. And I would say first of all, that we're not-- while we're displeased with the financial performance of our Roadbuilding business, we're not displeased with the concept of being in the business. I think this is going to be a good business for us, long-term. The infrastructure requirements in this country are critical and getting more critical every day. I think there will be a major commitment to infrastructure put in place, and our franchise is the best franchise, I believe, in North America to respond to these changes. Having said that, I think there are some things that we're doing internally that position us for managing this business better.

First, with our Art Kaplan's hiring at CMI, we did create a very focused Roadbuilding business where we are putting under one leadership team the paver product from Cedar Rapids, as well as the entire concrete and asphalt business at CMI, and we are combining that into a single team. Some of the sales people will be direct sales, and some of the sales people will be focused on selling through dealers, and we believe this emphasis will improve our competitiveness, frankly. So--

Does that mean you're going to start offering some of the product you traditionally only sold direct through the dealer networks?

Perhaps, that's right. And you know, so I think there's the opportunity to do a little bit of both here. On the other hand, we very much recognize that to support a Roadbuilding crew, we need local distribution. So- but on the other hand, someone that's buying a $2m asphalt plant wants to buy it direct from the factory. So, we've got a team now with experience that can go either way here, and also, at Cedar Rapids, what we're doing is taking the Cedar Rapids team and improving their focus on the installed crushing and screening type businesses globally. And we are taking Simplicity, Jaques, Canica, Cedar Rapids Crushing and Screening, and putting it under one sales team, and getting a more cohesive focus on that business, globally, and we promoted a fellow by the name of Rick Nichols from our unit rig mining operations, to be general manager of Cedar Rapids. Rick has a great operating background. If you couple that with a good sales team there, I think long-term, we can get some business in the permanently installed crushing and screening product categories.

OK, thanks, Ron.

OK.

Your next question comes from [Tom Klamka] from CSFB.

Good morning.

Good morning, Tom.

Good morning.

On the crane side, obviously, with the hydraulic cranes down 30%, which is probably, you know, we all know cranes are bad. It's probably a little bit worse than I would have thought, but on [DMAG], how did they actually do, on a year-over-year basis? What kind of a decline are you looking at there, and maybe you could kind of strip out the used equipment stuff, since there's a move to move that into inventory?

Yeah, first of all, let's just be clear, Tom -- when we said 30% year-over-year, that's the North American historical crane business, not [DMAG] related, and that reflects some of the changes that, year-over-year, we went through, such as a reduction in inventory in some of our customers, so we wanted to make sure some of the crane inventory that was out there got utilized and so we worked on that, and so therefore we didn't ship a lot of new cranes. That's why you get that kind of reduction. Relative to [DMAG], the business year-over-year is up significantly and Phil, maybe you want to comment on the [DMAG] business?

On the hydraulic stuff, too, in North America, Ron, as you answer that, I thought last quarter it was up significantly, because you had already flushed the inventory. Maybe that was more of a year-over-year phenomenon.

It's a year-over-year issue, and in fact, a couple of-- last year, we had a strong than expected first quarter, and people bought more cranes than we would have expected, going into last year's first quarter, and this year, it's not the case, so year-over-year, that's the differential.

Phil, you want to comment on [DMAG]? OK maybe-- he dropped off for some reason. [DMAG] used inventory was $25m, is what we said.

Can you hear me?

Yes.

OK, [DMAG] -- [DMAG] is significant over, year-over-year, for the first quarter, and as you know, we did not own the company last year. But we sold probably 80%, 90% more in used equipment, which is why the depressed-- the margins, and at the same time, we had a lot of good, new business in the UK, in Canada, in some of the other European countries, in Spain and Italy, so I would assume that the percentage is somewhere around 20% to 25% higher.

On new cranes?

For [DMAG], yes.

OK, and that's- it sounds like parts of Europe are very strong. How about the North American market?

Asia - Asia, too.

Yeah. The parts of North America is really very slow and the parts of North America is slow through the hydraulic rough terrains and truck cranes. To give you an idea, I think in the month of January, this year, there were only about eight truck cranes sold in the whole United States, and this is a market of-- has been a market, three or four years ago, of several hundred units a year, so the truck market in North America is very, very slow and the low end of the construction equipment type of machine, like the American Crane and the IHI units that we import has been kind of held back, with some of the events, so looking at rough terrains, trucks, and laddered booms, significantly, significantly down, and the Owl-- the boom trucks, we continue to make good progress in the market share.

And what's driving the strength in the European crane sales, especially in the [lattice boom].

Well, we have a relatively, Tom, we have a relatively low market share, if you look at the [DMAG] worldwide. We're less than 15%, so we continue to get market-- market share from the competition, and for example, we got five large-- 500 ton offering cranes down in Mexico, against our competitors. We have a large order in Canada. UK, one of the large crane companies. In Japan, we have been successful in the last quarter to ship a couple of large machines, 600 ton machines, so we just-- we just are out there, on a down market, taking it away.

Hey, Phil, give someone perspective of what a 600-ton crane costs?

600 ton crane costs around $3m.

OK.

OK, I guess I'm just surprised, given the overall market, that on a new equipment basis, that you'd be up significantly at [DMAG] unless there's significant market share or there are gains or pricing--

I think what you're hearing is that there's market share gains, OK?

Yeah, the market share gains are significantly contributing the increase in the sales of [DMAG], but let's not forget that Italy is very strong market, and our little Bendini factory has done 35%, 40% better. We also have a very strong market yet in Spain. UK is kind of leveling off, so if we're looking at improvements that we have been making, it's really related with the crane company becoming a larger, full-line producer of cranes.

Great, thanks. And then for Phil Widmon, you know, 2/3 of the working capital savings this quarter came from payables. You talk about that mainly being at [DMAG] also. Can you talk about-- are you comfortable with that aging now and is that sustainable, and have there been any vendor issues on that?

My comment was our German entities, it was not [DMAG]. Mainly it was Schaeff and Atlas, which, prior to this, were not pretty much on the same program, and given the volume increase in the first quarter, I mentioned days went out -- I think four days higher than the end of the year. Really it was largely due to the volume increase, quarter over quarter. We continue to work with our suppliers around the world in terms of payables and that's a continual effort, regardless. I think we're pretty much at the peak there, I would say. I don't see any more room.

But you don't see that reversing, unless sales come down or production comes down?

Yeah, it'll be volume-dependent, that's right.

OK, great. Thank you, gentlemen.

OK.

Your next question comes from John Sikes from Nomura.

Yeah, actually, my question was just answered, but I guess just one other question I would have, regarding the cash that you have on hand. You know, I know some of that is slated for debt reduction, but if there are any other sort of ideas that you have with respect to [inaudible] or is that your cushion?

Well, our goal is to pay down $200m of debt, first and foremost, and we want to pay down the debt in a way that is in everybody's best interest.

OK, all right. Thanks.

Your next question comes from John McGinty fro CSFB.

Yeah, just a couple of quick follow-ups, Ron. If we come back to construction business, on the one hand, you get a 23% gain, including Power Screen, which is traditionally has been one of your strongest areas. You actually turned the money-losing Atlas into a position of profitability. The ADT business, the off-highway business, is up, and your margins are horrible. I don't understand -- could you understand, really, what's going on there?

Well, I'm not sure I would use the term ``horrible.''

Well, a 23% gain and an 1.5 reduction in operating profit is just terribly inconsistent, unless there's something in there about mix that I just don't understand.

Well, there's a year-over-year comparison and there's a few things that happened, year-over-year, that are different, such as the start-up of a new factory that I did mention, and now we're carrying three factories, where in the future we'll only have one.

Can you give us a cost for that?

No, I don't want to disclose the specific cost, but it's in the range of a few million dollars, and it would impact the margins clearly, and historically, the first quarter margins have always been lower and we would expect the second quarter margins to improve quite nicely, and it's a matter of the way the year flows through. So, you know, we're going to continue to stick with the basic guidance we've previously given, and don't think we're going to end the year with horrible margins. Colin, do you want to add to that?

I think that's a good summary. We are very confident in the Coventry facility is ramping up very nicely. We've had a real excellent cooperation from the other workforces that have been affected by this move. I think it's also fair to say that yes, we have returned [inaudible] to profitability. Some of that's been driven by material and [inaudible] cost reduction, some of it's been driven by production efficiency, but also a significant amount has been driven by volume increase, so a lot of our volume growth in the first quarter helped restore us to profitability, but the Atlas business, while it's much prettier today than it was a year ago, is still certainly for the construction business and operating at a lower standard margin level than is acceptable, and we obviously continue to work that business very hard to get it to where it needs to be.

Is pricing a negative in any of the construction businesses?

We're seeing pricing pressure pretty much across the board, but no more than typical pricing pressure, year-over-year, John. You know, in the 1% to 2% range, typically, across most of the businesses. But we are starting to enjoy success in other markets. We're opening our scope somewhat, and as I'm quite sure you know, your markets like Spain and Portugal, for example, where we're doing quite well right now, are some of the lowest-price markets in all of Europe. And so, you know, some of the historic U.S. business that we've had has been substituted by, you know, lower-margin, lower-mix business in Europe.

I think the other comment I would make, and this maybe sounds more like an excuse than a reason, but some sales have been impacted by simple things like availability of vessels in terms of getting equipment from Europe into the U.S., because of the war and so on, so we would hope to square up some of these kind of crazy scenarios in the second quarter.

OK, and Ron, one final question -- over, back on the North American hydraulic cranes, I'm not sure I understand if you're trying to increase the utilization of your customers, I mean, that's really their choice, not yours. In other words, are you just saying they're not buying. Is that what's going on? Or I'm--

That's right, John. When you have crane companies that are financially struggling, if they have excess inventory, and if we can help them by taking some of that equipment and reselling it to other places, it's in everybody's best interest. It may not be in our best interest in a year-over-year comparison, but long-term, it's in everybody's best interest.

If you do that, does that then-- does that go on your books and count as a sale, or does that number even enter on to your books?

It pretty much washes, and it's-- what it does is it avoids a new sale, so to speak.

But in other words, it's not-- there's no issue of debt coming on to your books as a piece of used equipment that you're buying and then selling?

Sometimes, yes, most of the time, no.

OK. And I guess the-- because the one thing that everyone's always wondered about since there are two players in the crane market, and both sets of crane results keep getting worse and worse and worse, not with the [DMAG], but we're talking about the North American hydraulic crane--

Not just [DMAG], but our whole European crane business.

OK, Europe is fine. If North American business continues to get worse, the other guy's results continue to get worse, and I'm just trying-- is it just a crummy market, or is there some pricing issue that's involved in North America as well?

I think it's a crummy market, but I think, you know, if you look back over history, this is the most cyclical business of all the construction equipment type businesses, and you know-

When is the up cycle?

Well, I think we've had about three or four years of a down cycle, and I think- I don't think it'll be 2004, but I think, you know, I think you'll see it start to recover in '05. We've looked at this for 20, 25 years, and typically, it's-- you know, a three to four-year decline. We peaked, as an industry, about in 1998, 1999, and you know, we're seeing the last issues here, which is a financially stressed customer base, and when that begins to get clarified, and there's additional infrastructure work, which I think will happen, you'll see an improving and then a rationalized crane supplier base, and we're going to perform very well. I can remember these conversations where you'd ask me the same question about Europe, so, I mean, you know-- so I think what we have accomplished here is a rationalized North American industry, and we are making a little bit of money in this environment and building off of our European franchise and strengthening our overall franchise, and we'll be in a much more competitive posture than ever, as the market improves, because if you recall, we had no all terrain crane line until we bought [DMAG].

Exactly. Great, Ron. Thanks very much.

OK.

Your next question comes from Steve Volkmann from Morgan Stanley.

Hi, Steve.

Hi, good morning, guys. End of the line today. Just a couple of quick fill-ins here, I guess. The tax rate going forward, is the 28% the right number?

Yes, that's the right number.

For the full year?

Full year.

OK, that probably is worth 10 cents or so versus our previous plans. I assume that wasn't in your previous plans?

No, that's right.

OK. And then some of the restructuring that you did previously included some inventory write-downs and so forth. Were you able to liquidate some of that inventory in the quarter as well?

Yes, some, but I don't have a specific number on that, Steve, at this stage.

And that was mostly which business?

Aerials that were, you know-- some in our crane business as well, as-- really in our crane business and some of the [DMAG] related crane products in our other businesses.

OK, great. Thanks very much.

OK, Steve.

Your next question comes from Robert McCarthy from Baird Company.

Just a couple of quick follow-ups. Originally, when you acquired [DMAG] you talked about generating or squeezing $75m of cash out of that business by the middle of this year. It looks to me like you're already past that through the first quarter. Is that right, and--

I would say that we're--- yes.

I think that's a good way to end this conference call.

One more, though. The commentary about mining -- you know, last year, you also had a tough second quarter, only earned about $1m. Is that the level of-- are we worried about sinking back to that kind of profit level in this year's second quarter?

I'm not going to give guidance by segment, Robert. I think, you know, mining has always been a lumpy business, and you know, I just don't want to give guidance by segment.

OK, thanks.

Any more than I've given already, OK?

Yeah, that's fine.

OK, thank you. I think, operator, that's pretty good call this morning. Is there any other questions?

There are no further questions at this time.

All right, then, I want to thank everybody for their interest in Terex and please follow-up with myself, Phil, or Kevin if you have additional questions. We appreciate your interest in Terex today. Thank you.

Thank you for participating in today's conference. You may now disconnect.