Terex Corp (TEX) 2003 Q4 法說會逐字稿

Good morning my name is Brian and I will be your conference facilitator today. At this time I would like to welcome everyone to the Terex Corporation fourth-quarter year-end 2003 earnings release conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarked there will be a question and answer period. (OPERATOR INSTRUCTIONS) Mr. DeFeo, you may begin your conference.

Thank you and good morning and thank you for your interest in Terex today. With me here in Westport is Phil Widman, our Senior Vice President and Chief Financial Officer as well as Tom Gelston, Director of Investor Relations. On the phone and available to answer your questions at the latter part of this call is Colin Robertson, President of our Terex Construction business; Steve Filipov, our President of Terex Cranes; and Bob Wilkerson, President of Terex Aerial Work Platforms.

As normal I am going to make a few overview comments and the Phil will summarize some key members and I will return to discuss operating performance by segment as well as 2004 guidance and our Terex improvement process. Then as is our custom, we will open it up for questions. Please try to limit your questions to one and a follow-up to give as many participants a chance to ask their questions as possible.

A replay will be available shortly after the conclusion of this call and can be accessed until Thursday, February 26 at PM Eastern time. To access the replay please call 800-642-1687 for domestic; and 706-645-9291 for international and enter the conference ID number 5388125. Enough for the housekeeping.

Overall we feel Terex's performance was respectable in 2003. We accomplished what we set out to achieve. On a macro basis we successfully integrated two critical acquisitions. Genie and Demag. We made these acquisitions in late 2002 and it resulted in a size transformation for the Company that gives us a great foundation upon which to build our future. We promised to focus on cash and we think we delivered. $384 million of cash from operations.

Net debt decreased $315 million or 26 percent and the Terex balance sheet today is the strongest in our history with net debt to book capitalization at about 50 percent. We feel good about dramatically growing the Company while improving the credit profile simultaneously in what most would consider to be rather challenging economic times for our products.

In 2003, we also designed the multi-year Terex improvement process which has recently been launched throughout the Company. I will discuss this in some depth at the end of my remarks.

Lastly, in 2003, our earnings per share grew about 36 percent to $1.44 per share above -- 36 percent above prior to a $1.44 per share before special items and that compares with $1.06 in 2002. This occurred despite margin pressure in a number of our businesses as competitive pricing, currency and our focus on cash frankly contributed.

Net income for the year before special items was $71.3 million or a 52 percent increase compared with the 2002 level or on 39 percent greater revenues.

Now I'd like to turn it over to Phil who will cover the financial performance in some depth.

Thanks Ron and good morning everyone. Before I begin let me remind you that we will discuss expectations of future events and performance on the Company's call today. And the expectations are subject to uncertainties related to economic factors, interest rates, global actions and other factors. A more complete description of these factors that affect our future expectations is included in the press release and our other public filings. I encourage you to read them.

In the fourth-quarter Terex reported a net loss of $600,000 or a penny per share compared to the net loss of 40 million or 85 cents per share in the fourth quarter of 2002. Excluding the impact of special items net income for the fourth quarter was a 14.3 million or 29 cents per share on net sales up slightly over $1 billion. Compared to 5.4 million or 11 cents per share on net sales at 847 million from the fourth-quarter at 2002.

Our press release includes additional information and the financial summary related to our performance excluding recent acquisitions and special items. We believe this provides better clarity to the ongoing performance of the businesses and given our acquisition activity has not been significant in the last five quarters, the quarter over quarter figures are becoming more comparable.

Net special charges for the fourth-quarter were $14.9 million of which approximately 10 million was cash related. The main items and this category can be broken down into four areas; charges related to previously announced and current restructuring programs of $18 (ph) million of which 3 million is cash related; charges for our previously announced debt extinguishment of our eight and seven eighths for the fourth-quarter of $6.5 million, approximately 7 million cash related to 6.5 is net of taxes. Non-cash charges related to our deferred compensation program of $3.8 million, offset by the benefit reflected in our fourth-quarter results from the finalization on our 2003 tax provisions. This amounted to $5.3 million. Our full-year effective tax rate is 28 percent.

Returning to operating performance, net sales for the fourth-quarter of 2003 increased roughly 20 percent to over $1 billion compared to fourth quarter of 2002. Foreign exchange translation of approximately eight percent, the inclusion of Tatra revenue in the fourth-quarter and the strong quarter-over-quarter performance in the aerial platform business were the main contributors.

Fourth quarter income from operations excluding special items of $42.8 million or 4.2 percent operating margins included improved aerial work platform results based on their increased volume and the weak U.S. dollar impact on their export business, positive Demag and mining quarter-over-quarter performance partially offset by the weak North American crane business when compared to our prior years.

Cash flow from operating activities as 169 million in the fourth quarter and 384 million for the full year. Our push on working capital culminated in a strong finish for the year with 268 million improvement over our 2002 level. We improved our working capital as a percentage of trailing three month annualized sales by 10 percentage points to 23 percent when compared to the end of 2002. Given the improvements we made I would expect a more historical pattern in 2004 of cash usage at the beginning of the year and cash generation as we move to the second half.

Net debt decreased $315 million to 894 million during 2003. Our gross debt reduction was 262 million for the year excluding the impact of debt associated with the 2003 acquisitions and foreign exchange translations.

As Ron mentioned, our net debt to book capitalization at the end of the fourth quarter improved to 50.5 percent compared to 61.1 percent at the end of 2002 benefiting from our cash flow and also the currency impact reflected in other comprehensive income which would account for about three percentage points of that difference.

Our net debt to EBITDA ended the year at approximately 3.2 or better as calculated through our bank agreement. You will recall that our bank agreement calculation includes the pro forma trailing twelve-month EBITDA effect of acquired companies and the associated cost reductions for those periods prior to Terex's ownership. Our recent large acquisitions Genie and Demag have both met or exceeded our expectations and we have very little pro forma effect in our calculations at the stage.

Ron back to you.

Thanks Phil. I would now like to discuss the 2003 performance and our 2004 outlook by segment. Let's start with Terex Construction. 2003 was a year of progress and challenges for Terex Construction. On the service revenues grew by 17 percent but a large portion of this growth came from a stronger British pound and euro and the operating margin for the year felt some of this pressure as well at 4.6 percent versus the 6.5 percent achieved in 2002. As a substantial portion, a meaningful portion of the Terex Construction products businesses are sold in the North American market but made in the United Kingdom and Europe.

A number of very good activities are underway in this group and some major accomplishments certainly occurred. First, Atlas was profitable for the first full year. This was a key goal for us in 2003 and was achieved with a solid performance in the still sleepy German market.

Next Powerscreen, Atlas (ph) and Fuchs also had very good years. In general our mobile crushing and screening business was quite solid. We also successfully consolidated three factories into a new compact equipment factory in Coventry, England for loader, backhoe, mini-dumpers and rollers, therefore lowering our operating costs and reducing our investment.

We are now planning and implementing a marketing program of the compact equipment line in North America through the Genie sales team. In 2004 we expect this to add meaningful levels of volume as we offer rental and distribution companies a compelling value proposition.

As we look to 2004, we see Terex Construction revenue in the 1.4 to $1.55 billion range with operating margins ranging from 5 to 6 percent. We have taken some price increases and do plan sourcing changes to help offset currency issues. We also expect to benefit from a modestly better end market for these products in 2004.

Moving to Terex Cranes, despite achieving a level of revenue of $1 billion in 2003 and therefore an increase of 43 percent, we had a buy (indiscernible) profit performance with our European operations strong and North America weak. We estimate about $100 million of our revenue in this group resulted from the sale of used equipment that we transacted at little or no margins.

The Demag acquisition has been a savior for our crane business as it diversified us at a critical time. Furthermore, we acquired a great product line that was under marketed and a really solid management team that knows how to build and design world-class cranes.

Marketshares for our Demag ATC product line were up 30 percent. Demag represented 60 percent of our crane business worldwide and non-U.S. business was almost 80 percent of our total crane business. We believe the U.S. market has probably bottomed out and we did struggle during the year despite consolidating operations and continuously reducing costs. The U.S. mobile hydraulic market peaked in 1999 and 1998 at about 2200 to 2300 units. And in 2003, the total industry was in the range of 700 to 750 units. Fundamentally when our customers suffer we do as well.

Looking to 2004 we expect a flat but still slow North American market. However, there are some early signs of improvement in this market. Within this environment we expect to earn a modest profit as our full restructuring and cost savings programs take place, take hold. Worldwide, we expect revenues to be in the 850 to $950 million level with operating margins in the 4 to 5 percent range. We had several large crane sales in 2003 that will not be repeated in '04, and we do not expect the level of used equipment to be transacted as we had in 2003. We expect continued strong performance from Demag.

Turning to Terex Roadbuilding Utility and other products. Like other parts of Terex performance was mixed in this group. Generally market conditions were soft in particular at Roadbuilding and to a degree within the utility group mostly with the investor-owned utilities and tree trimming customers.

Revenues were up 27 percent for the year but if acquisitions are excluded, revenues actually dropped four percent for the year. Furthermore, as revenue dropped, margins were squeezed and selling prices came under some pressure from this slow market. We made a lot of changes in these businesses in '03.

At Terex Roadbuilding we formed a new team which allows us to sell our pavers, milling and other products through distribution and we kept a separate team to sell asphalt plants direct to those customers. We have focused on improving our products which had some issues at the time of the CMI acquisition which are now behind us, and we have a much more customer responsive team within our Terex Roadbuilding group.

The light construction business, a small but nicely profitable business had a great year as did Advance Mixer. Advance is introducing a rear discharge mixer at the World of Concrete show this week. Previously Advance only participated in the front discharge part of this market segment which was 25 percent of the market. Therefore the rear discharge market which is 75 percent of the total is a very nice new opportunity for us.

Terex successfully integrated several previously independent distributors allowing us to offer a full complement of products and services to the utility and tree trimming customers. We now have the ability to offer our terrific products with a full group of these services that will help us grow our share in this area.

Looking to 2004, we expect revenue in this sector to be in the 850 to $950 million range with operating margins in the 3.5 to 4.5 percent level. These margins are being held down somewhat by startup and restructuring costs of the American Truck Company military joint venture and the Tatra Truck acquisition in the Czech Republic. This as well as continued uncertainty in the road building area.

The Terex Aerial Work Platforms platform business had a fabulous year in 2003 despite challenging economic conditions for at least the first three quarters of 2003. During the fourth quarter we had a surprisingly strong end to the year. The Genie and Terex handler volume in this segment achieved $132 million of revenue up 29 percent from the prior year. Normally the fourth quarter is the slowest quarter.

We are obviously very pleased with the fourth quarter operating profit rate of 10.6 percent and the full year 11.8 percent margin on $584 million of revenue. We at Genie focused on continued customer service excellence plus we maintained real discipline in how we service the market. Genie was a major cash contributor to Terex and is highly efficient with about half the working capital investment and double the margin as our nearest competitor.

As we look forward, we expect 2004 to be a very strong year. Revenues will be 600 to $700 million with operating margins in the 11 to 12 percent range. Genie also benefits and has benefited from the weak U.S. dollar as we ship approximately 25 percent of our revenue to Europe. This creates a partial natural hedge with our construction business.

Lastly, turning to mining, in spite of the distraction associated with the previously announced transaction to sell the mining truck and distribution business, which we terminated in December, the mining performance in '03 was about $15 million of operating profit, six times the level of the prior year, reflecting the changes we put in place in 2002.

As we look forward, the mining markets are strengthening and we do expect to participate in this as we have excellent products. In 2004 we expect revenues of 300 to $325 million and a margin of approximately 5 to 6 percent.

So to summarize the Company and our outlook, we expect 2004 to be another year of major progress. We expect an earnings per share growth of 30 to 50 percent before special items when compared to 2003. Furthermore, we expect that the Company's experience would suggest rather that 55 to 60 percent of our earnings will occur in the first six months and 25 to 30 percent of that first half earnings will take place in the first quarter.

In conclusion, this is why the Terex management theme is that we need to do more and we will do more in '04. And building off this and looking to the future we expect to thrive in '05 and the six in '06 and that means $6 billion of revenue without major acquisitions in 2006 with an operating margin in the range of 10 percent and working capital in the range of 15 percent of revenue.

The method we're using to achieve these goals is the Terex improvement process which is a multi-year process to transform Terex into a more customer-centric top franchise player in the world in the machinery sector. The principal goals of return on invested capital will be something that we focus on. Our goal will be to be greater than 20 percent return on invested capital.

Today we believe we are the most profitable company already by this measure in our industry at a 10.5 percent level. However, we feel in order to truly attract long-term capital, we must achieve levels in the mid 20s and therefore have ROIC returns more akin to diversified industrials. This is our goal.

We also expect to be over the next several years and critical to our return goals, will be the most responsive company to customers in our industry and the most preferred place to work.

The Terex improvement process or TIP plan has at its core three areas of focus. Customers first, the people that deliver those values to the customers and the people within the organization that deliver value to our investors. So customers, people and investors. We've created seven cross company teams all working on building a better company over the next several years. The objective is to be a continuous learning company where we implement a change process that at its core develops the Terex business system of the future.

Details of this can be found on our Website within the latest investor presentation.

The longer-term goals we have set for ourselves will not be easy to achieve. However, we feel strongly about the opportunity that exists in front of us. However, it all starts with doing more in 2004, which is the focus of today.

So now I'd like to turn it over to your questions and open it up, Operator, for questions and we'll address whatever is on your mind.

(OPERATOR INSTRUCTIONS) Stephen Volkmann with Morgan Stanley.

Ron, your new program here has obviously caught some attention. You mentioned in your comments that you didn't see any major acquisitions required to get you to your six and '06. I am wondering if you can just expand on that a little bit given obviously you have had some great liquidity and so forth, are you kind of ruling out additional acquisitions and talking about focusing on the core business or are you kind of saying you think you could get there without them, but you're willing to do things as they come along?

I'm definitely not ruling out acquisitions, Steve. I think acquisitions have been a core part of our history and is a core competency of the company. However, we believe it's important to be disciplined on acquisitions and only do acquisitions that can be accretive in the first year and either credit neutral or so as well. So our focus really is to grow the company internally by improving our processes while continuing to look at some of the acquisitions that may be possible.

Not ruling them out but what I'm really saying is that within the product lines that we are in today, we have both geographic as well as productline share opportunities which can achieve that level of growth from where we are. I put a list together of the productlines where we have relatively low marketshares and the list is pretty long. We are in the backhoe business, the mini excavator business, the hydraulic excavator business, both track and wheel, we are in the wheel loader business, tower crane business, the paver business, the rear discharge mixer trucks, the military transport vehicles, telehandlers, crushing equipment and utility equipment all where I believe we have substantial share growth opportunity.

I think we have a company that has a $6 billion productline in the body of $4 billion of revenue today and our focus to achieve that really will be to improve our processes and make us much more customer centric and I think we can achieve that level of growth.

That's helpful. I guess on the margin side, just as a follow-up. The goals are quite a bit higher than where we are now. Can you just give us a sense of some of the key levers you think that get you they are over the next couple of years?

Sure. As part of the Terex improvement process we have a couple of teams that are focused on what I would envision critical to achieving that margin goal of 10 percent. First of all, I think it's important to reference the fact that we have operated Terex at a 10 percent operating margin historically. I think part of the margin improvement will come from an improved market but I think a large portion of that margin improvement can come from productivity, pricing and better purchasing. At least two to three points can come from that without any improvement in the market environment.

Thanks very much.

Alex Blanton with Ingalls Snyder.

I have some questions about Genie. You have combined the telehandler business in there in the first and second quarter of 2003, you give us the amount 10.5 million in the second-quarter was given in the conference call and you restated the first quarter showing it was 7.9 but since then you haven't had those members. Do you have a number for the telehandler business and Genie for the third quarter and the fourth quarter and the full year?

We obviously do have that number. We have not historically disclosed that number nor do we expect to disclose that number. We must say that we have a nicely growing business; it's probably tripled under Genie's increase, under Genie's management. But given the competitive nature of us and the other key player here we would like to grow that business without having to highlight it to the rest of the world. I hope you beg our indulgence.

Yes, but you did disclose it in the second-quarter conference call to be 10.5 million.

Because it was a variance over what we had reported and it was a shift from one segment to the next.

That's why I'm asking for the year.

I'd prefer not to disclose it; it would go right to the other people that are in this critical business.

You mentioned that the Genie sales team would be taking over sales of compact equipment in the U.S. Will you be also recording compact equipment sales under aerials?

No, we will not.

On the fourth quarter aerial demand, very nice increase, could you characterize how that broke down between foreign and domestic business? Was it spread equally or was there an emphasis on one or the other?

I think we had strong demand in both places but North America was probably a bit stronger. Bob, do you want to comment on that?

It was fairly equal across all geographic sectors.

Approximately equal?

Yes.

Finally, could you tell us the same kind of thing for the market segments of the rental business, for example, major rental companies, what are they doing versus independent rental companies? Is there an equal increase in demand or one of the other predominate?

It's fairly equal, Alex, there is good optimism in all sectors of the rental channel.

Is this coming finally, is this coming from rental companies envying what they were doing for the last three years they were aging their fleets and now they have to spend more just to keep the fleets age constant, is that occurring or is there an actual increase also in the size of the fleets going on, do you think?

We think that the rental companies have gone through a process where they have aged their fleets, purged their fleet of less productive assets, off-branded assets, companies perhaps that are not in the business today. And so what we are seeing is the replacement cycle not necessarily increase in primary demand on the construction cycle.

Are they extending the fleets or simply stopping the aging process?

A little bit of both. The expense this year will be higher than any of the previous years. There will be some fleet expansion, how much will be determined by obviously what they sell their fleets off the backside.

Thank you very much.

David Raso with Smith Barney.

I'm on the road so if I can't get back into queue, I apologize. First on the guidance, the first quarter guidance implies midpoint of 32 cents which is flat for the year. That implies the rest of the year has got to grow over 50 percent year-over-year to hit the midpoint of your targets? And you also think about the way you laid out the seasonality, it's a little bit countered to at least the last five years. In the last five years the first quarter EPS has averaged about 24, 25 percent of full year. What you are giving today is saying more like 15 to 16 percent of full year will be first quarter. Is there something going on in the first quarter that maybe I'm not aware of why the first quarter would be that depressed?

First of all David, as you recall last year I think 32 cents in the first quarter. Really we were looking at -- we probably did 10 cents or so better than our own expectations from a calendarization last year. As we reflect upon how we think the year will progress, our feeling is that the first quarter will be slightly less as a portion of our total year and the second-quarter will be more, which is in our view a more normalized level of distribution. Now you also have to remember that the distribution of our Company's earnings changed pretty dramatically when we acquired Genie, because Genie is a March through July maybe even early August business. At least historically it has been that way.

What we found in 2003 was very unusual for the fourth quarter to be as strong as it was. So that kind of influenced our own internal timing. I'm not too concerned about the distribution of the first quarter, it's really a first half, the first half is going to make our year and I am feeling pretty good about the guidance we gave relative to the first half. All I am trying to do it is to share information as best I see it right now, I'm not trying to say it's 32 cents, we tried to give that range there. There should be nothing read into that comment about a weak first quarter.

That was helpful. And then regarding growing the business. The CAPEX came in at below 50 percent of DNA and '03. The guidance for '04 again similar roughly 50 percent. I understand as capital intensive a business models as some of the other companies I look at, at 50 percent it seems a little bit counter to be looking to grow this business tremendously and be putting capital on at such a low rate. Can you address that issue?

Yes, David. A couple of things related to that. The type of CAPEX that we would be purchasing in '03 for example I think we incurred the largest thing was basically paint systems. Other than things like that which tend to happen over a long cycle, we are assembling products. There is not huge investments in fabrication equipment. And when we've acquired companies, we've gotten the break and mortar capital expenses that would drive depreciation over a period of time which obviously we are not going to replace buildings and infrastructure. So that tends to drive the difference between the two.

This has been the historic pattern over the last ten years, frankly, in terms of the difference. The acquisitions we get a capital base that drives the depreciation level, the replacement or maintenance CAPEX is larger related to assembly equipment.

I'd like to add, David, my two cents here. And that is, one of the frustrations I've had since I've been attached to this industry now for somewhere around 15 years, is the fact that the industry does deliver rather poor returns on capital. And that's because companies attempt to do everything and so one of the fundamental models that we tried to put in place at Terex was to be more agile, more flexible, I think you know all these things. It's my view that the best way to get ourselves to that 20 to 25 percent return on invested capital is to really do those things that we do well and add value to which is assembly, periodic fabrication, source well globally and to keep a lean manufacturing process, in fact push that process through the Company. But it does not require a burden of heavy capital investment.

I think that's the way you get to a formula and a 25 percent return on invested capital, I do believe will attract long-term capital as opposed to what this industry had attracted historically which is trading.

One other comment. There is about 15 million of amortization in intangibles in the DNA number too. And also I would comment that capacity levels from where we're at today in our manufacturing facilities to grow to the volume levels we are looking at in '06 would not necessarily require additional CAPEX as opposed to additional people.

The last question relates to the guidance for '04. A couple of areas where it is a little counterintuitive -- it seems a little bit conservative. First, am I reading correctly, you noted working cap the end of the year at 23 percent of trailing? I assume that means pro forma sales, correct?

No, actual fourth quarter sales of a billion fourteen is the last three months times four and I think the ending balance (multiple speakers) You've got the FX in both numbers.

On a run rate basis, either way you look at it, you are looking at roughly a $4 billion type number? And your guidance for the year is roughly 3.9 billion or 4.4?

Right.

Essentially, it is implying roughly kind of down four or five-ish to up eight or so, eight, nine. This seems a bit conservative when I think of Genie, everything I know about what is going on there, it's got to be a double-digit grower and the mining business staying up 3 to 10 percent -- my only problem, I'm misreading a lot of other research I'm doing. Anything going on in your order book? I know you are probably a little bit of slow period. Are you selling the truck business? Are you not? Who is going to be distributing the shovels? But is there something going on in the order book that suggests mining should be that soft?

No, David, I think it's just the fact that we're basically reenergizing that group and probably a tad bit conservative in our view. We've actually gotten some recent truck orders that make us encouraged as well as some shovel improvements. I think you are sensing a balanced view from us as opposed to strong enthusiasm. I think that balanced view is a recognition of the fact that some of the revenue we achieved in '03 was used equipment that was sold off that may not be replicated in cranes and that it's still not 100 percent clear that Roadbuilding and North American Cranes will have a much improved year.

But without a doubt the Genie business is on track to have good numbers, the smaller compact construction business we expect to be positive and the mining business we expect to be positive. I think you're seeing a little level of balanced perspective on our part. But let's go through the year.

The last question, a little insight about Genie. You put up 11.8 percent margins. Maybe you can give me some insight into how FX helped, it could help me understand this question I have. If you did 11.8 percent in '03, the business is going to grow probably grow more than your guidance on the top line, in '03 weren't the margins artificially depressed by buying back some equipment from the French rental company that that alone just not occurring again in '04 should bump the margins up and then you get a top line -- I don't understand why you would be guiding Genie margins from flat to down? Is there something that I'm missing, did currency help that much in '03?

David, let me give you a few comments on that. The FX impact that we estimate for Genie in '03 is probably about 1.5 points. The comment about access and equipment coming back we were very aggressive about taking equipment back and reselling it. We valued that in the purchase accounting opening balance sheet for January. We assessed the situation there so you wouldn't see that as a depression on the market there. On the margin, excuse me.

That's all. Sorry for the long questions.

Tom Klamka with Credit Suisse First Boston.

A couple of quick questions. On the North American crane business, I am assuming that's running at an operating loss. How much of a negative, how much of a drag is that business today and if the markets stabilize at these levels, what kind of potential earnings improvement can you have in '04 based on what you're doing internally?

I think we are going to have a nice improvement in '04 and turn it from a moderate loss to a two way positive, a moderate positive. And just leave it at that. Most of that is from things that we can control ourselves and not from major market recovery.

Is the loss there sort of more of a single digit kind of lost anyway currently?

Yes.

Okay.

I'm reluctant to comment on that obviously Tom, in that we usually don't disclose splits between geographies.

That's fine. And the other thing on the cost side and pricing given what's happening with steel and probably a lot of the components you are buying. What kind of pressure are you seeing there and are you able to get any pricing on your end products yet?

We have gotten a little pricing on a few of our end products but it's a little early to draw that conclusion for us. I know Colin's business has had because of its UK based, taken some price increases. Colin, do you want to comment on that?

Really what you see is kind of a -- we have been fortunate but we have also been impacted significantly by currency. Many of the mobile crushing and excavating providers as well as most of the articulated (ph) truck manufacturing tends to happen in the European territories and therefore we have been able to offset at least some of the currency erosion issues that we are faced right now and hopefully the currency situation normalizes over time. We believe that facing (indiscernible) and the and markets. As far as supplier placing or commodity pricing is concerned, certainly steel is an issue. But we have been fairly fortunate in that we have multiple year agreements in many of our sites as well as other factor that we source much of our fabricated components particularly in the Eastern Block where again we buy it at fairly competitive prices. The other commodities certainly has been evident in recent times has been large tires again there certainly worldwide capacity issues there not helped by the fact that one of our suppliers had a factory in Japan burn to the ground in 2003. With regard to the other major driving components and whatever, yes there are some negotiations ongoing but nothing out of the ordinary would be the comment I would make.

When you look at Terex as a whole and you look at -- just take steel and kind of forget everything else that goes into it, whether you purchase raw steel or fabrications, what are factoring in to your estimates for next year as far as just the impact of steel and fabrication prices going up?

As part of our margin improvement team as I mentioned, TIP, we've looked at across our geographies, this (indiscernible) opportunities we have on steel as an example, and Colin mentioned the European situation. We are doing some things to protect ourselves in the U.S. which I won't go into a lot of detail on. But we are trying to counterbalance any level of increase in terms of assumptions here. Certainly that's been our ambition in looking at significant cost reductions and other commodities. We are trying to bounce because of the geographic presence we have and looking at currency frankly as an option for our sourcing as well.

Last question. Have you guys spoken to the rating agencies at all and what is the possibility for getting an upgrade here going given the debt reduction?

Tom, yes we have met with the rating agencies recently and I think with the publication of our 10k I think they'll review where we are at, and it's up to them in terms of their decisions.

Thank you.

Robert McCarthy with Robert W. Baird.

Good morning Gentlemen. Ron, first I have to ask you about your comment about acquisitions in response to Steve's question. Basically you said the same thing that you've historically said that you want the business to be accretive on and earnings basis and credit neutral. It's my understanding that you have established securing an investment-grade rating as a strategic objective. If that's the case, don't acquisitions need to be far better than credit neutral given that the historical pace of acquisitions has likely been a factor in your below investment-grade ratings?

Let make clarify that situation. I have not established investment-grade rating as a strategic objective for us. I have commented that if we were to achieve 6 billion in '06 with a 10 percent operating margin and a working capital level and not do any acquisitions, the natural fallout of that would probably be an investment-grade rating. It is not my mission in life to be investment-grade nor is that my mission in life to prevent us from being investment-grade. I think our mission and life is to deliver the best value to our owners we possibly can and the highest possible return on invested capital. That's what we're driven to do here at Terex.

We have junk bonds in our portfolio which we respect and we think those high yield bonds have been a great market for us, allowed us to grow. It would be interesting to see a company that high yield debt and an investment-grade rating, that would be a little bit of an oxymoron. I'm here to build shareholder value. I think you would conclude though the six in '06 at a 10 percent margin would probably result in and the cash generated would probably result in an investment-grade rating.

Thanks for clearing that. The other thing I would like to ask you about is just for a little more discussion of what you are expecting in the coming year in the overall crane business. You may the comment that you are expecting to see less in the way of big crane orders, also less used equipment sales. I'm wondering if those two things are related, number one. And if less used equipment sales would reflect a change in your in the way you operate in the market in terms of your willingness to take equipment in and trade?

And then I would like you to also talk a little bit about your comment that you are seeing -- even though you have a forecast based on the idea that the North American market is only bottomed, I'm intrigued by your comment that you are seeing early signs of improvement. Does that mean that you have seen some better activity since the beginning of the year?

Taking your last question first. Steve, you can follow up on this for me. I think what we are seeing in North America at least is some more interest, some more inquiries and some more discussions about new cranes. I wouldn't say what we're seeing is tremendous strength or clear recovery. But it's encouraging. Steve, do you want to comment on that?

Good morning Robert. We are seeing people getting more active and looking at equipment and I would say it's encouraging but it is not enough there to say for 2004 that there's going to be a big increase. So with the U.S. looks a bit better but let's wait and see a few months if this is really an upturn.

Right. With regard to used equipment, I think what you saw is the first year following the Demag acquisition where we had a substantial amount of used equipment that came with the acquisition and our intention was to sell some of that off and turn it into cash while we are not changing any of our practices in a marketplace however, right Steve?

We will continue to look at used machines if necessary evil of the business. We're just finding other ways to dispose of it and try to make a bit more money while we are doing it. The other thing that you were saying or you were asking about growth is definitely power cranes, we have a lot of opportunity and there and that market looks like it's picking up beginning of this year. And obviously new product development at Bauma will be launching about 19 new products. So we are looking at also growing the AT and RT (ph) business worldwide.

What's behind the comment that you are expecting less in the way of big crane orders in the coming year?

If you look at last year, we delivered three 1250 ton crawlers, so I would not expect those to reappear in 2004. Those are exceptional and definitely exceptional dollars so to make up for that difference, we have to sell a lot more AT and RT cranes.

Those crane's sell for what, Steve?

9 million euros.

Thanks for the clarification.

John McGinty with CSFB.

Good morning Ron. I wondered if we could talk for a second about the Roadbuilding business. I know you don't want to talk about profitability of individual segments, but I guess what am trying to understand is very, very sharp drop in that whole segment and the margins and we are not really looking for any improvement in the guidance. I'm wondering if you could segregate out of the 850 to 950 up from 712, I guess first full year basis does Tatra add, because you said that's adding revenues at a little the profit at this point. And then secondly, could you talk about the loss in Roadbuilding and frankly I almost view that as a structural loss because I don't think CMI has ever made money and at what point as you make acquisitions do you say okay it was worth a try and now we are going to go on and g in a different direction?

You are consistent John, on this CMI question.

So are you Ron.

I know. CMI did have a loss last year but it will in my view make a nice profit or progress and profitability in '04. There have been a lot of changes down at CMI, and I think the way we have structured it and combined it with the Cedar Rapids paver productline offers the marketplace a pretty good productline of milling equipment, concrete pavers and sold through distribution and asphalt pavers. In addition, the asphalt plant business I don't expect to improve significantly in 2004 because frankly a capital investment of a million to $2 million per plant is probably not highly likely at this stage until we get some clarity on the road build.

I think I'm not ready to call it quits, John, on the Roadbuilding business just to kind of conclude on that. I will call it quits if I believe that its a business I don't think we can long-term make a good return on. But I am not ready to do that because underneath all of this is the basic requirement that this country has to rebuild its infrastructure.

Unfortunately that is the same thing we've had for 30 years and it just hasn't happened.

Well, your memory is longer than mine. And I do think there were practices at CMI that were not necessarily good return oriented practices that I think we are changing. I encourage you to continue to ask this question because it is a legitimate question and I think we owe our investors a response here. But I think we can make a go of this business.

Is the swing from a profit to a loss in your model for '04 at least $10 million without saying how much you lost or how much you are going to make or not make but I mean are we looking and '04 of at least a $10 million swing in your plan I would assume?

No, it's not that big of a swing.

Not 10 million?

Not that big of the swing. The Tatra question, it adds about 200 million year-over-year. At low margins.

In other words, if we take the midpoint you or going to 900 or take the Tatra out, you are basically flat? The whole Roadbuilding business is flat with a 712?

Right. At least as we are providing guidance at this stage and Tatra's margin is pretty much break even at this stage in the way we're looking at it. Obviously that's not our real internal goal but I think we can --

So just to make sure I understand this, you are actually looking at a pretty healthy increase if you are looking at a 3.5 to 4.5 present margin on call it 650 to 750 assuming that Tatra is -- I mean on the total, the profit will be a much higher actual percent on the smaller number?

That is correct.

All right, okay. Could you talk for a second since we haven't heard from the mining, you said that you have gotten a couple of truck orders. You are a little bit more optimistic and I agree with what David has said is everyone else would have one believe that the mining business is going to be much stronger than what you are looking at. Could you talk about where you got the orders and more importantly, where you are seeing inquiries and I am talking about like geographically, broadly defined and broadly defined by commodity?

Since every order is watched very carefully in this business, I think I want to be somewhat cautious here. But I would say that we don't have high expectations for our truck business in 2004 but we have higher expectations and on those higher expectations we're probably already sold a third amount of trucks for the year. It's probably at third of the way home already on our higher expectations.

We are seeing iron ore in Australia, we are seeing coal in some places, and I think just in general commodity prices are quite strong. We have historically been weak in South America, so whereas others may be benefiting from strong copper prices, we're probably not benefiting that much from strong copper prices yet because we've had relatively weak business at least on trucks in South America. Our shovel business is much more balanced, I think we got a great shovel and some great opportunities in front is there.

Thank you very much.

Barry Haines (ph) with Sage Asset Management (ph) .

I had a question on aerial work platform. The sales guidance you gave for that segments would imply if I did the math right, a range of a 3 percent increase to a 20 percent increase. But based on the major rental companies not wanting to age their fleets anymore, that kind of implies a much greater percentage increase to even just keep the age the same. You know something north of 50 percent to pick a round number. My question is, is there something else going on there that leads you to a lower number in terms of product or market share or what have you? Or are the conversations you're having with those folks -- should they come through, will actually get to a higher number than the guidance and you are just being on the conservative side? Thank you.

Sure, Andrew. I mean Barry. I think -- I will ask Bob to answer this in a second. I think as we reflect upon the rental business, this is a business that we do believe needs to age its fleet and we do believe there will be meaningful increases. And were seeing it today. But I would also just add a bit of caution in that a year ago we had virtually no visibility, so the world has changed dramatically and it can change significantly in a rather short periods of time. So while everybody is positive and encouraging right now, I think the year is 12 months long, and we have visibility for the next few months, that's very strong but let's just take it in a little bit more balance. Bob, do you want to add anything to that?

I agree. And Barry, we have the two major shows this year, first being the American Rental Association show which is next week in Atlanta, Georgia where most of the North American people will attend so we will get a good read on this market from all the various participants both at the large company as well as the small independents. And then second, the Bauma show this year in Germany which is an every three year show happens the end of March, first weekend April. So at those times we will have a chance to see all of our customers on a worldwide basis and have a much better read of the market. But as Ron said, we're encouraged but I think we also need to be cautious and work directly with our customers on what the actual demand will be over the course of the year.

Thank you.

Andrew Obin (ph) with Merrill Lynch.

What is your outlook for a new federal funding for highway and bridge construction in '04 and I guess I would include state funding as well?

I have a hard time estimating the first quarter so I will be darned to try an estimate federal and state funding, Andrew, not to be a wise guy on this. I think you've got as good a handle on it as any of us. We generally think it will be bigger, we think states are getting moderately stronger and the real uncertainty is whether the president signs a strong highway bill. And a president has had some overtures that he would veto a strong highway bill that had new revenue sources attached to it.

I think although in that context the Senate passed the $318 billion, six-year program with over 70 percent of the Senate voting for it. Now the House hasn't come up with its bill yet, there's no conference that's taking place to commonize those bills. But this is the political world we live in. So I think it's good to be cautious here, I think the reality is there will be more funding this year than last year, did not dramatically more.

On another topic, I know you don't break it out this way but could you comment on sources of cash flow in '04 by business segment?

Let me just characterize it this way given that we don't give that level of detail. I would say historical performance in '03 tended to come from working capital at significant share, we are going to continue to have some level of generation from working capital reductions. It will be not as significant in a dollar sense. While I would follow the EBITDA more appropriately to look at where our cash will come from.

There is not going to be a significant source of cash like Demag inventory reduction in '03, it's just going to be more normalized?

It would not necessarily be as significant I guess is -- I target the 20 percent of revenue going from 23 percent. Given an economic recovery, we are going to try to discipline now not to add working capital during a growth cycle. The specific sources of working capital reduction dollarwise would not necessarily be as much unless we again, revenue does not meet the expectations that we have, then it will.

Thanks.

Gary McManus with J.P. Morgan.

I will be quick here. Just getting back to acquisitions -- I remember a year ago definitely the focus was generating cash and delevering the balance sheet. I don't get a sense it is the same degree of diligence right now given where the balance sheet is and can you just talk about the climate out there for acquisitions, your willingness or appetite to make acquisitions if another Demag or Genie came along especially with your stock price where it is now. What is the prospects or probability of a fairly significant acquisition this year?

I think the prospects are still not very high. But that's not to say that we are not going to keep working it. I think there are deals to be done out there. But I would say we are also very focused on our internal growth and Terex improvement process. There are particular areas of the world where I have more interest and there are a couple of particular productlines where I have a little bit more interest. I would say the probability is less than average for Terex that we will make another acquisition, but I really wouldn't rule it out.

I also would be cautious about thinking about our stock as a currency here, because frankly I look at the opportunity in front us and reflect upon those goals and I say, you know I think there's a lot more opportunity here.

Just one thing real quick. If I take the segment sales forecast, the midpoint suggests total Company revenue growth of about 7 percent. I assume currency is going to help the residual effect of the weaker dollar -- it may be three or four percentage points and then I assume Tatra growth offsets the crane decline with you. You are only suggesting maybe three to four percent based revenue growth for the year, is that right?

Well it depends upon which side the range you want to look. If you want to take the upper end of the range in every area it is a little bit more aggressive than that. If you take the lower end then it's much more conservative. I think we would hope that revenue for the Corporation at-large can grow five plus seven percent, maybe even more. But I think realistically we are trying to stay within a reality check of where we see the market being. But I will also tell you, to be 6 billion in '06, we need to grow 15 percent compounded annually for the next three years. It's not like you should interpret our growth expectations to be low.

Like I guess mean most everybody has seen the ISM (ph) numbers have bee great, a lot of your competitors and other companies are starting to see real strong indication of recovery in the economy and you are not really suggesting much again taking the midpoint -- suggesting much organic growth in '04.

Well, I think we have two productline areas that probably are laggards and that is the Roadbuilding area and the crane business. I think leave it at that and let's see what we do.

Thanks.

Alex Blanton of Ingalls Snyder.

My question has already been answered, thank you.

Robert McCarthy with Robert W. Baird.

I will be real quick. One, in mining, Ron, it seems to me that you should be able to anticipate based on just activity levels globally better parts business. You said you expect trucks to be up. Are you telling us that you don't have similar expectations for shovels and if so why not?

And my second question is, related to what you all described as special items, where are we in terms of reaching a period of time where we might not see restructuring expenses recognized in a given quarter?

I'm glad you asked that question. I think Phil is willing to address it.

The restructuring charges that we had in the fourth quarter pretty much completed the compact consolidation and activities that we had launched at the beginning of 2003 and the cranes business regarding the discontinuation of overlap productlines with Demag and so on. We'll continue to have a very small amount of period costs for restructuring things, for example, facilities lease costs that we are still holding that maybe we haven't -- leases haven't expired even in the Genie case as an example or other I will call it, period related costs in restructuring but that should be minimal.

In terms of major programs we don't have any on the horizon at this stage however, we do not -- are not reluctant to look at other facility consolidation if there's going to be a return on them. So I think relative to where we've been in '03, you should not see the level of activity unless we have a major contribution in terms of cash return from that particular item.

On your question about mining shovels, I think we do expect growth in the mining shovel area and it's hard to handicap because it comes in bunches and --

Your hope would be that all three principle pieces of the business would show growth?

Yes. Operator, I think we are done.

Yes sir.

Are there any other questions?

At this time there are no further questions. You may proceed with any closing remarks.

I want to thank everybody for their interest in Terex this morning. Please follow up with Tom, Phil or myself if you have any more detailed questions we stand ready to answer them. Thank you very much.

This concludes today's Terex Corporation fourth quarter, year-end 2003 earnings release conference call. You may now all disconnect.