Terex Corp (TEX) 2007 Q4 法說會逐字稿

Good morning. My name is Laurie and I will be your conference operator. At this time, I would like to welcome everyone to the Terex Corporation Fourth Quarter, 2007, Earnings Release Conference call. (OPERATOR INSTRUCTIONS) Thank you.

I will now turn the call over to Ron DeFeo. Please go ahead, Sir.

Thank you, Laurie. Good morning, ladies and gentlemen. Thank you for your interest in Terex today. On the call and available for your questions is Steve Filipov and Tim Ford as well as in the room with me, Rick Nichols and Bob Isaman our group presidents. Also in the room this morning is Tom Riordan, our President and Chief Operating Officer and Phil Widman, our CFO. To accommodate our audiences in earlier time zones or anyone unable to listen, there will be a replay of this teleconference. The replay will be available shortly after the conclusion of the call, and can be accessed until Thursday the 28th after February at 5:00 p.m. EDT. To access the replay, please call 800-642-1687 and international participants can call 706-645-9291 and enter conference ID 34272053.

Now, with the administration is done I would like to make a few opening comments and Phil will follow me to discuss the fourth quarter and full year. Tom Riordan will provide some further operating and market commentary and I will come back and give you a summary of the outlook and open it up to your questions. We would ask that any question should be followed with one follow up question if possible so that we are fair to everyone on the call. Overall we are pleased with Terex operating and financial performance in 2007. This was a pretty important year for us. We faced a number of challenges and we feel we handled them reasonably well with an ability to continue to build capability for the future. Meaningful shifts took place in our business. These shifts support the overall growth and margin improvement strategies that are being deployed. For the full year non-U.S. business represented 70% of our total net sales. The sales downdraft from U.S. housing began in mid 2006 so we had a full year effect in 2007. We were able to offset the rather small exposure that we do have to the U.S. housing market to begin and continue to grow our business in markets where area work platforms and cranes and mining equipment are still relatively quite strong.

Internationally, frankly we are attempting to fish where the fish are and generally being successful. Furthermore, we are fortunate to have strong global conditions for the mining, crane and aerial work platform categories. These are, coincidentally, our highest margin products. Encouragingly, we made progress with Terex Construction in 2007. The markets are still somewhat against this team, but I am encouraged by their success. We remain a company full of initiatives. We are working to make ourselves better. We are working on our supply chain, doing a better job of marketing our products. We are implementing the Terex business system, a management system for information and knowledge. We are working on developing markets more aggressively, as well as including targeted acquisitions into our business plans that bolster the franchises that we are growing. These will build margin and sales in the months and years to come.

But frankly we remain a very young company but we do have lofty aspirations. I think the goals we have promised we have delivered upon. One of our biggest achievements in 2007 was the 10.5% operating margin that many doubted was achievable just two years ago. And we did this while growing profits overall more than 50% in the year and on a net sales increase of about 19.5%. Now we have our sites set upon the 12 by 12 and ten goal and think we are ahead of the pace required to be a $12 billion sales company with 12% operating margin in but a couple of years. Now I would like to turn it over to Phil to discuss the quarter and year in detail.

Thanks, Ron. Good morning. Before I begin let me remind you that we will discuss expectations of future events and performance of the company in today's call and as such expectations are subject to uncertainties related to macro economic factors, interest rates, Governmental actions and other factors. A fuller description of the factors that affect future expectations is included in the press release and our other public filings which I encourage you to read.

We closed out 2007 with a flurry of activity. Net sales reached a record for a quarterly period at $2.6 billion up 19% excluding the translation impact of foreign currency fluctuations. While our income from operations of $240 million was a second largest quarterly amount in our history. Income from continuing operations increased to $1.67 per share from $0.97 in the prior year period. We generated $396 million in cash from operations as profitability and a turn around in our working capital performance came through.

Return on invested capital reached a record level of 43.3%. The net sales increase in the fourth quarter was driven mainly by the significant level of mining product deliveries, largely mining trucks which represented 43% of the equipment deliveries for that group in the fourth quarter, 2007, compared to 16% in the prior year period. Large crawler and mobile telescopic crane deliveries also accelerated in the current quarter as a result of through-put improvements. We also had strong volume performance in the aerial work platform and construction segments.

Income from operations increased to $240 million, an operating margin of 9.3% compared to $169 million with an operating margin of 8.3% in the prior year. Leverage from the volume growth in our more profitable segments and the positive impact of pricing adjustments more than offset the unfavorable effect from the mix impact from the mining truck volume mentioned earlier and unfavorable performance in certain product lines mainly the concrete cement mixer truck business. SG&A expenses, although slightly less as a percentage of net sales from the prior year, increased by $52 million, mainly due to the buildup of sales and service infrastructure in international markets to handle the increasing growth. Investment in our strategic sourcing initiative, the Terex management system, and certain performance related incentives as well as $16 million for the translation impact of foreign currency fluctuations. The effective tax rate for continuing operations in the fourth quarter was 26.3% which included an out of period adjustment which reduced the income tax expense by $10.9 million. The rate in 2006 in the current period was 35.7%. The full-year 2007 effective tax rate was 33.2% compared to 35.5% in the prior year.

As I mentioned, return on invested capital reached 43.3% for the trailing 12 month period, as we benefited from working capital improvements in the fourth quarter and the excellent full-year profitability. You will recall that our ROIC target for the year was 41.9%. We improved our level of working capital as a percent of annualized trailing quarter net sales to 18.5% in the fourth quarter from 23.2% in the third quarter. We were somewhat higher than 2006 due to the increased level of international shipments as well as some impact from supplier constraints on parts availability. We continue to maintain our focus on process improvement in this area. Debt,less cash and cash equivalents decreased $109 million in the quarter to $80 million, representing 3.3% of total capitalization which is down from 4.7% at the end of 2006. Cash flow from operations of $396 million was generated mainly from income and working capital reductions of $157 million in the quarter. We spent $154 million on acquisitions, $38 million on capital expenditures and share repurchases totaled $95 million in the quarter and $167 million year-to-date. We issued $800 million in senior subordinated notes in the quarter at 8%, in anticipation of the deteriorating credit markets and an improving market for opportunistic acquisitions.

Let's move on to a quick review of the full-year performance. Our growth trajectory on net sales continues to put us on track to achieve our 12 by 12 in 2010 objective. As we grew to $9.1 billion or 13% over the prior year, excluding the translation effect of foreign currency fluctuations. Operating margin of 10.5% was up from 9.3% in 2006 which reflects the volume leverage and pricing effects in our highly profitable segments, improvement in our construction segment to roughly 3% on our journey to delivering a more significant contribution to the overall company's results. Partially offset by the unfavorable effect of the increase in lower margin mining truck volume relative to other mining products. The road building businesses, mainly the cement mixer truck product line, the phase down loss of roughly $10 million in our Terex asset services rerental business and a $2 million loss in a distribution business where we recently assumed full control. This overall margin performance should continue to improve as we realize the benefits of our internal initiatives and market dynamics. 2007 income from continuing operations of $614 million or $5.85 per share compared favorably too the $397 million and $3.85 per share in 2006 as we continue on our journey to realize the full potential. With that I will turn it over to Tom to discuss end markets and operating initiatives.

Thanks, Phil. Good morning, everyone. I will cover our current views of end markets, discuss how each of our businesses are performing and then get into some of our key operating initiatives. The end markets for Terex continue to be reasonably strong on average as the trend to improve global infrastructure drives the basic demand for our products. However, there are clear differences between various geographies and we believe we are generally well positioned for the current environment. The aerial work platform market continues to be somewhat bifurcated with North America flat to moderately down and international still relatively strong.

The European market, which includes Eastern Europe and the Middle East, remains quite strong although expectations for 2008 are for almost as strong growth compared to the last two years. Asia Pacific and Latin America are robust as well and we expect these trends to continue. Globally the construction equipment market for traditional products is quite varied. North America continues to be depressed but stable. Europe overall remains strong with Eastern European countries continuing their very strong growth and Western Europe showing moderate growth. Middle East, Africa and Asia are very strong markets. The end markets driving material processing and mining products also remain globally strong and still positive in the U.S.. These markets are nonresidential infrastructure and commodity based mining categories..

With the continuing strength in commodity pricing, we have a robust level of quotations and orders particularly in Australia and Asia. Cranes is all about the large infrastructure projects under development around the world and is likely to remain this way for some time. The North America housing market is having a modest negative impact on the small end of the range, but overall the applications where cranes are most desired and profitable are very strong, particularly the mid size and larger sizes of product ranges. The overall robustness of demand is something our team tells me we have never seen before, at least if recent times. Lastly the U.S. road building industry continues to be flat to down and utility product categories are flat to slightly up. Let's discuss what this means for Terex. 2007 was a very good year and we are very proud of what we were able to accomplish. We made excellent progress in expanding our global reach as measured by 70% of our sales were outside the U.S. market.

We continue to improve our cooperations and service to customers. The team is optimistic heading into 2008. The aerial work platform business performed very well in the quarter. The North American aerial work platform was slightly softer in Q4 than what we expected, down high single digits compared to Q4 2006. Europe continues to be quite buoyant and most of our Asia Pacific business continues to be very strong. Latin America is up significantly from a year ago. Overall our international business grew nearly 50% in the quarter. Year 2007 finished pretty much where we thought it would and AWP had a very good cash conversion for the quarter indicating our improving working capital situation.

Going into 2008, we expect that the North America market to be a little choppy although we are seeing some encouraging order rates so far with our larger customers. The tone of the market is probably a bit better than what we might have thought a few months ago. Our other markets continue to be strong to very strong although we don't expect another year of 40 plus percent growth rates outside the U.S.. That said, for the overall segment we are expecting mid to high single digit revenue growth. Backlogs are flat from a year ago and in line with our expectations. We are working diligently to keep our lead times reasonable.

Moving on to the construction segment, they continue to make solid progress. While our U.S. business has softened substantially down mid teens percentage it represents approximately 13% of this segment's net sales. We are generally in line with the market although in several products we are making small share gains. The weak U.S. dollar has continued to negatively effect our U.S. competitiveness with our primarily European based plants and these issues are clearly being factored into our longer-term plans. The strength of our Eastern European, African and Middle Eastern business has more than offset any weakness in the U.S. and we expect these markets to continue these aggressive growth patterns. The Western European markets may moderate somewhat as the year progresses. Our backlog is more than doubled from a year ago and our profit margins are strengthening. We expect low to mid teens percentage increase in revenue in 2008.

The recently announced acquisition of ASV is very exciting. We think they've got a terrific product line and a terrific management team and we look forward to closing the transaction. Terex Cranes continues a strong growth with the exception of continuing weakness in North America r for small truck cranes and boom trucks all regions demonstrated very robust demand particularly in the Middle East. Backlog is at record levels, over $2 billion in shippable orders in the next 12 months and we are very aggressively working to increase the build capacity in our plants. As Phil mentioned, with 32% growth in Q4 and 58% improvement in operating profit, we are very pleased with the trajectory of this segment and expecting mid to high teens increases in revenue this year in 2008. Material processing and mining also continues to be very strong with backlog up almost 75%.

As Phil mentioned, our margin was some what reduced by the heavy mix of mining trucks in the fourth quarter. The underlying profitability of all the separate businesses is on the right track. They also had a terrific cash conversion quarter. With the continued growth in this segment, we are expecting mid to high teens increases in revenue growth. We are aggressively working on capacity bottlenecks and site preparation will start shortly at our new material processing plant near Bangalore, India with production starting around year end. This is the first plant of three to be part of a manufacturing campus for Terex. Our acquisition in November of Superior High Wall is turning out to be a great add for the Terex family. Our road building utility segment, despite aggressive cost reductions, continues to struggle.

Overall, our sales were down almost 10% for the year virtually completely driven by the concrete mixer truck business. The root cause is the mixer market shrinking by over 50% tied to U.S. housing and road building. Utilities, basically, had a flat year in revenue and profitability but made significant progress in operating improvements that will show results in 2008. We are seeing some minor improvements in order rates particularly in our utilities business, our concrete mixer truck business is full for the next few months and is stable. While with we expect the revenue to be about flat, with 2007 for this segment, we should see improved margins. Phil is already covered the non-operating items and expenses that were shown in this segment for 2007.

Moving on to our key initiatives, the supply management team is up and running. The team is focused on cost reduction from leveraging our global spend, as well as bringing additional focus to supplier capacity and delivery challenges. We are challenged moderately with supply chain capacities and deliveries, with the situation improving as we expand our base of capable partners. Substantial effort has gone into improving our materials planning and forecasting methods and we're seeing improvement in some other areas as a result such as fill rates for parts and lead times. With the working capital of Terex dropping to 18.5% of sales, I am pleased with our progress. We are in the process of starting sourcing teams in India and China to fully support our quality delivering cost objectives and these teams will be up and running in the next few months.

One key area I'd like to cover is material price. In the last few days there are indications of significant iron ore price increases to Asian steel makers. We are monitoring this closely and putting together contingency plans accordingly for potential steel price increases. It is unlikely what the impact will be, but it is of concern. Internally within Terex we recently rolled out eight key initiatives to help drive additional value to our businesses by working together. In addition to the supply management, the initiatives include new product identification and development process, diversity inclusion, how to insure we continue to find and track the broadest available talent in the marketplace, the Terex business system education and assessments, developing markets and strategic accounts which we announced that Steve Filipov will head up, aftermarket service and logistics, customer satisfaction and of course the Terex Management System with our new ERP-based IT system. I won't get into the specifics of these other than to say each are critical to our future success and we will update you periodically in the future. At this point I will turn it back over to Ron.

Thanks, Tom. Now I would like to comment on the 2008 outlook. We surely understand that the financial headwinds are hard to read right now. We look for signs everyday of change and how these changes may affect our business. So far our customers have endured because the work is there and the need remains. And because much of this need is outside of the United States, the risk is moderated some what. We will obviously pay close attention to the economic conditions and adapt accordingly as the 2008 year progresses.

With rental companies in the U.S. being much better managers of fleet, we do not expect they will need to access capital markets in 2008 to support their purchases of equipment. In other words, internal cash flow and normal fleet rotation is what we expect. Furthermore, there is much we already know about our 2008 opportunities from our customers. The geography of our business and the backlog that we have tell us a lot. What we know gives us confidence that we will have another great year at Terex. We think the fundamentals are strong and the negative market trends in the U.S. and perhaps in some markets in Europe will not overwhelm the positive momentum in our business. We specifically expect to substantially grow revenue and believe we will end the year with net sales in the 10 to $10.5 billion range. We do think we will get,-- we do not think, rather, we will get the lift from currency that we did in 2007. So this growth is mostly internally generated.

Earnings per share are expect to be in the $6.65 to $7.15 range. This is a pretty nice growth over 2007. We expect the split to be about even between the first and second halves of the year but frankly, as a maker of big equipment, the revenue can be lumpy as you saw in 2007, in particular with our strong fourth quarter. We have a hard time calendarizing the business in a more definitive way. We do believe the first quarter will be about 35 to 40% of our first half, however. In summary, we continue to improve. We expect our tomorrow to better than today. We see lots of opportunity in the future. Now, let me open it up to your questions.

(OPERATOR INSTRUCTIONS) Your first question comes from the line of David Raso of Citigroup.

Good morning. Two questions, one on the crane backlog. Historically you to not put in the backlog anything beyond 12 months nor any quote orders that you have not put pricing on. So I am just trying to calibrate truly the demand for cranes looking out. Can you somewhat quantify for us, how many-- we'll define it as orders-- but people wanting cranes beyond the next 12 months that you are already well aware of but you are not putting in the backlog officially. And also, how far are you guaranteeing pricing out right now?

Okay. That's first question, I will turn it over to Rick.

Okay. David, I think we have significant backlog flowing into 2009, and 2009 is not priced yet, okay. So we have order slots and commitments out in 2009, but we have reservation on pricing in 2009 because we want to be very careful with some of the steel dynamics going forward. So, 2009 is beginning to fill from a total calendar year.

Yeah, but we are not going give you the specific amount on that, but let's put it this way. It is meaningful.

Yes, it is meaningful.

And regarding '08 pricing. So everything that has a delivery date in '08 has a price already, if I read you correctly, but is there a price escalator if raw materials move higher than you thought for '08?

There's a combination, David. We also have fairly good provisioning on steal pricing out of Europe and into the U.S. also in this business. So you have a combination of things, provisioning from steel as well as some potential in the pricing area.

Okay. Last question, big picture on the margins. Clearly we can appreciate the cost related to raw materials and potential risks, the upside there on the costs, but is there a way you can quantify-- and there's always some unintended consequences when you are building a lot of new plants and so forth. But, if your midpoint of guidance is implying roughly about a 50 bit margin improvement year-over-year, how much is '08 going to be dragged down by structural improvements you are trying to make clearly recognizing that it is a European manufacturing base is a bit challenging and so forth? Is there a way you can quantify that? I am just trying to think about the margin improvement for '09 and beyond. How much is '08 being dragged down?

David, the way I look at this is pretty simple. We won't get '08 unless we invest in the business and we won't achieve '09 and 2010 unless we invest in the business. So in a certain sense we can either go backward or we go forward. We are just choosing to go forward. So the money we spend is what going to help us unlock the 12% margin opportunity. If the markets are better than we expect that margin could go up beyond 12%. If they're not, we still think we can hit the 12% because of margin improvements in other areas.

So, that's how we are looking at that. I wish I could be more definitive, but frankly,this is about what happens when a company grows from $3 billion, which we were in 2002, to nearly $10 billion just five years later. You're going to end up spending money in order to position yourself for that next level of growth past that. You want to add something, Phil.

I was just going to comment that the manufacturing footprints changes are largely not going to be up and running until later in '08. There are some that are starting. So it is more like CapEx portion next year, and I will call it the logistics of getting it organized and maybe margin contributions except for sourcing. The infrastructure that's going in, arguably is going be over the next two to four years. It is difficult to peg exactly what we are going to spend in '08, '09 and '10. Again I would echo Ron's comment about it's-- one kind of goes with the other, and if we expect growth in emerging marks we need a platform to work off there. That's what it's all about.

Okay. That's helpful. I'm just trying to think through. If we have a multi-year investment philosophy. I completely appreciate supporting the growth. I am not disputing why you're doing it. It's just we should think about '08, '09' '10. Clearly the investments that are going on-- it's a very positive story for the top line but it is a multi-year process. I am just trying to.

It is and of course David, you know that our, our measurement scheme is returns on capital. So we are very conscious of this.

Okay. Great. Thank you very much.

Okay. Your next question comes from the line of Terry Darling of Goldman Sachs.

Thanks. I guess first question is sort of a follow up in terms of the pace of your internal investments. In the fourth quarter your eliminations expense jumped up quite a bit in absolute terms and in terms relative to your revenue base. Can you discuss what's drive tag and what we should expect in 2008 on that item?

It is Phil, Terry. The impact in the fourth quarter on eliminations regarding the operating expense was largely related to performance-based incentives. You saw in the ROIC exceeded our 41.9 t% objective. That has an effect on performance stock grant that we had, as well as annual incentives. That was the biggest piece of specific dollar increase that was in there.

I think there was a reference in the press release there was some IT and other efficiency enhancement investments in there. That's not really the big driver there.

There were some in there but they weren't the biggest piece.

Thank you. Going forward what should we expect on that?

I don't think we have indicated specific, other than it is in the total guidance we have given for next year.

Okay. Say question. Can you talk in a little bit more detail about your strategy on financial services on a longer-term basis and some language in the press release sound like you are accelerating some efforts there, and just trying to think about how the-- let's call it unique environment we have in the credit markets creates an opportunity or a challenge as you try to build that out?

We built the infrastructure for the financial services organization in '08 or, excuses me, '07 and we are starting some work on originating and servicing but our initial plans are more to self portfolios, but still keep the visibility in connection with the customer. It is going to be a gradual growth. It is not going to be something that will be noticeable in terms of the overall balance sheet and our intention is really to grow incremental sales as opposed to taking sales that we currently get and finance through others. It is really to provide incremental benefit. The incremental revenue should justify the returns regarding any investment on the balance sheet that we have.

We are seeing some effect in the low end dirt engaging products, in terms of the people that buy those products, in terms of credit exposure, but our bread and butter in the U.S. is really more in the aerial or platform business and we still see pretty good activity in that regard. But our intention on the financial services group in the short term is really to be incremental sales drivers not to make money in financial services but to provide that customer access and intimacy.

We are growing from crawling to walking.

I understand that. Just sounded in the press release as thought there was a little acceleration going on. Is there any way to give us the amount of capital you have invested in the business today and how much investment you're looking to make in '08

There's nothing invested in terms of on balance sheet there at this stage. But I would say it could grow to 50 to $100 million potentially.

Still very low numbers. . Thanks very

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

Morning. Congratulations. Ron, I guess my first question when you look at your guidance for the first quarter it implies earnings are about 19% of the full year, if you just take your guidance at the midpoint. Whereas if we look, and I think over the past two years it has been more in the 30% range. So, I am just trying to figure out is there anything unusual in the first quarter where earnings-- where the year is going to be more back end loaded, is it aerial platforms. If you could just give your thoughts on that.

Jamie, I'd ask you to go back and double check your 30% number. I don't think that number is correct. Typically our first quarter is somewhere in the 20% range and the second quarter is 30 to 35% range and I am not going to continue here because there is no typical, was what I was trying to say in my comments. So, I don't find anything unusual about our guidance in the first quarter.

Okay. And then I guess just my second question as it relates to aerial or platforms, I think you noted in your prepared comments that I think in North America, AWP was softer than you thought. Can you just with elaborate that in how you sort of see the order, how you see orders trending for the year? Is it more back end loaded as you speak to sort of the rental customers.

I think it was more a normal seasonal pattern really, whereas '06 was the less normal seasonal pattern. But let me turn that over to Tim to give some commentary because I think the overall outlook in North America is probably a little better than we thought. Tim.

Yeah, Jamie. In the fourth quarter, as Tom said, our sales were down high single digits. I think what we saw was customers were reluctant to commit in the environment we saw in the fourth quarter, but as we got late into the quarter and into the early part of '08, the order pattern has actually been quite encouraging. Orders were reasonably strong in the fourth quarter and into the early part of the first quarter with some of the larger customers placing some orders early.

Okay. And then I guess, just lastly, just to build on that, Tim, as you you look at, I mean I guess the concern for most of the investor base out there is while the first half may look good at this point, I think people are concerned about potential cancellations in the back half of the year. So I guess what do you do as Terex to mitigate that and are you assuming any of that in your forecast?

Yeah, go ahead, Tim.

The first half is obviously where we have greater visibility for the year. Our customers have made indications to us on what they expect to spend for the year. The pattern that we have so far for deliveries looks relatively consistent with previous years so I am not overly concerned at this point about the second half. Obviously as we get closer to it we will have a better look at it, but at this stage, I don't know that I can give you any further guidance on what the second half might look like relative to where we sit today.

We are sitting with basically the same amount of backlog as we had a year ago. The thing that I would say that is encouraging is that some of the developing markets are starting to use more aerial work platforms. We are going to have to hustle to get some of business in some of those developing markets because it is a race. But I don't see anything that's significantly different but we've got to pay attention as I said in my 2008 opening comments on outlook.

All right. Thanks. I will get back in queue.

Your next question comes from the line after an Andrew Obin of Merrill Lynch.

Yes, good morning. Just to follow up on Terry's comment on the core product expense, It is fair to assume though, that you are not going to have those bonus expense during the first, second and third quarter of next year; right.

It would be whatever we typically would accrue to our budgeted performance level. It is more a timing issue.

Can I ask you a question on the sale of JV and try to reconcile what I see on the cash flow statement? How much was exactly the gain on the sale of the JV if I missed it? I am sorry.

I don't think we indicated specifically. It is about $3.5 million.

Okay. Okay. And so then if I look at the proceeds of sales, it was-- it matches the $3 million we see in the cash flow statement?

That's correct.

Thank you very much.

All right, Andrew

Your next question comes from the line of Henry Kirn of UBS

Morning, Henry.

Morning guys. My first question, if raw materials were to escalate, what kind of lag would you expect before you would be able to pass through either a surcharge or price increase?

Raw materials have been escalating and we have been passing on price increases. That's how we have been running our business. Each and everyday probably for the last 36 months. So this is not an unusual event. The only thing that's potentially different here is that steel prices could go up a little bit more like they did two or three years ago. And, I think we are ready to react if steel prices go up like they did two or three years ago. I think some of our competitors have already announced some price increases on that. But I think frankly, we did that in anticipation some time ago. So, I am not-- I'm not sitting here fearful of the lag time other than the fact that it just does take a little bit of time and that is kind of been our plan.

That's already baked into the guidance for '08?

Well, within reason. If steel goes 30 to 40% that's not baked into the guidance. We will have to adjust accordingly. And, there may be some pain in there. But, if I knew that answer, I am reminded of what my mother used to say to me. If it was a horse you could ride it. And there's certain contingencies that I can only do contingency planning for not to really think that's what is going to happen in our business.

Fair enough. I guess my follow up is could you talk about what you are doing with the Indian and Chinese facilities. What you intend to manufacture there and whether they're geared for local or export demand?

Rick, why don't you talk about India and Tom maybe you can or Tim could maybe talk about China?

If I start with India, Henry, I think our whole concept around the Indian factory is a campus-type layout. The initial products going into that are the power screen and Pegson track crushing and screening equipment. The facility is under design and we are expecting to break ground soon with late 2008 really beginning to have production rolling out of that factory. That site, more than likely, our next follow on products into that region will be products out of the crane group which will follow on construction very closely behind the materials processing, building structure.

And Tom, why don't you comment on China?

Yeah, in China we have a number of things going on both in [Tinjen] which is outside of Beijing. We have a joint plant between the cranes team and mining team. We are in the process of putting together. That will be impact-- probably early '09 and the AWP business is in the process of final negotiation for again another Terex campus site, a couple of hours away from Shanghai, that we believe is an appropriate area, and that will again be kind of an '09,' 10 process. In each case we believe, we're going to have a mixed development as I would call as it relates to products for the China domestic market and the Asia-Pacific region and then on an opportunistic basis looking at export products back to Western European, products and or components back to the U.S. and Western Europe markets.

Okay. Okay. Thanks a lot. Good quarter, guys.

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

Hi. Good morning everyone. I just wanted to ask, on the gross margin in 4Q I know it is lumpy, so I don't want to get too precise. You had a sequential decline that's a little bit bigger than the sequential declines you've had in past periods. I wonder if you could break up what happened there, into raw materials, or maybe it was turning off production lines (inaudible) in Europe. Just explain the nature of the decline?

You are talking the total company?

I actually started with total and switched to AWP So both. You had a sequential decline in both.

Let me comment, I guess, on the mix in the total company and then if Tim wants to comment specifically (inaudible). But we did have, as I mentioned in my comments, a very high mix shift to mining trucks which quarter-over-quarter, this quarter, fourth quarter versus last year was about one margin point on the MPM segment itself. So that was a pretty significant shift regarding that business.

I think some of the investments that we've had in AWP, and Tim may add to this, but we had more significant investments in our international infrastructure. That has been increasing on a trajectory as we go through the year. As well as in some of the other segments as well and I think of OP construction, infrastructure and regional organization and getting at some of our Asian investments as well. I think most of the incremental margin we've looked at, at a gross margin level looks reasonable as we explain the mining truck mix and the S&A growth has really been more in these investments and infrastructure. Tim, if you want to comment on AWP.

Yeah, actually for AWP our gross profit improved by 70 basis points in the quarter, which we felt reasonably good about. We had an 80 basis point negative impact in SG&A which was really as Phil just said, driven by our increase investment in selling expense, principally international markets like the-- as we have in Europe, the Middle East, or Asian markets as well. So, the ten basis point decline in operating margin was really a function of the investment in our international growth.

I was looking more sequential. I know it is lumpy believe me but you were down, I think 390 sequentially. It was a pretty good 3Q. So, I guess the question was were you surprised by raw materials or was it maybe turning the plants on that you were starting to expense some stuff?

No, for the quarter-- the fourth quarter for us is typically a quarter of lower production and we tend to have obviously higher expenses as a result of that. In '06, we were producing near full steam right straight through all year and the fourth quarter of this year was more of a seasonal pattern.

I am sorry. Let me just finish up.

Go ahead.

More broadly, were you surprised at the upside in raw materials in 4Q or no.

No.

Okay. Thank you.

No. I think that's, you are look at sequentially thinking that our margins are coming down and frankly that's just a matter of how we schedule our production through the year. It has nothing to do with our cost going up from a raw materials point of view.

That's helpful. Thanks. Okay.

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

Morning, thanks. With respect to the material processing and mining segment, I'm just trying to square up-- your guidance calls for mid to high teens revenue growth, but you have commentary in your release talking about capacity issues could impede acceleration of growth. Is that to imply then that, once additional capacity come on line on a normalized basis you would see greater accelerating growth or are you factoring something else into your guidance? Can you square that up and also with regard to superior high wall miners, it looks as though they got recently an order out of Russia that typically has been a pretty North America business. Can you comment maybe on some of the opportunities you might be seeing outside North America now that is part of the Terex family.

Okay. I will let Rick handle the second question in the-- No, Rick will handle the superior high wall. What was the first question? Capacity and growth. Oh yes, and the mining business. I got it. I got it. I think what we have done is we have been working on adding capacity.

So, our guidance is based upon where we think, what our production we can achieve right now. I think to be honest with you, if we could get capacity up further our revenue could go faster. So our guidance is really based on the productivity improvements we have already implemented and are soon to implement rather than things that you should expect more of in the future. On superior high wall, Rick.

Okay, yeah, we are very excited about Superior High Wall and one of the key elements that drove our thinking of acquiring Superior High Wall is that it was a predominantly North America, eastern U.S. primarily, sales oriented business. Opening up Russia, China, India, and Australia where we have key operating entities already from a mining standpoint really has significant opportunities to grow that business over a period of time and it is a great product to add to the portfolio business we have in mining. So we have very excited. Russia was a nice-- a nice deal. There are several others on the table around the world that really are incremental to what that business was when we acquired it.

Thanks. A quick question on the AWP business, can you give us-- how much were tele-handlers as part of that segment, it is declining and (inaudible) nine months was down on ten. What was that for Q4 and for the year?

I don't think we ever said tele-handlers was down ten.

I am sorry. As far as a percentage of the segment revenues, it has declined from being around 19% down to only 10%.

I see.

Where that as a percentage of revenue, where that mix, where that is come in from now.

Yeah, I can't give you that specific number, but and we really don't like to give specific individual product line summaries, but I will tell you generally that our fourth quarter tele-handler business across the board in our aerial work platform business actually was up year-over-year moderately.

Thanks. That's helpful.

Your next question comes from the line of Joel Tiss of Lehman Brothers.

Good morning , how's it

Hi, Joel.

Can you just first a clarification, can you give us which segment ASDI is going to go into when you consolidate it.

It's going to go into your construction segment on a financial reporting basis. I'm sorry.

Yeah, we don't include that in our guidance, Joel, until it is acquired if that's what you are getting at.

Yeah, no I just want to put it all together so I have the right basis and all of that.

The other point I wanted to make about that before my guys kind of cut me off was to. [ LAUGHTER ] Was to say that while it will be in the construction segment, I expect it to the be part of the overall Terex family. I think there's other opportunities there that it can add to the whole company's business.

Okay. The first question, can we just spend a minute on the crane business? You made some comments about some parts of the business or maybe seeing supply/demand coming into a little bit better balance and other areas are still sold out. Can you give us any sense of what-- what parts of the portfolio-- what percentage of the portfolio of Cranes are seeing the supply demand getting into better balance and if you could also tie it back to end markets-- is it construction related or are you seeing anything in the infrastructure side of things that would be-- indicate any supply-demand coming into balance.

Well, I want to be careful about supply-demand coming into balance. What we said was our very small equipment in North America like the boom trucks and the very smallest cranes we make, were the only one that we saw any effect of the North America slow down on. Virtually in all of the remaining parts of our crane product line, we're running very fast to try and catch up with demand. And I would say that, our order rate outstrips our ability to produce at this stage. Do you want to add anything?

I would agree with that. I think being in the business a very short period of time I definitely see real opportunity to grow capacity and capability of the cranes business both locally and on a much larger geographic basis. And the demand is there, if we can grow that capacity and capability both from a footprint standpoint and from a supply-chain standpoint. So-- .

Steve, do you want to add anything from your experience?

No, I think you are right, Ron. The only effect that we have is in North America on the smaller boom trucks. Everything else is full out and I think the other question was a little bit around the markets that are driving it. We commented in a statement that-- it is really about infrastructure and energy in developing markets, whether it be nuclear, coal power, renewable energy, liquid natural gas. That's really what is driving the crane business today.

And, there's a lot of projects still to be done in infrastructure in developed markets such as North America with highway build in Europe, there's still a lot of development for energy and power and infrastructure. Wen we talk about infrastructure, it's hospitals, it's schools, it's roads, it's really everything that needs to be done. So I think the outlook is positive and I don't think that-- I think as Ron said we still are ramping up and we still need to ramp up because demand is still very strong for the product.

And we expect you to sell a bunch more in the developing markets.

I'll try. And any-- any indication or any-- anything you can help us with on the percent of the portfolio that's energy related versus construction related?

Joel, that's very hard for us to do, but you are on an important area because energy, Louisiana as a state on a per capita basis has more Cranes per state than any other state in the nation. Why is that? Because of the oil refineries and it is the gasoline refineries, rather, that are are located there and when you have to, every gasoline refinery has be torn down every number of years, and they use a tremendous amount of cranes. But it is very hard for us to do that. I heard a statistic the other day that wind power has dramatically gone up and how do the wind propellers get erected? Through the use of cranes. And so it is a tough thing that you are asking us to narrowly focus on per end use. Because we sell through rental companies and we don't have that visibility

Okay. Just a question. In the last one any difference in the margins in the area work platforms inside the U.S. versus rest of the world?

I would say generally not although the currency has clearly helped us in the rest of the world. But, some times we have to give up a little to get a little bit too. So it is hard for us to, to discretely analyze that.

Okay. Thank you very much.

Uh-huh.

Your next question comes from the line of [Andy Casey of CA Wachovia Securities].

Good morning. Two questions, first kind of short term on A.WP Q4 backlog. Did that include North America rental customer orders for '08 or did those orders come in Q1 and then, back of that, was that the same pattern in Q4 '06 or did the rental companies order in Q4 for '07?

Tim.

The backlog at the end of '07 was-- did not include much in the form of '08, early orders from large customers. So, there wasn't a lot of forward ordering at that stage. '06 was probably-- probably had a little bit more in it than-- for early ordering than-- certainly had more early ordering than we had in '07. That's for sure.

That's right.

Okay. So it is not a direct comparable because of the timing there?

But what we are seeing, Andrew now, is probably more consistent with the historical patterns of this business.

Okay. Then on the construction margin performance, SG&A as a percent of Q4 sales, decreased more than I expected and it was well below the average for '07. Is the Q4 performance a result of the internal improvement work or is that totally a function of strong sales growth?

Yeah, Bob do you want to answer that question.

I think it is predominantly (inaudible) sales although we do have a substantial amount of optimization of our current portfolio from a cost and asset structure standpoint.

Okay. So, with the backlog at least near term that should be roughly sustainable prior, excuse me, to ASPI inclusion.

Right.

Thank you very much.

Your next question comes from the line of [Chris Walther of Robert W. Baird]

Morning, guys. Quick clean up question. Do you have the revenue impact of High Wall in the quarter and how much backlog it added?

It is insignificant in terms of revenue in the quarter. I am not going to give a specific amount.

We bought the business in the middle of November. Basically it is insignificant and I don't even think we could find it.

What about backlog contribution?

We are not going to give that out at that specific a level.

Okay. Can you talk a little bit about the pricing environment you are facing particularly in North America versus Europe and to what extent a more active financial service help you compete in that regard?

I think pricing environment continues to be a little uncertain, stable at the moment but frankly there's some concern, as we mentioned earlier, on steel pricing, what the impact is going to be. Ron has mentioned and we have seen some of our competition being right out front with some fairly aggressive price increases so we are moderating it, but excluding that factor frankly, it has been a fairly quiet moderate point in terms of pricing both from a raw materials standpoint and the finished product standpoint from our perspective.

Any material difference between New York and Europe at this point?

No, frankly, Europe may be a little bit more aggressive in terms of the pricing environment, both finished product as well as raw material but not substantially so.

Thank you.

A comment on financial services, if my voice holds out, I will try to answer. But what we are really trying to do with the financial services group is provide good creative solutions to customers that need that avenue to purchase equipment. So when you talk about incremental orders, what's the cost per month of that equipment. Can we go in with a solution that is creative and flexible to meet the customer's need. I think that we are growing and trying to improve in that area in particular in North America and certain areas in Europe. We have a investment in a JV in Europe as well which provides some of that coverage currently. But it is a growing opportunity for us.

Thank you.

Your next question comes from the line of [Kent Green of Boston American Asset] Management.

Yeah, just a quick question on the margins over in the mining equipment segment. Is there been any pricing on the trucks that are there or is it just too many producers or because we are hearing a lot of comments about big cranes in the mining equipment which are getting very, very good price increases.

I think the truck business-- this Rick by the way., Kent The truck business has been somewhat of a challenging business for us over a long period of time. We have done a good job of increasing margins in the business but it is still is, on a relative basis, a lower margin product and our excavator products or our drill products or our new Superior High Wall mining products. So. when you have a larger sales mix move to a lower margin product, I think it is, it just swings the portfolio a bit.

Historically, we have been quite out sourced with our mining truck business in an effort to keep our fixed cost down given the fact this business is so lumpy. 60% of total cost is from the drive system and the engine and we don't make either one of those. So, we have a better margin than a distributer tor, but not as good a margin as if we were a true manufacturer.

Just a follow up question, a crane competitor has made a lot to do about division called Crane care, 24 hour service, parts business, that kind of stuff where it is up to 15 tor 20% of their total sales. Have you started such initiative, is it ongoing, or could you disclose whether there's any indication that you would want to increase this part of your business?

Steve, do you want to comment on that?

Sure. Kent, I would say that, we are doing a similar program. It's much more by geography for example in North America our crane service team is located in Wilmington, North Carolina, we have a 24-hour on-call service. In Europe it is based in Germany, and we have a facility now in Dubai.

So I would say that we are doing similar things as our competitors to serve our customers. But we still have much more work to do. I think this is an opportunity for not only the cranes business, but Terex in general, to improve on and we need to continue developing it. I think that the competitor you are talking about probably market, does a good marketing job with it, rather than how we go to market. But opportunity and we are doing it.

And I would say, our parts and service business is probably not a lot different from a revenue perspective. So, it is just, I think that marketing wise maybe we could blow our horn a little bit better. And I think that's something we will consider. In general in the after market for all Terex products in the future.

Thank you.

(OPERATOR INSTRUCTIONS) Your next question comes from the line of [Robert Marshman of Defiance Asset Management. ]

Morning, guys. Congratulations on a great year. It looks as though the global infrastructure boom lives despite the U.S. housing market and structure finance market issues.

Thanks.

Hey, with all of the initiatives you have, this is not a question but just an observation, how about one of the initiatives to improve your forecasting capabilities. Two years ago you guided to 6.7 to $7 billion and $3 and you did $7.7 billion and $4 a share in earnings. Last year you guided to 8.2 to $8.5 billion in revenue and 5 to $5.40 in earnings and delivered $9.1 billion and almost $6 a share in earnings.

So, with all of those initiatives, maybe-- maybe we could put something together to get us closer to the, to an outlook that's closer to the fundamentals or we are being very conservative on on going basis or we're being utterly surprised by how strong this global infrastructure boom really is. My question is regarding the mining business, with what is happening with iron ore prices and coal shortages and all of this stuff. What inning do you guys think we are in the mining infrastructure spin cycle and as the follow up, is there still more bolt on transactions we could do in the mining business at less than two times revenues? Thank you very much.

At less than two times revenues.

Yeah, Ron, we're becoming a gross stock acquirer out there with the last two transactions. We haven't--

[ LAUGHTER ] This is, the future-- the future is what determines how you make decisions of course. I think your comment about forecasting and, trust me, I think Tom Riordan has had that conversation with a number of our operating teams. But frankly--

Although that being said we've got a team in Ron's office currently polishing up his crystal ball.

Since you guys being very conservative I hope. Anyway, the mining business, where do we stand in your opinion and still opportunity for bolt ons? I just can't imagine the excavator business and (inaudible) the drilling business not just booming for another few years, with all of the new projects in iron ore, and coal et cetera that are on the plates of all these global mining companies.

I think we are in the fourth or fifth inning here, I would say. Very, very good future potential in my opinion. I think we're all, all now in the industry believers that we are in a protracted global commodities boom. I think what is driving that is the same thing that everybody else says and that is basically two to three billion people coming into the modern age.

With those two to three billion people coming into the modern age, the requirements for copper, iron ore, coal, oil, all of the things that drive consumption of some of our products is going to be high. I'm positive about that. Our ability to find bolt on acquisitions in the mining area, we are working on them. I think they're impossible to handicap. And I don't think anybody should look at us and say well we are going to do a huge mining deal because we are not. But I think there are opportunities in certain markets to do things and compliment our mining business and we are oriented to do those.

Thank you very much. Congratulations on a great 2007, looking forward to being a significant shareholder into a great 2008.

Thanks, Bob.

Your next question comes from the line of [Seth Weber of Banc of America].

Hi, thanks, good morning everybody. Most of my questions have been frankly asked and answered but a couple of quick clarifications. Sorry if I missed it, but did you give the split, the ariel split, U.S./international for the fourth quarter and what you think that'll be for next year. And then a follow up question is, I think last quarter you talked about there was some backlog that maybe 10% of the backlog that didn't get shipped. I mean was that part of the tail wind here for the fourth quarter? Is that reconciled at this point or still out there?

Let me answer the second question. We still have approximately, I think 10%. It is, I would say high single digits to ten that's past due. It is largely in the cranes group. The rest of the segments seem to be catching up in terms of what we have.

I think it's important to point out because it will cause some lumpiness in your cash flow because we are still working to try and get those orders through the system. So, but I think we did catch up. There were actually even more. We caught up on some of the longest term ones, but what went into the bucket also was pretty substantial. And on the split between North America and Europe, I don't have that at the top. Tim, do you have that at your fingertips?

Yes, I do. For the fourth quarter, North America was actually below 50% and our international business was greater than 50%.

Okay.

For the year it was about 55/45.

Okay. Great. The year ended pretty much where we thought it would end then.

Okay. And then so for next, for '08 it should be a little bit maybe more than 50% international then it sounds like?

No I wouldn't say that necessarily more than 50% international. I would say we are probably in the 50/50 or a little more North America than international still.

Okay. Thanks very much, guys.

Okay. Your next question comes from the line of Steve Barger of Keybanc. Good morning.

Hi. Just a quick one on the guidance. Your assumption for share (inaudible) $104 million which is, I think, basically flat year over year, but you have the buy back in place. Does the guidance account for any share buy back?

Yeah, share count is not as easy to calculate as you might think with the accounting rules that we have. Share count changes based on stock price levels and also the performance based shares that we have. There's a lot of-- our stock grants are linked to performance of the company. So we have included, all of those factors including share buy backs in our estimates. I am not going to give you specifics as to how much in either direction at this stage.

Okay. Thanks very much.

Welcome.

At this time, there are no further questions. I would now like the turn the call back to Ron DeFeo for closing remarks.

Alright. Thank you very much, Laurie, and thank you everyone on the call. We appreciate your interest in Terex this morning. Please call Tom Gelston, Phil Widman, myself or others if you need follow up information. Thank you.

Thank you, that does conclude today's Terex Corporation fourth quarter 2007 earnings release conference call. You may now disconnect.