Terex Corp (TEX) 2008 Q4 法說會逐字稿

At this time I would like to welcome everyone to the Terex fourth quarter and year end 2008 earnings release conference call. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question-and-answer session. (Operator Instructions) Thank you.

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

Thank you. Good morning, ladies and gentlemen and thank you for your interest in Terex Corporation today. On the call with me this morning is Phil Widman, our Senior VP and Chief Financial Officer, Tom Riordan, the Company's President and Chief Operating Officer, and Laura Kiernan, Director of Investor Relations. Also participating on the call and available for your questions will be Rick Nichols for our Crane Segment, Tim Ford for Aerial Work Platform, Eric Nielsen for Materials Processing & Mining, Bob Isaman for Construction and Steve Filipov for the Developing Markets.

To accommodate our audiences in earlier time zones or anyone unable to listen a replay will be available shortly after the live call and can be accessed until Thursday, February 19th at 5:00 p.m. To access the replay, look at our web site or dial 1-800-642-1687. International 1-706-645-9291. International ID conference number 81993582. The easiest is probably just to go to our web site in the investor relations section.

I'd like to begin with some opening commentary followed by Mr. Widman who will provide a more detailed financial report and Mr. Riordan who will discuss operations by segment. I will obviously open it up for questions and during the Q&A period I would like to ask that you have one question and a follow-up. So let me get started.

The 2008 year was a water shed year for Terex in many respects. During the year, we faced many challenges and as well enjoyed some pretty significant successes. In the sense we were able to realize some of the potential in our business, it was a pretty incredible first half. And like many industrial businesses began a rapid slide during the second half that accelerated as the year ended. It's now clear that the 12 by 12 and 10 goals, $12 billion in revenue with 12% margins by 2010 will not be achieved without an unlikely miracle turn around. We confirmed, as we reflect back on the year, that our stronger businesses of Aerial Work Platform, Cranes, Materials Processing & Mining could and would produce excellent returns. We also realized that our weaker businesses of Construction and Roadbuilding were not yet strong enough and need much more work both strategically and operationally.

The current environment is one of a global slowdown where the product and geographic diversity we have built into Terex has little ability to mitigate the market pressure we are experiencing at the moment. Consequently we are just going to continue managing Terex from cash generation over the next months, as we indicated we would at the end of the third quarter conference call. We will monitor markets and trends to capitalize on opportunities as they present themselves or as we can make them happen. We are not providing income guidance at this point in time as our confidence is low in some of the key areas that drive guidance. We have a wide variety of revenue expectations, but generally more orders are being canceled than we anticipated and future orders are a battle.

In the pricing area, we are attempting to be disciplined, but we also realize that losing share is not something we can tolerate in our stronger businesses and in the weaker ones, we will do what it takes to convert inventory to cash. From a material cost perspective, I know you realize the roller coaster we have been on relative to input costs. Just last year, we were experiencing near 70% to 80% increases in steel. And while the trends here would be positive at this moment, there is inventory in the system that needs to be worked through at our shops and with our suppliers.

Lastly, we have reduced employment by over 20% compared with June of year ago and we still have a ways to go in our view. A couple of months back we froze the salaries for 2009 of our top 500 leaders and announced that the long-term compensation programs going forward would be reduced by 10% to 50%. We are now planning a salary freeze for virtually all of the salary work force above a certain pay level depending upon country and local agreements. Further changes may also be implemented.

So we are in an environment -- so in an environment like this, what are the strengths that we can build upon? And further why should you as an investor have confidence in Terex Corporation and our prospects? I'd like to address that. We believe because we have the financial strength to survive and an ability to overcome adversity. We have seen adversity before. We have inventory in our Company that we will monetize. This cash will be crucial to weathering this storm. Our financial services group utilizes capital from financial partners to fund equipment purchases so we do not have to fund retail business on our balance sheet. We continue to be able to find financing for our customers that have good projects. We are a Company built around the high yield markets and understand leverage. And lastly, we will consider any and all strategic options in order to exit this period and begin a recovery with a more competitive franchise.

This attitude, we feel is unusual among our companies in our industry and we think a differentiator for Terex. Also we believe that infrastructure spending is going to be a major investment area, not just for the United States but globally. We think our products are well positioned for this future opportunity. We feel we can build a better business in these challenging times, like we have done before. We realize that our business will be at its worst period when the financial markets begin to improve. It is during these inflection points when value can be created. We expect to be reaching for opportunities as -- although we cannot predict success. We would not exist today without these periods in the past. So while we do not embrace this uncertain period, we do seek to take advantage of it. The lack of stability and predictability of our current environment is more problematic today than I've seen it in the past. So this needs to improve before any actions can be taken. Nevertheless, we think there will be a time in 2009 when progress will be made.

We do expect in 2009 to be a profitable Company with the first half weaker than the back half. I thank you for your support in the past and I ask for it in the future. Now I'd like to turn it over to Phil who will cover 2008 and the current business climate in similar detail. Phil.

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

We generated $219 million of cash from operating activities in the fourth quarter as we battled with the deteriorating economic conditions. This was achieved with heightened management focused on reducing our incoming material, work force and production levels while managing our customer receivables to secure our positions and minimize our risk. We appreciate the assistance of our strategic suppliers to work proactively with us in rescheduling to the expected demand. We continue to effectively finance our equipment sales through the use of financial partners while minimizing our exposure unlike some of our competitors. We ended the year with $3 million of financial services assets on our balance sheet. It is all about managing for cash. From a liquidity standpoint we ended the year with $484 million of cash and cash equivalents and availability on our revolver of $583 million, and we are in compliance with all of our covenants.

On a perspective basis we are in discussion with our banks to provide relief to our fixed charge ratio given the expected earnings decline in relation to the carry-over of fixed charges which include interest, cash taxes, share repurchases and capital expenditures for the last 12 months. Given we suspended the share repurchases in August of last year, this will become less of a factor after the second quarter of this year. Our net leverage ratio is well within required levels given our continued positive liquidity position. We expect to be successful in resolving this in the first quarter.

Return on invested capital of 19.2% excluding the impact of the goodwill impairment was less than our target of 23% for the year as we were unable to reduce our inventory quickly enough in line with the dramatic drop in sales volume as well as the declining profitability for the steep economic decline experienced in the second half of the year. Business climate changes quickly in our industry. We were up 22% in net sales and up 29% in operating profit in the first half of 2008 compared to the 2007 period, while the second half net sales declined by 4% and operating profit by 50% for the total Company. As Cranes and Mining were able to somewhat buffer the accelerating sales declines in the other businesses while incurred cost besides our resources-- while we incurred costs besides our resources to the expected demand. Material input costs also increased significantly in the second half. We responded quickly to these items to focus on reducing costs and the flow of inbound inventory and on increasing cash generation.

Let me switch to a noncash item. As indicated in our third quarter 10-Q, we disclosed the potential risk of goodwill impairment related to our Construction and Roadbuilding businesses. Given the continued decline in customer demand and continuation of slow market conditions, our annual impairment test in the fourth quarter indicated the need to fully impair the goodwill in the Construction, Roadbuilding and Utilities businesses. The pretax charge was approximately $460 million or $4.84 per share in the fourth quarter. The share count and effective tax rate weighting implies a full year impact of $4.60 per share. After finalizing our review we determined that no identifiable asset impairments other than goodwill were required. Excluding the impack of the goodwill impairment our income from operations for the fourth quarter declined by approximately $172 million. The high level variance analysis indicates material costs inputs increased $68 million, most significantly in AWP, Cranes and Material Processing & Mining. The combined volume reduction and price impact on margin was $96 million. We incurred $22 million mainly for the impact of adjusting our production level and other items net to a positive $14 million impact over the prior year.

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

Last week we announced that we expected that our earnings per share for 2008 would be 5% below the low end of the previous guidance of $5.69 to $5.79 per share. Excluding the goodwill impairment and costs associated with the production level reductions or approximately $5.41 per share. The comparable actual results were $5.50 per share due mainly to the finalization of our tax calculations.

As we look to our outlook for 2009, we were tempered by the order rate in the fourth quarter and also with the reality that our Cranes and Mining businesses were not immune to the affects of the economic crisis. While order rates continued to soften in AWP, Construction and Material Processing, the Cranes business in particular in the tower and rough terrain crane product lines experienced significant reductions. A substantial percentage of the unpriced Crane backlog for 2009 failed to materialize into confirmed orders. With that backdrop, we expect our 2009 net sales to be 30% to 35% below 2008 levels. The-- excuse me, the translational effect of foreign currency exchange rate changes accounts for approximately 13% of the decline. So this implies volume is down roughly 20% year-over-year.

We expect 2009 net sales in AWP, including the Utility products, to decline by 35% to 45% with the remaining segments of Construction including Roadbuilding, Cranes and Material Processing & Mining each to decline 25% to 35%. We will expect the cash flow in 2009 will be driven largely by working capital improvement, particularly inventory levels as overall volume declines and we drive our production more in line with demand. A target of 23% of fourth quarter annualized net sales and working capital at the end of 2009 implies the cash flow generation of greater than $500 million excluding the currency impact from this item alone. With that I'll turn it over to Tom to discuss end markets and operating environment.

Thanks, Phil and good morning, everyone. I'll cover the current views of end markets and business conditions by segment and discuss how we're changing Terex to adapt to the current business climate. It all starts with one simple approach, we are managing our business for cash. Most of our businesses are experiencing continued reductions in incoming orders with the orders in the backlog being canceled or deferred. We are very focused in each of our businesses in managing our sales inventory and operations planning process to quickly adjust our build and material ordering in line with this rapidly changing market. We are aggressively working with our key suppliers not only reducing [tier] requirements by canceling or delaying orders but also reducing the cost of parts and material. Most of our steel and other commodity pricing is reduced from recent peak levels but we are still experiencing higher material costs than last year. We will not see a significant improvement in costs until later this year based on material already in the pipeline.

The rapid downturn in schedules to our suppliers along with material pricing negotiations has been a clear challenge in working with our supply base. That said we are pleased with the cooperation we are seeing from the majority of our supplier partners.

The marketplace for each of our businesses is somewhat different but there's a common approach we're taking throughout Terex. Where we have finished goods inventory we are working aggressively to sell to end customers making sure we are shutting or slowing down our factories faster than the sales rate decline so inventory continues to drop. We are focused on improving our retail financing not wholesale financing, working with our Terex financial services team and outside financing partners so that customers who have good business prospects during this credit crunch have funding. We are closely monitoring inventory and receivables in our various dealer (inaudible) channels and working to reduce total channel inventory in line with the business levels that we are experiencing.

Many of our competitors have much more extensive inventory builds than we do and are also reducing pricing along with extending terms. As a general rule, we are not extending terms and certainly not where we could jeopardize the quality of our receivables or our customers credit position. That said we are aggressively working to maintain share. These competing priorities require clear communication and close scrutiny of any potential deal. The basic message here is we will capitalize on what business there is, manage our Company for cash and we will not transfer an inventory problem from us to our customers.

Let me go through each of the segments. Our Aerial Work Platform business was down significantly in the quarter, nearly by half compared to Q4 2007. With the flexible team and lean business processes we have, we managed to significantly reduce build schedules and costs quickly resulting in a slight loss for quarter. If we exclude restructuring actions we were slightly profitable. AWP continues to generate cash and inventory finished 2008 at it's lowest level since 2006. Receivables are down dramatically from a year ago with DSOs about equivalent. We are very focused on defending our share and not extending terms to do it. In general, we saw AWP rental rates and utilization in Q4 down 5% or less for most customers. Since then however we are seeing continued declines in rates and utilization with fleet sizes continuing to be reduced. In many markets our customers have limited visibility to future project work. Our European customers are generally more pessimistic for the near term prospects than our US customers.

Our Construction business was down in Q4 significantly driven by markets in Europe, Middle East, Russia and elsewhere, being challenged with credit availability, energy price drops along with commercial, industrial and infrastructure project delays. Revenues were down 37% along with a significant operating loss from volume, material costs and restructuring actions. Most of our restructuring and staff reductions in the US and UK have been announced and are taking affect and we continue to work through the co-determination process with our works (inaudible) in Germany. As we are not vertically integrated we are already seeing inventory reducing from Q3 levels. This team is very focused on our sales, inventory and operations planning process as I described above. Product and overhead cost reductions and managing for cash by appropriate pricing levels along with retail focus financing in conjunction with Terex financial services. DSOs have improved by six days in the past quarter by active management including weekly cash calls along with being very engaged with channel inventories. Trends on residual pricing for Terex products appear to be in line with the market.

One bright spot in the quarter was the performance of our Cranes business. Excluding foreign exchange revenue was up approximately 16% with margins approaching 14%. However, the warning signs we discussed on last quarters call have turned into order cancellations and deferments for our smaller capacity cranes. Our tower cranes business, while a small part of our product portfolio, was the first to drop off. We have since seen drops in orders along with increased cancelation for truck cranes and recently with rough terrain cranes. Orders in backlog for the larger all terrain and crawler cranes have been consistent to date but we are watching carefully. We currently expect these larger capacity cranes that are produced in Germany to be steady for the first half of the year. We have launched new programs with Terex financial services with our Cranes business with good success offering retail based financing for end customer who are unable to find credit despite work being available. Market utilization rates and rental pricing are down with residuals generally holding steady.

Our Material Processing & Mining segment has been challenged recently mainly with the material processing markets. Overall net sales for the Mining business in Q4 were up slightly and Material Processing down significantly. Based on aggressive actions to reduce build rates in line with reduced orders, material processing dealer inventory is at reasonable levels. Networking capital for the material processing reduced in the quarter. We are taking structural actions to reduce the overhead and capacity in this business to match what we expect the market to be and again focus on defending our market shares. Our Mining business has seen some cancellations in requested delays of product delivery particularly in our [drill] products which is is our smallest product line. Incoming order rates have slowed. Similar with Cranes we expect the shovel and truck to be reasonably stable in the first half of this year. While there have been numerous headlines in the media on capital spending reductions in this marketplace our current Mining backlog has reduced about 10% for prior year levels.

The Roadbuilding and Utility segment had a solid quarter for this environment with revenue about flat and profit neutral. As we said in Q3 our US business remains challenged with our South American business doing very well. We are not anticipating a noticeable recovery in this segment from the stimulus package recently passed in Congress. As previously announced these two businesses will be consolidated with other segments in 2009 with Utilities business joining the AWP segment and the Roadbuilding business joining our Construction segment. Our business in emerging markets has also slowed in most areas although Latin America is reasonably solid. Russia and India have experienced dramatic slowdowns and even China has moderated. While there are some key projects still in early stages of ramp up, such as the Panama Canal expansion project, private development and some public projects have stalled in many geographies.

On our overall Terex basis we continue to review all of our business operations for cost reduction and cash generation opportunities. All capital expenditures are being closely controlled and cash flow and customer receivable positions are being closely monitored in each business. As I stated earlier, we are clearly running the business for cash. I believe we have an appropriate balance for short term focus on results without jeopardizing the future. Despite the rapid downturn in many of our businesses we reduced working capital meaningfully in Q4, over $200 million. This took place even as the total Terex revenue dropped by over 18% meaning we took production down more than this. This clearly will continue in 2009 until we have orders, inventory and production back to equilibrium.

Unfortunately this lower base of business requires less people. This downturn is already resulted in over 5,000 Terex jobs lost or scheduled to be reduced since June 2008. That number will likely increase in the months ahead. That said I'm very thankful we have a skilled and dedicated global team at Terex that is working hard to satisfy our customers and improve our business. At this point I'll turn it back to Ron.

Thanks, Tom. I think you can see from Tom and Phil's commentary that there's a lot of activity underway and we're managing in the near term solely for cash. The bottom line is not nearly as important as positioning the Company properly. That comes from years of experience in managing in this industry, and the key to managing at this point in time is to insure that equilibrium is achieved between our manufacturing and selling processes. As we get greater clarity on our existing position, we certainly will share it with you and look forward to providing a more detailed guidance in future conference calls. Now I'd like to open it up for your questions.

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

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

Well David, I think trying to come up with a decrement-- decremental margin at this point in time is difficult as you know because you have a lot of moving pieces. One of the things that we are feeling reasonably good about is that our overall gross profits across the Company seem to be reasonably strong and staying pretty much as we expected. I think what we are handicapping internally is a variety of cross turns, changes in material costs when the-- with certain inflection points at certain times that will be dependent on how we use up material. Our ability to take headcount down, not just direct labor but indirect labor will have an important bearing on that. The fact that we have said, and I have said, that we expect to be profitable obviously assumes that your analysis if you do it that way will be above the break even line.

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

Sure. Well clearly with so much uncertainty at this moment in time, managing for cash at least from our point of view appears to be absolutely the right thing to do. We have the potential to generate significant amounts of cash just from the inventory on our own balance sheet. So doing that significantly improves our flexibility. We do think that the financial markets will improve somewhat as the year progresses. Exactly what and how, we obviously don't know, but we plan to pay close attention to that. But we also believe our existing businesses, our industry will lag that somewhat. You can -- opportunities get created in that environment. I would also say that we're going to look at our business critically.

We're going to look at various parts of our Company critically. I would not expect to own all of the pieces of the business that we own today. How much and exactly what I'm not going to say and I can't predict. But obviously we want to pair our product portfolio so we strengthen ourselves, add to our portfolio where we think it strategically makes sense and where financially there are transactions that are doable so that when the markets do improve, whether that be later this year or in 2010 or even later, I doubt if it's later, but when the markets do improve, we're going to have a much better, be in a much better position. And I don't expect to over lever ourselves in the process.

Okay. Thank you very much.

Your next question comes from the line of Meredith Taylor with Barclay's Capital.

Hi, good morning.

Good morning, Meredith.

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

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

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

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

Sure. Meredith, on the Mining side, very much it is a similar story, whereby by maintaining close connections with our customer base, which typically has 2/3 of it accounting for the major players out there in the mining world, we're able to understand what their current plans are as well as their future plans. And it's through that constant dialogue with the customers we feel we have a good handle on the backlog. Now clearly, what our customers do will influence us but as their situations change both up and down we feel that we're in tune with it and pull that into our sales inventory and operations planning process to make sure that our production schedules going forward and our material purchases are in line with the expected demand. So as best we can we feel that we're in balance with both the current and future needs.

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

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

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

Okay. Thanks so much.

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

Thanks. Good morning. Just with respect to the debt and the debt covenant trigger, can you just help me understand some of the clarity? I know this cross default, if you're defaulting on the credit agreement with the other fixed rate debt, but I guess I'm trying to understand that if you have to seek or get a waiver and if some subsequent bump in the interest rate to obtain that waiver, that consent, does that affect any of the interest rate on the other debt as well or is it just constrained to the amount you have under that credit agreement?

Just constrained to the amount under the credit agreement.

Which is $200 million--

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

And that was the-- so you have $200 million term on that credit agreement. On the $700 million you've got how much drawn on that?

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

$35 million drawn.

There's $35 million drawn at the end of the year and letters of credit make up the difference related to that.

Okay. So then again just-- so the interest rate expense exposure is limited just to what you've on the revolver?

And the term debt.

And the term-- well the $200 million term on the revolver.

And again, the max case would be the $700 million in revolver and $200 million on the term. Again we haven't drawn that much.

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

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

Thanks. I'll get back in the queue.

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

Good morning.

Good morning, Steve.

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

Steve, it's Phil. Again I'm not going to comment on specifics of our discussions with the bank group, but I think it's-- we have a very strong group and we've always worked well together. I don't expect anything totally unusual in resolving this.

Okay. And you've seen this coming for more than few weeks potentially. Are the negotiations contentious enough that you couldn't get this waived before you released your earnings today or did you just start?

Obviously-- no, I think-- I'm not going to comment on specific negotiations other than as we are putting together our projections for this year and certainly the affect of the trailing fixed charges that I've discussed, we saw that we needed some relief. And again I'm not going to comment on the specific discussions around it.

Okay. And then --

I guess the other point, Steve is again they're not contentious, we have a good group.

No they're not contentious and I would expect us to get this complete within a relatively short period of time.

Okay. Perfect. And then a follow-up, the expectation for the revenue decline of 30% to 35%. Is-- just in thinking about the cadence, is that down for argument sake 60% in the first half and 20% in back half? Or how are you kind of thinking about the cadence of revenue throughout the year?

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

Materials Processing is likely to be weaker in the first half because we are making sure we don't put excess inventory in the distribution channel. We've announced the factory closure and we expect that business will respond positively to economic stimulus. So we expect the second half will probably be a little bit better than the first half. And what have I left out? The Construction business probably is weak in the first half of the year mainly because Europe is having a very tough time. And so as I net all that out, that's how we've tried to put the revenue outlook together. Phil you want to take --

I think the other comment I would make is obviously our first half of '08 was quite a bit stronger than the second half. So from a percentage standpoint, it will show declines.

Right.

Relative to the second half of '09 I guess is what I would expect.

All right. That's good color. Thanks.

Okay.

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

Hi. Good morning.

Good morning, Jamie.

My first question, and David sort of tried to ask the question, but again on the assumptions of you guys being profitable in 2009, can you, can you walk me through based on the cost cutting initiatives that you've taken today in terms of reducing headcount, hiring freezes, eliminating salaries, how based on the actions you've taken today, and what type of savings can we expect in 2009 based on those actions? And then my second question is are there other actions that you're contemplating, which you can't talk to us about yet, but that could potentially happen that you-- or that you need-- are there other potential actions you have to take that we don't know about yet to remain profitable?

The second part of your question I would say is no.

Okay.

But relative to the first part of -- although on the second part of your question, the only thing that would happen is it would enhance our profitability, but it is not in my assumption-- there's nothing in my assumption that of being profitable that requires dramatic change in our current business portfolio. With regard to your first question, it's a very hard question for us to answer which is one of the reasons why we are not providing precise guidance. Because of the 5,000 people that are now out of the Company, probably the-- well the vast majority of them were production oriented people, okay. And the production oriented people actually-- they add value immediate value and their hours are absorbed in our cost. So it's easy to say we took 5,000 people out at an average cost of $50,000 a person and that's the amount of incremental cost reduction. But that doesn't work quite that directly. Okay. So-- and we were looking at material cost increases and negative purchase price variances pretty dramatically in 2008 and we expect that to change pretty significantly in 2009. So those are the cross currents that are underway.

I think our feeling and the reason we make that comment is because we had a very strong view of where we thought the performance, profit performance would be as recently as December. And when we went back in and then did our reforecast to that, we made some severe cuts in production that will cause some short-term disruption but nevertheless still leave us with a place-- at a place where we think we'll be profitable, reasonably profitable but it is hard to forecast right now. So I know it would be better if I could tell you exactly what the headcounts and how everything would work out but that's probably the best I can do at this point in time. Tom--

And --

The only thing I would add, Jamie is that we're kind of looking at a two prong approach here fundamentally. One is the, as Ron eluded to, kind of what we're calling the standard reduction in force based on volume reductions. And the second piece is more structural change as it relates to plant closing, plant curtailments and product line relocations and SG&A reductions. And those take a little more time and obviously are in various stages of getting announced and execute against. So I think there's been very good progress on the reduction of [floor side] and we've got more work to do on the structural cost side.

And then just bigger picture, I just want to make sure I understand your economic assumption behind you remaining profitable in 2009. So bigger picture, do we expect this stimulus in the US or China to begin to help in 2009? I just want to understand bigger picture what your -- because you made a comment too you expect the financial markets to improve in the back half of the year. I just want to make sure I understand your economic assumptions behind your remaining profitable.

Yeah, I feel like as we are in this current economic crisis, things will improve from, from here as opposed to things continuing to deteriorate from here. Just as a general comment. I think the infrastructure investment is a good start in the United States and we feel very positive about that. I would like to see it actually work its way through to real projects getting started before I jump on the band wagon and start saying it is going to help our business but that has the potential to help our business quite meaningfully if it can take the fleets of Aerial Work Platforms that are currently less utilized today than they were before and put them back to work and give our customers some greater cash flow so that they can begin to purchase and manage their fleet better. And that could happen as early as the latter part of this year although we're really not banking on that. Okay. But I'm also not banking on a depression, going from here to a dramatically worse economic position.

And then my last question, strategically, Ron. When I think of the Terex as it exists today, you were always a play on infrastructure but you had-- your diversification was a function of early, mid and sort of late cycle markets that counterbalance one another. As you think of the Company moving forward, should I think of Terex moving out of its existing sort of box and thinking well maybe, maybe we need relative to other companies your service aftermarket or recurring business stream isn't as great as I would say other companies or what I think you moving outside of infrastructure and in other market, I'm just trying to think of how, how broadly or-- you're thinking about changing Terex's existing mix of business?

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

Thanks. I will get back in queue.

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

Thanks. Good morning.

Good morning, Andy.

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

Well, Andy it's Phil. In terms of some of the initiatives and let's just reiterate a couple of these. The supply management initiative obviously has been underway for a couple of years and certainly that's even more important in the environment that we're in today to manage the production inflow as well as our cost profile. So I see that continuing. Certainly we'll look for efficiency opportunities and ways to leverage the resources we have as we go forward.

In term of the ERP implementation, we have reduced, excuse me, from 2008 levels the number of sites that we had planned to implement. So we have taken some reductions year-over-year relative to that. To be realistic in terms of the current environment, we'll continue to look at that to see where we can minimize costs while accelerating the impact of that because that would provide better information to make better decisions about generating cash flow. So we look at things in terms of their cost, pay back, as we look at that. With the smaller company, order of magnitude down 30% to 35%, we have to look at all our fixed costs in terms of where we can improve what we're doing and do it more efficiently. And we'll look at what we can do to eliminate work and do it more efficiently not necessarily just squeezing things.

Right. And to consolidate some activities. There's a number of activities that we are along the path but not complete of being able to do that if we can push it to the, to the completion point, we'll be able to do activities more efficiently in the back room processing of some of the things that we do as a Company and do it at a-- do those well and do it at a lower cost. And that's what I'd expect to continue. And I don't want to waste the investments we've already made, to be perfectly blunt about it. I want to see them through to conclusion.

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

Since others may have a similar question, let me just get that for a second. The $21 million or $22 million is what I'll work off of, Andy. AWP order of magnitude in total l is about $11 million, Construction about $5 million, Material Processing $1 million, Roadbuilding and Utilities $2 million and then Corporate had some as well, $2 million to $3 million.

Okay. Thank you very much.

Okay.

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

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

In terms of cost reductions, Ted?

The benefit of cost savings.

Yes, I think as you can appreciate, this is Tom Riordan. As you can appreciate there is, as Phil detailed out, one-time costs for severance and other items that go with any kind of transitional change in overhead structure. So we in general I would say the cost is going to be more weighted toward the first half of the year. I think the benefits will -- I'm sorry, Phil?

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

Right. Right.

Exactly.

Maybe a better way of put thing is as you can appreciate, with the different businesses that is are at different stages of the cycle here so to speak where AWP, Construction and then Material Processing have been kind of sequential moving down and it is just recently where we're getting into concerns on the lower end of the Cranes business and obviously very closely monitoring Mining. So we're going to have kind of a cascade effect by business as we go forward here. I would suggest that most of the structural changes should be announced by Q3 time frame and then depending upon exactly what comes out of that we would see cost effect later than that, meaning towards the tail end of the year potentially depending upon what exactly is going to be executed, partially because there's a wide variety of options as we continue to deep dive in some of our businesses in terms of pruning product lines, closing plants, relocating product lines and all of those things have got obviously different time and cost impacts that go along with them, but simplistically.

First half is headcount reduction and the second half--

Is structural.

Is going to be the structural stuff. And I think-- and structural as well as material cost reductions.

Okay.

Correct.

Because the first half we are probably not yet going to benefit from some of the purchase price reductions that we have already negotiated but we're working through the inventory. So general first half people reductions done but paying a higher cost because of material costs and the structural not yet totally complete. Second half material costs and structure should benefit. So that's why I net out saying we're going to have a more profitable second half than first half generally.

Okay. That's helpful. Thank you. And then secondly, we've obviously all been following the US fiscal stimulus pretty closely. A lot of countries in the EU have announced plans to pursue similar initiatives. Just wondering if you could give us some color on how you're thinking about the bigger countries in Europe that would relate to Terex's business there?

Tom.

Well, the United Kingdom is certainly struggling, much like the United States, and it-- we don't have much visibility on, on their progress at this stage. I think they're trying to encourage the same things that we're trying to encourage. We have a reasonable amount of business in the United Kingdom between our number of factories and our-- the amount of sales we have in Aerial Work Platforms, Construction equipment et cetera. So I think that stimulus is going to help. I think London Olympics is going help. And-- but I think it's a struggle a little bit. Germany also we have very strong presence in Germany. The Government announced a number of initiatives in Germany to stimulate their economy. I think we are like everybody expecting those to be positive but not necessarily banking on it. And so we're, we're managing our business almost like it's going to have little or no effect but the reality is that we hope it does.

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

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

Okay. And final question, on the term debt and the bank debt, any sense for how much of that is held by the banks and are there any nonbank entities where there's a hedge fund or activist fund that are holding any of that [bad debt] or are party to negotiations?

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

Okay. That's helpful. Thank you.

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

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

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

Yeah. And in general I think the raw material work in process is much more unique to a given product line. I think the-- when we specify steel fabricated parts, et cetera, it tends to be very much product unique. We don't have a whole lot of multi-site production product lines, meaning we're not making large crawler cranes anywhere other than Zweibrucken Germany as an example. So the challenge becomes working through the individual business supply pipelines, which we're doing I think reasonably effectively. As I mentioned there's a big focus on making sure we've got our planning and deferral of any incoming materials very tightly buttoned up. We have been I think pretty aggressive in-- to very aggressive on various plant sites depending on the business in term of curtailing production rates recognizing we still have material there, but trying to make sure that we are focused on selling existing finished goods.

We don't see or expect any, what I would call, long term distressed assets out there. We're not building stuff that we don't need and that is not purchasable by the end market customers that we have got today. So we don't see any fundamental issues other than the market slow downs we're seeing and making sure that we're working effectively with customers and moving through the channel. Again key message here is we are not over loading, overburdening our customers with excess inventory, per Ron's comment and Bill's comment, we are being I think extremely judicious to measure channel inventory and making sure we're not distressing dealers or rental partner-- or rental channel partners here financially based on material we've got and "forcing it through the channel."

No I understand, and my question is almost the other way, it's just how much cash can you easily generate and the profit impact to the, a little bit uncertain depending on how much you have to, you may have to discount to get it down as you cut production. Are you able to split the inventory since it's not so fundable and the raw materials maybe do go directly up to one product. Are you able to split it by segments? You mentioned some of that in the initial commentary.

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

Yes, I think the key thing is inventory turns. We had inventory turns go down in 2008 and we had them go down because we didn't shut production down as rapidly as our sales went down. It's as simple as that.

Right.

Okay, overall. If we get inventory turns back up to where they were in 2007, it is a very large generation of cash. I don't know, Phil, what is that from 3.1 turns to 4.3 turns?

4.3 turns And I couch that as the target in terms of what we're looking at at the end of this year is 23% of total working capital. Virtually all of that is inventory reduction and it's greater than $0.5 billion.

And I have a couple of hundred million dollars greater than $0.5 billion. I don't know it's just you were using--

I took out FX in that and again it depends on what numbers you use.

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

Understood. Thank you, gentlemen.

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

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

Okay. Let me take that and others can chime in when I'm finished. I'm going to mention, I'm going to go through several of your businesses, Ann, if it's okay?

Yes.

Let me start first with our Construction business and our Construction business is, is obviously the most stressed. And it's the most stressed because the lion share of its business has been in Europe and it has gone from having a rather significant ramp up thinking that we were planning for substantial sales in Russia, the Middle East and a number of developing markets and as well as the reasonably strong home markets to all of the sudden facing little or no home market business and clearly the markets of Russia and the Middle East drying up to nothing. In that business, we make things like hydraulic excavators, loader backhoes and products where we have globally a relatively small market share. When you have a relatively small market share and you were dependent upon developing markets to help grow your business and those markets have all the sudden shut down, in order to liquidate inventory you're going to have to be aggressive on pricing, okay. And because the fundamentals of what we do aren't as well developed in that business as they are in others. And in that business, we have less to lose, although we're losing money, but we have less to lose because we need to absolutely convert that inventory into cash because it's not going to get better with age.

And that's another example of the Spanish market that I mentioned because we have a relatively high amount of inventory in the Spanish market. We are going to be aggressive there. So probably, short term profit pressure continues there, but a good, good cash decision for the Company overall.

If I can then turn to Aerial Work Platforms on the other hand, our Aerial Work Platform business we're being reasonably disciplined in. Relative to our competitors we are certainly not playing in the terms arena. We see some of our competitors offering extended terms. We think those have come back to hant some of our competitors. We see our European competitor probably discounting pretty heavily on price. We will not lose market share on price. We don't think we need to drop prices dramatically. It may be that we have to make some pricing adjustments, but we think we can hold up the margins here reasonably well because what we're facing and what our main competitors is facing is pretty similar and we want the market to recover, not to try and gain the last ounce of market share in that business. So that's that business.

In the Crane business, it's a, it's a business really of a couple of worlds, there's the European big crane world and then there's the American world which is principally a truck and rough terrain crane world. I think there's some good discipline in the American marketplace, but we have seen some price discounting and we have-- we do believe our competitors have more inventory than we do. And that-- in those market places we are spending our money with financing. We are using financing dollars and low interest rates to try and encourage our customers or distribution to retail the inventory. We don't believe we're going to have the same inventory push that our competitors have but believe we can hold the line. And in Europe, with our bigger cranes we have pretty much a specialty equipment line and there's very little pressure, at least that I am seeing, to take back prices because our customers really want the equipment still. So that's our Crane business.

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

And in the Mining area, it's really less about price and more about need and productivity and when you're in a bid it's about productivity and capacity, but once you get the bid that pretty much goes away. Did I miss a business?

No.

Okay. So I hope I answered your question, Ann. That's largely how we see it.

Yeah, that's great color actually, Ron. That's exactly what I was looking for. How would you expect your competitors to react particularly in the Construction segment? I mean I appreciate that you guys start to take cost out a little sooner than some of your competitors, and then Europe kind of fell off a cliff I mean faster than anybody anticipated. I understand how you're dealing with it. Your competitors are most likely not going to want to give up market share either. Do you expect some more irrational behavior in Europe in particular in Construction equipment? I mean how do you -- you've been through these cycles before and sometimes it gets very ugly if Europe. How do you think this cycle will shape out?

Yes, I think this cycle will be pretty ugly in Europe. I think it will be-- you've got, you've got the dynamics for that to be at work here. You've got a company like Liebherr, which is a privately owned company, and for them it's a little different metrics. Then you have [Ciott] and CNH, which is in a different place. And I think Caterpillar will be reasonably disciplined in Europe.

Volvo.

I think Volvo will be reasonably disciplined--

The Japanese--

And, well the Japanese are hard to handicap. The Japanese will be hard to handicap and it will be the Koreans that will attempt to really use price to get market share.

That's very helpful color. I appreciate that. And my follow-up (inaudible) back to the-- go back to the negotiations with your banks and I appreciate that it is an ongoing negotiation or discussion. Can you help us size the worst case and best case scenarios in terms of the financial impact of-- you renegotiate you get -- we want to try to kind of model best case/worst case, if you can give us any help, we'd appreciate it?

In terms of the increased interest cost? Is that what you're thinking, Ann?

Yes. Exactly.

Again I'm not going to comment specifically. I think there are enough precedents out there of renegotiations that you can probably do your research on. I think as I've indicated this is a fixed charge ratio, it's not necessarily a liquidity issue, which I think is very important. And the stress points are really over the next two quarters in terms of that ratio.

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

Right.

Yeah. And I appreciate that. And I appreciate that you're just going through it right now. And one final nitty picky, I'm not sure that I heard and I might have missed it, you outlook for restructuring by segment in the first half. In the first half where-- is it just more of the same and we should look at what you did by segment, which you gave us in great detail last year? Is it just proportionately the same in the near term?

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

Okay. I appreciate it. I'll get back in line and good luck out there.

Thank you, Ann.

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

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

Yes, Alex, we had quantified that and I'm doing the math. We ended the year with working capital at 26.7% of fourth quarter '08 annualized sales, that's how that's calculated. And we've indicated we've targeted 23% for the end of '09. However, you have to do the math, you need to take a little bit of currency out of that.

Yes.

That'd be noncash. But again depending on what your revenue assumptions are, it's more than $500 million, as others have indicated you could certainly come up with larger numbers.

Well, just a rough back in the envelope calculation, the under absorption, unless it's for raw materials, of course you wouldn't have any absorption issue on raw material, but if it were work in process or finished goods, the under absorption from running production low enough to do that, something like $1 a share.

Alex--

And I was wondering what quarter that would hit because if you were going to reduce inventory, I would assume that you would do it as soon as you could. So that would indicate that you would get a lot of under absorption in the first quarter. Is that correct?

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

Well I'm thinking of the overhead that's not absorbed into inventory.

Well, I would not assume overhead is fixed.

Yeah, I think that's--

No, no but it doesn't get absorbed into inventory at the proper rate if you run your production below this, the sales level. So therefore you have to charge this period and therefore, it is an expense of the period. It has-- unrelated to the sales.

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

Right.

Yes, we are not like a lot of other manufacturers which carry huge amounts of fixed overhead.

Okay, so it depends really on how much you have (inaudible). But it would hit the first quarter, whatever it is?

No, not --

More than --

It's going to flow-- there's not a specific lump that you're-- we have continual shut downs, it's not like there's a standing wave out there to turn.

No, but I was thinking you would probably do it earlier than later. Wouldn't you?

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

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

Alex let me give you some more specifics related to that, so you can to a better (inaudible) over year. Included in S&A we have approximately $3.5 million related to the restructuring charges that we've already taken, okay, in '08.

Okay.

We wouldn't have had that in '07. We had allocated about $3 million more of corporate costs to the Aerial segment in '08 than we did in the prior year.

Okay.

Part of it the (inaudible) as well. Bad debt was up about $3 million year-over-year.

Okay.

While our cost related to the typical kind of S&A functions, G&A, selling and marketing expense, excuse me, and engineering, we reduced approximately $7 million.

Okay.

Off of a base of $35 million or so. So there has been---

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

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

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

(Inaudible) Let me comment on it, Tim just a second. Again remember there's purchase price variance year-over-year.

Okay.

But I commented on in the release, let me just get back to my number. It was about $24 million on purchase price variance--

Okay. Alex in that.

So that's a big hit. The volume was really reasonable margin levels.

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

Okay. Thank you.

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

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

I think , let me-- Tom will correct me, he's looking at the book. I think we-- our receivables days year-over-year improved a couple of days I

Yeah, we're roughly at 40 days at the end of the year. We think we're properly reserved. We think we're proactively working with customers where we think there's some stress and we fully expect to recover what we've accounted for here.

I wouldn't be doing any job if I didn't comment on your issue of realizability. All that we have on the balance sheet we believe is realizable.

Okay. Great. Thank you.

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

Good morning. I'll, I'll echo Joel's thank you for sticking with us. I was interested in your comments about the truck and shovel business in the high end of the Demag product in the Crane business where you have good visibility for first half of year, or maybe a little longer, and what that might mean in terms of what you're seeing in current order activity. I heard you on, on truck and shovel. I suspect you were referring to strong order activity in the fourth quarter. Can you give us some kind of an update on what you're seeing right now, and what I am wondering if that influences the way you're managing production schedules in those businesses? In other words have you pulled production schedules down a little bit to try to stretch out the business that you do have in hand?

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

Yes.

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

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

And the current order environment, Ron?

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

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

Yes, I hope it's just their hands.

Yes, okay.

And I think it's waiting to see what the next events are going to be. I think we know that some of our customers want equipment, but we also know that they either can't get financing or aren't going to take the risk at this point.

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

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

And if you don't mind, could I just get you to clarify something you were talking about earlier, Ron. In terms of where you're seeing terms being extended to customers, is that primarily an issue in the European Aerials market?

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

Yeah, I think Europe's been a challenge but I think that-- I think we're kind of where we are. I mean it's no different, not a whole lot different no matter where you are.

I see, okay. Thank you.

Your next question--

We're going to try to wrap this up pretty soon, operator. Why don't we take two more questions.

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

Yes, good morning. I'll be quick here. You've got the wagon circled and you're waiting for relief I guess the seventh calvary and I expect the first thing that you would hope would happen would be some kind of infrastructure spending to be rolled out. And I wondered, Ron, can you, can you-- I'm sure you've given this a lot of thought, where do you think this kind of relief would come from first? I mean would it be in this country logically versus other places and would it happen at the state and local level? And could you even maybe indicate what kind of products that you might expect to be getting relief from first, if you follow my thoughts?

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

That-- the products that will be effected will be those products that work on roads and bridges, and those we have in our product portfolio. They impact our Crane business, they impact our Aerial Work Platform business, really it impacts almost our entire portfolio. But I'm not looking for that infrastructure build to be the key to our salvation. What I think is the key to our salvation is generating the cash that we know we can generate, husbanding that cash and making sure our cost structure is in line with our current revenue base. And then being in a position, as the markets improve, which they inevitably will, to capitalize on that quickly.

We have a terrific Aerial Work Platform franchise, one that has generated 20% operating profit. Okay. That business will go back up. Will it go back up in the fourth quarter of 2009, the first quarter of 2010, I don't know. Okay. Our Crane business, it's a terrific franchise, has been generating 14% operating profit right now, and can--- and continues to generate strong profitability. It's going to go through a period of weakness, not a terrible period of weakness, but a period of weakness. Our Mining business, we've taken the Mining business from being an afterthought to a completely strong business unit for us. And the Material Processing business, a 14% to 15% operating profit business, a strong business, the leader in mobile crushing and screening. That business today is down, not because the business is bad but because the market is bad. And our Roadbuilding business and our Construction businesses were businesses that we were trying to fix. Okay.

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

Thank you and God bless you all.

Thanks, Charlie.

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

Hi, Ron, how are you?

All right, Andrew, how are you doing?

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

Phil.

Andrew it varies by jurisdiction, obviously. But I'm not necessarily going to get through each partner, but I would say in the US we have approximately 15 or so partners that we are continuing to refine our base and distribute our base across multiple funders. So we don't have a concentration that I'm concerned about in that regard at this stage. I think in the past in the US we did have a large portion of our business with General Electric, frankly.

Yes.

And we've been moving away from that as issues that were rising there.

I don't think we funded much with GE at the end--

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

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

Not necessarily, Andrew. And given you're dealing with hard quality assets--

Yes.

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

Got you. No, I appreciate your answer. Thank you very much and good luck to you guys.

Thanks, Andrew. I'm sorry if there's anybody that we've missed a question on, please follow-up with our investor relations team. And, Brandy I think that will end the call, correct?

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