Terex Corp (TEX) 2009 Q4 法說會逐字稿

Good morning. My name is Brandy and I will be your conference operator today. At this time I would like to welcome everyone to Terex Corporation's fourth-quarter and year-end 2009 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 like to turn the call over to Ron DeFeo, Chairman and CEO of Terex Corporation. Please go ahead, sir.

Thank you, and good morning, ladies and gentlemen, and thanks for your interest in Terex today. On the call with me this morning is Phil Whitman, our CFO and Senior VP; Tom Riordan, the Company's President and Chief Operating Officer; and Tom Gelston, Vice President of Investor Relations. Also participating, either in the room with me or on the phone, will be Rick Nichols for the Crane segment, Tim Ford for Aerial Work Platforms, George Ellis for Construction, Steve Filipov for Developing Markets and Eric Nielsen for the Materials Processing businesses. A replay of this call will be archived on the Company's website, www.Terex.com,under audio archives in the Investor Relations section.

I'd like to begin with some opening commentary, followed by Phil Whitman, who will provide a more detailed financial report, and Tom Riordan, who will discuss operations by segment. I will obviously open it up to your questions at the end; and please allow for only one follow up, if possible. The presentation we will be referring to is accessible on the Company's website. Let me begin by referring to the forward-looking statement on page two. I'll remind you that we will be discussing expectations of future events and performance of the Company on today's call and that such expectations are subject to uncertainties related to macroeconomic factors, interest rates, government actions and other factors. A fuller description of the factors that affect future expectations is included in the presentation and in the press release and other filings. I encourage you to read them.

So now let me begin, turning to page three. I'd like to offer some overview thoughts on the recently-completed quarter and year, as well as our current view of 2010. Virtually all our comments today will be for continuing operations and as you might expect, there are a lot of moving pieces when you pull out the mining business. Firstly, continuing operations produced net sales level about $4 billion in 2009. This is more than a 50% reduction and reflects the massive industry contraction that has taken place within our product lines. We think revenue, though, has now stabilized. Manufacturing costs for Terex have been dramatically reduced, and we believe this confirms the strength of our business model, which has historically been focused on a combination of assembly and outsourcing. Our exposure is virtually entirely to the construction-related market, with not many offsets to other industrial applications at this point in time, nor do we have a finance company that generates income as a primary mission.

We've weathered the storm with excellent liquidity and with a mining sale due to close shortly for $1.3 billion of value we are in an excellent place to further develop the Company over the next year. We are excited about that potential. However, we recognize that our success is dependent upon bringing our remaining businesses back to profitability, and believe at the operating level we will be breakeven for the full year in 2010, and we are driving to the end -- to end the year with EPS profitability in the final quarter of the year, although this will be a challenging goal. We will be reluctant to speculate over acquisitions. These are hard to predict and we remain steadfast in our view that we have a variety of choices for using the capital. We will evaluate all options throughout the year. I know this report is somewhat difficult to understand with the variety of changes; however, I hope you'll find the presentation useful as we explain the performance.

Now I'll turn it over to Phil.

Thanks, Ron, and good morning. The key figures table, page four, displays the quarterly year-over-year and sequential performance of the Company. Given the pending sale of our Mining business and the sale of our Load King trailer business, we are reporting their results as discontinued operations. All figures in this presentation are for continuing operations of the Company, unless specified to the contrary. Net sales were down 36% from the prior-year quarter, or 41% when adjusting for the translation impact of foreign currency exchange rate changes. The addition of the Port Equipment business provided a 3% uplift to net sales for the period. On a sequential basis, fourth quarter net sales increased by 8%, with 3% related to the Port Equipment business and the remaining Crane business is showing the strongest increase.

On a consolidated basis we incurred a loss from operations in the fourth quarter of $90 million, compared to operating income of $7 million in the prior-year quarter, excluding the impact of the goodwill impairment charge. This is mainly due to the net sales reduction. I'm encouraged by the sequential improvement related to margin improvement, material cost reduction and absorption, which all improved over the third quarter of 2009. These were partially offset by unfavorability in warranty and transactional foreign currency, as well as less profit released from inventory than in the prior quarter. We continued to make good progress on cash generation from working capital reductions, which contributed $430 million for the full year. Our backlog is similar to third-quarter levels and down 46% from the fourth quarter of 2008. Net debt, including the cash from discontinued operations, which we will keep, was relatively flat sequentially, as working capital improvements largely offset the operating loss. Working capital reductions in the quarter would have been more significant; however, we stopped discounting receivables in our continuing operations, which had an unfavorable sequential impact of $68 million to this net debt figure.

Although not detailed on the chart, I will comment on the tax expense in the fourth quarter, as we took some discrete charges related to changes in our uncertain tax positions and provided a valuation allowance on the deferred tax assets of a European operation. In total these amounted to additional expense of approximately $0.27 per share for continuing operations. The loss from discontinued operations of $0.14 per share includes tax expense for uncertain tax positions and the removal of APB 23 assertions for certain mining subsidiaries to be sold of approximately $0.26 per share. We also incurred a loss due to costs related to the disposition of discontinued operations associated with the Mining and Load King trailer businesses in the fourth quarter of $0.12 per share. As indicated in the release, we also had pretax charges of $27 million for restructuring, or approximately $0.17 per share.

Referring to page five, this outlines the net sales trend for the last five quarters, demonstrating the relative stability of most segments during 2009 and the uptick in Cranes in the fourth quarter, which is somewhat related to the Ford Equipment business acquisition and solid demand for higher-capacity crane products. Page six bridges the $97 million change in operating profit from the prior-year's quarter to the operating loss for Q4 2009. The margin impact of close to $200 million on a net sales decline represents a decremental margin of 33% when compared to the prior-year period, including mix and pricing changes. Net restructuring, mainly associated with the reduction in headcount, was $8 million lower this quarter, with total charges of $10 million in the period, of which $2.5 million was in cost of sales and $7.5 million was in SG&A, while current-period capacity variance of $17 million and under absorption combined for an unfavorable $11 million impact over 2008.

SG&A and other costs of sales had a nega -- net positive effect, given cost reductions, profit released as inventory was delivered to third parties and reduced material input costs. These were partially offset by charges related to inventory and negative transactional foreign currency impacts. Overall, foreign currency translation impact was $10 million favorable. The breakdown in the causal by segment varies somewhat by issue, but is disclosed for transparency.

So let me refer to page seven, which shows our annual key figure table. I will not go through the detail on the annual comparison, but would point out that the continuing operations of the Company delivered significant profitability in 2007 and 2008. We believe that the portfolio has been improved by the changes we made in 2009 and is well positioned for the future growth.

I'll now turn it over to Tom for an operational update.

Thanks, Phil, and good morning, everyone. I will cover working capital improvements and cost reduction results for 2009 and then discuss the current state of our business. Let's move to page eight. One area that is always challenging during a business downturn is working capital, which has been a primary area of focus for Terex during 2009. At the start of the downturn in mid 2008, we made a very conscious decision to minimize the inventory burden to our distribution partners and customers. During the last 18 months we drastically cut production rates to reduce channel inventory levels. I'm very pleased we were successful in significantly reducing our inventories by $538 million of cash impact , excluding discontinued operations.

Our businesses have done a great job in selling off finished goods inventory, and working with our supply chain partners to minimize the inventory impact on Terex and our vendors businesses by adjusting schedules. As you can see, inventory turns and net cash days are beginning to move in the right direction. While working capital in total is still high as a percent of revenue by historical standards, this will continue to improve as we return to a more consistent run rate for the production. However, I will also add we need to be attuned to the short delivery requirements that our customers now have and we need to have appropriate levels of product available if we are to be competitive in the market.

Moving on to page nine, this is a chart we have shown to demonstrate progress in getting our business right-sized and costs in line with expected revenues. Overall we have reduced controllable spend by $246 million in Q4 2009 compared to our peak run rate in Q2 of 2008. This is a nearly $1 billion annualized run rate of cost reduction and demonstrates our ability to flex our business model. The Terex manufacturing teams have done a great job in reducing spending by 51% during this timeframe. Our commitment to cost reduction is continuing as we have recently reached agreements with the union representatives of the recently-acquired Fantuzzi business, or now known as Terex Port Equipment. That restructuring is underway, along with several other Terex businesses in the US and Europe. The Terex team perfe -- the Terex team members being affected throughout our operations are being true professionals about these required changes, and I'm very appreciative of the support and dedication they have shown while knowing they will be leaving the Company. I think this speaks volumes about the culture and character of Terex.

I'd also like to point out we have reduced our SG&A expenses of our businesses by 34% over the last 18 months. As we have discussed before, I think we have been very judicious in retaining talent for product engineering for new product development; IT professionals for the Terex management system, our ERP implementation; the variety of financing and risk professionals working in our Terex Financial Services group to find financing solutions for our customers; our Terex business system professionals are driving our broad-based Lean effort; our supply management team working on driving cost reductions with best cost country suppliers; and other critical functions. While we have been aggressive in reducing structural costs, we also need to improve our capabilities for future.

Let's move on to page ten. One of the things I'm most proud of is our continued focus on safety. Over the last three years we have been able to significantly improve the safety of our business operations. With the changes that have been instituted and the focus of our team members and leaders, we have prevented or avoided nearly 1,000 lost-time accidents over the last three years compared to our safety rates at the beginning of 2007. With all of the ups and downs we have seen during those three years, this is a remarkable achievement.

Let me give you a quick overview on how we see the current business environment today by business. Our Aerial Work Platform business remains challenged. We are seeing very consistent order rates over the last several quarters, but a no sign of a real uptick in either of the two primary markets; Western Europe or the US. We believe most of our larger customers will continue to wait for signs of improvement on equipment utilization and rental rates before any change in buying patterns occur. Virtually every order involves a trade-in package. With the current lower expectations around non-residential development, we do not expect to see much of an improvement in order rates until late this year or early next year. We are seeing increases in our plant production rates by running to retail demand, even at these reduced levels. In Q3 2009 we had our assembly lines down for over 30% of the time; and in Q1 we'll be down less than 10%.

Our Construction segment is seeing reasonable order rates for our compact equipment product line, both in Europe and in the US. Our dealer/partners generally have appropriate sized inventories for the current retail environment. With the limited inventory we have in the distribution channel, we are seeing a solid increase in production rates and hours worked at our compact facilities. Pricing is still very competitive. Our Construction Truck business remains challenged, with significant used equipment available and fleets being underutilized, and we don't anticipate an improvement in the business until later this year.

Our Cranes business will likely be soft to stable overall for much of this year. With tower cranes and lower tonnage mobile cranes having lower rental rates and utilization by our customers, we expect to see an order pattern similar to the last six months. Our higher-capacity mobile cranes are seeing better utilization rates with customers, and based on lead times for larger infrastructure projects we have better order visibility. Our Terex Port Equipment business is stable, with positive future signs. The dry goods index rates are starting to increase, along with container pricing. We also see some improvement in plant utilization, with shutdown days being reduced in most of our crane facilitates compared to six months ago.

At our Material Processing business we are seeing reasonable order demand, which is somewhat seasonal also based on low inventories at our dealers. By running to retail demand now versus reducing channel inventories, as we have during most of the last year, we are ramping up production rates compared to a year ago with very limited downtime. While we are not declaring victory, this business is off to to a reasonable start for 2010.

Moving on to the Developing Markets, we continue to invest in talent, plant infrastructure and products for these markets. We saw a double-digit increase in revenue for our business in China and parts of Africa, along with solid increases in South and Central America. Our new Aerials plan in Changzhou, China is on track to start up later this year. And the Hosur plant near Bangalore, India is making solid progress since it opened six months ago, along with continued growth of our R&D center near there. Additionally we have several of the facilities in the advanced planning stage in other areas. The majority of our CapEx over the next few years will be invested in developing market regions.

Let me touch on a few other items. Despite the dramatically-reduced inbound material purchases in 2009, we were successful in continuing to improve our material pricing. We expect this to continue for 2010, despite suggestions steel prices may increase later this year. Our teams have made solid progress, which will accelerate as material flows more consistently through our production plants. As I mentioned before, we have been very supportive on improving our new product development process, making sure that we have the talent required to accelerate our product launches. I'm very pleased with the significant number of new products being released in 2010 and 2011 throughout each of our business segments. Some of these are brand-new products for Terex, other are enhancements or product line extensions.

In addition all of that, we are on track for all of the tier four changes. We believe we are well positioned with very competitive products in our major markets as the recovery starts in the not too distant future. Lastly, while 2010 will be a challenging year, you shall note that about 70% of our forecasted profit improvement is based on internal improvements, such as overhead cost reductions we made in 2009, improved productivity and cost absorption in our factories, running our plants to retail sales rates, material cost reductions, smaller manufacturing footprint and so on. We are not counting on a significant improvement in our end market to drive our profitability improvement.

And at this point in time I'll turn it back to

Thank you, Tom. Turning to page 11 of our presentation, on this page, we provide some detail for our outlook for 2010. For net sales we are expecting about $5 billion. This reflects only a modest amount of growth, as the Port Equipment and currency assumptions contribute substantially to this change, although recent currency changes make this somewhat difficult to predict. Interest expense will be about $140 million, and we expect to end the year at about a $1 per share loss. Capital expenditures should be about $85 million and working capital as a percentage of revenue is targeted to be less than 30%. Turning to page 12, this highlights where we have been and where we are now and where we believe we are headed without acquisitions. This is an important page that we think frames the Company over the past several years, as well as our outlook over the next few years.Our goal is to double the net sales level by 2013 with a 12% operating margin, thus achieving a 20% growth rate and a 20% return on invested capital. This results in an EPS of about $6 per share in 2013.

So if I can summarize on page 13, we have strong franchises that have performed well in the past and we believe will do so again. The Construction segment should experience top-line growth and earnings performance will improve as we concentrate on the stronger product niches in this segment. Our Materials Processing business will be an early improving performer, much like we predicted for some time. Cranes will be choppy this year, but still improving with excellent potential from the Port Equipment business in future years. Aerial Work Platforms is dependent upon construction and infrastructure recovery in North America and Europe, and this will not likely happen until 2011. Developing Markets will continue to grow and have a net positive effect,and as Tom mentioned, we have several new product launches that will be important contributors in 2011 and 2012. Channel inventories and our focus on cash management in 2009 has positioned us to build to demand again in 2010, adding about a $200 million change -- positive change to our net profits. We will remain cost focused and the liquidity of the Company is strong, and we plan to keep it that way.

There is no doubt that Terex is a young company and consequentially still evolving. The base businesses we have are improving. This year market conditions will remain challenging, but better than 2009. We expect to continue strengthening the Company throughout this year and we appreciate your continued support.

Now I'd like to open it up for your questions.

(Operator Instructions). Your first question comes from the line of Jamie Cook with Credit Suisse.

Hi, good morning. It's actually Chase Becker in for Jamie. Just had a question regarding your comments on having to take market share to grow. I think, if you look at your core growth assumptions, it's assuming up about 10% for next year, just wanted to get some more granularity on where you're assuming you need to take market share?

Well, market share will come both in terms of some geographic expansion, as well as moderate share in some of our core businesses. I'm sorry, Phil, did you --

I was going to say a lot of the growth is in Construction.

Right. The construction change really will be both an improvement in the marketplace, as well as, we believe, the addition of some new distribution and some focus -- renewed focus on some of our compact equipment operations.

Okay. But just to be clear, the market share is baked into that 10% core growth number, correct?

Yes.

Okay. And then looking at the $200 million in production benefits that you're assuming, does that ramp throughout the year, and what segments should we expect that that's going to be impacting the most?

Chase, Tom Riordan. Yes, it will ramp through the year and, again, I would suggest, similar to the comments we made with our AWP business, effectively we think being flat for most of the year. You'll see a more steady improvement as they run to retail rate. Most of the benefit you'll see in the Material Processing and Construction segments.

Okay, great. Thank you.

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

Good morning. Actually it's Ingrid Aga in for Ann. Looking at your interest expense assumptions I'm assuming that you're not building in any debt repayment opportunities. Have you set any targets in that respect, or are you still trying to determine that?

Well, if you recall when we did our Mining sales presentation in December, I think it was, we have the requirement when we have sale proceeds from divestures to commit to reinvesting in the business in our bank agreement within 300 days of receiving those proceeds, so that basically looks through most of 2010. That's our first priority to invest in CapEx, as Tom mentioned, in developing markets, as well as looking at acquisition candidates. We have not included any debt paydown in the interest expense calculation for 2010 yet. So we'll evaluation where we are with acquisitions in that timeframe and look at what we do as we go forward.

Okay, great. And then if you could just give us a little more color on the backlog, when exactly would that hit your sales, when would it translate into sales? Would it be 2010, 2011, 2012?

Yes, the definition of the backlog that we use, Ingrid, is it's deliverable in the next 12 months.

Okay.

We may have orders beyond the 12-month delivery, but we don't count that in the backlog figures. So most of the backlog is related to our Crane segment, the larger equipment, which tends to have a little longer lead time than some of the quicker materials. But it's all within 2010.

Oh, it is, great. Thank you for the clarity.

Yes.

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

Hi, good morning. I noticed that you had a goodwill charge in the access equipment [genie]?

Yes, related to our trailer business.

Oh, that's the trailer business alone?

Yes.

Okay. Was there any charges during the year other than that in the access equipment?

No, sir.

Okay. All right. I wouldn't have thought so, because basically there are only two companies in the world in that business. The second question is, for 2010 how much sales improvement is available to you simply from lower inven -- dealer inventory reduction? Let's say assume that end market demand is flat and let's say dealers' inventory is flat, what sales improvement would you then get to get back to that level of retail demand?

Alex, what the we have basically built into our plan is virtually no increase in dealer inventory. It is not our plan to push inventory into our channel. So what you will see from us is a couple hundred million dollar benefit for actually producing to the demand that existed in 2009 and we're expect to more or less repeat itself in 2010. So without really asking our dealers to take on a lot more inventory, just building to their retail demand, that's how we're getting a substantial benefit.

Yes. You mentioned the $200 million, is that sales or is that profit?

That's profit.

So that's the profit effect and what's the assumption on incremental margin there?

Yes, that's very challenging for us to predict.

Well, the $200 million is basically the absorption effect as opposed to the -- so you could argue on $1 billion increase -- $1 billion increase in revenue is 20% associated with that.

So are we saying the sales improvement would be $1 billion and the profit improvement $200 million just to get back to --?

Yes.

Yes. Again, that math is a little -- not exactly perfect, because we are producing as opposed to not producing in 2009 --

Right.

-- so our base revenue, which we had in 2009 of $4 billion --

Right.

-- just manufacturing that product provides a large share of that $200 million improvement.

Okay. All right, fine, that clarifies that a bit. Thank you.

All right, Alex, thanks.

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

Hey, good morning, everybody. My first question is on inventory. I think you laid it out pretty well, but I backed into 4Q inventory reduction of around $180 million quarter over quarter. I don't know if I did that math right because there's a lot of -- a couple of moving pieces there, and that would be a little bit -- basically the same has you did in 3Q. Is that about right?

I think that's close, Rob.

Do you have -- you guys obviously don't think there's any issues with the aging of the inventory, et cetera. Has that view changed at all? Can you comment on the aging basically, what's left?

No, we have accounting policies that require us to take reserves if our parts inventory is not moving in a certain period of time; and then when we -- if we discontinue a product or something like that we take those charges. That relates to some of the charges on inventory that I referred to in the fourth quarter. I don't call that out as a special or unique item, just that we did take some charges. Order of magnitude that might be $0.04 or $0.05, but I don't -- I think that's operational is the way I would term that.

And if I can ask one other. Phil, on the list of things you mentioned at the beginning, you mentioned warranty as being a little bit of an unexpected expense. Was that material and what kind of product was it? Well, I don't know how much detail you want to go into, but can you explain that a bit more?

Well, we've had some issues that, again, I'd call them relatively normal. There were no major recalls or anything of that nature, but they tended to be higher as a percentage of revenue than they were in the prior period. So if you took -- and, again, our sales went down 50% order of magnitude in some of these periods, so as a percentage basis it went up and stuck out.

But not as a dollar basis, it didn't really change that much?

The dollars went up somewhat, as well, but again, I wouldn't characterize it as major retrofit programs.

Okay, I'll stop there. Thank you.

Okay.

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

Hi. Thanks, good morning. I just want a clarification because your comments when you talk about the tax, if I heard you correctly loss from discontinued operations was a -$0.14, which included $0.26 a share in tax and I'm just trying to square that with the earnings release, page 15, the ROIC reconciliation, where the numbers seem a little different. What am I missing in that math? On the ROIC disposition it has income from -- income before tax of discontinued of $0.26 a share positive, and then after taxes of $0.25, which seems a bit different than the numbers you talked about in taxes.

Yes, when we do the ROIC calculation we try to look at an average effective tax rate over a period of time. We can go off line into more detail on that, but it's somewhat in the relation of how we do the ROIC calculation.

Okay. Is there a breakdown in the discontinued operations between the Mining and the Load King business that you can give us?

I won't give you the exact specifics, but let's say on the loss on disposition of discontinued ops of $0.12 a share, I would say virtually $0.10 is related to Mining.

Okay. And then one more question, and I'll get back in the queue. You had a comment where you're talking about how much time the line was down in AWP. I thought you said third quarter was down 30% of the time, in Q1 you expect to be down 10%. Can you tell us what it was in Q4?

It was in the 20% range and, again, that's -- just to be very specific, that's based on assembly lines, not necessarily plants. If you think about it, Charlie, if we add up all of the assembly lines we've got in our AWP business and how many days those are running are not in as a percent of the total. So again, ballpark Q3 was -- our assembly lines were down on average a little more than 30%, and Q4 a little more than 20% and in Q1 we think it'll be less than 10%.

Great, thanks for that. I'll jump back into the queue.

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

Thanks. A couple follow ups on the earnings outlook framework for 2010. Phil, on FX 6% assumption there, is that high $1.40 Euro/dollar and then can you translate in the context that it's flat -- or breakeven, rather, operating performance for the year what that assumes in terms of tailwind from that?

Yes, I would say -- and Ron mentioned, given the recent volatility FX is a little bit hard to predict. I would say we counted more from FX related to rates that were more prevalent in the fourth quarter than the current rates, so there is some headwind if we assume the current rates relative to that revenue side. On an operating profit basis I would say the range of risk there would be in the $5 million to $10 million range worst case.

Okay, that is helpful. And then on the Fantuzzi business, I guess you're implying about $350 million of revenues for the year, can you talk about how that looks throughout the year. Is there significant seasonality variance quarter to quarter, and then can you help us with where a range of margins that we should be thinking about there?

Hey, Rick, why don't you take that question, you're close to it.

Okay. It will be first quarter and fourth quarter more heavily oriented, with the middle of the year being slightly lower, and we're working at a breakeven business through the year.

That's helpful. And then lastly, Ron, I know you don't want to get into too many specifics here, but with regards to the strategic transformation maybe you could talk about the financial characteristics of businesses that you're looking about -- you're looking for here just in terms of trying to help people a little bit scope out what the potential might be?

Yes, Terry, okay. In an ideal world -- and, of course, we all know that ideal worlds only happen in your mind, but I think you can strive for an ideal world -- we'll be looking for higher gross margin businesses with gross margins in the 25% to 30%-type ranges, businesses that are less dependent upon the classic residential construction, maybe somewhat more diversified to the nonresidential construction. I recognize that nonresidential construction, or infrastructure-related industrial projects are now not in vogue, but it probably is a good time to be looking at those kinds of businesses because they'll be coming back. I think we'll be looking at businesses that have clear leadership positions in definable niches, and some of those niches may be in more traditional industrial applications, as previously said.

The dependency or the vulnerability on Asia is a question in our mind, because we'll want to understand the probability of an Asian-based manufacturer either penetrating those markets or maybe participating in the Asian markets, so that is going to be an important thing that we consider. And probably as much as anything, what's the reliability of the cash flow because we're going to want to have business that have proven cash flow positive generation. One of the challenges of high working capital intensive businesses is the difficulty in predicting cash flow, and we think we need to have some rebalancing a little bit in our product portfolio in that arena. Hope that's helpful, Terry.

That is helpful. I'd just throw one more question related to that, which is the time dimension. Are you optimistic you can do something significant in 2010?

It's almost impossible for me to say. Let's put it this way, what's worst that could happen? The worst that can happen is we pay back debt. That'll have a definable, specific return to investors, and as Markets recover we will then go back and actually have to finance whatever acquisitions we do on the back of that acquisition. So I look at it and say, on one hand, I don't want to rush because I don't want to just feel driven to go spend money in order to continue to transform the Company's portfolio. On the other hand, from a timing point of view 2010 is probably a good time period to find transactions of reasonable valuation.

That's very helpful. Thank for the help.

Your next question comes from the line of Seth Weber with RBC.

Hey, thanks. Good morning, everybody. Given your comments on -- it sounds like you think the Construction business is improving, should we start to think about the sale of that business or the restruc -- for the restructuring there being off the table at this point, that you're going to continue to have a go at it, and maybe how much of a leash are you going to give that business going forward and are there any kind of mileposts we should be watching for for profitability, et cetera?

Well, as I've always said in that business there are clear definable product niches where we think we can be successful and we're working those product niches aggressively and I think effectively, If you examine that a step further you can look at our compact equipment business, particularly that business that has been in Europe, and those are businesses that have had a history of having good market positions and double-digit margins. If you look at our Material Handling business, our (inaudible) product line, which has been a scrap handler, principally steel scrap, that's a business that has had a history of being a number one or number two player in that niche with strong operating profits. Not today and not over the past 18 months, as that business has gone through a dramatic change, but we think we're coming out of that.

We invested in the ASAV product line in North America and that business has had a strong history of decent profitability, and when combined with our other compact equipment products, we think we can make a go of that business in North America, which means that our articulated truck business, as Tom indicated, will be a difficult business in 2010, but that's very dependent upon nonresidential construction. So we think we've got a good niche in that product, but 2010 is not going to be a particularly good year. And there'll be other parts of that -- of the Construction business that we'll look at. We think we're making progress in the road building piece, particularly in Latin America. We're actually going to invest and build a new factory in the Latin American market to accommodate the profitability that;s taking place in that category. I won't rule out looking at strategic options for a variety of smaller pieces of the product range, but I don't think it will be the main activity. It'll be a sub-set of activities.

Okay, thanks, that's helpful. Just going back to your comment about capturing market share, can you characterize what you're seeing on the pricing environment? Will you use price to either go after or defend market share, and are you getting a lot of push-back from some of your bigger customers, say in the rental channel on the aerials business at this point?

Yes, Tim, you want to comment on pricing in the rental channel, because I think that is probably one of the areas where pricing activity is most pronounced, but I think it shows up a lot of times in differences in trade packages and requests. No doubt pricing is an important element at this moment in time. We don't think you're going to get a lot of market share by being the lowest-price guy out there, but we also don't think you can not be price competitive. You have to be price competitive. But, Tim, on the rental channel, you want to comment?

Yes, I would say, Ron, your comments on trade values are right on. The pressure that the market has seen on pricing in the last six to nine months has really been on the values placed on the trade package more than on the new equipment. At the end of the day it's a net calculation, but the real value focus has been on the trade side. And as we look at market share growth in 2010, really it's how you use financing creatively on one hand while managing the credit capability on the other side. So that's how I'd characterize the pricing today.

Okay. Thanks very much, guys.

Your next question comes from the line of Matt Vittorioso with Barclays Capital.

Morning, this is actually [Jung Kwan] in for Matt. Just a quick question on working capital, given the focus on returning to growth, at what point do you expect to have to invest in your working capital again to accommodate your goals?

Jung, in 2010, if you do the math on the percentage of working capital to sales it would imply about a $100 million increase from our year-end position, so I'm thinking we're going to be pretty flat in total. What's happening, though, as we start to produce,we are buying more material, which will be a source of cash related to payables, which drove down dramatically in 2009 as we cut our inputs down, so it is a discussion of working capital. There'll be some offsets. Inventory will go up a little bit, but overall flat I expect be flat to up about a $100 million in 2010. But inventory could be a little more and payables favorably offsetting most of that.

Got you, and then just if I could follow on with another question on the M&A environment there. Are you seeing more reasonable multiples today? What is the acquisition environment like?

Yes. The acquisition environment is very localized. It's very dependent upon a particular product category and I don't think you can say conclusively that it's either positive or negative. I think it all depends upon the segment that a particular business is in, the geography that a particular business is in, so it varies. The real test for Terex, and I think for anyone who wants to do acquisitions, is not the multiple on a looking backward basis, but rather the multiple on a forward basis after you implement the changes you want to implement as a result of making that transaction. That has been whereer Terex has historically done their best transactions . Initial 100-day plans, plans that have clear and specific cost reductions attached to them, plans that are not dependent upon sales increases, but rather dependent upon cost management and overhead reductions, and those are things that we will have to get comfortable with as we look at any merger or acquisition

Great. Thanks for the color, that's it for me.

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

How's it going?

Hi, Joel.

Does the $1 billion drop in your operating costs, does that include the Mining business?

No.

Okay. And then the rental CapEx, can you give us a sense of where the rental companies are really focusing? Is it more earth-moving equipment, a little bit aerials?

Yes, Tim, why don't you handle that?

I would say, at this point, Joel, the rental CapEx is -- well, what there is is spread even by between construction -- or earth-moving and aerials, maybe with a little bit more emphasis on the earth-moving at this point, but I think it's a little unfair to characterize it as one or the other, because customers at this point are really holding back to see how the year involves. Though I would say at the ARA show last week, customers were, on balance, guardedly optimistic and I think many are taking a wait-and-see attitude to how the spring involves; and if business picks up I think some of what they're planning on spending, which is not a tremendous increase over last year, but what they're planning on spent will be released as we get to the spring time.

Yes, but that's no doubt the equipment is being aged and if we go through this year without a lot of purchasing of equipment, particularly in the aerials category, the fleets are going to be quite old and quite in need of repair and --

Much higher operating costs to go with it than everything else.

So maybe we don't have a very strong 2010 from a [burst] of new equipment; but at some point the basic business models of the rental companies will require them to start doing new equipment purchases. So I think, Tim, that's a pretty accurate statement.

Yes, they're all bumping up on their 45-month --

Last, can you just talk about the OEM aftermarket mix at Fantuzzi?

Rick, you want to talk about that?

Sure. The aftermarket business is actually a pretty strong element of the Fantuzzi business. It's about 15% of the total revenue base and at one time it was 30%, so we're actively pursuing reengaging and recapturing that market for the business, and it is a significant margin producer, much closer to what we had with the Mining group. So it is a large contributor and we think we have an excellent opportunity to grow it.

Okay, thank you very much.

Your next question comes from the line of David Wells with Thomson Research.

Good morning, everyone.

Hi, David.

First off if we could spend some time talking about the Crane business. I guess there was a commentary in the press release about seeing a softening in large cranes at the back half of the year. Wonder if you could give us additional color on that? And that I guess on the third quarter call you talked about a firming up of tower cranes just wanted an update with regards to what you're seeing in the tower crane market right now?

Okay, why don't I let Rick handle that.

Okay. If I start with the larger crane business I still think we have pretty decent demand and pretty decent backlog in the, I'll call it over 300-pound crane category. it's not principally in the same markets that we saw in 2009, it's moving out of the European/US context and putting it into a developing market context, so we actually are seeing decent demand. We took a position where we ramped down production, but over the course of the last four or five months we have begun to take back up production closer to what we saw in, I'll call it the back half of 2009. So we're actually seeing some improvements in the order pattern for the larger cranes. From the tower crane business, we see the tower crane business stabilizing. The downturn typically took place in the late 2008 timeframe, we ramped down roughly 85%, Throughout the year 2009, we see slight incremental growth in 2010, principally in the Asia-Pacific market.s

That's helpful. And then touching back on the Aerial business and the Construction business, I guess there's been some commentary about increasing the amount of cross selling that's done between those two business lines. Strategically does that put your AWP business in a place where it risks damaging relationships at the rental level if suddenly you're competing to some extent by selling equipment to the same end customer that they would traditionally try to sell a fleet to?

Yes, let me ask Tim to answer that question, and maybe George can provide a comment or two. Tim? Well, maybe we lost Tim.

No, I'm here, sorry. I last you there for a minute.

Did you get the question?

I did not. Sorry.

Okay, I'll begin to answer the question. The question was, does the cross selling relationships that we're initiating have the potential to damage some of the relationships that we have major rental customers, and I'd answer that question categorically not. I think the rental companies that we had been doing business with at our Aerial Work Platform operations for many years understand our strengths. We will never jeopardize the relationships on the strengths of our current business to sell new products. We believe some of the cross-selling opportunities that we have could actually assist our rental companies and will be a tremendously additive value, but it will take some time to demonstrate that. It is a competitive advantage to be able to offer a rental company a broad array of both dirt and aerial products. Nobody can offer that broad array. Until the rental companies get comfortable that the level of service and the level of support will be at the premier level they'll be reluctant to buy. So I'm very positive about the way we've gone about this, which is really to get the best of our Construction guys and gals and the best of our Aerial Work Platform guys and gals and have them work together in a collaborative way. So I think I answered the question, Tim or George, want to add anything, Tim, first?

The only thing I would add, Ron, is that I think the addition of the ASV business and the product line that it brings in rounds out the portfolio of products that a rental company would want to buy and does buy, and we see that as a potential -- as a way to fill the gap on that. So I'm actually pretty excited. The activity we had last week at the ARA show with the Aerial team and the Construction team working side by side, hand in hand. talking to customers was actually pretty exciting.

And this is George. Also w We have really worked hard to ensure the aftermarket care for our end users. Deals and such is very similar to what their experience has been in the past, so I feel very comfortable that this is a net add benefit for Terex and the rental market.

And, George, as some of you may or may not know, ran operations at our Aerial Work Platform business when we acquired Genie back in 2002, so I think he has a pretty good experience based on what the customer expectations are for that channel.

Great. Thank you very much.

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

Morning, gentlemen.

Good morning, Robert.

You'll have to forgive me, I don't I've been keeping up with my continuing add. Can you help us a little bit with maybe some layman's explanation of why operating results for the divested operations were reported as a loss? You mentioned some tax issues in your prepared comments?

Yes, let me go through it, Rob. There's a couple of pieces and I'll refer to the P&L that's in our press release. And towards the bottom, you see the diluted loss per share by the continuing, discontinued and so on. You see loss on disposition of discontinued operations of $0.12 negative, so about $0.10 of that is related to the Mining disposition, and you might say, well why are you booking Mining in the fourth quarter, you haven't sold that yet. But based on the accounting approach to commitments that we have for things like investment fees and due diligence expense that we had, we have to book those in the fourth quarter. The Load King trailer business was the other piece related to that, so that's disposition. So when you go into -- and that's net of tax, as well. And then you look at loss from discontinued operations of $0.14. What I mentioned in relation to that is we had tax charges -- let me just get to my notes here -- a loss from -- okay. Where is it?

You're making me feel better. (LAUGHTER)

No, just he's looking for it in his notes, Rob. We've gone over this, you know --

Well, we had uncertain tax positions and we also had the APB 23-related assertions, which -- to dive a little bit more detail, but APB 23 means indefinite investment in foreign subsidiaries. If I'm selling those subsidiaries I have to book the tax associated with the earnings and profit in those foreign subsidiaries. So between that and the uncertain tax position there was $0.27 negative -- or additional expense in that figure of $0.14 that's their loss.

Okay.

(inaudible) two of your notes.

Yes. So that's one of the pieces related to the discontinued ops. And then I mentioned, on continuing operations, we had tax charges, again, totaling roughly $0.27, as well, related to a valuation allowance on a European operation, as well as adjusting uncertain tax positions. Does that help you?

Yes, it does quite a bit, actually. Thanks, Phil.

And then recall, Rob, that the restructuring cost that we booked pretax of about $27 million is about $0.17 a share, as well. That's for continuing operations.

Okay, thanks. We weren't quite sure what tax rates to apply. And then the other thing I wanted to ask about was the Crane business. First, just one little number. I wonder if you -- last quarter you shared with us what impact Fantuzzi had on backlog in that business. Could you give us that number from the end of the year, as well?

Hold on. Do you have another question while I'm looking here?

Yes, the -- my real question has to do really just my confusion about what we are -- what we're saying about the Crane business. You go into the year with almost $1 billion of backlog. I appreciate -- I think that you believe that given that level of backlog and what you see in the market that you think that business can be stable on a revenue basis, or even up, but I'm not -- I'm also interested in what's happening on an order basis and it's not clear to me how dependent your revenue outlook is on the fact that you have the $1 billion of backlog. Does that make sense?

Rick may want to get into that question, but let me answer your first one. There's about $200 million of backlog related to Fantuzzi at the end of the year .

Okay, thank you.

And what I would say, and I'll turn it over to Rick, is that historically the Crane business has lagged. In other words, it continued strong until well into a downturn and then it im -- and it starts to improve later, so the Crane cycle has historically been a little different. What Rick said and I just want to reinforce it is that while our view was that the larger cranes may still soften up somewhat, that is being offset a bit by developing markets' interest in the product lines. So whereas traditionally we would have expected the big stuff to continue to weaken for the balance of this year, we may be seeing some changes in that through developing markets. And, Rick, I think I -- maybe I haven't answered the whole question, but do you want to add anything to that?

Well, that's a good point. I'd also like to say, the fourth quarter we actually saw a real improvement in bookings, and really changed a little bit of our outlook on the year. I think Tom's comments early on said the year would be flat to slightly down. We're still looking at that as a -- I'll call a more pessimistic view, but the order rate, with our backlog moving down, about 4% sequentially quarter to quarter we're seeing more positive signs in the market and as Ron said, it's not coming from our traditional market, it's coming from other parts of the world. So we're cautiously optimistic. It is a late-cycle business and we still will see downtick in some of our markets, but other markets are really beginning to pick up.

Would that include the RT market, Rick?

Yes, I think the RT market in the US, most specifically, will be down and it will stay down through 2010. The upside we actually see in the RT business is the channel inventory has really begun to clear, so we actually believe there'll be a bit of a back-half uptick in the RT business just by clearing a significant amount of inventory we ran out of 2008 with and into 2009.

Yes, we feel our inventory is actually in better shape than probably our competitors' inventory, and in the RT product line we also have had some reasonable progress in Africa and in some developing markets.

Very good. Thank you.

Your next question comes from the line of David Raso with ISI Group.

Good morning, I apologize. An hour into the call my question ' a little bit long; and if you want to take it off line, I understand. Going back to the slides you put out with the Mining sale and you had that view of tomorrow revenue range for each business, with tomorrow being 2010 through 2013.

Right.

Just using that as a guidepost and tell me what -- how does your outlook now deviate from then? AWPs, the revenues came in at $838 million for the year. You spoke to tomorrow low-end revenues about $1 billion so, again, somewhat implying 2010 is $1 billion of revs. That's 31% AWP growth. And just doing that same math with other divisions, you have AWP of 31%, Construction up 16%, Cranes down 5%, then you add Fantuzzi, and Material Processing up 70%. So again, going through that, can you tell me how that changed, how are you viewing AWP versus that 31% bogey, Construction 16%, Crane down 5% -- which we talked already a little bit about -- and then Material Processing up 70%?

Yes.

I'm not sure if I'm hearing 31% AWP growth from the commentary on the call, so I'm just trying to make sure I understand the old framework and how we're viewing it today.

Go ahead Tom.

Dave, this is Tom Riordan. We may need to take this a little bit off line. I think without referencing the specific numbers you went went through, we're expecting some uptick, and I think, frankly, less than 10% in Aerial Work Platform segment, and, frankly, that also includes our utility business, which is in a little more robust position. On Construction we are looking at a fairly reasonable uptick in revenue. On the Cranes business you're pretty close. Relative to excluding Fantuzzi we think it's flatish, as I would describe it. And in Material Processing we are looking at a reasonable uptick in that business, as well.

But, again, Material Processing was a $1 billion business pretty recently and the percentage may appear high, but --

And again, recognizing, as we've been talking about and I think as you pointed out a little bit, as well, David, that a lot of this is driven around our belief of the channel inventories that we've got and virtually every business we have are at very reasonable levels with current realities and as such, (inaudible) to retail is going to provide a nice increase here.

I don't think the 31% number is a right number in Aerial Work Platforms, I think it's more in the high single-digits number from where are.

So you're swapping -- based on the base rate take down the AWP thought, raise the Construction? Those are the biggest deltas essentially.

Yes. Yes, principally that's right, Dave.

And then when I think through the profit margins -- and again, I'm not trying to pin you to a slide that you're trying to put a framework, I appreciate that -- but if you look at the tomorrow margin for each division, you had AWP going to pro -- going to breakeven for 2010. Given we're taking down the sales growth rate, is it fair to say that number is no longer the bogey breakeven for Aerial? I'm not saying you're not going to strive for it, but realistically is that a breakeven business in 2010?

Well, I think it's what we're after trying to get to. Maybe it's a small loss, but we think we can get pretty darn close. There'll be some off-setting factors; how strong is Latin America, how strong is Asia-Pacific, if we can get some strength there. There'll be some offsetting factors. The utilities business, which is in Aerial Work Platforms, may be actually a little bit stronger than we think. But we think this is a year where we've got to get that business at or around breakeven. And, okay, it's going to be very hard to do, our competitors aren't saying they can do it; but I think that's the challenge the management team has.

Because I think the framework before, and I guess now you just swap it a bit between Construction and Aerial. The Crane business looks like you're not using the old bogey you had before of roughly 4% margins in Cranes for 2010, that's essentially implying a flat profits in Cranes 2009 to 20010.

Yes.

You get about a 25% incremental in Material Processing, you're kind of earning the EBIT growth because you're growing the business a lot, but AWP and Construction are still those businesses where if you run the straight math -- and I definitely appreciate the overhead absorption that [Judy] should benefit from after what they went through in 2009 -- maybe you are looking at roughly 100% incrementals on both those businesses, and I'm roughing the numbers. Of those two, which of the -- which is the one where it's -- God knows nothing to layup right now, but which of the businesses that you'd say -- it's not even asking that much, even though it sounds like a big number, because Genie went from shutdowns, selling the high-cost inventory, to now they're producing in the lower-cost environment, or do I not appreciate that Construction has $150 million of savings, or just that compact business where you're getting the growth from is just that profitable?

Well, I think you can't discount the fact that we have to hold pricing and the pricing environment is unpredictable and we also have to achieve material cost reductions from our supply base. So there's at least three or four main variables that are going on here in these businesses. I don't think anything is a layup, but I think we have a pretty straightforward plan that, f executed, will get us the kind of numbers we're talking about.

David, how I would frame it is the business we're probably most comfortable with relative to how we get to the right answer is Material Processing and followed by AWP/Construction kind of secondarily for each. I think AWP's got a tough market ahead of us with, frankly, very limited headlights going into the market. And in Construction, again, we're encouraged by the impact of the cost reductions that have been made over the last 18 months, and we've got a little bit more to do there, as well, but -- and we're encouraged by the compact side of the business. We clearly have some challenges in the other niche businesses that Ron articulated earlier.

Of those two, AWP and Construction, which are the one -- if you had to pick one that the line of sight is just more obvious just given the overhead absorption issue?

It's kind of like your family, you love both your kids, David, so we're working on both of them, as well.

Yes. And if they don't deliverwe're going to depend upon the Cranes guys to come through for us.

And, David, one other comment. Don't forget we had one-time restructuring in these businesses in 2009, too, that you --

Yes, I'm trying to back that out. I'm trying to back that already. You are looking for Aerial to basically go up $80-ish million of revs, but need to get the loss trimmed by $80 million plus. In Construction, let's say that goes up from $200 million, $250 million, you are looking to take a loss, that was roughly $225 million, down to roughly $25 million to $50 million and that's how I'm getting numbers. So it is what it is. I'm just trying to get a feel to -- obviously it's a challenge, which business has the better line of sight.

I think you have your build.

And then real quick, big picture. You're looking to take a $4 billion in 2009 up to -- you said double, I'm looking at it more like $9 billion, but $8 billion to $9 billion of rev. From here to there, you're implying 25% 30%, maybe higher on incremental margins. Given the history of the Company it probably shouldn't be that challenging. I almost less question the profitability and more the top line. Just to be clear, that analysis does not include any use of that cash being tur -- or the balance sheet being turned into revenues. Those are core businesses getting into $8 billion to $9 billion?

That's right. And the way I'd characterize the revenue is we may not get the revenue in all the same markets that we got it, but we're going to get it into some other markets.

I appreciate it. Thank you.

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

Good morning.

Hi, Steve.

I just want to go back real quick to the tentative nature of some of the customers right now and one of the themes that I've heard from a lot of people at AED and some of the other industry shows recently is that people just can't get financing even if they wanted to buy equipment, so given the cash are you considering providing any financing for dealers or customers, or getting more creative with your liquidity?

Good question.

Oh, yes, Steve, it's Phil. In the US, in particular, we have over the last couple of years been using our balance sheet to originate leases. We've typically sold those off, but we have held some on the balance sheet. At the end of the year it's less than $10 million on our balance sheet for that. But given the liquidity we have we are getting more aggressive to try to be creative to generate additional sales. So, yes, that can have an impact, mainly in the US side relative to our business.

And mainly in US side just because credit is better non-domestically, or just you feel more comfortable here?

More technical reasons in terms of our ability to originate leases.

Okay.

(inaudible) some of the foreign countries.

And risk management. And we've also added some risk people overseas; and again, we may take recourse on deals, as well, but on the balance sheet typically is just the US.

Okay. And my follow up, you called out developing markets as a real growth driver right now and you laid out a pretty good framework for how you're thinking about potential acquisitions should they occur. I'm just wondering, is there a reasonable pool of targets that meet those criteria that you outlined, or is it more realistic for us to think about market share being built organically in some of those higher-growth markets?

I think the market share being built organically is the thing that we can probably control more of. I think the opportunity for acquisitions is always hard to predict and tentative. Not only does it take two consenting partners, you have to come up with a similar view evaluation and opportunity to secure an acquisition. So I think that's why we laid out the yesterday, today and tomorrow scenario in our Mining presentation, because we believe there is substantial value that can be created just within our existing franchises. And if you recall, back in 2000 -- you may or may not recall; but beginning in 2002, 2003 following the Genie and Demag acquisitions, the Company grew from nearly $3 billion to almost $0 billion in 2008, and over 90% of that growth was organic.

Right.

And a large portion of that organic growth was market based, but a large -- some of it was market share based in new markets. So while we've been reset, and it's been a reset for everyone, I think we can return to some level of growth again.

Okay. But domestically, at least, that growth is going to be predicated on some legislative things that you can't predict the timing of, like a highway bill or stimulus actually being spent, so in the meantime presumably acquisitions are a reasonable bridge to think about?

Yes, I think that's right.

Okay, great. Thanks for your time.

Your final question is a follow-up question from the line of Charlie Brady with BMO Capital Markets.

Asked and answered, guys, thanks.

Okay. Well, I thank everybody for their interest in Terex today and please follow up with Tom, Phil or myself, Tom Gelston first, hopefully, and appreciate speaking with you. Thank you. .

This concludes Terex Corporation's fourth-quarter and year-end 2009 earnings release conference call. You may now disconnect.