Terex (TEX)

Aerial Work Platforms (AWP) segment backlog decreased 87.3% as compared to December 31, 2007, and decreased 67.7% as compared to September 30, 2008, primarily due to a significant decline in demand during the fourth quarter as construction activity has dramatically slowed and many of the segment’s end markets have experienced 40% to 50% declines in demand. Many of the segment’s customers are aging their rental fleets until there is greater clarity in their future business prospects.

Construction segment backlog decreased 64.8% versus the comparable prior year period and decreased 45.1% as compared to September 30, 2008, primarily due to a significant reduction in construction activity in most end markets for this segment’s products. Backlog was also impacted by the translation effect of foreign currency exchange rate changes.

Cranes segment backlog decreased 4.0% when compared to December 31, 2007 levels, and was flat as compared to September 30, 2008 levels. As of September 30, 2008, Cranes had not accepted firm orders for a variety of crane types, primarily rough terrain cranes that were scheduled for delivery after January 1, 2009. Production volume for which firm orders had not yet been accepted, and therefore not included in backlog at September 30, 2008, approximated $648 million. A significant portion of these orders were cancelled during the fourth quarter of 2008 due to customer uncertainty regarding the global economic crisis. Backlog was also negatively impacted by a continued softening in orders for tower cranes.

Materials Processing & Mining (MPM) segment backlog decreased 14.0% versus December 31, 2007, primarily due to the translation effect of foreign currency exchange rate changes, and decreased 31.6% as compared to September 30, 2008, primarily due to recent softness in global commodity demand and continued weak demand for Materials Processing products.

Roadbuilding, Utility Products and Other (RBUO) segment backlog declined 24.7% versus December 31, 2007 and declined 17.4% as compared to September 30, 2008, mainly due to reduced demand for North American asphalt plants and concrete mixer trucks.

The Glossary contains further details regarding backlog.

2009 Update:

The Company currently expects its 2009 net sales to decline in the range of 30%-35% compared to 2008, approximately 13% of which is the estimated translation effect of foreign currency exchange rate changes. Segment net sales are expected to be affected to varying degrees due to the deteriorating global economy and resultant weak overall demand. As compared to 2008, the Aerial Work Platforms and Utility Products businesses are expected to be down 35%-45%, Construction and Roadbuilding businesses to be down 25%-35%, the Cranes business to be down 25%-35% and the Materials Processing and Mining businesses to be down 25%-35% in 2009.

Tom Riordan, Terex President and Chief Operating Officer, stated, “Given the negative general economic conditions and the resulting effect on our industry, we are focusing our actions on cash flow generation, and aggressively reducing production levels, incoming material and our cost base. This is balanced with a sharper focus on those initiatives that will complement these activities and improve our long term position.”

“In response to the global credit crisis, the Company began taking actions during the third quarter of 2008, and as the global economy continued to weaken, the Company accelerated its responses. Actions have been taken to slow, and in some cases stop, the production of our products and to reduce the Company’s workforce for those realities. Our strategic supply partners have cooperated well with the rescheduling of incoming material. While input costs, particularly steel, have begun to moderate, we don’t expect to see significant favorable impact until the middle of 2009 due to existing inventory levels. It is a very unfortunate statement, but in excess of 5,000 jobs, including the majority of our temporary workforce, have been or are expected to be eliminated as compared to our June 2008 employment levels.”

Specific actions taken include the following:

AWP – Since June 2008, the Company reduced the AWP global workforce by 34%. This includes the elimination of a significant number of temporary agency workers. A further 7% reduction in the workforce was taken in early February 2009. Additionally, temporary shutdowns of manufacturing facilities and shortened work weeks were implemented and will continue to be used to reduce production output as necessary.

Construction – Since June 2008, actions included significantly adjusting production lines, shortened work weeks, and reducing the workforce by approximately 8%. Further significant reductions in workforce are expected to occur over the next several months to adjust team member levels to meet expected customer demand.

Materials Processing – Since June 2008, production levels have been cut significantly and, as a result, the Company reduced its independent contractor manufacturing staffing levels. In total, 22% of the workforce, including independent contractors, has been eliminated. Additionally, the Company has used extended winter shutdowns and shortened work weeks to lower production levels even further.

Roadbuilding – Since June 2008, the Company reduced its workforce by 18% to adjust production levels and resources to meet expected customer demand.

Facility Rationalization – A review is being conducted to improve the utilization of existing facilities through consolidation, transfer or sale. Some consolidations are already in process and the Company expects further changes to take place in 2009.

Other general actions have included and will include a general hiring freeze, headcount reductions, eliminating salary increases in 2009 for management-level team members and significant reductions in executive long-term compensation ranging from 10% to 50%.

Cranes and Mining production and inventory levels are being monitored very closely to ensure that they remain appropriately aligned with expected end market demand. Production cuts and workforce reductions were implemented in the Cranes businesses in early 2009 due to decreased demand for rough terrain cranes.

Other key financial information for 2009 update includes:

Credit Agreement – The Company generated $218.8 million of cash from operating activities during the fourth quarter of 2008, and had approximately $484 million of cash and cash equivalents at December 31, 2008.  Despite the positive generation of cash during the fourth quarter, continued deteriorating business conditions in certain of the Company’s operating segments and the impact of historical fixed charges incurred on a trailing twelve months basis (for example, interest expense, cash taxes, share repurchases and capital expenditures) may likely cause the Company to be in violation of the consolidated fixed charge coverage ratio covenant under its credit agreement as early as the end of the first quarter of 2009. As a result, the Company has initiated discussions with its lead banks seeking to obtain a consent and/or amendment to its credit agreement. The Company will endeavor to obtain the consent and/or amendment during the first quarter of 2009 in order to avoid any potential default under the credit agreement.  Should the Company not be able to obtain such consent or amendment, there could be adverse consequences to the Company’s liquidity.

Assumptions – The Company estimates that for 2009 the weighted average number of shares on a fully diluted basis will be 97 million. Depreciation and amortization is estimated to be $95 million. Capital expenditures are estimated to be 1.25% to 1.5% of net sales.

Working Capital – Terex ended 2008 with working capital as a percentage of Trailing Three Month Annualized Net Sales of 26.7%. To improve its working capital efficiency in 2009, the Company has dramatically cut material input and production levels to reduce its inventory levels. The Company is targeting a level of working capital as a percentage of Trailing Three Month Annualized Net Sales for the end of 2009 of 23%.

Taxes – As the Company cannot reasonably estimate its 2009 earnings performance at this time, a reliable forecast of the 2009 effective tax rate for the Company cannot be made. The 2009 effective tax rate will be impacted by the mix of jurisdictional income and the relative size of permanent tax items, valuation allowance assessments and other discrete items to overall profitability.

With regard to the reported backlog, it should be noted that Terex has not accepted firm orders for a variety of crane types, primarily rough terrain cranes, which have scheduled delivery after January 1, 2009. This was designed to ensure that prices for 2009 delivery sufficiently reflect the demand environment and potential input cost increases of the business. Production volumes for 2009 that have not been included in backlog approximate $484 million, based on current pricing levels. The Company anticipates establishing pricing for these cranes in the third quarter of 2008.

AWP backlog decreased 46.8% as compared to June 30, 2007, and decreased 40.2% as compared to March 31, 2008, due to softening demand, particularly in Western Europe.

Construction segment backlog decreased 2.6% versus the comparable prior year period and decreased 26.5% as compared to March 31, 2008. Slowing compact construction demand in Western Europe, combined with the easing of some supplier constraints (which allowed for increased production levels), contributed to the decreased backlog.

As compared to June 30, 2007 levels, Cranes segment backlog increased 45.5%, due primarily to strong global demand. Compared to March 31, 2008 levels, Cranes backlog decreased 6.0%, due to crane orders received for 2009 delivery which are not included in the backlog because they have yet to be priced (as noted above).

MPM backlog increased 24.4% versus June 30, 2007 and increased 7.4% as compared to March 31, 2008, as global commodity market strength is driving higher demand for mining equipment.

Roadbuilding, Utility Products and Other (RBUO) segment backlog declined 12.6% versus June 30, 2007 and declined 6.2% as compared to March 31, 2008, as concrete mixer truck orders slowed.

The Glossary contains further details regarding backlog.

2008 Outlook:

Outlook: In July 2007, Terex provided guidance for 2007 performance, indicating that anticipated earnings per share for the full year would be between $5.50- $5.70 per share on net sales of between $8.8 - $9.0 billion. The Company’s current expectation is to report full year 2007 financial results that fall within this previously stated range.

Outlook: In July 2007, Terex provided guidance for 2007 performance, indicating that anticipated earnings per share for the full year would be between $5.50- $5.70 per share on net sales of between $8.8 - $9.0 billion. The Company’s current expectation is to report full year 2007 financial results that fall within this previously stated range.

BACKLOG

Our backlog as of December 31, 2006 and 2005 was as follows:

Substantially all of our backlog orders are expected to be filled within one year, although there can be no assurance that all such backlog orders will be filled within that time. Our backlog orders represent primarily new equipment orders. Parts orders are generally filled on an as-ordered basis.

Our management views backlog as one of many indicators of the performance of our business. Because many variables can cause changes in backlog, and these changes may or may not be of any significance, we consequently view backlog as only a modest directional indicator of future results. High backlogs can indicate a high level of future sales; however, when backlogs are high, this may also reflect a high level of production delays, which may result in future order cancellations from disappointed customers. Small backlogs may indicate a low level of future sales; however, they may also reflect a rapid ability to fill orders that is appreciated by our customers.

Our Aerial Work Platforms segment backlog increased $110.2 million to $653.8 million at December 31, 2006 from $543.6 million at December 31, 2005. This increase is primarily driven by growing demand for our products, particularly from our customers in European markets.

Our Construction segment backlog at December 31, 2006 increased $87.2 million to $322.7 million, as compared to $235.5 million at December 31, 2005. The increase was a result of increased demand for our compact construction equipment coupled with challenges associated with supply constraints.

The backlog at our Cranes segment increased $679.7 million to $1,132.3 million at December 31, 2006 from $452.6 million at December 31, 2005. The increase was primarily due to continued strong demand for our products combined with certain supply constraints. Our strategic sourcing initiative has identified additional suppliers to aid in addressing this issue in 2007.

Our Materials Processing & Mining segment backlog at December 31, 2006 increased $138.2 million to $396.9 million compared to $258.7 million at December 31, 2005. The approximate 53% increase in order backlog was principally due to our being awarded a

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